GRAND AVENUE ECONOMIC COMMUNITY DEVELOPMENT CORP CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Years Ended December 31, 2011 and

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1 GRAND AVENUE ECONOMIC COMMUNITY DEVELOPMENT CORP CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Years Ended December 31, 2011 and 2010

2 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEARS ENDED DECEMBER 31, 2011 and 2010 TABLE OF CONTENTS Page # Independent Auditors Report 1-2 Consolidated Financial Statements Statements of Financial Position 3 Statements of Activities 4 Statements of Cash Flows 5-6 Notes to Financial Statements 7-17 Supplementary Information: Schedule of Expenditures of Federal Awards and State Financial Assistance Notes to the Schedule of Expenditures of Federal Awards and State Financial Assistance 19 Compliance Reports: Independent Auditors 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 Independent Auditors Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Federal Awards Program and State Financial Assistance Project and on Internal Control over Compliance in Accordance with OMB Circular A-133 and Chapter , Rules of the Auditor General Schedule of Findings and Questioned Costs-Federal Awards Programs and State Financial Assistance Projects 24-25

3 INDEPENDENT AUDITORS REPORT The Board of Directors Grand Avenue Economic Community Development Corp Orlando, Florida We have audited the accompanying consolidated statements of financial position of Grand Avenue Economic Community Development Corp and its wholly owned subsidiary as of December 31, 2011 and 2010, and the related consolidated statements of activities and cash flows for the years then ended. These consolidated financial statements are the responsibility of management. Our responsibility is to express an opinion on these consolidated 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Grand Avenue Economic Community Development Corp and its wholly owned subsidiary as of December 31, 2011 and 2010, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated June 28, 2012 on our consideration of Grand Avenue Economic Community Development Corp's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 1

4 Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying schedule of expenditures of federal awards and state financial assistance is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; the Florida Single Audit Act, Chapter , Rules of the State Auditor General, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. L. F. Harris & Associates, CPA, P.A. Orlando, Florida June 28,

5 STATEMENTS OF FINANCIAL POSITION December 31, ASSETS Current Assets Cash and cash equivalents $ 191,440 $ 102,775 Tenant accounts receivable Net 13,437 17,825 Grants receivable 111,773 63,240 Other receivable 1,532 Prepaid and other assets 55,443 54,726 Utility deposits 45,320 45,320 Notes receivable 20,128 20,889 Total Current Assets 439, ,775 Reserved Cash Tenant security deposits 27,802 38,327 Replacement reserves 141, ,547 Total Reserved Cash 169, ,874 Property and Equipment Land 3,618,977 3,618,977 Building 13,741,753 12,859,598 Construction in progress 631, ,259 Equipment 836, ,438 Accumulated depreciation (4,327,232) (3,818,563) Total Property and Equipment 14,501,227 14,046,709 TOTAL ASSETS $ 15,109,579 $ 14,520,358 LIABILITIES AND NET ASSETS Current Liabilities Trade accounts payable $ 153,066 $ 151,900 Tenants prepaid rent 66,683 42,054 Accrued expenses 96,776 70,578 Accrued interest payable 80,332 21,089 Current portion of deferred revenue 6,413 Current portion of mortgage payable 142, ,925 Total Current Liabilities 546, ,546 Long Term Liabilities Tenant security deposits 22,860 38,327 Deferred revenue, less current portion 55,575 Mortgage payable, less current portion 4,932,820 5,059,806 Refundable advances 4,061,952 4,137,832 Total Long Lerm Liabilities 9,073,207 9,235,965 Net Assets Unrestricted net assets 5,347,738 4,635,097 Temporarily restricted net assets 142, ,750 Total Net Assets 5,490,238 4,848,847 TOTAL LIABILITIES AND NET ASSETS $ 15,109,579 $ 14,520,358 See accompanying notes to financial statements 3

6 STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, UNRESTRICTED NET ASSETS REVENUES, GAINS, AND OTHER SUPPORT Rent $ 2,170,586 $ 2,106,509 Concessionaire income 11,136 12,321 Social enterprise sales 7,358 12,779 Other income 42,212 58,861 Grant revenues 1,811,464 1,240,366 Contributions 11,171 1,562,144 Investment income 1, Net assets released from restrictions 71,250 71,250 TOTAL REVENUES, GAINS, AND OTHER SUPPORT 4,126,445 5,064,680 EXPENSES General and Administrative: Property management expense 63,698 88,030 Office and administrative expenses 191, ,488 Professional services 36,330 21,233 Total General and Administrative Expenses 291, ,751 Project Services: Utilities 665, ,159 Interest expense 217, ,281 Cost of social enterprise sales 6,052 6,695 Taxes and insurance 141, ,580 Repairs and maintenance 121,100 83,280 Bad debt expense 113, ,473 Program operating expenses 893, ,471 Contracted services 455, ,264 Depreciation 508, ,600 Total Project Services Expenses 3,123,016 2,941,803 TOTAL EXPENSES 3,414,399 3,220,554 INCREASE IN UNRESTRICTED NET ASSETS FROM OPERATIONS 712,046 1,844,126 TEMPORARILY RESTRICTED NET ASSETS Net assets released from restrictions (71,250) (71,250) DECREASE IN TEMPORARILY RESTRICTED NET ASSETS (71,250) (71,250) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 640,796 1,772,876 UNUSUAL ITEM Gain resulting from insurance proceeds relating to property damage 595 2,973 INCREASE (DECREASE) IN NET ASSETS BEFORE EXTRAORDINARY ITEM 641,391 1,775,849 EXTRAORDINARY ITEM Gain on restructuring of debt 22,862 INCREASE (DECREASE) IN NET ASSETS 641,391 1,798,711 NET ASSETS AT BEGINNING OF YEAR 4,848,847 3,050,136 NET ASSETS AT END OF YEAR $ 5,490,238 $ 4,848,847 See accompanying notes to financial statements 4

7 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, CASH FLOWS FROM OPERATING ACTIVITIES Rental receipts $ 2,174,974 $ 2,108,597 Grant proceeds 1,687,051 1,274,748 Contributions 11,171 12,144 Miscellaneous property income receipts 43,480 59,312 Other operating receipts 78,950 25,100 Proceeds from insurance settlement 595 2,973 Interest paid (157,913) (865,389) Cash paid to suppliers and employees (2,642,239) (2,610,680) NET CASH PROVIDED BY OPERATING ACTIVITIES 1,196,069 6,805 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (963,187) (690,356) (Additions) to withdrawals from reserve for operating and escrows (10,930) (16,793) NET CASH USED IN INVESTING ACTIVITIES (974,117) (707,149) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from principal payments on notes receivable Proceeds from refundable advance 850,000 Mortgage principal payments (134,048) (220,701) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (133,287) 630,032 NET INCREASE (DECREASE) IN CASH 88,665 (70,312) CASH AT BEGINNING OF YEAR 102, ,087 CASH AT END OF YEAR $ 191,440 $ 102,775 See accompanying notes to financial statements 5

8 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 641,391 $ 1,798,711 Adjustments to reconcile changes in net assets provided by operating activities: Depreciation and amortization 508, ,600 Amortization of refundable advances (75,879) (1,590,462) Gain on restructuring of debt (22,862) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (45,677) 76,933 (Increase) decrease in prepaid and other assets (717) (27,450) Increase (decrease) in accounts payable 1,166 (91,853) Increase (decrease) in accrued liabilities 21,256 (14,255) Increase (decrease) in interest payable 59,243 (573,108) Increase (decrease) in deferred revenues 61,988 Increase (decrease) in tenants prepaid rent 24,629 11,551 Total adjustments 554,678 (1,791,906) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,196,069 $ 6,805 See accompanying notes to financial statements 6

9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE A - NATURE OF ORGANIZATION AND BASIS OF PRESENTATION Nature of Organization These financial statements represent Grand Avenue Economic Community Development Corp (Grand Avenue), a not-for-profit corporation, and its wholly owned subsidiary Maxwell Place, LLC, (Maxwell Place), a single member Florida Limited Liability Corporation (collectively the Corporation). Grand Avenue owns Maxwell Terrace Apartments (Maxwell Terrace); which consists of three phases, and is a two hundred and seventy four (274) unit apartment complex for very low-income individuals, financed by various governmental entities. One hundred (100) of the units are financed under the United States Housing Act and are administered by the City of Orlando Housing Authority and the U.S. Department of Housing and Urban Development (HUD). Under this program, Maxwell Terrace provides rental assistance for homeless individuals with disabilities in rehabilitated Single Room Occupancy (SRO) housing, subject to regulation by HUD as to rental charges and operating methods. Lower rental charges to tenants are recovered by Maxwell Terrace through rent subsidies provided by HUD. Maxwell Terrace receives Section 8 Housing Assistance Subsidy from HUD which is passed though the Orlando Housing Authority. Maxwell Place owns a fourth phase of Maxwell Terrace, which consists of a total of fifty nine units (59), of which 44 units were available and rented at December 31, 2011 and 2010, and the remaining 15 were being rehabilitated with Federal and State grants received through Orange County, Florida and the Homeless Services Network. Grand Avenue also owns Maxwell Garden Apartments, a two hundred five (205) unit apartment complex, which offers affordable housing for low or very low-income persons. Maxwell Garden Apartments (Maxwell Gardens) is financed by various private and governmental agencies. The Orlando Area Trust for the Homeless financed one hundred (100) of the units for the homeless. Under the agreement, these units were required to remain occupied and affordable at levels established by the Orlando Area Trust for the Homeless (OATH) for a fifteen (15) year period. In December 2010, OATH released Grand Avenue from this obligation (Note H). Maxwell Gardens is also funded by a small grant from the United States Department of Housing and Urban Development (HUD) for acquisition, and a Supportive Housing Program (SHP) grant for supportive services and operating expenses which is subject to regulation by HUD. Under the acquisition grant, a total of fifty (50) units must be operated for the provision of housing and supportive services for homeless persons for a term of twenty (20) years. A Safe Haven program is also run at Maxwell Gardens, with the proceeds from a SHP grant received from HUD. This program funds services, including free housing, for 25 chronically homeless individuals. Its primary goal is to help these individuals obtain permanent housing, attain an income and provide them with life and employment skills. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Board (FASB). Under those provisions, net assets, revenues, and gains and losses are classified based on the existence or absence of donor-imposed restrictions as follows: 7

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Unrestricted Net Assets Net assets that are not subject to donor-imposed stipulations; Temporarily Restricted Net Assets Net assets subject to donor-imposed stipulations that can be fulfilled by actions of the Corporation pursuant to those stipulations or that expire with the passage of time; and Permanently restricted net assets Net assets subject to donor-imposed stipulations that must be maintained permanently by the Corporation. Generally, donors of such assets permit the Corporation to use all or part of the income earned on the assets. The Corporation had no permanently restricted net assets as of December 31, 2011 and Principles of Consolidation The Consolidated Financial Statements include the accounts of Grand Avenue and its wholly owned subsidiary Maxwell Place. All significant intercompany transactions and accounts have been eliminated in consolidation. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Method of Accounting The Corporation, (Grand Avenue and its subsidiary Maxwell Place), uses the accrual method of accounting for financial statement purposes. Property and Equipment Property and equipment are stated at cost at the date of purchase or at fair value at the date of the gift, if donated, less accumulated depreciation. The Corporation s threshold for capitalization is $500. Land and building acquisitions are capitalized at cost. Depreciation is computed for financial statement purposes using the straight-line method over the estimated useful lives of the related assets as follows: Buildings Equipment 30 years 3-7 years Income Taxes The Corporation is a not-for-profit organization exempt from federal income taxes under the Internal Revenue Code, Section 501(c)(3). Cash Equivalents For the statement of cash flows, the Corporation considers all highly liquid, unrestricted investments with original maturities of three months or less to be cash equivalents. NOTE C NOTES RECEIVABLE Sale of Contributed Property In August 2009, a financial institution contributed real property to the Corporation with a fair market value of approximately $50,000. The Corporation immediately arranged to sell the property to an employee for $21,000. 8

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE C NOTES RECEIVABLE (Continued) The sale was financed via a 20 year note at 5% interest amounting to $21,800, reflecting the sales price and outstanding property taxes. The five year maturity schedule on this note at December 31, 2011, is as follows: December 31, Amount 2012 $ Thereafter 16,092 Total Due $ 20,128 NOTE D - LAND, BUILDINGS, FURNISHINGS Property and equipment consists of the following at December 31, 2011 and 2010, respectively: Land $ 3,618,977 $ 3,618,977 Buildings and improvements 13,741,753 12,859,598 Construction in Process 631, ,259 Furniture and fixtures 836, ,438 18,828,459 17,865,272 Less accumulated depreciation 4,327,232 3,818,563 $ 14,501,227 $ 14,046,709 Depreciation expense amounted to $508,669 and $439,600 during the years ended December 31, 2011 and 2010, respectively. Construction in Process relates to rehabilitation work being done on Maxwell Place at December 31, 2011 and 2010, which was completed in February The State of Florida Department of Children and Families (the Department) has $712,500 (Note E) in revisionary rights in real property located at Maxwell Terrace Phase 3, which was rehabilitated by the Corporation. Based on an agreement between the Corporation and the Department, the Department requires that any State funds provided for the purchase of, or improvements to, real property are contingent upon the Corporation granting to the State a security interest in the property at least in the amount of the State funds provided for at least five years from the date of purchase or the completion of the improvements. The contract includes a provision that, as a condition of receipt of State funding for this purpose, the Corporation agrees that, if it disposes of the property before the Department s interest is vacated, the Corporation will refund the proportionate share of the State s initial investment, as adjusted for depreciation. 9

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE E - NET ASSETS Temporarily Restricted - Net Assets Temporarily restricted net assets are available, subject to time restrictions, as follows: The Corporation received a grant for $712,500 to provide housing for the homeless over the ten year period beginning June 30, 2003 and ending June 25, The grant is satisfied with the passage of time on a straight-line basis. During the years ended December 31, 2011 and 2010, $71,250 was released from restrictions. Time Restrictions: Temporarily Restricted Net Assets, Beginning of Year $ 213,750 $ 285,000 Amount Released from Restriction (71,250) (71,250) Total Temporarily Restricted Net Assets, End of Year $ 142,500 $ 213,750 NOTE F - CONCENTRATION OF CREDIT RISK AND FAIR VALUE MEASUREMENTS Concentration of Credit Risk - The Corporation maintains bank accounts at several financial institutions. Amounts at each financial institution are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. Throughout the year, cash balances may occasionally exceed the insured limit. At December 31, 2011 and 2010, the Corporation did not exceed the FDIC limit. Fair Value Measurements - Fair values of assets and liabilities measured on a recurring basis would normally apply to the Corporation s Note Receivable and its debt obligations. Such assets and liabilities do not readily trade in an active market. Moreover, there is no active market for substantially similar assets, nor are there significant other observable inputs that can readily be used to establish changes in fair value. As such, the Corporation believes that historical cost best represents current fair value in the absence of impairment and has presented them that way in the financial statements. There were no assets or liabilities that met the criteria for fair value measurement on a non recurring basis. (THIS SECTION INTENTIONALLY LEFT BLANK) 10

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE G - MORTGAGES AND NOTES PAYABLE Long-term debt at December 31, 2011 and 2010 consists of the following: Maxwell Terrace I & II 2011 _ 2010 _ Refinanced mortgage payable, Florida Community Capital Corporation, in monthly payments of $391.23, including principal and interest at 1%, due July Secured by real estate. $ 109,553) $ 113,133) Refinanced mortgage payable, Florida Community Capital Corporation, in monthly payments of $646.56, including principal and interest at 1%, due July Secured by real estate. 181,068) 186,984) Mortgage payable, Chase Bank, monthly payments of $7,252, including principal and interest at 6.91%, due October 1, Secured by real estate. 998,228) 1,015,617) Refinanced mortgage payable, Orange County Housing Finance Authority, in monthly payments of $254, including principal and interest at 1%, due September Secured by real estate. 71,282) 73,603) Mortgage payable, Chase Bank, in monthly payments of $4,518.68, including principal and interest at 6.88%, due October 1, Secured by real estate. 623,590) 634,500) Maxwell Terrace III Refinanced mortgage payable, Florida Community Capital Corporation, in monthly payments of $1,466.76, including principal and interest at 1%, due July Secured by real estate. 398,594) 411,619) Refinanced mortgage payable, Florida Community Capital Corporation, in monthly payments of $2,086.14, including principal and interest at 1%, due July Secured by real estate. 584,157) 603,245) Maxwell Terrace IV (Maxwell Place) Refinanced, seller-financed mortgages payable, of $1,700,000, as follows. $1,400,000 of the note, bearing interest at 6%, amortized on a thirty year schedule, monthly payments of $8,394 beginning August 1, 2012, with the remaining principal and interest due October 29, 2015; the remaining 1,697,206) 1,698,606) $300,000 of the note, interest at 6%, non amortizing, with principal and accrued interest due and payable on October 29, Both notes are secured by real estate in Orange County, Florida. Maxwell Gardens Mortgage payable, Florida Housing Finance Corporation, monthly payments of $1, includes interest at 0.00% commencing April 30, 2003, due September 30, Secured by real estate. 99,711) 117,052) Mortgage payable, Florida Community Capital Corporation, monthly payments of $4,009, including principal and interest at 1.5%, due November Secured by real estate. 312,295) 355,372) Total Mortgages and Notes Payable $5,075,684) $5,209,731) Less Current Portion (142,864) (149,925) Total Long-Term Debt $4,932,820) $5,059,806) Loan restructuring/extraordinary Gain In June 2007, Maxwell Place acquired land and buildings adjoining Maxwell Terrace. The purchase price amounted to $1,812,500 and was financed in full by the seller. The note accrued interest at 8% per annum and was repayable, including principal and accrued interest, in two equal balloon payments due November 30, 2010 and 2012, respectively. On October 29, 2010, the Corporation restructured its seller-financed debt. Under the terms of the restructuring, the old note, bearing interest at 8% and amounting to $1,812,500, was cancelled; $112,500 of principal and $687,500 of accrued, outstanding interest was repaid; $22,862 of interest was forgiven and has been recorded as an extraordinary gain in the 2010 Statement of Activities; and the remaining principal of $1,700,000 was replaced with a new note with the following characteristics. 11

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE G - MORTGAGES AND NOTES PAYABLE (Continued) The new note is divided into two tranches. The first bears interest at 6%. $300,000 is due and payable, together with unpaid, accrued interest, on October 29, The second, amounting to $1,400,000, which has been subsequently modified twice, is currently being amortized on a 30 year basis, with monthly payments of principal and interest of $8,394 to begin on August 1, Prior to this date, the note accrues interest at 6%, but requires payments amounting to $1,750 of interest only from February 1, 2011 through January 1, 2012 and $4,250 from February 1, 2012 through July 1, The difference in interest paid versus the amount accrued is reflected as interest payable and is due and payable in full when the note matures. The remaining principal and any outstanding interest thereon, including the unpaid interest earned, is due and payable in full on October 29, The restructuring of this debt was facilitated by a SHIP agreement, passed through Orange County, Florida (Note H). The effects of the refinancing are reflected in the maturity schedule that follows. The following schedule outlines principal amounts due on mortgages and notes payable at December 31, 2011: December 31, Amount 2012 $ 142, , , ,803, ,832 Thereafter 2,657,513 Total Due $ 5,075,684 For the years ended December 31, 2011 and 2010, interest expense incurred on the notes payable and long-term debt amounted to $224,299 and $292,281, respectively, and is included in the Statements of Activities. (THIS SECTION INTENTIONALLY LEFT BLANK) 12

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE H - REFUNDABLE ADVANCES Refundable advances, none of which bear interest, consist of the following: Maxwell Terrace Refundable Advance, Urban Trust Bank, formerly Metro Savings Bank, Federal Home Loan Bank Grant, the note is forgiven in its entirety on November 1, 2027 if, throughout the agreement period, rent charged for units meets specific guidelines. This note is reduced by $16,050 for each year the Corporation remains in compliance. $ 254,125 $ 270,175 Refundable Advance, Orange County HOME Grant, the note is forgiven in its entirety on July 1, 2013 if, throughout the agreement period, units are rented to tenants meeting income requirements. The note is reduced by $17,300 for each year the Corporation remains in compliance. 17,410 34,740 Refundable Advance, City of Orlando, HUD CDBG Program. The note is forgiven on June 11, 2017 in its entirety, provided the Corporation is not in default of occupancy and use restrictions. Refundable Advance, City of Orlando, State of Florida Hurricane Housing Assistance program. Total amount of the award was $475,000. The award was made to repair hurricane damage at Maxwell Terrace. The note is due December 31, However, if the Corporation complies with its terms, it is forgiven in full at that date. 950, , , ,000 Refundable Advance, City of Orlando, the note is forgiven in its entirety on May 30, 2019 if, throughout the agreement period, the Corporation is not in default of occupancy and use requirements. 250, ,000 Refundable Advance, Orange County SHIP Grant, dated October 29, This note is forgiven in its entirety on October 29, 2030 if, throughout the period of the agreement, units are rented to tenants meeting income requirements, as specified. The note is reduced by $42,500 each year the Organization remains in compliance. Maxwell Gardens 800, ,917 Refundable Advance, Federal Trust Bank, the note is forgiven in its entirety on March 31, 2017 if, throughout the agreement period, the Corporation is not in default of occupancy and use requirements. 430, ,000 Refundable Advance, City of Orlando, HOME Program. The note is forgiven in its entirety on July 31, 2017, provided that the Corporation remains compliant with the terms of the Agreement, principally including the provision of specified housing units to low income individuals. 385, ,000 Refundable Advance, City of Orlando, HOME Program. The note is forgiven in its entirety on September 1, 2015, provided that the Corporation remains compliant with the terms of the Agreement, principally including the provision of specified housing units to low income individuals. 500, ,000 Total Refundable Advances $ 4,061,952 $ 4,137,832 Recognition of Refundable Advances - During the years ended December 31, 2011 and 2010, respectively, $75,880 and $1,590,463 of refundable advances were recognized as revenues, as the Corporation had either met the required performance criteria, or, as explained in the next paragraph, the grantor has ceased to exist, and chose to fully satisfy the mortgage. 13

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE H - REFUNDABLE ADVANCES (Continued) Satisfaction and Release of Mortgage On February 1, 2011, OATH (Note A) released the Corporation s property from a mortgage note amounting to $1,550,000. This debt was originally scheduled to be cancelled on September 30, 2016, provided the Corporation fulfilled certain use and residency requirements under the agreement with OATH. The mortgage was satisfied due to the fact that OATH has ceased to exist and that, during the period from the inception of the agreement to the date of satisfaction, the Corporation had complied with the requirements of its agreement with OATH. The $1,550,000 was recognized in the Organization s Statement of Activities in 2010, as OATH released the Organization from its obligation prior to December 31, New Refundable Advance - In August 2010, the Corporation entered into an agreement with Orange County, Florida whereby it received $850,000 of funding under the State of Florida, SHIP program. The purpose of this funding was to assist in the restructure of the Corporation s outstanding debt under a seller-financed note, the first installment of which came due in November 2010 (Note G). NOTE I COMMITMENTS AND CONTINGENCIES Governmental Financial Assistance - Financial awards in the form of grants and loans from federal, state, and local governmental entities are subject to special audits, including, but not limited to, single audit. Such audits could result in claims against the Corporation for disallowed costs or non-compliance with grantor restrictions and other requirements. The amounts, if any, of expenditures which may be disallowed by the grantor are recorded at the time that such amounts can be reasonably determined, normally upon notification by the government agency. During the years ended December 31, 2011 and 2010, no such adjustments were made. Under the terms of a Community Development Block Grant agreement with Orange County, Florida, which provided $554,419 of rehabilitation assistance for Maxwell Place during 2010, the Corporation is obligated to use Maxwell Place as a facility that provides services to the homeless over the next five years. Failure to comply with these terms without the written consent of the County could lead to Grand Avenue having to repay the County all of this assistance. Claims by Former Management Agent In January 2008, the Corporation terminated its agreement with its former management agent, which had managed both Maxwell Terrace and Maxwell Gardens. The management agent has asserted that the Corporation owes it an amount in excess of $100,000 for services performed in its capacity as management agent and for bills paid on behalf of the Corporation. The Corporation does not acknowledge such liability. The management agent has not commenced action to collect on its assertion. The financial statements at December 31, 2011 and 2010 do not reflect a liability in relation to these claims, as the Corporation is unable to determine the probability of a settlement or a range of what the possible settlement may be. NOTE J - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Corporation's primary assets are apartment complexes: Maxwell Terrace Apartments I & II, Maxwell Terrace Apartments III, Maxwell Place, and Maxwell Garden Apartments (Maxwell Gardens). The Corporation's operations are concentrated in the low income, multifamily real estate market. 14

17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE J - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS (Continued) The Corporation s revenues are derived, primarily, from the rental of its apartment units to low and very low income individuals and from various grants (Note M). The Corporation operates in a heavily regulated environment. The operations of the Corporation are subject to the administrative directives, rules, and regulations of federal, state, and local regulatory agencies, including the Department of Housing and Urban Development (HUD) and the Department of Health and Human Services (HHS). Such administrative directives, rules, and regulations are subject to change by an Act of Congress or an administrative change mandated by HUD or HHS. Such changes may occur with little notice or funding to pay for the related cost, including the additional administrative burden to comply. NOTE K RESERVED CASH The Corporation has mortgages on certain properties. These mortgage agreements require that cash reserves be kept in separate bank accounts. These cash accounts are designated for operating expenditures and property repair and replacement. Reserved Cash at December 31, 2011 and 2010 were: Repairs and Replacement Reserves $ 141,477 $ 130,547 $ 141,477 $ 130,547 NOTE L TENANT ACCOUNTS RECEIVABLE Tenant accounts receivable consists of tenant rents for lease payments, and is reported net of an allowance for doubtful accounts, as the amount management expects to collect on balances outstanding at year-end. Management closely monitors accounts receivable and reviews the collectability of the outstanding balances. At December 31, 2011 and 2010, respectively, the allowance for doubtful accounts was $34,826 and $48,648, respectively. NOTE M GRANT AGREEMENTS During the years ended December 31, 2011 and 2010, the Organization had a number of active Federal and State grant agreements. A majority of these agreements were passed through Orange County or the Homeless Services Network (HSN). The agreements covered a variety of the Organization s activities and needs, including: the rehabilitation of apartments, the provision of mental health and substance abuse counseling, and the provision of housing and related assistance to the chronically homeless. At December 31, 2011 and 2010, respectively, grants receivable consisted of the following: Orange County, EDI Grant $ 22,297 $ - HSN, HUD Supportive Housing Program 23,073 22,434 HSN, VA Supportive Services for Veterans 3,081 - Department of Health & Human Services 63,322 40,806 $ 111,773 $ 63,240 15

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE M GRANT AGREEMENTS (Continued) A provision for uncollectible grants has not been recorded as in the opinion of management, the entire amounts are collectible. At December 31, 2011, significant grants in effect include: HHS agreement, titled Project Pathlight Home, which covers a five year budget period retroactive to September 30, 2009 and extending through September 29, Under the terms of the agreement, HHS will provide $400,000 for each of the first three year periods, with $398,681 and $397,127 provided, respectively, in years four and five. The agreement is a collaborative one among HHS, the Corporation, The Center for Drug Free Living, and Lakeside Behavioral Healthcare. Its purpose is to provide chronically homeless individuals that have mental health and/or substance abuse problems who are currently residing at facilities owned and operated by the Corporation with appropriate professional mental health and substance abuse services. During the years ended December 31, 2011 and 2010, respectively, $567,386 and $224,962 was recognized under this grant in the Statements of Activities. State Homeless Housing Assistance Grants, from the Department of Children and Families, passed through Homeless Services Network of Central Florida, Inc. These grants provided total assistance of approximately $656,000 and were used for the rehabilitation of Maxwell Place, Maxwell Terrance I&II and Maxwell Gardens. Under the agreements, the rehabilitated units will be reserved for ten years for the homeless. During the years ended December 31, 2011 and 2010, respectively, $554,809 and $100,841 was recognized under these grants in the Statements of Activities. HUD s Economic Development Initiative (EDI) program with Orange County, Florida. This grant, as amended, provides for $1,350,000 for renovations and improvements to Maxwell Place, which will facilitate an affordable housing community for the homeless in the Orlando area. During the years ended December 31, 2011 and 2010, respectively, $314,645 and $25,000 was recognized under this grant in the Statements of Activities. HUD s SHP Safe Haven grant, passed through HSN, which provides for services, including free housing, for 25 chronically homeless individuals. Its primary goal is to help these individuals obtain permanent housing, attain an income and provide them with life and employment skills. During the years ended December 31, 2011 and 2010, respectively, $242,649 and $252,059 was recognized under this grant in the Statements of Activities. The Corporation is currently required to match the SHP funding based on an approved budget incorporated in the grant agreement. NOTE N UNUSUAL ITEM Insurance proceeds - During 2011 and 2010, the Corporation recorded a gain of $596 and $2,973, respectively, representing net insurance proceeds collected on a claim for damages at Maxwell Terrace. NOTE O SUBSEQUENT EVENTS Subsequent events have been evaluated through June 28, 2012, the date the financial statements were available to be issued. 16

19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 and 2010 NOTE O SUBSEQUENT EVENTS (Continued) Debt Restructure On February 16, 2012, the Corporation modified its seller financed mortgage (Note G). Under the terms of the modification, commencing February 1, 2012, monthly payments due under the modified agreement are $4,250, representing a portion of the interest accrued on the loan. Commencing August 1, 2012, the Corporation shall make monthly payments of principal and interest amounting to $8,

20 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND STATE FINANCIAL ASSISTANCE YEAR ENDED DECEMBER 31, 2011 Grantor / Program Title Federal/State CFDA/CSFA Number Federal Expenditures Federal: U.S. Department of Health and Human Services: Substance Abuse and Mental Health Services Administration Grant # 1H79SM $ 567,386 U.S. Department of Housing and Urban Development: Passed Through: Orlando Housing Authority: Section 8 Moderate Rehabilitation Single Room Occupancy $ 371,807 Homeless Services Network of Central Florida, Inc: FL29B Supportive Housing Program ,675 FL29B Supportive Housing Program ,649 Veterans Administration Supportive Services for Veterans ,420 City of Orlando: HOPWA GAC352-CT Short-term Emergency Housing Assistance ,695 HOME Investment Partnership Program-Refundable Advance ,000 Supportive Housing Program Refundable Advance ,000 Community Development Block Grant - Maxwell Terrace Rehabilitation ,000 Orange County: Economic Development Initiative Grant-Maxwell Place ,645 HOME refundable advance ,410 Total Federal $ 3,677,687 State: Department of Children and Families: Homeless Housing Assistance Rehabilitation Grants - Maxwell Place, Terrace & Gardens, Passed through HSN $ 554,809 18

21 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND STATE FINANCIAL ASSISTANCE YEAR ENDED DECEMBER 31, 2011 Florida Housing Finance Corporation: Hurricane Housing Recovery Program Passed Through: City of Orlando ,000 State Housing Initiative Partnership Passed Through: Orange County, Florida ,417 Total State $ 1,830,226 NOTES TO SCHEDULE OF EXPENDITURE OF FEDERAL AWARDS AND STATE FINANCIAL ASSISTANCE NOTE A - BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards and state financial assistance includes the federal and state grant activity of Grand Avenue Economic Development Corp, and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (OMB A-133) and the Florida Single Audit Act. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in, the preparation of the basic financial statements. NOTE B - INSURANCE There were no federal or state awards expended in the form of non-cash assistance. The Corporation had commercial and general liability insurance in effect during the year with limits of $2,000,000 for general aggregate and $1,000,000 for each occurrence. 19

22 INDEPENDENT AUDITORS 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 The Board of Directors Grand Avenue Economic Community Development Corp Orlando, Florida We have audited the financial statements of Grand Avenue Economic Community Development Corp (a not-for-profit organization) as of and for the year ended December 31, 2011, and have issued our report thereon dated June 28, We conducted our audit 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. Internal Control over Financial Reporting Management of Grand Avenue Economic Community Development Corp is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered Grand Avenue Economic Community Development Corp's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Grand Avenue Economic Community Development Corp s internal control over financial reporting. Accordingly, we do not express an opinion of the effectiveness of the Corporation s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the organization s financial statements will not be prevented, or detected and corrected, on a timely basis. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section, and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether Grand Avenue Economic Community Development Corp's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial 20

23 statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of non-compliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of Grand Avenue Economic Community Development Corp in a separate letter dated June 28, This report is intended solely for the information and use of management, the Board of Directors, federal and state awarding agencies, and pass-through entities, and is not intended to be, and should not be, used by anyone other than these specified parties. L F. Harris & Associates, CPA, P.A. Orlando, Florida June 28,

24 INDEPENDENT AUDITORS REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR FEDERAL AWARDS PROGRAM AND STATE FINANCIAL ASSISTANCE PROJECT AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 AND CHAPTER , RULES OF THE AUDITOR GENERAL The Board of Directors Grand Avenue Economic Community Development Corp Orlando, Florida. Compliance We have audited Grand Avenue Economic Community Development Corp (a not-for-profit organization) s compliance with the types of compliance requirements described in the OMB Circular A- 133 Compliance Supplement, and the requirements described in the Department of Financial Services State Projects Compliance Supplement, that could have a direct and material effect on each of its major federal programs and state projects for the year ended December 31, Grand Avenue Economic Community Development Corp's major federal programs and state projects are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs and state projects is the responsibility of Grand Avenue Economic Community Development Corp's management. Our responsibility is to express an opinion on Grand Avenue Economic Community Development Corp's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; OMB A-133, Audits of States, Local Governments, and Non-Profit Organization; and Chapter , Rules of the Auditor General. Those standards, OMB Circular A-133, and Chapter , Rules of the Auditor General, require that we plan and perform the audit to obtain reasonable assurance about whether non-compliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program or state financial assistance project occurred. An audit includes examining, on a test basis, evidence about Grand Avenue Economic Community Development Corp's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of Grand Avenue Economic Community Development Corp's compliance with those requirements. In our opinion, Grand Avenue Economic Community Development Corp complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs and state financial assistance projects for the year ended December 31,

25 Internal Control over Compliance Management of Grand Avenue Economic Community Development Corp is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal awards programs and state financial assistance projects. In planning and performing our audit, we considered Grand Avenue Economic Community Development Corp's internal control over compliance with the requirements that could have a direct and material effect on a major federal program or state financial assistance project to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB A-133 and Chapter , Rules of the Auditor General, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Grand Avenue Economic Community Development Corp s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, non-compliance with a type of compliance requirement of a federal program or state financial assistance project on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program or state financial assistance project will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section, and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of management, the Board of Directors, others within the entity, and federal and state awarding agencies and pass-through entities and is not intended for, and should not be used by, anyone other than these specified parties. L.F. Harris & Associates, CPA, P.A. Orlando, Florida June 28,