INDEPENDENT AUDITORS' REPORT

Transcription

1 75 Northeast 15th Street Homestead, Florida (305) Fax: (305) Carlsonfrederick@aol.com 9 arlson rederick Lakeland, 4732 Luce Road Florida and Company, PA (863) Fax: (863) Certified Public Accountants Carlsonfrederick@aol.com Members American Institute of Certified Public Accountants Florida Institute of Certified Public Accountants Robert E. Carlson, CPA Michael L. Frederick, CPA To the Board of Directors AEA International, Inc. Melbourne, Florida INDEPENDENT AUDITORS' REPORT We have audited the accompanying statements of financial position of AEA International, Inc. (a nonprofit organization) as of June 30,2006, and 2005, and the related statements of activities and cash flows for the years 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 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 of material misstatements. 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 AEA International, Inc. (a nonprofit organization) as of June 30,2006, and 2005, and the statements of activities and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Carlson, ~rederick and Company, PA August 25,2006

2 STATEMENTS OF FINANCIAL POSITION JUNE 30,2006 AND 2005 June 30,2006 June 30,2005 Assets: Cash and Cash Equivalents Accounts and Other Receivables Inventory Deposits and Prepaid Expenses Mortgage Note Receivable Operating Property Less: Accumulated Depreciation and Amortization Net Operating Property Goodwill, net of accumulated amortization Total Assets Liabilities and Net Assets: Liabilities: Accounts Payable and Accrued Expenses Note Payable - Affiliate (Current) Total Current Liabilities Note Payable - Affiliate (Long-Term) Total Liabilities Commitments and Contingencies Net Assets: Unrestricted Total Net Assets Total Liabilities and Net Assets See Accompanying Independent Auditors' Report. The Accompanying Notes are an Integral Part of these Financial Statements.

3 STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED JUNE AND 2005 Changes in Restricted Net Assets Receipts Needs Processing Program Receipts $ 1,797,000 Wellness Program Receipts 500,761 Other Program Receipts 180,463 Management Fees Total Restricted Receipts Expenditures Expenditures for Needs Processing Program 1,674,224 Expenditures for Wellness Program 804,000 Total Restricted Expenditures 2,478,224 Increase (Decrease) in Restricted Net Assets $ 0 June 30,2006 June Changes in Unrestricted Net Assets Receipts Ministry Management Receipts $ 6,073,037 Other Receipts 95,028 Gain on Sale of Assets 1,947 Total Unrestricted Receipts 6,170,012 Expenditures Expenditures for General and Administrative 4,321,935 Total Unrestricted Expenditures 4,321,935 Increase in Unrestricted Net Assets $ 1,848,077 Increase in Net Assets 1,848,077 Net Assets at Beginning of Year 516,553 Net Assets at End of Year $ 2,364,630 See Accompanying Independent Auditors' Report. The Accompanying Notes are an Integral Part of these Financial Statements.

4 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30,2006 AND 2005 June 30,2006 June Cash Flows From Operating Activities Increase in net assets $ 1,848,077 $ 227,202 Adjustments to reconcile change in net assets to net cash used by operating activities: Depreciation and Amortization Expense 325, ,048 (Gain) on Asset Sale (1,947) (122,228) Loss on Asset Disposition 0 2,734 (Increase) Decrease in Inventory 9,200 (314) (Increase) Decrease in Accounts and Other Receivables 660,858 (350,607) (Increase) in Deposits and Prepaid Expenses (33,762) (5,062) lncrease (Decrease) in Accounts Payable and Accrued Expenses (1,244,192) 1,226,261 Net Cash Provided by Operating Activities 1,563,817 1,125,034 Cash Flows From lnvesting Activities Acquisition of Operating Property Acquisition of Land Construction in Progress Proceeds from Asset Sale Net Cash Provided (Used) by Investing Activities Cash Flows from Financing Activities (Increase) in Mortgage Note Receivable Note Payable - Affiliate Borrowings Note Payable - Affiliate Repayments Net Cash Provided (Used) by Financing Activities Net Increase (Decrease) in Cash and Cash Equivalents (32,472) 50,030 Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Period See Accompanying Independent Auditors' Report. The Accompanying Notes are an Integral Part of these Financial Statements. Carlson, F'rederick and Company, PA

5 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30,2006 AND Nature of Activitv and Significant Accountinn Policies Ornanization AEA International, Inc., (hereinafter "Organization"), is a 501(c)(3) tax-exempt entity. The determination letter approving the tax-exempt status, dated August 24, 1999, has been received from the Internal Revenue Service. Affiliates The Group Major Medical Sharing Trust on behalf of Christian Ministries, (hereinafter "Trust"), was established in 1995 by Coopers and Lybrand (now PricewaterhouseCoopers) for the use by christian ministries. The Trust is a foreign ("off-shore") trust. The original trustee, (Abacus Trust (Bahamas) Limited) was sited in the Bahamas. Effective January 1, 2004, the successor trustee (Euro American Trustees Limited) was sited in the British Virgin Islands. The Christian Care Medi-Share program was the sole member of the Trust as of January 1, The activity of the Trust was expanded to include payment of the eligible medical care needs for participants in the Medi-Share program and to manage the billing and collection of the reimbursements due from the Stop-Loss carrier. The Trust had zero assets, liabilties, and net assets prior to January 1, The American Evangelistic Association, (hereinafter "AEA), was organized in 1954 as an association of churches, pastors, and laity. The initial purpose was for the training and ordination of pastors and lay leaders. In 1993, the sharing of one another's medical care needs was formalized as the Christian Care Ministry's Medi-Share program in conjunction with the affiliate Group Major Medical Sharing Trust on behalf of Christian Ministries. Nature of Activity The Organization has several missions including the to provide support services to AEA, its members, and other ministries. This support includes facilities, wellness services, and other services to AEA's members. Fiscal Year The Organization utilizes a fiscal year end of June 30 for financial reporting purposes. Financial Statement Presentation The Organization has adopted Statement of Financial Accounting Standards (SFAS) No. 117, "Financial Statements of Not-for-Profit Organizations." Under SFAS No. 117, the Organization 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. There are no temporarily restricted or permanently restricted net assets. As permitted by the statement, the Organization does not use fund accounting. Cash and Cash Equivalents The Organization considers all short-term, highly-liquid investments which are readily convertible into cash within three (3) months or less, when purchased, to be cash equivalents.

6 Nature of Activitv and Significant Accounting Policies (continued) Concentration of Credit Risk The Organization places its temporary cash investments with high-credit quality institutions, presently SunTrust Bank. Accounts at an institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At times, such investments exceed the FDlC insurance limits. The amount in excess of the FDlC limit totaled $88,382 and $146,835, as of June 30, 2006, and 2005, respectively. The Organization has not experienced any loss to date on these investments. Inventories The Organization maintains an inventory related to its mission. The inventories are stated on the cost basis (first-in, first-out). Operating Property It is the Organization's policy to capitalize property and equipment costing over $3,000 and $1,000 for the years ended June 30, 2006, and 2005, respectively. Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets including three, five, ten and forty years. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments and major improvements are capitalized. The carrying amounts of assets sold are retired and related accumulated depreciation is removed from the accounts in the year of disposal and any resulting gains or losses are included in the statement of activities. Functional Allocation of Expenses The costs of providing the programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefitted. Income Taxes The Organization is a not-for-profit organization that is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and is classified by the Internal Revenue Services as "Other than a Private Foundation." Concentration The Organization does not have any significant concentrations of activity transacted with a particular member, supplier, or lender that could, if suddenly eliminated, severely impact operations other than its affiliate AEA. The Organization does not have a concentration of available sources of labor, services, licenses, or other rights that could, if suddenly eliminated, severely impact its operations.

7 1. Nature of Activitv and Sinnificant Accountina Policies (continued) Manaqement's Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of receipts and expenditures during the reporting period. Actual results could differ from those estimates. 2. Accounts Receivable Accounts receivable at June 30, 2006, and 2005, consist of: Other Miscellaneous Receivable Receivable - Affiliate Total June 30,2006 June 30, Mortclane Note Receivable On June 27, 2005, the Organization sold its primary offices and is holding a mortgage note receivable totalling $1,I 25,000 with interest rate of six (6) percent for one (1) year. The note is secured by the real property. 4. Operatina Property Operating property at June 30, 2006, and 2005, consist of: June 30,2006 June 30,2005 Computer Equipment and Software Furniture and Equipment Vehicles Land Construction in Progress 0 89,105 Total Operating Property $ 2,576,317 $ 941,I 79 Less: Accumulated Depreciation and Amortization (447,705) (171,736) Net Operating Property $ 2,128,612 $ 769,443

8 5. Goodwill During the year ended June 30, 2005, the Organization acquired certain assets from Life Management Corporation (the third party administrator) used for cash receipts and medical care needs processing. The purchase price of $500,000 exceeded the assets acquired by $482,500. This goodwill has been capitalized and will be amortized over fifteen years. Goodwill, net of accumulated amortization for the years ended June 30, 2006, and 2005, was $44-2,292 and $474,458, respectively. 6. Notes Payable Notes Payable at June 30, 2006, and 2005 consist of the following for property acquisition and improvements: 5 year loan payable to Christian Care Ministry, $3,988 monthly through May, year loan payable to Group Major Medical Sharing Trust, $4,993 monthly through September, 2018 June 30,2006 June 30, year note payable to Life Management Corporation, $25,000 monthly, related to the acquisition of certain assets of the third party administrator 0 250,000 Vehicle note payable to Sun Trust Bank, $421 monthly including interest, secured by vehicle 15-year mortgage loan payable to Group Major Medical Sharing Trust, with an annual interest rate of 8% and repayable in monthly installments of $1 1,333 including principal and interest through June 2021, secured by real property. 1,I 65,000 0 Total Notes Payable $ 1,165,000 $ 1,110,650 Less: Current portion of principal due 41, ,828 Notes Payable (Long-Term) Crrrlson, Frederick and Company, PA

9 7. Commitments and Continaencies Debt service requirements (not including interest) under these obligations are: Fiscal year ending June 30, 2007 $ 41, , , , , through ,626 $ 1,165,000 Interest expense paid for the years ended June 30, 2006, and 2005, were $106 and $5,454, respectively. During fiscal year 2004, the Organization entered into a non-qualified deferred compensation agreement with the then Executive Director. Payments pursuant to the agreement are $40,000 annually. Subsequent obligations for this commitment have been transferred to its affiliate AEA, effective January 1, As of April 7, 2005, the Organization entered into a two (2) year non-cancelable operating lease for its office facility in Illinois requiring rent of $44,400 annually, expiring March 31, The Organization has an option to extend the lease for an additional two (2) year term by giving sixty (60) days notice to the landlord prior to the termination date of the lease. The rent for the extended period shall be increased according to the expenses incurred in the prior year. Rental expense under this operating lease were $44,400 and $14,800 for the years ended June 30, 2006, and 2005, respectively. As of June 30, 2006, the Organization entered into a five (5) year non-cancelable operating lease commencing on October 15, 2006, for its new office facility requiring monthly rent of $14,168 from October 15, 2006 through April 14, 2008, and then increased monthly rent of $28,333 from April 15, 2008, through October 14, The Organization has an option to extend the lease for three (3) additional five (5) year periods by giving six (6) months notice to the landlord prior to the termination date of the lease. The rent for the extended period shall be increased according to the expenses incurred in the prior year. On June 27, 2005, the Organization sold its primary office and entered into a one (1) year noncancelable operating lease with Buyer requiring monthly rent of $1. Buyer is in default as of June 30, 2006, for non-payment in accordance with the mortgage terms. The Organization has consulted with their attorneys and have commenced legal proceedings to protect AEAl's interest in the note. The Organization does not foresee additional expenses or a loss as a result of the proceedings. On May 19, 2005, the Organization entered into a three (3) year non-cancelable operating lease with Dell Leasing for certain computer equipments, requiring a monthly payment of $3,579, plus applicable taxes. This lease contract runs through May 19, 2008, following which the Organization has a leaseend purchase option of 10% of the original cost of $98,954.

10 8. Related Party Transactions The Organization was formed with one of its major ministries being to provide facilities and support to its affiliate AEA, and its largest division the Christian Care Ministry. The Organization is related to AEA in that its Board of Directors are members of the AEA's Administrative Board of Elders (hereinafter "ABOE"). The majority of the Organization's income is for providing AEA with facilities, wellness services, and other services to AEA's members. Payments received from AEA for these activities were $7,070,761 and $3,602,828 for the years ended June 30, 2006, and 2005, respectively. Effective January 2004, the Organization entered into an administration agreement with the Trust. The Organization receives a monthly fee for its management of the activities of the Trust, which by ABOE's approval in July 2005, was increased to a monthly fee of $119,000. In October 2005, the ABOE approved an increase in the monthly fee to $160,000. This action was taken to perform the program activities of medical care needs processing, which were acquired from the third party administrator in April Payments to the Organization for management of the activities of the Trust were $1,797,000 and $120,000 for the years ended June 30, 2006, and 2005, respectively. Commissions were paid to a relative of the Chairman of the Board in connection with the non-qualified deferred compensation insurance contract in the amount of $1,800 and $8,523 for the years ended June 30, 2006, and 2005, respectively. The deferred compensation expense for the year was $40,000, which was fully funded. 9. Retirement Plan The Organization offered its employees voluntary participation in the Organization's 401(k) salary reduction plan. Requirements and restrictions for contribution to the plan are as follows: Plan A: Plan A was effective until May Employees were eligible for this Plan once they had been made regular employees. The Organization's contribution was based on a matching 25% of each dollar of employee deferrals. Employees were able to choose among a list of funds and will receive a quarterly report on the value of their account. All employee deferrals vested fully upon contribution and the Organization's matching contributions vested 20% per year over 5 years. The employee's monthly deferral had to exceed $50 per month. The Organization's contribution were not to exceed the lesser of 25% of the employee's gross pay or $30,000 in a calendar year.

11 9. Retirement Plan (continued) Plan B: Plan B commenced on the June 9, 2006 payroll period. Employees are eligible for this Plan once they have been made regular employees. On June 9, 2006, all current employees were eligible for this Plan. The Organization's contribution is based on matching 100% of the first 3% of employee deferrals and 50% of the next 2% the maximum match is 4% if the employee defers 5%. Employees may choose among a list of funds and will receive a quarterly report on the value of their account. All employee and employer's contributions vest fully upon contribution. Employees are automatically enrolled with a 5% deferral election unless they submit an opt out form. The Organization's matching contributions were $40,514 and $15,416 for the years ended June 30, 2006, and 2005, respectively.

12 10. Functional Expenses The Organization's expenses, by functional classification, are as follows for the years ended June 30, 2006, and Salaries and benefits Professional Fees Computer Costs Administration Fees Depreciation and Amortization Contracted Services Telephone Wellness Bills Office Expense Travel and Entertainment Postage and Shipping Employee Welfare Training and Meetings Leased Equipment Printing Rent Automobile Expenses Building Maintenance Utilities Insurance Advertising Other Expenses Dues and Subscriptions Recruiting Bank Charges Interest Expense Programs and Ministries Support Services Needs General Total Wellness Processing and Admin Expenses

13 10. Functional Ex~enses (continued) Salaries and benefits Professional Fees Computer Costs Depreciation and Amortization Travel and Entertainment Employee Welfare Training and Meetings Insurance Office Expense Telephone Postage and Shipping Printing Contracted Services Conventions Other Expenses Administration Fees Commissions Utilities Leased Equipment Dues and Subscriptions Building Maintenance Advertising Automobile Expenses Interest Bank Charges Programs and Ministries Needs Wellness Processing and Admin Expenses