NASHVILLE ALLIANCE FOR PUBLIC EDUCATION, INC.

NASHVILLE ALLIANCE FOR PUBLIC EDUCATION, INC. AUDITED FINANCIAL STATEMENTS WITH ADDITIONAL INFORMATION

TABLE OF CONTENTS Page AUDITED FINANCIAL STATEMENTS Report of Independent Auditors... 1 Financial Statements Statements of Financial Position... 2 Statements of Activities... 3 Statements of Cash Flows... 5 Notes to Financial Statements... 7 ADDITIONAL INFORMATION Report of Independent Auditors on Additional Information... 17 Schedules of Functional Expenses... 18

FAULKNER MACKIE & COCHRAN, P.C. CERTIFIED PUBLIC ACCOUNTANTS One American Center Telephone: (615) 292-3011 3100 West End Avenue, Suite 700 Fax: (615) 269-9047 Nashville, Tennessee 37203-1372 Website: www.fmccpa.com Report of Independent Auditors To the Board of Directors Nashville Alliance for Public Education, Inc. Nashville, Tennessee We have audited the accompanying statements of financial position of Nashville Alliance for Public Education, Inc. (a nonprofit organization) as of, and the related statements of activities and cash flows for the fiscal years then ended. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Alliance's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nashville Alliance for Public Education, Inc. as of, and the changes in its net assets and its cash flows for the fiscal years then ended, in conformity with accounting principles generally accepted in the United States of America. September 6, 2007 MEMBER: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS; TENNESSEE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 1

STATEMENTS OF FINANCIAL POSITION June 30 2007 2006 ASSETS Current Assets Cash and cash equivalents $ 1,290,814 $ 830,124 Accrued interest income 1,723 1,659 Donors' unconditional promises to give (Note E) 5,956,994 2,099,246 Total Current Assets 7,249,531 2,931,029 Donors' unconditional promises to give, less current portion (Note E) 373,454 1,211,724 Fixed assets, net 5,121 5,464 Endowment assets Cash and cash equivalents 6,527 3,529 Investments, at fair value 137,886 112,022 Total Endowment assets 144,413 115,551 TOTAL ASSETS $ 7,772,519 $ 4,263,768 LIABILITIES AND NET ASSETS Current Liabilities Salaries, benefits and payroll taxes payable (Note I) $ 141,479 $ 191,014 Unconditional promises to give (Note F) 328,272 0 Total Current Liabilities 469,751 191,014 Net Assets Unrestricted (Note B) 280,117 275,435 Temporarily restricted (Note C) 6,895,849 3,673,577 Permanently restricted (Note D) 126,802 123,742 Total Net Assets 7,302,768 4,072,754 TOTAL LIABILITIES AND NET ASSETS $ 7,772,519 $ 4,263,768 See notes to financial statements. 2

STATEMENT OF ACTIVITIES For the Fiscal Year Ended June 30, 2007 Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUES Contributions $ 196,813 $ 5,981,480 $ 3,060 $ 6,181,353 Hall of Fame special event Gross proceeds $ 261,825 Less: Direct cost of event (22,464) Net proceeds 239,361 0 0 239,361 Investment and other income, net 29,765 7,009 0 36,774 Net realized and unrealized capital gains (losses) 0 802 0 802 Net assets released from temporary restrictions (Note C) 2,767,019 (2,767,019) 0 0 TOTAL SUPPORT AND REVENUES 3,232,958 3,222,272 3,060 6,458,290 EXPENSES Program Services 2,983,257 0 0 2,983,257 Supporting Services General and administrative 138,204 0 0 138,204 Fund-raising 106,815 0 0 106,815 Total Supporting Services 245,019 0 0 245,019 TOTAL EXPENSES 3,228,276 0 0 3,228,276 INCREASE IN NET ASSETS $ 4,682 $ 3,222,272 $ 3,060 $ 3,230,014 Net Assets at June 30, 2006 275,435 3,673,577 123,742 4,072,754 NET ASSETS AT JUNE 30, 2007 $ 280,117 $ 6,895,849 $ 126,802 $ 7,302,768 See notes to financial statements. 3

STATEMENT OF ACTIVITIES For the Fiscal Year Ended June 30, 2006 Temporarily Permanently Unrestricted Restricted Restricted Total SUPPORT AND REVENUES Contributions $ 256,680 $ 4,433,242 $ 18,045 $ 4,707,967 Hall of Fame special event Gross proceeds $ 205,465 Less: Direct cost of event (23,731) Net proceeds 181,734 0 0 181,734 Investment and other income, net 12,127 5,661 0 17,788 Net realized and unrealized capital gains (losses) 0 (7,285) 0 (7,285) Net assets released from temporary restrictions (Note C) 1,482,166 (1,482,166) 0 0 TOTAL SUPPORT AND REVENUES 1,932,707 2,949,452 18,045 4,900,204 EXPENSES Program Services 1,635,552 0 0 1,635,552 Supporting Services General and administrative 106,106 0 0 106,106 Fund-raising 98,868 0 0 98,868 Total Supporting Services 204,974 0 0 204,974 TOTAL EXPENSES 1,840,526 0 0 1,840,526 INCREASE IN NET ASSETS $ 92,181 $ 2,949,452 $ 18,045 $ 3,059,678 Net Assets at June 30, 2005 183,254 724,125 105,697 1,013,076 NET ASSETS AT JUNE 30, 2006 $ 275,435 $ 3,673,577 $ 123,742 $ 4,072,754 See notes to financial statements. 4

STATEMENTS OF CASH FLOWS Fiscal Year Ended June 30 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES Contributions received $ 3,148,025 $ 1,870,479 Net proceeds from Hall of Fame special event 239,361 181,734 Investment and other income received 36,649 21,526 Grants and other program expenditures (2,644,336) (1,722,538) Cash paid to suppliers, consultants and others (295,977) (178,924) Net Cash Provided by Operating Activities 483,722 172,277 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of donated marketable securities 7,250 39,826 Purchases of endowment assets (27,998) (17,997) Purchase of fixed assets (2,284) 0 Net Cash Provided by (Used in) Investing Activities (23,032) 21,829 CASH FLOWS FROM FINANCING ACTIVITIES 0 0 NET INCREASE FROM CASH FLOWS $ 460,690 $ 194,106 Balance at beginning of fiscal year 830,124 636,018 CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 1,290,814 $ 830,124 (CONTINUED) 5

STATEMENTS OF CASH FLOWS (Continued) Fiscal Year Ended June 30 2007 2006 RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Increase in Net Assets $ 3,230,014 $ 3,059,678 Adjustments to reconcile the Change in Net Assets to Net Cash Provided by Operating Activities Depreciation and amortization expense 2,626 3,313 Non-cash contributions received (see below) (13,850) (46,426) Bond discount amortization (61) (49) Net unrealized capital (gains) losses (802) 7,285 Non-cash donations of contributed property (see below) 6,600 6,600 (Increase) decrease in: Accrued interest income (64) 3,786 Donors' unconditional promises to give (3,019,478) (2,791,060) Increase (decrease) in: Salaries, benefits and payroll taxes payable (49,535) 27,554 Unconditional promises to give 328,272 (98,404) Total Adjustments (2,746,292) (2,887,401) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 483,722 $ 172,277 SUPPLEMENTAL DISCLOSURES Non-Cash Transactions: The nature and estimated fair value of non-cash contributions received by the Alliance during the fiscal years presented below are as follows: Fiscal Year Ended June 30 2007 2006 Musical instruments, books, supplies, etc. $ 6,600 $ 6,600 Marketable securities 7,250 39,826 Total Non-Cash Contributions Received $ 13,850 $ 46,426 The musical instruments, books, supplies, etc. were subsequently donated to the Metropolitan Nashville Public Schools and recognized as non-cash donations of contributed property. The marketable securities were sold upon receipt, resulting in no realized capital gains or losses. See notes to financial statements. 6

NOTES TO FINANCIAL STATEMENTS NOTE A -- NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES Nature of Activities: On July 11, 2002, Nashville Alliance for Public Education, Inc. (the "Alliance") was chartered as a public benefit corporation under the Tennessee Nonprofit Corporation Act. The Alliance was organized by a group of corporate and civic leaders for the purpose of improving public education in Nashville, Tennessee. Working in partnership with the Metropolitan Nashville Public School Board and the Director of Schools, the Alliance identifies areas of need and impact and channels private community resources toward programs that accelerate progress in the Metropolitan Nashville Public Schools ("MNPS"). Areas of principal focus include music, reading, science, and the alignment of community organizations and resources so that their coordinated support of MNPS priorities will yield a greater impact on student achievement and public school success. Major program services conducted by the Alliance include the provision of monetary grants directly to MNPS and the donation of equipment and supplies for use by MNPS, in conjunction with specific programs designated by the Director of Schools or as specified by donors. Basis of Accounting: The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) using the accrual method of accounting. Financial Statement Presentation: The Alliance reports information regarding its financial position and activities according to three classes of net assets (unrestricted, temporarily restricted and permanently restricted), based on the existence or absence of donor-imposed restrictions. Use of Estimates: Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the financial statement date, and the reported amounts of support, revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Contribution Support and Promises to Give: A donor's promise to give is recognized as support if the donor communicates an unconditional promise to the Alliance. Conditional promises to give are not recognized as support until the donor's conditions are substantially met. Contributions that are restricted by the donor (e.g., as to specific purpose or passage of time), are reported as increases in temporarily restricted net assets or permanently restricted net assets, depending on the nature of the restriction. Upon satisfaction or expiration of a temporary restriction, the applicable amounts are reclassified to unrestricted net assets. Contributions are recorded at fair value on the date received. The fair value of an unconditional promise to give within the next twelve months is deemed to be equal to the net settlement value of the amount to be received. The fair value of an unconditional promise to give after twelve months is deemed to be equal to the estimated present value of the amount to be received, discounted using a risk-free interest rate such as the rate available on zero-coupon U.S. government issues with a similar maturity. 7

NOTES TO FINANCIAL STATEMENTS Endowment contributions and the related assets acquired are permanently restricted by the donor. Investment earnings subject to donor restrictions are recorded as either temporarily restricted or permanently restricted net assets, based on the nature of the restrictions. All other investment earnings are recognized as unrestricted net assets. The Alliance serves as the primary fund-raising organization for MNPS. In this role, the Alliance receives contributions from the general public, some of which may be temporarily or permanently restricted as presented in the accompanying financial statements. Because of the unique relationship between the Alliance and MNPS, these organizations are considered to be financially interrelated and all net assets of the Alliance are held for the benefit of MNPS. Donated Services: Under GAAP, donated services are recognized as support (along with a corresponding asset or expense) only if the services create or enhance a non-financial asset (e.g., property or equipment), or such services require specialized skills that would typically need to be purchased by the organization had they not been donated. With respect to the fiscal years ended, no amounts have been recognized by the Alliance for donated services. However, the Alliance acknowledges that many individuals routinely volunteer their time and efforts to perform a variety of beneficial tasks that greatly promote the Alliance's programs and services. Cash and Cash Equivalents: Cash consists of amounts on deposit in financial institutions. Generally, the Federal Deposit Insurance Corporation insures each customer s aggregate deposits in a participating bank up to its maximum limit of $100,000. At June 30, 2007, amounts deposited by the Alliance in one financial institution exceeded the insured limit by approximately $14,700. Cash equivalents include all highly-liquid investments, such as money market funds, that have a maturity of three months or less at the time of purchase. These investments earn interest at variable short-term market rates and are presented at cost, which approximates fair value. Cash equivalents held by the Alliance at, totaled approximately $1,173,600 and $428,300, respectively. Receivables and Allowance for Uncollectible Amounts: Receivables are recorded for amounts due from various parties in conjunction with financial transactions. An allowance is provided when necessary to recognize potentially uncollectible receivables. Amounts deemed worthless by management are written off. Recognition of an allowance was considered unnecessary at both. Investments: Investments are presented at estimated fair value, which is determined by reference to quoted market prices. Unrealized gains and losses are recorded for changes in the estimated fair value of investments during the reporting period. Realized gains and losses, if any, are recognized when investments are sold. Realized and unrealized amounts during a reporting period are combined and presented as a net capital gain or loss in the Statements of Activities. Investment income includes interest income from bonds, certain cash deposits, and cash equivalents. 8

NOTES TO FINANCIAL STATEMENTS Fixed Assets: Fixed assets are initially recorded at cost if purchased or at estimated fair value if contributed. Depreciation and amortization expense is calculated using the straight-line method over the estimated service lives of the assets, principally 3 to 7 years for furniture and equipment. Significant additions and improvements are capitalized. Normal repairs and maintenance are charged to expense as incurred. Fixed assets are reported net of accumulated depreciation and amortization in the accompanying Statements of Financial Position. Unconditional Promises to Give to Nonprofit Organizations: A promise to give to a qualifying nonprofit organization (principally MNPS) is recognized as a liability by the Alliance, at fair value, on the date the grant obligation is deemed to be unconditional. A conditional grant is not recorded until the contingent condition is effectively satisfied. Grants scheduled to be paid in less than one year are recorded at net settlement value. Grants scheduled for payment in excess of one year are recorded at estimated present value in a manner similar to the valuation of unconditional promises to be received, as described on page 7. (Refer to Note F for additional information.) Income Taxes: Based on a determination letter from the Internal Revenue Service ("IRS") dated September 13, 2002, the Alliance has been granted provisional exemption from federal income taxes under Internal Revenue Code Sections 501(a) and 501(c)(3). As a result of this determination, the Alliance is generally exempt from Tennessee franchise and excise taxes. In accordance with the IRS advance ruling, the Alliance will be recognized as a "publicly-supported organization" (i.e., a public charity) during the period July 11, 2002 (date of inception) through June 30, 2007. Within 90 days after this advance ruling period ends, the Alliance must submit a comprehensive report to the IRS to demonstrate its compliance with the cumulative "public support" test. Should the Alliance not qualify for continued recognition as a public charity, it will be retroactively recognized as a "private foundation". Private foundations are generally subject to excise taxes on their net investment income and more restrictive operating provisions than public charities. Management is not aware of any prior event or activity that might adversely affect the Alliance's tax exempt status or its classification as a public charity. Reclassifications: Certain prior year amounts have been reclassified to conform with the current year presentation. NOTE B -- UNRESTRICTED NET ASSETS During the fiscal year ended June 30, 2007, the Alliance's Board of Directors elected to designate $25,000 of unrestricted net assets for use in conjunction with certain endowment assets that are permanently restricted by donors to fund travel expenses of MNPS debate teams (refer to Note D). Although the designated assets remain unrestricted, the underlying investment purchased with the designated funds is presented in the June 30, 2007 Statement of Financial Position as a component of the non-current asset titled "Endowment assets". 9

NOTES TO FINANCIAL STATEMENTS NOTE C -- TEMPORARILY RESTRICTED NET ASSETS Activity involving temporarily restricted net assets is summarized as follows: Temporarily restricted for or due to: Fiscal Year Ended June 30, 2007 June 30, Release of 2006 Additions Restrictions June 30, 2007 "Specific purpose use" Musical instruments and programs $ 11,105 $ 395,515 $ (304,044) $ 102,576 Science labs and supplies 205,557 275,582 (235,228) 245,911 Reading supplies and programs 31,185 23,083 (14,753) 39,515 Professional development center 30,388 1,074,693 (1,105,081) 0 Julia Green Elementary renovation 0 145,485 (65,225) 80,260 Specific school designations and other specific purposes 84,372 949,455 (936,688) 97,139 Total for Specific Purpose Use 362,607 2,863,813 (2,661,019) 565,401 "Passage of time" Donors' unconditional promises to give (Refer to Note E.) 3,310,970 4,234,984 (1,215,506) 6,330,448 Net assets released upon satisfaction of dual restrictions 0 (1,109,506) 1,109,506 0 TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 3,673,577 $5,989,291 $ (2,767,019) $ 6,895,849 Temporarily restricted for or due to: Fiscal Year Ended June 30, 2006 June 30, Release of 2005 Additions Restrictions June 30, 2006 "Specific purpose use" Musical instruments and programs 51,267 236,135 (276,297) 11,105 Science labs and supplies 1,050 302,246 (97,739) 205,557 Reading supplies and programs 8,891 35,754 (13,460) 31,185 Professional development center 0 87,000 (56,612) 30,388 Julia Green Elementary renovation 0 0 0 0 Specific school designations and other specific purposes 143,008 897,422 (956,058) 84,372 Total for Specific Purpose Use 204,216 1,558,557 (1,400,166) 362,607 "Passage of time" Donors' unconditional promises to give 519,909 3,432,061 (641,000) 3,310,970 Net assets released upon satisfaction of dual restrictions 0 (559,000) 559,000 0 TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 724,125 $4,431,618 $ (1,482,166) $ 3,673,577 10

NOTES TO FINANCIAL STATEMENTS Temporarily restricted net assets are included as components of the following asset captions in the accompanying Statements of Financial Position: June 30 2007 2006 Current Assets Cash and cash equivalents $ 571,067 $ 369,139 Accrued interest income 1,723 1,659 Donors' unconditional promises to give 5,956,994 2,099,246 Total Current Assets 6,529,784 2,470,044 Donors' unconditional promises to give 373,454 1,211,724 Endowment assets Investments, at fair value (net unrealized capital loss component only) (7,389) (8,191) TOTAL TEMPORARILY RESTRICTED NET ASSETS $ 6,895,849 $ 3,673,577 NOTE D -- PERMANENTLY RESTRICTED NET ASSETS During the fiscal years ended, the Alliance received $3,060 and $18,045, respectively, of permanently restricted endowment contributions from various donors. As specified, these funds are to invested by the Alliance and held for growth with the investment income being used for the following specific purposes: 1) Financial support to benefit a designated school upon notification from the respective donor group; contributions received: 2007 - $3,060 and 2006 - $3,045, and 2) Financial support to fund travel expenses of MNPS debate teams; contributions received: 2007 - $0 and 2006 - $15,000. Investment income earned on endowment assets typically includes dividends, interest, and capital gains and losses. This investment income is recognized as a component of temporarily restricted net assets until the funds are disbursed for qualifying program expenditures. Permanently restricted net assets are included as components of the following asset captions in the accompanying Statements of Financial Position: June 30 2007 2006 Endowment assets Cash and cash equivalents $ 6,527 $ 3,529 Investments, at fair value (excludes net unrealized capital loss reported above as temporarily restricted and Board-designated endowment investment of $25,000) 120,275 120,213 TOTAL PERMANENTLY RESTRICTED NET ASSETS $ 126,802 $ 123,742 11

NOTES TO FINANCIAL STATEMENTS NOTE E -- DONORS' PROMISES TO GIVE Unconditional Promises: During the fiscal years ended, the Alliance received notifications from several donors communicating their unconditional promises to give financial support over specified future periods. As a result of the "passage of time" restrictions imposed by donors, each of these unconditional promises to give was recorded as an increase in temporarily restricted net assets. In addition, each long-term portion was discounted to its estimated present value. At June 30, 2007, proceeds receivable under donors' unconditional promises to give are scheduled to be received as follows: Current portion due in fiscal year ending June 30, 2008 $ 5,956,994 Long-term portion due in fiscal year ending June 30: 2009 $ 382,000 2010 20,000 Gross long-term portion, net of an allowance of $0 for possible uncollectible amounts 402,000 Less: Unamortized discount to net present value using discount rates ranging from 3.7% to 5.2% (28,546) NET LONG-TERM PROCEEDS RECEIVABLE FROM DONORS' UNCONDITIONAL PROMISES TO GIVE $ 373,454 Included in the current and long-term proceeds receivable amounts presented above are unconditional promises totaling approximately $6,275,000 (estimated present value of approximately $6,249,000) that are subject to "specific purpose use" restrictions. Approximately $6,145,000 of these proceeds receivable (estimated present value of approximately $6,119,000) relate to donor support restricted for construction-related expenditures associated with the Professional Development Center and the Julia Green Elementary renovation projects. The remaining proceeds receivable are restricted to various programs specified by the donors. Conditional Promises: During the fiscal year ended June 30, 2005, a non-profit foundation conveyed a conditional promise to the Alliance to give financial support for use in purchasing science equipment for MNPS high schools. This conditional promise encompassed a "challenge grant" by the donor to provide up to $300,000 in matching funds, in $100,000 increments, upon the receipt and reporting by the Alliance of contributions from other donors that will be used for the same purpose. The Alliance received $100,000 of matching funds under this challenge grant during each of the fiscal years ended. The Alliance has accrued the remaining $100,000 of matching funds receivable at June 30, 2007, based on qualifying donations received ($60,000) and designations of unrestricted funds made by the Board ($40,000) during the fiscal year. During the fiscal year ended June 30, 2004, an anonymous donor conveyed a conditional promise to give financial support to the Alliance for use in purchasing musical instruments for MNPS. This conditional promise also encompassed a "challenge grant" that would provide up to $500,000 of matching funds, in $100,000 increments. As of June 30, 2006, the entire $500,000 of matching funds had been received from the anonymous donor. 12

NOTES TO FINANCIAL STATEMENTS NOTE F -- PROMISES TO GIVE TO NONPROFIT ORGANZATION (MNPS) During the fiscal year ended June 30, 2007, the Alliance agreed to sponsor two major constructionrelated projects for the benefit of MNPS, as follows: 1) Construction and remodeling of a "Professional Development Center" on the campus of Eakin Elementary School, and 2) Renovation of Julia Green Elementary School. Under the terms of a written "Agreement" with MNPS, dated May 30, 2007, the Alliance has agreed to contract directly with architects, general contractors, and others to obtain the construction-related services necessary to complete these two projects and to be responsible for the payment of substantially all costs, fees and expenses related thereto. MNPS retains responsibility for approving all contractors and service providers, all construction plans and specifications including change orders, and all applications for construction progress payments and final payments. Upon the completion of each project, the Alliance will "assign" the improved property to MNPS and retain no rights or interest in such property. Based on the terms and conditions expressed in the aforementioned "Agreement", the Alliance is deemed to have communicated its "promise to give" financial support to MNPS as sponsor of these two projects. Payments to vendors for MNPS-approved construction-related expenditures are recorded by the Alliance as "Program services expense" (i.e., grant expense). Amounts approved by MNPS for payment, but unpaid by the Alliance as of a reporting date, are also recorded as program services expense along with a corresponding liability for the "unconditional promises to give". Until such time as MNPS has approved a vendor's application for payment, and the actual amount of support to be provided by the Alliance is determinable, the estimated residual amount of the Alliance's promise to give will be deemed "conditional" and reported herein as a financial commitment. (Refer to Notes C and E for information regarding financial support provided to the Alliance by donors who have restricted their contributions for "specific purpose use" in conjunction with the MNPS construction-related projects.) The Alliance's promise to give financial support to MNPS as sponsor of the construction-related projects described above, is summarized as follows at June 30, 2007: Estimated aggregate contract costs, fees and expenses (four contracts: architects, general contractor and graphic design) $ 5,522,546 Less: Amounts paid to-date (963,802) Amounts accrued as "unconditional promise to give" (328,272) Estimated Residual Amount of Financial Commitment $ 4,230,472 The estimated aggregate contract total presented above includes only architectural fees related to the Julia Green Elementary School Renovation Project. Additional financial commitments will result upon the signing of contracts with the general contractor and other service providers associated with this project. 13

NOTES TO FINANCIAL STATEMENTS NOTE G -- FIXED ASSETS The components of fixed assets held by the Alliance are as follows: June 30 2007 2006 Furniture and equipment (including computer software) Purchased $ 9,201 $ 6,918 Contributed 7,675 7,675 Sub-total 16,876 14,593 Less: Accumulated depreciation and amortization (11,755) (9,129) TOTAL FIXED ASSETS, net $ 5,121 $ 5,464 Depreciation and amortization expense totaled $2,626 and $3,313 for the fiscal years ended June 30, 2007 and 2006, respectively. NOTE H -- INVESTMENTS Components of Major Investment Categories: Investments held by the Alliance are summarized as follows: June 30 2007 2006 INVESTMENTS, at fair value Bank certificates of deposit July 2008 and June 2007 maturity dates $ 5,000 $ 5,000 August 2007 maturity date 6,847 6,847 Total certificates of deposit 11,847 11,847 Publicly-traded bonds (aggregate par values: 2007 - $134,000 and 2006 - $109,000) 126,039 100,175 TOTAL INVESTMENTS, at fair value $ 137,886 $ 112,022 At June 30, 2007, the stated maturity dates and par values of the publicly-traded bonds held by the Alliance are as follows: April 2014: $51,000; February 2015: $48,000; March 2015: $10,000; and November 2022: $25,000. Certain of these bonds are callable by the issuers at par value in advance of their stated maturity dates. Summarized information regarding cost and fair value of the Alliance s investment holdings is as follows: June 30 2007 2006 Cost basis $ 145,275 $ 120,213 Net unrealized capital loss (7,389) (8,191) TOTAL INVESTMENTS, at fair value $ 137,886 $ 112,022 14

NOTES TO FINANCIAL STATEMENTS During the fiscal years ended, certain donors contributed publicly-traded securities to the Alliance. Consistent with its policy for contributions, the Alliance recorded each donation of securities at fair value on the date received, which established the respective cost basis. The donated securities were generally sold upon receipt yielding the results shown below. Fiscal Year Ended June 30 2007 2006 Proceeds $ 7,250 $ 39,826 Less: Cost basis 7,250 39,826 NET REALIZED CAPITAL GAIN (LOSS) $ 0 $ 0 NOTE I -- RELATED PARTY TRANSACTIONS Affiliation with Metropolitan Nashville Public Schools: Certain employees of MNPS also serve in an ex-officio capacity as advisors to the Board of Directors of the Alliance. These MNPS employees are allowed to participate in discussions with the Board but do not have voting privileges on matters of Alliance governance. In addition, the Alliance is party to a contract with MNPS whereby the Alliance's Executive Director and staff associates are employed by MNPS and made available on either a full time or part time basis to the Alliance. Reimbursement of their salaries, benefits and payroll taxes is provided to MNPS on an annual basis. The expense associated with this contract totaled $211,616 and $191,014 during the fiscal years ended, respectively. As of June 30, 2007 and 2006, the Alliance reported current liabilities of $136,778 and $191,014, respectively, for amounts accrued but unpaid under this contract. The contract was terminated effective June 30, 2007, upon the Alliance entering into an employee leasing agreement with an unrelated third party. Payment of salaries, benefits and payroll taxes under the new agreement is due on a biweekly basis. Consulting Services: From October 2003 through April 2006, the Alliance received purposerestricted grants from two donors to fully fund the work of a consultant who provided services directly to Alignment Nashville for MNPS. This consultant also serves in an unrelated capacity as the corporate secretary of the Alliance. Effective May 2006, responsibility for continuing payment of the consulting fees was assumed by an unrelated non-profit organization. Consulting fees incurred and paid during the fiscal year ended June 30, 2006, totaled $36,000. 15

ADDITIONAL INFORMATION 16

SCHEDULES OF FUNCTIONAL EXPENSES For the Fiscal Year Ended June 30, 2007 SUPPORTING SERVICES TOTAL PROGRAM General and SUPPORTING TOTAL SERVICES Administrative Fund-raising SERVICES EXPENSES Grants and school program support $ 1,652,314 $ 0 $ 0 $ 0 $ 1,652,314 Grants - MNPS construction projects 1,297,186 0 0 0 1,297,186 Alignment and program coordinators 0 0 0 0 0 Community outreach and education 0 0 0 0 0 Salaries, wages and employee benefits 33,757 99,373 83,186 182,559 216,316 Printing and publications 0 3,014 17,556 20,570 20,570 Professional fees 0 24,660 0 24,660 24,660 Supplies 0 2,790 742 3,532 3,532 Telephone, postage and shipping 0 4,155 2,911 7,066 7,066 Travel, meetings and special events 0 1,195 459 1,654 1,654 Depreciation and amortization expense 0 1,803 823 2,626 2,626 Other miscellaneous expenses 0 1,214 1,138 2,352 2,352 TOTAL EXPENSES $ 2,983,257 $ 138,204 $ 106,815 $ 245,019 $ 3,228,276 For the Fiscal Year Ended June 30, 2006 SUPPORTING SERVICES TOTAL PROGRAM General and SUPPORTING TOTAL SERVICES Administrative Fund-raising SERVICES EXPENSES Grants and school program support $ 1,209,140 $ 0 $ 0 $ 0 $ 1,209,140 Grants - MNPS construction projects 56,612 0 0 0 56,612 Alignment and program coordinators 235,976 0 0 0 235,976 Community outreach and education 99,534 0 0 0 99,534 Salaries, wages and employee benefits 29,708 77,246 84,060 161,306 191,014 Printing and publications 0 1,846 9,963 11,809 11,809 Professional fees 0 18,399 0 18,399 18,399 Supplies 0 1,432 42 1,474 1,474 Telephone, postage and shipping 0 3,505 1,467 4,972 4,972 Travel, meetings and special events 4,582 0 1,351 1,351 5,933 Depreciation and amortization expense 0 1,803 1,510 3,313 3,313 Other miscellaneous expenses 0 1,875 475 2,350 2,350 TOTAL EXPENSES $ 1,635,552 $ 106,106 $ 98,868 $ 204,974 $ 1,840,526 See report of independent auditors on additional information. 18