Audit in Accordance with Government Auditing Standards and the Uniform Guidance June 30, 2018

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1 Audit in Accordance with Government Auditing Standards and the Uniform Guidance June 30, 2018

2 CONTENTS Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 1 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 3 Schedule of Expenditures of Federal Awards 5 Notes to Schedule of Expenditures of Federal Awards 6 Schedule of Findings and Questioned Costs 7 Financial Report

3 One Market Square Augusta, ME Phone Fax Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards To the Board of Trustees Bigelow Laboratory for Ocean Sciences East Boothbay, Maine We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Bigelow Laboratory for Ocean Sciences, which comprise the statement of financial position as of June 30, 2018, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated January 9, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Bigelow Laboratory for Ocean Sciences internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Bigelow Laboratory for Ocean Sciences internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency or a combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency or a combination of deficiencies in internal control, that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether Bigelow Laboratory for Ocean Sciences financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 1 wipfli.com macpage.com

4 To the Board of Trustees Bigelow Laboratory for Ocean Sciences Purpose of This Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing and not to provide an opinion on the effectiveness of the Organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Augusta, Maine January 9,

5 One Market Square Augusta, ME Phone Fax Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance To the Board of Trustees Bigelow Laboratory for Ocean Sciences East Boothbay, Maine Report on Compliance for Each Major Federal Program We have audited Bigelow Laboratory for Ocean Sciences compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Bigelow Laboratory for Ocean Sciences major federal programs for the year ended June 30, Bigelow Laboratory for Ocean Sciences major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Bigelow Laboratory for Ocean Sciences major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Bigelow Laboratory for Ocean Sciences compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Bigelow Laboratory for Ocean Sciences compliance. Opinion on Each Major Federal Program In our opinion, Bigelow Laboratory for Ocean Sciences complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, wipfli.com macpage.com

6 To the Board of Trustees Bigelow Laboratory for Ocean Sciences Report on Internal Control Over Compliance Management of Bigelow Laboratory for Ocean Sciences is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Bigelow Laboratory for Ocean Sciences internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Bigelow Laboratory for Ocean Sciences internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of Bigelow Laboratory for Ocean Sciences as of and for the year ended June 30, 2018, and have issued our report thereon, dated January 9, 2019, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. Augusta, Maine January 9,

7 Schedule of Expenditures of Federal Awards Year Ended June 30, 2018 Pass-Through Identifying Number or Expenditures Federal Grantor/Pass-Through Grantor/Program or Federal Entity Grant Number Federal to Cluster Title CFDA Number Award Number Expenditures Subrecipients Research and Development Cluster: National Science Foundation Research and development direct: Engineering Programs $ 26,514 Geosciences ,892,751 Biological Sciences ,341 Polar Programs ,436 Passed through from other organizations: University of Southern California (C-DEBI) OCE ,178 Columbia University OCE ,567 Subtotal National Science Foundation 2,861,787 National Aeronautics and Space Administration Research and development direct: Science NSSC18K ,152 Science NNX14AL92G 231,806 Science NNX14AM77G 427,902 Science NNX14AQ41G 205,869 Science NNX14AQ43A 214,752 Science NNX15AM11G 200,374 Science NNX16AG59G 178,177 $ 33,181 Science NNX17AB90G 159,429 52,861 Science NNX17AI77G 3,702 Passed through from other organizations: University of Maine UMS ,924 Gulf of Maine Research Inst. - EPSCoR EP ,208 University of Southern California NNX13AA92A 29,085 Subtotal National Aeronautics and Space Administration 2,006,380 86,042 U.S. Department of Commerce National Oceanic and Atmospheric Administration Research and development direct: Center for Sponsored Coastal Ocean Research NA15NOS ,087 Center for Sponsored Coastal Ocean Research NA17NOS ,255 Fisheries Development and Utilization Research and Development Grants and Cooperative Agreements Program NA15NMF ,222 Fisheries Development and Utilization Research and Development Grants and Cooperative Agreements Program NA17NMF ,376 26,866 Passed through from other organizations: University of Maine NA14OAR ,151 University of Maine NA18OAR ,804 North Pacific Research Board NA15NMF ,956 Subtotal U.S. Department of Commerce 529,851 26,866 U.S. Department of Defense Research and development direct: Basic and Applied Science Research N ,713 Subtotal U.S. Department of Defense 113,713 U.S. Department of the Interior Passed through from other organizations: Colby College G11AP Subtotal U.S. Department of the Interior 431 U.S. Department of Health and Human Services Passed through from other organizations: University of California San Diego R21AI ,382 Subtotal U.S. Department of Health and Human Services 63,382 Total Research and Development Cluster 5,575, ,908 Total Federal Awards $ 5,575,544 $ 112,908 See accompanying independent auditor's report on schedule of expenditures of federal awards. The accompanying notes are an integral part of this schedule. 5

8 Notes to Schedule of Expenditures of Federal Awards Year Ended June 30, 2018 NOTE 1 BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal grant activity of Bigelow Laboratory for Ocean Sciences under programs of the federal government for the year ended June 30, The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of Bigelow Laboratory for Ocean Sciences, it is not intended to and does not present the financial position, changes in net assets, or cash flows of Bigelow Laboratory for Ocean Sciences. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. (2) Pass-through entity identifying numbers are presented where available. NOTE 3 INDIRECT COST RATE Bigelow Laboratory for Ocean Sciences has elected not to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance. 6

9 Schedule of Findings and Questioned Costs Year Ended June 30, 2018 SECTION I. SUMMARY OF AUDITOR S RESULTS Financial Statements Type of auditor s report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes None reported Noncompliance material to financial statements noted? Yes No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes None reported Type of auditor s report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR Section (a)? Yes No Identification of major programs: Name of Federal Program or Cluster Research and Development Cluster CFDA Number Not Applicable Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? Yes No SECTION II. FINANCIAL STATEMENT FINDINGS No matters were reported SECTION III. FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS No matters were reported. SECTION IV. PRIOR YEAR AUDIT FINDINGS No matters were reported. 7

10 Financial Report June 30, 2018

11 CONTENTS Independent Auditor s Report 1 Statements of Financial Position 3 Statements of Activities 4 Statements of Cash Flows 6 Notes to Financial Statements 7 Independent Auditor s Report on Supplementary Information 20 Schedules of Functional Expenses 21

12 One Market Square Augusta, ME Phone Fax Independent Auditor s Report To the Board of Trustees Bigelow Laboratory for Ocean Sciences East Boothbay, Maine Report on the Financial Statements We have audited the accompanying financial statements of Bigelow Laboratory for Ocean Sciences, which comprise the statement of financial position as of June 30, 2018, and the related statements of activities and cash flows for the year 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 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 financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1 wipfli.com macpage.com

13 Board of Trustees Bigelow Laboratory for Ocean Sciences Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bigelow Laboratory for Ocean Sciences as of June 30, 2018, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 9, 2019, on our consideration of Bigelow Laboratory for Ocean Sciences' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Bigelow Laboratory for Ocean Sciences internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Bigelow Laboratory for Ocean Sciences' internal control over financial reporting and compliance. Prior Period Financial Statements The financial statements of Bigelow Laboratory for Ocean Sciences as of June 30, 2017, were audited by Macpage LLC, who merged with Wipfli LLP as of August 1, 2018, and whose report dated December 6, 2017, expressed an unmodified opinion on those statements. Augusta, Maine January 9,

14 Statements of Financial Position June 30, ASSETS Current Assets Cash $ 910,406 $ 1,351,015 Cash restricted for improvements 36, ,703 Cash restricted for research 1,925, ,594 Contracts and grants receivable 815,381 1,277,053 Pledges receivable 438, ,122 Other receivables, net 373, ,988 Inventory 1, ,983 Prepaid expenses 70,227 29,257 Total Current Assets 4,570,763 5,782,715 Property and Equipment Property and equipment, net 38,331,643 39,943,070 Other Assets Pledges receivable long-term, net 222, ,545 Investments 4,364,917 4,140,026 Investments - endowment 2,474,571 1,972,673 7,062,365 6,830,244 Total Assets $ 49,964,771 $ 52,556,029 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable $ 282,552 $ 1,353,145 Accrued payroll and expenses 451, ,541 Current portion of notes payable 100, ,567 Current portion of capital leases 5,407 33,175 Deferred revenue 768, ,682 Total Current Liabilities 1,607,835 2,890,110 Long-Term Liabilities Notes payable, net of current portion 13,056,911 13,156,911 Capital leases, net of current portion 0 6,389 Total Long-Term Liabilities 13,056,911 13,163,300 Total Liabilities 14,664,746 16,053,410 Net Assets Unrestricted 14,091,035 14,268,162 Temporarily restricted 18,272,758 19,665,976 Permanently restricted 2,936,232 2,568,481 Total Net Assets 35,300,025 36,502,619 Total Liabilities and Net Assets $ 49,964,771 $ 52,556,029 The accompanying notes are an integral part of these financial statements. 3

15 Statement of Activities Year Ended June 30, 2018 (With Comparative Totals for June 30, 2017) Temporarily Permanently Unrestricted Restricted Restricted Total Total Operating Revenue and Support Grants and contracts $ 7,145,511 $ 447,500 $ 7,593,011 $ 8,439,315 Contributions to Comprehensive Campaign 1,730,387 81,279 1,811,666 2,406,783 Contributions ,000 Course fees 298, , ,507 Other, including interest 1,330,497 35,582 1,366,079 1,669,567 Net gain (loss) on investments (7,765) 55,856 48,091 42,491 Net assets released from restrictions 2,093,803 (2,093,803) 12,591,440 (1,473,586) 11,117,854 13,025,663 Functional Expenses Research and education 6,597,492 6,597,492 6,570,328 Management and general Allocable to research 4,692,411 4,692,411 4,738,222 Other 902, , ,271 Development 576, , ,554 12,768,567 12,768,567 12,705,375 Change in Net Assets from Operations With Depreciation (177,127) (1,473,586) (1,650,713) 320,288 Add Depreciation Not Funded by Government Grants 1,255,245 1,255, ,351 Change in Net Assets Before Depreciation Not Funded by Government Grants $ 1,078,118 $ (1,473,586) $ (395,468) $ 1,255,639 Change in Net Assets from Operations With Depreciation $ (177,127) $ (1,473,586) $ (1,650,713) $ 320,288 Non-Operating Revenue, Gain and Loss Grants and contracts for equipment purchases 80,368 80,368 16,357 Contributions to endowment $ 367, ,751 1,435,820 Life insurance proceeds 3,000,000 Change in Net Assets from Non-Operating Activities 80, , ,119 4,452,177 Total Change in Net Assets (177,127) (1,393,218) 367,751 (1,202,594) 4,772,465 Net Assets, Beginning of Year 14,268,162 19,665,976 2,568,481 36,502,619 31,730,154 Net Assets, End of Year $ 14,091,035 $ 18,272,758 $ 2,936,232 $ 35,300,025 $ 36,502,619 The accompanying notes are an integral part of these financial statements. 4

16 Statement of Activities Year Ended June 30, 2017 Temporarily Permanently Unrestricted Restricted Restricted Total Operating Revenue and Support Grants and contracts $ 8,439,315 $ 8,439,315 Contributions to Comprehensive Campaign 1,390,005 $ 1,016,778 2,406,783 Contributions 75,000 75,000 Course fees 392, ,507 Other, including interest 1,657,185 12,382 1,669,567 Net gain (loss) on investments (4,832) 47,323 42,491 Net assets released from restrictions 1,755,093 (1,755,093) 13,704,273 (678,610) 13,025,663 Functional Expenses Research and education 6,570,328 6,570,328 Management and general Allocable to research 4,738,222 4,738,222 Other 708, ,271 Development 688, ,554 12,705,375 12,705,375 Change in Net Assets from Operations With Depreciation 998,898 (678,610) 320,288 Add Depreciation Not Funded by Government Grants 935, ,351 Change in Net Assets Before Depreciation Not Funded by Government Grants $ 1,934,249 $ (678,610) $ 1,255,639 Change in Net Assets from Operations With Depreciation $ 998,898 $ (678,610) $ 320,288 Non-Operating Revenue, Gain and Loss Grants and contracts for equipment purchases 16,357 16,357 Contributions to endowment $ 1,435,820 1,435,820 Life insurance proceeds 3,000,000 3,000,000 Net assets released from restrictions 4,999,071 (4,999,071) Change in Net Assets from Non-Operating Activities 7,999,071 (4,982,714) 1,435,820 4,452,177 Total Change in Net Assets 8,997,969 (5,661,324) 1,435,820 4,772,465 Net Assets, Beginning of Year 5,270,193 25,327,300 1,132,661 31,730,154 Net Assets, End of Year $ 14,268,162 $ 19,665,976 $ 2,568,481 $ 36,502,619 The accompanying notes are an integral part of these financial statements. 5

17 Statements of Cash Flows Years Ended June 30, Cash flows from operating activities: Total change in net assets $ (1,202,594) $ 4,772,465 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 2,118,910 1,881,283 Grant proceeds restricted to acquisition of equipment (80,368) (16,357) Pledge receivable restricted to endowment 251,500 (753,000) Net gain on investments (48,091) (42,491) Proceeds from life insurance (3,000,000) Permanently restricted contributions (367,751) (682,820) Bad debt 60,000 (Increase) decrease in operating assets: Contracts and grants receivable 461,672 (392,481) Pledges receivable 703, ,368 Other receivables (192,535) (80,517) Inventory 215,294 (216,983) Prepaid expenses (40,970) 32,108 Increase (decrease) in operating liabilities: Accounts payable (523,188) 493,069 Accrued payroll and expenses 690 (34,912) Deferred revenue (175,037) 207,379 Total adjustments 2,383,916 (2,210,354) Net cash provided by operating activities 1,181,322 2,562,111 Cash flows from investing activities: Purchase of buildings and equipment (507,483) (6,895,650) Accounts payable for building (547,405) 547,405 Proceeds from life insurance - 3,000,000 Proceeds from sale of investments 134,871 3,197,482 Purchase of investments (813,569) (8,117,276) Net cash used in investing activities (1,733,586) (8,268,039) Cash flows from financing activities: Grant proceeds restricted to acquisition of equipment 80,368 16,357 Contribution and pledges paid restricted to construction of building 3,094,863 Contribution restricted to endowments 367, ,820 Payments made on notes payable (109,567) (117,294) Payments made on capital lease (34,157) (54,371) Net cash provided by financing activities 304,395 3,622,375 Net decrease in cash (247,869) (2,083,553) Cash at beginning of year 3,119,312 5,202,865 Cash at end of year (includes restricted cash) $ 2,871,443 $ 3,119,312 Supplemental disclosure of cash flow information: Interest paid $ 521,760 $ 500,724 The accompanying notes are an integral part of these financial statements. 6

18 Notes to Financial Statements June 30, 2018 and 2017 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Laboratory Bigelow Laboratory for Ocean Sciences (the Laboratory) provides scientific research, educational services, and oceanographic goods and services to government, industry and educational entities; and the Laboratory continues to pursue research, educational, and technology transfer opportunities. Basis of Accounting and Presentation The Laboratory s financial statements have been prepared using the accrual method of accounting in accordance with generally accepted accounting principles (U.S. GAAP). Accordingly, the Laboratory is required to report information regarding its financial position and activities according to three classes of net assets as follows: Estimates Unrestricted Net Assets Net assets that are not subject to donor-imposed stipulations. Temporarily Restricted Net Assets Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Laboratory and or the passage of time. Permanently Restricted Net Assets Net assets subject to donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the Laboratory. The preparation of financial statements in conformity with generally accepted accounting principles 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. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other Receivables Other receivables are stated at the amount management expects to collect from balances outstanding at year-end. Based on management s assessment of the credit history with customers and grantors having outstanding balances and current relationships with them, it has recorded a provision for an allowance for doubtful accounts in the amounts of $60,000 and $0 as of June 30, 2018 and 2017, respectively. Pledges Receivable Unconditional promises to give are recognized as revenues in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Pledges receivable expected to be received in more than one year are discounted to present value. Investments Investments are carried at estimated fair value based on quoted market prices. Realized and unrealized gains and losses are included in the change in net assets. 7

19 Notes to Financial Statements June 30, 2018 and 2017 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Statements of Activities The Laboratory has classified the statements of activities into two categories, operating and non-operating. The operating category represents the normal recurring activities of the Laboratory. The non-operating activity captures non-recurring activity primarily related to the development efforts surrounding the growth and relocation of the Laboratory to new facilities, grants for equipment and contributions to build endowments. (See Note 5) Donated Assets Donated marketable securities and other noncash donations are recorded as support at their estimated fair values at the date of donation. Donations of property and equipment are recorded as support at their estimated fair value at the date of donation. Such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. In the absence of donor stipulations regarding how long the contributed assets must be used, the Laboratory has adopted a policy of implying a time restriction on contributions of such assets that expire over the assets useful lives. Capitalization and Depreciation Property and equipment are stated at cost or, in the case of donated property, at the estimated fair value at the date of the receipt except where major uncertainty exists about the value of the contributed asset. The Laboratory's capitalization policy is to capitalize any asset costing over $5,000 with a life of one year or more. Depreciation of buildings and equipment is determined by the straight-line method over the estimated useful service lives of the assets. The range of estimated lives is three to forty years. Proceeds from the sale of property and equipment, if unrestricted, are reported as an increase in unrestricted net assets or, if restricted, as an increase in temporarily or permanently restricted net assets, as appropriate. Collections The Laboratory houses the Provasoli-Guillard National Center of Marine Algae and Microbiota. The Laboratory does not capitalize this collection of more than 2,700 strains of marine phytoplankton, bacteria and viruses. The Laboratory holds the collection for educational and research purposes; the strains are available to the public. Proceeds from sales of strain samples are used to maintain and preserve the collection. Inventory Supply inventory consists of laboratory supplies and is valued at the lower of cost or market with cost being determined on the first-in, first-out method. Income Taxes The Laboratory is a nonprofit organization as described in Section 501(c)(3) of the Internal Revenue Code and, as such, is exempt from federal income taxes on related income pursuant to Section 501(a) of the IRS Code. The Laboratory is not a private foundation. The Laboratory is subject to U.S. federal and state examinations by taxing authorities for the years ended June 30, 2015 through

20 Notes to Financial Statements June 30, 2018 and 2017 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Statements of Cash Flows The Laboratory considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. Functional Expenses The Laboratory allocates its expenses on a functional basis among its various programs. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Fair Value Measurements and Disclosures 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 Laboratory uses various methods, including market, income and cost approaches. Based on these approaches, the Laboratory often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Laboratory 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 Laboratory 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: Level 1 Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 2 Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. Level 3 Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. In determining the appropriate levels, the Laboratory performs a detailed analysis of the assets and liabilities. At each reporting period, if applicable, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. For the years ended June 30, 2018 and 2017, the application of valuation techniques applied to similar assets and liabilities has been consistent. The following is a description of the valuation methodologies used for instruments measured at fair value: Investment Securities 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. 9

21 Notes to Financial Statements June 30, 2018 and 2017 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Recent Accounting Pronouncements Revenue Recognition In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) , Revenue from Contracts with Customers, to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standard (IFRS). The core principle of the guidance requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for all nonpublic entities' annual periods beginning after December 15, 2018, but management presently does not expect a significant change in revenue recognition. Not-for-Profit Entities In August 2016, the FASB issued ASU , Not-for-Profit Entities: Presentation of Financial Statements of Not-for-Profit Entities, to amend current reporting requirements to make several improvements, including reducing complexities of information presented within Not-for-Profit financial statements. A main provision of this update is that a Not-for-Profit entity will report two classes of net assets (amounts for net assets with donor restrictions and net assets without donor restrictions), rather than the currently required three classes. The guidance is effective for annual periods beginning after December 15, 2017, with early application permitted. This standard requires retroactive application to previously issued financial statements for 2018 and 2017, if presented. Management is currently evaluating the impact of adoption on its financial statements. Leases In February 2016, FASB released ASU Leases (Topic 842). This new standard will provide users of the financial statements a more accurate picture of the assets and the long-term financial obligations of organizations that lease. The standard is for a dual-model approach; a lessee will account for most existing capital leases as Type A leases, and most existing operating leases as Type B leases. Both will be reported on the balance sheet of the organization for leases with a term exceeding 12 months. Lessors will see some changes too, largely made to align with the revised lease model. For nonpublic organizations, the new leasing standard will apply for fiscal years beginning after December 15, The standard requires retroactive application to previously issued financial statements for 2019 and 2018, if presented. Management is currently evaluating the impact of adoption on its financial statements. Contributions Received and Contributions Made In June 2018, the FASB issued ASU , Not-for-Profit Entities: Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This update is to provide guidance for not-for-profit entities in evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) or exchanges (reciprocal transactions) and determining whether a contribution is conditional. In general, the update is effective for annual periods beginning after December 15, Early adoption is permitted. Management is currently evaluating the impact of adoption on its financial statements. 10

22 Notes to Financial Statements June 30, 2018 and 2017 NOTE 2 CASH AND CASH EQUIVALENTS The Laboratory maintains its cash in bank deposit accounts, which also include a sweep account. All the funds are not insured, but instead are collateralized by the U.S. Treasuries or Agencies. Management has not experienced any losses in these accounts and believes that it is not exposed to any significant risk on cash or cash equivalents. NOTE 3 CONTRACTS AND GRANTS RECEIVABLE The majority of the $815,381 and $1,277,053 of contracts and grants receivable due as of June 30, 2018 and 2017, respectively, are due from Government agencies for services performed. In addition, the Laboratory has future awards from various Government agencies that are conditional upon funding availability from the specific agencies and are, therefore, not shown as assets or revenues on the financial statements. For the years ended June 30, 2018 and 2017, the future research conditional awards were $3,954,399 and $4,786,415, respectively. The future unconditional awards at June 30 are as follows: Research awards $ 8,219,698 $ 8,324,563 Education 91,818 76,802 Plant and equipment awards 66,188 65,812 Core facility 7, ,635 $ 8,384,797 $ 8,605,812 NOTE 4 PLEDGES RECEIVABLE Unconditional promises to give at June 30 are as follows: Comprehensive Campaign $ 65,000 $ 669,789 Unrestricted annual fund 22,000 46,430 Education 30,000 Matching grant challenge 100, ,000 Endowment for Chair for Research and Education 500, ,000 Dr. Graham Shimmield Endowment 1,500 3, ,500 1,699,219 Less: discount (27,123) (82,552) $ 661,377 $ 1,616,667 Amounts due in: Less than one year $ 438,500 $ 899,122 One to five years 250, ,097 $ 688,500 $ 1,699,219 For the years ended June 30, 2018 and 2017, a discount rate of 3% was applied to pledges receivable in excess of one year, respectively. Approximately 82% and 73% of unconditional promises to give received during the years ended June 30, 2018 and 2017, respectively were from two donors. 11

23 Notes to Financial Statements June 30, 2018 and 2017 NOTE 5 PROPERTY AND EQUIPMENT During 2005, approximately 64 acres of land in East Boothbay, Maine, with a cost of $2,728,008, was acquired and was partially funded by a grant from the National Oceanic and Atmospheric Administration (NOAA) in the amount of $1,464,735. This grant restricts the sale of the land without prior approval from NOAA. The Laboratory received grants from the Maine Technology Institute for $4,528,971, National Science Foundation for $4,975,000 and National Institutes of Standards and Technology (NIST) for $9,145,710 for construction of the new facilities. NIST restricts that the portion of the new building funded by their grants must be used for the original purposes set out by the Laboratory for 20 years. Also related to the construction, the Laboratory obtained financing from a local bank of $13,156,911 that was disbursed for the initial three phases of the project. In addition, another $75,000 loan was obtained for site work for the new administrative building. Construction of all buildings was completed in June The following is a summary of the Laboratory s property and equipment at cost, less accumulated depreciation as of June 30, Land $ 2,800,537 $ 2,800,537 Site work new campus 5,285,145 5,277,723 Buildings new campus 34,246,115 34,246,115 Buildings other 489, ,598 Administrative furnishings and equipment 164, ,687 Facilities equipment 5,051,176 4,680,757 Scientific equipment acquired through grants 7,881,949 7,736,838 Equipment matching portion 246, ,097 Donated equipment and furnishings 239, ,865 Leasehold improvements 37,338 37,338 56,441,763 55,983,555 Less: accumulated depreciation and amortization 18,110,120 16,040,485 Net property and equipment $ 38,331,643 $ 39,943,070 NOTE 6 INVESTMENTS Investments at fair value consisted of the following as of June 30, Money Market Funds $ 4,670,227 $ 3,718,240 Equity 2,169, ,140 Fixed Income - Other 2,113,319 $ 6,839,488 $ 6,112,699 NOTE 7 ENDOWMENTS Endowment net asset composition by type of fund as of June 30, 2018, is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 272,836 $ 2,201,735 $ 2,474,571 12

24 Notes to Financial Statements June 30, 2018 and 2017 NOTE 7 ENDOWMENTS CONTINUED Endowment net asset composition by type of fund as of June 30, 2017, is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 194,466 $ 1,778,207 $ 1,972,673 Changes in endowment net assets for the year ended June 30, 2018, are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Beginning of year $ 194,466 $ 1,778,207 $ 1,972,673 Investment return: Investment income 51,192 51,192 Net appreciation 27,178 27,178 Contributions 423, ,528 End of year $ - $ 272,836 $ 2,201,735 $ 2,474,571 Investment income is net of $8,457 of investment fees. Changes in endowment net assets for the year ended June 30, 2017, are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Beginning of year $ 156,068 $ 227,520 $ 383,588 Investment return: Investment income 8,303 8,303 Net depreciation 30,095 30,095 Contributions 1,550,687 1,550,687 End of year $ - $ 194,466 $ 1,778,207 $ 1,972,673 Investment income is net of $4,500 of investment fees. NOTE 8 INVESTMENT OBJECTIVES Bigelow's investment objectives have been established in conjunction with a comprehensive review of the current and projected financial requirements. Bigelow has four different investment accounts, each with its own funding needs and investment requirements. Funds received for these separate uses have different investment requirements due to the expected term of their investment and the acceptable risk and volatility during their term. Moreover, individual donor specifications or restrictions may create additional investment requirements. 13

25 Notes to Financial Statements June 30, 2018 and 2017 NOTE 8 INVESTMENT OBJECTIVES CONTINUED Operating Account To fund operations including any annual structural budget deficit. Investment horizon: Short, with cash required within 0-12 months. Risk return profile: Low risk. Protect the value of principal while earning a modest rate of return. Income distribution: Investment income shall be used for unrestricted support services unless otherwise restricted by donors. Reserve Account To fund short term needs. It functions as an in-house line of credit for working capital purposes. Investment horizon: Short, to be used within 1-2 years. Risk return profile: Low risk. The priority is protection of principal. Assets should be invested in short to medium term liquid assets that maximize investment earnings while protecting principal. Endowment Account To support the long-term operations and programs of the Laboratory. Investment horizon: Long-term to be held in perpetuity either by Board designation or stated donor intent. Risk return profile: 1. Growth of 5% above the inflation rate. 2. Manage volatility in endowment asset value through an investment portfolio, which shall be diversified by markets, sectors, geography, investment style and asset class. Distribution Policy: The Board of Trustees has approved the distribution of 4% of the trailing 12- quarter average value of the endowment fund to support current operations. Also subject to donorimposed limitations. Asset Allocation for Endowment Funds Allowable Range Strategic Target Cash and cash equivalents 0% to 10% 5% Debt securities 25% to 35% 30% Equity securities 60% to 70% 65% 14

26 Notes to Financial Statements June 30, 2018 and 2017 NOTE 8 INVESTMENT OBJECTIVES CONTINUED Interpretation of Relevant Law The Board of Directors of the Laboratory 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 Laboratory 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 Laboratory in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Laboratory considers a number of factors in making a determination to appropriate or accumulate donorrestricted endowment funds which are designed to safeguard the principle. Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or relevant state law requires the Laboratory to retain as a fund of perpetual duration. There were no such deficiencies as of June 30, 2018 and NOTE 9 LINE OF CREDIT The Laboratory has available a $1,000,000 bank line of credit with The First, N.A. Interest is charged at the Wall Street Journal prime rate. The line of credit is reviewed on an annual calendar year basis. There were no balances outstanding at June 30, 2018 and NOTE 10 NOTES PAYABLE A summary of notes payable as of June 30 is as follows: $10,000,000 construction note with The First, NA to be repaid in annual payments of principal of $100,000 a year and monthly payments of interest only commencing on July 1, 2015 until July 1, After which the then existing principal balance and interest rate shall amortize over an amortization schedule ending June 28, The interest rate is at a rate equal to 3.95% from April 15, 2015 through March 15, After March 15, 2020, the interest is at a variable rate equal the domestic Prime Rate as published in the Wall Street Journal. Secured by real estate. $9,700,000 $9,800,000 $2,287,857 construction note with The First, NA to be repaid in monthly payments of interest only commencing on April 15, 2015 until March 15, After which, the then existing principal balance and interest rate shall amortize over an amortization schedule ending January 20, After April 15, 2015 through March 15, 2020, the interest is at a rate equal to 3.95%. After March 15, 2020, the interest is at a variable rate equal the domestic Prime Rate as published in the Wall Street Journal. Secured by real estate. 2,287,857 2,287,857 Balance forward 11,987,857 12,087,857 15