SUBMITTED AGENDA ITEMS:

Presentation of Audited financials by Spectrum
Janice Van Cura presented the audited financials from Spectrum. The auditor's report states that in their opinion the financial statements present fairly, in all material respects, the financial position of FA as of 12/31/05. There were no deviations that rose to a need of a management letter. They did want to recommend to the management team to make sure that everyone is doing everything the same way consistently, but there were no accounting errors of note. Inventory is about as accurate as can be expected with the procedures that we use. Nothing new on the balance sheet for the most part. There's a note about the restricted investments for the DOE loan. The statement of operations looks good. Went over the Notes to the Financial Statements. The summary of significant accounting policies section has not changed in any notable way from last year. Went over the investments, property & equipment, long-term debt, leases, & income taxes. Explained the deferred tax asset.
· What's happening with FASB-150?
It's currently not active, but it's still out there on a back burner. It's not planned on being picked up again at this time, but it could be out there in future. There's no timetable to bring it back up or permanently put it to rest at this point.
· How is the sampling and testing done to verify the financial data for the audit?
We start with the financial statements and look at them and these figures are then tested by looking at the raw supporting data. We look at the written procedures and then observe the process to be sure that it matches the procedure.
· What changes get made from management's financials?
The deferred tax adjustment is the big change, which is always expected. All of the other numbers were adjusted in only minor ways.

Went over the differences between an audit and a review. For a review, there is no test data taken. It's more of an analytical review and trend analysis for reasonableness. Inventory procedures are observed for both the review and audit.

The audit report will be sent to Exec for the April board packets.

Review of the February Financial Statements & March Sales Report
Sales are still down through March. Looking at the Income Statement, there is nothing unusual in February. Staff has done a great job of keeping payroll in line as a percent of sales even though sales have been down. Net Income from Operations was better than budgeted for February and about even for the year. February is a non-inventory month, so COGS is estimated. The net loss of 16,000 for February is better than the budgeted loss for February of 27,000. We still really don't know how to explain the decrease in sales growth the first quarter of 2006. Different economic trends may be factors, but it's difficult to know if these are affecting our sales. There's also been a lot of organic sales growth in the traditional stores. Fred Meyer remodeled and expanded their natural food lines. We've also been doing a lot of remodeling recently which may have been discouraging shopping. All of these things may be factors. A 10% growth rate is still good, but it's below budget. Management has been responding to the lower sales income by controlling expenses where possible and by coming up with sales strategies. On the balance sheet the one thing of note is the extra borrowing from the Key line of credit to pay off the last of the rack system. The Dept of Energy rebate hasn't been received yet. The debt to equity ratio has been hit negatively due to the extra borrowing and reduced sales.
· Great job on managing the recent big decrease in sales growth.

Potential Purchase of Currently Leased Annex Property from Evanite
Does the Finance Committee need to make a statement to the Board on this? The Finance committee doesn't need to, it can go direct to the Executive committee, but it would be good to get the finance committee to look at it. We're trying to get this looked at by the current Board before the new Board comes starts in May.

Because this is a lease purchase agreement, its affect on cash is positive, but it also impacts our ratios. We will be able to own the improvements that we've made to the Annex and the meeting room over the years. Evanite is not pressuring us yet but they do want to know that we're interested and may eventually want a letter of intent.
Went over the proforma:
· As the sales growth is down so far for 2006, it could be prudent to reduce 2006 projected growth from budget based on 1st quarter results
· It would be helpful if all of the assumptions were kept the same, such as outreach in the upcoming years
· Is the payroll percentage kept steady a valid assumption?
o Yes, as a percentage of sales.
· Is there a way to back into the assumptions and try and figure out a worst-case scenario that still reaches break even? It would be reassuring to know what our financial position would be in a low growth scenario.
o Will do other test proformas for 2007 - 2009 changing the growth rates and see how low sales growth can go and we still break even.
The impact to the income statement is additional depreciation expense on the additional assets as well as the difference between the monthly lease payments vs. loan payments (which will be less over the years).

Management will continue to report back to the Finance Committee as this moves forward.

Meeting adjourned: 6:50pm