Financial Statements Los Cabos Children's Foundation www.eidebailly.com
Table of Contents Independent Auditor s Report... 1 Financial Statements Statement of Financial Position... 2 Statement of Activities... 3 Statement of Functional Expenses... 4 Statement of Cash Flows... 5 Notes to Financial Statements... 6
Independent Auditor s Report To the Board of Directors Los Cabos Children's Foundation Sioux Falls, South Dakota Report on the Financial Statements We have audited the accompanying financial statements of Los Cabos Children's Foundation (LCCF) which comprise the statement of financial position as of, and the related statement of activities, functional expenses and cash flows for the period 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 the 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 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 Los Cabos Children's Foundation as, and the changes in its net assets and its cash flows for the period then ended in accordance with accounting principles generally accepted in the United States of America. Sioux Falls, South Dakota January 26, 2015 www.eidebailly.com 1 200 E. 10th St., Ste. 500 P.O. Box 5125 Sioux Falls, SD 57117-5125 T 605.339.1999 F 605.339.1306 EOE
Statement of Financial Position Assets Cash and cash equivalents $ 730,292 Cash - fiscal agent 7,000 Promises to give, net 545,509 Beneficial interests in assets held by International Community Foundation 564,460 $ 1,847,261 Liabilities and Net Assets Accrued expenses and other liabilities $ 10,518 Fiscal agent payable 7,000 Total liabilities 17,518 Net Assets Unrestricted 1,564,234 Temporarily restricted 265,509 Total net assets 1,829,743 $ 1,847,261 See Notes to Financial Statements 2
Statement of Activities Six Month Period Ended Unrestricted Revenue, Support, and Gains Contributions $ 26,929 In-kind contributions 316,680 Gross special events revenue (including $64,819 of in-kind contributions) 1,290,637 Less cost of direct benefits to donors (355,209) Net special events revenue 935,428 Change in beneficial interest in assets held by International Community Foundation 24,436 Interest income 588 Net assets released from restrictions for operating purposes 81,528 Other 150 Total unrestricted revenue, support and gains 1,385,739 Expenses Program 702,082 Management and general 56,253 Fundraising 31,334 Total expenses 789,669 Change in Unrestricted Net Assets 596,070 Temporarily Restricted Net Assets Net assets released from restrictions (81,528) Change in Temporarily Restricted Net Assets (81,528) Change in Net Assets 514,542 Net Assets, Beginning of Period 1,315,201 Net Assets, End of Period $ 1,829,743 See Notes to Financial Statements 3
Statement of Functional Expenses Six Month Period Ended Support Services Program Management Fundraising and Services and General Development Total Medical programs $ 547,746 $ - $ - $ 547,746 Grants 70,500 - - 70,500 Entertainment - - 214,696 214,696 Food and beverage - - 111,252 111,252 Payroll 48,819 20,577 5,635 75,031 Travel 3,674 2,624 4,903 11,201 Recognition/awards - - 29,261 29,261 Equipment rental - - 10,250 10,250 Auto 1,729 1,236 124 3,089 Development 14,198 4,733 4,733 23,664 Rent - 10,187-10,187 Bank charges 3,815 2,725 272 6,812 Professional fees & consulting 2,024 8,095-10,119 Phone 2,444 814 1,012 4,270 Printing & reproduction 654 468 3,842 4,964 Supplies 2,302 1,644 164 4,110 Patient/family support - - - - Other 4,177 2,982 399 7,558 Insurance - - - - Depreciation - 168-168 702,082 56,253 386,543 1,144,878 Less expenses included with revenues on the statement of activities Cost of direct benefits to donors - - (355,209) (355,209) Total expenses included in the expense section on the statement of activities $ 702,082 $ 56,253 $ 31,334 $ 789,669 See Notes to Financial Statements 4
Statement of Cash Flows Six Month Period Ended Cash Flows from Operating Activities Change in net assets $ 514,542 Adjustments to reconcile change in net assets to net cash from operating activities Depreciation and amortization 168 Gain on beneficial interests in assets held by International Community Foundation (24,436) Changes in operating assets and liabilities Promises to give (107,471) Prepaid expenses and other assets 27,939 Accrued expenses and other liabilities 5,449 Deferred revenue (23,000) Net Cash from Operating Activities 393,191 Net Change in Cash and Cash Equivalents 393,191 Cash and Cash Equivalents, Beginning of Period 337,101 Cash and Cash Equivalents, End of Period $ 730,292 See Notes to Financial Statements 5
Notes to Financial Statements Note 1 - Principal Activity and Significant Accounting Policies Organization Los Cabos Children's Foundation (LCCF) is a nonprofit organization established to assist children by providing medical, educational, and humanitarian assistance in the Los Cabos area and in the United States. Effective January 1, 2014, LCCF changed from a fiscal year end of December 31 to June 30. Therefore the current year presentation includes a six-month period. Cash and Cash Equivalents LCCF considers all cash and highly liquid financial instruments with original maturities of three months or less, and which are neither held as the fiscal agent nor restricted by donors for long-term purposes, to be cash and cash equivalents. Promises to Give Unconditional promises to give expected to be collected within one year are recorded at net realizable value. Unconditional promises to give expected to be collected in future years are initially recorded at fair value using present value techniques incorporating risk-adjusted discount rates designed to reflect the assumptions market participants would use in pricing the asset. In subsequent years, amortization of the discounts is included in contribution revenue in the statement of activities. Management determines the allowance for uncollectable promises to give based on historical experience, an assessment of economic conditions, and a review of subsequent collections. Promises to give are written off when deemed uncollectable. At, there was no allowance deemed necessary for promises to give. Property and Equipment Property and equipment additions are recorded at cost, or if donated, at fair value on the date of donation for items greater than $1,000. Depreciation is computed using the straight-line method over the estimated useful life of five years. When assets are sold or otherwise disposed of, the cost and related depreciation or amortization are removed from the accounts, and any remaining gain or loss is included in the statement of activities. Costs of maintenance and repairs that do not improve or extend the useful lives of the respective assets are expensed currently. Property and equipment was fully depreciated at. Beneficial Interest in Assets Held by Community Foundation During 2013, LCCF established an endowment fund (the Fund) under International Community Foundation (the ICF) and named itself beneficiary. LCCF granted variance power to ICF which allows ICF to modify any condition or restriction on its distributions for any specified charitable purpose or to any specified organization if, in the sole judgment of ICF s Board of Governors, such restriction or condition becomes unnecessary, incapable of fulfillment, or inconsistent with the charitable needs of the community or area served. The Fund is held and invested by ICF for the benefit of LCCF, and is reported at fair value in the statement of financial position, with trust distributions and changes in fair value recognized in the statement of activities. 6
Notes to Financial Statements Net Assets Net assets, revenues, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows: Unrestricted Net Assets Net assets available for use in general operations. Temporarily Restricted Net Assets Net assets subject to donor restrictions that may or will be met by expenditures or actions of LCCF and/or the passage of time. LCCF reports contributions restricted by donors as increases in unrestricted net assets if the restrictions expire (that is, when a stipulated time restriction ends or purpose restriction is accomplished) in the reporting period in which the revenue is recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restrictions. 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 whose use is limited by donor-imposed restrictions that neither expire by the passage of time nor can be fulfilled or otherwise removed by action of LCCF. As of there were no permanently restricted net assets. Revenue and Revenue Recognition Revenue is recognized when earned. Contributions are recognized when cash, securities or other assets, an unconditional promise to give, or notification of a beneficial interest is received. Conditional promises to give are not recognized until the conditions on which they depend have been substantially met. Donated Services and In-Kind Contributions Volunteers contribute significant amounts of time to LCCF s program services, administration, and fundraising and development activities; however, the financial statements do not reflect the value of these contributed services because they do not meet recognition criteria prescribed by generally accepted accounting principles. Contributed goods are recorded at fair value at the date of donation. LCCF records donated professional services at the respective fair values of the services received (Note 5). Fund Raising Costs Fund raising costs are expensed when the related event takes place. Functional Allocation of Expenses The costs of program and supporting services activities have been summarized on a functional basis in the statement of activities. The statements of functional expenses present the natural classification detail of expenses by function. Accordingly, certain costs have been allocated among the programs and supporting services benefited. 7
Notes to Financial Statements Income Taxes LCCF is organized as a South Dakota nonprofit corporation and has been recognized by the Internal Revenue Service (IRS) as exempt from federal income taxes under Section 501(a) of the Internal Revenue Code as an organization described in Section 501(c)(3). LCCF is annually required to file a Return of Organization Exempt from Income Tax (Form 990) with the IRS. In addition, LCCF is subject to income tax on net income that is derived from business activities that are unrelated to their exempt purposes. LCCF has determined it is not subject to unrelated business income tax and has not filed an Exempt Organization Business Income Tax Return (Form 990-T) with the IRS. LCCF believes that it has appropriate support for any tax positions taken affecting its annual filing requirements, and as such, does not have any uncertain tax positions that are material to the financial statements. LCCF would recognize future accrued interest and penalties related to unrecognized tax benefits and liabilities in income tax expense if such interest and penalties are incurred. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of 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 and those differences could be material. Financial Instruments and Credit Risk LCCF manages deposit concentration risk by placing cash with financial institutions believed by management to be creditworthy. At times, amounts on deposit may exceed insured limits. However, if deposits exceed insured limits, management s practice to eliminate deposit risk as quickly as possible is to utilize multiple financial institutions. To date, LCCF has not experienced losses in any of these accounts. Credit risk associated with promises to give is considered to be limited due to high historical collection rates and because substantial portions of the outstanding amounts are due from individuals and organizations supportive of LCCF s mission. Foreign Currency Translation LCCF operates an office in Mexico. The functional currency of this office is the local currency. The financial transactions of this office have been translated into U.S. dollars. All statement of financial position accounts have been translated using the exchange rate in effect at the statement of financial position date. Statement of activities amounts have been translated using the daily exchange rate. Aggregate foreign currency transaction gains and losses are insignificant and are included in bank charges. Subsequent Events LCCF has evaluated subsequent events through January 26, 2015, the date the financial statements were available to be issued. 8
Notes to Financial Statements Note 2 - Fair Value Measurements and Disclosures Certain assets are reported at fair value in the financial statements. Fair value is the price that would be received to sell an asset in an orderly transaction in the principal, or most advantageous, market at the measurement date under current market conditions regardless of whether that price is directly observable or estimated using another valuation technique. Inputs used to determine fair value refer broadly to the assumptions that market participants would use in pricing the asset, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity s own assumptions about the assumptions market participants would use in pricing the asset based on the best information available. A three-tier hierarchy categorizes the inputs as follows: Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities that LCCF can access at the measurement date. Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly. These include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset, and market-corroborated inputs. Level 3 Unobservable inputs for the asset or liability. In these situations, LCCF develops inputs using the best information available in the circumstances. In some cases, the inputs used to measure the fair value of an asset might be categorized within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. Assessing the significance of a particular input to entire measurement requires judgment, taking into account factors specific to the asset. The categorization of an asset within the hierarchy is based upon the pricing transparency of the asset and does not necessarily correspond to LCCF s assessment of the quality, risk or liquidity profile of the asset. The following table presents assets measured at fair value on a recurring basis, at : Assets Fair Value Measurements at Report Date Using Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Beneficial interests in assets held by ICF $ - $ - $ 564,460 The fair value of the Organization s beneficial interest in assets held by ICF is based on the fair value of fund investments as reported by the community foundation which is considered to be a level 3 measurement. 9
Notes to Financial Statements Below is a reconciliation of the beginning and ending balance of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period ended : Assets Beneficial Interes in Assets Held by International Community Foundation Balance at December 31, 2013 $ 540,024 Net realized and unrealized gain, net of fees 24,436 Ending Balance $ 564,460 Note 3 - Promises to Give Unconditional promises to give are estimated to be collected as follows at : Within one year $ 395,000 In one to five years 165,000 Over five years - 560,000 Less discount to net present value (3.5%) (14,491) Less allowance for uncollectible promises to give - $ 545,509 At, three donors accounted for 54% of total promises to give. Note 4 - Fiscal Agent During the period ended, LCCF was a fiscal agent for various organizations supporting the mission of LCCF. LCCF receives and disburses funds on behalf of these organizations. Fiscal agent funds totaled $7,000 as of. The amounts are included in cash - fiscal agent and fiscal agent payable in the accompanying statement of financial position. Since the Organization is a fiscal agent, these activities are appropriately not included in the accompanying statement of activities. Total amounts received and disbursed out relating to these activities were $14,500 and $16,050, respectively, for the period ended. 10
Notes to Financial Statements Note 5 - Donated Professional Services and Materials LCCF received donated professional services and use of medical supplies as follows during the period ended June 30, 2014: Program Management Fundraising Services and General and Development Total Golf $ - $ - $ 64,819 $ 64,819 Medical services $ 225,000 $ - $ - $ 225,000 Medical supplies 83,000 - - 83,000 Rent - 8,680-8,680 $ 308,000 $ 8,680 $ - $ 316,680 In addition, LCCF s professional service donors currently utilize medical equipment owned by a third party. LCCF assists with the transportation, warehouse storage and importation of the medical equipment to the Los Cabos area to further LCCF s mission. Note 6 - Related Party Transactions Promises to give at include amounts from the founder of LCCF and several board members with a gross recorded value of $255,500, which does not include any reductions for discounts. In addition, the founder and several board members contributed amounts to LCCF totaling approximately $336,000 for the period ended. Note 7 - Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes or periods at : Promises to give that are not restricted by donors, but which are unavailable for expenditure until due $ 265,509 Net assets were released from restrictions as follows for the period ended : Expiration of time restrictions $ 81,528 Note 8 - Commitment At, LCCF has an outstanding pledge to Avera Foundation for $780,000. Payment terms of $10,000 per month for 2015, increasing to $12,500 per month in 2016, have been established through December 2019. The pledge is not included in the statement of financial position at period end, as the founder of LCCF will assume the pledge payments if LCCF is unable to make the pledge payment. 11