Options Public Charter School

Options Public Charter School Financial Statements and Supplemental Schedule with Independent Auditor s Report Years Ended June 30, 2014 and 2013

FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE WITH INDEPENDENT AUDITOR S REPORT YEARS ENDED TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR S REPORT...1 FINANCIAL STATEMENTS: Statements of Financial Position...3 Statements of Activities...4 Statements of Cash Flows...5 Notes to Financial Statements...6 SUPPLEMENTARY INFORMATION: Schedule of Functional Expenses Fiscal Year 2014...16

2200 Pennsylvania Avenue, NW 4 th Floor East Washington, DC 20037 www.bcawatsonrice.com Telephone: (202) 416-1749 Facsimile: (202) 737-2684 INDEPENDENT AUDITOR S REPORT The Mr. Joshua M. Kern Court Appointed Receiver for Options Public Charter School Report on the Financial Statements We were engaged to audit the statement of financial position of Options Public Charter School (the School ), as of June 30, 2014 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 Financial Statements Management is responsible for the preparation and fair presentation of the 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 basic 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, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and the auditing standards established pursuant to the District of Columbia School Reform Act, Public law No. 104-134, 110 Stat. 1321-121, 2204(B)(ii)(B)(ix)(1996); D.C. Official Code 38-1802.04(11)(B)(ix)(2001), as amended. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the School'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 School's internal control. Accordingly, we express no such opinion. Basis for Qualified Opinion We were unable to obtain sufficient appropriate audit evidence, during our audit, supporting certain revenue and expenditures including Federal grants, accrued expenses and related party transactions recorded by the School for the year ended June 30, 2014.

Qualified Opinion In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to examine evidence regarding certain revenue and expenditures including Federal grant, accrued expenses and related party transactions, the financial statements referred to in the first paragraph above, present fairly, in all material respects, the financial position of the School as of June 30, 2014, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Emphasis of a Matter As discussed in Note 1 to the financial statements, the School was placed in receivership on October 3, 2013. On December 16, 2013, the District of Columbia Public Charter School Board ( PCSB ) voted to begin the process to revoke the School s charter. In the Memorandum of Understanding ( MOU ) between the Court Appointed Receiver and Custodian of the School and the PCSB dated June 25, 2014, the parties agreed that the School will dissolve pursuant to D.C. Official Code 38-1802.13A. The School will relinquish its charter on June 30, 2015. Additionally, the School is not in compliance with its debt covenants and the District of Columbia could call the debt. The School does not have enough available cash to pay off the debt should it be called. Our opinion is not modified with respect to these matters. Other Matters The financial statements of the School as of June 30, 2013 were audited by other auditors whose report dated March 4, 2014, expressed a qualified opinion on those statements. Supplemental Information Our audit was conducted for the purpose of forming an opinion on the basic financial statements as a whole. The supplemental schedule of functional expenses is presented for purposes of additional analysis and is not a required part of the basic financial statements. The prior auditor did not include a supplemental schedule of functional expenses for the year ended June 30, 2013 in their March 4, 2014 report. The supplemental schedule of functional expenses is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, except for the effects certain related party and subsequent event transactions discussed above, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. Washington, DC February 16, 2015 2

STATEMENTS OF FINANCIAL POSITION ASSETS 2014 2013 Current Assets Cash and cash equivalents $ 4,287,356 $ 4,111,685 Accounts receivable, net 2,577 12,217 Grants receivable, net 306,373 556,691 Security deposits, net 26,500 80,500 Prepaid expenses 74,815 130,779 Total Current Assets 4,697,621 4,891,872 Property and equipment, net 12,005,219 12,277,234 Deferred financing cost, net 44,415 159,155 Total Assets $ 16,747,255 $ 17,328,261 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable $ 794,815 $ 453,621 Loan payable - current portion 9,952,995 10,220,313 Accrued expenses 1,179,112 457,971 Deferred revenue 237,299 81,431 Total Current Liabilities 12,164,221 11,213,336 Loan payable, net of current portion - - Total Liabilities 12,164,221 11,213,336 Net Assets Unrestricted 4,583,034 6,114,925 Total Liabilities and Net Assets $ 16,747,255 $ 17,328,261 The accompanying notes are an integral part of these financial statements. 3

STATEMENTS OF ACTIVITIES YEARS ENDED 2014 2013 Unrestricted Net Assets Re ve nue and Support Per pupil funding $ 12,845,135 $ 13,893,065 Federal grants 682,580 2,912,839 Federal entitlements 452,401 444,233 Placement service income - 214,033 Rental income 27,719 29,048 Other income 206,053 65,935 Total Revenue and Support 14,213,888 17,559,153 Expenses Program services 14,322,093 12,894,027 General and administrative 1,423,686 3,240,070 Total Expenses 15,745,779 16,134,097 Change in net assets (1,531,891) 1,425,056 Net assets, beginning of year 6,114,925 4,689,869 Net assets, end of year $ 4,583,034 $ 6,114,925 The accompanying notes are an integral part of these financial statements. 4

STATEMENTS OF CASH FLOW YEARS ENDED 2014 2013 Cash Flows from Operating Activities Change in net assets $ (1,531,891) $ 1,425,056 Adjustments to reconcilechanges in net assets to net cash from operating activities: Depreciation and amortization 564,265 462,243 Changes in operating assets and liabilities: Accounts receivable (2,577) 76,854 Grants receivable 262,535 539,695 Deposits 54,000 (72,494) Prepaid expenses 55,964 (40,506) Loan receivable - 159,000 Accounts payable 39,793 213,212 Accrued expenses 1,022,539 (355,137) Deferred revenue 155,868 (13,452) Net Cash from Operating Activites 620,496 2,394,471 Cash Flows from Investing Activities Purchases of property and equipment (177,507) (262,671) Cash Flows from Financing Activities Principal payments on loan payable (267,318) (256,712) Net Cash from Financing Activities (267,318) (256,712) Net change in cash 175,671 1,875,088 Cash and cash equivalents, beginning of year 4,111,685 2,236,597 Cash and Cash Equivalents, end of year $ 4,287,356 $ 4,111,685 Supplemental Disclosure Cash paid during the year for interest $ 375,512 $ 385,269 The accompanying notes are an integral part of these financial statements. 5

NOTES TO FINANCIAL STATEMENTS NOTE 1 ORGANIZATION AND PROGRAM Options Public Charter School (the School ), a nonprofit organization incorporated in the District of Columbia, has been granted 501 (c )(3) status by the Internal Revenue Service, and has been granted a charter as a District of Columbia public charter school by the District of Columbia Board of Education, as authorized by the District of Columbia School Reform Act. The District of Columbia transferred regulatory oversight of all public charter schools chartered by the Board of Education to the District of Columbia Public Charter School Board on July 1, 2007. As a District of Columbia public charter school, Options Public Charter School (trade name for the organization) has a funding stream from the District of Columbia (uniform per student funding) and the U.S. Federal government (Federal grants for education and other programs) provided it meets certain compliance requirements. District of Columbia public charter schools are considered a Local Educational Agency (LEA) under Federal education guidelines. As a District of Columbia public charter school, the School enjoys significant freedom from the budget and operational restrictions placed on traditional public schools, allowing it to create a unique educational mission and approach. The School's mission is to provide a high quality, unique educational experience for all students, including those students most at risk of dropping out because they need additional social and academic support or have exceptionalities requiring intensive special education services. Its goal is to provide high quality, unique experiential instruction to all students by providing specialized programs reflecting differentiated instruction, utilizing a variety of strategies that empower students to excel academically; to achieve maximum self-reliance and personal fulfillment; and to be self-actualized as competent contributing citizens of a diverse global society. The School served sixth through twelfth grade students for fiscal years 2014 and 2013. The School was placed in receivership on October 3, 2013. On December 16, 2013, the District of Columbia Public Charter School Board ( PCSB ) voted to begin the process to revoke the School s charter. In the Memorandum of Understanding ( MOU ) between the Court Appointed Receiver and Custodian of the School and the PCSB dated June 25, 2014, the parties agreed that the School will dissolve pursuant to D.C. Official Code 38-1802.13A. The School is will relinquish its charter on June 30, 2015. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements of the School have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The financial statements do not reflect, and the School has not accrued, income it expects to earn and costs it expects to incur through the end of its liquidation (see new accounting pronouncement on page 9). 6

NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The School considers all cash in the bank and other short-term investments with original maturities of less than 90 days to be cash and cash equivalents. Cash equivalents as of June 30, 2014 and 2013, consisted of money market funds. Grants and Accounts Receivable Grants and accounts receivable are recorded at their net realizable value. The School records an allowance for doubtful accounts equal to estimated losses that will be incurred in the collection of receivables. The estimated losses are based on historical collection experience and the review of the current status of existing receivables. Management has recorded an allowance for doubtful accounts of $28,320 and $30,013 for accounts receivable for the years ended June 30, 2014, and $71,042 for grants receivable for the year ended June 30, 2013. Deferred Financing Cost Deferred financing cost is related to cost incurred to obtain debt. During the year ended June 30, 2012, the School incurred loan financing costs associated with refinancing its outstanding debt of $222,077, which has been capitalized and was been amortized over 5 years using the straight-line method, which approximates the effective interest rate method. Because of the plan to dissolve the School and relinquish its charter on June 30, 2015, the net deferred financing cost was written down by $70,325 in addition to the yearly amortization of $44,415. Net deferred financing cost was $44,415 and $159,155, as of June 30, 2014 and 2013, respectively. Amortization expense was $114,740, for the years ended June 30, 2014 and 2013. Property and Equipment Fixed assets valued in excess of $500, are capitalized and recorded at cost if purchased or estimated fair market value as of the date of gift, if donated. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. The cost of maintenance and repairs is charged to expense as incurred. 7

NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred Revenue Deferred revenue consists of payments received from the District of Columbia in advance of the program based on enrollment estimates for their summer school program. Deferred revenue was $237,299 and $81,431, as of June 30, 2014 and 2013, respectively. Net Assets Unrestricted net assets are assets and contributions that are not restricted by donors or for which restrictions have expired. Temporarily restricted net assets are those whose use by the School has been limited by donors primarily for a specific time period or purpose. When a donor restriction is met, temporarily restricted net assets are reclassified to unrestricted net assets. If a donor restriction is met in the same reporting period in which the contribution is received, the contribution (to the extent that the restrictions have been met) is reported as unrestricted net assets. There were no temporarily restricted net assets as of June 30, 2014 and 2013. Permanently restricted net assets are those that are restricted by donors to be maintained by the School in perpetuity. There were no permanently restricted net assets as of June 30, 2014 and 2013. Revenue Recognition The School receives a student allocation from the District of Columbia as well as Federal funding to cover the cost of academic expenses. The student allocation is on a per pupil basis and includes the academic year funding, special education funding and a facilities allotment. The School recognizes this funding in the year in which the school term is conducted. Funding received in advance of the school term is recorded as deferred revenue in the accompanying statements of financial position. The School also receives other awards and grants from Federal agencies and private organization. The majority of awards are funded as costs are incurred. The School has accounted for these awards and grants based on the fiscal year for which they are awarded. Receivables are recorded to the extent that costs have been incurred but not yet reimbursed. Contributions are recorded when pledged and classified as unrestricted or temporarily restricted support depending on the existence and/or nature of any donor restrictions. Temporarily restricted contributions and grants whose restrictions are fulfilled in the same period are recorded as unrestricted support in the statement of activities and changes in net assets. When a donor restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities and changes in net assets as net assets released from restrictions. 8

NOTES TO FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Functional Expense Allocation The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities and changes in net assets. Accordingly, certain costs have been allocated among the programs and supporting services that benefit from those costs. General and administrative expenses include those expenses that are not directly identified with any other specific function but provide for the overall support and direction of the School. Income Taxes The School is exempt from Federal income taxes under Section 501(c)(3) of the Internal Revenue Code and applicable District of Columbia income tax laws. Accounting principles generally accepted in the United States of America provide consistent guidance for the accounting for uncertainty in income taxes recognized in an entity's financial statements and prescribe a threshold of "more likely than not" for recognition of tax positions taken or expected to be taken in a tax return. The School performed an evaluation of uncertain tax positions for the year ended June 30, 2014, and determined that there were no matters that would require recognition in the financial statements or which may have any effect on its tax-exempt status. For the year ended June 30, 2014, the statute of limitations for tax years 2010 through 2013 remains open with the U.S. Federal jurisdiction or the various states and local jurisdictions in which the School files tax returns. It is the School's policy to recognize interest and/or penalties related to uncertain tax positions, if any, in income tax expense. Reclassification Certain 2013 financial statement line items have been reclassified to conform to the current year's presentation. Advertising Advertising costs are expensed as incurred. Advertising costs for the years ended June 30, 2014 and 2013 was $28,068 and $54,559, respectively. New Accounting Pronouncement In April 2013, the FASB issued Accounting Standards Update (ASU) No. 2013-07 Presentation of Financial Statements (Topic 205) Liquidation Basis of Accounting, which provides guidance on when and how to apply the liquidation basis of accounting and what to disclose. The standard is effective for an entity that determines liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Early adoption is permitted; however, the School will adopt the accounting, presentation and disclosure requirements for the year ended June 30, 2015. 9

NOTES TO FINANCIAL STATEMENTS NOTE 3 CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the School to concentration of credit risk consist principally of cash and cash equivalents. The School s cash and cash equivalents are insured by the Federal Deposit Insurance Corporation ( FDIC ) up to certain limits. The School is exposed to credit risk in the event of default by the financial institutions for amounts that exceed the FDIC limits. The amount exposed to credit risk as of June 30, 2014 and 2013 was $3,414,705 and$3,291,523, respectively. NOTE 4 PROPERTY AND EQUIPMENT As of June 30, 2014 and 2013, fixed assets consisted of the following: 2014 2013 Estimated Useful Life Land $ 3,020,000 $ 3,020,000 N/A Building 9,880,480 9,880,480 39 years Equipment 1,123,455 971,455 3-7 years Textbooks 128,101 128,101 5 years Furniture and fixtures 433,116 413,909 5-7 years Software 35,152 35,152 3 years Vehicles 133,210 133,210 5 years Building equipment 52,123 45,821 7 years Total 14,805,637 14,628,128 Less: accumulated depreciation (2,800,418) (2,350,894) Property and equipment, net $ 12,005,219 $ 12,277,234 Depreciation expense was $449,525 and $417,827, for the years ended June 30, 2014 and 2013, respectively. NOTE 5 NOTE PAYABLE Note payable consisted of the following as of June 30, 2014 and 2013: 2014 2013 District of Columbia Note Payable dated November 1, 2011 payable in monthly installments of $56,408, including interest at 4.00%, due on November 1, 2036. $ 9,952,995 $ 10,220,313 10

NOTES TO FINANCIAL STATEMENTS NOTE 5 NOTE PAYABLE (Continued) Because of the plan to dissolve the School and relinquish its charter on June 30, 2015, the total amount outstanding of $9,952,995 becomes due and payable by June 30, 2015. The future minimum payments on the note payable, on a continuing basis, as of June 30, 2014, were as follows: Years Ending June 30, Amount 2015 $ 278,364 2016 288,800 2017 301,798 2018 314,267 2019 327,252 2020-2036 8,442,514 Total $ 9,952,995 The above note payable is collateralized by a deed of trust on the School facility. The School is not in compliance with its debt covenants including a financial covenant that requires annual audited financial statements within a minimum of 90 days after year end. Consequently, the debt could be called and the School does not have enough cash to repay the debt. Because of the above situations, the outstanding balance has been classified as a current liability. NOTE 6 RETIREMENT PLAN Effective January 1, 2011, the School has a qualified retirement plan for all eligible employees. The plan provides that employees can elect to make contributions to the plan in accordance with the Internal Revenue Code. The School may, but is not required to, make discretionary matching contributions to the plan. Discretionary matching contributions of $16,931 and $25,549, were made during the year ended June 30, 2014 and 2013, respectively. 11

NOTES TO FINANCIAL STATEMENTS NOTE 7 COMMITMENTS AND CONTINGENCIES Operating Leases The School leased certain premises for the term of 5 years beginning on July 1, 2012 and ending on June 30, 2017. The School had the option to cancel the lease effective on June 30, 2014 or any June 30 th thereafter during the lease term upon no less than sixty days advance written notice. The School exercised its cancellation option effective July 31, 2014, and the landlord subsequently refunded the security deposit of $15,000. Future minimum lease payment required under the lease as of June 30, 2014, was as follows: Years Ending June 30, Amount 2015 $ 15,914 Rent expense under non-cancellable building and equipment leases totaled $194,902 and $307,293 for the years ended June 30, 2014 and 2013, respectively. The School leases rooftop space under a non-cancelable operating lease agreement. The lease expired February 17, 2014 and includes an option to renew in 5-year increments, up to four renewals. Future minimum rental payments to be received under these operating leases for the next year are $18,184. Rental income under this operating lease totaled $27,719 and $26,703 for the years ended June 30, 2014 and 2013, respectively. Because of the plan to dissolve the School and relinquish its charter on June 30, 2015, payments of lease expenses and receipt of lease income will cease on June 30, 2015. Management is in the processing of discussing and implementing a management action plan to address the various lease termination clauses, if any. Grants The School receives financial assistance from Federal agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit. Any disallowed claims resulting from such audits could become a liability of the School. The School's administration believes such disallowance, if any, would be immaterial. The School receives a substantial portion of its revenue from Federal and State sources. If a significant reduction in this revenue should occur, it may have an effect on the School's programs. During the years ended June 30, 2014 and 2013, the School earned revenue of $13,980,116 and $17,257,514, respectively, from the Government of the District of Columbia, which is 98.36% and 98.28%, respectively, of the total revenue and support, respectively. These amounts are reflected as per pupil funding, Federal grants, and Federal entitlements in the accompanying statements of activities and changes in net assets. 12

NOTES TO FINANCIAL STATEMENTS NOTE 7 COMMITMENTS AND CONTINGENCIES (Continued) Litigation The School is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its activities. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material, except for the complaint filed by the District of Columbia, adverse effect on the financial condition or results of operations of the School. On October 1, 2013, the District of Columbia filed a complaint against former employees of the School who owned and operated the related party entities discussed in Note 8. The District also filed a lawsuit against a member of the Board of Trustees. The complaint alleges misuse of the School s funds through self-dealing and extravagant contracts with the related party entities. On October 3, 2013, the District of Columbia appointed a receiver to take over operations of the School and ordered the contracts referred to in Note 8 to be terminated. On December 16, 2013, the District of Columbia Public Charter School Board voted to begin the process to revoke the School s charter. The Court Appointed Receiver and Custodian has agreed with the DC Public Charter School Board to close the School and relinquish its charter on June 30, 2015. NOTE 8 RELATED PARTY TRANSACTIONS On April 17, 2012, the School entered into a contract with Exceptional Education Services, Inc. (EES) to provide Medicaid billing services for the School. The terms of the agreement required the School to pay a 25% commission fee of all amounts received from Medicaid. EES is owned and incorporated by a former employee of the School. For the year ended June 30, 2014 and 2013, the School paid $42,228 and $503,520, respectively, in connection with the aforementioned agreement. EES did not provide any support for the amounts billed for Medicaid, as such if EES overbilled Medicaid, the School may be liable to return any overpayment. The contract between the School and EES was terminated in October 2013. On September 14, 2012, the School entered into a contract with EES to provide transportation services for the 2012 2013 school year, for $450,000. The terms of the agreement, which was amended on May 17, 2013 required the School to pay $750,000 as a base rate, per year. EES was also contracted to provide all requested after school transportation not to exceed $240,000. For the years ended June 30, 2014 and 2013, the School paid $60,000 and $981,250 to EES, respectively. In October 2013, the contract between the School and EES was terminated. 13

NOTES TO FINANCIAL STATEMENTS NOTE 8 RELATED PARTY TRANSACTIONS (Continued) On January 28, 2013, the School entered into a sub-lease with a third party. The space was used by Exceptional Education Management Corporation (EEMC). At the time the School entered into the sub-lease, EEMC was controlled by individuals who were simultaneously employees of the School. Rent expense under the lease was $87,399, for the year ended June 30, 2013. No payments were made for fiscal year 2014. On February 25, 2013, the School entered into a contract with EEMC, to manage various operations for the School. The agreement required the School to pay EEMC approximately $2.8 million for the school year 2013-2014. Upon execution of the Agreement, EEMC was entitled to a prepayment of $500,000 towards its fees for services to be provided during the school year 2013-2014. For the year ended June 30, 2013, the School paid $500,000 to EEMC. A reserve of $500,000 was recorded in fiscal year 2013 against the deposit as the collectability of this deposit could not be determined. On August 1, 2013, the School made a $954,000 payment to EEMC under the management agreement for which $250,000 has been deemed an overpayment. Through September 2013, EEMC received $1,589,897 in total income. In October 2013, the contract between the School and EEMC was terminated. The District of Columbia filed a complaint in the Superior Court which alleges misuse of the School s funds through self-dealing and extravagant contracts because of these related party transactions (see Note 7). The investigation is ongoing. NOTE 9 GOING CONCERN / MANAGEMENT LIQUIDATION PLAN As mention in Note 1, the School was placed in receivership on October 3, 2013. On December 16, 2013, the District of Columbia Public Charter School Board ( PCSB ) voted to begin the process to revoke the School s charter. In the Memorandum of Understanding ( MOU ) between the Court Appointed Receiver and Custodian of the School and the PCSB dated June 25, 2014, the parties agreed that the School will dissolve pursuant to D.C. Official Code 38-1802.13A. The School is will relinquish its charter on June 30, 2015. Management is in the process of preparing an action plan and budget of its activities through June 30, 2015. Contracts extending beyond this date are being discussed, and the School will finalize a closeout plan with the PCSB. Management anticipates that the closeout process will likely include a transfer of assets to a new entity. The financial statements do not reflect, and the School has not accrued, income it expects to earn and costs it expects to incur through the end of its liquidation. NOTE 10 SUBSEQUENT EVENTS The School evaluated subsequent events and transactions through February 16, 2015, the date the basic financial statements were available for issue, and have determined that no other material subsequent events have occurred, other than those listed above, which would affect the information presented in the accompanying financial statements or require additional disclosure. 14

SUPPLEMENTARY INFORMATION

SCHEDULE OF FUNCTIONAL EXPENSES YEAR ENDED JUNE 30, 2014 2014 Program General and Administrative Total Personnel Expenses Salaries and benefits $ 7,481,098 $ 588,174 $ 8,069,272 Employee benefits 624,085 49,073 673,158 Payroll taxes 641,881 50,473 692,354 Staff development expense 107,912 8,485 116,397 Total Personnel Expenses 8,854,976 696,205 9,551,181 Direct Student Costs Depreciation expense 116,652-116,652 Library and media center materials 11,251-11,251 Student assessment materials 21,589-21,589 Transportation cost 407,420-407,420 Contracted student services 547,048-547,048 Instructional computers and materials 18,669-18,669 Student supplies and materials 51,009-51,009 Miscellaneous student expense 135,543-135,543 Textbooks 19,249-19,249 Food service 283,666-283,666 Direct student costs - other 14,567-14,567 Total Direct S tudent Costs 1,626,663-1,626,663 Occupancy Costs Property taxes 38,803 3,051 41,854 Mortgage interest expense 381,317 27,371 408,688 Equipment rental and maintenance 15,879 1,248 17,127 Utilities 191,111 15,025 206,136 Building maintenance and repairs 91,538 7,197 98,735 Contracted building services 453,308 35,640 488,948 Depreciation expense 308,610 24,263 332,873 Janitorial Supplies 4,555 358 4,913 Rent and lease 180,695 14,207 194,902 Total Occupancy Costs 1,665,816 128,360 1,794,176 General and Office Expenses Amortization 111,502 3,238 114,740 Management fee 477,049 477,049 954,098 Administrative fee 74,620-74,620 Insurance 126,038 9,909 135,947 Other general expense 70,804 5,567 76,371 Transportation and travel 2,413 190 2,603 Payroll service fees 16,753 1,317 18,070 Bad debts expense 62,538 4,917 67,455 Professional services 373,206 29,342 402,548 Receiver's fees 501,891 39,459 541,350 Office equipment rental and maintenance 126,618 9,955 136,573 Advertising 26,022 2,046 28,068 Office supplies and material 54,868 4,314 59,182 Postage and shipping 8,231 647 8,878 Printing and copying 4,240 333 4,573 Telephone and telecommunications 132,178 10,392 142,570 Other office expenses 5,667 446 6,113 Total General and Office Expenses 2,174,638 599,121 2,773,759 Total Expenses $ 14,322,093 $ 1,423,686 $ 15,745,779 16