HomeMy WebLinkAbout12 - Annual Review of Visit Newport Beach Audited Financial Statements and Expenditure ReportQ SEW Pp�T
CITY OF
z NEWPORT BEACH
c�<,FORN'P City Council Staff Report
October 25, 2022
Agenda Item No. 12
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Michael Gomez, Acting Finance Director/Treasurer - 949-644-3124,
mgomez@newportbeachca.gov
PREPARED BY: Michael Gomez, Acting Finance Director/Treasurer,
mgomez@newportbeachca.gov
PHONE: 949-644-3124
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 of Newport Beach's agreement with
Visit Newport Beach (VNB), originally entered into on September 27, 2011, and amended
on August 5, 2015, VNB's audited financial statements, management letters, and
compliance expenditure report for the year ending June 30, 2022, are attached for the
City Council's review. Due to the significant fees paid to Newport Beach & Company by
VNB for services, Newport Beach & Company's audited financial statements and
management letters are also included 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.
DISCUSSION:
The following reports are subject to review by the City Council:
Audited Financial Statements and Management Letters
VNB shall submit to the City of Newport Beach (City) audited financial statements for its
most recently ended year, including any management letter associated with the audited
financial statements. The City Council shall review the audited financial statements and
management letters.
12-1
Annual Review of Visit Newport Beach Audited Financial Statements
and Expenditure Report
October 25, 2022
Page 2
Expenditure Report
VNB shall submit an expenditure report, which shall be certified by VNB and a Certified
Public Accountant to the effect that the funds received pursuant to the agreement were
expended in accordance with the agreement in the previous fiscal year for purposes
authorized by the agreement. This report shall include reasonable detail in support of the
certification, including expenditures for or contributions to special events and not -for -profit
organizations in Newport Beach. VNB reports that $1,698,743 was paid to Newport
Beach & Company to reimburse for costs incurred by Newport Beach & Company, which
is approximately 34% of VNB's total reported expenditures. Therefore, Newport Beach
& Company's financial statements are also included for City Council review.
The audited financial statements and expenditure report were reviewed by the audit firm
of KMJ Corbin & Company. Its review indicated that the financial statements of both
Newport Beach & Company and Visit Newport Beach presented fairly, in all material
respects, the financial position of each entity. In other words, the audit of both entities
was clean with no audit findings. The firm's review of the required expenditure report
indicated that it concurred with the assertion by VNB's management that VNB has
complied with the applicable provisions of the agreement with the City relative to
expenditures.
FISCAL IMPACT:
Under its agreement with the City, VNB receives 18% of all Transient Occupancy Tax
revenue collected by the City to fund destination marketing services and activities.
Additionally, VNB receives revenue from the Newport Beach Tourism Business
Improvement District (TBID), which is funded by a levy of 3% of most revenues from short-
term stays at participating lodging businesses within the City. The TBID funds are
dedicated to meeting and event sales promotion and marketing programs. Total revenues
from these sources, as outlined in the attached financial statements, amounted to
approximately $9.4 million in 2022, up from $4.8 million in 2021 due to the recovery from
the COVID-19 pandemic.
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).
12-2
Annual Review of Visit Newport Beach Audited Financial Statements
and Expenditure Report
October 25, 2022
Page 3
ATTACHMENTS:
Attachment A —Visit Newport Beach Audited Financial Statements for the Year Ended
June 30, 2022, and Accompanying Management Letter dated September
19, 2022 (Exhibit 1)
Attachment B — Newport Beach and Company Audited Financial Statements for the Year
Ended June 30, 2022, and Accompanying Management Letter dated
September 19, 2022 (Exhibit 2)
Attachment C — Visit Newport Beach Expenditure Compliance Report for the Year Ended
June 30, 2022
12-3
Attachment A
Visit Newport Beach Audited Financial Statements for the Year Ended June 30, 2022,
and Accompanying Management Letter dated September 19, 2022 (Exhibit 1)
12-4
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
For The Years Ended June 30, 2022 and 2021
with
INDEPENDENT AUDITORS' REPORT THEREON
12-5
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
Statementsof Cash Flows.................................................................................................. 5
Notes to Financial Statements.......................................................................................6-19
Supplemental Information:
Schedule I — Statement of Financial Position by Funding Source ................................... 20
Schedule 11— Statement of Activities by Funding Source ............................................... 21
12-6
KJ� �j J I Corbin &
lvl Company
Business Advisors Tax and Audit
Independent Auditors' Report
Board of Directors
Visit Newport Beach Inc.
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,
2022 and 2021, and the related statements of activities and cash flows for the years then ended, and
the related notes to the financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects, the
financial position of the Organization as of June 30, 2022 and 2021, 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.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States
of America ("GAAS"). Our responsibilities under those standards are further described in the Auditors'
Responsibilities for the Audit of the Financial Statements section of our report. We are required to be
independent of the Organization and to meet our other ethical responsibilities, in accordance with the
relevant ethical requirements relating to our audits. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
Related -Party Transactions
As discussed in Note 9 to the financial statements, the Organization has significant transactions with a
related non-profit organization. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with accounting principles generally accepted in the United States of America, and for 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.
In preparing the financial statements, management is required to evaluate whether there are conditions
or events, considered in the aggregate, that raise substantial doubt about the Organization's ability to
continue as a going concern for one year after the date that the financial statements are issued.
p 949 431 0997 f 714 544 1034 2855 Michelle Dr Suite 350 Irvine CA 92606 kmipartnerscpa.com
p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364
12-7
Auditors' Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that
includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance
and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect
a material misstatement when it exists. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control. Misstatements are considered
material if there is a substantial likelihood that, individually or in the aggregate, they would influence
the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GARS, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, and design and perform audit procedures responsive to those risks. Such
procedures include examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements.
• Obtain an understanding of internal control relevant to the audit 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, no such
opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the
financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate,
that raise substantial doubt about the Organization's ability to continue as a going concern for
a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit, significant audit findings, and certain internal control —related
matters that we identified during the audit.
Supplemental Information
Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a
whole. The supplemental 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 2022 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 2022 financial statements. The information
has been subjected to the auditing procedures applied in the audit of the 2022 financial statements and
certain additional procedures, including comparing and reconciling such information directly to the
underlying accounting and other records used to prepare the 2022 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 2022 financial statements as a whole.
kM� Cj,, t ljj�" LLP
KMJ Corbin & Company LLP
Irvine, California
September 19, 2022
12-8
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
STATEMENTS OF FINANCIAL POSITION
June 30,
2022 2021
ASSETS
Current assets:
Cash and cash equivalents $ 4,792,516 $ 5,918,574
Short-term investments 2,952,978 -
Prepaid expenses and other current assets 425,427 182,475
Total current assets 8,170,921 6,101,049
Property and equipment, net 29,520 19,541
Deposits and other assets 9,619 9,619
$ 8,210,060 $ 6,130.209
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable $ 363,348 $ 100,796
Related party payables, net 2,441 17,611
Accrued expenses 26,451 41,041
Accrued payroll and related expenses 72,529 74,727
Group booking incentive reserve 55,620 6,500
Loan payable, current portion - 3,256
Total current liabilities 520,389 243,931
Deferred rent, net of current portion - 3,071
Loan payable, net of current portion - 146,024
Total liabilities 520,389 393,026
Commitments and contingencies
Net assets without donor restrictions 7,689,671 5,737,183
$ 8,210,060 $ 6,130.209
See accompanying notes to financial statements
3
12-9
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
STATEMENTS OF ACTIVITIES
For The Years Ended June 30,
2022 2021
Support and revenues:
Service fee revenues $ 9,445,421 $ 4,757,188
Interest income 2,272 3,677
Other income - 22,800
Total support and revenues 9,447,693 4,783,665
Expenses:
Marketing (including $1,806,743 and $1,248,512
to Newport Beach & Company during 2022
and 2021, respectively — see Note 9) 5,997,635 2,310,049
Salaries and benefits 1,121,805 799,805
Other 363,044 290,796
Depreciation and amortization 12,721 108,854
Total expenses 7,495,205 3,509,504
Change in net assets without donor restrictions 1,952,488 1,274,161
Net assets without donor restrictions, beginning of year 5,737,183 4,463,022
Net assets without donor restrictions, end of year $ 7,689,671 S 5.737.183
See accompanying notes to financial statements
4
12-10
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
STATEMENTS OF CASH FLOWS
For The Years Ended June 30,
2022
2021
Cash flows from operating activities:
Change in net assets without donor restrictions
$ 1,952,488
$ 1,274,161
Adjustments to reconcile change in net assets without
donor restrictions to net cash provided by operating
activities:
Depreciation and amortization
12,721
108,854
Loss on disposals of property and equipment
1,627
-
Accrued interest income
(1,498)
887
Changes in operating assets and liabilities:
Accounts receivable
-
145,623
Related -party receivables/payables, net
(15,170)
50,350
Prepaid expenses and other current assets
(242,952)
15,210
Accounts payable
262,552
9,445
Accrued expenses
(14,590)
7,701
Accrued payroll and related expenses
(2,198)
47,217
Group booking incentive reserve
49,120
(24,800)
Deferred rent
(3,071)
(19,052)
Net cash provided by operating activities
1,999,029
1,615,596
Cash flows from investing activities:
Purchases of property and equipment
(24,327)
-
Purchases of investments
(6,569,480)
(6,466,614)
Proceeds from sales/maturities of investments
3,618,000
9,072,000
Net cash (used in) provided by investing activities
(2,975,807)
2,605,386
Cash flows used in financing activities:
Payments on loan payable
(149,280)
(720)
Net change in cash and cash equivalents
(1,126,058)
4,220,262
Cash and cash equivalents at beginning of year
5,918,574
1,698,312
Cash and cash equivalents at end of year
$ 4,792,516
$ 5918.574
Supplemental disclosure of cash flow information:
Cash paid during the year for interest
$ 3,816
$ 4,046
See accompanying notes to financial statements
S
12-11
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
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 Tax("TOT")
The Organization 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, 2022 and 2021, the Organization
received approximately 60% and 65%, respectively, 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 TOT
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 on 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
6 12-12
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 1— ORGANIZATION, continued
the Plan. Either parry may terminate this agreement by providing the other parry 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
when received. For the years ended June 30, 2022 and 2021, the Organization received
approximately 40% and 35%, respectively, of its service fee revenues from the City through TBID
assessments.
As of June 30, 2022 and 2021, the NBTBID is represented by nine (9) hotels 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, 2022 and 2021, the Organization had no net assets with
donor restrictions.
7 12-13
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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.
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, 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, 2022,
the Organization had approximately $4,557,000 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.
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.
8 12-14
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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 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.
As of June 30, 2022, the Organization's investments measured at fair value on a recurring basis
were as follows:
Short-term investments:
U.S. Treasury Bills
June 30. 2022
Quoted Prices in
Significant
Active Markets
Significant Other Unobservable
for Identical
Observable Inputs
Assets (Level 1)
Inputs (Level 2) (Level 3)
9 12-15
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Property and Equipment
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.
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 website development costs 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, 2022 and 2021, the Organization capitalized website development
costs of $0 and $0, respectively.
For the years ended June 30, 2022 and 2021, the Organization recorded amortization expense on
website development costs totaling $0 and $96,628, 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, 2022 and 2021, 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.
10
12-16
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
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, 2022 and 2021, group booking accruals were $55,620 and $6,500,
respectively.
Contributed Materials and Services
Donated materials and other noncash contributions (if any) are reflected in the accompanying
financial 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, 2022 and
2021, 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, 2022 and 2021,
the Organization had no unrelated business income.
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
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, 2022 and 2021, 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 2018.
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 February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Update ("ASU") 2016-02, Leases (Topic 842), which requires the lease rights and
obligations arising from lease contracts, including existing and new arrangements, to be
recognized as assets and liabilities on the statement of financial position. ASU 2016-02, as
amended, is effective for reporting periods beginning after December 15, 2021. While still
evaluating this update, the Organization expects the adoption of this update to have a material
effect on its financial condition due to the recognition of the lease rights and obligations as assets
and liabilities. The Organization does not expect this update to have a material effect on its results
of operations and cash flows.
12
12-18
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
In September 2020, the FASB issued ASU 2020-07, Presentation and Disclosures by Not -for -
Profit Entities for Contributed Nonfinancial Assets (Topic 958), which requires the Organization
to change its financial statement presentation and disclosure of contributed nonfinancial assets, or
gifts -in -kind. ASU 2020-07 defines gifts -in -kind as contributed nonfinancial assets donations
made for goods or services the Organization would purchase in the normal course of business.
Gifts -in -kind of tangible property include items like operating facilities, utilities, office furniture,
and supplies provided to the Organization; items donated to the Organization to be auctioned
through charitable events; and items used in program activities, such as medical supplies, building
supplies, appliances, and fixtures. Intangible gifts -in -kind include items like copyrights, patents,
and royalties; specialized volunteer services, such as those from nurses for medical organizations
or project managers and builders for construction projects; and expertise, such as accounting, legal,
and consulting services. The Organization adopted ASU 2020-07 during the current year with no
significant impact on its financial statements.
Subsequent Events
The Organization has evaluated subsequent events through September 19, 2022, 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 except as disclosed herein.
NOTE 3 — LIQUIDITY AND AVAILABILITY
At June 30, 2022, the Organization has $7,745,494 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 $4,792,516 and short-term investments of $2,952,978. 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 180 days of operating expenses, which are, on average,
approximately $395,000 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.
13
12-19
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 3 — LIQUIDITY AND AVAILABILITY, continued
Funding for the Organization is dependent on the hotel room nights booked in certain Newport
Beach hotels 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:
2022 2021
Leasehold improvements $ - $ 38,468
Computer equipment 21,213 40,516
Office furniture and fixtures 121,159 136,812
142,372 215,796
Less accumulated depreciation and amortization (112,852) tl96,255)
$ 29,520 $ 19.541
For the years ended June 30, 2022 and 2021, the Organization recorded depreciation expense on
property and equipment totaling $12,721 and $12,226, respectively.
14
12-20
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 5 - STATEMENT OF FUNCTIONAL EXPENSES
The statements of functional expenses for the years ended June 30, 2022 and 2021 are as follows:
Salaries and benefits:
Salaries
Payroll taxes and employee benefits
Total salaries and benefits
Other expense:
Marketing
Office lease
Repairs and maintenance
Insurance
Office supplies
Equipment and equipment rental
Postage and other dues and fees
Meeting and education
Professional fees and services
Bad debt
Interest
Depreciation and amortization
Loss on property and equipment disposals
Travel and related
Total functional expenses
2022
Program General and 2021
$ 650,628 $
177,045
$ 827,673
$ 585,598
241,436
52,696
294,132
214,207
892,064
229,741
1,121,805
799,805
5,510,576
487,059
5,997,635
2,310,049
89,512
29,837
119,349
118,143
7,225
28,076
35,301
18,683
-
6,414
6,414
7,651
-
6,245
6,245
3,518
14,355
27,152
41,507
30,829
61,165
4,229
65,394
63,243
5,000
30,691
35,691
16,347
-
30,596
30,596
26,304
-
-
-
557
-
3,816
3,816
4,046
-
12,721
12,721
108,854
-
1,627
1,627
-
17,104
17,104
1,475
$ 6, 997,001 $
998,204
$ 7.495.205
$ 3, 009,504
The Organization incurred expenses related to program activities totaling approximately
$2,854,000 for the year ended June 30, 2021.
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 6 — LOAN AGREEMENT
On June 3, 2020, the Organization entered into an Economic Injury Disaster Loan (the "Loan")
administered by the U.S. Small Business Administration. The loan had an original principal
balance of $150,000, bore interest at 2.75% per annum and was set to mature on June 3, 2050. The
loan required monthly payments beginning in June 2021. Payments were first applied to interest
accrued and then principal. The amount borrowed under the Loan was guaranteed by substantially
all of the Organization's assets. The Organization used all the proceeds of this Loan solely as
working capital to alleviate economic injury caused by COVID-19. The Loan contained customary
events of default, and the occurrence of an event of default may result in a claim for the immediate
repayment of all amounts outstanding under the Loan. The Organization paid the loan in full during
the year ended June 30, 2022.
NOTE 7 — 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 the Organization's allocated portion of rent, as
amended, is payable between $8,359 and $10,423 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. In May 2022,
the Organization entered into a lease amendment for a smaller lease space. Under the amended
lease, allocated rent is payable at approximately $17,000 per month and expires in September
2029.
Allocated rent expense incurred by the Organization under this operating lease was approximately
$119,000 and $118,000 for the years ended June 30, 2022 and 2021, respectively, and is included
in other expenses. Such amounts are net of the amounts paid by the related party pursuant to the
Agreement disclosed in Note 9.
16
12-22
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 7 — COMMITMENTS AND CONTINGENCIES, continued
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,
2023
$ 148,000
2024
205,000
2025
213,000
2026
220,000
2027
228,000
thereafter
540,000
$ 1,554.000
Commitments
The Organization also has several commitments for databases and services regarding marketing,
promotion and other contracts ranging from approximately $820 to $9,000 per month over various
terms with 24 months or less remaining at June 30, 2022. From these commitments, the
Organization incurred approximately $502,000 and $253,000 of expenses for the years ended June
30, 2022 and 2021, respectively, which are recorded in marketing expenses in the accompanying
statements 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, 2022 and 2021. Due
to the rights of termination per the agreement, these commitments are considered due each June
and December.
17
12-23
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 7 — COMMITMENTS AND CONTINGENCIES, continued
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 party, 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
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 8 — RETIREMENT PLAN
The Organization has a 401(k) retirement plan (the "Plan") covering all eligible employees. The
Plan provides for voluntary employer contributions. The total Plan expense during the years ended
June 30, 2022 and 2021 was approximately $73,000 and $28,000, respectively, and is included in
salaries and benefit expenses in the accompanying statements of activities.
NOTE 9 — RELATED -PARTY TRANSACTIONS
During the years ended June 30, 2022 and 2021, 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. annual fees totaling $108,000 for the years ended June 30, 2022 and 2021. 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, 2022 and 2021, the Organization
incurred $1,698,743 and $1,140,512, 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, 2022 and 2021 were broken out as follows: $104,653 and $33,305,
respectively, of direct marketing, $1,085,958 and $770,095, respectively, of salaries and benefits,
and $508,132 and $337,112, respectively, of other (including rent and related facility costs). The
Agreement, as amended, expires on June 30, 2024.
18
12-24
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 9 — RELATED -PARTY TRANSACTIONS, continued
As of June 30, 2022 and 2021, the Organization has net related -party payables of $2,441 and
$17,611, respectively, in the accompanying statements of financial position. These amounts do
not bear interest, are not collateralized, and have no stated repayment terms.
19
12-25
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
SCHEDULE I - STATEMENT OF FINANCIAL POSITION BY FUNDING SOURCE
June 30, 2022
Current assets:
Cash and cash equivalents
Short-term investments
Prepaid expenses and other
current assets
Total current assets
Property and equipment, net
Deposits and other assets
Current liabilities:
TOT* TBID
$ 2,545,363 $ 2,247,153
1,801,633 1,151,345
317,770 107,657
4,664,766 3,506,155
5,527 23,993
9,619 -
$ 4.679.912 $ 3.530.148
Accounts payable $ 229,390 $ 133,958
Related -party payables, net 1,487 954
Accrued expenses 6,000 20,451
Accrued payroll and related
expenses - 72,529
Group booking incentive reserve - 55,620
Total current liabilities 236,877 283,512
Net assets without donor restrictions 4.443.035 3.246.636
$ 4.679.912 $ 3.530.148
* Includes balances for other marketing and administrative costs.
Eliminations Total
$ - $ 4,792,516
- 2,952,978
425,427
- 8,170,921
- 29,520
- 9,619
$ $ 8.210.060
$ - $ 363,348
- 2,441
- 26,451
- 72,529
- 55,620
- 520,389
- 7,689,671
20
12-26
VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)
SCHEDULE II - STATEMENT OF ACTIVITIES BY FUNDING SOURCE
For The Year Ended June 30, 2022
Support and revenues:
Service fee revenues
Interest income
Total support and revenues
Expenses:
Marketing
Salaries and benefits
Other
Depreciation and amortization
Total expenses
Change in net assets without donor
restrictions
Net assets, beginning of year
Net assets, end of year
TOT* TBID
$ 5,676,588 $ 3,768,833
1,427 845
5,678,015 3,769,678
4,712,080 1,285,555
- 1,121,805
55,154 307,890
5.511 7.210
4,772,745 2,722,460
905,270 1,047,218
3,537,765 2,199,418
$ 4.443.035 $ 3.246.636
* Includes balances for other marketing and administrative costs.
Eliminations Total
$ - $ 9,445,421
- 2,272
9,447,693
5,997,635
1,121,805
363,044
12.721
7,495,205
1,952,488
5,737,183
21
12-27
Exhibit 1
Visit Newport Beach Audited Financial Statements for the Year Ended June 30, 2022,
Accompanying Management Letter dated September 19, 2022
12-28
KJ� �j J I Corbin &
lvl Company
Business Advisors Tax and Audit
September 19, 2022
To the Board of Directors of
Visit Newport Beach Inc.
1600 Newport Center Drive
Newport Beach, California 92660
We have audited the financial statements of Visit Newport Beach Inc. (the "Organization") as of and
for the year ended June 30, 2022, and have issued our report thereon dated September 19, 2022.
Professional standards require that we advise you of the following matters relating to our audit.
Our Responsibility in Relation to the Financial Statement Audit
As communicated in our engagement letter dated May 26, 2022, our responsibility, as described by
professional standards, is to form and express an opinion about whether the financial statements that
have been prepared by management with your oversight are presented fairly, in all material respects,
in accordance with accounting principles generally accepted in the United States of America. Our audit
of the financial statements does not relieve you or management of its respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain
reasonable, rather than absolute, assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes consideration of internal control over financial
reporting as a basis for designing 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
over financial reporting. Accordingly, as part of our audits, we considered the internal control of the
Organization solely for the purpose of determining our audit procedures and not to provide any
assurance concerning such internal control.
In conjunction with the annual audit, we also performed an examination of management's assertion
included in the Management Statement Regarding Compliance with Certain Provisions of the
Agreement Between the City of Newport Beach and the Organization for Tourism Promotion,
Branding, and Marketing Services (the "Agreement"), that the Organization complied with the
provisions in Section 4 of the Agreement regarding the 2022 Expenditures Report, summarizing the
expenditures of funds received pursuant to the Agreement during the year ended June 30, 2022.
We are also responsible for communicating significant matters related to the audit that are, in our
professional judgment, relevant to your responsibilities in overseeing the financial reporting process.
However, we are not required to design procedures for the purpose of identifying other matters to
communicate to you.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously communicated to
you.
p 949 431 0997 f 714 544 1034 2855 Michelle Dr Suite 350 Irvine CA 92606 kmjpartnerscpa.com
p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364
12-29
September 19, 2022
Page 2
Compliance with All Ethics Requirements Regarding Independence
The engagement team, others in our firm, as appropriate, and our firm have complied with all relevant
ethical requirements regarding independence.
As part of the audit, we assisted you in preparing a draft of your financial statements and related notes,
a nonattest service. With respect to any nonattest service we performed, the Organization's
management has been responsible for (a) making all management decisions and performing all
management functions; (b) assigning a competent individual to oversee the services; (c) evaluating the
adequacy of the services performed; (d) evaluating and accepting responsibility for the results of the
services performed; and (e) establishing and maintaining internal controls, including monitoring
ongoing activities.
Audit Focus Areas Identified
We have identified the following audit focus areas:
• Management override of internal controls was considered a focus area as this is a pervasive
risk that could affect many audit areas and could affect amounts reported in the financial
statements.
• Improper revenue recognition was considered a focus area due to the inherent risk in revenue
recognition.
• Related -party transactions was considered a focus area due to the volume of related -party
transactions, in addition to the disclosure requirements related to such transactions.
• Support for expenses was considered a focus area due to the volume of expenses and the need
to verify existence and completeness of expenses, along with accuracy and proper
classification.
Qualitative Aspects of the Entity's Significant Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of
the significant accounting policies adopted by the Organization is included in Note 2 to the financial
statements. Other than the adoption of ASU 2020-07, Presentation and Disclosures by Not -for -Profit
Entities for Contributed Nonfinancial Assets (Topic 958), there have been no initial selection of
accounting policies and no changes in significant accounting policies or their application during the
year ended June 30, 2022. No matters have come to our attention that would require us, under
professional standards, to inform you about (1) the methods used to account for significant unusual
transactions and (2) the effect of significant accounting policies in controversial or emerging areas for
which there is a lack of authoritative guidance or consensus.
12-30
September 19, 2022
Page 3
Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management's current judgments. Those judgments are normally based on knowledge and
experience about past and current events and assumptions about future events. Certain accounting
estimates are particularly sensitive because of their significance to the financial statements and because
of the possibility that future events affecting them may differ markedly from management's current
judgments. Significant estimates made by the Organization's management include, but are not limited
to, fair value of investments and the allocation of expenses to program activities and general and
administrative.
• Management's estimate of the fair value of investments is based on 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.
• Management's estimate of allocation of expenses to program activities and general and
administrative is based on assessing the purpose and nature of the expenditures incurred during
the year.
We evaluated the key factors and assumptions used to develop the estimates and determined that they
are reasonable in relation to the financial statements taken as a whole.
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive
because of their significance to financial statement users. The most sensitive disclosures affecting the
Organization's financial statements relate to related -party transactions.
Significant Unusual Transactions
For purposes of this communication, professional standards require us to communicate to you
significant unusual transactions identified during our audit. There were no significant unusual
transactions identified as a result of our audit procedures that were brought to the attention of
management.
Identified or Suspected Fraud
We have not identified or obtained information that indicates that fraud may have occurred.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of
the audit.
12-31
September 19, 2022
Page 4
Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known and
likely misstatements identified during the audit, other than those that we believe are trivial, and
communicate them to the appropriate level of management. Further, professional standards require us
to also communicate the effect of uncorrected misstatements related to prior periods on the relevant
classes of transactions, account balances or disclosures, and the financial statements as a whole. There
were no uncorrected misstatements during the year ended June 30, 2022.
In addition, professional standards require us to communicate to you all corrected misstatements that
were brought to the attention of management as a result of our audit procedures. There were no
corrected misstatements that we identified as a result of our audit procedures that were brought to the
attention of, and corrected by, management.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter,
whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing
matter, which could be significant to the Organization's financial statements or the auditors' report.
No such disagreements arose during the course of the audit.
Circumstances that Affect the Form and Content of the Auditor's Report
For purposes of this letter, professional standards require that we communicate any circumstances that
affect the form and content of our auditors' report. We have not identified or obtained information that
affect the form and content of the Auditors' Report.
Representations Requested from Management
We have requested certain written representations from management, which are included in a separate
letter dated September 19, 2022.
Management's Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters. Management informed us that, and to our knowledge, there were no consultations
with other accountants regarding auditing and accounting matters.
Other Significant Findings or Issues
In the normal course of our professional association with the Organization, we generally discuss a
variety of matters, including the application of accounting principles and auditing standards, operating
and regulatory conditions affecting the Organization, and operational plans and strategies that may
affect the risks of material misstatement. None of the matters discussed resulted in a condition to our
retention as the Organization's auditors.
12-32
September 19, 2022
Page 5
Supplemental Information
The supplementary information contained in Schedules I and II of the financial statements is presented
for purposes of additional analysis and is not a required part of the 2022 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 2022 financial statements. The information
has been subjected to the auditing procedures applied in the audit of the 2022 financial statements and
certain additional procedures, including comparing and reconciling such information directly to the
underlying accounting and other records used to prepare the 2022 financial statements or the financial
statements themselves, and other additional procedures in accordance with auditing standards generally
accepted in the United States of America.
This report is intended solely for the information and use of the Board of Directors and management
of the Organization, and is not intended to be and should not be used by anyone other than these
specified parties.
Very truly yours,
ICMJ- Ck6-'4, t *n LLP
KMJ Corbin & Company LLP
12-33
Attachment B
Newport Beach and Company Audited Financial Statements for the Year Ended
June 30, 2022, and Accompanying Management Letter dated September 19, 2022
(Exhibit 2)
12-34
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
with
INDEPENDENT AUDITORS' REPORT THEREON
12-35
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
TABLE OF CONTENTS
Independent Auditors' Report.................................................................................................1-2
Financial Statements:
Statements of Financial Position........................................................................................ 3
Statementsof Activities..................................................................................................... 4
Statementsof Cash Flows.................................................................................................. 5
Notes to Financial Statements.......................................................................................6-15
12-36
KJ� �j J I Corbin &
lvl Company
Business Advisors Tax and Audit
Independent Auditors' Report
Board of Directors
Newport Beach & Company
We have audited the accompanying financial statements of Newport Beach & Company (a non-
profit organization) (the "Organization"), which comprise the statements of financial position as
of June 30, 2022 and 2021, and the related statements of activities and cash flows for the years
then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements present fairly, in all material respects, the
financial position of the Organization as of June 30, 2022 and 2021, 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.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America ("GAAS"). Our responsibilities under those standards are further described in
the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We
are required to be independent of the Organization and to meet our other ethical responsibilities,
in accordance with the relevant ethical requirements relating to our audits. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Related -Party Transactions
As discussed in Note 9 to the financial statements, the Organization has significant transactions
with a related non-profit organization. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with accounting principles generally accepted in the United States of America, and for
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.
In preparing the financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the
Organization's ability to continue as a going concern for one year after the date that the financial
statements are issued.
p 949 431 0997 f 714 544 1034 2855 Michelle Dr Suite 350 Irvine CA 92606 kmipartnerscpa.com
p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364
12-37
Auditors' Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that
includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance
and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect
a material misstatement when it exists. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control. Misstatements are considered
material if there is a substantial likelihood that, individually or in the aggregate, they would influence
the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GARS, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, and design and perform audit procedures responsive to those risks. Such
procedures include examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements.
• Obtain an understanding of internal control relevant to the audit 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, no such
opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the
financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate,
that raise substantial doubt about the Organization's ability to continue as a going concern for
a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit, significant audit findings, and certain internal control —related
matters that we identified during the audit.
I-MJ- C.kkr-V,4, t Com" LL-P
KMJ Corbin & Company LLP
Irvine, California
September 19, 2022
12-38
ASSETS
Current assets:
Cash
Accounts receivable
Related -party receivables, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable
Accrued expenses
Accrued payroll and related expenses
Current portion of deferred compensation
Loan payable, current portion
Total current liabilities
Deferred rent, net of current portion
Deferred compensation, net of current portion
Loan payable, net of current portion
Total liabilities
Commitments and contingencies
Net assets without donor restrictions
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
STATEMENTS OF FINANCIAL POSITION
June 30,
2022
2021
$ 140,707
$ 219,454
16,381
12,891
2,441
17,611
107,575
76,649
267,104
326,605
9,185
38,142
75,000
-
$ 351,289
$ 364.747
$ 12,472 $ 6,049
58,664 131,671
139,009 123,767
25,000 -
- 1.009
235,145 262,496
- 14,229
75,000 -
- 108,441
310,145 385,166
41,144 (20,419)
$ 351,289 $ 364.747
See accompanying notes to financial statements
3
12-39
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
STATEMENTS OF ACTIVITIES
For The Years Ended June 30,
2022 2021
Support and revenues:
Service fees from related party $ 1,806,743 $ 1,248,512
Community marketing income 153,765 227,621
Paycheck protection program grant 109,450 227,527
Total support and revenues 2,069,958 1,703,660
Expenses:
Marketing 168,354 111,740
Salaries and benefits 1,172,769 982,803
Other 647,001 532,809
Depreciation 20,271 26,701
Total expenses 2,008,395 1,654,053
Increase in net assets without donor restrictions 61,563 49,607
Net assets without donor restrictions, beginning of year (20,419) (70,026)
Net assets without donor restrictions, end of year $ 41,144 $ (20.4199
See accompanying notes to financial statements
4
12-40
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
Cash flows from operating activities:
Change in net assets without donor restrictions
Adjustments to reconcile change in net assets without
donor restrictions to net cash (used in) provided by
operating activities:
Depreciation
Forgiveness on PPP loan
Loss on disposals of property and equipment
Changes in operating assets and liabilities:
Accounts receivable
Related -party receivables/payables, net
Prepaid expenses and other current assets and other
Accounts payable
Accrued expenses
Accrued payroll and related expenses
Deferred compensation
Deferred rent
Net cash (used in) provided by operating activities
Cash flows used in investing activities:
Purchase of property and equipment
Cash flows provided by financing activities:
Proceeds from loan
Net change in cash
Cash at beginning of year
Cash at end of year
STATEMENTS OF CASH FLOWS
For The Years Ended June 30,
2022 2021
$ 61,563 $ 49,607
20,271 26,701
(109,450) -
14,038 -
(3,490)
30,862
16,185
(50,350)
(105,926)
(43,977)
6,423
(122)
(74,022)
59,149
15,242
72,106
100,000
(20,000)
(14,229)
(86,662)
(73,395) 37,314
(5,352)
- 109,450
(78,747) 146,764
219,454 72,690
$ 140,707 $ 219.454
See accompanying notes to financial statements
S
12-41
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 1— ORGANIZATION
Nature of Operations
Newport Beach & Company (the "Organization") is a non-profit organization formed under the
laws of the State of California in 2013. The Organization specializes in marketing and promotion
services related to enhancing the economic development for the City of Newport Beach (the
"City"). The Organization currently has agreements with the City to manage its public access
television channel. By embracing a variety of neighborhoods, businesses and individual unique
voices into a complementary story, the Organization seeks to strengthen all of its partners, drive
new revenue to the City and enhance the City's overall economic vibrancy.
Newport Beach TV ("NBTV")
The agreement between the Organization and the City provides management and
consulting services in support of NBTV. Such services include production, administrative,
and sponsorship services. This agreement expires on April 30, 2023.
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.
6 12-42
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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.
As of and for the years ended June 30, 2022 and 2021, the Organization had no net assets with donor
restrictions.
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 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 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, 2022, the Organization had no
uninsured 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. At June 30, 2022 and 2021, the Organization considers its accounts
receivable to be fully collectible and accordingly did not record an allowance for doubtful
accounts. As of June 30, 2022 and 2021, two customers accounted for approximately 98% and
99%, respectively, of the Organization's total accounts receivable balance.
7
12-43
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Property and Equipment
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.
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.
Deferred Compensation
Deferred compensation represents a commitment to make annual $25,000 annuity payments
through 2026 to a member of the Organization's management. As of June 30, 2022, $100,000 was
due. Payments due within one year have been classified under prepaid expenses and other current
assets and current liabilities; all other amounts have been classified as non -current assets and non-
current liabilities.
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, 2022 and 2021, 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.
8 12-44
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Contributed Materials and Services
Donated materials and other noncash contributions (if any) are reflected in the accompanying
financial 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.
During the years ended June 30, 2022 and 2021, the Organization did not have significant
contributed materials and services.
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, 2022 and 2021,
the Organization had no unrelated business income. 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, 2022 and 2021,
the Organization did not have any unrecognized tax benefits.
The Organization is no longer subject to income tax examinations by tax authorities for years
before 2018.
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.
9 12-45
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Update ("ASU") 2016-02, Leases (Topic 842), which requires the lease rights and
obligations arising from lease contracts, including existing and new arrangements, to be
recognized as assets and liabilities on the statement of financial position. ASU 2016-02, as
amended, is effective for reporting periods beginning after December 15, 2021. While still
evaluating this update, the Organization expects the adoption of this update to have a material
effect on its financial condition due to the recognition of the lease rights and obligations as assets
and liabilities. The Organization does not expect this update to have a material effect on its results
of operations and cash flows.
In September 2020, the FASB issued ASU 2020-07, Presentation and Disclosures by Not -for -
Profit Entities for Contributed Nonfinancial Assets (Topic 958), which requires the Organization
to change its financial statement presentation and disclosure of contributed nonfinancial assets, or
gifts -in -kind. ASU 2020-07 defines gifts -in -kind as contributed nonfinancial assets donations
made for goods or services the Organization would purchase in the normal course of business.
Gifts -in -kind of tangible property include items like operating facilities, utilities, office furniture,
and supplies provided to the Organization; items donated to the Organization to be auctioned
through charitable events; and items used in program activities, such as medical supplies, building
supplies, appliances, and fixtures. Intangible gifts -in -kind include items like copyrights, patents,
and royalties; specialized volunteer services, such as those from nurses for medical organizations
or project managers and builders for construction projects; and expertise, such as accounting, legal,
and consulting services. The Organization adopted ASU 2020-07 during the current year with no
significant impact on its financial statements.
Subsequent Events
The Organization has evaluated subsequent events through September 19, 2022, 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 except as disclosed herein.
10
12-46
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 3 — LIQUIDITY AND AVAILABILITY
At June 30, 2022, the Organization has $157,088 of financial assets available within one year of
the statement of financial position date to meet cash needs for general expenditures consisting of
cash of $140,707 and accounts receivable of $16,381. 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 policy to structure its
financial assets to be available as its general expenditures, liabilities, and other obligations come
due.
Funding for the Organization is dependent on funding received from a related parry (see Note 9)
and revenue generated through marketing efforts. As a result, the Organization closely monitors
the monthly projected and received revenue to determine if any changes need to be made to
budgeted annual expenditures.
NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
413011N
Leasehold improvements $ 7,614
Computer equipment 84,979
Office furniture and fixtures 26,351
118,944
Less accumulated depreciation and amortization (109,759)
$ 9,185
2021
$ 79,990
126,456
81,409
287,855
(249,713)
$ 38.142
11
12-47
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 5 - STATEMENT OF FUNCTIONAL EXPENSES
The statements of functional expenses for the years ended June 30, 2022 and 2021 are as follows:
2022
Program General and 2021
Activities Administrative Total Total
(Summarized)
Salaries and benefits:
Salaries $
703,745 $
204,111
$ 907,856 $
781,377
Payroll taxes and employee benefits
180,986
83,927
264,913
201,426
Total salaries and benefits
884,731
288,038
1,172,769
982,803
Other expenses:
Marketing
168,146
208
168,354
111,740
Office lease
312,376
104,125
416,501
407,304
Repairs and maintenance
2,000
38,887
40,887
21,083
Insurance
-
3,207
3,207
6,086
Office supplies
-
10,122
10,122
3,580
Equipment and equipment rental
18,537
26,099
44,636
43,318
Postage and fees
18,156
2,506
20,662
18,314
Meeting and education
4,233
31,049
35,282
5,544
Professional fees and services
-
35,967
35,967
23,117
Depreciation
-
20,271
20,271
26,701
Loss on disposals of property and equipment
-
14,038
14,038
-
Travel and related
13,072
12,627
25,699
4,463
Total functional expenses
$ 1.421.251 $ 587.144 $ 2.008.395 $ 1.654.053
The Organization incurred expenses related to program activities totaling approximately
$1,197,000 for the year ended June 30, 2021.
NOTE 6 - PAYCHECK PROTECTION PROGRAM GRANT/LOAN
In January 2021, the Organization entered into an unsecured promissory note for a loan (the
"Loan") in the principal amount of $336,997 and received cash proceeds of the same amount,
pursuant to the Paycheck Protection Program (the "PPP"), which is administered by the U.S. Small
Business Administration (the "SBA"). Under the terms of the Loan, interest accrued on the
outstanding principal at the rate of 1.0% per annum. The term of the Loan was five years, unless
sooner required in connection with an event of default under the Loan. To the extent the Loan
amount was not fully forgiven by the SBA, the Organization was obligated to make equal monthly
payments of principal and interest beginning on the earlier of. (1) the date the SBA sends the loan
forgiveness amount to the lender or (2) ten months after the covered 24-week period, until the
maturity date.
12
12-48
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 6 — PAYCHECK PROTECTION PROGRAM GRANT/LOAN, continued
The PPP provided a mechanism for forgiveness of up to the full amount borrowed. During the year
ended June 30, 2021, the Organization had used $227,527 of the proceeds for purposes consistent
with the PPP and believed that its use of this portion of the loan proceeds met the conditions for
forgiveness. Since the Organization used $227,527 of the proceeds from the PPP Loan for such
qualifying expenses before June 30, 2021, the Organization recorded this amount of the PPP Loan
proceeds as a conditional cost -reimbursed government grant in the accompanying statement of
activities for the year ended June 30, 2021 pursuant to relevant technical accounting guidance.
During the year ended June 30, 2022, the Organization received forgiveness from the SBA for the
full loan amount. Upon such forgiveness, the Organization recorded the remaining PPP loan
balance of $109,450 as a conditional cost -reimbursed government grant in the accompanying
statement of activities for the year ended June 30, 2022 pursuant to relevant technical accounting
guidance.
NOTE 7 — 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 the Organization's allocated portion of rent, as
amended, is payable between $6,922 and $28,543 per month. As a result of the fourth amendment
to this lease, the Organization is a party to the lease originally entered into by Visit Newport Beach
Inc. ("VNB"), a related party. Under the terms of this lease, each assignee shall be deemed to
assume all lease obligations, and as a result, the Organization may be liable for future rent
payments. The facility lease contains a five-year extension option at the end of the lease term. In
May 2022, the Organization entered into a lease amendment for a smaller lease space. Under the
amended lease, allocated rent is payable at approximately $17,000 per month and expires in
September 2029.
Allocated rent expense incurred by the Organization under this operating lease was approximately
$417,000 and $407,000 for the years ended June 30, 2022 and 2021, respectively, and is included
in other expenses. Such amounts are net of the amounts paid by VNB pursuant to the Agreement
discussed in Note 9.
13
12-49
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 7 — COMMITMENTS AND CONTINGENCIES, continued
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,
2023
$ 230,000
2024
205,000
2025
213,000
2026
220,000
2027
228,000
Thereafter
540,000
$ 1,36.000
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 party, 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. In connection with its facility lease, the Organization has
indemnified its lessor for 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 8 — RETIREMENT PLAN
The Organization has a 401(k) retirement plan (the "Plan") covering all eligible employees. The
Plan provides for voluntary employer contributions. The total Plan expense during the years ended
June 30, 2022 and 2021 was approximately $63,000 and $27,000, respectively, which is recorded
in salaries and benefits expenses in the accompanying statements of activities.
14
12-50
NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 9 — RELATED -PARTY TRANSACTIONS
During the years ended June 30, 2022 and 2021, the Organization had transactions with a related
party that is also a non-profit organization. The related entity, VNB, initiates, sponsors, promotes
and carries out plans, policies and activities to attract conferences and visitors to the City. VNB
was the driving force behind the formation of the Organization. Pursuant to an Agreement for
Services ("Agreement") dated April 1, 2013, the Organization was appointed by VNB as an
exclusive provider of services that VNB requires to carry out its mission and obligations to the
City. In consideration for these services, VNB agreed to pay monthly fees totaling $108,000 for
the years ended June 30, 2022 and 2021. VNB has also agreed to reimburse the Organization for
all reasonable expenses incurred by it in carrying out its duties to VNB, including rent and related
facility costs, payroll and related benefits, and other direct marketing costs. For the years ended
June 30, 2022 and 2021, the Organization billed $1,698,743 and $1,140,512, respectively, to VNB
for these fees and costs, which are recorded as service fees from related party in the accompanying
statements of activities. The Agreement, as amended, expires on June 30, 2024.
As of June 30, 2022 and 2021, the Organization has net related -party receivables of $2,441 and
$17,611, respectively, in the accompanying statements of financial position. These amounts do
not bear interest, are not collateralized and have no stated repayment terms.
Exhibit 2
Newport Beach and Company Audited Financial Statements for the Year Ended June
30, 2022, Accompanying Management Letter dated September 19, 2022
12-52
KMJ1Corbin &
Company
Business Advisors Tax and Audit
September 19, 2022
To the Board of Directors of
Newport Beach & Company
1600 Newport Center Drive
Newport Beach, California 92660
We have audited the financial statements of Newport Beach & Company (the "Organization") as
of and for the year ended June 30, 2022, and have issued our report thereon dated September 19,
2022. Professional standards require that we advise you of the following matters relating to our
audit.
Our Responsibility in Relation to the Financial Statement Audit
As communicated in our engagement letter dated May 26, 2022 our responsibility, as described
by professional standards, is to form and express an opinion about whether the financial
statements that have been prepared by management with your oversight are presented fairly, in
all material respects, in accordance with accounting principles generally accepted in the United
States of America. Our audit of the financial statements does not relieve you or management of
its respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to
obtain reasonable, rather than absolute, assurance about whether the financial statements are free
of material misstatement. An audit of financial statements includes consideration of internal
control over financial reporting as a basis for designing 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 over financial reporting. Accordingly, as part of our audit, we
considered the internal control of the Organization solely for the purpose of determining our
audit procedures and not to provide any assurance concerning such internal control.
We are also responsible for communicating significant matters related to the audit that are, in our
professional judgment, relevant to your responsibilities in overseeing the financial reporting
process. However, we are not required to design procedures for the purpose of identifying other
matters to communicate to you.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously
communicated to you.
p 949 431 0997 f 714 544 1034 2855 Michelle Dr Suite 350 Irvine CA 92606 kmjpartnerscpa.com
p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364
12-53
Newport Beach & Company
September 19, 2022
Page 2
Compliance with All Ethics Requirements Regarding Independence
The engagement team, others in our firm, as appropriate, and our firm have complied with all
relevant ethical requirements regarding independence.
As part of the audit, we assisted you in preparing a draft of your financial statements and related
notes, a nonattest service. With respect to any nonattest service we performed, the
Organization's management has been responsible for (a) making all management decisions and
performing all management functions; (b) assigning a competent individual to oversee the
services; (c) evaluating the adequacy of the services performed; (d) evaluating and accepting
responsibility for the results of the services performed; and (e) establishing and maintaining
internal controls, including monitoring ongoing activities.
Audit Focus Areas Identified
We have identified the following audit focus areas:
• Management override of internal controls was considered a focus area as this is a
pervasive risk that could affect many audit areas and could affect amounts reported in the
financial statements.
• Improper revenue recognition was considered a focus area due to the inherent risk in
revenue recognition.
• Related -party transactions was considered a focus area due to the volume of related -party
transactions, in addition to the disclosure requirements related to such transactions.
• Support for expenses was considered a focus area due to the volume of expenses and the
need to verify existence and completeness of expenses, along with accuracy and proper
classification.
Qualitative Aspects of the Entity's Significant Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary
of the significant accounting policies adopted by the Organization is included in Note 2 to the
financial statements. Other than the adoption of ASU 2020-07, Presentation and Disclosures by
Not -for -Profit Entities for Contributed Nonfinancial Assets (Topic 958), there have been no
initial selection of accounting policies and no changes in significant accounting policies or their
12-54
Newport Beach & Company
September 19, 2022
Page 3
application during the year ended June 30, 2022. No matters have come to our attention that
would require us, under professional standards, to inform you about (1) the methods used to
account for significant unusual transactions and (2) the effect of significant accounting policies
in controversial or emerging areas for which there is a lack of authoritative guidance or
consensus.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management
and are based on management's current judgments. Those judgments are normally based on
knowledge and experience about past and current events and assumptions about future events.
Certain accounting estimates are particularly sensitive because of their significance to the
financial statements and because of the possibility that future events affecting them may differ
markedly from management's current judgments. Significant estimates made by the
Organization's management include, but are not limited to, the collectability of accounts
receivable, and the allocation of expenses to program activities and general and administrative.
• Management's estimate of the collectability of accounts receivables is based on assessing
the potential uncollectible receivables outstanding using the specific identification
method.
• Management's estimate of allocation of expenses to program activities and general and
administrative is based on assessing the purpose of the expenditures incurred during the
year.
We evaluated the key factors and assumptions used to develop the estimates and determined that
they are reasonable in relation to the financial statements taken as a whole.
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive
because of their significance to financial statement users. The most sensitive disclosures
affecting the Organizations financial statements relate to related -parry transactions.
Significant Unusual Transactions
For purposes of this communication, professional standards require us to communicate to you
significant unusual transactions identified during our audit. There were no significant unusual
transactions identified as a result of our audit procedures that were brought to the attention of
management.
Identified or Suspected Fraud
We have not identified or obtained information that indicates that fraud may have occurred.
12-55
Newport Beach & Company
September 19, 2022
Page 4
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the
performance of the audit.
Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known
and likely misstatements identified during the audit, other than those that we believe are trivial,
and communicate them to the appropriate level of management. Further, professional standards
require us to also communicate the effect of uncorrected misstatements related to prior periods
on the relevant classes of transactions, account balances or disclosures, and the financial
statements as a whole. There were no uncorrected misstatements during the year ended June 30,
2022.
In addition, professional standards require us to communicate to you all corrected misstatements
that were brought to the attention of management as a result of our audit procedures. The
attached Exhibit A summarizes the corrected financial statement misstatement.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a
matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting,
or auditing matter, which could be significant to the Organization's financial statements or the
auditors' report. No such disagreements arose during the course of the audit.
Circumstances that Affect the Form and Content of the Auditor's Report
For purposes of this letter, professional standards require that we communicate any
circumstances that affect the form and content of our auditors' report. We have not identified or
obtained information that affect the form and content of the Auditors' Report.
Representations Requested from Management
We have requested certain written representations from management, which are included in the
attached letter dated September 19, 2022.
Management's Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters. Management informed us that, and to our knowledge, there were no
consultations with other accountants regarding auditing and accounting matters.
12-56
Newport Beach & Company
September 19, 2022
Page 5
Other Significant Findings or Issues
In the normal course of our professional association with the Organization, we generally discuss
a variety of matters, including the application of accounting principles and auditing standards,
significant events or transactions that occurred during the year, operating conditions affecting the
Organization, and operating plans and strategies that may affect the risks of material
misstatement. None of the matters discussed resulted in a condition to our retention as the
Organization's auditors.
This report is intended solely for the information and use of the Board of Directors and
management of the Organization, and is not intended to be and should not be used by anyone
other than these specified parties.
Very truly yours,
ICMj- Cam, t 1011�1 L-P
KMJ Corbin & Company LLP
12-57
Exhibit A
Schedule of Corrected Misstatements
June 30, 2022
Financial Statement Effects
Increase
Increase
Increase
Increase
(Decrease)
(Decrease)
(Decrease)
(Decrease)
Total
Total
Net
Change In
Description of Corrected Misstatement Debit Credit
Assets
Liabilities
Assets
Net Assets
AJE#1
Accounts receivable 11,448
Community Marketing Income 11,448
11,448
-
11,448
11,448
- To record June 2022 revenues.
$ 11,448 $ 11,448
$ 11,448
$ -
$ 11,448
$ 11,448
12-58
Attachment C
Visit Newport Beach Expenditure Compliance Report for the Year Ended
June 30, 2022
12-59
VISIT NEWPORT BEACH INC.
(a Non -Profit Organization)
EXPENDITURES REPORT
For The Year Ended June 30, 2022
with
INDEPENDENT AUDITORS' REPORT THEREON
12-60
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 2022
Expenditures Report, summarizing the expenditures of funds received pursuant to the Agreement
during the period July 1, 2021 to June 30, 2022. 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. An examination
involves performing procedures to obtain evidence about management's assertion. 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.
We are required to be independent and to meet our other ethical responsibilities in accordance with
relevant ethical requirements relating to the engagement.
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 2022 Expenditures Report for the year ended
June 30, 2022 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.
kMJ- c k,v,,,, t Cam" LLP
KMJ Corbin & Company LLP
Irvine, California
September 19, 2022
p 949 431 0997 f 714 544 1034 2855 Michelle Dr Suite 350 Irvine CA 92606 kmlpartnerscpa.com
p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364
12-61
DO
VISIT
EWP RT
BEACH
CALIFORNIA
ManagemenI 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
e, 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 ofNewport Beach
and Visit Newport Beach Inc. (collectively, the "Parties") for Tourism Promotion, Branding, and
laxketing 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 intorttal 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, 2022, as
summarized in the attached 2022 Expenditures Deport. 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 opportunitieq, 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
outer means of distribution; and (d) the development and irnpiementation 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 acoeptable to the Parties."
Visit Nevi Beach Inc,
13y
i3y
T.il e *,,,,
Vice Pre\WZnt of Finance
1600 Newport Centel- Drive, Sulu! 12Q, NV Iwport Roach, CA 926tx0
12-62
A
VISIT NEWPORT BEACH, INC.
2022 Expenditures Report
July 1, 2021 -
June 30, 2022
2022 Expenses
General and Administrative Expenses
Operating Expenses
64125 - Computer Software (non-deprec)
6,555
64130 - Voice and Data - Office
84
64145- Shipping Charges
224
64150 - Bank Fees
160
64160 - Membership Dues
29,983
64170 - Team Meetings
1,861
Total Operating Expenses
38,867
Insurance
63100 - General Liability Insurance
1,438
63300 - Board of Directors Insurance
1,769
Total Insurance
3,207
Professional Fees
64203 - Recruiting Fees
3,265
64207 - Bloggers
40,624
64201 - Audit Fees
4,500
64202 - Tax Preparation Fees
1,500
Total Professional Fees
49,889
Miscellaneous Expense
64350 - Interest Expense
3,816
Total Miscellaneous Expense
3,816
65550 - Travel Expense
24
Total Travel Expense
24
Total General and Administrative
95,803
Advertising Expenses
66101 - Advertising - Purchased
1,376,380
66102 - Advertising - Local Events
20,463
66104 - Advertising Tracking Media
10,950
66121 - Promotional Gift Cards
165
66123 - Promotional Client Gifts
268
66202 - Ad Production
271,141
66203 - Creative Design/Development
111,350
66205 - Photography/Video Production
188,796
66212 - Community Sponsorships
153,000
67101 - Research
77,968
67102 - Christmas Boat Parade
199,083
Total Advertising Expenses
2,409,564
Marketing Expenses
Community Relations
67103 - Community Partner Events
45,710
67105 - Awards
1,830
67107 - Promotional Items
18,658
Total Community Relations
66,198
Marketing Collateral
67309 - Marketing Plan
4,927
67311 - Collateral Production Expenses
750
67312 - Collateral Distribution
4,000
Total Marketing Collateral
9,677
Digital Marketing
67501 - Social Media
61,559
67502 - Website Maintenance
114,221
67503 - Online Search Advertising
106,461
67504 - Digital Advertising
7,200
67511 - Digital Lifestyle Channel Production
3,500
66211 - CRM Maintenance
19,729
Total Digital Marketing
312,670
Communications/Public Relations
67601 - Media Services
81,214
67602 - Media FAM Tours
14,535
67605 - Media Opportunities
40,305
67607 - Media Relations
1,093
Total Communications/Public Relations
137,147
Total Marketing Expenses
525,692
12-63
International Marketing Initiatives
67404 - International Trade Shows
2,500
67405 - International Airfare
396
67406 - International Accommodations
870
67407 - International Meals
72
67408 - International Transportation Costs
117
67409 - International Other Travel Costs
83
67410 - International Business Meals/Entertainment
16
67412 - International Brand Events
33,382
Total International Marketing Initiatives
37,436
NB&Company Fees
B 68001 - NB&Co Fees
1,698,743
Total NB&Company Fees
1,698,743
Total Expenses 4,767,238
Other Expenditures:
Fixed asset additions capitalized
Website development costs capitalized -
Change in other prepaid expenses and current
liabilities, net 141,218
141,218
$ 4,908,456
NOTES:
A 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
City of Newport Beach Arts Sponsorship 150,000
$ 150,000
B Consist of reimbursements for costs incurred by Newport Beach & Company as follows:
Class of Expense Amount
Salaries/Benefits $ 1,085,958
Marketing Expenses $ 104,653
G&A Overhead $ 508,132
$ 1,698,743
12-64