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THOMPSON
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'-~..-~ GREENSPO N
CPAs & Advisors I Partnering for Success

FINANCIAL REPORT
 

NATIONAL LEGAL AND POLICY CENTER
YEARS ENDED DECEMBER 31, 2017 AND 2016

 
NATIONAL LEGAL AND POLICY CENTER

FINANCIAL REPORT
YEARS ENDED DECEMBER 31 , 2017 AND 2016

CONTENTS

INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS

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 - 11
CPAs & Advisors I Partnering for Success

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
National Legal and Policy Center
Falls Church, Virginia

Report on the Financial Statements

We have audited the accompanying financial statements of National Legal and Policy Center, which
comprise the statements of financial position as of December 31 , 2017 and 2016, and the related statements
of activities and changes in net assets and cash flows for the years then ended, and the related notes to the
financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these fi nancial 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 audits to obtain reasonable assurance about whether the
financial statements are free from material misstatement.

An audit involves performing pro9edures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditors' judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opin ion.

Opinion
In our opinion , the financial statements referred to above present fairly, in all material respects, the financial
position of National Legal and Policy Center as of December 31 , 2017 and 2016, and the results of its
operations and its cash flows for the years then ended in accordance with accounting principles generally
accepted in the United States of America.

Fairfax, Virginia
November 29, 2018

4035 Ridge Top Road, #700, Fairfax, VA 22030 I T: 703.385.8888 I F: 703.385.3940
NATIONAL LEGAL AND POLICY CENTER

STATEMENTS OF FINA NCIAL POSITION
DECEMBER 31 , 2017 AND 2016

2017 2016
ASSETS
Cash and cash equivalents $ 471 ,900 $ 36,536
Investments, at fair value 167,791 119,996
Assets under split-interest agreements 170,779 159,132
Prepaid expenses and other 27,5 12 7,555
Property and equipment, net 376,807 390,759

Total Assets $ 1,214,789 $ 713,978

LIABILITIES AND NET ASSETS
Liabilities
Accounts payable and accruals $ 20,026 $ 62,391
Credit card payable and other 3,098 26,883
Liabilities under split-interest agreements 76,266 80,350

Total Liabilities 99,390 169,624

Net Assets
Unrestricted net assets 1,097,949 529,368
Temporarily restricted net assets 17,450 14,986

Total Net Assets 1,115,399 544,354

Total Liabilities and Net Assets $ 1,2 14,789 $ 713,978

The Notes to Financial Statements are an integral part of these statements.

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NATIONAL LEGAL AND POLICY CENTER

STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 2017 AND 2016

2017 2016
Temporarily Temporarily
Unrestricted Restricted Total Unrestricted Restricted Total
Support and Revenue
Contributions $ 1,845,153 $ $ 1,845,1 53 $ 1,225,859 $ $ 1,225,859

Expenses
Program services
Government Integrity Project 540, 157 540,157 577,799 577,799
Corporate Integrity Project 204,793 204,793 247,672 247,672
Organized Labor Accountability Project 207,733 207,733 216,422 216,422

Total Program Services 952,683 952,683 1,041,893 1,04 1,893

Support services
Fund raising 250,077 250,077 281,172 281 ,172
Management and general 127,062 127,062 120,202 120,202

Total Support Services 377,139 377,139 401,374 401,374

Total Program and Support Services 1,329,822 1,329,822 1,443,267 1,443,267

Operating Income (Loss) 515,331 515,331 (217,408) (217,408)

Other Revenue and Expenses
Interest and dividends 6,596 6,596 4,405 4,405
Change in value of assets and liabilities under
split-interest agreements 13,267 2 ,464 15,731 5,667 (1 ,015) 4,652
Realized and unrealized gains and losses on investments 33,387 33,387 25,905 25,905

Total Other Revenue and Expenses 53,250 2,464 55,714 35,977 (1 ,015) 34,962

Change in Net Assets 568,581 2,464 571,045 (181,431) (1,015) (182,446)

Net Assets, beginning of year 529,368 14,986 544,354 710,799 16,001 726,800

Net Assets, end of year $ 1,097,949 $ 17,450 $ 1,115,399 $ 529,368 $ 14,986 $ 544,354

The Notes to Financial Statements are an integral part of these statements.

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NATIONAL LEGAL AND POLICY CENTER

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 201 7 AN D 2016

2017 2016
Cash Flows from Operating Activities
Change in net assets $ 571 ,045 $ (1 82,446)
Noncash items included in change in net assets
Depreciation and amortization 13,952 13,902
Contributions received under split-interest agreements (7,430)
Change in value of assets and liabilities under split-interest
agreements (15,731) (4,652)
Realized and unrealized gains and losses on investments (33,387) (25,905)
Contribution of investments not immediately converted into cash (15,529) (20,062)
(Increase) Decrease in
Prepaid expenses and other (19,957) 9,890
Increase (Decrease) in
Accounts payable and accruals (42,365) 33,142
Credit card payable and other _ (23,785) 26,883

Net Cash Provided (Used) by Operating Activities 434,243 (156,678)

Cash Flows from Investing Activities
Withdrawal from assets held under split-interest agreements 10,290 9,675
Assets contributed under split-interest agreements (15,000)
Proceeds from sale of investments 10,548 120,476
Payments for the purchase of investments (9,427)
Payments for the purchase of property and equipment (1,006)

Net Cash Provided by Investing Activities 11,411 114~145

Cash Flows from Financing Activities
Proceeds from establishment of split-interest agreements 15,000
Payments to beneficiaries of split-interest agreements (10,290) (9,675)

Net Cash (Used) Provided by Financing Activities (10,290) 5,325

Net Increase (Decrease) in Cash and Cash Equivalents 435,364 (37,208)

Cash and Cash Equivalents, beginning of year 36,536 73,744

Cash and Cash Equivalents, end of year $ 471,900 $ 36,536

The Notes to Financial Statements are an integral part of these statements.

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NATIONAL LEGAL AND POLICY CENTER

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016

1. NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Activities

The National Legal and Policy Center (the Center) was organized as a nonstock, nonprofit
corporation within the District of Columbia in 1991 . The Center was founded to promote public
service ethics and accountability in government through the advocacy of the 10-point "Code of Ethics
for Government Service" passed by the Senate in 1958. This Code of Ethics, which is widely
distributed by the Center, is the focal point for the Center's activities.

The Center engages in nonpartisan study, analysis and research for the general public on issues
relating primarily to ethics and accountability. The results of these activities are documented by the
Center and made available to the general public through quarterly and biweekly newsletters, reports,
letters, the Internet, conferences, and other means of communication. The Center publicizes, on a
nonpartisan basis, corruption , abuses, and the misappropriation of funds to educate and,
consequently, motivate the general public and the government to exert pressure and sanctions
against unethical behavior and the misuse of funds.

The Center is supported primarily through donor contributions and grants.

The major programs of the Center are as follows:

Government Integrity Project (GIP)
This project focuses on the accountability and ethics of government bureaucracies and
employees. The Center investigates and exposes to the government and the general public
unethical or illegal practices of government agencies, public officials, and government
employees, as well as organizations and individuals that impact the governmental process.

Corporate Integrity Project (C IP)
This project promotes integrity in corporate governance, including honesty and fair play in
relationships with shareholders, employees, business partners and customers. The Center
exposes and publicizes the influence of corrupt corporate executives on public officials and
political systems.

Organized Labor Accountability Project (OLAP)
This project focuses on the accountability of labor unions and their corrupting influence on
government officials. The Center investigates and exposes to the general public the political
abuses of labor unions and the unethical and criminal behavior of labor union leaders.

Legal Services Accountability Project (LSAP)
This project focuses on the accountability of the legal service groups that are funded by the
government for the purpose of providing civil legal assistance to the poor. The Center
investigates the actual use of these funds and exposes to government officials and the general
public discrepancies and abuses.

Method of Accounting

The financial statements are prepared on the accrual basis of accounting.

The Center reports the amounts for each of three classes of net assets - unrestricted net assets,
temporarily restricted net assets and permanently restricted net assets - based on the existence or
absence of donor-imposed restrictions.

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NATIONAL LEGAL AND POLICY CENTER

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016

1. NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Method of Accounting (continued)

The Center reports noncash gifts as unrestricted support unless explicit donor stipulations specify
how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify
how the assets are to be used and gifts of cash or other assets that must be used to acquire
long-lived assets are reported as restricted support. Absent explicit donor stipulations about how
long those long-lived assets must be maintained , the Center reports expirations of donor restrictions
when the donated or acquired long-lived assets are acquired or placed in service. Temporarily
restricted contributions, whose restrictions are met in the same reporting period as the contribution is
received, are reported as unrestricted support.

Gifts of stocks and securities are valued at their estimated fair market value on the date they are
received.

Cash and Cash Equivalents

The Center maintains its cash balances with various financial institutions which, at times, may
exceed federally insured limits of $250,000. The Center has not experienced any losses from such
accounts.

Investments

Investments are accounted for at fair market value with realized and unrealized gains and losses
reported in the statements of activities and changes in net assets. Purchases and sales of securities
are recorded on a trade-date basis.

Donated securities or other assets that have no donor-imposed restrictions and that are immediately
converted into cash are recorded as cash flows from operating activities in the accompanying
statements of cash flows. During 2017 and 2016, the Center did not receive any donated securities
that were immediately converted into cash .

Property and Equipment

Property and equipment is recorded at cost. The related depreciation is computed using the
straight-line method and is based on the following estimated useful lives:

Building 39 years
Machinery and equipment 5 - 7 years

When property or equipment is sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the respective accounts with the resulting gain or loss reflected in
earnings. Expenditures for maintenance, repairs, and improvements that do not materially extend
the useful lives of property and equipment are charged to earnings when incurred .

Split-Interest Agreements

The Center is the beneficiary of a number of split-interest agreements with donors. The Center may
control donated assets and shares with the donor or the donor's designee income generated from
those assets until such time as stated in the agreement, at which time the remaining assets are
generally for the Center's unrestricted use.

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NATIONAL LEGAL AND POLICY CENTER

NOTES TO FINANCIAL STATEMENTS
DECEMBER 3 1, 2017 AND 2016

1. NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Split-Interest Agreements (continued)

The Center records the assets of the agreements (at fair value) if the assets are controlled and
invested by the Center. The Center records contribution revenue at the date the agreement is
established after recording a liability for the present value of the estimated future payments expected
to be made to the beneficiaries. Adjustments to the annuity liabilities to reflect amortization of the
discount and revaluation of expected future payments to beneficiaries based on changes in actuarial
assumptions are made annually and recognized as a change in valuation of split-interest
agreements.

The discount rate used in valuing split-interest agreement liabilities ranged from 1.4 percent to
4.2 percent for the years ended December 31 , 2017 and 2016 .

All gifts are unrestricted except for those governed by states that require segregation of the
contributed assets of the donor, which are classified as temporarily restricted. Where applicable, the
Center complies with the reserve requirements of individual states that have such requirements,
including California and Florida. The balance of these reserve accounts approximated $34,000 and
$32,000 at December 31 , 2017 and 2016, respectively.

Fair Value

Financial Accounting Standards Board (FASS) Accounting Standards Codification (ASC) Topic 820 ,
Fair Value Measurements and Disclosures, provides a framework for measuring fair value. That
framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. Fair value focuses on the price that would be received to sell the asset or paid to
transfer the liability regardless of whether an observable liquid market price existed (an exit price).
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 under FASS ASC 820 are described
below:

Level 1 - inputs to the valuation methodology are based upon unadjusted quoted prices for identical
assets or liabilities in active markets that the Center has the ability to access.

Level 2 - 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 markets that are not active,
inputs other than quoted prices that are observable for the asset or liability, and market-corroborated
inputs. 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. Level 3 assets and liabilities measured at fair value are based on one or more of
three valuation techniques (market, cost, or income approach). The market approach evaluates
prices and other relevant information generated by market transactions involving identical or
comparable assets or liabilities. The cost approach evaluates the amount that would be required to
replace the service capacity of an asset (i.e., replacement cost). The income approach uses
techniques that convert future amounts to a single present amount based on market expectations
(including present value techniques, option-pricing models, and lattice models).

The asset's 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.

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NATIONAL LEGAL AND POLICY CENTER

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016

1. NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value (continued)

The following describes the valuation methodologies used for assets measured at fair value. There
have been no changes in the methodologies used at December 31 , 2017 and 2016.

Equity securities: Certain common stocks are valued at the closing price reported in the active
market in which the individual securities are traded .

Mutual funds: Valued at the net asset value (NAV) of shares held by the Center at year end.

Assets under split-interest agreements: The fair value of mutual funds and money market funds held
under split-interest agreements are valued at the NAV of shares held at year end.

T he methods described above may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. Furthermore, while the Center 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.

Income Tax Status

T he Center is a nonprofit organization exempt from Federal income tax under Section 501 (c)(3) of
the Internal Revenue Code {IRC). The Center qualifies for the charitable contribution deduction
under Section 170(b)( 1)(A) and has been classified as an organization other than a private
foundation.

The Center has no uncertain tax positions that qualify for either recognition or disclosure in the
financial statements and no interest and penalties have been recorded in the accompanying financial
statements related to uncertain tax positions.

The Center files an informational income tax return for Federal reporting purposes. The Center is
not currently under audit by any income tax jurisdictions.

Concentrations

For the year ended December 31 , 2017, the Center received approximately $500,000, equaling
27 percent of its contributions from one donor. For the year ended December 31, 2016, the Center
received approximately $175,000, equaling 14 percent of its contributions from one foundation.

Functional Allocation of Expenses

The costs of providing the various programs and other activities have been summarized on a
functional basis in the statements of activities and changes in net assets. Accordingly, direct
program costs have been allocated among the programs and supporting services benefited based
on specific identification. Indirect costs have been allocated based on labor hours.

Financial Statement Estimates

The preparation of 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 and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could vary from the estimates that were used.

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NATIONAL LEGAL AND POLICY CENTER

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31 , 2017 AND 2016

1. NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements

ASU 2016-14
In August 2016, the FASS issued Accounting Standards Update (ASU) 2016-14, Presentation of
Financial Statements of Not-for-Profit Entities. ASU 2016-14 eliminates the distinction between
resources with permanent restrictions and those with temporary restrictions from the face of
not-for-profit financia l statements by reducing the current three net asset classes (unrestricted,
temporarily restricted, and permanently restricted) to two classes (net assets with donor restrictions
and net assets without donor restrictions). ASU 2016-14 also requires enhanced disclosures
regarding board designations, the method(s) used to allocate costs among program and support
functions, underwater endowment funds, and qualitative and quantitative information that
communicates how the organization will meet cash needs for general expenditures within one year
of the balance sheet date. ASU 2016-14 is effective for not-for-profit entities for fiscal periods
beginning after December 15, 2017 and for interim periods within fisca l years beginning after
December 15, 2018, with retrospective application to all periods presented. Early application of the
amendments is permitted. The amendments should be initially adopted only for an annual fiscal
period or for the first interim period within the fiscal year of adoption. The Center is currently in the
process of evaluating the impact of adoption of this ASU on the financial statements.

Subsequent Events

The date to which events occurring after December 31, 2017, the date of the most recent statemen t
of financial position, have been evaluated for possible adjustment to the financial statements or
disclosu re is November 29, 2018, which is the date on which the financial statements were available
to be issued .

2. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following at December 31:

2017 2016
Interest bearing checking account $ 77,991 $ 35,319
Interest bearing savings account 388,542
Money market accounts 5,367 1,217
$ 471 ,900 $ 36,536

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31 :

2017 2016
Building $ 515,270 $ 515,270
Equipment 30,725 47,563
Totals 545,995 562,833
Less: Accumulated depreciation {221 ,518} {224,404}
324,477 338,429
Land 52,330 52,330
Property and equipment, net $ 376,807 $ 390,759

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NATIONAL LEGAL AND POLICY CENTER

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 201 7 AND 2016

4. INVESTMENTS

The Center received contributed stock w ith a fair value of $15,529 and $20 ,062 during the years
ended December 31 , 2017 and 2016 , respectively. Investment and custodial fees netted against
realized and unrealized gains w ere immaterial.

5. FAIR VALUE MEASUREMENTS

The fol lowi ng tables present the Center's assets and liabilities measured at fair value at
December 31 on a recurring basis:

2017
Fair Value Level 1 Level 2 Level3
Financial Assets
Investments
Equity Securities $ 167,791 $ 167,791 $ $

Assets Under Split-Interest Agreements
Mutual Funds - Large Cap Equity 69,324 69,324
Mutual Funds - Mid Cap Equity 7,544 7,544
Mutual Funds - Small Cap Equity 7,349 7,349
Mutual Funds - International Equity 21,387 21,387
Mutual Funds - Income and Bond Funds 48,865 48,865
Money Market Funds 6,012 6,012
Saving s Accounts 10,298 10,298
170,779 170,779
Total Financial Assets $ 338,570 $ 338,570 $ $

Financial Liabilities
Liabilities Under Split-Interest Agreements $ 76,266 $ 76,266 $ $

2016
Fair Value Level 1 Level2 Level 3
Financial Assets
Investments
Equity Securities $ 119,996 $ 119,996 $ $

Assets Under Split-Interest Agreements
Mutual Funds - Large Cap Equity 64,688 64,688
Mutual Funds - Mid Cap Equity 6,717 6,717
Mutual Funds - Small Cap Equity 7,640 7,640
Mutual Funds - International Equity 18,621 18,621
Mutual Funds - Income and Bond Funds 48 ,488 48,488
Money Market Funds 2,888 2,888
Savings Accou nts 10,090 10,090
159,132 159,132
Total Financial Assets $ 279,128 $ 279,128 $ $

Financial Liabilities
Liabilities Under Split-Interest Agreements $ 80,350 $ 80,350 $ $

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NATIONAL LEGAL AND POLICY CENTER

NOTES TO FINAN CIAL STATEMENTS
DECEMBER 31 , 2017 AND 2016

5. FAIR VALUE MEASUREMENTS (continued)

Equity securities consist primarily of common stocks of large U.S. corporations. Based on its
analysis of the nature and risks of these equity securities, the Center has determined that presenting
them as a single class is appropriate.

We evaluated the significance of transfers between the levels based upon the nature of the financial
instrument and size of the transfer relative to the total investments. For the years ended
December 31 , 2017 and 2016, there were no transfers in or out of Levels 1, 2 or 3.

The Center invests in various investment securities. Investment securities are exposed to various
risks such as interest rate, market and credit risks. Due to the level of risk associated with certain
investment securities, it is at least reasonably possible that changes in the value of the investment
securities will occur in the near term and such changes could materially affect the Center's
investments and the amounts reported in the statements of financial position and the statements of
activities and changes in net assets.

6. SPLIT-INTEREST AGREEMENTS

Contributions for split-interest agreements were as follows for the years ended December 31:

2017 2016
Unrestricted contributions $ $ 7,430
Temporarily restricted contributions
$ $ 7,430

7. TAX-DEFERRED ANNUITY PLAN

The Center has a tax-deferred annuity plan (the Plan) qualified under Section 403(b)(7) of the IRC.
The Plan covers full-time employees of the Center. Employees may make contributions to the Plan
up to the maximum allowed by the IRC. The Center made a discretionary contribution at year end
equa l to 100 percent of employee deferrals. Contributions to the Plan by the Center for the years
ended December 31 , 2017 and 2016 were $52,400 and $50,400, respectively.

8. LIFE INSURANCE

The Center owns term life insurance policies on the lives of the President and Chairman, where the
Center is the beneficiary. The face values of the policies range from $1 ,000,000 for the Chairman to
$2,500,000 for the President.

9. LINE OF CREDIT

During 2016, the Center opened a $476,000 line of credit, which is secured by the Center's office
building. The line of credit accrues interest at the Wall Street Journal Prime rate plus 0.25 percent
payable monthly. The line matured on February 28, 2018 and was not renewed . The agreement
required the Center to meet certain debt covenants. There were no draws on the line of credit during
201 7 and there was no balance on the line of credit at December 31, 2017.

10. SUBSEQUENT EVENT

During 2018, the Center's Chairman passed away, and the Center received the proceeds from the
Chairman's life insurance policy of approximately $1 ,000,000.

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