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FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

ROOT CAPITAL, INC.

CONTENTS

PAGE NO. INDEPENDENT AUDITORS' REPORT Statements of Financial Position, as of December 31, 2011 and 2010 Statements of Activities and Changes in Net Assets, for the Years Ended December 31, 2011 and 2010 Statement of Functional Expenses, for the Year Ended December 31, 2011 Statement of Functional Expenses, for the Year Ended December 31, 2010 Statements of Cash Flows, for the Years Ended December 31, 2011 and 2010 2

EXHIBIT A -

3-4

EXHIBIT B -

5-6

EXHIBIT C -

EXHIBIT D -

EXHIBIT E -

9 10 - 21 22 23 - 24

NOTES TO FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL FINANCIAL INFORMATION SCHEDULE 1 - Schedule of Financial Position, by Fund, as of December 31, 2011 SCHEDULE 2 - Schedule of Activities and Change in Net Assets, by Fund, for the Year Ended December 31, 2011

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GELMAN, ROSENBERG & FREEDMAN


CERTIFIED PUBLIC ACCOUNTANTS

INDEPENDENT AUDITORS' REPORT

To the Board of Directors Root Capital, Inc. Cambridge, Massachusetts We have audited the accompanying statements of financial position of Root Capital, Inc. (Root Capital) as of December 31, 2011 and 2010, and the related statements of activities and change in net assets, functional expenses and cash flows for the years then ended. These financial statements are the responsibility of Root Capital's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Root Capital's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Root Capital as of December 31, 2011 and 2010, and its changes in net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

April 17, 2012

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

ROOT CAPITAL, INC. STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2011 AND 2010

ASSETS 2011 CURRENT ASSETS Cash and cash equivalents Cash and cash equivalents: loan loss reserve Total cash and cash equivalents Escrow funds held for others Investments (Notes 2 and 10) Loans receivable, net of noncurrent portion and loan loss allowance of $1,352,510 in 2011 and $1,457,770 in 2010 (Notes 3 and 4) Interest receivable, net of allowance of $98,219 in 2011 and $77,748 in 2010 (Note 4) Grants and pledges receivable, net of noncurrent portion (Note 6) Prepaid expenses and other assets Total current assets PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Furniture and fixtures Software Leasehold improvements Less: Accumulated depreciation and amortization Net property, equipment and leasehold improvements NONCURRENT ASSETS Loans receivable, net of current portion (Notes 3 and 4) Grants and pledges receivable, net of current portion (Note 6) Security deposits Total noncurrent assets 7,406,608 1,200,000 82,340 8,688,948 5,655,305 2,555,073 59,116 8,269,494 81,784 359,258 215,404 656,446 (324,808) 331,638 69,751 198,435 189,900 458,086 (206,856) 251,230 $ 13,554,190 5,551,269 19,105,459 814,521 6,097,736 46,730,898 1,026,642 4,635,073 321,890 78,732,219 $ 5,060,781 4,165,633 9,226,414 637,515 7,060,136 34,537,491 842,558 3,852,159 46,841 56,203,114 2010

TOTAL ASSETS

$ 87,752,805

$ 64,723,838

See accompanying notes to financial statements.

EXHIBIT A

LIABILITIES AND NET ASSETS 2011 CURRENT LIABILITIES Notes payable, net of noncurrent portion (Note 5) Loan participation liability (Note 5) Escrow funds held for others Deferred rent abatement, net of noncurrent portion (Note 8) Accounts payable and accrued expenses Accrued vacation Accrued interest payable Total current liabilities NONCURRENT LIABILITIES Notes payable, net of current portion (Note 5) Subordinated debt (Note 5) Deferred rent abatement, net of current portion (Note 8) Total noncurrent liabilities Total liabilities NET ASSETS Unrestricted: Operating reserve Board designated for lending capital Board designated for loan loss reserves Total unrestricted Temporarily restricted (Note 7): Time Program Permanent lending capital Total temporarily restricted Total net assets TOTAL LIABILITIES AND NET ASSETS 3,169,016 2,284,598 5,551,269 11,004,883 243,744 6,086,274 4,133,898 10,463,916 21,468,799 $ 87,752,805 4,144,711 2,480,412 4,165,633 10,790,756 1,110,848 4,867,225 1,977,085 7,955,158 18,745,914 $ 64,723,838 46,364,226 4,200,000 150,731 50,714,957 66,284,006 29,675,681 3,100,000 146,481 32,922,162 45,977,924 $ 12,375,599 1,481,766 814,521 31,869 192,344 176,820 496,130 15,569,049 $ 11,040,000 700,000 637,515 17,240 200,168 102,335 358,504 13,055,762 2010

See accompanying notes to financial statements.

ROOT CAPITAL, INC. STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

Unrestricted REVENUE Earned revenue Loan interest Loan fees Gain (loss) on foreign currency lending Less: Allowance for loan loss (Note 4) Revenue on recovered loans Net earned revenue Financial revenue (expense) Interest and investment income (Note 2) Less: Interest expense Net financial revenue (expense) Net earned and financial revenue Contributions and grants In-kind contributions Net assets released from donor restrictions (Note 7) Total revenue EXPENSES Program services: Finance Advise Catalyze Total program services Supporting services: Management and General Fundraising Total supporting services Total expenses Changes in net assets Net assets at beginning of year NET ASSETS AT END OF YEAR 3,582,197 1,251,623 1,561,845 6,395,665 2,182,661 659,261 2,841,922 9,237,587 214,127 10,790,756 $ 11,004,883 $

2011 Temporarily Restricted

Total

5,008,664 $ 1,092,210 (145,232) (2,264,954) 72,427 3,763,115 57,083 (1,267,760) (1,210,677) 2,552,438 1,249,033 241,646 5,408,597 9,451,714

7,917,355 (5,408,597) 2,508,758

5,008,664 1,092,210 (145,232) (2,264,954) 72,427 3,763,115 57,083 (1,267,760) (1,210,677) 2,552,438 9,166,388 241,646 11,960,472

2,508,758 7,955,158 $ 10,463,916

3,582,197 1,251,623 1,561,845 6,395,665 2,182,661 659,261 2,841,922 9,237,587 2,722,885 18,745,914 $ 21,468,799 5

See accompanying notes to financial statements.

EXHIBIT B

Unrestricted REVENUE Earned revenue Loan interest Loan fees Gain (loss) on foreign currency lending Less: Allowance for loan loss (Note 4) Revenue on recovered loans Net earned revenue Financial revenue (expense) Interest and investment income (Note 2) Less: Interest expense Net financial revenue (expense) Net earned and financial revenue Contributions and grants In-kind contributions Net assets released from donor restrictions (Note 7) Total revenue EXPENSES Program services: Finance Advise Catalyze Total program services Supporting services: Management and General Fundraising Total supporting services Total expenses Changes in net assets Net assets at beginning of year NET ASSETS AT END OF YEAR 2,704,789 899,106 948,574 4,552,469 1,483,113 472,403 1,955,516 6,507,985 2,748,673 8,042,083 $ 10,790,756 $

2010 Temporarily Restricted

Total

3,417,603 $ 717,571 10,243 (752,397) 3,393,020 133,561 (919,978) (786,417) 2,606,603 2,937,957 331,888 3,380,210 9,256,658

4,096,266 (3,380,210) 716,056

3,417,603 717,571 10,243 (752,397) 3,393,020 133,561 (919,978) (786,417) 2,606,603 7,034,223 331,888 9,972,714

716,056 7,239,102 $ 7,955,158

2,704,789 899,106 948,574 4,552,469 1,483,113 472,403 1,955,516 6,507,985 3,464,729 15,281,185 $ 18,745,914 6

See accompanying notes to financial statements.

EXHIBIT C ROOT CAPITAL, INC. STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2011

Program Services Total Program Services $ 2,748,691 1,747,246 297,049 746,442 121,877 52,701 87,021 100,574 315,855 36,889 53,362 86,958 1,000 $ 6,395,665

Supporting Services Management and General $ 1,320,341 323,158 81,727 24,935 188,944 36,479 19,186 90,733 8,807 61,605 26,231 515 2,182,661 Total Supporting Services $ 1,775,055 379,702 152,801 37,558 188,944 45,148 29,286 125,336 8,963 67,620 30,994 515 $ 2,841,922 Total Expenses $ 4,523,746 1,747,246 676,751 899,243 159,435 241,645 132,169 129,860 441,191 45,852 120,982 117,952 1,515 $ 9,237,587

Finance Salaries and related benefits (Note 9) Field based consultants Other professional services Travel, meetings and conferences Computer software and equipment Donated professional services Supplies, courier and printing Telecommunications Occupancy (Note 8) Bank and credit card fees Other direct costs (Note 8) Depreciation and amortization Grants TOTAL $ 1,434,645 1,116,992 135,977 357,657 63,213 44,898 48,745 63,329 206,352 27,775 19,944 62,670 $ 3,582,197 $

Advise 375,573 461,361 35,968 230,674 22,202 7,803 18,412 16,237 44,791 5,206 23,114 9,372 910 $

Catalyze 938,473 168,893 125,104 158,111 36,462 19,864 21,008 64,712 3,908 10,304 14,916 90

Fundraising $ 454,714 56,544 71,074 12,623 8,669 10,100 34,603 156 6,015 4,763 659,261

$ 1,251,623

$ 1,561,845

See accompanying notes to financial statements.

EXHIBIT D ROOT CAPITAL, INC. STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2010

Program Services Total Program Services $ 2,033,674 991,337 209,336 522,348 72,907 157,376 64,353 52,650 289,407 65,847 32,476 57,404 3,354 $ 4,552,469

Supporting Services Management and General $ 653,132 340,294 46,920 38,143 174,512 47,595 37,519 68,965 12,918 14,422 48,193 500 1,483,113 Total Supporting Services $ 964,588 384,153 94,361 44,244 174,512 55,947 40,869 110,296 13,067 23,518 48,193 1,768 Total Expenses $ 2,998,262 991,337 593,489 616,709 117,151 331,888 120,300 93,519 399,703 78,914 55,994 105,597 5,122 $ 6,507,985

Finance Salaries and related benefits (Note 9) Field based consultants Other professional services Travel, meetings and conferences Computer software and equipment Donated professional services Supplies, courier and printing Telecommunications Occupancy (Note 8) Bank and credit card fees Other direct costs (Note 8) Depreciation and amortization Grants TOTAL $ 1,144,710 637,296 107,117 236,801 51,404 143,518 34,514 33,249 187,840 57,893 17,073 52,349 1,025 $ 2,704,789 $

Advise 272,052 326,176 28,393 194,641 10,089 3,639 10,965 8,507 33,624 3,784 3,787 1,327 2,122 899,106 $

Catalyze 616,912 27,865 73,826 90,906 11,414 10,219 18,874 10,894 67,943 4,170 11,616 3,728 207 948,574

Fundraising $ 311,456 43,859 47,441 6,101 8,352 3,350 41,331 149 9,096 1,268 472,403

$ 1,955,516

See accompanying notes to financial statements.

EXHIBIT E ROOT CAPITAL, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

2011 CASH FLOWS FROM OPERATING ACTIVITIES Changes in net assets Adjustments to reconcile changes in net assets to net cash provided by operating activities: Depreciation and amortization Allowance for loan losses Unrealized loss on investments Realized gain on sales of investments Notes payable forgiven (Increase) decrease in: Interest receivable Grants and pledges receivable Prepaid expenses and other assets Security deposits Increase (decrease) in: Loan participation liability Deferred rent abatement Accounts payable and accrued expenses Accrued vacation Accrued interest payable Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, equipment and leasehold improvements Purchases of investments Proceeds from sales of investments Principal payments on loans receivable Issuance of loans Net cash used by investing activities CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on loans payable Proceeds from loans payable Proceeds from subordinated debt Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year CASH AND CASH EQUIVALENTS AT END OF YEAR SUPPLEMENTAL INFORMATION: Interest Paid $ See accompanying notes to financial statements. 1,130,134 $ $ (10,762,856) 28,787,000 1,100,000 19,124,144 9,879,045 9,226,414 19,105,459 $ (198,360) (2,122,240) 3,000,000 95,247,810 (111,457,474) (15,530,264) 117,952 2,264,954 90,707 (6,067) (184,084) 572,159 (275,049) (23,224) 781,766 18,879 (7,824) 74,485 137,626 6,285,165 $ 2,722,885 $

2010 3,464,729

105,597 752,397 12,224 (500,000) (326,360) (899,917) (25,182) 7,551 700,000 163,721 67,245 48,051 150,951 3,721,007

(205,443) (7,075,329) 1,531,339 66,791,528 (80,098,862) (19,056,767)

(2,495,621) 18,171,999 2,300,000 17,976,378 2,640,618 6,585,796 9,226,414

769,027 9

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION Organization Root Capital, Inc. (Root Capital) is a non-profit, social investment fund, that grows rural prosperity in poor, environmentally vulnerable places in Africa and Latin America by lending capital, delivering financial training, and strengthening market connections for small and growing agricultural businesses. Root Capital operates the following programs: Finance: Root Capital provides loans (see Note 3) ranging generally from $50,000 to $2 million to rural small and growing businesses, especially those businesses not currently reached by commercial lenders. Most of Root Capital's loans can be categorized as follows: Short-term trade credit and pre-harvest loans with terms of up to one year which are generally oriented around a harvest or production cycle. These loans are used by borrowers to cover costs of purchasing raw product from their farmer suppliers. Long-term fixed-asset loans with terms of up to five years for investment in equipment and infrastructure.

Root Capitals lending supports sustainable environmental practices that protect rural ecosystems. Root Capital manages two lending portfolios: The Sustainable Trade Fund (STF): Root Capital seeks to scale and demonstrate its lending model. The STF includes loans for businesses that export natural products such as coffee, cocoa, nuts, and fresh fruits and vegetables. Within the STF, we identify and finance early-stage businesses and accompany their growth. Frontier Portfolios (FPs): Root Capital seeks to push the frontier of agricultural lending. The FPs include loans for production of goods for domestic consumption rather than export. The FPs also include loans that seek to achieve particularly high social or environmental impact on rural communities, such as improved food security.

Advise: The Financial Advisory Services program provides targeted financial management training to current and prospective clients so they have the financial management skills they need to grow and sustain their businesses. Financial Advisory Services prepares small and growing businesses with growth potential to qualify for credit and to mitigate the risk of lending to these businesses. Catalyze: Root Capital seeks to catalyze a thriving financial market to support historically underserved rural small and growing businesses. The programs strategy is to: Innovate: conduct R&D, study impact at the household and business levels, and look for ways to increase impact. Accelerate: share learning from work with like-minded peers to build common standards and practices necessary for the industry to thrive and scale. 10

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Organization (continued) Root Capital plays a leadership role in associations in the rural impact investing space. Through active participation in groups like the Aspen Network of Development Entrepreneurs and the Global Impact Investment Network, Root Capital helps to draw attention to the market and impact opportunities for sustainable value chain finance; to inspire emulation and replication of financial, social and environmental elements of its model; and to share lessons from its experience. Root Capital aims to accomplish this by partnering with (a) global retailers and importers to facilitate ethical and sustainable supply chains from point of origin in developing countries; (b) local and global financial institutions to channel capital to underserved rural markets; and (c) networks of like-minded social financiers to advance a common agenda for sustainable trade finance and the broader field of finance and business development targeted to small and growing businesses (SGBs). Basis of presentation The accompanying financial statements are presented on the accrual basis of accounting, and in accordance with FASB ASC 958, Not-for-Profit Entities. Cash and cash equivalents Root Capital considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents. Through December 31, 2012, the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") provides temporary unlimited deposit insurance coverage for noninterest bearing transaction accounts at all Federal Deposit Insurance Corporation (FDIC) - insured depository institutions (the "Dodd-Frank Deposit Insurance Provision"). Root Capital maintains a portion of its cash balances at financial institutions in noninterest-bearing accounts; thereby, all of these cash balances are protected by FDIC under this Act. Root Capital had approximately $10,047 and $9,824 of cash and cash equivalents on hand and held at financial institutions in foreign countries at December 31, 2011 and 2010, respectively. The majority of funds invested in foreign countries is uninsured. Escrow funds Escrow funds represent amounts that are held separately in accordance with the terms of certain loan receivable agreements (Note 3). As of December 31, 2011 and 2010, total escrow funds were $814,521 and $637,515, respectively. Investments Investments consist of a mutual fund containing money market instruments and short term, fixed income securities, and are recorded at their readily determinable fair value. Realized and unrealized gains and losses are included in investment income in the accompanying Statements of Activities and Changes in Net Assets. 11

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Loans receivable and allowance for loan losses Loans receivable are stated net of an allowance for loan losses (see Notes 3 and 4). The allowance is an amount that management believes will be adequate to absorb losses on existing loans that may become uncollectable. Grants and pledges receivable Grants and pledges receivable represent amounts due from donors and approximate fair value. Management considers all amounts to be fully collectible. Accordingly, an allowance for doubtful accounts has not been established. Property, equipment and leasehold improvements Root Capital records purchased property and equipment at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets, generally three years (software) to five years (furniture and equipment). Leasehold improvements are amortized over the remaining life of the lease. The cost of maintenance and repairs is recorded as expenses are incurred. Income taxes Root Capital is a Massachusetts, not-for-profit corporation, exempt from Federal income taxes as an organization formed for charitable purposes under Section 501(c)(3) of the Internal Revenue Code. Root Capital is also exempt from state income taxes. Accordingly, no provision for income taxes has been made in the accompanying financial statements. Root Capital is not a private foundation. Donors may deduct contributions made to Root Capital within the requirements of the Internal Revenue Code. Uncertain tax positions In June 2006, the Financial Accounting Standards Board (FASB) released FASB ASC 740-10, Income Taxes, that provides guidance for reporting uncertainty in income taxes. For the years ended December 31, 2011 and 2010, Root Capital has documented its consideration of FASB ASC 740-10 and determined that no material uncertain tax positions qualify for either recognition or disclosure in the financial statements. Information returns filed with the Internal Revenue Service and with the State of Massachusetts for the last three years generally remain subject to examination. Root Capital does not expect any tax positions to change significantly within the next twelve months. Revenue recognition Unrestricted and temporarily restricted contributions and grants are recorded as revenue in the year notification is received from the donor. 12

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Revenue recognition (continued) Temporarily restricted contributions and grants are recognized as unrestricted support only to the extent of actual expenses incurred in compliance with the donor-imposed restrictions and satisfaction of time restrictions. Temporarily restricted contributions and grants received in excess of expenses incurred are shown as temporarily restricted net assets in the accompanying financial statements. Revenues from interest on loans and investment income are recorded as they accrue. Loan fees are recognized in the year the related loans are closed and are not amortized over the lives of the related loans. Net asset classification The net assets are reported in two self-balancing groups as follows: Unrestricted net assets are those net resources that bear no external restrictions and are generally available for all uses by Root Capital. As a loan fund, it is important for Root Capital to build unrestricted net assets to maintain a loan loss reserve and a reasonable debt to equity ratio. Root Capital has grouped its unrestricted net assets into the following categories: Operating reserve represents funds available to carry on the operations of Root Capital. During 2010, Root Capital maintained a policy of establishing an operating reserve equal to 50% of the ensuing years budgeted operating expenses for the Finance and Catalyze programs and 50% of the ensuing year's budgeted core operating expenses for the Advise program (i.e. net of restricted grants for non-core costs) For 2011, Root Capital changed its policy to calculate the operating reserve as 50% of the ensuing year's budgeted operating deficit before contributions for the Finance programs, 50% of the ensuring year's budgeted operating expenses for the Catalyze program and 50% of the ensuing year's core operating expenses for the Advise program. As such, in 2011 the operating reserve decreased by $975,695. During 2010, $1,205,677 was added to operating reserve net assets. Board designated for lending capital represents amounts set aside to provide a capital base for lending activities. Root Capital maintains a policy of committing unrestricted net assets in excess of those needed to fund operating and loan loss reserves for lending capital. During 2011, Board designated for lending capital was decreased by $195,814. During 2010, $271,380 was added to Board designated for lending capital net assets. Board designated for loan loss reserves represent amounts designated by the Board of Directors to provide for potential loan losses. The Board of Directors has developed a policy to restrict certain funds to supplement the allowance for loan losses equal to 10% of the outstanding loans receivable balance (see Note 4). This serves as a liquidity reserve, providing a security enhancement to investors. Based on Root Capitals policy, $1,385,636 and $1,271,616 have been added to Board designated for loan loss reserves net assets during 2011 and 2010, respectively. 13

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Net asset classification (continued) Temporarily restricted net assets are those unexpended financial resources that are restricted by donors as to purpose or timing of expenditure. Permanent lending capital is the term Root Capital uses to describe those capital resources which primarily provide a permanent capital base for lending activities, and secondarily assist in meeting debt covenants and providing for potential loan losses. Permanent lending capital is generally not available for operating costs of the Loan Fund. No donor has imposed an obligation on Root Capital to replenish the principal of any gift of permanent lending capital in the event such funds are needed to offset loan losses. Accordingly, donor restricted permanent lending capital awards have been classified as temporarily restricted net assets in the accompanying Statements of Financial Position. In-kind contributions Root Capital receives contributed services in support of its operating and programmatic activities; donated services (legal fees) have been recorded at fair value as of the date of the gift. The value of these contributions received during 2011 and 2010 totaled $241,646 and $331,888, respectively, and have been recorded as in-kind contributions revenue and donated professional services expense 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 Statements of Activities and Changes in Net Assets. Accordingly, certain costs have been allocated among the programs and supporting services benefited.

2.

INVESTMENTS Investments consisted of the following at December 31, 2011 and 2010: Cost Mutual Funds 2011 Fair Value $ 6,097,736 Cost 2010 Fair Value $ 7,060,136

$ 6,200,666

$ 7,072,359

14

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

2.

INVESTMENTS (Continued) Included in interest and investment income are the following at December 31, 2011 and 2010: 2011 Interest and dividends Unrealized loss on investments Realized gain on sales of investments TOTAL INTEREST AND INVESTMENT INCOME $ 141,723 $ (90,707) 6,067 57,083 $ 2010 145,785 (12,224) 133,561

3.

LOANS RECEIVABLE Root Capitals direct lending activity is its core business. Following is a summary of Root Capitals loans receivable as of December 31, 2011 and 2010, respectively: 2011 Number of Loans Amount 139 35 8 13 12 207 $ 41,856,863 5,246,010 2,240,522 3,866,573 2,280,048 $ 55,490,016 2010 Number of Loans Amount 121 35 13 8 5 182 $ 31,656,770 3,378,730 3,333,830 2,566,453 714,783 $ 41,650,566

Type Trade credit Capital expenditures Buyer finance Pre-harvest credit Long-term working capital TOTAL

The five largest outstanding loans receivable were approximately 19% and 18% of the portfolio as of December 31, 2011 and 2010, respectively. The average outstanding loan balance at December 31, 2011 was $301,512 and the average interest rate on the outstanding loan balances at December 31, 2011 was 10.50%. The average outstanding loan balance at December 31, 2010 was $228,849 and the average interest rate on the outstanding loan balances at December 31, 2010 was 10.17%. Scheduled repayments of loans receivable at December 31, 2011 and 2010 are as follows: Year Ended December 31, 2011 2012 2013 2014 2015 2016 and thereafter Less: Allowance for loan losses (Note 4) NET LOANS RECEIVABLE $ $ 2011 48,083,409 1,537,867 927,598 1,006,686 3,934,456 55,490,016 (1,352,510) 54,137,506 2010 $ 35,995,261 1,738,514 1,326,657 1,017,054 1,017,054 556,026 41,650,566 (1,457,770) $ 40,192,796 15

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

3.

LOANS RECEIVABLE (Continued) Guarantee Agreement Root Capital had loan guarantee agreements with the United States Agency for International Development (USAID), which had maximum obligations of $4,000,000 and $2,000,000 from USAID. The guarantees, which backed as much as 50% of an outstanding loan balance, were intended to strengthen Root Capital's ability to finance loans to small and medium agribusinesses and ecotourism businesses located in Africa, Mexico, Guatemala, Nicaragua, Panama, or Peru and thus stimulate economic growth in the targeted countries. Although both guarantees expired in 2008, collection efforts continue. During 2011 and 2010, the Organization recovered $13,000 and $2,847, respectively, on a loan from one borrower. In accordance with the guarantee agreement, Root Capital must pay 50% of the amount recovered after deducting applicable recovery costs to USAID. In March 2010, Root Capital obtained a new loan guarantee agreement with USAID, which had a maximum obligation of $5,542,500 from USAID. The guarantee backs as much as 50% of an outstanding loan balance, and is intended to strengthen Root Capital's ability to finance loans to non-sovereign small and medium sized enterprises, organizations, or cooperatives in El Salvador, Ghana, Haiti, Indonesia, Liberia, Mongolia, and Tanzania. The loan guarantee expires March 2020. Committed Current Assets As of December 31, 2011 and 2010, Root Capital had committed approximately $28,173,583 and $18,688,293, respectively, of current assets (cash and cash equivalents) for future disbursements on existing loan commitments. Root Capital has in place liquidity management policies and procedures to manage the timing of expected disbursements on these loans. Foreign Currency Lending Root Capital makes loans in foreign currencies to accommodate clients whose products are not exported and who do not have access to U.S. currency. The current portfolio includes loans made in four foreign currencies. Their U.S. Dollar ($) equivalents as of December 31, 2011 and 2010 are as follows: Currency U.S. Dollar Euro British Pound Kenyan Shilling Tanzanian Shilling 2011 $ 52,459,927 $ 2,342,066 $ 208,983 $ 298,105 $ 180,935 2010 $ 41,007,370 $ 411,901 $ 231,293 $ $ -

4.

ALLOWANCE FOR LOAN LOSSES An allowance for loan losses is an estimate of expected losses of loan principal. The allowance for loan losses is based on expected losses as determined under Root Capitals risk rating policy (see Note 1). 16

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

4.

ALLOWANCE FOR LOAN LOSSES (Continued) The allowance for loan losses consisted of the following at December 31: 2011 Balance, beginning of year Allowance for loan losses Loans written off BALANCE, END OF YEAR $ 1,457,770 2,264,954 (2,370,214) $ 1,352,510 2010 $ 1,302,307 752,397 (596,934) $ 1,457,770

Root Capital also records an allowance for potential losses of interest receivable. Root Capital nets the provision associated with such allowances against interest revenue on loans in the accompanying Statements of Activities and Changes in Net Assets. The balance of the allowance for losses of interest receivable was $98,219 and $77,748 as of December 31, 2011 and 2010, respectively. 5. NOTES PAYABLE AND SUBORDINATED DEBT As of December 31, 2011 and 2010, Root Capital had 135 and 106 outstanding notes payable to lenders (investors), respectively. Notes payable bear a weighted average interest rate of 2.28% and 2.29% as of December 31, 2011 and 2010, respectively, and mature at various dates from 2011 to 2017. Included in notes payable is $4,200,000 of subordinated debt from seven foundations at December 31, 2011, and $3,100,000 of subordinated debt from three foundations at December 31, 2010. Interest of 0% to 3% is due annually on each note, with lump-sum payments of principal due on or before the maturity dates of January 2013 and May 2017. The notes are subordinate to all senior creditors. A summary of loans payable, including subordinated debt, as of December 31, 2011 and 2010, including significant investors, is as follows: 2011 Outstanding Interest Rate Principal 2.58% to 2.69% $ 22,500,000 2.5% to 3.0% 9,000,000 1.0% 6,000,000 3.0% 3,000,000 0% to 4.5% 22,439,825 $ 62,939,825 2010 Outstanding Interest Rate Principal 2.69% 2.5% to 3.0% 1.0% 1.0% 0% to 4.5% $ 10,000,000 7,000,000 4,000,000 2,500,000 20,315,681 $ 43,815,681

Investor A B C D All other investors

17

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

5.

NOTES PAYABLE AND SUBORDINATED DEBT (Continued) As of December 31, 2011 and 2010, the outstanding principal of the notes payable was $62,939,825 and $43,815,681, respectively; maturities are as follows: Year Ended December 31, 2011 2012 2013 2014 2015 2016 Thereafter $ 2011 12,375,599 14,284,368 17,037,858 4,525,000 13,717,000 1,000,000 2010 $ 11,040,000 4,310,890 12,574,790 14,765,001 925,000 200,000 $ 43,815,681

$ 62,939,825

The loan agreements contain various covenants, which among other things, place restrictions on Root Capital's ability to incur additional indebtedness and require Root Capital to maintain certain financial ratios. As of the date of this report, Root Capital was in compliance with all loan covenants. Loan Participation The loan participation liability represents a syndicated loan/participation agreement between Root Capital and another investor, as follows: Participation Outstanding Liability Balance Loan Participant A Loan Participant B Agreement 1 Loan Participant B Agreement 2 Loan Participant B Agreement 3 $ 968,340 237,384 217,842 58,200 $ 1,936,680 621,900 542,200 388,998 $ 3,489,778 Participation % 50.0 38.2 40.2 15.0 % % % %

$ 1,481,766 6. GRANTS AND PLEDGES RECEIVABLE

Grants and pledges receivable represent unconditional promises to give in the form of grants and pledges from various donors. As of December 31, 2011 and 2010, grants and pledges receivable were due as follows: Year Ended December 31, 2011 2012 2013 Total grants and pledges receivable Less: Current portion $ 2011 4,635,073 1,200,000 5,835,073 (4,635,073) 2010 $ 3,852,159 1,555,073 1,000,000 6,407,232 (3,852,159) $ 2,555,073 18

NET NONCURRENT GRANTS AND PLEDGES RECEIVABLE $ 1,200,000

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

7.

TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets consisted of the following at December 31, 2011 and 2010: 2011 Time restricted Program restricted Restricted as permanent lending capital $ 243,744 6,086,274 4,133,898 2010 $ 1,110,848 4,867,225 1,977,085 $ 7,955,158

TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 10,463,916

The following temporarily restricted net assets were released from donor restrictions at December 31, 2011 and 2010, by incurring expenses (or through the passage of time) which satisfied the restricted purposes specified by the donors: 2011 Satisfaction of time restrictions Satisfaction of program restrictions TOTAL NET ASSETS RELEASED FROM DONOR RESTRICTIONS 8. COMMITMENTS During 2010, Root Capital entered into an operating lease for its principal office space in Cambridge, Massachusetts. The lease began in January, 2010, with monthly payments of $16,383, beginning in July, 2010, and increasing annually as defined in the agreement. Root Capital is also responsible for its pro-rata share of the building's operating expenses and real estate taxes. The lease agreement expires in June, 2015. As Root Capital received six months of free rent (and has an obligation to pay an annual escalation), generally accepted accounting principles require that the total rent commitment should be recognized on a straight-line basis over the term of the lease. Accordingly, the difference between the actual monthly payments and the rent expense being recognized for financial statement purposes is being deferred. Such amount will be amortized over the term of the lease agreement. The total deferred rent expense recognized during the years ended December 31, 2011 and 2010 was $18,879 and $163,721, respectively. As of December 31, 2011 and 2010, the total deferred rent liability aggregated $182,600 and $163,721, respectively. On December 28th, 2011 Root Capital entered into a two year operating sublease with ARUP Services New York Limited for additional space on the 4th floor of the same building it occupies in Cambridge. The lease is scheduled to begin on March 1st, 2012 with monthly payments of $11,482 per month. The organization is also responsible for its prorata share of the buildings operating expenses and real estate taxes. Also during 2011, Root Capital entered into lease agreements for office space in Kenya, Mexico and Costa Rica. $ 1,160,165 4,248,432 $ 5,408,597 $ 2010 682,924 2,697,286

$ 3,380,210

19

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

8.

COMMITMENTS (Continued) Following is a schedule of the future minimum lease payments: Year Ended December 31, 2011 2012 2013 2014 2015 2016 and thereafter $ 2011 493,167 544,390 450,139 227,007 97,932 $ 2010 244,776 295,758 314,905 324,903 162,452 -

$ 1,812,635

$ 1,342,794

Occupancy expense for the years ended December 31, 2011 and 2010 (including utilities and maintenance) totaled $441,191 and $399,703, respectively. EcoLogic Development Fund, Inc. EcoLogic Development Fund, Inc. (EDF) spun-off Root Capital in August, 1999, but retained control over the election of its Board of Directors. Since 1993, EDF has provided grants and technical assistance to local grassroots organizations that share its commitment to community empowerment and environmental conservation. In April, 2006, the Board membership of Root Capital was changed to a self-perpetuating membership of individuals independent of EDF. Root Capital entered into an agreement whereby it pays EDF an amount equal to the greater of $15,000 or ten percent of Root Capitals net financing operating revenues as defined in the agreement. During 2011 and 2010, Root Capital paid EDF $15,000 according to the agreement, which is included in "other direct costs" in the accompanying Statements of Functional Expenses. The agreement expires in 2015. 9. RETIREMENT PLAN Root Capital has implemented a defined contribution retirement plan covering all eligible employees who become eligible to participate on the first day of employment. Root Capital contributes up to 3% of each employees annual salary. During the years ended December 31, 2011 and 2010, total retirement expense was $74,197 and $51,116, respectively, and is included in "salaries and related benefits" in the accompanying Statements of Functional Expenses. 10. FAIR VALUE MEASUREMENTS In accordance with FASB ASC 820, Fair Value Measurements and Disclosures, Root Capital has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. 20

ROOT CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010

10.

FAIR VALUE MEASUREMENTS (Continued) Investments recorded in the Statements of Financial Position are categorized based on the inputs to valuation techniques as follows: Level 1. These are investments where values are based on unadjusted quoted prices for identical assets in an active market Root Capital has the ability to access. Level 2. These are investments where values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques that utilize inputs that are observable either directly or indirectly for substantially the full-term of the investments. Level 3. Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Following is a description of the valuation methodology used for investments measured at fair value. There have been no changes in the methodologies used at December 31, 2011 and 2010, respectively. Mutual fundsThe fair value is equal to the reported net asset value of the fund, which is the price at which additional shares can be obtained.

The table below summarizes, by level within the fair value hierarchy, Root Capital's investments as of December 31, 2011 and 2010: Total December 31, 2011 $ 6,097,736

Level 1 Asset Category: Mutual Funds $ 6,097,736 $

Level 2 $

Level 3 -

Level 1 Asset Category: Mutual Funds 11. SUBSEQUENT EVENTS $ 7,060,136 $

Level 2 $

Level 3 -

Total December 31, 2010 $ 7,060,136

In preparing these financial statements, Root Capital has evaluated events and transactions for potential recognition or disclosure through April 17, 2012, the date the financial statements were issued. In September 2011, a new Peruvian civil association, ACCDER, was registered with the local authorities in Lima, Peru. Effective March 1, 2012, ACCDER began formal operations with the first installment of a $800,000 grant for 2012 operational expenses from Root Capital. ACCDER's mission is to provide technical assistance to small and medium enterprises to facilitate their financial inclusion, preparing them to be able to access and manage financial services. Root Capital initially will fund nearly 100% of ACCDERs budget, and given this economic interest, Root Capital expects to consolidate ACCDER into its financial statements in 2012. 21

GELMAN, ROSENBERG & FREEDMAN


CERTIFIED PUBLIC ACCOUNTANTS

INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL FINANCIAL INFORMATION

To the Board of Directors Root Capital, Inc. Cambridge, Massachusetts Our report on our audit of the basic financial statements of Root Capital, Inc. appears on page 2. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The information in Schedules 1 and 2 is presented for the purpose of additional analysis 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.

April 17, 2012

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

22

ROOT CAPITAL, INC. SCHEDULE OF FINANCIAL POSITION, BY FUND AS OF DECEMBER 31, 2011

ASSETS Sustainable Trade Fund Frontier Portfolios

Operating CURRENT ASSETS Cash and cash equivalents Cash and cash equivalents: loan loss reserve Total cash and cash equivalents Escrow funds held for others Investments Loans receivable, net of noncurrent portion and loan loss allowance of $1,352,510 Interest receivable, net of allowance of $98,219 Grants and pledges receivable, net of noncurrent portion Prepaid expenses and other assets Total current assets PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Furniture and fixtures Software Leasehold improvements 81,784 359,258 215,404 656,446 (324,808) $ 1,150,508 1,150,508 3,010,564 4,035,073 230,675 8,426,820

Total

9,126,339 5,105,532 14,231,871 814,521 3,087,172 42,508,410 961,974 32,111 61,636,059

$ 3,277,343 445,737 3,723,080 4,222,488 64,668 600,000 59,104 8,669,340

$ 13,554,190 5,551,269 19,105,459 814,521 6,097,736 46,730,898 1,026,642 4,635,073 321,890 78,732,219

81,784 359,258 215,404 656,446 (324,808)

Less: Accumulated depreciation and amortization Net property, equipment and leasehold improvements NONCURRENT ASSETS Loans receivable, net of current portion Grants and pledges receivable, net of current portion Security deposits Total noncurrent assets

331,638

331,638

1,200,000 82,340 1,282,340

7,171,725 7,171,725

234,883 234,883

7,406,608 1,200,000 82,340 8,688,948

TOTAL ASSETS

$ 10,040,798

$ 68,807,784

$ 8,904,223

$ 87,752,805

23

SCHEDULE 1

LIABILITIES AND NET ASSETS Sustainable Trade Fund Frontier Portfolios

Operating CURRENT LIABILITIES Notes payable, net of noncurrent portion Loan participation liability Escrow funds held for others Deferred rent abatement, net of noncurrent portion Accounts payable and accrued expenses Accrued vacation Accrued interest payable Total current liabilities NONCURRENT LIABILITIES Notes payable, net of current portion Subordinated debt Deferred rent abatement, net of current portion Total noncurrent liabilities Total liabilities NET ASSETS Unrestricted: Operating reserve Board designated for lending capital Board designated for loan loss reserves Total unrestricted Temporarily restricted: Time Program Permanent lending capital Total temporarily restricted Total net assets TOTAL LIABILITIES AND NET ASSETS 150,731 150,731 541,764 $ 31,869 182,344 176,820 391,033

Total

$ 12,375,599 1,481,766 814,521 10,000 496,130 15,178,016

$ 12,375,599 1,481,766 814,521 31,869 192,344 176,820 496,130 15,569,049

42,255,740 3,000,000 45,255,740 60,433,756

4,108,486 1,200,000 5,308,486 5,308,486

46,364,226 4,200,000 150,731 50,714,957 66,284,006

3,169,016 3,169,016

2,084,598 5,105,532 7,190,130

200,000 445,737 645,737

3,169,016 2,284,598 5,551,269 11,004,883

243,744 6,086,274 6,330,018 9,499,034 $ 10,040,798

1,183,898 1,183,898 8,374,028 $ 68,807,784

2,950,000 2,950,000 3,595,737 $ 8,904,223

243,744 6,086,274 4,133,898 10,463,916 21,468,799 $ 87,752,805

24

SCHEDULE 2 ROOT CAPITAL, INC. SCHEDULE OF ACTIVITIES AND CHANGE IN NET ASSETS, BY FUND FOR THE YEAR ENDED DECEMBER 31, 2011

Operating UNRESTRICTED: REVENUE Earned revenue Loan interest Loan fees Gain (loss) on foreign currency lending Less: Allowance for loan loss Revenue on recovered loans Net earned revenue Financial revenue (expense) Interest and investment income Less: Interest expense Net financial revenue (expense) Net earned and financial revenue Contributions and grants In-kind contributions Net assets released from donor restrictions Total revenue EXPENSES Program services: Finance Advise Catalyze Total program services Supporting services: Management and General Fundraising Total supporting services Total expenses Change in net assets Unrestricted net assets at beginning of year Net assets transfer UNRESTRICTED NET ASSETS AT END OF YEAR 3,582,197 1,251,623 1,561,845 6,395,665 2,182,661 659,261 2,841,922 9,237,587 (2,338,311) 4,144,711 1,362,616 $ 3,169,016 $ 1,249,033 241,646 5,408,597 6,899,276

Sustainable Trade Fund

Frontier Portfolios

Total

4,603,242 1,043,991 (41,127) (1,687,787) 13,901 3,932,220 48,897 (1,173,335) (1,124,438) 2,807,782 2,807,782

405,422 $ 5,008,664 48,219 1,092,210 (104,105) (145,232) (577,167) (2,264,954) 58,526 72,427 (169,105) 8,186 (94,425) (86,239) (255,344) (255,344) 3,763,115 57,083 (1,267,760) (1,210,677) 2,552,438 1,249,033 241,646 5,408,597 9,451,714

2,807,782 6,625,644 (2,243,296) $ 7,190,130 $

(255,344) 20,401 880,680 645,737

3,582,197 1,251,623 1,561,845 6,395,665 2,182,661 659,261 2,841,922 9,237,587 214,127 10,790,756 $ 11,004,883 25

SCHEDULE 2 (Continued) ROOT CAPITAL, INC. SCHEDULE OF ACTIVITIES AND CHANGE IN NET ASSETS, BY FUND FOR THE YEAR ENDED DECEMBER 31, 2011

Operating TEMPORARILY RESTRICTED: REVENUE Contributions and grants Net assets released from donor restrictions Total revenue Change in net assets Temporarily restricted net assets at beginning of year TEMPORARILY RESTRICTED NET ASSETS AT END OF YEAR

Sustainable Trade Fund

Frontier Portfolios

Total

$ 5,760,542 $ (5,408,597) 351,945 351,945 5,978,073 $ 6,330,018 $

(543,187) (543,187) (543,187) 1,727,085 1,183,898

$ 2,700,000 2,700,000 2,700,000 250,000 $ 2,950,000

$ 7,917,355 (5,408,597) 2,508,758 2,508,758 7,955,158 $ 10,463,916

26