TABLE OF CONTENTS FINANCIAL SECTION Page No. Independent Auditors' Report... 1-2 Consolidated Statement of Financial Position... 3-4 Consolidated Statement of Activity and Changes in Net Assets... 5 Consolidated Statement of Cash Flows... 6 Notes to Consolidated Financial Statements... 7-26 SUPPLEMENTAL SCHEDULES Consolidating Schedule of Financial Position... 27-30 Consolidating Schedule of Activity and Changes in Net Assets... 31-32 Consolidating Schedule of Cash Flows... 33-34 Consolidating Schedule of Financial Position MAUC Industries and Subsidiaries... 35 Consolidating Schedule of Activity and Changes in Net Assets MAUC Industries and Subsidiaries... 36 Consolidating Schedule of Functional Expenses... 37-38
FINANCIAL SECTION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2013 ASSETS Current Assets Cash and Cash Equivalents $ 1,386,097 Grants & Contracts Receivable 33,323 Other Receivables 117,017 Prepaid Expenses & Deposits 91,163 Total Current Assets 1,627,600 Restricted Assets Cash - Replacement and Other Reserves 872,737 Cash - Tenant Security Deposits 107,429 Tax and Insurance Escrows 443,099 Total Restricted Assets 1,423,265 Other Assets Property & Equipment, Net 31,272,575 Issuance Costs & Monitoring Fees, Net 674,074 Total Other Assets 31,946,649 TOTAL ASSETS $ 34,997,514 (Continued) 3
CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2013 LIABILITIES AND NET ASSETS Current Liabilities Accounts Payable $ 136,131 Accrued Expenses 198,737 Security Deposits 152,068 Notes Payable 6,977,515 Prepaid Rent 17,866 Deferred Revenue 80,694 Interest Payable 666,423 Other 101,411 Total Current Liabilities 8,330,845 Non-Current Liabilities Other Non-current Liabilities 304,255 Notes Payable 17,539,804 Total Non-Current Liabilities 17,844,059 Total Liabilities 26,174,904 Minority Interest in Consolidated Entities 7,420,828 Net Assets Temporarily Restricted Net Assets 97,704 Unrestricted Net Assets Invested in Property and Equipment 1,664,398 Operations (360,320) Total Net Assets 1,401,782 TOTAL LIABILITIES AND NET ASSETS $ 34,997,514 The accompanying notes to financial statements form an integral part of this statement. 4
CONSOLIDATED STATEMENT OF ACTIVITY AND CHANGES IN NET ASSETS Temporarily Restricted Unrestricted Total SUPPORT AND REVENUES Grants and Contributions $ 260,517 $ - $ 260,517 Housing Assistance Payments 567,446-567,446 Provider Contracts and Other Fees - 92,408 92,408 Rental Income - 4,122,958 4,122,958 In-Kind Contributions - 15,949 15,949 Interest and Investment Income - 1,306 1,306 Special Events (net of expenses of $114,400) - (28,970) (28,970) Other Revenue - 259,450 259,450 Net Assets Reserved for/released from Purpose Restrictions (804,140) 804,140 - TOTAL SUPPORT AND REVENUES 23,823 5,267,241 5,291,064 EXPENSES Cost of Programs Community Development - 348,894 348,894 MAUC Center - 247,587 247,587 Housing Development - 133,385 133,385 Affordable Housing - 5,742,342 5,742,342 Realty Management - 16,587 16,587 Venture Capital Investing - 300 300 Total Program Services - 6,489,095 6,489,095 General and Administrative - 383,125 383,125 TOTAL EXPENSES - 6,872,220 6,872,220 CHANGES IN NET ASSETS FROM OPERATIONS 23,823 (1,604,979) (1,581,156) OTHER CHANGES Partner Distributions - (502,786) (502,786) Undeclared Dividends - (3,000) (3,000) Loss on Disposal of Fixed Assets - (169,548) (169,548) Increase in Equity Interest - 125,186 125,186 Limited Partner Contributions - 1,448,502 1,448,502 TOTAL OTHER CHANGES - 898,354 898,354 TOTAL CHANGES IN NET ASSETS 23,823 (706,625) (682,802) NET ASSETS - Beginning Balance (Restated) 73,881 2,010,703 2,084,584 NET ASSETS - Ending Balance $ 97,704 $ 1,304,078 $ 1,401,782 The accompanying notes to financial statements form an integral part of this statement. 5
CONSOLIDATED STATEMENT OF CASH FLOWS Cash Flows Provided (Used) by Operating Activities Change in Net Assets $ (1,581,156) Adjustments to Reconcile Change in Net Assets to Net Cash Provided (Used) by Operating Activities Depreciation 1,632,329 Amortization 21,340 Decrease (Increase) In: Grants & Contracts Receivable 14,991 Real Estate Tax & Insurance Escrow (13,281) Cash Held for Tenant Security Deposits (4) Other Receivables (57,416) Prepayments & Deposits (19,858) Increase (Decrease) In: Accounts Payable 11,963 Accrued Expenses (2,060) Interest Payable (1,146,173) Security Deposits 1,592 Prepaid Rent 5,177 Deferred Revenue 2,383 Other Current Liabilities 65,594 Net Cash Provided (Used) by Operating Activities (1,064,579) Cash Flows Provided (Used) for Investing Activities: Deposits to Mortgage Escrow Account (9,390) Deposits to Reserve for Replacement (31,360) Deposits to Residual Receipts Account (23,822) Sale of Fixed Assets 250,999 Purchase of Fixed Assets (19,189) Net Cash Provided (Used) by Investing Activities 167,238 Cash Flows Provided (Used) for Financing Activities: Partner Distributions/Contributions 945,716 Mortgage Principal Payments (239,198) Net Cash Provided (Used) by Financing Activities 706,518 Net Increase (Decrease) in Cash (190,823) Cash and Cash Equivalents - Beginning of Period 1,576,920 Cash and Cash Equivalents - End of Period $ 1,386,097 Note: Interest paid on borrowed funds was $1,475,270 during the year ended December 31, 2013 NONCASH INVESTING, FINANCING AND RELATED CAPITAL FINANCING ITEMS: a. Undeclared dividends increased $3,000. b. A net loss on disposal of $169,548 was recognized related to the sale/disposal of fixed assets. The accompanying notes to financial statements form an integral part of this statement. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Presentation A summary of the consolidated entities and their related activities follows: Mexican American Unity Council, Inc. (MAUC) is a tax-exempt community development corporation pursuant to Section 501(c)(3) of the Internal Revenue Code and was incorporated on November 16, 1967 to develop programs which would improve the quality of living in certain areas of. MAUC is the parent company of MAUC Industries, Inc. The following is a summary of the programs which MAUC administered during the current period. Programs are financed by Federal, City of San Antonio and private foundation grants and contracts. Community Development This program seeks to resolve community issues pertinent to residents of MAUC s impact area and provides comprehensive bilingual/bicultural services to strengthen families through parenting education and tutoring services. The program is funded primarily by grants from the City of San Antonio and the Kronkosky Charitable Foundation. MAUC Center In 1976, MAUC acquired and renovated an abandoned elementary school building into a community resource center. Funding for the project was made available from the U.S Department of Commerce, Ford Foundation and the Community Services Administration. The building is leased primarily to health, social service and other non-profit organizations and houses MAUC s administrative offices and programs. Housing Development This program seeks to develop additional affordable housing projects within the community through cooperation with other entities. Predevelopment costs are recorded in this program. MAUC activities related to Affordable Housing (Tax Credit Limited Partnerships) are also accounted for in housing development. The Affordable Housing Program provides rental housing in four developments for low income families and senior citizens using a combination of the U.S Housing and Urban Development (HUD) Sections 202 and 221(d)(4) programs, and Internal Revenue Code Section 42 low-income housing tax credits. Palacio Del Sol II, Inc. (PDS II) is a senior citizen housing development and is organized as a nonprofit corporation pursuant to Section 501(c) (3) of the Internal Revenue Code. PDS II received a Section 202 Capital Advance from the U.S. Department of Housing and Urban Development for the development of this housing project. MAUC has control of PDS II since three of the five board members are members of MAUC s board and MAUC s board selects the remaining two board members. Additionally, MAUC solicits funds in the name of and provides funds to PDS II. 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Tax Credit Limited Partnerships include three partnerships SAVJ Woodstone, LP, TX Palacio Housing, LP and Las Villas de Merida Apartments, LP. - SAVJ Woodstone, L.P. was formed during 2003 and operates the multifamily 248-unit Stonehouse Apartments. MAUC, through its affiliate CIS Woodstone Development, LLC serves as managing general partner with a.01% ownership interest; GMAT II Development, Ltd serves as Class B Limited Partner with a.01% ownership; and MMA Financial Enhanced Affordable LLC serves as investor limited partner and 99.98% owner. MuniMae SLP II, LLC serves as special limited partner. MAUC and The Lynd Company serve as co-managers of the property. - The TX Palacio Housing L.P was formed during 2004 and operates the senior citizens lowincome 200-unit Palacio Del Sol Apartments. The Apartments are subsidized by the U.S. Department of Housing and Urban Development through a Section 8 housing assistance payment contract and a HUD insured mortgage loan. MAUC through its affiliate TX Palacio Development LLC serves as the general partner with a.01% ownership interest. MMA Palacio Del Sol LLC serves as investor limited partner with a 99.99% interest while BFIM Special Limited Partner, Inc. serves as special limited partner. The Lynd Company serves as the management company for the property. - Las Villas de Merida Apartments, LP was formed during 2001 and operates the low income 160-unit Las Villas de Merida Apartments. MAUC is the sole member of a limited liability company (Las Villas de Merida Apartments I, LLC) which serves as general partner of the partnership. On December 31, 2004, MAUC entered into an agreement regarding the management and development of the limited partnership whereby MAUC agreed not to take action or cause any action to be taken that will interfere with decisions of the property manager or the developer. The developer was entitled to make all management, operational and development decisions regarding the property owned by the limited partnership. On July 9, 2009, MAUC entered into a settlement agreement in which the developer assigned all of his interests to MAUC. As a result, MAUC is entitled to make all management, operation and development decisions. Therefore the financial statements of this tax credit partnership have been consolidated in the accompanying financial statements. In 2011 Hunt Capital Partners purchased the assets of the Capmark Portfolio which included the investor limited partner Amtax Holdings 2001-YYY, LLC, the secured promissory note holder Capmark Finance, Inc. and the manager of the investor limited partner. The promissory note holder is Tax Credit 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Holdings VII, LLC and the manager of the investor limited partner is Amtax Hldgs. CF (DE) V, LLC. Effective January 1, 2012 a third amendment to Amended and Restated Agreement of the Partnership was entered into with special allocation provisions; a) gross income from rents shall be allocated 60% to the General Partner, 0.001% to the Special Limited and 39.999% to the Investor Limited Partner; b) all operating expenses shall be allocated to the General Partner; c) any remainder income and expenses and tax credits shall be allocated 0.09% to the General Partner, 0.01% to Special Limited Partner and 99.90% to the Investor Limited Partner. The Lynd Company serves as the management agent. Going Concern: As of December 31, 2013, Las Villas de Merida Apartments, LP has experienced difficulty obtaining permanent financing and does not have a loan extension. Management believes this was due to a slow lease-up at the project, and at less than originally projected rents. As a result, the Partnership has an overdue note and increased interest costs. This inability to obtain permanent financing creates substantial doubt to the Partnership s ability to continue as a going concern. Management is taking measures to obtain permanent financing and feels certain that the project will receive permanent financing. Management has also adopted a strategy to aggressively market the property to improve occupancy. If permanent financing cannot be obtained, the Partnership will be financially dependent on the investor limited partner. For-Profit Subsidiaries provide realty management and venture capital investing services. MAUC Industries, Inc., a wholly-owned for-profit subsidiary of MAUC and parent company of the RiverCity Capital Corporation, Inc. and MAUC Realty Management Corporation provides management services to its subsidiaries. MAUC Industries, Inc. had no activity during fiscal year 2013. RiverCity Capital Corporation (RCC), a wholly-owned subsidiary of MAUC Industries, Inc., is a venture capital company formed in 1978. MAUC Realty Management Corporation, a wholly-owned subsidiary of MAUC Industries, Inc., was formed in 1981 to serve as the management company for MAUC s various properties. 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounting Policies The following significant accounting policies have been followed in the preparation of the consolidated financial statements. A. Basis of Accounting The accrual method of accounting is used. B. Cash and Cash Equivalents The carrying amount of cash and cash equivalents approximates fair value. Cash and cash equivalents are comprised of checking and money market accounts. PDS II and the Affordable Housing Tax Credit Partnerships maintain restricted cash accounts as required by HUD for its tenant deposits, replacement and other reserves, and other escrowed funds. For purposes of the statement of cash flows, MAUC considers investments with maturities of ninety days or less to be cash equivalents. These amounts are available for current operations and exclude amounts restricted for tenant security deposits, tax and insurance escrows and replacement reserve accounts. C. Accounts Receivable Accounts receivable are generally shown net of an allowance for uncollectible accounts. The allowance for uncollectible accounts is based on a review of the current status of tenant accounts receivable. It is reasonably possible that management s estimate of the allowance will change. D. Capitalization and Depreciation All fixed assets are valued at cost or estimated cost, if actual cost is not available. Donated assets are reported at their estimated fair value at the date of donation. The cost of site and building improvements, including interest, which add value to the asset or materially extends the life of the asset are capitalized. Depreciation is calculated by the straight-line method at rates based upon the estimated useful lives of the various classes of assets. The estimated useful lives by classes of assets are as follows: Buildings Building Equipment Furniture and Furnishings Miscellaneous Fixed Assets 27.5 to 40 Years 15 to 20 Years 3 to 10 Years 3 to 15 Years 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Capitalized costs for land and buildings of the Affordable Housing Tax Credit Limited Partnerships include all direct and indirect costs including developer fees associated with the acquisition, development and construction. Construction costs have been allocated to individual buildings based on area. Depreciation for each building commenced as each building was placed into service. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives (27.5) years for residential rental buildings and 3-8 years for furniture, equipment and furnishings) using the straight-line method. Improvements are capitalized, while maintenance and repairs are expensed as incurred. Upon disposal of depreciable property, the appropriate property accounts are reduced by the related costs and accumulated depreciation. Any resulting gains and losses are reflected in the statement of activities. E. Impairment of Long-Term Assets Statement of Financial Accounting Standards No.144 Accounting for the Impairment or Disposal of Long-Lived Assets requires an entity under certain circumstances to review long-lived assets to determine if the carrying value exceeds the undiscounted cash flows expected to be derived from the asset. If the carrying value exceeds the fair value as determined from an appraisal, discounted cash flows analysis, or other valuation technique, then, the long-lived asset is considered to be impaired. There are indications that impairment may exist for the Las Villas De Merida Apartments. Cash flows from operations are less than debt service on the property and current occupancy rates indicate that future cash inflows are less than the amounts needed to fully recover the property s carrying amount. Management has not determined the extent of the impairment, and therefore no impairment loss has been recognized during the year ended December 31, 2013. F. Intangible Assets Intangible assets related to the Affordable Housing Tax Credit Partnerships include bond issuance costs of $848,293 and tax credit fees of $27,600 for the SAVJ Woodstone, LP. Bond issuance costs are amortized over the life of the bonds, and tax credit fees are amortized over the fifteen-year low-income tax credit compliance period, using the straight-line method. As of December 31, 2013, accumulated amortization was $201,819 and amortization expense (included in interest expense) for 2013 was $21,341. 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G. Revenue Recognition Revenues for MAUC s programs are deemed to be earned and reported as revenues when related expenses are incurred in compliance with the specific restrictions. Rental income is recorded when tenants are billed. Rental payments received in advance are deferred until earned and are reported as prepaid rent. Leases with its tenants are operating leases. H. Estimates Generally accepted accounting principles require management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Estimates are used in the following financial statement components: receivables, investments, and depreciation. I. Economic Concentration MAUC and its affiliates receive a majority of its total revenue from federal, state, local grants, and rental income. A significant reduction in the level of these revenues, if this were to occur, may have an adverse effect on its programs and activities. Future rental operations could be affected by changes in economic or other conditions in that geographical area or by changes in federal low-income housing subsidies or the demand for such housing and office space. J. Principles of Consolidation To ensure observance of limitations and restrictions placed on the use of resources available to MAUC, the accounts of the organization are maintained in accordance with the principles of fund accounting. This is the procedure by which resources for various purposes are classified for accounting and reporting purposes into funds associated with specified activities or objectives. Separate accounts are maintained for each fund; however, in the accompanying financial statements, funds have been consolidated to present MAUC s operations as a whole. 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The consolidated financial statements include the consolidated financial resources and activities of accounts of the Mexican American Unity Council, Inc. and its affiliates. All significant intercompany balances and transactions have been eliminated in the consolidation. In accordance with the AICPA, FASB ASC Topic 958, Not-for-Profit Entities, the tax credit limited partnerships (SAVJ Woodstone, LP, TX Palacio Housing, LP and Las Villas de Merida Apartments, LP) are consolidated in the accompanying financial statements since the general partners, which are 100% owned by MAUC, control the limited partnerships. K. Allocation of Functional Expenses Various program costs have been summarized on a functional basis on the consolidated statement of activities and changes in net assets. Accordingly, certain costs have been allocated among the program services and supporting activities benefited. 2. FEDERAL INCOME TAXES A. As of December 31, 2013, MAUC Industries, Inc. has net operating loss (NOL) carry-forwards for tax purposes of approximately $113,508 that if not used will expire as follows: Year of Expiration Operating Losses 2028 $ 17,511 2029 47,098 2030 18,418 $ 113,508 Since MAUC Industries, Inc. did not have any activity for fiscal year 2013 and it is not anticipated to have future activity, it is likely that the NOLs will expire. 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. FEDERAL INCOME TAXES (Continued) B. As of December 31, 2013, RCC has approximately $195,056 net operating loss (NOL) carry-forwards available that if not used the carryovers will expire as follows: Year of Expiration Operating Losses 2018 $ 117,078 2022 16,409 2023 5,441 2024 21,599 2029 5,829 2030 2,189 2031 241 2032 26,099 2032 171 $ 195,056 Based on activity for 2013 and anticipated future activity, the majority of the NOLs above are expected to expire. Except for RCC, MAUC Industries, Inc. files a consolidated tax return with its eligible subsidiary. These subsidiaries remit their current taxes computed at the statutory rates after consideration of the realization of any tax credits or net operating loss carryovers. Management has analyzed the tax positions taken for all year tax years, generally three years after filing the tax return, and has concluded that no provision for federal income tax is required in the financial statements. C. The Partnerships have elected to be treated as pass-through entities for income tax purposes and, as such, are not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by their partners on their respective income tax-returns. The Partnerships federal tax status as pass-through entities is based on their legal status as partnerships. Accordingly, the Partnerships are not required to take any tax positions in order to qualify as passthrough entities. The Partnerships are required to file and do file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnerships have no other tax positions which must be considered for disclosure. 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. FEDERAL INCOME TAXES (Continued) D. MAUC is organized as a Texas nonprofit organization as described in Section 501(c) (3) of the Internal Revenue Code. Accordingly, no income tax provision has been made in the accompanying financial statements. MAUC has adopted the uncertain tax positions provisions of FASB ASC Topic 740, Income Taxes. The primary tax position of MAUC is its filing status as a tax exempt entity. MAUC s tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations which is generally three years after the filing of the tax return. MAUC determined that it is more than likely than not that its tax position will be sustained upon examination by the Internal Revenue Service or other State taxing authority. There were no penalties or interest related to income taxes recorded during the year ended December 31, 2013. 3. RESTRICTED ASSETS The following represents restricted funds held for purposes as required by the agreements and accordingly are reported as a component of restricted assets in the consolidated financial statements: PDS II SAVJ Woodstone, LP TX Palacio Housing, LP Reserve for Replacement/Other $ 94,325 $ 282,584 $ 495,828 $ 872,737 Tax and Insurance Escrow - 314,416 128,683 443,099 Tenant Security Deposits 7,432 61,146 38,851 107,429 Total $ 101,757 $ 658,146 $ 663,362 $ 1,423,265 Total 4. CONCENTRATION OF CREDIT RISK MAUC and its affiliates maintain their cash accounts in commercial banks. The Federal Deposit Insurance Corporation (FDIC) guarantees commercial interest bearing bank accounts up to $250,000. At various time throughout the year MAUC held cash balances in excess of FDIC limits. Management believes that no significant concentration of credit risk exists since it places its cash with high credit quality financial institutions. Additionally, TX Palacio Housing, LP maintains investments with its lender. These investments are authorized and governed by HUD. The lender may invest funds in excess of $250,000 in institutions under the control of and whose deposits are insured by the Federal Depository Insurance Corporation (FDIC), National Credit Union Association or other U.S. government insurance corporations under certain conditions and are responsible for replacing lost funds if conditions are not met. 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. PARTNERS CAPITAL CONTRIBUTIONS Pursuant to the limited partnership agreements, the limited and general partners are required to make capital contributions to the partnerships in the following amounts. SAVJ Woodstone, LP TX Palacio Housing, LP Las Villas de Merida Apartments, LP Investor Limited Partners $ 3,935,032 $ 10,439,311 $ 6,876,394 $ 21,250,737 General Partner 10 10-20 Special Limited Partners - 1,000-1,000 Total $ 3,935,042 $ 10,440,321 $ 6,876,394 $ 21,251,757 Total Cumulative total investor limited partner and general partner contributions were as follows: SAVJ Woodstone, LP TX Palacio Housing, LP Las Villas de Merida Apartments, LP Investor Limited Partners $ 3,935,032 $ 10,439,311 $ 6,663,152 $ 21,037,495 General Partner 10 10-20 Special Limited Partners - 1,000-1,000 Total $ 3,935,042 $ 10,440,321 $ 6,663,152 $ 21,038,515 During the year end ended December 31, 2013 the investor limited partner for Las Villas De Merida, LP contributed $1,448,502 which was applied to accumulated accrued interest on a promissory note. Total (Continued) 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. PROPERTY AND EQUIPMENT A summary of property and equipment follows: MAUC Inc. Affordable Housing (PDS II) Affordable Housing (Tax Credit Limited Partnerships) Land $ 790,153 $ - $ 2,542,962 $ 3,333,115 Land/Site Improvements - 8,520 2,567,030 2,575,550 Buildings 2,884,742 1,283,147 37,120,069 41,287,958 Furniture and Equipment 136,234-1,771,053 1,907,287 Total 3,811,129 1,291,667 44,001,114 49,103,910 Accumulated Depreciation (2,697,715) (336,687) (14,796,933) (17,831,335) Net Property and Equipment $ 1,113,114 $ 954,980 $ 29,204,181 $ 31,272,575 Depreciation expense for the current year totaled $1,632,329. MAUC leases land to Las Villas de Merida Apartments, L.P. for $4,500 monthly under an operating lease. The lease revenue and corresponding lease expense has been eliminated in the consolidated financial statements. Total (Continued) 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. NOTES PAYABLE Notes payable as of December 31, 2013 are as follows: Amount of Indebtedness Creditor and Terms Balance Due Within One Year Due After One Year A. Broadway National Bank MAUC Inc. entered into a $575,000 promissory note on March 15, 2004 at 6.5% interest per annum payable in monthly installments of principal and interest of $4,500 beginning on June 1, 2004 through June 1, 2016, the maturity date. The interest rate is subject to change on June 1, 2009 and every 60 th month thereafter. The new rate will be the lesser of a maximum of 18% or the then current index rate plus 3%. At note maturity a balloon payment of approximately $265,260 is due and payable. As of December 31, 2013 the interest rate was 6.25%. Note is secured by deed of trust, security agreement and financing statement for the real property located at 1700 S. Hamilton. $ 351,663 $ 31,860 $ 319,803 B. SAVJ Woodstone, L.P. entered into a financing agreement with San Antonio Housing Finance Corporation (Issuer) and the Bank of New York (Trustee) to use the proceeds from the issuance of tax-exempt debt of $11,800,000 for the construction and development of the Stonehouse Apartments and payment of bond redemption. The bonds were issued on June 1, 2004, and will mature December 1, 2047. The initial interest rate of 5.375% was due during the construction loan period (June 1, 2004 to November 30, 2005) and 6.60% from December 1, 2005 to maturity. Monthly principal and interest payments of $69,926 began December 1, 2006. The bonds are collateralized by the partnership property. 11,248,983 91,090 11,157,893 (Continued) 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. NOTES PAYABLE (Continued) Creditor and Terms Balance Amount of Indebtedness Due Within One Year Due After One Year C. TX Palacio Housing, L.P. entered into a $6,470,300 loan agreement with Davis-Penn Mortgage Company on August 23, 2005 for the construction and development of the Palacio de Sol Apartments. The loan bears interest of 5.55% and is payable in 480 monthly installments of $33,592, beginning July 1, 2007. The loan will mature on or about July 2047. The loan is secured by a deed of trust in the partnership property. Additionally, the loan is insured by the U.S. Department of Housing and Urban Development pursuant to Section 221(d) (4) of the National Housing Act. 6,126,807 64,699 6,062,108 D. Las Villas de Merida Apartments, L.P. obtained a loan in the principal amount of $6,890,000 from Capmark Finance, Inc. of which $6,789,866 had been received as of December 31, 2013. The loan bears interest at a variable interest rate, adjusted monthly to LIBOR plus 1.75%, which was 1.986% at December 31, 2013. The principal amount and accrued interest thereon were to be paid upon the earlier of June 20, 2007 or upon demand. Beginning December 31, 2010, the loan is in default. The maturity date has not been further extended. The loan is secured by the partnership property. 6,789,866 6,789,866 - Total Notes Payable $ 24,517,319 $ 6,977,515 $ 17,539,804 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. NOTES PAYABLE (Continued) Debt service requirements for the promissory and mortgage notes payable in each of the next five years and thereafter are as follows: Year Ending Principal Interest Total 2014 $ 6,977,515 $ 1,099,467 $ 8,076,982 2015 209,301 1,086,921 1,296,222 2016 468,955 1,065,528 1,534,483 2017 197,127 1,045,456 1,242,583 2018 209,690 1,032,532 1,242,222 Thereafter 16,454,731 18,460,008 34,914,739 Total $ 24,517,319 $ 23,789,912 $ 48,307,231 8. OTHER NON-CURRENT LIABILITIES Other non-current liabilities of $304,255 consist of management fees and advances owed by the tax credit partnerships (Las Villas de Merida) to a third party. 9. CAPITAL ADVANCE PROGRAM PDSII received a $30,000 Section 202 Capital Advance Program mortgage note from the U.S. Department of Housing and Urban Development during the year ended September 30, 2004. The note bears no interest and has a maturity date of July 1, 2041; however, repayment is not required provided that certain requirements are met by PDS II until the maturity date of the note. Since management considers the possibility of repayment remote, no liability is recorded. 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. CHANGES IN MINORITY INTEREST IN SUBSIDIARIES The minority interest represents the assets belonging to minority shareholders or partners. The minority interest in RCC was affected by current year undeclared dividends of $3,000. The minority interest in the tax credit partnerships was affected by the capital contributions, partners' distributions and operating losses. A summary of the activity follows: Component of Minority Interest Beginning Balance Increases Decreases Ending Balance RCC Cumulative Preferred Voting Stock (500 shares at $100 per share) $ 50,000 $ - $ - $ 50,000 Undeclared Dividends in Arrears ($100 per share) 87,000 3,000-90,000 Tax Credit Limited Partnerships 137,000 3,000-140,000 SAVJ Woodstone, L.P. 1,851,147 - (615,522) 1,235,625 TX Palacio Housing, L. P. 6,784,911 - (519,884) 6,265,027 Las Villas de Merida Apartments L. P. (1,230,046) 1,010,222 - (219,824) 7,406,012 - (1,135,406) 7,280,828 Total $ 7,543,012 $ 1,013,222 $ (1,135,406) $ 7,420,828 11. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets at year end are comprised of restricted cash accounts for the Affordable Housing programs PDS II. Restricted grant/contribution revenue whose restrictions are met in the same reporting period are reported on the Consolidated Statement of Activity and Changes in Net Assets as temporarily restricted with an offsetting amount shown as Net Assets Reserved for/released from Purpose Restrictions. The changes to the components of ending temporarily restricted net assets follows: Beginning Balance (Restated) Ending Balance Increase/ (Decrease) Reserve for Replacement and Other Reserves $ 70,503 $ 94,325 $ 23,822 Tenant Security Deposits, Net of Liability 3,378 3,379 1 $ 73,881 $ 97,704 $ 23,823 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. RELATED PARTY TRANSACTIONS A. The following summarized transactions within MAUC, Inc. funds and between MAUC, Inc. and its forprofit affiliates were eliminated from revenues and expenses in the accompanying consolidated financial statements. Rental Income $ 55,800 Management and Other Fees 482,065 Social Service Fees 67,842 Partner Distributions 210,705 $ 816,412 B. On January 5, 2005, MAUC Realty Management, Inc. entered into a $50,000 revolving loan agreement with RCC. The note bears an interest rate of 3.5% with interest due quarterly. The note matures 5 years from the date of inception. As of December 31, 2013, $50,000 was drawn and due to RCC. The notes receivable and notes payable have been eliminated from the consolidated financial statements. C. In 2010 MAUC, Inc. entered into a $52,233 note payable with RCC for roof improvements. The note is due 5 years after origination bears no interest until construction is complete, and bears an interest rate of 2% thereafter. The note payable and related RCC receivable have been eliminated from the consolidated financial statements. D. Management Fees The SAVJ Woodstone, L.P., entered into a management agreement on September 28, 2005, with a management company to provide services in connection with the management, operation, supervision and maintenance of the Project. MAUC Realty Management Corporation sub-contracts with the management company to co-manage the property. Management fees of $4,329 were paid to MAUC Realty Management Corporation, were charged to the Project and were eliminated in the consolidated financial statements. TX Palacio Housing L.P. pays a cumulative partnership management fee to MAUC Realty Management Corporation related to management of the project. Total fees earned for the year ended December 31, 2013 were $5,933, and have been eliminated in the consolidated financial statements. 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. RELATED PARTY TRANSACTIONS (Continued) E. Sub Management Fees Pursuant to the Sub Management Agreement with TX Palacio Housing, LP, dated August 23, 2005, MAUC Realty Management Corporation is entitled to receive 5% of the remaining amount after the payment of the priority distribution and partnership management fee. For the year ended December 31, 2013, $0 was charged to operations. F. Incentive Management Fees Pursuant to the SAVJ Woodstone, L.P. Incentive Management Agreement, dated June 1, 2004, the General Partner, CIS Woodstone Development, LLC is entitled to receive an annual non-cumulative incentive management fee in an amount equal to $18,000. The fee is only payable to the extent of cash flow available for distribution. During the current year $18,000 of fees were available for distribution and were charged to operations. Pursuant to the TX Palacio Housing, L.P. Incentive Management Agreement, dated June 1, 2004, the General Partner, TX Palacio Housing Development, LLC, and Southwest Housing Management Corporation are entitled to receive an annual non-cumulative incentive management fee in an amount equal to 7% of the gross revenues of the project. The fee is only payable to the extent of cash flow available for distribution. No cash flow is available for distribution in the subsequent period, therefore no fees have been charged to operations. G. Social Services Contract The SAVJ Woodstone, L.P., and TXPAL Housing, L.P. and Las Villas de Merida Apartments, LP entered into agreements with MAUC to provide social services for the Project residents. Total amount charged and paid to MAUC during the current year were $28,800, $68,556 and $21,600, respectively. No amount was outstanding at year end. These amounts were eliminated in the consolidated financial statements. H. Ground Lease On October 1, 2001, Las Villas de Merida Apartments, LP entered into a ground lease with MAUC in order to use and occupy the land for construction, development, marketing for lease, and leasing of rental units. The lease is payable in monthly installments of $4,500. The lease terminates on the earlier of November 30, 2056 or dissolution or termination of the Partnership. During 2013 rents of $54,000 were incurred and paid to MAUC. These amounts were eliminated in the consolidated financial statements. 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. RELATED PARTY TRANSACTIONS (Continued) I. Other The Affordable Housing Tax Credit Partnerships have no employees. The management companies and MAUC pay certain administrative expenses for the Partnerships. The Partnerships periodically reimburse the management companies and MAUC for these amounts paid. No reimbursements were outstanding at year end. J. Partnership Profits and Losses and Distributions (1) Pursuant to the SAVJ Woodstone, L.P. partnership agreement, generally, all profits and losses are allocated.01% to the General Partner,.01% to the Class B Limited Partner, and 99.98% to the Investor Limited Partner. Cash flow, as defined by the partnership agreement, generally is distributable 33.33% to the General Partner and 66.66% to the Class B Limited Partner, after certain other fees have been paid. Profit and losses arising from the sale, refinancing, or other disposition of all or substantially all of the partnership s assets will be allocated based on the respective partner s capital account balances, in accordance with the partnership agreement. Additionally, the partnership agreement provides for other instances in which a special allocation of profits and losses and distributions may be required. A priority distribution in the amount of $19 was made to the Investor Limited Partner in the current year. Cash flow distributions of $210,705 were made to the General Partner, $421,483 to the Class B Limited Partner, and $70,243 to the Investor Limited Partner during the year. As of December 31, 2013, there was $115,891 cash available for distribution. (2) Profits, losses, and tax credits are allocated in accordance with the TX Palacio Housing, LP partnership agreement. Generally, all profits and losses are allocated.01% to the General Partner and 99.99% to the Investor Limited Partner. Cash available for distribution is the excess, if any, of the total gross receipts generated in the operation of the Partnership over the sum of total cash disbursements, debt service payments and reasonable estimate of reserves for replacements, insurance, contingencies or other items. Distributions, including the priority distribution, in the amount of $11,041 were made to the Investor Limited Partner in the current year. As of December 31, 2013, there was no cash available for distribution in 2014. (Continued) 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. RELATED PARTY TRANSACTIONS (Continued) (3) Profits, losses and tax credits are allocated in accordance with the Las Villas de Merida Apartments, LP partnership agreement as follows: Effective January 1, 2012 a third amendment to Amended and Restated Agreement of the Partnership was entered into with special allocation provisions; a) gross income from rents shall be allocated 60% to the General Partner, 0.001% to the Special Limited and 39.999% to the Investor Limited Partner; b) all operating expenses shall be allocated to the General Partner; c) any remainder income and expenses and tax credits shall be allocated 0.09% to General Partner, 0.01% to Special Limited Partner and 99.90% to the Investor Limited Partner. 13. ANNUAL LEAVE Substantially all of MAUC's employees accrue annual and sick leave within certain limitations. Unused annual and sick leave are not paid to employees at termination. As of December 31, 2013, MAUC's accrued annual leave was $22,862 which is included in accrued expenses. 14. RETIREMENT PLAN MAUC, Inc. sponsors a profit-sharing retirement plan under section 401(k) of the Internal Revenue Code covering substantially all regular, full-time employees meeting eligibility requirements. MAUC has the option of making discretionary profit sharing contributions allocated proportionately to salary based on a participant s compensation to total compensation. Pension costs totaled $10,973 for the year ended December 31, 2013. 15. COMMITMENTS AND CONTINGENCIES A. MAUC s federal, state, and local programs are governed by various rules and regulations of the contractor agencies. Expenses charged to the contract programs are subject to audit and adjustment by the contractors. To the extent that MAUC has not complied with the rules and regulations governing the contracts, refunds of any money received may be required. In the opinion of management, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the contracts; therefore, no provision has been made in the accompanying financial statements for such contingencies. 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. COMMITMENTS AND CONTINGENCIES (Continued) B. The SAVJ Woodstone, L.P., TX Palacio Housing, L.P. and Las Villas de Merida Apartments, LP each expect to generate specified aggregate amounts of low-income housing tax credits. Generally such tax credits are expected to become available for use by its partners, pro-rata over a ten-year period. The Project s tax credits will be allocated pursuant to a tax-exempt bond allocation and are contingent on its ability to maintain compliance with Internal Revenue Code Section 42 (Section 42) and the tax-exempt bond regulations. Failure to maintain compliance with occupant eligibility, and/or unit gross rent or to correct non-compliance within a specific time period could result in recapture of previously taken tax credits plus interest. The Partnerships have executed a land use restriction agreement (LURA), which requires the Projects to be in compliance with Section 42 for a minimum of 15 years. In addition such potential noncompliance may require an adjustment to the contributed capital by the limited partner. Because these tax credits are subject to complying with certain requirements, there can be no assurance that the aggregate amount of tax credits will be realized and failure to meet all such requirements may result in a lesser amount of tax credits than expected. 16. NET ASSETS RESTATEMENT Beginning net assets was restated as follows: Temporarily Restricted Net Assets Unrestricted Net Assets Net assets - December 31, 2012, as reported $ 1,345,407 $ 984,899 $ 2,330,306 Adjustment to reflect correction of net asset categories (1,271,506) 1,271,506 - Adjustment to reflect third amendment to Las Villas De Merida L.P. Partnership agreement - (245,722) (245,722) Net Assets December 31, 2012, as restated $ 73,881 $ 2,010,703 $ 2,084,584 Total 17. SUBSEQUENT EVENT Events that occur after the balance sheet 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 balance sheet date are required to be recognized in the financial statements. Subsequent events which provide evidence about conditions that existed after the balance sheet date, require disclosure in the notes to financial statements. MAUC has evaluated any potential material subsequent events through April 20, 2014 (the date the financial statements were available to be issued). 26
SUPPLEMENTAL SCHEDULES
CONSOLIDATING SCHEDULE OF FINANCIAL POSITION December 31, 2013 Affordable Housing (Tax Credit Limited MAUC Inc. PDS II, Inc. Partnerships) ASSETS Current Assets Cash and Cash Equivalents $ 414,264 $ 7,588 $ 644,593 Grants & Contracts Receivable 31,849-1,474 Other Receivables (Net) 73,526 2,340 29,397 Prepaid Expenses & Deposits 9,494-81,669 Total Current Assets 529,133 9,928 757,133 Intercompany Assets Accounts Receivable- Affiliates (66,985) (15,000) - Total Intercompany Assets (66,985) (15,000) - Restricted Assets Cash - Replacement & Other Reserves - 94,325 778,412 Cash - Tenant Security Deposits - 7,432 99,997 Tax and Insurance Escrows - - 443,099 Total Restricted Assets - 101,757 1,321,508 Other Assets Property & Equipment, Net 1,113,414 954,980 29,204,181 Investment in Affiliates 320,591 - - Issuance Costs & Monitoring Fees (Net) - - 674,074 Notes Receivable - - - Total Other Assets 1,434,005 954,980 29,878,255 TOTAL ASSETS $ 1,896,153 $ 1,051,665 $ 31,956,896 (Continued) 27
For Profit Eliminating Consolidated Subsidiaries Entries Balances $ 319,652 $ - $ 1,386,097 - - 33,323 11,754-117,017 - - 91,163 331,406-1,627,600 81,985 - - 81,985 - - - - 872,737 - - 107,429 - - 443,099 - - 1,423,265 - - 31,272,575 - (320,591) - - - 674,074 52,333 (52,333) - 52,333 (372,924) 31,946,649 $ 465,724 $ (372,924) $ 34,997,514 28
CONSOLIDATING SCHEDULE OF FINANCIAL POSITION December 31, 2013 Affordable Housing (Tax Credit Limited MAUC Inc. PDS II, Inc. Partnerships) LIABILITIES AND NET ASSETS Current Liabilities Accounts Payable $ 35,623 $ 3,240 $ 92,135 Accrued Expenses 43,800-154,937 Security Deposits 26,826 4,053 121,189 Notes Payable 84,193-6,945,655 Prepaid Rent - - 17,866 Deferred Revenue 80,694 - - Interest Payable - - 666,423 Other - - 101,411 Total Current Liabilities 271,136 7,293 8,099,616 Non-Current Liabilities Other Non-current Liabilities - - 304,255 Notes Payable 319,803-17,220,001 Total Non-Current Liabilities 319,803-17,524,256 Total Liabilities 590,939 7,293 25,623,872 Minority Interest in Subsidiary - - - Net Assets Common Stock - - - Cumulative Preferred Stock - - - Additional Unrealized Paid-in Gain/Loss Capital on Securities Held - - - Partner's Equity - - 6,333,024 Retained Earnings - - - Temporarily Restricted Net Assets Unrestricted Net Assets Invested in Property and Equipment 709,418 954,980 - Operations 595,796 89,392 - Total Net Assets 1,305,214 1,044,372 6,333,024 TOTAL LIABILITIES AND NET ASSETS $ 1,896,153 $ 1,051,665 $ 31,956,896 29
For Profit Eliminating Consolidated Subsidiaries Entries Balances $ 5,133 $ - $ 136,131 - - 198,737 - - 152,068 - (52,333) 6,977,515 - - 17,866 - - 80,694 - - 666,423 - - 101,411 5,133 (52,333) 8,330,845 - - 304,255 - - 17,539,804 - - 17,844,059 5,133 (52,333) 26,174,904 140,000 7,280,828 7,420,828 21,614 (21,614) - 50,000 (50,000) - 2,906,038 - (2,906,038) - 0 - (6,333,024) - (2,657,061) 2,657,061-97,704 97,704 - - 1,664,398 - (1,045,508) (360,320) 320,591 (7,601,419) 1,401,782 $ 465,724 $ (372,924) $ 34,997,514 30
CONSOLIDATING SCHEDULE OF ACTIVITY AND CHANGES IN NET ASSETS Affordable Housing (Tax Credit Limited MAUC Inc. PDS II, Inc. Partnerships) REVENUES Grants and Contributions $ 260,517 $ - $ - Housing Assistance Payments - 12,901 554,545 Provider Contracts and Other Fees 92,408 - - Rental Income 358,459 42,917 3,777,382 Management and Other Fees 364,280 - - In-Kind Revenue 15,949 - - Interest and Investment Income 56 30 1,071 Special Events (net of expenses of $114,400) (28,970) - - Other Revenue 98,701-228,611 TOTAL REVENUES 1,161,400 55,848 4,561,609 EXPENSES Cost of Programs Community Development 348,894 - - MAUC Center 247,587 - - Housing Development 133,385 - - Affordable Housing - 86,370 5,980,258 Realty Management - - - Venture Capital Investing - - - Total Program Services 729,866 86,370 5,980,258 General and Administrative 383,125 - - TOTAL EXPENSES 1,112,991 86,370 5,980,258 CHANGES IN NET ASSETS BEFORE OTHER CHANGES 48,409 (30,522) (1,418,649) OTHER CHANGES Partner Distributions - - (713,491) Undeclared Dividends - - - Gain/(Loss) on Disposal of Fixed Assets (169,548) - - Increase in Equity Interest 27,311 - - Limited Partner Contributions - - 1,448,502 TOTAL OTHER CHANGES (142,237) - 735,011 TOTAL CHANGES IN NET ASSETS (93,828) (30,522) (683,638) NET ASSETS - Beginning Balance (Restated) 1,399,042 1,074,894 7,016,662 NET ASSETS - Ending Balance $ 1,305,214 $ 1,044,372 $ 6,333,024 31
For Profit Eliminating Consolidated Subsidiaries Entries Balances $ - $ - $ 260,517 - - 567,446 - - 92,408 - (55,800) 4,122,958 117,785 (482,065) - - - 15,949 149-1,306 - - (28,970) (20) (67,842) 259,450 117,914 (605,707) 5,291,064 - - 348,894 - - 247,587 - - 133,385 - (324,286) 5,742,342 87,303 (70,716) 16,587 300-300 87,603 (395,002) 6,489,095 - - 383,125 87,603 (395,002) 6,872,220 30,311 (210,705) (1,581,156) - 210,705 (502,786) (3,000) - (3,000) - - (169,548) - 97,875 125,186 - - 1,448,502 (3,000) 308,580 898,354 27,311 97,875 (682,802) 293,280 (7,699,294) 2,084,584 $ 320,591 $ (7,601,419) $ 1,401,782 32