VARIETY - THE CHILDREN'S CHARITY OF THE UNITED STATES FINANCIAL STATEMENTS Year Ended September 30, 2010
Mayer Hoffman McCann P.C. An Independent CPA Firm 10474 Santa Monica Boulevard, Suite 200 Los Angeles, CA 90025 PH 310.268.2000 FAX 310.268.2001 INDEPENDENT AUDITORS REPORT To the Board of Directors VARIETY - THE CHILDREN'S CHARITY OF THE UNITED STATES We have audited the accompanying statement of financial position of Variety - The Children's Charity of the United States as of September 30, 2010, and the related statements of activities, functional expenses and cash flows for the year then ended. These financial statements are the responsibility of the Organization s management. 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 perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Variety - The Children's Charity of the United States as of September 30, 2010, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. We also audited the adjustment described in Note 2 that was applied to restate the September 30, 2009 financial statements. In our opinion, such adjustment is appropriate and has been properly applied. We were not engaged to audit, review, or apply any procedures to the September 30, 2009 financial statements of the Organization other than with respect to such adjustment and, accordingly, we do not express an opinion or any other form of assurance on the September 30, 2009 financial statements taken as a whole. Los Angeles, California June 8, 2011 Member of Kreston International - a global network of independent accounting firms - 1 -
STATEMENT OF FINANCIAL POSITION September 30, 2010 ASSETS Cash $ 667,402 Accounts receivable 7,779 Prepaid expenses 1,433 Property and equipment, at cost, less accumulated depreciation 1,337 Deposits 2,080 TOTAL ASSETS $ 680,031 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 55,737 Due to tents 25,746 Grants payable 336,061 TOTAL LIABILITIES 417,544 NET ASSETS Unrestricted 262,487 TOTAL LIABILITIES AND NET ASSETS $ 680,031 See Accompanying Notes to Financial Statements - 2 -
STATEMENT OF ACTIVITIES Year Ended September 30, 2010 Revenue and other support Contributions and campaign income $ 971,335 Gold Heart revenue 253,442 In-kind donations 57,269 National conference revenue 10,425 Donations and other income 2,868 Total revenue and other support 1,295,339 Functional expenses Program services 1,043,914 Management and general 83,595 Fundraising 11,340 Total functional expenses 1,138,849 Increase in unrestricted net assets 156,490 Unrestricted net assets, begenning of the year, as previsiouly reported 121,512 Restatement - Note 2 (15,515) Unrestricted net assets, begenning of the year, as restated 105,997 Unrestricted net assets, end of the year $ 262,487 See Accompanying Notes to Financial Statements - 3 -
STATEMENT OF FUNCTIONAL EXPENSES Year Ended September 30, 2010 Program Services Management and General Fundraising Total Cost of goods sold $ 172,777 $ - $ - $ 172,777 Grants and allocations to tents 772,225 - - 772,225 Salaries and related benefits Salaries 45,371 12,963 6,482 64,816 Payroll taxes 3,521 1,006 503 5,030 Payroll services - 2,494-2,494 Retirement plan 1,297 371 185 1,853 Other expenses Rent - 27,518-27,518 Donated office space 18,564 5,304 2,652 26,520 Accounting and legal fees - 23,287-23,287 National conference 12,598 - - 12,598 Insurance 4,167 3,321 594 8,082 Printing - 5,481-5,481 Telephone 1,781 509 254 2,544 Depreciation 1,615 461 231 2,307 Travel and meetings 2,112 - - 2,112 Office 1,001 285 143 1,429 Variety International convention 1,218 - - 1,218 Postage 552 31 31 614 Computer expenses 418 119 60 597 Design 4,326 - - 4,326 Website 371-186 557 Miscellaneous - 245-245 Meals - 75 19 94 Taxes and fees - 75-75 Dues and subscriptions - 50-50 Total functional expenses $ 1,043,914 $ 83,595 $ 11,340 $ 1,138,849 See Accompanying Notes to Financial Statements - 4 -
STATEMENT OF CASH FLOWS Year Ended September 30, 2010 Cash flows from operating activities: Increase in unrestricted net assets $ 156,490 Adjustments to reconcile increase in unrestricted net assets to net cash flows from operating activities: Depreciation 2,307 Decrease in operating assets: Accounts receivable 13,155 Inventory 40,539 Prepaid expenses 327 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 51,314 Due to tents 25,746 Grants payable 79,267 Deferred revenue (37,850) Net cash flows from operating activities 331,295 Cash, beginning of year 336,107 Cash, end of year $ 667,402 See Accompanying Notes to Financial Statements - 5 -
NOTES TO FINANCIAL STATEMENTS ( 1 ) Summary of significant accounting policies Organization Association of the Variety Clubs of the United States dba Variety - The Children's Charity of the United States (the Organization) was incorporated on July 15, 1996 in the state of Pennsylvania. The Organization was established to oversee and support the various chapters of Variety International - The Children s Charity (Variety International). Chapters, referred to as tents, serviced by the Organization operate in cities throughout the United States. The Organization s activities include, but are not limited to; coordination of national fundraising campaigns, fiduciary and administrative oversight of tent activities, fundraising and grant distribution in United States regions were local tents are not present, setting and evaluating performance standards, and providing overall direction for the various tents. Basis of presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 958-205, Not-for-Profit Entities, Presentation of Financial Statements. Under ASC Topic 958-205, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. Unrestricted net assets represent expendable funds available for operations, which are not otherwise limited by donor restrictions. Temporarily restricted net assets consist of contributed funds, subject to specific donor-imposed restrictions, contingent upon a specific performance of a future event or a specific passage of time before the Organization may spend the funds. Permanently restricted net assets are subject to irrevocable donor restrictions, requiring that the assets be maintained in perpetuity. The Organization does not have temporarily or permanently restricted net assets as of September 30, 2010. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentrations of risk Financial instruments that potentially subject the Organization to concentrations of credit risk consist primarily of uninsured cash balances and accounts receivable. The Organization places its cash deposits with various financial institutions. At times, balances in the Organization s cash accounts may exceed the Federal Deposit Insurance Corporation (FDIC) limits. - 6 -
NOTES TO FINANCIAL STATEMENTS ( 1 ) Summary of significant accounting policies (continued) The Organization had uncollateralized accounts receivable with two tents that comprised approximately 97% of total accounts receivable as of September 30, 2010. The Organization received contributions from two theaters that comprised approximately 41% of total revenue and other support for the year ended September 30, 2010. Purchases of Gold Heart pins were made from one vendor and represent approximately 58% of cost of goods sold for the year ended September 30, 2010. Accounts receivable Accounts receivable consist of amounts due from the tents for the purchase of Gold Heart pins and are stated at the amount billed to the tent. Invoices are due upon receipt. Accounts receivable are written-off in the period deemed uncollectible. An allowance for estimated uncollectible accounts receivable is based on management s judgment, past experience, economic factors, and an analysis of current receivable balances. Management has determined accounts receivable to be fully collectible at September 30, 2010 and, as a result, an allowance for uncollectible accounts has not been provided. Inventory Inventory is stated at the lower of cost or market, cost generally determined on a first-in, first-out (FIFO) basis. Inventory consists of finished goods, primarily Gold Heart pins. The Organization provides for estimated losses on slow moving inventory and writes down the cost of inventory at the time such determinations are made. Gold Heart pins of prior campaigns are valued at zero. Inventory of $38,579 at September 30, 2010 was reduced for estimated losses to $0. Shipping and handling The Organization incurs outbound shipping and handling costs with the respect to the sale of Gold Heart pins. These costs are charged to cost of goods sold. Depreciation Depreciation is provided on the straight-line method over the estimated useful lives of the assets as follows: Computer equipment Office equipment Furniture and fixtures 5 years 5 years 7 years Impairment of long-lived assets The Organization reviews its long-lived assets for impairment whenever events or changes in circumstances indicated that their carrying amounts may not be recoverable in accordance with ASC Topic 360, Property, Plant and Equipment. If the carrying amount of a long-lived asset is greater than the projected future undiscounted net cash flows expected to be generated by the asset (excluding interest), an impairment loss is recognized. Impairment losses are measured by the excess of the carrying amount over the fair value of the asset. During the year ended September 30, 2010, management noted no indicators requiring review for impairment and no adjustments have been made to the carrying values of long-lived assets. - 7 -
NOTES TO FINANCIAL STATEMENTS ( 1 ) Summary of significant accounting policies (continued) Fair value Certain financial instruments are carried at cost on the statement of financial position, which approximates fair value due to their short term, highly liquid nature. These instruments include cash, accounts receivable, accounts payable and accrued expenses, due to tents, and grants payable. For long-term assets and liabilities, the Organization will continue to follow the guidance of ASC Topic 825, Financial Instruments, which exempts the Organization from certain required disclosures about financial instruments. Revenue and support recognition The Organization recognizes contributions, which include unconditional promises to give, in the period received or promised. Conditional contributions are recognized when the conditions are met and contributions received. In accordance with ASC Topic 958-605, Not-for-Profit Entities, Revenue Recognition, contributions are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of any donor restrictions. The Organization typically does not receive temporarily or permanently restricted contributions. Contributions and campaign income represent donations from theaters and proceeds from the sale of Gold Heart pins sold by theaters. Donations and the sale of Gold Heart pins are recognized when proceeds are received. Gold Heart revenue represents sales of Gold Heart pins to the various tents and is recognized upon delivery. In-kind donations are reported at fair value at the date of donation in accordance with ASC Topic 958-605, Not-for-Profit Entities, Revenue Recognition. Services are recognized as donations if they (a) create or enhance non-financial assets or (b) require specialized skills that are provided by individuals possessing those skills, and would typically need to be purchase if not donated. National conference revenue consists of the entrance fees for the annual national conference and is recognized when the conference is held. Functional allocation of expenses The cost of providing various programs and activities has been summarized in the statement of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting service benefited. Joint costs During the year ended September 30, 2010, the Organization incurred joint costs of $114,348 in performing program services. The joint costs include salaries and related benefits, donated office space, insurance, telephone, depreciation and other expenses. The Organization allocated $24,370 to management and general and $11,321 to fundraising based on management s estimates. Income taxes The Organization qualifies as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code and California Revenue and Taxation Code Section 23701(d). Accordingly, no provision has been made for federal and state income taxes. - 8 -
NOTES TO FINANCIAL STATEMENTS ( 1 ) Summary of significant accounting policies (continued) The Organization accounts for income taxes under ASC Topic 740, Income Taxes, which requires the Organization to evaluate its tax positions and recognize a liability for any positions that would not be considered more likely than not to be upheld under a tax authority examination. If such issues exist, the Organization s policy will be to recognize any tax liability so recorded, including applicable interest and penalties, as a component of income tax expense. The Organization has reviewed its tax positions and determined that an accrual for uncertain income tax positions and adjustment to the tax provision was not necessary. With few exceptions, the Organization is no longer subject to U.S. federal and state income tax examinations for fiscal years before 2007 and 2006, respectively. New accounting pronouncements In April 2009, the FASB issued new guidance within ASC Topic 958, Not-for-Profit Entities. This guidance establishes principals to determine whether a combination is a merger or an acquisition, applies the carryover method in accounting for a merger, applies the acquisition method in accounting for acquisitions, and determines what information to disclose to enable users to evaluate the nature and financial effects of a merger or an acquisition. The new guidance is effective for mergers and acquisitions which occur in fiscal years beginning on or after December 15, 2009. ( 2 ) Restatement Unrestricted net assets at September 30, 2009 have been restated to reflect a write down for estimated losses on slow moving inventory that was recorded during 2010. The effect as of September 30, 2009 was to decrease unrestricted net assets previously reported and inventory by $15,515. ( 3 ) Property and equipment Cost Computer equipment $ 11,475 Furniture and fixtures 5,423 Office equipment 4,280 Total cost 21,178 Accumulated depreciation (19,841) Net property and equipment $ 1,337 Depreciation expense charged to operations was $2,307 for the year ended September 30, 2010. - 9 -
( 4 ) Operating lease VARIETY - THE CHILDREN'S CHARITY OF THE UNITED STATES NOTES TO FINANCIAL STATEMENTS The Organization leases office and parking space under a three-year non-cancelable operating lease. Rental expense was $27,518 for the year ended September 30, 2010. The Organization vacated the premises in 2009 and is sharing space with a related party (Note 4). Future payments due under the operating lease are as follows: Years Ending September 30, 2011 $ 24,720 2012 8,321 $ 33,041 On November 1, 2010, the Organization entered into a sublease for the office and parking space which expiries January 31, 2012. Rent expense will be offset by payments due under the sublease as follows: Years Ending September 30, 2011 $ 12,660 2012 4,604 $ 17,264 ( 5 ) In-kind donations Office space 26,520 Fulfillment services 15,000 Storage facilities 12,000 Creative design services 3,749 $ 57,269 Office space is provided to the Organization by Variety International. The Organization is not required to pay rent until the operating lease on its former premises expires in 2012. Fulfillment services and storage facilities relate to the Organization s inventory and are charged to cost of goods sold. Creative design services relate to posters and programs and are charged to design expense. ( 6 ) Retirement plan The Organization sponsors a defined contribution 401(k) plan available to all employees. The Organization matches employee contributions up to a maximum of 3% of compensation as defined. Matching contributions made by the Organization to the plan were $1,853 for the year ended September 30, 2010. - 10 -
( 7 ) Subsequent events NOTES TO FINANCIAL STATEMENTS In preparing these financial statements, events occurring after September 30, 2010 have been evaluated by the Organization for possible adjustments to the financial statements or disclosures through June 8, 2011, the date the financial statements were issued. - 11 -