MULTIPLE SCLEROSIS ASSOCIATION OF AMERICA, INC. AND AFFILIATES

Transcription

1 MULTIPLE SCLEROSIS ASSOCIATION OF AMERICA, INC. Consolidated Financial Statements (With Summarized Financial Information for the Year Ended June 30, 2010) and Report Thereon

2 TABLE OF CONTENTS Page Independent Auditor s Report Financial Statements Consolidated Statement of Financial Position... 3 Consolidated Statement of Activities... 4 Consolidated Statement of Functional Expenses... 5 Consolidated Statement of Cash Flows... 6 Notes to Consolidated Financial Statements Supplemental Consolidating Information Consolidating Statement of Financial Position Consolidating Statement of Activities... 20

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors of the Multiple Sclerosis Association of America, Inc. and Affiliates CONSULTING ACCOUNTING TECHNOLOGY Certified Public Accountants We have audited the accompanying consolidated statement of financial position of the Multiple Sclerosis Association of America, Inc. (the Association) and Affiliates (collectively referred to as MSAA) as of June 30, 2011, and the related consolidated statements of activities, functional expenses and cash flows for the year then ended. These consolidated financial statements are the responsibility of MSAA s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of the Affiliates of MSAA, which statements reflect total assets and revenue constituting 58% and 11%, respectively, of the related consolidated totals. The financial statements of the affiliates of MSAA, as of June 30, 2011, were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Affiliates, is based solely on the report of the other auditors. The prior year summarized comparative information has been derived from MSAA s consolidated financial statements for the year ended June 30, 2010, and, in our report dated November 12, 2010, we expressed an unqualified opinion on those consolidated financial 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 consolidated 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 MSAA 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 consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Multiple Sclerosis Association of America, Inc. and Affiliates as of June 30, 2011, 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. Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The accompanying consolidating information as of and for the year ended June 30, 2011, on pages 19 and 20, is presented for purposes of additional analysis and is not a - 1 -

4 required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly stated in relation to the basic consolidated financial statements taken as a whole. RAFFA, P.C. Washington, DC November 9,

5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION June 30, 2011 (With Summarized Financial Information as of June 30, 2010) ASSETS Current Assets Cash and cash equivalents $ 1,852,725 $ 1,366,353 Pledges receivable, net 452, ,333 Accounts receivable 79,070 64,302 Prepaid expenses and other assets 72,897 75,892 Total Current Assets 2,457,645 1,882,880 Investments 2,482,256 2,592,639 Restricted investments for charitable gift annuity program 300, ,000 Restricted cash and cash equivalents 1,571,282 1,264,660 Property and equipment, net 7,431,207 7,595,813 TOTAL ASSETS $ 14,242,390 $ 13,635,992 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable and accrued expenses $ 855,787 $ 1,080,938 Capital lease obligations, current portion - 11,045 Note payable, current portion 6,315 6,110 Mortgage payable, current portion 43,573 39,737 Line of credit 851, ,492 Total Current Liabilities 1,757,167 1,789,322 Tenant security deposits 34,818 36,694 Note payable, net of current portion 11,536 17,642 Mortgage payable, net of current portion 1,388,032 1,431,605 TOTAL LIABILITIES 3,191,553 3,275,263 Net Assets Unrestricted: General - Association 328, ,066 General - Affiliates (189,857) (405,235) Board designated 1,800,000 1,800,000 Total Unrestricted 1,938,585 1,534,831 Temporarily restricted 9,112,252 8,825,898 TOTAL NET ASSETS TOTAL LIABILITIES AND NET ASSETS 11,050,837 10,360,729 $ 14,242,390 $ 13,635,992 The accompanying notes are an integral part of these consolidated financial statements

6 CONSOLIDATED STATEMENT OF ACTIVITIES (With Summarized Financial Information for the Year Ended June 30, 2010) Temporarily Unrestricted Restricted Total Total REVENUE AND SUPPORT Donated materials, services and equipment $ 7,090,251 $ - $ 7,090,251 $ 648,704 Contributions 2,037,942 2,641,266 4,679,208 5,006,767 Grants and bequests 2,944,984-2,944,984 2,865,375 Rental income 1,935,611-1,935,611 1,867,295 Investment income 492, , ,096 Special events 142, , ,478 Miscellaneous income 57,788-57,788 70,185 Net assets released from restrictions: Satisfaction of program restrictions 2,354,912 (2,354,912) - - TOTAL REVENUE AND SUPPORT 17,056, ,354 17,342,805 10,933,900 EXPENSES Program Services: Public education, referral and counseling 6,840,308-6,840,308 1,714,718 Patient services 4,209,927-4,209,927 4,240,808 Housing 1,762,762-1,762,762 1,731,205 Total Program Services 12,812,997-12,812,997 7,686,731 Supporting Services: Fundraising 1,860,218-1,860,218 1,985,951 General and administrative 1,979,482-1,979,482 1,191,624 Total Supporting Services 3,839,700-3,839,700 3,177,575 TOTAL EXPENSES 16,652,697-16,652,697 10,864,306 Change in net assets before change in accounting estimate 403, , ,108 69,594 Change in accounting estimate ,687 CHANGE IN NET ASSETS 403, , , ,281 NET ASSETS, BEGINNING OF YEAR 1,534,831 8,825,898 10,360,729 9,667,448 NET ASSETS, END OF YEAR $ 1,938,585 $ 9,112,252 $ 11,050,837 $ 10,360,729 The accompanying notes are an integral part of these consolidated financial statements

7 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES (With Summarized Financial Information for the Year Ended June 30, 2010) Program Services Supporting Services Public Education, Total Total Referral and Patient Program General and Supporting Counseling Services Housing Services Fundraising Administrative Services Total Total Public service announcements $ 5,783,267 $ - $ - $ 5,783,267 $ - $ 1,014,978 $ 1,014,978 $ 6,798,245 $ 547,578 Patient assistance 224,128 2,366,324 13,567 2,604, ,604,019 2,345,689 Salaries and wages 374, , ,279 1,643, , , ,965 2,232,013 2,462,010 Contract services 91, , ,036 1,226,002 67,321 1,293,323 1,761,359 1,963,183 Postage, printing and mailing costs 111, , , ,553 74, , ,510 1,030,484 Occupancy 37,564 15, , ,817 6,848 26,408 33, , ,585 Payroll taxes and fringe benefits 98, ,182 94, ,892 32, , , , ,506 Depreciation and amortization 16,114 4, , ,782 2,697 9,565 12, , ,789 Professional fees and counseling 35,935 56,929 58, ,288 16,094 91, , , ,360 Interest 2,407 11, , , ,209 13, , ,798 Office supplies and expenses 7,146 25,732 98, ,652 1,968 22,847 24, , ,354 Licenses and fees 17,064 12, ,140 69,191 33, , , ,404 Travel 7,253 20,447 1,790 29,490 3,391 27,876 31,267 60,757 60,368 Bank and investment management fees 3,731 11, ,491 25,809 18,421 44,230 59,721 58,385 Miscellaneous 1,549 4,356 49,494 55, ,070 3,632 59,031 48,048 Special events ,800-51,800 51,800 46,101 Telephone 5,218 12, ,772 1,981 3,924 5,905 23,677 27,068 Data processing and list costs 1,315 4, , ,458 6,824 12,947 12,825 Advertising 9,331-1,581 10,912-1,820 1,820 12,732 20,976 Publications 11, , ,227 9,795 TOTAL EXPENSES $ 6,840,308 $ 4,209,927 $ 1,762,762 $ 12,812,997 $ 1,860,218 $ 1,979,482 $ 3,839,700 $ 16,652,697 $ 10,864,306 The accompanying notes are an integral part of these consolidated financial statements

8 CONSOLIDATED STATEMENT OF CASH FLOWS (With Summarized Financial Information for the Year Ended June 30, 2010) Increase (Decrease) in Cash and Cash Equivalents CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 690,108 $ 693,281 Adjustments to reconcile change in net assets to net cash provided by operating activities: Change in accounting estimate - (623,687) Depreciation and amortization 344, ,789 Net unrealized and realized gains on investments (402,227) (246,389) Changes in assets and liabilities: Pledges receivable (76,620) 132,969 Accounts receivable (14,768) (10,259) Prepaid expenses and other assets 2,995 28,396 Accounts payable and accrued expenses (225,151) (220,073) Tenant security deposits (1,876) 782 NET CASH PROVIDED BY OPERATING ACTIVITIES 316,505 85,809 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments (1,594,059) (3,311,396) Proceeds from sales of investments 2,106,669 3,193,002 Deposits to restricted cash for replacement reserves and interest (306,622) (87,039) Purchases and construction of property and equipment (179,438) (334,547) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 26,550 (539,980) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on capital lease obligations (11,045) (1,524) Principal payments on mortgage payable (39,737) (36,239) Principal payment on note payable (5,901) (5,512) Proceeds from drawdowns on line of credit 200, ,000 Principal payments on line of credit - (106,561) NET CASH PROVIDED BY FINANCING ACTIVITIES 143, ,164 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 486,372 (104,007) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,366,353 1,470,360 CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,852,725 $ 1,366,353 SUPPLEMENTAL CASH FLOW INFORMATION Actual cash payments for interest $ 162,347 $ 153,798 The accompanying notes are an integral part of these consolidated financial statements

9 1. Organization and Summary of Significant Accounting Policies Organization The Multiple Sclerosis Association of America, Inc. (the Association) was incorporated as a nonprofit organization in The mission of the Association is to ease the day-to-day challenges of individuals with multiple sclerosis (MS) and their caregivers through service, education and research. These activities are funded primarily through contributions from individuals. The affiliates of the Association Multiple Sclerosis Housing, Inc. (MSH); MSAA Housing for Independent Living, Inc. (MSAA HIL); MSAA Jacksonville, Inc. (MSAA Jacksonville); Multiple Sclerosis Handicapped Housing, Inc. (MSHH); and MSAA Housing for the Disabled, Inc. (MSAA HFD) (collectively referred to as the Affiliates) have been organized to acquire real property in various locations and to construct and operate thereon an apartment complex for elderly and handicapped persons. Such projects are regulated by the U.S. Department of Housing and Urban Development (HUD) as to rent charges and operating methods. Principles of Consolidation The consolidated financial statements of the Association and its Affiliates (collectively referred to as MSAA) have been prepared on the accrual basis of accounting and include the accounts of the Association and its Affiliates. All material intercompany balances and transactions have been eliminated in the consolidation. Cash and Cash Equivalents MSAA considers all money market funds to be cash equivalents. Investments Investments are composed of equity mutual funds, fixed-income mutual funds, and inflation hedges and are recorded in the accompanying consolidated financial statements at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair Value of Financial Instruments In accordance with the accounting standards for fair value measurements for those assets and liabilities that are measured at fair value on a recurring basis, MSAA has categorized its applicable financial instruments into a required fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to - 7 -

10 1. Organization and Summary of Significant Accounting Policies (continued) Fair Value of Financial Instruments (continued) measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Applicable financial assets and liabilities are categorized based on the inputs to the valuation techniques as follows: Level 1 Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities accessible at the measurement date. Level 2 Inputs based on quoted prices in markets that are not active or model inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability, such as quoted prices for similar assets or liabilities in active markets. Level 3 Unobservable inputs for the asset or liability, including the reporting entity s own assumptions in determining the fair value measurement. As of June 30, 2011, only MSAA s investments, as described in Note 3, were measured at fair value on a recurring basis. Pledges Receivable MSAA reports unconditional promises to give as contributions. All pledges are expected to be collected in less than one year and are recorded at the estimated amount to be ultimately realized. Accrued expenses include the costs related to the solicitation of pledges receivable. Property and Equipment and Related Depreciation and Amortization Property and equipment are recorded at cost. Depreciation is recorded principally on a straight-line basis over the estimated useful lives of the respective assets, which range from five to seven years for furniture and equipment and 30 to 40 years for buildings. Expenditures for major repairs and improvements are capitalized; expenditures for minor repairs and maintenance costs are expensed as incurred. Upon the retirement or disposal of assets, the cost and accumulated depreciation are eliminated from the respective accounts and the resulting gain or loss, if any, is included in revenue or expenses in the accompanying consolidated statement of activities

11 1. Organization and Summary of Significant Accounting Policies (continued) Classification of Net Assets The net assets of MSAA are reported as follows: Unrestricted net assets represent the portion of expendable funds that are available for support of MSAA s operations. Also included in unrestricted net assets are $300,000 of funds for the charitable gift annuity program and $1,500,000 of funds designated by the Board of Directors to serve as a working capital reserve. Temporarily restricted net assets represent funds that are specifically restricted by donors and HUD for use in various programs. Revenue Recognition Unrestricted contributions are reported as revenue in the year in which payments are received and/or unconditional promises are made. MSAA reports gifts of cash and other assets as temporarily restricted if they are received with donor stipulations that limit the use of the donated assets. 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 consolidated statement of activities as net assets released from restrictions. MSAA receives capital advances from HUD under Section 811 of the National Affordable Housing Act. These advances are reported as temporarily restricted support when received. The capital advances do not bear interest and are not required to be repaid as long as the housing remains available to disabled persons for at least 40 years. Failure to keep the housing available to disabled persons would result in HUD billing the owner for the entire capital advance outstanding, plus interest, since the date of the first advance. The entire amount of the capital advances will be released from temporarily restricted net assets upon the expiration of the 40-year term of the agreements, which will occur between 2033 and Rental income is recognized as rentals become due. All leases between MSAA and the tenants of the property are operating leases. Donated Materials, Services and Equipment The Association records various donated materials, services and equipment, which include public service announcements, the Google AdWords Campaign and development of an iphone application. Donated services are recognized at fair value if the services received create or - 9 -

12 1. Organization and Summary of Significant Accounting Policies (continued) Donated Materials, Services and Equipment (continued) enhance long-lived assets or require specialized skills, are provided by individuals processing those skills, and would typically need to be purchased if not provided by donation. Donated materials and equipment are recognized at fair value when received. The amounts reflected in the accompanying consolidated statement of activities as donated materials, services and equipment are offset by like amounts included in the accompanying consolidated statement of functional expenses as public service announcements and patient assistance based on the functional areas benefited. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the accompanying consolidated statement of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services based upon various methods deemed to justify the benefits received by those programs and supporting services. Estimates The preparation of consolidated 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. 2. Investments As of June 30, 2011, the Association s investments, including amounts restricted for the charitable gift annuity program, consisted of the following: Fair Value Equity mutual funds $ 1,568,959 Fixed-income mutual funds 1,081,871 Inflation hedges 131,426 Total $ 2,782,

13 2. Investments (continued) Investment returns are summarized as follows for the year ended June 30, 2011: Unrealized gains $ 113,051 Realized gains 289,176 Interest and dividends 85,854 Total $ 488,081 Also included in investment income in the accompanying consolidated statement of activities is $4,868 of interest income earned on cash and cash equivalents. 3. Fair Value Measurements The following table summarizes MSAA s assets measured at fair value on a recurring basis as of June 30, 2011: Quoted Prices in Active Markets for Significant Identical Other Significant Assets/ Observable Unobservable Liabilities Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) Investments: Equity mutual funds: Large cap $ 957,122 $ 957,122 $ - $ - International 488, , Small cap 123, , Fixed-income mutual funds: Short term 936, , High yield 145, , Inflation hedges 131, , Total $ 2,782,256 $ 2,782,256 $ - $

14 4. Restricted Cash and Cash Equivalents Restricted cash and cash equivalents represent amounts required to be maintained in accordance with regulatory agreements with HUD for the replacement of property and other expenditures, as approved by HUD. As of June 30, 2011, $1,571,282 is included in restricted cash and cash equivalents in the accompanying consolidated statement of financial position in accordance with the terms of these agreements. 5. Property and Equipment and Related Depreciation and Amortization MSAA held the following property and equipment as of June 30, 2011: Land $ 737,672 Buildings and improvements 10,258,850 Furniture, fixtures and equipment 1,034,221 Total Property and Equipment 12,030,743 Less: Accumulated Depreciation (4,599,536) Property and Equipment, Net $ 7,431,207 Depreciation and amortization expense was $344,044 for the year ended June 30, Mortgage Payable As of June 30, 2011, the mortgage payable represents a 30-year building loan provided by HUD. The original amount of the mortgage was $1,835,800. The mortgage note, which is collateralized by MSH s apartment complex, is payable in monthly installments of $14,415, including principal and interest, at an annual rate of 9.25% through November The building, including improvements, is included in net property and equipment at a net book value of $1,055,738. During the year ended June 30, 2011, interest expense under this mortgage was $134,

15 6. Mortgage Payable (continued) The schedule of future principal payments under the note is as follows as of June 30, 2011: For the Year Ending June 30, 2012 $ 43, , , , ,992 Thereafter 1,167,425 Total Mortgage Payable 1,431,605 Less: Current Portion (43,573) Noncurrent Portion $ 1,388, Temporarily Restricted Net Assets As of June 30, 2011, temporarily restricted net assets are available for the following purposes: Housing $ 6,853,200 Patient services 2,259,052 Total $ 9,112, Commitments and Contingencies Concentrations of Risk The operations of each of the Affiliates are concentrated in the multifamily real estate market. The Affiliates operate in a heavily regulated environment. The operations of the Affiliates are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change

16 8. Commitments and Contingencies (continued) Concentrations of Risk (continued) MSAA maintains its cash and cash equivalents with certain commercial financial institutions, which aggregate balance, at times, may exceed the Federal Deposit Insurance Corporation (FDIC) insured limit of $250,000 per depositor per institution. As of June 30, 2011, MSAA had $1,852,725 composed of demand deposits and savings and money market accounts, which exceeded the maximum limit insured by the FDIC by approximately $262,000. MSAA monitors the creditworthiness of these institutions and has not experienced any credit losses on its cash and cash equivalents. Capital Lease MSAA leases its copier under a capital lease agreement, which expired in June The fully depreciated leased equipment was included in property and equipment at a cost of $27,531 and was disposed of during the year. In May 2011, the Association entered into a new capital lease agreement for two new copiers. The copiers were delivered and the lease commenced in July The lease expires in September As of June 30, 2011, future minimum payments under the capital lease are as follows: For the Year Ending June 30, 2012 $ 11, , , , ,431 Thereafter 2,858 Total Future Minimum Lease Payments 60,013 Less: Amount Representing Interest (2,488) Present Value of Net Minimum Lease Payments $ 57,

17 8. Commitments and Contingencies (continued) Note Payable The Association has a loan for $31,000 for its telephone system. The loan term is 60 months and expires in February The interest rate is 6.75%. The telephone system is included in property and equipment at a cost of $31,750, with accumulated depreciation of $14,817. As of June 30, 2011, the future minimum payments are as follows: Line of Credit For the Year Ending June 30, 2012 $ 7, , ,896 Total Future Minimum Lease Payments 19,584 Less: Amount Representing Interest (1,733) Present Value of Net Minimum Lease Payments 17,851 Less: Current Portion (6,315) Noncurrent Portion $ 11,536 The Association has a $2,000,000 revolving line of credit with a bank that is secured by the Association s investments held at the bank. The interest rate is calculated using the bank s commercial rate index, which, as of June 30, 2011, was 3.25%. The line of credit is due upon demand. As of June 30, 2011, $851,492 was outstanding on the line of credit. 9. Donated Materials, Services and Equipment During the year ended June 30, 2011, the Association received the following in-kind contributions, which were recorded at their estimated at fair value on the date of donation: Public service announcements $ 6,798,245 Google AdWords Campaign 212,595 iphone application 79,200 Other 211 Total $ 7,090,

18 9. Donated Materials, Services and Equipment (continued) MSAA s programs are also furthered through the contribution of time from unpaid volunteers. For the year ended June 30, 2011, volunteers have contributed more than 2,413 hours to MSAA s program services. These services are not reflected in the accompanying consolidated statement of activities because they do not meet the necessary criteria for recognition under accounting principles generally accepted in the United States of America. 10. Allocation of Joint Costs For the year ended June 30, 2011, MSAA incurred joint costs for direct mail campaigns, special events and telemarketing activities, all of which included fundraising appeals. These joint costs have been included in contract services; data processing and list costs; and postage, printing and mailing costs in the accompanying consolidated statement of functional expenses. Those joint costs are allocated as follows: Fundraising $ 1,502,921 Patient services 698,783 Public education, referral and counseling 204,946 General and administrative 147,803 Housing 363 Total $ 2,554, Agreement of Sale of HUD Properties On December 4, 2009, Franklin Development Group, LLC (Franklin Development) entered into an agreement with MSAA to purchase the following four HUD properties: Mullan Manor Apartments (owned by MSAA HFD), MSAA Manor (owned by MSH), Roebling Arms Apartments (owned by MSAA HIL) and MSAA Commons (owned by MSHH). As consideration for this agreement, the buyer shall pay MSAA the purchase price of $1, as well as reimburse, at settlement, all attorney s, accounting and administrative fees associated with the transfer of MSAA s ownership interests, which management estimates to be between $125,000 and $145,000. The buyer shall also assume encumbrances and other obligations attached to the properties, which amounted to $1,431,605 as of June 30, On October 27, 2011, the agreement was formally terminated

19 12. Pension Plan MSAA has a noncontributory defined contribution retirement plan that is available to all employees who have completed one year of service and attained 21 years of age. Employer contributions are made to the plan according to an employee s years of service based on percentages, as defined in the plan document. An employee is vested in the employer contributions according to the employee s years of service with MSAA, as defined in the plan document. During the year ended June 30, 2011, MSAA contributed $58,344 to the plan. 13. Income Taxes Under Section 501(c)(3) of the Internal Revenue Code, the Association and its Affiliates are exempt from the payment of taxes on income other than net unrelated business income. For the year ended June 30, 2011, no provision for income taxes was made, as the Association and its Affiliates had no net unrelated business income. MSAA follows the authoritative guidance relating to accounting for uncertainty in income taxes included in Accounting Standards Codification Topic 740, Income Taxes. These provisions provide consistent guidance for the accounting for uncertainty in income taxes recognized in an entity s consolidated financial statements and prescribe a threshold of more likely than not for recognition and derecognition of tax positions taken or expected to be taken in a tax return. MSAA performed an evaluation of uncertain tax positions for the year ended June 30, 2011, and determined that there were no matters that would require recognition in the consolidated financial statements or that may have any effect on its tax-exempt status. As of June 30, 2011, the statute of limitations for tax years 2007 through 2009 remains open with the U.S. federal jurisdiction or the various states and local jurisdictions in which MSAA files tax returns. It is MSAA s policy to recognize interest and/or penalties related to uncertain tax positions, if any, in income tax expense. 14. Change in Accounting Policy During the year ended June 30, 2011, the Association changed its policy for recognizing temporarily restricted contributions. Previously, if a temporarily restricted contribution was received and spent in the same year, the Association recognized the amount as an unrestricted contribution. During the year ended June 30, 2011, the Association recorded contributions whose restrictions were met in the same reporting period as temporarily restricted revenue with a corresponding release from restriction. The change in accounting policy had no impact on the change in net assets reported in the consolidated statement of activities or the beginning of

20 14. Change in Accounting Policy (continued) the year net assets. The Association made this change from one acceptable method under generally accepted accounting principles (GAAP) to another acceptable method under GAAP to ease record keeping. 15. Prior Year Financial Information The consolidated financial statements include certain prior year summarized comparative information in total but not by net asset class and functional area. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with MSAA s consolidated financial statements for the year ended June 30, 2010, from which the summarized information was derived. 16. Subsequent Events In preparing these consolidated financial statements, MSAA has evaluated events and transactions for potential recognition or disclosure through November 9, 2011, the date the consolidated financial statements were available to be issued. Except as disclosed in Note 11, there were no subsequent events that require recognition of, or disclosure in, these consolidated financial statements

21 SUPPLEMENTAL CONSOLIDATING INFORMATION

22 CONSOLIDATING STATEMENT OF FINANCIAL POSITION June 30, 2011 The MSAA MSAA MSAA Association MSH HIL Jacksonville MSHH HFD Total Eliminations Total ASSETS Current Assets Cash and cash equivalents $ 1,762,333 $ 66,828 $ 4,937 $ 3,479 $ 896 $ 14,252 $ 1,852,725 $ - $ 1,852,725 Pledges receivable, net 452, , ,953 Accounts receivable 49,585 11,484 10,063 5,553 1, ,070-79,070 Due from affiliates 9, ,126 (9,126) - Prepaid expenses and other assets 19,064 18,124 10,940 1,275 11,606 11,888 72,897-72,897 Total Current Assets 2,293,061 96,436 25,940 10,307 14,240 26,787 2,466,771 (9,126) 2,457,645 Investments 2,482, ,482,256-2,482,256 Restricted investments for charitable gift annuity program 300, , ,000 Restricted cash and cash equivalents - 345, ,866 58, , ,798 1,571,282-1,571,282 Property and equipment, net 888,011 1,262,238 1,585, ,877 1,264,391 1,697,178 7,431,207-7,431,207 TOTAL ASSETS $ 5,963,328 $ 1,704,475 $ 2,036,318 $ 802,960 $ 1,666,672 $ 2,077,763 $ 14,251,516 $ (9,126) $ 14,242,390 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable and accrued expenses $ 704,008 $ 68,234 $ 19,354 $ 21,024 $ 35,086 $ 17,207 $ 864,913 $ (9,126) $ 855,787 Note payable, current portion 6, ,315-6,315 Mortgage payable, current portion - 43, ,573-43,573 Line of credit 851, , ,492 Total Current Liabilities 1,561, ,807 19,354 21,024 35,086 17,207 1,766,293 (9,126) 1,757,167 Tenant security deposits 2,483 10,459 5,686 3,104 6,765 6,321 34,818-34,818 Note payable, net of current portion 11, ,536-11,536 Mortgage payable, net of current portion - 1,388, ,388,032-1,388,032 TOTAL LIABILITIES 1,575,834 1,510,298 25,040 24,128 41,851 23,528 3,200,679 (9,126) 3,191,553 Net Assets Unrestricted General 328, , (43,622) (155,868) ,121 (188,665) 138, ,585 Board designated 1,800, ,800,000-1,800,000 Total Unrestricted 2,128, ,177 (43,622) (155,868) 4,121 (188,665) 1,938,585-1,938,585 Temporarily restricted 2,259,052-2,054, ,700 1,620,700 2,242,900 9,112,252-9,112,252 TOTAL NET ASSETS 4,387, ,177 2,011, ,832 1,624,821 2,054,235 11,050,837-11,050,837 TOTAL LIABILITIES AND NET ASSETS $ 5,963,328 $ 1,704,475 $ 2,036,318 $ 802,960 $ 1,666,672 $ 2,077,763 $ 14,251,516 $ (9,126) $ 14,242,

23 CONSOLIDATING STATEMENT OF ACTIVITIES The MSAA MSAA MSAA Association MSH HIL Jacksonville MSHH HFD Total Eliminations Total REVENUE AND SUPPORT Donated materials, services and equipment $ 7,090,251 $ - $ - $ - $ - $ - $ 7,090,251 $ - $ 7,090,251 Contributions 4,679, ,679,208-4,679,208 Grants and bequests 2,944, ,944,984-2,944,984 Rental income 77, , , , , ,313 1,935,611-1,935,611 Investment income 489, , , ,949 Special events 142, , ,014 Miscellaneous income 46,559 3,145 2, ,991 1,912 57,788-57,788 TOTAL REVENUE AND SUPPORT 15,469, , , , , ,919 17,342,805-17,342,805 EXPENSES Program Services: Public education, referral and counseling 6,840, ,840,308-6,840,308 Patient services 4,209, ,209,927-4,209,927 Housing 104, , , , , ,146 1,762,762-1,762,762 Total Program Services 11,154, , , , , ,146 12,812,997-12,812,997 Supporting Services: Fundraising 1,860, ,860,218-1,860,218 General and administrative 1,979, ,979,482-1,979,482 Total Supporting Services 3,839, ,839,700-3,839,700 TOTAL EXPENSES 14,994, , , , , ,146 16,652,697-16,652,697 CHANGE IN NET ASSETS 474, ,466 20,781 (12,069) 28,427 32, , ,108 NET ASSETS, BEGINNING OF YEAR 3,912,764 48,711 1,990, ,901 1,596,394 2,021,462 10,360,729-10,360,729 NET ASSETS, END OF YEAR $ 4,387,494 $ 194,177 $ 2,011,278 $ 778,832 $ 1,624,821 $ 2,054,235 $ 11,050,837 $ - $ 11,050,