12 - Annual Review of Visit Newport Beach Audited Financial Statements and Expenditure Report — Newport Beach City Council, October 25, 2022

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CITY OF
z NEWPORT BEACH
c�<,FORN'P City Council Staff Report
October 25, 2022
Agenda Item No. 12
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Michael Gomez, Acting Finance Director/Treasurer - 949-644-3124, [email protected]
PREPARED BY: Michael Gomez, Acting Finance Director/Treasurer, [email protected]
PHONE: 949-644-3124
TITLE: Annual Review of Visit Newport Beach Audited Financial Statements and Expenditure Report
ABSTRACT:

In accordance with Sections 6(d) and 6(e) of the City of Newport Beach's agreement with Visit Newport Beach (VNB), originally entered into on September 27, 2011, and amended on August 5, 2015, VNB's audited financial statements, management letters, and compliance expenditure report for the year ending June 30, 2022, are attached for the City Council's review. Due to the significant fees paid to Newport Beach & Company by VNB for services, Newport Beach & Company's audited financial statements and management letters are also included for the City Council's review.

RECOMMENDATION:
a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; and
b) Receive and file.

DISCUSSION:

The following reports are subject to review by the City Council:

Audited Financial Statements and Management Letters
VNB shall submit to the City of Newport Beach (City) audited financial statements for its most recently ended year, including any management letter associated with the audited financial statements. The City Council shall review the audited financial statements and management letters.
12-1

Annual Review of Visit Newport Beach Audited Financial Statements and Expenditure Report
October 25, 2022

Page 2 ends

Expenditure Report
VNB shall submit an expenditure report, which shall be certified by VNB and a Certified Public Accountant to the effect that the funds received pursuant to the agreement were expended in accordance with the agreement in the previous fiscal year for purposes authorized by the agreement. This report shall include reasonable detail in support of the certification, including expenditures for or contributions to special events and not -for -profit organizations in Newport Beach. VNB reports that $1,698,743 was paid to Newport Beach & Company to reimburse for costs incurred by Newport Beach & Company, which is approximately 34% of VNB's total reported expenditures. Therefore, Newport Beach & Company's financial statements are also included for City Council review.

The audited financial statements and expenditure report were reviewed by the audit firm of KMJ Corbin & Company. Its review indicated that the financial statements of both Newport Beach & Company and Visit Newport Beach presented fairly, in all material respects, the financial position of each entity. In other words, the audit of both entities was clean with no audit findings. The firm's review of the required expenditure report indicated that it concurred with the assertion by VNB's management that VNB has complied with the applicable provisions of the agreement with the City relative to expenditures.

FISCAL IMPACT:

Under its agreement with the City, VNB receives 18% of all Transient Occupancy Tax revenue collected by the City to fund destination marketing services and activities.

Additionally, VNB receives revenue from the Newport Beach Tourism Business Improvement District (TBID), which is funded by a levy of 3% of most revenues from short- term stays at participating lodging businesses within the City. The TBID funds are dedicated to meeting and event sales promotion and marketing programs. Total revenues from these sources, as outlined in the attached financial statements, amounted to approximately $9.4 million in 2022, up from $4.8 million in 2021 due to the recovery from the COVID-19 pandemic.

ENVIRONMENTAL REVIEW:

Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly.

NOTICING:

The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). 12-2

Annual Review of Visit Newport Beach Audited Financial Statements and Expenditure Report
October 25, 2022

Page 3 ends

ATTACHMENTS:

Attachment A —Visit Newport Beach Audited Financial Statements for the Year Ended June 30, 2022, and Accompanying Management Letter dated September 19, 2022 (Exhibit 1)
Attachment B — Newport Beach and Company Audited Financial Statements for the Year Ended June 30, 2022, and Accompanying Management Letter dated September 19, 2022 (Exhibit 2)
Attachment C — Visit Newport Beach Expenditure Compliance Report for the Year Ended June 30, 2022
12-3

Attachment A
Visit Newport Beach Audited Financial Statements for the Year Ended June 30, 2022, and Accompanying Management Letter dated September 19, 2022 (Exhibit 1) 12-4

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
For The Years Ended June 30, 2022 and 2021
with

INDEPENDENT AUDITORS' REPORT THEREON
12-5

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

TABLE OF CONTENTS
Independent Auditors' Report.................................................................................................1-2 Financial Statements:

Statements of Financial Position........................................................................................ 3 Statementsof Activities..................................................................................................... 4 Statementsof Cash Flows.................................................................................................. 5 Notes to Financial Statements.......................................................................................6-19 Supplemental Information:

Schedule I — Statement of Financial Position by Funding Source ................................... 20 Schedule 11— Statement of Activities by Funding Source ............................................... 21 12-6

KJ� �j J I Corbin &
lvl Company
Business Advisors Tax and Audit
Independent Auditors' Report
Board of Directors
Visit Newport Beach Inc.

We have audited the accompanying financial statements of Visit Newport Beach Inc. (a non-profit organization) (the "Organization"), which comprise the statements of financial position as of June 30, 2022 and 2021, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Organization as of June 30, 2022 and 2021, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America ("GAAS"). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Organization and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Related -Party Transactions
As discussed in Note 9 to the financial statements, the Organization has significant transactions with a related non-profit organization. Our opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Organization's ability to continue as a going concern for one year after the date that the financial statements are issued. p 949 431 0997 f 714 544 1034 2855 Michelle Dr Suite 350 Irvine CA 92606 kmipartnerscpa.com p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364 12-7

Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GARS, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Organization's ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control —related matters that we identified during the audit.

Supplemental Information
Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental information contained in Schedules I and II on pages 20-21 is presented for purposes of additional analysis and is not a required part of the 2022 financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the 2022 financial statements. The information has been subjected to the auditing procedures applied in the audit of the 2022 financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the 2022 financial statements or the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the 2022 financial statements as a whole. kM� Cj,, t ljj�" LLP
KMJ Corbin & Company LLP
Irvine, California
September 19, 2022
12-8

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

STATEMENTS OF FINANCIAL POSITION
June 30,
2022 2021
ASSETS
Current assets:

Cash and cash equivalents $ 4,792,516 $ 5,918,574
Short-term investments 2,952,978 -
Prepaid expenses and other current assets 425,427 182,475 Total current assets 8,170,921 6,101,049
Property and equipment, net 29,520 19,541
Deposits and other assets 9,619 9,619
$ 8,210,060 $ 6,130.209

LIABILITIES AND NET ASSETS
Current liabilities:

Accounts payable $ 363,348 $ 100,796
Related party payables, net 2,441 17,611
Accrued expenses 26,451 41,041
Accrued payroll and related expenses 72,529 74,727
Group booking incentive reserve 55,620 6,500
Loan payable, current portion - 3,256
Total current liabilities 520,389 243,931
Deferred rent, net of current portion - 3,071
Loan payable, net of current portion - 146,024
Total liabilities 520,389 393,026
Commitments and contingencies
Net assets without donor restrictions 7,689,671 5,737,183 $ 8,210,060 $ 6,130.209
See accompanying notes to financial statements
3 12-9

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

STATEMENTS OF ACTIVITIES
For The Years Ended June 30,
2022 2021
Support and revenues:

Service fee revenues $ 9,445,421 $ 4,757,188
Interest income 2,272 3,677
Other income - 22,800
Total support and revenues 9,447,693 4,783,665
Expenses:

Marketing (including $1,806,743 and $1,248,512
to Newport Beach & Company during 2022
and 2021, respectively — see Note 9) 5,997,635 2,310,049 Salaries and benefits 1,121,805 799,805
Other 363,044 290,796
Depreciation and amortization 12,721 108,854
Total expenses 7,495,205 3,509,504
Change in net assets without donor restrictions 1,952,488 1,274,161 Net assets without donor restrictions, beginning of year 5,737,183 4,463,022 Net assets without donor restrictions, end of year $ 7,689,671 S 5.737.183 See accompanying notes to financial statements
4 12-10

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

STATEMENTS OF CASH FLOWS
For The Years Ended June 30,
2022
2021
Cash flows from operating activities:

Change in net assets without donor restrictions
$ 1,952,488
$ 1,274,161
Adjustments to reconcile change in net assets without
donor restrictions to net cash provided by operating
activities:

Depreciation and amortization
12,721
108,854
Loss on disposals of property and equipment
1,627
-
Accrued interest income
(1,498)
887
Changes in operating assets and liabilities:

Accounts receivable
-
145,623
Related -party receivables/payables, net
(15,170)
50,350
Prepaid expenses and other current assets
(242,952)
15,210
Accounts payable
262,552
9,445
Accrued expenses
(14,590)
7,701
Accrued payroll and related expenses
(2,198)
47,217
Group booking incentive reserve
49,120
(24,800)
Deferred rent
(3,071)
(19,052)
Net cash provided by operating activities
1,999,029
1,615,596
Cash flows from investing activities:

Purchases of property and equipment
(24,327)
-
Purchases of investments
(6,569,480)
(6,466,614)
Proceeds from sales/maturities of investments
3,618,000
9,072,000
Net cash (used in) provided by investing activities
(2,975,807)
2,605,386
Cash flows used in financing activities:

Payments on loan payable
(149,280)
(720)
Net change in cash and cash equivalents
(1,126,058)
4,220,262
Cash and cash equivalents at beginning of year
5,918,574
1,698,312
Cash and cash equivalents at end of year
$ 4,792,516
$ 5918.574
Supplemental disclosure of cash flow information:

Cash paid during the year for interest
$ 3,816
$ 4,046
See accompanying notes to financial statements
S
12-11

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 1— ORGANIZATION
Nature of Operations
Visit Newport Beach Inc. (the "Organization") is a non-profit organization formed under the laws of the State of California.

Transient Occupancy Tax("TOT")
The Organization has an agreement ("TOT Agreement") with the City of Newport Beach (the "City") through December 31, 2024 to promote tourism and serve the needs of visitors to the City.

Under the terms of the TOT Agreement, the Organization is responsible to develop, plan, carry out and supervise a program to market and promote the Newport Beach brand and to promote tourism in, and serve the needs of, visitors to the City as well as increase the amount of Transient Occupancy Tax collected through its promotional activities.

The City collects a Transient Occupancy Tax as well as a Visitor's Service Fee applied to the transient rental of lodging rooms (collectively, the "TOT"). The City pays the Organization 18% of the annual TOT in monthly installments. As the Organization is not entitled to its share of the TOT until paid by the City, amounts are recognized as revenue when received.

The City shall have the right, in its sole discretion, to adjust the payment (increase or decrease the percentage of TOT paid to the Organization) as part of its once -annual budget adoption process for any reason after notice to the Organization and an opportunity for the Organization to formally comment on the adjustment. For the years ended June 30, 2022 and 2021, the Organization received approximately 60% and 65%, respectively, of its service fee revenues from the City through the TOT. The City has the right to terminate the TOT Agreement, without cause, by giving the Organization 365 days' written notice of its intention to terminate. Should the City reduce or stop its funding to the Organization due to the Organization's default or termination of the TOT Agreement, the Organization's operations will be impacted.

Tourism Business Improvement District ("TBID")
The Newport Beach Tourism Business Improvement District ("NBTBID") was established April 28, 2009, and expires on January 31, 2024, pursuant to the Management District Plan, as amended (the "Plan"). The NBTBID is funded by assessments levied on participating lodging businesses within a specified district. The assessments are restricted for use for sales promotion and marketing programs to market the City as a tourist, meeting and event destination as outlined in 6 12-12

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 1— ORGANIZATION, continued
the Plan. Either parry may terminate this agreement by providing the other parry ninety calendar days' written notice prior to the effective date of termination. As the Organization is not entitled to its share of the assessments collected until paid by the City, amounts are recognized as revenue when received. For the years ended June 30, 2022 and 2021, the Organization received approximately 40% and 35%, respectively, of its service fee revenues from the City through TBID assessments.

As of June 30, 2022 and 2021, the NBTBID is represented by nine (9) hotels within the City of Newport Beach which collect a 3.0% tax on short-term stays. The City is entitled to 0.25% of the receipts annually for the collection of the assessments and disbursements of the NBTBID.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of donor -imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows:

Without donor restrictions — Net assets that are not subject to donor -imposed stipulations.

These assets are available to support the Organization's general activities and operations at the discretion of the Board of Directors.

With donor restrictions —Net assets that are subject to donor -imposed restrictions. Some donor - imposed restrictions are temporary in nature, such as those that will be met by the passage of time or other events specified by the donor. Other donor -imposed restrictions are perpetual in nature, where the donor stipulates that such resources be maintained in perpetuity. Generally, the donors of these assets permit the Organization to use all or part of the income earned on related investments for general or specific purposes.

As of and for the years ended June 30, 2022 and 2021, the Organization had no net assets with donor restrictions.
7 12-13

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Revenues are reported as increases in net assets without donor restrictions unless use of the related assets is limited by donor -imposed restrictions. Expenses are reported as decreases in net assets without donor restrictions. Gains and losses on investments and other assets are reported as increases or decreases in net assets without donor restrictions unless their use is restricted by explicit donor stipulations or by law.

Use of Estimates
The preparation of financial statements requires the Organization to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by the Organization's management include, but are not limited to, fair value of investments and the allocation of expenses to program activities and general and administrative. Actual results may differ from those estimates.

Cash and Cash Equivalents
The Organization considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Organization maintains its cash and cash equivalent balances at various financial institutions. The total cash balances are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000 per institution. At June 30, 2022, the Organization had approximately $4,557,000 of uninsured cash and cash equivalent balances.

The Organization periodically reviews the quality of the financial institutions it has deposits with to minimize risk of loss. To date, no losses have been incurred.

Investments and Fair Value Measurements
Investments and cash equivalents consist of U.S. Treasury Bills which are carried at amortized cost, which approximates fair value.
8 12-14

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or in the absence of a principal market, the most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs in priority that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities; Level 2—Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (such as interest rates and yield curves, credit risks, and default rates) or other inputs that are principally derived from or corroborated by observable market data by correlation or by other means; and Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of the Organization's U.S. Treasury Bills are based partially upon quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the assets. These instruments have been classified within Level 2 of the valuation hierarchy.

As of June 30, 2022, the Organization's investments measured at fair value on a recurring basis were as follows:

Short-term investments:

U.S. Treasury Bills
June 30. 2022
Quoted Prices in
Significant
Active Markets
Significant Other Unobservable
for Identical
Observable Inputs
Assets (Level 1)
Inputs (Level 2) (Level 3)
9 12-15

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Property and Equipment
Property and equipment are stated at cost. Donated assets are recorded at their fair market value when received. The cost of purchased assets or fair market value of donated assets is depreciated using the straight-line method over the estimated useful lives of the related assets which range from three to seven years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the related lease term. Maintenance and repairs are charged to expense as incurred.

Significant renewals and betterments are capitalized.

It is the Organization's policy to capitalize property and equipment over $1,500. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is reflected in the statements of activities.

Website Development Costs
The Organization accounts for the costs of developing its mobile apps and websites by capitalizing the costs during the application development stage when it is probable that the project will be completed and the property will be used to perform the function intended. Website development costs are amortized on a straight-line basis over their estimated useful lives when completed, which are typically the earlier of approximately three years or term based on estimated disposal date. The recoverability of website development costs is evaluated periodically, taking into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.

For the years ended June 30, 2022 and 2021, the Organization capitalized website development costs of $0 and $0, respectively.

For the years ended June 30, 2022 and 2021, the Organization recorded amortization expense on website development costs totaling $0 and $96,628, respectively.

Impairment of Long -Lived Assets
The Organization evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write -down would be recorded to reduce the related asset to its estimated fair value. At June 30, 2022 and 2021, the Organization's management believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Organization's services will continue, which could result in impairment of long-lived assets in the future.
10 12-16

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Group Booking Incentive
The Organization has established an incentive program for businesses by paying for certain costs of conferences and group meetings held in Newport Beach hotels in order to attract businesses and groups to the City. Costs are considered incurred upon the reservation of the hotel for future meetings. As of June 30, 2022 and 2021, group booking accruals were $55,620 and $6,500, respectively.

Contributed Materials and Services
Donated materials and other noncash contributions (if any) are reflected in the accompanying financial statements at their estimated fair market values at date of receipt. Contributions of services are recognized if the services received create or enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. Other volunteer services that do not meet these criteria are not recognized in the financial statements as there is no objective basis of deriving their value.

One of the services provided by the Organization in its efforts to promote the City is to organize site inspections and other promotional events with a variety of potential visiting groups. These groups are introduced by the Organization's staff to the various hotels, restaurants, and other local businesses involved in the tourism industry in Newport Beach. All businesses visited are also sponsors of the Organization. Many of the Organization's sponsors contribute materials, such as meals and rooms, in connection with this program. During the years ended June 30, 2022 and 2021, the Organization determined there were no significant contributed materials and services.

Additionally, a substantial number of unpaid volunteers have made significant contributions of time to the Organization. No amounts have been reflected in the financial statements for these contributions as they do not meet the required criteria.

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued The Organization annually evaluates tax positions as part of the preparation of its exempt tax return. This process includes an analysis of whether tax positions the Organization takes with regard to a particular item of income or deduction would meet the definition of an uncertain tax position under current accounting guidance. The Organization believes its tax positions are appropriate based on current facts and circumstances. The Organization's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. At June 30, 2022 and 2021, the Organization did not have any unrecognized tax benefits.

The Organization is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years before 2018.

Allocated Expenses
The costs of providing program activities and supporting services have been summarized on a functional basis in Note 5. The Organization incurs expenses that directly relate to, and can be assigned to, a specific program or supporting activity. The Organization also conducts a number of activities which benefit both its program objectives as well as supporting services. These costs, which are not specifically attributable to a specific program or supporting activity, are allocated by management on a consistent basis among program and supporting services benefited, based on either financial or nonfinancial data, such as headcount, occupancy or estimates of time and effort incurred by personnel.

Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the statement of financial position. ASU 2016-02, as amended, is effective for reporting periods beginning after December 15, 2021. While still evaluating this update, the Organization expects the adoption of this update to have a material effect on its financial condition due to the recognition of the lease rights and obligations as assets and liabilities. The Organization does not expect this update to have a material effect on its results of operations and cash flows.
12 12-18

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued In September 2020, the FASB issued ASU 2020-07, Presentation and Disclosures by Not -for - Profit Entities for Contributed Nonfinancial Assets (Topic 958), which requires the Organization to change its financial statement presentation and disclosure of contributed nonfinancial assets, or gifts -in -kind. ASU 2020-07 defines gifts -in -kind as contributed nonfinancial assets donations made for goods or services the Organization would purchase in the normal course of business.

Gifts -in -kind of tangible property include items like operating facilities, utilities, office furniture, and supplies provided to the Organization; items donated to the Organization to be auctioned through charitable events; and items used in program activities, such as medical supplies, building supplies, appliances, and fixtures. Intangible gifts -in -kind include items like copyrights, patents, and royalties; specialized volunteer services, such as those from nurses for medical organizations or project managers and builders for construction projects; and expertise, such as accounting, legal, and consulting services. The Organization adopted ASU 2020-07 during the current year with no significant impact on its financial statements.

Subsequent Events
The Organization has evaluated subsequent events through September 19, 2022, the date which the financial statements were available to be issued. Based upon its evaluation, management has determined that no subsequent events have occurred that would require recognition in the accompanying financial statements or disclosure in the notes thereto except as disclosed herein.

NOTE 3 — LIQUIDITY AND AVAILABILITY
At June 30, 2022, the Organization has $7,745,494 of financial assets available within one year of the statement of financial position date to meet cash needs for general expenditures consisting of cash and cash equivalents of $4,792,516 and short-term investments of $2,952,978. None of the financial assets are subject to donor or other contractual restrictions that make them unavailable for general expenditures within one year of the statement of financial position. The Organization has a goal to maintain financial assets, which consist of cash, cash equivalents and short-term investments, on hand to meet 180 days of operating expenses, which are, on average, approximately $395,000 per month. The Organization has a policy to structure its financial assets to be available as its general expenditures, liabilities, and other obligations come due. The Organization invests cash in excess of daily requirements in various short-term treasury instruments.
13 12-19

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 3 — LIQUIDITY AND AVAILABILITY, continued
Funding for the Organization is dependent on the hotel room nights booked in certain Newport Beach hotels each year and the subsequent portion of the TOT that is allocated through the City to the Organization and the portion of the TBID assessments that are sent to the Organization from the TBID participants. Annual revenue fluctuates depending on annual visitors to Newport Beach.

As a result, the Organization closely monitors the monthly projected and received revenue to determine if any change needs to be made to budgeted annual expenditures.

NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
2022 2021
Leasehold improvements $ - $ 38,468
Computer equipment 21,213 40,516
Office furniture and fixtures 121,159 136,812
142,372 215,796
Less accumulated depreciation and amortization (112,852) tl96,255) $ 29,520 $ 19.541
For the years ended June 30, 2022 and 2021, the Organization recorded depreciation expense on property and equipment totaling $12,721 and $12,226, respectively. 14 12-20

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

Salaries and benefits:

Salaries
Payroll taxes and employee benefits
Total salaries and benefits
Other expense:

Marketing
Office lease
Repairs and maintenance
Insurance
Office supplies
Equipment and equipment rental
Postage and other dues and fees
Meeting and education
Professional fees and services
Bad debt
Interest
Depreciation and amortization
Loss on property and equipment disposals
Travel and related
Total functional expenses
2022
Program General and 2021
$ 650,628 $
177,045
$ 827,673
$ 585,598
241,436
52,696
294,132
214,207
892,064
229,741
1,121,805
799,805
5,510,576
487,059
5,997,635
2,310,049
89,512
29,837
119,349
118,143
7,225
28,076
35,301
18,683
-
6,414
6,414
7,651
-
6,245
6,245
3,518
14,355
27,152
41,507
30,829
61,165
4,229
65,394
63,243
5,000
30,691
35,691
16,347
-
30,596
30,596
26,304
-
-
-
557
-
3,816
3,816
4,046
-
12,721
12,721
108,854
-
1,627
1,627
-
17,104
17,104
1,475
$ 6, 997,001 $
998,204
$ 7.495.205
$ 3, 009,504
The Organization incurred expenses related to program activities totaling approximately $2,854,000 for the year ended June 30, 2021.

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 6 — LOAN AGREEMENT
On June 3, 2020, the Organization entered into an Economic Injury Disaster Loan (the "Loan") administered by the U.S. Small Business Administration. The loan had an original principal balance of $150,000, bore interest at 2.75% per annum and was set to mature on June 3, 2050. The loan required monthly payments beginning in June 2021. Payments were first applied to interest accrued and then principal. The amount borrowed under the Loan was guaranteed by substantially all of the Organization's assets. The Organization used all the proceeds of this Loan solely as working capital to alleviate economic injury caused by COVID-19. The Loan contained customary events of default, and the occurrence of an event of default may result in a claim for the immediate repayment of all amounts outstanding under the Loan. The Organization paid the loan in full during the year ended June 30, 2022.

The facility lease contains a five-year extension option at the end of the lease term. In May 2022, the Organization entered into a lease amendment for a smaller lease space. Under the amended lease, allocated rent is payable at approximately $17,000 per month and expires in September 2029.

Allocated rent expense incurred by the Organization under this operating lease was approximately $119,000 and $118,000 for the years ended June 30, 2022 and 2021, respectively, and is included in other expenses. Such amounts are net of the amounts paid by the related party pursuant to the Agreement disclosed in Note 9.
16 12-22

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 7 — COMMITMENTS AND CONTINGENCIES, continued
Future minimum payments due on the Organization's allocated portion of the non -cancelable facility lease commitment in excess of one year are as follows:

Years Ending
June 30,
2023
$ 148,000
2024
205,000
2025
213,000
2026
220,000
2027
228,000
thereafter
540,000
$ 1,554.000
Commitments
The Organization also has several commitments for databases and services regarding marketing, promotion and other contracts ranging from approximately $820 to $9,000 per month over various terms with 24 months or less remaining at June 30, 2022. From these commitments, the Organization incurred approximately $502,000 and $253,000 of expenses for the years ended June 30, 2022 and 2021, respectively, which are recorded in marketing expenses in the accompanying statements of activities.

The Organization has a commitment to contribute $150,000 annually, commencing on June 1, 2014 through December 31, 2024, to the City to be spent on programs or activities that benefit the public, which is recorded in marketing expenses for the years ended June 30, 2022 and 2021. Due to the rights of termination per the agreement, these commitments are considered due each June and December.
17 12-23

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 7 — COMMITMENTS AND CONTINGENCIES, continued
Guarantees and Indemnities
The Organization has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain actions or transactions.

The Organization indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of California. Pursuant to the TOT Agreement, the Organization also indemnifies the City and all of its related boards, councils, officers, employees, and volunteers from claims related to the conduct of the Organization or any of its officers, employees, or associated individuals. In connection with its facility lease, the Organization has indemnified its lessor for certain claims arising from the use of the facilities. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Organization could be obligated to make. Historically, the Organization has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying statements of financial position.

NOTE 8 — RETIREMENT PLAN
The Organization has a 401(k) retirement plan (the "Plan") covering all eligible employees. The Plan provides for voluntary employer contributions. The total Plan expense during the years ended June 30, 2022 and 2021 was approximately $73,000 and $28,000, respectively, and is included in salaries and benefit expenses in the accompanying statements of activities.

NOTE 9 — RELATED -PARTY TRANSACTIONS
During the years ended June 30, 2022 and 2021, the Organization had transactions with a related party that is also a non-profit organization. The related entity, NB & Co., specializes in marketing and promotion services that promote economic development with the City. Pursuant to an Agreement for Services ("Agreement") dated April 1, 2013, the Organization appointed NB & Co. as an exclusive provider of services that the Organization shall need to carry out its mission and obligations to the City. In consideration for these services, the Organization agreed to pay NB & Co. annual fees totaling $108,000 for the years ended June 30, 2022 and 2021. The Organization has also agreed to reimburse NB & Co. for all reasonable expenses incurred by it in carrying out its duties to the Organization, including rent and related facility costs, payroll and related benefits, and other direct marketing costs. For the years ended June 30, 2022 and 2021, the Organization incurred $1,698,743 and $1,140,512, respectively, from NB & Co. for these costs, which are recorded in marketing expenses in the accompanying statements of activities. NB & Co.'s costs for the years ended June 30, 2022 and 2021 were broken out as follows: $104,653 and $33,305, respectively, of direct marketing, $1,085,958 and $770,095, respectively, of salaries and benefits, and $508,132 and $337,112, respectively, of other (including rent and related facility costs). The Agreement, as amended, expires on June 30, 2024.
18 12-24

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 9 — RELATED -PARTY TRANSACTIONS, continued
As of June 30, 2022 and 2021, the Organization has net related -party payables of $2,441 and $17,611, respectively, in the accompanying statements of financial position. These amounts do not bear interest, are not collateralized, and have no stated repayment terms. 19 12-25

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

SCHEDULE I - STATEMENT OF FINANCIAL POSITION BY FUNDING SOURCE June 30, 2022
Current assets:

Cash and cash equivalents
Short-term investments
Prepaid expenses and other
current assets
Total current assets
Property and equipment, net
Deposits and other assets
Current liabilities:

TOT* TBID
$ 2,545,363 $ 2,247,153
1,801,633 1,151,345
317,770 107,657
4,664,766 3,506,155
5,527 23,993
9,619 -
$ 4.679.912 $ 3.530.148
Accounts payable $ 229,390 $ 133,958
Related -party payables, net 1,487 954
Accrued expenses 6,000 20,451
Accrued payroll and related
expenses - 72,529
Group booking incentive reserve - 55,620
Total current liabilities 236,877 283,512
Net assets without donor restrictions 4.443.035 3.246.636 $ 4.679.912 $ 3.530.148
* Includes balances for other marketing and administrative costs.

Eliminations Total
$ - $ 4,792,516
- 2,952,978
425,427
- 8,170,921
- 29,520
- 9,619
$ $ 8.210.060
$ - $ 363,348
- 2,441
- 26,451
- 72,529
- 55,620
- 520,389
- 7,689,671
20 12-26

VISIT NEWPORT BEACH INC.
(A Non -Profit Organization)

SCHEDULE II - STATEMENT OF ACTIVITIES BY FUNDING SOURCE For The Year Ended June 30, 2022
Support and revenues:

Service fee revenues
Interest income
Total support and revenues
Expenses:

Marketing
Salaries and benefits
Other
Depreciation and amortization
Total expenses
Change in net assets without donor
restrictions
Net assets, beginning of year
Net assets, end of year
TOT* TBID
$ 5,676,588 $ 3,768,833
1,427 845
5,678,015 3,769,678
4,712,080 1,285,555
- 1,121,805
55,154 307,890

5.511 7.210
4,772,745 2,722,460
905,270 1,047,218
3,537,765 2,199,418
$ 4.443.035 $ 3.246.636
* Includes balances for other marketing and administrative costs.

Eliminations Total
$ - $ 9,445,421
- 2,272
9,447,693
5,997,635
1,121,805
363,044

12.721
7,495,205
1,952,488
5,737,183
21 12-27

Exhibit 1
Visit Newport Beach Audited Financial Statements for the Year Ended June 30, 2022, Accompanying Management Letter dated September 19, 2022 12-28

KJ� �j J I Corbin &
lvl Company
Business Advisors Tax and Audit
September 19, 2022
To the Board of Directors of
Visit Newport Beach Inc.
1600 Newport Center Drive
Newport Beach, California 92660
We have audited the financial statements of Visit Newport Beach Inc. (the "Organization") as of and for the year ended June 30, 2022, and have issued our report thereon dated September 19, 2022.

Professional standards require that we advise you of the following matters relating to our audit.

Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated May 26, 2022, our responsibility, as described by professional standards, is to form and express an opinion about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of its respective responsibilities.

Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control over financial reporting. Accordingly, as part of our audits, we considered the internal control of the Organization solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.

In conjunction with the annual audit, we also performed an examination of management's assertion included in the Management Statement Regarding Compliance with Certain Provisions of the Agreement Between the City of Newport Beach and the Organization for Tourism Promotion, Branding, and Marketing Services (the "Agreement"), that the Organization complied with the provisions in Section 4 of the Agreement regarding the 2022 Expenditures Report, summarizing the expenditures of funds received pursuant to the Agreement during the year ended June 30, 2022.

However, we are not required to design procedures for the purpose of identifying other matters to communicate to you.

Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously communicated to you.
p 949 431 0997 f 714 544 1034 2855 Michelle Dr Suite 350 Irvine CA 92606 kmjpartnerscpa.com p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364 12-29

September 19, 2022

Page 2 ends

Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, and our firm have complied with all relevant ethical requirements regarding independence.

As part of the audit, we assisted you in preparing a draft of your financial statements and related notes, a nonattest service. With respect to any nonattest service we performed, the Organization's management has been responsible for (a) making all management decisions and performing all management functions; (b) assigning a competent individual to oversee the services; (c) evaluating the adequacy of the services performed; (d) evaluating and accepting responsibility for the results of the services performed; and (e) establishing and maintaining internal controls, including monitoring ongoing activities.

Audit Focus Areas Identified
We have identified the following audit focus areas:
• Management override of internal controls was considered a focus area as this is a pervasive risk that could affect many audit areas and could affect amounts reported in the financial statements.
• Improper revenue recognition was considered a focus area due to the inherent risk in revenue recognition.
• Related -party transactions was considered a focus area due to the volume of related -party transactions, in addition to the disclosure requirements related to such transactions. • Support for expenses was considered a focus area due to the volume of expenses and the need to verify existence and completeness of expenses, along with accuracy and proper classification.

Qualitative Aspects of the Entity's Significant Accounting Practices Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the Organization is included in Note 2 to the financial statements. Other than the adoption of ASU 2020-07, Presentation and Disclosures by Not -for -Profit Entities for Contributed Nonfinancial Assets (Topic 958), there have been no initial selection of accounting policies and no changes in significant accounting policies or their application during the year ended June 30, 2022. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. 12-30

September 19, 2022

Page 3 ends

Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on management's current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management's current judgments. Significant estimates made by the Organization's management include, but are not limited to, fair value of investments and the allocation of expenses to program activities and general and administrative.
• Management's estimate of the fair value of investments is based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or in the absence of a principal market, the most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. • Management's estimate of allocation of expenses to program activities and general and administrative is based on assessing the purpose and nature of the expenditures incurred during the year.

We evaluated the key factors and assumptions used to develop the estimates and determined that they are reasonable in relation to the financial statements taken as a whole.

Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the Organization's financial statements relate to related -party transactions.

Significant Unusual Transactions
For purposes of this communication, professional standards require us to communicate to you significant unusual transactions identified during our audit. There were no significant unusual transactions identified as a result of our audit procedures that were brought to the attention of management.

Identified or Suspected Fraud
We have not identified or obtained information that indicates that fraud may have occurred.

Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of the audit.
12-31

September 19, 2022

Page 4 ends

Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole. There were no uncorrected misstatements during the year ended June 30, 2022.

In addition, professional standards require us to communicate to you all corrected misstatements that were brought to the attention of management as a result of our audit procedures. There were no corrected misstatements that we identified as a result of our audit procedures that were brought to the attention of, and corrected by, management.

Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the Organization's financial statements or the auditors' report.

No such disagreements arose during the course of the audit.

Circumstances that Affect the Form and Content of the Auditor's Report For purposes of this letter, professional standards require that we communicate any circumstances that affect the form and content of our auditors' report. We have not identified or obtained information that affect the form and content of the Auditors' Report.

Representations Requested from Management
We have requested certain written representations from management, which are included in a separate letter dated September 19, 2022.

Management's Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters.

Other Significant Findings or Issues
In the normal course of our professional association with the Organization, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the Organization, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the Organization's auditors.
12-32

September 19, 2022

Page 5 ends

Supplemental Information
The supplementary information contained in Schedules I and II of the financial statements is presented for purposes of additional analysis and is not a required part of the 2022 financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the 2022 financial statements. The information has been subjected to the auditing procedures applied in the audit of the 2022 financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the 2022 financial statements or the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America.

This report is intended solely for the information and use of the Board of Directors and management of the Organization, and is not intended to be and should not be used by anyone other than these specified parties.

Very truly yours,
ICMJ- Ck6-'4, t *n LLP
KMJ Corbin & Company LLP
12-33

Attachment B
Newport Beach and Company Audited Financial Statements for the Year Ended June 30, 2022, and Accompanying Management Letter dated September 19, 2022 (Exhibit 2)
12-34

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
with

INDEPENDENT AUDITORS' REPORT THEREON
12-35

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

TABLE OF CONTENTS
Independent Auditors' Report.................................................................................................1-2 Financial Statements:

KJ� �j J I Corbin &
lvl Company
Business Advisors Tax and Audit
Independent Auditors' Report
Board of Directors
Newport Beach & Company
We have audited the accompanying financial statements of Newport Beach & Company (a non- profit organization) (the "Organization"), which comprise the statements of financial position as of June 30, 2022 and 2021, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Organization's ability to continue as a going concern for one year after the date that the financial statements are issued.
p 949 431 0997 f 714 544 1034 2855 Michelle Dr Suite 350 Irvine CA 92606 kmipartnerscpa.com p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364 12-37

I-MJ- C.kkr-V,4, t Com" LL-P
KMJ Corbin & Company LLP
Irvine, California
September 19, 2022
12-38

ASSETS
Current assets:

Cash
Accounts receivable
Related -party receivables, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other

LIABILITIES AND NET ASSETS
Current liabilities:

Accounts payable
Accrued expenses
Accrued payroll and related expenses
Current portion of deferred compensation
Loan payable, current portion
Total current liabilities
Deferred rent, net of current portion
Deferred compensation, net of current portion
Loan payable, net of current portion
Total liabilities
Commitments and contingencies
Net assets without donor restrictions

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

STATEMENTS OF FINANCIAL POSITION
June 30,
2022
2021
$ 140,707
$ 219,454
16,381
12,891
2,441
17,611
107,575
76,649
267,104
326,605
9,185
38,142
75,000
-
$ 351,289
$ 364.747
$ 12,472 $ 6,049
58,664 131,671
139,009 123,767
25,000 -
- 1.009
235,145 262,496
- 14,229
75,000 -
- 108,441
310,145 385,166
41,144 (20,419)
$ 351,289 $ 364.747
See accompanying notes to financial statements
3 12-39

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

STATEMENTS OF ACTIVITIES
For The Years Ended June 30,
2022 2021
Support and revenues:

Service fees from related party $ 1,806,743 $ 1,248,512 Community marketing income 153,765 227,621
Paycheck protection program grant 109,450 227,527
Total support and revenues 2,069,958 1,703,660
Expenses:

Marketing 168,354 111,740
Salaries and benefits 1,172,769 982,803
Other 647,001 532,809
Depreciation 20,271 26,701
Total expenses 2,008,395 1,654,053
Increase in net assets without donor restrictions 61,563 49,607 Net assets without donor restrictions, beginning of year (20,419) (70,026) Net assets without donor restrictions, end of year $ 41,144 $ (20.4199 See accompanying notes to financial statements
4 12-40

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)
Cash flows from operating activities:

Change in net assets without donor restrictions
Adjustments to reconcile change in net assets without
donor restrictions to net cash (used in) provided by
operating activities:

Depreciation
Forgiveness on PPP loan
Loss on disposals of property and equipment
Changes in operating assets and liabilities:

Accounts receivable
Related -party receivables/payables, net
Prepaid expenses and other current assets and other
Accounts payable
Accrued expenses
Accrued payroll and related expenses
Deferred compensation
Deferred rent
Net cash (used in) provided by operating activities
Cash flows used in investing activities:

Purchase of property and equipment
Cash flows provided by financing activities:

Proceeds from loan
Net change in cash
Cash at beginning of year
Cash at end of year

STATEMENTS OF CASH FLOWS
For The Years Ended June 30,
2022 2021
$ 61,563 $ 49,607
20,271 26,701
(109,450) -
14,038 -
(3,490)
30,862
16,185
(50,350)
(105,926)
(43,977)
6,423
(122)
(74,022)
59,149
15,242
72,106
100,000
(20,000)
(14,229)
(86,662)
(73,395) 37,314
(5,352)
- 109,450
(78,747) 146,764
219,454 72,690
$ 140,707 $ 219.454
See accompanying notes to financial statements
S
12-41

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 1— ORGANIZATION
Nature of Operations
Newport Beach & Company (the "Organization") is a non-profit organization formed under the laws of the State of California in 2013. The Organization specializes in marketing and promotion services related to enhancing the economic development for the City of Newport Beach (the "City"). The Organization currently has agreements with the City to manage its public access television channel. By embracing a variety of neighborhoods, businesses and individual unique voices into a complementary story, the Organization seeks to strengthen all of its partners, drive new revenue to the City and enhance the City's overall economic vibrancy.

Newport Beach TV ("NBTV")
The agreement between the Organization and the City provides management and consulting services in support of NBTV. Such services include production, administrative, and sponsorship services. This agreement expires on April 30, 2023.

Without donor restrictions —Net assets that are not subject to donor -imposed stipulations. These assets are available to support the Organization's general activities and operations at the discretion of the Board of Directors.

With donor restrictions - Net assets that are subject to donor -imposed restrictions. Some donor - imposed restrictions are temporary in nature, such as those that will be met by the passage of time or other events specified by the donor. Other donor -imposed restrictions are perpetual in nature, where the donor stipulates that such resources be maintained in perpetuity. Generally, the donors of these assets permit the Organization to use all or part of the income earned on related investments for general or specific purposes.
6 12-42

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

As of and for the years ended June 30, 2022 and 2021, the Organization had no net assets with donor restrictions.

Use of Estimates
The preparation of financial statements requires the Organization to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by the Organization's management include, but are not limited to, the collectability of receivables and the allocation of expenses to program activities and general and administrative. Actual results may differ from those estimates.

Cash and Cash Equivalents
The Organization considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Organization maintains its cash balances at various financial institutions. The total cash balances are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000 per institution. At June 30, 2022, the Organization had no uninsured balances. The Organization periodically reviews the quality of the financial institutions it has deposits with to minimize risk of loss. To date, no losses have been incurred.

Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts at year end. Management determines the allowance for doubtful accounts by identifying troubled accounts based on current and historical experience. At June 30, 2022 and 2021, the Organization considers its accounts receivable to be fully collectible and accordingly did not record an allowance for doubtful accounts. As of June 30, 2022 and 2021, two customers accounted for approximately 98% and 99%, respectively, of the Organization's total accounts receivable balance. 7 12-43

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

Significant renewals and betterments are capitalized.

Deferred Compensation
Deferred compensation represents a commitment to make annual $25,000 annuity payments through 2026 to a member of the Organization's management. As of June 30, 2022, $100,000 was due. Payments due within one year have been classified under prepaid expenses and other current assets and current liabilities; all other amounts have been classified as non -current assets and non- current liabilities.

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Contributed Materials and Services
Donated materials and other noncash contributions (if any) are reflected in the accompanying financial statements at their estimated fair market values at date of receipt. Contributions of services are recognized if the services received create or enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. Other volunteer services that do not meet these criteria are not recognized in the financial statements as there is no objective basis of deriving their value.

During the years ended June 30, 2022 and 2021, the Organization did not have significant contributed materials and services.

Income Tax Status
The Organization qualifies as a tax-exempt organization for Federal income taxes under Section 501(c)(6) of the United States Internal Revenue Code and for California state income taxes under Section 23701(d) of the California Revenue and Taxation Code; therefore, the Organization has no provision for federal or state income taxes. During the years ended June 30, 2022 and 2021, the Organization had no unrelated business income. The Organization annually evaluates tax positions as part of the preparation of its exempt tax return. This process includes an analysis of whether tax positions the Organization takes with regard to a particular item of income or deduction would meet the definition of an uncertain tax position under current accounting guidance. The Organization believes its tax positions are appropriate based on current facts and circumstances. The Organization's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. At June 30, 2022 and 2021, the Organization did not have any unrecognized tax benefits.

The Organization is no longer subject to income tax examinations by tax authorities for years before 2018.

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the statement of financial position. ASU 2016-02, as amended, is effective for reporting periods beginning after December 15, 2021. While still evaluating this update, the Organization expects the adoption of this update to have a material effect on its financial condition due to the recognition of the lease rights and obligations as assets and liabilities. The Organization does not expect this update to have a material effect on its results of operations and cash flows.

In September 2020, the FASB issued ASU 2020-07, Presentation and Disclosures by Not -for - Profit Entities for Contributed Nonfinancial Assets (Topic 958), which requires the Organization to change its financial statement presentation and disclosure of contributed nonfinancial assets, or gifts -in -kind. ASU 2020-07 defines gifts -in -kind as contributed nonfinancial assets donations made for goods or services the Organization would purchase in the normal course of business.

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 3 — LIQUIDITY AND AVAILABILITY
At June 30, 2022, the Organization has $157,088 of financial assets available within one year of the statement of financial position date to meet cash needs for general expenditures consisting of cash of $140,707 and accounts receivable of $16,381. None of the financial assets are subject to donor or other contractual restrictions that make them unavailable for general expenditures within one year of the statement of financial position. The Organization has a policy to structure its financial assets to be available as its general expenditures, liabilities, and other obligations come due.

Funding for the Organization is dependent on funding received from a related parry (see Note 9) and revenue generated through marketing efforts. As a result, the Organization closely monitors the monthly projected and received revenue to determine if any changes need to be made to budgeted annual expenditures.

NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
413011N
Leasehold improvements $ 7,614
Computer equipment 84,979
Office furniture and fixtures 26,351
118,944
Less accumulated depreciation and amortization (109,759) $ 9,185
2021
$ 79,990
126,456
81,409
287,855
(249,713)
$ 38.142
11 12-47

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 5 - STATEMENT OF FUNCTIONAL EXPENSES
The statements of functional expenses for the years ended June 30, 2022 and 2021 are as follows:
2022
Program General and 2021
Activities Administrative Total Total
(Summarized)
Salaries and benefits:

Salaries $
703,745 $
204,111
$ 907,856 $
781,377
Payroll taxes and employee benefits
180,986
83,927
264,913
201,426
Total salaries and benefits
884,731
288,038
1,172,769
982,803
Other expenses:

Marketing
168,146
208
168,354
111,740
Office lease
312,376
104,125
416,501
407,304
Repairs and maintenance
2,000
38,887
40,887
21,083
Insurance
-
3,207
3,207
6,086
Office supplies
-
10,122
10,122
3,580
Equipment and equipment rental
18,537
26,099
44,636
43,318
Postage and fees
18,156
2,506
20,662
18,314
Meeting and education
4,233
31,049
35,282
5,544
Professional fees and services
-
35,967
35,967
23,117
Depreciation
-
20,271
20,271
26,701
Loss on disposals of property and equipment
-
14,038
14,038
-
Travel and related
13,072
12,627
25,699
4,463
Total functional expenses
$ 1.421.251 $ 587.144 $ 2.008.395 $ 1.654.053
The Organization incurred expenses related to program activities totaling approximately $1,197,000 for the year ended June 30, 2021.

NOTE 6 - PAYCHECK PROTECTION PROGRAM GRANT/LOAN
In January 2021, the Organization entered into an unsecured promissory note for a loan (the "Loan") in the principal amount of $336,997 and received cash proceeds of the same amount, pursuant to the Paycheck Protection Program (the "PPP"), which is administered by the U.S. Small Business Administration (the "SBA"). Under the terms of the Loan, interest accrued on the outstanding principal at the rate of 1.0% per annum. The term of the Loan was five years, unless sooner required in connection with an event of default under the Loan. To the extent the Loan amount was not fully forgiven by the SBA, the Organization was obligated to make equal monthly payments of principal and interest beginning on the earlier of. (1) the date the SBA sends the loan forgiveness amount to the lender or (2) ten months after the covered 24-week period, until the maturity date.
12 12-48

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 6 — PAYCHECK PROTECTION PROGRAM GRANT/LOAN, continued The PPP provided a mechanism for forgiveness of up to the full amount borrowed. During the year ended June 30, 2021, the Organization had used $227,527 of the proceeds for purposes consistent with the PPP and believed that its use of this portion of the loan proceeds met the conditions for forgiveness. Since the Organization used $227,527 of the proceeds from the PPP Loan for such qualifying expenses before June 30, 2021, the Organization recorded this amount of the PPP Loan proceeds as a conditional cost -reimbursed government grant in the accompanying statement of activities for the year ended June 30, 2021 pursuant to relevant technical accounting guidance.

During the year ended June 30, 2022, the Organization received forgiveness from the SBA for the full loan amount. Upon such forgiveness, the Organization recorded the remaining PPP loan balance of $109,450 as a conditional cost -reimbursed government grant in the accompanying statement of activities for the year ended June 30, 2022 pursuant to relevant technical accounting guidance.

NOTE 7 — COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Organization is obligated under a lease for its facility, which is accounted for as an operating lease. The lease expires in September 2022 and the Organization's allocated portion of rent, as amended, is payable between $6,922 and $28,543 per month. As a result of the fourth amendment to this lease, the Organization is a party to the lease originally entered into by Visit Newport Beach Inc. ("VNB"), a related party. Under the terms of this lease, each assignee shall be deemed to assume all lease obligations, and as a result, the Organization may be liable for future rent payments. The facility lease contains a five-year extension option at the end of the lease term. In May 2022, the Organization entered into a lease amendment for a smaller lease space. Under the amended lease, allocated rent is payable at approximately $17,000 per month and expires in September 2029.

Allocated rent expense incurred by the Organization under this operating lease was approximately $417,000 and $407,000 for the years ended June 30, 2022 and 2021, respectively, and is included in other expenses. Such amounts are net of the amounts paid by VNB pursuant to the Agreement discussed in Note 9.
13 12-49

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

Years Ending
June 30,
2023
$ 230,000
2024
205,000
2025
213,000
2026
220,000
2027
228,000
Thereafter
540,000
$ 1,36.000
Guarantees and Indemnities
The Organization has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain actions or transactions.

The Organization indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of California. In connection with its facility lease, the Organization has indemnified its lessor for certain claims arising from the use of the facilities. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Organization could be obligated to make. Historically, the Organization has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying statements of financial position.

NOTE 8 — RETIREMENT PLAN
The Organization has a 401(k) retirement plan (the "Plan") covering all eligible employees. The Plan provides for voluntary employer contributions. The total Plan expense during the years ended June 30, 2022 and 2021 was approximately $63,000 and $27,000, respectively, which is recorded in salaries and benefits expenses in the accompanying statements of activities. 14 12-50

NEWPORT BEACH & COMPANY
(A Non -Profit Organization)

NOTES TO FINANCIAL STATEMENTS
For The Years Ended June 30, 2022 and 2021
NOTE 9 — RELATED -PARTY TRANSACTIONS
During the years ended June 30, 2022 and 2021, the Organization had transactions with a related party that is also a non-profit organization. The related entity, VNB, initiates, sponsors, promotes and carries out plans, policies and activities to attract conferences and visitors to the City. VNB was the driving force behind the formation of the Organization. Pursuant to an Agreement for Services ("Agreement") dated April 1, 2013, the Organization was appointed by VNB as an exclusive provider of services that VNB requires to carry out its mission and obligations to the City. In consideration for these services, VNB agreed to pay monthly fees totaling $108,000 for the years ended June 30, 2022 and 2021. VNB has also agreed to reimburse the Organization for all reasonable expenses incurred by it in carrying out its duties to VNB, including rent and related facility costs, payroll and related benefits, and other direct marketing costs. For the years ended June 30, 2022 and 2021, the Organization billed $1,698,743 and $1,140,512, respectively, to VNB for these fees and costs, which are recorded as service fees from related party in the accompanying statements of activities. The Agreement, as amended, expires on June 30, 2024.

As of June 30, 2022 and 2021, the Organization has net related -party receivables of $2,441 and $17,611, respectively, in the accompanying statements of financial position. These amounts do not bear interest, are not collateralized and have no stated repayment terms.

Exhibit 2
Newport Beach and Company Audited Financial Statements for the Year Ended June 30, 2022, Accompanying Management Letter dated September 19, 2022 12-52

KMJ1Corbin &
Company
Business Advisors Tax and Audit
September 19, 2022
To the Board of Directors of
Newport Beach & Company
1600 Newport Center Drive
Newport Beach, California 92660
We have audited the financial statements of Newport Beach & Company (the "Organization") as of and for the year ended June 30, 2022, and have issued our report thereon dated September 19, 2022. Professional standards require that we advise you of the following matters relating to our audit.

Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated May 26, 2022 our responsibility, as described by professional standards, is to form and express an opinion about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of its respective responsibilities.

Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the Organization solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.

We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you.

Newport Beach & Company
September 19, 2022

Page 2 ends

Newport Beach & Company
September 19, 2022

Page 3 ends

application during the year ended June 30, 2022. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.

Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management's current judgments. Significant estimates made by the Organization's management include, but are not limited to, the collectability of accounts receivable, and the allocation of expenses to program activities and general and administrative. • Management's estimate of the collectability of accounts receivables is based on assessing the potential uncollectible receivables outstanding using the specific identification method.
• Management's estimate of allocation of expenses to program activities and general and administrative is based on assessing the purpose of the expenditures incurred during the year.

We evaluated the key factors and assumptions used to develop the estimates and determined that they are reasonable in relation to the financial statements taken as a whole.

Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the Organizations financial statements relate to related -parry transactions.

Identified or Suspected Fraud
We have not identified or obtained information that indicates that fraud may have occurred. 12-55

Newport Beach & Company
September 19, 2022

Page 4 ends

Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of the audit.

In addition, professional standards require us to communicate to you all corrected misstatements that were brought to the attention of management as a result of our audit procedures. The attached Exhibit A summarizes the corrected financial statement misstatement.

Representations Requested from Management
We have requested certain written representations from management, which are included in the attached letter dated September 19, 2022.

Newport Beach & Company
September 19, 2022

Page 5 ends

Other Significant Findings or Issues
In the normal course of our professional association with the Organization, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, significant events or transactions that occurred during the year, operating conditions affecting the Organization, and operating plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the Organization's auditors.

Very truly yours,
ICMj- Cam, t 1011�1 L-P
KMJ Corbin & Company LLP
12-57

Exhibit A
Schedule of Corrected Misstatements
June 30, 2022
Financial Statement Effects
Increase
Increase
Increase
Increase
(Decrease)
(Decrease)
(Decrease)
(Decrease)
Total
Total
Net
Change In
Description of Corrected Misstatement Debit Credit
Assets
Liabilities
Assets
Net Assets
AJE#1
Accounts receivable 11,448
Community Marketing Income 11,448
11,448
-
11,448
11,448
- To record June 2022 revenues.
$ 11,448 $ 11,448
$ 11,448
$ -
$ 11,448
$ 11,448
12-58

Attachment C
Visit Newport Beach Expenditure Compliance Report for the Year Ended June 30, 2022
12-59

VISIT NEWPORT BEACH INC.
(a Non -Profit Organization)

EXPENDITURES REPORT
For The Year Ended June 30, 2022
with

INDEPENDENT AUDITORS' REPORT THEREON
12-60

K j� ^ T I Corbin &
1v1J Company
Business Advisors Tax and Audit
Independent Auditors' Report
Board of Directors of
Visit Newport Beach Inc.

We have examined management's assertion, included in the accompanying Management Statement Regarding Compliance With Certain Provisions of the Agreement Between the City of Newport Beach and Visit Newport Beach Inc. for Tourism Promotion, Branding, and Marketing Services, that Visit Newport Beach Inc. (the "Organization") complied with the provisions in Section 4 of the Agreement Between the City of Newport Beach and Visit Newport Beach Inc. for Tourism Promotion, Branding, and Marketing Services (the "Agreement") regarding the attached 2022 Expenditures Report, summarizing the expenditures of funds received pursuant to the Agreement during the period July 1, 2021 to June 30, 2022. The Organization's management is responsible for its assertion. Our responsibility is to express an opinion on management's assertion about the Organization's compliance with the specified requirements based on our examination.

Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether management's assertion about compliance with the specified requirements is fairly stated, in all material respects. An examination involves performing procedures to obtain evidence about management's assertion. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risks of material misstatement of management's assertion, whether due to fraud or error. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion.

We are required to be independent and to meet our other ethical responsibilities in accordance with relevant ethical requirements relating to the engagement.

Our examination does not provide a legal determination on the Organization's compliance with the specified requirements.

In our opinion, management's assertion that Visit Newport Beach Inc. complied with the provisions of Section 4 of the Agreement regarding the attached 2022 Expenditures Report for the year ended June 30, 2022 is fairly stated, in all material respects.

This report is intended solely for the information and use of Visit Newport Beach, Inc. and the City of Newport Beach and is not intended to be and should not be used by anyone other than these specified parties.
kMJ- c k,v,,,, t Cam" LLP
KMJ Corbin & Company LLP
Irvine, California
September 19, 2022
p 949 431 0997 f 714 544 1034 2855 Michelle Dr Suite 350 Irvine CA 92606 kmlpartnerscpa.com p 818 999 5885 f 818 704 4668 20720 Ventura Blvd Suite 160 Woodland Hills CA 91364 12-61

DO
VISIT
EWP RT
BEACH

CALIFORNIA
ManagemenI Statement regarding ComPliance With Certain Provisions of the Agreement Between the City of Newport Beach and Visit Newport beach Inc. for Tourism Promotion, Branding, and Marketing Services
e, as members of management of Visit Newport Beach Inc. (the "Organization' }, are responsible for complying with the provisions of Section 4 of the Agreement Between the City ofNewport Beach and Visit Newport Beach Inc. (collectively, the "Parties") for Tourism Promotion, Branding, and laxketing Services (the "Agreement") in that funds received by the Organization pursuant to this Agreement were expended in accordance with this Agreement. We are responsible for establishing and maintaining effective intorttal controls over compliance with the provisions of Section, 4 of the Agreement We have performed an evaluation of the Organization's compliance with the provisions of Section 4 of the Agreement regarding funds expended during the year ended June 30, 2022, as summarized in the attached 2022 Expenditures Deport. Based on this evaluation, we assert that the Organization was in compliance with the provisions of Section 4 of the Agreement as described below:

Section 4 of the Agreement requires the Organization to "develop, plan, carry out, and supervise a program to market and promote the Newport Beach brand and to promote tourism in, and serve the needs of, visitors to Newport Beach as well as increase the amount of TOT collected through their promotional activities ('Services'). Subject to the foregoing sentence, the Services shall, at a minimum, include the following: (a) the maintenance of suitable office space and the employment Of competent Personnel to carry out the promotional, branding and marketing duties; (b) the preparation of brochures, publications, guides, on-line promotions, social network efforts, and other marketing materials and information that inform prospective tourists and visitors of the recreational activities, cultural assets, shopping and dining opportunities, night-time stay opportunitieq, and natural beauty of Newport Beach; (c) the dissemination of information described in this section by way of the media, direct mail, handouts, social networking, websites, smart phone applications, or outer means of distribution; and (d) the development and irnpiementation of specific marketing programs designed to increase awareness of the Newport Beach brand and to increase business and visitor trade in Newport Beach; and (e) any additional Services when proposed by the City which are consistent with the promotion of tourism and the Newport Beach brand which are mutually agreeable and acoeptable to the Parties."
Visit Nevi Beach Inc,
13y
i3y
T.il e *,,,,
Vice Pre\WZnt of Finance
1600 Newport Centel- Drive, Sulu! 12Q, NV Iwport Roach, CA 926tx0 12-62

A
VISIT NEWPORT BEACH, INC.
2022 Expenditures Report
July 1, 2021 -
June 30, 2022
2022 Expenses
General and Administrative Expenses
Operating Expenses
64125 - Computer Software (non-deprec)
6,555
64130 - Voice and Data - Office
84 64145- Shipping Charges
224
64150 - Bank Fees
160
64160 - Membership Dues
29,983
64170 - Team Meetings
1,861
Total Operating Expenses
38,867
Insurance
63100 - General Liability Insurance
1,438
63300 - Board of Directors Insurance
1,769
Total Insurance
3,207
Professional Fees
64203 - Recruiting Fees
3,265
64207 - Bloggers
40,624
64201 - Audit Fees
4,500
64202 - Tax Preparation Fees
1,500
Total Professional Fees
49,889
Miscellaneous Expense
64350 - Interest Expense
3,816
Total Miscellaneous Expense
3,816
65550 - Travel Expense
24 Total Travel Expense
24 Total General and Administrative
95,803
Advertising Expenses
66101 - Advertising - Purchased
1,376,380
66102 - Advertising - Local Events
20,463
66104 - Advertising Tracking Media
10,950
66121 - Promotional Gift Cards
165
66123 - Promotional Client Gifts
268
66202 - Ad Production
271,141
66203 - Creative Design/Development
111,350
66205 - Photography/Video Production
188,796
66212 - Community Sponsorships
153,000
67101 - Research
77,968
67102 - Christmas Boat Parade
199,083
Total Advertising Expenses
2,409,564
Marketing Expenses
Community Relations
67103 - Community Partner Events
45,710
67105 - Awards
1,830
67107 - Promotional Items
18,658
Total Community Relations
66,198
Marketing Collateral
67309 - Marketing Plan
4,927
67311 - Collateral Production Expenses
750
67312 - Collateral Distribution
4,000
Total Marketing Collateral
9,677
Digital Marketing
67501 - Social Media
61,559
67502 - Website Maintenance
114,221
67503 - Online Search Advertising
106,461
67504 - Digital Advertising
7,200
67511 - Digital Lifestyle Channel Production
3,500
66211 - CRM Maintenance
19,729
Total Digital Marketing
312,670
Communications/Public Relations
67601 - Media Services
81,214
67602 - Media FAM Tours
14,535
67605 - Media Opportunities
40,305
67607 - Media Relations
1,093
Total Communications/Public Relations
137,147
Total Marketing Expenses
525,692
12-63

International Marketing Initiatives
67404 - International Trade Shows
2,500
67405 - International Airfare
396
67406 - International Accommodations
870
67407 - International Meals
72 67408 - International Transportation Costs
117
67409 - International Other Travel Costs
83 67410 - International Business Meals/Entertainment
16 67412 - International Brand Events
33,382
Total International Marketing Initiatives
37,436
NB&Company Fees
B 68001 - NB&Co Fees
1,698,743
Total NB&Company Fees
1,698,743
Total Expenses 4,767,238
Other Expenditures:

Fixed asset additions capitalized
Website development costs capitalized -
Change in other prepaid expenses and current
liabilities, net 141,218
141,218
$ 4,908,456
NOTES:

A Included in this account are expenditures for or contributions to special events and not -for -profit organizations in Newport Beach as follows:

Vendor Event Amount
City of Newport Beach Arts Sponsorship 150,000
$ 150,000
B Consist of reimbursements for costs incurred by Newport Beach & Company as follows:

Class of Expense Amount
Salaries/Benefits $ 1,085,958
Marketing Expenses $ 104,653
G&A Overhead $ 508,132
$ 1,698,743
12-64

Newport Beach City CouncilOctober 25, 2022

Newport Beach City Council
October 25, 2022