Habitat for Humanity of Greater Memphis, Inc. Financial Statements

Transcription

1 Habitat for Humanity of Greater Memphis, Inc. Financial Statements Years Ended June 30, 2016 and 2015

2 Table of Contents Independent Auditors' Report... 1 Financial Statements: Statements of Financial Position... 2 Statement of Activities for the Year Ended June 30, Statement of Activities for the Year Ended June 30, Statement of Functional Expenses for the Year Ended June 30, Statement of Functional Expenses for the Year Ended June 30, Statements of Cash Flows... 7 Notes to Financial Statements... 8

3 Independent Auditors' Report Board of Directors Habitat for Humanity of Greater Memphis, Inc. Memphis, Tennessee We have audited the accompanying financial statements of Habitat for Humanity of Greater Memphis, Inc. (the "Organization"), which comprise the statements of financial position as of June 30, 2016 and 2015, and the related statements of activities, 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 from 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 auditors' 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 Organization'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 Organization'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 Habitat for Humanity of Greater Memphis, Inc., as of June 30, 2016 and 2015, and the respective changes in financial position and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Memphis, Tennessee January 5,

4 Statements of Financial Position June 30, 2016 and ASSETS Current assets: Cash and cash equivalents $ 3,650,292 $ 2,283,721 Cash - restricted 199, ,571 Certificates of deposit - restricted 16,137 16,089 Cash held in escrow 302, ,836 Accounts receivable - current portion, net 525, ,477 Mortgages receivable - current portion, net 648, ,169 Pledges receivable Pledges receivable - related party 1,356 1,606 Completed homes available for sale 145, ,966 Construction-in-process, land and repossessed homes 996, ,466 Prepaid expenses 31,196 8,360 Total current assets 6,516,002 5,544,711 Accounts receivable - less current portion, net - 14,590 Mortgages receivable - less current portion, net 4,968,017 4,637,051 Loan costs, net 219, ,982 Investment in joint ventures (Note 6) 6,539,975 6,444,852 Investments - 60,013 Property and equipment, net 232, ,292 Total assets $ 18,476,082 $ 17,187,491 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable and accrued expenses $ 657, ,678 Deferred revenue 987,980 1,259,680 Escrow and deposits 359, ,975 Notes payable - current portion 271, ,380 Total current liabilities 2,276,778 2,138,713 HFMI-SA NMTC IV LLC debt (Notes 6 & 8) 4,938,866 4,938,866 CCM Community Development XXVII LLC debt (Notes 6 & 8) 1,880,000 1,880,000 HFHI NMTC Sub-CDE I, LLC Debt (Notes 6 & 8) 1,322,898 1,322,898 Long-term notes payable, less current portion 4,188,413 2,914,901 Total liabilities 14,606,955 13,195,378 Net assets: Unrestricted 1,174,287 2,546,839 Temporarily restricted 2,694,840 1,419,274 Permanently restricted - 26,000 Total net assets 3,869,127 3,992,113 Total liabilities and net assets $ 18,476,082 $ 17,187,491 See accompanying notes. 2

5 Statement of Activities Year Ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Support and revenue: Support: Grants $ 2,646,330 $ - $ - $ 2,646,330 Contributions 390,896 1,914,066-2,304,962 Special events 92, ,689 Total support 3,129,915 1,914,066-5,043,981 Revenue: Home sales, net 1,144, ,144,447 ReStore sales 1,380, ,380,621 Other 270, ,159 Total revenue 2,795, ,795,227 Net assets released from restrictions 604,487 (604,487) - - Total support and revenue 6,529,629 1,309,579-7,839,208 Expenses: Program services: Construction and other programs 6,504, ,504,923 Support services: General and administrative 418, ,978 Fundraising 1,038, ,038,293 Total expenses 7,962, ,962,194 Change in net assets before modification of restrictions (1,432,565) 1,309,579 - (122,986) Donor modification of restrictions 60,013 (34,013) (26,000) - Change in net assets (1,372,552) 1,275,566 (26,000) (122,986) Net assets, beginning of year 2,546,839 1,419,274 26,000 3,992,113 Net assets, end of year $ 1,174,287 $ 2,694,840 $ - $ 3,869,127 See accompanying notes. 3

6 Statement of Activities Year Ended June 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Support and revenue: Support: Grants $ 1,483,546 $ - $ - $ 1,483,546 Contributions 800, ,263-1,369,871 Special events 92, ,495 Total support 2,376, ,263-2,945,912 Revenue: Home sales, net 1,258, ,258,579 ReStore sales 1,324, ,324,873 Other 244, ,793 Total revenue 2,828, ,828,245 Net assets released from restrictions 339,838 (339,838) - - Total support and revenue 5,544, ,425-5,774,157 Expenses: Program services: Construction and other programs 5,436, ,436,442 Support services: General and administrative 436, ,635 Fundraising 796, ,957 Total expenses 6,670, ,670,034 Change in net assets (1,125,302) 229,425 - (895,877) Net assets, beginning of year 3,672,141 1,189,849 26,000 4,887,990 Net assets, end of year $ 2,546,839 $ 1,419,274 $ 26,000 $ 3,992,113 See accompanying notes. 4

7 Statement of Functional Expenses Year Ended June 30, 2016 Construction and General and Total Other Programs Administrative Fundraising Expenses Salaries $ 811,728 $ 114,609 $ 665,604 $ 1,591,941 Payroll taxes 50,403 29,189 38, ,415 Total personnel 862, , ,427 1,710,356 Advertising and public relations 86,437-48, ,355 Amortization 43, ,258 Bank charges 60,399 18,571 2,551 81,521 Benefits 11,786 6,834 10,653 29,273 Construction costs 4,134, ,363 4,136,529 Contract labor 104,647-14, ,435 Cost of events 18,659 2,901 63,772 85,332 Donation and tithe - 55,000-55,000 Dues and subscriptions 3,108 7,052 2,953 13,113 Employee recruitment ,945 2,745 Information technology 18,709 6,783 18,701 44,193 Insurance 244,185 43,066 71, ,165 Interest 164,640 20, ,857 Maintenance and repairs 85,272 5,970 8,586 99,828 Miscellaneous 6, ,643 Postage 3, ,072 6,287 Printing 9, ,104 25,510 Professional fees 34,356 59,694 12, ,414 Rent 198,368 14,010 27, ,249 Sponsorships 2, ,500 Supplies and tools 18,035 6,786 4,345 29,166 Taxes and permits 102,152 (7,646) ,821 Telephone and internet 21,287 3,241 7,059 31,587 Training and workshops 8,287 4,192 3,683 16,162 Travel 13,257 17,004 7,984 38,245 Utilities 74,042 2,781 5,562 82,385 Vehicles 54, ,344 Weed cutting 59, ,491 Total expenses before depreciation 6,442, ,548 1,038,293 7,893,764 Depreciation 62,000 6,430-68,430 Total expenses $ 6,504,923 $ 418,978 $ 1,038,293 $ 7,962,194 See accompanying notes. 5

8 Statement of Functional Expenses Year Ended June 30, 2015 Constructon and General and Total Other Programs Administrative Fundraising Expenses Salaries $ 737,705 $ 90,435 $ 464,790 $ 1,292,930 Payroll taxes 47,134 23,527 27,263 97,924 Total personnel 784, , ,053 1,390,854 Advertising and public relations 40,101-57,132 97,233 Amortization 41, ,729 Bank charges 79,922 12,610 1,678 94,210 Construction costs 3,163,622 (991) 193 3,162,824 Contract labor 95, ,011 Cost of events 7,912 5,555 60,881 74,348 Donation and tithe - 36,700-36,700 Dues and subscriptions 1,604 3,505 3,829 8,938 Employee recruitment Information technology 16,736 6,438 19,867 43,041 Insurance 213,219 40,341 42, ,967 Interest 241,623 30, ,886 Maintenance and repairs 153,390 4,787 9, ,967 Miscellaneous 7,292 2,260 2,250 11,802 Postage 2, ,680 5,263 Printing 4,992 1,196 18,150 24,338 Professional fees 38,550 55,382 12, ,961 Rent 175,772 13,148 25, ,890 Supplies and tools 20,746 8,094 3,781 32,621 Taxes and permits 101,905 61, ,870 Telephone and internet 20,278 4,624 8,761 33,663 Training and workshops 2,410 14,855 6,580 23,845 Travel 32,931 17,040 23,717 73,688 Utilities 61,498 2,463 4,927 68,888 Vehicles 47, ,240 Weed cutting 31, ,055 Total expenses before depreciation 5,386, , ,957 6,618,251 Depreciation 50,000 1,783-51,783 Total expenses $ 5,436,442 $ 436,635 $ 796,957 $ 6,670,034 See accompanying notes. 6

9 Statements of Cash Flows Year Ended June 30, 2016 and 2015 Cash flows from operating activities: Change in net assets $ (122,986) $ (895,877) Adjustments to reconcile change in net assets to cash provided by operating activities: Depreciation 68,430 51,783 Net unrealized and realized loss (gain) on investments 3,088 (388) Amortization of discount on mortgages receivable (497,685) (564,383) Present value discount on notes payable (14,540) (253,910) Amortization of closing costs 44,986 41,729 Equity in earnings of joint ventures (95,123) (101,047) Allowance for doubtful account 7,744 (29,258) Reserve on repossessed homes (20,053) 88,877 Loss (gain) on sale of completed homes (56,096) 88,321 Sale of foreclosed homes 151, ,323 Changes in assets and liabilities: Certificates of deposit - restricted (48) (48) Cash held in escrow 22,782 18,723 Grants and accounts receivable (215,774) 104,207 Mortgages receivable 2,095,170 2,460,237 Pledges receivable - 24,950 Pledges receivable - related party Construction-in-process, land and repossessed homes (1,433,004) (1,582,405) Prepaid expenses (22,836) 3,560 Accounts payable and accrued expenses 124,718 1,207,274 Escrow and deposits (20,010) (49,478) Total adjustments 143,087 1,621,317 Net cash provided by operating activities 20, ,440 Cash flows from investing activities: Investment in joint venture - (911,557) Proceeds from sale of investment 56,925 - Purchase of property and equipment (79,230) (67,882) Net cash used in investing activities (22,305) (979,439) Cash flows from financing activities: Loan costs - (91,936) Net change in line of credit - (466,568) Borrowings on notes payable 1,850,635 1,744,629 Repayments on notes payable (529,226) (449,951) Loan proceeds from HFHI NMTC Sub-CDE I, LLC debt - 1,322,898 Net cash provided by financing activities 1,321,409 2,059,072 Net increase in cash and cash equivalents 1,319,205 1,805,073 Cash and cash equivalents (including restricted cash) - beginning of year 2,530, ,219 Cash and cash equivalents (including restricted cash) - end of year $ 3,849,497 $ 2,530,292 Supplemental disclosure of cash flow information: Cash paid for interest $ 184,857 $ 271,886 Schedule of noncash operating transactions: Transfer of homes for mortgages receivables $ 1,889,547 $ 2,280,386 See accompanying notes. 7

10 Notes to Financial Statements Organization Habitat for Humanity of Greater Memphis, Inc. (the "Organization"), is a not-for-profit voluntary health and welfare agency established to provide low income families a means of owning a home. The Organization is supported by donations from the community, government grants, and sales from the ReStore. Summary of Significant Accounting Policies Basis of presentation The accompanying financial statements reflect the results of all programs operated and controlled by the Organization. The financial statements are prepared in accordance with the American Institute of Certified Public Accountants Audit and Accounting Guide, Not-for-Profit Entities, which is in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Estimates The process of preparing financial statements in conformity with GAAP requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Revenue recognition The Organization receives support from private contributions. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending upon the existence and/or nature of any donor restrictions. In accordance with GAAP, the Organization recognizes contribution revenue when the donor makes a promise to give that is, in substance, unconditional. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. 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 reported in the statement of activities as net assets released from restrictions. Donor-restricted contributions whose restrictions are met in the same reporting period are reported as unrestricted support. Grant funds are earned and reported as revenue when the Organization has incurred expenses in compliance with the specific restrictions of the grant agreement. Grant funds that are restricted for use in home construction are reflected as unrestricted revenue since these funds are generally received and spent during the same fiscal year. Adjustments to the fair value of investments are recognized in the statement of activities as unrestricted or temporarily restricted as stipulated by the donor. The value of donated materials and land is recorded at fair value at the date of the gift. Home sales are transfers to homeowners in exchange for a non-interest bearing mortgage receivable. The noninterest mortgages are discounted at various rates based upon prevailing market rates at the inception of the mortgages. Discounts are amortized over the lives of the mortgages. Advertising Advertising costs are charged to expense as incurred. Advertising expense totaled $81,623 and $46,844 for the years ended June 30, 2016 and 2015, respectively. 8

11 Notes to Financial Statements Concentration of credit risk The mortgage notes are collateralized by real property and transfers to homeowners are based on actual construction costs which in certain instances are very favorable due to donated labor. The homeowners who are extended credit are low income families. The Organization maintains bank deposit accounts, which, at times, exceed federally insured limits. Cash and cash equivalents Cash and cash equivalents include highly liquid investments with an original maturity of three months or less when purchased. Cash restricted Restricted cash represents cash received as a result of the New Market Tax Credit Program and will be used to pay future program expenses. See Note 6 for further discussion. Construction-in-process, land and repossessed homes Construction-in-process represents those houses which are currently under construction for families. Land consists of land and improvements to be utilized as lots for future homeowners. Repossessed homes consist of foreclosed and uninhabited houses that are available for future homeowners. Purchased land and materials for the construction of houses are recorded at cost and costs incurred to improve land are capitalized when incurred. Repossessed homes are recorded at the outstanding mortgage balance at the date of reclamation. Overhead and administration expenses of the Organization's home construction are included in program services construction expenses. Periodically the Organization reviews the carrying value of purchased or donated land and repossessed homes, and records any impairment charges necessary to reflect a decrease in the land's or repossessed home's fair value. Inventory For the ReStore operations, contributed inventory is not recorded until it is sold due to the uncertainty of its ultimate value. Investment in joint ventures The Organization invests in three joint ventures with other Habitat affiliates to take advantage of New Market Tax Credits. The investment is recorded on the equity method. See Note 6 for further discussion. Accounts receivable The Organization records accounts receivable at their estimated net realizable value. An allowance for doubtful accounts is recorded when needed based upon management's estimate of uncollectible accounts, determined by analysis of specific customer accounts. Past due balances and delinquent receivables are charged against the allowance when they are determined to be uncollectible by management. The allowance for doubtful accounts at June 30, 2016 and 2015 was $64,648 and $56,904, respectively. The Organization does not recognize interest income on outstanding accounts receivable. Taxes collected from customers and remitted to governmental authorities The Organization records revenues for the ReStore gross of any applicable sales, occupancy, and other related revenue transaction taxes. These taxes are included in construction and other programs expense on the statement of activities. 9

12 Notes to Financial Statements Income taxes The Organization is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code ("IRC") and is similarly exempt from Tennessee state income taxes under provision of the Tennessee tax regulations. Accordingly, no provision for income taxes is included in the accompanying financial statements. The Organization has been determined not to be a private foundation under Section 509(a) of the IRC. The Organization has determined that it does not have any material uncertain tax positions as of June 30, 2016 or 2015, and there are no interest and penalties related to income tax assessments. Property and equipment Property and equipment are recorded at cost, if purchased, or at fair value at the date of the gift, if donated. Asset improvements and repairs that significantly extend the life of an asset are capitalized. The costs of maintenance and repairs are charged to expense as incurred. Depreciation amounted to $68,430 and $51,783 for the years ended June 30, 2016 and 2015, respectively, and was computed using the straight-line method over the respective assets' estimated useful lives, which range from 5 to 15 years. Property and equipment as of June 30 is summarized as follows: Leasehold improvements $ 196,320 $ 169,286 Furniture and equipment 187, ,478 Automobiles 168, , , ,137 Less accumulated depreciation (319,275) (250,845) Functional allocation of expenses $ 232,092 $ 221,292 The costs of providing the various programs and activities of the Organization have been summarized on a functional basis in the accompanying statement of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Donor restricted endowment funds In accordance with GAAP, the Organization provides disclosure related to the net asset classification of donorrestricted endowment funds for a not-for-profit organization. The amount classified as permanently restricted shall be the amount of the fund (a) that must be retained permanently in accordance with explicit donor stipulations or (b) that in the absence of such stipulations, the Organization's governing board determines must be retained (preserved permanently consistent with the relevant law). The portion of the fund that is not classified as permanently restricted net assets will be temporarily restricted until appropriated for expenditure by the Organization. In-kind services A substantial number of volunteers have made significant contributions of their time to the Organization. The value of contributed services meeting the requirements for recognition in the financial statements is not material and has not been recorded. Subsequent events The Organization evaluated the effect subsequent events would have on the financial statements through January 5, 2017, which is the date the financial statements were available to be issued. 10

13 Notes to Financial Statements Fair Value Measurements Fair value as defined under GAAP is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1: Observable inputs such as quoted prices in active markets. Level 2: Inputs other than quoted prices in active markets that are either directly or indirectly observable. Level 3: Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Organization's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There were limited or no observable market data for the prices of the pooled fund investments that were held by the Organization at the Community Foundation of Greater Memphis ("CFGM"), and the resulting fair values of these securities were categorized as Level 3. The fund manager valued the investment in this fund based on their share of the NAVs of the underlying investments. The Organization's interest in these investments was governed by an agreement between the Organization and the CFGM. There were no changes during the years ended June 30, 2016 and 2015, to the Organization's valuation techniques used to measure asset and liability fair values on a recurring basis. The following tables set forth by level within the fair value hierarchy the Organization's assets accounted for at fair value on a recurring basis: Assets at Fair Value as of June 30, 2015 Level 1 Level 2 Level 3 Investments: CFGM Balanced Pool $ - $ - $ 60,013 There were no investments measured at fair value at the end of June 30, 2016 The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values. Furthermore, although the Organization believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. 11

14 Notes to Financial Statements The following table illustrates the activity of Level 3 assets from July 1, 2014 to June 30, 2016: CFGM Balanced Pool Fair value at July 1, 2014 $ 59,625 Net unrealized appreciation 388 Fair value at June 30, ,013 Net realized loss (3,088) Sales (56,925) Fair value at June 30, 2016 $ - Mortgages Receivable and Cash Held in Escrow The Organization records and accounts for mortgage loans receivable based on the present value of the loan at the time of closing. For purposes of calculating loan present values, interest rates are determined based on the market rates for a similar type of loan on the date of closing and range from 6% to 9% for all loans outstanding. This method of accounting properly reflects the value of the mortgage loans receivable in the financial statements and recognizes interest income over the life of the loans. Monthly payments include principal, taxes and insurance. Administration of the mortgages and tax and insurance escrow is handled by third parties. Amounts received for down payments, temporary occupancy agreements, rent escrow, taxes and insurance are maintained by the Organization in a separate bank account. The balance of that account at June 30, 2016 and 2015, was $302,054 and $324,836, respectively. The Organization has recorded an allowance for uncollectible mortgages receivable of $200,000 as of June 30, 2016 and Future scheduled mortgage payments are as follows: 2017 $ 648, , , , ,085 Thereafter 9,254,742 12,310,044 Less discount (6,493,666) Less allowance for doubtful accounts (200,000) $ 5,616,378 Receivables Sold with Recourse The Organization has entered into loan purchasing agreements with recourse to financial institutions. These transactions were accounted for as secured borrowings. Proceeds received from the loan purchase agreements totaled $1,850,635 and $1,642,220 for the years ending June 30, 2016 and 2015, respectively. The outstanding balances are reflected as notes payable due to Tennessee Housing Development and Iberia Bank. See Note 8. In the event of default, the Organization pays the financial institution a predetermined amount. The loans mature at various times through

15 Notes to Financial Statements Investment in Joint Venture and New Market Tax Credit Program The Organization, along with other Habitat affiliates, is participating in a joint venture to take advantage of New Market Tax Credit ("NMTC") financing. The NMTC Program permits corporate and individual taxpayers to receive a credit against federal income taxes for making qualified equity investments in qualified community development entities ("CDE"). During 2011, the Organization invested $3,726,181 in the joint venture, HFHI-SA Leverage VII, LLC, consisting of cash and qualified investment properties. This investment represents a 23% ownership in the joint venture. The joint venture contributed its combined resources to HFHI-SA Investment Fund IV, LLC ("Investment Fund") which received additional investment from U.S. Bancorp Community Development Corporation ("Bank") as the federal tax credit investor under the NMTC Program. As part of the NMTC Program, the Investment Fund invested in HFHI-SA NMTC IV, LLC, a qualified CDE. The CDE is the conduit for accomplishing the NMTC Program specifics of constructing and selling qualified housing properties to low income residents. Under the CDE, the Organization was able to secure a 15-year loan in the amount of $4,938,866 to be used solely in accordance with NMTC Program compliance requirements. The loan accrues interest only for years 1 through 7 at a rate of.75%. Beginning in year 8 through year 15 the principal balance of the loan is reduced by an eight-year amortization at the same rate of.75%. The Investment Fund may be subject to tax credit recapture if the NMTC Program compliance requirements are not met over a seven-year period. The ultimate holder of the above loan from the CDE to the Organization is the Bank through its participation in the Investment Fund. In January 2018, the Bank is expected to waive the payment of the debt so as to participate in the NMTC Program via exercising its put option agreement. Under the terms of the put option agreement, the joint venture is expected to purchase the ownership interest of the Bank in the Investment Fund. Exercise of the option will effectively allow the Organization to extinguish its outstanding debt owed to the Bank. In July 2012, the Organization entered into another a joint venture to take advantage of a NMTC Program similar to the one noted above. With the new NMTC Program, the Organization invested $1,434,475 in the joint venture, CCM Community Development XXVII, LLC, consisting of cash and qualified investment properties. This investment represents a 20% ownership in the joint venture. Under the CDE, the Organization was able to secure a 15-year loan in the amount of $1,880,000 to be used solely in accordance with NMTC Program compliance requirements. The loan accrues interest only for years 1 through 7 at a rate of.76%. Beginning in year 8 through year 15 the principal balance of the loan is reduced by an eight-year amortization at the same rate of.76%. The CDE also has the option to waive the debt in January 2020, so as to participate in the NMTC program as noted above. In December 2014, the Organization entered into a third NMTC Program similar to those noted above. With the new NMTC Program, the Organization invested $911,557 in the joint venture, HFHI NMTC Sub-CDE I, LLC, consisting of cash and qualified investment properties. This investment represents a 23% ownership in the joint venture. Under the CDE, the Organization was able to secure a 30-year loan in the amount of $1,322,898 to be used solely in accordance with NMTC Program compliance requirements. The loan accrues interest only for the years 1 through 10 at a rate of.69%. Beginning in year 11 through year 30 the principal balance of the loan is reduced by a twenty-year amortization at the same rate of.69%. The CDE also has the option to waive the debt in January 2022, so as to participate in the NMTC program as noted above. 13

16 Notes to Financial Statements Lines of Credit As of June 30, 2016, the Organization has two lines of credit with First Tennessee Bank and Iberia bank of $1,000,000 and $500,000, respectively. The First Tennessee Bank line of credit bears interest quarterly at the bank s prime rate (3.50% as of June 30, 2016) and expires on April 30, The Iberia Bank line of credit bears interest monthly at the bank s prime rate (3.50% as of June 30, 2016) and expires June 26, At June 30, 2016, the Organization had no outstanding borrowings under these lines of credit. Notes Payable Notes payable consists of the following at June 30, 2016 and 2015: Notes payable to Tennessee Housing Development with imputed interest rates ranging from 3.25% to 8.25%, payable monthly, maturing at various times through 2046, collateralized by certain mortgages receivable with principal balances totaling $4,033,571 and $3,787,136 as of June 30, 2016 and 2015, respectively. $ 2,254,725 $ 2,128,734 Notes payable to a bank, bearing interest of 7.95%, payable in monthly installments of $167, maturing in 2017, collateralized by cash balances held on deposit with the bank at June 30, 2016 and ,800 21,150 Notes payable due to Habitat for Humanity International, with interest of ,800 Notes payable due to a CDE (Note 6) with semi-annual interest only payments until 2020 at.761%. Semi-annual payments of $121,338 are due starting November 10, 2020 through the maturity date of May 10, The loan is secured by substantially all the assets acquired by the Organization from the project loan proceeds. The CDE has the option to waive the debt in January 2020 so as to participate in the NMTC Program. 1,880,000 1,880,000 Notes payable due to a CDE (Note 6) with semi-annual interest only payments until 2018 at.748%. Semi-annual payments of $318,586 are due starting June 5, 2018 through the maturity date of December 5, The loan is secured by substantially all the assets acquired by the Organization from the project loan proceeds. The CDE has the option to waive the debt in January 2018 so as to participate in the NMTC Program. 4,938,866 4,938,866 Notes payable due to a CDE (Note 6) with semi-annual interest only payments until 2024 at.689%. Semi-annual payments of $33,886 are due starting May 5, 2024 through the maturity date of November 5, The loan is secured by substantially all the assets acquired by the Organization from the project loan proceeds. The CDE has the option to waive the debt in January 2024 so as to participate in the NMTC Program. 1,322,898 1,322,898 14

17 Notes to Financial Statements Notes payable to Iberia bank, with imputed interest rates ranging from 1.24% to 1.28%, payable monthly, maturing at various times through 2044, collateralized by certain mortgages receivable with principal balances totaling $2,571,183 and $863,273 at June 30, 2016 and 2015, respectively. 2,192, ,597 Future maturities of notes payables are as follows: 2017 $ 271, , , , ,652 Thereafter 10,728,657 14,189,845 Less discount 1,587,931 Total $ 12,601,914 $ 12,601,914 $ 11,295,045 Net Assets Temporarily restricted net assets are available for the following purposes as of June 30: Home construction $ 2,674,158 $ 1,358,827 Organization support - 34,013 Grants 20,682 26,434 $ 2,694,840 $ 1,419,274 Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes as follows for June 30: Home construction $ 598,735 $ 334,394 Grants 5,752 5,444 $ 604,487 $ 339,838 15

18 Notes to Financial Statements Commitments and Contingencies The Organization has been named a beneficiary along with five other charitable organizations of a trust with a living beneficiary. The Organization has not recorded this contribution in their revenue as the trustee can, at their discretion, withdraw all funds for the benefit of the living beneficiary. Therefore, it is not known the amount, if any, of the funds that will be transferred to the Organization at the date that the trust is distributed. Leases The Organization leases office and ReStore space and equipment through operating leases. Subsequent to year end, the Organization renewed the office and ReStore space and expanded the square footage. Future minimum rental payments including the lease renewal are as follows: 2017 $ 245, , , , ,405 Thereafter 1,357,186 $ 2,628,201 The office space rent escalated in the first two years of the agreement and is expensed on a straight-line basis in accordance with GAAP. Rent expense was $240,249 and $214,891 for the years ended June 30, 2016 and 2015, respectively. Endowment During March 2016, with permission from the donor, the Board of Directors approved the dissolution of the endowment fund. The original gifts were returned to the donor and all prior earnings are now unrestricted. 16