STOP HUNGER NOW, INC. FINANCIAL STATEMENTS

STOP HUNGER NOW, INC.

FINANCIAL STATEMENTS

For the Years Ended December 31, 2008 and 2007

Stop Hunger Now, Inc.Table of ContentsDecember 31, 2008 and 2007

Page

INDEPENDENT AUDITORS’ REPORT 1

FINANCIAL STATEMENTS:

Statements of Financial Position 2

Statements of Activities 3

Statements of Functional Expenses 4

Statements of Cash Flows 5

Notes to Financial Statements 6-13

Stop Hunger Now, Inc.Statements of Financial PositionDecember 31, 2008 and 2007

Assets

2008 2007Current Assets:

Cash and cash equivalents 103,125$ 187,774$ Promises to give 2,987 2,750 Accounts receivable 8,773 - Other receivable 246 246 Inventory 75,806 - Prepaid expenses 35,689 7,579 Notes receivable, current portion 57,606 45,000 Investments 64,500 198,622

Total Current Assets 348,732 441,971

Property and equipment (at cost), net 85,888 64,892

Other Assets:Notes receivable, less current portion 26,506 84,112 Deposits 5,140 2,639

31,646 86,751

Total Assets 466,266$ 593,614$

Liabilities and Net Assets

Current Liabilities:Accounts payable and accrued expenses 121,488$ 41,587$ Accrued vacation payable 13,181 4,946 Lease payable, current portion 9,069 -

Total Current Liabilities 143,737 46,533

Total Liabilities 143,737 46,533

Net Assets:Unrestricted 233,344 317,677 Temporarily restricted 89,185 229,404

Total Net Assets 322,529 547,081

Total Liabilities and Net Assets 466,266$ 593,614$

See Notes to Financial Statements. -2-

Stop Hunger Now, Inc.Statements of ActivitiesFor the Year Ended December 31, 2008 with Comparative Totals for 2007

2008 2007

UnrestrictedTemporarily Restricted Total

Total All Funds

Support and Revenues:Grants and contributions 1,554,012$ 165,396$ 1,719,408$ 1,235,567$ In-kind contributions 11,469,655 - 11,469,655 7,017,447 Sales revenue 1,255 1,255 - Interest and dividends 11,673 - 11,673 16,716 Unrealized loss on investments - - - (461) (Loss) gain on sale of investments (1,538) - (1,538) 2,000 Net assets released from restrictions 305,615 (305,615) - -

Total Support and Revenues 13,340,672 (140,219) 13,200,453 8,271,269

Expenses:Program services 13,035,300 - 13,035,300 7,833,458 Management and general 176,859 - 176,859 145,243 Fundraising activities 212,846 - 212,846 190,850

Total Expenses 13,425,005 - 13,425,005 8,169,551

Changes in Net Assets (84,333) (140,219) (224,552) 101,718

Net Assets at Beginning of Year 317,677 229,404 547,081 445,363

Net Assets at End of Year 233,344$ 89,185$ 322,529$ 547,081$


Stop Hunger Now, Inc.Statements of Functional ExpensesFor the Year Ended December 31, 2008 with Comparative Totals for 2007

2008 2007Program Services

Management and General

Fundraising Activities Total

Total All Funds

Grants to others 11,385,239$ -$ -$ 11,385,239$ 6,854,900$ Program Services - other 204,830 - - 204,830 130,912 Salaries - officers 148,375 30,038 25,337 203,750 214,207 Salaries - other 286,126 77,080 70,063 433,269 191,981 Payroll taxes 37,461 9,235 8,225 54,921 36,595 Employee benefits 28,985 7,146 6,364 42,494 26,479 Retirement 8,192 1,659 1,399 11,250 8,655 Contract services 21,486 5,297 4,718 31,501 11,989 Rent - office 4,093 1,009 899 6,000 6,000 Rent - warehouse 82,894 - - 82,894 48,664 Rent - equipment 2,333 575 512 3,420 795 Printing and reproduction - 276 1,102 1,378 6,035 Marketing, public relations and advertising 52,509 7,533 69,350 129,392 166,743 Bad debt 3,240 - - 3,240 1,000 Bank service charges 1,795 442 394 2,631 2,165 Depreciation 15,877 3,914 3,486 23,277 13,141 Dues and subscriptions 4,888 1,205 1,073 7,166 7,768 Insurance 12,711 3,134 2,791 18,635 10,338 Professional fees - 11,781 - 11,781 16,482 Office supplies 18,191 4,485 3,994 26,669 18,095 Licenses & permits 4,633 1,142 1,017 6,792 2,972 Telephone and internet 4,644 1,145 1,021 6,810 8,566 Travel 43,606 10,750 9,574 63,930 45,803 Operation Sharehouse supplies 663,195 - - 663,195 331,480 Miscellaneous - (7,093) - (7,093) 3,006 Postage - 6,107 1,527 7,634 4,780

Total Operating Expenses 13,035,300$ 176,859$ 212,846$ 13,425,005$ 8,169,551$


Stop Hunger Now, Inc.Statements of Cash FlowsFor the Years Ended December 31, 2008 and 2007

2008 2007Cash Flows from Operating Activities:

Change in net assets (224,552)$ 101,718$

Depreciation 23,277 13,141 Bad debt expense 3,240 1,000 Unrealized (gain) loss on investments - 461 Realized (gain) on sale of investments 1,538 (2,000) Contributions of stock (242,504) (320,000) (Increase) decrease in Assets:

Promises to give (237) 72,250 Accounts receivable (12,013) - Notes receivable 45,000 40,000 Inventory (75,806) - Prepaid expenses (28,110) (2,839) Other receivables - 25 Deposits (2,501) -

Increase (decrease) in Liabilities:Accounts payable and accrued expenses 88,136 (22,129) Net Cash Used by Operating Activities (424,532) (118,373)

Cash Flows from Investing Activities:Proceeds from sale of investments 375,627 236,000 Purchases of investments (539) (831) Purchases of equipment (43,502) (31,264)

Net Cash Provided by Investing Activities 331,586 203,905

Cash Flows from Financing Activities:Proceeds from borrowing activities 9,069 - Payments on borrowing activities (771) (3,648)

Net Cash Provided by Financing Activities 8,298 (3,648)

Net (Decrease) Increase in Cash and Cash Equivalents (84,649) 81,884

Cash and Cash Equivalents at Beginning of the Year 187,774 105,890

Cash and Cash Equivalents at End of the Year 103,125$ 187,774$

Supplemental disclosure of cash flow information:Cash paid during year for interest 3,515$ 2,741$

Adjustments to reconcile change in net assets to net cash used by operating activities:


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Stop Hunger Now, Inc.Notes to Financial StatementsDecember 31, 2008 and 2007

1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF ACTIVITIES

Stop Hunger Now, Inc. (the Organization) is a non-profit organization incorporated under the laws of Delaware to provide food and life saving-aid to the destitute and the hungry all over the world in a rapid, efficient and effective manner. The Organization derives its operating funds from contributions of cash, food, medicine, and equipment from individuals, corporations, and other non-profit organizations.

During 2005, the Organization started Operation Sharehouse and opened a packaging facility in Raleigh, NC. Operation Sharehouse is a volunteer-based effort to formulate and package high protein, dehydrated meals to be sent to hungry people around the world. During 2006, the Organization expanded Operation Sharehouse operations to South Hill, VA. The Goldsboro, NC Sharehouse was opened during 2007 while the Hampton Roads, VA, Lynchburg, VA, and Charlotte, NC Sharehouses were opened during 2008. It is anticipated Operation Sharehouse will expand to Phoenix, AZ, Richmond, VA, and Jackson, MS during 2009.

BASIS OF ACCOUNTING

The financial statements of Stop Hunger Now, Inc. have been prepared on the accrual basis of accounting and, accordingly, reflect all significant receivables, payables, and other liabilities.

BASIS OF PRESENTATION

The Organization follows Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements of Not-for-Profit Organizations. SFAS No. 117 establishes standards for external financial reporting by not-for-profit organizations and requires that resources be classified for accounting purposes into three net asset categories according to externally (donor) imposed restrictions. Accordingly, net assets of the Organization and changes therein may be classified and reported as follows:

Unrestricted Net Assets – Net assets that are not subject to donor-imposed stipulations.

Temporarily Restricted Net Assets – Net assets subject to donor-imposed stipulatons that may or will be met either by actions of the Organization and/or the passage of time.

Permanently Restricted Net Assets – Net assets subject to donor-imposed stipulations that they be maintained permanently by the Organization. The Organization currently has no permanently restricted net assets.

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1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES: (Continued)

CASH AND CASH EQUIVALENTS

For purposes of the Statement of Cash Flows, the Organization considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents.

The Organization places its cash and cash equivalents on deposit with financial institutions in the United States. In October and November 2008 the Federal Deposit Insurance Corporation (FDIC) temporarily increased coverage to $250,000 for substantially all depository accounts and temporarily provides unlimited coverage for certain qualifying and participating non-interest bearing transaction accounts. The increased coverage is schedule to expire on December 31, 2009, at which time it is anticipated amounts insured by the FDIC will return to $100,000. During the year, the Company did not have amounts on deposit in excess of the insured limits. As of year end, the Company had $103,125 which does not exceed these insured amounts.

CONCENTRATION OF CREDIT RISKS

The Organization holds packaging events near a local Operation Sharehouse. These packaging events utilize and are dependent upon local volunteers. The Organization has not experienced any shortage of volunteers in the past and believes that there will not be any shortage of volunteers in the future.

The Organization’s Operation Sharehouse program produces individual meals made up of rice and other ingredients. These raw materials are subject to global commodity price fluctuations. The Organization’s ability to maintain or expand its sharehouse operations is dependent uponthe Organization’s ability to provide these raw materials at economically favorable prices.

CONTRIBUTIONS

The Corporation follows SFAS No. 116, Accounting for Contributions Received and Contributions Made. In accordance with SFAS No. 116, contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions.

DONATED SERVICES

Donated services are recognized as contributions in accordance with SFAS No. 116, Accounting for Contributions Received and Contributions Made, if the services (a) create or enhance non-financial assets, or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Organization.

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DONATED ASSETS

Donated marketable securities and other non-cash donations are recorded as contributions at their estimated fair values at the date of donation.

PROMISES TO GIVE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Promises to give reflected on the Statements of Financial Position are expected to be received within one year. Promises to give are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to operations and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to promises to give. The Organization considers all promises to give to be fully collectible, accordingly, no allowance for doubtful accounts is required as of December 31, 2008 and 2007.

NOTES RECEIVABLES

Notes receivable are reported at their fair values in the statement of financial position. The notes are fully secured and the management of Stop Hunger Now, Inc. believes that all note receivables are fully collectible. Therefore, no allowance for uncollectible accounts is considered necessary.

INVESTMENTS

The Organization records investments in accordance with Statement of Financial Accounting Standards No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations. Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values in the statement of financial position. Gains and losses are determined using the specific identification method.

PROPERTY AND EQUIPMENT

The Organization capitalizes all expenditures for property and equipment in excess of $500. Purchased property and equipment are carried at cost. Donated property and equipment are carried at the approximate fair value at date of donation. Depreciation is computed using the straight-line method with estimated useful lives between five and twenty years.

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FUNCTIONAL ALLOCATION OF EXPENSES

The costs of providing the Organization’s program and other activities have been summarized on a functional basis in the Statement of Activities and the Statement of Functional Expenses. Certain costs have been allocated based upon estimates made by the Organization’s management.

RESTRICTED AND UNRESTRICTED SUPPORT AND REVENUE

Donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions.

INCOME TAX STATUS

The Organization is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. In addition, the Organization qualifies for the charitable contribution deduction under Section 170(b)(1)(A), and has been classified as an organization that is not a private foundation under Section 509(a)(2).

ACCOUNTING ESTIMATES

Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

NEW ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, established a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This standard does not require any new fair value measurements, but rather eliminates inconsistencies found in various prior pronouncements.

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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities – Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses, arising subsequent to adoption, are reported in earnings.

Both SFAS No. 157 and SFAS No. 159 for non-financial assets and liabilities are effective for fiscal years beginning after November 15, 2008. The Company does not expect the pronouncements to have a material impact on its financial statements.

2. NOTES RECEIVABLE:

During 2002, three promissory notes totaling $324,112 were donated to the Organization by anentity affiliated with a former member of the Organization’s Board of Directors. Each of the notes bears interest at a rate of 6.0% per annum payable annually. The notes range in length from eight to nine years and require principal payments beginning in 2003. During 2004, the Organization received a reduced amount as payment in full on one of the three promissory notes. The following is a summary of the remaining required principal payments under the notes:

2009 $ 57,6062010 26,506

$ 84,112

3. INVESTMENTS:

The Organization’s investments at December 31, 2008 and 2007, consist of mutual funds and corporate stock recorded at market value as follows:

2008 2007

CostMarket Value Cost

MarketValue

Mutual funds– U.S. Gov’t Securities $ - $ - $ 18,702 $ 18,622

Corporate stock 64,500 64,500 180,000 180,000 Total $ 64,500 $ 64,500 $ 198,702 $ 198,622

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3. INVESTMENTS:(Continued)

The following schedule summarizes the investment return and its classification in the Statement of Activities for the year ended December 31, 2008 and 2007:

2008 2007Investment Income $ 11,673 $ 16,716Net unrealized gains (loss) - (461)Net realized gains (loss) (1,538) 2,000

$ 10,135 $ 18,255

4. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

2008 2007Office furniture and equipment $ 40,323 $ 33,297 Warehouse equipment 93,697 57,673

Less accumulated depreciation 134,020 48,132

$ 85,888

90,970 26,078

$ 64,892

Depreciation charged to operations was $23,277 and $13,141 in 2008 and 2007, respectively.

5. OPERATING LEASE:

The Organization leases its office facility on a month-to-month basis. Additionally, the Organization leases warehouse space in which it operates Operation Sharehouse. Future minimum lease payments under the leases are as follows:

Year endingDecember 31, Amount

2009 $ 118,2212010 120,2622011 102,5592012 2,932

$ 343,973

Rent expense totaled $92,314 and $54,664 for 2008 and 2007, respectively.

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6. CAPITAL LEASE OBLIGATIONS:

The Organization acquired a warehouse forklift to support Operation Sharehouse under the provisions of a long-term lease. For financial reporting purposes, minimum lease payments relating to the equipment have been capitalized. The lease expires in July 2012. The leased equipment has a cost of $10,000.

The future minimum lease payments under the capital leases and the net present value of the future minimum lease payments are as follows:

Total minimum lease payments $ 11,904Less amount representing interest 2,835Present value of net minimum lease payments $ 9,069

Depreciation related to this capital lease is included in Note 4 Property and Equipment. Total depreciation charged to operations in regards to this lease was $833 in 2008.

7. TEMPORARILY RESTRICTED NET ASSETS:

Temporarily restricted net assets consist of the following:

2008 2007Middle East programs $ 30,878 $ 56,578Goldsboro, NC Sharehouse - 58,570Lynchburg, VA Sharehouse - 8,000Raleigh, NC Sharehouse - 50,000Hampton Roads, VA Sharehouse 48,659 -Africa programs - 4,728South East Asia programs 9,648 51,528

$ 89,185 $ 229,404

The following is summary of net assets which were released from donor restrictions by incurring expenses which satisfied the donor specified restrictions:

2008 2007Goldsboro, NC Sharehouse $ 58,570 $ 59,575Lynchburg, VA Sharehouse 8,000 -Raleigh, NC Sharehouse 60,000 -Hampton Roads, VA Sharehouse 72,300 -Africa programs 8,478 38,822Central America programs 30,687 13,825Middle East programs 25,700 5,000South East Asia programs 41,880 70,430

$ 305,615 $ 187,652

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8. IN-KIND CONTRIBUTIONS AND GRANTS TO OTHERS:

During 2008 and 2007, the Organization received in-kind contributions of food and medical supplies which meet the requirements for revenue and expense recognition in accordance with U.S. generally accepted accounting principals. The 2008 and 2007 in-kind contributions had an approximate wholesale value of $11,385,239 and $6,854,900, respectively. The 2008 and 2007 in-kind contributions accounted for approximately 85% and 83%, respectively, of total contributions and support. As soon as feasible following transfer of title to the Organization, these in-kind contributions are shipped to third parties in support of international relief efforts.

In addition, the Organization received in-kind marketing and public relation services that meet the requirements for revenue and expense recognition in accordance with U.S. generally accepted accounting principals. In-kind marketing and public relation services received were valued at approximately $70,156 and $162,548 in 2008 and 2007, respectively.

Furthermore, the Organization receives free warehouse space for the South Hill, Virginia sharehouse. The rental value of the space is approximately $14,260 and $12,000 for 2008 and 2007, respectively.

9. RETIREMENT PLAN:

The Organization maintains a simplified employee pension plan for the benefit of all its employees. The amount of the contribution to the plan is determined annually be the board of trustees. The amount of expense included in these financial statements for the years ended December 31, 2008 and 2007 was $11,250 and $8,655, respectively.

10. MARKETING, PUBLIC RELATIONS AND ADVERTISING:

The Organization used brochures, posters and press releases to promote its programs among the audience it services. The costs of these promotional materials are expensed the first time the promotion takes place. During the years ended December 31, 2008 and 2007, marketing, public relations and advertising expense was $129,392 and $166,743, respectively.Approximately $70,156 and $162,548 of the marketing, public relations and advertising costs in 2008 and 2007, respectively, were in the form of in-kind services.

11. CONCENTRATIONS:

For the years ended December 31, 2008 and 2007, the Organization received donations from one donor totaling $240,000 and $320,000, respectively. These donations accounted for 14% and 26% of total grant and contribution income for 2008 and 2007, respectively.

STOP HUNGER NOW, INC. FINANCIAL STATEMENTS

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