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PCI - Media Impact, Inc. Financial Statements December 31, 2011
Independent Auditors ReportTo the Board of DirectorsPCI - Media Impact, Inc.We have audited the accompanying statement of financial position of PCI - Media Impact, Inc.(“Media Impact”) as of December 31, 2011, and the related statements of activities, functionalexpenses and cash flows for the year then ended. These financial statements are theresponsibility of Media Impacts management. Our responsibility is to express an opinion on thesefinancial statements based on our audit. The prior year summarized comparative information hasbeen derived from Media Impact’s 2010 financial statements, and, in our report dated April 12,2011, we expressed an unqualified opinion on those financial statements.We conducted our audit in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement.An audit includes consideration of internal control over financial reporting as a basis for designingaudit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of Media Impact’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and the significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of PCI - Media Impact, Inc. as of December 31, 2011 and the changes in its netassets and its cash flows for the year then ended in conformity with accounting principlesgenerally accepted in the United States of America.New York, New YorkMay 16, 2012O’CONNOR DAVIES, LLP nd th60 East 42 Street, 36 Fl., New York, NY 10165 I Tel: 212.286.2600 I Fax: 212.286.4080 I www.odpkf.com O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
PCI - Media Impact, Inc. Statement of Financial Position December 31, 2011 (with comparative amounts at December 31, 2010) 2011 2010ASSETSCash and cash equivalents $ 208,748 $ 129,448Contributions receivable 31,289 291,672Prepaid expenses and other assets 41,927 37,110Investments 1,349,155 1,433,959Beneficial interest in charitable remainder trust 14,833 14,833Leasehold improvements and equipment, net 36,550 23,949 $ 1,682,502 $ 1,930,971LIABILITIES AND NET ASSETSLiabilities Accounts payable and accrued expenses $ 63,280 $ 40,849 Advances payable 159,326 - Capital lease obligations 12,867 - Annuities payable 48,641 51,310 Total Liabilities 284,114 92,159Net assets Unrestricted Operating 54,208 105,349 Board designated 1,322,648 1,684,463 1,376,856 1,789,812 Temporarily restricted 21,532 49,000 Total Net Assets 1,398,388 1,838,812 $ 1,682,502 $ 1,930,971See notes to financial statements 2
PCI - Media Impact, Inc. Statement of Activities Year Ended December 31, 2011 (with summarized totals for the year ended December 31, 2011) 2011 Temporarily 2010 Unrestricted Restricted Total TotalOPERATING REVENUE AND SUPPORTContributions and grants $ 961,890 $ 437,037 1,398,927 $ 1,121,197Investment return (loss) (1,723) - (1,723) 9,920Other income 61,439 - 61,439 64,941 1,021,606 437,037 1,458,643 1,196,058Net assets released from restrictions 464,505 (464,505) - - Total Operating Revenue and Support 1,486,111 (27,468) 1,458,643 1,196,058EXPENSESProgram services 1,486,434 - 1,486,434 1,478,168Administrative 237,167 - 237,167 181,356Fundraising 209,246 - 209,246 315,235 Total Expenses 1,932,847 - 1,932,847 1,974,759 Excess of Operating Revenue and Support over Expenses (446,736) (27,468) (474,204) (778,701)NON-OPERATING ACTIVITIESBequests 38,130 - 38,130 315,338Change in value of split interest agreements (4,350) - (4,350) (4,565) Non-operating Activities 33,780 - 33,780 310,773 Change In Net Assets (412,956) (27,468) (440,424) (467,928)NET ASSETSBeginning of year 1,789,812 49,000 1,838,812 2,306,740End of year $ 1,376,856 $ 21,532 $ 1,398,388 $ 1,838,812See notes to financial statements 3
PCI - Media Impact, Inc. Statement of Functional Expenses Year Ended December 31, 2011 (with summarized totals for 2010) 2011 Program Adminis- Fund 2010 Services trative Raising Total Total Salaries $ 371,879 $ 90,000 $ 107,939 $ 569,818 $ 672,744 Payroll taxes and employee benefits 72,894 32,853 18,671 124,418 125,171 Total Salaries and Related Expenses 444,773 122,853 126,610 694,236 797,915 Consulting fees (includes $16,720 of in-kind consulting fees in 2011) 270,538 16,062 4,811 291,411 206,964 Professional fees (includes $1,330 and $1,993 of in-kind legal services) 3,000 41,816 - 44,816 32,491 Broadcast production/airtime (includes $97,218 and $193,065 of in-kind broadcast production/airtime) 390,661 601 - 391,262 397,144 Temporary personnel 3,550 - 500 4,050 36,648 Travel (includes $29,830 and $18,913 of in-kind travel) 173,270 969 3,118 177,357 121,798 Rent 98,908 18,688 38,644 156,240 152,040 Telecommunications 19,277 1,329 - 20,606 16,447 Printing and duplicating 11,669 11 669 - 2,787 2 787 14,456 14 456 25,317 25 317 Mailing services - - - - 8,796 Public representation and outreach 17,149 - - 17,149 7,622 Postage 1,905 653 3,810 6,368 9,506 Office supplies 18,687 9,702 538 28,927 26,157 Meetings and conferences 3,091 - - 3,091 59,762 Tapes and films - - - - 740 Equipment rentals, repairs and maintenance 8,443 6,386 12,585 27,414 25,473 Registration dues and fees 5,056 35 9,797 14,888 13,089 Insurance 4,365 14,681 - 19,046 18,821 Depreciation 12,092 2,015 6,046 20,153 17,395 Interest - 1,377 - 1,377 631 Total Expenses $ 1,486,434 $ 237,167 $ 209,246 $ 1,932,847 $ 1,974,756See notes to financial statements 4
PCI - Media Impact, Inc. Statement of Cash Flows Year Ended December 31, 2011 (with comparative amounts for the year ended December 31, 2010) 2011 2010CASH FLOWS FROM OPERATING ACTIVITESChange in net assets $ (440,424) $ (467,928)Adjustments to reconcile change in net assets to net cash from operating activities Depreciation 20,153 17,395 Net realized and unrealized (gain) loss on investments 1,867 (8,241) Changes in operating assets and liabilities Contributions receivable 260,383 (230,254) Prepaid expenses and other assets (4,817) (2,488) Accounts payable and accrued expenses 22,431 4,960 Advances payable 159,326 - Net Cash from Operating Activities 18,919 (686,556)CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment (16,329) (11,849)Proceeds from sale of investments 91,383 730,281Purchase of investment (8,446) -Annuities payments (2,669) (2 669) (2,455) (2 455) Net Cash from Investing Activities 63,939 715,977CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments on capital lease obligations (3,558) (7,743) Net Change in Cash and Cash Equivalents 79,300 21,678CASH AND CASH EQUIVALENTSBeginning of year 129,448 107,770End of year $ 208,748 $ 129,448SUPPLEMENTAL CASH FLOW INFORMATIONNon cash financing activities Equipment purchased through capital lease $ 16,425 $ -Cash paid for interest 1,377 631See notes to financial statements 5
PCI - Media Impact, Inc. Notes to Financial Statements December 31, 20111. Organization and Tax Status PCI - Media Impact, Inc.’s (“Media Impact”) unique approach to communications combines the principles of Entertainment-Education with the reach of mass media to mobilize individual and community action and catalyze positive change. Entertainment-Education is a form of entertainment designed to educate and amuse audiences and can be done with a variety of formats, ranging from comic books, to TV, radio productions, and street theatre. Our programs primarily focus on promoting sexual and reproductive health, prevention of HIV/AIDS, biodiversity conservation, sustainable development, human rights and democracy. Media Impact is a not-for-profit organization exempt from income taxes under Sections 501(c)(3) and 509(a)(1) of the Internal Revenue Code.2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Media Impact’s management to make certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operating Measure Media Impact has elected to present an operating measure in its statement of activities. Accordingly, items not affecting operations are segregated from those affecting operations. Items not affecting operations include bequests and other planned giving. Basis of Presentation Unrestricted net assets include funds having no restriction as to use or purpose imposed by donors. Temporarily restricted net assets are those whose use is limited by donors to a specific time period or purpose. Permanently restricted net assets are limited by donors for investment in perpetuity. Cash and Cash Equivalents For statement of cash flows purposes, Media Impact considers investments in highly liquid debt instruments with a maturity of three months or less at the time of purchase to be cash equivalents, except for those held for investment purposes. Contributions and Grants Contributions are recognized as revenue when an unconditional promise to give is made and the gift is subject to reasonable valuation. Contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Contributions receivable consist of gifts pledged. Grant awards received for specific purposes are recognized as support and revenue to the extent related expenses are incurred in compliance with the specific grants terms. 6
PCI - Media Impact, Inc. Notes to Financial Statements December 31, 20112. Summary of Significant Accounting Policies (continued) Contributions and Grants (continued) The unexpended funds are considered refundable advances and reported as advances payable. Media Impact believes that all grants and other receivables are collectible. Contributed Services Contributed services are reported as contributions at their fair value if such services create or enhance non-financial assets, or would have been provided by donation, require specialized skills, and are provided by individuals possessing such specialized skills. Fair Value Measurements Media Impact follows Financial Accounting Standards Board (FASB) guidance on Fair Value Measurements which defines fair value and establishes a fair value hierarchy organized into three levels based upon the input assumptions used in pricing assets. Level 1 inputs have the highest reliability and are related to assets with unadjusted quoted prices in active markets. Level 2 inputs relate to assets with other than quoted prices in active markets which may include quoted prices for similar assets or liabilities or other inputs which can be corroborated by observable market data. Level 3 inputs are unobservable inputs and are used to the extent that observable inputs do not exist. Investment Income Recognition Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date. Realized and unrealized gains and losses are included in the determination of the change in net assets. Leasehold Improvements and Equipment Media Impact capitalizes all expenditures for property and equipment in excess of $1,000. Leasehold improvements and equipment are stated at cost or fair value on the date of donation. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Office furniture and computer equipment are deemed to have a useful life of between five and seven years. Leasehold improvements are capitalized and amortized over the period of the lease and expected renewal. Equipment leased under capital leases is amortized over their economic useful lives. Functional Allocation of Expenses Expenses have been charged to program and supporting services, either directly when identifiable to a specific program, or indirectly based on managements estimate of the functional area benefited. 7
PCI - Media Impact, Inc. Notes to Financial Statements December 31, 20112. Summary of Significant Accounting Policies (continued) Split-Interest Agreements Split-interest agreements with donors consist primarily of charitable gift annuities and a charitable remainder unitrust. A charitable gift annuity provides for payments of fixed amounts to the donor or other designated beneficiaries over the annuitys term (usually the designated beneficiarys lifetime). The assets received are recorded at fair value when received and a payment liability is recognized for the present value of the future cash flows expected to be paid to the donors designated beneficiary. The difference between these two amounts is recorded as unrestricted contribution revenue unless the donor restricts the use of the gift. The initial present value of the estimated future payments is determined using appropriate discount rates and mortality tables. On an annual basis, Media Impact revalues the gift annuity liability for principal payments made, the amortization of the initial discount associated with the gift annuity, and revaluations of expected future payments to beneficiaries, based on changes in life expectancy and other actuarial assumptions. Media Impact has a beneficial interest in a charitable remainder trust, which is a time- restricted contribution not available to Media Impact until after the death of the donor, who, while living, receives an annual payout from the trust based on a fixed percentage of the market value of the invested funds. The value of Media Impact’s beneficial interest in the charitable trust is estimated to be equivalent to the discounted present value of Media Impact’s future cash flows from the trust. The underlying assets in the trust are principally marketable securities. Accounting for Uncertainty in Income Taxes Media Impact recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Management has determined that the Organization had no uncertain tax positions that would require financial statement recognition. The Organization is no longer subject to audits by the applicable taxing jurisdictions for periods prior to December 31, 2008. Subsequent Events Evaluation by Management Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through the date that the financial statements were available to be issued, which date is May 16, 2012. 8
PCI - Media Impact, Inc. Notes to Financial Statements December 31, 20113. Leasehold Improvements and Equipment Leasehold improvements and equipment consist of the following at December 31: 2011 2010 Leasehold improvements $ - $ 24,950 Equipment 52,695 60,168 52,695 85,118 Accumulated depreciation and amortization (16,145) (61,169) $ 36,550 $ 23,949 Leased capital assets included in equipment are as follows: 2011 2010 Equipment under capital leases $ 16,425 $ 26,215 Accumulated depreciation (3,285) (22,001) $ 13,140 $ 4,2144. Investments and Investment Return The following are major categories of investments measured at fair value on a recurring basis at December 31, grouped by the fair value hierarchy: Level 1 Level 2 Total Money market funds $ 1,258,958 $ - $ 1,258,958 Equities - international stock 24,796 - 24,796 Fixed income 32,701 32,700 65,401 $ 1,316,455 $ 32,700 $ 1,349,155 Investment return (loss) for 2011 consists of the following: Interest and dividends from investments, net $ 144 Net realized and unrealized loss on investments (1,867) Investment loss $ (1,723) 9
PCI - Media Impact, Inc. Notes to Financial Statements December 31, 20114. Investments and Investment Return (continued) As a result of the economic downturn in the last quarter of 2008, Media Impact liquidated all of its equity funds held in the board designated fund. Since May 2009, the entire board designed fund has been invested in cash and government securities. In subsequent meetings during the last three years, the Board has re-affirmed this decision.5. Annuities Payable Changes in actuarial liability under the gift annuity program at December 31, 2011 and 2010, consist of annuity payments of $2,669 and $2,455.6. Board Designated Net Assets Media Impact established a board designated fund into which gifts and contributions received through Media Impact’s planned giving program are placed, as well as certain other assets and liabilities. The components of these board designated net assets at December 31, are as follows: 2011 2010 Investments General investment account $ 1,105,147 $ 1,275,003 Gift annuity accounts 97,498 99,349 Cash held for investments 153,811 75,338 Bequests receivable - 271,250 Beneficial interest in charitable remainder trust 14,833 14,833 Gift annuity payable (48,641) (51,310) $ 1,322,648 $ 1,684,463 The changes in board designated net assets for the years ended December 31, are as follows: 2011 2010 Balance, beginning of year $ 1,684,463 $ 2,155,643 Contributions designated for investment 47,051 315,340 Investment return (1,535) 10,025 Regular budgeted operating release - (88,723) Release to fund general operations (400,000) (710,277) Other (7,331) 2,455 Balance, end of year $ 1,322,648 $ 1,684,463 10
PCI - Media Impact, Inc. Notes to Financial Statements December 31, 20117. Temporarily Restricted Net Assets and Net Assets Released from Restrictions Temporarily restricted net assets and their related purposes and net assets released from restrictions are as follows: Released from Net Assets at Restrictions December 31, during 2011 2011 International International Mass Media $ 20,000 $ - For programs in Latin America My Community Latin America 194,713 - World Bank 10,143 - For programs in the Caribbean 163,731 - For programs in Africa Ghana 47,700 - Mobilize for Africa - 16,000 Gabon 4,468 5,532 For programs in the USA 23,750 - $ 464,505 $ 21,5328. Lease Commitments Media Impact leases office space in New York City. The lease contains clauses for escalations for Media Impact’s share of increased building costs and expires on April 30, 2015. Future minimum annual lease payments for capital leases and non-cancellable operating leases and the related capital lease payments at December 31, 2011 are as follows: Capital Operating Lease Leases 2012 $ 5,283 $ 154,067 2013 5,973 155,080 2014 1,611 155,080 2015 - 51,694 Total minimum annual lease payments $ 12,867 $ 515,921 11
PCI - Media Impact, Inc. Notes to Financial Statements December 31, 20119. Concentrations of Credit Risk Financial instruments that potentially subject Media Impact to concentrations of credit risk consist principally of cash and cash equivalents, contributions receivable and investments. Media Impact maintains its cash with high credit quality financial institutions and its policy is designed to limit exposure to any one institution. At times, cash balances may be in excess of balances insured by the FDIC.10. Retirement Plans Media Impact maintains a Simplified Employee Pension Plan (the “Plan”) for the benefit of eligible employees. Media Impact’s contribution rate, determined by its Board, was 6% for 2011 and 2010. Plan expense was $26,565 and $27,555 for 2011 and 2010.11. Donated Services Donated services for the years ended December 31, consisted of the following: 2011 2010 Legal $ 1,330 $ 1,993 Broadcast production/airtime 97,218 193,065 Consulting 16,720 - Travel 29,830 18,913 $ 145,098 $ 213,97112. Prior Year Information The financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with Media Impacts financial statements for 2010, from which the summarized information was derived.13. Management Plans to Reduce Operating Deficits The Board of Directors continues to evaluate the reasons for the operating deficits during recent years. Media Impact has taken measures to manage costs, and expand fundraising efforts with the organizational goal to achieve no drawdown from the board designated fund in future years. Future plans and budgets are being developed to produce a positive change in net assets. ***** 12