Hollingsworth Funds, Inc. and Subsidiaries

Transcription

1 Report on Consolidated Financial Statements For the year ended

2 Contents Page Independent Auditor's Report Consolidated Financial Statements Consolidated Statement of Financial Position... 3 Consolidated Statement of Activities... 4 Consolidated Statement of Cash Flows Supplemental Schedules 1 - Combining Statement of Financial Position (Unaudited) Combining Statement of Activities (Unaudited)... 19

3 Independent Auditor's Report The Board of Directors Greenville, South Carolina Report on the Consolidated Financial Statements We have audited the accompanying consolidated statement of financial position of Hollingsworth Funds, Inc. and Subsidiaries ( Consolidated Funds ) as of, and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated financial statements based on our audit. We conducted our audit 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 consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our modified audit opinion.

4 Basis for Modified Opinion As described in Note 1 to the consolidated financial statements, Consolidated Funds has recorded its investment in two wholly-owned subsidiaries on the equity method of accounting. Accounting principles generally accepted in the United States of America require that these investments be consolidated. If the financial statements of these subsidiaries had been consolidated with those of Consolidated Funds, total assets would decrease by approximately $4 million, total liabilities would increase by approximately $4 million, and total unrestricted net assets would decrease by approximately $8 million at. Revenues and expenses would increase by approximately $4 million and $2 million, respectively for the year ended. Modified Opinion In our opinion, except for the effects of the matter disclosed in the Basis for Modified Opinion paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of as of, and the results of its activities and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Disclaimer of Opinion on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplementary information, which is the responsibility of management, is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Greenville, South Carolina April 25,

5 Consolidated Statement of Financial Position As of Assets Cash and cash equivalents $ 16,383,116 Marketable investment securities 175,175,398 Notes receivable 2,104,269 Due from subsidiaries 5,296,535 Other receivable - subsidiary 4,645,802 Income producing real estate, net 36,279,135 Real estate held for sale 84,373,729 Accrued rental income 2,414,917 Deferred leasing costs 243,926 Other assets 335,353 Investment in unconsolidated subsidiaries Bonaventure I & II, LLC 2,007,940 John D. Hollingsworth on Wheels, Inc. 14,677,441 Verdae Development, Inc. 13,530,812 30,216,193 Total assets $ 357,468,373 Liabilities Accrued expenses and other liabilities $ 1,270,547 Uncertainties, commitments, and contingencies (notes 7 and 9) Unrestricted net assets 356,197,826 Total liabilities and unrestricted net assets $ 357,468,373 See 3

6 Consolidated Statement of Activities For the year ended Revenues and gains Rental income $ 3,801,235 Interest and dividend income from investments 5,580,349 Realized gains on marketable investment securities 906,556 Unrealized gains on marketable investment securities 3,444,856 Gain on sale of real estate 3,231,301 Gain on release of mitigation bank credits 347,664 17,311,961 Expenses and losses Grants 7,270,944 Depreciation and amortization 632,565 Impairment loss on investment in unconsolidated subsidiary 1,750,222 Property taxes and licenses 1,011,865 Salaries and employee benefits 1,011,371 Rental related operations 647,784 Professional services 563,228 Other 263,535 Investment fees 537,527 Director fees 40,000 13,729,041 Revenues over expenses 3,582,920 Equity in net income from unconsolidated subsidiaries 21,255 Increase in unrestricted net assets 3,604,175 Unrestricted net assets, beginning of year 352,593,651 Unrestricted net assets, end of year $ 356,197,826 See 4

7 Consolidated Statement of Cash Flows For the year ended Operating activities Increase in unrestricted net assets $ 3,604,175 Adjustments to reconcile increase in unrestricted net assets to net cash used for operating activities: Depreciation and amortization 632,565 Gain on sale of real estate (3,231,301) Gain on release of mitigation bank credits (347,664) Equity in net income from unconsolidated subsidiaries (21,255) Realized gains on marketable investment securities (906,556) Unrealized gains on marketable investment securities (3,444,856) Impairment loss on investment in unconsolidated subsidiary 1,750,222 Changes in deferred and accrued amounts: Other receivable - subsidiary 108,972 Accrued rental income 58,299 Other assets 138,787 Accrued expenses and other liabilities 1,923 Net cash used for operating activities (1,656,689) Investing activities Collections on notes receivable 350,825 Purchases of real estate (1,369,481) Proceeds from sale of real estate, net of fees 4,997,412 Redemption of marketable investment securities, net of purchases 262,845 Advances to subsidiaries, net 24,539 Deferred leasing costs (63,589) Contributions to unconsolidated subsidiary (48,701) Distributions from unconsolidated subsidiary 290,000 Net cash provided by investing activities 4,443,850 Net increase in cash and cash equivalents 2,787,161 Cash and cash equivalents, beginning of year 13,595,955 Cash and cash equivalents, end of year $ 16,383,116 Noncash investing and financing activities Transfer of real estate from Funds to Verdae Properties $ 692,579 Sale of real estate from Funds to Verdae Development $ 4,977,720 See 5

8 Note 1. Summary of Significant Accounting Policies and Activities Economic activity: Hollingsworth Funds, Inc. ("Funds") is a nonprofit corporation organized to conduct activities for the benefit of religious, charitable, scientific, literary, and educational institutions within Greenville County, South Carolina. Specifically, Furman University will receive approximately 45 percent of the annual income distribution of Funds, and the YMCA will receive approximately 10 percent of the annual income distribution, with the remainder going to various other charitable organizations. Funds subsidiary, Verdae Properties, LLC ( Verdae Properties ), is engaged in the management and rental of real estate. Substantially all of Verdae Properties business activities are conducted in Greenville County, South Carolina. Funds' subsidiary, Buckfield Plantations, LLC ( Buckfield Plantations ), owns forestry land in South Carolina. Buckfield Plantations generates substantially all of its revenues from the sale of real estate and timber on its land. Funds' subsidiary, John D. Hollingsworth on Wheels, Inc. ("HOW") and its subsidiaries, manufactured, sold and serviced textile machinery, accessories and parts. HOW s fiscal year ends on the Sunday nearest to November 30th and customarily consists of four 13-week quarters for a total of 52 weeks. Every sixth year includes 53 weeks. HOW s current fiscal year ends on November 27, Funds uses this fiscal year end in determining its investment in HOW, as well as subsequent distributions. HOW closed its textile business and officially ceased its operations on December 31, HOW has accrued all costs associated with the close of business, but has not dissolved the corporation. HOW has not been consolidated into these consolidated financial statements as discussed on the following page. Funds wrote down its investment in HOW by $1,750,222 in 2016 to $14,677,441 at (Note 6). Funds subsidiary, Verdae Development, Inc. ( Verdae Development ), is engaged in the development of real estate it owns as well as real estate owned by Funds and its other subsidiaries. Verdae Development has not been consolidated into these consolidated financial statements as discussed on the following page. Verdae Properties subsidiary, Bonaventure I & II, LLC ("Bonaventure"), owns 30 percent of two office buildings located in Greenville, South Carolina. Verdae Properties has recorded its investment in Bonaventure under the equity method of accounting. Financial statement presentation: Funds is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. All net assets of Funds are considered unrestricted. 6

9 Note 1. Summary of Significant Accounting Policies and Activities, Continued Financial statement presentation, continued: The consolidated financial statements include the accounts of Funds, Verdae Properties, and Buckfield Plantations of which Funds is the sole member of each with 100 percent of financial and voting rights (collectively referred to, herein, as Consolidated Funds ). Funds has elected this financial statement presentation to align the consolidated financial statement presentation to tax and internal financial reporting. All significant intra-entity transactions and balances have been eliminated between Consolidated Funds. Consolidated Funds has recorded its investment in two wholly-owned subsidiaries (HOW and Verdae Development) on the equity method of accounting. Accounting principles generally accepted in the United States of America require that these investments be consolidated. If the financial statements of these subsidiaries had been consolidated with those of Consolidated Funds, total assets would decrease by approximately $4 million, total liabilities would increase by approximately $4 million, and total unrestricted net assets would decrease by approximately $8 million at. Revenues and expenses would increase by approximately $4 million and $2 million, respectively for the year ended. Cash and cash equivalents: Consolidated Funds considers all cash equivalents to be highly liquid investments with a maturity when purchased of three months or less. Consolidated Funds places its temporary cash investments with high quality financial institutions. At times, such investments may be in excess of Federal Deposit Insurance Corporation insurance limits. Marketable investment securities: Marketable investment securities are comprised of equity securities, corporate bonds and notes and mutual funds investing in debt and equity securities and investments in limited partnerships. These investments are recorded at fair value. Realized and unrealized gains and losses on marketable investment securities are included in the consolidated statement of activities in the period incurred. Notes receivable: Notes receivable consist of three notes due from customers related to real estate sales. Notes receivable are stated at estimated collectible amounts which approximate fair value. Interest income is recognized as earned using the interest method. At, notes receivable totaled approximately $2,104,000. Two of the notes receivable are due in quarterly principal and interest installments with interest accruing at 4 percent and the third note receivable is due in monthly principal and interest installments with interest accruing at 6 percent. The notes receivable are secured by real estate and mature from October 2020 to April Consolidated Funds evaluates the collectability of both interest and principal of its notes receivable to determine collectability. Management believes there are no collectability issues with notes receivable at, and no allowance has been recorded. 7

10 Note 1. Summary of Significant Accounting Policies and Activities, Continued Income producing real estate, net: Income producing real estate, net is recorded at estimated fair market value at date of donation if contributed to Consolidated Funds, or at cost if purchased. Consolidated Funds leases all of the real estate categorized as income producing. Major renewals and betterments are capitalized, while maintenance and repairs, which do not improve or extend the useful lives of the assets, are expensed. Depreciation is calculated primarily by the straight-line method over the estimated useful lives of the assets for consolidated financial statement purposes. Consolidated Funds reviews the carrying value of income producing real estate, net for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the estimated fair value of assets. Real estate held for sale: Real estate held for sale is stated at the lower of cost or estimated net realizable value. Consolidated Funds intentions are to sell this undeveloped real estate to an affiliated company or a third party which would continue future development. Production costs relating to mitigation bank credits are capitalized and allocated to individual mitigation bank credits based on estimated total costs and estimated total mitigation bank credits to be produced. Estimates are reviewed periodically and revised as needed. The first $10,000 of reforestation costs per year relating to timber held by Consolidated Funds is capitalized and amortized over seven years. Reforestation costs over $10,000 per year are capitalized and charged to operations in computing the gain on sale of timber. Capitalized reforestation costs are included within real estate held for sale on the consolidated statement of financial position and are presented net of accumulated amortization. Consolidated Funds reviews the carrying value of real estate held for sale for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the estimated fair value of assets. Accrued rental income: Accrued rental income represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. 8

11 Note 1. Summary of Significant Accounting Policies and Activities, Continued Deferred leasing costs: Leasing commissions are capitalized as deferred leasing costs and amortized on a straight-line basis over the life of the related leases. Lease commissions expense charged to earnings totaled approximately $113,000 during 2016 and are included in depreciation and amortization in the consolidated statement of activities. Estimated future leasing expense at is as follows: Revenue recognition: 2017 $ 89, , , ,088 Thereafter 31,945 $ 243,926 Rental income is recognized on a straight-line basis over the terms of the related lease agreements. Consolidated Funds accounts for real estate sales under the accrual method when certain criteria are met. Under the accrual method, profit is recognized when a sale has been consummated. The cost of the real estate is accumulated and is charged to cost of sales at the time revenue is recognized and is included when determining the gain on sale of real estate in the consolidated statement of activities. Consolidated Funds recognizes revenue from the sale of mitigation bank credits when the mitigation bank credits have been completely and properly released and is included in revenues and gains on the consolidated statement of activities. Consolidated Funds reports contributions of cash and other assets at estimated fair market value and such contributions are recorded as increases in unrestricted, temporarily restricted or permanently restricted net assets depending on the existence and/or nature of any donor restrictions. All of Consolidated Funds net assets are considered to be unrestricted under the terms of the entity s resolutions, bylaws and the Last Will and Testament of John D. Hollingsworth. Capitalization policies: Incidental costs related to the acquisition and development of real estate are deferred until the properties become operational. When the properties become operational, the costs are capitalized as part of the cost of the property. Interest costs are capitalized while development and construction is in progress. Direct costs incurred to facilitate leasing real estate are amortized over the life of the related lease. Direct costs incurred in connection with obtaining loans are amortized over the life of the related loan. 9

12 Note 1. Summary of Significant Accounting Policies and Activities, Continued Income taxes: Consolidated Funds is qualified under Internal Revenue Service Code Section 501(c)(3) and is therefore generally exempt from income taxes. Management is not aware of any material uncertain tax positions, and no liability has been recognized at. If incurred, interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the consolidated statement of activities. Grants: Grants are recorded as expenses when they are approved by the Board of Directors. Financial estimates and assumptions: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect Consolidated Funds consolidated financial position and changes in net assets and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Fair value of assets and liabilities: The carrying values of all of Consolidated Funds' financial instruments approximate their fair values. Consolidated Funds accounts for its financial assets and liabilities at fair value on a recurring basis. Consolidated Funds evaluates fair value for its non-financial assets and liabilities on a non-recurring basis. Recently issued accounting pronouncements: In August 2016, the Financial Accounting Standards Board ( FASB ) issued guidance to make targeted improvements to the not-for-profit financial reporting model, including changes in how a not-for-profit organization classifies its net assets, as well as the information it presents in financial statements and notes about its liquidity, financial performance, and cash flows. The amendments will be effective for Consolidated Funds for fiscal years beginning after December 15, 2017 and interim periods within fiscal years beginning after December 15, Consolidated Funds is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company s financial position, results of operations or cash flows. Subsequent events: Consolidated Funds has evaluated subsequent events through April 25, 2017, the date on which the consolidated financial statements were available for issuance. 10

13 Note 2. Financial Instruments Consolidated Funds estimate of fair value for its financial instruments is composed entirely of marketable investment securities held by a third party fund manager. The following framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect Consolidated Funds significant market assumptions. The three levels of the hierarchy are as follows: Level 1: Level 2: Level 3: Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that Consolidated Funds has the ability to access at the measurement date; Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; Inputs that are unobservable. Inputs broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Consolidated Funds fund manager generally uses the capital balance reported by each investment manager as the primary input to its valuation; however, adjustments to the reported capital balance may be made based on various factors, including, but not limited to, the attributes of the interest held, including the rights and obligations, and any restrictions or illiquidity on such interests, and the fair value of the investment s portfolio or other assets and liabilities. An individual investment s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes observable requires significant judgment by the fund manager. The fund manager considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by multiple, independent sources that are actively involved in the relevant market. The categorization of an investment within the hierarchy is based upon the pricing transparency of that investment and does not necessarily correspond to the fund manager s perceived risk of that investment. All of Consolidated Funds investments have been classified within Level 1, Level 2 or Level 3. Investment managers use the market approach valuation technique to value their investments in private equity and hedge funds. Most private equity funds are structured as closed-end, commitment-based investment funds where Consolidated Funds commits a specified amount of capital upon inception of the fund (i.e., committed capital) which is then drawn down over a specified period of the fund s life. Such funds generally do not provide redemption options for investors and, subsequent to final closing, do not permit subscriptions by new or existing investors. Accordingly, Consolidated Funds generally holds interests in such funds for which there is no active market, although, in some situations, a transaction may occur in the secondary market where an investor purchases a unit holder s existing interest and remaining commitment. 11

14 Note 2. Financial Instruments, Continued These interests, in the absence of a recent and relevant secondary market transaction, are generally classified as Level 3. Fair value estimates for private equity funds are determined by each investment manager based on recent filings, operating results, balance sheet stability, growth, and other business and market segment fundamentals. Due to the significant unobservable inputs in these valuations, Consolidated Funds includes these interests in Level 3. Investment managers provided the value for certain hedge funds based on inputs other than quoted prices that are observable. Due to this, hedge funds are valued at Level 2. Interests in private equity and hedge funds are valued at net asset value ( NAV ), as provided by the custodian, as a practical expedient to estimate fair value. Interest in hedge funds are typically redeemed on daily, weekly, monthly, or quarterly basis. Interest in private equity funds are typically redeemed whenever a triggering event takes place. Interest in private equity funds typically have a redemption notice period of 45 days. Assumptions used by investment managers due to the lack of observable inputs may significantly impact the resulting fair value and therefore Consolidated Funds results of its activities. The following table summarizes financial instruments recorded at fair value on a recurring basis as of : Quoted prices in active Significant markets for other Significant identical observable unobservable assets inputs inputs (Level 1) (Level 2) (Level 3) Total Mutual funds $ 83,777,505 $ - $ - $ 83,777,505 Common stocks 51,321, ,321,836 Bonds and notes 2,356, ,356,635 Private equity funds ,669,574 11,669,574 REITs 919, ,853 Hedge funds - 25,129,995-25,129,995 Total $ 138,375,829 $ 25,129,995 $ 11,669,574 $ 175,175,398 The following table presents changes in Level 3 for financial instruments measured at fair value on a recurring basis for the year ended : 12 Private equity funds Balance at beginning of the year $ 10,742,822 Change in net unrealized and realized losses (243,170) Purchases 3,612,834 Sales, distributions, and fees (2,442,912) Balance at end of year $ 11,669,574

15 Note 3. Other Receivable - Subsidiary In May 2010, Consolidated Funds reimbursed Verdae Development for certain development infrastructure costs totaling approximately $3.5 million. In addition, Consolidated Funds purchased certain land totaling approximately $3.7 million at Verdae Development s book value. In July 2008, the City of Greenville (the City ) agreed to reimburse Verdae Development for certain development costs and land. In 2010, the City approved reimbursement of approximately $9.3 million, including approximately $5 million of land and land improvements reimbursed by Consolidated Funds in May Reimbursement is derived from a formula based on a percentage of property taxes paid by taxpayers within the development area collected by the City. Consolidated Funds received City payments from Verdae Development of $108,972 during 2016 based on its proportionate share of the total reimbursement costs. A receivable for reimbursement of infrastructure costs and land to be reimbursed by Verdae Development totaling $4,645,802 is classified as an other receivable on the accompanying consolidated statement of financial position at. On May 10, 2011, Verdae Development reached an agreement for the City to assume control of certain land related to a park within the development that is part of the 2008 reimbursement agreement. Note 4. Income Producing Real Estate, Net Land and land improvements $ 112,328,205 Buildings 13,377,940 Mitigation bank 1,410,895 Timber 405,187 Furniture and fixtures 77, ,599,928 Less accumulated depreciation 6,947, ,652,864 Less real estate held for sale 84,373,729 $ 36,279,135 Depreciation expense for the year ended amounted to approximately $520,000. Note 5. Leases Consolidated Funds rental income is primarily derived from non-cancelable operating leases. The leases typically provide for guaranteed minimum rent, plus contingent rent based on a percentage of gross receipts and other miscellaneous charges to cover certain operating costs. Some of the leases contain renewal options and escalation clauses. Most of Consolidated Funds operating lease agreements include scheduled rent increases. Income on leases with scheduled rent increases is recognized on a straight-line basis over the lease term. The accompanying consolidated statement of financial position reflects accrued rental income of approximately $2,415,000 for rent recognized on the straight-line basis in excess of the amounts currently paid under the terms of the lease. Accrued rental income includes approximately $2,304,000 from one lessee whose individual balance represents 95 percent of the total accrued rental income. 13

16 Note 5. Leases, Continued Approximate future minimum lease payments receivable under the non-cancelable operating leases are due as follows: 2017 $ 2,988, ,855, ,492, ,710, ,304,149 Thereafter 16,206,797 27,558,268 Less amounts previously recognized as income (3,026,476) $ 24,531,792 Total rental income of approximately $3,801,000 for 2016 includes approximately $1,097,000 from two lessees whose individual balances represents 29 percent of rental income for the year ended. Note 6. Investment in Unconsolidated Subsidiaries As described in Note 1, Funds has several wholly-owned subsidiaries at. These subsidiaries include HOW, Verdae Properties, Buckfield Plantations, and Verdae Development. Funds consolidates Verdae Properties and Buckfield Plantations. As described in Note 1, Funds accounts for two of the wholly-owned subsidiaries (Verdae Development and HOW) under the equity method of accounting. During 2014, Verdae Properties sold 70 percent of two office buildings to a third party. In conjunction with this sale, Verdae Properties contributed its remaining 30 percent of the property to Bonaventure I & II, LLC. The office buildings are unconsolidated due to Verdae Properties no longer controlling the property. 14

17 Note 6. Investment in Unconsolidated Subsidiaries, Continued Summarized financial information for HOW, Verdae Development, and Bonaventure as of and for the year ended, except for HOW, which is presented as of and for the year ended November 27, 2016, is as follows: Verdae Bonaventure HOW Development (unaudited) (unaudited) Total assets $ 5,773,016 $ 8,982,283 $ 27,635,685 Liabilities $ 3,765,076 $ 1,541,738 $ 13,194,987 Equity 2,007,940 7,440,545 14,440,698 Total liabilities and equity $ 5,773,016 $ 8,982,283 $ 27,635,685 Revenue and gains $ 1,005,079 $ 2,260,703 $ 1,763,024 Expenses and losses 813,567 2,317,677 1,876,307 Net income (loss) 191,512 (56,974) (113,283) Distributions (290,000) - - Contributions 48, Impairment loss - (1,750,222) - Equity value of investment, beginning of year 2,057,727 16,484,637 13,644,095 Equity value of investment, end of year $ 2,007,940 $ 14,677,441 $ 13,530,812 The difference in the equity recorded by HOW and the equity value of the investment by Consolidated Funds relates to the step-up in basis Consolidated Funds received from the revocable trust, which is reduced as related assets in HOW are sold. As mentioned in Note 1, Funds determined that its investment in HOW was impaired at. Accordingly, Funds wrote down its investment in HOW by $1,750,222 in The difference in the equity recorded by Verdae Development and the equity value of the investment by Consolidated Funds relates to the recognition of gains and losses on the sale of real estate between the two companies. Note 7. Uncertainties Certain land owned by HOW has been contaminated by hazardous materials. HOW, in cooperation with federal and state authorities, has been engaged in removing hazardous materials, monitoring contamination levels and other remedial actions. In 1992, HOW and the previous owner of the land reached an agreement which established a trust for the costs of the clean-up. The agreement specified the percentages for allocating past and future clean-up costs between HOW (31.25 percent) and the previous owner (68.75 percent). HOW has accrued an estimate of the maximum liability based on currently available information. The total future costs of environmental cleanup at the site are estimated to be approximately $1.9 million. Based on the information currently available, HOW estimates the present value of its share of the future costs over the next 30 years to be approximately $900,000. This present value calculation is determined using a 5 percent discount rate and a 2 percent inflation rate at November 27, This amount has been recorded by HOW. 15

18 Note 8. Related Party Transactions During prior years, Consolidated Funds incurred fees for planning the development of land on behalf of Verdae Development which amounted to approximately $269,000. This amount is the due from subsidiaries on the accompanying consolidated statement of financial position. Consolidated Funds also financed the sale of land to Verdae Development for approximately $4,978,000 during This amount, plus accrued interest of approximately $50,200 are included in the due from subsidiaries in the accompanying consolidated statement of financial position. Consolidated Funds also recognized approximately $161,000 of interest income from this note for the year ending, which is included in interest and dividend income from investments on the accompanying consolidated statement of activities. Annual interest on the note accrues at a fixed rate of 4 percent. Principal and interest payments are due as real estate is sold and the note matures in April Consolidated Funds has one receivable due from Verdae Development for approximately $4,646,000 as described in Note 3 and another receivable due from Verdae Development for approximately $4,978,000 related to the purchase of land. Funds transferred real estate with a value of approximately $693,000 to Verdae Properties during Consolidated Funds paid approximately $160,000 to Verdae Development during 2016 for fees related to real estate consulting, negotiating, and project management services on behalf of Consolidated Funds. Consolidated Funds received an accounting fee from Verdae Development during 2016 for accounting services provided to Verdae Development. Accounting fees received for 2016 were $54,000 and are included in professional services on the accompanying consolidated statement of activities. Consolidated Funds paid marketing fees to Verdae Development during 2016 for marketing services provided to Consolidated Funds. Marketing fees paid for 2016 were $18,000 and are included in other expenses and losses on the accompanying consolidated statement of activities. Note 9. Commitments and Contingencies Various claims have been asserted against Funds' subsidiaries, some of which have resulted in litigation. Funds is also aware of other potential actions which could arise. The outcome of these claims cannot be reasonably determined. Directors of Funds believe there is sufficient insurance coverage and/or meritorious defenses in each of these cases. Certain private equity funds that Consolidated Funds invests in require capital commitments. Outstanding capital commitments on these investments total approximately $11,000,000 at. Note 10. Employee Benefit Plans The Company established a 401(k) plan and a 457(b) employee benefit plan in 2015 for all employees meeting certain eligibility requirements. The Company may make discretionary employer matching contributions on behalf of all qualified employees for the 457(b) plans. The 401(k) plan has a 5% employer match and a 1% profit sharing component. The total employer contributions for the 401(k) plan and 457 plan were $49,095 and $40,750, respectively, for the year ended. 16

19 Supplemental Schedule 1 Combining Statement of Financial Position (Unaudited) As of John D. Hollingsworth Verdae Buckfield Hollingsworth Hollingsworth Verdae Funds, Properties, Plantations, Consolidating Funds, Inc. on Wheels, Development, Combining Inc. LLC LLC Entries and Subsidiaries Inc. * Inc. Entries Combined Assets Cash and cash equivalents $ 14,910,299 $ 1,396,537 $ 76,280 $ - $ 16,383,116 $ 5,980,791 $ 677,450 $ - $ 23,041,357 Marketable investment securities 175,175, ,175, ,175,398 Notes receivable 291,239-1,813,030-2,104, ,104,269 Due from subsidiaries 5,077, , ,296, (5,296,535) - Other receivable - subsidiary 3,856, , ,645, ,749 8,612,595 (5,341,551) 8,612,595 Income producing real estate, net 1,362,805 34,916, ,279,135-3,315,826-39,594,961 Real estate held for sale 25,639,671 49,607,459 9,126,599-84,373, ,508 14,754,197 (1,520,799) 98,606,635 Accrued rental income - 2,414, ,414, ,414,917 Deferred leasing costs 1, , , ,926 Deferred income taxes ,076,000 55,998-1,131,998 Other assets 67, , , , , ,207 Investment in unconsolidated subsidiaries 130,297,128 2,007,940 - (102,088,875) 30,216, (28,208,253) 2,007,940 Total assets $ 356,679,390 $ 91,861,949 $ 11,015,909 $ (102,088,875) $ 357,468,373 $ 8,982,283 $ 27,635,685 $ (40,367,138) $ 353,719,203 * HOW ceased operations on December 31, As a result, the entity's operations have been presented as a discontinued operation and certain assets including inventory, property, plant, and equipment, and real estate have been reclassified as assets held for sale on the combining statement of financial position. NOTE: The supplemental schedules are not intended to combine under the basis as presented in the consolidated financial statements. 17

20 Supplemental Schedule 1 Combining Statement of Financial Position (Unaudited) As of John D. Hollingsworth Verdae Buckfield Hollingsworth Hollingsworth Verdae Funds, Properties, Plantations, Consolidating Funds, Inc. on Wheels, Development, Combining Inc. LLC LLC Entries and Subsidiaries Inc. Inc. Entries Combined Liabilities Accrued expenses and other liabilities $ 481,564 $ 788,983 $ - $ - $ 1,270,547 $ 155,940 $ 1,282,087 $ (50,186) $ 2,658,388 Due to related parties ,317 10,587,900 (10,661,217) - Revolving line of credit ,325,000-1,325,000 Other deferred liabilities ,312, ,312,481 Total liabilities 481, , ,270,547 1,541,738 13,194,987 (10,711,403) 5,295,869 Net Assets Capital stock ,700 13,000,000 (13,250,700) - Capital in excess of par value ,987,436 - (8,987,436) - Member's equity - 91,072,966 11,015,909 (102,088,875) Unrestricted net assets 356,197, ,197, (7,774,492) 348,423,334 Retained earnings (deficit) (1,797,591) 1,440, ,893 - Total net assets 356,197,826 91,072,966 11,015,909 (102,088,875) 356,197,826 7,440,545 14,440,698 (29,655,735) 348,423,334 Total liabilities and net assets $ 356,679,390 $ 91,861,949 $ 11,015,909 $ (102,088,875) $ 357,468,373 $ 8,982,283 $ 27,635,685 $ (40,367,138) $ 353,719,203 * Net assets of differs from the combining net assets due to differences between the investment cost of Funds and book values of HOW and Verdae Development (Note 6). NOTE: The supplemental schedules are not intended to combine under the basis as presented in the consolidated financial statements. 18

21 Supplemental Schedule 2 Combining Statement of Activities (Unaudited) For the year ended John D. Hollingsworth Verdae Buckfield Hollingsworth Hollingsworth Verdae Funds, Properties, Plantations, Consolidating Funds, Inc. On Wheels, Development, Combining Inc. LLC LLC Entries and Subsidiaries Inc. Inc. Entries Combined Revenues and gains Rental income $ 229,663 $ 3,571,572 $ - $ - $ 3,801,235 $ - $ 167,678 $ - $ 3,968,913 Interest and dividend income from investments 5,498,432 2,098 79,819-5,580, ,808 (161,469) 5,421,043 Realized gains on marketable investment securities 906, , ,556 Unrealized gains on marketable investment securities 3,444, ,444, ,444,856 Gain on sale of real estate 3,135,371-95,930-3,231,301 2,077,095 1,527, ,265 6,940,659 Reduction in environmental liabilities , ,000 Other ,911-27,263 Gain on release of mitigation bank credits 347, ,664 3,901 38, ,194 Total revenues and gains 13,562,542 3,573, ,749-17,311,961 2,260,703 1,763,024 (57,204) 21,278,484 Expenses and losses Grants 7,270, ,270, ,270,944 Depreciation and amortization 68, ,124 11, ,565 70, , ,139 Impairment loss on investment in unconsolidated subsidiary 1,750, ,750, (1,750,222) - Property taxes and licenses 184, ,655 6,983-1,011,865 24, ,455-1,187,432 Salaries and employee benefits 952,354 59, ,011, , ,343-2,309,137 Rental related operations 2, , , , ,187 Professional services 248, ,625 31, , , , ,072 Other 195,596-67, , , ,021-1,411,497 Investment fees 537, , ,527 Director fees 40, ,000-30,000-70,000 Total expenses and losses 11,250,054 2,361, ,422-13,729,041 1,330,832 1,960,284 (1,750,222) 15,269,935 Income tax provision (benefit) ,845 (83,977) - 902,868 Total expenses and losses 11,250,054 2,361, ,422-13,729,041 2,317,677 1,876,307 (1,750,222) 16,172,803 Revenues over (under) expenses 2,312,488 1,212,105 58,327-3,582,920 (56,974) (113,283) 1,693,018 5,105,681 Equity in net income (loss) from unconsolidated subsidiaries 1,291, ,512 - (1,461,944) 21, , ,512 Contributed capital from Funds - 1,192,579 - (1,192,579) Distributions to Funds - (1,760,000) (415,000) 2,175, Increase (decrease) in net assets 3,604, ,196 (356,673) (479,523) 3,604,175 (56,974) (113,283) 1,863,275 5,297,193 Net assets, beginning of year 352,593,651 90,236,770 11,372,582 (101,609,352) 352,593,651 7,497,519 14,553,981 (31,519,010) 343,126,141 Net assets, end of year $ 356,197,826 $ 91,072,966 $ 11,015,909 $ (102,088,875) $ 356,197,826 $ 7,440,545 $ 14,440,698 $ (29,655,735) $ 348,423,334 NOTE: The supplemental schedules are not intended to combine under the basis as presented on the consolidated financial statements. 19