Metropolitan Club

“Footnote from the september 30, 2015 audited financial statements: "the club identifies and evaluates all uncertain tax positions and believes that positions taken are more-likely-than-not to be sustained upon examination for all open tax years. The club is currently being audited by the california franchise tax board (ftb"). The years in question are september 30 2010, 2011 and 2012. The ftb completed its examination in september 2015 and sent the club a determination letter concluding that contributions received from the 640 heritage preservation foundation (the "foundation") should be included in unrelated business taxable income ("ubti"). The ftb has issued the club a notice of proposed assessment for these years which, if agreed to by the club, would include approximately $76,000 in additional taxes, plus interest and penalties. The club is contesting these proposed assessments. The club has determined that excluding contributions received from the foundation from ubti is an uncertain tax position. Management has concluded that contributions received from the foundation are not subject to ubti taxes and that no tax provision should be recorded in the financial statements. In the opinion of our auditors, it is more-likely-than-not that contributions received from the foundation are subject to ubti taxes and a deferred income tax liability, including interest and penalties, totaling approximately $1,300,000 ($265,000 to the ftb and $1,035,000 to the internal revenue service) should be recorded by the club as of september 30, 2015, in accordance with u.s. Gaap. The effect of not recording a liability for the uncertain tax position is an increase in a deferred tax liability and a provision for income taxes of approximately $1,300,000. Management believes the maximum exposure is limited to the $76,000, the amount requested by the ftb. Management's conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of tax laws, regulations and interpretations thereof, as well as other factors. The club recognizes accrued interest and penalties associated with uncertain tax positions. There was no income tax-related interest or penalties recorded for the year ended september 30, 2015." supplemental information continued for:”

“Footnote from the september 30, 2014 audited financial statements "the club identifies and evaluates all uncertain tax positions and believes that positions taken are more-likely-than-not to be sustained upon examination for all open tax years. The club's returns are subject to examination by federal taxing authorities for a period of three years from the date they are filed and a period of four years for california taxing authorities." supplemental information continued for:”

“The september 30, 2014 audited financial statements footnote language differs from the september 30, 2015 audited financial statements footnote language regarding uncertain tax positions and whether or not they are more-likely-than-not to be sustained upon examination for all open tax years. The club is relying upon legal opinion that it has substantial authority for its tax reporting position.”

“Other revenue included in audited financial statements but not included on form 990: cost of goods sold.....$520,430”

“Other expenses and losses included in audited financial statements but not included on form 990: income taxes...........$ 31,180 cost of goods sold..... 520,430 -------- total $551,610 ========”