FINANCIAL STATEMENTS AMERICAN BRIDGE 21ST CENTURY FOUNDATION FOR THE YEAR ENDED DECEMBER 31, 2018 AMERICAN BRIDGE 21ST CENTURY FOUNDATION CONTENTS PAGE NO. INDEPENDENT AUDITOR'S REPORT 2 EXHIBIT A - Statement of Financial Position, as of December 31, 2018 3 EXHIBIT B - Statement of Activities and Change in Net Assets, for the Year Ended December 31, 2018 4 EXHIBIT C - Statement of Functional Expenses, for the Year Ended December 31, 2018 5 EXHIBIT D - Statement of Cash Flows, for the Year Ended December 31, 2018 6 NOTES TO FINANCIAL STATEMENTS 7 - 11 1 INDEPENDENT AUDITOR'S REPORT To the Board of Directors American Bridge 21st Century Foundation Washington, D.C. We have audited the accompanying financial statements of American Bridge 21st Century Foundation (the Foundation), which comprise the statement of financial position as of December 31, 2018, and the related statements of activities and change in net assets, 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 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. 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 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 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 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 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation as of December 31, 2018, and the change in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. June 7, 2019 4550 MONTGOMERY AVENUE · SUITE 650 NORTH · BETHESDA, MARYLAND 20814 (301) 951-9090 · FAX (301) 951-3570 · WWW.GRFCPA.COM ___________________________ MEMBER OF CPAMERICA INTERNATIONAL, AN AFFILIATE OF HORWATH INTERNATIONAL MEMBER OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS' PRIVATE COMPANIES PRACTICE SECTION 2 EXHIBIT A AMERICAN BRIDGE 21ST CENTURY FOUNDATION STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2018 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,449,804 FIXED ASSETS Equipment and furniture Computer equipment Systems and software Website 33,830 11,871 1,199 300,057 346,957 (336,342) Less: Accumulated depreciation and amortization Net fixed assets 10,615 OTHER ASSETS Security deposit 6,660 TOTAL ASSETS $ 1,467,079 $ 628,544 1,455,745 LIABILITIES AND NET DEFICIT CURRENT LIABILITIES Accounts payable and accrued liabilities Due to American Bridge PAC Total current liabilities 2,084,289 LONG-TERM LIABILITIES Deferred compensation 300,000 Total liabilities 2,384,289 NET DEFICIT Without donor restrictions With donor restrictions (919,918) 2,708 Total net deficit TOTAL LIABILITIES AND NET DEFICIT See accompanying notes to financial statements. (917,210) $ 1,467,079 3 EXHIBIT B AMERICAN BRIDGE 21ST CENTURY FOUNDATION STATEMENT OF ACTIVITIES AND CHANGE IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 2018 Without Donor Restrictions With Donor Restrictions Total REVENUE AND SUPPORT Contributions and grants Investment loss, net of investment expenses Other revenue Net assets released from donor restrictions $ 7,534,387 $ 743,558 $ (6,709) 42,320 1,175,601 (1,175,601) 8,277,945 (6,709) 42,320 - 8,745,599 (432,043) 8,313,556 Program Services 5,424,780 - 5,424,780 Supporting Services: Management and General Fundraising 932,738 1,270,118 - 932,738 1,270,118 Total supporting services 2,202,856 - 2,202,856 Total expenses 7,627,636 - 7,627,636 1,117,963 (432,043) (2,037,881) 434,751 Total revenue and support EXPENSES Change in net assets Net (deficit) assets at beginning of year NET (DEFICIT) ASSETS AT END OF YEAR $ (919,918) $ See accompanying notes to financial statements. 2,708 685,920 (1,603,130) $ (917,210) 4 EXHIBIT C AMERICAN BRIDGE 21ST CENTURY FOUNDATION STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2018 Program Services Salaries and benefits Professional fees and expenses Overhead/office/IT Media buys and polling Grants Occupancy Depreciation and amortization TOTAL Supporting Services Total Management Supporting and Services General Fundraising Total Expenses $ 2,981,065 132,263 317,005 259,727 1,715,001 19,719 - $ 306,142 223,483 201,930 195,875 5,308 $ 119,479 1,150,639 - $ 425,621 1,374,122 201,930 195,875 5,308 $ 3,406,686 1,506,385 518,935 259,727 1,715,001 215,594 5,308 $ 5,424,780 $ 932,738 $ 1,270,118 $ 2,202,856 $ 7,627,636 See accompanying notes to financial statements. 5 EXHIBIT D AMERICAN BRIDGE 21ST CENTURY FOUNDATION STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2018 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 685,920 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 5,308 Decrease in: Contributions receivable 7,500 (Decrease) increase in: Accounts payable and accrued liabilities Due to American Bridge PAC Deferred compensation (741,626) 760,125 100,000 Net cash provided by operating activities 817,227 CASH FLOWS FROM FINANCING ACTIVITIES Payments on promissory note (400,000) Net cash used by financing activities (400,000) Net increase in cash and cash equivalents 417,227 Cash and cash equivalents at beginning of year CASH AND CASH EQUIVALENTS AT END OF YEAR 1,032,577 $ 1,449,804 $ 925,801 SCHEDULE OF NONCASH INVESTING AND FINANCING TRANSACTIONS Donated Securities See accompanying notes to financial statements. 6 AMERICAN BRIDGE 21ST CENTURY FOUNDATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION Organization American Bridge 21st Century Foundation (the Foundation) was incorporated in March 2011. The primary mission and program of the Foundation is to compare and contrast progressive and conservative solutions to America's public policy concerns and to educate the American people and the nation's leaders on the results of that research. The Foundation is supported primarily by contributions. Basis of presentation The accompanying financial statements are presented on the accrual basis of accounting, and in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-14 Presentation of Financial Statements for Not-for-Profit Entities. The ASU was adopted for the year ended December 31, 2018 and applied retrospectively. Cash and cash equivalents The Foundation considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents. Bank deposit accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a limit of $250,000. At times during the year the Foundation maintains cash balances in excess of the FDIC insurance limits. Management believes the risk in these situations to be minimal. Investments Investments are recorded at their readily determinable fair value. Realized losses are included in investment loss, net of investment expenses provided by external investment advisors, in the Statement of Activities and Change in Net Assets. Investments acquired by gift are recorded at their fair value at the date of the gift. The Foundation’s policy is to liquidate all gifts of investments as soon as possible after the gift. Fixed assets Fixed assets in excess of $500 are capitalized and stated at cost. Fixed assets are depreciated on a straight-line basis over the estimated useful lives of the related assets, generally three to five years. The cost of maintenance and repairs is recorded as expenses are incurred. Depreciation and amortization expense for the year ended December 31, 2018 totaled $5,308. Income taxes The Foundation is exempt from Federal income taxes under Section 501(c)(4) of the Internal Revenue Code. Accordingly, no provision for income taxes has been made in the accompanying financial statements. Uncertain tax positions For the year ended December 31, 2018, the Foundation has documented its consideration of FASB ASC 740-10, Income Taxes, that provides guidance for reporting uncertainty in income taxes and has determined that no material uncertain tax positions qualify for either recognition or disclosure in the financial statements. 7 AMERICAN BRIDGE 21ST CENTURY FOUNDATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Net asset classification Net assets, revenues, gains, and losses are classified based on the existence or absence of donor or grantor imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows:  Net Assets Without Donor Restrictions - Net assets available for use in general operations and not subject to donor (or certain grantor) restrictions are recorded as net assets without donor restrictions. Assets restricted solely through the actions of the Board are referred to as Board designated and are also reported as net assets without donor restrictions.  Net Assets With Donor Restrictions - Contributions restricted by donors (or certain grantors) are reported as increases in net assets without donor restrictions if the restrictions expire (that is, when a stipulated time restriction ends or purpose restriction is accomplished) in the reporting period in which the revenue is recognized. All other donor-restricted contributions are reported as increases in net assets with donor restrictions, depending on the nature of the restrictions. When a restriction expires, net assets with donor restrictions are reclassified to net assets without donor restrictions and reported in the Statement of Activities and Change in Net Assets as net assets released from donor restrictions. Gifts of long-lived assets and gifts of cash restricted for the acquisition of long-lived assets are recognized as revenue without donor restrictions when the assets are placed in service. Contributions and grants Contributions and grants received without donor restrictions and with donor restrictions are recorded as revenue in the year notification is received from the donor. Contributions and grants with donor restrictions are recognized as without donor restrictions only to the extent of actual expenses incurred in compliance with the donor-imposed restrictions and satisfaction of time restrictions. Such funds in excess of expenses incurred are shown as net assets with donor restriction in the accompanying financial statements. Use of estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Functional allocation of expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the Statement of Activities and Change in Net Assets. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Expenses directly attributed to a specific functional area of the Foundation are reported as direct expenses to the programmatic area and those expenses that benefit more than one function are allocated on a basis of estimated time and effort. 8 AMERICAN BRIDGE 21ST CENTURY FOUNDATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Reclassification Certain amounts in the prior year's financial statements have been reclassified to conform to the current year's presentation. The reclassifications are primarily due to the adoption of ASU 201614, as discussed above, which requires two classifications of net assets from the previously presented three classes. Net assets previously classified as of December 31, 2017 as unrestricted net deficit in the amount of $(2,037,881) are now classified as without donor restrictions. Net assets previously classified as temporarily restricted net assets in the amount of $434,751, are now classified as net assets with donor restrictions. New accounting pronouncements not yet adopted In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). The ASU establishes a comprehensive revenue recognition standard for virtually all industries under generally accepted accounting principles in the United States (U.S. GAAP) including those that previously followed industry-specific guidance. The guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB issued ASU 2015-14 in August 2015 that deferred the effective date of ASU 2014-09 by a year; thus, the effective date is years beginning after December 15, 2018. Early adoption is permitted. The Foundation has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its financial statements. In June 2018, the FASB issued ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made, which is intended to clarify and improve current guidance about whether a transfer of assets is an exchange transaction or a contribution. The amendments in this ASU provide a more robust framework to determine when a transaction should be accounted for as a contribution under Subtopic 958-605 or as an exchange transaction accounted for under other guidance (for example, Topic 606). The amendments also provide additional guidance about how to determine whether a contribution is conditional or unconditional. The amendments in this ASU could result in more grants and contracts being accounted for as contributions than under previous GAAP. The ASU recommends application on a modified prospective basis; however, retrospective application is permitted. The Foundation has not yet decided on a transition method. The ASU is effective for fiscal years beginning after December 15, 2018. In 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU changes the accounting treatment for operating leases by recognizing a lease asset and lease liability at the present value of the lease payments in the Statement of Financial Position and disclosing key information about leasing arrangements. The ASU is effective for private entities for years beginning after December 15, 2019. Early adoption is permitted. The ASU should be applied at the beginning of the earliest period presented using a modified retrospective approach. The Foundation plans to adopt the new ASUs at the respective required implementation dates. 9 AMERICAN BRIDGE 21ST CENTURY FOUNDATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 2. INVESTMENTS Included in investment loss are the following: 3. Realized loss Investment expenses provided by external investment advisors $ (6,619) (90) TOTAL INVESTMENT LOSS $ (6,709) NOTE PAYABLE In October 18, 2017, the Foundation entered into a $400,000 note payable to an individual. The initial maturity date was April 30, 2018. The note was personally guaranteed by a Director of the Foundation. Although the note included a requirement to pay interest, this was subsequently waived for the year ended December 31, 2017. From January 1, 2018 until April 30, 2018, interest was charged at a rate equal to the Citibank prime rate plus 12%. From May 1, 2018 until the repayment of the loan in November 2018, interest was charged at a rate equal to the Citibank prime rate plus 15%. The loan agreement contained various covenants. The note was fully repaid during the year ended December 31, 2018. 4. NET ASSETS WITH DONOR RESTRICTIONS Net assets with donor restrictions consist of the following at December 31, 2018: Subject to Expenditure for Specified Purpose: Women's Health Initiative $ 2,708 The following net assets with donor restrictions were released from donor restrictions by incurring expenses (or through the passage of time) which satisfied the restricted purposes specified by the donors: Purpose Restrictions Accomplished: Women's Health Initiative 5. $ 1,175,601 LIQUIDITY AND AVAILABILITY Financial assets available for use for general expenditures within one year of the Statement of Financial Position date comprise the following at December 31, 2018: Cash and cash equivalents Less: Donor restricted assets FINANCIAL ASSETS AVAILABLE TO MEET CASH NEEDS FOR GENERAL EXPENDITURES WITHIN ONE YEAR $ 1,449,804 (2,708) $ 1,447,096 The Foundation has a policy to structure its financial assets to be available and liquid as its obligations become due. As of December 31, 2018, the Foundation had financial assets equal to approximately two months of operating expenses. 10 AMERICAN BRIDGE 21ST CENTURY FOUNDATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 6. GOING CONCERN The Foundation experienced a loss during the year ended December 31, 2018, and had an unrestricted net deficit of $919,918 as of December 31, 2018. Management continues to implement plans to increase grant revenue while also reducing expenditures. Management hopes that these changes will have a positive impact and will help reduce the net deficit by 2019. 7. RELATED PARTY The Foundation shares employees, officers, office space and other expenses with American Bridge 21st Century (American Bridge), a political action committee. During the year ended December 31, 2018, the Foundation transferred $3,305,000 to American Bridge for salary, rent and other expenses paid for by American Bridge and allocated to Foundation. As of December 31, 2018, the Foundation owed American Bridge $1,455,745. As of December 31, 2018, the Foundation and American Bridge did not have a formal agreement relating to the allocation of expenses between the two entities. 8. SUBSEQUENT EVENTS In preparing these financial statements, the Foundation has evaluated events and transactions for potential recognition or disclosure through June 7, 2019, the date the financial statements were issued. 11