HUDSON VALLEY COMMUNITY COLLEGE FOUNDATION

HUDSON VALLEY COMMUNITY COLLEGE FOUNDATION AUDITED FINANCIAL STATEMENTS Year ended August 31, 2010

TABLE OF CONTENTS Page Independent Auditors Report 1 Financial Statements Statements of Financial Position 2 Statements of Activities and Changes in Net Assets 3 Statements of Cash Flows 4 Notes to Financial Statements 5

INDEPENDENT AUDITORS REPORT The Directors Hudson Valley Community College Foundation We have audited the accompanying statements of financial position of Hudson Valley Community College Foundation as of, and the related statements of activities and changes in net assets, and cash flows for the years then ended. These financial statements are the responsibility of the Foundation's management. 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. 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 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hudson Valley Community College Foundation as of, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Albany, New York October 29, 2010 UHY LLP is an independent member of Urbach Hacker Young International Limited

STATEMENTS OF FINANCIAL POSITION ASSETS August 31, 2010 2009 CURRENT ASSETS Cash $ 1,052,999 $ 651,016 Interest receivable and other - 14,613 Current portion of pledges receivable 75,691 90,412 Total current assets 1,128,690 756,041 Pledges receivable, due after one year 239,020 48,340 Other assets 10,000 10,000 Investments 2,862,713 2,838,721 Guenther trust assets 460,381 450,639 Beneficial interest in charitable trusts 80,654 75,481 Cash surrender value of life insurance 266,249 270,214 Total assets $ 5,047,707 $ 4,449,436 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses $ 31,555 $ 17,660 Deferred revenue 72,316 81,913 Total current liabilities 103,871 99,573 NET ASSETS Unrestricted Board designated 22,001 17,001 Undesignated (deficit) (140,961) (235,671) (118,960) (218,670) Restricted Temporarily restricted 1,749,168 1,554,059 Permanently restricted 3,313,628 3,014,474 Total net assets 4,943,836 4,349,863 Total liabilities and net assets $ 5,047,707 $ 4,449,436 See notes to financial statements. Page 2

STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS Years ended August 31, 2010 2009 Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Revenue, gains and other support: Direct public support: Scholarship funds $ 1,540 $ 477,825 $ 46,881 $ 526,246 $ 790 $ 390,363 $ 61,143 $ 452,296 Annual fund 110,981 38,067-149,048 45,852 - - 45,852 Non-scholarship restricted funds - 635,087 2,958 638,045-450,888 41,128 492,016 Planned giving - - - - 661 - - 661 HVCC in-kind contribution 682,877 - - 682,877 697,294 - - 697,294 Other 5,101 - - 5,101 9,823 - - 9,823 Total direct public support 800,499 1,150,979 49,839 2,001,317 754,420 841,251 102,271 1,697,942 Fund-raising events 76,027 15,000-91,027 81,160 13,095-94,255 Interest and other income 10,435 97,948-108,383 520 125,622-126,142 Realized, unrealized and other gains (losses) on investments and trust funds 106,267 38,630-144,897 (150,496) (207,763) - (358,259) Net assets released from restrictions 893,295 (893,295) - - 780,192 (780,192) - - Total revenue, gains (losses) and other support 1,886,523 409,262 49,839 2,345,624 1,465,796 (7,987) 102,271 1,560,080 Expenses: Program services: Scholarships 609,623 - - 609,623 626,818 - - 626,818 Support for college initiatives 436,772 - - 436,772 259,440 - - 259,440 Alumni relations 32,727 - - 32,727 65,373 - - 65,373 Management and general 357,817 - - 357,817 369,758 - - 369,758 Fund-raising: Fund-raising events 154,718 - - 154,718 146,752 - - 146,752 Annual fund 120,815 - - 120,815 199,286 - - 199,286 Planned giving 39,179 - - 39,179 26,980 - - 26,980 Total expenses 1,751,651 - - 1,751,651 1,694,407 - - 1,694,407 Increase (decrease) in net assets before transfer 134,872 409,262 49,839 593,973 (228,611) (7,987) 102,271 (134,327) Transfers, net (35,162) (214,153) 249,315 - (371,151) - 371,151 - Increase (decrease) in net assets 99,710 195,109 299,154 593,973 (599,762) (7,987) 473,422 (134,327) Net assets, beginning of year (218,670) 1,554,059 3,014,474 4,349,863 381,092 1,562,046 2,541,052 4,484,190 Net assets (deficiency), end of year $ (118,960) $ 1,749,168 $ 3,313,628 $ 4,943,836 $ (218,670) $ 1,554,059 $ 3,014,474 $ 4,349,863 See notes to financial statements. Page 3

STATEMENTS OF CASH FLOWS Years ended August 31, 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES Increase (decrease) in net assets $ 593,973 $ (134,327) Adjustments to reconcile increase in net assets to net cash provided by operating activities: Realized, unrealized and other (gains) losses on investments and trust funds (144,897) 358,259 Cash surrender value of life insurance 3,965 1,036 Changes in: Interest receivable and other 14,613 (13,528) Pledges receivable (175,959) 51,673 Accounts payable 13,895 (6,113) Deferred revenue (9,597) (29,583) Net cash provided by operating activities 295,993 227,417 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investments and trust assets 560,064 669,090 Purchase of investments and trust assets (448,901) (669,132) Change in beneficial interest in charitable trusts (5,173) (5,172) Net cash provided by (used in) investing activities 105,990 (5,214) Increase in cash 401,983 222,203 Cash Beginning balance 651,016 428,813 Ending balance $ 1,052,999 $ 651,016 See notes to financial statements. Page 4

NOTE 1 NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Nature of Organization Hudson Valley Community College Foundation (Foundation) is a tax exempt (under IRC Section 501(c)(3)) foundation established to receive and maintain funds to aid and advance the welfare, development, purposes and programs of Hudson Valley Community College (College), its students and alumni. A summary of the Foundation's significant accounting policies follows: Financial Statement Presentation The accompanying financial statements have been prepared using the accrual basis of accounting in accordance with generally accepted accounting principles. Net assets, revenues, gains and other support, expenses, and non-operating items are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Foundation and changes therein are classified and reported as follows: Unrestricted net assets Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets Net assets subject to donor-imposed stipulations that may or will be met, either by actions of the Foundation and/or the passage of time. When a donor s restriction is met, 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 subject to donor-imposed stipulations that they be maintained permanently by the Foundation. Generally, the donors of these assets permit the Foundation to use a fixed percentage of the market value of the related investments for scholarships or other specific purposes, subject to the provisions of the Foundation s endowment spending plan. Subsequent Events For purposes of preparing the financial statements, the Foundation considered events through October 29, 2010, the date the financial statements were available for issuance. Tax Exempt Status The Foundation is generally exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. It is however required to file an informational return (Federal Form 990). The Foundation believes that there are no uncertain tax positions that are material to the financial statements. Information returns for fiscal year 2007 and later are subject to examination by the IRS. Revenue Recognition Direct public support and donations are recognized when the donor makes a promise to give that is, in substance, unconditional. Named scholarship contributions received in advance of the related award date are deferred. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions are met in the fiscal year in which the contributions are recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction is met, temporarily restricted net assets are reclassified to unrestricted net assets. Revenue from fundraising events is recognized when earned. Page 5

NOTE 1 NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash The Foundation places its cash with high-credit-quality institutions. At times, such amounts may be in excess of the FDIC insurance limit. Pledges Receivable Unconditional promises to give (pledges receivable) are recognized as support and revenue in the year made. Pledges receivable are reported at the discounted present value of estimated future cash flows. An allowance has been recorded for estimated uncollectible pledges. Investments Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Realized and unrealized gains and losses include gains and losses from purchases and sales of investments as well as changes in value of assets held during the year and are recognized in the accompanying statements of activities and changes in net assets. Gains or losses on investments are recognized as an increase or decrease in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations or by law. Investment securities are exposed to various risks, such as interest rate, market and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in investments in the near term would materially affect the amounts reported in these financial statements. The Foundation has a policy of pooling its funds for investment purposes. Investment income is allocated to the individual donor fund balances comprising unrestricted, temporarily restricted and permanently restricted net assets based upon each respective fund's share of the investment pool. Beneficial Interest in Charitable Trusts The Foundation recognizes its beneficial interest in irrevocable charitable remainder trusts at estimated fair value, and classifies these interests in accordance with donor imposed restrictions, if any, in the statement of activities and changes in net assets. Cash Surrender Value of Life Insurance The Foundation is the owner and beneficiary of two life insurance policies donated in 2006. The Foundation s interest in insurance policies, reported at the policies cash surrender value at yearend, is included in the statement of financial position. Financial Instruments The carrying amounts of cash, receivables, and accounts payable and accrued expenses approximate fair value. Page 6

NOTE 1 NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Endowment Investment Policy Endowment assets include those assets of donor-restricted funds that the Foundation must hold in perpetuity or for a donor-specified period(s). Under this policy, as approved by the Board of Directors, the endowment assets are invested in a manner that is intended to provide support for the Foundation s mission over the long-term. Accordingly, the primary investment objectives are to preserve the real purchasing power of the principal, and provide a stable source of perpetual financial support to beneficiaries in accordance with the Foundation s endowment spending policy. Endowment Spending Policy The Foundation has an endowment spending policy which is applied to the Foundation s permanently restricted investments. It is intended to preserve the purchasing power of the corpus and insulate program spending from fluctuations in capital markets. The amount of permanently restricted investments made available annually to support scholarship and program activities is based on various economic factors specified in the endowment spending policy. Accordingly, 2.5% and 5.74%, respectively, of permanently restricted net assets as of June 30 th of the year before the previous fiscal year have been made available for scholarship activities for the years ended. NOTE 2 PLEDGES RECEIVABLE Pledges receivable consist of pledges to support the Foundation s various programs. Pledges receivable reported in the statement of financial position consist of the following at August 31: 2010 2009 Pledges receivable due in one year $ 133,150 $ 100,450 Pledges receivable due in two to five years 220,426 52,298 Pledges receivable due in more than five years 4,000 6,000 Gross pledges receivable 357,576 158,748 Less discount to present value (1.29% - 4.25%) (7,107) (4,587) Pledges receivable, discounted 350,469 154,161 Less allowance for uncollectible pledges (35,758) (15,409) 314,711 138,752 Less current portion 75,691 90,412 Long-term pledges receivable $ 239,020 $ 48,340 Page 7

NOTE 2 PLEDGES RECEIVABLE (Continued) The pledges are due to be paid under various payment arrangements through 2017. As of August 31, 2010, the Foundation has received and not recognized conditional promises with a future value of approximately $1,400,000 for supporting the College s nursing program expansion. NOTE 3 INVESTMENTS AND FAIR VALUE MEASUREMENTS Investments are stated at fair value and consist of the following at: August 31, 2010 August 31, 2009 Unrealized Unrealized Fair Appreciation/ Fair Appreciation/ Value Cost (Depreciation) Value Cost (Depreciation) Money market funds $ 194,536 $ 120,810 $ 73,726 $ 116,505 $ 116,505 $ - Equity mutual funds 1,675,147 1,967,031 (291,884) 1,682,758 2,157,376 (474,618) Fixed income mutual funds 993,030 930,975 62,055 1,039,458 1,005,989 33,469 $ 2,862,713 $ 3,018,816 $ (156,103) $ 2,838,721 $ 3,279,870 $ (441,149) Changes in unrealized losses of approximately $285,000 are recorded to adjust the cost basis of investments to fair value at August 31, 2010. Investment management and custodial fees are netted against investment income or reflected as a reduction in net asset value of the investment, and were approximately $23,000 and $16,500 for the years ended, respectively. Financial Accounting Standard Board (FASB) Accounting Standards Codification provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows: Level 1 Level 2 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Foundation has the ability to access. Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Page 8

NOTE 3 INVESTMENTS (Continued) Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at. Money market funds: Valued at amortized cost which approximates fair value. Mutual funds: Valued at the net asset value of shares held. Beneficial interest in charitable trusts: Valued at estimated present value of the funds to be received when the trust terminates using various assumptions with regard to the anticipated date of termination, appropriate rate of discount, and market returns. CSV of life insurance: Valued based on the face amount of the contract discounted at a specific rate of interest according to the insured's life expectancy. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Foundation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following presents the Foundation s investments by fair value hierarchy and investment type at August 31, 2010: Investments Assets at Fair Value Level 1 Level 2 Level 3 Total Money market funds $ 194,536 $ - $ - $ 194,536 Equity mutual funds 1,675,147 - - 1,675,147 Fixed income mutual funds 993,030 - - 993,030 Total investments $ 2,862,713 $ - $ - $ 2,862,713 Guenther trust assets Assets at Fair Value Level 1 Level 2 Level 3 Total Money market funds $ 9,799 $ - $ - $ 9,799 Equity mutual funds 156,319 - - 156,319 Fixed income mutual funds 294,263 - - 294,263 Total Guenther trust assets $ 460,381 $ - $ - $ 460,381 Beneficial interest in charitable trusts Assets at Fair Value Level 1 Level 2 Level 3 Total Beneficial interest in charitable trusts $ - $ - $ 80,654 $ 80,654 Total beneficial interest in charitable trusts $ - $ - $ 80,654 $ 80,654 Continued Page 9

NOTE 3 INVESTMENTS (Continued) Cash Surrender Value (CSV) of life insurance Assets at Fair Value Level 1 Level 2 Level 3 Total CSV of life insurance $ - $ - $ 266,249 $ 266,249 Total CSV of life insurance $ - $ - $ 266,249 $ 266,249 Total assets at fair value $ 3,323,094 $ - $ 346,903 $ 3,669,997 The following presents the Foundation s investments by fair value hierarchy and investment type at August 31, 2009: Investments Assets at Fair Value Level 1 Level 2 Level 3 Total Money market funds $ 116,505 $ - $ - $ 116,505 Equity mutual funds 1,682,758 - - 1,682,758 Fixed income mutual funds 1,039,458 - - 1,039,458 Total investments $ 2,838,721 $ - $ - $ 2,838,721 Guenther trust assets Assets at Fair Value Level 1 Level 2 Level 3 Total Money market funds $ 19,353 $ - $ - $ 19,353 Equity mutual funds 119,716 - - 119,716 Fixed income mutual funds 311,570 - - 311,570 Total Guenther trust assets $ 450,639 $ - $ - $ 450,639 Beneficial interest in charitable trusts Assets at Fair Value Level 1 Level 2 Level 3 Total Beneficial interest in charitable trusts $ - $ - $ 75,481 $ 75,481 Total beneficial interest in charitable trusts $ - $ - $ 75,481 $ 75,481 CSV of life insurance Assets at Fair Value Level 1 Level 2 Level 3 Total CSV of life insurance $ - $ - $ 270,214 $ 270,214 Total CSV of life insurance $ - $ - $ 270,214 $ 270,214 Total assets at fair value $ 3,289,360 $ - $ 345,695 $ 3,635,055 Page 10

NOTE 3 INVESTMENTS (Continued) Level 3 Gains and Losses The following table sets forth a summary of changes in the fair value of the Foundation s level 3 assets for the year ended August 31, 2010. Beneficial interest in charitable trusts CSV of life insurance Total Balance at September 1, 2009 $ 75,481 $ 270,214 $ 345,695 Total gains or losses (realized and unrealized) 5,173 (3,965) 1,208 Purchases, sales, gifts, issuances and settlements - - - Balance at August 31, 2010 $ 80,654 $ 266,249 $ 346,903 The following table sets forth a summary of changes in the fair value of the Foundation s level 3 assets for the year ended August 31, 2009. Beneficial interest in charitable trusts CSV of life insurance Total Balance at September 1, 2008 $ 70,309 $ 271,250 $ 341,559 Total gains or losses (realized and unrealized) 5,172 (1,036) 4,136 Purchases, sales, gifts, issuances and settlements - - - Balance at August 31, 2009 $ 75,481 $ 270,214 $ 345,695 NOTE 4 GUENTHER TRUST ASSETS The College transferred the administrative functions related to the Otto V. Guenther Scholarship and Award Foundation (Guenther Trust) to the Foundation in 2001. The Guenther Trust is a perpetual trust held by a third-party trustee on behalf of the College, as beneficiary. Guenther Trust assets are invested by the trustee and the income therefrom is awarded in the form of scholarships to College students as determined by the Foundation Scholarship Committee. Due to the fact that the terms of the Guenther Trust closely resemble a donor-restricted permanent endowment, it is reported as a permanently restricted net asset. Income earned from the Guenther Trust is reported as temporarily restricted revenue until it is awarded in the form of scholarships, at which time it is released from restriction. The values of the Guenther Trust as reported in the statements of financial position represent the fair value of the assets in the trust on those dates, as reported to the Foundation by the trustee. The fair value of Guenther Trust assets is adjusted annually by the Foundation based on information provided by the trustee, and realized and unrealized gains or losses are included in the statement of activities and changes in net assets. Page 11

NOTE 4 GUENTHER TRUST ASSETS (Continued) Guenther Trust assets consist of the following at: August 31, 2010 August 31, 2009 Unrealized Unrealized Fair Cost Appreciation/ Fair Cost Appreciation/ Value Basis (Depreciation) Value Basis (Depreciation) Money market funds $ 9,799 $ 9,799 $ - $ 19,353 $ 19,353 $ - Fixed income mutual funds 156,319 148,045 8,274 119,716 118,846 870 Equity mutual funds 294,263 296,493 (2,230) 311,570 323,265 (11,695) $ 460,381 $ 454,337 $ 6,044 $ 450,639 $ 461,464 $ (10,825) Changes in unrealized gains (losses) of approximately $17,000 are recorded to adjust the cost basis of Guenther Trust assets to fair value at August 31, 2010. NOTE 5 BENEFICIAL INTEREST IN CHARITABLE TRUSTS Beneficial interest in charitable trusts represents the present value of future distributions the Foundation expects to receive from its beneficial interest in these trusts. The present value of future distributions is an estimate calculated at the time the Foundation becomes aware of its beneficial interest in an applicable trust and is based on the trust value at that time plus certain discount factors and actuarial assumptions. Changes in the value of the beneficial interest in these trusts are reflected in the statements of activities and changes in net assets. NOTE 6 ENDOWMENT FASB Accounting Standards Codification provides guidance regarding Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds. The guidance requires additional disclosures about an organization s endowment funds whether or not the organization is subject to UPMIFA. In 1978, the State of New York enacted the Uniform Management of Institutional Funds Act (UMIFA). Under the Act, not-for-profit organizations were provided uniform rules relating to the investment of funds donated as endowment to these organizations. Among its many provisions, the Act initiated the concept of total return expenditure of endowment assets for charitable program purposes, expressly permitting the prudent expenditure of both appreciation and income, and replacing the prior law that only investment income (such as interest and dividends) could be expensed from endowments. Under this concept, investment growth (or appreciation) and income could be utilized for program purposes, subject to the rule that an endowment fund could not be expended below historical dollar value (generally, the amount of the donor s original gift). In order to fulfill this requirement, in the event that market fluctuations cause the market value of a donated endowed fund to be less than historical dollar value, the Foundation will temporarily fund from Unrestricted Net Assets to Permanently Restricted Net Assets the amount to fulfill this requirement. At, approximately $265,000 and $369,000 was funded from Unrestricted Net Assets. Page 12

NOTE 6 ENDOWMENT (Continued) During the fiscal year ended August 31, 2010, the Foundation reclassified from temporarily restricted net assets to permanently restricted net assets in the amount of approximately $272,000 based on donors revised instructions. During the fiscal year ended August 31, 2009, the Foundation reviewed the detailed components of the endowment as well as the designation of the funds. As a result of this review, approximately $221,000 was reclassified from unrestricted net assets to permanently restricted net assets to properly reflect the classification of the funds, which is included in transfer in the statements of activities and changes in net assets. Endowment net asset composition by type of fund as of August 31, 2010 is as follows: Temporarily Permanently Restricted Restricted Total Donor-restricted funds $ 56,028 $ 3,018,450 $ 3,074,478 Total funds $ 56,028 $ 3,018,450 $ 3,074,478 Endowment net asset composition by type of fund as of August 31, 2009 is as follows: Temporarily Permanently Restricted Restricted Total Donor-restricted funds $ 32,694 $ 2,651,305 $ 2,683,999 Total funds $ 32,694 $ 2,651,305 $ 2,683,999 Changes in endowment net assets for the fiscal year ended August 31, 2010 are as follows: Temporarily Permanently Restricted Restricted Total Endowment net assets, beginning of year $ 32,694 $ 2,651,305 $ 2,683,999 Net asset reclassification - 271,815 271,815 Endowment net assets after reclassification 32,694 2,923,120 2,955,814 Contributions received - 95,330 95,330 Investment income and net (depreciation) appreciation 75,990-75,990 Amounts appropriated for expenditure (52,656) - (52,656) Endowment net assets, end of year $ 56,028 $ 3,018,450 $ 3,074,478 Page 13

NOTE 6 ENDOWMENT (Continued) Changes in endowment net assets for the fiscal year ended August 31, 2009 are as follows: Temporarily Permanently Restricted Restricted Total Endowment net assets, beginning of year $ 254,172 $ 2,317,197 $ 2,571,369 Net asset reclassification - 220,852 220,852 Endowment net assets after reclassification 254,172 2,538,049 2,792,221 Contributions received - 113,256 113,256 Investment income and net (depreciation) appreciation (101,875) - (101,875) Amounts appropriated for expenditure (119,603) - (119,603) Endowment net assets, end of year $ 32,694 $ 2,651,305 $ 2,683,999 NOTE 7 HVCC IN-KIND CONTRIBUTION The Foundation recognizes revenue for in-kind contributions received from the College at the fair value of those contributions. HVCC in-kind contributions consist primarily of salaries and benefits, postage, and professional services paid by the College on behalf of the Foundation. The fair value of the in-kind contributions is included in expenses in the following functional categories: 2010 2009 Program services Scholarships and support for college initiatives $ 89,763 $ 71,958 Alumni relations 40,959 106,537 Total program services 130,722 178,495 Management and general 269,941 236,186 Fund-raising Fund-raising events 114,950 114,929 Annual fund 146,789 140,891 Planned giving 20,475 26,793 Total fund-raising 282,214 282,613 Total expenses $ 682,877 $ 697,294 As all Foundation staff are employees of the College, the College s financial statements include the employee benefit related liabilities and expenses for all Foundation staff. Therefore, no accrual for the Foundation s employee benefit related liabilities has been included in these financial statements. Page 14

NOTE 8 TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS Temporarily restricted net assets are available for scholarships and college initiatives and are fully expendable in accordance with donor-imposed restrictions. Permanently restricted net assets are subject to donor-imposed stipulations that require the principal to be invested in perpetuity. Investment returns are expendable to support scholarships and college initiatives, subject to the provisions of the Foundation s endowment spending policy. During the fiscal year ended, the Foundation reclassified approximately $ 249,000 and $372,000, net, from unrestricted and temporarily restricted net assets to permanently restricted net assets based on donors revised instructions and the Foundation s review of the detailed components of permanently restricted net assets. Permanently restricted net assets as of August 31, 2010 and 2009 consisted of the following: 2010 2009 Endowment $ 3,018,450 $ 2,651,305 Cash surrender value of life insurance 266,249 270,214 Pledges receivable and other 28,929 92,955 $ 3,313,628 $ 3,014,474 NOTE 9 CONTINGENCY AND COMMITMENTS In June 2010, the Foundation entered into an agreement with the College to contribute approximately $678,000 to pay for certain costs of the TEC-SMART Facility Project under certain conditions. During the fiscal year ended August 31, 2010, the Foundation paid $112,000 which was recorded as support for college initiatives in the statement of activities. The Foundation will recognize the remaining conditional promises of approximately $566,000 as they are paid in accordance with the agreement. Page 15