DISCLOSURE STATEMENT UNDER PENNSYLVANIA ACT 82. April 2018

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1 DISCLOSURE STATEMENT UNDER PENNSYLVANIA ACT 82 April 2018 NOTE: Issuance of a Certificate of Authority by the Pennsylvania Insurance Department does not constitute approval, recommendation or endorsement of StoneRidge Retirement Living by the Department, nor is it evidence of, nor does it attest to, the accuracy or completeness of the information set out in this Disclosure Statement. STONERIDGE RETIREMENT LIVING Updated: April 30, 2018

2 DISCLOSURE STATEMENT TABLE OF CONTENTS SUMMARY PAGE 1. Facilities 3 2. Licensed provider 3 3. Admissions 3 4. Facilities descriptions 3 5. Minimum age of admissions 3 6. Affiliates 3 7. Resident population 3 8. Sample fee structure 3 RESPONSES TO SECTION 7 OF PA ACT Project background 4 2. Board of Trustees 4 3. Member information 4 4. Affiliation 4 5. Facilities description 5 6. Services 5 7. Fees 5 8. Provisions for reserve funding 6 9. Audited financial statements 6 SCHEDULE OF ENTRANCE AND MONTHLY FEES ATTACHMENT 1 (Effective: 01/01/18) PERSONAL CARE AND NURSING SERVICES FEES ATTACHMENT 2 HISTORY OF MONTHLY FEES ATTACHMENT 3 PRO FORMA INCOME STATEMENT ATTACHMENT 4 STATEMENT OF MATERIAL DIFFERENCES ATTACHMENT 5 AUDITED FINANCIAL STATEMENTS EXHIBIT 1 RESIDENCY AGREEMENT EXHIBIT 2 2

3 SUMMARY 1. The Facilities: StoneRidge Poplar Run 440 East Lincoln Ave. Myerstown, PA StoneRidge Towne Centre 7 West Park Ave. Myerstown, PA The Provider: StoneRidge Retirement Living 440 East Lincoln Avenue Myerstown, PA Admissions Contact: IL - Stacia Dial (Director of Sales) SNF & PC Tosha Welker (Admissions Coordinator) StoneRidge Retirement Living 440 East Lincoln Avenue Myerstown, PA Phone: Property Description: StoneRidge Poplar Run is located in a suburban setting on approximately 30 acres of land. The facility comprises 113 high-rise apartment units, 31 single-level cottages, 36 personal care beds and 60 skilled-nursing beds. StoneRidge Towne Centre is located in the Borough of Myerstown, PA. It contains 152 skilled nursing beds and 49 beds dually licensed for residential living or personal care. 5. Minimum Age: StoneRidge Retirement Living is designed for and accepts qualified applicants who have attained the age of Affiliations: Evangelical Congregational Church StoneRidge Retirement Living Communities, Inc. (name change from New Dawn Christian Community Services, Inc.) StoneRidge Family Medicine, Inc. Church of God Home, Inc. (Effective January 1, 2014) The Orchards at Marsh Run (Effective January 1, 2014) Schoolyard Square (Effective August 1, 2014) 7. Resident Population: On December 31, 2017 the resident population consisted of 403 residents among Independent Living, Personal Care and Skilled Nursing. 8. Sample Fee Structure: One-bedroom apartment: Entrance Fee: $78,200 Monthly Charge: $2,300 (Single), $2,505 (Double) 3

4 RESPONSES TO SECTION 7 OF PA ACT (1) StoneRidge Retirement Living (StoneRidge) is a not-for-profit Pennsylvania Corporation organized in StoneRidge is qualified for exemption from Federal taxes Under Section 501(c) (3) of the Internal Revenue Code. (2) The names and business addresses of the Board of Trustees (officer titles listed in bold) and the chief executive officer are listed below: President: Donald Styer, 440 E. Lincoln Ave., Myerstown, PA Vice President: Rev. Steven Minnich, 440 E. Lincoln Ave., Myerstown, PA Secretary: Harry Boswell, 440 E. Lincoln Ave., Myerstown, PA CEO: Steven J. Reiter, 440 E. Lincoln Ave., Myerstown, PA Trustee: Frank Arva, 440 E. Lincoln Ave., Myerstown, PA (3) Listing of the following information for those names in 2 above: (A) (B) (C) The CEO has 26 years in the long-term care industry. StoneRidge Retirement Living Communities provides and bills management services to StoneRidge Retirement Living under contract. No trustee, officer or management employee of StoneRidge Retirement Living has ever been convicted of a felony or been involved in any manner in charges of fraud, embezzlement, fraudulent conversion or misappropriation of property. None of the above are subject to currently effective injunctive or restrictive orders nor have any of them had licenses suspended or revoked relating to any business activity or affecting the operation of any foster care facility, nursing home, retirement home, home for the aged, or any facility registered with the Commonwealth of Pennsylvania or any other state. (4) StoneRidge Retirement Living is affiliated with StoneRidge Retirement Living Communities, Inc. (name change from New Dawn Christian Community Services, Inc.), a Pennsylvania nonprofit corporation. Effective January 1, 2014, StoneRidge Retirement Living is affiliated with Church of God Home, Inc. and The Orchards at Marsh Run, both of which are 501(c)(3) Pennsylvania nonprofit corporations. Effective August 1, 2014, StoneRidge Retirement Living is affiliated with Schoolyard Square, a 501(c)(3) Pennslvania nonprofit corporation. StoneRidge Retirement Living Communities, Inc. is the sole member of all entities. StoneRidge Retirement Living is also affiliated with the Evangelical Congregational Church, which elects a majority of the Board members of StoneRidge Retirement Living Communities, Inc. See Note 1 of the attached Audited Financial Statements (Exhibit 1) for additional affiliations. Neither the Evangelical Congregational Church, StoneRidge Retirement Living Communities nor any other affiliate of StoneRidge Retirement Living or any other person or entity is responsible for the liabilities of StoneRidge Retirement Living or the fulfillment of its contractual obligations to its Residents. 4

5 (5) Brief description of StoneRidge Poplar Run & StoneRidge Towne Centre communities StoneRidge Poplar Run is a continuing care retirement community comprising 113 high-rise apartment units, 31 single-level cottages, 36 personal care beds and 60 skilled-nursing beds. There are fourteen apartment options to choose from and four types of cottages. The facility is completely interconnected with the exception of the cottages. A large dining room is contained within for the independent living residents as well as a small café and a fine dining restaurant. The facility is located at 440/450 East Lincoln Avenue, Myerstown, PA The Organization has completed an approximately 26,000-square-foot addition to its Poplar Run campus, including a new dining venue, a pool and fitness suite, and a multipurpose room and renovated approximately 53,000 square feet of existing building space for six apartments, office space, library and gathering space, including an ice cream parlor, general store, craft room and cinema facilities. StoneRidge Towne Centre is located in the Borough of Myerstown, PA. It contains 152 skilled nursing beds and 49 beds dually licensed for residential living or personal care. It has a Specialized Care Unit serving residents with Alzheimer s disease or other types of dementia. The facility is located at 7 West Park Ave., Myerstown, PA (6) List of services under the contract As part of their residential care, the residents receive meals (number determined by the resident agreement), all utilities except telephone, basic cable TV service, flat linen and laundry service, limited housekeeping service, trash collection, lawn and grounds care, access to laundry facilities, access to maintenance service, smoke detectors, emergency alarm system, library, scheduled transportation and access to social, recreational and related activities. Additionally, personal care and nursing care are available, as needed, in the healthcare center at an additional cost equal to the prevailing rates. All monthly fees paid by existing residents, including personal care and nursing care fees, are subject to change upon notice. The fees are set forth hereafter. It is expected that the fees will be increased to cover increases in the cost of providing services to residents as deemed necessary. ( 7) Fees required of residents StoneRidge Retirement Living charges a one-time entrance fee for our Traditional and Asset Preservation Plans, due upon occupancy, with a monthly service fee assessed thereafter. (There is no entrance fee associated with the Monthly Plan). The monthly service fee can be increased with 30 days advance written notice. The entrance fee will be paid with an initial deposit of $2,500. The initial deposit will be applied against the entrance fee upon occupancy of the apartment unit by the resident or if a monthly rental, it will be applied as a credit to the maintenance fee. The current entrance and monthly fees are provided in ATTACHMENT 1. A history of the monthly fees is provided in ATTACHMENT 3. 5

6 StoneRidge Retirement Living is currently managing three different contracts from current and prior owners. Available refunds are predicated upon the type of contract signed by the given resident(s). a) Lifecare contracts entitle a resident to a 30% refund of the initial entrance fee. The purchase agreement allows StoneRidge Retirement Living to pay these refunds over a period of four years in equal installments. b) Fee for Service (FFS) contracts entered into prior to the ownership by StoneRidge Retirement Living entitle a resident to a refund of 60% to be made when the unit is reoccupied and the entrance fee paid in full. c) Contracts signed by StoneRidge Retirement Living: 1) Traditional Plan contracts which entitle a resident to the following entrance fee refund: Year 1: 80%, Year 2: 60%, Year 3: 45%, Year 4: 30%, Year 5 and thereafter: 25% 2) Asset Preservation Plan contracts which discount the entrance fee and have no provision for a refund 3) Monthly Plan contracts which require no entrance fee in lieu of a higher monthly fee Note: The refund is payable upon the resale of the unit and the entrance fee being paid in full. The monthly service fee will be billed to the resident or residents of each apartment unit on or about the 1 st day of every month. The fee will be paid in advance. In addition, other charges such as the cost of guest meals payable to StoneRidge Retirement Living will be billed at the same time. If a resident requires personal care or skilled-nursing care in the facility, the resident will be charged the current rate. A summary of the fees for personal care and skilled-nursing facility care are provided in ATTACHMENT 2. (8) Provisions for reserve funding Entrance fees received are placed in an escrow account and used only to pay the refunds due residents who have terminated their agreements. There is no intent to use these monies for current operations. The funds will be invested in a diverse portfolio which allows for monthly income accumulation and growth. The trust escrow account has been established with PNC Bank, N.A. (9) Audited Financial Statements EXHIBIT 1 Attached as EXHIBIT 1 are audited financial statements of StoneRidge Retirement Living, including: (i) (ii) Balance sheet as of the end of the most recent fiscal year. Statement of Operations as of the end of the most recent fiscal year. 6

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8 StoneRidge Retirement Living StoneRidge Poplar Run Schedule of Entrance and Monthly Fees Effective 01/01/18 Monthly Plan Unit Type Entrance Fee Single Rate Double Rate Alcott $0 $2,586 $2,791 Lewis $0 $2,923 $3,128 Douglas $0 $3,425 $3,630 Conrad $0 $3,451 $3,656 Marshall $0 $4,216 $4,421 Taylor $0 $4,636 $4,841 Whitman Dickinson Byron Garden Home $0 $0 $0 $0 $4,767 $5,033 $5,919 $3,412 $4,972 $5,238 $6,124 $3,617 Cottage I $0 $4,607 $4,812 Cottage II $0 $5,245 $5,450 Cottage III $0 $5,306 $5,511 Fee for Service Asset Preservation Plan Unit Type Entrance Fee Single Rate Double Rate Alcott $51,200 $1,695 $1,900 Lewis $56,950 $1,884 $2,089 Douglas $61,700 $2,137 $2,342 Conrad $66,200 $2,300 $2,505 Marshall $90,200 $2,646 $2,851 Taylor $103,250 $2,840 $3,045 Whitman $108,300 $2,882 $3,087 Dickinson Byron Garden Home $118,450 $175,000 $63,500 $2,972 $3,416 $2,251 $3,177 $3,621 $2,456 Cottage I $105,250 $2,775 $2,980 Cottage II $126,900 $3,036 $3,241 Cottage III $143,900 $3,097 $3,302 Fee for Service Traditional Plan Unit Type Entrance Fee Single Rate Double Rate Alcott $60,500 $1,695 $1,900 Lewis $67,300 $1,884 $2,089 Douglas $72,900 $2,137 $2,342 Conrad $78,200 $2,300 $2,505 Marshall $106,600 $2,646 $2,851 Taylor $122,000 $2,840 $3,045 Whitman $128,000 $2,882 $3,087 Dickinson Byron Garden Home $140,000 $205,000 $75,000 $2,972 $3,416 $2,251 $3,177 $3,621 $2,456 Cottage I $124,400 $2,775 $2,980 Cottage II $150,000 $3,036 $3,241 Cottage III $170,000 $3,097 $3,302 Fee for Service Park Avenue Unit Type Entrance Fee Single Rate Double Rate Apartment 200 $255,000 $3,618 $3,823 Apartment 201 $260,000 $3,690 $3,895 Apartment 202 $247,000 $3,503 $3,708 Apartment 204 $187,500 $2,776 $2,981 Apartment 205 $155,500 $2,600 $2,805 Lifecare* Monthly Plan Unit Type Entrance Fee Single Rate Double Rate Alcott N/A $2,668 $4,106 Lewis N/A $2,923 $4,361 Douglas N/A $3,425 $4,863 Conrad N/A $3,655 $5,093 Marshall N/A $4,354 $5,792 Taylor N/A $4,868 $6,306 Garden Home N/A $3,511 $4,949 Cottage I N/A $4,599 $6,037 Cottage II N/A $4,885 $6,323 * Lifecare contracts no longer offered by StoneRidge Retirement Living

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10 STONERIDGE RETIREMENT LIVING SCHEDULE OF CHARGES Effective 1/1/2018 PERSONAL CARE: Poplar Run NURSING CARE: Poplar Run Private Room $173.00/day Long Term Care, Semi Private $315.00/day Long Term Care, Private $355.00/day PERSONAL CARE: Towne Centre NURSING CARE: Towne Centre Basic Room Level 1: $102/day Level 2: $161/day Long Term Care, Semi Private $315.00/day Warfel Care Center Level 1: $107/day Level 2: $173/day Long Term Dementia Care $318.00/day Suite, Single Occupancy Level 1: $147/day Level 2: $206/day Long Term Care, Private $325.00/day Suite, Second Person Level 1: $55/day Level 2: $73/day ADDITIONAL CHARGES AND/OR FEES: Admission Processing Fee* $ ($20.00 for readmission from the community) Disposal Deposit* $ (effective for new admissions) Oxygen Vendor Cost Escort Service $20.00 per hour Beautician Vendor Cost Pharmacy Vendor Cost Transportation $25.00 flat rate plus $.55 per mile Transportation Specialty Vehicle $25.00 flat rate plus $.85 per mile Telephone Connection Fee Vendor Cost (Towne Centre Only) Billable Medical Supplies Vendor Cost (Incontinence, Wound Care) Guest Meals Breakfast $3.50 Noon Meal $8.00 Evening Meal $5.00 The services of the following professionals will be billed by the provider: Attending Physician, Podiatrist, Eye Doctor, and Psychiatrist. The responsibility for all charges is between the provider and the resident. Physical, Occupational and Speech services will be billed at the Medicare fee schedule rates. We will bill Medicare and/or insurance where applicable. Invoice Terms: No finance charge will be assessed if paid within 30 days for active accounts. Thereafter, 1.5% per month on the outstanding balance, plus $35.00 per month late fee. Vendor costs or fees may be added for specialty equipment and/or supplies. $ fee charged to residents who, at their own request and without medical need to do so, are moved from one room to another. * These fees are not covered by insurance and must be paid as an out of pocket expense. The Disposal Deposit is refundable when all personal property has been removed from the room following discharge. The Admission Processing Fee is non refundable. POA/Responsible Party/Resident Initials: Date:

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12 StoneRidge Retirement Living StoneRidge Poplar Run Summary of Historical Fees Entrance Fees (Traditional & Asset Preservation Plans) Unit Type AP Trad AP Trad AP Trad AP Trad Alcott $ 51,200 $ 60,500 $ 51,200 $ 60,500 $ 51,200 $ 60,500 $ 51,200 $ 60,500 Browning NA NA NA NA NA NA NA NA Lewis $ 56,950 $ 67,300 $ 56,950 $ 67,300 $ 56,950 $ 67,300 $ 56,950 $ 67,300 Douglas $ 61,700 $ 72,900 $ 61,700 $ 72,900 $ 61,700 $ 72,900 $ 61,700 $ 72,900 Conrad $ 66,200 $ 78,200 $ 66,200 $ 78,200 $ 66,200 $ 78,200 $ 66,200 $ 78,200 Marshall $ 90,200 $ 106,600 $ 90,200 $ 106,600 $ 90,200 $ 106,600 $ 90,200 $ 106,600 Taylor $ 103,250 $ 122,000 $ 103,250 $ 122,000 $ 103,250 $ 122,000 $ 103,250 $ 122,000 Whitman $ 108,300 $ 128,000 $ 108,300 $ 128,000 $ 108,300 $ 128,000 $ 108,300 $ 128,000 Dickinson $ 118,450 $ 140,000 $ 118,450 $ 140,000 $ 118,450 $ 140,000 $ 118,450 $ 140,000 Byron $ 175,000 $ 205,000 $ 175,000 $ 205,000 $ 175,000 $ 205,000 $ 175,000 $ 205,000 Garden Home $ 63,500 $ 75,000 $ 63,500 $ 75,000 $ 63,500 $ 75,000 $ 63,500 $ 75,000 Cottage I $ 105,250 $ 124,400 $ 105,250 $ 124,400 $ 105,250 $ 124,400 $ 105,250 $ 124,400 Cottage II $ 126,900 $ 150,000 $ 126,900 $ 150,000 $ 126,900 $ 150,000 $ 126,900 $ 150,000 Cottage III NA NA NA NA NA NA NA NA Park Avenue Apt. 200 NA NA NA $ 255,000 NA $ 255,000 NA $ 255,000 Park Avenue Apt. 201 NA NA NA $ 260,000 NA $ 260,000 NA $ 260,000 Park Avenue Apt. 202 NA NA NA $ 247,000 NA $ 247,000 NA $ 247,000 Park Avenue Apt. 204 NA NA NA $ 187,500 NA $ 187,500 NA $ 187,500 Park Avenue Apt. 205 NA NA NA $ 155,500 NA $ 155,500 NA $ 155,500 Lifecare Unit Type Single Double Single Double Single Double Single Double Alcott $ 2,280 $ 2,469 $ 2,371 $ 3,650 $ 2,466 $ 3,796 $ 2,668 $ 4,051 Browning NA NA NA NA NA NA NA NA Lewis $ 2,499 $ 2,688 $ 2,599 $ 3,878 $ 2,703 $ 4,033 $ 2,923 $ 4,306 Douglas $ 2,927 $ 3,116 $ 3,044 $ 4,323 $ 3,166 $ 4,496 $ 3,425 $ 4,808 Conrad $ 3,124 $ 3,313 $ 3,249 $ 4,528 $ 3,379 $ 4,709 $ 3,655 $ 5,038 Marshall $ 3,722 $ 3,911 $ 3,871 $ 5,150 $ 4,026 $ 5,356 $ 4,354 $ 5,737 Taylor $ 4,162 $ 4,351 $ 4,328 $ 5,607 $ 4,501 $ 5,831 $ 4,868 $ 6,251 Garden Home $ 3,001 $ 3,190 $ 3,121 $ 4,400 $ 3,246 $ 4,576 $ 3,511 $ 4,894 Cottage I $ 3,931 $ 4,120 $ 4,088 $ 5,367 $ 4,252 $ 5,582 $ 4,599 $ 5,982 Cottage II $ 4,175 $ 4,364 $ 4,342 $ 5,621 $ 4,516 $ 5,846 $ 4,885 $ 6,268 Cottage III NA NA NA NA NA NA NA NA FFS Unit Type Single Double Single Double Single Double Single Double Alcott $ 1,558 $ 1,747 $ 1,597 $ 1,790 $ 1,629 $ 1,826 $ 1,662 $ 1,863 Browning NA NA NA NA NA NA NA NA Lewis $ 1,732 $ 1,921 $ 1,775 $ 1,968 $ 1,811 $ 2,008 $ 1,847 $ 2,048 Douglas $ 1,965 $ 2,154 $ 2,014 $ 2,207 $ 2,054 $ 2,251 $ 2,095 $ 2,296 Conrad $ 2,115 $ 2,304 $ 2,168 $ 2,361 $ 2,211 $ 2,408 $ 2,255 $ 2,456 Marshall $ 2,438 $ 2,627 $ 2,493 $ 2,686 $ 2,543 $ 2,740 $ 2,594 $ 2,795 Taylor $ 2,623 $ 2,812 $ 2,675 $ 2,868 $ 2,729 $ 2,926 $ 2,784 $ 2,985 Whitman $ 2,663 $ 2,852 $ 2,716 $ 2,909 $ 2,770 $ 2,967 $ 2,825 $ 3,026 Dickinson $ 2,746 $ 2,935 $ 2,801 $ 2,994 $ 2,857 $ 3,054 $ 2,914 $ 3,115 Byron $ 3,156 $ 3,345 $ 3,219 $ 3,412 $ 3,283 $ 3,480 $ 3,349 $ 3,550 Garden Home $ 2,070 $ 2,259 $ 2,122 $ 2,315 $ 2,164 $ 2,361 $ 2,207 $ 2,408 Cottage I $ 2,565 $ 2,754 $ 2,616 $ 2,809 $ 2,668 $ 2,865 $ 2,721 $ 2,922 Cottage II $ 2,805 $ 2,994 $ 2,861 $ 3,054 $ 2,918 $ 3,115 $ 2,976 $ 3,177 Cottage III NA NA NA NA NA NA NA NA Park Avenue Apt. 200 $ 3,342 $ 3,531 $ 3,409 $ 3,602 $ 3,477 $ 3,674 $ 3,547 $ 3,748 Park Avenue Apt. 201 $ 3,409 $ 3,598 $ 3,477 $ 3,670 $ 3,547 $ 3,744 $ 3,618 $ 3,819 Park Avenue Apt. 202 $ 3,236 $ 3,425 $ 3,301 $ 3,494 $ 3,367 $ 3,564 $ 3,434 $ 3,635 Park Avenue Apt. 204 $ 2,566 $ 2,755 $ 2,617 $ 2,810 $ 2,669 $ 2,866 $ 2,722 $ 2,923 Park Avenue Apt. 205 $ 2,402 $ 2,591 $ 2,450 $ 2,643 $ 2,499 $ 2,696 $ 2,549 $ 2,750 Monthly Plan Unit Type Single Double Single Double Single Double Single Double Alcott $ 2,449 $ 2,638 $ 2,488 $ 2,681 $ 2,520 $ 2,717 $ 2,553 $ 2,754 Browning NA NA NA NA NA NA NA NA Lewis $ 2,723 $ 2,912 $ 2,766 $ 2,959 $ 2,802 $ 2,999 $ 2,811 $ 3,012 Douglas $ 3,038 $ 3,227 $ 3,087 $ 3,280 $ 3,127 $ 3,324 $ 3,293 $ 3,494 Conrad $ 3,266 $ 3,455 $ 3,319 $ 3,512 $ 3,362 $ 3,559 $ 3,406 $ 3,607 Marshall $ 4,008 $ 4,197 $ 4,063 $ 4,256 $ 4,113 $ 4,310 $ 4,164 $ 4,365 Taylor $ 4,419 $ 4,608 $ 4,471 $ 4,664 $ 4,525 $ 4,722 $ 4,580 $ 4,781 Whitman $ 4,548 $ 4,737 $ 4,601 $ 4,794 $ 4,655 $ 4,852 $ 4,710 $ 4,911 Dickinson $ 4,807 $ 4,996 $ 4,862 $ 5,055 $ 4,918 $ 5,115 $ 4,975 $ 5,176 Byron $ 5,659 $ 5,848 $ 5,722 $ 5,915 $ 5,786 $ 5,983 $ 5,852 $ 6,053 Garden Home $ 3,231 $ 3,420 $ 3,283 $ 3,476 $ 3,325 $ 3,522 $ 3,368 $ 3,569 Cottage I $ 4,397 $ 4,586 $ 4,448 $ 4,641 $ 4,500 $ 4,697 $ 4,553 $ 4,754 Cottage II $ 5,014 $ 5,203 $ 5,070 $ 5,263 $ 5,127 $ 5,324 $ 5,185 $ 5,386 Cottage III NA NA NA NA NA NA NA NA

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14 StoneRidge Retirement Living Pro Forma Income Statement FYE 12/31/18 Patient/Guest Service Revenue: Room & Board, Ancillary Revenue $32,508,418 Entrance Fee Amortization 600,000 Contractual Allowances - MA & MC (6,247,706) Contractual Allowances - Lifecare (30,187) Contractual Allowances - Benevolent (728,184) Net Patient/Guest Service Revenue 26,102,341 Other Income Rental & Miscellaneous income 301,385 Total Operating Revenue 26,403,726 Expenses Salaries & Wages 10,514,528 Employee Benefits 2,439,862 Supplies/Purchases 760,451 Utilities 846,500 Food Purchases 1,136,644 Maintenance & Repairs 748,129 Fees & Purchased Services 3,121,992 Depreciation & Amortization 1,950,538 Annuity Payments 2,305 Real Estate taxes 340,656 Insurance 241,129 Interest Expense 823,834 Administrative & Personnel 849,785 SRLC Management Services 2,498,566 Corporate Expense Allocation - Total Operating Expenses 26,274,919 Income(Loss) from Operations 128,807 Non-operating Revenue 127,500 Net Revenue over Expenses $256,307

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16 StoneRidge Retirement Living Attachment 5 Statement of Material Differences For the Year Ended 12/31/ actual net profit was higher than pro forma net income by $3,432,971. The primary items which generated this difference are shown below. Net resident and patient service revenue lower due to decreased census (417,904) Unrealized Loss on investments (comprehensive) 1,651,589 Investment Income 842,279 Reductions in operating expenses 1,317,941

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20 STONERIDGE RETIREMENT LIVING COMMUNITIES, INC. AND SUBSIDIARIES Consolidated Financial Report December 31, 2017

21 C O N T E N T S INDEPENDENT AUDITOR S REPORT 1-2 CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets 3-4 Consolidated statements of operations 5 Consolidated statements of changes in net assets 6 Consolidated statements of cash flows 7-8 Notes to consolidated financial statements 9-28 INDEPENDENT AUDITOR S REPORT ON THE SUPPLEMENTARY INFORMATION 29 SUPPLEMENTARY INFORMATION Consolidating balance sheet Consolidating statement of operations Consolidating statement of changes in net assets (deficit) Consolidating balance sheet Consolidating statement of operations Consolidating statement of changes in net assets (deficit)

22 actcpas.com 2599 Wilmington Road New Castle, PA fax INDEPENDENT AUDITOR S REPORT Board of Trustees StoneRidge Retirement Living Communities, Inc. and Subsidiaries Myerstown, Pennsylvania Report on the Financial Statements We have audited the accompanying consolidated financial statements of StoneRidge Retirement Living Communities, Inc. and Subsidiaries (collectively, Organization), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in net assets, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, 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. 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 entities 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 entities 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. Bridgeport, WV Buckhannon, WV Charleston, WV Columbus, OH Meadville, PA Morgantown, WV New Castle, PA Pittsburgh, PA

23 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of StoneRidge Retirement Living Communities, Inc. and Subsidiaries as of December 31, 2017 and 2016, and the results of their operations, changes in net assets, and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. New Castle, Pennsylvania April 24, Arnett Carbis Toothman llp CPAs & Advisors

24 STONERIDGE RETIREMENT LIVING COMMUNITIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2017 and 2016 ASSETS CURRENT ASSETS Cash and cash equivalents $ 7,053,409 $ 7,131,885 Accounts receivable, residents, net of allowance for doubtful accounts 2017 $442,275; 2016 $739,064 3,413,986 3,698,138 Entrance fees receivable 573, ,070 Other receivables 17,916 9,062 Due from third-party payors, net 812, ,541 Inventory 79,333 64,245 Prepaid expenses 594, ,123 Total current assets 12,544,587 12,350,064 INVESTMENTS, unrestricted 22,586,055 18,395,890 INVESTMENTS, restricted 4,665,181 4,301,427 RESIDENT FUNDS 46,087 47,836 STATUTORY MINIMUM LIQUID RESERVE 1,149,571 1,074,962 PROPERTY AND EQUIPMENT, net 44,796,055 43,281,926 SPLIT INTEREST AGREEMENTS 1,899,083 1,709,361 GOODWILL - 900,000 INTEREST IN NET ASSETS OF FOREVER CARING FUND 3,909,404 3,397,972 DEFERRED COMPENSATION FUND - 39,020 OTHER ASSETS 44,412 45,626 Total assets $ 91,640,435 $ 85,544,084 See Notes to Consolidated Financial Statements 3

25 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Current portion of long-term debt $ 570,835 $ 540,835 Accounts payable 1,484, ,464 Entrance fees payable 1,066,453 1,047,087 Accrued expenses 3,006,990 3,140,796 Total current liabilities 6,128,522 5,306,182 LONG-TERM DEBT, net 18,905,917 19,444,805 RESIDENT FUNDS 46,087 47,836 DEFERRED COMPENSATION LIABILITY - 39,020 SECURITY DEPOSITS 712, ,311 DEFERRED ENTRANCE FEES 5,948,420 5,049,157 REFUNDABLE ENTRANCE FEES 2,449,775 2,142,743 INTEREST RATE SWAP AGREEMENTS 603, ,099 CHARITABLE GIFT ANNUITIES 8,788 9,186 Total liabilities 34,803,444 33,593,339 NET ASSETS Unrestricted 50,272,727 45,939,957 Temporarily restricted 1,044, ,600 Permanently restricted 5,519,486 5,138,188 Total net assets 56,836,991 51,950,745 Total liabilities and net assets $ 91,640,435 $ 85,544,084 See Notes to Consolidated Financial Statements 4

26 STONERIDGE RETIREMENT LIVING COMMUNITIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2017 and CHANGES IN UNRESTRICTED NET ASSETS Operating revenue: Net resident service revenue, including amortization of entrance fees 2017 $1,103,116; 2016 $1,138,817 $ 39,707,721 $ 40,369,373 Other income 448, ,603 Total operating revenue 40,156,447 40,970,976 Operating expenses: Salaries and wages 17,184,080 17,618,359 Purchased services and other fees 5,921,031 5,124,099 Employee benefits 4,131,180 4,321,597 Depreciation 2,422,919 2,324,734 Food 1,733,294 1,679,358 Supplies and purchases 1,265,439 1,318,008 Utilities 1,207,281 1,237,779 Repairs and maintenance 1,086,432 1,105,600 Administration 1,085,783 1,200,711 Interest 760, ,432 Insurance costs 370, ,349 Real estate taxes 347, ,033 Marketing and advertising 308, ,728 Provision for bad debts 120, ,895 Annuity payments 1, Amortization 1,214 1,214 Total operating expenses 37,947,747 37,791,397 Operating income 2,208,700 3,179,579 Non-operating income (expense): Investment income 818, ,907 Impairment of goodwill (900,000) - Contributions 233, ,599 Change in fair value of interest rate swap agreements 221, ,179 Total non-operating income 373, ,685 Excess of revenue and non-operating income over expenses $ 2,582,277 $ 4,080,264 See Notes to Consolidated Financial Statements 5

27 STONERIDGE RETIREMENT LIVING COMMUNITIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS Years Ended December 31, 2017 and Changes in unrestricted net assets: Excess of revenue and non-operating income over expenses $ 2,582,277 $ 4,080,264 Change in Forever Caring Fund 511,432 96,491 Unrealized gain on investments 1,239,061 75,151 Change in unrestricted net assets 4,332,770 4,251,906 Changes in temporarily restricted net assets: Investment income on endowment fund 139,142 86,730 Increase in value of charitable remainder trust 33,036 4,604 Change in temporarily restricted net assets 172,178 91,334 Changes in permanently restricted net assets: Realized/unrealized gain on endowment fund 224, ,424 Increase in value of perpetual trusts 156,686 83,561 Change in permanently restricted net assets 381, ,985 Change in net assets 4,886,246 4,638,225 Net assets, beginning 51,950,745 47,312,520 Net assets, ending $ 56,836,991 $ 51,950,745 See Notes to Consolidated Financial Statements 6

28 STONERIDGE RETIREMENT LIVING COMMUNITIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2017 and CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 4,886,246 $ 4,638,225 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 2,422,919 2,324,734 Amortization 1,214 1,214 Amortization of bond issue costs 31,947 31,947 Provision for bad debts 120, ,895 Impairment of goodwill 900,000 - Change in value of derivative financial instruments (221,053) (117,179) Net realized and unrealized gain on investments (1,534,505) (326,659) Valuation gain, beneficial interest in perpetual and charitable remainder trusts (189,722) (88,165) Change in beneficial interest in Forever Caring Fund (511,432) (96,491) Change in value of charitable gift annuities 1,907 (410) Amortization of entrance fees (1,103,116) (1,138,817) Proceeds from entrance fees 2,649,700 1,411,476 Changes in assets and liabilities: Resident receivables 164,152 71,962 Entrance fees receivable (12,930) (267,500) Other receivables (8,854) 129,083 Due from third-party payors, net (415,731) (382,394) Inventory (15,088) 23,496 Prepaid expenses (104,548) 130,556 Accounts payable 906,780 99,080 Accrued expenses (133,806) (369,084) Security deposits (17,422) 11,124 Net cash provided by operating activities 7,816,658 6,217,093 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (3,937,048) (2,299,600) Net purchases of investments (3,094,023) (1,455,845) Net cash (used in) investing activities (7,031,071) (3,755,445) CASH FLOWS FROM FINANCING ACTIVITIES Payment on long-term debt (540,835) (510,835) Refunds of entrance fees (320,923) (420,800) Payment on charitable gift annuities (2,305) (2,305) Net cash (used in) financing activities (864,063) (933,940) See Notes to Consolidated Financial Statements 7

29 Net increase (decrease) in cash and cash equivalents $ (78,476) $ 1,527,708 Cash and cash equivalents: Beginning 7,131,885 5,604,177 Ending $ 7,053,409 $ 7,131,885 SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 733,577 $ 732,209 See Notes to Consolidated Financial Statements 8

30 STONERIDGE RETIREMENT LIVING COMMUNITIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Nature of Operations and Summary of Significant Accounting Policies Nature of operations: The consolidated financial statements include the accounts of StoneRidge Retirement Living Communities, Inc. (SRLC), StoneRidge Retirement Living (SRL), StoneRidge Family Medicine, Inc. (SFM), Church of God Home, Inc. (COGH), The Orchards at Marsh Run (OMR), and Schoolyard Square (SYS). Collectively, the consolidated entities represent the accounts of StoneRidge Retirement Living Communities, Inc. and Subsidiaries (collectively, Organization). StoneRidge Retirement Living Communities, Inc. is a not-for-profit Pennsylvania corporation. SRLC is the sole member of StoneRidge Retirement Living, StoneRidge Family Medicine, Inc., Church of God Home, Inc., The Orchards at Marsh Run, and Schoolyard Square. StoneRidge Retirement Living is a two-campus Continuing Care Retirement Community (CCRC) providing services to the elderly located in Myerstown, Pennsylvania. Sponsored by the Evangelical Congregational Church, SRL extends its accommodations to persons regardless of race, color, creed, ancestry, age, religion, sex, national origin, handicap, or disability who consent to the policies of the Organization. The Towne Centre campus consists of 152 skilled nursing beds and 49 personal care beds. The Poplar Run campus consists of 60 skilled nursing care beds, 36 personal care beds, 113 apartments, and 29 cottages. StoneRidge Family Medicine, Inc. provided medical services to residents of Myerstown and the surrounding communities, including many of the residents of StoneRidge Retirement Living. SFM suspended operations during The Organization did not separately disclose the discontinued operations of StoneRidge Family Medicine, Inc. as their operations were not material to the consolidated financial statements and remaining assets transferred to SRLC and SRL during This company will be kept open as a shell company for any future endeavors. Church of God Home, Inc. and The Orchards at Marsh Run (collectively referred to as the COGH Entities) are the sole members of SRLC through a partner in ministry affiliation agreement between StoneRidge Retirement Living Communities, Inc. and the Eastern Regional Conference of the Churches of God. Church of God Home, Inc., located in Carlisle, Pennsylvania, is a nonprofit CCRC. COGH provides housing, health care, and other related services to residents through the operation of a retirement facility containing 109 skilled nursing care beds, 37 personal care beds, and 46 apartments. The Orchards at Marsh Run is a nonprofit corporation organized for the purpose of establishing a CCRC. OMR desires to provide housing, health care, and other related services to residents through the construction and operation of a retirement facility consisting of residential housing and long-term health care services. Schoolyard Square is a nonprofit personal care facility located in Pine Grove, Pennsylvania. SYS provides housing, health care, and other related services to residents through the operation of a 65 unit personal care facility. A summary of the Organization s significant accounting policies applied in preparation of the accompanying consolidated financial statements is as follows: Principles of consolidation: The consolidated financial statements include all organizations outlined above. Significant inter-company accounts and transactions have been eliminated in the consolidation. Basis of accounting: The consolidated financial statements of the Organization have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), whereby revenue is recognized when earned and expenses are recorded when incurred. 9

31 STONERIDGE RETIREMENT LIVING COMMUNITIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Public debt: At ASC , the Financial Accounting Standards Board (FASB) clarifies the definition of a public entity in certain accounting standards to include entities that are conduit bond obligors for conduit debt securities that are traded in a public market. The Organization is considered a public entity for consolidated financial statement disclosure purposes based on the qualification of its Series 2000 and 2012 revenue bonds as public debt. The Organization has determined that this pronouncement does not have a material impact on its financial position, results of operations, or cash flows. Use of estimates: The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents and deposit risk: Cash and cash equivalents include all highly liquid investments purchased with a maturity of three months or less, excluding amounts classified as investments or assets whose use is limited. The Organization maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. The Organization has not experienced any losses in such accounts. Resident funds: The Organization is entrusted with certain personal funds of its residents, the handling of which is governed by Medicare and Medical Assistance regulations. These funds are accounted for as trust funds and are maintained separate from other funds and are available to residents on demand and are distributed only at the direction of the resident, their legal power of attorney, or guardian. Accounts receivable, residents: Accounts receivable, residents are reported at net realizable value. Accounts are written off when they are determined to be uncollectable based on management s assessment of individual accounts. The allowance for doubtful accounts is based on historical collection experience and a review of the current status of resident accounts receivable. It is reasonably possible that the Organization s estimate of allowance for doubtful accounts may differ from actual results. Entrance fees receivable: Entrance fees receivable include amounts due from residents residing in the independent living units who, based on contractual agreements, have been permitted an extended period of time to deposit their entrance fees. Inventory: Inventory is stated at the lower of cost (using the first-in, first-out method of accounting) or market and consists primarily of dietary, maintenance, and nursing supplies. Property and equipment: Property and equipment acquisitions are recorded at cost, and donated assets are recorded at fair value at the date of donation. Depreciation of property and equipment is provided for using the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset accounts and related accumulated depreciation accounts are relieved, and any gain or loss is included in operations. Gifts of long-lived assets such as land, buildings, or equipment are reported as unrestricted support, unless explicit donor stipulations specify how the donated assets must 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, expirations of donor restrictions are reported when the donated or acquired long-lived assets are placed in service. 10

32 STONERIDGE RETIREMENT LIVING COMMUNITIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Investments and investment risk: Investments in equity securities with readily determinable fair values and all investments in debt securities are measured at fair value on the consolidated balances sheets. The fair value of substantially all securities are determined by quoted market prices, with the exception of alternative investments which are not readily marketable and are presented at net asset value (NAV) per share. Investment income or loss (including realized gains and losses on investments, interest, dividends, and capital gains distributions) is included in excess of revenue and non-operating income over expenses unless the income or loss is restricted by donor or law. Unrealized gains and losses associated with investments are included in change in net assets as the Organization considers its investments to be available-for-sale securities. A decline in market value of any investment below cost that is deemed to be other than temporary results in a reduction in carrying value to fair value. Any impairment would be charged to realized loss and a new cost basis for the investment would be established. There was no impairment of investments for other than temporary losses as of December 31, 2017 or Contributed investments are initially valued at the quoted fair value on the date received, which is then treated as cost. The investment in the captive insurance program is carried at cost. The Organization s investments are comprised of a variety of financial instruments and are managed by investment advisors. The fair values reported on the consolidated balance sheets are subject to various risks including changes in the equity markets, the interest rate environment, and general economic conditions. Due to the level of risk associated with investment securities and the level of uncertainty related to changes in the fair value of investment securities, it is reasonably possible that the amounts reported on the consolidated balance sheets could change materially in the near term. Split-interest agreements: The Organization has received as contributions various types of split-interest agreements, including charitable gift annuities, a charitable remainder trust, and perpetual trusts. Charitable gift annuities: The Organization has entered into gift-annuity agreements with certain individuals to provide periodic payments to these individuals during the remainder of their lives in return for a charitable gift to the Organization. Under the charitable gift annuity arrangements, the Organization has recorded the assets at fair value and the liabilities to the donor or their beneficiaries at the present value of the estimated future payments to be distributed by the Organization to such individuals. The obligation to make payments terminates only upon the donor s death. Any change in the obligation is recorded on the consolidated statements of operations as a change in value of charitable gift annuities. Charitable remainder trust: The Organization is the beneficiary of a charitable remainder trust held by a third party. Under the charitable remainder trust, a donor made an unrestricted initial gift to a trust in which the Organization is the sole beneficiary. The terms of the trust agreement provide for a named beneficiary to receive annuity payments for the remainder of their life. Upon the death of the named beneficiary, the remaining assets are transferred with no restrictions to the Organization. Perpetual trust agreements: Under the terms of the perpetual trusts, the Organization has an irrevocable right to receive its share of the income earned on the trusts, but never receives the assets held in trust and thus they are classified as permanently restricted. The assets of these trusts have been recorded at their fair value in the consolidated financial statements. Distributions received are reported as contributions on the consolidated statements of operations. Income earned on the trust assets and distributed to the Organization is recorded as investment income on the consolidated statements of operations, unless otherwise restricted by the donor. Subsequent changes in fair value are recorded as valuation gain (loss). 11

33 STONERIDGE RETIREMENT LIVING COMMUNITIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goodwill: The Organization records as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired. The Organization had $900,000 of goodwill related to the purchase of Schoolyard Square. Authoritative guidance related to goodwill and other intangible assets prescribes the application of a two-step process for impairment testing of goodwill if adverse qualitative factors exist indicating that it is more likely than not that goodwill is impaired. This is performed annually, as well as when an event triggering impairment may have occurred. Upon determination that goodwill is more than likely to be impaired, the two-step process would be applied. The first step tests for impairment while the second step, if necessary, measures impairment. Management determined that it was more likely than not that goodwill was impaired as of December 31, 2017, and performed an impairment calculation based on discounted cash flows of future operations showing that an impairment existed. Accordingly, management recorded an impairment on goodwill of $900,000 which is included in non-operating income (expense) on the consolidated statements of operations. Interest in net assets of Forever Caring Fund: Church of God Home, Inc. reports its beneficial interest in all of the net assets of the Forever Caring Fund of the Eastern Regional Conference of the Churches of God (Fund), a financial interrelated organization, on its statements of financial position. The Forever Caring Fund did not become a sole member of SRLC as part of the affiliation agreements. The annual change in that interest is reported on the Organization s consolidated statements of changes in net assets. Although the Fund s purpose is to serve residents of the Organization, its Board of Directors operates independently from that of the Organization. The Fund is recognized as a separate 501(c)(3) organization by the Internal Revenue Service. Bond issuance costs: Costs related to the issuance of long-term debt have been deferred and are amortized over the terms of the related debt using an effective interest method. Amortization was $31,947 for each of the years ended December 31, 2017 and Amortization of approximately $32,000 is expected annually over the next five years. Bond issuance costs are netted against long-term debt on the consolidated balance sheets. Amortization related to the bond issuance costs are included in interest expenses on the consolidated statements of operations. Other assets: Other assets include settlement costs incurred during the purchase of Schoolyard Square in the amount of $48,321. Settlement costs are being amortized on a straight-line basis. Amortization expense was $1,214 for each of the years ended December 31, 2017 and Amortization is expected to be approximately $1,200 annually over the next five years. Interest rate swap agreements: All interest rate swap agreements are recognized on the consolidated balance sheets at their fair market value. On the dates the interest rate swap agreements were entered into, the Organization designated each interest rate swap agreement as a cash flow hedge. Changes in the fair value of the interest rate swap agreements that are highly effective, and that are designated and qualified as cash flow hedges, along with the loss or gain on the hedge liability that is attributable to the hedge risk (including losses or gains on firm commitments), are recorded on the consolidated statements of operations. The cash differentials paid and received on the interest rate swap agreements are accrued and recognized as adjustments to interest expense or interest income. Security deposits: The Organization collects security deposits on independent living units, refundable to residents upon re-occupancy depending on the conditions of the unit as outlined in the contract. Deferred entrance fees / refundable entrance fees: Under entrance fee plans for independent living units, the Organization received payments in advance. The Organization offers several entrance fee contracts containing various levels and terms of refundable options. The nonrefundable portion of entrance fees received is amortized to revenue using the straight-line method over the estimated remaining life expectancies of the residents, which are adjusted annually. The unamortized portion of nonrefundable entrance fees is recognized as revenue in the year that the resident leaves the unit. The unamortized portion of nonrefundable entrance fees is classified as deferred entrance fees on the consolidated balance sheets. 12

34 STONERIDGE RETIREMENT LIVING COMMUNITIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The refundable portion, or guaranteed refund component, of entrance fees received is included in refundable entrance fees on the consolidated balance sheets. All refunds for the refundable contracts are paid after the independent living unit is vacated and, in most circumstances, re-occupied by a new resident. However, contract terms vary and some require refunded amounts to be paid within one year. Refunds due within one year are included in current liabilities as entrance fees payable. Although refunds associated with nonrefundable contracts are infrequent, the Organization includes these amounts with deferred entrance fees on the consolidated balance sheets; however, the Organization estimated an amount to be refunded annually based on historical experience and has included this estimate with refundable fees. Contractual refund obligations, including guaranteed portions of refundable contracts and nonrefundable contracts, under existing resident agreements were approximately $4,890,000 and $3,800,000 as of December 31, 2017 and 2016, respectively. The majority of services provided to the Organization residents are paid for on a fee for service basis and are not included under the entrance fee plans. However, there are certain residents under life care contracts who receive or will receive services at a discounted rate in accordance with their contract. Future service obligation: The Organization annually calculates the present value of the net cost of future services and use of facilities to be provided to current residents and compares that amount with the balance of deferred revenue from entrance fees. If the present value of the net cost of future services and use of facilities exceeds the deferred revenue from entrance fees, a liability is recorded (obligation to provide future services and use of facilities) with the corresponding charge to operations. The obligation is discounted at six percent. Because no excess was calculated, no obligation to provide future services and use of facilities exists as of December 31, 2017 or Net assets: Net assets include revenue, expenses, gains, and losses that are classified based on the existence or absence of donor-imposed stipulations. Accordingly, the net assets of the Organization and changes therein are classified and reported as follows: Unrestricted net assets are neither permanently nor temporarily restricted by donor or grantor imposed stipulations. Temporarily restricted net assets result from contributions, grants, or other inflows of assets whose use by the Organization is limited by donor or grantor imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the Organization pursuant to those stipulations, from other asset enhancements and diminishments subject to the same kinds of stipulations, or from reclassifications to or from other classes of net assets as a consequence of donor or grantor imposed stipulations, their expiration of time, or their fulfillment and removal by actions of the Organization pursuant to those stipulations. Permanently restricted net assets result from contributions, grants, or other inflows of assets whose use by the Organization is limited by donor or grantor imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the Organization, from other asset enhancements and diminishments subject to the same kinds of stipulations, or from reclassifications from or to other classes of net assets as a consequence of donor or grantor imposed stipulations. Permanently restricted net assets include beneficial interests in perpetual trusts and restricted endowments set up by donors to be held in perpetuity in which the Organization receives an allocation of income during the year. Donor-restricted gifts: The Organization 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. When a donor restriction expires, that is, when a stipulated time restriction ends or a purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported on the consolidated statements of operations as net assets released from restrictions. Donor-restricted contributions whose restrictions are met within the same year as received are reported as unrestricted contributions in the consolidated financial statements. 13