Sunshine Community Health Center, Inc.

Sunshine Community Health Center, Inc. Financial Statements, Supplementary Information, and Federal Single Audit Reports Years Ended June 30, 2016 and 2015 (With Independent Auditor s Report Thereon) This report was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

Sunshine Community Health Center, Inc. Financial Statements, Supplementary Information, and Federal Single Audit Reports Years Ended June 30, 2016 and 2015

Contents Independent Auditor s Report 1-2 Page Financial Statements Statements of Financial Position 4 Statements of Activities 5 Statements of Functional Expenses 6-7 Statements of Cash Flows 8 Notes to Financial Statements 9-16 Supplementary Information Schedule of Expenditures of Federal Awards 18 Single Audit Section Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 20-21 Independent Auditor s Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by Uniform Guidance 22-23 Schedule of Findings and Questioned Costs 24-25 Summary Schedule of Prior Audit Findings 26 Corrective Action Plan 27

Tel: 907-278-8878 Fax: 907-278-5779 www.bdo.com 3601 C Street, Suite 600 Anchorage, AK 99503 Independent Auditor s Report To the Board of Directors of the Sunshine Community Health Center, Inc. Talkeetna, Alaska Report on the Financial Statements We have audited the accompanying financial statements of Sunshine Community Health Center, Inc., which comprise the statements of financial position as of June 30, 2016 and 2015, and the related statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the 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 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 obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 1

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Sunshine Community Health Center, Inc. as of June 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Other Information Our 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 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 September 14, 2016 on our consideration of Sunshine Community Health Center, Inc. s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Sunshine Community Health Center, Inc. s internal control over financial reporting and compliance. Anchorage, Alaska September 14, 2016 2

Financial Statements 3

Statements of Financial Position June 30, 2016 2015 Assets Current Assets Cash and cash equivalents: Unrestricted $ 355,931 $ 353,353 Temporarily restricted (Note 3) 2,543 4,667 Total cash and cash equivalents 358,474 358,020 Investments, short-term 679,770 623,897 Receivables: Medical patient accounts, less allowance for uncollectible accounts of $263,251 and $277,031, respectively 344,975 270,356 Grants 90,321 27,698 Promises to give - 20,000 Other receivables 24,134 9,081 Inventory 23,195 24,490 Prepaid expenses 142,943 105,077 Total Current Assets 1,663,812 1,438,619 Investments, long-term 1,084,683 1,219,591 Property and equipment, net of accumulated depreciation 5,981,609 5,956,576 Security deposit - 400 Total Assets $ 8,730,104 $ 8,615,186 Liabilities and Net Assets Current Liabilities Accounts payable $ 74,588 $ 80,940 Payroll-related liabilities 180,941 135,757 Deferred revenue 5,898 8,273 Note payable, current portion 2,604 11,664 Total Current Liabilities 264,031 236,634 Note payable, net of current portion - 2,573 Total Liabilities 264,031 239,207 Net Assets Unrestricted: Board designated 840,022 715,522 Invested in property and equipment 5,981,609 5,956,576 Undesignated 1,641,899 1,679,214 Temporarily restricted (Note 8) 2,543 24,667 Total Net Assets 8,466,073 8,375,979 Total Liabilities and Net Assets $ 8,730,104 $ 8,615,186 4 See accompanying notes to financial statements.

Statements of Activities Years Ended June 30, 2016 2015 Changes in Unrestricted Net Assets From operating activities: Support: Corporations $ 33,150 $ 34,052 Individuals 1,907 1,820 Total support 35,057 35,872 Revenues: Gross charges 2,851,501 2,677,046 Less charity care (421,423) (640,535) Gross patient service revenue 2,430,078 2,036,511 Less provision for contractual allowances (84,341) (120,458) Less provision for bad debt (148,790) (177,936) Net patient service revenue 2,196,947 1,738,117 Operating grants 2,555,541 2,224,556 Other 258,156 200,690 Total revenues 5,010,644 4,163,363 Total support and revenues 5,045,701 4,199,235 Expenses: Personnel 3,336,076 2,737,405 Program support 294,747 260,116 Administrative 630,174 551,856 Occupancy 378,290 360,406 Depreciation 376,311 355,622 Total expenses 5,015,598 4,265,405 Change in net assets from operating activities 30,103 (66,170) From non-operating activities: Investment income 32,754 30,710 Loss from disposals and asset impairment (3,976) (18) Loss on legal settlement - (27,500) Grants for capital projects 53,337 94,345 Change in net assets from non-operating activities 82,115 97,537 Change in Unrestricted Net Assets 112,218 31,367 Changes in Temporarily Restricted Net Assets Net assets released from restrictions for operations (22,124) (22,028) Change in Temporarily Restricted Net Assets (22,124) (22,028) Change in net assets 90,094 9,339 Net Assets, beginning of year 8,375,979 8,366,640 Net Assets, ending of year $ 8,466,073 $ 8,375,979 5 See accompanying notes to financial statements.

Statement of Functional Expenses Program Health Care Support Services General and Year Ended June 30, 2016 Services Administrative Marketing Total Personnel Salaries and wages $ 1,423,832 $ 1,261,939 $ - $ 2,685,771 Employee benefits and taxes 314,263 336,042-650,305 Total Personnel 1,738,095 1,597,981-3,336,076 Program Support Contract personnel 100,565 - - 100,565 Medical supplies/pharmaceuticals 185,426 - - 185,426 Insurance 5,933 - - 5,933 Other program support - 2,823-2,823 Total Program Support 291,924 2,823-294,747 Administrative General supplies 4,091 67,102-71,193 Professional and contracted services 46,005 269,577-315,582 Travel and training 40,733 93,454-134,187 Small equipment purchases - 23,128-23,128 Other administrative - 71,738 14,346 86,084 Total Administrative 90,829 524,999 14,346 630,174 Occupancy Telephone 53,119 6,565-59,684 Other occupancy 10,256 6,634-16,890 Insurance - 62,635-62,635 Utilities 83,895 11,023-94,918 Repairs and maintenance 57,927 85,592-143,519 Interest - 644-644 Total Occupancy 205,197 173,093-378,290 Depreciation 334,917 41,394-376,311 Total Expenses $ 2,660,962 $ 2,340,290 $ 14,346 $ 5,015,598 See accompanying notes to financial statements. 6

Statement of Functional Expenses Program Health Care Support Services General and Year Ended June 30, 2015 Services Administrative Marketing Total Personnel Salaries and wages $ 1,200,693 $ 1,027,428 $ - $ 2,228,121 Employee benefits and taxes 283,195 226,089-509,284 Total Personnel 1,483,888 1,253,517-2,737,405 Program Support Contract personnel 94,865 - - 94,865 Medical supplies/pharmaceuticals 158,267 - - 158,267 Insurance - 2,168-2,168 Other program support - 4,816-4,816 Total Program Support 253,132 6,984-260,116 Administrative General supplies 1,821 58,122-59,943 Professional and contracted services 31,964 236,656-268,620 Travel and training 53,375 44,004-97,379 Small equipment purchases - 67,756-67,756 Other administrative - 34,532 23,626 58,158 Total Administrative 87,160 441,070 23,626 551,856 Occupancy Telephone 49,033 4,264-53,297 Other occupancy 11,013 8,198-19,211 Insurance - 60,842-60,842 Utilities 96,067 9,154-105,221 Repairs and maintenance 52,277 68,219-120,496 Interest - 1,339-1,339 Total Occupancy 208,390 152,016-360,406 Depreciation 327,172 28,450-355,622 Total Expenses $ 2,359,742 $ 1,882,037 $ 23,626 $ 4,265,405 See accompanying notes to financial statements. 7

Statements of Cash Flows Years Ended June 30, 2016 2015 Cash Flows from Operating Activities Changes in net assets $ 90,094 $ 9,339 Adjustments to reconcile change in net assets to net cash from operating activities: Depreciation 376,311 355,622 Loss on legal settlement - 27,500 Loss on sale of property and equipment 3,976 - Proceeds from capital grants (53,337) (94,345) (Increase) decrease in current assets: Promises to give 20,000 20,000 Medical patient accounts receivable (74,619) (8,346) Other receivables (15,053) 50,714 Prepaid expenses (37,866) (22,997) Grants (62,623) 25,613 Security deposits 400 - Inventory 1,295 (6,221) Increase (decrease) in current liabilities: Accounts payable (6,352) 39,753 Payroll-related liabilities 45,184 9,633 Deferred revenue (2,375) (5,133) Net Cash from Operating Activities 285,035 401,132 Cash Flows for Investing Activities Purchase of property and equipment (408,034) (233,754) Proceeds from the sale of property and equipment 2,714 - Proceeds from redemption of certificates of deposit 411,299 1,139,314 Purchase of investments and certificates of deposit (332,264) (1,169,920) Net Cash for Investing Activities (326,285) (264,360) Cash Flows from Financing Activities Proceeds from capital grants 53,337 28,651 Principal payments on long-term debt (11,633) (10,960) Net Cash from Financing Activities 41,704 17,691 Net Increase in Cash and Cash Equivalents 454 154,463 Cash and Cash Equivalents, beginning of year 358,020 203,557 Cash and Cash Equivalents, end of year $ 358,474 $ 358,020 Supplemental Disclosure Cash paid for interest on long-term debt $ 643 $ 1,339 8 See accompanying notes to financial statements.

Notes to Financial Statements June 30, 2016 and 2015 1. Nature of the Organization The Sunshine Community Health Center (the Center) is a non-profit corporation organized to provide comprehensive primary medical and dental care, mental health services, substance abuse counseling and related health care services responsive to the needs of the community, especially to those persons who may lack access to these services because of financial, language, lifestyle, health status, or cultural barriers. The main clinic is located in Sunshine, Alaska with an additional site in Willow, Alaska, to serve residents of the upper Susitna Valley. The Center has provided medical services since 1987 and, effective in 2000, is a Federal Community Health Center pursuant to Section 330 of the Public Health Service Act. 2. Summary of Significant Accounting Policies This summary of significant accounting policies of the Sunshine Community Health Center, Inc. is presented to aid in understanding its financial statements. The financial statements and notes are the representations of the Center s management, which is responsible for their integrity and objectivity. These accounting principles conform to accounting principles generally accepted in the United States of America. Basis of Accounting The Center s accounting records are maintained on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities. Financial Statement Presentation The financial statement presentation follows the recommendations of the American Institute of Certified Public Accountants in its Audit and Accounting Guide, Health Care Organizations, which incorporates by reference FASB codification 958, Financial Statements of Not-for-Profit Organizations. Under FASB codification 958, the Center is required to report information regarding its financial position and activities according to three classes of equity: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Cash and Cash Equivalents For purposes of the statement of cash flows, the Center considers the balances in all checking and savings accounts and petty cash to be cash. Unconditional Promises to Give Unconditional promises to give are recognized as revenues in the period in which the promise is made, and as assets, decreases in liabilities, or expenses depending upon the form of the benefits received. Promises to give, if any, that are contingent upon substantive conditions being met, are recognized when the conditions have been met. Inventories Pharmaceutical inventories are recorded at average cost, not to exceed market. Pharmaceutical inventories are expensed on their obsolescence date. 9

Notes to Financial Statements Property and Equipment Property consists of land and buildings. Equipment is comprised primarily of medical and office equipment and furnishings that are carried at cost pursuant to a $2,000 capitalization threshold. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 39 years for buildings and 5 years for equipment. The cost of maintenance and repairs is charged to expense when incurred. Property and equipment is considered to be owned by the Center regardless of the sources of funds used to pay for acquisitions. Governmental grantors, however, may have a reversionary interest in the property and may determine or restrict the use of any proceeds from the sale of these assets. Net Patient Service Revenue Patient service revenue is reported at the estimated realizable amounts from patients, third-party payers and others for services rendered. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods when final settlements are determined. Patient billings are based on standard charges for services provided. The Center s participation agreements with the Medicare and Medicaid programs provide for payments on a per-encounter basis that may differ from standard charges. Contribution Revenue Contributions received are recorded as increases in unrestricted, temporarily restricted, or permanently restricted net assets, depending upon the existence and/or nature of any donor restrictions. Grant Revenue The Center s grant revenue is primarily from the U.S. Department of Health and Human Services. Grant revenues are recognized in accordance with the terms of the grant agreements. Grants receivable, if any, represent the excess of allowable expenses over cash receipts. Charity Care The Center grant revenue provides services to indigent patients and performs certain case management services on a charity care basis using a discounted sliding fee structure based on family income. Because the Center does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue. Income Tax Status The Center is exempt from income taxes as a non-profit corporation under Section 501(c)(3) of the Internal Revenue Code (IRS) and applicable income tax regulations of the State of Alaska, except for net income from unrelated business, of which the Center has none. This organization applies the provisions of Topic 740 of the FASB Accounting Standards Codification relating to accounting for uncertainty in income taxes. The Center annually reviews its tax positions taken in accordance with the recognition standards. The Center believes that it has no uncertain tax positions which would require disclosure of adjustment in these financial statements. Tax years 2012-2014 are still subject to examination by IRS. 10

Notes to Financial Statements Fair Value Measurements Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Included in investment related line items in the financial statements are certain financial instruments carried at fair value. Other financial instruments are periodically measured at fair value, such as when impaired. Fair value is the price that would be received to sell an asset or paid to transfer liability in an orderly transaction between market participants at the measurement date, that is, other than in a forced liquidation or distress sale. The Center s financial assets and liabilities carried at fair value have been classified based on a hierarchy defined by ASC 820. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset s or a liability s classification is based on the lowest level of input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows: Level 1 Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Level 2 Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Inputs included in quoted prices for similar assets or liabilities in active markets, quoted prices. Level 3 Level inputs are unobservable inputs for the asset or liability. Unobservable inputs are inputs that reflect the reporting entity s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. Estimates 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Subsequent Events Management has evaluated subsequent events through September 14, 2016, the date on which the financial statements were issued (see note 15). 11

Notes to Financial Statements 3. Cash and Cash Equivalents Cash balances are comprised of the following amounts: June 30, 2016 Book Balance Bank Balance Checking and savings $ 357,174 $ 419,165 Petty cash 1,300 - $ 358,474 $ 419,165 June 30, 2015 Book Balance Bank Balance Checking and savings $ 356,682 $ 391,352 Petty cash 1,338 - $ 358,020 $ 391,352 The Center is not party to any financial instruments with off balance sheet risk. Financial instruments which potentially subject the Center to concentrations of credit risk are demand deposits held in excess of the Federal Deposit Insurance Corporation (FDIC) insured amount. The Center maintains cash balances at three high credit quality commercial banks. These cash balances are insured by the FDIC up to $250,000. As of June 30, 2016 and 2015, the Center s cash balances exceeded insured and collateralized amounts at $0 and $108,655, respectively. At June 30, 2016, cash and cash equivalents amounting to $2,543 are restricted for the Domestic Violence program. At June 30, 2015, cash and cash equivalents amounting to $4,667 were restricted for the Domestic Violence program (see note 8). 4. Investments Investments consist of certificates of deposit (COD s) and mutual funds. Investments classified as short-term assets are $679,770 and $623,897 at June 30, 2016 and 2015, respectively, and consist of multiple COD s with various maturities of less than one year. Investments classified as noncurrent assets are $1,084,683 and $1,219,591 at June 30, 2016 and 2015, respectively, and consist of multiple certificates of deposits and mutual funds with various maturities greater than one year. All certificates of deposit and mutual funds are insured by the FDIC and SIPC, respectively, and are fully covered within FDIC and SIPC limits. 12

Notes to Financial Statements 5. Receivables Medical Patient Accounts Medical patient accounts receivable by payer type consist of the following: June 30, 2016 2015 Private pay $ 310,780 $ 321,073 Insurance 137,844 121,358 Medicaid 127,855 74,793 Medicare 31,747 30,163 608,226 547,387 Less allowances for contractual and uncollectible accounts (263,251) (277,031) $ 344,975 $ 270,356 Medical patient accounts receivable are stated at unpaid balances, less an allowance for doubtful accounts. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on its assessment of the current status of individual accounts. Balances outstanding more than 90 days are written off through a charge to the valuation allowance; those in excess of $150 are sent to collections subject to management s review. Because the final determination of collections on accounts receivable is not made until after the date of the auditor s report, it is considered reasonably possible that the estimated provision for bad debts may be subject to change that could be material to these financial statements. Promises to Give Promises to give, which include United Way pledges restricted for use in the subsequent period, were $0 and $20,000 for fiscal years ended June 30, 2016 and 2015, respectively. Management believes all promises to give to be collectible; accordingly, no provision for uncollectible amounts is reflected in the financial statements (see note 8). The remainder of this page intentionally left blank. 13

Notes to Financial Statements 6. Property and Equipment Property and equipment consist of the following at June 30: June 30, 2016 2015 Clinic, Talkeetna $ 4,283,127 $ 4,201,990 Clinic, Willow 2,492,812 2,492,812 Medical and dental equipment 668,254 707,740 Office furniture and equipment 717,509 724,865 Buildings and improvements 153,799 153,799 Land 333,523 176,351 Vehicles 249,572 220,044 8,898,596 8,677,601 Accumulated depreciation (2,916,987) (2,721,025) $ 5,981,609 $ 5,956,576 Depreciation expense for the years ended June 30, 2016 and 2015 is $376,311 and $355,622, respectively. 7. Long-term Debt June 30, 2016 2015 In June 2001, the Center entered into a loan agreement to purchase real property for $125,000. The note bears interest at 6% per annum and requires payments of $1,031 per month. Maturity is scheduled for August, 2016. $ 2,604 $ 14,237 2,604 14,237 Less current 2,604 11,664 Total Long-term, net of current $ - $ 2,573 The remainder of this page intentionally left blank. 14

Notes to Financial Statements 8. Temporarily Restricted & Unrestricted Support Support activity is as follows: June 30, 2016 Balance June 30, 2015 Temporarily Restricted Support Support Received in 2016 Amounts Released Balance June 30, 2016 Support Received in 2016 Unrestricted Support Released from Temporarily Restricted Total Support for 2016 For Operations Corporations: United Way - time $ 10,000 $ - $ (10,000) $ - $ 1,077 $ 10,000 $ 11,077 Safelite - DV purpose 4,667 - (2,124) 2,543-2,124 2,124 United Way - transit - purpose 10,000 - (10,000) - - 10,000 10,000 Other transit - purpose - - - - 9,949-9,949 Individuals: Unrestricted - - - - 1,907-1,907 Total Operations $ 24,667 $ - $ (22,124) $ 2,543 $ 12,933 $ 22,124 $ 35,057 June 30, 2015 Balance June 30, 2014 Temporarily Restricted Support Support Received in 2015 Amounts Released Balance June 30, 2015 Support Received in 2015 Unrestricted Support Released from Temporarily Restricted Total Support for 2015 For Operations Corporations: United Way - time $ 20,000 $ - $ (10,000) $ 10,000 $ 2,243 $ 10,000 $ 12,243 Safelite - DV purpose 6,695 - (2,028) 4,667-2,028 2,028 United Way - transit - purpose 20,000 - (10,000) 10,000-10,000 10,000 Other transit - purpose - - - - 9,781-9,781 Individuals: Unrestricted - - - - 1,820-1,820 Total Operations $ 46,695 $ - $ (22,028) $ 24,667 $ 13,844 $ 22,028 $ 35,872 9. Board Designated Net Assets It is the policy of the board to retain an amount of financial operating reserve equal to two months or more of normal expenses to cover any unanticipated cash flow difficulties, uninsured losses, or unbudgeted obligations/liabilities. Board designated net assets totaled $840,022 and $715,522 at June 30, 2016 and 2015, respectively. 10. Retirement Plan Beginning in the fiscal year 2008, the Center entered into a 401(k) retirement plan for eligible employees. To be eligible, an employee is required to have reached the age of 18 and an active participant with the Center (defined as 60 days of service to participate in the plan). Employee contributions fully vest immediately. Employer contributions vest according to years of service and employer contributions are fully vested after two years of service. Plan expense totaled $64,852 and $47,680 for the years ended June 30, 2016 and 2015, respectively. 15

Notes to Financial Statements 11. Charity Care The amount of charges foregone for services furnished under the Center s charity care policy totaled approximately $421,423 and $640,535 for years ended June 30, 2016 and 2015, respectively, when measured at its established rates. 12. Concentrations In 2016 and 2015, respectively, the Center received approximately 51% and 53% of its revenues from governmental grants as a Federally-designated community health center. All such grants carry the risk that funding could be either reduced or eliminated in future periods. 13. Commitments and Contingencies Malpractice Prior to April 21, 2003, the Center s professional liability insurance covered all medical services rendered by SCHC and its employees. The coverage was provided on a claims made basis, covering any claims made during the period. The Center did not record an estimated liability for unasserted claims that exceeded the liability insurance coverage as management believed losses, if any, would not materially affect its financial position or results of operation. Beginning April 21, 2003, the Bureau of Primary Health Care deemed the Center an employee of the federal government. Accordingly, it is provided liability protection under the Federal Tort Claims Act for personal injury damages resulting from the performance of all medical, dental and related functions. Revenue from Contracting Agencies The Center participates as a provider of health care services to Medicare and Medicaid patients. Reimbursements for covered services are based on interim payments. Final reimbursements are determined after submission of annual cost reports and audits thereof by the fiscal intermediaries, and the prospective payment system. Grant Expenses Expenses reimbursed under grants and contracts are subject to audit by governmental agencies or their representatives. Adjustments of amounts received under grants could result if the grants are audited by such agencies. Management believes all expenses are properly charged to the grants. 14. Subsequent Events On August 18, 2016, the Center entered into a purchase agreement to acquire a commercial real estate property located in Talkeetna, Alaska for $432,890. The purchase consists of a parcel of land with two buildings on the property. On August 17, 2016, the Center entered into a loan agreement for part of the property purchase for $299,250. The note bears interest at 5.950% per annum and requires payments at $2,542 per month. Maturity is scheduled for August 2031. 16

Supplementary Information 17

Schedule of Expenditures of Federal Awards Year Ended June 30, 2016 Catalog of Federal Domestic Grant Grant Assistance Award Award Number Number Amount Expenditures U.S. Department of Health and Human Services Consolidated Health Centers Cluster: Consolidated Health Centers 93.224 H80CS00568-13 $ 725,856 $ (48,180) Consolidated Health Centers 93.224 H80CS00568-14 522,457 350,021 Consolidated Health Centers 93.224 H80CS00568-15 791,636 235,531 Consolidated Health Centers 93.527 H80CS00568-14 1,612,088 1,168,239 Consolidated Health Centers 93.527 H80CS00568-15 1,814,049 539,722 Total U.S. Department of Health and Human Services 2,245,333 U.S. Department of Transportation Passed through the State of Alaska, Department of Transportation and Public Facilities: Alaska Community Transit 20.509 AK-18-X081 222,221 222,221 Total Expenditures of Federal Awards $ 2,467,554 Notes to Schedule of Expenditures of Federal Awards Basis of Presentation The accompanying schedule of expenditures of federal awards (the Schedule ) includes the federal grant activity of Sunshine Community Health Center, Inc. under programs of the federal government for the year ended June 30, 2016. The information in this Schedule is presented in accordance with the 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). Because the Schedule presents only a selected portion of the operations of Sunshine Community Health Center, Inc., it is not intended to and does not present the financial position, changes in net assets or cash flows of Sunshine Community Health Center, Inc. Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the full accrual basis of accounting. Such expenditures are recognized following the cost principles contained in Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. 18

Single Audit Section 19

Tel: 907-278-8878 Fax: 907-278-5779 www.bdo.com 3601 C Street, Suite 600 Anchorage, AK 99503 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards To the Board of Directors of the Sunshine Community Health Center, Inc. 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 Sunshine Community Health Center, Inc. (the Center), which comprise the statement of financial position as of June 30, 2016, and the related statements of activities, functional expenses and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated September 14, 2016. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Center s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Center s internal control. Accordingly, we do not express an opinion on the effectiveness of the Center 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 combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 20

Compliance and Other Matters As part of obtaining reasonable assurance about whether the Center s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit preformed in accordance with Government Auditing Standards in considering the Center s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Anchorage, Alaska September 14, 2016 21

Tel: 907-278-8878 Fax: 907-278-5779 www.bdo.com 3601 C Street, Suite 600 Anchorage, AK 99503 Independent Auditor's Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance To the Board of Directors of the Sunshine Community Health Center, Inc. Report on Compliance for Each Major Federal Program We have audited Sunshine Community Health Center, Inc. s (the Center) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Center s major federal programs for the year ended June 30, 2016. The Center'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 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 the Center 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 the Center's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Center's compliance. Opinion on Each Major Federal Program In our opinion, the Center complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2016. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 22

Report on Internal Control Over Compliance Management of the Center 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 the Center'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 the Center'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 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 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 charge with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Anchorage, Alaska September 14, 2016 23

Schedule of Findings and Questioned Costs Year Ended June 30, 2016 Financial Statements Section I - Summary of Auditor s Results Type of auditor s report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? yes X no Significant deficiency(ies) identified? yes X (none reported) Noncompliance material to financial statements noted? yes X no Federal Awards Internal control over major federal programs: Material weakness(es) identified? yes X no Significant deficiency(ies) identified? yes X (none reported) Type of auditor s report issued on compliance for major federal programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? yes X no Identification of major programs: CFDA Number Name of Federal Program or Cluster Agency 93.224 93.527 Health Centers Cluster: Consolidated Health Centers Affordable Care Act Health Center Program U.S. Department of Health and Human Services Dollar threshold used to distinguish between type A and type B programs: $ 750,000 Auditee qualified as low-risk auditee? X yes no Section II - Financial Statement Findings Required to be Reported in Accordance with Government Auditing Standards There were no findings related to the financial statements which are required to be reported in accordance with the standards applicable to financial audits contained in Government Auditing Standards. 24

Schedule of Findings and Questioned Costs, continued Year Ended June 30, 2016 Section III - Federal Award Findings and Questioned Costs There were no findings and questioned costs for federal awards (as defined in 2 CFR 200.516(a)) that are required to be reported. 25

Summary Schedule of Prior Audit Findings Year Ended June 30, 2016 There were no prior year audit findings reported. 26

Corrective Action Plan Year Ended June 30, 2016 There are no current year findings; therefore, no corrective action plan is required. 27