HARMONY PUBLIC SCHOOLS FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED JUNE 30, 2016

Transcription

1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

2 CERTIFICATE OF BOARD Independent Auditor's Report TABLE OF CONTENTS Page No. FINANCIAL STATEMENTS -Statement of Financial Position -Statement of Activities -Statement of Cash Flows Notes to Financial Statements lndependent Auditor's Report on Additional lnfonnation 16 SUPPLEMENTAL FrNANCIAL STATEMENTS - Statement of Financial Position for Hannony Science Academy-Houston - Statement of Financial Position for Hannony Science Academy-Austin - Statement of Financial Position for Harmony Science Academy-San Antonio - Statement of Financial Position for Harmony Science Academy-EI Paso - Statement of Financial Position for Houston School of Excellence - Statement of Financial Position for Harmony Science Academy-Waco - Statement of Financial Position for Hannony School of Science-Houston - Statement of Financial Position for Central Office - Statement of Activities for HamlOny Science Academy-Houston - Statement of Activities for Harmony Science Academy-Austin - Statement of Activities for Hannony Science Academy-San Antonio - Statement of Activities for Hannony Science Academy-EI Paso - Statement of Activities for Houston School of Excellence - Statement of Activities for Harmony Science Academy-Waco - Statement of Activities for Harmony School of Science-Houston - Statement of Activities for Central Office - Statement of Cash Flows for Harmony Science Academy-Houston - Statement of Cash Flows for Hannony Science Academy-Austin - Statement of Cash Flows for Hannony Science Academy-San Antonio - Statement of Cash Flows for Harmony Science Academy-EI Paso - Statement of Cash Flows for Houston School of Excellence - Statement of Cash Flows for Harmony Science Academy-Waco - Statement of Cash Flows for Harmony School of Science-Houston - Statement of Cash Flows for Central Office

3 TABLE OF CONTENTS SUPPLEMENTAL FINANCIAL STA TEMENTS (Continued) - Schedule of Expenses for Harmony Science Academy-Houston - Schedule of Expenses for Harmony Science Academy-Austin - Schedule of Expenses for Harmony Science Academy-San Antonio - Schedule of Expenses for HamlOny Science Academy-EI Paso - Schedule of Expenses for Houston School of Excellence - Schedule of Expenses for Harmony Science Academy-Waco - Schedule of Expenses for Harmony School of Science-Houston - Schedule of Expenses for Central Office - Schedule of Capital Assets for Harmony Science Academy-Houston - Schedule of Capital Assets for Harmony Science Academy-Austin - Schedule of Capital Assets for Harmony Science Academy-San Antonio - Schedule of Capital Assets for Harmony Science Academy-EI Paso - Schedule of Capital Assets for Houston School of Excellence - Schedule of Capital Assets for HamlOny Science Academy-Waco - Schedule of Capital Assets for Harmony School of Science-Houston - Schedule of Capital Assets for Central Office - Budgetary Comparison Schedule for Harmony Science Academy-Houston - Budgetary Comparison Schedule for Harmony Science Academy-Austin - Budgetary Comparison Schedule for Harmony Science Academy-San Antonio - Budgetary Comparison Schedule for Harmony Science Academy-EI Paso - Budgetary Comparison Schedule for Houston School of Excellence - Budgetary Comparison Schedule for Harmony Science Academy-Waco - Budgetary Comparison Schedule for Hannony School of Science-Houston - Budgetary Comparison Schedule for Central Office Page No Independent Auditor's Report on Intemal Control over Financial Reporting and on Compliance and Other Matters based on an Audit of Financial Statements Performed in Accordance with Government Allditing Standards 73 Independent Auditor' s Report on Compliance for Each Major Program and on Intemal Control over Compliance Required by the Uniform Guidance 75 Schedule of Findings and Questioned Costs 77 Schedule of Prior Year Findings and Questioned Costs 78 Schedule of Expenditures of Federal Awards 79 Notes to Schedule of Expenditures of Federal Awards 80

4 (Federal Employer Identification Number: ) CERTIFICATE OF BOARD June 30, 2016 We, the undersigned, certify thai the attached Annual Financial and Compliance Report of Harmony Public Schools was reviewed and Unapproved disapproved for the year ended June 30,2016, at ameeting ofthe governing body ofsaid charter school on the fb* day of K)oog.«M. V)-e_/~ 20 t&. SignaturVofB^ard Secretary Signature ofboard President

5 GOMEZ & COMPANY CERTIFIED PUBLIC ACCOUNTANTS 5177 RICHMOND AVE. SUITE 1100 HOUSTON, TEXAS TEL: (713) FAX: (713) hltp:/iwww.gomezandco.com INDEPENDENT AUDITOR'S REPORT To The Board of Directors of HarnlOny Public Schools Houston, Texas Report on the Financial Statements We have audited the accompanying financial statements of Harmony Public Schools (a nonprofit organization) ("HPS"), which comprise the statement of financial position as of June 30, 2016, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management's Responsibility for the Filwncial Statements Management is responsible for the preparation and fair presentation of these fmancial 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fmancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fmancial 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 fmancial statements. 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 financial statements referred to above present fairly, in all material respects, the fmancial position of HPS as of June 30, 2016, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. -I-

6 Other M{ttters Other III(orlllatioll Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures offederal awards, as required by Title 2 U.S. Code of Federal Regulatiolls (CFR) Part 200, Ulli/orlll Adlllillistrative Requirelllents, Cost Prillciples, and Audit Requirelllelltsfor Federal AlVards, is presented for purposes of additional analysis and is not a required part of the financial statements. Such infonnation is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and cenain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the infonnation is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Govemmellt Auditing Standards In accordance with Government Auditing Standards, we have also issued our repon dated October 27,2016, on our consideration of HPS 's intemal control over financial reponing and on our tests of its compliance with cenain provisions oftaws, regulations, contracts, and grant agreements and other matters. The purpose of that repon is to describe the scope of our testing of intemal control over fmancial reporting and compliance and the results of that testing, and not to provide an opinion on intemal control over financial reporting or on compliance. That report is an integral pan of an audit performed in accordance with Govemmellt Auditillg Stalldards in considering HPS's intemal control over financial reporting and compliance. "00&+ October 27,

7 ASSETS Current Assets: Cash Restricted Cash Receivables Other Receivables Prepaids Total C urrent Assets HARMONY PUBLIC SCHOOLS STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 (With Comparative Totals for June 30, 2015) $ 77,335, III 59,534,879 46,865, , , ,619, $ 68,2 12,383 32,789, ,411, , ,827,304 Property & Equipment: Land Buildings and Improvements Furniture and Equipment Less: Accumulated Depreciation Other Assets: Deposits Bond Issuance Cost Total Assets LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable Accrued Liabilities Wages Payable Payroll Taxes Payable Interest Payable Due to State Current Portion of Notes Payable Current Portion of Bonds Payable Total Current Liabilities Long-term Liabilities: Notes Payable Net of Current Portion Bonds Payable Net of Discount/Premium and Cun'ent Portion Total Liabilities Net Assets: Unrestricted Temporarily Restricted Total Net Assets Total Liabilities and Net Assets 36,105, ,813, , ,128,728 (75,739,496) 289,389, ,088 5,602,202 $ $ 3,557,118 5,312,733 18,874, 165 2,553, 145 6,058,687 1, ,775 6,447,559 43,481, , ,838, ,935,997 13,903,021 43,162, $ I,665 31,479, ,747,045 19,117, ,344,194 (63,719,425) 263,624, ,153 4,884,113 $ 412,771,339 $ 6,497,379 4,315,909 14,568,482 1,967,9 12 3,743,797 4,514,749 5,095,000 40,703,228 1,310, ,942, ,956,946 13,026,348 36,788,045 49,814,393 $ ,339 See accompanying notes to financial statements, -3-

8 STATEMENT OF ACTIVITIES (With Comparative Totals for the Period Ended June 30, 2015) Temporarily Unrestricted Restricted Total 2015 SUPPORT AND REVENUE Federal Grants $ $ 26,931,464 $ 26,931,464 $ 22,791,460 State and Local Grants 258,023, ,023, ,245,331 Donations 373, , ,550 Interest Income 464, , ,564 Other Income 12,937,826 12,937,826 12,444,562 Net Assets Released From Restrictions 278,580,749 (278,580,749) Total Revenues 292,356,470 6,374, ,731, ,212,467 EXPENSES Salaries 163,239, ,239, ,273,701 Employee Benefits 15,347,009 15,347,009 13,032,251 Payroll Tax Expense 3, 130,846 3,130,846 2,557,825 Professional Fees 24,237,768 24,237,768 22,403,487 Occupancy 9,522,569 9,522,569 8,915,007 Equipment Lease 2,655,634 2,655,634 2,495,140 Supplies 20,497,326 20,497,326 17,514,483 Interest 15,923,441 15,923,441 16,377,652 Repairs & Maintenance 7, 186,302 7,186,302 2,714,619 Utilities 5,110,201 5,110,201 5,083,439 Travel 3,646,267 3,646,267 2,786,304 Insurance 1,179,652 1, 179, ,634 Other Expense 7,439,189 7,439,189 6,873,020 Depreciation 12,020,071 12,020,071 11,995,031 Amortization 344, , ,025 To ta I Ex penses 291,479, ,479, ,231,618 OPERATING EXPENSES Change in Net Assets from Operations 876,673 6,374,602 7,251,275 22,980,849 Net Assets, Beginning of Year 13,026,348 36,788,045 49,814,393 58,215,109 Net Assets, End of Year I3 903 O? I 43 16? NON-OPERATING REVENUES Gain(Loss)on Early Extinguishment of Bonds (31,381,565) Total Non-Operating Revenue (Expenses) ( ) Total Change in Net Assets ,374,602 7, (8,400,716) Net Assets, Beginning of Year 13,026,348 36,788,045 49,8 14,393 58,215,109 Net Assets, End of Year $ $ 13 16? 617 $ $ See accompanying notes to financial statements. -4-

9 STATEMENT OF CASH FLOWS (With Comparative Totals for the Period Ended June 30, 2015) Cash Flows From Operating Activities Change in net assets Adjustments to reconcile change in net assets to net Cash provided (used) by operating acti vi ties Depreciation Amortization (Increase) Decrease in Receivable (Increase) Decrease in Other Receivable (Increase) Decrease in Prepaids (Increase) Decrease in Deposits (Increase) Decrease in Bond Issuance Cost Increase (Decrease) in Accounts Payable Increase (Decrease) in Wages Payable Increase (Decrease) in Accmed Liabilities Increase (Decrease) in Payroll Taxes Payable Increase (Decrease) in Due to State Increase (Decrease) in Interest Payable Net Cash Provided (Used) by Operating Activities Cash Flows From Investing Acti vities Purchase of Fixed Assets Net Cash Provided (Used) by Investing Activities Cash Flows From Financing Activities Proceeds from Loans Proceeds from Bonds Repayment of Loans Repayment of Bonds Net Cash Provided (Used) by Financing Activities NET INCREASE ( DECREASE) IN CASH CASH AT BEGINNrNG OF YEAR CASH AT END OF YEAR Supplemental Disclosures Cash Paid During the Year for: Interest 2016 $ 7,251,275 12,020, ,264 (4,453,9 17) (343,727) (125,737) 44,065 (1,062,353 ) (2,940,261 ) 4,305, , ,233 1,979 2, (37.784,534) (37.784,534) 60,497,606 (687,898) ( ) 54,714,704 35,868, ,001,532 l! 136,869,990 $ 15,923, $ (8,400,716) 11,995, ,025 (6,9 11,891) (5,5 12) 78, ,824 2,964, , , ,271 ( ,363) (39, ) (39, ) 11,939, ,226,700 (27,506,937) ( ) 70,714, ,789, ,867 $101,00 1,532 $ 16,377,652 See accompanying notes to financial statements. -5 -

10 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 A. Organization: Harmony Public Schools ("HI'S"), a nonprofit organization, provides curricula for students in grades kindergarten through 12. The school was incorporated in the State of Texas in September 1999, under the Texas Non-Profit Corporation Act. The Internal Revenue Service determined that HI'S was exempt from federal income tax under section 50 I (a) of the Internal Revenue Code as an organization described in Section 501 (c)(3). Pursuant to its charter granted by the State Board of Education in accordance with Texas Education Code Section 12, Subchapter 0, Open-Enrollment Charter School, HI'S operates as part of the state public school system subject to all federal and state laws and rules governing public schools. HI'S is also subject to all laws and rules pertaining to open-enrollment charter schools in section 12 of the Texas Education Code. B. Summary of Significant Accounting Policies: BASIS OF PRESENTATION HI'S reports its financial information based on the Financial Accollliting Standards Board Accollnting Standards Codification 958 Not,for-Pr(jfit ntities-205 Presentation of Financial Statemellls. Under FASB ASC , an Organization is required to report information regarding its fulancial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. PRfNCLPLES OF CONSOLIDATION The consolidated financial statements include all of HI'S 's accounts. All sib~lificant intercompany balances and transactions have been eliminated. SUPPORT AND REVENUE Support and revenue are recorded based on the accrual method. CASH DONATIONS AND DONA TED SERVICES Cash donations are considered to be available for unrestricted use unless specifically restricted by the donor. No amounts have been reflected in the fmancial statements for donated services since no objective basis is available to measure the value of such donations. Nevertheless, a substantial number of volunteers have donated their time in connection with the program service and administration of the organization. CONTRIBUTIONS [n accordance with Financial Accallnting Standards Baw'd Accallnting Standards Codification 958 Natfor-Profit ntities-605 Revenlle Recognition, contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence or nature of any donor restrictions. -6-

11 NOTES TO HNANClAL STATEMENTS JUNE 30, 2016 B. Summary of Significant Accounting Policies: (Continued) PROPERTY AND EQUIPMENT Property and equipment purchased by HPS is recorded at cost. Donations of property and equipment are recorded at their fair value at the date of the gift. All assets acquired with a value in excess of$5,000 are recorded as fixed assets. Depreciation is provided on the straight-line method based upon estimated useful lives of five to thirty-nine years for depreciable assets. Gains and losses on retired or sold property and equipment are renected in income for the period. The proceeds from such sa les which are not legally required or expected to be reinvested in property and equipment are transferred to unrestricted net assets. PLEDGES AND ACCOUNTS RECEIVABLE Contributions are recognized when the donor makes a promise to give to HPS which is in substance, unconditional. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the year in which the contributions are recognized. All other donorrestricted contributions are reported as increases in temporarily or pennanently restricted net assets depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. No provision has been made for uncollectible promises to give and accounts receivable as of the statement of financial position date, given that none have been identified. FUNCTIONAL EXPENSES Expenses are charged to each program based on direct expenditures incurred. Functional expenses which cannot readily be related to a specific program are charged to the various programs based upon hours worked, square footage, number of program staff, or other reasonable methods for allocating the organization's multiple function expenditures. INCOME TAXES HPS qualities as a tax-exempt organization under section 501(c) (3) of the lntemal Revenue Code and, therefore, has no provision for income taxes. CASH AND CASH EQUIVALENTS For purposes of the statement of cash nows, cash and cash equivalents are comprised of cash on hand and in banks. The cash accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. The bank accounts, at times, exceeded federally insured limits. Cash held at the bank is pledged as collateral 100% to secure public funds on deposit. HPS has not experienced any losses on such accounts. -7-

12 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 B. Summary of Significant Accounting Policies: (Continued) ESTIMATES The preparation of fulancial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. COMPENSA TED ABSENCES Permanent employees of HPS accumulate and vest paid-time-off at varying rates depending on exempt status and hourly rate. It is HPS ' policy to accrue accumulated paid-time-off at year-end. C. Pension Plan: Plan Description The charter school contributes to the Teacher Retirement System of Texas ("TRS"), a cost sharing, multiple-employer defined benefit pension plan with one exception; all risks and costs are not shared by the charter school, but are the liability of the State of l' ex as. TRS administers the retirement and disability annuities, and death and survivor benefits to employees and beneficiaries of employees of the public school systems of Texas. The plan operates primarily under the provisions of the Texas Constitution, Article XVI, Sec. 67, and Texas Government code, Title 8, Chapters 803 and 805 respectively. The Texas State legislature has the authority to establish and amend benefit provisions of the pension plan and may, under certain circumstances, grant special authority to the TRS Board of Trustees. TRS issues a publicly available financial report that includes financial statements and required supplementary infonnation for the defined benefit plan. That report may be obtained by writing to the TRS Communications Department, 1000 Red River Street, Austin, Texas 7870 I or bycalling the TRS Communications Department at , or by downloading the report form the TRS Internet website, under the TRS Publications Heading. Charter schools are legally separate entities from the State and each other. Assets contributed by one charter or independent school district ("ISO" ) may be used for the benefit of an employee of another ISO or charter. The risk of participating in multi-employer pension plans is different from single-employer plans. Assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. There is no withdrawal penalty for leaving the TRS system. There is no collective-bargaining agreement. The latest TRS Comprehensive Annual Financial Report available dated August 31, 2015 indicated the following: Pension Total Plan Assets Fund 2015 TRS $ 149,780,062,000 ABO 2015 $ 163,887,375,000 Percent Funded 78.43% -8-

13 NOTES TO FlNANCIAL STATEMENTS JUNE 30, 2016 C. Pension Plan: (Continued) Fllnding Policy Contribution requirements are not actuarially determined but are established and amended by the Texas state legislature. The state funding policy is as follows: (I) the state constitution requires the legislature to establish a member contribution rate of not less than 6.0% and not more than 10% of the aggregate annual compensation of all members of the system; (2) A state statute prohibits benefit improvements or contribution reductions if, as a result ofa particular action, the time required to amortize TRS' unfunded actuarial liabilities would be increased to a period that exceeds 31 years, or, if the amortization period already exceeds I year, the period would be increased by such action. State law provides for a member contribution rate of7.2% for fiscal year The state's contribution rate as a non-employer contributing entity was 6.8% for fiscal year The charter school ' s employee contributions to the system for the year ended June 30, were $10,925,222 equal to the required contributions for the year. Other contributions made from federal and private grants and from the charter school for salaries above the statutory minimum were contributed at a rate of7.2% totaling $592,473 for the year ending June 30,2016. The charter school's contributions into this plan do not represent more than 5% of the total contributions to the plan and the charter school was not assessed a surcharge. D. Budget: The official school budget is prepared for adoption for required Govemmental Fund Types. The annual budget is adopted on a basis consistent with generally accepted accounting principles and is formally adopted by the Board of Directors. E. Operating Lease Commitment: HPS is currently leasing office equipment and buildings within non-cancelable operating lease agreements. HPS 's minimum annual lease commitment is as follows: Year ending June 30, Amount 2017 $ 10,117, ,359, ,022, ,279, ,942,430 Thereafter 28,754,337 Total $ 65,475,242 Operating lease expense amounted to $12,898,203 for the year ended June 30,

14 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 F. Notes Payable: HPS's obligations under notes payable consist of the following: Note payable to a bank, secured by fumiture and equipment. The note is dated October 24,2012, has a variable interest rate, a face value of $1,500,000, and is payable in 60 installments of$25,000. The date of maturity is October 1, Note payable to a bank for capital expansion of school facilities, secured by certificate of deposit held with lender. The loan is dated January 23, 2015, has a face amount of $1,500,000, and carries a variable interest rate equal to the rate of interest on the certificate of deposit plus I %. The initial rate of interest is 1.45%. Interest is payable monthly. The date of maturity is January 23, Total notes payable Less Current Portion Notes Payable $ 400, ,583 1,292,583 (675,775) $ 616,808 Future maturities of notes payable are as follows: Year Ending June 30, PrinciEal Interest 2017 $ 675,776 $ 20,516 $ ,337 5, , Total $ 1,292,583 $ 26,657 $ Total 696, , ,909 1,319,240 G. Restricted Cash: Restricted cash at June 30, 2016 consisted of project fund, debt service fund, debt service reserve fund, and sinking fund bond cash accounts. These funds are to be solely used in the construction and acquisition of new facilities and repayment of bond liabilities and cannot be used for normal operating expenditures. H. Bonds Payable: HPS, Inc. has secured bond financing pursuant to Chapter 53 of the Texas Education Code of "Qualified Tax Exempt" Education Revenue Series Bonds, 2011 A, 2012A, 2014A, 2015, and 2016A in the amounts of$58,930,000; $31,350,000; $10 1,555,000; $106,745,000; and $55,405,000, respectively. HPS has also received proceeds from Taxable Educational Revenue Bonds, Q Series (Qualified School Construction Bonds) 20 I OQ, 20 II Q, and 2014Q in the amounts of $39,910,000; $5,085,000; and $8,880,000, respectively. The bonds are limited obligations of the issuer, payable solely from revenues received by the issuer pursuant to a loan agreement between the issuer and the borrower. -10-

15 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 H. Bonds Payable: (Continued) Bonds payable at June 30, 2016 consist of the following: 201lA Bonds-unrefunded, as revised, 5.875% % interest; principal due annually commencing May 15, 2016; interest due in semi-annual installments, commencing November 15, 2015; maturity dates range from 2016 to II Q Bonds, 8.75% interest; principal is deposited annually to a sinking fund account; interest is due in semi-annual installments, commencing November 15, 20 II ; maturity dates range from 2014 to $ 11,880,000 5,085, Q Bonds, 8.13% interest; principal is deposited annually to a sinking fund account; interest is due in semi-annual installments, commencing February 15, 20 II; bond matures in A Bonds, 4% - 5% interest; principal due annually commencing February 15, 2014; interest due semi-annually commencing August 15, 2012; maturity dates range from 2014 to A Bonds, 1.5% - 5% interest; principal due annually commencing February 15, 2015; interest due semi-annually conullencing February 15, 2015; maturity dates range from 2015 to Q Bonds, 4.733% interest; principal due annually commencing February 15, 2017; interest due semi-annually commencing February 15, 2015; maturity dates range from 2017 to Bonds, 2% - 5% interest; principal due annually commencing February 15, 2016; interest due semi-annually commencing February 15, 2016; maturity dates range from 2016 to A Bonds, 2% - 5% interest; principal due annually conullencing February 15, 20 17; interest due semi-annually commencing August 15, 2016; maturity dates range from 2017 to ,910,000 29,690,000 98,380,000 8,880, ,375,000 $ 55,405,000 Total Less unamortized discount Plus original issue premium Less current portion $ 354,605,000 ( 14,327) 30,694,914 (6,447,559) $ 378,838,

16 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 H. Bonds Payable: (Continued) Future maturities of bonds payable over the next five years are as follows: Year Ending June 30, Thereafter Total Principal $ 5,605,000 5,125,000 5,365,000 5,635,000 5,905, ,970,000 $354,605,000 Interest $ 16,140,962 18,594,766 18,356,316 18,106,329 19,729, ,211,081 $ 295,138,657 Total $ 21,745,962 23,719,766 23,721,316 23,741,329 25,634, ,181,081 $ 649,743,657 Less unamortized discount Plus original issue premium Amount of bonds net of discount and premium (14,327) 30,694,914 $ 385,285,587 HPS must maintain debt service reserve funds for each of the outstanding Series 20 II A, and 2012A bonds, which funds are required to maintain minimum balances equal to the lesser of Maximum Annual Debt Service on the Bonds, one hundred twenty-five percent of the average annual Debt Service on the Bonds, or ten percent of the initial principal amount of the Bonds, respectively. At June 30, 2016, the debt service reserve funds for the Series 2011A, and 2012A bonds had cash balances of $5,079,940 and $2,045,279, respectively. I. Bond Sinking Fund Obligations: HPS is required to deposit amounts restricted to the repayment of principal into three sinking funds on an armual basis. The sinking funds are restricted to the retirement of debt issued with respect to the 20 I OQ series, 20 II Q series, and 20 14Q series of bonds. Future sinking fund obligations of notes payable are as follows: Year Ending June 30, Thereafter Total Deposits $ 2,527,025 2,529,719 2,533,479 2,532,802 2,544,119 20,027,897 $ 32,695,

17 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 J. Bond Debt Covenants: The bond agreements contain certain restrictions and covenants. HPS is required to maintain a ratio of available revenue (without excluding any discretionary expenses incurred during the fiscal year) that must be equal to 1.1 OX of the annual debt service requirements. HPS's minimum available excess revenue requirements totaled $21,297,575. At June 30, 2016, HPS met the covenant requirements holding available revenue of$35,539,052. Additionally, HPS needs to maintain an operating reserve that covers 45 days of budgeted expenses at the end of each fi scal year. For the fiscal year ending June30, 2016, HPS was required to have $34,967,867 in operating accounts. At June 30, 2016, HPS met the covenant with an available cash balance of $77,335, III. K. Commitments and Contingencies: HPS receives funds through state and federal programs that are govemed by various statutes and regulations. State program funding is based primarily on student attendance data submitted to the Texas Education Agency and is subject to audit and adjustment. Expenses charged to federal programs are subject to audit and adj ustment by the grantor agency. The programs administered by the charter school have complex compliance requirements, and should state or federal auditors discover areas of noncompliance, charter school funds may be subject to refund if so determined by the Texas Education Agency or the grantor agency. L. Health Care Coverage: During the year ended June 30, 2016, employees of HPS were covered by a group insurance plan. The school paid premiums up to $325 for teachers, $425 for assistant principals, $625 for principals and central office administrators, $825 for assistant superintendents, cluster superintendents, and superintendents, for each campus per month per employee (depending upon coverage selected) to the plan. Employees, at their option, authorized payroll withholdings to pay premiums for dependents. All premiums were paid to a licensed insurer. M. Temporarily Restricted Net Assets: Temporarily restricted net assets at June 30, 2016, are available for the following periods: Periods after June 30, 2016 State Funds Total restricted funds $ 43,162,647 $ 43,162,647 Net assets were released from restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors as follows: State Funds Federal Funds Total restrictions released $ 251,649,285 26,931,464 $ 278,580,

18 NOTES TO FINANCIAL STA TEMENTS JUNE 30,2016 N. Certificate of Deposits: HSA- EI Paso has renewed a $1,500,000 twelve-momh certificate of deposit with an interest rate of 0.445%, and a $3,000,000 twelve-month certificate of deposit with an interest rate of 0.445% as of June 30, The certificates of deposit mature on January 23, 2017 and November 14, 2016, respectively. Investments in certificates of deposit total $1,541,250 and $3,021,841 at June 30, O. Lawsuits and Contingencies: HPS on September 29, 2016 settled a dispute with the Equal Employment Opportunity Commission in regards to compliance with the Equal Pay Act. HPS accepted the terms of a settlement agreement. The monetary tertns of this settlement agreement have not been accrued at June 30, 2016 since the amount is less than $ 11,000 and is immaterial to the overall presentation of the financial statements. P. Elimination Entries: Description Balance Before Eliminations Eliminations Consolidated Balance Other Receivables $ 869,584 Accrued Liabilities 5,424,241 $ (111,509) (111,509) $ 758,075 5,312,732 Revenue 316,6 19,788 Expenses 309,368,513 Change in Net Assets $ 7,251,275 $ (17,888,716) (17,888,7 16) 298,73 1, ,479,797 $ 7,251,275 Eliminations consist of the following: PSF Fee Advanced $ 111,509 District Financial Services 17, 168,7 16 Rental Income 720,000 -=--:-:c-:-':'~'-': Total $ 18,000,

19 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 Q. Guarantee of Bonds: HPS guaranteed $1,245,000 of Series 2010 Y bonds for Lisa Academy, Inc. (an independent charter school district) for property located in Arkansas. The outstanding principal balance on this bond was $1,245,000 at June 30, This guarantee required payment by HPS only in the event of default by Lisa Academy, Inc. The security interest in the property would be subrogated to HPS. The related partnership was current as of June 30, On October 12, 2016 the agreement for guarantee of bonds was rescinded and a release of guarantee was granted by the lender and trustee of the bonds. R. Evaluation of Subsequent Events: HPS has evaluated subsequent events through October 27, 2016 the date which the financial statements were available to be issued. -15-

20 GOMEZ & COMPANY CERTIFIED PUBLIC ACCOUNTANTS 5177 RICHMOND AVE. SUITE 1100 HOUSTON, TEXAS TEL: (713) FAX: (713) To The Board of Directors of Hannony Public Schools Houston, Texas INDEPENDENT AUDITOR' S REPORT ON ADDITIONAL INFORMATION We have audited the fmancial statements of Hannony Public Schools as of and for the year ended June 30, 2016, and our report thereon dated October 27, 2016, which expressed an unmodified opinion on those fmancial statements, appears on page I. Our audit was conducted for the purpose of fonning an opinion on the fmancial statements as a whole. The schedules for individual charter schools on pages 17 to 72 are presented for purposes of additional analysis and are not a required part of the fmancial statements. Such infonnation is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the fmancial statements. The infonnation has been subjected to the auditing procedures applied in the audit of the fmancial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the fmancial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the infonnation is fairly stated in all material respects in relation to the financial statements as a whole. ~ '{- HOU::~ October 27,

21 ASSETS Current Assets: Cash Restricted Cash Receivables Other Receivables Prepaids Total Current Assets HARMONY PUBLIC SCHOOLS HARMONY SCIENCE ACADEMY- HOUSTON ST ATEM ENT OF FINANCIAL POSITION JUNE 30, 2016 (With Comparative Totals for June 30, 2015) 2016 $ 6,611,491 6,763,298 5,726, ,403 8,953 19,482, $ 5,857,068 5,674,992 5,371, ,379 17,018,410 Property & Equipment: Land Buildings and Improvements Furniture and Equipment Less: Accumulated Depreciation Other Assets: Bond Issuance Cost Total Assets 7,225,861 59,93 1,230 3, ,3 13,593 (13,644,069) 56,669,524 1,007,201 $ ,020 7,225, ,457,441 2,994,440 69,677,742 (11,262,875) 58,414,867 1,043,782 $ 76,477,059 LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable Accrued Liabilities Wages Payable Payroll Taxes Payable Interest Payable Current Portion of Notes Payable Current Portion of Bonds Payable Total Current Liabilities Long-tenn Liabi lities: Notes Payable Net of Current Portion Bonds Payable Net of Discount and Current Portion Total Liabilities Net Assets: Unrestricted Temporarily Restricted Total Net Assets Total Liabilities and Net Assets $ 506, ,654 1,981, ,267 1,240, ,248 1,014, ,424 64,615, ,400,210 5,230,651 1,528, 159 6,758,8 10 $ ,020 $ 270, ,077 1,8 12, , , , ,313 5,037, ,725 65,283,623 70,503,088 5,225, ,973,971 $ 76,477,059 See accompanying notes to financial statements. -17-

22 ASSETS Current Assets: Cash Restricted Cash Receivables Prepaids Total Current Assets HARMONY PUBLIC SCHOOLS HARMONY SCIENCE ACADEMY- AUSTIN STATEMENT OF FINANCIAL POSITION JUNE 30, 20 I 6 (With Comparative Totals for June 30, 20 15) 2016 $ 6,353,674 3,563,3 I I 5,684,575 9,962 15,6 11, $ 5,954,860 4,237,737 5,029,740 15,222,337 Property & Equipment: Land Buildings and Improvements Furniture and Equipment Less: Accumulated Depreciation Other Assets: Deposits Bond Issuance Cost Total Assets 2, 129,350 26,654,683 2,339,476 31,123,509 (6,585,539) , , ,138 $ 40,699_5 I 9 2, 129,350 25,673,725 1,91 0,027 29,713,102 (5,538,845) 24, I 74, , ,743 $ 39,950,226 LIABILITIES AND NET ASSETS CUtTent Liabilities: Accounts Payable Accrued Liabilities Wages Payable Payroll Taxes Payable Interest Payable Current Portion of Notes Payable Current Portion of Bonds Payable Total Current Liabilities Long-term Liabilities: Notes Payable Net of Current Portion Bonds Payable Net of Discount and Current Portion Total Liabilities Net Assets: Unrestricted Temporarily Restricted Total Net Assets Total Liabilities and Net Assets $ 11 8, ,103 2,376, , ,848 58, ,614 4,516,040 65,355 32,083, , ,680 3,682,778 4, $ 40,699,519 $ 1,057, ,296 1,683, , ,826 61, ,694 4,286, ,288 31,629, , ,847 3,866,713 $ 39,950,226 See accompanying notes to financial statement s. -18-

23 HARMONY SCIENCE ACADEMY- SAN ANTONIO STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 (With Comparative Totals for June 30, 2015) ASSETS Current Assets: Cash $ 7,967,324 $ 8,278,554 Restricted Cash 15,095,375 1,5 11,857 Receivables 5,457,424 4,990,141 Other Receivables 38,547 25,114 Prepaids 14,966 Total Current Assets 28,573,636 14,805,666 Property & Equipment: Land 1,9 18,27 1 1,718,271 Buildings and Improvements 25,727,476 24,897,576 Furniture and Equipment 2,375,535 1,932,926 30,02 1,282 28,548,773 Less: Accumulated Depreciation (5.985,853) (4,848,767) 24, ,700,006 Other Assets: Deposits 73,478 73,478 Bond Issuance Cost 590, ,142 Total Assets $ 53, $ 39,002,292 LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable $ 243,395 $ 373,013 Accrued Liabilities 584, ,277 Wages Payable 2, 159,231 1,567,645 Payroll Taxes Payable 294, ,222 Interest Payable 575, ,789 Current Portion of Notes Payable 69, ,762 Current Portion of Bonds Payable 732, ,587 Total Current Liabilities 4,659,678 3,562,295 Long-ten11 Liabilities: Notes Payable Net of Current Portion 64, ,749 Bonds Payable Net of Discount and Current Portion ,538 26,0 10,891 Total Liabilities 44, ,746,935 Net Assets: Unrestricted 2,500,310 2,470,806 Temporarily Restricted 6,037, ,551 Total Net Assets ,357 Total Liabilities and Net Assets $ 53, $ ,292 See accompanying notes 10 financial statements. -19-

24 HARMONY SCIENCE ACADEMY- EL PASO STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 (With Comparative Totals for June 30, 20 I 5) ASSETS Current Assets: Cash $ 13,659,925 $ 12,868,797 Restricted Cash 756, ,776 Receivables 4,329,404 4,0 16,819 Other Receivables 5,529 17,946 Prepaids 35,512 Total Current Assets ,536,338 Property & Equipment: Land 154, ,893 Buildings and Improvements 9,892,639 9,699,821 Furniture and Equipment 2,048,124 1,776,006 12,095,656 11,630,720 Less: Accumulated Depreciation (6,3 I 8,058) (5.638,886) 5,777,598 5,991,834 Other Assets: Deposits 38,413 53,332 Bond Issuance Cost 129,900 I I 1,485 Total Assets $ $ ,989 LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable $ 13 7,482 $ 33 I,668 Accrued Liabilities 433, ,246 Wages Payable 1,732,140 1,340,465 Payroll Taxes Payable 226, ,312 Interest Payable 162, ,857 Current Portion of Notes Payable 142, ,332 Current Portion of Bonds Payable 18 1, ,981 Total Current Liabilities 3,0 15,159 3,442,861 Long-tenn Liabilities: Notes Payable Net of Current Portion 89, ,344 Bonds Payable Net of Discount and Current Portion 9,625,234 8,400,225 Total Liabilities 12,730, ,1 15,430 Net Assets: Unrestricted 1,982,284 1,889,612 Temporarily Restricted 10,020,684 9,687,947 Total Net Assets 12,002,968 I I,577,559 Total Liabilities and Net Assets $ $ 23,692,989 See accompanying notes to financial statements. -20-

25 HARMONY SCHOOL OF EXCELLENCE STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 (With Comparative Totals for June 30, 2015) ASSETS Current Assets: Cash $ 8,350,678 $ 8,483,184 Restricted Cash 14,038,161 3,135,973 Receivables 6,263,367 5,569,025 Other Receivables 129,928 40,755 Prepaids 9,923 Total Current Assets 28,792,057 17,228,937 Propeny & Equipment: Land 7,125,277 3,995,277 Buildings and Improvements 47,965,370 32,630,112 Furniture and Equipment 3,345, ,050 58,436,204 39,607,439 Less: Accumulated Depreciation ( 12,543,458) (10,794,528) 45,892,746 28,812,911 Other Assets: Deposits 69,781 69,781 Bond Issuance Cost 999, ,495 Total Assets $ $ 46, LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable $ 331,465 $ 910,586 Accrued Liabilities 802, ,919 Wages Payable 2,422,348 1,908,206 Payroll Taxes Payable 326, ,475 Interest Payable 852, ,554 Current Ponion of Notes Payable 49,602 1,070,040 Current Ponion of Bonds Payable 1,110, ,170 Total Current Liabilities 5,896,410 5,680,950 Long-tenn Liabilities: Notes Payable Net of Current Portion 68,082 Bonds Payable Net of Discount and Current Portion 65,524,267 36,489,528 Total Liabilities 71,488,759 42,1 70,478 Net Assets: Unrestricted 783, ,693 Temporarily Restricted 3.481, ,953 Total Net Assets 4,264, ,646 Total Liabilities and Net Assets $ ,692 $ 46, See accompanying notes to financial statements. -21-

26 ASSETS Current Assets: Cash Restricted Cash Receivables Other Receivables Prepaids Total Current Assets HARMONY PUBLIC SCHOOLS HARMONY SCIENCE ACADEMY-WACO STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 (With Comparative Totals for June 30, 2015) $ 22,453,389 11,675,998 14,482, , ,766 48,791, $ 17,267, ,887,499 13,065,224 52,428 43,272,612 Property & Equipment: Land Buildings and Improvements Furniture and Equipment Less: Accumulated Depreciation Other Assets: Deposits Bond Issuance Cost Total Assets LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable Accrued Liabilities Wages Payable Payroll Taxes Payable Interest Payable Due to Federal Agencies Current Portion of Notes Payable Current Portion of Bonds Payable Total Current Liabilities Long-tenn Liabilities: Notes Payable Net of Current Portion Bonds Payable Net of Di scount and Cun'ent Portion Total Liabilities Net Assets: Unrestricted Temporarily Restricted Total Net Assets Total Liabilities and Net Assets 13,068,987 97,835,149 6,343, ,247,620 (21,490,803) 95,756,817 75, ,176 $ 146,343,430 $ 664,669 1,458,093 5,253, ,561 1,874,980 1, ,173 2,204, , , ,020, ,638,687 1,763, ,513 16, $ 146,343,430 11,773, ,241,193 5, ,268,74 1 (17,780,229) , ,284 I,697,084 $ 134,543,492 $ 3,060,265 1,139,977 3,982, ,348 1,036, ,037 2,060,908 12,767, , , 193, ,532,570 1,743, ,258 12,010,922 $ 134,543,492 See accompanying notes to financial statements. -22-

27 HARMONY SCHOOL OF SCIENCE- HOUSTON STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 (With Comparative Totals for June 30, 2015) ASSETS Current Assets: Cash $ 5,119,946 $ 3,979,040 Restricted Cash 7,577,291 4,657,120 Receivables 4,603,315 4,189,383 Other Receivables 34,941 28,540 Prepaids 14,655 Total Current Assets 17,350,148 12,854,083 Propeny & Equipment: Land 4,482,810 4,482,810 Buildings and Improvements 37,980,395 33,408,221 Furniture and Equ ipment 1,448,888 1,156,342 43,912,093 39,047,373 Less: Accumulated Depreciation (7,991,043) (6,903,056) ,050 32,144,317 Other Assets: Deposits 1,279 Bond Issuance Cost 703, ,130 Total Assets $ 53, $ LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable $ 1,097,811 $ 300,514 Accrued Liabilities 560, ,478 Wages Payable 1,672,474 1,314,858 Payroll Taxes Payable 221, ,344 Interest Payable 744, ,467 Current Portion of Notes Payable 56, ,001 Current Portion of Bonds Payable 730, ,777 Total Current Liabilities 5,085,057 3,582,439 Long-ternl Liabilities: Notes Payable Net of Current Ponion 56, ,424 Bonds Payable Net of Discount and Current Portion 46,602,927 41,145,035 Total Liabilities 51,744,112 44,875,898 Net Assets: Unrestricted (1,239,749) (1,258,63 1 ) Temporarily Restricted 3,470,392 2,015,542 Total Net Assets 2,230, ,911 Total Liabilities and Net Assets $ 53, $ See accompanying notes to financial statements. -23-

28 ASSETS Current Assets: Cash Restricted Cash Receivables Other Receivables Total Current Assets HARMONY PUBLIC SCHOOLS CENTRAL OFFICE STA TEM ENT OF FINANCIAL POSITION JUNE 30, 2016 (With Comparative Totals for June 30, 2015) 2016 $ 6,801,038 82, , ,651 7,342, $ 5,504,084 70,53 I 205, ,421 5,888,920 Property & Equipment: Buildings and Improvements Furniture and Equipment Less: Accumulated Depreciation Other Assets: Deposits Bond Issuance Cost Total Assets 826,098 1,152,673 1,978,771 (1,180,674} 798,097 8,546 27,5 13 $ 8, 176, ,957 1,1 I 1,348 1,850,305 (952,239} 898,066 26,109 18,251 $ 6,83 1,346 LIABILITIES AND NET ASSETS Current Liabilities: Accounts Payable Accrued Liabilities Wages Payable Payroll Taxes Payable Interest Payable Current Portion of Notes Payable Current Portion of Bonds Payable Total Current Liabilities Long-tenn Liabilities: Bonds Payable Net of Discount and Current Portion Total Liabilities Net Assets: Unrestricted Total Net Assets Total Liabilities and Net Assets $ 457, ,464 1,276, ,643 20,433 38,340 2,290,515 3,354,813 5,645,328 2,531,091 2,531,09 1 $ 8, $ 193, , , ,762 12, ,597 21,571 2,138,560 2,790,473 4,929,033 1,902,313 1,902,313 $ 6,83 1,346 See accompanying notes to financial statements. -24-

29 HARMONY SCIENCE ACADEMY - HOUSTON STATEMENT OF ACTIVITIES (With Comparative Totals for the Period Ended June 30, 2015) Temporarily Unrestricted Restricted REVENUES Local Support: 5740 Other Revenues from Local Sources $ 2,622,428 $ $ 5750 Revenue from Curricular 736,839 Total Local Support 3,359,267 State Program Revenues 5810 Foundation School Program Act Revenues 30,249, State Program Revenues Distributed by Texas Education Agency 341,030 Total State Program Revenues 30,590,402 Federal Program Revenues: 5920 Federal Revenues Distributed by Texas Education Agency 2,652, Federal Revenues Distributed Directly From the Federal Governrnent 622,967 Total Federal Program Revenues 3,275,336 Net assets released from restrictions: Restrictions satisfied by payments 33,085,974 (33,085,974) Total Revenues 36,445, ,764 EXPENSES II Instruction 19, I 06, Instructional Resources and Media Services 70, Curriculum Development and Instructional Staff Development 1,473, Instructional Leadership 122, School Leadership 3,037, Health Services 14, Food Service 1,204, CocurricularlExtracurricular Activities 613, General Administration 1,915, Plant Maintenance and Operations 5,030, Security and Monitoring Services 312, Data Processing Services 194, Debt Service 3,342,440 Total Expenses $ 36,440,166 $ $ Total ,622,428 $ 1,807, , ,200 3,359,267 2,567,587 30,249,372 28,425, , ,753 30,590,402 28,750,108 2,652,369 2,627, , ,899 3,275,336 3,405,370 37,225,005 34,723,065 19, 106,995 16,190,122 70,670 2,208 1,473,474 1,406, , ,466 3,037,442 3,309,641 14,950 9,596 1,204,939 1,364, , ,104 1,915,746 1,708,561 5,030,456 4,309, , , , ,968 3,342,440 3,432,553 36,440,166 $ 32,952,618 See accompanying notes to financial statements. -25-