Audited Consolidated Financial Statements As of and for the Years Ended June 30, 2016 and 2015 with Report of Independent Auditors
Audited Consolidated Financial Statements As of and for the Years Ended June 30, 2016 and 2015 with Report of Independent Auditors
Table of Contents PAGE REPORT OF INDEPENDENT AUDITORS 1 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Financial Position 3 Consolidated Statements of Activities 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 REPORT OF INDEPENDENT AUDITORS ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 19
Report of Independent Auditors To the Board of Directors Report on the Financial Statements We have audited the accompanying consolidated financial statements of the Economic Development Corporation of Los Angeles County, a non-profit corporation, which comprise the consolidated statements of financial position as of June 30, 2016 and 2015, the related consolidated statements of activities, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, 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. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement 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.
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the as of June 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 12, 2016 on our consideration of s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering s internal control over financial reporting and compliance. Los Angeles, California October 12, 2016 2
Consolidated Statements of Financial Position June 30 2016 2015 ASSETS Cash and cash equivalents $ 2,434,000 $ 913,000 Investments - at fair value 22,822,000 25,539,000 Receivables 1,266,000 1,302,000 Property and equipment, net 191,000 231,000 Prepaid expenses and other assets 233,000 157,000 Total assets $ 26,946,000 $ 28,142,000 LIABILITIES AND NET ASSETS Liabilities Accounts payable $ 678,000 $ 657,000 Accrued expenses and other liabilities 1,477,000 1,258,000 Total liabilities 2,155,000 1,915,000 Net assets Unrestricted 24,461,000 25,913,000 Temporarily restricted 330,000 314,000 Total net assets 24,791,000 26,227,000 Total liabilities and net assets $ 26,946,000 $ 28,142,000 See notes to consolidated financial statements 3
Consolidated Statements of Activities Years ended June 30 2016 2015 Change in unrestricted net assets Operating revenue and other support Government grants $ 2,413,000 $ 2,323,000 Non-government grants 823,000 454,000 Consulting 670,000 761,000 Membership contributions 1,330,000 997,000 Sponsored events 791,000 696,000 Contributions 181,000 256,000 Other 86,000 88,000 6,294,000 5,575,000 Net assets released from restriction 514,000 505,000 Total operating revenue and other support 6,808,000 6,080,000 Operating expenses Program expenses Business assistance and development 1,926,000 1,905,000 The Kyser Center for Economic Research 534,000 638,000 Communication 435,000 406,000 Consulting 708,000 526,000 Center of Economic Development 514,000 505,000 International trade 557,000 310,000 Center of Innovation 299,000 131,000 Activate LA 320,000 302,000 Public policy 1,180,000 1,017,000 Sponsored events 735,000 654,000 Subtotal 7,208,000 6,394,000 Fundraising 359,000 362,000 Executive and administration 904,000 921,000 Total operating expenses 8,471,000 7,677,000 Change in unrestricted net assets from operations (1,663,000) (1,597,000) Other changes Net realized/unrealized investment gains 115,000 1,131,000 Interest and dividend income 328,000 369,000 Management and advisory fees in investments (232,000) (260,000) Change in unrestricted net assets (1,452,000) (357,000) Change in temporarily restricted net assets Contributions for Center of Economic Development Net assets released from restriction 530,000 490,000 (514,000) (505,000) Change in temporarily restricted net assets 16,000 (15,000) Total change in net assets (1,436,000) (372,000) Net assets at beginning of the year 26,227,000 26,599,000 Net assets at end of the year $ 24,791,000 $ 26,227,000 See notes to consolidated financial statements 4
Consolidated Statements of Cash Flows Years ended June 30 2016 2015 Cash flows from operating activities Change in net assets $ (1,436,000) $ (372,000) Adjustments to reconcile change in net assets to net cash used in operating activities: Net realized and unrealized investment gains (115,000) (1,131,000) Interest and dividend income (328,000) (369,000) Management and advisory fees in investments 232,000 260,000 Depreciation and amortization 58,000 58,000 (Increase) decrease in receivables 36,000 (718,000) (Increase) in prepaid expenses and other assets (76,000) (30,000) Increase in accounts payable 21,000 363,000 Increase (decrease) in accrued expenses and other liabilities 219,000 (68,000) Net cash used in operating activities (1,389,000) (2,007,000) Cash flows from investing activities Purchases of property and equipment (18,000) (72,000) Purchases of investments (2,977,000) (3,784,000) Proceeds from sale of investments 5,905,000 4,926,000 Net cash provided by investing activities 2,910,000 1,070,000 Net increase (decrease) in cash and cash equivalents 1,521,000 (937,000) Cash and cash equivalents, at beginning of the year 913,000 1,850,000 Cash and cash equivalents, at end of the year $ 2,434,000 $ 913,000 See notes to consolidated financial statements 5
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 1 ORGANIZATION PROFILE The (LAEDC) is a nonprofit corporation. LAEDC was established in 1981 as a private California non-profit public benefit corporation. Its principal objective is to assist, implement, support or contribute to the support of programs, projects and activities of a public nature that are directed toward improving economic conditions throughout the Los Angeles region and to promote and assist the growth and development of businesses throughout Los Angeles County. LAEDC s principal activities consist of providing timely, relevant economic information and analyses to the public sector and the business community; directing business assistance to attract, retain and expand business and jobs; and developing economic strategies and initiatives for the region. LAEDC has the following affiliates: the World Trade Center Los Angeles (WTC), the Activate LA, Inc., the California Industry Education Institute (inactive), and the Del Aire Title Holding Corporation (inactive). NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of LAEDC, WTC and Activate LA, Inc. All significant intercompany transactions and balances have been eliminated in the consolidation process. Basis of Presentation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. Resources are classified for accounting and reporting purposes into three net asset categories based on the existence or absence of donor-imposed restrictions. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to management s estimates include: The valuation of investments that do not have readily determinable market values The net realizable value of receivables based on estimated collectability Depreciation expense based on the estimated useful life Functional allocation of expenses based on programs and supporting services benefited 6
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Concentration of Credit Risk The accounting guidance requires the disclosure of significant concentrations of credit risk, regardless of the degree of such risk. Financial instruments, as defined by U.S. GAAP, which potentially subject LAEDC to concentrations of credit risk, consist principally of cash and cash equivalents and marketable securities. LAEDC places its cash and cash equivalents in large financial institutions located in the United States of America and monitors their credit ratings periodically. Custodial Credit Risk Custodial credit risk is the risk that LAEDC s investments that are in the possession of an outside party might be lost, if the counterparty to the investment or deposit transaction fails. Financial instruments that potentially subject LAEDC to credit risk are cash deposits with banks and other financial institutions that are in excess of the federally insured limit of $250,000. LAEDC has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash. Federal Deposit Insurance Corporation (FDIC) insures both interest-bearing and noninterest-bearing transaction accounts, which generally provides each depositor up to $250,000 in coverage at each separately chartered insured depository institution. As of June 30, 2016 and 2015, actual bank statement balances of LAEDC exceeded the maximum deposit insurance amount by $999,000 and $1,064,000, respectively. Investments in money market funds, mutual funds and equity securities are placed with a high-credit quality financial institution which is a member of the Securities Investor Protection Corporation (SIPC). Balances are insured up to $500,000 (with a limit of $250,000 for cash). SIPC insures funds to investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms. RBC Capital Markets, LLC, LAEDC s investment custodian, has purchased an additional policy to insure balances due to physical loss or destruction of the securities. LAEDC holds investments in the form of short-term money market investments. The management and Board of Directors of LAEDC routinely review market values of such investments. As of June 30, 2016 and 2015, LAEDC s money market investments exceeded SIPC insurance coverage by $945,000 and $0, respectively. Cash Equivalents LAEDC considers all bank deposits, money market accounts and time deposits with an original maturity of three-months or less from date of acquisition to be cash equivalents. 7
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investments Investments in debt and equity securities that are traded on national security exchanges are recorded at fair value as determined by quoted market prices. Investments, for which readily determinable market values do not exist, including private equity funds, real estate funds and hedge funds, are recorded at fair value as determined by LAEDC, with the assistance of external investment managers, using methods and significant assumptions LAEDC considers appropriate based on its understanding of the underlying characteristics of the investments. Investments are exposed to various risks such as interest rate, market, and credit. Because of the level of uncertainty related to changes in the value of investments, it is at least reasonably possible that changes in the various risk factors, in the near term, could materially affect the amounts reported in the consolidated statements of financial position. All changes in fair values of securities are reported in earnings as they occur. Purchases and sales of securities are recorded on trade dates and realized gains and losses are determined on the basis of the average cost of the securities sold. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while LAEDC believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. LAEDC accounts for fair value measurements under Accounting Standards Codification (ASC) Topic 820. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The following fair value hierarchy prioritizes the inputs used to measure fair value: Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reporting date; Level 2: Level 3: Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date; Pricing inputs include significant inputs that are generally unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management s best estimate of fair value. Receivables Receivables are stated at the amount management expects to collect from outstanding balances. Deferred Revenue Deferred revenue includes amounts received in advance during the current year for grants and services which will be recorded as revenue when earned by LAEDC. 8
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and Equipment Property and equipment are stated at cost or, if donated, at fair value at the date of donation. Expenditures for maintenance and repairs are charged to expense as incurred. The provision for depreciation and amortization is computed utilizing the straight-line method over the estimated useful lives of the related assets, presently ranging from three to five years, except for leasehold improvements for which amortization is provided over the shorter of the estimated useful life or the remaining lease term. Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of property and equipment may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the asset to future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no events or changes in circumstances indicating that the carrying amount of the property and equipment may not be recoverable during the years ended June 30, 2016 and 2015. Contributions and Net Assets LAEDC accounts for contributions received and contributions made under ASC Topic 958. Contributions received are recorded as increases in unrestricted, temporarily restricted or permanently restricted net assets, depending on the absence or existence and nature of any donor restrictions. Contributions are recognized as revenue in the period when payments are received. Contributions and net assets are classified based on the existence or absence of donor-imposed restrictions. As such, the net assets of LAEDC and changes therein are classified and reported as follows: Unrestricted net assets net assets that are not subject to donor-imposed stipulations and may be expendable for any purpose in performing the primary objectives of LAEDC. Temporarily restricted net assets net assets subject to donor-imposed stipulations that may or will be met either by actions of LAEDC and/or the passage of time. As the restrictions are satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying consolidated financial statements as net assets released from restriction. Donor-restricted contributions that are received and expended in the same reporting period are classified as unrestricted in the accompanying consolidated financial statements. Permanently restricted net assets net assets subject to donor-imposed stipulations that are required to be maintained in perpetuity. Investment income generated from these funds is available for general support of LAEDC s programs and operations unless otherwise stipulated by the donor. There were no permanently restricted net assets as of June 30, 2016 and 2015. 9
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Grant Revenue Amounts received under grant agreements other than on a cost reimbursement basis are recognized as unrestricted revenue in the period received. Revenue from other grants is recognized on an accrual basis as earned according to the provisions of the grant agreements. Consulting and Service Contracts Revenues from research and analysis contracts are recognized as the work is performed. Membership Contributions LAEDC receives member contributions primarily on a yearly basis. Membership contributions (dues) are for one year and are recognized as unrestricted revenue in the period received. Advertising, Promotion and Marketing Advertising, promotion and marketing costs are expensed when incurred. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the consolidated statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. NOTE 3 INVESTMENTS As of June 30, 2016 and 2015, LAEDC s investments consisted of the following: June 30, June 30, Type 2016 % 2015 % Equity Securities Domestic Equity Large Cap Equity $ 4,359,000 19% $ 5,914,000 23% Domestic Equity Small/Mid Cap Equity 726,000 3% 1,881,000 7% International Equity Developed Non-U.S. Equity 2,472,000 11% 3,051,000 12% Alternative Equity Private Equity 1,836,000 8% 1,444,000 6% Long/short Equity Directional Hedge Funds 2,320,000 10% 2,392,000 9% 11,713,000 51% 14,682,000 57% Real Estate Real Estate Real Estate 439,000 2% 488,000 2% Absolute Return/ Fixed Income Absolute Return Non-directional Hedge Funds 6,133,000 28% 6,984,000 27% Fixed Income Taxable Government/Corporate Bonds 3,640,000 16% 2,613,000 10% Fixed Income High Yield Bonds 897,000 4% 772,000 3% 10,670,000 47% 10,369,000 41% Investments at fair value $ 22,822,000 100% $ 25,539,000 100% Fixed income investments classified as cash equivalents 1,445,000 6% - 0% $ 24,267,000 106% $ 25,539,000 100% 10
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 3 INVESTMENTS (CONTINUED) As of June 30, 2016 and 2015, LAEDC had capital call commitments amounting to $3,502,000 and $2,640,000 relating to its investments in certain entities, respectively. The following table sets forth, by level within the fair value hierarchy, LAEDC s investments at fair value as of June 30, 2016: Type Total Level 1 Level 2 Level 3 Equity Securities Domestic Equity Large Cap Equity $ 4,359,000 $ 1,772,000 $ 2,587,000 $ - Domestic Equity Small/Mid Cap Equity 726,000 726,000 - - International Equity Developed Non-U.S. Equity 2,472,000 2,472,000 - - Alternative Equity Private Equity 1,836,000 - - 1,836,000 Long/short Equity Directional Hedge Funds 2,320,000 1,274,000-1,046,000 11,713,000 6,244,000 2,587,000 2,882,000 Real Estate Real Estate Real Estate 439,000 - - 439,000 Absolute Return/ Fixed Income Absolute Return Non-directional Hedge Funds 6,133,000 1,852,000 3,330,000 951,000 Fixed Income Taxable Government/Corporate Bonds 3,640,000 3,640,000 - - Fixed Income High Yield Bonds 897,000-897,000-10,670,000 5,492,000 4,227,000 951,000 Investments at fair value $ 22,822,000 $ 11,736,000 $ 6,814,000 $ 4,272,000 The following table sets forth, by level within the fair value hierarchy, LAEDC s investments at fair value as of June 30, 2015: Type Total Level 1 Level 2 Level 3 Equity Securities Domestic Equity Large Cap Equity $ 5,914,000 $ 3,139,000 $ 2,775,000 $ - Domestic Equity Small/Mid Cap Equity 1,881,000 1,881,000 - - International Equity Developed Non-U.S. Equity 3,051,000 3,051,000 - - Alternative Equity Private Equity 1,444,000 - - 1,444,000 Long/short Equity Directional Hedge Funds 2,392,000 1,378,000-1,014,000 14,682,000 9,449,000 2,775,000 2,458,000 Real Estate Real Estate Real Estate 488,000 - - 488,000 Absolute Return/ Fixed Income Absolute Return Non-directional Hedge Funds 6,984,000 1,865,000 2,521,000 2,598,000 Fixed Income Taxable Government/Corporate Bonds 2,613,000 2,613,000 - - Fixed Income High Yield Bonds 772,000-772,000-10,369,000 4,478,000 3,293,000 2,598,000 Investments at fair value $ 25,539,000 $ 13,927,000 $ 6,068,000 $ 5,544,000 The level 3 investments consist of LAEDC s investments in real estate and certain private equity and non-directional funds. LAEDC utilizes an external investment advisor to oversee the valuation process of the organization s Level 3 investments. The advisor is responsible for approving the valuation processes and procedures, conducting periodic reviews of the valuation policies, and evaluating the overall fairness and consistent application of the valuation policies. LAEDC and the advisor meet on a quarterly basis, or more frequently as needed, to review the valuations of the organization s Level 3 investments. These valuations are required to be supported by market data, thirdparty pricing sources, industry accepted pricing models, counterparty prices, or other 11
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 3 INVESTMENTS (CONTINUED) methods the advisor deems to be appropriate, including the use of internal proprietary pricing models. Valuations are also supported by independent external audits of the individual funds or investments. On an annual basis, LAEDC may adjust its valuations based on the recommendations from the advisor. A reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value is as follows: Balance, July 1, 2014 $ 4,924,000 Net change in realized and unrealized gains/losses on investments 620,000 Balance, June 30, 2015 $ 5,544,000 Balance, July 1, 2015 $ 5,544,000 Net change in realized and unrealized gains/losses on investments (1,272,000) Balance, June 30, 2016 $ 4,272,000 NOTE 4 PROPERTY AND EQUIPMENT Property and equipment is composed of the following: June 30 2016 2015 Furniture and fixtures $ 94,000 $ 94,000 Equipment 309,000 317,000 Leasehold improvements 66,000 65,000 469,000 476,000 Less accumulated depreciation and amortization 278,000 245,000 Property and equipment, net $ 191,000 $ 231,000 The provision for depreciation and amortization for each of the years ended June 30, 2016 and 2015 was amounted to $58,000. During the years ended June 30, 2016 and 2015, LAEDC disposed of $25,000 and $88,000, respectively of fully depreciated property and equipment. No gain or loss was recognized on the disposal of assets. NOTE 5 NET ASSETS LAEDC s net assets consist of unrestricted and temporarily restricted net assets. The temporarily restricted net assets support the Center of Economic Development (COED). 12
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 5 NET ASSETS (CONTINUED) During the years ended June 30, 2016 and 2015, $514,000 and $505,000 of temporarily restricted net assets were released from restriction as donor-imposed stipulations were met either by actions of LAEDC and/or the passage of time. Temporarily restricted net assets as of June 30, 2016 and 2015 amounted to $330,000 and $314,000, respectively. NOTE 6 COMMITMENTS LAEDC leases office space under a 132-month operating lease, which expires April 30, 2023. Lease amounts include minimum rental payments under the lease agreement for office facilities as well as LAEDC s share of the annual direct operating expenses allocated by the landlord. The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under the existing lease which contains provisions for future rent increases. The lease amount is recognized on a straight-line basis over the life of the lease, with a deferred liability that accounts for the difference between cash lease paid and accrued lease expense. Future minimum lease payments Year ending June 30 2017 $ 373,000 2018 387,000 2019 403,000 2020 419,000 2021 436,000 Thereafter 844,000 $ 2,862,000 Lease expense for the years ended June 30, 2016 and 2015 amounted to $467,000 and $443,000, respectively. NOTE 7 GOVERNMENT AND OTHER GRANTS Government grants primarily represent financial assistance from the State of California, the County of Los Angeles and the City of Los Angeles. These grants are used to fund public programs and projects in the Los Angeles County region. Government grants amounted to $2,413,000 and $2,323,000 in 2016 and 2015, respectively. LAEDC also receives non-government grants from certain private foundations to help support programs and services. Non-government grants amounted to $823,000 and $454,000 in 2016 and 2015, respectively. 13
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 8 AFFILIATES The consolidated financial statements include the accounts of the following affiliates, after elimination of intercompany transactions and balances. WTC LAEDC is affiliated with WTC which is a non-profit public benefit corporation. WTC provides trade specialists for the Business Assistance Program to expand and identify additional economic development capabilities and to address the international needs of the business and government community. As of June 30, 2016 and 2015, LAEDC has a payable to WTC which amounted to $65,000 and $154,000, respectively. These amounts were eliminated upon consolidation. The statements of financial position of WTC as of June 30, 2016 and 2015 and its results of operations for the years then ended are summarized as follows: June 30 2016 2015 Assets Cash and cash equivalents $ 131,000 $ 29,000 Property and equipment, net 3,000 4,000 Other assets 36,000 20,000 Due from affiliate 65,000 154,000 Total assets $ 235,000 $ 207,000 Liabilities and net assets Accounts payable and accrued expenses $ 13,000 $ 24,000 Net assets 222,000 183,000 Total liabilities and net assets $ 235,000 $ 207,000 Years ended June 30 2016 2015 Revenues $ 596,000 $ 326,000 Expenses 557,000 310,000 Change in net assets 39,000 16,000 Net assets at beginning of the year 183,000 167,000 Net assets at end of the year $ 222,000 $ 183,000 EDC Product Development Fund / Activate LA, Inc. LAEDC is affiliated with the EDC Product Development Fund dba LA PLAN which is a non-profit public benefit corporation. On January 29, 2016 the Board of Directors of LAEDC approved amending the Articles of Incorporation to change the legal name of the affiliate to Activate LA, Inc. Activate LA, Inc. seeks opportunities that preserve job-producing land, promote business retention and attraction; while enhancing the land use and economic development goals of the surrounding community. 14
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 8 AFFILIATES (CONTINUED) On July 18, 2014, the Board of Directors of LAEDC authorized funding for LA PLAN in the amount of $150,000 for the year ended June 30, 2015. On July 31, 2015, the Board of Directors of LAEDC authorized funding for LA PLAN in the amount of $190,000 for the year ended June 30, 2016. As of June 30, 2016 and 2015, Activate LA, Inc. owes LAEDC $444,000 and $237,000, respectively. These amounts were eliminated upon consolidation. The statements of financial position of Activate LA, Inc. as of June 30, 2016 and 2015 and its results of operations for the years then ended are summarized as follows: June 30 2016 2015 Assets Prepaid expenses and other assets $ 5,000 $ - Total assets $ 5,000 $ - Liabilities and net assets Accounts payable and accrued expenses $ 444,000 $ 237,000 Other liabilities - 15,000 Net deficit (439,000) (252,000) Total liabilities and net assets $ 5,000 $ - Years ended June 30 2016 2015 Revenues $ 133,000 $ 91,000 Expenses 320,000 303,000 Change in net assets (187,000) (212,000) Net deficit at beginning of the year (252,000) (40,000) Net deficit at end of the year $ (439,000) $ (252,000) NOTE 9 RELATED PARTY LAEDC enters into agreements for consulting or sub-consulting services, or other services with companies that, during certain periods, had executive officers that were also directors of LAEDC. LAEDC s Consulting Practice regularly enters into contracts with clients that require the services of sub-consultants to fulfill the contract. These sub-consultants are necessary to complete many contracts due to their specialized expertise because the client specifically requests them or because of resource limitations at LAEDC. Payments made to these companies totaled $329,000 and $398,000 for the years ended June 30, 2016 and 2015, respectively. 15
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 9 RELATED PARTY (CONTINUED) LAEDC also received payments for services from organizations and entities that have had executive officers that were also directors of LAEDC during certain periods. Payments received from these organizations and entities totaled $440,000 and $426,000 for the years ended June 30, 2016 and 2015, respectively. Pursuant to the Corporation s by-laws, of the seventy-five authorized voting directors, five are designated by the Los Angeles County Board of Supervisors. Independent of any Board participation, LAEDC received a grant from County of Los Angeles in the amount of $770,000 for each of the years ended June 30, 2016 and 2015. NOTE 10 RENT CONCESSIONS WTC has contractual service funding agreements and operating lease or sublease agreements for office space with the City of Long Beach for the World Trade Center Long Beach building and with the company that owns the Los Angeles World Trade Center building. On April 1, 2002, WTC and the City of Long Beach, which has a long-term lease agreement with the owners of the World Trade Center Long Beach building, entered into a ten-year contractual service and lease agreement. After this lease ended, LAEDC was paying rent on a month to month basis. The agreement called for free office space for WTC in exchange for maintaining a World Trade Center within the World Trade Center Long Beach building pursuant to license requirements to maintain the World Trade Center name. In December 2014, WTC vacated the Long Beach office space and the City of Long Beach issued a letter of release for the condition of the premises and the sublease effective December 22, 2014. For the year ended June 30, 2015, WTC received non-monetary support in the form of rent concessions of $60,000 from the City of Long Beach. The fair value of the non-monetary support was determined by estimating the current value of office space using monthly lease rates ranging from $2.20 to $3.30 per square foot for 3,038 square feet of office space. On March 15, 1991, WTC entered into a service funding and lease agreement with the owners of the Los Angeles World Trade Center building that was extended until January 31, 2010. On January 21, 2008, LAEDC is currently paying rent on a month to month basis. In return for rent concessions, WTC agrees to maintain a World Trade Center within the Los Angeles World Trade Center building to provide services required by its license agreement. For each of the years ended June 30, 2016 and 2015, WTC received non-monetary support in the form of a rent concession of $66,000, from the owners of the Los Angeles World Trade Center building. The fair value of non-monetary support was determined by estimating the current value of office space using monthly lease rates ranging from $1.80 to $2.70 per square foot for 2,168 square feet of office space. WTC did not receive monetary support from the owners of the Los Angeles World Trade Center building. 16
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 10 RENT CONCESSIONS (CONTINUED) Rent concessions are recorded as part of contribution income and building rent expense NOTE 11 DEFINED CONTRIBUTION PLAN LAEDC has a 403(b) plan that allows eligible employees to make contributions through payroll deductions up to IRS limits and invest their contributions in one or more of the 403(b) plan investment options. LAEDC matches a portion of the employee contributions and may, at its discretion, make additional contributions based on the performance of LAEDC. Employee contributions vest immediately, and LAEDC s matching and discretionary contributions generally vest after five years of service. LAEDC s defined contribution plan expense for the years ended June 30, 2016 and 2015 amounted to $182,000 and $152,000, respectively. NOTE 12 FEDERAL AND STATE INCOME TAXES LAEDC is exempt from taxation under section 501(c)(3) of the Internal Revenue Code and section 23701d of the California revenue and taxation code and is generally not subject to federal or state income taxes. However, LAEDC is subject to income taxes on any net income that is derived from a trade or business, regularly carried on, and not in furtherance of the purposes for which it was granted exemption. No income tax provision has been recorded as the net income, if any, from any unrelated trade or business, in the opinion of management, is not material to the consolidated financial statements taken as a whole. U.S. GAAP requires that an organization recognize in the financial statements the impact of a tax position if that position will more likely than not be sustained on audit, based on the technical merits of the position. As of and for the years ended June 30, 2016 and 2015, LAEDC had no material unrecognized tax benefits, tax penalties or interest. NOTE 13 ACCRUED EXPENSES AND OTHER LIABILITIES At June 30, 2016 and 2015, accrued expenses and other liabilities consisted of: June 30 2016 2015 Accrued payroll and vacation $ 303,000 $ 335,000 Accrued payroll taxes and fringe benefits 549,000 495,000 Deferred rent 304,000 356,000 Other 321,000 72,000 Total accrued expenses and other liabilities $ 1,477,000 $ 1,258,000 17
Notes to Consolidated Financial Statements Years ended June 30, 2016 and 2015 NOTE 14 CONTRIBUTED SERVICES LAEDC received in-kind legal services of $109,000 and $131,000, respectively, for the years ended June 30, 2016 and 2015. LAEDC records these in-kind contributions as revenue at fair market value estimated by the donor. NOTE 15 SUBSEQUENT EVENTS Management has evaluated subsequent events through October 12, 2016, the date on which the consolidated financial statements were available to be issued. There are no other material subsequent events that require recognition or additional disclosures in these consolidated financial statements. 18
Report of Independent Auditors on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Board of Directors We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of the (LAEDC), a non-profit corporation, which comprise the consolidated statement of financial position as of June 30, 2016, and the related consolidated statements of activities, and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated October 12, 2016. Internal Control over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered LAEDC's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of LAEDC s internal control. Accordingly, we do not express an opinion on the effectiveness of LAEDC s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s consolidated financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 19
Compliance and Other Matters As part of obtaining reasonable assurance about whether LAEDC s consolidated financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of consolidated financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Los Angeles, California October 12, 2016 20
Single Audit Report Year ended June 30, 2016 with Report of Independent Auditors
Single Audit Report Year Ended June 30, 2016 with Report of Independent Auditors
Table of Contents REPORTS OF INDEPENDENT AUDITORS PAGE Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 1 Report on Compliance For Each Major Federal Program, on Internal Control over Compliance, and on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 3 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 6 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 7 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 8 STATUS OF PRIOR YEAR AUDIT FINDINGS 10
Report of Independent Auditors on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Board of Directors We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of (LAEDC), a non-profit corporation, which comprise the consolidated statement of financial position as of June 30, 2016, and the related consolidated statements of activities, and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated October 12, 2016. Internal Control Over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered LAEDC's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of LAEDC s internal control. Accordingly, we do not express an opinion on the effectiveness of LAEDC s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s consolidated financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters As part of obtaining reasonable assurance about whether LAEDC's consolidated financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of consolidated financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Los Angeles, California October 12, 2016 2
Report of Independent Auditors on Compliance For Each Major Federal Program, on Internal Control over Compliance, and on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance To the Board of Directors Report on Compliance for Each Major Federal Program We have audited s (LAEDC) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of LAEDC s major federal programs for the year ended June 30, 2016. LAEDC s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and condition of its federal awards applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of LAEDC s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about LAEDC s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of LAEDC s compliance. 3
Opinion on Each Major Federal Program In our opinion, LAEDC complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2016. Report on Internal Control Over Compliance Management of LAEDC is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered LAEDC s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of LAEDC s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. 4