COLORADO LENDING SOURCE, LTD. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016

Transcription

1 COLORADO LENDING SOURCE, LTD. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016

2 Contents Page Independent Auditors Report Financial Statements Consolidated Statement Of Financial Position... 4 Consolidated Statement Of Activities... 5 Consolidated Statement Of Cash Flows... 6 Notes To Consolidated Financial Statements Single Audit Section Independent Auditors 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 Independent Auditors Report On Compliance For The Major Federal Program And Report On Internal Control Over Compliance Required By The Uniform Guidance Schedule Of Findings And Questioned Costs Schedule Of Expenditures Of Federal Awards Notes To Schedule Of Expenditures Of Federal Awards... 28

3 RubinBrown LLP Certified Public Accountants & Business Consultants Board of Directors Colorado Lending Source, Ltd. Denver, Colorado Independent Auditors Report th Street Suite 300 Denver, CO T F W rubinbrown.com E info@rubinbrown.com Report On The Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Colorado Lending Source, Ltd. (CLS) (a not-for-profit organization), which comprise the consolidated statement of financial position as of December 31, 2016, the related consolidated statements of activities 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. Auditors 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 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors 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.

4 Board of Directors Colorado Lending Source, Ltd. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CLS as of December 31, 2016, 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 Matters Other Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The schedule of expenditures of federal awards, as required by the Uniform Guidance, is presented for purposes of additional analysis and is 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 schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole. Page 2

5 Board of Directors Colorado Lending Source, Ltd. Report On Summarized Comparative Information We have previously audited CLS 2015 consolidated financial statements, and we expressed an unmodified audit opinion on those audited consolidated financial statements in our report dated March 22, In our opinion, the summarized comparative information presented herein as of and for the year ended December 31, 2015 is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived. Other Reporting Required By Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 31, 2017 on our consideration of CLS 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 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 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 CLS internal control over financial reporting and compliance. March 31, 2017 Page 3

6 CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2016 (With Summarized Comparative Information At December 31, 2015) Assets Current Assets Cash and cash equivalents $ 675,581 $ 641,725 Restricted cash (Note 2) 1,851,409 2,090,620 Current portion of loans receivable, net (Note 3) 147, ,402 Prepaid expenses 53,428 42,167 Total Current Assets 2,727,533 2,969,914 Other Assets Property held for sale (Note 6) 1,785,209 Loans receivable, net (Note 3) 2,151,257 2,248,909 Other assets 58,664 20,469 Total Other Assets 2,209,921 4,054,587 Property And Equipment Land 970, ,000 Buildings 4,218,488 4,218,488 Building improvements 538, ,759 Equipment, furniture and fixtures 374, ,591 Leasehold improvements 38,696 38,696 Accumulated depreciation (832,776) (668,678) Total Property And Equipment, Net 5,307,372 5,452,856 Total Assets $ 10,244,826 $ 12,477,357 Liabilities And Net Assets Current Liabilities Accounts payable $ 42,682 $ 63,246 Accrued payroll and payroll taxes 324, ,497 Property tax payable 118, ,430 Deferred revenue 57,076 77,427 Current portion of long-term debt (Note 4) 807, ,792 Accrued PCLP loan loss reserve (Note 2) 126,900 53,500 Total Current Liabilities 1,477, ,892 Long-Term Liabilities Noncurrent portion of long-term debt (Note 4) 6,134,955 8,381,064 Total Liabilities 7,611,980 9,176,956 Net Assets Unrestricted 781,437 1,209,781 Temporarily restricted (Note 7) 1,851,409 2,090,620 Total Net Assets 2,632,846 3,300,401 Total Liabilities And Net Assets $ 10,244,826 $ 12,477,357 The accompanying notes are an integral part of the consolidated financial statements. Page 4

7 CONSOLIDATED STATEMENT OF ACTIVITIES For The Year Ended December 31, 2016 (With Summarized Comparative Information For The Year Ended December 31, 2015) Temporarily Unrestricted Restricted Total Total Revenues SBA 504 servicing fees $ 2,838,042 $ $ 2,838,042 $ 2,958,482 SBA 504 packaging fees 955, , ,221 Other loan packaging and servicing 415, , ,333 Rental income 268, , ,652 Loan liquidation recovery 50,738 50, ,571 Interest rebate 192, , ,305 Interest income 113, ,479 43,189 Other income 19,466 19,466 22,255 Gain on the sale of loans 183, ,836 Total Revenues 5,037,969 5,037,969 4,864,008 Expenses Program services 3,283, ,211 3,522,750 2,616,204 Management and general 1,897,565 1,897,565 2,263,736 Loss on property held for sale 285, , ,940 Total Expenses 5,466, ,211 5,705,524 5,268,880 Change In Net Assets (428,344) (239,211) (667,555) (404,872) Net Assets, Beginning Of Year 1,209,781 2,090,620 3,300,401 3,705,273 Net Assets, End Of Year $ 781,437 $ 1,851,409 $ 2,632,846 $ 3,300,401 The accompanying notes are an integral part of the consolidated financial statements. Page 5

8 CONSOLIDATED STATEMENT OF CASH FLOWS For The Year Ended December 31, 2016 (With Summarized Comparative Information For The Year Ended December 31, 2015) Temporarily Unrestricted Restricted Total Total Cash Flows From Operating Activities Change in net assets $ (428,344) $ (239,211) $ (667,555) $ (404,872) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization 184, , ,916 Loss on disposal of assets 285, ,209 28,213 Gain on sale of loans receivable (183,836) (183,836) Amortization of service assets 1,527 1,527 Amortization of discount (1,935) (1,935) 53,699 Increase in allowance for mainstreet and community advantage loans 101, ,649 55,276 Impairment loss on property held for sale 388,940 Change in assets and liabilities: Increase in prepaid expenses (11,261) (11,261) (28,086) Increase (decrease) in accounts payable (20,564) (20,564) 15,914 Increase in accrued expenses 5,255 5,255 55,385 Increase (decrease) in deferred revenue (20,351) (20,351) 48,919 Increase (decrease) in accrued PCLP loan loss reserve 73,400 73,400 (317,901) Net Cash Provided By (Used In) Operating Activities (14,658) (239,211) (253,869) 63,403 Cash Flows From Investing Activities Collections of loans receivable 362, , ,085 Issuance of loans receivable (2,271,431) (2,271,431) (1,730,216) Proceeds from the sale of loans receivable 2,101,494 2,101,494 Proceeds from disposals of property and equipment 1,505,452 1,505,452 Purchases of intangible assets (28,300) (28,300) (5,892) Purchases of property and equipment (18,614) (18,614) (143,784) Net Cash Provided By (Used In) Investing Activities 1,651,230 1,651,230 (1,617,807) Cash Flows From Financing Activities Proceeds from notes payable 2,780,499 2,780,499 7,539,029 Repayments of notes payable (4,383,215) (4,383,215) (5,988,408) Net Cash Provided By (Used In) Financing Activities (1,602,716) (1,602,716) 1,550,621 Net Increase (Decrease) In Cash And Cash Equivalents 33,856 (239,211) (205,355) (3,783) Cash And Cash Equivalents, Beginning Of Year 641,725 2,090,620 2,732,345 2,736,128 Cash And Cash Equivalents, End Of Year $ 675,581 $ 1,851,409 $ 2,526,990 $ 2,732,345 Noncash Investing And Financing Activities: In connection with certain loan receivables sales in 2016, the Organization recorded loan servicing assets and discounts totalling $37,369 and $47,702, respectively. The accompanying notes are an integral part of the consolidated financial statements. Page 6

9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, Summary Of Significant Accounting Policies Nature Of Operations Colorado Lending Source, Ltd. (CLS), a not-for-profit organization, was incorporated in April 1990 for the purpose of promoting and assisting in the growth, development and education of small business concerns located in the Front Range region of Colorado. CLS is certified by the U.S. Small Business Administration (the SBA) to process, administer and service SBA 504 loans under both the Accredited Lender Program (ALP) and the Premier Certified Lender Program (PCLP). The structure of the 504 Loan Program requires the involvement of three parties. The parties include a private sector participant (usually a commercial bank), which provides 50% of the required financing for an eligible project; CLS, which provides up to a maximum of 40% of the required financing on an eligible project and, finally, the borrower, which provides a minimum of 10% of the required financing on an eligible project. CLS became an active SBA Community Advantage lender in 2015 to further the organization s mission of fostering the economic growth of diverse small businesses. Community Advantage loans are SBA-guaranteed loans in the range of $50,000 to $250,000 available to underserved and deserving small businesses unable to secure financing from conventional lending sources. All applicants for Community Advantage loans must be either declined by or referred to Colorado Lending Source by a bank before a funding request will be considered. Consolidation CLS Holdings, Inc. (CLSH), a C-corporation, and CLS Interactive, LLC were both formed on August 24, 2006 under the laws of the State of Colorado, for the purpose of acquiring certain real estate. CLS, CLSH and CLS Interactive, LLC are collectively referred to as the Organization within this document. Page 7

10 Notes To Consolidated Financial Statements (Continued) On September 26, 2006, CLSH purchased a portion of the 18th floor of the office building in which CLS formerly operated. At that time, CLS owned and operated in the remainder of the 18th floor. On January 1, 2007, CLS transferred ownership of its portion of the 18th floor to CLSH. CLS owns 90% of CLSH. The remaining 10% is owned by CLS Interactive, LLC, which is wholly owned by CLS. The consolidated financial statements include the accounts of CLS, CLS Interactive, LLC and CLSH (collectively, the Organization), with all intercompany transactions eliminated in consolidation. CLSH also owns a building at th Street (the Building), which CLS moved into and began to lease from CLSH in Revenue Recognition Packaging fees and servicing fees are recognized as revenue when earned. Packaging fees are based on 1.5% of the net debenture amount of 504 loans and 0.5% of the net debenture amount of other loans. Package fees are reported as deferred revenue until the loan is funded, at which time CLS recognizes the packaging fee revenue. Servicing fees are based on 0.5% - 1.0% of the outstanding principal balance and related revenues are recognized when earned. Functional Allocation Of Expenses The costs of providing the various programs and other activities of the Organization have been summarized and allocated between program services and management and general expenses, based upon management s estimates. Financial Statement Presentation The financial statement presentation follows the Financial Accounting Standards Board Accounting Standards Codification topic, Not-for-Profit Entities Presentation of Financial Statements. Under this topic, the Organization is required to provide a statement of financial position, a statement of activities and a statement of cash flows. Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, the Organization s financial position and activities are classified and reported as follows: Unrestricted Net Assets - Net assets that are not subject to donor-imposed stipulations Temporarily Restricted Net Assets - Net assets that are temporarily subject to donor-imposed stipulations Page 8

11 Notes To Consolidated Financial Statements (Continued) Permanently Restricted Net Assets - Net assets that are permanently subject to donor stipulations Income Taxes CLS is a not-for-profit organization under the Internal Revenue Code Section 501(c)(6) and, accordingly, is a tax-exempt organization which consolidates CLS Interactive, LLC. However, income from certain activities not directly related to CLS tax-exempt purpose is subject to taxation as unrelated business income. There was no tax liability for the year ended December 31, CLSH is a for-profit organization and files federal and Colorado taxes as a C-corporation. CLSH has no tax liability for the year ended December 31, CLSH holds net operating loss carry-forward tax benefits, which approximated $1,127,935 at December 31, The tax benefits expire between December 31, 2028 and December 31, The tax benefits are offset 100% by a valuation allowance. The Organization follows the provisions of the Financial Accounting Standards Board Accounting Standards Codification topic for Income Taxes. The topic prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. The topic also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. At December 31, 2016, the Organization had no uncertain tax provisions for which a reasonable possibility existed that the total amounts of unrecognized tax benefit will significantly increase or decrease within 12 months of December 31, Cash And Cash Equivalents For purposes of the statement of cash flows, cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less. Page 9

12 Notes To Consolidated Financial Statements (Continued) Property And Equipment Property and equipment are recorded at cost and are capitalized if the useful life is greater than 1 year. Depreciation and amortization are provided using the straight-line and accelerated methods over the useful life of the respective asset ranging from 3 to 39 years. Maintenance and repairs are charged to operations when incurred, and major improvements are capitalized. The Organization recorded $158,646 of depreciation expense for the year ending December 31, Long-Lived Asset Impairment The Organization evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset are less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. Concentrations Of Credit Risk The Organization maintains cash balances at several financial institutions. Interest-bearing accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Organization has not experienced any loss in such accounts. As of December 31, 2016, uninsured balances were $340,166. The uninsured balances relate to funds maintained within the main operating accounts of CLS. CLS receives substantial revenues from the SBA 504 loan program and, as such, is dependent on this source of revenue to continue to provide its services to qualifying borrowers. Approximately 78% of CLS revenues during 2016 were derived from the SBA 504 loan program. Under PCLP, CLS has a total loss exposure of up to 10% of the funded and uncollectible balance of PCLP loans it administers, as defined. Loans Receivable Loans receivable are stated at the outstanding unpaid balance net of an allowance for doubtful accounts. Loan receivables are considered impaired if full principal payments are not received in accordance with the contractual terms. It is CLS policy to charge off uncollectible loans receivable when management determines the receivable will not be collected. See Note 3 for additional information on loans receivable. Page 10

13 Notes To Consolidated Financial Statements (Continued) Transfer Of Financial Assets Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Organization (put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership), (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Organization does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets. Advertising Advertising costs are expensed as incurred. Advertising expense for the year ended December 31, 2016 was $35,369. Prior-Year Information The consolidated financial statements include partial prior-year comparative information. Such information does not include all of the information required to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Organization s consolidated financial statements for the year ended December 31, 2015, from which such partial information was derived. Use Of Estimates 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 and the reported amounts of revenues, expenses, gains and losses during the reporting period. Actual results could differ from these estimates. Subsequent Events The Organization evaluated subsequent events through March 31, 2017, which is the date the consolidated financial statements were available to be issued. Page 11

14 Notes To Consolidated Financial Statements (Continued) Reclassifications Certain amounts on the 2015 financial statements have been reclassified, where appropriate, to conform to the presentation used in the 2016 financial statements. 2. Restricted Cash/Loan Loss Reserves CLS received SBA designation under PCLP, providing its borrowers with an expedited loan processing and servicing timeframe. CLS is required under the PCLP Loan Loss Reserve Requirements to maintain restricted cash equal to 1% of the outstanding principal amount of all PCLP loans that it services. The cash restriction for the 1% of outstanding principal is required to be established within two years, with 0.5% contributed immediately upon loan funding, 0.25% contributed no later than one year after the date of funding and the final 0.25% contributed no later than two years after funding. As of December 31, 2016, CLS was servicing PCLP loans with outstanding balances of $123,418,000, requiring cash to be held in separate bank accounts and restricted in the amount of $1,219,370. The December 31, 2016 balances in these restricted cash accounts relating to PCLP totaled $1,375,492. CLS has exposure up to 10% of the value of any net losses sustained by the SBA on any loan approved under CLS delegated authority. CLS records a reserve estimating the liability for any future payments to the SBA for such losses sustained on loans that CLS administers. The liability totaled $126,900 as of December 31, In 2011, CLS began offering customers loan programs under the SBA ILP loan program and the United States Department of Agriculture (USDA) IRP loan program. The SBA and USDA programs require loan loss reserves of at least 5% and 6%, respectively, of the outstanding balance of the loans made under these programs to be kept in separate bank accounts. As of December 31, 2016, the required loan loss reserve under these programs totaled $112,655. Both of these loan programs also require CLS to set aside and restrict the unloaned portion of these loans from the SBA and USDA, as well as the principal repayments received on these loans, in separate bank accounts. Total restricted cash held in accounts established for these purposes totaled $185,159 as of December 31, Page 12

15 Notes To Consolidated Financial Statements (Continued) In 2015, CLS began offering customers loans under the Community Advantage loan program. Loans totaling $150,000 or less made under this program are guaranteed by the SBA up to 85% of the portfolio. Loans totaling $150,000 - $250,000 made under this program are guaranteed by the SBA up to 75%. Pursuant to the program, the loan loss reserve balance must be greater than 5% of the unguaranteed portion of the portfolio and must be maintained in a separate bank account. As of December 31, 2016, the required loan loss reserve totaled $109,844. The total restricted cash for the required loan loss reserves was $124,679 at December 31, CLS is in compliance with the required loan loss reserve as of December 31, In 2016, CLS began offering customers loans under the Colorado Mainstreet - Other loan program. The loans are funded using private loans obtained by CLS. CLS s policy is to maintain a loan loss reserve balance equal to 10% of the outstanding balance of loans funded through the program. As of December 31, 2016, the loan loss reserve under these programs totaled $32,897, which is in excess of the 10% policy. In addition, CLS sets aside and restricts the unloaned portion of these loans, as well as the principal repayments received on these loans, in separate bank accounts. The total restricted cash in accounts held for these purposes was $18,376 at December 31, Restricted cash by purpose as of December 31, 2016 was as follows: Amount PCLP Loan Loss Reserve Fund $ 1,375,492 SBA ILP Loan Loss Reserve Fund 87,719 SBA ILP Restricted Cash 76,218 USDA IRP Loan Loss Reserve Fund 24,936 USDA IRP Restricted Cash 108,941 Community Advantage Loan Loss Reserve Fund 124,679 Community Advantage Restricted Cash 2,151 Colorado Mainstreet Loans - Other Restricted Cash 18,376 Colorado Mainstreet Loans - Other Loan Loss Reserve Fund 32,897 Total $ 1,851, Loans Receivable Loans receivable are carried at unpaid principal balances, less an allowance for loan losses and net of unamortized premiums or discounts on purchased loans. For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Page 13

16 Notes To Consolidated Financial Statements (Continued) The allowance for loan losses is increased by charges to the change in net assets and decreased by charge-offs (net of recoveries). The allowance for loan losses is maintained at an amount management deems adequate to cover inherent losses at the balance sheet date. The Organization has implemented and adheres to an internal review system and loss allowance methodology designed to provide for the detection of uncollectible receivables and an adequate allowance to cover credit losses. Specifically, CLS evaluates the loans on an individual basis, including an analysis of the borrower s creditworthiness, cash flows and financial status, the condition and the estimated value of the collateral and current economic conditions. As of December 31, 2016, the allowance was $181,819. Currently, CLS evaluates its small business loans collectively for impairment. There are no additional portfolio segments or classes as the only category of loans receivable is small business loans. Loans are placed on nonaccrual status (after 120 days) when management believes, after considering economic conditions, business conditions and collection efforts, that the loans are impaired or collection of interest is doubtful. Uncollected interest previously accrued is charged off or an allowance is established by a charge to interest income. Interest income on nonaccrual loans is recognized only to the extent cash payments are received and the principal balance is expected to be recovered. Such loans are restored to an accrual status only if the loan is brought contractually current and the borrower has demonstrated the ability to make future payments of principal and interest. CLS entered into loan programs provided by the SBA ILP and USDA IRP loan programs during 2011, as well as entering into the SBA Community Advantage program during In addition, CLS began offering loans under the Colorado Mainstreet - Other program during All of these loan programs allow CLS to make loans to qualifying third parties. Related loan receivable balances at December 31, 2016 are as follows: Current $ 328,934 Long-term 2,197,024 Total 2,525,958 Discount on retained portion of sold (45,767) Allowance for doubtful accounts (181,819) Net Loans Receivable $ 2,298,372 Page 14

17 Notes To Consolidated Financial Statements (Continued) As of December 31, 2016, CLS had $200,453 and $311,006 in loans that were over 30 and 90 days past due. At December 31, 2016, there were 6 loans on nonaccrual status. The total unpaid principal balance of the loans on nonaccrual status totaled $311,006 as of December 31, All other loans are being paid in accordance with their terms or modified terms. The following is the activity in the allowance for loan losses during the year ended December 31, Amount Balance, beginning of year $ 80,170 Provision for loan losses 101,649 Balance, End Of Year $ 181,819 Maturities of loans receivable are as follows: 2017 $ 328, , , , ,754 Thereafter 970,962 Total Loans Receivable $ 2,525, Loan Sales In September 2016, CLS began selling the SBA guaranteed portion of certain Community Advantage loans on the secondary market to outside investors. CLS continues to service both the sold and unsold portion of the loans, including collecting principal and interest payments on the loans and remitting the portion of the payments received related to the sold portion of the loans to the respective investor. In connection with servicing the sold loans, CLS generally retains a 1% servicing fee. Accordingly, CLS recognizes a servicing asset, representing the value of the estimated benefits received by CLS for servicing the sold portions of the loan in excess of the cost of servicing these loans. During the year ended December 31, 2016, CLS sold 14 Community Advantage loans to investors at premiums ranging from 108 to 113 and recognized $37,369 in servicing assets. Servicing assets are amortized on a straight-line basis over 4 years, which approximates the general remaining life of loans sold. In addition, CLS recognized gains on these sales totaling $183,836 during Page 15

18 Notes To Consolidated Financial Statements (Continued) Total principal outstanding on the sold loans is $2,439,326 at December 31, Of this amount, $1,884,230 has been derecognized from the consolidated financial statements, and $555,096 remains on the consolidated balance sheet at December 31, Long-Term Debt The following is a summary of long-term debt at December 31, 2016: Note payable to First National Bank of Denver. The note originated on August 21, 2015 and has monthly principal and interest payments of $22,904 until August 21, 2025, when the remaining balance is to be paid off. The interest rate is fixed at 4.68% for the first seven years and then the loan will reprice according to the bank s Federal Home Loan Three-Year Bank Rate plus 2.25%. The note is secured by the th Street building, rental income and all inventory, chattel paper, equipment and general intangibles of CLSH. $ 3,908,319 Note payable to First National Bank of Denver. The note was modifed on December 7, 2016 and extended the maturity date from January 5, 2017 to August 21, Payments of $3,048 will be made monthly comprising both principal and interest at 4.658%. The note is secured by the th St. Building, rental income and inventory, chattel paper, equipment and general intangibles of CLSH. 524,607 Note payable to the SBA, payable in quarterly installments of $15,466 comprised of principal and interest at 1%, 20-year term maturing June 7, The note is secured by a 5% required loan loss reserve. 845,073 Note payable to USDA, payable in annual installments of $12,735, comprised of principal and interest of 1%, 30-year term maturing May 20, The note is secured by a 6% required loan loss reserve. 277,758 Note payable to USDA with maximum borrowings of $200,000. Payments will be interest only until December 1, 2020 at which point annual principal and interest payments will commence. Interest accrues at 1% per annum. The note has a 30-year term from the date of the first principal payment and matures November 1, The note is unsecured. 20,000 Note payable to Home State Bank issued January 15, 2016 bearing interest at 2% per annum. Interest payments are due quarterly with principal maturing on May 1, The note is unsecured. 250,000 Line of credit with Guaranty Bank to lend out funds under the Community Advantage loan program. The line of credit was originated on May 21, 2015 and allows for maximum borrowings of $1,000,000. Interest accrues at the bank s prime rate plus 0.75%, which was equal to 4.5% at December 31, The line matures on May 20, 2018, at which point the total outstanding principal is due. The line is unsecured. 250,056 Page 16

19 Notes To Consolidated Financial Statements (Continued) Line of credit with People s Bank to lend out funds under the Community Advantage loan program. The line allows for maximum borrowings of $3,000,000. The line of credit was originated on January 7, Interest accrues at the bank s prime rate plus 0.75%, which was equal to 4.5% at December 31, The line matures on August 1, 2017, at which point the total outstanding principal is due. The line is secured by certain business assets, as well as loan receivables, SBA guarantees and security interests pledged for loans that were made with draws from the line of credit. $ 609,231 Note payable to Kenneth King Foundation, quarterly principal and interest installments of $4,707, Interest of 4%, six-year term maturing July 1, The note is secured by a perfected security interest in certain loans under the Main Street program. 88,766 In 2016, CLS converted portions of their Home State Bank line of credit into term loans. This resulted in five unsecured term loans which originated in June Interest accrues on the loans at 4.25% and the loans mature at various times in ,330 Total 6,942,140 Current Portion (807,185) Noncurrent Portion $ 6,134,955 Certain loans above require the Organization to comply with certain financial covenants. The Organization was not in compliance with certain covenants for the year ending December 31, However, waivers have been obtained for the 2016 year for any noncompliance. Interest expense on long-term debt totaled $344,662 for the year ended December 31, Future maturities of long-term debt are as follows: Year Amount 2017 $ 807, , , , ,469 Thereafter 4,998,350 Total $ 6,942,140 Page 17

20 Notes To Consolidated Financial Statements (Continued) 6. Leases As of December 31, 2016, there were four tenants leasing space in the Building. Future rental income under noncancellable lease agreements is as follows: Year Amount 2017 $ 253, , , ,241 Total $ 718, Building Sale In 2014, CLSH adopted a plan to dispose of the th Street building. In September 2016, CLSH sold the building for approximately $1,500,000 resulting in loss on sale of the building of $285,209. Because the asset was previously marked as held for sale, there was no depreciation related to this property for the year ended December 31, Restricted Net Assets The restricted net assets at December 31, 2016 represent the restricted cash accounts that are established per the requirements of the PCLP program, as well as the SBA ILP, USDA IRP and Community Advantage loan programs. As of December 31, 2016, the amount restricted is $1,851,409, and net assets are temporarily restricted for this purpose. 9. Retirement Plan CLS sponsors a 401(k) retirement plan (the Plan). Employees must complete 1,000 hours of service and 1 year of employment to become Plan eligible. CLS matches 100% of the first 6% contributed by a participant. CLS contributed $113,520 to the Plan during Page 18

21 Notes To Consolidated Financial Statements (Continued) 10. Commitments And Contingencies Operating Leases - Lessee The Organization leases office equipment pursuant to several noncancellable operating leases expiring from 2017 through Certain leases generally require the Organization to pay insurance, taxes and other expenses related to the leased property. The Organization also rents offsite storage on a monthly basis. Total equipment and facility lease expense for the year ended December 31, 2016 was $32,117. Future minimum annual commitments under these noncancellable operating leases are as follows: Year Amount 2017 $ 25, , , Total $ 40,069 Regulatory Exams CLS is subject to regulatory examinations that arise primarily in the ordinary course of business. Management is of the opinion that they have complied with regulatory requirements to which they are subject, and the disposition or ultimate resolution of such examinations will not have a material adverse effect on the consolidated financial statements. 11. Subsequent Events On February 27, 2017, CLS obtained a loan for $1,000,000 that accrues interest at a variable rate calculated as 0.5% above the Prime Rate published by the Wall Street Journal (equal to 4.25% as of the date of the agreement), maturing on February 27, 2018, in order to provide more loans to underserved small businesses in Colorado. Page 19

22 Single Audit Section

23 RubinBrown LLP Certified Public Accountants & Business Consultants th Street Suite 300 Denver, CO Independent Auditors 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 T F W rubinbrown.com E info@rubinbrown.com Board of Directors Colorado Lending Source, Ltd. Denver, Colorado 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 Colorado Lending Source, Ltd. (CLS), a Colorado notfor-profit corporation, which comprise the consolidated statement of financial position as of December 31, 2016, and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated March 31, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered CLS 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 consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of CLS internal control. Accordingly, we do not express an opinion on the effectiveness of CLS 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. Page 20

24 Board of Directors Colorado Lending Source, Ltd. 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 CLS consolidated 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. 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 CLS internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. March 31, 2017 Page 21

25 RubinBrown LLP Certified Public Accountants & Business Consultants th Street Suite 300 Denver, CO Independent Auditors Report On Compliance For The Major Federal Program And Report On Internal Control Over Compliance Required By The Uniform Guidance T F W rubinbrown.com E info@rubinbrown.com Board of Directors Colorado Lending Source, Ltd. Denver, Colorado Report On Compliance For The Major Federal Program We have audited Colorado Lending Source s (CLS) compliance with the types of compliance requirements described in the Office of Management and Budget s (OMB) OMB Compliance Supplement that could have a direct and material effect on CLS major federal program for the year ended December 31, CLS major federal program is identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for CLS major federal program 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 State, and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Costs Principles, and Audit Requirements for Federal Awards (the 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 CLS compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. Page 22

26 Board of Directors Colorado Lending Source, Ltd. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of CLS compliance. Opinion On The Major Federal Program In our opinion, CLS 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 December 31, Report On Internal Control Over Compliance Management of CLS 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 CLS internal control over compliance with the types of requirements that could have a direct and material effect on the major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the 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 CLS 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. Page 23

27 Board of Directors Colorado Lending Source, Ltd. 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 CLS as of and for the year ended December 31, 2016 and have issued our report thereon dated March 31, 2017, 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. March 31, 2017 Page 24

28 COLORADO LENDING SOURCE SCHEDULE OF FINDINGS AND QUESTIONED COSTS For The Year Ended December 31, 2016 Financial Statements Section I - Summary Of Auditors Results Type of auditors 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 auditors report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with the Uniform Guidance? yes no Identification of major programs: CFDA Number Name Of Federal Program Or Cluster Intermediary Lending Pilot Program Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? yes no Page 25