Robert G. Gillette, C P A Nonprofit Clients Only

INDEPENDENT AUDITOR'S REPORT To the Board of Directors of Mercy For Animals:

I have audited the accompanying financial statements of Mercy For Animals (a nonprofit organization), which comprise the statement o f financial position as o f December 31. 2012. and the related statements of activities, functional expenses, and cash flows for the year 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 o f these financial statements in accordance with accounting principles generally accepted in the United States o f 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 My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement o f 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 o f expressing an opinion on the effectiveness of the entity's internal control. Accordingly, I 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.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Opinion In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mercy For Animals as of December 31, 2012, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

August 7, 2013

P.O. Box 21572 Columbus, Ohio 43221-0572

Telephone (614) 459-7864 rggcpa (ffisbcglohal.net

M E R C Y F O R A N I M A L S S T A T E M E N T O F F I N A N C I A L P O S I T I O N

D E C E M B E R 31, 2012

ASSETS

Current assets: Cash in banks $1,916,082 Investments, at market (Note C) 23,345 Inventory 49,548 Prepaid expenses 4,603

Total current assets 1.993,578

Fixed assets (Note D): Equipment and furniture 42.667 l e a s e h o l d improvements 18.940

61,607

Accumulated depreciation (37,422)

Net book value 24,185

TOTAL ASSETS $2,017,763

LIABILITIES

Accounts payable and accrued expenses $5,939

T O T A L LIABILITIES 5.939

NET ASSETS

Unrestricted net assets 2,011,824

TOTAL NET ASSETS 2.<>1 1.X24

TOTAL LIABILITIES A N D NET ASSETS $2,017,763

The accompanying notes are an integral part o f the financial statements 2

M E R C Y F O R A N I M A L S S T A T E M E N T O F A C T I V I T I E S

F O R T H E Y E A R E N D E D D E C E M B E R 31, 2012

Unrestricted Net Assets Revenues:

Contributions Sale o f merchandise

Less: Cost o f goods sold Net sales Interest and dividend income Gain on investments

T O T A L REVENUES

Expenses:

Program Service

Administration

Fundraising

T O T A L EXPENSES

INCREASE IN NET ASSETS

NET ASSETS A T BEGINNING OF YEAR

NET ASSETS A T END OF YEAR

Unrestricted

$2,318,281 40,294

(20,770) 19,524 9,806

92,974

2.440.585

1.300,339

163.187

165,654

1.629.180

811.405

1.200,419

$2.011.824

The accompanying notes are an integral part of the financial statements

M E R C Y F O R A N I M A L S S T A T E M E N T O F F U N C T I O N A L E X P E N S E S

F O R T H E Y E A R E N D E D D E C E M B E R 31, 2012

Program Management Services and General Fundraising Total

Salaries benefits and payroll taxe: $439,520 $70,375 $67,609 S577.504 Contract labor 127.026 1.900 6,834 135.760 Supplies 65.413 4,087 4,106 73.606 Telecommunications 15.991 2,099 2,214 20,304 Postage and shipping 67,646 1,954 9.321 78,921 Printing and copying 125,635 1.289 2,776 129,700 Occupancy 89,684 8.247 9,170 107.101 Travel 110,642 6.776 6,383 123,801 Conference and meeting 25.655 0 36,741 62,396 Depreciation 2,807 15,259 0 18,066 Professional fees and dues 45,725 26,725 13,030 85,480 Advertising 106,351 0 48 106,399 Grants to other organizations 77.532 0 0 77,532 Insurance 162 17,531 0 17,693 Fees and taxes 550 6.945 7,422 14,917

$1,300,339 $163,187 SI 65.654 $1,629,180

fhe accompanying notes are an integral part of the financial statements 4

M E R C Y F O R A N I M A L S S T A T E M E N T O F C A S H F L O W S

F O R T H E Y E A R E N D E D D E C E M B E R 31, 2012

CASH FLOWS FROM OPERATING ACTIVITIES

Increase in net assets $811,405

Adjustments to reconcile increase in net assets to cash provided by operating activities:

Depreciation 18,066 Increase in inventory (22,713) Decrease in prepaid expense 9,222 Decrease in accounts payable (13.480)

Net cash used by operating activities 802,500

CASH FLOWS FROM INVESTMENT ACTIVITIES Sale of investment securities 467.778 Purchase o f property and equipment (3,850)

Net cash used by investment activities 463,928

Increase in cash 1,266,428

CASH BEGINNING OF YEAR 649.654

CASH END OF Y E A R $1,916,082

The accompanying notes are an integral part of the financial statements

M E R C Y F O R A N I M A L S , INC. N O T E S T O F I N A N C I A L S T A T E M E N T S

December 31, 2012

N O T E A - O R G A N I Z A T I O N AND P U R P O S E Mercy For Animals, Inc. (Organization) is a 501(c)(3) nonprofit animal advocacy Organization which works to prevent animal suffering through proactive consumer education. Mercy For Animals focuses on farmed animal advocacy and promoting cruelty-free food choices.

N O T E B - S I G N I F I C A N T A C C O U N T I N G P O L I C I E S BASIS OF REPORTING A N D PRESENTATION The financial statements o f the Organization have been prepared on the accrual basis. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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 o f the financial statements. Actual results could differ from those estimates. The significant accounting policies followed are described below to enhance the usefulness o f the statements to the reader.

USE OF ESTIMATES The preparation o f financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported mounts and disclosures. Accordingly, actual results could differ from those estimates.

CASH A N D CASH EQUIVALENTS A N D CREDIT RISKS Cash and cash equivalents include cash on hand, bank checking accounts, and savings accounts. While The Organization's cash and cash equivalents, at times, may exceed federally insured limits, the Organization has not experienced any losses in such accounts. The Organization believes it is not exposed to any significant credit risk on these accounts.

INVESTMENTS Purchased investments in equity securities with readily determinable fair values and all debt securities are reported at fair value (see NOTE C).

PROPERTY, EQUIPMENT, A N D DEPRECIATION Property and equipment purchased by the Organization are carried at cost or, i f donated, at fair market value on the date o f donation. The Organization follows the practice of capitalizing all expenditures for property and equipment over $2,000 with a useful life in excess of one year. Property and equipment are depreciated using the straight-line method, half-year convention. A l l office furniture and equipment have been estimated to have a remaining useful life of three to five years. A l l buildings have been estimated to have useful lives o f thirty years. Expenditures for maintenance and repairs are charged to expense as incurred.

6

N O T E B - S I G N I F I C A N T A C C O U N T I N G P O L I C I E S - Continued NET ASSETS

Financial statements report amounts separately by class o f net assets: • Unrestricted net assets represent resources over which the Board o f Directors has

discretionary control and are used to carry out the Organization's operations in accordance with its bylaws and exempt purposes.

• Temporarily restricted net assets would represent funds stipulated for specific operating purposes and those not currently available for use until commitments regarding their use have been fulfilled.

• Permanently restricted net assets would be those contributed with donor restrictions requiring they be held in perpetuity.

SUPPORT. REVENUE, A N D RECLASSIFICATIONS Revenue is recognized when earned and support when contributions are made, which may be when cash is received, unconditional promises are made, or ownership o f other assets is transferred to the Organization. The Organization reports funds as restricted i f they are received with stipulations that l imit the use o f the funds. When a stipulated time restriction ends or purpose restriction is satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as satisfaction o f purpose restrictions.

EXPENSES Expenses are reported when costs are incurred. The cost of providing the various program services and supporting activities has been presented on a functional basis. Accordingly, certain costs have been allocated among the program services and supporting activities benefited. Expenses are generally charged to functional departments as incurred for the various activities.

UNCERTAIN T A X POSITIONS The Organization follows the provisions o f the Income Tax topic o f the FASB ASC. These provisions clarify the accounting for uncertainty in income tax positions and prescribe guidance related to the combined financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The tax benefit from an uncertain tax position is only recognized in the combined statements of financial position i f the tax position is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties, i f any, are included in expenses in the combined statements of activities. As of December 31 , 2012. the Organization had no uncertain tax positions that qualify for recognition or disclosure in the combined financial statements.

7

N O T E B - S I G N I F I C A N T A C C O U N T I N G P O L I C I E S - Continued UNCERTAIN T A X POSITIONS - Continued The Organization has evaluated its tax position for all open tax years. Currently the tax years open and subject to examination by the Internal Revenue Service are the 2009. 2010 and 2011 tax years. However the Organization is not currently under audit nor has the Organization been contacted by any jurisdiction. Based on the evaluation o f the Organization's tax positions, management believes all tax positions taken would be upheld under an examination. Therefore no provision for the effects of uncertain tax positions have been recorded for the fiscal year ended December 31, 2012.

The Organization is a tax-exempt organization under Section 501 (c) (3) o f the Internal Revenue Code. Accordingly, no provision for income taxes has been made in the financial statements.

SUBSEQUENT EVENTS Subsequent events have been evaluated through August 7. 2013 which is the date the financial statements were available for issue.

N O T E C - I N V E S T M E N T S Investments held at December 31, 2010 consist of mutual funds and are presented in the financial statements and below at fair market value based on quoted market prices.

Market Market Cost Adjustments Value Level 1

Mutual funds $15,805 $7,540 $23,345 $23,345

Investment gain consists o f the following for the year ending December 31, 2012:

Unrealized gain $3,164 Realized gain 89,810 Total $92.974

Realized and unrealized gains and losses on investments are determined by comparison of specific costs o f acquisition to proceeds at the time of disposal, or market value at the balance sheet date, respectively.

Level 1 Fair Value Measurements The fair values of equity securities are based on quoted market prices.

8

N O T E D - F I X E D A S S E T S Fixed assets are carried on the books at historical cost for items purchased or assigned cost for donated items, with the appropriate accumulated depreciation. The depreciation charged against net assets consists of the amount required to write down the original cost o f fixed assets to a residual value over their estimated useful lives. It is the Organization's policy to capitalize property and equipment of $2,000 or higher. Lesser amounts are expensed as period costs.

The straight-line depreciation method is used by the Organization with useful lives of furniture and equipment ranging from three to ten years. Fixed assets consist o f the following:

Equipment and furniture $42,667 Leasehold improvements 18,940

Subtotal 61,607 Less: accumulated depreciation (37,422)

$24,185

Depreciation expense for the year was $18,066.

N O T E E - O P E R A T I N G L E A S E C O M M I T M E N T S The Organization leases space in three locations; Chicago, Illinois, New York, New York and West Hollywood, California. On March 4, 2009 the Chicago, Illinois lease commenced that requires monthly payments of $850 from January 1, 2011 until it is scheduled to expire on November 30, 2013. The New York, New York lease became effective July 1, 2009 and expired July 31, 2010 and requires month to month payments o f $650 per month after the expiration date. In West Hollywood. California a lease dated September 22, 2011 commenced requiring monthly payments o f $1,700 until it expires September 31, 2013. Minimum scheduled future occupancy lease payments total $25,109, all due in 2013.

N O T E F - C O N C E N T R A T I O N S O F C R E D I T R I S K

Financial instruments, which potentially subject the Organization to concentrations of credit risk, consist of money market accounts and investment securities. The Organization places its temporary cash and deposit accounts with creditworthy, high-quality financial institutions. A significant portion of the funds usually exceed insured limits and are not insured by the FDIC or similar entity.

The Organization has significant investments in stocks, bonds, and mutual funds and, therefore, is subject to concentrations of credit risk. Although the fair value o f investments is subject to fluctuations, management believes the investments are prudent for the long-term welfare of the Organization.

N O T E G - D O N A T E D S E R V I C E S The Organization receives volunteer services that are not recordable under generally accepted accounting principles. A substantial number of volunteers have donated a significant amount o f time in the Organization program services. The value o f volunteer services is not disclosed as no objective basis is available to measure the value of such services.

9