Audit Report 2010 by Raymond Maggio

LONG ISLAND VILLAGE OWNERS’ ASSOCIATION, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT

DECEMBER 31, 2010

JUAN E. RIVERA, CPA Certified Public Accountant 901 Industrial Drive Port Isabel, Texas 78578 1

Phone: (956) 943-4903

LONG ISLAND VILLAGE OWNERS’ ASSOCIATION, INC.

TABLE OF CONTENTS

Independent Auditor’s Report

Balance Sheet

Statement of Revenues, Expenses, and Changes in Members’ Equity

Statement of Cash Flows

Notes to the Financial Statements

6-10

Supplementary Information

11-12

JUAN E. RIVERA, CPA 901 Industrial Drive Port Isabel, TX 78578 Phone: 956-943-4903

Independent Auditor’s Report

Board of Directors Long Island Village Owners’ Association, Inc. 950 South Garcia Street Port Isabel, Texas 78578 I have audited the accompanying balance sheet of Long Island Village Owners’ Association, Inc. as of December 31, 2010, the related statements of revenues, expenses, and changes in members’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Association’s Management. My responsibility is to express an opinion on these financial statements based on the audit. I conducted the audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the 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. I believe that the audit provides a reasonable basis for my opinion. In my opinion the financial statements referred to above present fairly, in all material respects, the financial position of Long Island Village Owners’ Association, Inc. as of December 31, 2010, and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The supplementary information on future major repairs and replacements on page 11 is not a required part of basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. I have applied certain limited procedures, which consisted principally of inquiries of Management regarding the methods of measurement and presentation of the supplementary information. However, I did not audit the information and express no opinion on it.

JUAN E. RIVERA, CPA Port Isabel, Texas 78578 March 4, 2011

Long Island Village Homeowners' Association Balance Sheet As of December 31, 2010

2009

Assets Cash and Cash Equivalents Investments Member Assessments Receivable Prepaid Expenses Other Assets Property and Equipment-Net

458,165.52 156,363.51 30,842.85 79,859.49 52,470.00 124,709.94

507,610.00 25,770.00 39,716.00 36,470.00 123,617.00

Total Assets

902,411.31

733,183.00

Liabilities and Members' Equity

Liabilities Accounts payable Assessments Received in Advance Deferred Revenues Current liabilities

313,022.54 185,933.00 26,293.32 525,248.86

281,351.00 131,099.00 20,000.00 432,450.00

Members' Equity Undesignated Members' Equity Total Members' Equity

377,162.45 377,162.45

300,733.00 300,733.00

Total Liabilities and Members' Equity

902,411.31

733,183.00

The accompanying notes are an integral part of these financial statements.

Long Island Village Homeowners' Association Statement of Revenues, Expenses, and Changes in Members' Equity For the Year Ended December 31, 2010

2009

Revenues Member Assessments Golf Course Revenue Property Management Revenue Restaurant Revenues Laundry Room Revenues Advertising /Newsletter Revenue Total Revenues

2,755,978.17 104,105.40 318,577.42 133,539.43 13,425.00 14,002.50 3,339,627.92

2,685,034.00 111,915.00 431,056.00 72,887.00 12,692.00 10,130.00 3,323,714.00

Expenses Salaries and Related benefits Golf Course Expenses Property Management Expenses Restaurant Expenses Newsletter/Ads Expenses Administrative Expenses Outside Services Janitorial Services Utilities Long Island Owners Assessments Leases and Rentals Cable Service Aramark Fees Other Expenses (Note G) Parts and Materials Butane Insurance Depreciation Professional services Uniforms and Linens Total Expenses

992,092.88 15,742.11 224,794.74 71,965.53 10,708.73 7,051.69 60,655.63 21,103.29 598,429.65 482,067.27 29,232.95 175,107.19 100,713.46 166,848.88 54,972.58 29,050.89 93,717.94 38,177.92 108,391.33 21,227.62 3,302,052.28

1,039,829.00 13,912.00 268,190.00 51,739.00 10,447.00 2,008.00 64,889.00 29,150.00 589,486.00 480,577.00 28,042.00 162,869.00 99,000.00 145,304.00 55,663.00 25,802.00 89,679.00 47,571.00 68,693.00 31,668.00 3,304,518.00

37,575.64

19,196.00

300,732.91

218,149.00

Excess of Revenues over Expenses Beginning Members' Equity

Hurricane proceeds recognized 20,000.00 Major Repairs & Replacements-Revenues 134,985.11 201,480.00 Major Repairs & Replacements-Expenses (116,131.21) (138,092.00) Ending Members' Equity 377,162.45 300,733.00 2 The accompanying notes are an integral part of these financial statements.

Long Island Village Homeowners' Association Statement of Cash Flows For the Year Ended December 31, 2010

2009

37,575.64

19,196.00

38,177.92 2,082.42 (5,072.85) (40,143.49) (16,000.00) 31,671.54 54,834.00 6,293.32 109,418.50

46,980.00 (5,450.00) 22,472.00 (16,109.00) (17,268.00) (178,219.00) (41,479.00) (169,877.00)

(41,353.37) (41,353.37)

(67,008.00)

134,985.11 (116,131.21) 20,000.00

201,480.00 (138,092.00) -

38,853.90

63,388.00

106,919.03 507,610.00 614,529.03

(173,497.00) 681,107.00 507,610.00

Cash Flows from Operating Activities

Excess of Expenses over Revenues Adjustments to Reconcile Excess of Expenses over Revenues to Net Cash Provided by Operating Activities

Depreciation Book value of asset disposed (Increase) Decrease in Accounts Receivable (Increase) Decrease Assessments Receivable (Increase) Decrease in Prepaid Insurance (Increase) Decrease in Other Assets Increase (Decrease) Accounts Payable Increase (Decrease) Prepaid Assessments Increase (Decrease) Deferred Special Assmts Increase (Decrease) Deferred Revenue Decrease Federal Income Tax Payable Net Cash Provided by Operating Activities Cash Flows From Investing Activities

Purchase of Fixed Assets Net Cash Flows from Investing Activities

(67,008.00)

Cash Flows from Financing Activities

Major Repairs and Replacements Revenue Major Repairs and Replacements Expenses Insurance proceeds recognized Net Cash Used in Financing Activities Net Increase(Decrease) in Cash Cash and Cash Equivalents -January 1, 2010 Cash and Cash Equivalents-December 31, 2010

Supplemental Information Interest Expense Federal Income Tax Expense

The accompanying notes are an integral part of these financial statements.

Long Island Village Owners’ Association, Inc. Notes to Financial Statements December 31, 2010 Note A-Reporting Entity The Long Island Village Owners’ Association, Inc. (the “Association”) was formed in January 1981 as a not-for-profit corporation in the State of Texas in compliance with the Texas Condominium Act for the purposes of maintaining and operating the Condominium known as Outdoor Resorts/South Padre Island (the “Resort”). The name was changed to Long Island Village Owners’ Association, Inc. during the calendar year 2003. The Resort consists of 1,024 recreational unit owner lots each with an undivided ownership interest in the common elements of the condominium property. The Resort is located on approximately 108 acres of an island known as Long Island, which is located in the southern end of Laguna Madre Bay immediately adjacent to the City of Port Isabel, Texas. Note B-Summary of Significant Accounting Policies Basis of Accounting The Association uses the accrual basis of accounting. Property and Equipment The Association capitalizes all property and equipment to which it has title or other evidence of ownership with the exception of real property directly associated with the units. Real property common elements and related improvements are not recorded in the Association’s financial statements because the individual unit owner owns those properties not by the Association. All expenditures for real property common elements and improvements are reflected as an expense in the period incurred. The Association capitalizes personal property at cost and depreciates it using the straight-line method over a period ranging from three to twelve years. Members Assessments Received in Advance The Association has an ongoing policy wherein condominium association member assessments for the first quarter of calendar year 2010 are invoiced to members in December 2010. In connection with this policy the Association records as a liability, member assessments collected in advance of the period to which the assessments pertain. Income Taxes Homeowners’ Association may be taxed either as homeowners’ association or as regular corporations. For the year ended December 31, 2010, the Association was taxed as a regular corporation and filed Form 1120. As a regular corporation, membership income is exempt from taxation if certain elections are made, and the Association is taxed only on its non membership income, such as interest earnings, at regular federal corporate rates.

Long Island Village Ownersâ&#x20AC;&#x2122; Association, Inc. Notes to Financial Statements December 31, 2010 Note B-Summary of Significant Accounting Policies Prepaid Expenses Prepaid expenses at December 31, 2010 and 2009 consisted of prepaid insurance and cable television for $ 79,859 and $39,716 respectively. Use of Estimates The preparation of financial statements in conformity with 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 estimated. Advertising Costs Advertising costs are expensed when incurred. Note C-Cash Balances The Association maintains its cash balances in banks located in Edinburg and South Padre Island. Interest bearing accounts are secured by Federal Deposit Insurance Corporation up to $ 250,000 and non-interest bearing accounts are 100% covered by Federal Deposit Insurance Corporation. The cash balance in banks at December 31, 2010 are as follows: Cash Int'l MM LONE STAR NAT'L LONE STAR NAT'L Âˇ MM Acct. 2925001467 Activities Center- PC/Quarters Activity Center Banks (2 bags) Proshop Banks (2 cashier bags) Atrium Bank (register tray) Atrium Cash (Change Bag) Coin Changer (laundry Room) Rental Cash (register tray) Rental Petty Cash Building Permit 024-414 General Fund 024-384 Insurance Escrow 024-422 Money Market 024-635 Recreation Acct 024-392 Major Improv Fund 024-430 NEW Building Permit 0180007572 Main Fund 0180005235 General Oper Fund 0180005243 Rec/Petty Cash Acct 0180006126 Insurance Escrow 0180006282

51.60 63.13 100,627.98 150.00 600.00 600.00 200.00 300.00 700.00 250.00 500.00 833.78 86.41 220.36 74,937.27 41.50 43,970.25 10,567.28 200,686.13 (1,450.42) (4,096.77) 28,327.02 458,165.52

Long Island Village Owners’ Association, Inc. Notes to Financial Statements December 31, 2010 Note D-Investment in Edward Jones The Association invests it’s reserve cash in Edward Jones Investing firm. At December 31, 2010 the Association’s account reflected the following investments; Market Value

105.00 · Edward Jones Investments Cash 3,049.97 Boulder Valley Co Sch Dist 4,089.65 105.07 · Franklin US Government Securiti 104,326.40 105.06 · Federal Farm Credit Banks Bond 10,205.90 1105.05 · Federal Home Loan Mtg Med Note 5,061.50 105.04 · Federal Nat'l Mortgage Med Note 5,236.84 105.02 · Hardin County Tennesse Bond 10,271.30 105.01 · Tennessee Valley Authority Bond 9,747.30 105.02 · PA Hsg Fin Agy Rev Ser 96A 4,374.65 156,363.51

Cost

3,049.97 4,720.95 100,000.00 9,980.95 5,092.45 5,277.45 10,434.95 9,756.95 4,904.95 153,218.62

Interest rate

3.50 6.73 4.75 5.00 6.00 6.00 4.65 4.70

The investments above are held in the name of Long Island Village Owners’ Association and are backed by the US federal government. Note E-Long Island Owners’ Association Access to Long Island, the location of the Association is via a swing bridge across an Intercostals Waterway. The operation and maintenance of this Swing Bridge and related road system is the responsibility of the Long Island Owners’ Association, Inc. (The “L.I.O.A.”) which incorporated as a Texas not-for-profit corporation in compliance with a Declaration of Agreement among the real property owners of Long Island. The Declaration of Agreement stipulates the use of appraised real property value of Long Island, as assessed by the Cameron County Appraisal District, as the pro rata basis for L.I.O.A.’s assessments to its members and for allocation of member voting rights. The Declaration of Agreement also provides that the interest of property owners in L.I.O.A. who are also a member of another Member Association on Long Island, be represented by that Member Association in all respects. In accordance with the Declaration of Agreement, the Association’s board of directors votes the membership interest in L.I.O.A. Note F-Aramark Management Agreement On December 14, 1996 the Association entered into an agreement with Aramark Services, Inc. (“Aramark”) effective September 1, 1996 whereby Aramark is to provide restaurant, cafeteria and vending services, and resort management services. Resort management services include hospitality, owner, and business services and general maintenance services. In 2005, new terms and conditions were agreed to in effect until June 5, 2010. Aramark is paid in advance of the services provided; the Balance Sheet reflects $52,000 prepaid asset for services to be received in the subsequent month.

Long Island Village Owners’ Association, Inc. Notes to Financial Statements December 31, 2010 Note G – Other Expenses The following table is a detail listing of Other Expenses shown in total on the financial statements. Office Supplies Telephone Cellular charges Computer charges Maintenance Pest Control Auto Expense Postage/Freight Board/Ownership Bank Service Charges Adm Credit Licenses & taxes Fire Extinguisher fees Other Expenses Aramark Parts Fuel Wristband cost Manager expense

38,134.56 27,336.03 4,303.32 3,164.91 5,254.82 7,436.74 945.65 8,451.18 5,012.64 2,546.00 3,695.07 1,186.98 2,021.74 4,225.39 9,470.41 22,963.85 12,620.71 7,985.04 93.95 166,848.99

Note H – Litigation The Association is a party to the following litigation; 1. Smith vs Aramark Corporation. The Smiths claim negligence in the management and issuance of building permits. The lawsuit is currently pending, with the defense being handled by council hired by the Association’s insurer. 2. John and Rona Hamerlinck vs Long Island Village Owners’ Association. This lawsuit is similar to the one above. The lawsuit is currently pending, with the defense being handled by council hired by the Association’s insurer. 3. Cowen Island Properties L.P. vs Long Island Village Owners’ Association. This lawsuit relates to the use of Sea Shell Boulevard, a road through the Association, to reach property owned by Cowen Island Properties. The lawsuit is currently pending in the 197th Judicial District Court and the defense is being handled by counsel hired by the Association’s insurer. 4. Jack Collins vs Long Island Village Owners’ Association. Jack Collins filed suit against the Association in connection with allegedly hiring someone other than Mr. Collins to move houses in the Village. The lawsuit is currently pending in the United States District Court and Vidaurri, Lyde, Rodgriguez & Haynes is handling this litigation. 7

Long Island Village Owners’ Association, Inc. Notes to Financial Statements December 31, 2010 Note H – Litigation (continued) 5. Maurice O Berry vs Long Island Village Owners’ Association. Maurice O Berry filed suit against the Association for declaratory relief, breach of contract, fraud, slander and is seeking specific injunctive relief in his attempt to have Canal A dredge. The Association is aggressively fighting each of the above mentioned cases. Note I – Property and Equipment The Association has the following fixed assets as of December 31, 2010;

Administration Atrium Club House Golf Kitchen Laundry Lawn & garden equipment Maintenance Pool Room Pools and Spas Recreation Recreational Hall Rental Office Reserve Fund Roads Security Accumulated Depreciation

Adjusted Adjusted Balance Balance 12/31/09 Additions Deletions 12/31/10 27,894.53 2,349.00 30,243.53 26,415.08 494.64 25,920.44 23,734.02 523.95 262.27 23,995.70 26,817.62 3,517.80 23,299.82 29,940.65 29,940.65 13,266.54 13,266.54 34,814.35 13,883.07 20,931.28 46,046.05 525.00 45,521.05 19,012.40 19,012.40 7,455.03 7,455.03 21,169.01 811.71 21,980.72 27,221.29 27,221.29 9,686.51 9,686.51 157,304.72 37,668.71 194,973.43 2,006.96 2,006.96 10,263.24 10,263.24 483,048.00 41,353.37 18,682.78 505,718.59 (359,431.08) (38,177.92) (16,600.34) (381,008.66) 123,616.92 3,175.45 2,082.44 124,709.93

Note J – Future Major Repairs and Replacements The Association is funding such major repairs and replacements over the estimated useful lives of the components based on the study’s estimates of current replacement costs, considering amounts previously accumulated in the replacement fund. Actual expenditures, however, may vary from the estimated amounts and the variations may be material. Therefore, amounts may not be adequate to meet future needs. If additional funds are needed, however, the Association has the right, subject to member approval, to increase regular assessments or levy special assessments, or it may delay major repairs and replacements until funds are available. 8

Supplementary Information

Long Island Village Ownersâ&#x20AC;&#x2122; Association, Inc. Supplementary Information â&#x20AC;&#x201C; Major Repairs & Replacement Schedule December 31, 2010 Pump Replacement - Lift Stations A/C Replacement Road Repairs Parking Lot Repairs

2011 28,500 -

2012 5,000 4,000 -

2013 5,000 4,000 6,000 -

2014 5,000 4,000 5,000 -

2015 5,000 70,000 -

Pool Equipment Replacement

10,000

2,000

3,000

Golf Course Sprinkler System

3,000

1,500

Landscape & Drainage

3,000

6,000

Golf Course Retaining Walls

10,000

4,000

Golf Carts

10,000

3,500

6,000

Sinkholes

10,000

5,000

Village Grill

2,000

8,000

2,000

10,000

4,500

4,000

50,000

3,500

6,000

Marquee Move Lawn Equipment Liftstation Repairs

10,000 12,500

6,000 -

2,000 6,000 -

6,000 -

Owners Lounge

14,000

Computers

15,000

Bathhouses

10,000

Shuffle Board Court

3,600

Treadmill

1,000

3,000

135,100

100,000

56,000

70,000

109,000

Maintenance Building & Shop Boat Ramp Equipment Repalcement (Asset) Dumpster Rec - Hall Roof Gutter System Sidewalks Over-pour

LIV Website Totals