NATIONAL DISASTER SEARCH DOG FOUNDATION INDEPENDENT AUDITORS REPORT AND CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 NATIONAL DISASTER SEARCH DOG FOUNDATION INDEPENDENT AUDITORS REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 213 AND 212

2 TABLE OF CONTENTS PAGE Independent Auditors' Report 3-4 Consolidated Financial Statements Statements of Financial Position 5 Statements of Activities 6 Statements of Cash Flows 7 Statements of Functional Expenses 8-9 Notes to Consolidated Financial Statements 1-16

3 To the Board of Directors National Disaster Search Dog Foundation INDEPENDENT AUDITORS REPORT We have audited the accompanying consolidated financial statements of National Disaster Search Dog Foundation (a nonprofit organization) as of December 31, 213 and 212, which comprise the consolidated statements of financial position as of December 31, 213 and 212, and the related consolidated statements of activities, cash flows, and functional expenses 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 consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 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 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 evaluation of 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 opinion. Opinion

4 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Disaster Search Dog Foundation as of December 31, 213 and 212, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Hinricher & Douglas, LLP Thousand Oaks, California April 15, 214

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 213 AND 212 ASSETS Current assets: Cash and cash equivalents $ 1,669,442 $ 4,292,43 Investments 2,59,115 1,639,4 Accounts receivable 2,973,376 4,376,967 Prepaid expenses 5,414 6,178 Inventory 56,119 25,472 Deposits 3,15 3,15 Total current assets 7,297,481 1,343,66 Fixed Assets Property and equipment, net of accumulated depreciation of $293,375 and $241,499 1,633, ,94 Construction in progress 8,662,359 5,967,42 Land 3,91,19 3,91,19 Total Fixed Assets 14,197,36 1,158,325 Intangible assets, net of accumulated amortization of $7,781 and $5,869 31,625 21,197 Total assets $ 21,526,466 $ 2,522,588 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable and accrued expenses $ 25,677 $ 46,237 Accrued salary and benefits 48,392 75,947 Agency funds 43,511 5,27 Total current liabilities 297,58 532,211 Long-term liabilities: Notes payable 3,297,566 3,441,194 Total long-term liabilities 3,297,566 3,441,194 Total liabilities 3,595,146 3,973,45 Net assets: Unrestricted 5,875,111 3,867,41 Temporarily restricted 12,56,29 12,682,142 17,931,32 16,549,183 Total liabilities and net assets $ 21,526,466 $ 2,522,588 See accompanying independent auditors report and notes to consolidated financial statements

6 CONSOLIDATED STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 213 AND Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total Public support, revenue and reclassification Contributions $ 825,861 $ 732,11 $ 1,557,962 $ 982,53 $ 6,11,657 $ 7,93,187 Grants 1,98,444 1,98,444 85,778 85,778 Bequest income 793, , , ,759 Year end appeals 19,139 19, , ,338 In-kind donations 2,913,544 2,913,544 2,14,485 2,14,485 Investment income 62,14 62,14 78,29 78,29 Sponsorship income 17,28 17,28 116,43 116,43 Merchandising income 45,92 45,92 2,89 2,89 Other income 42,28 42,28 24,59 24,59 Sponsorship income - SDUSA 154, ,623 45,59 45,59 Releases of restricted net assets 1,358,34 (1,358,34) Total public support 7,591,415 (625,933) $ 6,965,482 5,31,681 6,11,657 $ 11,421,338 Operating expenses Program services 4,369,994 4,369,994 3,39,252 3,39,252 General and administrative 266,51 266,51 329, ,155 Fundraising 554, ,728 86,421 86,421 Operating expenses - SDUSA 392, ,572 45,86 45,86 Total expenses 5,583,345 5,583,345 4,931,634 4,931,634 Change in net assets 2,8,7 (625,933) 1,382, ,47 6,11,657 6,489,74 Net assets at beginning of year 3,867,41 12,682,142 16,549,183 3,487,994 6,571,485 1,59,479 Net assets at end of year $ 5,875,111 $ 12,56,29 $ 17,931,32 $ 3,867,41 $ 12,682,142 $ 16,549,183 See accompanying independent auditors' report and notes to consolidated financial statements

7 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 213 AND CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 1,382,137 $ 6,489,74 Adjustments to reconcile change in net assets to net cash provided (used) by operating activities: Donated stock (115,868) Depreciation and amortization 58,497 54,987 Loss on disposal 1,439 Realized (gains)/losses on investments (2,894) 27,57 Unrealized (gains)/losses on investments (24,937) (82,265) Accrued interest on notes payable (143,628) 83,725 (Increase) decrease in: Accounts receivable 1,43,591 (2,113,45) Prepaid expenses 764 (74) Inventory (3,647) (5,536) Increase (decrease) in: Accounts payable and accrued expenses (2,56) 148,98 Accrued salary and benefits (27,555) 9,751 Agency funds (6,516) 45, NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,293,823 4,657,186 CASH FLOWS FROM INVESTING ACTIVITIES Additions to construction in progress (4,72,5) (2,767,888) Purchases of intangible assets (12,34) (17,737) Purchases of property and equipment (24,56) (91,564) Purchases of investments (3,976,5) (2,239,492) Proceeds from sales of investments 3,168,594 1,471,948 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (4,916,811) (3,644,733) CASH FLOWS FROM FINANCING ACTIVITIES Change in line of credit, net (66,492) NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (66,492) Total increase (decrease) in cash and cash equivalents (2,622,988) 945,961 Cash and cash equivalents at beginning of year 4,292,43 3,346,469 Cash and cash equivalents at end of year $ 1,669,442 4,292,43 Supplemental information: Interest paid $ 3, $ 12,186 Income taxes paid $ $ 9,216 See accompanying independent auditors report and notes to consolidated financial statements

8 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 213 PROGRAM SERVICES SUPPORTING SERVICES Team Training National Other Program Total Program Management Total Supporting TOTAL PROGRAM & Related Expense Training Center Related Expense Services & General Fundraising SDUSA Services & SUPPORT Salaries and related $ 156,34 $ 387 $ 214,885 $ 371,576 $ 154,392 $ 413,229 $ 15,495 $ 718,116 $ 1,89,692 Accounting and legal , ,288 45,832 45,866 Auto and travel 158 7,673 7,831 3, ,13 13,887 21,718 Insurance 379 1,492 1,871 7, ,14 12,19 23,61 Rent 29,232 29,232 1,74 3,828 1,45 7,18 36,25 Repairs and maintenance 2,13 2,13 1,178 2,373 3,551 23,564 Supplies 22,822 22, ,98 Utilities 13,74 6,181 19,921 1,178 2,453 3,631 23,552 Telephone 14,17 14, ,847 2,785 5,472 19,579 Computer 41,553 41,553 2,432 5,19 15,348 22,889 64,442 Marketing 55 1,313 1,368 4,483 4,6 47,97 93,53 193,421 Office 23,762 23,762 16,9 7,182 8,42 32,484 56,246 Shipping and postage 13,548 13, ,922 7,72 9,789 23,337 Miscellaneous 13,528 13,528 13,528 Trainer fees 1,442,8 1,442,8 1,442,8 Training sites 1,47,744 1,47,744 1,47,744 Handler costs 135, , ,262 1, ,497 Equipment rental 7,78 7, ,457 9,237 Taxes and license ,139 Canine recruiting 131, , ,999 Lifetime care program 13,642 13,642 13,642 Events , ,14 8,471 22,433 26,911 57,815 21,829 Outside services 4,563 4, ,239 81,971 83,313 87,876 Stewardship 6,262 6,262 1,192 11,794 12,986 19,248 Professional fundraising 27,847 27,84 298,687 15,932 31,864 47, ,483 Contributions 5, 5, 5, Total operating expenses before depreciation & amortization 3,25,59 43,429 1,83,64 4,332, ,97 549, ,572 1,192,36 5,524,848 Depreciation & Amortization 37,452 37,452 16,144 4,91 21,45 58,497 Total expenses and Depreciation & amortization $ 3,25,59 $ 43,429 $ 1,121,56 $ 4,369,994 $ 266,51 $ 554,728 $ 392,572 $ 1,213,351 $ 5,583,345 See accompanying independent auditors report and notes to consolidated financial statements

9 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 212 PROGRAM SERVICES SUPPORTING SERVICES Team Training National Other Program Total Program Management Total Supporting TOTAL PROGRAM & Related Expense Training Center Related Expense Services & General Fundraising SDUSA Services & SUPPORT Salaries and related $ 178,84 $ $ 141,697 $ 32,51 $ 165,336 $ 39,93 $ 195,81 $ 671,76 $ 991,577 Accounting and legal 23, ,992 67,511 67,511 Auto and travel 3,479 4,465 7,944 2, ,296 9,85 17,749 Insurance 1,461 1,461 13, ,436 14,897 Rent 28,884 28,884 2,436 3,48 5,916 34,8 Repairs and maintenance 1,598 1,9 11, ,368 2,76 13,683 Supplies 1, , , ,74 3,27 228,831 Utilities 1,353 12,581 22,934 1,67 2,734 4,44 27,338 Telephone 16,321 16,321 1,376 1,966 2,349 5,691 22,12 Computer 3,984 3,984 3,716 11,453 2,13 35,272 66,256 Marketing 42,78 42,78 22,241 14, ,613 79,321 Office ,578 23,73 7,24 1,837 1,749 19,61 43,313 Shipping and postage 11,947 11, ,548 2,546 14,493 Interest Miscellaneous Trainer fees 1,63,512 1,63,512 1,63,512 Training sites 836, 836, 836, Handler costs 171,29 171,29 171,29 Equipment rental 2,135 6,195 8, ,646 9,976 Taxes and license ,112 15,189 15,623 Canine recruiting 117, , ,171 Lifetime care program 88,671 88,671 88,671 Events 37,312 24, ,79 2,497 48,571 3,99 73,58 44,767 Outside services ,336 88,51 89,36 Stewardship 561 3,523 4, ,669 17,896 21,98 Professional fundraising 2, ,356 45,638 45,638 Contributions 6,7 6,7 6,7 Merchant fees and discounts 12,561 11,25 23,811 23,811 Total operating expenses before depreciation & amortization 2,249, , ,792 3,367,1 3,195 83,645 45,86 1,59,646 4,876,647 Depreciation & Amortization 23,251 23,251 28,96 2,776 31,736 54,987 Total expenses and Depreciation & amortization $ 2,249,525 $ 338,684 $ 82,43 $ 3,39,252 $ 329,155 $ 86,421 $ 45,86 $ 1,541,382 $ 4,931,634 See accompanying independent auditors report and notes to consolidated financial statements

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 213 AND 212 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Organization National Disaster Search Dog Foundation (the "Foundation"), a non-profit corporation located in Ojai, California, was formed under the general non-profit corporation laws of the State of California to produce the most highly trained canine disaster search teams in the nation. The Foundation accomplishes its mission by providing education, training and guidance to their dogs and handlers. Funding comes from contributions, grants, and program revenue from community members, corporations and foundations. Funds are also raised through fundraisers and special events. The Foundation also maintains a Search Endowment Fund. This non-operating income Fund s goal is to provide at minimum 25% of current operating income needs. The Foundation has established seven months of capital reserves in order to provide uninterrupted services due to a temporary drop in gift income. Any reserves in excess of seven months will be used to increase the Endowment Fund. There is no external restriction on the Endowment Fund balance. All restrictions related to this fund are set internally by the Foundation s management. Consolidation The accompanying consolidated financial statements include the accounts of the Foundation and its wholly-owned subsidiary, Search Dog USA, Inc. a for- profit corporation. All significant intercompany accounts have been eliminated in consolidation. Financial Statement Presentation The Foundation s consolidated financial statements are presented in accordance with Generally Accepted Accounting Principles (GAAP) for not-for-profit organizations. Under this guidance, the Foundation 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. The Foundation presently has no permanently restricted net assets. In addition, the Foundation is required to present a statement of cash flows

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 213 AND 212 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Contributions The Foundation records contributions in accordance with generally accepted accounting principles for not-for-profit organizations. Under this guidance, contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions. Restricted contributions are required to be reported as either temporarily or permanently restricted support and are reclassified to unrestricted net assets upon the release of restriction. In addition, unconditional promises to give are recorded in the year made. Conditional promises to give are recognized when the conditions upon which they were given are substantially met. Contributed Services The Foundation receives services from volunteers who perform various services for the Foundation. Contributions of goods and the use of facilities are also donated to the Foundation. The Foundation records the value of services and goods received at their estimated fair value at the date of donation. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities (e.g. the fair value of financial instruments, potential impairments to fixed assets and accrued expenses) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents Highly liquid investments with initial maturities of three months or less are considered to be cash equivalents unless they are donor restricted or board designated for long term purposes. Investments The Foundation presents its investments in accordance with generally accepted accounting principles for not-for-profit organizations. Under this guidance investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values in the statement of financial position. Unrealized gains and losses are included in the change in net assets and are allocated among the three classifications of net assets on the market value method

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 213 AND 212 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounts Receivable Accounts receivables consist primarily of pledges receivable in the form of grants and promises to give. Pledges receivable are recorded at net realizable value which approximates fair value. The Foundation considers pledges, grants, and other accounts receivables to be fully collectible, accordingly, no allowance for doubtful accounts is required. Inventory Inventory consists primarily of shirts and totes used by unrelated organizations that use the dog training facility. Inventory is valued at cost using the first-in, first-out method. Property and Equipment Purchased property and equipment are stated at cost. Donated property is stated at fair value at the date of acquisition. Depreciation is computed using the straight-line method over the estimated useful lives as follows: Buildings and improvements Leasehold improvements Equipment and furnishings Vehicles 39 years 5 years to 1 years 5 to 1 years 3 and 5 years Expenditures for maintenance and repairs are charged directly to the appropriate operating account at the time the expense is incurred. Expenditures determined to represent additions and betterments are capitalized. Advertising The Foundation expenses the costs of advertising in the period incurred. Income Tax Status The Foundation is exempt from federal and state income tax under Section 51(c)(3) of the Internal Revenue Code and California tax laws. The Foundation files annual federal and state information returns. The Foundation's wholly owned subsidiary, SDUSA, is not exempt from federal and state income taxes, and therefore, a provision for income taxes has been accrued at December 31, 212 for $9,216. There was no provision for income taxes for the year ended December 31, 213. At December 31, 213 the Foundation s and SDUSA's returns generally remain open for the three preceding years

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 213 AND 212 NOTE 2 - ACCOUNTS RECEIVABLE Accounts receivable consists primarily of unconditional promises to give from donors for the construction of the National Training Center. Promises to give are recorded at their net realizable value. Substantially all promises to give are due within 1-5 years. Included in accounts receivable at December 31, 213 and 212 are $2,945,951 and $4,31,939, respectively, that are restricted pledges to be used for the construction of the National Training Center. NOTE 3 - CONCENTRATION OF CREDIT RISK The Foundation maintains bank accounts at various financial institutions. Accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $25,. At December 31, 213 the Foundation had $91,343 of uninsured cash. There was no uninsured cash at December 31, 212. Cash equivalents, other securities, and limited amounts of cash held in brokerage accounts are protected by the Securities Investors Protection Corporation (SIPC). At December 31, 213 and 212 the Foundation had $632,13 and $2,464,769 respectively, of cash and cash equivalents held in brokerage accounts. At December 31, 213 and 212 there were five major donors from whom promises to give were received and represented 7% and 65%, respectively, of accounts receivable. NOTE 4 - INVESTMENTS In accordance with authoritative guidance on fair value measurements and disclosures under U.S. GAAP, the Foundation has categorized its investments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the investments fall within different levels of the hierarchy, the categorization is based on the lowest level input. The standard describes three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 213 AND 212 NOTE 4 - INVESTMENTS (Continued) Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. The following table presents information about the Foundation's investments measured at fair value as of December 31, 213 and 212: Assets at Fair Value as of December 31, 213 Level 1 Level 2 Level 3 Total Equities Fixed Income U.S. Treasuries U.S. Corporate Bonds Mutual Funds $1,148,64 727,794 26, , ,914 $ $ $1,148,64 727,794 26, , ,914 $2,59,115 $ $ $2,59,115 Assets at Fair Value as of December 31, 212 Level 1 Level 2 Level 3 Total Equities Fixed Income Commodities $ 53,547 1,71,698 63,759 $ $ $ 53,547 1,71,698 63,759 $1,639,4 $ $ $1,639,4 The following schedule summarizes the investment income in the statement of activities for the years ended December 31: Interest and dividends Realized gains/(losses) Unrealized gains/(losses) Investment expenses 213 $ 56,61 2,894 24,937 (22,418) 212 $ 37,349 (27,57) 82,265 (14,267) Total investment income $ 62,14 $ 78,

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 213 AND 212 NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31: Land Land improvements Automobiles Office equipment Furniture and fixtures Leasehold improvements Buildings $ 3,91,19 1,311,1 185,427 $ 3,91,19 134, ,785 17,951 57,26 28,81 95,128 97,892 98,981 98,981 5,828,376 4,432,422 Less: accumulated depreciation (293,375) 5,535,1 (241,499) 4,19,923 Construction in progress 8,662,359 5,967,42 $ 14,197,36 $ 1,158,325 Depreciation and amortization expense for the years ended December 31, 213 and 212 were $58,497 and $54,987, respectively. NOTE 6 - NOTE PAYABLE In February 28, the Foundation acquired vacant land to be the future site of its National Training Center. The purchase was financed with a note payable to the seller of the property in the amount of $3,,. The note is secured by the property acquired and accrues simple interest at 6% per annum through February 211. The note accrues compounded interest at 6% per annum beginning March 1, 211. Beginning on April 1, 213 the note was renegotiated; the annual interest rate was reduced to 4.5% and annual payments of $3, are due annually on December 14 starting in 214. The principal and any unpaid accrued interest are due when the note matures in February 219. Accrued unpaid interest on the note payable at December 31, 213 and 212 was $297,566 and $441,194, respectively. Capitalized interest at December 31, 213 and 212 on this note for construction in progress was $1,67,566 and $911,194, respectively

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 213 AND 212 NOTE 7 - COMMITMENTS AND CONTINGENCIES The Foundation leases a postage machine under an operating lease. The lease expires March 31, 215. The future minimum lease payments are as follows: For the year ended December 31, 214 $ 1, The lease expense for the postage machine for each of the years ended December 31, 213 and 212 was $1,523. The Foundation leases its administrative offices on a month-to-month basis. Rent expense for the administrative office for the years ended December 31, 213 and 212 was $34,8 for each year. NOTE 8 - RESTRICTIONS OF NET ASSETS Temporarily restricted net assets at December 31, 213 and 212 are available for the following purposes: National Training Center $ 12,53,989 $ 12,679,642 Education and training 2,22 2,5 $ 12,56,29 $ 12,682,142 NOTE 9 - RETIREMENT PLAN The Foundation maintains a 41(k) plan for employees and will match the employee's contributions up to 3.5% of their monthly salary. NOTE 1 - EVALUATION OF SUBSEQUENT EVENTS Subsequent events have been evaluated through April 15, 214 the date the financial statements were available to be issued