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HOSANNA/FAITH COMES BY HEARING AND AFFILIATES

CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016 AND 2015

HOSANNA/FAITH COMES BY HEARING AND AFFILIATES TABLE OF CONTENTS

YEARS ENDED MARCH 31, 2016 AND 2015

INDEPENDENT AUDITORS’ REPORT 1

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 3

CONSOLIDATED STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS 5

CONSOLIDATED STATEMENTS OF CASH FLOWS 7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8

SUPPLEMENTARY INFORMATION

CONSOLIDATED STATEMENTS OF FUNCTIONAL EXPENSES 18

CliftonLarsonAllen LLP

CLAconnect.com

(1)

INDEPENDENT AUDITORS’ REPORT Board of Directors Hosanna/Faith Comes By Hearing and Affiliates Albuquerque, New Mexico Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements for Hosanna/Faith Comes By Hearing and Affiliates, which comprise the consolidated statements of financial position as of March 31, 2016 and 2015, and the related consolidated statements of activities and changes in net assets, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Board of Directors Hosanna/Faith Comes By Hearing and Affiliates

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Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hosanna/Faith Comes By Hearing and Affiliates as of March 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplementary Information

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidated statements of functional expenses are presented for purposes of additional analysis and are 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.

CliftonLarsonAllen LLP Albuquerque, New Mexico July 20, 2016

HOSANNA/FAITH COMES BY HEARING AND AFFILIATES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

MARCH 31, 2016 AND 2015

See accompanying Consolidated Notes to Financial Statements. (3)

2016 2015

ASSETS

CURRENT ASSETS

Cash and Cash Equivalents 3,488,116$ 3,149,674$

Accounts Receivable:

Trade 27,062 33,138

Other 33,215 6,232

Inventory 1,555,215 1,896,004

Donated Property Held for Sale 6,197 6,197

Deposits 731,998 562,546

Prepaid Expenses 144,543 162,595

Committed Orders 696,863 414,356

Total Current Assets 6,683,209 6,230,742

NON-CURRENT ASSETS

Note Receivable - 85,041

PROPERTY AND EQUIPMENT

Machinery and Equipment 1,852,958 1,750,738

Building and Improvements 1,396,314 1,388,392

Furniture and Fixtures 90,549 90,549

Total 3,339,821 3,229,679

Less: Accumulated Depreciation and Amortization (2,761,085) (2,599,147)

Total Property and Equipment 578,736 630,532

LAND 422,703 422,703

Total Property, Land and Equipment 1,001,439 1,053,235

RECORDINGS, LITERATURE, AND LICENSES,

Net of Accumulated Amortization of $12,432,008

and $10,760,162 in 2016 and 2015, Respectively 26,285,095 24,739,760

Total Assets 33,969,743$ 32,108,778$

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2016 2015

LIABILITIES AND NET ASSETS

CURRENT LIABILITIES

Accounts Payable 1,692,461$ 1,089,795$

Accrued Expenses and Other Liabilities 568,175 552,880

Current Maturities of Debt Obligations 53,982 50,576

Total Current Liabilities 2,314,618 1,693,251

LONG-TERM DEBT, LESS CURRENT MATURITIES ABOVE 13,673 68,108

Total Liabilities 2,328,291 1,761,359

NET ASSETS

Unrestricted 23,577,744 23,105,775

Temporarily Restricted 8,063,708 7,241,644

Total Net Assets 31,641,452 30,347,419

Total Liabilities and Net Assets 33,969,743$ 32,108,778$

HOSANNA/FAITH COMES BY HEARING AND AFFILIATES CONSOLIDATED STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS

YEAR ENDED MARCH 31, 2016


Temporarily

Unrestricted Restricted Total

REVENUES, SUPPORT, AND OTHER INCOME

Contributions 1,664,227$ 19,796,892$ 21,461,119$

Sales 171,650 - 171,650

Loss on Sale of Donated Property Held for Sale 172 - 172

Other Revenue and Support 17,927 - 17,927

Total Revenues and Public Support 1,853,976 19,796,892 21,650,868

TOTAL NET ASSETS RELEASED FROM RESTRICTIONS 18,974,828 (18,974,828) -

EXPENSES

Program Services 17,979,616 - 17,979,616

Fundraising 1,114,409 - 1,114,409

Management and General 1,262,810 - 1,262,810

Total Expenses 20,356,835 - 20,356,835

CHANGES IN NET ASSETS 471,969 822,064 1,294,033

Net Assets - Beginning of Year 23,105,775 7,241,644 30,347,419

NET ASSETS - END OF YEAR 23,577,744$ 8,063,708$ 31,641,452$

HOSANNA/FAITH COMES BY HEARING AND AFFILIATES CONSOLIDATED STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS



Temporarily

Unrestricted Restricted Total

REVENUES AND PUBLIC SUPPORT

Contributions 1,759,827$ 17,965,784$ 19,725,611$

Sales 170,211 - 170,211

Loss on Sale of Property (16,870) - (16,870)

Other Revenue and Support 22,435 - 22,435

Total Revenues and Public Support 1,935,603 17,965,784 19,901,387

TOTAL NET ASSETS RELEASED FROM RESTRICTIONS 15,153,423 (15,153,423) -

EXPENSES

Program Services 14,439,373 - 14,439,373

Fundraising 1,077,367 - 1,077,367

Management and General 1,103,608 - 1,103,608

Total Expenses 16,620,348 - 16,620,348

CHANGES IN NET ASSETS 468,678 2,812,361 3,281,039

Net Assets - Beginning of Year 22,637,097 4,429,283 27,066,380

NET ASSETS - END OF YEAR 23,105,775$ 7,241,644$ 30,347,419$

HOSANNA/FAITH COMES BY HEARING AND AFFILIATES CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED MARCH 31, 2016 AND 2015


2016 2015

CASH FLOWS FROM OPERATING ACTIVITIES

Change in Net Assets 1,294,033$ 3,281,039$

Adjustments to Reconcile Change in Net Assets

to Net Cash Provided by Operating Activities:

Depreciation and Amortization 1,850,765 1,791,967

Loss on Sale of Donated Property Held for Sale - 16,870

Effects of Changes in Operating Assets and Liabilities:

Accounts Receivable (20,907) (6,219)

Inventory 340,789 (625,827)

Deposits (169,452) (255,269)

Prepaid Expenses 18,052 (42,919)

Committed Orders (282,507) 102,715

Accounts Payable 602,666 88,986

Accrued Expenses and Other Liabilities 15,295 61,792

Net Cash Provided by Operating Activities 3,648,734 4,413,135

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds on Note Receivable 85,041 14,959

Purchase of Property and Equipment (3,344,304) (2,736,606)

Proceeds from Sale of Donated Property - 5,130

Net Cash Used by Investing Activities (3,259,263) (2,716,517)

CASH FLOWS FROM FINANCING ACTIVITIES

Payments on Long-Term Debt (51,029) (145,436)

Net Cash Used by Financing Activities (51,029) (145,436)

NET INCREASE IN CASH AND CASH EQUIVALENTS 338,442 1,551,182

Cash and Cash Equivalents - Beginning of Year 3,149,674 1,598,492

CASH AND CASH EQUIVALENTS - END OF YEAR 3,488,116$ 3,149,674$

SUPPLEMENTAL DATA

Cash Paid for Interest 16,369$ 4,461$

*Amounts included in depreciation and amortization expense on the Statement of Functional Expenses

are presented net of amounts allocated to Cost of Goods Produced.

HOSANNA/FAITH COMES BY HEARING AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2016 AND 2015

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NOTE 1 NATURE OF BUSINESS

Hosanna/Faith Comes By Hearing is a nonprofit Christian ministry dedicated to recording the Bible in audio format in indigenous languages and starting Audio Bible listening groups around the world. The ministry works in cooperation with Bible societies, churches, and mission groups worldwide. Hosanna/Faith Comes By Hearing is exempt from income taxes under Internal Revenue Code (IRC) Section 501(c)(3) and is governed by a Board of Directors. During fiscal year 1999, Hosanna/Faith Comes By Hearing established Faith Comes By Hearing International Foundation, Inc. (International Foundation). The International Foundation’s mission is to solicit, manage and disburse funds, and to otherwise provide support exclusively for the benefit of Hosanna/Faith Comes By Hearing. The International Foundation is exempt from income taxes under IRC Section 501(c)(3) and is governed by a Board of Directors. During fiscal year 2011, Hosanna/Faith Comes By Hearing created Hong Kong Limited, which is a registered charity in China. This charity only operates so donors in China could give funds to a recognized charity. The amounts received during the fiscal year were recognized as donations by Hosanna/Faith Comes By Hearing and the money held in the bank account is included in the cash reported in these financial statements. The consolidated financial statements include the accounts of Hosanna/Faith Comes By Hearing, the International Foundation and Hong Kong Limited (collectively referred to as “Hosanna”). Intercompany accounts and transactions were eliminated in consolidation.

Primary Exempt Purpose

To proclaim Jesus Christ as Lord. Mission and Program Accomplishments

Jesus Christ was proclaimed Lord to the literate and illiterate through Scripture-in-use and other programs in the U.S. and other parts of the world. Services Provided

“Faith Comes By Hearing” (FCBH) Programs

In the last thirteen years, over 67,000 different U.S. churches have participated in the You’ve Got The Time (YGTT) program.

In the last 7 years, over 662,000 MILITARY BIBLESTICKS have been provided to military personnel. During this fiscal year, over 138,000 were sent to servicemen and veterans.


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NOTE 1 NATURE OF BUSINESS (CONTINUED)

Services Provided (Continued)

“Faith Comes By Hearing” Programs - International

During the year ended March 31, 2016, Hosanna began 43,190 new listening projects in over 80 countries, with approximately 3,887,100 new listeners hearing the entire New Testament in their indigenous language. Each church or group was given a free audio New Testament in their indigenous tongue and listened at least once a week for 30 minutes. Some 28,470 of these groups received Proclaimer® units. The Proclaimer® is a dedicated audio player containing a dramatized recording of the New Testament in a translated indigenous language. With no moving parts to the playback mechanism, it is practically indestructible, and plays for hours at a time. It can run on rechargeable batteries, solar power, hand-crank or AC adapter. Also, most of the 31,264 programs started in 2015 continued in 2016. During this fiscal year, Hosanna expanded the Every Church/Every Village program, in which over 7,116 New Testaments in various languages on Proclaimers (in increments of up to two per project) were provided free to church missionaries or individuals traveling on mission trips to establish FCBH listening groups in 139 countries. FCBH is being used worldwide in:

- Churches - Hospitals - Unreached villages and - Prisons communities for church planting - JESUS Film follow-up - Schools - Military and police

The listening groups range from a handful of people to 5,000 listeners. However, the worldwide average is 90 listeners per group. This calculation considers only those listeners attending the initiation of the FCBH program in the first group or church. Often, churches use the audio New Testament for evangelism, church planting and public broadcast from the church loudspeaker. These additional listeners cannot easily be counted and are therefore not included in the reported numbers of listeners. Recording Service Centers

In order to effectively conduct the non-U.S. language recording projects and the FCBH programs, Hosanna uses regional service centers. They are staffed by people from the region who are devoted to sharing the Word of God in every language. These regional service centers are supplied with the recording and other equipment needed to support all of the Audio New Testament recordings and FCBH programs. The individuals staffing the centers are not Hosanna employees and the service centers are not recorded on the financial statements. During the year ended March 31, 2016, Hosanna partnered with 24 different recording organizations in 19 countries, with a total of 37 recording teams, each capable of recording two or more languages per year.


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Services Provided (Continued)

New Testament Recordings

During the year ended March 31, 2016, 121 audio recordings were completed with 94 new languages, bringing the total number of languages with a complete Audio New Testament to 977 languages spoken in 185 countries by over 5 billion people. Hosanna also had 39 recordings in final mastering and editing, and 44 recordings in-process at year-end. Faith Comes By Hearing BIBLE.IS

Faith Comes By Hearing has one purpose: God’s Word everywhere for everyone. This is done by producing audio and sign heart-language recordings of Scripture and making them available for free by every possible means. Faith Comes By Hearing is harnessing technology that allows us to respond to any digital initiative the future may bring. The Digital Bible Platform is the “brain” that provides end-users access to biblical content. As of March 31, 2016, there have been more than 304 million unique users engaging with the Bible in their heart language; 34 million-plus unique downloads of the Bible.is app, with user interfaces localized (translated) in 19 languages. Faith Comes By Hearing and Deaf Bible Society

In many cultures, the Deaf are ostracized, hidden away, denied access to school, cut off from society, and difficult to reach. Less than one-fifth of all deaf people in poor nations receive any education. Even for those who can read, written text is a second language. Their heart language is sign language. There are more than 400 sign languages in use around the world. Each has their own system of gestures and expressions, including American Sign Language, which is as different from English as any other foreign language. Faith Comes By Hearing began providing the Bible in Video to the Deaf Community by developing and launching the first Deaf Bible app available through use of smartphones, video phones, or computers. Since the inception of the Deaf Bible app, there are now 19 sign languages available on the app. Faith Comes by Hearing was instrumental in establishing this work with the Deaf Community and in the formation of the Deaf Bible Society a separate 501(c)(3) organization. Faith Comes by Hearing now partners with Deaf Bible Society in bringing the Word of God to Deaf people worldwide. Faith Comes By Hearing and Faith Comes By Hearing Asia Limited Hosanna formed a charitable organization in China called Faith Comes By Hong Kong Limited. This organization is now under separate governance and has changed its name to Faith Comes By Hearing Asia Limited. Hosanna has no tax liability related to this organization, and now works in partnership with Faith Comes By Hearing Asia Limited in providing the Audio Bible in Asian Languages and to Asian people groups Faith Comes By Hearing Radio and Satellite

The Audio Bible in hundreds of languages is live around the world through free Internet radio stations, such as iTunes Radio. More than 126 million streams have taken place as of the end of March. Through a partnership with SAT-7, the Arabic Audio Bible is airing nonstop on a dedicated satellite television channel to homes across the Middle East and surrounding regions, with plans to add other languages, including Farsi.


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Partnerships

The mission of Hosanna is accomplished through support from the Body of Christ and strategic partnerships with ministries worldwide. Working in partnership is a core value which Hosanna utilizes to promote unity in the Body of Christ. These partnerships are with National and International Bible Societies and agencies, Bible Translation organizations, Mission organizations, Denominations, individual national and international churches and missionaries. These partnerships provide various activities and funding of Audio Bible recordings and Audio Bible listening groups.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in Preparing Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Basis of Presentation

The accompanying consolidated financial statements are presented in accordance with the accounting and reporting standards required by FASB ASC 958, Not for Profit Entities. FASB ASC 958 requires Hosanna to report information regarding its consolidated financial position and activities according to three classes of net assets:

Unrestricted net assets – represent those unrestricted donations that Hosanna has received and has fulfilled or completed the restrictions on. Unrestricted net assets are not subject to any further donor-imposed restrictions. Temporarily restricted net assets – represent net assets subject to donor-imposed stipulations that can be fulfilled by actions of Hosanna or the passage of time, pursuant to those stipulations. They would also include the fair market value adjustment to permanent funds and related activities. Permanently restricted net assets – result from donor-imposed stipulations that neither expire by the passage of time nor can be fulfilled or otherwise removed by actions of Hosanna. This amount would represent the original gift value.

No permanently restricted net assets were held during 2016 and 2015, and, accordingly, these consolidated financial statements do not reflect any activity related to this class of net assets. Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, Hosanna considers all unrestricted highly liquid investments with an original maturity of three months or less to be cash equivalents.


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NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash and Temporarily Restricted Net Asset Balances

Large increases in cash and temporarily restricted net asset balances can result from donations received close to the fiscal year end, or from restricted donations that carry longer time requirements to fulfill the donor’s restrictions. Donated Assets and Services

Donated services are recognized as contributions in accordance with financial accounting standards, if the services create or enhance non-financial assets and require specialized skills provided by individuals possessing those skills, and would otherwise be purchased by Hosanna. Accounts Receivable and Sales Return Allowance

Hosanna utilizes the allowance method for accounts receivable valuation and for estimated sales returns. The allowance is based on experience and other circumstances which may affect the collectability of the account. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Hosanna did not have any allowances for the years ended March 31, 2016 and 2015. Inventory

Inventories are valued at the lower of cost or market. Cost is determined using the weighted average cost method. Deposits

The Audio Playback Devices used by Hosanna in the Audio Bible Listening Groups are purchased from outside manufacturers of electronic equipment. Hosanna completes production and performs quality assurance on these devices by loading/adding the New Testament Language Recordings. Deposits paid to these manufacturers for these Proclaimers®, Mini Proclaimers® and Biblesticks® for the years ended March 31, 2016 and 2015 were $725,798 and $562,546, respectively. Committed Orders

Hosanna purchases various proprietary audio devices from an overseas manufacturer. Hosanna is obligated for the entire amount of these product orders. When the order is placed, a portion of the total dollar amount is paid to the manufacturer and recorded as a Current Asset identified as Deposits. The balance of the order is recorded as an Accounts Payable liability and as a Current Asset identified as Committed Orders. Committed Orders for the years ended March 31, 2016 and 2015 were $696,863 and $414,356, respectively. Prepaid Expenses

Prepaid expenses for the years ended March 31, 2016 and 2015 were $144,543 and $162,595, respectively. These prepaid expenses range from advertising to group health and life premiums. Prepaid expenses are normally consumed or amortized during the next fiscal year activities.


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Note Receivable

Note receivable represents an amount from an unrelated organization. This note was paid in full during the current fiscal year. Interest was paid annually at 1.95%. Interest income was recognized on an annual basis. Interest income was $1,207 and $941 for the years ended March 31, 2016 and 2015. Property and Equipment

All acquisitions of property and equipment in excess of $500 and all repairs, maintenance, renewals and betterments that materially prolong the assets’ useful lives are capitalized. Property and equipment are carried at cost or, if donated, at the approximate fair value at the date of donation. Depreciation is calculated using the straight-line method over the estimated useful life of the asset, ranging from 3 to 20 years. Impairment of Long-lived Assets and Long-lived Assets to be Disposed of

Hosanna reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of, if any, are reported at the lower of the carrying amount or the fair value less costs to sell. Management believes all assets are recoverable and no impairment was recorded in the current year. Recordings

Hosanna incurs substantial costs in developing, recording and mastering indigenous language Bible recordings that are to be sold or distributed. The benefits of those expenditures are not realized until future periods. Therefore, all direct and applicable indirect costs of developing and acquiring the Bible recordings are capitalized. Based on experience and research of other organizations performing similar functions, such costs are amortized over 20 years on the straight-line basis. Revenue Recognition

Contributions received are recorded as increases in permanently restricted, temporarily restricted or unrestricted net assets, depending on the existence and/or nature of any donor restrictions. When a restriction is fulfilled, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities and changes in net assets as net assets released from restrictions. Mission and program related sales revenue is recognized upon shipment of the product to the customer. Functional Classification of Expenses

Hosanna presents its expenses on a functional basis among its various programs. Expenses and support services that can be identified with a specific program are allocated directly according to their natural expenditure classification. Other expenses that are common to several programs are allocated based on various relationships.


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Shipping and Handling Costs

Costs incurred for shipping and handling are included in program costs as a component of the cost of sales. These costs were approximately $426,593 and $439,139 in 2016 and 2015, respectively. Advertising and Promotion

Prepaid costs to produce direct-response advertising and fundraising materials are amortized to advertising expense according to usage. Direct-response advertising materials consist primarily of internally produced and printed brochures containing information about products available from Hosanna and are included in the packaging of each item shipped. Direct-response fundraising materials consist primarily of internally produced and printed letters and response receipts describing Hosanna’s current recording and distribution projects. Such materials are disbursed on a campaign-by-campaign basis. Hosanna did not have any direct-response material costs for the years ended March 31, 2016 and 2015. Advertising expense totaled approximately $741,000 and $375,000 for the years ended March 31, 2016 and 2015, respectively. Of this amount, approximately $497,000 and $183,000 is included in program expense in the Statements of Functional Expenses for the years ended March 31, 2016 and 2015, respectively. Income Taxes

Hosanna and the International Foundation are non-profit corporations and qualify as tax-exempt organizations under Section 501(c)(3) of the IRC. As such, their normal activities do not result in any income tax liability. Hosanna and the Foundation are classified as other than private foundations.

Hosanna did not incur any unrelated business taxable income for the year ended March 31, 2016. As a result, Hosanna did not recognize federal and state income tax for the year ended March 31, 2016. Conflicts of Interest / Private Inurement

Business activities or relationships by Board Members, Directors, Officers and employees that conflict with Hosanna’s business interests are prohibited by policy. Expense Approval

Reimbursable expense accounts are not used. All expense activity requires authorization and approval by two members of management. Wages, Benefits and Compensations

Employee compensation is determined by a Board approved nondiscriminatory graded pay scale system with adjustments for merit and tenure. Each position contains grade level evaluations of the individual job requirements for education/mental ability; physical/ emotional capacity; skill/experience levels; authority/responsibility parameters; and work condition/performance conformity. Compensation to any employees related to upper management is disclosed in the corporate 990 return in compliance with IRS regulations.


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Reclassifications

Certain accounts in the prior year consolidated financial statements have been reclassified for comparative purposes to conform with the presentation in the current year consolidated financial statements. Subsequent Events

Management evaluated subsequent events through July 20, 2016, the date the financial statements were available to be issued. Events or transactions occurring after March 31, 2016, but prior to July 20, 2016, that provided additional evidence about conditions that existed at March 31, 2016 have been recognized in the financial statements for the year ended March 31, 2016. Events or transactions that provided evidence about conditions that did not exist at March 31, 2016 but arose before the financial statements were available to be issued, have not been recognized in the financial statements for the year ended March 31, 2016.

NOTE 3 INVENTORIES

Inventories consisted of the following at March 31:

2016 2015

Finished Goods 359,247$ 266,821$

Work-in-Progress 6,996 62,185

Raw Materials and Supplies 1,188,972 1,566,998

Total Inventories 1,555,215$ 1,896,004$

NOTE 4 RECORDINGS, LITERATURE, AND LICENSES

Recordings consisted of the following at March 31:

2016 2015

Recordings 38,370,781$ 35,153,601$

Literature 55,915 55,915

Licenses 290,407 290,407

Total Recordings, Literature and Licenses 38,717,103 35,499,923

Less: Accumulated Amortization (12,432,008) (10,760,163)

Net Recordings, Literature and Licenses 26,285,095$ 24,739,760$

Recordings and the related components are all amortized over a useful life of 20 years. Amortization expense for the years ended March 31, 2016 and 2015 was $1,739,922 and $1,635,822.


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NOTE 5 LONG-TERM DEBT

Long-term debt consisted of the following at March 31:

2016 2015

Note payable to a local financial institution at 6%,

due in monthly installments of $4,716, including

interest, through October 2019. Note is secured

by Hosanna's operating facility. 67,655$ 118,684$

Less: Current Maturities (53,982) (50,576)

Long-Term Debt Less Current Portion 13,673$ 68,108$

Long-term maturities are as follows:

Year Ending December 31, Amount

2017 53,982$

2018 13,673

2019 -

Total 67,655$

Interest expense paid on the mortgage for the years ended March 31, 2016 and 2015 was $5,665 and $11,152, respectively.

NOTE 6 TEMPORARILY RESTRICTED NET ASSETS

Temporarily restricted net assets are available for the following purposes or periods:

2016 2015

Faith Comes By Hearing Programs 2,868,514$ 3,206,372$

Military BibleStick Programs 2,322,567 1,966,285

Narration Programs 798,420 1,237,444

Other Programs 2,074,207 831,543

Total Temporarily Restricted Net Assets 8,063,708$ 7,241,644$

Net assets are released from donor restrictions by conducting the programs for which they were restricted as costs are incurred in amounts representing actual costs plus certain indirect costs. Some programs provide for the release of restrictions based upon a fixed amount, such as $37 per New Testament produced for distribution and $35,000 per Audio Drama New Testament recorded. Other programs provide for the release of restrictions as costs are incurred in these programs in an amount representing management’s estimate of actual costs incurred plus certain indirect costs.


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NOTE 7 ROYALTY AGREEMENTS

Hosanna has entered into several copyright license agreements to produce and sell certain products, which expire at various dates through February 2019. Under these agreements, Hosanna pays the proprietor of the copyright a percentage of net sales, as defined. Royalties under these agreements range up to 10 percent. Sales subject to these agreements during the years ended March 31, 2016 and 2015 were approximately $172,000 and $170,000, respectively. Amounts paid for royalties during the years ended March 31, 2016 and 2015 were approximately $19,000 and $6,000, respectively, and are included in the statements of financial position.

NOTE 8 OPERATING LEASES

Hosanna leases certain equipment and space under short-term operating leases. Rent expense for the years ended March 31, 2016 and 2015 were approximately $50,000 and $-0-, respectively.

NOTE 9 COMMITMENTS AND CONTINGENCIES

Cash deposits at a financial institution exceed the federal insured limit of $250,000 at March 31, 2016. Hosanna has not experienced, and believes it is not exposed to, significant credit risk from these deposits.

NOTE 10 MAJOR DONORS

The company relied on two main contributors for a total of 24% of total contributions for the years ended March 31, 2016 and 2015. Management anticipates that contributor concentrations will continue, but the makeup will differ.

HOSANNA/FAITH COMES BY HEARING AND AFFILIATES CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES


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Total Total

Program Fund- Management Supporting Functional

Services Raising and General Services Expenses

EXPENSES

Advertising and Promotion 497,260$ 178,353$ 65,186$ 243,539$ 740,799$

Cost of Goods Produced * 142,523 - - - 142,523

Depreciation and Amortization 1,799,343 - 28,327 28,327 1,827,670

Faith Comes By Hearing Programs 8,832,362 - - - 8,832,362

Insurance 10,088 765 4,170 4,935 15,023

Interest 14,141 985 1,243 2,228 16,369

Legal and Accounting Fees 27,462 5,650 4,740 10,390 37,852

Merchant and Bank Fees 47,350 3,083 3,941 7,024 54,374

Miscellaneous Expense - - - - -

Office Expenses 6,602 - 1,703 1,703 8,305

Payroll Taxes and Fringe Benefits 1,038,177 133,072 178,085 311,157 1,349,334

Postage and Courier Expenses 51,169 10,753 5,397 16,150 67,319

Professional Services 111,247 109,576 12,741 122,317 233,564

Rental Expenses 48,493 - 4,907 4,907 53,400

Repairs and Maintenance 104,310 2,746 14,176 16,922 121,232

Salaries and Wages 4,462,319 501,667 830,232 1,331,899 5,794,218

Supplies and Artwork Expenses 73,624 11,043 9,969 21,012 94,636

Telephone and Utilities 456,484 3,289 49,275 52,564 509,048

Travel, Meetings and Entertainment 256,662 153,427 48,718 202,145 458,807

Total Expenses 17,979,616$ 1,114,409$ 1,262,810$ 2,377,219$ 20,356,835$

* Also includes amounts allocated from other natural categories as part of manufacturing overhead, including depreciation

and amortization.

Supporting Services

HOSANNA/FAITH COMES BY HEARING AND AFFILIATES CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES


(19)

Total Total

Program Fund- Management Supporting Functional

Services Raising and General Services Expenses

EXPENSES

Advertising and Promotion 183,333$ 165,709$ 25,860$ 191,569$ 374,902$

Cost of Goods Produced * 157,924 - - - 157,924

Depreciation and Amortization 1,704,279 8,136 26,725 34,861 1,739,140

Faith Comes By Hearing Programs 6,283,038 - - - 6,283,038

Insurance 17,247 1,388 1,421 2,809 20,056

Interest 3,836 309 316 625 4,461

Legal and Accounting Fees 18,410 5,751 2,696 8,447 26,857

Merchant and Bank Fees 39,908 2,956 3,038 5,994 45,902

Miscellaneous Expense 4,079 920 1,373 2,293 6,372

Office Expenses 2,877 - 368 368 3,245

Payroll Taxes and Fringe Benefits 931,431 136,032 174,166 310,198 1,241,629

Postage and Courier Expenses 40,323 10,802 4,277 15,079 55,402

Professional Services 38,323 70,083 5,284 75,367 113,690

Rental Expenses 552 - 48 48 600

Repairs and Maintenance 84,002 3,532 25,804 29,336 113,338

Salaries and Wages 4,156,568 496,705 771,544 1,268,249 5,424,817

Supplies and Artwork Expenses 52,384 7,901 8,044 15,945 68,329

Telephone and Utilities 480,903 17,214 9,688 26,902 507,805

Travel, Meetings and Entertainment 239,956 149,929 42,956 192,885 432,841

Total Expenses 14,439,373$ 1,077,367$ 1,103,608$ 2,180,975$ 16,620,348$

* Also includes amounts allocated from other natural categories as part of manufacturing overhead, including depreciation

and amortization.

Supporting Services

HOSANNA/FAITH COMES BY HEARING AND AFFILIATES … · hosanna/faith comes by hearing and affiliates...

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