THE NEVADA OWNERS, INC.

Transcription

1 Financial Statements and Supplementary Information for the Years Ended December 31, 2015 and 2014 Prisand, Mellina, Unterlack & Co., LLP Certified Public Accountants

2 Table Of Contents Independent Auditor's Report 1 Financial Statements: Balance Sheets 3 Supporting Schedules - Balance Sheets 5 Statements of Operations 6 Supporting Schedules - Statements of Operations 7 Statements of Changes in Stockholders' Deficiency 9 Statements of Cash Flows 10 Notes to Financial Statements 11 Supplementary and Prospective Information: 16 Independent Accountant's Compilation Report on Supplementary and Prospective Information 17 Comparative Schedule of Revenue and Expenditures - Budget, Historical and Forecast 18 Summary of Significant Accounting Policies and Forecast Assumptions 19

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5 BALANCE SHEETS AS OF DECEMBER 31, ASSETS Current Assets: Cash and cash equivalents $ 644,858 $ 50,531 Accounts receivable 195,738 55,149 Prepaid expenses 12, ,214 Total Current Assets 852, ,894 Reserve Fund: (Note 3) 150,112 - Total Current Assets and Reserve Fund 1,002, ,894 Property and Improvements: (Notes 2 and 4) Land 13,262,929 13,262,929 Building 28,378,921 28,378,921 Building improvements 3,939,156 3,939,156 Furniture, fixtures and equipment 135, ,725 Total 45,716,731 45,716,731 Less: Accumulated depreciation 30,287,688 29,093,867 Net Property and Improvements 15,429,043 16,622,864 Other Assets and Deferred Charges: Cash - security deposits 96,627 92,959 Deferred mortgage and line of credit closing costs (Note 2) 251, ,442 Total Other Assets and Deferred Charges 348, ,401 Total Assets $ 16,780,437 $ 17,621,159 The accompanying notes are an integral part of this statement

6 BALANCE SHEETS AS OF DECEMBER 31, LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Accrued mortgage and line of credit interest $ 100,142 $ 99,201 Due to stockholders - real estate tax abatements 222, ,806 Advance maintenance 79,865 45,220 Accounts payable and accrued expenses 64,015 42,799 Accrued real estate tax 2,916 - Due to The Nevada Condominium - 22,433 Accrued corporation taxes - 1,822 Total Current Liabilities 469, ,281 Long-Term and Other Liabilities: Mortgage payable (Note 5) 22,000,000 22,000,000 Line of credit payable (Note 5) 376, ,000 Security deposits payable 177, ,959 Total Long-Term and Other Liabilities 22,553,127 22,327,959 Total Liabilities 23,022,524 22,757,240 Stockholders' Deficiency: Common stock - $1.00 par value, 187,000 shares authorized, 174,188 shares issued 174, ,188 Additional paid-in capital 26,536,816 26,536,816 Accumulated deficit (32,378,091) (31,272,085) Treasury stock - at cost (Note 6) (575,000) (575,000) Total Stockholders' Deficiency: (6,242,087) (5,136,081) Total Liabilities and Stockholders' Deficiency $ 16,780,437 $ 17,621,159 The accompanying notes are an integral part of this statement

7 SUPPORTING SCHEDULES - BALANCE SHEETS AS OF DECEMBER 31, Accounts Receivable: Due from The Nevada Condominium (Note 8) $ 106,041 $ - Maintenance - Apartments 89,697 32,703 Due from Nevada Towers Associates - 6,506 Other - 15,940 Total Accounts Receivable $ 195,738 $ 55,149 Prepaid Expenses: Corporation taxes $ 9,169 $ - Insurance 2,964 - Real estate tax - 581,214 Total Prepaid Expenses $ 12,133 $ 581,214 The accompanying notes are an integral part of this statement

8 STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, REVENUE Maintenance - Apartments $ 5,514,177 $ 5,278,284 Operating assessments (Note 7) 321, ,405 Storage fees 30,020 30,128 Late and other stockholder fees 24,872 32,152 Sublet fees 24,270 38,136 Laundry income 14,516 14,795 Interest income Total Revenue 5,929,564 5,716,933 COST OF OPERATIONS Administrative expenses 166, ,558 Operating expenses 1,642,331 1,668,889 Repairs and maintenance 128, ,040 Taxes 2,680,242 2,632,064 Financial expenses (Note 5) 1,176,956 1,166,194 Total Cost Of Operations 5,794,681 5,822,745 Operating income (loss) before other item and depreciation and amortization 134,883 (105,812) Prior year's accrual adjustments (1,920) - INCOME (LOSS) BEFORE DEPRECIATION AND AMORTIZATION 132,963 (105,812) Less: Depreciation and amortization 1,238,969 1,223,392 Net Loss For The Year $ (1,106,006) $ (1,329,204) The accompanying notes are an integral part of this statement

9 SUPPORTING SCHEDULES - STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, Administrative Expenses: Management fee $ 109,037 $ 101,495 Professional fees 46,198 23,144 Other administrative 10,933 8,919 Total Administrative Expenses $ 166,168 $ 133,558 Operating Expenses: Other Common charges (Note 8) $ 1,636,349 $ 1,657,203 Permits and miscellaneous operating 5,417 8,247 Insurance 565 3,439 Total Operating Expenses $ 1,642,331 $ 1,668,889 Repairs and Maintenance: Elevator contract and repairs $ 43,245 $ 38,795 Plumbing 25,796 46,746 Materials and supplies 22,264 36,002 Equipment and electrical repairs 9,597 11,055 Painting, plastering and flooring 7,503 24,755 Exterminating 7,254 6,221 Uniforms 5,406 7,344 Doors, locks and windows 3,747 6,679 Grounds and plants 2,597 6,529 Security and intercom 1,575 4,920 HVAC repairs - 1,111 Miscellaneous repairs - 14,159 Metal maintenance - 9,296 Fire alarm and sprinkler system - 8,428 Total Repairs and Maintenance $ 128,984 $ 222,040 The accompanying notes are an integral part of this statement

10 SUPPORTING SCHEDULES - STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, Taxes: New York City real estate tax (Note 9) $ 2,664,915 $ 2,607,642 Corporation taxes (Note 10) 15,327 24,422 Total Taxes $ 2,680,242 $ 2,632,064 Financial Expenses: (Note 5) Mortgage interest $ 1,167,620 $ 1,164,350 Line of credit interest 9,336 1,844 Total Financial Expenses $ 1,176,956 $ 1,166,194 Depreciation and Amortization: Building $ 1,031,961 $ 1,031,961 Building improvements and equipment 161, ,111 Amortization of mortgage and line of credit closing costs 45,148 40,320 Total Depreciation and Amortization $ 1,238,969 $ 1,223,392 The accompanying notes are an integral part of this statement

11 STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY FOR THE YEARS ENDED DECEMBER 31, COMMON STOCK Balance - January 1, $ 174,188 $ 174,188 Transactions during the year - - Balance - December 31, $ 174,188 $ 174,188 ADDITIONAL PAID-IN CAPITAL Balance - January 1, $ 26,536,816 $ 26,536,816 Transactions during the year - - Balance - December 31, $ 26,536,816 $ 26,536,816 ACCUMULATED DEFICIT Balance - January 1, $ (31,272,085) $ (29,942,881) Net loss for the year (1,106,006) (1,329,204) Balance - December 31, $ (32,378,091) $ (31,272,085) TREASURY STOCK - AT COST (NOTE 6) Balance - January 1, $ 575,000 $ 575,000 Transactions during the year - - Balance - December 31, (970 shares) $ 575,000 $ 575,000 The accompanying notes are an integral part of this statement

12 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the year $ (1,106,006) $ (1,329,204) Adjustments to reconcile net loss to cash provided (used) by operating activities: Depreciation and amortization 1,238,969 1,223,392 (Increase) in accounts receivable (140,589) (36,814) Decrease (increase) in prepaid expenses 569,081 (27,978) (Decrease) increase in due to The Nevada Condominium (22,433) 22,433 Increase (decrease) in accounts payable and accrued expenses 21,216 (364,156) Increase in other current liabilities 41, ,668 Net change in security deposits transactions (4,500) 31,500 Total Adjustments 1,703,077 1,171,045 Cash Provided (Used) By Operating Activities 597,071 (158,159) CASH FLOWS FROM INVESTING ACTIVITIES (Increase) in reserve fund (150,112) - (Increase) in building improvements and equipment - (5,736) Cash (Used) By Investing Activities (150,112) (5,736) CASH FLOWS FROM FINANCING ACTIVITIES Draw from new line of credit payable 376,000 - Net (repayment) draw from former line of credit payable (150,000) 150,000 (Increase) in line of credit closing costs (78,632) - Cash Provided By Financing Activities 147, ,000 Net increase (decrease) in cash and cash equivalents 594,327 (13,895) Cash and cash equivalents at beginning of year 50,531 64,426 Cash and Cash Equivalents at End of Year $ 644,858 $ 50,531 SUPPLEMENTAL DISCLOSURES Interest paid $ 1,175,594 $ 1,165,883 Income taxes paid - net of refunds $ 26,318 $ 22,154 The accompanying notes are an integral part of this statement

13 Notes to Financial Statements Note 1 - ORGANIZATION On July 7, 1986, The Nevada Owners, Inc. (the "Corporation") was formed in order to acquire the residential unit of The Nevada Condominium (the "Condominium") located at 2025 Broadway, New York, New York. The Corporation took title to the property on December 20, It is a qualified Cooperative Housing Corporation under Section 216(b)(1) of the Internal Revenue Code and originally contained 270 apartment units (prior to combinations) plus one unit for the resident manager. As the owner of the residential unit of The Nevada Condominium, the Corporation has a % interest in the Condominium's common elements. The remaining 8.668% interest in the Condominium's common elements is owned by a commercial unit owner. As of December 31, 2015, Nevada Towers Associates (the "Sponsor"), owned 9,034 shares of stock (14 apartments), which represent approximately 5.2% of the Corporation's total outstanding shares, and contributed approximately 5.1% of the Corporation's gross revenue. Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Use of Estimates The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Reclassification of Accounts Certain 2014 accounts have been reclassified to conform to the 2015 report presentation. Such reclassifications had no effect on the previously reported net loss for the year. Property and Improvements Property and improvements are stated at cost. The building is depreciated on the straight-line method over an estimated life of twenty-seven and one-half years. Building improvements and equipment are depreciated on the straight-line method over estimated lives which range from five to twenty-seven and one-half years. Maintenance and repairs that do not increase the useful life of an asset are expensed as incurred. For tax purposes, the acquisition of the Property was reported as an exchange pursuant to Section 351 of the Internal Revenue Code. The tax basis of the building is $13,329,527, which is being depreciated on the straight-line method over an estimated life of forty years. Future Major Repairs and Replacements The Corporation's governing documents do not require the accumulation of funds in advance of actual need to finance estimated future major repairs and replacements. Consistent with general practice in New York City, the Corporation has not promulgated a study to determine the remaining useful lives of the components of the building and estimates of the costs of major repairs and replacements that may be required. When funds are required for major repairs and replacements, the Corporation has the right to utilize available cash reserves and/or borrow, increase maintenance, implement special assessments, or delay repairs and replacements until funds are available

14 Notes to Financial Statements Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Deferred Mortgage and Line of Credit Closing Costs Mortgage and line of credit closing costs have been deferred and are being amortized over the life of each obligation on the straight-line basis. Revenue Recognition and Accounts Receivable Stockholder maintenance is based on an annual budget determined by the Board of Directors. Stockholders are billed monthly based on their respective share ownership. This income is recognized when due and payable. Any excess maintenance charges at year-end are retained by the Corporation for use in future years or to replenish its reserve fund. Stockholder accounts receivable at the balance sheet date represent maintenance and fees due from unit-owners. The Corporation's policy is to retain legal counsel and place liens on the shares of stock of tenant-stockholders whose maintenance charges are unreasonably delinquent. The Corporation considers all accounts receivable at December 31, 2015 to be collectible. Accordingly, no allowance for doubtful accounts is required. Statement of Cash Flows The Corporation considers all highly liquid investments (not allocated to the reserve fund) with a maturity of three months or less at the date of purchase to be cash equivalents. Note 3 - RESERVE FUND During 2015, the following transactions have taken place in the Corporation's reserve fund Balance - January 1, $ - Draw from line of credit payable (Note 5) 150,000 Interest income 112 Balance - December 31, $ 150,112 The reserve fund is held in a National Cooperative Bank Money Market Account. Note 4 - PROPERTY AND IMPROVEMENTS During 2015 the Corporation did not capitalize any building improvements or equipment. During 2014, the Corporation capitalized $5,736 for security cameras

15 Notes to Financial Statements Note 5 - MORTGAGE PAYABLE AND LINES OF CREDIT PAYABLE Mortgage Payable The mortgage payable, in the original principal amount of $22,000,000, was initially held by HSBC Bank USA, National Association. It is currently held by Fannie Mae and serviced by Berkadia Commercial Mortgage. The loan requires monthly payments representing interest only at a rate of 5.22% per annum based on the actual days elapsed in any period over a 360 day year. A payment of $98,890 is required for a 31 day month. The loan is secured by the land and building owned by the Corporation. It has a ten year term and is scheduled to mature on June 1, The loan may be prepaid in whole upon thirty days notice to the holder of the note, subject to a prepayment penalty fee. The penalty is equal to the greater of 1% of the principal balance being prepaid or the present value of the excess interest due on the current mortgage based on an indexed rate. Lines of Credit Payable On September 16, 2015, the Corporation established a $3,000,000 unsecured line of credit with National Cooperative Bank ("NCB"). Proceeds from this facility may be used only to pay for capital improvements with respect to the Premises or to fund the Corporation's reserves. Through October 1, 2018, funds may be borrowed from the line of credit in minimum amounts of $10,000. When funds are borrowed, payments of interest only (based on a 360 day year) will be due at a rate equal to the greater of 3.90%, or the sum of the 30 day LIBOR rate plus 3.75%. The line of credit is scheduled to mature on June 1, 2020 or upon the refinancing or repayment of the mortgage payable. As of December 31, 2015, $376,000 was outstanding on the line of credit payable. As a condition of the loan, the Corporation deposited $150,000 into a reserve account held at NCB, which must remain in place for at least twelve months. As of December 31, 2015, the reserve fund had a balance of $150,112 (Note 3). Prior to September 16, 2015, the Corporation had a $3,000,000 line of credit with HSBC Bank USA which had an interest rate equal to 30 day LIBOR plus 2.25% and an original maturity date of June 1, HSBC Bank USA modified the line of credit by reducing the maximum draw amount to $300,000 and changing the maturity date to September 15, At maturity, the Corporation repaid the line of credit's outstanding balance in full. Note 6 - TREASURY STOCK - AT COST As of December 31, 2015 and 2014, the Corporation held 970 treasury shares appurtenant to one residential apartment which is used to house the building's resident manager. The treasury shares have a cost basis of $575,000. Note 7 - OPERATING ASSESSMENTS During 2015 and 2014, the Corporation implemented assessments of $1.86 and $1.87 per share of outstanding stock, respectively, which generated $321,414 and $323,405, respectively, for operating purposes. The Corporation's policy is to refund abatements granted under the New York City Cooperative Shareholder Real Estate Tax Abatement Program at approximately the same time as the assessments are charged to the stockholders. During 2016, a similar assessment is anticipated

16 Notes to Financial Statements Note 8 - COMMON CHARGES AND DUE FROM/TO THE NEVADA CONDOMINIUM Typically, the Condominium pays for shared property expenses such as insurance, wages, payroll taxes, union benefits, heating, electricity and gas, water and sewer charges, and common area repairs and maintenance. The Corporation then pays a monthly fee to the Condominium for its proportionate share of the common expenses. Due from/to The Nevada Condominium represents intercompany funds disbursed by the Corporation and Condominium for each other to meet cash requirements beyond the monthly common charges paid by the Corporation to the Condominium. During 2016, it is anticipated that the entire intercompany balance will be satisfied. Note 9 - REAL ESTATE TAX New York City real estate tax has been originally assessed as follows: Fiscal Taxable Tax Year Valuation Rate Tax 2012/13 $ 19,652, $ 2,590, /14 19,832, ,607, /15 20,359, ,617, /16 21,055, ,712,583 The Corporation routinely protests the taxable assessed valuation of its Property used for real estate taxation purposes. Protests are currently "open" for tax years 2012/13 through and including 2015/16. Note 10 - CORPORATION TAXES The Corporation is qualified to file its tax returns pursuant to the provisions of Subchapter T of the Internal Revenue Code. Subchapter T provides that expenses attributable to the generation of patronage income, i.e., income from business done with or for patrons (tenant-cooperators), are deductible only to the extent of patronage income. The Corporation believes that all of its income for the year ended December 31, 2015 is patronage income within the meaning of Subchapter T. For the year ended December 31, 2015, the Corporation sustained an operating loss and will not be liable for Federal income tax. As of December 31, 2015, the Corporation had approximately $13,150,000 of operating loss carryforwards from prior years for Federal income tax purposes, which will expire in various years through Since the future utilization of these tax carryforward losses is uncertain, no related deferred tax assets have been recognized in the accompanying financial statements. New York State Franchise and New York City Corporation taxes are calculated by utilizing special tax rates available to cooperative housing corporations based on the Corporation s capital base. The Corporation's tax returns for all years since 2012 remain open to examination by the respective taxing authorities. There are currently no tax examinations in progress

17 Notes to Financial Statements Note 11 - CONCENTRATION OF CREDIT RISK The Corporation maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Corporation has not experienced any losses due to concentration of credit risk in such accounts. Note 12 - CLAIMS OR LITIGATION From time to time, claims or matters of litigation may arise in the ordinary conduct of the Corporation's business. In the opinion of management, claims or litigation outstanding against the Corporation as of December 31, 2015 are either without merit or the ultimate losses, if any, would not have a material adverse effect on the financial position or results of operations of the Corporation. Note 13 - DATE OF MANAGEMENT'S REVIEW In preparing the financial statements, the Corporation has evaluated events and transactions for potential recognition or disclosure through July 22, 2016, the date that the financial statements were available to be issued

18 S U P P L E M E N T A R Y A N D P R O S P E C T I V E I N F O R M A T I O N

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20 Comparative Schedule of Revenue and Expenditures - Budget, Historical and Forecast REVENUE For The Year Prior Year Next Year January 1, December 31, 2015 January 1, January 1, December 31, 2014 December 31, 2016 Budget Actual Actual Forecast (Unaudited) (Unaudited) Maintenance - Apartments (1) $ 5,514,168 $ 5,514,177 $ 5,278,284 $ 5,555,523 Operating assessments 249, , , ,995 Storage fees 29,640 30,020 30,128 29,400 Late and other stockholder fees 33,800 24,872 32,152 17,500 Sublet fees 80,000 24,270 38,136 14,820 Laundry income 15,000 14,516 14,795 14,400 Interest income TOTAL REVENUE 5,921,931 5,929,564 5,716,933 6,097,638 EXPENDITURES Management fee 101, , ,495 96,000 Professional fees 16,400 46,198 23,144 26,736 Other administrative 2,000 10,933 8,919 6,252 Common charges 1,718,585 1,636,349 1,657,203 1,739,076 Permits and miscellaneous operating 2,000 5,417 8,247 1,392 Insurance 2, ,439 3,794 Repairs and maintenance 239, , ,040 99,528 New York City real estate tax 2,628,674 2,664,915 2,607,642 2,769,749 Corporation taxes 22,500 15,327 24,422 29,940 Mortgage interest 1,164,350 1,167,620 1,164,350 1,167,540 Line of credit interest 7,230 9,336 1,844 15,249 Transfers to reserve fund ,028 TOTAL EXPENDITURES 5,905,441 5,794,681 5,822,745 6,056,284 Budgeted Surplus $ 16,490 $ 41,354 OPERATING INCOME (LOSS) 134,883 (105,812) Prior year's accrual adjustments (1,920) - INCOME (LOSS) BEFORE DEPRECIATION AND AMORTIZATION $ 132,963 $ (105,812) (1) Maintenance has been increased by 4.5% effective January 1, 2015 and 1% effective April 1, See Independent Accountant's Compilation Report and Summary of Significant Accounting Policies and Forecast Assumptions

21 Summary of Significant Accounting Policies and Forecast Assumptions For The Year Ending December 31, 2016 The operating budget forecast presents, to the best of management's knowledge and belief, the Corporation's expected results of operations for the forecast period. Accordingly, the forecast reflects management's judgment as of March 10, 2016, the date of this forecast, of the expected conditions and its expected course of action. The assumptions disclosed herein are those that management believes are significant to the forecast. There will usually be differences between forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The forecast has been prepared using generally accepted accounting principles that the Corporation expects to use when preparing its historical financial statements. FORECAST ASSUMPTIONS Revenue Maintenance has been computed based on an average of $464,109 per month, which reflects an increase of 1% effective April 1, An operating assessment of $465,995, or $2.69 per share of outstanding stock, has been anticipated during The Corporation's policy is to refund abatements granted under the New York City Cooperative Shareholder Real Estate Tax Abatement Program at approximately the same time as the assessment is charged to the stockholders. Laundry income is based upon a contract. Other fees and income are based upon historical experience or contracts. Expenses Common charges reflect the Corporation's portion of certain shared operating expenses such as insurance, wages, payroll taxes, union benefits, heating, electricity and gas, water and sewer charges, and common area repairs and maintenance, which are disbursed by The Nevada Condominium. Real estate tax is computed based on an anticipated assessed valuation times an estimated tax rate. A 3.9% increase in real estate tax expense has been anticipated during Debt service is based upon the payments required by the Corporation's outstanding mortgage payable and line of credit payable. Repairs and maintenance is based upon historical experience and expected maintenance requirements. Other expenses are based upon historical experience or contracts. Income Tax The Corporation is subject to Federal income tax based on net income. The Corporation is also subject to New York State Franchise tax and New York City Corporation tax calculated at the higher of tax based on net income, capital or prescribed minimum amounts