HEARTLAND HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012 AND INDEPENDENT AUDITORS REPORT

Transcription

1 HEARTLAND HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 2012 AND INDEPENDENT AUDITORS REPORT

2 INDEPENDENT AUDITORS REPORT To the Board of Directors of Heartland Habitat for Humanity, Inc. Kansas City, Kansas We have audited the accompanying financial statements of Heartland Habitat for Humanity, Inc. (the Organization ), which comprise the statements of financial position as of June 30, 2013 and 2012, and the related statements of activities and changes in net assets, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Organization as of June 30, 2013 and 2012, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Overland Park, Kansas December 12,

3 HEARTLAND HABITAT FOR HUMANITY, INC. Statements of Financial Position June 30, 2013 and 2012 ASSETS CURRENT ASSETS: Cash: Unrestricted $ 46,689 $ 13,693 Restricted 569, ,314 Total cash 616, ,007 Certificate of deposit 115, ,000 Grants and contributions receivable 59,779 32,071 Contracts and other receivables 71,746 32,205 Inventory 170, ,654 Prepaid expenses and other current assets 33,482 38,056 Construction in progress and property available for sale, at net realizable value 307, ,377 Mortgage loans receivable, current portion 394, ,368 Total current assets 1,767,737 1,787,738 MORTGAGE LOANS RECEIVABLE, NET, NON-CURRENT PORTION 3,584,384 3,540,229 PROPERTY AND EQUIPMENT, NET 216, ,926 LEASE DEPOSITS AND OTHER ASSETS 19,573 16,881 TOTAL ASSETS $ 5,588,620 $ 5,574,774 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Checks issued in excess of bank balance $ 18,751 $ 18,629 Line of credit 53,613 Notes payable, current portion 4,000 4,090 Accounts payable 87,209 67,417 Accrued expenses 96,200 99,047 Mortgage escrow deposits held in trust 126, ,603 Total current liabilities 386, ,786 NOTES PAYABLE, NON-CURRENT PORTION 44,349 48,349 TOTAL LIABILITIES 431, ,135 COMMITMENTS AND CONTINGENCIES NET ASSETS: Unrestricted 4,669,852 4,713,166 Temporarily restricted 487, ,473 Total net assets 5,157,528 5,201,639 TOTAL LIABILITIES AND NET ASSETS $ 5,588,620 $ 5,574,774 See notes to financial statements. 2

4 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Activities and Changes in Net Assets Year Ended June 30, 2013 Temporarily Unrestricted Restricted Total PUBLIC SUPPORT AND REVENUE: PUBLIC SUPPORT: Contributions and grants: Foundations $ 38,361 $ 225,832 $ 264,193 Religious organizations 13, , ,905 Corporations 48, , ,034 Individuals 88,633 3,525 92,158 Federated campaigns 11,166 11,166 Special events 7,890 7,890 Other 2,039 1,000 3,039 In-kind contributions 1,054,591 1,054,591 Government grants and contracts 245, ,905 Net assets released from restrictions 531,307 (531,307) - Total public support 2,041,678 (797) 2,040,881 REVENUE: Home sales 515, ,235 Less: Cost of home sales, net (434,529) (434,529) Net home sales 80,706 80,706 Adjustment to net realizable value (51,600) (51,600) ReStore retail sales 1,034,831 1,034,831 Less: Cost of retail sales (1,034,831) (1,034,831) Net ReStore sales - - Accretion of mortgage loan discount 243, ,640 Late fees 7,840 7,840 Interest income 1,910 1,910 Gain on sale of foreclosed property 60,052 60,052 Other income, net 8,415 8,415 Total public support and revenue 2,392,641 (797) 2,391,844 EXPENSES: PROGRAM SERVICES: Housing services 960, ,947 Family support 121, ,812 ReStore 858, ,150 Total program services 1,940,909 1,940,909 SUPPORTING SERVICES: Management and general 173, ,919 Fundraising 321, ,127 Total supporting services 495, ,046 Total expenses 2,435,955 2,435,955 CHANGE IN NET ASSETS (43,314) (797) (44,111) NET ASSETS, BEGINNING OF YEAR 4,713, ,473 5,201,639 NET ASSETS, END OF YEAR $ 4,669,852 $ 487,676 $ 5,157,528 See notes to financial statements. 3

5 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Activities and Changes in Net Assets Year Ended June 30, 2012 Temporarily Unrestricted Restricted Total PUBLIC SUPPORT AND REVENUE: PUBLIC SUPPORT: Contributions and grants: Foundations $ 63,766 $ 347,893 $ 411,659 Religious organizations 128, , ,858 Corporations 43, , ,819 Individuals 96,323 1,000 97,323 Federated campaigns 14,272 14,272 Special events 2,343 2,343 Other 1,050 1,050 In-kind contributions 917, ,452 Government grants and contracts 115, ,818 Net assets released from restrictions 514,079 (514,079) - Total public support 1,897, ,302 2,077,594 REVENUE: Home sales 1,019,392 1,019,392 Less: Cost of home sales, net (833,150) (833,150) Net home sales 186, ,242 ReStore retail sales 932, ,021 Less: Cost of retail sales (932,021) (932,021) Net ReStore sales - - Accretion of mortgage loan discount 230, ,132 Late fees 10,340 10,340 Interest income 2,578 2,578 Other income, net 50,602 50,602 Total public support and revenue 2,377, ,302 2,557,488 EXPENSES: PROGRAM SERVICES: Housing services 1,293,023 1,293,023 Family support 103, ,111 ReStore 784, ,307 Total program services 2,180,441 2,180,441 SUPPORTING SERVICES: Management and general 157, ,159 Fundraising 309, ,835 Total supporting services 466, ,994 Total expenses 2,647,435 2,647,435 CHANGE IN NET ASSETS (270,249) 180,302 (89,947) NET ASSETS, BEGINNING OF YEAR 4,983, ,171 5,291,586 NET ASSETS, END OF YEAR $ 4,713,166 $ 488,473 $ 5,201,639 See notes to financial statements. 4

6 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Functional Expenses Year Ended June 30, 2013 Housing Family Program Management Services Support ReStore Total and General Fundraising Total Salaries and wages $ 306,742 $ 79,360 $ 309,082 $ 695,184 $ 89,908 $ 194,405 $ 979,497 Payroll taxes 21,775 5,795 22,576 50,146 6,845 13,480 70,471 Employee benefits 11,617 3,248 8,465 23,330 4,296 7,711 35,337 Contracted services 21,800 12, , ,118 17,325 23, ,750 Occupancy 15,316 1, , , , ,248 Office expense 14,242 8,474 17,199 39,915 8,108 25,075 73,098 Travel and vehicle expenses 29,464 1,815 19,458 50,737 3,651 6,271 60,659 Forgiveness of second mortgages 125, , ,406 Program supplies and other program expenses 44,425 1,728 2,581 48,734 48,734 Mortgage loan discount expense 272, , ,428 Property management and development expenses 16, ,388 17,388 Property taxes 6,647 6,647 6,647 Insurance 36,209 1,544 15,966 53,719 2,749 3,489 59,957 Advertising and promotion 4,544 20,034 24, ,931 Professional fees 1, ,632 31,028 31,838 64,498 Interest expense 4,055 4,055 2,219 6,274 Depreciation and amortization 31,922 21,237 53,159 53,159 Other expenses 948 1,719 14,690 17,357 6,799 13,317 37, , , ,150 1,940, , ,127 2,435,955 Cost of home sales, net 434, , ,529 TOTAL FUNCTIONAL EXPENSES $ 1,395,476 $ 121,812 $ 858,150 $ 2,375,438 $ 173,919 $ 321,127 $ 2,870,484 PERCENTAGE OF COSTS 49% 4% 30% 83% 6% 11% 100% See notes to financial statements. 5

7 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Functional Expenses Year Ended June 30, 2012 Housing Family Program Management Services Support ReStore Total and General Fundraising Total Salaries and wages $ 287,021 $ 70,446 $ 261,416 $ 618,883 $ 92,017 $ 190,131 $ 901,031 Payroll taxes 20,512 5,284 23,159 48,955 6,493 13,198 68,646 Employee benefits 10,731 2,980 7,765 21,476 4,097 6,699 32,272 Contracted services 33,650 4, , ,062 11,572 5, ,959 Occupancy 13,979 1, , , , ,786 Office expense 12,347 9,024 13,387 34,758 6,214 30,943 71,915 Travel and vehicle expenses 31,035 1,890 28,766 61,691 1,780 7,189 70,660 Forgiveness of second mortgages 169, , ,948 Program supplies and other program expenses 26,695 2,055 6,409 35,159 35,159 Mortgage loan discount expense 565, , ,167 Property management and development expenses 22,158 22,158 22,158 Property taxes 11,501 11,501 11,501 Insurance 40, ,931 54,383 2,330 2,554 59,267 Advertising and promotion 469 1,178 6,673 8,320 1,121 9,441 Professional fees 1,807 2, ,152 22,806 38,575 66,533 Interest expense 4,372 4,372 1,516 5,888 Contribution to Habitat for Humanity International 10,000 10,000 10,000 Depreciation and amortization 29, ,522 53, ,088 56,887 Other expenses 1,261 1,126 17,085 19,472 6,570 10,175 36,217 1,293, , ,307 2,180, , ,835 2,647,435 Cost of home sales, net 833, , ,150 TOTAL FUNCTIONAL EXPENSES $ 2,126,173 $ 103,111 $ 784,307 $ 3,013,591 $ 157,159 $ 309,835 $ 3,480,585 PERCENTAGE OF COSTS 61% 3% 23% 87% 4% 9% 100% See notes to financial statements. 6

8 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Cash Flows Years Ended June 30, 2013 and 2012 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ (44,111) $ (89,947) Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation and amortization 53,159 56,887 Loss on disposal of fixed assets 1,446 Gain on sale of foreclosed property (60,052) Mortgage loan discount activity, net 28, ,666 Sale of homes for mortgage loans receivable and issuance of forgivable mortgage loans receivable (529,769) (1,046,529) Forgiveness of mortgage loans receivable 92,989 92,031 Foreclosure of mortgage loans receivable 54, ,865 Changes in operating assets and liabilities: Grants and contributions receivable (27,708) 11,867 Contracts and other receivables (39,541) 90,547 Inventory (14,675) 48,979 Prepaid expenses and other current assets 4,574 (21,973) Construction in progress and property available for sale 60, ,519 Lease deposits and other assets (2,693) 5,920 Checks issued in excess of bank balance 122 (49,517) Accounts payable 19,792 (39,431) Accrued expenses (2,847) 28,487 Mortgage escrow deposits held in trust (8,633) 12,729 Net cash used in operating activities (414,726) (149,900) CASH FLOWS FROM INVESTING ACTIVITIES Payments received on mortgage loans receivable 319, ,807 Proceeds from sale of foreclosed property 95,115 Purchase of property and equipment (41,605) (33,996) Net cash provided by investing activities 372, ,811 CASH FLOWS FROM FINANCING ACTIVITIES Change in line of credit 53,613 (63,657) Payments on notes payable (4,090) (19,753) Net cash provided by (used in) financing activities 49,523 (83,410) NET INCREASE IN CASH 7, ,501 CASH, BEGINNING OF YEAR 609, ,506 CASH, END OF YEAR $ 616,335 $ 609,007 See notes to financial statements. 7

9 HEARTLAND HABITAT FOR HUMANITY, INC. Notes to Financial Statements Years Ended June 30, 2013 and NATURE OF ACTIVITIES AND PROGRAM DESCRIPTIONS Nature of Activities Heartland Habitat for Humanity s mission is to build simple, decent homes and communities in partnership with God s people in need, while following Biblical principles. Established in 2006, Heartland Habitat (the Organization ) was formed by the merger of Kaw Valley Habitat for Humanity and Northland Habitat for Humanity. Since 1987, the two Habitat affiliates have built or rehabilitated over 250 homes in Wyandotte, Leavenworth and Johnson counties in Kansas, and Clay and Platte counties in Missouri. The following program and supporting services are included in the accompanying financial statements: Housing Services The Organization is a participating affiliate of Habitat for Humanity International s Neighborhood Revitalization Initiative ( NRI ). This effort focuses on improving housing conditions while partnering with other community organizations to provide services that enhance the overall quality of life across struggling neighborhoods. In addition to new home construction, NRI includes purchase rehab, weatherization, minor home repair and related projects. New homes are built using volunteer labor, donated materials and funding from individuals, churches, corporations and foundations. The homes are sold to qualifying partner families with no profit and 0% interest mortgages. Homeowners are required to invest 350 hours of sweat equity through on-site volunteering, partnering with other families and completing homeowner education classes. The Organization completed 2 new and 4 rehab homes to sell to low-income families during the year ended June 30, The Organization completed 5 new and 6 rehab homes to sell to low-income families during the year ended June 30, Since inception, the Organization has enabled more than 250 families to reach their dream of owning a home, and in doing so has revitalized neighborhoods. Family Support This program accepts homeowner applications, selects families for program participation, provides ongoing homeowner education and orientation, and works with participants to obtain homebuyer grant assistance. ReStore The Organization operates two retail stores that are open to the public. Both ReStore locations accept donations of new and used building materials, fixtures and appliances and resell these items at discounted prices. The purpose of ReStore is to divert materials from landfills, encourage homeowners to improve their properties, and provide an additional funding source to support the Organization. The Organization opened its first ReStore in Kansas City, Kansas, in December This ReStore moved to a new location on Merriam Lane in Kansas City, Kansas, in March The Organization s second ReStore location opened in Overland Park, Kansas, in January Management and General, and Fundraising Provides oversight of programs, volunteer coordination, business management, record keeping, and budgeting, financing and other administrative and fundraising activities for the entire Organization. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting and Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. 8

10 The Organization is required to report information regarding its financial position and activities according to the three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The Organization had no permanently restricted net assets at June 30, 2013 or Cash and Cash Equivalents For the purposes of the Statement of Cash Flows, the Organization considers highly liquid investments with an initial maturity of three months or less to be cash equivalents. There were no cash equivalents held at June 30, 2013 or Supplemental disclosure of cash flow information is as follows: Cash paid during the year for interest $ 6,273 $ 5,887 Cash paid during the year for taxes $ - $ - Restricted Cash Restricted cash represents cash on-hand that is not available for unrestricted operating purposes. The restrictions relate to mortgage escrow deposits and cash received for temporarily restricted contributions that have not yet been expended, as follows: Mortgage related escrow deposits $ 126,970 $ 136,841 Temporarily restricted contributions 442, ,473 $ 569,646 $ 595,314 Certificate of Deposit A $115,000 certificate of deposit is included in the accompanying financial statements. The certificate bears interest at 0.35% and matures on July 5, 2013, with penalties for early withdrawal. Subsequent to June 30, 2013, the certificate was renewed at 0.30% for an additional one year term. Any penalties for early withdrawal would not have a material effect on the financial statements. The certificate of deposit is pledged as collateral on the line of credit. Contracts and Other Receivables Contracts and other receivables are stated at outstanding balances, less an allowance for doubtful accounts. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on its assessment of the current status of individual accounts. Inventory Inventory is stated at the lower of cost or, for donated items, estimated fair value, and consists of building supplies used for home construction, and donated items held for sale at the two ReStore locations. Inventory consists of the following at June 30: Building supplies $ 34,213 $ 35,565 ReStore inventory 136, ,089 $ 170,329 $ 155,654 Property and Equipment Property and equipment is carried at cost or, if donated, at the approximate fair value at the date of donation. Major additions and improvements are capitalized, and maintenance and repairs that do not improve or extend the life of the respective assets are charged against net assets in the current period. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 20 years. Contributions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and 9

11 reported in the Statement of Activities as net assets released from restrictions. A significant amount of in-kind contributions are received by the Organization. In-kind contributions, which are recognized at estimated fair value on the date of donation, consist of the following for the year ended June 30: ReStore inventory $ 1,027,973 $ 883,027 Building materials and supplies 16,854 8,451 Land and other 9,764 25,974 $ 1,054,591 $ 917,452 Promises to Give Unconditional promises to give are recorded as revenues or gains in the period received and as assets, decrease of liabilities, or expenses depending on the form of the benefits received. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on its assessment of the current status of individual accounts. Conditional promises to give are recognized when the conditions on which they depend are substantially met. As of June 30, 2013, the Organization had received conditional promises to give totaling $4,000. Donated Assets Donated marketable securities, if any, and other noncash donations are recorded as contributions at their estimated fair values at the date of donation. Donations of property and equipment are recorded as support at their estimated fair value at the date of donation. Such donations are reported as unrestricted support unless the donor has restricted the donated assets to a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. Absent donor stipulations regarding how long those donated assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The Organization reclassifies temporarily restricted net assets to unrestricted net assets at that time. Contract Revenues The Organization receives a significant amount of revenue in the form of government grants and contracts. The Organization recognizes contract funds received or receivable as revenue to the extent that related program expenses have been incurred. Contract funds received in excess of expenses incurred are recognized as refundable advances in the Statement of Financial Position. Contributed Services Contributed services are recognized as contributions if the services (a) create or enhance nonfinancial assets or (b) require specialized skills which are performed by individuals possessing those skills, and (c) would otherwise be purchased by the Organization if not donated. During the year ended June 30, 2013, no such services have been received. A substantial number of volunteers have made significant contributions of their time to support the Organization s programs. The Organization received over 38,000 and 20,000 volunteer hours during the years ended June 30, 2013 and 2012, respectively. The increase in contributed volunteer hours from 20,000 to 38,000 is attributed in part to unseasonably high temperatures in the summer of 2012 and to changes in the home building schedule for The volunteers were critical to the construction of homes. Agency Transactions During the year ended June 30, 2012, the Organization agreed to assist in a fundraising event for the benefit of Emporia Area Habitat for Humanity, Inc. for the purpose of raising contributions for projects in Reading, Kansas. These funds are considered agency transactions and are not recorded in the Statement of Activities. The Organization received and distributed $50,000. As of June 30, 2012, all funds had been distributed to Emporia Area Habitat for Humanity, Inc. 10

12 Expense Allocation The costs of providing various programs and other activities have been summarized on a functional basis in the Statement of Functional Expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Income Taxes Heartland Habitat for Humanity, Inc. is a not-for-profit organization that is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. In addition, the Organization qualifies for the charitable contribution deduction under Section 170(b)(1)(A) and has been classified under Section 509(a)(1) as an organization that is not a private foundation. As a result, no provision for income taxes has been recorded. The Organization accounts for uncertain tax positions in accordance with the provisions of Financial Accounting Standards Board ( FASB ) Codification topic 740 Income Taxes. Income Taxes clarifies the accounting for uncertainty in income taxes and requires the Organization to recognize in their financial statements the impact of a tax position taken or expected to be taken in a tax return, if that position is more likely than not to be sustained under audit, based on the technical merits of the position. Management has assessed the tax positions of the Organization and determined that no positions exist that require adjustment or disclosure in the financial statements. The Organization is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Organization believes it is no longer subject to income tax examinations for fiscal years prior to Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect 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. Date of Management s Review Subsequent events have been evaluated through December 12, 2013, the date that these financial statements were available to be issued. 3. GRANTS AND CONTRIBUTIONS RECEIVABLE Grants and contributions receivable consist of the following, all of which are due within the next year. No allowance is considered necessary. Foundations $ 10,500 $ 32,000 Corporations 33, Churches and religious organizations 5,150 Individuals 10, CONTRACTS AND OTHER RECEIVABLES $ 59,779 $ 32,071 Contracts and other receivables consist of the following, all of which are due within the next year. No allowance is considered necessary. Government contracts $ 56,727 $ 30,923 Other 15,019 1,282 Total receivables $ 71,746 $ 32,205 11

13 5. CONSTRUCTION IN PROGRESS AND PROPERTY AVAILABLE FOR SALE Construction in progress consists of 4 and 4 homes that were in process of construction and/or rehabilitation at June 30, 2013 and 2012, respectively. Property available for sale includes 1 and 4 homes that have been completed and are available for sale as of June 30, 2013 and 2012, respectively. In addition, the Organization held 23 and 18 plots of land located in the Kansas City metropolitan area for potential future construction projects as of June 30, 2013 and 2012, respectively. Construction in progress and property available for sale have been adjusted to the lower of cost or management s estimate of net realizable value of each respective property based on county appraisals and, if available, estimates of future sales price. The Organization sold 6 and 13 homes in 2013 and 2012, respectively, to families in the home-ownership program. In 2013, the Organization obtained one home through foreclosure that was sold on the open market. Construction in progress and property available for sale consists of the following as of June 30: Construction in progress $ 209,567 $ 110,172 Property available for sale 45, ,513 Land available for sale/development 51,987 71, MORTGAGE LOANS RECEIVABLE $ 307,003 $ 367,377 Mortgage loans receivable consist of non-interest bearing mortgages, which are secured by real estate and are payable in monthly installments over the life of the mortgage, typically 30 years. At inception, the mortgages are discounted based upon prevailing market rates as determined by Habitat for Humanity International, Inc., which were 7.39% and 7.5% for the years ended June 30, 2013 and 2012, respectively. The mortgage discount is recognized as income over the term of the mortgage using the effective interest method. Mortgage discount included in income was $243,640 and $230,132 for the years ended June 30, 2013 and 2012, respectively. The Organization held 141 and 142 mortgage notes at June 30, 2013 and 2012, respectively. Upon meeting certain eligibility requirements, a homeowner can acquire a forgivable second mortgage. These mortgages are forgiven on a straight-line basis over a 10 year period, provided certain requirements and restrictions are met by the homeowner. During the years ended June 30, 2013 and 2012, the Organization provided $75,000 and $93,750, respectively, in forgivable second mortgages and recognized $125,406 and $169,948, respectively, in expense for forgiveness. Historically, the Organization has not experienced any material losses with respect to uncollectible mortgages. Generally, homes that are repossessed through the foreclosure process are rehabilitated and resold to families participating in the program. Management believes that the value of the collateral on the respective mortgages is sufficient to cover any potential losses on future foreclosures. Accordingly, no reserve has been recognized for uncollectible mortgages. First mortgage loans receivable $ 7,955,798 $ 7,953,753 Less: unamortized discount (4,408,529) (4,456,740) First mortgage loans receivable, net of discount 3,547,269 3,497,013 Forgivable second mortgages 431, ,584 Total mortgage loans receivable, net 3,978,447 3,978,597 Less: Current portion (394,063) (438,368) $ 3,584,384 $ 3,540,229 12

14 7. PROPERTY AND EQUIPMENT Property and equipment consist of the following at June 30: Land $ 1,626 $ 1,626 Buildings and improvements 374, ,583 Leasehold improvements 22,881 45,504 Construction and warehouse equipment 73,880 56,318 Vehicles 120, ,810 Furniture 10,365 10,365 Computers and office equipment 36,090 36,090 Website 15,000 15, , ,296 Less accumulated depreciation and amortization (438,396) (430,370) $ 216,926 $ 229,926 Depreciation and amortization expense of $53,159 and $56,887 is included in the Statement of Activities as of June 30, 2013 and 2012, respectively. 8. NOTES PAYABLE Notes payable consist of the following at June 30: Non-interest bearing note, payable to a charitable foundation in quarterly installments of $1,937, due September 15, Original note of $155,000 was discounted at 8%. Unamortized discount of $25,276 and $29,330 at June 30, 2013 and 2012, note is unsecured $ 48,349 $ 52,045 Non-interest bearing note with Habitat for Humanity International, Inc. with respect to its SHOP grant program; monthly installments of $65; due July 2013; unsecured ,349 52,439 Less: current maturities (4,000) (4,090) Aggregate maturities of notes payable over the next five years are as follows: 2014 $ 4, , , , ,491 Thereafter 24,768 $ 44,349 $ 48,349 $ 48,349 13

15 9. LINE OF CREDIT During the year ended June 30, 2013, the Organization had a revolving line of credit for $115,000 with a bank dated July 6, 2012, and bearing interest at 3.35%. Interest is payable monthly and principal is due upon maturity. On July 6, 2013, the line of credit was renewed for an additional year, and the interest rate was changed to 3.30%. Although the Organization had issued checks in excess of bank balances at June 30, 2013, the Organization did not have an overdraft at that time. The Organization s line of credit is designed to cover any such checks as they are presented. As of June 30, 2013, there was $53,613 of outstanding borrowings against the line. The credit line is secured by the certificate of deposit. 10. COMMITMENTS AND CONTINGENCIES The Organization leases space for its administrative offices, each of the ReStore locations, and certain office equipment under non-cancellable operating leases. The lease for the administrative offices expired in July 2013, and is currently on a month-to-month basis. The lease for the Overland Park, Kansas, ReStore expires December The lease for the Kansas City, Kansas, ReStore expires January Future minimum lease payments under the operating leases in effect as of June 30, 2013, are as follows: Year Ending June 30, 2014 $ 190, , , ,000 Thereafter 24,500 $ 415,252 Rent expense for the years ended June 30, 2013 and 2012, was $231,772 and $228,293, respectively. During 2005, the Organization sold certain mortgage notes receivable to an unrelated third party. As part of the sale, the Organization agreed that if an individual becomes delinquent on their mortgage, the Organization may be required to repurchase the mortgage note or, if available, assign a performing mortgage note to replace the delinquent mortgage. Total mortgage notes outstanding under this arrangement as of June 30, 2010, approximated $800,000, of which approximately $230,000 had become delinquent as of June 30, Although the Organization has requested updated detail from the third party on these outstanding loan balances and any related delinquencies, the third party has not provided this information. The third party has not required the Organization to repurchase any nonperforming mortgage notes or to assign performing notes to replace delinquent mortgages. As each mortgage holds a first position on the underlying property and management estimates the properties have a fair value in excess of the outstanding mortgage notes, management does not believe there is a risk for material financial loss related to these mortgages. 11. RETIREMENT PLAN The Organization sponsors a defined contribution retirement plan under which eligible employees may choose to defer a portion of their salary on a pre-tax basis, subject to certain Internal Revenue Code (IRC) limits. The plan covers employees who meet the eligibility requirements as stated in the plan document. Employees may contribute any amount of their respective wages as long as they do not exceed the IRC limitation. The Organization matches an amount equal to 100% of each 14

16 participant s contribution up to 3% of the participant s respective wages. The Organization contributed $11,371 and $11,297 for the years ended June 30, 2013 and 2012, respectively. 12. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes or periods as of June 30: Construction $ 338,135 $ 354,280 Vehicle purchase 32,381 Minor home repair and improvements 133,123 64,527 Family services 16,418 27,781 Events 9,504 $ 487,676 $ 488,473 Net assets of $531,307 and $514,079 were released from donor restrictions by incurring expenses satisfying the restricted purposes specified by the donors, or by the passage of time, as follows: Construction $ 427,788 $ 434,933 Vehicle purchase 13,000 26,655 Minor home repair and improvements 30,602 32,847 Family services 46,935 17,648 Other 12,982 1, MAJOR CONCENTRATIONS $ 531,307 $ 514,079 Revenues The Organization received approximately $246,000 and $114,000 direct and passthrough funds from the Department of Housing and Urban Development for the years ended June 30, 2013 and 2012, respectively. This funding represented approximately 10% and 5% of the Organization s net revenues for the years ended June 30, 2013 and 2012, respectively. Federal Awards The Organization has received financial assistance from the U.S. Department of Housing and Urban Development, in the form of contracts, grants and awards to fund its activities. These activities are subject to audit by agents of the granting authority, and by independent public accountants, under the Single Audit Act, the purpose of which is to ensure compliance with the terms and conditions specified in these agreements. Such audits could result in claims against the Organization for disallowed costs or noncompliance with grantor restrictions. No provision has been made for any liabilities that may arise from such audits since the amounts, if any, cannot be determined at this date. The Organization has no such audits in process. 14. SUBSEQUENT EVENT Included in property and equipment at June 30, 2013, is a warehouse owned by the Organization that, at one time, was used as the administrative offices. Subsequent to year end, this warehouse was sold for $180,000. ********* 15