FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORT SPECIAL OPERATIONS WARRIOR FOUNDATION. December 31, 2014 and 2013

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1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORT SPECIAL OPERATIONS WARRIOR FOUNDATION

2 TABLE OF CONTENTS Independent Auditors Report 3-4 Financial Statements Statements of Financial Position 5 Statements of Activities and Changes in Net Assets 6 Statements of Cash Flows 7 Statements of Functional Expenses 8-9 Notes to Financial Statements 10-21

3 RIVERO, GORDIMER & COMPANY, P.A. CERTIFIED PUBLIC ACCOUNTANTS Member American Institute of Certified Public Accountants Florida Institute of Certified Public Accountants Herman V. Lazzara Stephen G. Douglas Marc D. Sasser Michael E. Helton Sam A. Lazzara Cesar J. Rivero, of Counsel Richard B. Gordimer, of Counsel INDEPENDENT AUDITORS REPORT Board of Directors Special Operations Warrior Foundation We have audited the accompanying financial statements of Special Operations Warrior Foundation (the SOWF ), which comprise the statements of financial position as of, and the related statements of activities and changes in net assets, cash flows and functional expenses flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of 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 entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 3 ONE TAMPA CITY CENTER SUITE N. FRANKLIN STREET P. O. BOX TAMPA, FLORIDA FAX

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Special Operations Warrior Foundation as of December 31, 2014 and 2013, and the changes in its net assets, cash flows and functional expenses for the years then ended in accordance with accounting principles generally accepted in the United States of America. Tampa, Florida April 30,

5 STATEMENTS OF FINANCIAL POSITION December 31, ASSETS Cash and cash equivalents (notes A3 and G) $ 262,157 $ 1,406,626 Investments (notes A4, A9, B and C) 85,077,494 75,049,318 Pledges receivable, net of allowance for doubtful accounts (note A5) 712, ,993 Estates in process (note A6) - 200,000 Prepaid expenses and other assets 11,896 38,250 Property and equipment, net of accumulated depreciation (notes A7 and D) 927,456 1,432,473 TOTAL ASSETS $ 86,991,063 $ 78,838,660 LIABILITIES AND NET ASSETS Accounts payable and accrued expenses $ 86,643 $ 102,861 Accrued scholarships payable (notes C and E) 28,970,000 23,050,000 Total liabilities 29,056,643 23,152,861 Net assets - unrestricted 57,934,420 55,685,799 TOTAL LIABILITIES AND NET ASSETS $ 86,991,063 $ 78,838,660 The accompanying notes are an integral part of these statements. 5

6 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS For the year ended December 31, PUBLIC SUPPORT AND REVENUE Public support Contributions (note A8) $ 8,874,807 $ 10,054,071 Special events, net of direct costs (note F) (75,259) (89,158) Total public support 8,799,548 9,964,913 Other revenue Interest and dividends 2,503,680 1,877,024 Realized gain on investments 3,380,418 3,545,143 Unrealized (loss) gain on investments (2,630,433) 3,105,731 Loss on sale of property (168,997) - Total other revenue 3,084,668 8,527,898 Total public support and revenue 11,884,216 18,492,811 EXPENSES Program services Scholarships 7,889,524 3,330,818 Counseling and family services 370, ,775 Wounded warrior 294, ,228 Total program services 8,553,647 4,419,821 Supporting services Management and general 503, ,569 Fundraising 578, ,208 Total supporting services 1,081, ,777 Total expenses 9,635,595 5,205,598 Change in net assets 2,248,621 13,287,213 Net assets at beginning of year 55,685,799 42,398,586 Net assets at end of year $ 57,934,420 $ 55,685,799 The accompanying notes are an integral part of these statements. 6

7 STATEMENTS OF CASH FLOWS For the year ended December 31, Cash flows from operating activities Change in net assets $ 2,248,621 $ 13,287,213 Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation 36,443 45,333 Net realized and unrealized gains on investments (749,985) (6,650,874) Decrease (increase) in pledges receivable and estates in process 199,933 (64) Decrease in prepaid expenses and other assets 26,354 13,702 Loss on sale of property 168,997 - Decrease in accounts payable and accrued expenses (16,217) (248,061) Increase in scholarships payable 5,920,000 1,470,000 Total adjustments 5,585,525 (5,369,964) Net cash provided by operating activities 7,834,146 7,917,249 Cash flows used in investing activities Purchases and sales of investments, net (9,278,191) (7,613,986) Purchases of property, plant and equipment (50,017) (894,233) Proceeds from sale of property 349,593 - Net cash used in investing activities (8,978,615) (8,508,219) Net change in cash and cash equivalents (1,144,469) (590,970) Cash and cash equivalents at beginning of year 1,406,626 1,997,596 Cash and cash equivalents at end of year $ 262,157 $ 1,406,626 Supplemental disclosures of cash flow information Income taxes paid $ - $ - Interest paid $ - $ - The accompanying notes are an integral part of these statements. 7

8 STATEMENT OF FUNCTIONAL EXPENSES For the year ended December 31, 2014 Scholarships Counseling & Family Services Wounded Warrior Total Program Services Management and General Fundraising Total Supporting Services Total Salaries $ 341,662 $ 219,640 $ 61,011 $ 622,313 $ 268,448 $ 329,459 $ 597,907 $ 1,220,220 Payroll taxes and benefits 47,488 30,528 8,480 86,496 37,312 45,792 83, ,600 Scholarships and assistance paid 1,074, ,025 1,255, ,255,774 Accrued scholarship adjustment 5,920, ,920, ,920,000 Banking and investment fees 227, ,177 75,726-75, ,903 Conferences and meetings 7, ,020 2,082 2,775 4,857 13,877 Equipment rental and maintenance 14,623 2,925 1,462 19,010 4,387 5,849 10,236 29,246 Insurance 18,317 3,663 1,832 23,812 5,495 7,327 12,822 36,634 Internet technology services 15,301 4,590-19,891 4,590 6,120 10,710 30,601 Miscellaneous expenses 4,086 1, , ,362 6,810 Postage and delivery 18,676 6,225 2,075 26,976 6,225 8,300 14,525 41,501 Printing and publications 11,060 3,539 5,308 19,907 6,636 17,696 24,332 44,239 Professional fees 21,763 8,162 8,162 38,087 43,271 8,162 51,433 89,520 Promotional materials 58,382 21,894 7,298 87,574-58,383 58, ,957 Supplies 16,972 8,486 2,122 27,580 6,365 8,486 14,851 42,431 Taxes, fees, and licenses 5,826 5,826 1,165 12,817 3,496 6,992 10,488 23,305 Telephone 5,287 5, ,329 1,511 2,266 3,777 15,106 Temporary help 3,810 2, ,985 1,905 3,810 5,715 12,700 Travel 58,231 38,821 9, ,757 29,115 58,231 87, ,103 Utilities 2, , ,619 4,625 Depreciation expense 16,400 5,466 1,822 23,688 5,466 7,289 12,755 36,443 Total expenses $ 7,889,524 $ 370,002 $ 294,121 $ 8,553,647 $ 503,405 $ 578,543 $ 1,081,948 $ 9,635,595 The accompanying notes are an integral part of this statement. 8

9 STATEMENT OF FUNCTIONAL EXPENSES For the year ended December 31, 2013 Scholarships Counseling & Family Services Wounded Warrior Total Program Services Management and General Fundraising Total Supporting Services Total Salaries $ 425,085 $ 300,363 $ 87,469 $ 812,917 $ 164,146 $ 185,700 $ 349,846 $ 1,162,763 Payroll taxes and benefits 53,100 37,520 10, ,546 20,504 23,198 43, ,248 Scholarships and assistance paid 889, , ,245 1,317, ,317,593 Accrued scholarship adjustment 1,470, ,470, ,470,000 Banking and investment fees 113,943 50,642 12, ,245 25,321 50,640 75, ,206 Conferences and meetings 6, ,530 1,219 2,437 3,656 12,186 Equipment rental and maintenance 22,954 5,968 3,213 32,135 4,591 9,181 13,772 45,907 Insurance 18,698 4,862 2,617 26,177 3,740 7,479 11,219 37,396 Internet technology services 9,752 3,901-13,653 1,950 3,901 5,851 19,504 Miscellaneous expenses 20,484 5,121 1,707 27,312 3,414 3,414 6,828 34,140 Postage and delivery 19,107 4,967 2,675 26,749 3,821 7,643 11,464 38,213 Printing and publications 16,883 5,065 1,687 23,635 3,377 6,753 10,130 33,765 Professional fees 26,624 15,661 4,698 46, , , ,612 Promotional materials 20,192 10,096 5,048 35,336-15,146 15,146 50,482 Supplies 23,183 4,216 2,108 29,507 4,214 8,430 12,644 42,151 Taxes, fees, and licenses 16,480 2,996 1,498 20,974 2,997 5,993 8,990 29,964 Telephone 10,767 3,230 1,077 15,074 2,153 4,306 6,459 21,533 Temporary help 11,153 3,346 1,115 15,614 2,230 4,461 6,691 22,305 Travel 130,655 39,197 13, ,918 26,131 52,262 78, ,311 Utilities 2, , ,197 1,796 5,986 Depreciation expense 22,666 6,800 2,267 31,733 4,533 9,067 13,600 45,333 Total expenses $ 3,330,818 $ 681,775 $ 407,228 $ 4,419,821 $ 384,569 $ 401,208 $ 785,777 $ 5,205,598 The accompanying notes are an integral part of this statement. 9

10 NOTES TO FINANCIAL STATEMENTS NOTE A - DESCRIPTION OF THE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A description of the organization and a summary of its significant accounting policies consistently applied in the preparation of the accompanying financial statements follow: 1. Description of the Organization and Activities The Special Operations Warrior Foundation (the SOWF ) was founded in 1980 to serve members and families of the Special Operations community. A tax-exempt 501(c)(3) nonprofit organization, the SOWF ensures full financial assistance for a post-secondary degree from an accredited two or four year college, university, technical, or trade school as well as educational and family counseling to the surviving children of Army, Navy, Air Force and Marine Corps special operations personnel, who lose their lives in the line-of-duty. These services are provided throughout the United States or overseas, depending on where the surviving children reside. The SOWF also provides immediate financial assistance to the Special Operations Command men and women who are severely wounded in combat and transported to U.S. medical facilities for further treatment. SOWF also coordinates with other non-profit organizations to meet the long-term needs of those who have been wounded. The SOWF pledges to continue to work diligently and unselfishly to preserve the legacy of fallen Special Operations Warriors through the college education of the children left behind and to provide immediate financial assistance to the men and women of the Special Operations Command who are wounded in combat. The SOWF has a staff of 14 employees and is governed by a Board of Directors (up to 25 members). The Board of Directors has three standing committees: Executive, Audit and Finance, and Governance. The SOWF office is located in Tampa, FL, in close proximity to MacDill AFB, the home of the United States Special Operations Command (USSOCOM). For purposes of the audited financial statements, when the term college is used, it is intended to be all inclusive of post-secondary educational schools, two and four colleges and universities, private and out of state colleges and universities, technical and trade schools. A summary of the activities of the SOWF follows: Scholarship and Counseling Support - The SOWF has a unique program in which it begins establishing a relationship with the families within 30 days of fatality. The SOWF s staff remains in contact with children and families, offers referral assistance, and works with each child to develop a personalized college education plan. The SOWF provided approximately $1,075,000 in direct scholarship grants, academic and financial aid counseling, and related expenses for 130 children who attended college during

11 NOTE A - DESCRIPTION OF THE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued At December 31, 2014, there are 1046 children who survive 927 Special Operations personnel who gave their lives in patriotic service to their country. Of these 1046 children, 249 have graduated, 130 are in college, 142 are in high school and participate in the SOWF s financial/academic counseling program, 283 are below high school age, 34 are serving in the military, 110 are over 26 years old, and 61 are adults who have been contacted and have not advised the SOWF of their intentions to attend college at this time. Another 37 have been contacted and are completing informational forms to provide age and grade information to the Foundation. Children must enter an educational program before age 26 (30 if serving in military service). The family and financial aid counseling continues for these children until they have graduated from college. Many of the children who are eligible for SOWF grants are also eligible for grants from other military related organizations of which they are not aware. Therefore, SOWF has established liaisons with many other organizations and coordinates the grants for the children in the SOWF program. Thus, while the total cost of 100 children in college would be an estimated $2.5 million, the SOWF leverages the cost and, in some cases, is able to identify 50% of the requirements from the combination of several other outside grants. However, the SOWF is prepared to provide full funding including tuition, room and board, books, fees, transportation, tutoring and miscellaneous expenses for the educational programs should outside funding not be available. This unique program allows the SOWF to provide the funds required for each student s needs and to invest funds for the needs of the children who will attend post-secondary schools in the future. In addition to the direct financial assistance SOWF also provides in home tutoring for middle school, high school, and college students. Support to SOF Wounded - The SOWF, in cooperation with the Special Operations Command, is part of a united effort to address the needs of wounded special operations personnel. The SOWF, at the request of the Special Operations Command, provides $3,000 to meet the immediate-needs their families face when Special Operations men and women are hospitalized from wounds suffered in combat. The SOWF also provides other assistance to the wounded as needed. The SOWF provided approximately $181,000 and $250,000 in direct financial assistance for the years ended, respectively. Counseling and Family Services - The SOWF counselors provide educational counseling, advise families about educational tutoring, provide grief counseling, and assist with college applications. The SOWF provides financial assistance to attend funeral services and memorials in honor of the deceased, attend events honoring deceased family members, and other emergency financial assistance when a need is identified through the Special Operations Command component commanders. 11

12 NOTE A - DESCRIPTION OF THE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 2. Basis of Accounting The accompanying financial statements, presented on the accrual basis of accounting, have been prepared to focus on the SOWF as a whole and to present balances and transactions according to the existence or absence of donor-imposed restrictions. This has been accomplished by the classification of assets, liabilities, and net assets into three classes - unrestricted, temporarily restricted and permanently restricted. The SOWF adheres to the provisions of the Financial Accounting Standards Board Accounting Standards Codification ( FASB ASC ). FASB ASC establishes standards for general purpose external financial statements of not-for-profit organizations and requires a statement of financial position, a statement of activities, and a statement of cash flows. FASB ASC requires the SOWF to distinguish between contributions that increase permanently restricted net assets, temporarily restricted net assets, and unrestricted net assets. It also requires recognition of contributed services meeting certain criteria at fair values. These three classifications are defined as follows: Unrestricted net assets not subject to donor-imposed restrictions or the donorimposed restrictions have expired. Temporarily restricted net assets subject to donor-imposed stipulations that may be fulfilled by actions of the SOWF to meet the stipulations or become unrestricted by the passage of time. Currently, the SOWF has no temporarily restricted net assets. Permanently restricted net assets subject to donor-imposed stipulations that they be retained and invested permanently by the SOWF. Currently, the SOWF has no permanently restricted net assets. 3. Cash Equivalents Cash equivalents consist of highly liquid short-term market instruments and certificates of deposit with a maturity of three months or less when purchased. Cash equivalents approximated $102,000 at. 4. Investments Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values in the statement of financial position. Unrealized gains and losses are included in the change in net assets. 12

13 NOTE A - DESCRIPTION OF THE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 5. Pledges Receivable Pledges receivable are recorded at estimated realizable value, net of an allowance for uncollectible accounts. This allowance approximated $132,000 and $188,000 at, respectively. 6. Estates in Process The SOWF recognizes a receivable and revenue for its interest in estates in process based on the estimated realized value expected to be received. The SOWF records estates in process when the court declares the related will valid. 7. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the related assets ranging from 5 to 39 years. The SOWF capitalizes all purchases that exceed $1, Contributions Contributions, including unconditional promises to give, are recognized in the period received. All contributions are available for unrestricted use unless specifically restricted by the donor. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Unconditional promises to give due in the current year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are reported at the present value of their net realizable value, using risk-free interest rates applicable to the years in which the promises are to be received. 9. Board Designated Funds The SOWF is committed to provide post-secondary funding for all surviving children of Special Operations Warriors who die in the line duty. This commitment requires investing funds for current and future liabilities. Therefore the Board has directed funds, net of current year program expenses and operating expenses, be invested to meet the future liabilities. 10. Contributed Services, Materials, and Supplies Material in-kind items used in the program (e.g., equipment, supplies, etc.) are recorded as income and expense at the time the items are placed into service or distributed. 13

14 NOTE A - DESCRIPTION OF THE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Contributed services are reported as contributions at their fair value if such services create or enhance non-financial assets; the services would have been purchased if not provided by contribution; and the service requires specialized skills. In addition, the SOWF received significant contributions of time from its Directors and unpaid volunteers for fund-raising activities and other services to the SOWF. The value of this contributed time is not reflected in these statements since no objective basis is available to measure the value of these services. 11. Employment Contracts All officers and employees have employment contracts that expire in January Either party can terminate contracts with 30 days notice. Contracts renew automatically for one year, unless notice is given 90 days prior to termination. 12. Income Tax Status The SOWF has received a determination of tax exempt status under Section 501(c)(3) of the Internal Revenue Code. Accordingly, no provision for income taxes is reflected in the accompanying financial statements. The SOWF is not aware of any tax positions it has taken that are subject to a significant degree of uncertainty. Tax years after 2010 remain subject to examination by federal and state taxing authorities. 13. Allocation of Functional Expenses Certain expenses are allocated on the basis of employee time involved or other allocable bases. Expenses incurred for benefiting a single function are reported directly into the appropriate function. 14. Estimates The preparation of financial statements in conformity 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 15. Reclassifications Certain amounts from the December 31, 2013 financial statements have been reclassified to conform to the December 31, 2014 presentation. 14

15 NOTE B - INVESTMENTS Special Operations Warrior Foundation Investments represent the SOWF s Board Designated endowment fund. This fund, designated to provide a revenue stream into perpetuity in order to fund the SOWF s scholarship liabilities, is stated at fair value and comprised of the following at December 31,: Money market funds $ 946,725 $ 1,369,311 Fixed income 36,900,819 32,986,284 Stocks and mutual funds 47,229,950 40,693,723 $ 85,077,494 $ 75,049,318 The SOWF s endowment is comprised of funds designated by the Board of Directors to function as endowments. Net assets associated with endowment funds, including funds designated by the board of Directors to function as endowments, are classified and reported based on existence or absence of donor imposed restrictions. Interpretation of Relevant Law In July 2011, the State of Florida adopted the Florida Uniform Prudent Management of Institutional Funds Act ( FUPMIFA ). The SOWF has interpreted the FUPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulation to the contrary. As a result of this interpretation, the SOWF classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The SOWF had no donor restricted net assets as of. In accordance with the FUPMIFA, the SOWF considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. The duration and preservation of the fund 2. The purposes of the SOWF and the donor-restricted endowment fund 3. General economic conditions 4. The possible effect of inflation and deflation 5. The expected total return from income and that appreciation of investments 6. Other resources of the SOWF 7. The investment policies of the SOWF 15

16 NOTE B - INVESTMENTS - Continued Special Operations Warrior Foundation Return Objectives, Risk parameters, and Strategies The SOWF has adopted an investment and spending policy for endowment assets that attempts to preserve the real (inflation adjusted) value of endowment assets, increase the real value of the portfolio and facilitate a potential distribution to support some level of future operations. The terms of the operating policies of the endowment funds (the Fund ) requires that the Fund will be managed by the Executive Committee and approved by the Board of Directors. The Executive Committee, along with the Audit and Finance Committee, are responsible to oversee the portfolio s investments and monitor the investments on an ongoing basis to ensure that long-term objectives are being met. The Executive Committee has agreed to a target asset allocation for the portfolio s assets and seeks advice from a professional investment management firm which holds the assets. The Fund is to invest funds in accordance with the standards set forth in the SOWF s Investment Policy Statement (IPS). Spending Policy and How the Investment Objective Related to Spending Policy The SOWF s Board of Directors, on the recommendation of the Executive Committee, has adopted a spending policy that governs the annual distributions from the endowment fund that may be expended for current operations of the SOWF. This policy authorizes the SOWF to distribute from its endowment fund a specified percentage, to be determined by the Board of Directors (Board) from time to time, of the current market at budget time or year-end of the endowment fund. The policy also allows the Board to base the distribution formula on the average market value over a period of several years as it chooses to do so. For the years ended the Board of Directors has elected not to distribute any funds from the endowment in order to grow the endowment fund. Distributions cannot exceed the accumulated unspent earnings of the endowment without the SOWF s Board approval. Income earned in excess of the spending rate may be reinvested in endowment principal. This is consistent with the SOWF s objective to maintain the purchasing power of endowment assets as well as to provide additional real growth through investment return. Changes in the endowment s assets are as follows for the years ended : 16 Unrestricted Board Designated Endowment assets at December 31, 2012 $ 60,784,458 Interest, dividends, realized and unrealized activity 8,527,898 Endowment additions 5,988,472 Investment fees (251,510) Endowment assets at December 31, ,049,318 Interest, dividends, realized and unrealized activity 3,253,665 Endowment additions 7,072,638 Investment fees (298,127) Endowment assets at December 31, 2014 $ 85,077,494

17 NOTE C - FAIR VALUE OF FINANCIAL INSTRUMENTS The Financial Accounting Standards Board s Accounting Standards Codification 820 establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. The three levels of the fair value hierarchy under FASB ASC 820 are described below: Level 1 valuations, where the valuation is based on quoted market prices for identical assets or liabilities traded in active markets (which include exchanges and over-the counter markets with sufficient volume), Level 2 valuations, where the valuation is based on quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market, and Level 3 valuations, where the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on organization-specific data. These unobservable assumptions reflect the organization s own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability. ITEMS MEASURED AT FAIR VALUE ON A RECURRING BASIS Cash and cash equivalents consist of cash deposits with financial institutions and money market funds. The SOWF uses quoted market prices of identical assets on active exchanges, or Level 1 valuations. Investments primarily consist of publicly traded stocks, bonds and mutual funds. The SOWF uses quoted market prices of identical assets on active exchanges, or Level 1 valuations. Accrued scholarships payable are based upon the number of potential students, actual costs, funding from other sources of college tuition, and management s estimates about the future costs of college tuition, future inflation and discount rates, or Level 3 valuations. 17

18 NOTE C - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued The methods described above may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, while SOWF believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following tables present financial assets and liabilities measured at fair value on a recurring basis: For the year ended December 31, 2014 Level 1 Level 2 Level 3 Fair Value Assets Cash and money market funds $ 940,715 $ - $ - $ 940,715 Common stock U.S. large cap 6,010 6,010 Mutual funds Bonds U.S. corporate 32,342, ,342,518 International 4,558, ,558,301 Equities Emerging markets 4,096, ,096,117 International real estate 1,087, ,087,810 International core 3,606,579 3,606,579 International small cap 2,845, ,845,492 International value 1,265, ,265,783 International large cap 1,485, ,485,980 U.S. small and micro cap 3,830, ,830,705 U.S. large cap 18,569, ,569,007 U.S. growth 1,940, ,940,106 U.S. value 8,502, ,502,371 Total assets $ 85,077,494 $ - $ - $ 85,077,494 Liabilities Accrued scholarships payable $ - $ - $ 28,970,000 $ 28,970,000 For the year ended December 31, 2013 Level 1 Level 2 Level 3 Fair Value Assets Cash and money market funds $ 1,361,636 $ - $ - $ 1,361,636 Common stock U.S. large cap 7,675 7,675 Mutual funds Bonds U.S. corporate 27,705, ,705,609 International 5,280, ,280,675 Equities Emerging markets 2,360, ,360,393 International real estate 920, ,215 International core 1,097,076 1,097,076 International small cap 2,541, ,541,163 International value 2,610, ,610,799 U.S. small and micro cap 3,658, ,658,148 U.S. large cap 4,910, ,910,796 U.S. growth 1,887, ,887,578 U.S. value 20,707, ,707,555 Total assets $ 75,049,318 $ - $ - $ 75,049,318 Liabilities Accrued scholarships payable $ - $ - $ 23,050,000 $ 23,050,000 18

19 NOTE C - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued The following table illustrates a rollforward for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31,: Accrued Scholarship Payable Balance at December 31, 2012 $ 21,580,000 Change in scholarships payable accrual 2,359,397 Scholarship funds disbursed (889,397) Transfers in and/or out of Level 3, net - Balance at December 31, ,050,000 Change in scholarships payable accrual 6,994,749 Scholarship funds disbursed (1,074,749) Transfers in and/or out of Level 3, net - Balance at December 31, 2014 $ 28,970,000 NOTE D - PROPERTY AND EQUIPMENT Land, buildings, equipment, and related accumulated depreciation consisted of the following at December 31,: Land $ 127,060 $ 202,060 Buildings and improvements 744,691 1,345,940 Office equipment 195, ,691 Vehicles 64,927 53,753 1,131,742 1,790,444 Less accumulated depreciation (204,286) (357,971) $ 927,456 $ 1,432,473 In 2014, the SOWF sold the former Foundation office facility located at 4409 El Prado Boulevard in Tampa, Florida. 19

20 NOTE E - ACCRUED SCHOLARSHIPS PAYABLE The SOWF assumes a liability for college scholarships for the children of Special Operations soldiers killed in the line of duty. This liability exists until the child graduates college, or the child turns 26 years old (30 if serving in the military). The SOWF agrees to pay for tuition, books, room and board, tutoring, transportation, and miscellaneous expenses at a four-year public university, two year community college, in state public university, out of state university, private college or university, or trade school. Every student s need is different based on the college or other post-secondary educational institution they are qualified to attend. The liability accrued is at a significantly lesser rate than the maximum averages, since the SOWF leverages its scholarships with other sources of college assistance. As such, the liability is recorded at the average amount paid per student by the SOWF. The SOWF estimates that college costs will grow at a rate greater than or equal to the inflation rate (4.56% at December 31, 2014). Therefore, instead of deriving future value of scholarships and discounting back to present value, it is believed that recording the unadjusted liability will provide a more conservative estimate. In 2014, the SOWF elected to allow children to attend any public or private university, college or trade school they qualify to attend. That decision and an assessment of postsecondary education costs resulted in a significant increase in accrued scholarship payable of approximately $5.9 million at December 31, The SOWF engaged an independent actuarial consulting firm during 2014 to prepare an updated actuarial valuation of the SOWF s estimated future liabilities with respect to current and future students of the program, as well as the estimated annual cost of benefits allocated to the year following the valuation date. The valuation was prepared using the best estimate actuarial assumptions. This independent actuarial valuation estimated the program s liabilities for all future benefits to be approximately $146.8 million at June 30, In addition, the estimated annual cost of program benefits allocated under the actuarial cost method to the year beginning January 1, 2014 is approximately $4.2 million. NOTE F - SPECIAL EVENTS The SOWF holds a number of special events in order to generate awareness and raise funds. Special events consisted of the following for the year ended December 31,: Gross receipts $ 865,896 $ 1,228,762 Less contributions received (732,086) (1,106,767) Less direct expenses (209,069) (211,153) $ (75,259) $ (89,158)

21 NOTE G - OPERATING LEASES Special Operations Warrior Foundation The SOWF leases certain equipment under non-cancelable operating leases. Approximate future minimum payments under the operating lease agreements are as follows: Year ending December 31, 2015 $ 17, , , ,600 $ 61,400 NOTE H - EMPLOYEE BENEFIT PLAN The SOWF maintains a defined contribution 401(k) plan that provides benefits to all employees who have reached 18 years of age and have completed one year of service. The SOWF contributes 3% of employees annual salary. Contributions to the plan approximated $29,000 for the years ended, respectively. NOTE I - SUBSEQUENT EVENTS The SOWF has evaluated events and transactions occurring subsequent to December 31, 2014 as of April 30, 2015 which is the date the financial statements were available to be issued. 21