Consolidated Financial Statements and Supplemental Information

Transcription

1 Metropolitan Area Advisory Committee and Affiliates Consolidated Financial Statements and Supplemental Information Year Ended December 31, 2011

2 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Consolidated Financial Statements and Supplemental Information Year Ended December 31, 2011 Table of Contents Page Independent Auditors Report 1 Consolidated Financial Statements: Consolidated Statement of Financial Position 3 Consolidated Statement of Activities 4 Consolidated Statement of Changes in Net Assets 5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7 Supplemental Information: Schedule I Consolidating Statements of Financial Position 18 Schedule II Consolidating Statements of Activities 19 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 20 Independent Auditors Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Schedule of Expenditures of Federal Awards 24 Notes to Schedule of Expenditures of Federal Awards 25 Schedule of Findings and Questioned Costs 26 Schedule of Prior Year Findings 28 State of California DCSD Contract Reconciliation 29 Supplemental Statement of Expenditures Contract No. 10B-5635 (LIHEAP-Weatherization) 30 Supplemental Statement of Expenditures Contract No. 11B-5735 (LIHEAP-Weatherization) 31 Supplemental Statement of Expenditures Contract No. 10B-5635 (LIHEAP-Assurance 16-ECIP, HEAP) 32 Supplemental Statement of Expenditures Contract No. 11B-5735 (LIHEAP-Assurance 16-ECIP, HEAP) 33 Supplemental Statement of Expenditures Contract No. 09C-1781 (DOE Weatherization) 34 Supplemental Statement of Expenditures Contract No. 09C-1833 (DOE Weatherization-ARRA) 35

3 Independent Auditors Report To the Board of Directors Metropolitan Area Advisory Committee and Affiliates Chula Vista, California We have audited the accompanying consolidating statement of financial position of Metropolitan Area Advisory Committee (a nonprofit organization) and Affiliates (limited partnerships) as of December 31, 2011, and the related statements of activities, changes in net assets, and cash flows for the year then ended. These consolidated financial statements are the responsibility of Metropolitan Area Advisory Committee s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of its affiliates, Senior on Broadway, LP, Carlsbad Laurel Tree Apartments, LP, Mercado Apartments, LP, San Martin De Porres Apartments, LP, and Resident John Adams Manor Apartments, LP. These affiliates reflect total assets of $51,851,584 as of December 31, 2011, total revenue of $7,125,062, and a net loss of $1,240,253 for the year then ended. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for its affiliates is based solely on the report of the other auditors. We conducted our audit 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 consolidated financial statements are free of material misstatement. The financial statements of the Affiliates were not audited in accordance with Government Auditing Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, based on our audit and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Metropolitan Area Advisory Committee and Affiliates as of December 31, 2011, and the changes in their consolidated net assets and their consolidated cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated August 15, 2012 on our consideration of Metropolitan Area Advisory Committee 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The consolidating information in Schedule I and II is presented for purposes of additional analysis and is not a required part of the basic consolidated 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional records used to prepare the consolidated financial statements or to the consolidated financial statements themselves and other additional procedures in accordance with auditing standards generally accepted in the United States of America. We did not audit the financial statements of the affiliates. Those statements were audited by other auditors whose reports have been AKT LLP, CPAs and Business Consultants CARLSBAD 5946 Priestly Drive, Suite 200 Carlsbad, CA Phone: Fax:

4 furnished to us, and our opinion, insofar as it relates to the amounts included for its affiliates is based solely on the report of the other auditors. In our opinion, based on our audit and the reports of the other auditors, the consolidating information in Schedules I and II is fairly presented in all material respects in relation to the consolidated financial statements as a whole. Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic consolidated financial statements. The accompanying supplemental information included in pages is presented for purposes of additional analysis and is also 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated 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 basic consolidated financial statements as a whole. Carlsbad, California August 15, 2012

5 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Consolidated Statement of Financial Position December 31, 2011 ASSETS Current Assets: Cash $ 2,644,621 Restricted cash 3,844,978 Accounts receivable, net of allowance for doubtful accounts of $77,355 1,871,062 Prepaid expenses 530,709 Other current assets 386,351 Total Current Assets 9,277,721 Other Assets: Rental property, net of accumulated depreciation 63,769,424 Property and equipment, net of accumulated depreciation 2,240,394 Investment in other entities 592,082 Permanent financing costs, net of accumulated amortization of $1,037,499 1,105,243 Deposits and other assets 212,009 Total Other Assets 67,919,152 Total Assets $ 77,196,873 LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable $ 3,398,639 Accrued expenses 1,793,863 Lines of credit 764,806 Current portion of accrued interest 165,494 Current portion of notes payable 935,686 Deferred revenue 731,537 Total Current Liabilities 7,790,025 Ground lease payable 703,985 Accrued interest, net of current portion 4,583,357 Notes payable, net of current portion 44,055,016 Other liabilities 84,980 Total Liabilities 57,217,363 Net Assets: Unrestricted: General 5,280,313 Controlling interests in affiliates (225,291) Temporarily restricted 107,608 Noncontrolling interests in affiliates 14,816,880 Total Net Assets 19,979,510 Total Liabilities and Net Assets $ 77,196,873 See accompanying notes to consolidated financial statements. 3

6 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Consolidated Statement of Activities Year Ended December 31, 2011 Unrestricted Temporarily Restricted Total Revenue and Support: Contract revenue $ 27,348,137 $ - $ 27,348,137 Contributions 23,042 74,071 97,113 Program service fees 1,248,630-1,248,630 Contractual services 3,979,277-3,979,277 Charter school apportionments 2,171,064-2,171,064 Rents and tenants fees - real estate 1,458,175-1,458,175 Other income 299, ,374 Interest income 37,783-37,783 Rents and tenant fees - limited partnerships 7,125,062-7,125,062 Net assets released from restrictions, satisfaction of program restrictions 126,818 (126,818) - Total Revenue and Support 43,817,362 (52,747) 43,764,615 Expenses: Program services: Metropolitan Area Advisory Committee 33,416,259-33,416,259 Limited partnerships 7,532,267-7,532,267 Supporting services: Management and general 2,749,360-2,749,360 Fundraising 43,610-43,610 Total Expenses 43,741,496-43,741,496 Change in Net Assets $ 75,866 $ (52,747) $ 23,119 See accompanying notes to consolidated financial statements. 4

7 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Consolidated Statement of Changes in Net Assets Year Ended December 31, 2011 General Unrestricted Controlling Interests in Affiliates Totals Temporarily Restricted Noncontrolling Interests in Affiliates Total Balance, beginning $ 3,964,194 $ 3,248,246 $ 7,212,440 $ 160,355 $ 12,880,539 $ 20,253,334 Change in Net Assets 1,316, ,617 1,494,736 (52,747) (1,418,870) 23,119 Distributions (296,943) (296,943) Transfer (Note 17) - (3,652,154) (3,652,154) - 3,652,154 - Balance, ending $ 5,280,313 $ (225,291) $ 5,055,022 $ 107,608 $ 14,816,880 $ 19,979,510 See accompanying notes to consolidated financial statements. 5

8 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Consolidated Statement of Cash Flows Year Ended December 31, 2011 Cash Flows from Operating Activities: Change in net assets $ 23,119 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 3,020,697 Amortization 43,728 Deferred ground lease payable 82,593 Changes in operating assets and liabilities: Restricted cash (13,693) Accounts receivable, net (389,721) Prepaid expenses (82,960) Deposits and other assets 70,299 Accounts payable 132,460 Accrued expenses (36,771) Accrued interest 294,316 Deferred revenue (104,744) Ground lease payable (23,750) Other liabilities 301,970 Net Cash Provided by Operating Activities 3,317,543 Cash Flows from Investing Activities: Purchases of property and equipment (651,132) Improvements to rental property (671,399) Net Cash Used by Investing Activities (1,322,531) Cash Flows from Financing Activities: Net proceeds from lines of credit 514,806 Payments of notes payable (1,345,337) Distributions to noncontrolling interests (296,943) Net Cash Used by Financing Activities (1,127,474) Net Increase in Cash 867,538 Cash, beginning 1,777,083 Cash, ending $ 2,644,621 Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 1,884,375 Cash paid for income taxes $ 4,000 See accompanying notes to consolidated financial statements. 6

9 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Notes to Consolidated Financial Statements Year Ended December 31, 2011 Note 1 Organization and Summary of Significant Accounting Policies Nature of Activities The Metropolitan Area Advisory Committee on Anti-Poverty of San Diego County, Incorporated (Metropolitan Area Advisory Committee or MAAC) is a California nonprofit corporation organized to provide an extensive network of services to the residents of San Diego County. MAAC offers various programs to meet a variety of social, economic, and health needs for low income people, and is supported primarily through federal, state and county award programs. MAAC is the general partner in the following entities: MAAC s Ownership Organization Name Percentage Seniors on Broadway Limited Partnership.01% Carlsbad Laurel Tree Apartments, L.P..009% San Martin De Porres Apartments, L.P..05% President John Adams Manor Apartments, L.P..1% During the year ended December 31, 2011, the limited partner of Mercado Apartments, L.P. transferred its ownership to MAAC. The entities listed above and Mercado Apartments, L.P. are collectively referred to as the Affiliates. All the entities are California limited partnerships organized under the laws of the State of California, for the purpose of developing or acquiring, and operating low-income housing projects. Principles of Consolidation The consolidated financial statements include the accounts of Metropolitan Area Advisory Committee and its Affiliates (collectively the Organizations). All significant intercompany accounts and transactions have been eliminated. Financial Statement Presentation The Organizations reports information regarding its consolidated financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Unrestricted net assets represent expendable funds available for operations, which are not otherwise limited by donor restrictions. Temporarily restricted net assets consist of contributed funds subject to donor-imposed restrictions contingent upon specific performance of a future event or a specific passage of time before the Organizations may spend the funds. Permanently restricted net assets are subject to irrevocable donor restrictions requiring that the assets be maintained in perpetuity usually for the purpose of generating investment income to fund current operations. The Organizations had no permanently restricted net assets during the year ended December 31, Revenue and Support Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. 7

10 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Notes to Consolidated Financial Statements Year Ended December 31, 2011 Note 1 Organization and Summary of Significant Accounting Policies, continued Revenue and Support, continued Revenue from grants/contracts is recognized to the extent of eligible costs incurred up to an amount not to exceed the total grant/contract authorized. Deferred revenue results from grant awards received that are applicable to the subsequent period. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Accounts Receivable Accounts receivable consist of grants, contracts, and other receivables that arise in the normal course of operations. It is the policy of management to review the outstanding receivables at year end, as well as the bad debts experienced in the past, and establish an allowance for doubtful accounts for uncollectible amounts. Property and Equipment and Investment in Rental Property Acquisitions of property and equipment of $5,000 or more are capitalized for MAAC. Property and equipment are stated at cost, or if donated, at the approximate fair market value at the date of donation. Expenditures for maintenance and repairs are charged against operations. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets of three to 40 years. Amortization of leasehold improvements is included in depreciation expense. Land, buildings and equipment acquired with grant funds are considered to be owned by the Organizations while used in the program or in future authorized programs. However, the funding source may have a reversionary interest in the property as well as the right to determine the use of any proceeds from the sale of assets purchased with their respective funds. Impairment losses are recorded on long-lived 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 in the year ended December 31, Contributed Materials and Services Contributed materials are recorded at their fair market value where an objective basis is available to measure their value. Such items are capitalized or charged to operations as appropriate. The Organizations received a substantial amount of services donated by volunteers in carrying out the Organizations program services. No amounts have been recorded for those services as they do not meet the requirements for recognition as contributions in the consolidated financial statements. However, the fair market value of contributed professional services is reported as support and expense in the period in which the services are performed. Income Taxes MAAC is a qualified nonprofit organization that is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code. This exemption is for all income taxes except for those assessed on unrelated business income, if any. MAAC had no such unrelated business income in either year. MAAC is not a private foundation. The Organizations recognize accrued interest and penalties associated with uncertain tax positions as part of the income tax provision, when applicable. There are no amounts accrued in the financial statements related to uncertain tax positions for the year ended December 31,

11 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Notes to Consolidated Financial Statements Year Ended December 31, 2011 Note 1 Organization and Summary of Significant Accounting Policies, continued Income Taxes, continued The Organizations file informational and income tax returns in the United States and various state and local jurisdictions. The Organizations Federal income tax and informational returns for the year ended December 31, 2011, 2010 and 2009 are subject to examination by the Internal Revenue Service, generally for 3 years after the returns were filed. State and local jurisdictions have statutes of limitation that generally range from 3 to 5 years. Fair Value Measurements The Organizations define fair value as the exchange price that would be received for an asset or paid for a liability in the principal or most advantageous market. The Organizations apply fair value measurements to assets and liabilities that are required to be recorded at fair value under generally accepted accounting principles. Fair value measurement techniques maximize the use of observable inputs and minimize the use of unobservable inputs. The carrying value of cash, receivables, and payables approximates fair value as of December 31, 2011, due to the relative short maturities of these instruments. Subsequent Events The Organizations have evaluated subsequent events through August 15, 2012 which is the date the consolidated financial statements were available to be issued. Note 2 Restricted Cash Cash balances are held in restricted cash accounts to comply with the terms of certain loan and other regulatory agreements. Withdrawals from these accounts are allowed only for specific purposes. The financial institutions maintain a security interest in the cash account balances. Restricted cash consists of the following: Replacement reserve $ 926,676 Operating reserve 1,956,369 Exit tax reserve 147,785 Capital reserve 228,033 Tenant security deposits 475,744 Other 110,371 $ 3,844,978 Note 3 Concentration of Credit Risk The Organizations maintain its cash in bank deposit accounts that are either insured by the Federal Deposit Insurance Corporation (FDIC) up to a limit of $250,000 per depositor or certain non-interest bearing accounts that are fully insured by the FDIC. The Organizations have not experienced any losses in its bank deposit accounts and believes they are not exposed to any significant credit risk on cash. 9

12 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Notes to Consolidated Financial Statements Year Ended December 31, 2011 Note 4 Accounts Receivable Accounts receivable consist of the following: Charter school $ 621,577 Head Start 392,689 Weatherization and Low Income Home Energy Assistance program 289,902 Job training program 229,942 Childcare food program 150,586 Youthbuild program 101,673 Recovery homes 56,899 Subsidiaries 46,644 Rental properties 20,790 Other receivables 37,715 1,948,417 Less: allowance for doubtful accounts (77,355) $ 1,871,062 Note 5 Rental Property MAAC owns and operates two rental properties. The Mayberry Townhomes project was acquired in 2003 and consists of a 70 unit apartment complex located in San Diego, California. The Villa Lakeshore project was acquired in 2003 and consists of a 34 unit apartment complex located in Lakeside, California. The MAAC Community Center is a 73,000 square foot commercial property located in Chula Vista, California that was acquired in The Affiliates own and operate low-income housing projects. The rental property consists of the following: MAAC Affiliates Total Buildings and improvements $ 16,003,338 $ 56,656,813 $ 72,660,151 Land 5,456,397 6,056,674 11,513,071 Land improvements - 4,551,310 4,551,310 Equipment 259,543 2,908,315 3,167,858 21,719,278 70,173,112 91,892,390 Less: accumulated depreciation (4,159,156) (23,963,810) (28,122,966) $ 17,560,122 $ 46,209,302 $ 63,769,424 A substantial portion of the Organizations rental property is identified as collateral for the related notes payable. Note 6 Property and Equipment Property and equipment consists of the following: Buildings and improvements $ 1,321,259 Land 94,988 Leasehold improvements 1,946,483 Vehicles 1,534,304 Furniture and equipment 1,261,168 6,158,202 Less: accumulated depreciation (3,917,808) $ 2,240,394 10

13 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Notes to Consolidated Financial Statements Year Ended December 31, 2011 Note 7 Lines of Credit MAAC has an unsecured $250,000 line of credit with Raza Development Fund with interest only payments due monthly at 7.5%. The funds are to be used in connection with predevelopment costs associated with the COMM 22 LLC project. The line of credit had a balance of $252,500 as of December 31, The principal and any unpaid interest were due in April 2012, however MAAC is currently negotiating a new maturity date. MAAC also has a $750,000 line of credit with City National Bank with interest only payments due monthly at the greater of 2.5% or Prime plus 1%. The line of credit had a balance of $512,306 as of December 31, The principal and any unpaid interest are due in December 9, Note 8 Ground Lease One of the affiliates, Seniors on Broadway Limited Partnership, entered into a ground lease agreement on March 1, 2005 (Ground Lease) with the Chula Vista Elementary School District (District). The lease expires on March 1, Ground lease payments are due on the last day of each year, subject to Available Cash Flow, as defined, for the first 15 years. To the extent the full lease payment is not paid in a given year from year 1 through 15, the unpaid balance shall accrue interest at an annual rate of 6 percent. All accrued or unpaid amounts that were not paid are due and payable to the District no later than the end of the 15 year period. Initial annual lease payments are $5,000 with each subsequent annual lease payment increasing by $5,000 until the annual payment reaches $60,000 in year 12. Beginning in year thirteen through the remaining term of the lease, the annual payment shall increase by 2.5 percent. Seniors on Broadway Limited Partnership has normalized the lease increases over the life of the ground lease. As of December 31, 2011 the ground lease payable was $703,985. As of December 31, 2011 $678,985 is the deferred ground lease payable. The annual expense of $107,593 was recorded to reflect the expense on a straight-line basis over the life of the lease. The difference between the payment and the accrual is shown as deferred ground lease for financial statement purposes. Scheduled ground lease payments as of December 31, 2011 are required as follows: Ground Lease Expense Deferred Ground Lease Year Ending December 31, Payments Required 2012 $ 30,000 $ 107,593 $ (77,593) , ,593 (72,593) , ,593 (67,593) , ,593 (62,593) , ,593 (57,593) Thereafter 7,977,068 7,639, ,965 $ 8,177,068 $ 8,177,068 $ - 11

14 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Notes to Consolidated Financial Statements Year Ended December 31, 2011 Note 9 Notes Payable Notes payable of the Organizations consist of the following: MAAC and MAAC R/E Note payable to California Statewide Communities Development Authority to repay funds acquired through issuance of variable rate demand revenue bonds. The loan proceeds were used to acquire and rehabilitate a facility in Chula Vista, California. The note is secured by a Deed of Trust covering the land, improvements and other property. The note requires monthly payments of $19,703, including interest at a fixed rate of 3.72% and it matures April The principal portion of monthly payments is deposited into a restricted account and will be applied to the principal balance of the note at certain times as set forth in the loan and reimbursement agreements. The note is also secured by an irrevocable letter of credit for $4,263,000. MAAC is required to pay quarterly letter of credit fees of $10,247. $ 3,500,000 Note payable to ARCS Commercial Mortgage with monthly payments of $22,071 including interest at 6.75%, matures November The note is secured by a Deed of Trust covering the land, improvements and certain other property located at the Mayberry Street property in San Diego, California. 2,897,047 Note payable to California Statewide Communities Development Authority to repay funds acquired through issuance of variable rate demand multi-family housing revenue bonds. The note is secured by a Deed of Trust covering the land, improvements and other property located at the Lakeshore property in Lakeside, California. The note requires monthly principal payments of $4,167 until the note becomes due in May Monthly interest payments are also due based on weekly interest rates determined by the bond remarketing agent. The monthly principal payments are deposited into a restricted account and will be applied to the principal balance of the note at certain times as set forth in the loan and reimbursement agreements. The note is also secured by an irrevocable letter of credit for $2,557,282. 2,420,000 Note payable to California Statewide Communities Development Authority to repay funds acquired through issuance of Qualified Zone Academy Bonds. The loan proceeds were used to renovate and rehabilitate qualified zone academy programs. Bi-monthly payments of $27,546 are required until the remaining principal is due in January Payments are deposited into a restricted account and will be applied to the principal of the note at the maturity date. The note is secured by a lease agreement between MAAC and the Sweetwater Union High School District. 2,500,000 Note payable to ARCS Commercial Mortgage with monthly payments of $11,711 including interest at 6.26%, remaining principal and interest due November The note is secured by a Deed of Trust covering the land, improvements and certain other property located at the Mayberry Street property in San Diego, California. 1,673,564 Promissory note payable to the Redevelopment Agency of the City of San Diego (SDHC) with monthly payments of $2,333 including interest of 3%. The note is secured by a Deed of Trust covering the land, improvements and certain other property located in San Diego, California. The outstanding principal balance and accrued interest are due January ,957 12

15 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Notes to Consolidated Financial Statements Year Ended December 31, 2011 Note 9 Notes Payable, continued MAAC and MAAC R/E, continued Note payable to the County of San Diego Redevelopment Agency (SDRA) with interest at 3% and principal payments beginning June 2035 in an amount equal to the lesser of interest accrued over the past twelve months or the amount determined by SDRA to be necessary to cover the costs of monitoring MAAC s compliance with the loan agreement. If residual revenues are generated from the property s operations, SDRA will receive 25% of the residual revenues each fiscal year. In the event that MAAC has repaid the $356,000 note payable to the County of San Diego Department of Housing and Community Development, SDRA will receive 50% of the residual revenues each fiscal year. Per the terms of the loan agreement, all payments received shall first be applied toward any costs or charges incurred in connection with the loan, next to the payment of accrued interest, then to the reduction of the principal balance. The outstanding balance including any unpaid interest is due in June The note is secured by a Deed of Trust covering the land, any improvements and certain other property located in Lakeside, California. 1,000,000 Note payable to the San Diego Housing Commission (SDHC) with interest at 3.0%. The note is secured by a Deed of Trust covering the land, improvements and other property located at the Mayberry Street property in San Diego, California. Annual payments are due only to the extent that residual receipts are available from the operations of the property. Per the terms of the loan agreement, SDHC will receive 23% and the Redevelopment Agency will receive 27% of the residual receipts available. The outstanding principal balance and all accrued interest are due in March ,000 Note payable to Jerome Navarra with monthly payments of $9,314 including interest at 7.0%, matures October The note is secured by a Deed of Trust covering the land, improvements and other property located in Chula Vista, California. 388,318 Promissory note payable to the Redevelopment Agency of the City of San Diego (SDHC) bearing interest at 3% of the outstanding balance. The note is secured by a Deed of Trust covering the land, improvements and certain other property located in San Diego, California. Installment payments are due annually only from and to the extent that residual receipts from the Agency s operation of the property are available. The entire outstanding principal and accrued interest of this Note shall be fully due and payable on October 9 th, ,370 Note payable to Wells Fargo Bank, unsecured, with a fixed interest rate of 3.0% requiring quarterly interest-only payments. The principal balance including any unpaid interest is due at the earlier of closing of normal business operations or the maturity date in July Wells Fargo Bank extended the maturity date for an additional year. 500,000 Note payable to Wells Fargo Bank, unsecured, non-interest bearing, payable in quarterly payments of $12,500, matures December All accrued interest owed from the period of January 1, 2008 to October 1, 2009 (accrued at an annual rate of 8%) has been waived by the bank unless MAAC becomes in default under the terms of the loan agreement. In such case, MAAC s interest obligation are reinstated retroactively back to December 1, 2008 at a rate of 4%. 387,500 13

16 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Notes to Consolidated Financial Statements Year Ended December 31, 2011 Note 9 Notes Payable, continued MAAC and MAAC R/E, continued Note payable to the County of San Diego Department of Housing and Community Development (HCD) requiring annual payments of $32,000 including interest at 3% beginning in June The note is secured by a Deed of Trust covering the land, improvements and other property located at the Lakeshore property in Lakeside, California. In the event that the operations of the property generate residual revenue, HCD will receive 25% of the residual revenue each fiscal year to be applied toward accrued interest. The principal balance and all unpaid interest are due in June ,000 Note payable to Local Initiative Support Corporation, unsecured, with quarterly interest only payments at 6.75%. The principal and any unpaid interest were due April MAAC is currently negotiating a new maturity date. 100,000 Note payable to Ideas and Actions with monthly payments of $2,161 including interest at 9.25%, matures February The note is secured by a Deed of Trust covering the land and improvements located in San Marcos, California. 50,744 18,042,500 Less: amounts forwarded to reserve account (1,788,337) $ 16,254,163 Affiliates Notes payable to various entities, interest accrues at weighted average rate of 6.82% with total monthly payments of principal and interest of $135,046. All unpaid principal and interest are due from 2025 to $ 17,534,794 Notes payable to various government entities, interest at 0% on outstanding notes payable of $2,161,339 in 2011, and simple interest of 3% to 6% on outstanding notes payable of $9,040,406 in 2011, with interest and principal payments due from specific project cash flow and/or at maturity. All unpaid principal and interest are due from 2029 to ,201,745 The Affiliates notes payable are secured by real estate with an aggregate cost of approximately $70,173,000. Future principal payments of the Organizations at December 31, 2011 are due as follows: $ 28,736,539 Year Ending December 31, MAAC Affiliates Total 2012 $ 494,908 $ 440,778 $ 935, , ,551 1,408, , , , , ,838 1,169, , , ,037 Thereafter 15,266,903 26,192,205 41,459,108 $ 18,042,500 $ 28,736,539 $ 46,779,039 14

17 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Notes to Consolidated Financial Statements Year Ended December 31, 2011 Note 10 Investment in Other Entities MAAC is a member of COMM 22 Associates, LLC, a California limited liability company. COMM 22 Associates, LLC was formed in 2004 for the purpose of developing a mixed-use affordable rental housing project, with retail and commercial space and associated amenities. MAAC s investment in COMM 22 Associates, LLC at December 31, 2011 was $592,082. Note 11 Operating Leases MAAC occupies facilities and leases vehicles and equipment under operating lease agreements which expire through December Rent expense was $2,105,748 for the year ended December 31, Future minimum payments under non-cancelable operating leases as of December 31, 2011 are as follows: Year Ending December 31, 2012 $ 829, , , , ,530 Thereafter 43,113 $ 2,440,943 Note 12 Indirect Costs MAAC was granted an indirect cost rate of 9.3% by the U.S. Department of Health and Human Services, MAAC s federal cognizant agency for the year ended December 31, Note 13 Contingencies President John Adams Manor, L.P. MAAC has made certain guarantees with respect to their involvement with President John Adams Manor, L.P. MAAC agreed to guarantee the general partner s (PJAM, Inc.) obligation under the partnership agreement. The general partner is obligated to make additional contributions to the partnership to cover future potential operating deficits up to $1.5 million in excess of the required reserves, as outlined in the partnership agreement. Any contributions made shall be deemed as capital contributions by the general partner. MAAC would be able to recover any such additional contributions upon availability of funds or upon the sale of the housing project. In addition, MAAC is required to maintain net assets of not less than $268,000. The general partner has indemnified the limited partner, with respect to certain benefits the limited partner anticipates based on the economic projections, which are, in part, the basis of the limited partner s investment decision. The benefits to the limited partner are the sum of the Low Income Housing Credit plus the sum of the interest, depreciation, amortization, and similar non-operating deductions multiplied by the marginal tax rate of the limited partner less any income derived from operations. While MAAC and the general partner expect to meet all of the conditions of the partnership agreement, the partnership agreement requires the general partner to maintain net assets of not less than $134,

18 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Notes to Consolidated Financial Statements Year Ended December 31, 2011 Note 13 Contingencies San Diego Mercado Associates In connection with San Diego Mercado Associates (SDMA) partnership, MAAC executed a withdrawal, redemption and release agreement in July 2006, which relinquished SDMA s interests in the Mercado Alliance, LLC. The other partner of SDMA refused to be a party of that settlement, and has made verbal claims that MAAC owes him compensation for his prior investment in SDMA. While MAAC does not consider these claims to be valid, attorneys engaged to handle the SDMA withdrawal agreement were unable to form a judgment, in accordance with applicable standards, as to whether an ultimate outcome favorable to MAAC in this matter is either probable or remote. Grants and Contracts MAAC has grants and contracts with government agencies which are subject to audit. No provision has been made for any liability that may result from such audits since the amounts, if any, cannot be determined. Management believes that any such liability will not be material. Note 14 Restrictions on Net Assets Temporarily restricted net assets are available for the following purposes: Self-sufficiency programs $ 60,828 Workforce development 12,594 Charter school activities 19,757 Weatherization activities 14,429 Note 15 Functional Allocation of Expenses $ 107,608 The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Note 16 Contingent Liabilities The Organizations may periodically be involved in litigation cases incidental to its business activities. While any litigation or investigation has an element of uncertainty, management believes that the outcome of any of these matters will not have a materially adverse effect on its financial position, results of operations or liquidity. Note 17 Transfer of Limited Partnership In accordance with the articles of limited partnership, the limited partner of Mercado Apartments, L.P. transferred its interest to MAAC during the year ended December 31, As a result, negative equity of $3,652,154 was transferred from the noncontrolling interest in limited partnerships to the controlling interest in limited partnerships on the consolidated statement of net assets. 16

19 Supplemental Information 17

20 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Schedule I - Consolidating Statements of Financial Position December 31, 2011 Metropolitan Area Advisory Committee MAAC MAAC R/E * Total ASSETS Current Assets: Cash $ 1,072,257 $ 364,952 $ 1,437,209 Restricted cash , ,714 Accounts receivable, net of allowance for doubtful accounts of $77,355 2,249,746 16,749 2,266,495 Prepaid expenses 327,907 32, ,403 Other current assets 386, ,351 Total Current Assets 4,036, ,536 4,710,172 Other Assets: Rental property, net - 17,560,122 17,560,122 Property and equipment, net 2,240,394-2,240,394 Investment in other entities 3,840,328 (3,473,537) 366,791 Permanent financing costs, net of accumulated amortization of $1,037, , ,488 Accrued developer fees, net of discount of $441, , ,017 Deposits and other assets 853,433 9, ,083 Total Other Assets 7,315,172 14,545,723 21,860,895 Total Assets $ 11,351,808 $ 15,219,259 $ 26,571,067 LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable $ 2,474,088 $ 763,701 $ 3,237,789 Accrued expenses 1,240,117 1,922 1,242,039 Lines of credit 764, ,806 Current portion of accrued interest Current portion of notes payable 122, , ,908 Deferred revenue 262,958 3, ,482 Total Current Liabilities 4,864,520 1,141,504 6,006,024 Ground lease payable Accrued interest, net of current portion Intercompany payable (receivable) (1,986,941) 1,986,941 - Notes payable, net of current portion 414,939 15,344,316 15,759,255 Advances payable to related parties Other liabilities 12,676 72,304 84,980 Total Liabilities 3,305,194 18,545,065 21,850,259 Net Assets: Unrestricted: General 7,939,006 (3,325,806) 4,613,200 Controlling interests in affiliates Temporarily restricted 107, ,608 Noncontrolling interests in affiliates Total Net Assets 8,046,614 (3,325,806) 4,720,808 Total Liabilities and Net Assets $ 11,351,808 $ 15,219,259 $ 26,571,067 * MAAC R/E includes the real estate operations of Metropolitan Area Advisory Committee (see Note 5). See independent auditors' report.

21 Affiliates Eliminating Entries Total $ 1,207,412 $ - $ 2,644,621 3,585,264-3,844,978 23,545 (418,978) 1,871, , , ,351 4,986,527 (418,978) 9,277,721 46,209,302-63,769, ,240, , , ,755-1,105,243 - (381,017) - - (651,074) 212,009 46,865,057 (806,800) 67,919,152 $ 51,851,584 $ (1,225,778) $ 77,196,873 $ 173,096 $ (12,246) $ 3,398, ,824-1,793, , , , , , , ,537 1,796,247 (12,246) 7,790, , ,985 4,583,357-4,583, ,295,761-44,055,016 1,880,645 (1,880,645) ,980 37,259,995 (1,892,891) 57,217, ,113 5,280,313 (225,291) - (225,291) ,608 14,816,880-14,816,880 14,591, ,113 19,979,510 $ 51,851,584 $ (1,225,778) $ 77,196,873 18

22 METROPOLITAN AREA ADVISORY COMMITTEE AND AFFILIATES Schedule II - Consolidating Statements of Activities Year Ended December 31, 2011 Metropolitan Area Advisory Committee MAAC MAAC R/E * Total Revenue and Support: Contract revenue $ 27,348,137 $ - $ 27,348,137 Contributions 97,113-97,113 Program service fees 2,053,655-2,053,655 Contractual services 3,979,277-3,979,277 Charter school apportionments 2,171,064-2,171,064 Rents and tenants fees - real estate 1,486,198 1,486,198 Other income 309,836 15, ,131 Interest income 3,202 34,581 37,783 Rents and tenant fees - limited partnerships Total Revenue and Support 35,962,284 1,536,074 37,498,358 Expenses: Program services Metropolitan Area Advisory Committee 31,926,524 4,963,272 36,889,796 Limited partnerships Supporting services: Management and general 2,749,360-2,749,360 Fundraising 43,610-43,610 Total Expenses 34,719,494 4,963,272 39,682,766 Change in Net Assets $ 1,242,790 $ (3,427,198) $ (2,184,408) * MAAC R/E includes the real estate operations of Metropolitan Area Advisory Committee (see Note 5). See independent auditors' report

23 Affiliates Eliminating Entries Consolidated $ - $ - $ 27,348, ,113 - (805,025) 1,248, ,979, ,171,064 - (28,023) 1,458,175 - (25,757) 299, ,783 7,125,062-7,125,062 7,125,062 (858,805) 43,764,615 - (3,473,537) 33,416,259 8,365,315 (833,048) 7,532, ,749, ,610 8,365,315 (4,306,585) 43,741,496 $ (1,240,253) $ 3,447,780 $ 23,119 19

24 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 Metropolitan Area Advisory Committee Chula Vista, California We have audited the financial statements of Metropolitan Area Advisory Committee (MAAC) as of and for the year ended December 31, 2011, and have issued our report thereon dated August 15, We conducted our audit 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. Internal Control over Financial Reporting In planning and performing our audit, we considered MAAC s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of MAAC s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the MAAC s internal control over financial reporting. 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 consolidated financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting 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 financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the MAAC s financial statements are free of 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 audits, 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. AKT LLP, CPAs and Business Consultants CARLSBAD 5946 Priestly Drive, Suite 200 Carlsbad, CA Phone: Fax:

25 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS (continued) This report is intended solely for the information and use of the audit committee, board of directors, management, and others within the MAAC, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Carlsbad, California August 15, 2012

26 INDEPENDENT AUDITORS REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 To the Board of Directors Metropolitan Area Advisory Committee Chula Vista, California Compliance We have audited Metropolitan Area Advisory Committee (MAAC) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the MAAC s major federal programs for the year ended December 31, The MAAC s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the MAAC s management. Our responsibility is to express an opinion on the MAAC s compliance based on our audit. 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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 the MAAC 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. Our audit does not provide a legal determination of MAAC s compliance with those requirements. In our opinion, the MAAC complied, in all material respects, with the requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, Internal Control over Compliance Management of the MAAC is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the MAAC s internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 MAAC s internal control over compliance. AKT LLP, CPAs and Business Consultants CARLSBAD 5946 Priestly Drive, Suite 200 Carlsbad, CA Phone: Fax: