SIERRA FOOTHILL CONSERVANCY (A NON-PROFIT ORGANIZATION) CONSOLIDATED FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION

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1 (A NON-PROFIT ORGANIZATION) CONSOLIDATED FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION FOR THE YEARS ENDED JUNE 30, 2012 AND 2011

2 (A CALIFORNIA NON-PROFIT CORPORATION) FOR THE YEARS ENDED JUNE 30, 2012 AND 2011 TABLE OF CONTENTS Page INDEPENDENT AUDITOR S REPORT... 1 CONSOLIDATED FINANCIAL STATEMENTS: STATEMENTS OF FINANCIAL POSITION... 3 STATEMENTS OF ACTIVITIES... 4 STATEMENTS OF FUNCTIONAL EXPENSES... 6 STATEMENTS OF CASH FLOWS... 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS... 9 ADDITIONAL INFORMATION: INDEPENDENT AUDITOR S REPORT ON ADDITIONAL INFORMATION CONSOLIDATING SCHEDULE, STATEMENT OF FINANCIAL POSITION, JUNE 30, CONSOLIDATING SCHEDULE, STATEMENT OF ACTIVITIES, JUNE 30, CONSOLIDATING SCHEDULE, STATEMENT OF OPERATING EXPENSES, JUNE 30, CONSOLIDATING SCHEDULE, STATEMENT OF CASH FLOWS, JUNE 30,

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors of Sierra Foothill Conservancy We have audited the accompanying Statements of Financial Position of Sierra Foothill Conservancy (the Conservancy), a California non-profit corporation, as of June 30, 2012, and the related Statements of Activities, Functional Expenses and Cash Flows for the year then ended. These financial statements are the responsibility of the Sierra Foothill Conservancy s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Conservancy as of June 30, 2011, were audited by other auditors whose report dated February 7, 2012, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Conservancy s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sierra Foothill Conservancy as of June 30, 2012, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Clovis, California January 23,

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5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION JUNE 30, 2012 AND 2011 ASSETS Cash and Cash Equivalents $ 631,594 $ 395,889 Investments 1,711,737 1,358,980 Grants and Other Receivable 3,840 6,266 Prepaid Expenses and Other Assets 25,718 26,846 Inventories 32,791 56,054 Property and Equipment, Net 458, ,220 Conserved Land 6,518,964 6,518,964 Total Assets $ 9,382,693 $ 8,802,219 LIABILITIES AND NET ASSETS Accounts Payable $ 52,874 $ 15,358 Accrued Expenses 37,619 33,465 Deferred Revenue 29,440 - Agency and Trust Fund 21,882 20,250 Line-of-Credit 280, ,614 Total Liabilities 421, ,687 Net Assets: Unrestricted: Undesignated 457, ,715 Board Designated 493, ,460 Total Unrestricted 950,862 1,020,175 Temporarily Restricted 1,453,484 1,382,025 Permanently Restricted 6,556,532 6,178,332 Total Net Assets 8,960,878 8,580,532 Total Liabilities and Net Assets $ 9,382,693 $ 8,802,219 and Notes to the Consolidated Financial Statements 3

6 CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012 Unrestricted Board Temporarily Permanently Undesignated Designated Restricted Restricted Total Revenues and Support: Grant Income $ 1,880 $ - $ 27,395 $ - $ 29,275 Investment Income (Losses), Net (24) (731) 49,712-48,957 Contribution and Fundraising 1,254,874 13, , ,200 1,942,719 Grazing Fees 16, ,860 Fees for Services 74, ,232 Membership Dues 60, ,701 Miscellaneous Income 8, ,680 Rental Income 3, ,595 Beef Sales 31, ,151 Total Revenues and Support before Net Assets Released from Restrictions 1,451,949 12, , ,200 2,216,170 Net Assets Released from Restrictions 301,686 - (301,686) - - Total Revenues and Support after Reclassification of Net Assets Released from Restrictions 1,753,635 12,876 71, ,200 2,216,170 Costs and Expenses: Program Services 1,470, ,470,452 Fundraising 38, ,700 General and Administrative 294,361 32, ,672 Total Costs and Expenses 1,803,513 32, ,835,824 Changes in Net Assets (49,878) (19,435) 71, , ,346 Net Assets, Beginning of Year 507, ,460 1,382,025 6,178,332 8,580,532 Net Assets, End of Year $ 457,837 $ 493,025 $ 1,453,484 $ 6,556,532 $ 8,960,878 and Notes to the Consolidated Financial Statements 4

7 CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 Unrestricted Board Temporarily Permanently Undesignated Designated Restricted Restricted Total Revenues and Support: Grant Income $ 65,695 $ - $ 47,445 $ - $ 113,140 Investment Income (Losses), Net 10,286 39, , ,061 Contribution and Fundraising 2,105, , ,000 2,633,490 Grazing Fees 25, ,843 Fees for Services 76, ,118 Membership Dues 61, ,656 Miscellaneous Income Rental Income Beef Sales 1, ,323 Total Revenues and Support before Net Assets Released from Restrictions 2,347,008 39, , ,000 3,128,582 Net Assets Released from Restrictions 121,328 - (121,328) - - Total Revenues and Support after Reclassification of Net Assets Released from Restrictions 2,468,336 39, , ,000 3,128,582 Costs and Expenses: Program Services 2,174, ,174,384 Fundraising 137, ,415 General and Administrative 102,123 34, ,123 Total Costs and Expenses 2,413,922 34, ,447,922 Changes in Net Assets 54,414 5, , , ,660 Net Assets, Beginning of Year 453, , ,469 5,975,332 7,899,872 Net Assets, End of Year $ 507,715 $ 512,460 $ 1,382,025 $ 6,178,332 $ 8,580,532 and Notes to the Consolidated Financial Statements 5

8 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2012 Supporting Services Program General and Services Fundraising Administrative Total PERSONNEL COSTS: Salaries and Wages $ 127,430 $ 18,583 $ 119,465 $ 265,478 Payroll Taxes 13,175 1,921 12,351 27,447 Total Personnel Costs 140,605 20, , ,925 OTHER COSTS AND EXPENSES: Advertising and Promotion 3, ,347 Auto Expenses 21,177-4,618 25,795 Bank and Finance Charges 45-1,758 1,803 Community Education 7, ,178 Conference Expenses 324-2,518 2,842 Conservation Easements 1,056, ,056,547 Cost of Cattle Sold 42, ,566 Dues and Subscriptions 130-4,419 4,549 Employee Benefits 2, ,525 5,612 Feed Supplements 2, ,829 Grazing Fees 4,552-4,552 Insurance 4,979-23,111 28,090 Interest 16, ,951 Loss on Disposition of Assets ,692 11,692 Management Fee 29, ,253 Member Events ,423-11,854 Miscellaneous 3,671-4,321 7,992 Office Expenses 422-6,262 6,684 Outside Services 49,770-30,732 80,502 Postage and Delivery ,188 2,864 Printing and Copying 1, ,501 5,336 Professional Fees 40,246-37,743 77,989 Property Taxes 9, ,015 Rent and Related - - 7,943 7,943 Repairs and Maintenance 3,691-9,173 12,864 Auction Merchandise - 1,373-1,373 Taxes and Licenses - 1,740 1,740 Travel 2,413-1,534 3,947 Utilities ,564 14,714 Total Other Costs and Expenses 1,303,698 14, ,342 1,488,423 Sub-total 1,444,303 34, ,158 1,781,348 Depreciation and Amortization 26,149 3,813 24,514 54,476 Total Costs and Expenses $ 1,470,452 $ 38,700 $ 326,672 $ 1,835,824 and Notes to the Consolidated Financial Statements 6

9 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2011 Supporting Services Program General and Services Fundraising Administrative Total PERSONNEL COSTS: Salaries and Wages $ 116,138 $ 31,145 $ 57,329 $ 204,612 Payroll Taxes 18,494 2,831 4,115 25,440 Total Personnel Costs 134,632 33,976 61, ,052 OTHER COSTS AND EXPENSES: Advertising and Promotion Auto Expenses 11, ,539 Bank and Finance Charges 150-1,518 1,668 Community Education 4, ,739 Conference Expenses ,237 2,013 Conservation Easements 1,891, ,891,706 Cost of Cattle Sold 3, ,467 Dues and Subscriptions ,736 5,585 Employee Benefits Feed Supplements 2, ,469 Grazing Fees Insurance 7,986-6,534 14,520 Interest 3, ,186 Loss on Disposition of Assets Management Fee Member Events 4,144 36, ,727 Miscellaneous ,175 Office Expenses 2, ,851 6,319 Outside Services 27,930 2,068 1,080 31,078 Postage and Delivery 1,066 2, ,434 Printing and Copying 3,293 5,328 1,195 9,816 Professional Fees 29,938-20,076 50,014 Property Taxes 9, ,872 Rent and Related - - 7,177 7,177 Repairs and Maintenance 3, ,439 Auction Merchandise - 52,345-52,345 Taxes and Licenses Travel 12, ,858 16,109 Utilities ,119 14,269 Total Other Costs and Expenses 2,023,020 99,219 66,239 2,188,478 Sub-total 2,157, , ,683 2,418,530 Depreciation and Amortization 16,732 4,220 8,440 29,392 Total Costs and Expenses $ 2,174,384 $ 137,415 $ 136,123 $ 2,447,922 and Notes to the Consolidated Financial Statements 7

10 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2012 AND Cash Flows From Operating Activities: Change in Net Assets $ 380,346 $ 680,660 Adjustments to Reconcile Change in Net Assets to Net Cash Provided by (Used in) Operating Activities: Depreciation 54,476 29,392 Investment Gains (48,957) (179,872) Loss on Disposition of Assets 11,692 - Donated Land - (203,000) Change in Operating Assets and Liabilities: Grants and Other Receivable 2,426 (6,266) Prepaid Expenses and Other Assets 1,128 13,829 Inventories 23,263 (56,054) Accounts Payable 37,516 3,166 Accrued Expenses 4,154 14,866 Agency and Trust Fund and Deferred Revenue 31,072 - Net Cash Provided by Operating Activities 497, ,721 Net Cash from Investing Activities: Purchase of Property, Equipment and Breeding Cattle (84,997) (173,188) Purchase of Conserved Land - (40,452) Proceeds from Sale of Investment Securities 210, ,840 Purchase of Investment Securities (514,415) (246,493) Net Cash Used in Investing Activities (388,797) (230,293) Net Cash from Financing Activities: Advances on Line-of-Credit 147, ,614 Principal Payments on Line-of-Credit (20,000) (25,000) Net Cash Provided by Financing Activities 127, ,614 Net Increase in Cash and Cash Equivalents 235, ,042 Cash and Cash Equivalents, Beginning of Year 395, ,847 Cash and Cash Equivalents, End of Year $ 631,594 $ 395,889 Supplemental Disclosures of Cash Flow Information: Interest Paid $ 16,951 $ 3,186 Taxes Paid $ 800 $ 800 and Notes to the Consolidated Financial Statements 8

11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 1 ORGANIZATION AND OPERATIONS The Sierra Foothill Conservancy (the Conservancy ) is a California non-profit corporation formed in 1996 to protect, manage, administer, and preserve land and wildlife in the Central California area. The Conservancy protects foothill land through land acquisition, conservation easements, public programs and education and scientific research. The Conservancy s primary sources of revenue are contributions from the general public, grants, including gifts of land and conservation easements, fees for service and investment earnings. During November 2010, the Conservancy established a wholly-owned subsidiary, Sierra Lands Beef, Limited Liability Company (the LLC ) under the laws of the State of California. The primary purpose of the LLC is to raise and sell grass fed beef. The LLC s primary source of revenue is from the sale of grass fed beef. All of the activities of the LLC have been recorded and reflected in the consolidated financial statements of the Conservancy. The LLC did not have substantial operations until April The Conservancy is managed by its Board of Directors who are elected in accordance with its by-laws. While the Conservancy solicits members on an annual basis, it is not managed by such members. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidated Financial Statements The consolidated financial statements are presented on the accrual basis of accounting and include all accounts of the Conservancy and LLC. All significant intercompany transactions have been eliminated. Classification of Net Assets The Conservancy s net assets have been grouped into the following three classes: Unrestricted Net Assets Revenues derived from member dues, unrestricted contributions, grants and contracts, investment income, and other inflows of assets whose use by the Conservancy is not limited by donor-imposed restrictions. Certain unrestricted net assets have been specifically designated by the Board of Directors to be separately maintained as land, land preservation funds, conservation project funds, and operating funds. Such funds are identified as Board Designated Net Assets. Temporarily Restricted Net Assets Contributions and other inflows of assets whose use by the Conservancy is limited by donor-imposed stipulations that either expire by passage of time or fulfillment of the purpose for which the assets were contributed. Permanently Restricted Net Assets Contributions and other inflows of assets that the Conservancy must permanently maintain. The Conservancy may, as specified by the donor, use the investment income and gains on its permanent funds. At times, the fair value of Permanently Restricted Endowment Funds may fall below the original amounts contributed by the donor ( Underwater Fund ). These deficits result from unfavorable market fluctuations occurring after the original contribution and are reported with Unrestricted Net Assets. 9

12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund and Endowment Investment Spending Policies The Conservancy has adopted investment and spending polices for its Permanently Restricted Funds ( Endowment Assets) whose goal is to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the Endowment Assets. The Conservancy s spending and investment policies are expected to work together to achieve this objective. The investment policy establishes return objectives with diversification of asset classes. The Conservancy s current long-term return objective is to earn 5% annually. Actual returns in any given year may vary from this amount. To satisfy its long-term return objectives, the Conservancy relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Conservancy targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk parameters. The spending policy calculates the amount of money to be annually distributed from the Conservancy s various endowed funds, for conservation and/or administration. At June 30, 2012, the current spending policy is to distribute an amount equal to 5% of the prior three fiscal years average fund balances. However, individual endowment fund s spending policy may also be dependent upon individual agreements with the donors. Fair Value of Certain Financial Instruments Due to the short-term nature of cash and cash equivalents, receivables, prepaid expense and other assets, accounts payable and accrued expenses, their fair values approximate their carrying values. Cash and Cash Equivalents Cash and cash equivalents consist of various demand and interest bearing accounts on deposit with insured financial and brokerage institutions. The Conservancy considers all investments with an original maturity of three months or less to be cash equivalents. Investments All of the Conservancy s Investments are available for sale. Investment income, including unrealized gains and losses, interest, dividends and related items are recognized in the Statement of Activities as they are incurred. Investments are stated at their estimated fair value based on quoted closing prices or other information provided by the Conservancy s professional investment advisors. Inventories Inventory comprises of packaged beef available for sale and grass fed livestock cattle raised for the sale of meat and by-products. The cost of packaged beef meat is generally determined using the specific identification of the cattle, including all necessary expenses for preparation and sale. Livestock cattle are generally valued at cost and include appropriate allocations of cost for feed, supplements, grazing, veterinary and other expenses. 10

13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment Property and equipment comprises of autos, improvements, equipment and livestock cattle used for breeding purposes. Amounts are stated at cost or, if donated, at the asset s estimated fair value at the date of donation. All assets acquired by the Conservancy whose initial value or cost exceeds $1,000 are capitalized and depreciated. Routine repairs and maintenance, including planned major maintenance activities are expensed when incurred. Depreciation is recorded using the straight-line method over estimated useful lives of 5 to 40 years. Conserved Land, Conservation Easements and Acquisition Costs The Conservancy records conserved land at cost, if purchased, or at its appraised fair market value if received as a contribution. The Conservancy capitalizes certain fees incurred in connection with the acquisition of conserved land and conservation easements. Legal and appraisal fees that are directly related to the potential acquisition of property are capitalized and included in the total value of the acquired land or conservation easement. Costs capitalized in connection with a potential acquisition that is unsuccessful are expensed in the period in which management believes, more likely than not, the ultimate acquisition of the property will not be completed. Contributions, or purchases, of conservation easements are recorded as Program Service Expenses when acquired as, in the opinion of management, they represent contributions by the Conservancy to the Sierra Foothill and Central San Joaquin Valley communities. Agency and Trust Fund The Conservancy also serves as a fiscal agent for a third party donor to conduct various community programs. As a fiscal agent, the Conservancy has received funds with donor-imposed restrictions for which it does not have either 1) a unilateral right to redirect the funds to other uses ( variance power ) or 2) significant involvement in the determination of specific beneficiaries. Such funds are not considered to be contributions and are recorded as Agency and Trust Fund liabilities. Changes in the Agency and Trust Fund liabilities are reported separately and are not included in the Conservancy s Statement of Activities. Revenue Recognition Contributions of land, land interests and conservation easements and donations of other property are recorded when the donor makes an unconditional and enforceable promise to give and are considered unrestricted unless received with donor imposed stipulations that limit their use. Such contributions are stated at the fair market value at the date of donation, generally based on independent appraisals obtained by the donor. Contributions and Grants Contributions and grants are recorded as Unrestricted, Temporarily Restricted, or Permanently Restricted depending on the existence or nature of donor-imposed restrictions. Contributions and grants, including unconditional promises to give are recorded in the year made or received. When a donor restriction expires, either when a stipulated time restriction ends or a 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. Contributions or grants received and expended in the same fiscal year are recorded as Unrestricted Funds. 11

14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Advertising and Promotion The Conservancy expenses all advertising and promotion costs as incurred. Advertising and promotion expense for the years ended June 30, 2012 and June 30, 2011 were $3,347 and $812, respectively. Functional Classification of Expenses The costs of providing the Conservancy s various charitable and general services have been summarized on a functional basis in the Statement of Functional Expenses. Accordingly, direct and indirect expenses are allocated by management to program services and other activities based on their specific identification or the personnel utilized in the function. 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. Tax Exempt Status The Conservancy has qualified as a non-profit organization and has been granted tax-exempt status pursuant to the Internal Revenue Code Section 501(c)(3) and California Revenue and Taxation Code Section 23701(d). The Conservancy and its LLC are subject to taxation on any unrelated business income, primarily related to the sale of grass fed beef. The Conservancy and the LLC have taken no tax positions that they consider to be uncertain. The LLC is subject to the State of California s minimum entity tax. Reclassifications Certain reclassifications were made to the 2011 financial statements in order to conform to the presentation shown. These reclassifications had the net effect of decreasing Temporarily Restricted Net Assets and increasing Agency and Trust Fund liabilities by $20,250 at June 30, NOTE 3 INVESTMENTS Investment securities consist of the following at June 30: Fair Value Cost Fair Value Cost Equity Securities $ 1,000,691 $ 951,518 $ 785,317 $ 691,070 Bond Mutual Funds 711, , , ,814 Total Investments $ 1,711,737 $ 1,668,440 $ 1,358,980 $ 1,248,884 The Conservancy maintains a portion of its investment funds at Charles Schwab, which are managed by Regency Investment Advisors. At June 30, 2012 and 2011, approximately $1,637,000 and $1,268,000, respectively, of the Conservancy s investments were held at Charles Schwab. 12

15 NOTE 3 INVESTMENTS (Continued) SIERRA FOOTHILL CONSERVANCY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 The Conservancy maintains its remaining investment funds with the Fresno Regional Foundation (the Foundation ), a California non-profit corporation. The terms of the fund agreement specify the Conservancy as the beneficiary of that fund. The Foundation has discretion as to how the fund will be invested and has a unilateral right to redirect the funds to other uses ( variance power ) if the Conservancy ceases to operate. Distributions made from the fund at the Foundation, to the Conservancy, may include principal and earnings in accordance with the fund agreement. At June 30, 2012 and 2011, approximately $90,700 and $90,600, respectively, of the Conservancy s investments were held at the Foundation. The Conservancy s Investment activities consist of the following at June 30: Interest and Dividends $ 46,972 $ 43,918 Realized and Unrealized Gains - 180,256 Investment Fees (9,339) (8,113) Investment Income, Net $ 37,633 $ 216,061 Investment securities are subject to various risks such as interest rate, market, and credit risks. Due to the level of risks associated with certain investment securities, it is likely that changes in the values of investment securities will occur in the near term and such changes could materially affect the Conservancy s account balances and amounts reported in the Statement of Activities. NOTE 4 INVENTORIES Inventories consist of the following at June 30: Packaged Meat Inventory $ 14,560 $ 14,888 Cattle Inventory 18,231 41,166 Inventories $ 32,791 $ 56,054 13

16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 5 PROPERTY AND EQUIPMENT, NET Property and equipment consists of the following at June 30: Autos and Trucks $ 75,415 $ 63,910 Improvements 452, ,852 Office Equipment 20,039 17,952 Maintenance Equipment 35,840 7,255 Breeding Cattle and Horses 50,715 53,050 Sub-total 634, ,019 Less Accumulated Depreciation and Amortization (176,100) (121,799) Property and Equipment, Net $ 458,049 $ 439,220 Depreciation expense for the years ended June 30, 2012 and 2011 were $54,476 and $29,392, respectively. NOTE 6 CONSERVATION EASEMENTS During the years ended June 30, 2012 and 2011, the Conservancy received conservation easement funds of $1,051,500 and $1,850,000, respectively, for the acquisition of approximately 631 and 2,990 acres of land. At June 30, 2012, the Conservancy has acquired conservation easements, either through donations or purchases, on approximately 12,668 acres of land throughout the Central California area. NOTE 7 CONSERVED LAND Conserved land consists of the following at June 30: Tivy Mountain Preserve: Tivy Mountain Preserve $ 164,000 $ 164,000 DeLeon Property 100, ,000 Franklin Property 140, ,000 Carter Property 59,000 59,000 Beach Property 135, ,000 Morrison Property 156, ,601 Total Tivy Mountain Preserve $ 754,601 $ 754,601 14

17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 7 CONSERVED LAND (Continued) Total Tivy Mountain Preserve $ 754,601 $ 754,601 Black Mountain Miller Preserve: Miller Preserve 142, ,000 Black Mountain Ridge 190, ,000 Ferrell Property 364, ,000 Staebler Property 67,891 67,891 Kneeland/Shows Property 1,186,435 1,186,435 Reed Property 40,452 40,452 Total Black Mountain Miller Preserve 1,990,778 1,990,778 Other Preserve: Table Mountain Preserve 592, ,000 Fine Gold Creek 2,793,260 2,793,260 Feliciana Mountain Preserve 110, ,000 Haslett Basin Property 75,325 75,325 Bean Creek 203, ,000 Total Other Preserve 3,773,585 3,773,585 Total Conserved Land $ 6,518,964 $ 6,518,964 The Conservancy received a donation of land with an appraised value of $203,000 and approximately 80 acres for the year ended June 30, The Conservancy did not receive any donated land during the year ended June 30, At June 30, 2012, the Conservancy owns in fee title approximately 6,220 acres of foothill land preserved and protected within the Central California area. The value of conserved land that has been Permanently Restricted by the donors totaled $5,924,020 at June 30, 2012 and NOTE 8 CONCENTRATION OF CREDIT RISK The Conservancy maintains balances in various accounts with banks and brokerage institutions. At June 30, 2012 and 2011, no balances were in excess of insurance provided by FDIC, SIPC and brokerage private insurance for cash and cash equivalents or investment securities. NOTE 9 LINES-OF-CREDIT AND LONG-TERM DEBT The Conservancy maintained a $50,000 working capital line-of-credit with Central Valley Community Bank. During the year ended June 30, 2011, the maximum amount outstanding on the line-of-credit was $25,460. Interest on the line accrues at the bank s reference rate plus 2.75% and at no time will be less than 5%. The Conservancy incurred $1,753 in interest expense related to the line-of-credit during the year ended June 30, Amounts drawn on the line-of-credit are secured by substantially all of the Conservancy s assets, other than conserved land. The line-of-credit agreement expired during the year ended June 30, 2012 and extended on substantially similar terms through August

18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 9 LINES-OF-CREDIT AND LONG-TERM DEBT (Continued) The LLC had a $300,000 revolving line-of-credit with Central Valley Community Bank. Interest on the line accrues at a fixed interest rate of 7.25%. In accordance with the loan agreement, the outstanding balance on the line-of-credit balance on December 2011 of $300,000 was converted into a commercial loan with predetermined principal and interest payments through the maturity date of December 5, During the year ended June 30, 2011, the LLC s maximum amount outstanding on the line-of-credit was $152,614. The LLC incurred $16,951 and $1,433 in interest expense during the years ended June, 30, 2012 and 2011, respectively. The balance outstanding on the note and line at June 30, 2012 and 2011 was $280,000 and $152,614, respectively. The loan is secured by substantially all of the LLC s assets and is guaranteed by the Conservancy. Maturities of long-term debt are approximately as follows: and thereafter $ 38,000 50,000 54,000 58,000 80,000 Total Long-Term Debt $ 280,000 NOTE 10 FAIR VALUE MEASUREMENTS In accordance with generally accepted accounting principles, fair value is defined as the price that the Conservancy would receive upon selling an asset or pay to transfer a liability at the reporting date. Generally accepted accounting principles establishes a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs, and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs are those that reflect the reporting entity s own assumptions about the factors market participants would use in pricing the asset or liability developed based on the best information available. The three-tier hierarchy of inputs is summarized in the three broad levels listed below: Level 1 Valuations based on quoted prices in active markets for identical assets or liabilities Level 2 Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly, and fair value is determined through the use of other valuation methodologies Level 3 Valuations based on inputs that are not observable and significant to the overall fair value measurement, including the Conservancy s own assumptions in determining the fair value of assets or liabilities 16

19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 10 FAIR VALUE MEASUREMENTS (Continued) The following is a summary of the inputs used as of June 30 in valuing the Conservancy s financial assets carried at fair value: Level 1 Level 2 Level Total Types of Investments: Equity Securities $ 1,000,691 $ - $ - $ 1,000,691 Bond Mutual Funds 711, ,046 Total Investment Securities $ 1,711,737 $ - $ - $ 1,711,737 Level 1 Level 2 Level Total Types of Investments: Equity Securities $ 785,317 $ - $ - $ 785,317 Bond Mutual Funds 573, ,663 Total Investment Securities $ 1,358,980 $ - $ - $ 1,358,980 NOTE 11 BOARD DESIGNATED AND RESTRICTED NET ASSETS Board Designated Net Assets Board Designated Net Assets consist of the following at June 30: Board Fund $ 6,424 $ 25,859 Black Mountain Ridge 190, ,000 Franklin Property 140, ,000 Morrison Property 156, ,601 Total Board Designated Net Assets $ 493,025 $ 512,460 17

20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 11 BOARD DESIGNATED AND RESTRICTED NET ASSETS (Continued) Temporarily Restricted Net Assets Temporarily Restricted Net Assets consist of the following at June 30: McKenzie Trust $ 693,114 $ 676,896 Black Mountain Protection Fund 51,883 82,325 Conservation Easement Monitoring Fund 190, ,350 Kennedy Table Interim Fund 5,812 10,632 Nature Center 3,945 3,880 Kennedy Table Management 10,079 8,623 Fine Gold Management 25,512 56,689 PG&E Education Grant 4,573 3,221 Education and Wildlife Outreach Grants 3,586 1,320 Edison Grant 484 4,592 Kaiser Education Grant - 94 Feliciana Mountain Maintenance Fund 33,029 34,700 Table Mountain Sign Fund Conservation Easement Defense Fund 22,842 23,525 Point Millerton Maintenance Fund 31,287 43,638 Madera County Oak Woodland Fund 34,998 34,986 Stewardship Council Fund 15,005 15,000 LTA Guided Assessment Grant 994 3,000 Table Mountain Fund 34, ,054 Bean Creek Mitigation Fund 106,374 - Campos Fund 184,340 - Total Temporarily Restricted Net Assets $ 1,453,484 $ 1,382,025 18

21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 11 BOARD DESIGNATED AND RESTRICTED NET ASSETS (Continued) Permanently Restricted Net Assets Permanently Restricted Net Assets consist of the original appraised values of land contributions and endowment funds as follows at June 30: Conserved Land: Tivy Mountain Preserve: Tivy Mountain Preserve $ 164,000 $ 164,000 DeLeon Property 100, ,000 Carter Property 59,000 59,000 Beach Property 135, ,000 Total Tivy Mountain Preserve 458, ,000 Black Mountain Miller Preserve: Miller Preserve 142, ,000 Ferrell Property 364, ,000 Kneeland/Shows Property 1,130,000 1,130,000 Total Black Mountain Miller Preserve 1,636,000 1,636,000 Other Preserve: Table Mountain Preserve 592, ,000 Fine Gold Creek 2,793,260 2,793,260 Haslett Basin Property 70,000 70,000 Feliciana Mountain Preserve 110, ,000 Bean Creek 203, ,000 Total Other Preserve 3,768,260 3,768,260 Endowment Funds: Kennedy Table Endowment 44,336 44,336 Fine Gold Endowment 126, ,236 Feliciana Mountain Endowment 145, ,500 Campos Endowment 378,200 - Total Endowment Funds 694, ,072 Total Permanently Restricted Net Assets $ 6,556,532 $ 6,178,332 19

22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 11 BOARD DESIGNATED AND RESTRICTED NET ASSETS (Continued) Permanently Restricted Net Assets (Continued) Changes in Permanently Restricted Funds and the related Unrestricted and Temporarily Restricted Funds, arising from such Permanently Restricted Funds consist of the following: Unrestricted Temporarily Restricted Permanently Restricted Total Endowment Net Assets, June 30, 2010 $ - $ 73,144 $ 5,975,332 $ 6,048,476 Total Investment Return, Net - 49, Contributions and Others , ,000 Appropriation of Endowment Assets for Expenditure - (22,317) - (22,317) Endowment Net Assets, June 30, ,012 6,178,332 6,229,159 Total Investment Return, Net - 26,095-26,095 Contributions and Others , ,200 Appropriation of Endowment Assets for Expenditure - (41,716) - (41,716) Endowment Net Assets, June 30, 2012 $ - $ 84,391 $ 6,556,532 $ 6,591,738 A description of the amounts classified as Permanently Restricted Net Assets and Temporarily Restricted Net Assets at June 30 is as follows: Permanently Restricted Net Assets: Portion of Permanently Restricted Funds that are required to be retained permanently either by explicit donor stipulations or by the Uniform Prudent Management of Institutional Funds Act ("UPMIFA") Temporarily Restricted Net Assets: Portion of Temporarily Restricted Funds, arising from Permanently Restricted Funds, subject to a purpose restriction under UPMIFA $ 6,556,532 $ 6,178,332 $ 84,391 $ 100,012 Temporary Net Assets With Purpose Restriction 1,369,093 1,282,013 Total Temporarily Restricted Net Assets $ 1,453,484 $ 1,382,025 20

23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011 NOTE 11 BOARD DESIGNATED AND RESTRICTED NET ASSETS (Continued) Interpretation of Relevant Law The Board of Directors of the Conservancy has interpreted the Uniform Prudent Management of Institutional Funds Act ( UPMIFA ) to require classification, as Permanently Restricted Net Assets, 1) the fair value of a gift of Permanently Restricted Funds, 2) the original value of any subsequent such gifts, and 3) any non-spendable accumulations on such gifts. NOTE 12 SUBSEQUENT EVENTS Contribution During December 2012, the Conservancy received a donation of approximately $1,000,000 for the purchase of 280 acres of foothill property. The terms of the agreement requires the property be maintained by the Conservancy in perpetuity to preserve its natural habitat and wildlife. The Conservancy also expects to receive stewardship funds from the donor for the on-going monitoring and maintenance of the property in the subsequent year. Other Management has evaluated and concluded that there are no other subsequent events that have occurred from June 30, 2012 through the date the financial statements were available to be issued at January 23, 2013 that would require disclosure or adjustment. 21

24 THIS PAGE IS LEFT BLANK INTENTIONALLY. 22

25 ADDITIONAL INFORMATION 23

26 THIS PAGE IS LEFT BLANK INTENTIONALLY. 24

27 INDEPENDENT AUDITOR S REPORT ON ADDITIONAL INFORMATION Board of Directors of Sierra Foothill Conservancy We have audited the consolidated financial statements of Sierra Foothill Conservancy as of and for the year ended June 30, 2012, and have issued our report thereon dated January 23, 2013, which contained an unqualified opinion on those consolidated financial statements. Our audit was performed for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying consolidating information is presented for the purposes of additional analysis of the consolidated financial statements rather than to present the financial position and changes in net assets of the individual organizations 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 consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated 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 consolidated financial statements as a whole. Clovis, California January 23,

28 CONSOLIDATING SCHEDULE, STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED JUNE 30, 2012 Sierra Foothill Sierra Lands Consolidated ASSETS Conservancy Beef Balance Cash and Cash Equivalents $ 574,340 $ 57,254 $ 631,594 Investments 1,711,737-1,711,737 Grants and Other Receivable 3,840-3,840 Prepaid Expenses and Other Assets 25,718-25,718 Inventories - 32,791 32,791 Property and Equipment, Net 399,454 58, ,049 Conserved Land 6,518,964-6,518,964 Total Assets $ 9,234,053 $ 148,640 $ 9,382,693 LIABILITIES AND NET ASSETS Accounts Payable $ 52,874 $ - $ 52,874 Accrued Expenses 37, ,619 Deferred Revenue 29,440-29,440 Agency and Trust Fund 21,882-21,882 Line-of-Credit - 280, ,000 Total Liabilities 141, , ,815 Net Assets: Unrestricted: Undesignated 589,297 (131,460) 457,837 Board Designated 493, ,025 Total Unrestricted 1,082,322 (131,460) 950,862 Temporarily Restricted 1,453,484-1,453,484 Permanently Restricted 6,556,532-6,556,532 Total Net Assets 9,092,338 (131,460) 8,960,878 Total Liabilities and Net Assets $ 9,234,053 $ 148,640 $ 9,382,693 26

29 CONSOLIDATING SCHEDULE, STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012 Sierra Foothill Sierra Lands Consolidated Conservancy Beef Balance Revenues and Support: Grant Income $ 29,275 $ - $ 29,275 Investment Income, Net 48,957-48,957 Contribution and Fundraising 1,942,719-1,942,719 Grazing Fees 16,860-16,860 Fees for Services 74,232-74,232 Membership Dues 60,701-60,701 Miscellaneous Income 2,680 6,000 8,680 Rental Income 3,595-3,595 Beef Sales - 31,151 31,151 Total Revenues and Support 2,179,019 37,151 2,216,170 Total Costs and Expenses 1,698, ,301 1,835,824 Change in Net Assets 480,496 (100,150) 380,346 Net Assets, Beginning of Year 8,611,842 (31,310) 8,580,532 Net Assets, End of Year $ 9,092,338 $ (131,460) $ 8,960,878 27

30 CONSOLIDATING SCHEDULE, STATEMENT OF OPERATING EXPENSES FOR THE YEAR ENDED JUNE 30, 2012 Sierra Foothill Sierra Lands Consolidated Conservancy Beef Balance PERSONNEL COSTS: Salaries and Wages $ 265,478 $ - $ 265,478 Payroll Taxes 27,447-27,447 Total Personnel Costs 292, ,925 OTHER COSTS AND EXPENSES: Advertising and Promotion - 3,347 3,347 Auto Expenses 20,115 5,680 25,795 Bank and Finance Charges 1, ,803 Community Education 7,178-7,178 Conference Expenses 2,842-2,842 Conservation Easements 1,056,547-1,056,547 Cost of Cattle Sold - 42,566 42,566 Dues and Subscriptions 4,549-4,549 Employee Benefits 5,612-5,612 Feed Supplements - 2,829 2,829 Grazing Fees - 4,552 4,552 Insurance 23,110 4,980 28,090 Interest - 16,951 16,951 Loss on Disposition of Assets 1,907 9,785 11,692 Management Fee - 29,253 29,253 Member Events 11,854-11,854 Miscellaneous 4,321 3,671 7,992 Office Expenses 6, ,684 Outside Services 80,502-80,502 Postage and Delivery 2, ,864 Printing and Copying 5,336-5,336 Professional Fees 74,935 3,054 77,989 Property Taxes 9,015-9,015 Rent and Related 7,943-7,943 Repairs and Maintenance 11,547 1,317 12,864 Auction Merchandise 1,373-1,373 Taxes and Licenses 40 1,700 1,740 Travel 3,947-3,947 Utilities 14,714-14,714 Total Other Costs and Expenses 1,358, ,869 1,488,423 Subtotal 1,651, ,869 1,781,348 Depreciation and Amortization 47,044 7,432 54,476 Total Costs and Expenses $ 1,698,523 $ 137,301 $ 1,835,824 28

31 CONSOLIDATING SCHEDULE, STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2012 Sierra Foothill Sierra Lands Consolidated Conservancy Beef Balance Cash Flows From Operating Activities: Change in Net Assets $ 480,496 $ (100,150) $ 380,346 Adjustments to Reconcile Change in Net Assets to Net Cash Provided by (Used in) Operating Activities: Depreciation 47,044 7,432 54,476 Investment Gains (48,957) - (48,957) Loss on Disposition of Assets 1,907 9,785 11,692 Change in Operating Assets and Liabilities: Grants and Other Receivable 2,426-2,426 Prepaid Expenses and Other Assets 1,128-1,128 Inventories - 23,263 23,263 Accounts Payable 40,589 (3,073) 37,516 Accrued Expenses 4, ,154 Agency and Trust Fund and Deferred Revenue 31,072-31,072 Net Cash Provided by (Used in) Operating Activities 559,759 (62,643) 497,116 Net Cash from Investing Activities: Purchase of Property, Equipment and Breeding Cattle (73,195) (11,802) (84,997) Purchase of Conserved Land Proceeds from Sale of Investment Securities 210, ,615 Purchase of Investment Securities (514,415) - (514,415) Net Cash Used in Investing Activities (376,995) (11,802) (388,797) Net Cash from Financing Activities: Advances on Line-of-Credit - 147, ,386 Principal Payments on Line-of-Credit - (20,000) (20,000) Net Cash Provided by Financing Activities - 127, ,386 Net Increase in Cash and Cash Equivalents 182,764 52, ,705 Cash and Cash Equivalents, Beginning of Year 391,576 4, ,889 Cash and Cash Equivalents, End of Year $ 574,340 $ 57,254 $ 631,594 Supplemental Disclosures of Cash Flow Information: Interest Paid $ - $ 16,951 $ 16,951 Taxes Paid $ - $ 800 $