Snowcreek III Owners Association. Financial Statements and Supplementary Information. Year Ended November 30, 2016

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1 Financial Statements and Supplementary Information Year Ended November 3, 2 Table of Contents: Balance Sheets Page Statements of Revenues and Expenses Page 2 Statements of Cash Flows Page 4 Notes to Financial Statements Page 5 Independent Accountant's Review Report Page Supplementary Information on Future Major Repairs and s Page

2 Balance Sheets Assets: Cash and Cash Equivalents Investments (Note 9) Owner Assessments Receivable (Note 5) Allowance for Doubtful Accounts (Note 5) Accrued Interest Receivable Amerigas Receivable Prepaid Income Taxes (Note 7) Prepaid Insurance Investment No. Snowcreek (Note 8) Garage Equipment, at Cost Less Accumulated Depreciation Assets Operating $9,775 4,47 (2) 5, , 2,28 3,4 (2,384) $52,98 November 3, 2 $47,387 49, $9,22 $58, 49, 4,47 (2) 279 5, , 2,28 3,4 (2,384) $,4,25 Nov. 3, 25 $55,87 49, 2,834 (2) 72,3 42 2, 2,28 3,4 (9,73) $,33,85 Liabilities: Accounts Payable Assessments Received in Advance Liabilities $3,98 7,39 2,278 $ $4,43 7,39 2,773 $7,485 4,339 2,824 Owners Equity: Balance At Start Of Year Revenue Less Expenses During Year Owners Equity At End of Year 9,32 2,7 3,72 893,9 7,72 9,73,2,4 8,39,92, ,43 9,,2,4 Liabilities & Owners Equity $52,98 $9,22 $,4,25 $,33,85 See Independent Accountant's Review Report and Accompanying Notes to Financial Statements Page

3 Statements of Revenues and Expenses Revenues: Regular Assessments (Note 3) Cable TV Service Assessments (Note 3) Late Charges Interest Income Revenues Operating $32,758 29, ,959 For the Years Ended: November 3, 2 $53,27 3,273 5,49 $55,975 29, , ,45 Nov. 3, 25 $55,98 28,5 48,79 54,33 Administrative Expenses: Accounting Services Board & Meeting Expenses Insurance Legal Services Management Office Supplies & Postage Income Taxes (Note 7) Property & Other Taxes Administrative Expenses 3, ,22 3,7,374 3, , , ,22 3,7,374 3, ,22 3, , ,25 3, ,329 Maintenance & Supplies: Buildings Depreciation Truck Maintenance & Fuel Landscaping & Grounds Jacuzzi & Sauna Snow Removal Trash Removal Tree Removal Maintenance & Supplies 3, ,92,374 24, 7,55 55,232 3, ,92,374 24, 7,55 55,232 23,3 7,59,79 3,428 3,9 4, ,248 Utilities: Cable Television Electricity Propane Water & Sewer Utilities 3,48,925,97 48,358 $88,4 $ 3,48,925,97 48,358 $88,4 28,897 7,3,75 4,7 $83,55 See Independent Accountant's Review Report and Accompanying Notes to Financial Statements Page 2

4 Statements of Revenues and Expenses Major Projects: Asphalt Patch & Sealcoat Asphalt Walkway Repair Meadow Preservation Painting 4453/Spa Building Painting Spa Heater Spa Jets/Air Pumps Wood Window/Slider Trim Major Projects $ Operating 2 2 For the Years Ended: November 3, 2 $2,33,,425,28 88,8 $2,33 2,,425,28 88,223 Nov. 3, 25 $7,959 7, , 4,4 5,5 95,55 Expenses 379,289 88,79 48,58 42,93 Excess Revenues Over Expenses $2,7 $7,72 $8,39 $9, See Independent Accountant's Review Report and Accompanying Notes to Financial Statements Page 3

5 Statements of Cash Flows Cash Flows From Operations Owner Assessments Collected Interest Received Cash Paid for Operating Expenditures Expenditures Paid For: Asphalt Painting Spa Heater Spa Jets/Air Pumps Wood Window/Slider Trim Net Cash Provided by Operations Operating $393,4 (387,8) 5,433 For the Years Ended: November 3,2 $53,27 3,7 (9,88) (,) (,425) (,28) 8,8 $54,33 3,7 (387,8) (9,88) (,) (,425) (,28) 74,294 Nov. 3, 25 $544,954, (328,47) (5,35) (7,) (4,4) (5,5) 22,742 Cash Flows From Investing Activities Proceeds from Maturing CDs Purchase of CDs Net Cash Provided by Investing 49, (49,) 49, (49,) 49, (49,) Cash and Cash Equivalents at Beginning of Year 4,34 4,52 55,87 383,25 Cash and Cash Equivalents at End of Year $9,775 $47,387 $58, $55,87 Reconciliation of Excess of Revenues Over Expenses to Net Cash Provided by Operations: Operating Excess of Revenues Over Expenses $2,7 Adjustments to Reconcile Excess of Revenues Over Expenses to Net Cash Provided by Operations: Depreciation (Increase) Decrease in Assessments Receivable (Increase) Decrease in Accrued Interest Receivable (Increase) Decrease in Amerigas Receivable (Increase) Decrease in Prepaid Income Taxes (Increase) Decrease in Prepaid Insurance Increase (Decrease) in Accounts Payable Increase (Decrease) in Assessments Received in Advance 7 (,84) (5,539) (9) (3,5) 2,97 Net Cash Provided by Operations $5,433 For the Years Ended: November 3,2 Nov. 3,25 $7,72 $8,39 $9, (7) 7 (,84) (7) (5,539) 75 (9) (3,2) 2, (49) (4) 495,985 (23) $8,8 $74,294 $22,742 See Independent Accountant's Review Report and Accompanying Notes to Financial Statements Page 4

6 Notes to Financial Statements As of November 3, 2 and November 3, 25 NOTE : GENERAL INFORMATION Snowcreek III Owners Association was incorporated under the laws of California on May 3, 982, to provide for the orderly maintenance, preservation, and architectural control of the common areas within the development. The Association is responsible for maintaining, repairing and replacing common area facilities, which include roofs, siding, paving, Jacuzzi, equipment, landscaping, and common area plumbing and electrical systems. Snowcreek III consists of 8 residential condominiums. The Association derives its authority and responsibilities from its Declaration of Covenants, Conditions and Restrictions. The Board of Directors makes most policy decisions and oversees daily operations, but major decisions are referred to the general association membership if required by the governing documents or by statute. Membership in the Association is mandatory for homeowners. Voting members consist of all owners, who are entitled to one vote for each unit owned. Each owner is obligated to pay assessments to the Association to support its operations and purposes. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Accounting Method The Association maintains its books and records in accordance with accounting principles generally accepted in the United States of America. The Association uses fund accounting, which requires that funds such as operating funds and funds designated for future repairs, and replacements be classified separately for accounting and reporting purposes. Operating funds are those whose disposition are at the discretion of the Board of Directors and are generally used for regular operating expenses. funds are restricted to the repair or replacement of major common area components. The Board's policy is to allocate to the operating fund all delinquent or uncollectible receivables, and to allocate to the replacement fund interest earned on all cash accounts and all related income tax expense. B. Fiscal Year The Association's fiscal year ends November 3. C. Recognition of Assets and Depreciation Policy Real property and common areas acquired from the developer and related improvements to such property are not recorded in the Association's financial statement because those properties are owned by the individual unit owners in common and not by the Association. Any personal property purchased by the Association's operating fund to which the Association holds title and which could be disposed of for cash or claims to cash is capitalized at cost and depreciated over its estimated life using the straightline method of depreciation. Any personal property purchased by the Association's replacement fund is expensed in the year acquired. See Independent Accountants Review Report. Page 5

7 Notes to Financial Statements As of November 3, 2 and November 3, 25 D, Statement of Cash Flows Information For purposes of the Statement of Cash Flows, the Association considers all shortterm investments to be cash equivalents if the maturity date is three months or less when purchased. Cash equivalents are classified with cash in the balance sheet. E. Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates. NOTE 3: OWNER ASSESSMENTS Assessments are determined by the Board of Directors during the annual budget process and are allocated to each unit based on a formula set forth in the Association's governing documents. Regular Assessments Effective December, 2, common area fees were reduced by $.7 per month for owners of units with the smallest square footage, while owners of units with larger square footage saw an increase of $.5 to $.37 per month. Regular monthly assessments during the most recent four years were as follows: Unit Type A Unit (One Bedroom) B Unit (Three Bedroom) C Unit (Three Bedroom) D Unit (Three Bedroom) /3/ $ /3/5 $ Period Ended: /3/4 $ /3/3 $ Cable TV Assessments In 2, the Board contracted with the local cable company to provide cable television to owners at a reduced rate. Owners are billed monthly for cable television service by the Association. Effective December, 2, Cable TV assessments were decreased to $27.7 per month per unit. The Association retains excess operating funds at the end of the operating year, if any, for use in future years. NOTE 4: COLLECTION OF OWNER ASSESSMENTS The Association's policy regarding collection of common area fees and the treatment of delinquent owners is as follows: Common area assessments are due on the first day of each month and are delinquent if payment is not received within 3 days of the due date. When delinquent, a $. late charge is assessed. If an owner is delinquent for 3 days (that is, has not paid within days of the original due date), See Independent Accountant's Review Report. Page

8 Notes to Financial Statements As of November 3, 2 and November 3, 25 the delinquent owner is mailed a letter via certified mail, advising him that unless payment in full is received in days, the matter will be referred to the Association's attorney or to a collection service. If the matter is referred, the attorney or collection service will, with Board concurrence, start collection action. The collection action may take the form of an assessment lien and foreclosure proceedings, and/or a suit against the owner personally either in small claims or municipal court. More than one method of collection may be initiated against a delinquent owner, but only one will be concluded. The delinquent owner will be held liable for all common area fees owing, as well as for all applicable collection service fees, attorney fees, referralforcollection fees, delinquent letter fees, late charges, interest calculated in accordance with the association's CC & R's, bank and handling charges incurred as a result of returned checks, and any other outofpocket expenses incurred by the association in connection with the collection action. These additional charges may be sizeable. An owner may dispute the assessment debt by submitting a written request for dispute resolution to the association pursuant to the association's meet and confer IDR procedure, as set forth in Civil Code Section 59 et seq. An owner may also request alternative dispute resolution with a neutral third party before the association initiates foreclosure against the owner's separate interest, except that binding arbitration shall not be available if the association intends to initiate a judicial foreclosure. If an owner's check is returned by the bank, the check will not be redeposited. The owner will be sent a notice stating that the association requires a replacement check which will include reimbursement for the fee charged by the bank and any handling fees associated with the returned check. NOTE 5: ASSESSMENTS RECEIVABLE Details of owner assessments receivable for the past two years are as follows: Year Ended: /3/ /3/5 Receivables to 9 Days Past Due $ 3,79 $,,897 Receivables Over 9 Days Past Due Owners Receivables $ 4,47 $ 2,834 Allowance for Doubtful Receivables at Start of Year $ 2 Additions to (Subtractions from) Allowance During Year Receivables Written Off During Year _ Allowance for Doubtful Receivables at End of Year $ 2 $ $ 2 2 The allowance is calculated by adding % of all receivables from owners over 3 days past due, 5% of all receivables from owners that the Association referred to Association Lien Services or are being sued by the Association's attorney, and are in foreclosure; and % of all receivables from owners in bankruptcy. The Association writes off receivable balances once all collection alternatives have been exhausted. See Independent Accountant's Review Report. Page 7

9 Notes to Financial Statements As of November 3, 2 and November 3, 25 NOTE : REPLACEMENT FUNDS AND REPLACEMENT FUNDING PROGRAM funds are amounts to be spent on the future major repair and replacement of selected components of the common areas. A longterm funding program is one that is based on a study that identifies specific components of the common areas, such as roofs and asphalt, the expected replacement costs and expected remaining lives of each component, and provides a plan to pay for the replacement of these components when they wear out. The preparation of such a study involves significant estimates by the persons preparing the study, and these estimates are subject to annual revision for changing prices, circumstances and assumptions. The Association's governing documents require that funds be accumulated for future major repairs and replacements. The Board of Directors commissioned Stone Mountain Corporation to prepare a reserve study of the major components of the common areas which the Association is responsible to maintain. Stone Mountain Corporation specializes in condominium reserve studies. This study was completed in August 24 for the period beginning December, 24. The replacement program is designed to project what funds will be necessary and how these funds will be raised. However, there will be differences between projected and actual results because events and circumstances frequently do not occur as expected and those differences may be significant. In the event that replacement funds prove inadequate, the Association has the right to increase regular assessments, levy special assessments, or delay replacement until necessary funds become available. NOTE 7: INCOME TAXES Federal Income Taxes: Homeowners' associations may be taxed either as homeowner associations or as regular corporations. For the year ended November 3, 25 the Association chose to be taxed as a homeowner association. As a homeowner association, membership income is exempt from taxation and the association is taxed only on its nonmembership income, such as interest income, at homeowner association rates. As of the date of this report, a decision has not been made as to the filing method for the fiscal year ended November 3, 2. The tax provision for the year ended November 3, 2 assumes that the method chosen will be consistent with the prior year. As of November 3, 2, the tax years that remain subject to examination by Federal taxing authorities begin with the year ended November 3, 23. California Income Taxes: The Association has applied for and received a continuing exemption from regular California corporate income taxes. Accordingly, the Association pays California tax only on its nonmembership income at corporate rates excluding the minimum tax. As of November 3, 2, the tax years that remain subject to examination by California taxing authorities begin with the year ended November 3, 22. See Independent Accountant's Review Report. Page 8

10 Income Tax Expense: Snowcreek III Owners Association Notes to Financial Statements As of November 3, 2 and November 3, 25 Income tax expense and income taxes (prepaid) at year end were as follows: Year Ended November 3,2 Federal Calif. Income tax Estimated payments & credits Income tax (prepaid) $4 (8) (22) $57 (55) (348) $7 (,32) (5) Year Ended November 3, 25 Income tax Estimated payments & credits Income tax (prepaid) Federal $ (97) (8) Calif. $58 (553) (495) $28 (,529) (,3) NOTE 8: JOINT VENTURE On April, 99, the Association entered into a general partnership under the laws of the state of California with Snowcreek I Association. The partnership was created to provide for the management and landscape maintenance of the common areas. The Association uses the equity method of accounting for its interest in the joint venture, known as North Snowcreek Associates. In July 23, Snowcreek II Association joined the partnership. As of that date, each Association has an equal one third interest in North Snowcreek Associates. NOTE 9: INVESTMENTS The Association had the following investments, which are considered to be heldtomaturity. These investments are listed on the balance sheet at cost after adjustment for any amortized purchase discount or premium. As of November 3, 2 Type & Description Financial Federal Bank CD Tristate Capital Bank Bank CD As of November 3, 25 Type & Description CIT Bank, NA CD Stonegate Bank CD Face Value $245, 245, $49, Face Value $245, 245, $49, Maturity Date 3/2/7 3/22/7 Maturity Date 3/23/ /2/ NOTE : DATE OF MANAGEMENT'S REVIEW In preparing the financial statements, the Association has evaluated events and transactions for potential recognition or disclosure through March, 27, the date that the financial statements were available to be issued. See Independent Accountant's Review Report. Page 9

11 JOHNAA.TOAAASCH CERTIFIED PUBLIC ACCOUNTANT 943 Rimrock Drive Swall Meadows, CA 9354 Telephone (7) INDEPENDENT ACCOUNTANTS REVIEW REPORT To the Board of Directors of Snowcreek III Owners Association I have reviewed the accompanying financial statements of Snowcreek III Owners Association, which comprise the balance sheets as of November 3, 2 and November 3, 25, and the related statements of revenues and expenses, and cash flows for the years then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management's financial data and making inquiries of Association management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, I do not express such an opinion. Management's (the Board'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. Accountant's Responsibility My responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require me to perform procedures to obtain limited assurance as a basis for reporting whether I am aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. I believe that the results of my procedures provide a reasonable basis for my conclusion. Accountant's Conclusion on the Financial Statements Based on my review, I am not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the information about future major repairs and replacements of common property be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Financial Accounting Standards Board, which considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. I have compiled the supplementary information in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA; however, I have not audited or reviewed the required supplementary information and, accordingly, do not express an opinion, a conclusion, nor provide any form of S on it. 27 Page

12 Supplementary Information On Future Major Repairs and s As of November 3, 2 The Board of Directors commissioned Stone Mountain Corporation to prepare a reserve study of the major components of the common areas which the Association is responsible to maintain. Stone Mountain Corporation specializes in condominium reserve studies. This study was completed in August 24 for the period beginning December, 24. The data on the following page is based on that study. See Independent Accountant's Review Report. Page

13 Schedule of Planned s and Estimated Costs Activity The following forecasted information is based on the component study and the Board's funding policies. Component Wood Shake Roofs (#443) Shake Roofs #449453, 4748 Comp Shingle Roofs Units , 4544 Roof Jacuzzi Building (29) Roof Preventative Maintenance Full Paint, Yr Cycle Units 4453 & Spa Full Paint, Yr Cycle Units Trim & Siding Paint Units 4453 & Spa Trim & Siding Paint Units Wood Window/Slider Trim Varathane Front Doors Paint Wood Decks/Stairs/Railings Wood Siding Replaced Asphalt Sealcoat Streets/Paths Asphalt Patch (Partial Areas) Asphalt Grind/Replace All (See note) Walkways Phased Spa ReTile Spa Coping Replace Spa Heater Spa Filter Spa Jets/Air Pumps (2) Spa Filtration Pump Concrete Spa Deck Restroom Remodel Spa "Plexiglass" Enclosure Spa Enclosure Framing Rebuild Bobcat Loader (5%) Snowblowers (5%) Snapper 48" Mower (5%) Water Main Replace Useful Life (Yrs.) Remaining Life (Yrs.) Cost 9,582 3,824 9,582 5,23 5,778 73,544 3,38 53,87 45,387 2,8,325 3,582,9,27 8,93 9,45 284,457 8,45 2,7 2,9 4,23,3 4,23 2,3 9,437,34 2,,5 2,42,734,892 24,84 Annual Expense 8,547 7,23 8, ,778 2,257,5 8,948 7,55 2,8 2,8,53 5,543 4,45 9,45 4,223 8, , ,853 Liability 3,753 99,79 2,55 3,57 5,778 2,257 44,739 3,258 2,8,325 2,33 983,38 8,93 9,45 27,234 8,45,892,83 42,229 4,45 2,22 2,773,94,4 7, 4,824 93,35 Cash & Investments Unfunded Liability Average Per Unit Unfunded Liability Percent ed Balance at 3 Annual Wear & Tear Budgeted Additions During Year Budgeted Reductions During Year Common Area Assessments Interest Income Roof Preventative Maintenance Wood Window/Slider TrimVarathane Front Doors Paint Asphalt Repairs/Sealcoat Walkways D hased 29,4 $2,7,53 29,4 (5,778) (2,8) (,325) (8,38) (8,45) $9,387 = = 53,27 = 2, = (5,778) = (2,8) = (,325) = (8,38) = (8,45) = $,47,44 29,4 (53,27) (2,) Forecasted Balance at 37 $2,25,33 $,4,2 = $,2,93 $3,94 47% Note: As discussed at the Association's annual homeowners meeting on September 3, 2, the Board is considering accelerating the replacement of the asphalt to next Spring/Summer, which would be one year earlier than the schedule contemplated by the 24 Reserve Study. The Board is currently reviewing proposals for this asphalt replacement. The cost of the asphalt replacement may be higher than outlined above. However, more information is needed and the impact on the above information cannot be determined at this time. See Independent Accountant's Review Report. Page 2 $3,339 4%