Audited Financial Statements Hugh O Brian Youth Leadership July 31, 2006
AUDITED FINANCIAL STATEMENTS AND OTHER INFORMATION TABLE OF CONTENTS July 31, 2006 Page Number AUDITED FINANCIAL STATEMENTS 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
STATEMENT OF FINANCIAL POSITION July 31, 2006 (with comparative totals for 2005) Temporarily Permanently Unrestricted Restricted Restricted Total Total ASSETS Cash $ 81,169 $ $ $ 81,169 $ 198,239 Investments 213,628 88,000 301,628 694,298 Accounts receivable 88,700 88,700 30,811 Pledges receivable 90,000 90,000 5,000 Inventory 3,130 3,130 3,984 Prepaid expenses and other assets 152,859 152,859 26,709 TOTAL CURRENT ASSETS 539,486 90,000 88,000 717,486 959,041 Cash surrender value of life insurance policy 722,696 722,696 762,566 Deposits 30,000 30,000 40,000 Property and equipment, net 17,536 17,536 18,356 TOTAL ASSETS $ 1,309,718 $ 90,000 $ 88,000 $ 1,487,718 $ 1,779,963 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued liabilities $ 572,848 $ $ $ 572,848 $ 551,818 Deferred revenue 4,737 4,737 TOTAL CURRENT LIABILITIES 577,585 577,585 551,818 Loan payable 200,000 COMMITMENTS TOTAL LIABILITIES 577,585 577,585 751,818 NET ASSETS 732,133 90,000 88,000 910,133 1,028,145 TOTAL LIABILITIES AND NET ASSETS $ 1,309,718 $ 90,000 $ 88,000 $ 1,487,718 $ 1,779,963 See notes to financial statements. 2
STATEMENT OF ACTIVITIES Year Ended July 31, 2006 (with comparative totals for 2005) Temporarily Permanently Unrestricted Restricted Restricted Total Total PUBLIC SUPPORT AND REVENUES Grants and contributions $ 183,328 $ 90,000 $ $ 273,328 $ 146,292 In-kind contributions of materials, services, and facilities 23,078 23,078 64,977 Proceeds from fundraising events, net of direct benefit costs of $123,636 220,089 220,089 189,877 World Leadership Congress, including in-kind contributions of materials, services, and facilities totaling $73,785 682,026 682,026 552,163 Interest and dividend income 18,073 18,073 24,569 Investment gain (loss) (21,019) (21,019) 52,524 State seminar fees 1,310,035 1,310,035 1,137,657 Other income 23,670 23,670 Net assets released from restrictions 32,875 (32,875) TOTAL PUBLIC SUPPORT AND REVENUES AND NET ASSETS RELEASED FROM RESTRICTIONS 2,472,155 57,125 2,529,280 2,168,059 EXPENSES Program services State seminars 1,305,563 1,305,563 1,538,800 Training Institute 124,721 124,721 120,938 World Leadership Congress 736,353 736,353 487,922 TOTAL PROGRAM SERVICES 2,166,637 2,166,637 2,147,660 Supporting services Management and general 134,315 134,315 324,021 Fundraising 346,340 346,340 482,638 TOTAL SUPPORTING SERVICES 480,655 480,655 806,659 TOTAL EXPENSES 2,647,292 2,647,292 2,954,319 CHANGE IN NET ASSETS (175,137) 57,125 (118,012) (786,260) NET ASSETS AT BEGINNING OF YEAR 907,270 32,875 88,000 1,028,145 1,814,405 NET ASSETS AT END OF YEAR $ 732,133 $ 90,000 $ 88,000 $ 910,133 $ 1,028,145 See notes to financial statements. 3
STATEMENT OF FUNCTIONAL EXPENSES Year Ended July 31, 2006 (with comparative totals for 2005) World Total Management Total State Training Leadership Program and Supporting Seminars Institute Congress Services General Fundraising Services Total Total EXPENSES Salaries and employee benefits $ 691,369 $ $ 103,635 $ 795,004 $ 80,422 $ 190,763 $ 271,185 $ 1,066,189 $ 1,187,574 Awards 1,915 457 2,372 2,372 23,974 Bad debt 969 969 969 4,465 Community relations 7,150 7,150 7,150 Depreciation and amortization 5,879 978 6,857 2,450 1,470 3,920 10,777 18,948 Dues and subscriptions 1,314 105 1,419 262 157 419 1,838 1,749 Equipment rental 2,215 7,094 9,309 33 20 53 9,362 36,321 Fees 16,545 793 17,338 1,984 7,246 9,230 26,568 81,355 Insurance 74,253 4,130 78,383 10,371 21,133 31,504 109,887 141,012 Interest 1,304 340 1,644 912 572 1,484 3,128 11,202 Office expense 19,071 9,700 28,771 2,520 10,414 12,934 41,705 19,909 Postage 25,944 662 9,665 36,271 513 9,052 9,565 45,836 58,930 Printing and publications 26,042 167 15,166 41,375 283 15,182 15,465 56,840 125,970 Professional services 37,510 53,254 90,764 14,238 39,230 53,468 144,232 170,686 Rent 88,036 7,967 96,003 11,331 35,968 47,299 143,302 143,167 Repairs and maintenance 746 124 870 311 187 498 1,368 5,215 Revenue share to local seminars 220,771 220,771 686 686 221,457 299,083 Supplies 12,611 242 8,005 20,858 1,939 2,564 4,503 25,361 70,545 Telephone 30,806 502 10,599 41,907 1,838 4,854 6,692 48,599 62,496 Temporary help 18,131 820 18,951 2,051 1,231 3,282 22,233 22,418 Travel, conferences and meetings 22,982 123,148 503,521 649,651 2,857 5,611 8,468 658,119 469,300 TOTAL EXPENSES $ 1,305,563 $ 124,721 $ 736,353 $ 2,166,637 $ 134,315 $ 346,340 $ 480,655 $ 2,647,292 $ 2,954,319 See notes to financial statements. 4
STATEMENT OF CASH FLOWS Year Ended July 31, 2006 (with comparative totals for 2005) CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ (118,012) $ (786,260) Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation and amortization 10,777 18,948 Investment (gains) losses 21,019 (52,524) Cash surrender value of life insurance policy 39,870 (16,217) Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivables (57,889) 63,136 Pledges receivable (85,000) 20,000 Inventory 854 (3,984) Prepaid expenses and other assets (126,150) (7,857) Deposits 10,000 27,000 Increase in: Accounts payable and accrued liabilities 21,030 39,127 Deferred revenue 4,737 NET CASH USED IN OPERATING ACTIVITIES (278,764) (698,631) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (9,957) (5,784) Purchases of investments (11,349) (18,276) Redemptions of investments 383,000 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 361,694 (24,060) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loan payable Payments on loan payable (200,000) 200,000 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (200,000) 200,000 DECREASE IN CASH AND CASH EQUIVALENTS (117,070) (522,691) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 198,239 720,930 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 81,169 $ 198,239 See notes to financial statements. 5
NOTES TO FINANCIAL STATEMENTS July 31, 2006 (with comparative totals for 2005) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization--Hugh O Brian Youth Leadership (Organization) is a California not-for-profit organization formed to seek, develop, and recognize leadership potential, commencing with high school sophomores. The Organization is funded principally through the private sector with annual fundraising campaigns, special fundraising events, program service fees for it Leadership Seminars and World Leadership Congress, and ongoing support from corporations, foundations, and individuals. Basis of Presentation--The financial statements of the Organization have been prepared on the accrual basis of accounting. Financial Statement Presentation--The Organization recognizes contributions, including unconditional promises to give, as revenue in the period received. Contributions and net assets are classified based on the existence or absence of donor-imposed restrictions. The net assets of the Organization and changes therein are classified and reported as follows: Unrestricted net assets--net assets that are not subject to donorimposed stipulations and that may be expendable for any purpose in performing the primary objectives of the Organization. Temporarily restricted net assets--net assets subject to donorimposed stipulations that may or will be met either by actions of the Organization and/or passage of time. As the restrictions are satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying financial statements as net assets released from restrictions. Permanently restricted net assets--net assets that are restricted by the donors for investment in perpetuity. The investment income generated from these funds is available for general support of the Organization's programs and operations. Pledges and Grants--Pledges and grants are recorded as receivables and support in the period they are made. Amounts restricted to specific purposes are recorded as either temporarily restricted or permanently restricted support until such restrictions are met and reclassification to unrestricted net assets is appropriate. The Organization recognizes contributions subject to restrictions whose restrictions are satisfied within the year as unrestricted support. Pledges receivable consists of unconditional promises to give monetary assets, primarily from foundations and individual contributors. Cash and Cash Equivalents--Cash and cash equivalents consist of cash and short-term investments. Cash includes cash balances held in banks and cash on-hand. Short-term investments include money market funds and investments with original maturities of less than three months. 6
NOTES TO FINANCIAL STATEMENTS--Continued NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued Investments--Investments in equity securities with readily determinable fair market values and all investments in debt securities are measured at fair value in the statement of financial position. Realized and unrealized gains and losses, interest and dividends on investments are reflected in the statement of activities as unrestricted unless these activities are restricted by donor or by law. Inventory--Inventory, consisting of Organization merchandise, is stated on a LIFO average cost basis. Property and Equipment--Purchases of property and equipment, consisting of furniture and fixtures, office equipment and leasehold improvements, are recorded at cost. Depreciation and amortization are recorded on the straight-line basis overt the estimated useful lives, ranging from three to five years. Normal repairs and maintenance are expensed as incurred, whereas significant charges which materially increase values or extend useful lives are capitalized and depreciated over the estimated useful lives of the related assets. Income Taxes--The Organization is exempt from Federal income taxes under Section 501(c)(3) of the Internal Revenue Code (Code) and from California franchise taxes under Section 23701d of the California Revenue and Taxation Code. In addition, the Organization has been determined by the Internal Revenue Service not to be a private foundation within the meaning of Section 509(a) of the Code. Allocation of Functional Expenses--The costs of providing the various programs and other activities have been summarized on a program basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefitted based on actual labor hours incurred with respect to the various programs and support services. Use of 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, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates. Fair Value of Financial Instruments--Generally accepted accounting principles require entities to disclose the fair value of financial instruments for which it is practicable to estimate fair value. The carrying amount of the Organization's financial instruments, other than investments which are carried at market value, approximates fair value due to the relatively short-term nature of such assets. Concentrations of Credit Risk--Financial instruments which potentially subject the Organization to concentrations of credit risk consist of cash and cash equivalents, investments, and receivables. The Organization places its cash and money market funds principally with a 7
NOTES TO FINANCIAL STATEMENTS--Continued NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued high credit quality financial institution where the funds are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per institution. At times, such cash and money market fund balances may be in excess of the FDIC insurance limits. Management of the Organization regularly reviews the financial stability of its cash and money market fund depository and deems the risk of loss due to these concentrations to be minimal. The Organization s investments are supervised by the Organization s Finance Committee, which, in consultation with professional investment advisors, determines the investment mix of the investment portfolio in accordance with a Board-approved investment policy. Management of the Organization has assessed the credit risk associated with the investments held at July 31, 2006 and has determined that an allowance for potential losses due to credit risk in the investment portfolio is not necessary. Pledges receivables at July 31, 2006 are due from a private foundation well-known to the Organization, with a favorable past payment history. Management of the Organization has assessed the credit risk associated with this contribution receivable and has determined that an allowance for potential uncollectible amounts is not necessary. In-Kind Contributions--Securities, materials, services, equipment, and facilities that are donated to the Organization are recognized as contributions and are recorded at their fair market value as of the donation date. The value of donated services is recognized as both revenue and expense in the records of the Organization. Donated services were utilized in fundraising activities and to assist in special events held by the Organization. The value of donated materials is recognized as revenue and as an asset in the records of the Organization. Comparative Totals for 2005--The accompanying financial statements include certain prior-year summarized comparative financial information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Organizations's audited financial statements for the year ended July 31, 2005, from which the summarized information was derived. NOTE 2--PLEDGES RECEIVABLE Pledges receivable at July 31, 2006 consist of a grant from a Los Angeles-based private foundation totaling $90,000, with expected annual awards of $30,000 through March 2009. Pledges receivable at July 31, 2005 consist of an amount due in less than one year from a private foundation. 8
NOTES TO FINANCIAL STATEMENTS--Continued NOTE 3--INVESTMENTS As of July 31, 2006 and 2005 the fair value of investments consists of the following: Equities fund $ 42,246 $ 113,574 Value added fund 13,364 37,985 Value opportunities fund 27,171 74,484 High yield bond fund 11,347 30,383 Select equities fund 46,074 147,658 Total return bond fund 20,960 61,483 Core fixed income fund 47,581 136,484 Lions-select equities fund 21,728 24,317 Lions-large cap value fund 26,102 23,975 Lions-value opportunities fund 17,473 16,696 Lions-core fixed income fund 27,582 27,259 TOTALS $ 301,628 $ 694,298 The following schedule summarizes the investment return in the statement of activities for the years ended July 31, 2006 and 2005: Investments, beginning of year $ 694,298 $ 623,498 Redemptions of investments (383,000) Reinvestment of interest and dividends 11,349 18,276 Investment gains (losses) (21,019) 52,524 INVESTMENTS, END OF YEAR $ 301,628 $ 694,298 NOTE 4--PROPERTY AND EQUIPMENT Property and equipment is comprised of the following at July 31, 2006 and 2005: Furniture and fixtures $ 9,467 $ 9,467 Office equipment 250,977 249,069 Leasehold improvements 8,511 8,511 268,955 267,047 Less accumulated depreciation and amortization (251,419) (248,691) NET $ 17,536 $ 18,356 9
NOTES TO FINANCIAL STATEMENTS--Continued NOTE 5--LOAN PAYABLE The loan payable at July 31, 2005 bears interest at 6%, and is secured by the cash surrender value of a life insurance policy. The loan has no specified maturity date and may remain outstanding until cancelled or death benefits paid, with the principal and interest owed withheld from final settlement. The loan was paid in full during the year ended July 31, 2006. NOTE 6--TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets at July 31, 2006 and 2005 consist of amounts restricted by donor-imposed stipulations to fund expenses in the following areas: Student scholarships $ $ 7,500 Leadership Curriculum 20,375 General operations, restricted due to passage of time 90,000 5,000 TOTALS $ 90,000 $ 32,875 NOTE 7--PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets at July 31, 2006 and 2005 are restricted to: Endowment in perpetuity, the income from which is expendable to fund two students per year to the World Leadership Congress $ 65,000 $ 65,000 Endowment in perpetuity, the income from which is expendable to support Organization operations and activities 23,000 23,000 TOTALS $ 88,000 $ 88,000 10
NOTES TO FINANCIAL STATEMENTS--Continued NOTE 8--IN-KIND CONTRIBUTIONS In-kind contributions for the years ended July 31, 2006 and 2005 consist of the following: Direct benefit costs of fundraising events $ 23,078 $ 64,977 Rent 14,500 23,350 Telephone 9,000 9,000 Travel 7,865 9,152 Awards 15,650 14,800 Supplies 10,170 15,063 Services 16,600 5,600 TOTALS $ 96,863 $ 141,942 NOTE 9--COMMITMENTS The Organization currently rents office space on a non-cancelable operating lease that ends December 31, 2008. The Organization is also a party to an operating equipment lease agreement, expiring in August 2010, with required minimum rental payments due totaling $495. Future minimum rental payments due under the terms of the operating lease agreements, with remaining terms of one year or more, by year, are as follows: Year Ending July 31, 2007 $ 134,541 2008 138,382 2009 61,795 2010 5,940 2011 495 TOTAL $ 341,153 Rental expense for the years ended July 31, 2006 and 2005 was $123,047 and $119,817, respectively. 11