HEARTLAND HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2015 AND 2014 AND INDEPENDENT AUDITORS REPORT

Transcription

1 HEARTLAND HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2015 AND 2014 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, 2015 and 2014, 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 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, 2015 and 2014, 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 10,

3 HEARTLAND HABITAT FOR HUMANITY, INC. Statements of Financial Position June 30, 2015 and 2014 ASSETS CURRENT ASSETS: Cash: Unrestricted $ 98,025 $ 78,338 Restricted 545, ,695 Total cash 643, ,033 Certificate of deposit 115, ,000 Grants and contributions receivable 59,750 61,326 Contracts and other receivables 2,994 21,800 Inventory 227, ,191 Prepaid expenses and other current assets 18,140 30,449 Construction in progress and property available for sale, at net realizable value 518, ,125 Mortgage loans receivable, current portion 389, ,740 Total current assets 1,975,026 2,012,664 MORTGAGE LOANS RECEIVABLE, NET, NON-CURRENT PORTION 3,584,587 3,622,551 PROPERTY AND EQUIPMENT, NET 134, ,577 LEASE DEPOSITS AND OTHER ASSETS 33,574 19,573 TOTAL ASSETS $ 5,727,587 $ 5,781,365 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Checks issued in excess of bank balance $ 20,428 $ 27,009 Line of credit 81,721 30,089 Notes payable, current portion 2,220 4,330 Accounts payable 196, ,508 Accrued expenses 141,822 97,266 Mortgage escrow deposits held in trust 145, ,043 Total current liabilities 588, ,245 NOTES PAYABLE, NON-CURRENT PORTION 17,550 40,019 TOTAL LIABILITIES 606, ,264 COMMITMENTS AND CONTINGENCIES NET ASSETS: Unrestricted 4,664,130 4,693,701 Board designated 89, ,025 Total unrestricted net assets 4,753,542 4,861,726 Temporarily restricted 367, ,375 Total net assets 5,121,470 5,304,101 TOTAL LIABILITIES AND NET ASSETS $ 5,727,587 $ 5,781,365 See notes to financial statements. 2

4 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Activities and Changes in Net Assets Year Ended June 30, 2015 Temporarily Unrestricted Restricted Total PUBLIC SUPPORT AND REVENUE: PUBLIC SUPPORT: Contributions and grants: Foundations $ 76,115 $ 412,279 $ 488,394 Religious organizations 10,365 52,500 62,865 Corporations 32, , ,638 Individuals 74,072 3,200 77,272 Federated campaigns 8,336 8,336 Other 4,500 4,500 In-kind contributions 1,559,265 1,559,265 Government grants and contracts 74,355 74,355 Net assets released from restrictions 692,382 (692,382) - Total public support 2,532,072 (74,447) 2,457,625 REVENUE: Home sales 618, ,183 Less: Cost of home sales, net (561,037) (561,037) Net home sales 57,146 57,146 Adjustment to net realizable value (14,605) (14,605) ReStore retail sales 1,510,766 1,510,766 Less: Cost of retail sales (1,510,766) (1,510,766) Net ReStore sales - - Accretion of mortgage loan discount 267, ,321 Late fees 2,600 2,600 Interest income 1,907 1,907 Other income, net 29,010 29,010 Total public support and revenue 2,875,451 (74,447) 2,801,004 EXPENSES: PROGRAM SERVICES: Housing services 955, ,331 Family support 106, ,270 ReStore 1,235,390 1,235,390 Total program services 2,296,991 2,296,991 SUPPORTING SERVICES: Management and general 268, ,537 Fundraising 418, ,107 Total supporting services 686, ,644 Total expenses 2,983,635 2,983,635 CHANGE IN NET ASSETS (108,184) (74,447) (182,631) NET ASSETS, BEGINNING OF YEAR 4,861, ,375 5,304,101 NET ASSETS, END OF YEAR $ 4,753,542 $ 367,928 $ 5,121,470 See notes to financial statements. 3

5 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Activities and Changes in Net Assets Year Ended June 30, 2014 Temporarily Unrestricted Restricted Total PUBLIC SUPPORT AND REVENUE: PUBLIC SUPPORT: Contributions and grants: Foundations $ 64,428 $ 442,612 $ 507,040 Religious organizations 6, , ,602 Corporations 24,347 66,000 90,347 Individuals 90,759 6,200 96,959 Federated campaigns 12,680 12,680 Special events Other 8,145 8,145 In-kind contributions 1,252,729 1,252,729 Government grants and contracts 204, ,000 Net assets released from restrictions 700,513 (700,513) - Total public support 2,364,003 (45,301) 2,318,702 REVENUE: Home sales 504, ,639 Less: Cost of home sales, net (546,381) (546,381) Net home sales (41,742) (41,742) Adjustment to net realizable value (23,551) (23,551) ReStore retail sales 1,243,425 1,243,425 Less: Cost of retail sales (1,243,425) (1,243,425) Net ReStore sales - - Accretion of mortgage loan discount 250, ,421 Late fees 9,720 9,720 Interest income 2,086 2,086 Gain on sale of fixed assets 120, ,335 Other income, net 6,167 6,167 Total public support and revenue 2,687,439 (45,301) 2,642,138 EXPENSES: PROGRAM SERVICES: Housing services 930, ,137 Family support 101, ,929 ReStore 910, ,502 Total program services 1,942,568 1,942,568 SUPPORTING SERVICES: Management and general 182, ,104 Fundraising 370, ,893 Total supporting services 552, ,997 Total expenses 2,495,565 2,495,565 CHANGE IN NET ASSETS 191,874 (45,301) 146,573 NET ASSETS, BEGINNING OF YEAR 4,669, ,676 5,157,528 NET ASSETS, END OF YEAR $ 4,861,726 $ 442,375 $ 5,304,101 See notes to financial statements. 4

6 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Functional Expenses Year Ended June 30, 2015 Housing Family Program Management Services Support ReStore Total and General Fundraising Total Salaries and wages $ 284,293 $ 77,961 $ 406,446 $ 768,700 $ 126,311 $ 261,459 $ 1,156,470 Payroll taxes 27,975 5,586 30,238 63,799 9,387 19,739 92,925 Employee benefits 9,642 2,817 8,224 20,683 4,380 9,552 34,615 Contracted services 1,043 1, , ,230 37, ,084 Occupancy 17,436 7, , ,027 14,257 10, ,084 Office expense 5, ,831 26,614 53,795 19,400 99,809 Travel and vehicle expenses 16, ,993 47,224 2,732 8,371 58,327 Forgiveness of second mortgages 104, , ,971 Program supplies and other program expenses 32,195 2, , ,628 36,081 Mortgage loan discount expense 376, , ,601 Property management and development expenses 16,942 1,143 2,686 20, ,846 Property taxes 9, ,567 10,567 Insurance 25, ,822 39,612 2,373 1,728 43,713 Advertising and promotion ,935 27, ,171 39,574 Professional fees 1,468 5,480 4,070 11,018 24,129 26,205 61,352 Interest expense 1,685 1,685 2,176 3,861 Contribution to Habitat for Humanity International - 16,700 16,700 Depreciation and amortization 21,216 11,787 33, ,677 Other expenses 1, ,646 23,835 11,596 8,947 44, , ,270 1,235,390 2,296, , ,107 2,983,635 Cost of home sales, net 575, , ,642 TOTAL FUNCTIONAL EXPENSES $ 1,530,973 $ 106,270 $ 1,235,390 $ 2,872,633 $ 268,537 $ 418,107 $ 3,559,277 PERCENTAGE OF COSTS 43% 3% 35% 81% 8% 11% 100% See notes to financial statements. 5

7 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Functional Expenses Year Ended June 30, 2014 Housing Family Program Management Services Support ReStore Total and General Fundraising Total Salaries and wages $ 324,611 $ 76,231 $ 332,855 $ 733,697 $ 100,580 $ 226,109 $ 1,060,386 Payroll taxes 22,971 5,529 24,438 52,938 7,048 16,045 76,031 Employee benefits 10,831 2,868 7,499 21,198 4,036 7,378 32,612 Contracted services 900 4, , ,217 16,494 33, ,311 Occupancy 15,136 1, , ,622 1,063 2, ,862 Office expense 12,229 4,862 15,486 32,577 9,517 40,484 82,578 Travel and vehicle expenses 23,428 1,097 17,646 42,171 1,682 4,408 48,261 Forgiveness of second mortgages 99,906 99,906 99,906 Program supplies and other program expenses 27,880 1, , ,845 Mortgage loan discount expense 273, , ,879 Property management and development expenses 22,864 2,611 25,475 25,475 Property taxes 6, ,782 7,782 Insurance 38,109 1,579 16,885 56,573 2,873 4,484 63,930 Advertising and promotion 150 1,517 17,998 19, ,557 Professional fees 13,198 2,053 15,251 23,369 26,505 65,125 Interest expense 3,750 3,750 1,098 4,848 Contribution to Habitat for Humanity International 5,500 5,500 8,300 13,800 Depreciation and amortization 26,576 13,332 39, ,757 Other expenses 1, ,155 20,235 5,362 8,023 33, , , ,502 1,942, , ,893 2,495,565 Cost of home sales, net 546, , ,381 TOTAL FUNCTIONAL EXPENSES $ 1,476,518 $ 101,929 $ 910,502 $ 2,488,949 $ 182,104 $ 370,893 $ 3,041,946 PERCENTAGE OF COSTS 49% 3% 30% 82% 6% 12% 100% See notes to financial statements. 6

8 HEARTLAND HABITAT FOR HUMANITY, INC. Statements of Cash Flows Years Ended June 30, 2015 and 2014 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ (182,631) $ 146,573 Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation and amortization 33,677 40,756 Gain on disposal of fixed assets (120,335) Forgiveness of debt - contribution (22,361) Mortgage loan discount activity, net 212,290 20,905 Sale of homes for mortgage loans receivable and issuance of forgivable mortgage loans receivable (636,492) (517,774) Forgiveness of mortgage loans receivable 91,221 99,936 Foreclosure of mortgage loans receivable 13,750 30,770 Changes in operating assets and liabilities: Grants and contributions receivable 1,576 (1,547) Contracts and other receivables 18,806 49,946 Inventory (33,393) (23,862) Prepaid expenses and other current assets 12,309 3,033 Construction in progress and property available for sale (67,737) (144,122) Lease deposits and other assets (14,001) Checks issued in excess of bank balance (6,581) 8,258 Accounts payable 43,437 66,299 Accrued expenses 44,556 1,066 Mortgage escrow deposits held in trust 20,388 (1,927) Net cash used in operating activities (471,186) (342,025) CASH FLOWS FROM INVESTING ACTIVITIES Payments received on mortgage loans receivable 347, ,319 Proceeds from sale of foreclosed property 173,925 Purchase of property and equipment (41,500) (3,997) Net cash provided by investing activities 306, ,247 CASH FLOWS FROM FINANCING ACTIVITIES Change in line of credit 51,632 (23,524) Payments on notes payable (2,218) (4,000) Net cash provided by (used in) financing activities 49,414 (27,524) NET (DECREASE) INCREASE IN CASH (115,737) 142,698 CASH, BEGINNING OF YEAR 759, ,335 CASH, END OF YEAR $ 643,296 $ 759,033 See notes to financial statements. 7

9 HEARTLAND HABITAT FOR HUMANITY, INC. Notes to Financial Statements Years Ended June 30, 2015 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 255 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 5 new and 2 rehab homes to sell to low-income families during the year ended June 30, The Organization completed 5 new and 1 rehab homes to sell to low-income families during the year ended June 30, Since inception, the Organization has enabled more than 255 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 three retail stores that are open to the public. Each ReStore location accepts donations of new and used building materials, fixtures and appliances and resells 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 ReStores are located on 87 th Street in Overland Park, Kansas, Merriam Lane in Kansas City, Kansas, and on North Oak Trafficway in Kansas City, Missouri. 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. 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, 8

10 and permanently restricted net assets. The Organization had no permanently restricted net assets at June 30, 2015 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, 2015 or Supplemental disclosure of cash flow information is as follows: Cash paid during the year for interest $ 3,861 $ 4,848 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, cash received for temporarily restricted contributions that have not yet been expended, and funds designated as an operating reserve by the Board of Directors, as follows: Mortgage related escrow deposits $ 145,431 $ 125,043 Board designated 89, ,025 Temporarily restricted contributions 310, ,627 $ 545,271 $ 680,695 Certificate of Deposit A $115,000 certificate of deposit is included in the accompanying financial statements. The certificate bears interest at 0.30% and matures on July 5, 2015, with penalties for early withdrawal. Subsequent to June 30, 2015, 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 $ 46,267 $ 38,386 ReStore inventory 181, ,805 $ 227,584 $ 194,191 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 $ 1,471,847 $ 1,209,171 Building materials and supplies 9,635 39,537 Rent 53,320 Professional services 13,000 Land and other 11,463 4,021 $ 1,559,265 $ 1,252,729 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, 2015, the Organization had no conditional promises to give. 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, 2015, the Organization recognized donated professional and IT related services of $13,000. A substantial number of volunteers have made significant contributions of their time to support the Organization s programs. The Organization received over 23,000 and 26,000 volunteer hours during the years ended June 30, 2015 and 2014, respectively. The volunteers were critical to the construction of homes. 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. 10

12 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 10, 2015, the date that these financial statements were available to be issued. 3. BOARD DESIGNATED NET ASSETS During 2014, the Organization received net proceeds of $168,025 from the sale of a warehouse. The Board of Directors has designated these funds as an operating reserve. Any use of these funds requires Board approval. During 2015, the Board approved the use of approximately $79,000 to cover expenses related to the opening of the Northland ReStore and moving expenses for the administrative offices. 4. 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 $ 52,000 $ 46,250 Corporations 7,250 13,500 Churches and religious organizations Individuals 1, CONTRACTS AND OTHER RECEIVABLES $ 59,750 $ 61,326 Contracts and other receivables consist of the following, all of which are due within the next year. No allowance is considered necessary. Government contracts $ 18,195 Other $ 2,994 3,605 Total receivables $ 2,994 $ 21,800 11

13 6. CONSTRUCTION IN PROGRESS AND PROPERTY AVAILABLE FOR SALE Construction in progress consists of 3 and 4 new homes that were in process of construction at June 30, 2015 and 2014, respectively. Property available for sale, which includes completed new construction and foreclosed homes under rehabilitation, consists of 4 homes and 1 home, as of June 30, 2015 and 2014, respectively. In addition, the Organization held 13 and 19 plots of land located in the Kansas City metropolitan area for potential future construction projects as of June 30, 2015 and 2014, 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 5 homes in 2015 and 2014, respectively, to families in the home-ownership program. Construction in progress and property available for sale consists of the following as of June 30: Construction in progress $ 247,868 $ 381,917 Property available for sale 240,463 38,198 Land available for sale/development 30,531 31, MORTGAGE LOANS RECEIVABLE $ 518,862 $ 451,125 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 7.51% and 7.58% for the years ended June 30, 2015 and 2014, 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 $267,321 and $250,421 for the years ended June 30, 2015 and 2014, respectively. The Organization held 152 and 150 mortgage notes at June 30, 2015 and 2014, 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, 2015 and 2014, the Organization provided $25,000 and $75,000, respectively, in forgivable second mortgages and recognized $104,971 and $99,906, 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 $ 8,007,168 $ 8,001,152 Less: unamortized discount (4,359,482) (4,405,134) First mortgage loans receivable, net of discount 3,647,686 3,596,018 Forgivable second mortgages 326, ,273 Total mortgage loans receivable, net 3,973,987 4,002,291 Less: Current portion (389,400) (379,740) $ 3,584,587 $ 3,622,551 12

14 8. PROPERTY AND EQUIPMENT Property and equipment consist of the following at June 30: Land $ 926 $ 926 Buildings and improvements 201, ,706 Leasehold improvements 31,660 22,881 Construction and warehouse equipment 66,580 66,580 Vehicles 110, ,897 Furniture 10,365 10,365 Computers and office equipment 72,808 40,087 Website 15,000 15, , ,442 Less accumulated depreciation and amortization (375,542) (341,865) $ 134,400 $ 126,577 During 2014, the Organization sold a warehouse that, at one time, was used as the administrative offices for approximately $180,000. Gain on sale of the warehouse of approximately $120,000 is included in the statement of activities for the year ended June 30, Depreciation and amortization expense of $33,677 and $40,757 is included in the Statement of Activities as of June 30, 2015 and 2014, respectively. 9. NOTES PAYABLE Prior to the merger in 2006, one of the predecessor Organizations borrowed $155,000 from a charitable foundation to fund the construction of 4 homes. The notes are non-interest bearing, mature in September 2023, and require quarterly payments of $1,937. The notes were originally discounted at 8%. During the current fiscal year, the foundation agreed to forgive two of the notes, and as a result the Organization recognized an in-kind contribution of $22,360. The remaining notes require quarterly payments of $976. Non-interest bearing note, payable to a charitable foundation $ 41,296 $ 69,625 Less: unamortized discount (21,526) (25,276) 19,770 44,349 Less: current maturities (2,220) (4,330) Aggregate maturities of notes payable over the next five years are as follows: 2016 $ 2, , , , ,286 Thereafter 5,833 $ 17,550 $ 40,019 $ 19,770 13

15 10. LINE OF CREDIT During the year ended June 30, 2015, the Organization had a revolving line of credit for $115,000 with a bank dated July 6, 2012, and bearing interest at 3.30%. Interest is payable monthly and principal is due upon maturity. On July 16, 2015, the line of credit was renewed for an additional year. The interest rate was unchanged. Although the Organization had issued checks in excess of bank balances at June 30, 2015, 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, 2015, there was $81,721 of outstanding borrowings against the line. The credit line is secured by the certificate of deposit. 11. 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 Organization entered into a lease for their primary administrative location in June 2014 which expires in September The Organization also entered into a lease for its fundraising staff at a location in Olathe, Kansas. This lease is cancellable with 60 days notice, and all rent is provided in-kind. The lease for the Overland Park, Kansas, ReStore expires April The lease for the Kansas City, Kansas, ReStore expires January The lease for the Kansas City, Missouri ReStore expires in January Future minimum lease payments under current operating leases in effect are as follows: Year Ending June 30, 2016 $ 232, , , , ,768 Thereafter 565,586 $ 1,439,267 Rent expense for the years ended June 30, 2015 and 2014, was $300,133 and $219,312, 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. In September 2013, the Organization was named in a lawsuit by the landlord of the former ReStore location. The landlord was seeking damages of approximately $53,000 for alleged holdover rent and damages to the property. Subsequent to year end, this lawsuit was settled for approximately $6,

16 12. 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 participant s contribution up to 3% of the participant s respective wages. The Organization contributed $12,172 and $10,920 for the years ended June 30, 2015 and 2014, respectively. 13. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes or periods as of June 30: Construction $ 250,974 $ 351,150 Minor home repair and improvements 68,184 82,313 Family services 16,397 8,912 Fund development 32,373 $ 367,928 $ 442,375 Net assets of $692,382 and $700,513 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 $ 606,961 $ 631,224 Minor home repair and improvements 37,575 28,704 Family services 5,834 10,506 Fund development 39,306 30,000 Other 2, $ 692,382 $ 700, MAJOR CONCENTRATIONS Revenues The Organization received approximately $70,000 and $204,000 direct and passthrough funds from the Department of Housing and Urban Development for the years ended June 30, 2015 and 2014, respectively. This funding represented approximately 3% and 8% of the Organization s net revenues for the years ended June 30, 2015 and 2014, 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. 15

17 15. SUBSEQUENT EVENTS Subsequent to year end, the Organization was notified that the landlord of the Overland Park ReStore location was not renewing the lease. The Organization is required to vacate the location on or before May 1, Management is actively seeking a new location. In July 2015, the Board of Directors approved a resolution directing the Organization to proceed with developing a plan to merge with another affordable housing organization in the Kansas City area. Discussions with this organization are on-going. ********* 16