Lake Creek Village LLC (A Colorado Limited Liability Company) HUD Project No. FHA Financial Statements and Supplementary Information

Transcription

1 Financial Statements and Supplementary Information December 31, 2013 and 2012

2 December 31, 2013 and 2012 TABLE OF CONTENTS Page(s) Independent Auditor s Report 1 2 Financial Statements: Balance Sheets 3 Statement of Operations and Changes in Member s Capital 4 Statement of Cash Flows 5 Notes to the Financial Statements 6 10 Supplementary Information: Balance Sheet HUD Basis 11 Statement of Profit and Loss HUD Basis 12 Statement of Changes in Members Capital HUD Basis 13 Statement of Cash Flows HUD Basis 14 Schedule of Reserve for Replacement and Computation of Surplus Cash, Distributions, and Residual Receipts 15 Schedule of Changes in Fixed Asset Accounts 16 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 Independent Auditor s Report on Compliance for Each Major HUD Program and Report on Internal Control Over Compliance Required by the Consolidated Audit Guide for HUD Programs Independent Auditor s Report on Compliance with Specific Requirements Applicable to Fair Housing and Non-Discrimination 21 Schedule of Findings and Questioned Costs 22 Auditor s Comments on Audit Resolution Matters Relating to HUD Programs 23 Certification of Officers 24 Managing Agent s Certification 25 i

3 M & A McMahan and Associates, l.l.c. Certified Public Accountants and Consultants Web Site: Chapel Square, Bldg C Main Office: (970) Chapel Place, Suite 300 Facsimile: (970) P.O. Box 5850, Avon, CO mcmahan@mcmahancpa.com INDEPENDENT AUDITOR'S REPORT To the Member Lake Creek Village LLC Eagle County, Colorado Report on the Financial Statements We have audited the accompanying financial statements of Lake Creek Village LLC (HUD Project No. FHA ), a Colorado limited liability company, which comprise the balance sheets as of December 31, 2013 and 2012, and the related statements of operations and changes in member s capital, and cash flows for the periods 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 U.S. generally accepted accounting principles; 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 audit. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial statements contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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 the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. 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. Member: American Institute of Certified Public Accountants Paul J. Backes, CPA, CGMA Avon: (970) Michael N. Jenkins, CA, CPA, CGMA Aspen: (970) Daniel R. Cudahy, CPA, CGMA Frisco: (970)

4 INDEPENDENT AUDITOR'S REPORT To the Member Lake Creek Village LLC Eagle County, Colorado Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lake Creek Village LLC as of December 31, 2013 and 2012, and the changes in member s capital and its cash flows for the periods then ended, in accordance with U.S. generally accepted accounting principles. Other Matters Our audit was conducted for the purpose of forming an opinion on Lake Creek Village LLC s financial statements as a whole. The accompanying supplementary information shown on pages is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs 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. 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 supplementary information on pages 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 U.S. generally accepted auditing standards. In our opinion, the supplementary information on pages is fairly stated, in all material respects, in relation to the financial statements as a whole. Report on Other Legal and Regulatory Requirements In accordance with Government Auditing Standards, we have also issued our report dated March 31, 2014 on our consideration of Lake Creek Village LLC s internal control over financial reporting and 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 Lake Creek Village LLC s internal control over financial reporting and compliance. McMahan and Associates, L.L.C. March 31,

5 Balance Sheets December 31, 2013 and ASSETS Cash and cash equivalents - Unrestricted $ 982,424 $ 128,739 Cash and cash equivalents - Restricted 4,211,476 5,034,322 Accounts receivable, net - Tenants 12,309 8,580 Accounts receivable - Others 50,678 57,085 Deposits and prepaid expenses 81, ,396 Fixed assets, net 20,389,431 19,537,131 Deferred costs, net 351, ,558 Total Assets $ 26,078,744 $ 25,459,811 LIABILITIES AND MEMBER'S CAPITAL Liabilities: Accounts payable and accrued expenses $ 166,779 $ 73,753 Accrued interest payable 60,153 - Deferred revenue - 9,346 Tenant security deposits 225, ,312 Long-term debt 28,873,217 29,360,000 Total Liabilities 29,325,274 29,656,411 MEMBER'S CAPITAL (3,246,530) (4,196,600) Total Liabilities and Member's Capital $ 26,078,744 $ 25,459,811 The accompanying notes are an integral part of these financial statements. 3

6 Statement of Operations and Changes in Member's Capital For the Year ended December 31, 2013 and From Inception of Operations, December 21, 2012, through December 31, REVENUES Tenant rents $ 3,417,681 $ 101,576 Other income 599,115 11,493 Total Revenues 4,016, ,069 OPERATING EXPENSES Repairs and maintenance 417,614 8,028 Utilities 660,358 26,865 General and administration 594,175 21,992 Management fees 123,000 3,597 Contributions - 4,211,171 Total Operating Expenses 1,795,147 4,271,653 INCOME (LOSS) from OPERATIONS 2,221,649 (4,158,584) OTHER INCOME (EXPENSES) Investment earnings 1,953 4 Depreciation (535,257) (15,649) Amortization (10,339) (311) Interest expense (727,936) (22,060) Net Other Income (Expenses) (1,271,579) (38,016) NET INCOME (LOSS) $ 950,070 $ (4,196,600) Member's Capital - Beginning of the year (4,196,600) - Member's Capital - End of the year $ (3,246,530) $ (4,196,600) The accompanying notes are an integral part of these financial statements. 4

7 Statement of Cash Flows For the Year ended December 31, 2013 and From Inception of Operations, December 21, 2012, through December 31, Cash Flows From Operating Activities: Cash received for rent $ 3,404, ,342 Investment income received 1,953 4 Other cash receipts 605,522 - Net change in tenant security deposits 11, ,312 Interest paid (667,783) (22,060) Cash paid for operating grants and contributions - (4,211,171) Cash paid for goods and services (1,450,854) (452,441) Net Cash Provided (Used) By Operating Activities 1,905,179 (4,370,014) Cash Flows From Financing Activities: Cash received from long-term debt proceeds - 29,360,000 Repayment of long-term debt (486,783) - Debt issuance costs paid - (361,869) Net Cash Provided (Used) By Financing Activities (486,783) 28,998,131 Cash Flows From Investing Activities: Cash paid to purchase capital assets (1,387,557) (19,465,056) Net Cash Provided (Used) By Investing Activities (1,387,557) (19,465,056) Net Increase (Decrease) in Cash and Cash Equivalents 30,839 5,163,061 Cash and Cash Equivalents - Beginning 5,163,061 - Cash and Cash Equivalents - Ending $ 5,193,900 $ 5,163,061 Cash and Cash Equivalents - Ending is comprised of: Cash and cash equivalents - Unrestricted $ 982,424 $ 128,739 Cash and cash equivalents - Restricted 4,211,476 5,034,322 Total $ 5,193,900 $ 5,163,061 Reconciliation of Income (Loss) from Operations to Net Cash Provided (Used) by Operating Activities: Income (loss) from operations $ 2,221,649 $ (4,158,584) Adjustments to reconcile: Interest income 1,953 4 Interest expense (727,936) (22,060) (Increase) decrease in accounts receivable, net 2,678 (65,666) (Increase) decrease in prepaid expenses 251,189 (332,396) Increase (decrease) in accounts payable and accrued liabilities 93,026 (13,972) Increase (decrease) in deferred revenue 60,153 9,348 Increase (decrease) in due to Eagle County and related entities (9,346) - Increase (decrease) in tenant security deposits, net 11, ,312 Total Adjustments (316,470) (211,430) Net Cash Provided (Used) By Operating Activities $ 1,905,179 $ (4,370,014) Noncash Financing and Investing Activities: Acquisition of capital assets subject to debt $ - $ 19,465,056 The accompanying notes are an integral part of these financial statements 5

8 Notes to the Financial Statements December 31, 2013 and Organization Lake Creek Village LLC (the "Company") is a Colorado limited liability company formed pursuant to Articles of Organization filed September 7, The Company s purpose is to acquire, develop, and operate a 272-unit affordable housing project known as Lake Creek Apartments (the Project ) located in unincorporated Eagle County, Colorado. The Company began operations December 21, 2012 with the acquisition of the Project, financed through a mortgage loan insured by the U.S. Department of Housing and Urban Development ( HUD ) under section 223(f) of the Nation Housing Act, as amended. The sole member of the Company is Eagle County Housing and Development Authority ( ECHDA ), which is a component unit of Eagle County, Colorado. ECHDA s financial position, activities, and cash flow are included in the County s separate 2013 and 2012 financial statements. 2. Summary of Significant Accounting Policies A. Basis of Accounting The Company utilizes the accrual basis of accounting, whereby revenues are recognized when earned and expenses are recognized when incurred. B. Cash Equivalents For the purposes of the Statement of Cash Flows, the Company defines cash equivalents as all cash, money market, and savings accounts, plus all investments with original maturities of three months or less. C. Restricted Assets Certain of the Company s assets are classified as restricted assets because their use is restricted to specific purposes by legally binding commitments. As December 31, 2013 and 2012, the Company held restricted cash balances related to security deposits and funding established by the HUD Commitment of Insurance of Advances. D. Tenant Security Deposits Tenant security deposits are placed into an interest-bearing account and are generally held until termination of the underlying tenant lease, at which time some or all deposits may be returned to lessee. E. Allowance for Uncollectible Accounts The Company uses the allowance method to recognize the potential uncollectibility of receivables, including amounts due from tenants. At December 31, 2013, the Company has recorded an allowance of $78 to provide for amounts which management determined may not be collectible ($$0 at December 31, 2012). 6

9 Notes to the Financial Statements December 31, 2013 and 2012 (Continued) 2. Summary of Significant Accounting Policies (continued) F. Fixed Assets Fixed assets are recorded at cost and depreciated using the straight-line method over the following estimated useful lives of the underlying assets: Buildings Site improvements Furniture and equipment 35 years 35 years 5-7 years Land is reported at cost and is not subject to depreciation. G. Deferred Costs Deferred costs include fees associated with obtaining long-term financing for the Company and are amortized on a straight-line basis over the 35-year term of the HUDinsured mortgage on the Project. H. Revenue Recognition Rental revenue attributable to residential leases is recorded when due from residents, generally upon the first day of each month. Rental payments received in advance are deferred until earned. Leases are for periods of up to one year, with rental payments due monthly. I. Income Taxes The Company was formed in accordance with Internal Revenue Service Revenue Procedure 95-48, which provides that an affiliate of a governmental unit is exempt from federal income tax filing requirements. As a result, the Company is also exempt from Colorado state income tax. J. Subsequent Events Management has evaluated subsequent events through March 31, 2014; the date these financial statements were available to be issued. K. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that may 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 7

10 Notes to the Financial Statements December 31, 2013 and 2012 (Continued) 3. Restricted Cash The Company s restricted cash balance is comprised of the following at December 31, 2013 and 2012: Tenant security deposits $ 225,125 $ 214,313 Non-Critical Repair escrow 2,112,109 2,111,345 Unit Repair escrow 942,205 1,401,600 Repair escrow 12, ,538 Replacement Reserve 760, ,000 Mortgage Insurance Premium escrow 159,636 38,526 Total - Restricted Cash $ 4,211,476 $ 5,034,322 As a condition of securing HUD s commitment to insure certain mortgage indebtedness of the Company in connection with the acquisition of the Project (the Commitment ), the Company was required to establish a Non Critical Repair escrow of $2,111,345 from the cash-out proceeds of the mortgage. Additionally, the Company was required, pursuant to the Commitment, to establish a Unit Repair escrow of $1,401,600 and a Repair escrow of $593,538 for identified repairs that are to be completed within 12 months and 36 months, respectively. The Commitment also required the Company to establish a Replacement Reserve in the initial amount of $675,000 and to make monthly contributions of $11,250 commencing January All such required contributions had been made at December 31, 2013 and Fixed Assets The Company s fixed assets were comprised of the following at December 31, 2013 and 2012: Land $ 1,350,100 $ 1,350,100 Buildings 18,291,476 17,472,168 Site improvements 1,293, ,588 Furniture and equipment 4,924 4,924 At cost 20,940,337 19,552,780 Less: Accumulated depreciation (550,906) (15,649) 5. Deferred Costs Fixed Assets, net $ 20,389,431 $ 19,537,131 The following are the Company s deferred costs balances at December 31, 2013 and 2012: Deferred financing costs $ 361,869 $ 361,869 Less: Accumulated amortization (10,650) (311) Deferred costs, net $ 351,219 $ 361,558 8

11 Notes to the Financial Statements December 31, 2013 and 2012 (Continued) 6. Long-term Debt HUD-Insured Mortgage Note Payable In December 2012 and in connection with the acquisition of the Project, the Company entered into a mortgage note agreement (the HUD-insured Mortgage ) with Wells Fargo Bank, National Association ( Wells Fargo ) in the principal amount of $29,360,000. The HUD-insured Mortgage is secured by HUD under section 223(f) of National Housing Act of 1934, as amended, and is secured by a first deed of trust on the Project. Interest accrues on the principal amount outstanding at 2.5% per annum, with one interest only payment due January 1, Beginning February 1, 2013, the HUD-insured Mortgage requires blended monthly payment of $104,961 until maturity on January 1, Unless otherwise directed by HUD, the HUD-insured Mortgage may not be repaid prior to February 1, 2014, and any prepayment between February 2014 and January 2023 will require the Company to pay Wells Fargo a prepayment penalty of between 9% and 1% of the prepayment amount, depending on the prepayment date. During 2013, the Company incurred interest on the HUD-insured Mortgage totaling $727,936 (2012 $22,060). At December 31, 2013, the balance of the HUD-insured Mortgage was $28,873,217 (2012 $29,360,000) and accrued interest was $60,153 (2012 $$0). Future minimum principal payments in each of the next five years following December 31, 2013 and in five-year increments thereafter are as follows: 7. Management Agreement 2014 $ 543, , , , , ,241, ,672, ,160, ,713, ,340, ,884,433 Total $ 28,873,217 In connection with the acquisition of the Project, the Company agreed to an assignment of the management agreement already in effect at the Project with Corum Real Estate Group, Inc. ( Corum ), pursuant to which Corum is to provide management of the day-to-day operations of the Project. The agreement has a one-year term and automatically renews for additional one-year periods unless otherwise terminated as provided in the agreement. Under the terms of the agreement, Corum is to be reimbursed for all charges, including staffing, incurred on behalf of the Company in the management of the Project. The agreement also provides for Corum to be paid a management fee equal to 3.5% of Gross Collected Income, as defined, which excludes utility and cable television revenues. 9

12 Notes to the Financial Statements December 31, 2013 and 2012 (Continued) 7. Management Agreement Total expenses, including reimbursements to Corum and Corum s staff, incurred by the Company under the management agreement for 2013 and 2012 were as follows: Repairs and maintenance: Wages - Maintenance and other $ 173,372 $ 5,273 General and administration: Advertising and promotion Travel and meals 3, Office expenses 7, Telecommunications Wages - Administrative 135, Management fee 123,000 3,597 Total $ 443,682 $ 9,721 The Company did not have a balance of payable to Corum at December 31, 2013 ($386 payable at December 31, 2012). Effective January 1, 2014, ECHDA assumed management of the Project. 8. Related Party Transactions In connection with the acquisition and related financing of the Project, the Company transferred $4,211,171 to ECHDA as an operating contribution in Concentrations A. Geographical The Company operates a single property located in unincorporated Eagle County, Colorado. Future operations could be affected by economic changes or other conditions in that geographical area. B. Credit Risk The Company s cash balances held with financial institutions at December 31, 2013 were fully insured under the Colorado Public Deposit Protection Act ( PDPA ). The PDPA specifies eligible depositories for public cash deposits, which must be Colorado institutions and must maintain federal (FDIC) insurance on deposits held. At December 31, 2012, the Company s cash balances held with financial institutions were insured by the Federal Deposit Insurance Corporation (the FDIC ) up to $250,000 at each participating financial institution, without regard to the nature of the accounts. At December 31, 2012, the Company s uninsured balances totaled $92,

13 Balance Sheet - HUD Basis December 31, 2013 ASSETS Current assets: 1120 Cash - Operations $ 982, Miscellaneous prepaid expenses 81, Tenant/member accounts receivable 12, Allowance for doubtful accounts (78) 1130N Net tenant accounts receivable 12, Accounts receivable and notes receivable - operations 50, T Total current assets 1,126,618 Deposits held in trust: 1191 Tenant/patient deposits held in trust 225,125 Restricted deposits and funded reserves: 1310 Escrow deposits 159, Replacement Reserve 760, Other reserves 3,066, T Total deposits 3,986,351 Fixed assets: 1410 Land 1,350, Buildings 19,585, Furnishings 4, T Total fixed assets 20,940, Accumulated depreciation (550,906) 1400N Net fixed assets 20,389,431 Other assets: 1520 Deferred financing costs 351, T Total other assets 351, T Total Assets $ 26,078,744 LIABILITIES Current liabilities: 2110 Accounts payable - Operations $ 166, Accrued interest payable - First mortgage (or bonds) 60, T Total current liabilities 226,932 Other liabilities: 2191 Tenant/patient deposits held in trust 225,125 Long-term liabilities: 2320 Mortgage (or bonds) payable - First mortgage (bonds) 28,873, T Total long-term liabilities 28,873, T Total Liabilities 29,325,274 MEMBERS' CAPITAL 3130 Total Equity (3,246,530) 2033T Total Liabilities and Equity $ 26,078,744 The accompanying notes are an integral part of these financial statements. 11

14 Statement of Profit and Loss - HUD Basis From Inception of Operations, December 21, 2012, through December 31, 2013 REVENUE Rent revenue: 5120 Rent revenue - Gross potential $ 3,633, T Total rent revenue 3,633,663 Vacancies: 5220 Vacancies - Apartments (114,406) 5200T Total vacancies (114,406) 5152N Net rental revenue (rent revenue less vacancies) 3,519,257 Financial revenue: 5440 Revenue from investments - Replacement Reserve 1, T Total financial revenue 1,957 Other revenue: 5910 Laundry and vending revenue 71, Tenant charges 501, Miscellaneous revenue 37, T Total other revenue 610, T Total Revenue 4,131,822 EXPENSES Administrative expenses: 6210 Advertising and marketing 10, Office expenses 40, Management fee 262, Legal expense - Project 2, Bookkeeping fees/accounting services 22, Bad debts 37, Miscellaneous administrative expenses 7, T Total administrative expenses 384,155 Utilities expenses: 6450 Electricity 168, Water 278, Gas 187, T Total utilities expenses 634,808 Operating and maintenance expenses: 6515 Supplies 199, Contracts 219, Garbage and trash removal 52, Snow removal 9, T Total operating and maintenance expenses 480,915 Taxes and insurance: 6720 Property and liability insurance - Hazard 55, T Total taxes and insurance 55,463 Financial expenses: 6820 Interest on first mortgage (or bonds) payable 749, Mortgage insurance premium/service charge 300, T Total financial expenses 1,050, T Total Cost of Operations before Depreciation 2,605, T Profit (Loss) before Depreciation 1,526, Depreciation expense 550, Amortization expense 10, N Operating Profit (Loss) 964,641 Corporate or mortgagor revenue and expenses: 7190 Other expenses 4,211, T Net entity expenses 4,211, Net Income (Loss) $ (3,246,530) The accompanying notes are an integral part of these financial statements. 12

15 Statement of Changes in Members' Capital - HUD Basis From Inception of Operations, December 21, 2012, through December 31, 2013 MEMBERS' CAPITAL - BEGINNING OF PERIOD: S Beginning of Period Balance $ Net Income (Loss) (3,246,530) MEMBERS' CAPITAL - END OF PERIOD: 3130 End of Period $ (3,246,530) The accompanying notes are an integral part of these financial statements. 13

16 Statement of Cash Flows - HUD Basis From Inception of Operations, December 21, 2012, through December 31, 2013 CASH FLOW FROM OPERATING ACTIVITIES: Receipts: S Rental receipts $ 3,506,870 S Interest received 1,957 S Other operating receipts 559,930 S Total receipts 4,068,757 Disbursements: S Administrative (120,108) S Management fee (262,724) S Utilities (574,607) S Operating and maintenance (547,916) S Property insurance (55,463) S Tenant security deposits 3,403 S Interest on first mortgage (689,843) S Mortgage interest premium (300,287) S Entity/construction disbursements (4,211,171) S Total disbursements (6,758,716) S Net cash provided by (used in) operating activities (2,689,959) CASH FLOW FROM INVESTING ACTIVITIES: S Net deposits to Mortgage Escrow account (159,637) S Net deposits to Replacement Reserve account (760,036) S Net deposits to other reserves (3,066,679) S Net purchase of fixed assets (20,852,613) S Net cash provided by (used in) investing activities (24,838,965) CASH FLOW FROM FINANCING ACTIVITIES: S Principal payments - First mortgage (or bonds) (486,783) S Proceeds from mortgages, loans, or notes payable 29,360,000 S Other financing activities (361,869) S Net cash provided by (used in) financing activities 28,511,348 S Net increase (decrease) in cash and cash equivalents 982,424 S Beginning of period cash - S1200T End of period cash $ 982,424 RECONCILIATION OF NET PROFIT (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: 3250 Net income (loss) $ (3,246,530) Adjustments to reconcile net profit (loss) to net cash provided by (used in) operating activities: 6000 Depreciation expense 550, Amortization expense 10,650 S Decrease (increase) in tenant (member) accounts receivable (12,309) S Decrease (increase) in accounts receivable - Other (50,678) S Decrease (increase) in prepaid expenses (81,207) S Decrease (increase) in cash restricted for tenant deposits (225,125) S Increase (decrease) in accounts payable 79,055 S Increase (decrease) in accrued interest payable 60,153 S Increase (decrease) in tenant security deposits held in trust 225,125 S Other adjustments to reconcile net profit (loss) to net cash provided by (used in) operating activities: Other adjustments 1 S Net cash provided by (used in) operating activities $ (2,689,959) The accompanying notes are an integral part of these financial statements 14

17 Schedule of Reserve for Replacement and Computation of Surplus Cash, Distributions, and Residual Receipts From Inception of Operations, December 21, 2012, through December 31, 2013 SCHEDULE OF RESERVE FOR REPLACEMENT: 1320P Balance at beginning of period $ DT Total monthly deposits 123, ODT Other deposits 675, WT Approved withdrawals (38,714) 1320 Balance at end of period (confirmed by Mortgagee) $ 760,036 COMPUTATION OF SURPLUS CASH: Cash: S Cash (Accounts 1120, 1170, 1191) $ 1,207,548 S Total cash 1,207,548 Current obligations: S Accrued mortgage (or bond) interest payable 60,153 S Accounts payable (due within 30 days) 166,779 S Loans and notes payable (due within 30 days) 44, Tenant/patient deposits held in trust 225,125 S Total current obligations 496,865 S Surplus cash (deficiency) $ 710,683 The accompanying notes are an integral part of these financial statements. 15

18 From Inception of Operations, December 21, 2012, through December 31, 2013 Beginning Ending Balance Additions Deductions Balance 1410 Land $ - $ 1,350,100 $ - $ 1,350, Buildings - 19,585,313-19,585, Furnishings - 4,924-4, T Total fixed assets - 20,940,337-20,940, Accumulated depreciation - (550,906) - (550,906) 1400N Net fixed assets $ - $ 20,389,431 $ - $ 20,389,431 The accompanying notes are an integral part of these financial statements. 16

19 M & A McMahan and Associates, l.l.c. Certified Public Accountants and Consultants Web Site: Chapel Square, Bldg C Main Office: (970) Chapel Place, Suite 300 Facsimile: (970) P.O. Box 5850, Avon, CO mcmahan@mcmahancpa.com 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 GOVERNMENTAL AUDITING STANDARDS To the Member Lake Creek Village LLC Eagle County, Colorado Report on Internal Control Over Financial Reporting and Compliance We have audited, in accordance with the U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General if the United States, the financial statements of Lake Creek Village LLC (HUD Project No. FHA ), a Colorado limited liability company, which comprise the balance sheets as of December 31, 2013 and 2012, and related statements operations and changes in member s capital, and cash flows for the periods then ended and the related notes to the financial statements, and have issued our report thereon dated March 31, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Lake Creek Village LLC 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 financial statements, but not for the purpose of expressing an opinion on the effectiveness of Lake Creek Village LLC s internal control. Accordingly, we do not express an opinion on the effectiveness of Lake Creek Village LLC 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 combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity 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. Member: American Institute of Certified Public Accountants Paul J. Backes, CPA, CGMA Avon: (970) Michael N. Jenkins, CA, CPA, CGMA Aspen: (970) Daniel R. Cudahy, CPA, CGMA Frisco: (970)

20 INDEPENDENT AUDITOR S REPORT To the Member Lake Creek Village LLC Eagle County, Colorado Compliance and Other Matters As part of obtaining reasonable assurance about whether Lake Creek Village LLC 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 object 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 Lake Creek Village LLC s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Lake Creek Village LLC s internal control and compliance. Accordingly, this report is not suitable for any other purpose. McMahan and Associates, L.L.C. March 31,

21 M & A McMahan and Associates, l.l.c. Certified Public Accountants and Consultants Web Site: Chapel Square, Bldg C Main Office: (970) Chapel Place, Suite 300 Facsimile: (970) P.O. Box 5850, Avon, CO mcmahan@mcmahancpa.com INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR HUD PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE CONSOLIDATED GUIDE FOR AUDIT OF HUD PROGRAMS To the Member Lake Creek Village LLC Eagle County, Colorado Report on Compliance for Each Major HUD Program We have audited the compliance of Lake Creek Village LLC (), a Colorado limited liability company, with the compliance requirements described in the Consolidated Audit Guide for Audits of HUD Programs (the Guide ) that could have a direct and material effect on each of Lake Creek Village LLC s major U.S. Department of Housing and Urban Development ( HUD ) programs for the period ended December 31, Direct and material compliance requirements associated with the Insured Loan program include governing federal financial reports, mortgage status, replacement reserves, residual receipts, distributions to owners, equity skimming, unauthorized change of ownership/ acquisition of liabilities, unauthorized loans of project funds, and excess income. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its HUD Programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Lake Creek Village LLC s major HUD programs based on our audit of the compliance requirements referred to above. We conducted our audit of compliance in accordance with U.S. generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and the Guide. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a direct and material effect on a major HUD-assisted program occurred. An audit includes examining, on a test basis, evidence about Lake Creek Village LLC s compliance with those requirements and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major HUD program. However, our audit does not provide a legal determination on Lake Creek Village LLC s compliance. Member: American Institute of Certified Public Accountants Paul J. Backes, CPA, CGMA Avon: (970) Michael N. Jenkins, CA, CPA, CGMA Aspen: (970) Daniel R. Cudahy, CPA, CGMA Frisco: (970)

22 INDEPENDENT AUDITOR S REPORT To the Member Lake Creek Village LLC Eagle County, Colorado Opinion on Each Major HUD Program In our opinion, Lake Creek Village LLC complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major HUD programs for the period ended December 31, Report on Internal Control Over Compliance Management of Lake Creek Village LLC is responsible for establishing and maintaining effective internal control over compliance with the compliance requirements referred to above. In planning and performing our audit of compliance, we considered Lake Creek Village LLC s internal control over compliance with the requirements that could have a direct and material effect on each major HUD program to determine the auditing procedures that appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major HUD program and to test and report on internal control over compliance in accordance with the Guide, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Lake Creek Village LLC s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a compliance requirement of a HUD program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a compliance requirement of a HUD program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a compliance requirement of a HUD program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Guide. Accordingly, this report is not suitable for any other purpose. McMahan and Associates, L.L.C. March 31,

23 M & A McMahan and Associates, l.l.c. Certified Public Accountants and Consultants Web Site: Chapel Square, Bldg C Main Office: (970) Chapel Place, Suite 300 Facsimile: (970) P.O. Box 5850, Avon, CO mcmahan@mcmahancpa.com INDEPENDENT AUDITOR S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION To the Member Lake Creek Village LLC Eagle County, Colorado We have applied procedures to test the compliance of Lake Creek Village LLC (HUD Project No. FHA ), a Colorado limited partnership, with Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted program for the period ended December 31, Our procedures were limited to the applicable compliance requirement described in the Consolidated Audit Guide for Audits of HUD Programs (the Guide ), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Lake Creek Village LLC s compliance with the Fair Housing and Non-Discrimination requirements. Accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended solely for the information and use of the Members, management, and the U.S. Department of Housing and Urban Development, and is not intended to be and should not be used by anyone other than these specified parties. McMahan and Associates, L.L.C. March 31, 2014 Member: American Institute of Certified Public Accountants Paul J. Backes, CPA, CGMA Avon: (970) Michael N. Jenkins, CA, CPA, CGMA Aspen: (970) Daniel R. Cudahy, CPA, CGMA Frisco: (970)

24 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Period Ended December 31, 2013 Our audit disclosed no findings that are required to be reported herein under the HUD Consolidated Audit Guide for the period ended December 31,

25 AUDITOR S COMMENTS ON AUDIT RESOLUTION MATTERS RELATING TO HUD PROGRAMS December 31, 2013 There were no findings or questioned costs noted for the period ended December 31,

26

27