BLUE MONARCH, INC. MONTEAGLE, TENNESSEE AUDITED FINANCIAL STATEMENTS. December 31, 2011

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1 AUDITED FINANCIAL STATEMENTS

2 TABLE OF CONTENTS Page Independent Auditors Report 1 Statement of Financial Position 2 Statement of Activities 3 Statement of Functional Expenses 4 Statement of Cash Flows 5 Notes to Financial Statements 6-9

3 BEAN, RHOTON & KELLEY, PLLC CERTIFIED PUBLIC ACCOUNTANTS 300 SOUTH JEFFERSON STREET, STE A, WINCHESTER, TN Office: Fax:: Members of American Institute of Certified Public Accountants, Tennessee Society of CPA's, Association of Government Accountants INDEPENDENT AUDITORS REPORT To the Board of Directors Blue Monarch, Inc. Monteagle, Tennessee We have audited the accompanying statement of financial position of Blue Monarch, Inc. (a nonprofit organization) as of, and the related statements of activities, functional expenses, and cash flows for the year then ended. These financial statements are the responsibility of the Organization s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in 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 audit provides 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 Blue Monarch, Inc. as of, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Bean, Rhoton, & Kelley, PLLC Winchester, Tennessee November 9, 2012

4 STATEMENT OF FINANCIAL POSITION Current Assets Cash and cash equivalents $ 28, Cash-temporarily restricted - Capital fund 25, Pledges receivable - Capital fund, net 7, Pledges receivable - Annual fund, net 18, Utility deposits Total Current Assets $ 80, Long Term Assets Pledges receivable - Capital fund, net 22, Pledges receivable - Annual fund, net 17, , Land, buildings, equipment 1,117, Less accumulated depreciation (262,591.17) 855, , Total Assets $ 974, Current Liabilities Payroll taxes payable $ 3, Accounts payable 4, Current portion of notes payable 7, Total Current Liabilities $ 15, Long Term Liabilities Notes payable, net of current portion 406, , Total Liabilities 421, Net Assets Unrestricted 498, Temporarily restricted 54, Total Net Assets 553, Total Liabilities and Net Assets $ 974, See accompanying independent accountants' report and footnotes. 2

5 STATEMENT OF ACTIVITIES For the Year Ended Land, Buildings Total Temporarily Total and Unrestricted Restricted Net Revenues General Equipment Net Assets Net Assets Assets Contributions and gifts - net $ 206, $ 0.00 $ 206, $ 21, $ 227, Contributions - in kind 20, , , , Fundraising income 11, , , Farm income 2, , , Total Revenues 240, , , , , Net Assets Released from Restrictions 68, , , (78,471.52) 0.00 Expenses General 421, , , Depreciation , , , Total Expenditures 421, , , , Operating Transfers In , , , Operating Transfers (Out) (7,201.99) 0.00 (7,201.99) 0.00 (7,201.99) Total Transfers (7,201.99) 7, Increase (Decrease) in Net Assets (119,772.41) (118,911.80) (57,271.52) (176,183.32) Beginning Net Assets 176, , , , , Ending Net Assets $ 57, $ 441, $ 498, $ 54, $ 553, See accompanying independent accountants' report and footnotes. 3

6 STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended Land, Buildings General Fund Raising and Expenses Expenses Equipment Total Salaries $ 166, $ 10, $ 0.00 $ 176, Contract Labor Utilities 14, , Telephone 5, , Insurance 12, , Realty taxes 4, , Licenses & permits Security Automobile expenses 10, , Repairs & maintenance 16, , Professional services 5, , Supplies 4, , Postage & delivery 2, , Resident care 26, , Travel & training 2, , Meals & entertainment 1, , Fund raising , , Dues and subscriptions Interest expense 5, , Farm expense 3, , Newsletter expense 3, , Bad debt expense 110, , Depreciation expense , , Total Expenditures $ 399, $ 21, $ 28, $ 450, See accompanying independent accountants' report and footnotes. 4

7 STATEMENT OF CASH FLOWS For the Year Ended Cash Flows from Operating Activities Change in net assets $ (176,183.32) Adjustments to reconcile net (loss) to net cash provided by operating activities Depreciation 28, (Increase) Decrease in: Accounts receivable, net 180, Increase (decrease) in: Short-term liabilities 5, Net cash provided by operating activities 38, Cash Flows From Financing Activities Purchase of fixed assets (50,000.00) Donation of fixed assets (22,649.00) Loan proceeds 50, Payment of debt (7,201.99) Net cash used by financing activities (29,850.99) Net increase in cash and cash equivalents 8, Beginning cash and cash equivalents 46, Ending cash and cash equivalents $ 54, Supplemental Information: Cash paid for interest expense was $5, See accompanying independent accountants' report and footnotes. 5

8 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Blue Monarch, Inc., a twelve-month residential program for determined Tennessee women and their children, providing a safe, nurturing and challenging environment where they can overcome abuse, unhealthy choices, and emotional wounds while they restore family bonds and gain independence and maturity through the experience of God s love. The financial statements of Blue Monarch, Inc. have been prepared on an accrual basis and accordingly reflect all significant receivables, payables, and other liabilities. The significant accounting policies are described below to enhance the usefulness of the financial statements to the reader. Pledged contributions are recognized when the donor makes a promise to give to the Blue Monarch, Inc. that is, in substance, unconditional. Pledge contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the contributions are recognized. All other donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. The Blue Monarch, Inc. is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Unrestricted net assets include the following: A. General: General includes the revenues and expenses associated with the principal mission of the Blue Monarch, Inc. B. Land, Buildings, and Equipment: Land, Buildings, and Equipment assets are stated at cost, less accumulated depreciation, computed on a straight-line basis over the estimated useful lives of the assets. Temporarily restricted net assets include gifts for which donor imposed restrictions have not been met (primarily future capital projects) and trust activity and pledges receivable for which the ultimate purpose of the proceeds is not permanently restricted. Permanently restricted net assets include gifts, trusts, and pledges which require by donor restriction that the corpus be invested in perpetuity and only the income be made available for program operations in accordance with donor restrictions and gifts which have been donor stipulated. Currently, there are no permanently restricted net assets. The financial statements present expenses by functional classification in accordance with the overall service mission of the Blue Monarch, Inc. Each functional classification displays all expenses related to the underlying operations by natural classification. Interest expense on external debt is allocated to the functional categories, which have benefited from the proceeds of the external debt. Blue Monarch, Inc. has established an allowance for uncollectible pledges. Receivables are reviewed annually and allowance is adjusted accordingly. As of, the allowance for uncollectible accounts is $114,943.00, of which $58, is allocated to the annual fund receivables and $56, is allocated to the capital fund receivables. 6

9 NOTES TO FINANCIAL STATEMENTS NOTE 2 - ESTIMATES The preparation of financial statements in conformity with U.S. 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. NOTE 3 - CASH As of, cash includes of the following amounts. Schedule of Cash: Unrestricted $ 28, Temporarily restricted 25, Total Cash $ 54, Cash designated as temporarily restricted is for the pay down of debt secured by land and buildings. NOTE 4 - PLANT ASSETS AND DEPRECIATION Property additions are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful life. Expenses for additions, improvements, and replacements are added to the property accounts while expenses for maintenance and repairs are expensed currently. Interest is capitalized in connection with the construction of major facilities. The construction period interest is recorded as part of the asset to which it is related and is amortized over the asset s estimated useful life. No interest was capitalized for the year ended. A summary of plant assets follows: January 1, 2011 Additions Deletions Land (not depreciated) $ 103, $ 0.00 $ 0.00 $ 103, Buildings 876, , , Equipment 34, , Autos 30, , , , , ,014, Less Accumulated Depreciation (233,600.79) (28,990.38) 0.00 (262,591.17) $ 811, $ 43, $ 0.00 $ 855, The Center follows the policy of recording contributions of long-lived assets directly in investment in plant assets instead of recognizing their gift over the useful life of the asset. The amounts shown are from market valuation as of the date of the contribution, plus subsequent additions at cost. 7

10 NOTES TO FINANCIAL STATEMENTS NOTE 5 - TAX EXEMPT STATUS Blue Monarch, Inc. is a not-for-profit organization that is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code as other than a private foundation. The Organization s Forms 990, Return of Organization Exempt of Income Tax, for the years ending 2008, 2009, and 2010, are subject to examination by the IRS, generally for three years after they were filed. NOTE 6 - EXPENDABLE RESTRICTED RESOURCES Operating and plant funds restricted by the donor, grantor, or other outside party for particular operating purposes or for plant acquisitions are deemed to be earned and reported as revenues of operating funds or as additions to plant funds, respectively, when they are received by the Blue Monarch, Inc. NOTE 7 - CASH & CASH EQUIVALENTS For purposes of the statement of cash flows, Blue Monarch, Inc. considers all highly liquid investments (including restricted assets) with a maturity of three months or less when purchased to be cash equivalents. NOTE 8 - CASH DEPOSITS The carrying amount of total cash deposits at, was $52,204.50, of which $43, was covered by federal depository and the remainder was uninsured. NOTE 9 - NOTES PAYABLE Mr. Howell Adams; interest rate based on Libor; $ 364, interest due in monthly installments through March (secured by land and buildings) Bancorp; interest rate of 5%; 49, payments due in monthly installments through December 2017 (secured by 2 vans) $ 413, Below is a summary of notes payable: Fiscal Year Ending December 31, Principal 2012 $ 7, , , , , Totals $ 413,

11 NOTES TO FINANCIAL STATEMENTS NOTE 10 - NET ASSETS Unrestricted net assets available for general operations at : $ 498, Temporarily restricted net assets at, are donor-restricted funds: $ 54, Temporarily restricted net assets include monies pledged and donated for pay down of notes held on land and buildings and capital improvements on a cottage. NOTE 11- DONATED ITEMS/SERVICES Donated marketable securities and other noncash donations are recorded as contributions at their estimated fair values at the date of donation. Donated services are recognized as contributions if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by Blue Monarch, Inc. NOTE 12- RELATED PARTY TRANSACTIONS Blue Monarch, Inc. has occasional purchases of goods and services from The Blue Chair, Inc., an entity owned by the founder and director of Blue Monarch, Inc. NOTE 13- PRIVATE FOUNDATION DONATIONS Blue Monarch, Inc. has applied for and has been in discussion with private foundations that have expressed interest in donating funds to the Blue Monarch, Inc. for building improvements as well as other projects. All potential donations at the date of this report are not guaranteed and contingent upon fund availability by the foundations as well as other fundraising stipulations placed upon the Blue Monarch, Inc. NOTE 14- ACCOUNTS RECEIVABLE Accounts receivable total of $179,907.00, net allowance estimated for bad debt of $114,943.00, as of December 31, 2011, and collections are expected as follows: 2012 Thereafter Capital $ 7, $ 22, Annual $ 18, $ 17, NOTE 15- SUBSEQUENT EVENTS The Organization has evaluated subsequent events through November 9, 2012, the date the financial statements were available to be issued. 9