FRANKIE LEMMON FOUNDATION, INC. AND FRANKIE LEMMON SCHOOL AND DEVELOPMENTAL CENTER, INC. Raleigh, North Carolina

Transcription

1 FRANKIE LEMMON SCHOOL AND DEVELOPMENTAL CENTER, INC. Raleigh, North Carolina CONSOLIDATED AUDITED FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2016

2 CONTENTS PAGES Independent Auditor's Report 2-3 Financial Statements - Exhibits: "A" Consolidated Statement Financial Position 4 "B" Consolidated Statement of Activities and Changes in Net Assets 5 "C" Consolidated Statement of Cash Flows 6 "D" Consolidated Statement of Functional Expenses 7 Notes to Consolidated Financial Statements 8-16 Additional Information 17 Supplemental Consolidating Financial Statements Statements: "1" Consolidating Statement of Financial Position 18 "2" Consolidating Statement of Activities and Changes in Net Assets 19 "3" Consolidating Statement of Cash Flows 20 "4" Consolidating Statement of Functional Expenses 21

3 INDEPENDENT AUDITOR S REPORT Page 1 of 2 To the Board of Directors of Frankie Lemmon Foundation, Inc. and Frankie Lemmon School and Developmental Center, Inc. Raleigh, North Carolina We have audited the accompanying consolidated financial statements of Frankie Lemmon Foundation, Inc., (a nonprofit organization) and Frankie Lemmon School and Developmental Center, Inc., (a nonprofit organization), which comprise the consolidated statement of financial position as of June 30, 2016, and the related consolidated statements of activities and changes in net assets, cash flows, and functional expenses for the year then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the 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 financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free 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.

4 3 Page 2 of 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Frankie Lemmon Foundation, Inc., and Frankie Lemmon School and Developmental Center, Inc., as of June 30, 2016, and the changes in their net assets and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Consolidating Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating information on pages 17 through 20 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, results of operations, cash flows, and functional expenses of the individual companies, and it is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Chapel Hill, North Carolina February 28, 2017

5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION For the Year Ended June 30, EXHIBIT A ASSETS CURRENT ASSETS: Cash and equivalents $ 560,838 Investments 2,699,606 Accounts receivable 209,373 Promises to give, net 63,935 Inventory 4,625 Prepaid expenses 31,374 TOTAL CURRENT ASSETS 3,569,751 PROPERTY AND EQUIPMENT: Furniture and fixtures 113,813 Leasehold improvements 189,388 Office equipment 61,747 Less: accumulated depreciation (82,743) NET PROPERTY AND EQUIPMENT 282,205 TOTAL ASSETS $ 3,851,956 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable and accrued expenses $ 47,775 Accrued salaries and wages 277 Line of credit 150,000 Long-term debt, current maturities 22,615 TOTAL CURRENT LIABILITIES 220,667 LONG-TERM LIABILITIES: Deferred rent 21,498 Long-term debt, net of current maturities 97,610 TOTAL LONG-TERM LIABILITIES 119,108 TOTAL LIABILITIES 339,775 NET ASSETS: Unrestricted net assets: Board designated operating reserves 1,500,000 Undesignated 1,868,449 Total unrestricted 3,368,449 Temporarily restricted 129,908 Permanently restricted 13,824 TOTAL NET ASSETS 3,512,181 TOTAL LIABILITIES AND NET ASSETS $ 3,851,956 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

6 CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS For the Year Ended June 30, 2016 EXHIBIT B 5 Temporarily Permanently Unrestricted Restricted Restricted Totals SUPPORT AND REVENUE: Contributions $ 306,150 $ 78,825 $ - $ 384,975 Special events: Contributions 1,296, ,296,640 Event income 257, ,772 Less: direct expenses (353,155) - - (353,155) Special events income, net 1,201, ,201,257 Satellite program income 206, ,587 Wake County Public Schools 284, ,569 Donated services and leasehold improvements 158, ,918 Interest and dividends 102, ,399 Realized and unrealized loss on investments (154,416) - - (154,416) Other income 19, ,905 2,125,369 78,825-2,204,194 Net assets released from restrictions 353,516 (353,516) - - TOTAL SUPPORT AND REVENUE 2,478,885 (274,691) - 2,204,194 EXPENSES: Program 1,532, ,532,924 Management and general 390, ,742 Fundraising 265, ,839 TOTAL FUNCTIONAL EXPENSES 2,189, ,189,505 Bad debt expense 14, ,000 TOTAL EXPENSES 2,203, ,203,505 CHANGES IN NET ASSETS 275,380 (274,691) NET ASSETS - BEGINNING OF PERIOD 3,093, ,599 13,824 3,511,492 NET ASSETS - END OF PERIOD $ 3,368,449 $ 129,908 $ 13,824 $ 3,512,181 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

7 CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended June 30, EXHIBIT C CASH FLOWS FROM OPERATING ACTIVITIES: Changes in net assets $ 689 Adjustments to reconcile changes in net assets to net cash provided by operating activities: Donated leasehold improvements (154,510) Depreciation and amortization 26,784 Realized and unrealized loss on investments 154,416 Changes in assets and liabilities: Accounts receivable 110,778 Promises to give (55,935) Prepaid expenses (10,045) Accounts payable and accrued expenses (34,204) Accrued salaries and wages (738) Deferred rent 21,498 NET CASH PROVIDED BY OPERATING ACTIVITIES 58,733 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (135,985) Sale of investments 1,495,348 Purchases of investments (1,327,841) NET CASH PROVIDED BY INVESTING ACTIVITIES 31,522 CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on line of credit 542,678 Repayments of line of credit (392,678) Borrowings of long-term debt 130,281 Repayments of long-term debt (10,056) NET CASH PROVIDED BY FINANCING ACTIVITIES 270,225 NET INCREASE IN CASH AND EQUIVALENTS 360,480 CASH AND EQUIVALENTS - BEGINNING OF YEAR 200,358 CASH AND EQUIVALENTS - END OF YEAR $ 560,838 Supplemental Disclosures: Interest paid $ 5,301 Donated supplies, property, and equipment $ 155,918 Donated services $ 3,000 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

8 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended June 30, EXHIBIT D Program Management Services and General Fundraising Total Salaries $ 656,938 $ 231,522 $ 117,149 $ 1,005,609 Rent 477,583 9,383 8, ,855 Special event expenses , ,155 Insurance 58,478 28, ,146 Payroll taxes 51,866 18,191 9,120 79,177 Bank fees - 30,165 49,002 79,167 Subcontractors 59, ,214 75,969 Office expenses 38,052 13,166 22,917 74,135 Employee benefits 23,067 15,880 12,337 51,284 Materials and supplies 20,642 4,564 7,603 32,809 Depreciation and amortization 20,750 5, ,784 Educational supplies 19,526 4,531-24,057 Professional fees 11,784 8,785-20,569 Travel 4,093 2,028 12,197 18,318 School events 11,964 2,776-14,740 Training 6,331 4,176 3,977 14,484 School lunches 14, ,290 Bad debt expense - 14,000-14,000 Miscellaneous 3,762 4,698 5,449 13,909 Repairs and maintenance 10,574 2,454-13,028 Grants 40, ,500 Interest expense 1,652 3,649-5,301 Dues and subscriptions Advertising Recruiting Total expenses 1,532, , ,994 2,556,660 Less expense included with revenues on the statement of activities - - (353,155) (353,155) Less bad debt expense - (14,000) - (14,000) Total functional expenses $ 1,532,924 $ 390,742 $ 265,839 $ 2,189,505 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

9 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 1 of 9 ORGANIZATION Frankie Lemmon School and Developmental Center, Inc. (the School ) is a nonprofit corporation that trains and educates children with developmental disabilities. The School provides life-changing education and support that leads to successful participation in family and community life and achievement of the child s full potential. Frankie Lemmon Foundation, Inc. (the Foundation ) is a nonprofit corporation organized to provide support to the School. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES A. Basis of Accounting. The consolidated financial statements include the accounts of the School and Foundation (hereafter, the Organization ), after elimination of all intercompany accounts and transactions. The consolidated financial statements are presented on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America ( U.S. GAAP ), which require the use of certain estimates made by the Organization s management. Accordingly, revenues are recognized when earned, and expenses are recognized when the obligation is incurred. The Organization reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. B. Cash and Equivalents. Cash and equivalents consist of monies on deposit at financial institutions, and other highly liquid investments with maturities of three months or less. At times, the Organization places deposits with high-quality financial institutions that may be in excess of federally insured amounts. The Organization has not experienced any financial loss related to such deposits. C. Investments. Investments in marketable securities are stated at fair value based on readily available published fair market values. The resulting unrealized gain or loss is reflected in the statement of activities. D. Accounts Receivable. Accounts receivable are carried at net realizable value. The Organization provides an allowance for doubtful accounts equal to the estimated losses that are expected to be incurred during collection. The allowance is based on historical collection experience and a review by management of the current status of the existing receivables. As of June 30, 2016, all receivables were deemed collectible by management.

10 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 2 of 9 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED) E. Promises to Give. Unconditional promises to give are recognized as support and assets in the period received. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Unconditional promises to give that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The Organization provides an allowance for uncollectible accounts equal to the estimated losses that are expected to be incurred in collection. The allowance is based on historical collection experience and a review by management of the current status of the existing promises to give. The allowance totaled $17,000 at June 30, F. Inventory. Inventory is stated at the lower of cost or market, determined by the first-in, first-out method. Inventory consists of various items such as wine and glassware. G. Property and Equipment. Property and equipment are stated at cost for purchased assets and at fair value on the date of the gift for donated assets. Property and equipment are capitalized if the life is expected to be greater than one year and if the cost exceeds $1,000. Depreciation is calculated using the straight-line method over estimated lives of 5 to 15 years. H. Revenue Recognition. Revenue from grants which are deemed to be unconditional contributions is recognized when the grantor makes a promise to give to the Organization. Contributions that are restricted by the grantor are reported as increases in temporarily restricted net assets. Conditional grant revenues are recognized when the conditions upon which they depend are substantially met. I. Net Assets. Unrestricted - Resources of the Organization that are not restricted by donors or grantors as to use or purpose. These resources include amounts generated from operations, undesignated gifts, and investments in property and equipment. Temporarily Restricted - Resources that carry a donor-imposed restriction that requires the Organization to use or expend the donated assets as specified. The restrictions are satisfied by the passage of time or by actions of the Organization.

11 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 3 of 9 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED) I. Net Assets (Continued). Permanently Restricted - Resources that carry a donor-imposed restriction that stipulates that donated assets be maintained in perpetuity, but may permit the Organization to use or expend part or all of the income derived from the donated assets. J. Income Taxes. The Foundation and School are exempt organizations under Section 501(c)(3) of the Internal Revenue Code and have been classified as other than private foundations. The Organization reports any interest and penalties for uncertain tax positions as miscellaneous expense. K. Estimates. The preparation of financial statements in conformity with U.S. GAAP 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. Accordingly, actual results could differ from those estimates. INVESTMENTS The Organization s investments at June 30, 2016, are as follows: Fair Value Cost Mutual funds $ 1,256,219 $ 1,362,902 Exchange traded funds 1,325,273 1,318,424 Alternative funds 118, ,636 $ 2,699,606 $ 2,787,962 As of June 30, 2016, the total accumulated market depreciation was $88,356. Realized losses of ($112,421), unrealized losses of ($41,995), and investment income of $102,399 were reported as of June 30, Investment fees of $28,945 are recorded in bank fees on the statement of activities as of June 30, 2016.

12 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 4 of 9 FAIR VALUE OF ASSETS U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Organization. Unobservable inputs reflect the Organization s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1 - Quoted prices are available in active markets for identical assets as of the reporting date. Level 2 - Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, are valued at prices for similar assets or liabilities in markets that are not active, or determined through the use of models or other valuation methodologies. Level 3 - Pricing inputs are unobservable and include situations where there is little, if any, market activity for the asset. Fair value for these assets is determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the asset was acquired, the nature of the asset, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the asset. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these assets existed. There were no changes during the year ending June 30, 2016, to the Organization s valuation techniques used to measure asset values on a recurring basis. The Organization s investments are classified as Level 1 or Level 2. No assets or liabilities were classified as Level 3.

13 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 5 of 9 FAIR VALUE OF ASSETS (CONTINUED) The following table summarizes the assets of the Organization for which fair value is determined on a recurring basis as of June 30, As required by U.S. GAAP, the assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Level 1 Level 2 Level 3 Total Mutual Funds: Commodities broad basket $ 141,313 $ - $ - $ 141,313 Intermediate term bond 186, ,815 Interval fund 394, ,804 Long-term reinsurance blend 120, ,839 Multi-alternative 216, ,961 Multisector bond 195, ,487 Exchange Traded Funds: Foreign large blend 463, ,417 Large blend 733, ,163 Real estate 128, ,693 Alternative - 118, ,114 BOARD DESIGNATED NET ASSETS $ 2,581,492 $ 118,114 $ - $ 2,699,606 The Organization has designated net assets for future operating expenses in the amount of $1,500,000 as of June 30, TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets for the year ended June 30, 2016, consists of: Playground $ 77,963 Other 19,945 $ 97,908

14 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 6 of 9 PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets totaling $13,824 at June 30, 2016, consists of cash endowments maintained in investments for the purposes of student activities. RETIREMENT PLAN The Organization has a SIMPLE IRA retirement plan which allows employees to defer a portion of their gross income annually. Employees must have worked 60 days prior to enrollment on either January 1 or July 1 to be eligible to participate in the plan. The Organization makes a non-elective contribution of 2% of the employees salary. The Organization contributed $18,097 to employee accounts for the year ended June 30, OPERATING LEASE The Organization leases office equipment and a postage meter under a non-cancelable operating leases with monthly payments of $464 and expiring through October 2017 and quarterly payments of $115 and expiring June Rent expense under the lease agreements totaled $6,339 for the year ended June 30, In May 2015, the School entered into a 15-year building lease in Raleigh, North Carolina commencing on January 1, 2016, and expiring December 31, Monthly payments total $27,083 for the first year of the agreement. Annual rent increases of 1.75% will commence the first day of the second year of the agreement. Minimum lease payments are as follows: Year Ending June $ 332, , , , ,402 Thereafter 3,659,842 Total minimum lease payments $ 5,363,897 The Organization leases office and storage under a month-to-month operating lease at approximately $2,000 a month. The Organization may vacate the premise without penalty with a 30-day notice. Rent expense under the lease agreement for the year ended June 30, 2016, totaled $26,449.

15 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 7 of 9 OPERATING LEASE (CONTINUED) During the year ended June 30, 2015, the School supported students in two locations, Hayes Barton Baptist Church and Methodist Home for Children s Jordan Child and Family Enrichment Center. The accompanying financial statements do not recognize any amount related to the usage of space or equipment provided by Hayes Barton Baptist Church, the value of which is not reasonably determinable. Commencing January 2016, all students at the Hayes Barton Baptist Church location were relocated to the School s new facilities. Students at the Methodist Home for Children s Jordan Child and Family Enrichment Center were relocated to the new facility at the start of the fall 2016 school year. For the year ended June 30, 2016, rent expense includes $441,568, to provide students an inclusive setting at the Methodist Home for Children s Jordan Child and Family Enrichment Center and the School s new facility. LINE OF CREDIT In September 2015, the Foundation obtained a $1,000,000 line of credit collateralized by unrestricted investments maintained with a financial institution. Interest accrues monthly on the outstanding balance at a rate equal to LIBOR. The outstanding balance on the line of credit for the year ended June 30, 2016, totaled $150,000. LONG-TERM DEBT Long-term debt at June 30, 2016 and 2015, consists of the following: Note payable to a bank with monthly installments of $2,358, including interest at 3.3%. The note is secured by equipment and is due February $ ,225 Less current maturities 22,615 Total long-term debt $ 97,610

16 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 8 of 9 LONG-TERM DEBT (CONTINUED) Principal maturities of long-term debt are as follows: Year Ending June $ 22, , , , ,636 Total minimum lease payments $ 120,225 DONATED SERVICES, SUPPLIES, AND PROPERTY AND EQUIPMENT The Organization recognizes donated services that create or enhance nonfinancial assets or that require specialized skills, and would typically need to be purchased if not provided by donation. The Organization received $3,000 in donated building and maintenance services and $1,408 in donated supplies during the year ended June 30, The Organization also received $154,510 in donated property and equipment during the year ended June 30, Additionally, numerous volunteers have donated significant amounts of their time and services to the Organization for program and supporting activities that have not been recognized in the accompanying financial statements. FUNCTIONAL ALLOCATION OF EXPENSES The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited based on management s estimates. RELATED ORGANIZATION During 1983, the Organization formed a separate nonprofit corporation, the Sunshine Development Corporation (the Corporation ), to act as the sponsor of a Housing and Urban Development financed housing project. The housing project is to provide apartment housing units for elderly or handicapped residents with low or moderate income. The Organization does not receive income or pay any expenses for the Corporation. The landlord of the new school building is related to a board member. See Operating Lease note for more information on lease agreement.

17 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 9 of 9 SUBSEQUENT EVENTS Management has evaluated subsequent events for recognition or disclosure through February 28, 2017, the date the financial statements were available to be issued. Management did not identify any events that occurred subsequent to year-end that require disclosure in the financial statements.

18 17 ADDITIONAL INFORMATION For the Year Ended June 30, 2016

19 CONSOLIDATING STATEMENT OF FINANCIAL POSITION For the Year Ended June 30, STATEMENT 1 ASSETS Foundation School Eliminations Total CURRENT ASSETS: Cash and equivalents $ 424,308 $ 136,530 $ - $ 560,838 Investments 2,699, ,699,606 Accounts receivable 158,525 53,198 (2,350) 209,373 Promises to give, net ,935 Inventory 4, ,625 Prepaid expenses 18,289 13,085-31,374 TOTAL CURRENT ASSETS 3,369, ,813 (2,350) 3,569,751 PROPERTY AND EQUIPMENT: Furniture and fixtures 5, , ,813 Leasehold improvements 5, , ,388 Office equipment 11,090 50,657-61,747 Less: accumulated depreciation (17,891) (64,852) - (82,743) - - NET PROPERTY AND EQUIPMENT 4, , , TOTAL ASSETS $ 3,374,051 $ 480,255 $ (2,350) $ 3,851,956 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable and accrued expenses $ 33,413 $ 16,712 $ (2,350) $ 47,775 Accrued salaries and wages Line of credit 150, ,000 Long-term debt, current maturities - 22,615-22,615 TOTAL CURRENT LIABILITIES 183,525 39,492 (2,350) 220,667 LONG-TERM LIABILITIES: Deferred rent - 21,498-21,498 Long-term debt, net of current maturities - 97,610-97,610 TOTAL LONG-TERM LIABILITIES - 119, ,108 TOTAL LIABILITIES 183, ,600 (2,350) 339,775 NET ASSETS: Unrestricted net assets: Board designated operating reserves 1,500, ,500,000 Undesignated 1,558, ,435-1,868,449 Total unrestricted 3,058, ,435-3,368,449 Temporarily restricted 118,688 11, ,908 Permanently restricted 13, ,824 TOTAL NET ASSETS 3,190, ,655-3,512,181 TOTAL LIABILITIES AND NET ASSETS $ 3,374,051 $ 480,255 $ (2,350) $ 3,851,956 See Independent Auditor's Report.

20 CONSOLIDATING STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS For the Year Ended June 30, STATEMENT 2 Foundation School Temporarily Permanently Temporarily Eliminations Unrestricted Restricted Restricted Subtotal Unrestricted Restricted Subtotal Entries Total SUPPORT AND REVENUE: Contributions $ 306,150 $ 78,825 $ - $ 384,975 $ - $ - $ - $ - $ 384,975 Income from Foundation ,122,908-1,122,908 (1,122,908) - Special events: Contributions 1,296, ,296, ,296,640 Event income 257, , ,772 Less: direct expenses (353,155) - - (353,155) (353,155) Special events income, net 1,201, ,201, ,201,257 Satellite program income , , ,587 Wake County Public Schools , , ,569 Donated services and leasehold improvements , , ,918 Interest and dividends 102, , ,399 Realized and unrealized loss on investments (154,416) - - (154,416) (154,416) Other (expense) income (69) - - (69) 19,974-19,974-19,905 1,455,321 78,825-1,534,146 1,792,956-1,792,956 (1,122,908) 2,204,194 Net assets released from restrictions 353,516 (353,516) TOTAL SUPPORT AND REVENUE 1,808,837 (274,691) - 1,534,146 1,792,956-1,792,956 (1,122,908) 2,204,194 EXPENSES: Program 1,379, ,379,965 1,275,867-1,275,867 (1,122,908) 1,532,924 Management and general 202, , , , ,742 Fundraising 265, , ,839 TOTAL FUNCTIONAL EXPENSES 1,848, ,848,123 1,464,290-1,464,290 (1,122,908) 2,189,505 Bad debt expense 14, , ,000 TOTAL EXPENSES 1,862, ,862,123 1,464,290-1,464,290 (1,122,908) 2,203,505 CHANGES IN NET ASSETS (53,286) (274,691) - (327,977) 328, , NET ASSETS - BEGINNING OF PERIOD 3,111, ,379 13,824 3,518,503 (18,231) 11,220 (7,011) - 3,511,492 NET ASSETS - END OF PERIOD $ 3,058,014 $ 118,688 $ 13,824 $ 3,190,526 $ 310,435 $ 11,220 $ 321,655 $ - $ 3,512,181 See Independent Auditor's Report.

21 CONSOLIDATING STATEMENT OF CASH FLOWS For the Year Ended June 30, STATEMENT 3 Foundation School Eliminations Total CASH FLOWS FROM OPERATING ACTIVITIES Changes in net assets $ (327,977) $ 328,666 $ - $ 689 Adjustments to reconcile changes in net assets to net cash (used in) provided by operating activities: Donated leasehold improvements - (154,510) - (154,510) Depreciation and amortization 3,283 23,501-26,784 Realized and unrealized loss on investments 154, ,416 Changes in assets and liabilities: Accounts receivable 158,629 (50,201) 2, ,778 Promises to give, net (55,935) - - (55,935) Prepaid expenses (13,606) 3,561 - (10,045) Accounts payable and accrued expenses 24,830 (56,684) (2,350) (34,204) Accrued salaries and wages (3) (735) - (738) Deferred rent - 21,498-21,498 NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (56,363) 115,096-58,733 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment - (135,985) - (135,985) Sale of investments 1,495, ,495,348 Purchases of investments (1,327,841) - - (1,327,841) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 167,507 (135,985) - 31,522 CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on line of credit 542, ,678 Repayments of line of credit (392,678) - - (392,678) Borrowings of long-term debt - 130, ,281 Repayments of long-term debt - (10,056) - (10,056) NET CASH PROVIDED BY FINANCING ACTIVITIES 150, , ,225 NET INCREASE IN CASH AND EQUIVALENTS 261,144 99, ,480 CASH AND EQUIVALENTS - BEGINNING OF YEAR 163,164 37, ,358 CASH AND EQUIVALENTS - END OF YEAR $ 424,308 $ 136,530 $ - $ 560,838 Supplemental Disclosures: Interest paid $ 3,265 $ 2,036 $ - $ 5,301 Donated supplies, property, and equipment $ - $ 155,918 $ - $ 155,918 Donated services $ - $ 3,000 $ - $ 3,000 See Independent Auditor's Report.

22 CONSOLIDATING STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended June 30, STATEMENT 4 Foundation School Program Management Program Management Services and General Fundraising Subtotal Services and General Subtotal Eliminations Total Salaries $ 153,606 $ 114,711 $ 117,149 $ 385,466 $ 503,332 $ 116,811 $ 620,143 $ - $ 1,005,609 Rent 11,655 8,704 8,889 29, , , ,855 Special event expenses , , ,155 Insurance 1,294 2, ,485 57,184 26,477 83,661-88,146 Payroll taxes 11,959 8,930 9,120 30,009 39,907 9,261 49,168-79,177 Bank fees - 29,941 49,002 78, ,167 Subcontractors 1, ,214 17,080 58,889-58,889-75,969 Office expenses 8,425 6,291 22,917 37,633 29,627 6,875 36,502-74,135 Employee benefits 16,175 12,080 12,337 40,592 6,892 3,800 10,692-51,284 Materials and supplies ,603 7,703 20,642 4,464 25,106-32,809 Depreciation and amortization 1, ,283 19,442 4,059 23,501-26,784 Educational supplies ,526 4,531 24,057-24,057 Professional fees - 6,050-6,050 11,784 2,735 14,519-20,569 Travel 2,091 1,563 12,197 15,851 2, ,467-18,318 School events ,964 2,776 14,740-14,740 Training 5,214 3,894 3,977 13,085 1, ,399-14,484 School lunches ,290-14,290-14,290 Bad debt expense - 14,000-14, ,000 Miscellaneous 3,762 2,811 5,449 12,022-1,887 1,887-13,909 Repairs and maintenance ,574 2,454 13,028-13,028 Grants 40, , ,500 Interest expense - 3,265-3,265 1, ,036-5,301 Dues and subscriptions Advertising Recruiting Transfer to School 1,122, ,122, (1,122,908) - Total expenses 1,379, , ,994 2,215,278 1,275, ,423 1,464,290 (1,122,908) 2,556,660 Less expense included with revenues on the statement of activities - - (353,155) (353,155) (353,155) Less bad debt expenses - (14,000) - (14,000) (14,000) Total functional expenses $ 1,379,965 $ 202,319 $ 265,839 $ 1,848,123 $ 1,275,867 $ 188,423 $ 1,464,290 $ (1,122,908) $ 2,189,505 See Independent Auditor's Report.