Swvafb Annual Report Fy 2008-2009

THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Salem, Virginia FINANCIAL STATEMENTS For the Years Ended June 30, 2009 and 2008

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY

Salem, Virginia

- INDEX Independent Auditors' Report

Page 1

Statements of Financial Position as of June 30, 2009 and 2008

Exhibit A

Statements of Activities, For the Years Ended June 30, 2009 and 2008

Exhibit B

Statements of Cash Flows, For the Years Ended June 30, 2009 and 2008

Exhibit C

Statements of Functional Expenses, For the Years Ended June 30, 2009 and 2008

Exhibit D

Notes to Financial Statements, June 30, 2009 and 2008

Exhibit E

Schedule of Expenditures of Federal Awards, For the Year Ended June 30, 2009

Schedule 1

Schedule of Findings and Questioned Costs, For the Year Ended June 30, 2009

Schedule 2

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit F

Exhibit F-1

Independent Auditors' Report

To the Board of Directors The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary Salem, Virginia We have audited the accompanying statements of financial position of The Southwestern Virginia Second Harvest Food Bank, Inc. (a nonprofit organization) and its wholly-owned subsidiary, SWVAFB Property Corporation, as of June 30, 2009 and 2008 and the related statements of activities, cash flows and functional expenses for the years then ended. These financial statements are the responsibility of the Food Bank'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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 the 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 The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary as of June 30, 2009 and 2008 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.

-2-

In accordance with Government Auditing Standards, we have also issued our report dated September 28, 2009 on our consideration of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audits were conducted for the purpose of forming an opinion on the basic financial statements of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U. S. Office of Management and Budget Circular A-133, "Audits of States, Local Governments and Non-Profit Organizations," and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

Roanoke, Virginia September 28, 2009

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Statements of Financial Position As of June 30, 2009 and 2008

ASSETS Current Assets: Cash and cash equivalents Accounts receivable (net of allowance of $5,000 and $4,369 as of June 30, 2009 and 2008, respectively) Employee receivable Unconditional promises to give Deposits and prepaid expenses Food inventory

2009

$

334,865

2008

$

238,800

47,983 76,531 13,860 1,234,257

59,021 450 73,302 11,727 1,062,923

$ 1,707,496

$ 1,446,223

Long-Term Unconditional Promises to Give

$

31,631

$

Fixed Assets: Land Buildings and other equipment Vehicles Total Less accumulated depreciation

$ 1,120,000 2,786,085 408,300 $ 4,314,385 620,080

$

975,000 1,636,089 330,307 $ 2,941,396 580,283

$ 3,694,305

$ 2,361,113

$

28,978 9,314

$

28,978 5,175

Total intangible assets

$

19,664

$

23,803

Total assets

$ 5,453,096

Total current assets

Total fixed assets Intangible Assets: Loan costs Less accumulated amortization

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

58,426

$ 3,889,565

Exhibit A

LIABILITIES and NET ASSETS Current Liabilities: Accounts payable Accounts receivable credit balances Grant funds due agencies Note payable - line of credit Bridge loan Current portion of long-term note payable Accrued payroll and related taxes Accrued annual leave Unearned rent Accrued interest Total current liabilities Long-Term Liabilities: Note payable - other Note payable – Salem facility Note payable – Abingdon facility Interest rate swap agreement

2009

2008

$

112,224 25,902 37,573 133,255 36,000 10,823 8,292 5,750 14,965

$

55,935 4,565 37,586 43,594 171,274 36,000 48,474 8,292 10,750 5,709

$

384,784

$

422,179

$

75,000 1,692,000 1,049,824 208,182

$

75,000 1,728,000 -

Total long-term liabilities

$ 3,025,006

$ 1,803,000

Total liabilities

$ 3,409,790

$ 2,225,179

$ 1,623,616 419,690

$ 1,246,670 417,716

Total net assets

$ 2,043,306

$ 1,664,386

Total liabilities and net assets

$ 5,453,096

$ 3,889,565

Net Assets: Unrestricted Temporarily restricted

The accompanying notes are an integral part of these financial statements and should be read in connection therewith.

Exhibit B Sheet 1 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Statements of Activities For the Years Ended June 30, 2009 and 2008

2009 Unrestricted Net Assets: Support: Grants Local municipal government grants Contributions In-kind contributions Donated food Total support

2008

$

251,458 95,992 824,604 821,059 18,366,016 $ 20,359,129

$

160,812 103,517 1,154,605 287,448 14,564,915 $ 16,271,297

$

$

Revenue: USDA shared maintenance fees Other shared maintenance fees Sale of purchased food Miscellaneous Total revenue

401,200 836,611 251,899 $ 1,489,710

390,355 740,580 186,408 12,518 $ 1,329,861

Net assets released from restrictions

$

$

Total support and revenue Expenses: Program expenses Management and general Fundraising Food distributions

$ 22,166,843

$ 17,879,794

$ 1,952,293 725,533 479,719 18,424,170

$ 1,678,804 670,161 434,642 15,211,961

$ 21,581,715

$ 17,995,568

$

$

Total expenses Change in Unrestricted Net Assets Before Unrealized Loss on Interest Rate Swap Agreement Unrealized Loss on Interest Rate Swap Agreement Change in Unrestricted Net Assets

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

318,004

585,128 (208,182)

$

376,946

278,636

(115,774) -

$

(115,774)

Exhibit B Sheet 2 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Statements of Activities For the Years Ended June 30, 2009 and 2008

2009 Temporarily Restricted Net Assets: Support: Contributions Grants Net assets released from restrictions

$

Change in Temporarily Restricted Net Assets

$

Change in Net Assets

$

Net Assets, Beginning of Year Net Assets, End of Year

The accompanying notes are an integral part of these financial statements and should be read in connection therewith.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

318,478 1,500 (318,004)

2008

$

86,044 215,690 (278,636)

1,974

$

23,098

378,920

$

(92,676)

1,664,386

1,757,062

$ 2,043,306

$ 1,664,386

Exhibit C Sheet 1 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Statements of Cash Flows For the Years Ended June 30, 2009 and 2008

2009 Cash Flows from Operating Activities: Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities: Contributions received in kind (other than donated food) Depreciation Unrealized loss on interest rate swap agreement Loss on sale of fixed assets Changes in assets and liabilities: (Increase) decrease in accounts receivable (Increase) decrease in unconditional promises to give (Increase) decrease in employee receivable (Increase) decrease in prepaid expenses (Increase) decrease in food inventory Increase (decrease) in accounts payable Increase (decrease) in accounts receivable credit balance Increase (decrease) in grants due agencies Increase (decrease) in accrued payroll and related taxes Increase (decrease) in unearned rent Increase (decrease) in accrued interest Total adjustments Net cash provided by operating activities Cash Flows from Investing Activities: Capital expenditures Proceeds from sale of transportation equipment Net cash used in investing activities Cash Flows from Financing Activities: Proceeds from note payable Net borrowing (payments) on line of credit Principal payments on notes payable Net cash used in financing activities

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

2008

$

378,920

$

(92,676)

$

(408,331) 157,765 208,182 3,081

$

(3,624) 147,916 -

$

11,038 23,566 450 (2,133) (171,334) 56,289 21,337 (13) (37,651) (5,000) 9,256 (133,498)

$

(9,044) (22,130) (450) (9,700) 460,057 (126,462) (30,836) 16,325 48,474 (30,000) 1,299 441,825

$

245,422

$

349,149

$

(37,344) 5,600

$

(13,094) -

$

(31,744)

$

(13,094)

$

89,661 (207,274)

$

75,000 (127,556) (284,726)

$

(117,613)

$

(337,282)

Exhibit C Sheet 2 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Statements of Activities For the Years Ended June 30, 2009 and 2008

2009 Net Increase (Decrease) in Cash and Cash Equivalents

$

96,065

2008 $

238,800

Cash and Cash Equivalents, Beginning of Year

(1,227) 240,027

Cash and Cash Equivalents, End of Year

$

334,865

$

238,800

Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest

$

91,515

$

117,029

$

149,831 8,500 250,000

$

3,624 -

$

408,331

$

3,624

Supplemental Schedule of Noncash Investing and Financing Activities: In-kind contributions received were comprised of the following assets: Vehicles Equipment and office furniture Abingdon facility (20% interest)

For the year ended June 30, 2009, the Food Bank drew down $1,049,824 of its loan to finance the acquisition of its Abingdon facility.

The accompanying notes are an integral part of these financial statements and should be read in connection therewith.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit D Sheet 1 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Statement of Functional Expenses For the Year Ended June 30, 2009

Program Services Personnel Expenses: Salaries Payroll taxes Fringe benefits Total personnel expenses Other Expenses: Consultants and contract services Travel Space costs Materials and supplies Postage and printing Equipment expense Depreciation Telephone General insurance Dues and subscriptions Trucking expenses Interest expense Other costs Total expenses

Management and General

Fundraising

Total

$ 644,529 53,804 70,970

$

285,080 23,798 31,391

$

309,870 25,868 34,120

$1,239,479 103,470 136,481

$ 769,303

$

340,269

$

369,858

$1,479,430

1,996 770 13,116 2,247 72,442 5,887 1,578 305 2,118 2,182 7,220

143,231 12,838 672,687 27,990 88,042 120,877 157,765 30,545 70,612 31,214 169,292 100,771 52,251

479,719

$3,157,545

45,510 4,877 633,341 15,255 6,359 96,674 146,721 28,407 29,657 958 169,292 5,939 $1,952,293

95,725 7,191 26,230 10,488 9,241 18,316 9,466 1,833 38,837 28,074 100,771 39,092 $

The accompanying notes are an integral part of these financial statements and should be read in connection therewith.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

725,533

$

Exhibit D Sheet 2 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Statement of Functional Expenses For the Year Ended June 30, 2008

Program Services Personnel Expenses: Salaries Payroll taxes Fringe benefits Total personnel expenses Other Expenses: Consultants and contract services Travel Space costs Materials and supplies Postage Equipment expense Depreciation Telephone General insurance Dues and subscriptions Trucking expenses Interest expense Other costs Total expenses

Management and General

Fundraising

Total

$ 613,422 52,148 63,628

$

267,675 22,756 27,765

$

234,216 19,911 24,294

$1,115,313 94,815 115,687

$ 729,198

$

318,196

$

278,421

$1,325,815

58,946 1,034 10,179 4,386 72,141 2,832 1,479 268 2,095 2,038 823

180,724 14,428 527,132 29,314 87,512 63,137 147,916 26,798 69,828 28,955 132,720 118,328 31,000

434,642

$2,783,607

44,373 6,833 496,598 14,979 6,360 51,495 137,562 24,922 29,328 932 132,720 3,504 $1,678,804

77,405 6,561 20,355 9,949 9,011 8,810 8,875 1,608 38,405 25,985 118,328 26,673 $

The accompanying notes are an integral part of these financial statements and should be read in connection therewith.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

670,161

$

Exhibit E Sheet 1 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Notes to Financial Statements June 30, 2009 and 2008

Notes: 1. Nature of Activities: The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary (the Food Bank) is a non-profit organization incorporated under the laws of the Commonwealth of Virginia on December 29, 1998. The Food Bank has applied for and received tax exempt status from the Internal Revenue Service as an organization described in Section 501(c)(3) of the Internal Revenue Code. The Corporation was created to take over and operate the food bank program previously run by Total Action Against Poverty in the Roanoke Valley, Inc. The mission of the Food Bank is to feed the hungry by soliciting food and judiciously distributing that food through a network of nonprofit member agencies. On November 1, 2004, the Food Bank moved to a new office and warehouse facility in Salem, Virginia. The Food Bank has, in addition to its headquarters in Salem, branches in Abingdon and Covington. Funding comes from area United Way agencies, local governments, contributions from the general public and businesses in the area and through an agreement with the Virginia Department of Agriculture and Consumer Services. This agreement provides for donated foods as they are made available by the United States Department of Agriculture. Numerous other commercial organizations donate food through the Feeding America network of which the Food Bank is an affiliate. On February 5, 2007, the Food Bank formed SWVAFB Property Corporation, a Virginia corporation, for the purpose of acquiring land and building occupied by the Food Bank in Salem and to provide warehouse services to the Food Bank. The Food Bank is the sole stockholder of the corporation. Purchase of an 80% undivided interest in the land and building was completed on March 30, 2007 by the new corporation under the terms of an option agreement between the Food Bank and New Century Development Company LLC. SWVAFB Property Corporation leases the facility to the Food Bank and provides warehouse services under various leasing agreements. 2. Corporate Structure: The affairs of the Food Bank are managed by a Board of Directors. Day-to-day operations are managed by a chief executive officer hired by the Board of Directors.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit E Sheet 2 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Notes to Financial Statements June 30, 2009 and 2008

Notes:

(Continued)

3. Summary of Significant Accounting Policies: (a)

Principles of Consolidation: The consolidated financial statements include the accounts of the Food Bank and its wholly-owned subsidiary, SWVAFB Property Corporation. All material intercompany transactions have been eliminated in consolidation.

(b)

Basis of Accounting: The financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Under generally accepted accounting principles, the Food Bank is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted and permanently restricted. Currently, the Food Bank has no assets that are permanently restricted.

(c)

Support and Revenue: The Food Bank receives grants from area United Way Agencies and from local governments which are recognized as support in the period(s) for which the grant was made. One-time grants from charitable foundations and contributions from businesses or individuals are recorded, in most cases, when received. Significant amounts pledged but not received by year-end are recorded as receivable. Contributions received with donorimposed restrictions are recorded as temporarily or permanently restricted depending on the nature of the restrictions. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized.

(d)

Unconditional Promises to Give: The Food Bank recognizes promises to give as income in the period when the promise is received. Oral promises are not recorded until a signed commitment is received. Promises to give are recorded at net receivable value. Management bases collectability on past experience and uses a discount rate commensurate with the risk involved.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit E Sheet 3 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Notes to Financial Statements June 30, 2009 and 2008

Notes: 3.

(Continued) (Continued) (e)

Food Valuation: Foods for distribution in the Food Bank's program are obtained from three types of sources and are valued as follows: Purchased food USDA commodities Donated foods

Valued at cost Value assigned by USDA Valued at $1.58 and $1.49 per pound, as of June 30, 2009 and 2008, respectively*

*The average value per pound is based on an independent study done for Feeding America. These values are used in measuring the amount of donated food received and food distributions shown on Exhibit B and the food inventory on Exhibit A. Food distributions for the years ended June 30, 2009 and 2008 were approximately 13.6 million and 11.3 million pounds, respectively, with an approximate value of 18 million and 15 million dollars, respectively. (f)

Fixed Assets: The Food Bank follows the practice of capitalizing all expenditures for property, furniture and equipment in excess of $500. Acquisitions are recorded at cost if purchased and at fair market value if donated to the Food Bank in-kind. Depreciation of all such items is computed on a straight-line basis over the estimated useful lives of the assets generally as follows: Buildings Refrigerated trucks Cooler, freezers, forklift Other equipment, including computers Computer software Office furniture

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

39 years 5 years 7 years 5 years 3 years 7 years

Exhibit E Sheet 4 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Notes to Financial Statements June 30, 2009 and 2008

Notes: 3.

(Continued) (Continued) (g)

Income Taxes: The Food Bank is exempt from Federal income taxes under Section 501(c)(3) of the Internal Revenue Code and did not conduct unrelated business activities. The subsidiary, a Virginia corporation, is subject to income taxes. However, as the subsidiary has no taxable income for the year ended June 30, 2009, the Food Bank has made no provision for income taxes in the accompanying financial statements. In addition, the Food Bank has been determined by the Internal Revenue Service not to be a "private foundation" within the meaning of Section 509(a) of the Internal Revenue Code.

(h)

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 and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from the estimates that were used.

(i)

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. Accordingly, certain costs have been allocated among the programs and supporting services benefited.

(j)

Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with an initial maturity of three months or less. Fair value approximates carrying amounts.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit E Sheet 5 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Notes to Financial Statements June 30, 2009 and 2008

Notes: 3.

(Continued) (Continued) (k)

Allowance for Doubtful Accounts: The Food Bank provides for estimated losses on accounts receivable based on prior bad debt experience and a review of existing receivables. Based on these factors, there is an allowance for doubtful accounts of $5,000 and $4,369 as of June 30, 2009 and 2008, respectively.

(l)

In-Kind Contributions: In-kind contributions are recorded at fair market value and recognized as support in the year they are received.

(m) Donated Services Donated services are recognized as contributions if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Food Bank. The Food Bank recognized $119,314 in donated services for specialized mold remediation and restoration of freezer units during the year ended June 30, 2009. Volunteers provided various services to the Food Bank throughout the year that are not recognized as contributions in the financial statements since the recognition criteria are not met. The Food Bank received over 18,000 volunteer hours from over 2,000 volunteers during the year ended June 30, 2009. (n)

Accrued Annual Leave: Vacation pay is recognized as expense in the period when it is earned.

(o)

Derivatives: The Food Bank uses an interest-rate swap agreement to fix the interest rate on one longterm note. The swap agreement is recorded at fair market value and changes in fair market value are recorded as changes in net assets as described in Note 4.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit E Sheet 6 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Notes to Financial Statements June 30, 2009 and 2008

Notes: 4.

(Continued) Notes Payable: The Food Bank has a line of credit in the amount of $325,000 with SunTrust Bank. Interest is payable at the bank's prime rate and is due and payable on demand. The line is secured by a first credit line deed of trust and a blanket lien on all assets of the Food Bank. The balances outstanding at June 30, 2009 and 2008 were $133,255 and $43,594, respectively. During the year ended June 30, 2009 the Food Bank obtained a forty-year mortgage loan from the Rural Housing Service, an agency of the United States Department of Agriculture, in the amount of $1,879,400 for the purchase and renovation of land and building in Abingdon, Virginia to replace the existing leased facility in Abingdon. Payments for years one and two are interest only calculated on the drawdown amount of the loan at the rate of 4.5% annually payable on the anniversary date of the loan. A drawdown will be permitted for the amount of the interest from the original principal amount provided that prior drawdowns have not exceeded the principal amount. The principal amount of the loan (drawdowns) was $1,049,824 as of June 30, 2009. During the year ended June 30, 2009 the Food Bank obtained a second loan from the Rural Housing Service in the amount of $104,000 for equipment for the new Abingdon facility. Payments for the first year will be interest only calculated on the drawdown amount of the loan at the rate of 4.5% annually on the anniversary date of the loan. A drawdown will be permitted for the amount of the interest due from the original principal amount provided that prior drawdowns have not exceeded the principal amount. The principal amount of the loan (drawdowns) was $-0as of June 30, 2009. Both loans are secured by a Deed of Trust having first priority, a financing statement on all accounts and general intangibles of the Food Bank and all equipment and fixtures financed with these loan funds. The Food Bank has a seven-year commercial mortgage from SunTrust Bank and was required to make sinking fund deposits of $400,000 by December 31, 2008 and an additional deposit of $100,000 by December 31, 2009. However, SunTrust Bank modified the requirement on December 1, 2008 to require a $200,000 deposit by December 31, 2009, $200,000 by December 31, 2010 and $100,000 by December 31, 2011.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit E Sheet 7 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Notes to Financial Statements June 30, 2009 and 2008 Notes: 4.

(Continued) (Continued) The long-term debt at June 30, 2009 and 2008 is as follows: Interest Rate SunTrust Bank

4.13%

SunTrust Bank LIBOR, less 1% (swap agreement below)

Rural Housing Service

4.5%

Due Annual interest only. Principal due 12-20-12 Monthly interest payments of approximately $6,380. Annual principal payment of $36,000 due December 31. Balance of principal due 3-30-2014 Annual interest only for first two years; principal over forty years

2009

$

75,000

1,728,000

1,049,824

2008

$

75,000

1,764,000

-

Less Current Portion

$2,852,824 36,000

$1,839,000 36,000

Non-Current Portion

$2,816,824

$1,803,000

Security

2007 Chevrolet truck

Real property and blanket lien

Real property, equipment and fixtures

The Food Bank entered into an interest rate swap agreement with SunTrust Bank to fix the interest rate on the seven year commercial loan at 4.43% in order to protect the Food Bank against rising interest rates and to provide for stable cash flows during the term of the loan in order to provide a stable capital campaign budget. The interest rate swap agreement notional amounts and maturity matches the principal amounts and maturity of the loan. At June 30, 2009, the outstanding notional principal amount of the agreement was $1,728,000. The fair value of the interest rate swap agreement at June 30, 2009 was a derivative liability of $208,182. This amount has been recorded as a long-term liability as the Food Bank does not plan to terminate the

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit E Sheet 8 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Notes to Financial Statements June 30, 2009 and 2008

Notes: 4.

(Continued) (Continued) agreement prior to the maturity of the loan. The change in the fair value of the swap agreement has been recorded as an unrealized loss on interest rate swap agreement in the statement of activities. The fair value was not recorded in previous years as it was not considered material to the financial statements. The future maturities of long-term debt are as follows:

5.

Year Ended June 30,

Amount

2010 2011 2012 2013 2014

$

36,000 39,130 130,282 56,168 1,615,095

Pension Plan: The Food Bank participates in a retirement and 401(k) plan for the benefit of its employees. The plan is administered by SunTrust Bank and Transamerica Retirement Services. Employees become eligible to participate in the plan and make elective deferrals after 30 days of employment. After two years of service, participants are eligible to have employer contributions credited to their account. The plan provides for benefits at the employee’s normal retirement age of 65. Benefits may be paid in a lump sum or in installments over a fixed period of time. The amount of benefits is based on the participant’s account balance at time of retirement. Participants may defer from 1% to 100% of their salary and up to 100% of any cash paid employer bonus subject to the annual dollar limit and overall plan limit on elective deferrals. The Food Bank may make matching, non-elective, and discretionary contributions to the plan. During the years ended June 30, 2009 and 2008, the Food Bank contributed $59,755 and $39,519, respectively, to the plan which is included in fringe benefits in the financial statements.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit E Sheet 9 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Notes to Financial Statements June 30, 2009 and 2008

Notes: 6.

(Continued) Leases: The Food Bank leases a 20% undivided interest in its Salem facility of approximately 98,090 square feet for an annual rental of $172,966. Under the terms of the lease, the Food Bank is to pay rent monthly in the amount of $14,414. However, the Food Bank is not required to pay the rent as the landlord treats the amount of foregone rent as a donation to the Food Bank. The Food Bank recognizes the amount of rental payments as an in-kind contribution. The Food Bank subleases unused warehouse and parking space on a short-term basis. Rental expense for the years ended June 30, 2009 and 2008, not including contributed rent, was $224,788 and $174,378 net of sublease rental income of $53,445 and $104,816, respectively. The branch facility in Abingdon is leased under an agreement which provides approximately 1,200 square feet of office space for $1,200 per month. Approximately 9,500 square feet of additional warehouse and office space is leased at zero monthly rent. The fair market rental value of $86,500 is recognized as an in-kind contribution. The lease expired March 31, 2006, and the Food Bank is renting the facility on a month-to-month basis. On April 15, 2009, the Food Bank purchased an 18,000 square-foot building and four acres of land in Washington County to replace the Abingdon facility. An additional 2,700 square feet of freezer and cooler space is under construction with plans to move to the new facility by late October, 2009. The branch facility in Covington was leased under an agreement that requires the Food Bank to pay 63% of all utilities for the facility. There was no monthly rental. The amount paid for utilities under this agreement was $4,377 for the year ended June 30, 2009 and $5,328 for 2008. The lease agreement was terminated at the end of April, 2009. Covington agencies presently place orders by phone or fax and Food Bank personnel deliver orders to the TAP parking lot in Covington once a week for transfer to agencies.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit E Sheet 10 THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Notes to Financial Statements June 30, 2009 and 2008

7. Temporarily Restricted Net Assets: Temporarily restricted net assets consisted of the following at June 30, 2009 and 2008, respectively: 2009 Kids Café Grants and donations for specific agencies or purposes Unconditional promises to give Sinking Fund

$

28,894

2008 $

74,344

282,532 108,162 102

211,543 131,728 101

$ 419,690

$ 417,716

8. Related Party Transactions: The Food Bank exercised an option, granted in 2004, to purchase an 80% undivided interest in the Salem facility from New Century Development Company, LLC. The Food Bank leases the remaining 20% undivided interest from New Century. A managing member of New Century, was elected to the board of the Food Bank in 2006. The total amount of rent paid to New Century for each of the years ended June 30, 2009 and 2008 was $172,966 all of which was recognized as an inkind contribution. During the years ended June 30, 2009 and 2008, the Food Bank paid legal fees to its law firm in the amount of $12,775 and $3,866, respectively. Fees for 2009 included $12,600 paid in connection with the purchase of the Abingdon facility. A partner in the law firm is also a director of the Food Bank. The Food Bank entered into a contract with Access, an advertising and public relations agency, to provide planning and assistance with the Food Bank's capital campaign. The owner of Access is a distant relative of the Chairman of the Board of the Food Bank. The Chairman has no financial interest in or other connection with Access and did not participate in the selection process or vote to engage Access to provide services to the Food Bank. The total amount paid to Access by the Food Bank for the year ended June 30, 2009 was $5,184.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Schedule 1

THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2009

Federal CFDA # Pass Through Virginia Department of Agriculture and Consumer Services (VDACS Agency Number 67-500): USDA - Emergency Food Assistance Program (food commodities) USDA - Emergency Food Assistance Program (administrative costs) ARRA - USDA - Emergency Food Assistance Program (Administrative costs) Virginia Child and Adult Care Food Program (operating costs) Summer Feeding Program Foods USDA - Community Facilities Loans & Grants Total Federal assistance

Revenue

Expenditures

10.569

$2,574,287

10.568

247,784

247,784

10.568

153,416

153,416

10.558 10.559 10.766

175,591 3,184 1,049,824

175,591 3,184 1,049,824

$4,204,086

$

$

2,440,597

4,070,396

NOTES TO SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE FOR THE YEAR ENDED JUNE 30, 2009 Note A

Basis of Presentation The accompanying schedule of revenue and expenditures of Federal awards includes the Federal grant activity of The Southwestern Virginia Second Harvest Food Bank, Inc. and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations."

Note B

Food Distribution Non-monetary assistance is reported in the schedule at the fair market value of the commodities received and distributed. At June 30, 2009 and 2008, the Food Bank had food commodities totaling $290,886 and $157,196, respectively in inventory.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Schedule 2

THE SOUTHWESTERN VIRGINIA SECOND HARVEST FOOD BANK, INC. and SUBSIDIARY Schedule of Findings and Questioned Costs For the Year Ended June 30, 2009

Part A: Summary of Audit Results: 1.

The auditors' report expresses an unqualified opinion on the financial statements of the Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary.

2.

No significant deficiencies in internal control were disclosed by the audit of the financial statements.

3.

The audit disclosed no instances of noncompliance which are material to the financial statements of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary.

4.

No significant deficiencies in internal controls over major programs were disclosed by the audit of major Federal programs.

5.

The auditors' report expresses an unqualified opinion on compliance for major programs of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary.

6.

The audit disclosed no audit findings relative to the major programs for The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary which are required to be reported under OMB Circular A-133.

7.

The programs tested as major programs included: CFDA # USDA - Emergency Food Assistance Program (food commodities) USDA - Emergency Food Assistance Program (administrative costs) USDA - Community Facilities Loans and Grants

10.569 10.568 10.766

8.

The threshold for distinguishing Types A and B programs was $300,000.

9.

The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary was determined to be a low risk auditee.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit F Sheet 1

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on An Audit of Financial Statements Performed In Accordance with Government Auditing Standards

Board of Directors The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary Salem, Virginia We have audited the financial statements of The Southwestern Virginia Second Harvest Food Bank, Inc. and its wholly-owned subsidiary SWVAFB Property Corporation as of and for the year ended June 30, 2009 and have issued our report thereon dated September 28, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit, we considered The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Food Bank's internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Food Bank's ability to initiate, authorize, record, process, or report financial data reliably in accordance

Exhibit F Sheet 2

with generally accepted accounting principles, such that there is more than a remote likelihood that a misstatement of the Food Bank's financial statements that is more than inconsequential will not be prevented or detected by the Food Bank's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the Food Bank's internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary in a separate letter dated September 28, 2009. This report is intended solely for the information and use of management, the audit committee, Board of Directors and Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Roanoke, Virginia September 28, 2009

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS

Exhibit F-1 Sheet 1

Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133

Board of Directors The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary Salem, Virginia Compliance We have audited the compliance of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary with the types of compliance requirements described in the U. S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2009. The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary's major Federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major Federal programs is the responsibility of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary's management. Our responsibility is to express an opinion on The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about The Southwestern Virginia Second Harvest Food Bank, Inc. and

Exhibit F-1 Sheet 2

Subsidiary's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary's compliance with those requirements. In our opinion, The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2009. Internal Control Over Compliance The management of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to Federal programs. In planning and performing our audit, we considered The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary's internal control over compliance with requirements that could have a direct and material effect on a major Federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of The Southwestern Virginia Second Harvest Food Bank, Inc. and Subsidiary's internal control over compliance. A control deficiency in an entity's internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a Federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to administer a Federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a Federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a Federal program will not be prevented or detected by the entity's internal control.

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS125

Exhibit F-1 Sheet 3

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses as defined above. This report is intended solely for the information and use of the audit committee, management, Board of Directors, and Federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Roanoke, Virginia September 28, 2009

ANDERSON & REED, LLP, CERTIFIED PUBLIC ACCOUNTANTS125