Minutes of the Finance Committee

5:00 p.m. Friday, May 27, 2011

at the MOD

Present were MerleAnne, Jason, and Russ.

It was agreed to frame the agenda around the four points of the committee
charter:

- oversight of board budget

- monitoring of co-op financial operations
- review of quarterly financial statements
- long term financial recommendations to board

1. oversight of board budget

It was noted that the board budget is for a calendar year, with a draft
budget proposed in November and a final budget adopted in December. It was
agreed that we try to create a draft budget for 2012 as early as September,
with a target date for approval in October or November.

In drafting a board budget for 2012, it was suggested that we work from the
current budget, taking into account items that had come up during the year
that had not been anticipated in that budget, for example, sending Kayla to
the CCMA, any additional expenses that might be incurred in the transition to
collective management, etc.

It was noted that some other co-ops tend to spend more on board development,
measured as a percentage of gross receipts. It was agreed that we should
investigate what exactly these other co-ops spend the additional money on and
try to make other relevant comparisons before drawing any conclusions from
this datum.

It was noted that through April the board is running considerably under
budget, having incurred actual expenses of $3,802.77, versus a budget of
$5,248.00, a difference of $1,445.23. A large portion of the difference,
$881.09, was attributable to the fact that $550.00 per month is allocated to
director discounts on grocery purchases, whereas actual discounts have
averaged about $329.73 per month so far this year.

2. monitoring operations

There was some discussion on the question what exactly the finance committee
should be looking for in reviewing quarterly financial statements. The
general sense was that we need to ascertain that the store is not running
aground, that cash reserves are adequate, that actual receipts and expenses
are roughly in line with budgeted projections, and that taxes are being
timely paid.

Russ noted that he had reviewed a copy of the co-op's 2009 income tax return,
which Jason had provided. The return had been filed on a Form 1120, which is
no longer the appropriate form for a cooperative. Since 2007, co-ops have
been required to file Form 1120-C, which includes a schedule on which
receipts and expenditures are allocated between patronage and non-patronage.

Jason reported that the co-op had hired a different accountant, who was aware
of this issue, and that the 2010 return was on extension. The 2009 return
reflected a substantial overpayment of estimated tax, most of which was
claimed as a refund.

3. quarterly financials

The committee reviewed the first quarter financial statements, which Jason
had submitted to the board in May.

a. profit and loss statement

Total sales in the first quarter were about $815.7k, while the cost of goods
sold was about $522k, for a gross profit of about $293.7k -- a margin of
almost exactly 36 percent, which was the budgeted figure. Jason noted that
margin figures are not accurate month to month, as inventories are done
quarterly.

Total expenses in the first quarter were about $264.2k, of which the largest
item was payroll, at about $176.8k, including benefits and payroll taxes.
Net income for the quarter was about $29.6k, a return of about 11.2 percent,
and roughly $10k over the budgeted figure.

Governance expenses incurred by the board in the first quarter were about
0.36 of one percent of gross receipts.

It was noted that rent was very low, at about $13.1k for the quarter. The
lease is coming up for renewal at the end of 2011. Previous renewals have
been for five-year terms. Jason observed that the workroom behind the sales
floor was very cramped, and that he planned in coming months to move the
buyers' workstations to the MOD and rent additional office space in the
duplex immediately south of the store.

b. balance sheet

Total assets in the first quarter were about $566.9k. Current assets were
about $391.9k, of which about $155.9k was inventory. Roughly $169k was
equipment (carried at its depreciated value), and nearly $232k was cash, most
of which was in a money market account at Umpqua Bank, with about ten percent
in checking, also at Umpqua. Jason commented that he was considering moving
cash assets to a credit union, as this was perhaps more in keeping with the
co-op's mission of community engagement.

Liabilities for the quarter were about $18.6k, nearly all of which was
accounts payable. Total equity stood at about $485.2k, of which about
$327.7k was allocated to retained income.

c. cash flow

Net cash flow from operations in the first quarter was about $23.4k, while
net cash flow on equipment was minus about $16.7k and net cash flow on member
shares was about $8.1k, for a net increase in the co-op's cash position for
the quarter of about $14.8k.

4. long term

At this moment, the committee felt that it was unable to make any specific
recommendations to the board with respect to allocating the co-op's surplus.
Jason indicated that he was preparing to undertake a survey to get a sense of
what members and other customers saw as directions the co-op might take.

The meeting adjourned at 6:30 p.m. The next meeting was set for 5:00 p.m.
Friday, July 29, again at the MOD.