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Home My WebLink AboutCOM 0484.000 2012-2014 COUNTY CLERK r- 7013 OCT 22 AN II: 21 HAWAII ISLAND HUMANE SOCIETY (A Hawaii Nonprofit Corporation) AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012 �jgComm. No. I (J/� Ref. To: Ref. Date ACT 2 2 2013 HAWAII ISLAND HUMANE SOCIETY Contents Independent Auditor's Report 1 Financial Statements: Statements of Financial Position 3 Statements of Activity and Change in Net Assets 5 Statements of Functional Expenses 7 Statements of Cash Flows 9 Schedule of County Program Activity 10 Notes to the Financial Statements 11 - Carbonaro Certified Public Accountants CPA Member. AICPA £�Associates, Inc. IN TPA INDEPENDENT AUDITOR'S REPORT To the Board of Directors of Hawaii Island Humane Society Kailua Kona, Hawai`i 96740-2701 We have audited the accompanying financial statements of Hawaii Island Humane Society (a Hawai`i nonprofit Organization) (the Organization) which comprise the statements of financial position as of June 30, 2013 and 2012, and the related statements of activity and changes in net assets, functional expenses and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,whether due to fraud or error. Auditor's Responsibility 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinion In our opinion,the financial statements referred to above present fairly, in all material respects,the financial position of Hawaii Island Humane Society as of June 30, 2013 and 2012, and the related statements of activities and changes in net assets, functional expense and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. P. O. F3bx 4372 • Hilo , 11 ,1 6 - 2O • P e 808 x) 68- 100 ? Fax _ 1 -i866i 7 .> 8_6 + ; t) To the Board of Directors of Hawaii Island Humane Society Other Matter Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The schedule of county program activities on page 10 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion,the information is fairly stated in all material respects in relation to the financial statements as a whole. / (RV-/.4Cia4 Hilo, Hawai`i September 12, 2013 Page 2 HAWAII ISLAND HUMANE SOCIETY Statements of Financial Position For the Years Ended June 30,2013 and 2012 ASSETS 2013 2012 CURRENT ASSETS Cash and Cash Equivalents $ 800,912 $ 665,958 Other Current Assets Accounts Receivable 383 562 Pledge Receivable(Note 16) 60,346 - Prepaid Expense 30,631 32,218 Retail Inventory 8,330 6,902 Total Other Current Assets 99,690 39,682 Total Current Assets 900,602 705,640 PROPERTY AND EQUIPMENT (Note 2) Kea'au Land(Note 13) 100,000 100,000 Holualoa Land(Note 14) 452,646 452,646 Buildings 871,502 871,502 Vehicles 298,976 328,844 Equipment-Office 123,172 123,172 Operating Room Equipment 49,084 39,652 Leasehold Improvements(Note 15) 102,633 100,333 Miscellaneous Assets 21,954 21,954 2,019,967 2,038,103 Accumulated Depreciation and Amortization (678,912) (639,421) Total Capitalized Assets 1,341,055 1,398,682 OTHER ASSETS Certificate of Deposit(Note 2) 23,281 23,049 Annuity Contracts(Note 2) 30,714 37,060 Deposits-Other - 3,407 Total Other Assets 53,995 63,516 TOTAL ASSETS $ 2,295,652 $ 2,167,838 The accompanying note are an integral part of these financial statements. Page 3 HAWAII ISLAND HUMANE SOCIETY Statements of Financial Position For the Years Ended June 30,2013 and 2012 LIABILITIES AND NET ASSETS 2013 2012 CURRENT LIABILITIES Accounts Payable $ 70,280 $ 66,392 • S/N Coupon Liability(Note 11) 14,545 26,955 Credit Cards 10,052 7,924 Total Accounts Payable and Credit Cards 94,877 101,271 OTHER CURRENT LIABILITIES Accrued Wages 46,602 48,425 Accrued Vacation Payable 30,102 33,375 Accrued Payroll Taxes and Benefits 18,632 18,333 Current Portion of Capitalized Leases(Note 4) 14,947 13,265 Current Portion of Notes Payable(Note 14) - 13,071 Total Other Current Liabilities 110,283 126,469 TOTAL CURRENT LIABILITIES 205,160 227,740 LONG TERM LIABILITIES Capitalized Leases Payable(Note 4) 26,049 40,996 Notes Payable(Note 14) - 805,179 Total Long Term Liabilities 26,049 846,175 TOTAL LIABILITIES 231,209 1,073,915 NET ASSETS(Note 5) Unrestricted 1,459,397 628,709 Temporarily Restricted 582,699 442,867 Permanently Restricted 22,347 22,347 Total Net Assets 2,064,443 1,093,923 TOTAL LIABILITIES AND NET ASSETS $ 2,295,652 $ 2,167,838 The accompanying note are an integral part of these financial statements. Page 4 HAWAII ISLAND HUMANE SOCIETY Statement of Activity and Change in Net Assets For the Year Ended June 30,2013 Temporarily Permanently 2013 Unrestricted Restricted Restricted Total PUBLIC SUPPORT AND REVENUE County of Hawai'i $ 1,900,000 $ - $ - $ 1,900,000 Forgiveness of Debt Donation(Note 7) 816,962 - - 816,962 Donations 407,760 228,290 - 636,050 Adoptions 139,467 - - 139,467 Fundraising 85,054 11,000 - 96,054 S/N CAP Coupon Sales(Note 10) 106,978 - - 106,978 Sales 31,526 - - 31,526 Cost of Goods Sold (19,984) - - (19,984) Grants 30,870 - - 30,870 Donated Rent(Note 3) 25,200 - - 25,200 Humane Shelter Services 17,165 - - 17,165 Miscellaneous Revenue 5,447 - - 5,447 Recycling 1,740 - - 1,740 Net Assets Released from Restrictions 99,458 (99,458) - - Total Public Support and Revenue $ 3,647,643 $ 139,832 $ - $ 3,787,475 EXPENSES Program Expenses 2,331,149 2,331,149 Supporting Services 277,318 277,318 Fundraising Expenses 208,488 208,488 Total Expenses 2,816,955 - - 2,816,955 CHANGE IN NET ASSETS 830,688 139,832 - 970,520 NET ASSETS, BEGINNING OF YEAR 628,709 442,867 22,347 1,093,923 NET ASSETS, END OF YEAR $ 1,459,397 $ 582,699 $ 22,347 $ 2,064,443 The accompanying notes are an integral part of these financial statements. Page 5 HAWAII ISLAND HUMANE SOCIETY Statement of Activity and Change in Net Assets For the Year Ended June 30,2012 Temporarily Permanently 2012 Unrestricted Restricted Restricted Total PUBLIC SUPPORT AND REVENUE County ofHawai'i $ 2,012,365 $ - $ - $ 2,012,365 Donated Services (Note 7) 7,702 - - 7,702 Donations 148,572 338,305 - 486,877 Adoptions 141,204 - - 141,204 Fundraising 100,671 - - 100,671 S/N CAP Coupon Sales (Note 10) 148,731 - - 148,731 Sales 31,307 - - 31,307 Cost of Goods Sold (20,626) - - (20,626) Grants 58,800 - - 58,800 Donated Rent(Note 3) 25,200 - - 25,200 Humane Shelter Services 16,816 - - 16,816 Miscellaneous Revenue 8,559 - - 8,559 Recycling 2,681 - - 2,681 Net Assets Released from Restrictions 239,399 (239,399) - - Total Public Support and Revenue $ 2,921,381 $ 98,906 $ - $ 3,020,287 EXPENSES Program Expenses 2,518,384 2,518,384 Supporting Services 271,605 271,605 Fundraising Expenses 103,592 103,592 Total Expenses 2,893,581 - - 2,893,581 CHANGE IN NET ASSETS 27,800 98,906 - 126,706 NET ASSETS,BEGINNING OF YEAR 600,909 343,961 22,347 967,217 NET ASSETS,END OF YEAR $ 628,709 $ 442,867 $ 22,347 $ 1,093,923 The accompanying notes are an integral part of these financial statements. Page 6 HAWAII ISLAND HUMANE SOCIETY Statement of Functional Expenses For the Year Ended June 30,2013 Program Supporting 2013 Services Services Fundraising Total Salaries and Wages $ 1,074,132 $ 124,105 $ 13,053 $ 1,211,290 Kennel Supplies, Food and Medicine 227,136 - - 227,136 Employee Benefits 196,746 22,732 2,391 221,869 Surgery Programs and Supplies 148,374 12,560 1,041 161,975 Fundraising Expense - - 184,232 184,232 Payroll Taxes 123,674 14,289 1,503 139,466 Utilities 92,639 5,913 - 98,552 Auto Expense 95,723 - - 95,723 Depreciation 73,362 - - 73,362 Repairs and Maintenance 41,643 22,423 - 64,066 Insurance 44,925 3,098 - 48,023 Advertising 2,144 40,070 - 42,214 Legal and Professional Services 25,609 15,068 - 40,677 Rent 25,200 1,250 - 26,450 Animal Control Equipment 25,412 - - 25,412 Office Supplies 19,115 4,779 - 23,894 Animal Disposal 17,460 - - 17,460 Interest 17,058 - - 17,058 Veterinary Care and Evidence Animals 13,286 - - 13,286 Humane Education 12,709 - - 12,709 Bank and Credit Card Fees 8,520 218 2,185 10,923 General Excise Tax and Other Taxes 7,150 - 2,780 9,930 Staff Meeting and Training 6,996 2,720 - 9,716 Network Expense 5,541 3,694 - 9,235 Printing 8,092 - 425 8,517 Other Expenses 5,240 518 - 5,758 Postage and Freight 2,100 1,986 878 4,964 Meals and Travel 3,372 645 - 4,017 Uniforms 3,569 - - 3,569 Dues, Licenses, Subscriptions 1,668 1,250 - 1,918 Adoption Expense 2,554 - - 2,554 In Kind- Service(Note 7) - - - - TOTAL EXPENSES $ 2,331,149 $ 277,318 $ 208,488 $ 2,816,955 The accompanying notes are an integral part of these financial statements. Page 7 HAWAII ISLAND HUMANE SOCIETY Statement of Functional Expenses For the Year Ended June 30,2012 Program Supporting 2012 Services Services Fundraising Total Salaries and Wages $ 1,136,616 $ 125,672 $ 14,141 $ 1,276,429 Kennel Supplies, Food and Medicine 227,147 - - 227,147 Employee Benefits 207,129 - - 207,129 Surgery Programs and Supplies 190,795 16,152 1,339 208,286 Fundraising Expense - - 79,700 79,700 Payroll Taxes 133,210 13,824 1,556 148,590 Utilities 94,482 6,031 - 100,513 Auto Expense 89,062 - - 89,062 Depreciation 78,528 - - 78,528 Repairs and Maintenance 41,903 27,776 - 69,679 Insurance 56,227 4,012 - 60,239 Advertising 2,141 38,129 - 40,270 Legal and Professional Services 57,615 11,016 - 68,631 Rent 25,200 1,250 - 26,450 Animal Control Equipment 11,938 - - 11,938 Office Supplies 22,869 6,030 - 28,899 Animal Disposal 17,485 - - 17,485 Interest 41,307 - - 41,307 Veterinary Care and Evidence Animals 4,308 - - 4,308 Humane Education 4,800 - - 4,800 Bank and Credit Card Fees 9,203 235 2,296 11,734 General Excise Tax and Other Taxes 8,651 - 3,476 12,127 Staff Meeting and Training 6,653 2,647 - 9,300 Network Expense 9,291 6,192 - 15,483 Printing - 5,497 312 5,809 Other Expenses 13,715 1,357 - 15,072 Postage and Freight 1,845 1,746 772 4,363 Meals and Travel 6,462 1,238 - 7,700 Uniforms 6,837 - - 6,837 Dues, Licenses, Subscriptions 3,622 2,801 - 6,423 Adoption Expense 1,641 - - 1,641 In Kind -Service (Note 7) 7,702 - - 7,702 TOTAL EXPENSES $ 2,518,384 $ 271,605 $ 103,592 $ 2,893,581 The accompanying notes are an integral part of these financial statements. Page 8 HAWAII ISLAND HUMANE SOCIETY Statements of Cash Flows For the Years Ended June 30,2013 and 2012 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES Hawaii County Funding $ 1,900,000 $ 2,107,500 Retail Sales and Services to Public 188,158 191,897 Fundraising 96,054 189,860 S/N CAP Coupon Sales 106,978 148,731 Foundations and Other Donations 602,753 562,806 Other Cash Received 7,187 10,559 Cash Paid for Interest (17,058) (41,307) Cash Paid to Employees and Vendors (2,728,944) (2,824,432) Net Cash Provided by Operating Activities (Note 8) 155,128 345,614 CASH FLOWS FROM INVESTING ACTIVITIES Maturity of Certificates of Deposit - 16,289 Cash Used to Purchase Certificates of Deposit (232) (23,049) Proceeds from Annuity Contracts 6,346 3,939 Cash Used to Purchase Property and Equipment (11,735) (78,703) Net Cash Used by Investing Activities (5,621) (81,524) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings Under Capital Lease - 13,002 Repayment of Debt (14,553) (22,867) Net Cash Used by Financing Activities (14,553) (9,865) Net Increase in Cash for the Year 134,954 254,225 CASH BALANCE, BEGINNING OF YEAR 665,958 411,733 CASH BALANCE, END OF YEAR $ 800,912 $ 665,958 Non-Cash Investing and Financing Activities In-Kind Forgiveness of Debt(Note 7) $ 816,962 $ - Donated Vehicle $ 4,000 $ - Donated Annuity Contracts $ - $ 40,999 The accompanying notes are an integral part of these financial statements. Page 9 HAWAII ISLAND HUMANE SOCIETY Schedule of County Program Activity For the Years Ended June 30,2013 and 2012 2013 2012 Animal S/N Animal S/N Control CAP Total Control CAP Total Receipts: County of Hawaii Contracted Funds $ 1,778,400 $ 121,600 $ 1,900,000 $ 1,830,896 $ 121,600 $ 1,952,496 Total Receipts 1,778,400 121,600 1,900,000 1,830,896 121,600 1,952,496 Operating Expenses Salaries and Wages 970,680 - 970,680 1,005,117 16,575 1,021,692 Employee Benefits 176,555 - 176,555 165,514 1,736 167,250 Kennel Supplies,Food and Medicine 152,649 - 152,649 145,483 - 145,483 Payroll Taxes 110,817 - 110,817 116,382 2,314 118,696 Utilities 76,670 - 76,670 87,024 - 87,024 Auto Expense 87,558 - 87,558 87,295 - 87,295 Insurance 36,408 - 36,408 57,431 - 57,431 Surgery Programs and Supplies - 63,977 63,977 - 35,049 35,049 Legal and Professional Services 25,235 - 25,235 35,132 - 35,132 Repairs and Maintenance 37,948 - 37,948 41,905 - 41,905 Office Supplies 16,897 - 16,897 16,631 176 16,807 Staff Meeting and Training 4,979 - 4,979 6,653 - 6,653 Animal Disposal 17,460 - 17,460 17,485 - 17,485 Uniforms 3,857 - 3,857 6,751 - 6,751 Network Expense 4,618 - 4,618 9,292 - 9,292 Animal Control Equipment 25,412 - 25,412 11,938 - 11,938 Travel and Mileage 3,022 - 3,022 4,754 - 4,754 Postage and Freight 2,436 - 2,436 3,363 - 3,363 Dues,Licenses,Subs,Taxes 1,314 - 1,314 3,315 - 3,315 Bank and Credit Card Fees 953 - 953 1,731 - 1,731 Veterinary Care and Evidence Animals - - - 1,438 - 1,438 • Advertising 1,144 - 1,144 841 - 841 Printing 567 - 567 - - - Total Operating Expenses 1,757,179 63,977 1,821,156 1,825,475 55,850 1,881,325 Capital Lease Payments 6,632 - 6,632 5,271 - 5,271 Fixed Assets Purchased - - - 63,813 - 63,813 Excess Revenue over(under)Receipts $ 14,589 $ 57,623 $ 72,212 $ (63,663) $ 65,750 $ 2,087 The accompanying notes are an integral part of these financial statements. Page 10 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30,2013 and 2012 Note 1. ORGANIZATION The Hawaii Island Humane Society is a nonprofit Organization (the Organization) incorporated under the laws of the State of Hawai`i on May 10, 1962. Hawaii Island Humane Society is organized to prevent cruelty to animals, to eliminate pet overpopulation, and to enhance the bond between humans and animals. The Hawaii Island Humane Society is responsible for carrying out animal control for the County of Hawai`i for the entire island of Hawai`i. They maintain shelters in each of three island locations: Kona, Kea'au,and Waimea. Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Accounting: The Organization uses the accrual method of accounting for financial statement reporting according to generally accepted accounting principles in the United States of America. Under this method of accounting, revenue is recognized when earned rather than when received, and expenses are recognized when incurred rather than when paid. Revenue Recognition: Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. Grants and other contributions of cash are reported as temporarily restricted support if they are received with donor stipulations that limit the use of the donated assets. When the donor restriction expires,that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. The Organization has adopted the policy of recording donor restrictions met in the same year as increases to unrestricted net assets. Cash and Cash Equivalents: For the purpose of the statement of cash flows, cash is defined as demand deposits and savings accounts. Inventory: Inventory is stated at cost. Cost is determined using the first-in, first-out(FIFO)method. Investments: The Organization has implemented FASB ASC 820-10-50-1 which establishes a fair value hierarchy for inputs used in measuring fair market value that maximizes the use of observable inputs, and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on the best information available in the circumstances. This fair value hierarchy consists of three broad levels. • Level 1 inputs consist of unadjusted quoted prices in active markets such as stock exchanges for identical assets and have the highest priority. • Level 2 inputs consist of significant other observable inputs such as quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset and liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3 inputs consist of significant unobservable inputs and include situations where there is little, if any, market activity for the investment. The inputs require significant judgment or estimates, such as those associated with discounted cash flow methodologies and • appraisals. Page 11 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30, 2013 and 2012 Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -continued Fair values of assets measured on a recurring basis are as follows, there are no liabilities or other assets measured at fair value on a recurring or non-recurring basis. June 30,2013 Significant Significant Non- Quoted Prices: Other Inputs: Observable Inputs: Assets Total Level 1 Level 2 Level 3 Certificate of Deposit $ 23,281 $ 23,281 $ - $ - Annuity Contracts* 30,714 - - 30,714 Total $ 53,995 $ 23,281 $ - $ 30,714 June 30,2012 Significant Significant Non- Quoted Prices: Other Inputs: Observable Inputs: Assets Total Level 1 Level 2 Level 3 Certificate of Deposit $ 23,049 $ 23,049 $ - $ Annuity Contracts* 37,060 - - 37,060 Total $ 60,109 $ 23,049 $ - $ 37,060 *-Annuity Contracts: Annuities Contracts are valued at present value of cash receipts. The following table summarizes the changes in fair values associated with FASB ASC 820 Level 3 assets: Level 3 Level 3 2013 2012 Balance Beginning of Year $ 37,060 $ - Donation of Annuities - 40,999 Capital Distributions (7,044) (4,620) Net Unrealized and Realized Losses 698 681 Balance as of Year End $ 30,714 $ 37,060 Page 12 HAWAII ISLAND HUMANE SOCIETY • Notes to the Financial Statements June 30,2013 and 2012 Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -continued Property and Equipment: The Organization capitalizes all furniture and equipment with a useful life greater than one year and a cost greater than $1,000. Property and equipment are stated at cost or, if donated, at the approximate fair value at the date of donation. Depreciation is computed using the straight-line method over the assets'estimated useful lives. The Organization has purchased various fixed assets with County grant funds. As a result these assets revert back to the grantor upon discontinuance of their intended purposes. However, management plans to use the assets for their intended purposes for the life of the assets, and the likelihood of the assets having to be returned is remote. Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Note 3. CONCENTRATIONS The Organization received approximately 65% of its revenue from the County of Hawai`i. Continued County funding at present service levels is dependent upon economic conditions on the Island of Hawai`i and budgetary restraints experienced by the County. Reductions in this funding could affect the Organization's ability to continue as a going concern. Funds received pursuant to the County of Hawaii purchase of service agreement are for operating the County Animal Shelter and enforcing the County's animal control regulations. These funds are to be used in accordance with the agreement. Costs charged against the agreement are subject to review and acceptance by the County of Hawai`i. The building and land on which the Kona shelter is located belongs to the County of Hawai`i. The County provides the site at no cost to the Organization. This agreement must be renewed annually. The annual estimated value of the donated rent from the County of Hawai`i is $25,200. Note 4. LEASES In December 2010 a copier was acquired through a 60 month non-cancelable lease agreement requiring monthly payments. The new copier was capitalized at $51,800 and is being depreciated over the life of the asset. In December of 2011 a second copier was leased from Ricoh for 48 months. It is being capitalized at$13,002 and depreciated over the life of the asset. Current maturity of leases are as follows: June 30, 2014 $ 14,947 June 30, 2015 $ 16,843 June 30, 2016 $ 9,206 Page 13 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30, 2013 and 2012 Note 5. NET ASSETS The Hawaii Island Humane Society has conformed to FASB ASC 958-210-45-9, "Not-for-Profit Entities, Classifications of Net Assets," and the Statement of Financial Accounting Standards formerly (SFAS) No 117, "Financial Statement of Not-for-Profit Organization." Accordingly, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets temporarily restricted net assets and permanently restricted net assets. Unrestricted net assets represent those assets whose usage is neither temporarily nor permanently restricted by donors. These revenues are used for the general operating expenditures of the Organization or for such other purposes as determined by the Board of Directors. Temporarily restricted net assets represent restricted grants and funds received from foundations and donors for which the restriction had not yet been fulfilled. The temporarily restricted net assets consisted of the following at June 30: 2013 2012 Capital Campaign $ 309,074 $ 214,886 Second Chance 105,061 97,169 Katie Fund 47,281 29,610 Equine Fund 46,459 36,372 Kona Kennels 25,450 25,450 Spay/Neuter 20,982 - Michi Haga 20,756 20,756 Education 3,761 5,981 Mobile Adoption 1,500 480 Waimea Kennels 1,204 254 Wish List 1,171 2,213 Kea'au Kennels - 9,696 Total $ 582,699 $ 442,867 Permanently restricted net assets are endowment funds restricted in perpetuity to continue the purpose of the Organization. Income generated by these assets can be used for activities as specified by the donor. At June 30, 2013 and 2012, permanently restricted net assets consisted of$22,347 for the Spay/Neuter (S/N)program. The Uniform Prudent Management of Institutional Funds Act (UPMIFA) applies to nonprofit organizations in Hawai`i. UPMIFA updates the prudence standard for the management and investment of charitable funds, and it amends the provisions governing the release and modification of restrictions on charitable funds. Management has evaluated the provisions of the standard and has concluded that the adoption of UPMIFA in fiscal year 2013 and 2012 did not have a significant effect on the Organization's financial statements. Note 6. FUNCTIONAL EXPENSES The Hawaii Island Humane Society allocates expenses on a functional basis among three categories: direct program services, supporting services, and fundraising. Expenses are allocated to the program and support services benefited. Page 14 HAWAII ISLAND HUMANE SOCIETY • Notes to the Financial Statements June 30, 2013 and 2012 Note 7. IN-KIND DONATIONS Under FASB ASC 958, contributions of donated services that create or enhance non-financial assets or that require specialized skills, and are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation, are recorded at their fair values in the period received. No amounts have been reflected in the statements for donated services in 2013. Donated services for 2012 are $7,702. A number of volunteers have donated significant amounts of their time, however no objective basis is available to measure the value of these services. In January, 2013, the lender of the Holualoa Land Note made an in-kind donation by way of cancellation • and release of Promissory Note. The balance of the Promissory Note and amount recognized as donation was $816,962, see Note 14. Note 8. RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES 2013 2012 Change in Net Assets $ 970,520 $ 126,706 Adjustments to Reconcile: Depreciation 73,362 78,528 Donated Vehicle (4,000) - Donated Annuity Contracts - (40,999) Forgiveness of Debt Donation(Note 7) (816,962) - Change in Accounts and Pledges Receivable (60,167) 269,746 Change in Other Current Assets 159 (16,676) Change in Deposits Other 3,407 (3,107) Change in Accounts Payable 3,888 (4,144) Change in Credit Cards 2,128 (6,995) Change in County Payable - (3,177) Change in Deferred Revenue - (59,865) Change in Accrued Expenses (17,207) 5,597 Net Cash Provided by Operating Activities $ 155,128 $ 345,614 Note 9. RETIREMENT PLAN The Hawaii Island Humane Society maintains an IRA retirement plan for all eligible employees whereby the Organization contributes 5% of each eligible employee's wages. Employees are considered eligible after they have been employed by the Organization for at least two years. For the years ending June 30, 2013 and 2012,the retirement plan expenses totaled $37,286, and $40,862, respectively. Page 15 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30, 2013 and 2012 Note 10. SPAY/NEUTER PROGRAM The Hawaii Island Humane Society sells coupons that enable the patron to take their animal to a participating veterinarian for spay/neuter services. As a service to the community, the veterinarian has agreed to perform his services at a reduced rate which is the price that the client paid for the coupon. The veterinarian accepts the coupon as payment for the spay/neuter services he has performed, and then bills the Hawaii Island Humane Society for payment of his services. The Organization also provides coupons free of charge under the County of Hawaii S/N program. See Note 11. Note 11. S/N COUPON LIABILITY The coupons sold through the S/N CAP program are redeemed by the patron when veterinary services are performed. Estimated amounts of$14,545 and $26,955 are recorded as a liability for the years ending June 30,2013 and 2012, respectively, which represent the value of unredeemed coupons. At June 30, 2013 the Organization was obligated to honor a number of unredeemed coupons issued for the County of Hawaii S/N program with an associated estimated veterinarian cost of$24,677. No funds were received when these coupons were issued and a liability has not been recorded as the surgeries have yet to be performed. Note 12. INCOME TAXES Hawaii Island Humane Society is exempt from Federal income taxes under Section 501(c)(3) of the Internal Revenue Code and also from State of Hawai'i income taxes under Sections 416-19 and 416-20 of the Hawai`i Revised Statutes. The accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under that guidance, the Organization may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. Examples of tax positions include the tax-exempt status of the Organization and various positions related to the potential sources of unrelated business taxable income (UBIT). The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. There were no unrecognized tax benefits identified or recorded as liabilities for 2013 and 2012. The Organization files its Forms 990 in the U.S. Federal jurisdiction and the office of the State's Attorney General for the State of Hawaii. The Organization is generally no longer subject to examination by the Internal Revenue Service for years before 2010. Page 16 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30,2013 and 2012 Note 13. KEA'AU LAND The Kea'au shelter is located on three acres of land owned by the Hawaii Island Humane Society. The land was acquired in February 1968 from W.H. Shipman, Limited for the amount of$10. The value of the land at acquisition has not been reflected in the fixed assets of the Organization. At June 30, 2010, the assessed value of the land was approximately $100,000, and was added to the capitalized assets. Note 14. HOLUALOA LAND AND BUILDING The Hawaii Island Humane Society purchased a 12-acre parcel with three existing buildings that will require renovation prior to occupancy on April 13, 2011. Depreciation will not be taken while construction is in process. The land valued at $452,646, and buildings valued at $377,354, were secured with a $832,562 Promissory Note from a private lender at 5% per annum. Monthly payments were $4,469 with the balance due April 10, 2016. In January 2013,the lender forgave the debt, see Note 7. NOTE 15. LEASEHOLD IMPROVEMENTS To provide enhanced quality care for animals, the Hawaii Island Humane Society has made various site improvements to the leased properties(see Note 3) including a dog park, puppy kennels, and a horse shed, as well as complying with the Americans with Disabilities Act requirements. Total improvements to leased facilities are$102,633 and $100,333 for the year ending June 30, 2013 and 2012, respectively. NOTE 16. PLEDGE RECEIVABLE The Organization began a fundraising campaign for the improvement of its building. Towards that end, many generous donors have pledged funds to be received over future fiscal years. Contributions received are recognized as support in the period the promise is received at their fair value. Pledge receivable is stated at net estimated realizable value. Pledge receivable consists of the following: Gross Pledge Receivable $ 60,346 Allowance for doubtful accounts Net Pledge Receivable $ 60,346 Amounts due in: Less than one year $ 43,012 One to three years $ 17,334 Page 17 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30,2013 and 2012 NOTE 17. RELATED PARTY A Board of Director member is also the owner of Alii Veterinary Hospital which the Hawaii Island Humane Society utilizes for veterinary care and also leases facilities. The total amount paid to Alii Veterinary Hospital during the years ending June 30, 2013 and 2012, were $5,771 and $1,192, respectively. NOTE 18. SUBSEQUENT EVENTS In preparing these financial statements, management has evaluated events and transactions for potential recognition or disclosure through September 12, 2013,the date the financial statements were available for use. NOTE 19. RECLASSIFICATION Certain reclassifications have been made to the prior year's financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations and net assets. Page 18