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THE CHILDREN'S MUSEUM OF MANHATTAN

FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT

YEAR ENDED JUNE 30, 2018

WITH SUMMARIZED INFORMATION FOR THE YEAR ENDED JUNE 30, 2017


FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT

YEAR ENDED JUNE 30, 2018 WITH SUMMARIZED INFORMATION FOR THE

YEAR ENDED JUNE 30, 2017

Table of Contents

Page No.

Independent Auditors’ Report .................................................................................... 1 - 2

Financial Statements

Statements of Financial Position............................................................................. 3

Statements of Activities .......................................................................................... 4 - 5

Statements of Functional Expenses ....................................................................... 6 - 7

Statements of Cash Flows ...................................................................................... 8 - 9

Notes to Financial Statements ................................................................................ 10 - 25

Supplementary Information ....................................................................................... 26

Schedule of Financial Position - by Net Asset Classification ................................... 27 - 28

Schedule of Temporarily Restricted Net Assets - by Fund ...................................... 29

Schedule of Permanently Restricted Net Assets - by Fund ..................................... 30

1

INDEPENDENT AUDITORS’ REPORT

To the Board of Trustees The Children's Museum of Manhattan

We have audited the accompanying financial statements of The Children's Museum of Manhattan (a not-for-profit organization) (legal name: The Children's Museum of Manhattan, G.A.M.E. Inc.), which comprise the statement of financial position as of June 30, 2018, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

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

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

1 Penn Plaza, New York, NY 10119 T. 212. 997.0600 F. 212.997.0466

50 Jericho Quadrangle, Jericho, NY 11753 T. 516.277.9700 F. 516.277.9701

www.ddkcpas.com

A Member Firm of KS International

2

INDEPENDENT AUDITORS’ REPORT (Continued)

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Children's Museum of Manhattan as of June 30, 2018, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Report on Summarized Comparative Information

We have previously audited The Children's Museum of Manhattan’s June 30, 2017 financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated November 14, 2017. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2017, is consistent, in all material respects, with the audited financial statements from which it has been derived.

Disclaimer of Opinion on Supplementary Information

Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The schedule of financial position - by net asset classification, schedule of temporarily restricted net assets - by fund, and schedule of permanently restricted net assets - by fund, which are the responsibility of management, are presented for purposes of additional analysis and are not a required part of the financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on it.

New York, New York October 31, 2018

1 Penn Plaza, New York, NY 10119 T. 212. 997.0600 F. 212.997.0466

50 Jericho Quadrangle, Jericho, NY 11753 T. 516.277.9700 F. 516.277.9701

www.ddkcpas.com

A Member Firm of KS International


STATEMENTS OF FINANCIAL POSITION

June 30, 2018

With Summarized Information at June 30, 2017

2018 2017

ASSETS

Cash and cash equivalents 12,277,276$ 1,724,931$

Marketable securities - 767

Accounts receivable 134,964 57,000

Prepaid expenses and other current assets 290,055 144,101

Museum store inventory 9,351 12,984

Contributions and grants receivable 15,991,805 1,071,283

Property and equipment 63,181,903 15,714,648

Less: Accumulated depreciation and amortization (14,307,202) (13,469,474)

Building acquisition cost - 307,615

Interest reserve cash account 1,606,465 -

Investments - restricted 1,000,000 1,000,000

Total assets 80,184,617$ 6,563,855$

LIABILITIES AND NET ASSETS

Liabilities

Loans payable, net of defered loan costs 21,865,461$ -$

Accounts payable and accrued expenses 210,565 321,034

Deferred revenue 222,897 214,796

Note payable - related party 11,119,947 -

Refundable deposits 25,000 42,234

Total liabilities 33,443,870 578,064

Commitments and Contingencies

Net Assets

Unrestricted 35,754,744 3,552,653

Temporarily restricted 9,986,003 1,433,138

Permanently restricted 1,000,000 1,000,000

Total net assets 46,740,747 5,985,791

Total liabilities and net assets 80,184,617$ 6,563,855$

The accompanying notes are an integral part of these financial statements. 3


STATEMENTS OF ACTIVITIES

Year Ended June 30, 2018

With Summarized Information for the Year Ended June 30, 2017

2018 2017

Temporarily Permanently

Unrestricted Restricted Restricted Total Total

Revenue and Support

Contributions and grants

Individuals 6,774,128$ 25,000$ -$ 6,799,128$ 1,029,075$

Foundations 17,648,331 4,742,073 - 22,390,404 625,500

Government 275,834 - - 275,834 464,039

Corporations 8,655 5,022,417 - 5,031,072 101,204

Below market interest rate loan 9,219,710 - - 9,219,710 -

Benefit events, net of direct donor benefits of

$443,303 for 2018 and $143,991 for 2017 873,571 - - 873,571 142,883

Admissions 1,727,188 - - 1,727,188 1,683,641

Membership dues 725,263 - - 725,263 777,943

Education program services 358,297 - - 358,297 286,297

Museum program fees 296,900 - - 296,900 279,795

Museum store, less cost of sales of $95,635

for 2018 and $90,294 for 2017 30,817 - - 30,817 61,600

Traveling exhibits 35,750 - - 35,750 -

Donated goods and services 36,298 - - 36,298 33,085

Interest and dividends 4,121 - - 4,121 3,066

Gain on sale of investments 91,159 - - 91,159 -

Other 77,502 - - 77,502 289,259

Net assets released from restrictions 1,236,625 (1,236,625) - - -

Total revenue and support 39,420,149 8,552,865 - 47,973,014 5,777,387



STATEMENTS OF ACTIVITIES (Continued)



2018 2017


Unrestricted Restricted Restricted Total Total

Expenses

Program services 4,637,401 - - 4,637,401 4,724,672

Supporting services

General and administrative 1,222,212 - - 1,222,212 1,202,798

Fundraising 1,358,445 - - 1,358,445 416,656

Total expenses 7,218,058 - - 7,218,058 6,344,126

Change in net assets 32,202,091 8,552,865 - 40,754,956 (566,739)

Net assets at beginning of year 3,552,653 1,433,138 1,000,000 5,985,791 6,552,530

Net assets at end of year 35,754,744$ 9,986,003$ 1,000,000$ 46,740,747$ 5,985,791$



STATEMENTS OF FUNCTIONAL EXPENSES



2018 2017

Program

Services

General and

Administrative Fundraising Total Total

Expenses

Salaries 1,953,836$ 474,599$ 705,735$ 3,134,170$ 2,655,385$

Payroll taxes and employee benefits 259,880 91,724 89,607 441,211 440,276

Advertising - 1,000 - 1,000 -

Bad debt expense - - - - 8,825

Computer expenses - 75,143 2,248 77,391 66,655

Contracted services 282,701 1,150 450,818 734,669 386,563

Credit card processing fees 85,145 - 47,676 132,821 74,150

Depreciation and amortization 585,720 252,008 - 837,728 946,403

Donated items - - 95,442 95,442 -

Equipment rental 40,107 48,782 3,439 92,328 59,296

Facility rental 238,145 28,017 218,413 484,575 340,537

Insurance 115,502 17,315 6,019 138,836 120,897

Maintenance and repairs 125,870 14,808 7,404 148,082 126,263

Memberships, dues, and subscriptions 14,159 22,953 12,832 49,944 37,645

Miscellaneous 11,300 20,457 2,260 34,017 20,578

Museum store - cost of sales 95,635 - - 95,635 90,294

Organizational strategic planning 137,686 - 55,000 192,686 389,359



STATEMENTS OF FUNCTIONAL EXPENSES (Continued)



2018 2017

Program

Services

General and

Administrative Fundraising Total Total

Expenses (Continued)

Postage and shipping 9,130 1,031 6,025 16,186 10,110

Printing 43,852 - 25,479 69,331 108,957

Professional services - 139,097 - 139,097 83,392

Security 199,873 - - 199,873 162,307

Supplies and material 266,279 13,125 40,137 319,541 170,108

Telephone 33,410 3,931 1,965 39,306 29,651

Travel and entertainment 48,117 - 20,267 68,384 50,891

Utilities 186,689 17,072 10,982 214,743 199,869

4,733,036 1,222,212 1,801,748 7,756,996 6,578,411

Less: Cost of goods sold and

direct donor benefit 95,635 - 443,303 538,938 234,285

Total expenses, net of cost of goods

sold and direct donor benefit 4,637,401$ 1,222,212$ 1,358,445$ 7,218,058$ 6,344,126$



STATEMENTS OF CASH FLOWS



2018 2017

Cash Flows From Operating Activities

Increase (decrease) in net assets 40,754,956$ (566,739)$

Adjustments to reconcile increase (decrease) in

net assets to net cash provided by (used in)

operating activities:

Bad debt expense - 8,825

Depreciation and amortization 837,728 946,403

Contributions of marketable securities (10,384,366) (767)

Contribution of below market interest rate loan (9,219,710) -

Gain on sale of marketable securities (91,159) -

Changes in operating assets and liabilities:

Accounts receivable (77,964) 2,025

Prepaid expenses and other current assets (145,954) (39,876)

Museum store inventory 3,633 (1,336)

Contributions and grants receivable (14,920,522) (760,112)

Accounts payable and accrued expenses (2,742) 11,327

Deferred revenue 8,101 106,233

Refundable deposits (17,234) (2,589)

Net cash provided by (used in) operating activities 6,744,767 (296,606)

Cash Flows From Investing Activities

Proceeds from sale of marketable securities 10,476,292 -

Purchase of land and building (45,696,774) (111,965)

Building redevelopment costs (1,190,437) -

Purchases of other property and equipment (40,499) (120,411)

Payment to interest reserve account (2,100,000) -

Reductions in interest reserve account 493,535 -

Net cash used in investing activities (38,057,883) (232,376)

Cash Flows From Financing Activities

Proceeds from loans 26,461,400 -

Repayment of loans (4,454,567) -

Proceeds from note payable - related party 20,000,000 -

Payment of loan closing costs (141,372) -

Net cash provided by financing activities 41,865,461 -



STATEMENTS OF CASH FLOWS (Continued)



2018 2017

Net increase (decrease) in cash and cash equivalents 10,552,345 (528,982)

Cash and cash equivalents at beginning of year 1,724,931 2,253,913

Cash and cash equivalents at end of year 12,277,276$ 1,724,931$

Supplemental Disclosure of Cash Flow Information

Interest paid and capitalized 538,968$ -$

Supplemental Disclosure of Non Cash Items

Contributions of marketable securities received

by the Museum 10,384,366$ 767$

Building acquisition and redevelopment costs accrued 87,922$ 195,650$

Accrued interest on below market rate loan capitalized

to building redevelopment costs 339,657$ -$



NOTES TO FINANCIAL STATEMENTS



10

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Children's Museum of Manhattan (the “Museum") is a New York not-for-profit organization that operates as a private non-sectarian museum in New York City.

The Museum creates educational exhibitions and programs for families and children. Activities take place at the Museum's flagship location on West 83rd Street in New York City, as well as almost 50 offsite locations within the five boroughs of New York City, and across the United States. The Museum’s traveling interactive exhibitions tour the United States. The Museum's programs focus on literacy and early childhood education, healthy lifestyles, and creativity in the arts, sciences and world cultures. The educational philosophy of the Museum focuses on adult-child interaction in interactive settings filled with workshop opportunities and exploration. Children of all skill levels, interests, and abilities can find ways to learn through the multiple techniques used by the Museum.

The Museum offers fee-based early childhood classes to various ages of children. In addition, the Museum rents out its exhibits to other museums for a contracted fee.

Basis of Accounting

The Museum’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.

Basis of Presentation

Contributions that are restricted by the donor are reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donor-restricted contributions are reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions.

The Museum reports information regarding its financial position according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.

Accordingly, the net assets of the Museum and changes therein are classified and reported as follows:

1) Unrestricted net assets include assets, revenues, and gains that are available forsupport of the Museum’s general operations.





11

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis of Presentation (Continued)

2) Temporarily restricted net assets include contributions that are donor restricted foruses which have not yet been fulfilled either by the passage of time or by purpose.When a time restriction ends or a purpose restriction is accomplished, temporarilyrestricted net assets are reclassified to unrestricted net assets and reported in thestatements of activities as net assets released from restrictions. The Museum had$9,986,003 in temporarily restricted net assets at June 30, 2018 that can be used tosupport Museum programs and building redevelopment costs for the new Museumfacility. The Museum had $1,433,138 in temporarily restricted net assets at June 30,2017, of which $1,236,625 was used to support programs during Fiscal Year 2018. Thebalance can be used to support programs during Fiscal Year 2019.

3) Permanently restricted net assets represent endowments which are subject torestrictions requiring that the principal be invested in perpetuity and only the income beused for specified or general purposes. The Museum had $1,000,000 in permanentlyrestricted net assets at June 30, 2018 and 2017.

Summarized Financial Information

The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Museum’s financial statements for the year ended June 30, 2017, from which the summarized information was derived.

Cash and Cash Equivalents

Cash equivalents include certain investments in highly liquid instruments with original maturities of three months or less.

Marketable Securities

Investments in marketable securities are classified and accounted for as available-for-sale and accordingly, carried at fair value based on market quotes, with unrealized and realized gains and/or losses included in earnings.





12


Accounts and Contributions Receivable

Contributions are recognized when the donor makes a promise to give to the Museum that is, in substance, unconditional. The fair value of contributions receivable that are due in more than one year is estimated by discounting the future cash flows using a current risk free rate of return based on the yield of a U.S. Treasury security with a maturity date similar to the expected collection period.

The Museum provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Museum’s estimate is based on historical collection experience and a review of the current status of accounts and contributions receivable. It is reasonably possible that the Museum’s estimate of the allowance for doubtful accounts may change. At June 30, 2018 and 2017, no allowance for uncollectible accounts and contributions receivable was deemed necessary.

Inventory

Inventory consists of finished goods and is stated at the lower of cost or market; cost is determined by using the first-in, first-out (FIFO) method. Market is determined on the basis of estimated realizable values.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. The cost of additions and improvements is capitalized and expenditures for repairs and maintenance are expensed as incurred. Fully depreciated assets are retained in property and equipment accounts until they are removed from service. When assets are retired or otherwise disposed of, their cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gains or losses are included in operations. Depreciation of property and equipment is accounted for on the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is calculated on the straight-line method over the shorter of the term of the related lease or the useful lives of the improvements.

Impairment of Long-Lived Assets

Long-lived assets, including property and equipment and intangible assets subject to amortization, if any, are reviewed for impairment and written down to fair value whenever events or changes in circumstances indicate that the carrying amount may not be recoverable through future undiscounted cash flows. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.





13


Website Development Costs

The Museum accounts for website development costs based on the nature of each cost and uses the following four stages to account for such costs: planning (expense), web applications and infrastructure (capitalize), graphic development (capitalize), and operation (expense). Capitalized website development costs are amortized over their estimated useful lives on the straight-line basis.

Contributions

Contributions, including unconditional promises to give, are recorded in the period when the donor in substance makes a promise to give and valued at fair value which is net of estimated uncollectible amounts. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated by the donor for future periods or are restricted by the donor for specified purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes.

A donor restriction expires when a stipulated time restriction ends, when an unconditional promise with an implied time restriction is collected, or when a purpose restriction is accomplished. Upon expiration, temporarily restricted net assets are reclassified to unrestricted net assets and are reported in the statements of activities as net assets released from restrictions. Permanently restricted net assets include the principal amount of contributions accepted with the stipulation from the donor that the principal be maintained in perpetuity and only the income from the investments thereof is expended for either general purposes or a purpose specified by the donor.

Donated Assets

Donated marketable securities and other non-cash donations, if any, are recorded as contributions at their estimated fair value at the date of the donation.

Donated Services

Donated services, if any, are recognized as contributions, if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Museum. Volunteers provide services throughout the year that are not recognized as contributions in the financial statements since the recognition criteria were not met.





14


Income Taxes

The Museum is a not-for-profit organization that is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code; the Museum is also exempt from state and local income taxes. Accordingly, no provision for income taxes has been made in the financial statements.

The Museum has concluded that there are no uncertain tax positions that would require recognition in the financial statements. If the Museum was to incur an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax liability would be reported as income taxes. The Museum’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analyses of tax laws, regulations and interpretations thereof as well as other factors.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates.

Deferred Revenue

The Museum offers a variety of early childhood classes for various ages of children at a fee. The classes commence in the summer and continue throughout the fall. Revenue received prior to the classes commencing is recorded as deferred revenue. Revenue derived from early childhood programs, included in education program services and museum program fees, is recognized by the Museum as the classes are attended. In addition, the Museum rents out museum exhibits to other museums for a contracted fee. Revenue received prior to the exhibition is recorded as deferred revenue. Revenue derived from the rental of museum exhibits is recognized by the Museum as the exhibits are displayed.

Expense Allocation

The costs of providing various programs and other activities have been summarized on a functional basis in the statements of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited.

Subsequent Events

Management has evaluated subsequent events or transactions occurring through October 31, 2018, the date the financial statements were available to be issued.





15

NOTE 2 - CASH AND CASH EQUIVALENTS Cash and cash equivalents at June 30, 2018 consisted of the following:

Temporarily Unrestricted Restricted Total

Checking accounts $ 8,102,623 $ - $ 8,102,623 Savings and money market accounts 1,208,069 2,963,234 4,171,303 Petty cash

3,350 - 3,350

$ 9,314,042 $ 2,963,234 $ 12,277,276

At June 30, 2018, bank account balances, including the interest reserve account, at three banks exceeded the insured $250,000 FDIC limit by approximately $14,264,000. Cash and cash equivalents at June 30, 2017 consisted of the following:

Temporarily Unrestricted Restricted Total

Checking accounts $ 9,624 $ 148 $ 9,772 Savings and money market accounts 1,183,077 528,732 1,711,809 Petty cash

3,350 - 3,350

$ 1,196,051 $ 528,880 $ 1,724,931 NOTE 3 - MARKETABLE SECURITIES At June 30, 2018, the Museum held no marketable securities. On August 2, 2017, all equity securities held at June 30, 2017 were sold. Investments in securities are generally exposed to various risks, such as interest rate, credit, and overall market volatility risks. The following schedule summarizes the related investment return and its classification in the statements of activities for the years ended June 30, 2018 and 2017:

Amount (Unrestricted)

2018

Amount (Unrestricted)

2017

Realized gain on sale of investments $ 91,159 $ -





16

NOTE 4 - FAIR VALUE MEASUREMENTS

A fair value hierarchy that prioritizes the inputs to valuation techniques is used to measure fair value. The hierarchy gives the highest priority to unadjusted observable quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Basis of Fair Value Measurement

Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets the Museum has the ability to access.

Level 2 Inputs to the valuation methodology include:

Quoted prices for similar assets or liabilities in active markets;

Quoted prices for identical or similar assets or liabilities in inactive markets;

Inputs other than quoted prices that are observable for the asset or liability;

Inputs that are derived principally from or corroborated by observable marketdata by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

The following table presents by level, within the fair value hierarchy, the Museum’s investment assets at fair value as of June 30, 2018 and 2017. Investment assets are classified in their entirety based upon the lowest level of input that is significant to the fair value measurement.

The table below sets forth a summary of the fair value of the Museum’s investment assets as of June 30, 2018 and 2017:

Description

Fair Value Measurements Using

Quoted Prices in Active Market for Identical

Assets (Level 1) 2018

Fair Value Measurements Using

Quoted Prices in Active Market for Identical

Assets (Level 1) 2017

Available-for-sale securities $ - $ 767





17

NOTE 5 - CONTRIBUTIONS AND GRANTS RECEIVABLE

As of June 30, 2018, unconditional promises to give were scheduled to be received as follows:

Years Ending June 30, Unrestricted

Temporarily Restricted

Permanently Restricted Total

2018 $ 220,391 $ 73,930 $ - $ 294,321 2019 3,932,683 3,676,647 - 7,609,3302020 3,851,666 2,000,000 - 5,851,6662021 685,000 1,000,000 - 1,685,0002022 585,000 500,000 - 1,085,000

Total 9,274,740 7,250,577 - 16,525,317

Less: Discounts (305,704) (227,808) - (533,512)

Net $ 8,969,036 $ 7,022,769 $ - $ 15,991,805

As of June 30, 2017, unconditional promises to give were scheduled to be received as follows:

Years Ending June 30, Unrestricted

Temporarily Restricted

Permanently Restricted Total

2017 $ 165,170 $ - $ - $ 165,170 2018 - 150,000 - 150,000

2019 - 200,000 - 200,000

2020 - 200,000 - 200,000

2021 - 200,000 - 200,000

2022 - 200,000 - 200,000

Total 165,170 950,000 - 1,115,170

Less: Discounts - (43,887) - (43,887)

Net $ 165,170 $ 906,113 $ - $ 1,071,283

Receivables from board members represent approximately 54% and 92% of total unconditional promises to give as of June 30, 2018 and 2017, respectively. The contributions receivables were discounted using an annual rate of 2.61% for the two-year pledges and 2.7% for the three-year and four year pledges.





18

NOTE 6 - PROPERTY AND EQUIPMENT

Major classes of property and equipment consisted of the following:

Estimated Useful Lives -

Years 2018 2017

Land and building $ 45,808,739 $ - Building redevelopment costs 1,618,016 - Leasehold improvements 15 10,107,401 10,107,401 Exhibits 2 - 10 4,502,911 4,462,412 Office equipment 5 - 10 770,618 770,618 Furniture and fixtures 5 - 10 268,214 268,214 Website 3 106,003 106,003

63,181,903 15,714,648

Accumulated depreciation and amortization at beginning of the fiscal year 13,469,474 12,552,921 Current year depreciation and amortization expense 837,728 946,403 Write-off of accumulated depreciation and

amortization - (29,850)

Accumulated depreciation and amortization 14,307,202 13,469,474

Property and equipment, net $ 48,874,701 $ 2,245,174

Included in depreciation expense for the years ended June 30, 2018 and 2017 were approximately $549,000 and $532,000, respectively, of depreciation attributable to long term exhibits which have been capitalized and are depreciated over the estimated useful lives of the exhibits. During 2018, the Museum did not write off any exhibits. During 2017, the Museum wrote off $29,850 of exhibits, with an accumulated depreciation of $29,850, resulting in no gain or loss.

The Museum retains intellectual property created from development of exhibit assets which hold an undetermined value, which management believes can be monetized at a future date through exhibit travel or replication.

On December 22, 2017, the Museum purchased land and a building located in Manhattan, New York for approximately $45,000,000, funded through cash payments of $2,260,000, two loans from a financial institution, and a loan with a related party. The building is currently undergoing redevelopment into a museum facility. All costs relating to the acquisition, construction, and redevelopment of the building have been capitalized, including related financing interest and carrying costs. Depreciation of the building and redevelopment costs will begin when the building is placed in service.





19

NOTE 7 - LOANS PAYABLE

In connection with the purchase of the land and building on December 22, 2017, the Museum entered into a term loan agreement with a banking institution for $11,461,400 (Term Loan A) and $15,000,000 (Term Loan B). The borrowing of Term Loan A is based on an 85% advance rate against certain committed pledge agreements acceptable to the banking institution at the date of closing. The borrowing of Term Loan B is based on a percentage of the value of the land and building located at 361 Central Park West, New York, NY. Both term loans bear interest at a rate of the one month Libor plus 3% (5.084% at June 30, 2018) and mature on January 1, 2020, with an option to extend the maturity date to January 1, 2021. The loans require monthly interest only payments and all principal is due upon maturity. During the fiscal year, the Museum made principal payments of approximately $4,500,000 towards Term loan A. The loans are collateralized by substantially all of the assets of the Museum. For the yearended June 30, 2018, related interest for Term Loan A and Term Loan B totaled $223,786 and$315,182, respectively.

As part of the loan agreement, an interest reserve account was set-up for $2,100,000. This reserve account is to be used to pay the interest on the loans during the terms of the loans. At June 30, 2018, the balance of the interest reserve account was $1,606,465.

The related loan costs as of June 30, 2018 were $141,372. These costs were capitalized and will be amortized over the period of the loans.

A summary of the outstanding balance as of June 30, 2018 is as follows:

2018

Term Loan A $ 7,006,833 Term Loan B 15,000,000 Deferred loan costs (141,372)

$ 21,865,461





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NOTE 8 - NOTE PAYABLE – RELATED PARTY

On December 21, 2017, the Museum entered into a promissory note agreement with a related party in the amount of $20,000,000. The loan bears interest at a rate of 1.00% per annum and matures on December 31, 2037. The Museum will make quarterly principal payments on the loan commencing on January 1, 2025 through maturity. The Museum is not required to make interest payments until January 1, 2021 but interest will accrue through that date and be added to the principal balance. It was determined that this was a below market interest rate loan. The difference between the stated interest rate and market interest rate, estimated at approximately 5.1% for comparable financing arrangements, represents a contribution. For the year ended June 30, 2018, the total contribution amount recorded for this below market interest rate loan for the term of the loan was $9,219,710. This amount does not reflect any potential advance prepayments of the loan. At June 30, 2018, the loan balance was $11,119,947. The related interest was $339,657 for the year ended June 30, 2018. This promissory note is subordinated to Term Loans A and B.

NOTE 9 - NET ASSETS AT JUNE 30, 2017

Net assets at June 30, 2017 were classified as the following:

Unrestricted Temporarily

Restricted Permanently Restricted Total

Revenue and support $ 4,770,433 $ 1,006,954 $ - $ 5,777,387Expenses 6,344,126 - - 6,344,126

Change in net assets (1,573,693) 1,006,954 - (566,739)Net assets at June 30, 2016 5,126,346 426,184 1,000,000 6,552,530

Net assets at June 30, 2017 $ 3,552,653 $ 1,433,138 $ 1,000,000 $ 5,985,791





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NOTE 10 - TEMPORARILY RESTRICTED NET ASSETS

Temporarily restricted net assets at June 30, 2018 and 2017 were available for the following purpose or periods:

2018 2017

Land and building acquisition $ - $ 965,588 New building – construction and redevelopment 1,758,423 - New building - exhibits 7,771,240 - Exhibits and programs: Muslim cultures 49,827 - Transforming Homeless Shelters 227,636 194,192 Asian culture programming 10,000 - All the Way to K 168,877 173,358 FY 2018 Activities - 100,000

$ 9,986,003 $ 1,433,138

During 2018 and 2017, net assets were released from donor restrictions by incurring costs satisfying the purpose restriction specified by donors as follows:

NOTE 11 - PERMANENTLY RESTRICTED NET ASSETS

Permanently restricted net assets of $1,000,000 consist of an endowment fund from The Laurie M. Tisch Foundation. The funds are invested in a money market account. The investment income from the fund is expendable to support the operating activities of the Museum.

2018 2017

Building acquisition $ 965,588 $ - FY 2017 Activities - 175,000 FY 2018 Activities 100,000 - Transforming Homeless Shelters 166,556 55,808 Hello from Japan Exhibit - 1,184 All the Way to K 4,481 -

$ 1,236,625 $ 231,992





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NOTE 12 - BENEFIT EVENTS

Benefit events revenue and the related direct donor benefits expenses were as follows:

Museum holds a biennial Gala which, as a result, caused a variance in annual benefit income year to year.

NOTE 13 - MEMBERSHIP DUES

Membership dues were received as follows:

2018 2017 Revenues Sunday Funday $ 303,173 $ 282,060 Gala 1,013,701 - Spring Gala – FY 2016 - 4,600 Fall benefit - 214

1,316,874 286,874

Less: Direct donor benefits Sunday Funday 159,021 139,218 Gala 284,282 - Spring Gala – FY 2016 - 4,773

443,303 143,991

Benefit events, net of direct donor benefits $ 873,571 $ 142,883

2018 2017

Family membership $ 577,008 $ 662,558 Corporate membership 102,500 72,500 Premium family membership 31,366 29,322 VIP membership 7,725 7,917 Community champion membership 5,599 5,646 Library membership 975 - Access membership 90 -

Total $ 725,263 $ 777,943





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NOTE 14 - DONATED SERVICES

The fair value of donated services included as contributions in the financial statements and the corresponding program expenses for the years ended June 30, 2018 and 2017 were as follows:

General and Administrative

2018

General and Administrative

2017

Professional services $ 36,298 $ 33,085

NOTE 15 - TAX-DEFERRED ANNUITY PLAN

During the year ended June 30, 1998, the Museum entered into a tax-deferred annuity plan qualified under Section 403(b) of the Internal Revenue Code. The plan covers full-time employees of the Museum. Employees may make contributions to the plan up to the maximum amount allowed by the Internal Revenue Code. There was no related pension expense for the years ended June 30, 2018 and 2017.

NOTE 16 - RELATED PARTY TRANSACTIONS

Approximately 44% and 46% of the Museum’s revenue from contributions and fundraising was provided by the Museum’s trustees and officers for the years ended June 30, 2018 and 2017, respectively.

NOTE 17 - CONCENTRATION OF RISK

At June 30, 2018, receivables from three donors represented approximately 83% of total contributions and grants receivable. At June 30, 2017, receivables from one donor represented approximately 85% of total contributions and grants receivable.

For the years ended June 30, 2018 and 2017, 75% and 39% of total contributions, grants and fundraising revenue were from three and one donor, respectively. For the year ended June 30, 2018, two donors represented 88% of the foundation contributions and one donor represented 96% of the corporate contributions.





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NOTE 18 - LEASES

The Museum leases space located in Manhattan, New York. The current operating lease expired on September 30, 2007 and was renewed for a 15-year term through September 30, 2022. For the first five years of the renewal period, the fixed monthly rent was $19,826 plus applicable annual cost of living adjustments. For subsequent years, the rent continues to increase based on the annual cost of living adjustment.

Facility rental expense for the years ended June 30, 2018 and 2017 consisted of the following:

2018 2017

Museum lease base rent $ 237,912 $ 237,912 Museum lease cost of living adjustment 42,259 36,924 Sunday Funday benefit 67,372 62,366 Annual Gala 137,032 - Spring Gala – FY 2016 - 3,335

$ 484,575 $ 340,537

The Museum also leases equipment under various operating leases expiring in 2022, the expense for which is not included in the above amount.

The following is a schedule of approximate future minimum rental payments required under the above operating leases as of June 30, 2018.

Years Ending June 30, Premises Other Total

2019 $ 281,579 $ 8,460 $ 290,039 2020 281,579 8,250 289,829 2021 281,579 5,940 287,519 2022 281,579 990 282,569 2023 70,395 - 70,395

$ 1,196,711 $ 23,640 $ 1,220,351





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NOTE 19 - NYC DEPARTMENT OF CULTURAL AFFAIRS AWARD

In exchange for the City of New York (the “City”) providing funds for capital expenditures, the Museum is obligated to operate the facility during the respective bonding term as a not-for-profit entity, open to and used and maintained for the benefit of the people of the City for cultural, educational or artistic uses and/or related purpose approved by the City.

The City allocated $2,550,000 in capital funding in FY 2017 for the New Museum project. In FY 2018, the City allocated an additional $8,000,000 to the project for a total of $10,550,000 in funds committed to date. The Museum will submit another request in FY 2019 with the goal of receiving $30,000,000 in aggregate over the multiyear allocations. The City allocation of the $10,550,000 grant was not recorded as of June 30, 2018. The revenue will be recorded upon entry into the contract with the City and fulfilling the requirements to draw down the funds under the contract.

NOTE 20 - COMMITMENTS

The Museum is in the process of planning and design for the redevelopment of the acquired building into a new museum facility. The cost of the renovation is estimated to be approximately $60,000,000. The Museum’s target to complete the redevelopment project is December 2022.

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SUPPLEMENTARY INFORMATION



SCHEDULE OF FINANCIAL POSITION - BY NET ASSET CLASSIFICATION (Unaudited)

June 30, 2018


Unrestricted Restricted Restricted Elimination Total

ASSETS

Cash and cash equivalents 9,314,042$ 2,963,234$ -$ -$ 12,277,276$

Accounts receivable 134,964 - - - 134,964

Prepaid expenses and other

current assets 290,055 - - - 290,055

Museum store inventory 9,351 - - - 9,351

Contributions and grants receivable 8,969,036 7,022,769 - - 15,991,805

Property and equipment 63,181,903 - - - 63,181,903

Less: Accumulated depreciation and

amortization (14,307,202) - - - (14,307,202)

Interest reserve cash account 1,606,465 - - - 1,606,465

Investments - restricted - - 1,000,000 - 1,000,000

Total assets 69,198,614$ 9,986,003$ 1,000,000$ -$ 80,184,617$

See Independent Auditors' Report. 27



SCHEDULE OF FINANCIAL POSITION - BY NET ASSET CLASSIFICATION (Unaudited)

June 30, 2018


Unrestricted Restricted Restricted Elimination Total

LIABILITIES AND NET ASSETS

Liabilities

Loans payable, net of defered loan costs 21,865,461$ -$ -$ -$ 21,865,461$

Accounts payable and accrued expenses 210,565 - - - 210,565

Deferred revenue 222,897 - - - 222,897

Note payable - related party 11,119,947 - - - 11,119,947

Refundable deposits 25,000 - - - 25,000

Total liabilities 33,443,870 - - - 33,443,870

Commitments and Contingencies

Net Assets

Unrestricted 35,754,744 - - - 35,754,744

Temporarily restricted - 9,986,003 - - 9,986,003

Permanently restricted - - 1,000,000 - 1,000,000

Total net assets 35,754,744 9,986,003 1,000,000 - 46,740,747

Total liabilities and net assets 69,198,614$ 9,986,003$ 1,000,000$ -$ 80,184,617$




SCHEDULE OF TEMPORARILY RESTRICTED NET ASSETS - BY FUND (Unaudited)


Restrictions

Satisfied by

Net Assets Investment Payments/ Net Assets

July 1, 2017 Support Income Purpose June 30, 2018

Program Service Fund 1,433,138$ 9,789,490$ -$ (1,236,625)$ 9,986,003$




SCHEDULE OF PERMANENTLY RESTRICTED NET ASSETS - BY FUND (Unaudited)


Restrictions

Satisfied by

Net Assets Investment Payments/ Net Assets

July 1, 2017 Support Income Purpose June 30, 2018

The Laurie M. Tisch Foundation 1,000,000$ -$ -$ -$ 1,000,000$


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