Sherman College of Straight Chiropractic, Inc. Financial Statements and Schedules Years Ended December 31, 2017 and 2016

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1 Financial Statements and Schedules Years Ended December 31, 2017 and 2016

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3 Page 1 TABLE OF CONTENTS Independent Auditor's Report Statements of Financial Position Statements of Activities and Changes in Net Assets Statements of Cash Flows Notes to Financial Statements Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditor's Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs Summary Schedule of Prior Year Audit Findings

4 Norman, Johnson & Co., PA Certified Public Accountants Independent Auditor's Report The Board of Trustees Sherman College of Straight Chiropractic, Inc. Spartanburg, South Carolina Report on the Financial Statements We have audited the accompanying financial statements of Sherman College of Straight Chiropractic, Inc. (a nonprofit organization) which comprise the statements of financial position as of December 31, 2017 and 2016, and the related statements of activities and changes in net assets and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the College'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 College'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. 191 N. Daniel Morgan Avenue, Spartanburg, South Carolina Phone: (864) Fax: (864) Member: American Institute of Certified Public Accountants South Carolina Association of Certified Public Accountants North Carolina Association of Certified Public Accountants

5 Page 3 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sherman College of Straight Chiropractic, Inc. as of December 31, 2017 and 2016, 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 Supplementary 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 on page 25, 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 April 19, 2018, on our consideration of Sherman College of Straight Chiropractic, 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 solely 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 the effectiveness of the Organization's 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 Sherman College of Straight Chiropractic, Inc.'s internal control over financial reporting and compliance. - /l,t:j/1 f U'). I Spartanburg, South Carolina April 19, 2018

6 Statements of Financial Position December 31, 2017 and 2016 ASSETS Current Assets Cash and cash equivalents Accounts receivable Tuition and fees Other Short term investments Contributions receivable Inventories Prepaid expenses Other current assets Total current assets ,757,838 7,569 1,485 10,363, , ,315 54,661 23,680 13,507, ,870,853 13,115 8,980,600 94, ,733 52,454 23,680 13,158,633 Land, Buildings and Equipment Land Land improvements Buildings Equipment and furniture Library books Capitalized leased equipment Vehicles Less accumulated depreciation Net land, buildings and equipment 181, ,988 3,829,491 1,752,852 71, , ,233 7,090,902 3,636,157 3,454, , ,988 2,880,204 1,748,014 71, , ,233 6,136,777 3,409,170 2,727,607 Other Assets Cash surrender value life insurance Contributions receivable-noncurrent portion Loans receivable - noncurrent portion Long-term investments and restricted cash Notes receivable - revolving funds Construction in progress Donated sculpture Total other assets 30, ,481 7,718 1,992, ,202 2,585,174 10,000 5,561,237 30,078 9,177 1,762, , ,672 10,000 2,900,198 Total assets 22,523,902 18,786,438 The accompanying notes are an integral part of these financial statements.

7 Page4 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable - trade Accounts payable - construction Accrued payroll and withholdings Current portion of capital lease obligations Charitable gift annuities payable Accrued vacation Prepaid revenue Other accrued liabilities Total current liabilities ,095 1,065,420 28,607 6,933 49, ,342 29,465 59,581 1,448, , ,007 30,856 20,416 55, ,620 87,566 20, ,349 Long-Term Liabilities Capital lease obligations - noncurrent portion Charitable gift annuities payable Total long-term debt 349, ,237 6, , ,142 Refundable Government Loan Funds 712, ,831 Total liabilities 2,510,136 1,716,322 Net Assets Unrestricted Temporarily restricted Permanently restricted 17,569,062 1,151,803 1,292,901 15,307, ,708 1,231,150 Total net assets 20,013,766 17,070,116 Total liabilities and net assets 22,523,902 18,786,438

8 Page 5 Statements of Activities and Changes in Net Assets Years Ended December 31, 2017 and Changes In Unrestricted Net Assets Revenues and other additions Student tuition and fees Less scholarships and grants Net tuition and fees Federal grants and contracts Gifts and private grants Sales and services of educational departments Organized activities related to educational departments Investment income Realized and unrealized gains (losses) on investments Other sources Auxiliary enterprises Total unrestricted revenues 11,931,562 (413,190) 11,518, , , , , , ,458 17,114 60,308 13,720,954 11,482,102 (414,331) 11,067, , , , , , ,619 11,203 63,369 12,754,868 Net assets released from restrictions Satisfaction of donor restrictions Total net assets released from restrictions 24,750 24,750 34,490 34,490 Total unrestricted revenues and other additions 13,745,704 12,789,358 Expenses Educational and general Instruction Research Academic support Student services Institutional support Total educational and general 5,550, , ,225 1,188,486 3,325,619 11,276,088 5,277, , ,241 I, 115,288 2,925,846 10,524,841 Auxiliary enterprises (Gain) loss on disposition of fixed assets 204,151 3, ,805 (16,556) Total expenses 11,483,900 10,719,090 Increase (decrease) in unrestricted net assets 2,261,804 2,070,268 The accompanying notes are an integral part of these financial statements.

9 Page6 Statements of Activities and Changes in Net Assets (Continued) Years Ended December 31, 2017 and Changes In Temporarily Restricted Net Assets Contributions Earnings on investments Realized and unrealized gains (losses) on investments Net assets released from restrictions 452,256 28, ,099 (24,750) ,916 85,436 (34,490) Increase (decrease) in temporarily restricted net assets 620,095 79,136 Changes In Permanently Restricted Net Assets Contributions Earnings on investments Realized and unrealized gains (losses) on investments 58, ,585 5, ,626 Increase (decrease) in permanently restricted net assets 61,751 7,845 Increase (decrease) in net assets 2,943,650 2,157,249 Net assets, beginning of year 17,070,116 14,912,867 Net assets, end of year 20,013,766 17,070,116 The accompanying notes are an integral part of these financial statements.

10 Page 7 Statements of Cash Flows Years Ended December 31, 2017 and Cash Flows From Operating Activities Cash received from students 11,465,817 11,108,656 Cash received from contributors 503, ,972 Cash received from educational departments' activities 480, ,196 Cash received from auxiliary enterprises 60,308 63,369 Interest and dividends received 275, ,794 Cash received (returned) for federal grants 98, ,308 Other cash receipts 17,114 11,203 Interest paid (503) (1,485) Wages and benefits paid for faculty and staff (7,684,835) (7,178,030) Payments to vendors for goods and services (3,307,513) (3,164,753) Disbursements to students for financial aid (140,176) (131,816) Net cash provided by (used in) operating activities 1,767,391 2,017,414 Cash Flows From Investing Activities Purchase of property and equipment (2,408,784) (351,533) Proceeds from sale of fixed assets ,097 Proceeds from (purchase ot) investments (843,185) (960,673) Disbursements of loans to students and staff (22,000) (84,000) Repayments of loans from students and staff 191, ,006 Repayment of loans from others 20,400 20,400 Net cash provided by (used in) investing activities (3,061,306) (1,006,703) Cash Flows From Financing Activities Receipt of contributions restricted for long-term investment 60,751 6,039 Receipts of earnings (losses) restricted for investment 195, ,433 Repayment of Federal Perkins loan advances (74,931) Payments on capital lease obligations (20,416) (44,345) Payments of annuity obligations (54,995) (60,932) Net cash provided by (used in) financing activities 180,900 (58,736) Net increase (decrease) in cash and cash equivalents (1,113,015) 951,975 Cash And Cash Equivalents Beginning of year 3,870,853 2,918,878 End of year 2,757,838 3,870,853 The accompanying notes are an integral part of these financial statements.

11 Page 8 Statements of Cash Flows (Continued) Years Ended December 31, 2017 and Reconciliation Of Changes In Net Assets To Net Cash Provided By (Used In) Operating Activities Change In Net Assets Adjustments To Reconcile Change In Net Assets To Net Cash Provided By (Used In) Operating Activities Depreciation and amortization (Gain) loss on disposition of fixed assets Increase (decrease) in provision for bad debts Net realized and unrealized (gains) losses on investments (Earnings) losses restricted for long-term investment Contributions restricted for long-term investment Repayment of Federal Perkins loan advances Change in assets and liabilities (Increase) decrease in accounts receivable (Increase) decrease in contributions receivable (Increase) decrease in inventories (Increase) decrease in prepaid expenses (Increase) decrease in other current assets Increase (decrease) in accounts payable - trade Increase (decrease) in accrued payroll and withholdings Increase (decrease) in deferred tuition and fees Increase (decrease) in accrued vacation Increase (decrease) in other accrued liabilities Increase (decrease) in refundable government loan funds Total adjustments Net cash provided by (used in) operating activities 2,943,650 2,157, , ,919 3,661 (16,556) (38,827) (57,244) (769,458) (322,619) (195,560) (115,433) (60,751) (6,039) 74,931 4,061 (5,293) (441,579) 12,925 20,418 (11,851) (2,207) (2,510) (23,680) (28,120) (18,843) (2,249) 4,000 (58,101) 53,616 (3,278) 21,448 38,925 1,701 45,218 (5,307) (1,176,259) (139,835) 1,767,391 2,017,414 The accompanying notes are an integral part of these financial statements.

12 Page 9 Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies The significant accounting and reporting policies followed by Sherman College of Straight Chiropractic, Inc. ("the College") in the preparation of the accompanying financial statements are described below. a. Operations The College operates a chiropractic educational facility in Spartanburg, South Carolina. Its students are from various parts of the United States and foreign countries. The College's support comes primarily from tuition, fees, and contributions. The financial statements, which are presented on the accrual basis of accounting, have been prepared to focus on the College as a whole and to present balances and transactions according to the existence or absence of donorimposed restrictions. Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donorimposed restrictions. Accordingly, net assets and changes therein are classified as follows: Permanently restricted net assets - Net assets subject to donor-imposed stipulations that they be maintained permanently by the College. Generally, the donors of these assets permit the institution to use all or part of the income earned on related investments for general or specific purposes. Temporarily restricted net assets - Net assets subject to donor-imposed stipulations that may or will be met by actions of the College and/or the passage of time. Unrestricted net assets - Net assets not subject to donor-imposed stipulations. Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donorimposed restrictions. 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 stipulation or by law. Expirations of temporary restrictions on net assets (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications between the applicable classes of net assets. Results from operations in the statements of activities reflects all transactions increasing or decreasing unrestricted net assets except those items of a capital nature - that is, associated with long-term investment or physical plant. b. Gift Reporting The College reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets and does not require that they be expended during the current reporting period. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Donor-restricted contributions and government grants or aid whose restrictions are met in the same reporting period in which they are received are reported as unrestricted in the statements of activities.

13 Page 10 Notes to Financial Statements Note 1 - (continued) The College reports gifts of land, buildings and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets are to be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the College reports expiration of donor restrictions when the donated or acquired long-lived assets are placed in service. Contributions, including unconditional promises to give, 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. An allowance for uncollectible contributions receivable is provided based upon management's judgment including such factors as prior collection history, type of contribution and nature of fund-raising activity. At December 31, 2017 and 2016 the allowance for uncollectibles was 106,625 and 55,900. c. Granting of Credit The College's policy is not to grant credit to students. Tuition and related fees are due by the sixth scheduled class day of the quarter. Any deferred tuition plan is due by the first Tuesday of the second month after the quarter begins. If a student has an outstanding balance, Sherman will not allow the student to graduate, receive a transcript, or enroll in a subsequent quarter, until the balance is paid in full. Any unpaid balance is written off when the student is no longer expected to attend the College. The College participates in the Federal Perkins Loan Program and previously made loans to students which are due with interest, after the student is no longer enrolled in a post-secondary institution and applicable grace or deferment periods have expired. The College estimates an allowance for loan losses based upon the status of the student and aging of the loan. Uncollectible loans are assigned to the U.S. Department of Education who then retains collection rights and the College's pro-rata (usually percent) share of the loan if collected. The College also participated with The Education Resources Institute in a prior period in making loans to students and is required to repurchase loans greater than 120 days past due. The College's policy is to consider all loans on which payments are not currently being made and 50 percent of the balance on those on which payments are being made as doubtful and to record an allowance for loan losses of this amount. The loans will be charged off when collection bureau activities are exhausted. The College converts International Student Scholarships to loans if graduates do not return to their native country. The College considers 75 % of the balance to be doubtful and has recorded an allowance for loan losses of this amount. The College advanced funds to two former students to assist in opening an office. Although the students are making minimal payments, the College has determined that an allowance for loan losses of 100 percent should be established. d. Inventory Inventories of the bookstore and central supply are valued at the lower of cost or market, determined on the firstin, first-out method.

14 Page 11 Notes to Financial Statements Note l - ( continued) e. Land, Buildings and Equipment Physical plant and equipment are stated at cost at date of acquisition or fair market value at the date of donation in the case of gifts. Repairs and maintenance not increasing the value or extending the useful lives of the assets are expensed as incurred. Depreciation and amortization are provided using the straight-line method. The College's policy is to capitalize asset acquisitions with a unit cost of 2,000 or more, effective January 1, The estimated useful lives of the assets are as follows. Land improvements Buildings Equipment and furniture Leased equipment Vehicles years 50 years 5-15 years 5 years 5 years Fixed asset disposals are eliminated from the asset accounts and the accumulated depreciation accounts. Gains or losses on disposition of fixed assets are included in current year income. Depreciation and lease amortization expense was 311,588 and 276,919. f. Income Tax Status The College is a non-profit organization which is exempt from income taxes under Internal Revenue Code Section 50l(c)(3) and is not a private foundation. g. Cash and Cash Equivalents For purposes of the statements of cash flows, the College considers all highly liquid unrestricted debt instruments purchased with a maturity of three months or less to be cash equivalents. h. Contributed Services The College receives contributed services from alumni and other volunteers who assist in fundraising efforts by working with College staff in organizing and running various fundraising activities. In accordance with the provisions of Financial Accounting Standards Board, or F ASB, Accounting Standards Codification, or ASC, , "Accounting for Contributions Received and Contributions Made", the value of such services, which the College considers, in any case, not practicable to estimate, have not been recognized in the statements of activities. i. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates based on management's knowledge and experience. Due to their prospective nature, actual results could differ from those estimates.

15 Page 12 Notes to Financial Statements Note 1 - (continued) j. Advertising Costs The College follows the policy of charging costs of advertising to expense as incurred. Advertising expense for the years ended December 31, 2017 and 2016 was 35,485 and 19,881, respectively. k. Date Through Which Subsequent Events Have Been Evaluated The College has evaluated subsequent events through April 19, 2018; the date the financial statements were available to be issued. Note 2 - Investments Investments are carried at market value and realized and unrealized gains and losses are reflected in the statements of activities. The College reports investment income and gains and losses on investments as increases or decreases in unrestricted net assets unless a donor or law temporarily or permanently restricts their use. Shortterm investments consist of unrestricted temporary investments which the College has the ability to convert to cash if needed. Market value is determined based on quoted market price for mutual funds, equities, government securities and corporate bonds and stated value for other investments. The College's temporary investments at December 31, 2017 and 2016 were comprised of the following: 2017 Fair Cost Value Certificates of Deposit Money market & cash 178, ,931 Mutual funds 744, ,938 Equities 4,361,818 5,404,806 Government securities Corporate bonds 3,914,504 3,929,995 Accrued interest 34,405 34, : Unrealized Appreciation (DeEreciation) 70,630 1,042,988 15,491 I , , ,277 4,501,565 2,220, ,137 10, Investment advisory fees of 104,502 and 77,600 for the years ended December 31, 2017 and 2016 have been recorded as an institutional support expense in the accompanying statements of activities. Fees of 6,729 and 4,887 respectively have been offset against earnings on investments of temporarily restricted net assets and fees of 14,956 and 14,432 have been offset against earnings on investments of permanently restricted net assets.

16 Page 13 Notes to Financial Statements Note 2 - (continued) Long-term investments and restricted cash consist of the following at December 31, 2017 and 2016: 2017 Unrealized Fair Appreciation Cost Value (Deereciation) 2016 Money market & cash 79,691 79,691 50,656 Equities 1,103,774 1,355, ,495 1,208,813 Government securities 354,062 Corporate bonds 549, ,639 2, ,293 Accrued interest 4,985 4,985 1,592 1: The participation and ownership of restricted cash and investments at December 31, 2017 is as follows: Cash and Temporary Other Net Assets Savins;s Investments Total Permanently restricted 12,092 1,278,973 1,291,065 Temporarily restricted 67, , , : The College typically maintains cash and cash equivalents and temporary investments in local banks which may, at times, exceed the FDIC limits. Cash held for the Perkins Loan Program must be maintained in an interest bearing checking account and totaled 453,509 and 235,918 at December 31, 2017 and Note 3 - Fair Value Measurement of Investments Effective January I, 2009, the College adopted the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, , "Fair Value Measurements". It defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC, , "Fair Value Measurements" establishes a hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entities own assumptions about how market participants would value an asset or liability based on the best information available. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.

17 Page 14 Notes to Financial Statements Note 3 - (continued) The three levels of fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities that the Organization has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the same term of the assets or liabilities. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liabilities. A financial instrument's categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The following table represents the financial instruments that are measured at fair value at December 31: 2017 Fair Value Level 1 Level2 Level3 Investments Money market and cash 258, ,622 Mutual funds 814, ,938 Equities 6,760,075 6,760,075 Corporate bonds 4,482,633 4,482,633 Accrued interest 39,390 39,390 Total investments at fair value 12,355,658 12,355, Fair Value Level 1 Level2 Level3 Investments Money market and cash 317, ,319 Mutual funds 817, ,277 Certificates of deposit 225, ,000 Equities 5,710,378 5,710,378 Government securities 2,574,810 2,574,810 Corporate bonds 1,086,430 1,086,430 Accrued interest 11,802 11,802 Total investments at fair value 10,743,016 10,518, ,000

18 Page 15 Notes to Financial Statements Note 3 - (continued) Fair value for Level I is based on quoted market prices in active markets that the College has the ability to access for identical assets and liabilities. The College does not adjust the quoted market price. Fair value for level 2 is based on quoted prices for similar assets in active markets and model based valuation techniques for which all significant assumptions are observable. Note 4 - Pledges Receivable Multi-year pledges consisted of pledges made to the Dreams Realized campaign in connection with the current capital project (see note 19). Pledges totaled 450,285, net of allowances of 57,908, and are shown as temporarily restricted net assets. Management has estimated amounts due in 2018 of 110,804 and amounts due in years of 339,481. No discounting of receivables has been recorded since the amount would be immaterial. At December 31, 2017, additional pledges receivable of 85,493, net of allowances of 48,717, are due within one year. At December 31, 2016, pledges receivable of 94,198, net of allowances of 55,900, were due within one year. Note 5 - Notes and Loans Receivable Notes receivable revolving funds consist primarily of Federal Perkins Loans on which repayments were loaned to other students who are eligible. After September 30, 2017, no funds may be loaned. Advances from the Federal government under the Perkins loan program are distributable to the Federal government upon liquidation of the program and thus are reflected as a liability in the statements of financial position. An allowance for doubtful accounts of 350,000 and 380,000 has been provided on Federal Perkins Loans receivable of944,367 and 1,125,413 at December 31, 2017 and 2016, respectively. The College has based its estimate upon the aging ofreceivables. It is possible that management's estimate may change in future years. During 1995, the College entered into an agreement for the benefit of its students whereby the College participated in the Guaranteed Access to Education (GA TE) Loan Pool. Repayment by students is projected to be used to retire the underlying bonds before any amounts are returned to the College. Subsequent repayments will be distributed to the participants in the pool. It is currently estimated that the present value of future cash flows from these loans to Sherman is 0 and the College has previously written off the entire balance. Per agreement with The Education Resources Institute (TERI) the College was required to repurchase outstanding loans with a principal balance of 281,900 and accrued interest of 157,715. Of this amount 76,638 had been collected by December 31, The College has elected to record an allowance of 100 percent on all outstanding balances due to non-payment. Bad debt expense adjustment decreased 3,177 for the year ended December 31, 2017 and increased 6,922 for the year ended December 31, The total receivable as of December 31, 2017, is 349,125 with an allowance of349, 125.

19 Page 16 Notes to Financial Statements Note 5 - (continued) The College has an International Student Scholarship program which provides scholarships to non-resident aliens who are not eligible for any federal financial assistance. The recipient must sign a statement that he or she will return to their native country upon graduation and if they do not return, the scholarship becomes a loan and must be repaid in full. At December 31, 2017, the College had two loans receivable totaling 30,870 repayable over 5 to 15 years, with interest at 5 to 7 percent per annum on the unpaid balance. The College has estimated these loans to be 25 percent collectible and an allowance for doubtful loans has been recorded at 23,153. During the years ended December 31, 2005 and 2006, the College advanced two former students a total of 150,816. One note with a maximum loan amount of 90,000 dated October 14, 2005, had advanced the former students 89,166 to help fund their practice. A total of 51,750 was also advanced to fund the purchase of equipment. The College advanced an additional 9,900 to cover initial lease fees. These advances are in default on repayment and the College has recorded an allowance for doubtful loans of 100% of the outstanding balance. The non-current portion of loans receivable as shown in the statement of financial position as of December 31, 2017, consisted of International Student loans - net of 7,718. Note 6 - Endowments Sherman College of Straight Chiropractic, lnc.'s endowment consists of twelve individual funds established primarily for scholarship and operating purposes. Its endowment consists of donor-restricted and boarddesignated endowment funds. As required by United States generally accepted accounting principles, net assets associated with endowment funds are classified and reported based on the existence or absence of donorimposed restrictions. The Board of Trustees of the College has interpreted the South Carolina Uniform Prudent Management of Institutional Funds Act (the Act) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the College classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donorrestricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the College in a manner consistent with the standards of prudence prescribed by the Act. In accordance with the Act, the College considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. The duration and preservation of the fund 2. The purposes of the College and the donor-restricted endowment fund 3. General economic conditions 4. The possible effect of inflation and deflation 5. The expected total return from income and the appreciation of investments 6. Other resources of the College 7. The investment policies of the College

20 Page 17 Notes to Financial Statements Note 6 - (continued) The College's endowment net asset composition by type of fund as of December 31, 2017 was as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds General 65, , ,799 Scholarships 65, , ,191 Equipment 6,197 57,536 63,733 Revolving loan 13,928 13, ,292,901 1,430,651 Changes in endowment net assets for the year ended December 31, 2017 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year 82,544 1,231,150 1,313,694 Investment return: Investment income 17, ,327 Net appreciation 119,810 2, ,395 Total investment return 137,750 2, ,722 Contributions 58,779 58,779 Appropriation of endowment assets for expenditures (82,544) (82,544) Endowment net assets, end of year ,292, The College's endowment net asset composition by type of fund as of December 31, 2016 was as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds General 37, , ,895 Scholarships 40, , ,448 Equipment 3,837 56,586 60,423 Revolving loan 13,928 13, ,231,150 1,313,694

21 Page 18 Notes to Financial Statements Note 6 - (continued) Changes in endowment net assets for the year ended December 31, 2016 are as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year 1,223,305 1,223,305 Investment return: Investment income 18, ,478 Net appreciation 64,520 1,626 66,146 Total investment return 82,544 2,080 84,624 Contributions 5,765 5,765 Appropriation of endowment assets for expenditures Endowment net assets, end of year From time to time, the fair value of assets associated with the individual donor-restricted endowment funds may fall below the level that the donor or the Act requires the College to retain as a fund of perpetual duration. In accordance with generally accepted accounting principles, deficiencies of this nature that are reported in unrestricted net assets were 0 as of December 31, 2017 and The College has adopted investment and spending policies for endowment assets that attempt to protect the principal of the funds against permanent loss; generate sufficient investment return to provide sustainable funding for current operating needs; and maintain the purchasing power of the assets over the long-term. Endowment assets consist of donor-restricted funds that the College must hold in perpetuity and, also, boarddesignated funds in 2007 before the change in the law. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to maximize long-term growth of income and principal while assuming a moderately aggressive level of investment risk. The College may invest the endowment funds in cash and cash equivalents, U.S. Government and Agency securities, certificates of deposit, Banker's acceptance, corporate bonds, commercial paper and common stocks. To satisfy its long-term rate-of-return objectives, the College relies on a total return strategy in which the investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The College targets a diversified asset allocation that places a greater emphasis on equity securities to achieve its long-term objectives within prudent risk constraints. The objective of the College's endowment spending policy is to provide a steady, growing income stream to support the College's scholarship programs while providing sufficient reinvestment to protect the endowment from inflation. Endowment spending is limited to the portion of net appreciation and investment income allocated to the percentage of endowment assets held for scholarship programs to total assets of the endowments.

22 Page 19 Notes to Financial Statements Note 7 - Notes Payable and Line of Credit The College has obtained a line of credit from BB&T in the amount of 1,000,000 at an interest rate of 1.50% above LIBOR and maturing on December 6, The line of credit is secured by the College's gross receipts. The outstanding balance at December 31, 2017 was 0. Total interest expense on the line of credit for the year ended December 31, 2017 was 0. On November 28, 2017, the College obtained a construction loan to finance a capital project (see Note 19). The loan is secured by a mortgage on the property. The maximum principal amount of the construction loan is 14,400,000 and matures on November 28, Interest accrues at one-month LIBOR plus 1.5% and interest only payments will commence January 1, As of December 31, 2017, the College had not drawn any funds from the construction loan. The covenants provide that the College shall not permit the sum of its unrestricted net assets plus its temporarily restricted net assets at the end of any fiscal year to be less than 10,000,000. Note 8 - Capital Lease Obligations The College has entered into capital lease obligations detailed as follows: 2017 Five new Xerox copiers and ten printers costing 97,525 requiring 60 monthly lease payments of1,743 beginning May 2013 including taxes. At the end of the lease the College has the option to purchase the copiers at fair market value. Accumulated amortization totaled 91,023 at December 31, _.,_93_2_ 6,932 Less current portion 6, Long-term capital lease obligations========= ,348 27,348 20,416 6,932 Total interest expense on capital lease obligations for the years ended December 31, 2017 and 2016 was 503 and 1,485, respectively. Note 9 - Retirement Plan The College established the Sherman College of Straight Chiropractic Defined Contribution Retirement Plan on January 1, The plan is a defined contribution 403(b) plan. All employees are immediately eligible to contribute to the plan. After one year of service, the plan requires the employer to contribute to the plan up to a maximum of 8% of total employee compensation determined by years of service. Vesting in employer contributions occurs ratably over a five-year period. The employer's match for the years ended December 31, 2017 and 2016 was 207,937 and 197,577, respectively.

23 Page 20 Notes to Financial Statements Note 10 - Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes at December 31, 2017 and 2016: Program activities Scholarships Special building programs Pledges on capital projects Equipment CSG equipment funds Endowment spending Total ,871 78, ,285 15,128 47, ,682 I, 151, ,312 73,622 8,024 42, , ,708 Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes as follows: Purpose restrictions accomplished Scholarships Capital expenses Total ,750 24, ,641 13,849 34,490 Note 11 - Permanently Restricted Net Assets Permanently restricted net assets consist of the following at December 31, 2017 and 2016: Investments in perpetuity, the income from which is expendable to support program activities - scholarships , ,712 Endowment Trust, amounts determined by Board governance policy is expendable to support college operations 610, ,924 Health Center Equipment Fund, amounts determined by Board governance policy is expendable for equipment 57,536 56,586 Revolving loan funds, the income from which is restricted to increase loan base Total 13,928 1,292,901 13,928 1,231,150

24 Page 21 Notes to Financial Statements Note 12 - Operating Lease The College entered into a lease agreement with Apple, Inc. on December 18, 2014, for 50 ipads. The lease requires three annual payments of 13,474 beginning in January Lease expense for the years ended December 31, 2017 and 2016 totaled 13,474 and 13,474, respectively. Note 13 - Natural Classification of Expenses Expenses incurred during the years were for: Salaries and wages 6,353,045 5,887,307 Student aid - wages 140, ,816 Payroll taxes 466, ,417 Other employee benefits 901, ,867 Professional fees and services 880, ,142 Supplies 183, ,859 Travel 335, ,378 Printing and publications 123,246 92,855 Postage and shipping 38,225 34,580 Special programs and events 684, ,035 Office and occupancy 879, ,724 Interest on indebtedness 28,162 24,468 Other expenses 111, ,492 Purchases for resale 42,260 43,787 Depreciation and amortization 311, ,919 Loss (gain) on disposal ofassets 3,661 (16,556) Total expenses 11,483,900 10,719,090 Although a portion of the institutional advancement and alumni relations offices might be deemed management and general, total departmental expenses of 495,242 and 268,320 in 2017 and 2016 are considered fundraising expenses and are included in institutional support expenses in the accompanying statements of activities. Program services consist of instruction, research, academic support, student services, auxiliary enterprises, and copy center and mailroom and totaled 8,195,900 and 7,852,518 in 2017 and 2016, respectively. Note 14 - Contingencies The South Carolina Commission of Higher Education requires an irrevocable bond or letter of credit to be posted each year by private educational institutions for the benefit of their students. The College has purchased an education bond with a face value of1,200,000 as of December 31, 2017.

25 Page 22 Notes to Financial Statements Note 14 - (continued) The College participates in various federal student financial assistance programs under Title IV of the Higher Education Act of 1965 (as amended) in accordance with the program participation agreement entered into with the United States Department of Education. Since April 1996, federal student financial aid has included the Federal Perkins Loan and Federal Work Study programs administered by the College as well as Federal Family Education Loan Program provided by the government lender. To be eligible to participate in these federal student financial assistance programs, the College must meet stated financial criteria, which the Department of Education has determined the College meets and be properly accredited by a recognized accrediting agency. The College is presently accredited by the Commission on Accreditation of the Council on Chiropractic Education (CCE) to award the Doctor of Chiropractic degree through The Southern Association of Colleges and Schools Commission on Colleges awarded initial accreditation to the College effective January 1, The College was reaffirmed of accreditation in 2017 and must be reaffirmed in The College's program participation agreement with the Department of Education has a current expiration date of September 30, In addition, the College is licensed to offer a program leading to the Doctor of Chiropractic by South Carolina Commission on Higher Education through May 31, Due to the nature of the College's operations, particularly in connection with the health center which is a training facility, the College is subject to potential litigation. The College maintains various insurance coverages including professional liability, umbrella and directors' and officers' liability. Note 15 - Self Insurance The College is self-insured for major medical group insurance. In connection therewith, the College has purchased stop-loss coverage for annual claims in excess of 40,000 per individual with an annual maximum aggregate cost of 679,134. Note 16 - Commitments The College has entered into a long-term agreement for enrollment management services. The service agreement is for a period of eight years beginning January 2011 and requires annual payments of45,000. The College has entered into an agreement dated October 10, 2016 with Sansbury Foods, LLC to provide cafe services. The agreement is effective as of January 1, 2017 through December 31, 2019 and requires the College to pay a management fee of 5,000 per month. The agreement can be terminated by either party by giving ninety days' notice in writing. There are provisions for reduction of the management fee should sales exceed certain levels. The College has a three-year contract with the President, effective January I, 2015 and ending December 31, An additional five-year contract was signed January If the College terminates the agreement without cause, the President will be entitled to severance pay equal to twelve months of the President's base salary.

26 Page 23 Notes to Financial Statements Note 17 - Functional Allocation of Expenses The costs of providing the College's various programs and activities have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Note 18 - Charitable Gift Annuity The College received an interest in a condominium in Spartanburg, South Carolina in October During 2008, the College sold the unit. The College also received cash gift annuities of 1,000,000 and 225,000 during the year ended December 31, In connection with the donations, the College agreed to pay 1,260, 15,500 and 4,219 quarterly beginning September 30, 2014, July 1, 2006, and December 15, 2006, respectively. The present value of these anticipated future payments has been estimated based upon the recipients' life expectancies using a discount rate of 4.315%, 4. 7% and 5.11 % per annum. As of December 31, 2017, the estimated present values of these future payments are recorded as charitable gift annuities payable of 398,645. Unrestricted contribution revenue was recognized for difference between the fair value of assets received and the originally calculated present value of the annuities payable of 347,842 in 2006 and 3,964 in Changes in the value of split-interest agreements of 27,660 in 2017 and 22,983 in 2016 are recognized in the statement of activities within the category for institutional support. Note 19 - Facilities Master Plan In April 2015, the College contracted with Brailsford and Dunlavey, Inc., ("B&D") program managers, to provide master planning advisory services to the College for the purpose of informed decision making pertaining to the College's current and future facility needs. The College further contracted with B&D in November 2015 for advanced planning services relative to facilities planning, and in September 2016, the College contracted with B&D for implementation services with respect to the College's Capital Improvement Plan ("Project") which includes the addition of a Student Center and the renovation of several buildings on campus including Scallon, Olsen and the Health Center. The estimated total cost of the Project is approximately 18.3 million dollars. The College completed phase I of the project, the Olsen Building renovation, in July 2017 and total costs of this renovation of 949,287 were capitalized as buildings. In November 2017, the College contracted with Harper Corporation to renovate the Scallon building and construct the Gelardi Student Center. Per the contract, the guaranteed maximum price of construction for these two buildings ("Phase II") is 13,772,032. Phase II project costs incurred through December 31, 2017, of 2,585,174, have been capitalized as construction in progress. The costs include construction costs, architectural fees, program management fees and inspection fees. The Scallon building renovation is expected to be completed by November 15, 2018, while the Gelardi Student Center is expected to be completed no later than January 31, In September 2017, the College signed a letter of conditions with the USDA for permanent financing of 16 million of this project. Additional projects costs are being self-financed. Per the letter of conditions, permanent financing is to include a Community Facilities Direct Loan of 14,936,209 and a Community Facilities Guaranteed Loan (through an approved lender) of 1,063,791. Terms of the direct loan are repayment over a term of no greater than 3 7 years at the lower of the interest rate at the time of approval, 3.25%, or the interest rate at closing. Terms of the guaranteed loan are to be determined by negotiation with approved lender, but must also be approved by the USDA.