MATERNAL AND CHILD HEALTH CONSORTIUM OF CHESTER COUNTY, INC.

MATERNAL AND CHILD HEALTH CONSORTIUM OF CHESTER COUNTY, INC. FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012

CONTENTS INDEPENDENT AUDITOR'S REPORT 1 FINANCIAL STATEMENTS Statement of Financial Position 2 Statement of Activities 3 Statement of Functional Expenses 4 Statement of Cash Flows 5 Notes to Financial Statements 6

INDEPENDENT AUDITOR'S REPORT Board of Directors Maternal and Child Health Consortium of Chester County, Inc. West Chester, Pennsylvania We have audited the accompanying financial statements of Maternal and Child Health Consortium of Chester County, Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31, 2012, and the related statements of activities, functional expenses and cash flows for the year 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 U.S. generally accepted accounting principles; 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. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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 auditor's 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 auditor considers internal control relevant to the Organization 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 Organization 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Maternal and Child Health Consortium of Chester County, Inc., as of December 31, 2012, and the changes in its net assets and its cash flows for the year then ended in accordance with U.S. generally accepted accounting principles. Report on Summarized Comparative Information We have previously audited the Organization s 2011 financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated March 20, 2012. In our opinion, the summarized comparative information presented herein as of and for the year ended December 31, 2011 is consistent, in all material respects, with the audited financial statements from which it has been derived. Philadelphia, Pennsylvania March 29, 2013

STATEMENT OF FINANCIAL POSITION December 31, 2012 with comparative totals for 2011 2012 2011 ASSETS Cash $ 462,158 $ 1,147,266 Investments 518,344 514,143 Grants receivable 66,435 125,140 Contributions receivable 120,895 153,895 Prepaid expenses and other assets 6,310 15,074 Furniture and equipment, net 40,411 31,368 Beneficial interest in assets held by community foundation 19,440 17,686 Total assets $ 1,233,993 $ 2,004,572 LIABILITIES Accounts payable and accrued expenses $ 186,863 $ 206,366 NET ASSETS Unrestricted 641,812 591,264 Temporarily restricted 405,318 1,206,942 Total net assets 1,047,130 1,798,206 Total liabilities and net assets $ 1,233,993 $ 2,004,572 See accompanying notes -2-

STATEMENT OF ACTIVITIES Year ended December 31, 2012 with comparative totals for 2011 Temporarily Totals Unrestricted Restricted 2012 2011 REVENUE AND SUPPORT Grants $ 1,261,613 $ - $ 1,261,613 $ 1,212,871 Contributions 322,927 421,488 744,415 804,225 Seminar, workshop fees and other 4,063-4,063 77,877 Investment income 6,496-6,496 9,130 Change in value of beneficial interest in assets held by community foundation 1,754-1,754 (1,217) Net assets released from restrictions 1,223,112 (1,223,112) - - Total revenue and support 2,819,965 (801,624) 2,018,341 2,102,886 EXPENSES Program services Healthy Start 1,248,746-1,248,746 1,162,018 Family Center 344,869-344,869 298,634 Family Benefits 645,007-645,007 291,663 Training, education and other 7,595-7,595 79,750 Management and general 353,743-353,743 289,172 Fundraising 169,457-169,457 172,401 Total expenses 2,769,417-2,769,417 2,293,638 CHANGE IN NET ASSETS 50,548 (801,624) (751,076) (190,752) NET ASSETS Beginning of year 591,264 1,206,942 1,798,206 1,988,958 End of year $ 641,812 $ 405,318 $ 1,047,130 $ 1,798,206 See accompanying notes -3-

STATEMENT OF FUNCTIONAL EXPENSES Year ended December 31, 2012 with comparative totals for 2011 Program Services Supporting Services Totals Training, Healthy Family Family Education Management Start Center Benefits and Other and General Fundraising 2012 2011-4- Personnel costs $ 901,280 $ 245,719 $ 318,114 $ 5,445 $ 233,653 $ 115,443 $ 1,819,654 $ 1,622,216 Client supplies 13,270 1,797 539-25 - 15,631 7,686 Client transportation 466 - - - - - 466 937 Community education 11,107 2,650-159 - - 13,916 6,586 Conferences and meetings 23,284 10,681 3,710 171 42,026 3,273 83,145 60,205 Depreciation 8,944 2,438 3,157 54 2,318 1,146 18,057 23,549 Dues and subscriptions 5,933 395 3,716-4,554 2,308 16,906 13,370 Equipment 9,240 1,994 4,364 238 2,731 1,138 19,705 16,028 Events - - - - - 15,154 15,154 11,093 Grant expense - - 176,109 - - - 176,109 66,069 Insurance 7,001 1,723 1,327 48 1,479 1,044 12,622 1,448 IT and data support 57,626 8,251 19,695 77 16,335 2,198 104,182 59,423 Miscellaneous 91 750 - - - 24 865 2,080 Occupancy 95,878 31,415 18,858 219 6,926 8,270 161,566 155,823 Office 12,863 11,828 5,499 472 3,587 1,294 35,543 30,747 Partner payments - - 54,830 - - - 54,830 11,200 Postage 1,046 206 52 39 594 2,671 4,608 4,505 Printing 4,074 804 2,198 66 712 8,760 16,614 10,181 Professional fees 54,042 9,568 24,384 383 36,355 3,959 128,691 112,609 Repairs and maintenance 2,309 363 453-151 176 3,452 7,106 Telephone 22,156 7,399 4,935-1,267 1,338 37,095 43,944 Travel 18,136 6,888 3,067 224 1,030 1,261 30,606 26,833 Total expenses $ 1,248,746 $ 344,869 $ 645,007 $ 7,595 $ 353,743 $ 169,457 $ 2,769,417 $ 2,293,638 See accompanying notes

STATEMENT OF CASH FLOWS Year ended December 31, 2012 with comparative totals for 2011 CASH FLOWS FROM OPERATING ACTIVITIES 2012 2011 Change in net assets $ (751,076) $ (190,752) Adjustments to reconcile change in net assets to net cash provided by (used for) operating activities Realized and unrealized loss on investments 1,530 1,173 Depreciation 18,057 23,549 Change in value of beneficial interest in assets held by a community foundation (1,754) 1,217 (Increase) decrease in Grants receivable 58,705 13,439 Contributions receivable 33,000 297,856 Prepaid expenses and other assets 8,764 (277) Increase (decrease) in Accounts payable and accrued expenses (19,503) 84,212 Net cash provided by (used for) operating activities (652,277) 230,417 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (137,487) (116,369) Proceeds from sale of investments 131,756 286,086 Purchase of furniture and equipment (27,100) - Net cash provided by (used for) investing activities (32,831) 169,717 Increase (decrease) in cash (685,108) 400,134 CASH Beginning of year 1,147,266 747,132 End of year $ 462,158 $ 1,147,266 See accompanying notes -5-

NOTES TO FINANCIAL STATEMENTS December 31, 2012 (1) NATURE OF OPERATIONS Maternal and Child Health Consortium of Chester County, Inc. (the "Organization") is a Pennsylvania nonprofit organization serving Chester County, Pennsylvania. The Organization seeks to improve maternal and child health through the collaborative efforts of individuals, providers and policy makers. The Organization provides the following programs: Healthy Start Healthy Start, part of a national effort in 100 communities, improves birth outcomes for at-risk, low-income pregnant women. Healthy Start s bilingual, bicultural Family Health Advocates provide an array of evidenceinformed outreach and support services including countywide prenatal and postpartum home visiting, case management, depression screening, health education, health insurance enrollment, medical interpreting, and transportation linkages. There are five community based offices in Chester County located in Coatesville, Kennett Square, Oxford, Phoenixville, and West Chester. In addition, the Organization provides prenatal and parenting classes in English and in Spanish including Comenzando Bien (Healthy Beginning), a curriculum developed by the March of Dimes and the National Alliance for Hispanic Health. The goal of the program is to provide the culturally and linguistically tailored prenatal and parenting education that women of color have been denied because of language, financial, and other barriers. Family Center The Family Center in Kennett Square helps families in southern Chester County with young children between the ages of two and five years with early childhood development and school readiness. The program uses the nationally-recognized, evidence-based "Parents as Teachers" (PAT) program, which includes personal in-home visits, parent support groups, resource referrals, health insurance enrollment, child development, and parenting education. Family Benefits The Organization coordinates a countywide health insurance enrollment initiative for women, children and families which includes community outreach and education about subsidized health insurance, enrollment assistance into Medicaid and CHIP (Children s Health Insurance Program), and advocacy to improve access to health insurance. The program expands throughout the Delaware Valley with funding from the U.S. Department of Health and Human Services, Center for Medicare and Medicaid. Training, Education and Other The Organization provides Spanish language interpreter trainings to other local health and human services organizations with the goal of enabling them to provide high quality, culturally competent services to clients with limited English proficiency. The Organization also offers cultural competency trainings for providers to increase access to health services and to increase understanding on issues such as African American women s health and Latino cultural beliefs and values. (2) SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables and other liabilities. -6-

NOTES TO FINANCIAL STATEMENTS December 31, 2012 Financial Statement Presentation The Organization reports information regarding its financial position and activities according to the following three classes of net assets: Unrestricted net assets Net assets that are not subject to donor-imposed restrictions. Temporarily restricted net assets Net assets that are subject to donor-imposed restrictions that will be satisfied by actions of the Organization and/or the passage of time. When a restriction is satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Permanently restricted net assets Net assets that are subject to donor-imposed restrictions that such assets be maintained indefinitely. Fair Value Measurements of Assets and Liabilities Generally accepted accounting principles ("GAAP") define fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. GAAP establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Organization. Unobservable inputs reflect the Organization's assumptions about the inputs market participants would use in pricing the asset or liability based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1 Valuations based on quoted prices in active markets for identical assets or liabilities that the Organization has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these assets and liabilities does not entail a significant degree of judgment. Level 2 Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 Valuations based on inputs that are unobservable, that is, inputs that reflect the Organization's own assumptions. Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at fair value, as determined by quoted market prices, with gains and losses included in the statement of activities. Gain or loss on sale of securities is determined on the basis of specific identification. Interest and dividend income is recorded as earned. Grant Revenue Grant revenues are recognized as the related expenses are incurred. -7-

NOTES TO FINANCIAL STATEMENTS December 31, 2012 Contributions Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted net assets depending on the absence or existence and nature of any donor restrictions. Donor-restricted contributions whose restrictions are satisfied in the same period are reported as unrestricted. Unconditional contributions are recognized as revenue when the related promise to give is received. Conditional contributions are recognized as revenue when the conditions are satisfied. Furniture and Equipment Furniture and equipment are carried at cost, if purchased, and at fair value at the date of donation if donated. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years. The Organization capitalizes all furniture and equipment with a cost of $5,000 or more. Beneficial Interest in Assets Held by Community Foundation The Organization reports its beneficial interest in assets held by community foundation at the fair value of the related assets. Functional Allocation of Expenses The costs of providing various programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated based upon the programs and supporting services benefited. Income Tax Status The Organization is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. However, income from certain activities not directly related to the Organization s tax-exempt purpose is subject to taxation as unrelated business income. In addition, the Organization s qualifies for the charitable contribution deduction under Section 170(b)(1)(A) and has been classified as an organization other than a private foundation under Section 509(a)(1). GAAP requires entities to evaluate, measure, recognize and disclose any uncertain income tax positions taken on their tax returns. GAAP prescribes a minimum threshold that a tax position is required to meet in order to be recognized in the financial statements. The Organization believes that it had no uncertain tax positions as defined in GAAP and the standard had no impact on the Organization s financial statements. The tax returns for the years ended December 31, 2009, 2010 and 2011 are subject to examination by the Internal Revenue Service and other various taxing authorities. Concentration of Credit Risk Financial instruments which subject the Organization to concentrations of credit risk consist primarily of cash, investments and grants and contributions receivable. The Organization maintains cash deposits and investments at various banks and financial institutions and at times these may exceed federally-insured limits. Management performs ongoing evaluations of receivables for potential credit losses. Collateral is not required. Estimates Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. -8-

NOTES TO FINANCIAL STATEMENTS December 31, 2012 Summarized Prior-Year Information The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with U.S. generally accepted accounting principles. Accordingly, such information should be read in conjunction with the financial statements for the year ended December 31, 2011, from which the summarized information was derived. Reclassifications Certain amounts in the 2011 comparative totals have been reclassified in order to conform to the 2012 presentation. (3) INVESTMENTS Investments consisted of the following at December 31,: 2012 2011 Money market funds $140,838 $ 82,378 Certificates of deposit 377,506 374,496 Corporate bonds - 57,269 $518,344 $ 514,143 Investment income consisted of the following: 2012 2011 Interest and dividends $ 8,026 $ 10,303 Realized and unrealized loss (1,530) (1,173) $ 6,496 $ 9,130 (4) CONTRIBUTIONS RECEIVABLE Contributions receivable are expected to be collected as follows: 2012 2011 Less than one year $100,895 $ 153,895 One to five years 20,000 - $120,895 $ 153,895 (5) FURNITURE AND EQUIPMENT Furniture and equipment consisted of the following at December 31,: 2012 2011 Furniture and equipment $ 176,010 $ 148,910 Leasehold improvements 70,102 70,102 Less accumulated depreciation (205,701) (187,644) $ 40,411 $ 31,368-9-

NOTES TO FINANCIAL STATEMENTS December 31, 2012 Depreciation expense was $18,057 and $23,549 for the years ended December 31, 2012 and 2011, respectively. (6) BENEFICIAL INTEREST IN ASSETS HELD BY COMMUNITY FOUNDATION In November 1998, the Organization entered into an agreement with The Chester County Community Foundation (the "Foundation"), a community foundation, to establish an endowment fund (the "Fund") for the benefit of the Organization. The amount transferred by the Organization to the Foundation was $18,430. No amounts were transferred for the years ended December 31, 2012 and 2011. Pursuant to the terms of the agreement, the Organization irrevocably relinquished its right to the amount transferred in exchange for future distributions of the Fund s earnings. However, the Fund and distributions from the Fund are subject to the Foundation s ultimate control and discretion. The terms of the agreement require the Foundation to make distributions to the Organization in accordance with a spending policy adopted annually by the Foundation s Board. The spending policy is established at a specified percentage of the Fund's average market value, whereby the specified percentage does not exceed five percent and the average market value is determined over a period of time not to exceed five years. Distributions of $977 and $855 were made to the Organization in 2012 and 2011, respectively. (7) TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets were restricted for the following purposes and periods: Balance Balance December December 31, 2011 Additions Reclass Releases 31, 2012 Purpose restrictions Healthy Start Program $ 598,301 $ 148,500 $ 20,517 $ (596,933) $ 170,385 Family Benefits 43,985 157,705 6,500 (208,190) - Family Center 167,525 12,555 - (114,072) 66,008 Organizational Capacity Building 303,536 - - (237,719) 65,817 Prenatal Services Project 29,420 - (27,017) (2,403) - Community Voices Project 9,780 - - (9,400) 380 Latina Advocacy - 5,000 - _ - 5,000 1,152,547 323,760 - (1,168,717) 307,590 Time restrictions For future periods 54,395 97,728 - (54,395) 97,728 $1,206,942 $ 421,488 $ - $(1,223,112) $ 405,318-10-

NOTES TO FINANCIAL STATEMENTS December 31, 2012 (8) GRANTS Grants for the years ended December 31, 2012 and 2011 were comprised of the following: 2012 2011 U.S. Department of Health and Human Services Children's Health Insurance Program $ 426,033 $ 110,916 Healthy Start 630,725 897,583 The County of Chester 164,855 188,736 Other 40,000 15,636 $ 1,261,613 $ 1,212,871 (9) LINE OF CREDIT The Organization has a $200,000 bank credit line, which bears interest at the floating interest rate of 1.00% in excess of the Wall Street Prime Rate and expires in June 2013. Advances under this credit line are not secured. No advances were outstanding at December 31, 2012 and 2011. (10) OPERATING LEASES The Organization leases its administrative office and six outreach centers under seven leases which expire at various dates through June 2015. Rent expense for these facilities was $126,851 and $124,374 for 2012 and 2011, respectively. Minimum annual lease commitments under non-cancelable leases with initial or remaining terms in excess of one year are as follows: Years ending December 31, 2013 $105,330 2014 55,114 2015 20,854 $181,298 (11) RETIREMENT PLAN The Organization has a 401(k) plan covering all employees who have reached the age of 21 and completed six months of service. The plan allows employees to defer a portion of their compensation, subject to the limitations in the Internal Revenue Code. The Organization makes matching contributions to the plan equal to a specified percentage of the employees' elective deferrals. The Organization's contributions to the plan were $12,299 and $9,872 for 2012 and 2011, respectively. -11-

NOTES TO FINANCIAL STATEMENTS December 31, 2012 (12) ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS The following is a summary of assets measured at fair value on a recurring basis and the valuation inputs used to value them: Significant Other Significant Quoted Prices Observable Unobservable Balance in Active Markets Inputs Inputs Description December 31, 2012 (Level 1) (Level 2) (Level 3) Money market funds $140,838 $140,838 $ - $ - Contributions receivable 120,895-120,895 - $261,733 $140,838 $ 120,895 $ - (13) SUBSEQUENT EVENTS Management has evaluated subsequent events through March 29, 2013, the date on which the financial statements were available to be issued. No material subsequent events have occurred since December 31, 2012 that would require recognition or disclosure in the financial statements. -12-