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Home My WebLink AboutAttachment 1A - McCormarck Baron Salazar Inc 2010 co Final[1] - Southside East MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2010 Contents Page Independent Auditors’ Report ............................................................ 1 Financial Statements Consolidated Balance Sheets ......................................................... 2 - 5 Consolidated Statements Of Income .............................................. 6 - 7 Consolidated Statement Of Equity ...................................................... 8 Consolidated Statement Of Cash Flows ...................................... 9 - 10 Notes To Consolidated Financial Statements ........................... 11 - 40 Supplementary Information Independent Auditors’ Report On Supplementary Information ..................................................................................... 41 Consolidating Balance Sheets .................................................... 42 - 45 Consolidating Statements Of Income ........................................ 46 - 47 Consolidating Statement Of Equity ................................................... 48 Consolidating Statement Of Cash Flows ................................... 49 - 50 Consolidating Schedule Of General And Administrative Expenses ............................................................... 51 Balance Sheet - McCormack Baron Salazar, Inc. ..................... 52 - 53 Statement Of Income - McCormack Baron Salazar, Inc ................... 54 Independent Auditors’ Report Board of Directors McCormack Baron Salazar, Inc. St. Louis, Missouri We have audited the accompanying consolidated balance sheet of McCormack Baron Salazar, Inc. and consolidated entities (collectively, the Company) as of December 31, 2010 and 2009, and the related consolidated statements of income, equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits 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 consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 McCormack Baron Salazar, Inc. and consolidated entities as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2, the Company restated its 2009 consolidated financial statements. April 25, 2011 MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying notes to consolidated financial statements. Page 2 CONSOLIDATED BALANCE SHEET December 31, 2010 Page 1 Of 2 Other And Consolidated MBS Eliminations Total Current Assets Cash and cash equivalents 2,531,906$ 4,520$ 2,536,426$ Cash and cash equivalents - VIEs — 389,651 389,651 Cash - restricted (Note 3) 1,099,676 9,398 1,109,074 Development fees receivable - billed (Notes 4 and 10) 452,729 — 452,729 Development fees receivable - unbilled (Notes 4 and 10) 7,322,514 1,195,980 8,518,494 Accounts receivable - other (Note 5) 601,487 332,416 933,903 Loans and advances receivable - related parties (Notes 6 and 17) 1,146,875 232,968 1,379,843 Notes receivable (Notes 7 and 10) — 100,000 100,000 Project development costs and predevelopment advances 3,593,270 — 3,593,270 Prepaid expenses 124,621 — 124,621 Prepaid asset management fee (Note 17) 5,390 — 5,390 Other current assets 2,100 — 2,100 Deferred tax assets (Note 15) 2,720,031 — 2,720,031 Total Current Assets 19,600,599 2,264,933 21,865,532 Long-Term Assets Cash - restricted (Note 3) 118,593 — 118,593 Development fees receivable - unbilled (Notes 4 and 10) 3,995,123 185,073 4,180,196 Loans and advances receivable - related parties (Notes 6 and 17) 181,575 (17,283) 164,292 Notes receivable (Notes 7 and 10) 625,493 — 625,493 Project development costs and predevelopment advances 2,707,671 — 2,707,671 Investments in partnerships 14,482 (14,149) 333 Property and equipment (Notes 8 and 10) 1,761,396 768,742 2,530,138 Rental property - VIEs (Note 9) — 14,167,398 14,167,398 Loan costs (Note 1) 107,875 — 107,875 Loan costs - VIEs (Note 1) — 366,904 366,904 Other long-term assets - VIEs — 5,344,944 5,344,944 Total Long-Term Assets 9,512,208 20,801,629 30,313,837 29,112,807$ 23,066,562$ 52,179,369$ Assets MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying notes to consolidated financial statements. Page 3 CONSOLIDATED BALANCE SHEET December 31, 2010 Page 2 Of 2 Other And Consolidated MBS Eliminations Total Current Liabilities Current maturities of long-term debt (Note 10) 1,586,318$ —$ 1,586,318$ Current maturities of long-term debt - VIEs (Note 11)— 166,531 166,531 Deferred development fees 258,749 — 258,749 Accounts payable and accrued expenses - trade 250,859 — 250,859 Accounts payable and accrued expenses - VIEs — 3,894,044 3,894,044 Accrued development and other expenses 1,300,334 27,141 1,327,475 Accrued consulting expenses 152,897 89,887 242,784 Due to related parties (Note 17) 1,966,427 389,388 2,355,815 Deferred lease incentive (Note 18) 41,755 — 41,755 Due to Parent Company 2,110,175 344,922 2,455,097 Total Current Liabilities 7,667,514 4,911,913 12,579,427 Long-Term Liabilities Accrued development and other expenses 1,115,107 — 1,115,107 Long-term debt (Note 10) 4,369,438 — 4,369,438 Long-term debt - VIEs (Note 11)— 32,179,562 32,179,562 Deferred tax liabilities (Note 15) 54,814 — 54,814 Deferred rent (Note 18) 34,669 — 34,669 Deferred lease incentive (Note 18) 400,148 — 400,148 Other long-term liabilities (Note 12)— 815,564 815,564 Total Long-Term Liabilities 5,974,176 32,995,126 38,969,302 Equity Stockholder's equity - McCormack Baron Salazar, Inc. Common stock: Par value $1 per share, authorized 30,000 shares; issued and outstanding 500 shares 500 — 500 Preferred stock (Note 14) 10,884,294 — 10,884,294 Additional paid-in capital 4,586,323 — 4,586,323 Retained earnings — 756,002 756,002 Partners' deficit - VIEs — (16,047,134) (16,047,134) Total stockholder's equity - McCormack Baron Salazar, Inc. 15,471,117 (15,291,132) 179,985 Noncontrolling interests — 450,655 450,655 Total Equity 15,471,117 (14,840,477) 630,640 29,112,807$ 23,066,562$ 52,179,369$ Liabilities And Equity MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying notes to consolidated financial statements. Page 4 CONSOLIDATED BALANCE SHEET December 31, 2009 (As Restated) Page 1 Of 2 Other And Consolidated MBS Eliminations Total Current Assets Cash and cash equivalents 130,544$ 823,723$ 954,267$ Cash and cash equivalents - VIEs — 474,223 474,223 Cash - restricted (Note 3) 1,115,936 — 1,115,936 Development fees receivable - billed (Notes 4 and 10) 688,139 — 688,139 Development fees receivable - unbilled (Notes 4 and 10) 4,328,585 285,976 4,614,561 Accounts receivable - other (Note 5) 1,155,494 55,100 1,210,594 Loans and advances receivable - related parties (Notes 6 and 17) 603,379 79,122 682,501 Project development costs and predevelopment advances 4,206,809 (5,420) 4,201,389 Prepaid expenses 44,732 6,918 51,650 Prepaid asset management fee (Note 17) 41,136 — 41,136 Deferred tax assets (Note 15) 2,117,143 — 2,117,143 Total Current Assets 14,431,897 1,719,642 16,151,539 Long-Term Assets Cash - restricted (Note 3) 167,950 — 167,950 Development fees receivable - unbilled (Notes 4 and 10) 3,911,532 (13,104) 3,898,428 Accounts receivable - other (Note 5) 125,000 — 125,000 Loans and advances receivable - related parties (Notes 6 and 17) 215,250 — 215,250 Notes receivable (Notes 7 and 10) 643,864 100,000 743,864 Project development costs and predevelopment advances 2,997,523 — 2,997,523 Investments in partnerships 14,049 (14,049) — Property and equipment (Notes 8 and 10) 81,840 555,351 637,191 Rental property - VIEs (Note 9) — 14,902,606 14,902,606 Loan costs (Note 1) 43,870 — 43,870 Loan costs - VIEs (Note 1) — 408,346 408,346 Prepaid asset management fee (Note 17) 6,864 — 6,864 Deferred tax assets (Note 15) 329,948 — 329,948 Other long-term assets - VIEs — 2,313,603 2,313,603 Total Long-Term Assets 8,537,690 18,252,753 26,790,443 22,969,587$ 19,972,395$ 42,941,982$ Assets MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying notes to consolidated financial statements. Page 5 CONSOLIDATED BALANCE SHEET December 31, 2009 (As Restated) Page 2 Of 2 Other And Consolidated MBS Eliminations Total Current Liabilities Current maturities of long-term debt (Note 10) 1,267,966$ —$ 1,267,966$ Current maturities of long-term debt - VIEs (Note 11) — 179,766 179,766 Deferred development fees 403,708 6,918 410,626 Deferred revenue - other (Note 18) 156,353 — 156,353 Accounts payable and accrued expenses - trade 168,469 — 168,469 Accounts payable and accrued expenses - VIEs — 3,856,067 3,856,067 Accrued development and other expenses 263,164 22,889 286,053 Accrued consulting expenses — 161,653 161,653 Due to related parties (Note 17) 1,394,897 448,672 1,843,569 Due to Parent Company 1,481,022 — 1,481,022 Shares subject to mandatory redemption (Note 13) 2,800,000 — 2,800,000 Total Current Liabilities 7,935,579 4,675,965 12,611,544 Long-Term Liabilities Long-term debt (Note 10) 4,002,272 — 4,002,272 Long-term debt - VIEs (Note 11) — 30,177,210 30,177,210 Other long-term liabilities (Note 12) — 828,186 828,186 Total Long-Term Liabilities 4,002,272 31,005,396 35,007,668 Equity Stockholder's equity - McCormack Baron Salazar, Inc. Common stock: Par value $1 per share, authorized 30,000 shares; issued and outstanding 500 shares 500 — 500 Preferred stock (Note 14) 2,900,000 — 2,900,000 Additional paid-in capital 5,123,566 — 5,123,566 Retained earnings 3,007,670 1,080,601 4,088,271 Partners' deficit - VIEs — (16,387,417) (16,387,417) Total stockholder's equity - McCormack Baron Salazar, Inc. 11,031,736 (15,306,816) (4,275,080) Noncontrolling interests — (402,150) (402,150) Total Equity 11,031,736 (15,708,966) (4,677,230) 22,969,587$ 19,972,395$ 42,941,982$ Liabilities And Equity MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying notes to consolidated financial statements. Page 6 CONSOLIDATED STATEMENT OF INCOME For The Year Ended December 31, 2010 Other And Consolidated MBS Eliminations Total Fee Income Development fees 14,331,370$ 1,607,255$ 15,938,625$ Consulting fees 1,889,017 1,664,135 3,553,152 Rental income - VIEs — 4,783,062 4,783,062 Total Fee Income 16,220,387 8,054,452 24,274,839 Other Income Interest 2,915 — 2,915 Sublease income (Note 18) 45,791 — 45,791 Net income from partnerships 8,306 — 8,306 Gain (loss) on sale of investments in partnerships (Note 1) 67,492 (49,366) 18,126 Gain on sale of real estate - VIEs — 984,541 984,541 Gain on termination of lease, net (Note 18) 481,280 — 481,280 Dividend income 673,718 (673,718) — Miscellaneous income — 3,645 3,645 Total Other Income 1,279,502 265,102 1,544,604 Total Income 17,499,889 8,319,554 25,819,443 Expenses Development (Note 1) 5,083,740 964,951 6,048,691 Development - new business development 755,991 — 755,991 Consulting 1,298,171 423,200 1,721,371 General and administrative 8,629,136 118,963 8,748,099 Rental expenses - VIEs — 3,606,660 3,606,660 Depreciation and amortization - VIEs — 851,759 851,759 Loss on disposal of property 954 — 954 Loss on disposal of property - VIEs — 23,509 23,509 Asset management fee (Note 17) 41,143 — 41,143 Interest expense 186,586 — 186,586 Interest expense - VIEs — 945,671 945,671 Total Expenses 15,995,721 6,934,713 22,930,434 Income Before Provision For Income Taxes 1,504,168 1,384,841 2,889,009 Provision For Income Taxes (Note 15)497,090 344,922 842,012 Net Income 1,007,078 1,039,919 2,046,997 Net Income Attributable To Noncontrolling Interests — 1,024,235 1,024,235 Net Income Attributable To McCormack Baron Salazar, Inc.1,007,078$ 15,684$ 1,022,762$ MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying notes to consolidated financial statements. Page 7 CONSOLIDATED STATEMENT OF INCOME For The Year Ended December 31, 2009 (As Restated) Other And Consolidated MBS Eliminations Total Fee Income Development fees 7,541,955$ 1,408,193$ 8,950,148$ Consulting fees 2,963,933 885,338 3,849,271 Rental income - VIEs — 4,831,776 4,831,776 Total Fee Income 10,505,888 7,125,307 17,631,195 Other Income Interest 114,340 2,204 116,544 Net income from partnerships 24,512 — 24,512 Gain on sale of investments in partnerships (Note 1) 727,615 — 727,615 Miscellaneous income 349,052 — 349,052 Total Other Income 1,215,519 2,204 1,217,723 Total Income 11,721,407 7,127,511 18,848,918 Expenses Development (Note 1) 2,019,577 1,217,968 3,237,545 Development - new business development 539,394 — 539,394 Consulting 1,862,805 762,520 2,625,325 General and administrative 6,442,920 123,145 6,566,065 Rental expenses - VIEs — 3,802,277 3,802,277 Depreciation and amortization - VIEs — 839,370 839,370 Loss on disposal of property 81,519 — 81,519 Asset management fee (Note 17) 41,143 — 41,143 Interest expense 233,019 — 233,019 Interest expense - VIEs — 993,690 993,690 Total Expenses 11,220,377 7,738,970 18,959,347 Income (Loss) Before Provision For Income Taxes 501,030 (611,459) (110,429) Provision For Income Taxes (Note 15)238,718 — 238,718 Net Income (Loss)262,312 (611,459) (349,147) Net Loss Attributable To Noncontrolling Interests — (604,460) (604,460) Net Income (Loss) Attributable To McCormack Baron Salazar, Inc.262,312$ (6,999)$ 255,313$ MC C O R M A C K B A R O N S A L A Z A R , I N C . AN D C O N S O L I D A T E D E N T I T I E S Se e t h e a c c o m p a n y i n g n o t e s t o c o ns o l i d a t e d f i n a n c i a l s t a t e m e n t s . Page 8 CO N S O L I D A T E D S T A T E M E N T O F E Q U I T Y Fo r T h e Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 1 0 A n d 2 0 0 9 Ad d i t i o n a l R e t a i n e d P a r t n e r s ' N o n - Co m m o n P r e f e r r e d P a i d - I n E a r n i n g s D e f i c i t - C o n t r o l l i n g T o t a l St o c k S t o c k C a p i t a l ( D e f i c i t ) V I E s I n t e r e s t s E q u i t y Ba l a n c e - J a n u a r y 1 , 2 0 0 9 50 0 2 , 9 0 0 , 0 0 0 $ 5 , 1 2 3 , 5 6 6 $ 1 , 0 2 3 , 5 3 0 $ — $ 5 3 0 , 6 5 0 $ 9,578,246 $ Pr i o r P e r i o d A d j u s t m e n t ( N o t e 2 ) — — — 8 1 4 , 0 9 1 — — 8 1 4 , 0 9 1 Ba l a n c e - J a n u a r y 1 , 2 0 0 9 ( A s R e s t a t e d ) 50 0 2 , 9 0 0 , 0 0 0 5 , 1 2 3 , 5 6 6 1 , 8 3 7 , 6 2 1 — 5 3 0 , 6 5 0 1 0 , 3 9 2 , 3 3 7 Ad o p t i o n O f N e w A c c o u n t i n g P r i n c i p l e A n d Pr o n o u n c e m e n t ( N o t e 2 ) — — — 1 , 4 5 5 , 6 0 6 ( 1 5 , 5 8 3 , 8 5 6 ) ( 3 2 0 , 8 6 5 ) ( 1 4 , 4 4 9 , 1 1 5 ) Ne t I n c o m e ( L o s s ) ( A s R e s t a t e d ) — — — 1 , 0 5 8 , 8 7 4 ( 8 0 3 , 5 6 1 ) ( 6 0 4 , 4 6 0 ) ( 3 4 9 , 1 4 7 ) Di s t r i b u t i o n s — — — — — ( 7 , 4 7 5 ) (7,475) Di v i d e n d s P a i d T o P a r e n t C o m p a n y — — — ( 2 6 3 , 8 3 0 ) — — ( 2 6 3 , 8 3 0 ) Ba l a n c e - D e c e m b e r 3 1 , 2 0 0 9 ( A s R e s t a t e d ) 50 0 2 , 9 0 0 , 0 0 0 5 , 1 2 3 , 5 6 6 4 , 0 8 8 , 2 7 1 ( 1 6 , 3 8 7 , 4 1 7 ) ( 4 0 2 , 1 5 0 ) ( 4 , 6 7 7 , 2 3 0 ) Ne t I n c o m e — — — 6 8 2 , 4 7 9 3 4 0 , 2 8 3 1 , 0 2 4 , 2 3 5 2 , 0 4 6 , 9 9 7 St o c k I s s u a n c e , N e t O f C o s t s — 7 , 9 8 4 , 2 9 4 — — — — 7 , 9 8 4 , 2 9 4 Di s t r i b u t i o n s — — — — — ( 1 7 1 , 4 3 0 ) ( 1 7 1 , 4 3 0 ) Ca p i t a l C o n t r i b u t i o n s F r o m Pa r e n t C o m p a n y — — 5 9 8 , 0 0 9 — — — 5 9 8 , 0 0 9 Di v i d e n d s P a i d T o P a r e n t C o m p a n y — — ( 1 , 1 3 5 , 2 5 2 ) ( 4 , 0 1 4 , 7 4 8 ) — — ( 5 , 1 5 0 , 0 0 0 ) Ba l a n c e - D e c e m b e r 3 1 , 2 0 1 0 50 0 1 0 , 8 8 4 , 2 9 4 $ 4 , 5 8 6 , 3 2 3 $ 7 5 6 , 0 0 2 $ ( 1 6 , 0 4 7 , 1 3 4 ) $ 4 5 0 , 6 5 5 $ 630,640 $ Mc C o r m a c k B a r o n S a l a z a r, I n c . S t o c k h o l d e r MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying notes to consolidated financial statements. Page 9 CONSOLIDATED STATEMENT OF CASH FLOWS Page 1 Of 2 For The Years Ended December 31, 2009 2010 (As Restated) Cash Flows From Operating Activities Net income (loss)2,046,997$ (349,147)$ Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 951,787 874,821 Net income from partnerships (8,306) (24,512) Gain on sale of investments in partnerships (18,126) (727,615) Gain on sale of real estate (984,541) — Loss on disposal of property 24,463 81,519 Deferred income taxes (218,126) (559,025) Changes in assets and liabilities: (Increase) decrease in development fees receivable - billed and unbilled (3,950,291) 1,878,019 (Increase) decrease in accounts receivable - other 401,691 (599,366) (Increase) decrease in project development costs and predevelopment advances 897,971 (1,095,027) (Increase) decrease in prepaid expenses (72,971) 30,644 Decrease in prepaid asset management fee 42,610 41,143 (Increase) decrease in other current assets (2,100) 85,000 Decrease in other long-term assets 200,325 409,170 Increase (decrease) in deferred development fees (151,877) 393,090 Increase (decrease) in deferred revenue - other (156,353) 156,353 Increase in deferred rent 34,669 — Increase in deferred lease incentive 441,903 — Increase in accounts payable and accrued expenses - trade 74,347 12,810 Increase (decrease) in accrued development and other expenses 2,132,991 (405,213) Increase in accrued consulting expenses 81,131 161,653 Increase in due to Parent Company 974,075 626,715 Net Cash Provided By Operating Activities 2,742,269 991,032 MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying notes to consolidated financial statements. Page 10 CONSOLIDATED STATEMENT OF CASH FLOWS Page 2 Of 2 For The Years Ended December 31, 2009 2010 (As Restated) Cash Flows From Investing Activities Net transfers from restricted cash 56,219$ 343,220$ (Increase) decrease in notes receivable 18,371 (80,499) Payments for equipment and leasehold improvements (1,767,760) (6,019) Payments for rental property (468,841) (510,610) Payments for property held for investment (215,741) (30,221) Proceeds from sale of real estate 426,344 — Proceeds from sale of investments in partnerships 18,126 265,422 Contributions to partnerships (333) — Distributions from partnerships 8,306 27,022 Net Cash Provided By (Used In) Investing Activities (1,925,309) 8,315 Cash Flows From Financing Activities Repayments from (advances to) related parties - net (134,138) 720,144 Predevelopment advances - net (12,622) (657,496) Proceeds from long-term debt 3,216,000 — Principal payments on long-term debt (2,775,053) (254,744) Payment of loan costs (74,433) — Proceeds from issuance of preferred stock 8,100,000 — Redemption of preferred stock (2,800,000) — Proceeds from capital contributions 619,632 — Preferred stock issuance costs (137,329) — Distributions to noncontrolling interests (171,430) (7,475) Dividends paid to Parent Company (5,150,000) (263,830) Net Cash Provided By (Used In) Financing Activities 680,627 (463,401) Net Increase In Cash And Cash Equivalents 1,497,587 535,946 Cash And Cash Equivalents - Beginning Of Year 1,428,490 892,544 Cash And Cash Equivalents - End Of Year 2,926,077$ 1,428,490$ Supplemental Disclosure Of Cash Flow Information (Note 19) Interest paid 950,878$ 233,019$ Income taxes paid - net 86,063 171,028 MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Page 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2010 And 2009 1. Organization And Summary Of Significant Accounting Policies Consolidation The accompanying consolidated financial statements include the accounts of McCormack Baron Salazar, Inc. (MBS) as well as the following entities:  Wholly-owned subsidiary - MBS Construction Services, Inc.  Entities in which MBS owns a majority voting interest - Encore Parking Structure LLC, MBS - Iberville, Inc., MBS Memphis Homes, Inc. (which include an entity in which it owns a majority voting interest - Quimby Bayou Homes LLC), MBS MLK Commercial GP, Inc., MBS SW Waterfront LLC, MBS State Center LLC, Midtown Commercial Development Corporation, Peete Redevelopment LLC (which includes entities in which it owns a majority voting interest - Central City Partners, LLC and Centre City Square, LLC), Pierce GP LLC, Quimby Bayou Place LLC, University Place LLC, and Vaughn GP, LLC (collectively, the Other Development Entities)  Variable interest entities in which MBS is the primary beneficiary - Gateway Partners, LP, Lexington Village II Limited Partnership, Lexington Village Associates, Phase I, Limited Partnership, Lindell Plaza Apartments Associates, Minerva Place Apartments Associates, O’Fallon Place Limited Partnership 1-A, and St. Louis Hamilton Development, LP (collectively, the Variable Interest Entities, or VIEs). The Other Development Entities were established by MBS to serve as the developer or consultant in projects which MBS is not the sole developer or consultant. The Variable Interest Entities primarily own and operate affordable housing projects throughout the United States. MBS and the consolidated entities are collectively referred to as “the Company.” All intercompany accounts, balances, and transactions have been eliminated in consolidation. The equity and results of operations of the consolidated entities which are not owned by MBS are reported as noncontrolling interests. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 12 Operations The primary business activity of the Company is the development of economically integrated properties located in central business district locations and neglected neighborhoods across the country. The Company achieves this objective by working with communities and relying on both private and public funds. MBS’s common stock is wholly owned by MBA Properties, Inc. (the Parent Company). Certain defined terms contained in the Company’s documents are denoted with initial capital letters throughout the notes to the consolidated financial statements. Estimates And Assumptions Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. The most significant estimates relate to the estimated allowance for doubtful accounts receivable and the revenue recognition periods for development fees. Cash And Cash Equivalents The Company considers all investment instruments purchased with a maturity of three months or less to be cash equivalents. The Company invests its cash with financial institutions with strong credit ratings. At times, such balances may be in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits of $250,000, as of December 31, 2010. Development Fees The Company earns fees for services rendered as the developer in various limited partnerships. These fees are generally payable from the proceeds of limited partner capital contributions, which are received on an installment basis. Amounts designated as current receivables represent management’s estimate of the amounts that will be collected within one year. In certain cases, a portion of the Company’s fee is payable from a partnership’s surplus cash. The timing of the receipt of such fees depends on the terms of various partnership and regulatory agreements, and the partnership’s actual cash flow. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 13 The Company uses a proportional performance method for recognition of development fee income. This method estimates the percentage of services provided during the reporting period compared to the total estimated services to be provided over the duration of the contract. Estimates of total contract revenues and costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revision as the contract progresses. The Company uses percentage guidelines in making the calculation. The first 50% of fee income is deemed to be earned during predevelopment and income is recognized upon initial closing. The next 40% is earned over the construction period, and the remaining 10% is earned ratably over the leasing phase of the project. MBS occasionally revises this method to better match services delivered to date as compared to total expected services to be delivered. Fees received prior to the revenue recognition date are recorded as deferred revenue. Revenues recognized in excess of billings are recorded as fees receivable - unbilled. Consulting Neighborhood redevelopment consulting projects generally contain multiple elements. Revenues for contracts with multiple elements are allocated based on the element’s relative fair value. Elements qualify for separation when the services have value on a stand-alone basis and fair value of the separate elements exist. The Company may use third parties to participate in the consulting projects. In these cases, the Company is considered the principal in the overall contract, and records revenue and expenses on a gross basis. Revenue from construction contract management services are recognized using a percentage of completion method, whereby revenue is recognized in proportion to costs incurred as compared to total expected costs to be incurred. In these cases, the Company is considered the agent in the overall construction contract, and records revenue only for its net fee. Revenues recognized in excess of billings are recorded as fees receivable - unbilled. Amounts received in excess of revenues recognized are recorded as deferred revenues until revenue recognition criteria are met. Rental Income Rental property is generally leased to tenants under one-year noncancellable operating leases. Rental income is recognized on a straight-line basis over the terms of the leases. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 14 Loans And Advances The Company has made noninterest bearing loans and advances to certain partnerships to provide working capital. For balances that are considered to be collectible, but for which collection is expected beyond one year, the related amount is classified as a long-term asset. The Company provides an allowance for potentially uncollectible loans and advances based upon the anticipated future payments on these receivables, discounted to present value. This analysis is made based upon a specific analysis of each loan and advance. Receivables Receivables are stated at the amount management expects to collect from outstanding balances. For balances that are considered to be collectible, but for which collection is expected beyond one year, the related amount is classified as a long-term asset. The Company provides an allowance for doubtful accounts equal to the estimated collection losses that will be incurred in collection of all receivables. The estimated losses are based on historical collection experience coupled with a review of the current status of the existing receivables. The Company provides an allowance for certain development fees, accounts receivable, notes receivable, and loans and advances receivable which represents the anticipated future payments on these receivables, discounted to present value. Receivables are generally not written off until the Company or another affiliated entity no longer holds an ownership interest in the related partnerships. Project Development Costs And Predevelopment Advances The Company has incurred both reimbursable and nonreimbursable costs on projects in the development and acquisition stages. Direct costs are typically reimbursed out of project funds at initial closing or are written off if a project is abandoned. Nonreimbursable costs include capitalized salary expenses associated with project development. Such costs are deferred and expensed when the related revenues are recognized or when a proposed project is abandoned. In addition, the Company has advanced predevelopment funds on certain projects which are expected to be syndicated. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 15 Investments In Partnerships The Company holds various partnership interests, consisting of interests in profits, losses, tax credits, cash flow and proceeds from sales or refinancing. Investments in partnerships are carried at cost adjusted for the Company’s share of earnings or losses subsequent to acquisition. Losses are not recorded if the investment balance is negative. At December 31, 2010, MBS accounted for its 33.33% interest in State Center, LLC using the equity method. This interest was acquired in 2010. The following is a summary of selected financial information from this entity: December 31, 2010 Total Assets $ 3,069,175 Total Liabilities (3,167,367) Total Equity $ (98,192) For The Year Ended December 31, 2010 Revenues $ 195,000 Net Loss (99,192) Allocated Share Of Net Loss (33,061) During 2010 and 2009, the Company sold its interest in certain partnerships, resulting in a gain of $18,126 and $727,615, respectively. Equipment And Leasehold Improvements Equipment and leasehold improvements are carried at cost, less accumulated depreciation and amortization, computed using straight-line and accelerated methods. The assets are depreciated and amortized over periods ranging from 3 to 11 years. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 16 Rental Property Rental property is carried at cost, less accumulated depreciation, computed using straight-line methods. The assets are depreciated over periods ranging from 5 to 40 years. Rental property is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Loan Costs Loan costs totaling $54,106 were incurred related to the restructuring of the ESIC QLICI Loan and $74,433 were incurred related to the USBCDE loan (Note 10). These costs are being amortized using straight-line methods over the respective life of each loan. Accumulated amortization totaled $20,664 and $10,236 at December 31, 2010 and 2009, respectively. Loan Costs - VIEs Loan costs totaling $702,583 and $734,156 at December 31, 2010 and 2009, respectively (Note 11). These costs are being amortized using straight-line methods over the respective life of each loan. Accumulated amortization totaled $335,679 and $325,810 at December 31, 2010 and 2009, respectively. With the assumption of a mortgage in conjunction with the sale of real estate in 2010 (Note 11), loan costs in the amount of $31,573, less accumulated amortization of $5,357, were written off. Deferred Lease Incentive A lease incentive is deferred as a liability and is being amortized on a straight-line basis over the life of the lease as a reduction of corresponding rent expense. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 17 Income Taxes Income taxes for MBS are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of accounts receivable, equipment and leasehold improvements, accrued expenses, deferred lease incentive, and deferred rent for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. MBS files consolidated income tax returns with the Parent Company and other wholly owned subsidiaries of the Parent Company and records its share of the consolidated provision for income taxes on a separate return basis. Since all of the Variable Interest Entities are partnerships, the income or loss of these partnerships is allocated to their respective partners. Under provisions of the Internal Revenue Code and applicable state laws, the partnerships are not directly subject to income taxes; the results of operations are includable in the tax returns of the partnerships’ partners. Therefore, there is no provision for income tax expense included for these entities. The Company follows accounting rules for uncertain income tax positions, which require financial statement recognition of the impact of a tax position if a position is more likely than not of being sustained on audit, based on the technical merits of the position. The rules also provide guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, transition, and disclosure requirements for uncertain tax positions. The Parent Company’s consolidated federal, state and city tax returns for tax years 2007 and later remain subject to examination by taxing authorities. The city and state tax returns of the Variable Interest Entities for tax years 2007 and later remain subject to examination by taxing authorities. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 18 Consolidation Of Variable Interest Entities Consolidation principles may apply and an entity is called a Variable Interest Entity (VIE) if it has: (1) equity at risk that is insufficient to permit the entity to finance its activities without subordinated financial support; (2) equity investors that cannot make significant decisions about the entity’s operations either through voting or similar rights, or that do not absorb the expected losses, or receive the expected returns of the entity; or (3) equity investors that have obligations to absorb the expected losses not proportional to their voting rights, or activities that either involve or are conducted on behalf of any of the partners that have disproportionately few voting rights. A VIE is consolidated by its primary beneficiary, which is the party that has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The following entities in which MBS has a variable interest have been identified as VIEs - Central City Partners II, LLC, Gateway Partners, LP, Lexington Village II Limited Partnership, Lexington Village Associates, Phase I, Limited Partnership, Lindell Plaza Apartments Associates, Minerva Place Apartments Associates, O’Fallon Place Limited Partnership 1-A, O’Fallon Place Limited Partnership 1B, O’Fallon Place Limited Partnership, Phase II, O’Fallon Place Limited Partnership, Phase III, State Center, LLC, and St. Louis Hamilton Development, LP. Based on a qualitative and quantitative assessment performed by MBS, it was determined that MBS is the primary beneficiary of all of these VIEs except for Central City Partners II, LLC, State Center LLC, O’Fallon Place Limited Partnership 1B, O’Fallon Place Limited Partnership, Phase II, and O’Fallon Place Limited Partnership, Phase III. While several factors are considered in this determination, a key consideration is that MBS is the general partner of these entities and has control over the management of the partnership and thus the activities that most significantly impact the VIEs’ economic performance. In addition, from its partnership interests and other contractual arrangements with the VIEs, MBS has obligations to absorb losses and the right to receive benefits that are potentially significant to the VIEs. Accordingly, MBS has consolidated the assets, liabilities, partners’ equity and results of operations of these VIEs into MBS’s consolidated financial statements as of December 31, 2010 and 2009. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 19 MBS is not the primary beneficiary of Central City Partners II, LLC and State Center, LLC, because MBS is the member of these VIEs and the power to direct the activities that most significantly impacts the VIEs’ economic performance lies with the managing member who manages these limited liability companies (LLCs). MBS is not the primary beneficiary of O’Fallon Place Limited Partnership 1B, O’Fallon Place Limited Partnership, Phase II, and O’Fallon Place Limited Partnership, Phase III because although it has the power to direct the activities that most significantly impact the VIE’s economic performance as the general partner with the power to manage the partnerships, MBS does not bear the risk of losses or does not have the right to receive benefits that could be significant to these VIEs. Due to a troubled debt restructuring in prior years, these entities have only non-recourse debt that will be repaid directly from ground lease payments received. MBS is not contractually obligated to provide support to Central City Partners II, LLC but has advanced $161,775 to State Center, LLC, which is included in loans and advances - receivable on the consolidated balance sheet. This amount represents the contractual loan funding required to be made to this entity per the terms of the VIE’s Operating Agreement. MBS is also not contractually obligated to provide support to O’Fallon Place Limited Partnership 1B, O’Fallon Place Limited Partnership, Phase II, and O’Fallon Place Limited Partnership, Phase III but has advanced $7,778 to O’Fallon Place Limited Partnership 1B, $8,218 to O’Fallon Place Limited Partnership, Phase II, and $7,778 to O’Fallon Place Limited Partnership, Phase III, which are included in loans and advances - receivable on the consolidated balance sheet. In addition to these advances, MBS also has accounted for these investments in partnerships using the equity method and has recorded a $333 investment in State Center, LLC, which represents the amount of capital contributed to the LLC. MBS’s maximum exposure to loss related to Central City Partners II, LLC is the amount of capital contributed of $10 as MBS has made no additional guarantees or funding obligations to this VIE. MBS’s maximum exposure to loss related to State Center LLC is $162,108, which represents the $333 of capital contributed plus the $161,775 of funding provided. No additional funding obligations or guarantees were made to this VIE. MBS’s maximum exposure to loss related to O’Fallon Place Limited Partnership 1B, O’Fallon Place Limited Partnership, Phase II, and O’Fallon Place Limited Partnership, Phase III is the amount advanced of $7,778, $8,218 and $7,778, respectively, as MBS has made no additional guarantees or funding obligations to these VIEs. Reclassifications Certain reclassifications have been made to the 2009 consolidated financial statements, where appropriate, to conform to the 2010 consolidated financial statement presentation. These reclassifications had no effect on net income. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 20 Subsequent Events Management has evaluated subsequent events through April 25, 2011, the date which the consolidated financial statements were available for issue. 2. Prior Period Adjustments And Adoption Of New Accounting Pronouncement The accompanying consolidated financial statements for 2009 have been restated: 1) To properly reflect MBS’s share of the consolidated provision for income taxes on a separate return basis. As a result of the restatement, beginning retained earnings as of January 1, 2009 was increased by $814,091. Further, at December 31, 2009, deferred tax assets increased by $2,447,091, deferred tax liabilities increased by $1,146,358, and due to Parent Company increased by $592,587. The provision for income taxes for the year ended December 31, 2009 increased by $105,945. 2) To properly reflect third-party consulting expenses on a gross basis. This restatement had the effect of increasing consulting fee income and consulting expenses by $2,625,325 in 2009 and increasing accounts receivable - other and accrued consulting expenses at December 31, 2009 by $161,653. 3) To retrospectively apply a change in accounting principle related to the accounting for development expenses for the Other Development Entities. For these arrangements, the Company generally enters into arrangements with other parties to provide development services. Previously, the Company accounted for partner earnings as distributions to those entities. The Company now accounts for these amounts as development expenses. Management believes the new accounting principle is preferable, as it better reflects expenses of the Company on a consolidated basis. The retrospective application of this change in accounting principle had the effect of decreasing noncontrolling interests at January 1, 2009 by $320,865. At December 31, 2009, accrued development and other expenses increased by $374,048 and distributions to non-controlling interests decreased by $399,768. Development expenses for the year ended December 31, 2009 increased by $452,951. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 21 4) The Company adopted new accounting standards regarding the consolidation of variable interest entities on January 1, 2010. The resulting consolidation of Variable Interest Entities is presented retrospectively in the accompanying consolidated balance sheet, and consolidated statement of income and equity for 2009. The adoption of this new accounting standard had the effect of decreasing total consolidated equity at January 1, 2009 by $14,128,250. At December 31, 2009, total consolidated assets increased by $18,127,398, total consolidated liabilities increased by $33,066,684, total consolidated equity decreased by distributions of $7,475, and total consolidated net income decreased by $803,561. 3. Restricted Cash Restricted cash consists of the following: 2010 2009 Balance held in an interest-bearing account at the instruction of the ESIC QLICI loan lender (Note 10). $ 495,577 $ 739,449 Escrows held by MBS on behalf of related partnerships for which MBS is acting as the developer. This cash is restricted for community support services. 127,991 167,950 Balance held by MBS related to proceeds received from the sale of an investment in a partnership. These proceeds were to be distributed to the limited partners of this partnership, which occurred in 2010. — 80,968 Balance held by MBS on behalf of related partnerships for which MBS is acting as the developer. This cash is undisbursed construction cash. 604,099 295,519 1,227,667 1,283,886 Less: Current portion 1,109,074 1,115,936 $ 118,593 $ 167,950 MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 22 4. Development Fees Receivable Development fees receivable consist of: 2010 2009 Fees receivable - billed $ 452,729 $ 688,139 Fees receivable - unbilled 14,239,751 10,054,050 Allowance for uncollectible amounts (1,541,061) (1,541,061) 13,151,419 9,201,128 Less: Current portion - billed 452,729 688,139 Less: Current portion - unbilled 8,518,494 4,614,561 $ 4,180,196 $ 3,898,428 Development fees receivable are due from 28 and 26 related partnerships as of December 31, 2010 and 2009, respectively. The changes in the allowance for uncollectible amounts during the years ended December 31, 2010 and 2009 are summarized as follows: 2010 2009 Balance - beginning of year 1,541,061$ 1,763,524$ Credit for uncollectible amounts — (222,463) 1,541,061$ 1,541,061$ 5. Accounts Receivable - Other Accounts receivable - other consist of: 2010 2009 Consulting fees receivable $ 806,180 $ 743,474 Due from Integral Properties 125,000 125,000 Receivable from sale of investment in partnership — 462,193 Miscellaneous receivables 2,723 4,927 933,903 1,335,594 Less: Current portion 933,903 1,210,594 $ — $ 125,000 MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 23 Amounts are due primarily from related parties. 6. Loans And Advances Receivable - Related Parties Loans and advances receivable from related parties consist of: 2010 2009 Loans and advances $ 2,264,204 $ 1,492,516 Allowance for uncollectible amounts (720,069) (594,765) 1,544,135 897,751 Less: Current portion 1,379,843 682,501 $ 164,292 $ 215,250 The changes in the allowance for uncollectible amounts during the years ended December 31, 2010 and 2009 are summarized as follows: 2010 2009 Balance - beginning of year $ 594,765 661,664$ Provision (credit) for uncollectible amounts 15,150 (133,798) Charge off of loans and advances (8,987)— Recoveries 119,141 66,899 720,069$ 594,765$ MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 24 7. Notes Receivable Notes receivable consist of: 2010 2009 Guaranteed by corporate investor, with principal and interest at 10% per year payable from surplus cash, with final payment and accrued interest, if any, due upon sale of partnership assets $ 840,537 $ 863,710 Unsecured and noninterest bearing, payable from surplus cash, with final payment of principal due upon sale of partnership assets 488,151 504,000 Unsecured, bears interest at 0.72% annually, with payment of principal and interest due on June 30, 2011 100,000 100,000 1,428,688 1,467,710 Less: Allowance for uncollectible amounts 703,195 723,846 725,493 743,864 Less: Current portion 100,000 — $ 625,493 $ 743,864 Amounts are due primarily from related parties. The changes in the allowance for uncollectible amounts during the years ended December 31, 2010 and 2009 are summarized as follows: 2010 2009 Balance - beginning of year $ 723,846 745,768$ Credit for uncollectible amounts (59,673)(63,345) Recoveries 39,022 41,423 703,195$ 723,846$ MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 25 8. Property And Equipment Property and equipment consist of: 2010 2009 Equipment (net of accumulated depreciation of $699,812 in 2010 and $681,412 in 2009)$ 194,042 $ 46,393 Leasehold improvements (net of accumulated amortization of $63,068 in 2010 and $448,342 in 2009) 1,541,564 12,007 Property held for investment 33,211 33,211 Construction in progress 761,321 545,580 $ 2,530,138 $ 637,191 Depreciation and amortization charged against income amounted to $100,028 in 2010 and $35,451 in 2009. 9. Rental Property - Variable Interest Entities Rental property consists of: 2010 2009 Land $ 1,683,708 $ 1,650,567 Buildings 33,391,720 34,667,665 Furniture and equipment 1,507,226 1,431,003 36,582,654 37,749,235 Less: Accumulated depreciation 22,415,256 22,846,629 $ 14,167,398 $ 14,902,606 Depreciation and amortization charged against income amounted to $851,759 in 2010 and $839,370 in 2009. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 26 10. Long-Term Debt Long-term debt consists of the following: 2010 2009 Acquisition line of credit is being provided by Enterprise Community Loan Fund with maximum borrowings of $2,000,000. This line of credit will be utilized to fund Sub- Loans to acquire properties in Dallas, Texas for affordable housing projects. This nonrecourse financing matures in November 2014. Each Sub-Loan bears interest at 5% over LIBOR, with a minimum rate of 7.25%, which is payable monthly. $ — $ — Loan financing is being provided by USBCDE Investment Fund XIII, LLC under a loan commitment of $3,216,000 (USBCDE loan). This unsecured loan bears interest at an annual rate of 1.9194%. Through November 2016, interest only is payable annually each November, assuming that the ESIC QLICI loan has been repaid in full. If not, all amounts under this loan shall accrued and be compounded annually. Thereafter, through the loan’s maturity in April 2040, annual payments of principal and interest in the amount of $174,271 are due. 3,216,000 — MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 27 2010 2009 Balance Brought Forward $ 3,216,000 $ — Loan financing is being provided by ESIC New Markets Partners IV Limited Partnership (ENMP) under a loan commitment of $7,700,000 (ESIC QLICI loan). This loan bears interest at an annual rate of 3.77%, is secured by all of the assets of MBS, and matures in December 2014. Principal payments are due in an amount equal to 18% of developer fees received. Since quarterly installments of interest were only due through March 31, 2010, these payments were required to be deposited in an interest-bearing account (Note 3). From April 1, 2010 through the maturity date, quarterly payments of principal and interest were due in the amount of 18% of developer fees received; however, this payment was to be reduced to the extent used to redeem preferred stock held by the lender. Principal payments in the amount of 40% of Net Cash Flow, as defined in the loan agreement, were also due commencing on April 1, 2010 and continuing each April 1 thereafter. Future required payments were changed with the amendment of this note in April 2010. Per this amendment, a prepayment of principal on the loan in the amount of $1,267,966 was due on April 20, 2010. Quarterly payments of interest and principal in the amount of 18% of development fees received continue to be required. However, principal payments in the amount of 40% of Net Cash Flow now commence on an annual basis in April 2011. Required principal payments must be made by April 1 of each year, through 2013, to reduce the outstanding principal to the amount set forth in the amended Credit Agreement. 2,739,756 5,270,238 5,955,756 5,270,238 Less: Current maturities 1,586,318 1,267,966 $ 4,369,438 $ 4,002,272 The scheduled maturities of long-term debt at December 31, 2010 are as follows: Year Amount 2011 1,586,318$ 2012 — 2013 903,438 2014 250,000 2015 — Thereafter 3,216,000 5,955,756$ MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 28 11. Long-Term Debt - Variable Interest Entities Long-term debt is all nonrecourse and consists of the following: Interest Payment Maturity Entity Rate Terms Collateral Date 2010 2009 St. Louis Hamilton Development, L.P. 6.25% Monthly payments of principal and interest First deed of trust November 2033 1,041,428$ 1,061,266$ St. Louis Hamilton Development, L.P. 1.00% Principal and interest payable from Restricted Surplus Cash Second deed of trust November 2033 2,203,639 2,282,592 St. Louis Hamilton Development, L.P. 1.00% Principal and interest due at maturity Third deed of trust November 2033 161,119 161,119 Lexington Village II Limited Partnership 5.98% Monthly payments of principal and interest First deed of trust October 2038 2,103,286 2,131,870 Lexington Village II Limited Partnership 5.00% Principal payable at maturity, interest only payable from 20% of Net Annual Cash Flow, otherwise interest is abated Third deed of trust October 2038 1,410,000 1,410,000 Lexington Village II Limited Partnership 3.00% Principal and interest payable from surplus cash Second deed of trust October 2038 750,000 750,000 Lexington Village II Limited Partnership 3.00% Principal and interest payable from surplus cash Second deed of trust October 2038 250,000 250,000 Lexington Village II Limited Partnership 3.00% Principal and interest payable from surplus cash Second deed of trust October 2038 110,511 110,511 Lexington Village Associates, Phase I, Limited Partnership 7.89% Monthly payments of principal and interest First deed of trust October 2035 3,350,154 3,392,038 Lexington Village Associates, Phase I, Limited Partnership 3.16% Annual payments of principal and interest from surplus cash Second deed of trust October 2035 2,539,206 2,539,206 13,919,343 14,088,602 Balance Balance Carried Forward MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 29 Interest Payment Maturity Entity Rate Terms Collateral Date 2010 2009 13,919,343$ 14,088,602$ Lexington Village Associates, Phase I, Limited Partnership 18.00% Interest is abated, principal payments from Net Cash Flow Third deed of trust October 2035 2,660,400 2,660,400 Lexington Village Associates, Phase I, Limited Partnership 18.00% Interest is abated, principal payments from Net Cash Flow Fourth deed of trust October 2035 1,000,012 1,000,012 Lindell Plaza Apartments Associates 5.70% Monthly payments of principal and interest - note was assumed as part of the sale of real estate in 2010 First deed of trust November 2033 — 1,197,540 Minerva Place Apartment Associates 6.25% Monthly payments of principal and interest First deed of trust February 2034 437,895 446,065 Minerva Place Apartment Associates 1.00% Principal and interest payable from Restricted Surplus Cash Mortgage restructuring deed of trust February 2034 1,253,420 1,253,420 Minerva Place Apartment Associates 1.00% Principal and interest due at maturity Contingent repayment deed of trust February 2034 401,156 401,156 Minerva Place Apartment Associates 0.00% Principal due at maturity Unsecured Earlier of sale or refinance or 2030 273,641 273,641 O'Fallon Place Limited Partnership 1-A 6.75% Monthly payments of principal and interest First deed of trust and assignment of rents March 2034 3,325,395 3,382,623 O'Fallon Place Limited Partnership 1-A 1.00% Annual payments of principal and interest from 75% of Net Cash Flow Second deed of trust and assignment of rents February 2034 2,073,691 2,073,691 O'Fallon Place Limited Partnership 1-A 0.00% Principal payable from Distributable Net Annual Cash Flow Unsecured February 2049 693,615 693,615 26,038,568 27,470,765 Balance Balance Brought Forward Balance Carried Forward MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 30 Interest Payment Maturity Entity Rate Terms Collateral Date 2010 2009 26,038,568$ 27,470,765$ O'Fallon Place Limited Partnership 1-A 1.00% Principal and interest payable from Net Available Cash Flows Third deed of trust and assignment of rents March 2027 2,886,211 2,886,211 O'Fallon Place Limited Partnership 1-A 1.00% Principal and interest payable from Net Available Cash Flows Fourth deed of trust and assignment of rents September 2034 3,421,314 — 32,346,093 30,356,976 166,531 179,766 32,179,562$ 30,177,210$ Balance Brought Forward Less: Current maturities Balance The scheduled maturities of long-term debt at December 31, 2010 are as follows: Year Amount 2011 166,531$ 2012 178,271 2013 190,843 2014 204,319 2015 220,049 Thereafter 31,386,080 32,346,093$ 12. Other Long-Term Liabilities Related to the CJ Peete Project, during 2009, Central City Partners LLC (which is owned 99% by Peete Redevelopment LLC) received development advances from the Local Initiatives Support Group, which totaled $242,500 at December 31, 2009. These advances were repaid in 2010. Other long-term liabilities also include predevelopment advances to Quimby Bayou Homes LLC from the Memphis Housing Authority. Balances outstanding at December 31, 2010 and 2009 were $815,564 and $585,686, respectively. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 31 13. Shares Subject To Mandatory Redemption MBS entered into a Preferred Stock Purchase Agreement with ENMP and MBA Properties, Inc. (MBA Properties) on March 3, 2005. MBS authorized the sale and issuance to ENMP of 28,000 shares of Series A Preferred Stock, $100 par value, for $2,800,000 and to MBA Properties of 29,000 shares of Series A Preferred Stock, $100 par value, for $2,900,000. The Series A Preferred Stock paid no dividends without the prior written consent of ENMP and MBA Properties, except to declare a one- time dividend to MBA Properties in the amount of $3,500,000 or to declare additional dividends as necessary to MBA Properties for the purpose of redeeming shares of MBA Properties’ Series A Preferred Stock. The one-time dividend of $3,500,000 was declared and paid in 2005. The Series A Preferred Stock had no voting rights. Commencing on the date upon which MBA Properties, Inc. had redeemed all of the MBA Properties Preferred Stock owned by SunAmerica and continuing through and until April 1, 2010, 18% of developer fees received and 40% of Net Cash Flow (which could have been increased to up to 70% at SunAmerica’s discretion) was to be deposited into an interest bearing account. MBA Properties, Inc. redeemed all of the MBA Properties Preferred Stock owned by SunAmerica in February 2008. On April 1, 2010 and quarterly thereafter, 50% of the balance in this account was to be applied against repayment of the New Markets Term Loan and 50% was to be used to redeem shares of Preferred Stock. Of the total number of shares of Preferred Stock redeemed, 51% was to be redeemed from MBA Properties and 49% was to be redeemed from ENMP. Cumulative Target Redemption Amounts as of December 31, 2009 were as follows: Date Of Calculation Number Of Shares December 31, 2010 13,000 December 31, 2011 25,000 December 31, 2012 40,000 December 31, 2013 55,000 December 31, 2014 57,000 The 28,000 shares held by ENMP were redeemed in 2010. MBA Properties had agreed that it will not enforce the mandatory redemption of its 29,000 shares of MBS Series A Preferred Stock; therefore, that portion of the MBS Series A Preferred Stock was included in equity on the Company’s consolidated balance sheet at December 31, 2009. The redemption requirements of the remaining shares of Series A Preferred Stock were amended and subsequently eliminated in 2010. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 32 14. Preferred Stock In 2010, MBS issued 30,000 shares of $100 par value Class B Preferred Stock, which were purchased by MBA Properties, Inc. In addition, MBS issued 51,000 shares of $100 par value Class C Preferred Stock, which were purchased by USBCDE Sub- CDE XLII, LLC. No rights of redemption exist for any Class of Preferred Stock, including the remaining shares of Class A Preferred Stock. No redemption of the Class B Preferred Stock or Class C Preferred Stock shall be made without the Required Holder’s consent so long as Class A Preferred Stock is issued and outstanding. Further, no redemption of the Class C Preferred Stock shall be made without the Required Holder’s consent so long as Class A Preferred Stock or Class B Preferred Stock is issued and outstanding. Commencing in calendar year 2018 (for the preceding calendar year), an annual dividend in the amount of 2.5% of the par value of each share of stock shall be paid no later than March 15th of that year. Each class of Preferred Stock has equal priority in terms of this dividend and the dividend rights shall be cumulative, but not compounding. Preferred stock outstanding consists of: 2010 2009Class A par value $100 per share, authorized 57,000 shares, issued and outstanding 57,000 and 29,000 shares, at December 31, 2010 and 2009, respectively $ 2,900,000 $ 2,900,000 Class B par value $100 per share, authorized, issued and outstanding 30,000 shares 3,000,000 — Class C par value $100 per share, authorized, issued and outstanding 51,000 shares 5,100,000 — Preferred stock issuance costs (115,706) — $ 10,884,294 $ 2,900,000 MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 33 15. Income Taxes The Company files its income tax returns as a member of a consolidated group and records its share of the consolidated provision for income taxes on a separate return basis. The Company’s income tax provision consists of the following: 2010 2009 Federal income taxes $ 892,572 $ 671,651 Current state and city income taxes 167,566 126,092 1,060,138 797,743 Deferred tax expense (benefit) (218,126) (559,025) $ 842,012 $ 238,718 The tax provisions differ from amounts that would be calculated by applying the statutory federal rate to income before income taxes primarily because of the income and losses incurred by consolidated VIEs which are not taxed at the entity-level, certain expenses that are not deductible for income tax purposes, and state income taxes. The Company receives or remits tax amounts to the Parent Company. The Company’s consolidated balance sheet as of December 31, 2010 and 2009 reflects incomes taxes payable to the Parent Company of $2,455,097 and $1,481,022, respectively. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 34 The net deferred tax assets in the accompanying consolidated balance sheet include the following components: 2010 2009 Deferred tax assets $ 3,187,101 $ 2,553,308 Deferred tax liabilities (521,884) (106,217) $ 2,665,217 $ 2,447,091 Current deferred tax asset consists of: Deferred tax assets $ 2,783,357 $ 2,212,133 Deferred tax liabilities (63,326) (94,990) 2,720,031 2,117,143 Noncurrent deferred tax asset consists of: Deferred tax assets — 341,175 Deferred tax liabilities — (11,227) — 329,948 Net deferred tax asset $ 2,720,031 $ 2,447,091 Noncurrent deferred tax liability consists of: Deferred tax assets $ 403,744 $ — Deferred tax liabilities (458,558) — Net deferred tax liability $ (54,814) $ — Net deferred tax asset $ 2,665,217 $ 2,447,091 16. Deferred Compensation Plan MBS has a 401(k) savings plan covering eligible full-time employees. The 401(k) feature of the plan allows participants to defer a portion of eligible compensation on a tax-deferred basis. This safe harbor plan provides for a contribution of 3% of base salary to all eligible full-time employees. The contribution amounted to $227,749 and $159,515 in 2010 and 2009, respectively. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 35 17. Related Party Transactions MBS has advanced and loaned funds to related parties, including various partnerships. Interest is not charged on these advances. Advances to entities in the predevelopment stage are typically reimbursed from project funds at initial closing or written off if a project is abandoned. Advances to entities in the operational stage are typically repaid from available cash subject to applicable regulatory agreements. MBS has deferred receipt of certain earned development fees in order to facilitate the financing of various projects. In conjunction, MBS has entered into note agreements with various partnerships in order to provide for the repayment of fees deferred. These two notes are described in Note 7 and total $625,493 and $643,864 at December 31, 2010 and 2009, respectively. During 2005, MBS paid an Asset Management Fee in advance to ENMP. The annual fee amounts to $42,000 through 2010. MBS received a discount for prepaying this fee. As of December 31, 2010 and 2009, the prepaid fees amounted to $5,390 and $48,000, respectively. MBS has received an advance of $200,000 from a related party toward the payment of an outstanding development fee receivable from a partnership. Because the underlying requirements to receive this development fee payment have not been fulfilled by the partnership, this payment is considered to be an advance. The entire development fee from this partnership is considered earned and has been recognized as revenue in prior years. Upon the partnership meeting the specific requirements, this advance will be treated as a reduction in the receivable balance. The Company shares office space it leases with another wholly-owned subsidiary of the Parent Company - McCormack Baron Ragan Management Services, Inc. (MBR). MBS has allocated a portion of leasehold improvements and rent expense to MBR, using MBR’s estimated occupied space compared to the total occupied space as the allocation factor. Certain employees of MBS also perform services for related entities. Salaries and related benefits are allocated to these entities based on estimates of each employee’s time spent on matters relating to these entities. Due to related parties for Other Development Entities relates to amounts due to the other partners in these entities. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 36 The Variable Interest Entities are managed by MBR. Generally, fees are charged based on a percentage of rents collected. The Variable Interest Entities incurred management fees of $235,822 and $240,770 in 2010 and 2009, respectively. The balance due to MBR at December 31, 2010 and 2009 amounted to $307,597 and $215,415, respectively, and is included in accounts payable and accrued expenses - VIE. The Variable Interest Entities also pay various fees to their partners and affiliates of their partners. These fees amounted to $59,835 and $31,500 in 2010 and 2009, respectively. The amounts due to related parties at December 31, 2010 and 2009 amounted to $355,338 and $503,614, respectively, and are included in accounts payable and accrued expenses - VIE. The operating cash of the Variable Interest Entities is held in a concentration cash account maintained by MBR. The balance in the account at December 31, 2010 and 2009 amounted to $32,360 and $107,683, respectively, and is included in cash and cash equivalents - VIEs. 18. Commitments And Contingencies Guarantees In Connection With Syndicated Partnerships’ Obligations In the ordinary course of business, MBS provides certain guarantees. As of December 31, 2010 and 2009, MBS had approximately $72,000,000 and $129,000,000, respectively, of projects under development at various stages of construction. MBS is not the general partner in all of these projects. MBS is the developer of these projects, and an affiliate of MBS is the General Partner. MBS, as the developer, has entered into certain guarantees for the projects (as described below). MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 37 In connection with the development of these projects, MBS has entered into various agreements to guarantee completion of construction. In connection with these construction completion guarantees, MBS has guaranteed the funding of the project loans, the repayment of certain construction financing, tax credit delivery, and the payment of development deficits for each development in construction. Management estimates that the maximum exposure associated with these developments, based on a percentage of completion method, if all projects in the various stages of development do not achieve construction completion, should not exceed $72,000,000 at December 31, 2010 and $129,000,000 at December 31, 2009. In addition, MBS or its affiliates are directly guaranteeing approximately $27,000,000 of debt. As developer, MBS contracts on behalf of the partnerships with qualified third-party general contractors utilizing guaranteed maximum price construction contracts and requires 100% bonds from the general contractors. MBS cannot readily determine a potential amount of future payments that might be required under performance of the development deficit guarantees. MBS or its affiliates also guarantees tax credit compliance for projects that are completed and operating. MBS cannot readily determine a maximum potential amount of future payments that would be required under these guarantees. MBS is a Qualified Active Low-Income Community Business (QALICB). MBS guarantees new markets tax credit compliance in connection with the ESIC QLICI and USBCDE loans and the Series A, Series B, and Series C Preferred Stock described in Notes 10, 13 and 14 to prevent recapture of these credits. The maximum potential amount of future payments cannot readily be determined due to the nature of these guarantees. Various investment limited partners of entities formed for the development of affordable housing have also required MBS to indemnify them of environmental and/or fraud liability. The maximum potential amount of future payments cannot readily be determined due to the nature of these guarantees. MBS is obligated to fund development and operating deficits incurred by certain partnerships. Operating deficit guarantees total approximately $20,100,000 and $19,400,000 at December 31, 2010 and 2009, respectively. Subsequent to year end, approximately $2,500,000 of these guarantees expired. MBS is generally not liable under these agreements until the partnerships’ reserves and third party obligations to fund development and operating deficits are exhausted. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 38 The development deficit guarantees expire with lease-up and the operating deficit guarantees are limited in amount and term. The other guarantees have varying expiration dates. The fair values of guarantees that are required to be recognized under accounting standards are not recognized upon inception of the guarantees as the exposure is considered minimal and no fee is received. Litigation MBS is involved in litigation concerning a variety of matters occurring in the normal course of business. Management believes that the ultimate resolution of all outstanding litigation will not materially affect the financial position or operations of MBS. Long-Term Leases In August 2009, MBS entered into an agreement to terminate its office lease effective July 31, 2010. In exchange for the early termination of the lease, MBS received a cash payment of $970,000 to fund relocation costs and leasehold improvements at MBS’s new office. Since MBR shared this office space with MBS and was allocated a portion of the related lease costs over the life of the lease, MBS allocated $397,700 of these funds to MBR as well as $59,804 of the total $150,824 of relocation costs incurred. The Company recorded a net gain on termination of lease in 2010 of $481,280. In February 2010, MBS entered into a new lease agreement. Consistent with previous leases, since MBR shares this office space with MBS, MBR will continue to be allocated rent expense related to the portion of the space occupied. In addition, MBS has entered into sub-lease agreements for a portion of the office space with an affiliated not-for-profit organization, Urban Strategies, and another affiliate of the Parent Company, Sunwheel. This new lease agreement, which expires in 2021, includes escalating rents and various rent concessions. As such, rental payments associated with this lease have been recognized on a straight-line basis over the lease term. Deferred rent related to the MBS’s allocated portion of the lease amounted to $34,669 at December 31, 2010. In addition, the landlord provided MBS with a construction allowance of $778,480 to fund leasehold improvements. MBS allocated $319,177 of this allowance to MBR. This construction allowance has been deferred and will be recognized over the lease term as a reduction in the corresponding rent expense. Deferred lease incentives amounted to $441,903 at December 31, 2010. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 39 The sub-lease agreements are for five years. Rent income of $45,791 was recognized related to these sub-lease agreements in 2010. The future minimum rental commitments noted below have not been reduced by the minimum sublease rentals of $420,269 due in the future under these noncancellable subleases. MBS also leases office and parking space in other cities under lease agreements which expire in 2011. A portion of the rent related to these leases has been allocated to MBR based on the total space occupied. Rent expense allocated to the Company for office and parking space amounted to $388,762 and $349,537 in 2010 and 2009, respectively. MBS leases office equipment under leases expiring in July 2015 at annual rentals of $19,271. These leases provide that MBS pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased items. Based on MBR’s usage of this equipment, a portion of the rent expense for computer and office equipment has been allocated to MBR. Rent expense for computer and office equipment amounted to $116,219 and $111,120 in 2010 and 2009, respectively. The future minimum rental commitments of the Company required under these noncancellable operating leases are as follows: Year Amount 2011 $ 208,380 2012 281,892 2013 336,818 2014 367,151 2015 394,110 Thereafter 2,262,361 $ 3,850,712 Commitment - Variable Interest Entities Lexington Village II Limited Partnership, Lexington Village Associates, Phase I, Limited Partnership, Minerva Place Apartments Associates, O’Fallon Place Limited Partnership 1-A, and St. Louis Hamilton Development, LP have entered into regulatory agreements with HUD which regulates, among other things, the rents which may be charged for apartment units in the projects, prohibits the sale of the projects without HUD consent, limits the annual distribution of cash flow to the partners and otherwise regulates the relationship between these projects and HUD. MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES Notes To Consolidated Financial Statements (Continued) Page 40 In addition, for Minerva Place Apartments Associates and St. Louis Hamilton Development, LP, pursuant to an agreement with HUD, under Section 8 of the Housing Assistance Payment Program, these partnerships are entitled to receive housing assistance payments on behalf of qualified tenants. The term of the contracts are for 20 years ending January 2024 and November 2023, respectively, and are subject to annual renewals. The partnerships cannot sell or otherwise substantially liquidate its assets during such period that the agreement for housing assistance program with HUD is in existence without their prior approval. 19. Supplemental Cash Flow Information During 2010, VIEs had the following noncash activity:  In conjunction with the sale of real estate, long-term debt in the amount of $1,187,626 was assumed by the buyer, accounts payable - trade in the amount of $15,244 were paid, and escrows in the amount of $206,650 were transferred to the buyer.  $84,802 of fixed asset additions were included in accounts payable at December 31, 2010.  Loan proceeds of $3,421,314 directly funded partnerships escrows, which are included in other long-term assets as of December 31, 2010. During 2009, MBS had the following noncash activity:  Proceeds from the sale of a partnership interest in the amount of $462,193 were included in accounts receivable - other as of December 31, 2009. Page 41 Independent Auditors’ Report On Supplementary Information Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The supplementary schedules shown on pages 42 through 54 are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, accordingly, we express no opinion on it. April 25, 2011 MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying independent auditors’ report on supplementary information. Page 42 CONSOLIDATING BALANCE SHEET Page 1 Of 2 December 31, 2010 McCormack Baron Salazar, Inc. Other Development Entities Variable Interest Entities (VIEs) Eliminations Consolidated Current Assets Cash and cash equivalents 2,531,906$ 4,520$ —$ —$ 2,536,426$ Cash and cash equivalents - VIEs — — 389,651 — 389,651 Cash - restricted 1,099,676 9,398 — — 1,109,074 Development fees receivable - billed 452,729 — — — 452,729 Development fees receivable - unbilled 7,322,514 6,686,875 — (5,490,895) 8,518,494 Accounts receivable - other 601,487 332,416 — — 933,903 Loans and advances receivable - related parties 1,146,875 251,210 — (18,242) 1,379,843 Notes receivable — 100,000 — — 100,000 Project development costs and predevelopment advances 3,593,270 — — — 3,593,270 Prepaid expenses 124,621 — — — 124,621 Prepaid asset management fee 5,390 — — — 5,390 Other current assets 2,100 — — — 2,100 Deferred tax assets 2,720,031 — — — 2,720,031 Total Current Assets 19,600,599 7,384,419 389,651 (5,509,137) 21,865,532 Long-Term Assets Cash - restricted 118,593 — — — 118,593 Development fees receivable - unbilled 3,995,123 257,581 — (72,508) 4,180,196 Loans and advances receivable - related parties 181,575 — — (17,283) 164,292 Notes receivable 625,493 — — — 625,493 Project development costs and predevelopment advances 2,707,671 — — — 2,707,671 Investments in partnerships 14,482 — — (14,149) 333 Property and equipment 1,761,396 872,108 — (103,366) 2,530,138 Rental property - VIEs — — 14,167,398 — 14,167,398 Loan costs 107,875 — — — 107,875 Loan costs - VIEs — — 366,904 — 366,904 Other long-term assets - VIEs — — 5,344,944 — 5,344,944 Total Long-Term Assets 9,512,208 1,129,689 19,879,246 (207,306) 30,313,837 29,112,807$ 8,514,108$ 20,268,897$ (5,716,443)$ 52,179,369$ MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying independent auditors’ report on supplementary information. Page 43 CONSOLIDATING BALANCE SHEET Page 2 Of 2 December 31, 2010 McCormack Baron Salazar, Inc. Other Development Entities Variable Interest Entities (VIEs) Eliminations Consolidated Current Liabilities Current maturities of long-term debt 1,586,318$ —$ —$ —$ 1,586,318$ Current maturities of long-term debt - VIEs — — 166,531 — 166,531 Deferred development fees 258,749 — — — 258,749 Accounts payable and accrued expenses - trade 250,859 — — — 250,859 Accounts payable and accrued expenses - VIEs — — 4,198,209 (304,165) 3,894,044 Accrued development and other expenses 1,300,334 27,141 — — 1,327,475 Accrued consulting expenses 152,897 89,887 — — 242,784 Due to related parties 1,966,427 4,001,393 — (3,612,005) 2,355,815 Deferred lease incentive 41,755 — — — 41,755 Due to Parent Company 2,110,175 344,922 — — 2,455,097 Total Current Liabilities 7,667,514 4,463,343 4,364,740 (3,916,170) 12,579,427 Long-Term Liabilities Accrued development and other expenses 1,115,107 — — — 1,115,107 Long-term debt 4,369,438 — — — 4,369,438 Long-term debt - VIEs — — 32,179,562 — 32,179,562 Deferred tax liabilities 54,814 — — — 54,814 Deferred rent 34,669 — — — 34,669 Deferred lease incentive 400,148 — — — 400,148 Other long-term liabilities — 815,564 — — 815,564 Total Long-Term Liabilities 5,974,176 815,564 32,179,562 — 38,969,302 Equity Stockholder's equity - McCormack Baron Salazar, Inc. Common stock 500 — — — 500 Preferred stock 10,884,294 — — — 10,884,294 Additional paid-in capital 4,586,323 — — — 4,586,323 Partners' equity - other development entities — 1,100 — (1,100) — Retained earnings (deficit) — 2,431,221 — (1,446,948) 984,273 Partners' deficit - VIEs — — (16,275,405) — (16,275,405) Total stockholder's equity - McCormack Baron Salazar, Inc. 15,471,117 2,432,321 (16,275,405) (1,448,048) 179,985 Noncontrolling interests — 802,880 — (352,225) 450,655 Total Equity 15,471,117 3,235,201 (16,275,405) (1,800,273) 630,640 29,112,807$ 8,514,108$ 20,268,897$ (5,716,443)$ 52,179,369$ MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying independent auditors’ report on supplementary information. Page 44 CONSOLIDATING BALANCE SHEET Page 1 Of 2 December 31, 2009 McCormack Baron Salazar, Inc. (As Restated) Other Development Entities Variable Interest Entities (VIEs) Eliminations Consolidated (As Restated) Current Assets Cash and cash equivalents 130,544$ 823,723$ —$ —$ 954,267$ Cash and cash equivalents - VIEs — — 474,223 — 474,223 Cash - restricted 1,115,936 — — — 1,115,936 Development fees receivable - billed 688,139 — — — 688,139 Development fees receivable - unbilled 4,328,585 1,906,504 — (1,620,528) 4,614,561 Accounts receivable - other 1,155,494 163,930 — (108,830) 1,210,594 Loans and advances receivable - related parties 603,379 130,539 — (51,417) 682,501 Project development costs and predevelopment advances 4,206,809 — — (5,420) 4,201,389 Prepaid expenses 44,732 46,118 — (39,200) 51,650 Prepaid asset management fee 41,136 — — — 41,136 Deferred tax assets 2,117,143 — — — 2,117,143 Total Current Assets 14,431,897 3,070,814 474,223 (1,825,395) 16,151,539 Long-Term Assets Cash - restricted 167,950 — — — 167,950 Development fees receivable - unbilled 3,911,532 3,311,405 — (3,324,509) 3,898,428 Accounts receivable - other 125,000 — — — 125,000 Loans and advances receivable - related parties 215,250 — — — 215,250 Notes receivable 643,864 100,000 — — 743,864 Project development costs and — predevelopment advances 2,997,523 — — — 2,997,523 Investments in partnerships 14,049 — — (14,049) — Property and equipment 81,840 658,717 — (103,366) 637,191 Rental property - VIEs — — 14,902,606 — 14,902,606 Loan costs 43,870 — — — 43,870 Loan costs - VIEs — — 408,346 — 408,346 Prepaid asset management fee 6,864 — — — 6,864 Deferred tax assets 329,948 — — — 329,948 Other long-term assets - VIEs — — 2,313,603 — 2,313,603 Total Long-Term Assets 8,537,690 4,070,122 17,624,555 (3,441,924) 26,790,443 22,969,587$ 7,140,936$ 18,098,778$ (5,267,319)$ 42,941,982$ MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying independent auditors’ report on supplementary information. Page 45 CONSOLIDATING BALANCE SHEET Page 2 Of 2 December 31, 2009 McCormack Baron Salazar, Inc. (As Restated) Other Development Entities Variable Interest Entities (VIEs) Eliminations Consolidated (As Restated) Current Liabilities Current maturities of long-term debt 1,267,966$ —$ —$ —$ 1,267,966$ Current maturities of long-term debt - VIEs — — 179,766 — 179,766 Deferred development fees 403,708 46,118 — (39,200) 410,626 Deferred revenue - other 156,353 — — — 156,353 Accounts payable and accrued expenses - trade 168,469 — — — 168,469 Accounts payable and accrued expenses - VIEs — — 4,136,694 (280,627) 3,856,067 Accrued development and other expenses 263,164 22,889 — — 286,053 Accrued consulting expenses — 161,653 — — 161,653 Due to related parties 1,394,897 3,801,986 — (3,353,314) 1,843,569 Due to Parent Company 1,481,022 — — — 1,481,022 Shares subject to mandatory redemption 2,800,000 — — — 2,800,000 Total Current Liabilities 7,935,579 4,032,646 4,316,460 (3,673,141) 12,611,544 Long-Term Liabilities Long-term debt 4,002,272 — — — 4,002,272 Long-term debt - VIEs — — 30,177,210 — 30,177,210 Other long-term liabilities — 828,186 — — 828,186 Total Long-Term Liabilities 4,002,272 828,186 30,177,210 — 35,007,668 Equity Stockholder's equity - McCormack Baron Salazar, Inc. Common stock 500 — — — 500 Preferred stock 2,900,000 — — — 2,900,000 Additional paid-in capital 5,123,566 — — — 5,123,566 Partners' equity - other development entities — 1,000 — (1,000) — Retained earnings (deficit) 3,007,670 2,257,723 — (1,169,647) 4,095,746 Partners' deficit - VIEs — — (16,394,892) — (16,394,892) Total stockholder's equity - McCormack Baron Salazar, Inc. 11,031,736 2,258,723 (16,394,892) (1,170,647) (4,275,080) Noncontrolling interests — 21,381 — (423,531) (402,150) Total Equity 11,031,736 2,280,104 (16,394,892) (1,594,178) (4,677,230) 22,969,587$ 7,140,936$ 18,098,778$ (5,267,319)$ 42,941,982$ MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying independent auditors’ report on supplementary information. Page 46 CONSOLIDATING STATEMENT OF INCOME For The Year Ended December 31, 2010 McCormack Baron Salazar, Inc. Other Development Entities Variable Interest Entities (VIEs) Eliminations Consolidated Fee Income Development fees 14,331,370$ 4,615,445$ —$ (3,008,190)$ 15,938,625$ Consulting fees 1,889,017 1,960,744 — (296,609) 3,553,152 Rental income - VIEs — — 4,783,062 — 4,783,062 Total Fee Income 16,220,387 6,576,189 4,783,062 (3,304,799) 24,274,839 Other Income Interest 2,915 — — — 2,915 Sublease income 45,791 — — — 45,791 Net income from partnerships 8,306 — — 8,306 Gain on sale of investments in partnerships 67,492 — — (49,366) 18,126 Gain on sale of real estate - VIEs — — 984,541 — 984,541 Gain on termination of lease, net 481,280 — — — 481,280 Dividend income 673,718 — — (673,718) — Miscellaneous income — 3,645 — — 3,645 Total Other Income 1,279,502 3,645 984,541 (723,084) 1,544,604 Total Income 17,499,889 6,579,834 5,767,603 (4,027,883) 25,819,443 Expenses Development 5,083,740 4,032,597 — (3,067,646) 6,048,691 Development - new business development 755,991 — — — 755,991 Consulting 1,298,171 454,637 — (31,437) 1,721,371 General and administrative 8,629,136 118,963 — — 8,748,099 Rental expenses - VIEs — — 3,606,381 279 3,606,660 Depreciation and amortization - VIEs — — 851,759 — 851,759 Loss on disposal of property 954 — — — 954 Loss on disposal of property - VIEs — — 23,509 — 23,509 Asset management fee 41,143 — — — 41,143 Interest expense 186,586 — — — 186,586 Interest expense - VIEs — — 945,671 — 945,671 Total Expenses 15,995,721 4,606,197 5,427,320 (3,098,804) 22,930,434 Income Before Provision For Income Taxes 1,504,168 1,973,637 340,283 (929,079) 2,889,009 Provision For Income Taxes 497,090 344,922 — — 842,012 Net Income 1,007,078 1,628,715 340,283 (929,079) 2,046,997 Net Income Attributable To Noncontrolling Interests — 781,499 — 242,736 1,024,235 Net Income Attributable To McCormack Baron Salazar, Inc.1,007,078$ 847,216$ 340,283$ (1,171,815)$ 1,022,762$ MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying independent auditors’ report on supplementary information. Page 47 CONSOLIDATING STATEMENT OF INCOME For The Year Ended December 31, 2009 McCormack Baron Salazar, Inc. (As Restated) Other Development Entities Variable Interest Entities (VIEs) Eliminations Consolidated (As Restated) Fee Income Development fees 7,541,955$ 5,106,570$ —$ (3,698,377)$ 8,950,148$ Consulting fees 2,963,933 1,314,792 — (429,454) 3,849,271 Rental income - VIEs — — 4,831,776 — 4,831,776 Total Fee Income 10,505,888 6,421,362 4,831,776 (4,127,831) 17,631,195 Other Income Interest 114,340 2,204 — — 116,544 Net income from partnerships 24,512 — — — 24,512 Gain on sale of investments in partnerships 727,615 — — — 727,615 Miscellaneous income 349,052 — — — 349,052 Total Other Income 1,215,519 2,204 — — 1,217,723 Total Income 11,721,407 6,423,566 4,831,776 (4,127,831) 18,848,918 Expenses Development 2,019,577 4,320,857 — (3,102,889) 3,237,545 Development - new business development 539,394 — — — 539,394 Consulting 1,862,805 762,520 — — 2,625,325 General and administrative 6,442,920 123,145 — — 6,566,065 Rental expenses - VIEs — — 3,802,277 — 3,802,277 Depreciation and amortization - VIEs — — 839,370 — 839,370 Loss on disposal of property 81,519 — — — 81,519 Asset management fee 41,143 — — — 41,143 Interest expense 233,019 — — — 233,019 Interest expense - VIEs — — 993,690 — 993,690 Total Expenses 11,220,377 5,206,522 5,635,337 (3,102,889) 18,959,347 Income (Loss) Before Provision For Income Taxes 501,030 1,217,044 (803,561) (1,024,942) (110,429) Provision For Income Taxes 238,718 — — — 238,718 Net Income (Loss)262,312 1,217,044 (803,561) (1,024,942) (349,147) Net Income (Loss) Attributable To Noncontrolling Interests — 12,180 — (616,640) (604,460) Net Income (Loss) Attributable To McCormack Baron Salazar, Inc.262,312$ 1,204,864$ (803,561)$ (408,302)$ 255,313$ MC C O R M A C K B A R O N S A L A Z A R , I N C . AN D C O N S O L I D A T E D E N T I T I E S Se e t h e a c c o m p a n y i n g i n d e p e n d e n t a u d i t o r s ’ r e po r t o n s u p p l e m e n t a r y i n f o r m a t i o n . P a g e 4 8 CO N S O L I D A T I N G S T A T E M E N T O F E Q U I T Y Fo r T h e Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 1 0 A n d 2 0 0 9 Va r i a b l e Ad d i t i o n a l T o t a l I n t e r e s t N o n - Co m m o n P r e f e r r e d P a i d - I n R e t a i n e d S t o c k h o l d e r ' s P a r t n e r s ' R e t a i n e d T o t a l E n t i t i e s C o n t r o l l i n g St o c k S t o c k C a p i t a l E a r n i n g s E q u i t y E q u i t y E a r n i n g s E q u i t y ( V I E s ) I n t e r e s t s C o n s o l i d a t e d Ba l a n c e ( D e f i c i t ) - Ja n u a r y 1 , 2 0 0 9 50 0 2 , 9 0 0 , 0 0 0 $ 5 , 1 2 3 , 5 6 6 $ 1 , 0 4 8 , 7 3 9 $ 9 , 0 7 2 , 8 0 5 $ 1 , 0 0 0 $ 3 , 2 0 1 , 1 5 7 $ 3 , 2 0 2 , 1 5 7 $ — $ 5 3 0 , 6 5 0 $ ( 3 , 2 2 7 , 3 6 6 ) $ 9,578,246 $ Pr i o r P e r i o d Ad j u s t m e n t — — — 8 1 4 , 0 9 1 8 1 4 , 0 9 1 — — — — — — 814,091 Ba l a n c e ( D e f i c i t ) - Ja n u a r y 1 , 2 0 0 9 (A s R e s t a t e d ) 50 0 2 , 9 0 0 , 0 0 0 5 , 1 2 3 , 5 6 6 1 , 8 6 2 , 8 3 0 9 , 8 8 6 , 8 9 6 1 , 0 0 0 3 , 2 0 1 , 1 5 7 3 , 2 0 2 , 1 5 7 — 5 3 0 , 6 5 0 ( 3 , 2 2 7 , 3 6 6 ) 10,392,337 Ad o p t i o n O f N e w Ac c o u n t i n g Pr i n c i p l e A n d Pr o n o u n c e m e n t — — — 1 , 1 4 6 , 3 5 8 1 , 1 4 6 , 3 5 8 — ( 2 , 1 4 8 , 2 9 8 ) ( 2 , 1 4 8 , 2 9 8 ) ( 1 5 , 5 8 3 , 8 5 6 ) ( 3 2 0 , 8 6 5 ) 2 , 4 5 7 , 5 4 6 (14,449,115) Ne t I n c o m e ( L o s s ) — — — 2 6 2 , 3 1 2 2 6 2 , 3 1 2 — 1 , 2 0 4 , 8 6 4 1 , 2 0 4 , 8 6 4 ( 8 0 3 , 5 6 1 ) ( 6 0 4 , 4 6 0 ) ( 4 0 8 , 3 0 2 ) (349,147) (A s R e s t a t e d ) Di s t r i b u t i o n s — — — — — — — — ( 7 , 4 7 5 ) ( 7 , 4 7 5 ) 7 , 4 7 5 (7,475) Di v i d e n d s P a i d T o Pa r e n t C o m p a n y — — — ( 2 6 3 , 8 3 0 ) ( 2 6 3 , 8 3 0 ) — — — — — — (263,830) Ba l a n c e ( D e f i c i t ) - De c e m b e r 3 1 , 2 0 0 9 50 0 2 , 9 0 0 , 0 0 0 5 , 1 2 3 , 5 6 6 3 , 0 0 7 , 6 7 0 1 1 , 0 3 1 , 7 3 6 1 , 0 0 0 2 , 2 5 7 , 7 2 3 2 , 2 5 8 , 7 2 3 ( 1 6 , 3 9 4 , 8 9 2 ) ( 4 0 2 , 1 5 0 ) ( 1 , 1 7 0 , 6 4 7 ) (4,677,230) (A s R e s t a t e d ) Ne t I n c o m e ( L o s s ) — — — 1 , 0 0 7 , 0 7 8 1 , 0 0 7 , 0 7 8 — 8 4 7 , 2 1 6 8 4 7 , 2 1 6 3 4 0 , 2 8 3 1 , 0 2 4 , 2 3 5 ( 1 , 1 7 1 , 8 1 5 ) 2,046,997 St o c k I s s u a n c e , N e t O f C o s t s — 7 , 9 8 4 , 2 9 4 — — 7 , 9 8 4 , 2 9 4 1 0 0 — 1 0 0 — — ( 1 0 0 ) 7,984,294 Di s t r i b u t i o n s — — — — — — — — ( 2 2 0 , 7 9 6 ) ( 1 7 1 , 4 3 0 ) 2 2 0 , 7 9 6 (171,430) Ca p i t a l C o n t r i b u t i o n s Fr o m P a r e n t C o m p a n y — — 5 9 8 , 0 0 9 — 5 9 8 , 0 0 9 — — — — — — 598,009 Di v i d e n d s P a i d T o Pa r e n t C o m p a n y — — ( 1 , 1 3 5 , 2 5 2 ) ( 4 , 0 1 4 , 7 4 8 ) ( 5 , 1 5 0 , 0 0 0 ) — ( 6 7 3 , 7 1 8 ) ( 6 7 3 , 7 1 8 ) — — 6 7 3 , 7 1 8 (5,150,000) Ba l a n c e ( D e f i c i t ) - De c e m b e r 3 1 , 2 0 1 0 50 0 1 0 , 8 8 4 , 2 9 4 $ 4 , 5 8 6 , 3 2 3 $ — $ 1 5 , 4 7 1 , 1 1 7 $ 1 , 1 0 0 $ 2 , 4 3 1 , 2 2 1 $ 2 , 4 3 2 , 3 2 1 $ ( 1 6 , 2 7 5 , 4 0 5 ) $ 4 5 0 , 6 5 5 $ ( 1 , 4 4 8 , 0 4 8 ) $ 630,640 $ Ot h e r D e v e l o p m e n t E n t i t i e s Mc C o r m a c k B a r o n S a l a z a r , I n c . Eliminations MC C O R M A C K B A R O N S A L A Z A R , I N C . AN D C O N S O L I D A T E D E N T I T I E S Se e t h e a c c o m p a n y i n g i n d e p e n d e n t a u d i t o r s ’ r e po r t o n s u p p l e m e n t a r y i n f o r m a t i o n . P a g e 4 9 CO N S O L I D A T I N G S T A T E M E N T O F C A S H F L O W S Fo r T h e Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 1 0 A n d 2 0 0 9 Pa g e 1 O f 2 Va r i a b l e Mc C o r m a c k V a r i a b l e Mc C o r m a c k O t h e r I n t e r e s t Ba r o n S a l a z a r , O t h e r I n t e r e s t C o n s o l - Ba r o n S a l a z a r , D e v e l o p m e n t E n t i t i e s E l i m i n a - C o n s o l - In c . D e v e l o p m e n t E n t i t i e s E l i m i n a - i d a t e d In c . E n t i t i e s ( V I E s ) t i o n s i d a t e d (A s R e s t a t e d ) E n t i t i e s ( V I E s ) t i o n s ( A s R e s t a t e d ) Ca s h F l o w s F r o m O p e r a t i n g A c t i v i t i e s Ne t i n c o m e ( l o s s ) 1, 0 0 7 , 0 7 8 $ 8 4 7 , 2 1 6 $ 3 4 0 , 2 8 3 $ ( 1 4 7 , 5 8 0 ) $ 2 , 0 4 6 , 9 9 7 $ 26 2 , 3 1 2 $ 1 , 2 0 4 , 8 6 4 $ ( 8 0 3 , 5 6 1 ) $ (1,012,762)$ (349,147)$ Ad j u s t m e n t s t o r e c o n c i l e n e t i n c o m e ( l o s s ) t o n e t c a s h pr o v i d e d b y ( u s e d i n ) o p e r a t i n g a c t i v i t i e s De p r e c i a t i o n a n d a m o r t i z a t i o n 97 , 6 7 8 2 , 3 5 0 8 5 1 , 7 5 9 — 9 5 1 , 7 8 7 34 , 8 3 3 6 1 8 8 3 9 , 3 7 0 — 874,821 Ne t i n c o m e f r o m p a r t n e r s h i p s (8 , 3 0 6 ) — — — ( 8 , 3 0 6 ) (2 4 , 5 1 2 ) — — — (24,512) Ga i n o n s a l e o f i n v e s t m e n t s i n p a r t n e r s h i p s (6 7 , 4 9 2 ) — — 4 9 , 3 6 6 ( 1 8 , 1 2 6 ) (7 2 7 , 6 1 5 ) — — — (727,615) Ga i n o n s a l e o f r e a l e s t a t e — — ( 9 8 4 , 5 4 1 ) — ( 9 8 4 , 5 4 1 ) — — — — — Lo s s o n d i s p o s a l o f p r o p e r t y 95 4 — 2 3 , 5 0 9 — 2 4 , 4 6 3 81 , 5 1 9 — — — 81,519 De f e r r e d i n c o m e t a x e s (2 1 8 , 1 2 6 ) — — — ( 2 1 8 , 1 2 6 ) (5 5 9 , 0 2 5 ) — — — (559,025) Ne t i n c o m e a t t r i b u t a b l e t o n o n c o n t r o l l i n g i n t e r e s t s — 7 8 1 , 4 9 9 — ( 7 8 1 , 4 9 9 ) — — 1 2 , 1 8 0 — (12,180) — Ch a n g e s i n a s s e t s a n d l i a b i l i t i e s : (I n c r e a s e ) d e c r e a s e i n d e v e l o p m e n t f e e s re c e i v a b l e - b i l l e d a n d u n b i l l e d (2 , 8 4 2 , 1 1 0 ) ( 1 , 7 2 6 , 5 4 7 ) — 6 1 8 , 3 6 6 ( 3 , 9 5 0 , 2 9 1 ) (6 0 4 , 9 7 2 ) 1 , 7 6 0 , 0 4 2 — 722,949 1,878,019 (I n c r e a s e ) d e c r e a s e i n a c c o u n t s r e c e i v a b l e - o t h e r 67 9 , 0 0 7 ( 1 6 8 , 4 8 6 ) — ( 1 0 8 , 8 3 0 ) 4 0 1 , 6 9 1 (5 8 1 , 1 0 6 ) ( 1 2 6 , 2 4 0 ) — 107,980 (599,366) (I n c r e a s e ) d e c r e a s e i n p r o j e c t d e v e l o p m e n t c o s t s an d p r e d e v e l o p m e n t a d v a n c e s 90 3 , 3 9 1 — — ( 5 , 4 2 0 ) 8 9 7 , 9 7 1 (1 , 0 9 8 , 2 3 6 ) — — 3,209 (1,095,027) (I n c r e a s e ) d e c r e a s e i n p r e p a i d e x p e n s e s (7 9 , 8 8 9 ) 4 6 , 1 1 8 — ( 3 9 , 2 0 0 ) ( 7 2 , 9 7 1 ) 34 , 9 3 1 ( 2 8 , 5 8 1 ) — 24,294 30,644 De c r e a s e i n p r e p a i d a s s e t m a n a g e m e n t f e e 42 , 6 1 0 — — — 4 2 , 6 1 0 41 , 1 4 3 — — — 41,143 (I n c r e a s e ) d e c r e a s e i n o t h e r c u r r e n t a s s e t s (2 , 1 0 0 ) — — — ( 2 , 1 0 0 ) 85 , 0 0 0 — — — 85,000 De c r e a s e i n o t h e r l o n g - t e r m a s s e t s — — 2 0 0 , 3 2 5 — 2 0 0 , 3 2 5 — — 4 0 9 , 1 7 0 — 409,170 In c r e a s e ( d e c r e a s e ) i n d e f e r r e d d e v e l o p m e n t f e e s (1 4 4 , 9 5 9 ) ( 4 6 , 1 1 8 ) — 3 9 , 2 0 0 ( 1 5 1 , 8 7 7 ) 38 8 , 8 0 2 2 8 , 5 8 2 — (24,294) 393,090 In c r e a s e ( d e c r e a s e ) i n d e f e r r e d r e v e n u e - o t h e r (1 5 6 , 3 5 3 ) — — — ( 1 5 6 , 3 5 3 ) 15 6 , 3 5 3 — — — 156,353 In c r e a s e i n d e f e r r e d r e n t 34 , 6 6 9 — — — 3 4 , 6 6 9 — — — — — In c r e a s e i n d e f e r r e d l e a s e i n c e n t i v e 44 1 , 9 0 3 — — — 4 4 1 , 9 0 3 — — — — — In c r e a s e ( d e c r e a s e ) i n a c c o u n t s p a y a b l e a n d ac c r u e d e x p e n s e s - t r a d e 82 , 3 9 0 — ( 8 , 0 4 3 ) — 7 4 , 3 4 7 22 , 6 9 6 — 2 7 0 , 7 4 1 (280,627) 12,810 In c r e a s e ( d e c r e a s e ) i n a c c r u e d d e v e l o p m e n t a n d o t h e r e x p e n s e s 2, 1 5 2 , 2 7 7 4 , 2 5 2 — ( 2 3 , 5 3 8 ) 2 , 1 3 2 , 9 9 1 (1 3 1 , 5 9 1 ) ( 2 7 3 , 6 2 2 ) — — (405,213) In c r e a s e ( d e c r e a s e ) i n a c c r u e d c o n s u l t i n g e x p e n s e s 15 2 , 8 9 7 ( 7 1 , 7 6 6 ) — — 8 1 , 1 3 1 — 1 6 1 , 6 5 3 — — 161,653 In c r e a s e i n d u e t o P a r e n t C o m p a n y 62 9 , 1 5 3 3 4 4 , 9 2 2 — — 9 7 4 , 0 7 5 62 6 , 7 1 5 — — — 626,715 Ne t C a s h P r o v i d e d B y ( U s e d I n ) O p e r a t i n g A c t i v i t i e s 2 , 7 0 4 , 6 7 2 1 3 , 4 4 0 4 2 3 , 2 9 2 ( 3 9 9 , 1 3 5 ) 2 , 7 4 2 , 2 6 9 (1 , 9 9 2 , 7 5 3 ) 2 , 7 3 9 , 4 9 6 7 1 5 , 7 2 0 (471,431) 991,032 20 1 0 2009 MC C O R M A C K B A R O N S A L A Z A R , I N C . AN D C O N S O L I D A T E D E N T I T I E S Se e t h e a c c o m p a n y i n g i n d e p e n d e n t a u d i t o r s ’ r e po r t o n s u p p l e m e n t a r y i n f o r m a t i o n . P a g e 5 0 CO N S O L I D A T I N G S T A T E M E N T O F C A S H F L O W S Fo r T h e Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 1 0 A n d 2 0 0 9 Pa g e 2 O f 2 Va r i a b l e Mc C o r m a c k V a r i a b l e Mc C o r m a c k O t h e r I n t e r e s t Ba r o n S a l a z a r , O t h e r I n t e r e s t C o n s o l - Ba r o n S a l a z a r , D e v e l o p m e n t E n t i t i e s E l i m i n a - C o n s o l - In c . D e v e l o p m e n t E n t i t i e s E l i m i n a - i d a t e d In c . E n t i t i e s ( V I E S ) t i o n s i d a t e d (A s R e s t a t e d ) E n t i t i e s ( V I E S ) t i o n s ( A s R e s t a t e d ) Ca s h F l o w s F r o m I n v e s t i n g A c t i v i t i e s Ne t t r a n s f e r s f r o m ( t o ) r e s t r i c t e d c a s h 65 , 6 1 7 $ ( 9 , 3 9 8 ) $ — $ — $ 5 6 , 2 1 9 $ 34 3 , 2 2 0 $ — $ — $ —$ 343,220 $ (I n c r e a s e ) d e c r e a s e i n n o t e s r e c e i v a b l e 18 , 3 7 1 — — — 1 8 , 3 7 1 19 , 5 0 1 ( 1 0 0 , 0 0 0 ) — — (80,499) Pa y m e n t s f o r e q u i p m e n t a n d l e a s e h o l d i m p r o v e m e n t s (1 , 7 6 7 , 7 6 0 ) — — — ( 1 , 7 6 7 , 7 6 0 ) (6 , 0 1 9 ) — — — (6,019) Pa y m e n t s f o r r e n t a l p r o p e r t y — — ( 4 6 8 , 8 4 1 ) — ( 4 6 8 , 8 4 1 ) — — ( 5 1 0 , 6 1 0 ) — (510,610) Pa y m e n t s f o r p r o p e r t y h e l d f o r i n v e s t m e n t — ( 2 1 5 , 7 4 1 ) — — ( 2 1 5 , 7 4 1 ) — ( 3 0 , 2 2 1 ) — — (30,221) Pr o c e e d s f r o m s a l e o f r e a l e s t a t e — — 4 2 6 , 3 4 4 — 4 2 6 , 3 4 4 — — — — — Pr o c e e d s f r o m s a l e o f i n v e s t m e n t s i n p a r t n e r s h i p s 67 , 4 9 2 — — ( 4 9 , 3 6 6 ) 1 8 , 1 2 6 26 5 , 4 2 2 — — — 265,422 Co n t r i b u t i o n s t o p a r t n e r s h i p s (4 3 3 ) — — 1 0 0 ( 3 3 3 ) — — — — — Di s t r i b u t i o n s f r o m p a r t n e r s h i p s 8, 3 0 6 — — — 8 , 3 0 6 27 , 0 2 2 — — — 27,022 Ne t C a s h P r o v i d e d B y ( U s e d I n ) I n v e s t i n g A c t i v i t i e s ( 1 , 6 0 8 , 4 0 7 ) ( 2 2 5 , 1 3 9 ) ( 4 2 , 4 9 7 ) ( 4 9 , 2 6 6 ) ( 1 , 9 2 5 , 3 0 9 ) 64 9 , 1 4 6 ( 1 3 0 , 2 2 1 ) ( 5 1 0 , 6 1 0 ) — 8,315 Ca s h F l o w s F r o m F i n a n c i n g A c t i v i t i e s Re p a y m e n t s f r o m ( a d v a n c e s t o ) r e l a t e d p a r t i e s - n e t 61 , 7 0 9 7 8 , 7 3 6 — ( 2 7 4 , 5 8 3 ) ( 1 3 4 , 1 3 8 ) 1, 8 7 6 , 7 6 9 ( 1 , 6 2 8 , 0 5 6 ) — 471,431 720,144 Pr e d e v e l o p m e n t a d v a n c e s - n e t — ( 1 2 , 6 2 2 ) — — ( 1 2 , 6 2 2 ) (5 0 0 , 0 0 0 ) ( 1 5 7 , 4 9 6 ) — — (657,496) Pr o c e e d s f r o m l o n g - t e r m d e b t 3, 2 1 6 , 0 0 0 — — — 3 , 2 1 6 , 0 0 0 — — — — — Pr i n c i p a l p a y m e n t s o n l o n g - t e r m d e b t (2 , 5 3 0 , 4 8 2 ) — ( 2 4 4 , 5 7 1 ) — ( 2 , 7 7 5 , 0 5 3 ) — — ( 2 5 4 , 7 4 4 ) — (254,744) Pa y m e n t o f l o a n c o s t s (7 4 , 4 3 3 ) — — — ( 7 4 , 4 3 3 ) — — — — — Pr o c e e d s f r o m i s s u a n c e o f c o m m o n s t o c k — 1 0 0 — ( 1 0 0 ) — — — — — — Pr o c e e d s f r o m i s s u a n c e o f p r e f e r r e d s t o c k 8, 1 0 0 , 0 0 0 — — — 8 , 1 0 0 , 0 0 0 — — — — — Re d e m p t i o n o f p r e f e r r e d s t o c k (2 , 8 0 0 , 0 0 0 ) — — — ( 2 , 8 0 0 , 0 0 0 ) — — — — — Pr o c e e d s f r o m c a p i t a l c o n t r i b u t i o n s 61 9 , 6 3 2 — — — 6 1 9 , 6 3 2 — — — — — Pr e f e r r e d s t o c k i s s u a n c e c o s t s (1 3 7 , 3 2 9 ) — — — ( 1 3 7 , 3 2 9 ) — — — — — Di s t r i b u t i o n s t o n o n c o n t r o l l i n g i n t e r e s t s — — ( 2 2 0 , 7 9 6 ) 4 9 , 3 6 6 ( 1 7 1 , 4 3 0 ) — — ( 7 , 4 7 5 ) — (7,475) Di v i d e n d s p a i d t o P a r e n t C o m p a n y (5 , 1 5 0 , 0 0 0 ) ( 6 7 3 , 7 1 8 ) — 6 7 3 , 7 1 8 ( 5 , 1 5 0 , 0 0 0 ) (2 6 3 , 8 3 0 ) — — — (263,830) Ne t C a s h P r o v i d e d B y ( U s e d I n ) F i n a n c i n g A c t i v i t i e s 1 , 3 0 5 , 0 9 7 ( 6 0 7 , 5 0 4 ) ( 4 6 5 , 3 6 7 ) 4 4 8 , 4 0 1 6 8 0 , 6 2 7 1, 1 1 2 , 9 3 9 ( 1 , 7 8 5 , 5 5 2 ) ( 2 6 2 , 2 1 9 ) 471,431 (463,401) Ne t I n c r e a s e ( D e c r e a s e ) I n C a s h A n d C a s h E q u i v a l e n t s 2 , 4 0 1 , 3 6 2 ( 8 1 9 , 2 0 3 ) ( 8 4 , 5 7 2 ) — 1 , 4 9 7 , 5 8 7 (2 3 0 , 6 6 8 ) 8 2 3 , 7 2 3 ( 5 7 , 1 0 9 ) — 535,946 Ca s h A n d C a s h E q u i v a l e n t s - B e g i n n i n g O f Y e a r 1 3 0 , 5 4 4 8 2 3 , 7 2 3 4 7 4 , 2 2 3 — 1 , 4 2 8 , 4 9 0 36 1 , 2 1 2 — 5 3 1 , 3 3 2 — 892,544 Ca s h A n d C a s h E q u i v a l e n t s - E n d O f Y e a r 2 , 5 3 1 , 9 0 6 $ 4 , 5 2 0 $ 3 8 9 , 6 5 1 $ — $ 2 , 9 2 6 , 0 7 7 $ 13 0 , 5 4 4 $ 8 2 3 , 7 2 3 $ 4 7 4 , 2 2 3 $ —$ 1,428,490 $ Su p p l e m e n t a l D i s c l o s u r e O f C a s h F l o w I n f o r m a t i o n In t e r e s t p a i d 18 6 , 5 8 6 $ — $ 7 6 4 , 2 9 2 $ — $ 9 5 0 , 8 7 8 $ 23 3 , 0 1 9 $ — $ — $ —$ 233,019 $ In c o m e t a x e s p a i d - n e t 86 , 0 6 3 — — — 8 6 , 0 6 3 17 1 , 0 2 8 — — — 171,028 20 1 0 2009 MC C O R M A C K B A R O N S A L A Z A R , I N C . AN D C O N S O L I D A T E D E N T I T I E S Se e t h e a c c o m p a n y i n g i n d e p e n d e n t a u d i t o r s ’ r e po r t o n s u p p l e m e n t a r y i n f o r m a t i o n . P a g e 5 1 CO N S O L I D A T I N G S C H E D U L E O F G E N E RA L A N D A D M I N I S T R A T I V E E X P E N S E S Fo r T h e Y e a r s E n d e d D e c e m b e r 3 1 , 2 0 1 0 A n d 2 0 0 9 Mc C o r m a c k B a r o n Sa l a z a r , I n c . Ot h e r De v e l o p m e n t En t i t i e s E l i m i n a t i o n s C o n s o l i d a t e d Mc C o r m a c k B a r o n Sa l a z a r , I n c . (A s R e s t a t e d ) Other De v e l o p m e n t Entities E l i m i n a t i o n s Consolidated (As Restated) Sa l a r i e s 9, 6 0 4 , 1 3 6 $ — $ — $ 9 , 6 0 4 , 1 3 6 $ 7, 0 3 3 , 3 5 0 $ — $ — $ 7,033,350 $ Pa y r o l l t a x e s 46 5 , 6 4 5 — — 4 6 5 , 6 4 5 42 1 , 9 1 6 — — 421,916 Pr o f i t s h a r i n g p l a n c o n t r i b u t i o n s 22 7 , 7 4 9 — — 2 2 7 , 7 4 9 15 9 , 5 1 5 — — 159,515 Ad v e r t i s i n g a n d p r o m o t i o n 20 , 4 7 7 — — 2 0 , 4 7 7 27 , 6 2 0 — — 27,620 Co n t r i b u t i o n s 14 9 , 3 6 0 — — 1 4 9 , 3 6 0 21 1 , 5 5 0 7 , 5 0 0 — 219,050 De p r e c i a t i o n a n d a m o r t i z a t i o n 97 , 6 7 8 2 , 3 5 0 — 1 0 0 , 0 2 8 34 , 8 3 3 6 1 8 — 35,451 Du e s a n d s u b s c r i p t i o n s 38 , 4 4 5 — — 3 8 , 4 4 5 50 , 1 7 4 — — 50,174 Ed u c a t i o n e x p e n s e 17 , 1 7 5 — — 1 7 , 1 7 5 20 , 6 0 6 — — 20,606 Em p l o y e e b e n e f i t s 21 9 , 8 8 3 — — 2 1 9 , 8 8 3 22 6 , 0 1 7 — — 226,017 Eq u i p m e n t r e n t a l 11 6 , 2 1 9 2 , 9 8 6 — 1 1 9 , 2 0 5 11 1 , 1 2 0 3 , 1 0 9 — 114,229 In s u r a n c e - g e n e r a l 27 , 4 9 4 — — 2 7 , 4 9 4 42 , 1 0 2 — — 42,102 In s u r a n c e - l i f e o f o f f i c e r s 18 2 , 9 3 8 — — 1 8 2 , 9 3 8 13 4 , 2 6 0 — — 134,260 Mi s c e l l a n e o u s 21 , 4 1 2 — — 2 1 , 4 1 2 30 , 5 6 4 — — 30,564 Of f i c e e x p e n s e - g e n e r a l 21 9 , 7 8 8 8 4 , 9 8 9 — 3 0 4 , 7 7 7 18 2 , 4 6 2 9 6 , 7 7 4 — 279,236 Ou t s i d e s e r v i c e s 6, 3 3 5 — — 6 , 3 3 5 30 , 0 7 0 — — 30,070 Pr o f e s s i o n a l s e r v i c e s 29 3 , 7 0 3 1 6 , 9 7 6 — 3 1 0 , 6 7 9 31 6 , 8 8 4 1 1 , 5 6 0 — 328,444 Re n t 38 8 , 7 6 2 — — 3 8 8 , 7 6 2 34 9 , 5 3 7 — — 349,537 Re p a i r s a n d m a i n t e n a n c e 4, 4 8 2 — — 4 , 4 8 2 5, 9 3 8 — — 5,938 Ta x e s a n d l i c e n s e s 42 , 4 7 1 8 9 8 — 4 3 , 3 6 9 35 , 0 8 9 1 , 6 5 1 — 36,740 Te c h n o l o g y e x p e n s e s 97 , 2 5 4 2 , 2 9 0 — 9 9 , 5 4 4 10 9 , 1 4 1 1 , 1 2 5 — 110,266 Te l e p h o n e 13 3 , 3 7 8 2 , 4 9 4 — 1 3 5 , 8 7 2 12 5 , 4 5 6 8 0 8 — 126,264 Tr a v e l a n d e n t e r t a i n m e n t 15 8 , 2 4 6 5 , 9 8 0 — 1 6 4 , 2 2 6 19 8 , 5 7 1 — — 198,571 Al l o c a t e d d e v e l o p m e n t o v e r h e a d (2 , 5 1 9 , 3 1 9 ) — — ( 2 , 5 1 9 , 3 1 9 ) (2 , 2 0 1 , 7 1 4 ) — — (2,201,714) Al l o c a t e d M B S U r b a n I n i t i a t i v e s o v e r h e a d (5 1 0 , 4 4 9 ) — — ( 5 1 0 , 4 4 9 ) (5 4 8 , 7 2 7 ) — — (548,727) Al l o c a t e d M B A M o v e r h e a d (3 6 5 , 1 2 6 ) — — ( 3 6 5 , 1 2 6 ) (3 2 7 , 0 9 5 ) — — (327,095) Al l o c a t e d S u n w h e e l o v e r h e a d (5 0 9 , 0 0 0 ) — — ( 5 0 9 , 0 0 0 ) (3 3 6 , 3 1 9 ) — — (336,319) 8, 6 2 9 , 1 3 6 $ 1 1 8 , 9 6 3 $ — $ 8 , 7 4 8 , 0 9 9 $ 6, 4 4 2 , 9 2 0 $ 1 2 3 , 1 4 5 $ — $ 6,566,065 $ 20 1 0 2009 MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying independent auditors’ report on supplementary information. Page 52 BALANCE SHEET - MCCORMACK BARON SALAZAR, INC. Page 1 Of 2 Assets 2009 2010 (As Restated) Current Assets Cash and cash equivalents 2,531,906$ 130,544$ Cash - restricted 1,099,676 1,115,936 Development fees receivable - billed 452,729 688,139 Development fees receivable - unbilled 7,322,514 4,328,585 Accounts receivable - other 601,487 1,155,494 Loans and advances receivable - related parties 1,146,875 603,379 Project development costs and predevelopment advances 3,593,270 4,206,809 Prepaid expenses 124,621 44,732 Prepaid asset management fee 5,390 41,136 Other current assets 2,100 — Deferred tax assets 2,720,031 2,117,143 Total Current Assets 19,600,599 14,431,897 Long-Term Assets Cash - restricted 118,593 167,950 Development fees receivable - unbilled 3,995,123 3,911,532 Accounts receivable - other — 125,000 Loans and advances receivable - related parties 181,575 215,250 Notes receivable 625,493 643,864 Project development costs and predevelopment advances 2,707,671 2,997,523 Investments in partnerships 14,482 14,049 Property and equipment 1,761,396 81,840 Loan costs 107,875 43,870 Deferred tax assets — 329,948 Prepaid asset management fee — 6,864 Total Long-Term Assets 9,512,208 8,537,690 29,112,807$ 22,969,587$ December 31, MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying independent auditors’ report on supplementary information. Page 53 BALANCE SHEET - MCCORMACK BARON SALAZAR, INC. Page 2 Of 2 Liabilities And Stockholder's Equity 2009 2010 (As Restated) Current Liabilities Current maturities of long-term debt 1,586,318$ 1,267,966$ Deferred development fees 258,749 403,708 Deferred revenue - other — 156,353 Accounts payable and accrued expenses - trade 250,859 168,469 Accrued development and other expenses 1,300,334 263,164 Accrued consulting expenses 152,897 — Due to related parties 1,966,427 1,394,897 Deferred lease incentive 41,755 — Due to Parent Company 2,110,175 1,481,022 Shares subject to mandatory redemption — 2,800,000 Total Current Liabilities 7,667,514 7,935,579 Long-Term Liabilities Accrued development and other expenses 1,115,107 — Long-term debt 4,369,438 4,002,272 Deferred tax liabilities 54,814 — Deferred rent 34,669 — Deferred lease incentive 400,148 — Total Long-Term Liabilities 5,974,176 4,002,272 Stockholder's Equity Common stock 500 500 Preferred stock 10,884,294 2,900,000 Additional paid-in capital 4,586,323 5,123,566 Retained earnings — 3,007,670 Total Stockholder's Equity 15,471,117 11,031,736 29,112,807$ 22,969,587$ December 31, MCCORMACK BARON SALAZAR, INC. AND CONSOLIDATED ENTITIES See the accompanying independent auditors’ report on supplementary information. Page 54 STATEMENT OF INCOME - MCCORMACK BARON SALAZAR, INC. For The Years Ended December 31, 2009 2010 (As Restated) Fee Income Development fees 14,331,370$ 7,541,955$ Consulting fees 1,889,017 2,963,933 Total Fee Income 16,220,387 10,505,888 Other Income Interest 2,915 114,340 Sublease income 45,791 — Net income from partnerships 8,306 24,512 Gain on sale of investments in partnerships 67,492 727,615 Gain on termination of lease, net 481,280 — Dividend income 673,718 — Miscellaneous income — 349,052 Total Other Income 1,279,502 1,215,519 Total Income 17,499,889 11,721,407 Expenses Development 5,083,740 2,019,577 Development - new business development 755,991 539,394 Consulting 1,298,171 1,862,805 General and administrative 8,629,136 6,442,920 Loss on disposal of property 954 81,519 Asset management fee 41,143 41,143 Interest expense 186,586 233,019 Total Expenses 15,995,721 11,220,377 Income Before Provision For Income Taxes 1,504,168 501,030 Provision For Income Taxes 497,090 238,718 Net Income 1,007,078$ 262,312$