RUDOLF STEINER FOUNDATION, INC. dba: RSF SOCIAL FINANCE ... · 12/31/2016 · the consolidated financial position of Rudolf Steiner Foundation, Inc. dba: RSF Social Finance and Affiliates

RUDOLF STEINER FOUNDATION, INC. dba: RSF SOCIAL FINANCE AND AFFILIATES

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016 and 2015


CONSOLIDATED FINANCIAL STATEMENTS December 31, 2016 and 2015

TABLE OF CONTENTS

INDEPENDENT AUDITOR’S REPORT .................................................................................................... 1 FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION .......................................................... 3 CONSOLIDATED STATEMENT OF ACTIVITIES – Year Ended December 31, 2016 ...................... 4 CONSOLIDATED STATEMENT OF ACTIVITIES – Year Ended December 31, 2015 ...................... 5 CONSOLIDATED STATEMENTS OF CASH FLOWS ....................................................................... 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................... 7

Crowe Horwath LLP Independent Member Crowe Horwath International

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1.

INDEPENDENT AUDITOR’S REPORT Board of Trustees Rudolf Steiner Foundation, Inc. dba: RSF Social Finance and Affiliates San Francisco, California Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Rudolf Steiner Foundation, Inc. dba: RSF Social Finance and Affiliates, which comprise the consolidated statements of financial position, as of December 31, 2016 and 2015, and related consolidated statements of activities and cash flows for the years 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 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 consolidated financial statements are free from 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 audit opinion.

2.

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rudolf Steiner Foundation, Inc. dba: RSF Social Finance and Affiliates as of December 31, 2016 and 2015, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Crowe Horwath LLP Sacramento, California July 10, 2017


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION December 31, 2016 and 2015

See accompanying notes to consolidated financial statements.

3.

2016 2015 ASSETS Cash and cash equivalents $ 15,561,821 $ 29,227,940 Restricted cash - 216,046 Mission-related Investments: Loans receivable, net of allowance for loan losses of $2,273,152 and $2,253,377 as of December 31, 2016 and 2015, respectively 97,237,989 79,222,251 Investments, at fair value 73,883,027 64,428,496 Prepaid expenses and other assets 1,240,784 724,104 Total assets $ 187,923,621 $ 173,818,837 LIABILITIES AND NET ASSETS Liabilities Accounts payable and accrued expenses $ 226,317 $ 398,606 Investor notes payable 112,518,335 107,148,478 Other notes payable 6,005,574 - Total liabilities 118,750,226 107,547,084 Net assets Unrestricted 68,773,395 66,121,753 Temporarily restricted 300,000 50,000 Permanently restricted 100,000 100,000 Total net assets 69,173,395 66,271,753 Total liabilities and net assets $ 187,923,621 $ 173,818,837

RUDOLF STEINER FOUNDATION, INC. dba: RSF SOCIAL FINANCE AND AFFILIATES CONSOLIDATED STATEMENT OF ACTIVITIES

Year ended December 31, 2016


4.

Temporary Permanently Unrestricted Restricted Restricted Total Revenues, gains and other support: Fee and management fees income $ 750,725 $ - $ - $ 750,725 Net interest, fees, and investment income Interest income – loans receivable 4,768,300 - - 4,768,300 Investment loss, net (421,099) - - (421,099) Net interest, fees, and investment income 4,347,201 - - 4,347,201 Grants and contributions 20,314,510 250,000 20,564,510 Net assets released from restrictions - - - - Total revenues, gains and other support 25,412,436 250,000 - 25,662,436 Expenses Program services: Grants made to programs 13,236,076 - - 13,236,076 Interest expense – notes payable 617,789 - - 617,789 Personnel costs 3,470,315 - - 3,470,315 Loan loss provision 399,848 - - 399,848 Other projects and program expenses 898,407 - - 898,407 Total program services 18,622,435 - - 18,622,435 Supporting services: Management and general 4,138,359 - - 4,138,359 Total expenses 22,760,794 - - 22,760,794 Changes in net assets 2,651,642 250,000 - 2,901,642 Net assets at January 1, 2016 66,121,753 50,000 100,000 66,271,753 Net assets at December 31, 2016 $ 68,773,395 $ 300,000 $ 100,000 $ 69,173,395

RUDOLF STEINER FOUNDATION, INC. dba: RSF SOCIAL FINANCE AND AFFILIATES CONSOLIDATED STATEMENT OF ACTIVITIES

Year ended December 31, 2015


5.

Temporary Permanently Unrestricted Restricted Restricted Total Revenues, gains and other support Fee and management fees income $ 431,647 $ - $ - $ 431,647 Net interest, fees, and investment income Interest income – loans receivable 4,216,020 - - 4,216,020 Investment loss, net (1,985,148) - - (1,985,148) Net interest, fees and investment income 2,230,872 - - 2,230,872 Grants and contributions 18,718,998 50,000 - 18,768,998 Net assets released from restrictions 875,000 (875,000) - - Total revenues, gains and other support 22,256,517 (825,000) - 21,431,517 Expenses Program services: Grants made to programs 11,402,494 - - 11,402,49 Interest expense – investor notes payable 536,074 - - 536,074 Personnel costs 2,859,937 - - 2,859,937 Loan loss provision 271,827 - - 271,827 Other projects and program expenses 207,125 - - 207,125 Total program services 15,277,457 - - 15,277,457 Supporting services: Management and general 4,106,383 - - 4,106,383 Total expenses 19,383,840 - - 19,383,840 Changes in net assets 2,872,677 (825,000) - 2,047,677 Net assets at January 1, 2015 63,249,076 875,000 100,000 64,224,076 Net assets at December 31, 2015 $ 66,121,753 $ 50,000 $ 100,000 $ 66,271,753


CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2016 and 2015

See accompanying notes to consolidated financial statements

6.

2016 2015 Cash flows from operating activities Change in net assets $ 2,901,642 $ 2,047,677 Adjustments to reconcile change in net assets to net cash provided by operating activities: Loan loss provision 399,848 271,827 Depreciation expense 63,300 47,360 Realized and unrealized (gains) loss on investments 1,122,538 (2,877,167) Changes in operating assets and liabilities: Prepaid expenses and other assets (313,056) 627,454 Accounts payable and accrued expenses (172,289) 79,157 Net cash provided by operating activities 4,001,983 196,308 Cash flows from investing activities Loan originations (46,465,872) (34,410,984) Collections from loans receivable 28,050,286 37,596,724 Decrease in restricted cash 216,046 71,937 In-kind donations - (318,841) Purchase of investments (12,577,069) - Proceeds from sale or maturity of investments 2,000,000 1,733,682 Purchases of furniture and equipment (266,924) (53,254) Net cash (used in) provided by investing activities (29,043,533) 4,619,264 Cash flows from financing activities Proceeds from issuance of investor notes payable 13,401,652 8,659,446 Payments on investor notes payable (8,031,795) (12,217,516) Proceeds from other notes payable 6,005,574 - Net cash provided (used in) by financing activities 11,375,431 (3,558,070) Net increase (decrease) in cash and cash equivalents (13,666,119) 1,257,502 Cash and cash equivalents at beginning of year 29,227,940 27,970,438 Cash and cash equivalents at end of year $ 15,561,821 $ 29,227,940


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2016 and 2015

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7.

NOTE 1 - ORGANIZATION Rudolf Steiner Foundation, Inc. dba: RSF Social Finance (“RSF”) was incorporated in 1936. As a nonprofit benefit organization, RSF creates social benefit through innovative approaches to working with money that reflect the highest aspirations of the human spirit. RSF fosters relationships, collaboration, and community building as the basis for the movement of money and the cultivation of living economies. RSF provides ways for donors, investors, borrowers, and grant recipients to use money to integrate their values with practical objectives. To further this mission, RSF carries out its services on a worldwide basis through philanthropic services, social investment, lending, grant making, advising, and educational programs. RSF’s focus areas include: sustainable agriculture and food distribution systems, education and the arts, ecological stewardship, and integrated capital The consolidated financial statements include the following affiliates: RSF Global Community Fund, Inc. (“GCF”); RSF Social Investment Fund, Inc. (“SIF”); RSF Charitable Asset Management, LLC (“CAM LLC”); RSF Social Enterprise, Inc. (“SEI”); RSF Capital Management, PBC (“CMP”); and RSF Mezzanine Management, LLC (“MML”). GCF and SIF are California nonprofit public benefit corporations established for the special and exclusive purpose of supporting financial and charitable activities of RSF. CAM LLC, a California limited liability company, is an investment portfolio entity that was created by RSF to consolidate the investments of RSF and its affiliates relative to their philanthropic services activities. CMP is a Delaware for-profit public benefit corporation established by RSF to manage its for-profit activities and to act as managing member of MML. CMP has a specific public benefit purpose of creating a material positive impact on society and the environment. SEI is a California C corporation, a wholly owned subsidiary of CMP, which was created to originate and acquire social enterprise loans that may be considered non-charitable. MML is a Delaware limited liability company, which is the general partner of MFL. MFL, a Delaware limited partnership, is an investment portfolio entity that was created to raise capital through the limited partners contributions in order to provide loans and equity investments. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: In accordance with Financial Accounting Standards Board Accounting Standards Codification (the “FASB ASC”) Not-for-Profit Entities, these consolidated financial statements include the accounts of RSF, GCF, SIF, CAM LLC, SEI, CMP and MML (collectively, “RSF and affiliates”). RSF appoints the majority of the directors of GCF, SIF and CMP and has an economic interest in these entities. All significant intercompany transactions and accounts have been eliminated in the consolidation. MML is the general partner of RSF Mezzanine Fund, L.P. (“MFL”), however MML does not exercise significant influence over MFL. MML’s interest in MFL is reflected as an investment in the accompanying consolidated financial statements. Basis of Presentation: The consolidated financial statements have been prepared on an accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.



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8.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounting principles generally accepted in the United States of America require that RSF and affiliates report information regarding their financial position and activities according to three classes of net assets: unrestricted net assets which represent the expendable resources that are available to support the operations of RSF and affiliates at management’s discretion; temporarily restricted net assets which represent resources that are donor-restricted as to purpose or passage of time; and permanently restricted net assets which represent resources whose use is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of RSF and affiliates. Use of Estimates: In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: RSF and affiliates considers all highly liquid investments with an initial maturity of three months or less when purchased to be cash equivalents. Money market accounts and certificates of deposit that are intended for long-term investment purposes are classified separately under investments. Mission-Related Investments: Mission-related investments are investments in which RSF and affiliates intend to generate a social return as well as a financial return, such that it is not exclusively about profit. Such investments would not be made were it not for the relationship of the investment to, and its furtherance of, RSF and affiliates’ programmatic mission. Loans Receivable: These consist of mission-related investment assets representing loans made by RSF and affiliates to for-profit social enterprises and nonprofit organizations. The loans are mission related and generally collateralized by mortgages, business assets, guarantees and pledges from individuals, for-profit enterprises and nonprofit organizations. These loans are reported at their outstanding principal balances, together with accrued interest and fees, and net of any unamortized costs and fees on originated loans. While the loans receivable are categorized by type for disclosure purposes, management believes that each category has a similar risk of repayment. Therefore, the allowance for loan losses is not determined by loan category. Allowance for loan losses – The carrying amount of loans receivable may be reduced by a valuation allowance that reflects management’s best estimate of the probability of collecting those accounts. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that RSF and affiliates will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impairment is considered to exist when it is probable that not all amounts will be collected as due under the terms of the loan receivable. Management reviews outstanding loans which have been delinquent for 30 days or more and determines recoverability of outstanding principal, interest and fees on an ongoing basis.



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9.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Non-accrual loans – Generally, loans are placed on non-accrual status when one or more of the following occurs: 1. The scheduled loan payment becomes 90 days past due. 2. It becomes probable that the client cannot or will not make scheduled payments. 3. Full repayment of interest and principal is not expected. 4. The loan displays potential loss characteristics. When placed on non-accrual, RSF reverses the recorded unpaid interest and any subsequent payments shall be applied first to principal. Loans placed on non-accrual are generally deemed impaired. Loans may be returned to accrual status when one or more of the following conditions have been met: 1. All payments (according to the original terms of the loan) are brought current; 2. A 6-month period of satisfactory payment history has been established; and 3. A current evaluation of the client indicates the ability to repay the loan according to the original terms. All loans with a delinquent status of 90 days shall be classified as substandard and placed on non-accrual status. Impaired loans – Factors considered by management in determining whether a loan as impaired include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Management identifies a loan as impaired based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, RSF and affiliates use the current fair value of the collateral, less selling costs when foreclosure is probable, instead of discounted cash flows. If management determines that the value of the impaired loan is less than the recorded investment in the loan, RSF and affiliates recognize impairment in the calculation of the overall allowance for loan losses. Troubled Debt Restructuring (“TDR”) – Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before it reaches nonaccrual status. A restructuring of a debt constitutes a TDR if the creditor for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. Concessions could include a reduction in the interest rate to a rate that is below market on the loan, payment extensions, forgiveness of principal, forbearance, other actions designed to maximize collections. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequent default, management determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.



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10.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The general component covers loans that are collectively evaluated for impairment. Loans that are not considered impaired are collectively evaluated for impairment, and accordingly, they are not included in the separately identified impairment disclosures. The general component is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by RSF. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: changes in RSF’s policies or practices; economic and financial trends; changes to RSF’s loan portfolio; changes to collateral values; the effect of segment concentrations; changes in delinquency rates; the effect of trends or findings from internal or external loan review audits; changes in RSF personnel affecting administration of the loan portfolio; and other factors. While historical loss experience by loan segment and migration of loans into higher risk classifications are considered, the following factors are also considered in determining the level of needed allowance on such loans: the historical loss rates (or severity) of loans specifically classified as special mention, substandard, or doubtful; and the trends in the collateral on the loans included within these classifications. Investments: RSF and affiliates record investments with readily determinable fair values at their fair values in the accompanying consolidated statements of financial position. The Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) section for Fair Value Measurements and Disclosures defines fair value of an investment as the amount that would be received upon sale of the investment in an orderly transaction between market participants at the measurement date (i.e., the “exit price”). Unrealized gains and losses on investments with readily determinable fair values are generally accounted for in the consolidated statement of activities. Stock gifts received from donors are recorded as gift income at the fair value of the stock gifts on the date of donation. Gains and losses and investment income derived from investments are accounted for as unrestricted, temporarily restricted, or permanently restricted based on restrictions, if any, in the accompanying consolidated statement of activities. Realized gains or losses on investments represent the difference between the original cost of the securities on a specific identified cost basis and the related fair market value on the date of sale or distribution. They include the original cost of the investments written-off, if any. When the investments are sold, gains or losses are classified as realized. The deemed gains or losses from any distribution of securities represent the difference between the fair value of the securities distributed as of the date of distribution and the original cost. The difference between the original cost and the fair value of investments held at the end of the year represents unrealized appreciation or depreciation. Furniture and Equipment: Furniture and equipment in excess of $1,500 with a useful life in excess of one year are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives, which range from five to seven years. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. RSF and affiliates regularly evaluate long-lived assets for indicators of possible impairment. Should impairment exist, the impairment loss would be measured based on the excess carrying value of the asset’s fair value or discounted estimates of future cash flows. RSF and affiliates have not identified any such impairment losses to date. Notes Payable: Notes payable are liabilities consisting of investor funds and another loan facility made to RSF and affiliates by individuals and organizations for specified periods, depending on the terms of the agreements with the other parties.



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11.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as ore fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable for can be corroborated by observable market data. Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. RSF and affiliates used the following methods and significant assumptions to estimate fair value: Impaired loans – The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated regularly for additional impairment and adjusted accordingly. Financial instruments not carried at fair value – For other financial instruments held by RSF and affiliates, the carrying value is considered to be a reasonable estimate of the respective fair value based on the nature and terms of the arrangements. These financial instruments include cash and cash equivalents, loans receivable, and notes payable.



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12.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition: Gifts and Contributions – Gifts and contributions consist principally of donations from individuals and organizations. Gifts and contributions are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of any donor restrictions. Restricted net assets are reclassified to unrestricted net assets upon satisfaction of the time or purpose restrictions. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), restricted net assets are reclassified to unrestricted net assets and reported in the accompanying consolidated statements of activities as net assets released from restrictions. Interest and Fee Income – Most of RSF and affiliates’ income is derived from lending activities. The rates charged on loans receivable are adjusted periodically in response to changing market and economic conditions among other factors. For each of the years ended December 31, 2016 and 2015, the base rate charged to loans receivable was 4.5%. The base rate is adjusted for various indices, depending on the loan type, to arrive at the interest rate charged to the borrower. The rate on investor notes payable was 0.50% for the year ended December 31, 2016, and 0.25% for the year ended December 31, 2015. RSF and affiliates also generates one-time origination fees ranging from 0.50% to 2.00% of the loan balance on new loans and upon the extension of the maturity date of existing loans. Net loan origination fees and costs are amortized to interest income over the contractual life of the loan using the effective interest method. Donated Services – RSF and affiliates generally pay for services requiring specific expertise. However, many individuals volunteer their time and perform a variety of tasks that assist RSF and affiliates. The services of volunteers, while often significant in value, do not meet the criteria for financial statement recognition and, accordingly, are not recorded on these accompanying consolidated financial statements. Grants Made: Grants are recognized when they are approved by RSF and affiliates. Functional Expense Allocation: The costs of RSF and affiliates’ various programs and other activities have been summarized on a functional basis in the accompanying consolidated statements of activities and changes in net assets. Expenses directly identifiable with programs are charged to program services. Supporting services include overhead expenses not directly identifiable with programs but which provide for overall support and direction of RSF and affiliates. Personnel expenses are allocated between program and supporting services.



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13.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Concentration of Credit Risk: Financial instruments, which potentially subject RSF and affiliates to concentration of credit risk, consist principally of cash and cash equivalents with high credit quality financial institutions, restricted cash, loans receivable, equity securities, corporate bonds, mutual funds, investment companies and derivative financial instruments. These instruments are also subject to other market conditions such as interest rate risk, equity market risks and their implied volatilities, mortgage risks and market liquidity and funding risks. Cash and cash equivalents on deposit with financial institutions are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 for all interest and non-interest bearing cash accounts at all FDIC-insured financial institution and/or by the Securities Investor Protection Corporation (“SIPC”) as of December 31, 2016 and 2015. At various times during 2016 and 2015, RSF and affiliates had cash balances in excess of the insured limits. RSF and affiliates have not experienced any losses in such accounts and believe they are not exposed to any significant credit risk to cash. Income Taxes: RSF and affiliates (excluding SEI, CMP, CAM LLC, MML and MFL) are qualified organizations exempt from federal and California income taxes under Section 501(c)(3) of the Internal Revenue Code (“IRC”) and Section 23701d of the California Revenue and Taxation Code. RSF is an organization described under IRC Sections 509(a)(1) and 170(b)(1)(A)(vi). Both GCF and SIF are organizations as described within IRC Section 509(a)(3). SEI and CMP pay both federal and state income tax on its taxable income. Income taxes are provided for the tax effect of transactions reported in the accompanying consolidated financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial and income tax reporting purposes. The deferred tax assets and liabilities represent future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. A valuation allowance is established against deferred tax assets if, in management’s opinion, it is more likely than not that all or a portion of such deferred tax assets will not be fully realized. CAM LLC is a limited liability company and is not subject to income taxes. Federal and state income tax statutes require that the income or loss of CAM LLC be included in the tax returns of the members. Each member is individually responsible for reporting income or loss, to the extent required by the federal and state income tax laws and regulations, based upon its respective share of the company’s income and expense as reported for income tax purposes. Accounting principles generally accepted in the United States of America prescribes recognition thresholds and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Tax benefits will be recognized only if a tax position is more-likely-than-not sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized will be the largest amount of tax benefit that is greater than 50% likely being realized on examination. For tax positions not meeting the more-likely-than-not test, no tax benefit will be recorded. Management has concluded that there are no tax benefits or liabilities to be recognized at December 31, 2016 and 2015.



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14.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes (Continued): RSF and affiliates would recognize interest and penalties related to unrecognized tax benefits in interest and income tax expense, respectively. RSF and affiliates have no amounts accrued for interest or penalties for the years ended December 31, 2016 and 2015. RSF and affiliates do not expect the total amount of unrecognized tax benefits to significantly change in the next 12 months. RSF and affiliates are subject to examination for the 2013, 2014 and 2015 tax years by federal taxing authorities and for the 2012, 2013, 2014, and 2015 tax years by California taxing authorities. If such examination results in changes to their reported income or loss, the tax liability could be changed accordingly. Reclassification: Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year changes in net assets and net assets. Recent Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU are effective retrospectively for fiscal years beginning after December 15, 2017. Management is currently assessing the effect on RSF and affiliates’ financial statements. In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance costs. This ASU intends to simplify the presentation of debt issuance costs by requiring debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. The Update is effective for fiscal years beginning after December 15, 2015. RSF and affiliates implemented this ASU in 2016, and there were no debt issuance costs as of December 31, 2016. In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurements: Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent). The amendment removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The guidance is effective for fiscal years beginning after December 15, 2015. RSF and affiliates have implemented this ASU and disclosures were revised to address the impact of categorization for those applicable investments which were measured using net asset value. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the amendments in this ASU, a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. RSF and affiliates has not yet implemented this ASU and is in the process of assessing the effect on RSF and affiliates’ consolidated financial statements.



(Continued)

15.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recent Accounting Pronouncements; (continued): In June 2016, FASB issued ASU No. 2016-13 - Financial Instruments —Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). The ASU introduces guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. For debt securities with other-than-temporary impairment (OTTI), the guidance will be applied prospectively. Existing purchased credit impaired (PCI) assets will be grandfathered and classified as purchased credit deteriorated (PCD) assets at the date of adoption. The asset will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance. For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings as of the beginning of the first reporting period which the guidance is effective. The standard will be effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of this standard is still being evaluated by management as to whether or not it will have a material effect on the Organization’s operating results or financial condition. In August 2016, the FASB issued ASU No. 2016-14 - Not-for-Profit Entities (Topic 958). The amendments in this update affect not-for-profit entity’s (NFP’s) and the users of their general purpose financial statements. The amendments in this Update make certain improvements to the current net asset classification requirements and the information presented in financial statements and notes about a NFP’s liquidity, financial performance, and cash flows. The amendments in the ASU are effective for annual financial statements issued for fiscal years beginning after December 15, 2017. RSF and affiliates has not yet implemented this ASU and is in the process of assessing the effect on RSF and affiliates’ consolidated financial statements. NOTE 3 - LOANS RECEIVABLE, NET As of December 31, 2016 and 2015, RSF and affiliates’ total loans receivable are summarized by loan category in the following table: 2016 2015 Education and the arts $ 54,464,108 $ 50,509,985 Food and agriculture 35,312,245 24,325,548 Ecological stewardship 9,006,359 6,640,095 Integrated capital 728,429 - Subtotal 99,511,141 81,475,628 Allowance for loan losses (2,273,152) (2,253,377) $ 97,237,989 $ 79,222,251



(Continued)

16.

NOTE 3 - LOANS RECEIVABLE, NET (Continued) RSF and affiliates extend credit to organizations that are mission-related. Interest rates on newly originated loans range from 3.25% to 13.5% during 2016 and 2015. RSF and affiliates perform ongoing credit evaluations of their borrowers, maintaining allowances, when applicable, for potential credit losses, when appropriate. For certain extensions of credit, RSF and affiliates may require collateral, based on their assessment of a borrower’s credit risk. RSF and affiliates hold various types of collateral, including accounts receivable, inventory, real estate, equipment, guarantees and financial instruments. Collateral requirements for each borrower may vary according to the specific credit underwriting, terms and structure of loans funded immediately or under a commitment to fund at a later date. Personnel costs capitalized as loan origination costs and amortized on a level yield basis were not considered significant for disclosure purposes. Certain commitments are subject to loan agreements with covenants regarding the financial performance of the borrower or borrowing base formulas that must be met before RSF and affiliates are required to fund the commitment. RSF and affiliates use the same credit policies in extending credit for unfunded commitments in funding loans. In addition, RSF and affiliates manage the potential risk in credit commitments by limiting the total amount of arrangements, both by organizations and/or affiliates, by monitoring the size and maturity structure of these loans and by applying the same credit standards for all loan activities. Although RSF and affiliates believe the related collateral to be adequate, there is no assurance that the underlying assets have sufficient value to fully collateralize the outstanding balances. As of December 31, 2016 and 2015, the contractual amount of the unfunded credit commitments was approximately $15,628,000 and $17,183,000, respectively. Investors are also able to enter into a limited guarantee agreement with RSF and affiliates to cover any risk of possible losses to organizations that apply for loans. In 2016 and 2015, SIF received of approximately $2,675,000 and $2,650,000, respectively, in limited guarantee agreements to provide for additional coverage for possible loan losses from loans. Below is an analysis of the allowance for loan losses for the years ended December 31, 2016 and 2015: 2016 2015 Balance at beginning of year $ 2,253,377 $ 2,484,897 Provision for loan losses 399,848 271,827 Charge-offs (380,073) (503,347) Balance at end of year $ 2,273,152 $ 2,253,377 Allowance for loan losses individually evaluated for impairment $ 855,398 $ 1,728,872 Allowance for loan losses collectively evaluated for impairment $ 1,417,754 $ 524,505 As of December 31, 2016 and 2015, the allowance for loan losses associated with impaired loans is estimated on an individually evaluated basis. The tables below summarize key information for impaired loans. The recorded investment in impaired loans includes accrued interest, deferred fees and deferred costs. Interest income recognized on a cash basis was not considered significant for separate disclosure.



(Continued)

17.

NOTE 3 - LOANS RECEIVABLE, NET (Continued) 2016 Unpaid Related Average Interest Recorded Principal Allowance for Recorded Income Investment Balance Loan Losses Investment Recognized With no related allowance recorded: Education and the arts $ 3,273,605 $ 3,257,598 $ - $ - $ 158,672 Food and agriculture - - - - - Ecological stewardship - - - - - Subtotal 3,273,605 3,257,598 - - 158,672 With an allowance recorded: Education and the arts 3,150,488 3,136,216 476,308 3,414,642 - Food and agriculture 548,632 545,038 164,590 274,316 36,474 Ecological stewardship 2,155,486 2,133,910 214,500 1,512,292 74,944 Subtotal 5,854,606 5,815,164 855,398 5,201,250 111,418 Total $ 9,128,211 $ 9,072,762 $ 855,398 $ 5,201,250 $ 270,090

2015 Unpaid Related Average Interest Recorded Principal Allowance for Recorded Income Investment Balance Loan Losses Investment Recognized With no related allowance recorded: Education and the arts $ 227,533 $ 227,171 $ - $ 240,035 $ 8,620 Food and agriculture - - - - - Ecological stewardship - - - - - Subtotal 227,533 227,171 - 240,035 8,620 With an allowance recorded: Education and the arts 3,678,795 3,654,756 1,043,200 3,629,898 54,122 Food and agriculture 77,386 77,054 7,739 78,025 5,156 Ecological stewardship 1,731,945 1,737,540 677,933 1,342,026 92,984 Subtotal 5,488,126 5,469,350 1,728,872 5,049,949 152,262 Total $ 5,715,659 $ 5,696,521 $ 1,728,872 $ 5,289,984 $ 160,882 Management has established a process to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in their portfolio, economic uncertainties, historical loss experience and other subjective factors, including industry trends, calculated to better reflect the risk in each loan portfolio. Management has an experienced work-through team that works with borrowers to help them with financial challenges that could affect their ability to make loan payments. If the financial position of certain borrowers improves over time, it may be possible to recover part of the allowance for loan losses and take the recovered amount back into income.



(Continued)

18.

NOTE 3 - LOANS RECEIVABLE, NET (Continued) The following tables present loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2016 and 2015: Pre-Modification Post-Modification Outstanding Outstanding Number of Recorded Recorded Loans Investment Investment December 31, 2016 Education and the arts 1 $ 339,473 $ 339,473 Ecological stewardship 1 475,212 475,212 Food and agriculture 1 100,515 100,515 Pre-Modification Post-Modification Outstanding Outstanding Number of Recorded Recorded Loans Investment Investment December 31, 2015 Education and the arts 2 $ 575,475 $ 575,475 Ecological stewardship 1 349,883 349,883 The troubled debt restructurings described above did not change the allowance for loan losses and did not result in any charge offs during the years ended December 31, 2016 and 2015. The modifications during the years ended December 31, 2016 and 2015 included reduction of principal and interest payments and payment deferrals. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the years ended December 31, 2016 and 2015. CMP categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. CMP analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on an ongoing basis. CMP uses the following definitions for risk ratings: Watch List / Special Mention - Loans classified as watch list / special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date. Substandard / Doubtful / Loss - Loans classified as substandard / doubtful / loss are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any and potentially have the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.



(Continued)

19.

NOTE 3 - LOANS RECEIVABLE, NET (Continued) Loan concentrations may exist when there are amounts loaned to borrowers engaged in similar activities or similar types of loans extended to a diverse group of borrowers that would cause them to be similarly impacted by economic or other conditions. Concentration in loans to Waldorf and charter schools in RSF and affiliates was approximately 26% and 48% at December 31, 2016 and 2015, respectively. Concentrations to life sharing and personal care was approximately 12% and 6% at December 31, 2016 and 2015, respectively. Based on current economic conditions, schools may be subject to a drop in tuition revenue and/or state funding. RSF and affiliates monitor the underlying economic or market conditions for these areas within their credit risk management process, including schools’ financial health by reviewing reports submitted by the schools as required by their loan covenants, conducting site visits and staying in regular contact with the school administrators. Of the principal payments on loans receivable due to mature in 2017, RSF and affiliates’ management project that 49% will be repaid and 51% will be renewed and extended. Future principal payments to be received on loans receivable are as follows: Years Ending December 31,

2017 $ 22,128,458 2018 19,147,908 2019 18,603,107 2020 8,221,272 2021 11,676,321 Thereafter 19,734,075

$ 99,511,141 The following tables show the loan portfolio allocated by management's internal risk ratings at December 31, 2016 and 2015: 2016 Credit Risk Profile by Internally Assigned Grade Education and Food and Ecological Integrated the Arts Agriculture Stewardship Capital Total Grade: Pass $ 47,957,015 $ 32,843,133 $ 5,943,317 $ 728,429 $ 87,471,894 Watch list/special mention 83,000 1,435,589 1,162 - 1,519,751 Substandard/doubtful/loss 6,424,093 1,033,523 3,061,880 - 10,519,496 Total $ 54,464,108 $ 35,312,245 $ 9,006,359 $ 728,429 $ 99,511,141 2015 Credit Risk Profile by Internally Assigned Grade Education and Food and Ecological Integrated the Arts Agriculture Stewardship Capital Total Grade: Pass $ 45,803,564 $ 23,413,580 $ 1,339,817 $ - $ 70,556,961 Watch list/special mention 254,836 834,914 3,562,738 - 4,652,488 Substandard/doubtful/loss 4,451,585 77,054 1,737,540 - 6,266,179 Total $ 50,509,985 $ 24,325,548 $ 6,640,095 $ - $ 81,475,628



(Continued)

20.

NOTE 3 - LOANS RECEIVABLE, NET (Continued) The following table shows an aging analysis of the loan portfolio by the time past due at December 31, 2016 and 2015: Total Past 30-89 Days 90 Days and Due and Past Due Still Accruing Nonaccrual Nonaccrual Current Total 2016 Education and the arts $ - $ - $ 2,769,649 $ 2,769,649 $ 51,694,459 $ 54,464,108 Food and agriculture - - - - 35,312,245 35,312,245 Ecological stewardship - - 761,958 761,958 8,244,401 9,006,359 Integrated capital - - - - 728,429 728,429 Total $ - $ - $ 3,531,607 $ 3,531,607 $ 95,979,534 $ 99,511,141 Total Past 30-89 Days 90 Days and Due and Past Due Still Accruing Nonaccrual Nonaccrual Current Total 2015 Education and the arts $ - $ - $ 3,551,146 $ 3,551,146 $ 46,958,839 $ 50,509,985 Food and agriculture - - 77,054 77,054 24,248,494 24,325,548 Ecological stewardship - - 873,215 873,215 5,766,880 6,640,095 Total $ - $ - $ 4,501,415 $ 4,501,415 $ 76,974,213 $ 81,475,628 NOTE 4 - INVESTMENTS Fair value, cost and unrealized gains (losses) as of December 31, 2016 and 2015 were as follows: 2016 Unrealized Fair Value Cost Gain (Loss) Cash and cash equivalents $ 52,815,218 $ 52,815,218 $ - Corporate securities 10,330,252 9,489,301 840,951 Government securities 1,582,381 1,588,424 (6,043) Solar City bonds 7,073,667 7,073,667 - Alternative investments 2,081,509 2,914,132 (832,623) $ 73,883,027 $ 73,880,742 $ 2,285 2015 Fair Value Cost Gain (Loss) Cash and cash equivalents $ 36,641,927 $ 36,641,927 $ - Corporate securities 14,326,959 12,684,012 1,642,947 Government securities 2,045,172 1,577,306 467,866 Solar City bonds 9,132,890 9,132,890 - Alternative investments 2,281,548 2,813,557 (532,009) $ 64,428,496 $ 62,849,692 $ 1,578,804



(Continued)

21.

NOTE 4 – INVESTMENTS (Continued) RSF and affiliates manage their mission related investments, excluding loans receivable, according to the RSF Global Investment Policy Statement. This policy establishes the overall investment objectives, social impact goals, and asset allocation and diversification parameters, due diligence requirements, performance management and policy compliance management. The tables below present the balances of assets measured at fair value at December 31, 2016 and 2015 on a recurring basis. 2016 Total Level 1 Level 2 Level 3 Other1 Cash equivalents $ 52,815,218 $ 52,815,218 $ - $ - $ - Corporate securities 10,330,252 8,329,959 - 2,000,293 - Government securities 1,582,381 1,582,381 - - Solar City bonds 7,073,667 - 7,073,667 - - Alternative investments 2,081,509 - - - 2,081,509 $ 73,883,027 $ 62,727,558 $ 7,073,667 $ 2,000,293 2,081,509 2015 Total Level 1 Level 2 Level 3 Other1 Cash equivalents $ 36,641,927 $ 36,641,927 $ - $ - $ - Corporate securities 14,326,959 12,174,837 - 2,152,122 - Government securities 2,045,172 2,045,172 - - - Solar City bonds 9,132,890 - 9,132,890 - - Alternative investments 2,281,548 - - - 2,281,548 $ 64,428,496 $ 50,861,936 $ 9,132,890 $ 2,152,122 $ 2,281,548 There were no transfers between Level 2 and Level 3 during 2016 and 2015. The following summarizes the valuation methodologies and significant quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of December 31, 2016 and 2015: RSF and affiliates’ valuation of Sustainable Produce Urban Delivery (“SPUD”) common stock, included with corporate securities classification, uses the market approach method which derives fair value by reference to observable valuation measures for comparable companies or assets such as performance metrics and last round of financing subject to a 30-40% liquidity discount. RSF and affiliates use a revenue multiple of 1.0x in the valuation of SPUD common stock at December 31, 2016 and 2015. The fair value of SPUD common stock at December 31, 2016 and 2015 was $2,000,293 and $2,152,122, respectively. ______________ 1 Investments using Net Asset Value (NAV) as a fair value expedient are not included in the fair value hierarchy, pursuant to the adoption of ASU 2015-07, Fair Value Measurement.



(Continued)

22.

NOTE 4 – INVESTMENTS (Continued) For other investments for which there is no active market, generally referred to as “alternative investments”, fair values are initially based on valuations determined by using audited net asset values (“NAV”) as of their most recent audited financial statements, adjusted for cash receipts, cash disbursements, and other anticipated income or loss through year end. The investment objective of Level 3 and alternative investments measured using NAV is to seek above-average returns from socially responsible companies and allow for the investor to exit at the opportune time. These funds include direct equity, real estate and hedge funds and are intended to diversify the investment portfolio. There are no unfunded commitments or redemption restrictions as of December 31, 2016 or 2015. The following table is a roll forward of those investment assets classified as Level 3 as of December 31, 2016 and 2015: SPUD Common Stock Beginning balance January 1, 2015 $ 3,516,504 Purchase - Unrealized gain (loss) (1,364,382) Ending balance December 31, 2015 2,152,122 Purchase - Unrealized gain (loss) (151,829) Ending balance December 31, 2016 $ 2,000,293 NOTE 5 - FURNITURE AND EQUIPMENT Furniture and equipment, included in prepaid expenses and other assets, consist of the following as of December 31: 2016 2015 Computer equipment and software $ 733,059 $ 486,887 Furniture and fixtures 210,922 190,170 Office equipment 91,443 91,443 1,035,424 768,500 Less: accumulated depreciation and amortization (741,796) (678,496) $ 293,629 $ 90,004 Depreciation and amortization expense for the years ended December 31, 2016 and 2015 was $63,300 and $47,360, respectively.



(Continued)

23.

NOTE 6 - NOTES PAYABLE Investor Notes Payable: Investor notes payable consist of funds received by RSF and affiliates from individuals, organizations and/or corporations that choose or elect to invest in RSF and affiliates’ mission related projects. Investor notes payable are carried at historical cost, which includes the total value of the principal investments plus accrued interest. Under the FASB ASC Financial Instruments, the fair value of these notes is equal to the amount payable on demand at the measurement date. As of December 31, 2016 and 2015, RSF and affiliates had unsecured investor notes payable funds of $112,518,335 and $107,148,478, respectively, bearing an effective interest rate of .50% and .25%, respectively. On renewal, the principal amount of the note will include any elected reinvested quarterly interest. Investor notes payable have a three-month renewable term and upon maturity these notes automatically renew unless RSF and affiliates receive a request from the investors for repayment before the maturity date. In prior years, RSF and affiliates’ management observed that the average term of RSF and affiliates’ active investor fund is 7.7 years and that over the past three years only an average of 11% of total investor notes payable have been withdrawn annually by their investors. In the event that requests for note repayments are in excess of management’s expectations, management is able to fund these requests by utilizing available cash and cash equivalents, proceeds from selling investments, and through additional borrowings available from RSF and affiliates. Other Notes Payable: During the year ended December 31, 2016, RSF and affiliates entered into a note payable agreement with an unrelated party. At December 31, 2016, the balance of this note payable was $6,005,574, and bears interest at 2.00% per annum, and is scheduled to mature in December 2021. NOTE 7 - INCOME TAXES Income taxes pertaining to SEI and CMP are provided for the tax effects of transactions reported in the accompanying consolidated financial statements, and consist of taxes currently due plus or minus deferred taxes. Deferred taxes relate primarily due to temporary differences in loan losses, unrealized gains and losses, depreciation and amortization, certain accrued expenses and net operating loss carryforwards. The deferred taxes represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.



(Continued)

24.

NOTE 7 - INCOME TAXES (Continued) The provision for (benefit from) income taxes consisted of the following for the years ended December 31, 2016 and 2015: 2016 2015 Current: Federal $ - $ - State 2,400 2,400 Total current tax provision 2,400 2,400 Deferred: Federal (109,000) (169,000) State (69,000) (109,000) Total deferred tax benefit (178,000) (278,000) Change in valuation allowance 178,000 278,000 Provision for income taxes $ 2,400 $ 2,400 Deferred tax assets (liabilities) are comprised of the following at December 31, 2016 and 2015:

2016 2015 Deferred tax assets: Net operating losses $ 975,000 $ 832,000 Unrealized loss on investments 143,000 195,000 Allowance for loan losses 208,000 2,000 Other deferred tax assets - 92,000 Gross deferred tax assets 1,326,000 1,121,000 Valuation allowance (1,299,000) (1,121,000) Total deferred tax assets 27,000 - Deferred tax liabilities (27,000) - Total deferred tax assets $ - $ - At December 31, 2016 and 2015, CMP had approximately $4,327,000 and $3,690,000 of federal net operating loss carryforwards, respectively. At December 31, 2016 and 2015, CMP had approximately $4,331,000 and $3,210,000 of state net operating loss carryforwards, respectively. These federal and state net operating loss carryforwards expire beginning in 2028. Certain activities not directly related to RSF, GCF and SIF’s tax-exempt purposes are treated as unrelated business income, subject to federal and California corporate income taxes. For the years ended December 31, 2016 and 2015, federal and state income taxes on unrelated business income were not material.



(Continued)

25.

NOTE 8 - TEMPORARILY RESTRICTED NET ASSETS Accounting principles generally accepted in the United States of America require that donor restricted net assets be reported as temporarily restricted net assets. Contributions received by RSF and affiliates that are temporarily restricted are due to donor imposed time or purpose restrictions. As of December 31, 2016, temporarily restricted net assets consist of the following:

Donor restricted funds for RSF Program-Related Investment (PRI) Program $ 50,000

Donor restricted funds for Money to Transform Initiative Program 250,000 Total temporarily restricted net assets $ 300,000

As of December 31, 2015, temporarily restricted net assets consist of the following:

Donor restricted funds for RSF Program-Related Investment (PRI) Program $ 50,000 NOTE 9 - NET ASSETS RELEASED FROM RESTRICTIONS Assets which have been temporarily restricted are released from their restrictions once the time or purpose restriction is satisfied as specified by the donor. There were no temporarily restricted assets transferred to unrestricted for the year ended December 31, 2016. Temporarily restricted assets transferred to unrestricted funds for the year ended December 31, 2015 are as follows:

Donor restricted funds for RSF Field Building Collaborative $ 875,000 NOTE 10 - COMMITMENTS As of December 31, 2016, RSF and affiliates have the following commitments: Lease: RSF and affiliates lease their office facility in San Francisco, California under a non-cancelable operating lease through May 2021. The operating lease requires minimum monthly rental payments of $30,491 subject to annual increases based on defined increases in the Department of Labor’s Bureau of Labor Statistics Consumer Price Index. In addition to minimum rental payments, the lease agreement provides for percentage rents based on tenant operating expenses exceeding stated amounts. Rent expense under the operating lease totaled approximately $373,000 and $361,000 for the years ended December 31, 2016 and 2015, respectively.



(Continued)

26.

NOTE 10 – COMMITMENTS (Continued) The future minimum payments for the operating lease are as follows: Years Ending December 31,

2017 $ 385,137 2018 397,761 2019 410,824 2020 424,346 2021 179,189 $ 1,797,257

Line of Credit: CAM LLC entered into a discretionary line of credit agreement with a financial institution for borrowings up to $15,000,000 and secured by the investments of CAM LLC. Borrowings against this line of credit bear interest at one month LIBOR plus 1.00%. Borrowings are limited to the short-term financing needs of RSF and affiliates’ projects. The line of credit agreement matured in July 2016. As of December 31, 2015, there were no borrowings made by RSF and affiliates. As a result, there was no interest expense paid under this line of credit for the years ended December 31, 2016 and 2015. In February 2017, RSF entered into a line of credit agreement with a new financial institution for borrowings up to $2,000,000, and secured by a money market account held by RSF. Borrowings against this line of credit bear interest at a fixed rate of 2.75%. NOTE 11 - RELATED PARTY TRANSACTIONS Investments: RSF and affiliates’ investments consist of investments of which certain members of the Board of Trustees are either board members of these companies and/or serve in an advisory capacity for certain members of the limited liability companies/nonprofit organizations. Cash and Cash Equivalents: RSF and affiliates have accounts with New Resource Bank (NRB). The RSF Board Chair, is a founder and chairman of NRB. The balances of the accounts were approximately $6,457,000 and $6,894,000 at December 31, 2016 and 2015, respectively. Investors Notes Payable: Investor notes payable includes approximately $490,000 and $393,000 owed to Trustees and employees for the years ended December 31, 2016 and 2015, respectively.



27.

NOTE 11 - RELATED PARTY TRANSACTIONS (Continued) Note Receivable: On June 3, 2015, CMP entered into a Split-Dollar Loan Agreement (the “Loan Agreement”) with one of its key employees (“Employee”) under which CMP agreed to make seven interest-bearing, non-recourse $200,000 loans (“Split Dollar Loans”) to the Employee. The first Split Dollar Loan was funded in June 2015 at an interest rate of 2.5% and the second loan was funded in May 2016. After the first loan, the remaining six Split Dollar Loans are to be funded over the following six years ($200,000 each year), with interest rates to be set at the Applicable Federal Rate per US Treasury Regulation Section 1.7872-15(e)(4)(ii) on the date such Split Dollar Loans are funded. Accordingly, the first Split Dollar Loan was made to Employee in June 2015, and the second loan was made in May 2016. Subsequent Split Dollar Loans will be made on or about May 12th of each year, up to and including May 12, 2021, for a total of $1,400,000 in Split Dollar Loans over the life of the arrangement. Each Split Dollar Loan is (1) made in the form of a premium payment to John Hancock Life Insurance Company to fund a life insurance policy (the “Policy”) with a face amount of $2,981,078 on the life of the Employee and (2) evidenced by a Promissory Note for Split Dollar Loan executed by the Employee in favor of CMP. The Split Dollar Loans fund all of the planned premiums for the Policy and are secured by a Collateral Assignment of Life Insurance Policy pursuant to which the Employee assigned CMP an interest on the Policy, which provides that in the event of the death of the Employee, the termination or surrender of the Policy, or the termination of the Loan Agreement, CMP is entitled to receive from the proceeds of the Policy the cumulative balance of principal and interest then owing on the Split Dollar Loans. The Loan Agreement is structured as non-recourse in that should the Split Dollar Loans’ aggregate principal and interest balance exceed the proceeds from death benefit, surrender or other settlement of the Policy, the Employee would not be obligated to repay CMP for the excess. Therefore, the asset carried by CMP is limited to the cash surrender value of the Policy, which was $323,125 and $158,199 as of December 31, 2016 and 2015, respectively, and is included in prepaid expense and other assets on the consolidated balance sheets.

NOTE 12 - RETIREMENT PLAN RSF and affiliates have established a defined contribution plan and a retirement annuity money purchase plan covering all RSF and affiliates’ full-time employees. RSF and affiliates’ contribution to the Plan is limited to 3% of the employees’ salaries for each of the years ended December 31, 2016 and 2015. For the years ended December 31, 2016 and 2015, RSF and affiliates contributed approximately $92,000 and $85,000, respectively, to the retirement plan. NOTE 13 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION RSF and its affiliates made the following cash payments for the years ended December 31, 2016 and 2015: 2016 2015 Net interest on notes payable $ 628,644 $ 536,074 Income taxes paid $ 89,300 $ 3,289 NOTE 14 - SUBSEQUENT EVENTS RSF and its affiliates have evaluated subsequent events through July 10, 2017, the date the consolidated financial statements were available to be issued, and have determined that there are no subsequent events that require additional disclosures.

RUDOLF STEINER FOUNDATION, INC. dba: RSF SOCIAL FINANCE ... · 12/31/2016 · the consolidated financial position of Rudolf Steiner Foundation, Inc. dba: RSF Social Finance and Affiliates

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