SBIR/STTR Phase II Administrative/Financial Reviews

You must provide your organization's financial statements for the two most recently ended fiscal years. Your financial statements should include:

1. Balance sheet.
2. Income statement.
3. Cashflow statement.
4. Statement of changes in shareholders' equity.
5. Capitalization table (distribution of company equity).

You should also provide interim financial statements for the current year if either of the following applies:

• Your organization's year-end financial statements are more than 180 days old. For example, if your organization has a December 31 fiscal year-end and is submitting financial statements to NSF on or after July 1 of the following year, you should also submit interim financial statements covering operations of the current year up to the latest date such financial information is available.
• Your organization's financial position has changed in a significant and material manner since your year-end financial statements were prepared. This could occur, for example, if your organization received a significant level of new investment since year-end, your organization's liabilities/debt obligations changed significantly, or other developments affected your organization's financial position that would be relevant to assessing its financial capability.

Provide a brief description of the basis of the accounting method used to prepare your year-end and interim financial statements. This should include a statement from your organization's management or its external CPA/accounting consultant about whether the financial statements were prepared following generally accepted accounting principles (GAAP).

If available, your organization should submit a copy of your external accountant's most recent compilation, review or audit report on your financial statements, together with the related financial statements and notes.

Provide a schedule of all outstanding loans and long-term debt obligations outstanding, including: 

• Name of person/organization to whom the balance is owed.
• Balance outstanding at the latest balance sheet date.
• Interest rate and interest payment provisions.
• Loan repayment date or repayment provisions.
• Other significant terms of the debt, such as convertibility provisions, etc.

Clearly identify all your organization's debt obligations that are payable to shareholders or the organization's management personnel.

The total balance shown on this schedule should be equal to (or reconcile with) the loan balance reported in your organization's financial statements.

For companies that have issued preferred stock, provide details of the dividend requirements, repurchase provisions, convertibility provisions, etc., to the extent such information is not already provided elsewhere in the information you submit.

If your organization's year-end financial statements are not audited, provide copies of your company's tax returns from the two most recently completed fiscal years.

Where your tax return does not agree with your financial statement, please also provide a reconciliation for each line item on the balance sheet and income statement.

A capitalization table, also called a cap table, is a spreadsheet private companies use to track their securities, the equity ownership of all shareholders and the equity value. Several types of information are typically included:

• Ownership percentage.
• Common shares.
• Preferred shares.
• Convertible notes and warrants (and who owns them).
• Prices paid by investors for securities.
• Valuations.

If your company is an LLC, please provide a table with a breakdown of all the LLC members with their relative shares of the profit/loss of the LLC.

Organizations that meet any of the following "indicators of possible financial difficulty" must provide additional information:

• Solvency issue: As indicated by negative shareholders' equity on their latest balance sheet (i.e., a shareholders' equity balance that is less than zero). For the purposes of this test, shareholders' equity consists of both (i) shareholders' equity or net worth as of the latest balance sheet and (ii) any shareholder loans or advances made to the company and reflected on the balance sheet and which will be outstanding for at least the two-year period while Phase II research is underway.
• Liquidity issue: As indicated by both a current ratio of less than 1:1 and a quick ratio of less than 0.9:1. The current ratio is the ratio of current assets to current liabilities. The quick ratio is the ratio of quick assets to current liabilities. Quick assets are bank account balances and other liquid funds.
• Unfunded loan maturities: Significant loans coming due within the next two years, and for which the source of repayment is not evident.

Provide the following additional information if an indicator of financial difficulty is present:

1. Cash flow forecast or operating budget for the upcoming two-year period, indicating major categories of cash receipts and disbursements. Evidence must be provided to support the likelihood of receiving projected cash receipts.
2. Details of additional investments expected from shareholders (indicating the amount and timing).
3. New contracts or grants received.
4. Other company financial information relevant to understanding its financial capability and prospects.

NSF may request additional information following receipt and review of the above information.

If your organization's financial viability relies on, among other things, the continuation of loans or credit facilities from shareholders or investors, please provide financial support letters signed by your shareholders/investors confirming:

1. Their intention to continue providing the loan or credit facilities to your organization for the two-year period that Phase II research is underway and indicate the limits of that support.
2. That the shareholder loans or advances that are outstanding as of the date of the letter and in the amount of $_____ will not be repaid during the two-year period that Phase II research underway if such repayment will affect the solvency of your organization or its ability to meet its financial obligations in a timely basis.

You are encouraged to prepare and submit your financial statement information following generally accepted accounting principles (GAAP).

You are permitted to submit your organization's financial statements on either (a) the accrual basis of accounting, (b) the cash basis of accounting or (c) the income tax basis of accounting, as long as your organization provides:

1. A description of the basis of accounting and accounting principles used to prepare the financial statements.
2. Additional "Notes to Financial Statements" to explain the nature of the accounts presented.
3. A listing and description of the major adjustments needed to present the submitted statements following GAAP. If your organization is new to financial reporting and preparing GAAP financial statements, you should discuss this requirement with your external CPA.
    

Submit any other information that you believe is relevant to understanding the financial capability and/or financial viability of your organization. This includes:

• Details of any additional investments expected from shareholders (indicating the amount and timing).
• New contracts or grants received. 
• Other financial developments relevant to understanding your organization's financial capability and prospects.

Provide a sample timesheet in use by your organization to ensure it adequately documents time spent by employees on activities performed. The timesheet and/or time recording system should meet NSF's requirements for timekeeping systems as described on the Information for First-Time Awardees webpage. View a sample timesheet.

For all senior personnel, provide the following information:

1. A biography or resume and a description of their role/duties on the project.
2. The Department of Labor Standard Occupational Classification (SOC) employment classification that best matches the role they are performing.
3. A copy of a recent paystub or payroll register supporting their current salary (if they are a current employee of the organization).
4. A current payroll register for each employee, clearly indicating the payroll period (i.e., bimonthly, biweekly, etc.).
5. For each named individual not presently employed by the organization, provide an employment agreement or offer letter (if applicable) that states the rate of payment with the organization's considerations in determining the rate of pay.
6. If a person will be hired to support the Phase II SBIR/STTR project and a specific individual has not yet been identified, describe the likely educational background and experience of the person to be hired, an explanation of how the rates were determined, and any related documentation.

Salaries that cannot be sustained by commercial activities will be limited to the amounts supported by the Bureau of Labor Statistics salary surveys from the Occupational Employment Statistics (OES); NSF will not exceed the OES mean average salaries in its recommendations. NSF also does not consider small business owners to be "Chief Executives." SOCs should be suggested, or they will be determined without input from the small business.

Note: NSF will only fund reasonable increases in base salaries.

For all "other personnel" proposed at an annualized salary in excess of $50,000, provide cost data as described for senior personnel above. If an individual is administrative (i.e., accounting, secretarial, etc.), state the reason they are included as a direct cost in the proposal budget and not included in indirect costs.

Note: NSF will only fund reasonable increases in base salaries.

Provide the categories of costs ("Federal Insurance Contributions Act," health benefits, etc.) included and the related amounts. Provide calculations of the actual fringe rate for the previously completed fiscal year (total fringe costs / total labor costs).

Permanent equipment is defined as nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit. However, companies may establish their capitalization threshold at less than $5,000. 

Provide a list and description of the equipment to be purchased using Phase II SBIR/STTR funds including:

• A description of each item to be purchased.
• Quantity to be purchased.
• Name of supplier or vendor from whom it will be purchased.
• Expected cost of purchase.
• Total expenditure for equipment.

For each piece of permanent equipment, provide cost data from three sources, which can be in the form of written quotations and/or copies of pricing information contained in catalogs, trade journals, etc. In situations where equipment can only be provided by one specific source, provide a sole-source justification and a written quote from that source.

Provide a detailed breakdown of travel costs (excluding NSF annual conference travel), indicating:

• Number of people traveling.
• Number of trips.
• Number of days.
• Destination.
• Purpose of travel.
• Estimated costs for items included in the amount (airfare, cab fare, car rental, per diem rates, hotel and other incidentals).

First class and business class fares are unallowable.

Per diem in excess of Federal Travel Regulation limits is unallowable.

No supporting detail is required for attendance at the annual grantee conference budgeted at $2,000 (or less) per person, limited to $4,000 per year.

Provide an itemized listing of materials and supplies to be purchased using Phase II funds, including:

• A brief description of each item.
• Quantity to be purchased.
• Price per unit and total amount.
• Name of the vendor, or likely vendor, from whom the item will be purchased.

Provide quotations or other appropriate documentation to support any single material and supply item with a total amount in excess of $5,000. The cost information should include supplier quotations or copies of recent invoices for purchases of the same or similar items. If the same item is being bought in both Year 1 and Year 2 of the project and the total expenditure over both years for that item is greater than $5,000, then cost information such as a recent invoice or supplier's quote should be provided.

Note: You do not need to have a list of items of small or de minimis value. However, your organization should be able to provide the above details for a significant portion of your Phase II materials and supplies budget.

For each consultant, provide an agreement that includes the following information: 

1. The services to be provided.
2. The period of performance and the consultant's availability.
3. The qualifications of the consultant to perform the work.
4. The rate of pay, not to exceed $125/hour or $1,000 per eight-hour day.

Consultants should be chosen using a competitive selection process; otherwise, sole source justifications should be maintained.

For each subaward, provide: 

1. A statement detailing the relationship between the awardee and the subawardee.
2. A statement describing how the subawardee budget was solicited (e.g., sole source or competitive).
3. The type of award contemplated (e.g., fixed price or cost reimbursement).
4. An analysis to support that the subaward budgeted cost category amounts are reasonable, including supporting documentation for all budgeted cost categories if and when requested.
5. Copies of any federally negotiated indirect cost rate agreements from subawardee universities and nonprofit organizations. Note: Subawardee indirect cost recoveries are limited to 150% salaries and wages (S&W).
6. If a subaward is being made to a university, provide a confirmation from the university that the graduate and undergraduate salary costs in their budget do not contain any reimbursement for tuition expenses. Also, provide the official indirect cost and fringe benefit rates that would be applicable to the grant.

Subawards should be chosen using a competitive selection process; otherwise, sole source justifications should be maintained.

Provide a list and description of other direct costs (budget line G.6) to be incurred on the project, including the following information:

• Item identification/description.
• Quantity.
• Price.
• Total amount.

No documentation is required to support budgeted indirect costs when the sum of the proposed indirect costs and fridge benefit costs equals less than 50% of the total proposed S&W; this amount is known as the NSF "Safe Rate."

Documentation is required when proposed indirect and fringe benefit costs are greater than 50% of the total proposed salaries and wages. This documentation includes:

• A Microsoft Excel copy of your organization's indirect cost calculations with supporting notes/schedules for adjustment made.
• A copy of your organization's detailed trial balance or general ledger for the year (in Microsoft Excel format, if the file is large).
• An indirect cost proposal for the most recently completed fiscal year expenses. This proposal should clearly identify the indirect rate(s) being requested by your organization and the calculation of each, i.e., the expenses in each indirect pool and the allocation base over which such indirect pool is allocated. (If the most recently completed fiscal year of activity does not reasonably reflect expected performance under the Phase II award, a budgeted indirect cost rate proposal may be submitted in addition to the most recently completed fiscal year actual calculation.)
• A reconciliation of total expenses in the indirect cost proposal to total expenses in your organization's financial statements, demonstrating that all expenses for the year have been appropriately included in the indirect pool(s), allocation bases, or are identified as unallowable or excluded expenses for purposes of the indirect rate calculation.
• A brief note on the allocation base generally used by your organization.

Budgeted indirect cost rate proposals submitted without an actual calculation for the most recently completed fiscal year will not be reviewed. Budgeted pool expenses must be supported by actual cost data, or evidence must be provided that a future obligation will be in place accompanied by a reliable quotation. Budgeted indirect cost rate proposals must include a reference column for each pool expense, and each supporting document must be attached and labeled accordingly. (For indirect cost rate proposal guidance, see Indirect Cost Rate Proposal Submission Procedures).

Rate proposals that do not have a clear reconciliation to total expenses as reported in the financial statements will not be reviewed and the 50% S&W "Safe Rate" will be recommended for funding. 

Submit any indirect cost rate proposal adjustments that are necessary:

• Independent research and development must be treated as a direct cost and included in the indirect cost rate allocation base.
• The following expenses will not be funded as part of indirect cost pools:
  • Patent and patent-related expenses.
  • Sales and marketing.
  • Business development.
  • Manufacturing and production.
• Indirect salaries and wages in excess of 35% of total S&W, less paid time off, are considered unreasonable and will be reclassified to direct costs.
• Subcontracts will be excluded from the base unless subcontracts in the indirect cost rate proposal are proportionate to subcontracts budgeted in the SBIR/STTR proposal. Other direct costs to outside organizations may be treated as subcontracts.
• Equipment will be excluded from the indirect cost base; indirect rates will not be applied to equipment.
• Sales/marketing, business development and manufacturing/production must be allocated its share of general and administrative expenses and included as part of the indirect cost rate allocation base.
• Facilities Capital Cost of Money (FCCOM) will not be funded.