Sonoma State University Academic Foundation, Inc.

Management's Discussion and Analysis and

Financial Report June 30, 2004

CONTENTS

INDEPENDENT AUDITORS' REPORT 1-2

MANAGEMENT'S DISCUSSION AND ANAL YSIS 3-8

FINANCIAL STATEMENTS Statement of Net Assets Statement of Revenues, Expenses, and Changes in Net Assets Statement of Cash Flows Notes to Financial Statements

9 10

11-12 13-23

SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 24

REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 25-26

REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 27-28

SCHEDULE OF FINDINGS AND QUESTIONED COSTS 29

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INDEPENDENT AUDITORS ' REPORT

August 25, 2004

Board of Directors Sonoma State University Academic Foundation, Inc. Rohnert Park, California

We have audited the accompanying Statement of Net Assets of Sonoma State University Academic Foundation, Inc. (Foundation), as of June 30, 2004, and the related Statements of Revenues, Expenses, and Changes in Net Assets, and Cash Flows for the year then ended. These financial statements are the responsibility of the Foundation'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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 amounts and disclosmes 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 flllancial position of Sonoma State University Academic Foundation, Inc. as of June 30, 2004 and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government A uditing Standards, we have also issued our report, dated August 25,2004, on our consideration of the Foundation's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

Board of Directors Sonoma State University Academic Foundation, Inc. Page Two

Our audit was performed for the purpose of forming an opinion on the basic financial statements of the Foundation taken as a whole . The accompanying Schedule of Expenditures of Federal Awards, and Schedule of Findings and Questioned Costs for the year ended June 30, 2004 are presented for purposes of additional analysis as required by the U. S. Office of Management and Budget Circular A-133, Audits o/States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. The information in these schedules has been sUbjected to the procedures applied in the audit of the basic financial statements and, in our opinion, is fairly presented in all material respects in relation to the basic financial statements taken as a whole.

The Management's Discussion and Analysis (pages 3 through 8) is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied ce11ain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary infonnation. However, we did not audit the information CLTld express no opinion on it.

C~~~It«Of»-/LL (Jf7L

A Professional Corporation

.~ SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC. SON-Ol\IA

v. ATE UN . VERSI,Y

Management's Discussion and Analysis

This section of the Sonoma State University Academic Foundation, Inc_ (Foundation) annual financial report presents management's overview and analysis of the financial activities of the organization for the fiscal year ended June 30, 2004_ We encourage the reader to consider the information presented here in conjunction with the financial statements as a whole.

Introduction to the Basic Financial Statements

This discussion and analysis is intended to serve as an introduction to the Foundation's audited financial statements, which are comprised of the basic financial statements and the notes to the financial statements. This annual report is prepared in accordance with the Governmental Accounting Standards Board Statement No. 35 , Basic Financial Statements - and Management's Discussion and Analysis -for Public Colleges and Universities. The basis for report presentation was first instituted with the FY 2001102 financial statements. The format represents a significant change from the presentation format of financial reports prepared prior to JW1e 30,2002 and is designed to improve the usefulness of the report to the primary users of these documents.

The Business-Type Activity (BTA) reporting model has been adopted by the California State University (CSU) system for use by all of its member campuses. The CSU determined that the BTA model best represents the combined activities of the CSU and its auxiliary corporations.

The four auxiliary not-for-profit corporations serving Sonoma State University, of which the Foundation is one, have also adopted the BTA reporting model primarily for efficiencies gained in combining the four auxiliaries annual financial statements with the University and ultimately the combined CSU financial statements.

The Foundation's financial statements include;

../ Statement of Net Assets. This statement includes all assets and liabilities using the accrual basis of accounting as of the statement date. The difference between the two categories is represented as Net Assets; this section of the statement identifies major restrictions on Net Assets and reflects the overall financial position of the organization as a whole .

../ Statement of Revenues, Expenses and Changes in Net Assets. This statement presents the revenues earned and the expenses incurred during the year using the accrual basis -of accounting. Under the accrual basis, all increases or decreases in net assets are reported as soon as the underlying event occurs, regardless of the

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timing of the cash flow. Consequently revenues and/or expenditures reported during this fiscal year may result in changes to cash flow in a future period .

./ Statement of Cash Flows. This statement reflects inflows and outflows of cash, summarized by operating, capital and non-capital financing and investing activities. The direct method was used to prepare this infonnation, which means that gross rather than net amounts were presented for the year's activities .

./ Notes to the Financial Statements. All notes to financial statements must be considered together to enable a complete and full understanding of the financial picture of the Foundation .

./ Supplementary Information. This section provides additional supporting financial schedules that are either required by Federal granting agencies, the California State University or desired by the Foundation management. The schedules provide additional details to assist specific audiences in obtaining a clearer understanding of the operating segments within the organization.

Reporting Entity

The financial statements of Sonoma State University will be separated between the University and its component units. The latter are separate not-for-profit, tax-exempt auxiliary corporations established to support and further the mission of the University.

The auxiliary corporations financial information will be presented in a discrete column and in the footnotes of the University's financial statements. Consequently, these auxiliaries must comply with the same governmental rulings and must present their individual separate audited financial statements in the same fonnat.

Analytical Overview

The following analysis is provided with the objective of pointing out significant events during fiscal 2003/04 reporting period that impacted the overall financial condition of the Foundation.

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Analysis of Revenues and Expenses Compared to Prior Year

6/30/2004 6/30/2003 Change

Operating Revenues $ 1,798,343 $ 1,402,837 $ 395,506 Operating Expenses 1,768,376 2,05] ,476 (283,100)

Net Operating Revenue (Loss) $ 29,967 $ (648,639) $ 678,606

Gifts, noncapital $ 5,395,810 $ 2,169,384 $ 3,226,426 Gifts, noncapital (1,598,921 ) (1 ,247,774) (351,147) Investment Income, Net 3,571,112 1,555,873 2,015,239 Other Non-Operating Income 532,594 856,288 (323,694)

Non-Operating Income $ 7,900,595 $ 3,333,771 $ 4,566,824

Income Before Other Revenue

(Expenses) $ 7,930,562 $ 2,685,132 $ 5,245,430

Additions to Permanent Endowments $ 1,579,292 $ 1,833,464 $ (254,172)

Gifts, capital (62,922) (1,282,485) 1,219,563

Other Revenue (Expenses) $ 1,516,370 $ 550,979 $ 965,391

Net Increase in Net Assets $ 9,446,932 $ 3,236,111 $ 6,210,821

Net Operating Revenues consists primarily of revenues and expenditures that augment the University's academic and support programs, for student grants and scholarships, and for extramural grant and contract activities.

Investment Income's significant increase from fiscal 2002/03 is primarily a result of the investment markets continued strengthening position during this reporting period and a return to greater stability.

Net Additions to Permanent Endowments and Gifts, noncapital combined increased approximately $3.8 million from the previous year. Significant contributions during FY 2003/04 were:

./ $1.5 million from the Federated Indians of Graton Rancheria to fund a Federated Indians of Graton Rancheria Chair for Native American Studies

./ $1.6 million in contributions to the Green Music Center Campaign

./ $250,000 to the Masters in Science and Engineering program

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In combination with past and future fund raising efforts, the generous actions of the individual donors providing letters of credit, and the combination of the GMC with a faculty office building and conference and event facility funded through California State Capital Outlay Bond funds and CSU System-wide Revenue Bonds, the reality of beginning construction in summer 2005 is most likely .

../ Contracts and Grants Administration. Effective July 1, 2004 the fiscal management of all contract and grant activity will be administered by the Sonoma State University .

../ The Foundation will appoint a new Vice President/Chief Operating Officer during December 2004. The incumbent officer is retiring in January 2005.

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SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC.

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 2004

OPERATfNG REVENUES Grants and contracts, non-capital:

Federal (excluding pass-through funds) State

Sales and services of educational activities Other operating revenues

$ 20,058 1,010,675

68,091 699,519

1,798,343

OPERA TfNG EXPENSES Instruction Public service Academic support Student services Institutional support Student grants and scholarships Depreciation

$ 136,278 J,052,629

208,660 6,319

297,002 31,316 36,172 1,768,376

OPERA TfNG fNCO:M:E 29,967

NON-OPERA TING fNCOME (EXPENSES) Gifts, non-capital Investment income, net Other non-operating income, net Gifts, non-capital

5,395,810 3,571,112

532,594 (1,598,921)

7,900,595

fNCOME BEFORE OTHER REVENUE (EXPENSES) 7,930,562

OTHER REVENUE (EXPENSES) Additions to permanent endowment Gifts, capital

1,579,292 (62,922)

1,516,370

fNCREASE fN NET ASSETS 9,446,932

NET ASSETS, July 1,2003

NET ASSETS, June 30, 2004 $

38,375,577

47,822,509

The accompanying notes are an integral part of this statement. - 10 ­

SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC.

STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2004

RECONCILlATION OF OPERA TING INCOME TO NET CASH USED IN OPERATING ACTIVITIES

Operating income $ 29,967 Adjustments to reconcile operating income to net

cash used by operating activities: Depreciation 36,172 Change in assets and liabilities:

Accounts receivable (190,152) Prepaid expenses and other assets (467) Accounts payable 30,730 Accrued compensated absences (5,950) Other liabilities (3 ,255)

NET CASH USED IN OPERATING ACTIVITIES $ (l02,955)

The accompanying notes are an integral part of this statement. - 12 ­

SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC.

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

Note 1. Nature of organization and significant accounting policies (Cont.)

b. The basic financial statements required by Governmental Accounting Standards Board (GASB) Statements No. 34 and 35 include a statement of net assets, a statement of revenues, expenses, and changes in net assets, and a statement of cash flows. As a component unit of a public institution, the Foundation has chosen to present its basic financial statements using the reporting model for special-purpose governments engaged only in business-type activities. This model allows all financial inforrnation for the Foundation to be reported in a single column in each of the basic financial statements. The effect of internal activity between funds has been eliminated from these financial statements. In accordance with the business-type activities reporting model, the Foundation prepares its statement of cash flows using the direct method.

c. The accompanying financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America, as prescribed by GASB. Revenues are recorded when earned and expenses are recorded when a liability is incuned, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met.

d. The Foundation uses all applicable GASB pronouncements and all Financial Accounting Standards Board Statements and Interpretations issued on or before November 30, 1989, unless these pronouncements conflict with or contradict GASB pronouncements.

e. The Foundation considers assets to be cunent that can reasonably be expected, as part of its norrnal business operations, to be converted to cash and be available for liquidation of cunent liabilities within twelve months of the date of the Statement of Net Assets. Liabilities that reasonably can be expected, as part of the Foundation's norrnal business operations, to be liquidated within twelve months of the date of the Statement of Net Assets are considered to be cunent. All other assets and liabilities are considered to be non-cunent. .

f. Cash and cash equivalents consist of cash, checking account, savings account and money market funds with an original maturity date of three months or less.

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SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC.

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

Note 1. (Cont.)

Nature of organization and significant accounting policies

I. The Foundation is a not-for-profit corporation and is exempt from federal and state income taxes under provisions of Section 501 (c )(3) of the Internal Revenue Code. Continuance of such exemption is subject to compliance with laws and regulations of the taxing authorities. Certain activities considered unrelated to the tax exempt purpose of the Foundation may generate income that is taxable. No provision has been recorded for income taxes, as the net income, if any, from any unrelated business in the opinion of management, is not material to the basic financial statements taken as a whole.

Note 2. Accounts receivable

Accounts receivable consist of the following:

Government grants and contracts Other accounts receivable

$ 475,860

23,934

$ 499,794

Accounts receivable at June 30, 2004 are determined by management to be fully collectible.

Note 3. Pledges receivable

Unconditional pledges receivable are recorded as receivables and revenue. The Foundation distinguishes between contributions received for each asset category in accordance with donor-imposed restrictions. Pledges receivable are discounted to the anticipated net present value of future cash flows.

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SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC.

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

Note 4. Investments (Cont.)

At June 30, 2004, investments are included in the Statement of Net Assets as follows:

ShOlt-tenn investments $ 18,480,099 Endowment investments 21,052,222 Restricted investments 8,666,668

$ 48,198,989

The aggregated costs and fair values of debt and equity investments at June 30, 2004 are as follows:

Cost Fair Value Notes receivable with interest between 7.5% and 9.5% per arumm, final maturities due on demand through October 2013, secured by deeds of trust with the exception of one note receivable (see Note 8) $ 10,856,805 $ 10,856,805 Mutual funds 28,154,917 28,913,362 Stocks 6,675,078 6,280,595 Annuity and life insurance 17,734 17,734 Other collectibles 25,000 25,000

$ 45,729,534 46,093,496

Real property at cost includes the following:

Undeveloped land 935,534 Ten townhouses, net of accumulated depreciation 1,169,959

2,105,493

$ 48,198,989

Included above, charitable remainder trust assets invested in Notes receivable with interest between 7.5% and 9.5% per annum, final maturities April 2007 through October 2013 (see Note 5), cost and fair value $ 8,666,668

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SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC.

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

Note 4. Investments (Cont.)

Net investment income as reflected on the Statement of Revenues, Expenses, and Changes in Net Assets includes the following:

Interest and dividends $ 1,370,994 Realized gains 522,181 Realized losses (507,251 ) Investment expenses (100,886)

1,285,038 Net increase in fair value 2,286,074

Investment income, net $ 3,571,112

Note 5. Restricted investments and Other assets

The Foundation is the beneficiary of several charitable remainder trusts whereby a donor contributes assets and designates beneficiaries to receive distributions for a period of time. The assets are invested in long-term notes receivable and are included in Restricted investments in the Statement of Net Assets (see Note 4). The Foundation is the trustee on these agreements.

The assets from these charitable remainder trusts are recorded at fair value along with a liability for the present value ofthe estimated future payments expected to be made to the beneficiaries. The difference between the fair value of these assets and the liability to the beneficiaries is recognized as restricted contribution. Adjustments to the liability to reflect any revaluation of expected future payments to beneficiaries are made annually and recognized in the Statement of Revenues, Expenses and Changes in Net Assets as a change in value of charitable remainder trusts. The Foundation uses applicable mortality tables and discount rates, which vary from 5.75% to 10% when revaluing the liability. The liability is included in Other liabilities (current and non­current).

The Foundation is also the remainder beneficiary of charitable remainder trusts that are administered by an independent third party. The Foundation records an asset and a restricted contribution for its share of the assets based on the present value of the estimated future distributions expected to be received. On an annual basis, the Foundation revalues the asset and restricted contribution. Discount rates used for this purpose were approximately 5% at June 30, 2004. These assets are included in Other assets in the Statement ofNet Assets.

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SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC.

NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004

Note 8. Related party transactions

The Foundation contracts annually with the University for executive management oversight, financial resource, and logistical services at no charge.

The Foundation receives support from the University that allows the Foundation to cany out programs and activities controlled and budgeted for by the Board of Directors. The University also paid rent on land owned by the Foundation. This support and rental income is included in Other operating revenues in the Statement of Revenues, Expenses, and Changes in Net Assets.

The Foundation is transfelTing all revenue producing activities within all its programs to the University. In addition, new grants and contracts will be started in the University and not in the Foundation. The Foundation will continue managing donations received on behalf of all the activities. The Foundation will transfer funds to the University as authorized and directed by the respective programs.

Support from the University $ 250,651 Rental income from the University 99,000

$ 349,651

Transfers to the University and a related auxiliary for program activities $ 1,598,909

Gifts to the University, non-cash 62,922 $ 1,661,831

Note receivable from other auxiliary, unsecured, interest rate is 8% per annum, final maturity June 2007 (included in Other investments in the Statement ofNet Assets) $ 5,829,805

Accounts payable to other auxiliaries (included in Accounts payable in the Statement of Net Assets) $ 94,000

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SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC.

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2004

Program Title

Federal

CFDA

Number

Agency or

Pass-

Through

Number Expenditures

Major programs:

Passed through California Department of

Transportation

99/04 CAL TRANS Central Region

BayShore Viaduct

Total major programs

Not assigned

Not assigned

06A0299

04A0538

$ 676,574

334,101

1,010,675

Other federal awards:

Department of Interior Survey

Point Reyes Archeological Survey Not assigned 1443-CA-8530 20,058

TOT AL FEDERAL AWARDS $ $1,030,733

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REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT A UDITING STANDARDS

August 25, 2004

Board of Directors Sonoma State University Academic Foundation, Inc. Rohnert Park, California

We have audited the financial statements of Sonoma State University Academic Foundation, Inc. (Foundation) as of and for the year ended June 30, 2004, and have issued our report thereon dated August 25, 2004. We conducted our audit in accordance with aUditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States.

As pali of obtaining reasonable assurance about whether the Foundation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards.

In plaJrning and performing our audit, we considered the Foundation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions . We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses.

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REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS (Cont.)

This report is intended solely for the information and use of the Board of Directors, management, federal awarding agencies, and pass through entities. It is not intended to be and should not be used by anyone other than these specified parties .

. led Public Accountants A Professional Corporation

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REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERl"JAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

August 25 , 2004

Board of Directors Sonoma State University Academic Foundation, Inc. Rohnert Park, California

We have audited the compliance of Sonoma State University Academic Foundation, Inc. (Foundation) with the types of compliance requirements described in the u.s. Office 0/ A1anagement and Budget (OMB) Circular A-i33 Compliance Supplement that are applicab le to each of its major federal programs for the year ended June 30, 2004. The Foundation ' s major federal programs are identified in the schedule of expenditures of federal awards. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the Foundation's management. Our responsibility is to express an opinion on the Foundation's compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits o/States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Foundation's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Foundation ' s compliance with those requirements.

In our opinion, the Foundation complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2004.

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REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 (Cont.)

The Foundation's management is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal programs. In plalli1ing and perfonning our audit, we considered the Foundation's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133.

Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts, and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the nonnal course of perfonning their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses .

This report is intended solely for the information and use of the Board of Directors, management, federal awarding agencies, and pass through entities and is not intended to be and should not be used by anyone other than these specified parties.

fied Public Accountants A Professional Corporation

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SONOMA STATE UNIVERSITY ACADEMIC FOUNDATION, INC.

SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2004

Summary of auditors' results

1. The auditors' report expresses an unqualified opinion on the financial statements of Sonoma State University Academic Foundation, Inc.

2. No reportable conditions relating to the audit of the financial statements are reported.

3. No instances of noncompliance material to the financial statements of Sonoma State University Academic Foundation, Inc. were disclosed during the audit.

4. No reportable conditions relating to the audit of the major federal award programs are reported.

5. The auditors' report on compliance for the major federal award programs for Sonoma State University Academic Foundation, Inc. expresses an unqualified opinion on all major federal programs.

6. No audit findings relative to the major federal award programs for Sonoma State University Academic Foundation, Inc. are reported in this Schedule.

7. The programs tested as major programs are included in the Schedule of Expenditures of Federal Awards.

8. The threshold used for distinguishing between Type A and B programs was $500,000.

9. Sonoma State University Academic Foundation, Inc. qualified as a low-risk auditee.

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