GuideStar USA, Inc. Financial Statements

Transcription

1 GuideStar USA, Inc. Financial Statements For the Years Ended December 31, 2012 and 2011

2 CONTENTS PAGE NO. INDEPENDENT AUDITOR'S REPORT 2 EXHIBIT A - Statements of Financial Position, as of December 31, 2012 and EXHIBIT B - Statements of Activities and Changes in Net Assets, for the Years Ended December 31, 2012 and EXHIBIT C - Statement of Functional Expenses, for the Year Ended December 31, EXHIBIT D - Statement of Functional Expenses, for the Year Ended December 31, EXHIBIT E - Statements of Cash Flows, for the Years Ended December 31, 2012 and NOTES TO FINANCIAL STATEMENTS

3 INDEPENDENT AUDITOR'S REPORT To the Board of Directors GuideStar USA, Inc. Washington, D.C. We have audited the accompanying financial statements of GuideStar USA, Inc. (the Organization) (a nonprofit organization), which comprise the statements of financial position as of December 31, 2012 and 2011, and the related statements of activities and changes in net assets, functional expenses and cash flows for the years 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. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 auditor s 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 auditor considers 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Organization as of December 31, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Bethesda, Maryland May 31, MONTGOMERY AVENUE SUITE 650 NORTH BETHESDA, MARYLAND (301) FAX (301) MEMBER OF CPAMERICA INTERNATIONAL, AN AFFILIATE OF HORWATH INTERNATIONAL MEMBER OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS' PRIVATE COMPANIES PRACTICE SECTION 2

4 STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2012 AND 2011 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,376,680 $ 1,157,481 Investments (Note 11) 252, ,590 Grants receivable (Note 8) 275, ,500 Accounts receivable, net of allowance for doubtful accounts of $65,000 and $27,500 in 2012 and 2011, respectively 640, ,606 Prepaid expenses 45,594 - PROPERTY AND EQUIPMENT Total current assets 2,590,780 2,530,177 Equipment (Note 5) 2,233,258 2,924,034 Furniture 263, ,312 Leasehold improvements 30,147 30,147 Software development 1,065, ,051 Software development in process 63, ,586 3,655,563 4,143,130 Less: Accumulated depreciation and amortization (2,743,037) (2,845,259) OTHER ASSETS Net property and equipment 912,526 1,297,871 Refundable security deposits 47,024 47,024 Intangible asset - web site domain, less accumulated amortization of $86,111 and $79,445 in 2012 and 2011, respectively 13,889 20,555 Deferred compensation investments (Notes 9 and 11) 146, ,295 Total other assets 207, ,874 TOTAL ASSETS (Note 4) $ 3,710,943 $ 4,019,922 See accompanying notes to financial statements. 3

5 EXHIBIT A LIABILITIES AND NET ASSETS (DEFICIT) CURRENT LIABILITIES Accounts payable and accrued liabilities $ 514,129 $ 421,719 Current portion of long-term debt (Note 4) 400, ,000 Deferred program revenue, current portion (Note 7) 1,371,713 1,404,558 Current portion of deferred rent abatement (Note 5) 38,614 26,377 LONG-TERM LIABILITIES Total current liabilities 2,324,456 2,102,654 Long-term debt (Note 4) 1,450,000 1,850,000 Deferred program revenue, long-term (Note 7) - 4,300 Deferred rent, net of current portion (Note 5) 72, ,117 Deferred compensation (Note 9) 146, ,295 NET ASSETS (DEFICIT) Total long-term liabilities 1,669,227 2,089,712 Total liabilities 3,993,683 4,192,366 Unrestricted (Note 12) (668,240) (1,048,675) Temporarily restricted (Notes 2 and 8) 385, ,231 Total net assets (deficit) (282,740) (172,444) TOTAL LIABILITIES AND NET ASSETS (DEFICIT) $ 3,710,943 $ 4,019,922 See accompanying notes to financial statements. 4

6 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 REVENUE Unrestricted 2012 Temporarily Restricted Total Program revenue $ 8,131,569 $ - $ 8,131,569 Grants (Note 8) 775, ,500 1,280,500 Membership 1,197,400-1,197,400 Contributions 33,038-33,038 Interest Rental income (Note 5) 54,742-54,742 Net assets released from donor restrictions (Note 3) 996,231 (996,231) - EXPENSES Total revenue 11,188,756 (490,731) 10,698,025 Program Services: Enabling Better Decisions 5,548,533-5,548,533 Encouraging Charitable Giving 843, ,953 Advancing Transparency 2,942,760-2,942,760 Total program services 9,335,246-9,335,246 Supporting Services: Administration 1,018,256-1,018,256 Fundraising 454, ,819 Total supporting services 1,473,075-1,473,075 Total expenses 10,808,321-10,808,321 Changes in net assets (deficit) (Note 12) 380,435 (490,731) (110,296) Net assets (deficit) at beginning of year (1,048,675) 876,231 (172,444) NET ASSETS (DEFICIT) AT END OF YEAR $ (668,240) $ 385,500 $ (282,740) See accompanying notes to financial statements. 5

7 EXHIBIT B Unrestricted 2011 Temporarily Restricted Total $ 7,933,964 $ - $ 7,933, ,000 1,361,467 1,861,467 1,173,197-1,173,197 47,940-47,940 3,749-3,749 53,148-53,148 1,549,224 (1,549,224) - 11,261,222 (187,757) 11,073,465 5,945,642-5,945, , ,969 3,202,840-3,202,840 10,090,451-10,090,451 1,271,478-1,271, , ,571 1,786,049-1,786,049 11,876,500-11,876,500 (615,278) (187,757) (803,035) (433,397) 1,063, ,591 $ (1,048,675) $ 876,231 $ (172,444) See accompanying notes to financial statements. 6

8 STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2012 Enabling Better Decisions Program Services Encouraging Charitable Giving Advancing Transparency Total Program Services Salaries $ 2,620,528 $ 376,186 $ 1,310,804 $ 4,307,518 Payroll taxes 197,739 25, , ,481 Employee benefits (Note 9) 295,245 51, , ,696 Training and recruitment 30,390 2,876 12,434 45,700 Total personnel 3,143, ,052 1,626,441 5,226,395 Contract costs 2, ,844 Data digitization 556, , ,580 Hosting 146,199 34, , ,088 Hosting equipment leases 130,270 13, , ,540 Internet services 48,000 5,383 28,139 81,522 Software, support and equipment 119,215 12, , ,118 Advertising and marketing 216,049 26, , ,838 Travel 56,644 9,438 9,850 75,932 Consultants and contractors 298, ,315 48, ,442 Professional services 59,306 7,824 31,333 98,463 Rent, phone and utilities (Note 5) 255,900 33, , ,740 Office expenses 47,747 4,746 20,963 73,456 Credit card and bank charges 90, ,027 Personal property taxes 2, ,334 Bad debt expense 58, ,750 Interest expense 18,569 2,247 10,079 30,895 Total operating expense 5,251, ,463 2,767,131 8,797,964 Depreciation and amortization 297,163 64, , ,282 TOTAL $ 5,548,533 $ 843,953 $ 2,942,760 $ 9,335,246 See accompanying notes to financial statements. 7

9 EXHIBIT C Administration Supporting Services Fundraising Total Supporting Services Total Expenses $ 555,053 $ 264,629 $ 819,682 $ 5,127,200 42,386 20,755 63, ,622 64,791 20,836 85, , ,716 44, , , , ,742 1,120,688 6,347, , , , ,540 7,235 3,262 10,497 92, ,670 1,555 3,117 4, ,510 25,132 7,539 32, ,603 11,187 12,250 23, ,879 32,404 13,137 45, ,004 92,518 10, , ,471 13,315 9,331 22,646 96,102 2,809 20,683 23, , , ,750 3,998 1,593 5,591 36, , ,017 1,393,047 10,191,011 57,226 22,802 80, ,310 $ 1,018,256 $ 454,819 $ 1,473,075 $ 10,808,321 See accompanying notes to financial statements. 8

10 STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2011 Enabling Better Decisions Program Services Encouraging Charitable Giving Advancing Transparency Total Program Services Salaries $ 2,661,205 $ 395,731 $ 1,333,117 $ 4,390,053 Payroll taxes 202,025 24, , ,379 Employee benefits (Note 9) 281,095 40, , ,341 Training and recruitment 35,522 4,296 24,121 63,939 Total personnel 3,179, ,655 1,659,210 5,304,712 Contract costs Data digitization 601, ,011 1,002,528 Hosting 127,532 30, , ,749 Hosting equipment leases 104,212 11, , ,583 Internet services 43,465 4,898 25,745 74,108 Software, support and equipment 122,993 14, , ,360 Advertising and marketing 327,514 36, , ,207 Travel 95,024 13,005 27, ,954 Consultants and contractors 538, , , ,711 Professional services 105,000 14,084 34, ,663 Rent, phone and utilities (Note 5) 256,206 29, , ,834 Office expenses 57,113 5,561 28,436 91,110 Credit card and bank charges 103, ,000 Personal property taxes 3, ,196 6,552 Bad debt expense Interest expense 21,922 2,519 12,324 36,765 Total operating expense 5,689, ,774 3,044,913 9,617,830 Depreciation and amortization 256,499 58, , ,621 TOTAL $ 5,945,642 $ 941,969 $ 3,202,840 $ 10,090,451 See accompanying notes to financial statements. 9

11 EXHIBIT D Administration Supporting Services Fundraising Total Supporting Services Total Expenses $ 787,282 $ 342,863 $ 1,130,145 $ 5,520,198 44,499 23,631 68, ,509 87,384 25, , ,129 28, ,579 93, , ,560 1,340,642 6,645, ,002, , ,583 9,713 3,319 13,032 87, ,199 7,097 11,392 18, ,696 50,378 24,905 75, ,237 55,483 12,660 68, ,854 34,743 12,393 47, ,799 79,041 23, , ,693 17,361 9,460 26, ,931 3, , ,737 1, ,386 7, ,759 2,022 7,781 44,546 1,212, ,807 1,706,148 11,323,978 59,137 20,764 79, ,522 $ 1,271,478 $ 514,571 $ 1,786,049 $ 11,876,500 See accompanying notes to financial statements. 10

12 EXHIBIT E GUIDESTAR USA, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 CASH FLOWS FROM OPERATING ACTIVITIES Changes in net assets (deficit) $ (110,296) $ (803,035) Adjustments to reconcile changes in net assets (deficit) to net cash provided (used) by operating activities: Depreciation and amortization 617, ,522 Loss on disposal of fixed assets Change in allowance for doubtful accounts 37,500 (6,500) Change in discount on long-term receivables - (5,354) Deferred rent (26,377) (17,571) (Increase) decrease in: Grants receivable 317, ,500 Accounts receivable (150,536) 83,878 Prepaid expenses (45,594) - Increase (decrease) in: Accounts payable and accrued liabilities 92,409 (242,308) Deferred program revenue (37,145) 88,941 Net cash provided (used) by operating activities 695,323 (16,927) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (225,850) (602,311) Purchases of investments (252,864) (252,590) Proceeds from maturity of investments 252, ,000 Net cash used by investing activities (226,124) (604,901) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (250,000) (140,625) Net cash used by financing activities (250,000) (140,625) Net increase (decrease) in cash and cash equivalents 219,199 (762,453) Cash and cash equivalents at beginning of year 1,157,481 1,919,934 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,376,680 $ 1,157,481 See accompanying notes to financial statements. 11

13 EXHIBIT E (Continued) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest Paid $ 40,569 $ 44,546 SUPPLEMENTAL SCHEDULE OF NONCASH, INVESTING AND FINANCING ACTIVITIES Forgiveness of Debt in Exchange for Program Revenue $ - $ 72,820 See accompanying notes to financial statements. 12

14 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION Organization - GuideStar USA, Inc. (the Organization), formerly known as Philanthropic Research, Inc., was formed under the laws of the State of Delaware as a non-stock, not-for-profit corporation. The Organization was founded to promote charitable giving and transparency in the philanthropic sector by creating, maintaining and disseminating to the public a database containing information on the missions, programs, operations and finances of charitable organizations. In 2008, the Organization's name was formally changed to GuideStar USA, Inc. to align the legal name with its more commonly referred to brand name of GuideStar. The Organization's Program Service Descriptions - Enabling better decisions - Through its free website, data services and software products, GuideStar helps individuals and organizations make better, more confident decisions, ultimately increasing the impact of all exempt organizations. In 2012, 313,904 digitized records of nonprofit organizations were added to the GuideStar database, increasing the total number to more than 3.8 million digitized records. The vast majority (98%) of GuideStar users take advantage of GuideStar data and tools at no charge, thanks to generous support from foundations and corporations. Professionals and those with special data needs use GuideStar products in order to increase their effectiveness and efficiency. As GuideStar continues to invest in understanding the needs of its current and future users, new services are developed to meet changing market demands. In 2012 a new in-depth financial comparative product, Financial SCAN, was launched. It is a valuable tool for anyone who needs to understand, analyze, or communicate a nonprofit's financial story. This product was the result of a joint collaboration between GuideStar and The Nonprofit Finance Fund (NFF), and combines GuideStar nonprofit data with NFF expert analysis. Encouraging charitable giving - The philanthropic sector relies on public interest in philanthropy and public trust in nonprofit organizations to encourage charitable giving. GuideStar builds public trust through its on-line distribution of data on the exempt and legal status, financial data, and compensation practices of nonprofits, and through information provided by nonprofit managers. Philanthropedia, a division of GuideStar, rates verified, financially responsible charities according to how much great work they're doing. As a result, more than 2,500 experts have provided reviews on 3,500 nonprofits across 28 nonprofit cause areas. The addition of these new data encourages people to give to and volunteer with high impact organizations in their areas of personal passion. GuideStar supports community foundations in their fundraising efforts through its DonorEdge platform. In 2012 there were 16 community foundation members using this service, raising more than $360,000 in contributions and an additional $5.9 million in contributions during giving events that use DonorEdge data, for total contributions of $6.3 million. 13

15 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) The Organization's Program Service Descriptions (continued) - Advancing transparency - GuideStar USA, Inc. believes that the more people know about the philanthropic sector, the more effectively and efficiently it will operate and the more support it will receive. GuideStar creates value by using advanced information technology to make more information about nonprofits available to the public, donors, foundations, nonprofits, government agencies and service providers. In 2012, GuideStar enabled users of to obtain some level of information on more than 2 million tax-exempt organizations registered with the IRS, including 6.9 million 990 images. GuideStar also increased the reach of GuideStar Exchange, a platform for nonprofits to share information, including how a donor can help. In 2012, there were 23,533 nonprofits with the GuideStar Exchange seal, reflecting that they met the GuideStar transparency standards. A total of 77,423 nonprofits had reports posted that were less than 18 months old. Basis of presentation - The accompanying financial statements are presented on the accrual basis of accounting, and in accordance with FASB ASC 958, Not-for-Profit Entities. Cash and cash equivalents - The Organization considers all cash and other highly liquid investments with initial maturities of three months or less to be cash equivalents. Through December 31, 2012, the Dodd-Frank Wall Street Reform and Consumer Protection Act ( Dodd-Frank Act ) provided temporary unlimited deposit insurance coverage for non-interest bearing transaction accounts at all Federal Deposit Insurance Corporation (FDIC) insured depository institutions (the Dodd-Frank Deposit Insurance Provision ). The Organization maintained a portion of its cash balance at a financial institution in a non-interest bearing account; thereby, all of this cash balance was protected by the FDIC under this Act. Beginning January 1, 2013, funds deposited in non-interest bearing accounts will no longer receive unlimited deposit insurance coverage. Bank deposit accounts at one institution will be insured by the FDIC up to a limit of $250,000. Management believes the risk in these situations to be minimal. The Organization maintains a portion of its cash balances in money market mutual funds that are not FDIC insured. Management believes the risk in these situations to be minimal. Grants receivable - Grants receivable are recorded at their net present value, which approximates fair value. Management considers all amounts to be fully collectible within one year. Accordingly, an allowance for doubtful accounts has not been established. 14

16 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Accounts receivable - Accounts receivable are recorded at their net realizable value, which approximates fair value. The Organization records an allowance that is based on prior years' experience and management's analysis of specific accounts receivable balances. At December 31, 2012 and 2011, management estimated an allowance of $65,000 and $27,500, respectively. Investments - Investments are recorded at their readily determinable fair value. At December 31, 2012 and 2011, investments consisted of a certificate of deposit in the amount of $252,864 and $252,590, respectively. All interest income earned on the certificate of deposit is included in interest income in the Statements of Activities and Changes in Net Assets. Property and equipment - Property and equipment in excess of $1,000 are capitalized and stated at cost. The cost of maintenance and repairs is recorded as expenses are incurred. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the related assets as follows: Years Income taxes - Software development 3-5 Computers 3-5 Leasehold improvements 5 Furniture and equipment 7 The Organization is exempt from Federal income taxes under Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision for income taxes has been made in the accompanying financial statements. The Organization is not a private foundation. Income from the unrelated business activity of advertising is subject to tax to the extent that it exceeds the cost of generating the advertising income. Uncertain tax positions - In June 2006, the Financial Accounting Standards Board (FASB) released FASB ASC , Income Taxes, that provides guidance for reporting uncertainty in income taxes. For the years ended December 31, 2012 and 2011, the Organization has documented its consideration of FASB ASC and determined that no material uncertain tax positions qualify for either recognition or disclosure in the financial statements. The Federal Form 990, Return of Organization Exempt from Income Tax, is subject to examination by the Internal Revenue Service, generally for three years after it is filed. Intangible asset - The intangible asset represents rights to an internet domain. The domain is being amortized over a fifteen-year period. 15

17 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Net asset classification - The net assets are reported in three self-balancing groups as follows: Unrestricted net assets include unrestricted revenue and contributions received without donor-imposed restrictions. These net assets are available for the operation of the Organization and include both internally designated and undesignated resources. Temporarily restricted net assets include revenue and contributions subject to donorimposed stipulations that will be met by the actions of the Organization and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statements of Activities and Changes in Net Assets as net assets released from restrictions. Permanently restricted net assets represent funds restricted by the donor to be maintained in-perpetuity by the Organization. At December 31, 2012 and 2011, there were no permanently restricted net assets. Contributions and grants - Contributions and grants are recorded as revenue in the year notification is received from the donor. Temporarily restricted contributions and grants are recognized as unrestricted support only to the extent of actual expenses incurred in compliance with the donor-imposed restrictions and satisfaction of time restrictions. Such contributions and grants received in excess of expenses incurred are shown as temporarily restricted net assets in the accompanying financial statements. 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 and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Functional allocation of expenses - The costs of providing the various programs and other activities have been summarized on a functional basis in the Statements of Activities and Changes in Net Assets. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Volunteer services and in-kind contributions - The Organization recognizes in-kind contributions as revenue and expenses in the period in which they are received. No amounts have been reflected in the accompanying financial statements for volunteer services since they are not susceptible to objective measurement or valuation. 16

18 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL INFORMATION (Continued) Advertising - Advertising costs are expensed as incurred. Advertising expense amounted to $86,486 and $221,502 for 2012 and 2011, respectively. Risks and uncertainties - The Organization invests in various investment securities. Investment securities are exposed to various risks such as interest rates, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the accompanying financial statements. Fair value measurement - The Organization adopted the provisions of FASB ASC 820, Fair Value Measurement. FASB ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs (assumptions that market participants would use in pricing assets and liabilities, including assumptions about risk) used to measure fair value, and enhances disclosure requirements for fair value measurements. The Organization accounts for a significant portion of its financial instruments at fair value or considers fair value in their measurement. 2. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets consisted of the following at December 31, 2012 and 2011: Programmatic Restrictions: Money for Good Project $ 25,000 $ 283,731 Executive Coaching 26,500 - Timing Restrictions 334, ,500 TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 385,500 $ 876, NET ASSETS RELEASED FROM DONOR RESTRICTIONS The following temporarily restricted net assets were released from donor restrictions, at December 31, 2012 and 2011, by incurring expenses, which satisfied the restricted purposes specified by the donors or by the passage of time: Programmatic Restrictions: Philanthropedia $ 20,000 $ 250,000 DonorEdge Project - 30,513 Money for Good Project 383, ,711 Strategic Plan Project - 25,000 Passage of time 592, ,000 TOTAL NET ASSETS RELEASED FROM DONOR RESTRICTIONS $ 996,231 $1,549,224 17

19 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND LONG-TERM DEBT Program-related investment loan payable to The David and Lucile Packard Foundation in the amount of $1,500,000. Principal payments are due in various installments beginning February 2012 through August The loan bears interest at 2% per annum, which is payable annually. $1,250,000 $1,500,000 Program-related investment loan payable to Wells Fargo Community Development Corporation in the amount of $600,000. The principal balance is due October The loan bears interest of 2% per annum, which is payable quarterly. 600, ,000 1,850,000 2,100,000 Less: Current portion (400,000) (250,000) LONG-TERM DEBT $1,450,000 $1,850,000 For the years ended December 31, 2012 and 2011, the Organization was in compliance with debt covenants associated with the program-related investment loans. At December 31, 2011, the Organization had accrued interest of $4,083 on the aforementioned notes payable. For the years ended December 31, 2012 and 2011, interest expense totaled $36,485 and $44,546, respectively. Principal maturities for succeeding years are as follows: Year Ending December 31, 2013 $ 400, , , Thereafter 600,000 $1,850, LEASE COMMITMENTS Operating leases - The Organization has operating leases for office space in Williamsburg, Virginia and Washington, D.C. The Williamsburg lease extends through August

20 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND LEASE COMMITMENTS (Continued) Operating leases (continued) - The Washington, D.C. lease is effective January 2010 and extends through June 30, 2015, with an annual 2.5% escalation of rental payments. Under the Washington, D.C. office lease, the Organization received seven (7) months of free rent, which will be amortized over the entire life of the lease, on a straight-line basis. Accounting principles generally accepted in the United States of America require that the total rent commitment should be recognized on a straight-line basis over the term of the lease. Accordingly, the difference between the actual monthly payments and the rent expense being recognized for financial statement purposes is recorded as a deferred rent liability on the Statements of Financial Position. In 2011, the Organization signed a month-to-month lease agreement for space in California. Rent expense under this agreement is $1,200 per month. During 2012, the Organization entered into a five-month agreement for space in Washington, D.C. Rent expense under this agreement is $3,990 per month. Total payments under these operating leases for 2012 and 2011 were $482,825 and $449,430, respectively. The Organization also has various two and three year operating leases for web site hosting and other equipment. Total lease payments under these leases for 2012 and 2011 were $569,629 and $526,332, respectively. Minimum future lease payments under all operating leases as of December 31, 2012 are as follows: Year Ending December 31, Equipment Facilities Total 2013 $ 513,135 $ 478,953 $ 992, , , , , , ,452 $ 906,677 $ 1,063,647 $ 1,970,324 The Organization subleases a portion of its D.C. office space under a sublease expiring in December During 2012, the sublease was extended through June 30, The following is a schedule of the future minimum rental income: Year Ending December 31, 2013 $ 73, , ,223 $ 189,326 Rental income for the years ended December 31, 2012 and 2011 was $54,742 and $53,148, respectively. 19

21 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND LINE OF CREDIT The Organization has a $250,000 working capital line of credit, with interest on advances payable at prime plus 1.5%. The line of credit is collateralized by all accounts, property and equipment, intangibles, and certain insurance policies. At December 31, 2012 and 2011, there was no outstanding balance on the line of credit. 7. DEFERRED PROGRAM REVENUE The Organization accepts contracts for program services, advertising income and membership income for future periods that is not earned at year-end, and consequently, is included as deferred program revenue until earned. Deferred revenue consisted of the following at December 31, 2012 and 2011: Program fees $ 1,338,723 $ 1,313,239 Membership and other 32,990 95,619 Total deferred program revenue 1,371,713 1,408,858 Less: Current portion (1,371,713) (1,404,558) DEFERRED PROGRAM REVENUE, LONG-TERM $ - $ 4, CONDITIONAL GRANT RECEIVABLE During 2009, the Organization entered into a grant agreement for support totaling $1.7 million. The initial payment of $700,000 was received unconditionally in December of The remaining $1 million, due in various installments throughout 2010, 2011 and 2012, is contingent upon the Organization meeting certain goals set forth in the grant agreement. Since the remaining $1 million is conditional upon the Organization meeting the goals, the contribution revenue will not be recorded until the donor conditions are met. For the years ended December 31, 2012 and 2011, the Organization met a number of the specific goals, and accordingly, was awarded $250,000 and $332,500, respectively, for its accomplishments. The $250,000 was received subsequent to year-end, and is included in grants receivable and temporarily restricted net assets in the accompanying financial statements at December 31, The $332,500 was received in 2012 and was properly included in grants receivable and temporarily restricted net assets in the accompanying financial statements at December 31, During 2012, the Organization entered into a grant agreement for support totaling $250,000. The initial unconditional payment of $84,000 was received with time restrictions in November The remaining $166,000, due in increments in 2014 and 2015, is contingent upon the Organization meeting certain goals set forth in the grant agreement. Because the conditions have not been satisfied, the remaining portion of the grant has not been recorded in the accompanying Statements of Financial Position. 20

22 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND RETIREMENT PLANS Effective January 1, 2003, the Organization established a defined contribution retirement plan, which covers all employees who work 1,000 hours in an employment year, except temporary employees. Under the defined contribution retirement plan, the Organization will match 100% of eligible employees' plan contributions, for amounts up to 3.5%. The Organization made employer contributions of $143,504 and $150,029 for 2012 and 2011, respectively. In March of 2005, the Organization established a 457(b) deferred compensation plan that is available to executives of the Organization. All assets under the plan remain part of the Organization's general assets and are subject to the claims of its creditors. In 2012 and 2011, the Organization contributed $18,067 and $23,747, respectively, to the plan. For the years ended December 31, 2012 and 2011, the fair value of the plan's investments totaled $146,724 and $124,295, respectively. 10. COMMITMENTS The Organization has entered into several contractual agreements for data digitization and related services, to make available the tax returns and other data and information of tax-exempt organizations. The contracts have various expiration dates and are reviewed annually to determine if they should be renewed. 11. FAIR VALUE MEASUREMENT In accordance with FASB ASC 820, Fair Value Measurement, the Organization has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a threelevel fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Investments recorded in the Statements of Financial Position are categorized based on the inputs to valuation techniques as follows: Level 1. These are investments where values are based on unadjusted quoted prices for identical assets in an active market the Organization has the ability to access. Level 2. These are investments where values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques that utilize inputs that are observable either directly or indirectly for substantially the full-term of the investments. Level 3. Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Following is a description of the valuation methodology used for investments measured at fair value. There have been no changes in the methodologies used at December 31, 2012 and Certificates of deposit - Generally valued at original cost plus accrued interest, which approximates fair value. Variable annuities - Fair value is derived from the reported net asset value of the fund as provided by the annuity holder. 21

23 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND FAIR VALUE MEASUREMENT (Continued) The table below summarizes, by level within the fair value hierarchy, the Organization's investments as of December 31, 2012: 2012 Level 1 Level 2 Level 3 Total Assets: Certificate of Deposit $ - $ 252,864 $ - $ 252,864 TIAA-CREF Variable Annuity Funds - 146, ,724 TOTAL $ - $ 399,588 $ - $ 399,588 The table below summarizes, by level within the fair value hierarchy, the Organization's investments as of December 31, 2011: 2011 Level 1 Level 2 Level 3 Total Assets: Certificate of Deposit $ - $ 252,590 $ - $ 252,590 TIAA-CREF Variable Annuity Funds - 124, ,295 TOTAL $ - $ 376,885 $ - $ 376, FUTURE FUNDING The Organization incurred operational losses for several years, resulting in an unrestricted net asset deficit in the amount of $1,048,675 for the year ended December 31, During the fiscal year, management successfully executed plans to increase unrestricted revenues and to significantly reduce operating costs. These included: the launch of new paid products, improvements to existing products, an expanded membership program, additional partnerships, new multi-year operating grants, and various operating cost reductions. Due to these efforts, the Organization increased its unrestricted net assets by $380,435 for the year ended December 31, 2012, reversing decreases in unrestricted net assets of $981,673 and $615,278 in fiscal years 2010 and 2011, respectively. As a result, the unrestricted net asset deficit was reduced to $668,240. The Organization also reversed two years of negative cash flow. Total cash and cash equivalents increased by $219,199 for the year ended December 31, In comparison, the Organization had negative cash flow of $1,279,811 and $762,453 in 2010 and 2011, respectively. Management intends to monitor revenue and expenses over the coming years, with the goal to continue generating positive net income from operations and to eliminate the deficit in the unrestricted net assets. The financial statements do not include any adjustment that might be necessary if the Organization is unable to continue as a going concern. 22

24 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND SUBSEQUENT EVENTS In preparing these financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through May 31, 2013, the date the financial statements were issued. 23