OCIB 2010 Annual Report |
Previous | 1 of 4 | Next |
|
small (250x250 max)
medium (500x500 max)
Large
Extra Large
large ( > 500x500)
Full Resolution
|
This page
All
|
Report for the Year Ending June 30, 2010 Mobilizing Sources of Equity Capital for Oklahoma Businesses 2 April 26, 2011 Governor Mary Fallin Lt. Governor Todd Lamb President Pro Tempore Brian Bingman Speaker Kris Steele Members of the Legislature Director of Commerce Dave Lopez Economic Development Officials The Oklahoma Capital Investment Board (OCIB or Board) helps create and attract new sources of equity capital for Oklahoma entrepreneurs. Most of the Board’s work has been delivered through its venture investment (VIP) and capital access programs (CAP). The VIP supports investments in private, professionally managed venture capital firms that have a history of producing solid returns for investors and that have a sound strategy for finding investment opportunities in Oklahoma. The CAP is a credit enhancement tool available for banks and other lending institutions to help them stretch to make loans to Oklahoma businesses. OCIB operates these programs with the belief that there are benefits in maintaining a long-term focus and that patient, prudent investing will enable the Board to fulfill its mission to the greatest degree. Through the development of the Board’s third portfolio it has invested in eleven venture funds. OCIB has targeted funds that are focused on sectors of interest or expected growth within the state. Examples include funds focusing on bio-tech, healthcare, aerospace and manufacturing. During the year, OCIB supported funds have invested an additional $1.6 million in equity capital in Oklahoma companies. This brings the investment totals for OCIB’s venture program to approximately $135 million in equity capital to 30 Oklahoma companies. Through March of 2010, these companies had created 9,400 jobs and $204 million in payroll in Oklahoma. As of fiscal year-end, the Board’s total commitments remained at the prior year level of 19 total funds which represented $69.5 million in total commitments. Of this amount, $64 million has been advanced. Over the years, the Board’s Oklahoma Capital Access Program (OCAP) has supported approximately $47 million in loans to more than 1,500 Oklahoma businesses. In recent years, and in 2010, the large majority of these loans were to businesses in rural Oklahoma. Only about half these companies provided payroll and employment numbers but those reporting represented 1,380 new jobs and $40.8 million in payroll. The Board believes that as the state continues to spend significant resources on technology research and development in the form of grants, seed funding and other incentives, OCIB’s role of supporting Oklahoma’s venture capital industry remains extremely important. Many Oklahoman’s, although poised for success, need outside resources in the form of technical expertise and capital in order to compete in a global market place. The continued recruitment of active investors with significant resources will be needed to keep our best and brightest here in Oklahoma. Michael Mitchelson Devon L. Sauzek Chairperson President 3 ABOUT OCIB The Oklahoma Capital Investment Board (OCIB or Board) was established in 1992 and has been working since then to develop and support the state’s risk capital industry. More specifically, for the past 18 years, OCIB has worked to establish a venture capital industry capable of supporting Oklahoma’s best and brightest entrepreneurs. These efforts have focused on supporting the growth of local venture capital firms and on recruiting outside venture capital firms to the state. Prior to OCIB’s creation there were two venture capital firms headquartered in Oklahoma. Today this number has grown, depending upon your definition, to 15 or more Oklahoma-based venture firms and many additional out-of-state firms spending time in the state looking for great investment opportunities. Investing in local firms as well as the recruitment of outside firms has been a key part of OCIB’s investment strategy. The successful recruitment of firms not only brings outside capital to our state, but also needed investment expertise. Their sharing of knowledge and other resources is key to the development of Oklahoma’s venture capital industry and the Oklahoma companies it supports. In FY��10 OCIB staff met with approximately 40 funds that were either asking OCIB to consider making investments in their funds or that were looking for investment opportunities. In addition, Board supported funds continued to invest in Oklahoma companies. FY’10 was a good year for the OCAP in terms of loan enrollment. During the year OCIB’s OCAP enrolled approximately 30 new loans totaling in excess of $2.25 million. As in years past, a vast majority of these loans were to rural companies. The year was also successful in that less than $30,000 in claims were filed. The Board also began the initial work needed to prepare for the 2011 Technology Ventures Summit (TVS). This event was ultimately held in Tulsa with a day of training for entrepreneurs and angel investors and a second day for entrepreneurs to present their business plans to investors. Based upon the number of participants and their feedback, the event was a success. OCIB also continued to play an active role in supporting the efforts of others working to help Oklahoma entrepreneurs build and grow their companies. As in the past, the Board participated in and was a sponsor of the Oklahoma Venture Forum, continued to be supportive of the Oklahoma Venture of the Year Awards Banquet and participated in and sponsored the Governor’s Cup. OCIB’s third portfolio is fully committed and the Board has developed initial plans for its fourth portfolio. Implementation will depend on extension of the Board’s guarantee authority by the Oklahoma Legislature. 4 ORGANIZATION The Board is a state-beneficiary public trust. There are five Trustees, appointed by the Governor with the advice and consent of the Senate. Trustees are selected based upon their outstanding knowledge and leadership, and for their experience in managing venture investments. The Board at fiscal year end 2010 included: BOARD MEMBER FY'10 OFFICE Bill Andrew Financial Advisor Edward Jones Enid, OK Gerald G. Austin Executive Vice President, retired Fleming Companies, Inc. Oklahoma City, OK Vice Chairperson John A. Brock Owner Rockford Exploration Tulsa, OK Secretary/Treasurer Jean McGill President Noble Investments, Inc. Tulsa, OK Michael Mitchelson Attorney Oklahoma City, OK Chairperson The Board retains Institutional Equity Associates, LLC to provide investment management and administrative services. The principals of this firm are Robert G. Heard and Devon L. Sauzek. Mr. Sauzek serves as OCIB president and Diana K. Mooney as administrative officer. General Counsel for the Board is Robert A. Curry of the firm Conner & Winters, Tulsa. The CPA firm of Finley & Cook, Shawnee, performed the annual audit. CONTACTS For further information contact: OKLAHOMA CAPITAL INVESTMENT BOARD Devon Sauzek or Diana Mooney 405/848-9456 AUDIT 5 The annual audit was performed for OCIB by Finley & Cook, Shawnee, and is on file with the State Auditor and Inspector. The audited financial statements are attached. 6 Oklahoma Capital Investment Board Financial Statements June 30, 2010 and 2009 (With Independent Auditors’ Report Thereon) OKLAHOMA CAPITAL INVESTMENT BOARD FINANCIAL STATEMENTS Table of Contents Page Independent Auditors’ Report ........................................................................................................... 1 Management’s Discussion and Analysis ........................................................................................... I-1 Financial Statements: Statements of Net Assets .............................................................................................................. 3 Statements of Changes in Net Assets ........................................................................................... 5 Statements of Cash Flows ............................................................................................................. 7 Notes to Financial Statements ....................................................................................................... 8 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ......................................................................... 16 - 1 - 1421 East 45th Street • Shawnee, OK 74804 P: 405.878.7300 • www.finley-cook.com • F: 405.395.3300 INDEPENDENT AUDITORS’ REPORT Board of Trustees Oklahoma Capital Investment Board We have audited the accompanying statements of net assets of the Oklahoma Capital Investment Board (OCIB), a part of the financial reporting entity of the State of Oklahoma, as of June 30, 2010 and 2009, and the related statements of changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of OCIB’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain of the various investment interests in which OCIB had an equity interest as of June 30, 2010 and 2009. Investment interests represented approximately 22% and 20% of OCIB’s total assets as of June 30, 2010 and 2009, respectively. The financial statements of certain investment interests were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for certain investment interests, is based on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of OCIB as of June 30, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. The Management’s Discussion and Analysis (MD&A) on pages I-1 to I-4 is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit this information and express no opinion on it. (Continued) - 2 - INDEPENDENT AUDITORS’ REPORT, CONTINUED In accordance with Government Auditing Standards, we have also issued our report dated September 2, 2010, on our consideration of OCIB’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Shawnee, Oklahoma September 2, 2010 MANAGEMENT’S DISCUSSION AND ANALYSIS I–1 As management of the Oklahoma Capital Investment Board (OCIB), our discussion and analysis of its financial performance provides an overview of OCIB’s activities for the fiscal years ended June 30, 2010 and 2009. Please read it in conjunction with OCIB’s financial statements which begin on page 3. The financial statements of OCIB include the operations of the Oklahoma Capital Formation Company, LLC (OCFC). FINANCIAL HIGHLIGHTS In FY-2010, OCIB made a $1,586,000 contribution to its venture investment fund commitments; In FY-2010, OCIB received $37,000 in distributions from its Venture Investment Program (proceeds were applied to the OCFC line of credit); In FY-2010, the Oklahoma Capital Access Program (OCAP) enrolled 28 new loans totaling $2.3 million; and In FY-2009, OCIB programs resulted in more than $10.9 million dollars of funding for Oklahoma companies. OVERVIEW OF THE FINANCIAL STATEMENTS This annual financial report consists of two parts: Management’s Discussion and Analysis (this section) and the basic financial statements. OCIB is a public trust of the State of Oklahoma and follows enterprise fund reporting; accordingly, the financial statements are presented using the economic measurement focus and the accrual basis of accounting. Enterprise fund statements offer short-term and long-term financial information about the activities and operations of OCIB. These statements are presented in a manner similar to those of a private business. FINANCIAL ANALYSIS OF OCIB Net Assets The following table summarizes the net assets at June 30: 2010 2009 Current assets $ 20,106,328 20,112,028 Noncurrent assets 82,866,379 90,315,844 Total assets 102,972,707 110,427,872 Liabilities 35,975,734 40,027,509 Net assets $ 66,996,973 70,400,363 MANAGEMENT’S DISCUSSION AND ANALYSIS, CONTINUED I–2 FINANCIAL ANALYSIS OF OCIB, CONTINUED Net Assets, Continued Assets at June 30, 2010 and 2009, principally consisted of $80,485,000 and $87,300,000 of tax credits, respectively, of which $20,000,000 was current and $60,485,000 and $67,300,000 was noncurrent for 2010 and 2009, respectively. Assets also included investment interests of $22,381,379 and $23,015,844 as of June 30, 2010 and 2009, respectively. Operating Activities The operations of OCIB, when combined with OCFC, are dependent upon the results of the investments made. During 2010 and 2009, no new investment interests were established. A summary of operating results for 2010 and 2009 is as follows: 2010 2009 Operating expenses: Management fees $ ( 538,542) ( 554,142) Accounting, legal, and consultants ( 36,709) ( 28,125) Other ( 4,048) ( 11,021) Total operating expenses ( 579,299) ( 593,288) Other expenses: Interest expense ( 640,140) ( 1,011,744) Other ( 1,027) ( 1,358) Total other expenses ( 641,167) ( 1,013,102) Net financial losses from investment interests— equity basis ( 2,182,924) ( 5,259,027) Change in net assets $ ( 3,403,390) ( 6,865,417) MANAGEMENT’S DISCUSSION AND ANALYSIS, CONTINUED I–3 FINANCIAL ANALYSIS OF OCIB, CONTINUED Operating Activities, Continued Cash flow from investment interests for 2010 and 2009 was as follows: 2010 2009 Cash payments for investment interests $ ( 1,585,553) ( 3,838,625) Cash distributions from investment interests 37,094 1,110,764 Net cash flow used in investment interests $ ( 1,548,459) ( 2,727,861) A significant part of the overall operations of OCIB is its transferable tax credits. As of June 30, 2010 and 2009, OCIB had $80,485,000 and $87,300,000 of transferable tax credits, respectively, recorded as assets in its financial statements; $20,000,000 of the tax credits was recognized as current and the remainder as noncurrent. During 2010, $6,815,000 additional tax credits were sold. During 2009, no additional tax credits were sold. OCIB has agreements with four corporations to purchase up to an aggregate of $8,000,000 per year of tax credits, in conjunction with a legitimate call on an OCIB guarantee. The agreements to purchase the tax credits have been assigned as collateral for the $33,257,878 term note and the $15,812,452 line of credit which OCIB has guaranteed for OCFC. As more fully explained in the notes to the financial statements, OCIB has initiated a program entitled the Oklahoma Capital Access Program (OCAP). Under OCAP, Oklahoma depository institutions pay a fee or premium to OCIB to enroll qualified loans in OCAP. OCIB, in return for the premium paid, establishes a reserve account equal to the amount of the fee plus an obligation by OCIB for a predetermined portion of the loan. Cash, up to the amount of the reserve account, may then be paid to the institution if the institution suffers a loss on a loan in the OCAP portfolio and submits a claim to OCIB. OCIB is not guaranteeing the entire loan portfolio, but only an amount in the reserve account established. In no event is OCIB’s exposure more than the balance in the reserve account as defined in the OCAP agreement. As of June 30, 2010 and 2009, the maximum amount of exposure for OCIB was approximately $1,239,000 and $1,214,000, respectively. Total loans covered by the program were approximately $33,091,000 and $32,426,000 at June 30, 2010 and 2009, respectively. As of June 30, 2010 and 2009, OCIB’s commitment for unfunded investment interests was approximately $7,753,000 and $9,123,000, respectively. MANAGEMENT’S DISCUSSION AND ANALYSIS, CONTINUED I–4 FINANCIAL ANALYSIS OF OCIB, CONTINUED Borrowings To fund investment interests, OCIB has financing through a $15,812,452 line of credit and a $33,257,878 term note. Activity of the debt for 2010 and 2009 was as follows: Beginning Balance Refinancing Advances Repayments Ending Balance Line of credit $ 39,872,032 ( 33,257,878) 2,807,972 ( 6,852,095) 2,570,031 Term note - 33,257,878 - - 33,257,878 $ 39,872,032 - 2,807,972 ( 6,852,095) 35,827,909 2010 Beginning Balance Advances Payments Ending Balance Line of credit $ 35,405,628 5,618,246 ( 1,151,842) 39,872,032 2009 As further discussed in the notes to the financial statements, the debt is secured by the specific assignment of agreements with four corporations to purchase tax credits from OCIB. The line of credit is presently due November 30, 2010, and the term note is due June 30, 2011. REQUEST FOR INFORMATION This financial report is designed to provide a general overview of OCIB’s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Oklahoma Capital Investment Board, 301 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma 73116. See Independent Auditors’ Report. See accompanying notes to financial statements. - 3 - June 30, 2010 2009 Assets Current assets: Cash $ 1 06,328 1 12,028 Transferable tax credits, current 2 0,000,000 2 0,000,000 Total current assets 2 0,106,328 2 0,112,028 Investment interests (Note 4): Richland Ventures, L.P. - 7 ,350 Intersouth Partners III, L.P. 2 46,780 3 88,702 Davis, Tuttle Venture Partners, L.P. 1 ,078,919 1 ,113,798 Richland Ventures II, L.P. 8 0,107 7 0,248 Rocky Mountain Mezzanine Fund II, L.P. 1 52,401 2 39,640 Dolphin Communications Fund II, L.P. 2 ,254,747 2 ,469,090 Tullis-Dickerson Capital Focus III, L.P. 3 ,521,121 4 ,290,356 Emergent Technologies Oklahoma, L.P. 1 66,496 8 88,771 SSM Venture Partners III, L.P. 4 ,896,209 5 ,030,471 Oklahoma Equity Partners, L.L.C. 2 ,013,893 1 ,848,420 Blue Sage Capital, L.P. 2 ,414,215 8 69,663 Prolog Capital II, L.P. 2 ,530,557 2 ,144,422 Mesa Oklahoma Growth Fund I, L.P. 1 ,478,715 2 ,346,567 Oklahoma Life Sciences Fund II, L.L.C. 3 56,765 3 99,893 Oklahoma Seed Capital Fund, L.L.C. 7 12,451 5 93,182 Acorn Growth Capital Fund III, L.L.C. 4 78,003 3 15,271 Total investment interests 2 2,381,379 2 3,015,844 Transferable tax credits, less current portion 6 0,485,000 6 7,300,000 Total assets $ 1 02,972,707 1 10,427,872 (Continued) OKLAHOMA CAPITAL INVESTMENT BOARD STATEMENTS OF NET ASSETS See Independent Auditors’ Report. See accompanying notes to financial statements. - 4 - June 30, 2010 2009 Liabilities and Net Assets Current liabilities: Accounts payable $ 8 42 1 ,010 Interest payable 9 8,447 1 00,734 OCAP premiums collected in excess of claims paid 4 8,536 5 3,733 Long-term debt, current portion 3 5,827,909 - Total current liabilities 3 5,975,734 1 55,477 Long-term debt, less current portion - 3 9,872,032 Total liabilities 3 5,975,734 4 0,027,509 Unrestricted net assets 6 6,996,973 7 0,400,363 Total liabilities and net assets $ 1 02,972,707 1 10,427,872 OKLAHOMA CAPITAL INVESTMENT BOARD STATEMENTS OF NET ASSETS, CONTINUED See Independent Auditors’ Report. See accompanying notes to financial statements. - 5 - Years Ended June 30, 2010 2009 Operating expenses: Management fees $ (538,542) (554,142) Accounting, legal, and consultants (36,709) (28,125) Program evaluation (3,090) (9,989) Other (569) (1,032) Venture investing (389) - Total operating expenses (579,299) (593,288) Other expenses: Interest expense (640,140) (1,011,744) Other (1,027) (1,358) Total other expenses (641,167) (1,013,102) Operating loss before net financial losses from investment interests—equity basis (1,220,466) (1,606,390) (Continued) OKLAHOMA CAPITAL INVESTMENT BOARD STATEMENTS OF CHANGES IN NET ASSETS See Independent Auditors’ Report. See accompanying notes to financial statements. - 6 - Years Ended June 30, 2010 2009 Financial (losses) earnings from investment interests— equity basis (Note 4): Richland Ventures, L.P. (1,061) (163) Intersouth Partners III, L.P. (119,025) 1 ,146 Davis, Tuttle Venture Partners, L.P. (34,880) (179,792) Richland Ventures II, L.P. 9 ,859 2 ,991 Pacesetter Growth Fund, L.P. - (412,914) Rocky Mountain Mezzanine Fund II, L.P. (87,239) (152,561) Dolphin Communications Fund II, L.P. (429,762) (1,286,432) Tullis-Dickerson Capital Focus III, L.P. (769,235) (398,226) Emergent Technologies Oklahoma, L.P. (722,275) (6,626) SSM Venture Partners III, L.P. (134,262) (137,470) Oklahoma Equity Partners, L.L.C. (219,275) (1,724,325) Blue Sage Capital, L.P. 1 ,484,637 (197,829) Prolog Capital II, L.P. (126,365) (611,660) Mesa Oklahoma Growth Fund I, L.P. (1,009,944) (75,206) Oklahoma Life Sciences Fund II, L.L.C. (43,128) (90,192) Oklahoma Seed Capital Fund, L.L.C. 1 9,269 2 1,356 Acorn Growth Capital Fund III, L.L.C. (238) (11,124) Total net financial losses from investment interests— equity basis (2,182,924) (5,259,027) Net decrease in net assets (3,403,390) (6,865,417) Net assets, beginning of year 7 0,400,363 7 7,265,780 Net assets, end of year $ 6 6,996,973 7 0,400,363 OKLAHOMA CAPITAL INVESTMENT BOARD STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED See Independent Auditors’ Report. See accompanying notes to financial statements. - 7 - Increase (Decrease) in Cash and Cash Equivalents Years Ended June 30, 2010 2009 Cash flows from operating activities: Cash paid to suppliers $ (1,984) (12,388) Management fees paid (538,542) (554,142) General and administrative expenses paid (39,968) (32,524) Cash paid for interest expense (642,427) (1,136,712) Cash received for tax credits 6 ,815,000 - Net cash provided by (used in) operating activities 5 ,592,079 (1,735,766) Cash flows from noncapital and related financing activities: Proceeds from line of credit 2 ,807,972 5 ,618,246 Payments on line of credit and term note (6,852,095) (1,151,842) Payments received for OCAP 2 2,124 3 3,930 Claims paid for OCAP (27,321) (24,022) Net cash (used in) provided by noncapital and related financing activities (4,049,320) 4 ,476,312 Cash flows from investing activities: Cash payments for investment interests (1,585,553) (3,838,625) Cash distributions from investment interests 3 7,094 1 ,110,764 Net cash used in investing activities (1,548,459) (2,727,861) Net (decrease) increase in cash and cash equivalents (5,700) 1 2,685 Cash and cash equivalents at beginning of year 1 12,028 9 9,343 Cash and cash equivalents at end of year $ 1 06,328 1 12,028 Reconciliation of operating loss to net cash provided by (used in) operating activities: Operating loss $ (1,220,466) (1,606,390) Adjustments to reconcile operating loss to net cash provided by (used in) operating activities: Decrease in tax credits 6 ,815,000 - Decrease in interest payable (2,287) (124,968) Decrease in accounts payable (168) (4,408) Net cash provided by (used in) operating activities $ 5 ,592,079 (1,735,766) OKLAHOMA CAPITAL INVESTMENT BOARD STATEMENTS OF CASH FLOWS OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009 See Independent Auditors’ Report. - 8 - (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Oklahoma Capital Investment Board (OCIB) is a public trust of the State of Oklahoma pursuant to the Oklahoma Public Trust Act. OCIB was created to serve as the State’s tool to mobilize sources of equity and near equity capital (as defined in the Trust Indenture) for Oklahoma businesses. The program is designed to catalyze investment in Oklahoma projects by experienced investment professionals. Specific initiatives utilized by OCIB include the Oklahoma Capital Access Program (OCAP) (Note 6) and the Venture Investment Program (described in Note 2). OCIB is a component unit of the State of Oklahoma and is included in the State’s annual financial report. Reporting Entity The financial statements also include the operations of the Oklahoma Capital Formation Company, LLC (OCFC), formerly the Oklahoma Capital Formation Corporation. During 2007, the name and corporate structure of the Oklahoma Capital Formation Corporation was changed to the Oklahoma Capital Formation Company, LLC, an Oklahoma limited liability company; previously OCFC was a corporation. During the year ended 2006, OCIB purchased 100% of the ownership of OCFC. OCFC invests funds in qualified risk capital pools approved by OCIB. Financial Statement Presentation and Basis of Accounting OCIB’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The Governmental Accounting Standards Board (GASB) is responsible for establishing the accounting principles generally accepted in the United States for state and local governments through its pronouncements (Statements and Interpretations). Governments and their components are also required to follow the pronouncements of the Financial Accounting Standards Board (FASB) issued through November 30, 1989, (when applicable) that do not conflict with or contradict GASB pronouncements. In accordance with GASB Statement No. 20, OCIB’s financial statements are prepared using applicable GASB statements and not FASB pronouncements issued after November 30, 1989. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 9 - (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Financial Statement Presentation and Basis of Accounting, Continued The accompanying financial statements are presented on the enterprise fund basis using the economic measurement focus and the accrual basis of accounting, whereby revenues are recorded in the period earned and expenses are recorded in the period incurred. All transactions between OCIB and OCFC have been eliminated in the preparation of these financial statements. Cash Balances All cash balances are maintained in financial institutions insured by the Federal Deposit Insurance Corporation up to $250,000. As of June 30, 2010, there were no balances over the $250,000 insured amount. Equipment Capitalized equipment is depreciated using the straight-line method of depreciation over its estimated useful life. OCIB had fully depreciated all of its fixed assets as of June 30, 2010 and 2009. Income Taxes As a public trust, OCIB is exempt from federal and state income taxes. Advertising Costs All costs associated with advertising are expensed as incurred. Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents consist of the caption on the statements of net assets described as “Cash.” Interest paid totaled $642,427 and $1,136,712 for 2010 and 2009, respectively. Investment Interests Investment interests represent investments made by OCFC in limited partnerships, limited liability companies, and other types of entities. Investment interests are recorded using the equity method of accounting based upon the most recent audited financial statements and/or the tax returns for the investment interests, or other reliable financial information. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 10 - (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Use of Estimates in Preparing Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) INVESTMENT OPERATIONS OCIB, in order to mobilize investment in business ventures, guarantees the funds borrowed by OCFC for such investment. Prior to 2006, OCFC was considered a third-party corporation which contracted with OCIB to invest OCIB-guaranteed funds in qualified risk capital pools. As noted previously, OCFC was purchased by OCIB during 2006. All intercompany activity between OCIB and OCFC has been eliminated in preparing these financial statements. (3) TRANSFERABLE TAX CREDITS As a trust, part of the estate of OCIB was $100,000,000 of State of Oklahoma tax credits. The credits can be transferred by OCIB at its sole discretion. The credits and OCIB’s right to transfer the credits expire if not utilized by July 1, 2015. As of June 30, 2010, $19,515,000 of the credits had been sold for $19,515,000 ($6,815,000, $4,700,000, and $8,000,000 during the years ended June 30 2010, 2008, and 2007, respectively), and the cash was used to reduce debt. Four corporations have signed agreements to purchase up to an aggregate of $8,000,000 per year of the tax credits, in conjunction with a legitimate call on an OCIB guarantee. Up to $20,000,000 of the tax credits can be sold in a year. The $80,485,000 and $87,300,000 of transferable tax credits at June 30, 2010 and 2009, respectively, are included in OCIB’s net assets. Approximately $3,000,000 of this amount has been set aside by the Board of Trustees of OCIB for use by OCAP. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 11 - (4) INVESTMENT INTERESTS A summary of the changes in investment interests as of June 30 is as follows: Activity for 2010 Balance at June 30, 2009 Advances Made During FY-2010 Losses Recognized in FY-2010 Capital Distributions Received During FY-2010 Balance at June 30, 2010 Total $ 23,015,844 1,585,553 ( 2,182,924) ( 37,094) 22,381,379 Subsequent to June 30, 2010, OCFC received distributions of approximately $710,000 from Blue Sage Capital, L.P., $225,000 from SSM Venture Partners III, L.P., and $37,000 from Richland Ventures II, L.P. Activity for 2009 Balance at June 30, 2008 Advances Made During FY-2009 Losses Recognized in FY-2009 Capital Distributions Received During FY-2009 Balance at June 30, 2009 Total $ 25,547,010 3,838,625 ( 5,259,027) ( 1,110,764) 23,015,844 Other Information—Unaudited: The investment interests of the various entities are reflected using the equity method of accounting. Some of the entities reflect the investments which they own at cost and not fair value. The general partners have estimated values for the investments in the absence of readily ascertainable market values. At June 30, 2010 and 2009, had such estimated fair values been utilized, the investment interests would have increased approximately $2,610,000 and $4,062,000, respectively. This estimate is based solely on information provided by the general partners and is unaudited. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 12 - (4) INVESTMENT INTERESTS, CONTINUED OCFC had committed to making the following investment interests as of June 30, 2010: Entity Amount of Commitment Commitment Funded as of June 30, 2010 Unfunded Commitment Richland Ventures, L.P. $ 4,000,000 3,680,000 320,000 (1) Intersouth Partners III, L.P. 4,000,000 4,000,000 - Davis, Tuttle Venture Partners, L.P. 5,000,000 5,000,000 - Richland Ventures II, L.P. 1,000,000 974,040 25,960 (1) Rocky Mountain Mezzanine Fund II, L.P. 3,000,000 3,000,000 - Dolphin Communications Fund II, L.P. 6,000,000 6,000,000 - (2) Tullis-Dickerson Capital Focus III, L.P. 7,500,000 7,500,000 - Emergent Technologies Oklahoma, L.P. 1,380,435 1,380,434 1 SSM Venture Partners III, L.P. 7,500,000 6,225,000 1,275,000 Oklahoma Equity Partners, L.L.C. 7,500,000 5,303,476 2,196,524 Blue Sage Capital, L.P. 2,000,000 1,527,055 472,945 Prolog Capital II, L.P. 5,000,000 3,892,467 1,107,533 Mesa Oklahoma Growth Fund I, L.P. 3,000,000 2,745,000 255,000 Oklahoma Life Sciences Fund II, L.L.C. 1,750,000 490,000 1,260,000 Oklahoma Seed Capital Fund, L.L.C. 1,000,000 670,000 330,000 Acorn Growth Capital Fund III, L.L.C. 1,000,000 489,637 510,363 $ 60,630,435 52,877,109 7,753,326 ________ (1) The unfunded commitment is not expected to be used. (2) While the present commitment is $6,000,000, Dolphin Communications Fund II, L.P. (“Dolphin”) has the right to recall amounts that have been distributed to OCIB. Cumulative distributions to OCIB total $1,761,236 of which $1,680,932 has been recalled by Dolphin and paid by OCIB. At June 30, 2010, there was $19,092 of distributions which could be recalled by Dolphin. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 13 - (5) MANAGEMENT SERVICES AGREEMENT OCIB entered into a management services agreement with Institutional Equity Associates, LLC (“EDGE”) effective January 1, 2001. Per the agreement, EDGE is to perform all of the management functions for OCIB, as well as supply the personnel. As such, OCIB had no employees effective February 1, 2001. The agreement is to last for a period of 15 years. An annual fee of $443,500 is to be paid to EDGE, as well as a variable annual fee equal to 0.35% of the amount of each commitment by OCFC to a new venture capital fund. The variable fee is phased out over a period of time as specified in the agreement. During 2010 and 2009, total fees paid to EDGE in accordance with the management agreement were approximately $539,000 and $554,000, respectively. EDGE also performs management oversight for Oklahoma Equity Partners, L.L.C., a partnership in which OCFC has invested. No additional compensation has been paid to EDGE for this service. (6) OKLAHOMA CAPITAL ACCESS PROGRAM (OCAP) As part of its overall purpose, OCIB initiated OCAP during fiscal year 1992. Under OCAP, Oklahoma depository institutions pay a fee or premium to OCIB to enroll qualified loans in OCAP. OCIB, in return for the premium paid, establishes a reserve account equal to the amount of fee paid plus an obligation by OCIB for a predetermined portion of the loan. Cash, up to the amount of the reserve account, may then be paid to an institution if an institution suffers a loss on a loan in the OCAP portfolio and submits a claim to OCIB. OCIB is not guaranteeing the entire loan portfolio but only an amount equal to the reserve account. In no event is OCIB’s exposure more than the balance in the reserve account as defined in the OCAP agreement. Fees paid to OCIB are not recognized as income, but reflected on the statements of net assets as “OCAP premiums collected in excess of claims paid,” net of any claims paid and recoveries received. As of June 30, a summary of OCAP is as follows: Year Cumulative Fees Received Cumulative OCIB Allocation Cumulative Claims Paid, Net Total Reserve Account Total Loans by Institutions Loans Covered by OCAP 2010 $ 1,258,638 1,770,647 1,789,946 1,239,339 46,216,719 33,090,776 2009 $ 1,236,513 1,740,297 1,762,625 1,214,185 43,939,025 32,425,956 OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 14 - (6) OKLAHOMA CAPITAL ACCESS PROGRAM (OCAP), CONTINUED During 2010 and 2009, OCIB paid $27,321 and $24,022, respectively, of claims to institutions in the program. These claims were paid in cash from OCIB resources. During 2010 claims paid exceeded fees collected by $5,197, and during 2009 fees collected exceeded claims paid by $9,908. OCIB has the right to sell tax credits in the future, subject to annual and program caps, to reimburse itself for the cash paid out. Under the program, OCIB’s total loss exposure at June 30, 2010 and 2009, was $1,239,339 and $1,214,185, respectively, which would come from unrestricted net assets. (7) LONG-TERM DEBT Long-term debt at June 30, 2009, consisted of a line of credit of $55,000,000. During August 2009, the line of credit was separated into a non-amortizing term loan with a balance of $24,187,548 held at the Bank of Oklahoma and a balance of $9,070,330 held at Arvest Bank, along with a line of credit also held at the Bank of Oklahoma. The term loan and the line of credit have maturity dates of June 30, 2011, and November 30, 2010, respectively. At June 30, the balance due was as follows: Commitment Balance Outstanding Maturity Line of credit $ 1 5,812,452 2 ,570,031 Nov. 30, 2010 Term note 3 3,257,878 3 3,257,878 June 30, 2011 $ 4 9,070,330 3 5,827,909 2010 Commitment Balance Outstanding Maturity Line of credit $ 5 5,000,000 3 9,872,032 June 30, 2011 2009 The line of credit bears interest at a rate of 4% at June 30, 2010, as defined in the debt agreement. The term loan bears interest at a fluctuating rate as defined in the debt agreement. The rate at June 30, 2010 and 2009, was approximately 1.5% and 1.47%, respectively. Interest is paid quarterly. The debt is interest-only and requires no principal payments until maturity. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 15 - (7) LONG-TERM DEBT, CONTINUED The debt instruments are secured by the specific assignment of agreements to purchase tax credits. As of June 30, 2010, OCIB had $80,485,000 of State of Oklahoma tax credits and agreements with four corporations to purchase up to an aggregate of $8,000,000 per year of tax credits, in conjunction with a legitimate call on an OCIB guarantee. Changes in the debt instruments during 2010 and 2009 were as follows: Beginning Balance Refinancing Advances Repayments Ending Balance Line of credit $ 39,872,032 ( 33,257,878) 2,807,972 ( 6,852,095) 2,570,031 Term note - 33,257,878 - - 33,257,878 $ 39,872,032 - 2,807,972 ( 6,852,095) 35,827,909 2010 Beginning Balance Advances Payments Ending Balance Line of credit $ 35,405,628 5,618,246 ( 1,151,842) 39,872,032 2009 (8) COMMITMENTS AND CONTINGENCIES Legal From time to time, OCIB is involved in certain legal proceedings arising in the normal course of business. In the opinion of management and counsel, the ultimate disposition of such proceedings will not have a material effect on OCIB’s financial statements. REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Trustees Oklahoma Capital Investment Board We have audited the financial statements of the Oklahoma Capital Investment Board (OCIB), which is a component unit of the State of Oklahoma, as of and for the year ended June 30, 2010, and have issued our report thereon dated September 2, 2010. Our report includes a reference to other auditors who performed audits on certain assets of OCIB. Our report also contains an explanatory paragraph disclaiming an opinion on Management’s Discussion and Analysis, presented as required supplementary information. We conducted our audit in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered OCIB’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of OCIB’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of OCIB’s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. (Continued) REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS, CONTINUED Compliance and Other Matters As part of obtaining reasonable assurance about whether OCIB’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the Board of Trustees, management of OCIB, and the Office of the Oklahoma State Auditor and Inspector and is not intended to be and should not be used by anyone other than these specified parties. Shawnee, Oklahoma September 2, 2010 This publication was issued by the Oklahoma Capital Investment Board (OCIB). Two hundred (200) copies were printed at a cost of $953.61. Copies have been deposited with the State Publications Clearinghouse of the Oklahoma Department of Libraries. 5/2011
Object Description
Description
Title | OCIB 2010 Annual Report |
OkDocs Class# | C625.3 A615 2009/10 |
Digital Format | PDF, Adobe Reader required |
ODL electronic copy | Downloaded from agency website: http://www.ocib.org/ocib/web.nsf/OCIB2010AnnualReport.pdf |
Rights and Permissions | This Oklahoma state government publication is provided for educational purposes under U.S. copyright law. Other usage requires permission of copyright holders. |
Language | English |
Full text | Report for the Year Ending June 30, 2010 Mobilizing Sources of Equity Capital for Oklahoma Businesses 2 April 26, 2011 Governor Mary Fallin Lt. Governor Todd Lamb President Pro Tempore Brian Bingman Speaker Kris Steele Members of the Legislature Director of Commerce Dave Lopez Economic Development Officials The Oklahoma Capital Investment Board (OCIB or Board) helps create and attract new sources of equity capital for Oklahoma entrepreneurs. Most of the Board’s work has been delivered through its venture investment (VIP) and capital access programs (CAP). The VIP supports investments in private, professionally managed venture capital firms that have a history of producing solid returns for investors and that have a sound strategy for finding investment opportunities in Oklahoma. The CAP is a credit enhancement tool available for banks and other lending institutions to help them stretch to make loans to Oklahoma businesses. OCIB operates these programs with the belief that there are benefits in maintaining a long-term focus and that patient, prudent investing will enable the Board to fulfill its mission to the greatest degree. Through the development of the Board’s third portfolio it has invested in eleven venture funds. OCIB has targeted funds that are focused on sectors of interest or expected growth within the state. Examples include funds focusing on bio-tech, healthcare, aerospace and manufacturing. During the year, OCIB supported funds have invested an additional $1.6 million in equity capital in Oklahoma companies. This brings the investment totals for OCIB’s venture program to approximately $135 million in equity capital to 30 Oklahoma companies. Through March of 2010, these companies had created 9,400 jobs and $204 million in payroll in Oklahoma. As of fiscal year-end, the Board’s total commitments remained at the prior year level of 19 total funds which represented $69.5 million in total commitments. Of this amount, $64 million has been advanced. Over the years, the Board’s Oklahoma Capital Access Program (OCAP) has supported approximately $47 million in loans to more than 1,500 Oklahoma businesses. In recent years, and in 2010, the large majority of these loans were to businesses in rural Oklahoma. Only about half these companies provided payroll and employment numbers but those reporting represented 1,380 new jobs and $40.8 million in payroll. The Board believes that as the state continues to spend significant resources on technology research and development in the form of grants, seed funding and other incentives, OCIB’s role of supporting Oklahoma’s venture capital industry remains extremely important. Many Oklahoman’s, although poised for success, need outside resources in the form of technical expertise and capital in order to compete in a global market place. The continued recruitment of active investors with significant resources will be needed to keep our best and brightest here in Oklahoma. Michael Mitchelson Devon L. Sauzek Chairperson President 3 ABOUT OCIB The Oklahoma Capital Investment Board (OCIB or Board) was established in 1992 and has been working since then to develop and support the state’s risk capital industry. More specifically, for the past 18 years, OCIB has worked to establish a venture capital industry capable of supporting Oklahoma’s best and brightest entrepreneurs. These efforts have focused on supporting the growth of local venture capital firms and on recruiting outside venture capital firms to the state. Prior to OCIB’s creation there were two venture capital firms headquartered in Oklahoma. Today this number has grown, depending upon your definition, to 15 or more Oklahoma-based venture firms and many additional out-of-state firms spending time in the state looking for great investment opportunities. Investing in local firms as well as the recruitment of outside firms has been a key part of OCIB’s investment strategy. The successful recruitment of firms not only brings outside capital to our state, but also needed investment expertise. Their sharing of knowledge and other resources is key to the development of Oklahoma’s venture capital industry and the Oklahoma companies it supports. In FY��10 OCIB staff met with approximately 40 funds that were either asking OCIB to consider making investments in their funds or that were looking for investment opportunities. In addition, Board supported funds continued to invest in Oklahoma companies. FY’10 was a good year for the OCAP in terms of loan enrollment. During the year OCIB’s OCAP enrolled approximately 30 new loans totaling in excess of $2.25 million. As in years past, a vast majority of these loans were to rural companies. The year was also successful in that less than $30,000 in claims were filed. The Board also began the initial work needed to prepare for the 2011 Technology Ventures Summit (TVS). This event was ultimately held in Tulsa with a day of training for entrepreneurs and angel investors and a second day for entrepreneurs to present their business plans to investors. Based upon the number of participants and their feedback, the event was a success. OCIB also continued to play an active role in supporting the efforts of others working to help Oklahoma entrepreneurs build and grow their companies. As in the past, the Board participated in and was a sponsor of the Oklahoma Venture Forum, continued to be supportive of the Oklahoma Venture of the Year Awards Banquet and participated in and sponsored the Governor’s Cup. OCIB’s third portfolio is fully committed and the Board has developed initial plans for its fourth portfolio. Implementation will depend on extension of the Board’s guarantee authority by the Oklahoma Legislature. 4 ORGANIZATION The Board is a state-beneficiary public trust. There are five Trustees, appointed by the Governor with the advice and consent of the Senate. Trustees are selected based upon their outstanding knowledge and leadership, and for their experience in managing venture investments. The Board at fiscal year end 2010 included: BOARD MEMBER FY'10 OFFICE Bill Andrew Financial Advisor Edward Jones Enid, OK Gerald G. Austin Executive Vice President, retired Fleming Companies, Inc. Oklahoma City, OK Vice Chairperson John A. Brock Owner Rockford Exploration Tulsa, OK Secretary/Treasurer Jean McGill President Noble Investments, Inc. Tulsa, OK Michael Mitchelson Attorney Oklahoma City, OK Chairperson The Board retains Institutional Equity Associates, LLC to provide investment management and administrative services. The principals of this firm are Robert G. Heard and Devon L. Sauzek. Mr. Sauzek serves as OCIB president and Diana K. Mooney as administrative officer. General Counsel for the Board is Robert A. Curry of the firm Conner & Winters, Tulsa. The CPA firm of Finley & Cook, Shawnee, performed the annual audit. CONTACTS For further information contact: OKLAHOMA CAPITAL INVESTMENT BOARD Devon Sauzek or Diana Mooney 405/848-9456 AUDIT 5 The annual audit was performed for OCIB by Finley & Cook, Shawnee, and is on file with the State Auditor and Inspector. The audited financial statements are attached. 6 Oklahoma Capital Investment Board Financial Statements June 30, 2010 and 2009 (With Independent Auditors’ Report Thereon) OKLAHOMA CAPITAL INVESTMENT BOARD FINANCIAL STATEMENTS Table of Contents Page Independent Auditors’ Report ........................................................................................................... 1 Management’s Discussion and Analysis ........................................................................................... I-1 Financial Statements: Statements of Net Assets .............................................................................................................. 3 Statements of Changes in Net Assets ........................................................................................... 5 Statements of Cash Flows ............................................................................................................. 7 Notes to Financial Statements ....................................................................................................... 8 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ......................................................................... 16 - 1 - 1421 East 45th Street • Shawnee, OK 74804 P: 405.878.7300 • www.finley-cook.com • F: 405.395.3300 INDEPENDENT AUDITORS’ REPORT Board of Trustees Oklahoma Capital Investment Board We have audited the accompanying statements of net assets of the Oklahoma Capital Investment Board (OCIB), a part of the financial reporting entity of the State of Oklahoma, as of June 30, 2010 and 2009, and the related statements of changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of OCIB’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain of the various investment interests in which OCIB had an equity interest as of June 30, 2010 and 2009. Investment interests represented approximately 22% and 20% of OCIB’s total assets as of June 30, 2010 and 2009, respectively. The financial statements of certain investment interests were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for certain investment interests, is based on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of OCIB as of June 30, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. The Management’s Discussion and Analysis (MD&A) on pages I-1 to I-4 is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit this information and express no opinion on it. (Continued) - 2 - INDEPENDENT AUDITORS’ REPORT, CONTINUED In accordance with Government Auditing Standards, we have also issued our report dated September 2, 2010, on our consideration of OCIB’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Shawnee, Oklahoma September 2, 2010 MANAGEMENT’S DISCUSSION AND ANALYSIS I–1 As management of the Oklahoma Capital Investment Board (OCIB), our discussion and analysis of its financial performance provides an overview of OCIB’s activities for the fiscal years ended June 30, 2010 and 2009. Please read it in conjunction with OCIB’s financial statements which begin on page 3. The financial statements of OCIB include the operations of the Oklahoma Capital Formation Company, LLC (OCFC). FINANCIAL HIGHLIGHTS In FY-2010, OCIB made a $1,586,000 contribution to its venture investment fund commitments; In FY-2010, OCIB received $37,000 in distributions from its Venture Investment Program (proceeds were applied to the OCFC line of credit); In FY-2010, the Oklahoma Capital Access Program (OCAP) enrolled 28 new loans totaling $2.3 million; and In FY-2009, OCIB programs resulted in more than $10.9 million dollars of funding for Oklahoma companies. OVERVIEW OF THE FINANCIAL STATEMENTS This annual financial report consists of two parts: Management’s Discussion and Analysis (this section) and the basic financial statements. OCIB is a public trust of the State of Oklahoma and follows enterprise fund reporting; accordingly, the financial statements are presented using the economic measurement focus and the accrual basis of accounting. Enterprise fund statements offer short-term and long-term financial information about the activities and operations of OCIB. These statements are presented in a manner similar to those of a private business. FINANCIAL ANALYSIS OF OCIB Net Assets The following table summarizes the net assets at June 30: 2010 2009 Current assets $ 20,106,328 20,112,028 Noncurrent assets 82,866,379 90,315,844 Total assets 102,972,707 110,427,872 Liabilities 35,975,734 40,027,509 Net assets $ 66,996,973 70,400,363 MANAGEMENT’S DISCUSSION AND ANALYSIS, CONTINUED I–2 FINANCIAL ANALYSIS OF OCIB, CONTINUED Net Assets, Continued Assets at June 30, 2010 and 2009, principally consisted of $80,485,000 and $87,300,000 of tax credits, respectively, of which $20,000,000 was current and $60,485,000 and $67,300,000 was noncurrent for 2010 and 2009, respectively. Assets also included investment interests of $22,381,379 and $23,015,844 as of June 30, 2010 and 2009, respectively. Operating Activities The operations of OCIB, when combined with OCFC, are dependent upon the results of the investments made. During 2010 and 2009, no new investment interests were established. A summary of operating results for 2010 and 2009 is as follows: 2010 2009 Operating expenses: Management fees $ ( 538,542) ( 554,142) Accounting, legal, and consultants ( 36,709) ( 28,125) Other ( 4,048) ( 11,021) Total operating expenses ( 579,299) ( 593,288) Other expenses: Interest expense ( 640,140) ( 1,011,744) Other ( 1,027) ( 1,358) Total other expenses ( 641,167) ( 1,013,102) Net financial losses from investment interests— equity basis ( 2,182,924) ( 5,259,027) Change in net assets $ ( 3,403,390) ( 6,865,417) MANAGEMENT’S DISCUSSION AND ANALYSIS, CONTINUED I–3 FINANCIAL ANALYSIS OF OCIB, CONTINUED Operating Activities, Continued Cash flow from investment interests for 2010 and 2009 was as follows: 2010 2009 Cash payments for investment interests $ ( 1,585,553) ( 3,838,625) Cash distributions from investment interests 37,094 1,110,764 Net cash flow used in investment interests $ ( 1,548,459) ( 2,727,861) A significant part of the overall operations of OCIB is its transferable tax credits. As of June 30, 2010 and 2009, OCIB had $80,485,000 and $87,300,000 of transferable tax credits, respectively, recorded as assets in its financial statements; $20,000,000 of the tax credits was recognized as current and the remainder as noncurrent. During 2010, $6,815,000 additional tax credits were sold. During 2009, no additional tax credits were sold. OCIB has agreements with four corporations to purchase up to an aggregate of $8,000,000 per year of tax credits, in conjunction with a legitimate call on an OCIB guarantee. The agreements to purchase the tax credits have been assigned as collateral for the $33,257,878 term note and the $15,812,452 line of credit which OCIB has guaranteed for OCFC. As more fully explained in the notes to the financial statements, OCIB has initiated a program entitled the Oklahoma Capital Access Program (OCAP). Under OCAP, Oklahoma depository institutions pay a fee or premium to OCIB to enroll qualified loans in OCAP. OCIB, in return for the premium paid, establishes a reserve account equal to the amount of the fee plus an obligation by OCIB for a predetermined portion of the loan. Cash, up to the amount of the reserve account, may then be paid to the institution if the institution suffers a loss on a loan in the OCAP portfolio and submits a claim to OCIB. OCIB is not guaranteeing the entire loan portfolio, but only an amount in the reserve account established. In no event is OCIB’s exposure more than the balance in the reserve account as defined in the OCAP agreement. As of June 30, 2010 and 2009, the maximum amount of exposure for OCIB was approximately $1,239,000 and $1,214,000, respectively. Total loans covered by the program were approximately $33,091,000 and $32,426,000 at June 30, 2010 and 2009, respectively. As of June 30, 2010 and 2009, OCIB’s commitment for unfunded investment interests was approximately $7,753,000 and $9,123,000, respectively. MANAGEMENT’S DISCUSSION AND ANALYSIS, CONTINUED I–4 FINANCIAL ANALYSIS OF OCIB, CONTINUED Borrowings To fund investment interests, OCIB has financing through a $15,812,452 line of credit and a $33,257,878 term note. Activity of the debt for 2010 and 2009 was as follows: Beginning Balance Refinancing Advances Repayments Ending Balance Line of credit $ 39,872,032 ( 33,257,878) 2,807,972 ( 6,852,095) 2,570,031 Term note - 33,257,878 - - 33,257,878 $ 39,872,032 - 2,807,972 ( 6,852,095) 35,827,909 2010 Beginning Balance Advances Payments Ending Balance Line of credit $ 35,405,628 5,618,246 ( 1,151,842) 39,872,032 2009 As further discussed in the notes to the financial statements, the debt is secured by the specific assignment of agreements with four corporations to purchase tax credits from OCIB. The line of credit is presently due November 30, 2010, and the term note is due June 30, 2011. REQUEST FOR INFORMATION This financial report is designed to provide a general overview of OCIB’s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Oklahoma Capital Investment Board, 301 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma 73116. See Independent Auditors’ Report. See accompanying notes to financial statements. - 3 - June 30, 2010 2009 Assets Current assets: Cash $ 1 06,328 1 12,028 Transferable tax credits, current 2 0,000,000 2 0,000,000 Total current assets 2 0,106,328 2 0,112,028 Investment interests (Note 4): Richland Ventures, L.P. - 7 ,350 Intersouth Partners III, L.P. 2 46,780 3 88,702 Davis, Tuttle Venture Partners, L.P. 1 ,078,919 1 ,113,798 Richland Ventures II, L.P. 8 0,107 7 0,248 Rocky Mountain Mezzanine Fund II, L.P. 1 52,401 2 39,640 Dolphin Communications Fund II, L.P. 2 ,254,747 2 ,469,090 Tullis-Dickerson Capital Focus III, L.P. 3 ,521,121 4 ,290,356 Emergent Technologies Oklahoma, L.P. 1 66,496 8 88,771 SSM Venture Partners III, L.P. 4 ,896,209 5 ,030,471 Oklahoma Equity Partners, L.L.C. 2 ,013,893 1 ,848,420 Blue Sage Capital, L.P. 2 ,414,215 8 69,663 Prolog Capital II, L.P. 2 ,530,557 2 ,144,422 Mesa Oklahoma Growth Fund I, L.P. 1 ,478,715 2 ,346,567 Oklahoma Life Sciences Fund II, L.L.C. 3 56,765 3 99,893 Oklahoma Seed Capital Fund, L.L.C. 7 12,451 5 93,182 Acorn Growth Capital Fund III, L.L.C. 4 78,003 3 15,271 Total investment interests 2 2,381,379 2 3,015,844 Transferable tax credits, less current portion 6 0,485,000 6 7,300,000 Total assets $ 1 02,972,707 1 10,427,872 (Continued) OKLAHOMA CAPITAL INVESTMENT BOARD STATEMENTS OF NET ASSETS See Independent Auditors’ Report. See accompanying notes to financial statements. - 4 - June 30, 2010 2009 Liabilities and Net Assets Current liabilities: Accounts payable $ 8 42 1 ,010 Interest payable 9 8,447 1 00,734 OCAP premiums collected in excess of claims paid 4 8,536 5 3,733 Long-term debt, current portion 3 5,827,909 - Total current liabilities 3 5,975,734 1 55,477 Long-term debt, less current portion - 3 9,872,032 Total liabilities 3 5,975,734 4 0,027,509 Unrestricted net assets 6 6,996,973 7 0,400,363 Total liabilities and net assets $ 1 02,972,707 1 10,427,872 OKLAHOMA CAPITAL INVESTMENT BOARD STATEMENTS OF NET ASSETS, CONTINUED See Independent Auditors’ Report. See accompanying notes to financial statements. - 5 - Years Ended June 30, 2010 2009 Operating expenses: Management fees $ (538,542) (554,142) Accounting, legal, and consultants (36,709) (28,125) Program evaluation (3,090) (9,989) Other (569) (1,032) Venture investing (389) - Total operating expenses (579,299) (593,288) Other expenses: Interest expense (640,140) (1,011,744) Other (1,027) (1,358) Total other expenses (641,167) (1,013,102) Operating loss before net financial losses from investment interests—equity basis (1,220,466) (1,606,390) (Continued) OKLAHOMA CAPITAL INVESTMENT BOARD STATEMENTS OF CHANGES IN NET ASSETS See Independent Auditors’ Report. See accompanying notes to financial statements. - 6 - Years Ended June 30, 2010 2009 Financial (losses) earnings from investment interests— equity basis (Note 4): Richland Ventures, L.P. (1,061) (163) Intersouth Partners III, L.P. (119,025) 1 ,146 Davis, Tuttle Venture Partners, L.P. (34,880) (179,792) Richland Ventures II, L.P. 9 ,859 2 ,991 Pacesetter Growth Fund, L.P. - (412,914) Rocky Mountain Mezzanine Fund II, L.P. (87,239) (152,561) Dolphin Communications Fund II, L.P. (429,762) (1,286,432) Tullis-Dickerson Capital Focus III, L.P. (769,235) (398,226) Emergent Technologies Oklahoma, L.P. (722,275) (6,626) SSM Venture Partners III, L.P. (134,262) (137,470) Oklahoma Equity Partners, L.L.C. (219,275) (1,724,325) Blue Sage Capital, L.P. 1 ,484,637 (197,829) Prolog Capital II, L.P. (126,365) (611,660) Mesa Oklahoma Growth Fund I, L.P. (1,009,944) (75,206) Oklahoma Life Sciences Fund II, L.L.C. (43,128) (90,192) Oklahoma Seed Capital Fund, L.L.C. 1 9,269 2 1,356 Acorn Growth Capital Fund III, L.L.C. (238) (11,124) Total net financial losses from investment interests— equity basis (2,182,924) (5,259,027) Net decrease in net assets (3,403,390) (6,865,417) Net assets, beginning of year 7 0,400,363 7 7,265,780 Net assets, end of year $ 6 6,996,973 7 0,400,363 OKLAHOMA CAPITAL INVESTMENT BOARD STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED See Independent Auditors’ Report. See accompanying notes to financial statements. - 7 - Increase (Decrease) in Cash and Cash Equivalents Years Ended June 30, 2010 2009 Cash flows from operating activities: Cash paid to suppliers $ (1,984) (12,388) Management fees paid (538,542) (554,142) General and administrative expenses paid (39,968) (32,524) Cash paid for interest expense (642,427) (1,136,712) Cash received for tax credits 6 ,815,000 - Net cash provided by (used in) operating activities 5 ,592,079 (1,735,766) Cash flows from noncapital and related financing activities: Proceeds from line of credit 2 ,807,972 5 ,618,246 Payments on line of credit and term note (6,852,095) (1,151,842) Payments received for OCAP 2 2,124 3 3,930 Claims paid for OCAP (27,321) (24,022) Net cash (used in) provided by noncapital and related financing activities (4,049,320) 4 ,476,312 Cash flows from investing activities: Cash payments for investment interests (1,585,553) (3,838,625) Cash distributions from investment interests 3 7,094 1 ,110,764 Net cash used in investing activities (1,548,459) (2,727,861) Net (decrease) increase in cash and cash equivalents (5,700) 1 2,685 Cash and cash equivalents at beginning of year 1 12,028 9 9,343 Cash and cash equivalents at end of year $ 1 06,328 1 12,028 Reconciliation of operating loss to net cash provided by (used in) operating activities: Operating loss $ (1,220,466) (1,606,390) Adjustments to reconcile operating loss to net cash provided by (used in) operating activities: Decrease in tax credits 6 ,815,000 - Decrease in interest payable (2,287) (124,968) Decrease in accounts payable (168) (4,408) Net cash provided by (used in) operating activities $ 5 ,592,079 (1,735,766) OKLAHOMA CAPITAL INVESTMENT BOARD STATEMENTS OF CASH FLOWS OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009 See Independent Auditors’ Report. - 8 - (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Oklahoma Capital Investment Board (OCIB) is a public trust of the State of Oklahoma pursuant to the Oklahoma Public Trust Act. OCIB was created to serve as the State’s tool to mobilize sources of equity and near equity capital (as defined in the Trust Indenture) for Oklahoma businesses. The program is designed to catalyze investment in Oklahoma projects by experienced investment professionals. Specific initiatives utilized by OCIB include the Oklahoma Capital Access Program (OCAP) (Note 6) and the Venture Investment Program (described in Note 2). OCIB is a component unit of the State of Oklahoma and is included in the State’s annual financial report. Reporting Entity The financial statements also include the operations of the Oklahoma Capital Formation Company, LLC (OCFC), formerly the Oklahoma Capital Formation Corporation. During 2007, the name and corporate structure of the Oklahoma Capital Formation Corporation was changed to the Oklahoma Capital Formation Company, LLC, an Oklahoma limited liability company; previously OCFC was a corporation. During the year ended 2006, OCIB purchased 100% of the ownership of OCFC. OCFC invests funds in qualified risk capital pools approved by OCIB. Financial Statement Presentation and Basis of Accounting OCIB’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The Governmental Accounting Standards Board (GASB) is responsible for establishing the accounting principles generally accepted in the United States for state and local governments through its pronouncements (Statements and Interpretations). Governments and their components are also required to follow the pronouncements of the Financial Accounting Standards Board (FASB) issued through November 30, 1989, (when applicable) that do not conflict with or contradict GASB pronouncements. In accordance with GASB Statement No. 20, OCIB’s financial statements are prepared using applicable GASB statements and not FASB pronouncements issued after November 30, 1989. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 9 - (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Financial Statement Presentation and Basis of Accounting, Continued The accompanying financial statements are presented on the enterprise fund basis using the economic measurement focus and the accrual basis of accounting, whereby revenues are recorded in the period earned and expenses are recorded in the period incurred. All transactions between OCIB and OCFC have been eliminated in the preparation of these financial statements. Cash Balances All cash balances are maintained in financial institutions insured by the Federal Deposit Insurance Corporation up to $250,000. As of June 30, 2010, there were no balances over the $250,000 insured amount. Equipment Capitalized equipment is depreciated using the straight-line method of depreciation over its estimated useful life. OCIB had fully depreciated all of its fixed assets as of June 30, 2010 and 2009. Income Taxes As a public trust, OCIB is exempt from federal and state income taxes. Advertising Costs All costs associated with advertising are expensed as incurred. Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents consist of the caption on the statements of net assets described as “Cash.” Interest paid totaled $642,427 and $1,136,712 for 2010 and 2009, respectively. Investment Interests Investment interests represent investments made by OCFC in limited partnerships, limited liability companies, and other types of entities. Investment interests are recorded using the equity method of accounting based upon the most recent audited financial statements and/or the tax returns for the investment interests, or other reliable financial information. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 10 - (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Use of Estimates in Preparing Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) INVESTMENT OPERATIONS OCIB, in order to mobilize investment in business ventures, guarantees the funds borrowed by OCFC for such investment. Prior to 2006, OCFC was considered a third-party corporation which contracted with OCIB to invest OCIB-guaranteed funds in qualified risk capital pools. As noted previously, OCFC was purchased by OCIB during 2006. All intercompany activity between OCIB and OCFC has been eliminated in preparing these financial statements. (3) TRANSFERABLE TAX CREDITS As a trust, part of the estate of OCIB was $100,000,000 of State of Oklahoma tax credits. The credits can be transferred by OCIB at its sole discretion. The credits and OCIB’s right to transfer the credits expire if not utilized by July 1, 2015. As of June 30, 2010, $19,515,000 of the credits had been sold for $19,515,000 ($6,815,000, $4,700,000, and $8,000,000 during the years ended June 30 2010, 2008, and 2007, respectively), and the cash was used to reduce debt. Four corporations have signed agreements to purchase up to an aggregate of $8,000,000 per year of the tax credits, in conjunction with a legitimate call on an OCIB guarantee. Up to $20,000,000 of the tax credits can be sold in a year. The $80,485,000 and $87,300,000 of transferable tax credits at June 30, 2010 and 2009, respectively, are included in OCIB’s net assets. Approximately $3,000,000 of this amount has been set aside by the Board of Trustees of OCIB for use by OCAP. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 11 - (4) INVESTMENT INTERESTS A summary of the changes in investment interests as of June 30 is as follows: Activity for 2010 Balance at June 30, 2009 Advances Made During FY-2010 Losses Recognized in FY-2010 Capital Distributions Received During FY-2010 Balance at June 30, 2010 Total $ 23,015,844 1,585,553 ( 2,182,924) ( 37,094) 22,381,379 Subsequent to June 30, 2010, OCFC received distributions of approximately $710,000 from Blue Sage Capital, L.P., $225,000 from SSM Venture Partners III, L.P., and $37,000 from Richland Ventures II, L.P. Activity for 2009 Balance at June 30, 2008 Advances Made During FY-2009 Losses Recognized in FY-2009 Capital Distributions Received During FY-2009 Balance at June 30, 2009 Total $ 25,547,010 3,838,625 ( 5,259,027) ( 1,110,764) 23,015,844 Other Information—Unaudited: The investment interests of the various entities are reflected using the equity method of accounting. Some of the entities reflect the investments which they own at cost and not fair value. The general partners have estimated values for the investments in the absence of readily ascertainable market values. At June 30, 2010 and 2009, had such estimated fair values been utilized, the investment interests would have increased approximately $2,610,000 and $4,062,000, respectively. This estimate is based solely on information provided by the general partners and is unaudited. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 12 - (4) INVESTMENT INTERESTS, CONTINUED OCFC had committed to making the following investment interests as of June 30, 2010: Entity Amount of Commitment Commitment Funded as of June 30, 2010 Unfunded Commitment Richland Ventures, L.P. $ 4,000,000 3,680,000 320,000 (1) Intersouth Partners III, L.P. 4,000,000 4,000,000 - Davis, Tuttle Venture Partners, L.P. 5,000,000 5,000,000 - Richland Ventures II, L.P. 1,000,000 974,040 25,960 (1) Rocky Mountain Mezzanine Fund II, L.P. 3,000,000 3,000,000 - Dolphin Communications Fund II, L.P. 6,000,000 6,000,000 - (2) Tullis-Dickerson Capital Focus III, L.P. 7,500,000 7,500,000 - Emergent Technologies Oklahoma, L.P. 1,380,435 1,380,434 1 SSM Venture Partners III, L.P. 7,500,000 6,225,000 1,275,000 Oklahoma Equity Partners, L.L.C. 7,500,000 5,303,476 2,196,524 Blue Sage Capital, L.P. 2,000,000 1,527,055 472,945 Prolog Capital II, L.P. 5,000,000 3,892,467 1,107,533 Mesa Oklahoma Growth Fund I, L.P. 3,000,000 2,745,000 255,000 Oklahoma Life Sciences Fund II, L.L.C. 1,750,000 490,000 1,260,000 Oklahoma Seed Capital Fund, L.L.C. 1,000,000 670,000 330,000 Acorn Growth Capital Fund III, L.L.C. 1,000,000 489,637 510,363 $ 60,630,435 52,877,109 7,753,326 ________ (1) The unfunded commitment is not expected to be used. (2) While the present commitment is $6,000,000, Dolphin Communications Fund II, L.P. (“Dolphin”) has the right to recall amounts that have been distributed to OCIB. Cumulative distributions to OCIB total $1,761,236 of which $1,680,932 has been recalled by Dolphin and paid by OCIB. At June 30, 2010, there was $19,092 of distributions which could be recalled by Dolphin. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 13 - (5) MANAGEMENT SERVICES AGREEMENT OCIB entered into a management services agreement with Institutional Equity Associates, LLC (“EDGE”) effective January 1, 2001. Per the agreement, EDGE is to perform all of the management functions for OCIB, as well as supply the personnel. As such, OCIB had no employees effective February 1, 2001. The agreement is to last for a period of 15 years. An annual fee of $443,500 is to be paid to EDGE, as well as a variable annual fee equal to 0.35% of the amount of each commitment by OCFC to a new venture capital fund. The variable fee is phased out over a period of time as specified in the agreement. During 2010 and 2009, total fees paid to EDGE in accordance with the management agreement were approximately $539,000 and $554,000, respectively. EDGE also performs management oversight for Oklahoma Equity Partners, L.L.C., a partnership in which OCFC has invested. No additional compensation has been paid to EDGE for this service. (6) OKLAHOMA CAPITAL ACCESS PROGRAM (OCAP) As part of its overall purpose, OCIB initiated OCAP during fiscal year 1992. Under OCAP, Oklahoma depository institutions pay a fee or premium to OCIB to enroll qualified loans in OCAP. OCIB, in return for the premium paid, establishes a reserve account equal to the amount of fee paid plus an obligation by OCIB for a predetermined portion of the loan. Cash, up to the amount of the reserve account, may then be paid to an institution if an institution suffers a loss on a loan in the OCAP portfolio and submits a claim to OCIB. OCIB is not guaranteeing the entire loan portfolio but only an amount equal to the reserve account. In no event is OCIB’s exposure more than the balance in the reserve account as defined in the OCAP agreement. Fees paid to OCIB are not recognized as income, but reflected on the statements of net assets as “OCAP premiums collected in excess of claims paid,” net of any claims paid and recoveries received. As of June 30, a summary of OCAP is as follows: Year Cumulative Fees Received Cumulative OCIB Allocation Cumulative Claims Paid, Net Total Reserve Account Total Loans by Institutions Loans Covered by OCAP 2010 $ 1,258,638 1,770,647 1,789,946 1,239,339 46,216,719 33,090,776 2009 $ 1,236,513 1,740,297 1,762,625 1,214,185 43,939,025 32,425,956 OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 14 - (6) OKLAHOMA CAPITAL ACCESS PROGRAM (OCAP), CONTINUED During 2010 and 2009, OCIB paid $27,321 and $24,022, respectively, of claims to institutions in the program. These claims were paid in cash from OCIB resources. During 2010 claims paid exceeded fees collected by $5,197, and during 2009 fees collected exceeded claims paid by $9,908. OCIB has the right to sell tax credits in the future, subject to annual and program caps, to reimburse itself for the cash paid out. Under the program, OCIB’s total loss exposure at June 30, 2010 and 2009, was $1,239,339 and $1,214,185, respectively, which would come from unrestricted net assets. (7) LONG-TERM DEBT Long-term debt at June 30, 2009, consisted of a line of credit of $55,000,000. During August 2009, the line of credit was separated into a non-amortizing term loan with a balance of $24,187,548 held at the Bank of Oklahoma and a balance of $9,070,330 held at Arvest Bank, along with a line of credit also held at the Bank of Oklahoma. The term loan and the line of credit have maturity dates of June 30, 2011, and November 30, 2010, respectively. At June 30, the balance due was as follows: Commitment Balance Outstanding Maturity Line of credit $ 1 5,812,452 2 ,570,031 Nov. 30, 2010 Term note 3 3,257,878 3 3,257,878 June 30, 2011 $ 4 9,070,330 3 5,827,909 2010 Commitment Balance Outstanding Maturity Line of credit $ 5 5,000,000 3 9,872,032 June 30, 2011 2009 The line of credit bears interest at a rate of 4% at June 30, 2010, as defined in the debt agreement. The term loan bears interest at a fluctuating rate as defined in the debt agreement. The rate at June 30, 2010 and 2009, was approximately 1.5% and 1.47%, respectively. Interest is paid quarterly. The debt is interest-only and requires no principal payments until maturity. OKLAHOMA CAPITAL INVESTMENT BOARD NOTES TO FINANCIAL STATEMENTS, CONTINUED See Independent Auditors’ Report. - 15 - (7) LONG-TERM DEBT, CONTINUED The debt instruments are secured by the specific assignment of agreements to purchase tax credits. As of June 30, 2010, OCIB had $80,485,000 of State of Oklahoma tax credits and agreements with four corporations to purchase up to an aggregate of $8,000,000 per year of tax credits, in conjunction with a legitimate call on an OCIB guarantee. Changes in the debt instruments during 2010 and 2009 were as follows: Beginning Balance Refinancing Advances Repayments Ending Balance Line of credit $ 39,872,032 ( 33,257,878) 2,807,972 ( 6,852,095) 2,570,031 Term note - 33,257,878 - - 33,257,878 $ 39,872,032 - 2,807,972 ( 6,852,095) 35,827,909 2010 Beginning Balance Advances Payments Ending Balance Line of credit $ 35,405,628 5,618,246 ( 1,151,842) 39,872,032 2009 (8) COMMITMENTS AND CONTINGENCIES Legal From time to time, OCIB is involved in certain legal proceedings arising in the normal course of business. In the opinion of management and counsel, the ultimate disposition of such proceedings will not have a material effect on OCIB’s financial statements. REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Trustees Oklahoma Capital Investment Board We have audited the financial statements of the Oklahoma Capital Investment Board (OCIB), which is a component unit of the State of Oklahoma, as of and for the year ended June 30, 2010, and have issued our report thereon dated September 2, 2010. Our report includes a reference to other auditors who performed audits on certain assets of OCIB. Our report also contains an explanatory paragraph disclaiming an opinion on Management’s Discussion and Analysis, presented as required supplementary information. We conducted our audit in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered OCIB’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of OCIB’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of OCIB’s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. (Continued) REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS, CONTINUED Compliance and Other Matters As part of obtaining reasonable assurance about whether OCIB’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the Board of Trustees, management of OCIB, and the Office of the Oklahoma State Auditor and Inspector and is not intended to be and should not be used by anyone other than these specified parties. Shawnee, Oklahoma September 2, 2010 This publication was issued by the Oklahoma Capital Investment Board (OCIB). Two hundred (200) copies were printed at a cost of $953.61. Copies have been deposited with the State Publications Clearinghouse of the Oklahoma Department of Libraries. 5/2011 |
Date created | 2011-08-31 |
Date modified | 2011-10-27 |