Consolidated Financial Statements (With Supplementary Information) and Independent Auditor's Report
Index Page Independent Auditor's Report 2 Financial Statements Consolidated Statements of Financial Position 4 Consolidated Statements of Activities 6 Consolidated Statements of Functional Expenses 7 Consolidated Statements of Changes in Net Assets 9 Consolidated Statement of Cash Flows 10 Notes to Consolidated Financial Statements 12 Supplementary Information Consolidating Schedules of Financial Position 29 Consolidating Schedules of Activities 31 Consolidating Schedules of Financial Position - Real Estate Entities 32 Consolidating Schedules of Activities - Real Estate Entities 34 1
Independent Auditor's Report To the Board of Directors of SOME and Affiliates We have audited the accompanying consolidated financial statements of SOME and Affiliates, which comprise the consolidated statements of financial position as of, and the related consolidated statements of activities, functional expenses, changes in net assets, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management's Responsibility for the Consolidated 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 the 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 audit 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 SOME and Affiliates' 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 SOME and Affiliates' 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. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SOME and Affiliates as of, and the consolidated 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. 2
Other Matters Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The consolidating information and supplemental schedules on pages 30 to 35 are presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, results of operations, and cash flows of the individual entities. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Bethesda, Maryland June 13, 2018 3
Consolidated Statements of Financial Position 2017 2016 Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total Assets Current assets Cash and cash equivalents, undesignated $ 4,807,191 $ 4,932,230 $ 9,739,421 $ 6,031,818 $ 5,080,526 $ 11,112,344 Cash and cash equivalents designated to investment in property and equipment 1,000,000-1,000,000 1,000,000-1,000,000 United Way contributions receivable - 700,000 700,000-700,000 700,000 Accounts receivable 579,314-579,314 261,942-261,942 Developer fee receivable, current 851,747-851,747 - - - Grants receivable 570,480-570,480 618,618-618,618 Pledges receivable - 209,143 209,143-737,500 737,500 Prepaid expenses and deposits 444,549-444,549 408,964-408,964 Total current assets 8,253,281 5,841,373 14,094,654 8,321,342 6,518,026 14,839,368 Other assets Developer fee receivable 2,757,384-2,757,384 1,884,508-1,884,508 Investments 24,369,552-24,369,552 21,804,108-21,804,108 Pledges receivable - noncurrent - 67,857 67,857-100,000 100,000 Security deposits 254,989-254,989 243,412-243,412 Other escrows 353,499-353,499 343,598-343,598 Development escrows 16,865,609-16,865,609 33,118,109-33,118,109 Restricted cash 5,793,181-5,793,181 5,137,216-5,137,216 Total other assets 50,394,214 67,857 50,462,071 62,530,951 100,000 62,630,951 Note receivable 14,739,128-14,739,128 14,739,128-14,739,128 Deferred fees, net of accumulated amortization 196,215-196,215 184,800-184,800 Property and equipment Land 13,688,154-13,688,154 12,036,445-12,036,445 Buildings and improvements 106,710,541-106,710,541 97,485,912-97,485,912 Furniture and fixtures 3,138,835-3,138,835 2,988,748-2,988,748 Vehicles 339,616-339,616 326,216-326,216 Leasehold improvements 66,417-66,417 66,417-66,417 Construction in process 77,639,508-77,639,508 37,232,766-37,232,766 Accumulated depreciation (30,232,053) - (30,232,053) (27,345,811) - (27,345,811) Total property and equipment 171,351,018-171,351,018 122,790,693-122,790,693 Total assets $ 244,933,856 $ 5,909,230 $ 250,843,086 $ 208,566,914 $ 6,618,026 $ 215,184,940 4
Consolidated Statements of Financial Position 2017 2016 Unrestricted Temporarily Restricted Total Unrestricted Temporarily Restricted Total Liabilities and Net Assets Current liabilities Accounts payable $ 12,772,606 $ - $ 12,772,606 $ 5,960,151 $ - $ 5,960,151 Accrued payroll and withholding 349,307-349,307 318,455-318,455 Accrued vacation 744,676-744,676 708,207-708,207 Accrued interest payable - current 203,587-203,587 249,488-249,488 Accrued asset management fee 6,557-6,557 3,939-3,939 Deferred revenue - current 176,096-176,096 203,989-203,989 Lines of credit - current 2,250,000-2,250,000 5,000,000-5,000,000 Notes payable - current maturities 8,650,974-8,650,974 5,781,182-5,781,182 Total current liabilities 25,153,803-25,153,803 18,225,411-18,225,411 Long-term liabilities Security deposit payable 247,316-247,316 238,162-238,162 Accrued interest payable 2,435,423-2,435,423 1,935,710-1,935,710 Accrued asset management fee 823-823 800-800 Deferred revenue - - - 117,488-117,488 Lines of credit 2,000,000-2,000,000 - - - Notes payable, net of current maturities 115,532,230-115,532,230 98,052,990-98,052,990 Total long-term liabilities 120,215,792-120,215,792 100,345,150-100,345,150 Commitments and contingencies - - - - - - Net assets Unrestricted - undesignated 9,274,711-9,274,711 1,899,753-1,899,753 Unrestricted - non-controlling 16,201,960-16,201,960 13,129,523-13,129,523 Unrestricted - board designated 74,087,590-74,087,590 74,967,077-74,967,077 Temporarily restricted - 5,909,230 5,909,230-6,618,026 6,618,026 Total net assets 99,564,261 5,909,230 105,473,491 89,996,353 6,618,026 96,614,379 Total liabilities and net assets $ 244,933,856 $ 5,909,230 $ 250,843,086 $ 208,566,914 $ 6,618,026 $ 215,184,940 See Notes to Financial Statements. 5
Consolidated Statements of Activities Years Ended 2017 2016 Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total Support and revenue Contributions $ 9,886,922 $ 4,208,325 $ 14,095,247 $ 5,853,179 $ 7,070,194 $ 12,923,373 In-kind contributions 820,327-820,327 776,498-776,498 United Way contributions 8,313 700,000 708,313-611,246 611,246 Development fee income 2,648,825-2,648,825 3,560,162-3,560,162 Foundations 910,189 207,365 1,117,554 750,171 494,417 1,244,588 Grants 3,729,354-3,729,354 3,838,055-3,838,055 Rental income 7,660,226-7,660,226 7,790,846-7,790,846 Special events 1,318,743-1,318,743 1,423,870-1,423,870 Program service revenue 146,555-146,555 70,754-70,754 Insurance reimbursements 1,518,318-1,518,318 1,305,579-1,305,579 Legacies and bequests 858,269-858,269 1,966,098-1,966,098 Other 298,979-298,979 142,903-142,903 Satisfaction of restrictions 5,824,486 (5,824,486) - 8,445,732 (8,445,732) - Total support and revenue 35,629,506 (708,796) 34,920,710 35,923,847 (269,875) 35,653,972 Expenses Emergency aid 2,434,274-2,434,274 2,318,993-2,318,993 Housing services 18,087,839-18,087,839 18,078,420-18,078,420 Health services 2,269,071-2,269,071 2,122,713-2,122,713 Elderly services 1,198,008-1,198,008 1,131,181-1,131,181 Mental health services 4,940,677-4,940,677 4,898,616-4,898,616 Education 2,259,941-2,259,941 2,068,597-2,068,597 Total program services 31,189,810-31,189,810 30,618,520-30,618,520 Supporting services Management and general 659,689-659,689 568,705-568,705 Fundraising 2,105,437-2,105,437 1,929,483-1,929,483 Total supporting services 2,765,126-2,765,126 2,498,188-2,498,188 Total expenses 33,954,936-33,954,936 33,116,708-33,116,708 Non-operating activities Gain on investments - net 1,849,079-1,849,079 723,905-723,905 Interest and dividends 675,874-675,874 657,976-657,976 Total non-operating activities 2,524,953-2,524,953 1,381,881-1,381,881 Change in net assets 4,199,523 (708,796) 3,490,727 4,189,020 (269,875) 3,919,145 Non-controlling interest income (loss) (2,295,948) - (2,295,948) (2,207,619) - (2,207,619) Excess of revenue over expenses - attributable to SOME and Affiliates $ 6,495,471 $ (708,796) $ 5,786,675 $ 6,396,639 $ (269,875) $ 6,126,764 See Notes to Financial Statements. 6
Consolidated Statement of Functional Expenses Year Ended December 31, 2017 Program Services Supporting Services Emergency Housing Health Elderly Mental Health Management and Aid Services Services Services Services Education General Fundraising Total Salaries and wages $ 743,336 $ 6,568,588 $ 1,070,260 $ 643,531 $ 2,694,224 $ 1,044,023 $ 2,474,721 $ 578,279 $ 15,816,962 Employee benefits 173,468 1,675,050 233,647 151,448 691,651 272,634 587,583 150,295 3,935,776 Professional fees 17,108 439,016 28,288 8,181 51,133 102,110 335,587 489,229 1,470,652 Stipends 3,000 5,153 449 27,695 11,400 5,984 18,669 13,592 85,942 Contract services 228 46,992 223,991 1,685 175,928 6,896 21,164 72,067 548,951 Staff training 294 4,498 133 6,354 6,317 1,499 33,466 1,565 54,126 Meals and food 1,031,736 43,976-22,736 63,426 3,238 475 95 1,165,682 Repairs and maintenance 112,617 1,272,720 70,425 2,531 157,467 12,519 8,482 3,620 1,640,381 Supplies 32,794 115,983 115,260 17,720 51,473 90,967 60,659 109,738 594,594 Telephone 6,156 164,241 5,909 3,201 33,950 4,814 8,378 1,239 227,888 Postage 318 19,574 1,175 182 1,220 221 2,344 150,862 175,896 Printing and related costs 4,212 43,271 5,907 904 6,562 7,388 4,503 130,583 203,330 Transportation 7,123 49,975 3,610 8,702 12,677 14,854 7,883 7,116 111,940 Utilities 63,948 1,123,501 70,181-96,483 9,564 3,849 3,849 1,371,375 Real estate taxes - 11,783 - - - - - - 11,783 Rent - 41,202 43 113,121 43 260,416 3,686 15,443 433,954 Permits 668 27,615 129-646 49 2,748 341 32,196 Lab tests - 54,652 40,072 1,063 242 4 - - 96,033 Client assistance and support - 102,466 5,318 15,514 33,846 107,166 - - 264,310 Fines and penalties 150 11,300 - - 161-749 30 12,390 Investment fees and bank service charges - 39,487 732-191 - 75,812 121,189 237,411 Interest expense 217 1,463,070 186 119 601 198 111,754 103 1,576,248 Dues and subscriptions 291 6,107 6,816 548 7,005 5,961 11,167 6,137 44,032 Insurance 15,952 312,001 32,648 11,355 67,596 16,136 69,540 8,036 533,264 Equipment and furniture 4,102 106,976 44,322 1,432 15,623 3,985 22,150 420 199,010 Advertising - 3,825 1,946-1,668 26,232 19,939 38,619 92,229 List rental - 8,955 - - - - - 55,399 64,354 Investor service fees - 15,478 - - - - - - 15,478 Bad Debt Expense - 34,640 - - - - - - 34,640 Total expenses before depreciation 2,217,718 13,812,095 1,961,447 1,038,022 4,181,533 1,996,858 3,885,308 1,957,846 31,050,827 Depreciation 33,962 2,662,224 44,723 1,908 97,330 6,627 51,794 5,541 2,904,109 Overhead allocation 182,594 1,613,520 262,901 158,078 661,814 256,456 (3,277,413) 142,050 - Total expenses $ 2,434,274 $ 18,087,839 $ 2,269,071 $ 1,198,008 $ 4,940,677 $ 2,259,941 $ 659,689 $ 2,105,437 $ 33,954,936 7
Consolidated Statement of Functional Expenses Year Ended December 31, 2016 Program Services Supporting Services Emergency Housing Health Elderly Mental Health Management and Aid Services Services Services Services Education General Fundraising Total Salaries and wages $ 688,909 $ 6,203,951 $ 1,082,678 $ 610,792 $ 2,641,625 $ 979,364 $ 2,159,856 $ 483,970 $ 14,851,145 Employee benefits 165,093 1,461,188 214,059 131,236 685,043 274,099 545,978 134,110 3,610,806 Professional fees 14,733 473,157 23,072 6,243 28,085 46,724 278,773 443,110 1,313,897 Stipends 16,555 1,360 60 34,936 9,897 3,300 36,070 23,607 125,785 Contract services - 59,652 192,333 58 164,387 10,749 3,321 63,317 493,817 Staff training 589 18,595 4,841 4,262 7,635 4,088 39,359 1,163 80,532 Meals and food 930,797 48,734 201 24,885 66,672 5,836 3,036 2,202 1,082,363 Repairs and maintenance 126,437 1,491,998 26,174 2,422 211,808 15,710 16,339 3,382 1,894,270 Supplies 70,711 145,450 107,357 9,657 69,822 65,348 64,510 85,845 618,700 Telephone 5,712 157,158 5,280 3,647 35,002 4,964 22,777 1,162 235,702 Postage 141 11,398 932 338 1,268 85 1,573 155,296 171,031 Printing and related costs 4,962 51,802 6,241 699 10,172 8,150 2,048 150,526 234,600 Transportation 6,190 44,545 3,714 7,668 12,156 13,097 5,231 14,147 106,748 Utilities 63,058 1,160,664 27,080-83,074 9,794 4,167 3,385 1,351,222 Grant expense - - - - - - - - Real estate taxes - 10,569 - - - - - - 10,569 Rent - 50,141 42 107,607 42 256,530 8,082 13,039 435,488 Permits - 18,058 200-1,520-19,115-38,893 Lab tests - 43,812 63,186 1,478 148 1,366 - - 109,990 Client assistance and support 32 116,300 4,159 24,189 35,064 88,125 - - 267,869 Fines and penalties 1,121 3,026 145-2,612-118 2,918 9,940 Investment fees and bank service charges - 55,302 92-258 - 77,408 103,218 236,278 Interest expense 357 1,506,419 301 195 998 324 86,805 135 1,595,534 Dues and subscriptions 213 2,110 158 75 427 4,609 4,766 5,125 17,483 Insurance 21,732 311,484 48,480 14,112 82,428 21,912 59,366 8,652 568,166 Equipment and furniture 11,596 67,163 10,465 1,072 18,181 16,992 38,225 2,953 166,647 Advertising 685 7,786 1,408-4,326 1,453 18,717 38,424 72,802 List rental - 7,392 - - - - - 58,145 65,537 Other - 418,062 - - - - - - 418,054 Total expenses before depreciation 2,129,623 13,947,276 1,822,658 985,571 4,172,650 1,832,619 3,495,640 1,797,831 30,183,868 Depreciation and amortization 27,216 2,670,867 45,216 1,843 104,184 5,457 60,321 17,736 2,932,840 Overhead allocation 162,154 1,460,277 254,839 143,767 621,782 230,521 (2,987,256) 113,916 - Total expenses $ 2,318,993 $ 18,078,420 $ 2,122,713 $ 1,131,181 $ 4,898,616 $ 2,068,597 $ 568,705 $ 1,929,483 $ 33,116,708 See Notes to Financial Statements. 8
Consolidated Statements of Changes in Net Assets Years Ended Unrestricted Temporarily Controlling Non-controlling Total Restricted Total Net Assets at January 1, 2016 $ 70,470,191 $ 13,051,892 $ 83,522,083 $ 6,887,901 $ 90,409,984 Contributions from non-controlling members - 2,285,250 2,285,250-2,285,250 Excess (deficiency) of revenue over expenses 6,396,639 (2,207,619) 4,189,020 (269,875) 3,919,145 Net Assets at December 31, 2016 76,866,830 13,129,523 89,996,353 6,618,026 96,614,379 Contributions from non-controlling members - 5,368,385 5,368,385-5,368,385 Excess (deficiency) of revenue over expenses 6,495,471 (2,295,948) 4,199,523 (708,796) 3,490,727 Net Assets at December 31, 2017 $ 83,362,301 $ 16,201,960 $ 99,564,261 $ 5,909,230 $ 105,473,491 See Notes to Financial Statements. 9
Consolidated Statements of Cash Flows Years Ended 2017 2016 Cash flows from operating activities Change in net assets $ 3,490,727 $ 3,919,145 Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation and amortization of tax credit fees 2,904,109 2,932,840 Amortization of debt issuance costs 112,904 63,772 Loss (gain) on investments - net (1,849,079) (723,905) Donated securities (404,295) (260,208) Changes in assets and liabilities Accounts receivable (2,041,995) (1,595,361) Contributions receivable - 100,000 Grants receivable 48,138 110,894 Pledges receivable 560,500 612,500 Prepaid expenses (35,585) (71,306) Other escrows (21,478) 5,013 Accounts payable (196,266) 429,278 Accrued payroll and withholding 30,852 34,792 Accrued vacation 36,469 (2,507) Deferred revenue (145,381) 175,165 Security deposits payable 9,154 (8,589) Accrued interest 295,374 429,554 Accrued asset management fees 2,641 138 Net cash provided by operating activities 2,796,789 6,151,215 Cash flows from investing activities Investment in property and equipment (44,114,980) (18,419,116) Proceeds from sales of marketable securities 27,545,469 9,454,655 Investment in marketable securities (27,857,539) (11,311,724) Change in development escrows 16,252,500 5,806,237 Change in restricted cash (655,965) (570,347) Change in tax credit fees (29,251) (22,156) Net cash used in investing activities (28,859,766) (15,062,451) 10
Consolidated Statements of Cash Flows Years Ended 2017 2016 Cash flows from financing activities Proceeds from note payable 37,616,033 10,376,983 Principal payments on notes payable (17,544,364) (1,885,789) Contributions from members 5,368,385 2,285,250 Principal payments on line of credit (750,000) - Financing fees paid - (247,388) Net cash provided by financing activities 24,690,054 10,529,056 Net change in cash and cash equivalents (1,372,923) 1,617,820 Cash and cash equivalents Beginning of year Cash and cash equivalents, undesignated 11,112,344 9,494,524 Cash and cash equivalents designated for investment in property and equiment 1,000,000 1,000,000 Total beginning of year 12,112,344 10,494,524 End of year Cash and cash equivalents, undesignated 9,739,421 11,112,344 Cash and cash equivalents designated for investment in property and equiment 1,000,000 1,000,000 Total end of year $ 10,739,421 $ 12,112,344 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $ 1,167,970 $ 1,102,208 Non cash investing activities During the year ended, SOME received $404,295 and $260,208 in donated securities, respectively. At, SOME had accrued construction costs of $7,008,721 and $5,068,263, respectively. At, SOME had accrued interest of $158,438 and $0, respectively, that was capitalized. Transfer of debt issuance costs of $164,459 and $0, respectively. See Notes to Financial Statements. 11
Notes to Consolidated Financial Statements Note 1 - Organization SOME, Inc. was incorporated in November 1970 under the District of Columbia Non- Profit Corporation Act. SOME, Inc.'s mission is to help the poor and homeless of the nation's capital by providing food, medical and dental care, job training, addictions treatment, mental health programs and affordable housing with supportive services for families and individuals. Principal support for SOME, Inc. is in the form of program service fees, grants, and contributions from individuals, government agencies, foundations and corporations. The consolidated financial statements include the accounts of SOME, Inc. and the following separately incorporated affiliates ("SOME and Affiliates or SOME"). Affordable Housing Opportunities, Inc. ("AHO"), an affiliate of SOME, was incorporated in the District of Columbia on January 19, 2005 as a nonprofit charitable organization and was organized for the purpose of developing and providing affordable housing. The following real estate entity is a limited liability company, which is wholly owned by AHO, which operates an affordable multifamily housing community. BH, LLC ( BH ) The following list of tax credit entities is comprised of limited liability companies (LLCs) that rehabilitate and operate affordable housing communities. SOME, AHO and certain affiliated entities act in the capacity of managing member and/or developers for these tax credit entities. Benning Residential, LLC ( Residential ) Benning Programs, LLC ( Programs ) Benning Healthcare, LLC ( Healthcare ) Supportive Housing Opportunities, LLC ("Supportive") Naylor Road, LLC ("Naylor") Zagami House, LLC ("Zagami") Scattered Site II, LLC ("Scattered Site") Altamont Place, LLC ("Altamont") Spring Road, LLC ("Spring") The following list of for-profit entities, which are wholly owned by SOME or AHO, act in the capacity of managing members for affiliated tax credit entities. ZH LLC, SHO LLC, NR LLC, SSII LLC, BR, LLC, AP, LLC, SP, LLC. The not-for-profit affiliates are commonly controlled by a majority of the same board members of SOME, Inc. 12
Notes to Consolidated Financial Statements The for-profit affiliates are controlled by SOME or AHO through its ownership of the managing members of the LLCs. Note 2 - Summary of significant accounting policies A summary of significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Principles of consolidation The consolidated financial statements include the accounts of SOME and its affiliates. The boards of the directors of SOME, Inc. and AHO have common members. The LLC entities are included in the consolidation according to generally accepted accounting principles which require company accounts be consolidated for all LLCs which are deemed to be controlled by SOME, Inc. Significant interorganization accounts and transactions have been eliminated. Program services Emergency Aid - SOME provides meals to men, women and children in its Dining Room, residents of transitional housing and to clients of other SOME programs. Emergency aid also includes the distribution of clean clothing and the availability of showers to needy individuals. Housing Services - SOME rehabilitates and operates affordable housing communities within the District of Columbia. Health Services - SOME provides medical and dental services. The clinics provide quality comprehensive preventive and chronic disease management to their patients. Elderly Services - SOME s Senior Center serves extremely low income senior citizens with case management, counseling, hot meals, transportation and recreation services. Additionally, homebound seniors are provided direct case management visits and the affordable housing program for seniors provides housing and case management services. SOME has an emergency housing and support program for abused and neglected senior citizens, which is the only program for such citizens in the District of Columbia. The SOME Summer Camp for Seniors is a week-long camp for clients at a retreat house in West Virginia. Mental Health Services - SOME has addiction treatment and recovery services for individuals including pre- and post-residential and continuing addiction care programs. SOME also provides mental health treatment to men and women in residential psychiatric crisis and transitional programs. Additionally, SOME s day socialization center provides empowerment, support and care to homeless adults. Education - SOME s Center for Employment Training prepares men and women with the hard and soft skills needed to secure jobs in medical administration, building maintenance and business and customer relations. SOME placed students from our intensive 6-month accredited job training program in various positions across the city. Basis of accounting SOME and Affiliates ("SOME") prepares its consolidated financial statements on the accrual basis of accounting consistent with accounting principles generally accepted in the United States of America. 13
Notes to Consolidated Financial Statements Estimates The preparation of the 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Economic concentrations SOME operates multiple properties located in Washington, D.C. Future operations could be affected by changes in economic or other conditions in that geographical area or by changes in federal low-income housing subsidies or the demand for such housing. Cash and cash equivalents SOME considers money market funds and highly-liquid overnight investments with original maturities of three months or less to be cash equivalents. Restricted cash is not considered cash and cash equivalents, and includes cash held with financial institutions for tenant security deposits, repairs or improvements to the buildings which extend their useful lives, local rent supplement program reserves and bond reserves. Accounts receivables and bad debts Accounts receivable is stated at the amount management expects to collect from outstanding balances. Management closely monitors outstanding balances and provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that remain outstanding after management has used reasonable collection efforts are generally written off through a charge to the valuation allowance and a credit to trade accounts receivable. As of, the balance of the allowance for doubtful accounts was $48,821 and $55,415, respectively. Pledges Unconditional pledges to give are recognized as revenue in the period the pledges are received, and as assets, or decreases of liabilities or expenses depending on the form of the benefits received. Conditional pledges are recognized as revenue when the conditions on which they depend are substantially met. A conditional pledge is considered unconditional if the possibility that the condition will not be met is remote. Pledges are reported net of an allowance for doubtful accounts. Management's estimate of the allowance is based on historical collection experience and a review of the current status of the promises. At, no allowance has been recorded. It is reasonably possible that management's estimate of the allowance will change. Pledges as of are unconditional and considered fully collectible. Property and equipment Property and equipment are recorded at cost. Donated property is recorded at the estimated market value at the time of donation. Buildings are depreciated using the straight-line method over their estimated useful lives of 27.5 to 40 years. Other property and equipment purchases are capitalized and depreciated over their estimated useful lives ranging from 5 to 10 years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the related lease terms. Land improvements are depreciated over their estimated useful life of 15 years under the straight line method. Personal property is depreciated over its estimated useful life of 5 years under the straight-line method. Expenditures greater than $10,000 that extend the useful life of the asset are capitalized. 14
Notes to Consolidated Financial Statements Debt issuance costs Debt issuance costs, net of accumulated amortization, are reported as a direct deduction from the face amount of the mortgage loan payable to which such costs relate. Amortization of debt issuance costs is reported as a component of interest expense and is computed using an imputed interest rate on the related loan. Deferred fees and amortization During 2017 and 2016, deferred fees include tax credit fees of $287,054 and $257,803, respectively, which are amortized using the straight-line method over 15 years. Amortization expense for the years ended was $17,836 and $16,818, respectively. Accumulated amortization as of was $90,839 and $73,003, respectively. Estimated amortization expense for each of the years through 2022 is $19,137. Impairment of long-lived assets SOME reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flow expected to be generated and any estimated proceeds from the eventual disposition. If the long-lived assets are considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the asset exceeds the fair value as determined from an appraisal, discounted cash flows analysis, or other valuation technique. There was no impairment losses recognized during 2017 or 2016. Investments SOME's investments in marketable equity securities are carried at fair value and are classified as noncurrent as it is not management's intent to dispose of these securities during the next year. Investments in mutual funds and bonds are carried at fair value and classified as non-current based upon management's intent or applicable maturity dates. Income is recognized from interest and dividends as earned. Unrealized gains or losses are included in accompanying consolidated statements of activities. Revenue recognition Contributions are recognized as revenue when an unconditional promise to give is received by SOME. All contributions, and other types of revenue with restrictions imposed by the donor, are reported as increases in temporarily 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. Development fee income is recognized as income when earned by SOME upon the achievement of specified criteria as defined by the related development services agreements. Development fee receivable and development fee income earned from affiliates and payable from operational cash flow of the respective entities is eliminated during consolidation. As of, Development fee receivable from investor capital was $3,609,131 and $1,884,508, respectively. Rental revenue attributable to residential leases is recorded when due from residents, generally upon the first day of each month. Leases are for periods of up to one year, with rental payments due monthly. Rental payments received in advance are deferred until earned. All leases between SOME and its tenants are operating leases. Subsidy income and other income, which includes fees for late payments and laundry facilities, are recorded when earned. 15
Notes to Consolidated Financial Statements In-kind contributions In-kind contributions of donated food and services have been reflected for those programs where recognition is allowed and the fair value can be reasonably estimated. SOME utilizes the services of outside volunteers. However, the fair value of these services is not recognized in the accompanying consolidated financial statements, since they do not meet the criteria of being a specialized service that would typically need to be purchased and do not enhance or create an assets. Grants and contracts SOME has various grants and contracts from federal and local governments and private foundations. For grants and cost reimbursable type contracts, revenue is recognized based on expenses incurred. For fixed price awards, revenue is determined based on the stated fixed rate for services provided. Grants receivable at year end represent uncollected revenue based on amounts earned. Reclassification of prior year presentation Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. Advertising Advertising costs are expensed when incurred. For the years ended, SOME and affiliates incurred advertising costs of $92,229 and $72,802, respectively. Interest expense Interest expense incurred to acquire properties is capitalized and recognized over the life of the related property. For the years ended, SOME capitalized interest in the amounts of $1,841,108 and $1,298,064, respectively. Interest expense for loans that bear interest at below market interest rates is imputed at 5%. The difference between the imputed interest expense and the interest expense is considered a conditional contribution due to the fact that the rates increase significantly in the event of default. Management evaluated the calculation of imputed interest on loans that bear below market interest rates and deemed that the overall imputed interest expense is immaterial for financial reporting purposes. Income taxes SOME, Inc. and its nonprofit affiliate, AHO, have applied for and received a determination letter from the Internal Revenue Service ("IRS") to be treated as a tax exempt entity pursuant to Section 501(c)(3) of the Internal Revenue Code and did not have any unrelated business income for the years ended. Due to its tax exempt status, SOME, Inc. and AHO are not subject to income taxes. SOME, Inc. and AHO are required to file and do file tax returns with the IRS and other taxing authorities. Accordingly, these consolidated financial statements do not reflect a provision for income taxes and SOME, Inc. and AHO have no other tax positions which must be considered for disclosure. Income tax returns filed by SOME, Inc. and AHO are subject to examination by the Internal Revenue Service for a period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2014 remain open. Barnaby House is a single member limited liability company. Therefore, this entity is treated as a disregarded entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income and deductions are passed through to and are reported by AHO on its income tax return. Accordingly, these consolidated financial statements do not reflect provisions or benefits for income taxes for this entity. Since this entity is not required to file income tax returns, it has no filings which are open to examination by the Internal Revenue Service. 16
Notes to Consolidated Financial Statements All other affiliated entities have elected to be treated as pass through entities for income tax purposes and, as such, are not subject to income taxes. Rather, all items of table income, deductions and tax credits are passed through to and are reported by the owners on their respective tax returns. The affiliated entities' federal tax status as pass-through entities is based on their legal status as limited liability companies. Accordingly, these affiliated entities are not required to take any tax positions in order to qualify as pass-through entities. These affiliated entities are required to file and do file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these consolidated financial statements do not reflect a provision for federal income taxes for these affiliated entities. However, these entities are located in the District of Columbia and the District of Columbia does not recognize flow through entities, and therefore, income in the District of Columbia is subject to tax. Accordingly, these statements include a provision for District of Columbia income taxes in the amount of $250 for both the years ended. These affiliated entities have no other tax positions which must be considered for disclosure. Income tax returns filed by these affiliated entities are subject to examination by the Internal Revenue Service for the period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2014 remain open. Functional allocation of expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the consolidated statement of activities. Directly identifiable expenses are charged to program and supporting services. Expenses related to more than one function are allocated to program and supporting services based on systematic methods. Additionally, overhead costs are allocated to the various functions based on the relative percentage of salaries and wages of each function to the total. Non-controlling interest in Limited Liability Companies This amount represents the aggregate balance of the investor members equity interest in the nonwholly owned limited liability companies that are included in the consolidated financial as of years ended. Fair value The carrying amounts of the Organization's cash and cash equivalents, receivables, payables and accrued expenses approximate fair value due to the short-term nature of these instruments. The fair value of the Organization's long-term notes receivable, due from affiliates and notes payable is assessed by management based on analysis of underlying investments and historical trends. Note 3 - Restricted cash Borrower equity funds and debt service reserves Pursuant to the operating agreements, as defined, of Residential, Supportive and Scattered Site, SOME maintains borrower equity funds and debt service reserves for payment of debt service. At, the balance in the debt service reserves was $990,469 and $960,999, respectively. Replacement reserves Pursuant to the operating agreements, as defined, of Residential, Supportive, Naylor, Zagami, Altamont, Spring, and Scattered Site, SOME maintains replacement reserve deposits to fund capital improvements and repairs. At, the balance in the replacement reserve accounts was $980,047 and $731,988, respectively. 17
Notes to Consolidated Financial Statements Operating reserves Pursuant to the operating agreements, as defined, of Residential, Supportive, Naylor, Altamont and Scattered Site, SOME maintains operating reserve deposits to fund operating deficits. At December 31, 2017 and 2016, the balance in the operating reserves accounts was $1,824,953 and $1,822,110, respectively. Revenue deficit reserve Pursuant to the operating agreement, as defined, Scattered Site is required to deposit no less than $164,454 into a revenue deficit reserve account at the time of the payment of the fourth installment of the Investor Member's capital contributions. As of, the balance in the revenue deficit reserve was $164,489 and $164,423, respectively. Working capital reserve Pursuant to the operating agreement, as defined, Residential is required to deposit no less than $332,000 into a working capital reserve account to fund construction costs of the Project. At, the balance of the working capital reserve was $332,000. Local Rent Supplement Program ("LRSP") reserve pursuant to an agreement between Supportive and the Federal Home Loan Mortgage Corporation, dated August 1, 2010, SOME has committed to establish a LRSP reserve to pay operating expenses in the event of the occurrence of an operating deficit caused by the termination or reduction of rental subsidies provided by the District of Columbia Housing Authority. The $1,500,000 reserve will be established with four annual payments of $375,000 beginning in June 2014. Under certain conditions, this reserve can be returned to SOME in 10 annual payments beginning in June 2024. At December 31, 2017 and 2016, the balance in the LRSP reserve was $1,501,223 and $1,125,696, respectively. Note 4 - Development escrows Development escrows include cash restricted for the construction of Residential, Healthcare, and Programs. At, development escrows had a balance of $16,865,609 and $33,118,109, respectively. Note 5 - Pledges and contributions Pledges and contributions as of are unconditional. Pledges and contributions are considered fully collectible and are due as follow as of December 31, 2017 and 2016: 2017 2016 Pledges and contributions due in less than one year $ 909,143 $ 1,437,500 Pledges and contributions to give due in one to three years 67,857 100,000 Total pledges and contributions $ 977,000 $ 1,537,500 Note 6 - Financial statement presentation SOME conforms with U.S. generally accepted accounting principles governing not-for-profit entities. Those principles require that contributions be recorded as restricted or unrestricted support depending 18
Notes to Consolidated Financial Statements on the existence and/or nature of any donor imposed restrictions. They further establish standards for external financial reporting by not-for-profit organizations and require that resources be classified for accounting and reporting purposes into three net asset categories - unrestricted, temporarily restricted and permanently restricted - according to externally (donor) imposed restrictions. SOME has no permanently restricted net assets. A description of the unrestricted and temporarily restricted net asset categories follows: Unrestricted net assets - includes revenue and expenses associated with the principal mission of SOME. Unrestricted net assets include net assets that have been internally designated by the Board of Directors for specific purposes. See Note 10 for net asset designation. Temporarily restricted net assets - generally includes contributions for which donor-imposed direct restrictions have not been met or donor contributions that have not been received. At, temporarily restricted net assets consisted of the following: 2017 2016 Capital campaign $ 4,185,567 $ 2,926,007 Housing initiative 43,248 1,410,736 Major improvements 703,415 743,783 Time restricted 977,000 1,537,500 $ 5,909,230 $ 6,618,026 As of, cash and cash equivalents reported as temporarily restricted net assets consisted of the following: 2017 2016 Cash $ 4,932,230 $ 5,080,526 Note 7 - Investments The following represents investments held as of : 2017 2016 Mutual funds $ - $ 3,895,145 Fixed income 6,505,626 7,072,767 Equities 17,863,926 10,836,196 $ 24,369,552 $ 21,804,108 19
Notes to Consolidated Financial Statements Investment income (loss) for the years ended is as follows: 2017 2016 Interest and dividends $ 624,340 $ 507,157 (Loss)/gain on investments, net 1,849,079 723,905 $ 2,473,419 $ 1,231,062 The three levels of the fair value hierarchy under U.S. generally accepted accounting principles and the applicability to SOME's portfolio investments are described below: Level 1 - quoted prices in active markets for identical investments. Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment fees, credit risk, etc.). Level 3 - significant unobservable inputs (including SOME's own assumption in determining the fair value of investments). Pursuant to the operating agreement, as defined, of Zagami, SOME maintains operating reserve deposits to fund operating deficits. At, the balance in the operating reserve account was $429,682 and $431,884, respectively, and is included in investments on the accompanying statement of financial position. Pursuant, to the operating agreement, as defined, of Altamont, SOME maintains sinking fund reserve deposits to fund operating deficits. At, the balance of the sinking fund was $725,747 and $650,591, respectively, which is included in Investment in the accompanying statement of financial position. The following table sets forth by level, within the fair value hierarchy SOME's investments reported at fair value as of December 31, 2017: Total Market Other Significant Investments Prices for Observable Unobservable at Assets Inputs Inputs Description 12/31/2017 (Level 1) (Level 2) (Level 3) Fixed income $ 6,505,626 $ 6,505,626 $ - $ - Equities - - U. S. equities 10,781,155 10,781,155 Global equities 7,082,771 7,082,771 - - $ 24,369,552 $ 24,369,552 $ - $ - 20
Notes to Consolidated Financial Statements The following table sets forth by level, within the fair value hierarchy SOME's investments reported at fair value as of December 31, 2016: Total Market Other Significant Investments Prices for Observable Unobservable at Assets Inputs Inputs Description 12/31/2016 (Level 1) (Level 2) (Level 3) Mutual funds $ 3,895,146 $ 3,895,146 $ - $ - Fixed income 7,072,766 7,072,766 - - Equities U. S. equities 5,913,133 5,913,133 - - Global equities 970,986 970,986 - - Non-U.S. equities 3,952,077 3,952,077 - - $ 21,804,108 $ 21,804,108 $ - $ - The following table shows what items the investments are pledged to as of December 31, 2017: Note 8 - Line-of-credit 2017 2016 Balance $ 24,369,552 $ 21,804,108 Line of credits (11,543,177) (10,497,945) Zagami operating reserve (429,682) (431,884) Altamont sinking fund (725,747) (650,591) Replacement reserves (1,001,630) (1,547,471) Unpledged investments $ 10,669,316 $ 8,676,217 SOME has a line-of-credit agreement with a commercial bank providing for borrowings of up to $3,000,000. The line-of-credit is utilized to support working capital needs and acquisition of real estate and bears interest at LIBOR +1.0% (2.81% at December 31, 2017). During 2017, the line-of-credit was extended to September 30, 2018. Management expects to further extend the line-of-credit. The line-ofcredit is secured by one of SOME's investment accounts. Borrowings under the line require monthly payments of all accrued unpaid interest. As of, SOME had borrowed $2,250,000 and $3,000,000 respectively, of the line-of-credit. SOME has a second line-of-credit agreement with a commercial bank providing for borrowings of up to $4,500,000. The line-of-credit is utilized to support working capital needs and acquisition of real estate and bears interest at LIBOR +1.4% (2.97% at December 31, 2017). During 2017, the line-of-credit was extended to April 30, 2019. Management expects to further extend the line-of-credit. The line-of-credit is secured by one of SOME's investment accounts. Borrowings under the line require monthly payments of all accrued unpaid interest. At both, the outstanding balance was $2,000,000. 21
Notes to Consolidated Financial Statements Note 9 - Notes payable Notes payable at consisted of: Balance as of Balance as of Name of Creditor Maturity Date Interest Rate 12/31/2017 12/31/2016 Other Name of Debtor City First Bank of DC October 2017 4.50% $ - $ 5,355,000 SOME, Inc. Local Initiatives Support Corporation (LISC) May 2017 0% - 100,000 Recoverable grant will be repaid at the closure of construction financing for Spring Road SOME, Inc. Association of Sulpicians August 2019 2.00% 50,000 50,000 SOME, Inc. Cornerstone, Inc. June 2018 1.00% 5,202 12,077 SOME, Inc. California First National Bank December 2018 4.65% 37,254 76,125 SOME, Inc. PNC Bank August 2022 6.92% 347,525 361,135 SOME, Inc. DC Department of Housing and Community Development (DC DHCD) July 2034 5.00% 962,876 1,000,075 SOME, Inc. DC DHCD June 2048 Non-interest bearing 771,104 771,104 Principal due at maturity in 2048 SOME, Inc. Private party July 2024 3.00% 1,000,000 1,000,000 Enterprise Community Loan Fund, Inc. August 2023 0% 225,000 225,000 Principal and interest due at maturity; loan forgiven upon lender's death Principal and interest will be forgiven at maturity if loan conditions are met SOME, Inc. AHO DC DHCD October 2038 3.00% 1,556,222 1,608,935 AHO DC DHCD May 2047 Non-interest bearing 1,007,500 1,025,500 March 2046 - Balloon of $280,516 AHO District of Columbia Housing Finance Agency (DCHFA) November 2018 1.42% 8,300,000 8,300,000 Residential Northmarq Finance, LLC February 2058 4.35% 6,110,558 2,706,034 Maximum amount allowed to be drawn is $8,300,000. Residential DCHFA (Citibank as Funding Lender) October 2019 3.94% 17,700,000 10,792,096 Maximum amount allowed to be drawn is $17,700,000; Interest based on 1-month LIBOR Rate. Residential 22
Notes to Consolidated Financial Statements Balance as of Balance as of Name of Creditor Maturity Date Interest Rate 12/31/2017 12/31/2016 Other Name of Debtor DC DHCD 480 months after stabilization Non-interest bearing 10,300,254 1,692,779 Maximum amount allowed to be drawn is $17,947,789. Residential New Markets Support Company, LLC - Healthy Futures Financing Fund, LLC April 2037 3.55% 13,514,375 13,514,375 Healthcare City First Capital 37, LLC October 2045 1.09% 9,800,000 9,800,000 Programs Community Urban Revitalization Enterprises VII, LLC October 2045 1.09% 10,976,520 10,976,520 Programs DC DHCD March 2053 1.00% 1,468,761 1,468,761 Altamont Citybank May 2018 0% - 40,970 Maximum amount allowed to be drawn is $4,150,000 Altamont DC DHCD May 2057 2.00% 4,900,000 - Spring Road City Bank June 2050 4.57% 2,095,001 - Spring Road DC DHCD April 2048 1.00% 990,450 992,534 Zagami Builders Fund, LLC November 2053 2.70% 2,000,000 2,000,000 Payable solely out of available cash flow. Scattered Site DC DHCD April 2053 1.80% 4,780,000 4,780,000 Payable solely out of available cash flow; Maximum amount allowed to be drawn is $4,780,000 Scattered Site DC DHCD April 2053 2.50% 900,000 900,000 Payable solely out of available cash flow Scattered Site DCHFA (Citibank as Funding Lender) May 2031 4.56% 6,209,308 6,287,221 Maximum amount to be drawn is $14,912,000 Scattered Site DC DHCD January 2050 2.00% 11,503,000 11,503,000 Payable soley out of available cash flow Supportive DCHFA January 2044 4.09% 7,780,000 7,880,000 125,290,910 105,219,241 Less: Current maturities (8,650,974) (5,781,182) Less: Debt issuance cost, net (1,107,706) (1,385,069) Total long-term notes payable $ 115,532,230 $ 98,052,990 Maximum amount to be drawn is $18,300,000 Supportive As of, all notes payable are solely collateralized by the respective rental properties owned by the affiliated entities responsible for each mortgage. Debt issuance costs, net of accumulated amortization, totaled $1,107,900 and $1,385,069 as of, are related to the mortgages above. Debt issuance costs on the above notes are being amortized using imputed rates that range from 1.07% to 5.92%. The aggregate amount of principal payments required on notes payable at December 31, 2017 are as follows: December 31, 2018 $ 8,650,974 2019 376,981 2020 18,035,784 2021 357,799 2022 366,972 Thereafter 97,502,400 Total $ 125,290,910 23