Special Note Regarding 2013 Financials:

Transcription

1 Special Note Regarding 2013 Financials: As a result of increased product sales and a larger than anticipated distribution from a trust, NewView Oklahoma ended fiscal year 2013 with a surplus of $1.6 million. As per the direction of the Board of Directors, a portion of funds is being used to pay off long-term debt with Bank of America and Chase by March 31. The remainder of the funds will be used to address immediate building maintenance needs and establish a three to six month operating reserve.

2 Audited Financial Statements

3 AUDITED FINANCIAL STATEMENTS Independent Auditors Report... 1 Statements of Financial Position... 3 Statements of Activities and Changes in Net Assets... 4 Statements of Cash Flows... 5 Notes to Financial Statements... 6 SUPPLEMENTARY INFORMATION Supplementary Statements of Functional Expenses... 23

4 Independent Auditors Report To the Board of Directors NewView Oklahoma, Inc. Oklahoma City, Oklahoma Report on the Financial Statements We have audited the accompanying financial statements of NewView Oklahoma, Inc. (the Organization ) (formerly Oklahoma League for the Blind) which comprise the statements of financial position as of and 2012, and the related statements of activities and changes in net assets and cash flows for the years then ended and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a reasonable basis for our audit opinion. 1

5 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Organization as of and 2012, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matter Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Oklahoma City, Oklahoma January 23,

6 STATEMENTS OF FINANCIAL POSITION ASSETS September CURRENT ASSETS Cash and cash equivalents $ 1,602,630 $ 443,748 Accounts receivable, net of allowance for doubtful accounts of $15,537 in 2013 and $12,826 in ,600, ,243 Contributions and grants receivable, current portion, net of allowance for uncollectible contributions of $6,711 in 2013 and $6,867 in ,289 84,002 Inventories 502, ,185 Prepaid expenses 73,274 59,828 TOTAL CURRENT ASSETS 3,848,964 1,966,006 Contributions and grants receivable, net of allowance for uncollectible contributions of $5,289 in 2013 and $5,883 in ,506 71,256 Property, plant, and equipment, net 876, ,047 Beneficial interest in assets held by others 1,842,845 1,709,464 Debt issue costs 18,822 21,085 LIABILITIES AND NET ASSETS TOTAL ASSETS $ 6,644,445 $ 4,524,858 CURRENT LIABILITIES Accounts payable $ 1,219,003 $ 713,186 Accrued expenses and other liabilities 601, ,764 Capital lease obligation, current portion 7,989 - Debt and notes payable, current portion 109, ,244 TOTAL CURRENT LIABILITIES 1,937,991 1,371,194 Capital lease obligation, noncurrent portion 9,140 - Debt and notes payable, noncurrent portion 281, ,889 TOTAL LIABILITIES 2,228,644 1,762,083 NET ASSETS Unrestricted 2,393, ,173 Temporarily restricted 996, ,623 Permanently restricted 1,026,161 1,018,979 See notes to financial statements. TOTAL NET ASSETS 4,415,801 2,762,775 TOTAL LIABILITIES AND NET ASSETS $ 6,644,445 $ 4,524,858 3

7 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS Unrestricted Year Ended Year Ended September 30, 2012 Temporarily Permanently Temporarily Permanently Restricted Restricted Total Unrestricted Restricted Restricted Program revenue $ 19,922,130 $ - $ - $ 19,922,130 $ 10,202,129 $ - $ - $ 10,202,129 Direct operating expenses Program costs for manufacturing and service contracts 17,056, ,056,518 8,876, ,876,101 Program services, other 1,073, ,073, , ,294 Management and general 1,016, ,016, , ,344 TOTAL DIRECT OPERATING EXPENSES 19,146, ,146,998 10,637, ,637,739 CHANGES IN NET ASSETS FROM OPERATING ACTIVITIES 775, ,132 (435,610) - - (435,610) Contributions, income, and other Nonoperating income (expenses): Contributions: Unrestricted contributions 331, , , ,620 Restricted contributions - 88,810 7,182 95, , ,020 Distribution of beneficial interest in assets held by others 474,328 (474,328) ,184 (180,184) - - Other income 110, , , ,045 Change in value of beneficial interest in assets held by others - 600, , ,307 6, ,824 Fund raising expenses (260,727) - - (260,727) (268,020) - - (268,020) Net assets released from restrictions 120,386 (120,386) ,409 (342,409) - - Total contributions, income, and other nonoperating income (expense) 776,089 94,623 7, , ,238 (44,266) 6, ,489 CHANGE IN NET ASSETS 1,551,221 94,623 7,182 1,653, ,628 (44,266) 6, ,879 NET ASSETS AT BEGINNING OF YEAR 842, ,623 1,018,979 2,762, , ,889 1,012,462 2,618,896 NET ASSETS AT END OF YEAR $ 2,393,394 $ 996,246 $ 1,026,161 $ 4,415,801 $ 842,173 $ 901,623 $ 1,018,979 $ 2,762,775 Total See notes to financial statements. 4

8 STATEMENTS OF CASH FLOWS Year Ended September CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 1,653,026 $ 143,879 Adjustments to reconcile change in net assets to net cash provided by operating activities: Bad debt expense 25,498 12,583 Depreciation and amortization 94,568 80,778 Loss on sale of assets 2,467 - Change in value of beneficial interest in assets held by others (600,527) (358,824) Change in operating assets and liabilities: Accounts and contributions receivable (744,208) 111,768 Inventories 21,830 47,702 Prepaid expenses (13,446) (30,451) Accounts payable 505, ,899 Accrued expenses 200, ,653 NET CASH PROVIDED BY OPERATING ACTIVITIES 1,145, ,987 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (196,904) (268,485) Contribution to beneficial interest in assets held by others (7,182) - Distribution from beneficial interest in assets held by others 474, ,184 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 270,242 (88,301) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt 915,000 2,096,600 Payments on debt (1,171,800) (2,068,687) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (256,800) 27,913 NET CHANGE IN CASH AND CASH EQUIVALENTS 1,158, ,599 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 443,748 10,149 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,602,630 $ 443,748 Supplemental cash flow information: Cash paid during the year for interest $ 31,453 $ 40,314 Assets acquired by capital lease obligation $ 17,129 $ - See notes to financial statements. 5

9 NOTES TO FINANCIAL STATEMENTS NOTE A--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES NewView Oklahoma, Inc. (the Organization ) (formerly Oklahoma League for the Blind) is engaged in the employment and rehabilitation of blind and visually handicapped individuals. These activities are accomplished through service contracts and the manufacture of aircraft wheel chocks, fire hoses, and other workshop-made items, as well as the assembly of component packages for sale to governmental and commercial enterprises. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Organization 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. Basis of Accounting: The accompanying financial statements of the Organization have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables, and other assets and liabilities. Basis of Presentation: The Organization reports information regarding its financial position and activities according to three classes of net assets, as follows: Unrestricted net assets - Net assets not subject to donor-imposed stipulations. Temporarily restricted net assets - Net assets subject to donor-imposed stipulations that may or will be met, either by actions of the Organization and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Contributions that are restricted by the donor are reported as an increase in unrestricted net assets if the restriction expires in the same period in which the contribution is received. Permanently restricted net assets - Net assets subject to donor-imposed stipulations that they be maintained permanently by the Organization. Generally, the donors of these assets permit the Organization to use all or part of the income earned on any related investments for general or specific purposes. Basis of Presentation: Contributions received, including unconditional promises to give, are reported as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence or nature of any donor restrictions. The Organization reports gifts of cash and other assets as restricted contributions if they are received with donor stipulations that limit the use of the donated assets. 6

10 NOTE A--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES--Continued Basis of Presentation--Continued: When a donor restriction is satisfied, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Contributions made, including unconditional promises to give, are recognized as expenses in the period made at their fair values. Conditional promises to give, whether received or made, are recognized when they become unconditional, that is, when the conditions are substantially met. Cash and Cash Equivalents: Cash and cash equivalents consist of all demand deposits, cash on hand, and money market accounts. Accounts Receivable: Accounts receivable include amounts due from customers for products purchased from or services provided by the Organization and are carried at invoiced amounts. Receivables are recorded upon shipment to or services provided for customers. Credit is extended based on evaluation of the customer s financial condition, and generally, collateral is not required. Accounts receivable are due within 30 days and are stated at amounts due, net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Organization determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Organization s previous loss history, the customer s current ability to pay its obligation to the Organization, and the condition of the general economy and the industry as a whole. The Organization writes off specific accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. Property, Plant, and Equipment: Additions to property, plant, and equipment are recorded at cost, if purchased, or market value at date of contribution. Depreciation is provided using the straight-line method over estimated useful lives of two to thirty-five years. The cost and related accumulated depreciation of assets sold or retired are removed from the accounts, and the resulting gains or losses are included in operations. The depreciation expense on assets acquired under capital leases is included with depreciation expense on owned assets. 7

11 NOTE A--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES--Continued Revenue Recognition: Revenues are recorded when the earnings process is substantially complete and products have been shipped or services have been provided. Contributions and other non-operating income consist primarily of gifts and/or grants which are recorded as revenues when received or upon receipt of an unconditional promise to give, net of estimated discounts. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. No discounts have been recorded at September 30, 2013 or 2012 as they are not significant to the Organization. Unconditional promises to give are due as follows: Total Contributions and grants receivable, gross $ 77,000 $ 27,420 $ 22,650 $ 8,675 $ 4,050 $ 139,795 Allowance for uncollectible contributions and grants 6,711 2,310 1, ,000 Contributions and grants receivable, net $ 70,289 $ 25,110 $ 20,743 $ 7,944 $ 3,709 $ 127,795 Functional Allocation of Expenses: Costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities. Costs are allocated between program costs for manufacturing and service contracts; program services, other; fundraising; and management and general based on evaluations of the related activities. Program costs for manufacturing and service contracts include those expenses directly related to the Organization s manufacturing operations and labor provided for service contracts, both of which employ blind and visually handicapped individuals in keeping with the Organization s mission. Program services, other, includes those expenses related to the rehabilitation services as well as other programs offered by the Organization for the blind and visually impaired. Management and general expenses include those expenses that are not directly identifiable with any other specific function but which provide for the overall support and direction of the Organization. Income Taxes: The Organization is a nonprofit organization and is exempt from federal income taxes under Internal Revenue Code section 501(c) (3) on earnings related to its exempt purpose. 8

12 NOTE A--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES--Continued Accounting for Uncertain Tax Positions: Accounting principles generally accepted in the United States of America require the Organization to evaluate tax positions taken. Management evaluated the Organization s tax positions and concluded that the Organization had taken no uncertain tax positions that require adjustment to the financial statements. With few exceptions, the Organization is no longer subject to income tax examinations by the U.S. federal, state, or local tax authorities for years before September 30, Fair Value Measurements: Fair value is defined as 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 measurements accounting guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: Level 1: Level 2: Level 3: Quoted prices in active markets for identical assets or liabilities; Inputs that are derived principally from or corroborated by observable market data; and Inputs that are unobservable and significant to the overall fair value measurement. The fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. All transfers between fair value hierarchy levels are recognized by the Organization at the beginning of each reporting period. Financial assets and liabilities carried at fair value on a recurring basis include beneficial interest in assets held by others (see Note E). There are no financial assets or liabilities carried at fair value on a non-recurring basis. For the year ended, the Organization implemented ASU : Fair Value Measurement (Topic 820): Amends to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS. The amendments in this updated result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs and are to be applied prospectively. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements with no intention for the amendment to result in a change in the application of the requirements of Topic 820. The adoption of this guidance expanded some the Organization s fair value measurement disclosures. 9

13 NOTE A--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES--Continued Recently Issued Pronouncements: In October 2012, the FASB issued ASU , Statement of Cash Flows (Topic 230): Not-for-Profit ( NFP ) Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows, which is effective prospectively for fiscal years beginning after June 15, This ASU requires a NFP to classify cash receipts from the sale of donated financial assets consistently with cash donations received if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFPimposed limitations for sale and were converted nearly immediately into cash. Accordingly, operating activities, unless the donor restricted the use of the contributed resources to long-term purposes, in which case, those cash receipts should be classified as cash flows from financing activities. Otherwise, cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities. Retrospective application is permitted but not required, and early implementation is also permitted. The Organization expects implementation of the ASU to impact its statement of cash flow presentation. Significant Estimates: Estimates that are particularly susceptible to significant change include the beneficial interests in assets held by others and contributions and grants receivable. Beneficial interests in assets held by others are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with beneficial interests, it is reasonably possible that changes in the value of these assets will occur in the near term and that such changes could materially affect the amounts reported in the statements of financial position. Significant fluctuations in fair values could occur from year to year, and the amounts the Organization will ultimately realize could differ materially. Management s estimate of contributions and grants receivable and the related allowance for doubtful is based on consideration of all relevant available information and an analysis of the collectability of individual contributions, which arise primarily from pledges at the financial statement date. Subsequent Events: Management has evaluated subsequent events through January 23, 2014, the date the financial statements were available to be issued. There were no subsequent events requiring recognition or disclosure. 10

14 NOTE B--INVENTORIES Inventories consist of the following at September 30: Raw materials $ 392,682 $ 398,586 Work in process ,020 Finished goods 108,943 88,579 $ 502,355 $ 524,185 NOTE C--PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are as follows at September 30: Building and improvements $ 2,234,225 $ 2,168,141 Leasehold imrovements 121,234 - Machinery and equipment 454, ,186 Office furniture and equipment 301, ,206 Automobiles 106, ,629 3,218,081 2,882,162 Less: accumulated depreciation 2,570,248 2,483, , ,261 Land 100, ,500 Construction in progress 127, ,286 $ 876,308 $ 757,047 Depreciation expense for the years ended and 2012 was approximately $92,000 and $78,000, respectively. 11

15 NOTE D--DEBT AND NOTES PAYABLE Debt and notes payable are comprised of the following at September 30: Note payable to a JP Morgan Chase Bank, bearing interest at 6.72%, payable in monthly installments of $4,446, including interest, until August 2020; collateralized by the building, inventory, accounts receivable, and equipment. This note includes a prepayment penalty not to exceed 5% of the prepaid principal. $ 283,888 $ 316,674 $750,000 line of credit available from Bank of America, bearing interest at LIBOR plus 2.9% (4.18% as of September 30, 2013) to be paid monthly, until March 2014; collateralized by property (equipment, inventory, receivables) and real estate, subject to certain financial covenants and ratios as discussed below, subordinate to JP Morgan Chase Bank debt. In April 2013, the Line of Credit waspaidoff,butstillremainsopenasofseptember30, ,000 Note payable to Bank of America, bearing interest at 6.75%, payable in monthly installments of $5,743, including interest, until August 2014; collateralized by all assets, subject to certain financial covenants and ratios as discussed below, subordinate to JP Morgan Chase Bank debt. 62, ,859 Note payable to National Industries for the Blind, bearing interest at 1.625%, payable in monthly installments of $1,048 from November 2012 to April 2013 and $1,083 from May 2013 until April 2017, plus interest; collateralized by all assets. 44,895 56, , ,133 Less: current portion 109, ,244 $ 281,513 $ 390,889 12

16 NOTE D--DEBT AND NOTES PAYABLE--Continued The Organization s note payable and line of credit with Bank of America include compliance with certain financial covenants and ratios as further discussed in the agreements. At September 30, 2013, the Organization was in compliance with the required debt service coverage ratios. At, annual maturities of principal on long-term debt and notes payable are as follows: Fiscal Year Ending Total 2014 $ 109, , , , ,609 Thereafter $ 83, ,333 Interest expense for the years ended and 2012 was approximately $31,000 and $42,000, respectively. NOTE E--BENEFICIAL INTEREST IN ASSETS HELD BY OTHERS In previous years, the Organization transferred funds to the Oklahoma City Community Foundation, Inc. (the Foundation ) and specified itself as the beneficiary of the funds. Annually, distributions from the funds are paid to the Organization according to the Foundation s spending policy. The Foundation maintains variance power over these funds, which totaled approximately $124,000 and $110,000 at and 2012, respectively. Variance power assures donors that if the charitable purpose of their contribution becomes impractical or impossible, the distributions will be directed to similar purposes in the community. The Foundation also maintains legal ownership of the funds. However, accounting principles generally accepted in the United States of America require that the Organization reflect its beneficial interest in these assets in its financial statements. In addition to the funds discussed above, the Foundation maintains other funds that have been contributed by various donors to the Foundation for the benefit of the Organization. These funds are not included as assets of the Organization. The earnings from these funds are paid to the Organization each year. For the years ended and 2012, the Organization received approximately $2,500 and $2,000, from these funds, respectively. At and 2012, the fair value of the funds was approximately $55,000 and $50,000, respectively. The Organization has no remainder interest in the corpus of the funds. 13

17 NOTE E--BENEFICIAL INTEREST IN ASSETS HELD BY OTHERS--Continued The Organization is the beneficiary of a split-interest agreement from which they receive distributions from a certain irrevocable trust. Under the agreement, the Organization receives thirty-three percent of the trust s annual income each year until June 1, 2016, at which time the Organization will receive thirty-three percent of the trust s assets. The Organization s beneficial interest in the trust has been recorded as an amount equal to the Organization s proportionate interest in the trust s net assets, which totaled approximately $405,000 at and During the term of the agreement, change in the value of beneficial interest in assets held by others is recognized in the statements of activities and changes in net assets based on accretion of the discounted contribution and reevaluations of the expected future benefits. The discount rate used in this calculation is 5%. The Organization is the beneficiary of a certain irrevocable trust from which they receive annual distributions. Under the irrevocable trust agreement, the Organization receives approximately ten percent of the trust s annual income of which the underlying investments are to be held by the trustee in perpetuity. The Organization s beneficial interest in the trust has been recorded as an amount equal to the Organization s proportionate interest in the trust s net assets, which totaled approximately $1,314,000 and $1,194,000 at and 2012, respectively. During the term of the agreement, change in the value of beneficial interest in assets held by others is recognized in the statements of activities and changes in net assets based on accretion of the discounted contribution and reevaluations of the expected future benefits. The discount rate used in this calculation is 5%. NOTE F--NET ASSET RESTRICTIONS The Organization s balance of temporarily restricted net assets consists of the following at September 30: Beneficial interests in assets held in trusts $ 816,684 $ 690,485 Contributions and grants 179, ,138 $ 996,246 $ 901,623 The Organization s balance of permanently restricted net assets consists of the following at September 30: Beneficial interests in assets held in trusts $ 926,944 $ 926,944 Beneficial interests in assets held by the Foundation 99,217 92,035 $ 1,026,161 $ 1,018,979 14

18 NOTE G--CONCENTRATIONS The Organization maintains cash in bank deposit accounts which, at times, may exceed federally insured limits. The Organization has not experienced any losses in such accounts and does not believe that it is exposed to any significant credit risk on cash. During the years ended and 2012, 98% and 97% of revenues were generated from federal governmental contracts respectively. Of these federal contracts, the following service contracts and product sales represent a significant concentration of the total sales for either or both of the years ended and 2012: Product sales Fire hoses 55% 30% Vinyl 3% 11% Service contracts Travis Airforce Base Switchboard 11% 21% Navy Mailrooms 10% 17% The loss of these federal government contracts would adversely affect the Organization s financial position and the results of the Organization s operations. The materials purchased for the manufacture of fire hoses, noted above, are primarily purchased from one supplier. NOTE H--OIL AND GAS ROYALTIES In prior years, the Organization received, as bequests, mineral rights to certain oil and gas leases. No value was assigned to the gifts at the date received as the value could not be reasonably determined. During the years ended and 2012, royalty payments of approximately $44,000 and $45,000, respectively, were recognized in income as gifts and bequests and are included in other income. 15

19 NOTE I--EMPLOYEE RETIREMENT PLAN The Organization has a retirement plan covering substantially all qualified employees under section 403(b) of the Internal Revenue Code. Under the plan, participants may contribute up to a dollar limit provided by Internal Revenue Service guidelines (changing annually) to their plan accounts. The Organization, at its discretion, may contribute a matching contribution equal to 3% of each participant s annual compensation. The Organization made a discretionary contribution of approximately $7,000 for the year ended, but did not make a discretionary contribution for the year ended September 30, NOTE J--COMMITMENTS AND CONTINGENCIES Operating Leases: The Organization has entered into non-cancelable lease agreements for office space and office equipment and machinery. Rent expense for the years ended and 2012 totaled approximately $49,000 and $48,000, respectively. Future minimum lease payments at are as follows: Year ending 2014 $ 41, , , ,594 Total minimum lease payments $ 162,734 Beginning in 2009, the Organization entered into an agreement to lease office space to a third party. Rental income for the years ending and 2012 totaled approximately $33,000 and $38,000, respectively. Future minimum rental income at is as follows: Year ending 2014 $ 27, ,557 Total minimum lease payments $ 31,896 The Organization is a party to various matters of litigation arising in the normal course of business. Management believes that the ultimate outcome of the matters will not have a material effect on the Organization s financial position or statement of activities. 16

20 NOTE K--ENDOWMENT DISCLOSURES The Organization s endowments consist of the beneficial interests in assets held by others as discussed in Note E. The endowments were created through donor-restricted endowment funds. As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The Board of Directors of the Organization has interpreted the State Prudent Management of Institutional Funds Act ( SPMIFA ) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Board of Directors in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the Organization considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds. (1) The duration and preservation of the fund, (2) The purposes of the Organization and the donor-restricted endowment fund, (3) General economic conditions, (4) The possible effect of inflation and deflation, (5) The expected total return from income and the appreciation of investments, (6) Other resources of the Organization, and (7) The investment policies of the Organization. 17

21 NOTE K--ENDOWMENT DISCLOSURES--Continued Endowment net asset composition by type of fund as of is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 816,684 $ 1,026,161 $ 1,842,845 Changes in endowment net assets for the fiscal year ended are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ - $ 690,485 $ 1,018,979 $ 1,709,464 Contribution - - 7,182 $ 7,182 Investment return - 600, ,527 Appropriation of endowment assets for expenditure - (474,328) - (474,328) Endowment net assets, end of year $ - $ 816,684 $ 1,026,161 $ 1,842,845 Endowment net asset composition by type of fund as of September 30, 2012 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ - $ 690,485 $ 1,018,979 $ 1,709,464 Changes in endowment net assets for the fiscal year ended September 30, 2012 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ - $ 518,361 $ 1,012,462 $ 1,530,823 Investment return - 352,308 6, ,825 Appropriation of endowment assets for expenditure - (180,184) - (180,184) Endowment net assets, end of year $ - $ 690,485 $ 1,018,979 $ 1,709,464 18

22 NOTE K--ENDOWMENT DISCLOSURES--Continued Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or SPMIFA requires the Organization to retain as a fund of perpetual duration. Deficiencies of this nature are required to be reported in unrestricted net assets. There were no deficiencies at and 2012 required to be reported in unrestricted net assets. Return Objectives and Risk Parameters The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Organization must hold in perpetuity or for a donor-specified period. Under this policy, as approved by the Board of Directors, the endowment assets are invested with the Foundation and trustees whose investment policy emphasizes preservation of capital, protection against inflation, and a continuing source of income. Spending Policy and How the Investment Objectives Relate to Spending Policy The distribution policy of the Foundation and the trustees to beneficiary organizations is determined by their respective governing bodies. The Organization has evaluated the investment and spending policies of the Foundation and the trustees to sufficiently protect the purchasing power of the endowments and allocates distributions received to be available for use in specific programs. NOTE L--FAIR VALUE MEASUREMENTS The following methods and assumptions were used to estimate the fair value of each financial instrument. Cash and Cash Equivalents: The assets carrying amounts approximate fair value due to their short maturities. Accounts, Contributions, and Grants Receivable: The assets are carried at cost net of an allowance for uncollectible accounts at the financial reporting date. Fair value is the price a market participant would pay to acquire the right to receive cash flows inherent in the promise to pay the Organization, and due to the inclusion of an allowance for uncollectible accounts and the short maturities of such amounts, the carrying value approximates fair value. 19

23 NOTE L--FAIR VALUE MEASUREMENTS--Continued Accounts, Contributions, and Grants Receivable--Continued: A discount for receivables not expected to be received within one year has not been recorded as it is not significant. Beneficial Interest in Assets Held by Others: The Organization believes fair value of the future cash flows to be received from its beneficial interest in assets held by others approximates the fair value of the underlying assets held. Since there is no market for similar assets (i.e., beneficial interest in assets held by others), the assets are not transferrable, and the value recorded by the Organization represents estimated future cash flows to be received from the Foundation and trustees, the Organization classifies its beneficial interest in the assets held as Level 3. Accounts Payable: The liability is carried at cost which approximates fair value due to the short maturity of such amounts. Accrued Expenses and Other Liabilities: The liability is carried at cost which approximates fair value due to the short maturity of such amounts. Capital Lease Obligation: The carrying value of this liability approximates fair value as it bears an interest rate similar to current market rates. Long-Term Debt and Notes Payable: The carrying value of these liabilities approximates fair value as they bear interest rates similar to current market rates. The Organization has no liabilities measured at fair value. Assets measured at fair value are classified within the fair value hierarchy as follows: As of Level 1 Level 2 Level 3 Total ASSETS Beneficial interest in assets held by others $ - $ - $ 1,842,845 $ 1,842,845 Total assets accounted for at fair value $ - $ - $ 1,842,845 $ 1,842,845 As of September 30, 2012 Level 1 Level 2 Level 3 Total ASSETS Beneficial interest in assets held by others $ - $ - $ 1,709,464 $ 1,709,464 Total assets accounted for at fair value $ - $ - $ 1,709,464 $ 1,709,464 There were no transfers between levels at and

24 NOTE L--FAIR VALUE MEASUREMENTS--Continued The Organization s investments in certain entities that calculate net asset value ( NAV ) per share for which there is not a readily determinable fair market value include the following: Beneficial Interest in Assets Held by Others: The beneficial interest in assets held by others includes investments that are directed by the Foundation and are designed to achieve returns consistent with the Foundation s adopted investment policies. The Foundation s investment portfolio consists of common and preferred stocks, asset backed obligations, mutual and index funds, government obligations, and cash equivalent funds. The beneficial interest cannot be redeemed at the current NAV as the Organization is only the beneficiary of the investment earnings which are distributed in accordance with the Foundation s spending policy. The beneficial interest in assets held by others also includes investments that are directed by trustees of certain irrevocable trusts in which the Organization has an interest. The investments are designed to achieve returns consistent with the trusts adopted investment policies. The trusts investment portfolio consists of mineral interests, real estate, fixed income funds, mutual funds, government obligations, and cash equivalent funds. The beneficial interest cannot be redeemed at the current NAV as the Organization is only the beneficiary of the investment earnings which are distributed in accordance with the trusts spending policy. The following table summarizes the changes in the fair value of the Organization s Level 3 financial assets for the periods ending and 2012: Beneficial Interest in Assets Held by Others Balance at September 30, 2011 $ 1,530,823 Net investment performance 358,825 Distributions to the Organization (180,184) Balance at September 30, ,709,464 Contribution 7,182 Net investment performance 600,527 Distributions to the Organization (474,328) Balance at $ 1,842,845 21

25 NOTE L--FAIR VALUE MEASUREMENTS--Continued The summary of changes in fair value of Level 3 assets has been prepared to reflect the activity in the same categories as those provided to the Organization by the Foundation and trustees. Net investment performance includes realized and unrealized gains on investments, investment income, and administrative fees and is included in change in value of beneficial interest in assets held by others in the statements of activities. Distributions decrease the Organization s beneficial interest and increase cash at the time of distribution. The following table summarizes the valuation techniques and significant unobservable inputs used for the Organization s investments that are categorized within Level 3 of the fair value hierarchy at : Fair Value at September 30, Valuation Unobservable Range of Inputs Investment Type 2013 Techniques Input (c) (Weighted Average) Beneficial interest in $ 1,842,845 Discounted Market risk discount (b) 0% (0%) assets held by others cash flows (a) (a) Fair value of the asset/liability is the expected future cash inflows/outflows, which are based on the fair value of the underlying investment assets, and at this time management believes no discount to the fair values is appropriate. (b) Represents amounts used when reporting entity has determined that market participants would take into account these returns when pricing the investments. (c) Significant increases or decreases in any of the above unobservable inputs in isolation may result in a significantly lower or higher fair value measurement. 22

26 SUPPLEMENTARY STATEMENTS OF FUNCTIONAL EXPENSES Year Ended Year Ended September 30, 2012 Program Costs for Program Costs for Manufacturing Supporting Services Manufacturing Supporting Services and Service Program Management and Service Program Management Contracts Services, Other & General Fund-Raising Total Contracts Services, Other & General Fund-Raising Total Salaries, wages, and related taxes $ - $ 651,751 $ 725,738 $ 185,237 $ 1,562,726 $ - $ 538,730 $ 692,643 $ 153,351 $ 1,384, B plan employer match - 2,487 3,702 1,140 7, Loss on sale of assets - - 2,467 2, Freight - (6,859) (6,736) ,198 Utilities - 31, ,823-26, ,909 Repairs and maintenance - 9,088 (1,846) - 7,242-2,075 (1,696) Dues - 8,208 19,111 17,712 45,031-8,818 16,231 2,406 27,455 Supplies - 32,796 8,832 15,072 56,700-21,323 7,814 31,575 60,712 Insurance - 3,888 31,661-35,549-3,695 20, ,111 Travel - 78,422 6,816 5,019 90,257-77,537 6,739 4,962 89,238 Postage - 1, ,669 6,089-1,220 2,062 1,859 5,141 Professional services - 122,311 92,242 18, ,017-45,356 81,773 35, ,934 Taxes Bad debt expense (recovery) ,498-25,498-12, ,583 Advertising ,022-17, ,312 Depreciation and amortization - 28,876 2,114-30,990-16,963 1,242-18,205 Rent - 31,743 13,328-45,071-29,629 13,861-43,490 Bank charges , , ,191-8,191 Donations ,080 Entertainment ,068 Interest - 21,891 4,690 4,690 31,271-29,472 6,315 6,315 42,102 Late fees Meals - 2,870 15, ,344-3,606 11,131 1,571 16,308 Meetings/seminars/training - 5,929 8,856 4,490 19,275-4,163 12,361 23,903 40,427 Youth services and special events - 41,612-3,185 44,797-30,494-4,545 35,039 Computer network , ,134-1,336 18,021-19,357 Program costs for manufacturing and service contracts (Note 1) 17,056, ,056,518 8,876, ,876,101 Other - 4,996 1, ,763-4,050 1, ,258 $ 17,056,518 $ 1,073,992 $ 1,016,488 $ 260,727 $ 19,407,725 $ 8,876,101 $ 859,294 $ 902,344 $ 268,020 $ 10,905,759 Note 1: Components of program costs for manufacturing and service contracts (i.e. personnel costs, materials costs, etc.) are all included in this line. 23