SOUTHERN POLYTECHNIC STATE UNIVERSITY FOUNDATION, INC.

Transcription

1 SOUTHERN POLYTECHNIC STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED FINANCIAL REPORT JUNE 30, 2014

2 SOUTHERN POLYTECHNIC STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED FINANCIAL REPORT JUNE 30, 2014 TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORT CONSOLIDATED FINANCIAL STATEMENTS Consolidated statements of financial position Consolidated statements of activities Consolidated statements of cash flows Consolidated statements of functional expenses Notes to consolidated financial statements

3 CERTIFIED PuBLIC ACCOUNTANTS, LLC INDEPENDENT AUDITOR'S REPORT To the Board of Trustees Southern Polytechnic State University Foundation, Inc. Marietta, Georgia We have audited the accompanying consolidated financial statements of Southern Polytechnic State University Foundation, Inc. (the "Foundation") (a nonprofit organization}, which comprise the consolidated statements of financial position as of June 30, 2014 and 2013, and the related consolidated statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Southern Polytechnic State University Foundation, Inc. as of June 30, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Atlanta, Georgia DATE 200 GALLERIA PARKWAY S.E., SUITE 1700 ATLANTA, GA FAX Members ofthe American Institute of Certified Public Accountants RSM International

4 SOUTHERN POLYTECHNIC STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION JUNE 30, 2014 AND 2013 ASSETS Cash and cash equivalents $ 173,988 Other receivables 194,723 Pledges receivable, net 173,118 Investments- certificates of deposit Investments 5,920,251 Net investment in direct financing leases 25,375,518 Land and buildings, net 1,196,556 Bond issuance cost, net of accumulated amortization of 311, $75,072; 2012 $0 Deferred loan costs 4,390 Assets limited as to use 3,611,607 Due from Southern Polytechnic State University Total assets $ 36,961,579 $ 388,926 4,277 89, ,373 5,025,581 26,706,065 1,278, ,500 5,587 3,650, ,951 $ 37,950,597 LIABILITIES AND NET ASSETS LIABILITIES Security deposits payable $ 4,271 Obligation under split interest agreement 5,565 Accrued interest 36,748 Housing construction payable 912,283 Revenue bonds payable 25,715,000 Bond premium, net 1,162,853 Repair and replacement reserve 1,487,515 Note payable 182,448 Total liabilities 29,506,684 NET ASSETS Unrestricted 2,078,157 Temporarily restricted 2,082,215 Permanently restricted 3,294,523 Total net assets 7,454,895 Total liabilities and net assets $ 36,961,579 $ 4,268 6,115 38,913 1,337,427 27,130,000 1,414,856 1,433, ,768 31,556,009 1,828,842 1,622,062 2,943,684 6,394,588 $ 37,950,597 See Notes to Consolidated Financial Statements. 2

5 SOUTHERN POLYTECHNIC STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED STATEMENTS OF ACTIVITIES YEARS ENDED JUNE 30, 2014 AND Temporarily Permanently Total Temporarily Permanently Unrestricted Restricted Restricted Net Assets Unrestricted Restricted Restricted Total Net Assets Revenues, gains and other support Contributions Program services Rental Income Income from direct financing leases Net investment income In-kind contributions Other leasing income Loss on extinguishment of bond debt Net assets released from restrictions $ - $ 588,629 $ 350,839 $ 939,468 $ 142,249 $ 544,315 $ 5 156, ,282 62, ,586 59, , ,723-1,132, ,132,062 1,602, , ,164-1,124, , , , , , (1,733,611) - 1,162,917 (1,162,917) ,713 (996,713) 427,451 $ 1,114, , ,723 1,602, , ,339 - (1,733,611) Total revenues, gains and other support Expenses: Program services: Academic programs and support University support Scholarships and awards Public service Total program services Supporting services: Management and general Debt service Rental operations Fundraising Total supporting services Total expenses Change in net assets Net assets, beginning of year Net assets, end of year 3,132, , ,839 3,943,424 2,316, , , , , , ,083 1,024, , , , , , ,504 1,783, ,783,229 1,983, , , , , ,402 1,096,412-20, ,047 6, , , ,196-1,099, ,099,888 1,646,375-2,883, ,883,117 3,630, , , ,839 1,060,307 (1,313,435) 257,122 1,828,842 1,622,062 2,943,684 6,394,588 3,142,277 1,364,940 $ 2,078,157 $ 2,082,215 $ 3,294,523 $ 7,454,895 $ 1,828,842 $ 1,622,062 $ 427,451 3,001, ,289-1,024, , ,504-1,983, ,871-1,096,412-6, ,196 1,646,375-3,630, ,451 (628,862) 2,516,233 7,023,450 2,943,684 $ 6,394,588 See Notes to Consolidated Financial Statements. 3

6 SOUTHERN POLYTECHNIC STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2014 AND 2013 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 1,060,307 $ (628,862) Adjustments to reconcile change in net assets to net cash used in operating activities: Loss on extinguishment of bond debt 1,733,611 Net realized and unrealized (gain) loss on investments (789,011) (445,330) Net realized loss (gain) on derivative financial instrument 125,698 Contributions restricted for long-term investments (427,451) Depreciation 3,767 3,522 Amortization of bond issuance costs 75,072 31,889 Amortization of bond premium (252,003) (31,790) (Increase) decrease in operating assets: Pledges receivable (83,818) 144,123 Other receivables (190,446) 10,000 Due from Southern Polytechnic State University (285,951) Increase (decrease) in operating liabilities: Accounts payable Security deposit payable 3 (3) Obligation under split interest agreement (550) (550) Agency funds held for Southern Polytechnic State University (28,126) Due to Southern Polytechnic State University 300,951 (337,953) Accrued expenses (2,165} (381,983) Net cash provided by (used in) operating activities 122,108 (519,156) CASH FLOWS FROM INVESTING ACTIVITIES Principal payments received on direct financing leases 1,330, ,060 Purchases of land and buildings 77,778 (802,115) Purchases of investments 543,303 (1,626,152) Proceeds from sale of forward delivery agreement 646,000 Proceeds from sale of investments (534,589} 320,633 Net cash provided by (used in) investing activities 991,895 (524,574) CASH FLOWS FROM FINANCING ACTIVITIES Bond redemption (1,415,000) (29,065,000) Proceeds from bond issuance 27,130,000 Payment of bond issuance costs (386,500) Proceeds from note payable (8,320) 190,768 Payment of deferred loan costs 1,197 (5,587) Net proceeds (disbursements) from funds held by Trustee 39,329 1,340,178 Net change in repairs and replacement reserve 53,853 (79,419) Proceeds from contributions restricted for investments in endowment 427,451 Net cash (used in) financing activities (1,328,941) (448,109) Net (decrease) in cash and cash equivalents (214,938) (1,491,839) Cash and cash equivalents at beginning of year 388,926 1,880,765 Cash and cash equivalents at end of year $ 173,988 $ 388,926 SUPPLEMENTAL DATA FOR NONCASH INVESTING AND FINANCING ACTIVITIES Project funds included in housing construction payable $ (425,144) $ 1,337,427 Interest paid $ 902,664 $ 1,421,900 See Notes to Consolidated Financial Statements. 4

7 SOUTHERN POLYTECHNIC STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED STATEMENTS OF FUNCTIONAL EXPENSES JUNE 30, 2014 AND Debt Service Debt Service Program and Rental Management Fundraising Program and Rental Management Fundraising Activities Activities and General Activities Total Activities Activities and General Activities Total Personnel costs $ 412,760 $ - $ 3,362 $ - $ 416,122 $ 455,071 $ - $ - $ 5,941 $ 461,012 Professional fees 100,431-24,268 1, ,388 82, ,175 2, ,003 Accounting and auditing ,027-47,027 12,295 10,239 22,725-45,259 Supplies and postage 73,609-6,978 6,693 86,280 74, ,046 85,739 Insurance permits 1,908 6,833 17,053-26,794 4,346 11,498 3,700-19,544 Telephone 16,105-3, ,631 21, ,294 Conferences and training 34,126-4,712 7,118 46,966 33,476-5,000 2,740 41,216 University support- computers 96,878-2,701 3, , ,510 1, ,476 1, ,437 Printing and publications 19, ,461 22,487 55, ,481 Travel and food 122,469-11,016 9, , , , ,497 Scholarships and awards 257,012-9,215 4, , ,805-2,482 13, ,716 Sponsorships 15,917-4,750 29,435 51,102 2, ,650 30,217 Event and activity expenses 218,369-2,447 64, , ,193-5,788 70, ,548 Debt service expense 3, , , ,788-7, ,356 Loss on disposal - 25,893 53,615-80,508 Contributions to others 4, ,666 9, ,318 Capital distributions ,075 Endowment expenses 158, ,159 87, ,562 University support - investments 247, , , , ,813 Bank and credit card fees 119-8,197-8, ,476-7,466 Depreciation - - 1, ,457-3, ,523 Total expenses $ 1,783,229 _$ '7'71,449 $ 199,743 $ 128,696 $ 2,883,117 $ 1,983,626 $ 1,103,308 $ 219,871 $ 323,196 $ 3,630,001 See Notes to Consolidated Financial Statements. 5

8 SOUTHERN POLYTECHNIC STATE UNIVERSITY FOUNDATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES Nature of activities: Southern Polytechnic State University Foundation, Inc. (the "Foundation") is a nonprofit Foundation exempt from federal and state income taxes under Internal Revenue Code Section 501(c)(3). The Foundation's mission is to be an advocate for the University and to receive, invest, account for and allocate private gifts and contributions in support of Southern Polytechnic State University in Cobb County, Georgia. The Foundation provides student housing to the University through direct financing leases. Significant accounting policies: Basis of presentation: The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). The Foundation presents its financial statements in accordance with the Financial Accounting Standards Board (FASB) ASC 958, Financial Statements for Not-For Profit Organizations as promulgated by the Financial Accounting Standards Board. Under ASC 958, the Foundation is required to report information regarding its financial position and activities according to three categories of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Unrestricted net assets are not subject to donor-imposed restrictions. Temporarily restricted net assets are subject to donor-imposed restrictions that may be met either by the actions of the Foundation or the passage of time. Permanently restricted net assets are permanently subject to donor imposed restrictions. Basis of consolidation: The consolidated financial statements of Southern Polytechnic State University Foundation, Inc. includes the accounts of Southern Polytechnic State University Foundation, Inc., SPSU Student Housing I, LLC, SPSU Management, LLC, SPSU Real Estate, LLC, SPSU Rose Drive Real Estate, LLC and SPSU Hudson Road Real Estate LLC. Intercompany accounts and all significant intercompany transactions have been eliminated. 6

9 NOTE 1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Significant accounting policies: (Continued) Contributions: Contributions received, including unconditional promises to give, are recognized as revenues in the period received at their estimated fair value less an appropriate allowance for uncollectible amounts. Conditional promises to give are recognized when the conditions are substantially met. Pledges receivable over more than one year are recorded at their discounted present value. The discounts on those amounts are computed using risk-free interest rates applicable to the years in which the promises are received. Amortization of the discounts is included in contribution revenue. The allowance for doubtful pledges is based on specifically identified amounts that the Foundation believes to be uncollectible. An additional allowance is recorded based on certain percentages of aged pledged receivables, which are determined based on historical experience and management's assessment of the general financial conditions affecting the Foundation's donor base. If actual collections experience changes, revisions to the allowance may be required. As of June 30, 2014 and 2013, the Foundation had no recorded allowance for doubtful pledges as all pledge receivables were considered fully collectible. Revenue recognition: The income related to the student housing facilities is recognized when earned. Donated materials and services: Donated materials and services are reflected as contributions in the accompanying statements of activities at their estimated values at the date of receipt. Donated service expense, which primarily represents salaries and benefits paid by the University on behalf of the Foundation, is reflected under supporting services as general and administrative expense in the accompanying statements of activities. Cash and cash equivalents: The Foundation considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Foundation maintains its cash in bank deposit accounts which exceed federally insured limits. A policy of depositing all such funds in banks of significant financial strength is maintained. 7

10 NOTE 1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Significant accounting policies: (Continued) Cash and cash equivalents: (Continued) The Foundation has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash. Investments: Investments are measured at fair value in the accompanying statements of financial position. Donated investments are valued at fair value on the date received. Realized and unrealized gains and losses are recognized as changes in net assets in the periods in which they occur, and investment income is recognized as revenue in the period earned. Property and equipment: The Foundation capitalizes all property and equipment to which it has title or other evidence of ownership. All assets are capitalized based on their historical cost and are being depreciated over their expected useful life using the straight-line method of depreciation. A useful life of forty years is used for buildings and a useful life of thirty years is used for building improvements. Maintenance and repairs are charged to expense as incurred. The cost of properties retired or otherwise disposed of, and the accumulated depreciation thereon, is removed from the accounts, and any gain or loss realized upon a sale or disposal is charged to operations as a gain or loss on the sale of assets. Net assets: The Foundation classifies net assets and revenues, expenses, gains and losses based on the existence or absence of donor-imposed restrictions. The three classes of net assets are unrestricted, temporarily restricted, and permanently restricted. The Foundation also recognizes the expiration of donor-imposed restrictions in the period in which the restrictions expire. 8

11 NOTE 1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Net assets: (Continued) The Foundation classifies donor-restricted contributions as temporarily restricted even if restrictions are satisfied in the same reporting period in which the contributions are received. The definitions of the above net asset categories are as follows: Unrestricted net assets: These net assets are not subject to any donor-imposed restrictions. Temporarily restricted net assets: These net assets are subject to donor-imposed restrictions that may be met either by the actions of the Foundation or the passage of time. Permanently restricted net assets: These net assets are permanently subject to donor-imposed restrictions. Temporarily restricted accounting: Endowment and other income along with private gifts which have donor stipulations that limit their use are recorded as revenue under temporarily restricted net assets and released from restrictions when a stipulated time restriction ends or purpose restriction expires. The related expenses are recorded under unrestricted net assets. Endowment accounting: Permanent endowment funds are subject to the restrictions of the gift instruments which require that the principal be invested in perpetuity. Unless explicitly stated in the gift instrument, accumulated realized and unrealized gains of the permanent endowment funds have been classified as temporarily restricted net assets. The Foundation adopted Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for all Endowment Funds. See Note 7 for discussion on endowment accounting. 9

12 NOTE 1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Direct financing leases: The Foundation leases real estate to Southern Polytechnic State University. The leases are accounted for as direct financing-type leases. The present value of the minimum lease payments is recorded as an asset and is amortized as payments are received. The difference between gross minimum lease payments and the present value of the gross minimum lease payments is recorded as unearned income and is amortized as payments are received. Bond issuance costs: Bond issuance costs, comprised principally of underwriting, legal, and printing fees are recorded as deferred charges and amortized over the term of the debt using the interest method. Revenue bonds premium: Bond premiums are amortized using the interest method. These costs are presented separately from the face amount of the "Revenue bonds payable" on the Statements of Financial Position. Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair value of financial instruments: FASB's Fair Value Measurements and disclosure guidance provides a framework for measuring fair value under generally accepted accounting principles. This standard applies to all financial instruments that are being measured and reported on a fair value basis. 10

13 NOTE 1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair value of financial instruments: (Continued) The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents - The carrying amount approximates fair value because of the short-term maturity of these instruments. Investments - Investments are carried at fair value based on various valuation methodologies as described below under Levels 1, 2, and 3. Pledges receivable and accounts payable - The carrying amount approximates fair value because of the short-term maturity of these instruments. Bonds payable - Valued at carrying amount, which approximates fair value because the borrowing rate approximates the current rates at which similar debt instruments could be obtained with similar terms and maturities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Foundation uses various methods including market, income and cost approaches. Based on these approaches, the Foundation often utilizes certain assumptions that market participants would use in pricing the assets or liabilities, including assumptions about risk or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Foundation utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques the Foundation is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: 11

14 NOTE 1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Significant accounting policies: (Continued) Fair value of financial instruments: (Continued) Level 1 - Valuations for assets and liabilities traded in active markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2 - Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or similar assets or liabilities. Level 3 - Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities. For the fiscal years ended June 30, 2014 and 2013, the application of valuation techniques applied to similar assets and liabilities has been consistent. The fair value of investment securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker-dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use unobservable inputs due to the limited market activity of these instruments. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Foundation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. 12

15 NOTE 1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Significant accounting policies: (Continued) Fair value of financial instruments: (Continued) The Foundation adopted the provisions of ASU for certain investments in funds that do not have readily determinable fair values. The guidance allows for the estimation of the fair value of investments in investment companies for which the investment does not have a readily determinable fair value, using net asset value per share or its equivalent. Net asset value, in many instances, may not equal fair value that would be calculated under the standards. The funds held in the pooled bond funds and pooled equity funds are subject to ASU and classified as Level 2 investments. Income taxes: The Foundation is exempt from income taxes under Section 501(c)(3) of the U.S. Internal Revenue Code and is classified as an organization which is not a private foundation under Section 509(a) of the U.S. Internal Revenue Code. The Foundation accounts for uncertain tax positions in accordance with accounting standards that provide guidance on when uncertain tax positions are recognized in an entity's financial statements and how the values of these positions are determined. No liability has been recorded as of June 30, 2014 due to uncertain tax positions. NOTE 2. ASSETS LIMITED AS TO USE The financing of the purchase, construction, and renovation of the student housing facilities is subject to the terms of the Trust Indenture between the Development Authority of the City of Marietta and Regions Bank, Trustee at year end June 30, Under the provisions of the Trust Indenture, the Debt Service Reserve and Bond Principle Funds will be used to pay principal of, premium, if any, and interest on the bonds if sufficient funds are on deposit with the Trustee on the date such payment is due. The Trust Indenture also provides for other funds. Other Assets Limited to Use include Cost of Issuance, Project Fund, Interest Fund and Principal Account. 13

16 NOTE 2. ASSETS LIMITED AS TO USE (Continued) The repair and replacement fund liability totaled $1,487,515 and $1,433,662 as of June 30, 2014 and 2013, respectively. The liability represents project funds received but not yet remitted. A summary of the assets limited as to use held by the Trustee under the Trust Indenture as of June 30, 2014 and 2013 are as follows: June 30, Debt Service Fund $ 1,162,165 $ 1,161,637 Bond Fund Repair and Replacement Fund 1,489,5993 1,147,511 Cost of Issuance 4,361 Surplus Fund 50,918 Project Fund 908,531 1,337,427 $ 3,611,607 $ 3,650,936 NOTE 3. PLEDGES RECEIVABLE As of June 30, 2014 and 2013, unconditional promises to give were considered fully collectible and consisted of the following: June 30, Unrestricted pledges $ 47,500 $ Restricted to future periods 133,196 96,838 Unconditional promises to give before discount 180,696 96,838 Less unamortized discount {7,578} {7,538} $ 173,118 $ 89,300 Amount due in: Less than one year $ 76,197 $ 22,337 One to five years 96,921 66,963 $ 173,118 $ 89,300 A discount rate of 5.0% was used as the risk-free interest rate for pledges receivable at June 30, 2014 and

17 NOTE 4. INVESTMENTS Investments are classified on the consolidated statements of financial position as follows: June 30, Investments $ 5,920,251 $ 5,025,581 Investments - certificates of deposit 114,373 Assets limited as to use 3,611,607 3,650,936 $ 9,531,858 $ 8,790,890 The net investment income was $1,038,437 and $685,880 for the years ended June 30, 2014 and 2013, respectively. The following table sets forth by level, within the fair value hierarchy, the Foundation's investments at fair value as of June 30, 2014: Level1 Level2 Level3 Total Pooled bond fund $ $ 1,939,272 $ - $ 1,939,272 Pooled equity fund 3,980,979 3,980,979 Money markets 3,611,607 3,611,607 Total investments at fair value $ 3,611,607 $ 5,920,251 $ - $ 9,531,858 The pooled bond fund includes investments in funds that invest primarily in fixed income securities. There are no unfunded commitments as of June 30, The fund has a monthly redemption frequency and a 5 day prior to month-end redemption notification. The fair value of the investments has been estimated using the net asset value per share of the investments. The pooled equity fund includes investments in common stock and funds that invest primarily in equities. There are no unfunded commitments as of June 30, The fund has a monthly redemption frequency and a 5 day prior to month-end redemption notification. The fair value of the investments has been estimated using the net asset value per share of the investments. 15

18 NOTE 4. INVESTMENTS (Continued) The following table sets forth by level, within the fair value hierarchy, the Foundation's investments at fair value as of June 30, 2013: Level1 Level2 Level3 Total Pooled bond fund $ - $ 1,821,967 $ - $ 1,821,967 Pooled equity fund 3,203,614 3,203,614 Money markets 3,650,936 3,650,936 Total investments at fair value $ 3,650,936 $ 5,025,581 $ - $ 8,676,517 NOTE 5. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. A summary of the amounts and the related accumulated depreciation at June 30, 2014 and 2013 are as follows: Land Building improvements Buildings Accumulated depreciation $ $ 1,141,993 58,330 58,330 (3,767) 1,196,556 $ $ 1,141,993 82,228 58,330 1,282,551 (4,450) 1,278,101 Depreciation expense for the year ended June 30, 2014 and 2013 amounted to $8,958 and $3,522, respectively. A Housing construction payable was set up as part of the new Series 2013 Bonds. Housing construction payable as of June 30, 2014 and 2013 is $912,283 and $1,337,427, respectively. 16

19 NOTE 6. TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS Temporarily restricted net assets are available for aid to specific Southern Polytechnic State University departments and programs. Temporarily restricted net assets as of June 30, 2014 and 2013 are available as follows: June 30, Academic support $ 521,467 $ 543,319 Institutional support 12,015 31,316 Scholarships 1,314, ,325 Student related support 27,118 12,120 Public service programs 195, ,938 Management and general 44 Fund raising 11,112 $ 2,082,215 $ 1,622,062 Temporarily restricted net assets as of June 30, 2014 and 2013 consist of the following: June 30, Pledges receivable $ 81,376 $ 67,376 Cash and investments 2,000,839 1,554,686 $ 2,082,215 $ 1,622,062 The permanently restricted net assets are restricted for scholarships. 17

20 NOTE 6. TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS (Continued) The endowments as of June 30, 2014 and 2013 are as follows: June 30, Enplas (USA) Scholarship $ 30,000 $ 30,000 James Wendell Hardwick Memorial Fund 10,600 10,600 Goizueta Foundation Endowment 1,329,790 1,329,790 Jimmy Goldgeier Scholarship 60,098 60,030 Lawrence & Cecelia Johnson Memorial Fund 246, ,491 Milton R. Ratner Foundation 5,000 5,000 John Talbert I WSB Radio Group Scholarship 12,000 12,000 Benjamin Jason Thomason Scholarship 37,345 37,345 Thomas T. Flagler & T. Thorne Flagler, Ill Construction Scholarship 25,035 25,035 Paul T. Martin Scholarship 234, ,451 Keith Rochester, Jr. Memorial Scholarship in Surveying 23,289 23,289 General Purpose Endowment 6,653 6,653 James G. Fausett Education Fund 115, ,287 Alumni Scholarship Endowment 179, ,835 Kenneth and Elaine Rainey Scholarship Endowment Fund 31,431 30,096 President Rossbacher Scholarship Endowment 34,765 28,428 Billy and lila Kicklighter Pinyan Endowment 20,167 20,167 David E. Summers Endowed Scholarship 41,000 40,510 Toy-Mench Construction Management Scholarship 20,787 12,627 John C. Gaskins Surveying Scholarship 37,457 35,957 Engineering Innovation Foundation Endowed Scholarship 48,813 49,834 Juneau Construction Endowed Scholarship 25,000 25,000 Patrick McCord Endowed Scholarship 31,590 31,590 Harold & Linda Linnenkohl Endowed Scholarship 35,000 35,000 Siemens Mechatronics Scholarship Endowment 25,000 25,000 Gordon Mortin Scholarship Endowment 175, ,453 CSE Endowment 21,792 13,000 School ETM Endowment 85,628 85,608 School of Engineering Endowment 85,608 85,608 Golden Hammer Endowed Scholarship 79,288 Siemens Professorship Endowment 114,459 Catherine Land Waters Scholarship Endowment 18,374 Carl Joseph Frinzi, Sr Scholarship Endowment 22,968 Jeremey Smith Arch Endowed Scholarship 24,501 $ 3,294,523 $ 2,943,684 18

21 NOTE 6. TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS (Continued) Permanently restricted net assets as of June 30, 2014 and 2013 consisted of the following: June 30, Pledges receivable $ 44,243 $ 21,924 Cash and investments 3,250,280 2,921,760 $ 3,294,523 $ 2,943,684 NOTE 7. ENDOWMENT As of June 30, 2014, the Foundation's endowment consisted of approximately twenty-five individual funds established for a variety of purposes. Its endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as an endowment. As required by GAAP, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as an endowment, are classified and reported based on the existence or absence of donorimposed restrictions. Interpretation of Relevant Law The Board of Trustees of the Foundation has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by UPMIFA. 19

22 NOTE 7. ENDOWMENT (Continued) In accordance with UPMIFA, the organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: Interpretation of Relevant Law (Continued) (1) The duration and preservation of the fund (2) The purposes of the organization and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the organization (7) The investment policies of the organization Endowment Net Asset Composition by Type of Fund as of June 30, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Donor -restricted endowment funds $ $ 1,130,121 $ 3,294,523 $ 4,424,644 Board-designated 48,801 48,801 Total funds $ 48,801 $ 1,130,121 $ 3,294,523 $ 4,473,445 Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 35,741 $ 650,526 $ 2,943,684 $ 3,629,951 Investment return: Investment income ,833 82,029 Net appreciation (realized and unrealized) 171, , ,292 Total investment return 171, , ,321 Contributions 350, ,839 Appropriation of endowment assets for expenditure (158,159) (184,508) 342,667 Endowment net assets, end of year $ 48,801 $ 1,130,121 $ 3,294,523 $ 4,473,445 20

23 NOTE 7. ENDOWMENT (Continued) Endowment Net Asset Composition by Type of Fund as of June 30, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total Donor -restricted endowment funds $ $ 650,526 $ 2,943,684 $ 3,594,210 Board-designated 35,741 35,741 Total funds $ 35,741 $ 650,526 $ 2,943,684 $ 3,629,951 Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 34,886 $ 341,908 $ 2,516,234 $ 2,893,028 Investment return: Investment income ,757 66,932 Net appreciation (realized and unrealized) 88, , ,939 Total investment return 88, , ,871 Contributions 427, ,450 Appropriation of endowment assets for expenditure (87,563) (98,835) (172, 155) Endowment net assets, end of year $ 35,741 $ 650,526 $ 2,943,684 $ 3,629,951 21

24 NOTE 7. ENDOWMENT (Continued) Description of Amounts Classified as Permanently Restricted Net Assets and Temporarily Restricted Net Assets (Endowment Only) June 30, Permanently Restricted Net Assets The portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulation or by UPMIFA $ 3,294,523 $ 2,943,684 Total endowment funds classified as permanently restricted net assets $ 3,294,523 $ 2,943,684 Temporarily Restricted Net Assets The portion of perpetual endowment funds subject to a time restriction under UPMIFA: Without purpose restrictions $ $ With purpose restrictions 1,130, ,526 Total endowment funds classified as temporarily restricted net assets $ 1,130,121 $ 650,526 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment fund may fall below the level that the donor or UPMIFA requires the Foundation to retain as a fund or perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $ - as of June 30, 2014 and June 30, These deficiencies resulted from unfavorable market fluctuations. Return Objective and Risk Parameters The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity or for a donor-specified period as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of the S&P 500 index while assuming a moderate level of investment risk. The Foundation expects its endowment funds, over time, to provide an average rate of return of approximately 9 percent annually. Actual returns in any given year may vary from this amount. 22

25 NOTE 7. ENDOWMENT (Continued) Strategies Employed for Achieving Objectives The Foundation has a policy of appropriating for distribution each year 5 percent of its endowment fund's average fair value over the prior 3 years through the calendar yearend proceeding the fiscal year in which the distribution is planned. In establishing this policy, the Foundation considered the long-term expected return of it endowment. Accordingly, over the long term, the Foundation expects the current spending policy to allow it endowment to grow at an average of 4 percent annually. This is consistent with the organization's objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. NOTE 8. NET ASSETS RELEASED FROM RESTRICTIONS Net assets were released from donor restrictions as of June 30, 2014 and 2013 by incurring expenses satisfying the restrictions purpose specified by donors as follows: June 30, Aid to Southern Polytechnic State University $ 339,582 $ 322,013 Public service 215, ,996 Scholarships 378, ,158 Management and general 40, Fund raising 75,800 83,299 Capital campaign 143,249 Student related supported activities 112,710 58,969 $ 1,162,917 $ 996,713 NOTE 9. NET INVESTMENTS IN DIRECT FINANCING LEASES The Foundation's leasing operations consist of leasing real estate to a related party under direct financing-type leases expiring in various years through

26 NOTE 9. NET INVESTMENTS IN DIRECT FINANCING LEASES (Continued) The composition of the investments in the direct financing leases at June 30, 2014 and 2013 was as follows: June 30, Total minimum lease payments to be received Less unearned income Net investments in direct financing leases $ $ 33,964,490 $ 8,588,972 25,375,518 $ 36,339,066 9,633,001 26,706,065 At June 30, 2014, the net minimum future lease payments due under the direct financing leases were as follows: During the year ending June 30: Thereafter, Total minimum future lease payments $ 1,331,894 1,387,918 1,446,300 1,507,137 1,570,533 18,131,736 $ 25,375,518 NOTE 10. LEASE COMMITMENTS On December 5, 2003, the Board of Regents of the University System of Georgia (landlord) entered into a ground lease with SPSU Student Housing I, LLC (tenant) for the land associated with the housing facilities and continues until November 1, The tenant agreed to pay $10 per year for the ground lease. At the conclusion of the primary term of the lease, the lease may be extended for a period not to exceed five years. Upon expiration of the primary term, including extensions, the landlord may grant the tenant a usufruct in the premises for fair market rental value only if the landlord determines the continued rental of the premises is in the best interest of the University and the University System of Georgia. 24

27 NOTE 11. REVENUE BONDS PAYABLE Series 2003 Student Housing Bonds & Series 2013 Refunding Bonds Payable: During the year ended June 30, 2004, SPSU Student Housing I, LLC, a subsidiary of the Foundation, arranged for the sale of $35,690,000 of Development Authority of the City of Marietta, Georgia {the "Issuer'') Tax-Exempt Adjustment Mode Revenue Bonds {Student Housing Facilities Revenue Bonds) Series 2003 {the "Bonds") pursuant to an Indenture of Trust dated as of December 1, 2003, between the Issuer and the Bank of New York Trust Company of Florida, N.A. {the "Trustee"). The proceeds were loaned to SPSU Student Housing I, LLC to finance the development, purchase and construction of dormitory and apartment facilities and to pay certain costs of issuance of the bonds. The Issuer entered into a loan agreement with SPSU Student Housing I, LLC dated December 1, During the year ended June 30, 2013, the Development Authority of the City of Marietta issued Student Housing Facilities Refunding Revenue bonds and loaned the proceeds to the SPSU Student Housing I, LLC, a subsidiary of the Foundation. The Series 2013 bonds were issued to refund the SPSU 2003 Series bonds. The refund met the legal requirements for defeasance of the bond liability. Therefore, neither the escrow nor the bonds are included on the consolidated statement of financial position at June 30, The defeasance resulted in a loss on extinguishment of bond debt of $1,733,611. The terms of the bonds require the Foundation to set rates and charges for the University Facilities, such that the debt service coverage ratio, calculated at the end of each fiscal year will not be less than 1.0. The Foundation shall exercise its option under the Loan Agreement and Indenture to have the Series 2013 bonds redeemed in the principal amounts set forth in the following table: Year ending June 30, Princi~al Interest 2015 $ 1,440,000 $ 881, ,470, , ,510, , ,555, , ,305,000 1,338, ,345,000 2,256, ,090, ,575 Total revenue bonds payable $ 25,715,000 $ 7,443,925 25

28 NOTE 11. REVENUE BONDS PAYABLE (Continued) Following is a summary of borrowings at June 30, 2014 and 2013: June 30, Par value of bonds outstanding $ 25,715,000 $ 27,130,000 Bond premium, net of accumulated amortization of 2014$252,003 and 2013$245,682 1,162,853 1,414,856 $ 26,877,853 $ 28,544,856 Payments are due on June 15 and December 15 of each year until the final payment becomes due. Bond interest expense was $900,499 and $1,039,916, for the years ended June 30, 2014 and 2013, respectively. NOTE 12. NOTE PAYABLE On February 12, 2013, the Foundation entered into a commercial loan with Vinings Bank ("lender") for a purchase of property. The agreement consisted of a note on the property with an original principal balance of $193,486. The note will mature on February 12, The loan agreement is secured by the property. The note has a variable index rate which is subject to change from time to time based on changes in the Prime Rate. As of June 30, 2014 and 2013, the Prime Rate was 3.25% and the Nominal Annual Rate was6.07%. As of June 30, 2014, the Foundation's maturities of note payable are as follows: During the year ending June 30: 2015 $ 8, , , ,261 $ 182,448 Interest expense for the note payable for the year ended June 30, 2014 and 2013 amounted to $11,377 and $3,848, respectively. 26

29 NOTE 13. RELATED PARTY TRANSACTIONS As of June 30, 2014 and 2013, amounts due from Southern Polytechnic State University were $40,000 and $15,000, respectively. NOTE 14. SUBSEQUENT EVENTS The Foundation has evaluated subsequent events occurring through DATE, the date on which the financial statements were available to be issued. 27