HEARTLAND HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2016 AND 2015 AND INDEPENDENT AUDITORS REPORT

Transcription

1 HEARTLAND HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2016 AND 2015 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, 2016 and 2015, 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, 2016 and 2015, 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. Emphasis of Matter As discussed in Note 1 to the financial statements, on June 23, 2016, the Board of Directors approved a merger of the Organization with Habitat for Humanity/Kansas City, Inc. The merger is effective July 1, Our opinion is not modified with respect to this matter. Overland Park, Kansas September 22,

3 HEARTLAND HABITAT FOR HUMANITY, INC. Statements of Financial Position June 30, 2016 and 2015 ASSETS CURRENT ASSETS: Cash: Unrestricted $ 116,620 $ 98,025 Restricted 571, ,271 Total cash 687, ,296 Certificate of deposit 115, ,000 Grants and contributions receivable 4,167 59,750 Contracts and other receivables 55,698 2,994 Inventory 307, ,584 Prepaid expenses and other current assets 38,147 18,140 Construction in progress and property available for sale, at net realizable value 633, ,862 Mortgage loans receivable, current portion 390, ,400 Total current assets 2,232,977 1,975,026 MORTGAGE LOANS RECEIVABLE, NET, NON-CURRENT PORTION 3,549,415 3,584,587 PROPERTY AND EQUIPMENT, NET 127, ,400 LEASE DEPOSITS AND OTHER ASSETS 42,901 33,574 TOTAL ASSETS $ 5,952,638 $ 5,727,587 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Checks issued in excess of bank balance $ 11,544 $ 20,428 Line of credit 61,009 81,721 Notes payable, current portion 2,600 2,220 Accounts payable 156, ,945 Accrued expenses 117, ,822 Mortgage escrow deposits held in trust 147, ,431 Total current liabilities 496, ,567 NOTES PAYABLE, NON-CURRENT PORTION 14,766 17,550 TOTAL LIABILITIES 510, ,117 COMMITMENTS AND CONTINGENCIES NET ASSETS: Unrestricted 5,017,385 4,664,130 Board designated 36,820 89,412 Total unrestricted net assets 5,054,205 4,753,542 Temporarily restricted 387, ,928 Total net assets 5,441,865 5,121,470 TOTAL LIABILITIES AND NET ASSETS $ 5,952,638 $ 5,727,587 See notes to financial statements. 2

4 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Activities and Changes in Net Assets Year Ended June 30, 2016 Temporarily Unrestricted Restricted Total PUBLIC SUPPORT AND REVENUE: PUBLIC SUPPORT: Contributions and grants: Foundations $ 32,025 $ 229,969 $ 261,994 Religious organizations 37, , ,970 Corporations 79, , ,133 Individuals 107, ,235 Federated campaigns 1,996 1,996 Other In-kind contributions 1,776,002 1,776,002 Special event tickets and auction 11,144 11,144 Government grants and contracts 267, ,444 Net assets released from restrictions 450,237 (450,237) - Total public support 2,763,236 19,732 2,782,968 REVENUE: Home sales 485, ,054 Less: Cost of home sales, net (487,928) (487,928) Net home sales (2,874) (2,874) ReStore retail sales 1,688,019 1,688,019 Less: Cost of retail sales (1,688,019) (1,688,019) Net ReStore sales - - Accretion of mortgage loan discount 287, ,218 Late fees 1,351 1,351 Interest income 1,774 1,774 Other income, net 52,752 52,752 Total public support and revenue 3,103,457 19,732 3,123,189 EXPENSES: PROGRAM SERVICES: Housing services 774, ,402 Family support 102, ,019 ReStore 1,312,609 1,312,609 Total program services 2,189,030 2,189,030 SUPPORTING SERVICES: Management and general 294, ,278 Fundraising 319, ,486 Total supporting services 613, ,764 Total expenses 2,802,794 2,802,794 CHANGE IN NET ASSETS 300,663 19, ,395 NET ASSETS, BEGINNING OF YEAR 4,753, ,928 5,121,470 NET ASSETS, END OF YEAR $ 5,054,205 $ 387,660 $ 5,441,865 See notes to financial statements. 3

5 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. 4

6 HEARTLAND HABITAT FOR HUMANITY, INC. Statement of Functional Expenses Year Ended June 30, 2016 Housing Family Program Management Services Support ReStore Total and General Fundraising Total Salaries and wages $ 247,362 $ 61,876 $ 409,987 $ 719,225 $ 121,875 $ 201,398 $ 1,042,498 Payroll taxes 23,920 4,937 30,646 59,503 9,068 16,405 84,976 Employee benefits 10,030 2,802 10,075 22,907 5,004 7,457 35,368 Contracted services , ,071 18,112 15, ,876 Occupancy 18,304 8, , ,483 8,300 10, ,583 Office expense 18,571 12,200 22,560 53,331 30,026 18, ,556 Travel and vehicle expenses 10, ,780 28,000 3,171 4,214 35,385 Special event expenses ,561 14,165 Forgiveness of second mortgages 72,914 72,914 72,914 Program supplies and other program expenses 21,287 6,977 28, ,417 Mortgage loan discount expense 281, , ,282 Property management and development expenses 10, ,285 13,783 13,783 Property taxes 7, ,574 7,574 Insurance 19, ,688 37,673 8, ,946 Advertising and promotion ,776 20,099 2,085 22,184 Professional fees 6,304 2,981 6,665 15,950 47,660 23,621 87,231 Interest expense 1,517 1,517 2,407 3,924 Contribution to Habitat for Humanity International - 35,000 35,000 Depreciation and amortization 22,619 12,566 35, ,903 Other expenses 1, ,528 30,665 4,754 4,810 40, , ,019 1,312,609 2,189, , ,486 2,802,794 Cost of home sales, net 487, , ,928 TOTAL FUNCTIONAL EXPENSES $ 1,262,330 $ 102,019 $ 1,312,609 $ 2,676,958 $ 294,278 $ 319,486 $ 3,290,722 PERCENTAGE OF COSTS 38% 3% 40% 81% 9% 10% 100% See notes to financial statements. 5

7 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. 6

8 HEARTLAND HABITAT FOR HUMANITY, INC. Statements of Cash Flows Years Ended June 30, 2016 and 2015 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 320,395 $ (182,631) Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation and amortization 35,903 33,677 Gain on disposal of fixed assets (250) Forgiveness of debt - contribution (22,361) Mortgage loan discount activity, net 69, ,290 Sale of homes for mortgage loans receivable and issuance of forgivable mortgage loans receivable (496,215) (636,492) Forgiveness of mortgage loans receivable 72,915 91,221 Foreclosure of mortgage loans receivable 13,750 Changes in operating assets and liabilities: Grants and contributions receivable 55,583 1,576 Contracts and other receivables (52,704) 18,806 Inventory (79,852) (33,393) Prepaid expenses and other current assets (20,007) 12,309 Construction in progress and property available for sale (115,012) (67,737) Lease deposits and other assets (9,327) (14,001) Checks issued in excess of bank balance (8,884) (6,581) Accounts payable (40,663) 43,437 Accrued expenses (24,407) 44,556 Mortgage escrow deposits held in trust 1,726 20,388 Net cash used in operating activities (290,937) (471,186) CASH FLOWS FROM INVESTING ACTIVITIES Payments received on mortgage loans receivable 387, ,535 Proceeds from sale of equipment 250 Purchase of property and equipment (28,848) (41,500) Net cash provided by investing activities 358, ,035 CASH FLOWS FROM FINANCING ACTIVITIES Change in line of credit (20,712) 51,632 Payments on notes payable (2,404) (2,218) Net cash (used in) provided by financing activities (23,116) 49,414 NET INCREASE (DECREASE) IN CASH 44,459 (115,737) CASH, BEGINNING OF YEAR 643, ,033 CASH, END OF YEAR $ 687,755 $ 643,296 See notes to financial statements. 7

9 HEARTLAND HABITAT FOR HUMANITY, INC. Notes to Financial Statements Years Ended June 30, 2016 and NATURE OF ACTIVITIES AND PROGRAM DESCRIPTIONS Merger of the Organization The Board of Directors of Heartland Habitat for Humanity (the Organization ) approved a plan on June 23, 2016, to merge the Organization with Habitat for Humanity/Kansas City, Inc., another local affiliate of Habitat for Humanity. The merger is effective July 1, The new Organization will be known as Habitat for Humanity of Kansas City and will serve six counties in the Kansas City region including Jackson, Clay and Platte in Missouri, and Leavenworth, Wyandotte and Johnson in Kansas. 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 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 260 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 3 new and 2 rehab homes to sell to low-income families during the year ended June 30, The Organization completed 5 new and 2 rehab homes to sell to low-income families during the year ended June 30, Since inception, the Organization has enabled more than 260 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 Santa Fe 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. 8

10 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, and permanently restricted net assets. The Organization had no permanently restricted net assets at June 30, 2016 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, 2016 or Supplemental disclosure of cash flow information is as follows: Cash paid during the year for interest $ 3,924 $ 3,861 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 $ 147,157 $ 145,431 Board designated 36,820 89,412 Temporarily restricted contributions 387, ,428 $ 571,135 $ 545,271 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, 2016, with penalties for early withdrawal. Subsequent to June 30, 2016, the certificate was renewed at 0.30% for an additional one year period. 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 $ 28,233 $ 46,267 ReStore inventory 279, ,317 $ 307,436 $ 227,584 9

11 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 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 $ 1,694,688 $ 1,471,847 Building materials and supplies 6,216 9,635 Rent 37,298 53,320 Professional services 20,784 13,000 Land and other 17,016 11,463 $ 1,776,002 $ 1,559,265 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, 2016 and 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, 2016 and 2015, the Organization recognized donated professional and IT related services of $20,784 and $13,000, respectively. 10

12 A substantial number of volunteers have made significant contributions of their time to support the Organization s programs. The Organization received over 30,000 and 23,000 volunteer hours during the years ended June 30, 2016 and 2015, 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. 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 September 22, 2016, the date that these financial statements were available to be issued. 3. BOARD DESIGNATED NET ASSETS During fiscal year 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 fiscal year 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. The Board also adopted a policy to designate 25% of the operating cash flow from the Northland store. During fiscal year 2016, the Board approved the use of approximately $62,000 for various professional fees incurred related to the merger, purchase of a forklift, and other operating expenses. Approximately $10,000 was designated from the Northland store operating cash flow. 11

13 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 Corporations $ 1,167 7,250 Churches and religious organizations 3, CONTRACTS AND OTHER RECEIVABLES $ 4,167 $ 59,750 Contracts and other receivables consist of the following, all of which are due within the next year. No allowance is considered necessary. Government contracts $ 53,205 Other 2,493 $ 2,994 Total receivables $ 55,698 $ 2, CONSTRUCTION IN PROGRESS AND PROPERTY AVAILABLE FOR SALE Construction in progress consists of 2 and 3 new homes that were in process of construction at June 30, 2016 and 2015, respectively. Property available for sale, which includes completed new construction and foreclosed homes under rehabilitation, consists of 5 homes and 4 homes, as of June 30, 2016 and 2015, respectively. In addition, the Organization held 12 and 13 plots of land located in the Kansas City metropolitan area for potential future construction projects as of June 30, 2016 and 2015, 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 5 and 6 homes in 2016 and 2015, 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 $ 217,910 $ 247,868 Property available for sale 372, ,463 Land available for sale/development 43,140 30, MORTGAGE LOANS RECEIVABLE $ 633,874 $ 518,862 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 7.48% and 7.51% for the years ended June 30, 2016 and 2015, 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 $287,218 and $267,321 for the years ended June 30, 2016 and 2015, respectively. The Organization held 155 and 152 mortgage notes at June 30, 2016 and 2015, respectively. 12

14 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, 2016 and 2015, the Organization provided $28,215 and $25,000, respectively, in forgivable second mortgages and recognized $72,914 and $104,971, 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 $ 7,912,097 $ 8,007,168 Less: unamortized discount (4,253,384) (4,359,482) First mortgage loans receivable, net of discount 3,658,713 3,647,686 Forgivable second mortgages 281, ,301 Total mortgage loans receivable, net 3,940,315 3,973,987 Less: Current portion (390,900) (389,400) $ 3,549,415 $ 3,584, PROPERTY AND EQUIPMENT Property and equipment consist of the following at June 30: Land $ 926 $ 926 Buildings and improvements 201, ,706 Leasehold improvements 35,796 31,660 Construction and warehouse equipment 70,681 66,580 Vehicles 109, ,897 Furniture 11,401 10,365 Computers and office equipment 73,883 72,808 Website 15,000 15, , ,942 Less accumulated depreciation and amortization (391,866) (375,542) $ 127,345 $ 134,400 Depreciation and amortization expense of $35,903 and $33,677 is included in the Statement of Activities as of June 30, 2016 and 2015, 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%. In 2014, 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 $

15 Non-interest bearing note, payable to a charitable foundation $ 37,392 $ 41,296 Less: unamortized discount (20,026) (21,526) 17,366 19,770 Less: current maturities (2,600) (2,220) Aggregate maturities of notes payable over the next five years are as follows: 2017 $ 2, , , , ,560 Thereafter 2,080 $ 14,766 $ 17,550 $ 17, LINE OF CREDIT During the year ended June 30, 2016, 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, 2016, the line of credit was extended and matures on October 16, The interest rate was unchanged. Although the Organization had issued checks in excess of bank balances at June 30, 2016, 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, 2016, there was $61,009 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 lease for the Overland Park, Kansas, ReStore expires June 30, 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, 2017 $ 298, , , , ,218 Thereafter 1,094,367 $ 2,436,607 Rent expense for the years ended June 30, 2016 and 2015, was $314,108 and $300,133, respectively. 14

16 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. 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 $15,638 and $12,172 for the years ended June 30, 2016 and 2015, respectively. 13. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes or periods as of June 30: Construction $ 290,253 $ 250,974 Minor home repair and improvements 75,012 68,184 Family services 10,013 16,397 Fund development and other 12,382 32,373 $ 387,660 $ 367,928 Net assets of $450,237 and $692,382 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 $ 407,033 $ 606,961 Minor home repair and improvements 18,330 37,575 Family services 6,384 5,834 Fund development 18,490 39,306 Other 2,706 $ 450,237 $ 692,382 15

17 14. MAJOR CONCENTRATIONS Revenues The Organization received approximately $265,500 and $70,000 direct and passthrough funds from the Department of Housing and Urban Development for the years ended June 30, 2016 and 2015, respectively. This funding represented approximately 9% and 3% of the Organization s net revenues for the years ended June 30, 2016 and 2015, 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. ********* 16