HUMAN SOLUTIONS, INC. AND OTHER ENTITIES CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS. Year Ended June 30, 2015

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1 HUMAN SOLUTIONS, INC. AND OTHER ENTITIES CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Year Ended

2 CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Year Ended TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1-2 Page 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 Independent Auditors Report on Compliance for Each Major Program and on Internal Control over Compliance Required by OMB Circular A Schedule of Expenditures of Federal Awards 29 Notes to Schedule of Expenditures of Federal Awards 30 Schedule of Findings and Questioned Costs 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

3 l KERN & THOMPSON, LLC Certified Public Accountants 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, 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, 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, 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 S.W. First Avenue, Suite 410 Portland, Oregon Phone : (503) Fax : (503)

4 KERN & THOMPSON, LLC 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, 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, 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 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. I ~ ~ n#w-r'"', LLC Portland, Oregon March 30,

5 CONSOLIDATED AND COMBINED STATEMENT OF FINANCIAL POSITION (With Comparative Totals as of June 30, 2014) ASSETS 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, ,136 Restricted deposits and funded reserves 2,433,048 1,680,824 Interest receivable from affiliated organizations 171, ,569 Receivables from affiliated organizations 2,816,223 2,111,077 Investments in affiliated organizations 317, ,839 Deferred financing costs, net 423, ,353 Land, buildings and equipment, net 16,206,265 18,395,054 Total assets $ 25,993,606 $ 25,743,598 LIABILITIES AND NET ASSETS Accounts payable and accrued expenses $ 712,685 $ 673,417 Accrued payroll and related expenses 408, ,032 Deferred revenue 373,004 52,562 Tenant security deposits 125, ,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, ,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. 3

6 CONSOLIDATED AND COMBINED STATEMENT OF ACTIVITIES Year Ended (With Comparative Totals for the Year Ended June 30, 2014) Temporarily Total Unrestricted Restricted Operating revenues, gains and other support: Government grants and contracts $ 8,116,870 $ - $ 8,116,870 $ 7,951,790 Private grants and contributions 988, ,862 1,310, ,529 Rental income 2,743,394-2,743,394 2,486,097 Development fees 1,074,318-1,074, ,000 Management fees 5,577-5,577 12,999 Program income 150, , ,438 Investment income 20,693-20,693 58,796 Other income 287, , ,809 13,387, ,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, ,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, ,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, , ,505 Employment 808, , ,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, , ,835 Total expenses 12,981,198-12,981,198 12,075,601 Increase (decrease) in net assets before non-operating activities 140, , ,371 (443,299) Non-operating activities: Grants for long-term investment in capital assets 273, ,617 1,101, ,386 Conversion of loans to equity gap agreement ,469 Unrestricted grants 5,802-5, ,426 Transfer of assets to/from partnership 97,294-97, ,310 Non-operating income ,311 Net assets released from restrictions for capital purposes 269,134 (269,134) - - Total non-operating activities 645, ,483 1,204,409 1,307,902 Increase in net assets 786, ,302 1,573, ,603 Net assets at beginning of year, as restated 12,987, ,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 See notes to consolidated and combined financial statements. 4

7 CONSOLIDATED AND COMBINED STATEMENT OF FUNCTIONAL EXPENSES Year Ended (With Comparative Totals for the Year Ended June 30, 2014) PROGRAM SERVICES SUPPORTING SERVICES Property Social Housing Employ- Management Fund- Total Management Services Development ment Total and General Raising 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, ,489-3, , ,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 ,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, ,730 95,688 8, ,123 72,299 Interest expense 427,906-12, ,487 28, , ,678 Management fees 200, , , ,504 Miscellaneous 74,645 26,184 5,798 2, ,022 45,334 23, , ,597 Occupancy 9,913 90,369 11,107 24, ,011 70,708 12, , ,003 Office supplies 52,067 60,056 1,347 8, ,238 18,950 4, , ,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, ,228 3, , ,137 36, , ,950 Program expense 24,412 19, ,894 2, ,487 69,474 Property maintenance 446, , , ,992 Rent assistance 24 2,736, ,736, ,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, , , ,945 Software support 3,320 4, ,082 9,863 9,470 27,415 39,674 Utilities 403, , , ,240 Total operating expenses 2,776,519 6,050, , ,882 10,095,497 1,561, ,935 11,982,773 11,097,210 Depreciation and amortization 961,403 10,075 2,952 3, ,870 17,199 3, , ,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 See notes to consolidated and combined financial statements. 5

8 CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS Year Ended (With Comparative Totals for the Year Ended June 30, 2014) Cash 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, ,100 Net decrease in cash and cash equivalents 614, ,076 Cash and cash equivalents at beginning of year 935, ,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 See notes to consolidated and combined financial statements. 6

9 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 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, 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, 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. 7

10 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 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 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. 8

11 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 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 lowincome 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. 9

12 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 whollyowned 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 NE Couch Street Associates, LLC 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. 10

13 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 11

14 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 Improvements Furniture and equipment 30 years 10 years 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, 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. 12

15 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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 Income Taxes 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. 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 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. 13

16 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 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. 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. 14

17 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 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 NE Couch Street Associates, LLC) that will operate the Rosewood Plaza multifamily residential project. During the year ended, 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 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 Lincoln Crossing, Commons Woods LLC Phase I, LP Housing, LP Property, net $ 4,517,837 $ 11,880,110 $ 7,355,712 Required reserves 35, , ,281 Other assets 37, ,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, , ,034 Net income (loss) $ (87,302) $ (374,782) $ (260,543) 15

18 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE C RELATED PARTIES (CONTINUED) Summarized Information (Continued) Park Whispering Vista Rockwood Winds Stark, LP Housing, LP Housing, LP Property, net $ 4,169,995 $ 10,048,366 $ 8,851,303 Required reserves 292, , ,301 Other assets 110, , ,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, ,834 Partners' equity (deficit) 1,803,129 4,025, ,699 Total liabilities and partners' equity $ 4,572,522 $ 10,673,768 $ 9,396,527 Revenues $ 477,099 $ 393,629 $ 902,429 Expenses 560, ,050 1,277,477 Net income (loss) $ (83,045) $ (310,421) $ (375,048) NOTE D INVESTMENTS At, investments stated at market value consisted of equity securities in the amount of $12,057. NOTE E ACCOUNTS RECEIVABLE At, 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 : Contributions receivable $ 518,040 Less allowance for doubtful collection (350) $ 517,690 16

19 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE G RESTRICTED DEPOSITS AND FUNDED RESERVES In accordance with the requirements of various agreements with funders, at, 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 consist of the following: Glisan Commons Phase I LP - Long-term note receivable, non-interest bearing, principal payable from gross cash receipts, due December, $ 194,226 Lincoln Woods Housing, LP - Long-term note receivable; interest at 1.5%; developer fee; due December ,862 Park Vista Stark - Long-term note receivable; interest at 5.25%; due December ,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, ,873 Rockwood Housing, LP - Long-term note receivable; interest at 0%; principal payable from gross cash receipts; balance due October ,410,126 Rosewood Plaza, LP - Long-term note receivable; interest at 0%; principal payable from gross cash receipts; balance due January ,164 $ 2,816,223 Interest receivable from the affiliates at 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

20 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 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) of Interest 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, $ 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, 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 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

21 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 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, 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. 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 was 5%. There was no balance due at. 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 : 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 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 Secured by Briarwood East. 757,215 19

22 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) 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 ,677 Secured by The Cedars. Note payable to Clackamas County Bank; interest at 3.95%; due in monthly amortizing installments of $3,189 through Secured by Carolyn Gardens. 433,153 Note payable to Clackamas County Bank; interest at 7.75%; due in monthly amortizing installments of $345 through 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 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 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 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 Secured by Greentree Court. 4,539 20

23 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) NOTE M LONG-TERM DEBT (CONTINUED) Note payable to Huntoon Hastings, Inc.; interest at 6.25%; provides for borrowings up to $1,955,000; interest only payments through April 2013; thereafter monthly principal and interest payments of $11,099; maturity April Secured by The Pines Housing, Inc. 1,929,561 Note payable to the City of Gresham; interest due quarterly until August 2018 at various fixed rates from 1.77% to 3.36%, principal and interest due quarterly beginning August 2018; maturity date August 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 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 Secured by Ankeny Woods real property. 653,904 Future maturities of notes payable consist of the following: Year Ending June 30, $ 9,316, $ 218, , , , , and thereafter 7,820,427 $ 9,316,140 21