PML News Annual Report

COVERING 2010

Pine Mountain Lake Association Groveland, California

Audit Report

Financial Statements

Supplemental Information

December 31, 2010

SIEBERT BOTKIN HICKEY & ASSOCIATES, LLP • Certified Public Accountants

Page

Pine Mountain Lake Association Annual Report 2010

MESSAGE FROM THE BOARD PRESIDENT To Our Property Owners, The accompanying financial statements fairly reflect the Association’s financial position, results from operations, changes in members’ equity, and cash flows for the year ending December 31, 2010. The independent auditors have issued an unqualified opinion for the 2010 financial statements. In accounting terms this indicates a positive report with no issues found.

While 2010 proved to be a continuing economic challenge for the Association with increased levels of foreclosures and bankruptcies, higher unemployment and general weakness in the economy, I am pleased to report that our financial performance for the year was better than budget. Our revenue levels remained consistent with prior years and the continuing cost control efforts in all areas of PML yielded strong results compared to our 2010 budget.

A mid-year decision to increase the funding of our Reserves by $100,000 was made possible by the better than budget financial performance of the Association to that point. This is in addition to the over $99K positive performance at the end of the year. This reflects your Board’s on-going commitment to ensure adequate funding of the Reserves.

While many of the major Reserve based projects are now complete or winding down (Lake Dredging, Golf Cart Storage Facility, New Golf Carts) it remains a major priority of your Board to improve the level of funding in our Reserves. The Reserve Fund is an important key to our ability to maintain the quality of the entire PML infrastructure for years to come.

The $99,384 favorable results for 2010 compares to a similar positive result of $47,972 in 2009 and a profit of $84,025 in 2008.

Our Balance sheet remains strong with Operating Cash levels at $2,282,343 as compared to $1,110,586 in 2009. Our very successful drive to increase the number of property owners paying their assessment in full is the primary factor in this significantly higher cash balance at year end. The on-going troubles in the nation’s economy continues to affect the ability of some property owners to make their assessment payments. We will continue to focus on this issue during 2011 and have taken additional steps to protect the Association from these shortfalls.

The coming year will be another opportunity for us to continue the progress we have made in 2010. Increased efforts to provide a high level of member service while ensuring fiscal responsibility is the goal for your Board and staff. The Board will prudently oversee the financial affairs of the Association in the coming months and make every effort to spend your assessment dollars wisely. Working together, with your participation, we can make it another great year.

Sincerely,

Lawrence R. Hunt Board President

Independent Auditor’s Report We have audited the accompanying balance sheet of Pine Mountain Lake Association as of December 31, 2010 and the related statements of revenues and expenses, changes in member’s equity, and cash flows for the year then ended. These financial statements are the responsibility of the Association’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we 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. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pine Mountain Lake Association as of December 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Information for the year ended December 31, 2009 is presented for comparative purposes only.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Summary Statement of Operating Fund Revenues and Expenses on page seven is presented for the purpose of additional analysis 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.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. We have not applied procedures to determine whether the funds designated for future major repairs and replacements are adequate to meet such future costs because that determination is outside the scope of our audit. The Supplementary Information on future major repairs and replacements included on page eight is not a required part of the basic financial statements but is supplemental information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplemental information. However, we did not audit the information and express no opinion on it.

SIEBERT BOTKIN HICKEY & ASSOCIATES, LLP

Page

Pine Mountain Lake Association Annual Report 2010

TABLE OF CONTENTS Page

INDEPENDENT AUDITORS’ REPORT BALANCE SHEET STATEMENT OF REVENUES AND EXPENSES STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS SUMMARY STATEMENT OF OPERATING FUND REVENUES AND EXPENSES SUPPLEMENTARY INFORMATION ON REPLACEMENT COSTS

2 3 4 5 6 7 8

pine Mountain Lake Association Balance Sheet As of December, 31, 2010

2010 operating Fund ASSETS Cash and Cash Equivalents Investments Assessments Receivable, Net Inventories Prepaid Expense Other Assets Accrued Interest Property and Equipment, Net Due To / From Other Fund Total Assets

LIABILITIES and FUND BALANCES Accounts Payable Deposits Payroll and Related Liabilities Other Liabilities Deferred Revenue

replacement Fund

total

2009 totals For Comparative purposes only

$

2,282,343 175,146 157,973 193,174 49,850 7,955,859 288

$

1,700,123 254,091 (288)

$

53,645 -

$

4,036,111 254,091 175,146 157,973 193,174 49,850 7,955,859 -

$

2,614,399 97,302 150,743 232,331 64,185 1,368 8,294,882 -

$

10,814,633

$

1,953,926

$

53,645

$

12,822,204

$

11,455,210

$

134,394 64,687 299,281 42,002 2,112,948

$

19,656 -

$

671 -

$

154,721 64,687 299,281 42,002 2,112,948

$

154,942 60,657 332,412 36,779 978,688

Total Liabilities Fund Balances Total Liabilities and Fund Balances

new Capital Additions Fund

$

2,653,312

19,656

671

2,673,639

1,563,478

8,161,321

1,934,270

52,974

10,148,565

9,891,732

10,814,633

$

1,953,926

$

53,645

See Auditors’ Report The Notes to Financial Statements Are An Integral Part of This Statement

$

12,822,204

$

11,455,210

Page

Pine Mountain Lake Association Annual Report 2010

pine Mountain Lake Association Statement of Revenues and Expenses and Changes in Fund Balances For the Year Ended December, 31, 2010 With Comparative Totals for 2009

2010

REVENUES Assessments User Fees Sales, Less Cost of Sales Administration Fees Interest Income Other Income Total Revenues

operating Fund $ 4,598,534 1,295,711 704,712 9,639 9,971 219,444 6,838,011

replacement Fund $ 1,642,195 7,161 165 1,649,521

new Capital Additions Fund $ 133,390 588 14 133,992

EXPENSES Salaries and Benefits Utilities Insurance Professional Services Administrative Services Repairs and Maintenance Operating Supplies Services and Contracts Property Tax Expense Bad Debt Provision Interest Expense Income Tax Provision Total Expenses

4,429,951 307,902 226,306 66,549 585,628 8,237 663,629 298,296 21,668 100,000 29,362 1,099 6,738,627

931,390 931,390

-

4,429,951 307,902 226,306 66,549 585,628 939,627 663,629 298,296 21,668 100,000 29,362 1,099 7,670,017

99,384

718,131

133,992

951,507

(34,482)

694,674 (595,290)

718,131

133,992

694,674 256,833

674,697 (709,179)

1,345,174

145,599

9,891,732

10,600,911

-

-

Excess of Revenues Over Expenses Before Depreciation Depreciation Expense Excess (Deficiency) of Revenues Over Expenses Fund Balances, Beginning of Year

8,400,959

Asset Transfers from Funds Fund Balances, End of Year

355,652 $

8,161,321

(129,035) $

1,934,270

(226,617) $

52,974

See Auditors’ Report The Notes to Financial Statements Are An Integral Part of This Statement See Auditors' Report

$

$

total 6,374,119 1,295,711 704,712 9,639 17,720 219,623 8,621,524

10,148,565

2009 totals For Comparative purposes only $ 6,100,748 1,393,957 653,851 7,277 36,178 215,847 8,407,858 4,242,255 285,473 249,348 50,600 605,053 1,972,987 610,319 287,680 22,732 90,089 23,090 2,714 8,442,340

$

9,891,732

Page

Pine Mountain Lake Association Annual Report 2010

pine Mountain Lake Association Statement of Cash Flows For the Year Ended December, 31, 2010 2010

2009 totals For Comparative purposes only $ (709,179)

replacement Funds $ 718,131

new Capital Additions Fund $ 133,992

total $ 256,833

-

-

694,674

674,697

(77,844) (7,230) 39,157 14,335 (13,360) 4,030 1,134,260 (33,131) 5,223

1,368 12,524

615

-

-

(77,844) (7,230) 39,157 14,335 1,368 (221) 4,030 1,134,260 (33,131) 5,223

(94,116) 33,351 (7,013) 9,872 (1,368) 5,441 (7,793) 123,802 42,526 1,216

Total Adjustments

1,760,114

13,892

615

1,774,621

780,615

Cash Provided By Operations

1,164,824

732,023

134,607

2,031,454

71,436

Cash Flows From Operating Activities: Excess (Deficiency) of Revenues Over Expenses

operating Fund $ (595,290)

Adjustments to Reconcile Excess of Revenues Over Expenses to Net Cash Provided by Operating Activities: Depreciation

694,674

Change in Assets and Liabilities: Change in Assessments Receivable, Net Change in Inventories Change in Prepaid Expenses Change in Other Assets Change in Accrued Interest Change in Accounts Payable Change in Deposits Change Deferred Revenue Change in Payroll and Related Liabilities Change in Other Liabilities

Cash Flows from Investing Activities: Investment Purchases and reclass of CD's from Cash to Investments Acquisition of Property and Equipment

(355,651)

(254,091) -

-

(254,091) (355,651)

282,276 (322,740)

Cash Provided (Used) by Investing Activities

(355,651)

(254,091)

-

(609,742)

(40,464)

Cash Flows from Financing Activities: Net Borrowing Between Funds Other Transfers

6,932 355,652

(1,317) (129,035)

(5,615) (226,617)

-

-

Cash Provided (Used) By Financing Activities

362,584

(130,352)

(232,232)

-

-

(97,625)

1,421,712

30,972

151,270

2,614,399

2,583,427

$ 4,036,111

$

2,614,399

$

$

9,900

Net Increase (Decrease) In Cash

1,171,757

347,580

Cash, Beginning of Year

1,110,586

1,352,543

Cash, End of Year

$ 2,282,343

$

1,700,123

$

53,645

Supplemental Information: Cash Paid for Income Taxes

$

$

-

$

-

-

See Auditors’ Report The Notes to Financial Statements Are An Integral Part of This Statement

-

Page

Pine Mountain Lake Association Annual Report 2010

Notes to Financial Statements For the Year Ended December 31, 2010

NOTE 1 – ORGANIZATIONAL DATA Pine Mountain Lake Association (the “Association”) is a nonprofit, mutual benefit corporation organized under the laws of California. The Association’s members consist of those persons or entities owning the lots within the Pine Mountain Lake subdivision in Groveland, California. As of December 31, 2010, there are 3,557 assessable lots within the subdivision. The Association is a homeowner’s association organized to provide management services and maintenance of certain common use areas within the subdivision.

The Association operates and maintains facilities which include a golf course, country club with a restaurant and bar, marina, campgrounds, equestrian facilities, pool, parks, tennis courts and other recreational facilities. Assessments are levied annually against each assessable lot in the development.

The Association’s Board of Directors is comprised of five members elected by Association members. Each director is elected to serve a three-year term. In accordance with the Association’s By-Laws, the Board of Directors has the authority to fill any vacancy due to death or resignation by a majority vote of the remaining directors. The process for replacing a director who has been removed from office is contingent on the facts and circumstances leading to that removal. The Board of Directors, among other things, establishes assessments on members of the Association and establishes user fees for Association amenities.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES A. The Association’s governing documents provide certain guidelines for managing its financial activities. To ensure observance of limitations and restrictions on the use of financial resources, the Association maintains its accounts using fund accounting. Financial resources are classified for accounting and reporting purposes in the following funds, established according to their nature and purpose: Operating Fund - Used to account for financial resources available for the general operations of the Association, as well as holding the Association’s land, property and equipment.

Reserve Fund - Used to account for financial resources designated for future major repairs and replacements of the amenities.

New Capital Additions Fund - Used to account for financial resources designated for purchases of new capital additions and new equipment.

For the year ending December 31, 2010, the Association’s reserve income includes the original budgeted reserve income of $1,542,195 plus $100,000 approved by the board of directors as a reclassification of income from operating fund to reserves fund for a total of $1,642,195 of reserve income.

B. Property of the Association includes certain facilities turned over to the Association by the developer in prior years. This property includes a golf course, country club with a restaurant and bar, marina, campgrounds, equestrian facilities, pool, parks, tennis courts, lake and dam, roads and certain common land. These assets are reflected in the accounts at the developer’s cost basis.

Subsequent purchases of property and equipment and improvements to real property are recorded at cost.

Depreciation is calculated on the straight-line method over the estimated useful lives of the related assets ranging from 3 to 45 years and is recorded in the Operating Fund.

The Association owns certain lots within the subdivision, which it obtained through foreclosure proceedings.

These properties are recorded as assets of the Operating Fund. The Board of Directors markets these lots for resale. The Association sold one lot during 2010. Gains from any lot sales are recorded as part of miscellaneous income and losses are recorded as part of administrative service expense in the accompanying financial statements.

C. It is the Association’s policy to account for funding and replacement of common area property and equipment and major maintenance through a reserve fund. Included in the annual lot assessments is a provision for replacement of these items. The funds are designated for replacements and major maintenance.

When replacements or major maintenance occur, the expenditures are charged against the fund balance and, if certain conditions are met, capitalized in the operating fund.

provide funds for the Association’s operating expenses, major repairs and replacements and new capital additions. Accounts receivable at the balance sheet date represent amounts due from members. The Association’s collection policy includes, among other things, assessing a late charge and interest, and filing a lien and assessing a lien fee on payments not received within the allowable time periods. The Association has the right to suspend certain membership rights and pursue collection through foreclosure action. An allowance for doubtful accounts is created when an account’s collectability is uncertain.

Accounts are written off when the Association is notified that it is a bad debt, such as after bankruptcy or foreclosure proceedings. The Association derives a significant portion of its revenue from dues assessments that are levied against each assessable lot within the development.

G. It is the policy of the Association to require owners and builders to advance security deposits for construction of homes. The deposits are used to ensure adherence to the objectives of the Environmental Control Committee and to pay for any clean-up costs or repairs to common property as a result of the construction. The funds are refundable upon completion of construction.

H. Deferred revenue represents assessment revenues, golf and other fees received during 2010 that are applicable to the following year.

The Association determines the estimated amount of funding required for replacement of common areas using a pooled funding method. This method requires the preparation of a cash flow forecast. The Association then estimates the lowest reasonable assessment necessary and applies an inflation factor of 3% to ensure that positive cash balances are maintained over the future time period. However, actual expenditures may vary from the estimated amounts and the variations may be material. In addition, amounts accumulated in the reserve fund may not be adequate to meet future needs. If additional funds are needed, the Association has the right, subject to member approval, to increase regular assessments, to levy special assessments, or to delay major repairs and replacements until the funds are available.

I. It is the Association’s policy to record interest income and related income taxes directly in the respective fund holding the investments.

In the opinion of management and the Board of Directors, the reserve fund assets held at December 31, 2010, plus future member dues allocated to the reserve fund and earnings on reserve fund assets, if any, are sufficient to fund the obligations identified in the reserve study summarized in Schedule 2 to these financial statements.

NOTE 3 – CONCENTRATION OF CREDIT RISK

D. Inventories are stated at the lower of cost (first-in, firstout method) or market value.

J. For purposes of the Statements of Cash Flows, cash is defined as petty cash and amounts held in checking, money market demand accounts, and certificates of deposit, with initial maturity dates of 90 days or less.

K. 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 and minor reclassifications will be made to improve reporting.

Financial instruments that potentially subject the Association to credit risk consist principally of accounts receivable.

Accounts receivable are primarily due from members whose residence is within the state of California and whose property is subject to lien and foreclosure.

NOTE 4 – INVESTMENTS

E. Amounts due between the funds consist of: a) payments due to the Operating Fund for labor charges incurred to complete projects for the other funds; b) payments due to the other funds for assessments collected by the Operating Fund; and c) payments due to the Operating Fund from the other funds for outstanding liabilities from prior years.

F. Association members are subject to annual assessments to

At year ending December 31, 2010, investments consists of one Certificate of Deposit, which matures on February 2011, with an annual percentage yield rate of 1.10%.

The CD was purchased directly from Pacific State Bank in Groveland, California. The value for this certificate of deposit at year end was $254,091.

Notes to Financial Statements Continued on page 8

Page

Pine Mountain Lake Association Annual Report 2010

pine Mountain Lake Association Schedule 1 - Summary Statement of Operating Fund Revenues & Expenses For the Year Ended December, 31, 2010 reVenues

Operation of Amenities Golf Course Restaurant Snack Shack Bar Lake and Marina Lake Lodge Equestrian Center Tennis Roads/Structures Maintenance Property Owner Services Safety Administration Assessments Assessments

eXpenses

Maintenance Operations $ 330,830 239,965 8,945 106,665 146,617 69,666 73,530 73,991 462,053

Total Expenses $ 1,205,762 811,922 48,333 198,105 326,209 69,666 178,513 105,273 1,391,589

Revenues Over (Under) Expenses Before Depreciation $ (263,996) (510,373) (9,655) 38,659 (50,280) (69,666) (121,709) (57,659) (1,372,963) (785,028) (1,296,480)

Members' Assessments $ -

User and Admin Fees $ 893,357 8,279 179,400 53,218 11,601

Net Sales $ 48,389 293,270 38,678 236,294 84,955 3,126 -

Other Income $ 20 470 11,574 3,586 44,488 7,025

Total Revenues $ 941,766 301,549 38,678 236,764 275,929 56,804 47,614 18,626

Salaries and Benefits $ 874,932 571,957 39,388 91,440 179,592 104,983 31,282 929,536

-

67,202 82,654

-

2,115 169,776

69,317 252,430

748,009 858,832

106,336 690,078

854,345 1,548,910

4,598,534 $ 4,598,534

$ 1,295,711

$ 704,712

$ 239,054

4,598,534 $ 6,838,011

$ 4,429,951

2,308,676

$ 6,738,627

$

4,598,534 $ 99,384

Depreciation Expense $ 185,674 32,669 6,512 33,068 69,417 28,937 31,079 244,839

Revenues Over (Under) Expenses $ (449,670) (543,042) (9,655) 32,147 (83,348) (139,083) (150,646) (88,738) (1,617,802)

35,838 26,641

(820,866) (1,323,121)

694,674

4,598,534 $ (595,290)

Depreciation Expense $ 195,348 33,930 7,059 35,133 55,633 28,858 32,723 223,102

Revenues Over (Under) Expenses $ (391,704) (492,391) 22,530 6,089 (25,115) (151,633) (136,805) (68,887) (1,523,955)

35,887 27,024

(844,443) (1,289,230)

674,697

4,268,703 $ (626,841)

$

Summary Statement of Operating Fund Revenues & Expenses For the Year Ended December, 31, 2009

reVenues

Operation of Amenities Golf Course Restaurant Bar Campgrounds Lake and Marina Lake Lodge Equestrian Center Tennis Roads/Structures Maintenance Property Owner Services Safety Administration Assessments Assessments

eXpenses

Members' Assessments $ -

User and Admin Fees $ 983,095 6,089 183,576 63,873 12,072

Net Sales $ 96,116 240,310 230,967 83,722 2,726 -

Other Income $ 500 4,976 11,660 704 47,122 7,318

-

66,657 78,595

10

859 163,603

Total Revenues $ 1,079,711 245,286 230,967 6,089 278,958 64,577 49,848 19,390 67,516 242,208

4,268,703 $ 4,268,703

$ 1,393,957

$ 653,851

$ 236,742

4,268,703 $ 6,553,253

Salaries and Benefits $ 913,009 469,920 94,759 153,126 102,960 29,542 890,526

Maintenance Operations $ 363,058 233,827 106,619 115,814 96,000 69,564 56,470 429,717

Total Expenses $ 1,276,067 703,747 201,378 268,940 96,000 172,524 86,012 1,320,243

Revenues Over (Under) Expenses Before Depreciation $ (196,356) (458,461) 29,589 6,089 10,018 (96,000) (107,947) (36,164) (1,300,853)

771,273 817,140

104,799 687,274

876,072 1,504,414

(808,556) (1,262,206)

2,263,142

$ 6,505,397

$ 4,242,255

$

See Auditors’ Report The Notes to Financial Statements Are An Integral Part of This Statement See Auditors' Report The Notes to Financial Statements Are An Integral Part of This Statement

$

4,268,703 47,856

$

motive exists. Non member income may not be offset by member losses. Any net member income is not subject to taxation. The tax rate for Association net taxable income is 8.84%.

Pine Mountain Lake Association Notes to Financial Statements Page

For the Year Ended December 31, 2010

Pine Mountain Lake Association Annual Report 2010

The provision for income taxes for the years ended December The provision for income taxes for the years ended 31, 2010 and 2009 are as follows: NOTE 5 – PROPERTY AND EQUIPMENT: 31, 2010 and 2009 are as follows: Pine Mountain LakeDecember Association As of September 05, 2008, the Internal Revenue Service has A summary of Association property and equipment at Certain claims arising in the ordinary course of business have 2010 2009 Notes toIn Financial Statements Mountain Association is A summary Association and equipment at determined December 31, of 2010 and 2009 isproperty as follows: been that filedPine against the Lake Association. theexempt opinion of the 501(c)(4) Year December from federal income under For Section the December 31, 2010 and 2009 is as follows: management andtax Association counsel, all Ended suchofmatters are State31, 2010 $ $ 2,714 1,099 Internal Revenue Code.

The Association qualifies as a social 2010 2009 adequately covered by insurance, or if not so covered, are Federal Exempt Exempt organization, benefiting the public, NOTEwelfare 5 – PROPERTY NOTE 7 – CONTINGENCIES without merit AND orprimarily are EQUIPMENT: of such kind, or involve suchand amounts, Land and improvements $ 3,266,480 $ 3,266,480 accordingly, pays taxes only on unrelated business income. would not have a significant effect on the financial Pine Mountain Lake that Association 1,331,607 Dam 1,331,607 A summary position of Association property and equipment Certain arising in the ordinary course of business have NOTE 7 – CONTINGENCIES or results of operations of the at Association if claims 6,836,390 6,836,390Supplementary Information Streets and roads Schedule 2 - Required December 2010 and 2009 as follows: The31, Association noisunrelated businessnoincome forfor thelossbeen disposed ofhad unfavorably.

Therefore, provision has filed against the Association. In the opinion of Buildings & Structures 3,407,670 3,389,626 andarising Association such of matters are yearand ending December 31, accompanying 2010.

Certain claims in the counsel, ordinaryall course business beenReplacements included in the financial statements.management On Future Major Repairs Golf course, tennis courts, 2010 2009 adequately covered by insurance, or if notInso covered, are have been filed against the Association. the opinion of swimming pool 2,829,496 2,829,496 For the Year Ended December 31, 2010 without merit or are of such kind, or involve such amounts, For California State income tax purposes, the Association is management and Association counsel, all such matters are NOTE 8 – EQUITY TRANSFERS OF PROPERTY Furniture, equipment and vehicles 4,268,176 3,952,103 (Unaudited) Land and improvements $ 3,266,480 $ 3,266,480 that would covered not havebya insurance, significantoreffect financial taxed on all netEQUIPMENT income from nonTO member activities reduced only adequately if noton so the covered, are Total Cost 21,939,819 21,605,702 AND THE OPERATING FUND 1,331,607 Dam 1,331,607 position or results operations of the Association if by losses from non member activities for which a profit motive without merit or are of such kind, or involve such amounts, See Auditors’ 6,836,390 6,836,390 and roads TheLess Board of Directors commissioned a study in(13,310,820) 2010 Streets to estimate the remaining useful lives and the replacement costs of disposed of unfavorably.

Therefore, no provision for loss has accumulated depreciation (13,983,960) exists.

Non member income may not be offset by member that would not have a significant effect on the financial The Association transfers purchased3,389,626 long-term assets and Buildings & Structures 3,407,670 Page 8 of the components of common property. The Association has assessed the present condition of all common been included in the accompanying statements. if losses.

Any netprojects member income is subject to taxation.

Thearea position or results of operations financial of the Association capital through thenot Replacement and New Capital Golf course, tennis courts, Total $ 7,955,859 $ upon 8,294,882 components; estimated replacement costs relying published data, or estimates, previously tax rate forcontractor's Association taxable income is 8.84%. disposed of unfavorably. Therefore, no provision for loss has Additions Fundsnet to engineer's the Operating Fund onand a monthly basis.

A swimming pool 2,829,496 2,829,496 NOTE 8 – EQUITY TRANSFERS OF PROPERTY paid amounts; and estimated remaining lives, relying upon consultants or published data.

Funding requirements consider been included in the accompanying financial statements.

Furniture, equipment and vehicles 4,268,176 3,952,103 summary of Association equity transfers of property and Cost net 21,939,819 21,605,702 AND EQUIPMENT TO THE OPERATING FUND an annual inflation rate of 3.0 percent and interest of 1.5Total percent, of taxes, on amounts funded for future major repairs equipment to the Operating Fund from the Replacement and Pine Mountain Lake Association New Capital Additions Funds at December 31, 2010 NOTE and 8 – EQUITY TRANSFERS OF PROPERTY and replacements. accumulated depreciation (13,983,960) NOTE 6 – INCOME TAXES The transfers purchased long-term assets and ANDAssociation EQUIPMENT TO THE OPERATING FUND 2009 is summarized as follows: (13,310,820) Schedule 2 - RequiredLess Supplementary Information capital projects through the Replacement and New Capital The following table is based on the presents information$ about the components of common On study Futureand Major Repairs and Replacements Totalsignificant 7,955,859 $ 8,294,882 As of September 05, 2008, the Internal Revenue Service has Additions Funds to the Operating Fund on a monthly basis.

A The Association transfers purchased long-term assets and property.

For theAssociation Year Ended December 31, 2010 (Unaudited) determined that Pine Mountain Lake is exempt summary of Association transfersand of New property and capital projects through equity the Reserve Capital from federal income tax under Section 501(c)(4) of the to the Operating Fund from and Additions Funds to the Operating Fundthe onReplacement a monthly basis. replacement Funds 2010 2009equipment Range of Internal Revenue Code. The Association qualifies as a social New Capital ofAdditions Funds at December 31, 2010 and A summary Association equity transfers of property Current 6 – INCOME TAXES welfare organization, primarily benefiting theRemaining public, NOTE and 2009 is summarized as follows:Fund from the Reserve and equipment to the Operating Dam, marina, lake and beaches $ 2011 7,898 $ 3,581 Usefulincome.

Lives Replacement 12/31/10 accordingly, pays taxes only on unrelated business New Capital Additions Funds at December 31, 2010 and Buildings, Furniture, Equipment and 05, 2008, the Internal Revenue Service has (Years) Costs Balance Funding or Component Category The Facility Association had no unrelated business income forAs theof September 2009 is summarized as follows: Vehicles 70,881 111,584 Pine Mountain Association yearEquipment ending December 31, 2010.

1-28 determined $ that2,669,027 $ Lake496,413 $ is exempt income taxtennis under Section course, Golf Course 1-15 from federal Golf 1,391,058 268,968501(c)(4) of the replacement Funds 2010 2009 Reserve Funds Internal Revenue Code.

The Association qualifies as a social courts,campground, bar, equestrian For California State income tax purposes, the Association is Swim Center 1-14 48,077 9,296 welfare organization, primarily benefiting the public, and - 110,591 and swim center 49,181 taxedFencing on all net income from non member activities1-28 reduced 284,903 55,087 Dam, marina, lake and beaches $ 7,898 $ 3,581 accordingly, pays Safetytaxes only on unrelated business income.

12,079 onlyLandscaping by losses from non member activities for which a profit 1-29 1,319,376 255,108 Buildings, Furniture, Equipment and had no unrelated business income for the motive exists. Non member income may not be offsetThe

by Association Administration 1,075 8,490 Vehicles 70,881 111,584 Lighting 2-20 year ending December 81,18931, 2010.

15,698 member losses. Any net member income is not subject to Totals $ 129,035 $ 246,325 Building Components 1-33 2,003,884 387,460 Golf course, tennis taxation. The tax rate for Association net taxable income is Lake and Dam Components 2-20 1,706,934 330,044 courts,campground, bar, equestrian For California State income tax purposes, the Association is 8.84%. new Capital Additions Fund Maintenance Compound 1-33 taxed on all net 600,948 116,196activities reduced and swim center 49,181 110,591 income from non member Safety 12,079 only by losses from non member activities for which a profit The provision for income taxes for the years ended December $ 10,105,396 $ 1,934,270 $ 1,742,192 motive exists. Non member income may not be offset by Administration 1,075 8,490 31, 2010 and 2009 are as follows: Dam, marina, and beaches 12,169to $ 10,385Totals member losses.

Any net lake member income is not $subject $ 129,035 $ 246,325 The Board of Directors a studytaxation. in 2010The to Buildings, estimate the remaining and Furniture, Equipment and tax rate for Association netuseful taxablelives income is the 2010 commissioned 2009 Vehicles 153,547 replacement costs of the components of common property. The Association has assessed the present 5,064 8.84%.

Note that current replacement costs do not include amounts for replacement the Golf Association’s roads, or for lake dredging. However,new Capital Additions Fund condition of all$common $ 2,714 estimated State 1,099 area components; course, costs tennis relying upon published data, the 2011 funding or does include forExempt bothpreviously roads and paid dredging.

Individual amounts are December not shown, The provision for income taxes the years ended courts,campground, bar, equestrian contractor’s engineer’s estimates, and amounts; andfor estimated remaining lives,as the Federal Exempt amounts 31, 2010 and 2009 arecenter as follows: Association is funding for reserve components on a pooled funding andconcept. swim 57,701 25,309 Notes to Financial Statements Continued from page 6

NOTE 5 – PROPERTY AND EQUIPMENT:

NOTENOTE 6 – INCOME TAXES 7 – CONTINGENCIES

relying upon consultants or published data. Funding requirements consider an annual inflation rate of Safety 3,200 3.0 percent and interest of 1.5 percent, net of taxes, on amounts 2010 funded for future major repairs and 2009 Administration replacements. The following table is based on the study andTotals presents significant information about the$ $ 226,617 $ 2,714 State $ 1,099 components of common property.

Federal

Exempt

Exempt

Note that current replacement costs do not include amounts for the Association’s roads, or for lake dredging.

However, the 2011 funding does include amounts for both roads and dredging. Individual amounts are not Seecomponents Auditors’ Report shown, as the Association is funding for reserve on a pooled funding concept.

Page 8 of 10

Dam, marina, lake and beaches 2,608 Buildings, Furniture, Equipment and 32,926 Vehicles 76,292 Golf course, tennis courts,campground, bar, equestrian and swim center Safety Administration Totals

$

12,169

$

10,385

153,547

5,064

57,701 3,200

25,309 2,608

$ 226,617

$

32,926 76,292

The names and addresses of the current PMLA members are located at the Pine Mountain Lake Association Administration Office, 19228 Pine Mountain Dr., Groveland, CA 95321. Notice of Annual Report / Corp. Code 8321 All members have a right to receive a financial report pursuant to the above subdivision. A copy See Auditors’ Report of the Annual Report is available at the Association Administration Office. Copies will be sent to the Page member upon receipt of a written request from the member.

8 of 10

Board of Directors Lawrence R. Hunt (President) Bruce Lay (Vice President) Ian Morcott (Secretary) Mike Gustafson (Treasurer) Brian Sweeney (Director)

Pine Mountain Lake Association

See Auditors’ Report Page 10 of 10

19228 Pine Mountain Drive Groveland, CA 95321 209-962-8600 pinemountainlake.com

Management General Manager Joseph M. Powell, CCAM Controller Ken Spencer