Grace to You

Consolidated Financial Statements

For The Years Ended June 30, 2019 And 2018

REPORT OF INDEPENDENT AUDITOR

The Board of Directors Grace to You Valencia, California We have audited the accompanying consolidated financial statements of Grace to You (“the Ministry”), which consist of the consolidated statements of financial position as of June 30, 2019 and 2018, the related consolidated statements of activities and cash flows for the years then ended, and the related consolidated statement of functional expenses for the year ended June 30, 2019, and the related notes to the consolidated financial statements. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Ministry's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Ministry's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Grace to You as of June 30, 2019 and 2018, the consolidated changes in its net assets, and its consolidated cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. B A T T S M O R R I S O N W A L E S & L E E , P . A . Plano, Texas October 8, 2019

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements 1

GRACE TO YOU CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 2019 2018

ASSETSCash and cash equivalents 7,633,590$ 6,804,442$ Investments 9,673,254 7,551,847 Inventories 1,362,846 1,040,674Other assets 2,084,781 1,994,255Property and equipment, net 5,022,837 5,202,261 Total assets 25,777,308$ 22,593,479$

LIABILITIESAccounts payable and accrued expenses 1,197,102$ 1,055,366$ Unearned revenue 237,647 19,870 Total liabilities 1,434,749 1,075,236

NET ASSETSWithout donor restrictionsUndesignated 22,695,223 20,168,243Board designated 930,000 1,350,000 Total net assets without donor restrictions 23,625,223 21,518,243With donor restrictions 717,336 — Total net assets 24,342,559 21,518,243

Total liabilities and net assets 25,777,308$ 22,593,479$

ASSETS

LIABILITIES AND NET ASSETS

June 30,

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements 2

GRACE TO YOU CONSOLIDATED STATEMENTS OF ACTIVITIES For The YearWithout Donor With Donor EndedRestrictions Restrictions Total June 30, 2018

PUBLIC SUPPORT AND REVENUE AND NET ASSETS RELEASED FROM RESTRICTIONSContributions without donor restrictions 21,545,059$ — $ 21,545,059$ 19,795,950$ Contributions with donor restrictions — 827,354 827,354 117,790 Ministry media sales 1,719,878 — 1,719,878 1,949,837 Other revenue 964,568 — 964,568 751,020 Net assets released from restrictions 110,018 (110,018) — —

Total public support and revenue and net assets released from restrictions 24,339,523 717,336 25,056,859 22,614,597

EXPENSESProgram activitiesMinistry activities 18,543,550 — 18,543,550 17,876,380 Total program activities 18,543,550 — 18,543,550 17,876,380 Supporting activitiesGeneral and administrative 3,127,318 — 3,127,318 3,013,661 Fundraising 561,675 — 561,675 687,584 Total supporting activities 3,688,993 — 3,688,993 3,701,245 Total expenses 22,232,543 — 22,232,543 21,577,625

Change in net assets without donor restrictions 2,106,980 — 2,106,980 1,234,304

Change in net assets with donorrestrictions — 717,336 717,336 (197,332)

CHANGE IN NET ASSETS 2,106,980 717,336 2,824,316 1,036,972

NET ASSETS - Beginning of year 21,518,243 — 21,518,243 20,481,271

NET ASSETS - End of year 23,625,223$ 717,336$ 24,342,559$ 21,518,243$

For The Year Ended June 30, 2019

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements 3

GRACE TO YOU CONSOLIDATED STATEMENTS OF CASH FLOWS 2019 2018

OPERATING CASH FLOWSChange in net assets 2,824,316$ 1,036,972$ Adjustments to reconcile change in net assets to net operating cash flowsDepreciation 455,498 438,142 Amortization 194,387 209,331 Net investment gain (124,770) (224,973) Change in inventories (322,172) 57,107 Change in other assets (19,642) 472,295 Change in accounts payable and accrued expenses 141,736 114,090 Change in unearned revenue 217,777 (790) Net operating cash flows 3,367,130 2,102,174

INVESTING CASH FLOWSNet purchases of investments (1,996,637) (2,174,211) Expenditures for website and Bible application development (265,271) (374,519) Purchases of and improvements to property and equipment (276,074) (349,330) Net investing cash flows (2,537,982) (2,898,060)

NET CHANGE IN CASH AND CASH EQUIVALENTS 829,148 (795,886)

CASH AND CASH EQUIVALENTS - Beginning of year 6,804,442 7,600,328

CASH AND CASH EQUIVALENTS - End of year 7,633,590$ 6,804,442$

June 30,For The Years Ended

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements 4

GRACE TO YOU CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES For The Year Ended June 30, 2019 Total program General and Total supportingactivities administrative Fundraising activities TotalPayroll and benefits 4,739,615$ 1,882,972$ 162,990$ 2,045,962$ 6,785,577$ Radio 5,170,474 — 50,453 50,453 5,220,927 Resources distributed free of charge and ministry support 4,474,642 188,935 149,673 338,608 4,813,250 Building and occupancy costs 1,224,710 222,666 14,793 237,459 1,462,169 Printing 889,705 186,512 161,994 348,506 1,238,211 Costs of resources sold 996,601 2,347 — 2,347 998,948 Television 860,557 — 1,390 1,390 861,947 Other 21,946 597,316 15,207 612,523 634,469 Conferences and travel 165,300 46,570 5,175 51,745 217,045 Total expenses 18,543,550$ 3,127,318$ 561,675$ 3,688,993$ 22,232,543$

Supporting activities

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GRACE TO YOU NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – NATURE OF ACTIVITIES Grace to You (“the Ministry”) is a not-for-profit California corporation, with headquarters in Valencia, California. The Ministry is dedicated to teaching Biblical truth with clarity. The Ministry uses media to expose John MacArthur’s teaching to as wide an audience as possible “for the equipping of the saints for the work of service, to the building up of the body of Christ; until we all attain to the unity of the faith, and of the knowledge of the Son of God, to a mature man, to the measure of the stature which belongs to the fullness of Christ” (Ephesians 4:12-13, New American Standard Bible). The Ministry provides Biblically-based materials to protect believers from being “tossed here and there by waves, and carried about by every wind of doctrine, by the trickery of men, by craftiness in deceitful scheming” (Ephesians 4:14). The Ministry accepts the God-given responsibility of “speaking the truth in love” (Ephesians 4:15) and striving for the growth of the church and glory of the Lord, rather than the praise and honor of men. The Ministry supports the local church’s ministry by providing additional resources for those hungering for the truth of God’s Word. The Ministry believes that media ministries can never substitute for involvement in a Biblical church, group Bible study, or interaction with a teacher. Yet there is the need for more in-depth resources, evidenced by the many Christians and Christian leaders worldwide who depend on this ministry to supplement their own study. The Ministry distributes John MacArthur’s works through radio programs for broadcast, telecasts, web-based media, and other media. The Ministry also conducts conferences; sells books, audio, and video media; and publishes books and other media that advance the Ministry’s exempt religious and educational purposes. The Ministry produces and airs the following radio programs:

• “Grace to You,” a daily half-hour radio program featuring sermons preached by John MacArthur; • “Grace to You Weekend,” a weekly radio program; • “Portraits of Grace,” a daily one-minute program offering devotional content; and • “Bible Q&A with John MacArthur,” a daily two-minute feature in which John MacArthur answers Bible questions. These radio programs reach major metropolitan areas of the United States, as well as Australia and Canada, parts of Asia and Europe, and South Africa. Spanish versions of the broadcasts are also aired in various countries. During the year ended June 30, 2018, The Master’s Grace Fund (“TMGF”), a California not-for-profit corporation, was organized to support various ministries led by John MacArthur. The Ministry elects a majority of the Board of Directors of TMGF. In conformity with accounting principles generally accepted in the United States of America (“GAAP”), the consolidated financial statements of the Ministry include the accounts of TMGF, which is a separate legal entity. TMGF had no financial activity during the years ended June 30, 2019 and 2018. In connection with the creation of TMGF, as of June 30, 2019 and 2018, the Ministry has designated approximately $930,000 and $1,350,000, respectively, in financial assets to be used to support TMGF’s future operations.

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue recognition The Ministry recognizes cash contributions as revenue when the contributions are received by the Ministry. Contributions received are recorded as without or with donor restrictions depending on the existence and/or nature of any donor restrictions. Donor-restricted support is reported as an increase in net assets with donor restrictions, depending on the existence and/or nature of any donor restrictions. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), net assets with donor restrictions are reclassified to net assets without donor restrictions and reported in the consolidated statements of activities as “net assets released from restrictions.”

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GRACE TO YOU NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash and cash equivalents The Ministry considers investment instruments purchased or donated with original maturities of three months or less to be cash equivalents. Investments Investments consist of mutual funds and are stated at estimated fair value. Inventories Inventories consist primarily of audio and video media and books. Inventories are stated at the lower of cost or market using the first-in, first-out inventory cost-flow assumption. Property and equipment Property and equipment are stated at cost, if purchased, or estimated fair value on the date of donation, if donated. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Unearned revenue Unearned revenue consists of conference registration payments and other fees received in advance of their recognition as revenue. Income taxes The Ministry and TMGF are exempt from federal income tax as organizations described in Section 501(c)(3) of the Internal Revenue Code and from state income tax pursuant to state law. The Ministry and TMGF are further classified as a public charities and not private foundations for federal tax purposes. Neither entity has incurred unrelated business income taxes. As a result, no income tax provision or liability has been provided for in the accompanying consolidated financial statements. Net assets Net assets without donor restrictions are available for use at the discretion of the Board of Directors and/or management for general operating purposes. From time to time, the Board may designate a portion of these net assets for specific purposes which makes them unavailable for use at management’s discretion. Board designated net assets consist of amounts designated by the Board of Directors for support of TMGF’s future operations (see Note A). Net assets with donor restrictions consist of amounts with uses limited by donor-imposed time and/or purpose restrictions, primarily for international outreach. Net assets released from restrictions for the year ended June 30, 2018 amounted to $315,122. Functional allocation of expenses The consolidated statement of functional expenses presents expenses by function and natural classification. Expenses directly attributable to a specific functional area are reported as expenses of those functional areas. Indirect costs that benefit multiple functional areas are allocated among the various functional areas based primarily on employee time and space utilization. Use of estimates Management uses estimates and assumptions in preparing consolidated financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. Actual results could differ from the estimates. Donated services No amounts have been reflected in the accompanying consolidated financial statements for donated services. The Ministry generally pays for services requiring specific expertise, and other donated services ordinarily do not meet the recognition criteria under GAAP. However, many individuals volunteer their time and perform a variety of tasks that assist the Ministry with specific activities.

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GRACE TO YOU NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) New accounting pronouncement Financial Accounting Standards Board Accounting Standards Update (“ASU”) 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities is effective for the Ministry’s consolidated financial statements for the year ended June 30, 2019. The ASU requires various changes to the presentation of financial statements of not-for-profit entities, the most significant of which relate to the classifications of net assets, a requirement to report expenses by natural classification as well as by functional classification, and new required disclosures related to an entity’s liquidity and availability of resources. The adoption of the ASU had no effect on the Ministry’s consolidated net assets as of July 1, 2017, or the consolidated change in net assets presented for the year ended June 30, 2018. As allowed by applicable guidance, the Ministry has chosen not to retrospectively apply provisions not required to be applied to the consolidated financial statements as of and for the year ended June 30, 2018. Reclassifications Certain amounts included in the consolidated financial statements for the year ended June 30, 2018 have been reclassified to conform to classifications adopted during the year ended June 30, 2019. The reclassifications had no material effect on the accompanying consolidated financial statements. Subsequent events The Ministry has evaluated for possible financial reporting and disclosure subsequent events through the date of the independent auditor’s report, the date as of which the consolidated financial statements were available to be issued.

NOTE C – LIQUIDITY AND AVAILABILITY OF RESOURCES Financial assets available within one year of the date of the June 30, 2019 consolidated statement of financial position for general expenditure are as follows: Financial assets available: Cash and cash equivalents $ 7,633,590 Investments 9,673,254 Total financial assets available within one year 17,306,844 Less: Amounts held subject to board designations (930,000) Amounts unavailable for general expenditure within one year, due to donor-imposed restrictions (717,336) Net financial assets available within one year $ 15,659,508 The Ministry is primarily supported by contributions. As part of the Ministry’s liquidity management, it structures its financial assets to be available as its general expenditures, liabilities, and other obligations come due. The Board of Directors has designated certain amounts to support TMGF’s future operations (see Note A). Because of this designation, this amount is not available for general expenditure within the next year; however, the Board of Directors could make it available, if necessary. The Ministry also has certain assets limited to use for donor-restricted purposes. Because a donor’s restriction requires resources to be used in a specific manner or in a future period, the Ministry must maintain sufficient resources to meet its responsibilities to its donors. Thus, those financial assets may not be available for general expenditure within one year of June 30, 2019. Management believes the Ministry has sufficient financial assets available for general operations that may be drawn upon in the event of unanticipated financial distress or immediate liquidity need.

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GRACE TO YOU NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE D – CONCENTRATIONS The Ministry maintains its cash and cash equivalents in deposit or investment accounts which may not be federally insured, may exceed federally insured limits, or may be insured by an entity other than an agency of the federal government. The Ministry has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk related to cash and cash equivalents. As of June 30, 2019 and 2018, all of the Ministry’s investments were held by one custodian. NOTE E – FAIR VALUE MEASUREMENTS GAAP defines fair value for an investment generally as the price an organization would receive upon selling the investment in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. The information available to measure fair value varies depending on the nature of each investment and its market or markets. Accordingly, GAAP recognizes a hierarchy of “inputs” an organization may use in determining or estimating fair value. The inputs are categorized into “levels” that relate to the extent to which an input is objectively observable and the extent to which markets exist for identical or comparable investments. In determining or estimating fair value, an organization is required to maximize the use of observable market data (to the extent available) and minimize the use of unobservable inputs. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Following is a description of each of the three levels of input within the fair value hierarchy: Level 1 – unadjusted quoted market prices in active markets for identical items Level 2 – other significant observable inputs (such as quoted prices for similar items) Level 3 – significant unobservable inputs Estimated fair value of assets measured on a recurring basis as of June 30, 2019, are as follows: Total Level 1 Level 2 Level 3 Mutual funds: U.S. large cap $ 3,514,777 $ 3,514,777 $ — $ — Fixed income 3,036,409 3,036,409 — — Developed international 2,837,672 2,837,672 — — U.S. small cap 152,488 152,488 — — Other equity 131,908 131,908 — — Total $ 9,673,254 $ 9,673,254 $ — $ — Estimated fair value of assets measured on a recurring basis as of June 30, 2018, are as follows: Total Level 1 Level 2 Level 3 Mutual funds: Fixed income $ 3,444,593 $ 3,444,593 $ — $ — Developed international 1,996,191 1,996,191 — — U.S. large cap 1,602,069 1,602,069 — — Other equity 407,240 407,240 — — U.S. small cap 101,754 101,754 — — Total $ 7,551,847 $ 7,551,847 $ — $ —

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GRACE TO YOU NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F – OTHER ASSETS Other assets consisted of the following: June 30, Category 2019 2018 Cash surrender value of life insurance $ 991,925 $ 919,882 Website and Bible application development costs, net 637,486 564,351 Prepaid expenses 358,474 306,411 Other receivables 96,896 65,212 Certificate of deposit — 138,399 Total other assets $ 2,084,781 $ 1,994,255 The estimated useful life of website and Bible application development costs is three years. Amortization expense related to website and Bible application development costs amounted to $194,387 and $209,331 during the years ended June 30, 2019 and 2018, respectively. NOTE G – PROPERTY AND EQUIPMENT Property and equipment consisted of the following: June 30, Category 2019 2018 Land $ 1,309,249 $ 1,309,249 Buildings and improvements 5,912,864 5,871,056 Furniture and equipment 2,404,846 2,170,580 Total property and equipment 9,626,959 9,350,885 Less: Accumulated depreciation (4,604,122) (4,148,624) Net property and equipment $ 5,022,837 $ 5,202,261 Depreciation expense related to property and equipment amounted to $455,498 and $438,142 during the years ended June 30, 2019 and 2018, respectively. NOTE H – RETIREMENT PLAN The Ministry maintains a 403(b) retirement plan (“the Plan”) for the benefit of its employees. Eligible employees may make elective deferral contributions to the Plan. Employer contributions to the Plan are discretionary. The Ministry contributed approximately $313,000 and $270,000 to the Plan during the years ended June 30, 2019 and 2018, respectively. NOTE I – JOINT COST ALLOCATION During the years ended June 30, 2019 and 2018, the Ministry incurred joint costs in the approximate amounts of $6,977,000 and $6,839,000, respectively, for Bible teaching activities that included fundraising appeals in connection with the Ministry’s exempt purposes. Of those costs, approximately $6,393,000 and $6,242,000 were allocated to “ministry activities” expense, $280,000 and $228,000 were allocated to “general and administrative” expense, and $304,000 and $369,000, respectively, were allocated to “fundraising” expense in the accompanying consolidated statements of activities.

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GRACE TO YOU NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J – RELATED PARTY TRANSACTIONS The intellectual property used and sold by the Ministry is licensed to the Ministry by its president for such use pursuant to agreements, the terms of which do not require the Ministry to pay royalties or other licensing fees to its president. During each of the years ended June 30, 2019 and 2018, the Ministry paid approximately $790,000 for video production and artwork services to entities controlled by certain of the president’s family members. NOTE K – TRANSACTIONS WITH COOPERATING MINISTRIES The Ministry cooperates with other entities for which the president of the Ministry serves as president or a director. During the years ended June 30, 2019 and 2018, the Ministry made grants of approximately $1,539,000 and $1,025,000, respectively, to such entities.