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Home My WebLink About12 - Annual Review of Visit Newport Beach Audited Financial Statements and Expenditure ReportTO: FROM CITY OF NEWPORT BEACH City Council Staff Report October 22, 2019 Agenda Item No. 12 HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL Dan Matusiewicz, Finance Director - 949-644-3123, dmatusiewicz@newportbeachca.gov PREPARED BY: Steve Montano, Deputy Finance Director, smontano@newportbeachca.gov PHONE: 949-644-3240 TITLE: Annual Review of Visit Newport Beach Audited Financial Statements and Expenditure Report ABSTRACT: In accordance with Sections 6(d) and 6(e) of the City's agreement with Visit Newport Beach (VNB), originally entered on September 27, 2011, and amended on August 5, 2015, VNB's audited financial statements, management letter and compliance expenditure report are attached for the City Council's review. RECOMMENDATION: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; and b) Receive and file the report. FUNDING REQUIREMENTS: There is no fiscal impact related to this item. DISCUSSION: Per the City's agreement with VNB, the following reports are subject to review by the City Council. 1. Audited Financial Statements (Attachments A and B) - VNB has provided its audited financial statements for its most recently ended year, including the associated management letter. 12-1 Annual Review of Visit Newport Beach Audited Financial Statements and Expenditure Report October 22, 2019 Page 2 2. Expenditure Report (Attachment C) - VNB has also submitted its expenditure report. This report has been certified by VNB and a Certified Public Accountant to the effect that the funds received pursuant to VNB's agreement with the City were expended in accordance with the agreement in the previous fiscal year for purposes authorized by the agreement. Per the agreement, the report must include reasonable detail in support of the certification, including expenditures for, or contributions to, special events and not-for-profit organizations in Newport Beach. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A —Visit Newport Beach Audited Financial Statements for the Years Ended June 30, 2019 Attachment B —Visit Newport Beach Management Letter Attachment C — Visit Newport Beach Expenditure Compliance Report for the Year Ended June 30, 2019 12-2 Attachment A Visit Newport Beach Audited Financial Statements for the Years Ended June 30, 2019 12-3 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION For The Years Ended June 30, 2019 and 2018 with INDEPENDENT AUDITORS' REPORT THEREON 12-4 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) TABLE OF CONTENTS Independent Auditors' Report.................................................................................................1-2 Financial Statements: Statements of Financial Position........................................................................................ 3 Statementsof Activities..................................................................................................... 4 Statements of Cash Flows.................................................................................................. 5 Notes to Financial Statements.......................................................................................6-19 Supplemental Information: Schedule I — Statement of Financial Position by Funding Source ................................... 20 Schedule II — Statement of Activities by Funding Source ............................................... 21 12-5 in J' KMCompare Y Business Advisors Tax and Audit Independent Auditors' Report Board of Directors Visit Newport Beach Inc. Report on the Financial Statements We have audited the accompanying financial statements of Visit Newport Beach Inc. (a non-profit organization) (the "Organization"), which comprise the statements of financial position as of June 30, 2019 and 2018, and the related statements of activities and cash flows for the years 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 auditors' 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. p 714 380 6565 f 714 380 6566 535 Anton Blvd Suite 1050 Costa Mesa CA 92626 kmjpartnerscpa.com p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364 12-6 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Visit Newport Beach Inc. as of June 30, 2019 and 2018, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter - Related Party Transactions As discussed in Note 8 to the financial statements, Visit Newport Beach Inc. has significant transactions with a related non-profit organization. Our opinion is not modified with respect to this matter. Report on the Supplementary Information Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information contained in Schedules I and II on pages 20-21 is presented for purposes of additional analysis and is not a required part of the 2019 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 2019 financial statements. The information has been subjected to the auditing procedures applied in the audit of the 2019 financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the 2019 financial statements or the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the 2019 financial statements as a whole. V_MJ- LLP KMJ Corbin & Company LLP Costa Mesa, California September 30, 2019 12-7 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF FINANCIAL POSITION $ 3.425.708 $ 3.242.540 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable $ 102,074 $ 188,655 Related -party payables 137,541 204,349 Accrued expenses 21,960 22,032 Accrued payroll and related expenses 224,969 115,269 Group booking incentive reserve 98,206 108,650 Total current liabilities 584,750 638,955 Deferred rent, net of current portion 18,350 12,136 Total liabilities 603,100 651,091 Commitments and contingencies Net assets without donor restrictions 2,822,608 2,591,449 $ 3.425.708 $ 3.242.540 See accompanying notes to financial statements 3 12-8 June 30, ASSETS 2019 2018 Current assets: Cash and cash equivalents $ 1,588,034 $ 743,352 Short-term investments 1,295,721 1,789,515 Accounts receivable - 58,115 Related -party receivables 30,195 75,927 Prepaid expenses and other current assets 317,496 331,097 Total current assets 3,231,446 2,998,006 Long-term investments - 98,188 Property and equipment, net 37,704 32,761 Website development costs, net 146,939 103,966 Deposits and other assets 9,619 9,619 $ 3.425.708 $ 3.242.540 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable $ 102,074 $ 188,655 Related -party payables 137,541 204,349 Accrued expenses 21,960 22,032 Accrued payroll and related expenses 224,969 115,269 Group booking incentive reserve 98,206 108,650 Total current liabilities 584,750 638,955 Deferred rent, net of current portion 18,350 12,136 Total liabilities 603,100 651,091 Commitments and contingencies Net assets without donor restrictions 2,822,608 2,591,449 $ 3.425.708 $ 3.242.540 See accompanying notes to financial statements 3 12-8 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF ACTIVITIES For The Years Ended June 30, 2019 2018 Support and revenues: Service fee revenues $ 9,875,230 $ 8,953,551 Interest income 46,739 4,627 Other income 1,362 - Total support and revenues 9,923,331 8,958,178 Expenses: Marketing (including $2,573,081 and $2,402,277 to Newport Beach & Company during 2019 and 2018, respectively — see Note 8) 7,585,263 6,558,564 General and administrative 456,219 448,608 Salaries and benefits 1,566,163 1,451,788 Depreciation and amortization 84,527 22,526 Total expenses 9,692,172 8,481,486 Change in net assets without donor restrictions 231,159 476,692 Net assets, beginning of year 2,591,449 2,114,757 Net assets, end of year $ 2,822,608 $ 2,591,449 See accompanying notes to financial statements 4 12-9 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Cash flows from investing activities: Purchases of investments (1,243,373) (1,887,703) Proceeds from sales/maturities of investments 1,800,000 - Website development costs (98,998) (101,249) Purchases of property and equipment (33,445) (3,512) Net cash provided by (used in) investing activities 424,184 (1,992,464) Net change in cash and cash equivalents 844,682 (1,502,141) Cash and cash equivalents at beginning of year 743,352 2,245,493 Cash and cash equivalents at end of year $ 1,588,034 $ 743,352 See accompanying notes to financial statements S 12-10 For The Years Ended June 30, 2019 2018 Cash flows from operating activities: Change in net assets without donor restrictions $ 231,159 $ 476,692 Adjustments to reconcile change in net assets without donor restrictions to net cash provided by operating activities: Depreciation and amortization 84,527 22,526 Accrued interest income 35,355 - Changes in operating assets and liabilities: Accounts receivable 58,115 (52,284) Related -party receivables 45,732 550,180 Prepaid expenses and other current assets 13,601 (60,275) Deposits and other assets - 30,000 Accounts payable (86,581) (19,974) Related -party payables (66,808) (490,819) Accrued expenses (72) 7,275 Accrued payroll and related expenses 109,700 (33,033) Group booking incentive reserve (10,444) 49,950 Deferred rent 6,214 10,085 Net cash provided by operating activities 420,498 490,323 Cash flows from investing activities: Purchases of investments (1,243,373) (1,887,703) Proceeds from sales/maturities of investments 1,800,000 - Website development costs (98,998) (101,249) Purchases of property and equipment (33,445) (3,512) Net cash provided by (used in) investing activities 424,184 (1,992,464) Net change in cash and cash equivalents 844,682 (1,502,141) Cash and cash equivalents at beginning of year 743,352 2,245,493 Cash and cash equivalents at end of year $ 1,588,034 $ 743,352 See accompanying notes to financial statements S 12-10 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 1 — ORGANIZATION Nature of Operations Visit Newport Beach Inc. (the "Organization") is a non-profit organization formed under the laws of the State of California. Transient Occupancy"TOT") The Organization currently has an agreement ("TOT Agreement") with the City of Newport Beach (the "City") through December 31, 2024 to promote tourism and serve the needs of visitors to the City. Under the terms of the TOT Agreement, the Organization is responsible to develop, plan, carry out and supervise a program to market and promote the Newport Beach brand and to promote tourism in, and serve the needs of, visitors to the City as well as increase the amount of Transient Occupancy Tax collected through its promotional activities. The City collects a Transient Occupancy Tax as well as a Visitor's Service Fee applied to the transient rental of lodging rooms (collectively, the "TOT"). The City pays the Organization 18% of the annual TOT in monthly installments. As the Organization is not entitled to its share of the TOT until paid by the City, amounts are recognized as revenue when received. The City shall have the right, in its sole discretion, to adjust the payment (increase or decrease the percentage of TOT paid to the Organization) as part of its once -annual budget adoption process for any reason after notice to the Organization and an opportunity for the Organization to formally comment on the adjustment. For the years ended June 30, 2019 and 2018, the Organization received approximately 55% of its service fee revenues from the City through the TOT. The City has the right to terminate the TOT Agreement, without cause, by giving the Organization 365 days' written notice of its intention to terminate. Should the City reduce or stop its funding to the Organization due to the Organization's default or termination of the Agreement, the Organization's operations will be impacted. Tourism Business Improvement District ("TBID") The Newport Beach Tourism Business Improvement District ("NBTBID") was established April 28, 2009, and expires of January 31, 2024, pursuant to the Management District Plan, as amended (the "Plan"). The NBTBID is funded by assessments levied on participating lodging businesses within a specified district. The assessments are restricted for use for sales promotion and marketing programs to market the City as a tourist, meeting and event destination as outlined in the Plan. Either parry may terminate this agreement by providing the other party ninety calendar days' written notice prior to the effective date of termination. As the Organization is not entitled to its share of the assessments collected until paid by the City, amounts are recognized as revenue 6 12-11 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 1— ORGANIZATION, continued when received. For the years ended June 30, 2019 and 2018, the Organization received approximately 45% of its service fee revenues from the City through TBID assessments. As of June 30, 2019 and 2018, the NBTBID is represented by nine (9) and eight (8) hotels, respectively, within the city of Newport Beach which collect a 3.0% tax on short-term stays. The City is entitled to 0.25% of the receipts annually for the collection of the assessments and disbursements of the NBTBID. NOTE 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 accounting principles generally accepted in the United States of America. Net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of donor -imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows: Without donor restrictions — Net assets that are not subject to donor -imposed stipulations. These assets are available to support the Organization's general activities and operations at the discretion of the Board of Directors. With donor restrictions - Net assets that are subject to donor -imposed restrictions. Some donor - imposed restrictions are temporary in nature, such as those that will be met by the passage of time or other events specified by the donor. Other donor -imposed restrictions are perpetual in nature, where the donor stipulates that such resources be maintained in perpetuity. Generally, the donors of these assets permit the Organization to use all or part of the income earned on related investments for general or specific purposes. As of and for the years ended June 30, 2019 and 2018, the Organization had no net assets with donor restrictions. Revenues are reported as increases in net assets without donor restrictions unless use of the related assets is limited by donor -imposed restrictions. Expenses are reported as decreases in net assets without donor restrictions. Gains and losses on investments and other assets are reported as increases or decreases in net assets without donor restrictions unless their use is restricted by explicit donor stipulations or by law. 7 12-12 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Reclassifications Certain amounts reported in the prior period have been reclassified to conform to the current period's presentation. There was no effect on total net assets or change in net assets as previously reported. Use of Estimates The preparation of financial statements requires the Organization 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. Significant estimates made by the Organization's management include, but are not limited to, the collectability of receivables, the recoverability of long-lived assets, fair value of investments and the allocation of expenses to program activities and general and administrative. Actual results may differ from those estimates. Cash and Cash Equivalents The Organization considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Organization maintains its cash and cash equivalent balances at various financial institutions. The total cash balances are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000 per institution. At June 30, 2019 the Organization had approximately $1,590,000 of uninsured cash and cash equivalent balances. The Organization periodically reviews the quality of the financial institutions it has deposits with to minimize risk of loss. To date, no losses have been incurred. Accounts Receivable Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts at year end. Management determines the allowance for doubtful accounts by identifying troubled accounts based on current and historical experience. Receivables are written off when deemed uncollectible. For the years ended June 30, 2019 and 2018, no receivables were deemed uncollectible and were written off. There were no accounts receivables as of the year ended June 30, 2019. At June 30, 2018 the Organization considered receivables to be fully collectible and accordingly did not record an allowance for doubtful accounts. As of June 30, 2018, one customer accounted for 100% of the Organization's total accounts receivable balance. 8 12-13 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Investments and Fair Value Measurements Investments and cash equivalents consist of U.S. Treasury Bills which are carried at amortized cost, which approximates fair value. Accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or in the absence of a principal market, the most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs in priority that may be used to measure fair value: Level 1—Quoted prices in active markets for identical assets or liabilities; Level 2—Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (such as interest rates and yield curves, credit risks, and default rates) or other inputs that are principally derived from or corroborated by observable market data by correlation or by other means; and Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The fair value of the Organization's U.S. Treasury Bills (recorded in cash equivalents and investments) are based partially upon quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the assets. These instruments have been classified within Level 2 of the valuation hierarchy. At June 30, 2019, the Organization had approximately $1,295,000 of uninsured investment balances. The Organization periodically reviews the quality of the financial institution holding the investments to minimize risk of loss. 9 12-14 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued As of June 30, 2019, the Organization's investments measured at fair value on a recurring basis were as follows: Cash equivalents: U.S. Treasury Bills Short-term investments: U.S. Treasury Bills June 30, 2019 Quoted Prices in Significant Active Markets Significant Other Unobservable for Identical Observable Inputs Assets (Level 1) Inputs (Level 2) (Level 3) $ - $ 389,635 1,295,721 As of June 30, 2018, the Organization's investments measured at fair value on a recurring basis were as follows: Quoted Prices in Active Markets for Identical Assets (Level 1) Cash equivalents: U.S. Treasury Bills Short-term investments: U.S. Treasury Bills Long-term investments: U.S. Treasury Bills June 30, 2018 Significant Other Observable Inputs (Level 2) $ 99,773 1,789,515 98,188 $ $ 1.987.476 Property and Equipment Significant Unobservable Inputs (Level 3) Property and equipment are stated at cost. Donated assets are recorded at their fair market value when received. The cost of purchased assets or fair market value of donated assets is depreciated using the straight-line method over the estimated useful lives of the related assets which range from three to seven years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the related lease term. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. 10 12-15 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued It is the Organization's policy to capitalize property and equipment over $1,500. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is reflected in the statements of activities. Website Development Costs The Organization accounts for the costs of developing its mobile apps and websites by capitalizing the costs during the application development stage when it is probable that the project will be completed and the property will be used to perform the function intended. Website development costs are amortized on a straight-line basis over their estimated useful lives when completed, which are typically the earlier of approximately three years or term based on estimated disposal date. The recoverability of intangible assets is evaluated periodically, taking into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. For the years ended June 30, 2019 and 2018, the Organization capitalized website development costs of $98,998 and $101,249, respectively. For the years ended June 30, 2019 and 2018, the Organization recorded amortization expense on website development costs totaling $56,025 and $3,492, respectively. Impairment of Long -Lived Assets The Organization evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. At June 30, 2019 and 2018, the Organization's management believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Organization's services will continue, which could result in impairment of long-lived assets in the future. VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Group Booking Incentive The Organization has established an incentive program for businesses by paying for certain costs of conferences and group meetings held in Newport Beach hotels in order to attract businesses and groups to the City. Costs are considered incurred upon the reservation of the hotel for future meetings. As of June 30, 2019 and 2018, group booking accruals were $98,206 and $108,650, respectively. Contributed Materials and Services Donated materials and other noncash contributions (if any) are reflected in the accompanying statements at their estimated fair market values at date of receipt. Contributions of services are recognized if the services received create or enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. Other volunteer services that do not meet these criteria are not recognized in the financial statements as there is no objective basis of deriving their value. One of the services provided by the Organization in its efforts to promote the City is to organize site inspections and other promotional events with a variety of potential visiting groups. These groups are introduced by the Organization's staff to the various hotels, restaurants, and other local businesses involved in the tourism industry in Newport Beach. All businesses visited are also sponsors of the Organization. Many of the Organization's sponsors contribute materials, such as meals and rooms, in connection with this program. During the years ended June 30, 2019 and 2018, the Organization determined there were no significant contributed materials and services. Additionally, a substantial number of unpaid volunteers have made significant contributions of time to the Organization. No amounts have been reflected in the financial statements for these contributions as they do not meet the required criteria. Income Tax Status The Organization qualifies as a tax-exempt organization for Federal income taxes under Section 501(c)(6) of the United States Internal Revenue Code and for California state income taxes under Section 23701(d) of the California Revenue and Taxation Code; therefore, the Organization has no provision for federal or state income taxes. During the years ended June 30, 2019 and 2018, the Organization had no unrelated business income. 12 12-17 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued The Organization annually evaluates tax positions as part of the preparation of its exempt tax return. This process includes an analysis of whether tax positions the Organization takes with regard to a particular item of income or deduction would meet the definition of an uncertain tax position under current accounting guidance. The Organization believes its tax positions are appropriate based on current facts and circumstances. The Organization's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. At June 30, 2019 and 2018, the Organization did not have any unrecognized tax benefits. The Organization is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years before 2015. Allocated Expenses The costs of providing program activities and supporting services have been summarized on a functional basis in Note 5. The Organization incurs expenses that directly relate to, and can be assigned to, a specific program or supporting activity. The Organization also conducts a number of activities which benefit both its program objectives as well as supporting services. These costs, which are not specifically attributable to a specific program or supporting activity, are allocated by management on a consistent basis among program and supporting services benefited, based on either financial or nonfinancial data, such as headcount, occupancy or estimates of time and effort incurred by personnel. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 provides additional guidance to clarify the principles for recognizing revenue. The standard and subsequent amendments are intended to develop a common revenue standard for removing inconsistencies and weaknesses, improve comparability, provide more useful information to users through improved disclosure requirements, and simplify the preparation of financial statements. ASU No. 2014-09 is effective for the Organization for annual reporting periods beginning after December 15, 2018. It may be adopted either by restating all years presented in the financial statements or by recording the impact of adoption as an adjustment to retained earnings at the beginning of the year of adoption. The Organization has not yet selected a transition method nor determined the impact the adoption of ASU No. 2014-09 and its amendments will have on its financial statements. 13 12-18 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right -of -use ("ROU") asset of all leases. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line total lease expense. ASU No. 2016-02 is effective for annual reporting periods beginning after December 15, 2019 and early adoption is permitted. This update will be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Organization's management is in the process of evaluating the impact of this accounting pronouncement on its financial statements. In August 2016, the FASB issued ASU No. 2016-14, Not -for -Profit Entities (Topic 958): Presentation of Financial Statements of Not -for -Profit Entities, which simplifies and improves how a not-for-profit organization classifies its net assets, as well as the information it presents in financial statements and notes about its liquidity, financial performance, and cash flows. The Organization implemented this standard during the year ended June 30, 2019. In June 2018, the FASB issued ASU No. 2018-08, Not -for -Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This standard provides a more robust framework for determining whether a transaction should be accounted for as a contribution or as an exchange as well as provides additional guidance to assist in determining whether a contribution is conditional and to better distinguish a donor -imposed condition from a donor -imposed restriction. The new standard will be effective for the Organization for its fiscal year ending June 30, 2020 and early application is permitted. Management is currently evaluating the impact of the adoption of this standard on its financial statements. Subsequent Events The Organization has evaluated subsequent events through September 30, 2019, the date which the financial statements were available to be issued. Based upon its evaluation, management has determined that no subsequent events have occurred that would require recognition in the accompanying financial statements or disclosure in the notes thereto. 14 12-19 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 3 — LIQUIDITY AND AVAILABILITY At June 30, 2019, the Organization has $2,919,950 of financial assets available within one year of the statement of financial position date to meet cash needs for general expenditures consisting of cash and cash equivalents of $1,588,034, short-term investments of $1,295,721, related party receivables of $30,195 and other receivables of $6,000 included in prepaid expenses and other current assets in the accompanying statement of financial position. None of the financial assets are subject to donor or other contractual restrictions that make them unavailable for general expenditures within one year of the statement of financial position. The Organization has a goal to maintain financial assets, which consist of cash, cash equivalents and short-term investments, on hand to meet 90 days of normal operating expense, which are, on average, approximately $800,000 per month. The Organization has a policy to structure its financial assets to be available as its general expenditures, liabilities, and other obligations come due. The Organization invests cash in excess of daily requirements in various short-term treasury instruments. Funding for the Organization is dependent on the hotel room nights booked in Newport Beach each year and the subsequent portion of the TOT that is allocated through the City to the Organization and the portion of the TBID assessments that are sent to the Organization from the TBID Participants. Annual revenue fluctuates depending on annual visitors to Newport Beach. As a result, the Organization closely monitors the monthly projected and received revenue to determine if any change needs to be made to budgeted annual expenditures. NOTE 4 — PROPERTY AND EQUIPMENT Property and equipment consists of the following at June 30: 2019 2018 Leasehold improvements $ 38,468 $ 38,468 Computer equipment 28,711 24,481 Office furniture and fixtures 136,812 110,110 203,991 173,059 Less accumulated depreciation and amortization (166,287) (140,298) $ 37,704 $ 32.761 For the years ended June 30, 2019 and 2018, the Organization recorded depreciation expense on property and equipment totaling $28,502 and $19,034, respectively. IS 12-20 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 5 - STATEMENT OF FUNCTIONAL EXPENSES The statement of functional expenses for the year ended June 30, 2019 is as follows: The Organization incurred expenses related to program activities of approximately $7,165,000 for the year ended June 30, 2018. NOTE 6 - COMMITMENTS AND CONTINGENCIES Lease Agreements The Organization is obligated under a lease for its facility, which is accounted for as an operating lease. The lease expires in September 2022, and rent is payable between $8,359 and $10,221 per month. As a result of the fourth amendment to this lease, the Organization assigned its rights to Newport Beach & Company ("NB & Co."), a related party. Under the terms of this lease, this assignment does not relieve the Organization of its lease obligations. As a result, the Organization continues to be liable for future rent payments. The facility lease contains a five-year extension option at the end of the lease term. 16 12-21 Program General and Activities Administrative Total Personnel expenses: Salaries $ 1,096,067 $ 142,945 $ 1,239,012 Payroll taxes and employee benefits 275,157 51,994 327,151 Total personnel expenses 1,371,224 194,939 1,566,163 Other expense: Marketing 6,600,552 984,711 7,585,263 Office lease 87,313 29,104 116,417 Repairs and maintenance 2,767 18,282 21,049 Insurance 1,163 18,647 19,810 Office supplies 8,786 11,943 20,729 Equipment and equipment rental 10,543 31,640 42,183 Postage and other dues and fees 64,217 49,110 113,327 Meeting and education expenses 2,500 36,162 38,662 Professional fees and services 9,700 42,642 52,342 Depreciation and amortization expense 56,024 28,503 84,527 Travel and related 27,419 4,281 31,700 Total functional expenses $ 8.242.208 $ 1.449.964 $ 9.692.172 The Organization incurred expenses related to program activities of approximately $7,165,000 for the year ended June 30, 2018. NOTE 6 - COMMITMENTS AND CONTINGENCIES Lease Agreements The Organization is obligated under a lease for its facility, which is accounted for as an operating lease. The lease expires in September 2022, and rent is payable between $8,359 and $10,221 per month. As a result of the fourth amendment to this lease, the Organization assigned its rights to Newport Beach & Company ("NB & Co."), a related party. Under the terms of this lease, this assignment does not relieve the Organization of its lease obligations. As a result, the Organization continues to be liable for future rent payments. The facility lease contains a five-year extension option at the end of the lease term. 16 12-21 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 6 — COMMITMENTS AND CONTINGENCIES, continued Total rent expense incurred by the Organization under operating leases was approximately $116,000 and $114,000 for the years ended June 30, 2019 and 2018, respectively, and is included in general and administrative expenses. Such amounts are net of the amounts paid by the related parry pursuant to the Agreement disclosed in Note 8. Future minimum payments due on the Organization's allocated portion of the non -cancelable facility lease commitment in excess of one year are as follows: Years Ending June 30, 2020 2021 2022 2023 Commitments 113,000 119,000 123,000 31,000 $ 386,000 The Organization also has several commitments for databases and services regarding marketing, promotion and other contracts ranging from approximately $287 to $5,000 per month over various terms with one year or less remaining at June 30, 2019 and 2018. From these commitments, the Organization incurred approximately $350,000 and $358,000 of expenses for the year ended June 30, 2019 and 2018, respectively, which are recorded in marketing expenses in the accompanying statement of activities. The Organization has a commitment to contribute $150,000 annually, commencing on June 1, 2014 through December 31, 2024, to the City to be spent on programs or activities that benefit the public, which is recorded in marketing expenses for the years ended June 30, 2019 and 2018. Guarantees and Indemnities The Organization has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified parry, in relation to certain actions or transactions. The Organization indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of California. Pursuant to the TOT Agreement, the Organization also indemnifies the City and all of its related boards, councils, officers, employees, and volunteers from claims related to the conduct of the Organization or any of its officers, employees, or associated individuals. In connection with its facility lease, the Organization has indemnified its lessor for 17 12-22 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 6 — COMMITMENTS AND CONTINGENCIES, continued certain claims arising from the use of the facilities. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Organization could be obligated to make. Historically, the Organization has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying statements of financial position. NOTE 7 — RETIREMENT PLAN The Organization has a 401(k) retirement plan covering all eligible employees. The plan provides for matching contributions based upon employees' voluntary contributions and the Organization's contributions. The total expense recorded by the Organization during the years ended June 30, 2019 and 2018 was approximately $75,000 and $68,000, respectively, and is included in general and administrative expenses. NOTE 8 — RELATED -PARTY TRANSACTIONS During the years ended June 30, 2019 and 2018, the Organization had transactions with a related party that is also a non-profit organization. The related entity, NB & Co., specializes in marketing and promotion services that promote economic development with the City. Pursuant to an Agreement for Services ("Agreement") dated April 1, 2013, the Organization appointed NB & Co. as an exclusive provider of services that the Organization shall need to carry out its mission and obligations to the City. In consideration for these services, the Organization agreed to pay NB & Co. a monthly fee totaling $93,000 and $78,000 for the years ended June 30, 2019 and 2018, respectively. The Organization has also agreed to reimburse NB & Co. for all reasonable expenses incurred by it in carrying out its duties to the Organization, including rent and related facility costs, payroll and related benefits, and other direct marketing costs. For the years ended June 30, 2019 and 2018, the Organization incurred $2,573,081 and $2,402,277, respectively, from NB & Co. for these costs, which are recorded in marketing expenses in the accompanying statements of activities. NB & Co.'s costs for the years ended June 30, 2019 and 2018 were broken out as follows: $432,630 and $580,672, respectively, of direct marketing, $1,514,059 and $1,346,544, respectively, of salaries and benefits, and $432,630 and $475,061, respectively, of general and administrative (including rent and related facility costs). The Agreement expires in March 2021 and with an option for a five-year renewal. 18 12-23 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) NOTES TO FINANCIAL STATEMENTS For The Years Ended June 30, 2019 and 2018 NOTE 8 — RELATED -PARTY TRANSACTIONS, continued In addition, during the years ended June 30, 2019 and 2018, the Organization agreed to contribute $0 and $5,000, respectively, to the Newport Beach Foundation, a related party that is also a non- profit organization, which is recorded in marketing expenses in the accompanying statements of activities. As of June 30, 2019 and 2018, the Organization has related -party receivables of $30,195 and $75,927, respectively, and payables of $137,541 and $204,349, respectively, in the accompanying statements of financial position. These amounts do not bear interest, are not collateralized, and have no stated repayment terms. 19 12-24 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) SCHEDULE I - STATEMENT OF FINANCIAL POSITION BY FUNDING SOURCE June 30, 2019 Current assets: Cash and cash equivalents Short-term investments Related -party receivables Prepaid expenses and other current assets Total current assets Property and equipment, net Website development costs, net Deposits and other assets Intercompany Current liabilities: TOT* TBID $ 751,252 $ 836,782 896,524 399,197 28,580 1,615 129,477 188,019 1,805,833 1,425,613 25,112 12,592 126,520 20,419 9,619 - 4,590 (4,590) $ 1.971.674 $ 1.454.034 Accounts payable $ 19,900 $ 82,174 Related -party payables 110,515 27,026 Accrued expenses 7,300 14,660 Accrued payroll and related expenses 4,458 220,511 Group booking incentive reserve - 98,206 Total current liabilities 142,173 442,577 Deferred rent, net of current portion - 18,350 Total liabilities 142,173 460,927 Net assets without donor restrictions 1.829.501 993.107 $ 1.971.674 $ 1.454.034 * Includes balances for other marketing and administrative costs. Eliminations Total $ - $ 1,588,034 - 1,295,721 - 30,195 - 317,496 - 3,231,446 - 37,704 - 146,939 - 9,619 $ $ 3.425.708 $ - $ 102,074 - 137,541 - 21,960 - 224,969 - 98,206 - 584,750 - 18,350 - 603,100 2,822,608 20 12-25 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) SCHEDULE II - STATEMENT OF ACTIVITIES BY FUNDING SOURCE For The Year Ended June 30, 2019 Support and revenues: Service fee revenues Interest income Other income Total support and revenues Expenses: Marketing General and administrative Salaries and benefits Depreciation and amortization Total expenses Change in net assets without donor restrictions Net assets, beginning of year Net assets, end of year TOT* TBID $ 5,381,424 $ 4,493,806 35,651 11,088 1,362 - 5,418,437 4,504,894 Eliminations Total $ - $ 9,875,230 - 46,739 - 1,362 - 9,923,331 5,174,439 2,410,824 - 7,585,263 114,866 341,353 - 456,219 67,745 1,498,418 - 1,566,163 54,394 30,133 - 84,527 5,411,444 4,280,728 - 9,692,172 6,993 224,166 - 231,159 1,822,508 768,941 - 2,591,449 $ 1.829.501 $ 993.107 $ - $ 2.822.608 * Includes balances for other marketing and administrative costs. 21 12-26 Attachment B Visit Newport Beach Management Letter 12-27 KMJ1Corbin & Company Business Advisors Tax and Audit September 30, 2019 Visit Newport Beach Inc. 1600 Newport Center Drive Newport Beach, California 92660 Dear Management: In planning and performing our audit of the financial statements of Visit Newport Beach Inc. (the "Organization") as of and for the year ended June 30, 2019, we considered the Organization's internal control over financial reporting as a basis for designing audit procedures for the purpose of expressing an opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. We did not identify any deficiencies in internal control that we consider to be material weaknesses or significant deficiencies. However, as discussed below, we identified certain matters involving the internal control and other operational matters that are presented for your consideration. This letter does not affect our report dated September 30, 2019 on the financial statements of the Organization. We will review the status of these comments during our next audit engagement. Our comments and recommendations, all of which have been discussed with appropriate members of management, are intended to improve the internal control or result in other operating efficiencies. Our comments are summarized as follows: Observation #1 Certain corrected and uncorrected misstatements were identified during the audit, specifically related to the following: o Correct rollforward of net assets balance o True up of allocations between expenses and assets for certain services o Proper allocation of related -party amounts p 714 380 6565 f 714 380 6566 535 Anton Blvd Suite 1050 Costa Mesa CA 92626 kmjpartnerscpa.com p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364 12-28 Visit Newport Beach, Inc. September 30, 2019 Page 2 Recommendation We recommend the Organization continues to implement its month-end close process related to the accounts above to ensure proper completeness of account balances and accounting treatment for its transactions. Management's response We will continue to implement our detailed month-end close process to prevent misclassifications and misstatements. Observation #2 Certain related party contributions, allocations and agreements, the updated employee leave time policy, modifications of contracts such as the hotel incentive contracts and other similar decisions and modifications to current policies and agreements are not formally approved through a written contract or a motion of the board of directors. We recommend the Organization implement a policy to approve all related -party transactions and allocations, modifications to existing contracts and similar business decisions through a written contract and/or formal board of directors motion and obtain documented approval related to these transactions. This will help ensure that related - party transactions and other modifications of arrangements and similar activities are authorized and recorded properly. Management's response All material related parry transactions are approved during the formal budget process and approval is documented in the Board minutes. Approval for specific day-to-day activities is not feasible. The Vice Presidents' of Sales and Marketing approve standard related party transactions. Any material changes affecting the budget will be presented to the Board for approval. Observation #3 The Organization does not have a formal policy in place to review and approve journal entries posted into the accounting system. Recommendation We recommend that the Organization implement a policy that would allow for the proper review and approval of journal entries to prevent material misstatements and/or errors in the financial statements. Such review should be documented and retained in the Organization's records. 12-29 Visit Newport Beach, Inc. September 30, 2019 Page 3 Management's response Procedures have been created and a monthly closing process has been implemented including standardized journal entries which will then be prepared and reviewed by both the Financial Coordinator and the VP of Finance. Observation #4 The Organization does not maintain the meeting minutes of the Compensation Committee. Recommendation We recommend that the Organization document and maintain records of all matters discussed during all board committee meetings to ensure proper documentation of all matters discussed. Management's response The Organization agrees that minutes should be maintained and will maintain minutes for all committee meetings. We will review the status of these comments during our next audit engagement. We will be pleased to discuss these in further detail at your convenience, to perform any additional studies of these matters, or to assist you in implementing the recommendations. This letter is intended solely for the information and use of management, and others within the Organization and is not intended to be and should not be used by anyone other than these specified parties. Sincerely, KMJ Corbin & Company LLP 12-30 Attachment C Visit Newport Beach Expenditure Compliance Report for the Year Ended June 30, 2019 12-31 VISIT NEWPORT BEACH INC. (a Non -Profit Organization) EXPENDITURES REPORT For The Year Ended June 30, 2019 with INDEPENDENT AUDITORS' REPORT THEREON 12-32 K j� ^ T I Corbin & 1v1J Company Business Advisors Tax and Audit Independent Auditors' Report Board of Directors of Visit Newport Beach Inc. We have examined management's assertion, included in the accompanying Management Statement Regarding Compliance With Certain Provisions of the Agreement Between the City of Newport Beach and Visit Newport Beach Inc. for Tourism Promotion, Branding, and Marketing Services, that Visit Newport Beach Inc. (the "Organization") complied with the provisions in Section 4 of the Agreement Between the City of Newport Beach and Visit Newport Beach Inc. for Tourism Promotion, Branding, and Marketing Services (the "Agreement") regarding the attached 2019 Expenditures Report, summarizing the expenditures of funds received pursuant to the Agreement during the period July 1, 2018 to June 30, 2019. The Organization's management is responsible for its assertion. Our responsibility is to express an opinion on management's assertion about the Organization's compliance with the specified requirements based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether management's assertion about compliance with the specified requirements is fairly stated, in all material respects. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risks of material misstatement of management's assertion, whether due to fraud or error. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion. Our examination does not provide a legal determination on the Organization's compliance with the specified requirements. In our opinion, management's assertion that Visit Newport Beach Inc. complied with the provisions of Section 4 of the Agreement regarding the attached 2019 Expenditures Report for the year ended June 30, 2019 is fairly stated, in all material respects. This report is intended solely for the information and use of Visit Newport Beach, Inc. and the City of Newport Beach and is not intended to be and should not be used by anyone other than these specified parties. IST t 10hn La KMJ Corbin & Company LLP Costa Mesa, California September 30, 2019 p 714 380 6565 f 714 380 6566 535 Anton Blvd Suite 1050 Costa Mesa CA 92626 kmjpartnerscpa.com p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364 12-33 viSIT e'W ort IE A C H i arc. Management Statement Regarding Compliance With Certain Provisions of the Agreement Between the City of Newport Beach and Visit Newport Beach Inc. for Tourism Promotion, Branding, and Marketing Services We, as members of management of Visit Newport Beach Inc. (the "Organization"), are responsible for complying with the provisions of Section 4 of the Agreement Between the City of Newport Beach and Visit Newport Beach Inc. (collectively, the "Parties") for Tourism Promotion, Branding, and Marketing Services (the "Agreement") in that funds received by the Organization pursuant to this Agreement were expended in accordance with this Agreement. We are responsible for establishing and maintaining effective internal controls over compliance with the provisions of Section 4 of the Agreement. We have performed an evaluation of the Organization's compliance with the provisions of Section 4 of the Agreement regarding funds expended during the year ended June 30, 2019, as summarized in the attached 2019 Expenditures Report. Based on this evaluation, we assert that the Organization was in compliance with the provisions of Section 4 of the Agreement as described below: Section. 4 of the Agreement requires the Organization to "develop, plan, carry out, and supervise a program to market and promote the Newport Beach brand and to promote tourism in, and serve the needs of, visitors to Newport Beach as well as increase the amount of TOT collected through their promotional activities ('Services'). Subject to the foregoing sentence, the Services shall, at a minimum, include the following: (a) the maintenance of suitable office space and the employment of competent personnel to carry out the promotional, branding and marketing duties; (b) the preparation of brochures, publications, guides, on-line promotions, social network efforts, and other marketing materials and information that inform prospective tourists and visitors of the recreational activities, cultural assets, shopping and dining opportunities, night-time stay opportunities, and natural beauty of Newport Beach; (c) the dissemination of information described in this section by way of the media, direct mail, handouts, social networking, websites, smart phone applications, or other means of distribution; and (d) the development and implementation of specific marketing programs designed to increase awareness of the Newport Beach brand and to increase business and visitor trade in Newport Beach; and (e) any additional Services when proposed by the City which are consistent with the promotion of tourism and the Newport Beach brand which are mutually agreeable and acceptable to the Parties_" Vi By Ly Iie on Vice esident of Finance 12-34 VISIT NEWPORT BEACH, INC. 2019 Expenditures Report July 1, 2015 - June 30, 2019 2019 Expenses Salary and Wages 61010 - Salaries and Wages 57,589 61030 - Payroll Tax Expenses 5,863 61040 - Accrued PTO Expense 1,197 Total Salary and Wages 64,649 Benefits 61125 - Vision Insurance (223) 61140 - Retirement Plan (401k) 2,819 61160 - Employee Engagement Benefit 500 Total Benefits 3,096 General and Administrative Expenses Operating Expenses 64100 - Office Supplies 5,635 64115 - Office Equipment (non-deprec) 1,045 64120 - Equipment Repairs & Maintenance 300 64125 - Computer Software (non-deprec) 7,772 64130 - Voice and Data - Office 1,143 64145 - Shipping Charges 224 64150 -Bank Fees 609 64160 - Membership Dues 70,260 64170 - Team Meetings - 64175 - Governance Meeting Expenses - 64610 - Client Gifts Total Operating Expenses 86,988 Insurance 63100 - General Liability Insurance 1,163 63300 - Board of Directors Insurance 7,242 Total Insurance 8,405 Professional Fees 64205 - Payroll Processing Service 2,496 64207 - Bloggers 6,100 64201- Audit Fees 6,501 64202 - Tax Preparation Fees 1,300 Total Professional Fees 16,397 Travel Expenses 65100 - Airfare 762 65200 - Accommodations 1,789 65300 - Meals 226 65400 - Transportation Costs 19 65405 - Mileage ($0.535/mile 2017) 165 65500 - Other Travel Costs 116 Total Travel Expenses 3,077 Total General and Administrative 114,867 Advertising Expenses 66101 -Advertising - Purchased 611,579 66102 - Advertising - Local Events 16,381 66104 - Advertising Tracking Media - 66123 - Promotional Client Gifts 54 66202 - Ad Production 29,387 66203 - Creative Design/Development 78,136 66205 - Photography/Video Production 12,741 66212 - Community Sponsorships 156,255 Total Advertising Expenses 904,533 Marketing Expenses Community Relations 67103 - Community Partner Events 23,027 67101- Research 93,875 67102 - Christmas Boat Parade 178,205 67105 - Awards 328 67107 - Promotional Items 7,569 67108 - Company -Sponsored Events 208 67109 - Hospitality Training Total Community Relations 303,212 Marketing Collateral 67301- Inspiration Guide 5,645 67302 - Maps - 67311- Collateral Production Expenses - 67312 - Collateral Distribution 34,273 Total Marketing Collateral 39,918 Digital Marketing 67501- Social Media 407 67502 - Website Maintenance 124,472 67503 - Online Search Advertising 119,604 67504 - Digital Advertising 15,276 67506 - Mobile Application 47,200 67508 - Website Redesign Expenses 10,716 67511- Digital Lifestyle Channel Production 47,909 66211- CRM Maintenance 28,820 Total Digital Marketing 394,404 Communications/Public Relations 67601- Media Services 12,012 67602 - Media FAM Tours 45,224 67605 - Media Special Programs 223,625 67607 - Media Relations 22,494 67608 - Digital Assets/Media Library 12,792 Total Communications/Public Relations 316,147 Total Marketing Expenses 1,053,681 International Marketing Initiatives 67401- International Brand Awareness Fees 98,002 67402 - International TTI FAM Tours 32,115 67403 - International Promotions 220,631 67404 - International Trade Shows 319,171 67405 - International Airfare 10,699 12-35 NOTES: A 67406 - International Accommodations 4,831 67407 - International Meals 696 67408 - International Transportation Costs 1,315 67409 - International Other Travel Costs 747 67410 - International Business Meals/Entertainment 572 67411- International Promotional Items 1,567 67412 - International Brand Events - 67413 - International Sales Missions 15,796 Total International Marketing Initiatives 706,142 NB&Company Fees 68001- NB&Co Fees 2,480,081 Total NB&Company Fees 2,480,081 Total Expenses 5,327,049 Other Expenditures: Fixed asset additions capitalized 29,953 Website development costs capitalized 74,101 Change in other prepaid expenses and current liabilities, net 93,524 197,578 Total 2018 Expenditures $ 5,524,627 Included in this account are expenditures for or contributions to special events and not-for-profit organizations in Newport Beach as follows: Vendor Event Amount Newport Beach Marriot Hotel Fire and Lifeguard Dinner Sponsorship $ 5,000 Surfrider Foundation Newport Harbor Underwater Cleanup $ 1,000 City of Newport Beach Public Benefit 150,000 $ 156,000 Consist of reimbursements for costs incurred by Newport Beach & Company as follows: Class of Expense Amount Salaries/Benefits $ 1,514,059 Marketing Expenses 432,630 G&A Overhead 533,392 $ 2,480,081 12-36