FINANCIAL STATEMENTS and SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31,216
CONTENTS INDEPENDEDT ACCOUNTANTS' REVIEW REPORT FINANCIAL STATEMENTS BALANCE SHEETS STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN FUND BALANCES STATEMENTS OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS 2 3 4 5 SUPPLEMENTARY INFORMATION SUPPLEMENTARY INFORMATION ON FUTURE MAJOR REPAIRS AND REPLACEMENTS (UNAUDITED) 11
GALLAGHER & ASSOCIATES, P.A. CERTIFIED PUBUC ACCOUNTANTS To the Council Members Linden Green Condominium Association 55 Skyline Drive, Suite 6 Pike Creek Professional Center Wilmington, Delaware 1988 (32) 239,551 Fax (32) 239,915 INDEPENDENT ACCOUNTANTS' REVIEW REPORT We have reviewed the accompanying financial statements of Linden Green Condominium Association, which comprises the balance sheets as of December 31,216 and 215, and the related statements of revenues, expenses, and changes in fund balances and cash flows for the years then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to the association's financial data and making inquiries of the association's council. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Council's Responsibility for the Financial Statements The Council 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 and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement whether due to fraud or error. Accountants' Responsibility Our responsibility is to conduct the review engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the. American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our report. Accountants' Conclusion Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. Supplementary Information Accounting principles generally accepted in the United States of America require that the information about future major repairs and replacements of common property on pages 11 and 12 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Financial Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have not audited, reviewed or compiled the required supplementary information, and accordingly, we do not assume any responsibility for it. Dated at Wilmington, Delaware April 5, 217 Jj~3b...v.- ~ P4~OC{~, P.A. 1
BALANCE SHEETS DECEMBER 31,216 AND 215 ASSETS Operating Replacement Total Total Fund Fund 216 215 Cash, including interest-bearing deposits 69,2 316,987 385,989 352,238 Petty cash 58 58 Undeposited funds 2,783 2,783 6,68 Assessments receivable 134,971 134,971 123,322 Due from replacement fund 213,56 213,56 177,489 Total assets 419,87 316,987 736,857 659,657 LIABILITIES AND FUND BALANCES Accounts payable 13,62 13,62 11,65 Assessments received in advance 17,85 17,85 17,62 Due to operating fund 213,56 213,56 177,489 Total liabilities 3,75 213,56 243,761 26,696 Fund balances 389,165 13,931 493,96 452,961 Total liabilities and fund balances 419,87 316,987 736,857 659,657 SEE ACCOMPANYING NOTES AND INDEPENDENT ACCOUNTANTS' REVIEW REPORT 2
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN FUND BALANCES FOR THE YEARS ENDED DECEMBER 31,216 AND 215 Operating Replacement Total Total Fund Fund 216 215 REVENUES Regular assessments 547,85 138, 685,85 665,526 Interest income 21 474 495 41 Laundry income 15,73 15,73 15,661 Billable expenses 4,98 4,98 5,18 Insurance claim proceeds 14,19 14,19 11,272 Bad debt purchase income 19,51 19,51 Finance charges 6,75 6,75 4,765 Late fees 12,714 12,714 15,752 Total revenues 621,547 138,474 76,21 718,44 EXPENSES Administrative expense 1,866 1,866 1,757 Advertising 315 315 Accounting 5,65 5,65 5,149 Bad debts 27,233 27,233 176,517 Bank charges 159 159 29 Donations 5 5 5 Insurance 6,575 6,575 62,933 Lawn care 22,47 22,47 22,822 Legal fees 6,271 6,271 8,177 Maintenance and repairs 16,383 16,383 97,399 Management fees 5,721 5,721 46,688 Major repairs and replacements 16,621 16,621 15,792 Pool maintenance and repairs 25,985 25,985 22,2 Snow removal 2~985 2,985 32,1 Taxes and licenses 4,525 4,525 Utilities 225,69 225,69 231,384 Total expenses 559,265 16,621 719,886 813,177 EXCESS (DEFICIT) OF REVENUES OVER EXPENSES 62,282 (22,147) 4,135 (94,773) BEGINNING FUND BALANCES 326,883 126,78 452,961 547,734 ENDING FUND BALANCES 389,165 13,931 493,96 452,961 SEE ACCOMPANYING NOTES AND INDEPENDENT ACCOUNTANTS' REVIEW REPORT 3
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,216 AND 215 CASH FLOWS FROM OPERATING ACTIVITES Excess (deficit) of revenues over expenses Adjustments to reconcile excess (deficit) of revenues over expenses to net cash provided by operating activities Operating Fund 62,282 Replacement Fund (22,147) Total 216 4,135 Total 215 (94,773) Bad debts 27,233 27,233 176,517 (Increase) decrease in: Assessments receivable Petty cash Undeposited funds (38,882) (58) 3,825 (38,882) (58) 3,825 (6,789) (382) Increase (decrease) in: Accounts payable Assessments received in advance 2,15 (517) 2,15 (517) 5,553 7,275 NET CASH PROVIDED BY (used for) OPERATING ACTIVITIES 55,898 (22,147) 33,751 33,41 CASH FLOWS FROM FINANCING ACTIVITIES Interfund borrowing by replacement fund (35,567) (35,567) 35,567 35,567 NET INCREASE IN CASH 2,331 13,42 33,751 33,41 CASH AT BEGINNING OF YEAR 48,671 33,567 352,238 318,837 CASH AT END OF YEAR 69,2 316,987 385,989 352,238 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for income taxes Cash paid during the year for interest 4,5 o o 4,5 o o SEE ACCOMPANYING NOTES AND INDEPENDENT ACCOUNTANTS' REVIEW REPORT 4
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 216 AND 215 Note 1 NATURE OF ORGANIZATION Nature of Organization Linden Green Condominium Association is a condominium association incorporated in the State of Delaware on September 15, 1981. The Association is responsible for the operation and maintenance of the common property within the development. The development consists of 163 residential units located in Wilmington, Delaware. The Association maintains the exterior of the buildings and common areas, water service to apartment style units, and basic cable to all units. The Association funds its operating activities by fees and assessments collected from the unit owners, the majority of whom reside in their units. Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fund Accounting These financial statements are presented on the accrual basis using generally accepted accounting principles appropriate for condominium associations. Under this method revenue is recorded when earned and expenses when incurred rather than when collected or paid. The Association records its transactions in separate funds depending on the identification of the activity to which it relates. The Association's governing documents provide certain guidelines for governing its financial activities. To ensure observance of limitations and restrictions on the use of financial resources, the Association maintains its accounts using fund accounting. Financial resources are classified for accounting and reporting purposes in the following funds established according to their nature and purpose: Operating Fund - This fund is used to account for financial resources available for the general operations of the Association. Replacement Fund - This fund is used to accumulate financial resources designated for future major repairs and replacements. Member Assessments The annual budget and assessments of members are determined by the Council Members. Association members are subject to monthly assessments to provide funds for the Association's operating expenses, future capital acquisitions, and major repairs and replacements. Assessments receivable at the balance sheet date represent assessments, late fees and other charges due from unit owners. The Association's Condominium Declaration provides for various collection remedies for delinquent assessments including the filing of liens, attaching wages and obtaining judgments on other assets of the unit owner. SEE INDEPENDENT ACCOUNTANTS' REVIEW REPORT 5
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 216 AND 215 The Association's general policy is to begin collection efforts on the homeowners who are more than 9 days delinquent. In the absence of foreclosure or personal bankruptcy proceedings of the delinquent homeowners, the Association will prevail in most instances. The Association considers all assessments receivable at December 31,216 and 215 to be fully collectible. Any excess assessments at year end are retained by the Association for use in the succeeding year. At December 31,216 and 215, the Association had delinquent assessments of 134,971 and 123,322, respectively, from regular assessments. It is the opinion of the Council Members that the Association will ultimately prevail against homeowners with delinquent assessments and, accordingly, no allowance for uncollectible accounts is deemed necessary. Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents are amounts held in banks and investments with a maturity of three months or less when purchased. Interest Income Interest income is allocated to the operating and replacement funds based on the actual amount of interest earned by each bank account. Income Taxes The Association is subject to federal income taxation. The Association may elect the tax provisions granted under Section 528 of the Internal Revenue Code, related to homeowners' associations. Under this section, the Association is not taxed on uniform assessments to members and other income received from association members solely as a function of their membership in the association. The association is taxed at the rate of 3% on its nonexempt function income which includes interest income, laundry income and revenue received from nonmembers. Alternatively, the Association may elect to be taxed as a regular corporation. As a regular corporation, membership income is exempt from taxation if certain elections are made, and the Association is taxed only on its non-membership income, such as from interest and laundry, at regular federal corporate rates. There is no provision for state tax since Delaware does not tax homeowners' associations. The Association may make this election each year, as it deems appropriate. For the years ended December 31,216 and 215, the Association elected to be taxed under Section 528 of the Internal Revenue Code. SEE INDEPENDENT ACCOUNTANTS' REVIEW REPORT 6
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 216 AND 215 The Association adopted FASB ASC 74-1 (Accounting for Uncertainty for Income Taxes - an interpretation of FASB Statement No. 19). FASB ASC 74-1 prescribes a recognition threshold and measurement methodology for recording within the financial statements uncertain tax positions taken, or expected to be taken in tax returns. FASB ASC 74-1 requires that the Association determine whether the benefits of the Association's tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. FASB ASC 74-1 also provides guidance on recognition, classification, interest and penalties, accounting in interim periods and disclosure related to uncertain tax positions. The Associations tax filings are subject to audit by federal taxing authorities and the Association's federal tax returns for 213, 214 and 215 remain open to examination as of December 31,216. In evaluating the Association's tax provisions and accruals, the Association believes that its estimates are appropriate based on current facts and circumstances. Property and Equipment Consistent with industry practice, the Association capitalizes only real property and improvements to which it has title and control over disposition. Real property, common areas and related improvements to such property are not recorded in the Association's financial statements, because these properties are owned by the individual unit owners in common and not by the Association. However, the maintenance, upkeep and other expenses associated with such common property is the responsibility of the Association. With regards to personal property, it is the Association's policy to capitalize such personal property at cost and depreciate it, using the straight-line method over the estimated useful lives of such personal property. As of December 31,216 and 215, there were no significant personal property additions. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Council 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Bad debts Bad debts are charged to earnings under the direct write-off method when the Council determines the amounts are uncollectible. It is the opinion of the Council that the bad debt expense computed under this method is not materially different than what the bad debt expense would be if the allowance method was used. Bad debts charged to expense during the years ended December 31,216 and 215 amounted to 27,233 and 176,517, respectively. SEE INDEPENDENT ACCOUNTANTS' REVIEW REPORT 7
NOTES TO FINANCIAL STATEMENTS DECEMBER 31,216 AND 215 On December 23, 215, the Association sold seven delinquent accounts to HOA Capital Advisors, LLC. The Association will be paid over 15 months. These delinquent accounts totaling 135,152 have been written off to bad debt as of December 31, 215. As of April 5, 217, the association has received 21,59. The contract ended March 31, 217, and therefore, the Association does not expect to receive any additional payments. Note 3 CASH ACCOUNTS The Association occasionally will have amounts on deposit at WSFS Bank that exceeds the FDIC insurance limits, but the Association believes there is no significant risk with respect to such deposits. Note 4 FUTURE MAJOR REPAIRS AND REPLACEMENTS Industry practice and Delaware law require that funds be accumulated for future major repairs and replacements. Accumulated funds, which aggregate 316,987 and 33,567 at December 31, 216 and 215, are held in separate accounts and generally are not available for operating purposes. During 216, the Association has funded the Replacement Fund through budget amounts of the regular assessments. Members' assessments relating to the replacement funding program are considered capital contributions from members' dues and as such are restricted in usage. Disbursements are to be made only if specifically approved by the Board of Directors. In November 215, the Association engaged an independent reserve specialist who conducted a study to estimate the remaining useful lives and the replacement costs of the common property components. The Association is funding for such major repairs and replacements over the estimated useful lives of the components based on the study's estimates of current replacement costs, considering amounts previously accumulated in the replacement fund. Actual expenditures, however, may vary from the estimated amounts and the variations may be material. Therefore, amounts accumulated in the replacement fund may not be adequate to meet future needs. If additional funds are needed, however, the Association has the right, subject to member approval, to increase regular assessments or levy special assessments, or it may delay major repairs and replacements until funds are available. Note 5 CONTINGENCIES The Association is a party to various legal actions normally associated with condominium associations, such as collection of delinquent assessments, the aggregate effect of which, in the Council's opinion, would not be material to the future financial condition of the Association. Note 6 CONCENTRATION OF CREDIT RISK As of December 31,216 and 215, one hundred percent of the Association's regular assessments receivable in the amount of 134,971 and 123,322 respectively, were due from forty-three unit owners and twenty-five unit owners respectively. SEE INDEPENDENT ACCOUNTANTS' REVIEW REPORT 8
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 216 AND 215 Note 7 COMPREHENSIVE INCOME The Association has no material items of other comprehensive income for the years ended December 31,216 and 21S. Note 8 FAIR VALUE DISCLOSURES FASB ASC 82 emphasizes that fair value is a market-based measurement, not an entity specific measurement. The Statement applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between parties at a specific date. As a basis for considering the assumptions used in measuring fair value, FASB ASC 82 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions and (2) the reporting entity's own assumptions. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three broad levels: Level 1 Inputs: This level uses quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 2 Inputs: This level uses inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 Inputs: This level uses inputs that are unobservable for the asset or liability. Situations where there is little, if any, market activity for the asset or liability at the measurement date. As of December 31, 216 and 21S, the Association had no assets or liabilities that required disclosure under FASB ASC 82. Note 9 SUBSEQUENT EVENTS Subsequent events have been evaluated through AprilS, 217 which is the date the financial statements were available to be issued. Through that date, the Council has determined that the Association did not have any material recognizable or non recognizable events other than what is reported in the folowing paragraph. Note 1 RELATED PARTY TRANSACTIONS The Council Members are residents and/or owners of Linden Green Condominiums. During the year ended December 31, 216 and 21S, the Association's Council Members paid the Association 3,S96 and 19,42 in condominium association fees. SEE INDEPENDENT ACCOUNTANTS' REVIEW REPORT 9
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 216 AND 215 Note 11 INTERFUND BORROWING In 216 and 215, the operating fund committed 35,567 and 15,792 respectively in contributions to the replacement fund. These amounts are recorded as an interfund receivable and payable on the balance sheet. Note 12 COMMITMENTS The Association has various contract services including lawn maintenance, snow removal, maintenance, cleaning, pool service, trash removal, and pest control. SEE INDEPENDENT ACCOUNTANTS' REVIEW REPORT 1
SUPPLEMENTARY INFORMATION ON FUTURE MAJOR REPAIRS AND REPLACEMENTS DECEMBER 31,216 An independent reserve specialist conducted a study in November 215 to estimate the remaining useful lives and the replacement costs of the components of common property. Replacement costs were based on the estimated costs to repair or replace the common property components at the date of the study. Estimated current replacement costs have not been revised since that date and do not take into account the effects of inflation between the date of the study and the date that the components will require repair and replacement. The following information is reproduced based on the study and presents significant information about the. components of common property. (Amounts are rounded to the nearest thousand dollars.) Estimated Estimated Remaining Current Useful Replacement Components Lives (Years) Cost Asphalt - Remove and Replace 1 255, Asphalt - Seal/Repair 25, Street Lights - Replace 14 1, Exit Signs - Replace 18 3, Mailbox Kiosks - Replace 5 3, Mailboxes - Replace 1 9, Pool Furniture - Replace 5 3, Playground Equipment - Replace 13, Chain Link Fence - Replace 21 8, Railing - Repair/Replace 6 22, Vinyl Fence - Replace 13 28, Carpet - Replace 5 54, Entry Doors - Partial Replace 5, Intercoms - Replace 3 1,5 Boilers - Replace (A) 56, Boilers - Replace (B) 2 84, Boilers - Replace (C) 21 28, Water HeaterlTank - Replace (A) 15, Water HeaterlTank - Replace (B) 4 7, Water HeaterlTank - Replace (C) 7 15, Water HeaterlTank - Replace (D) 8 15, Water HeaterlTank - Replace (E) 1 29, Water HeaterlTank - Replace (F) 12 7, Interior Surfaces - Repaint 5 17, Vinyl Siding - Replace 23 11, Brick Siding - Clean/Repair 3 27, Pool Deck - Resurface 7 8, Pools - Epoxy Coat 4, Pool Covers - Replace 9 8, Pool Pumps - Replace 5, Mansard Shingle Roofs - Replace 21 18, Townhome Shingle Roofs-Replace 21 11, PVC Roofs - Replace 18 116, SEE ACCOMPANYING NOTES AND INDEPENDENT ACCOUNTANTS' REVIEW REPORT 11
SUPPLEMENTARY INFORMATION ON FUTURE MAJOR REPAIRS AND REPLACEMENTS DECEMBER 31, 216 Components Estimated Remaining Useful Lives (Years) Estimated Current Replacement Cost Rubber Roofs ~ Replace (A) Rubber Roofs ~ Replace (8) Gutters/Downspouts ~ Replace Monument Sign ~ Replace LandscapinglTrees ~ Maintain o 116, o 116, o 1, 11 2, o 27, SEE ACCOMPANYING NOTES AND INDEPENDENT ACCOUNTANTS' REVIEW REPORT 12