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HUMAN SOLUTIONS, INC. AND OTHER ENTITIES

CONSOLIDATED AND COMBINED

FINANCIAL STATEMENTS

Year Ended June 30, 2015

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CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS


TABLE OF CONTENTS

Page

INDEPENDENT AUDITORS’ REPORT 1-2 FINANCIAL STATEMENTS Consolidated and Combined Statement of Financial Position 3 Consolidated and Combined Statement of Activities 4 Consolidated and Combined Statement of Functional Expenses 5 Consolidated and Combined Statement of Cash Flows 6 Notes to Consolidated and Combined Financial Statements 7-24 Independent Auditors’ 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 25-26 Independent Auditors’ Report on Compliance for Each Major Program and on Internal Control over Compliance Required by OMB Circular A-133 27-28 Schedule of Expenditures of Federal Awards 29 Notes to Schedule of Expenditures of Federal Awards 30 Schedule of Findings and Questioned Costs 31-33 OTHER INFORMATION Properties and Affiliated Entities 34 Properties and Affiliated Entities Schedule of Assets, Liabilities, and Net Assets (Unaudited) 35 Properties and Affiliated Entities Schedule of Revenues, Expenses, and Changes in Net Assets (Unaudited) 36 Governing Board and Management 37 Inquiries and Other Information 38

INDEPENDENT AUDITORS’ REPORT Board of Directors Human Solutions, Inc. and Other Entities Portland, Oregon Report on the Financial Statements We have audited the accompanying consolidated and combined financial statements of Human Solutions, Inc. and Other Entities (nonprofit organizations), which comprise the consolidated and combined statement of financial position as of June 30, 2015, and the related consolidated and combined statements of activities, functional expenses and cash flows for the year then ended, and the related consolidated and combined 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. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of The Pines Housing, Inc., a combined entity, which statements reflect total assets of $4,566,060 as of June 30, 2015, and the total support and revenues of $600,663 for the year then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it related to the amounts included for The Pines Housing, Inc., is based solely on the report of the other auditors. We conducted our audit 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 audit 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 auditors’ 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. Opinion In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Human Solutions, Inc. and Other Entities as of June 30, 2015, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

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KERN & THOMPSON, LLC l

Certified Public Accountants

1800 S.W. First Avenue, Suite 410 • Portland, Oregon 97201-5333 • Phone : (503) 222-3338 •Fax : (503) 222-7819 • www.kern-thompson.com

To the Board of Directors of Human Solutions, Inc. and Other Entities

Also, in our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the individual financial positions of Human Solutions, Inc. and each Other Entity other than The Pines Housing, Inc. (as to which we express no opinion because those statements were audited by other auditors as indicated in the first paragraph of the Auditor's Responsibility section), as of June 30, 2015, and individual changes in net assets and their individual cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Other Information

Our audit was 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 audit 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 Requirement by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated March 30, 2016, on our consideration of Human Solutions, Inc. and Other Entities' 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 Human Solutions, Inc. and Other Entities' internal control over financial reporting and compliance.

Report on Summarized Comparative Information

We have previously audited the Human Solutions, Inc. and Other Entities' 2014 financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated December 29, 2014. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2014, is consistent, in all material respects, with the audited financial statements from which it has been derived.

The other information listed as pages 34-38 in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it.

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~ ~ n#W-r'"', LLC Portland, Oregon March 30, 2016

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KERN & THOMPSON, LLC

2015 2014

Cash and cash equivalents $ 1,549,712 $ 935,604 Investments 12,057 11,568 Accounts receivable 1,294,268 1,525,434 Contributions receivable 517,690 46,140 Prepaid expenses and other assets 251,310 109,136 Restricted deposits and funded reserves 2,433,048 1,680,824 Interest receivable from affiliated organizations 171,913 157,569 Receivables from affiliated organizations 2,816,223 2,111,077 Investments in affiliated organizations 317,839 317,839 Deferred financing costs, net 423,281 453,353 Land, buildings and equipment, net 16,206,265 18,395,054

Total assets $ 25,993,606 $ 25,743,598

Accounts payable and accrued expenses $ 712,685 $ 673,417 Accrued payroll and related expenses 408,883 351,032 Deferred revenue 373,004 52,562 Tenant security deposits 125,351 141,573 Line-of-credit - - Long-term debt 9,316,140 11,041,251 Total liabilities 10,936,063 12,259,835

Net assets Unrestricted Available for general operations and programs 4,053,678 3,612,684 Designated by Board for housing predevelopment 78,920 21,982 Restricted deposits and funded reserves 2,433,048 1,680,824 Net investment in capital assets and affiliated organizations 7,207,964 7,671,642

13,773,610 12,987,132 Temporarily restricted 1,283,933 496,631 Total net assets 15,057,543 13,483,763

Total liabilities and net assets $ 25,993,606 $ 25,743,598


See notes to consolidated and combined financial statements.

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June 30, 2015

CONSOLIDATED AND COMBINED STATEMENT OF FINANCIAL POSITION

ASSETS

LIABILITIES AND NET ASSETS

(With Comparative Totals as of June 30, 2014)

Temporarily Unrestricted Restricted 2015 2014

Operating revenues, gains and other support: Government grants and contracts $ 8,116,870 $ - $ 8,116,870 $ 7,951,790 Private grants and contributions 988,693 321,862 1,310,555 847,529 Rental income 2,743,394 - 2,743,394 2,486,097 Development fees 1,074,318 - 1,074,318 200,000 Management fees 5,577 - 5,577 12,999 Program income 150,348 - 150,348 116,438 Investment income 20,693 - 20,693 58,796 Other income 287,486 - 287,486 227,809

13,387,379 321,862 13,709,241 11,901,458 Less pass-through revenue (358,672) - (358,672) (269,156) Net operating revenues, gains and other support 13,028,707 321,862 13,350,569 11,632,302 Net assets released from restrictions to underwrite program and operating activities 93,043 (93,043) - - Total operating revenues, gains, and other support 13,121,750 228,819 13,350,569 11,632,302

Expenses Program services Property management 3,737,922 - 3,737,922 3,599,161 Social services 6,060,714 - 6,060,714 6,230,450 Housing development 466,409 - 466,409 141,505 Employment 808,322 - 808,322 765,007 Total program services 11,073,367 - 11,073,367 10,736,123

Supporting services Management and general 1,578,540 - 1,578,540 1,096,643 Fundraising 329,291 - 329,291 242,835 Total expenses 12,981,198 - 12,981,198 12,075,601

Increase (decrease) in net assets before non-operating activities 140,552 228,819 369,371 (443,299)

Non-operating activities: Grants for long-term investment in capital assets 273,696 827,617 1,101,313 341,386 Conversion of loans to equity gap agreement - - - 343,469 Unrestricted grants 5,802 - 5,802 110,426 Transfer of assets to/from partnership 97,294 - 97,294 510,310 Non-operating income - - - 2,311 Net assets released from restrictions for capital purposes 269,134 (269,134) - - Total non-operating activities 645,926 558,483 1,204,409 1,307,902

Increase in net assets 786,478 787,302 1,573,780 864,603

Net assets at beginning of year, as restated 12,987,132 496,631 13,483,763 12,619,160

Net assets at end of year $ 13,773,610 $ 1,283,933 $ 15,057,543 $ 13,483,763

(With Comparative Totals for the Year Ended June 30, 2014)


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Total


CONSOLIDATED AND COMBINED STATEMENT OF ACTIVITIES


Property Social Housing Employ- Management Fund-Management Services Development ment Total and General Raising 2015 2014

Salaries and benefits $ 885,953 $ 2,045,199 $ 132,958 $ 607,948 $ 3,672,058 $ 1,032,513 $ 183,076 $ 4,887,647 $ 4,399,932 Client assistance (22,519) 459,305 - 72,703 509,489 - 3,007 512,496 498,425 Communications 10,298 45,871 1,950 7,104 65,223 13,976 2,635 81,834 57,441 Equipment lease and maintenance 1,443 23,913 1,294 4,365 31,015 17,680 1,870 50,565 47,633 Fundraising expense - 584 - - 584 3,624 37,633 41,841 - Gas and mileage 6,727 36,293 1,214 9,724 53,958 5,603 1,717 61,278 60,771

Insurance 81,867 11,591 500 1,730 95,688 8,962 473 105,123 72,299 Interest expense 427,906 - 12,581 - 440,487 28,812 - 469,299 451,678 Management fees 200,573 - - - 200,573 - - 200,573 146,504 Miscellaneous 74,645 26,184 5,798 2,395 109,022 45,334 23,939 178,295 131,597 Occupancy 9,913 90,369 11,107 24,622 136,011 70,708 12,887 219,606 179,003

Office supplies 52,067 60,056 1,347 8,768 122,238 18,950 4,267 145,455 104,427 Permits, licenses and fees 51,018 2,741 1,001 6,771 61,531 25,612 6,896 94,039 94,189 Professional assistance 110,931 12,300 292,228 3,834 419,293 267,137 36,363 722,793 320,950 Program expense 24,412 19,417 - 65 43,894 2,454 139 46,487 69,474 Property maintenance 446,170 - - - 446,170 659 - 446,829 519,992

Rent assistance 24 2,736,462 - - 2,736,486 - - 2,736,486 2,734,324 Staff training 8,148 16,460 1,451 1,511 27,570 9,454 1,563 38,587 26,712 Subcontractors - 459,638 - 52,864 512,502 - - 512,502 769,945 Software support 3,320 4,256 28 478 8,082 9,863 9,470 27,415 39,674 Utilities 403,623 - - - 403,623 - - 403,623 372,240

Total operating expenses 2,776,519 6,050,639 463,457 804,882 10,095,497 1,561,341 325,935 11,982,773 11,097,210

Depreciation and amortization 961,403 10,075 2,952 3,440 977,870 17,199 3,356 998,425 978,391

Total expenses $ 3,737,922 $ 6,060,714 $ 466,409 $ 808,322 $ 11,073,367 $ 1,578,540 $ 329,291 $ 12,981,198 $ 12,075,601


CONSOLIDATED AND COMBINED STATEMENT OF FUNCTIONAL EXPENSES

Year Ended June 30, 2015(With Comparative Totals for the Year Ended June 30, 2014)


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PROGRAM SERVICES SUPPORTING SERVICESTotal

2015 2014Cash flows from operating activities: Cash received from tenants, contractors, grantors and donors $ 13,540,471 $ 13,252,067 Cash paid to employees and suppliers (11,423,912) (11,442,144) Interest income received 20,693 58,796 Interest paid (469,299) (451,678) Net cash provided by operating activities 1,667,953 1,417,041

Cash flows from investing activities: Capital expenditures (857,713) (1,803,486) Loans made to affiliated organizations - (110,426) Net (increase) decrease in restricted deposits and funded reserves (768,444) (272,670) Purchase of investments (489) (1,483) Net cash used in investing activities (1,626,646) (2,188,065)

Cash flows from financing activities: Grants restricted to long-term investment in capital assets 827,617 - Proceeds on the issuance of long-term debt - 1,437,500

Repayment of short-term borrowing - (60,000) Repayment of long-term debt principal (254,816) (433,400) Net cash provided by (used in) financing activities 572,801 944,100

Net decrease in cash and cash equivalents 614,108 173,076

Cash and cash equivalents at beginning of year 935,604 762,528

Cash and cash equivalents at end of year $ 1,549,712 $ 935,604

Supplemental Disclosure of Non-Cash Transactions: Capital assets acquired in exchange for long-term debt $ - $ 1,603,338

Capital assets disposed in exchange for long-term debt $ 2,078,149 settlement and note receivable

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CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS

Year Ended June 30, 2015(With Comparative Totals for the Year Ended June 30, 2014)


NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

June 30, 2015

NOTE A – DESCRIPTION OF ORGANIZATION

Human Solutions, Inc. (the Organization) is a private, nonprofit organization founded in 1988 to assist homeless and low-income citizens of East Portland and East Multnomah County, Oregon to meet their basic housing needs, achieve self-sufficiency, and improve their overall quality of life. During the year ended June 30, 2015, the Organization provided services in the following three program areas: Housing – Since 1988, Human Solutions has provided affordable housing to low-income and homeless families throughout outer East Portland and East Multnomah County. As an organization, Human Solutions owns and operates 701 units of high quality housing. These units, in 18 projects, are located in East Portland, Gresham and Fairview. The three components of the Housing Department are: 1. Asset Management – Asset management is provided for all of the 701 permanent,

affordable housing units and one commercial unit. Asset Management oversees the two property management companies charged with day to day oversight of the properties.

2. Resident Services – On-site resident services are provided to the tenants in the 701

apartment units. Residents Services Coordinators provide information and referral, eviction prevention services and, in some cases, client assistance funds.

3. Real Estate Development – Development staff are charged with assessing and building

a pipeline of new real estate investments, including housing development projects and in the rehabilitation of existing housing complexes..

Social Services – The Organization’s intake workers and family advocates provided anti-poverty services to households experiencing homelessness and low-income families who entered a wide variety of shelter, housing, and skill building programs. Each night an average of 1,240 homeless people in 400 families received shelter and/or housing through the Organization. The shelter and housing programs received donated clothing, blankets, household goods, and food which were distributed to clients at no charge. The Organization also prevents homelessness with eviction prevention programs. It is the Organization’s goal to move households experiencing homelessness and very low-income families to self-sufficiency. Families and individuals are provided free life-skill classes, including work readiness, computer familiarization, trauma recovery empowerment groups and similar topics. During the year ended June 30, 2015, 38,327 calls were answered by social service staff who gave information or referrals. The Organization also provided energy assistance to 7,822 households. More than 10,000 volunteer hours were invested in the Daybreak Shelter, Winter Shelter, Holiday Store and other programs of the Organization.

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NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)

June 30, 2015 NOTE A – DESCRIPTION OF ORGANIZATION (CONTINUED)

Employment Services – The Organization provided employment, job search, and training services to 890 people. Partnerships with the City of Gresham, the City of Portland/Portland Development Commission, WorkSystems, Inc., and Oregon Department of Human Services/Immigrant and Refugee Community Organization (“IRCO”) made these services possible. One of Human Solutions’ employment programs, Living Solutions, focused on participants who have very limited employment skills and lack the training and skills needed to find living wage jobs. One of the other employment programs was designed to assist people to leave Temporary Assistance to Needy Families (“TANF”) by obtaining jobs with wages sufficient to support their families.

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles and the principles of fund accounting. Fund accounting is the procedure by which resources for various purposes are classified for accounting purposes in accordance with activities or objectives specified by grantors. Basis of Consolidation The consolidated and combined financial statements include all accounts and activities of the Organization, including all joint ventures and partnerships, and all nonprofit organizations in which the Organization has a controlling financial and economic interest. The other entities are comprised of the consolidated and combined entities listed below. Accounting Standards Codification (ASC) 810 (formally EITF Issue 04-5) is based on the fundamental principle that a general partner in a limited partnership is presumed to control the limited partnership, regardless of the extent of its ownership interest. Consequently, unless this presumption is overcome, a sole general partner is required to consolidate its limited partnership interests. Management has concluded that consolidation of these limited partnership entities is not required at this time as the presumption of control had been overcome in all cases. Investments in affiliate organizations in which the Organization has significant ownership interests (generally ranging from 20% to 50%), and where the Organization exercises significant influence over the operating and financial policies of the affiliate, are accounted for using the equity method of accounting. The equity method of accounting is also followed for other investments in limited partnerships for which the Organization serves as sponsor and general partner, and in which it generally holds a 1.0% or .01% equity interest (Glisan Commons Phase I LP [through HSI-Glisan Commons LLC], Park Vista Stark, LP; Rockwood Housing, LP [through Rockwood Building, LLC]; Rosewood Plaza LP [through 18155 NE Couch Street Associates, LLC]; Whispering Winds Housing, LP [through Arbor Glen GP, LLC]; Lincoln Woods Housing, LP; and Cascade Crossing, LLC). The Organization’s share of affiliate earnings is included in the statement of activities. All significant interorganizational investments, accounts and transactions have been eliminated.

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June 30, 2015 NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basis of Consolidation (Continued) Consolidated Entities:

Arbor Glen GP, LLC – Arbor Glen GP, LLC, established in 2008, is a wholly-owned and controlled subsidiary of Human Solutions, Inc. On February 1, 2009, Human Solutions, Inc. assigned and transferred its 0.01% general partner interest and rights in Whispering Winds Housing, LP to Arbor Glen GP, LLC. HS Ankeny Woods, LLC – HS Ankeny Woods, LLC, established in December of 2013, is a wholly-owned and controlled subsidiary of Human Solutions, Inc. HS Ankeny Woods, LLC has a limited partnership interest in The Ankeny Arms LP, an Oregon limited partnership formed in November 1995 to acquire, own, develop, construct, lease, manage and operate Ankeny Arms, LP, a low-income housing project. Human Solutions, Inc. serves as the general partner.

Ankeny Arms, LP – Human Solutions, Inc. is a general partner in Ankeny Arms, LP, a limited partnership and a Low-Income Housing Tax Credit (LIHTC) project. In January of 2014, the limited partners of Ankeny Arms Limited Partnership assigned and transferred their 99% limited partnership interest to Human Solutions, Inc. (through HS Ankeny Woods, LLC). Upon transfer, Human Solutions, Inc. (through HS Ankeny Woods, LLC) obtained a controlling interest in Ankeny Woods, LP; therefore, the accompanying financial statements include all accounts and activities of Ankeny Woods, LP from the date of transfer. All related party transactions have been eliminated. HS Cedars, LLC – HS Cedars, LLC, established in July of 2007, is a wholly-owned and controlled subsidiary of Human Solutions, Inc. HS Cedars, LLC has a limited partnership interest in The Cedars Housing LP, an Oregon limited partnership formed in December 1992 to acquire, own, develop, construct, lease, manage and operate The Cedars, a low-income housing project. Human Solutions, Inc. serves as the general partner.

The Cedars Housing, LP – Human Solutions, Inc. is a general partner in The Cedars Housing LP, a limited partnership and a Low-Income Housing Tax Credit (LIHTC) project. In August of 2007, the limited partner of The Cedars Housing Limited Partnership assigned and transferred its 99% limited partnership interest to Human Solutions, Inc. (through HS Cedars, LLC). Upon transfer, Human Solutions, Inc. (through HS Cedars, LLC) obtained a controlling interest in The Cedars Housing, LP; therefore, the accompanying financial statements include all accounts and activities of The Cedars Housing, LP from the date of transfer. All related party transactions have been eliminated. HS Cedar Meadows, LLC – HS Cedar Meadows, LLC, established in August of 2011, is a wholly-owned and controlled subsidiary of Human Solutions, Inc. HS Cedar Meadows, LLC has a limited partnership interest in The Cedars Housing LP, an Oregon limited partnership formed in December 1992 to acquire, own, develop, construct, lease, manage and operate Cedar Meadows, LP, a low-income housing project. Human Solutions, Inc. serves as the general partner.

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Basis of Consolidation (Continued) Consolidated Entities (Continued)

Cedar Meadows, LP – Human Solutions, Inc. is a general partner in Cedar Meadows, LP, a limited partnership and a Low-Income Housing Tax Credit (LIHTC) project. In August of 2011, the limited partner of Cedar Meadows Limited Partnership assigned and transferred its 99% limited partnership interest to Human Solutions, Inc. (through HS Cedar Meadows, LLC). Upon transfer, Human Solutions, Inc. (through HS Cedar Meadows, LLC) obtained a controlling interest in Cedar Meadows, LP; therefore, the accompanying financial statements include all accounts and activities of Cedar Meadows, LP from the date of transfer. All related party transactions have been eliminated.

HSI Glisan Commons, LLC – HSI Glisan Commons, LLC, established in 2012, is a wholly-owned and controlled subsidiary of Human Solutions, Inc. The LLC serves as the general partner of the Glisan Commons Phase I, LP.

Rockwood Building, LLC – Rockwood Building, LLC, established in 2008, is a wholly-owned and controlled subsidiary of Human Solutions, Inc. The LLC serves as the general partner of the Rockwood Housing LP.

Rockwood MSC QALICB, Inc. – Rockwood MSC QALICB, Inc. was formed in July 2011 and is a non-profit corporation over which Human Solutions, Inc. has a controlling financial and economic interest. Rosewood Commercial Condo, LLC – Rosewood Commercial Condo, LLC was established in 2015, as a wholly-owned and controlled subsidiary of Human Solutions, Inc. 18155 NE Couch Street Associates, LLC – 18155 NE Couch Street Associates, LLC, established in 2012, is a wholly-owned and controlled subsidiary of Human Solutions, Inc.

Combined Entities

Fairview Arms Housing, Inc. and The Pines Housing, Inc. are single purpose nonprofit organizations formed to own and operate two Department of Housing and Urban Development funded projects. These entities are under common management with Human Solutions, Inc. however, Human Solutions, Inc. does not have a controlling financial and economic interest.

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Basis of Presentation Financial statement presentation follows the requirements of accounting principles generally accepted in the United States of America (GAAP). Under these provisions, all balances and transactions are presented based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the Organization and changes therein are classified and reported as follows:

Unrestricted Net Assets – Net assets not subject to donor-imposed stipulations.

Temporarily Restricted Net Assets – Net assets subject to donor-imposed stipulations that will be met either by actions of the Organization and/or the passage of time.

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 stipulations or by law. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated time period has elapsed) are reported as net assets released from restrictions. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Contributions Contributions, which include unconditional promises to give (pledges), are recognized as revenues in the period received. Conditional promises to give are not recognized until they become unconditional, that is when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value.

Contributions of Long-Lived Assets Contributions of land, buildings, and equipment without donor stipulations concerning the use of such long-lived assets are reported as revenues of the unrestricted asset class. Contributions of cash or other assets to be used to acquire property and equipment with donor stipulations are reported as revenues of the temporarily restricted net asset class; the restrictions are considered to be released at the time of acquisition of such long-lived assets.

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In-Kind Contributions A number of unpaid volunteers have made significant contributions of their time to develop and implement the Organization’s programs. In accordance with GAAP, significant services received which create or enhance a nonfinancial asset or require specialized skills that the Organization would have purchased if not donated are recognized in the statement of activities.

In-kind contributions of equipment and other materials are also recorded where there is an objective basis upon which to value these contributions and where the contributions are an essential part of the Organization’s activities. Cash and Cash Equivalents The Organization considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Capital Assets and Depreciation Land, buildings, and equipment are carried at cost, and at market value when acquired by gift. The Organization capitalizes assets individually greater than $5,000. Depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets as follows

Buildings 30 years Improvements 10 years

Furniture and equipment 3-5 years Development Properties Properties acquired and held for development are recorded at acquisition cost, plus all costs associated with repair and rehabilitation of the property and other amounts incurred to make the properties ready for their intended use. In addition, certain indirect costs associated with the acquisition of properties are capitalized and allocated to the properties to which the costs relate, including interest expense which is capitalized in accordance with GAAP. (As of June 30, 2015, capitalized interest costs were immaterial.) Costs incurred for such items after the property has been substantially completed and made ready for its intended use, and indirect costs that do not relate to the property acquired, including general and administrative expenses, are charged to expense as incurred. Depreciation is recorded on all completed and occupied properties. Revenue Recognition All contributions and grants are considered available for the unrestricted general operations of the Organization unless specifically restricted by a donor. Revenues for services are recognized at the time the services are provided and the revenues are earned.

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Limitation on Certain Unrestricted Net Assets A certain portion of the Organization’s unrestricted net assets is limited by contract to use within the program from which it was generated. In these cases, surplus funds are not refundable or payable to the contractor, but are generally limited to providing an extension or continuation of specific program services. The net assets of consolidated and combined entities totaling $3,460,728 as of June 30, 2015 are generally not available to the parent organization due to restrictions that have been imposed by external grantors and contractors. Advertising Expense Advertising costs are charged to expense as they are incurred. Concentration of Credit Risk

Cash and Cash Equivalents

Cash and cash equivalents include bank deposits in excess of Federal Deposit Insurance Corporation (FDIC) insurable limits. The Organization makes such deposits with high credit quality entities and has not incurred any credit related losses.

Receivables

Accounts and contributions receivable are uncollateralized and stated at the amount management expects to collect from outstanding balances. Receivables from affiliated organizations are substantially secured by real estate. When necessary, receivables are reported net of an allowance for uncollectible accounts.

Income Taxes The Organization has been approved as a tax exempt organization under the Internal Revenue Code Section 501(c)(3) and applicable state laws. Accordingly, no provision for income taxes is included in the accompanying financial statements. The Organization does not believe it has unrelated trade or business income in excess of $1,000. HS Ankeny Woods, LLC, Arbor Glen GP, LLC, HSI Glisan Commons, LLC, HS Cedars, LLC, HS Cedar Meadows, LLC, Rockwood Building, LLC, Rosewood Commercial Condo, LLC, and 18155 NE Couch Street Associates, LLC are single member limited liability corporations controlled by Human Solutions, Inc., and considered disregarded entities for tax purposes. Functional Allocation of Expenses The costs of providing the various programs and activities of the Organization have been summarized on a functional basis in the consolidated statement of activities. Accordingly, certain costs have been allocated among programs and supporting services benefited. Expenses by natural classification are presented in the consolidated statement of functional expenses.

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June 30, 2015 NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Prior Year Summarized Financial Information

The financial statements include certain prior-year summarized comparative information in total but not by natural expense classification by function. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Organization’s financial statements for the year ended June 30, 2014, from which the summarized information was derived.

NOTE C – RELATED PARTIES

Cascade Crossing, LLC Human Solutions, Inc. is the member manager and owner of record of Cascade Crossing, LLC, a 74-unit LIHTC apartment complex. The Organization’s interest is 1.0%, and it will share in residual profits and losses to that extent. Glisan Commons Phase I, LP Human Solutions, Inc. is a general partner in Glisan Commons Phase I, LP (through HSI Glisan Commons, LLC), a limited partnership that will operate the Glisan Commons workforce units apartment project. The Organization’s ownership interest is .01% and it will share in residual profits and losses to that extent. The Organization has guaranteed funding of any operating deficits and is a guarantor on loans to Glisan Commons Phase I, LP, in addition to guaranteeing all other obligations on the HSI Glisan Commons, LLC in its capacity as General Partner of the Glisan Commons Phase I, LP. Lincoln Woods Developer, LLC Human Solutions, Inc. is a member of Lincoln Woods Developer, LLC which was established to develop and construct a multi-family LIHTC affordable housing project. The Organization’s interest is 25%, and it will share in residual profits and losses to that extent.

Lincoln Woods Housing, LP Human Solutions, Inc. is the general partner in Lincoln Woods Housing, LP, a limited partnership and a LIHTC project. The Organization’s ownership interest is .01%, and it will share in residual profits and losses to that extent. The Organization has guaranteed funding of any operating deficits. No amounts were payable under this guarantee during the year ended June 30, 2015. Park Vista Stark, LP Human Solutions, Inc. is a general partner in Park Vista Stark, LP, a limited partnership and a LIHTC project. The Organization’s ownership interest is .01%, and it will share in residual profits and losses to that extent. The Organization has guaranteed funding of any operating deficits up to $150,000. No amounts were payable under this guarantee during the year ended June 30, 2015.

14



June 30, 2015 NOTE C – RELATED PARTIES (CONTINUED)

Rockwood Housing, LP

Human Solutions, Inc. is a general partner in Rockwood Housing, LP (through Rockwood Building LLC), a limited partnership that will operate the Rockwood Building Apartments LIHTC project. The Organization’s ownership interest is .01% and it will share in residual profits and losses to that extent. The Organization has guaranteed funding of any operating deficits and is a guarantor on the loan to Rockwood Housing, LP, in addition to guaranteeing all other obligations on the Rockwood Building, LLC in its capacity as General Partner of the Rockwood Housing LP. Rosewood Plaza, LP

Human Solutions, Inc. is a general partner in Rosewood Plaza Limited Partnership formed in 2015 (through 18155 NE Couch Street Associates, LLC) that will operate the Rosewood Plaza multifamily residential project. During the year ended June 30, 2015, construction in progress of approximately $2,078,000 was transferred to the Partnership in exchange for a note receivable and other assets of $719,000 and the payoff of related debt of $1,437,000. The Organization’s ownership interest is .01% and it will share in residential profits and losses to that extent. The Organization has guaranteed funding of any operating deficits and is a guarantor on loans to the Rosewood Plaza Limited Partnership, in addition to guaranteeing all other obligations on the 18155 NE Couch Street Associates, LLC in its capacity as General Partner of the Rosewood Plaza Limited Partnership. Whispering Winds Housing, LP

Human Solutions, Inc. is a general partner in Whispering Winds Housing, LP (through Arbor Glen GP, LLC), a limited partnership that operates the Arbor Glen Apartments LIHTC project. The Organization’s ownership interest is .01%, and it will share in residual profits and losses to that extent. Summarized Information

Summarized financial information of substantially all the limited liability companies and limited partnerships at December 31, 2014, the date of the most recent financial statements, consists of the following:

Cascade Glisan LincolnCrossing, Commons Woods

LLC Phase I, LP Housing, LP

Property, net $ 4,517,837 $ 11,880,110 $ 7,355,712 Required reserves 35,427 302,725 219,281 Other assets 37,812 374,890 61,689 Total assets $ 4,591,076 $ 12,557,725 $ 7,636,682

Long-term debt $ 3,228,433 $ 5,004,020 $ 3,431,249 Other liabilities 320,681 66,373 44,876 Partners' equity (deficit) 1,041,962 7,487,332 4,160,557 Total liabilities and partners' equity $ 4,591,076 $ 12,557,725 $ 7,636,682

Revenues $ 663,550 $ 408,835 $ 640,491 Expenses 750,852 783,617 901,034 Net income (loss) $ (87,302) $ (374,782) $ (260,543)

15



June 30, 2015

NOTE C – RELATED PARTIES (CONTINUED)

Summarized Information (Continued)

Park WhisperingVista Rockwood Winds

Stark, LP Housing, LP Housing, LP

Property, net $ 4,169,995 $ 10,048,366 $ 8,851,303 Required reserves 292,332 240,100 351,301 Other assets 110,205 385,302 193,923 Total assets $ 4,572,532 $ 10,673,768 $ 9,396,527

Long-term debt $ 2,704,382 $ 6,611,850 $ 8,727,994 Other liabilities 65,011 36,675 130,834 Partners' equity (deficit) 1,803,129 4,025,243 537,699 Total liabilities and partners' equity $ 4,572,522 $ 10,673,768 $ 9,396,527

Revenues $ 477,099 $ 393,629 $ 902,429 Expenses 560,144 704,050 1,277,477 Net income (loss) $ (83,045) $ (310,421) $ (375,048)

NOTE D – INVESTMENTS

At June 30, 2015, investments stated at market value consisted of equity securities in the amount of $12,057.

NOTE E – ACCOUNTS RECEIVABLE At June 30, 2015, the following accounts receivable were outstanding:

Government grants and contract payments receivable $ 543,517 Other receivables 750,751

$ 1,294,268

NOTE F – CONTRIBUTIONS RECEIVABLE

Contributions receivable, net, expected to be collected in less than one year are summarized as follows at June 30, 2015:

Contributions receivable $ 518,040 Less allowance for doubtful collection (350)

$ 517,690

16



June 30, 2015

NOTE G – RESTRICTED DEPOSITS AND FUNDED RESERVES

In accordance with the requirements of various agreements with funders, at June 30, 2015, the Organization maintains $2,433,048 in total restricted deposits, including security deposits of $128,224 and mortgage escrows of $58,509, and funded reserves for the renewal and replacement of specific property and related capital improvements.

NOTE H – RECEIVABLES FROM AFFILIATED ORGANIZATIONS Receivables from affiliates at June 30, 2015 consist of the following:

Glisan Commons Phase I LP - Long-term note receivable, non-interest bearing, principal payable from gross cash receipts, due December, 2067. $ 194,226

Lincoln Woods Housing, LP - Long-term note receivable; interest at 1.5%; developer fee; due December 2048. 271,862

Park Vista Stark - Long-term note receivable; interest at 5.25%; due December 2030. 179,972

Whispering Winds Housing, LP - Guarantee fees totaling $206,546; assets assigned to the Organization totaling $817,465, less an allowance for uncollectible amounts of $983,138. 40,873

Rockwood Housing, LP - Long-term note receivable; interest at 0%; principal payable from gross cash receipts; balance due October 2065. 1,410,126

Rosewood Plaza, LP - Long-term note receivable; interest at 0%; principal payable from gross cash receipts; balance due January 2076. 719,164

$ 2,816,223

Interest receivable from the affiliates at June 30, 2015 consists of the following:

Lincoln Woods Housing, LP $ 25,952 Park Vista Stark, LP 123,389 Whispering Winds Housing, LP 22,572

$ 171,913

17



June 30, 2015 NOTE I – INVESTMENTS IN AFFILIATED ORGANIZATIONS

The Organization is the sponsor and general partner of the following limited partnerships and limited liability corporations:

Equity in Earnings

Ownership (Losses) ofInterest Investment Affiliates

Cascade Crossing, LLC 1% $ 6,196 $ 1,006 Glisan Commons Phase I, LP 0.01% - - Lincoln Woods Developer, LLC 25% 49,799 (30) Lincoln Woods Housing, LP 0.01% - - Park Vista Stark, LP 0.01% (108) (8) Rockwood Housing, LP 0.01% 2 (30) Rosewood Plaza, LP 0.01% - - Whispering Winds Housing, LP 0.01% 261,950 298

$ 317,839 $ 1,236

Each of the entities listed above was formed under the laws of the State of Oregon for the purpose of rehabilitating, constructing, operating, and/or investing in LIHTC projects.

NOTE J – DEFERRED FINANCING COSTS, NET

Loan costs totaling $525,378 related to permanent financing were capitalized and are being amortized over the term of the related debt using the effective yield method. As of June 30, 2015, accumulated amortization was $102,097. Estimated amortization expenses for each of the ensuing five years through June 30, 2019 is approximately $31,000 per year.

NOTE K – LAND, BUILDING, AND EQUIPMENT

A summary of the land, buildings and equipment at June 30, 2015 is as follows:

Land and improvements $ 2,182,754 Buildings and building improvements 23,689,847 Furnishings and equipment 1,089,020 Construction in progress 582,433

27,544,054 Less accumulated depreciation (11,337,789)

$ 16,206,265

18



June 30, 2015 NOTE K – LAND, BUILDING, AND EQUIPMENT (CONTINUED)

Several housing projects funded by restricted grants and contracts are represented in the above categories of land and buildings. In accordance with contract stipulations, these properties must remain available to eligible low-income households in accordance with the Low Income Housing Preservation and Resident Homeownership Act and other standards. Failure to retain this housing exclusively for eligible low-income families and individuals could result in revocation of the grants and the return of all funds received plus interest since the date of the first advance.

As of June 30, 2015, the Organization has complied with all asset restrictions referred to above, and has the intention and ability to continue to comply with those restrictions. Accordingly, no restricted net assets or liability have been recorded on the accompanying financial statements as the Organization considers it remote the restrictions will not be met.

NOTE L – LINE OF CREDIT

The Organization has a secured revolving line of credit with Pacific Continental Bank for borrowings of up to $500,000 at June 30, 2015. The line provides interest at the greater of the Pacific Continental Bank Index plus 1.5% or a floor rate of 5%. The Index is the Prime Rate set by the Bank. The interest rate at June 30, 2015 was 5%. There was no balance due at June 30, 2015.

NOTE M – LONG-TERM DEBT

The acquisition and rehabilitation of the Organization’s properties include costs financed through loans received from various parties. The following obligations, all secured by property and associated trust deeds unless noted otherwise, were outstanding at June 30, 2015:

Note payable to the City of Portland (through the Portland Development Commission); interest at 3.0%; due in monthly amortizing installments of $1,989 through June of 2027 only if, and to the extent of, 50% of the positive net cash flows generated by Ankeny Woods, LP. Secured by Ankeny Woods, LP. $ 166,822

Note payable to the City of Portland (through the Portland Development Commission); interest free; due in monthly installments only if, and to the extent of, 50% of the positive net cash flows generated by Ankeny Woods, LP. No due date specified. Secured by Ankeny Woods, LP. 353,474

Note payable to the City of Portland (through the Portland Housing Bureau); interest at 4.25%; principal and interest due in monthly installments of $8,911 through October 2031. Secured by Briarwood East. 1,246,670

Note payable to the City of Portland (through the Portland Housing Bureau); interest 0%; payable from excess cash flow; unpaid principal due September 2041. Secured by Briarwood East. 757,215

19



June 30, 2015 NOTE M – LONG-TERM DEBT (CONTINUED)

Note payable to Clackamas County Bank; interest at 7.00%; principal and interest is due on demand, or if no demand is made, in monthly payments of $3,304 through August 2019, with a final balloon payment for the outstanding balance as of August 2019. 267,677 Secured by The Cedars.

Note payable to Clackamas County Bank; interest at 3.95%; due in monthly amortizing installments of $3,189 through 2021. Secured by Carolyn Gardens. 433,153

Note payable to Clackamas County Bank; interest at 7.75%; due in monthly amortizing installments of $345 through 2021. Secured by Carolyn Gardens. 14,863

Note payable to the Bank of America; interest 6.25% during the term of availability of Oregon Lender's Tax Credits (OLTC), or 10.25% subject to loss of OLTC; monthly payments of principal and interest of $3,462; remaining principal of about $256,000 due in balloon payment at January 2016 maturity. Secured by Cedar Meadows. 265,309

Note payable to Clackamas County Bank; interest at 7.75%; due in monthly amortizing installments of $610 through July 2023 with a balloon payment for the outstanding balance as of July 2023. Secured by Douglas Meadows. 70,132

Note payable to Clackamas County Bank; interest at 2.87%; due in amortizing monthly installments of $1,626 through July 2023, with a balloon payment for the outstanding balance as of July 2023. Secured by Douglas Meadows. 275,299

Note payable to Clackamas County Bank; interest at 6.99%; due on demand, or if no demand is made, in monthly amortizing installments of $2,617 through May 2018,with a balloon payment for the outstanding balance as of May 2018. Secured by Greentree Court. 286,569 Note payable to City of Portland; interest at 6.0%; due in semi-annual installments of $662 through July 2018. Secured by Greentree Court. 4,539

20



June 30, 2015 NOTE M – LONG-TERM DEBT (CONTINUED)

Note payable to Huntoon Hastings, Inc.; interest at 6.25%; provides forborrowings up to $1,955,000; interest only payments through April 2013;thereafter monthly principal and interest payments of $11,099; maturityApril 2053. Secured by The Pines Housing, Inc. 1,929,561

August 2018 at various fixed rates from 1.77% to 3.36%, principal and interest due quarterly beginning August 2018; maturity date August 2030. Secured by Rockwood MSC real property. 1,213,184

Note payable to Banc of America CDE III, LLC; interest at 2%; interest due annually beginning September 2012; principal at maturity September 2040. Secured by Rockwood MSC real property. 1,369,918

Note payable to US Bank; interest at 5.5%; due in monthly amortizing installments of $978 through March 2016, secured by equipment 7,851

Note payable to The Community Development Trust, LP; interest at 7.67%; principal and interest due in monthly installments of $6,764 through January 2028. Secured by Ankeny Woods real property. 653,904

$ 9,316,140

Note payable to the City of Gresham; interest due quarterly until

Future maturities of notes payable consist of the following:

Year Ending

June 30,

2016 $ 218,893 2017 222,600 2018 234,862 2019 516,118 2020 303,240

2021 and thereafter 7,820,427

$ 9,316,140

21



June 30, 2015

NOTE N – RESTRICTIONS AND LIMITATIONS ON NET ASSET BALANCES

At June 30, 2015, temporarily restricted net assets are available for the following purposes:

For specific purposes: Capital projects $ 958,483 Other programs 29,950 For future periods 295,500

$ 1,283,933

NOTE O – NET ASSETS RELEASED FROM RESTRICTIONS

During the year ended June 30, 2015, net assets as follows were released from restrictions by incurring expenses in satisfaction of the restricted purposes specified by the Organization’s donors, or by the occurrence of other events specified by donors:

Net assets released from restrictions: For operating purposes $ 93,043

$ 93,043

NOTE P – CONTINGENT LIABILITIES

Human Solutions, Inc. has entered into several “cash flow” financing agreements with the Portland Development Commission (“PDC”) for the financing of certain property, whereby if the properties are sold, transferred, refinanced or changed as to use, the outstanding balance of the financing must be reported immediately to PDC and be subject to potential repayment. In addition, if the operation of any of the properties demonstrates surplus revenue in excess of 1.15 times annual debt service in any single year of its operation, the excess must be shared equally with PDC. No material amounts were received under such “cash flow” financing agreements and were payable to PDC during the year ending June 30, 2015. Human Solutions, Inc. also has entered into a $75,000 forgivable 0% loan with Multnomah County. The agreement has no payment due and will be forgiven in 2027 as long as the terms of the loan are complied with.

NOTE Q – CONTINGENCIES

Human Solutions, Inc. is the general partner in several LIHTC partnerships established for the purpose of developing and managing various LIHTC projects. The partnership agreements provide for various obligations of the general partner including, in certain cases, a requirement to provide funds for any operating deficits. Human Solutions, Inc. also guarantees the payment of outstanding loans incurred for these projects in the event of default by the partnerships. The financial statements do not include any adjustment for potential losses if these partnerships are unable to continue as going concerns or require other infusions of cash.

22



June 30, 2015 NOTE Q – CONTINGENCIES (CONTINUED)

In addition, certain amounts received or receivable under the Organization’s contracts with the City of Portland, the City of Gresham, Multnomah County, the U.S. Department of Housing and Urban Development, the U.S. Department of Health and Human Services, the State of Oregon, and others are subject to audit and adjustment by those contracting agencies and others. Any expenditures or claims disallowed as a result of such audits would become a liability of the Organization’s unrestricted fund. In the opinion of the Organization’s management, any adjustments that might result from such audits would not be material to the Organization’s overall financial statements.

NOTE R – STATEMENT OF CASH FLOW RECONCILIATION

The following presents a reconciliation of the decrease in net assets (as reported on the consolidated statement of activities) to net cash provided by operating activities (as reported on the consolidated statement of cash flows).

Change in net assets $ 1,573,780

Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 968,353 Amortization of financing costs 30,072 Grants restricted to long term investment in capital assets (827,617) Transfer of assets to partnership (97,294) Net changes in: Accounts receivable 231,166 Contributions receivable (471,550) Prepaid expenses and other assets (142,174) Interest receivable from affiliated organizations (14,344) Accounts payable and accrued expenses 39,268 Accrued payroll and related expenses 57,851 Deferred revenue 320,442

Net cash provided by operating activities $ 1,667,953

23



June 30, 2015 NOTE S – PRIOR PERIOD ADJUSTMENT

Management determined that two cost reimbursement capital grants were not recorded as revenue in the year ended June 3, 2014, although the costs had been incurred and the Organization was entitled to reimbursement.

Management made the following adjustments to the financial statements for the year ended June 30, 2014:

As Previously Amount asReported Correction Restated

Cumulative effect, June 30, 2013: Net assets $ 12,619,160 $ - $ 12,619,160

Year ended June 30, 2014: Changes in net assets: increase in grants for long-term investment in capital assets 523,217 341,386 864,603

As of June 30, 2014 Net assets 13,142,377 341,386 13,483,763

Accounts receivable $ 1,184,048 $ 341,386 $ 1,525,434

NOTE T – SUBSEQUENT EVENTS

Subsequent events have been evaluated through March 30, 2016, which is the date the financial statements were available to be issued. In November 2015, the Organization purchased real property by entering into two financing agreements totaling $1,000,000.

24

KERN & THOMPSON, LLC Certi fied Public Accountants

INDEPENDENT AUDITORS' 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 Human Solutions, Inc. Portland, 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 consolidated and combined financial statements of Human Solutions, Inc. and Other Entities (nonprofit organizations), which comprise the consolidated and combined statement of financial position as of June 30, 2015, and the related consolidated and combined statements of activities, 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 March 30, 2016. Our report includes a reference to other auditors who audited the financial statements of The Pines Housing, Inc., as described in our report on Human Solutions, Inc.'s financial statements. This report does not include the results of the other auditors' testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered Human Solutions, 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 the Organization'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, and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did identify certain deficiencies in internal control, described in the accompanying schedule of findings and questioned costs (2015-001) that we consider to be material weaknesses.

25

1800 S. W . First A venue , Suite 4 10 o Port land, Oregon 97201 -5333 o Phone: (503) 222-3338 o Fax: (503) 222-7819 o www.kern-thompson.com


To the Board of Directors Human Solutions, Inc.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Organization'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.

The Organization's Response to Findings

The Organization's response to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs . The Organization's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.

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.

~; 1Jv,r,.,JLLC Portland, Oregon March 30, 2016

26

KERN & THOMPSON, LLC Certified Public Accountants

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL

OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133

To the Board of Directors Human Solutions, Inc. Portland, Oregon

Report on Compliance for Each Major Federal Program

We have audited Human Solutions, 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 Human Solutions, Inc.'s major federal programs for the year ended June 30, 2015. Human Solutions, Inc.'s major federal programs are identified in the summary of auditors' 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.

Auditors' Responsibility

Our responsibility is to express an opinion on compliance for each of Human Solutions, 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 Human Solutions, 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 Human Solutions, Inc.'s compliance.

Opinion on Each Major Federal Program

In our opinion, Human Solutions, 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, 2015.

27

1800 S.W . First Avenue, Suite 4 10 • Portl and, Oregon 972 0 1-5 333 • Phone: (503) 222-3338 • Fax: (503) 222-7819 • www.kern-thompson.com


To the Board of Directors Human Solutions, Inc.

Report on Internal Control Over Compliance

Management of Human Solutions, 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 Human Solutions, 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 Human Solutions, 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 and therefore, material weaknesses or significant deficiencies may exist that were not identified. 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 OMS Circular A-133. Accordingly, this report is not suitable for any other purpose.

)

~ J1~!~r-l(),t Portland, Oregon March 30, 2016

28

Federal ExpendituresFederal Grantor/Passed through CFDA of FederalGrantor/Program Title Number Awards

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Community Development Block Grants/Entitlement Grants: Pass-through Multnomah County, Oregon 14.218 21,027 Pass-through City of Portland, Oregon, Portland Development Commission 14.218 87,912 Pass-through City of Gresham, Oregon 14.218 313,221 Pass-through Worksystems, Inc. 14.218 110,753

HOME Investment Partnerships Program: Pass-through City of Portland, Oregon 14.239 35,000 * Pass-through City of Gresham, Oregon 14.239 204,030 *

Direct award: Continuum of Care Program 14.267 1,376,252 * Pass-through Metropolitan Family Service 14.267 625,750 *

Pass-through Multnomah County, Oregon: Emergency Shelter Grants 14.231 91,719

TOTAL U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 2,865,664

U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES: Pass-through Metropolitan Family Services: Low Income Home Energy Assistance 93.568 161,128

Community Services Block Grant: Pass-through Metropolitan Family Services 93.569 249,993 Pass-through Multnomah County 93.569 41,687

TOTAL U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES 452,808

$ 3,318,472 * Major program

See Notes to Schedule of Expenditures of Federal Awards.

29


SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS



NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


SIGNIFICANT ACCOUNTING POLICIES

The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of Human Solutions, Inc. and is presented on the accrual basis of accounting and in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Accordingly, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements.

CATALOG OF FEDERAL DOMESTIC ASSISTANCE

CFDA numbers reported in the accompanying Schedule of Expenditures of Federal Awards are based on the June 2015 Catalog of Federal Domestic Assistance.

30


SCHEDULE OF FINDINGS AND QUESTIONED COSTS

Year Ended June 30, 2015 Section 1 – Summary of Auditors’ Results Financial Statements Type of auditors’ report issued – Unmodified Internal control over financial reporting:

• Material weakness(es) identified: X Yes No

• Significant deficiency(ies) identified that are not considered to be material weaknesses? Yes X None reported

Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs:

• Material weakness(es) identified: Yes X No

• Significant deficiency(ies) identified that are not considered to be material weaknesses? _______ Yes X None reported

Type of auditor’s report issued on compliance for major programs – Unmodified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of OMB Circular A-133? _______ Yes X No Identification of Major Programs

Home Investment Partnerships – CFDA No. 14.239 Continuum of Care – CFDA No. 14.267

1. Dollar threshold used to distinguish between Type A and Type B programs – $300,000. 2. Is the auditee qualified as a low-risk auditee under Section 530 of OMB Circular A – Yes

Section 2 – Financial Statement Findings

2015-001 Section 3 – Federal Award Findings and Questioned Costs

None

31


SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED)


2015-001 Finding – Financial Statement Audit

Statement of Condition: Material Weakness Over Preparation of Financial Statements

Criteria: We identified a control deficiency related to the Organization’s internal controls over the timely preparation of its financial statements, in accordance with generally accepted accounting principles (GAAP). Misstatements in financial statements include not only misstated financial figures but also the complete and accurate presentation of the Schedule of Expenditures of Federal Awards (SEFA).

Context and Cause: The Organization’s accounting personnel did not fully reconcile and close

all its accounts prior to the audit, which resulted in material misstatements in the presentation and disclosure of the financial statements in accordance with GAAP. The inaccurate presentation of the SEFA was related to omitting costs relating to a construction project.

Management was unable to provide a trial balance at the inception of the audit that contained the appropriate fund groups. The initial trial balance included some related party entity funds that are not part of the Organization’s financial statements, and subsequent trial balances excluded a material fund that is part of the financial reporting group. We also made a material adjustment relating to capital campaign grants – approximately $537,000 of revenue was removed as there were conditions placed on those grants that had not been met at June 30, 2015, resulting in a net income decrease. Finally, two federally funded HOME program capital grants, (CFDA 14.239) totaling $415,000 were excluded from the Schedule of Expenditures of Federal Awards (SEFA) and were recorded as revenue in 2015, when they should have been recorded as revenue in fiscal years ending June 30, 2014 and 2015, resulting in a material prior period adjustment.

Effect of Condition: The Organization needed additional accounting services relating to

partnership and property transactions and capital campaign transactions. The misstatements were as follows:

2015 2014 Grant revenue overstated 341,386 Grant revenue understated 341,386 SEFA understated 73,614 341,386 Net assets understated 341,386 Capital campaign revenue overstated 537,000 Net assets overstated 537,000

Recommendation: In order for the Organization’s internal controls over the preparation of

financial statements to be designed appropriately, an individual from the Organization with the necessary accounting and financial reporting expertise should be involved in the timely preparation and/or review of the financial statements.

Capital campaign, partnership and property transactions should be reviewed for completeness by an individual knowledgeable of all aspects of the transaction, and recorded fully in the correct time periods in the accounting records and on the SEFA, if applicable.

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SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED)

Year Ended June 30, 2015 2015-001 Finding – Financial Statement Audit (Continued)

Organization’s Response: Audit Response to Material Weakness on the Schedule of Findings and Questioned Costs Management concurs with the finding and has defined corrective action to address it. We understand a material weakness is identified in the internal control over financial reporting. The material weakness is a financial statement finding and not a federal awards finding. It does not impact the Organization’s ability to manage federal funds. Regardless, we place the utmost importance on the summary of auditors’ results and will work to resume the strength of our internal controls over financial reporting.

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OTHER INFORMATION


PROPERTIES AND AFFILIATED ENTITIES


Properties Owned by Human Solutions, Inc.:

Briarwood East Carolyn Gardens Columbia View

Douglas Meadows Greentree Court

Ivon Court

Equity Investments:

Cascade Crossing, LLC Glisan Commons Phase I, LP

Lincoln Woods Developer, LLC Lincoln Woods Housing, LP

Park Vista Stark, LP Rockwood Housing, LP Rosewood Plaza, LP

Whispering Winds Housing, LP (through Arbor Glen GP, LLC)

Combined Entities: Low Income Housing Preservation and Resident Homeownership Act Projects:

Fairview Arms Housing, Inc.

The Pines Housing, Inc.

Consolidated Subsidiaries:

Ankeny Woods, LP Arbor Glen GP, LLC

HS Cedars, LLC The Cedars Housing, LP HS Cedar Meadows, LLC

Cedar Meadows, LP HSI Glisan Commons, LLC Rockwood Building, LLC

Rockwood MSC QALICB, Inc. Rosewood Commercial Condo, LLC

18155 NE Couch Street Associates, LLC

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HSI and Cascade Glisan Lincoln Rockwood Whispering TotalCombined Crossing, Commons, Woods Park Vista Housing, Winds Affiliated

Entities LLC LP Housing, LP Stark, LP LP Housing, LP Entities Total

Cash and cash equivalents $ 1,549,712 $ 12,320 $ 216,960 $ 393 $ 73,426 $ 108,780 $ 2,240 $ 414,119 $ 1,963,831 Investments 12,057 - - - - - - - 12,057 Accounts receivable 1,294,268 585 1,285 2,480 7 4,111 6,753 15,221 1,309,489 Contributions receivable 517,690 - - - - - - - 517,690 Prepaid expenses and other assets 251,310 7,029 11,872 - 2,065 15,752 2,550 39,268 290,578 Restricted deposits and funded reserves 2,433,048 35,427 302,725 219,281 292,322 240,100 351,301 1,441,156 3,874,204 Interest receivable from affiliated organizations 171,913 - - - - - - - 171,913 Receivables from affiliated organizations 2,816,223 - - - - - - - 2,816,223 Investments in affiliated organizations 317,839 - - - - - - - 317,839 Deferred financing costs, net 423,281 17,878 144,773 58,816 34,707 256,659 182,380 695,213 1,118,494 Land, buildings, and equipment, net 16,206,265 4,517,837 11,880,110 7,355,712 4,169,995 10,048,366 8,851,303 46,823,323 63,029,588

Total assets $ 25,993,606 $ 4,591,076 $ 12,557,725 $ 7,636,682 $ 4,572,522 $ 10,673,768 $ 9,396,527 $ 49,428,300 $ 75,421,906

Accounts payable and accrued expenses $ 802,422 $ 291,422 $ 42,693 $ 14,289 $ 43,235 $ 21,030 $ 78,095 $ 490,764 $ 1,293,186 Accrued payroll and related expenses 408,883 - - - - - - - 408,883 Deferred revenue 373,004 - 1,300 469 19 26 7,312 9,126 382,130 Tenant security deposits 125,351 29,259 22,380 30,118 21,757 15,619 45,427 164,560 289,911 Long-term debt 9,316,140 3,228,433 5,004,020 3,431,249 2,704,382 6,611,850 8,727,994 29,707,928 39,024,068 Total liabilities 11,025,800 3,549,114 5,070,393 3,476,125 2,769,393 6,648,525 8,858,828 30,372,378 41,398,178

Net assets Unrestricted 13,683,873 1,041,962 7,487,332 4,160,557 1,803,129 4,025,243 537,699 19,055,922 32,739,795 Temporarily restricted 1,283,933 - - - - - - - 1,283,933 Total net assets 14,967,806 1,041,962 7,487,332 4,160,557 1,803,129 4,025,243 537,699 19,055,922 34,023,728

Total liabilities and net assets $ 25,993,606 $ 4,591,076 $ 12,557,725 $ 7,636,682 $ 4,572,522 $ 10,673,768 $ 9,396,527 $ 49,428,300 $ 75,421,906

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PROPERTIES AND AFFILIATED ENTITIES SCHEDULE OF ASSETS, LIABILITIES, AND NET ASSETS (UNAUDITED)

June 30, 2015

ASSETS

LIABILITIES AND NET ASSETS

Affiliated Entities at December 31, 2014

HSI and Cascade Glisan Lincoln Rockwood Whispering TotalCombined Crossing, Commons, Woods Park Vista Housing, Winds Affiliated

Entities LLC LP Housing, LP Stark, LP LP Housing, LP Entities Total

Operating revenues, gains, and other support Government grants and contracts $ 8,116,870 $ - $ - $ - $ - $ - $ - $ - $ 8,116,870 Private grants and contributions 1,925,637 - - - - - - - 1,925,637 Special events, less direct expenses of $91,710 - - - - - - - - - Rental income 2,743,394 624,920 375,718 629,348 476,979 391,902 901,774 3,400,641 6,144,035 Development fees 1,074,318 - - - - - - - 1,074,318 Management fees 5,577 - - - - - - - 5,577 Program income 150,348 - - - - - - - 150,348 Investment income 20,693 - - - - - - - 20,693 Other income 197,749 38,630 33,117 11,143 120 1,727 655 85,392 283,141

14,234,586 663,550 408,835 640,491 477,099 393,629 902,429 3,486,033 17,720,619 Less pass through revenue (358,672) - - - - - - - (358,672) Total operating revenues, gains, and other support 13,875,914 663,550 408,835 640,491 477,099 393,629 902,429 3,486,033 17,361,947

Expenses Program services Property management 3,737,922 750,852 783,617 901,034 560,144 740,050 1,277,477 5,013,174 8,751,096 Social services 6,060,714 - - - - - - - 6,060,714 Housing development 466,409 - - - - - - - 466,409 Employment 808,322 - - - - - - - 808,322 Total program services 11,073,367 750,852 783,617 901,034 560,144 740,050 1,277,477 5,013,174 16,086,541

Supporting services Management and general 1,578,540 - - - - - - - 1,578,540 Fundraising 329,291 - - - - - - - 329,291 Total expenses 12,981,198 750,852 783,617 901,034 560,144 740,050 1,277,477 5,013,174 17,994,372

Increase (decrease) in net assets before non-operating transactions 894,716 (87,302) (374,782) (260,543) (83,045) (346,421) (375,048) (1,527,141) (632,425)

Non-operating activities: Grants restricted to long-term investment in capital assets 827,617 - - - - - - - 827,617 Conversion of loans to equity gap agreement - - - - - - - - - Unrestricted grants 5,802 - - - - - - - 5,802

Assignment and transfer of limited partnership interest 97,294 - - - - - - - 97,294 Non-operating expense - - - - - - - - -

Total non-operating activities 930,713 - - - - - - - 930,713

Increase (decrease) in net assets 1,825,429 (87,302) (374,782) (260,543) (83,045) (346,421) (375,048) (1,527,141) 298,288

Net assets beginning of year 13,142,377 1,129,264 2,130,293 4,421,100 1,886,174 4,371,664 912,747 14,851,242 27,993,619

Net assets at end of year $ 14,967,806 $ 1,041,962 $ 1,755,511 $ 4,160,557 $ 1,803,129 $ 4,025,243 $ 537,699 $ 13,324,101 $ 28,291,907


PROPERTIES AND AFFILIATED ENTITIES SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS (UNAUDITED)

June 30, 2015

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Affiliated Entities at December 31, 2014

HUMAN SOLUTIONS, INC.

GOVERNING BOARD AND MANAGEMENT


Board of Directors: Board of Directors (Continued):

Chief Carla Piluso, Chair Andre MorenoChief (Retired) District ManagerGresham Police Department Columbia Gorge District

Wells Fargo BankBruce Whiting, Vice ChairKey Bank Correia Rouse

Community MemberJesse Smith, Secretary/TreasurerAlbina Opportunities Corporation Marilen Schaeffer

Community MemberSenator Laurie Monnes AndersonOregon State Senator Amy Setzer

Community MemberCourtney ArbanCommunity Member Cathy Sherick

Administrative AnalystVerlea Briggs Clackamas CountyPortland General Electric

John StrideTerry Ciecko Attorney Fundraising Consultant Tonkon Torp

Urgessa Egu Paul Warr-KingCommunity Member Former City Councilor for

City of GreshamLeslie GarthRide Connection Management:

Olga Gerberg Jean DeMasterCity Council for City of Sandy Executive Director

Jo Ann Hardesty Jill WeirHardesty Consulting Director of Programs

Lydia Gray-Holifield Scott LangenCommunity Member Director of Development

Ginny Holm Pamela BenoitCerner Corporation Director of Finance

Jim McConnell Andrea SanchezMcConnell and Associates Director of Housing

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HUMAN SOLUTIONS, INC.

INQUIRIES AND OTHER INFORMATION


Administrative Offices:

HUMAN SOLUTIONS, INC. 12350 S.E. Powell Blvd. Portland, Oregon 97236

(503) 548-0200

(503) 548-0292 (Fax)

Website:

www.humansolutions.org

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http://www.humansolutions.org/

to view our audited financial statement click here

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