CHESTER COUNTY FOOD BANK FINANCIAL STATEMENTS JUNE 30, 2017 AND 2016

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1 FINANCIAL STATEMENTS

2 CONTENTS Independent Auditors Report 1 Statements of Financial Position 3 Statements of Activities 4 Statements of Functional Expenses 5 Statements of Cash Flows 6 Notes to Financial Statements 7 Report on Internal Control and Compliance 23

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5 3 STATEMENTS OF FINANCIAL POSITION ASSETS CURRENT ASSETS Cash and cash equivalents $ 522,812 $ 571,957 Accounts receivable 10,205 95,234 Grants receivable Unconditional promises to give 163, ,654 State receivable - 176,404 Inventory 383, ,400 Prepaid expenses 16,268 29,684 TOTAL CURRENT ASSETS 1,095,820 1,588,873 Investments 7,208,630 6,422,211 Unconditional promises to give, net 39, ,851 Property and equipment, net 3,821,654 3,837,779 TOTAL ASSETS $ 12,165,320 $ 11,986,714 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 72,992 $ 30,912 Accrued expenses 97,409 45,802 TOTAL CURRENT LIABILITIES 170,401 76,714 Refundable advance 250, ,000 TOTAL LIABILITIES 420, ,714 NET ASSETS Unrestricted: Undesignated 4,785,376 4,615,843 Property and equipment 3,571,654 3,587,779 Board designated for hunger relief programs 3,000,000 3,000,000 Total unrestricted 11,357,030 11,203,622 Temporarily restricted 387, ,378 TOTAL NET ASSETS 11,744,919 11,660,000 TOTAL LIABILITIES AND NET ASSETS $ 12,165,320 $ 11,986,714 See Accountants' Report and Notes to Financial Statements

6 4 STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED Temporarily Total Temporarily Total Unrestricted Restricted 2017 Unrestricted Restricted 2016 SUPPORT, REVENUES, AND RECLASSIFICATIONS Contributions $ 1,344,868 $ 190,450 $ 1,535,318 $ 1,460,688 $ 67,716 $ 1,528,404 Contributions in-kind 1,648,429-1,648,429 1,990,620-1,990,620 Grants 426,740 94, , , , ,275 Government support 383, , ,668 25, ,668 Investment income (net) 784, ,513 (38,055) - (38,055) Wholesale nutrition, net of food costs 77,267-77,267 31,220-31,220 Miscellaneous 5,409-5,409 8,705-8,705 Net assets released from restrictions 353,189 (353,189) - 376,225 (376,225) - TOTAL SUPPORT, REVENUES, AND RECLASSIFICATIONS 5,023,935 (68,489) 4,955,446 4,869,346 (142,509) 4,726,837 EXPENSES Program services 4,100,106-4,100,106 3,793,890-3,793,890 Supporting services Management and general 518, , , ,559 Fundraising 251, , , ,275 TOTAL EXPENSES 4,870,527-4,870,527 4,362,724-4,362,724 CHANGES IN NET ASSETS 153,408 (68,489) 84, ,622 (142,509) 364,113 NET ASSETS - BEGINNING OF YEAR 11,203, ,378 11,660,000 10,697, ,887 11,295,887 NET ASSETS - END OF YEAR $ 11,357,030 $ 387,889 $ 11,744,919 $ 11,203,622 $ 456,378 $ 11,660,000 See Accountants' Report and Notes to Financial Statements

7 STATEMENTS OF FUNCTIONAL EXPENSES FOR THE YEARS ENDED Program Management Total Program Management Total Services and General Fundraising 2017 Services and General Fundraising 2016 COMPENSATION RELATED Salaries $ 755,628 $ 227,353 $ 105,575 $ 1,088,556 $ 596,364 $ 127,778 $ 77,255 $ 801,397 Employee benefits 143,110 44,991 21, , ,956 13,603 15, ,468 Payroll taxes 52,737 17,228 7,973 77,938 58,399 8,798 7,559 74,756 Worker's compensation insurance 25,370 7,890 3,949 37,209 16,976 1,944 2,238 21,158 Other - 5,182-5, TOTAL COMPENSATION RELATED 976, , ,387 1,418, , , ,961 1,035,197 Accounting and legal 1,340 28,529-29,869 3,580 52,644-56,224 Advertising 1,611 28,534 7,573 37,718 1,206 33,147 2,470 36,823 Independent contractors 106,823 2, , ,635 7, ,128 Depreciation and amortization 163,745 20,913 10, , ,706 17,877 8, ,863 Donated food distributed 1,725, ,725,081 1,798, ,798,573 Donations to food cupboards 730, , , ,180 Dues and subscriptions 1,534 8, ,310 2,785 5, ,590 Event supplies ,348 19, ,448 19,448 Insurance 17,061 3,778-20,839 17,091 3,194-20,285 License, tax and registrations 1, , Meetings and training 4,374 5,090 6,004 15,468 4,972 4,631 3,354 12,957 Miscellaneous 1,522 3,150 2,435 7, , ,485 Office expense 10,557 77,018 39, ,910 3,090 21,242 66,755 91,087 Professional services - 11,072 11,904 22,976 2,780 26,405 12,946 42,131 Program supplies 97,112 6,117 6, , , ,514 Rent 3,563 3,825-7,388 6, ,836 Repairs and maintenance 83,769 1,903-85,672 55,117 7,209-62,326 Security 1, ,595 3, ,116 Telephone and internet 18,840 3,142 2,282 24,264 17,421 1, ,138 Travel 25,752 2,721 6,588 35,061 25,093 2,675 1,239 29,007 Utilities 50,709 9,191-59,900 44,648 7,879-52,527 Vehicle expense 76, ,183 79, ,774 TOTAL EXPENSES $ 4,100,106 $ 518,981 $ 251,440 $ 4,870,527 $ 3,793,890 $ 349,559 $ 219,275 $ 4,362,724 See Accountants' Report and Notes to Financial Statements 5

8 6 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 84,919 $ 364,113 Adjustments to reconcile change in net assets to cash provided by operating activities: Depreciation and amortization 194, ,863 Net realized and unrealized (gain) loss on investments (695,356) 130,177 Net realized gain on sale of vehicle 3,250 - Donations of marketable securities (313,462) (236,000) Decrease in discount on promises to give (2,365) (4,109) (Increase) decrease in operating assets: Accounts receivable 85,029 (72,300) Grants receivable ,190 State receivable 176,404 (176,404) Unconditional promises to give 182,481 73,191 Inventory 87,038 (183,450) Prepaid expenses 13,416 (11,211) Increase (decrease) in operating liabilities: Accounts payable 42,080 14,287 Accrued expenses 51,607 4,075 NET CASH PROVIDED BY OPERATING ACTIVITIES (89,761) 112,422 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (178,534) (32,697) NET CASH USED BY INVESTING ACTIVITIES (178,534) (32,697) CASH FLOWS FROM FINANCING ACTIVITIES Purchase of investments (506,690) (1,849,350) Proceeds from sale of investments 725,840 1,500,554 NET CASH USED BY FINANCING ACTIVITIES 219,150 (348,796) NET DECREASE IN CASH AND CASH EQUIVALENTS (49,145) (269,071) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 571, ,028 CASH AND CASH EQUIVALENTS - END OF YEAR $ 522,812 $ 571,957 See Accountants' Report and Notes to Financial Statements

9 7 NOTE 1 NATURE OF OPERATIONS The Chester County Food Bank (the Food Bank ) incorporated under the Nonprofit Corporation Law of the Commonwealth of Pennsylvania on August 24, The purpose of the Food Bank is to provide for the acquisition, storage, collection, distribution, advocacy, and growing of food to meet the needs of low-income citizens at risk of hunger and malnutrition within Chester County, Pennsylvania. The Chester County Food Bank is the largest distributor of food to low-income families and individuals in Chester County, Pennsylvania providing non-perishable groceries, fresh produce, dairy, bread and meat to over 130 nonprofit agencies, from senior centers and after-school programs to soup kitchens and food pantries. The Food Bank solicits donations from a large network of sources, including large corporations, supermarket chains, wholesalers, restaurant suppliers, the United States Department of Agriculture, growers, and food drives, and then distributes these food commodities to qualifying public service agencies and neighborhood pantries. For the years ended June 30, 2017 and 2016, the Food Bank collected more than 2.8 million pounds of food and distributed more than 2.5 million pounds. Fresh produce, protein, staples and other nutritious items were distributed by the Food Bank. For the years ended June 30, 2017 to 2016, the Food Bank experienced a decrease in government funding and food donations. This funding and food donations equaled 14.68% and 25.51% of total revenues and support, respectively, from the following government agencies: Pennsylvania Department of Agriculture - The Emergency Food Assistance Program (TEFAP): The TEFAP revenue represents funds which have been distributed through the Chester County Department of Human Services under a contract dated September 17, These funds are administered at the federal level by the United States Department of Agriculture. These funds are designated to partially cover the costs of distributing mostly non-perishable food to non-profit agencies serving low-income families and individuals through their emergency meal and pantry programs. State Food Purchase Program (SFPP): SFPP is a grant from the Commonwealth of Pennsylvania through the Pennsylvania Department of Agriculture. SFPP provides food program support and capital purchases which are distributed through the Chester County Department of Human Services under a contract dated September 17, Commodity Supplemental Food Program (CSFP): CSFP is administered at the federal level by the Food and Nutrition Service (FNS), an agency of the U.S. Department of Agriculture and administered by the Commonwealth of Pennsylvania through the Department of Agriculture. CSFP provides boxes of nutritious food to 466 qualifying senior citizens on a monthly basis. This program was discontinued in October 2016.

10 8 NOTE 2 PROGRAM SERVICES Unique in our form and mission, the Food Bank has transformed the approach to food insufficiency in the county over its seven year history. The combination of direct food support, a priority on fresh food and an investment in education programs has brought to bear the great resources of our area agricultural bounty, volunteers, funders and partners to evolve how we address an invisible and insidious problem. While food drives and government programs provide a part of our support of the community, our work goes well beyond this. The relationship between adequate nutrition and health, wellness and appropriate physical, emotional and mental development are well established; however, rarely are these priorities made available to our most vulnerable neighbors. Our work bridges that gap. Food Distribution The Food Bank collects, stores, and delivers food to over 130 food providing organizations and other organizations that provide food for people in need. Food products include fresh produce, non-perishable items, dairy, bread, and meat. This past year, the Food Bank provided nutritious food equivalent to over 2.2 million meals for hungry people in Chester County. Hunger is an issue for approximately 50,000 individuals in Chester County. An increasing number of families, including children and seniors, have come to depend upon the Food Bank and our partner pantries, cupboards and meal sites. Provision of food to address the immediate need in the community has always been and always will be our highest priority. Our distribution is centralized at our main office and warehouse, located in Exton, PA, acquired in 2013 and renovated to accommodate the needs of the size of the operation and unique handling concerns of fresh food. With over 2.5 million pounds of food distributed in the past fiscal year (over 33% fresh food), the warehouse has well served the needs of the Food Bank s food-providing partners located throughout the county, including community agencies, schools and senior centers. Fresh and Local (Agriculture Programs) Since its inception, the Food Bank has continued to improve upon our ability to leverage key partnerships and purposefully invest resources to acquire and distribute the healthiest food possible to Chester County residents. The priority of fresh and local drives our programming decisions, partnerships, resource allocation and strategic planning. The Food Bank has developed a strong relationship with Philabundance and Feeding America which will increase the availability of fresh produce. By remaining true to its mission of providing access to fresh food while continuing to build innovative programming, the Food Bank remains able to respond to the unique needs of Chester County, as well as maximize the many resources the area has to offer its residents. In addition to a significant capital investment in refrigeration, freezing and

11 9 NOTE 2 PROGRAM SERVICES (Cont d) fresh food processing equipment at our main office, the Food Bank also has greatly increased the capacity of local food cupboards to provide fresh foods, dairy and meat products to their clients. More than 165,000 pounds of locally grown, fresh produce were harvested from farms and gardens throughout the county, utilizing the services of over 2,200 community volunteers, donating over 12,000 hours of their time. The Food Bank cooperates with local farmers who have agreed to donate food grown at their farms to the Food Bank for distribution. In addition, the Food Bank constructs and donates Raised Bed and Covered High Tunnel vegetable gardens at various locations throughout the county, including churches, corporations, schools and civic organizations. The groups then maintain the beds and donate the food they grow to local pantries, feeding sites, and the Food Bank. The Food Bank has 101 active partner gardens with over 640 raised bed gardens and 8 covered high tunnel gardens. In the past year the Raised Bed Garden Program built 4 new gardens containing a total of 15 beds. Also in the past year, two sites built an additional 10 beds and 27 beds at six sites were completely rebuilt. Weekend Food Backpack Program The Food Bank provides backpacks filled with nutritious food for school children from low-income families to take home every Friday during the school year so that they have food during the weekends when school-based meals are not served. The Food Bank provided food to fill 10,318 packs for the 647 children who were enrolled in the program during this past fiscal year. Summer Student Food Program The Food Bank s Summer Food Box help school age children and their families receive nutritious, easy-to-prepare non-perishable food during the summer vacation months at their participating member agency or youth center. Volunteers pack the Summer Food Box with a rotating variety of shelf stable items which are then distributed to 18 locations that provide a monthly box to over 1,700 qualifying children in Chester County. Senior Food Program In October 2016 the Food Bank discontinued the Commodity Supplemental Food Program (CSFP) due to the administrative burden it placed on the Food Bank s operations. In its place, the Food Bank developed the Senior Food Box Program. Through this program the Food Bank provides boxes of nutritious food specially designed to meet the needs of seniors. 620 low-income older adults were enrolled in this program during the past year.

12 10 NOTE 2 PROGRAM SERVICES (Cont d) Emergency Food Box Program The Food Bank provides hungry families and individuals facing emergencies with an immediate three-day supply of food from the Food Bank. These food boxes are distributed by our food providing partners, as well as schools, local and state government offices and community organizations. 960 emergency boxes were supplied in the past year, at no cost to recipients. Nutrition Education and Outreach Simply providing food, no matter how abundant and nutritious, is only a part of the solution. The Food Bank focuses on teaching sustainable methods of growing fresh produce and providing education on how to prepare and enjoy nutritious foods. The Food Bank has developed and launched a cutting edge program - Project Fresh - that combines nutrition education and hands-on experience with an increased availability of fresh foods to promote healthy food preparation and eating habits as a springboard to healthier lifestyles. One of very few in the country, this initiative works at schools and in the community to provide the impetus and means for children and their families to make sound nutritional food choices, learn to grow fresh produce, experience new foods and recipes and take overall stock of their family s health. With hands-on experience at our Outdoor Classroom at Springton Manor County Park, community gardens and a state-ofthe-art greenhouse located at the Technical College High School in Lincoln, PA, we reinforce the importance of sustainable agriculture and the many future career paths in agriculture available to young students. Mobile Market The Fresh2You Mobile Market connects low-income community members to the bounty of fresh produce grown in our region by working closely with the Food Bank s Agricultural Program and a network of partner farms. Fresh2You seeks to make highquality food affordable to the whole community at fair value to the farmer. Donated produce to the Food Bank is not sold as part of Fresh2You. Fresh2You helps customers shopping with food assistance benefits to stretch their food budgets by offering financial incentives. Shoppers using the SNAP (Food Stamp) benefits at the market receive a dollar-for-dollar match on all purchases of fresh fruits and vegetables. We believe, programmatically and organizationally wide, that the most effective way to alleviate hunger today and lay the foundation for better lives in the future is to pair the provision of food with engaging, informative and useful education for children and their families. This combination is what sets our work in Chester County apart from how a more traditional food bank approaches hunger.

13 11 NOTE 2 PROGRAM SERVICES (Cont d) As a community partnership effort with Meals on Wheels of Chester County and the Chester County Department of Aging, the Chester County Food Bank produces and sells frozen meals, which are distributed to Meals on Wheels sites around the County. The Food Bank also produces hot meals each week day for two Meals on Wheels chapters in Downingtown and West Chester. NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting and Presentation The financial statements of Chester County Food Bank have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. As required by the Financial Statements of Not-for-Profit Entities Topic of the FASB Accounting Standards Codification No. 958, ( FASB ASC 958 ), the Food Bank reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Unrestricted net assets include those assets over which the Board of Directors has discretionary control in carrying out the operations of the Food Bank. Under this category, the Food Bank maintains an operating fund, any net assets designated by the Board for specific purposes and the unrestricted inventory and property and equipment funds. Temporarily restricted net assets include those assets which are subject to donor restriction and for which the applicable restriction was not met as of the end of the current reporting period. Permanently restricted net assets include those assets which are subject to a non-expiring donor restriction, such as endowments. There are currently no permanently restricted net assets. 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.

14 12 NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) Cash and Cash Equivalents The Food Bank considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The Food Bank maintains cash balances and money market funds at six financial institutions. The Federal Deposit Insurance Corporation (FDIC) insures cash balances up to $250,000. The Securities Investor Protection Corporation (SIPC) insures cash and securities up to $500,000, which includes a $250,000 limit for cash. In the normal course of business, the Food Bank may have deposits that exceed the insured balances. The FDIC does not insure money market funds. The uninsured cash and money market fund balances at June 30, 2017 and 2016 were $376 and $0, respectively. Accounts and Grants Receivable Receivables represent amounts due from the County of Chester, stated at the amount the Food Bank expects to collect for USDA contract fees, and amounts due from local food banks for dairy products purchased in excess of allocated amounts. Provision for losses on receivables is made when considered necessary to maintain an adequate allowance to cover bad debts. Receivables are charged against the allowance when the Food Bank determines that payments will not be received. Any subsequent receipts are credited to the allowance. As of June 30, 2017 and 2016, the Food Bank estimates that no reserve for losses on receivables is required. The Food Bank received a grant from the USDA for the launch of the Food Bank s Fresh2You! Mobile Market. Funding is available up to approximately $76,000 which must be utilized by March 31, An amendment to the USDA contract extended the performance date from March 31, 2016 as previously written, to March 31, At June 30, 2017 and 2016 amounts due from the USDA were $0 and $540, respectively. At June 30, 2017 the Food Bank is currently working to close out the USDA grant that expired March 31, Approximately $30,700 of remaining funding will be forfeited due to constraints on classifications of spending available for use towards the Mobile Market. Promises to Give Unconditional promises to give are recognized as revenues or gains in the period in which notification of such promise is received. Unconditional promises to give due in one year or less are recorded at their net realizable value. Unconditional promises to give due in more than one year are recorded at fair value in the year promised using present value techniques. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Provision for losses on promises to give is made when considered necessary to maintain an adequate allowance to cover bad debts.

15 13 NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) Promises to give are charged against the allowance when the Food Bank determines that payments will not be received. Subsequent receipts are credited to the allowance. As of June 30, 2017 and 2016 the Food Bank estimates that no reserve for losses on promises to give is required. There was no bad debt expense recognized for the years ended June 30, 2017 and Inventory Inventory consists of food received from various government agencies, public donations, and direct purchases. Inventory is valued at lower of cost or market for purchased food, at $1.67 per pound for public donations, and published fair market values for government donations. Land, Building, and Improvements Land, building, and improvements are recorded at cost or estimated fair value for donated items. Depreciation is computed on the straight-line method based on the estimated useful lives of the assets, which range from three to seven years for vehicles, office furniture and equipment, and thirty-nine years for buildings and building improvements. Equipment purchases over $5,000 are capitalized. Depreciation is recorded as a decrease in unrestricted net assets and the expense is charged to the activity benefiting from the use of the facilities or equipment. Amounts expended for maintenance and repairs are charged to operations as incurred. The Food Bank regularly evaluates its long-lived assets for indicators of possible impairment. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset's fair market value or discounted estimates of future cash flows. The Food Bank has not identified any such impairment losses to date. Investments As required by the Investment Topic of the FASB Accounting Standards Codification No , ( FASB ASC ), the Food Bank reports investments in marketable securities with readily determinable fair values and all investments in debt securities at their fair values in the statements of financial position. Unrealized gains and losses are included in the change in net assets. Management fees on investments are recorded as a reduction to investment income. Investment income and gains restricted by a donor are reported as increases in unrestricted net assets if the restrictions are met (either by passage of time or by use) in the reporting period in which the income and gains are recognized.

16 14 NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) The Food Bank s investments are recorded at fair value and re-measured using Level 1 inputs, which are defined as quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Donations received by the Food Bank in the form of investments are sold by the Food Bank as close as possible to the time received and converted to cash. Revenue Recognition The Food Bank recognizes support and revenue on the accrual basis of accounting. Revenue from grants which have been classified as "exchange transactions" and program fees are recognized as revenue in the period in which the service is provided. Contributions As required by the Financial Statements of Not-for-Profit Entities Revenue Recognition Topic of the FASB Accounting Standards Codification No ( FASB ASC ), the Food Bank reports contributions when the donor makes a pledge to give that is, in substance, an unconditional promise. Contributions are recorded as unrestricted, temporarily restricted, or permanently restricted depending on the nature of donor restrictions. Restricted contributions are reported as increases in restricted net assets. When the restriction is met the amount is shown as a reclassification of restricted net assets to unrestricted net assets. Contributions In-Kind Contributions in-kind are also recognized in accordance with the provisions of the Financial Statements of Not-for-Profit Entities Revenue Recognition Topic of the FASB Accounting Standards Codification No , ( FASB ASC ). Except for food items donated by the TEFAP, SFPP, and CSFP, contributed food items are recorded as inventory at a per-pound value using the weighted average price per pound as determined by Feeding America. For the years ended June 30, 2017 and 2016, the weighted average value for contributed food was $1.67 and $1.70 per pound, respectively. Donated equipment and other donated goods are recorded at their estimated fair value as of the date of the donation. Contributed services, which require a specialized skill and which the Food Bank would have paid for if not donated, are recorded at the estimated fair value at the time the services are rendered. The Food Bank also receives donated services that do not require specific expertise but which are nonetheless central to the Food Bank's operations. While these contributed services are not reflected in the financial statements the estimated value of these services is disclosed in Note 13.

17 15 NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) Allocation of Functional Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities and in the statement of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited based on an analysis of personnel time and poundage of food distributed by each program. Income Taxes The Chester County Food Bank is exempt from federal income taxes under Section 501 (c)(3) of the Internal Revenue Code. Accordingly, no provision for income taxes has been made in the accompanying statements. In addition, the Organization qualifies for the charitable contribution deduction under Section 170(b)(1)(A) and has been classified as an organization that is not a private foundation under Section 509(a). The Food Bank recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Management has determined that the Food Bank had no uncertain tax positions that would require financial statement recognition. Advertising Advertising costs are charged to operations when incurred. Advertising costs for the years ended June 30, 2017 and 2016 are $37,718 and $36,823, respectively. Reclassifications Certain reclassifications have been made to the 2016 financial statement presentation to correspond to the current year s format. Net assets and changes in net assets are unchanged due to these reclassifications. NOTE 4 INVENTORY Government Food $ 74,092 $ 343,188 Non-government Food 309, ,212 Inventory Total $ 383,362 $ 470,400 Inventory at June 30, 2017 and 2016 consisted of 399,000 and 393,000 pounds of food, respectively.

18 16 NOTE 5 UNCONDITIONAL PROMISES TO GIVE Unconditional promises to give at June 30, 2017 and 2016 consist of the following: Unrestricted promises $ 203,173 $ 360,654 Restricted to capital expenditures - 25,000 Gross unconditional promises to give 203, ,654 Less: discount ( 784) ( 3,149) Net unconditional promises to give $ 202,389 $ 382,505 Gross amounts due in: Less than one year $ 163,173 $ 244,654 One to five years 40, ,000 $ 203,173 $ 385,654 Unconditional promises to give due in more than one year after June 30, 2017 and 2016 have been discounted using a discount rate of 2%. NOTE 6 FAIR VALUE MEASUREMENT Accounting standards require that assets that are measured at fair value be categorized according to a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, giving highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to measurements involving significant unobservable inputs. If the inputs used fall within different levels of the hierarchy, the categorization is based upon the lowest level input that is significant to the fair value measurement. The three levels of the fair value hierarchy are as follows: Level 1 Unadjusted quoted market prices for identical assets and liabilities in active markets. Level 2 Unadjusted quoted market prices for similar assets and liabilities in active markets (other than those included in Level 1), which are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 Significant unobservable inputs for the asset or liability. The fair value of mutual funds, publicly traded equity securities, and government obligations are included in Level 1 and are based on quoted market prices of identical securities.

19 17 NOTE 6 FAIR VALUE MEASUREMENT (Cont d) The following table presents assets (Level 1) that are measured at fair value on a recurring basis at June 30, 2017: Level 1 Mutual funds $ 6,208,207 Exchange-traded products 1,000,423 $ 7,208,630 The following table presents assets that are measured at fair value on a recurring basis at June 30, 2016: Level 1 Mutual funds $ 5,600,208 Exchange-traded products 822,003 $ 6,422,211 Promises to give fall under Level 3 in the fair value hierarchy. The recorded amounts approximate fair value and are based on unobservable inputs, including estimated future payment dates and management s past experience collecting similar pledges. There were no changes to valuation techniques used during the fiscal year ended June 30, As of June 30, 2017 and 2016, promises to give are valued at $202,389 and $382,505, respectively. Changes in fair value of the Food Bank s unconditional promises to give, net present value (Level 3 assets) are summarized as follows: BALANCE AT BEGINNING OF YEAR $ 382,505 $ 451,587 New unconditional promises to give 60, ,176 Unconditional promises to give collected (242,481) (213,367) Changes in discount on unconditional promises to give 2,365 4,109 BALANCE AT END OF YEAR $ 202,389 $ 382,505

20 18 NOTE 7 INVESTMENTS Investments in marketable securities stated at fair value consist of the following at June 30, 2017 and 2016: Mutual funds $ 6,208,207 $ 5,600,208 Exchange-traded products 1,000, ,003 $ 7,208,630 $ 6,422,211 The following summarizes investment income for the years ended June 30, 2017 and 2016: Interest and dividends $ 117,454 $ 119,459 Net realized gains 84,424 66,744 Net unrealized gains (losses) 610,932 (196,921) Management fees (28,297) (27,337) $ 784,513 $ (38,055) NOTE 8 PROPERTY AND EQUIPMENT Property and equipment consisted of the following at June 30, 2017 and 2016: Building, land, and improvements $ 3,921,563 $ 3,798,729 Vehicles 265, ,734 Equipment and furniture 460, ,696 Software 29,127 29,127 4,676,641 4,507,286 Less: accumulated depreciation and amortization ( 854,987) ( 669,507) Net property and equipment $ 3,821,654 $ 3,837,779 Depreciation and amortization expense for the years ended June 30, 2017 and 2016 was $194,658 and $193,863, respectively. NOTE 9 REFUNDABLE ADVANCE On February 3, 2011, the Food Bank received a $250,000 grant from the Department of Community Development of the County of Chester (DCD) for the partial acquisition of a property to be used as a community food bank. The grant is secured by the property including any improvements, fixtures, and equipment located in Downingtown, PA. In the event the Food Bank satisfies its obligations and responsibilities in accordance with the Federal Community Development Block Grants Program, which includes maintaining the property as a community food bank for low-income persons for a period of 10 years, the full principle outstanding and any interest accrued will be forgiven. If the

21 19 NOTE 9 REFUNDABLE ADVANCE (Cont d) Food Bank fails to meet its obligations; the grant will be due on demand including interest from the date of disbursement to the date of repayment at a rate of 1% per year. On May 6, 2013, DCD approved the transfer of the grant documents from the property in Downingtown, PA to the Food Bank s new location in Exton, PA. NOTE 10 DEBT Line of Credit In June 2013, the Food Bank established a $500,000 line of credit with a local bank. Interest is charged at a variable rate based on the London Interbank Offered Rate ( LIBOR ) for maturities of one month (3.6938% at June 30, 2017), and is due monthly on the outstanding borrowings. The note matures May The line of credit is secured by the Food Bank s building and property at 650 Pennsylvania Drive, Exton, PA. There was no outstanding balance for the years ended June 30, 2017 and Note Payable In June 2013, the Food Bank obtained a $2,000,000 open-end mortgage from a local bank. The mortgage is secured by the Food Bank s building and property at 650 Pennsylvania Drive, Exton, PA. Interest is charged at a variable rate based on the London Interbank Offered Rate ( LIBOR ) for maturities of one month (3.6938% at June 30, 2017), and is due monthly on the outstanding principal balance. The note was repaid in full in December, 2013, however the note was left open until maturity, to offer the Food Bank the flexibility to use if needed. The note was to mature on June 14, 2016 however the note was closed on April 14, NOTE 11 BOARD DESIGNATED NET ASSETS The Food Bank s Board of Directors designated $2,000,000 of unrestricted Hunger Relief Campaign funds and $1,000,000 of Doing More Campaign funds to a board restricted fund for the use of the programs identified in the campaigns.

22 20 NOTE 12 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets at June 30, 2017 and 2016 consist of the following: Time restricted $ 214,783 $ 317,505 Capital expenditures - 25,000 Program expenses 118, ,873 Community needs assessment 40,000 - Advertising expenses 14,250 - $ 387,889 $ 456,378 Net assets were released from donor restrictions by incurring expenses satisfying restricted purposes as follows: Pledge payments received $ 215,117 $ 200,563 Capital expenditures 25,000 29,000 Program expenses 113, ,662 $ 353,189 $ 376,225 NOTE 13 CONTRIBUTIONS IN-KIND The estimated fair value of donated food, supplies, marketable securities, and expert services received are recorded as contributions. During the years ended June 30, 2017 and 2016, the following in-kind contributions were received by the Food Bank: Contributions in-kind - government: Food - state $ 343,703 $ 773,317 Total contributions in-kind government $ 343,703 $ 773,317 Contributions in-kind - non-government: Food drives 662, ,329 Growing program 629, ,407 Supplies 318 6,417 Consulting services 5,333 8,000 Landscaping services - 5,130 Legal services - 1,020 Website design 6,000 - Transportation Total contributions in-kind non-government 1,304,726 1,217,303 Total contributions in-kind $ 1,648,429 $ 1,990,620

23 21 NOTE 13 CONTRIBUTIONS IN-KIND (Cont d) The Food Bank also receives donated services that do not require specific expertise but which are nonetheless central to the Food Bank's operations. The Food Bank relies on volunteers from the community to sort, glean, and repack donated food. The estimated value of these services for the years ended June 30, 2017 and 2016, based on the estimated dollar value of volunteer time calculated using the Pennsylvania Minimum Wage rate, is $325,955 and $307,098, respectively. In accordance with Financial Statements of Not-for-Profit Entities Revenue Recognition Topic of the FASB Accounting Standards Codification No ( FASB ASC ), the value of these services is not reflected in the financial statements. NOTE 14 RETIREMENT PLAN The Food Bank participates in a SIMPLE IRA plan covering all eligible employees. Contributions for the years ended June 30, 2017 and 2016 were $13,128 and $13,624, respectively. NOTE 15 CONFLICT OF INTEREST POLICY Included among the Food Bank's Board of Directors and Officers are volunteers from the community who provide valuable assistance to the Food Bank in the development of policies and programs and in the evaluation of business transactions. The Food Bank has adopted a conflict of interest policy whereby board members are disqualified from participation in the final decisions regarding any action affecting their related company or organization. NOTE 16 COMMITMENTS AND CONTINGENCIES Grants and Contracts - Grants and contracts awarded to the Food Bank are subject to the funding agencies' criteria, contract terms and regulations under which expenditures may be charged and are subject to audit under such terms, regulations and criteria. Occasionally, such audits may determine that certain costs incurred against the grants do not comply with the established criteria that govern them. In such cases, the Food Bank could be held responsible for repayments to the funding agency for the costs or be subject to the reductions of future funding in the amount of the costs. Management does not anticipate any material questioned costs for the contracts and grants administered during the year.

24 22 NOTE 17 LEASE COMMITMENT The Food Bank has two leases for office equipment. For the years ended June 30, 2017 and 2016, leased office equipment expense was $12,105 and $10,851, respectively. Future minimum lease payments are as follows: NOTE 18 SUBSEQUENT EVENTS Year ended June $ 4, , , , $ 14,063 As required by the Subsequent Events Topic of the FASB Accounting Standards Codification No ( FASB ASC ) the Food Bank has evaluated those events and transactions that occurred from June 30, 2017 through September 25, 2017 the date the financial statements were available to be issued and determined there were no other items to be disclosed.

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