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Home My WebLink AboutCOM 0569.000 2016-2018 ,.?::4 , _ �-� OU -e6 COUNTY YO LHEARVA 4 4-17,14 2017 OCT 20 PM 3: 38 HAWAII ISLAND 1-ILIMANE soeIETY October 16, 2017 Valerie Poindexter County Council Chair 25 Aupuni Street Hilo, Hawaii 96720 Aloha, Please find enclosed a copy of our Independent Audit for 2017 Fiscal Year. Please feel free to contact me with any questions. Sincerely, '''ticyvvv‘a_ 1.13k&ti4.11A Donna Whitaker Executive Director Comm No. 510 Ref. To: Ref. Dote OCT 2 i 2017 74-5225 Queen Kaahumanu Highway •i' Kailua-Kona, Hawaii 96740 •i• hihs.org Kona 808.329.8002 •i• Keaau 808.966.5458 •r Waimea 808.885.4558 HAWAII ISLAND HUMANE SOCIETY (A Hawaii Nonprofit Corporation) AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30,2017 AND 2016 ,0.. HAWAII ISLAND HUMANE SOCIETY Contents Independent Auditor's Report 1 Financial Statements: Statements of Financial Position 3 Statement of Activities and Change in Net Assets—2017 5 Statement of Activities and Change in Net Assets—2016 6 Statement of Functional Expenses-2017 7 Statement of Functional Expenses -2016 8 Statements of Cash Flows 9 Supplementary Information: Schedules of County Program Activities 10 Notes to the Financial Statements 11 - Carbonaro Certified Public Accountants Member: AICPA CPAs &Management Group HSCPA INDEPENDENT AUDITOR'S REPORT To the Management and 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, 2017 and 2016, and the related statements of activities and change 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, 2017 and 2016, 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. Maui: Big Island: 1885 Main Street, Suite 408 • Wailuku, Hawaii 96793 Location: 136 Kinoole Street° Hilo, Hawaii 96720 310 Ohukai Road, Suite 305 • Kihel, Hawaii 96753 Mailing: P.O. Box 4372 • Hilo, Hawaii 96720 Phone: 808.242.5002 www.carbocpa.com Phone: 808.930.6850 To the Management and 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 Schedules 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. e Q )QAJJ C p°d4-s 4-CriGwla rnew-YU' 2uula Hilo, Hawai`i September 1,2017 Page 2 HAWAII ISLAND HUMANE SOCIETY Statements of Financial Position For the Years Ended June 30,2017 and 2016 ASSETS 2017 2016 CURRENT ASSETS Cash and Cash Equivalents(Note 2) $ 2,043,316 $ 1,674,935 Other Current Assets Accounts Receivable 1,739 39,560 Pledge Receivable,net of Allowance(Note 16) 22,500 387,471 Prepaid Expense 14,009 10,159 • Retail Inventory(Note 2) 12,140 11,220 Total Other Current Assets 50,388 448,410 Total Current Assets 2,093,704 2,123,345 PROPERTY AND EQUIPMENT (Note 2) Kea'au Land 100,000 100,000 Holualoa Land(Note 14) 452,646 452,646 Buildings 871,502 871,502 Vehicles 226,583 300,091 Equipment-Office 59,927 58,127 Operating Room Equipment 49,084 49,084 Leasehold Improvements(Note 15) 117,819 107,327 Construction In Progress(Note 14) 1,158,376 590,890 Miscellaneous Assets 21,954 21,954 3,057,891 2,551,621 Accumulated Depreciation (729,863) (760,658) Net Property and Equipment 2,328,028 1,790,963 OTHER ASSETS Certificate of Deposit(Note 2) 24,038 23,859 Annuity Contracts(Note 2) 5,693 11,336 Investments(Note 2) 35,857 - Deposits-Other 7,200 6,800 Total Other Assets 72,788 41,995 TOTAL ASSETS $ 4,494,520 $ 3,956,303 The accompanying notes are an integral part of these financial statements. Page 3 HAWAII ISLAND HUMANE SOCIETY Statements of Financial Position For the Years Ended June 30,2017 and 2016 LIABILITIES AND NET ASSETS 2017 2016 CURRENT LIABILITIES Accounts Payable $ 139,097 $ 69,245 S/N Coupon and Other County Payables(Note 11) 2,120 4,164 Credit Cards 2,236 1,579 Total Current Liabilities 143,453 74,988 OTHER CURRENT LIABILITIES Accrued Wages 48,568 47,159 Accrued Vacation Payable 32,351 30,198 Accrued Payroll Taxes and Benefits 6,031 . 5,915 Total Other Current Liabilities 86,950 83,272 TOTAL CURRENT LIABILITIES 230,403 158,260 NET ASSETS (Note 5) Unrestricted 2,950,595 2,061,679 Board Designated 77,156 77,156 Unrestricted Net Assets 3,027,751 2,138,835 Temporarily Restricted 1,214,019 1,636,861 Permanently Restricted 22,347 22,347 Total Net Assets 4,264,117 3,798,043 • TOTAL LIABILITIES AND NET ASSETS $ 4,494,520 $ 3,956,303 The accompanying notes are an integral part of these financial statements. Page 4 HAWAII ISLAND HUMANE SOCIETY Statement of Activities and Change in Net Assets For the Year Ended June 30,2017 Restricted 2017 Unrestricted Temporarily Permanently Total PUBLIC SUPPORT AND REVENUE County of Hawai'i $ 2,081,625 $ - $ - $ 2,081,625 Donated Services(Note 7) 2,072 - - 2,072 Donations 385,609 304,381 - 689,990 Fundraising 260,845 - - 260,845 Grants 90,506 47,000 - 137,506 Adoptions 114,322 - - 114,322 S/N CAP Coupon Sales(Note 10) 7,818 - - 7,818 Donated Rent(Note 7) 25,200 - - 25,200 Sales 24,653 - - 24,653 - Cost of Goods Sold(Note 2) (5,078) - - (5,078) Miscellaneous Revenue 24,731 - - 24,731 Humane Shelter Services 13,150 - - 13,150 Recycling 1,383 - - 1,383 Gain on Sale of Asset 2,500 - - 2,500 Net Assets Released from Restrictions 774,223 (774,223) - - Total Public Support and Revenue 3,803,559 (422,842) - 3,380,717 EXPENSES Program Expenses 2,520,006 - - 2,520,006 Management and General 264,330 - - 264,330 Fundraising Expenses 130,307 - - 130,307 Total Expenses 2,914,643 - - 2,914,643 CHANGE IN NET ASSETS $ 888,916 $ (422,842) $ - $ 466,074 NET ASSETS,BEGINNING OF YEAR 2,138,835 1,636,861 22,347 3,798,043 . NET ASSETS, END OF YEAR $ 3,027,751 $ 1,214,019 $ 22,347 $ 4,264,117 The accompanying notes are an integral part of these fmancial statements. Page 5 --J HAWAII ISLAND HUMANE SOCIETY Statement of Activities and Change in Net Assets For the Year Ended June 30,2016 Restricted 2016 Unrestricted Temporarily Permanently Total PUBLIC SUPPORT AND REVENUE County of Hawai'i $ 1,982,500 $ - $ - $ 1,982,500 Donated Services(Note 7) 6,217 - - 6,217 Donations 38,734 500,000 - 538,734 Adoptions 124,389 - - 124,389 Fundraising 183,618 - - 183,618 S/N.CAP Coupon Sales(Note 10) 12,423 - - 12,423 . Sales 26,895 - - 26,895 Cost of Goods Sold(Note 2) (8,548) - - (8,548) Grants 119,304 76,190 - 195,494 Donated Rent(Note 7) 25,200 - - 25,200 Humane Shelter Services 18,240 - - 18,240 Miscellaneous Revenue 17,050 1,421 - 18,471 Recycling 1,269 - - 1,269 Gain on Sale of Asset 8,165 - - 8,165 Net Assets Released from Restrictions 412,480 (412,480) - - Total Public Support and Revenue 2,967,936 165,131 - 3,133,067 EXPENSES Program Expenses 2,519,749 - - 2,519,749 Management and General 261,560 - - 261,560 Fundraising Expenses 132,271 - - 132,271 Total Expenses 2,913,580 - - 2,913,580 CHANGE IN NET ASSETS $ 54,356 $ 165,131 $ - $ 219,487 NET ASSETS,BEGINNING OF YEAR 2,084,479 1,471,730 22,347 3,578,556 . NET ASSETS,END OF YEAR $ 2,138,835 $ 1,636,861 $ 22,347 $ 3,798,043 The accompanying notes are an integral part of these fmancial statements. Page 6 HAWAII ISLAND HUMANE SOCIETY Statement of Functional Expenses For the Year Ended June 30,2017 Supporting Services Program Management 2017 Services and General Fundraising Total Salaries and Wages $ 1,114,016 $ 125,170 $ 12,517 $ 1,251,703 Kennel Supplies,Food and Medicine 255,503 - - 255,503 Employee Benefits(Note 9) 221,048 24,837 2,484 248,369 Surgery Programs and Supplies 158,072 14,684 - 172,756 Payroll Taxes 120,890 13,583 1,358 135,831 Fundraising Expense - - 104,647 104,647 . Legal and Professional Services 72,665 25,531 - 98,196 Utilities 83,941 5,358 - 89,299 Auto Expense 71,302 - - 71,302 " Insurance 66,436 4,241 - 70,677 Repairs and Maintenance 43,017 23,163 - 66,180 Depreciation 42,713 - - 42,713 Adoption Expense 40,454 - - 40,454 Advertising 35,986 - - 35,986 Office Supplies 26,692 6,673 - 33,365 Rent,including In-kind Rent(Note 7) 30,294 1,250 - 31,544 Animal Disposal 27,343 - - 27,343 Network Expense 14,540 9,694 - 24,234 Printing 17,488 - 920 18,408 General Excise Tax and Other Taxes 13,343 - 4,688 18,031 Other Expenses 12,881 2,827 - 15,708 Bank and Credit Card Fees 10,395 - 2,599 12,994 Veterinary Care and Evidence Animals 12,666 - - 12,666 Uniforms 9,162 - - 9,162 Staff Meeting and Training 5,347 2,079 - 7,426 Postage and Freight 2,552 2,430 1,094 6,076 Dues,Licenses, Subscriptions 3,145 2,372 - 5,517 Meals and Travel 2,295 437 - 2,732 Animal Control Equipment 2,228 - - 2,228 In-Kind-Service(Note 7) 2,072 - - 2,072 Humane Education 1,521 - - 1,521 TOTAL EXPENSES $ 2,520,006 $ 264,330 $ 130,307 $ 2,914,643 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 30,2016 Supporting Services Program Management 2016 Services and General Fundraising Total Salaries and Wages $ 1,146,277 $ 128,795 $ 12,880 $ 1,287,952 Kennel Supplies,Food and Medicine 252,368 - - 252,368 Employee Benefits(Note 9) 206,436 23,195 2,320 231,951 Surgery Programs and Supplies 154,300 14,334 - 168,634 Payroll Taxes 124,825 14,025 1,403 140,253 Fundraising Expense - - 106,916 106,916 . Legal and Professional Services 84,661 29,746 - 114,407 Utilities 78,662 5,021 - 83,683 Auto Expense 77,535 - - 77,535 ' Insurance 62,919 4,016 - 66,935 Repairs and Maintenance 39,207 21,112 - 60,319 Depreciation 59,325 - - 59,325 Adoption Expense 28,075 - - 28,075 Advertising 34,794 - - 34,794 Office Supplies 22,094 5,523 - 27,617 Rent, including In-kind Rent(Note 7) 27,700 1,250 - 28,950 Animal Disposal 29,091 - - 29,091 Network Expense 8,747 5,831 - 14,578 Printing 13,377 - 704 14,081 General Excise Tax and Other Taxes 11,914 - 4,186 16,100 Other Expenses 8,491 1,864 - 10,355 Bank and Credit Card Fees 10,698 - 2,675 13,373 Veterinary Care and Evidence Animals 10,565 - - 10,565 Uniforms 2,528 - - 2,528 Staff Meeting and Training 4,742 1,844 - 6,586 Postage and Freight 2,775 2,642 1,189 6,606 Dues,Licenses, Subscriptions 2,297 1,732 - 4,029 Meals and Travel 3,300 629 - 3,929 Animal Control Equipment 1,646 - - 1,646 In-Kind- Service(Note 7) 6,217 - - 6,217 Humane Education 4,183 - - 4,183 I TOTAL EXPENSES $ 2,519,749 $ 261,560 $ 132,271 $ 2,913,580 The accompanying notes are an integral part of these fmancial statements. Page 8 HAWAII ISLAND HUMANE SOCIETY Statements of Cash Flows For the Years Ended June 30,2017 and 2016 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES Hawai'i County Funding $ 2,081,625 $ 1,982,500 Retail Sales and Services to Public 327,452 358,136 Fundraising 260,845 68,977 S/N CAP Coupon Sales 5,774 14,467 Foundations and Other Donations 1,054,961 871,044 Other Cash Received 26,114 19,740 Cash Paid to Employees and Vendors (2,851,070) (2,869,825) Net Cash Provided by Operating Activities(Note 8) 905,701 445,039 CASH FLOWS FROM INVESTING ACTIVITIES Cash Used to Purchase Investments (30,393) 6,011 Proceeds from Asset Sale 2,500 8,165 Cash Used to Purchase Property and Equipment. (12,292) (4,238) Cash Used for Construction in Process (497,135) (142,315) Net Cash Used by Investing Activities (537,320) (132,377) CASH FLOWS FROM FINANCING ACTIVITIES Principal Payments on Lease Payable - (7,222) Net Cash Used by Financing Activities - (7,222) Net Increase in Cash for the Year 368,381 305,440 • CASH BALANCE,BEGINNING OF YEAR 1,674,935 1,369,495 CASH BALANCE,END OF YEAR $ 2,043,316 $ 1,674,935 Non-Cash Investing and Financing Activities Non-Cash Items in Construction in Progress $ 70,351 $ - The accompanying notes are an integral part of these financial statements. Page 9 HAWAII ISLAND HUMANE SOCIETY Supplementary Information Schedules of County Program Activities For the Years Ended June 30,2017 and 2016 2017 2016 Animal S/N Animal S/N Control CAP Total Control CAP Total Receipts: County of Hawaii Contracted Funds $ 1,860,900 $ 220,725 $ 2,081,625 $ 1,860,900 $ 121,600 $ 1,982,500 Gain on Sale of Asset 2,500 - 2,500 - - - Miscellaneous - - - 7,665 - 7,665 Total Receipts 1,863,400 220,725 2,084,125 1,868,565 121,600 1,990,165 Operating Expenses Salaries and Wages 984,030 - 984,030 1,039,339 - 1,039,339 Surgery Programs and Supplies(Note 10) - 217,895 217,895 - 128,624 128,624 Employee Benefits 206,831 - 206,831 196,294 - 196,294 Kennel Supplies,Food and Medicine 172,661 - 172,661 164,989 - 164,989 Payroll Taxes 106,314 - 106,314 112,636 - 112,636 Auto Expense 71,276 - 71,276 76,723 - 76,723 Utilities 71,275 - 71,275 66,372 - 66,372 Insurance 60,185 - 60,185 56,313 - 56,313 Outside Services/Contract Labor 59,399 - 59,399 46,777 - 46,777 Repairs and Maintenance 42,786 - 42,786 37,173 - 37,173 Animal Disposal 27,343 - 27,343 29,091 - 29,091 Network Expense 11,395 - 11,395 6,891 - 6,891 Advertising 10,387 - 10,387 7,714 - 7,714 Miscellaneous 9,671 - 9,671 4,604 - 4,604 Office Equipment and Rentals 9,275 - 9,275 7,839 - 7,839 Uniforms 8,644 - 8,644 2,425 - 2,425 Office Supplies 7,805 - - 7,805 12,454 - 12,454 Legal and Professional Services 5,886 - 5,886 43,815 - 43,815 Staff Meeting and Training 5,208 - 5,208 2,352 - 2,352 Bank and Credit Card Fees 3,190 - 3,190 3,920 - 3,920 Travel and Mileage 1,935 - 1,935 2,696 - 2,696 Dues,Licenses, Subs,Taxes 1,515 - 1,515 1,966 - 1,966 Postage and Freight 1,309 - 1,309 1,990 - 1,990 Animal Control Equipment 1,271 - 1,271 1,646 - 1,646 1 Printing 247 - 247 652 - 652 Veterinary Care and Evidence Animals 75 - 75 1,189 - 1,189 Total Operating Expenses 1,879,913 217,895 2,097,808 1,927,860 128,624 2,056,484 Capital Lease Payments - - - 7,222 - 7,222 Fixed Assets Purchased 12,293 - 12,293 4,238 - 4,238 Excess Receipts Over(Under)Disbursements $ (28,806) $ 2,830 $ (25,976) $ (70,755) $ (7,024) $ (77,779) The accompanying notes are an integral part of these financial statements. Page 10 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30,2017 and 2016 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. The 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. Cost of Goods Sold: Cost of goods sold consists of the cost of inventory merchandise purchased for resale that has been sold. The cost of goods sold for fiscal years ending June 30, 2017 and 2016 were $5,078 and $8,548 respectively. 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 30,2017 and 2016 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 recurringor non-recurringbasis. June 30, 2017 Significant Significant Non- Quoted Prices: Other Inputs: Observable Assets Total Level 1 _ Level 2 Inputs: Level 3 • Certificate of Deposit $ 24,038 $ 24,038 - Annuity Contracts* 5,693 - - 5,693 Mutual Funds 35,857 35,857 - - Total $ 65,588 $ 24,038 $ - $ 5,693 June 30,2016 Significant Significant Non- Quoted Prices: Other Inputs: Observable Assets Total Level 1 Level 2 Inputs: Level 3 Certificate of Deposit $ 23,859 $ 23,859 - Annuity Contracts* 11,336 - - 11,336 Total $ 35,195 $ 23,859 $ - $ 11,336 *Annuity Contracts: Annuity Contracts are valued at present value of future cash receipts. The following table summarizes the changes in fair values associated with FASB ASC 820 Level 3 assets: Level 3 Level 3 2016 2015 Balance Beginning of Year $ 11,336 $ 17,524 Capital Distributions (5,643) (6,671) Net Unrealized and Realized Losses - 483 Balance Ending of Year $ 5,693 $ 11,336 Use of 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. Retail Inventory: Inventory is stated at cost. Cost is determined using the first-in, first-out (FIFO) method. Page 12 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30,2017 and 2016 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. Reclassification: Certain items on the 2016 financial statements have been reclassified to conform to • 2017 financial statements presentation. These reclassifications had no affect on 2016 net assets. Cash and Cash Equivalents: For the purpose of the statement of cash flows, the Organization considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents. Interest income on the certificates of deposit is recorded as income when earned. Cash and equivalents exclude cash restricted for the endowment fund. The following is a summary of deposits as of June 30: 2017 2016 Fully Insured Deposits $ 1,221,108 $ 440,067 Uninsured and Uncollateralized 822,208 1,234,868 $ 2,043,316 $ 1,674,935 Note 3. CONCENTRATIONS The Organization received approximately 62%, and 64% of its revenue from the County of Hawaii as of June 30, 2017 and 2016, respectively. Continued County funding at present service levels is dependent upon economic conditions on the Island of Hawaii 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 Hawai`i 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. Note 4. LEASES In June 2015, a copier lease was transferred to a new non-cancelable lease with monthly payments of $384. The future rent expense for these copiers at June 30 are: 2018 $ 4,608 2019 $ 4,224 Page 13 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30,2017 and 2016 Note 5. NET ASSETS The Organization 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, emporarily 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. The Board of Directors has selected certain unrestricted net assets to be identified as Board Designated net assets for the Capital Campaign. Board Designated Net Assets at June 30, 2017 and 2016, were $77,156. 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: 2017 2016 Capital Campaign $ 741,529 $ 1,162,118 Second Chance 147,153 156,709 Spay/Neuter 81,012 87,158 Kona Kennels 59,340 55,463 Kea'au Kennels 59,233 46,261 Katie Fund 47,543 63,608 Education 23,721 21,427 Equine Fund 21,253 12,159 Michi Haga 19,829 20,079 Waimea Kennels 11,749 2,004 Lava Flow 1,657 1,657 Poi Dogs for Paradise - 7,674 • Wish List - 544 Total $ 1,214,019 $ 1,636,861 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, 2017 and 2016, 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 2017, and 2016, did not have a significant effect on the Organization's financial statements. Page 14 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30, 2017 and 2016 Note 6.FUNCTIONAL EXPENSES The Organization allocates expenses on a functional basis among three categories: direct program services, fundraising, and management and general. Expenses are allocated to the program and supporting services benefited. Note 7. IN-KIND DONATIONS Donated Services: 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. Donated services at June 30, 2017 and 2016, are $2,072 and $6,217, respectively. 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-kind Rent: 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 8. RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES 2017 2016 Change in Net Assets $ 466,074 $ 219,487 Adjustments to Reconcile: Depreciation 42,713 59,325 Loss/(Gain)on Disposal (2,500) (8,165) Adjustments to Fixed Assets - (5,528) Change in Accounts and Pledges Receivable 402,792 179,799 Change in Other Current Assets (4,770) 2,626 Change in Deposits Other (400) (1,800) Change in Accounts Payable (499) (11,394) Change in Credit Cards 657 (9,970) Change in Accrued Liabilities 1,634 20,659 Net Cash Provided by Operating Activities $ 905,701 $ 445,039 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, 2017 and 2016,the retirement plan expenses totaled$36,559 and$43,443,respectively. Page 15 • HAWAII ISLAND HUMANE SOCIETY • Notes to the Financial Statements June 30, 2017 and 2016 Note 10. SPAY/NEUTER PROGRAM The Organization 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 these 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 that has been performed, and then bills the Hawaii Island Humane Society for payment of these services. The veterinarian employed at the Organization also performs spay/neuter services accepting the Free Coupon as payment. The Organization incurs these costs in compensation to the veterinarian as well as • related payroll taxes and benefits. 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$2,120 and $4,164 are recorded as a liability for the years ending June 30,2017 and 2016,respectively,which represent the value of unredeemed coupons. At June 30, 2017 and 2016, 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$31,645 and $20,890 at June 30, 2017 and 2016, respectively. 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 • The Organization 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 2017 and 2016. 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 2014. Page 16 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30, 2017 and 2016 Note 13. RECLASSIFICATION Certain items on the 2016 Statement of Activities and Changes in Net Assets have been reclassified to conform with 2017 presentation. The Reclassification had no effect on Net Assets. Note 14. HOLUALOA LAND AND BUILDING The Organization 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. At June 30, 2017 construction in progress is $1,158,376 and the project is expected to be completed by December 31,2018. 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 including a dog park, puppy kennels, a horse shed, as well as complying with the Americans with Disabilities Act requirements. Total improvements to leased facilities are$117,819 and$107,327 for the years ending June 30, 2017 and 2016,respectively. NOTE 16.PLEDGE RECEIVABLE The Organization has been conducting a fundraising capital campaign for a state-of-the-art Animal Community Center. 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. The pledge receivable is stated at net estimated realizable value, using a discount rate of 4%to calculate the present value allowance. Pledge receivable consists of the following as of June 30: 2017 2016 Gross Pledge Receivable $ 22,500 $ 400,000 Present Value Allowance - (12,529) Net Pledge Receivable $ 22,500 $ 387,471 Amounts due in: Less than one year $ 22,500 $ 180,000 One to three years $ - $ 207,471 NOTE 17. RELATED PARTY A Board of Director member is 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, 2017 and 2016,were$11,312 and$2,732,respectively. Page 17 HAWAII ISLAND HUMANE SOCIETY Notes to the Financial Statements June 30,2017 and 2016 NOTE 17. RELATED PARTY—continued The husband of an executive committee Board of Directors member is the president of Tinguely Development, Inc. This company is the project manager for the Hawaii Island Humane Society's construction in progress for the development of their new facility located in Keahou, Hawaii. Tinguely Development, Inc. has also pledged $50,000 for the capital campaign. As of June 30, 2017, the balance of the pledge, $10,000, was outstanding. NOTE 18. SUBSEQUENT EVENTS In preparing these financial statements, Management has evaluated events and transactions for potential recognition or disclosure through September 1, 2017, the date the financial statements were available for use. Page 18 4