HABITAT FOR HUMANITY OF DURHAM, INC. Financial Statements
CONTENTS INDEPENDENT AUDITORS' REPORT 1-2 FINANCIAL STATEMENTS Statements of Financial Position 3-4 Statements of Activities 5-6 Statements of Functional Expenses 7-8 Statements of Cash Flows 9 10-25
Geri H. Lail INDEPENDENT AUDITORS' REPORT To the Board of Directors Habitat for Humanity of Durham, Inc. Durham, North Carolina We have audited the accompanying financial statements of Habitat for Humanity of Durham, Inc. (a nonprofit 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 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 Habitat for Humanity of Durham, Inc. as of, 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. October 6, 2016
ASSETS HABITAT FOR HUMANITY OF DURHAM, INC STATEMENTS OF FINANCIAL POSITION 2016 Temporarily Unrestricted Restricted Total Current Assets: Cash $ 354,392 $ 569,085 $ 923,477 Grants and Other Receivables 589,674 589,674 Promises to Give, Net 422,943 422,943 Non-Interest Bearing Mortgage Loans Receivable (Net of Unamortized Discount of $419,636 for 2016 and $416,747 for 2015) 373,801 373,801 Land and Construction in Progress 1,173,948 1,173,948 Prepaid Expenses and Deposits 7,778 7,778 Total Current Assets 2,499,593 992,028 3,491,621 Property and Equipment, Net 2,037,761 2,037,761 Other Assets: Promises to Give, Net 214,131 214,131 Non-Interest Bearing Mortgage Loans Receivable (Net of Unamortized Discount of $7,253,013 for 2016 and $7,091,977 for 2015) 5,879,560 5,879,560 Land Held for Development 1,453,164 1,453,164 Loan Fees (Net of Accumulated Amortization of $87,220 in 2016 and $69,776 in 2015) 63,353 63,353 Investment in Joint Venture 1,902,495 1,902,495 Total Other Assets 9,298,572 214,131 9,512,703 Total Assets $ 13,835,926 $ 1,206,159 $ 15,042,085 LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable and Accrued Expenses $ 300,177 $ $ 300,177 Line of Credit 301,928 301,928 Deferred Revenue 2,500 2,500 Current Portion of Capital Lease Obligation Current Maturities of Long-Term Debt 74,179 74,179 Total Current Liabilities 678,784 678,784 Long-Term Debt 4,330,784 4,330,784 Guarantee Liability 249,941 249,941 Total Liabilities 5,259,509 5,259,509 Net Assets: Unrestricted: Undesignated 8,326,417 8,326,417 Board Designated 250,000 250,000 Total Unrestricted Net Assets 8,576,417 8,576,417 Temporarily Restricted 1,206,159 1,206,159 Total Net Assets 8,576,417 1,206,159 9,782,576 Total Liabilities and Net Assets $ 13,835,926 $ 1,206,159 $ 15,042,085 3
2015 Temporarily Unrestricted Restricted Total $ 600,981 $ 428,467 $ 1,029,448 286,452 286,452 539,988 539,988 345,951 345,951 1,700,471 1,700,471 8,796 8,796 2,942,651 968,455 3,911,106 2,062,489 2,062,489 222,489 222,489 5,156,078 5,156,078 1,251,590 1,251,590 80,797 80,797 1,922,385 1,922,385 8,410,850 222,489 8,633,339 $ 13,415,990 $ 1,190,944 $ 14,606,934 $ 399,787 $ $ 399,787 150,000 150,000 2,940 2,940 74,569 74,569 627,296 627,296 4,401,498 4,401,498 249,941 249,941 5,278,735 5,278,735 7,887,255 7,887,255 250,000 250,000 8,137,255 8,137,255 1,190,944 1,190,944 8,137,255 1,190,944 9,328,199 $ 13,415,990 $ 1,190,944 $ 14,606,934 See Accompanying Notes 4
STATEMENTS OF ACTIVITIES Years Ended 2016 Temporarily Unrestricted Restricted Total Support and Revenue: Transfers to Homeowners $ 2,965,800 $ $ 2,965,800 Contributions 366,024 1,617,920 1,983,944 Grants and Contracts: Federal Agencies City of Durham 81,629 81,629 NC Housing Finance Agency 90,000 90,000 ReStore Sales 1,479,645 1,479,645 Mortgage Loan Discount Amortization 437,883 437,883 In-Kind Contributions 239,518 239,518 Interest Income 58,824 58,824 Repairs 42,034 42,034 Deconstruction 69,005 69,005 Miscellaneous Income 160,774 160,774 Total Support and Revenue 5,991,136 1,617,920 7,609,056 Net Assets Released from Restrictions Satisfaction of Program Restrictions 1,602,705 (1,602,705) Total Support and Revenue and Net Assets Released from Restrictions 7,593,841 15,215 7,609,056 Expenses: Program Services 6,489,526 6,489,526 Support Services: Management and General 186,333 186,333 Fundraising 478,820 478,820 Total Support Services 665,153 665,153 Total Expenses 7,154,679 7,154,679 Change in Net Assets 439,162 15,215 454,377 Net Assets at Beginning of Year 8,137,255 1,190,944 9,328,199 Net Assets at End of Year $ 8,576,417 $ 1,206,159 $ 9,782,576 5
Unrestricted 2015 Temporarily Restricted Total $ 1,811,500 $ $ 1,811,500 470,857 1,502,441 1,973,298 23,550 23,550 68,250 68,250 70,000 70,000 1,275,472 1,275,472 430,382 430,382 230,367 230,367 1,689 1,689 123,809 123,809 70,023 70,023 135,097 135,097 4,710,996 1,502,441 6,213,437 905,383 (905,383) 5,616,379 597,058 6,213,437 4,957,686 4,957,686 160,429 160,429 501,555 501,555 661,984 661,984 5,619,670 5,619,670 (3,291) 597,058 593,767 8,140,546 593,886 8,734,432 $ 8,137,255 $ 1,190,944 $ 9,328,199 See Accompanying Notes 6
STATEMENTS OF FUNCTIONAL EXPENSES Year Ended June 30, 2016 Construction Family Services ReStore 2016 Total Program Management Services and General Fundraising Total Cost of Homes Transferred $ 3,873,587 $ $ $ 3,873,587 $ $ $ 3,873,587 Cost of Repair Program 207,474 207,474 207,474 Salaries and Benefits 70,131 123,524 592,762 786,417 110,353 298,998 1,195,768 Mortgage Discounts 601,808 601,808 601,808 Donation to Habitat for Humanity International 90,000 90,000 90,000 Other Donations 225,000 225,000 225,000 Rent and Utilities 5,000 5,000 51,360 61,360 5,000 5,000 71,360 Professional Services 77,608 8,071 16,327 102,006 8,071 40,051 150,128 Office Expenses 1,176 13,511 14,687 19,767 12,273 46,727 Contract Labor 37,522 37,522 37,522 Interest Expense 22,931 81,113 104,044 9,709 113,753 Tools and Equipment 2,125 23,304 25,429 2,065 6,453 33,947 Depreciation and Amortization 20,095 2,651 55,637 78,383 3,751 2,651 84,785 Vehicle and Mileage Reimbursement 2,717 22,855 25,572 11,236 4,513 41,321 Marketing 2,632 52,448 55,080 1,178 35,965 92,223 Maintenance and Repairs 40,362 40,362 40,362 Insurance 9,903 9,903 13,135 32,941 9,903 11,129 53,973 Staff and Board Development 2,700 3,530 3,790 10,020 1,247 718 11,985 Telephone 2,383 12,968 15,351 3,030 4,481 22,862 Fundraising and Special Events 50,397 50,397 Postage 4,295 88 4,383 1,023 7,503 12,909 Family Selection Expenses 3,228 3,228 3,228 Volunteer Expense 38,747 38,747 38,747 Purchases for Resale 56,125 56,125 56,125 Discount on Pledges Receivable (1,312) (1,312) Total Functional Expenses $ 4,418,176 $ 773,043 $ 1,298,307 $ 6,489,526 $ 186,333 $ 478,820 $ 7,154,679 See Accompanying Notes 7
STATEMENTS OF FUNCTIONAL EXPENSES Year Ended June 30, 2015 2015 Total Family Program Management Construction Services ReStore Services and General Fundraising Total Cost of Homes Transferred $ 2,336,390 $ $ $ 2,336,390 $ $ $ 2,336,390 Cost of Repair Program 91,266 91,266 91,266 Salaries and Benefits 68,100 132,861 533,643 734,604 97,385 310,792 1,142,781 Mortgage Discounts 833,498 833,498 833,498 Donation to Habitat for Humanity International 90,000 90,000 90,000 Other Donations 213,000 213,000 213,000 Rent and Utilities 5,000 5,000 42,285 52,285 5,000 5,000 62,285 Professional Services 167,342 10,109 17,165 194,616 10,109 36,109 240,834 Office Expenses 276 1,195 30,501 31,972 18,438 10,120 60,530 Contract Labor 23,724 23,724 23,724 Interest Expense 25,489 64,107 89,596 89,596 Tools and Equipment 189 1,989 15,791 17,969 239 6,773 24,981 Depreciation and Amortization 20,112 2,668 58,773 81,553 4,166 2,668 88,387 Vehicle and Mileage Reimbursement 1,440 3,490 23,387 28,317 11,364 4,892 44,573 Marketing 34,244 34,244 1,038 30,210 65,492 Maintenance and Repairs 24,405 24,405 24,405 Insurance 7,114 7,114 11,362 25,590 7,114 8,574 41,278 Staff and Board Development 25 4,086 3,857 7,968 1,450 5,368 14,786 Telephone 2,041 12,324 14,365 3,131 4,621 22,117 Fundraising and Special Events 48,549 48,549 Postage 59 1,593 86 1,738 995 4,461 7,194 Family Selection Expenses 2,294 2,294 2,294 Volunteer Expense 21,681 21,681 21,681 Purchases for Resale 6,611 6,611 6,611 Discount on Pledges Receivable 23,418 23,418 Total Functional Expenses $ 2,834,483 $ 1,007,938 $ 1,115,265 $ 4,957,686 $ 160,429 $ 501,555 $ 5,619,670 See Accompanying Notes 8
STATEMENTS OF CASH FLOWS Years Ended 2016 2015 Cash Flows from Operating Activities: Change in Net Assets $ 454,377 $ 593,767 Adjustments to Reconcile Change in Net Assets to Net Cash Provided (Used) by Operating Activities: Transfers to Homeowners (1,353,140) (862,303) Mortgage Discounts 601,808 836,570 Depreciation and Amortization 84,785 89,454 Loss (Gain) of Sale of Property and Equipment 265 (3,913) Change in Current Assets and Liabilities: Grants and Other Receivables (303,222) 872 Promises to Give, Net 125,403 (456,754) Land and Construction in Progress and Land Held for Development 324,949 (342,264) Prepaid Expenses and Deposits 1,018 4,720 Investment in Joint Venture 19,890 19,889 Accounts Payable and Accrued Expenses (99,610) 169,921 Deferred Revenue 2,500 (31,500) Net Cash Provided (Used) by Operating Activities (140,977) 18,459 Cash Flows from Investing Activities: Proceeds from Sale of Property and Equipment - 4,622 Purchase of Property and Equipment (42,878) (5,985) Net Cash Used by Investing Activities (42,878) (1,363) Cash Flows from Financing Activities: Net Borrowings (Payments) on Line of Credit 151,928 (11,587) Proceeds from Issuance of Long-Term Debt - 7,850 Principal Payments on Capital Lease Obligation (2,940) (4,786) Principal Payments on Long-Term Debt (71,104) (71,948) Net Cash Provided (Used) by Financing Activities 77,884 (80,471) Net Decrease in Cash (105,971) (63,375) Cash, Beginning of Year 1,029,448 1,092,823 Cash, End of Year $ 923,477 $ 1,029,448 Supplemental Disclosure of Cash Flow Information: Cash Paid During the Year for Interest $ 78,004 $ 62,152 See Accompanying Notes 9
1. Organization and Summary of Significant Accounting Policies Organization Habitat for Humanity of Durham, Inc. (the Organization ) (a not-for-profit organization) was incorporated in December 1985. The Organization is a nondenominational Christian organization whose mission is to transform lives and communities by making home ownership possible in partnership with people who care. The Organization is an affiliate of Habitat for Humanity International, Inc. ( HFHI ). Although HFHI assists with information resources, training, publications, prayer support and in other ways, the Organization is primarily and directly responsible for its own operations. Since its inception in 1985, the Organization has built or rehabilitated 349 homes (of which 86 were in the past five years) which are sold, interest free, to qualified buyers. In October 2009, the Organization changed its name from Durham County Habitat for Humanity. In late 2010, the Organization joined the Neighborhood Revitalization Initiative ( NRI ), a HFHI initiative. NRI focuses on repairs and weatherization of homes, as well as beautification and landscaping for qualified, low-income homeowners. Funding for the NRI program has come from various sources. In the past three years, the Organization has completed 239 repairs, including landscaping projects. Additionally, the Organization has been contributing to HFHI to provide funding to build homes internationally. Over $1,012,540 has been contributed since the Organization began and those contributions, according to HFHI, have built 274 homes. In the past 10 years, Honduras has been the country of focus. In total, 839 families have been the recipients of the Organization s various housing solution programs since the Organization s inception in 1985. Basis of Accounting The financial statements of the Organization have been prepared on the accrual basis of accounting. Financial Statement Presentation The Organization has adopted and prepares financial statements in accordance with FASB ASC 958-205, Financial Statements of Not-for-Profit Organizations. Under this standard, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. In addition, the Organization is required to present a statement of cash flows. Cash and Cash Equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have an original maturity of ninety days or less. 10
1. Organization and Summary of Significant Accounting Policies (Continued) Concentration of Credit Risk The Organization occasionally maintains deposits in excess of federally insured limits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000 for all accounts. The risk is managed by maintaining all deposits in high quality financial institutions. As of June 30, 2016, the Organization s cash balances were in excess of federally insured limits by $176,386. Restricted and Unrestricted Revenue Contributions of cash and other assets, as well as grants, are accounted for in accordance with ASC 958-605, Accounting for Contributions Received and Contributions Made. In accordance with this standard, contributions received are recorded as increases in unrestricted, temporarily restricted, or permanently restricted net assets, depending on the existence or nature of any donor restrictions. All donor-restricted contributions and grants are reported as increases 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 statements of activities as net assets released from restrictions. Contributions All unconditional promises to give (contributions) are recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received. All unconditional promises to give are considered available for unrestricted use unless specifically restricted by the donor. Amounts received that are designed for future periods or restricted by the donor for specific purposes are reported as temporarily restricted support that increases that net asset class. Unconditional promises to give are recorded at the present value of estimated future cash flows and net of an allowance for uncollectible promises. The discounts on those amounts are computed using a risk-free interest rate applicable to the year in which the promise is received. Amortization of the discount is included in contribution revenue. Conditional promises to give are recognized only when the conditions on which they depend are substantially met. The Organization currently has no conditional promises to give. Loan Fees Loan fees consist of costs incurred in relation to the Organization s investment and financing of the New Market Tax Credits program (see Note 7) and are amortized on a straight-line basis over terms ranging from seven to sixteen years. Amortization expense totaled $17,444 for the years ended. 11
1. Organization and Summary of Significant Accounting Policies (Continued) Non-Interest Bearing Mortgage Loans Receivable Mortgage loans receivable consists of non-interest bearing mortgages which are secured by real estate and payable in monthly installments over the life of the mortgage. Accounting principles generally accepted in the United States require that receivables that are contractual rights to receive money in the future at a fixed or determinable date be recorded at the present value of the consideration given in the exchange. The Organization follows this method of accounting for its mortgages using effective interest rates supplied by HFHI. Land, Construction in Progress and Land Held for Development Land, construction in progress, and land held for development is stated at cost if purchased, or appraised value at date of donation, if donated. Land and construction costs are recognized as program service expense in the period that the property is transferred to the homeowner. Property and Equipment All acquisitions of property and equipment in excess of $1,000 and all expenditures for repairs, maintenance, renewals, and betterments that materially prolong the useful lives of assets are capitalized. Property and equipment are carried at cost, or, if donated, at the approximate fair value at the date of donation. Depreciation is computed using the straight-line method over the following estimated useful lives: Years Buildings 39 Office Furniture, Computer Equipment and Software 5 Machinery and Equipment 5 Leasehold Improvements 39 Vehicles 5 For the years ended, depreciation expense totaled $67,341 and $72,010, respectively. Forgivable Mortgages To assist participants whose annual incomes do not meet certain levels in qualifying for the purchase of a home, some homes are sold to those participants at an amount below fair market value. In these cases, revenue for the transfer of the home is recorded at full fair market value and the difference between the fair market value and the sales price is recorded as a forgivable mortgage expense. Per written contracts, at the end of the first mortgage term the full amount is forgiven; however, should the homeowner dispose of the home prior to the end of the first mortgage term, the entire forgivable mortgage is due. The Organization approved a total of $22,000 and $0 in forgivable mortgages for the years ended. 12
1. Organization and Summary of Significant Accounting Policies (Continued) In-Kind Contributions The Organization records in-kind contributions of professional services, materials, donated office space, utilities and property and equipment at fair market value at the date of the donation. The Organization is also the recipient of services donated by volunteers consisting of individuals in the community as well as church and corporate groups. Volunteers also include homeowners who volunteer hours as part of their commitment to home ownership. No amounts have been reflected in the financial statements for volunteer hours since these services do not meet the requirements for recognition in the financial statements. The Organization was the recipient of approximately 67,982 and 57,892 volunteer hours for 2016 and 2015, respectively. Transfer to Homeowners Transfer to homeowners represent the sales price at the date of closing. Functional Allocation of Expenses Expenses by function have been allocated among program and support services on the basis of time allocations developed by the Organization s staff. Income Taxes The Organization is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. In addition, the Organization qualifies for the charitable contribution donation under Section 170(b)(1)(A) and has been classified as an organization other than a private foundation under Section 509(a)(2). Accounting for Uncertainty in Income Taxes The Organization has adopted the provisions of FASB ASC 740, Income Taxes. Using this guidance, tax positions initially need to be recognized in the financial statements when it is more-likely-than-not the positions will be sustained upon examination by the tax authorities. It also provides guidance for derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of June 30, 2016, the Organization has no uncertain tax positions that qualify for either recognition 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. Use of Estimates and Assumptions Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Accordingly, actual results could differ from those estimates. 13
1. Organization and Summary of Significant Accounting Policies (Continued) Advertising The Organization uses advertising primarily to promote its Restore operations within the community. The costs of advertising are expensed as incurred, and totaled $92,223 and $65,492 for the years ended, respectively. Investment in Joint Venture In July 2011, the Organization invested, along with four other Habitat affiliates, in a joint venture (HFHI-SA Leverage IX, LLC) with approximately twenty-three percent (22.45%) ownership to take advantage of New Market Tax Credit ( NMTC ) financing. NMTC financing allows an entity to receive a loan or investment capital from outside investors, who will receive new market tax credits to be applied against their federal income tax liability. As a result, the Organization initially invested $1,982,054 and was able to secure a loan in the amount of $2,633,117 payable to a community development entity. The investment is accounted for under the equity method. The loan proceeds are to be used solely for the purpose of constructing and selling qualified housing properties to low income residents. 2. Promises to Give Promises to give at June 30 include the following: 2016 2015 Unconditional Promises to Give $ 717,063 $ 834,108 Less: Unamortized Discount (45,781) (47,093) Net Present Value 671,282 787,015 Less: Allowance for Uncollectible Promises (34,208) (24,538) Unconditional Promises to Give-Net 637,074 762,477 Less: Amount Due within One Year (422,943) (539,988) Amount Due after One Year $ 214,131 $ 222,489 Unconditional promises to give at June 30, 2016 are due according to the following schedule: Less Than One Year $ 422,943 One to Five Years 214,131 Total Unconditional Promises to Give $ 637,074 Amounts receivable in future periods were discounted using a rate of 4.00%. 14
3. Mortgages Receivable Non-interest bearing mortgage loans receivable consist of the following at June 30: 2016 2015 Non-Interest Bearing Mortgage Loans Receivable $ 13,926,010 $ 13,010,753 Less: Unamortized Discount (7,672,649) (7,508,724) Net Present Value 6,253,361 5,502,029 Less: Amount Due within One Year (373,801) (345,951) Amount Due after One Year $ 5,879,560 $ 5,156,078 These mortgages do not earn interest and are secured by deeds of trust on homes. If homeowners default on their mortgages, the Organization retains all or a portion of the equity in the home. Future annual mortgage receipts for mortgages receivable, net of discount, are as follows for the years ending June 30: 2017 $ 793,437 2018 784,497 2019 755,843 2020 717,909 2021 668,415 Thereafter 10,205,909 13,926,010 Less: Discount (7,672,649) $ 6,253,361 4. Land, Construction in Progress and Land Held for Development Land and construction in progress and land held for development consists of the following at June 30: 2016 2015 Land (including infrastructure) $ 1,501,212 $ 1,288,095 Construction in Progress 1,125,900 1,663,966 2,627,112 2,952,061 Less: Current Portion (1,173,948) (1,700,471) $ 1,453,164 $ 1,251,590 15
5. Property and Equipment Property and equipment consists of the following at June 30: 2016 2015 Buildings $ 2,077,833 $ 2,077,833 Office Furniture, Computer Equipment and Software 75,856 86,942 Machinery and Equipment 13,708 13,708 Leasehold Improvements 252,249 211,525 Vehicles 77,506 77,506 2,497,152 2,467,514 Less: Accumulated Depreciation (459,391) (405,025) Net Property and Equipment $ 2,037,761 $ 2,062,489 6. Loan Fees The Organization estimates future amortization of loan fees as follows for the years ending June 30: 2017 $ 17,444 2018 17,444 2019 3,262 2020 3,262 2021 3,262 Thereafter 18,679 $ 63,353 16
7. Investment in Joint Venture In July 2011, the Organization participated in a New Markets Tax Credit ( NMTC ) program. The program provides tax credits to eligible organizations for investment in qualified low-income community investments. Program compliance requirements included creation of a promissory note and investment in a qualified community development entity ( CDE ). Tax credit recapture is required if compliance requirements are not met over a seven-year period. In July 2011, the Organization had recorded its 22.45% investment in HFHI-SA Leverage IX, LLC at an initial cost of $1,982,054. The Organization continues to record the investment under the equity method. The investment is recorded at $1,902,495 and $1,922,385 at, respectively. In July 2018, HFHI-SA Investment Fund VI, LLC, (the Fund ), and the upstream effective owner of HFHI-SA NMTC VI, LLC (holder of the promissory note due from the Organization) expects the equity owners of the Fund to exercise their put option. Under the terms of the put option agreement HFHI-SA Leverage IX, LLC is expected to purchase the ownership interest of the Fund for $1,000 plus certain other costs as defined by the put option agreement. Exercise of the option will effectively allow the Organization to extinguish its outstanding debt owed to the Fund. (See Note 10 for details of promissory note.) 8. Deferred Revenue The balance in deferred revenue at totaled $2,500 and $0, respectively, and consists of amounts received in advance for future home maintenance and repairs. 9. Line of Credit The Organization has a revolving line of credit with Branch Banking & Trust Company that had an interest rate of prime minus.375% with a floor of 3.88% and no ceiling. The line of credit was modified in March of 2015 to an interest rate of prime with a maturity date of March 2017. The maximum available on the line of credit is $700,000 and is secured by twenty mortgage loans receivable totaling $871,660 as of June 30, 2016. The outstanding balance on the line of credit as of was $301,928 and $150,000, respectively. 17
10. Long-Term Debt Non-interest bearing long-term debt consists of the following at June 30: 2016 2015 Note payable, real estate, with a fixed interest rate of 3.250%, monthly payments of $9,170 beginning October 2013 with final payment and accrued interest due September 2023, secured by building, leases and rents. $ 1,730,395 $ 1,782,321 Note payable, Habitat for Humanity International, Inc., monthly payments of $546 from July 2012 through November 2016, with a final principal payment due December 2016, non-interest bearing, unsecured (discount is based on imputed interest rate of 8.0%). 3,318 9,870 Note payable, Habitat for Humanity International, Inc., monthly payments of $312 from July 2013 through May 2017, with a final payment of $316 due June 2017, non-interest bearing, unsecured (discount is based on imputed interest rate of 8.0%). 3,768 7,512 Note payable, Habitat for Humanity International, Inc., monthly payments of $218 from January 2013 through November 2017, with a final payment of $254 due January 2018, non-interest bearing, unsecured (discount is based on imputed interest rate of 8.0%). 1,430 4,046 Note payable, Habitat for Humanity International, Inc., monthly payments of $145 from January 2014 through April 2018, with a final payment of $185 due May 2018, non-interest bearing, unsecured (discount is based on imputed interest rate of 8.0%). 3,331 7,000 18
10. Long-Term Debt (Continued) 2016 2015 Note payable, Habitat for Humanity International, Inc., monthly payments of $312 from July 2014 through June 2018, with a final payment of $336 due July 2018, non-interest bearing, unsecured (discount is based on imputed interest rate of 8.0%). The note payable was paid in full during 2016. 1,878 Note payable, Habitat for Humanity International, Inc., monthly payments of $312 from January 2016 through December 2019, with a final payment of $336 due January 2020, non-interest bearing, unsecured (discount is based on imputed interest rate of 3.25%). 13,128 15,000 Note payable, Habitat for Humanity International, Inc., monthly payments of $78 from January 2016 through December 2019, with a final payment of $84 due January 2020, non-interest bearing, unsecured (discount is based on imputed interest rate of 3.25%). 3,282 3,750 Note payable, Habitat for Humanity International, Inc., monthly payments of $225 from January 2016 through June 2020, non-interest bearing, unsecured (discount is based on imputed interest rate of 3.25%). 10,780 10,780 Note payable, Habitat for Humanity International, Inc., monthly payments of $156 from July 2016 through July 2020, non-interest bearing, unsecured (discount is based on imputed interest rate of 3.25%). 7,500 7,500 19
10. Long-Term Debt (Continued) 2016 2015 Note payable to HFHI SA NMTC, LLC (See paragraph below for terms.) 2,633,117 2,633,117 Other miscellaneous notes payable. 1,416 4,410,049 4,484,190 Less: Discount (5,086) (8,123) 4,404,963 4,476,067 Less: Current Maturities (74,179) (74,569) Total Long-Term Portion $ 4,330,784 $ 4,401,498 Combined aggregate maturities of long-term debt are as follows for the years ending June 30: 2017 $ 74,179 2018 67,357 2019 67,605 2020 67,212 2021 62,267 Thereafter 4,071,429 4,410,049 Less: Discount (5,086) $ 4,404,963 In July 2011, the Organization entered into a $2,633,117 note payable to HFHI-SA NMTC, LLC. The note payable requires interest only payments until November 15, 2019 at 0.76%. Commencing on November 15, 2019, the Organization will make semi-annual payments in an amount sufficient to fully amortize the remaining principal balance of the loan over eight years. The loan matures on the earlier of July 13, 2027 or the date on which lender exercises its right to accelerate the debt upon occurrence of an event of default, as defined by the agreement. The loan is secured by substantially all assets acquired by the Organization from the project loan proceeds. The note payable has a put option feature that is expected to be exercised in July 2018 (see Note 7). As part of the NMTC program, 99% of the interest payments will be refunded to the Organization on a monthly basis. 20
10. Long-Term Debt (Continued) The real estate note payable is secured by a letter of credit, which is secured by a deed of trust on the property. In addition, the note payable provides for certain restrictive covenants, of which all were met as of. The net book value of assets securing debt totaled $2,010,506 as of June 30, 2016. 11. Capital Lease The Organization leased certain equipment under a leasing agreement that has been classified as a capital lease. Equipment held under the capital lease and the related accumulated depreciation has been included in property and equipment as of June 30, 2016 as follows: Computers $ 11,640 Less Accumulated Depreciation (11,640) $ 0 Depreciation expense for this equipment totaled $3,557 and $3,880 for the years ended, respectively. The Organization made its final lease payment on the capital leases during the year ended June 30, 2016. 12. Retirement Plan The Organization provides a 401(k) retirement plan covering all eligible employees meeting age and service requirements. The interest in any participant s account is at all times 100% vested and non-forfeitable. During 2013, the Organization switched from a 403(b) plan to a 401(k) plan. The Organization may make an annual contribution up to 5% of employee annual salaries plus a matching contribution equal to the amount of the employee annual contribution up to a maximum of 2%. The Organization made a contribution of 5% and a matching contribution of 2% for the years ended June 30, 2016 and 2015. The Organization contributed a total of $82,813 and $79,269 to the 401(k) plan for the years ended, respectively. 21
13. Habitat ReStore The Organization entered into a memorandum of understanding agreement with Habitat for Humanity, Orange County, N.C., Inc. ( HHOC ) on July 2, 2009, regarding the acquisition and operation of real estate and Habitat Restore (the Store ) serving Durham and Orange Counties. The memorandum of understanding acknowledges that the Organization has been involved in the successful operation of the Store, which is a resale store benefiting Habitat for Humanity in Orange and Durham Counties. The real estate upon which the Store exists is owned by the Organization. The debt instrument used to finance the purchase of the real estate and building for the Store is also in the Organization s name. As part of the agreement, the value of the real estate shall be shared equally with HHOC. The value of the real estate was approximately $2.3 million as of the date of purchase and the outstanding debt balance totaled approximately $1.73 million and $1.78 million as of, respectively. (See Note 10 for details of promissory note.) The Store sells good quality, donated household goods and select building supplies to the public. The profits and equity from the Store s operations are to be shared by the Organization and HHOC. All of the assets are owned by the Organization. Excess cash resulting from Store operations were equally divided between the Organization and HHOC through June 30, 2016. The two entities have agreed to allocate excess cash from operations for the year ending June 30, 2017, with 50% to the Organization and 50% to HHOC. The Agreement between the Organization and HHOC provides for the executive directors of each organization to annually determine the excess cash amount, and, were the Store to dispose of the building, each organization would split the net proceeds equally. HHOC guarantees the payment of debt service used to finance the Store. The agreement provides a provision for payments to be made by the HHOC to the Store in the event there are shortfalls in payment of debt service or other costs as further described in the agreement. In the event of default, HHOC is responsible for 50% of any unpaid balance. In September 2016 the Organization entered into a new memorandum of understanding with HHOC regarding the joint ownership and operation of real estate and the Store serving Durham and Orange Counties. 22
14. Related Party Transactions The Organization made a distribution of excess cash to Habitat for Humanity of Orange County, Inc. of $225,000 and $213,000 in 2016 and 2015, respectively, in connection with the Store s operations. Each year the Organization makes a contribution to Habitat for Humanity International, Inc. which uses these funds to construct homes in economically depressed areas around the world. Program service expense includes $90,000 contributed to Habitat for Humanity International, Inc. for both the years ended. 15. Operating Leases The Organization leases office equipment under five operating lease agreements that provide for monthly payments ranging from $48 to $1,366 through December 2021. Rent expense totaled $5,605 and $4,442 for the years ended, respectively. Future minimum lease payments are as follows for the years ending June 30: 2017 $ 44,718 2018 44,718 2019 39,257 2020 39,113 2021 16,297 $ 184,103 The Organization also leases warehouse space and other equipment on a month-tomonth basis. Equipment and warehouse space rental expense totaled $18,350 and $18,000 for the years ended. The Organization also occupies donated office space. Donated office space and utilities valued at $20,000 is recorded as an in-kind contribution and offsetting expense in 2016 and 2015. 23
16. Restrictions on Net Assets Temporarily restricted net assets are available for the following purposes as of June 30: 2016 2015 Pledges Designated for Homebuilding or Operations $ 637,074 $ 762,477 Sponsorships Paid in Advance 569,085 428,467 $ 1,206,159 $ 1,190,944 17. Designation of Unrestricted Net Assets The Board of Directors has designated a portion of unrestricted net assets for specific projects or emergencies. As of, designated unrestricted net assets are: 2016 2015 ReStore / Store Emergencies $ 250,000 $ 250,000 In October 2016 the Board of Directors released $80,000 from the ReStore / Store Emergencies restricted net assets. 18. Guarantee Liability The Organization has entered into mortgage buy-back covenant agreements with the City of Durham and NCHFA for eligible homebuyers who receive second and third mortgages issued by the City and NCHFA. In the event the homeowners become delinquent with mortgage payments, the Organization may be required to assume the outstanding balance of the loan. The Organization executed a total of $1,120,000 and $671,999 of mortgages under the agreements during the 2016 and 2015 fiscal years. The outstanding balances under the agreements totaled $8,967,113 and $7,867,113 as of, respectively. Under the provisions of ASC 460, Guarantees, the Organization is required to record a liability at the fair value the Organization expects to assume upon inception of the agreement. The liability was estimated based upon historical performance under the agreements and estimated future obligations to perform under the guarantees. Amounts accrued totaled $249,941 as of. 24
19. Subsequent Event Management evaluates events occurring subsequent to the date of the financial statements in determining the accounting for and disclosure of transactions and events that affect the financial statements. Subsequent events have been evaluated through October 6, 2016, which is the date the financial statements were available to be issued. The Organization s subsequent events are disclosed in Notes 13 and 17. 25