Ta 2014 2010 opinion financial reports

FINANCIAL STATEMENTS

OF

TAKOMA ACADEMY

June 30, 2014, 2013, 2012, 2011, and 2010

Audited Financial Statements

TAKOMA ACADEMY

June 30, 2014, 2013, 2012, 2011, and 2010

TABLE OF CONTENTS

Auditor’s Opinion on the Financial Statements ........................................................................................ 1 - 2 Statements of Financial Position ................................................................................................................... 3 Statements of Changes in Net Assets .......................................................................................................... 4 Statements of Cash Flows ............................................................................................................................ 5

Notes to the Financial Statements ......................................................................................................... 6 - 14

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To the Constituents Takoma Academy Takoma Park, Maryland

We have audited the accompanying financial statements of Takoma Academy (Organization), which comprise the statements of financial position as of June 30, 2014, 2013, 2012, 2011, and 2010, and the related statements of changes in net assets and statements of cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America. This includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility

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 audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

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Basis for Qualified Opinion

The Organization included in these financial statements the cost and accumulated depreciation of land improvements and buildings to which a related entity holds legal title. Accounting principles generally accepted in the United States of America require the cost and accumulated depreciation of land improvements and buildings to be included in the financial statements of the Organization that owns them. In the absence of a written agreement stating otherwise, land improvements and buildings are considered to be owned by the legal title-holder of the land upon which they are located. The effects of including this property in the financial statements of the Organization are to overstate total assets and net assets by $1,887,182, $1,736,834, $1,896,954, $1,990,528, and $1,585,943 at June 30, 2014, 2013, 2012, 2011, and 2010, respectively, and to overstate the change in net assets by $95,059, $93,526, $93,574, $47,852, and $30,060, respectively, for the years then ended. Qualified Opinion

In our opinion, except for the effects of the matter discussed in the first Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Takoma Academy as of June 30, 2014, 2013, 2012, 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. Emphasis of Matter

As discussed in Note 16, the Organization has suffered significant losses in recent years and has increasing current liabilities. Management is developing plans to address this matter. Our opinion is not modified with respect to this matter. August 5, 2015

* Inter-fund borrowing is eliminated in the combined totals.See accompanying notes.

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2014 2013 2012 2011 2010ASSETS Total Total Total Total TotalCurrent assetsCash (Note 2) $ 100,892 39,439 180,209 169,203 47,058 Accounts receivable (Note 3) 296,976 251,183 238,133 182,162 187,489 Unsecured notes receivable - CURF, 1.75% 43,304 42,766 175,533 171,846 166,681 Inventories (Note 4) 26,081 23,532 8,332 8,332 18,785 Prepaid expense 25,416 14,352 13,977 14,905 16,293 Cash held for agency accounts (Note 2) 75,960 85,533 68,806 76,983 50,212 Total current assets 568,629 456,805 684,990 623,431 486,518

Plant assets, net, (Note 5) 1,854,442 1,939,748 2,075,431 2,169,956 1,821,439

Other assetsUnsecured notes receivable - CURF, 1.75% 110,896 109,516 108,218 127,353 123,525 Cash and investments held for unexpended plant (Note 2) 1,404 1,464 31,306 1,434 12,526 Pledges receivable (Note 3) 129,218 190,464 285,340 361,034 500,000 Total other assets 241,518 301,444 424,864 489,821 636,051 Total assets 2,664,589 2,697,997 3,185,285 3,283,208 2,944,008

LIABILITIESCurrent liabilitiesAccounts payable (Note 6) 983,018 727,690 684,930 442,659 231,542 Agency funds 75,960 85,533 68,806 76,983 50,212 Total current liabilities 1,058,978 813,223 753,736 519,642 281,754

Other liabilitiesLong-term accrued expenses (Note 6) 22,349 12,579 7,783 40,412 47,829 Note payable (Note 7) 129,218 190,464 285,340 361,034 - Capital lease payable (Note 7) 22,990 36,302 53,744 13,246 17,984 Total other liabilities 174,557 239,345 346,867 414,692 65,813 Total liabilities 1,233,535 1,052,568 1,100,603 934,334 347,567

NET ASSETSUnrestricted: unallocated (826,339) (521,080) (210,067) (882,458) (571,968) Unrestricted: allocated - - - 801,559 571,775 Unrestricted: net invested in plant 1,702,234 1,712,982 1,736,347 1,795,676 1,809,689 Quasi endowment 156,621 156,621 156,621 156,621 145,641 Total unrestricted 1,032,516 1,348,523 1,682,901 1,871,398 1,955,137 Temporarily restricted (Note 10) 398,538 296,906 401,781 477,476 641,304 Total net assets 1,431,054 1,645,429 2,084,682 2,348,874 2,596,441 Total liabilities and net assets $ 2,664,589 2,697,997 3,185,285 3,283,208 2,944,008

Takoma AcademyStatements of Financial Position

June 30, 2014, 2013, 2012, 2011, and 2010

See accompanying notes.4

2014 2013 2012 2011 2010CHANGES IN UNRESTRICTED NET ASSETS Total Total Total Total TotalUnrestricted revenues and support Tuition $ 2,488,417 2,376,781 2,395,512 2,237,735 2,308,257 Fees 238,397 300,584 232,933 210,297 239,415 Investment income 1,922 3,547 4,060 39,180 40,194 Development income 17,301 56,817 13,433 1,314 64,982 Benefit received from state of Maryland (Note 1) - 20,160 19,613 - - Grant income 173,791 258,602 214,908 197,763 - Miscellaneous income 106,009 65,064 79,428 64,861 77,269 Educational and general income 3,025,837 3,081,555 2,959,887 2,751,150 2,730,117 Contributed services (Note 11) 47,052 32,842 48,327 32,282 27,450 Auxiliaries (Note 13) - 263 1,440 4,172 4,502 Total unrestricted revenues 3,072,889 3,114,660 3,009,654 2,787,604 2,762,069 Released from restrictions (Note 10) 182,001 22,884 52,253 34,946 297,205 Total unrestricted revenues and support 3,254,890 3,137,544 3,061,907 2,822,550 3,059,274

Expenses and lossesEducational and general program services Instructional (Note 13) 1,873,080 2,091,928 2,008,996 1,929,544 2,099,034 Student services (Note 13) 106,512 91,278 142,401 267,702 857,793 Student financial aid 424,697 508,443 370,858 305,592 284,593 Total program services 2,404,289 2,691,649 2,522,255 2,502,838 3,241,420 Supporting services Institutional support (Note 13) 1,609,759 1,258,160 1,160,628 963,827 882,192 Total educational and general operating expense 4,014,048 3,949,809 3,682,883 3,466,665 4,123,612 Auxiliaries (Note 13) 2,798 20,718 25,551 56,467 49,574 Total operating expenses and losses 4,016,846 3,970,527 3,708,434 3,523,132 4,173,186 Net increase (decrease) without subsidy (761,956) (832,983) (646,527) (700,582) (1,113,912) Unrestricted subsidies received (Note 8) 386,000 406,000 381,332 376,081 373,998 Net increase (decrease) from operations (375,956) (426,983) (265,195) (324,501) (739,914)

Nonoperating activityNonoperating revenue (Note 9) - - 2,835 11,051 14,363 Nonoperating expense (Note 9) (1,297) (13,072) (20,460) (28,171) - Released from restrictions (Note 10) 61,246 105,677 94,323 257,882 572,045 Net increase (decrease) from nonoperating activity 59,949 92,605 76,698 240,762 586,408 Increase (decrease), unrestricted net assets (316,007) (334,378) (188,497) (83,739) (153,506)

CHANGES IN TEMPORARILY RESTRICTED NET ASSETSRestricted operating donations (Note 10) 344,879 12,884 52,253 32,040 280,891 Restricted capital donations (Note 10) - 10,802 18,628 96,960 850,000 Total restricted income 344,879 23,686 70,881 129,000 1,130,891 Released from restricted operations (Note10) (182,001) (22,884) (52,253) (34,946) (869,250) Released from restricted capital (Note10) (61,246) (105,677) (94,323) (257,882) - Increase (decrease), temp. restricted net assets 101,632 (104,875) (75,695) (163,828) 261,641

Increase (decrease) in net assets (214,375) (439,253) (264,192) (247,567) 108,135

Net assets, beginning of year, previously stated 1,645,429 2,084,682 2,348,874 2,596,441 2,472,210 Prior period adjustment (Note 19) - - - - 16,096 Net assets, beginning of year, restated 1,645,429 2,084,682 2,348,874 2,596,441 2,488,306 Net assets, end of year $ 1,431,054 1,645,429 2,084,682 2,348,874 2,596,441

Takoma AcademyStatements of Changes in Net Assets

For the years ended June 30, 2014, 2013, 2012, 2011, and 2010

See accompanying notes.5

2014 2013 2012 2011 2010Total Total Total Total Total

CASH FLOWS FROM OPERATING ACTIVITIESIncrease (decrease) in net assets $ (214,375) (439,253) (264,192) (247,567) 108,135

Adjustments to reconcile change in net assets to net cash providedDepreciation expense (Note 5) 146,521 135,683 146,953 104,110 73,921 Provision for uncollectable accounts receivable 100,000 101,756 (11,292) 116,037 70,914 (Increase) decrease, accounts receivable (145,793) (114,806) (44,679) (110,710) (142,854) (Increase) decrease, inventories and prepaid (13,613) (15,575) 928 11,841 18,520 Increase (decrease), accounts payable 255,328 55,339 242,271 222,867 (83,398) Increase (decrease), accrued expenses 9,770 (7,783) (32,629) (7,417) 4,845 (Increase) decrease, agency fund cash 9,573 (16,727) 8,177 (26,771) 28,592 Increase (decrease), agency fund liability (9,573) 16,727 (8,177) 26,771 (28,592) Adjustments to reclassify non-operating items(Increase) decrease in pledges receivable (Note 3) 61,246 94,876 75,694 138,966 (500,000) Nonoperating donations - (10,802) (18,628) (96,960) (850,000) Net cash provided (used) by operating activities 199,084 (200,565) 94,426 131,167 (1,299,917)

CASH FLOWS FROM INVESTING ACTIVITIESNew notes receivable issued (1,918) (3,531) (14,552) (8,993) (13,797) Payment received on notes receivables - 135,000 30,000 - 300,000 (Increase) decrease, cash held for unexpended plant 60 29,842 (29,872) 11,094 304,608 Purchases of plant assets (Note 5) (61,215) - (52,428) (464,379) (837,265) Net cash provided (used) by investing activities (63,073) 161,311 (66,852) (462,278) (246,454)

CASH FLOWS FROM FINANCING ACTIVITIESDonations for plant and endowment - 10,802 18,628 96,960 850,000 Increase (decrease), capital lease payable (13,312) (17,442) 40,498 (4,738) - Increase (decrease), notes payable (61,246) (94,876) (75,694) 361,034 - Net cash provided (used) by financing activities (74,558) (101,516) (16,568) 453,256 850,000

Increase (decrease), cash and cash equivalents 61,453 (140,770) 11,006 122,145 (696,371) Cash and cash equivalents, beginning of year 39,439 180,209 169,203 47,058 743,429 Cash and cash equivalents, end of year $ 100,892 39,439 180,209 169,203 47,058

Supplemental cash flow data:

Takoma AcademyStatements of Cash Flows


Cash paid for interest during 2014, 2013, 2012, 2011, and 2010 was $1,297, $2,270, $1,832, $1,046, and $0, respectively.

Takoma AcademyNotes to the Financial Statements


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The Organization receives most of its revenue in the form of tuition and other charges from the parents or guardians of its students. Italso receives operating and capital subsidies from the Conference.

(a) Basis of accounting: The significant accounting policies of the Organization are essentially the same as generally acceptedaccounting principles for not-for-profit organizations as promulgated by the Financial Accounting Standards Board. The significantpolicies are described below to enhance the usefulness of the financial statements. The financial statements of the Organization havebeen prepared on the accrual basis of accounting. The Organization evaluates subsequent events and transactions that occur afteryear end for potential recognition or disclosure in the financial statements. These subsequent events have been considered throughthe auditors' opinion date August 5, 2015, which was the date the financial statements were available to be issued.

(d) Plant assets and depreciation: Resources used for plant acquisitions and debt service payments are recorded as non-operatingactivity. Restricted proceeds from sale of assets and restricted income from plant-related investments are recorded as restricted gains.Interest payments on plant-related debt are recorded as non-operating expense. Plant assets are recorded at cost when purchased orat fair market value at date of gift. Plant assets that cost less than $1,000 are not capitalized but are charged to expense. Depreciationof land improvements, buildings, and equipment is provided over the estimated useful lives of the respective assets on a straight-linebasis. The following ranges of useful lives are assigned to plant assets: buildings, 20 - 75 years; land improvements, 10 - 20 years;equipment, 3 - 20 years; library books, 10 years; textbooks, 3 years. Depreciation expense is distributed among the variousinstructional, auxiliary, and administrative expense functions that benefit from the respective assets.

(e) Cash and equivalents: Cash equivalents are highly-liquid assets held for operating purposes, which are readily convertible to cashand have a maturity date of less than three months from date of acquisition. Cash equivalents held for other than operating purposesare classified as other assets. The increase or decrease in non-operating cash and investments is reported in the statement of cashflows as investment activities.

(f) Fair value of financial instruments: Following are the major methods and assumptions used to estimate fair values.

(b) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

(c) Restricted resources: The Organization reports gifts of cash and other assets as restricted support if they are received with donorstipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends orpurpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in thestatement of activities as net assets released from restrictions.

The Organization reports gifts of land, buildings, and equipment as unrestricted support unless explicit donor stipulations specify howthe donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used andgifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donorstipulations about how long those long-lived assets must be maintained, the Organization reports expirations of donor restrictionswhen the donated or acquired long-lived assets are placed in service.

The Organization is a religious not-for-profit organization, and is exempt from federal, state, and local income taxes under provisionsof section 501(c)(3) of the Internal Revenue Code, and corresponding sections of applicable state and local codes; except for taxes onunrelated business income as described in sections 511-514 of the Internal Revenue Code.

Summary of significant accounting policies

Short-term financial instruments are valued at their carrying amounts included in the statement of financial position, which arereasonable estimates of fair value due to the relatively short period to maturity of the instruments. This applies to cash, cashequivalents, accounts receivable, and certain current liabilities.

Note 1 – Organization description and summary of significant accounting policies

(g) Current assets and liabilities: Assets and liabilities are classified as current or long-term, depending on their characteristics. Thisexcludes from current assets, cash and claims to cash that are: restricted to use for other than current operations or committeeallocated for the acquisition or construction of plant assets or for the liquidation of plant-related debt. This excludes from currentliabilities: long-term portion of all debt or plant-related debt payable within the next fiscal year to the extent covered by designatedplant-related liquid assets. Working capital is calculated as current assets minus current liabilities.

Takoma Academy (Organization) is operated by the Potomac Conference Corporation of Seventh-day Adventists (Conference) toprovide a Christian education to secondary level students within its territory.



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Note 2 – Cash 2014 2013 2012 2011 2010

Operating cash Total Total Total Total TotalImprest cash $ 195 1,592 1,592 2,550 2,700 Checking accounts 173,332 120,056 244,106 240,327 91,270 State Employees Credit Union 3,325 3,324 3,317 3,309 3,300 Total cash 176,852 124,972 249,015 246,186 97,270 Less: cash held for agency accounts (75,960) (85,533) (68,806) (76,983) (50,212) Total operating cash $ 100,892 39,439 180,209 169,203 47,058

Other than operating Checking account $ 1,404 1,464 31,306 1,434 12,526 Total other than operating cash $ 1,404 1,464 31,306 1,434 12,526

(m) Provision for uncollectable accounts: An estimated allowance for uncollectable accounts is provided through routine additionsbased on charges, historical collection experience, and aging of receivables. Accounts deemed to be uncollectable are charged to theallowance.

(n) Classification of net assets: To ensure observance of limitations and restrictions placed on the use of resources available to theOrganization, the net asset accounts are classified for accounting and reporting purposes into components that reflect the presence orabsence of donor restrictions or committee designations. Unrestricted net assets are separated into unallocated and allocatedamounts. Restricted net assets are separated into temporarily restricted and permanently restricted amounts.

Legal title to all real property of the Organization is vested in the Conference. Asset values and related depreciation accounts aremaintained on the Organization's records.

A significant degree of financial support for operating purposes is received by appropriation from the Conference.

Note 1 – Organization description and summary of significant accounting policies (continued)

The officers of the Conference, and certain other members of the Conference staff, are members of the Board of Trustees of theOrganization.

(o) State of Maryland funding program: The Organization participates in a program sponsored by the State of Maryland in which theOrganization has certain materials provided for them at no cost to the Organization. These materials include textbooks and certaintypes of equipment. The value of the program benefits received by the Organization was $0 and $20,160 for the years ended June 30,2014 and 2013, respectively. This amount is reflected in the financial statements as donated income with an offsetting expense for thematerials received.

(h) Investment income: Unrestricted income from operating investments, loans, and the like is accounted for as investment income.Unrestricted income from non-operating investments is accounted for as non-operating revenue.

(k) Related organizations: Takoma Academy is an affiliate of the Potomac Conference Corporation of Seventh-day Adventists byreason of the following circumstances:

Details of amounts payable to the Conference, and financial transactions, other than those in the ordinary course of business,between the Organization and Conference, are set forth in Note 3, 6, and 8.

(i) Inventories: Inventories are valued at lower of cost (first-in, first out) or market. Operating and office supplies are expensed whenreceived.

(j) Functional allocation of expenses: The costs of providing various programs and other activities have been summarized on afunctional basis in the statements of activities. Accordingly, depreciation and plant maintenance expenses have been allocated amongprogram services and management and general based upon square footage.

(l) Concentrations of risk: The Organization receives most of its revenue from student-related activity. Budget and staff employmentdecisions each year typically must be made before actual enrollment is known. There is a risk that enrollment will be less thananticipated, which would reduce the ability of the Organization to finance its budgeted level of operations.



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Note 3 – Accounts and pledges receivable 2014 2013 2012 2011 2010

Operating accounts receivables Total Total Total Total TotalCurrent students $ 232,875 260,945 313,117 199,186 101,604 Non-current students 557,831 363,743 299,932 356,751 325,570 Total student accounts 790,706 624,688 613,049 555,937 427,174 Allowance for doubtful accounts (635,312) (535,312) (433,556) (444,848) (328,811) Net student accounts 155,394 89,376 179,493 111,089 98,363 Faculty and staff accounts 10,981 9,681 3,323 691 18,706 Commonweal Foundation 52,050 125,859 41,721 44,435 - Trust fund accounts - - - 15,822 - Potomac Conference - - - - 33,230 SDA institutions 73,415 24,045 6,605 2,538 34,196 Miscellaneous 5,136 2,222 6,991 7,587 2,994 Total accounts receivable, current $ 296,976 251,183 238,133 182,162 187,489

Plant-related receivablesPledges receivable $ 135,001 203,125 318,787 439,652 681,288 Less discount (5,783) (12,661) (33,447) (78,618) (181,288) Net pledges receivable 129,218 190,464 285,340 361,034 500,000 Current portion 63,865 61,213 41,566 38,957 33,974 Long-term portion $ 65,353 129,251 243,774 322,077 466,026

Note 4 – Inventory 2014 2013 2012 2011 2010Total Total Total Total Total

Bookstore $ 26,081 14,459 8,332 8,332 18,385Auto donations - 9,073 - - 400 Total inventory $ 26,081 23,532 8,332 8,332 18,785

Note 5 – Plant assets Total Accumulated Depreciation

Educational, general, and auxiliaries Cost Depreciation Net Value ExpenseLand improvements $ 347,355 328,908 18,447 - Buildings 3,182,333 1,463,946 1,718,387 113,506 Equipment 1,762,307 1,661,390 100,917 15,959 Leased equipment 70,412 58,004 12,408 16,052 Library books 17,772 15,689 2,083 1,004 Textbooks 48,537 46,337 2,200 - Total plant assets $ 5,428,716 3,574,274 1,854,442 146,521

Educational, general, and auxiliariesLand improvements $ 328,908 328,908 - - Buildings 3,182,333 1,350,440 1,831,893 93,526 Equipment 1,721,739 1,645,431 76,308 23,532 Leased equipment 70,412 41,952 28,460 4,496 Library books 17,772 14,685 3,087 1,252 Textbooks 46,337 46,337 - 12,877 Total plant assets $ 5,367,501 3,427,753 1,939,748 135,683

Educational, general, and auxiliariesLand improvements $ 328,908 328,908 - - Buildings 3,182,333 1,285,379 1,896,954 93,574 Equipment 1,721,739 1,621,898 99,841 31,929 Leased equipment 70,412 8,992 61,420 4,496 Library books 17,772 13,433 4,339 1,508 Textbooks 46,337 33,460 12,877 15,446 Total plant assets $ 5,367,501 3,292,070 2,075,431 146,953

2012

2014

2013



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Note 5 – Plant assets (continued) Total Accumulated Depreciation

Educational, general, and auxiliaries Cost Depreciation Net Value ExpenseLand improvements $ 328,908 328,908 - 2,495 Buildings 3,182,333 1,191,805 1,990,528 40,861 Equipment 1,721,739 1,589,969 131,770 39,090 Leased equipment 17,984 4,496 13,488 4,496 Library books 17,772 11,925 5,847 1,722 Textbooks 46,337 18,014 28,323 15,446 Total plant assets $ 5,315,073 3,145,117 2,169,956 104,110

Educational, general, and auxiliariesLand improvements $ 328,907 326,413 2,494 2,495 Buildings 2,218,960 1,146,448 1,072,512 27,565 Equipment 1,739,723 1,555,375 184,348 37,718 Leased equipment 20,471 13,093 7,378 2,011 Library books 51,030 7,260 43,770 4,132 Textbooks 510,937 - 510,937 - Total plant assets $ 4,870,028 3,048,589 1,821,439 73,921

Note 6 – Accounts payable 2014 2013 2012 2011 2010Total Total Total Total Total

Commercial $ 70,596 4,033 53,721 34,369 66,654 Potomac Conference 837,056 543,576 471,755 344,237 - Student credit balances 38,733 121,177 65,165 46,947 47,740 Deferred income 2,950 2,950 2,950 700 14,675 Taxes - - - - 28 Accrued vacation payable 2,614 9,896 15,644 11,165 15,783 Accrued employee expenses 6,728 25,383 29,474 5,241 2,189 Plant fund payable - - - - 11,750 Other 3,735 235 - - 72,723 Retirement allowance accrual 20,606 20,440 46,221 - - Current accounts payable $ 983,018 727,690 684,930 442,659 231,542

Long-term retirement allowance accrual $ 22,349 12,579 7,783 40,412 47,829

Note 7 – Notes payable and capital lease liability

Future minimum debt payments:2015 $ 63,865 2016 65,353 2017 - 2018 - 2019 -

Future - Total future minimum debt payments $ 129,218

In July 2010, the Organization obtained a loan from the Columbia Union Revolving Fund for $500,000. The Potomac ConferenceCorporation of Seventh-day Adventists has guaranteed the loan and is paying both the principal and interest directly to the ColumbiaUnion Revolving Fund of behalf of the Organization. A pledge receivable was also set up at the time the loan proceeds were receivedby the Organization for $500,000. As payments are made by the Conference, both the loan balance and pledge receivable balanceare reduced by the same amounts. Interest expense is paid by the Potomac Conference and is offset in the financial statements byrestricted subsidy income. Payments of $5,677 per month are being made by the Potomac Conference over a ten year period (120total payments) ranging from 6.5% to 4.75%. During the year ended June 30, 2011, a one-time additional principal payment of$105,407 was made by the Potomac Conference. The outstanding balance of both the note payable and pledge receivable was$129,218, $190,464, $285,340, and $361,034 at June 30, 2014, 2013, 2012, and 2011, respectively.

2010

2011



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Note 7 – Notes payable and capital lease liability (continued)

2014 2013 2012 2011 2010Total Total Total Total Total

Xerox copiers @ 6.5%, $482 per month $ - 3,101 8,174 13,246 17,984 Xerox copiers @ 4.75%, $537 per month 4,985 11,035 16,805 - - Xerox copiers @ 4.75%, $652 per month 18,005 22,166 28,765 - - Total capital lease - net present value $ 22,990 36,302 53,744 13,246 17,984

Future minimum lease payments:2015 $ 12,913 2016 7,824 2017 3,141 2018 - 2019 -

Future - Total future minimum lease payments 23,878 Less: amount representing interest (888)

Total $ 22,990

Note 8 – Subsidies received 2014 2013 2012 2011 2010Total Total Total Total Total

General operating - Potomac Conference $ 386,000 406,000 381,332 376,081 373,998 Total unrestricted subsidies received $ 386,000 406,000 381,332 376,081 373,998

Note 9 – Nonoperating activity 2014 2013 2012 2011 2010Total Total Total Total Total

Nonoperating revenueEndowment additions $ - - - 7,152 7,891 Interest income $ - - 2,835 3,899 6,472 Total nonoperating revenue $ - - 2,835 11,051 14,363

Nonoperating expensePlant-related interest expense $ (1,297) (13,072) (20,460) (28,006) - Miscellaneous expense - - - (165) - Total nonoperating expense $ (1,297) (13,072) (20,460) (28,171) -

Note 10 – Temporarily restricted net assets2014 2013 2012 2011 2010

Operating Balance Balance Balance Balance BalanceStudent aid (scholarship) $ 170,777 12,884 - - 9,931 Art - Halstead 2,659 2,659 2,659 2,659 2,659 Development 95,884 90,899 113,783 113,783 106,758 Total operating 269,320 106,442 116,442 116,442 119,348

Plant-relatedRenovation projects - - - - 21,956 Pledge receivable 129,218 190,464 285,339 361,034 500,000 Total plant-related 129,218 190,464 285,339 361,034 521,956

Total temporarily restricted net assets $ 398,538 296,906 401,781 477,476 641,304

The Organization leases four copiers. The obligation is recorded at the present value of lease payments. The asset is depreciated over the lower of the related lease term or the estimated productive life.



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Note 11 – Contributed services

Note 12 – Pension and other post-retirement benefits

Defined benefit plans

1.

2.

Under provisions of Financial Accounting Standards Board's Accounting Standards Codification Section 958-605-25-16, contributionsof services shall be recognized if the services received (a) create or enhance nonfinancial assets or (b) require specialized skills, areprovided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. TheOrganization has received the services of the General Conference Auditing Service during the years ended June 30, 2014, 2013,2012, 2011, and 2010. The amount of contributed services recognized as revenues for the periods are $39,052, $32,842, $48,327,$32,282, and $27,450 for the years then ended, respectively. These amounts are product of the number of person-hours spent inperforming the audit and the cost-recovery rate established by the General Conference of Seventh-day Adventists. The cost of theseservices is paid 50% by General Conference of Seventh-day Adventists, North American Division and 50% by Columbia UnionConference of Seventh-day Adventists. The Organization has received the services of Bouland & Brush, LLC during the year endedJune 30, 2014. The amount of contributed services recognized as revenues for the period is $8,000 for the year then ended. Theseamounts are product of the number of person-hours spent and then forgiven by Bouland & Brush, LLC.

The Organization participates in the following non-contributory, defined benefit plans:

The defined benefit pension plan known as the Seventh-day Adventist Retirement Plan of the North American Division (NADRP).This plan, which covers substantially all employees of the Organizations, is administered by the General Conference of Seventh-day Adventists, North American Division (NAD), in Silver Spring, Maryland, and is exempt from the Employee Retirement IncomeSecurity Act of 1974 as a "multiple-employer" plan of a church-related agency. This plan provides primarily monthly pensionbenefits based on years of service and other factors.

The NAD Committee voted to freeze accrual of service credit in NADRP effective December 31, 1999, except for employees whochose the career completion option, and to start a new defined contribution plan effective January 1, 2000. Certain employees willcontinue to be eligible for future benefits under this plan. The Organizations continue to make contributions to this plan, at ratesdetermined annually by the plan.

The defined benefit health care plan known as the General Conference of Seventh-day Adventist North American DivisionRetiree Auxiliary Healthcare Assistance and Death Benefit Plan (RAHAP). This plan, which covers substantially all employees ofthe Organization, is administered by NAD in Silver Spring, Maryland, and is exempt from the Employee Retirement IncomeSecurity Act of 1974 as a “multiple-employer” plan of a church-related agency. This plan provides primarily health-care benefitswhich supplement Medicare benefits. The extent of these benefits is based on years of service and the beneficiary’s monthlycontribution.

Accounting standards define these plans as “multiemployer” plans. As such, it is not required, nor is it possible, to determine theactuarial value of accumulated benefits or plan net assets for employees of the Organization apart from other plan participants.

Information about the required contributions to these plans, the actuarial obligation for future benefits, and the funded status of theseplans, is presented in the tables below.



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Note 12 – Pension and other post-retirement benefits (continued)

Required contributions from the Organization: NADRP RAHAP TOTALFor the year ended June 30, 2014 $ 49,745 47,054 96,799 For the year ended June 30, 2013 $ 43,979 41,599 85,578 For the year ended June 30, 2012 $ 50,833 48,840 99,673 For the year ended June 30, 2011 $ 54,513 52,375 106,888 For the year ended June 30, 2010 $ 64,171 61,655 125,826

$

Total contributions received from all employers:For the plan year ended December 31, 2014 $ 101,806,557 37,344,915 For the plan year ended December 31, 2013 $ 91,820,841 35,959,775 For the plan year ended December 31, 2012 $ 88,114,315 32,072,730 For the planyear ended December 31, 2011 $ 88,687,413 32,212,355 For the planyear ended December 31, 2010 $ 86,381,495 31,037,165

For the plan year ended December 31, 2014 less than less than For the plan year ended December 31, 2013 less than less than For the plan year ended December 31, 2012 less than less than For the planyear ended December 31, 2011 less than less than For the planyear ended December 31, 2010 less than less than

For the plan year ended December 31, 2014 $ 218,023,700 66,446,449 For the plan year ended December 31, 2013 $ 209,924,999 71,035,285 For the plan year ended December 31, 2012 $ 193,148,475 62,771,811 For the planyear ended December 31, 2011 $ 185,118,134 59,165,497 For the planyear ended December 31, 2010 $ 198,283,923 62,164,536

Date of plan year-end for latest actuarial information 12/31/2013 12/31/2012Actuarial liability for future benefits $ 1,481,982,124 1,013,326,701 Value of net assets available for benefits $ 209,924,999 62,771,811 Plan funded status as of date of last actuarial data Less than 65% Less than 65%

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● No minimum contribution for future periods has been determined or required of the Organization.

If the Organization chooses to stop participating in a multiemployer plan, the Organization may be required to pay the plan anamount based on the underfunded status of the plan, referred to as a withdrawal liability.

Other information about risks and contingencies related to these plans are as follows:Information about the plans is not publicly available, so no “certified zone status” has been determined.The Organization's required contributions are not the subject of any collective bargaining agreement.No funding improvement plans or rehabilitation plans had been implemented or were pending.

Risks and other informationThe risks of participating in multiemployer plans are different from single-employer plans, in the following aspects:

Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating If a participating employer stops contributing to a plan, the unfunded obligations of the plan may be borne by the remainingparticipating employers.

The Organization has not paid any “surcharge” to either of the plans.

Because the following information is not publicly available, it is required to be disclosed on the basis of information received from each plan.

Whether the Organization’s contributions were more than or less than 5% of the total contributions received by each plan:

Plan net assets available for benefits:

Actuarial obligation and funded statusBecause the following information is not publicly available, it is required to be



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Note 13 – Summary of operating income and expense by function

2014 2013 2012 2011 2010Auxiliaries income Total Total Total Total TotalAuto mechanics income $ - - - 1,700 216 Bookstore sales - 263 1,440 2,996 4,286 Concession sales - - - 1,107 - Food purchases - - - (1,631) - Total auxiliary income $ - 263 1,440 4,172 4,502

Instructional expense Instructional $ 1,872,833 2,065,642 1,952,464 1,862,245 2,034,816 Athletics - 25,967 54,767 38,397 39,502 Library 247 319 1,765 28,902 24,716 Total instructional expense $ 1,873,080 2,091,928 2,008,996 1,929,544 2,099,034

Student services Student services $ 106,512 91,278 142,401 235,124 448,512 Computer - - - 32,578 409,281 Total student services expense $ 106,512 91,278 142,401 267,702 857,793

Institutional support expense Institutional support $ 1,591,216 1,225,929 1,126,327 880,374 734,039School vehicles 9,936 7,139 18,968 22,572 31,951Development 8,607 25,092 15,333 60,881 116,202 Total institutional support expense $ 1,609,759 1,258,160 1,160,628 963,827 882,192

Auxiliaries expense Bookstore $ 587 5,629 5,614 49,776 20,122 Cafeteria 2,211 15,089 19,937 6,691 29,452Total auxiliary expense $ 2,798 20,718 25,551 56,467 49,574

In preparation of tax returns, tax positions are taken based on interpretation of federal, state and local income tax laws. Managementperiodically reviews and evaluates the status of uncertain tax positions and makes estimates of amounts, including interest andpenalties, ultimately due or owed. No amounts have been identified, or recorded, as uncertain tax positions. Federal, state, and localtax returns generally remain open for examination by the various taxing authorities for a period of four to five years.

Approximately 16% of enrolled students receive financial aid from an external third party. There is a risk that this third party may notcontinue to provide funds in the future, which may negatively impact either student enrollment or student account balances.

Note 14 – Uncertain tax positions

Note 15 – Concentration of risk

Note 16 – Financial condition

The Organization has experienced recurring losses, increasing current liabilities which continue to exceed current assets, and declinesin the current ratio. The decrease to net assets was $193,523, $439,253, $264,192, $247,567, and $0 for the years ended June 30,2014, 2013, 2012, 2011, and 2010 respectively. Current liabilities exceeded current assets by $490,349, $356,418, and $68,746 atJune 30, 2014, 2013, and 2012, respectively. Current liabilities did not exceed current assets in 2011 and 2010. Unrestrictedunallocated net assets were ($826,339), ($521,080), ($210,067), ($882,458), and ($571,968) at June 30, 2014, 2013, 2012, 2011,and 2010 respectively. Management is developing plans to address this matter.



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Note 17 – Working capital and liquidity - operating fund

Working capital 2014 2013 2012 2011 2010Total current assets $ 568,629 456,805 684,990 623,431 486,518 Total current liabilities 1,058,978 813,223 753,736 519,642 281,754

Actual working capital (490,349) (356,418) (68,746) 103,789 204,764 Recommended working capital* 894,196 714,600 680,490 685,324 793,155

Working capital excess (deficit) $ (1,384,545) (1,071,018) (749,236) (581,535) (588,391)

Percent of recommended working capital -54.84% -49.88% -10.10% 15.14% 25.82%

Current ratio 0.54:1 0.56:1 0.91:1 1.2:1 1.73:1

LiquidityCash and investments $ 100,892 39,439 180,209 169,203 47,058

43,304 42,766 175,533 171,846 166,681 Total liquid assets 144,196 82,205 355,742 341,049 246,969

Current liabilities 1,058,978 813,223 753,736 519,642 281,754 Total commitments 1,058,978 813,223 753,736 519,642 281,754

Liquid assets surplus (deficit) $ (914,782) (731,018) (397,994) (178,593) (34,785)

Percent liquid assets to commitments 13.62% 10.11% 47.20% 65.63% 87.65%

*Calculation of recommended working capital15% of operating expense $ 602,527 595,579 556,265 528,470 625,978 Long-term payables 22,349 12,579 7,783 40,412 47,829 Temporarily restricted net assets - operating 269,320 106,442 116,442 116,442 119,348 Total recommended working capital $ 894,196 714,600 680,490 685,324 793,155

Note 19 – Endowments

Temporarily PermanentlyUnrestricted Restricted Restricted Total

$ 156,621 - - 156,621 $ 156,621 - - 156,621 $ 156,621 - - 156,621 $ 156,621 - - 156,621 $ 145,641 - - 145,641

Board-designated endowments, June 30, 2012Board-designated endowments, June 30, 2011Board-designated endowments, June 30, 2010

Board-designated endowments, June 30, 2014Board-designated endowments, June 30, 2013

Endowment net asset composition

Endowments by type

The Organization is not subject to the provisions of the Maryland Prudent Management of Institutional Funds Act (MPMIFA) because itdoes not have any donor-restricted endowment funds.

Endowment investment policies - return objectives, risk parameters, and strategies: The Organization has not yet formulated itsendowment investment policies.

Endowment spending policies and relation to investment objectives: The Organization has not yet formulated its endowment spendingpolicies.

Columbia Union Revolving Fund, 90-day demand note

Net assets have been restated as of July 1, 2009 to correct an understatement of cash. The effect of the restatement was an increasein unrestricted net assets of $16,096.

Note 20 - Prior period adjustments

Documents

Ta 2014 2010 opinion financial reports