MASSACHUSETTS MANUFACTURING EXTENSION PARTNERSHIP, INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2017 AND 2016

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1 MASSACHUSETTS MANUFACTURING EXTENSION PARTNERSHIP, INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2017 AND 2016

2 TABLE OF CONTENTS FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 PAGE Independent Auditors Report 1-2 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 3-4 Independent Auditors Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance 5-6 Summary of Findings and Questioned Costs 7-9 Statements of Financial Position 10 Statements of Activities Statements of Cash Flow 13 Notes to Financial Statements Schedule of Functional Expenses for the Year Ended June 30, Schedule of Functional Expenses for the Year Ended June 30, Schedule of Federal Awards 23 Notes to Schedule of Federal Awards 24

3 INDEPENDENT AUDITORS REPORT To the Board of Directors Massachusetts Manufacturing Extension Partnership, Inc. Worcester, Massachusetts Report on the Financial Statements We have audited the accompanying financial statements of Massachusetts Manufacturing Extension Partnership, Inc. (a nonprofit organization), which comprise the statements of financial position as of June 30, 2017 and 2016, and the related 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 financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. -1-

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Massachusetts Manufacturing Extension Partnership, Inc. as of June 30, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The schedules of functional expenses are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards and is also 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 audits 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 information is fairly stated, in all material respects, in relation to the financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our reports, dated September 21, 2017, on our consideration of Massachusetts Manufacturing Extension Partnership, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of those reports 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 the internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed with Government Auditing Standards in considering Massachusetts Manufacturing Extension Partnership, Inc. s internal control over financial reporting and compliance. North Andover, Massachusetts September 21,

5 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 To the Board of Directors Massachusetts Manufacturing Extension Partnership, Inc. Worcester, Massachusetts 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 Massachusetts Manufacturing Extension Partnership, Inc. (a nonprofit organization), which comprise the statement of financial position as of June 30, 2017, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated September 21, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Massachusetts Manufacturing Extension Partnership, Inc. s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Massachusetts Manufacturing Extension Partnership, Inc. s internal control. Accordingly, we do not express an opinion on the effectiveness of Massachusetts Manufacturing Extension Partnership, Inc. s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention to those charged with governance. Our consideration of the 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. -3-

6 Compliance and Other Matters As part of obtaining reasonable assurance about whether Massachusetts Manufacturing Extension Partnership, Inc. s financial statements are free of 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 an instance of noncompliance or other matters that is required to be reported under Government Auditing Standards and which is described in the accompanying schedule of findings and questioned costs as item Massachusetts Manufacturing Extension Partnership, Inc. s Response to Findings Massachusetts Manufacturing Extension Partnership, Inc. s response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. Massachusetts Manufacturing Extension Partnership Inc. s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing on internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. North Andover, Massachusetts September 21,

7 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors Massachusetts Manufacturing Extension Partnership, Inc. Worcester, Massachusetts Report on Compliance for Each Major Federal Program We have audited Massachusetts Manufacturing Extension Partnership, Inc. s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have direct and material effect on each of Massachusetts Manufacturing Extension Partnership Inc. s major federal programs for the year ended June 30, Massachusetts Manufacturing Extension Partnership, Inc. s major federal program is identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for the compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of Massachusetts Manufacturing Extension Partnership, Inc. s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Massachusetts Manufacturing Extension Partnership, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Massachusetts Manufacturing Extension Partnership, Inc. s compliance. -5-

8 Opinion on Each Major Federal Program In our opinion, Massachusetts Manufacturing Extension Partnership, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal program for the year ended June 30, Report on Internal Control over Compliance Management of Massachusetts Manufacturing Extension Partnership, Inc. 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 Massachusetts Manufacturing Extension Partnership, Inc. s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Massachusetts Manufacturing Extension Partnership, Inc. s 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 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 to those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. 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. North Andover, Massachusetts September 21,

9 SUMMARY OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 A. SUMMARY OF AUDIT RESULTS 1. The auditors report expresses an unmodified opinion on whether the financial statements of Massachusetts Manufacturing Extension Partnership, Inc. were prepared in accordance with GAAP. 2. There were no significant deficiencies disclosed during the audit of the financial statements reported in the 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. 3. One instance of noncompliance material to the financial statements of Massachusetts Manufacturing Extension Partnership, Inc., which would be required to be reported in accordance with Government Auditing Standards, was disclosed during the audit. 4. There were no significant deficiencies in internal control over major federal award programs disclosed during the audit, which would be required to be reported in the Independent Auditors Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance. 5. The auditors report on compliance for the major federal award programs for Massachusetts Manufacturing Extension Partnership, Inc. expresses an unqualified opinion. 6. There are no audit findings relative to a major federal award program of Massachusetts Manufacturing Extension Partnership, Inc. reported in this schedule. 7. The program tested as a major program with its CFDA Number is as follows: NIST Manufacturing Extension Partnership The threshold used for distinguishing Type A and B programs was $750, Massachusetts Manufacturing Extension Partnership, Inc. was determined not to be a low-risk auditee. -7-

10 SUMMARY OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2017 B. FINDINGS AND QUESTIONED COSTS - FINANCIAL STATEMENT AUDIT COST ALLOCATION Criteria: A cost is allocable to a particular cost objective in accordance with the relative benefits received. Condition: Certain costs charged to the Department of Labor H1-B grant were determined to have benefited other contracts. Cause: The Organization did not follow a procedure in place to apportion costs in the general ledger. Effect: The costs were charged to only one contract rather than apportioned to multiple contracts and grants. The Organization corrected the allocation. The allocation did not impact the grant cost submissions. Auditor s Recommendation: The Organization should comply with procedures that require the regular review of costs charged to grants and contracts to be certain that costs are distributed in reasonable proportion to the benefit received. View of Responsible Officials and Planned Corrective Action: The Organization understands and agrees with the finding and has corrected the general ledger. The correction had no impact on amounts billed to the grant. The Organization s accounting staff has been made aware of the issue and will follow procedures to assure proper cost allocations are reflected in the Organization s books and records. C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS There were no findings or questioned costs in the major federal award program audit of Massachusetts Manufacturing Extension Partnership, Inc. as of, and for year the ended, June 30,

11 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2017 PRIOR YEAR FINDINGS AND QUESTIONED COSTS - FINANCIAL STATEMENT AUDIT Condition: Certain costs charged to the Department of Labor H1-B grant were determined to have benefited other contracts. Current Status: Organization personnel corrected the fiscal 2016 H1-B grant cost submissions and implemented procedures to properly allocate costs. However, fiscal 2017 costs also identified as requiring allocation were not posted to the general ledger. The Organization s accounting personnel have been made aware of the oversight and corrected the general ledger accordingly. PRIOR YEAR FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS There were no findings or questioned costs in the major federal award program audit of Massachusetts Manufacturing Extension Partnership, Inc. as of, and for year the ended, June 30,

12 STATEMENTS OF FINANCIAL POSITION JUNE 30, 2017 AND ASSETS CURRENT ASSETS Cash and cash equivalents - unrestricted $ 2,583,776 $ 1,672,698 Cash and cash equivalents - restricted 2,462 2,647 Accounts receivable, net 737,843 1,258,315 Prepaid expenses and deposits 88,022 77,470 Total Current Assets 3,412,103 3,011,130 PROPERTY AND EQUIPMENT, NET 158,071 45,325 TOTAL ASSETS $ 3,570,174 $ 3,056,455 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 93,499 $ 366,164 Accrued expenses 305, ,931 Settlements payable - current 662, ,417 Deferred revenue 1,664, ,597 Total Current Liabilities 2,726,217 1,946,109 LONG TERM LIABILITIES Settlement payable - long term 993,907 1,711,740 CONTINGENCIES (NOTE 13) - - Total Liabilities 3,720,124 3,657,849 NET ASSETS Unrestricted net assets (149,950) (601,394) Total Net Assets (149,950) (601,394) TOTAL LIABILITIES AND NET ASSETS $ 3,570,174 $ 3,056,455 The accompanying notes are an integral part of these financial statements. -10-

13 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 (WITH SUMMARIZED INFORMATION FOR THE YEAR ENDED JUNE 30, 2016) Unrestricted Temporarily Total Total Restricted REVENUE AND SUPPORT Government grants - federal $ 3,893,121 $ - $ 3,893,121 $ 3,422,096 Government grants - state and local 1,615,079-1,615,079 2,810,814 Project fees - 2,302,454 2,302,454 3,131,036 Net assets released from restriction 2,302,454 (2,302,454) - - TOTAL REVENUE AND SUPPORT 7,810,654-7,810,654 9,363,946 EXPENSES Program service expense 5,582,672-5,582,672 6,632,195 Management and general expense 1,566,949-1,566,949 2,041,649 Settlement ,987,825 TOTAL EXPENSES 7,149,621-7,149,621 10,661,669 INCREASE (DECREASE) IN NET ASSETS BEFORE OTHER ACTIVITY 661, ,033 (1,297,723) OTHER ACTIVITY Payment of Unexpended Program Income (209,589) - (209,589) - INCREASE (DECREASE) IN NET ASSETS 451, ,444 (1,297,723) NET ASSETS, BEGINNING (601,394) - (601,394) 696,329 NET ASSETS, ENDING $ (149,950) $ - $ (149,950) $ (601,394) The accompanying notes are an integral part of these financial statements. -11-

14 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 Unrestricted Temporarily Total Restricted 2016 REVENUE AND SUPPORT Government grants - federal $ 3,422,096 $ - $ 3,422,096 Government grants - state 2,810,814-2,810,814 Project fees - 3,131,036 3,131,036 Net assets released from restriction 3,827,365 (3,827,365) - TOTAL REVENUE AND SUPPORT 10,060,275 (696,329) 9,363,946 EXPENSES Program service expense 6,632,195-6,632,195 Management and general expense 2,041,649-2,041,649 Settlement 1,987,825-1,987,825 TOTAL EXPENSES 10,661,669-10,661,669 INCREASE (DECREASE) IN NET ASSETS (601,394) (696,329) (1,297,723) NET ASSETS, BEGINNING - 696, ,329 NET ASSETS, ENDING $ (601,394) $ - $ (601,394) The accompanying notes are an integral part of these financial statements. -12-

15 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2017 AND CASH FLOWS FROM OPERATING ACTIVITIES Cash received from grants, fees, and contracts $ 9,071,349 $ 9,420,426 Cash paid to employees, subrecipients and vendors (8,004,583) (9,119,654) Interest paid (9,274) - NET CASH PROVIDED BY OPERATING ACTIVITIES 1,057, ,772 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (146,599) (31,374) NET CASH USED IN INVESTING ACTIVITIES (146,599) (31,374) NET INCREASE IN CASH 910, ,398 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,675,345 1,405,947 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,586,238 $ 1,675,345 RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Change in net assets $ 451,444 $ (1,297,723) Adjustment to reconcile change in net assets to net cash provided by operating activities Depreciation and amortization 33,853 20,140 (Increase) decrease in accounts receivable 520,472 (565,435) (Increase) decrease in prepaid expenses and deposits (10,552) (30,471) Increase (decrease) in accounts payable (272,665) (56,583) Increase (decrease) in accrued expenses 136,363 (15,665) Increase (decrease) in settlement payable (541,646) 1,624,594 Increase (decrease) in deferred revenue 740, ,915 Total Adjustments 606,048 1,598,495 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,057,492 $ 300,772 The accompanying notes are an integral part of these financial statements. -13-

16 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2017 AND NATURE OF THE ORGANIZATION Massachusetts Manufacturing Extension Partnership, Inc. ( the Organization ) was incorporated on June 7, 1996 in the Commonwealth of Massachusetts. The Organization is an educational extension program established to provide small manufacturers, located in the Commonwealth of Massachusetts, with assistance in applying production and process technologies and business management practices to their operations. The Organization links public and private service providers and complements federal, state and local programs. Government fees and grants represented 71% and 67% of the Organization s total revenue and support for the years ended June 30, 2017 and 2016, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting The financial statements of Massachusetts Manufacturing Extension Partnership, Inc. have been prepared on the accrual basis, whereby income is recognized when earned and expenses when incurred. Financial Statement Presentation In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 958, Not-for-Profit Entities, the Organization reports information regarding its financial position and activities within three classes of net assets: unrestricted, temporarily restricted, and permanently restricted based upon the existence or absence of donor-imposed restrictions. Contributions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the absence or existence and nature of any donor restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. Massachusetts Manufacturing Extension Partnership has not received any contributions with donorimposed restrictions that would result in temporarily or permanently restricted net assets. Costs contributed to the Organization, or incurred on behalf of the Organization under agreements with third-parties, are reported at the cost to the third-parties of the supplies, consulting, salaries, general corporate services, or other costs incurred. Expendable Restricted Resources Contributions and grants restricted by the donor, grantor, or other outside party for particular operating purposes are deemed to be earned and reported as revenues of the temporarily restricted fund when the Organization has incurred expenditures in compliance with the specific restrictions. Such amounts received but not yet expended are reported as restricted deferred revenue. -14-

17 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED JUNE 30, 2017 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash and Cash Equivalents For the purpose of the statement of cash flows and the statement of financial position, cash and cash equivalents includes all monies in banks and highly liquid investments with maturity dates of less than three months. During fiscal years ended June 30, 2017 and 2016, the Organization was required by a grantor to hold cash in a separate bank account, restricted for the receipt of project fees and payment of the expenses related to the grantor s project. Property and Equipment Property and equipment are recorded at cost or, if donated, at the fair market value at the date of the donation. Routine repairs and maintenance expenditures are expensed as incurred. Depreciation is computed using the straight-line method using the following estimated useful lives: Furniture and fixtures Equipment 7 years 3-5 years Cost Allocation The costs of providing various programs and management and general expenses have been summarized on a functional basis in the schedules of functional expenses. Expenses that can be identified with a specific program are allocated directly according to their natural expense classification. Other expenses that are common to several functions are allocated to programs based upon management s estimate of usage of space, materials, or other assets. Income Tax Status and Uncertain Tax Positions The Organization is exempt from income taxes under section 501(c)(3) of the Internal Revenue Code except on net income derived from unrelated business activities. The Organization does not have any income from unrelated business activities. Management believes that it has appropriate support for any tax positions taken, and as such, does not have any uncertain tax positions that are material to the financial statements. The Organization s Return of Organization Exempt from Income Tax (Form 990) could be subject to examination, generally for three years after they were filed. At June 30, 2017 the Organization s returns, as filed for the years ended June 30, 2014 through 2016, remain open for such an examination. Reclassification of Amounts Certain amounts in the financial statements for the year ended June 30, 2016 have been reclassified to conform to current year presentation. 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. -15-

18 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED JUNE 30, 2017 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value of Financial Instruments The carrying value of cash in banks, accounts receivable, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of these instruments. The amounts shown for the line of credit approximate fair value, since the interest rate is at current market rates. Employee Service Provider The Organization engages an outside service company to provide payroll, benefits and other employee related services. The service provider bills the Organization for all payroll and related expenses on a regular basis. These costs are reported as salaries and wages, and employee benefits, in the accompanying schedules of functional expenses. 3. ACCOUNTS RECEIVABLE Accounts receivable consists of the following at June 30: Federal cooperative agreement, contracts and grants $201,238 $ 824,572 State contracts and grants 243, ,950 Project fees and other receivables 295, , ,314 1,262,186 Less: allowance for doubtful accounts (2,471) (3,871) Accounts Receivable - Net $737,843 $1,258,315 The allowance for doubtful accounts is based up management s review of the aged accounts receivable listing and past collection history. 4. PREPAID EXPENSES AND DEPOSITS At June 30, 2017 and 2016, prepaid expense includes prepaid insurance, training materials, and other expenses. 5. PROPERTY AND EQUIPMENT Property and equipment consisted of the following at June 30: Furniture and fixtures $ 29,440 $ 29,440 Equipment 350, , , ,663 Less: accumulated depreciation 222, ,338 Net Property and Equipment $158,071 $ 45,

19 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED JUNE 30, 2017 AND PROPERTY AND EQUIPMENT (CONTINUED) Depreciation expense was $33,853 and $20,140 for fiscal years ended June 30, 2017 and 2016, respectively. 6. COMPENSATED ABSENCES Employees of the Organization are entitled to paid vacation and sick days, depending on job classification, length of service, and other factors. As of June 30, 2017 and 2016, the Organization calculated an accrued vacation liability of $80,705 and $97,449, respectively. The Organization s policy is to recognize the costs of other compensated absences when actually paid to employees. 7. SETTLEMENTS PAYABLE As a result of an audit of the Organization s cooperative agreement with NIST by the Office of the Inspector General for the fiscal year ended June 30, 2006, the Organization agreed to pay $1,088,140 in disallowed costs and charges. The balance was payable in 35 monthly installments of $30,269 which began February 1, 2014, plus a final installment of $28,717. The liability was paid in full during fiscal year ending June 30, On December 22, 2015, the Organization was notified by NIST that certain third-party cost share submitted to NIST between July 1, 2007 and June 30, 2011 was disallowed. An audit resolution determination from the OIG found a refund due to NIST of $1,987,825. The repayment terms require 36 monthly payments of $55,219 beginning in January The accompanying balance sheet at June 30, 2017 reflects current and long-term settlement liabilities of $662,604 and $993,907, respectively. Future minimum payments of this settlement is as follows: Fiscal Year Amount 8. DEFERRED REVENUE 2018 $662, , ,279 Deferred revenue consists of grant revenue received but not expended at the end of the fiscal year. 9. EMPLOYEE BENEFITS Employee benefits reported on the schedules of functional expenses include payroll taxes, pension expense, health, dental and disability insurance, workers compensation insurance, and payroll service fees. -17-

20 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED JUNE 30, 2017 AND TEMPORARILY RESTRICTED NET ASSETS At June 30, 2017 and 2016 the Organization had no temporarily restricted net assets During the years ended June 30, 2017 and 2016 net assets were released from grantor restrictions by incurring expenses satisfying the restricted purposes or by the occurrence of other events specified by grantors as follows: Expenditures for program services and supplies $2,302,454 $3,827, RETIREMENT PLAN The Organization has a defined contribution plan covering all of its eligible full-time employees. Employees who are at least 21 years of age are eligible to participate in the on the first day of the month following three months of service. The Organization contributes a minimum of 3% of the employee s salary to the plan. Additionally, the plan allows for discretionary contributions for profit sharing. In fiscal years 2017 and 2016, the Organization contributed 7% of employees salaries for this purpose. The total employer contributions for fiscal years ended June 30, 2017 and 2016 were $326,027 and $337,015, respectively. 12. COMMITMENTS The Organization leases office space in Worcester Massachusetts. The initial lease, dated September 7, 2006, commenced November 1, 2006 and ended November 30, The lease has been amended twice to add additional space. The rent payment, currently $9,436, escalates annually. The Organization has exercised an option to extend the lease term through May 1, Total rent paid under this agreement was $110,042 and $104,627 for the years ended June 30, 2017 and 2016, respectively. Future minimum payments, under this lease agreement, are as follows: Fiscal Year Amount 2018 $94, CONTINGENCIES/CONCENTRATION OF CREDIT RISK The Organization places its cash equivalents in bank deposit accounts at a credit-worthy financial institution. The Organization has not experienced any losses on its cash equivalents. From time to time the Organization s bank deposit account balance may exceed federal depository insurance coverage and management considers this to be to be a normal business risk. At June 30, 2017 and 2016 the Organization had uninsured bank deposit accounts balances of $2,375,402 and $1,547,753, respectively. Federal and state contracts are subject to audit by their funding agencies. Such audits could result in claims against the Organization. Except for the settlements previously disclosed in Note 7 of these financial statements, no provision has been made for any liabilities that may arise from such audits since the amounts, if any, cannot be determined at this time. -18-

21 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED JUNE 30, 2017 AND CONTINGENCIES/CONCENTRATION OF CREDIT RISK (CONTINUED) As disclosed in Note 1 to these financial statements, the Organization received 71% and 67% of its revenue and support from federal and state government agencies in fiscal 2017 and 2016 respectively. The appropriation of this funding is essential to the Organization s continued ability to provide services at its current level. 14. PAYMENT OF UNEXPENDED PROGRAM INCOME In accordance with the terms of the cooperative agreement with NIST MEP that ended on September 30, 2016, the federal share of program income that had not been expended is required to be repaid to the federal government. Included in accrued expenses at June 30, 2017 is $209,589, NIST MEP s share of the unexpended program income on the closed cooperative agreement. This liability was paid in August The Organization was awarded a new cooperative agreement effective October 1, RELATED PARTY TRANSACTIONS On March 24, 2005, the Manufacturing Advancement Center, Inc. (MAC Center) amended its Articles of Organization to make Massachusetts Manufacturing Extension Partnership the sole member of the MAC Center. The Organization had the following transactions with the MAC Center during the fiscal year ended: Purchase of services and supplies $4,364 $2,558 Certain members of the Board of Directors are affiliated with manufacturing companies. During fiscal year 2017, the Organization provided services to two companies affiliated with board members. Total revenue from these customers was $44,200. Amounts due from these customers was $14,600 at June 30, During fiscal years 2016, the Organization provided no services to companies affiliated with board members. During the fiscal years 2017 and 2016, the Organization purchased services from three companies affiliated with board members. The total of these purchases was $164,372 and $43,294 at June 30, 2017 and 2016, respectively. Included in accounts payable at June 30, 2017 and 2016 due to these companies was $8,685 and $10,000, respectively. -19-

22 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED JUNE 30, 2017 AND CASH FLOW DISCLOSURES There were no non-cash financing or investing activities during the fiscal years ended June 30, 2017 and SUBSEQUENT EVENTS Subsequent events were evaluated through September 21, 2017 which is the date the financial statements were available to be issued. -20-

23 SCHEDULE OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2017 Management Program and 2017 Service General Total Expenses Expense Expenses Salaries and wages $ 2,549,942 $ 806,755 $ 3,356,697 Employee benefits 887, ,367 1,153,518 Consultant contracts 1,077,355 18,686 1,096,041 Subrecipients and grants 446, ,109 Computer equipment, software and supplies 3,969 8,594 12,563 Conferences and events 52,421 9,054 61,475 Depreciation 32, ,853 Dues and subscriptions 51,149 2,288 53,437 Insurance - 29,575 29,575 Interest expense - 9,274 9,274 Marketing and advertising 68,619 1,181 69,800 Office supplies and expense 4,130 72,846 76,976 Postage and shipping 150 2,460 2,610 Professional fees 34, , ,375 Rent 27,510 82, ,042 Telephone and utilities 19,889 29,833 49,722 Training and professional development 6,989-6,989 Training materials 102, ,288 Travel 218,003 33, ,277 $ 5,582,672 $ 1,566,949 $ 7,149,621 The accompanying notes are an integral part of these financial statements. -21-

24 SCHEDULE OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2016 Management Program and 2016 Service General Total Expenses Expense Expenses Salaries and wages $ 2,474,685 $ 1,137,972 $ 3,612,657 Employee benefits 855, ,388 1,191,031 Consultant contracts 2,206,791 29,258 2,236,049 Subrecipients and grants 493, ,311 Computer equipment, software and supplies ,866 15,406 Conferences and events 49,507 16,360 65,867 Depreciation 19, ,140 Dues and subscriptions 53,050 2,718 55,768 Insurance - 32,801 32,801 Marketing and advertising 35,230 26,907 62,137 Office supplies and expense 6,098 87,056 93,154 Postage and shipping - 4,739 4,739 Professional fees 40, , ,287 Rent 26,157 78, ,627 Telephone and utilities 19,344 29,016 48,360 Training and professional development 10, ,533 Training materials 121, ,615 Travel 219,884 36, ,362 $ 6,632,195 $ 2,041,649 $ 8,673,844 The accompanying notes are an integral part of these financial statements. -22-

25 SCHEDULE OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2017 FEDERAL DIRECT: FEDERAL GRANTOR / FEDERAL AWARD FEDERAL PROGRAM TITLE CFDA IDENTIFICATION EXPENDITURES NUMBER NUMBER DEPARTMENT OF COMMERCE National Institute of Standards and Technology Manufacturing Extension Partnership NANB15H222 $ 497,629 Manufacturing Extension Partnership NANB16H229 1,821,929 EMUSA Pilot Project NANB17H ,446 Business to Business Network Pilot Program NANB15H006 43,798 2,465,802 DEPARTMENT OF LABOR H-1B Job Training Grants HG A ,658 OTHER FINANCIAL ASSISTANCE: DEPARTMENT OF DEFENSE * Community Economic Adjustment Assistance for Advance Planning and Economic Diversification HQ ,661 TOTAL FEDERAL EXPENDITURES $ 3,893,121 * Award was passed-through the Massachusetts Development Finance Agency. See independent auditors' report. -23-

26 NOTES TO SCHEDULE OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2017 A. BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Massachusetts Manufacturing Extension Partnership, Inc. and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the Uniform Guidance. Therefore, some amounts presented in this schedule may differ from the amounts presented in, or used in, the preparation of the basic financial statements. -24-