FOODSHARE, INC. DECEMBER 31, 2005
FOODSHARE, INC. CONTENTS Report of Independent Accountants 1 Statements of Financial Position - December 31, 2005 and 2004 2 Statements of Activities for the Years Ended December 31, 2005 and 2004 3-4 Statement of Functional Expenses for the Year Ended December 31, 2005 with Comparative Totals for the Year Ended December 31, 2004 5 Statement of Functional Expenses for the Year Ended December 31, 2004 6 Statements of Cash Flows for the Years Ended December 31, 2005 and 2004 7 Notes to Financial Statements 8-16
Blum, Shapiro & Company, P.C. 29 South Main Street Tel 860.561.4000 Certified Public Accountants P.O. Box 272000 Fax 860.521.9241 and Business Consultants West Hartford, CT 06127-2000 www.blumshapiro.com Report of Independent Accountants To the Board of Directors Foodshare, Inc. Bloomfield, Connecticut We have audited the accompanying statements of financial position of Foodshare, Inc., as of December 31, 2005 and 2004, and the related statements of activities, functional expenses and cash flows for the years then ended. These financial statements are the responsibility of Foodshare, Inc. s management. 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 and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Foodshare, Inc. s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Foodshare, Inc., as of December 31, 2005 and 2004, and the changes in its net assets, functional expenses and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated March 9, 2006 on our consideration of Foodshare, Inc. s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit. March 9, 2006 An Independent Member of Baker Tilly International -1-
FOODSHARE, INC. STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2005 AND 2004 2005 2004 ASSETS Cash and cash equivalents (Note 1) $ 2,056,536 $ 1,260,987 Shared maintenance receivables, net of allowance of $2,217 in 2005 and $1,654 in 2004 (Note 2) 29,931 29,603 Contributions receivable (Note 3) 1,377,271 1,371,323 Government grants receivable 40,268 17,419 Prepaid expenses 47,103 59,911 Investments (Note 4) 929,188 832,696 Donated food inventory (Note 5) 479,263 511,503 Purchased food inventory (Note 6) 22,053 10,802 Land, building and equipment, net (Note 7) 4,332,144 1,299,030 Deferred financing costs, net 27,288 - Total Assets $ 9,341,045 $ 5,393,274 LIABILITIES AND NET ASSETS Liabilities Accounts payable and accrued expenses $ 231,926 $ 188,068 Construction loan payable (Note 8) 2,159,784 - Obligation under capital leases 42,581 60,550 Deferred revenue 112,519 39,415 Total liabilities 2,546,810 288,033 Net Assets Unrestricted: Designated - facilities improvement 100,000 100,000 Designated - Helping Hand Program (Note 11) 8,611 9,500 Designated - food distribution 501,316 522,305 Designated - land, building and equipment 2,129,779 801,417 Designated - long-term investments 924,921 832,696 Designated - construction loan (Note 8) 2,159,784 - Undesignated 888,067 750,286 Total unrestricted 6,712,478 3,016,204 Temporarily restricted (Note 9) 81,757 2,089,037 Total net assets 6,794,235 5,105,241 Total Liabilities and Net Assets $ 9,341,045 $ 5,393,274 The accompanying notes are an integral part of the financial statements -2-
FOODSHARE, INC. STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 Changes in Unrestricted Net Assets - Donated Food Donated food $ 12,547,976 $ 13,988,816 Donated food distributed (12,580,216) (14,164,736) Net change in unrestricted net assets - donated food (32,240) (175,920) Changes in Unrestricted Net Assets - Food Bank Operations Revenues and gains: Governmental grants 246,991 205,141 Contributions 1,611,572 1,438,713 Shared maintenance and Buying Club revenues 452,980 423,969 Special event fund-raising (Note 14) 162,723 180,731 Dividend and interest income 47,415 31,128 Realized and unrealized gain on investments 75,547 48,323 Miscellaneous revenue 5,031 3,066 Donated assets and services 22,140 43,456 2,624,399 2,374,527 Net assets released from program restrictions (Note 10) 157,616 279,923 Total unrestricted revenues and gains - food bank operations 2,782,015 2,654,450 Expenses - food bank operations: Program services: Food collection and distribution 1,650,472 1,575,557 Education, outreach and advocacy 258,267 238,446 Supporting services: Management and general 341,483 350,434 Fund-raising 423,409 424,359 Total expenses - food bank operations 2,673,631 2,588,796 Net change in unrestricted net assets - food bank operations 108,384 65,654 Changes in Unrestricted Net Assets - Comprehensive Campaign Revenues and gains: Governmental grants 462,388 - Net assets released from program restrictions (Note 10) 3,252,844 35,958 Total unrestricted revenues and gains - comprehensive campaign 3,715,232 35,958 Expenses - comprehensive campaign: Supporting services: Management and general 16,322 48 Fund-raising 78,780 64,734 Total expenses - comprehensive campaign 95,102 64,782 Net change in unrestricted net assets - comprehensive campaign 3,620,130 (28,824) Increase (decrease) in unrestricted net assets 3,696,274 (139,090) (Continued on next page) -3-
FOODSHARE, INC. STATEMENTS OF ACTIVITIES (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 Changes in Temporarily Restricted Net Assets Contributions - nongovernmental grants $ 90,423 $ 260,357 Contributions restricted for long-term investment 1,312,757 1,629,390 Net assets released from restrictions - food bank operations (157,616) (279,923) Net assets released from restrictions - comprehensive campaign (3,252,844) (35,958) Increase (decrease) in temporarily restricted net assets (2,007,280) 1,573,866 Increase in Net Assets 1,688,994 1,434,776 Net Assets - Beginning of Year 5,105,241 3,670,465 Net Assets - End of Year $ 6,794,235 $ 5,105,241 The accompanying notes are an integral part of the financial statements -4-
FOODSHARE, INC. STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2005 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED DECEMBER 31, 2004 Program Services Supporting Services Food Collection Education, Total Total Total Total and Outreach and Program Management Fund- Supporting Expenses Expenses Distribution Advocacy Services and General Raising Services 2005 2004 Donated food distributed $ 12,580,216 $ - $ 12,580,216 $ - $ - $ - $ 12,580,216 $ 14,164,736 Purchased food 254,920-254,920 - - - 254,920 234,072 Transportation and other food distribution costs 169,102-169,102 - - - 169,102 154,858 Salaries 639,284 151,011 790,295 199,136 195,006 394,142 1,184,437 1,099,116 Payroll taxes and related benefits 165,654 41,049 206,703 46,648 48,641 95,289 301,992 304,274 Other personnel expenses 7,994 96 8,090 4,010 4,294 8,304 16,394 25,612 Occupancy 220,133 12,273 232,406 13,520 12,301 25,821 258,227 228,191 Contributions to other organizations - 19,642 19,642 - - - 19,642 25,934 Supplies 13,999 1,591 15,590 561 6,077 6,638 22,228 26,296 Printing and postage 7,907 4,540 12,447 3,246 71,656 74,902 87,349 87,848 Advertising and promotion 760 7,521 8,281-1,279 1,279 9,560 3,153 Professional fees 9,538 4,140 13,678 41,333 56,680 98,013 111,691 132,714 Travel 12,672 3,195 15,867 2,662 1,333 3,995 19,862 22,294 Conferences and training 1,285 2,306 3,591 1,654 1,374 3,028 6,619 8,066 Development and miscellaneous fund-raising event expenses - - - - 69,389 69,389 69,389 78,028 America s Second Harvest fees 6,136-6,136 - - - 6,136 6,016 Other 12,615 5,776 18,391 38,223 25,777 64,000 82,391 63,493 Depreciation and amortization 114,733 5,127 119,860 6,812 6,382 13,194 133,054 110,157 Donated goods and services 13,740-13,740-2,000 2,000 15,740 43,456 $ 14,230,688 $ 258,267 $ 14,488,955 $ 357,805 $ 502,189 $ 859,994 $ 15,348,949 $ 16,818,314 The accompanying notes are an integral part of the financial statements -5-
FOODSHARE, INC. STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2004 Program Services Supporting Services Food Collection Education, Total Total Total and Outreach and Program Management Fund- Supporting Expenses Distribution Advocacy Services and General Raising Services 2004 Donated food distributed $ 14,164,736 $ - $ 14,164,736 $ - $ - $ - $ 14,164,736 Purchased food 234,072-234,072 - - - 234,072 Transportation and other food distribution costs 154,858-154,858 - - - 154,858 Salaries 612,921 134,134 747,055 189,110 162,951 352,061 1,099,116 Payroll taxes and related benefits 173,641 37,685 211,326 51,637 41,311 92,948 304,274 Other personnel expenses 3,579 1,569 5,148 12,885 7,579 20,464 25,612 Occupancy 190,020 10,233 200,253 13,643 14,295 27,938 228,191 Contributions to other organizations - 25,934 25,934 - - - 25,934 Supplies 18,711 3,018 21,729 745 3,822 4,567 26,296 Printing and postage 11,334 6,086 17,420 2,069 68,359 70,428 87,848 Advertising and promotion 109 2,875 2,984-169 169 3,153 Professional fees 13,426 3,459 16,885 47,274 68,555 115,829 132,714 Travel 16,202 2,262 18,464 561 3,269 3,830 22,294 Conferences and training 2,932 1,101 4,033 758 3,275 4,033 8,066 Development and miscellaneous fund-raising event expenses - - - - 78,028 78,028 78,028 America s Second Harvest fees 6,016-6,016 - - - 6,016 Other 11,158 5,964 17,122 20,149 26,222 46,371 63,493 Depreciation and amortization 96,854 4,126 100,980 5,051 4,126 9,177 110,157 Donated goods and services 29,724-29,724 6,600 7,132 13,732 43,456 $ 15,740,293 $ 238,446 $ 15,978,739 $ 350,482 $ 489,093 $ 839,575 $ 16,818,314 The accompanying notes are an integral part of the financial statements -6-
FOODSHARE, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 Cash Flows from Operating Activities Increase in net assets $ 1,688,994 $ 1,434,776 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Realized and unrealized gain on investments (75,547) (48,323) Depreciation and amortization 133,054 110,157 Donated food received, net 32,240 175,920 Contributions restricted for long-term investment (1,312,757) (1,629,390) (Increase) decrease in operating assets: Government grants receivable (22,849) 18,406 Prepaid expenses 1,558 (6,268) Deferred financing costs (27,288) - Shared maintenance receivables (328) 1,271 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 43,857 47,889 Deferred revenue 73,104 (5,985) Net cash provided by operating activities 534,038 98,453 Cash Flows from Investing Activities Net purchases of investments (20,945) (14,714) Cash outlays for land, building and equipment (3,166,168) (516,074) Net cash used in investing activities (3,187,113) (530,788) Cash Flows from Financing Activities Proceeds from construction loan payable 2,159,784 - Payments on obligation under capital leases (17,969) (15,480) Proceeds from contributions restricted for long-term investment 1,306,809 634,838 Net cash provided by financing activities 3,448,624 619,358 Net Increase in Cash and Cash Equivalents 795,549 187,023 Cash and Cash Equivalents - Beginning of Year 1,260,987 1,073,964 Cash and Cash Equivalents - End of Year $ 2,056,536 $ 1,260,987 Cash Paid During the Year for Interest $ 25,619 $ 6,955 The accompanying notes are an integral part of the financial statements -7-
FOODSHARE, INC. NOTES TO FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies: Organization - Foodshare, Inc., was incorporated in 1983 as a nonstock, nonprofit corporation. Its mission is to work to end hunger as a part of the overall community effort to alleviate poverty in Greater Hartford. Foodshare, Inc., accomplishes its mission by increasing individual and community awareness and action concerning hunger and poverty, their causes and potential solutions; developing an organized, integrated, accessible, cooperative, efficient and effective system to acquire and distribute food, especially food that would otherwise be wasted; and facilitating community collaborations. It serves approximately 300 community kitchens, shelters, food pantries, senior centers, halfway houses and other social service organizations in Hartford and Tolland counties. Basis of Accounting and Presentation - The financial statements of Foodshare, Inc., have been prepared in accordance with accounting principles generally accepted in the United States of America. Accordingly, the accounts of Foodshare, Inc., are reported in the following net asset categories: Unrestricted Net Assets - These assets represent resources that may be expended at the discretion of the Board of Directors. Undesignated net assets, which were $888,067 and $750,286 at December 31, 2005 and 2004, respectively, represent the portion of expendable funds available for support of operations. The Board has identified the following designations of unrestricted net assets: facilities improvement; Helping Hand Program; food distribution; land, building and equipment; construction loan; and long-term investments. Foodshare, Inc., reports its changes in unrestricted net assets in three categories: donated food, food bank operations and comprehensive campaign. The comprehensive campaign includes activities associated with raising money for the construction and equipment of a new food distribution facility and related program expansion. Temporarily Restricted Net Assets - These assets represent resources that have donor- or grantor-imposed restrictions as to purpose or time of expenditure. Permanently Restricted Net Assets - Permanently restricted net assets represent resources that have donor-imposed restrictions that require that the principal be maintained in perpetuity but permit Foodshare, Inc., to expend the income earned thereon. Foodshare, Inc., has no permanently restricted net assets. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Cash and Cash Equivalents - Cash and cash equivalents include cash in banks and certain highly liquid investments with maturities of 90 days or less. Foodshare, Inc., maintains its cash and cash -8-
equivalents in bank deposit accounts that, at times, may exceed federally insured limits. Foodshare, Inc., has not experienced any losses in such accounts. Foodshare, Inc., believes it is not exposed to any significant credit risk on cash and cash equivalents. Contributions - Unconditional promises to give are recognized when pledged or received and are considered to be available for unrestricted use unless specifically restricted by the donor. Contributions receivable expected to be collected in more than one year are discounted to their present value. Foodshare, Inc., reports nongovernmental contributions and grants of cash and other assets as temporarily restricted support if they are received with donor stipulations that limit their use. When a donor restriction expires, 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 statement of activities as net assets released from restrictions. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Foodshare, Inc., reports gifts of property and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions on how the assets are to be used and gifts of cash or other assets that must be used to acquire property and equipment are reported as restricted support. Without donor stipulations about how long those assets must be maintained, Foodshare, Inc., reports expirations of donor restrictions when the assets are placed in service. Included in unrestricted revenues and gains - food bank operations is $251,126 and $217,470 in 2005 and 2004, respectively, of contributions received from The United Way of the Capital Area and other United Ways located throughout the region. Grants and Contracts - Governmental grants and contracts are generally considered to be exchange transactions rather than contributions. Revenue from cost reimbursement grants and contracts is recognized to the extent of costs incurred. Revenue from performance-based grants and contracts is recognized to the extent of performance achieved. Grant and contract receipts in excess of revenue recognized are presented as deferred revenue. Investments - Investments in equity securities with readily determinable fair values and investments in mutual funds, debt securities and certificates of deposit are carried at fair value in the statements of financial position. Realized and unrealized gains and losses are reported in the statements of activities as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations or by law. Foodshare, Inc., has an investment policy with the intended objective of achieving balance between growth and income and to achieve market rates of return. Funds not designated for capital expenditure and not expected to be needed for a minimum of four years may be invested long-term. Foodshare, Inc., annually determines the amount to be invested long-term. The investment portfolio consists of investments in individual equity securities, individual bonds, equity mutual funds, bond mutual fund and certificates of deposit. The Board of Directors may authorize a percentage of the long-term investment portfolio s twelvequarter rolling average fair market value, as of the quarter ending September 30 each year, to fund operating expenses. The percentage shall not exceed 4%. The fair market value shall be based upon all assets designated for long-term investment, including principal and retained income, adjusted for all gains and losses, whether realized or unrealized. -9-
Inventory - The values of the donated inventory, donated food revenue and food distributed are determined based on a study commissioned by America s Second Harvest, a national food bank network, of the average wholesale value of products donated to the network. An average wholesale value per pound of $1.49 in 2005 and $1.50 in 2004 was used by Foodshare, Inc. In addition, commodities provided by The Emergency Food Assistance Program (TEFAP) are valued based on information provided by the State of Connecticut Department of Social Services. Values ranged from $.03 to $2.01 per pound in 2005 and from $.06 to $4.04 per pound in 2004. Deferred Financing Costs - Costs incurred to acquire financing are being amortized on a straightline basis over the term of the related debt, which ends June 2010. Amortization expense for the years ended December 31, 2005 and 2004, totaled $3,032 and $-0-, respectively. Expected amortization expense is $6,064 for each of the next five years. Land, Building and Equipment - Land is stated at cost. Building and other fixed asset acquisitions and improvements thereon that exceed $1,000 are capitalized at cost and are depreciated on the straight-line method over their estimated useful lives as follows: Building and improvements Equipment and software Furniture and fixtures Vehicles 5-30 years 2-30 years 3-10 years 3-7 years Capital Leases - Foodshare, Inc., leases a delivery truck and a copier under capital lease agreements. The respective asset and liability under the capital lease are recorded at the value of the asset at the inception of the lease. The assets are amortized over their estimated useful lives. Income Tax Status - Foodshare, Inc., is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and has been classified as a public charity. Functional Allocation of Expenses - The costs of providing various programs and other activities have been reported on a functional basis in the statements of activities and functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Reclassifications - Certain reclassifications have been made to the prior year s amounts to make them comparable with the current year s presentation. Note 2 - Shared Maintenance Receivables: In the normal course of business, Foodshare, Inc., provides credit to agencies under standard terms without collateral. Shared maintenance receivables result from fees based on types of food distributed to community kitchens, food pantries, emergency shelters, senior feeding sites, child daycare centers and other partner agencies in Hartford and Tolland counties that are not-for-profit and tax exempt. Management maintains an allowance for doubtful accounts based on review of specific accounts and general historical experience. -10-
Note 3 - Contributions Receivable: Unconditional contributions receivable as of December 31, 2005 and 2004, are expected to be collected as follows: 2005 2004 Receivable in less than one year, other $ 186,910 $ - Receivable in less than one year, comprehensive campaign 627,226 827,062 Receivable in one to five years, comprehensive campaign 655,693 633,760 Total contributions receivable 1,469,829 1,460,822 Less allowance for uncollectible promises 25,670 16,227 Less discounts to net present value 66,888 73,272 Net Contributions Receivable $ 1,377,271 $ 1,371,323 Contributions receivable in more than one year are discounted at 4.5%. Note 4 - Investments: The following is a summary of aggregate cost and carrying amounts (fair value) of investments by major type at December 31, 2005 and 2004: Original Cost 2005 2004 Fair Original Value Cost Fair Value Bonds $ - $ - $ 60,000 $ 60,809 Stocks 441,478 542,159 366,700 433,687 Mutual funds - stocks 59,831 88,644 33,468 42,928 Mutual funds - bonds 237,298 235,380 54,410 54,272 Certificates of deposit 63,838 63,005 239,872 241,000 $ 802,445 $ 929,188 $ 754,450 $ 832,696 Short-term investments, included in cash equivalents and held by the investment custodian, totaled $535,348 and $784,933 at December 31, 2005 and 2004, respectively. -11-
Note 5 - Donated Food Inventory: The following presents a summary of food donated and distributed for the years ended December 31, 2005 and 2004: Weight (in Pounds) 2005 Estimated Wholesale Value Donated food inventory - beginning of year 388,838 $ 511,503 Donated food received 9,095,602 12,547,976 Less donated food distributed (9,160,106) (12,580,216) Donated Food Inventory - End of Year 324,334 $ 479,263 Weight (in Pounds) 2004 Estimated Wholesale Value Donated food inventory - beginning of year 499,023 $ 687,423 Donated food received 10,346,749 13,988,816 Less food distributed (10,456,934) (14,164,736) Donated Food Inventory - End of Year 388,838 $ 511,503 Note 6 - Purchased Food Programs: In addition to donated food programs, Foodshare, Inc., distributes food that has been purchased with its own funds and with donors monetary contributions. These programs consist of The Buying Club, Federal Emergency Management Agency (FEMA) and other miscellaneous donor contributions. The Buying Club, established with a contribution from the Hartford Foundation for Public Giving (HFPG), allows Foodshare, Inc., to purchase in bulk products that are not normally donated to the agencies. The participating agencies may purchase products from Foodshare, Inc., to supplement the products that are donated. The Buying Club purchased products on hand was $22,053 and $10,802 at December 31, 2005 and 2004, respectively. Foodshare, Inc. s purchased food programs accounted for approximately 247,800 and 286,200 additional pounds of food distributed in 2005 and 2004, respectively. -12-
Note 7 - Land, Building and Equipment: Land, building and equipment consisted of the following at December 31, 2005 and 2004: 2005 Accumulated Cost Depreciation Net Land $ 573,636 $ - $ 573,636 Building and improvements 3,830,161 414,471 3,415,690 Equipment and software 661,660 384,950 276,710 Vehicles 231,868 165,760 66,108 Total $ 5,297,325 $ 965,181 $ 4,332,144 2004 Accumulated Cost Depreciation Net Land $ 573,636 $ - $ 573,636 Building and improvements 813,263 367,745 445,518 Equipment and software 547,419 374,188 173,231 Vehicles 231,868 133,648 98,220 Construction in progress 8,425-8,425 Total $ 2,174,611 $ 875,581 $ 1,299,030 In December 2004, Foodshare, Inc., purchased land in Bloomfield, Connecticut, for $428,636, of which approximately $22,000 was an in-kind contribution. The purpose of the land was to build a new distribution center to accommodate growth in the Foodshare, Inc. s food collection and distribution programs. Construction on the building was completed, and the building was placed into service in December 2005. In March 2006, Foodshare, Inc., entered into an agreement to sell its facility at 200 Addison Road in Windsor, Connecticut. Note 8 - Notes Payable: During the year ended December 31, 2005, Foodshare, Inc., entered into a loan agreement with a bank for the construction of its new distribution facility up to an amount of $2,500,000, maturing June 15, 2010. The loan requires minimum monthly interest payments to be made on the outstanding principal balance. Interest is calculated at a rate equal to LIBOR plus one and one-half percent. The agreement provides Foodshare, Inc., with the option to convert the loan to a permanent loan, no later than June 15, 2006. Should Foodshare, Inc., exercise this option, a minimum annual principal payment in the amount of $100,000 is due, less any principal payments made during the preceding twelve months, beginning June 15, 2007. The loan is guaranteed by Foodshare, Inc. s building at 450 Woodland Avenue, Bloomfield, Connecticut. The outstanding balance on this loan as of December 31, 2005 was $2,159,784. -13-
Covenant - Provisions of the loan agreement require Foodshare, Inc., to maintain two separate cash accounts, whereby the bank will deposit advances of loan proceeds into Foodshare, Inc. s business checking account and the borrower will deposit all pledges received monthly into a second account set up specifically for this purpose, the comprehensive campaign account. All monies in this account will be available to Foodshare, Inc., until January 15, 2007 for the purpose of paying expenses related to the comprehensive campaign. Beginning January 15, 2007, and every month thereafter, all monies in the comprehensive campaign account shall be applied to reduce the principal of the loan. As of December 31, 2005, Foodshare has met this requirement. Note 9 - Temporarily Restricted Net Assets: Temporarily restricted net assets were available for the following purposes at December 31, 2005 and 2004: 2005 2004 Food collection and distribution $ 65,000 $ 122,200 Management and general - 7,410 Capital expenditures - 2,584 New distribution facility and program expansion 16,757 1,956,843 $ 81,757 $ 2,089,037 Note 10 - Net Assets Released from Restrictions: Net assets were released from restrictions by incurring expenses satisfying the following purpose restrictions: 2005 2004 Food collection and distribution $ 147,622 $ 225,117 Education, outreach and advocacy - 2,500 Management and general 7,410 3,850 Capital expenditures 2,584 69,632 Fundraising 37,077 14,782 New distribution facility and program expansion 3,215,767 - Total Net Assets Released from Restrictions $ 3,410,460 $ 315,881 Note 11 - Helping Hand Program: Foodshare, Inc., maintains the Helping Hand Program as a two-part program to provide financial assistance to partner agencies. The program allows eligible agencies to obtain credits to their shared maintenance accounts. Foodshare, Inc., also provides financial assistance to eligible member agencies to purchase the capital equipment needed to distribute food to hungry people. Monies for this fund are set aside from the Walk Against Hunger and other sources at the discretion of the Board of Directors and contributed by donors. -14-
Note 12 - Cash Flows: Noncash Operating Activities - During 2005 and 2004, Foodshare, Inc., received $12,547,976 and $13,988,816 of donated food and $51,934 and $65,832 of donated goods and services, respectively. Noncash Investing Activities - Foodshare, Inc., had equipment and vehicle dispositions of $43,785 and $36,514 during 2005 and 2004, respectively. There were no unrecovered costs upon disposition. Note 13 - Contributed Service and Programs: Contributed services are recognized in the financial statements if they enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. General volunteer services do not meet these criteria for recognition. However, many volunteers have donated significant amounts of time in supporting Foodshare, Inc. s mission. During 2005 and 2004, volunteer hours totaled approximately 22,600 and 20,600 with an estimated value of $396,600 and $354,500, respectively. These amounts have not been recorded in the financial statements. Note 14 - Special Event Fund-Raising: Foodshare, Inc., sponsors the annual Walk Against Hunger. Based on predetermined criteria, participants are able to designate a portion of the funds raised to certain anti-hunger programs throughout Hartford and Tolland counties. The amount distributed to other programs was $170,776 and $143,070 in 2005 and 2004, respectively. Note 15 - Commitments and Contingencies: Federal and State Assistance Programs - Foodshare, Inc., participates in federal and state assisted grant programs. The use of grant funds to pay program and capital expenses is subject to future review by the grantors. Such reviews may result in Foodshare, Inc., having liabilities to the grantors. Foodshare, Inc., was awarded a grant in the amount of $300,000 towards the construction of the new distribution facility. As a condition of the grant, Foodshare, Inc., is required to continue to use the facility under its intended purpose for a period of ten years from the date of final payment under the grant (April 2015) or repay to the state an amount equal to the amount of the grant funds minus 10% for each full year that has elapsed from the date of the final payment received from the state. Capital Leases - Foodshare, Inc., entered into a capital financing lease arrangement, expiring in 2007, in the amount of $88,744, for the purpose of acquiring a delivery truck. The truck s net book value was $24,896 and $37,574 at December 31, 2005 and 2004, respectively. Interest paid on the lease totaled $4,346 and $5,946 during 2005 and 2004, respectively. -15-
During 2004, Foodshare, Inc., entered into a capital financing lease arrangement, expiring in fiscal year 2009, in the amount of $18,739, for the purpose of acquiring a copier. The copier s net book value was $11,555 and $15,304 at December 31, 2005 and 2004, respectively. Interest paid on the lease totaled $668 and $660 during 2005 and 2004, respectively. Expected future minimum annual lease payments for the above leases are as follows: Year Ending December 31 2006 $ 22,802 2007 17,732 2008 3,748 2009 3,105 Total 47,387 Less amounts representing interest 4,806 $ 42,581 Operating Lease - Foodshare, Inc., entered into an operating lease agreement in 2005 with an effective date of October 1, 2004 for the purpose of renting a bay at the Connecticut Regional Market in Hartford, Connecticut. The lease has an original term expiring in 2007, with a three-year renewal option. Rental expense for the lease totaled $8,992 and $2,194 during 2005 and 2004, respectively. Foodshare, Inc., also utilizes an additional bay at the Connecticut Regional Market at no additional charge and recognizes this as a donated service in the amount equal to the rent paid on the bay under the lease agreement. Future minimum lease payments under the operating lease are as follows: 2006 $ 8,776 2007 6,582 $ 15,358 Other - In 1992, Foodshare, Inc., was awarded a grant from HFPG in the amount of $100,000 to assist in the retirement of debt associated with the purchase of Foodshare, Inc. s warehouse and administrative facility. The provisions of this grant require Foodshare, Inc., to continue to use the facility for substantially the same purposes as set forth in the grant application or to repay HFPG a sum equal to the grant ($100,000) plus a pro rata share of any appreciation in the value of the building. In conjunction with the sale of its facility, Foodshare, Inc., secured a release from HFPG regarding this provision. -16-