Massachusetts School of Professional Psychology, Inc.

Audited Financial Statements Massachusetts School of Professional Psychology, Inc. May 31, 2008

Massachusetts School of Professional Psychology, Inc. Audited Financial Statements May 31, 2008 INDEPENDENT AUDITORS' REPORT 1 AUDITED FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION 2 STATEMENTS OF ACTIVITIES 3 STATEMENTS OF FUNCTIONAL EXPENSES 5 STATEMENTS OF CASH FLOWS 7 NOTES TO FINANCIAL STATEMENTS 8

INDEPENDENT AUDITORS' REPORT Board of Trustees Massachusetts School of Professional Psychology, Inc. We have audited the accompanying statements of financial position of Massachusetts School of Professional Psychology, Inc. (a nonprofit organization) as of May 31, 2008 and 2007, and the related statements of activities, functional expenses, and cash flows for the years then ended. These financial statements are the responsibility of the School s 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 Massachusetts School of Professional Psychology, Inc. at May 31, 2008 and 2007, and the changes in its net assets and cash flows for the years then ended, in conformity with accounting principles generally accepted in the Unites States of America. G. T. Reilly & Company Milton, Massachusetts September 5, 2008

Massachusetts School of Professional Psychology, Inc. Statements of Financial Position May 31 Assets (Note 7) 2008 2007 CASH AND CASH EQUIVALENTS (Notes 2 & 3) $ 1,313,907 $ 1,264,887 TUITION ACCOUNTS RECEIVABLE, net of allowances for doubtful accounts of $60,000 in 2008 and $40,000 in 2007 (Note 2) 214,771 243,194 ACCOUNTS RECEIVABLE, OTHER, net of allowances for doubtful accounts of $95,000 in 2008 and $45,000 in 2007 (Note 13) 106,646 165,775 CONTRIBUTIONS RECEIVABLE, NET (Notes 2 & 4) 53,003 20,625 PREPAID EXPENSES 162,271 117,119 INVESTMENTS (Notes 2 & 5) 1,456,692 1,452,569 PROPERTY AND EQUIPMENT, net (Notes 2 & 6) 1,441,889 850,399 TOTAL ASSETS $ 4,749,179 $ 4,114,568 Liabilities BANK LINE OF CREDIT (Note 7) $ 300,000 $ - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 278,449 463,846 OBLIGATIONS UNDER CAPITAL LEASE (Note 10) 42,316 75,447 DEFERRED REVENUES (Notes 2 & 8) 646,575 446,800 TOTAL LIABILITIES 1,267,340 986,093 NET ASSETS (Notes 2 & 9) Unrestricted: Designated as Quasi-Endowment by Board of Trustees 1,244,889 1,171,728 Designated for specific programs 260,208 151,840 Property and Equipment Fund 1,099,573 774,952 Undesignated - 79,071 2,604,670 2,177,591 Temporarily restricted 265,640 339,355 Permanently restricted 611,529 611,529 3,481,839 3,128,475 TOTAL LIABILITIES AND NET ASSETS $ 4,749,179 $ 4,114,568 2 The accompanying notes are an integral part of these financial statements.

Massachusetts School of Professional Psychology, Inc. Statement of Activities For the Year Ended May 31, 2008 Temporarily Permanectly Unrestricted Restricted Restricted Total REVENUES AND SUPPORT Tuition and fees $ 7,297,169 $ - $ - $ 7,297,169 Less financial aid (Note 2) (199,220) - - (199,220) Net tuition and fees 7,097,949 - - 7,097,949 Student loan sale gains (Notes 2 & 9) - 179,311-179,311 Gifts and bequests 264,642 35,740-300,382 Investment income 154,136 - - 154,136 Realized gain on investments 10,226 73,731-83,957 Unrealized loss on investments (36,224) (261,197) - (297,421) Fees for service (Note 13) 58,299 - - 58,299 Net assets released from restrictions (Note 9) 101,300 (101,300) - - TOTAL REVENUES AND SUPPORT 7,650,328 (73,715) - 7,576,613 EXPENSES Instruction 3,479,216 - - 3,479,216 Academic support 175,193 - - 175,193 Student services 756,859 - - 756,859 Plant maintenance 603,202 - - 603,202 Institutional support 1,844,297 - - 1,844,297 Development and fundraising 135,951 - - 135,951 Depreciation and amortization 228,531 - - 228,531 TOTAL EXPENSES 7,223,249 - - 7,223,249 INCREASE (DECREASE) IN NET ASSETS 427,079 (73,715) - 353,364 NET ASSETS AT BEGINNING OF YEAR 2,177,591 339,355 611,529 3,128,475 NET ASSETS AT END OF YEAR $ 2,604,670 $ 265,640 $ 611,529 $ 3,481,839 3 The accompanying notes are an integral part of these financial statements.

Massachusetts School of Professional Psychology, Inc. Statement of Activities For the Year Ended May 31, 2007 Temporarily Permanectly Unrestricted Restricted Restricted Total REVENUES AND SUPPORT Tuition and fees $ 6,333,704 $ - $ - $ 6,333,704 Less financial aid (Note 2) (233,050) - - (233,050) Net tuition and fees 6,100,654 - - 6,100,654 Student loan sale gains (Notes 2 & 9) - 147,499-147,499 Gifts and bequests 209,595 15,000-224,595 Investment income 116,806 - - 116,806 Realized gain on investments 1,885 2,105-3,990 Unrealized gain on investments 83,634 93,473-177,107 Fees for services (Note 13) 51,174 - - 51,174 Net assets released from restrictions (Note 9) 48,200 (48,200) - - TOTAL REVENUES AND SUPPORT 6,611,948 209,877-6,821,825 EXPENSES Instruction 2,970,081 - - 2,970,081 Academic support 162,531 - - 162,531 Student services 622,181 - - 622,181 Plant maintenance 449,435 - - 449,435 Institutional support 1,760,042 - - 1,760,042 Development and fundraising 179,680 - - 179,680 Depreciation and amortization 153,110 - - 153,110 TOTAL EXPENSES 6,297,060 - - 6,297,060 INCREASE IN NET ASSETS 314,888 209,877-524,765 NET ASSETS AT BEGINNING OF YEAR 1,862,703 129,478 611,529 2,603,710 NET ASSETS AT END OF YEAR $ 2,177,591 $ 339,355 $ 611,529 $ 3,128,475 4 The accompanying notes are an integral part of these financial statements.

Massachusetts School of Professional Psychology, Inc. Statement of Functional Expenses For the Year Ended May 31, 2008 Developement Academic Student Plant Institutional and Depreciation Instruction Support Services Maintenance Support Fundraising & Amortization Total Salaries and benefits $ 2,979,984 $ 112,960 $ 679,807 $ 172,447 $ 921,067 $ 60,549 $ - $ 4,926,814 Instructional services 57,139 - - - - - - 57,139 Stipends 114,480 - - - - - - 114,480 Supplies 3,996 7,908 7,513 36,478 79,523 4,897-140,315 Telecommunications - - - - 36,052 - - 36,052 Travel 12,348-11,040 6,074 10,203 - - 39,665 Printing and copying 34,863-2,498-5,763 3,025-46,149 Postage and freight 16,190 344 459-33,820 2,883-53,696 Advertising/recruiting 49,980-14,836-32,162 - - 96,978 Professional & subcontract fees 162,707 - - - 227,598 - - 390,305 Public relations & development - - - - 66,418 36,286-102,704 Auditing and accounting - - - - 35,750 - - 35,750 Memberships 4,745 1,021 1,765-13,935 - - 21,466 Facility rent - - - 350,315 - - - 350,315 Utilities - - - 7,551 - - - 7,551 Equipment maintenance - - - 1,455 51,129 - - 52,584 Insurance - - - - 68,637 - - 68,637 Other expenditures 42,262 52,960 38,213 28,882 43,668 299-206,284 Special events - - - - 58,000 28,012-86,012 Depreciation & amortization - - - - - - 228,531 228,531 Bad debt expense - - - - 99,559 - - 99,559 Bank service charges - - - - 41,421 - - 41,421 Food and beverage 522-728 - 1,061 - - 2,311 Interest expense - - - - 18,531 - - 18,531 $ 3,479,216 $ 175,193 $ 756,859 $ 603,202 $ 1,844,297 $ 135,951 $ 228,531 $ 7,223,249 5 The accompanying notes are an integral part of these financial statements.

Massachusetts School of Professional Psychology, Inc. Statement of Functional Expenses For the Year Ended May 31, 2007 Developement Academic Student Plant Institutional and Depreciation Instruction Support Services Maintenance Support Fundraising & Amortization Total Salaries and benefits $ 2,566,494 $ 93,474 $ 546,571 $ 111,121 $ 943,224 $ 59,723 $ - $ 4,320,607 Instructional services 46,906 - - - - - - 46,906 Stipends 86,408-1,081 - - - - 87,489 Supplies 10,150 10,264 5,458 35,308 52,714 2,944-116,838 Telecommunications - - - - 28,048 - - 28,048 Travel 5,581-4,914 819 25,480 2,407-39,201 Printing and copying 38,493 743 4,501-16,077 23,204-83,018 Postage and freight 27,858 501 355-29,985 3,340-62,039 Advertising/recruiting 38,483-21,738-54,600 - - 114,821 Professional & subcontract fees 100,720 140 4,650-147,151 - - 252,661 Public relations & development - - - - 50,280 46,667-96,947 Auditing and accounting - - - - 30,120 - - 30,120 Memberships 3,270 264 600-16,079 - - 20,213 Facility rent - - - 266,982 - - - 266,982 Other facility costs 19,274 - - - - - - 19,274 Utilities - - - 15,145 - - - 15,145 Equipment maintenance - - - 898 59,854 - - 60,752 Insurance - - - - 61,609 - - 61,609 Other expenditures 25,058 57,145 32,275 19,162 36,110 1,406-171,156 Special events - - - - 86,013 39,989-126,002 Depreciation and amortization - - - - - - 153,110 153,110 Bad debt expense - - - - 66,020 - - 66,020 Bank service charges - - - - 33,239 - - 33,239 Food and beverage 1,386-38 - 11,262 - - 12,686 Interest expense - - - - 12,177 - - 12,177 $ 2,970,081 $ 162,531 $ 622,181 $ 449,435 $ 1,760,042 $ 179,680 $ 153,110 $ 6,297,060 6 The accompanying notes are an integral part of these financial statements.

Massachusetts School of Professional Psychology, Inc. Statements of Cash Flows Years Ended May 31 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 353,364 $ 524,765 Adjustments to reconcile change in net assets to net cash from operating activities: Depreciation and amortization 228,531 153,110 Unrealized loss (gain) on investments 297,421 (177,107) Realized gain on sales of investments (83,957) (3,990) Donated artwork (58,550) - Accounts receivable 17,552 (47,812) Allowance for doubtful accounts 70,000 45,000 Contributions receivable (32,378) (10,625) Prepaid expenses (45,152) (82,161) Accounts payable and accrued liabilities (185,397) 207,554 Deferred revenues 199,775 (26,144) NET CASH PROVIDED BY OPERATING ACTIVITIES 761,209 582,590 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (2,136,391) (300,552) Sales of investments 1,918,843 129,481 Purchase of property and equipment (761,510) (55,904) NET CASH APPLIED TO INVESTING ACTIVITIES (979,058) (226,975) CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings on bank line of credit 300,000 - Payments on capital lease obligation (33,131) (26,075) NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES 266,869 (26,075) NET INCREASE IN CASH AND CASH EQUIVALENTS 49,020 329,540 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,264,887 935,347 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,313,907 $ 1,264,887 Supplemental Cash Flow Information Cash paid during the year for imputed interest (Note 10) $ 8,599 $ 12,177 Cash paid during the year for interest $ 9,932 $ - Noncash Investing and Financing Activities Donated artwork $ 58,550 $ - Computer software acquired via capital lease (Note 10) $ - $ 101,522 7

Massachusetts School of Professional Psychology, Inc. Notes to Financial Statements May 31, 2008 Note 1 Nature of Organization Massachusetts School of Professional Psychology, Inc. (the School), a private, not-for-profit school, was founded in 1974 to provide a Doctor of Psychology (Psy.D.) degree. The School offers additional programs, including Master of Science in Clinical Psychopharmacology, Master of Arts in Counseling Psychology, Master of Arts in School Psychology, Certificate of Advanced Graduate Study in School Psychology, Graduate Certificate in Executive Coaching and continuing education courses. Note 2 Summary of Significant Accounting Policies Financial Statement Presentation Under Statement of Financial Accounting Standards (SFAS) No. 117, "Financial Statements of Not-for-Profit Organizations", the School reports information regarding its financial position and activities according to three classes of net assets as determined by donor-imposed restrictions: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets (see Note 9). Statement of Financial Position - The School presents an unclassified statement of financial position whereby current assets and current liabilities have not been segregated because the essential nature of the School s operations is such that current obligations will be satisfied out of funds received for the subsequent school year s tuition. Statement of Functional Expenses - The School s statement of activities reports expenses by their functional classification such as by major programs and supporting activities. Certain expenses have been allocated among the program and supporting activities benefited. A statement of functional expenses is included to provide information about expenses by their natural classification. Contributions and Donor Restrictions - Under SFAS No. 116, "Accounting for Contributions Received and Contributions Made", contributions, including unconditional promises to give, are recognized as revenues in the period made. Contributions receivable that are, in effect, "unconditional promises to give" are recorded at the present value of future cash flows. Conditional promises to give are not recognized until they become unconditional, that is, at the time when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair values. Contributions to be received after one year are discounted at an appropriate discount rate commensurate with the risks involved. Amortization of discount is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions. An allowance for uncollectible contributions receivable may be provided based upon management's judgment of potential defaults. The determination includes such factors as prior collection history, type of contribution and nature of fundraising activity (see Note 4). Contributions of cash or other assets are recorded as restricted support, thereby increasing temporarily restricted net assets, if they are received with donor stipulations that limit, specify or otherwise restrict the use of such contributions. When a donor restriction expires, either by use of the funds for the specified purpose or by the expiration of a time restriction, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Endowment funds established by donor restrictions to permanently maintain the principal, while allowing the use of income generated there from, are classified as permanently restricted net assets. Income derived from the investment of endowment funds is reported as unrestricted revenue or as restricted revenue depending on the terms of the donor instrument. 8

Note 2 Summary of Significant Accounting Policies (Cont.) Accounting 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 certain reported amounts and disclosures. Cash and Cash Equivalents - For the purpose of reporting the statement of cash flows, cash and cash equivalents includes amounts on-hand and in bank accounts with no restrictions on withdrawals. Short-term investments and deposits with original maturities of three months or less are considered cash equivalents (see Note 3). Accounts Receivable - Accounts receivable are stated net of an allowance for doubtful accounts, which is reported on the face of the School s statement of financial position. The allowance is established via a provision for bad debts charged to the statement of activities. On a periodic basis, management evaluates the School s accounts receivable and establishes or adjusts its allowance to an amount that it believes will be adequate to absorb possible losses on accounts that may become uncollectible, based on evaluations of the collectibility of individual accounts, the School s history of prior loss experience and on current economic conditions. Accounts are written off and charged against the allowance when management believes that the collectibility of the specific account is unlikely. Property and Equipment - Property and equipment is stated on the basis of cost (see Note 6). Maintenance and repair expenditures are charged to expense as incurred. The School s capitalized intellectual assets represent the development costs of a collaborative campus e-management system. The collaborative campus includes e-mail, website information and record storage allowing students, faculty, administrators and alumni the ability to work electronically for increased effectiveness and efficiency. The e-campus includes recruiting and admissions, registration, financial aid, grading, and advising. Artwork consists of paintings and sculptures donated to the School by contemporary American artists. The artwork is recorded at fair value and is not subject to depreciation. Depreciation is computed using the straight-line method based upon the following estimated useful lives: Furniture and equipment Library books Leasehold improvements Intellectual assets 3-7 years 25 years 6-10 years 5 years See Note 6 for the components of property and equipment. Investments - Investments are composed of equity securities and mutual funds investing in marketable securities and are stated at market value. Both realized and unrealized gains and losses on investments are reported in the statement of activities (see Note 5). Realized and unrealized net gains on permanently restricted funds are recorded in temporarily restricted net assets since, as far as can be determined, the donors did not stipulate the treatment for investment appreciation and, in accordance with Massachusetts law, a portion of the appreciation can be spent with a vote of the Board of Trustees. Deferred Tuition Revenues - Students reservation deposits and tuition payments received for the fall semester programs are related to the forthcoming fiscal year and, therefore, have been deferred from recognition in the statement of activities. Similarly, a proportionate amount of tuition due or received for summer programs in session at the fiscal year-end is deferred from recognition, as well as other programs whose revenue is recorded in the period in which it is earned (see Note 8). 9

Note 2 Summary of Significant Accounting Policies (Cont.) Student Loan Sale Gains - During February of 2006, the School entered into an agreement (referred to as the "School as Lender" program) to sell the title and all rights to student loans originating from eligible School students, under the U.S. Government Higher Education Act's Federal Family Education Program, to a nonrelated third party (Student Loan Express, Inc.). The agreement had allowed for the School to receive a premium gain for all eligible loans originated by the School and sold to Student Loan Express, Inc. However, applicable federal regulations restrict the use of funds to need-based grant programs to supplement, not to supplant, non-federal funds that are used for need-based programs. Accordingly, the premium fee received by the School is recorded as a gain temporarily restricted by law, thereby increasing temporarily restricted net assets until such time as it is applied to student need-based grant programs (see Note 9). In addition, federal regulations allowed the School to charge an origination fee on loans made to eligible students and to also charge a reasonable fee for direct costs incurred in administration of the program. During both the years ended May 31, 2008 and 2007, the School neither charged an origination fee or an administration fee. During February of 2008, the School was notified that Student Loan Express was terminating the School as Lender program agreement and will no longer purchase eligible student loans. The School has not currently found a replacement for Student Loan Express and, in effect, has discontinued the program as of May 31, 2008. Fees for Services - Through its faculty, staff and students, the School provides counseling and administrative support services to other organizations providing well-being and mental health services on a fee-for-service basis. Advertising - The School expenses advertising costs as incurred. Advertising expense was $96,978 and $114,821 for the years ended May 31, 2008 and 2007, respectively. Tax Status - The School is recognized as an organization exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. Therefore, no provision for income taxes is included in the accompanying financial statements. Note 3 Cash Cash consists of the following at May 31: 2008 2007 Checking $ 378,132 $ 73,237 Sweep Account 350,000 651,000 Money Market 585,775 540,650 $ 1,313,907 $ 1,264,887 The School maintains its operating cash deposits with two high-quality financial institutions. Cash balances in excess of amounts insured by the FDIC at May 31, 2008 with these institutions approximated $592,000 and $58,000, respectively. The money market account represents uninsured amounts on deposit with Fidelity Investments. 10

Note 4 Contributions Receivable Contributions receivable, net of amortized discounts, consist of the following at May 31: 2008 2007 Annual awards dinner $ 9,085 $ 10,625 Other unconditional pledges 43,918 10,000 $ 53,003 $ 20,625 Contributions receivable at May 31, net of unamortized discounts, are expected to be collected over the following periods: 2008 2007 Amounts expected to be collected in less than one year $ 31,635 $ 20,625 Amounts expected to be collected in one year to five years 25,000-56,635 20,625 Less unamortized discount (Note 2) (3,632) - $ 53,003 $ 20,625 Included in the unconditional pledges at May 31, 2008 and 2007 is $10,000, which represents the third and second year, respectively, of a $50,000 five-year, conditional pledge that was awarded to the School during fiscal 2006. The remaining $20,000 of the $50,000 five-year conditional pledge at May 31, 2008 is expected to be collected in $10,000 increments over the next two years as the conditions are met in accordance with terms established by the donor and, accordingly, has not been reflected in the accompanying financial statements. Other unconditional pledges at May 31, 2008 ($33,868) include the net balance due on a $50,000 gift from one individual. Contributions receivable of approximately $9,000 at May 31, 2008 represent various pledges currently due from event attendees of the School s annual awards dinner. Note 5 Investments The School s investments consist of the following at May 31: Market Cost Value May 31, 2008 Mutual Funds $ 1,379,348 $ 1,431,343 Equity and Other Securities 31,101 25,349 $ 1,410,449 $ 1,456,692 May 31, 2007 Mutual Funds $ 1,103,635 $ 1,452,569 The School recorded realized gains on investments of $83,957 and $3,990 in 2008 and 2007, respectively. The School also recorded unrealized losses of $297,421 in 2008 and unrealized gains of $177,107 in 2007. 11

Note 6 Property and Equipment Property and equipment consist of the following at May 31: 2008 2007 Furniture and equipment $ 566,452 $ 479,422 Library books 299,641 299,296 Leasehold improvements 899,768 374,656 Intellectual assets 487,011 441,217 Artwork 111,550 53,300 2,364,422 1,647,891 Less accumulated depreciation and amortization 922,533 797,492 $ 1,441,889 $ 850,399 During fiscal 2007, the School obtained additional leased space within its existing location for classroom, administrative and student support services (see Note 10). Costs associated with leasehold improvements to the new campus, as well as leasehold improvements to its existing campus, approximated $525,000 in 2008. Funding for the construction costs was provided by a bank line of credit, $300,000 (see Note 7), and the remainder from operating cash. The construction improvements for the School s new expanded campus were completed in early 2008, and were fully operational for School activities by the end of its fiscal year. Depreciation expense was $228,531 and $153,110 for the years ended May 31, 2008 and 2007, respectively. Note 7 Bank Line of Credit During September 2007, the School entered into a $350,000 non-revolving line of credit agreement with a local financial institution for the purpose of funding leasehold improvements. The agreement calls for interest-only payments at LIBOR plus the LIBOR rate margin (1.75%) for the first 12 months of the agreement through the borrowing availability date of September 19, 2008. After the availability date and through the maturity date of September 19, 2012, the agreement calls for principle and interest payments based upon the outstanding principle balance as of September 19, 2008. The agreement is collateralized by substantially all of the assets of the School. In addition, the School is required to meet certain financial covenants. The outstanding balance on the line of credit was $300,000 at May 31, 2008. Note 8 Deferred Tuition Revenues Deferred tuition revenues (Note 1) consist of the following at May 31: 2008 2007 Fall enrollment deposits and advanced tuition $ 133,978 $ 76,325 Summer semester tuition prorated 495,515 362,160 Other program receipts 17,082 8,315 $ 646,575 $ 446,800 12

Note 9 - Net Assets The School's net assets consist of the following at May 31: 2008 2007 Unrestricted: Designated as Quasi-Endowment by Board of Trustees $ 1,244,889 $ 1,171,728 Designated for Dr. Cynthia Lucero Center's Latino Mental Health Training Program 143,738 82,513 Designated for The Richard I. & Joan L. Freedman Center for Child Development 69,327 69,327 Designated for Dr. Leon O. Brenner Center for Psychological Assessment and Consultation 47,143 - Property and Equipment Fund 1,099,573 774,952 Undesignated - 79,071 $ 2,604,670 $ 2,177,591 Temporarily Restricted: By donors: For support of instruction and student activities $ 15,094 $ 15,094 For support of the Dr. Cynthia Lucero Center 20,000 15,000 For support of the The Richard I. & Joan L. Freedman Center 20,740 - Accumulated realized and unrealized gains on endowment funds 22,496 209,962 By law: Student loan sale gains for need-based grant programs (Note 2) 187,310 99,299 $ 265,640 $ 339,355 Permanently Restricted: Endowment funds for support of instruction and student activities $ 611,529 $ 611,529 Temporarily restricted net assets related to student loan sale gains (Note 2) in the amount of $101,300 and $48,200 were released from restrictions since they were utilized for need-based student aid during the years ended May 31, 2008 and 2007, respectively. Amounts designated by the Board of Trustees for the Dr. Cynthia Lucero Center s Latino Mental Health Program will be used to provide student scholarships and support mental health care training programs aimed at serving the Latino population. For the years ended May 31, 2008 and 2007, approximately $36,000 and $26,000, respectively, raised from the "Lucero Run" fundraiser was designated by the Board for the Lucero Center. For the year ended May 31, 2008, an unrestricted individual donation of $25,000 was also designated by the Board for the Lucero Center. Amounts designated by the Board of Trustees for the Richard I. & Joan L. Freedman Center for Child Development will be used to provide accessible mental health services for the Massachusetts' public school system. For the year ended May 31, 2007, the net proceeds from the School's 2007 annual awards dinner, approximating $69,000, were designated by the Board for the Freedman Center. There were no amounts designated by the Board for the Freedman Center for the year ended May 31, 2008. Amounts designated by the Board of Trustees for the Dr. Leon O. Brenner Center for Psychological Assessment and Consultation will be used to provide comprehensive integrated mental health testing services to individuals, families and institutions. For the year ended May 31, 2008, the net proceeds from the School's 2008 annual awards dinner, approximating $47,000, were designated by the Board for the Brenner Center. 13

Note 10 Lease Commitments School and Storage Facilities - The School leases its facilities in Boston, Massachusetts. During April 2007, the School renegotiated the original lease agreement whereby the agreement was extended for an additional six years and included an additional 11,125 square feet at its existing location. The agreement will expire in December of 2013, six years from the School's occupancy date. Under the terms of the agreement, the School is responsible for insurance on the premises and all utilities will be paid by the landlord. Under the previous lease, the School was responsible for insurance and utilities. The lease includes an option to extend the term for an additional four years. Commencing on the occupancy date of the additional space (January, 2008), the monthly lease payment increased from $22,309 to $35,030. Rent expense was $350,315 in 2008 and $266,982 in 2007. Future minimum lease payments are as follows: Year Ending May 31 _ 2009 $ 429,895 2010 456,909 2011 483,275 2012 499,149 2013 513,507 Thereafter 304,703 $ 2,687,438 Office and Classroom Equipment The School is also obligated under various operating leases for office and classroom equipment, whereby the payments are expensed as incurred. These agreements expire at various times through 2010. Future minimum payments under these operating leases are summarized as follows: Year Ending May 31 _ 2009 $ 18,924 2010 6,225 $ 25,149 Office and classroom equipment lease expense was $20,359 and $17,009 for the years ended May 31, 2008 and 2007, respectively. Capital Lease Obligation During fiscal 2007, the School began leasing certain computer software for use by students and various departmental personnel within the School. Interest on the capital lease obligation is imputed at 15%. Future minimum lease payments under the capital lease, together with the present value of the net minimum lease payments, are as follows at May 31, 2008: Year Ending May 31 _ 2009 $ 41,729 2010 3,477 Total minimum lease payments 45,206 Less amounts representing imputed interest at 15% 2,890 Net capital lease obligations $ 42,316 14

Note 10 Lease Commitments (Cont.) Imputed interest expense was $8,599 and $12,177 for the years ended May 31, 2008 and 2007, respectively. Equipment held under capital lease at May 31, 2008 is summarized as follows: 2008 2007 Computer software $ 101,521 $ 101,521 Less accumulated amortization 30,456 10,152 $ 71,065 $ 91,369 Amortization expense was $20,304 and $10,152 for the years ended May 31, 2008 and 2007, respectively. Note 11 Other Commitments and Contingencies Federal Financial Aid Program - The federally funded financial aid program is routinely subject to a special audit. The reports on the examinations, which are conducted pursuant to specific regulatory requirements, are required to be submitted to the U.S. Department of Education. The U.S. Department of Education has the authority to determine liabilities as well as to limit, suspend, or terminate the student aid program. Unemployment Compensation Insurance - The "Unemployment Compensation Amendments of 1976" (Public Law 94-566) extend unemployment compensation coverage to the employees of the School. The School was given the option of financing the benefit cost by either paying the contributory payroll tax or by reimbursing the State for unemployment compensation paid. The latter option was exercised and the School has elected to reimburse the State for unemployment compensation paid. Approximately $13,000 and $5,000 was paid to the Commonwealth of Massachusetts Division of Employment Security for benefits incurred during the years ended May 31, 2008 and 2007, respectively. The School is not presently aware of any claims materially in excess of provisions now in place and, based on historical experience, would not anticipate that potential future claims would have a material impact on its financial position. Note 12 - Financial Instruments and Concentrations of Credit Risk The financial instruments of the School that may be subject to concentrations of credit risk consist of cash and cash equivalents (see Note 3), accounts receivable, contributions receivable and investments. The School's accounts receivable reflect amounts due from its students for tuition and special activity fees. Approximately $43,000 (16%) of the total gross accounts receivable balance at May 31, 2008 is due from four individuals. Approximately $34,000 (64%) of the School's net contributions receivable (Note 4) at May 31, 2008 represents a pledge due from one individual. The School s investments are comprised of mutual funds, equity and other securities. For the year ended May 31, 2008, the School s mutual fund investments consist of four different mutual funds held at two brokerage companies. Approximately $1.1 million or 77% of the School s year-end balance is invested in two of the mutual funds. Note 13 - Fees for Service and Uncertainty The School has agreements with two unrelated non-profit organizations to provide management, accounting and administrative services. In addition, the School also generates fee revenue from other non-profit organizations for faculty and student intern professional services. The total revenue recognized for the years ended May 31, 2008 and 2007 was $58,299 and $51,174, respectively. 15

Note 13 - Fees for Service and Uncertainty (Cont.) The School's statement of financial position reflects gross non-tuition accounts receivable (accounts receivable, other) of approximately $202,000 and $211,000 at May 31, 2008 and 2007, respectively. Approximately $189,000 of the accounts receivable, other, at May 31, 2008 ($201,000 at May 31, 2007) is due from M. Gorman Psychological Associates, Inc., which is a start-up organization formed on June 1, 2005. The collectibility of this receivable is uncertain as M. Gorman Psychological Associates, Inc. is in the development stage. As a result, the School established an allowance for potential uncollectible amounts by recording a charge to operations of $50,000 and $45,000 for the years ended May 31, 2008 and 2007, respectively. The total allowance for doubtful accounts allocated to accounts receivable, other at May 31, 2008 and 2007 is $95,000 and $45,000, respectively. 16