Financial Statements
TABLE OF CONTENTS Page No. Independent Auditor's Report 1 Statement of Financial Position 2 Statement of Activities 3 Statement of Functional Expenses 4 Statement of Cash Flows 5 Notes to Financial Statements 6-12
INDEPENDENT AUDITOR'S REPORT To the Board of Directors Starlight Children's Foundation Culver City, California We have audited the accompanying financial statements of Starlight Children's Foundation (a California nonprofit corporation) (the ''Foundation''), which comprise the statement of financial position as of, and the related statements of activities, 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 (the "U.S."); this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the U.S. 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 Starlight Children's Foundation as of, 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 U.S. June 15, 2017 Armanino LLP Los Angeles, California 1
Statement of Financial Position ASSETS Cash and cash equivalents $ 3,527,467 Investments 3,998,887 Inventory 39,100 Prepaid and other current assets 893,333 Property and equipment, net 62,414 Total assets $ 8,521,201 LIABILITIES AND NET ASSETS Liabilities Accounts payable and accrued liabilities $ 508,013 Deferred revenue 2,280,000 Total liabilities 2,788,013 Commitments (Notes 7 and 9) Net assets Unrestricted 5,340,106 Temporarily restricted 393,082 Total net assets 5,733,188 Total liabilities and net assets $ 8,521,201 The accompanying notes are an integral part of these financial statements. 2
Statement of Activities For the Year Ended Unrestricted Temporarily Restricted Total Revenues, gains and other support Contributed goods, services, and use of facilities $ 2,047,859 $ - $ 2,047,859 Contributions 4,106,176 759,879 4,866,055 Revenue from related parties 45,000-45,000 Proceeds from fundraising events, net of direct benefit to donors of $18,563 16,262-16,262 Miscellaneous 20,650-20,650 Net assets released from restriction 1,228,276 (1,228,276) - Total revenues, gains and other support 7,464,223 (468,397) 6,995,826 Functional expenses Program services 5,206,625-5,206,625 Support services Management and general 1,006,743-1,006,743 Fundraising 674,413-674,413 Total support services 1,681,156-1,681,156 Total functional expenses 6,887,781-6,887,781 Change in net assets 576,442 (468,397) 108,045 Net assets, beginning of year 4,763,664 861,479 5,625,143 Net assets, end of year $ 5,340,106 $ 393,082 $ 5,733,188 The accompanying notes are an integral part of these financial statements. 3
Statement of Functional Expenses For the Year Ended Program Services Support Services Management and General Fundraising Total Advertising $ 2,365 $ 1,162 $ 712 $ 4,239 Bad debt expense - 50,000-50,000 Bank charges - 213-213 Depreciation 89,345 43,872 26,900 160,117 Donated professional services 424,833 44,723 37,942 507,498 Donated materials and supplies 1,060,579 448 275 1,061,302 Donated use of facilities 262,245 128,773 78,955 469,973 Equipment for program use 446,039 - - 446,039 Equipment rental and repair 74,428 2,161 1,396 77,985 Facilities rent and parking 20,467 10,050 6,162 36,679 Fees 1,188 2,427 30,812 34,427 Insurance 20,302 9,969 6,112 36,383 Membership dues 1,613 792 486 2,891 Miscellaneous 55,353 27,125 16,645 99,123 Outside IT Services 127,683 30,499 18,719 176,901 Postage, shipping, and delivery 98,808 603 220 99,631 Printing and publications 24,629 3,148 2,526 30,303 Professional services 223,290 89,868 45,638 358,796 Regulatory and other renewal fees 3,663 1,035 5,655 10,353 Renovation expense - Starlight Sites 849,860 - - 849,860 Salaries and employee benefits 1,362,922 536,303 380,718 2,279,943 Supplies 3,729 1,758 1,090 6,577 Telephone 13,643 6,699 4,108 24,450 Travel and automobile 39,641 15,115 9,342 64,098 $ 5,206,625 $ 1,006,743 $ 674,413 $ 6,887,781 The accompanying notes are an integral part of these financial statements. 4
Statement of Cash Flows For the Year Ended Cash flows from operating activities Change in net assets $ 108,045 Adjustments to reconcile change in net assets to net cash provided by operating activities Donated property and equipment (16,386) Depreciation and amortization 160,117 Bad debt expense 50,000 Changes in operating assets and liabilities Contributions and pledges receivable 15,972 Inventory 40,855 Prepaid expenses and other assets (180,534) Accounts payable and accrued liabilities (72,138) Deferred revenue 2,280,000 Net cash provided by operating activities 2,385,931 Cash flows from investing activities Purchases of investments (3,998,629) Purchases of property and equipment (18,494) Net cash used in investing activities (4,017,123) Net decrease in cash and cash equivalents (1,631,192) Cash and cash equivalents, beginning of year 5,158,659 Cash and cash equivalents, end of year $ 3,527,467 The accompanying notes are an integral part of these financial statements. 5
Notes to Financial Statements 1. ORGANIZATION Founded in 1982, Starlight Children's Foundation raises funds and awareness to improve the lives of children with serious illnesses and their families through the provision of Starlight program services with over 700 hospital partners within the United States. During 2016, in addition to its established programs, Starlight developed and launched a new program, Starlight Brave Gowns, which will provide inspirational gowns to hospitalized children. In addition, another new program, Starlight Virtual Reality, which will transport hospitalized kids to anywhere in the world, was in development as of. These new programs are intended to provide comfort, entertainment, distraction and inspiration to hospitalized kids throughout the U.S. Starlight Children's Foundation also provides ongoing programs throughout the United Kingdom, Canada, and Australia through international affiliates (International Affiliates). Affiliate Agreements entered into between each International Affiliate and Starlight provide for common purposes and policy direction. The accompanying financial statements were prepared to present the financial information of Starlight Children's Foundation (referred to herein as the "Foundation") in the United States. The Foundation has agreements with International Affiliates in Australia, UK, and Canada. These affiliates operate independently, and the Foundation does not exercise control, nor does it have economic interests in the Affiliates. Therefore, the financial results of the Affiliates are not consolidated into the accompanying financial statements, based on Accounting Standards Codification (ASC) 958-810-25, Consolidation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles. Accounting The Foundation's net assets and changes therein are classified and reported as follows: Unrestricted - Net assets that are not subject to donor-imposed restrictions or law. Temporarily restricted - Net assets subject to restrictions imposed by donor or law that may be met either by actions of the Foundation or the passage of time. When a donor restriction expires, that is, when a stipulated time restriction ends or the purpose of the restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. The Foundation reports restricted contributions whose restrictions are met in the same reporting period as unrestricted contributions. 6
Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounting (continued) Permanently restricted - Net assets subject to donor-imposed restrictions that the principal be maintained in perpetuity. Generally, the donors of these assets permit the Foundation to expend all of the income (or other economic benefits) derived from the donated assets. The Foundation has no permanently restricted net assets at. Cash and cash equivalents The Foundation considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents. The carrying value of cash and cash equivalents at approximates its fair value. The Foundation maintains its cash, cash equivalents, and investments in bank deposit accounts and other investment accounts, which, at times, may exceed federally insured limits. The Foundation has not experienced any losses in such accounts. Investments The Foundation maintains investments in short-term U.S. Government Treasury bills. The term of the bills is 91 days. Contributions and pledges receivable Contributions, including pledges, representing unconditional promises to give are recorded at estimated fair value, and recognized as revenue in the period received. The Foundation reports unconditional contributions as restricted support if they are received with donor stipulations that limit the use of the donated assets. The Foundation had one donor which made up 13% of total revenue for the year ended. Inventory Inventory is comprised of materials that will be placed in hospital partner facilities for the use of hospitalized children. Inventory includes videogame players, monitors, and other electronics that make up the Starlight Fun Center units. Other inventory includes Starlight Comfort Kit backpacks and other materials collected for distribution through the Foundation's programs. Purchased inventory is stated at cost. Donated inventory is recorded at estimated fair value at the time of donation. The Foundation reviews the carrying value of its inventory for possible impairment whenever events or changes in circumstances indicate that the fair value may have declined since it was originally acquired. An impairment loss is recognized when the fair value of the inventory is lower than the carrying amount, in which case a write-down is recorded to reduce the related asset to its estimated fair value. No impairment losses were recognized during the year ended for donated materials and supplies. 7
Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Prepaid expenses Prepaid expenses primarily include a prepayment to Nintendo of America of $736,747 as advance payment for the production and maintenance of Starlight fun centers which are placed in hospital partner facilities for hospitalized kids. Property and equipment Property and equipment having a useful life of more than one year are recorded at cost if purchased. Donated assets are capitalized at the estimated fair value at the date of receipt and restrictions are released once the asset has been placed into service. Depreciation is computed on the straight-line basis over the estimated useful lives of the related assets. Maintenance and repair costs are charged to expenses as incurred. Property and equipment are capitalized if the cost of an asset is greater than or equal to $5,000. The estimated useful lives of property and equipment are as follows: Software and computers Furniture and fixtures Office equipment 3 years 7 years 5 years Leasehold improvements are amortized on the straight-line basis over the term of the lease or the estimated useful life, whichever is shorter. Long-lived assets The Foundation reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the book value of the assets may not be recoverable. An impairment loss is recognized when the sum of the undiscounted future cash flows is less than the carrying amount of the asset, in which case a write-down is recorded to reduce the related assets to its estimated fair value. No impairment losses were recognized during the year ended. Deferred revenue In December 2016, Starlight received $2.28 million in funding from Niagara Bottling Company ("Niagara") for the Starlight Brave Gown and Starlight Virtual Reality programs, which were in development in 2016. The agreement between Niagara and the Foundation imposes conditions which require the Foundation to develop specific program plans and secure the approval of Niagara prior to utilization of the funds. The conditions are anticipated to be met in 2017. 8
Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Contributed goods, services, and use of facilities Contributions of donated noncash assets are recorded at fair value in the period received. Contributions of donated services that create or enhance nonfinancial assets or that require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation, are recorded at fair value in the period received. Contributed goods generally consist of materials for distribution to hospital partner facilities. For the year ended, the Foundation received $2,047,859 of contributed goods, services, and use of facilities. Fair value of financial instruments Fair value determination - The fair value of the Foundation's financial instruments as of represents management's best estimates of the amounts that would be received to sell those assets in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there are little, if any, observable inputs, management's own judgments about the assumptions of market participants were used in pricing the asset. Although the Foundation uses its best judgment in determining the fair value of financial instruments, there are inherent limitations in any methodology. Therefore, the values presented herein are not necessarily indicative of the amount the Foundation could realize in a current transaction. Future confirming events could affect the estimates of fair value and could be material to the financial statements. These events could also affect the amount realized upon liquidation of the financial instruments. Fair value hierarchy - The Foundation's fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level I inputs are quoted prices (unadjusted) in active markets for identical assets that the Foundation has the ability to access at the measurement date. All investments held by the Foundation at were Level 1 investments. Level II inputs are inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other observable inputs that can be corroborated by observable market data. Level III are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset. The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is significant to the fair value measurement in its entirety. 9
Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair value hierarchy (continued) Due to the short-term nature of cash equivalents, receivables, other assets, accounts payable, and accrued liabilities, fair value approximates carrying value. Income taxes The Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Service Code and corresponding California provisions. However, the Foundation remains 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 purpose 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 financial statements taken as a whole. ASC Topic 740, Income Taxes (ASC 740), prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure, and transition. Management believes that there are no such uncertain tax positions for the Foundation at. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses as of the date and for the period presented. Actual results could differ from those estimates. Functional allocation of expenses The costs of providing the Foundation's programs and other activities have been presented in the statement of functional expenses. Indirect or shared costs are allocated among program and support services by a method that best measures the relative degree of benefit. 10
3. PROPERTY AND EQUIPMENT Starlight Children's Foundation Notes to Financial Statements Property and equipment at consist of the following: Software and computers $ 631,707 Furniture and fixtures 62,695 Leasehold improvements 89,769 Total 784,171 Accumulated depreciation and amortization (721,757) Property and equipment net $ 62,414 Depreciation expense was $160,117 for the year ended. 4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at consist of the following: Accounts payable $ 46,997 Accrued payroll 28,604 Accrued paid time off 66,211 Accrued warranty reserve - Starlight Fun Center units 225,000 Other accrued liabilities 141,201 Total accounts payable and accrued liabilities $ 508,013 In 2016, the $225,000 warranty reserve relates to Starlight Fun Center units purchased from Nintendo of America. The Foundation is required to repair Starlight Fun Center units donated to healthcare facilities for 3 years after the units are distributed to the respective facilities. 5. CONTRIBUTED GOODS, SERVICES, AND USE OF FACILITIES Contributed goods, services, and use of facilities consist of the following: Donated professional services $ 507,498 Donated materials and supplies 1,070,388 Donated use of facilities 469,973 Total $ 2,047,859 6. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets comprise the following as of : Purpose restricted $ 393,082 11
Notes to Financial Statements 7. DEFINED CONTRIBUTION PENSION PLAN The Foundation maintains a 403(b) defined contribution pension plan to which employees may contribute. The Foundation matches all contributions up to a maximum of 3% of annual salary. In 2016, the Foundation made $41,051 in matching contributions for the year ended. 8. RELATED PARTY TRANSACTIONS The accounts of the Foundation's International Affiliates in the United Kingdom, Australia and Canada are not included in the accompanying 2016 financial statements. During 2016, the Foundation provided Starlight Fun Center units to its Canadian affiliate. During the fiscal year 2016, the Foundation received revenue for Starlight Fun Center units from the Canadian affiliate totaling $45,000. There were no receivables from and payables to International Affiliates at. 9. COMMITMENTS The Foundation leases certain facilities and equipment under long-term operating lease agreements that expire through March 2019. Future minimum lease payments for leases that have a remaining noncancelable term in excess of one year at are as follows: 2017 $ 135,198 2018 184,320 2019 189,850 2020 195,545 2021 201,411 Thereafter 190,039 Total noncancelable lease commitments $ 1,096,363 Rent expenses were $7,135 during the year ended. 10. SUBSEQUENT EVENTS The Foundation has evaluated events and transactions occurring subsequent to the statement of financial position date of for items that should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through June 15, 2017, the date these financial statements were available to be issued. The Foundation has entered into a new agreement with a third party as of April 2, 2017 for office space in Culver City, California. The term of the lease is 68 months, with one option to renew for an additional 60 months, and it requires monthly payments escalating from $15,022 to $17,415 over the term of the lease. 12