Parkway East Audit 2011

PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT
FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
SEPTEMBER 30,2011
CONTENTS
DESCRIPTION
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS MANAGEMENT'S DISCUSSION AND ANALYSIS

BASIC FINANCIAL STATEMENTS:
1 3
Government-Wide Financial Statements:
Statement of Net Assets

Statement of Activities
Fund Financial Statements:
13
14
Balance Sheet - Governmental Funds

Reconciliation of the Governmental Funds Balance Sheet
15
to the Statement of Net Assets
16
Statement of Revenues, Expenditures, and Changes

in Fund Balances - Governmental Funds
Reconciliation of the Governmental Funds Statement of
17
Revenues, Expenditures, and Changes in Fund Balances

to the Statement of Activities 18
Notes to Financial Statements
19
HADDOX REID BURKES &
CALHOUN pllc
CPAs & Advisors
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Parkway East Public Improvement District Canton, Mississippi
We were engaged to audit the accompanying financial statements of the governmental activities and each major fund of Parkway East Public Improvement District as of and for the year ended September 30, 2011, which collectively comprise the District's basic financial statements as
listed in the table of contents. These financial statements are the responsibility of Parkway East Public Improvement District's management.
The District has not collected a significant amount of the special assessments due during the fiscal year ended September 30, 2011 from the benefiting property owners. The annual special assessments are the only source of funds to meet the District's annual debt service requirements for all outstanding bonds. The fiscal year ended September 30, 2011 was the third year the property
owners were obligated to pay the assessments which are due in annual equal amounts for a period of twenty-two years. Due to the inability to determine a reasonable estimate for the value of the required allowance for uncollectible taxes related to the special assessments and the resulting inability to determine the present value of the special assessments receivable which would potentially decrease the assets and net assets of the District's governmental activities, the amount by which assets, net assets, and revenues of the governmental activities would be affected is not reasonably determinable.
The accompanying financial statements have been prepared assuming that the District will
continue as a going concern. As discussed in Note 11 to the financial statements subsequent to
September 30, 2011, the District defaulted on the Parkway East Public Improvement District Special
Assessment Completion Bonds, Series 2008A, due to its inability to fully fund a principal payment due May 1, 2012. In addition, management has determined that the District will have very limited resources to fund any operating expenses effective August, 2012. These conditions raise substantial doubt about the District's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
One Jackson Place, Suite 500 P.O. Drawer 22507 * Jackson, MS 39225-2507 Ph: 601-948-2924 n Fx: 601-960-9154 www.hrbccpa.com
Because of the significance of the uncertainties described in the preceding paragraphs, we are unable to express, and we do not express, an opinion on the financial statements referred to in the
first paragraph.
Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3 through 12 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the
information and comparing the information for consistency with management's responses to our
inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the
information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
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July 20,2012

MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED SEPTEMBER 30,2011
Our discussion and analysis of Parkway East Public Improvement District's (the District) financial performance provides an overall review of the District's financial activities for the year ended September 30, 2011. The intent of this discussion and analysis is to look at the District's financial performance as a whole. Readers should also review the basic financial statements which begin on page 13 to enhance their understanding of the District's financial performance.
FINANCIAL HIGHLIGHTS
The net assets of the District decreased by $394,566 ($2,521,364 decrease in 2010) as a result of this year's operations. The primary factor resulting in the decrease was the uncollected delinquent special assessments of $2,474,876 due from property owners as of September 30,
2011.
The District's only current activity is funding the debt service requirement of the special assessment bond issues that provided substantially all resources for the capital project. Construction proceeds from bonds are invested temporarily. The construction was completed in February 2009 and the roadway was dedicated to Madison County, Mississippi for use as a public road.
The District's Debt Service fund has the purpose of holding restricted assets for the payment of interest and principal on the outstanding special assessment bonds through May, 2030. The fund began receiving the annual assessments from benefiting landowners in 2009.
The District retained the Bear Creek Flood Relief Channel. Therefore, the future
operations of the District will be to make annual assessments against the property owners, collect assessments, maintain the flood relief channel, and pay the annual bonds. The District also has an obligation to complete water and sewer on a portion of the road. The projected cost
of this is estimated to be $900,000.
USING THE ANNUAL FINANCIAL REPORT
This annual report consists of a series of financial statements and notes to those statements. The statements are organized so the reader can understand Parkway East Public Improvement District as a financial whole or as an entire operating entity. The statements then proceed to provide an increasingly detailed look at specific financial conditions.
PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS
USING THE ANNUAL FINANCIAL REPORT - CONTINUED:
The Statement of Net Assets and Statement of Activities (on pages 13 and 14) provide information about the activities of the whole District, presenting both an aggregate view of the District's finances and a longer-term view of those finances. Major fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what dollars remain for future spending.
REPORTING THE DISTRICT AS A WHOLE Statement of Net Assets and Statement of Activities
While this document contains information about the funds used by the District to provide for the construction of the Parkway East roadway and for debt service on the outstanding special
assessment bonds, the view of the District as a whole looks at all financial transactions and is
presented in the Statement of Net Assets and the Statement of Activities.

These statements include all assets and liabilities using the accrual basis of accounting
similar to the accounting used by private sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when the cash is received or paid. These two statements report the District's net assets for the 2011 fiscal year and changes in them. The District's net assets - the difference between assets and liabilities - is one way to measure the District's financial health or financial position. Over time, increases or
decreases in the District's net assets are one indicator of whether its financial health is
improving or deteriorating. However, in evaluating the overall position of the District, nonfinancial information, such as the condition of the District's capital assets, will also need to be
evaluated.
In the Statement of Net Assets and the Statement of Activities, the District reports all financial activity as Governmental Activities. The purposes of the District are to construct the Parkway East roadway, perform ongoing maintenance on the flood relief channel and to service the outstanding debt through annual special assessments.
Reporting the District's Most Significant Funds
Fund Financial Statements
The analysis of the District's major funds begins on page 15.

REPORTING THE DISTRICT AS A WHOLE - CONTINUED:
Reporting the District's Most Significant Funds - continued:

Fund Financial Statements - continued:
Governmental funds - All of the District's financial activity is reported in governmental funds, which focus on how money flows into and out of the individual funds, and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual basis of accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides.
Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future by the District. The relationship (or differences) between government activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled
in the financial statements.
The District considers both the Capital Project Fund and the Debt Service Fund to be major funds and, therefore, presents information on these funds separately in the
Governmental Funds Balance Sheet and in the Governmental Funds Statement of
Revenues, Expenditures, and Changes in Fund Balances.
FINANCIAL ANALYSIS OF THE DISTRICT
The activity of the District was originally to construct a road from approximately one and one-half miles north of Highway 463 north to Gluckstadt Road in Madison County, Mississippi. The roadway was completed and dedicated to the Madison County Board of Supervisors in
March 2009.
After completion of the road construction, the activities of the District have changed completely. At this point, the District's activities converted to having assessment authority to generate revenues to fund bond payments for the previous construction. These assessments are based upon front footage access to the Parkway, direct access to two special project roads and

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30,2011
FINANCIAL ANALYSIS OF THE DISTRICT - CONTINUED:
for the costs associated with constructing a flood relief channel, that are allocated based upon benefited coverage from the flood relief channel.
The Statement of Net Assets looks at the District as a whole. The District's combined net
assets were $4,250,627 and $4,645,193 as of September 30, 2011 and 2010, respectively. Table 1 provides a summary of the District's net assets.
(Table 1)
Condensed Statement of Net Assets
At September 30,2011 and 2010

2011 2010
Current and other assets Capital assets, net

Total assets
$ 27,677,089 3.951.253
31.628.342
28,918,841 4.027.509
32.946.350
Current liabilities
Noncurrent liabilities Total liabilities
Net assets:
1,441,960
25,935.755 27.377.715
1,418,142
26.883.015 28.301.157
Invested in capital assets and related special assessments, net of debt

Restricted:
Capital projects
Debt service
900,750
3.349.877
900,580
3.744.613
Total net assets
$ 4.250.627
4.645.193
The largest portion of the District's net assets (79%) reflects its net assets restricted for debt
service.
The Changes in Net Assets for the years ended September 30, 2011 and 2010 are
summarized in Table 2.
-6-

FINANCIAL ANALYSIS OF THE DISTRICT - CONTINUED:
(Table 2) Condensed Statement of Changes in Net Assets For the Year Ended September 30,2011 and 2010
2011
REVENUES:
2010
Program revenues:
Capital grants and contributions

General revenues:
$ 985,599
76.977 1.062.576 427.120 427.120
Other Total revenues

EXPENSES:
General government Interest on long-term debt Total expenses

DECREASE IN NET ASSETS
NET ASSETS, BEGINNING OF YEAR
178,758 1.278.384 1.457.142

(394,566)
4.645.193
1,637,508 1.310.976 2.948.484

(2,521,364)
7.166.557
NET ASSETS, END OF YEAR
$ 4.250.627
4.645.193
Despite the efforts of the District's Board and management to avoid a default occurring under one of the District's two outstanding bond issues, the District was not able to fully fund the principal payment on the Parkway East Public Improvement District Special Assessment Completion Bonds, Series 2008A that was due on May 1, 2012. This resulted in a default under the terms of the bond agreement.
BUDGETARY HIGHLIGHTS
Original budgets for the construction of the road were created in 2004 prior to the sale of Bonds in 2005. The Board reviews these budgeted costs monthly, with consultation from its
attorney, accountant and engineers. As changes are needed to these budgets, they are made.
The District was not able to collect $2,474,876 in assessments which were due and payable as of September 30, 2011. This forced the District to use construction funds for the debt service payments of the bonds. There has been an amendment to the bond indenture documents to allow the District to replenish construction funds at the point these assessments are collected.
PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30,2011
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
At September 30, 2011, the District had over $3.9 million invested in capital assets, including land and a flood relief channel. (See Table 3 below.)
Table 3
Capital Assets at September 30,2011 and 2010 (Net of Depreciation)

2011
2010
Land
348,180
348,180
3.679.329
4.027.509
ler than buildings

Total
3.603,073
$3,951,253
All costs for the road projects and the Flood Relief Channel were completed in fiscal year 2009. Road projects were transferred to the Madison County Board of Supervisors upon
completion.
Outstanding Debt
The current outstanding debt of the District is $27,255,000 in bonds payable. These require interest and principal payments in May of each year and interest payments in November. The annual cash requirement to service these bonds is approximately $2,150,000 per year. These bonds will be paid from annual assessments to the property owners. Included above is $2,720,000 in bonds payable that were issued on May 1, 2008 (2008 issue) to provide funds to cover the initial annual debt service payments and fuel adjustment cost. It is the Board's intention to retire these bonds with the proceeds from Tax Increment Financing Bonds to be issued by Madison County once development of the benefiting property has started. As detailed above and as a result of lower than anticipated collections of special assessments due in February 2012, the District was not able to fully fund the principal payment on these bonds that became due on May 1, 2012. All bondholders have been notified of this
default.
Table 4 summarizes the total outstanding long-term obligations of the District.

CAPITAL ASSETS AND DEBT ADMINISTRATION - CONTINUED:
Outstanding Debt - continued:

Table 4
Outstanding Debt at September 30,2011 and 2010

2011 2010
Special assessmentbonds
Total
$ 27.255.000
$ 27.255.000
28.200.000
28.200.000
The District paid $945,000 in principalon outstanding debt during the year.
RECEIVABLE FOR ASSESSMENTS
Management of the District has valued the future assessments receivable based upon an estimate of future collections. Management anticipates the annual assessments necessary to fund the required bond payments and the operating expenses will be approximately $2,095,000 annually. This assessment level will last for the period of the bond payments which should be fully paid by May 1, 2030. The valuation of this assessment requires management to estimate the future collectability of payments over this time frame. The methodology used by management is to discount the annual assessments levied from 2011 in the amount of $2,095,000 by 10% annually. This is to reflect potential unpaid assessments and expenses which the District may incur in the collection of these future assessments. This long term receivable of approximately $39,800,000 is discounted to present value using a blended rate based upon the outstanding bond liabilities of the District. The discounted present value is $26,034,830.
A further discount is taken for more current assessments if it appears that there is doubt as to collectability in the near term where estimates can be made more accurately.
The assessments for 2009 and 2010 (payable in 2010 and 2011) have incurred substantial uncollected amounts. One landowner, who is currently in bankruptcy, has unpaid assessments in the amount of $343,765 for 2010 (due February 1, 2011), plus accrued interest. This

RECEIVABLE FOR ASSESSMENTS - CONTINUED:
particular landowner is an LLC currently in bankruptcy reorganization and management expects

that these assessments will be paid in the near future, although a definite time frame is not available. During the year ended 2010, the District received payments from this landowner for the 2008 and 2009 assessments. Management estimates that there is doubt as to full collectability of these receivables and has reduced the face amount of the 2010, 2011, and 2012 assessments by 50% in these financial statements to reflect this uncertainty. This results in a
charge to current year activities of $427,500.
A second landowner is also an LLC and has assessments outstanding of $557,620 for 2008, $598,908 for 2009, and $601,600 for 2010. Management is not as confident that this assessment will be paid in the near future.
The 2008 and 2009 assessments were never paid nor were they purchased at tax sales. Therefore, these assessments were transferred to the Secretary of State's office in September 2011. The 2010 assessment (due in 2011) was also not paid.
An agreement has been reached between Madison County and the Secretary of State's office to transfer the actual property to Madison County. The County is in the process of setting up a marketing program to sell this land.
The District's management is working with officials of Madison County to enter into an agreement for the District to receive portions of land sale proceeds to enable the District to recover its uncollected prior assessments. This agreement is not yet finalized.
Therefore, management's estimate is to reduce the present value of this future receivable by $1,800,000. This is an estimate based upon receiving no funds from this property for 2012, 2013, and 2014, plus none of the back proceeds due in 2009, 2010, and 2011.
SUMMARY OF VALUATION OF FUTURE ASSESSMENTS
Total future estimated assessments
$ 44.232.171
Net present value including a 10% reduction

Less: write-downs of near term assessments
$ 26,034,830
(1.627.500")
referred to above
Valuation estimate
$ 24.407.330
10-

ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS
The nonpayment by landowners over this three year period has forced the District to use construction funds for the payment of the bonds. There has been an amendment to the bond
indenture documents to allow the District to replenish construction funds for the 2008 assessments at the point these assessments are collected.
RISK MANAGEMENT OF FUTURE ASSESSMENTS
Management has undertaken efforts to reduce risk to the District for future unpaid
assessments.
In the near term, the District is working diligently with the land owner in bankruptcy to facilitate as much as possible an agreed bankruptcy plan to enable the assessments to be paid. It is management's estimate that these will be paid. After this is settled, management plans to also work with the second landowner to facilitate payment.
Procedurally, there are safeguards against the District's risk with regards to the collection of assessments and its ability to generate sufficient revenue on an ongoing basis to meet its obligations.
The first safeguard is the assessments are billed and collected by the Madison County Tax Assessor. All payments of assessments are made directly to the Madison County Tax Collector
and then transmitted in total to the bond trustee until sufficient funds have been collected to
meet bond obligations. Excess funds are released to the District board for the payment of operating expenses. If assessments are not paid by August 1 of each year, the property is sold at a tax sale along with all other uncollected property taxes. It was management's belief that these assessment amounts would be sold and the District would receive full payment at the annual sale at the latest each year. Two smaller assessments sold at the September 2009 tax sale under this procedure. However, the two larger parcels detailed above did not sell. Management has worked with landowners in an attempt to split their property into smaller tracts, thereby reducing the size of the assessments. It is management's belief that the smaller the size of the
assessment, the more likely it will sell at the tax sale.
In addition, the District receives the interest income on the delinquent assessments which accrues at the rate of 1% per month on all unpaid amounts.
-11
PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED SEPTEMBER 30,2011
RISK MANAGEMENT OF FUTURE ASSESSMENTS - CONTINUED:
Also, there is a contribution agreement with the Madison County Board of Supervisors, in which the County is obligated to advance funds to the District in order to cover bond payments
that the District is unable to fund. These funds are required under the bond indenture to be advanced and are required to be repaid to Madison County no later thantwo years from the date the deficient debt service payment was made. The County initially advanced $374,021 to the District in October 2011 to help fund the November 1, 2011 bond payment. Madison County also advanced $464,376 to the Districtto pay the May 1, 2012 payment on the 2005 Bond Issue. There is also a restricted bond Reserve Fund with enough funds to pay roughly one year of payments on all indebtedness.
As an additional risk mitigating factor, the District board is under an obligation to levy assessments sufficient to cover expenses and bond payments. If necessary, the Board may consider increasing assessments on the other landowners to cover any assessments that are not being paid. This will be the last resort to be considered.
However, unless some of the issues detailed above result in additional funds being made available to the District, it is anticipated that the District will have funds to cover normal operating expenses only through August, 2012 and the District will not have the funds to make the November 1, 2012 interest payment on the Series 2008A Bond Issue.
CONTACTING THE DISTRICT'S FINANCE DEPARTMENT
This financial report is designed to provide citizens, taxpayers, creditors, and investors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have any questions about this report or need additional financial information, please contact C. Robert Montgomery, Attorney for the Board, 151 West Peace
Street, Canton, MS 39046. Phone number 601-859-3616, e-mail address
[email protected].
12-

STATEMENT OF NET ASSETS
AS OF SEPTEMBER 30,2011
ASSETS
Governmental Activities
Cash and cash equivalents

Investments
200,784 2,069,217
Receivables:
Special assessment (net of allowance for doubtful amounts of $6,780,334)

Accrued interest
Deferred debt expense (net of accumulated amortization) Capital assets: Nondepreciable capital assets Land improvements (net of accumulated depreciation)
Total assets
24,407,330 3,572 996,186 348,180

3.603.073
$31.628.342
LIABILITIES AND NET ASSETS
LIABILITIES:
Accounts payable Accrued interest payable

Noncurrent liabilities:
6,041
488,659
Due within one year: Bonds payable (net of discount) Due in more than one year: Bonds payable (net of discount)
Total liabilities
NET ASSETS:
947,260
25.935.755 27.377.715
Invested in capital assets and related special assessments (net of related debt)
Restricted for:
Capital projects
Debt service Total net assets
$
900,750
3.349.877
4.250.627
The accompanying notes are an integral part of this financial statement.

-13-

STATEMENT OF ACTIVITIES
Net (Expense)
Revenue and
Changes in
Program Revenues
Net Assets
Operating
Capital
Grants and Contributions
Total
Charges for
Functions/Programs
Expenses
Services
Grants and Contributions
Governmental Activities
Primary government:
Governmental activities
178,758
1.278.384
1-457.142
985,599
985.599
985,599
985.599
806,841
(1.278.384)
(471.543)
Interest on long-term debt
General revenues: Interest earned
88,425
(11.448)
76.977
Realized and unrealized loss on investments
Total general revenues
Change in net assets
(394,566)
4.645.193
Net assets - beginning of year Net assets - end of year

$
4.2S&622

BALANCE SHEET - GOVERNMENTAL FUNDS
SEPTEMBER 30,2011
Capital Project
Fund
ASSETS
Debt Service Fund
Total Governmental Funds
Cash and cash equivalents

Investments
$ 155,255
Accrued interest
45,529 2,069,217 3,572 1,200,522 23,206,808
200,784 2,069,217 3,572 1,200,522 23,206,808

745.495
Receivables:
Delinquent special assessment Special assessment - deferred

Due from debt service fund Total assets
745.495
$ 900.750
26.525.648
27.426.398
LIABILITIES AND FUND BALANCES

LIABILITIES:
Accounts payable Due to capital project fund

Deferred revenue Total liabilities
FUND BALANCES:
6,041 745,495
24.407.330 25.158.866
6,041 745,495
24.407.330
25.158.866
Restricted for:
Capital projects
Debt service
900,750
1.366.782
900.750 $ 900.750 1.366.782 26.525.648
900,750
1.366.782 2.267.532 27.426.398
Total fund balances
Total liabilities and fund balances

-15-
RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS
SEPTEMBER 30,2011
TOTAL FUND BALANCES - governmental funds
2,267,532
Amounts reported for governmental activities in

the Statement of Net Assets are different because:
Capital assets used in the operation of govern

mental funds are not financial resources and,
therefore, are not reported in the funds: Governmental capital assets Less accumulated depreciation
4,160,956 (209.703)
3,951,253
Long-term special assessments receivable that were earned as of year end but are not due until subsequent years are not recognized
as revenue in the fund statement, but are
recognized under full accrual. Deferred charges, including debt issue costs, are amortized in the governmental activities, but were recognized in full in the govern
mental funds.
24,407,330
996,186
Long-term liabilities of governmental funds, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. These longterm liabilities consist of:
Special assessment bonds - net of discount Accrued interest payable

NET ASSETS OF GOVERNMENTAL ACTIVITIES
(26,883,015)
(488.659)
$ 4.250.627

-16-
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS
Capital Project
Fund
REVENUES:
Debt
Total
Service
Governmental
Funds
Fund
Special assessment
Interest earned
EXPENDITURES:
1,125,446
170
170
1,125,446
88.425
88.255 1.213.701
1.213.871
Administrative costs Professional services Debt service:
21,085 48,371
21,085 48,371
Principal
Interest
945,000 1,205,339
33.046 2.252.841
945,000 1,205,339
33.046 2.252.841
Collection fee on assessments
Total expenditures
EXCESS (DEFICIENCY) OF REVENUES OVER
EXPENDITURES
170
(1,039,140)
(1,038,970)
OTHER FINANCING SOURCES (USES):

Realized and unrealized loss on investments
NET CHANGE IN FUND BALANCES
(11.448)
(11.448)
170
(1,050,588)
(1,050,418)
FUND BALANCES AT BEGINNING OF

YEAR
900.580
$ 900.750
2.417.370
1.366.782
3.317.950
2.267.532
FUND BALANCES AT END OF YEAR

-17-
RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES,

EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES
NET CHANGE IN FUND BALANCES - total governmental funds

Amounts reported for governmental activities in the
Statement of Activities are different because:
$ (1,050,418)
Governmental funds reportcapital outlays as expenditures.

However, in the Statement of Activities, the cost of those
assets is depreciated over their estimated useful lives: Expenditures for capital assets Less current year depreciation expense
Revenues in the funds that provide current financial resources
but have been included in the Statement of Activities in
(76.256)
(76,256)
prior fiscal years.

Repayment of long term debt is an expenditure in the govern mental funds, but the repaymentreduces long-term liabili
ties in the Statement of Net Assets.
(491,440)
945,000
Governmental funds report bond issuance costs as expendi tures. However, these amounts are reported on the
Statement of Net Assets as a deferred charge and
amortized over the life of the debt. This is the amount
by which current period amortizationexceeds current
period expenditures.
Certain expenses reported in the Statement of Activities do not require the use of current financial resources and,
therefore, are not reported as expenditures in the govern
mental funds:
(52,942)
Amortization of discount on bonds
(33,667)
Change in accrued interest payable Change in allowance for doubtful amounts

CHANGE IN NET ASSETS - Statement of Activities $
13,565 351.592
(394.566)

-18-

NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30,2011
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Reporting Entity
Parkway East Public Improvement District (the District) is a public improvement district created by State of Mississippi statute. The District is a primary government under the definitions of GASB No. 14, The Financial Reporting Entity. The District is organized with a four member Board for the purpose of constructing a roadway in Madison County, Mississippi that will connect Highway 463 on the south end to Gluckstadt Road on the north end. The
project is being funded through the issuance of two series of Special Assessment Bonds (Series 2005 and Series 2008A). At the completion of the roadway, the District is responsible for assessing the benefiting property owners in an amount sufficient to meet the annual debt obligations under the bond issue. The initial annual assessments against the property, were due January 2009, at which time the District started receiving assessments from landowners as part of the Madison County property tax assessment. These funds are to be used for expenses on an ongoing basis and repayment of the outstandingbonds.
During the year ended September 30, 2009, all of the construction was completed, except for a portion of the water and sewer on the southern part of the Parkway. The roadway and property were dedicated to the Madison County Board of Supervisors in March 2009. The assets retained by the District consist of the Flood Relief Channel and the right of way for the
channel.
The financial statements of the District have been prepared in conformity with generally
accepted accounting principles (GAAP) as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the
more significant policies:
A. Basis of Accounting/Measurement Focus
The accounts of the District are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expense, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the
means by which spending activities are controlled.
Government-Wide Financial Statements
The District's government-wide financial statements include a Statement of Net Assets and a Statement of Activities. These statements present a summary of Governmental Activities of
the District. The District does not operate any Business-Type Activities.
19-
PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30,2011
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:

Government-Wide Financial Statements - continued:
These statements are presented on an "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all the District's assets and liabilities, including capital assets and long-term liabilities, are included in the accompanying Statement of Net Assets. The Statement of Activities presents changes in net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. All
internal balances in the Statement of Net Assets have been eliminated.
The District applies all applicable GASB pronouncements (including all NCGA Statements and Interpretations currently in effect) as well as the following pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements: Financial Accounting Standards Board (FASB) Statements and Interpre tations, Accounting Principles Board (APB) Opinions, and Accounting Research Bulletins (ARB) of the Committee on Accounting Procedure.
Governmental Fund Financial Statements
Governmental Fund Financial Statements include a Balance Sheet and a Statement of
Revenues, Expenditures and Changes in Fund Balances for all governmental funds. The District has elected to report all governmental funds as major funds because the District believes the financial position and activities of all its funds are significant to the District as a whole. An accompanying schedule is presented to reconcile and explain the differences in fund balances and changes in fund balances as presented in these statements to the net assets and changes in
net assets presented in the government-wide financial statements.
All governmental funds are accounted for on a spending or "current financial resources"
measurement focus and the modified accrual basis of accounting. Accordingly, only current
assets and current liabilities are included on the Balance Sheets. The Statement of Revenues,
Expenditures and Changes in Fund Balances presents increases (revenues and other financial sources) and decreases (expenditures and other financing uses) in net current assets. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Accordingly, revenues are recorded when received in cash, except that revenues subject to accrual (generally 60 days after year-end) are recognized when due. Expenditures are recorded in the accounting period in which the related fund liability is incurred except for unmatured
interest on general long-term debt which is recognized when due.
-20-

SEPTEMBER 30,2011

B. Use of Restricted/Unrestricted Resources
When bothrestricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first, then unrestricted resources as they are needed. Furthermore, committed fund balances are reduced first, followed by assignedamounts and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of
those unrestricted fund balance classifications can be used.
C.
Cash, Cash Equivalents and Investments
All funds received by the District through September 30, 2008 were received from the sale of special assessment bonds and the related investment activity. During the year ended September 30, 2009, the District began to receive revenues from the collection of special assessments. The funds are being held and invested by Hancock Bank as trustee in accordance with a trust indenture agreement with the District. The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. The District's investments are stated at fair value, except for highly liquid market investments with maturities of one year of less at the time of purchase which are stated at amortized costs. Market value is used for those securities for which market quotations are readily available. For securities that lack readily
available market quotations, reasonable estimates of fair value are used based on the market value of similar investments. The District generally holds all investments until maturity or until market values equal or exceeds costs.
D. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
E.
Budgets and Budgetary Accounting
Annual budgets are adopted for all District funds in accordance with the laws of the State of Mississippi which require that budgets be on a modified-cash basis. Claims that have been incurred prior to the end of the year and that are paid within 30 days are recorded under the accrual basis. Prior year claims that are paid after 30 days revert to the cash basis. All revenue is accounted for under the accrual basis. The required budgetary basis is therefore not considered a generally accepted accounting principle. Capital project funds are budgeted per project and do not lapse at year end.
-21-

SEPTEMBER 30,2011
F.
Special Assessment Receivable
All receivables are reported net of estimated uncollectible amounts.

G. Capital Assets
Capital assets, which include land, infrastructure assets (roadway systems, storm drains, traffic signals, etc.) and construction in progress, are reported in government-wide financial statements at historical cost. Donated capital assets are recorded at estimated market value at the date of donation. Outlays for other capital assets and improvements are capitalized as projects are completed. Depreciation is recorded in the government-wide financial statements
on a straight-line basis over the useful life of the assets.
H. Restricted Assets
Proceeds of the District's bonds, as well as certain resources set aside for their repayment, are classified as restricted on the Balance Sheet or Statement of Net Assets because they are maintained in separate bank accounts and their use is limited by applicable debt covenants.
I. Long-Term Liabilities
In the government-wide financial statements, long-term debt and other long-term

obligations are reported as liabilities in the Statement of Net Assets. Initial-issue bond premiums and discounts, as well as issuance cost, are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the unamortized
portion of applicable premium or discount. Bond issuance costs, including underwriters' discounts, are reported as deferred bond issuance costs. Amortization of bond premiums or discounts and issuance costs are included in interest expense.
In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as another financing source. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received,
are reported as debt service expenditures.
-22-

SEPTEMBER 30,2011
NOTE 2 - CASH AND INVESTMENTS
The composition of the District's cash, cash equivalents and investments is as follows:
Interest
Rate
Amortized
Cost
Fair Value
Ratine
N/A
Deposits held in bank operating accounts

U.S. Government Money Market
Mutual Fund accounts
Varies
18,518
18,518
Varies
182,266
182,266
AA+
$1,825,000 Federal Home Loan Bank

bond due 09/11/2015
Total 4.75%
1.832.114
2.069.217
2.270.001
AA+
$ 2T032T898
All cash and investments are restricted for the funding of the District's capital project and to satisfy certain reserve and debt service requirements specified by the trust indenture.
Interest Rate Risk: Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Investments held for longer periods are subject to increased risk of adverse interest rate changes. The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The District's policy is to hold all investments to maturity
reducing any interest rate risk.
Credit Risk: All funds are invested by the trustee in accordance with the terms of the trust indenture agreement. The District does not have a formal investment policy that would further
limit its investment choices or that addresses credit risk.
Concentration of Credit Risk:

invested with one issuer.
indenture.
The District places no limit on the amount that may be
All funds are invested in accordance with the terms of the trust
The collateral for public entities' deposits in financial institutions is held in the name of the State Treasurer under a program established by the Mississippi State Legislature and is governed by Section 27-105-5, Miss. Code Ann. (1972). Under the program, the District's funds are protected through a collateral pool administered by the State Treasurer. Financial institutions holding deposits of public funds must pledge securities as collateral against those deposits. In the event of failure of a financial institution, securities pledged by that institution
-23-

SEPTEMBER 30,2011
NOTE 2 - CASH AND INVESTMENTS - CONTINUED:
would be liquidated by the State Treasurer to replace the public deposits not covered by the Federal Depository Insurance Corporation. Deposits at September 30, 2011 are summarized as
follows:
Reported
Amount
Bank
Balance
Cash - checking
18.518
18.518
Of the bank balance, $18,518 was covered by Federal Depository Insurance.
NOTE 3 - SPECIAL ASSESSMENTS
During the year ended September 30, 2009, the District began to receive special assessments collected by the Madison County tax collector's office from the benefitting property owners. The County is responsible for collecting and remitting the funds to the District upon receipt. The fiscal year 2011 special assessment levy due February 1, 2011 was for $2,387,713 with $1,125,446 being collected during the current fiscal year. Current year collections include $0, which relates to prior year assessments. Madison County charged the District $33,046 for collecting and remitting the special assessment to the District.
Receivables at September 30, 2011 for the District's governmental funds consist of the following: Capital Projects
Receivables:
Debt Service
Total
Delinquent special assessment Special assessment

Total
1,200,522
23.206.808
24.407.330
1,200,522
23.206.808
24.407.330
NOTE 4 - VALUATION OF SPECIAL ASSESSMENT RECEIVABLE
Due to $1,200,522 of the receivables not being collected as of September 30, 2011, management has estimated an allowance for the total special assessment receivable over the next nineteen years. Management has identified certain assessments which they feel should be
-24-

SEPTEMBER 30,2011
NOTE 4 - VALUATION OF SPECIAL ASSESSMENT RECEIVABLE - CONTINUED:
discounted from 50% - 100% for the 2012 - 2014 assessments. After making these discounts, management decided to discount the remaining receivables by 10% to account for any future
uncollectible receivables.
The total future payments due from the assessments is $46,707,047 before the 10% discount, which has a present value of $31,187,664. The present value of the receivable after the discounts detailed above is $24,407,330, resulting in an allowance for doubtful accounts in the amount of $6,780,334. Management will evaluate this allowance on an annual basis.
NOTE 5 - CAPITAL ASSETS
The District has reported all capital assets in the government-wide Statement of Net Assets. The District's principal asset, the roadway and associated improvements were dedicated to Madison County, MS in March, 2009. The assets retained by the District include the Flood Relief Channel and its right of way.
Beginning
Balance
Ending
Balance
October 1,
2010 Additions Deletions
September 30
2011
Governmental activities:
Nondepreciable assets:
Land
348,180
348,180
Depreciable assets: Land improvements flood relief channel
3.812.776
3.812.776
Total governmental activities
4,160,956
4,160,956
Less accumulated depreciation: Land improvements flood relief channel

(133.447)
(76.256)
(76.256)
(209.703)
3.951.253
Total capital assets, net
$ 4,027.509
Depreciation expense for governmental activities for the year ended September 30, 2011
was $76,256.
-25-
SEPTEMBER 30,2011
NOTE 6 -BONDS PAYABLE
The following is a summary of changes in long-term liabilities reported in the governmentwide financial statements for the year ended September 30, 2011:
Beginning
Balance
Ending
Balance
Due
October 1,
2010
Additions/
Proceeds
Reductions/
Pavments
September 30,
2011
Within One Year
Governmental activities:
Special assessment
bonds
$ 28,200,000
(405.652)
945,000
(33.667)
27,255,000
(371.985)
980,000
(32.740)
Unamortized discounts
_
Total long-term
liabilities
$ 27.794.348
-
911.333
26,883,015
947.260
Bonds payable at September 30, 2010 is comprised of the following issues:

Special Assessment Bonds
$27,770,000 Special Assessment Bonds due in annual installments of $770,000 to $1,860,000 payable on 05-01 of each year (principal payments begin 05-01-2008) through 05-01-2030; and interest at 3.05% to 4.625% payable on 05-01 and 11-01 of each year. The bonds were issued in August, 2005 for the purpose of constructing the Parkway East roadway.
$ 24,535,000
$3,000,000 Parkway East Public Improvement District
Special
Assessment Completion Bonds, Series 2008A due in annual installments
of $90,000 to $195,000 payable on 5-01 of each year (principal payments begin 05-01-2009) through 05-01-2030; and interest at 3.85% payable on 05-01 and 11-01 of each year. The bonds were issued in May, 2008 to provide additional funds to complete the Parkway East roadway and to fund the 2008 debt service payments on the original bonds, allowing the special assessments to be deferred for one year. The principal payment due on 5-01-2012 has not been made in full therefore as of that date the bonds are in default (See Note 11).
2.720.000
$ 27.255.000
-26-
SEPTEMBER 30,2011
NOTE 6 - BONDS PAYABLE - CONTINUED:
Debt service requirements at September 30,2011 were as follows:

Fiscal Year Ended
September 30
2012
2013
Principal
$ 980,000 1,015,000 1,050,000 1,085,000 1,125,000 6,390,000 7,900,000
7.710.000
Interest
Total
2014
2015
2016
2017-2021
2022-2026
2027-2030 Totals
1,172,782 1,137,692 1,100,434 1,060,949 1,022,590 4,360,342 2,845,579

896.443
13.596.811
2,152,782 2,152,692 2,150,434 2,145,949 2,147,590 10,750,342 10,745,579

8.606.443
40.851.811
$ 27T255T000
NOTE 7 - RISK MANAGEMENT
The District is exposed to various risks of loss related to torts; errors and omissions; and
natural disasters. The District carries commercial errors and omissions insurance in the amount
of $500,000 to cover any losses incurred by the Board. All activities of the District are performed by independent contractors, with the exception of the Board of Directors. The District is subject to the Mississippi Tort Claims act, which imposes a limit of liability of $500,000. There have been no claims resulting from these risks since the inception of the District.
NOTE 8 - OUTSTANDING COMMITMENTS
At September 30, 2011, the District had fulfilled all contracts entered into for the construction of the roadway. The District has an outstanding commitment to complete certain water and sewer improvements; however, at this time, no formal bid process or contracts have been signed on the project.
-27-

SEPTEMBER 30,2011
NOTE 9 - CLASSIFICATION OF NET ASSETS
In the government-wide financial statements, net assets are classified in the following categories: Invested in Capital Assets and related special assessments, net of related debt - This category groups all capital assets into one component of net assets. Accumulated depreciation and any outstanding balances of debt that are attributable to the acquisition, construction or improvement of these assets reduce this category. Restricted Net Assets - This category presents external restrictions imposed by the bond indenture agreement that requires for assets to be restricted for specific purposes. Certain assets are required to be used to fund the cost of the capital project and others are to fund reserves established by the bond indenture for current and future debt
service.
NOTE 10 - FUND BALANCE REPORTING
The District has adopted GASB 54 as part of its 2010-2011 fiscal year reporting. Implementation of GASB 54 is required for fiscal years beginning after June 15, 2010. The intention of the GASB is to provide a more structured classification of fund balance and to improve the usefulness of fund balance reporting to the users of the District's financial statements. The reporting standard establishes a hierarchy for fund balance classifications and the constraints imposed on the uses of those resources.
GASB 54 provides for two major types of fund balances, which are nonspendable and spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. Examples of this classification are prepaid items, inventories, and principal (corpus) of an endowment fund. The District does not have any fund balances that are deemed to be nonspendable.
In addition to the nonspendable fund balance, GASB 54 has provided a hierarchy of spendable fund balances, based on a hierarchy of spending constraints. Restricted: fund balances that are constrained by external parties, constitutional provisions, or enabling legislation.
-28-

SEPTEMBER 30,2011
NOTE 10 - FUND BALANCE REPORTING - CONTINUED:
Committed: fund balances that contain self-imposed constraints of the government to be used for a particular purpose. Assigned: fund balances that contain self-imposed constraints of the government to be used for a particular purpose. Unassigned: fund balance of the general fund that is not constrained for any
particular purpose.
NOTE 11 - GOING CONCERN
Subsequent to September 30, 2011, the District defaulted on the $3,000,000 Parkway East Public Improvement District Special Assessment Completion Bonds, Series 2008A which has created an uncertainty about the District's ability to continue as a going concern. The default is a result of the District's inability to fully fund the May 1, 2012 principal payment due on the 2008A bonds. The trustee has notified all bondholders of the default. Unless options being pursued by management result in additional funds becoming available, it is anticipated that the District will consume all available operating funds by August, 2012 which will significantly limit the District's ability to meet future maintenance and operational obligations.
NOTE 12 - SUBSEQUENT EVENTS
As detailed in Note 3, the District has not collected assessments primarily due from two large landowners. These properties did not sell at the tax sale held by the Madison County Tax Assessor's office in August 2009, 2010, or 2011, resulting in the District facing a cash shortage in meeting its debt service obligations beginning with the November 2009 payment. The District was able to meet the fiscal year 2010 and 2011 payments on the outstanding bonds by using funds which had been reserved to complete the final water and sewer construction along with excess funds from the Bond Reserve fund. Upon agreement with the Bond Trustee, an amendment was approved to the bond trust indenture to allow this use of construction funds. This agreement includes the right of the Bond Trustee to reimburse the construction funds upon collection of the past due assessments.
In accordance with the District's "Contribution Agreement" with Madison County, MS Board of Supervisors, the County is obligated to fund any shortfall on the $27,770,000 Special Assessment Bonds (2005 Issue) issued in August, 2005 resulting from delinquent special assessments. In October 2011, Madison County advanced to the District funds in the amount of
-29-

NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30,2011
NOTE 12 - SUBSEQUENT EVENTS - CONTINUED:
$374,021 to meet the November 1, 2011 bond payment. Madison County also advanced $464,376 to the District to pay the May 1, 2012 principal and interest payment on the 2005 Issue. The District is obligated to provide full reimbursement of all amount advanced under the Contribution Agreement to the County no later than two years from the date of the advance.
In addition, the District was unable to fully fund a principal payment due May 1, 2012 on the $3,000,000 Parkway East Public Improvement District Special Assessment Completion Bonds, Series 2008. This resulted in a default under the terms of the bond agreement. (See
Note 11).
The District had no additional subsequent events of a material nature requiring disclosure in the financial statements through July 20, 2012, the date the financial statements were approved by the District's management and thereby available to be issued.
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PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT

CERTIFIED PUBLIC ACCOUNTANTS

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS MANAGEMENT'S DISCUSSION AND ANALYSIS

Government-Wide Financial Statements:

Statement of Net Assets

Balance Sheet - Governmental Funds

to the Statement of Net Assets

Statement of Revenues, Expenditures, and Changes

Revenues, Expenditures, and Changes in Fund Balances

Notes to Financial Statements

HADDOX REID BURKES &

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors

Parkway East Public Improvement District Canton, Mississippi

fad/* IL.J &<JujILlL* Pu.cs

PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT

FOR THE YEAR ENDED SEPTEMBER 30,2011

USING THE ANNUAL FINANCIAL REPORT

PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED SEPTEMBER 30,2011

USING THE ANNUAL FINANCIAL REPORT - CONTINUED:

presented in the Statement of Net Assets and the Statement of Activities.

The analysis of the District's major funds begins on page 15.

PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT

FOR THE YEAR ENDED SEPTEMBER 30,2011

REPORTING THE DISTRICT AS A WHOLE - CONTINUED:

Reporting the District's Most Significant Funds - continued:

Revenues, Expenditures, and Changes in Fund Balances.

FINANCIAL ANALYSIS OF THE DISTRICT

PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT

FINANCIAL ANALYSIS OF THE DISTRICT - CONTINUED:

At September 30,2011 and 2010

Current and other assets Capital assets, net

Invested in capital assets and related special assessments, net of debt

Total net assets

PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT

FOR THE YEAR ENDED SEPTEMBER 30,2011

FINANCIAL ANALYSIS OF THE DISTRICT - CONTINUED:

Capital grants and contributions

Other Total revenues

General government Interest on long-term debt Total expenses

178,758 1.278.384 1.457.142

1,637,508 1.310.976 2.948.484

NET ASSETS, END OF YEAR

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets at September 30,2011 and 2010 (Net of Depreciation)

ler than buildings

Table 4 summarizes the total outstanding long-term obligations of the District.

PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT

FOR THE YEAR ENDED SEPTEMBER 30,2011

CAPITAL ASSETS AND DEBT ADMINISTRATION - CONTINUED:

Outstanding Debt - continued:

Outstanding Debt at September 30,2011 and 2010

RECEIVABLE FOR ASSESSMENTS

PARKWAY EAST PUBLIC IMPROVEMENT DISTRICT

RECEIVABLE FOR ASSESSMENTS - CONTINUED:

particular landowner is an LLC currently in bankruptcy reorganization and management expects

SUMMARY OF VALUATION OF FUTURE ASSESSMENTS

Total future estimated assessments

Net present value including a 10% reduction