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Home My WebLink About18 - Annual Review of Visit Newport Beach Audited Financial Statements and Expenditure ReportQ �EwPpRT CITY OF s NEWPORT BEACH `q44:09 City Council Staff Report October 22, 2024 Agenda Item No. 18 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Jason AI -Imam, Finance Director/Treasurer - 949-644-3126, jalimam@newportbeachca.gov PREPARED BY: Jason AI -Imam, Finance Director/Treasurer 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, and compliance expenditure report for the fiscal year ending June 30, 2024, 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 are also included for the City Council's review. RECOMMENDATIONS: 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: Section 6(d) of the City's agreement with VNB requires audited financial statements to be submitted to the City by September 30 of each year for its most recently ended fiscal year, including any management letter associated with the audited financial statements. VNB submitted audited financial statements to the City for the fiscal year ending June 30, 2024, which was received by City staff on September 27, 2024. The audited financial statements are attached for the City Council's review. Section 6(e) of the agreement with VNB requires VNB to submit an expenditure report to the City by September 30 of each year, 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 or contributions to special events and not -for -profit organizations in Newport Beach. 18-1 Annual Review of VNB Audited Financial Statements and Expenditure Report October 22, 2024 Page 2 VNB submitted an expenditure report for the fiscal year ending June 30, 2024, which was received by City staff on September 27, 2024. VNB reports that $1,828,755 was paid to Newport Beach & Company for marketing and promotion services. Therefore, Newport Beach Company's financial statements are also included for City Council review. The audited financial statements and expenditure report for the fiscal year ending June 30, 2024, were reviewed by the audit firm Crowe LLP. The independent auditor's report can be found within the audited financial statements for VNB and Newport Beach & Company for the fiscal year ending June 30, 2024, which reflects an unmodified or "clean" audit opinion, meaning that the financial statements are presented fairly, in all material respects, and in conformity with generally accepted accounting principles. The audit reports reflect no audit findings or internal control recommendations. Therefore, a management letter was not issued in connection with the audit. The firm's review of the required expenditure report indicated that VNB's assertion that VNB complied with the applicable provisions of the agreement with the City is fairly stated, in all material respects. The audited financial statements indicate that upon the expiration of the Tourism Business Improvement District (TBID) on January 31, 2024, a related entity, Meetings Assessment Partnership (MAP) was founded, effective February 1, 2024, in order to operate in place of the TBID. As a result, effective February 1, 2024, VNB transferred the following: (1) to MAP the accumulated net asset amounts attributable to the six hotels transferring services over to MAP totaling $3,299,020; and (2) to the respective hotels the accumulated net asset amounts attributable to those two hotels not transferring services over to MAP totaling $667,676. FISCAL IMPACT: Under VNB's 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 received revenue from the Newport Beach Tourism Business Improvement District (TBID), which was funded by a levy of 3% of most revenues from short-term stays at participating lodging businesses within the city. The TBID funds were dedicated to meeting and event sales promotion and marketing programs. The TBID expired on January 31, 2024 and no longer provides revenue to VNB. Total revenues from these sources, as outlined in the attached financial statements, amounted to approximately $10.4 million for the fiscal year ending June 30, 2024. As noted previously, a private entity, the MAP, was founded after the expiration of the TBID. 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. 18-2 Annual Review of VNB Audited Financial Statements and Expenditure Report October 22, 2024 Page 3 NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A —Visit Newport Beach Audited Financial Statements for the Year Ended June 30, 2024 Attachment B — Newport Beach and Company Audited Financial Statements for the Year Ended June 30, 2024 Attachment C — Visit Newport Beach Expenditure Compliance Report for the Year Ended June 30, 2024 18-3 Attachment A Visit Newport Beach Audited Financial Statements for the Year Ended June 30, 2024 - VISIT NEWPORT BEACH INC. (A Non -Profit Organization) FINANCIAL STATEMENTS June 30, 2024 and 2023 18-5 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) FINANCIAL STATEMENTS June 30, 2024 and 2023 CONTENTS INDEPENDENT AUDITOR'S REPORT FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION STATEMENTS OF ACTIVITIES ................. STATEMENTS OF CASH FLOWS ............. NOTES TO FINANCIAL STATEMENTS.... ................. 1 SUPPLEMENTAL INFORMATION SCHEDULE I — STATEMENT OF FINANCIAL POSITION BY FUNDING SOURCE ................. SCHEDULE II — STATEMENT OF ACTIVITIES BY FUNDING SOURCE .................................. 3 4 5 6 17 18 18-6 Crowe INDEPENDENT AUDITOR'S REPORT To the Board of Directors of Visit Newport Beach Inc. Newport Beach, California Opinion Crowe LLP Independent Member Crowe Global We have audited the accompanying financial statements of Visit Newport Beach Inc., which comprise the statement of financial position as of June 30, 2024, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. In our opinion, the accompanying 2024 financial statements referred to above present fairly, in all material respects, the financial position of Visit Newport Beach Inc. as of June 30, 2024, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Visit Newport Beach Inc. and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Emphasis of Matter As discussed in Note 8 to the financial statements, the Organization has significant transactions with related non-profit organizations. Our opinion is not modified with respect to this matter. Other Matter The financial statements of Visit Newport Beach Inc. as of and for the year ended June 30, 2023 were audited by other auditors whose report dated September 25, 2023 expressed an unmodified opinion on those statements and contained an emphasis of matter paragraph related to significant transactions with related non-profit organizations. 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 Visit Newport Beach Inc.'s ability to continue as a going concern within one year after the date that the financial statements are available to be issued. (Continued) 1. 18-7 Auditor's 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 auditor's 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 generally accepted auditing standards 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 generally accepted auditing standards, 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 Visit Newport Beach Inc.'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 Visit Newport Beach Inc.'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 18-19 is presented for purposes of additional analysis and is not a required part of the 2024 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 2024 financial statements. The information has been subjected to the auditing procedures applied in the audit of the 2024 financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the 2024 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 2024 financial statements as a whole. GLoVVe LL,0 Crowe LLP Costa Mesa, California September 27, 2024 2. 18-8 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF FINANCIAL POSITION June 30, 2024 and 2023 ASSETS Current assets Cash and cash equivalents Short-term investments Accounts receivable Related -party receivables, net Prepaid expenses and other current assets Total current assets Operating sublease of right -of -use assets, net Property and equipment, net Website development costs, net Deposits and other assets Total assets LIABILITIES AND NET ASSETS Current liabilities Accounts payable Related party payables, net Accrued expenses Accrued payroll and related expenses Group booking incentive reserve Current portion of sublease obligations Total current liabilities Sublease obligations, net of current portion Total liabilities Commitments and contingencies Net assets without donor restrictions Total liabilities and net assets 2024 2023 $ 1,217,431 $ 2,601,955 2,222,415 5,313,443 1,185 48,279 22,645 - 387, 669 601,564 3,851,345 8,565,241 - 1,163, 799 2,626 143,258 68,254 55,665 $ 3,931,844 $ 9,937,582 $ 40,793 $ 100,883 102,263 199,937 94,796 26,000 - 94,155 - 138,683 1,058,424 237,852 1,769,809 3,693,992 8,167,773 $ 3,931,844 $ 9,937,582 See accompanying notes to financial statements. 0 18-9 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF ACTIVITIES Years ended June 30, 2024 and 2023 Support and revenues Service fee revenues Advertising and other income Interest income Total support and revenue Expenses Marketing (including $1,828,755 and $2,149,913 to Newport Beach & Company during 2024 and 2023, respectively - see Note 8) Salaries and benefits Other Depreciation and amortization Total expenses Change in net assets without donor restrictions before expenses related to TBID dissolution Expenses related to TBID dissolution Cash paid to hotels not continuing services under MAP Cash paid to MAP for transferring hotels Total expenses related to TBID dissolution Change in net assets without donor restrictions Net assets without donor restrictions, beginning of year Net assets without donor restrictions, end of year 2024 2023 $ 10,382,835 $ 11,240,912 28,400 44,000 223,839 125,907 10,635,074 11,410, 819 9,552,691 8,742,659 1,173,885 1,618,690 391,398 543,052 24,185 28,316 11 1^7 1GQ 1(1 Qq7 717 (507,085) 478,102 667,676 - 3,299,020 3,966,696 - (4,473,781) 478,102 8,167, 773 7,689,671 $ 3,693,992 $ 8,167,773 See accompanying notes to financial statements. 4. 18-10 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 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 and amortization Amortization of right -of -use operating sublease assets Loss on disposals of property and equipment Accrued interest income Changes in operating assets and liabilities, net of balances transferred to MAP Accounts receivable Related -party receivables/payables, net Prepaid assets and other current assets Accounts payable Accrued expenses Accrued payroll and related expenses Group booking incentive reserve Sublease obligations Net cash (used in) provided by from operating activities Cash flows from investing activities Purchases of property and equipment Website development costs Cash received from MAP for transferred net assets Purchases of investments Proceeds from sales/maturities of investments Net cash provided by (used in) investing activities Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental disclosures of non -cash transactions Right -of -use sublease asset and sublease obligation recorded upon adoption of ASC 842 Right -of -use sublease asset obtained in exchange for sublease obligations Net balances transferred to MAP 2024 2023 $ (4,473, 781) $ 478,102 24,185 28,316 94,707 145,420 - 221 14,099 (55,989) 47,094 (48,279) (118,359) 197,496 213,895 (176,137) (60,090) (262,465) 68,796 2,620 (9,869) 21,626 (138,683) 83,063 (104,110) (102,139) (4,442,116) 311,855 (1,058) (42, 568) 24,289 (9,264,817) 12,341,746 3,057,592 (1,384,524) 2,601,955 (142, 275) (55, 665) (5,292,476) 2,988,000 (2,502,416) (2,190,561) 4J9?_515 $ 1,217,431 $ 2,601,955 $ - $ 30,438 $ - $ 1,281,852 $ 24,289 $ - See accompanying notes to financial statements. 18-11 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 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 Organization anticipates the TOT Agreement will be renewed by December 31, 2024; in the event that this does not occur, the Organization will utilize its existing liquid assets and work with its hotel partners to obtain private financing for its continuing operations. 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. 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, 2024 and 2023, the Organization received approximately 66% and 58%, 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 expired on January 31, 2024, pursuant to the Management District Plan, as amended (the "Plan"). The NBTBID was funded by assessments levied on participating lodging businesses within a specified district. The assessments were restricted for use for sales promotion and marketing programs to market the City as a tourist, meeting and event destination as outlined in the Plan. For the years ended June 30, 2024 and 2023, the Organization received approximately 34% and 42%, respectively, of its service fee revenues from the City through TBID assessments. Through its expiration, the NBTBID was represented by eight (8) hotels within the City which collected a 3.0% tax on short-term stays. The City was entitled to 0.25% of the receipts annually for the collection of the assessments and disbursements of the NBTBID. Upon expiration of NBTBID on January 31, 2024, a related entity, Meetings Assessment Partnership ("MAP") was founded, effective February 1, 2024, in order to operate in the place of NBTBID. MAP works to improve business conditions and the business environment for tourism for member hotels in the City through the provision of marketing, sales, and special events programs, along with various other initiatives. Pursuant to California Streets and Highways Code Section 36671(a), upon the NBTBID's expiration and after all outstanding debts are paid the remaining NBTBID funds shall be refunded to the assessed businesses. As a result, effective February 1, 2024, the Organization refunded the following: (1) to MAP the accumulated net asset amounts attributable to those six (6) hotels transferring services over to MAP totaling $3,299,020 (in accordance with agreements between the Organization and each of the respective hotels); and (2) to the respective hotels the accumulated net asset amounts attributable to those two (2) hotels not transferring services over to MAP totaling $667,676. These payments are reflected in the accompanying statement of activities as other expenses during the year ended June 30, 2024. (Continued) 18-12 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 NOTE 1 — ORGANIZATION (Continued) In addition, certain assets and liabilities attributable to TBID were transferred to MAP for net consideration of $24,289. This balance was paid by MAP during the year ended June 30, 2024. The transferred assets and liabilities included the following: Property and equipment, net $ 117,505 Website development costs, net 29,979 Operating sublease of right -of -use assets, net 1,069,092 Sublease obligations (1,106,041) Accrued payroll and related expenses (86,246) $ 24,289 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, 2024 and 2023, the Organization had no net assets with donor restrictions. Revenues are reported as increases in net assets without donor restrictions unless use of the related assets is limited by donor -imposed restrictions. Expenses are reported as decreases in net assets without donor restrictions. Gains and losses on investments and other assets are reported as increases or decreases in net assets without donor restrictions unless their use is restricted by explicit donor stipulations or by law. 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, recoverability of long-lived assets, and the allocation of expenses to program activities and general and administrative. Actual results may differ from those estimates. (Continued) 7. 18-13 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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, 2024, the Organization had approximately $3,003,000 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 Measurement: Investments and cash equivalents consist of certificates of deposit which are carried at cost plus accrued interest (which approximates fair value) and U.S. Treasury Bills which are carried at market value. Accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or in the absence of a principal market, the most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs in priority that may be used to measure fair value: Level 1 — Quoted prices in active markets for identical assets or liabilities; Level 2 — Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (such as interest rates and yield curves, credit risks, and default rates) or other inputs that are principally derived from or corroborated by observable market data by correlation or by other means; and Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The fair value of the Organization's U.S. Treasury Bills and certificates of deposit 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. (Continued) 18-14 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) As of June 30, 2024 and 2023, the Organization's investments measured at fair value on a recurring basis were as follows: Quoted prices in Active Markets Significant Other Significant Other for Identical Observable Unobservable June 30, 2024 Assets (Level 1) Inputs (Level 2) Inputs (Level 3) Short-term investments: U.S. Treasury Bills $ - $ 1,813,911 $ - Certificates of deposit $ - $ 408,504 $ - June 30, 2023 Short-term investments: U.S. Treasury Bills $ - $ 5,313,443 $ - Accounts Receivable: Accounts receivable are carried at original invoice amount less an estimate for credit losses based on a review of all outstanding amounts at year end. Management determines the allowance for credit losses by identifying troubled accounts based on current and historical experience and reasonable and supportable forecasts. At June 30, 2024 and 2023, the Organization considers its accounts receivable to be fully collectible and accordingly did not record an allowance for credit losses. As of June 30, 2024, no customers accounted for more than 10% of the Organization's total accounts receivable balance. As of June 30, 2023, four customers accounted for approximately 55% of the Organization's total accounts receivable balance. 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, 2024 and 2023, the Organization capitalized website development costs of $42,568 and $55,665, respectively. For the years ended June 30, 2024 and 2023, the Organization recorded amortization expense on website development costs totaling $0 and $0, respectively. (Continued) 18-15 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Leases: At the inception of a contract, the Organization determines if the arrangement is, or contains, a lease. Operating lease right -of -use ("ROU") assets represent the Organization's right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term calculated using the risk -free rate commensurate with the term of the ROU asset. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The lease terms may include options to extend the lease when it is reasonably certain that the Organization will exercise that option. Leases with a term of 12 months or less are not recognized in the statement of financial position. Rent expense is recognized on a straight-line basis over the lease term. The Organization accounts for lease and non -lease components as separate lease components for all its leases. At June 30, 2024, the Organization has no leases as its sublease ROU asset and related liability were transferred to MAP (see Note 1). 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, 2024 and 2023, 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. Group Booking Incentive Reserve: The Organization had established an incentive program for businesses by paying for certain costs of conferences and group meetings held in City hotels in order to attract businesses and groups to the City. The incentives were recognized upon the reservation of the hotel for future meetings. As of June 30, 2024 and 2023, group booking accruals were $0 and $138,683, respectively. Support and Revenue: The Organization's service fee revenues are recognized as revenue when received as the Organization is not entitled to its share of the TOT or assessments collected under TBID until paid by the City. Advertising and other income are considered revenue under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. Advertising and other income are recognized when the advertisement service is completed and billed to the customers. Interest income is recognized as income in the period it is earned. The Organization applies the following steps to recognize revenue related to ASC 606: 1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5. Determine the satisfaction of performance obligations (Continued) 10. 18-16 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 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. 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, 2024 and 2023, the Organization determined there were no 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, 2024 and 2023, 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, 2024 and 2023, 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 2020. 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 Subsequent Events: The Organization has evaluated subsequent events through September 27, 2024, 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. (Continued) 11. 18-17 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 NOTE 3 — LIQUIDITY AND AVAILABILITY At June 30, 2024, the Organization has $3,441,031 of financial assets available within one year of the statement of financial position date to meet cash needs for general expenditures consisting of cash and cash equivalents of $1,217,431, short-term investments of $2,222,415, and accounts receivable of $1,185. At June 30, 2023, the Organization has $7,963,677 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 $2,601,955, short-term investments of $5,313,443, and accounts receivable of $48,279. 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 $3.6 million and $5.4 million as of June 30, 2024 and 2023, respectively. 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 and certificates of deposit. Funding for the Organization is dependent on the hotel room nights booked in certain City hotels each year and the subsequent portion of the TOT that is allocated through the City to the Organization. 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 consist of the following at June 30: Computer equipment Office furniture and fixtures Leasehold improvements Less: accumulated depreciation and amortization (Continued) 2024 2023 $ 13,405 $ 57,369 22,109 197,182 - 28,616 35,514 283,167 (32,888) (139,909) 2,626 $ 143,258 12. 18-18 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 NOTE 5 - SCHEDULES OF FUNCTIONAL EXPENSES The schedules of functional expenses for the years ended June 30, 2024 and 2023 are as follows: 2024 Program General and Activities Administrative Total Salaries and benefits: Salaries $ 709,244 $ 199,086 $ 908,330 Payroll taxes and employee benefits 197,545 68,010 265,555 Total salaries and benefits 906,789 267,096 1,173,885 Other expense Marketing 8,942,056 610,635 9,552,691 Office lease 96,071 32,024 128,095 Repairs and maintenance 944 1,251 2,195 Insurance - 2,518 2,518 Office supplies 3,512 3,121 6,633 Equipment and equipment rental 30,312 23,482 53,794 Postage and other dues and fees 82,804 2,204 85,008 Meeting and education 4,742 7,414 12,156 Professional fees and services - 82,477 82,477 Depreciation and amortization - 24,185 24,185 Loss on property and equipment disposals - - - Travel and related 18,522 - 18,522 $ 10, 085, 752 $ 1,056,407 $ 11,142,159 (Continued) 13. 18-19 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 NOTE 5 - SCHEDULES OF FUNCTIONAL EXPENSES (Continued) 2023 Program General and Activities Administrative Total Salaries and benefits: Salaries $ 977,330 $ 281,053 $ 1,258,383 Payroll taxes and employee benefits 294,135 66,172 360,307 Total salaries and benefits 1,271,465 347,225 1,618,690 Other expense Marketing 8,132,286 610,373 8,742,659 Office lease 145,579 48,526 194,105 Repairs and maintenance 7,023 5,074 12,097 Insurance - 7,129 7,129 Office supplies 3,137 8,258 11,395 Equipment and equipment rental 28,833 75,407 104,240 Postage and other dues and fees 92,799 9,067 101,866 Meeting and education 7,915 24,331 32,246 Professional fees and services - 47,909 47,909 Depreciation and amortization - 28,316 28,316 Loss on property and equipment disposals - 221 221 Travel and related 31,844 - 31,844 $ 9,720,881 $ 1,211,836 $ 10,932,717 NOTE 6 - COMMITMENTS AND CONTINGENCIES Lease Agreements: The Organization had operating leases and subleases for office space and office equipment rentals. In May 2022, the Organization entered into a sublease agreement with Newport Beach & Company ("NB & Co."), a related party. Under the sublease, rent was payable at approximately $17,000 to $20,000 per month and was set to expire in September 2029. In addition, the Organization had a deemed sublease with NB & Co. for office equipment with monthly payments of approximately $250 through January 2026. As the new space was not available to be used until the beginning of 2023 and the office equipment lease commenced in November 2022, these leases resulted in the Organization recording operating sublease right -of -use assets and corresponding sublease obligations of $1,281,852. during the year ended June 30, 2023. During the years ended June 30, 2024 and 2023, cash paid to NB & Co. under the sublease obligations totaled $120,625 and $149,878, respectively. The operating subleases in place did not contain information to determine the rate implicit in the leases. As such, the Organization utilized the risk -free discount rates based on the assumed remaining lease term for the leases to calculate the present value of the remaining lease payments. (Continued) 14. 18-20 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 NOTE 6 — COMMITMENTS AND CONTINGENCIES (Continued) The components of sublease cost for the years ended June 30, 2024 and 2023 were as follows: 2024 2023 Operating sublease cost $ 128,475 $ 192,470 Variable lease cost, including property taxes, insurance, and maintenance 1,272 3,452 $ 129,747 $ 195,922 Total sublease cost was included in other expenses in the accompanying statements of activities. Due to the creation of MAP during the year ended June 30, 2024, the sublease was transferred from the Organization to MAP, effective February 1, 2024 (see Note 1). Commitments: The Organization also has several commitments for databases and services regarding marketing, promotion and other contracts ranging from approximately $390 to $18,000 per month over various terms with 14 months or less remaining at June 30, 2024. From these commitments, the Organization incurred approximately $544,000 and $669,000 of expenses for the years ended June 30, 2024 and 2023, 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, 2024 and 2023. Due to the rights of termination per the TOT Agreement, these commitments are considered due each June and December. Indemnities: The Organization has made certain indemnities, under which it may be required to make payments to an 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. The duration of the indemnities varies, and is generally tied to the life of the agreement. These 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 in the accompanying statements of financial position. NOTE 7 — 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, 2024 and 2023 was approximately $70,000 and $91,000, respectively, and is included in salaries and benefit expenses in the accompanying statements of activities. (Continued) 15. 18-21 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) STATEMENTS OF CASH FLOWS Years ended June 30, 2024 and 2023 NOTE 8 — RELATED PARTY TRANSACTIONS During the years ended June 30, 2024 and 2023, the Organization had transactions with related parties that are also non-profit organizations. NB & Co. is related through the sharing of management and administrative employees between entities, common board members, and the service agreement discussed below. MAP is related through the TBID business that was transferred from the Organization. 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 needs 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 $63,000 and $108,000, respectively, for the years ended June 30, 2024 and 2023. 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 sublease rent and related facility costs, payroll and related benefits, and other direct marketing costs. For the years ended June 30, 2024 and 2023, the Organization incurred $1,765,755 and $2,041,913, 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, 2024 and 2023 were broken out as follows: $50,427 and $130,831, respectively, of direct marketing, $1,319,260 and $1,316,087, respectively, of salaries and benefits, and $396,068 and $594,995, respectively, of other (including rent and related facility costs). The Agreement, as amended, expires on December 31, 2024. In addition, payroll and related expenses from shared employees employed under NB & Co. are allocated to the Organization. During the years ended June 30, 2024 and 2023, payroll and related expenses of $279,885 and $272,160, respectively, were allocated to the Organization. As of June 30, 2024 and 2023, the Organization has net related -party payables to NB & Co. of $102,263 and $199,937, respectively, in the accompanying statements of financial position. As of June 30, 2024 and 2023, the Organization has net related -party receivables from MAP of $22,645 and $0, respectively, in the accompanying statements of financial position. These amounts do not bear interest, are not collateralized, and have no stated repayment terms. 16. 18-22 SUPPLEMENTAL INFORMATION 18-23 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) SCHDULE I — STATEMENT OF FINANCIAL POSITION BY FUNDING SOURCE June 30, 2024 TOT* TBID Eliminations Total ASSETS Current assets Cash and cash equivalents $ 1,217,431 $ - $ - $ 1,217,431 Short-term investments 2,222,415 - - 2,222,415 Accounts receivable 1,185 - - 1,185 Related -party receivables, net 22,645 - - 22,645 Prepaid expenses and other current assets 387,669 - - 387,669 Total current assets 3,851,345 - - 3,851,345 Property and equipment, net 2,626 - - 2,626 Website development costs, net 68,254 - - 68,254 Deposits and other assets 9,619 - - 9,619 Total assets $ 3,931,844 $ - $ - $ 3,931,844 LIABILITIES AND NET ASSETS WITHOUT DONOR RESTRICTIONS Current liabilities Accounts payable $ 40,793 $ - $ - $ 40,793 Related party payables, net 102,263 - - 102,263 Accrued expenses 94,796 - - 94,796 Total current liabilities 237,852 - - 237,852 Sublease obligations, net of current portion - - - - Total current liabilities 237,852 - - 237,852 Net assets without donor restrictions 3,693,992 - - 3,693,992 $ 3,931,844 $ - $ - $ 3,931,844 17. 18-24 VISIT NEWPORT BEACH INC. (A Non -Profit Organization) SCHDULE II — STATEMENT OF ACTIVITIES BY FUNDING SOURCE Year ended June 30, 2024 TOT" TBID Eliminations Total Support and revenues Service fee revenues $ 6,826,001 $ 3,556,834 $ - $ 10,382,835 Advertising and other income 28,400 - - 28,400 Interest income 147,410 76,429 - 223,839 Total support and revenue 7,001,811 3,633,263 - 10,635,074 Expenses Marketing 7,434,068 2,118,623 - 9,552,691 Salaries and benefits - 1,173, 885 - 1,173, 885 Other 112,900 278,498 - 391,398 Depreciation and amortization 2,959 21,226 - 24,185 Total operating expenses 7,549,927 3,592,232 - 11,142,159 Change in net assets without donor restrictions before expenses related to TBID dissolution (548,116) 41,031 - (507,085) Expenses related to TBID dissolution Cash paid to hotels not continuing services under MAP - 667,676 - 667,676 Cash paid to MAP for transferring hotels - 3,299,020 - 3,299,020 Total expenses related to TBID dissolution - 3,966,696 - 3,966,696 Change in net assets without donor restrictions (548,116) (3,925,665) - (4,473,781) Net assets without donor restrictions, beginning of year 4,242,108 3,925,665 - 8,167,773 Net assets without donor restrictions, end of year $ 3,693,992 $ - $ - $ 3,693,992 *Includes balances for other marketing and administrative costs. 18. 18-25 Attachment B Newport Beach and Company Audited Financial Statements for the Year Ended June 30, 2024 18-26 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) FINANCIAL STATEMENTS June 30, 2024 and 2023 18-27 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) FINANCIAL STATEMENTS June 30, 2024 and 2023 CONTENTS INDEPENDENT AUDITOR'S REPORT.................................................................................................. 1 FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION 3 STATEMENTS OF ACTIVITIES....................................................................................................... 4 STATEMENTS OF CASH FLOWS................................................................................................... 5 NOTES TO FINANCIAL STATEMENTS.......................................................................................... 6 18-28 Crowe INDEPENDENT AUDITOR'S REPORT Board of Directors Newport Beach & Company Newport Beach, CA Opinion Crowe LLP Independent Member Crowe Global We have audited the accompanying financial statements of Newport Beach & Company (a non-profit organization) (the "Organization"), which comprise the statement of financial position as of June 30, 2024 and the related statements of activities and cash flows for the year 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, 2024 and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audit 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. Emphasis of Matter As discussed in Note 8 to the financial statements, the Organization has significant transactions with related non-profit organizations. Our opinion is not modified with respect to this matter. Other Matter The financial statements of Newport Beach & Company as of and for the year ended June 30, 2023 were audited by other auditors whose report dated September 25, 2023 expressed an unmodified opinion on those statements with an emphasis of matter related to the significant transactions with related non-profit organizations. 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. (Continued) 18-29 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. Auditor's 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 auditor's 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 GAAS, 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. to Crowe LLP Costa Mesa, California September 27, 2024 2. 18-30 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) STATEMENTS OF FINANCIAL POSITION June 30, 2024 and 2023 2024 2023 ASSETS Current assets: Cash $ 238,034 $ 47,669 Accounts receivable 11,796 11,259 Related -party receivables, net 152,919 199,937 Prepaid expenses and other current assets 99,785 80,238 Total current assets 502,534 339,103 Operating lease right -of -use assets, net 1,999,694 2,327,598 Deferred sublease income 58,578 46,352 Property and equipment, net 97,753 131,873 Other 25,000 50,000 $ 2,683,559 $ 2,894,926 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable $ 14,188 $ 13,535 Accrued expenses 258,176 180,692 Accrued payroll and related expenses 157,671 129,576 Current portion of operating lease liabilities 340,867 303,454 Current portion of deferred compensation 25,000 25,000 Total current liabilities 795,902 652,257 Operating lease liabilities, net of current portion 1,775,982 2,116,848 Deferred compensation, net of current portion 25,000 50,000 Total liabilities 2,596,884 2,819,105 Net assets without donor restrictions 86,675 75,821 $ 2,683,559 $ 2,894,926 See accompanying notes to financial statements. C3 18-31 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) STATEMENTS OF ACTIVITIES For the Years Ended June 30, 2024 and 2023 Support and revenues: Service fees from related parties Sublease income Community marketing income Total support and revenues Expenses: Marketing Salaries and benefits Other Depreciation Total expenses Increase in net assets without donor restrictions Net assets without donor restrictions, beginning of year Net assets without donor restrictions, end of year 2024 2023 $ 1,873,755 $ 2,149, 913 220,242 195,922 114,222 164,067 2,208,219 2,509,902 117,237 141,021 1,326,496 1,585,763 718,451 727,592 35,181 20,849 10,854 34,677 75,821 41,144 $ 86,675 $ 75,821 See accompanying notes to financial statements. 4. 18-32 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2024 and 2023 Cash flows from operating activities: Increase in net assets without donor restrictions Adjustments to reconcile increase in net assets without donor restrictions to net cash provided by operating activities: Depreciation Noncash lease expense Loss on disposals of property and equipment Changes in operating assets and liabilities: Accounts receivable Related -party receivables/payables, net Prepaid expenses and other Deferred sublease income Accounts payable Accrued expenses Accrued payroll and related expenses Deferred compensation Operating lease liabilities Net cash provided by operating activities Cash flows used in investing activities: Purchases of property and equipment Net change in cash Cash at beginning of year Cash at end of year Supplemental disclosure of non -cash transactions: Operating lease right -of -use assets and operating lease liabilities recorded upon adoption of ASC 842 Operating lease right -of -use assets obtained in exchange for operating lease liabilities 2024 2023 $ 10,854 $ 34,677 35,181 20,849 327,904 358,879 - 417 (537) 47,018 5,453 (12,226) 653 77,484 28,095 (25,000) (303,453) 191,426 5,122 (197,496) 52,337 (46,352) 1,063 139,328 (9,433) (25,000) (283,475) 50,916 (1,061) (143,954) 190,365 (93,038) 47,669 140,707 $ 238,034 $ 47,669 $ - $ 140,073 $ - $ 2,563,704 See accompanying notes to financial statements. .61 18-33 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) NOTES TO FINANCIAL STATEMENTS June 30, 2024 and 2023 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 an agreement with the City to manage its public access television channel. Such services include production, administrative, and sponsorship services. This agreement, as amended, expires on December 31, 2024. 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. 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. 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, 2024 and 2023, 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, recoverability of long- lived assets, the allocation of expenses to program activities and general and administrative, and lease assumptions, including discount rates and lease terms. Actual results may differ from those estimates. (Continued) M 18-34 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) NOTES TO FINANCIAL STATEMENTS June 30, 2024 and 2023 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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, 2024, 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 and reasonable and supportable forecasts. At June 30, 2024 and 2023, the Organization considers its accounts receivable to be fully collectible and accordingly did not record an allowance for doubtful accounts. As of June 30, 2024 and 2023, no customer accounted for more than 10% and one customer accounted for 86%, respectively, of the Organization's total accounts receivable balance. 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, 2024 and 2023, $50,000 and $75,000, respectively, 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. Leases: At the inception of a contract, the Organization determines if the arrangement is, or contains, a lease. Operating lease right -of -use ("ROU") assets represent the Organization's right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term calculated using the risk -free rate commensurate with the term of the ROU asset. ROU assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The lease terms may include options to extend the lease when it is reasonably certain that the Organization will exercise that option. Leases with a term of 12 months or less are not recognized in the balance sheet. Rent expense is recognized on a straight-line basis over the lease term. The Organization accounts for lease and non -lease components as separate lease components for all its leases. (Continued) 7. 18-35 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) NOTES TO FINANCIAL STATEMENTS June 30, 2024 and 2023 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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, 2024 and 2023, 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. Support and Revenues: The Organization's service fee revenues, sublease income, and community marketing income are considered revenue under ASC 606, Revenue from Contracts with Customers. Service fee revenues are recognized upon performance of services for related parties. Sublease income is recognized on a straight-line basis over the lease term. Revenue from community marketing is recognized when the related marketing service has been completed. The Organization applies the following steps to recognize revenue related to ASC 606: 1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5. Determine the satisfaction of performance obligations 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, 2024 and 2023, 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, 2024 and 2023, 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, 2024 and 2023, 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 2020. (Continued) I] 18-36 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) NOTES TO FINANCIAL STATEMENTS June 30, 2024 and 2023 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. Subseauent Events: The Organization has evaluated subsequent events through September 27, 2024 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. Reclassification: Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Statement of Activities for the year ended June 30, 2023 to reclassify sublease income. NOTE 3 — LIQUIDITY AND AVAILABILITY At June 30, 2024, the Organization has $249,830 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 $238,034 and accounts receivable of $11,796. At June 30, 2023, the Organization has $58,928 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 $47,669 and accounts receivable of $11,259. 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 related parties (see Note 8) and revenue generated through marketing efforts. As a result, the Organization closely monitors the monthly projected and collected 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: Leasehold improvements Computer equipment Office furniture and fixtures Less accumulated depreciation and amortization (Continued) 2024 2023 $ 37,289 $ 36,230 114,933 120,780 103,346 103,346 255,568 260,356 (157,815) (128,483) $ 97,753 $ 131,873 18-37 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) NOTES TO FINANCIAL STATEMENTS June 30, 2024 and 2023 NOTE 5 - SCHEDULE OF FUNCTIONAL EXPENSES The schedules of functional expenses for the years ended June 30, 2024 and 2023 are as follows: Salaries and benefits: Salaries Payroll taxes and employee benefits Total salaries and benefits Other expenses: Marketing Office lease Repairs and maintenance Insurance Office supplies Equipment and equipment rental Postage and fees Meeting and education Professional fees and services Depreciation Loss on disposals of property and equipment Travel and related expenses Total functional expenses 2024 Program General and Activities Administrative Total $ 786,783 $ 231,766 $ 1,018,549 205,719 102,228 307,947 992,502 333,994 1,326,496 117,095 142 117,237 329,854 109,952 439,805 4,576 27,445 32,021 - 3,982 3,982 2,816 10,417 13,233 19,824 39,839 59,663 25,678 11,170 36,848 8,030 55,070 63,100 - 40,204 40,204 - 35,181 35,181 28,914 $ 1,529,289 $ (Continued) 681 29,595 668,077 $ 2,197,365 10. 18-38 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) NOTES TO FINANCIAL STATEMENTS June 30, 2024 and 2023 NOTE 5 - SCHEDULE OF FUNCTIONAL EXPENSES (Continued) 2023 Program General and Activities Administrative Total Salaries and benefits: Salaries $ 930,757 $ 325,452 $ 1,256,209 Payroll taxes and employee benefits 225,530 104,024 329,554 Total salaries and benefits 1,156,287 429,476 1,585,763 Other expenses: Marketing 140,565 456 141,021 Office lease 349,593 116,531 466,123 Repairs and maintenance 7,023 43,481 50,504 Insurance - 3,564 3,564 Office supplies 4,853 12,025 16,878 Equipment and equipment rental 28,349 38,801 67,150 Postage and fees 18,958 1,862 20,820 Meeting and education 13,608 28,046 41,654 Professional fees and services - 39,901 39,901 Depreciation - 20,849 20,849 Loss on disposals of property and equipment - 417 417 Travel and related expenses 19,794 787 20,581 Total functional expenses $ 1,739,030 $ 736,196 $ 2,475,225 NOTE 6 - COMMITMENTS AND CONTINGENCIES Lease Agreements: The Organization has operating leases for office space and office equipment rentals. In May 2022, the Organization entered into a lease for its facility. Under the lease, rent is payable at approximately $33,000 to $41,000 per month and expires in September 2029. The lease contains a five- year extension option at the end of the lease term. In addition, the Organization has a lease for office equipment with monthly payments of approximately $500 through January 2026. As the new space was not available to be used until the beginning of 2023 and the office equipment lease commenced in November 2022, these leases resulted in the Organization recording operating lease right -of -use assets and corresponding operating lease liabilities of $2,563,704 during the year ended June 30, 2023. The operating leases in place do not contain information to determine the rate implicit in the leases. As such, the Organization utilized the risk -free discount rate based on the assumed remaining lease term for the leases to calculate the present value of the remaining lease payments. At June 30, 2024, the weighted - average discount rate and the weighted average remaining lease term for the operating leases held by the Organization was 5% and 5.2 years, respectively. At June 30, 2023, the weighted -average discount rate and the weighted average remaining lease term for the operating leases held by the Organization was 5% and 6.2 years, respectively. (Continued) 11. 18-39 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) NOTES TO FINANCIAL STATEMENTS June 30, 2024 and 2023 NOTE 6 — COMMITMENTS AND CONTINGENCIES (Continued) During the years ended June 30, 2024 and 2023, cash paid for amounts included for the operating lease liabilities totaled $416,034 and $381,131, respectively. The components of lease cost for the years ended June 30, 2024 and 2023 were as follows: Operating lease cost Variable lease cost, including property taxes, insurance and maintenance Total lease cost 2024 2023 $ 440,484 $ 456,534 2,109 11,406 $ 442,593 $ 272,018 Total lease cost was included in other expenses in the accompanying statements of activities. Future minimum lease payments under non -cancelable operating leases at June 30, 2024 are approximately as follows: Years Ending June 30, 2025 $ 431,000 2026 443,000 2027 455,000 2028 470,000 2029 487,000 Thereafter 123,000 Total future minimum lease payments 2,409,000 Less: imputed interest payments (292,151) Total operating lease liabilities 2,116,849 Less: current portion (340,867) $ 1,775,982 Sublease Agreements: In May 2022, the Organization entered into an operating sublease agreement with Visit Newport Beach Inc. ("VNB"), a related party, for half of its leased space. In February 2024, the Organization entered into a new sublease agreement with Meetings Assessment Partnership ("MAP"), a related party, to assign the sublease previously agreed to with VNB. The Organization also had a deemed sublease with VNB for office equipment which was also assigned to MAP. The Organization has recorded deferred sublease income of $58,578 and $46,352 as of June 30, 2024 and 2023, respectively, which is included in the accompanying statement of financial position. During the years ended June 30, 2024 and 2024, cash received from the related -party sublessee totaled $208,017 and $149,878, respectively, and the Organization recorded sublease income of $220,242 and $195,922, respectively, in the accompanying statements of financial position. (Continued) 12. 18-40 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) NOTES TO FINANCIAL STATEMENTS June 30, 2024 and 2023 NOTE 6 — COMMITMENTS AND CONTINGENCIES (Continued) Future minimum sublease payments to be collected under non -cancelable operating subleases at June 30, 2024 are approximately as follows: Years Ending June 30, 2025 $ 215,000 2026 222,000 2027 228,000 2028 235,000 2029 244,000 Thereafter 61,000 Total future minimum sublease payments $ 1,205,000 Indemnities: The Organization has made certain indemnities, under which it may be required to make payments to an 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 indemnities varies, and is generally tied to the life of the agreement. These 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 in the accompanying statements of financial position. NOTE 7 — 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, 2024 and 2023 was approximately $63,000 and $70,000, respectively, which is recorded in salaries and benefits expenses in the accompanying statements of activities. NOTE 8 — RELATED -PARTY TRANSACTIONS During the years ended June 30, 2024 and 2023, the Organization had transactions with related parties that are also non-profit organizations. VNB and MAP are related through the sharing of management and administrative employees between entities and the service agreements discussed below. VNB is also related through common board members. (Continued) 13. 18-41 NEWPORT BEACH & COMPANY (A NON-PROFIT ORGANIZATION) NOTES TO FINANCIAL STATEMENTS June 30, 2024 and 2023 NOTE 8 — RELATED -PARTY TRANSACTIONS (Continued) 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 fees totaling $63,000 and $108,000, respectively, for the years ended June 30, 2024 and 2023. 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, 2024 and 2023, the Organization billed $1,765,755 and $2,041,913, respectively, to VNB for these fees and costs, which are recorded as service fees from related parties in the accompanying statements of activities. The Agreement, as amended, expires on December 31, 2024. MAP works to improve business conditions and the business environment for tourism for member hotels in the City of Newport Beach through the provision of marketing, sales, and special events programs, along with various other initiatives directly to promoting tourism and its associated activities. Pursuant to an Agreement for Services ("Agreement') dated June 17, 2024, the Organization was appointed by MAP, effective February 1, 2024, as a consultant MAP requires to carry out its mission and obligations to the City. The Agreement, as amended, expires on January 31, 2034. In consideration for these services, MAP agreed to pay fees totaling $45,000 for the year ended June 30, 2024, which are recorded as service fees from related parties in the accompanying statement of activities. In addition, payroll and related expenses from shared employees employed under the Organization are allocated to VNB and MAP. During the years ended June 30, 2024 and 2023, payroll and related expenses of $279,885 and $272,160, respectively, were allocated to VNB. During the years ended June 30, 2024 and 2023, payroll and related expenses of $226,695 and $0, respectively, were allocated to MAP. As of June 30, 2024 and 2023, the Organization has related -party receivables from VNB of $102,263 and $199,937, respectively, in the accompanying statements of financial position. As of June 30, 2024 and 2023, the Organization has related -party receivables from MAP of $50,656 and $0, respectively, in the accompanying statements of financial position. These amounts do not bear interest, are not collateralized and have no stated repayment terms. 14. 18-42 Attachment C Visit Newport Beach Expenditure Compliance Report for the Year Ended June 30, 2024 18-43 Crowe INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors Visit Newport Beach Inc. Crowe LLP Independent Member Crowe Global We have examined management of Visit Newport Beach Inc'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 2024 Expenditures Report, summarizing the expenditures of funds received pursuant to the Agreement during the period July 1, 2023 to June 30, 2024. The Organization's management is responsible for its assertion. Our responsibility is to express an opinion on management's assertion about Visit Newport Beach Inc.'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 whether management's assertion is fairly stated, in all material respects. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risks of material misstatement of management's assertion, whether due to fraud or error. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion. 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 Visit Newport Beach Inc.'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 2024 Expenditures Report for the year ended June 30, 2024, 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 the specified parties. oLia" to Crowe LLP Costa Mesa, California September 27, 2024 18-44 93 VISIT NEWPORT BEACH CALIFORNIA Management Statement Regarding Compliance With Certain Provisions of the Agreement Between the City of Newport Beach and Visit Newport Beach Inc. for Tourism Promotion, Branding, and Marketing Services We, as members of management of Visit Newport Beach Inc. (the "Organization"), are responsible for complying with the provisions of Section 4 of the Agreement Between the City of Newport Beach and Visit Newport Beach Inc. (collectively, the "Parties") for Tourism Promotion, Branding, and Marketing Services (the "Agreement") in that funds received by the Organization pursuant to this Agreement were expended in accordance with this Agreement. We are responsible for establishing and maintaining effective internal controls over compliance with the provisions of Section 4 of the Agreement. We have performed an evaluation of the Organization's compliance with the provisions of Section 4 of the Agreement regarding funds expended during the year ended June 30, 2024, as summarized in the attached 2024 Expenditures Report. Based on this evaluation, we assert that the Organization was in compliance with the provisions of Section 4 of the Agreement as described below: Section 4 of the Agreement requires the Organization to "develop, plan, carry out, and supervise a program to market and promote the Newport Beach brand and to promote tourism in, and serve the needs of, visitors to Newport Beach as well as increase the amount of TOT collected through their promotional activities (`Services'). Subject to the foregoing sentence, the Services shall, at a minimum, include the following: (a) the maintenance of suitable office space and the employment of competent personnel to carry out the promotional, branding and marketing duties; (b) the preparation of brochures, publications, guides, on-line promotions, social network efforts, and other marketing materials and information that inform prospective tourists and visitors of the recreational activities, cultural assets, shopping and dining opportunities, night-time stay opportunities, and natural beauty of Newport Beach; (c) the dissemination of information described in this section by way of the media, direct mail, handouts, social networking, websites, smart phone applications, or other means of distribution; and (d) the development and implementation of specific marketing programs designed to increase awareness of the Newport Beach brand and to increase business and visitor trade in Newport Beach; and (e) any additional Services when proposed by the City which are consistent with the promotion of tourism and the Newport Beach brand which are mutually agreeable and acceptable to the Parties." Visit Newport Beach Inc. IC A Gary Sherwin Preside t/CE By Lily P Urn CFO 1600 Newport Center Drive, Suite 120, Newport Beach, CA 92660 18-45 A VISIT NEWPOR I - BEACH CALIFORNIA VISIT NEWPORT BEACH, INC. 2024 Expenditures Report July 1, 2023 - June 30, 2024 2024 Expenses General and Administrative Expenses Operating Expenses 64100 - Office Supplies $ 227 64125 - Computer Software (non-deprec) 7,639 64130 - Voice and Data - Office 6 64140 - Postage 53 64145 - Shipping Charges 1,443 64150 - Bank Fees 1,171 64160 - Membership Dues 51,583 64170 - Team Meetings 1,224 Total Operating Expenses 63,346 Insurance 63300 - Board of Directors Insurance 1,778 Total Insurance 1,778 Professional Fees 64203 - Recruiting Fees 2,549 64201 - Audit Fees 9,000 64202 - Tax Preparation Fees 1,500 64204 - Legal Fees 32,320 Total Professional Fees 45,369 Travel Expenses 65100 - Airfare 740 65200 - Accommodations 728 65300 - Meals 304 65400 - Transportation Costs 92 65405 - Mileage ($0.655/mile 2023) 517 65500 - Other Travel Costs 26 Total Travel Expenses 2,407 Total General and Administrative 112,900 Advertising Expenses 66101 - Advertising - Purchased 2,187,073 66121 - Promotional Gift Cards 849 66202 - Ad/Creative Production 619,392 66205 - Photography/Video Shoots/Production 298,254 67101 - Research 181,919 Total Advertising Expenses 3,287,487 Marketing Expenses Community Relations 66212 - Community Sponsorships 150,000 67105 - Awards 17,441 67107 - Promotional Items 69,483 Total Community Relations 236,924 Event Marketing 67102 - Christmas Boat Parade 178,791 67103 - Community Partner Events 226,163 Total Event Marketing 404,954 Marketing Collateral 67301 - Inspiration Guide 180,500 67311 - Collateral Production Expenses 31,136 Total Marketing Collateral 211,636 18-46 VISIT NEWPOR I - BEACH CALIFORNIA VISIT NEWPORT BEACH, INC. 2024 Expenditures Report July 1, 2023 - June 30, 2024 Digital Marketing 67501 - Social Media 6S,S07 67502 - Website Maintenance 23,925 67503 - SEO/SEM 182,237 67504 - Content Creators/Influencers 123,027 67508 - Website Redesign Expenses 1,200 66211 - CRM Maintenance & Platform Subscript 21,216 Total Digital Marketing 417,112 Communications/Public Relations 67601 - PR Agency/Tracking/Copywriting 229,896 67602 - Media FAM Tours 70,464 67605 - Media Opportunities 578,615 67607 - Media Relations 12,493 67608 - Media Missions 3,371 Total Communications/Public Relations 894,839 Total Marketing Expenses 2,165,465 International Marketing Initiatives 67401 - International Brand Activations 105,585 67402 - International FAM Tours 47,711 67404 - International Trade Shows 54,215 67405 - International Airfare 515 67406 - International Accommodations 981 67407 - International Meals 8 67412 - International Brand Events 6,346 Total International Marketing Initiatives 215,361 NB&Company Fees B 68001 - NB&Co Fees 1,765,755 Total NB&Company Fees 1,765,755 Total Expenses 7,546,968 Other Expenditures: Fixed asset additions capitalized - Website development costs capitalized 26,505 Change in other prepaid expenses and current 36,891 liabilities, net 63,396 $ 7,610,364 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 Program Sponsorships $ 150,000 B Consist of reimbursements for costs incurred by Newport Beach & Company as follows: Class of Expense Amount Salaries/Benefits $ 1,319,260 Marketing Expenses 50,427 G&A Overhead 396,068 $ 1,765,755 18-47