Combined Financial Statements (UNAUDITED) NATIONAL MULTIPLE SCLEROSIS SOCIETY NATIONAL HEADQUARTERS, FAST FORWARD AND CHAPTERS

Transcription

1 Combined Financial Statements (UNAUDITED) NATIONAL MULTIPLE SCLEROSIS SOCIETY NATIONAL HEADQUARTERS, FAST FORWARD AND CHAPTERS UNAUDITED Page 1

2 National Headquarters, Fast Forward and Chapters TABLE OF CONTENTS Page(s) Combined Financial Statements: Combined Statement of Financial Position as of September 30, 2013, and 2012 (UNAUDITED) 3 Combined Statements of Activities September 30, 2013, and 2012 (UNAUDITED) 4 Combined Statements of Cash Flows September 30, 2013, and 2012 (UNAUDITED) 5 Combined Statements of Functional Expenses September 30, 2013, and 2012 (UNAUDITED) UNAUDITED Page 2

3 Combined Statements of Financial Position (UNAUDITED) As of ASSETS Cash and cash equivalents $ 77,014,307 $ 77,147,331 Contributions receivable 12,608,278 10,749,570 Prepaid expenses and other assets, net of allowance of 10,838,203 6,114,692 approximately $16,000 and $16,000 for 2013 and 2012, respectively Investments (Note #4) 56,880,503 53,706,047 Investments related to charitable gift annuities ( Note#4) 3,912,566 3,915,894 Property and equipment, at cost, net of accumulated 7,394,122 8,247,877 depreciation (Note #5) Total assets $ 168,647,979 $ 159,881,411 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 20,732,271 $ 22,126,323 Grants payable 39,460,258 36,251,123 Deferred revenue 9,647,518 8,764,226 Deferred rent 3,141,523 2,837,664 Liability to annuitants 2,332,850 2,358,096 Total liabilities 75,314,420 72,337,432 NET ASSETS Unrestricted 71,284,858 61,748,010 Temporarily Restricted 15,325,623 17,601,767 Permanently Restricted 6,723,078 8,194,202 Total net assets 93,333,559 87,543,979 Total liabilities and net assets $ 168,647,979 $ 159,881,411 The accompanying notes are an intergral part of these combined financial statements. UNAUDITED Page 3

4 The National Multiple Sclerosis Society, Inc Combined Statements of Activities (UNAUDITED) for the Years Ended SUPPORT AND OTHER REVENUE Temporarily Permanently Unrestricted Restricted Restricted Total Total RECEIVED DIRECTLY Contributions (includes donated public service announcements of approximately $30,634,000 and $4,063,000 for 2013 and 2012, respectively) $ 76,139,639 $ 13,266,729 $ 41,826 $ 89,448,194 $ 54,990,377 Legacies & Bequests 7,166,779 22,541 13,661 7,202,981 6,465,545 Special Events ( Note#3) 168,566, ,566, ,024,919 Less: Direct Donor Benefits (Note#3) (22,388,819) - - (22,388,819) (23,481,520) Total received directly 229,484,051 13,289,270 55, ,828, ,999,321 RECEIVED INDIRECTLY Federal Service Campaign-National Health Agencies 5, , ,297 Allocated by Federated Fundraising Agencies 618, , ,963 1,099,835 Government Grants 384,895 17, , ,321 Total received Indirectly 1,009, ,633-1,347,839 2,437,453 Total support 230,493,257 13,627,903 55, ,176, ,436,774 OTHER REVENUE Investment Return Revenue 5,453, ,904 60,593 6,304,126 5,085,631 All Other Revenue 4,405,485 63,165-4,468,650 3,841,149 Total other revenue 9,859, ,069 60,593 10,772,776 8,926,780 Net assets released from restrcition and reclassifications 17,845,570 (16,943,783) 215,644 1,117,431 - Re-designation of assets by donor 1,616, ,667 (1,802,848) - - Total revenue and other support $ 259,814,122 $ (2,276,144) $ (1,471,124) $ 256,066,854 $ 216,363,554 EXPENSES PROGRAM SERVICES Research 48,453, ,453,715 43,255,235 Client & Community Services 62,617, ,617,852 65,425,784 Professional Education & Training 4,937, ,937,804 6,154,311 Public Health Education (includes donated public service 55,302, ,302,520 27,106,550 announcements of approximately $30,634,000 and $4,063,000 for 2013 and 2012, respectively) Services to Chapters 22,057, ,057,435 23,566,071 Total Program Services 193,369, ,369, ,507,951 SUPPORTING SERVICES Fund-Raising 37,318, ,318,246 37,553,242 Management & General 19,589, ,589,702 15,881,827 Total supporting services 56,907, ,907,948 53,435,069 Total expenses 250,277, ,277, ,943,020 Changes in net assets 9,536,848 (2,276,144) (1,471,124) 5,789,580 (2,579,466) Net Assets, beginning of year 61,748,010 17,601,767 8,194,202 87,543,979 90,123,445 Net Assets, end of year $ 71,284,858 $ 15,325,623 $ 6,723,078 $ 93,333,559 $ 87,543,979 The accompanying notes are an intergral part of these combined financial statements. UNAUDITED Page 4

5 The National Multiple Sclerosis Society, Inc Combined Statements of Cash Flows (UNAUDITED) for the Years Ended CASH FLOW FROM OPERATING ACTIVITIES Changes in net assets $ 5,789,580 $ (2,579,466) Adjustments to reconcile changes in net assets to net cash (used in) provided by operations: Depreciation and amortization 2,538,806 2,868,882 Net realized and unrealized (gain) loss on investments (5,295,101) (789,700) Changes in: Contributions receivable (1,858,708) 1,228,262 Prepaid expenses and other assets (4,723,511) (41,498) Accounts payable and accrued expenses (1,394,052) 897,064 Deferred revenue 303, ,934 Net cash (used in) / provided by operating activities (4,639,127) 2,435,478 CASH FLOW FROM INVESTING ACTIVITIES Purchases of fixed assets (853,755) (999,627) Purchases of investments (35,286,418) (498,242) Proceeds from sales of investments 40,646, ,282 Net cash provided by / (used in) investing activities 4,506,103 (1,086,587) Net (decrease) / increase in cash and cash equivalents (133,024) 1,348,891 Cash and cash equivalents, beginning of year 77,147,331 75,798,440 Cash and cash equivalents, end of year $ 77,014,307 $ 77,147,331 The accompanying notes are an intergral part of these combined financial statements. UNAUDITED Page 5

6 Combined Statement of Functional Expenses (UNAUDITED) as of September 30, 2013 Program Activities Support Services Research Client and Professional Benefit and Research Community Education and Public Services to Fund Management to Donor Year Ended Year Ended Fellowships Services Training Education Chapters Total Raising and General Total Expenses Research and research fellowship grants $ 43,624,784 $ - $ - $ - $ - $ 43,624,784 $ - $ - $ - $ - $ 43,624,784 $ 38,348,183 Specific assistance to individuals and clinics - 7,236, ,236, ,236,475 7,584,553 Salaries 1,928,054 29,246,841 2,848,669 12,797,721 8,872,431 55,693,716 11,598,016 8,400,034 19,998,050-75,691,766 74,210,130 Retirement and health insurance benefits for employees 277,053 4,664, ,222 1,846,659 1,345,489 8,580,428 1,650,567 1,355,614 3,006,181-11,586,609 11,365,041 Payroll taxes 117,083 2,335, ,222 1,063, ,176 4,369, , ,524 1,589,133-5,958,726 5,962,130 Total salaries and related expenses 2,322,190 36,246,561 3,526,113 15,707,777 10,841,096 68,643,737 14,188,192 10,405,172 24,593,364-93,237,101 91,537,301 Travel 389,315 1,280,754 81, , ,636 3,041,080 1,233, ,701 1,567,838 10,473,778 15,082,696 14,597,664 Professional fees and contract service payments 712,130 4,222, ,984 2,023,504 6,787,451 14,024,026 6,261,745 3,058,396 9,320,141-23,344,167 23,356,892 Printing and stationery 71, ,038 68,578 1,700, ,048 3,079,087 3,999,801 1,807,727 5,807,528-8,886,615 9,238,459 Dues, subscriptions and reprints 58, ,490 10,778 89, , , , , , ,733 1,248,782 Office supplies 8, ,600 28, , , , ,828 92, ,552 2,987,783 4,020,673 4,142,804 Rent and electricity 341,417 4,417, ,682 1,753, ,461 7,931,336 1,939,133 1,297,374 3,236,507 2,003,852 13,171,695 12,584,220 Insurance 96, ,307 24, , ,976 1,180,678 55, , ,529-1,341,207 1,246,964 Postage, trucking and express 31, ,437 46, , ,463 1,784,814 2,257,464 1,167,350 3,424,814-5,209,628 5,637,361 Telephone 13, ,895 45, ,310 66, , , , ,452-1,191,893 2,934,439 Conferences and meetings 87,102 2,142, , , ,237 2,978, , , , ,840 4,608,898 5,746,469 Awards and Prizes 31,484 2,267,375 47,605 15,073 37,936 2,399, ,107 21, ,982 3,659,290 6,204,745 5,771,517 Donated Services & Advertising ( Note #2) 545,130 15,660 1, ,613-1,213,327 2,740,994 4,862 2,745,856-3,959,183 1,587,266 Donated Public Service Announcements ( Note#2) ,634,377-30,634, ,634,377 4,063,472 Depreciation and amortization 109, ,166 77, , ,617 1,997, , , ,758-2,538,806 2,868,882 Sundry equipment - 478,598 52, , , , , ,561-1,094,305 1,456,817 Sundry 11, ,756 46, , , ,114 2,892, ,404 3,314,722 2,366,276 6,510,112 8,472,495 Total expenses 2,506,741 19,134,816 1,411,691 39,594,743 11,216,339 73,864,330 23,130,054 9,184,530 32,314,584 22,388, ,567, ,954,503 Total grants, expenses and direct donor costs $ 48,453,715 $ 62,617,852 $ 4,937,804 $ 55,302,520 $ 22,057,435 $ 193,369,326 $ 37,318,246 $ 19,589,702 $ 56,907,948 $ 22,388,819 $ 272,666,093 $ 242,424,540 Less: direct donor costs $ (22,388,819) $ (23,481,520) Total expenses excluding direct donor costs $ 250,277,274 $ 218,943,020 The accompanying notes are an intergral part of these combined financial statements. UNAUDITED Page 6

7 NOTE 1 ORGANIZATION National Multiple Sclerosis Society (the Society ), a national not-for-profit health agency, mobilizes people and resources to drive research for a cure and to address the challenges of everyone affected by MS. The Society is comprised of national and local (chapter) offices across the country, and is governed by a national board of directors and local boards of trustees. The Society s mission is fulfilled through funding cutting-edge research grants and training programs, driving change through advocacy, collaborating with MS organizations worldwide, and connecting people affected by MS to information, resources and people to live their best lives now. To move us ever closer to a world free of MS, the Society, last year alone, invested over $48 million to support more than 380 new and ongoing research projects around the world while providing information and services to over one million people. The Society qualifies as a charitable organization as defined by Internal Revenue Code ( IRC ) Section 501(c)(3) and, accordingly, is exempt from federal income taxes under IRC section 501(a). Additionally, since the Society is publicly supported, contributions qualify for the maximum charitable contribution deduction under the IRC. Fast Forward, its consolidated not-for-profit affiliate (collectively National Headquarters ), derives its tax exemption from the Society and is treated as a disregarded entity for tax purposes. NOTE 2 SIGNIFICANT ACCOUNTING POLICIIES Principles of Combination The accompanying consolidated financial statements consist of the accounts of National Headquarters and Fast Forward, a not-for-profit limited liability company and each of the forty-one chartered chapters. All transactions between the National Headquarters and the chapters have been eliminated. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. UNAUDITED Page 7

8 Net Asset Classifications Resources for various purposes are classified for accounting and financial reporting purposes into net asset classes established according to their nature and purpose as follows: Unrestricted Net Assets: Unrestricted net assets consist of resources available for the support of Society operations. The unrestricted net assets may be used at the discretion of the Society's management and the Board of Directors. Temporarily Restricted Net Assets: Temporarily restricted net assets represent amounts restricted by donors and grantors for specific activities of the Society or to be used at some future date. Permanently Restricted Net Assets: Permanently restricted net assets contain donor imposed restrictions that stipulate the resources are to be maintained permanently. Income earned on permanently restricted net assets is available to be used in the unrestricted or temporarily restricted net asset classes based upon stipulations by the donors. Revenue Recognition All unconditional contributions are recorded as revenue when received at their fair value. The fair value of long-term contributions receivable is measured based on the present value of future cash flows, with consideration of expectation about possible variations in the amount and/or timing of the cash flows and other specific factors that would be considered by market participants. The fair value measurements also consider donors credit risk. Conditional contributions are recognized as revenue when the conditions on which they depend have been substantially met. All contributions are considered available for unrestricted use unless specifically restricted by the donor. The Society records contributions as temporarily restricted if they are received with donor stipulations that limit their use either through purpose or time restrictions. When donor restrictions expire, that is, when a time restriction or purpose restriction is fulfilled, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying statement of activities as net assets released from restrictions. UNAUDITED Page 8

9 Legacies and bequests are recognized when an unassailable right to the gift has been established by the court and the proceeds are measurable. All revenue received in advance for special events that are held subsequent to year-end is deferred. Fast Forward receives contributions under separate collaboration agreements with a pharmaceutical company and another not-for-profit organization (the funding entities) to fund certain sponsored research agreements (SRAs) entered into with certain organizations for the purpose of conducting specified research and development and therapeutic strategies for progressive multiple sclerosis (R&D) activities. Contributions received, which are refundable to the company if not spent for the specified activities, are recorded as support (contributions for R&D) when the activities have been performed or expenditures have been incurred by the recipient organizations. Allowance for Doubtful Accounts National Headquarters maintains an allowance for doubtful accounts for estimated losses that may result from the inability of advertisers to make payment. Such allowances are based on several factors, including, but not limited to, historical experience and the financial condition of the advertisers. These allowances valued at approximately $16,000 and $16,000 for the years ended respectively. Expense Allocations Functional expenses which are not specifically attributable to program services or supporting services are allocated by management based on various allocation factors. Research Grants Research grants are recognized in accordance with defined payment schedules and as the related conditions are met. Research grants, which are generally for three years, are subject to revocation rights by National Headquarters and the continued qualification of grantees, among other things, annually. National Headquarters policy regarding the recognition of grants payable is to include only those amounts for which a specific grantee is identified. UNAUDITED Page 9

10 Payments made under SRAs are recognized as an expense, as services or as R&D activities are performed by the funded entities in accordance with the terms of the SRAs. Funding commitments by Fast Forward, for which future payments are contingent upon achieving certain milestones set forth in the SRAs, are not recognized in the accompanying combined financial statements. Cash and Cash Equivalents The Society considers highly liquid investments with maturities of three months or less when purchased, other than those held in the investment portfolio, to be cash equivalents. Investments and Investment Income Investments in mutual funds and equity securities are carried at fair value, which is based on published unit values or quoted market prices. Investments in debt securities are carried at their fair values, which are based on measurement inputs derived indirectly from quoted market prices or observable inputs, such as quoted market prices for similar securities, interest rates, credit risks, and other factors. Investments in certificates of deposit are carried at cost, which approximates fair value. Warrants received in connection with the funding of SRAs are stated at their estimated fair value. Income earned from investments, including realized and unrealized gains and losses, is recorded in the net asset class owning the assets, except for permanently restricted net assets where the income of which is recorded as temporarily restricted and then reclassified to unrestricted upon appropriation. Split-Interest Agreements and Beneficial Interests in Trusts The Society is the beneficiary in a number of split-interest agreements with donors, whereby National Headquarters controls and invests the donated assets and shares with the donor or the donor s designee income generated from these assets until such time as stated in the agreement (usually upon the death of the donor or the donor s designee). At that time, the residual assets are distributed as designated by the donor. UNAUDITED Page 10

11 Property and Equipment Property and equipment are carried at cost or, if donated, at fair value on the date received. Property and equipment other than leasehold improvements are depreciated on the straightline basis over the respective estimated useful lives of the assets, which range from three to ten years. Leasehold improvements are amortized over the term of the related lease or the estimated useful life of the improvement, whichever is shorter. Donated Services and Materials All donated Services and Materials are recorded as revenue and expense, at fair value, where reasonably determinable. Highly qualified volunteers serving on peer review research committees have donated their time and efforts to the Society. These contributed services were valued at approximately $552,000 and $404,000 for the years ended, respectively, and have been recognized as support (dues and contributions from members and others) and expense in the consolidated statements of activities. Donated public service announcements received of approximately $30,634,000 and $4,063,000 as of respectively are reflected as support and program expense (public education) in the accompanying 2013 combined statement of activities. Other Donated advertising valued at approximately $3,407,000 and $1,182,000 was recorded as of. Other volunteers have also donated significant time to the Society s program services and fundraising campaigns. These services were not reflected in the accompanying consolidated statements of activities because they do not meet the necessary criteria for recognition under GAAP. UNAUDITED Page 11

12 NOTE 3 SPECIAL EVENT REVENUE A summary of the Society s Special Event Revenue at September 30 is as follows: Event Bike MS $ 85,373,370 $ 83,523,460 Walk MS 55,469,433 56,074,240 Muckfest 2,584,403 3,511,400 Dinner of Champions 5,885,830 6,903,548 Other Special Events 19,253,416 17,012,271 Gross Revenue 168,566, ,024,919 less: Direct Donor Benefits (22,388,819) (23,481,520) Net Revenue $ 146,177,633 $ 143,543,399 NOTE 4 INVESTMENTS A summary of the Society s investments at September 30 is as follows: Category Cash & cash equivalents $ 14,436,286 $ 8,220,732 Certificates of Deposit 3,428,254 3,912,956 Equities 20,773,828 14,874,325 Mutual Funds 13,636,558 11,745,187 Fixed Income Securities 3,810,282 9,730,407 Warrants 373, ,073 Investments related to charitable gift annuities 3,912,566 3,915,894 Other 421, ,473 Beneficial interests in trusts 3,912,566 3,915,894 Total Investments $ 60,793,069 $ 57,621,941 UNAUDITED Page 12

13 NOTE 5 FIXED ASSETS At September 30, fixed assets consist of the following: Category Furniture & Fixtures $ 7,263,940 $ 13,522,554 Computer & Software 34,315,038 31,335,825 Equipment 3,171,043 1,894,249 Leasehold Improvements 4,588,191 2,631,332 49,338,212 49,383,961 Accum Deprec. (41,944,090) (41,136,084) Net Fixed Assets $ 7,394,122 $ 8,247,877 NOTE 6 PENSION The Society maintains a noncontributory defined contribution retirement plan which covers all eligible employees of the National Headquarters and participating Chapters. Chapters not participating in the Society plan have defined contribution plans as well. Total Society pension expense for the years ended was approximately $1,998,000 and $1,978,000, respectively. NOTE 7 LEASES Approximate future minimum lease commitments and related sub-lease income under the Society's various lease arrangements are as follows: Year ending September 30th Lease Payments 2014 $ 7,676, ,209, ,936, ,072, ,416,000 Thereafter 14,913,000 Less: Sublease Income (230,000) Total Future Minimum $ 44,991,000 UNAUDITED Page 13

14 NOTE 8 COMMITMENTS FOR RESEARCH AND FELLOWSHIP GRANTS The Society s program services include funding for research and fellowship projects to be conducted in the future, generally over a three year period. Commitments for research and fellowship projects approved for funding in fiscal 2014 have been recorded as research grant expense as of September 30, 2013 and included in the accompanying statement of financial position. The outstanding commitments for research and fellowship projects beyond fiscal 2014 are scheduled for funding approximately as follows: Research and Year Ending September 30th Fellowships 2015 $ 16,005, ,825, ,502, ,000 Total $ 25,912,000 These projects will be funded by unrestricted net assets and support and revenue to be generated by the Society. Commitments for research and fellowship projects are subject, among other things, to revocation rights by the Society, the continued qualifications of grantees and the satisfaction by the grantees of prior conditions before payment. Collaboration Agreement with Merck KGaA During fiscal 2009, Fast Forward entered into an agreement with Merck KGaA, for the purpose of collaborating on the process of soliciting, evaluating, funding, and managing multiple sclerosis research proposals, leading to an SRA between the selected company (the Funded Entity ) and Fast Forward, with Merck KGaA as a third-party beneficiary under the SRA, as well as the execution of a third-party agreement between Merck KGaA and the Funded Entity. The agreement had an initial two-year term, which automatically renewed for three successive 12-month periods unless terminated earlier in accordance therewith. UNAUDITED Page 14

15 Under the collaboration agreement, Fast Forward receives an annual management fee and any unspent amount will be credited against the management fee for the subsequent year or refunded to Merck KGaA should the collaboration terminate under the conditions set forth therein. The agreement was renewed during fiscal year 2013 with a management fee of $700,000, which was received net of approximately $195,000 of unspent prior year s management fees. Approximately $227,000 and $616,000 was earned and expended in during 2013 and 2012, respectively. These amounts have been recorded as contributions for research and development, and research and research fellowships program expense in the accompanying consolidated statements of activities and functional expenses. The unspent portion of the fees, which amounted to approximately $473,000 and $334,000 at September 30, 2013 and 2012, respectively, is reflected in deferred revenue in the accompanying consolidated statements of financial position. The collaboration agreement further provides the Merck KGaA, subject to certain limitations, funds the research activities established under an SRA executed with the Funded Entity. In addition, Fast Forward provides a matching amount up to 10% of Merck KGaA s funding, subject to availability of funds. Collaboration Agreement with Other Not-for-Profit Organizations In October 2010, Fast Forward entered into a collaboration agreement with two not-for-profit organizations, whereby the organizations agreed to fund Fast Forward s programs to aid early-stage pharmaceutical and biotechnology companies engaged in the development of innovative therapeutic and/or diagnostic strategies for multiple sclerosis, and programs to facilitate the translation of academic multiple sclerosis research discoveries into commercial development. The agreement allowed Fast Forward to choose the companies or institutions to be funded from funds provided by the organizations. The agreement expired on December 31, 2012 in accordance with its terms, but the collaboration will continue until the project is complete or funding is fully spent. For fiscal years 2013 and 2012, Fast Forward received funding of $450,000 and $350,000, respectively, and expensed funding of $200,000 each year for fiscal years 2013 and UNAUDITED Page 15

16 Sponsored Research Agreements Fast Forward enters into SRAs with selected companies (each a Research and Development ( R&D ) company) and academic institutions engaged in R&D projects aimed at identifying and developing drugs for the treatment of multiple sclerosis. Under the SRAs, Fast Forward agrees to provide funding for specified R&D activities, payable as defined milestones are achieved. Fast Forward funds SRA s from the public support it receives from donors or through the chapters and National Headquarters, and from other funding entities under collaboration agreements as discussed above. In certain SRAs, Fast Forward received warrants or options to purchase ordinary shares, preferred stock, or common stock, of the respective R&D companies. In addition, certain SRAs entitle Fast Forward to royalties upon the achievement of specified milestones. Fast Forward exercised two warrants related to SRAs in fiscal 2013 and recorded a gain of approximately $2,994,000, which is recorded as part of investment return on the accompanying 2013 consolidated statement of activities. There were no warrants received during fiscal 2013 or 2012, and none of the milestones that would require payment of royalties to Fast Forward have been achieved. SRA Fully Funded from Public Support and Collaboration agreement with Other Not-for-Profit Organizations As of September 30, 2013, Fast Forward entered into twenty SRAs funded by public support and the collaboration agreement with other not-for-profit organizations. Total funds available for expenditure to the R&D companies under these SRAs totaled approximately $2,788,000 and $1,844,000 in fiscal 2013 and 2012, respectively. Approximately $1,655,000 and $1,799,000 was charged to R&D grants expense in 2013 and 2012, respectively, and approximately $1,133,000 and $802,000 was recorded as prepaid expense as of September 30, 2013 and 2012, respectively. Outstanding funding commitments under these SRAs at September 30, 2013 totaled approximately $2,767,000 and are expected to be satisfied by fiscal SRA Funded Under the Collaboration Agreement with Merck KGaA As of September 30, 2013, Fast Forward entered into eleven SRAs pursuant to the terms of the collaboration agreement with Merck KGaA. Total funds available for expenditure to the R&D companies under these SRAs totaled approximately $1,828,000 and $951,000 during fiscal years 2013 and 2012, respectively. Approximately $1,596,000 and $744,000 was charged to R&D grants expense during fiscal years 2013 and 2012, respectively, and approximately $233,000 and $415,000 was recorded as prepaid expense as of September 30, 2013 and 2012, respectively. Outstanding funding commitments under these SRAs at September 30, 2013 totaled approximately $2,187,000 and are expected to be satisfied by fiscal UNAUDITED Page 16

17 NOTE 9 JOINT COSTS In fiscal 2013 and 2012, the Society incurred joint costs for informational materials and activities that included fund-raising appeals. Such costs are allocated based on applicable accounting standards. The costs were allocated as follows for September 30, Allocations Public Education $ 2,250,000 $ 1,329,000 Fundraising 7,368,000 9,443,000 Management & General 3,959,000 1,811,000 Total $ 13,577,000 $ 12,583,000 NOTE 10 TAX-EXEMPT STATUS The National Multiple Sclerosis Society and the forty-four chartered chapters qualify as charitable organizations as defined by the Internal Revenue Code Section 501 (c) (3) and, accordingly, are exempt from Federal income taxes under Internal Revenue Code Section 501 (a). Additionally, since the Society is publicly supported, contributions to the Society qualify for the maximum charitable contribution deduction under the Internal Revenue Code. Management has analyzed the tax positions taken and has concluded that, as of September 30, 2013, there were no uncertain tax positions taken or are expected to be taken. Accordingly, no interest or penalties related to uncertain tax positions have been accrued in the accompanying consolidated financial statements. National Headquarters is subject to audits by taxing jurisdictions; however, there are no audits for any tax periods currently in progress. Management believes that National Headquarters is no longer subject to such audits for the year ended on and prior to September 30, 2009 under federal and other state tax jurisdictions. UNAUDITED Page 17