SHERMAN OAKS SENIOR CITIZEN HOUSING CORPORATION (A CALIFORNIA NOT-FOR-PROFIT CORPORATION) HUD PROJECT NO. 122-EH527-WAH-NP

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1 HUD PROJECT NO. 122EH527WAHNP REPORT ON AUDIT OF FINANCIAL STATEMENTS AND ACCOMPANYING INFORMATION AND COMPLIANCE AND INTERNAL CONTROL YEARS ENDED JUNE 30, 2017 AND 2016 Program: Section 202 of the National Housing Act accompanied with a Project Rental Assistance Contract

2 TABLE OF CONTENTS Page Independent auditor s report 12 Financial statements Statements of financial position 34 Statements of profit and loss changes in net assets (deficit) 56 Statements of changes in net assets (deficit) 7 Statements of cash flows 89 Notes to financial statements 1015 Accompanying information for the year ended June 30, 2017 Accompanying information required by HUD 16 Computation of surplus cash, distributions and residual receipts 17 Supplemental information 1832 Schedule of changes in property and equipment 33 Schedule of expenditures of federal awards 34 Independent auditor's report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standards 3536 Independent auditor's report on compliance for each major program and on internal control over compliance required by the Uniform Guidance 3738 Summary of auditor s results 3940 Corrective action plan 41 Summary schedule of prior audit findings 42 Management agent certification 43 Certification of officers 44

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors of Sherman Oaks Senior Citizen Housing Corporation (A California NotForProfit Corporation) Report on the Financial Statements We have audited the accompanying financial statements of Sherman Oaks Senior Citizen Housing Corporation, which comprise the statements of financial position as of June 30, 2017 and 2016, and the related statements of profit and loss changes in net assets (deficit), changes in net assets (deficit), and 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 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 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 Sherman Oaks Senior Citizen Housing Corporation 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 Sherman Oaks Senior Citizen Housing Corporation 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 audit opinion.

4 Sherman Oaks Senior Citizen Housing Corporation Page Two Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sherman Oaks Senior Citizen Housing Corporation as of June 30, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages 16 to 33 is presented for purposes of additional analysis as required by the Uniform Financial Reporting Standards issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards, as required by the Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 8, 2017, on our consideration of Sherman Oaks Senior Citizen Housing Corporation s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Sherman Oaks Senior Citizen Housing Corporation s internal control over financial reporting and compliance. September 8, 2017 Carmel, Indiana Dauby O Connor & Zaleski, LLC Certified Public Accountants 2

5 ASSETS STATEMENTS OF FINANCIAL POSITION JUNE 30, 2017 AND Current assets Cash operations $ 32,394 $ 4,740 Accounts receivable residents 3 93 Prepaid expenses 8,680 8,067 Total current assets 41,077 12,900 Deposits held in trustfunded Resident security deposits 25,855 24,203 Restricted deposits and funded reserves Escrow deposits 25,211 9,207 Reserve for replacements 108, ,414 Residual receipts reserve 12,287 12,282 Painting reserve 28,077 25,669 Total restricted deposits and funded reserves 173, ,572 Property and equipment Air rights 1,660,000 1,660,000 Buildings and improvements 6,565,614 6,554,756 Building equipment 174, ,707 Furniture for property/resident use 29,111 29,111 Furnishings 371, ,437 Office furniture and equipment 13,304 13,304 Maintenance equipment 4,814 4,814 8,819,362 8,770,129 Less: Accumulated depreciation (3,938,230) (3,746,494) Total property and equipment 4,881,132 5,023,635 Other assets 20,370 20,361 $ 5,142,187 $ 5,228,671 See notes to financial statements 3

6 STATEMENTS OF FINANCIAL POSITION (CONTINUED) JUNE 30, 2017 AND 2016 LIABILITIES AND NET ASSETS (DEFICIT) Current liabilities Accounts payable operations $ 27,322 $ 14,106 Accounts payable HUD Accrued wages payable 10,176 8,815 Accrued payroll taxes payable Accrued management fees 1,065 Prepaid revenue Total current liabilities 38,900 25,718 Deposits liabilities Resident security deposits 23,267 23,847 Long term liabilities Residual receipts note payable 1,000,000 1,000,000 Accrued interest on residual receipts note payable 665, ,158 Total long term liabilities 1,665,158 1,635,158 Total liabilities 1,727,325 1,684,723 Net assets (deficit) 3,414,862 3,543,948 $ 5,142,187 $ 5,228,671 See notes to financial statements 4

7 STATEMENTS OF PROFIT AND LOSS CHANGES IN NET ASSETS (DEFICIT) YEARS ENDED JUNE 30, 2017 AND 2016 Rental revenue Vacancies Financial revenue Other revenue Admin. expenses Utilities expenses Rent revenue gross potential $ 293,279 $ 288,030 Tenant assistance payments $ 287,281 $ 227,258 Rent revenue stores and commercial $ $ Garage and parking spaces $ $ Flexible subsidy revenue $ $ Miscellaneous rent revenue $ $ Excess rent $ $ Rent revenue/insurance $ $ Special claims revenue $ $ Retained excess income $ $ Lease revenue (nursing home or section 232B&C or AL) $ $ Total rent revenue potential at 100% occupancy $ 580,560 $ 515,288 Apartments ( 4,827 ) ( 2,199 ) Stores and commercial ( ) ( ) Rental concessions ( 360 ) ( 75 ) Garage and parking spaces ( ) ( ) Miscellaneous ( ) ( ) Total vacancies ( 5,187 ) ( 2,274 ) Net rental revenue rent revenue less vacancies $ 575,373 $ 513,014 Nursing homes and other elderly care revenues $ $ Financial revenue property operations $ 8 $ 3 Revenue from investments residual receipts $ 5 $ 2 Revenue from investments reserve for replacements $ 36 $ 18 Revenue from investments miscellaneous $ 12 $ 10 Total financial revenue $ 61 $ 33 Laundry and vending revenue $ 3,258 $ 3,800 Resident charges $ 837 $ 945 Interest reduction payments revenue $ $ Expiration of gift donor restrictions $ $ Gifts $ $ Miscellaneous revenue $ $ 237 Total other revenue $ 4,095 $ 4,982 Total revenue $ 579,529 $ 518,029 Conventions and meetings $ $ Management consultants $ $ Advertising and marketing $ $ Other renting expenses $ 564 $ 581 Office salaries $ 21,393 $ 19,005 Office expenses $ 23,710 $ 19,005 Office or model apartment rent $ $ Management fee $ 92,663 $ 82,840 Manager or superintendent salaries $ 23,752 $ 34,372 Administrative rent free unit $ $ Legal expenses (property) $ 510 $ 1,225 Audit expenses $ 6,430 $ 6,060 Bookkeeping fees/accounting services $ 6,262 $ 10,392 Bad debts $ 862 $ Miscellaneous administrative expenses $ 4,213 $ 1,420 Total administrative expenses $ 180,359 $ 174,900 Fuel oil/coal $ $ Electricity $ 40,917 $ 40,448 Water $ 34,264 $ 33,127 Gas $ 8,353 $ 7,003 Sewer $ 25,372 $ 24,920 Total utilities expense $ 108,906 $ 105,498 See notes to financial statements 5

8 STATEMENTS OF PROFIT AND LOSS CHANGES IN NET ASSETS (DEFICIT) (CONTINUED) YEARS ENDED JUNE 30, 2017 AND 2016 Operating and maint. expenses Taxes and insurance Financial expenses Entity income and expenses Change in net assets from operations Payroll $ 24,973 $ 31,031 Supplies $ 14,393 $ 15,970 Contracts $ 47,567 $ 49,620 Operating and maintenance rent free unit $ $ Garbage and trash removal $ 6,266 $ 6,136 Security payroll/contract $ $ Security rent free unit $ $ Heating/cooling repairs and maintenance $ 384 $ 3,030 Snow removal $ $ Vehicle and maint. equipment operation and repairs $ 18 $ 12 Lease expense $ $ Miscellaneous operating and maintenance expenses $ $ Total operating and maintenance expenses $ 93,601 $ 105,799 Real estate taxes $ 4,194 $ 4,196 Payroll taxes (property's share) $ 7,961 $ 8,617 Property and liability insurance (hazard) $ 25,428 $ 23,780 Fidelity bond insurance $ $ Workmen's compensation $ 2,012 $ 4,033 Health insurance and other employee benefits $ 24,440 $ 22,126 Miscellaneous taxes, licenses, permits and insurance $ 8,176 $ 12,349 Total taxes and insurance $ 72,211 $ 75,101 Interest on first mortgage (or bonds) payable $ $ Interest on other mortgages $ $ Interest on notes payable (longterm) $ 30,000 $ 30,000 Interest on notes payable (shortterm) $ $ Interest on capital recovery payment (M2M) $ $ Mortgage insurance premium/service charge $ $ Miscellaneous financial expenses $ $ Total financial expenses $ 30,000 $ 30,000 Nursing homes and other elderly care expenses $ 31,802 $ 21,043 Total cost of operations before depreciation $ 516,879 $ 512,341 Profit (loss) before depreciation $ 62,650 $ 5,688 Depreciation $ 191,736 $ 192,231 Amortization $ $ Operating profit or (loss) $ (129,086) $ (186,543) Entity revenue $ $ Officer's salaries $ $ Incentive performance fee (M2M) $ $ Legal expenses $ $ Federal, state, and other income taxes $ $ Interest on notes payable $ $ Interest on mortgage payable $ $ Other expenses $ $ Net entity expenses $ $ Change in unrestricted net assets from operations $ (129,086) $ (186,543) Change in temporarily restricted net assets from operations $ $ Change in permanently restricted net assets from operations $ $ Change in total net assets from operations $ (129,086) $ (186,543) See notes to financial statements 6

9 STATEMENTS OF CHANGES IN NET ASSETS (DEFICIT) YEARS ENDED JUNE 30, 2017 AND 2016 Balance, July 1, 2015 $ 3,730,491 Change in unrestricted net assets (deficit) (186,543) Balance, June 30, ,543,948 Change in unrestricted net assets (deficit) (129,086) Balance, June 30, 2017 $ 3,414,862 See notes to financial statements 7

10 STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2017 AND Cash flow from operating activities Revenue: Rental receipts $ 574,160 $ 512,881 Financial receipts Other receipts 4,095 4,982 Total revenue 578, ,896 Expenditures: Administrative (40,233) (38,738) Management fees (93,728) (83,029) Utilities (107,700) (103,414) Salaries (68,757) (84,914) Operating and maintenance (67,064) (77,441) Property taxes (4,194) (4,196) Property insurance (26,041) (24,201) Resident security deposits (2,232) (156) Miscellaneous taxes and insurance (42,062) (46,807) Service coordinator (31,802) (20,743) Total expenditures (483,813) (483,639) Net cash provided by (used in) operating activities 94,503 34,257 Cash flow from investing activities Purchase of property and equipment (40,659) (25,124) Net change in residual receipts reserve (5) 3,398 Net change in reserve for replacements (7,764) (13,511) Net change in escrow deposits (16,004) 4,860 Net change in painting reserve (2,408) (2,408) Net change in other assets (9) (3) Net cash provided by (used in) investing activities (66,849) (32,788) Net change in cash and cash equivalents 27,654 1,469 Cash and cash equivalents, beginning 4,740 3,271 Cash and cash equivalents, ending $ 32,394 $ 4,740 See notes to financial statements 8

11 STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED JUNE 30, 2017 AND Reconciliation of change in unrestricted net assets (deficit) to net cash provided by (used in) operating activities Change in unrestricted net assets (deficit) $ (129,086) $ (186,543) Adjustments to reconcile change in unrestricted net assets (deficit) to net cash provided by (used in) operating activities: Depreciation 191, ,231 Changes in assets and liabilities: Accounts receivable residents 90 (84) Prepaid expenses (613) (421) Resident security deposits held (1,652) 487 Accounts payable operations 4,642 (282) Accounts payable HUD (64) (439) Accrued liabilities 407 (439) Accrued interest on residual receipts note payable 30,000 30,000 Resident security deposits liability (580) (643) Prepaid revenue (377) 390 Total adjustments 223, ,800 Net cash provided by (used in) operating activities $ 94,503 $ 34,257 Supplemental information Cash flow from investing activities related to the purchase of property and equipment for the year ended June 30, 2017 excludes $8,574, which is included in accounts payable operations at June 30, See notes to financial statements 9

12 NOTES TO FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2017 AND 2016 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Sherman Oaks Senior Citizen Housing Corporation, a California Nonprofit Corporation (the Corporation ), was formed to own an 83unit rental housing property for the elderly located in Sherman Oaks, California (the Property ). The operations of the Property began on May 1, The Corporation is operated under Section 202 of the National Housing Act. The Corporation executed a regulatory agreement (the Regulatory Agreement ) with the U.S. Department of Housing and Urban Development ( HUD ), which governs the operation of the Property with respect to rental charges and operating methods. The Corporation also entered into a Project Rental Assistance Contract ( PRAC ) with HUD. The PRAC is a rent assistance program for low income families (or persons) where eligible low income residents pay 30% of their income as rent, while HUD pays the difference between this rental amount and contract rent (as defined). A significant portion of the Corporation s rental income is received from HUD. The PRAC, among other items, prohibits the sale, assignment, conveyance or transfer of the PRAC on all or any part of the Property without the prior consent of HUD. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation of the financial statements The primary intent of the financial statements is for the U.S. Office of Management and Budget. The financial statements will also be used by HUD; therefore, the presentation and account descriptions have been established to conform to their reporting guidelines. In addition, the financial statements are in conformity with the provisions required by the NotforProfit Entities Presentation of Financial Statements topic of the FASB Accounting Standards Codification ("ASC") This statement established standards for external financial reporting for NotforProfit Organizations. The NotforProfit Entities Presentation of Financial Statements topic of the FASB ASC primarily affects the display of the financial statements and requires that the amounts for each of three classes of net assetsunrestricted, temporarily restricted and permanently restrictedbe displayed in an aggregate statement of financial position and the amounts of change in each of those classes of net assets be displayed in a statement of changes in net assets. All assets held by the Corporation at June 30, 2017 and 2016 are classified as unrestricted. The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Cash and cash equivalents For the statements of cash flows, all unrestricted investments with original maturities of three months or less are cash equivalents. At June 30, 2017 and 2016, cash and cash equivalents consist of unrestricted checking and petty cash accounts. 10

13 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 2017 AND 2016 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Resident receivable and bad debt policy Resident rent charges for the current month are due on the first of the month. Residents who are evicted or moveout are charged with damages or cleaning fees, if applicable. Resident receivables consist of amounts due for rental income, security deposit or the charges for damages and cleaning fees. The Corporation does not accrue interest on the resident receivable balances. Resident receivables are charged to bad debt expense when they are determined to be uncollectible based upon a periodic review of the accounts by management. Accounting principles generally accepted in the United States of America require that the allowance method be used to recognize bad debts; however, the effect of using the direct writeoff method is not material to the financial statements for the years ended June 30, 2017 and Bad debts expensed for the years ended June 30, 2017 and 2016 totaled $862 and $0, respectively. Property, equipment and air rights Depreciation of property and equipment, except for air rights, stated at cost, is computed using the straightline method for buildings and accelerated methods for building equipment over the estimated useful lives of the assets ranging from five to forty years. The Corporation is subject to the provisions of the Impairment or Disposal of LongLived Assets topic of the FASB ASC Impairment or Disposal of LongLived Assets has no retroactive impact on the Corporation s financial statements. The standard requires impairment losses to be recorded on longlived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets (excluding interest) are less than the carrying amount of the assets. In such cases, the carrying value of assets to be held and used are adjusted to their estimated fair value and assets held for sale are adjusted to their estimated fair value less selling expenses. No impairment losses were recognized during the years ended June 30, 2017 and Change in accounting principle During the year ended June 30, 2017, the Corporation adopted the InterestImputation of Interest topic of the FASB ASC ("ASC 83530") related to the presentation of debt issuance costs. Management has evaluated ASC and has concluded there has been no impact on the financial statements for the years ended June 30, 2017 and Distributions The Corporation's Regulatory Agreement with HUD stipulates, among other things, that the Corporation will not make distributions of assets or income to any of its officers or directors. No distributions have been made. 11

14 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 2017 AND 2016 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue recognition Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the Corporation and the residents of the Property are operating leases. Advertising costs Advertising costs are expensed as incurred and are included in advertising and marketing in the statements of profit and loss changes in net assets (deficit). Property taxes Property taxes are expensed in the year of the lien on the Property such that twelve months of expense are charged to operations each year. Concentration of credit risk The Corporation maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Corporation has not experienced any losses in such accounts and monitors the credit worthiness of the financial institutions with which it conducts business. Management believes that the Corporation is not exposed to any significant credit risk with respect to cash balances. Risks and uncertainties The Corporation s operations are concentrated in the multifamily real estate market. In addition, the Corporation operates in a heavily regulated environment. The operations of the Corporation are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD or other government agency. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, if any, to comply with a change. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 12

15 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 2017 AND 2016 NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair value The Corporation is subject to the provisions of the Fair Value Measurement topic of the FASB ASC which provides guidance for assets and liabilities which are required to be measured at fair value and requires expanded disclosure for fair value measurement. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value and does not require any new fair value measurements. The Fair Value Measurement did not have a material impact on the Corporation s financial statements for the years ended June 30, 2017 and Accounting for uncertainty in income taxes The Corporation is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and state income tax and has been classified as an other than private foundation. Accordingly, no provision for federal and state taxes on revenue and income has been recognized in the accompanying financial statements. Generally, the Federal and State tax returns were subject to examinations from three years after the later of the original or extended due date or the date filed with the applicable tax authority. Subsequent events Management performed an evaluation of the Corporation s activity through September 8, 2017, the audit report date, and has concluded that there are no significant subsequent events requiring disclosure through the date these financial statements were available to be issued. NOTE 2OTHER ASSETS In April 2000, the Corporation filed suit against the general contractor, subcontractors et al for construction defects and deficiencies. The suit was settled in June 2003 and the Corporation was awarded $1,112,619, net of legal fees of $387,381. Management has restricted the use of the balance of the funds in an investment account for correction of future defects that may arise. As of June 30, 2017 and 2016, the balance was $20,370 and $20,361, respectively. NOTE 3OWNERSHIP OF AIR RIGHTS The Property is built above a parking structure owned and operated by the City of Los Angeles. In 1995, the Corporation paid the City of Los Angeles $1,660,000 to purchase a fee title to air rights, with the restriction that the Corporation construct and operate a low income housing building designated for the elderly. Pursuant to the agreement, the City of Los Angeles has the option to repurchase the air rights for $1 at any time during a one year period commencing in April Management has elected to not amortize the air rights over the term of the agreement as the value of the air rights has not declined and management intends to renegotiate the agreement with the City of Los Angeles in order to provide low income housing for the elderly beyond

16 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 2017 AND 2016 NOTE 4HUD RESTRICTED DEPOSITS: RESERVE FOR REPLACEMENTS, RESIDUAL RECEIPTS AND PAINTING RESERVE Pursuant to the terms of the Regulatory Agreement, no cash distributions may be made to nonprofit owners, nor can they incur obligations on behalf of the Corporation, to themselves or any officers, directors, or any of their nominees without prior written approval of HUD. Residual receipts ("Surplus Cash") as defined by HUD, existing at the end of the fiscal year must be deposited in an interest bearing residual receipts fund in the name of the Corporation. Withdrawals from the residual receipts fund may only be made with the approval of HUD. Under the Regulatory Agreement, the Corporation is required to set aside amounts for the replacement of property and other Corporation expenditures approved by HUD. Effective December 1, 2005, the Corporation was also required to establish a painting reserve. HUDrestricted deposits of $148,542 and $138,365 at June 30, 2017 and 2016, respectively, are held in separate accounts and generally are not available for operating purposes. NOTE 5RESIDUAL RECEIPTS NOTE PAYABLE On April 28, 1995, a residual receipts loan was obtained from the City of Los Angeles for the purpose of purchasing air rights and the construction thereon of housing for lowincome elderly. The loan is for $1,000,000 with an interest rate of 3.0% per annum, not compounded. During each of the years ended June 30, 2017 and 2016, interest expense totaled $30,000. Accrued interest at June 30, 2017 and 2016 was $665,158 and $635,158, respectively. Principal and interest shall be due and payable on the loan. If the loan is prepaid in full, then the principal and interest of the residual note may be due and payable immediately. Prepayments to principal and interest may be made only from residual receipts and only after obtaining prior written approval of the Secretary of HUD. Such prepayments may be made only after the end of a semiannual or an annual fiscal period. NOTE 6HUD CAPITAL ADVANCE SECURED BY DEED OF TRUST On May 17, 1994, the Corporation received a capital advance in the amount of $6,961,400 from HUD. The capital advance bears no interest and is not required to be repaid so long as the Property remains available to eligible very low income elderly for a period of 40 years. The capital advance is secured by a deed of trust on the Property. The capital advance is included in the net assets balance. NOTE 7RELATED PARTIES Menorah Housing Foundation, an affiliate of the Corporation, provides a variety of management services to the Corporation including, but not limited to, financing arrangements, consulting, and administrative services. During the years ended June 30, 2017 and 2016, the Corporation incurred expenses of $92,663 and $82,840 as a management fee and $6,262 and $10,392 as a bookkeeping fee, all respectively. At June 30, 2017 and 2016, accrued management fees totaled $0 and $1,065, respectively. 14

17 NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JUNE 30, 2017 AND 2016 NOTE 7RELATED PARTIES (CONTINUED) Menorah Housing Foundation and the Corporation are affiliates of the Jewish Federation Council of Greater Los Angeles. The Jewish Federation Council of Greater Los Angeles is reimbursed for employee benefits paid on behalf of the Corporation. In addition, the Corporation obtains some of its insurance coverages through the Jewish Federation Council. NOTE 8MULTIFAMILY HOUSING SERVICE COORDINATOR The Corporation utilizes a social service coordinator to provide assistance to residents. During the years ended June 30, 2017 and 2016, the Corporation incurred service coordinator expenses of $31,802 and $21,043, respectively. NOTE 9CONTINGENCIES For the year ended June 30, 2017, the rental income from the PRAC totaled $287,281 or 50% of net rental revenue. The PRAC expires in March HUD is contemplating several changes, which may have a significant financial impact on the Corporation. Management cannot reasonably estimate the ramifications, if any, of these uncertainties. In accordance with the PRAC, if HUD determines at any time that residual receipt funds are more than the amount needed for Community purposes, HUD may require any excess to be remitted to HUD upon notice. Upon termination of the PRAC, any excess funds in the residual receipt account must be remitted to HUD. 15

18 ACCOMPANYING INFORMATION REQUIRED BY HUD YEAR ENDED JUNE 30, 2017 Reserve for replacements In accordance with provisions of the Regulatory Agreement, cash is held by the Corporation in various investments to be used for replacing assets of the Property. Withdrawals from these investments must be preapproved by HUD. Balance, July 1, 2016 $ 100,414 Deposits ($4,000 x 9) ($4,500 x 3) 49,500 Other deposits reimbursement for PRAC funding 46,000 Interest 36 Approved withdrawals (87,772) Balance, June 30, 2017 $ 108,178 Residual receipts reserve In accordance with provisions of the Regulatory Agreement, cash is held by the Corporation in various investments to be used with the approval of HUD. Balance, July 1, 2016 $ 12,282 Interest 5 Balance, June 30, 2017 $ 12,287 Painting reserve Balance, July 1, 2016 $ 25,669 Deposits ($200 x 12) 2,400 Interest 8 Balance, June 30, 2017 $ 28,077 16

19 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS YEAR ENDED JUNE 30, 2017 Part A Compute Surplus Cash 1. Cash $ 58, Accounts Receivable HUD $ 3. Other $ (a) Total Cash (Add Lines 1, 2, and 3) $ 58,249 Current Obligations 4. Accrued Mortgage (or Bond) Interest Payable $ 5. Delinquent Mortgage (or Bond) Principal Payments $ 6. Delinquent Deposits to Reserve for Replacements $ 7. Accounts Payable (due Within 30 days) $ 27, Loans and Notes Payable (due Within 30 days) $ 9. Deficient Tax Insurance or MIP Escrow Deposits $ 10. Accrued Expenses (not Escrowed) $ 10, Prepaid Revenue $ Resident/Patient Deposits Held in Trust $ 23, Other Current Obligations $ (b) Less Total Current Obligations (Add Lines 4 Through 13) $ 62,167 (c) Surplus Cash (Deficiency) (Line (a) Minus Line (b)) $ (3,918) PART B Compute Distributions to Owners and Required Deposit to Residual Receipts 1. Surplus Cash $ 0 Mark to Market Projects 2. Incentive Performance Fee Payable $ 0 3. Percentage Surplus Cash Split 0% 4. Surplus Cash Available for Second Mortgage Payments $ 0 5. Surplus Cash Available for Distribution $ 0 6. Deposit Due Residual Receipts $ 0 17

20 BALANCE SHEET DATA SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number Sherman Oaks Senior Citizen Housing Corporation See cover page For Year Ending June 30, 2017 ASSETS Acct No. Description of Account 1120 Cash Operations 32, Construction Cash Account 1125 Cash Entity 1130 Tenant/Member Accounts Receivable (Coops) Allowance for Doubtful Accounts 1130N Net Tenant Accounts Receivable Accounts Receivable HUD 1137 Medicare/Medicaid/Other Insurance Receivable 1138 Allowance for Doubtful Accounts (Medicare/Medicaid/Other Insurance Receivable) 1137N Net Medicare/Medicaid/Other Insurance Receivable 1140 Accounts and Notes Receivable Operations 1145 Accounts and Notes Receivable Entity 1160 Accounts Receivable Interest 1165 Interest Reduction Payment Receivable 1170 Short Term Investments Operations 1175 Short Term Investments Entity 1180 Inventory 1190 Miscellaneous Current Assets 1200 Prepaid Expenses 8, T Total Current Assets 41, Tenant/Patient Deposits Held in Trust 25, Escrow Deposits 25, Replacement Reserve 108, Other Reserves 28, Residual Receipts Reserve 12, Bond Reserves 1367 Sinking Fund 1381 Management Improvement and Operating Plan 1300T Total Deposits 173, Land 1,660, Buildings 6,565, Building Equipment (Portable) 174, Furniture for Project/Tenant Use 29, Furnishings 371, Office Furniture and Equipment 13, Maintenance Equipment 4, Motor Vehicles 1490 Miscellaneous Fixed Assets 1400T Total Fixed Assets 8,819, Accumulated Depreciation 3,938, N Net Fixed Assets 4,881, Investments Operations 1515 Investments Entity 1525 Cash Restricted for Longterm Investment 1590 Miscellaneous Other Assets 20, T Total Other Assets 20, T Total Assets $ 5,142,187 18

21 LIABILITIES 2105 Bank Overdraft Operations 2110 Accounts Payable Operations 27, Accounts Payable Construction/Development 2112 Accounts Payable Project Improvement Items 2113 Accounts Payable Entity 2114 Incentive Performance Fee Payable 2115 Accounts Payable 236 Excess Income due HUD 2116 Accounts Payable Section 8 & Other Accrued Wages Payable 10, Accrued Payroll Taxes Payable Accrued Management Fee Payable 2125 Accrued Lease Payments Payable 2130 Accrued Interest Payable Section Accrued Interest Payable First Mortgage (or Bonds) 2132 Accrued Interest Payable Other Mortgages 2133 Accrued Interest Payable Other Loans and Notes (Surplus Cash) 2134 Accrued Interest Payable Other Loans and Notes 2135 Accrued Interest Payable Flexible Subsidy Loan 2136 Accrued Interest Payable Capital Improvements Loan 2137 Accrued Interest Payable Operating Loss Loan 2139 Accrued Interest Payable Capital Recovery Payment (M2M) 2150 Accrued Property Taxes 2160 Notes Payable (Shortterm) 2170 Mortgage (or Bonds) Payable First Mortgage (Bonds) (Short Term) 2172 Other Mortgages Payable (Short Term) 2173 Other Loans and Notes Payable Surplus Cash (Short Term) 2174 Other Loans and Notes (Short Term) 2175 Flexible Subsidy Loan Payable (Short Term) 2176 Capital Improvement Loan Payable (Short Term) 2177 Operating Loss Loan Payable (Short Term) 2179 Capital Recovery Payment Payable (Short Term M2M) 2180 Utility Allowances 2190 Miscellaneous Current Liabilities 2210 Prepaid Revenue T Total Current Liabilities 38, Tenant/Patient Deposits Held In Trust (Contra) 23, Accounts Payable Entity (Long Term) 2306 Accrued Lease Payments Payable Long Term 2310 Notes Payable (LongTerm) 2311 Notes Payable Surplus Cash 2320 Mortgage (or Bonds) Payable First Mortgage (or Bonds) 2322 Other Mortgages Payable (Long Term) 2323 Other Loans and Notes Payable Surplus Cash 1,000, Other Loans and Notes Payable 2325 Flexible Subsidy Loan Payable 2326 Capital Improvement Loan Payable 2327 Operating Loss Loan Payable 2329 Capital Recovery Payment (M2M) 2330 Interest on Loans or Notes Payable (Long Term) 2331 Accrued Interest Other Mortgages Payable (Long Term) 2332 Accrued Interest Notes Payable (Surplus Cash) (Long Term) 665, Debt Issuance Costs 2390 Miscellaneous Long Term Liabilities 2300T Total Long Term Liabilities 1,665, T Total Liabilities $ 1,727,325 NET ASSETS 3131 Unrestricted Net Assets 3,414, Temporarily Restricted Net Assets 3133 Permanently Restricted Net Assets 3130 Total Net Assets 3,414, T Total Liabilities and Equity/Net Assets $ 5,142,187 19

22 PROFIT AND LOSS DATA SUPPLEMENTAL INFORMATION Organization Name Sherman Oaks Senior Citizen Housing Corporation For Year Ending June 30, 2017 FHA/Contract Number See cover page Acct No. Description of Account Rent Revenue 5120 Rent Revenue Gross Potential 293, Tenant Assistance Payments 287, Rent Revenue Stores and Commercial 5170 Garage and Parking Spaces 5180 Flexible Subsidy Revenue 5190 Miscellaneous Rent Revenue 5191 Excess Rent 5192 Rent Revenue/Insurance 5193 Special Claims Revenue 5194 Retained Excess Income 5195 Lease Revenue (Nursing Home or Section 232 B&C or AL) 5100T Total Rent Revenue 580,560 Vacancies 5220 Apartments 4, Stores and Commercial 5250 Rental Concessions Garage and Parking Space 5290 Miscellaneous 5200T Total Vacancies 5, N Net Rental Revenue (Rent Revenue Less Vacancies) 575, Revenue 5300 Nursing Homes/ Assisted Living/Board & Care/Other Elderly Care/Coop/ and Other Revenues Financial Revenue 5410 Financial Revenue Project Operation Revenue from Investments Residual Receipts Revenue from Investments Replacement Reserve Revenue from Investments Miscellaneous T Total Financial Revenue 61 Other Revenue 5910 Laundry and Vending Revenue 3, Tenant Charges Interest Reduction Payments Revenue 5560 Expiration of Gift Donor Restrictions 5970 Gifts 5990 Miscellaneous Revenue 5900T Total Other Revenue 4, T Total Revenue 579,529 Administrative Expenses 6203 Conventions and Meetings 6204 Management Consultants 6210 Advertising and Marketing 6250 Other Renting Expenses Office Salaries 21, Office Expenses 23, Office or Model Apartment Rent 6320 Management Fee 92, Manager or Superintendent Salaries 23, Administrative Rent Free Unit 6340 Legal Expense Project Audit Expense 6, Bookkeeping Fees/Accounting Services 6, Bad Debts Miscellaneous Administrative Expenses 4, T Total Administrative Expenses 180,359 Utilities Expenses 6420 Fuel Oil/Coal 6450 Electricity 40, Water 34, Gas 8, Sewer 25, T Total Utilities Expense 108,906 20

23 Operating & Maintenance Expenses 6510 Payroll 24, Supplies 14, Contracts 47, Operating and Maintenance Rent Free Unit 6525 Garbage and Trash Removal 6, Security Payroll/Contract 6531 Security Rent Free Unit 6546 Heating/Cooling Repairs and Maintenance Snow Removal 6570 Vehicle and Maintenance Equipment Operation and Repairs Lease Expense 6590 Miscellaneous Operating and Maintenance Expenses 6500T Total Operating and Maintenance Expense 93,601 Taxes & Insurance 6710 Real Estate Taxes 4, Payroll Taxes (Project's Share) 7, Property & Liability Insurance (Hazard) 25, Fidelity Bond Insurance 6722 Workmen's Compensation 2, Health Insurance and Other Employee Benefits 24, Miscellaneous Taxes, Licenses, Permits and Insurance 8, T Total Taxes and Insurance 72,211 Financial Expenses 6820 Interest on First Mortgage (or Bonds) Payable 6825 Interest on Other Mortgages 6830 Interest on Notes Payable (Long Term) 30, Interest on Notes Payable (Short Term) 6845 Interest on Capital Recovery Payment (M2M) 6850 Mortgage Insurance Premium/ Service Charge 6890 Miscellaneous Financial Expenses 6800T Total Financial Expenses 30, Expenses 6900 Nursing Homes/Assisted Living/ Board & Care/Other Elderly Care Expenses 31,802 Operating Results 6000T Total Cost of Operations before Depreciation 516, T Profit (Loss) before Depreciation 62, Depreciation Expenses 191, Amortization Expense 5060N Operating Profit or (Loss) (129,086) Corporate or Mortgagor Revenue/Expenses 7105 Entity Revenue 7110 Officer's Salaries 7115 Incentive Performance Fee 7120 Legal Expenses 7130 Federal, State, and Other Income Taxes 7141 Interest on Notes Payable 7142 Interest on Mortgage Payable 7190 Other Expenses 7100T Net Entity Expenses Change in Net Assets from Operations 3247 Change in Unrestricted Net Assets from Operations (129,086) 3248 Change in Temporarily Restricted Net Assets from Operations 3249 Change in Permanently Restricted Net Assets from Operations 3250 Change in Total Net Assets from Operations $ (129,086) Part II Total first mortgage (or bond) principal payments required during the audit period (usually 12 months). This applies to all S direct loans, HUDheld and HUDinsured first mortgages. $ The total of all monthly reserve for replacement deposits (usually 12 months) required during the audit period even if S deposits have been temporarily waived or suspended. $ 49,500 Replacement Reserves, or Residual Receipts and Releases which are included as expense items on this Profit and Loss S statement. $ Project Improvement Reserve releases under the Flexible Subsidy Program that are included as expense items on this S Profit and Loss statement. $ 21

24 EQUITY DATA SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number Sherman Oaks Senior Citizen Housing Corporation See cover page For Year Ending June 30, 2017 Acct No. Description of Account S Previous Year Unrestricted Net Assets 3,543, Change in Unrestricted Net Assets from Operations (129,086) S Other Changes in Unrestricted Net Assets 3131 Unrestricted Net Assets 3,414,862 S Previous Year Temporarily Restricted Net Assets 3248 Change in Temporarily Restricted Net Assets from Operations S Other Changes in Temporarily Restricted Net Assets 3132 Temporarily Restricted Net Assets S Previous Year Permanently Restricted Net Assets 3249 Change in Permanently Restricted Net Assets from Operations S Other Changes in Permanently Restricted Net Assets 3133 Permanently Restricted Net Assets S Previous Year Total Net Assets 3,543, Change in Total Net Assets from Operations (129,086) S Other Changes in Total Net Assets 3130 Total Net Assets $ 3,414,862 22

25 CASH FLOW DATA SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number Sherman Oaks Senior Citizen Housing Corporation See cover page For Year Ending June 30, 2017 Acct No. Description of Account Cash Flow from Operating Activities S Rental Receipts 574,160 S Interest Receipts 61 S Gifts S Other Operating Receipts 4,095 S Entity/Construction Receipts S Total Receipts 578,316 S Administrative (40,233) S Management Fee (93,728) S Utilities (107,700) S Salaries and Wages (68,757) S Operating and Maintenance (67,064) S Lease Payments S Real Estate Taxes (4,194) S Property Insurance (26,041) S Miscellaneous Taxes and Insurance (42,062) S Tenant Security Deposits (2,232) S Other Operating Expenses (31,802) S Interest on Mortgages S Interest Payments Second Mortgage S Interest Payments Third Mortgage S Interest on Notes Payable S Interest on Capital Recovery Payment S Mortgage Insurance Premium (MIP) S Miscellaneous Financial S Entity Incentive Performance Fee S Entity/Construction Disbursements S Total Disbursements (483,813) S Net Cash provided by (used in) Operating Activities 94,503 Cash Flow from Investing Activities S Net Deposits to the Mortgage Escrow account (16,004) S Net Deposits to the Reserve for Replacement account (7,764) S Net Deposits to Other Reserves (2,408) S Net Deposits to the Residual Receipts account (5) S Net Deposits to the Management Improvement and Operating Plan account S Net Deposits to the Long Term Investment account S Net Purchase of Fixed Assets (40,659) S Other Investing Activities (9) S Entity/Construction Investing Activities S Net Cash provided by (used in) Investing Activities (66,849) 23

26 Cash Flow from Financing Activities S Principal Payments First Mortgage (or Bonds) S Principal Payments Second Mortgage S Principal Payments Third Mortgage S Proceeds from Mortgages, Loans or Notes Payable S Principal Payments on Loans or Notes Payable S Proceeds from Flexible Subsidy Loans S Flexible Subsidy Loan principal payments S Proceeds from Capital Improvement Loans S Principal payments on Capital Improvement Loan Payable S Proceeds from Operating Loss Loans S Principal payments on Operating Loss Loan Payable S Proceeds from Capital Recovery Payment S Principal Payments on Capital Recovery Payment S Distributions S Contributions S Other Financing Activities S Entity/Construction Financing Activities S Net Cash provided by (used in) Financing Activities S Net increase (decrease) in Cash and Cash Equivalents 27,654 Cash and Cash Equivalents S Beginning of Period Cash 4,740 S Gifts of Investment S1200T End of Period Cash $ 32,394 Reconciliation of Net Profit (Loss) to Net Cash Provided by (Used in) Operating Activities 3250 Change in Total Net Assets from Operations (129,086) Adjustments to Reconcile Net Profit (Loss) to Net Cash Provided by (Used in) Operating Activities 6600 Depreciation Expenses 191, Amortization Expense S Amortization of Debt Issuance Costs S Decrease (increase) in Tenant/Member Accounts Receivable 90 S Decrease (increase) in Accounts Receivable Other S Increase in Gifts Receivable S Decrease (increase) in Accrued Receivable S Decrease (increase) in Prepaid Expenses (613) S Decrease (increase) in Cash Restricted for Tenant Security Deposits (1,652) S Decrease (increase) in Entity/Construction Asset Accounts S Increase (decrease) in Accounts Payable 4,578 S Increase (decrease) in Accounts Payable HUD Excess Rents S Increase (decrease) in Accrued Liabilities 407 S Increase (decrease) in Accrued Interest Payable 30,000 S Increase (decrease) in Tenant Security Deposits held in trust (580) S Increase (decrease) in Prepaid Revenue (377) S Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities S Increase (decrease) in Entity/Construction Liability accounts Net Cash provided by (used in) Operating Activities S Net Cash provided by (used in) Operating Activities $ 94,503 S Comments Cash flow from investing activities related to the purchase of property and equipment for the year ended June 30, 2017 excludes $8,574, which is included in accounts payable operations at June 30,

27 DETAIL OF ACCOUNTS SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number Sherman Oaks Senior Citizen Housing Corporation See cover page For Year Ending June 30, 2017 Acct No. Detail Description Balance Sheet Data 1140 Accounts and Notes Receivable Operations Capital advance receivable Commercial rents receivable Grant receivable Insurance refund Insurance settlement Intercompany receivable Laundry revenue receivable Lessee receivable Management fee overpayment receivable Mortgage insurance premium refund Mortgage proceeds receivable Other tenant receivables Overpaid/prepaid distributions Partner/officer/sponsor receivable Property tax refund Receivable from other project or business Related party receivable Sales tax refund Reserve withdrawals receivable Service coordinator receivable Syndication proceeds receivable Vendor rebate Vendor refund Other (must detail) 1140 Total Accounts and Notes Receivable Operations 1145 Accounts and Notes Receivable Entity Asset management fee receivable Capital contributions receivable Income taxes receivable Entity interest receivable Leasee receivable Partner/officer/sponsor receivable Related party receivable Syndication proceeds receivable Other (must detail) 1145 Total Accounts and Notes Receivable Entity 1190 Miscellaneous Current Assets Payroll deposits Utility deposits Other (must detail) 1190 Total Miscellaneous Current Assets 1330 Other Reserves Painting reserve 28, Total Other Reserves 28,077 25

28 1590 Miscellaneous Other Assets Construction in progress Notes receivable related parties Offering costs Utility deposits Tax credit fees Investment account for future construction defects and deficiencies 20, Total Miscellaneous Other Assets 20, Accrued Interest Payable Other Mortgages Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2132 Total Accrued Interest Payable Other Mortgages 2172 Other Mortgages Payable (Short Term) Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2172 Total Other Mortgages Payable (Short Term) 2190 Miscellaneous Current Liabilities Miscellaneous Current Liabilities 2190 Total Miscellaneous Current Liabilities 2322 Other Mortgages Payable (Long Term) Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2322 Total Other Mortgages Payable (Long Term) 2331 Accrued interest Other Mortgages Payable (Long Term) First Mortgage Second Mortgage Third Mortgage Fourth Mortgage Fifth Mortgage 2331 Total Accrued interest Other Mortgages Payable (Long Term) 2390 Miscellaneous Longterm Liabilities 2390 Total Miscellaneous Longterm Liabilities Profit and Loss Data 5190 Miscellaneous Rent Revenue 5190 Total Miscellaneous Rent Revenue 5290 Miscellaneous 5290 Total Miscellaneous 26

29 5490 Revenue from Investments Miscellaneous Interest income painting reserve 8 Interest income escrow Total Revenue from Investments Miscellaneous Miscellaneous Revenue 5990 Total Miscellaneous Revenue 6390 Miscellaneous Administrative Expenses 6390 Total Miscellaneous Administrative Expenses 6590 Miscellaneous Operating and Maintenance Expenses 6590 Total Miscellaneous Operating and Maintenance Expenses 6790 Miscellaneous Taxes, Licenses, Permits and Insurance City of Los Angeles monitoring fees 4,100 HCIDLA annual fee 3,596 Miscellaneous Total Miscellaneous Taxes, Licenses, Permits and Insurance 8, Miscellaneous Financial Expenses 6890 Total Miscellaneous Financial Expenses 7190 Other Expenses 7190 Total Other Expenses Equity Data S Other Changes in Total Net Assets S Total Other Changes in Total Net Assets Cash Flow Data S Entity/Construction Receipts S Total Entity/Construction Receipts 27

30 S Entity/Construction Disbursements S Total Entity/Construction Disbursements S Net Deposits to Other Reserves Net change in painting reserve (2,408) S Total Net Deposits to Other Reserves (2,408) S Other Investing Activities Change in investment account for future construction defects and deficiencies (9) S Total Other Investing Activities (9) S Entity/Construction Investing Activities S Total Entity/Construction Investing Activities S Other Financing Activities S Total Other Financing Activities S Entity/Construction Financing Activities S Total Entity/Construction Financing Activities S Decrease (increase) in Entity/ Construction Asset accounts S Total Decrease (increase) in Entity/ Construction Asset accounts S Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities S Total Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities S Increase (decrease) in Entity/Construction Liability accounts S Total Increase (decrease) in Entity/Construction Liability accounts 28

31 SCHEDULE OF REQUIRED RESERVES SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number Sherman Oaks Senior Citizen Housing Corporation See cover page For Year Ending June 30, 2017 SCHEDULE OF RESERVE FOR REPLACEMENT Acct No. Description of Account 1320P Balance at Beginning of Year 100, DT Total Monthly Deposits 49, ODT Other Deposits 46, INT Interest on Replacement Reserve Accounts RGL Realized Gain or (Loss) 1320UGL Unrealized Gain or (Loss) 1320WT Approved Withdrawals 87, OWT Other Withdrawals 1320 Balance at End of Year 108, R Deposits suspended or waived indicator Reserve for Replacements Details 1320ODT Other Deposits Other Deposits reimbursement for PRAC funding 46, ODT Total Other Deposits 46, OWT Other Withdrawals 1320OWT Total Other Withdrawals SCHEDULE OF RESIDUAL RECEIPTS 1340P Balance at Beginning of Year 12, DT Total Deposits 1340ODT Other Deposits 1340INT Interest on Residual Receipts Accounts RGL Realized Gain or (Loss) 1340UGL Unrealized Gain or (Loss) 1340WT Approved Withdrawals 1340OWT Other Withdrawals 1340 Balance at End of Year 12,287 Residual Receipts Details 1340ODT Other Deposits 1340ODT Total Other Deposits 1340OWT Other Withdrawals 1340OWT Total Other Withdrawals 29

32 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS, AND RESIDUAL RECEIPTS SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number Sherman Oaks Senior Citizen Housing Corporation See cover page For Year Ending June 30, 2017 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS, AND RESIDUAL RECEIPTS Acct No. Description of Account S Cash 58, Tenant subsidy due for period covered by financial statement S Other S Total Cash 58,249 S Accrued Mortgage Interest Payable S Delinquent Mortgage Principal Payments S Delinquent Deposits to Reserve for Replacements S Accounts Payable (due within 30 days) 27,600 S Loans and Notes Payable (due within 30 days) S Deficient Tax Insurance or MIP Escrow Deposits S Accrued Expenses [not escrowed] 10, Prepaid Revenue Tenant Security Deposits Liability 23,267 S Other Current Obligations S Total Current Obligations 62,167 S Surplus Cash (Deficiency) (3,918) S Annual Distribution Earned During Fiscal Period Covered by the Statement S Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period S Distributions and Entity Expenses Paid During Fiscal Period Covered by Statement S Distribution Earned but Unpaid S Amount Available for Distribution During Next Fiscal Period S Incentive Performance Fee Payable (M2M) S Percentage Surplus Cash Split (M2M) 0% S Surplus Cash Available for Second Mortgage Payments (M2M) S Surplus Cash Available for Distribution (M2M) S Deposit Due Residual Receipts Surplus Cash Details (Annual) S Other Cash S Total Other Cash S Other Current Obligations S Total Other Current Obligations 30

33 SCHEDULE OF CHANGES IN FIXED ASSET ACCOUNTS SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number Sherman Oaks Senior Citizen Housing Corporation See cover page For Year Ending June 30, 2017 SCHEDULE OF CHANGES IN FIXED ASSET ACCOUNTS Acct No. Description of Account 1410P Beginning Balance for ,660, AT Additions for DT Deductions for Land 1,660, P Beginning Balance for ,554, AT Additions for , DT Deductions for Buildings 6,565, P Beginning Balance for , AT Additions for , DT Deductions for Building Equipment (Portable) 174, P Beginning Balance for , AT Additions for DT Deductions for Furniture for Project/Tenant Use 29, P Beginning Balance for , AT Additions for , DT Deductions for Furnishings 371, P Beginning Balance for , AT Additions for DT Deductions for Office Furniture and Equipment 13, P Beginning Balance for , AT Additions for DT Deductions for Maintenance Equipment 4, P Beginning Balance for AT Additions for DT Deductions for Motor Vehicles 1490P Beginning Balance for AT Additions for DT Deductions for Miscellaneous Fixed Assets 1400PT Total Beginning Balance for Fixed Assets 8,770, AT Total Asset Additions 49, DT Total Asset Deductions 1400T Total Fixed Assets 8,819, P Beginning Balance for Accumulated Depreciation 3,746, Total Provisions 191, ADT Total Accumulated Depreciation from Disposed Assets Ending Balance for Accumulated Depreciation 3,938, N Total Net Book Value 4,881,132 31

34 SCHEDULE OF CHANGES IN FIXED ASSET ACCOUNTS (CONTINUED) SUPPLEMENTAL INFORMATION Organization Name FHA/Contract Number Sherman Oaks Senior Citizen Housing Corporation See cover page For Year Ending June 30, 2017 SCHEDULE OF CHANGES IN FIXED ASSET ACCOUNTS (CONTINUED) Acct No. Description of Account Fixed Asset Details 1410AT 1410DT 1420AT Garage lights, plumbing 10, DT 1440AT Appliances 9, DT 1450AT 1450DT 1460AT Flooring, cabinets 29, DT 1465AT 1465DT 1470AT 1470DT 1480AT 1480DT 1490AT 1490DT 32

35 ASSETS Balance Balance 7/1/2016 Additions Deletions 6/30/2017 Air rights $ 1,660,000 $ $ $ 1,660,000 Buildings and improvements 6,554,756 10,858 (1) 6,565,614 Building equipment 165,707 9,044 (2) 174,751 Furniture for property/resident use 29,111 29,111 Furnishings 342,437 29,331 (3) 371,768 Office furniture and equipment 13,304 13,304 Maintenance equipment 4,814 4,814 Additions: (1) Garage lights, plumbing (2) Appliances (3) Flooring, cabinets SCHEDULE OF CHANGES IN PROPERTY AND EQUIPMENT YEAR ENDED JUNE 30, 2017 $ 8,770,129 $ 49,233 $ $ 8,819,362 Net Book Balance Current Balance Value 7/1/2016 Provisions Deletions 6/30/2017 6/30/2017 Accumulated depreciation $ 3,746,494 $ 191,736 $ $ 3,938,230 $ 4,881,132 33

36 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2017 U.S. Department of Housing and Urban Development Supportive Housing for the Elderly (CFDA No ) Balance of capital advance as of July 1, 2016, under Section 202 of the National Housing Act $ 6,961,400 Project Rental Assistance Contract 287,281 $ 7,248,681 Notes to the Schedule of Expenditures of Federal Awards Note 1: The schedule of expenditures of federal awards is prepared on the accrual basis of accounting. Note 2: The Corporation has elected to not use the 10% de minimis cost rate. Note 3: The balance of the HUD Capital Advance at June 30, 2017 is $6,961,

37 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors of Sherman Oaks Senior Citizen Housing Corporation (A California NotForProfit Corporation) We have audited, in accordance with the 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, the financial statements of Sherman Oaks Senior Citizen Housing Corporation, which comprise the statement of financial position as of June 30, 2017, and the related statements of profit and loss changes in net assets (deficit), changes in net assets (deficit), and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated September 8, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Sherman Oaks Senior Citizen Housing Corporation s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Sherman Oaks Senior Citizen Housing Corporation s internal control. Accordingly, we do not express an opinion on the effectiveness of Sherman Oaks Senior Citizen Housing Corporation s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of Sherman Oaks Senior Citizen Housing Corporation s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 35

38 Sherman Oaks Senior Citizen Housing Corporation Page Two Compliance and Other Matters As part of obtaining reasonable assurance about whether Sherman Oaks Senior Citizen Housing Corporation s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, 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 or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Sherman Oaks Senior Citizen Housing Corporation s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Sherman Oaks Senior Citizen Housing Corporation s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. September 8, 2017 Carmel, Indiana Dauby O Connor & Zaleski, LLC Certified Public Accountants 36

39 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors of Sherman Oaks Senior Citizen Housing Corporation (A California NotForProfit Corporation) Report on Compliance for Each Major Federal Program We have audited Sherman Oaks Senior Citizen Housing Corporation s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Sherman Oaks Senior Citizen Housing Corporation s major federal programs for the year ended June 30, Sherman Oaks Senior Citizen Housing Corporation s major federal programs are identified in the accompanying summary of auditor s results. Management s Responsibility Management is responsible for compliance with the federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Sherman Oaks Senior Citizen Housing Corporation s major federal programs based on our audit of the types of compliance requirements referred to above. 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 the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance 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 Sherman Oaks Senior Citizen Housing Corporation 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 on compliance for each major federal program. However, our audit does not provide a legal determination of Sherman Oaks Senior Citizen Housing Corporation s compliance. Opinion on Each Major Federal Program In our opinion, Sherman Oaks Senior Citizen Housing Corporation complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30,