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The Center for Arts Education, Inc. Financial Statements (Together with Independent Auditors’ Report) Years Ended June 30, 2018 and 2017


THE CENTER FOR ARTS EDUCATION, INC. FINANCIAL STATEMENTS (Together with Independent Auditors’ Report) YEARS ENDED JUNE 30, 2018 AND 2017

CONTENTS Page

Independent Auditors' Report........................................................................................................................................ 1 Statements of Financial Position .................................................................................................................................. 2 Statements of Activities ............................................................................................................................................... 3 Statements of Functional Expenses ............................................................................................................................. 4 Statements of Cash Flows ............................................................................................................................................ 5 Notes to Financial Statements ................................................................................................................................ 6-11


Marks Paneth LLP 685 Third Avenue New York, NY 10017 P 212.503.8800 F 212.370.3759 markspaneth.com

INDEPENDENT AUDITORS' REPORT The Board of Directors of The Center for Arts Education, Inc. We have audited the accompanying financial statements of The Center for Arts Education, Inc. (“CAE”), which comprise of the statements of financial position as of June 30, 2018 and 2017, and the related statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Center for Arts Education, Inc. as of June 30, 2018 and 2017, and the changes in its net assets and its cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 3 to the financial statements, CAE has suffered recurring losses. Management’s plans regarding these matters are also described in Note 3. Our opinion is not modified with respect to this matter.

New York, NY February 7, 2019


THE CENTER FOR ARTS EDUCATION, INC. STATEMENTS OF FINANCIAL POSITION AS OF JUNE 30, 2018 AND 2017

2018 ASSETS Cash and cash equivalents (Notes 2C and 10A) Investments (Notes 2D and 5) Contributions and grants receivable (Notes 2F, 2G and 4) Accounts receivable (Note 2G) Prepaid and other assets Property and equipment, net (Notes 2E and 6) TOTAL ASSETS

LIABILITIES Accounts payable and accrued expenses Deferred rent obligation (Note 2K)

2017

$

191,075 1,011,031 459,109 84,923 4,498

$

323,158 1,334,901 514,356 3,900 96,854 2,146

$

1,750,636

$

2,275,315

$

140,951 94,651

$

96,372 105,822

TOTAL LIABILITIES

235,602

202,194

1,444,332 70,702

1,697,159 375,962

1,515,034

2,073,121

COMMITMENTS AND CONTINGENCIES (Note 7) NET ASSETS (Note 2B) Unrestricted Temporarily restricted (Note 9) TOTAL NET ASSETS TOTAL LIABILITIES AND NET ASSETS

$

1,750,636

$

The accompanying notes are an integral part of these financial statements.

2,275,315

-2-


THE CENTER FOR ARTS EDUCATION, INC. STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED JUNE 30, 2018 AND 2017

Year Ended June 30, 2018 Temporarily Unrestricted Restricted SUPPORT AND REVENUE: Public Support: Foundations, corporations, individuals and other (Note 2B) Special events, net of direct expenses of $37,517 in 2018 and

$

$24,126 in 2017 (Note 2I) Contributions in-kind (Note 2H) Total Public Support

487,589

$

155,401

$

642,990

466,995

$

617,500

$

1,084,495

-

246,947

205,893

-

205,893

5,481

-

5,481

16,163

-

16,163

895,418

689,051

418,313

534,099

(6,086) 37,779 875,256 381,581

155,401

Governmental Support (Note 10B)

418,313

Revenue: Interest and investment income (loss) (Note 5) Other revenue Fee income Net assets released from restrictions (Notes 2B and 9)

1,130 5,738 404,222 460,661

(460,661)

1,130 5,738 404,222 -

871,751

(460,661)

411,090

2,030,081

(305,260)

TOTAL SUPPORT AND REVENUE

$

TOTAL 2017

246,947

740,017

Total Revenue

Year Ended June 30, 2017 Temporarily Unrestricted Restricted

TOTAL 2018

-

617,500

1,306,551

-

534,099

(381,581)

(6,086) 37,779 875,256 -

1,288,530

(381,581)

906,949

1,724,821

2,511,680

235,919

2,747,599

EXPENSES: Program services Management and general Fundraising

1,649,564 309,494 323,850

-

1,649,564 309,494 323,850

2,045,860 313,451 406,353

-

2,045,860 313,451 406,353

TOTAL EXPENSES

2,282,908

-

2,282,908

2,765,664

-

2,765,664

CHANGE IN NET ASSETS (Note 3)

(252,827)

Net assets - beginning of year NET ASSETS - END OF YEAR

(305,260)

1,697,159 $

1,444,332

(558,087)

375,962 $

70,702

(253,984)

2,073,121 $

1,515,034

The accompanying notes are an integral part of these financial statements.

235,919

1,951,143 $

1,697,159

(18,065)

140,043 $

375,962

2,091,186 $

2,073,121

-3-


THE CENTER FOR ARTS EDUCATION, INC. STATEMENTS OF FUNCTIONAL EXPENSES FOR THE YEARS ENDED JUNE 30, 2018 AND 2017

Year Ended June 30, 2018 Program Services Salaries Payroll taxes and employee benefits (Note 8)

$

Total Salaries and Related Costs School based programming School based programming (Scholarship) Conferences Rent (Note 7) Travel Professional fees (Note 2H) Performance fees Program supplies Office expense Telephone Insurance Equipment rental and maintenance Fundraising/hospitality Depreciation and amortization (Note 6) Bad debts Miscellaneous expense Subtotal TOTAL EXPENSES

$

926,486 168,111

Management and General $

100,611 18,256

Year Ended June 30, 2017 TOTAL 2018

Fundraising $

192,971 35,015

$

1,220,068 221,382

Program Services $

1,244,986 178,058

Management and General $

132,422 18,939

TOTAL 2017

Fundraising $

290,769 41,586

$

1,668,177 238,583

1,094,597

118,867

227,986

1,441,450

1,423,044

151,361

332,355

1,906,760

115,359 30,000 20,740 161,365 17,646 91,355 13,486 25,430 25,629 11,557 26,216 1,717 14,467

3,393 17,523 2,349 143,486 7,754 1,255 6,683 2,847 187 3,579 1,571

33,609 68 26,077 5,631 2,407 5,460 19,241 358 3,013

115,359 30,000 24,133 212,497 20,063 260,918 13,486 25,430 39,014 15,219 6,683 34,523 19,241 2,262 3,579 19,051

148,737 33,000 23,176 157,307 18,199 66,154 33,507 66,799 28,159 16,858 20,198 992 9,730

4,662 16,732 3,226 120,540 2,946 1,793 6,401 2,148 105 2,452 1,085

128 36,739 232 1,476 6,469 3,937 4,717 17,796 232 2,272

148,737 33,000 27,966 210,778 21,657 188,170 33,507 66,799 37,574 22,588 6,401 27,063 17,796 1,329 2,452 13,087

554,967

190,627

95,864

841,458

622,816

162,090

73,998

858,904

1,649,564

$

309,494

$

323,850

$

2,282,908

$

2,045,860

$

313,451

$

406,353

$

2,765,664

The accompanying notes are an integral part of these financial statements. -4-


THE CENTER FOR ARTS EDUCATION, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2018 AND 2017

2018 CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets

$

(558,087)

2017

$

(18,065)

Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation and amortization expense Bad debt expense Realized/unrealized loss on investments Subtotal Changes in operating assets and liabilities: Decrease (increase) in assets: Contributions and grants receivable Accounts receivable Prepaid and other assets (Decrease) increase in liabilities: Accounts payable and accrued expenses Deferred rent obligation Net Cash Used in Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments Proceeds from investment sales Purchase of property and equipment Net Cash Provided by Investing Activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents - beginning of year CASH AND CASH EQUIVALENTS - END OF YEAR

$

2,262 3,579 49,372

1,329 2,452 69,925

(502,874)

55,641

51,668 3,900 11,931

(219,128) 8,714 6,170

44,579 (11,171)

(17,587) 4,511

(401,967)

(161,679)

(50,502) 325,000 (4,614)

(64,048) 250,000 -

269,884

185,952

(132,083)

24,273

323,158

298,885

191,075

$

The accompanying notes are an integral part of these financial statements.

323,158

-5-


THE CENTER FOR ARTS EDUCATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 NOTE 1 – ORGANIZATION AND NATURE OF ACTIVITIES The Center for Arts Education, Inc. (“CAE”) was organized in 1996 under the Not-For-Profit Corporation Law of the State of New York, and is dedicated to ensuring that public school students have quality arts learning as an essential part of their K-12 education. In addition to its capacity-building programs in New York City public schools, CAE provides information and resources that demonstrate the benefits of, and need for arts education as part of a quality, balanced education for all children in New York City, New York State, and nationwide. CAE works to:    

Raise awareness of the value of arts learning for every child. Increase public consciousness about the need for dedicated arts curricula in the New York City public schools. Provide tools, support, and actionable strategies for educators, parents, elected officials, and others to implement arts programming and advocate for equitable education that includes the arts. Influence educational and fiscal policies that will support arts education in all of the city's public schools.

Since its founding, CAE has implemented sustainable arts programs in hundreds of schools; provided highquality professional development to teachers, artists, and administrators; created long-term partnerships between schools and cultural institutions; implemented programs that involve parents in arts education; opened doors for high school students exploring careers in the creative industries; published resources for educators and parents to replicate the success of their peers, and engaged with elected officials and decision makers providing topical information and reports on arts education issues and concerns. CAE has been granted exemption from Federal income tax pursuant to Section 501(c)(3) of the Internal Revenue Code. CAE receives a significant portion of its support and revenue from private foundations, corporations, individuals and government funding sources. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A.

Basis of Accounting – CAE’s financial statements have been prepared on the accrual basis of accounting. CAE adheres to accounting principles generally accepted in the United States of America (“U.S. GAAP”).

B.

Basis of Net Asset Presentation – CAE distinguishes between contributions that increase temporarily restricted net assets and unrestricted net assets depending on the existence and/or nature of any donor restrictions. CAE reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions.

C.

Cash Equivalents – CAE considers all highly liquid instruments purchased with maturities of three months or less to be cash equivalents, except cash equivalents held in brokerage accounts as part of CAE’s investments.

D.

Investments – Investments are stated at fair value. Fair value measurements are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy prioritizes observable and unobservable inputs used to measure fair value into three levels, as described in Note 5.

E.

Property and Equipment – Property and equipment is stated at cost less accumulated depreciation and amortization. The amount does not purport to represent replacement or realizable value. CAE capitalizes all assets having a useful life of more than one year and a cost greater than or equal to $1,000. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful lives or the term of the lease. Other property and equipment is depreciated using the straight-line method over its estimated useful life. -6-


THE CENTER FOR ARTS EDUCATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) F.

Contributions Receivable – Contributions and grants receivable are recorded at net realizable value if expected to be collected in one year and at fair value if expected to be collected in more than one year. CAE does not discount long term pledges receivable unless material.

G.

Allowance for Uncollectible Receivables – As of June 30, 2018 and 2017, CAE determined that an allowance for doubtful accounts receivable was not necessary. Such estimates are based on management’s judgment of the creditworthiness of its donors and grantors, historical experience and periodic review of the receivable status.

H.

In-Kind Goods and Services – CAE records contributed goods and services at their fair value on the date received. For the years ended June 30, 2018 and 2017, CAE received $5,481 and $16,163, respectively, of contributed goods and services. The donated goods and services consisted of legal services, and the venues for the special events and are recorded as both income and expense in the accompanying financial statements.

I.

Special Events – The direct costs of special events include expenses incurred for the benefit of the donor. Such direct costs include meals and facilities rental.

J.

Use of Estimates – The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures at the date of the financial statements, the reported amounts of revenues, and expenses during the reported period. Actual results could differ from those estimates.

K.

Deferred Rent – CAE leases real property under an operating lease agreement that contains scheduled future rent increases. Since the rent payments increase over time, CAE records an adjustment to rent expense each year to reflect its straight-line policy. During the years ended June 30, 2018 and 2017, CAE recorded adjustments to rent expense to reflect the difference between the rent paid and the average rent to be paid over the term of the lease amounting to approximately $(11,000) and $4,500, respectively, as a (decrease)/increase in rent expense. Straight-lining of rent gives rise to a timing difference that is reflected as a liability in the accompanying statements of financial position.

L.

Reclassification – Certain line items in the June 30, 2017 financial statements have been reclassified to conform to the June 30, 2018 presentation.

NOTE 3 – RECURRING LOSSES CAE had losses of $558,087 (a loss of $252,827 from unrestricted net assets and a loss of $305,260 from temporarily restricted net assets) and $18,065 (a loss of $253,984 from unrestricted net assets and a gain of $235,919 from temporarily restricted net assets) for the years ended June 30, 2018 and 2017, which resulted predominantly from a decrease of funding including public support, governmental support, and fee income. Management is aware of the need to continue to improve the financial condition of CAE. Management is in the process of obtaining new contracts with funding sources (government, foundation, and individual) which will bring in additional revenue streams to CAE. This will increase revenue and continue to improve cash flow. Management has also been able to reduce its expenditures as a result of the decrease of funding. Management expects that during the year ending June 30, 2019, its cash flow will be sufficient to cover its operating costs.

NOTE 4 – CONTRIBUTIONS AND GRANTS RECEIVABLE Contributions and grants receivable consisted of the following as of June 30: 2018 Collectible within one year

$

459,109

2017 $

514,356 -7-


THE CENTER FOR ARTS EDUCATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017

NOTE 5 – INVESTMENTS Investments consisted of the following as of June 30: 2018 Cash and money market

$

Fixed income

2017

68,061

$

942,970 $

224,780 1,110,121

1,011,031

$

1,334,901

Interest and investment (loss)/income consisted of the following for the years ended June 30: 2018 Interest income Realized/unrealized loss on investments

$

Less: Investment management fees

55,387 (49,372) 6,015

2017 $

(4,885) $

1,130

69,097 (69,925) (828) (5,258)

$

(6,086)

The fair value hierarchy defines three levels as follows: Level 1: Valuations based on quoted prices (unadjusted) in an active market that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Valuations based on observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in inactive markets; or model-derived valuation in which all significant inputs are observable or can be derived principally from or corroborated with observable market data. Level 3: Valuations based on unobservable inputs are used when little or no market data is available. The fair value hierarchy gives lowest priority to Level 3 inputs. This is not applicable to CAE. In determining fair value, CAE utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible in its assessment of fair value. The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value to another. In such instances, the transfer is reported at the end of the reporting period. We evaluated the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total net assets available for benefits. For the years ended June 30, 2018 and 2017, there were no significant transfers in or out of levels 1 and 2.

-8-


THE CENTER FOR ARTS EDUCATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 NOTE 5 – INVESTMENTS (Continued) Financial assets carried at fair value as of June 30, 2018, are classified as Level 1 and Level 2 in the table as follows: 2018 Total

Level 2

Level 1 ASSETS CARRIED AT FAIR VALUE Investments: Money market funds Fixed Income: Asset backed securities Municipal bonds Corporate bonds TOTAL ASSETS CARRIED AT FAIR VALUE

$

68,061

$

$

68,061

-

$

28,157 50,068 864,745

28,157 50,068 864,745 $

942,970

68,061

$

1,011,031

Financial assets carried at fair value as of June 30, 2017, are classified in the table as follows: Level 1

2017 Total

Level 2

ASSETS CARRIED AT FAIR VALUE Investments: Money market funds Fixed Income: Asset backed securities Municipal bonds Corporate bonds

TOTAL ASSETS CARRIED AT FAIR VALUE

$

224,780

$

-

$

224,780

-

$

46,029 129,814 934,278

46,029 129,814 934,278

$

1,110,121

224,780

$

1,334,901

The following is a description of the valuation methodologies used for assets measured at fair value. Money Market Funds: Money market funds are valued using market prices in active markets. Mutual Funds: Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by CAE are open-end mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily NAV and to transact at that price. Asset Backed Securities: Asset backed securities are valued using pricing models maximizing the use of observable inputs for similar securities. Municipal Bonds: Municipal bonds are valued using pricing models maximizing the use of observable inputs for similar securities. Corporate Bonds: Corporate bonds are valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings.

-9-


THE CENTER FOR ARTS EDUCATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 NOTE 6 – PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of June 30: 2018 Computer software Leasehold improvements

$

Total cost Less: accumulated depreciation and amortization Net book value

$

6,921 4,372

$

2017

Estimated Useful Lives

2,307 4,372

3 Years 3 Years

11,293

6,679

(6,795)

(4,533)

4,498

$

2,146

Depreciation and amortization expense amounted to $2,262 and $1,329 for the years ended June 30, 2018 and 2017. For the year ended June 30, 2017, CAE wrote off $87,668 of fully depreciated fixed assets. NOTE 7 – COMMITMENTS AND CONTINGENCIES A. CAE has a ten year operating lease agreement for office space located at 520 Eighth Avenue, New York City that commenced on July 1, 2012. The lease includes an annual rental escalation of 2.5% per year commencing in the second year of the lease and continuing in succeeding years thereafter for the term of the lease and includes a base rent change from $29 per sq.ft. to $31 per sq.ft. in year six. Additionally, CAE received a rent abatement for the first three months of the lease. The following is a schedule by years of the future lease payments for the years ending after June 30, 2018: 2019 2020 2021 2022

$

199,800 204,800 209,900 215,200

$

829,700

Real property lease expense amounted to $212,497 and $210,778 for the years ended June 30, 2018 and 2017, respectively, and is included in the accompanying statements of functional expenses. B. CAE believes it has no uncertain tax positions as of June 30, 2018 and 2017 in accordance with Accounting Standards Codification (“ASC”) Topic 740, Income Taxes which provides standards for establishing and classifying any tax provision for uncertain tax positions. NOTE 8 – RETIREMENT PLAN CAE maintains a pension plan in accordance with the provisions of Section 403(b) of the Internal Revenue Code. This plan is available to all eligible employees. CAE contributes 4% of each employee’s gross compensation and matches each employee’s tax deferred annuity contribution, subject to a maximum of 8% of gross compensation. CAE contributed $14,441 and $18,107 to the pension plan for the years ended June 30, 2018 and 2017, respectively. Such amounts are included in payroll taxes and employee benefits in the accompanying financial statements.

- 10 -


THE CENTER FOR ARTS EDUCATION, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 NOTE 9 – TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following as of June 30: 2018 Time and purpose restricted

2017

$

70,702

$

375,962

$

70,702

$

375,962

Net assets were released from restrictions by incurring expenses or the passage of time thus satisfying the restricted purposes for the years ended June 30 as follows: 2018 School arts investment School based residency Arts education initiative Parents as arts partners Career development Advocacy / communications Teaching and learning

$

$

104,948 9,585 2,500 77,498 216,630 49,500 460,661

2017 $

$

115,096 5,000 2,500 92,500 143,985 22,500 381,581

NOTE 10 – CONCENTRATIONS A. Concentration of Credit Risk Cash and cash equivalents that potentially subject CAE to a concentration of credit risk include cash accounts with various financial institutions that exceeded the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As of June 30, 2018 and 2017, there was approximately $0 and $155,000, respectively, of cash and cash equivalents held at one bank that exceeded FDIC limits. Such excess includes outstanding checks. The bank has passed its most recent stress test as of February 7, 2019. B. Concentration of Revenue CAE derives a significant portion of its revenue from contractual arrangements with governmental sources. Such revenue approximated 24% and 19% of total support and revenue for the years ended June 30, 2018 and 2017, respectively. This revenue is subject to audit and possible adjustment by the various governmental agencies. NOTE 11 – SUBSEQUENT EVENTS CAE has evaluated events subsequent to the date of the statement of financial position through February 7, 2019, the date the financial statements were available to be issued.

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