X-Message-Number: 1831 From: Subject: CRYONICS Alcor Finances Date: Fri, 26 Feb 93 12:30:12 PST Date: 26 February, 1993 From: Carlos Mondragon To: Cryonet Re: Alcor Finances, &c. The amount of ignorance and misinformation abounding in this medium on the general subject of Alcor's finances is mindboggling. In spite of this, I am pleased that the majority of those people who have posted have taken what I consider to be reasonable positions. For those interested in getting detailed FACTS, I recommend acquisition of the last two April issues of Cryonics Magazine. These contain the annual financial statements for the years ending December 31, 1990 and 1991. Those annual reports were fully annotated, but I will still be willing to answer any questions based on the information contained in them. Prior year's financials can also be obtained from Alcor. Some accurate data has been provided here by Steve Bridge: Operating expenses for the years 1989 to 1991 were $148K, $237K, $220K, and $208K. Steve was unable to explain how salaries (and consequently total expenses dropped by so much in the last two years. The answer is simple: in mid- 1991, the staff took an across-the-board pay cut of 25% in order to accommodate the board's wish to establish an Endowment Fund with $400K of cash reserves which existed at the time. Going back five years (my tenure as CEO), membership grew by 361% while administrative overhead grew 56%, and assets grew nearly 1000%. The trend is clear; Alcor is growing into economies of scale and out of operating cash flow problems. One more thing: Alcor has NEVER "spent money it didn't have"; in mid-1989, we decided to use a huge influx of money from the Jones estate for expansion, with the expectation that the resulting growth would surpass the greater fixed overhead within a few years. So far, the financial results are far ahead of the projections I made at the time. I happened by the facility today, whence I got a look at Joe's preliminary year-end P/L and balance sheet. The final fully annotated and AUDITED financial statements will be published (hopefully) in the April Cryonics Magazine as they have been for the last two years. The numbers now available are still RAW DATA, i.e. there have been no adjusting entries by our accountant, and there is no annotation. Major adjustments might still have to be made. I would have much preferred to wait for the final audited data. Nevertheless, some conclusions can be *cautiously* drawn. Here's the scoop: We show a surplus (profit), on a corporate level AND in the operating fund. Once the operating fund profit is combined with the research fund loss, there is still a net profit of $37,974.28. If we discount the extraordinary non-recurring item (as we should for planning purposes) of income from the Jones estate, $86K, then we have of a loss of $48K. But since extraordinary non-recurring items must be discounted, then we also eliminate the last $38,372 of legal fees paid last year. This leaves a hypothetical "loss" of only $9,654 when only "regular reliable" income and expenses are considered. (Accounting changes could double this figure.) We had by year-end borrowed from the Endowment a net total of $30,121.10. For those of you not familiar with accounting, the obvious questions should be: If we were only about $10K in the red, why did we need to borrow $30K? And how is it possible that we could both finish the year with a surplus (before discounting extraordinary items) and still finish the year owing so much to the Endowment? Good questions. My best experienced and educated guess was that that $30K was a combination of capital acquisitions and the cash flow tightness which began in December. We'll know for sure once the "Statement of Changes in Financial Position" is prepared. In the mean time, my analysis of the preliminary balance sheet bears out my guess: Fixed assets in the operating fund at year-end 1992 are $36K greater than they were at year end 1991. This all ties in nicely with the $28K increase in the combined net worth of the General and and Research Funds (there's $8K of the $10K "loss"). In any case, I'm gratified that our growth produced income nearly equal to our spending so far ahead of the projections I made in 1990. Even more impressive is the fact that this was accomplished during a year that saw our donation income drop by nearly half from where it was in 1991. What all this leads me to conclude is that we do indeed have SEVERE cash- flow problems. No news here; that is the nature of the business. In early 1993, we had further extraordinary items which exacerbated those problems. But "cash flow is NOT the same as "Profit and Loss". We do not have an overall "deficit" problem. I expect that in 1993, revenues will be higher than they were last year: we have more members. And expenses will be lower: we have no legal bills. Undoubtedly, there will be some unexpected extraordinary expenses, there already have been, -- there always are. But then we can expect that fundraising will succeed beyond last year's pitifully dismal performance. Plainly, the direction of the curves indicates that even marginal growth will result in a clear, indisputable, across-the-board SURPLUS in 1993 even AFTER extraordinary income and expenses get eliminated. In any case, we should not reduce the capital in the Endowment fund by so much as one thin dime! The issue of the Endowment was the major source trouble last year, -- and that was when we hadn't really touched its capital! Thomas Donaldson made an excellent point in his recent posting on this subject when he correctly predicted that if we invade the capital of this endowment now, no one will ever believe us if in the future we decide to establish another. Raising capital in this manner as financially stronger non-profits frequently do simply will not be an option for Alcor. That would be perhaps the greatest long-range consequence of such an action. Dave Pizer's argument that the resulting loss of income would be unbearable given our already tight budget is also valid (but this is true only if capital taken from the Endowment is used to alleviate cash flow problems; it would not be necessarily true if it were used in accordance with a plan to generate growth, i.e. invested in our own business). One could argue that the endowment was a mistake (I believe it was), but it's one we will have to live with. Let's learn from it, let's not make it worse. It would perhaps be reasonable to liberalize Steve's ability to borrow from the Endowment. As we grow, such borrowing would become less necessary and at the end of the day, the capital will be intact. I would at this time oppose any restructuring of suspension minimums unless we simultaneously solve the problem of inflation-proofing funding (see my article in the March 1992 Cryonics). Operating expenses should be matched as closely as possible with regular operating revenues. Hence, I do support an increase in dues: we can justify 13.5% or about $36/year. That's about $10K that can be counted on, as opposed to suspensions we cannot count on, and it happens to be at least half, the amount of last year's actual "deficit after exclusion of extraordinary non-recurring income and expenses". I now oppose charging more to Patient Care Income (though at one point I suggested that as an option). The current allocations are very nearly fair, and we don't need it as much as someday they hopefully will. To summarize: there is no need for panic, or rash actions. We are clearly growing out of our financial problems, though cash flow will continue to be irregular for the indefinite future. Let Steve (and Ralph) get on with the business of fundraising. Leave the Endowment intact, and hands off the Patient's Trust Fund! Regards, C. Mondragon PS: On a totally different subject: In answer to "Clarissa Wells" -- Regarding your specific complaint about my vote as a director to require management to pass returning memberships by the board: My position is essentially the same as Mr. Henson's who has already answered twice on this subject. Further, I do not believe that by virtue of our existence, we are in any way obligated to provide service to anyone. As Mike Darwin and Brian Wowk wrote in Alcor's introductory handbook, *Cryonics: Reaching For Tomorrow*, "[Alcor] does not provide cryonic suspension services to the general public. Alcor was conceived as and remains a 'mutual aid' organization for individuals seriously committed to insuring the availability of cryonics for themselves and their families. New members are always welcome, but only in an atmosphere of informed consent and genuine interest." (p. 54). By the way, up until I became CEO of Alcor, all new memberships were approved by the board. Although I strongly supported the adoption of Alcor's rather comprehensive non-discrimination policy (also published in CRFT), I do not think that other peoples' needs constitute a claim on our resources. I urge you to attend one of our board meetings. It is easier to really get to know people by meeting them versus by way of their writings here or by reports in the magazine. In any case, your writing is *extremely* familiar to me. I feel that I have known you for many years. Perhaps the volume on this net is playing tricks with my memory, but were you ever a regular contributor to Cryonics Magazine? I look forward to meeting you and I hope that we can convince you to sign up with Alcor. -- (one "g" in) -- Mondragon Rate This Message: http://www.cryonet.org/cgi-bin/rate.cgi?msg=1831