I I BARRY M. WUNTCH, LLP

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1 BARRY M. WUNCH, LLP CEHFED PUBLC ACCOUNANS 6060 Richmond Ave,, Suie 301 Houson, exas necom.com (713) Fax: (713) NDEPENDEN AUDOR'S REPOR o he Board of Direcors and Members Meyerland Communiy mprovemen Associaion We have audied he accompanylng balance shees of Meyerland Communiy mprovemen Associaion as of December 31, 2009 and 2008, and he relaed saemens of revenues and expenses, changes in members' equiy, and cash flows for he years hen ended. hese financial saemens are he responsibiliy of he Associaion's managemen. Our responsibiliy is o express an opinion on hese financial saemens based on our audis. We conduced our audis in accordance wih audiing sandards generally acceped in he Unied Saes of America. hose sandards require ha we plan and perform he audi o obain reasonabie assurance abou wheher he financial saemens are free of maerial missaemen. An audi includes examining, on a es basis, evidence supporing he amouns and disclosures in he financial saemens. An audi also includes assessing he accouning principles used and siguifican esimaes made by managemen, as well as evaluaing he overall financial saemen presenaion. We believe ha our audis provide a reasonable basis for our opinion. n our opinion, he financial saemens referred o above presen fairly, in all maerial respecs, he financial posiion of Meyerland Communiy mprovemen Associaion as of December 31, 2009 and 2008, and he resuls of operaions and is cash flows for he years hen ended, in conformiy wih accouning principles generally acceped in he Unied Saes of America. As discussed in Noe 5, he Associaion has no esimaed he remaining lives and he replacemen coss of he common propery and, herefore, has no presened he esimaes of fuure major repairs and replacemen ha will be required in he fuure ha he American nsiue of Cerified Public Accounans has deermined is required o supplemen, alhough no required o be a par of, he basic financial saemens. fr,ry fr' /fr^/'ffr bf Houson, exas June 4, 2010 Member of he American lnsiue and exas Sociey of Cerified Public Accounans

2 i! MEYERLAND COMMUNY MPROVEMEN ASSOCAON NDEPENDEN AUDOR'S REPOR ON HE FNANCAL SAEMENS FNANCAL SAEMENS ABLE OF CONENS Balance Shees Saemens of Revenues and Expenses Saemens of Changes in Members' Equiy Saemens of Cash Flows NOES O FNANCAL SAEMENS Page No. ) ll

3 MEYERLAND COMMUNY MPROVEMEN ASSOCAON BALANCE SHEES December 31, 2009 and 2008 ASSES CASH AND SHOR-ERM NVESMENS RECEVABLE - HOMEOWNERS RECEVABLE - SWSA RECEVABLE - OHER PREPAD EXPENSES DEPOSS FXED ASSES, ne of accumulaed depreciaion of $129,324 and $120,559, respecively. LAND 557,053 63,119 s,ss 1,000 37, , ,867 76,919 5,700 4,307 7,947 1,000 35, ,519 $ 872,289 $ 763,619 LABLES AND MEMBERS' EQUY ACCO]NS PAYABLE PREPAD ASSESSMENS ESCROW FEES $ 3, ,581 5,349 MEMBERS'EQUY 860, ,751 OAL LABLES 1,649 12,928 $ 872,289 $ 763,619! he accompanying noes are an inegral par of hese financial saemens. -2-

4 r l l l MEYERLAND COMMUNY MPROVEMEN ASSOCAON SAEMENS OF REVENUES AND EXPENSES Years ended December 31, 2009 and 2008 REVENUES Assessmens Assessmens - Parol Volunary conribuions Aorney fees o owners neres and dividends income ransfer fees Consrucion fees SWSA expense sharing Miscellaneous income EXPENSES OAL REVENUES Accouning and audi fees Afernoon in he park Auo allowance Bad deb expenses Capial expendiures - Office Commiee expenses Conribuions Deed resricions Depreciaion Hurricane lke damage nsurance Landscaping Legal fees Licenses and permis Miscellaneous expenses Newsleer expenses Ofhce expenses Professional services conracs Repairs and mainenance he accompanying noes are an inegral par of hese financial saemens $ 522, ,250 1,184 4,766 5,191 1,650 6,085 5,549 lg,l72 979,237 6,292 33,915 4,1 85 5,971 1,209 1,559 8,765 26,666 10,304 46,946 3,748 3,661 11,312 21,939 54,267 10, $ 487, ,150 3,101 9,325 15,904 19,575 4,000 6,050 3, ,060 13,246 5,009 5,969 1, r,367 10,162 13,506 21,631 19,221,523 ll,216 15,940 98,344 1,088

5 r r r MBYERLAND COMMUNY MPROVEME\ ASSOCAON SAEMENS OF REVENUBS AND EXPENSES (CON.) Years ended December 31, 2009 and 2008 EXPENSES (CON.) Salaries Securiy Securiy - Reimbursemen Small ools and supplies axes - payroll axes - properfy ransporaion/fu el expense Uniforms Uiliies OAL EXPENSES NE REVENUES 2009 $ 226, ,311 (11,720) 1,246 18, , $ 181, , , ,731 3, , ,121 09,889 $ 76,339 he accompanying noes are an inegral par of hese financial saemens. -4-

6 r MEYERLAND COMMUNY MPROVEMEN ASSOCAON SAEMENS OF CHANGES N MEMBERS' EQUY Years ended December 31, 2009 and 2008 r MEMBERS'EQUY A BEGNNNG OF YEAR s 750,751 $ 674,412 NE REVENUES 109,889 76,339 MEMBERS'EQUY A END OF YEAR $ 860,640 $ 750,751 he accompanying noes are an inegral par of hese hnancial saemens.

7 r MEYERLAND COMMUNY MPROVEMEN ASSOCAON SAEMENS OF CASH FLOWS Years ended December 31, 2009 and 2008 r EXCESS OF REVENUES (EXPENSES) OVER EXPENSES (REVENUES) ADJUSMEN O RECONCLE EXCESS OF REVENUES (EXPENSES) OVER EXPENSES (REVENUES) O NE CASH PROVDED BY OPERANG ACVES: Decrease in receivable - homeowners ncrease in receivable - oher Decrease in receivable - oher ncrease in prepaid expenses Depreciaion Decrease in accouns payable ncrease in escrow funds ncrease in prepaid assessmens OAL ADJUSMENS NE CASH PROVDED BY OPERANG ACVES CASH FLOWS FROM NVESNG ACVES: Acquisiion of fixed asse NE NCREASE N CASH AND SHOR-ERM NVESMENS CASH AND SHOR-ERM NVESMENS, BEGNNNG OF YEAR CASHAND SHOR-ERM NVESMENS, END OF YEAR he accompanying noes are an inegral par of hese financial saemens ,8 89 $ 76,339 13,800 10,007 (44,004) 8,165 ( 1,879) (12,71) 91,178 1,202 (2,007) (2,r4) 11,361 (1,157) 12 13, ,642 (0,992) (19,960) 86, , ,185 _q_557,053 $ 4?oW

8 r r il l l NOE 1 NOES O FNANCAL SAEMENS SUMMARY OF SGNFCAN ACCO]NNG POLCES Organizaion and basis of presenaion Meyerland Communiy mprovemen Associaion (he "Associaion"), a exas non-profi corporaion, was incorporaed Sepember he Associaion was formed for he purposes of benevolen underaking, namely being conducing safey and healh campaigns for he residens and o provide for he adminisraion and mainenance of associaion propery and o enforce resricions, condiions, and covenans exising upon propery over which he Associaion has jurisdicion. he Associaion consiss of 2,315 oal los and oher non-profi members. Associaion policies and procedures are deermined by he Board of Direcors. he accompanying financial saemens have been prepared on he accrual basis of accouning, whereby income is recognized when earned and coss and expenses are recognized when he obligaions are incurred. Pervasiveness of esimaes he preparaion of financial saemens in accordance wih accouning principles generally acceped in he Unied Saes requires managemen o make esimaes and assumpions ha affec he repored amouns of asses and liabiliies and disclosure of coningen asses and liabiliies a he dae of he financial saemens and he repored amouns of revenues and expenses during he reporing period. Acual resuls could differ from hose esimaes. Owner assessmens he owners are assessed annual assessmen fees which are colleced o mee he Associaion's normal operaing coss. For he years ended December 31,2009 and 2008, assessmens for each lo were based upon mils and mils per square foo of propery, respecively. For he year ended December 31,2008, he Associaion gave arebae of per square foo applied o he regular mil assessmen of per square foo. herefore, he effecive rae for 2008 will be per square foo. he rebae was given because of uninenional excess collecions for 2006 and

9 NOES O FNANCAL SAEMENS. NOE 1 SMMARY OF SGNFCAN ACCOLNNG POLCES (CON.) Assessmen for securiy services (SWSA) : F he Associaion amended all weny-wo deed resricions o allow for an assessmen for securiy services o be due annually on January 1; in addiion, o secure paymen of he assessmen for securiy services, a lien agains each lo shall be imposed and reained in he same manner as he Mainenance Fund, he Associaion shall apply he oal funds arising from such assessmens oward he paymen of expenses incurred for securiy services. he assessmen for securiy services is fixed a a uniform rae for all los, which was $175 and $165 per lo, respecively, for he years ended December 3,2009 and Recosniion of asses he Associaion is responsible for preserving and mainaining he common area properies and may dispose of hem wih he majoriy voe by he Board. Major classificaions of propery and equipmen and heir respecively lives are summarized below: Cos Descripion Mehod Office Building and Propery $ 68,302 $ 61,127 SL yrs. Auo/rucks 43,639 43,639 SL - 5 yrs. Machines and Equipmen SL - 5 yrs 166, ,920 Accumulaed Depreciaion ( \ ( ) $ lj!8 L 15J61 Associaion land.5716 acres ofland Easemen for noise wall $ 151,518 $ 151,518 N/A N/A $ 6l*118 $ l6lj_r_8-8-

10 NOES O FNANCAL SAEMENS NOE 2 FEDERAL NCOME AXES he Associaion is ax exemp from federal income axes under nemal Revenue Code Secion 501(c)(a). ax exemp saus is deermined for civic organizaions operaed for promoing he social welfare, common good and general welfare of he communiy. For he years ending December 3,2009 and 2008, he Associaion filed Form 990, Reurn of Organizaion Exemp from ncome ax. NOE 3 ESCROW FL{D he Escrow fund was creaed as a resul of he Associaion's agreemen o subordinae is lien securing paymen of he annual mainenance assessmen agains propery purchased by loans which are insured by FHA, VA, and FNMA. For graning he subordinaion, he propery owner deposis wih he Associaion, a sum of money o be held in escrow. A porion of ha sum plus he ineres earned on he balance of he deposi shall be applied as a credi (paianen) o he fuure annual mainenance assessmens agains such propery. f he amoun earned on a deposi exceeds he amoun of he annual mainenance assessmen in any given year, he Associaion has he righ o reain such excess as a reimbursemen of cos and expense of adminisraion and accouning for he deposi and as furher consideraion for graning he subordinaion of lien. he Escrow Agreemen provides for circumsances whereby addiional deposis may be required from a propery owner and whereby a reurn of he unused deposi may be made o a propery owner. he balances of escrow funds a December 31, 2009 and 2008 were $7,581 and$7,579, respecively. NOE 4 RELAED PARY RANSACONS Execuive Direcor - Salary For he year end December 3,2009, he execuive direcor was paid a salary of $45,233, which is included in oal salaries of $226,343 as repored on he accompanying Saemens of Revenues and Expenses. Execuive Direcor-Conrac he Associaion reains and compensaes an execuive direcor o perform managemen services on behalf of he Associaion. he execuive direcor for 2008 was a member of he Associaion. Execuive direcor conrac expenses are included in "Professional services conracs" and repored on he accompanying Saemens of Revenues and Expenses. -9-

11 NOES O FNANCAL SAEMENS NOE 4 RELAED PARY RANSACONS (CON.) Deed Resricions and Assisan Manaqer For 2009 and 2008, he Associaion reained and compensaed as conrac labor wo oher members of he Associaion. One member performs archiecural conrol services, and he oher member performs office assisan selices. Compensaions for hese members are included and repored in "Professional services conracs" on he accompan)'lng Saemens of Revenues and Expenses. Relaed Vendor Services Souhwes Securiy Associaion (SWSA) provided securiy services o he Associaion. Cerain board members of SWSA also serve on he Board of Direcors of he Associaion. n addiion, he general manager of SWSA was an assisan manager and a member of he Associaion. For he years ended December 3, 2009 and 2008, he Associaion incurred securiy services of 5434,311 and $397,100, respecively, as repored on he accompanying Saemens of Revenues and Expenses. ln 2009, he Associaion received a refund/credi of $77,720 peraining o previous accumulaed overcharges. he Associaion, effecive January 2010, began paying parol services. Harris Couny direcly for consable NOE 5 FURE MAJOR REPARS AND REPLACEMENS he Associaion's governing documens do no require ha funds be accumulaed for fuure major repairs and replacemens, bu such deerminaion can be made by he Board of Direcors. he purpose of he annual assessmen is o (1) provide he working capial necessary o mee he Associaion's annual operaing expenses and (2) mainain a reserve for repair or replacemen of he general common elemens of he Associaion. he Associaion has no conduced a sudy o deermine he remaining useful lives of he componens of common propery and curren esimaes of major repairs and replacemens ha may be required in he fuure. he Associaion has also no developed a plan o fund hose needs. However, when replacemen funds are needed o mee fuure major repairs and replacemens, he Associaion has he righ o increase regular assessmens in accordance wih he CP (consumer price index) increase based on a 1979 basis, or delay major repairs and replacemens unil funds are available. he effec on fuure assessmens has no been deermined a his ime. -10-

12 NOES O FNANCAL SAEMENS NOE 6 HARzuS COLNY FLOOD CONROL DSRC - CHANGE N LO OWNERSHP AND SUBSEQEN EVEN CONNGENCY he Harris Couny Flood Conrol Disric (HCFCD) began acquiring homes in he Associaion hrough several volunary buyou programs ha began in HCFCD has purchased homes ha suffered subsanial damage during ropical Sorm Allison (he cos of repairs exceeded 50"/o of he value of he house prior o ropical Sorm Allison) or had repeaed flooding. he Associaion los 5 (five) los o HCFCD and will loose fuure assessmen income on hose los. he poenial loss in fuure revenues o he Associaion has no been deermined as of he dae of he ndependen Audior's Repor, which is June 4,2010. NOE 7 HJRRCANE KE DAMAGE O BOUNDARY FENCE n Sepember 2008, he Associaion incurred damage o he boundary fence from he impac of Hurricane ke. he Associaion had an agreemen wih homeowners o repair he boundary fence and share he cos. he Associaion incurred $10,162 in expenses for heir share of he boundary fence repair. As of December 31, 2008, he Associaion had $4,027 due from owners for heir share of he boundary fence repair, which is included in he balance of "Accoun Receivable - Oher" of $4,307 as of December 31, NOE 8 CONCENRAON OF RSK - LNNSURED DEPOSS A December 31, 2009, he balances of cerain Associaion bank accouns exceeded he $250,000 maximum deposi amoun ha he FDC will emporarily insure unil December 31,