2012 tbi independent audit by The Bay Institute

THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION DECEMBER 31, 2012

TABLE OF CONTENTS

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

Page No.

1-2

CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2012

CONSOLIDATED STATEMENT OF ACTIVITIES AND NET ASSETS Year ended December 31, 2012

CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2012

5-6

7-16

ADDITIONAL INFORMATION CONSOLIDATING SCHEDULE OF FINANCIAL POSITION

CONSOLIDATING SCHEDULE OF ACTIVITIES AND NET ASSETS

CONSOLIDATING SCHEDULE OF FUNCTIONAL EXPENSES

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

19-20

Bartow 8c. Hugliala CERTIFIED PUBLIC ACCOUNTANTS,1182 MARKET STREET, SUITE 400 SAN FRANCISCO, CALIFORNIA 94102-4921 (415) 522-2490

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

BOARD OF DIRECTORS THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION SAN FRANCISCO, CALIFORNIA

We have reviewed the accompanying consolidated statement of financial position of THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION as of December 31, 2012 and the related consolidated statements of activities and net assets and cash flows for the year then ended. The financial statements of The Bay Institute Aquarium Foundation (an affiliate of The Bay Institute of San Francisco) were audited by us as indicated in our Independent Auditors' Report dated May 24, 2013. A review includes primarily applying analytical procedures to management's financial data and making inquiries of the organizations' managements. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. 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 designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements. Our responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance that there are no material modifications that should be made to the consolidated financial statements. We believe that the results of our procedures provide a reasonable basis for our report.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. Our review was made primarily for the purpose of expressing a conclusion that there are no material modifications that should be made to the consolidated financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. The additional information on pages 18 to 21 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the inquiry and analytical procedures applied in the review of the basic financial statements, and we did not become aware of any material modifications that should be made to such information.

San Francisco, California November 20, 2013

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2012 (See independent accountants' review report) ASSETS CURRENT ASSETS Cash Short-term investments Gift shop inventories Accounts and other receivables Prepaid loan fees and other assets Tickets held for sale

$ 1,974,134 523,770 123,199 166,682 172,930 16,195 2,976,910

NON-CURRENT ASSETS Property and equipment - Pledged Construction in progress Cash restricted for loan payments Investments Prepaid loan fees Deposits and other assets

7,579,927 139,940 910,000 578,612 285,196 38,938 $12,509,523

LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable Accrued expenses Deferred income Accrued rent Current portion of notes payable LONG-TERM LIABILITIES Notes Payable Accrued Rent

348,554 313,457 113,209 201,233 1,043,962 2,020,415 7,032,249 59,416 9,112,080

NET ASSETS Unrestricted Temporarily restricted

2,347,783 1,049,660 3,397,443 $12,509,523

See notes to financial statements.

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION CONSOLIDATED STATEMENT OF ACTIVITIES AND NET ASSETS YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report)

Unrestricted REVENUES Operating Revenues Ticket sales revenues Contract revenues Other revenues

Gift Shop Revenues Sales Less cost of sales

Public Support

Interest and other income Net assets released from restriction

EXPENSES Program Services Exhibits Animal care and research Education programs Rivers and delta Conservation programs Bay restoration Watershed education Support Services Management and general Fundraising

CHANGE IN NET ASSETS Net Assets - Beginning of year Net Assets - End of year

Total

$ 7,912,754 434,432 178,682 8,525,868

$7,912,754 434,432 178,682 8,525,868

1,571,786 752,197 819,589

466,844

Fundraising Special event revenues Less special event expenses

Temporarily Restricted

9,995

237,847 108,549 129,298 31,961 122,237 10,095,797

476,839

237,847 108,549 129,298 31,961 (122,237) (112,242)

9,983,555

5,123,730 786,799 762,710 555,875 226,213 194,140 82,154

1,514,713 343,909 9,590,243

505,554 1,842,229 $ 2,347,783

See notes to financial statements

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

(112,242) 1,161,902 $1,049,660

393,312 3,004,131 $3,397,443

5 THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report)

CASH FLOWS FROM OPERATING ACTIVITIES Cash received from visitors and customers Cash paid to employees and suppliers Cash paid to other vendors for their portion of sales of combined ticket packages Cash received from contributions and grants Interest paid Interest received Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments Proceeds from sale of investments Repayments of employee advance Payments on construction in progress Purchase of property and equipment Net cash used for investing activities

(1,565,538) 468,197 (172,069) 7,142 1,154,013

(1,098,897) 251,702 7,285 (139,940) (117,518) (1,097,368)

CASH FLOWS FROM FINANCING ACTIVITIES Repayments of notes payable NET DECREASE IN CASH

$11,896,655 (9,480,374)

(927,981)

(871,336)

CASH - Beginning of year

3,755,470

CASH - End of year

2,884,134

LESS CASH SEPARATELY CLASSIFIED AS RESTRICTED UNRESTRICTED CASH - End of year

See notes to financial statements.

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANT'S

910,000 $ 1,974,134

6 THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report) RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Change in net assets: Items not requiring (providing) cash: Depreciation Amortization Reduction in deferred rent Uncollected pledges Increase in value of investments Decreases (increases) in assets: Gift shop inventories Accounts and other receivables Prepaid loan fees, deposits and other assets Tickets held for sale Increases (decreases) in liabilities: Accounts payable Accrued expenses Deferred income NET CASH PROVIDED BY OPERATING ACTIVITIES

See notes to financial statements.

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

$ 393,312 668,920 27,442 (37,410) 20,989 (2,194) (46,067) (41,370) (5,773) 14,064 220,205 (63,992) 5,887 $1,154,013

-7THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012 (See accountants' review report) 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES History and Operations The Bay Institute of San Francisco (the Institute), is a non-profit public benefit corporation incorporated in 1981 under the laws of the State of California. The Institute was established to protect, restore and inspire the preservation of the ecosystems of San Francisco Bay, the Sacramento-San Joaquin Delta, and the rivers, streams, and watershed tributary from the Sierra to the sea. The Bay Institute Aquarium Foundation (the Foundation), an affiliate of the Institute, is a non-profit public benefit corporation incorporated in 2008 under the laws of the State of California. The Foundation was formed by the Board of Directors of the Institute to own and operate the Aquarium of the Bay (the Aquarium) beginning in 2009. The Aquarium is located on Pier 39 in San Francisco. Program Services of the Institute Bay Restoration - The San Francisco Bay has been altered drastically from the pristine estuary that existed in the 1800's. Hundreds of miles of earthen dikes built around the Bay's salt marshes severed their connection to its tidewaters. The diked marshes were drained and converted to agricultural lands. Reduced in size by one third as a result of this wetland destruction, the Bay's biological productivity plummeted. One of the main goals of the Institute is to expand and accelerate the effort to protect and restore many of the wetlands that were drained. Rivers and Delta - This program employs scientific and policy expertise to promote reforms in the way California manages its water supplies and protects the ecological values of the San Francisco Bay-Delta estuary and its watershed. It is a continuation and broadening of the Institute's original core mission of using research and advocacy to secure increased freshwater flows to the Bay. Watershed Education - This program coordinates a network of teachers, students, restoration specialists and other community members as they plan and implement watershed studies and restoration projects primarily in Mann, Sonoma, Solano, San Francisco, and Napa counties. The program also provides teachers and students with the scientific, educational and technical resources to prepare them for hands-on,

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-8 THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012 (See accountants' review report)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Program Services of the Institute - Continued outdoor watershed studies, including ecological restoration of riparian corridors. The Institute ceased participating in this program during 2012. Program Services of the Foundation Exhibits - Exhibits are open 364 days a year that display more than 20,000 local marine animals in specially designed galleries that focus on local marine habitats and concepts. Education Programs - Education programs and free education classes and tours for school groups, youth groups, families, Scout troops and visitors. More than 17,000 students, teachers and chaperones participate annually from schools within the nine Bay Area counties. Animal Care and Research - Ongoing research and care are part of the Foundation's commitment to the preservation of animals on exhibit and in the wild, and conservation of San Francisco Bay and its watershed, including cultivating moon jellies, breeding skates and pipefish, participating in the California Department of Fish and Game Management Program, and angel shark tagging and DNA sampling. Conservation Programs - Conservation programs and cooperation with over forty partners are involved in the preservation of the San Francisco Bay and its watershed from the Sierra to the sea. Principles of Consolidation The consolidated financial statements include the accounts of The Bay Institute of San Francisco and the Bay Institute Aquarium Foundation, an affiliate of The Bay Institute of San Francisco. All significant intercompany transactions and balances have been eliminated. The Board of Directors of the Foundation is appointed by the Board of Directors of the Institute.

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

-9THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report) 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Basis of Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Board (FASB) in its Accounting Standards Codification (ASC) Topic 958 Not-For-Profit Entities. Under FASB ASC Topic 958, the Institute and the Foundation report information regarding their financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets, based upon the existence or absence of donor-imposed restrictions. Income is recognized as temporarily restricted if restrictions imposed by the donor are not satisfied by the end of the current year. Ticket sales revenues are recognized when redeemed for admission to the Aquarium. The Foundation participates in various combined ticket packages with other local attractions. The Foundation recognizes as revenue only its portion of these combined packages. Investments Short-term and long-term investments are stated at market value. They are comprised of certificates of deposit and marketable securities. At December 31, 2012 the cost of the investments was $1,098,897. Gift Shop Inventories Inventories are stated at the lower of market or cost determined by the first-in, first-out method. Accounts and Other Receivables The Management of the Institute and the Foundation believe that the receivables are collectible and that no allowance for doubtful receivables is required. Property and Equipment Property and equipment are stated at cost. Depreciation of property and equipment is provided using the straight-line method using the following estimated useful lives: Years Machinery 3-5 Furniture and fixtures 3-5 Exhibits 10 Buildings and improvements 19

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-10-

THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report) 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Compensated Absences Accumulated paid time off is accrued when earned. As of December 31, 2012 the liabilities to employees for compensated absences were $146,790. Deferred Income Deferred income at year end was comprised of advance admission tickets sold but not redeemed and prepayments for services not yet performed as of the end of the year. Donated Services A number of volunteers have donated significant amounts of their time. These donated services are not reflected in the financial statements since they do not meet generally accepted criteria for recognition as contributed services. Grants of services between the two organizations have been eliminated in the consolidation process. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Income Tax Status Both organizations qualify as tax exempt organizations under Section 501(c)(3) of the Internal Revenue Code and are therefore generally exempt from income taxes. Income taxes are payable, however, on revenue from sources unrelated to their tax exempt purpose. There were no such revenues during the year. The Institute and the Foundation's policy is to record interest and penalties as income taxes. For the year ended December 31, 2012 there were no such amounts incurred or recorded in the financial statements. In addition, the organizations have not taken an unsubstantiated tax position that would require provision of a liability under ASC 740, "Income Taxes." The Institute and the Foundation's informational returns are subject to examinations by Federal and State taxing authorities.

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

CASH The cash balances as of December 31, 2012 were comprised of the following:

Interest bearing accounts Non-interest bearing accounts Cash on hand

Institute

Foundation

$252,203 68,320

$1,481,560 1,049,246

Total

$1,733,763 1,117,566

145

32,660

32,805

320,668

2,563,466

2,884,134 910,000

Less restricted cash

910,000 $320,668

$1,653,466

$1,974,134

Under the terms of its bank loan, the Foundation is required to maintain segregated cash balances from which it may not draw funds until the loan is fully repaid. This restricted cash is classified as a longterm asset based on the repayment terms of the loan. 3.

PROPERTY AND EQUIPMENT The property and equipment, on December 31, 2012, all of which was owned by the Foundation, were comprised of the following:

Building situated on leased premises Leasehold improvements Exhibits Furniture and office equipment Operating equipment Boats Less accumulated depreciation

$7,999,174 520,661 785,442 299,096 165,095 26,162

9,795,630 2,215,703 $7,579,927

The building and all improvements will revert to the lessor upon the conclusion of the lease as described in Note 4. Depreciation and amortization expenses for the year were $668,920 and $27,442 respectively.

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-12THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report)

COMMITMENTS AND CONTINGENCIES The Foundation leases the site on which it operates from unrelated parties under operating leases. Under the principal lease agreement, rent is payable to the Port of San Francisco annually, calculated at 4% of adjusted gross revenues or $150,000, whichever is greater. A sublease agreement with Pier 39 provides for a base rental charge of $250,000 per year plus 2% of gross earned revenues above $11,850,000. The sublease agreement also includes a rent abatement agreement, under which the $250,000 base rent was not charged until June 23, 2012. The total base rent to be paid during the period from June 23, 2012 through the expiration of the initial term of the lease on March 31, 2014 has been amortized over the period of the lease remaining subsequent to the Foundation's purchase of the leasehold interest. During the year ended December 31, 2012 the Foundation reduced its accumulated deferred rent liability related to this abatement by $43,839. No accrual has been provided for any additional rent based on future sales as they cannot be reasonably estimated. Both of these leases expire March 31, 2014. The Foundation has the option to renew the leases for various periods through December 31, 2028, and the leases may be subject to further renewals. The Institute leases its offices from an unrelated party under an operating lease. During 2012 the Institute moved to the Foundation's offices. The Institute sublet its former offices to an unrelated party with no net rental expense to the Institute. Both the sublease and the Institute lease expire in March 2014. Total rent expense for the year ended December 31, 2012 was $490,703. The following schedule details future minimum lease payments for the succeeding five years for operating leases with initial or remaining lease terms in excess of one year: Year Ending December 31,

2013 2014

Amount

$435,874 90,219 $526,093

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

-13THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report)

COMMITMENTS AND CONTINGENCIES - Continued The Institute and the Foundation participate in numerous grants. Disbursement of funds received under these grants requires compliance with terms and conditions specified in the grant agreement and is subject to audit by the grantor agency. Any disallowed costs resulting from such an audit could become a liability of the general fund or other applicable funds.

NOTES PAYABLE In connection with the Foundation's purchase of the assets of the Aquarium, the California Infrastructure and Economic Development Bank issued bonds in the amount of $6,500,000 and loaned the proceeds to the Foundation. The Foundation is required to make annual payments through 2025 to a custodial bank which will be used to retire the bonds through 2025. During the period the bonds are outstanding the Foundation will also pay interest at a variable rate and other loan fees to the custodial bank which administers the loan on behalf of the Economic Development Bank. During the year ended December 31, 2012, the Foundation paid $117,300 in credit fees and interest and a principal payment of $100,000 was made. The principal balance on this note at December 31, 2012 was $6,300,000. The loan is secured by the leasehold interest and other assets of the Foundation. The Institute is a guarantor for this loan. The Foundation borrowed $4,000,000 from a private foundation in order to finance the acquisition of the assets of the Aquarium. The note is repayable in annual installments of $800,000 plus interest at 2%; the remaining principal is due in July of 2014. Interest expense on this note during the year ended December 31, 2012 was $39,666. Principal payments of $800,000 were made during 2012. The principal balance on this note at December 31, 2012 was $1,600,000.The loan is secured by the leasehold interest and other assets of the Foundation. The Institute is a guarantor for this loan.

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

-14THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report) 5.

NOTES PAYABLE - Continued At December 31, 2012 the Institute had an outstanding bank loan in the amount of $65,413. The loan is repayable in monthly payments of $2,602 including interest at 6.25%; the remaining principal is due in March 2015. Interest expense on this loan during the year ended December 31, 2012 was $5,090. Principal payments of $26,138 were made during 2012. The loan is secured by the assets of the Institute. At December 31, 2012 the Institute had an outstanding unsecured loan payable to a former board member in the amount of $110,798. The loan is repayable on demand and bears interest at 5%. Interest expense on this loan during the year ended December 31, 2012 was $5,657. Principal payments of $1,843 were made during 2012. The minimum principal payments due during the next five years under these notes are: 2013 2014 2015 2016 2017 Thereafter

$1,043,962 933,161 434,088 450,000 470,000 4,745,000 $8,076,211

TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets as of December 31, 2012 were comprised of the following: California Coastal Commission - Time restricted Bay Restoration - Purpose restricted

9,995 1,039,665 $1,049,660

The temporarily restricted net assets held for bay restoration are restricted for the acquisition and maintenance of the Scott Ranch land (a 58 acre parcel) by the City of Petaluma or another public charity.

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

-15THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report) 7.

PENSION PLANS The Institute and the Foundation have each established qualified retirement plans under section 401(k) of the Internal Revenue Code. The Institute has also established a plan under section 403(b)of the Internal Revenue Code. These plans allow for employer contributions at the discretion of the Board of Directors. No employer contributions were made under these plans for 2012. The plans are managed by an outside consultant. The Foundation has also established a retirement plan under section 457(b) of the Internal Revenue Code for qualified employees. Contributions to the plan by the Foundation are entirely at the discretion of the Board of Directors. The Foundation contributed $28,000 to this plan for 2012.

CONCENTRATIONS OF CREDIT RISK The Institute and the Foundation maintain their cash balances and certificates of deposit at financial institutions where the deposits are insured by the Federal Deposit Insurance Corporation. All cash balances and certificate of deposits at December 31, 2012 were fully insured. At December 31, 2012 the Foundation had marketable securities listed on national exchanges valued at $56,038 that are subject to market fluctuation.

RELATED PARTIES TRANSACTIONS During the year ended December 31, 2012 various employees of the Foundation provided services to the Institute. These services and related expenses incurred by the Foundation on behalf of the Institute were valued at $419,628. The Foundation also made a grant of $300,000 to the Institute for its general support. Both grants were eliminated in consolidation. The Institute is the guarantor for the notes payable by the Foundation totaling $7,900,000 at December 31, 2012 as described in Note 5. The guarantees will continue until both loans have been fully repaid. During 2011 the Foundation advanced $20,279 to one of its officers. The advance is repayable in monthly installments of $283 including interest at 3%; remaining principal is due in January 2014. The advance is unsecured. During the year ended December 31, 2012 principal payments of $7,285 were received. The outstanding balance at December 31, 2012 was $8,268.

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

-16THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012

10. FAIR VALUE OF FINANCIAL INSTRUMENTS The Institute and the Foundation have determined the fair value of their investments on a recurring basis through application of FASB ASC 821010. Level 1

Short-term investments Investments

Level 2

Level 3

$ 523,770 578,612 $1,102,382

Financial assets valued using Level 1 inputs are based on quoted market prices within active markets. Fair values for assets in Level 2 would be calculated using quoted market prices for similar assets in markets that are not active. Financial assets using Level 3 inputs would be valued by management primarily based upon the likely assumptions market participants would utilize in pricing the assets. The Foundation had no financial instruments classified as either Level 2 or Level 3 at December 31, 2012. 11. SUBSEQUENT EVENT In preparing the financial statements for the Institute, the organization has evaluated events and transactions for potential recognition or disclosure through November 20, 2013, the date the financial statements were available to be issued. In preparing the financial statements for the Foundation, the organization has evaluated events and transactions for potential recognition or disclosure through May 24, 2013, the date the financial statements were available to be issued.

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ADDITIONAL INFORMATION

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION CONSOLIDATING SCHEDULE OF FINANCIAL POSITION YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report) The Bay Institute of San Francisco

The Bay Institute Aquarium Foundation

Consolidated

Eliminations

ASSETS CURRENT ASSETS Cash Short-term investments Gift shop inventories Accounts and other receivables Prepaid loan fees and other assets Tickets held for sale

320,668 215,146 42,555 631 579,000

NON-CURRENT ASSETS Property and equipment - Pledged Construction in progress Cash Restricted for loan payments Investments Prepaid loan fees Deposits and other assets

$ 1,653,466 308,624 123,199 151,301 172,299 16,195 2,425,084

$(27,174)

(27,174)

$ 1,974,134 523,770 123,199 166,682 172,930 16,195 2,976,910 7,579,927 139,940 910,000 578,612 285,196 38,938

7,579,927 139,940 910,000 578,612 285,196 38,938 $1,157,612

$11,379,085

$(27,174)

$12,509,523

$(27,174)

LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable Accrued expenses Deferred income Accrued rent Current portion of long-term debt

LONG-TERM LIABILITIES Notes Payable Accrued Rent NET ASSETS Unrestricted Temporarily restricted

138,962 263,213

277,012 287,922 113,209 201,233 905,000 1,784,376

37,249

6,995,000

300,462

59,416 8,838,792

98,716 25,535

(182,515) 1,039,665 857,150 $1,157,612

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

(27,174)

7,032,249

(27,174)

59,416 9,112,080 2,347,783 1,049,660 3,397,443

2,530,298 9,995 2,540,293 $11,379,085

348,554 313,457 113,209 201,233 1,043,962 2,020,415

$(27,174)

$12,509,523

-18THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION CONSOLIDATING SCHEDULE OF ACTIVITIES AND NET ASSETS YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report) The Bay Institute Aquarium Foundation

The Bay Institute of San Francisco

Unrestricted REVENUES Operating revenues Ticket sales revenues Contract revenues Other revenues

Temporarily Restricted

Subtotal

NET ASSETS - End of year

Consolidated

209,432

1,055,801

1,571,786 752,197 819,589 130,671

1,571,786 752,197 819,589 140,666

1,571,786 752,197 819,589 476,839

237,847 108,549 129,298

7,491

209,432

(100,237) (100,237)

1,402,022

$ 9,995

24,470

24,470 22,000 9,313,166

(22,000) (12,005)

9,301,161

5,123,730 786,799 762,710

945,841

555,875

194,140 82,154

208,727 343,909 1,384,805

1,305,986

8,925,066

17,217 839,933

388,100 2,142,198

857,150

$2,530,298

(182,515)

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

(100,237) 1,139,902 $1,039,665

$(719,628)

237,847 108,549 129,298

555,875

117,454 (299,969)

EXCESS OF REVENUES OVER EXPENSES NET ASSETS - Beginning of year

Eliminations

$7,912,754 434,432 178,682 8,525,868

100,237 1,502,259

EXPENSES Program Services Exhibits Animal care and research Education programs Rivers and Delta Conservation programs Bay restoration Watershed education Support services Management and general Fundraising

Subtotal

$7,912,754 225,000 178,682 8,316,436

209,432

Interest and other income Net assets released from restriction

Temporarily Restricted

$7,912,754 225,000 178,682 8,316,436

209,432

Gift shop revenues Sales Less cost of sales

Public support Fundraising Special event revenues Less special events expenses

Unrestricted

(12,005) 22 000 $ 9,995

31,961

(719,628)

376,095 2,164,198 $2,540,293

9,983,555

5,123,730 786,799 762,710 555,875 226,213 194,140 82,154 1,514,713 343,909 9,590,243 393,312 3,004,131

-0-

$3,397,443

THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION CONSOLIDATING SCHEDULE OF FUNCTION EXPENSES YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report)

The Bay Institute of San Francisco Program

Bay Restoration Employment costs Depreciation Advertising/printing Rent Animal and exhibits support Utilities Contract services Office Professional fees Insurance Repairs and maintenance Administration Interest Travel Auto Taxes and licenses Amortization Uncollected pledges Grants

Barlow & Hughan CERTI FI ED PUBLIC ACCOUNTANTS

Rivers & Delta

Watershed Education

Support Services

Fundraising

Management and General

Subtotal

$156,610

$410,770

$255,723

11,736

66 11,736

29,787 4,941

$150,096 2,467 1,894 2,471

3,480

6,518

3,912

1,256

4,140 84,461

8,694 37,251

12,929 12,399 7,816

15,166 82,154 25,928 151,217 7,816

126

17,115

3,475

5,169 10,769 1,461

5,375 10,769 27,094

$82,154 165 17,106

5,043

20,989

$194,140

TOTAL EXPENSES

Services

$555,875

973,199 2,467 31,747 30,884

20,989

$82,154

$343,909

$208,727

$1,384,805

THE BAY INSTITUTE OF SAN FRANCISCO AND ITS AFFILIATE, THE BAY INSTITUTE AQUARIUM FOUNDATION CONSOLIDATING SCHEDULE OF FUNCTION EXPENSES -Continued YEAR ENDED DECEMBER 31, 2012 (See independent accountants' review report)

The Bay Institute Aquarium Foundation Support Services

Program Services

Exhibits Employment costs Depreciation Advertising/printing Rent Animal and exhibits support Utilities Contract services Office Professional fees Insurance Repairs and maintenance Administration Interest Travel Auto Taxes and licenses Amortization Uncollected pledges Grants TOTAL EXPENSES

Education Animal care Conservation Management Programs and Research Programs and General

$1,976,305 653,123 460,502 450,623 260,245 433,175 163,496 45,474 3,605 255,119 198,384 169,498

$719,823

$532,057

$145,438

250

650

606

20,585

185,557

1,194

21,865 5,344 26,972

4,890 1,615

7,135 8,087

325

40,011 14,384

14,625 64,350

735 635 7,597 4,044 1,129

$ 754,805 13,329 2,151 9,196 375 10,901 187,128 53,460 4,588 7,520 23,553 156,966 16,007 35,928 2,636 27,443

719,628 $5,123,730

Barlow & Hughan CERTIFIED PUBLIC ACCOUNTANTS

$762,710

$786,799

$945,841

$1,305,986

Subtotal

Eliminations

$4,128,428 666,452 464,159 459,819 467,956 433,175 214,408 268,746 129,502 259,707 206,639 194,011 156,966 50,359 46,931 30,737 27,443

Consolidated $5,101,627 668,919 495,906 490,703 467,956 448,341 296,562 294,674 280,719 267,523 206,639 199,386 167,735 77,453 46,931 30,737 27,443 20,989

719,628

$(719,628)

$8,925,066

$(719,628)

$9,590,243