Year Ended September 30, 2015 (With Restated Summarized Comparative Totals for 2014)

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1 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION WITH INDEPENDENT AUDITOR S REPORT Year Ended (With Restated Summarized Comparative Totals for 2014)

2 TABLE OF CONTENTS Page Independent Auditor s Report Consolidated Financial Statements: Consolidated Statement of Financial Position... 3 Consolidated Statement of Activities Consolidated Statement of Functional Expenses Consolidated Statement of Cash Flows... 9 Notes to Consolidated Financial Statements Supplementary Financial Information: Consolidating Statement of Financial Position Consolidating Statement of Activities

3 INDEPENDENT AUDITOR S REPORT To the Board of Governors Boys & Girls Clubs of San Francisco and Affiliates San Francisco, California Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Boys & Girls Clubs of San Francisco and Affiliates (the Club), which comprise the consolidated statement of financial position as of September 30, 2015, and the related consolidated statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated 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 consolidated 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of 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 consolidated 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.

4 To the Board of Governors Boys & Girls Clubs of San Francisco and Affiliates Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Club as of, 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. Report on Summarized Comparative Information We have previously audited the Club s 2014 consolidated financial statements, and our report dated February 2, 2015, expressed an unmodified opinion on those audited consolidated financial statements. During the year ended, we audited the adjustment in Note 20. In our opinion, the summarized comparative information presented herein as of and for the year ended September 30, 2014, as restated, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived. Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplementary schedules as of and for the year ended, on pages 37 to 39 are presented for purposes of additional analysis and are not a required part of the consolidated 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole. San Francisco, California February 23,

5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (With Restated Summarized Comparative Totals for 2014) (Restated) ASSETS Cash and cash equivalents $ 2,067,308 $ 1,620,115 Accounts receivable 386, ,639 Grants receivable 711, ,258 Promises to give, net (Note 2) 1,256,804 2,025,647 Prepaid expenses 217, ,491 Notes receivable (Note 3) 29,605,402 29,605,402 Investments (Note 4) 2,953,961 3,525,157 Interest in the net assets of the endowment trust (Note 4) 32,627,716 30,196,327 Beneficial interest in charitable remainder trust (Note 4) 118, ,356 Cash restricted for long-term purposes 2,699,162 15,894,628 Cash restricted for interest (Note 8) 125, ,519 Property and equipment, net (Note 5) 36,020,637 17,484,565 Construction in progress 78,068 11,671,956 Debt issuance costs, net (Note 6) 1,103,041 1,400,870 Total assets $ 109,971,757 $ 115,092,930 LIABILITIES AND NET ASSETS Liabilities: Accounts payable and accrued expenses $ 1,163,013 $ 4,291,121 Accrued salaries and benefits 573, ,850 Deferred revenue 16,547 2,700 Notes payable (Note 8) 41,705,000 41,705,000 Total liabilities 43,457,575 46,537,671 Commitments and contingencies (Note 17) Net assets: Unrestricted (Notes 10 and 13) 47,090,180 46,270,033 Temporarily restricted (Note 11) 2,537,628 3,747,413 Permanently restricted (Notes 12 and 13) 16,886,374 18,537,813 Total net assets 66,514,182 68,555,259 Total liabilities and net assets $ 109,971,757 $ 115,092,930 See notes to consolidated financial statements. 3

6 CONSOLIDATED STATEMENT OF ACTIVITIES Year Ended (With Restated Summarized Comparative Totals for 2014) Temporarily Permanently Unrestricted Restricted Restricted Total Total Public support and revenue: Public support: Contributions: Individuals $ 819,495 $ 3,288,356 $ - $ 4,107,851 $ 6,001,092 Foundations and trusts 1,740, ,753-2,517,220 3,297,904 Government 1,817, ,817,598 1,591,987 Bequests 14, , ,547 Corporate 339, , , ,374 Federal awards 241, , ,560 Change in the interest in the net assets of the Endowment Trust (545,063) - (709,193) (1,254,256) 2,443,060 Special events, net (Note 15) 1,700,594 9,000-1,709,594 1,562,284 In-kind contributions 182, , ,434 Net assets released from restrictions (Note 14) 6,286,694 (5,344,448) (942,246) - - Total public support 12,597,557 (1,062,139) (1,651,439) 9,883,979 16,693,242 Revenue: Net investment income (Note 4) 472,965 36, , ,600 Net realized and unrealized investment gains (loss) (Note 4) (203,113) (67,116) - (270,229) 67,125 Other investment income (loss) (47,959) - - (47,959) 917,773 Membership dues 75, ,344 45,281 Camp fees 178,603 3, , ,159 Net program incidental revenue 69, ,768 84,076 Rental income 340, , ,802 Gain (loss) on sale of property (953) - - (953) 6,625,371 Total revenue 884,798 (26,146) - 858,652 8,692,187 Total public support and revenue 13,482,355 (1,088,285) (1,651,439) 10,742,631 25,385,429 See notes to consolidated financial statements. 4

7 CONSOLIDATED STATEMENT OF ACTIVITIES (CONTINUED) Year Ended (With Restated Summarized Comparative Totals for 2014) Temporarily Permanently Unrestricted Restricted Restricted Total Total Expenses: Program services $ 10,225,859 $ - $ - $ 10,225,859 $ 9,530,807 Supporting services: Management and general 1,412, ,412, ,037 Fundraising 991, ,065 1,303,604 Total expenses 12,629, ,629,112 11,714,448 Losses: Bad debt losses 33, , ,596 - Change in net assets 820,147 (1,209,785) (1,651,439) (2,041,077) 13,670,981 Net assets: Beginning of year, as restated, a reclassification 46,270,033 3,747,413 18,537,813 68,555,259 54,884,278 End of year $ 47,090,180 $ 2,537,628 $ 16,886,374 $ 66,514,182 $ 68,555,259 See notes to consolidated financial statements. 5

8 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year Ended (With Summarized Comparative Totals for 2014) Program Services Camp Columbia Don Mendocino Citywide Park Ernest Ingold Excelsior Fisher Salaries $ 652,985 $ 1,059,119 $ 556,695 $ 131,906 $ 442,942 $ 388,704 Employee benefits 92, ,022 94,169 22,991 72,375 74,255 Payroll taxes 53,347 81,474 43,935 10,396 34,839 30,685 Total salaries and related expenses 798,361 1,275, , , , ,644 Advertising and promotion ,633 Conferences and conventions 7,332 24,942 3, ,661 2,737 Equipment repairs and maintenance 21,266 30,815 10,281 2,667 8,497 7,964 Insurance 25,918 28,329 14,890 3,528 11,848 10,397 Interest ,150 Membership dues 6,842 5,852 3, ,447 2,198 Miscellaneous 2, ,257 - Occupancy 146, ,316 94, ,451 66,586 78,912 Postage Printing and publication 1,541 1,505 1, Professional fees 85,337 32,986 17,338 4,108 13,795 12,106 Program services contracts 41, , , Scholarships and stipends 9,700 70,498 5, Special events Supplies 41, ,184 28,804 2,288 19,087 15,963 Telephone 6,950 6,373 16,024 1,673 10,056 16,443 Transporation and travel 76,202 82,021 7,883 1,998 7,089 7,601 Total expenses before depreciation 1,271,943 1,911, , , , ,512 Depreciation and amortization 121,550 1, , , ,749 Total expenses 1,393,493 1,912,449 1,039, , ,209 1,566,261 Less expenses netted on the consolidated statement of activities $ 1,393,493 $ 1,912,449 $ 1,039,245 $ 295,822 $ 716,209 $ 1,566,261 See notes to consolidated financial statements. 6

9 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES (CONTINUED) Year Ended (With Summarized Comparative Totals for 2014) Program Services Visitacion Mission Sunnydale Tenderloin Valley Willie Mays Total Salaries $ 397,959 $ 130,993 $ 312,077 $ 255,682 $ 441,976 $ 4,771,038 Employee benefits 78,454 20,014 71,601 49,678 82, ,651 Payroll taxes 30,824 10,453 24,805 21,965 34, ,925 Total salaries and related expenses 507, , , , ,241 5,940,614 Advertising and promotion ,757 Conferences and conventions 2,115 2,607 3,124 1,272 2,455 53,835 Equipment repairs and maintenance 10,385 3,667 22,335 5,670 17, ,643 Insurance 10,645 3,504 8,347 6,839 11, ,067 Interest 186, ,513 Membership dues 2, ,724 1,413 2,442 29,646 Miscellaneous 5,222 1, ,241 Occupancy 52,256 12,544 34,295 52,461 98, ,514 Postage ,462 Printing and publication ,108 Professional fees 12,395 4,080 9,720 7,964 13, ,594 Program services contracts - 2, ,588 Scholarships and stipends ,417 88,315 Special events Supplies 9,934 29,702 22,508 14,800 28, ,445 Telephone 15,477 2,095 8,158 2,126 16, ,699 Transporation and travel 5,856 2,698 3,206 4,742 18, ,689 Total expenses before depreciation 815, , , , ,268 8,798,730 Depreciation and amortization 318,490 6, ,876 1,427,129 Total expenses 1,134, , , , ,144 10,225,859 Less expenses netted on the consolidated statement of activities $ 1,134,190 $ 237,604 $ 525,182 $ 427,260 $ 978,144 $ 10,225,859 See notes to consolidated financial statements. 7

10 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES (CONTINUED) Year Ended (With Summarized Comparative Totals for 2014) Supporting Services Totals Management and General Fundraising Total Salaries $ 705,742 $ 697,233 $ 1,402,975 $ 6,174,013 $ 5,623,665 Employee benefits 98,499 59, , , ,084 Payroll taxes 47,701 52, , , ,850 Total salaries and related expenses 851, ,539 1,661,481 7,602,095 7,028,599 Advertising and promotion 18,006 28,077 46,083 51,840 41,008 Conferences and conventions 18,701 2,682 21,383 75,218 50,140 Equipment repairs and maintenance 18,434 6,029 24, , ,048 Insurance 33,575-33, , ,456 Interest , ,041 Membership dues 3,835 1,230 5,065 34,711 35,422 Miscellaneous 13,447 17,782 31,229 43,470 60,448 Occupancy 51,486 37,951 89, , ,882 Postage 2,718 19,950 22,668 25,130 14,620 Printing and publication 8,036 23,254 31,290 39,398 29,743 Professional fees 339,828 29, , , ,218 Program services contracts ,588 94,364 Scholarships and stipends ,315 92,869 Special events - 392, , , ,692 Supplies 34,980 11,239 46, , ,821 Telephone 9,381 2,403 11, , ,511 Transporation and travel 4,934 1,398 6, , ,324 Total expenses before depreciation 1,409,303 1,383,250 2,792,553 11,591,283 11,036,206 Depreciation and amortization 2,885-2,885 1,430,014 1,036,934 Total expenses 1,412,188 1,383,250 2,795,438 13,021,297 12,073,140 Less expenses netted on the consolidated statement of activities - (392,185) (392,185) (392,185) (358,692) $ 1,412,188 $ 991,065 $ 2,403,253 $ 12,629,112 $ 11,714,448 See notes to consolidated financial statements. 8

11 CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended (With Summarized Comparative Totals for 2014) Cash flows from operating activities: Change in net assets $ (2,041,077) $ 13,670,981 Adjustments to reconcile change in net assets to net cash provided (used) by operating activities: Bad debt expense 154,596 - Net realized and unrealized investment gains (losses) 270,229 (67,125) Interest reinvested (124,756) (58,939) Change in the interest in the net assets of the Endowment Trust 1,254,256 (2,443,060) Contributions restricted for long-term purposes (4,273,309) (6,888,688) Depreciation and amortization 1,430,014 1,036,934 Loss (gain) on disposal of property and equipment 953 (6,625,371) Net debt issuance costs written off - 88,008 (Increase) decrease in assets: Accounts receivable (74,148) (32,024) Grants receivable (267,905) 34,474 Promises to give 3,947,349 5,488,604 Beneficial interest in charitable remainder trust - (118,356) Prepaid expenses 99,252 (153,520) Increase (decrease) in liabilities: Accounts payable and accrued expenses (3,128,108) 3,625,685 Accrued salaries and benefits 34,165 88,480 Deferred revenue 13,847 (203,400) Net cash provided (used) by operating activities (2,704,642) 7,442,683 Cash flows from investing activities: Purchase of investments (380,010) (1,672,171) Proceeds from sale or maturity of investments 805, ,928 BGCSF Board designated investment in Endowment Trust (5,545,000) (1,125,000) Distributions from the Endowment Trust 1,859,355 1,585,879 Change in cash restricted for long-term purposes 13,548,531 9,292,243 Proceeds from sale of property and equipment - 7,722,036 Purchase of property and equipment (75,491) (36,230) Cash paid for construction in progress (8,001,490) (10,351,985) Net cash provided by investing activities 2,211,628 6,139,700 Cash flows from financing activities: Proceeds from contributions restricted for long-term purposes 940, ,100 Repayments on notes payable - (14,500,000) Net cash provided (used) by financing activities 940,207 (13,586,900) Net increase (decrease) in cash and cash equivalents 447,193 (4,517) Cash and cash equivalents: Beginning of year 1,620,115 1,624,632 End of year $ 2,067,308 $ 1,620,115 See notes to consolidated financial statements. 9

12 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Purpose and Organization Boys & Girls Clubs of San Francisco and Affiliates (the Club) is a non-profit organization dedicated to providing young people, ages 6 to 18, access to safe, fun, educational, and positive opportunities using a youth development approach. Resources offered to members include character and leadership development, sports and recreation, fine arts and crafts, educational enhancements, technology and career development, and health and life skills. There are nine locations throughout San Francisco and a summer camp in Mendocino County. The Board of Governors serve as an oversight and policy making body for the Club. Operations at the Don Fisher Clubhouse, began January of The Club s mission statement, its core belief, and its approach to youth development are as follows: Mission Statement: -is to inspire and enable all young people, especially those from disadvantaged circumstances, to realize their full potential as productive, responsible, and caring citizens. Core Belief: -that young people will achieve extraordinary things when they are provided with skilled and caring staff, fun and effective programs, and first class facilities in an environment that promotes respect, responsibility, and fun. Approach to Youth Development: -that our Clubhouses, staff, and programs come together to create stability, consistency, and a sense of physical and emotional safety for our members. Our youth development professionals serve each day as positive role models who provide ongoing caring relationships with youth. We work to develop moral character and instill a sense of belonging, competence, usefulness, and influence. Staff members make the Club feel like a home, fostering a family atmosphere and creating a sense of ownership for members. Basis of Accounting The Club prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which involves the application of accrual accounting; consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. 10

13 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Principles of Consolidation The consolidated financial statements include the accounts of Boys & Girls Clubs of San Francisco (BGCSF) and its affiliates, BGCSF Mission Clubhouse, Inc. (Mission Clubhouse, Inc.), and BGCSF Fulton Clubhouse, Inc. (Fulton Clubhouse, Inc.), collectively referred to as the Club. BGCSF has a controlling interest in Mission Clubhouse, Inc. and Fulton Clubhouse, Inc. All significant inter-entity accounts and transactions have been eliminated. In June 2010, BGCSF s Mission Clubhouse facility was acquired by Mission Clubhouse, Inc. Mission Clubhouse, Inc. was formed to facilitate financing for the construction of the Mission Clubhouse facility through the New Markets Tax Credit (NMTC) program, enacted as part of the Community Renewal Tax Relief Act of 2000 as outlined under 45D of the Internal Revenue Code (IRC) (see Note 8). In June 2013, BGCSF s Fulton Clubhouse land was acquired by BGCSF from the City of San Francisco. Subsequently, BGCSF sold the land to Fulton Clubhouse, Inc. which was formed to facilitate financing for the construction of the Fulton Clubhouse facility through the NMTC program. Classification of Net Assets The Club reports information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. Accordingly, the net assets of the Club are classified and reported as described below: Unrestricted: Those net assets and activities which represent the portion of expendable funds that are available to support the Club s operations. A portion of these net assets may be designated by the Board of Governors for specific purposes. Temporarily Restricted: Those net assets and activities which are donor-restricted for (a) support of specific operating activities; (b) investment for a specified term; (c) use in a specified future period; or (d) acquisition of long-lived assets. Permanently Restricted: Those net assets and activities which are permanently donor-restricted for holdings of (a) assets donated with stipulations that they be used for a specified purpose, be preserved, and not be sold; or (b) assets donated with stipulations that they be invested to provide a permanent source of income. Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 11

14 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, receivables, and accounts payable approximate fair value because of the short maturity of these instruments. The carrying amounts of long-term receivables and long-term payables approximate fair value as these receivables or payables earn or are charged interest based on the prevailing rates. Cash and Cash Equivalents The Club considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents restricted as to their use are not included as equivalents, regardless of liquidity. Cash and cash equivalents held in money market funds intended for investment purposes are classified separately under investments and interest in the net assets of the Endowment Trust. Cash restricted for long-term purposes is from donations and proceeds from the NMTC program related to BGCSF s Fulton Clubhouse facility. Accounts Receivable Accounts receivable represent uncollateralized obligations related to the Club s programs and are due under normal trade terms requiring payment upon receipt. Unpaid receivables do not accrue interest. Payments of accounts receivable are allocated to specific invoices identified on the remittance advice. Grants Receivable Grants receivable represent uncollateralized obligations related to the Club s grant contracts. Grants receivable are due under the terms of the grant agreements. The Club uses the allowance method to account for uncollectible accounts and grants receivable. The allowance for doubtful accounts is based on historical experience and an evaluation of the outstanding receivables at the end of the year. As of, all accounts and grants receivable were considered collectible. Promises to Give Unconditional promises to give are recognized as public support or gains in the period such promises are made by the donor. Conditional promises to give are recognized only when the conditions on which they depend are substantially met and the promises become unconditional. Unconditional promises to give which are scheduled to be received after one year are discounted at rates commensurate with the risks involved. Amortization of the discount is recorded as additional contribution revenue in accordance with the donorimposed restrictions, if any, on the contributions. 12

15 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Promises to Give (Continued) The Club uses the allowance method to account for uncollectible unconditional promises to give. The allowance is based on prior years experience and management s analysis of specific promises made. Notes Receivable Notes receivable are unsecured, due under contract terms requiring payment on or before the due date as stated in the promissory notes, and are stated at the principal amount. Management considers the notes receivable to be fully collectible. Interest on notes is recognized over the term of the note receivable and is calculated using the simpleinterest method on principal amounts outstanding. Investments Investments in publicly traded securities are carried at fair value based upon quoted market prices, with realized and unrealized gains and losses included in the consolidated statement of activities. The Club s Finance Committee is responsible for establishing investment criteria and overseeing the Club s investments. Investments received through gifts are recorded at estimated fair value at the date of donation. Such investments are sold on the same date. Interest in the Net Assets of the Endowment Trust The Club is, in part, supported by a separate nonprofit organization, the Boys & Girls Clubs of San Francisco Endowment Trust (the Endowment Trust). The Endowment Trust has a separate Board of Trustees and exists exclusively for the benefit of the Club. The Club accounts for its interest in the Endowment Trust in accordance with guidance for Transfers of Assets to a Not-for-Profit Organization or Charitable Trust that Raises or Holds Contributions for Others. Accordingly, the Endowment Trust s net assets and the changes therein are reported on the Club s consolidated financial statements. The Club reports the activities from the Endowment Trust using the equity method (see Note 4). A significant portion of the underlying investments are in marketable securities which are carried at fair value based upon quoted market prices. 13

16 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Interest in the Net Assets of the Endowment Trust (Continued) The Endowment Trust also invests in nonmarketable investments. Nonmarketable investments include investment securities whose values have been estimated by management in the absence of readily determinable fair values. Management estimates are based on information provided by the general partners of limited partnerships. Because of the inherent uncertainty of valuation of nonmarketable investments, those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. Beneficial Interest in Charitable Remainder Trust The Club has an irrevocable remainder beneficiary interest in a charitable remainder trust whose maturity is based on the life expectancy of the income beneficiary. The Club is not the trustee; therefore, the beneficial interest in the charitable remainder trust is recorded at the present value of the net assets to be received in the future. The present value discount rate used was 4.6% at. Property and Equipment The Club capitalizes acquisitions of property and equipment with a cost or value in excess of $5,000 and with an estimated useful life beyond one year. Purchased assets are recorded at cost; donated assets are recorded at estimated fair value or appraised value at the date of acquisition. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. Depreciation is calculated using the straight-line method based upon estimated useful lives ranging from three to forty years. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts and any gain or loss is reflected in the consolidated statement of activities. Debt Issuance Costs Debt issuance costs consist of an advisory fee, attorneys fees, and other miscellaneous costs incurred in connection with the NMTC transactions (Note 7). These costs are being amortized using the straight-line method over their estimated useful lives of seven years. Deferred Revenue Deferred revenue results from the Club recognizing revenue for events in the period in which the event takes place. Accordingly, cash received before the event is reported as deferred revenue. Revenue Recognition Revenue is recognized in the period in which the service has been provided. Membership dues are recognized when received. 14

17 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition (Continued) Contributions Contributions are recognized as revenue when they are received or unconditionally promised, regardless of compliance with restrictions. Contributions without donor-imposed restrictions are reported as unrestricted support. Contributions with donor-imposed restrictions are reported as either temporarily restricted or permanently restricted support, depending upon the type of restriction. Contributions with donor-imposed restrictions and investment income generated from such investments that are complied with in the year of receipt are reported as unrestricted support. The satisfaction of a donor-imposed restriction on a contribution is recognized when the corresponding expenditures are incurred or when the time restriction expires. This occurs by increasing one class of net assets and decreasing another in the consolidated statement of activities. Such transactions are recorded as net assets released from restrictions and are reported separately from other transactions. Donated marketable securities, materials, and equipment are recorded as contributions at their estimated value on the date of receipt. 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 are reported as temporarily restricted support. Absent donor stipulations regarding how long those donated assets must be maintained, the Club reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The Club reclassifies temporarily restricted net assets to unrestricted net assets at that time. The Club is the beneficiary under various wills, the total realizable amount of which is not presently determinable. Such amounts are recognized as bequests receivable where clear title is established and the proceeds are measurable. Contributed Goods and Services The Club records in-kind contributions for certain services received at the fair value of those services, if the services (a) create or enhance nonfinancial assets, or (b) require specialized skills, are provided by individuals possessing those skills, and would be purchased if not donated. Certain volunteers provided tutoring and fundraising services throughout the year that are not recognized as contributions in the consolidated financial statements since the recognition criteria were not met. For the year ended September 30, 2015, donated services consist primarily of consulting and legal services valued at $103,306. For the year ended, the Club received 1,600 hours from volunteers. Grants The Club is a recipient of several local, state, and federal grants. Investment Income Realized and unrealized gains and losses and investment income and losses derived from investment transactions are included as income in the year earned. Investment income earned on net assets temporarily restricted for various purposes are recorded as temporarily restricted in accordance with donor restrictions. 15

18 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Advertising The costs of advertising are charged to expense as incurred. Advertising expense for the year ended, was $33,619. Income Taxes BGCSF, the Endowment Trust, Mission Clubhouse, Inc., and Fulton Clubhouse, Inc., are qualified organizations exempt from federal income taxes under 501(c)(3) of the Internal Revenue Code (IRC) and franchise taxes under 23701d of the California Revenue and Taxation Code, respectively. Accordingly, they are exempt from federal and California income taxes and are not liable for federal unemployment taxes. Management evaluated the Club s tax positions and concluded that they maintained their tax exempt status and had taken no uncertain tax positions that would require adjustment to the financial statements. Therefore, no provision or liability for income taxes has been included in the financial statements. The 2011 through 2014 tax years remain subject to examination by the Internal Revenue Service. In addition, the 2010 through 2014 tax years remain subject to examination by the California Franchise Tax Board. Concentrations of Risk Financial Instruments Financial instruments which potentially subject the Club to concentrations of credit risk consist principally of cash and cash equivalents, various receivables, promises to give, and investments. The Club maintains its cash in various bank deposit accounts, which at times, may exceed federally insured limits. The Club has not experienced any losses in such accounts. The Club attempts to limit its credit risk associated with cash equivalents and investments by utilizing outside investment managers to place the Club s investments with highly rated corporate and financial institutions. Management believes that the Club is not exposed to any significant risk related to concentrations. Functional Allocation of Expenses The costs of providing the various programs and activities have been summarized on a functional basis in the consolidated statements of activities and functional expenses by major programs. Accordingly, certain costs have been allocated among programs and supporting services benefited based on estimates made by management. 16

19 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Comparative Financial Information The consolidated financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with U.S. GAAP. Accordingly, such information should be read in conjunction with the Club s consolidated financial statements as of September 30, 2014, and for the year then ended, from which the summarized information was derived. Reclassifications Certain amounts in the summarized comparative totals for 2014 have been reclassified to conform to the 2015 presentation. These reclassifications have no effect on previously reported net assets or change in net assets. Recent Accounting Pronouncements The Financial Accounting Standards Board (FASB) has issued the following Accounting Standards Updates (ASU) that are applicable to future periods. The FASB issued ASU , Revenue from Contracts with Customers (Topic 606), and its international counterpart, IFRS 15, to provide sweeping, new, globally applicable converged guidance concerning recognition and measurement of revenue. In addition, significant additional disclosures are required about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, and will replace virtually all existing revenue guidance, including most industry-specific guidance. The FASB also issued ASU which deferred the effective date of ASU The guidance is applicable for annual reporting periods beginning after December 15, In April 2015, FASB issued ASU No , Interest - Imputation of Interest (Subtopic ): Simplifying the Presentation of Debt Issuance Costs. ASU No amends the FASB Accounting Standards Codification to require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related liability. Such treatment is consistent with the current presentation of debt discounts or premiums. As it stood prior to amendment, debt issuance costs were reported in the balance sheet as an asset, whereas debt discounts and premiums were, and remain, reported as deductions from or additions to the debt itself. In addition, the amendment requires that the amortization of debt issuance costs be reported as a component of interest expense. The amended guidance is effective for financial statements covering fiscal years beginning after December 15, The amended guidance must be applied on a retrospective basis. Management is evaluating the impact of these new accounting pronouncements. 17

20 2. PROMISES TO GIVE Unconditional promises to give at, consist of the following: Due in Less Than 1 Year Due in 1 to 5 Years Total Unrestricted $ 494,734 $ - $ 494,734 Temporarily restricted: Brighter Futures Capital Campaign - Don Fisher Clubhouse 549, , ,381 Allowance for doubtful promises to give (39,526) (34,995) (74,521) Discount to net present value - (25,790) (25,790) $ 1,005,089 $ 251,715 $ 1,256,804 All long-term promises to give are stated at their present values. Management has discounted these promises to give using a rate of 1.45%. 3. NOTES RECEIVABLE On June 10, 2010, BGCSF entered into an agreement to lend Chase NMTC BGCSF Investment Fund, LLC, $8,229,277 as part of the Mission Clubhouse, Inc. NMTC transaction (see Note 7). The note calls for interest only payments at 1.00% per annum payable on December 10th of each year, with annual principal payments commencing December 10, 2017, and a final payment on June 9, Chase NMTC BGCSF Investment Fund, LLC, has the option to prepay in full or in part, the principal balance and all accrued interest of the note during the period from June 9, 2017 through August 9, 2017, for a fee of $1,000. Interest earned on this note during the year ended, was $82,293. As of, accrued interest receivable was $68,577. On June 27, 2013, BGCSF entered into an agreement to lend BGCSF LCD/SFCIF Investment Fund, LLC, $17,983,625 as part of the BGCSF Fulton Clubhouse, Inc. NMTC transaction (see Note 7). The note calls for interest only payments at 1.40% per annum payable on December 15th of each year through December 15, From December 16, 2020 until maturity on June 26, 2043, payment is required in the amount of $758,692, plus available cash flow (a portion of which shall be applied to interest accrued through the last day of the calendar month prior to the calendar month in which the payment is made with respect to the outstanding principal amount for the loan). Interest earned on this note during the year ended September 30, 2015, was $251,624. As of, accrued interest receivable was $188,718. In addition, on June 27, 2013, BGCSF entered into an agreement to lend BGCSF USBCDE Investment Fund, LLC, $3,392,500 as part of the BGCSF Fulton Clubhouse, Inc. NMTC transaction (see Note 7). The note calls for interest only payments at 1.47% per annum payable on December 15th of each year, through December 15, From December 16, 2020, until maturity on June 26, 2043, payment is required in the amount of $144,602, plus available cash flow (a portion of which shall be applied to interest accrued through the last day of the calendar month prior to the calendar month in which the payment is made with respect to the outstanding principal amount for the loan). Interest earned on this note during the year ended, was $49,995. As of, accrued interest receivable was $37,

21 4. FAIR VALUE MEASUREMENTS The Club s financial assets and liabilities carried at fair value have been classified, for disclosure purposes, based on a hierarchy that gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset s or a liability s classification is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows: Level 1 Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Level 2 Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads, and yield curves. Level 3 Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Club s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date. The following is a description of the valuation methodologies used for assets measured at fair value. Equity Securities and Fixed Income Securities: Equity securities and fixed income securities listed on a national market or exchange are valued at the last sales price, or if there is no sale and the market is still considered active, at the mean of the last bid and asked prices on such exchange. Such securities are classified within Level 1 of the valuation hierarchy. Certificates of deposit: Certificates of deposit are valued at cost plus interest earned and are included in Level 2 of the fair value hierarchy. Private Equity: The Endowment Trust s private equity investments accessed through limited partnerships are determined by the general partner to be at fair value, after it considers certain pertinent factors, including, but not limited to, the partner s share of the underlying limited partnership s net assets, liquidity features of the partnership, the underlying portfolio of holdings, the current market conditions for observable, corroborated or correlated transactions, comparable or similar products fair valuations, external assessments of the limited partnerships holdings, and the audit opinion from the independent auditor of the limited partnership. The fair value of such investments is determined using the net asset value (NAV) per share as a practical expedient. The investments are classified within Level 3 of the fair value hierarchy. Beneficial Interest in Charitable Remainder Trust: Inputs used for valuation of the charitable remainder trust with a third party trustee include financial statements provided by the trustee, the life expectancy of the income beneficiary, and applicable discount rate determined by the Club. The fair value of the beneficial interests is reviewed and updated annually by adjusting the current life expectancies of the income beneficiary, applicable discount rate, and market value of the trust. The beneficial interests are classified within Level 3 of the fair value hierarchy. 19

22 4. FAIR VALUE MEASUREMENTS (CONTINUED) The Club s policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstance that caused the transfer. Assets measured at fair value on a recurring basis The following table provides information as of, about the Club s assets measured at fair value on a recurring basis: Level 1 Level 2 Level 3 Total Investments: Fixed income securities: Domestic $ 1,192,231 $ - $ - $ 1,192,231 International 101, ,833 Equity securities: Domestic 871, ,542 International 788, ,355 Total investments $ 2,953,961 $ - $ - $ 2,953,961 Interest in the net assets of the Endowment Trust: Cash $ 453,240 $ - $ - $ 453,240 Equity securities: Domestic 12,808, ,808,773 International 8,825, ,825,285 Fixed income securities: Domestic 9,325, ,325,523 Private equity , ,976 Investments at fair value 31,412, ,976 31,976,797 Land at historical cost , ,919 Total interest in the net assets of the Endowment Trust $ 31,412,821 $ - $ 1,214,895 $ 32,627,716 Beneficial interest in charitable remainder trust $ - $ - $ 118,356 $ 118,356 20

23 4. FAIR VALUE MEASUREMENTS (CONTINUED) The following analysis summarizes the investment return for the year ended : Net investment income Net realized and unrealized investment income Total Notes receivable $ 383,912 $ - $ 383,912 Equity securities: Domestic 55,106 (75,666) (20,560) International 24,845 (175,208) (150,363) Fixed income securities: Domestic 36,344 37,275 73,619 International 9,741 (56,630) (46,889) $ 509,948 $ (270,229) $ 239,719 Investment income (interest and dividends) includes $383,912 earned on notes receivable (Note 3). Investment income is reported net of investment fees of $9,294. The activity for interest in the net assets of the Endowment Trust for the year ended, is as follows: Beginning balance $ 30,196,327 Change in net assets (1,254,256) BGCSF s Board designated investment in the Endowment Trust 5,545,000 Distributions to the Club (1,859,355) $ 32,627,716 The Endowment Trust s net assets are allocated based on donor-imposed restrictions. All of the land is unrestricted and the balance of the investments are allocated 49.32% unrestricted and 50.68% permanently restricted. The corresponding investment income is allocated in the same percentages. Level 3 Activity Endowment Trust Investments - The following table summarizes the changes in investments classified in Level 3 for the year ended. Gains and losses reported in this table may include changes in fair value that are attributable to both observable and unobservable inputs. 21

24 4. FAIR VALUE MEASUREMENTS (CONTINUED) Level 3 Activity (Continued) Beneficial interest in charitable remainder trust - The following table presents the activity for the fair value of the beneficial interest in a charitable remainder trust with a third party trustee. Under the terms of the trust agreement, at the time of the remaining income beneficiary s death, the trust will terminate and 12.5% of the remaining assets will be distributed to the Club. The balance as of, is $118,356. Private Equity Beneficial Interest in Charitable Remainder Trust Beginning balance $ 703,516 $ 118,356 Net realized gains 55,037 - Net unrealized gains (losses) (19,649) - Net operating losses (1,727) - Transfers out (173,201) - $ 563,976 $ 118,356 Unfunded Commitments and Redemption Characteristics The following table summarizes additional disclosures of investments whose fair value is estimated using net asset value per share at : Description Total Fair Value Unfunded Commitments Unfunded Commitments to be Called by September 30, Redemption Frequency Redemption Notice Period Venture Investments Associates IV, L.P. $ 360,980 $ 19, * * DCM Affiliates Fund V, L.P. 199,175 - N/A * * Doll Technology Investment Fund II, L.P. 3,821 - N/A * * Total private equity $ 563,976 $ 19,000 *Redemption is not permitted. 22

25 4. FAIR VALUE MEASUREMENTS (CONTINUED) Unfunded Commitments and Redemption Characteristics (Continued) Venture Investments Associates IV, L.P. makes venture capital investments, principally by investing in venture capital, growth equity, and buyout funds. DCM Affiliates Fund V, L.P. makes venture capital investments, principally by investing in equity or equity-oriented securities of privately held communications and information technology companies. Doll Technology Investment Fund II, L.P. makes venture capital investments, principally by investing in equity or equity-oriented securities of privately held communications and information technology companies. 5. PROPERTY AND EQUIPMENT Property and equipment at, consist of the following: Buildings and improvements $ 39,613,540 Land 2,682,780 Furnishings and equipment 1,197,193 Vehicles 460,963 Computer hardware 33,761 43,988,237 Less accumulated depreciation (7,967,600) $ 36,020,637 For the year ended, depreciation expense was $1,132, DEBT ISSUANCE COSTS Debt issuance costs at, consist of the following: Mission Clubhouse, Inc. Fulton Clubhouse, Inc. Total Debt issuance costs $ 678,187 $ 1,406,610 $ 2,084,797 Accumulated amortization (529,631) (452,125) (981,756) $ 148,556 $ 954,485 $ 1,103,041 Amortization expense for the year ended, for Mission Clubhouse, Inc. and Fulton Clubhouse Inc., was $96,884 and $200,944, respectively. 23

26 7. NEW MARKETS TAX CREDIT The NMTC provides investors that make a qualified equity investment (QEI) in a Community Development Entity (CDE), a tax credit over a seven-year period. For an investor to claim the credit, the CDE must designate the QEI to the Community Development Financial Institutions Fund (CDFI), a branch of the U.S. Department of the Treasury, and use substantially all the QEI to make a qualified low-income community investment (QLICI). Mission Clubhouse, Inc. On June 10, 2010, BGCSF secured financing related to the construction of the Mission Clubhouse building, a QLICI, by entering into transactions (see Notes 3 and 8) structured to qualify for the NMTC. The transaction was intended to realize benefits from the NMTC Program. The transaction included Mission Clubhouse, Inc. borrowing $11,040,000 (QLICI Loans) to facilitate the purchase of the Mission Clubhouse building from BGCSF and the subsequent lease of the building to BGCSF to provide services to the local community and to pay fees and expenses related to the consummation of the NMTC transaction during the year ended September 30, JPMorgan Chase Bank, NA (Chase), United Fund Advisors (UFA), and Opportunity Fund Northern California, certified as a CDE by the CDFI, formulated the required structuring and financing that qualified for the NMTC. Chase and UFA made equity investments of $3,273,723 and $327, respectively, in Chase NMTC BGCSF Investment Fund, LLC (the Fund). Chase is a 99.99% non-managing member of the Fund and UFA is the 0.01% managing member of the Fund. BGCSF also made a loan to the Fund of $8,229,277 (the Leverage Loan), which was provided by Chase to BGCSF as a two-day bridge loan. The Fund made a QEI of $11,500,000 in LCD New Markets Fund VIII, LLC, a subsidiary Community Development Entity (Sub-CDE), a controlled affiliate of the CDE, pursuant to the terms of an operating agreement as agreed between CDE and Chase, after paying Chase a $3,000 set-up fee. The CDE made an equity investment in the Sub-CDE of $1,150. The Fund is a 99.99% investor member in the Sub-CDE and the CDE is the 0.01% managing member of the Sub-CDE. The Sub-CDE made two loans (Note 8) to Mission Clubhouse, Inc. of $8,229,277 and $2,810,723, totaling $11,040,000, and paid fees of $460,000 to the CDE. In addition, BGCSF made an equity investment of $463,713 in Mission Clubhouse, Inc. Mission Clubhouse, Inc. paid BGCSF $8,274,586 for the Clubhouse property and construction in progress of which $8,249,850 was used to repay BGCSF s Leverage Loan and related fees of $20,573 in full to Chase. Mission Clubhouse, Inc. also paid $728,213 to the title company for related fees and $305,356 was transferred to a restricted fee/interest account for payment of interest for the first seven years of the loans. 24