FINANCIAL STATEMENTS with INDEPENDENT AUDITORS REPORT YEAR ENDED DECEMBER 31, 2016
REPORT ON FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016 Mission Statement Our mission is to support smallholder farmers in developing countries by providing customized information and services that increase productivity, profitability, and environmental sustainability. Precision Agriculture for Development (PAD) is working on a new model for agricultural extension: reaching farmers with personalized agricultural advice through their mobile phones. We implement this model in collaboration with partner organizations and gather evidence on its impact. We aim to improve the lives of 100 million farmers in developing countries with our services. www.precisionag.org
PRECISION AGRICULTURE FOR DEVELOPMENT, INC REPORT FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016 C O N T E N T S Pages Independent Auditors Report... 1 Statement of Financial Position as of December 31, 2016... 2 Statement of Activities for the year ended December 31, 2016... 3 Statement of Functional Expenses for the year ended December 31, 2016... 4 Statement of Cash Flows for the year ended December 31, 2016... 5 Notes to Financial Statements... 6-13
INDEPENDENT AUDITORS REPORT To the Board of Directors Precision Agriculture for Development, Inc. Boston, Massachusetts We have audited the accompanying financial statements of Precision Agriculture for Development, Inc. (a Massachusetts nonprofit organization), which comprise the statement of financial position as of December 31, 2016, 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; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our 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 of 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 Organization 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 Organization 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 Precision Agriculture for Development, Inc. as of December 31, 2016 and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Westborough, Massachusetts May 1, 2017 1
STATEMENT OF FINANCIAL POSITION AS OF DECEMBER 31, 2016 ASSETS CURRENT ASSETS: Cash, Unrestricted $ 1,806,899 Cash, Temporarily Restricted 1,440,380 Grants Receivable 263,796 Short-Term Investments 10,000 Prepaid Expenses 3,115 Total Current Assets 3,524,190 NON-CURRENT ASSETS: Grants Receivable 125,600 TOTAL ASSETS $ 3,649,790 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts Payable and Accrued Expenses $ 41,831 Accrued Payroll and Related Costs 24,705 Total Current Liabilities 66,536 TOTAL LIABILITIES 66,536 NET ASSETS: Unrestricted Net Assets 1,853,478 Temporarily Restricted Net Assets 1,729,776 Total Net Assets 3,583,254 TOTAL LIABILITIES AND NET ASSETS $ 3,649,790 The Accompanying Notes are an Integral Part of these Financial Statements....Page 2
STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2016 SUPPORT, REVENUES AND RECLASSIFICATIONS: TEMPORARILY TOTAL UNRESTRICTED RESTRICTED ACTIVITIES Support and Revenues: Gifts, Grants and Contributions $ 1,987,966 $ 2,176,271 $ 4,164,237 Donated Services 6,481-6,481 Interest Income 179-179 Total Support and Revenues 1,994,626 2,176,271 4,170,897 Reclassification of Net Assets: Net Assets Released from Restriction 446,495 (446,495) - TOTAL SUPPORT, REVENUES AND RECLASSIFICATIONS 2,441,121 1,729,776 4,170,897 FUNCTIONAL EXPENSES: Program Services 440,923-440,923 Administrative 94,649-94,649 Fund Raising 52,071-52,071 TOTAL FUNCTIONAL EXPENSES 587,643-587,643 CHANGE IN NET ASSETS 1,853,478 1,729,776 3,583,254 NET ASSETS - BEGINNING OF YEAR - - - NET ASSETS - END OF YEAR $ 1,853,478 $ 1,729,776 $ 3,583,254 The Accompanying Notes are an Integral Part of these Financial Statements....Page 3
STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2016 TOTAL PROGRAM ADMINI- FUND FUNCTIONAL SERVICES STRATIVE RAISING EXPENSES Salaries $ 72,545 $ 36,776 $ 44,477 $ 153,798 Payroll Taxes 5,720 2,755 3,248 11,723 Employee Benefits 7,667 3,708 4,109 15,484 Personnel Costs, Non-US Based 157,635 - - 157,635 Implementation and Field Costs 161,641 - - 161,641 Travel and Meeting Costs 33,383 11,290 237 44,910 Contracted Services and Professional Fees - 32,958-32,958 Rent Expense - 3,000-3,000 Insurance - 1,127-1,127 Office Expenses 2,332 3,035-5,367 Total Functional Expenses $ 440,923 $ 94,649 $ 52,071 $ 587,643 The Accompanying Notes are an Integral Part of these Financial Statements....Page 4
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Change in Net Assets $ 3,583,254 Adjustments to Reconcile the Above to Net Cash Provided by Operating Activities: (Increase) Decrease in Current Assets: Grants Receivable (263,796) Prepaid Expenses (3,115) Increase (Decrease) in Current Liabilities: Accounts Payable and Accrued Expenses 41,831 Accrued Payroll and Related Costs 24,705 (Increase) Decrease in Other Assets: Grants Receivable, Non-Current (125,600) Net Adjustment (325,975) NET CASH PROVIDED BY OPERATING ACTIVITIES 3,257,279 CASH FLOWS FROM INVESTING ACTIVITIES: Cash Invested in Certificate of Deposit (10,000) Cash Flows from Investing Activities (10,000) NET INCREASE IN CASH BALANCES 3,247,279 CASH BALANCES - BEGINNING OF YEAR - CASH BALANCES - END OF YEAR $ 3,247,279 Cash Balances : Cash, Unrestricted $ 1,806,899 Cash, Temporarily Restricted 1,440,380 Total $ 3,247,279 The Accompanying Notes are an Integral Part of these Financial Statements....Page 5
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 ORGANIZATION Precision Agriculture for Development, Inc. ( PAD or the Organization ) was incorporated in December 2015 under Massachusetts General Laws Chapter 180. On July 19, 2016, the Organization received notification from the Internal Revenue Service that it had been approved for exemption from federal taxes as a tax-exempt, nonprofit corporation under Section 501(c)(3) of the Internal Revenue Code retroactive to the date of incorporation. PAD has been classified as an organization which is not a private foundation under IRC Section 509(a); accordingly, contributions made to this Organization qualify for the maximum charitable deduction for federal income tax purposes. The Organization is primarily funded through individual and foundation donations and grants. Fiscal Sponsorship: Prior to its incorporation and receipt of tax-exempt status, PAD was fiscally sponsored and incubated by Global Development Incubator ( GDI ). Under this arrangement, GDI provided strategic, programmatic, and administrative support, and PAD operated as a project of GDI from August 10, 2015 through June 30, 2016 in a full-service incubation program, followed by a fiscal sponsorship arrangement through October 14, 2016. The remaining funds collected by GDI on PAD s behalf, amounting to $1,727,241, were transferred to the Organization in the second half of the 2016 calendar year. Reporting Period: These financial statements reflect the calendar year 2016; however, as noted above, activities for the period of January 1 - June 30, 2016 were conducted under the GDI incubator program, while PAD assumed custody and control of some financial activities in August 2016 and all by mid-october 2016. Therefore, these financial statements reflect operating activities for the five month period August 1 - December 31, 2016, which is less than a one-year operating cycle. NOTE 2 PROGRAM SERVICES Precision Agriculture for Development is a new US-based non-profit organization with the mission to support smallholder farmers in developing countries by providing customized information and services that increase productivity, profitability, and environmental sustainability. PAD is working on a new model for agricultural extension: reaching farmers with personalized agricultural advice through their mobile phones. We implement this model in collaboration with partner organizations and gather evidence on its impact. We aim to eventually improve the lives of 100 million farmers in developing countries with our services. PAD s senior leadership team includes professors and experts in technology and international development with considerable combined experience in sub-saharan Africa and India as well as deep expertise in data science and monitoring and evaluation. 6
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 2 The Issue: Around 450 million smallholder farms support more than 2 billion people worldwide, and their annual production will need to increase substantially to meet growing demands for food and fiber in the coming decades. Studies in developing countries suggest that small changes in agricultural practices can substantially improve productivity and profitability. However, offering farmers standardized agricultural advice has limited effectiveness due to variation in conditions: for example, the profitability of seeds or fertilizers depends on ph levels or micronutrient content of the local soil. Traditional extension systems have been unable to incorporate and disseminate this information to farmers, in part due to the high costs of operating in rural areas. In developed countries, precision agriculture technologies are transforming agricultural production by allowing farmers to better target inputs to local conditions, thus increasing yields and reducing environmental impacts from input overuse. Precision agriculture approaches in these settings include sensors, such as soil and yield monitors, and processing techniques for existing data: for example, new spectroscopy methods that measure growth stages and nutrient deficiency from satellite imagery. In developing countries, these same precision agriculture technologies are beyond the reach of most farmers. However, several technological innovations have created new opportunities to provide tailored information to farmers. First, new or improved measurement technologies enable better learning about local conditions. For instance, investments into detailed weather forecasting data, soil type mapping, and remote sensing yield-monitoring devices allow for more fine-tuned recommendations. Second, machine learning techniques make it possible to tailor expert knowledge at scale to conditions revealed in existing and new sources of data. These techniques can be further refined and improved using user feedback loops. Third, widespread adoption of mobile phones enables inexpensive information collection from and delivery to farmers. Our Solution: PAD s approach harnesses these innovations to improve the lives of smallholder farmers through both direct and indirect relationships. The direct part of our work aims to develop location-specific intelligent platforms that provide farmers with context-relevant and personalized agricultural recommendations through their mobile phones with the goals of improving productivity, increasing profitability, and reducing negative environmental impacts. The recommendations can be tailored to optimize inputs (seeds, water, fertilizers and pesticides) and management practices conditional on local agro climatic and market conditions, taking into account farmers demographic and risk tolerance profiles. PAD will use a hybrid model of data generation. Initially, the system will be built on expert recommendations based on current best practices using agronomic models and data from remote sensing technologies and soil samples. Ultimately, the system will include a two-way flow of information with farmers and will utilize machine learning techniques to continually refine PAD s knowledge of best practice and better predict optimal agricultural practices for other farmers with similar characteristics and conditions. 7
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 2 The indirect part of our work aims to support and improve systems that currently exist, particularly to help render these advisory services more customizable and intelligent with time. We recognize that several organizations and governments are already working on mobile phone-based advisory services with the goal of more effectively communicating with farmers. The success of our effort does not hinge on recreating these experiences; meeting our mission most efficiently may involve finding ways to tailor and scale what already exists. We approach working with new systems by rigorously evaluating their capabilities and impact, relying on our considerable knowledge of impact evaluations and experience working in collaboration with partners around the world. We also aim to help existing organizations pilot and test new approaches to providing more personalized information to farmers. Our Work to Date: PAD aims to use our first three years of operations to develop and rigorously test our products and services in two countries for farmer acceptance, impact, and scalability. In India, a randomized control trial (RCT) found that the introduction of a low-cost, mobile-based agricultural extension system among 1,200 cotton farmers in Gujarat had positive effects on yields and efficient input use. This RCT estimated that yields rose by 8.6% for cotton and 28.0% for cumin while profits increased by $100/season, with a return of more than $10 for each dollar invested in the system. We, alongside technology partner Awaaz.de and implementation and evaluation partner J-PAL South Asia, now offer a refined service called Krishi Tarang, a voice-based technology that provides free information via weekly voice messages and direct responses to farmers questions. We rolled out our initial service with only 200 farmers in April 2016 and grew to 30,000 by the end of 2016. We look to improve the user experience and our impact continuously through A/B testing and frequent experimentation with new features. In Kenya, members of our team have documented farmers demand for local soil and input information and experimented with simple systems that show potential for successfully delivering extension services through mobile phones to contract farmers. During the latter half of 2016, our team, together with technology partner Echo Mobile and implementation and evaluation partner IPA-Kenya, piloted and evaluated an SMS-based service with nearly 1,900 smallholder maize farmers that provided agricultural advice and input recommendations conditional on local soil tests. Given widespread soil acidity concerns in the area, these messages not only feature recommendations for fertilizers, but also agricultural lime, a relatively new technology in the area. Using lessons learned through this pilot, we are now evaluating an upgraded service with two-way communications features among nearly 6,000 maize farmers during the long rains season of 2017. NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies which affect significant elements of the Organization s financial statements are described below to enhance the usefulness of the financial statements to the reader. 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates. 8
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 3 Basis of Accounting: The Organization s policy is to maintain its books and prepare its financial statements on the accrual basis of accounting in accordance with generally accepted accounting principles. Revenues and gains are recognized in the year in which they become due and expenses and losses are recognized in the year in which the liability is incurred. Financial Statement Presentation: As required by the FASB Accounting Standards Codification, the Organization reports information regarding their financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. These classifications are related to the existence or absence of donor-imposed restrictions as presented below: Unrestricted Net Assets - consists of assets, public support and program revenues which are available and used for operations and programs. Unrestricted net assets represent the portion of net assets of the Organization that is neither permanently restricted nor temporarily restricted by donor-imposed stipulations. Contributions are considered available for unrestricted use unless specifically restricted by the donor. In addition, unrestricted net assets of the Organization may include funds which represent unrestricted resources designated by the Board of Directors for specific purposes. Temporarily Restricted Net Assets - includes funds with donor-imposed restrictions which permit the donee organization to expend the assets as specified and is satisfied either by the passage of time or by actions of the Organization. Resources of this nature originate from gifts, grants, bequests, contracts and investment income earned on restricted funds. Permanently Restricted Net Assets - includes resources which have a permanent donor-imposed restriction which stipulates that the assets are to be maintained permanently, but permits the Organization to expend part or all of the income derived from the donated assets. For the year presented, the Organization did not have any assets of this nature. Grants Receivable Grants Receivable reflects the balances due on three grant commitments which are restricted for specific program purposes. The portion of grants receivable which is scheduled for payment in the coming fiscal year is classified as current, while commitments that exceed one year are classified as non-current. As of December 31, 2016, all noncurrent grants receivable were due within three years. Management considers these commitments to be fully collectible and therefore, has not established a reserve for uncollectible grants receivable. If grants are determined to be uncollectible, an allowance will be provided for when that determination is made. For the year presented, the Organization did not report any losses on unpaid grant commitments. Short-Term Investments: Short-Term Investments consist of a 12-month Certificate of Deposit maturing on November 22, 2017. The Certificate of Deposit bears interest at the annual rate of 0.05%, and is stated at cost plus accrued interest. 9
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 3 Gifts, Grants and Contributions: As required by the FASB Accounting Standards Codification, contributions are required to be recorded as receivables and revenues and the Organization is required to distinguish between contributions received for each net asset category in accordance with donor-imposed restrictions. Contributions may include gifts of cash, collection items, or promises to give. Contributions, including unconditional promises to give, are recognized as revenues in the year received. Conditional promises to give are not recognized until they become unconditional, that is, at the time when the conditions on which they depend are substantially met. Contributions of assets other than cash are reported at their estimated fair value. Contributions to be received after one year are discounted at an appropriate discount rate commensurate with the risk involved, when such amounts are considered material. Support that is restricted by the donor is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction until the restriction expires, at which time temporarily restricted net assets are reclassified to unrestricted net assets. Donated Services: As required by the FASB Accounting Standards Codification, the Organization maintains a policy whereby the value of donated goods and services which require a specialized skill and/or which would have otherwise been purchased by the Organization, are recognized on the Statement of Activities and are listed as expenses on the Statement of Functional Expenses. For the year presented, Donated Services represent pro bono legal fees for general counsel valued at $6,481. Functional Expenses: As required by the FASB Accounting Standards Codification, the Organization allocates its expenses on a functional basis among various programs and support services. Expenses that can be identified with a specific program and support service are allocated directly according to their natural expense classification. Other expenses that are common to several functions are allocated using space and time usage formulas. Supporting services are those related to operating and managing the Organization and its programs on a day-to-day basis. Supporting services have been sub-classified as follows: Administrative - includes all activities related to the Organization s internal management and accounting for program services. Fund Raising - includes all activities related to maintaining contributor information, writing grant proposals, direct mail solicitation, indirect costs of fund raising events, distribution of materials and other similar projects related to the procurement of funds. 10
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 3 Tax Position: The Organization currently evaluates all tax positions, and makes a determination regarding the likelihood of those positions being upheld under review. The primary tax positions made by the Organization are the nonexistence of Unrelated Business Income Tax and the Organization s status as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. For the year presented, the Organization has not recognized any tax benefits or loss contingencies for uncertain tax positions based on this evaluation. NOTE 4 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets consists of unexpended donor designated grants and contributions with the following restrictions as of December 31, 2016: Nature of Restriction Amount India and Africa Program Development $1,440,380 One Acre Fund Data Project 189,396 Rainers Fellows Program 100,000 Total $1,729,776 Net assets released from temporary donor restrictions by incurring expenses which satisfied the restricted purposes by occurrence of events specified by the donors were as follows: Nature of Restriction Amount India and Africa Program Development $446,495 NOTE 5 CONDITIONAL GRANTS Operating Grant Commitment: PAD received a $3 million commitment from an individual donor in 2016, payable in three annual installments of $1 million, which is unrestricted for program expansion and general operating costs. Each installment of the grant is subject to specific conditions. During 2016, upon achieving the requirements set forth in the grant, the first installment of $1 million was received, while the remaining two installments are conditional based upon future specific milestones. Agricultural Technology Adoption Initiative (ATAI): PAD received a funding commitment from ATAI, which is an initiative of the Massachusetts Institute of Technology ( MIT ). The grant will fund a project entitled Overcoming Barriers to Soil Fertility Management. The total commitment is $149,342, which is anticipated for funding in February 2018 and 2019, administered on a cost-reimbursement basis, and contingent upon successful receipt of ATAI Initiative Review Board approval. As of December 31, 2016, the contingencies associated with this funding commitment remained in process. 11
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 5 Since the terms of the conditional components of the above grant commitments had not been met as of December 31, 2016, the aggregate conditional commitment of $2,149,342 has not been recognized in the accompanying financial statements. NOTE 6 EMPLOYEE BENEFIT PLAN PAD maintains a 401(k) retirement savings plan covering all eligible employees. The Plan allows eligible employees of the Organization to defer a percentage of their earnings from current taxation and also allows for after tax contributions. The Plan makes a tiered matching contribution of up to 4% of employee compensation as well as provides an opportunity for a discretionary employer contribution that is determined annually by the Board of Directors. For the year ended December 31, 2016, PAD made a matching contribution of $4,839 and a discretionary contribution of $10,494, which are included in Employee Benefits in the accompanying Statement of Functional Expenses. NOTE 7 OPERATING LEASE PAD occupies office space in Boston, Massachusetts pursuant to a tenancy-at-will arrangement that may be canceled by either party subject to a 30-day notice requirement. The monthly rent expense is $1,000 and includes utilities. NOTE 8 RELATED PARTY TRANSACTIONS Compensation: PAD s chief executive is the Managing Director, who is compensated as an employee and also serves as an Officer of the Board of Directors. Contracted Services: An Officer of the Board of Directors is compensated by the Jameel Poverty Action Lab (JPAL), a research organization based at the Massachusetts Institute of Technology. He is a board member, the co-chair for research, and a member of the executive committee of JPAL. This global organization supports J-PAL South Asia, an organization based in India which provided contracted services totaling $52,692 to PAD in connection with implementation and field costs for the year ended December 31, 2016. NOTE 9 CONCENTRATIONS Credit Risk: The Organization is subject to concentrations in credit risk relating to cash balances. For the year presented, the Organization s cash deposits are held in two financial institutions in checking and money market savings accounts. Deposits are insured by the Federal Deposit Insurance Corporation up to $250,000 per institution. The Organization had $2,907,279 in excess of federally insured limits as of December 31, 2016; however, Organization has not experienced any losses on such accounts and management considers credit risk on cash to be low. 12
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 9 Grants and Grants Receivable: For the year ended December 31, 2016, 91% of total Gifts, Grants and Contributions are from three private donors. Grants Receivable represents the balance due on three unrelated grant commitments for specific program purposes. Foreign Operations: Consistent with its mission, PAD conducts the majority of its program activities in developing countries. For the year ended December 31, 2016, activities were concentrated in Kenya and India. Subcontracted Services: PAD subcontracts services with local consultants and organizations in Kenya and India to conduct its program activities. One such contracted agency represents approximately 30% of the Organization s total expenses for the year ended December 31, 2016. NOTE 10 SUBSEQUENT EVENTS Management is required to consider events subsequent to the financial statement date for potential adjustment to or disclosure in the financial statements. Therefore, Management has evaluated subsequent events through May 1, 2017, the date which the financial statements were available for issue, and noted no events which met the recognition or disclosure criteria. 13