THE DELAWARE STATE FAIR, INC. FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014

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1 FINANCIAL STATEMENTS

2 CONTENTS Financial Statements Exhibit Independent Auditor s Report Statements of Financial Position - Income Tax Basis Statements of Activities and Changes in Net Assets - Income Tax Basis Statements of Cash Flows - Income Tax Basis A B C Notes to Financial Statements

3 Independent Auditor s Report Board of Directors The Delaware State Fair, Inc. Harrington, Delaware Report on the Financial Statements We have audited the accompanying financial statements of The Delaware State Fair, Inc. (the Organization), which comprise the statements of financial position - income tax basis, as of December 31, 2015 and 2014, and the related statements of activities and changes in net assets - income tax basis and cash flows - income tax basis 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 the basis of accounting the Organization uses for income tax purposes; 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Organization's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

4 The Delaware State Fair, Inc. Page -2- We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and net assets of The Delaware State Fair, Inc. as of December 31, 2015 and 2014 and its activities and changes in net assets for the years then ended in accordance with the basis of accounting the Organization uses for income tax purposes described in Note 1. Basis of Accounting We draw attention to Note 1 of the financial statements, which describes the basis of accounting. The financial statements are prepared on the basis of accounting the Organization uses for income tax purposes, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Dover, Delaware April 13, 2016

5 STATEMENTS OF FINANCIAL POSITION - INCOME TAX BASIS ASSETS Current Assets Cash and cash equivalents $ 2,171,110 $ 2,148,568 Accounts receivable 521, ,950 Interest receivable 12,610 4,505 Prepaid expenses 118, ,286 Total Current Assets 2,823,610 2,791,309 Property and Equipment Buildings, improvements and equipment 34,967,767 34,536,165 Land 364, ,182 Construction in progress 7,542 35,331,949 34,907,889 Less: Accumulated depreciation 20,020,679 18,894,250 Net Property and Equipment 15,311,270 16,013,639 Other Assets Investments, at fair value 13,008,118 13,400,821 Investment, at cost 155, ,628 Deferred income taxes 342,843 Total Other Assets 13,163,746 13,899,292 Total Assets $ 31,298,626 $ 32,704,240 See notes to financial statements.

6 Exhibit A LIABILITIES AND NET ASSETS Current Liabilities Current portion of note payable $ 332,174 $ 317,382 Accounts payable 461, ,627 Retirement contributions payable 39,302 36,454 Deposits 1, Deferred income 698, ,438 Total Current Liabilities 1,532,462 1,373,651 Long-Term Liability Note payable, net of current portion shown above 1,697,093 2,029,267 Total Liabilities 3,229,555 3,402,918 Net Assets Unrestricted: Contributed capital 337, ,730 Cumulative excess of revenue and support over expenses 27,731,341 28,977,592 Total Net Assets 28,069,071 29,301,322 Total Liabilities and Net Assets $ 31,298,626 $ 32,704,240

7 Exhibit B THE DELAWARE STATE FAIR, INC. STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS - INCOME TAX BASIS YEARS ENDED Revenue and Support $ 6,352,512 $ 6,703,909 Operating Expenses 6,053,025 6,525,934 Income Before Depreciation 299, ,975 Depreciation Expense 1,137,664 1,055,740 Loss From Operations (838,177) (877,765) Other Income (Expense) Interest and dividend income 439, ,530 Interest expense (100,516) (56,058) Gain on sale of property and equipment 3,154 15,525 Net realized and unrealized gains (losses) on investments (407,541) 214,231 Other Income (Expense), Net (65,231) 1,147,228 Excess (Deficiency) of Revenue and Support Over Expenses Before income taxes (903,408) 269,463 Income Tax Expense 342,843 Excess (Deficiency) of Revenue and Support Over Expenses (1,246,251) 269,463 Issuance of Shares 14,000 16,500 Increase (Decrease) in Unrestricted Net Assets (1,232,251) 285,963 Unrestricted Net Assets Beginning of year 29,301,322 29,015,359 Ending of year $ 28,069,071 $ 29,301,322 See notes to financial statements.

8 STATEMENTS OF CASH FLOWS - INCOME TAX BASIS YEARS ENDED Cash Flows From Operating Activities Cash received from sales, concessions, and rentals $ 6,488,098 $ 6,604,174 Cash paid to suppliers and employees (6,047,256) (6,603,109) Interest and dividends received 431,567 1,160,990 Interest paid (100,516) (56,058) Net Cash Provided By Operating Activities 771,893 1,105,997 Cash Flows From Investing Activities Purchase of property and equipment (434,285) (2,441,724) Proceeds from sale of property and equipment 3,154 15,525 Purchase of investments (6,438,905) (6,718,839) Proceeds from sale of investments 6,424,067 6,355,238 Net Cash Used For Investing Activities (445,969) (2,789,800) Cash Flows From Financing Activities Issuance of shares 14,000 16,500 Proceeds from note payable 2,500,000 Repayments of note payable (317,382) (215,851) Net Cash Provided By (Used For) Financing Activities (303,382) 2,300,649 Net Change In Cash and Cash Equivalents 22, ,846 Cash and Cash Equivalents Beginning of year 2,148,568 1,531,722 End of year $ 2,171,110 $ 2,148,568 See notes to financial statements.

9 Exhibit C RECONCILIATIONS OF EXCESS (DEFICIENCY) OF REVENUE AND SUPPORT OVER EXPENSES TO NET CASH PROVIDED BY OPERATING ACTIVITIES Excess (Deficiency) of Revenue and Support Over Expenses $ (1,246,251) $ 269,463 Adjustments To Reconcile Excess (Deficiency) of Revenue and Support Over Expenses To Net Cash Provided By Operating Activities Depreciation 1,137,664 1,055,740 Gain on sale of property and equipment (3,154) (15,525) Net realized and unrealized (gains) losses on investments 407,541 (214,231) (Increase) decrease in: Accounts receivable (15,526) (68,046) Dividend receivable 188,806 Interest receivable (8,105) (1,346) Prepaid expenses 13,872 (4,726) Deferred income taxes 342,843 Increase (decrease) in: Accounts payable (11,470) 8,595 Retirement contributions payable 2, Deposits 500 Deferred income 151,131 (113,553) Net Cash Provided By Operating Activities $ 771,893 $ 1,105,997

10 Note 1 - Summary of Significant Accounting Policies Organization and Business Activity The Delaware State Fair, Inc. (the Fair), a not-for-profit Delaware corporation, was initially formed in 1919, for the purpose of promoting and encouraging agriculture, horticulture and domestic arts for the information and betterment of the inhabitants of rural communities within the State of Delaware. The Fair offers shares ($2.50 par value) for sale to the general public. The organization has authorized 12,000 shares of which 8,080 and 8,052 are issued and outstanding at December 31, 2015 and 2014, respectively. Shareholders have certain rights and obligations, including the annual election of the Fair s Board of Directors. Current Fair policy provides that on an annual basis, each shareholder shall receive one gate pass good for the ten days of fair together with an invitation to the annual shareholders dinner. No part of the Fair s assets, earnings or revenues inures to the benefit of any shareholder. Basis of Accounting The Fair s policy is to prepare its financial statements on the accounting basis used for federal income tax purposes. The income tax basis of accounting differs from accounting principles generally accepted in the United States of America. The primary differences in the financial statements of the Fair using the income tax basis as opposed to using accounting principles generally accepted in the United States of America are the accounting of its unconsolidated subsidiary at historical cost and the accelerated method used for the depreciation of property and equipment. Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. -1-

11 Cash and Cash Equivalents For purposes of the statements of cash flows - income tax basis, the Fair considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Fair maintains its cash in bank accounts at high quality financial institutions. The balances, at times exceed federally insured limits. Advertising Advertising costs are expensed as incurred and total $125,396 and $140,395 for the years ended December 31, 2015 and 2014, respectively. Property and Equipment Purchased property and equipment is stated at cost, and donated assets are recorded at fair market value as of the date of donation. Depreciation is calculated using straight-line and accelerated methods over the estimated useful lives of the assets. Maintenance and repair costs are expensed as incurred. Gains and losses on sales or retirements are reflected in income. Income Taxes The Fair qualifies as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code and its activities are generally not subject to income tax. Investments The Fair has investments in marketable securities consisting of common stocks, exchange traded funds, mutual funds and real estate. Marketable securities are stated at fair value, and unrealized holding gains and losses are included in income. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. -2-

12 Management s Review Management has evaluated all subsequent events through April 13, 2016, the date the financial statements were available to be issued. Note 2 - Investments The following is a summary of the Fair s investments: Gross Gross Unrealized Unrealized Fair 2015 Cost Losses Gains Value Common stocks $ 459,809 $ (6,797) $ 24,779 $ 477,791 Exchange traded funds 4,524,757 (104,052) 193,267 4,613,972 Mutual funds 8,178,331 (324,917) 43,325 7,896,739 Real Estate 18,537 1,079 19,616 Total $ 13,181,434 $ (435,766) $ 262,450 $ 13,008,118 Gross Gross Unrealized Unrealized Fair 2014 Cost Losses Gains Value Common stocks $ 344,703 $ (2,329) $ 177,249 $ 519,623 Exchange traded funds 3,768,602 (40,173) 580,994 4,309,423 Mutual funds 8,642,535 (143,252) 72,492 8,571,775 Total $ 12,755,840 $ (185,754) $ 830,735 $ 13,400,821-3-

13 Return on investments is comprised of the following: Interest and dividends $ 439,672 $ 399,298 Realized gains 410, ,700 Unrealized gains (losses) (818,297) 28,531 Investments fees (56,851) (55,680) Total $ (24,720) $ 557,849 The gross realized gains from the sales of securities for the years ended December 31, 2015 and 2014 are $577,370 and $362,893, respectively. The gross realized losses from sales of securities for the years ended December 31, 2015 and 2014 are $166,614 and $177,193, respectively. Fair value of investments is determined based upon a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 Level 2 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the assets or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. -4-

14 If the assets or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the assets or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2015 and Common Stocks: Valued at the closing market price reported on the active market in which in which the individual securities are traded. Exchange Traded Funds: Valued at quoted prices as reported on the active market in which the funds are traded. Mutual Funds: Valued at quoted prices as reported on the active market in which the mutual funds are traded. Real Estate: Valued at quoted prices as reported on the active market in which the real estate investment trusts are traded. -5-

15 The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Fair believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following tables set forth by level, within the fair value hierarchy, the Fair s investments at fair value Level 1 Level 2 Level 3 Total Common Stocks Energy $ 53,127 $ 53,127 Consumer staples 169, ,552 Health care 55,653 55,653 Consumer discretionary 23,155 23,155 Financials 21,882 21,882 Telecommunication services 70,036 70,036 Utilities 84,386 84,386 Total Common Stocks 477, ,791 Exchange Traded Funds U.S. equity funds 2,296,079 2,296,079 International equity funds 1,480,890 1,480,890 Taxable bond funds 190, ,514 Sector equity funds 646, ,489 Total Exchange Traded Funds 4,613,972 4,613,972-6-

16 2015 Level 1 Level 2 Level 3 Total Mutual Funds U.S. equity funds 1,593,212 1,593,212 International equity funds 239, ,603 Tax-Exempt bond funds 546, ,370 Taxable bond funds 4,146,547 4,146,547 Alternative funds 1,132,652 1,132,652 Sector equity funds 195, ,972 Commodities 42,383 42,383 Total Mutual Funds 7,896,739 7,896,739 Real Estate 19,616 19,616 Total Investments at Fair Value $ 13,008,118 $ -0- $ -0- $ 13,008, Level 1 Level 2 Level 3 Total Common Stocks Energy $ 52,907 $ 52,907 Consumer staples 38,252 38,252 Health care 74,511 74,511 Consumer discretionary 52,525 52,525 Industrials 79,383 79,383 Information technology 52,598 52,598 Materials 16,075 16,075 Financials 131, ,394 Telecommunication services 2,433 2,433 Utilities 19,545 19,545 Total Common Stocks 519, ,623-7-

17 2014 Level 1 Level 2 Level 3 Total Exchange Traded Funds U.S. equity funds 2,624,410 2,624,410 International equity funds 1,275,030 1,275,030 Taxable bond funds 138, ,108 Commodities 8,561 8,561 Sector equity funds 263, ,314 Total Exchange Traded Funds 4,309,423 4,309,423 Mutual Funds U.S. equity funds 1,545,714 1,545,714 International equity funds 285, ,726 Tax-Exempt bond funds 398, ,992 Taxable bond funds 4,958,188 4,958,188 Alternative funds 1,164,400 1,164,400 Sector equity funds 187, ,033 Commodities 31,722 31,722 Total Mutual Funds 8,571,775 8,571,775 Total Investments at Fair Value $ 13,400,821 $ -0- $ -0- $ 13,400,821 Note 3 - Income Taxes Certain activities conducted by the Fair are subject to federal unrelated business income tax. Since 2006, short-term provisions of the Internal Revenue Code related to income from controlled organizations has enabled the Fair to exclude certain rental income received from Harrington Raceway, Inc. (HRI) resulting in net operating losses from unrelated business activities. In 2015, Congress permanently extended this exclusion. -8-

18 The net operating loss (NOL) carryforward as of December 31, 2015 for federal income tax purposes is approximately $2,648,000. The Fair also has approximately $135,000 of charitable contribution deductions which expire over the next five years. The NOL s expire as follows: December 31, $ 1,697,000 December 31, ,000 Deferred taxes are the result of the NOL carryforward related to unrelated business income activities. The Fair has recorded a valuation allowance of $500,940 and $126,545, as of December 31, 2015 and 2014, respectively, on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. Since rental income received from HRI will no longer be subjected to unrelated business income tax, management does not believe the NOL s will be utilized. As such, the valuation allowance has been increased in 2015 which effectively eliminated the deferred tax asset. There was no other activity in the valuation allowance account during 2015 and The Fair recognizes the tax benefit from an uncertain tax position only if it is more-likelythan-not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Management has evaluated the Fair s tax positions and concluded that the Fair has taken no uncertain tax positions that require adjustment to the financial statements. Generally, the Fair is no longer subject to income tax examinations by the U.S. federal, state and local authorities for years before 2012, due to the expiration of the statute of limitations. -9-

19 Note 4 - Investment, At Cost The Fair owns approximately 77% of the outstanding shares of HRI. This investment is recorded at its historical cost. Note 5 - Note Payable Note payable consists of the following: Term Note Payable - PNC $ 2,029,267 $ 2,346,649 Less: Current portion 332, ,382 Long-Term Portion $ 1,697,093 $ 2,029,267 Maturity of note payable is as follows: 2016 $ 332, , , , ,566 Thereafter 206,195 Total $2,

20 The term note payable to PNC is being amortized over 7 years with a maturity date of June 25, The PNC note bears interest at LIBOR plus 260 basis points. However, the Fair entered into an interest rate swap contract that effectively converts the interest rate on the note to a fixed rate of 4.56%. The notional amount under the swap decreases as principal payments are made on the note so that the notional amount equals the principal outstanding under the note. The swap is designed to hedge the risk of changes in interest payments on the note caused by changes in LIBOR. The swap was issued at market terms so that it had no fair value at its inception. The fair value of the interest rate swap at December 31, 2015 and 2014 is $33,377 and $36,628, respectively. If the Fair were to terminate the contract prior to the maturity date, the termination cost would approximate fair value. The Fair also maintains an unsecured $2,850,000 revolving line of credit with PNC. The variable interest rate is 3.18% at December 31, 2015 and is based upon the daily LIBOR rate plus 275 basis points. The line of credit is renewed annually, and has been extended until September 30, Among other things, the line of credit agreement contains covenants against pledging property owned by the Fair. The outstanding balance at December 31, 2015 and 2014 was $-0-. The PNC facilities are cross-collateralized and cross-defaulted, such that collateral securing any of the obligations shall secure repayment of all obligations and a default under any obligations shall be a default under all obligations. Note 6 - Retirement Plan The Fair maintains a defined contribution pension plan covering substantially all employees who are at least 21 years of age and have completed 1 year of service and 1,000 hours. Employees may contribute up to 100% of their wages into the plan subject to limitations under the Internal Revenue Code. The Fair will contribute an additional 100% of the employees contribution, up to a maximum of 6% of the eligible employees compensation. Contributions totaled $49,061 and $51,109 for the years ended December 31, 2015 and 2014, respectively. In addition, the Fair may make annual discretionary profit sharing contributions at rates to be determined each year by the Board of Directors and allocated among participants in proportion to their compensation. Contribution rates were 4% and contributions totaled $34,033 and $32,103 for the years ended December 31, 2015 and 2014, respectively. -11-

21 Note 7 - Related Party Transactions Effective as of the beginning of 2015, the Fair as lessor entered into a new lease with HRI for the real estate used by HRI in its operations on the DSF fairgrounds. The 15 year lease is effective January 1, 2015 and contains provisions for two successive five year renewals. Annual rent for the initial five year period ended December 31, 2019 is $500,000 and is payable monthly. Beginning in 2020, the annual rent is adjusted for the change in the specified Consumer Price Index with a minimum 1.5% annual increase. The lease provides for allocation between HRI and the Fair of various maintenance responsibilities for the property and also for the renegotiation of the rent after the initial term or once certain HRI bank debt obligations secured by the leasehold are retired, whichever comes first. Rental income from leases with HRI totals $500,000 and $576,024 for the years ended December 31, 2015 and 2014, respectively. Included in the Fair s revenue and support for the years ended December 31, 2015 and 2014 are $24,979 and $43,796, respectively, of fair admission and show tickets purchased by HRI. Included in the Fair s accounts receivable at December 31, 2015 and 2014 are $203,912 and $209,493, respectively, of receivables due from HRI. Included in the Fair s accounts payable at December 31, 2015 and 2014 are $11,893 and $16,126, respectively, of payables due to HRI. Included in the Fair s interest and dividend income for the years ended December 31, 2015 and 2014 are $-0- and $566,435, respectively, of dividends from HRI. The Fair purchases goods and services from various businesses that are owned by or affiliated with certain members of the Board of Directors of the Fair or Harrington Raceway, Inc. These purchases include transportation services, outdoor equipment sales and maintenance services, electrical equipment and supplies, construction services and insurance brokerage and are conducted in the normal course of business. -12-