Neighborhood Concepts,
Inc. and Subsidiaries
Consolidated Financial Report
December 31, 2015
Contents
Independent auditor’s report
1-2
Financial statements
Consolidated statement of financial position
3
Consolidated statement of activities
4
Consolidated statement of functional expenses
5
Consolidated statement of cash flows
6
Notes to consolidated financial statements
7-18
Supplementary information
Consolidating statement of financial position
19
Consolidating statement of activities
20
Independent Auditor’s Report
To the Board of Directors
Neighborhood Concepts, Inc. and Subsidiaries
Huntsville, Alabama
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Neighborhood Concepts, Inc.
and its related subsidiaries, which comprise the consolidated statement of financial position as of
December 31, 2015, the related consolidated statements of activities, functional expenses and cash flows
for the year then ended, and the related notes to the consolidated financial statements (collectively,
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.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit 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 auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Neighborhood Concepts, Inc. and its subsidiaries as of December 31, 2015, and the
changes in its net assets and its cash flows for the year then ended in accordance with accounting
principles generally accepted in the United States of America.
1
Emphasis of Matter
As discussed in Note 11 to the financial statements, beginning of the year net assets have been restated
to correct misstatements. We also audited the adjustments described in Note 11 that were applied to
restate the beginning of the year net assets. In our opinion, such adjustments are appropriate and have
been properly applied. Our opinion is not modified with respect to this matter.
Other Matter
Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements
as a whole. The consolidating information is presented for purposes of additional analysis rather than to
present the financial position and results of operations of the individual companies and is not a required
part of the financial statements. 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 financial
statements. The consolidating information has been subjected to the auditing procedures applied in the
audit of the financial statements and certain additional procedures, including comparing and reconciling
such information directly to the underlying accounting and other records used to prepare the financial
statements or to the 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 financial statements as a whole.
Birmingham, Alabama
October 31, 2016
2
Neighborhood Concepts, Inc. and Subsidiaries
Consolidated Statement of Financial Position
December 31, 2015
Assets
Current assets:
Cash
Accounts receivable
Grants receivable
Total current assets
$
Property and equipment:
Furniture, fixtures and equipment
Less accumulated depreciation
Property and equipment, net
255,168
17,924
272,154
545,246
87,158
(59,942)
27,216
Other assets:
Developer fees receivable
NARLF notes receivable, net
Notes receivable – related parties, net
Notes receivable – unrelated parties, net
Security deposits
Total other assets
920,693
243,701
2,401,241
43,984
1,100
3,610,719
Total assets
$
4,183,181
$
13,716
13,716
Liabilities and Net Assets
Current liabilities:
Accounts payable
Total current liabilities
Long-term liabilities:
Long-term debt
Investment deficit in partnerships
Total long-term liabilities
1,419,455
433,431
1,852,886
1,866,602
Total liabilities
Net assets:
Unrestricted net assets
Unrestricted
Board designated for future lending
1,994,367
15,559
2,009,926
396,512
2,406,438
(89,859)
2,316,579
Temporarily restricted net assets
Total net assets
Non-controlling interest in subsidiary
Consolidated net assets
Total liabilities and net assets
$
See notes to consolidated financial statements.
3
4,183,181
Neighborhood Concepts, Inc. and Subsidiaries
Consolidated Statement of Activities
Year Ended December 31, 2015
Changes in unrestricted net assets:
Revenue:
Developer and consulting fees
Asset management fees
Miscellaneous
Total revenues
$
Expenses:
Program services
General and administrative
Total expenses
459,556
24,549
14,029
498,134
275,551
35,407
310,958
187,176
Increase in unrestricted operating net assets
Other income (loss):
Loss on investments in partnerships
Interest income
Total other income (loss)
(1,773)
37,123
35,350
Net assets released from restrictions
100,479
323,005
Increase in unrestricted net assets
Changes in temporarily restricted net assets:
Grant revenue
Net assets released from restriction
286,861
(100,479)
Increase in temporarily restricted net assets
186,382
Increase in net assets
509,387
(41)
Net loss attributable to non-controlling interest
Increase in net assets attributable to
Neighborhood Concepts, Inc. and Subsidiaries
509,346
1,807,233
Net assets, beginning of year, as restated
$
Net assets, end of year
See notes to consolidated financial statements.
4
2,316,579
Neighborhood Concepts, Inc. and Subsidiaries
Consolidated Statement of Functional Expenses
Year Ended December 31, 2015
Program Services
Expenses:
Accounting
Consulting and contract
Dues and subscriptions
Equipment rental
Insurance
Interest
Legal
Marketing
Meetings
Miscellaneous
Office supplies
Payroll taxes
Provision for loan loss
Rent
Resident services
Salary, wages, and benefits
Taxes and licenses
Telephone and technology
Training and education
Travel
Total before depreciation
Low Income
Housing
Program
Awareness
Asset
Economic
Management Development
$
$
$
Depreciation
Total expenses
3,979
2,075
390
516
516
617
792
466
29
958
3,661
3,202
1,064
53,656
3,482
1,315
784
1,944
79,446
1,220
$
80,666
2,400
1,200
197
516
516
617
635
350
27
853
681
3,202
9,980
128
1,237
1,037
1,005
24,581
2,400
1,200
97
515
516
617
169
350
27
1,363
2,051
3,202
165
28,756
128
1,241
374
751
43,922
1,220
$
25,801
$
1,219
$
45,141
See notes to consolidated financial statements.
5
$
2,400
14,788
929
515
516
617
3,528
3,042
679
354
1,496
4,840
10,235
3,202
67,427
479
1,761
1,401
4,994
123,203
Total
Program
Services
$
11,179
19,263
1,613
2,062
2,064
2,468
3,528
4,638
1,845
437
4,670
11,233
10,235
12,808
1,229
159,819
4,217
5,554
3,596
8,694
271,152
740
4,399
123,943
$ 275,551
General and
Administrative
$
2,400
1,200
399
515
515
619
106
418
330
860
1,029
3,202
19,826
127
1,244
153
1,245
34,188
Total
$
1,219
$
35,407
13,579
20,463
2,012
2,577
2,579
3,087
3,528
4,744
2,263
767
5,530
12,262
10,235
16,010
1,229
179,645
4,344
6,798
3,749
9,939
305,340
5,618
$
310,958
Neighborhood Concepts, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Year Ended December 31, 2015
Cash flows from operating activities:
Change in net assets
Adjustments to reconcile change in net assets to net cash
provided by operating activities:
Depreciation
Loss on investments in partnerships
(Increase) decrease in:
Accounts receivable
Grant receivable
Developer fees receivable
Increase in:
Accounts payable
Net cash provided by operating activities
$
509,387
5,618
1,773
7,453
(62,065)
(105,668)
1,347
357,845
Cash flows from investing activities:
Expenditures on property and equipment
Issuance of NARLF notes receivable
Payments received on NARLF notes receivable
Interest accrued on notes receivable – related parties
Distributions received from investments in partnerships
Net cash used in investing activities
(13,320)
(136,674)
35,873
(1,896)
5,275
(110,742)
Cash flows from financing activities:
Payments on line of credit
Net cash used in financing activities
(70,000)
(70,000)
Increase in cash
177,103
Cash at beginning of year
78,065
Cash at end of year
$
255,168
Supplemental disclosure of cash flow information:
Cash paid for interest
$
3,087
See notes to consolidated financial statements.
6
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
Nature of Organization and Significant Accounting Policies
Nature of organization: Neighborhood Concepts, Inc. (the Organization or NCI) was formed as a nonprofit organization in 1988. Its mission is to strengthen communities through the creation of affordable
housing and the advancement of economic opportunities for underserved people and communities. The
Organization is supported primarily by grants and fee income from its affordable housing development
and revolving loan fund activity. Since 1997, the Organization has met the requirements to be considered
a Community Housing Development Organization (CHDO) and is eligible to apply to the City of Huntsville
Development Department for HOME Investment Partnership program funds under the CHDO set-aside.
The Organization is also recognized as a CHDO by Alabama Housing Finance Authority in Limestone,
Madison and Marshall Counties. No CHDO funds were received by the Organization in 2015.
The Organization’s wholly owned subsidiaries include North Alabama Revolving Loan Fund, LLC
(NARLF), a U. S. Treasury certified Community Development Financial Institution (CDFI) that provides
business loans to support economic development in north Alabama. NCI’s subsidiaries also include the
following real estate entities that invest in for-profit low income housing limited partnerships:

















Franklin Housing, LLC
HHD Meadow Oaks GP, Inc.
NBA, Inc.
NCI Aiken Housing, LLC
NCI Ashley Villas, LLC
NCI Clarkston, LLC
NCI Cotton Run, LLC
NCI Countryside Villas, LLC
NCI Flint River, LLC
NCI Homestead, LLC
NCI LaFayette Village, LLC**
NCI Pine Ridge, LLC
NCI Ridge Chase, LLC
NCI Rolling Hills, LLC**
NCI Virginia Meadows, LLC**
NCI Winding Creek, LLC**
Spring Branch, LLC
**The Organization has formed this wholly owned subsidiary but has not yet invested in any partnerships
as of December 31, 2015.
In addition, the Organization is a 79% managing member in Mallard Pointe Partners, LLC. Mallard Pointe
Partners, LLC, as its sole investment, is a 0.01% non-controlling general partner in Mallard Pointe, LP, a
for-profit low income housing limited partnership. The 21% not owned by the Organization is reflected as
non-controlling interest in subsidiary as a component of net assets in the accompanying consolidated
statement of financial position.
All significant inter-organizational transactions and balances have been eliminated in the consolidated
financial statements.
Basis of accounting: The consolidated financial statements of the Organization have been prepared on
the accrual basis of accounting in accordance with accounting principles generally accepted in the United
States of America (GAAP).
7
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
Nature of Organization and Significant Accounting Policies (Continued)
Basis of presentation: For financial statement presentation, the Organization has adopted Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 958-205, Not-For-Profit
Entities: Presentation of Financial Statements. Under FASB ASC 958-205, 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. The
Organization currently does not hold any permanently restricted net assets. In addition, the Organization
is required to present a statement of cash flows. As permitted by FASB ASC 958-205, the Organization
does not use fund accounting.
Use of estimates: The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue recognition: The Organization receives support from grants, consulting fees, including
developer fees, and asset management fees. Grants are recognized when the grantor or donor makes a
commitment for the grant or promise to give to the Organization that is, in substance, unconditional.
Amounts received for consulting and asset management fees are recognized during the period of service.
Developer fees are recognized when requirements in the related limited partnership agreements are met.
Recognition of donor restrictions: Grants that are restricted by the grantor or donor for specific
purposes are reported as an increase in temporarily restricted net assets. When a restriction expires or is
satisfied, temporarily restricted net assets are reclassified to unrestricted net assets. Contributions of
assets that donors have stipulated must be maintained in perpetuity are classified as permanently
restricted. The Organization has no permanently restricted net assets as of December 31, 2015.
Cash and cash equivalents: For purposes of the consolidated statement of cash flows, the Organization
considers all highly liquid investments available for current use with an initial maturity of three months or
less to be cash equivalents. The Organization had no cash equivalents at December 31, 2015.
Accounts, grants and developer fees receivable: Receivables are carried at original invoice, grant
commitment amount, or contract amount less an estimate made for doubtful receivables based on a
review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful
accounts by identifying troubled accounts and by using historical experience applied to an aging of
accounts. Receivables are written off when deemed uncollectible. Recoveries of receivables previously
written off are recorded when received. Management determined that an allowance for doubtful accounts
was not necessary as of December 31, 2015.
Notes receivable: Notes receivable are stated at unpaid principal balances plus accrued interest, net of
an allowance for loan losses. As of December 31, 2015, the allowance for loan losses totaled $983,363
on related party notes and $11,102 on NARLF notes receivable. Interest on performing loans is
recognized over the term of the loan and is calculated using the simple-interest method on principal
amounts outstanding. Interest on nonperforming loans is recognized when actually received from the
borrower. The risk of loss on the related party loans is the difference between the loan amount and the
market value of the collateral at the time of loan loss determination. Management determines the
allowance for loan losses on the NARLF notes receivable by identifying troubled notes and by reviewing
borrower financial information. NARLF notes receivable are written off when deemed uncollectible.
8
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
Nature of Organization and Significant Accounting Policies (Continued)
Property and equipment: It is the Organizationʼs policy to capitalize property and equipment costs
over $1,000. Lesser amounts are expensed. Purchased property and equipment are capitalized at cost.
Donations of property and equipment are recorded as contributions at their estimated fair value. Such
donations are reported as unrestricted contributions unless the donor has restricted the donated asset to
a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash
that must be used to acquire property and equipment are reported as restricted contributions. Absent
donor stipulations regarding how long those donated assets must be maintained, the Organization reports
expirations of donor restrictions when the donated or acquired assets are placed in service as instructed
by the donor. The Organization reclassifies temporarily restricted net assets to unrestricted net assets at
that time.
Property and equipment are depreciated using the straight-line method over the estimated useful lives of
the assets generally as follows:
Playground equipment
Furniture and equipment
Computer equipment
20 years
7 years
3 years
Impairment of assets: In accordance with FASB ASC 360-10-35, Impairment or Disposal of Long-Lived
Assets, the Organization records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amounts of those assets. If impairment exists,
the amount of such impairment is calculated based on the estimated fair value of the asset. The
Organization continually evaluates its investment in long-lived assets used in operations for impairment.
As further described in Note 5, certain notes receivable have been impaired in prior years.
Investments in partnerships: In accordance with FASB ASC 970-323, Real Estate-General,
Investments – Equity Method and Joint Ventures, a non-profit organization with a more than minor
interest in a for-profit real estate partnership, a for-profit real estate limited liability company, or similar forprofit real estate entity shall report its non-controlling interest in such an entity using the equity method.
As such, the Organization’s investments in partnerships are accounted for under the equity method, in
which the Organizationʼs share of net income or loss from the partnerships are directly reflected in the
consolidated statement of activities, and the investment accounts are adjusted for its share of the net
income or loss, and any additional investment in or distributions from the partnerships.
Functional expenses: The costs of providing various programs and other activities have been
summarized on a functional basis in the consolidated statement of activities and in the consolidated
statement of functional expenses. Accordingly, certain costs have been allocated among the program
services and general and administrative services benefited based on a percentage method.
Income taxes: The Organization is a not-for-profit organization that is exempt from income taxes under
Section 501(c)(3) of the Internal Revenue Code and is not a private foundation. The Organization files a
tax return in the United States (U.S.) federal jurisdiction. The Board of Directors evaluated the
Organization’s tax position and concluded that the Organization has not entered into any events or
transactions that would disqualify its tax-exempt status or has not taken any uncertain tax positions that
would cause the Organization to incur income taxes or penalties at the entity level. With few exceptions,
the Organization is no longer subject to U.S. federal tax examinations by tax authorities for years before
2012.
9
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
Nature of Organization and Significant Accounting Policies (Continued)
Recent accounting pronouncements: In May 2014, the FASB issued Accounting Standards Update
(ASU) 2014-09, Revenue From Contracts With Customers (Topic 606), which specifies that an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. To achieve this, the entity should apply certain steps outlined in the amendment. This ASU will
supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industryspecific guidance. For nonpublic entities, these amendments are effective for annual reporting periods
beginning after December 15, 2018. Early adoption with certain restrictions is permitted for nonpublic
entities. The Organization is currently evaluating the effect the guidance may have on the consolidated
financial statements.
In August 2016, the FASB issued ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of
Financial Statements of Not-for-Profit Entities, which addresses financial reporting for not-for-profit
organizations. The key elements of the ASU are as follows:





Net asset classifications are being reduced from three to two categories: with donor restrictions and
without donor restrictions. Expanded disclosures about the nature and amount of any donor
restrictions and on any board designations of net assets without donor restrictions will be required.
The placed-in-service approach will be required for determining when restrictions are met for all
capital gifts, eliminating the over-time option for expirations of capital restrictions.
Additional disclosures, both qualitative and quantitative, will be required to communicate information
useful in assessing liquidity within one year of the statement of financial position date.
The indirect or direct method of presenting the statement of cash flows will be allowed. However, the
reconciliation of operating items no longer will be required when using the direct method.
Several new reporting requirements related to expenses are included, as follows:
- Disclosure of expenses by both nature and function (excluding investment expenses that have
been netted with investment return)
- Disclosure of expenses netted with investment return
- Enhanced disclosures regarding cost allocations
While the guidance is effective for fiscal years beginning after December 15, 2017, early adoption is
allowed. The Organization is currently evaluating the effect the guidance will have on the consolidated
financial statements.
Subsequent events: Subsequent events have been evaluated through October 31, 2016, which is the
date the consolidated financial statements were available for issuance.
Note 2.
Grants Receivable
On December 6, 2011, the Organization, through its wholly owned subsidiary, NARLF, received a grant
award from The Food Bank of North Alabama. The initial grant was $150,000, and an additional grant of
$150,000 was awarded during the year ended December 31, 2015. The purpose of the grants are to
provide access to capital for small businesses and microenterprises that support a local food system,
incorporate as a cooperative, or create, preserve or expand employment opportunities for low-tomoderate income persons while encouraging a wage standard that supports an acceptable standard of
living. As of December 31, 2015, the remaining grant receivable was $97,583 and will be received during
2016 as the Organization continues to originate loans in accordance with the grant provisions.
10
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2.
Grants Receivable (Continued)
On December 19, 2013, the Organization, through its wholly owned subsidiary, NARLF, received a grant
award from The City of Huntsville in the amount of $250,000. The purpose of the grant is to provide
financing for microloans for smaller, first stage businesses located within the City of Huntsville. As of
December 31, 2015, the remaining grant receivable was $68,421 and will be received during 2016 as the
Organization continues to originate loans in accordance with the grant provisions.
On September 10, 2015, the Organization, through its wholly owned subsidiary, NARLF, received a grant
award from the Community Development Financial Institution (CDFI) Technical Assistance (TA) Program
in the amount of $106,150. The purpose of the CDFI TA Award is to increase NARLF’s capacity to
provide financing for small businesses in north Alabama. TA Funds may be used for equipment, training,
staff salaries and other expenses eligible under the TA program. As of December 31, 2015, the remaining
grant receivable was $106,150, which will be received in 2016 as the Organization continues to incur
eligible expenses in accordance with the grant provisions.
Note 3.
Property and Equipment
Property and equipment consisted of the following as of December 31, 2015:
Playground equipment
Furniture and equipment
Computer equipment
Less accumulated depreciation
Total
$
$
11
59,245
14,593
13,320
(59,942)
27,216
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4.
Developer Fees Receivable and Related Revenue
The following summarizes developer fees receivable and related revenue due to the Organization, and
are collateralized by the underlying rental properties, as of December 31, 2015:
Developer Fees
Receivable
Mallard Pointe, LP:
The Organization entered into an agreement with Mallard Pointe, LP, to be the
developer for Mallard Pointe Apartments, a 74-unit multifamily apartment complex.
The Organization is a non-controlling general partner through its majority owned
subsidiary, Mallard Pointe Partners, LLC. The total developer fee was $828,598, all
of which was earned prior to 2012. As of December 31, 2015, the principal balance
of developer fees of $274,994 remained payable to the Organization. The deferred
developer fee remaining on the date of completion, as defined, bears interest at the
rate of 4.91% per annum. The outstanding balance of the fee is required to be repaid
upon the earlier of the tenth anniversary of completion, as defined, or liquidation of
Mallard Pointe, L.P. During the year ended December 31, 2015, $21,730 of interest
was earned and is included in interest income on the accompanying consolidated
statement of activities. As of December 31, 2015, accrued interest receivable totaled
$189,290.
$
464,284
Spring Branch, Ltd.:
The Organization entered into an agreement with Spring Branch, Ltd., to be the
developer for Spring Branch Apartments, a 70-unit multifamily apartment complex.
The Organization is a non-controlling general partner through its wholly owned
subsidiary, Spring Branch, LLC. The total developer fee was $908,533, all of which
was earned in 2013 when the project was completed. As of December 31, 2015, the
principal balance of developer fees of $138,909 remained payable to the
Organization.
138,909
Clarkston Square, LP:
The Organization provided developer consulting services to Clarkston Square, LP.
The Organization is a non-controlling general partner through its wholly owned
subsidiary, NCI Clarkston, LLC. The total developer consulting income recognized
during the year ended December 31, 2015, was $250,000 and the total developer
consulting fees receivable as of December 31, 2015, was $187,500.
187,500
Flint Rivers, LP:
The Organization provided developer consulting services to Flint Rivers, LP. The
Organization is a non-controlling general partner through its wholly owned subsidiary,
NCI Flint River, LLC. The total developer consulting income recognized and received
during the year ended December 31, 2015, was $195,000 and $65,000, respectively.
Total
$
130,000
920,693
12
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 5.
Notes Receivable – Related Parties
The following summarizes the notes receivable, which includes accrued interest, net of an allowance for
loan losses, due to the Organization, and are collateralized by the underlying rental properties, as of
December 31, 2015:
Receivable
Hunters Landing Partners, LLC:
The Organization has a note receivable in the original amount of $885,800, with
Hunters Landing Partners, LLC, a subsidiary of Mallard Pointe, LP. The maturity date
is March 31, 2030. The loan is payable solely from available cash flow, as defined, or
proceeds from the sale or refinancing of all or any portion of the real property owned
by Hunters Landing Partners, LLC.
The note accrues interest at an annual rate of 5.25%. The loan is impaired and has
been placed on nonaccrual status, therefore during the year ended December 31,
2015, no interest was recorded.
The Organization has a note receivable in the original amount of $500,000, with
Hunters Landing Partners, LLC. Payment of principal and interest is deferred until the
earlier of the sale of the project or the date the loan is refinanced or the maturity date,
December 31, 2045. The balance of the note receivable was $500,000 and is
expected to be forgiven when the Organization’s related note payable of $500,000 is
forgiven. See Note 7 for further detail.
The note accrues interest at an annual rate of 5.25%. The accrued interest is not
expected to be collected and the loan has been placed on nonaccrual status,
therefore during the year ended December 31, 2015, no interest was recorded.
The Organization has a note receivable in the original amount of $10,000, with
Hunters Landing Partners, LLC. Beginning December 1, 2015, the note accrues
interest at an annual rate of 5.0% and all principal and interest are due solely from
available cash flow and/or sale or refinance proceeds and shall be due on demand but
no later than the earlier of December 31, 2030, or the point of any sale or refinance of
the real estate held by Hunters Landing Partners, LLC.
Quail Ridge Partners, LLC:
The Organization has a note receivable in the original amount of $302,300, with
Quail Ridge Partners, LLC, a subsidiary of Mallard Pointe, LP. The maturity date is
March 31, 2030. The loan and the associated interest receivable are payable solely
from available cash flow, as defined, or proceeds from the sale or refinancing of all or
any portion of the real property owned by Quail Ridge Partners, LLC.
The note accrues interest at an annual rate of 5.25%. The loan is impaired and has
been placed on nonaccrual status, therefore during the year ended December 31,
2015, no interest was recorded.
The Organization has a note receivable in the original amount of $500,000, with
Quail Ridge Partners, LLC. Payment of principal and interest are deferred until the
earlier of the sale of the project or the date the loan is refinanced or the maturity date,
December 31, 2045. The balance of the note receivable was $500,000 and is
expected to be forgiven when the Organization’s related note payable of $500,000 is
forgiven. See Note 7 for further detail.
The note accrues interest at an annual rate of 5.25%. The accrued interest is not
expected to be collected and the loan has been placed on nonaccrual status,
therefore during the year ended December 31, 2015, no interest was recorded.
The Organization has a note receivable in the original amount of $12,000, with
Quail Ridge Partners, LLC. The maturity date is March 31, 2030. This is a non-interest
bearing note and principal shall be payable solely from available cash flow, as defined,
or proceeds from the sale or refinancing of all or any portion of the real property
owned by Quail Ridge Partners, LLC.
13
$
Allowance
885,800
$ (130,455)
369,809
(369,809)
500,000
159,230
10,000
-
(159,230)
-
302,300
(28,300)
124,339
(124,339)
500,000
-
Net Receivable
$
755,345
-
500,000
-
10,000
274,000
-
500,000
159,230
(159,230)
-
12,000
(12,000)
-
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 5.
Notes Receivable – Related Parties (Continued)
Receivable
Quail Ridge Partners, LLC:
The Organization has a note receivable in the original amount of $10,000, with
Quail Ridge Partners, LLC. Beginning December 1, 2015, the note accrues interest at
an annual rate of 5.0% and all principal and interest are due solely from available cash
flow and/or sale or refinance proceeds and shall be due on demand but no later than
the earlier of December 31, 2030, or the point of any sale or refinance of the real
estate held by Quail Ridge Partners, LLC.
$
10,000
$
Longleaf Senior Village, LP:
The Organization has a note receivable in the original amount of $350,000, with
Longleaf Senior Village, LP. NCI Aiken Housing, LLC, as its sole investment, is a
0.0051% non-controlling co-general partner in Longleaf Senior Village, LP. The note
accrues interest at an annual rate of 0.5% and all principal and interest are due upon
maturity on November 4, 2034. As of December 31, 2015, interest receivable was
$1,896. The note is expected to be forgiven when the Organization’s related note
payable of $350,000 is forgiven. See Note 7 for further detail.
Total
$ (983,363)
351,896
$ 3,384,604
Allowance
-
Net Receivable
$
10,000
351,896
$ 2,401,241
A loan is considered impaired when, based on currently available information, it is probable that the
Organization will not collect all of the principal and interest contractually required by the loan agreement.
Impaired loans include loans that have been modified in a troubled debt restructuring and loans placed on
nonaccrual status. All impaired loans are evaluated for an asset-specific allowance for credit losses. An
allowance for credit losses on impaired loans is recognized when the recorded investment in the loan
exceeds the estimated cash flows expected to be received from the borrower, based on the estimated fair
value of the collateral securing the loan.
Impaired loans are classified as nonperforming and, consequently, interest income is only recognized on
these loans when actually received from the borrower. Partial payments of contractual amounts due on
impaired loans are treated as interest income on a cash basis until such time as the loan is restored to
performing status.
Note 6.
Notes Receivable – Unrelated Parties
Sunrise Incorporated: The Organization has a note receivable in the original amount of $43,984, from
Sunrise Incorporated, an unrelated party. During 2014, the loan was restructured to be non-interest
bearing. As of December 31, 2015, the balance of the note receivable was $43,984 and is personally
guaranteed by the owners of Sunrise Incorporated.
Small business loans: Through its wholly owned subsidiary, NARLF, the Organization has several notes
receivable from small businesses with maturity dates ranging from less than one year to less than nine
years and interest rates ranging from 5% to 10%. All the notes are personally guaranteed by the owners
of the small businesses. $23,917 was receivable in less than one year, $182,400 was receivable in one to
five years, and $48,486 was receivable in six to nine years. As of December 31, 2015, the balance of all
the small business loans was $243,701, net of an allowance for loan losses of $11,102.
14
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 7.
Long-Term Debt and Line of Credit
Notes payable to a credit union. Conditions of the two $500,000
notes stipulate that no interest shall accrue unless the
Organization is in default of these notes, as defined in the
promissory agreements. The notes are unsecured and the full
amount of the notes will be forgiven so long as the terms and
provisions of the loan agreements are fulfilled and the restriction
provisions of the retention mechanism agreements are complied
with for the 15-year retention period ending October 7, 2020.
Upon any default, interest shall begin accruing at a variable rate of
prime plus 2.50% with principal and interest payments due from
the time of default, and amortizing the remaining indebtedness
over the remainder of the 15-year compliance period, which began
October 7, 2005.
$
Note payable to a financial institution. Conditions of the $350,000
note stipulate that interest accrues at an annual rate of 0.50%, as
defined in the promissory agreement. The note is secured and the
full amount of the note will be forgiven so long as the terms and
provisions of the loan agreement are fulfilled and the restriction
provisions of the retention mechanism agreement is complied with
for the 15-year retention period ending November 5, 2029. Upon any
default, interest shall begin accruing at an increased rate of 5%
with principal and interest payments due from the time of default,
and amortizing the remaining indebtedness over the remainder of
the 15-year compliance period, which began November 5, 2014.
Note payable to a developer. Principal on this non-interest bearing note
shall be payable solely from developer fees due to the Organization in
accordance with the terms of a promissory note receivable in the amount
of $138,909 between the Organization and Spring Branch, Ltd.
Total
1,000,000
350,000
$
69,455
1,419,455
Aggregate maturities of the long-term debt for the five years following December 31, 2015, are
$1,000,000 payable at maturity on October 7, 2020, and $350,000 payable at maturity on November 5,
2029, unless the notes are forgiven in accordance with the terms noted above. The remaining $69,455 is
due thereafter unless the Organization receives full payment on the related note receivable.
The Organization has a line of credit with a financial institution with a maximum funding amount of
$250,000. The line of credit is typically renewed annually and renewed on July 7, 2016. As of
December 31, 2015, there was n o outstanding balance. The organization pays interest on the
outstanding balance at the lender’s prime rates. The applicable annual interest rate will not be more
than 3.25%. The loan is secured by all accounts receivable of the Organization.
15
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 8.
Investment Deficit In Partnerships
The Organization has invested in partnerships that are operating, developing or renovating low to
moderate income housing. The investments are accounted for under the equity method, in which the
Organization's share of net income or loss from the partnerships are directly reflected in the consolidated
statement of activities, and the investment accounts are adjusted for its share of the net income or loss,
and any additional investment in or distributions from the partnerships. Due to the Organization’s
continuing involvement in the partnerships where NCI serves as a general partner and expected
commitment and legal obligation to provide future deficit funding, if necessary, losses in excess of the
amount invested will continue to be recognized. Partnerships where NCI serves as a limited partner, NCI
has no responsibility or legal obligation to fund any future deficits. The general partner in those
partnerships have all the risk and responsibility for future deficits and obligations, therefore, these
investments will not recognize any losses.
The following summarizes the activity that has occurred in the investment account:
Partnership
Partner Type
Wholly Owned Subsidiary
Ashley Road Affordable
Housing, Ltd.
Limited Partner
NCI Ashley Villas, LLC
Clarkston Square, LP
Non-controlling GP
Conners Senior Village, LP
Non-controlling GP
NCI Clarkston, LLC
CSV Housing, LLC owned
Phase II, LP
0.0100%
-
Contribution
(Distribution)
$
-
0.0100%
-
Income
(Loss)
$
End of Year
-
$
-
-
(7)
(7)
47
(5,275)
(14)
(5,242)
9
-
Douglas Housing Ventures II,
Non-controlling GP
II, LLC (NCI owns 10%)
Cotton Run Apartments, Ltd.
Limited Partner
NCI Cotton Run, LLC
Flint Rivers, LP
Non-controlling GP
Franklin Hills, LP
Headland Affordable Housing
Non-controlling GP
Partners, Ltd
Beginning of
Year
99.8900% $
100% by NBA, Inc.
Conners Senior Village
Ownership %
0.0100%
98.9900%
-
NCI Flint River LLC
0.0045%
-
Franklin Housing, LLC
0.0007%
(3)
(2)
-
-
-
-
-
-
-
Limited Partner
NCI Countryside Villas, LLC
99.9800%
-
-
-
Homestead Apartments, LP
Limited Partner
NCI Homestead, LLC
99.8900%
-
-
-
Longleaf Senior Village, LP
Non-controlling GP
NCI Aiken Housing, LLC
0.0051%
Mallard Pointe, LP
Non-controlling GP
Mallard Pointe Partners, LLC
0.0100%
51
79% owned by Veristar
NCI
- 21%
Mallard Partners, LLC
7
-
(3)
-
-
(7)
44
(336,401)
-
(1,639)
(338,040)
(89,818)
-
(41)
(89,859)
(63)
-
(5)
(68)
-
-
-
-
(14)
-
-
-
(44)
Mountain Ridge Limited
Partnership
Pine Ridge Apartments, Ltd
Quality Housing Partners No.
16, LP
Non-controlling GP
Neighborhood Concepts, Inc.
Limited Partner
NCI Pine Ridge, LLC
0.0033%
98.9900%
Non-controlling GP
HHD Meadow Oaks, GP, Inc.
Ridge Chase Apartments, Ltd
Limited Partner
NCI Ridge Chase, LLC
Spring Branch, Ltd.
Non-controlling GP
Spring Branch, LLC
0.0100%
(197)
98.9900%
-
0.0100%
(8)
$
(426,383) $
(5,275) $
(1,773) $
(211)
(52)
(433,431)
Mallard Pointe, LP: As noted in the schedule above, the Organization is a 79% managing member in
Mallard Pointe Partners, LLC. Mallard Pointe Partners, LLC, as its sole investment, is a 0.01% noncontrolling general partner in Mallard Pointe, LP. The 21% not owned by the Organization of ($89,859) is
reflected as non-controlling interest in subsidiary as a component of net assets in the accompanying
consolidated statement of financial position.
16
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 9.
Temporarily Restricted Net Assets
Temporarily restricted net assets are available for the following purposes:
The Food Bank of North Alabama grant for future lending
The City of Huntsville grant for future lending
Community Development Financial Institutions Fund technical assistance grant
Wells Fargo Promote the Parkway Small Business Program grant
Promissory notes pending borrower draws
Total
Note 10.
$
$
108,433
71,728
106,150
15,000
95,201
396,512
Net Assets Released From Restrictions
Net assets during the year ended December 31, 2015, were released from restrictions by lending $92,979
of The Food Bank of North Alabama and The City of Huntsville grant funds out to small businesses and
spending $7,500 on low income housing growth initiatives.
Note 11.
Restatement of Beginning of Year Net Assets
Net assets as of January 1, 2015, have been restated due to the correction of errors in accounting for: (a)
notes receivable in accordance with FASB ASC 310, Receivables and (b) the correction of errors in
properly recognizing revenue in accordance with FASB ASC 958-605-45, Not-for-Profit Entities: Revenue
Recognition.
Notes receivable: In prior years, management fully impaired two of the Organization’s notes receivable
totaling $1,000,000, which are related to two of the Organization’s notes payable, which will more than
likely be forgiven when provisions of the loan agreements are fulfilled in October 2020 (see Note 7 for
more details). At the time these notes payable are forgiven, the related notes receivable will also be
forgiven, therefore, impairment of the notes receivable is not necessary so that related assets and
liabilities net to zero. As a result, beginning of the year net assets have been increased by $1,000,000.
Revenue recognition: In prior years, management had been recognizing developer and consulting fees
income when the cash was received rather than when the fees were earned in accordance with FASB
ASC 958-605-45. As a result, beginning of the year net assets have been increased by $323,016 to
properly account for fees income when earned rather than when received.
In prior years, management believed temporarily restricted grant revenue should be deferred until the
Organization fulfilled the purpose of the grant. In accordance with FASB ASC 958-605-45, all
unconditional grants should be recognized as revenue when the organization receives a commitment for
the grant (promise to give). These grants related to making loans to small businesses, which is the
Organization’s wholly owned subsidiary, NARLFʼs main mission and program service. Therefore, these
grants are not considered conditional and should be fully recognized on the date of the grant
commitment. To properly recognize this grant revenue, beginning of the year temporarily restricted net
assets have been increased by $210,130.
17
Neighborhood Concepts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 11.
Restatement of Beginning of Year Net Assets (Continued)
The following table illustrates these changes to beginning net assets:
Temporarily
Restricted
Net Assets
Unrestricted
Net Assets
Net assets, as previously reported
To reverse impairment on certain notes receivable
To properly recognize developer and consulting fees
To properly recognize temporarily restricted grant revenue
Net assets, beginning of year, as restated
$
274,087
1,000,000
323,016
$ 1,597,103
$
$
210,130
210,130
Total
$
274,087
1,000,000
323,016
210,130
$ 1,807,233
As a result of these corrections of errors in previously issued financial statements, the effect on the
change in net assets for the year ended December 31, 2014, is a decrease in the previously reported
change in net assets of $130,000.
Note 12.
Operating Leases
The Organization leases office space under an operating lease that expires in July 2016. The
Organization also rents a storage unit under a month-to-month operating lease. Future minimum
operating lease payments under the lease are due as follows:
Year ending December 31:
2016
$8,949
Rent expense related to the office space and storage unit for the year ended December 31, 2015, was
$16,010 and is included in the accompanying consolidated statement of functional expenses.
Note 13.
Concentrations
Concentration of credit risk: The Organization maintains cash at financial institutions, which, at times,
may exceed federally insured limits. The Organization has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk on cash.
Geographic concentration: The Organization has investments in partnerships located in Huntsville,
Arab, Montgomery, Headland, Jackson, Phenix City, Millbrook, Thomasville and Rainbow City, Alabama,
as well as Villa Rica, Georgia, Jasper, Georgia and Aiken, South Carolina. Future operations of these
partnerships could be affected by changes in the economic or other conditions in those geographical
areas or by changes in federal low-income housing subsidies, changes in CHDO or HUD funding
directives, rules and regulations. Such changes may occur with little notice and could cause inadequate
funding to pay for the related costs, including the additional administrative burden to comply with a
change. These potential future changes are uncertain, and accordingly, it is not possible to determine the
ultimate impact on the operations of the Organization.
18
Neighborhood Concepts, Inc. and Subsidiaries
Consolidating Statement of Financial Position
December 31, 2015
North Alabama
Neighborhood Revolving Loan
Concepts, Inc.
Real Estate
Fund, LLC
Entities
Total
Eliminations
Consolidated
Assets
Current assets:
Cash
$
Accounts receivable
Grants receivable
124,123
$
131,045
23,074
-
$
255,168
$
-
$
(5,186)
255,168
-
23,110
272,154
-
272,154
147,197
403,235
-
550,432
73,838
13,320
-
87,158
-
87,158
-
(59,942)
-
(59,942)
-
27,216
-
27,216
-
920,693
-
920,693
-
243,701
-
243,701
-
Total current assets
$
36
17,924
-
272,154
(5,186)
545,246
Property and equipment:
Furniture, fixtures and equipment
Less accumulated depreciation
(59,202)
Property and equipment, net
14,636
Other assets:
Developer fees receivable
12,580
920,693
NARLF notes receivable, net
-
-
Notes receivable – related parties, net
Notes receivable – unrelated parties, net
Security deposits
243,701
2,401,241
-
-
2,401,241
-
2,401,241
43,984
-
-
43,984
-
43,984
-
-
1,100
-
1,100
-
3,610,719
-
3,610,719
1,100
Total other assets
Total assets
(740)
3,367,018
243,701
$ 3,528,851
$
659,516
$
-
$ 4,188,367
$
(5,186)
$ 4,183,181
$
$
5,261
$
-
$
$
(5,186)
$
Liabilities and Net Assets
Current liabilities:
Accounts payable
Deferred revenue
Line of credit
Total current liabilities
13,641
18,902
-
-
-
-
-
-
-
-
-
-
13,641
5,261
-
18,902
-
(5,186)
13,716
13,716
Long-term liabilities:
Long-term debt
1,419,455
-
1,419,455
-
68
-
433,363
433,431
-
433,431
Total long-term liabilities
1,419,523
-
433,363
1,852,886
-
1,852,886
Total liabilities
1,433,164
5,261
433,363
1,871,788
2,080,687
257,184
(343,504)
1,994,367
-
15,559
-
15,559
2,009,926
-
2,009,926
396,512
-
396,512
2,406,438
-
2,406,438
Investment deficit in partnerships
(5,186)
1,419,455
1,866,602
Net assets:
Unrestricted net assets:
Unrestricted
Board designated for future lending
Temporarily restricted net assets
Total net assets
Non-controlling interest in subsidiary
Consolidated net assets
Total liabilities and net assets
-
15,559
2,080,687
272,743
15,000
381,512
2,095,687
654,255
-
(343,504)
(343,504)
-
2,095,687
$ 3,528,851
-
(89,859)
654,255
$
659,516
19
(433,363)
$
-
(89,859)
-
2,316,579
$ 4,188,367
$
(5,186)
1,994,367
(89,859)
2,316,579
$ 4,183,181
Neighborhood Concepts, Inc. and Subsidiaries
Consolidating Statement of Activities
Year Ended December 31, 2015
North Alabama
Neighborhood
Revolving Loan
Real Estate
Concepts, Inc.
Fund, LLC
Entities
Total
Eliminations
Consolidated
Changes in unrestricted net assets:
Revenue:
Developer and consulting fees
$
Asset management fees
459,556
$
-
29,735
Miscellaneous
Total revenues
$
-
-
$
459,556
-
29,735
$
-
$
(5,186)
459,556
24,549
5,902
8,127
-
14,029
-
495,193
8,127
-
503,320
(5,186)
498,134
14,029
(5,186)
275,551
Expenses:
Program services
201,541
79,196
-
280,737
General and administrative
33,157
2,250
-
35,407
Total expenses
234,698
81,446
-
316,144
260,495
(73,319)
-
35,407
(5,186)
310,958
Increase (decrease) in unrestricted
operating net assets
-
187,176
-
187,176
Other income (loss):
Loss on investments in partnerships
(5)
Interest income
-
23,626
13,497
23,621
13,497
7,500
92,979
291,616
33,157
Grant revenue
22,500
264,361
Net assets released from restriction
(7,500)
(92,979)
15,000
171,382
306,616
204,539
Total other income (loss)
Net assets released from restrictions
(1,768)
(1,773)
-
(1,773)
37,123
-
37,123
35,350
-
35,350
100,479
-
100,479
323,005
-
323,005
-
286,861
-
286,861
-
(100,479)
-
(100,479)
-
186,382
-
186,382
509,387
-
509,387
(1,768)
-
Increase (decrease) in
unrestricted net assets
(1,768)
Changes in temporarily restricted net assets:
Increase in temporarily restricted
net assets
Increase (decrease) in net assets
(1,768)
Net loss attributable to
non-controlling interest
-
-
(41)
(41)
-
(41)
Increase (decrease) in net assets attributable
to Neighborhood Concepts, Inc.
and Subsidiaries
Net assets, beginning of year, as restated
Contribution from NCI
204,539
(1,809)
509,346
1,843,127
395,660
(431,554)
1,807,233
-
Distribution to NARLF
Net assets, end of year
306,616
54,056
(54,056)
$
2,095,687
$
654,255
20
$
-
509,346
-
1,807,233
-
54,056
(54,056)
-
-
(54,056)
54,056
-
(433,363)
$
2,316,579
$
-
$
2,316,579