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2021 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. - 2 - 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. - 3 - 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 - 4 - 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 - 5 - 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 - 6 - 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) - 7 - 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) - 8 - 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) - 9 - 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) - 10 - 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) - 11 - 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) - 12 - 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) - 13 - 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 $186,269 has been recorded to reflect future tax savings from the accrued renovation costs recorded in 2020 operations. It was paid and then deducted in 2021 for tax purposes. Thus, the asset was used in 2021 and reversed. Sir Tyler is a limited liability company which is taxed as a partnership. As a partnership, Sir Tyler does not pay federal or North Carolina corporate income taxes on its taxable income nor is it allowed a net operating loss carryover or carryback as a deduction. Instead, the partners (the Association and MLS) include their respective shares of Sir Tyler’s net operating loss or taxable income in their individual federal income tax returns. Each Organization’s income tax returns are subject to examination and adjustment by taxing authorities generally for three years after the extended due date. Management believes this includes returns filed after 2018. Reclassifications Certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements to maintain consistency between periods presented. The reclassifications had no impact on previously reported net assets. Subsequent Events Subsequent events have been evaluated through May 12, 2022, which is the date the consolidated financial statements were available to be issued. Events occurring after that date have not been evaluated to determine whether a change in the consolidated financial statements would be required. No subsequent events were noted in the current year. Cape Fear REALTORS and Affiliates Notes to Consolidated Financial Statements December 31, 2021 (Audited) and 2020 (Reviewed) - 14 - 3. LIQUIDITY AND AVAILABILITY OF RESERVES Financial assets available to meet general expenditures over the next 12 months are as follows as of December 31: 2021 2020 Financial Assets at Year End: Cash & cash equivalents 2,651,923$ 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) - 15 - 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) - 16 - 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) - 17 - 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