WATER4, INC. OKLAHOMA CITY, OKLAHOMA AUDITED FINANCIAL STATEMENTS AND FOOTNOTES FOR THE YEAR ENDED DECEMBER 31, 2014

Transcription

1 OKLAHOMA CITY, OKLAHOMA AUDITED FINANCIAL STATEMENTS AND FOOTNOTES FOR THE YEAR ENDED DECEMBER 31, 2014

2 CONTENTS Pages 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 2575 Kelley Pointe Parkway, Suite 140 Edmond, 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, 2014, and the related statement of activities, 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, 2014, and functional expenses, 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. July 27,

5 statement of Financial Position December 31, 2014 ASSETS Current Assets: Cash and cash equivalents $ 1,213,942 Pledge Receivable 734,444 Program receivables 613,038 Other receivables 10,886 Prepaid expenses 425 Inventory 167,347 Other assets 26,143 Current assets 2,766,225 Fixed Assets: Buildings & improvements 558,899 Equipment 12,928 Furniture & fixtures 17,783 Vehicle 7,700 Software 20,332 Land 106,000 Total Fixed assets 723,642 Less: Accumulated depreciation (80,325) 643,317 Other Assets: Investments 6,250 Total Assets $ 3,415,792 LIABILITIES & NET ASSETS Current Liabilities: Accounts payable $ 41,757 Accounts payable Water4More project 724,905 Payroll related liabilities 213,756 Current liabilities 980,418 Net Assets: Unrestricted net assets 1,935,374 Temporarily restricted net assets 500,000 Total net assets 2,435,374 Total Liabilities & Net Assets $ 3,415,792 See Accompanying Notes to the Financial Statements 3

6 Statement of Activities For the Year Ending December 31, 2014 Temporarily Undesignated Restricted Total REVENUE Contributions $ 2,006,676 $ - $ 2,006,676 Donated services 8,636-8,636 Program income 1,787,056-1,787,056 Fundraising event net of $273,169 of direct costs 488, ,781 Investmment income Other income 8,366-8,366 Release of temporary restriction by use 1,727,435 (1,727,435) - Total revenue 6,027,121 (1,727,435) 4,299,686 EXPENSES Program expenses 3,782,488-3,782,488 General and administrative 250, ,291 Fundraising 1,129,978-1,129,978 Total Expenses 5,162,757-5,162,757 Change in net assets 864,364 (1,727,435) (863,071) Net assets beginning of year 1,071,010 2,227,435 3,298,445 Net assets end of year $ 1,935,374 $ 500,000 $ 2,435,374 See Accompanying Notes to the Financial Statements 4

7 Statement of Cash Flows For the Year Ending December 31, 2014 Cash Flows From Operating Activities Change in net assets $ (863,071) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 33,536 Change in assets and liabilities: Decrease in pledge receivables 649,105 Increase in program receivables (127,333) Decrease in inventory 47,535 Increase in prepaid and other assets (23,295) Increase in operating current liabilities 192,071 Net cash provided by operating activities (91,452) Cash Flows From Investing Activities Fixed asset additions (65,070) Cash used to establish investment account (6,250) (71,320) Net increase in cash (162,772) Cash at the beginning of year 1,376,714 Cash at the end of year $ 1,213,942 See Accompanying Notes to the Financial Statements 5

8 WATER4, Inc. Statement of Functional Expenses For the Year Ended December 31, 2014 Program General & Services Administrative Fundraising Total Salaries, benefits, & taxes $ 572,772 $ 155,398 $ 612,808 $ 1,340,978 Water well cost of supplies 858, ,292 Payments to Water4 More Partner-World Vision 1,600, ,600,000 Water well research and development 424, ,326 Production management fee 34,064 34,064 Donations to other organizations - Water wells 2, ,000 Videography ,839 41,839 Books subscriptions & conference expenses - 2,966-2,966 Education Office expenses - 35,327-35,327 Fees 3,087 4,835-7,922 Postage, shipping, & freight 46,628-12,534 59,162 Historical documentation - - 5,000 5,000 Insurance 6,388 1,597-7,985 Professional fees - 18,266-18,266 Maintenance 30,536 7,634-38,170 Marketing ,531 92,531 Miscellaneous Printing & promotional products ,256 35,256 Taxes - other Rentals Software ,796 Telephone 7,324-2,175 9,499 Travel 152,246 6,788 27, ,169 Meals and entertainment - 4,604 6,366 10,970 Visitor hospitality Utilities 13,784 3,446-17,230 Vehicle expense 4,168 1,042-5,210 Website ,044 36,044 Fundraising consulting , ,347 Total Before Depreciation 3,755, ,583 1,129,978 5,129,221 Depreciation 26,828 6,708-33,536 Total Expenses $ 3,782,488 $ 250,291 $ 1,129,978 $ 5,162,757 See Accompanying Notes to the Financial Statements 6

9 Notes to the Financial Statements December 31, 2014 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 providing equipment, materials, installation, training and support for 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 and program revenue received from its distribution of water well drilling kits. 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, 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 maintained no permanently restricted net assets as of December 31, See Accountant s Audit Report 7

10 Notes to the Financial Statements December 31, 2014 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. 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 at $1,000 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, 2014 was $33,536. 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, 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. An allowance is recognized for uncollectible contributions receivable based upon management s judgment of the collectability of the contributions. Management believes that a less than 100% collectability of its pledge receivable is highly unlikely and have thus not provided for an allowance for uncollectability. See Accountant s Audit Report 8

11 Notes to the Financial Statements December 31, 2014 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. As all revenue received for a restricted purpose during the year ending December 31, 2014 was considered used for that purpose by year end, all revenue for the year is considered unrestricted. 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, or (1.that require specialized skills, 2.are provided by individuals possessing those skills, and 3. would typically need to be purchased if not provided by donation), are recorded at fair value in the period the services are provided. $8,636 of services meeting these requirements 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 s investment in a publicly traded security and a money fund 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. Level 2 inputs include See Accountant s Audit Report 9

12 See Accountant s Audit Report WATER4, INC. Notes to the Financial Statements December 31, 2014 a. quoted prices for similar assets or liabilities in active markets; 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. Functional Allocation of Expenses and Joint Costs The cost of providing various programs and other activities has been summarized 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 fundraising costs are directly allocated expenses. However, certain employee costs are jointly allocated to fundraising based on approximate time related to the fundraising activity. A total of $746,398 of payroll related expenses were jointly allocated with $296,109 allocated to program costs, $138,300 allocated to general/administrative costs, and $311,989 allocated to fundraising costs. 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 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 2011, 2012, 2013, and the current year, still open for examination by taxing authorities. Concentrations Water4 received donations from several donors that totaled greater than 10% of total donations. The $734,444 of current pledge receivables relate to one donor. In addition, 98% of program income relates to one large nonprofit organization partnering with Water4 in a water well drilling program. All $613,038 of the program receivable relates to this organization. The Organization purchases its pumps from Design4, LLC who manufactures a pump that is uniquely designed using low-cost technologies that communities in impoverished areas around the world can manage and maintain themselves with minimal external assistance. Currently Design4, LLC has a patent pending for this pump design. 10

13 See Accountant s Audit Report WATER4, INC. Notes to the Financial Statements December 31, 2014 Subsequent Event Evaluation Subsequent events have been evaluated through July 27, 2015 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 maintains cash in bank deposit accounts which, at times, exceed 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 RECEIVABLES The organization s pledge receivables are summarized as follows at December 31, 2014: Less than one year $ 734,444 For the year ending December 31, 2014, the unconditional pledge receivables were recorded at present value, which was considered equal to the expected cash flows to be received. Present value discounts totaling $19,231 recorded in prior years relating to pledges to be collected beyond one year were adjusted to current year donation income as the pledge receivables all became due within twelve months. As indicated in NOTE 1, management believes the pledges to be fully collectable and do not believe an allowance for uncollectable accounts is warranted. NOTE 4: TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets as of December 31, 2014 totaled $500,000 and all related to the Water4More drilling program. NOTE 5: 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 will then dispense funds back to Water4 for program costs based upon detailed budgets and action plans. Since the beginning of this project through December 31, 2013 Water4 has recognized contribution revenue for this project of $4,516,586 ($2,285,000 recognized in 2012, $631,586 recognized in 2013 and $1,600,000 recognized in 2014). During 2014 it has invoiced World Vision for program costs totaling $1,744,

14 Notes to the Financial Statements December 31, 2014 NOTE 6 INVETMENTS Fair Market Value Description Cost at Publicly traded common stock $ 5,036 $ 5,036 Brokerage house money fund 1,214 1,214 Total $ 6,250 $ 6,250 See Accountant s Audit Report 12

15 OKLAHOMA CITY, OKLAHOMA AUDITED FINANCIAL STATEMENTS AND FOOTNOTES FOR THE YEAR ENDED DECEMBER 31, 2015

16 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

17 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, 2015, and the related statement of activities, 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.

18 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, 2015, and functional expenses, 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 31,

19 statement of Financial Position December 31, 2015 ASSETS Current Assets: Cash and cash equivalents $ 2,252,017 Pledges receivable 135,582 Program receivables 341,142 Other receivables 7,051 Prepaid expenses 425 Inventory 230,176 Current assets 2,966,393 Fixed Assets: Buildings & improvements 577,485 Equipment 12,928 Furniture & fixtures 18,993 Vehicle 7,700 Software 20,332 Land 106,000 Total Fixed assets 743,438 Less: Accumulated depreciation (101,822) 641,616 Other Assets: Note Receivable 506,104 Total Assets $ 4,114,113 LIABILITIES & NET ASSETS Current Liabilities: Accounts payable $ 233,390 Accounts payable Water4More project 1,140,100 Payroll related liabilities 204,162 Current liabilities 1,577,652 Net Assets: Unrestricted net assets 2,400,879 Temporarily restricted net assets 135,582 Total net assets 2,536,461 Total Liabilities & Net Assets $ 4,114,113 See Accompanying Notes to the Financial Statements 3

20 Statement of Activities For the Year Ending December 31, 2015 Temporarily Unrestricted Restricted Total REVENUE Contributions $ 1,725,782 $ 627,890 $ 2,353,672 Donated services 43,585-43,585 Program income 1,996,315-1,996,315 Fundraising events net of $353,694 of direct costs 598, ,758 Investment income 6,501 6,501 Other income Release of temporary restriction by use 992,308 (992,308) - Total revenue 5,364,220 (364,418) 4,999,802 EXPENSES Program expenses 3,753,351-3,753,351 General and administrative 211, ,848 Fundraising 933, ,516 Total Expenses 4,898,715-4,898,715 Change in net assets 465,505 (364,418) 101,087 Net assets beginning of year 1,935, ,000 2,435,374 Net assets end of year $ 2,400,879 $ 135,582 $ 2,536,461 See Accompanying Notes to the Financial Statements 4

21 Statement of Cash Flows For the Year Ending December 31, 2015 Cash Flows From Operating Activities Change in net assets $ 101,087 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 21,497 Change in assets and liabilities: Decrease in pledge receivables 598,862 Decrease in program receivables 271,896 Decrease in other receivables 3,835 Increase in inventory (62,829) Decrease in other assets 26,143 Increase in operating current liabilities 597,234 Net cash provided by operating activities 1,557,725 Cash Flows From Investing Activities Fixed asset additions (19,796) Cash from sale of investments 6,250 Increase in notes receivable (506,104) (519,650) Net increase in cash 1,038,075 Cash at the beginning of year 1,213,942 Cash at the end of year $ 2,252,017 See Accompanying Notes to the Financial Statements 5

22 WATER4, Inc. Statement of Functional Expenses For the Year Ended December 31, 2015 Program General & Services Administrative Fundraising Total Salaries, benefits, & taxes $ 521,902 $ 107,723 $ 532,610 $ 1,162,235 Workers compensation insurance 17,049 1,271 5,135 23,455 Water well cost of supplies, support, and training 1,273, ,273,907 Payments to Water4 More Partner-World Vision 1,270, ,270,820 Water well research and development 387, ,421 Production management fee 68, ,424 Donations to other organizations Videography ,925 24,925 Books subscriptions & conference expenses 6,038 3,513-9,551 Events - - 6,166 6,166 Continuing Education ,025 Office expenses 6,015 19,200-25,215 Fees , ,318 Postage, shipping, & freight 20,909-13,159 34,068 Contract Labor 10,627 2,564 23,737 36,928 Insurance 9,318 2,330-11,648 Professional fees - 14,017-14,017 Maintenance 20,549 5,137-25,686 Marketing ,530 37,530 Memberships and dues - 2,500-2,500 Printing & promotional products ,526 37,526 Taxes - other Supplies 4, ,577 Software - 2,568 2,568 5,136 Telephone 8,684 2,767 3,737 15,188 Travel 79,783 7,559 21, ,688 Meals and entertainment 12,145 3,187 3,720 19,052 Hospitality-appreciation - 3,881-3,881 Utilities 13,531 3,383-16,914 Vehicle expense 2, ,662 Website - - 3,162 3,162 Fundraising consulting , ,943 Total Before Depreciation 3,736, , ,516 4,877,218 Depreciation 17,198 4,299-21,497 Total Expenses $ 3,753,351 $ 211,848 $ 933,516 $ 4,898,715 See Accompanying Notes to the Financial Statements 6

23 See Accountant s Audit Report WATER4, INC. Notes to the Financial Statements December 31, 2015 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,

24 See Accountant s Audit Report WATER4, INC. Notes to the Financial Statements December 31, 2015 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 comprises raw material for the construction of drilling equipment as well as drilling equipment in various stages of construction. 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 at $1,000 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, 2015 was $21,497. 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, 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 accounts receivable recorded as of December 31, 2015 are scheduled for collection in less than one year. An allowance is recognized for uncollectible contributions receivable based upon management s judgment of the 8

25 Notes to the Financial Statements December 31, 2015 collectability of the contributions. Management believes that a less than 100% collectability of its pledge receivable is highly unlikely and have thus not provided for an allowance for uncollectability. 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. $43,585 of services meeting these requirements, ($23,149 relating to drilling related expenditures, $10,000 relating to fundraising expenditures, and the balance to general operating expenditures) 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 s investment in a publicly traded security and a money fund are valued using Level 1 inputs. See Accountant s Audit Report 9

26 Notes to the Financial Statements December 31, 2015 Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: a. quoted prices for similar assets or liabilities in active markets; 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. 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 fundraising costs are directly allocated expenses. However, certain employee costs are jointly allocated to fundraising based on approximate time related to the fundraising activity. A total of $390,464 of payroll related expenses were jointly allocated with $185,346 allocated to program costs, $107,723 allocated to general/administrative costs, and $97,395 allocated to fundraising costs. Fundraising Events Water4 conducted two fundraising events during the year generating $952,452 of revenue, 96% of which was raised from one event. Direct fundraising event costs of $353,694 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 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 2012, 2013, 2014, and the current year, still open for examination by taxing authorities. See Accountant s Audit Report 10

27 See Accountant s Audit Report WATER4, INC. Notes to the Financial Statements December 31, 2015 Subsequent Event Evaluation Subsequent events have been evaluated through August 31, 2016, 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 maintains cash in bank deposit accounts which, at times, exceed 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 The Organization s pledges receivable total $135,582 as of December 31, 2015, and are to be collected in less than one year. As such they are recorded at their present value, which is considered equal to the expected cash flows to be received. The Organization has received a substantial conditional pledge to be received over the next three years. Revenue from this pledge will be recognized at the time it is received, or at the time it becomes unconditional. As indicated in NOTE 1, management believes that all pledges will be fully collectable and do not believe an allowance for uncollectable accounts is warranted. Program Receivables Program receivables totaled $341,142 as of December 31, 2015, and were all collected by the date of this report. NOTE 4: TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets as of December 31, 2015, totaled $135,582, and are the amount of uncollected pledge receivables at year end noted in NOTE 3. NOTE 5: 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 will then dispense funds back to Water4 for program costs based upon detailed budgets and action plans. Since the beginning of this project through December 31, 2015, Water4 recognized contribution revenue for this project of $5,962,311, ($2,285,000 recognized in 2012, $631,586 recognized in 2013, $1,600,000 recognized in 2014, and $1,445,725 11

28 Notes to the Financial Statements December 31, 2015 in 2015). During 2015 it has invoiced World Vision for program costs totaling $1,932,745. NOTE 6 CONCENTRATIONS Collaborative Project As described in NOTE 5, a significant amount of the program income reported for Water4 in 2015 (38.7%) relates to the Water4More Collaborative project in partnership with World Vision. The $341,142 of the program receivable also relates to this organization. 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 51% of the $1,273,907 of water well costs of supplies, support and training, was paid to Access Development as well as 91% of the $387,421 of water well research and development costs. The loss of this operational relationship would be a significant obstacle to the ongoing programs of Water4. NOTE 7 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 the interest rate is considered a market rate of interest, 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 is not due until January , interest of $6,104 has been accrued to December 31, 2015, and added to the principle balance. See Accountant s Audit Report 12