NARTHEX, INC. (A Non-Profit Corporation) DBA ST. PAUL TERRACE HUD PROJECT NO AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015

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1 NARTHEX, INC. AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015

2 NARTHEX, INC. FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 CONTENTS Page Independent Auditor's Report Financial Statements Statements of Financial Position Statements of Activities and Changes in Net Assets (Deficit) Statements of Cash Flows Notes to the Financial Statements HUD Supplemental Schedules Statement of Financial Position Data Statement of Profit and Loss Data Statement of Changes in Net Assets (Deficit) Data Statement of Cash Flows Data Supplemental Data Computation of Surplus Cash, Distributions, & Residual Receipts Schedule of Federal Awards 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 the Uniform Guidance Schedule of Findings and Questioned Costs Corrective Action Plan Managing Agent and Officers' Certification

3 March 28, 2017 Independent Auditor's Report To the Board of Directors Narthex, Inc. DBA St. Paul Terrace Wheeling, WV Report on the Financial Statements We have audited the accompanying financial statements of Narthex, Inc., HUD Project No , which comprise the statements of financial position as of December 31, 2016 and 2015, and the related statement of activities and changes in net assets, 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 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 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 Organization 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 Organization 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, the financial statements referred to above present fairly, in all material respects, the financial positions of Narthex, Inc., HUD Project No as of December31, 2016 and 2015,and the changes in its netassets and its cash flows forthe years then ended in accordance with accounting principles generally accepted in the United States of America

4 Narthex, Inc. Auditor's Report Page two Emphasis of Matter As discussed in Note A to the financial statements, the Partnership adopted a change in accounting principle related to the presentation of debt issuance costs. Our opinion is not modified with respect to that matter. Other Matters Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information shown on pages is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 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 Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 28, 2017 on our consideration of Narthex, 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 ABCDEF over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Narthex, Inc.'s internal control over financial reporting and compliance. Stemen, Mertens, Stickler, CPAs & Associates Certified Public Accountants Columbus, Ohio E.I.N

5 Current Assets Cash and Cash Equivalents Accounts Receivable - Tenants Accounts Receivable - HUD Accounts Receivable - Other Prepaid Expenses Total Current Assets NARTHEX, INC. STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2016 AND 2015 ASSETS $ 106,539 $ 62,136 1, ,270 4, ,510 9,585 9, ,591 88,159 Restricted Deposits and Funded Reserves Tenant Security Deposits Restricted Cash Total Restricted Deposits and Funded Reserves Rental Property Land and Land Improvements Buildings Furnishings & Equipment Total Rental Property Accumulated Depreciation Net Rental Property Total Assets 23,206 23, , , , , , ,508 2,361,745 2,345, , ,820 3,263,802 3,228,319 (2,712,349) (2,654,271) 551, ,048 $ 1,155,535 $ 1,084,338 The accompanying notes are an integral part of these financial statements

6 NARTHEX, INC. STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2016 AND 2015 LIABILITIES AND NET ASSETS (DEFICIT) Current Liabilities Accounts Payable - Trade $ 6,643 $ 8,409 Accounts Payable - Residual Receipts 46,707 - Accrued Payroll Taxes Payable - 55 Accrued Management Fee Payable 2,133 5,408 Accrued Interest Payable 8,438 8,594 Tenant Security Deposits 21,157 20,452 Prepaid Revenue Current Portion of Mortgage Payable 43,620 41,712 Total Current Liabilities 129,223 84,675 Long-Term Liabilities Notes Payable Mortgage Payable, Net of Current Portion Total Long Term Liabilities Total Liabilities Net Assets (Deficit) Unrestricted Net Assets (Deficit) Total Net Assets (Deficit) Total Liabilities and Net Assets (Deficit) 14,420 14,420 2,136,985 2,178,119 2,151,405 2,192,539 2,280,628 2,277,214 (1,125,093) (1,192,876) (1,125,093) (1,192,876) $ 1,155,535 $ 1,084,338 The accompanying notes are an integral part of these financial statements

7 NARTHEX, INC. STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2016 AND Revenues Rentals $ 510,535 $ 525,117 Interest Laundry and Vending Other 8,837 1, , ,275 Expenses Administrative 58,205 57,001 Management Fees 31,877 32,448 Utilities 61,417 62,284 Operating & Maintenance 96,010 81,679 Taxes & Insurance 32,376 29,742 Mortgage Interest 104, ,130 Mortgage Insurance 10,256 10,430 Depreciation 58,078 50, , ,302 Change in Net Assets (Deficit) 67,783 94,973 Net Assets (Deficit) - Beginning of Year (1,192,876) (1,287,849) Net Assets (Deficit) - End of Year $ (1,125,093) $ (1,192,876) The accompanying notes are an integral part of these financial statements

8 NARTHEX, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND Cash Flow from Operating Activities: Change in Net Assets (Deficit) $ 67,783 $ 94,973 Reconciliation of Increase in Net Assets to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 58,078 50,588 Amortization of Debt Issuance Costs 2,486 2,487 Change In: Accounts Receivable - Tenants (410) 13 Accounts Receivable - HUD 3,069 (4,056) Prepaid Expenses (119) (301) Tenant Security Deposits - Funded (11) (2,412) Accounts Payable - Trade (1,766) 2,551 Accrued Management Fee Payable (3,275) - Accrued Payroll Taxes Payable (55) - Accrued Interest Payable (156) (303) Tenant Security Deposits - Liability 705 (1,414) Prepaid Revenue Net Cash Provided by (Used in) Operating Activities 126, ,164 Cash Flow from Investing Activities: Restricted Cash Expenditures on Rental Property, Net of Related Payables Accounts Receivable - Other Net Cash Provided by (Used in) Investing Activities Cash Flow from Financing Activities: Proceeds from (Repayment of) Mortgage and Notes Payable Net Cash Provided by (Used in) Financing Activities Net Increase (Decrease) in Cash and Cash Equivalents Beginning of Period Cash End of Period Cash Supplemental Disclosure of Cash Flow Information: Cash Paid for Interest (16,642) 64,591 (35,483) (140,055) 11,431 (11,507) (40,694) (86,971) (41,712) (39,337) (41,712) (39,337) 44,403 15,856 62,136 46,280 $ 106,539 $ 62,136 $ 102,277 $ 105,946 The accompanying notes are an integral part of these financial statements

9 A. Summary of Significant Accounting Policies NARTHEX, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND Narthex, Inc., DBA St. Paul Terrace is a non-profit corporation organized on April 15, 1981 under the laws of the State of West Virgina to develop, construct, own, maintain and operate a 64 unit project in Wheeling, West Virginia. The Corporation qualifies as an exempt organization under Section 501(c)(3) of the Internal Revenue Code of The project's major program is its Section 202 direct loan and its non-major program is its Section 8 rent subsidy. The accounting policies of the partnership are as required by the Federal Housing Commissioner pursuant to the regulatory agreement for insured multi-family housing projects under Section 202 of the National Housing Act and the applicable instructions issued by the Federal Housing Administration (FHA). a. b. c. This project is regulated by HUD as to rent charges and operating methods. Surplus cash can only be paid after the end of a semiannual or annual fiscal period. Cash distributions in the current year may not exceed surplus cash as calculated on December 31 of the prior year. As stated in the Regulatory Agreement, the project is a non-profit project and any surplus cash available is deposited into a replacement reserve or residual receipts fund. The management fee calculation is based on gross collections times 6.32% (percent), effective July 7, 2014, plus an additonal charge of $1.25 per unit per month, as defined in the Management Agreement. Management fee is capped at $41.00 per unit per month. Therefore, each time a rent increase is approved, the management fee percentage must be adjusted to maintain this yield. The new management fee calculation is based on gross collections times 6.21% (percent), plus an additional charge of $1.25 per unit per month, effective July 7, The corporation was organized as a non-profit organization exempt under Section 501(c)(3) of the Internal Revenue Code. Therefore, no provision has been made for income taxes. The Corporation's Forms 990, Return of Organization Exempt from Income Tax, for the years ending 2013, 2014, and 2015 are subject to examination by the IRS, generally for three years after they were filed. The Corporation believes it is no longer subject to income tax examinations for years prior to The accompanying financial statements have been prepared on the accrual accounting basis. Income was recorded when earned and expenditures when incurred. The financial statements include only the assets, liabilities, equity and results of operations of the project. The corporation considers all unrestricted investment instruments with a maturity of three months or less when purchased to be cash equivalents. Rental property is recorded at cost and depreciation is computed over estimated useful lives as follows: Original Building Land Improvements Furniture and Fixtures 30 years straight line 5-15 years straight line 5-10 years straight line The Partnership reviews its investment in real estate for impairment whenever events or changes in circumstances indicate that the carrying value of such property may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the real estate to the future net undiscounted cash flow expected to be generated by the rental property including the low income housing tax credits and any estimated proceeds from the eventual disposition of the real estate. If the real estate is considered tobe impaired, the impairmentto be recognized is measured atthe amount by which the carrying amount of the real estate exceeds the fair value of such property. There were no impairment losses recognized in 2016 and The cost of obtaining permanent financing is capitalized. These debt issuance costs are amortized over the period of the related loan using the straight-line method which approximates the effective-interest method

10 A. Summary of Significant Accounting Policies - (Continued) NARTHEX, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 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 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. All costs related to marketing and advertising, including such costs as signs, rental brochures, newspaper, radio and television advertising, are expensed as incurred. In April 2015, the FASB issued Accounting Standards Update No , Interest - Imputation of Interest (Subtopic ): Simplifying the Presentation of Debt Issuance Costs (ASU ). To simplify presentation of debt issuance costs, ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, Early adoption is permitted for financial statements that have not been previously issued. The standard is required to be applied retrospectively to all periods presented and disclosure of the change in accounting principle is required. The Partnership elected to adopt ASU beginning in the fiscal year ended December 31, 2016 on a retrospective basis. The adoption of ASU removed the unamortized debt issuance costs asset that was included in the Balance Sheet for the year ended December 31, 2015 and reduced the related debt liability on the accompanying Balance Sheet for the year ended December 31, Functional Expenses The costs of providing various programs and other activities are summarized on a functional basis as follows: Program Services - HUD assisted elderly housing project Supporting Services - General and Administrative $ 362,744 90,082 $ 452,826 General and administrative consists of allocated costs as follows: Management Salary $ 36,280 Management Fee 31,877 Advertising 297 Office Supplies 4,188 Administrative Rent Free Unit 8,386 Auditing 4,600 Miscellaneous 4,454 $ 90, The financial statements and related disclosures include evaluation of events up through and including March 28, 2017, which is the date the financial statements were available to be issued. Tenant account receivables are carried at their estimated collectable amounts and are periodically evaluated for collectability based on past credit history with tenants and their current financial condition. Any provision for losses is determined on the basis of loss experience and aged receivable balance. Amounts are written off as they are deemed uncollectable

11 B. Mortgage Payable NARTHEX, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 The mortgage note is collateralized by the land, buildings and improvements, equipment and furnishings. The note bears interest at the rate of 4.48% per annum. Principal and interest are payable by the partnership in equal monthly installments of $11,999. The Partnership deferred debt issuance costs related to the issuance of the loan in the amount of $99,495. Accumulated amortization of such costs amounted to $19,893 and $17,407 as of December 31, 2016 and 2015, respectively. The amortization expense related to deferred costs was $2,486 and $2,487 for the years ended December 31, 2016 and 2015, respectively. The principal and all accrued and unpaid interest is due and payable in February The principal requirements for the next five years are as follows: C. Note Payable 2017 $ 43, , , , ,163 Thereafter 2,021,226 $ 2,260,207 Less Debt Issuance Costs (79,602) Net Total $ 2,180,605 Per the loan agreement, the corporation is required to make monthly escrow deposits for taxes, insurance, and replacement of project assets. The corporation has also agreed to FHA restrictions as to rental charges, operational policies and expenditures. The liability of the corporation under the mortgage note is limited to the underlying value of the real estate collateral plus other funds deposited with the mortgage lender. The Note Payable at December 31, 2016 and 2015 consists of the following: Non-interest bearing note payable to the West Virginia Housing Development Fund for an A.R.C. project planned loan. Repayment of the remaining balance is not required to begin until the FHA mortgage loan (Note B) has been paid. $ 14,420 $ 14,420 D. Commitments and Contingencies Section 8 Housing Assistance Payments Program The Corporation entered into a contract on July 7, 1983, to provide housing units that will qualify for the Section 8 housing assistance program. The initial contract was for twenty (20) years and expired on July 6, The Corporation entered into a subsequent contracts that will expire on July 6,

12 E. Management Fee NARTHEX, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 The management fee was computed as follows: January - July - June December Total Rental receipts $ 244,068 $ 249,470 $ 493,538 Rate per management agreement 6.32% 6.21% Subtotal 15,425 15,492 30,917 Adjustment for $31,488 Management fee Cap - Add: Number of Apartments 64 Times: Rate per unit Times: Number of months Management fee expense 31,877 Management fee payable - Beginning of year 5,408 End of year (2,133) Management fee paid $ 35,152 F. Current Vulnerability Due to Certain Concentrations The Partnership s sole asset is St. Paul Terrace. The Partnership s operations are concentrated in the multifamily real estate market. In addition, the Partnership operates in a heavily regulated environment. The operations of the Partnership are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. G. Reclassification of Financial Statement Presentation Reclassifications have been made to the 2015 financial statements to conform with the 2016 financial statements presentation. Such reclassifications have had no effect on net assets (deficit) as previously reported. H. A/P - Residual Receipts Accounts Payable - Residual Receipts has been set up for the Residual Receipts deposit that was required from the 2015 surplus cash computation that was not made. The accounts payable - residual receipts deposits is in other obligations on the 2016 surplus cash computation. Additional information is available in finding

13 NARTHEX, INC. STATEMENT OF FINANCIAL POSITION DATA AS OF DECEMBER 31, 2016 ASSETS Current Assets 1120 Cash and Cash Equivalents $ 106, Accounts Receivable - Tenants 1, Accounts Receivable - HUD 1, Accounts Receivable - Other Prepaid Property Insurance 6, Prepaid Mortgage Insurance 1, Miscellaneous Prepaid 1, T Total Current Assets 118,591 Deposits Held in Trust - Funded 1191 Tenant Security Deposits 23,206 Restricted Deposits and Funded Reserves 1310 Mortgage Escrow Deposits (Schedule) 19, Reserve for Replacements 225, Debt Service Reserve 137, Residual Receipts Reserve 79, T Total Deposits 462,285 Rental Property 1410 Land 161, Land Improvements 185, Buildings 1,885, Building Improvements 471, Building Equipment (Fixed) 4, Furniture 219, Furnishings 301, Office Furniture and Equipment 12, Maintenance Equipment 21, T Total Rental Property 3,263, Accumulated Depreciation (2,712,349) 1400N Net Rental Property 551, T Total Assets $ 1,155,

14 NARTHEX, INC. STATEMENT OF FINANCIAL POSITION DATA AS OF DECEMBER 31, 2016 LIABILITIES AND NET ASSETS (DEFICIT) Current Liabilities 2110 Accounts Payable - Trade $ 6, Accrued Management Fee Payable 2, Accrued Interest Payable 8, Mortgage Payable - Current Portion 43, Accounts Payable - Residual Receipts 46, Rent Deferred Credits T Total Current Liabilities 108,066 Deposit Liabilities 2191 Tenant Security Deposits (Contra) 21,157 Long-Term Liabilities 2311 Notes Payable 14, Mortgage Note Payable 2,260,207 Less: Current Portion (43,620) 2340 Debt Issuance Costs (79,602) 2300T Total Long Term Liabilities 2,151, T Total Liabilities 2,280,628 Net Assets (Deficit) 3130 Net Assets (Deficit) (1,125,093) 2033T Total Liabilities and Net Assets (Deficit) $ 1,155,

15 NARTHEX, INC. STATEMENT OF PROFIT AND LOSS DATA FOR THE YEAR ENDED DECEMBER 31, 2016 Revenues: Rental Revenue 5120 Rent Revenue - Gross Potential $ 246, Tenant Assistance Payments 277, Special Claims Revenue 12, T Total Rent Revenue 536,704 Vacancies 5220 Apartments 26, T Total Vacancies 26, N Net Rental Revenue 510,535 Financial Revenue 5410 Financial Revenue - Project Operations Revenue from Investments - Residual Receipts Revenue from Investments - Replacement Reserve T Total Financial Revenue 298 Other Revenue 5910 Laundry and Vending Revenue Tenant Charges Miscellaneous Revenue 8, T Total Other Revenue 9, T Total Revenue 520,609 Expenses: Administrative Expenses 6210 Advertising and Marketing Other Renting Expenses Office Expenses 4, Management Fee 31, Manager or Superintendent Salaries 36, Administrative Rent Free Unit 8, Audit Expense 4, Miscellaneous Administrative Expenses 3, T Total Administrative Expenses 90,082 Utilities Expenses 6450 Electricity 42, Water 7, Gas 4, Sewer 7, T Total Utilities Expense 61,417 Operating & Maintenance Expenses 6510 Payroll 36, Supplies 29, Contracts 17, Garbage and Trash Removal 3, Security Payroll/Contract 5, Heating/Cooling Repairs and Maintenance

16 NARTHEX, INC. STATEMENT OF PROFIT AND LOSS DATA FOR THE YEAR ENDED DECEMBER 31, 2016 Expenses: Operating & Maintenance Expenses -(Continued) 6548 Snow Removal $ 2, Vehicle and Maintenance Equipment Operation and Repairs Miscellaneous Operating and Maintenance Expenses T Total Operating and Maintenance Expenses 96,010 Taxes & Insurance 6711 Payroll Taxes 5, Property & Liability Insurance 15, Workmen's Compensation 2, Health Insurance and Other Employee Benefits 6, Miscellaneous Taxes, Licenses, Permits and Insurance 2, T Total Taxes and Insurance 32,376 Financial Expenses 6820 Interest on Mortgage Payable and Amortization of Debt Issuance Costs 104, Mortgage Insurance Premium/ Service Charge 10, T Total Financial Expenses 114,863 Operating Results 6000T Total Cost of Operations before Depreciation 394, T Profit (Loss) before Depreciation 125, Depreciation Expenses 58, N Operating Profit or (Loss) 67,783 Profit or Loss 3250 Profit or Loss (Net Income or Loss) $ 67,783 Part II S Total mortgage (or bond) principal payments required during the audit year (12 monthly $ 41,712 payments). This applies to all direct loans and HUD-held and fully insured mortgages. Any HUD approved second mortgages should be included in this figure. S Total of 12 monthly deposits in the audit year into the Replacement Reserve account, as $ 17,045 required by the Regulatory Agreement even if payments may be temporarily suspended or reduced. S Replacement Reserves, or Residual Receipts and Releases which are included as expense $ 3,169 items on this Profit and Loss statement. S Project Improvement Reserve releases under the Flexible Subsidy Program that are $ - included as expense items on this Profit and Loss statement

17 NARTHEX, INC. STATEMENT OF CHANGES IN NET ASSETS (DEFICIT) DATA FOR THE YEAR ENDED DECEMBER 31, 2016 S Total Net Assets (Deficit) - December 31, 2015 $ (1,192,876) 3250 Change in Net Assets (Deficit) 67, Total Net Assets (Deficit) - December 31, 2016 $ (1,125,093)

18 NARTHEX, INC. STATEMENT OF CASH FLOWS DATA FOR THE YEAR ENDED DECEMBER 31, 2016 Cash Flow from Operating Activities: S Rental Receipts $ 505,288 S Interest Receipts 298 S Other Receipts 9,776 S Total Receipts 515,362 S Administrative (13,385) S Management Fees (35,152) S Utilities (61,417) S Salaries and Wages (73,109) S Operating and Maintenance (61,156) S Property Insurance (15,362) S Miscellaneous Taxes and Insurance (17,161) S Tenant Security Deposits 694 S Interest on Mortgage Note (102,277) S Mortgage Insurance (10,228) S Total Disbursements (388,553) S Net Cash Provided by (Used in) Operating Activities 126,809 Cash Flow from Investing Activities: S Net Deposits to the Mortgage Escrow account (787) S Net Deposits to the Reserve for Replacement account 15,655 S Net Deposits to Other Reserves (31,499) S Net Deposits to the Residual Receipts account (46,718) S Net Purchase of Rental Property (35,483) S A/P - Residual Receipts 46,707 S Accounts Receivable - Other 11,431 S Net Cash Provided by (Used in) Investing Activities (40,694) Cash Flow from Financing Activities: S Mortgage Principal Payments (41,712) S Net Cash Provided by (Used in) Financing Activities (41,712) S Net Increase (Decrease) in Cash and Cash Equivalents 44,403 S Beginning of Period Cash 62,136 S1200T End of Period Cash $ 106,

19 NARTHEX, INC. STATEMENT OF CASH FLOWS DATA FOR THE YEAR ENDED DECEMBER 31, 2016 Reconciliation of Change in Net Assets (Deficit) to Net Cash Provided by (Used in) Operating Activities: 3250 Change in Net Assets (Deficit) $ 67,783 Adjustments to Reconcile Change in Net Assets (Deficit) to Net Cash Provided by (Used in) Operating Activities: 6600 Depreciation Expense 58,078 S Amortization of Debt Issuance Costs 2,486 Decrease (Increase) in: S Accounts Receivable - Tenants (410) S Accounts Receivable - HUD 3,069 S Prepaid Property Insurance (360) S Prepaid Mortgage Insurance 28 S Miscellaneous Prepaid 213 S Tenant Security Deposits (11) Increase (Decrease) in: S Accounts Payable - Trade (1,766) S Accrued Management Fee Payable (3,275) S Accrued Payroll Taxes Payable (55) S Accrued Interest Payable (156) S Tenant Security Deposits 705 S Rent Deferred Credits 480 S Net Cash Provided by (Used in) Operating Activities $ 126,

20 1. Reserve for Replacements NARTHEX, INC. SUPPLEMENTAL DATA FOR THE YEAR ENDED DECEMBER 31, 2016 In accordance with the provisions of the Regulatory Agreement, restricted cash is held by the Red Mortgage Capital, Inc. to be used for replacement of property with the approval of HUD as follows: Reserve for Replacements: 1320P Balance, December 31, 2015 $ 241,504 Deposits: 1320DT $1, x 5 $ 7, DT $1, x 6 8, DT $1, x 1 1, INT Interest 85 17,130 Withdrawals: 1320WT November 3, 2016 (32,785) 1320 Balance, December 31, 2016 Confirmed by Mortgagee $ 225, Residual Receipts Account In accordance with the provisions of the Regulatory Agreement, restricted cash is held by the Red Mortgage Capital, Inc. to be used for project expenses with the approval of HUD as follows: Reserve for Replacements: 1340P Balance, December 31, 2015 $ 32,297 Deposits: 1340ODT Other Deposits--Surplus Cash $ 46, INT Interest 11 46, Balance, December 31, 2016 Confirmed by Mortgagee $ 79,

21 NARTHEX, INC. SUPPLEMENTAL DATA FOR THE YEAR ENDED DECEMBER 31, Changes in Rental Property Balance Balance Assets 12/31/2015 Additions Deletions 12/31/ Land 1410 Land Improvements 1420 Buildings 1420 Building Improvements 1420 Building Equipment (Fixed) 1450 Furniture 1460 Furnishings 1465 Office Furniture and Equipment 1470 Maintenance Equipment $ 161,669 $ - $ - $ 161, ,839 1, ,302 1,885, ,885, ,943 15, ,697 4, , , , ,228 18, ,494 12, ,594 21, ,062 $ 3,228,319 $ 35,483 $ - $ 3,263,802 Balance Balance 12/31/2015 Additions Deletions 12/31/2016 Accumulated Depreciation $ 2,654,271 $ 58,078 $ - $ 2,712,349 Net Book Value $ 551,453 Additions Detail Benches Emergency Lights Boiler/Shower/Rehab Carpet, Pad & Installation Appliances 4. Profit and Loss Statement Other Revenue (5990) Time Warner Commissions Water Damage Miscellaneous Miscellaneous Administrative Expenses (6390) Internet Fees Fire Service Cable Dues Flowers Software Support Miscellaneous Operating & Maintenance Expenses (6590) Municipal Services Miscellaneous Taxes, License, Permits, and Other Insurance (6790) Other Insurance West Virginia Annual Report $ $ $ $ $ $ $ $ $ 1,463 3,942 11,812 16,436 1,830 35,483 8, ,802 1, , , , ,

22 Part A - Compute Surplus Cash NARTHEX, INC. COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS, AND RESIDUAL RECEIPTS FOR THE YEAR ENDED DECEMBER 31, 2016 Cash S Cash $ 129, Accounts Receivable - HUD 1,270 S Total Cash 131,015 Current Obligations S Accrued Mortgage Interest Payable 8,438 S Accounts Payable - 30 days 6, Prepaid Revenue Tenant Deposits Held In Trust (Contra) 21,157 S Other Current Obligations - Management Fee 2,133 S Other Current Obligations - A/P - Residual Receipts 46,707 S Total Current Obligations 85,603 S Surplus Cash (Deficiency) $ 45,412 Part B - Compute Required Deposit to Residual Receipts S Deposit Due Residual Receipts $ 45,

23 Federal Grantor/Program Title MAJOR PROGRAM NARTHEX, INC. SCHEDULE OF FEDERAL AWARDS FOR THE YEAR ENDED DECEMBER 31, 2016 Number Expenditures Department of Housing and Urban Development Section 202 Loan $ 2,260,207 NON - MAJOR PROGRAM Department of Housing and Urban Development Section 8 Housing Assistance Payments ,230 Total Programs $ 2,550,437 Note A-Basis of Presentation The accompanying schedule of federal awards includes the federal grant activity of Narthex, Inc., (a non-profit corporation), DBA St. Paul Terrace, HUD Project No and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the Uniform Guidance. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the basic financial statements

24 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 March 28, 2017 To the Board of Directors Narthex, Inc. DBA St. Paul Terrace Wheeling, WV HUD Field Office Charleston, WV 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 Narthex, Inc., HUD Project No , which comprise the statement of financial position as of December 31, 2016, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated March 28, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Narthex, 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 Narthex, Inc.'s internal control. Accordingly, we do not express an opinion on the effectiveness of the Narthex, Inc.'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 Organization 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 over financial reporting 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether Narthex, 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. As part of obtaining reasonable assurance about whether Narthex, Inc. s financial statements are free of 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 instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying schedule of findings and questioned costs as items

25 Narthex, Inc. Report on Internal Control Page two Purpose of this Report This 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 Narthex, Inc.'s internal control or on compliance. This report is an ABCDE integral part of an audit performed in accordance with Government Auditing Standards in considering Narthex, Inc.'s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Stemen, Mertens, Stickler, CPAs & Associates Certified Public Accountants Columbus, Ohio

26 March 28, 2017 To the Board of Directors Narthex, Inc. DBA St. Paul Terrace Wheeling, WV Independent Auditor's Report on Compliance For Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance HUD Field Office Charleston, WV Report on Compliance for Each Major Federal Program We have audited Narthex, Inc., HUD Project No. 's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Narthex, Inc.'s major federal programs for the year ended December 31, Narthex, Inc.'s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Narthex, 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 the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance 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 Narthex, Inc. s compliance with those requirements and performing such other procedures as we considered 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 Narthex, Inc.'s compliance. Opinion on Each Major Federal Program In our opinion, Narthex, 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 December 31, Other Matters The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as items Our opinion on each major federal program is not modified with respect to this matter. Narthex, Inc.'s response to the noncompliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. Narthex, Inc.'s response was not subjected to the auditing procedures applied in the audit of compliance and accordingly, we express no opinion on the response

27 Narthex, Inc. Report on Compliance Page two Report on Internal Control Over Compliance Management of Narthex, 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 Narthex, 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 the Uniform Guidance, 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 Narthex, 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 goverance. 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 ABCDE and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Stemen, Mertens, Stickler, CPAs & Associates Certified Public Accountants Columbus, Ohio

28 Part I - Summary of Auditor's Results NARTHEX, INC. AUDIT FINDINGS ON COMPLIANCE FOR THE YEAR ENDED DECEMBER 31, 2016 Financial Statement Section Type of auditor's report Issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? Reportable condition(s) identified not considered to be material weaknesses? Noncompliance material to financial statements noted? Federal Awards Section Internal control over major programs: Material weakness(es) identified? Reportable condition(s) identified not considered to be material weaknesses? Yes No X X X X X Type of auditor's report on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with the Uniform Guidance? X Identification of major programs: CFDA Number Name of Federal Program or Cluster Dept. of Housing and Urban Development Section 202 Loan Dollar threshold used to determine Type A programs: $750,000 Yes No Auditee qualified as low-risk auditee? X

29 Part II - Financial Statement Finding Section NONE NARTHEX, INC. AUDIT FINDINGS ON COMPLIANCE FOR THE YEAR ENDED DECEMBER 31, 2016 This section identified the significant deficiencies, material weaknesses, and instances of noncompliance related to the financial statements that are required to be reported in accordance with Chapter 5.18 of Government Auditing Standards. Part III - Federal Award Findings and Questioned Costs Section This section identified significant deficiencies, material weaknesses, and instances of noncompliance, including questioned costs, related to the audit of major federal programs, as required to be reported by the Uniform Guidance. Where practical, findings should be organized by federal agency or pass through entity. Finding Reference Number: Title and CFDA Number of Federal Program: Finding Resolution Status: Information on Universe Population Sample Size Information: Identification of Repeat Finding and Finding Reference Number: Statement of Condition: Criteria: Cause: Effect or Potential Effect: Auditor Non-compliance Code: Housing of Urban Development Section 202 Loan; Resolved N/A N/A. N/A. Per the 2015 Surplus cash computation, a payment of $46,707 was calculated as due to be paid to the residual receipts account. This amount was discovered not to have been paid during the 2016 audit. HUD regulations state that the surplus cash available for the residual receipts must be paid by April 10. Management oversight. The management company controller of 34 years retired and the position was not able to be filled for several months. The project had use of restricted funds without HUD permission. B - Failure to make required residual receipts deposits Amount of Questioned Costs: $46,707 Reporting Views of Responsible Officials: We agree with the finding. The $46,707 was sent to the mortgage company to be deposited into the residual receipts account on March 24, The financial statement will be double checked in the future for any payments required to be made to the residual receipts account. FHA/Contract Number: Recommendation: In the future, when filing the financial statements, double check to make sure the residual receipts deposit has been made

30 Auditor's Summary of the Auditee's Comments on the Findings and Recommendations: NARTHEX, INC. AUDIT FINDINGS ON COMPLIANCE FOR THE YEAR ENDED DECEMBER 31, 2016 Management agrees with the finding and has sent the $46,707 to the mortgage company to be deposited into the Residual Receipts account. Agree or Disagree with auditor recommendations: Agree Completion Date or Proposed 03/24/17 Response Contact Person: We agree with the finding. The $46,707 was sent to the mortgage company to be deposited into the residual receipts account on March 24, The financial statement will be double checked in the future for any payments required to be made to the residual receipts account. Maria Schaefer Auditor's Comments on Prior Audit Resolution Matters Related to HUD Programs There were no unresolved prior audit findings noted during our audit of the 2016 financial statements. There were no compliance findings noted during our audit of the 2016 financial statements relating to physical inspections or management reviews