PDC 2011 Audited Financial Statement by Partners for Democratic Change

PARTNERS FOR DEMOCRATIC CHANGE Financial Statements Together with Report of Independent Public Accountants For the Years Ended September 30, 2011 and 2010

SEPTEMBER 30, 2011 AND 2010 CONTENTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

FINANCIAL STATEMENTS Statements of Financial Position

Statements of Activities and Changes in Net Assets

Statements of Cash Flows

Statements of Functional Expenses

Notes to the Financial Statements

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Board of Directors Partners for Democratic Change We have audited the accompanying statements of financial position of Partners for Democratic Change (Partners) as of September 30, 2011 and 2010, and the related statements of activities and changes in net assets, cash flows and functional expenses for the years then ended. These financial statements are the responsibility of Partners’ management. 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Partners as of September 30, 2011 and 2010, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 10, 2012, on our consideration of Partners’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the result of our audit.

Washington, DC February 10, 2012

1776 I Street  9th Floor  Washington, DC 20006  P 202-756-4811  F 202-756-1301

PARTNERS FOR DEMOCRATIC CHANGE Statements of Financial Position As of September 30, 2011 and 2010 2011

2010

ASSETS Cash and cash equivalents Investments, restricted Accounts receivable: Grants and contracts Pledges Advances to affiliates Prepaid expenses Furniture and equipment, net Deposits Total Assets LIABILITIES AND NET ASSETS Accounts payable and accrued expenses Grant and contract advances Note payable, related party Severance payable Total Liabilities Net Assets Unrestricted Temporarily restricted Total Net Assets Total Liabilities and Net Assets

468,209 -

184,725 78,861

561,570 346,949 24,530 5,000 9,710 $ 1,415,968

482,539 75,000 251,674 15,464 5,035 $ 1,093,298

234,882 564,166 60,000 48,973 908,021

507,947 507,947 $ 1,415,968

262,600 455,343 60,000 179,334 957,277

61,021 75,000 136,021 $ 1,093,298

The accompanying notes are an integral part of these financial statements. 2

PARTNERS FOR DEMOCRATIC CHANGE Statements of Activities and Changes in Net Assets For the Years Ended September 30, 2011 and 2010

2011 CHANGE IN UNRESTRICTED NET ASSETS Revenue and Other Support Contracts and grants: Government Corporate Other Contributions Consulting fees Interest and dividends Unrealized loss on investments Other revenue Net asset released from restrictions Total Revenue and Other Support

Expenses Program services Management and general Total Expenses Change in Unrestricted Net Assets

4,081,005 382,533 212,258 3,650 335 75,000 4,754,781

2010

3,329,162 978,693 4,307,855 446,926

2,448,752 458,789 222,706 11,725 1,510 11 (1,656) 9,092 3,150,929

2,363,119 664,155 3,027,274 123,655

CHANGE IN TEMPORARILY RESTRICTED NET ASSETS Contributions Net assets released from restrictions Change in Temporarily Restricted Net Assets

(75,000) (75,000)

75,000 75,000

Changes in net assets Net assets, beginning of the year Net Assets, End of the Year

371,926 136,021 507,947

198,655 (62,634) 136,021

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

PARTNERS FOR DEMOCRATIC CHANGE Statements of Cash Flows For the Years Ended September 30, 2011 and 2010

2011 Cash Flows from Operating Activities Changes in net assets Adjustments to reconcile changes in net assets to net cash from operating activities: Depreciation Unrealized and realized loss on investments Effect of changes in non-cash operating assets and liabilities: Grants and contracts receivable Pledges receivable Advances to affiliates Prepaid expenses Accounts payable and accrued expenses Grant and contract advances Severance payable Deposit Net Cash Flow from Operating Activities

371,926

1,000 -

198,655

460 1,656

(79,031) 75,000 (95,275) (9,066) (27,718) 108,823 (51,500) (4,675) 289,484

Cash Flows from Investing Activities Purchase of Equipment Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and Cash Equivalents, End of Year

2010

(335,466) (55,000) (227,778) (3,969) 138,064 156,509 (17,625) (144,494)

(6,000)

283,484 184,725 468,209

Supplemental Cash Flow Disclosure Cash paid for interest

527

Non-cash transfer of investment to severance payable

78,861

The accompanying notes are an integral part of these financial statements. 4

(144,494) 329,219 184,725

PARTNERS FOR DEMOCRATIC CHANGE Statement of Functional Expenses For the Year Ended September 30, 2011, with Comparative Totals for 2010 2011

Salaries and related expenses Communications Rent Professional fees Travel Consulting Meetings Supplies Printing and copying Publications and materials Training Small equipment Program expenses Other Total Before Depreciation and Interest Depreciation Interest Total Expenses

Program $ 1,789,144 25,439 59,992 28,475 350,667 464,221 19,112 14,614 11,922 456,646 15,109 83,520 10,301 3,329,162 $ 3,329,162

General and Administrative $ 365,891 36,620 203,567 124,006 53,054 81,830 5,848 13,819 852 248 15,516 28,342 45,173 974,766 1,000 2,927 $ 978,693

Total 2,155,035 62,059 263,559 152,481 403,721 546,051 24,960 28,433 12,774 248 472,162 43,451 83,520 55,474 4,303,928 1,000 2,927 4,307,855

The accompanying notes are an integral part of this financial statement. 5

2010 Total $ 1,419,080 36,448 138,946 129,050 553,702 406,670 14,304 60,742 21,124 17,328 79,534 49,641 55,202 42,643 3,024,414 460 2,400 $ 3,027,274

PARTNERS FOR DEMOCRATIC CHANGE Statement of Functional Expenses For the Year Ended September 30, 2010

Program $ 1,083,977 21,616 69,714 13,960 523,537 364,952 10,529 43,345 19,456 17,309 78,313 47,622 55,022 13,767 2,363,119 $ 2,363,119

General and Administrative $ 335,103 14,832 69,232 115,090 30,165 41,718 3,775 17,397 1,668 19 1,221 2,019 180 28,876 661,295 460 2,400 $ 664,155

The accompanying notes are an integral part of this financial statement. 6

Total $ 1,419,080 36,448 138,946 129,050 553,702 406,670 14,304 60,742 21,124 17,328 79,534 49,641 55,202 42,643 3,024,414 460 2,400 $ 3,027,274

PARTNERS FOR DEMOCRATIC CHANGE Notes to the Financial Statements September 30, 2011 and 2010 1. BACKGROUND OF ORGANIZATION Partners for Democratic Change (Partners) is a non-profit corporation established on February 18, 1988, which operates offices in Washington, DC. Partners is an international organization committed to building sustainable local capacity to advance civil society and a culture of change and conflict-management worldwide. Partners accomplishes its mission directly and in partnership with Partners for Democratic Change International Centers (the Centers) located in Albania, Argentina, Bulgaria, Columbia, The Czech Republic, Georgia, Hungary, Jordan, Kosovo, Lithuania, Mexico, Peru, Poland, Romania, Senegal, Serbia, Slovakia and Yemen through various programs. Partners builds new local institutions that respond to the diverse change and conflict management needs of its constituents and improves the skills of existing institutions across all sectors. It helps communities resolve local issues by introducing conflict management processes and establishing conflict resolution services within communities that strengthen relationships among diverse populations. Partners also works to integrate change and conflict management processes into evolving legal systems by promoting new legislation that legitimizes and sanctions mediation and citizen participation processes and utilizes participatory methods to implement effective policies and advance democratic change. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements of Partners is presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. 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 and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash consists of amounts on hand and on demand deposits with banks or other financial institutions. Cash equivalents represent short-term, highly liquid investments with original maturities of three months or less. Cash equivalents as of September 30, 2010, consisted of money market and overnight investment accounts. There are no cash equivalents as of September 30, 2011.

PARTNERS FOR DEMOCRATIC CHANGE Notes to the Financial Statements September 30, 2011 and 2010 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investments, Restricted Investments consist of amounts held to satisfy a future severance compensation liability. Investments are recorded at market value. They consisted of money market funds held by Transamerica as of September 30, 2010. These investments were board designated to fund the severance compensation liability. Partners no longer held the investments as of September 30, 2011. See Footnote 6 for further discussion of this liability. Grants and Contracts Receivable Grants and contracts receivable consist of billed and unbilled amounts due for expenditures incurred in excess of payments received under cost reimbursement grants and billings for services rendered in excess of payments received under consulting and other service contracts. The amount of unbilled receivables as of September 30, 2011 and 2010, was $165,629 and $279,936, respectively. Partners periodically evaluates its outstanding receivables for collectability and records an allowance. There is no allowance for doubtful accounts as of September 30, 2011 and 2010, as management believes the balances were fully collectible. Pledges Receivable Partners records pledges from various corporations and records amounts due at the time of the pledge. All pledges were deemed collectible within one year as of September 30, 2010. There were no pledges receivable as of September 30, 2011. Advances to Affiliates Advances to affiliates relate to cash advances made by Partners to the Centers for program expenses, net of the actual program expenses incurred by the Centers through year-end. Partners had $346,949 and $251,674, in advances to affiliates as of September 30, 2011 and 2010. Furniture and Equipment Furniture and equipment purchased for greater than $5,000 are recorded at cost or the estimated fair value for donated property. Depreciation on furniture and equipment is calculated on a straight-line basis over their estimated useful lives of 3 to 5 years.

PARTNERS FOR DEMOCRATIC CHANGE Notes to the Financial Statements September 30, 2011 and 2010 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Grant and Contract Advances Grant and contract advances consist of payments advanced in excess of billed and unbilled expenditures under its grants. Severance Payable The severance payable represents the present value of the unfunded liability under a deferred compensation agreement with an ex-president of Partners. Net Assets Unrestricted net assets are assets and contributions that are not restricted by donors or for which restrictions have expired. Temporarily restricted net assets are those whose use by Partners has been limited by donors primarily for a specific time period or purpose. When a donor restriction is met, temporarily restricted net assets are reclassified to unrestricted net assets. If a donor restriction is met in the same reporting period in which the contribution is received, the contribution (to the extent that the restrictions have been met) is reported as unrestricted net assets. The temporarily restricted net assets as of September 30, 2010, relates to a time restricted grant. There were no temporarily restricted net assets as of September 30, 2011. Permanently restricted net assets are those that are restricted by donors to be maintained by the Center in perpetuity. There were no permanently restricted net assets as of September 30, 2011 and 2010. Restricted and Unrestricted Support and Revenue Grant and contributions received are recorded as unrestricted, temporarily or permanently restricted support, depending on the existence and/or nature of any donor-imposed restrictions. Donor-restricted support is reported as an increase in temporarily restricted net assets, depending on the nature of the restriction. Gifts of cash and other assets are reported as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when some stipulated time restriction ends or purpose of the restriction is accomplished, 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.

PARTNERS FOR DEMOCRATIC CHANGE Notes to the Financial Statements September 30, 2011 and 2010 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the accompanying statements of activities and changes in net assets. Accordingly, certain costs have been allocated among the program and supporting services that benefit from those costs. Management and general expenses include those expenses that are not directly identified with any other specific program but provide for the overall support and direction of Partners. Federal Income Tax Status Partners is a not-for-profit organization exempt from Federal income taxes under Section 501(c) (3) of the Internal Revenue Code (IRC) and is recognized as such by the Internal Revenue Service. Fair Value Measurement Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are described below: Level 1 Level 2

Level 3

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the entity has the ability to access. Inputs to the valuation methodology include: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in inactive markets; • Inputs other than quoted prices that are observable for the asset or liability; and • Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

PARTNERS FOR DEMOCRATIC CHANGE Notes to the Financial Statements September 30, 2011 and 2010 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair Value Measurement (continued) The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Financial instruments consist of investments, receivables, payables and debt. The carrying value of Partners’ financial instruments in the accompanying statements of financial position approximated their respective estimated fair values as of September 30, 2011 and 2010. Fair values are estimated based on current market rates or liquidation value. Subsequent Events Partners evaluated the accompanying financial statements for subsequent events and transactions through February 10, 2012, the date these financial statements were available for issue and have determined that, other than the event noted below, no material subsequent events have occurred that would affect the information presented in the accompanying financial statements or require additional disclosure. Partners has several major programs in Yemen, a country which is undergoing significant political instability and conflict. The turmoil has delayed and hindered Partners’ ability to execute its programs. Partners is currently working with its funders to devise new programming schedules and activities that can achieve realistic goals taking into consideration the current political crisis. Reclassification Certain amounts from 2010 were reclassified to conform to 2011 presentation. 3. INVESTMENTS The following is a description of the valuation methodologies used for investments measured at fair value as of September 30, 2010. There was no investments as of September 30, 2011. Mutual fund: Valued on the underlying investments of the fund as valued by the fund’s management. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while Partners believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

PARTNERS FOR DEMOCRATIC CHANGE Notes to the Financial Statements September 30, 2011 and 2010 3. INVESTMENTS (continued) The following table sets forth by level, the fair value hierarchy of the Partnersâ&#x20AC;&#x2122; investments at fair value as of September 30, 2010: 2010 Level 1 Mutual fund

Mutual fund

Cost 65,228

Level 2 $ 78,861

Level 3 $

Total 78,861

2010 Unrealized Gain Unrealized Loss Market Value $ 13,633 $ $ 78,861

The activity related to the investments was an unrealized loss of $1,656 for the year ended September 30, 2010. There is no unrealized gain or loss for the year ended September 30, 2011. 4. PROPERTY AND EQUIPMENT As of September 30, 2011 and 2010, property and equipment consist of the following:

Furniture and equipment Less: accumulated depreciation Property and equipment, net

2011

2010

$ 55,211 50,211 $ 5,000

$ 49,211 49,211 $ -

Estimated Useful Lives 3-5 years

Depreciation expense for the years ended September 30, 2011 and 2010, was $1,000 and $460, respectively. 5. Note PAYABLE In November 2006, Partners entered into a note payable with a board member for $200,000, which accrues interest at 4% per annum. The board member forgave $100,000 and $40,000 of the note during the years ended September 30, 2007 and 2009, respectively. Partners recorded $2,400, as accrued interest expense related to this note during the years ended September 30, 2011 and 2010. The remaining $60,000, plus accrued interest outstanding as of September 30, 2011, is payable on or before December 15, 2012.

PARTNERS FOR DEMOCRATIC CHANGE Notes to the Financial Statements September 30, 2011 and 2010 6. POSTRETIREMENT BENEFIT PLAN Partners provides a deferred compensation benefit plan for an ex-president. This deferred compensation plan provides an annual severance benefit to the ex-president in the amount of one month of his annual salary until he retires or terminates employment with Partners. The officer retired in June 2010. This severance liability is funded by Partners through (1) discretionary contributions to an Internal Revenue Code Section 403(b) supplemental plan, (2) 8.33% of the officerâ&#x20AC;&#x2122;s eligible compensation to a 457 plan, and (3) discretionary contributions to an informal investment account plus any accrued interest earnings on the above three plans. Partners did not contribute to the supplemental 403(b) plan during the years ended September 30, 2011 and 2010. Partners contributed $15,500 to the 457 plan during the year ended September 30, 2010. There was no contribution to the 457 plan during year ended September 30, 2011. Partners did not make any contributions to the informal investment account during the years ended September 30, 2011 and 2010. The informal investment account is recorded at fair market value of $78,861 as investments, restricted account in the accompanying statements of financial position as of September 30, 2010. The informal investment account was transferred to pay the severance payable during the year ended September 30, 2011, and there is no investment balance for the Partners as of September 30, 2011. The gross unfunded liability as of September 30, 2011 and 2010, is $48,973 and $179,334. This liability is accrued on the accompanying statements of financial position. 7. DEFINED CONTRIBUTION PENSION PLAN Partners has a defined contribution 403(b) Plan (the Plan) covering all permanent employees. Under the Plan, Partners makes discretionary contributions based on a percentage of the annual salary of covered employees. During the years ended September 30, 2011 and 2010, Partners did not make contributions to the Plan. 8. SUPPORT, REVENUE AND CONCENTRATIONS During the years ended September 30, 2011 and 2010, Partners received support in excess of 10% of its total support and revenue from the following organizations: 2011 28% 4 7 30

American Embassy, Sanaâ&#x20AC;&#x2122;a Yemen Embassy of the Kingdom of Netherlands General Electric Foundation USAID

2010 33% 12 13 7

A significant reduction in the level of any of the support from these organizations could adversely affect the level and quality of programs and activities of Partners.

PARTNERS FOR DEMOCRATIC CHANGE Notes to the Financial Statements September 30, 2011 and 2010 9. COMMITMENTS AND CONTINGENCIES Leases Partners rented an office facility in Washington, DC pursuant to a non-cancelable operating lease, which expired on December 30, 2010. There is no future minimum obligation under this lease as of September 30, 2011. Partners entered into a new lease agreement for an office facility in Washington, DC. The new agreement commenced on January 1, 2011 and expires on December 31, 2015. The future minimum principal payments are as follows:

Year Ending September, 2012 2013 2014 2015 2016 Total

Amount $ 116,520 116,520 116,520 116,520 29,130 $ 495,210

Rent expense for the office lease for the years ended September 30, 2011 and 2010, was $152,651 and $123,075, respectively. Grants Partners receives grant support that is subject to audit or review by grantor agencies. Management believes that Partners has complied with all aspects of the grant and contract provisions and that disallowed costs, if any, would be immaterial to the financial position of Partners as of September 30, 2011 and 2010. Partners charges certain indirect costs to U.S. Government agencies based on its final and provisional negotiated indirect cost rates. Partners is obligated to pay (or in certain circumstances may collect) the difference between indirect costs charged and collected based on its provisional and final rates. On September 8, 2009, the United States Agency for International Development (USAID) approved final negotiated indirect cost rates effective for the period September 30, 2006, through September 30, 2007, and provisional negotiated indirect cost rates beginning October 1, 2007. There was no material difference between the final negotiated indirect cost rates approved by USAID and the provisional negotiated indirect cost rates used by Partners during the period September 30, 2006, through September 30, 2007. The management of Partners believes that any obligation of Partners to return excess indirect costs charged to U.S. Government agencies because of differences between the provisional and final negotiated indirect cost rates applicable to the year ended September 30, 2011 and 2010, would be immaterial to its financial position.