PROJECT HOME AND SUBSIDIARIES

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS

2 TABLE OF CONTENTS Page Report of Independent Certified Public Accountants 1-2 Consolidated Financial Statements Statements of Financial Position 3 Statements of Activities and Changes in Net Assets 4-5 Statements of Functional Expenses 6-7 Statements of Cash Flows 8 Notes to Consolidated Financial Statements 9-30

3 Report of Independent Certified Public Accountants Board of Directors Project HOME and Subsidiaries Philadelphia, Pennsylvania Report on the Financial Statements We have audited the accompanying consolidated financial statements of Project HOME (a not-for-profit organization) and Subsidiaries, which comprise the consolidated statements of financial position as of June 30, 2015 and 2014 and the related consolidated statements of activities and changes in net assets, of functional expenses and of cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion Market Street Suite 500 Philadelphia, PA phone: fax:

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Project HOME and Subsidiaries as of June 30, 2015 and 2014, and the consolidated changes in their net assets and their cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Philadelphia, Pennsylvania December 15,

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION JUNE 30, 2015 AND 2014 ASSETS Current assets: Cash $ 8,485,359 $ 537,930 Restricted cash, current portion 649, ,750 Restricted cash, New Market Tax Credit loan proceeds 260,045 3,312,281 Accounts and grants receivable 3,148,947 2,739,282 Accounts receivable, related parties 1,152, ,235 Pledges receivable, net of allowance, current portion 3,034,169 3,288,918 Interest and fees receivable, related parties, current portion 1,226,795 20,000 Other current assets 164, ,777 Total current assets 18,121,659 11,404,173 Investments 23,381,036 25,801,006 Investments, replacement and operating reserves 4,896,130 3,131,770 Replacement and cash reserves 985,690 1,709,616 Restricted cash, net of current portion 324, ,609 Deposits 684, ,716 Pledges receivable, net of current portion 3,920,873 4,796,719 Notes receivable, related parties 19,966,410 19,402,232 Interest and fees receivable, related parties 1,944,184 3,637,636 Deferred financing fees, net of accumulated amortization 342, ,498 Construction-in-progress 603, ,975 Land, property and equipment, net of accumulated depreciation 17,592,255 17,556,469 Total Assets $ 92,763,244 $ 88,879,419

6 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable and accrued expenses $ 2,398,081 $ 2,115,690 Accounts payable, related parties 211, ,222 Deferred revenue 58, ,321 Notes payable, current portion 1,497,850 3,287,793 Total current liabilities 4,166,810 5,728,026 Long-term liabilities: Notes payable, net of current portion 21,323,646 23,822,673 Deferred rent obligation 114,821 - Total long-term liabilities 21,438,467 23,822,673 Total liabilities 25,605,277 29,550,699 Commitments Net assets: Unrestricted: Operations 21,617,818 16,511,952 Capital projects 8,516,051 8,464,752 Board designated, Other 6,365,301 4,106,409 Total unrestricted 36,499,170 29,083,113 Temporarily restricted 23,930,641 23,517,451 Permanently restricted 6,728,156 6,728,156 Total net assets 67,157,967 59,328,720 Total Liabilities and Net Assets $ 92,763,244 $ 88,879,419 The accompanying notes are an integral part of these consolidated financial statements. -3-

7 CONSOLIDATED STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Operations: Revenue, gains and other support: Contracts, government funding $ 11,182,659 $ - $ - $ 11,182,659 Contributions and grants (including in-kind contributions of $273,594) 3,394,688 9,017,282-12,411,970 Program income and fees 4,357, ,357,417 Investment income 1,129, ,368-1,648,756 Special event 105, ,524 Net assets released from restrictions Satisfaction of program restrictions 4,782,792 (4,782,792) - - Total revenue, gains and other support 24,952,468 4,753,858-29,706,326 Expenses: Program services: Housing and support services 13,394, ,394,613 Education and employment services 3,132, ,132,501 Health services 2,166, ,166,797 Advocacy and strategic initiatives 732, ,132 Total program services 19,426, ,426,043 Supporting services: Management and general 3,471, ,471,424 Special event, cost of direct donor benefit 32, ,499 Fund-raising and development, other 1,064, ,064,511 Total fundraising and development 1,097, ,097,010 Total supporting services 4,568, ,568,434 Total expenses 23,994, ,994,477 Changes in net assets from operations 957,991 4,753,858-5,711,849 Nonoperating expenses, Housing development expenses 932, ,273 Total nonoperating expenses 932, ,273 Capital acquisitions and financing: Revenue and support for capital acquisitions and financing 3,049, ,049,671 Net assets released from restrictions for capital acquisition and financing 3,923,148 (3,923,148) - - Net assets released from restrictions for plant acquisitions 417,520 (417,520) - - Changes in net assets from capital acquisitions and financing 7,390,339 (4,340,668) - 3,049,671 Changes in net assets 7,416, ,190-7,829,247 Net assets, beginning of year 29,083,113 23,517,451 6,728,156 59,328,720 Net assets, end of year $ 36,499,170 $ 23,930,641 $ 6,728,156 $ 67,157,967 The accompanying notes are an integral part of these consolidated financial statements. -4-

8 CONSOLIDATED STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Operations: Revenue, gains and other support: Contracts, government funding $ 9,758,947 $ - $ - $ 9,758,947 Contributions and grants (including in-kind contributions of $187,494) 849,568 8,960,134-9,809,702 Program income and fees 5,067, ,067,554 Investment income 1,257,161 2,064,874-3,322,035 Special events 1,901, ,877-2,576,619 Net assets released from restrictions Satisfaction of program restrictions 5,508,022 (5,508,022) - - Total revenue, gains and other support 24,342,994 6,191,863-30,534,857 Expenses: Program services: Housing and support services 12,294, ,294,052 Education and employment services 3,016, ,016,027 Health services 883, ,684 Advocacy and strategic initiatives 681, ,435 Total program services 16,875, ,875,198 Supporting services: Management and general 3,067, ,067,124 Special events, cost of direct donor benefit 429, ,236 Fund-raising and development, other 1,194, ,194,273 Total fundraising and development 1,623, ,623,509 Total supporting services 4,690, ,690,633 Total expenses 21,565, ,565,831 Changes in net assets from operations 2,777,163 6,191,863-8,969,026 Nonoperating expenses, Housing development expenses 2,325, ,325,455 Total nonoperating expenses 2,325, ,325,455 Capital acquisitions and financing: Revenue and support for capital acquisitions and financing 563, ,141 Net assets released from restrictions for capital acquisition and financing 8,095,472 (8,095,472) - - Net assets released from restrictions for plant acquisitions 282,982 (282,982) - - Changes in net assets from capital acquisitions and financing 8,941,595 (8,378,454) - 563,141 Changes in net assets 9,393,303 (2,186,591) - 7,206,712 Net assets, beginning of year 19,689,810 25,704,042 6,728,156 52,122,008 Net assets, end of year $ 29,083,113 $ 23,517,451 $ 6,728,156 $ 59,328,720 The accompanying notes are an integral part of these consolidated financial statements. -5-

9 CONSOLIDATED STATEMENTS OF FUNCTIONAL EXPENSES YEAR ENDED JUNE 30, 2015 Program Services Supporting Services Housing and Education and Advocacy and Management Fundraising Support Employment Health Strategic and and Services Services Services Initiatives Total General Development Total Total Salaries $ 5,002,268 $ 1,619,987 $ 927,875 $ 353,176 $ 7,903,306 $ 1,910,688 $ 543,870 $ 2,454,558 $ 10,357,864 Taxes and fringe benefits 1,244, , ,440 90,372 1,967, , , ,044 2,518,446 Occupancy 630, , ,657 15,780 1,452,341 87,723 41, ,642 1,581,983 Program expenses 4,379, ,584 60, ,171 4,887, , , ,545 5,262,379 Professional fees 475,906 58, ,347 4, , , ,335 1,083,895 Supplies 77,623 63,047 39,595 3, ,373 17,876 3,418 21, ,667 Communication expenses 107,823 34,885 15,134 4, ,299 25,211 6,890 32, ,400 Equipment rentals and maintenance 100,513 17,771 42,719 17, , ,772 26, , ,444 Interest expense 570,644 22, , , , ,753 General expenses 279,415 57,250 80,873 36, , ,581 69, , ,127 Total expenses before depreciation 12,869,306 2,851,647 2,135, ,132 18,588,863 3,412,509 1,089,586 4,502,095 23,090,958 Depreciation and amortization 525, ,854 31, ,180 58,915 7,424 66, ,519 Total expenses $ 13,394,613 $ 3,132,501 $ 2,166,797 $ 732,132 $ 19,426,043 $ 3,471,424 $ 1,097,010 $ 4,568,434 $ 23,994,477 The accompanying notes are an integral part of these consolidated financial statements. -6-

10 CONSOLIDATED STATEMENTS OF FUNCTIONAL EXPENSES YEAR ENDED JUNE 30, 2014 Program Services Supporting Services Housing and Education and Advocacy and Management Fundraising Support Employment Health Strategic and and Services Services Services Initiatives Total General Development Total Total Salaries $ 4,630,285 $ 1,572,254 $ 460,467 $ 341,465 $ 7,004,471 $ 1,633,381 $ 539,184 $ 2,172,565 $ 9,177,036 Taxes and fringe benefits 1,092, ,792 86,611 83,302 1,611, , , ,678 2,108,524 Occupancy 599, ,180 36,866 20,974 1,000, ,065 27, ,978 1,150,127 Program expenses 3,511, ,721 8, ,626 3,899, , , ,243 4,805,602 Professional fees 413,922 36, ,709 9, , ,971 2, , ,795 Supplies 78,425 64,229 18,094 3, ,859 17,446 6,150 23, ,455 Communication expenses 98,437 17,718 6,008 2, ,804 23,166 4,074 27, ,044 Equipment rentals and maintenance 138,781 33,534 23,820 2, ,122 90,544 42, , ,362 Interest expense 605,275 22, , , , ,910 General expenses 606,812 61,921 43,837 16, , ,904 59, ,545 1,178,881 Total expenses before depreciation 11,775,021 2,681, , ,333 16,015,313 3,022,546 1,612,877 4,635,423 20,650,736 Depreciation and amortization 519, ,678 5,074 1, ,885 44,578 10,632 55, ,095 Total expenses $ 12,294,052 $ 3,016,027 $ 883,684 $ 681,435 $ 16,875,198 $ 3,067,124 $ 1,623,509 $ 4,690,633 $ 21,565,831 The accompanying notes are an integral part of these consolidated financial statements. -7-

11 CONSOLIDATED STATEMENTS OF CASH FLOWS Cash flows from operating activities: Changes in net assets $ 7,829,247 $ 7,206,712 Adjustments to reconcile changes in net assets to net cash provided by operating activities: Depreciation and amortization 903, ,095 Increase (decrease) in pledges receivable discount 53,778 (132,158) Write-off of uncollectible pledges receivable 36,250 3,164 Decrease in allowance for uncollectible pledges receivable (22,433) (100,000) Gain on sale of equipment (1,979) (2,773) Contributed equipment - (13,739) Grant restricted to debt reduction (292) (292) Net realized and unrealized gains on investments (208,141) (2,241,498) Contributions restricted for long-term purposes (55,206) (825,876) Cost of property under construction sold - 1,129,456 Changes in operating assets and liabilities: (Increase) decrease in operating assets: Restricted cash (452,654) (13,846) Accounts and grants receivable (409,665) (35,852) Accounts receivable, related parties (189,000) 887,120 Pledges receivable 1,063,000 3,888,665 Other current assets 180,910 (194,308) Replacement and cash reserves 723,926 1,405,354 Deposits (257,569) (397,374) Interest and fees receivable, related parties 486,657 (2,186,156) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 282, ,271 Accounts payable, related parties (1,312) 201,740 Deferred revenue (52,352) 21,221 Deferred rent obligation 114,821 - Net cash provided by operating activities 10,023,896 9,848,926 Cash flows from investing activities: Proceeds from sales and maturities of investments 1,991,254 7,372,906 Purchase of investments (1,127,503) (11,116,562) Transfer from restricted cash, New Market Tax Credits 3,052,236 2,896,365 Proceeds from sale of equipment 1,979 3,300 Issuance of notes receivable, related parties (564,178) (15,008,326) Purchase of property and equipment (1,196,783) (1,276,025) Net cash provided by (used in) investing activities 2,157,005 (17,128,342) Cash flows from financing activities: Contributions restricted for long-term purposes 55, ,876 Payment of deferred financing fees - (37,500) Proceeds from notes payable 500,972 7,529,289 Repayment of notes payable (4,789,650) (1,220,513) Net cash (used in) provided by financing activities (4,233,472) 7,097,152 Net increase (decrease) in cash 7,947,429 (182,264) Cash, beginning of year 537, ,194 Cash, end of year $ 8,485,359 $ 537,930 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 331,252 $ 251,888 The accompanying notes are an integral part of these consolidated financial statements. -8-

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Organization and Principles of Consolidation Project HOME (an acronym for Housing, Opportunities, Medical Care and Education) (the Organization ) was formed as a nonprofit corporation in The mission of Project HOME is to empower persons to break the cycle of homelessness and poverty, to address structural causes of poverty and to enable all of us to attain our fullest potential as individuals and as members of the broader society. The accompanying consolidated financial statements include the accounts of Project HOME and its subsidiaries People of Piety, Inc., 1415 Fairmount Development Corporation, 2415 North Broad Development Corporation and 810 Arch Development Corporation, with all intercompany activities being eliminated. These subsidiaries are Pennsylvania not-for-profit stock corporations formed for the purpose of acquiring, developing and managing affordable housing for low and very-low income individuals. Project HOME owns 100% of the stock of these corporations. Basis of Accounting The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Financial Statement Presentation The Organization and its subsidiaries report information regarding its consolidated financial position and activities according to three classes of net assets, depending on the existence or absence of donor-imposed restrictions: unrestricted, temporarily restricted and permanently restricted net assets. The Project HOME board has designated unrestricted funds for future operational, capital and program development needs, including the initiative to end and prevent chronic street homelessness. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates include the collectability of related party loans and accrued interest, depreciation and allowance for doubtful accounts. Pledges Receivable Contributions are recognized when the donor makes a promise to the Organization that is, in substance, unconditional. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the contributions are recognized. All other donor-restricted contributions are reported as increases in temporarily restricted net assets or permanently restricted net assets, depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. -9-

13 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Tax Status The Internal Revenue Service has classified Project HOME as exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code ( Code ); as an organization, contributions to which are deductible under Section 170(c) of the Code; and as an organization that is not a private foundation as defined in Section 509(a) of the Code. People of Piety, Inc., 1415 Fairmount Development Corporation, 2415 North Broad Development Corporation and 810 Arch Development Corporation are Pennsylvania not-for-profit stock corporations, but are not recognized by the Internal Revenue Service as a not-for-profit for federal income tax purposes. The Organization recognizes accrued interest and penalties associated with uncertain tax positions, if any, as part of the income tax provision. There was no income tax related interest and penalties recorded for the years ended June 30, 2015 and The income tax returns of the Organization for the years ended June 30, 2012, 2013 and 2014 are subject to examination by the Internal Revenue Service and other various taxing authorities, generally for three years after they were filed. Restricted Cash Restricted cash, New Market Tax Credit loan proceeds represents cash received from loans under the New Market Tax Credit (NMTC) program (see Note 8), net of qualified expenditures under the program. Restricted cash includes $193,447 and $196,750 as of June 30, 2015 and 2014, respectively, for residents deposits and escrows and employees flexible spending accounts. Also included in restricted cash as of June 30, 2015 is $455,795 of funds raised for the 2015 World Meeting of Families Hunger and Homelessness Committee, which will ultimately be awarded to various organizations in the greater Philadelphia region that serve people experiencing hunger and/or homelessness. For the years ended June 30, 2015 and 2014, the Organization has a restricted interest-bearing cash account on deposit with a bank to be used as collateral for a $1,000,000 note payable to Wells Fargo (see Note 7). The balance in this account of $324,771 and $324,609, as of June 30, 2015 and 2014, respectively, will remain on deposit with the bank until the terms of the note have been met. Investments Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their quoted fair values in the consolidated statements of financial position. Unrealized gains and losses are included in the consolidated statements of activities and changes in net assets. Specifically identified cost is used to determine realized gains and losses for investments sold (see also Notes 2, 4 and 15 for investment information). -10-

14 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Replacement, Operating and Cash Reserves As of June 30, 2015 and 2014, Project HOME has designated reserves of $5,881,820 and $4,841,386, respectively, for future operations as well as building and equipment replacements. These reserves are comprised of a combination of cash and investments. $400,000 of the reserves as of June 30, 2015 and 2014 is required to be maintained as an operating reserve under a loan agreement with the Redevelopment Authority of Philadelphia. Additionally, cash reserves at June 30, 2015 and 2014 also includes $301,325 and $301,176, respectively, for interest and expense reimbursements required under the NMTC program. Deferred Financing Fees and Amortization Fees incurred in the amount of $352,985 in connection with the issuance of long-term debt in January 2013 related to New Market Tax Credit financing (see Notes 7 and 8) have been capitalized. Amortization is calculated using the straight line method over the 40-year term of the debt, and amounted to $8,825 for each of the years ended June 30, 2015 and In December 2013, in connection with the debt incurred to support the issuance of a second New Market Tax Credit loan for the development of a new wellness center (see Notes 7 and 11), Project HOME incurred financing fees totaling $37,500. Amortization is calculated using the straight line method over the terms of the related loans and amounted to $17,500 and $8,750 for the years ended June 30, 2015 and 2014, respectively. Property and Equipment and Depreciation Purchased property and equipment is stated at cost. Donations of property and equipment are recorded as contributions at their estimated fair value. Such donations are recorded as unrestricted contributions unless the donor has restricted the asset to a specific purpose. The Organization s threshold for capitalizing property and equipment expenditures is $2,000. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets as of June 30, 2015 and 2014 as follows: Buildings Building improvements Land improvements Leasehold improvements Furniture and equipment Software Vehicles 35 years 20 years 20 years 5 to 15 years 3 to 5 years 3 to 5 years 3 to 5 years Depreciation expense was $877,194 and $897,520 for the years ended June 30, 2015 and 2014, respectively. Deferred Revenue Deferred revenue includes grants from government agencies and revenue from other sources that have not been earned at year-end, but are expected to be recognized as revenue in the coming year. -11-

15 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred Rent Obligation During the year ended June 30, 2015, Project HOME entered into long-term operating lease agreements for certain properties that contain provisions for future annual rent increases. In accordance with generally accepted accounting principles, the Organization records monthly rent expense equal to the total of the payments due over the lease terms divided by the number of months of the lease terms. The difference between rent expense incurred and the amount paid was credited to deferred rent obligation on the accompanying statement of financial position as of June 30, Program Services Expenses are allocated to programs based on direct charges for those items specifically identified with the respective programs. Other charges are allocated in proportion to direct expenses, based on management s estimates. Reclassifications Certain amounts in the accompanying 2014 consolidated financial statements have been reclassified to conform with the presentation for These reclassifications have no effect on previously reported changes in net assets. 2. FAIR VALUE MEASUREMENTS The Organization's investments are reported at fair value in the accompanying statements of financial position. The methods used to measure fair value may produce an amount that may not be indicative of net realizable value or reflective of future fair 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. The fair value measurement accounting literature establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements), and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that Project HOME has the ability to access. Assets utilizing Level 1 inputs are invested cash, mutual funds and common and preferred stocks. -12-

16 2. FAIR VALUE MEASUREMENTS (CONTINUED) Level 2 Inputs to the valuation methodology include (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in inactive markets; (3) inputs other than quoted prices that are observable for the asset or liability or (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Assets utilizing Level 2 inputs are corporate and U.S. and governmental agency obligations and mortgage backed securities. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Assets utilizing Level 3 inputs are investments in private equity. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Management's estimate to value Project HOME s Level 1 and 2 investments is based on investment valuation statements and other observable inputs. For those investments with unobservable valuation models (Level 3), management's estimate of the fair value of investments not currently actively traded is based on a consideration of several factors, including but not limited to: a) significant third-party transactions by unrelated investors, b) original cost of securities, c) financial conditions, performance and potential of the issuer of the securities, d) significant events that impact the issuer, including pricing and terms of future equity financings, and mergers of acquisition prospects, and e) other factors that would impact the general financial conditions or values of such securities. The following tables set forth, by level, Project HOME s investments at fair value, within the fair value hierarchy, as of June 30, 2015 and Investment Assets at Fair Value as of June 30, 2015 Level 1 Level 2 Level 3 Total Money market funds and CDs $ 3,134,016 $ - $ - $ 3,134,016 United States Government and agency obligations - 972, ,688 Corporate bonds - 2,954,489-2,954,489 Private equity , ,543 Exchange traded funds Domestic Large Cap Core 6,131, ,131,614 Domestic Large Cap Growth 1,073, ,073,169 Domestic Mid Cap Core 865, ,235 Domestic Small Cap Broad 766, ,640 Domestic Small Cap Value 417, ,016 International Large Cap Core 2,614, ,614,966 Emerging Markets 742, ,790 Mutual funds Short Term Bond 5,904, ,904,188 Mortgage backed securities - 1,999,262-1,999,262 Total investment assets at fair value $ 21,649,184 $ 5,926,439 $ 701,543 $ 28,277,

17 2. FAIR VALUE MEASUREMENTS (CONTINUED) Investment Assets at Fair Value as of June 30, 2014 Level 1 Level 2 Level 3 Total Money market funds and CDs $ 7,401,190 $ - $ - $ 7,401,190 United States Government and agency obligations - 1,203,997-1,203,997 Corporate bonds - 2,892,197-2,892,197 Private equity , ,229 Common and preferred stocks Consumer Discretionary 86, ,357 Industrials 168, ,649 Consumer Staples 23, ,577 Healthcare 203, ,583 Information Technology 202, ,168 Telecommunications Services 36, ,698 Energy 137, ,637 Utilities 39, ,336 Financials 214, ,056 Materials 27, ,812 US Large Cap Funds 6,401, ,401,799 US Mid Cap Funds 825, ,429 US Small Cap Funds 729, ,493 Foreign Large Blend Funds 2,043, ,043,476 Emerging Markets 783, ,672 Short-Term Federal Fund 2,368, ,368,270 Bank Loans Floating Rate Funds 341, ,522 Mortgage backed securities - 2,104,629-2,104,629 Total investment assets at fair value $ 22,034,724 $ 6,200,823 $ 697,229 $ 28,932,776 The following tables present changes in assets measured at fair value using Level 3 inputs on a recurring basis for the years ended June 30, 2015 and 2014: Year Ended June 30, 2015 Unrealized Gains (Losses) Purchases, Relating to Sales, Instruments Issuances Transfers Realized Still Held as of and in and/or July 1, Gains June 30, Settlements out of June 30, 2014 (Losses) 2015 (Net) Level Private Equity $ 697,229 $ 60,658 $ 63,058 $ (119,402) $ - $ 701,

18 2. FAIR VALUE MEASUREMENTS (CONTINUED) Year Ended June 30, 2014 Unrealized Gains (Losses) Purchases, Relating to Sales, Instruments Issuances Transfers Realized Still Held as of and in and/or July 1, Gains June 30, Settlements out of June 30, 2013 (Losses) 2014 (Net) Level Private equity $ 642,982 $ 34,030 $ 105,532 $ (85,315) $ - $ 697,229 The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. Project HOME evaluated the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total investments as a whole. For the years ended June 30, 2015 and 2014, there were no significant transfers in or out of Levels 1, 2 or PLEDGES RECEIVABLE Promises to give included in temporarily and permanently restricted revenue as of June 30, 2015 and 2014 are as follows: Receivable in less than one year gross $ 3,034,169 $ 3,311,351 Less allowance for uncollectible pledges - 22,433 3,034,169 3,288,918 Receivable in one to five years gross 3,735,878 4,932,946 Receivable in more than five years 435,000 60,000 Less total discounts to net present value (250,005) (196,227) Net receivable in one to five years 3,920,873 4,796,719 Total net pledges receivable $ 6,955,042 $ 8,085,637 Unconditional promises to give due in more than one year are recorded at the present value of estimated future cash flows using a discount rate ranging from 0.14% to 2.52% based on U.S. Treasury note rates for new pledges during the years ended June 30, 2013 and later, and 3.25% or 4.25% for pledges received during the year ended June 20, 2012 and earlier. -15-

19 4. INVESTMENTS AND INVESTMENT INCOME Investments as of June 30, 2015 and 2014 consist of the following: Cash and cash equivalents $ 3,134,016 $ 7,401,190 Common stocks - 1,139,872 Corporate bonds 2,954,489 2,892,197 Government bonds and notes 972,688 1,203,997 Mortgage backed securities 1,999,262 2,104,629 Mutual funds 18,515,618 13,493,662 Other 701, ,229 $ 28,277,166 $ 28,932,776 Government bonds and notes mature from September 2015 through August 2039; corporate bonds mature from March 2016 through February 2045 and mortgage backed securities mature from April 2021 through June Investment income for the years ended June 30, 2015 and 2014 consists of the following: Investment income Interest and dividends $ 1,041,435 $ 975,373 Net realized and unrealized gains 208,141 2,241,498 1,249,576 3,216,871 Interest earned on notes receivable and cash operating accounts 477, ,339 Less investment management fees (78,385) (68,175) Total investment income $ 1,648,756 $ 3,322, NOTES RECEIVABLE, RELATED PARTIES Notes receivable, related parties as of June 30, 2015 and 2014 consist of various loans entered into as follows: In July 2003, to assist with the development and construction of a housing project on behalf of 1929 Sansom Limited Partnership, and to satisfy the outstanding acquisition and predevelopment loans, a note totaling $2,866,156 was received; collateralized by a fourth position lien and bears interest at 4.51% per year. (a)(b) $ 2,866,156 $ 2,866,

20 5. NOTES RECEIVABLE, RELATED PARTIES (CONTINUED) (continued) In April 2009, to assist with the development and construction of a housing project on behalf of 1212 Ludlow Limited Partnership, a note totaling $677,750 was received; collateralized by a fourth position lien and bears interest at 3.67% per year; total interest of $24,873 was accrued during each of the years ended June 30, 2015 and (c) 677, ,750 In October 2012, to assist with the acquisition of a ground lease and the construction of a housing project on behalf of 1415 Fairmount Limited Partnership, a note totaling $600,000 was received; collateralized by a third position lien and bears interest at 7% per year compounded monthly; no interest and principal due until the maturity date of the note in October 2042; total interest of $48,993 and $45,690 was accrued during the years ended June 30, 2015 and 2014, respectively. 600, ,000 In January 2013, to assist with the construction of a housing project on behalf of 1415 Fairmount Limited Partnership, a note totaling $250,000 was received; collateralized by a second position lien and bears interest at 2.68% per year compounded monthly; no interest and principal due until the maturity date of the note in October 2042; total interest of $7,058 and $6,873 was accrued during the years ended June 30, 2015 and 2014, respectively. 250, ,000 In July 2013, to assist with the acquisition of the property located at North Broad Street on behalf of 2415 North Broad Limited Partnership, a noninterest bearing note up to $1,200,000 was received; collateralized by a first position lien on the proposed building. (d) 1,200,000 1,135,822 In December 2013, to assist with the acquisition, construction and development of a new wellness center on behalf of MPower Development Corp., a note totaling $10,340,000 was received; collateralized by a first security interest in the pledged collateral on the proposed building as defined in the Fund Pledge Agreement; bears interest at 1.40% per year, payable quarterly in arrears; one-time principal payment of $500,000 due in December 2020 and beginning April 2021, a principal and interest payment of $106,351 paid quarterly with the final payment due on December 31, ,340,000 10,340,

21 5. NOTES RECEIVABLE, RELATED PARTIES (CONTINUED) (continued) In June 2014, to assist with the acquisition, construction and development of a housing project on behalf of 810 Arch Limited Partnership, a note totaling $3,532,504 was received; collateralized by a third position lien on the proposed building and bears interest at 7% compounded annually; total interest of $242,533 and $4,742 was accrued during the years ended June 30, 2015 and 2014, respectively. (e) 3,532,504 3,532,504 In June 2015, to assist with the acquisition, construction and development of a housing project on behalf of 810 Arch Limited Partnership, a non-interest bearing note totaling $500,000 was received; no principal payments due until the maturity date in June ,000 - Total notes receivable, related parties $ 19,966,410 $ 19,402,232 (a) In September 2007, the construction loan to 1929 Sansom Limited Partnership was repaid with a permanent loan financed by Project HOME at the same interest rate. Principal and interest on the permanent loan will be due and payable upon the sooner of (1) the sale of the property, (2) the refinancing of the property, (3) the transfer of legal or equitable title to the property, or (4) 30 years from the date of the mortgage note. (b) In 2007, Project HOME adopted a policy whereby interest on permanent mortgages given to affiliated entities in furtherance of its mission will not be accrued unless it is determined with a high probability that the interest will be repaid pursuant to the terms of the note. Since the high probability threshold could not be satisfied for the interest on the permanent note to 1929 Sansom Limited Partnership, no interest was accrued on this note for the years ended June 30, 2015 and As of June 30, 2015 and 2014, the total prior accrued interest owed on the permanent loan to 1929 Sansom Limited Partnership was $477,023. Project HOME will continue to assess the probability that interest would be repaid when determining whether or not to accrue interest on this note in accordance with its policy. (c) Principal and accrued interest on the note will be due and payable upon the sooner of (1) the sale of the property, (2) the refinancing of the property, (3) incident of default under the Note Agreement, or (4) the maturity date in June (d) Principal balance of this note will be due and payable upon the sooner of (1) the sale of the property, (2) the refinancing of the property, (3) the transfer of the legal or equitable title to the property, or (4) the maturity date in July (e) Principal and accrued interest on the note will be due and payable upon the sooner of (1) the sale of the property, (2) the refinancing of the property, (3) the transfer of the legal or equitable title to the property, or (4) the maturity date in June

22 6. LAND, PROPERTY AND EQUIPMENT AND CONSTRUCTION-IN-PROGRESS Land, property and equipment as of June 30, 2015 and 2014 consist of the following: Land $ 458,066 $ 458,066 Land Improvements 510, ,165 Building 20,227,631 19,610,110 Leasehold improvements 1,370,387 1,369,418 Furniture and equipment 3,212,033 3,147,998 Software 582, ,505 Vehicles 421, ,056 26,782,394 25,887,318 Less accumulated depreciation 9,190,139 8,330,849 $ 17,592,255 $ 17,556,469 Construction-in-progress of $603,778 and $319,975 as of June 30, 2015 and 2014, respectively, represents costs incurred for current renovation projects as well as leasehold improvement projects. During the year ended June 30, 2014, the Organization transferred at cost $628,536 of certain construction-in-progress to its related affiliates that own the properties. During the years ended June 30, 2015 and 2014, the Organization disposed of $17,652 and $98,825, respectively, of fully depreciated property and equipment. 7. NOTES PAYABLE Notes payable as of June 30, 2015 and 2014 consists of various loans entered into as follows: Note payable to a religious congregation, with annual interest at 2%, maturing in 2018 $ 25,000 $ 25,000 Federal Home Loan Bank of Pittsburgh's Affordable Housing Program direct subsidy notes of $5,844; selfamortizing at 5% per year; fully amortized in 2015 (a) Note payable to Pennsylvania Housing Finance Agency for the Honickman Learning Center/Comcast Technology Labs, conditional upon continuation of the facility; to be forgiven in full in 2032 (a)(b) 450, ,

23 7. NOTES PAYABLE (CONTINUED) (continued) Note payable to Wells Fargo Mortgage, FSB advanced from the Federal Home Loan Bank of San Francisco's Affordable Housing Program; to be forgiven in full 15 years after completion of the related project; collateralized by a note receivable owed from a related party and a restricted cash collateral account held by the lender (a)(b) 1,000,000 1,000,000 Note payable to Redevelopment Authority of Philadelphia, noninterest-bearing except in the event of default (as defined in the agreement), for acquisition of a property to provide residential housing; principal balance to be forgiven in May 2026, the fifteenth anniversary of the completion of the development of the property; collateralized by a first mortgage on the property (a)(b) 944, ,671 Note payable to Redevelopment Authority of Philadelphia, noninterest-bearing except in the event of default (as defined in the agreement), for development of a property to provide residential housing; principal balance to be forgiven in May 2041, the thirtieth anniversary of the original date of the note; collateralized by a second mortgage on the property (a)(b) 8,218,975 8,218,003 Note payable to Project HOME Community Development Corporation, FSB advanced from Federal Home Loan Bank of Pittsburgh; to be forgiven in full 15 years after completion of the related project; collateralized by a second mortgage on the property (a)(b) 250, ,000 Note payable to PNC Bank NA, advanced from Federal Home Loan Bank of Pittsburgh; to be forgiven in full 15 years after completion of the related project; collateralized by a second mortgage on the property (a)(b) 250, ,000 Note payable to New Markets Investment 79, LLC; annual interest rate of 1.10%; interest only due and payable quarterly beginning on April 10, 2013; one time principal payment of $35,000 due on January 10, 2020; beginning April 10, 2028, principal and interest payments due quarterly until the maturity date of January 10, 2053 when all outstanding principal and interest is due (see Note 8) 6,685,000 6,685,

24 7. NOTES PAYABLE (CONTINUED) (continued) Note payable to PNC CDE 25, LP; annual interest rate of 1.10%; interest only due and payable quarterly in arrears for 15 years beginning on April 10, 2013; beginning April 10, 2028, principal and interest due and payable quarterly in arrears until the maturity date of January 10, 2053 (see Note 8) 2,122,500 2,122,500 Note payable to PNC CDE 25, LP; annual interest rate of 1.10%; interest only due and payable quarterly in arrears for 15 years beginning on April 10, 2013; beginning April 10, 2028, principal and interest due and payable quarterly in arrears until the maturity date of January 10, 2053 (see Note 8) 877, ,500 Note payable to PNC Bank; annual interest rate equal to the bank's prime rate (3.25% at June 30, 2015); interest payable monthly in arrears until the maturity date on December 16, 2016; principal payments due two business days after proceeds from the related Wellness Center construction capital campaign are received and cleared, with the balance due by December 16, 2016 (see Note 11) 298,700 3,287,500 Note payable to Nonprofit Finance Fund; annual interest rate of 6.5%; interest payable monthly in arrears; principal to be paid upon receipt of funds from the Pennsylvania Redevelopment Assistance Capital Program sub-grant in connection with the Wellness Center construction, but no later than the maturity date of December 18, 2015 (see Note 11) 1,199,150 3,000,000 Note payable to Capital One Bank, advanced from Federal Home Loan Bank of Atlanta; to be forgiven in full 15 years after completion of the related project collateralized by a second mortgage on the property (a)(b) 500,000-22,821,496 27,110,466 Less current maturities 1,497,850 3,287,793 Total long-term notes payable $ 21,323,646 $ 23,822,

25 7. NOTES PAYABLE (CONTINUED) (a) These notes are noninterest-bearing. The Organization has reported imputed interest at 3% to 4% per annum for loans executed since 2011 and at 5% per annum for loans executed prior to 2011, amounting to $457,377 and $458,119 for the years ended June 30, 2015 and 2014, respectively. Scheduled future maturities and self-amortizing amounts of long-term debt are as follows: Year Ending June 30, 2016 $ 1,497, , Thereafter (b) 21,298,646 $ 22,821,496 (b) Subject to the conditions of compliance in the various agreements noted above, $11,613,646 of this amount is expected to ultimately be forgiven, rather than repaid, by Project HOME. Through June 30, 2015, the Organization also had available a $1,000,000 revolving bank line-ofcredit. There is no outstanding balance on this line-of-credit as of June 30, 2015 and The line-of-credit bears interest at the bank s prime rate (3.25% as of June 30, 2015 and 2014). In August, 2015, the line-of-credit was renewed with this bank through June 30, 2016 at the same interest rate, and with the maximum availability increased to $2,000, NEW MARKET TAX CREDITS In January 2013, under the Federal New Market Tax Credits Program (NMTC), Project HOME entered into a transaction that resulted in approximately $9.7 million net proceeds to ultimately be used to fund operations and some capital projects. To effect the transaction, Project HOME leveraged $7 million contributed by a third party to the leveraged lender, Project HOME CDC, a related entity, to generate the tax credits for the tax credit investor (PNC New Market Investment Partners, LLC) which also contributed $3 million, for a combined investment amount of $10 million. The proceeds, net of closing costs, came to Project HOME in the form of notes payable with mostly interest only payable quarterly for fifteen years and principal and interest payments due thereafter until their maturity date in January 2053 (see Note 7). The NMTC is a Federal tax credit available over a seven year period to investors, during which time certain compliance obligations must be met. Project HOME has assumed responsibility with these compliance obligations. During this period, Project HOME Services Division, the qualified active low-income community business (QALICB), is expected to maintain separate accounting of the use of the NMTC funds within Project HOME s books and records, refrain from engaging in prohibited activities and pay the debt service on the loans. The credits are subject to recapture from the investor if the compliance obligations are not sufficiently met. -22-

26 8. NEW MARKET TAX CREDITS (CONTINUED) After the seven year compliance period has ended, it is expected that the tax credit investor will exercise a put option that would require Project HOME to purchase all of the tax credit investor s interest in the transaction for a nominal price of $1,000. In the event that the tax credit investor does not exercise this option, Project HOME would have the option to recognize a call that would require the tax credit investor to sell its interest to Project HOME for the fair value of the interest. 9. RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes as of June 30, 2015 and 2014: Housing and support services $ 10,726,634 $ 9,730,270 Education and employment services 6,402,695 4,307,254 Health services 1,232, ,667 Advocacy and strategic initiatives 796,198 - General operating reserve 684, ,988 Property rehabilitation 4,087,984 7,921,272 $ 23,930,641 $ 23,517,451 During the years ended June 30, 2015 and 2014, temporarily restricted net assets released from restrictions were as follows: Net assets released for operations: Housing and support services $ 952,477 $ 2,748,076 Education and employment services 2,396,592 1,967,666 Health services 1,114, ,280 Advocacy and strategic initiatives 295, ,000 General operating reserve 23,703 - Property rehabilitation 3,923,148 8,095,472 Capital acquisitions 417, ,982 $ 9,123,460 $ 13,886,476 Permanently restricted net assets and income derived from these net assets are restricted for the Honickman Learning Center/Comcast Technology Labs ( HLCCTL ). 10. RESTRICTED ENDOWMENT FUNDS The Organization s endowment fund includes funds restricted by the respective donors. As required by auditing standards generally accepted in the United States of America, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. -23-