COMBINED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT KALISPELL AREA CHAMBER OF COMMERCE DECEMBER 31, 2014 AND Draft - Incomplete Copy

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1 COMBINED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT KALISPELL AREA CHAMBER OF COMMERCE DECEMBER 31, 2014 AND 2013

2 TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS' REPORT COMBINED FINANCIAL STATEMENTS Combined Statements of Financial Position... 3 Combined Statements of Activities... 4 Combined Statements of Cash Flows... 5 Notes to Combined Financial Statements SUPPLEMENTAL INFORMATION Schedule I - Combined Statements of Functional Expenses Schedule II - Combining Statements of Financial Position Schedule III - Combining Statements of Activities

3 To the Board of Directors Kalispell Area Chamber of Commerce INDEPENDENT AUDITORS' REPORT We have audited the accompanying combined financial statements of Kalispell Area Chamber of Commerce (a nonprofit corporation) and affiliate, which comprise the combined statements of financial position as of December 31, 2014 and 2013, and the related combined statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these combined 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 combined 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 combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement. An audit includes performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the combined 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 combined 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 combined 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 combined financial statements referred to above present fairly, in all material respects, the financial position of Kalispell Area Chamber of Commerce and affiliate as of December 31, 2014 and 2013, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America

4 Other Matter Our audit was conducted for the purpose of forming an opinion on the basic combined financial statements as a whole. The Supplemental Schedules I - III on pages are presented for purposes of additional analysis and are not a required part of the combined 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 combined financial statements. The information has been subjected to the auditing procedures applied in the audit of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined 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 information is fairly stated in all material respects in relation to the combined financial statements as a whole. Junkermier, Clark, Campanella, Stevens, P.C. Kalispell, Montana June 4,

5 COMBINED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2014 AND 2013 ASSETS CURRENT ASSETS Cash and cash equivalents $ 387,577 $ 296,362 Restricted cash 213, ,896 Total Cash and Cash Equivalents 601, ,258 Program receivables, net 79,355 97,833 Grants receivable 13,100 - Inventory for resale 1,201 1,201 Prepaid expenses 7,736 11,265 Total Current Assets 702, ,557 PROPERTY AND EQUIPMENT Property and equipment 410, ,249 Less: Accumulated depreciation and amortization (267,145) (257,753) Net Property and Equipment 143, ,496 TOTAL ASSETS $ 846,098 $ 792,053 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses $ 37,587 $ 61,052 Deferred revenue 8,220 30,055 Funds held - Tourism Business Improvement District 213, ,896 Total Current Liabilities 259, ,003 NET ASSETS Unrestricted 523, ,050 Temporarily restricted 63,100 - Total Net Assets 586, ,050 TOTAL LIABILITIES AND NET ASSETS $ 846,098 $ 792,053 See Notes to Combined Financial Statements - 3 -

6 COMBINED STATEMENTS OF ACTIVITIES YEARS ENDED DECEMBER 31, 2014 AND 2013 UNRESTRICTED NET ASSETS SUPPORT AND REVENUE Membership dues $ 282,995 $ 302,502 Activities and programs 1,312, ,457 Grants and contributions 8, ,223 Other revenue 80,300 82,326 Total Support and Revenue 1,683, ,508 EXPENSE Program Services: Tourism development 205, ,312 Economic development 902, ,932 Government relations 61,907 62,229 Community development 69,150 39,949 Membership services 123, ,762 Total Program Services 1,362, ,184 Supporting Services: Administration and operations 255, ,656 Total Expense 1,617, ,840 TOTAL CHANGE IN UNRESTRICTED NET ASSETS 66,372 18,668 TEMPORARILY RESTRICTED NET ASSETS Grants and contributions 63,100 - TOTAL CHANGE IN NET ASSETS 129,472 18,668 NET ASSETS - BEGINNING OF YEAR 457, ,382 NET ASSETS - END OF YEAR $ 586,522 $ 457,050 See Notes to Combined Financial Statements - 4 -

7 COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2014 AND CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ 129,472 $ 18,668 Adjustments to reconcile change in net assets to net cash from operating activities: Depreciation 9,391 10,998 (Increase) decrease in: Program receivables, net 18,478 (30,653) Grants receivable (13,100) - Inventory for resale - (410) Prepaid expenses 3,529 (3,962) Increase (decrease) in: Accounts payable and accrued expenses (23,465) 20,622 Deferred revenue (21,835) 9,495 Funds held - Tourism Business Improvement District (30,127) 60,693 NET CASH FROM OPERATING ACTIVITIES 72,343 85,451 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (11,255) (4,283) NET INCREASE IN CASH AND CASH EQUIVALENTS 61,088 81,168 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 540, ,090 CASH AND CASH EQUIVALENTS - END OF YEAR $ 601,346 $ 540,258 See Notes to Combined Financial Statements - 5 -

8 NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Kalispell Area Chamber of Commerce (the Chamber) is a corporation formed under the laws of the State of Montana and was incorporated on January 19, It was granted an exemption from Federal income tax in August 1942 under the provisions of Section 501(c)(6) of the Internal Revenue Code and has been classified as an organization that is not a private foundation under Section 509(a)(2). The Chamber is a voluntary organization of businesses and professional men and women who have joined together for the purpose of promoting the civic, commercial and industrial progress of the community. The membership of the Chamber is comprised of members primarily within Flathead County, Montana. In 1994, the Kalispell Chamber Foundation, Inc. (the Foundation) was created and began operating under the provisions of Section 501(c)(3) of the Internal Revenue Code. The Leadership Flathead Program provides education and training opportunities for the development of informed community leaders. Currently the Foundation consists of three divisions: Leadership Flathead Program, Alumni of the Leadership Flathead Program, and the Kalispell Chamber Foundation. Funds of the Foundation are limited to the restrictions of 501(c)(3) of the Internal Revenue Code and are not available for the general operation of the Chamber. An agency relationship exists between the Kalispell Area Chamber of Commerce and the City of Kalispell (the City), whereby the City designated the Chamber as its representative to administer the Lodging Facility Use Tax monies that are received from the State of Montana. These monies are restricted to activities directed toward the promotion of tourism. The Chamber must present and receive approval of marketing plans on a yearly basis. Compliance auditing of the use of these funds is administered by the Montana State Department of Commerce. An agency relationship exists between the Kalispell Area Chamber of Commerce and the City of Kalispell (the City), whereby the City designated the Chamber as its representative to administer the Tourism Business Improvement District monies. These monies are restricted to activities directed toward the promotion of Kalispell for the purpose of tourism. The activity of the Tourism Business Improvement District is not included in these combined financial statements. If the amounts had been included it would have increased total revenues by $541,403 and $502,919 and total expenses by $587,184 and $428,705 for 2014 and 2013, respectively. Principles of Combination The combined financial statements of Kalispell Area Chamber of Commerce include the accounts of the Kalispell Area Chamber of Commerce and the Kalispell Chamber Foundation, Inc., collectively referred to as "the Organization," which are affiliated by virtue of a common Board of Directors. All significant intercompany transactions have been eliminated in combination. Basis of Accounting The financial statements of the Organization are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles, which involves the application of accrual accounting whereby revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. Cash and Cash Equivalents For purposes of the Combined Statement of Cash Flows, the Organization considers all highly liquid investments purchased with a maturity date of three months or less to be cash equivalents

9 NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounts Receivable The Organization does not anticipate any material collection loss with respect to the balance in accounts receivable; accordingly, no allowance for doubtful accounts has been established. Inventory Inventory is stated at lower of cost or market value on a first-in, first-out method. Property and Equipment Property and equipment are stated at cost. It is the Organization's policy to capitalize property and equipment whose cost exceeds $500. Depreciation is computed using the straight-line method over the estimated useful lives of the individual assets, ranging from 5 to 10 years for equipment, and 15 to 30 years for leasehold improvements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Income Taxes The Chamber and Foundation are exempt from income taxes under the provisions of Sections 501(c)(6) and 501(c)(3), respectively, of the Internal Revenue Code and therefore no provision has been made for Federal or Montana income taxes in the accompanying combined financial statements. There was no unrelated business income in 2014 or The Chamber follows accounting guidance associated with accounting for uncertainty in income taxes. The income tax years of 2011 to 2013 remain open to examination by the federal taxing authorities. Revenue Recognition The Chamber recognizes membership dues revenue in the month of renewal or sign-up for membership. Membership dues are considered fully earned upon receipt and dues not collected are recorded as decreases to membership revenue. Revenue from other activities and programs are recorded as earned. Contributions received by the Foundation are recorded as increases in unrestricted, temporarily restricted or permanently restricted net assets, depending on the existence and/or nature of any donor restrictions. When restrictions expire (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Reclassifications Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform to the current year presentation. These reclassifications have no effect on net assets or change in net assets as previously reported. NOTE 2 -- NOTE PAYABLE - LINE OF CREDIT The Chamber has a $15,000 BusinessLine line of credit agreement with Wells Fargo Bank Montana, N.A. of Kalispell, which renews annually. Interest on the line of credit is variable and is charged at the Wells Fargo Bank, N.A. prime rate plus 1.75%. The line of credit requires monthly interest payments only. At December 31, 2014 and 2013, the line of credit had no outstanding balance

10 NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 NOTE 3 -- LEASING ARRANGEMENTS The Chamber leases the premises known as "Depot Park" which includes the old Great Northern Depot building from the City of Kalispell. Rent for this property was fixed at $1.00 per year, all of which was paid at the time of signing the lease. The Chamber has undertaken extensive renovating and remodeling of the interior and exterior of the old depot building. The City has not charged more than nominal rent for the premises in the belief that such renovation and remodeling will be to the ultimate benefit of the City in lieu of a higher rental charge. The Chamber is responsible for all maintenance, repairs, upkeep and the security of the building and all utilities used thereon during the term of the lease. On November 1, 2006, the Chamber renewed its lease for 35 years, thereby securing the Depot Park premises through October 31, The estimated market value of the leased facility for the years ended December 31, 2014 and 2013 totaled $65,000 and $65,000, respectively and have been recorded in the Statements of Activities as rent in-kind expense and other revenue. The Chamber sub-leases space within "Depot Park" to other entities on month-to-month terms. Rent revenue from unrelated entities is recorded as other revenue in the Statements of Activities and totaled $13,985 and $16,547 for the years ended December 31, 2014 and 2013, respectively. NOTE 4 -- PENSION PLAN In 1996, the Chamber implemented a simplified employer pension plan (SARSEP under Section 408(k) of the Internal Revenue Code) covering all employees who are at least 21 years old and have performed services for the employer in at least one year of the immediately preceding five years. Contributions are decided by the Board of Directors each year and are based upon a percentage of compensation. The 2014 and 2013 contributions to this plan were $12,705 and $11,392, respectively. NOTE 5 -- CONCENTRATIONS OF RISK AND FINANCIAL INSTRUMENTS Fair Values of Financial Instruments The Organization's financial instruments include cash and cash equivalents, other current assets and various payables. The carrying amounts of these financial instruments have been estimated by management to approximate fair value. Uninsured Cash Balances Cash balances are maintained by the Chamber in several financial institutions. From time to time, those balances exceed the FDIC insured limits. NOTE 6 -- SUBSEQUENT EVENTS Management has evaluated subsequent events through June 4, 2015, the date on which the financial statements were available to be issued

11 SUPPLEMENTARY INFORMATION

12 COMBINED STATEMENTS OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2014 SCHEDULE I Tourism Development Economic Development Program Services Government Relations Community Development Membership Services Supporting Services Administration and Operations Direct Program Expenses $ 37,154 $ 730,358 $ 12,010 $ 36,765 $ 74,384 $ 15,506 $ 906,177 Allocated Expenses: Salaries and employee benefits 149,832 14,983 44,950 14,983 29,966 44, ,664 Bank fees and service charges - 9, ,002 14,574 Building and maintenance ,696 16,014 Depreciation and amortization ,391 9,391 Insurance - 19, ,552 24,172 Contributions - 18,600-1, ,575 Professional fees 80 43, ,345 11,574 38, ,533 Rent in-kind ,000 65,000 Training and education - 4,925-1,928-1,094 7,947 Meetings ,676 2, ,333 7,787 Printing and publications ,352 1,600 5,192 Utilities 1,204 3, ,916 21,108 Miscellaneous - 5, ,069 12,957 Office 17,654 6, ,129 2,002 21,158 48,675 Travel - 44,116 1,836 1, ,864 55,471 Bad debt ,360 1,379 Total Allocated Expenses 168, ,966 49,897 32,385 48, , ,439 Total Functional Expenses $ 205,924 $ 902,324 $ 61,907 $ 69,150 $ 123,243 $ 255,068 $ 1,617,616 Total See Independent Auditors' Report

13 COMBINED STATEMENTS OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2013 SCHEDULE I (CONTINUED) Tourism Development Economic Development Program Services Government Relations Community Development Membership Services Supporting Services Administration and Operations Direct Program Expenses $ 88,556 $ 257,306 $ 8,380 $ 9,443 $ 100,726 $ 11,117 $ 475,528 Allocated Expenses: Salaries and employee benefits 118,085 14,477 37,648 10,659 27,138 34, ,350 Bank fees and service charges ,948 5,320 Building and maintenance 4, ,723 26,430 Depreciation and amortization ,966 10,998 Insurance ,956 3,956 Professional fees 3,138 2,828 16,201 10,401-25,706 58,274 Rent in-kind ,000 65,000 Training and education ,618-1,853 9,471 Tourism Meetings Printing and publications - 2, ,022 Utilities ,912 14,074 18,568 Miscellaneous 1,103 2, ,559 Office 1,271 1, ,413 17,215 Travel and meals 461 6, ,422 Total Allocated Expenses 128,756 30,626 53,849 30,506 32, , ,312 Total Functional Expenses $ 217,312 $ 287,932 $ 62,229 $ 39,949 $ 132,762 $ 208,656 $ 948,840 Total See Independent Auditors' Report

14 COMBINING STATEMENTS OF FINANCIAL POSITION YEAR ENDED DECEMBER 31, 2014 SCHEDULE II Chamber Foundation Eliminations Total ASSETS CURRENT ASSETS Cash and cash equivalents $ 364,723 $ 22,854 $ - $ 387,577 Restricted cash 213, ,769 Total Cash and Cash Equivalents 578,492 22, ,346 Program receivables, net 78,450 1,500 (595) 79,355 Grants receivable 13, ,100 Inventory for resale 1, ,201 Prepaid expenses 7, ,736 Note receivable 5,000 - (5,000) - Total Current Assets 683,979 24,354 (5,595) 702,738 PROPERTY AND EQUIPMENT (AT COST) Leasehold improvements 332, ,394 Furniture and equipment 44, ,146 Web design 32,489 1,476-33,965 Total Property and Equipment 409,029 1, ,505 Less: Accumulated depreciation and amortization (265,669) (1,476) - (267,145) Net Property and Equipment 143, ,360 TOTAL ASSETS $ 827,339 $ 24,354 $ (5,595) $ 846,098 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses $ 37,462 $ 720 $ (595) $ 37,587 Deferred revenue 8, ,220 Funds held - Tourism Business Improvement District 213, ,769 Note payable - 5,000 (5,000) - Total Current Liabilities 259,451 5,720 (5,595) 259,576 NET ASSETS Unrestricted 504,788 18, ,422 Temporarily restricted 63, ,100 Total Net Assets 567,888 18, ,522 TOTAL LIABILITIES AND NET ASSETS $ 827,339 $ 24,354 $ (5,595) $ 846,098 See Independent Auditors' Report

15 COMBINING STATEMENTS OF FINANCIAL POSITION YEAR ENDED DECEMBER 31, 2013 SCHEDULE II (CONTINUED) Chamber Foundation Eliminations Total ASSETS CURRENT ASSETS Cash and cash equivalents $ 266,968 $ 29,394 $ - $ 296,362 Restricted cash 243, ,896 Total Cash and Cash Equivalents 510,864 29, ,258 Program receivables, net 94,361 3,900 (428) 97,833 Inventory for resale 1, ,201 Prepaid expenses 11, ,265 Total Current Assets 617,691 33,294 (428) 650,557 PROPERTY AND EQUIPMENT (AT COST) Leasehold improvements 324, ,407 Furniture and equipment 40, ,877 Web design 32,489 1,476-33,965 Total Property and Equipment 397,773 1, ,249 Less: Accumulated depreciation and amortization (256,277) (1,476) - (257,753) Net Property and Equipment 141, ,496 TOTAL ASSETS $ 759,187 $ 33,294 $ (428) $ 792,053 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses $ 60,038 $ 1,442 $ (428) $ 61,052 Deferred revenue 29, ,055 Funds held - Tourism Business Improvement District 243, ,896 Total Current Liabilities 333,639 1,792 (428) 335,003 NET ASSETS Unrestricted 425,548 31, ,050 TOTAL LIABILITIES AND NET ASSETS $ 759,187 $ 33,294 $ (428) $ 792,053 See Independent Auditors' Report

16 COMBINING STATEMENTS OF ACTIVITIES YEAR ENDED DECEMBER 31, 2014 SCHEDULE III UNRESTRICTED NET ASSETS Chamber Foundation Eliminations Total SUPPORT AND REVENUE Membership dues $ 282,995 $ - $ - $ 282,995 Activities and programs 1,290,764 21,650-1,312,414 Grants and contributions 12,059 1,220 (5,000) 8,279 Other revenue 80, ,300 Total Support and Revenue 1,666,117 22,871 (5,000) 1,683,988 EXPENSE Program Services: Tourism development 205, ,924 Economic development 902, ,324 Government relations 61, ,907 Community development 53,565 20,585 (5,000) 69,150 Membership services 123, ,243 Total Program Services 1,346,963 20,585 (5,000) 1,362,548 Supporting Services: Administration and operations 255, ,068 Total Expense 1,602,031 20,585 (5,000) 1,617,616 TOTAL CHANGE IN UNRESTRICTED NET ASSETS 64,086 2,286-66,372 TEMPORARILY RESTRICTED NET ASSETS Grants 63, ,100 TOTAL CHANGE IN NET ASSETS 127,186 2, ,472 NET ASSETS - BEGINNING OF YEAR 440,702 16, ,050 NET ASSETS - END OF YEAR $ 567,888 $ 18,634 $ - $ 586,522 See Independent Auditors' Report

17 COMBINING STATEMENTS OF ACTIVITIES YEAR ENDED DECEMBER 31, 2013 SCHEDULE III (CONTINUED) UNRESTRICTED NET ASSETS Chamber Foundation Eliminations Total SUPPORT AND REVENUE Membership dues $ 301,557 $ 945 $ - $ 302,502 Activities and programs 412,740 66,162 (4,445) 474,457 Grants and contributions 108, ,223 Other revenue 87,944 1 (5,619) 82,326 Total Support and Revenue 910,464 67,108 (10,064) 967,508 EXPENSE Program Services: Tourism development 217, ,312 Economic development 287, ,932 Government relations 62, ,229 Community development 2,688 47,325 (10,064) 39,949 Membership services 132, ,762 Total Program Services 702,923 47,325 (10,064) 740,184 Supporting Services: Administration and operations 208, ,656 Total Expense 911,579 47,325 (10,064) 948,840 TOTAL CHANGE IN UNRESTRICTED NET ASSETS (1,115) 19,783-18,668 NET ASSETS - BEGINNING OF YEAR 426,663 11, ,382 NET ASSETS - END OF YEAR $ 425,548 $ 31,502 $ - $ 457,050 See Independent Auditors' Report