HABITAT FOR HUMANITY IN THE ROANOKE VALLEY, INC.
FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2006 AND 2005

CONTENTS
INDEPENDENT AUDITORS’ REPORT
STATEMENTS OF FINANCIAL POSITION
STATEMENTS OF ACTIVITIES
STATEMENTS OF CASH FLOWS
STATEMENTS OF FUNCTIONAL EXPENSES 6
NOTES TO FINANCIAL STATEMENTS 7-10

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INDEPENDENT AUDITORS’ REPORT

To the Board of Trustees of
Habitat for Humanity in the Roanoke Valley, Inc.

We have audited the accompanying statements of financial position of Habitat for Humanity in the Roanoke Valley, Inc. as of June 30, 2006 and 2005 and the related statements of activities, functional expenses and cash flows for the years then ended. These financial statements are the responsibility of the Organization’s management. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates  made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Habitat for Humanity in the Roanoke Valley as of June 30, 2006 and 2005, and the related statements of activities, functional expenses and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

NOTES TO FINANCIAL STATEMENTS

1. CREATION AND PURPOSE OF ORGANIZATION:

Habitat for Humanity in the Roanoke Valley, Inc. (the Organization) was formed as a non­profit Christian housing ministry for the specific purpose of enabling low income families to obtain modest and decent housing in the Roanoke Valley.  To that end, houses are built keeping costs as low as possible by using volunteer labor and donated land and materials whenever possible.  Completed homes are then generally sold at cost plus a value for donated professional services, skilled labor and materials to selected families. A small down payment is required, and the organization finances the remainder of the sale price with non-interest bearing loans to be repaid over a 15-25 year period.  Loan repayments are reinvested in other home building projects.  The Organization retains a first lien on the properties sold.

Habitat also operates a store where donated new construction and home renovation products are sold to the public at deeply discounted prices.  All proceeds from the store are directed towards Habitat’s affordable housing program. 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation - The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles.  Net assets and revenues, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions.  Accordingly, net assets of the Organization and changes therein are classified and reported as follows:

Unrestricted - All resources over which the governing board has discretionary control. The governing board of the Organization may elect to designate such resources for specific purposes.  This designation may be removed at the board’s discretion. 

Temporarily Restricted - Resources accumulated through donations or grants for specific operating or capital purposes. Such resources will become unrestricted when the requirements of the donor or grantee have been satisfied through expenditure for the specified purpose or program or through the passage of time.

Permanently Restricted - Endowment resources accumulated through donations or grants that are subject to the restriction in perpetuity that the principal be invested.  Investment income may be either an unrestricted or temporarily restricted resource when earned, determined according to the gift instruments. 

The Organization has no temporarily restricted or permanently restricted net assets at June 30, 2006 and 2005. 

Use of Estimates -The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.

Provision for Income Taxes - The Organization is exempt from federal income tax under the provisions of Section 501(c)(3) of the Internal Revenue Code.  Accordingly, no income tax provision has been recorded.

Mortgage Receivables - Because the mortgages provide for no interest, the balance sheet amounts for mortgage receivables have been discounted using an imputed rate of interest determined as of the origination date.  Such discounts are amortized over the term of the related mortgage.  

The Organization uses the direct writeoff method in providing for bad debts.  Receivables are stated at the amount management expects to collect from balances at year end. Management estimates that no material losses will be sustained relating to the collectibility of mortgages.  As such, no allowance for loan losses or adjustment to the balance of mortgages receivable has been recorded, based on current facts and circumstances.

Construction in Progress - Construction in progress is valued at cost using the specific identification method.

Property and Equipment -Property and equipment is recorded at cost or, if donated, at estimated fair value at date of donation.  Purchased assets, with a cost exceeding $1,500 are generally capitalized.  Depreciation is recorded using the straight-line method over the estimated useful lives of the assets.

Donated Materials and Land - If significant in amount, donated materials are recorded at fair market value where objectively measurable.  Donated land is recorded at locality assessed value for property tax purposes which approximates fair market value.

Donated Services -The Organization receives significant amounts of volunteer labor in building its houses.  However, the Organization does not record the value of these services since it is not objectively measurable. 

As of June 30, 2006, Habitat for Humanity has two revolving line of credit agreements totaling $175,000 with two area banks.  The notes are due in accordance with the terms of the line of credit agreements and interest is charged at LIBOR plus 1.0%.  There were outstanding borrowings on the lines of credit at June 30, 2006 and 2005 of $-0- and $-0-, respectively.

                        5. TITHE CONTRIBUTIONS:

                        Habitat for Humanity is a global partnership.  In recognition of this partnership, the Organization is expected to contribute 10% of actual contributions not designated for local work to Habitat for Humanity International, Inc., the central organization with which they are affiliated.  These funds are to be used to further housing in undeveloped countries.  Total tithe contributions paid were $24,579 and $6,000 for the year ended June 30, 2006 and 2005.

                 6.  GRANT REVENUES:

For the years ended June 30, the Organization received grant monies as follows: