DIAMONDHEAD POA

FINANCIAL REPORT DECEMBER, 2007

John List, CFO

2007 has been an interesting and challenging year. Our operating income of $186,039 (before depreciation) looks good. However our cash flow from operations was $279,000 worse than we had planned on to pay for budgeted capital improvements. After an unexpected insurance recovery of $400,000 and depreciation, our net income for the year was $36,252.

Your POA, like most of you, has to live within its income. Each year, before October 1, we forecast the money we expect to earn from both membership assessments and our amenities and match that income with planned expenditures for both operating expenses and capital improvements. In 2007 our revenue from building permits and property transfers together with sales at the restaurants were well under our anticipated levels while expenses were lower than budgeted. The net result was that cash flow from normal operations was $279,000 less than planned. Fortunately, we were able to cover this difference with cash available from the previous year’s operations and Katrina insurance recoveries.

Going into 2008 we have prepared what we believe to be a realistic projection of both net income and capital improvements. However, there is no room for adding projects that were not anticipated last October but now may seem like “a good idea”. When new capital improvements are requested, we must have the discipline to ask ourselves “If we add this expenditure, what will we do without?” Those are difficult questions your Board deals with frequently.