TRAVEL COSTA MESA
(A Non-Profit Organization)
FINANCI
AL STATEMENTS
For The Years Ended June 30, 2023 and 2022
with
INDEPENDENT AUDITORS’ REPORT THEREON
Attachment 2
TRAVEL COSTA MESA
(A Non-Profit Organization)
TABLE OF CONTENTS
Independent Auditors' Report ................................................................................................. 1-2
Financial Statements:
Statements of Assets, Liabilities and Net Assets – Cash Basis ......................................... 3
Statements of Revenue and Expenses – Cash Basis .......................................................... 4
Notes to Financial Statements ....................................................................................... 5-12
p 949 431 0997 f 714 734 3431 2855 Michelle Dr Suite 350 Irvine CA 92606 kmjpartnerscpa.com p 818 999 5885 f 714 734 3431 32107 Lindero Canyon Rd Suite 223 Westlake Village CA 91361 INDEP
ENDENT AUDITORS’ REPORT
To the Board of Directors of
Travel Costa Mesa
Opinion
We have audited the accompanying financial statements of Travel Costa Mesa (the “Organization”), which comprise the statements of assets, liabilities and net assets – cash basis as of June 30, 2023 and 2023, and the related statements of revenue and expenses – cash basis for the years then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statemen ts present fairly, in a ll material respects, the assets, liabilities, and net assets – cash basis of the Organization as of June 30, 2023 and 2022, and revenue and expenses – cash basis for the years then ende d in accordance with the cash basis of accounting described in Note 1.
Basis for Opinion
We conducted our audits in accordance with auditing standards ge nerally 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 ethi cal 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 - Basis of Accounting
We draw attention to Note 1 of the financial statements, which describes the basis of accounting. The financial statements are prepared on the cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the cash basis of accounting described in Note 1 and for determining that the cash basis of accounting is an acceptable basis for th e preparation of the financial statements in the circumstances. Management is also responsible 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.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reason able 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 judgement 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 inte rnal 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 Organizatio n’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 ju dgment, there are conditions or events, consid ered 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, signif icant audit findings, and certain internal control- related matters that we identified during the audit.
K M J C o r b i n & C o m p a n y L L P
Irvine, California
February 2, 2024
TRAVEL COSTA MESA
(A Non-Profit Organization)
STATEMENTS OF ASSETS, LIABILITIES AND NET ASSETS - CASH BASIS
See accompanying notes to financial statements
3 June 30,
2023 2022
ASSETS
Cash $ 3,178,747 $ 2,599,536
LIABILITIES
Current liabilities $ - $ -
Commitments and contingencies
NET ASSETS
Net assets without donor restrictions 3,178,747 2,599,536
Total liabilities and net assets $ 3,178,747 $ 2,599,536
TRAVEL COSTA MESA
(A Non-Profit Organization)
STATEMENTS OF REVENUE AND EXPENSES - CASH BASIS
See accompanying notes to financial statements
4 For The Years Ended June 30,
2023 2022
CHANGE IN NET ASSETS WITHOUT DONOR RESTRICTIONS
Revenues and other income:
Business improvement ar ea assessment, net of
handling fees $ 3,168,239 $ 2,375,662
Employee retention credit 47,713 42,000
Interest income 2,338 929
Net revenues and other income 3,218,290 2,418,591
Expenses:
Hotel marketing funds 466,893 461,058
Marketing 1,208,088 569,591
Sales department 143,442 129,581
Group incentive program 37,000 31,500
Salaries and benefits (four full-time employees for 609,624 718,245 twelve months & thre e full-time employees for
five months in 2023)
General and administrative 174,032 128,931
Total expenses 2,639,079 2,038,906
Increase in net assets without donor restrictions 579,211 379,685
Net assets without donor restrictions, beginning of year 2,599,536 2,219,852
Net assets without donor restrictions, end of year $ 3,178,747 $ 2,559,536
TRAVEL COSTA MESA
(A Non-Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2023 and 2022
5 NOTE 1 – NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Activities
Travel Costa Mesa (the “Organization”) is a California non-profit corporation formed in 1995 to market the City of Costa Mesa (the “City”) as a leisure travel and group business destination.
The vision of the Organization is to be a destin ation-marketing leader by supporting and selling the City’s distinct visitor brand experiences and advocating community tourism benefits. The Organization’s mission is to enha nce and promote the City’s bra nd experience, thus increasing visitor spending for industry and community economic viability, sustainability and quality of life.
The Organization is funded by the eleven member hotels that comprise the Business Improvement Area (“BIA”) established by the City. The member hotels are Costa Mesa Marriott, Hilton Costa Mesa, Holiday Inn Express & Suite s, Residence Inn by Marriott, Av enue of the Arts, A Tribute Portfolio Hotel, Ayres Hotel, The Westin South Coast Plaza, Ramada Inn and Suites Costa Mesa, Best Western Plus Newport Mesa Inn, Crowne Plaza, and OC Hotel Costa Mesa.
California state law provides that BIA assessments are to be used for the purposes specified in the authorizing resolution that established the assessme nt. The City’s resolution that established the BIA stated that its purpose is to promote tourism to the City a nd to fund programs and activities that benefit the hotel and motel business within the City.
Basis of Presentation
The accompanying financial statements have been prepared on the cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Consequently, revenues are recognized when received rather than when earned, and expenses are recognized when disbursed rather than when the obligation is incurred.
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.
TRAVEL COSTA MESA
(A Non-Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2023 and 2022
6 NOTE 1 – NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
With donor restrictions - Net assets that are subject to donor-imposed restrictions. Some donor- imposed restrictions are temporary in nature, su ch as those that will be met by the passage of time or other events specified by the donor. Othe r donor-imposed restrictions are perpetual in nature, where the donor stipulates that such reso urces be maintained in perpetuity. Generally, the donors of these assets permit the Organizatio n 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, 2023 a nd 2022, 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 repor ted 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.
Tax Status
The Organization qualifies as a tax-exempt orga nization 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 Californi a Revenue and Taxation Code; th erefore, the Organization has no provision for federal or state income taxes. During the years ended June 30, 2023 and 2022, the Organization had no unrelated business income.
The Organization annually evaluate s 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 th e definition of an uncertain tax position under current accounting guidance. The Or ganization believes its tax positions are appropriate based on current fact s and circumstances. The Organi zation’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. At June 30, 2023 and 2022, the Organization did not have any unrecognized tax benefits.
The Organization is no longer subject to U.S. Fe deral and state income ta x examinations by tax authorities for tax years before 2019.
TRAVEL COSTA MESA
(A Non-Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2023 and 2022
7 NOTE 1 – NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Use of Estimates
The preparation of financial statements in conf ormity with the cash basis of accounting requires management to make estimates and assumpti ons that affect certain reported amounts and disclosures. Significant estimate s made by the Organization’s mana gement include, but are not limited to, the allocation of expenses to program expenses. Actual results could differ from those estimates.
Revenues and Other Income
The City levies a special assessment on the eleven-member hotels in the BIA based on the sale of overnight guest room stays. For the fiscal years ended June 30, 2023 and 2022, the levy was three percent (3%). The levy is transmitted by the hotels to the City and is remitted to the Organization, net of a one percent (1 %) handling fee. The net levy is 99.9% of the net revenues of the Organization for both of the fiscal years ended June 30, 2023 and 2022.
Other income amounts received in the year ended June 30, 2023 and 2022 consist of employee retention credit amounts received from the Internal Revenue Service totaling $47,713 and $42,000, respectively. Such amounts are not conditional and have therefore been recorded as income.
Allocated Expenses
The costs of providing program activities and supporting services have been summarized on a functional basis in Note 6. The Or ganization incurs expenses that directly relate to, and can be assigned to, a specific program or supporting activity. The Orga nization 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 speci fic 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.
TRAVEL COSTA MESA
(A Non-Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2023 and 2022
8 NOTE 2 – LIQUIDITY AND AVAILABILITY
At June 30, 2023, the Organization has $3,178,747 of financial assets available within one year of the date of the statement of assets, liabilities an d net assets – cash basis to meet cash needs for general expenditures, all of which consist of cash. None of the financial assets are subject to donor or other contractual restrictions that make them unavailable fo r general expenditures within one year of the statement of assets, liabilities and net assets – cash basis. The Organization has a goal to maintain financial assets, which consist of cash on hand to meet tw elve months of normal operating expenses. 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 the hotel room nights booked in the City each year and the subsequent portion of the levy that is allocated through the City to the Organization.
Annual revenue fluctuates depending on annual visitors to the City. As a result, the Organization closely monitors the monthly projected and received revenue to determine if any change needs to be made to budgeted expenditures.
NOTE 3 – CASH
Cash consists of demand deposits at the following institutions as of June 30:
2023 2022
Citizens Business Bank $ 757,875 $ 479,193
Pacific Premier Bank 2,762,396 2,120,343
$ 3,520,271 $ 2,599,536
The Organization maintains cash deposits at institutions which are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,00 0. At various times during 2023 and 2022, the Organization maintained balances in excess of FDIC limits. The Organization periodically reviews the quality of the financial institutions it has deposits with to minimize risk of loss.
NOTE 4 – HOTEL MARKETING FUNDS EXPENSE
During portions of each of the fiscal year s ended June 30, 2023 and 2022, the Organization allocated $200 per room to each BIA member hot el for hotel-specific ma rketing purposes. The allocation subsidizes hotel-specific advertising and marketing efforts that may also include the Organization’s logo. Vendor invoices are either paid by the hotel and reimbursed by the Organization or paid directly by the Organization.
TRAVEL COSTA MESA
(A Non-Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2023 and 2022
9 NOTE 4 – HOTEL MARKETING FUNDS EXPENSE, continued
Samples of advertising and marketing material must be submitted showing the Organization’s logo for reimbursement. For advertising or marketing material where the Organization’s logo cannot be used, the Organization requests that the hotel partners use the following verbiage, “Hotel partner name is a proud partner of Travel Costa Mesa.” Hotel marketing funds expense totaled $466,893 and $461,058 for fiscal years ended June 30, 2023 and 2022, respectively. If the hotels do not use all their allocated funds, the funds revert to the Organization.
NOTE 5 – GROUP INCENTIVE PROGRAM
The Organization has a group incenti ve program which is used fo r certain qualifying groups and was created to assist the Organization’s partners and the City with group business. The group incentive program funds totaled $37,000 and $31,500 during the years ended June 30, 2023 and 2022, respectively. The fiscal 2023 group incentive funds were paid from the Organization’s operating account and the fiscal 2022 group incen tive funds were paid fr om the Organization’s bank reserves.
NOTE 6 – MARKETING EXPENSE
The Organization incurs marketing expenses rela ted to its mission of promoting the City as a tourist destination. For the fiscal years ended June 30, 2023 and 2022, marketing expenses totaled $1,208,088 and $569,591, respectively.
Marketing expenses include online marke ting, video and photogra phy production, community sponsorships, electronic collateral, print advertising, various promotions, and tradeshow costs.
TRAVEL COSTA MESA
(A Non-Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2023 and 2022
10 NOTE 7 – STATEMENT OF FUNCTIONAL EXP
ENSES
The statements of functional expenses for the years ended June 30 are as follows:
2023 2022
Program
Activities
General and
Administrative Total Total
(Summarized)
Salar
ies and benefits $ 490,737 $ 118,887 $ 609,624 $ 718,245 Marketing 7,951 - 7
,951
11,798
Hotel marketing funds 466,893 -
466,893 461,058
Online marketing 1,200,137 -
1,200,137 557,793
Sales department 143,442 - 143,442 129,581
Group incentive program 37,000 -
37,000
31,500
Office and copier leases 38,367 9,280 47 ,647
29,140
Travel, meetings, conferences and mileage 33,806 -
33,806
20,822
Accounting and fees -
13,800
13,800
10,350
Insurance -
21,359
21,359
20,642
Dues and subscriptions -
12,345
12,345
10,065
Moving expenses -
- - 9,344
Office supplies -
11,591 11 ,591
8,185
Telephone and internet 5,935 11,397
17,332 17,750
Banking charges -
335
335
325
Filing fee and state assessment - 28
28 139
Postage -
317
317
151
Parking -
281
281
382
Recruiting services -
855
855
1,296
Professional services -
14,336 14 ,336
340
Total functional expenses $ 2,424,268 $ 214,811 $ 2,639,079 $ 2,038,906 NOTE 8 – COMMITMENTS AND CONTINGENCIE
S
Guarantee
s and Indemnities
The Organization has made certain indemnities and guarantees, under which it may be required to make p
ayments to a guaranteed or indemnified party, in relation to certain actions or transactions.
The Organization indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of California. In connection with its facility leas e, the Organization has indemnified its lessor for certain claims arising fr om the use of the facil ities. The duration of the guarantees and indemnities varies and is genera lly tied to the life of the agreement. These guarantees and indemnitie s 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 th ese obligations and, therefore, no liabilities have been recorded for these indemnities and guarant ees in the accompanying st atements of assets, liabilities and net assets – cash basis.
TRAVEL COSTA MESA
(A Non-Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2023 and 2022
11 NOTE 8 – COMMITMENTS AND CONTINGENCIES, continued
Operating Leases
The Organization has a lease for office space through October 2024. The Organization also has a lease for a color copier through September 30, 2028. Total rent expense for the fiscal years ended June 30, 2023 and 2022 totaled $47,647 and $29,140, respectively.
Future minimum lease obligations as of June 30, 2023 consist of the following:
Years Ending
June 30,
2024 $ 43,275
2025 15,960
2026 1,800
2027 1,800
2028 1,800
Thereafter 450
$ 65,085
Litigation
In the ordinary course of business, the Orga nization may face various claims brought by third parties and they may, from time to time, make claims or take legal actions to assert their rights.
Any of these claims could subject the Organization to costly litigation and, while the Organization generally believes that it has adequate insuran ce to cover many different types of potential liabilities, its insurance carriers may deny coverage or its policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the Or ganization’s operations a nd financial position.
Additionally, any such claims, whether or no t successful, could damage the Organization’s reputation and business.
NOTE 9 – EMPLOYEE BENEFIT PLAN
The Organization sponsors a defined contribution sala ry deferral plan (the “Plan”) covering all employees. Beginning in April 2012, the Board of Directors agreed to Safe Harbor contributions of 3% of the eligible employee’s salary. During each of the fiscal years ended June 30, 2023 and 2022, Safe Harbor contributions totaled approximately $15,000, which are recorded in salaries and benefits in the accompanying statements of revenue and expenses – cash basis.
TRAVEL COSTA MESA
(A Non-Profit Organization)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2023 and 2022
12 NOTE 10 – RISKS AND UNCE
RTAINTIES
Due to the nature of the Organization’s business, the Organization’s revenue is entirely dependent on the City and the member hotels. The City established the BIA and collects the BIA levy from the eleven hotels in Costa Mesa and the member hotels are voluntary participants (see Note 1). A cancellation of the BIA or withdrawal of the member hotels would adversely and severely impact the Organization’s financial position.
NOTE 11 – SUBSEQUENT EVENTS
Management has evaluated and determined that no other events have occurred through February 2, 2024 the date that the financia l statements were issued, which would require inclusion or disclosu
re in its financial statements, except as disclosed herein.