HomeMy WebLinkAbout2021 Financial Audit
Cape Fear REALTORS and Affiliates
Consolidated Financial Statements
For the Years Ended
December 31, 2021 and 2020
Cape Fear REALTORS and Affiliates
CONTENTS PAGE
INDEPENDENT AUDITOR’S REPORT – CONSOLIDATED FINANCIAL
STATEMENTS 1-3
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Position 4
Consolidated Statements of Activities and Changes in Net Assets 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-22
SUPPLEMENTARY INFORMATION
Consolidating Statements of Financial Position 24
Consolidating Statements of Activities and Changes in Net Assets 25
Consolidating Statements of Cash Flows 26
Earney & Company, L.L.P., 710 Military Cutoff Road, Suite 250 Wilmington, NC 28405
T: (910) 256 9995, F: (910) 256 2829, www.earneynet.com
INDEPENDENT AUDITOR’S REPORT
To the Board of Trustees of
Cape Fear REALTORS and Affiliates
Opinion
We have audited the accompanying consolidated financial statements of Cape Fear REALTORS
(a nonprofit corporation) and affiliates, which comprise the consolidated statement of financial
position as of December 31, 2021, and the related consolidated statements of activities and
changes in net assets and cash flows for the year then ended, and the related notes to the
consolidated financial statements.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Cape Fear REALTORS and affiliates as of December
31, 2021, and the changes in their net assets and their cash flows for the year then ended in
accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Our responsibilities under those standards are further described in the
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our
report. We are required to be independent of Cape Fear REALTORS and affiliates and to meet
our other ethical responsibilities in accordance with the relevant ethical requirements relating to
our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated
financial statements in accordance with accounting principles generally accepted in the United
States of America, and for the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate
whether there are conditions or events, considered in the aggregate, that raise substantial
doubt about Cape Fear REALTORS and affiliates’ ability to continue as a going concern within
one year after the date that the consolidated financial statements are available to be issued.
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Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance but is not absolute assurance and therefore is not a guarantee that an audit
conducted in accordance with generally accepted auditing standards will always detect a
material misstatement when it exists. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
Misstatements are considered material if there is a substantial likelihood that, individually or in
the aggregate, they would influence the judgment made by a reasonable user based on the
consolidated financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
Exercise professional judgment and maintain professional skepticism throughout the
audit.
Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, and design and perform audit procedures
responsive to those risks. Such procedures include examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements.
Obtain an understanding of internal control relevant to the audit 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 Cape Fear REALTORS and affiliates’
internal control. Accordingly, no such opinion is expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluate the overall
presentation of the consolidated financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the
aggregate, that raise substantial doubt about Cape Fear REALTORS and affiliates’ ability
to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit, significant audit findings, and certain
internal control related matters that we identified during the audit.
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Report on Consolidated Comparative Information
We previously reviewed Cape Fear REALTORS and affiliates’ 2020 consolidated financial
statements and in our conclusion dated June 10, 2021, stated that based on our review, we
were not aware of any material modifications that should be made to the 2020 consolidated
financial statements in order for them to be in accordance with accounting principles generally
accepted in the United States of America. We are not aware of any material modifications that
should be made to the consolidated comparative information presented herein as of and for the
year ended December 31, 2020, for it to be consistent with the reviewed consolidated financial
statements from which it has been derived.
Report on Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the consolidated financial
statements as a whole. The consolidating supplementary information on pages 24 through 26 is
presented for purposes of additional analysis and is not a required part of the consolidated
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
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.
Wilmington, North Carolina
May 12, 2022
Cape Fear REALTORS and Affiliates
Consolidated Statements of Financial Position
As of December 31, 2021 (Audited) and 2020 (Reviewed)
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements
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2021 2020
ASSETS
Current Assets
Cash & cash equivalents 2,651,923$ 2,330,483$
Accounts receivable 3,155 99,448
Inventory 4,905 5,572
Prepaid expenses 215,710 200,478
Total Current Assets 2,875,693 2,635,981
Assets Whose Use is Limited (Note 5)
For property replacement 805,245 805,245
For operating purposes 293,635 293,635
Total Assets Whose Use is Limited 1,098,880 1,098,880
Deferred tax asset - 186,269
Property, net (Note 2) 5,874,100 5,534,334
Total Assets 9,848,673$ 9,455,464$
LIABILITIES & EQUITY
Current Liabilities
Accounts payable 226,218$ 361,841$
Renovation accrual (Note 11) - 1,415,798
Dues collected in advance 660,612 253,756 Current maturities of long-term debt 263,436 105,713
Total Current Liabilities 1,150,266 2,137,108
Long-term debt, net (Note 6) 1,914,905 1,203,484
Total Liabilities 3,065,171 3,340,592
Equity
Net assets without donor restrictions 6,659,943 5,964,551
Net assets with donor restrictions 123,559 150,321
Total Equity 6,783,502 6,114,872
Total Liabilities & Equity 9,848,673$ 9,455,464$
Cape Fear REALTORS and Affiliates
Consolidated Statements of Activities and Changes in Net Assets
For the Years Ended December 31, 2021 (Audited) and 2020 (Reviewed)
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements
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2021 2020
OPERATING REVENUES
Membership 862,376$ 745,212$
MLS access & related 3,284,286 2,844,469
Commercial access 307,410 265,546
Continuing education 31,753 36,385
Sir Tyler terrace 4,850 56,865
Sir Tyler lease 103,149 172,791
Realtor service center, net 3,519 4,816
Total Operating Revenues 4,597,343 4,126,084
LESS: DIRECT EXPENSES
MLS access & related 813,735 739,894
Sir Tyler terrace 19,528 21,829
Sir Tyler lease 2,643 3,438
Total Direct Expenses 835,906 765,161
Gross Margin 3,761,437 3,360,923
OPERATING EXPENSES
Salaries 819,159 786,837
Payroll taxes & benefits 188,134 187,596
Occupancy 101,580 220,939
Board & committee 31,137 43,364
Maintenance 47,612 50,896
Renovation expense 268,982 1,415,798
Staff travel 123,056 73,117
Legal & accounting 91,113 151,860
Office & administrative 575,646 539,977
Supra key expense 538,261 488,191
Depreciation 194,851 172,745
Total Operating Expenses 2,979,531 4,131,320
Net Operating Profit (Loss)781,906 (770,397)
NON-OPERATING INCOME (EXPENSE)
Foundation income 80,809 48,445
Interest expense (47,559) (48,198)
Investment income 42,449 160,649
Gain (loss) on sale of assets - (35,301)
Net Non-Operating Income (Expense) 75,699 125,595
Net Income (Loss) Before Income Taxes 857,605 (644,802)
Provision for income taxes (2,706) (8,589)
Income tax benefit (expense) (186,269) 186,269
Net Income (Loss)668,630 (467,122)
Equity, Beginning 6,114,872 6,581,994
Equity, Ending 6,783,502$ 6,114,872$
Cape Fear REALTORS and Affiliates
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2021 (Audited) and 2020 (Reviewed)
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements
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2021 2020
Cash Flows From Operating Activities
Cash received from members & others 5,288,568$ 4,267,714$ Cash paid to suppliers & employees (5,254,282) (3,148,864)
Net Cash Provided (Used)
By Operating Activities 34,286 1,118,850
Cash Flows From Investing Activities
Cash received (paid) for property & equipment (525,709) (313,370) (Funding) spending assets whose use is limited (46,016) 97,616
Net Cash Provided (Used)
By Investing Activities (571,725) (215,754)
Cash Flows From Financing Activities
Debt proceeds 982,673 - Principal payments of debt (123,794) (92,440)
Net Cash Provided (Used)
By Financing Activities 858,879 (92,440)
Net Increase (Decrease) in Cash 321,440 810,656
Cash & Cash Equivalents, Beginning 2,330,483 1,519,827
Cash & Cash Equivalents, Ending 2,651,923$ 2,330,483$
Reconciliation of Net Income (Loss)
to Cash Provided (Used)
By Operating Activities:
Net income (loss) 668,630$ (467,122)$
Adjustments to Reconcile Net
Income (Loss) to Net Cash Provided
(Used) By Operating Activities:
Depreciation & amortization 196,208 174,102
Unrealized (gain) loss on investments 46,016 (98,190)
(Gain) loss on sale of assets - 35,301
(Increase) Decrease in:
Accounts receivable 96,293 (51,530)
Inventory 667 (1,546)
Prepaid expenses (15,232) 1,431
Deferred tax asset 186,269 (186,269)
Increase (Decrease) in:
Accounts payable (1,551,421) 1,664,839
Dues collected in advance 406,856 47,834
Net Cash Provided (Used)By Operating Activities 34,286$ 1,118,850$
Supplemental Disclosure
Interest paid 53,568$ 65,030$
Income taxes paid 2,706$ 8,589$
Income tax (benefit) expense 186,269$ (186,269)$
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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1. ORGANIZATION AND BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include Cape Fear REALTORS (the
“Association”); Cape Fear REALTORS MLS, Inc. (“MLS”); Sir Tyler Development, LLC (“Sir
Tyler”); and Wilmington REALTORS Foundation (the “Foundation”), as well as the
commercial realtor division of MLS and the Association, Realtor Commercial Alliance of
Southeastern North Carolina (“RCA”), collectively referred to as the “Organization”. These
entities are related through ownership, control, and financial interdependence and are
required to be consolidated under generally accepted accounting principles. Accordingly,
intercompany transactions are eliminated upon consolidation.
The Association is a non-profit corporation organized in North Carolina, under section
501(c)(6) of the Internal Revenue Code, to encourage cooperation among realtors and
improve business conditions in the real estate field in the Wilmington, North Carolina area.
Membership includes both residential and commercial realtors. Total membership was 3,567
for 2021 and 2,970 for 2020. The Association includes the results of operations for Duplin-
Sampson Association of REALTORS and Laurinburg Board of REALTORS Inc. (collectively
referred to as the “County Associations”), which were acquired in 2015 via a merger
transaction.
MLS is a wholly owned subsidiary of the Association and is a North Carolina for-profit
corporation organized in 1987 to provide monthly MLS services to agents and brokers in the
Wilmington, North Carolina area. Certain employees of MLS perform services for the
Association, which reimburses MLS based on time spent.
Sir Tyler is a real estate partnership owned jointly by MLS (75%) and the Association
(25%), which owns a 25,000-square-foot building occupied by both. The partnership
facilitates the repayment of the building debt (see Note 6). See also Note 11 regarding a
construction defects legal matter.
The Foundation is a 501(c)(3) organization with a mission of providing resources to create
housing opportunities for a better quality of life in the community. The Foundation is
considered a controlled corporate affiliate, as the Association’s Board of Trustees appoints 7
of the 13 members of the Foundation’s Board of Directors.
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Organization prepares its consolidated financial statements in accordance with generally
accepted accounting principles promulgated in the United States of America (U.S. GAAP) for
not-for-profit organizations using the accrual basis of accounting. Accordingly, revenues are
recognized when earned and expenses are recorded when incurred.
Annual renewal membership dues are recognized as revenue in the calendar year when
applicable membership services are provided. Initial membership dues and initiation fees are
recognized as revenue in the membership year when applications are approved. MLS access
revenue is recorded monthly as billed.
The significant accounting policies followed are described below to enhance the usefulness
of the consolidated financial statements to the reader.
Use of Estimates
The preparation of consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of revenues and expenses
during the reporting period and the reported amounts of assets and liabilities at the date of
the consolidated financial statements. On an ongoing basis, the Organization’s management
evaluates the estimates and assumptions based upon historical experience and various
other factors and circumstances. The Organization’s management believes that the
estimates and assumptions are reasonable in the circumstances; however, the actual results
could differ from those estimates.
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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Net Assets
The consolidated financial statements report net assets and changes in net assets based
upon the existence or absence of restrictions on use that are placed by its members or
donors as follows:
Net Assets Without Donor Restrictions – Net assets available for use in general
operations and not subject to donor- (or certain grantor-) imposed restrictions. The
governing board has designated net assets for an operating reserve from net assets
without donor restrictions.
Net Assets With Donor Restrictions – Net assets subject to donor- (or certain
grantor-) imposed restrictions. Some donor-imposed restrictions are temporary in
nature, such as those that will be met by the passage of time or other events specified
by the donor. Temporary donor-imposed restrictions are released when a restriction
expires, which is when the stipulated time has elapsed, when the stipulated purpose for
which the resource was restricted has been fulfilled, or both. Other donor-imposed
restrictions are perpetual in nature, where the donor stipulates that resources be
maintained in perpetuity.
The following table is a summary of net assets with donor restrictions as of December 31.
All are restricted for the Association, including the County Associations, and for the
Foundation for the purpose of helping the community and will be released from restriction
as the funds are spent for the donor-imposed restrictions.
2021 2020
Collected but Not Released:
Duplin-Sampson Association of REALTORS reserves -$ 21,922$
Laurinburg Board of REALTORS Inc. reserves 78,461 78,461
Community Action Fund 4,954 4,954
Feed ILM 3,228 3,268
Realtors Helping Realtors 36,916 41,716
Total Net Assets With Donor Restrictions 123,559$ 150,321$
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Organization considers all
highly liquid financial assets purchased with original maturities of three months or less to be
cash equivalents. This consisted of the following as of December 31:
2021 2020
Checking
Association 817,083$ 222,750$
MLS 138,460 383,604
Sir Tyler 108,451 256,318
RCA 58,761 60,370
Foundation 260,354 205,387
Total Checking 1,383,109 1,128,429
Money Market
Association 83,783 210,363
MLS 296,348 146,322
RCA 159,892 158,974
Total Money Market 540,023 515,659
Mutual Funds
Association 1,797,685 1,755,147
MLS 29,986 30,128
Total Mutual Funds 1,827,671 1,785,275
Total Highly Liquid Financial Assets 3,750,803 3,429,363
Less: Assets whose use is limited (1,098,880) (1,098,880)
Net Cash & Cash Equivalents 2,651,923$ 2,330,483$
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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Fair Value Measurement
The Organization reports its fair value measures using a three-level hierarchy that prioritizes
the inputs used to measure fair value. This hierarchy, established by U.S. GAAP, requires
that entities maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The three levels of inputs used to measure fair value are
as follows:
Level 1 – Quoted prices for identical assets or liabilities in active markets to which the
Organization has access at the measurement date.
Level 2 – Inputs other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly or indirectly. Level 2 inputs include:
quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that
are not active,
observable inputs other than quoted prices for the asset or liability (for
example, interest rates and yield curves), and
inputs derived principally from or corroborated by observable market
data by correlation or by other means.
Level 3 – Unobservable inputs for the asset or liability. Unobservable inputs should
be used to measure the fair value to the extent that observable inputs are
not available.
The primary use of fair value measures in the Organization’s consolidated financial
statements is the recurring measurement of investments (Note 4).
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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Property
Property is recorded in the consolidated statements of financial position at cost. Property is
capitalized if it has a cost of $2,500 or more and a remaining useful life when acquired of
more than one year. Repairs and maintenance that do not significantly increase the useful
life of the assets are expensed as incurred. Buildings and improvements are depreciated
using the straight-line method, while the 200% declining balance method is used for office
furniture, equipment, and technology. Depreciation is not provided for land. The following is
a summary of the estimated useful lives of the assets:
Buildings & improvements 20-40 years
Office furniture & equipment 7 years
Technology 5 years
Land, buildings, and equipment are reviewed for impairment when a significant change in
the asset’s use or another indicator of possible impairment is present. No impairment losses
were recognized in the consolidated financial statements in the periods presented. The
following is a summary of property accounts as of December 31:
Accumulated 12/31/2021 12/31/2020
Cost Depreciation Net Book Value Net Book Value
Land 1,800,780$ -$ 1,800,780$ 1,800,780$
Buildings & improvements 4,694,593 1,181,664 3,512,929 3,566,755
Office furniture & equipment 996,447 481,125 515,322 109,512
Technology (computers &
electronic equipment) 335,747 293,123 42,624 55,542
Net Subtotal 7,827,567 1,955,912 5,871,655 5,532,589
Other 2,445 - 2,445 1,745
Total Property, Net 7,830,012$ 1,955,912$ 5,874,100$ 5,534,334$
Membership Revenue Recognition
Revenue is recorded as services are provided to members and participants. Accordingly,
collection of memberships for future month’s services or fees collected in advance are
shown as a liability (dues collected in advance) in the accompanying consolidated
statements of financial position.
Revenues are recognized when earned. Program service fees and payments under cost-
reimbursable contracts received in advance are deferred to the applicable period in which
the related services are performed or expenditures are incurred, respectively. Contributions
are recognized when cash, securities, or other assets; an unconditional promise to give; or a
notification of a beneficial interest is received. Conditional promises to give are not
recognized until the conditions on which they depend have been substantially met.
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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Income Taxes
As organizations described in sections 501(c)(6) and 501(c)(3) of the Internal Revenue
Code, the Association and the Foundation, respectively, are exempt from federal income
taxes on income from activities directly related to their exempt purpose.
All activities of MLS, including its net rental income, are subject to federal and North
Carolina income taxes and appropriate provisions have been made. Traditionally, no
deferred tax provisions have been required since timing differences are not significant.
However, in 2020, a deferred tax asset of $186,269 has been recorded to reflect future tax
savings from the accrued renovation costs recorded in 2020 operations. It was paid and
then deducted in 2021 for tax purposes. Thus, the asset was used in 2021 and reversed.
Sir Tyler is a limited liability company which is taxed as a partnership. As a partnership, Sir
Tyler does not pay federal or North Carolina corporate income taxes on its taxable income
nor is it allowed a net operating loss carryover or carryback as a deduction. Instead, the
partners (the Association and MLS) include their respective shares of Sir Tyler’s net
operating loss or taxable income in their individual federal income tax returns.
Each Organization’s income tax returns are subject to examination and adjustment by taxing
authorities generally for three years after the extended due date. Management believes this
includes returns filed after 2018.
Reclassifications
Certain reclassifications of amounts previously reported have been made to the
accompanying consolidated financial statements to maintain consistency between periods
presented. The reclassifications had no impact on previously reported net assets.
Subsequent Events
Subsequent events have been evaluated through May 12, 2022, which is the date the
consolidated financial statements were available to be issued. Events occurring after that
date have not been evaluated to determine whether a change in the consolidated financial
statements would be required. No subsequent events were noted in the current year.
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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3. LIQUIDITY AND AVAILABILITY OF RESERVES
Financial assets available to meet general expenditures over the next 12 months are as
follows as of December 31:
2021 2020
Financial Assets at Year End:
Cash & cash equivalents 2,651,923$ 2,330,483$
Accounts receivable 3,155 99,448
Total Financial Assets at Year End 2,655,078 2,429,931
Less: Net assets with purpose restrictions to be met in
less than a year 123,559 150,321
Financial Assets Available to Meet General
Expenditures Over the Next 12 Months 2,531,519$ 2,279,610$
The Organization operates with a balanced budget and anticipates collecting sufficient
revenue to cover general expenditures not covered by donor-restricted resources. The
accompanying consolidated statements of cash flows on page 6 identify the sources and
uses of cash and show positive cash generated by operations. The Organization regularly
monitors liquidity required to meet its operating needs and other contractual commitments,
while also striving to maximize the investment of its available funds.
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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4. INVESTMENTS
The Organization’s investment policy divides investment strategies into two investment
categories, short-term and long-term. Allocation to each category is based on the liquidity
needs of the Organization. The intent of the short-term fund investment strategy, generally
the Organization’s operations, is to provide short-term liquidity and working capital for
operations and other strategic purposes, with the primary strategy to be preservation of
principal and income a secondary consideration. The intent of the long-term fund
investment strategy, generally the Organization’s foundation, is to generate current income
and maintain stability of principal. The Organization had the following investments,
concentrations, and maturities as of December 31:
2021 2020
Cash & cash equivalents 757,598$ 356,685$
Bond funds 861,437 626,791
Allocation funds 588,767 1,158,484
Total Investments 2,207,802$ 2,141,960$
As of December 31, 2021 and 2020, all investments were considered Level 1 investments.
Investment income (loss) is summarized as follows for the years ended December 31:
2021 2020
Interest & dividends 68,540$ 62,459$
Change in unrealized gains (46,016) 98,190
Realized gains 19,925 -
Total Investment Income (Loss), Net 42,449$ 160,649$
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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5. ASSETS WHOSE USE IS LIMITED
MLS and the Association’s Board of Trustees have established various policies to reserve
investments for certain contingencies, such as property replacement and operating cash
flow needs.
The property replacement reserve policy provides for the replacement of building
components, equipment, and essential technology in accordance with an estimated
replacement plan. The replacement costs are based on the original cost of the property
being replaced. The following is a summary of the property replacement reserves as of
December 31:
2021 2020
Association:
Association equipment reserves 114,171$ 114,171$
Sir Tyler property reserve 538,624 538,624
Association Property Replacement Reserves 652,795 652,795
MLS:
MLS equipment reserves 51,000 51,000
Sir Tyler property reserve 101,450 101,450
MLS Property Replacement Reserves 152,450 152,450
Total Property Replacement Reserves 805,245$ 805,245$
The operating purposes reserve policy recommends funding a contingency reserve equal to
five months of cash expenditures. The following is a summary of the operating purposes
reserves as of December 31:
2021 2020
Association reserves 269,635$ 269,635$
MLS reserves 24,000 24,000
Total Operating Purposes Reserves 293,635$ 293,635$
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
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6. LONG-TERM DEBT
On September 16, 2010, New Hanover County Industrial Facilities and Pollution Control
Financing Authority (the “Authority”) issued Variable Rate Recovery Zone Facility Revenue
Bonds, Series 2010, with an original principal amount of $3,500,000. The Authority sold the
bond to Truist (formally known as Branch Banking & Trust Company) and loaned the
proceeds from the sale to the Association. The Association then used the funds to construct
the 25,000-square-foot building now owned by Sir Tyler. The bond is guaranteed by the
Association, MLS, and Sir Tyler, as well as collateralized by a deed of trust from the
Association and Sir Tyler. In December 2015, the agreement was amended, and the interest
rate was fixed at 3.19% for the remaining principal of $1,600,000. The general provisions of
the bond indenture include maintenance of the property, paying taxes, and insurance. The
bank has verified that specific financial covenants, which include the following, have been
met:
1) Indebtedness to Tangible Net Worth Ratio. The Organization, on a consolidated
basis, shall maintain a maximum ratio of Indebtedness divided by Tangible Net
Worth of no greater than 1.50 to 1.00, to be measured annually. This ratio is
calculated as follows for 2021:
Indebtedness to Total Liabilities 3,065,171$
Tangible Net Worth Ratio Total Net Assets Without Donor Restrictions 6,659,943$ ===0.46
2) Debt Service Coverage Ratio. The Organization, on a consolidated basis, shall
maintain a minimum Debt Service Coverage Ratio of at least 1.20 to 1.00, to be
measured annually. This ratio is calculated as follows for 2021:
Net income (loss) 668,630$
Add Back:
Interest expense 47,559
Depreciation & amortization 196,208
912,397$
Debt Service:
Prior year current maturities of long-term debt 105,713$
Interest expense 47,559
153,272$
Debt Service Coverage Ratio 5.95
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
- 18 -
The Sir Tyler bond monthly payments of $11,329 include interest and principal with the final
payment due on September 28, 2030. The interest rate is fixed at 3.19%. Long-term debt
also includes two promissory notes. The Sir Tyler promissory note monthly payments of
$15,509 include interest and principal with a final balloon payment due in November 2027
for the full amount. The interest rate is fixed at 3.70%. The Foundation promissory note
monthly payments of $1,071 include interest and principal with a final balloon payment due
in July 2024 for the full amount. The interest rate is fixed at 5.25%.
As of December 31, 2021, future minimum payments of principal are scheduled as follows:
Sir Tyler Sir Tyler Foundation
Bond Promissory Note Promissory Note Total
2022 104,006$ 154,148$ 5,282$ 263,436$
2023 107,159 158,584 5,566 271,309
2024 110,874 164,552 136,408 411,834
2025 114,586 170,745 - 285,331
2026 118,348 177,171 - 295,519
Thereafter 518,750 144,994 - 663,744
Total 1,073,723 970,194 147,256 2,191,173
Less: Current maturities (104,006) (154,148) (5,282) (263,436)
Less: Unamortized debt
issuance costs - (12,832) - (12,832)
Long-Term Debt, Net 969,717$ 803,214$ 141,974$ 1,914,905$
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
- 19 -
7. CLASSIFICATION OF EXPENSES
The cost of providing the Association and MLS’s program and other activities has been
summarized on a functional basis below. Total expenses for the year ended December 31,
2021 were $2,677,941. Expenses that can be identified with a specific program or support
service are charged directly to that program or support service. Costs common to multiple
functions have been allocated among the various functions benefited using objective bases,
such as time spent, salaries, square feet, and other bases.
General &
General MLS Administrative Total
Salaries 149,716$ 588,827$ 80,616$ 819,159$
Benefits 31,426 77,307 16,922 125,655
Payroll taxes 11,522 44,753 6,204 62,479
Total Salaries & Related 192,664 710,887 103,742 1,007,293
Occupancy 2,927 138,508 8,781 150,216
Board & committee 5,783 11,860 13,494 31,137
Maintenance - 47,612 - 47,612
Staff travel 13,656 95,744 13,656 123,056
Legal & accounting - 50,033 41,080 91,113
Office & administrative 145,916 436,301 39,505 621,722
Supra key expense - 538,261 - 538,261
Total Operations 360,946 2,029,206 220,258 2,610,410
Depreciation 6,456 61,075 - 67,531
Total Expenses 367,402$ 2,090,281$ 220,258$ 2,677,941$
2021
Program
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
- 20 -
General &
General MLS Administrative Total
Salaries 129,870$ 587,037$ 69,930$ 786,837$
Benefits 26,481 86,592 14,259 127,332
Payroll taxes 10,082 44,753 5,429 60,264
Total Salaries & Related 166,433 718,382 89,618 974,433
Occupancy 5,409 188,458 16,225 210,092
Board & committee 8,360 15,497 19,507 43,364
Maintenance 75 50,746 75 50,896
Staff travel 1,256 70,604 1,257 73,117
Legal & accounting - 123,455 28,405 151,860
Office & administrative 131,591 425,170 30,148 586,909
Supra key expense - 488,191 - 488,191
Total Operations 313,124 2,080,503 185,235 2,578,862
Depreciation 1,055 54,519 - 55,574
Total Expenses 314,179$ 2,135,022$ 185,235$ 2,634,436$
2020
Program
General and administrative expenses include those costs that are not directly identifiable
with any specific program, but which provide for the overall support of the Association and
MLS. General and administrative activities include those that provide governance, oversight,
business management, financial recordkeeping, budgeting, legal services, human resource
management, and similar activities that ensure an adequate working environment and an
equitable employment program. Resources expended for fundraising from the general public
are not significant.
8. RETIREMENT PLAN
Effective January 1, 2016, the Organization switched from a SIMPLE IRA employer plan to a
401(k) plan. All employees at that time were grandfathered into the new plan. The plan has
an option of an employee contribution of 3%, 4%, or 5% with an employer match of 3%,
3.5%, or 4%, respectively. Employer contributions were $7,173 for the year ended
December 31, 2021 and $11,228 for the year ended December 31, 2020.
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
- 21 -
9. CONCENTRATIONS OF RISK
Amounts held in financial institutions are in excess of the Federal Deposit Insurance
Corporation and Securities Investor Protection Corporation limits. The Organization deposits
its cash with high quality institutions, and management believes the Organization is not
exposed to significant credit risk on those amounts.
The Organization’s revenues are almost entirely received from legal entities and individuals
located in the Wilmington, North Carolina area. As such, the Organization’s ability to
generate resources is dependent upon the economic health of that area and of the state of
North Carolina. An economic downturn could cause a decrease in membership that coincides
with an increase in demand for the Organization’s services.
10. RISK MANAGEMENT
From time to time, the Organization may be aware of various asserted and unasserted
claims. Management feels that these claims can be successfully defended and intends to
resist the allegations of these matters in every way and does not plan to seek out-of-court
settlements. In the event that judgments adverse to their interest were to be rendered,
management feels any liability will be fully covered by existing insurance or not be material
to the consolidated financial statements.
The Organization is exposed to various risks of loss in the ordinary course of business as a
result of torts, theft of, damage to, or destruction of assets, business interruption,
allegations of liability, natural disasters, employee and officer errors and omissions, and
employee workers’ compensation and medical claims.
The Organization purchases commercial insurance coverage against risk of loss due to
property damage and theft and various other insurable risks. The Organization carries
property insurance in the amount of $3,000,000 for the building and $500,000 for personal
property in 2021 and 2020 with a deductible of $1,000 for all perils. The Organization
carries wind and hail insurance in the amount of $2,500,000 for the building and $500,000
for personal property in 2021 and 2020 with a deductible of $5,000 except for named
storms, which have a 1% deductible. Excess wind and hail insurance is carried on the
building in the amount of $675,000.
The Organization carries an umbrella liability policy of $1,000,000.
No claim payment has exceeded insurance coverage in the past three fiscal years where
insurance coverage applies, subject to the deductibles and retentions noted above.
Cape Fear REALTORS and Affiliates
Notes to Consolidated Financial Statements
December 31, 2021 (Audited) and 2020 (Reviewed)
- 22 -
11. CONSTRUCTION DEFECTS LEGAL MATTER
Sir Tyler has sued the contractor that constructed its building for construction defects and
resulting damages. The lawsuit seeks damages in excess of $25,000 and includes a request
for treble damages pursuant for Negligence, Negligent Misrepresentation, Breach of Implied
Warranty, and later, Fraud and Unfair and Deceptive Trade Practices arising of issues in the
building.
As of May 4, 2022, the case is still in the discovery period. Mediation is anticipated prior to
the possible trial date of August 2022.
As with any matter that involves litigation at this stage, legal counsel has indicated it is
possible there could be no recovery in this case. However, legal counsel is confident in the
claims that have been asserted and the development of the factual evidence to support
those claims. As required under generally accepted accounting principles, no amounts have
been accrued for a recovery asset, since the outcome of this matter is not determinable at
this time.
Final required renovation expenditures cannot be estimated at this time and are to be
recorded as incurred. Through December 31, 2021, $1,684,780 has been incurred related to
necessary renovations because of the construction defects and resulting damages. Of the
total expenditures, $268,982 was incurred and recorded as an expense for the year ended
December 31, 2021 and $1,415,798 had been accrued as of December 31, 2020.
Recoveries, if any, will be recorded as received.
Supplementary Information
Cape Fear REALTORS and Affiliates
Consolidating Statements of Financial Position
As of December 31, 2021 (Audited) and 2020 (Reviewed)
- 24 -
2020
Eliminating Consolidated Consolidated
Operations RCA Operations RCA Sir Tyler Foundation Adjustments Total Total
ASSETS
Current Assets
Cash & cash equivalents 1,788,121$ 206,653$ 288,344$ -$ 108,451$ 260,354$ -$ 2,651,923$ 2,330,483$
Accounts receivable 189 95 2,821 - - 50 - 3,155 99,448
Inventory - - 4,905 - - - - 4,905 5,572
Prepaid expenses 34,702 18,281 142,777 - 9,950 10,000 - 215,710 200,478
Total Current Assets 1,823,012 225,029 438,847 - 118,401 270,404 - 2,875,693 2,635,981
Assets Whose Use is Limited (Note 5)
For property replacement 640,795 12,000 152,450 - - - - 805,245 805,245
For operating purposes 269,635 - 24,000 - - - - 293,635 293,635
Total Assets Whose Use is Limited 910,430 12,000 176,450 - - - - 1,098,880 1,098,880
Deferred tax asset - - - - - - - - 186,269
Property, net (Note 2) 18,181 - 885,149 - 4,818,744 152,026 - 5,874,100 5,534,334
Due from (due to) 2,118,132 (214,444) 2,772,349 207,220 (4,883,257) - - - -
Promissory note 76,200 - (76,200) - - - - - -
Investment in RCA (4,957) - 207,220 - - - (202,263) - -
Investment in Sir Tyler 145,516 - (2,130,187) - - - 1,984,671 - -
Investment in MLS 2,071,037 - - - - - (2,071,037) - -
Total Assets 7,157,551$ 22,585$ 2,273,628$ 207,220$ 53,888$ 422,430$ (288,629)$ 9,848,673$ 9,455,464$
LIABILITIES & EQUITY
Current Liabilities
Accounts payable 44,187$ 27,542$ 146,914$ -$ 7,474$ 101$ -$ 226,218$ 1,777,639$
Dues collected in advance 605,738 - 54,874 - - - - 660,612 253,756
Current maturities of long-term debt - - - - 258,154 5,282 - 263,436 105,713
Total Current Liabilities 649,925 27,542 201,788 - 265,628 5,383 - 1,150,266 2,137,108
Long-term debt, net (Note 6) - - - - 1,772,931 141,974 - 1,914,905 1,203,484
Total Liabilities 649,925 27,542 201,788 - 2,038,559 147,357 - 3,065,171 3,340,592
Equity
Net assets without donor restrictions 6,429,165 (4,957) - - - 229,975 5,760 6,659,943 5,964,551
Net assets with donor restrictions 78,461 - - - - 45,098 - 123,559 150,321
Total Net Assets 6,507,626 (4,957) - - - 275,073 5,760 6,783,502 6,114,872
Retained earnings- - 2,071,840 207,220 - - (2,279,060) - - Members' equity - - - - (1,984,671) - 1,984,671 - -
Total Equity 6,507,626 (4,957) 2,071,840 207,220 (1,984,671) 275,073 (288,629) 6,783,502 6,114,872
Total Liabilities & Equity 7,157,551$ 22,585$ 2,273,628$ 207,220$ 53,888$ 422,430$ (288,629)$ 9,848,673$ 9,455,464$
2021
Association MLS
Cape Fear REALTORS and Affiliates
Consolidating Statements of Activities and Changes in Net Assets
For the Years Ended December 31, 2021 (Audited) and 2020 (Reviewed)
- 25 -
2020
Eliminating Consolidated Consolidated
Operations RCA Operations RCA Sir Tyler Foundation Adjustments Total Total
OPERATING REVENUES
Membership 862,376$ -$ -$ -$ -$ -$ -$ 862,376$ 745,212$
MLS access & related 1,100 - 3,330,186 - - - (47,000) 3,284,286 2,844,469
Commercial access - 46,468 - 260,942 - - - 307,410 265,546
Continuing education 31,753 - - - - - - 31,753 36,385
Sir Tyler terrace - - 4,850 - - - - 4,850 56,865
Sir Tyler lease - - 103,149 - - - - 103,149 172,791
Realtor service center, net - - 3,519 - - - - 3,519 4,816
Contributions 12,855 - - - - 66,259 - 79,114 71,732
Total Operating Revenues 908,084 46,468 3,441,704 260,942 - 66,259 (47,000) 4,676,457 4,197,816
LESS: DIRECT EXPENSES
MLS access & related - - 813,735 - - - - 813,735 739,894
Sir Tyler terrace - - 19,528 - - - - 19,528 21,829
Sir Tyler lease - - 2,643 - - - - 2,643 3,438
Total Direct Expenses - - 835,906 - - - - 835,906 765,161
Gross Margin 908,084 46,468 2,605,798 260,942 - 66,259 (47,000) 3,840,551 3,432,655
OPERATING EXPENSES
Salaries 230,332 - 588,827 - - - - 819,159 786,837
Payroll taxes & benefits 66,074 - 122,060 - - - - 188,134 187,596
Occupancy 11,708 - 138,508 - - 1,692 (48,636) 103,272 223,537
Board & committee 18,747 530 10,623 1,237 - - - 31,137 43,364
Maintenance - - 47,612 - 268,982 3,426 - 320,020 1,466,694
Staff travel 19,876 7,436 78,393 17,351 - - - 123,056 73,117
Legal & accounting 41,080 - 50,033 - - - - 91,113 151,860
Office & administrative 152,580 32,841 194,584 241,717 924 14,875 (47,000) 590,521 571,520
Supra key expense - - 538,261 - - - - 538,261 488,191
Depreciation 6,456 - 61,075 - 127,320 1,357 - 196,208 174,102
Total Operating Expenses 546,853 40,807 1,829,976 260,305 397,226 21,350 (95,636) 3,000,881 4,166,818
Net Operating Profit (Loss)361,231 5,661 775,822 637 (397,226) 44,909 48,636 839,670 (734,163)
NON-OPERATING INCOME (EXPENSE)
Building rent from MLS 48,636 - - - - - (48,636) - -
Rental income - - - - - 20,497 - 20,497 11,135
Interest expense 1,123 - (45,652) - (3,030) 2,548 - (45,011) (47,122)
Investment income 42,565 - (116) - - - - 42,449 160,649
Gain (loss) on sale of assets - - - - - - - - (35,301)
RCA income 5,661 - 637 - - - (6,298) - -
Sir Tyler income (100,064) - (300,192) - - - 400,256 - -
MLS income 241,524 - - - - - (241,524) - -
Net Non-Operating Income (Expense) 239,445 - (345,323) - (3,030) 23,045 103,798 17,935 89,361
Net Income (Loss) Before Income Taxes 600,676 5,661 430,499 637 (400,256) 67,954 152,434 857,605 (644,802)
Provision for income taxes - - (2,706) - - - - (2,706) (8,589)
Income tax benefit (expense) - - (186,269) - - - - (186,269) 186,269
Net Income (Loss)600,676 5,661 241,524 637 (400,256) 67,954 152,434 668,630 (467,122)
Equity, Beginning 5,906,950 (10,618) 1,830,316 206,583 (1,584,415) 207,119 (441,063) 6,114,872 6,581,994
Equity, Ending 6,507,626$ (4,957)$ 2,071,840$ 207,220$ (1,984,671)$ 275,073$ (288,629)$ 6,783,502$ 6,114,872$
2021
Association MLS
Cape Fear REALTORS and Affiliates
Consolidating Statements of Cash Flows
For the Years Ended December 31, 2021 (Audited) and 2020 (Reviewed)
- 26 -
2020
Eliminating Consolidated Consolidated
Operations RCA Operations RCA Sir Tyler Foundation Adjustments Total Total
Cash Flows From Operating Activities
Cash received from members & others 1,490,685$ 46,673$ 3,449,246$ 260,942$ -$ 88,022$ (47,000)$ 5,288,568$ 4,267,714$
Cash paid to suppliers & employees (358,143) (48,001) (3,062,033) (260,305) (1,697,890) (27,344) 199,434 (5,254,282) (3,148,864)
Net Cash Provided (Used)
By Operating Activities 1,132,542 (1,328) 387,213 637 (1,697,890) 60,678 152,434 34,286 1,118,850
Due to/from & intercompany investments (567,170) 637 33,471 (637) 686,203 (70) (152,434) - -
Cash Flows From Investing Activities
Cash received (paid) for property & equipment (8,218) - (516,791) - - (700) - (525,709) (313,370)
(Funding) spending assets whose use is limited (46,863) - 847 - - - - (46,016) 97,616
Net Cash Provided (Used).. .. ..
By Investing Activities (55,081) - (515,944) - - (700) - (571,725) (215,754)
Cash Flows From Financing Activities
Debt proceeds - - - - 982,673 - - 982,673 -
Principal payments of debt - - - - (118,853) (4,941) - (123,794) (92,440)
Net Cash Provided (Used)
By Financing Activities - - - - 863,820 (4,941) - 858,879 (92,440)
Net Increase (Decrease) in Cash 510,291 (691) (95,260) - (147,867) 54,967 - 321,440 810,656
Cash & Cash Equivalents, Beginning 1,277,830 207,344 383,604 - 256,318 205,387 - 2,330,483 1,519,827
Cash & Cash Equivalents, Ending 1,788,121$ 206,653$ 288,344$ -$ 108,451$ 260,354$ -$ 2,651,923$ 2,330,483$
Reconciliation of Net Income (Loss)
to Cash Provided (Used)
By Operating Activities:
Net income (loss)600,676$ 5,661$ 241,524$ 637$ (400,256)$ 67,954$ 152,434$ 668,630$ (467,122)$
Adjustments to Reconcile Net
Income (Loss) to Net Cash Provided
(Used) By Operating Activities:
Depreciation & amortization 6,456 - 61,075 - 127,320 1,357 - 196,208 174,102
Unrealized (gain) loss on investments 46,863 - (847) - - - - 46,016 (98,190)
(Gain) loss on sale of assets - - - - - - - - 35,301
(Increase) Decrease in:
Accounts receivable 70,512 2,051 22,464 - - 1,266 - 96,293 (51,530)
Inventory - - 667 - - - - 667 (1,546)
Prepaid expenses (14,207) (1,833) 10,808 - - (10,000) - (15,232) 1,431
Deferred tax asset - - 186,269 - - - - 186,269 (186,269)
Increase (Decrease) in:
Accounts payable (419) (5,361) (120,788) - (1,424,954) 101 - (1,551,421) 1,664,839
Dues collected in advance 422,661 (1,846) (13,959) - - - - 406,856 47,834
Net Cash Provided (Used)
By Operating Activities 1,132,542$ (1,328)$ 387,213$ 637$ (1,697,890)$ 60,678$ 152,434$ 34,286$ 1,118,850$
Supplemental Disclosure
Interest paid 53,568$ 65,030$
Income taxes paid 2,706$ 8,589$
Income tax (benefit) expense 186,269$ (186,269)$
2021
MLSAssociation