WILLAMETTE WEST HABITAT FOR HUMANITY, INC. FINANCIAL STATEMENTS. For the Years Ended June 30, 2013 and 2012

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1 FINANCIAL STATEMENTS For the Years Ended June 30, 2013 and 2012

2 FINANCIAL STATEMENTS For the Years Ended June 30, 2013 and 2012 TABLE OF CONTENTS Page Independent Auditor s Report 1-2 Financial Statements: Statements of Financial Position 3 Statements of Activities and Changes in Net Assets 4-5 Statements of Functional Expenses 6-7 Statements of Cash Flows 8 Notes to Financial Statements 9-20 Federal Awards Section: Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A Schedule of Expenditures of Federal Awards 25 Notes to Schedule of Expenditures of Federal Awards 26 Schedule of Findings and Questioned Costs 27 Schedule of Prior Audit Findings 28

3 INDEPENDENT AUDITOR S REPORT To the Board of Directors Willamette West Habitat for Humanity, Inc. Hillsboro, Oregon Report on the Financial Statements We have audited the accompanying financial statements of Willamette West Habitat for Humanity, Inc. (a nonprofit organization), which comprise the statements of financial position as of June 30, 2013 and 2012, and the related statements of activities and changes in net assets, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Willamette West Habitat for Humanity, Inc. as of June 30, 2013 and 2012, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 8, 2014, on our consideration of Willamette West Habitat for Humanity, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Willamette West Habitat for Humanity, Inc. s internal control over financial reporting and compliance. Jones & Roth, P.C. Hillsboro, Oregon January 8,

5 FINANCIAL STATEMENTS

6 STATEMENTS OF FINANCIAL POSITION June 30, 2013 and Assets Current assets Cash and cash equivalents $ 429,974 $ 675,845 Investments 91,690 90,015 Pledges receivable, net of allowance for doubtful accounts 1,000 27,612 Mortgages receivable, net of unamortized discounts - current portion 142, ,985 Other receivables 17,455 89,248 Inventories of land and building projects under construction and finished houses 1,779,896 2,242,999 Prepaid expense and deposits 33,734 43,200 Total current assets 2,496,192 3,291,904 Mortgages receivable, net of unamortized discounts - long-term portion 2,227,579 2,062,976 Property and equipment, net 632,984 55,602 Total assets $ 5,356,755 $ 5,410,482 Liabilities and Net Assets Current liabilities Accounts payable and accrued expenses $ 59,293 $ 76,601 Current portion of notes payable 725, ,349 Current portion of deferred lease incentive - 28,519 Current portion of line of credit payable 37,437 - Total current liabilities 822, ,469 Long-term debt Line of credit, net of current portion - 531,531 Notes payable, net of current portion 869, ,514 Total long-term debt 869,524 1,413,045 Total liabilities 1,691,560 2,093,514 Net assets Unrestricted 2,903,632 2,279,964 Temporarily restricted 761,563 1,037,004 Total net assets 3,665,195 3,316,968 Total liabilities and net assets $ 5,356,755 $ 5,410,482 The accompanying notes are an integral part of these statements

7 STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS For the Year Ended June 30, 2013 Temporarily Unrestricted Restricted Total Revenue, gains, and other support Contributions and grants $ 442,181 $ 329,211 $ 771,392 Investment income 1,478-1,478 Mortgage discount amortization 168, ,016 Contributed services and materials 102, ,700 Sale of houses 862, ,757 Special fundraising events 74,719-74,719 Recognition of HOME note payable 441, ,229 Restore income 150, ,210 Other income 43,403-43,403 Total revenue, gains, and other support 2,286, ,211 2,615,904 Net assets released from restrictions Restrictions satisfied by payments 604,652 (604,652) - Expenses Program services 1,870,967-1,870,967 Supporting services: Management and general 173, ,456 Fundraising 223, ,254 Total expenses 2,267,677-2,267,677 Change in net assets 623,668 (275,441) 348,227 Net assets, beginning of year 2,279,964 1,037,004 3,316,968 Net assets, end of year $ 2,903,632 $ 761,563 $ 3,665,195 The accompanying notes are an integral part of these statements

8 STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS For the Year Ended June 30, 2012 Temporarily Unrestricted Restricted Total Revenue, gains, and other support Contributions and grants $ 442,315 $ 415,320 $ 857,635 Investment income 1,424-1,424 Mortgage discount amortization 154, ,854 Contributed services and materials 142, ,242 Sale of houses 1,245,106-1,245,106 Special fundraising events 1,000-1,000 Recognition of HOME note payable 500, ,000 Recognition of forgivable note payable - 79,467 79,467 Restore income 88,326-88,326 Other income 11,364-11,364 Total revenue, gains, and other support 2,586, ,787 3,081,418 Net assets released from restrictions Restrictions satisfied by payments 206,205 (206,205) - Expenses Program services 2,490,251-2,490,251 Supporting services: Management and general 156, ,465 Fundraising 147, ,573 Total expenses 2,794,289-2,794,289 Change in net assets (1,453) 288, ,129 Net assets, beginning of year 2,281, ,422 3,029,839 Net assets, end of year $ 2,279,964 $ 1,037,004 $ 3,316,968 The accompanying notes are an integral part of these statements

9 STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended June 30, 2013 Program Management Services and General Fundraising Total Cost of homes sold $ 1,163,381 $ - $ - $ 1,163,381 Mortgage discounts in year of sale 307, ,337 Repair corps program 11, ,793 Indirect construction costs 20, ,211 Homebuyer recruitment and management 1, ,081 Volunteer recruitment and management 8, ,078 Donated services - 40,932-40,932 Tithing 54, ,474 Depreciation 12,311 3,339 7,986 23,636 Interest - 13,064-13,064 Salaries and benefits 157,943 47, , ,092 Stipend - Americorps 48, ,390 Travel, education, and meals 4,987 1,635 5,116 11,738 Printing, mailing, and publications 5,769-8,899 14,668 Insurance 2,663 13,855-16,518 Professional fees 28,827 36,068-64,895 Bank and collection service fees 11,150 9,442-20,592 Occupancy 14,752 4,405 10,535 29,692 Promotions 21-71,742 71,763 Office expense 5,476 1,636 3,911 11,023 Fees and licenses Dues to Habitat's State Support Organization 3, ,259 Dues and subscriptions - 1, ,574 Vehicle expense 8, ,706 Capital campaign - - 1,960 1,960 Other expenses (67) ,043 Total $ 1,870,967 $ 173,456 $ 223,254 $ 2,267,677 The accompanying notes are an integral part of these statements

10 STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended June 30, 2012 Program Management Services and General Fundraising Total Cost of homes sold $ 1,523,232 $ - $ - $ 1,523,232 Mortgage discounts in year of sale 606, ,247 Indirect construction costs 16, ,046 Homebuyer recruitment and management 1, ,786 Volunteer recruitment and management 5, ,847 Donated services 21,804 36,928-58,732 Tithing 52, ,296 Depreciation 9,420 2,292 4,179 15,891 Interest - 3,297-3,297 Salaries and benefits 140,297 45,858 84, ,023 Stipend - Americorps 20, ,751 Travel, education, and meals 3,375 2,675 2,732 8,782 Printing, mailing, and publications 3,657-8,286 11,943 Insurance 11,560 14,000-25,560 Professional fees 18,965 35,537-54,502 Bank and collection service fees 10,000 5,227-15,227 Occupancy 20,660 6,682 12,377 39,719 Promotions ,405 26,615 Office expense 4,686 1,516 2,807 9,009 Fees and licenses Dues to Habitat's State Support Organization 4, ,138 Dues and subscriptions - 1, ,190 Vehicle expense 9, ,099 Capital campaign - - 4,057 4,057 Other expenses 6, ,648 7,950 Total $ 2,490,251 $ 156,465 $ 147,573 $ 2,794,289 The accompanying notes are an integral part of these statements

11 STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2013 and Cash flows from operating activities Change in net assets $ 348,227 $ 287,129 Depreciation 23,636 15,891 Mortgage loan discount amortization 307,337 (154,854) Mortgage discount adjustment (168,016) 606,247 (Increase) decrease in operating assets: Pledges receivable 24,737 18,518 Inventories 463,103 86,052 Prepaid expense and deposits 9,466 (10,618) Other receivables 73,668 (48,586) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses (17,308) 20,149 Net cash provided by operating activities 1,064, ,928 Cash flows from investing activities Net redemption (purchase) of investments (1,675) 38,446 Purchase of equipment (601,018) (6,680) Repurchase of homes 54,324 71,200 Mortgages receivable issued to homebuyers (862,757) (1,247,504) Mortgage payments received 485, ,219 Net cash used by investing activities (926,075) (915,319) Cash flows from financing activities Change in deferred lease incentive (28,519) (8,844) Proceeds from line of credit 130, ,531 Payments on line of credit (624,094) - Proceeds from long term notes payable 850, ,398 Principal payments on notes payable (144,661) (508,424) Recognition of forgivable notes payable as revenue (567,372) (79,467) Net cash provided (used) by financing activities (384,646) 282,194 Net increase (decrease) in cash and cash equivalents (245,871) 186,803 Cash and cash equivalents, beginning of year 675, ,042 Cash and cash equivalents, end of year $ 429,974 $ 675,845 Supplemental disclosures of cash flow information Cash paid for interest $ 11,669 $ 3,297 The accompanying notes are an integral part of these statements

12 NOTES TO FINANCIAL STATEMENTS 1. Organization Willamette West Habitat for Humanity, Inc. (Habitat) is a nonprofit organization incorporated in Habitat is an affiliate of Habitat for Humanity International, Inc. (Habitat International), a nonprofit, ecumenical, Christian organization dedicated to eliminating substandard housing worldwide and to making adequate, affordable shelter a matter of conscience and action. Habitat is founded on the conviction that every man, woman, and child should have a simple, decent, affordable place to live in dignity and safety. Although Habitat International assists with information resources, training, publications, prayer support, and in other ways, Habitat is primarily and directly responsible for its own operations. Habitat voluntarily tithes 10 percent of donations, except those restricted by donor or grant, to Habitat International to support its global mission. Habitat builds houses utilizing volunteer labor and donated materials, in addition to paid services and materials. The houses are sold to qualified homebuyers at no profit with non-interest-bearing mortgages. Prospective homeowners must have a need for housing, the ability to pay the mortgage, and are required to contribute 500 sweat-equity hours into building homes or working in the local Restore. Habitat s activities are primarily focused in the suburbs west of Portland, Oregon (i.e., Beaverton, Aloha, and Hillsboro) but also cover Lake Oswego, West Linn, Tualatin, Sherwood, and other unincorporated areas of Washington County, Oregon (Washington County). Habitat partners with two other Habitat affiliates in sharing the revenue generated by three Restores operating in the Portland-metro area. 2. Summary of Significant Accounting Policies Basis of Accounting The financial statements of Habitat have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and accordingly reflect all significant receivables, payables, and other liabilities. Basis of Presentation The financial statements are classified on the existence or absence of donor-imposed restrictions using the following classifications: permanently restricted, temporarily restricted, and unrestricted. These classifications are defined as follows: Permanently restricted net assets contain a donor-imposed restriction that stipulates resources be maintained permanently, but permit Habitat to use or expend the income derived from the donated asset. Habitat did not have any permanently restricted net assets as of June 30, 2013 and Temporarily restricted net assets contain donor-imposed restrictions that permit Habitat to use or expend the donated assets as specified and are satisfied either by the passage of time or by actions of Habitat

13 NOTES TO FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies, continued Basis of Presentation, continued Unrestricted net assets are not restricted by donors or the donor-imposed restrictions have expired. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as net assets released from restrictions. Revenue Recognition Contributions Contributions, including unconditional promises to give, are recognized as revenue in the period the commitment is received. All contributions are available for unrestricted use unless specifically restricted by the donor. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Unconditional promises to give due in the next year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are reported at the present value of their net realizable value using risk-free interest rates applicable to the years in which the promises are to be received. Contributions of assets other than cash are recorded at their estimated fair value. Sales to Homeowners Sales to homeowners represent the sale of houses built by Habitat. The resulting mortgages are non-interest-bearing and have been discounted based upon prevailing market rates at the inception of the mortgages. Habitat recognizes the income from the sales to homeowners on the completed contract method. Grants and Contracts Habitat receives funding from several federal, state, county, and city financial assistance programs that supplement its traditional funding sources. Washington County and Habitat International have provided funding in the form of notes to Habitat. Based upon criteria outlined in the agreement at the time of each sale, a portion of the obligation on HOME Investment Partnerships Act (HOME) notes payable with Washington County are transferred to the buyer as a purchase subsidy and a portion are forgiven upon the sale of the home. Any remaining funds, if any, are due and payable over a 5-year period. The transferred and forgiven obligations recognized as revenue amounted to $441,229 and $500,000 for the years ended June 30, 2013 and 2012, respectively. Forgivable notes payable made under the Neighborhood Stabilization Program (NSP) and the Community Development Block Grant Program are recognized as temporarily restricted revenue when the homes funded by these programs are sold. Management has determined the risk of noncompliance with the terms of the loans is remote. These loans will be released from temporarily restricted net assets after the loans are forgiven. The obligations recognized as temporarily restricted revenue amounted to $-0- and $79,467 for the years ended June 30, 2013 and 2012, respectively

14 NOTES TO FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies, continued Revenue Recognition, continued In-kind Contributions Contributions of donated, non-cash assets are recorded at their fair value in the period received. For the years ended June 30, 2013 and 2012, the net amount of in-kind contributions for donated equipment and materials, net of related expenses recognized as revenue, amounted to $27,868 and $65,511, respectively. Donated services are recognized in accordance with accounting principles generally accepted in the United States of America if the services (a) create or enhance non-financial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise need to be purchased by Habitat. For the years ended June 30, 2013 and 2012, $74,832 and $76,731, respectively, was recognized as in-kind contributions of specialized skills. In-kind contribution expenses are included in inventories, costs of homes sold, and donated services expenses. Cost Recognition/Construction-in-Process All direct material, labor, and equipment costs are recorded as construction-in-process in the statements of financial position as they are incurred. Land costs included in construction-in-process are stated at cost or the fair value at the date of contribution. Included in land costs are any costs incurred in development. When revenue from the sale of a home is recognized, the corresponding costs are then expensed in the statements of activities and changes in net assets as program services. Property and Equipment Acquisitions of property and equipment in excess of $1,000 are capitalized. Property and equipment are carried at cost or if donated, at the approximate fair value at the date of donation. Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets (generally 3 to 10 years). Deferred Lease Incentive Habitat signed a 5-year operating lease during the year ended June 30, 2010, with an option to extend an additional five years. Under this agreement, Habitat received $40,000 for leasehold improvements which was being amortized over the life of the lease and included in occupancy expense in the statements of functional expenses. This lease ended during the year ended June 30, 2013, when Habitat purchased the building being leased. Warranties Habitat provides a 1-year warranty on all of its homes. The warranty is generally for defects in materials and workmanship. Warranty costs are expensed when incurred. Cash and Cash Equivalents For the purposes of the statements of cash flows, Habitat considers only unrestricted highly liquid investments with an initial maturity of three months or less to be cash equivalents

15 NOTES TO FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies, continued Investments Investments primarily consist of certificates of deposits having maturities greater than three months. At times, Habitat receives donated stock from individuals. These investments are recorded at fair value based on quoted market rates. Investment income is reported as an increase in unrestricted net assets or temporarily restricted net assets in the period in which the income and gains are recognized. Mortgages Receivable Mortgages receivable consist of non-interest-bearing mortgages which are secured by real estate and receivable in monthly installments. Mortgages receivable are considered past due and Habitat has the option to charge finance charges at 9.00 percent when the scheduled payment is more than 30 days late; however, Habitat generally does not assess a finance charge. Most of the mortgages have an original maturity of 15 to 40 years. These mortgages have been discounted at various rates ranging from 7.39 percent to 9.00 percent based on the prevailing market rates at the inception of the mortgages. Amortization of the discount is recorded as revenue using the straight-line method over the lives of the mortgages. There was no allowance for doubtful accounts at June 30, 2013 and 2012, for mortgages receivable. Pledges Receivable Habitat solicited pledges from donors for a capital campaign which, when completed, allowed Habitat to purchase the building they were previously leasing. In relation to the receivable, Habitat recorded an allowance for doubtful accounts which was $500 and $4,873 at June 30, 2013 and 2012, respectively. The net pledges receivable balance at June 30, 2013 and 2012 was $1,000 and $27,612, respectively. Allowance for Doubtful Accounts Habitat provides an allowance for doubtful accounts equal to estimated uncollectible amounts. Habitat s estimate is based on historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that Habitat s estimate of the allowance for doubtful accounts will change. Income Taxes Habitat is a Section 501(c)(3) organization exempt from taxation under Internal Revenue Code (IRC) Section 501(a). Accordingly, no provision is made in the financial statements for federal and state income taxes. Habitat s federal Form 990, Return of Organization Exempt from Income Tax, generally remains open to examination for three years after it is filed. Advertising Habitat expenses advertising costs as they are incurred

16 NOTES TO FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies, continued Joint Costs Habitat has joint costs related to the management and promotion of its organization which have been allocated to program, management and general, and fundraising services. Total joint costs for the year ended June 30, 2013, were $245,134 of which $140,991 was allocated to program services; $80,507 was allocated to management and general services; and $23,636 was allocated to fundraising services. Total joint costs for the year ended June 30, 2012, were $237,239 of which $73,203 was allocated to program services; $56,347 was allocated to management and general services; and $107,689 was allocated to fundraising services. Functional Allocation of Expenses The costs of providing various program and supporting services have been summarized on a functional basis in the statements of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Use of Estimates in Preparing Financial Statements The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates. Reclassifications Certain amounts in the June 30, 2012, financial statements have been reclassified to conform to the June 30, 2013, presentation. 3. Pledges Receivable As of June 30, pledges receivable consisted of the following: Receivable in less than one year $ 1,500 $ 32,485 Receivable in 1 to 5 years - - Receivable after five years - - Total pledges receivable 1,500 32,485 Allowance for uncollectible pledges (500) (4,873) Pledges receivable, net $ 1,000 $ 27,

17 NOTES TO FINANCIAL STATEMENTS 4. Mortgages Receivable Habitat directly finances all the homes it sells. Each mortgage is issued as a zero-interest mortgage to the buyer. Habitat discounts the mortgages using the current interest rate at the time the home is sold. As of June 30, mortgages receivable consisted of the following: Mortgages receivable at face value $ 5,221,319 $ 4,897,936 Unamortized discounts (2,851,297) (2,711,975) Mortgages receivable, net of unamortized discounts $ 2,370,022 $ 2,185,961 Future collections on these mortgages, net of unamortized discounts, will be received over the next five years as follows: Year Ending June 30, 2014 $ 142, , , , ,840 Thereafter 1,678,678 Total $ 2,370, Investments As of June 30, investments consisted of the following: Certificates of deposit $ 91,690 $ 90, Fair Value Measurements Accounting standards generally accepted in the United States of America establish a framework for measuring fair value and enhance disclosures about fair value measurements. Fair value is defined as the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability in the principal or most advantageous market for the asset or liability. The framework for measuring fair value is based on independent, observable inputs of market data and on the following hierarchy: Level 1 Quoted prices in active markets for identical assets and liabilities. Level 2 Significant, observable inputs based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and modelbased valuations for which significant assumptions are observable

18 NOTES TO FINANCIAL STATEMENTS 6. Fair Value Measurements, continued Level 3 Significant, unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. As of June 30, 2013, the fair value measurement of the investments disclosed in Note 5 was as follows: Fair Value Measurements Assets Profit & Loss Level 1 Level 2 Level 3 (Liabilities) Classification Assets Investments $ 91,690 $ - $ - $ 91,690 Investment income As of June 30, 2012, the fair value measurement of the investments disclosed in Note 5 was as follows: Fair Value Measurements Assets Profit & Loss Level 1 Level 2 Level 3 (Liabilities) Classification Assets Investments $ 90,015 $ - $ - $ 90,015 Investment income 7. Inventories As of June 30, 2013, inventories included six houses currently under construction in Hillsboro and one previously sold house to be rehabilitated in Hillsboro. In addition, Habitat has 25 house lots located in Beaverton and Hillsboro, Oregon, on which homes will be built over the next 4 to 5 years. As of June 30, 2012, inventories included seven houses currently under construction; five in Beaverton and two in Hillsboro. In addition to the seven house lots located in Beaverton and Hillsboro, Oregon, Habitat owned 26 lots in Beaverton, representing a total of 33 future homes to be built over the next 4 to 5 years. As of June 30, 2013 and 2012, Habitat also owned one lot at Vance Place in Aloha, Oregon to be built sometime in the future when Washington County releases current building restrictions. As of June 30, inventories consisted of the following: Construction in progress $ 416,889 $ 460,467 Finished homes 72,193 - Land and land improvements 1,290,814 1,782,532 Total inventories $ 1,779,896 $ 2,242,

19 NOTES TO FINANCIAL STATEMENTS 8. Property and Equipment As of June 30, property and equipment consisted of the following: Building $ 599,982 $ - Construction equipment 11,034 9,998 Office equipment 12,879 12,879 Leasehold improvements 65,150 65, ,045 88,027 Accumulated depreciation (56,061) (32,425) Property and equipment, net $ 632,984 $ 55,602 Depreciation expense for the years ended June 30, 2013 and 2012 was $23,636 and $15,891, respectively. 9. Lines and Letters of Credit In March 2012, Habitat renewed a guidance line from Columbia Community Bank for a maximum $1,000,000 in individual loans for the financing of single-family lots or land. The guidance line expired March 31, The following line of credit was made under this agreement: Secured line of credit for borrowings up to $531,531, bearing interest at the bank s prime rate (3.25 percent as of June 30, 2013 and 2012). Draws on this line are secured by real property and improvements. This line of credit expires December 25, The balance on this line of credit was $-0- and $531,531 as of June 30, 2013 and 2012, respectively. Habitat has a secured line of credit from Columbia Community Bank for borrowings up to $130,000, bearing interest at the bank s prime rate (3.25 percent as of June 30, 2013 and 2012). Draws on this line are secured by real property. This line of credit expires August 1, The balance on this line of credit was $37,437 and $-0- as of June 30, 2013 and 2012, respectively. Habitat has a secured, revolving letter of credit with Columbia Community Bank for borrowings up to $250,000, bearing interest at the bank s prime rate (3.25 percent at June 30, 2013 and 2012) plus 1.50 percent with a floor of 6.00 percent. Draws on this letter are secured by real property and improvements. This letter of credit expires March 31, There was no balance outstanding on this letter of credit as of June 30, 2013 and Habitat had an unsecured, revolving line of credit with Wells Fargo Bank for borrowings up to $100,000, bearing interest at the bank s prime rate (3.25 percent at June 30, 2013 and 2012) less 3.25 percent with a floor of 5.00 percent. This line of credit expired May 10, There was no balance outstanding on this line of credit as of June 30, 2013 and

20 NOTES TO FINANCIAL STATEMENTS 10. Notes Payable Habitat has entered into several agreements with Washington County to support acquisition and development of land. These agreements are made under HOME and are intended to carry out the provision of the HOME program for assistance to qualified, low-income families. These loans are secured by land and improvements and are non-interest-bearing. During the year ended June 30, 2012, Washington County and Habitat completed negotiations to change the terms of the HOME loans. Based upon criteria outlined in the agreement a portion of the funds is transferred to the buyer as a purchase subsidy and a portion is forgiven upon sale of the home. Any remaining funds, if any, are due and payable over a 5-year period. One agreement was revised in June 2012 and a second and third agreement were revised during the year ended June 30, The following schedule reflects the terms of the new agreement. Habitat has entered into several agreements with Washington County to acquire foreclosed homes under the NSP. These loans are non-interest-bearing and are forgiven after 20 years. As the homes are sold, the loans are recognized as temporarily restricted revenue. As of June 30, notes payable consisted of the following: Note payable, Washington County. Interest-only at 3% per annum beginning in 2000, payable annually. Balance due in full Secured by land and improvements. $ 110,000 $ 110,000 HOME loan, Washington County, due ,371 HOME loan, Washington County, due , ,610 Note payable, Sterling Bank. Interest payable at 3.99% per annum. Due Secured by select mortgage receivables. 813,314 - Note payable, Habitat International. Non-interest-bearing. Due January Unsecured. - 1,422 Note payable, Habitat International. Non-interest-bearing. Due January Unsecured. 2,844 8,460 Note payable, Habitat International. Non-interest-bearing. Due June Unsecured. 18,750 18,750 Note payable, Habitat for Humanity of Oregon. Noninterest-bearing. Due September Secured by furniture and fixtures. 5,312 6,250 Note payable, Community Housing Fund. Non-interestbearing. Due June Secured by land ,000 1,594,830 1,456,863 Current portion (725,306) (575,349) Notes payable, net of current portion $ 869,524 $ 881,

21 NOTES TO FINANCIAL STATEMENTS 10. Notes Payable, continued The total carrying value of land and improvements that serve as collateral on the notes payable listed previously was $818,626 and is included in inventories of land and building projects under construction and finished houses at June 30, Maturities of notes are as follows: Year Ending June 30, 2014 $ 725, , , , ,841 Thereafter 422,891 Total $ 1,594, Temporarily Restricted Net Assets As of June 30, temporarily restricted net assets consisted of the following: Forgivable loans: Neighborhood Stabilization Program $ 631,186 $ 631,186 Community Development Block Grant Program 70,000 70,000 Capital campaign funds for purchase of administrative office and warehouse space - 295,521 Construction of homes 41,914 40,297 Other program support 18,463 - Total temporarily restricted net assets $ 761,563 $ 1,037,004 Habitat has entered into several agreements with Washington County to acquire, rehabilitate, and resell foreclosed homes under the NSP. These agreements require Habitat to comply with certain program requirements. These loans are unsecured, non-interest-bearing, and will be forgiven after 20 years. As the homes are sold, the loans are recognized as temporarily restricted revenue. These loans will be released from temporarily restricted net assets after the loans are forgiven in 2030 and Habitat has entered into an agreement with Washington County to build and sell homes under the Community Development Block Grant Program. The loan is secured by land and improvements, non-interest-bearing, and will be forgiven in June As the homes were sold, the loan was recognized as temporarily restricted revenue. This loan will be released from temporarily restricted net assets after the loan is forgiven in June

22 NOTES TO FINANCIAL STATEMENTS 12. Interest Cost Habitat capitalizes interest costs relating to the purchase of inventory as a component of the cost of inventory. The following is a summary of interest costs incurred during the years ended June 30: Interest cost capitalized $ 19,783 $ - Interest cost expensed 13,064 3,297 Total $ 32,847 $ 3, Financial Instruments with Concentrations of Credit Risk Habitat maintains its cash and cash equivalents balances at three financial institutions located in Oregon. The balances were insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 for the years ended June 30, 2013 and At June 30, 2013 and 2012, there were no uninsured balances. Financial instruments that potentially subject Habitat to concentrations of credit risk consist of mortgages receivable. The credit risk is limited through various monitoring procedures and liens placed on all homes. There were no bad debt expenses on mortgages receivable for the years ended June 30, 2013 and Contingencies Certain amounts received or receivable under Habitat s contracts with Washington County are subject to audit and adjustment by the contracting agencies, the State of Oregon, and various agencies of the U.S. government. Any expenditures or claims disallowed as a result of an audit would become a liability of Habitat s unrestricted funds. In the opinion of Habitat s management, any adjustments that might result from such audits would not be material to the overall financial statements. 15. Operating Lease Commitment In August 2009, Habitat entered into an operating agreement for a new administrative office and warehouse space through January This lease has an option to extend an additional five years as well as an option to purchase the space that expires in December In August 2012, Habitat exercised its option to purchase the space. Rent expense for the years ended June 30, 2013 and 2012, was $3,011 and $19,470, respectively

23 NOTES TO FINANCIAL STATEMENTS 16. Transactions with Habitat International Habitat voluntarily remits a portion of its contributions (excluding in-kind contributions) to Habitat International. These funds are used exclusively to construct homes in economically depressed areas around the world. For the years ended June 30, 2013 and 2012, Habitat contributed $54,474 and $52,296, respectively. 17. Related Party Transactions Donations are periodically made by Board members each year. Donations for the years ended June 30, 2013 and 2012 are included in revenue in the statements of activities and changes in net assets. In-kind professional services for the preparation of the IRS Form 990 and the Oregon Form CT-12 were provided by a Board member. The value of these services for the years ended June 30, 2013 and 2012 was $7,449 and $4,000, respectively. 18. Subsequent Events Subsequent to June 30, 2013, Habitat purchased land in Beaverton to build approximately 16 houses. A portion of the purchase ($549,000) was funded with a line of credit from Columbia Community Bank and the remaining funds were provided by an interest-free loan from a local non-profit organization. The line of credit bears interest at the bank s prime rate with a 3.25 percent floor. Both loans are secured by real property. Management evaluates events and transactions that occur after the statement of financial position date as potential subsequent events. Management has performed this evaluation through the date of the independent auditor s report

24 FEDERAL AWARDS SECTION

25 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors Willamette West Habitat for Humanity, Inc. Hillsboro, Oregon We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Willamette West Habitat for Humanity, Inc. (a nonprofit organization), which comprise the statement of financial position as of June 30, 2013, and the related statements of activities and changes in net assets, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated January 8, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Willamette West Habitat for Humanity, Inc. s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Willamette West Habitat for Humanity s internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

26 Compliance and Other Matters As part of obtaining reasonable assurance about whether Willamette West Habitat for Humanity, Inc. s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Jones & Roth, P.C. Hillsboro, Oregon January 8,

27 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 To the Board of Directors Willamette West Habitat for Humanity, Inc. Hillsboro, Oregon Report on Compliance for Each Major Federal Program We have audited Willamette West Habitat for Humanity, Inc. s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of Willamette West Habitat for Humanity, Inc. s major federal programs for the year ended June 30, Willamette West Habitat for Humanity, Inc. s major federal programs are identified in the summary of audit results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Willamette West Habitat for Humanity, Inc. s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Willamette West Habitat for Humanity, Inc. s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Willamette West Habitat for Humanity, Inc. s compliance. Opinion on Each Major Federal Program In our opinion, Willamette West Habitat for Humanity, Inc. complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2013.

28 Report on Internal Control Over Compliance Management of Willamette West Habitat for Humanity, Inc. is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Willamette West Habitat for Humanity, Inc. s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Willamette West Habitat for Humanity, Inc. s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Jones & Roth, P.C. Hillsboro, Oregon January 8,