HARLEM RBI, INC. Audited Financial Statements June 30, 2011
INDEPENDENT AUDITORS REPORT To the Board of Directors of Harlem RBI, Inc. We have audited the accompanying statement of financial position of Harlem RBI, Inc. (the Organization ) as of June 30, 2011, and the related statements of activities, functional expenses, and cash flows for the year then ended. These financial statements are the responsibility of the Organization s management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative information has been derived from the Organization s June 30, 2010 financial statements and, in our report dated October 14, 2010, we expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, based on our audit, the financial statements referred to above present fairly, in all material respects, the financial position of Harlem RBI, Inc. as of June 30, 2011, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. October 17, 2011 Schall & Ashenfarb Certified Public Accountants, LLC
HARLEM RBI, INC. STATEMENT OF FINANCIAL POSITION AS OF JUNE 30, 2011 (With comparative totals for June 30, 2010) 6/30/11 6/30/10 Assets Cash and cash equivalents operating (Notes 2c and 2d) $233,396 $709,709 Investments (Note 2e) 4,548,141 2,299,830 Contributions receivable (Notes 2b and 3) 5,005,791 901,571 Government grants receivable (Note 2f) 191,622 291,166 Accounts receivable 2,197 5,240 Due from institutional partner (Note 5) 42,808 64,065 Prepaid expenses 166,733 141,865 Fixed assets, net (Notes 2h and 4) 1,266,350 193,736 Security deposit 22,318 22,318 Total assets $11,479,356 $4,629,500 Liabilities and Net Assets Liabilities: Accounts payable and accrued expenses $651,101 $329,909 Deferred rent (Note 2i) 73,583 0 Total liabilities 724,684 329,909 Commitments (Note 8) Net assets: (Note 2a) Unrestricted 3,207,659 2,634,915 Temporarily restricted (Note 6) 7,547,013 1,664,676 Total net assets 10,754,672 4,299,591 Total liabilities and net assets $11,479,356 $4,629,500 The attached notes and auditors' report are an integral part of these financial statements. 2
HARLEM RBI, INC. STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 (With comparative totals for the year ended June 30, 2010) Temporarily Total Total Unrestricted Restricted 6/30/11 6/30/10 Public support and revenue: Contributions (Note 2b) $1,608,338 $7,922,034 $9,530,372 $2,264,749 Government grants (Note 2f) 960,781 960,781 892,927 Special event income (net of $319,247 and $225,378 in direct benefits to donors) (Note 7) 2,234,165 2,234,165 1,749,197 Contractual services (Note 5) 532,557 532,557 386,490 Donated services (Note 2j) 129,116 129,116 28,414 Interest income 20,997 20,997 28,473 Other income 1,478 1,478 2,395 Net assets released from restrictions (Note 6) 2,039,697 (2,039,697) 0 0 Total public support and revenue 7,527,129 5,882,337 13,409,466 5,352,645 Expenses: Program services 5,700,097 5,700,097 4,162,441 Management and general 444,237 444,237 355,881 Fundraising 810,051 810,051 641,149 Total expenses 6,954,385 0 6,954,385 5,159,471 Change in net assets 572,744 5,882,337 6,455,081 193,174 Net assets beginning of year 2,634,915 1,664,676 4,299,591 4,106,417 Net assets end of year $3,207,659 $7,547,013 $10,754,672 $4,299,591 The attached notes and auditors' report are an integral part of these financial statements. 3
HARLEM RBI, INC. STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2011 (With comparative totals for the year ended June 30, 2010) Program Services Supporting Services Youth DREAM Management Total Total Development Charter Capital and Expenses Expenses Services School Campaign Total General Fundraising 6/30/11 6/30/10 Salaries, payroll taxes and employee benefits $2,738,805 $446,403 $422,909 $3,608,117 $217,917 $532,051 $4,358,085 $3,223,433 Instructors and tutors 93,128 93,128 93,128 35,469 Scholarships and stipends 346,732 1,379 252 348,363 1,304 1,920 351,587 246,566 Youth program expenses: Baseball, umpires, equipment and fees 157,724 157,724 157,724 134,528 Program food and events 100,555 248 147 100,950 106 298 101,354 73,021 Fees and admissions 117,911 2,735 1,664 122,310 384 2,490 125,184 79,772 Transportation 101,010 101,010 101,010 99,585 Program supplies 84,405 84,405 84,405 45,555 Other program expenses 17,014 17,014 17,014 22,508 Rent 230,347 10,979 6,483 247,809 10,730 12,951 271,490 180,136 Telephone and utilities 44,690 8,810 2,622 56,122 13,054 7,120 76,296 41,764 Office cleaning and maintenance 30,580 2,077 1,022 33,679 1,933 2,010 37,622 29,971 Consulting and technology fees 147,902 23,180 $31,264 202,346 39,531 38,659 280,536 290,465 Professional fees 350 350 42,422 42,772 33,744 Insurance 37,030 5,389 3,182 45,601 994 6,466 53,061 47,543 Indirect fundraising expense 0 105,700 105,700 120,466 Office supplies and expense 51,240 8,471 4,888 64,599 20,611 9,441 94,651 69,684 Professional development 15,681 2,119 3,469 21,269 2,076 1,548 24,893 26,985 Communication and outreach 12,559 3,693 3,953 20,205 14,582 24,507 59,294 36,174 Postage and shipping 4,682 1,166 694 6,542 587 6,016 13,145 14,264 Dues and subscriptions 3,875 1,667 2,415 7,957 527 4,691 13,175 12,948 Bad debt expense 0 12,000 12,000 14,796 Bank and credit card fees 10 1,772 1,782 10,140 37,635 49,557 11,092 Travel and entertainment 15,082 5,661 15,516 36,259 5,303 10,163 51,725 36,692 Total expenses before depreciation and in kind legal 4,351,312 523,977 502,252 5,377,541 394,201 803,666 6,575,408 4,927,161 In kind legal (Note 2j) 90,791 90,791 38,325 129,116 28,414 Depreciation 221,233 630 9,902 231,765 11,711 6,385 249,861 203,896 Total expenses $4,572,545 $524,607 $602,945 $5,700,097 $444,237 $810,051 $6,954,385 $5,159,471 The attached notes and auditors' report are an integral part of these financial statements. 4
HARLEM RBI, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2011 (With comparative totals for the year ended June 30, 2010) 6/30/11 6/30/10 Cash flows from operating activities: Change in net assets $6,455,081 $193,174 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 249,861 203,896 (Increase)/decrease in assets: Contributions and government grants receivable (4,004,676) (305,848) Accounts receivable 3,043 2,983 Due from institutional partner 21,257 (64,065) Prepaid expenses (24,868) (73,853) Increase/(decrease) in liabilities: Accounts payable and accrued expenses 321,192 93,006 Deferred rent 73,583 0 Due to institutional partner 0 (96,362) Total adjustments (3,360,608) (240,243) Net cash flows provided by/(used for) operating activities 3,094,473 (47,069) Cash flows from investing activities: Transfers to investment accounts (2,248,311) (2,299,830) Purchases of property and equipment (1,322,475) (34,911) Net cash flows used for investing activities (3,570,786) (2,334,741) Net decrease in cash and cash equivalents (476,313) (2,381,810) Cash and cash equivalents beginning of year 709,709 3,091,519 Cash and cash equivalents end of year $233,396 $709,709 Supplemental disclosure of cash flow information: Total interest and income taxes paid $0 The attached notes and auditors' report are an integral part of these financial statements. 5
HARLEM RBI, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 Note 1 Organization Harlem RBI, Inc. (the Organization ), located in East Harlem, New York, provides innercity youth with opportunities to play, learn and grow. The Organization uses the power of teams to coach, teach and inspire youth to recognize their potential and realize their dreams. The Organization prides itself on being a community based organization that successfully integrates youth development principles with the benefits of sports activity and team participation. A staff of 45 full time professionals, with the support of a dedicated corps of over 400 part time staff, volunteers and interns, implements yearround programs for more than 1,000 boys and girls, ages 5 22. Membership on a baseball or softball team opens the door to participation in an array of exemplary programs that support youth as they grow from vulnerable children into resilient young adults. The Organization also provides the expertise of its Board of Directors, Executive Leadership and its Fund Development, Finance and Operations teams to DREAM Charter School. The Organization is tax exempt under IRS Section 501(c)3. They have not been designated as a private foundation. Note 2 Summary of Significant Accounting Policies a. Basis of Presentation The accompanying financial statements have been prepared using the accrual basis of accounting. The Organization s net assets are classified based upon the existence or absence of donor imposed restrictions as follows: Unrestricted represent those resources for which there are no restrictions by donors as to their use. Temporarily restricted represent those resources, the uses of which have been restricted by donors to specific purposes or the passage of time. The release from restrictions results from the satisfaction of the restricted purposes specified by the donor. When the restrictions from temporarily restricted contributions have been met in the year of donation, they are reported as unrestricted. In 2009, the Organization started a capital campaign. A large amount of pledges have been received that will be used in future periods. b. Contributions Contributions are recorded as revenue upon receipt of cash or at the time a pledge is considered unconditional. Contributions received with specific donor restrictions, 6
such as for the capital campaign and other programs or future time periods, are recorded in the temporarily restricted class of net assets. All other contributions are recorded as unrestricted. c. Cash and Cash Equivalents For purposes of financial reporting, cash and cash equivalents include cash held in banks and money market funds other than those held by the investment manager. d. Concentration of Credit Risk Financial instruments which potentially subject the Organization to concentration of credit risk consist of cash and money market accounts. The Organization places its temporary cash and money market accounts with financial institutions that they deem to be credit worthy, which at times, may exceed federally insured limits. While at year end, the Organization had material uninsured balances, management feels they have little risk and has not experienced any losses. e. Investments The Organization s policy is to maintain a liquid cash reserve above the cash needed for immediate operations (defined as six weeks or 12% of the annual operating budget). At June 30, 2011, the balance of $4,548,141 consisted of money market funds. These money market funds are considered to be Type 1 securities on the fair value hierarchy, which is defined as those that can be traced to quoted market values on published sources. f. Government Grants The terms of each government grant are reviewed to determine if they contain traits more closely associated with contributions or exchange transactions. Management has determined that all existing government grants are exchange transactions because they contain traits more similar to contracts for service. Grants earned in excess of cash received are recorded as grants receivable and cash received in excess of grants earned are recorded as refundable advances. g. Pledges and Allowance for Uncollectible Receivables Contributions expected to be received within one year are recorded at their net realizable value. Long term pledges are recorded at fair value using a risk adjusted present value technique. Conditional contributions are recognized as income when the conditions have been substantially met. Management has not established a reserve for uncollectible receivables because they deem all receivables to be fully collected based on analysis and historical experience. Write offs will be recorded as expense in the year they are deemed to be uncollectible. 7
h. Capitalization Policies Construction in progress, leasehold improvements, equipment and furniture that exceed pre determined amounts and that have a useful life of greater than one year are recorded at cost or at the fair market value at the date of gift. Depreciation is computed using the straight line method over the estimated useful lives of the respective assets, as follows: Office equipment 3 years Furniture and fixtures 7 years Leasehold improvements Life of lease Field costs Life of lease i. Deferred Rent Rent expense is recorded on the straight line bases over the life of the lease. Rent expense recognized in excess of cash payments is reflected as deferred rent. As future payments exceed the annual expense recognized, deferred rent will be reduced to zero by the end of the lease term. j. Donated Services Donated services are recognized in circumstances where those services create or enhance non financial assets or require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided in kind. The Organization received in kind professional legal services valued at $129,116 for the year ended June 30, 2011. The Organization pays for most other services requiring specific expertise. Board members and other individuals volunteer their time and support its mission and accomplish its programmatic goals. During the year ended June 30, 2011 over 250 volunteers gave between 5 and 250 hours of volunteer time to the Organization. These services do not meet the criteria for recognition as outlined above and have not been recorded in the financial statements. k. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. l. Functional Allocation of Expenses The costs of providing various programs and other activities have been summarized on a functional basis in the accompanying statements of activities and functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. 8
m. Comparative Financial 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 accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Organization s financial statements for the period ended June 30, 2010, from which the summarized information was derived. n. Accounting for Uncertainty of Income Taxes The Organization has adopted the provisions of FASB ASC 740, Income Taxes, which applies to positions taken or expected to be taken in a tax return. Organizations are required to recognize the effects of tax positions if they are more likely than not of being sustained. The Organization does not believe its financial statements include any uncertain tax positions. o. Subsequent Events Management has evaluated for potential recognition and disclosure events subsequent to the date of the statement of financial position through October 17, 2011, the date the financial statements were available to be issued. No events have occurred subsequent to the statement of financial position date through our evaluation date that would require adjustment to or disclosure in the financial statements. Note 3 Contributions Receivable Contributions receivable are due in the following periods: Year ended June 30, 2012 $2,609,827 2013 960,416 2014 793,750 2015 643,750 2016 68,750 5,076,493 Less: adjustment to fair value (70,702) Total $5,005,791 Note 4 Fixed Assets Fixed assets consist of the following at June 30, 2011: Equipment $331,006 Furniture 53,602 Leasehold improvements 996,823 Construction in progress 534,342 Field costs 805,413 2,721,186 Less: accumulated depreciation (1,454,836) Total fixed assets $1,266,350 9
Note 5 Institutional Partnership The Organization has an institutional partnership agreement with the DREAM Charter School ("DREAM"), which is an affiliate by nature of common board members and management. An Institutional Partnership Agreement (IPA) serves as the foundation of the governance relationship between DREAM and the Organization. This contract speaks to key issues such as the exact nature and costs of the Organization s executive management and back office services to DREAM, and the allocation of unrestricted fundraising dollars that the Organization raises for DREAM. Both the DREAM Board of Trustees and the Organization s Board of Directors will have the option of severing the relationship between the two entities with agreed upon notice, though the spirit of the partnership is unending. The IPA will be reviewed and revised by an Integration & Governance Committee consisting of both the Organization and DREAM Board members, and will be renewed on an annual basis. The Organization receives contributions on behalf of DREAM. At June 30, 2011, total amounts due from DREAM for administrative services provided, less contributions received on behalf of and due to DREAM, totaled $42,808. Total fees recorded as income was $524,607. Note 6 Temporarily Restricted Net Assets The following summarizes the changes in temporarily restricted net assets: Net Released Net Assets from Assets 7/1/10 Contributions Restrictions 6/30/11 Program restrictions: Capital campaign $679,543 $7,419,534 ($1,112,401) $6,986,676 Youth activities 400,000 200,000 (400,000) 200,000 Scholarships 19,051 0 (19,051) 0 Field renovation 6,686 0 0 6,686 Legends 0 50,000 0 50,000 Dream Works 40,000 0 (40,000) 0 Americorps Coaches 18,931 0 (18,931) 0 High School Prep 25,000 0 (25,000) 0 Real Kids 120,000 0 (120,000) 0 RBI University 40,465 0 (39,314) 1,151 Team enrichment 0 50,000 0 50,000 Family coordinator 50,000 0 0 50,000 Total program restrictions 1,399,676 7,719,534 (1,774,697) 7,344,513 Time restrictions 265,000 202,500 (265,000) 202,500 Total $1,664,676 $7,922,034 ($2,039,697) $7,547,013 10
Note 7 Special Events The Organization held the following special fundraising events: Direct Gross Expenses Revenue to Donor Net Bids for kids $2,185,200 ($221,056) $1,964,144 Diamond ball 158,910 (37,575) 121,335 Golf event 127,172 (45,140) 82,032 Others 82,130 (15,476) 66,654 $2,553,412 ($319,247) $2,234,165 Note 8 Commitments On November 15, 2010, the Organization entered into a non cancelable lease for use of the facility where it conducts a portion of its youth services. Future minimum payments, excluding utilities and other escalations, under the lease are as follows: June 30, 2012 $79,224 June 30, 2013 146,260 June 30, 2014 150,526 June 30, 2015 153,573 June 30, 2016 63,989 Total $593,572 The Organization occupies additional office space under a non cancelable lease. The lease provides for the following annual minimum rental payments: June 30, 2012 $112,584 June 30, 2013 112,584 June 30, 2014 28,146 Total $253,314 The Organization has a revolving line of credit in the amount of $250,000 that pays interest at 3.25%. The full line of credit was unused at year end. Note 9 Retirement Plan The Organization has a tax deferred 403(b) retirement plan. All employees may participate by designating a percentage of their salaries, subject to regulatory limits, to be contributed to the plan on a pre tax basis. No contributions by the Organization are made to the plan. Note 10 Subsequent Event The Organization is in the initial stages of a project to develop a new site for the DREAM Charter School. Subsequent to year end, the Organization established Harlem RBI Home Base LLC and Harlem RBI DREAM Partners LLC, both wholly owned subsidiaries of the Organization. Both LLC s are considered to be a Qualified Active Low Income Community Business, and will act as borrower s as part of a New Market Tax Credit transaction to be used to finance a portion of the project. 11