Financial Statement and Reports for Audit in Accordance with Government Auditing Standards and the Uniform Guidance For the Year Ended December 31, 2016 1
Index Independent Auditor s Report Financial Statements: Statement of Financial Position as of December 31, 2016 Statement of Activities for the Year Ended December 31, 2016 Statement of Functional Expenses for the Year Ended December 31, 2016 Statement of Cash Flow for the Year Ended December 31, 2016 Notes to Financial Statements Schedule of Expenditures of Federal Awards Independent Auditor s 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 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs Schedule of Prior Year Findings 2
Independent Auditor s Report To the Board of Directors of Brave New Software Project, Inc. Los Angeles, CA Report on the Financial Statements I have audited the accompanying financial statements of Brave New Software Project, Inc. (a nonprofit Organization, the Organization ), which comprise the statement of financial position as of December 31, 2016, and the related statements of activities, statement of functional expenses and cash flows 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 My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit 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 I 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, I 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. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. 3
Opinion In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brave New Software Project, Inc. as of December 31, 2016, and 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. Other Matters Other Information My audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In my opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, I have also issued my report dated April 30, 2017, on my consideration of the Organization s internal control over financial reporting and on my 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 my 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 the Organization s internal control over financial reporting and compliance. Melissa Gilroy, Certified Public Accountant Westwood, Massachusetts April 30, 2017 4
Statement of Financial Position As of December, 31, 2016 Assets Current Assets Cash and cash equivalents $ 449,109 Grants receivable 335,480 Deposits 1,500 Prepaid expense 6,939 Total current assets 793,028 Non Current Assets Fixed assets, net 8,807 Total non current assets 8,807 Total Assets $ 801,835 Liabilities and Net Assets Current Liabilities Accounts payable $ 153,733 Accrued expenses 33,598 Deferred revenue 40,489 Total current liabilities 227,820 Total liabilities $ 227,820 Net Assets Unrestricted net assets 574,015 Total net assets 574,015 Total Liabilities and Net Assets $ 801,835 The accompanying notes are an integral part of these financial statements. 5
Statement of Activities For the year ended December 31, 2016 Revenue and support Grant income $ 2,189,991 Contributions - related party 210,317 Other income 744 Total revenue 2,401,052 Operating Expenses Program services 1,823,334 Management, general and administrative 64,939 Fundraising 4,199 Total operating expenses 1,892,472 Change in Net Assets 508,580 Net Assets at Beginning of Year 65,435 Net Assets at End of Year $ 574,015 The accompanying notes are an integral part of these financial statements. 6
Statement of Functional Expenses For the year ended December 31, 2016 Description Program Management, General and Adminstrative Fundraising Total Salaries $ 612,655 $ 17,093 $ 3,444 $ 633,192 Payroll taxes 42,208 1,391 200 43,799 Benefits 53,073 1,493 280 54,846 Contract services 629,813 527-630,340 Server and internet expenses 308,947 - - 308,947 Supplies and expenses 23,387 7,813 8 31,208 Travel 92,811 1,046-93,857 Occupancy 14,248 319 80 14,647 Depreciation 13,655 - - 13,655 Software and other expenses 23,570 1,384 187 25,141 Insurance 500 - - 500 Professional services 8,467 33,873-42,340 $ 1,823,334 $ 64,939 $ 4,199 $ 1,892,472 The accompanying notes are an intergral part of these financial statements. 7
Statement of Cash Flow For the year ended December 31, 2016 Cash Flows from Operating Activities Change in Net Assets $ 508,580 Adjustments to reconcile change in net assets to cash from operations: Depreciation 13,655 Changes in assets and liabilities Grants recievable (331,799) Prepaid expense 20,753 Deposit (1,500) Accounts payable 94,966 Accrued expenses (4,039) Deferred revenue 40,489 Net cash provided (used in) operations 341,105 Cash Flows from Investing Activities Purchase of fixed assets (2,191) Net Cash (used in) provided by Investing Activities (2,191) Net (Decrease) Increase in Cash and Cash Equivalents 338,914 Cash and Cash Equivalents - Beginning 110,195 Cash and Cash Equivalents - Ending $ 449,109 Supplement Disclosure of Cash Flow Information Cash paid during the year for interest $ - Cash paid during the year for taxes $ - The accompanying notes are an integral part of these financial statements. 8
Notes to Financial Statements 1. Nature of the Business Brave New Software Project, Inc. (the "Organization" or Brave ) was incorporated in Delaware in 2010 as a nonprofit corporation and is a nonprofit corporation as described in Section 501(c)(3) of the Internal Revenue Code and is exempt from federal and state income taxes and is not a private foundation. The Organization is dedicated to keeping the internet open and decentralized. The Organization builds user-focused open source tools that solve practical problems in how the internet works for people. Brave has developed a censorship circumvention tool, Lantern, based on advanced peer to peer technology. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements are in conformity with generally accepted accounting principles in the United States of America ( GAAP ) which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure 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. Basis of Presentation The Organization is required to report information regarding its financial position and activities according to three classes of net assets. A description of the three net asset classifications are as follows: Unrestricted Net assets that are not subject to donor-imposed stipulations are considered unrestricted. Unrestricted net assets may be designated for specific purposes by action of the Board of Directors. All of the Organization s net assets are considered unrestricted. Temporarily Restricted Temporarily restricted net assets are those whose use by the Organization has been limited by donors to a specific time period or purpose. Temporarily restricted net assets include gifts which can be expended but for which restrictions have not yet been met. When the restriction expires, either by the passage of time or by the purpose of the gift being met, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restriction. Permanently Restricted Reflects the historical value of contributions (and in certain circumstances investment returns from those contributions), subject to donor-imposed stipulations, which require the corpus to be invested in perpetuity to produce income for general or specific purposes. 9
Notes to the Financial Statements 2. Summary of Significant Accounting Policies (continued) Cash and Cash Equivalents The Organization considers all highly liquid investments with a maturity of three months or less, when acquired, to be cash equivalents. Grants Receivable The Organization carries its receivables at an amount equal to uncollected but earned revenue less an allowance for doubtful accounts. On a periodic basis, the Organization evaluates its receivables and establishes an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit conditions. As of December 31, 2016 management has estimated the allowance to be immaterial. Receivables are charged off as uncollectible after all collection efforts have failed. The Organization does not have a policy to accrue interest on receivables. The Organization has no policies requiring collateral or other security to secure the receivable. Fixed Assets Fixed assets, consisting of computer equipment, are stated at cost at the time of acquisition. Expenditures for maintenance and repairs are charged to expense as incurred; betterments are capitalized. When assets are sold or retired, the related costs and accumulated depreciation are removed from the respective accounts and any resulting gain and loss is credited or charged to operations. Depreciation is recorded on a straight-line basis for periods of up to 5 years. Income Taxes The Organization was incorporated in 2010 in Delaware as a nonprofit corporation. The Organization registered as a nonprofit corporation as described in Section 501(c)(3) of the Internal Revenue Code and is exempt from federal and state income taxes. The Organization is not a private foundation. In certain circumstances, the Organization may be subject to federal and state income taxes for profits generated from unrelated trade or business income. The Organization has determined that it does not have any liabilities associated with unrelated trade or business income. The Organization has filed all of its known and required tax returns in a timely manner, including as permitted, allowed extensions. 10
Notes to the Financial Statements 2. Summary of Significant Accounting Policies (continued) Functional Allocation of Expenses The Organization allocates its expenses on a functional basis amongst its various programs and other activities. All of the Organization s allocated expenditures have been summarized on a functional basis in the statement of activities. Directly identifiable expenses are charged to programs and supporting services. Expenses related to more than one function are allocated to programs and supporting services. Management, general and administrative expenses include those expenses that are not directly identifiable with any other specific function but provide for the overall support and direction of the Organization and include those costs related to the internal management and accounting for program services. Fundraising costs include all activities related to maintaining contributor information, writing grant proposals, distribution of materials and other similar projects related to the procurement of funds. Payroll and associated costs are allocated to functions based upon actual time charges. Revenue Recognition Grant and contract revenues are recognized upon the performance of reimbursable activities when persuasive evidence of an agreement exists, delivery of the services has occurred, the fee is fixed and determinable, and collectability is probable. Deferred revenue results from revenues received for services that have not yet been performed by the Organization. Revenue is derived from various sources, primarily government grants, foundation grants, and contributions. During 2016, revenue earned from the federal contract amounted to approximately 40% of total grant revenue. Additionally, two grants amount to approximately 54% of total grant income as of December 31, 2016. Contributions Contributions, including unconditional promises to give, are recognized as unrestricted, temporarily restricted, or permanently restricted revenues in the year received in accordance with the donor requirements. Contributions and grants are recognized at fair value upon the receipt of the earlier of either (i) an unconditional pledge or (ii) cash or other assets. Fair value is estimated giving consideration to anticipated cash receipts (net of uncollectible amounts) and discounting such amounts at a risk-adjusted rate. These inputs to the fair value estimate are considered Level 3 in the fair value hierarchy. In subsequent periods, the discount rate is unchanged and the allowance is reassessed and adjusted if necessary. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. Donated Goods and Services Donated goods and services are recorded at the estimated fair value of goods and services provided to the Organization. Contributed services are recognized for services that require specialized skills and are provided by persons possessing those skills in the period in which they are received. During fiscal 2016 there were no donated services. 3. Fixed Assets As of December 31, 2016 fixed assets consists of: Computer and software $ 39,895 Less: accumulated depreciation (31,088) Fixed assets, net $ 8,807 11
Notes to the Financial Statements 4. 401(k) Profit Sharing Plan The Organization has a section 401(k) profit sharing plan. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis up to the IRS limit. Profit sharing and matching employer contributions vest over a 4 year period. The 401(k) deferral plan contains provisions for the Organization to contribute an amount equal to 3% of the employee s compensation which vests immediately which amounted to $4,470 as of December 31, 2016. During 2016, the 401k plan was changed to an employee only contributory plan, with no provision for employer matching funds. 5. Operating Leases The Organization became party to operating leases for office space in California and New York which are considered tenant-at-will agreements. Rent expense under the leases amounted to $7,348 for the year ended December 31, 2016. 6. Related Party Disclosure The president of the Organization is a 50% owner in a Limited Liability Company, Innovate Labs LLC ( Innovate ). Innovate develops and supports software, primarily mobile technology. Innovate shares employees with Brave to perform certain software development functions. During fiscal 2016, Brave was reimbursed by Innovate for the cost for these services in the amount of $512,673 which paid in full as of December 31, 2016. Additionally, during 2016, Innovate made an unrestricted donation to the Organization in the amount of $210,317 which represents 100% of contribution revenue at December 31, 2016. 7. Subsequent Events The Organization adopted the required GAAP disclosure guidance related to Subsequent Events. This guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued and requires disclosure of the date through which an entity has evaluated subsequent events. Management has determined that no subsequent events requiring disclosure have occurred as of April 30, 2017, which is the date financial statements are available to be issued. 12
Schedule of Expenditures of Federal Awards For the year ended December 31, 2016 Federal Federal Grantor/Pass-Through CFDA Federal Grantor/Program or Cluster Title Number Expenditures Major Programs: U.S. Department of State: Direct - Bureau of Near Eastern Affairs, 19.221 $ 878,982 Iran Assistance Proram Total Major Programs 878,982 Total Expenditures of Federal Awards $ 878,982 Note to the Schedule of Expenditures of Federal Awards Note 1: Basis of Presentation The accompanying schedule of expenditures of federal awards (the "schedule") includes the federal award activity of Brave New Software Project, Inc. (the Organization) under programs of the federal government for the year ended December 31, 2016. The information is this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost principles, and Audit requirements for Federal Awards (the "Uniform Guidance"). Because the schedule presents only a selected portion of the operations of the Organization, it is not intended to, and it does not, present the financial position, changes in net assets or cash flows of the Organization. Note 2: Summary of Significant Accounting Policies (1) Expenditures reported on the schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. (2) Pass-through entity identifying numbers are presented where available. Note 3: Subrecipients The Organization provided no federal awards to subrecpients. 13
Independent Auditor s 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 To the Board of Directors of Brave New Software Project, Inc. Los Angeles, CA I 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 financial statements of Brave New Software Project, Inc. (the Organization, a nonprofit corporation), which comprise the statement of financial position as of December 31, 2016, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements, and have issued my report thereon dated April 30, 2017. Internal Control Over Financial Reporting In planning and performing my audit of the financial statements, I considered the Organization s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing my opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization s internal control. Accordingly, I do not express an opinion on the effectiveness of the Organization 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 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. My 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 my audit I did not identify any deficiencies in internal control that I consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 14
Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization s financial statements are free from material misstatement, I 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 financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of my audit, and accordingly, I do not express such an opinion. The results of my 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 my testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization 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 organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. This report is solely for the information and use of the Board of Directors, management, and federal awarding agencies and passthrough entities and is not intended to be and should not be used by anyone other than these specified parties. Melissa Gilroy, Certified Public Accountant Westwood, Massachusetts April 30, 2017 15
Independent Auditor s Report on Compliance for Major Program and on Internal Control over Compliance Required by the Uniform Guidance To the Board of Directors of Brave New Software Project, Inc. Los Angeles, CA Report on Compliance for Major Federal Program I have audited Brave New Software Project, Inc. s (the Organization) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2016. The Organization s major federal programs are identified in the summary of auditor s 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 conditions of its federal awards applicable to its federal programs. Auditor s Responsibility My responsibility is to express an opinion on compliance for each of the Organization s major federal programs based on my audit of the types of compliance requirements referred to above. I conducted my 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 I 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 the Organization s compliance with those requirements and performing such other procedures as I considered necessary in the circumstances. I believe that my audit provides a reasonable basis for my opinion on compliance for each major federal program. However, my audit does not provide a legal determination of the Organization s compliance. Opinion on Major Federal Program In my opinion, the Organization complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended December 31, 2016. 16
Other Matters The results of my auditing procedures did not disclose any instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance. Report on Internal Control over Compliance Management of Brave New Software Project, Inc. is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing my audit of compliance, I considered the Organization 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, I do not express an opinion on the effectiveness of the Organization 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. My 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. I did not identify any deficiencies in internal control over compliance that I 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 my 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. This report is solely for the information and use of the Board of Directors, management, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Melissa Gilroy, Certified Public Accountant Westwood, Massachusetts April 30, 2017 17
Schedule of Findings and Questioned Costs I. Summary of Independent Auditor's Results Financial Statements Type of auditor's report issued: unmodified Internal control over financial reporting: Material Weaknesses identified? Yes X No Significant deficiencies identified? Yes X None Reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material Weaknesses identified? Yes X No Significant deficiencies identified? Yes X None Reported Type of auditor s report issued on compliance for major programs: unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a) of the Uniform Guidance Yes X No Identification of major programs: CFDA Number Name of Federal Program 19.221 U.S. Department of State: Bureau of Near Eastern Affairs, Iran Assistance Program Dollar threshold used to distinguish between Type A and type B programs: $ 750,000 Auditee qualified as low-risk auditee? X Yes No II. Findings Relating to the Financial Statement Audit as Required to be Reported in Accordance with Generally Accepted Government Auditing Standards A. Significant Deficiency in Internal Control None B. Compliance Findings None III. Findings and Questioned Costs for Federal Awards A. Significant Deficiency in Internal Control None B. Compliance Findings None 18
Summary Schedule of Prior Year Audit Findings Year ended December 31, 2015 Prior Year Findings: None 19