DESIGNING FUTURES FOUNDATION AND AFFILIATES CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2015

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1 DESIGNING FUTURES FOUNDATION AND AFFILIATES CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED

2 FOR THE SIX MONTHS ENDED Contents Independent Auditor's Report 1-2 Consolidated Financial Statements Statement of financial position Statement of activities and changes in net assets Statement of cash flows Notes to consolidated fmandal statements 6-12

3 CITRIN COOPERMAN Attest & Assura nce I Tax Compl ia nce & Research I Specialty & Consulting INDEPENDENT AUDITOR'S REPORT To the Board of Trustees Designing Futures Foundation and Affiliates We have audited the accompanying- consolidated Hnancial statements of Designing Futures Foundation (a nonproht organization) and AfHliates, which comprise the consolidated statement of Hnancial position as of June 30, 2015, and the related consolidated statements of activities and changes in net assets and cash flows for the six months ended June 30, 2015, 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 consolidated Hnancial 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_aboulwhethetj:he consolidated fmancial statements-are-free-from materiatmisstatement. - An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated fmancial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufhcient and appropriate to provide a basis for our audit opinion. CITRIN COOPERMAN & COMPANY, LLP 1800 JFI< BOULEVARD, PHILADELPHIA, PA I TEL I FAX C ITRINCOOPERMAN.COM AN IND EPENDENT FIRM A SS OC IATED WITH MOORE STEPH ENS

4 Opinion In out opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Designing Futures Foundation and Affiliates as ofjune 30, 2015, and the changes in their net assets and their cash flows for the six months ended June 30, 2015, in accordance with accounting principles generally accepted in the United States of America. Philadelphia, Pennsylvania January 28, 2016 TANTS CAYMAN I CONNECTICUT I MARYLAND I NEW JERSEY I NEW YORK I PENNSYLVANIA 2 CITRINCOOPERMAN.COM

5 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Current assets: Cash Restricted cash Accounts receivable Contributions receivable Prepaid expenses Land Total current assets ASSETS Non current assets: Capital assets, net of accumulated depreciation of $2,817,929 Intangible assets, net of accumulated amortization of $122,525 TOTAL ASSETS $ $ 346, , , , ,552,913 1,642,530 9,311, ,205 12,892,321 LIABILITIES AND NET ASSETS Current liabilities: Line of credit Accounts payable and accrued expenses Current maturities of bonds payable and long-term debt Due to related patties Total current liabilities Long-term liabilities: Long-term debt, net of current maturities Bonds payable Total long-term liabilities Total liabilities Commitments and contingencies (Notes 4, 5, 6, and 9) Net assets: Temporarily restricted net assets Unrestricted net assets Total net assets TOTAL LIABILITIES AND NET ASSETS $ 176, , , ,512, ,648 8,200,000 8,736,648 10,249, ,890 2,510,281 2,643,171 $ 12,892,321 See independent auditor's report and accompanying notes to consolidated financial statements. 3

6 CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED Temporarily Unrestricted Restricted Total Revenues: Rental income $ 747,465 $ $ 747,465 Fundraising 135,416 94, ,501 Other income , ,206 94,085 1,016,291 Net assets released from restrictions Total revenue 922, ,016,291 Expenses: Administrative 64,948 64,948 Depreciation and amortization 180, ,596 Employee benefits 3,427 3,427 Fundraising 17,379 17,379 Insurance 51,281 51,281 Interest 263, ,694 Management fees 32,409 32,409 Professional fees 20,499 20,499 Repairs and maintenance 134, ,344 Salaries 21,200 21,200 Taxes, other 22,003 22,003 Taxes, payroll 2,578 2,578 Taxes, real estate 17,881 17,881 Utilities Total expenses ,510 Change in net assets 6,696 94, ,781 Net assets - beginning 2,503, ,542,390 NET ASSETS - ENDING $ 2,510,281 $ 132,890 $ 2,643,171 See independent auditor's report and accompanying notes to consolidated financial statements. 4

7 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED Cash flows from operating activities: Change in net assets Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization Changes in assets and liabilities: Restricted cash Accounts receivable Prepaid expenses Accounts payable and accrued expenses Due to related parties Net cash provided by operating activities Cash used in fmancing activities: Repayment of long-term debt and bonds payable Net increase in cash Cash - beginning CASH -ENDING Supplemental disclosure of cash flow information: Cash paid for interest $ 100, ,596 36,127 (60,479) (13,480) 1, ,228 (190,504) 146, $ $ 266,194 See independent auditor's report and accompanying notes to consolidated financial statements. 5

8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Designing Futures Foundation (the "Foundation") operates a non-profit organization established under the laws of the Commonwealth of Pennsylvania. The Foundation was formed on October 10, 2003, and is an exempt organization under Section 501(c)(3) of the Internal Revenue Code ("IRC"). The Foundation commenced operations July 1, The Foundation changed from a calendar year-end to a June 30 fiscal year-end effective June 30, The Foundation is considered to be a component unit of Architecture and Design Charter High School (the "School"), an exempt organization under Section 501(c)(3) of the IRC that operates a public charter school for high school children in grades 9 through 12. As a component unit, the Foundation, although a legally separate entity, is in substance, part of the School's operations. The goal of the Foundation is to provide financial support to the School through fundraising and charitable gifts and through the operations of its interests in L-A Liberty Square Associates, L.P. and DFF Real Estate, LLC. L-A Liberty Square Associates, L.P. (the "Partnership") is a Pennsylvania limited partnership formed on August 6, The partnership agreement was amended and restated on December 1, The Foundation acquired a 99.99% interest in the Partnership on December 2, The Partnership rents office and classroom space to the School and other tenants and operations commenced under the restated partnership agreement on December 2, The Partnership is not a recognized tax entity and all income and losses are reported on the Foundation's tax filing. DFF Real Estate, LLC (the "Corporation") was formed on November 12, The Corporation acquired a.01% interest as general partner in L-A Liberty Square Associates, L.P. The Corporation is a non-recognized tax entity and its sole member is the Foundation. Principles of consolidation The consolidated financial statements of the Foundation and affiliates (collectively the "Organization") were prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and include the assets, liabilities, revenues and expenses of all majority-owned entities over which the Organization exercises control. These include the Partnership and Corporation described above. All intercompany transactions and balances have been eliminated. Use of estimates The preparation of consolidated financial statements in conformity with 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Method of accounting The Foundation maintains its records on the accrual basis for financial statement purposes. Income tax status The Organization is exempt from federal income taxes under Section 501(c)(3) of the IRC. 6

9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Uncertain tax positions The Organization recognizes and measures its unrecognized tax benefits in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") 740, I11come Taxes. Using that guidance, tax positions initially need to be recognized in the consolidated financial statements when it is more likely than not that the positions will be sustained upon examination by the taxing authorities. It also provides guidance for derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As of June 30, 2015, the Organization had no uncertain tax positions that qualify for either recognition or disclosure in the consolidated financial statements. Additionally, the Foundation had no interest or penalties related to income taxes. The Organization flles an income tax return in the U.S. federal jurisdiction. With few exceptions, the Organization is no longer subject to U.S. federal tax examinations by taxing authorities for years before December 31,2012. Basis of presentation The financial statement presentation follows the recommendation of FASB ASC 958, Notfor--Profit E11tities. Under FASB ASC 958, the Foundation is requited to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. As of June 30, 2015, the Organization's net assets were unrestricted and temporarily restricted. Accounts receivable Accounts receivable ate stated at the amount the Organization expects to collect. The Organization maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers tl1e following factors when determining the collectibility of specific customer accounts: customer creditworthiness, past transaction hist01y with the customer, current economic industry trends, and changes in customer payment terms. If the financial conditions of the Organization's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be requited. Based on management's assessment, the Organization provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Organization has made reasonable collection efforts ate written off through a charge to the valuation allowance and a credit to accounts receivable. At June 30, 2015, the Organization considered all accounts receivable collectible; accordingly, no allowance for doubtful accounts has been established. Property and equipment Property and equipment are carried at cost. Expenditures for maintenance and repairs ate expensed currently, while renewals and betterments that materially extend the life of an asset are capitalized. The costs of assets sold, retired, or otherwise disposed of, and the related allowance for depreciation, are eliminated from the accounts, and any resulting gain or loss is recognized. 7

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and equipment (continued) Depreciation is provided using the straight-line and various accelerated methods over the estimated useful lives of the assets, which are as follows: Software Equipment Furniture and flx:tures Building and improvements 3 years 7 years 7 years 39 years Bond issuance costs Costs relating to the issuance of bonds are amortized over the term of the bonds using the straight-line method and are included in "Intangible assets" in the consolidated statement of financial position. Amortization of bond issuance costs for the six months ended June 30, 2015, was $6,756. Real estate commissions Real estate commissions incurred by the Foundation in association with the acquisition of a rental lease, discussed in Note 8, are amortized using the straight-line method over the term of the lease. Amortization of real estate commissions for the six months ended June 30, 2015, was $10,236. Net assets U11restricted 11et assets - The Foundation reports assets whose use is not restricted by donors as unrestricted net assets. Contributions are available for unrestricted use unless specifically restricted by the donor. Unrestricted net assets may be designated for specific purposes or locations by action of the Board of Trustees. TemporCIIify restdcted mt assets- The Foundation reports gifts of cash and other assets as temporarily 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 consolidated statement of activities and changes in net assets as net assets released from restrictions. PermaJJmtfy resflicted 11et assets - Permanently restricted net assets are those which are subject to the restrictions of gift instruments requiring that the principal be invested in perpetuity and the income only be utilized for purposes specified by the donor. Contributions Contributions, including unconditional promises to give, are recorded when received. All contributions are available for unrestricted use unless specifically restricted by the donor. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Fundraising Costs of special events are recorded in fundraising expenses and the related revenue is included as fundraising revenues or other income in the consolidated statement of activities and changes in net assets. Advertising costs Advertising costs are expensed as incurred and aggregated $17,379 for the six months ended June 30,

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE1. NOTE2. NOTE3. NOTE4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Subsequent events In accordance with F ASB ASC 855, St~bseqttellt EveNts, the Organization has evaluated subsequent events through January 28, 2016, the date on which these consolidated financial statements were available to be issued. There were no material subsequent events, other than as disclosed in Notes 4, 5 and 6, that required recognition or additional disclosure in these consolidated financial statements. CONCENTRATION OF CREDIT RISK The Organization places its cash, which may at times be in excess of Federal Deposit Insurance Corporation insurance limits, with high quality financial institutions and attempts to limit the amount of credit exposure with any one institution. Approximately 52% of the total rental revenue and related escalations included in other income of the Organization for the six months ended June 30, 2015, was generated from the School through direct leased property. CAPITAL ASSETS, NET Capital asset activity for the six months ended June 30, 2015, was as follows: Software Building and improvements Furniture and equipment Less: accumulated depreciation Capital assets, net $ 20,284 11,716, ,038 ( ) $ Depreciation expense for the six months ended June 30, 2015, was $163,604. LONG-TERM DEBT On February 3, 2011, the Foundation, Partnership, and School, as co-borrowers, entered into a term note on a joint and several basis with the PNC Bank, N.A. (the "Bank") in the amount of $650,000. The term note is payable in monthly installments of principal and interest, beginning on March 1, 2011, in the amount of approximately $11,800. Amounts outstanding under this note bear interest at a rate per annum equal to the daily LIBOR, adjusted monthly, plus 3%. The effective rate was 3.19% as of June 30, Any outstanding principal and accrued interest is due and payable in full on the maturity date of Februaty 2, This note is cross-collateralized and crossdefaulted with all other present and future obligations of the Foundation and the Bank. At June 30, 2015, the balance outstanding on the note was $104,351. Interest incurred on the note amounted to $2,208 for the six months ended June 30, On March 20, 2014, a line of credit was converted into a term loan with monthly payments of principal of $2,056 per month for the 48 months until maturity on March 20, A balloon payment is due when the term loan matures. Amounts outstanding under this note bear interest at a rate per annum equal to the daily LIBOR, adjusted monthly, plus 3%. The effective rate was 3.19% at June 30,2015. At June 30,2015, the balance outstanding on the term loan was $561,320. Interest incurred on the term loan amounted to $9,251 for the six months ended June 30,

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE4. NOTES. LONG-TERM DEBT (CONTINUED) Future maturities of long-term debt are as follows: Year endingjune 30: Amount 2016 $ 129, , $ The term note and term loan agreements require the Foundation to comply with nonfinancial and financial covenants. The Foundation was not in compliance with a financial covenant at June 30, 2015, and has obtained a waiver from the lender. Subsequent to year-end, the Foundation was not in compliance with a nonfinancial reporting covenant and has obtained a waiver from the lender extending the reporting deadline. BONDS PAYABLE On March 1, 2013, the Foundation and the Partnership borrowed $8,540,000 of Series 2013 bonds for the refmance of existing indebtedness and improvements to their facilities. The loan is payable in annual payments of principal and interest, which correspond to the repayment or redemption of the bonds that were issued on behalf of the Foundation and Partnership by the Philadelphia Authority for Industrial Development. The bonds are secured by the assets of the Foundation and Partnership. The bonds bear interest at 5.25% until March 15, 2023, at which time the interest rate increases to 6.125%. The bonds called for annual mandat01y sinking fund redemptions beginning March 15, The balance payable on the bonds was $8,315,000 at June 30, During the six months ended June 30, 2015, $110,000 of the bonds were redeemed. Subsequent to year-end, the Foundation was not in compliance with a financial reporting covenant which it cured within the allotted grace period as defined in the agreement. Future principal and interest requirements of bonds payable based on the schedule of mandatory sinking fund redemption are as follows: Year Ending June 30: Princiral Interest Total 2016 $ 115,000 $ 499,406 $ 614, , , , , , , , , , , , ,894 Thereafter $ 8,315,000 $ 9,565,325 $ 17,880,325 10

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES. NOTE6. NOTE7. BONDS PAYABLE (CONTINUED) The principal requirements of funding the mandatory sinking fund are as follows: Year enclingjune 30: 2015 $ 115, , , , ,000 Thereafter $ The Organization also maintains several cash accounts whereby the funds are restricted for the purpose of paying required principal and interest payments on the bonds. Total restricted cash as of June 30,2015, was $828,329. LINE OF CREDIT The Foundation maintains a line of credit with a commercial bank with a borrowing limit of $300,000 that expires on March 20, Advances under the $300,000 line of credit will be used for working capital or other general business purposes of the borrower. Amounts outstanding under this note bear interest at a rate per annum equal to the daily LIBOR, adjusted monthly, plus 2.25%. The effective rate was 2.43% at June 30, Collateral is a pledge of gross revenues and a mortgage on the property on parity with the Series 2013 bondholders. At June 30, 2015, the balance outstanding on the line of credit was $17 6,491. Interest incurred on the line of credit amounted to $2,144 for the six months ended June 30, The line of credit agreement requires the Foundation to comply with nonfinancial and financial covenants. The Foundation was not in compliance with a financial covenant at June 30, 2015, and has obtained a waiver from the lender. Subsequent to year-end, the Foundation was not in compliance with a nonfinancial reporting covenant and has obtained a waiver from the lender extending the reporting deadline. SUPPORT AND REVENUE The Organization receives substantially all of its revenue from fundraising activities that are generally available for unrestricted use unless specifically restricted by the donor and from rental operations, which are available for unrestricted use. The Organization has received contributions of cash and pledges from various sources which contain donor-imposed restrictions. During the six months ended June 30, 2015, those contributions amounted to $94,085 and are included as temporarily restricted net assets in the accompanying consolidated financial statements. 11

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES. NOTE9. RENTAL OPERATIONS The Partnership is a lessor of office space to the School and other unrelated entities.. Commitments fot future minimum rental income under noncancelable leases expiring through 2043 at June 30,2015, ate as follows: Yeat ending June 30: Thereafter RELATED-PARTY TRANSACTIONS Amount $ 1,096, , , , , $ The Partnership leases a portion of its rental facility to the School under a long-term operating lease ending March 15, 2043, with monthly rental payments of $64,583. Rent under the lease for the six months ended June 30, 2015, was approximately $387,500. Minimum future rental income receivable as of June 30,2015, is as follows: Year endingjune 30: Amount 2016 $ 775, , , , ,000 Thereafter 17,599,000 $ 21,474,000 The Foundation, Partnership, and School make and receive advances in the normal course of operations, which are non-interest bearing. The Foundation received a pledge on behalf of the School for $125,000 during 2014 which is also included in "Due to related parties." The Foundation owes the School $641,335 as of June 30,