WATER4, INC. OKLAHOMA CITY, OKLAHOMA AUDITED FINANCIAL STATEMENTS AND FOOTNOTES FOR THE YEAR ENDED DECEMBER 31, 2016

Transcription

1 WATER4, INC. OKLAHOMA CITY, OKLAHOMA AUDITED FINANCIAL STATEMENTS AND FOOTNOTES FOR THE YEAR ENDED DECEMBER 31, 2016

2 WATER4, INC. CONTENTS Page INDEPENDENT AUDITOR S REPORT 1 FINANCIAL STATEMENTS Statement of Financial Position 3 Statement of Activities and Change in Net Assets 4 Statement of Cash Flows 5 Statement of Functional Allocation of Expenses 6 Notes to Financial Statements 7-12

3 BR Bell & Rhodes, PC Certified Public Accountants Barbour Avenue Oklahoma City, Oklahoma To the Board of Directors Water4, Inc. INDEPENDENT AUDITOR S REPORT We have audited the accompanying financial statements of Water4, Inc. (a nonprofit organization), which comprise the statement of financial position as of December 31, 2016, and the related statements of activities and changes in net assets, cash flows, and functional allocation of expenses 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 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and preform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements. 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 basis for our audit opinion.

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Water4, Inc. as of December 31, 2016, 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. Bell & Rhodes, P.C. August 16,

5 WATER4, INC. statement of Financial Position December 31, 2016 ASSETS Current Assets: Cash and cash equivalents $ 1,713,707 Program receivables 1,353,104 Other receivables 21,673 Prepaid expenses 754 Inventory 258,553 Current assets 3,347,791 Fixed Assets: Buildings & improvements 580,813 Equipment 18,678 Furniture & fixtures 18,993 Vehicle 7,700 Software 20,332 Land 106,000 Total Fixed assets 752,516 Less: Accumulated depreciation (124,795) 627,721 Other Assets: Note Receivable 501,959 Total Assets $ 4,477,471 LIABILITIES & NET ASSETS Current Liabilities: Accounts payable $ 208,323 Accounts payable Water4More project 199,879 Payroll related liabilities 150,816 Current liabilities 559,018 Net Assets: Unrestricted net assets 3,918,453 Total net assets 3,918,453 Total Liabilities & Net Assets $ 4,477,471 See Accompanying Notes to the Financial Statements 3

6 WATER4, INC. Statement of Activities For the Year Ending December 31, 2016 Temporarily Unrestricted Restricted Total REVENUE Contributions $ 4,227,176 $ - $ 4,227,176 Donated services 4,923-4,923 Program income 2,381,299-2,381,299 Fundraising events net of $272,806 of direct costs 331, ,222 Investment income 23,294-23,294 Other income 22,835-22,835 Release of temporary restriction by use 135,582 (135,582) - Total revenue 7,126,331 (135,582) 6,990,749 EXPENSES Program expenses 4,239,286-4,239,286 General and administrative 263, ,273 Fundraising 1,106,198-1,106,198 Total Expenses 5,608,757-5,608,757 Change in net assets 1,517,574 (135,582) 1,381,992 Net assets beginning of year 2,400, ,582 2,536,461 Net assets end of year $ 3,918,453 $ - $ 3,918,453 See Accompanying Notes to the Financial Statements 4

7 WATER4, INC. Statement of Cash Flows For the Year Ending December 31, 2016 Cash Flows From Operating Activities Change in net assets $ 1,381,992 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 22,973 Change in assets and liabilities: Decrease in pledge receivables 135,582 Increase in program receivables (1,011,962) Increase in other receivables (14,622) Increase in inventory (28,377) Increase in prepaid assets (329) Decrease in operating current liabilities (1,018,634) Net cash used by operating activities (533,377) Cash Flows From Investing Activities Fixed asset additions (9,078) Receipt of accrued interest 4,145 Net cash used by investing activities (4,933) Net decrease in cash (538,310) Cash at the beginning of year 2,252,017 Cash at the end of year $ 1,713,707 See Accompanying Notes to the Financial Statements 5

8 WATER4, Inc. Statement of Functional Allocation of Expenses For the Year Ended December 31, 2016 Program General & Services Administrative Fundraising Total Salaries, benefits, & taxes $ 492,084 $ 102,498 $ 603,110 $ 1,197,692 Workers compensation insurance 8, ,511 11,224 Water well cost of supplies, support, and training 1,725, ,725,176 Payments to Water4 More Partner-World Vision 983, ,514 Water well research and development 367, ,297 Production management fee 369, ,388 Videography ,125 19,125 Books subscriptions & conference expenses 17,603 6,640-24,243 Events ,779 16,779 Continuing Education 3, ,591 Office expenses 26,424 23,812-50,236 Fees 1,117 29, ,417 Postage, shipping, & freight ,049 11,714 Contract Labor - 11,959 20,500 32,459 Insurance 9,753 2,438-12,191 Professional fees - 16,640-16,640 Maintenance 32,587 8,147-40,734 Marketing ,403 74,403 Memberships and dues - 3,375-3,375 Printing & promotional products ,980 37,980 Taxes - other Supplies 3, ,612 Software - 5,455 5,455 10,910 Telephone 10,915 2,797 4,511 18,223 Travel 137,319 26,887 69, ,211 Meals and entertainment 12,372 4,080 6,925 23,377 Hospitality-appreciation - 8,350-8,350 Utilities 13,371 3,343-16,714 Vehicle expense 5,265 1,317-6,582 Website ,550 13,550 Website and communication consulting , ,458 Total Before Depreciation 4,220, ,678 1,106,198 5,585,784 Depreciation 18,378 4,595-22,973 Total Expenses $ 4,239,286 $ 263,273 $ 1,106,198 $ 5,608,757 See Accompanying Notes to the Financial Statements 6

9 See Accountant s Audit Report WATER4, INC. Notes to the Financial Statements December 31, 2016 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Activities Water4, Inc (Water4) is a nonprofit organization incorporated in Oklahoma in 2008 for the purpose of eradicating the world water crisis through discovery and innovation of the materials and procedures utilized. Water4 focuses on equipping and empowering organizations that seek to combat their water crisis through local people with the combination of technology and behavioral change. The resulting implementation is carried out through Water4 s provision of equipment, materials, installation, training, and support, of sustainable and reproducible methods to locate and access clean water for both personal and agricultural uses of at risk populations in impoverished areas around the world. Its revenue is derived from donations as well as through ventures with other non-profit organizations with the similar goals. Basis of Accounting and Financial Statement Presentation Water4 follows the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The financial statements have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other assets and liabilities. The financial statements are presented in accordance with Generally Accepted Accounting Principles (GAAP), which require the organization to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. Restriction on Assets Net assets and revenues, expenses, gains, and losses are classified on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the organization and changes therein are 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 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 statement of activities as net assets released from restrictions. Permanently Restricted Net Assets Net assets subject to donor-imposed stipulations that must 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. Water4 had no permanently restricted net assets as of December 31,

10 See Accountant s Audit Report WATER4, INC. Notes to the Financial Statements December 31, 2016 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Such estimates are involved in management s valuation of its contribution receivable and the related discount rate and determination of an appropriate allowance for uncollectability. Accordingly, actual results could differ from these estimates. Cash and Cash Equivalents Cash and cash equivalents include all monies in banks and highly liquid investments with maturity dates of less than three months. The carrying value of cash and cash equivalents approximates fair value because of the short maturities of those financial instruments. Inventory Inventories are stated at the lower of cost (first-in, first-out) or market and are comprised raw material for the construction of drilling equipment as well as drilling equipment in various stages of construction, totaling $233,411, and sales items for the on-line store totaling $25,142. Property and Equipment Property and equipment are carried at cost, or, if donated, at the approximate fair value at the date of the donation. Depreciation is provided over the estimated useful lives of the respective assets using the Straight-line method. The organization capitalizes items valued in excess of $2,500 or more. The estimated useful lives of assets held by Water4 are thirty-nine years for buildings and building improvements, seven years for furniture and some equipment, five years for computer equipment and vehicles, and three years for software. Depreciation expense for the year ending December 31, 2016, was $22,973. Repairs that do not materially extend the useful life of an asset are expensed when incurred. Contribution Revenue Recognition Contributions, including unconditional promises to give (pledge receivables), are recognized as revenues or gains in the period received by Water4, and assets or decreases in liabilities depending on the form of the benefit received. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. In most cases such contributions are considered conditional until they are received by the organization. Unconditional promises to give are recognized at the time they are given. Contributions to be received after one year are recorded at the present value of their estimated future cash flows using an appropriate discount rate. Amortization of the discount is recorded as additional contribution revenue in the same net asset class as the original contribution. All pledge receivables were collected as of December 31,

11 See Accountant s Audit Report WATER4, INC. Notes to the Financial Statements December 31, 2016 Contributions are reported as increases in the appropriate category of net assets. Expirations of temporary restrictions (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as net assets released from restrictions. Contributed Assets or Services Contributions of donated noncash assets are recorded at fair value on the date of the gift with the exception of gifts of stock, which are sold upon their receipt and recorded at the net proceeds from the sale. Any difference in the fair market value on the date of the donation and the actual proceeds from sale are considered immaterial by management. Contributions of donated services that create or enhance nonfinancial assets (i.e. that require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation), are recorded at fair value in the period the services are provided. $4,923 of services meeting these requirements relating primarily to training were recognized in the statement of activities for the year ending December 31, Program Revenue Recognition Program revenue is recognized on the date it is earned, usually coinciding with the date it is invoiced. As in the case of contributions, an allowance is recognized for uncollectable program receivables based on management s judgment of collectability. As all program receivables were collected in full by the date of this report, no allowance was required for the year ending December 31, Fair Value Measurement The Organization reports its fair value measures using a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy, established by GAAP, requires that entities maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows: Level 1 - Quoted prices for identical assets or liabilities in active markets to which the organization has access at the measurement date. The Organization has no assets that are valued using Level 1 inputs. Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. The Organization has no assets that are valued using Level 2 inputs. Level 2 inputs include: a. quoted prices for similar assets or liabilities in active markets; 9

12 WATER4, INC. Notes to the Financial Statements December 31, 2016 b. quoted prices for identical or similar assets in markets that are not active; c. observable inputs other than quoted prices for the assets or liability (for example, interest rates and yield curves); and d. inputs derived principally from, or corroborated by, observable market data by correlation or other means. Level 3 - Unobservable inputs for the asset or liability. Unobservable inputs should be used to measure the fair value to the extent that observable inputs are not available. The Organization s investment in a note receivable is valued using Level 3 inputs. Level 1 Level 2 Level 3 Note receivable $ - $ - $ 506,104 *Additional accrued interest ,433 Payment of accrued interest in (25,578) Note receivable $ - $ - $ 501,959 * Interest is accrued at a rate of 4.15% annualy and is considered a market rate of interest. As the interest is considered a market rate, the note has been recorded at the present value of the expected cash flows which is considered equal to its face amount. Functional Allocation of Expenses and Joint Costs The cost of providing various programs and other activities have been allocated on a functional basis in the Statement of Activities and in the Statement of Functional Expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Joint Costs - Most costs are directly allocated expenses. However, certain costs are jointly allocated to fundraising based on approximate time allocated to the various activities. A total of $920,391 of payroll related, telephone and travel related expenses were jointly allocated with $348,018 allocated to program costs, $124,378 allocated to general/administrative costs, and $447,995 allocated to fundraising costs. Fundraising Events Water4 conducted one fundraising event during the 2016 generating $604,028 of revenue. Direct fundraising event costs of $272,806 have been netted against revenue on the statement of activities. Income Taxes Water4 is exempt from federal and state income taxes under Internal Revenue Code Section 501(c)(3), and the Oklahoma taxation statutes, and accordingly has made no provision for income taxes in the accompanying financial statements. In addition, the Organization has been determined by the Internal Revenue Service not to be a private foundation within the meaning of IRC Section 509(a). Management has determined See Accountant s Audit Report 10

13 WATER4, INC. Notes to the Financial Statements December 31, 2016 that there was no unrelated business income for the year ending December 31, The Organization is required to file information tax returns each year with the years 2013, 2014, 2015, and the current year, still open for examination by taxing authorities. Subsequent Event Evaluation Subsequent events have been evaluated through August 16, 2017, the date of the issuance of the auditor s report, which corresponds to the date the financial statements were available to be issued. NOTE 2: CASH Water4 maintained cash in two different banks which at December 31, 2016, was $224,952 and $346,033 in excess of the federally insured limits. It is the opinion of management that the solvency of the bank is strong and the risk of loss remote. NOTE 3: PLEDGE AND PROGRAM RECEIVABLES Pledge Receivables As stated in NOTE 1, there were no pledge receivables as of December 31, Program Receivables Program receivables totaled $1,353,104 as of December 31, 2016, and were all collected by the date of this report. NOTE 4: COLLABORATIVE PROJECT In June 2012, Water4 entered into a Memorandum of Understanding with World Vision, Inc. (World Vision) in a collaborative project to provide water, sanitation, and hygiene programs to approximately 1,000,000 people in at least six countries over a five year period referred to as the Water4More program. World Vision will match fundraising by Water4 for this program up to $10,000,000. All funds raised by Water4 for the program will be sent to World Vision, who will act as the fiduciary agency. World Vision then dispenses funds back to Water4 for program costs based upon detailed budgets and action plans. Since the beginning of this project through December 31, 2016, Water4 recognized contribution revenue for this project of $7,340,919, ($2,285,000 recognized in 2012, $631,586 recognized in 2013, $1,600,000 recognized in 2014, $1,445,725 in 2015, and $1,378,608 in 2016). During 2016 Water4 invoiced World Vision for program costs totaling $2,238,197. See Accountant s Audit Report 11

14 NOTE 5: CONCENTRATIONS WATER4, INC. Notes to the Financial Statements December 31, 2016 Collaborative Project As described in NOTE 4, a significant amount of the program income reported for Water4 in 2016 (94%) relates to the Water4More Collaborative project in partnership with World Vision. The $1,353,104 of the program receivable also relates to this project. Operational Management Water4 depends on one company, Design4, LLC, doing business as Access Development, a separate for-profit entity unrelated by ownership or family relations to Water4, Inc. or any of its officers or board members, for the management of its inventory, the manufacturing of its uniquely designed drilling pumps, and oversight for most of the completed wells drilled in Approximately 60% of the $3,420,913 of costs of supplies, production management fees, and research and development costs was paid to Access Development. The loss of this operational relationship would be a significant obstacle to the ongoing programs of Water4. NOTE 6: NOTE RECEIVABLE As a part of the Water4More, World Vision project, Water4 has been asked to begin water drilling operations in Ethiopia with an estimated budget of $5.9 million. To do so, Ethiopian governmental regulations stipulate that any organization doing business in Ethiopia must be officially registered. Water4, as a foreign non-profit organization, is precluded under Ethiopian law from registering to do business in the country. As such, Water4 is working with Access Development who will be the registered entity in Ethiopia. One of the requirements for registration is to show that the Organization has made an in-country investment of $500,000 in the form of cash or equipment, an amount included in the overall $5.9 million budget. The $500,000 investment was advanced by Water4 to Access Development and has been accounted for as a note receivable with a market rate of interest to be repaid over a five year period. As stated in NOTE 1, the interest rate is considered a market rate of interest, so the note has been recorded at the present value of the expected cash flows which is considered equal to its face amount. Management believes that there will be a full collection of principle and interest and has not established a reserve for uncollectability. The note s first payment of principal is not due until January 1, 2017; interest of $6,104 was accrued as of December 31, 2015, and paid in Additional interest of $21,433 was accrued in 2016 of which $19,474 was paid by year end. The note balance at December 31, 2016, included the remaining unpaid balance of accrued interest of $1,959. See Accountant s Audit Report 12