Manhattan Beach Housing Development Fund Corporation Financial Statements (With Supplementary Information) and Independent Auditor's Report June 30, 2015 and 2014
Index Page Mortgagor's Certification 3 Managing Agent's Certification 4 Independent Auditor's Report 5 Financial Statements Statements of Financial Position 7 Statements of Activities 9 Statements of Cash Flows 11 Notes to Financial Statements 13 Supplementary Information Statement of Financial Position Data 25 Statement of Activities Data 27 Statement of Cash Flows Data 31 Reserve for Replacements 33 Residual Receipts Reserve 33 Computation of Surplus Cash, Distributions and Residual Receipts 34 Changes in Fixed Asset Accounts 35 Detail of Accounts - Statement of Financial Position 37 Detail of Accounts - Statement of Activities 38 Other Information 39 Schedule of Expenditures of Federal Awards 40 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 41 1
Index Page Independent Auditor's Report on Compliance for Each Major Federal Program and on Internal Control over Compliance Required by OMB Circular A-133 43 Schedule of Findings and Questioned Costs 45 2
June 30, 2015 and 2014 Mortgagor's Certification I hereby certify that I have examined the accompanying financial statements and supplementary data of and, to the best of my knowledge and belief, the same are complete and accurate. OFFICER Telephone Number: (212) 273-5212 3
June 30, 2015 and 2014 Managing Agent's Certification I hereby certify that I have examined the accompanying financial statements and supplementary data of and, to the best of my knowledge and belief, the same are complete and accurate. MANAGING AGENT JASA Housing Management Services for the Aged, Inc. Donald Manning Director of Housing Date lnna Stavitsky Property Manager Managing Agent Taxpayer Identification Number: 13-3078676 4
Independent Auditor's Report To the Board of Trustees Report on the Financial Statements We have audited the accompanying financial statements of Manhattan Beach Housing Development Fund Corporation, which comprise the statements of financial position as of June 30, 2015 and 2014, and the related statements of activities and cash flows for the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 5
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of as of June 30, 2015 and 2014, and the changes in its net assets and its cash flows for the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014, in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information on pages 25 to 39 is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards, as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, 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 audits 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 25, 2015, on our consideration of Manhattan Beach Housing Development Fund Corporation'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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering 's internal control over financial reporting and compliance. Baltimore, Maryland Taxpayer Identification Number: September 25, 2015 22-1478099 Lead Auditor: Michael A. Cumming 6
Statements of Financial Position June 30, 2015 and 2014 Assets 2015 2014 Current assets Cash - operations $ 291,408 $ 761,628 Tenant accounts receivable 8,922 6,394 Allowance for doubtful accounts (1,180) (4,663) Accounts receivable - HUD 2,739 7,926 Accounts and notes receivable - operations - 630,982 Due from affiliates 245,158 - Prepaid expenses 183,841 185,695 Total current assets 730,888 1,587,962 Deposits held in trust - funded Tenant deposits 35,948 34,990 Restricted deposits and funded reserves Escrow deposits 171,667 155,212 Reserve for replacements 67,055 264,544 Residual receipts reserve 150,424 150,331 Total restricted deposits and funded reserves 389,146 570,087 Rental property Land 553,089 553,089 Buildings 12,418,504 11,879,842 Building equipment - portable 32,910 30,928 Furniture for project/tenant use 64,762 64,762 Miscellaneous fixed assets 782,584 63,940 13,851,849 12,592,561 Less accumulated depreciation (7,980,042) (7,556,714) Total rental property 5,871,807 5,035,847 Other assets Deferred financing costs, net of accumulated amortization of $187 and $43,697 12,330 191,138 Total other assets 12,330 191,138 Total assets $ 7,040,119 $ 7,420,024 7
Statements of Financial Position June 30, 2015 and 2014 Liabilities and Net Assets (Deficit) 2015 2014 Current liabilities Accounts payable - operations $ 131,172 $ 136,173 Accrued wages payable 17,292 17,267 Accrued payroll taxes payable 1,305 1,307 Accrued management fee payable 2,795 2,855 Accrued interest payable - first mortgage 27,428 42,665 Mortgage payable - first mortgage, current maturities 172,451 116,104 Miscellaneous current liabilities 112,924 739,760 Prepaid revenue 2,889 2,150 Total current liabilities 468,256 1,058,281 Deposits liability Tenant deposits held in trust (contra) 35,948 34,990 Long-term liabilities Mortgage payable - first mortgage, net of current maturities 8,223,782 8,416,897 Total long-term liabilities 8,223,782 8,416,897 Total liabilities 8,727,986 9,510,168 Contingency - - Net assets (deficit) Unrestricted net assets (deficit) (1,934,697) (2,390,144) Temporarily restricted net assets 246,830 300,000 Total net assets (deficit) (1,687,867) (2,090,144) $ 7,040,119 $ 7,420,024 See Notes to Financial Statements. 8
Statements of Activities Year Ended June 30, 2015 Temporarily Unrestricted Restricted Total Revenue Rental $ 2,359,738 $ - $ 2,359,738 Vacancies (39,228) - (39,228) Net rental revenue 2,320,510-2,320,510 Nursing home/assisted living and other revenue 51,569-51,569 Financial 224-224 Satisfaction of restrictions 53,170 (53,170) - Other 53,548-53,548 Total revenue 2,479,021 (53,170) 2,425,851 Expenses Administrative 366,498-366,498 Utilities 245,715-245,715 Operating and maintenance 420,012-420,012 Taxes and insurance 517,497-517,497 Financial (including interest of $420,246) 458,403-458,403 Loss on extinguishment of debt 187,225-187,225 Nursing home/assisted living and other elderly care 67,930-67,930 Total cost of operations before depreciation and amortization 2,263,280-2,263,280 Income (loss) before depreciation and amortization 215,741 (53,170) 162,571 Depreciation and amortization 427,428-427,428 Operating income (loss) (211,687) (53,170) (264,857) Contribution revenue (667,134) - (667,134) Change in net assets (deficit) 455,447 (53,170) 402,277 Net assets (deficit), beginning (2,390,144) 300,000 (2,090,144) Net assets (deficit), end $ (1,934,697) $ 246,830 $ (1,687,867) 9
Statements of Activities Period January 1, 2014 through June 30, 2014 Temporarily Unrestricted Restricted Total Revenue Rental $ 1,161,409 $ - $ 1,161,409 Vacancies (6,328) - (6,328) Net rental revenue 1,155,081-1,155,081 Nursing home/assisted living and other revenue 28,975-28,975 Financial 140-140 Other 573,070-573,070 Total revenue 1,757,266-1,757,266 Expenses Administrative 185,875-185,875 Utilities 158,617-158,617 Operating and maintenance 202,572-202,572 Taxes and insurance 260,718-260,718 Financial (including interest lf $256,688) 388,727-388,727 Nursing home/assisted living and other elderly care 36,920-36,920 Total cost of operations before depreciation and amortization 1,233,429-1,233,429 Income (loss) before depreciation and amortization 523,837-523,837 Depreciation and amortization 209,987-209,987 Change in net assets (deficit) 313,850-313,850 Net assets (deficit), beginning (2,703,994) 300,000 (2,403,994) Net assets (deficit), end $ (2,390,144) $ 300,000 $ (2,090,144) See Notes to Financial Statements. 10
Statements of Cash Flows Year Ended June 30, 2015 and Period January 1, 2014 through June 30, 2014 2015 2014 Cash flows from operating activities Rental receipts $ 2,300,353 $ 1,169,575 Interest receipts 224 140 Other operating receipts 738,645 755,285 Total receipts 3,039,222 1,925,000 Administrative expenses paid (105,886) (144,679) Management fees paid (106,588) (53,842) Utilities paid (245,499) (175,688) Salaries and wages paid (334,359) (164,608) Operating and maintenance paid (233,466) (170,170) Real estate taxes paid (310,840) (155,420) Property insurance paid (105,258) (55,321) Miscellaneous taxes and insurance paid (509) (4,033) Other operating expenses paid (168,822) (83,854) Interest paid on first mortgage (435,483) (256,965) Mortgage insurance premium paid (37,687) (38,333) Total disbursements (2,084,397) (1,302,913) Net cash provided by operating activities 954,825 622,087 Cash flows from investing activities Net (deposits to) withdrawals from mortgage escrows (16,455) 8,151 Net withdrawals from (deposits to) reserve for replacements 197,489 (20,742) Net deposits to residual receipts reserve (93) (150,331) Net purchases of fixed assets (584,614) (42,683) Other investing activities (include detail) Advances for insurance related expenses (626,929) 626,929 Net cash (used in) provided by investing activities (1,030,602) 421,324 Cash flows from financing activities Mortgage principal payments - first mortgage (136,768) (55,498) Other financing activities (include detail) Deferred financing costs paid (12,517) - Entity/construction financing activities (include detail) Due from affiliates (245,158) Principal payments on notes and loans payable - (1,200,000) Net cash used in financing activities (394,443) (1,255,498) Net decrease in cash (470,220) (212,087) Cash, beginning 761,628 973,715 Cash, end $ 291,408 $ 761,628 Significant noncash investing and financing activities Additions to rental property included in accounts payable $ 69,480 $ 61,940 Payments of prior year accounts payable included in rental property $ (61,940) $ (19,000) Contributed rental property improvements $ 667,134 $ - 11
Statements of Cash Flows Year Ended June 30, 2015 and Period January 1, 2014 through June 30, 2014 2015 2014 Reconciliation of change in net assets to net cash provided by operating activities Change in net assets (deficit) $ 402,277 $ 313,850 Adjustments to reconcile change in net assets (deficit) to net cash provided by operating activities Depreciation 423,328 206,632 Amortization 4,100 3,355 Residual receipts obligation 93 112,831 Contributions (667,134) - Loss on the extinguishment of debt 187,225 - Changes in asset and liability accounts (Increase) decrease in assets Tenant accounts receivable (6,011) 2,106 Accounts receivable - other 636,169 173,173 Prepaid expenses 1,854 (19,796) Tenant security deposits funded (958) (359) Increase (decrease) in liabilities Accounts payable (12,541) (173,742) Accrued liabilities (37) 2,199 Accrued interest payable (15,237) (277) Tenant security deposits held in trust 958 359 Prepaid revenue 739 1,756 Total adjustments 552,548 308,237 Net cash provided by operating activities $ 954,825 $ 622,087 See Notes to Financial Statements. 12
Notes to Financial Statements June 30, 2015 and 2014 Note 1 - Organization (the "Corporation") was organized in 1978 as a nonstock, nonprofit corporation for the purpose of developing and operating housing facilities, under Section 202 of the National Housing Act, for persons of low income and for promoting the welfare of the elderly and handicapped. Such projects are regulated by the U.S. Department of Housing and Urban Development ("HUD") as to rent charges and operating methods. The project consists of 150 units located in Brooklyn, New York and is currently operating under the name of Scheuer House of Manhattan Beach. The Corporation receives a significant portion of its revenue from government subsidy payments. Surplus cash, as defined by HUD, is required to be deposited into a residual receipts reserve. The Corporation is wholly-controlled by JASA Corporation, its sole member. JASA Corporation also wholly controls the Jewish Association Serving the Aging ("JASA"), JASA Housing Management Services for the Aged, Inc. ("JHM") and other housing companies, in its capacity as their sole member. The Corporation is related to JASA, JHM and the other housing companies by virtue of this control. During 2014, the Corporation changed its fiscal year end to June 30 to correspond with the fiscal year end of JASA, JHM and other affiliated entities. The readers of the financial statements should be aware that the change in fiscal year results in a statement of activities and statement of cash flows showing twelve months of activity, while the comparative column represents six months of activity. Note 2 - Summary of significant accounting policies Basis of presentation The Corporation presents its financial statements in accordance with the accounting guidance for nonprofit entities. Under this guidance, the Corporation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. Furthermore, information is required to segregate program service expenses from management and general expenses. The Corporation conforms to accounting guidance on revenue recognition for nonprofit entities. Under this guidance, contributions received, if any, are recorded as unrestricted, temporarily restricted or permanently restricted support depending on the existence and/or nature of any donor restrictions. 13
Notes to Financial Statements June 30, 2015 and 2014 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 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. Accounts receivable and allowance for doubtful accounts Tenant receivables are reported net of an allowance for doubtful accounts. Management's estimate of the allowance is based on historical collection experience and a review of the current status of tenant accounts receivable. It is reasonably possible that management's estimate of the allowance will change. As of June 30, 2015 and 2014, the balance in the allowance for doubtful accounts was $1,180 and $4,663, respectively. Rental property Rental property is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated useful lives by use of the straight-line method. It is the Corporation's policy to capitalize items of $5,000 or greater and items purchased with replacement reserve that have a useful life that is greater than one year. Impairment of long-lived assets The Corporation reviews its rental property for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When recovery is reviewed, if the undiscounted cash flows estimated to be generated by the property are less than its carrying amount, management compares the carrying amount of the property to its fair value in order to determine whether an impairment loss has occurred. The amount of the impairment loss is equal to the excess of the asset's carrying value over its estimated fair value. No impairment loss was recognized during the year ended June 30, 2015 or the period January 1, 2014 through June 30, 2014. Deferred financing costs and amortization Mortgage costs are amortized over the term of the mortgage loan in a manner that approximates the effective yield method. Estimated annual amortization expense for each of the ensuing years through June 30, 2020 is $447. During the year ended June 30, 2015, the Corporation refinanced its mortgage with the lender (note 3). As part of the refinancing, the entity wrote off deferred financing costs, net of accumulated amortization, in the amount of $187,225,which has been recognized as loss on extinguishment of debt. 14
Notes to Financial Statements June 30, 2015 and 2014 Income taxes The Corporation has applied for and received a determination letter from the Internal Revenue Service ("IRS") to be treated as a tax-exempt entity pursuant to Section 501(c)(3) of the Internal Revenue Code and did not have any unrelated business income for the year ended June 30, 2015 or the period January 1, 2014 through June 30, 2014. Due to its taxexempt status, the Corporation is not subject to income taxes. The Corporation is required to file and does file tax returns with the IRS and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Corporation has no other tax positions which must be considered for disclosure. Income tax returns filed by the Corporation are subject to examination by the Internal Revenue Service for a period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2012 remain open. During 2014, the Corporation changed its fiscal year end for tax purposes to June 30. Revenue Rental income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Corporation and the tenants of the property are operating leases. Grant income The Corporation was awarded a cost reimbursed grant from HUD (see note 6). Revenue is recognized as costs are incurred. The Corporation was awarded a grant from the Fund for the City of New York (see note 9). Revenue was recognized as the funds became unconditionally committed for a specific purpose, and unspent funds are included as temporarily restricted net assets. Advertising costs Advertising costs are charged to operations when incurred. 15
Notes to Financial Statements June 30, 2015 and 2014 Functional expenses The costs of providing various programs and other activities for the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014 are summarized on a functional basis as follows: 2015 2014 Program services HUD-assisted elderly housing project $ 2,527,249 $ 1,353,945 Supporting services Management fee 106,528 54,105 Accounting 56,931 35,366 $ 2,690,708 $ 1,443,416 Fair value measurements The accounting guidance for fair value measurements and disclosures emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumption in fair value measurements, the guidance establishes a fair value hierarchy that distinguishes between market participants' assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified with Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about the market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Note 3 - Mortgage payable The mortgage note was insured by HUD and was collateralized by a deed of trust on the rental property. The mortgage bore interest at a rate of 6% per annum. Principal and interest were payable by the Corporation in monthly installments of $41,542 through maturity on January 1, 2043. As of June 30, 2014, the outstanding principal and accrued interest balances were $8,533,001 and $42,665, respectively. Effective January 1, 2015, the Corporation refinanced the mortgage with the lender. The remaining balance at the time of the refinancing was $8,466,120. The mortgage note continues to be insured by HUD and is collateralized by a deed of trust on the rental property. The note bears interest at the rate of 3.92% per annum. Principal and interest are payable by the Corporation in monthly installments of $41,542 through maturity on January 1, 2043. As of June 30, 2015, the outstanding principal and accrued interest balances were $8,396,233 and $27,428, respectively. 16
Notes to Financial Statements June 30, 2015 and 2014 Under agreements with the mortgage lender and HUD, the Corporation is required to make monthly escrow deposits for taxes and insurance, and is subject to restrictions as to operating policies, rental charges, operating expenditures and distributions. The liability of the Corporation under the mortgage note is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. In connection with this mortgage, the Corporation is required by HUD to use the funds saved by the reduction in the debt service arising from the recent refinance for programs and building improvements for the benefit of the tenants. Annual debt savings of $15,218 were generated and are being utilized to enhance the building and the services provided to the tenants. During the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014, $15,218 and $7,609, respectively, of annual debt service savings were spent, and are included in elderly and congregate services expenses on the statements of activities. The residual amount of the annual debt service savings are required to be deposited into the replacement reserve in the subsequent year. As of June 30, 2015 and 2014, all savings were spent, and no additional deposit to the replacement reserve is required. The Corporation entered into a regulatory agreement with the Secretary of HUD which prohibits, among other matters: (i) distributions (as defined) without prior written approval; (ii) the sale, assignment, disposal, or alteration of certain fixed assets covered by the mortgage; and (iii) the Corporation's engaging in other business activities or incurring any liabilities not connected with the operation and rental of the buildings without prior written consent from HUD. The required principal payments for the mortgage in each of the five years subsequent to June 30, 2015 and thereafter in the aggregate are as follows: June 30, 2016 $ 172,451 2017 179,334 2018 186,492 2019 193,935 2020 201,675 Thereafter 7,462,346 $ 8,396,233 17
Notes to Financial Statements June 30, 2015 and 2014 Note 4 - Notes payable On June 25, 2013, the Corporation received an unsecured NYC Nonprofit Recovery loan from the Fund for the City of New York, in the principal amount of $1,200,000. The purpose of the loan was to be the temporary funding source to mitigate damages from Hurricane Sandy. The loan is repayable as the Corporation received reimbursements from private insurance and FEMA. The loan is not subject to any service charges or interest and is payable in full on December 30, 2015. On May 30, 2014, the loan was repaid in full. Note 5 - Reserves Reserve for replacements The Corporation is required by HUD to fund a replacement reserve, to be used for the replacement of property and equipment. The use of the funds requires prior approval from HUD. Required monthly deposits are $4,180. As of June 30, 2015 and 2014, the balance in the reserve for replacements was $67,055 and $264,544, respectively. Residual receipts reserve The Corporation is required by HUD to fund a residual receipts reserve to be used for capital improvements. The use of these funds requires prior approval from HUD. Deposits are made into the reserve when the Corporation has surplus cash at the end of the fiscal year. See note 12 for additional information on residual receipt releases. As of June 30, 2015 and 2014, the balance in the residual receipts was $150,424 and $150,331, respectively. Note 6 - Grant revenue The Corporation was awarded a service coordinator grant from HUD to use toward payment of service coordinator's salary, benefits and other administrative costs. The Corporation reimburses JASA with the grant. The Corporation received a one-year renewal grant totaling $59,601 for the period from March 1, 2013 to February 28, 2014. While the grant was not officially extended past February 28, 2014, HUD provided $20,234 to the project for the months March through June 2014. The Corporation received an additional one-year renewal grant totaling $60, 435 for the period July 1, 2014 to June 30, 2015. For the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014, revenue recognized and grant expense used was $51,569 and $28,975, respectively. As of June 30, 2015 and 2014, $2,739 and $5,285, respectively, remain receivable from HUD and are included in accounts receivable - HUD. Note 7 - Related party transactions JASA The Corporation is a participant in a general insurance plan with JASA, which also includes health insurance and workmen's compensation. Property and liability insurance expense for the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014 was $105,258 and $54,197, respectively. Workmen's compensation and health insurance and other employee benefits for the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014 were $74,944 and $33,721, respectively. 18
Notes to Financial Statements June 30, 2015 and 2014 JASA pays the Corporation a "use-of-premises" fee for the use of the Senior Center and the JASA Social Services Offices located at the Corporation's facility. Use of premises revenue for the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014 was $46,380 and $22,905, respectively, and is included in other revenue in the statements of activities. The Corporation pays JASA, through a HUD grant, for the Service Coordinator Program, which provides social services for the tenants. The program expenses for the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014 was $51,569 and $28,975, respectively. The Corporation is a participant in a multiemployer, defined benefit retirement plan sponsored by the UJA-Federation. The actuarial present value of the benefit obligation and fair value of plan assets are not available separately for each employer who participates in the plan. For the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014 the Corporation did not make any direct contributions into the plan on behalf of its employees; contributions to the plan were made by JASA. For the year ended June 30, 2014 and the period January 1, 2014 through June 30, 2014, the Corporation reimbursed JASA for $8,604 and $4,302, respectively, of pension costs. As of June 30, 2015 and 2014, $11,459 and $8,516, respectively, remain due to JASA and is included in accounts payable - operations. As part of planned improvements at the property to be funded by JASA (as further described in note 15), the Corporation has received approval from HUD to temporarily advance funds to JASA to fund these costs. As of June 30, 2015, $245,158 remains due from JASA and is included in accounts and notes receivable - entity. JHM The property is managed by JHM pursuant to a management agreement approved by HUD. The current management agreement provides for a fee of 4.51% of rental receipts. Management fees earned for the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014 were $106,528 and $54,105, respectively, and are included in administrative expenses on the statements of activities. As of June 30, 2015 and 2014, management fees of $2,795 and $2,855, respectively, remain payable and are included in accrued management fee payable on the statements of financial position. The property pays a HUD approved monthly fee to JHM for accounting and bookkeeping services. Fees earned for the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014 were $36,432 and $16,866, respectively, and are included in administrative expenses on the statements of activities. 19
Notes to Financial Statements June 30, 2015 and 2014 Note 8 - Housing assistance payment contract agreement HUD has contracted with the Corporation pursuant to Section 8 of the Housing Act of 1937 to make housing assistance payments to the Corporation on behalf of qualified tenants. The agreement expired on May 26, 2012 and was renewed through May 26, 2022. Note 9 - Superstorm Sandy The Corporation received proceeds from the Federal Emergency Management Agency ("FEMA") to be applied toward the recovery costs. During the year ended June 30, 2015 and the period January 1, 2014 through June 30, 2014 the total proceeds awarded from FEMA were $0 and $1,175,271, respectively, and are included in other revenue. As of June 30, 2015 and December 31, 2014, FEMA proceeds receivable were $0 and $630,982, and are included in accounts and notes receivable - operations. The Corporation is linked with other properties and businesses through the UJA Federation, which settled the Superstorm Sandy-related insurance claim with these businesses. JASA was the recipient of a portion of the settlement and allocated the insurance proceeds based upon a percentage of total costs incurred. As of June 30, 2014, JASA has advanced a total of $1,407,845 to the Corporation from total insurance proceeds received. After determining the final allocations between all JASA entities, the total allocation to the Corporation was $780,916. As of June 30, 2014, the additional $626,929 of funds received in excess of the final allocation is due back to JASA, and is included in miscellaneous current liabilities. During the year ended December 31, 2013, the Corporation received a grant from the Fund for the City of New York in the amount of $300,000, which was included in other revenue. The funds are grantor restricted for resiliency planning (equipping the project to reduce the impact of future natural disasters) and are included as temporarily restricted net assets. In the year ended June 30, 2015, the Corporation applied $53,170 of this grant to qualified costs. As of June 30, 2015, the remaining balance of this grant was $246,830 and is included in temporarily restricted assets. Note 10 - Concentration of credit risk The Corporation maintains its cash balances in several accounts in one bank. The cash balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, these balances may exceed the federal insurance limits; however, the Corporation has not experienced any losses with respect to its bank balances in excess of government provided insurance. Management believes that no significant concentration of credit risk exists with respect to these cash balances as of June 30, 2015. In accordance with the regulatory agreement and other loan documents, the Corporation has mortgage escrows and reserve for replacements in the amount of $389,146 deposited with the mortgagee at June 30, 2015. Investment options on these deposits are limited to those provided by the mortgagee. 20
Notes to Financial Statements June 30, 2015 and 2014 Note 11 - Commitments and contingency Pursuant to the Corporation's contractual relationships with certain U.S. government funding sources, governmental agencies have the right to examine the books and records of the Corporation with regard to transactions relating to these contracts. The accompanying financial statements contain no provision for possible disallowances resulting from such examinations. Although such possible disallowances could be substantial in amount, in the opinion of the management, actual disallowances resulting from such reviews, if any, would be immaterial. The Corporation applied for and received awards from FEMA to cover damages that were sustained to the property during Superstorm Sandy. Subsequent to the FEMA application submission, JASA received a lump sum insurance settlement that was allocated across all of its corporations. Management believes that there is a reasonable possibility that FEMA may request that reimbursement of its award to the extent damages covered by FEMA may have also been covered by the allocation of the insurance settlement resulting in a contingent liability to FEMA. At this time, management is unable to reasonably estimate that liability. Note 12 - Liability for HUD use of excess balance of residual receipts In connection with its HAP contract, HUD has notified the Corporation that, in accordance with Notice H-2012-14 ("Notice"), which was issued by HUD on August 3, 2012, any balance in its residual receipts account in excess of $37,500 (its "Retained Balance") will be used by HUD to offset HAP payments. Under the Notice, the Corporation is allowed to retain residual receipts up to the amount of its Retained Balance for general project purposes. During the year ended June 30, 2015 and the period from January 1, 2014 through June 30, 2014, the Corporation recorded an expense of $93 and $112,831, respectively, for the amount of its residual receipts account in excess of its Retained Balance. As of June 30, 2015, the Corporation has a liability of $112,924, which reflects the remaining excess amount of its residual receipts account. The liability includes an accrual for the amount, if any, of surplus cash that is required to be deposited into the residual receipts account after the end of the year that would cause the balance of the account to exceed the Retained Balance amount. Note 13 - Current vulnerability due to certain concentrations The Corporation's principal asset is a 150-unit apartment project comprised of four buildings. The Corporation's operations are concentrated in the multifamily real estate market. In addition, the Corporation operates in a heavily regulated environment. The operations of the Corporation are subject to the administrative directives, rules and regulations of federal agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or 21
Notes to Financial Statements June 30, 2015 and 2014 inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. Note 14 - Construction contract payable The Corporation has multiple construction contracts with Titan Construction Services LLC in the maximum amount of $428,790 including change orders to install railing replacement, and improve the balcony. As of June 30, 2015 and June 30, 2014, costs totaling $366,850 and $61,940, respectively, have been incurred under the contracts and are included in miscellaneous fixed assets. As of June 30, 2015 and June 30, 2014, $69,480 and $61,940, respectively, remains payable and is included in accounts payable - operations. Note 15 - Contributions During fiscal year 2015, JASA obtained a cost reimbursement Social Service Block Grant ("the SSBG") from the New York State Office for the Aging. The purpose of the grant was to allow JASA to incur resiliency costs to better prepare the housing companies it sponsors for potential future weather events like Superstorm Sandy. JASA incurs the costs under various contracts with unrelated third parties and simultaneously contributes the resulting assets to the housing companies. The assets contributed are recorded as contribution revenue and as additions to rental property at fair value, as determined by management and further discussed in note 16. During the year ended June 30, 2015, noncash contributions of $667,134 were recognized by the Corporation. Note 16 - Fair Value The accounting standard for fair value measurement and disclosures defines fair value, establishes a framework for measuring fair value, and provides for expanded disclosure about fair value measurements. Fair value is defined by the accounting standard for fair value measurement and disclosures as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels. The following summarizes the three levels of inputs and hierarchy of fair value the Company uses when measuring fair value: Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access; Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as interest rates and yield curves that are observable at commonly quoted intervals; and Level 3 inputs are unobservable inputs for the asset or liability that are typically based on an entity's own assumptions as there is little, if any, related market activity. 22
Notes to Financial Statements June 30, 2015 and 2014 In instances where the determination of fair value measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level input that is significant to the fair value measurement in its entirety. As a result of the assets contributed by JASA, as further described in note 15, the Corporation has recognized the assets received at fair value at the date of the contributions using the following inputs: Fair value measurements using: Total Quoted prices in active markets for identical assets/liabilities (Level 1) Significant other observable inputs (Level 2) Unobservable inputs (Level 3) Real estate assets contributed $ 667,134 $ 667,134 $ - $ - Real estate assets contributed $ - $ - $ - $ - In determining the fair value of the real estate assets contributed, management gave consideration to the price charged under contracts between JASA and unrelated third party vendors to produce and deliver these assets. These costs are considered quoted prices in active markets for identical assets, thus the resulting fair value is considered to be based on Level 1 inputs. Note 17 - Subsequent events Events that occur after the statement of financial position date but before the financial statements were available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the statement of financial position date are recognized in the accompanying financial statements. Subsequent events which provide evidence about conditions that existed after the statement of financial position date require disclosure in the accompanying notes. Management evaluated the activity of the Corporation through September 25, 2015 (the date the financial statements were available to be issued) and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements. 2015 2014 23
Supplementary Information Supporting Data Required by HUD
Supplementary Information Statement of Financial Position Data June 30, 2015 Assets Account No. Current assets 1120 Cash - operations $ 291,408 1130 Tenant accounts receivable $ 8,922 1131 Allowance for doubtful accounts (1,180) 1130N Net tenants accounts receivable 7,742 1135 Accounts receivable - HUD 2,739 1145 Accounts and notes receivable - entity 245,158 1200 Prepaid expenses 183,841 1100T Total current assets 730,888 Deposits held in trust - funded 1191 Tenant deposits 35,948 Restricted deposits and funded reserves 1310 Escrow deposits 171,667 1320 Reserve for replacements 67,055 1340 Residual receipts reserve 150,424 1300T Total deposits 389,146 Rental property 1410 Land 553,089 1420 Buildings 12,418,504 1440 Building equipment - portable 32,910 1450 Furniture for project/tenant use 64,762 1490 Miscellaneous fixed assets 782,584 1400T Total fixed assets 13,851,849 1495 Less accumulated depreciation (7,980,042) 1400N Net fixed assets 5,871,807 Other assets 1520 Deferred financing costs, net of accumulated amortization of $187 12,330 1500T Total other assets 12,330 1000T Total assets $ 7,040,119 25
Supplementary Information Statement of Financial Position Data June 30, 2015 Liabilities and Net Assets (Deficit) Account No. Current liabilities 2110 Accounts payable - operations $ 131,172 2120 Accrued wages payable 17,292 2121 Accrued payroll taxes payable 1,305 2123 Accrued management fee payable 2,795 2131 Accrued interest payable - first mortgage 27,428 2170 Mortgage payable - first mortgage, current maturities 172,451 2190 Miscellaneous current liabilities 112,924 2210 Prepaid revenue 2,889 2122T Total current liabilities 468,256 Deposits liability 2191 Tenant deposits held in trust (contra) 35,948 Long-term liabilities 2320 Mortgage payable - first mortgage, net of current maturities $ 8,223,782 2300T Total long-term liabilities 8,223,782 2000T Total liabilities 8,727,986 3131 Unrestricted net assets (1,934,697) 3132 Temporarily restricted net assets 246,830 3130 Total net assets (deficit) (1,687,867) 2033T Total liabilities and net assets (deficit) $ 7,040,119 26
Supplementary Information Statement of Activities Data Year Ended June 30, 2015 Account No. Rental revenue 5120 Rent revenue - gross potential $ 423,313 5121 Tenant assistance payments 1,936,425 5100T Total rental revenue $ 2,359,738 Vacancies 5220 Apartments (39,228) 5200T Total vacancies (39,228) 5152N Net rental revenue 2,320,510 5300 Nursing home/assisted living/board and care/other elderly care/coop and other revenue 51,569 Financial revenue 5430 Revenue from investments - residual 93 5440 Revenue from investments - replacement reserve 131 5400T Total financial revenue 224 Other revenue 5910 Laundry and vending 3,515 5920 Tenant charges 3,494 5990 Miscellaneous revenue 46,539 5900T Total other revenue 53,548 5000T Total revenue 2,425,851 27
Supplementary Information Statement of Activities Data Year Ended June 30, 2015 Account No. Administrative expenses 6203 Conventions and meetings 1,911 6310 Office salaries 88,379 6311 Office expenses 19,897 6320 Management fee 106,528 6330 Manager or superintendent salaries 47,870 6331 Administrative rent free unit 17,526 6340 Legal expense - project 18,333 6350 Auditing expense 13,515 6351 Bookkeeping fees/accounting services 43,416 6390 Miscellaneous administrative expenses 9,123 6263T Total administrative expenses 366,498 Utilities expense 6420 Fuel oil/coal 27,292 6450 Electricity 72,711 6451 Water 31,960 6452 Gas 62,935 6453 Sewer 50,817 6400T Total utilities expense 245,715 Operating and maintenance expenses 6510 Payroll 77,342 6515 Supplies 59,676 6520 Contracts 115,197 6530 Security payroll/contract 120,793 6546 Heating/cooling repairs and maintenance 47,004 6500T Total operating and maintenance expenses 420,012 28
Supplementary Information Statement of Activities Data Year Ended June 30, 2015 Account No. Taxes and insurance 6710 Real estate taxes 310,840 6711 Payroll taxes 16,288 6720 Property and liability insurance 105,258 6722 Workmen's compensation 6,900 6723 Health insurance and other employee benefits 77,704 6790 Miscellaneous taxes, licenses, permits and insurance 507 6700T Total taxes and insurance 517,497 Financial expenses 6820 Interest on first mortgage payable 420,246 6850 Mortgage insurance premium/service charge 38,064 6890 Miscellaneous financial expenses 93 6800T Total financial expenses 458,403 6900 Nursing home/assisted living/board and care/other elderly care expenses 67,930 6000T Total cost of operations before depreciation and amortization 2,076,055 5060T Income (loss) before depreciation and amortization 349,796 Depreciation and amortization 6600 Depreciation expense 423,328 6610 Amortization expense 4,100 Total depreciation and amortization 427,428 5060N Operating income (loss) (77,632) Corporate or mortgagor entity revenue and expenses 7105 Entity revenue (667,134) 7190 Other expenses 187,225 7100T Net entity expenses (479,909) Total expenses 2,023,574 3250 Change in net assets $ 402,277 29
Supplementary Information Statement of Activities Data Year Ended June 30, 2015 Account No. S1000-010 Total first mortgage (or bond) principal payments required during the audit period (12 monthly payments). Applies to all direct loans and HUD-held and fully-insured first mortgages. $ 136,768 S1000-020 S1000-030 Total of 12 monthly deposits in the audit period made to the replacement reserve account, as required by the regulatory agreement, even if payments may be temporarily suspended or reduced. Replacement reserve, or residual receipts and releases which are included as expense items on the statement of activities. $ $ 50,204 - S1000-040 Project improvement reserve releases under the flexible subsidy program which are included as expense items on the statement of activities. $ - 30
Supplementary Information Statement of Cash Flows Data Year Ended June 30, 2015 Account No. Cash flows from operating activities S1200-010 Rental receipts $ 2,300,353 S1200-020 Interest receipts 224 S1200-030 Other operating receipts 738,645 S1200-040 Total receipts 3,039,222 S1200-050 Administrative expenses paid (105,886) S1200-070 Management fees paid (106,588) S1200-090 Utilities paid (245,499) S1200-100 Salaries and wages paid (334,359) S1200-110 Operating and maintenance paid (233,466) S1200-120 Real estate taxes paid (310,840) S1200-140 Property insurance paid (105,258) S1200-150 Miscellaneous taxes and insurance paid (509) S1200-170 Other operating expenses paid (168,822) S1200-180 Interest paid on first mortgage (435,483) S1200-210 Mortgage insurance premium paid (37,687) S1200-230 Total disbursements (2,084,397) S1200-240 Net cash provided by operating activities 954,825 Cash flows from investing activities S1200-245 Net deposits to mortgage escrows (16,455) S1200-250 Net withdrawals from reserve for replacements 197,489 S1200-260 Net deposits to residual receipts reserves (93) S1200-330 Net purchases of fixed assets (584,614) S1200-340 Other investing activities (include detail) S1200-341 Advances for insurance related expenses $ (626,929) (626,929) S1200-350 Net cash used in investing activities (1,030,602) Cash flows from financing activities S1200-360 Mortgage principal payments - first mortgage (136,768) S1200-450 Other financing activities (include detail) S1200-451 Deferred financing costs paid (12,517) (12,517) S1200-455 Entity/construction financing activities (include detail) S1200-456 Reimburseable costs paid to JASA (245,158) (245,158) S1200-460 Net cash used in financing activities (394,443) S1200-470 Net increase (decrease) in cash (470,220) S1200-480 Cash, beginning 761,628 S1200T Cash, ending $ 291,408 Significant noncash investing and financing activities Additions to rental property included in accounts payable $ 69,480 Payments of prior year accounts payable included in rental property $ 61,940 Contributed rental property improvements $ 667,134 31