SAN JOSE DOWNTOWN ASSOCIATION (A California Nonprofit Mutual Benefit Corporation) *** FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

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1 *** FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Year Ended June 30, 2014

2 TABLE OF CONTENTS Pages INDEPENDENT AUDITOR'S REPORT 1-2 FINANCIAL STATEMENTS: Statement of Financial Position 3 Statement of Activities and Changes in Net Assets 4 Statement of Functional Revenue and Expenses for Programs and Events 5 Statement of Cash Flows 6 Notes to Financial Statements 7-13 SUPPLEMENTARY INFORMATION: Schedule of Management and General Expenses 14

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4 Other Matter Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The schedule of management and general expenses on Page 14 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. BERGER LEWIS ACCOUNTANCY CORPORATION San Jose, California December 26,

5 STATEMENT OF FINANCIAL POSITION June 30, 2014 ASSETS CURRENT ASSETS: Cash $ 318,224 Contracts Receivable: BID 213,725 RDA 123,000 City 33,315 PBID 175,777 Accounts Receivable 38,992 Prepaid Expenses 29,429 Total Current Assets 932,462 PROPERTY AND EQUIPMENT, At Cost: Ice Rink Equipment 997,540 Office Condo 370,612 Office and Computer Equipment 171,800 Transportation Equipment 24,650 1,564,602 Accumulated Depreciation (1,106,115) Total Property and Equipment, Net 458,487 TOTAL ASSETS $ 1,390,949 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Note Payable, Current Portion $ 20,026 Mortgage Payable, Current Portion 5,400 Accounts Payable 168,635 Accrued Expenses 95,961 Deferred Income 307,321 Total Current Liabilities 597,343 LONG-TERM LIABILITIES, NET OF CURRENT PORTION: Note Payable, Net of Current Portion 53,155 Mortgage Payable, Net of Current Portion 213,881 Total Long-Term Liabilities, Net of Current Portion 267,036 Total Liabilities 864,379 NET ASSETS: Unrestricted Net Assets 526,570 TOTAL LIABILITIES AND NET ASSETS $ 1,390,949 The Accompanying Notes are an Integral Part of these Financial Statements

6 STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS Year Ended June 30, 2014 Unrestricted San Jose Business Total All Downtown Improvement City (OED) Funds Association District Fund REVENUE: BID Contract $ 684,000 $ - $ 684,000 $ - City (OED) 313, ,000 Sponsorships / Sales 433, , Concessions / Admissions 862, , Participant Fees 22,859 22, Grants 92,145 92, Administration Income 9,700 9, Other Contracts 259, , Group Sales 19,689 19, City Contracts 79,016 79, Miscellaneous Income 116, , Total Revenue 2,893,078 1,896, , ,000 EXPENSES: Program and Events: HERcity 33,272 4,272 5,000 24,000 Ice Rink 897, , , ,000 Farmers' Market 69,848 11,200 52,648 6,000 Music in the Park 108,379 93,129 15,250 - Dine Downtown 50,504 6,504 30,000 14,000 Live and Local 33,365 1,365 12,000 20,000 Communications 78,430 22,000 56,430 - Advocacy, Research and Planning 65, ,000 - Blues Festival 114, ,182 10,000 - Downtown for the Holidays / Holiday Promotions 44,438 44, District Promotions 30,125 1,125 20,000 9,000 Starlight Cinemas 66,993 16,993 15,000 35,000 Marketing, Promotions and Parking 225,774 81, ,000 34,000 SoFA Street Markets 38,128 15,128-23,000 Foundation, Beautification and Membership, Miscellaneous 61,853 21,853 15,000 25,000 Equipment Rental, DASH Shuttle 15,242 5,242 10,000 - World Cup Viewing 46,774 46, Property Business Improvement District 196, , Total Program and Events Expenses 2,176,283 1,341, , ,000 Management and General 609, , ,672 - Total Expenses 2,785,789 1,788, , ,000 CHANGE IN NET ASSETS 107, , NET ASSETS, Beginning of Year 419, , NET ASSETS, End of Year $ 526,570 $ 526,570 $ - $ - The Accompanying Notes are an Integral Part of these Financial Statements

7 STATEMENT OF FUNCTIONAL REVENUE AND EXPENSES FOR PROGRAMS AND EVENTS Year Ended June 30, 2014 Dine Downtown Farmers' Market Live and Local Downtown for the Holidays / Holiday Promotions Music in the Park Blues Festival Communica tions Advocacy Research & Planning Ice Rink HERcity Total PROGRAM REVENUE: BID Contract $ 30,000 $ 105,000 $ 52,898 $ 5,000 $ 12,000 $ - $ 15,000 $ 10,000 $ 35,190 $ 65,000 $ 18,500 $ 15,000 $ - $ 10,000 $111,500 $ 15,000 $ - $ - $ - $ 183,912 $ 684,000 City (OED) Contract 14, ,000 6,000 24,000 20, ,000 35,000 23,000-34,000 25, ,000 City Contracts , ,016 Other Contracts , ,328 Group Sales - 14, , ,689 Concessions / Admissions - 704,056-2, ,826 65, , , ,932 Participant Fees 7,000-11, , ,859 Grants - 32,250 2, ,910 15, ,236 14, , ,145 Miscellaneous Income 90 1, , ,723 90, , ,736 Administration Income ,700 9,700 Sponsorships / Sales 8, ,248 19, ,500 17,075 15, ,800-7,000-10, , ,673 Total Program Revenue 59,340 1,268,544 92,663 31,241 32,000 44, , ,127 35,190 65,000 27,500 74,069 37,704 21, ,366 61, ,328 6,128 23, ,810 2,893,078 District Promotions Starlight Cinemas SoFA Street Markets Equipment Rental / DASH Shuttle Marketing, Promotions and Parking Foundation / Beautification and Membership / Miscellaneous Property Business Improvement District Small Wonders / Innovation Fund World Cup Viewing Management and General PROGRAM EXPENSES: Personnel 23,951 79,500 20,000 29,336 21,000-30,000 10,000 52,000 65,000 28,925 24,500 12,000 10, ,000 38, , ,797 1,123,999 Insurance 1,000 25,020 7,500 1,000 1, , , ,076 51,718 City Services - 11,080 2, ,893 7, ,400 8, , ,226-53,521 Marketing 25,505 45,356 19, ,665 7,095 6,012 17,141 26, , ,774 14, ,360 Event Production - 250,379 4, ,691 43, ,787 17, ,610 Technical Support - 361,691 6, ,072 10, ,880-2, , ,468 Supplies and Materials - 55,324 2, ,070 9, , ,257-6,323 9, ,743 Cost of Concessions - 1,876-1, ,161 10, ,379-30,506 Subcontractors - 30,500 6,840-1,700 37,143 1,190 2, , , ,983 Depreciation and Amortization - 28, (1,365) ,476 58,632 Other Expenses 48 8, ,329 2, , ,249 Total Program Expenses 50, ,369 69,848 33,272 33,365 44, , ,182 78,430 65,350 30,125 66,993 38,128 15, ,774 61, ,257-46, ,506 2,785,789 Excess of Revenue (Expense) $ 8,836 $ 371,175 $ 22,815 $ (2,031) $ (1,365) $ 62 $ 9,632 $ (55) $ (43,240) $ (350) $ (2,625) $ 7,076 $ (424) $ 5,758 $ (408) $ (298) $ 153,071 $ 6,128 $ (23,772) $(402,696) $ 107,289 The Accompanying Notes are an Integral Part of these Financial Statements

8 STATEMENT OF CASH FLOWS Year Ended June 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES: Change in Net Assets $ 107,289 Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation and Amortization 58,632 (Increase) Decrease in Assets: Contracts Receivable (181,191) Accounts Receivable (15,657) Prepaid Expenses 37,061 Increase in Liabilities: Accounts Payable 107,555 Accrued Expenses (3,493) Deferred Revenue 166,033 Cash Provided by Operating Activities 276,229 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Office and Computer Equipment (9,110) Purchase of Ice Rink Equipment (83,261) Cash Used by Investing Activities (92,371) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on Mortgage Payable (5,136) Payments on Note Payable (19,338) Cash Used by Financing Activities (24,474) INCREASE IN CASH AND CASH EQUIVALENTS 159,384 CASH AND CASH EQUIVALENTS, Beginning of Year 158,840 CASH AND CASH EQUIVALENTS, End of Year $ 318,224 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: Cash Paid for Interest $ 14,244 The Accompanying Notes are an Integral Part of these Financial Statements

9 NOTES TO FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND STATEMENT OF PURPOSES: The San Jose Downtown Association (the "Association") is a nonprofit mutual benefit corporation organized under the California Nonprofit Mutual Benefit Corporation Law. The Association is exempt from Federal Income Tax under Section 501(c)(6) of the Internal Revenue Code. The primary purposes of the Association are to: (a) Encourage, stimulate and improve the business conditions in downtown San Jose for retailers, restaurants, entertainment establishments, service businesses and professionals, property owners and to promote retail and other commercial activities in that area. (b) Establish new and improve existing parking facilities in downtown San Jose for the benefit of the area and to encourage the formation of local parking districts. (c) Seek out public and private revenues to support its objectives. (d) Beautify downtown San Jose. (e) Promote public events and to obtain funding and programs for seasonal decorations of public spaces in the area. (f) Promote a positive identity for the area through advertising and public relations program and the sponsorship of public events, promotions and festivals. (g) Promote the preservation and renovation of historical structures in downtown San Jose and to preserve the architectural heritage and historical character of the downtown San Jose area. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basic of Accounting - The financial statements of the Association is an accrual basis not-for-profit corporation with a fiscal year end of June 30. Basis of Presentation - The Association follows standards of accounting and financial reporting for voluntary health and welfare organizations as prescribed by the American Institute of Certified Public Accountants. In accordance with accounting principles generally accepted in the United States of America, the Association reports its financial position and operating activities in three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. See Notes 3 to 6 for descriptions of the funds, including restrictions, if any. The revenues recorded in the statement of activities regarding the Business Improvement District and City of San Jose (OED) Fund are restricted as to their use per the respective contracts. Since the restrictions were met in the same period as the revenues were recorded the classification of these revenues as unrestricted

10 NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Use of Estimates - 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 at the date of the financial statements and the reported amounts of revenue and expenses during the period. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents - Cash and cash equivalents include highly liquid investments and investments with a maturity of three months or less, and exclude donor restricted receipts and amounts designated for long-term purposes. The Association maintains its cash in bank deposit accounts which, at times, may exceed Federally insured limits. The Association has not experienced any losses in such accounts. Management believes it is not exposed to any significant risk on cash accounts. Receivables - No allowance for uncollectible receivables has been presented since all amounts are deemed to be collectible. Deferred Income - Deferred income results from grants, contract or sponsorship revenue received for a specific event scheduled in the following year. Revenue is recognized in the period that the related expenses are incurred. Prepaid Expenses - Prepaid expenses result from advances or deposits on goods or services that will be received in the following year. Direct event expenses are recorded in the year the event takes place. Donated Materials and Services - Donated materials and services, which Management estimates at approximately $961,418 have not been recognized in the accompanying financial statements since the recognition requirements were not met. A number of volunteers have donated significant amounts of their time in the Association program services and administrative support. Also, media and service donations were received as part of event sponsorships. Capitalization Policy - The Association's policy is to capitalize fixed asset purchases in excess of $500. Any furniture, equipment or other assets purchased under a grant or a service contract are considered the property of the granting agency and will not be capitalized. Depreciation is computed using straight-line depreciation methods. Depreciation expense for the year ended June 30, 2014 is $58,632. Personal Time Off - Personal time off ("PTO") represents vacation and sick days earned, but not taken as of June 30, 2014, and is included in "accrued expenses" in the statement of financial position. The PTO balance as of June 30, 2014 totaled $70,961. Income Taxes - San Jose Downtown Association is exempt from federal income taxes under Section 501(c)(6) of the Internal Revenue Code and state income taxes under Section 23701(d) of the California Revenue Taxation Code. Accordingly, no provision for income taxes has been made in the accompanying statements. In addition, the Association qualifies for the charitable contribution deduction under Section 170(b)(1)(A) of the Internal Revenue Code and has been classified as an organization that is not a private foundation under Section 509(a)(1) of the Internal Revenue Code

11 NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Subsequent Events - Management of the Association has evaluated events and transactions subsequent to June 30, 2014 for potential recognition or disclosure in the financial statements. The Association did not have subsequent events that required recognition or disclosure in the financial statements for the year ended June 30, Subsequent events have been evaluated through the date the financial statements became available to be issued, December 26, NOTE 3 - BID FUND - DOWNTOWN SAN JOSE BUSINESS IMPROVEMENT DISTRICT: In October 1988, San Jose City Ordinance #22960 established and defined the Downtown San Jose Business Improvement District (BID). The "District" is funded by an assessment levied on the businesses located within the District and approved annually by the San Jose City Council through a public hearing process. In 1989, the San Jose City Council appointed the San Jose Downtown Association as the Advisory Board for the BID, to advise the Council on the levy of assessments of the BID and the expenditure of revenues derived from the assessments. In March 1989, the San Jose Downtown Association entered into an agreement with the City of San Jose to operate and administer the activities within the District. This agreement was amended and restated June 24, For the year ended June 30, 2014, a budget of $710,000 was approved by the City of San Jose. During the year ended June 30, 2014, the City collected $726,411 of BID assessments. During the year, $684,000 was expended by the Association of which $213,725 had not been reimbursed by the City as of June 30, There is a balance of BID funds remaining in the separate City of San Jose BID account as of June 30, 2014 in the amount of $114,227. The Association is reporting this amount as a Current Asset with a corresponding offset to Deferred Income as of June 30, 2014 and will be utilized in the year ending June 30, A budget of $777,000 has been approved by the City for the fiscal year ending June 30, NOTE 4 - CITY OF SAN JOSE CONTRACT: The Association received revenues under a service contract with the City of San Jose Office of Economic Development (OED). The scope of services include downtown place promotion, office retention and attraction, downtown events, and parking program. The contract services used to be with San Jose Downtown Redevelopment Agency (RDA) in the previous years. RDA was eliminated in 2011 by the State of California. There was an outstanding balance of $14,100 that RDA owed the Association. The Association wrote-off the balance in the prior fiscal year

12 NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 4 - CITY OF SAN JOSE CONTRACT (Continued): The agreement with the City of San Jose (OED) provided up to $390,000 of reimbursements for the year ended June 30, NOTE 5 - SJDA FUND: This fund accounts for resources under the discretionary control of the Association's Board of Directors for use in carrying on the general operations of the Association. The balance in this fund as of June 30, 2014 was $526,570. NOTE 6 - PBID FUND - SAN JOSE DOWNTOWN PROPERTY OWNERS' ASSOCIATION: As of January 28, 2008 the Association entered into an agreement with San Jose Downtown Property Owners' Association ("PBID") to provide management services. The agreement shall run from January 28, 2008 to January 31, The agreement was extended on January 15, 2013, running from January 15, 2013 to January 31, The entities have separate boards of directors and operate as separate entities. As compensation for the management services, the Association, per the extended agreement will now receive 9.9% of the total revenue received by PBID, compared to 9.1% in the prior agreement. The fee is payable semi-annually. As of June 30, 2014, the Association earned revenue from this agreement totaled $259,328. As of January 14, 2008 the Association entered into an agreement on behalf of San Jose Downtown Property Owners' Association ("PBID") with Service Group Incorporated ("SGI"). SGI provides services to allow PBID to carry out its nature of activities of maintenance of Downtown San Jose, including cleaning, safety and information, and enhancing the image of Downtown San Jose. The original agreement ran through January 13, 2011, and allowed for 3 additional one year term renewals. Either party has the right to terminate this agreement at any time, by giving written notice at least 120 days prior to termination date. On June 16, 2010, SJDA on behalf of PBID, extended the agreement with SGI for one additional year of service. The agreement was extended to January 13, 2011, and was renewed again for an additional year through January 13, On January 15, 2013, SJDA on behalf of the PBID entered into an agreement with Block by Block, (SGI merged with Block by Block). The agreement began on January 15, 2013 and shall continue for a period of three years ("Initial Term"), expiring January 14, At the end of the Initial Term, this agreement may be renewed for two subsequent terms of one year upon SJDA's written notification and one final year upon the mutual written agreement of the parties

13 NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 7 - DEFERRED INCOME: Deferred income consists of the following as of June 30, 2014: Downtown Activation $ 147,000 BID 114,227 Other 46,094 $ 307,321 NOTE 8 - CONCENTRATION OF ACTIVITIES: Approximately $1,089,145 was earned through contracts with and grants from the City of San Jose, including its agencies and the BID and the PBID. Activities of the Association take place in and for the benefit of the downtown San Jose, California geographic area. NOTE 9 - NOTE PAYABLE: On December 3, 2012, the Association entered into a loan agreement with Wells Fargo Bank for $102,000. The interest rate is a fixed rate loan at 3.450% per annum for the term of the loan, 60 monthly payments are made for $1, The note was secured by personal property of the Association. Total principal outstanding is $73,181 at June 30, Scheduled estimated maturities for the above note payable are as follows: Year Ending June 30, Amount 2015 $ 20, , , ,946 $ 73,

14 NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 10 - MORTGAGE PAYABLE: On April 28, 2009, the Association entered into a loan agreement with Wells Fargo Bank for $250,000. The interest rate was a fixed rate loan at 5.50% per annum for the term of the loan, 35 monthly payments were made for $1,731 and a final payment of $230,506 was due on May 20, 2012, plus any unpaid principal and interest. The note was secured by Deed of Trust on 28 North First Street, Suite Management refinanced the mortgage payable on January 20, The interest rate is a fixed rate loan at 4.95% per annum for the term of the loan, 60 monthly payments are made for $1, and a final payment of $206, is due on January 20, 2017, plus any unpaid principal and interest. Total principal outstanding is $219,281 at June 30, Scheduled estimated maturities for the above mortgage payable are as follows: Year Ending June 30, Amount 2015 $ 5, , ,233 $ 219,281 NOTE 11 - LINE OF CREDIT ("LOC"): Amount Available Wells Fargo Bank, revolving line of credit for a maximum amount of $150,000. Interest is computed at the Bank's prime rate plus 1.750% with a floor rate of 5%, secured by certain assets of the Association. Maturity date of May 18, The line of credit was extended on June 3, 2013, with a new maturity date of June 18, The line of credit was extended on June 1, 2014, with a new maturity date of June 18, 2015 $ 150,000 The LOC was not accessed during the fiscal year

15 NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 12 - EMPLOYEE BENEFIT PLAN: The Association established a defined contribution 401(k) pension plan effective January 1, All employees who are at least eighteen years old and have completed one year of service and at least one thousand hours of service are eligible to participate in the plan. Employees participating in the plan may elect to defer a percentage of their annual compensation to the plan subject to applicable limits. The Association matches employee contributions at the rate of 100% not to exceed 3% of compensation plus 50% of salary deferrals between 3% and 5% of employee compensation. The match is 100% vested upon contribution. In addition, the Association may make discretionary matching contributions. Administrative expenses for the plan are paid by the Association; however there are some management and expense fees based on plan assets that are deducted from participant assets proportionately. Association's management has the right to terminate the plan at anytime. The Association's matching contribution for the year ended June 30, 2014 was $26,107. NOTE 13 - OFFICE CONDOMINIUM: The Association, through its ownership of its office condominium Suite 1000 and Suite 200, is a member of the Commercial Building Owners' Association (CBOA). Members pay monthly dues to CBOA to cover the property management and common area expenses (such as elevator, security, utilities and janitorial expenses). CBOA, on an as needed basis, can request special assessments from members for major improvements or renovations to common areas of the property. Special assessments for elevator re-modernization totaled $44,140 during the year ended June 30, The SJDA Executive Director is a member of the CBOA board. NOTE 14 - OPERATING LEASE COMMITMENTS: The Association leases a copier under a noncancelable operating lease which expires in February The Association also leases a mailing system and modem under a noncancelable operating lease which expires in October Total lease payments related to the operating leases for the year ending June 30, 2014 is $3,211. Future minimum lease payments as of June 30, 2014 under these noncancelable operating leases is: Year Ending June 30, Amount 2015 $ 1, , Total Future Minimum Lease Payments $ 3,

16 SUPPLEMENTARY INFORMATION

17 SCHEDULE OF MANAGEMENT AND GENERAL EXPENSES Year Ended June 30, 2014 Total All Funds SJDA Fund BID Fund City (OED) Fund Salaries and Payroll Taxes $ 255,603 $ 117,931 $ 137,672 $ - Employee Benefits 96,195 71,195 25,000 - Building Expenses 129, , Office Equipment 11,159 11, Utilities 12,952 12, Office Supplies 9,005 9, Insurance 9,076 9, Professional Services 36,201 36, Dues and Conferences 15,354 15, Meetings and Hospitality 13,472 13, Postage/Mailing Services 2,663 2, Miscellaneous Expenses 17,878 17, Total Expenses $ 609,506 $ 446,834 $ 162,672 $