The Redwoods Group's 2011 Audited Financials

The Redwoods Group, Inc.

Audited Financial Statements

Years ended December 31, 2011 and 2010with Report of Independent Auditors



Years ended December 31, 2011 and 2010

Contents

Report of Independent Auditors................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................1


Balance Sheets................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................2Statements of Income................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................3Statements of Changes in Stockholders' Equity................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................4Statements of Cash Flows................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................5Notes to Financial Statements................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................6 - 16

Report of Independent Auditors

Board of DirectorsThe Redwoods Group, Inc.

We have audited the accompanying balance sheets of The Redwoods Group, Inc. ("theCompany") as of December 31, 2011 and 2010, and the related statements of income, changes instockholders' equity, and cash flows for the years then ended. These financial statements are theresponsibility of the Company's management. Our responsibility is to express an opinion onthese financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement.An audit includes consideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company's internal control over financialreporting. Accordingly, we express no such opinion. An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,the financial position of The Redwoods Group, Inc. at December 31, 2011 and 2010, and theresults of its operations and its cash flows for the years then ended in conformity with accountingprinciples generally accepted in the United States of America.

Raleigh, North CarolinaMarch 23, 2012


Balance Sheets

As of December 31,2011 2010

AssetsCash and cash equivalents $ 153,054 $ 403,097Investments 934,320 1,184,366Restricted cash 2,907,503 3,357,692Premiums and commissions receivable 7,726,506 6,684,864Prepaid expenses 137,148 117,963Deferred income taxes, net 115,437 106,273Other current assets 119,183 105,399

Total current assets 12,093,151 11,959,654Property and equipment, net 246,143 263,656Investment in affiliate 633,829 667,531Investments - other 545,697 250,000Deferred income taxes, long-term, net 213,102 213,524Other long-term assets 625,822 520,380

Total assets $ 14,357,744 $ 13,874,745

Liabilities and stockholders' equityLiabilities:Accounts payable $ 208,808 $ 161,790Funds held for others 2,907,503 3,357,692Premiums and commissions payable 5,850,607 4,887,676Accrued expenses 128,901 123,310Due to affiliate 70,000 150,000Income taxes payable 123,113 61,593Stock repurchase payable 65,335 -Deferred revenue 1,138,323 1,091,063

Total current liabilities 10,492,590 9,833,124Due to affiliate 253,415 242,496Stock repurchase payable 125,874 -Deferred revenue 216,688 204,175Deferred compensation 630,345 554,933Other 25,833 15,832

Total liabilities 11,744,745 10,850,560

Stockholders' equity:Common stock; $0.01 par value, 1,000,000 shares authorized and

491,741 and 526,021 shares issued and outstanding, respectively 4,917 5,260Additional paid-in capital 982,246 1,029,009Retained earnings 1,619,022 1,988,201Accumulated other comprehensive income 6,814 1,715

Total stockholders' equity 2,612,999 3,024,185

Total liabilities and stockholders' equity $ 14,357,744 $ 13,874,745

See accompanying notes to financial statements2


Statements of Income

Years ended December 31,2011 2010

RevenuesCommissions and fees $ 11,713,081 $ 11,199,241Investment and other income 132,889 222,503

Total revenues 11,845,970 11,421,744

ExpensesCommission expense 1,649,295 1,629,388Compensation and benefits 7,092,362 7,083,380Operating and administrative 2,710,765 2,381,740Depreciation and amortization 142,150 147,049

Total expenses 11,594,572 11,241,557

Income before income taxes 251,398 180,187

Income tax expense 104,504 77,698

Net income $ 146,894 $ 102,489



Statements of Changes in Stockholders' Equity

Common StockAdditional

Paid-in CapitalRetainedEarnings

AccumulatedOther

ComprehensiveIncome (Loss) Total

Balance at January 1, 2010 $ 5,270 $ 1,006,231 $ 1,922,240 $ 4,772 $ 2,938,513

Net income - - 102,489 - 102,489Stock grants, including realized income tax benefits

of $5,988 18 28,276 - - 28,294Stock redeemed (28) (5,498) (36,528) - (42,054)Change in unrealized gains (losses) on securities

classified as available-for-sale, net of deferredincome tax benefit of $1,955 - - - (3,057) (3,057)

Balance at December 31, 2010 5,260 1,029,009 1,988,201 1,715 3,024,185

Net income - - 146,894 - 146,894Stock grants, including realized income tax expense

of $245 18 32,159 - - 32,177Stock redeemed (352) (69,509) (516,073) - (585,934)Stock forfeited (9) (9,413) - - (9,422)Change in unrealized gains (losses) on securities

classified as available-for-sale, net of deferredincome tax expense of $3,261 - - - 5,099 5,099

Balance at December 31, 2011 $ 4,917 $ 982,246 $ 1,619,022 $ 6,814 $ 2,612,999



Statements of Cash Flows

Years ended December 31,2011 2010

Cash flows from operating activities Net income (loss) $ 146,894 $ 102,489Adjustments to reconcile net income (loss) to net cash from operating

activitiesDepreciation and amortization expense 142,150 147,049Amortization of bond discount (69) (76)Stock grants 32,177 28,294Stock grant forfeiture (9,413) -Deferred tax effects of unrealized capital (gains) losses (3,261) 1,955Gain on sale or disposal of assets, net (17,031) (11,337)Net realized gain on investments - (21,453)Net loss from investment in affiliate 33,702 65,959Net change in operating assets and liabilities:

Increase in premiums and commissions receivable (1,041,642) (31,038)Increase in prepaid expenses (19,185) (46,252)Decrease (increase) in investments - other 6,409 (302,106)Decrease in income taxes receivable - 202,480(Increase) decrease in other assets (125,636) 276,616(Increase) decrease in deferred income taxes (8,742) 23,311Increase in accounts payable 47,018 77,051Increase (decrease) in premiums and commissions payable 962,931 (48,451)Increase (decrease) in accrued expenses 15,592 (234,287)Increase in income taxes payable 61,520 61,593Increase in deferred revenue 59,773 16,372Increase in deferred compensation 75,412 72,355Decrease in due to affiliate (69,081) (107,504)

Net cash from operating activities 289,518 273,020

Cash flows from investing activitiesPurchase of property and equipment (146,347) (94,814)Proceeds from disposal of property and equipment 45,150 29,475Purchase of investments (43,630) (343,423)Proceeds from sale of investments - 220,056

Net cash from investing activities (144,827) (188,706)

Cash flows from financing activitiesCost of common stock repurchased (394,734) (42,054)

Net cash from financing activities (394,734) (42,054)

Net change in cash and cash equivalents (250,043) 42,260Cash and cash equivalents, beginning of year 403,097 360,837Cash and cash equivalents, end of year $ 153,054 $ 403,097

Supplemental disclosuresInterest paid $ 122 $ -Income tax (received) paid $ 55,096 $ (210,455)



Notes to Financial Statements

Years ended December 31, 2011 and 2010

Note A - Organization and Significant Accounting Policies

OrganizationThe Redwoods Group, Inc. ("the Company") was formed in 1997. The Company is a managingunderwriter of property, liability and workers' compensation insurance coverage provided byinsurance carriers for the Company's programs for Young Men's Christian Associations("YMCAs"), Jewish Community Centers ("JCCs"), and not-for-profit camps ("Camps")throughout the United States.

Premiums written under the Company's YMCA, JCC, and Camps programs amounted to $51.7million and $48.5 million during calendar year 2011 and 2010, respectively. The Company hasagreements with insurance carriers through which it provides underwriting, policy administrationand claims administration services and receives commissions and fees which are normally paidwhen policy premiums are collected. The Company's home office is in Morrisville, NorthCarolina.

Basis of Presentation The accompanying financial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America ("U.S. GAAP"). Preparation offinancial statements in accordance with U.S. GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements, and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months orless, including money market funds, to be cash and cash equivalents. The Company maintainscertain cash and cash equivalent balances that exceed FDIC insured limits.

Restricted Cash and Funds Held for OthersRestricted cash represents premiums collected by the Company that are not yet due to theinsurance carriers. The corresponding liability to the insurance carriers is reported as funds heldfor others. The Company also maintains certain cash accounts, which consist of insurance carrierfunds advanced for the payment of claims, that are not reflected in the accompanying balancesheets. The amount of such balances at December 31, 2011 and 2010 were $2,911,174 and$2,201,999, respectively. The inclusion of such accounts in the balance sheets would result in anincrease to restricted cash and a corresponding increase to funds held for others, with no netimpact on reported stockholders' equity.

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Notes to Financial Statements (Continued)

Note A - Organization and Significant Accounting Policies (continued)

Fair Value of InvestmentsU.S. GAAP provides guidance for measuring assets and liabilities at fair value and establishes athree-level hierarchy that prioritizes the inputs to valuation techniques used to measure fairvalue. The fair value hierarchy gives the highest priority to quoted prices in active markets foridentical assets or liabilities (Level 1), the next priority to quoted prices for identical assets andliabilities in inactive markets or similar assets and liabilities in active markets (Level 2), and thelowest priority to unobservable inputs (Level 3).

InvestmentsThe Company designates investments in unaffiliated common stock and debt securities asavailable-for-sale and, accordingly, reports these investments at fair value with unrealizedholding gains and losses reported as other comprehensive income, net of estimated tax. Fairvalues for the Company's unaffiliated common stock holdings are based on quoted market pricesfor identical assets in active markets (Level 1). Fair values for the Company's debt securities arebased on average bid prices of identical or similar issues with the same life and expected yields(Level 2). Bond premiums or discounts are amortized over the life of the bond using the constantyield method. The Company's investments in certificates of deposit are reported at cost. TheCompany's investment in affiliate (Note C) is recorded under the equity method of accounting.The Company's investment in a residential condominium (Note B) is reflected at cost and,beginning in 2011, is being depreciated using the straight-line method over an estimated usefullife of 27.5 years. The Company's investment in a limited liability company real estate venture(Note B) is carried at cost.

Realized gains and losses on the disposition of investments are determined using the specificidentification basis. Gross realized gains on the disposition of investments of $0 and $21,453were recognized during the years ended December 31, 2011 and 2010, respectively.

Unrealized losses on investments in common stock and debt securities, which are deemed other-than-temporary, are charged to income when such determination is made. Factors considered inidentifying other-than-temporary impairment ("OTTI") include: (1) for debt securities, whetherthe Company intends to sell the investment or whether it is more likely than not that theCompany will be required to sell the security prior to an anticipated recovery in value; (2) forequity securities, the Company’s ability and intent to retain the investment for a period of timesufficient to allow for an anticipated recovery in value; (3) the likelihood of the recoverability ofprincipal and interest for debt securities (i.e., whether there is a credit loss) or cost for equitysecurities; (4) the length of time and extent to which the fair value has been less than amortizedcost for debt securities or cost for equity securities; and (5) the financial condition, near-term andlong-term prospects for the issuer, including the relevant industry conditions and trends, andimplications of rating agency actions and offering prices. Any such write downs are reported asrealized losses on investments.

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Investments (continued)Investments carried at cost are qualitatively evaluated for OTTI at least annually or morefrequently if circumstances indicate a potential decrease in the fair value of such assets. Noimpairments have been recorded to assets carried at cost as of December 31, 2011 or 2010.

Premiums and Commissions ReceivableThe Company generally bills and collects insurance premiums for the insurance carriers. For theapplicable insurance policies, the Company is required to remit premiums to the insurancecarriers, net of the Company's commission, regardless of whether or not the Company hascollected such premiums when due. Management continually monitors the collectability ofreceivables, and amounts specifically identified as uncollectible are charged to expense in theyear the determination is made. Based upon the Company's past history of negligibleuncollectible accounts and management's assessment of its current receivables, no allowance fordoubtful accounts has been provided in these financial statements.

Property and Equipment Property and equipment are carried at cost less accumulated depreciation. Depreciation iscomputed using the straight-line method over the estimated useful lives of assets, which rangefrom 3 to 7 years.

Commission Revenue and Expense Recognition The Company records commission and fee revenues on policies and commission expense to bepaid to agents as of the date that the policies are written. Policy cancellations are not material;therefore, a provision for potential refunds of commissions has not been provided. Premiumadjustments, including policy cancellations, are recorded as they occur.

Claim Administration FeesThe Company is paid a fee by insurance companies to administer policy claims for the durationof the claims. The Company defers these fee revenues and earns the fees over the period thatclaims services are expected to be provided, based upon actual historical data.

Income Taxes Current income taxes are based upon the fiscal year's income that is taxable for federal and statetax reporting purposes. Deferred tax assets and liabilities are recognized for the taxconsequences attributable to temporary differences between the U.S. GAAP carrying value ofassets and liabilities and their respective tax basis. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in the years in which thosetemporary differences are expected to be recovered or settled. The Company considers uncertaintax positions during the preparation of its income tax provision and management does notbelieve there are any significant income tax uncertainties.

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Stock GrantsAs discussed in further detail in Note I, the Company has issued stock grant agreements tocertain management personnel. The fair value of shares granted is determined on the date sharesare awarded, and compensation expense is recorded over the requisite vesting period with acorresponding credit to additional paid in capital. Share valuation at the date of grant isestimated based upon the Company's annual financial statements, using industry multiples, and isdiscounted to reflect the stock's limited marketability.

Subsequent EventsThe Company evaluates subsequent events for matters that require recognition or disclosure inthe Company's financial statements. Subsequent events have been evaluated through March 23,2012, the date on which these financial statements were available to be issued, and consideredany relevant matters in the preparation of the financial statements.

Note B - Investments

As of December 31, 2011 and 2010, the Company's investments included investments incertificates of deposit of $823,855 and $780,224, respectively. All certificates of deposit areissued by BB&T and mature in 2013. In 2010, the Company purchased a residentialcondominium real estate property in Chapel Hill, North Carolina for $302,106, which wasclassified as available-for-sale as of December 31, 2010. During 2011, the Company elected torent the property and as such, it has been reclassified to Investments - other on the 2011 balancesheet. Subsequent to the reclassification to Investments - other, the Company recognized $6,408in depreciation expense during 2011. The Company's investment in a limited liability companyreal estate venture in downtown Durham, North Carolina amounted to $250,000 as of December31, 2011 and 2010 and is reported in Investments - other for both 2011 and 2010.

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Note B - Investments (continued)

Amortized cost and fair value of the Company's investment in debt securities at December 31,2011 and December 31, 2010 are summarized as follows:

At December 31, 2011:Amortized

Cost

GrossUnrealized

Gains

GrossUnrealized

Losses Fair ValueAvailable-for-sale:

Bonds - Obligations ofstates, municipalities andpolitical subdivisions $ 99,294 $ 11,171 $ - $ 110,465

Total available-for-sale $ 99,294 $ 11,171 $ - $ 110,465

At December 31,2010:Amortized

Cost

GrossUnrealized

Gains

GrossUnrealized

Losses Fair ValueAvailable-for-sale:

Bonds - Obligations ofstates, municipalities andpolitical subdivisions 99,225 2,811 - 102,036

Total available-for-sale $ 99,225 $ 2,811 $ - $ 102,036

Bonds mature in 2020; however, the expected maturities may differ from the contractualmaturities because certain borrowers may have the right to call or prepay obligations with orwithout penalty.

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Note C - Investment in Affiliate

Effective October 1, 2009, the Company entered into a joint venture with Risk SpecialistsCompanies, Inc. (a Chartis U.S. company), and William C. Mecklenburg, Jr. (a Companyshareholder/executive), to form Redwoods Managers, Inc. (“RMI”). RMI’s primary businessplan is to invest in program administrators (“PAs”), and to help them improve their programmanagement expertise and their operating and risk-bearing results. One such investment wasmade by RMI during 2010.

The Company owns 30% of RMI’s common stock, which it received in exchange for futureservices to be provided to RMI valued at $500,000. Mr. Mecklenburg exchanged shares of theCompany’s common stock for shares of RMI common stock, and accordingly RMI owns 29,138shares of the Company’s common stock. Services valued at $69,081 and $107,504 wereprovided by the Company to RMI during 2011 and 2010, respectively. The remaining liabilityfor future services as of December 31, 2011 amounts to $323,415 and is reflected on theaccompanying balance sheets as due to affiliate, of which $70,000 is included in currentliabilities and $253,415 is in long-term liabilities. As of December 31, 2010, the remainingliability for future services was $392,496 and is reflected on the accompanying balance sheets asdue to affiliate, of which $150,000 is included in current liabilities and $242,496 is in long-termliabilities.

RMI has a Management Agreement with the Company whereby Mr. Mecklenburg works fulltime for RMI as its President and CEO and other Company employees provide services to RMIas requested by RMI. The cost of services provided by Mr. Mecklenburg are reimbursed byRMI and offset against related Company expenses. The Company’s expense reimbursementsduring 2011 and 2010 amounted to $319,064 and $328,952, respectively, of which $32,761 and$33,305 were included in accounts receivable at December 31, 2011 and 2010, respectively. TheCompany also has a Services Agreement with RMI, which began in 2010, whereby RMIprovides certain consulting and other program business services to the Company. These servicefees to RMI for 2011 amounted to $212,755, of which $45,009 was included in accounts payableat December 31, 2011. Services for 2010 totaled $166,405, of which $44,859 was included inaccounts payable at December 31, 2010.

RMI represents a variable interest entity ("VIE"). The Company is not the primary beneficiaryof the VIE, but it holds a 30% interest and therefore the Company's investment therein isrecorded under the equity method of accounting. As expected, RMI has incurred operatinglosses during this start-up phase of its business. The Company’s 30% share of RMI’s netoperating losses, which are reported as a reduction in revenue from investment and other incomein the accompanying statements of income, amounted to net losses of $33,702 for the year 2011,and $65,959 for 2010. The carrying value of the Company's investment, which represents itsmaximum exposure to loss from the investment, amounted to $633,829 and $667,531 as ofDecember 31, 2011 and 2010, respectively.

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Note D - Property and Equipment

Property and equipment as of December 31, 2011 and 2010, consists of the following:

2011 2010Furniture and equipment $ 434,966 $ 417,260Computer equipment 273,953 290,475Vehicles 233,015 294,696Leasehold improvements 137,547 137,547Computer software 88,413 88,413

Property and equipment, gross 1,167,894 1,228,391Accumulated depreciation (921,751) (964,734)

Property and equipment, net $ 246,143 $ 263,656

Note E - Line-of-Credit

In December 2010, the Company obtained a $500,000 working capital line-of-credit bearinginterest at the prime rate plus 1%. At December 31, 2011, no funds have been drawn on the line-of-credit. The terms of the promissory note require that outstanding advances, if any, must bepaid down to a zero balance for a minimum of 45 consecutive days every six months, and theCompany must maintain unencumbered liquid assets of not less than 1.5 times the amount of anyoutstanding loans. The line-of-credit is secured by personal property of the Company.

Note F - 401(k) Defined Contribution Plan

The Company maintains a 401(k) defined contribution plan ("the Plan") that covers substantiallyall employees with more than one month of service. The Company matches 100% of eachemployee dollar contributed, up to a maximum contribution of 6% of an employee's eligiblecompensation. The Company's expenses related to the Plan during the years ended December31, 2011 and 2010 amounted to $226,834 and $245,737, respectively.

Note G - Deferred Compensation

The Company has non-qualified deferred compensation agreements with certain executivesunder which future defined benefits are expected to be funded by individual life insurancepolicies owned by the Company. The deferred compensation benefits are forfeited if futureservice requirements are not met. The present value of future benefits, discounted using rates of4.50% to 4.75%, is recognized over the requisite service periods of the individual executives.The accrued present value of future benefits under these agreements as of December 31, 2011and 2010 amounted to $630,345 and $554,933, respectively, and is included in other liabilitieson the accompanying balance sheets. At December 31, 2011 and 2010, the aggregate cashsurrender value of life insurance policies on such executives, amounting to $566,181 and$468,848, respectively, is included in other long-term assets on the accompanying balancesheets.

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Note H - Income Taxes

The significant components of the Company's income tax expense (benefit) for 2011 and 2010are as follows:

2011 2010Current $ 116,539 $ 52,579Deferred (12,035) 25,119

Total income tax expense (benefit) $ 104,504 $ 77,698

Actual income tax expense reported during the years ended December 31, 2011 and 2010 differsfrom that which would result from applying the statutory tax rates to pretax income, primarilydue to certain non-deductible expenses, tax exempt investment income, and adjustments relatedto under or over accrual of the prior year income tax provision. The tax returns for years 2008through 2011 remain subject to examination.

The tax effects of temporary differences that give rise to the deferred tax assets and liabilities atDecember 31, 2011 and 2010 are as follows:

2011 2010Deferred tax assets:

Deferred compensation $ 245,835 $ 216,424Deferred revenue 77,610 76,362Accrued expenses 35,123 6,175Charitable contribution carry-forward 20,529 30,517State tax NOL carry-forward 16,897 34,599Other 15,355 33,759

Gross deferred tax assets 411,349 397,836Valuation allowance 4,427 4,000

Net deferred tax assets 406,922 393,836

Deferred tax liabilities:Gain from affiliate, net 52,193 65,337Other 26,190 8,702

Total deferred tax liabilities 78,383 74,039

Deferred tax assets, net $ 328,539 $ 319,797

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Note H - Income Taxes (continued)

The following table summarizes deferred tax assets and liabilities:

2011 2010Deferred tax assets, current $ 125,500 $ 113,820Deferred tax liabilities, current (10,062) (7,547)

Net current deferred tax assets 115,438 106,273

Deferred tax assets, non-current 328,091 312,179Deferred tax liabilities, non-current (114,990) (98,655)

Net non-current deferred tax assets 213,101 213,524

Deferred tax assets, net $ 328,539 $ 319,797

Note I - Stock Grants and Repurchases

The Company has a stock award plan (the "Plan") under which certain management personnelreceive stock grant awards subject to shareholder agreements. Up to 125,000 shares have beenauthorized for awards under the Plan, of which 87,456 shares are available for future grants. Theshares vest over periods up to four years. The fair value of each stock grant is calculated at thedate the grant is awarded, and is recognized as compensation expense using the straight linemethod over the requisite vesting periods. Compensation expense amounted to $23,010 (net offorfeiture credit of $9,413) and $29,432 for the years ended December 31, 2011 and 2010,respectively. During the year ended December 31, 2011, the Company did not grant any shares.During the year ended December 31, 2010, the Company granted 5,000 shares with an aggregategrant date fair value of $47,850. During both years ended December 31, 2011 and 2010, 1,833shares vested. Shares granted but not vested amounted to 6,834 shares as of December 31, 2011,which will vest in years 2012 to 2014. The remaining cost to be recognized in future years forthese nonvested awards amounts to $30,326 as of December 31, 2011. There were 8,667nonvested granted shares as of December 31, 2010.

Shares issued under the Company’s stock agreements are eligible to be put back to the Company,at the option of the shareholders, once qualifying time periods have been met per the underlyingagreements, with up to 25% of qualified shares eligible for put options in any calendar yearduring the term of the shareholder's employment. During the year ended December 31, 2011,19,784 shares were redeemed by shareholders at repurchase values totaling $329,400 and 921shares were forfeited in accordance with terms of a certain grant agreement resulting in a creditto stock compensation expense of $9,413. Included in the shares redeemed by shareholdersdescribed above, the Company purchased 6,907 shares from a charitable organization, that hadreceived donated shares, at a purchase price of $114,995. During the year ended December 31,2010, 2,857 shares were redeemed by shareholders at repurchase values totaling $42,054.

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Note I - Stock Grants and Repurchases (continued)

Employees who retire from the Company are required to put 100% of their remaining sharesback to the Company. 15,408 shares were redeemed at a repurchase value of $256,534 underthis arrangement in 2011. In accordance with the terms of these certain share repurchaseagreements, the Company will pay proceeds ratably over periods ranging from two to four years.The payable is recorded as stock repurchase proceeds payable on the balance sheet. Sharesrepurchased by the Company have been subsequently retired.

As of December 31, 2011, 7,678 shares are eligible to be put to the Company during the yearending December 31, 2012 in accordance with the terms of the underlying stock agreements. Thepurchase price, in the event the put options are exercised, is based upon the fair value of theshares as of the calendar year-end immediately preceding the year in which the Company isnotified of the intent to exercise the put option. Based on the repurchase value of the shares asof December 31, 2011, such put options have an estimated value of $136,927.

On January 3, 2012, the Company granted options to certain management personnel to purchaseup to 25,000 shares of common stock at the 2011 exercise price of $16.65 per share asdetermined by the Company's stock valuation formula specified in the stock award plan. Theoption to purchase shares vests on January 3, 2015, and expires on January 3, 2018.

Note J - Stockholders' Equity

The Company's shareholders are subject to certain rights and limitations, as documented in theunderlying shareholder agreements.

Note K - Lease Commitments

The Company leases office space and certain equipment under non-cancellable leases withunrelated parties. The aggregate rent expense for the years ended December 31, 2011 and 2010was $497,326 and $499,220 respectively.

The following is a schedule of future minimum lease payments under the Company's non-cancellable operating leases:

Year ending December 31,2012 $ 74,0622013 377,9592014 413,4092015 422,7662016 435,077Thereafter 2,934,115

Total minimum lease commitments $ 4,657,388

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Note L - Risks and Uncertainties

The Company is a managing underwriter of property, casualty, liability and workers’compensation insurance coverage for YMCAs, JCCs, and Camps throughout the United States.The Company has several insurance carriers that underwrite its insurance policies, although amajority of these policies are underwritten by one carrier. If this carrier should discontinueproviding this insurance coverage, the Company would have some exposure related to findinganother primary underwriting company. This risk is mitigated by the fact that the Company’sprincipal carrier is rated A (excellent) by A. M. Best Company. This risk has been furtherreduced by limiting the share of risk born by the primary carrier and spreading the excess riskamong one or more “A” or better rated reinsurers.

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Documents

The Redwoods Group's 2011 Audited Financials