HABITOT CHILDREN S MUSEUM FINANCIAL STATEMENTS December 31, 2016 CROSBY & KANEDA Certified Public Accountants Dedicated to Nonprofit Organizations
HABITOT CHILDREN'S MUSEUM Contents Independent Auditors' Report 1-2 Financial Statements: Statement of Financial Position 3 Statement of Activities 4 Statement of Cash Flows 5 Statement of Functional Expenses 6 Notes to the Financial Statements 7-12
CROSBY & KANEDA Certified Public Accountants Dedicated to Nonprofit Organizations 1970 Broadway, Suite 930 Oakland, CA 94612 Tel: 510 835 CPAS (2727) Fax: 510 835 5711 e-mail: admin@ckcpa.biz INDEPENDENT AUDITORS REPORT Board of Directors Habitot Children s Museum Berkeley, California Report on the Financial Statements We have audited the accompanying financial statements of Habitot Children s Museum, which comprise the statement of financial position as of December 31, 2016, and the related statements of activities, cash flows and functional expenses 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 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. 1
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Habitot Children s Museum as of December 31, 2016, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Certified Public Accountants Oakland, California August 14, 2017 2
HABITOT CHILDREN'S MUSEUM Statement of Financial Position December 31, 2016 Assets Current Assets Cash $ 53,496 Pledges and grants receivable 113,350 Inventory 7,366 Prepaid expenses 7,067 Total Current Assets 181,279 Property and equipment, net (Note 3) 315,109 Deposits 54,485 Other assets 4,200 Total Assets $ 555,073 Liabilities and Net Assets Current Liabilities Accounts payable and accrued expenses $ 32,493 Deferred revenue 6,600 Accrued vacation 4,168 Loan payable - current (Note 4) 4,707 Security deposits 6,600 Total Current Liabilities 54,568 Loan payable (Note 4) 55,768 Total Liabilities 110,336 Commitments and contingency (Notes 5 and 6) Net Assets Unrestricted 434,233 Temporarily restricted (Note 7) 10,504 Total Net Assets 444,737 Total Liabilities and Net Assets $ 555,073 See Notes to the Financial Statements 3
HABITOT CHILDREN'S MUSEUM Statement of Activities Temporarily Unrestricted Restricted Total Support and Revenue Support Government contracts $ 13,180 $ $ 13,180 Foundation and corporate grants 105,081 59,160 164,241 Contributions 122,908 122,908 In-kind contributions (Note 8) 48,584 48,584 Total Support 289,753 59,160 348,913 Revenue Admissions 180,848 180,848 Classes and events 32,613 32,613 Fees for services 2,850 2,850 Sales, net 15,467 15,467 Rentals 40,416 40,416 Other 72 72 Total Revenue 272,266-272,266 Net assets released from donor restrictions (Note 7) 48,656 (48,656) - Total Support and Revenue 610,675 10,504 621,179 Expenses Program 424,268 424,268 Management and general 77,772 77,772 Fundraising 177,987 177,987 Total Expenses 680,027-680,027 Change in Net Assets (69,352) 10,504 (58,848) Net Assets, beginning of year 503,585-503,585 Net Assets, end of year $ 434,233 $ 10,504 $ 444,737 See Notes to the Financial Statements 4
HABITOT CHILDREN'S MUSEUM Statement of Cash Flows Cash flows from operating activities: Change in net assets $ (58,848) Adjustments to reconcile change in net assets to cash provided (used) by operating activities: Depreciation 1,883 Changes in assets and liabilities: Pledges and grants receivable (9,300) Accounts receivable 168 Inventory (1,406) Accounts payable and accrued expenses 8,078 Deferred revenue 6,600 Accrued vacation 4,168 Security deposits 6,600 Net cash provided (used) by operating activities (42,057) Cash flows from investing activities Purchase of property and equipment (69,846) Net cash provided (used) by investing activities (69,846) Cash flows from financing activities Borrowing on loan payable 61,609 Repayments on loan payable (1,134) Net cash provided (used) by financing activities 60,475 Net change in cash (51,428) Cash, beginning of year 104,924 Cash, end of year $ 53,496 Supplemental disclosures: Interest paid $ 4,104 See Notes to the Financial Statements 5
HABITOT CHILDREN'S MUSEUM Statement of Functional Expenses Programs Early Family Total Management Childhood Outreach Community Program and General Fundraising Total Salaries $ 125,837 $ 7,999 $ 44,838 $ 178,674 $ 10,114 $ 85,807 $ 274,595 Employee benefits 2,468 689 4,357 7,514 8 5,325 12,847 Payroll taxes 13,186 707 3,250 17,143 3,363 6,353 26,859 Total Personnel 141,491 9,395 52,445 203,331 13,485 97,485 314,301 Accounting fees - 6,004-6,004 Supplies and materials 20,601 228 1,642 22,471 1,465 1,161 25,097 Telephone 2,503 227 683 3,413 455 683 4,551 Postage and delivery 366 131 178 675 702 820 2,197 Occupancy 100,389 26,445 126,834 22,177 35,145 184,156 Equipment rental and maintenance 216 52 52 320 26 906 1,252 Copy/printing 1,700 855 1,114 3,669 1,419 1,634 6,722 Travel and hospitality 485 199 899 1,583 74 598 2,255 Interest - 3,186 918 4,104 Depreciation - 1,883-1,883 Insurance - 11,082-11,082 Bank fees 4,890 442 5,332 1,866 1,838 9,036 Advertising 5,330 144 1,975 7,449 668 1,489 9,606 Dues, licenses, service fees 945 945 3,577 324 4,846 Exhibits 3,250 3,250 - - 3,250 In-kind professional services 4,858 2,429 4,858 12,145 7,289 29,150 48,584 Other professional services 30,183 2,668 32,851 2,352 5,790 40,993 Miscellaneous - 62 46 108 Total Expenses $ 317,207 $ 13,660 $ 93,401 $ 424,268 $ 77,772 $ 177,987 $ 680,027 See Notes to the Financial Statements 6
HABITOT CHILDREN S MUSEUM Notes to the Financial Statements NOTE 1: NATURE OF ACTIVITIES Habitot Children s Museum (the Organization) is a California nonprofit public benefit corporation, which operates a hands-on discovery museum specifically designed for infants, toddlers and preschoolers and their families. The Organization provides resources and support for early childhood learning, parenting success, and community connection. The organization provides the following public programs: Early Childhood Learning and Exploration With hands-on exhibits, year-round classes and events for children and families, Habitot focuses on the educational, social, and creative needs of children under 6. The museum includes a drop-in Art Studio; permanent and temporary displays such as a space station, medical center, and firehouse; a classroom annex where children's art, music, dance and cooking programs and summer camps take place; seasonal special events with performers; and on-going literacy, math, and science programs. Habitot also has a toy lending library. Parenting Education and Support A variety of programs focus on the knowledge, skills, and confidence parents and caregivers need for helping young children learn, grow and thrive. Dedicated programs foster family engagement for vulnerable families including teen parents, homeless families, special needs children and incarcerated parents. Habitot offers free parenting workshops, facilitated support groups serving caregivers and LBGTQ families, and a family resource center with over 800 parenting/child-development reference materials. An annual early childhood safety campaign helps parents learn how to prevent accidents and injuries among young children. Family Outreach Field trips for low-income preschools, permanent free admission passes for social service agencies and libraries and scholarships for annual memberships for eligible families are ways Habitot ensures access to the museum for a wide audience. Free admission days, sponsored by local businesses and corporations and highlighting multicultural events, welcome thousands of diverse families each year. NOTE 2: SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). Basis of Presentation The Organization presents information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The three classes are differentiated by donor restrictions. 7
HABITOT CHILDREN S MUSEUM Notes to the Financial Statements Unrestricted net assets consist of resources which have not been specifically restricted by a donor. Unrestricted net assets may be designated for specific purposes by the Organization or may be limited by contractual agreements with outside parties. Temporarily restricted net assets represent contributions whose use is limited by donorimposed stipulations that expire by the passage of time or can be fulfilled and removed by actions of the Organization pursuant to those stipulations. Permanently restricted net assets represent contributions whose use is limited by donor-imposed stipulations that require the gift to be invested in perpetuity. The income from such invested assets, including realized and unrealized gains, is generally available to support the activities of the Organization. Donors may also restrict all or part of the income and/or appreciation from these investments to permanently restricted net assets, resulting in increases/decreases to these net assets. There were no permanently restricted net assets as of December 31, 2016. Contributions Contributions, including unconditional promises to give, are recognized as revenues in the period the promise is received. Conditional promises to give are not recognized until they become unconditional; that is when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value at the date of contribution. Contributions to be received after one year are discounted at an appropriate rate commensurate with the risks involved. Amortization of the discount is recorded as additional contribution revenue in accordance with donorimposed restrictions, if any, on the contributions. Unrestricted contributions and grants are recorded as unrestricted revenue when received. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. All donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose 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. Pledges and Grants Receivable The Organization considers all pledges and grants receivable to be fully collectible at December 31, 2016. Accordingly, no allowance for doubtful accounts was deemed necessary. If amounts become uncollectible, they are charged to expense in the period in which that determination is made. Income Taxes The Internal Revenue Service and the California Franchise Tax Board have determined that the Organization is exempt from federal and state income taxes under Internal Revenue Code Section 501(c)(3) and the California Revenue and Taxation Code Section 23701(d). The Organization has evaluated its current tax positions as of December 31, 2016 and is not aware of any significant uncertain tax positions for which a reserve 8
HABITOT CHILDREN S MUSEUM Notes to the Financial Statements would be necessary. The Organization s tax returns are generally subject to examination by federal and state taxing authorities for three and four years, respectively after they are filed. Contributed Services Contributed services are reflected in the financial statements at the fair value of the services received only if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Organization. Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Organization determines the fair values of its assets and liabilities based on a fair value hierarchy that includes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Organization has the ability to access at the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the assets or liability. Unobservable inputs reflect the Organization s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances and may include the Organization s own data. The Organization had no assets or liabilities recorded at fair value on December 31, 2016. Concentration of Credit Risk At times, the Organization may have deposits in excess of federally insured limits. The risk is managed by maintaining all deposits in high quality financial institutions. Inventory The Organization reports inventory at cost, computed on the first-in, first-out basis. 9
HABITOT CHILDREN S MUSEUM Notes to the Financial Statements Property and Equipment Property and equipment purchased by the Organization is recorded at cost. The Organization capitalizes all expenditures for property and equipment over $2,500; the fair value of donated property and equipment is similarly capitalized. Depreciation is computed using the straight-line method over the estimated useful lives on the property and equipment or the related lease terms as follows: Improvements Furniture and equipment Exhibits Lease term 5 years 3 years Expenditures for major renewals and betterments that extend the useful lives of the property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Management reviews long-lived assets for impairment when circumstances indicate the carrying amount of the asset may not be recoverable. Deferred Revenue Deferred revenue represents sub-tenant rent payments received in advance. Functional Allocation of Expenses The costs of providing various programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Subsequent Events The Organization has evaluated subsequent events and has concluded that as of August 14, 2017 the date that the financial statements were available to be issued, there were no significant subsequent events to disclose. NOTE 3: PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 2016: Furniture and equipment $ 52,581 Exhibits 122,450 Leasehold improvements 215,404 Construction in progress 315,109 Less accumulated depreciation (390,435) Total $ 315,109 NOTE 4: LOAN PAYABLE In April, 2015, the Organization entered into a lease agreement for museum space in Berkeley, California. As part of the agreement the Organization s landlord agreed to make certain improvements to the space including an allowance up to $190,000. The Organization made payments towards leasehold improvements in excess of the allowance 10
HABITOT CHILDREN S MUSEUM Notes to the Financial Statements totaling $100,000 which were recorded as assets to be depreciated over the lease term. In addition, the landlord financed an additional $61,609 in leasehold improvements to be paid over 10 years in monthly installments of $683.98 at 6.000% interest per year. The landlord financed leasehold improvements were recorded as assets and will be depreciated over the lease term. As of December 31, 2016, the loan balance due to the landlord was as follows: Loan balance $ 60,475 Less: current portion (4,707) Total future minimum payments $ 55,768 The future scheduled maturities of the loan payable are as follows for the years ending December 31: 2017 $ 4,707 2018 4,998 2019 5,306 2020 5,633 2021 5,981 Thereafter 33,850 Total future minimum payments $ 60,475 NOTE 5: COMMITMENTS Operating Leases The Organization leases museum space under a non-cancelable lease that expires on September 30, 2020 and a copier which expires on June 30, 2021. The Organization has the option to extend the lease for museum space for two additional five year periods. The lease includes certain provisions for leasehold improvements described in Note 4. In addition, the landlord has granted the Organization the option to purchase the property at any time following the date six months prior to the fifth anniversary of the Organization s occupancy of the premises and not later than six months prior to the eighth anniversary. The purchase price will be calculated based on the cap rate formula detailed in the option agreement. Future minimum lease payments were as follows for the years ended December 31: 2017 $ 155,675 2018 160,360 2019 165,189 2020 127,179 2021 1,026 Total $ 609,429 Rent for the year ended December 31, 2016, totaled $176,297, and included subtenant payments totaling $57,250. 11
HABITOT CHILDREN S MUSEUM Notes to the Financial Statements NOTE 6: CONTINGENCY Grant awards require the fulfillment of certain conditions as set forth in the instrument of grant. Failure to fulfill the conditions could result in the return of the funds to the grantors. The Organization deems this contingency remote since by accepting the grants and their terms, it has accommodated the objectives of the Organization to the provisions of the grants. The Organization s management is of the opinion that the Organization has complied with the terms of all grants. NOTE 7: TEMPORARILY RESTRICTED NET ASSETS As of December 31, 2016, there was $10,504 in temporarily restricted net assets available for capital improvements. Temporarily restricted net assets were released from donor restriction by incurring expenses satisfying the purposes specified by donors as follows for the year ended December 31, 2016: Family Outreach $ 25,471 Parenting and Communications 13,185 Family Together 10,000 Total $ 48,656 NOTE 8: IN-KIND CONTRIBUTIONS The founder/director of the Organization is a museum director who is compensated at less than the market value for her services. The Organization s management has determined that her contributed services for the year ended December 31, 2016 would be valued at $48,584. 12