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Starlight Children's Foundation CanadaFondation pour l'enfance Starlight Canada

Financial StatementsDecember 31, 2014


Financial StatementsDecember 31, 2014

Table of Contents

Independent Auditor's Report 1 - 2

Statement of Financial Position 3 - 4

Statement of Changes in Net Assets 5

Statement of Revenues and Expenses 6

Statement of Cash Flows 7

Notes to Financial Statements 8 - 17

Independent Auditor's Report

To the Directors ofStarlight Children's Foundation CanadaFondation pour l'enfance Starlight Canada

We have audited the accompanying financial statements of Starlight Children's Foundation Canada / Fondation pourl'enfance Starlight Canada, which comprise the statement of financial position as at December 31, 2014, and thestatements of revenues and expenses, changes in net assets and cash flows for the nine-month period then ended,and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance withCanadian accounting standards for not-for-profit organizations, and for such internal control as managementdetermines is necessary to enable the preparation of financial statements that are free from material misstatement,whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditor's judgment, including the assessment of the risks ofmaterial misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, theauditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, as well as evaluatingthe 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 qualifiedaudit opinion.

Basis for Qualified Opinion

In common with many not-for-profit organizations, the Foundation derives revenues from donations, the completenessof which is not susceptible to satisfactory audit verification. Accordingly, our verification of these revenues was limitedto the amounts recorded in the records of the Foundation and we were not able to determine whether adjustmentsmight be necessary to major events, donations and fundraising revenues, excess of revenues over expenses, cashflows from operations for the nine-month period ended December 31, 2014, current assets and net assets as atDecember 31, 2014.

T.514.934.3400

Richter S.E.N.C.R.L./LLP1981 McGill CollegeMtl (QC) H3A 0G6www.richter.ca Montreal, Toronto

Qualified Opinion

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, thefinancial statements present fairly, in all material respects, the financial position of Starlight Children's FoundationCanada / Fondation pour l'enfance Starlight Canada as at December 31, 2014, and the results of its operations and itscash flows for the nine-month period then ended in accordance with Canadian accounting standards for not-for-profitorganizations.

Montreal, QuébecJune 29, 2015

1CPA auditor, CGA, public accountancy permit No. A132839


Statement of Financial PositionAs at December 31, 2014

December 31, March 31,

2014 2014

$ $

Assets

Current

Cash 1,340,112 158,184Investment (note 5) 83,110 82,206Sundry receivables (note 6) 353,932 223,865Contributed materials to be distributed 1,848,761 101,793Prepaid expenses 97,474 45,731

3,723,389 611,779

Premises and equipment (note 7) 495,265 453,833

Website, less accumulated amortization of $16,250(March 31, 2014 - $11,000) 41,428 11,000

536,693 464,833

4,260,082 1,076,612

See accompanying notes

Approved on behalf of the board

, Director , Director

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Statement of Financial PositionAs at December 31, 2014


2014 2014

$ $

Liabilities

Current

Accounts payable and accrued liabilities 436,482 71,766Deferred revenue and contributions (note 9) 1,816,024 111,136Current portion of long-term debt (note 10) 34,346 34,212

2,286,852 217,114

Long-term debt (note 10) 157,990 121,279

Deferred contributions (note 11) 254,143 279,583

412,133 400,862

2,698,985 617,976

Commitments (note 12)

Net assetsInvested in premises and equipment and website 90,214 29,759

Unrestricted 1,470,883 428,877

1,561,097 458,636

4,260,082 1,076,612


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Statement of Changes in Net AssetsFor the Period Ended December 31, 2014

Invested in December 31, March 31,

premises and 2014 2014

equipment and (9 months) (12 months)

website Unrestricted Total Total

$ $ $ $

Balance - beginning of period 29,759 428,877 458,636 327,789

Excess of revenues over expenses (43,663) 1,383,496 1,339,833 130,847

Contribution of net assets (note 3) 17,996 (255,368) (237,372) -

Net investment in premises andequipment and website 122,967 (122,967) - -

Decrease in long-term debt 57,581 (57,581) - -

Increase in long-term debt (94,426) 94,426 - -

Balance - end of period 90,214 1,470,883 1,561,097 458,636


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Statement of Revenues and ExpensesFor the Period Ended December 31, 2014

December 31, March 31,2014 2014

(9 months) (12 months)$ $

Revenues

Major eventsGross receipts 1,421,502 908,735Less: costs of events and of direct benefits to donors (1,013,621) (687,014)

Major events revenue, net 407,881 221,721

Donations and fundraising (including amortization of deferredcontributions of $25,440; March 31, 2014 - $22,417) 4,832,383 2,230,354

Interest 3,487 946

5,243,751 2,453,021

Expenses (note 13)

Program (including amortization of premises and equipment andwebsite of $45,648 ; March 31, 2014 - $39,943) 3,029,738 1,654,076

Fundraising 632,642 458,520General and administrative (including amortization of premises

and equipment of $21,521 ; March 31, 2014 - $14,548) 241,538 209,578

3,903,918 2,322,174

Excess of revenues over expenses 1,339,833 130,847


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Statement of Cash FlowsFor the Period Ended December 31, 2014


2014 2014

(9 months) (12 months)$ $

Operating activities

Excess of revenues over expenses 1,339,833 130,847Amortization of deferred contributions (25,440) (22,417)Amortization of premises and equipment 66,478 43,491Amortization of website 691 11,000Loss on disposal of premises and equipment 1,934 -Change in value of investment (904) (856)

1,382,592 162,065

Changes in non-cash operating elements (173,265) (29,404)

1,209,327 132,661

Investing activities

Acquisition of premises and equipment (30,181) (133,171)Acquisition of website (26,474) (22,000)

(56,655) (155,171)

Financing activities

Increase in long-term debt - 129,994Repayment of long-term debt (23,713) (18,681)

(23,713) 111,313

Cash received from Starlight Children's Foundation (Ontario) (note 3) 52,969 -

Increase in cash 1,181,928 88,803

Cash - beginning of year 158,184 69,381

Cash - end of year 1,340,112 158,184


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Notes to Financial StatementsDecember 31, 2014

1. Statutes of incorporation and purpose of the Foundation

The Foundation is incorporated under the Canada Not-for-Profit Corporations Act and is a registeredcharity under the Income Tax Act. The Foundation enhances the lives of critically, chronically andseriously ill children and their families through wish granting and other entertainment relatedactivities.

2. Change of year-end

During 2014, the Foundation received approval to change its year end to December 31. This changewas intended so that the Foundation can have a common year end with other Starlight Children'sFoundations worldwide.

3. Contribution of net assets

Effective April 1, 2014, in order to better serve children on a national basis, the Foundationcommenced a process to merge its operations with Starlight Children’s Foundation (Ontario), aseparate registered charity which carries out the same mandate as the Foundation elsewhere inCanada. To that end, certain activities that were previously carried out by and recorded in the recordsof the Starlight Children's Foundation (Ontario) were transferred to the Foundation commencingApril 1, 2014.

On November 30, 2014, after donations were accounted for as outlined in note 14, all the remainingnet assets of Starlight Children's Foundation (Ontario) have been donated to the Foundation. Thedetail of the net assets contributed are as follows:

$

Cash 52,969Sundry receivables 10,857Contributed materials 46,025Prepaids 1,367Website 4,645Premises and equipment 13,351Accounts payable and accrued liabilities (148,061)Advance from Starlight Children's Foundation Canada (218,525)

Net assets contributed (237,372)

4. Summary of significant accounting policies

These financial statements have been prepared in accordance with Canadian accounting standardsfor not-for-profit organizations.

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4. Summary of significant accounting policies (continued)

Use of estimates

The preparation of financial statements in conformity with Canadian accounting standards for not-for-profit organizations requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosures of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

Revenue recognition

The Foundation follows the deferral method of accounting for contributions.

Restricted contributions are recognized as revenue in the year in which the related expenses areincurred. Unrestricted contributions are recognized as revenue when received or receivable if theamount to be received can be reasonably estimated and collection is reasonably assured. Revenuesfrom events are recognized in the period when the event occurred.

Donations mostly originate from individuals and corporations.

Contributed materials

The Foundation obtains equipment, airline tickets, iPads, donated toys and other gifts free of chargefrom various contributors. These materials would normally have to be purchased from regularsuppliers. They are recorded at the estimated fair value at the time of the donation.

The fair value of these materials for the period is estimated at $2,924,000 (March 31, 2014 -$876,000). They have been recorded as follows:

a) $Nil (March 31, 2014 - $302,000), which consists of a donated boat and car, has been recordedboth as deferred contributions and premises and equipment, in the statement of financial position.The deferred contributions are recognized as revenue on the same basis as the amortizationexpense of the corresponding asset;

b) $1,759,000 (March 31, 2014 - $102,000) have been recorded both as contributed materials to bedistributed and deferred contributions in the statement of financial position. They will be recordedboth as revenue and expenses in the statement of revenues and expenses when the Foundationdistributes the related assets;

c) $1,165,000 (March 31, 2014 - $472,000) have been recorded both as revenues and expenses inthe statement of revenues and expenses.

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Contributed materials (continued)

Contributed materials to be distributed at year end include iPads and donated toys collected fordistribution through the Foundation’s programs. The Foundation reviews the carrying value of itscontributed materials to be distributed for possible impairment whenever events or circumstancesindicate that the fair value may have declined since it was originally acquired. An impairment loss isrecognized when the fair value (current replacement cost) is lower than the carrying amount, in whichcase a write-down is recorded to reduce the related asset to its estimated current replacement cost.No impairment losses were recognized during the period ended December 31, 2014.

Allocation of expenses

Certain general operating expenses of the Foundation are allocated between three functions:program, fundraising and administration. The allocation is considered appropriate to each type ofexpense and is used consistently from year to year. These general operating expenses are allocatedon the following basis:

i) Wages and benefits are allocated based on the percentage of time that each employee isdirectly involved in a function; and

ii) Occupancy costs, insurance and office expenses are allocated based on the proportion ofsquare footage.

Premises and equipment

Premises and equipment are accounted for at cost. Amortization is calculated using the followingmethods, rates and period:

Methods Rates and period

Furniture and equipment Declining balance method 30%Computer Declining balance method 30%Automobiles Declining balance method 20%Boats Straight-line method 9 years

Website

Website is accounted for at cost. Amortization is calculated using the straight-line method over twoyears. As at December 31, 2014, an amount of $37,000 is not depreciated as it was still underdevelopment at year-end.

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Long-lived assets

When the long-lived assets, which comprise premises and equipment and website, no longer haveany long-term service potential to the Foundation, the excess of their net carrying amount over anyresidual value is recognized as an expense in the statement of revenues and expenses. A write-downshould not be subsequently reversed.

Foreign currency translation

Accounts in foreign currency have been translated into Canadian dollars as follows:

Monetary items are translated at exchange rates in effect at the balance sheet date, non-monetaryitems are translated at historical exchange rates and revenue and expenses are translated at theexchange rate in effect on the transaction dates or at the average exchange rate of the period,except for inventories and amortization which are translated at rates prevailing when the relatedassets were acquired.

Gains and losses arising from foreign currency translation are included in excess (deficiency) ofrevenues over expenses.

Financial instruments

Measurement

The Foundation initially measures its financial assets and financial liabilities at fair value, exceptfor certain non-arm's length transactions.

The Foundation subsequently measures all its financial assets and financial liabilities at amortizedcost, except for investments in equity instruments that are quoted in an active market, which aremeasured at fair value. Changes in fair value are recognized in excess (deficiency) of revenuesover expenses.

Financial assets measured at amortized cost include cash, investment and sundry receivables.

Financial liabilities measured at amortized cost include accounts payable and accrued liabilitiesand long-term debt.

As at year end, the Foundation has no financial assets measured at fair value.

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Impairment

Financial assets measured at cost are tested for impairment when there are indicators of possibleimpairment. The Foundation determines whether a significant adverse change has occurred in theexpected timing or amount of future cash flows from the financial asset. If this is the case, thecarrying amount of the asset is reduced directly to the higher of the present value of the cashflows expected to be generated by holding the asset, and the amount that could be realized byselling the asset at the date of the statement of financial position. The amount of the write-down isrecognized in excess (deficiency) of revenues over expenses. The previously recognizedimpairment loss may be reversed to the extent of the improvement, provided it is no greater thanthe amount that would have been reported at the date of the reversal had the impairment not beenrecognized previously. The amount of the reversal is recognized in excess (deficiency) ofrevenues over expenses.

Transaction costs

The Foundation recognizes its transaction costs in excess (deficiency) of revenues over expensesin the period incurred. However, transaction costs related to financial instruments subsequentlymeasured at amortized cost reduce the carrying amount of the financial asset or liability and areaccounted for in the statement of revenues and expenses using thestraight-line method.

5. Investment

The investment consists of a guaranteed investment certificate of $81,350 that bears interest at1.10% per annum and matures on January 17, 2015. This investment is pledged as security for theline of credit (note 8).

6. Sundry receivables

Included in sundry receivables is approximately $169,000 (March 31, 2014 - $31,000) of pledgesreceivable.

Sundry receivables includes approximately $Nil (March 31, 2014 - $106,000) due from the StarlightChildren's Foundation (Ontario). This amount is non-interest bearing and due on demand.

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7. Premises and equipment


Accumulated Net carrying Net carryingCost amortization amount amount

$ $ $ $

Furniture and equipment 11,213 7,085 4,128 1,241Computer 257,712 240,130 17,582 5,986Automobiles 247,764 44,038 203,726 171,606Boats 317,635 47,806 269,829 275,000

834,324 339,059 495,265 453,833

During the period, an automobile with a carrying amount of approximately $46,000 and relatedlong-term debt in the amount of $31,000 was traded-in for a new vehicle having a cost of $110,000and a long-term debt of $94,000 (see note 10).

8. Bank indebtedness

The Foundation's banking facility, renewable annually, consists of an $80,000 available line of creditbearing interest at prime rate plus 1% per annum. As security for the facility, the Foundation haspledged its investment. As at December 31, 2014, there was no bank indebtedness outstanding(March 31, 2014 - $Nil).

9. Deferred revenue and contributions

Deferred revenue represents amounts received that relate to fundraising activities that will occur inthe following year and deferred contributions relate to contributed materials which will be distributedin the subsequent period. Changes in deferred revenue and contributions are as follows:

December 31, March 31,2014

(9 months)2014

(12 months)$ $

Balance - beginning of period111,136 82,079

Recognized as revenue in the period (86,556) (82,079)Received in the year, relating to subsequent period 32,286 9,343Contributed materials to be distributed in subsequent period 1,759,158 101,793

Balance - end of period 1,816,024 111,136

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10. Long-term debt


$ $

Automobile loan, bearing interest at 4.29% per annum, repayable in72 monthly instalments of $1,021 including interest, with a finalpayment in March 2020, secured by an automobile having anoriginal cost of approximately $62,000 and a carrying amount ofapproximately $53,000 as at December 31, 2014(March 31, 2014 - $62,000) 57,517 64,728

Automobile loan, bearing interest at 5.69% per annum, repayable in60 monthly instalments of $1,252 including interest, with a finalpayment in October 2018, secured by an automobile having anoriginal cost of approximately $65,000 and a carrying amount ofapproximately $49,000 as at December 31, 2014(March 31, 2014 - $59,000) 51,650 59,541

Automobile loan, bearing interest at 4.98% per annum, repayable in84 monthly instalments of $1,334 including interest, with a finalpayment in April 2021, secured by an automobile having anoriginal cost of approximately $110,000 and a carrying amount ofapproximately $94,000 as at December 31, 2014 (note 7) 83,169 -

Automobile loan, used to finance the new automobile (see above) - 31,222

192,336 155,491

Current portion of long-term debt 34,346 34,212

157,990 121,279

Principal payments due in each of the next years are as follows:

$

2015 34,3462016 36,1172017 37,9802018 37,4292019 26,430Others 20,034

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11. Deferred contributions

Deferred contributions relate to capital contributions for premises and equipment of the sameamount. Changes in deferred contributions are as follows:

December 31, March 31,2014

(9 months)2014

(12 months)$ $

Balance - beginning of period279,583 -

Received in the period, relating to premises and equipment - 302,000Recognized as revenue in the period (25,440) (22,417)

Balance - end of period 254,143 279,583

12. Commitments

The commitments of the Foundation under premises and maintenance equipment agreements(exclusive of other occupancy charges) and other contractual program obligations, aggregate to$163,000. The minimum annual payments are approximately as follows:

$

2015 64,0002016 60,0002017 39,000

13. Allocation of expenses

The general operating expenses are allocated as follows:

Wages and benefits Insurance Occupancy and officeDecember 31,

2014(9 months)

$

March 31,2014

(12 months)$

December 31,2014

(9 months)$

March 31,2014

(12 months)$

December 31,2014

(9 months)$

March 31,2014

(12 months)$

Program 635,273 474,109 11,233 5,133 293,463 128,142Fundraising 173,461 233,041 2,465 1,464 67,288 36,550Administration 124,360 130,070 1,382 554 28,972 13,819

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14. Related party transactionsDecember 31, March 31,

2014 2014(9 months) (12 months)

$ $

Revenues

Donation from Starlight Children's Foundation (Ontario) up toNovember 30, 2014 (note 3) 1,040,000 1,147,000

Donation from Starlight Children's Foundation Global Office - 13,000

Contributed materials purchased

Purchases of materials from Starlight Children's FoundationGlobal Office 50,000 -

An amount of $50,000 (March 31, 2014 - $Nil) included in accounts payable and accrued liabilities isdue to Starlight Children's Foundation Global Office.

These donations have been recorded in revenues from donations and fundraising. Thesetransactions were concluded in the normal course of business and are measured at the exchangeamount which is the amount of consideration established and agreed to by the related parties.

15. Financial instruments

The Foundation is exposed to various risks through its financial instruments. The following analysisprovides a measure of the Foundation's risk exposure at the year-end date.

Interest rate risk

The Foundation is exposed to interest rate risk on its fixed-rate instruments which subject theFoundation to a fair value risk. The Foundation is exposed to this type of risk with respect to itsinvestment and long-term debt.

The Foundation is also exposed to increases in interest rates, which could adversely impact itspayments related to bank indebtedness.

Credit risk

The Foundation is exposed to credit risk with regard to uncertainty as to timing and collectibility ofsundry receivables, including pledges receivable. The uncertainty associated with pledges due morethan a year from the year end date precludes their recognition until collection. Historically, theFoundation collects virtually all of its pledges receivable.

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15. Financial instruments (continued)

The Foundation is also exposed to credit risk in the event of non-performance by counterpartiesassociated with its investments. The Foundation reduces this risk to a minimum by dealing only withwhat management believes to be financially sound counterparties and, accordingly, does notanticipate significant loss for non-performance.

Liquidity risk

Liquidity risk is the risk the Foundation will have difficulty to raise the funds required to have sufficientliquid financial resources to fulfill its mission, to meet its obligations associated with financial liabilitiesand continue operating despite adverse events with financial consequences. This need for sufficientliquidity is considered in the preparation of the annual budget, in the monitoring of cash flows and inthe comparison of actual operating results with budget. As at December 31, 2014, the Foundationhas met its objective of having significant liquidity to meet its current obligations.

16. Comparative figures

Certain reclassifications of March 31, 2014 amounts have been made to facilitate comparison withthe current period.

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