Financial Statement Template

Thurgood Marshall Academy And Subsidiary Consolidated Financial Report June 30, 2008

Contents Independent Auditor’s Report On The Financial Statements 1 Financial Statements Consolidated Balance Sheets 2 Consolidated Statements Of Activities 3 Consolidated Statements Of Cash Flows 4 Notes To Consolidated Financial Statements 5 – 14 Independent Auditor’s Report On The Supplementary Information 15 Supplementary Information Consolidating Balance Sheet 16 Consolidating Statement Of Activities 17 Consolidated Schedule Of Functional Expenses 18 – 19

Independent Auditor’s Report On The Financial Statements To the Board of Trustees Thurgood Marshall Academy Washington, D.C. We have audited the accompanying consolidated balance sheets of Thurgood Marshall Academy and Subsidiary (the Academy) as of June 30, 2008, and the related consolidated statements of activities and cash flows for the year then ended. These financial statements are the responsibility of the Academy’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of Thurgood Marshall Academy and Subsidiary for the year ended June 30, 2007, were audited by other auditors whose report, dated October 17, 2007, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion. In our opinion, the 2008 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Academy as of June 30, 2008, and the changes in their net assets and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report, dated October 31, 2008, on our consideration of the Academy’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

Gaithersburg, Maryland October 31, 2008

McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities.

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Thurgood Marshall Academy And Subsidiary

Consolidated Balance SheetsJune 30, 2008 And 2007

Assets 2008 2007Current Assets

Cash 1,120,359 $ 728,749 $ Grants receivable 54,582 77,620 Accounts receivable 100 77,945 Promises to give, net 342,169 435,703 Accrued interest receivable - 16,852 Prepaid expenses 82,423 104,214

Total current assets 1,599,633 1,441,083

Cash Accounts Held for Restricted Purposes 2,470,596 2,470,502 Property and Equipment, net 14,109,356 14,533,226 Loan Issuance Costs, net 1,699,162 1,758,499

19,878,747 $ 20,203,310 $

Liabilities And Net AssetsCurrent Liabilities

Accounts payable and accrued expenses 359,210 $ 1,015,766 $ Accrued salaries and benefits 183,255 166,564 Scholarship payable - 15,000 Deferred contract revenue – tuition 196,654 153,039

Total current liabilities 739,119 1,350,369

Long-Term DebtMortgages payable 13,187,274 13,102,554 Accrued interest payable 1,164,222 294,724

14,351,496 13,397,278

Commitments and Contingencies (Note 8)

Minority Interest in TMA QALICB LLC 760,726 1,368,010

Net AssetsUnrestricted 3,582,737 3,771,388 Temporarily restricted 444,669 316,265

4,027,406 4,087,653 19,878,747 $ 20,203,310 $

See Notes To Consolidated Financial Statements.

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Consolidated Statements Of ActivitiesYears Ended June 30, 2008 And 2007

Temporarily TemporarilyUnrestricted Restricted Total Unrestricted Restricted Total

Support and revenue:Tuition – per-pupil funding allocation 5,209,026 $ -$ 5,209,026 $ 4,707,832 $ -$ 4,707,832 $ Federal entitlements (Titles 1, 2, 4, & 5) 355,808 - 355,808 282,315 - 282,315 Free and reduced lunch program 57,384 - 57,384 54,578 - 54,578 Grants, donations, and gifts 539,343 572,312 1,111,655 864,923 265,875 1,130,798 Special event revenues 102,392 - 102,392 222,632 - 222,632 Special event costs (56,609) - (56,609) (51,620) - (51,620) Interest 142,433 - 142,433 62,747 - 62,747 Other revenues 155,896 - 155,896 68,722 - 68,722 Net assets released from restrictions 443,908 (443,908) - 2,007,660 (2,007,660) -

Total support and revenue 6,949,581 128,404 7,077,985 8,219,789 (1,741,785) 6,478,004

Expenses:Program services:

Educational:Instructional 4,771,747 - 4,771,747 5,001,195 - 5,001,195 Grants - - - 5,504 - 5,504

Support services:Occupancy costs 598,251 - 598,251 664,747 - 664,747 Depreciation expense 438,446 - 438,446 430,083 - 430,083 Debt service cost 1,159,537 - 1,159,537 869,915 - 869,915

6,967,981 - 6,967,981 6,971,444 - 6,971,444 Management and general:

General and administrative 443,636 - 443,636 559,442 - 559,442 Fundraising 410,052 - 410,052 437,655 - 437,655

853,688 - 853,688 997,097 - 997,097 Total expenses 7,821,669 - 7,821,669 7,968,541 - 7,968,541

Change in net assets before minority interest (872,088) 128,404 (743,684) 251,248 (1,741,785) (1,490,537)

Minority interest in TMA QALICB, LLC loss (683,437) - (683,437) (20,045) - (20,045)

Change in net assets (188,651) 128,404 (60,247) 271,293 (1,741,785) (1,470,492)

Net assets:Beginning 3,771,388 316,265 4,087,653 3,500,095 2,058,050 5,558,145 Ending 3,582,737 $ 444,669 $ 4,027,406 $ 3,771,388 $ 316,265 $ 4,087,653 $


2008 2007

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Consolidated Statements Of Cash FlowsYears Ended June 30, 2008 And 2007

2008 2007Cash Flows From Operating Activities

Change in net assets (60,247) $ (1,470,492) $ Adjustments to reconcile change in net assets to net cashprovided by operating activities:

Depreciation and amortization 530,151 617,119 Minority interest in TMA QALICB LLC net loss (607,284) (20,045) Restricted grant and contributions - (750,000) Accrued interest added to debt balance 84,720 - Changes in assets and liabilities:

(Increase) decrease in:Grants receivable 23,038 96,519 Accounts receivable 77,845 (47,963) Promises to give, net 93,534 788,110 Accrued interest receivable 16,852 (16,852) Prepaid expenses 21,791 (67,148)

Increase (decrease) in:Accounts payable and accrued expenses (656,556) 325,567 Accrued salaries and benefits 16,691 160,164 Accrued interest payable 869,498 256,432 Scholarship payable (15,000) - Deferred contract revenue – tuition 43,615 59,869

Net cash provided by (used in) operating activities 438,648 (68,720)

Cash Flows From Investing ActivitiesMinority investors capital contributions, net - 1,388,055 Development costs – Nichols Avenue property - (1,896,116) Purchases of property and equipment (46,944) (190,826) Investment in cash amounts held for restricted purposes (94) (2,470,502)

Net cash used in investing activities (47,038) (3,169,389)

Cash Flows From Financing ActivitiesProceeds from mortgages payable - 13,073,014 Proceeds from grant and contributions restricted for development

cost of Nichols Avenue property - 750,000 Payment on mortgages payable - (10,101,983) Loan costs - (1,723,389)

Net cash provided by financing activities - 1,997,642

Net increase (decrease) in cash and cash equivalents 391,610 (1,240,467)

Cash And Cash EquivalentsBeginning 728,749 1,969,216 Ending 1,120,359 $ 728,749 $

Supplemental Disclosure Of Cash Flow InformationCash payments for interest 135,709 $ 498,863 $


Thurgood Marshall Academy And Subsidiary Notes To Consolidated Financial Statements

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Note 1. Nature Of Activities And Significant Accounting Policies Nature of activities: Thurgood Marshall Academy t/a Thurgood Marshall Academy Public Charter High School (TMA) is a not-for-profit entity incorporated on May 24, 2000, under the laws of the District of Columbia. TMA is a District of Columbia public charter school for grades nine through 12. A summary of significant accounting policies follows: Basis of accounting: The accompanying consolidated financial statements are presented in accordance with the accrual basis of accounting, whereby, revenue is recognized when earned and expenses are recognized when incurred. Principles of consolidation: The consolidated financial statements of Thurgood Marshall Academy and Subsidiary (the Academy) are prepared in accordance with accounting principles generally accepted in the United States of America applicable to not-for-profit organizations and include the accounts of TMA QALICB LLC, its majority-owned for-profit limited liability company. All material intercompany balances and transactions have been eliminated in consolidation. TMA QALICB LLC was formed under the laws of Delaware on January 9, 2007, as a limited liability company. TMA has a 50.1% ownership interest in TMA QALICB LLC. The remaining 49.9% interest is held by an unrelated third party as an investor member. TMA QALICB LLC was formed to meet the necessary structuring requirements to enter into a transaction intended to qualify for the New Markets Tax Credit, as outlined in Internal Revenue Code (IRC) Section 45D. Basis of presentation: The financial statement presentation follows the recommendation of the Financial Accounting Standards Board (FASB) in its Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements of Not-for-Profit Organizations. Under SFAS No. 117, the Academy is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The Academy did not have any permanently restricted net assets at June 30, 2008 and 2007. Charter school agreement: TMA has been approved by the District of Columbia Public Charter School Board (the Board) to operate a charter school in the District of Columbia. The contract, dated April 3, 2001, provides for a 15-year charter unless sooner terminated in accordance with the contract. TMA enrollment cannot be greater than 400 students. TMA is paid an annual fixed rate per student by the Board. At June 30, 2008 and 2007, the student and facilities rate was $12,846 and $12,172, respectively. Enrollment ranged between 326 to 371 students for the year 2008/2007, and between 321 to 364 students for the year 2007/2006. Cash and cash equivalents: The Academy considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Financial risk: The Academy maintains cash in bank deposit accounts which, at times, may exceed federally insured limits. The Academy has not experienced any losses in such accounts. The Academy believes it is not exposed to any significant financial risk on cash.


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Note 1. Nature Of Activities And Significant Accounting Policies (Continued) Receivables: Receivables are carried at original invoice amounts less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and using the historical experience applied to an aging of accounts. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. Management believes that an allowance was not required based on its evaluation of collectability of receivables at June 30, 2008 and 2007. Promises to give: Contributions are recognized when the donor makes a written promise to give that is, in substance, unconditional. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the fiscal year in which the contributions are recognized. The allowance for doubtful promises to give is based on management’s evaluation of the status of existing promises to give and historical results. Management believes all promises were collectible and no allowance was necessary at June 30, 2008 and 2007. Property and equipment: Property and equipment are carried at cost or, if donated, at the approximate fair value at the date of donation. Donations are reported as unrestricted support, unless the donor has restricted the donated asset to a specific purpose. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. Absent donor stipulations regarding how long those donated assets must be maintained, the Academy reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The Academy reclassifies temporarily restricted net assets to unrestricted net assets at that time. Depreciation is computed using primarily the straight-line method over the estimated useful life of the related asset, ranging from three to 40 years. Normal repairs and maintenance are expensed as incurred. The Academy capitalizes all property and equipment purchased with a cost of $1,000 or more. Valuation of long-lived assets: The Academy accounts for the valuation of long-lived assets under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reportable at the lower of the carrying amount or fair value, less costs to sell. The Academy had no impairments of long-lived assets during the years ended June 30, 2008 and 2007. Unamortized loan costs: Loan costs are amortized on the straight-line method over the terms of the related mortgages. Amortization expense amounted to $59,338 and $156,038 at June 30, 2008 and 2007, respectively. Net assets: Unrestricted net assets are the net assets that are neither permanently restricted nor temporarily restricted by donor-imposed stipulations. Temporarily restricted net assets result from contributions whose use is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the Academy pursuant to these stipulations. Temporarily restricted net assets are reported as unrestricted net assets if the restrictions are met in the same period received. Net assets may be temporarily restricted for various purposes, such as use in future periods or use for specified purposes.


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Note 1. Nature Of Activities And Significant Accounting Policies (Continued) Net assets (continued): Temporarily restricted net assets were released from restrictions during the years ended June 30, 2008 and 2007 for various purposes including after-school programs, college guidance, support for alumni in college, library materials, physical education, gymnasium development, and general operations. At June 30, 2008 and 2007, temporarily restricted net assets represented amounts restricted for specific education-related expenses. Per-pupil allocation: TMA receives a student allocation from the District of Columbia to cover the cost of academic and facilities expenses. Per-pupil allocation revenue is recognized in the period when it is earned, which is the school year for which the allocation is made. Unearned pupil allocation received is recorded as deferred revenue. Grants: The Academy receives grants from federal agencies and private grantors for various purposes. The grants provide for the development and support of TMA’s programs, materials, and equipment. The Academy has accounted for the funds based on the fiscal year of the grants. Receivables related to grants awards are recorded to the extent unreimbursed expenses have been incurred for the purposes specified by an approved grant or award. Funds received in advance and those which are unexpended at June 30 are reflected as temporarily restricted net assets at June 30. Recognition of salary expense: Salary expense is recognized in the year the service is rendered, which coincides with an academic year. Salaries unpaid at June 30 are recognized as expense and accrued. Tax status: TMA is a tax-exempt organization under Section 501(c)(3) of the IRC and is not considered to be a private foundation. TMA is exempt from federal taxes on income other than unrelated business income. TMA did not have any net unrelated business income at June 30, 2008 and 2007. Exemption from District of Columbia income taxes was granted to TMA effective October 17, 2002. TMA is also exempt from District of Columbia’s sales, real estate, and personal property taxes. TMA files its income tax return on a fiscal year ending June 30. For income tax purposes, TMA reflects the refinancing, discussed in Note 5, as a sale-leaseback transaction. TMA QALICB LLC files a separate partnership income tax return on a calendar-year basis. The partnership income tax return reports the transaction with TMA as a sale-leaseback. During the year ended June 30, 2008, TMA Adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). Under FIN 48, when tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above, if any, is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets, along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The adoption of FIN 48 had no effect on TMA’s changes in net assets for the year ended June 30, 2008.


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Note 1. Nature Of Activities And Significant Accounting Policies (Continued) Fair value of financial instruments: The carrying amounts including cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate fair value because of the short-term maturity of these instruments. The carrying amount of long-term debt approximates fair value because the interest rate on these instruments fluctuates with market interest rates offered to the Academy for debt with similar terms and maturities. Recognition of donor restrictions: Contributions and investment income that are restricted by the donor are reported as increases in unrestricted net assets if the restriction expires in the reporting period in which the income is recognized. All other donor-restricted contributions and investment income are reported as increases in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. Donated assets and services: Donated services are recognized as contributions in accordance with SFAS No. 116, Accounting for Contributions Received and Contributions Made, if the services (a) create or enhance non-financial assets, or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Academy. Volunteers also provided tutoring and fundraising services throughout the year that are not recognized as contributions in the consolidated financial statements, since the recognition criteria under SFAS No. 116 was not met. Donated marketable securities and other non-cash donations are recorded as contributions at their estimated fair values at the date of donation. Estimates: The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The Academy regularly assesses these estimates and while actual results could differ, management believes that the estimates are reasonable. Functional allocation of expenses: The costs of providing the Academy’s various programs and supporting services have been summarized on a functional basis in the accompanying consolidated statements of activities. Accordingly, certain costs have been allocated among the programs, fundraising, and supporting services benefited. Upcoming accounting pronouncements: In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurement. SFAS No. 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted market prices in active markets. Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, except for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis for which delayed application is permitted until fiscal years beginning after December 15, 2008. The adoption of SFAS No. 157 is not expected to have a material impact on the Academy’s consolidated financial position, changes in net assets or cash flows.


Note 2. Promises To Give Contributions receivable, net of discount, are summarized as follows at June 30, 2008 and 2007:

2008 2007One year or less 333,853 $ 419,072 $ One to five years 10,000 20,000

343,853 439,072 Less discount on promises to give (discount rate: 6%) (1,684) (3,369)

342,169 $ 435,703 $

Note 3. Funds Held For Restricted Purposes Under the terms of the loan documents in connection with the mortgage payable to CSDC Capital III, LLC, TMA and TMA QALICB LLC have pledged certain cash accounts at NCB, FSB (a federally-chartered savings bank) as additional collateral for the loan. The agreements restrict TMA and TMA QALICB LLC’s access to the principal of the cash accounts. Principal cash may be withdrawn subject to certain conditions. The interest earned on the accounts is transferred to operations quarterly. The following is an analysis of restricted cash accounts at June 30, 2008 and 2007:

2008 2007TMA:

Lease Payment Reserve – certificate of deposit;interest at 2.60%; maturing February 22, 2009 1,184,579 $ 1,184,579 $

Facility Replacement Reserve Money Market Account 1,582 1,488

TMA QALICB LLC:Working Capital Reserve Account – certificate of deposit;

interest at 2.55%; maturing February 22, 2009 734,435 734,435 Reserve Account No. 1 – certificate of deposit;

interest at 5.20%; maturing February 22, 2014 550,000 550,000 2,470,596 $ 2,470,502 $

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Note 4. Property And Equipment Property and equipment consist of the following at June 30, 2008 and 2007: Asset Category 2008 2007Building and improvements 13,042,096 $ 13,042,473 $ Office furniture and equipment 399,738 382,862 Computers and software 421,483 401,981

13,863,317 13,827,316 Less accumulated depreciation (1,502,071) (1,031,257)

12,361,246 12,796,059 Leasehold interest acquisition costs in process –

Savoy Elementary School/TMA Campus 1,748,110 1,737,167 14,109,356 $ 14,533,226 $

Depreciation expense was $470,814 and $460,333 at June 30, 2008 and 2007, respectively. On October 30, 2003, the Academy entered into an Exclusive Rights Agreement with the District of Columbia (the District), whereby, the District granted to the Academy the exclusive rights to negotiate for the purchase and development of the property on which the Nichols Avenue school building is located in southeast Washington, D.C. On December 16, 2004, the land and building were quitclaim deeded to the Academy by the District. The Academy received its occupancy permit on August 24, 2005. In 2006, the Academy entered into an agreement with the District of Columbia Public Schools to conduct a feasibility study to support a proposal for the modernization of the Savoy Elementary School and the construction of a joint use facility to house a gymnasium and community center as part of a Savoy Elementary School/Thurgood Marshall Academy Public Education Campus. That study documents that TMA facilitated a $1.5 million Council of the District of Columbia appropriation to support the project. Since publication of the study, the Academy has contributed additional funds to the project, incurring further costs of $1,748,110 and $1,737,167 at June 30, 2008 and 2007, respectively. These expenditures were covered by a grant received from the District of Columbia Appropriation Act, Public Law 109-115 of $495,000, and a $1,250,000 grant from the D.C. Neighborhood Investment Fund. These costs are being carried forward as leasehold interest acquisition costs in process. As of the date of this report, the District and the Academy were negotiating a contract for the completion of the project. Under the terms of the proposed contract, the District of Columbia Public Schools will finance the remaining costs of development and construction. Note 5. Mortgages Payable On February 21, 2007, TMA refinanced its mortgages payable in the amount of $10,101,983 by entering into a transaction structured to qualify for the New Markets Tax Credit, as outlined in IRC Section 45D. Total refinancing amounted to $13,073,014. As part of the transaction, TMA formed TMA QALICB LLC (LLC), signed a sale-leaseback agreement with LLC, and borrowed $1,160,000 from the District. Under generally accepted accounting principles, the transaction is being accounted for as a financing transaction in the accompanying consolidated financial statements. For income tax purposes, the transaction is reported as a sale-leaseback.

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Note 5. Mortgages Payable (Continued) Under the terms of the sale-leaseback agreements, TMA entered into a 99-year site lease with LLC, leasing 92.2% of the building and 100% of the land for a total prepaid rental payment of $11,731,194. TMA also entered into a 29-year, 11-month facility lease for both the building and land from LLC at an annual rental payment of $1,200,000. Both leases are triple-net leases, whereby, TMA is responsible for all maintenance, insurance, and taxes. The components of mortgages payable consist of the following at June 30, 2008 and 2007:

2008 2007TMA QALICB LLC:

CSDC Capital III, LLC promissory note, secured by various pledges andassignments of bank accounts, leases and rents under the facility lease;fixed interest at 7% per annum compounded semi-annually for the firstseven years, then 1-year-LIBOR plus 2% for years eight to 30. Interest accrues with no cash payments until February 21, 2014, then interest is payable annually in arrears. Balance due in full on February 21, 2037. 11,913,014 $ 11,913,014 $

Thurgood Marshall Academy:Promissory note payable, District of Columbia Revenue Bonds (Thurgood

Marshall Academy Issue) Series 2007; interest at 7% per annum compounded June 1, 2007, and thereafter on each 1st of June and December. Principal and interest are due on December 1, 2041. The original amount is $1,160,000. Accreted value at June 30, 2008 (principal and accrued interest thereon). The obligation shall be subordinate to all other TMA debts with no specific pledged collateral. 1,274,260 1,189,540

13,187,274 $ 13,102,554 $

The expected principal maturities on these bonds are not due to begin until February 2037. Note 6. Letter Of Credit TMA has a letter of credit with The Reinvestment Fund, Inc. in the amount of $3,730,000. The letter of credit can be used to fund (a) an escrow account on or about the seventh anniversary of February 21, 2007 to secure a portion of the lease payment obligation from TMA to TMA QALICB LLC under the facility lease, or (b) a portion of the purchase of the loan from CSDC Capital III, LLC. As of June 30, 2008, none of the letter of credit has been drawn down. The letter of credit matures 60 months after funds are advanced (the advance date). After the advance date, principal and interest is payable over a five-year period. Interest will be 3% in excess of the U.S. treasury rate on five-year securities at the time of the advances. The annual facility maintenance fee for this letter of credit is $55,800, less a credit equal to 1% of the cash balance of TMA’s operating account as of June 30 of each year.

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Note 7. Temporarily Restricted Net Assets Temporarily restricted net assets at June 30, 2008 and 2007 are available for the following purposes, and net assets during the years ended June 30, 2008 and 2007 were released from restrictions by incurring expenses satisfying the restricted purpose. Net assets were released and are available in the following programs:

Balance Released From BalanceJune 30, 2007 Additions Restriction June 30, 2008

Purpose restricted:After-school programs 149,500 $ 357,119 $ 309,139 $ 197,480 $ Carol M. White Physical Education

Program 15,564 - 15,564 - Banking Education Program 62,500 - 57,440 5,060 Library 62,070 - 53,450 8,620

Time restricted 26,631 215,193 8,315 233,509 316,265 $ 572,312 $ 443,908 $ 444,669 $

Balance Released From Balance

June 30, 2006 Additions Restriction June 30, 2007Purpose restricted:

After-school programs 382,310 $ 114,674 $ 347,484 $ 149,500 $ Carol M. White Physical Education

Program 15,564 - - 15,564 Banking Education Program - 62,500 - 62,500 Library - 62,070 - 62,070 Neighborhood Investment Fund 1,165,176 - 1,165,176 - District of Columbia Appropriations Act 495,000 - 495,000 -

Time restricted - 26,631 - 26,631 2,058,050 $ 265,875 $ 2,007,660 $ 316,265 $

Note 8. Commitments And Contingencies Federal grants: The Academy participates in federally-assisted grant programs which are subject to financial and compliance audits by the grantors or their representative. As such, there exists a contingent liability for potential questioned costs that may result from such an audit. Management does not anticipate any significant adjustments as a result of such an audit.

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Note 8. Commitments And Contingencies (Continued) Puts, calls, and security agreements: TMA and TMA QALICB LLC have entered into several puts, calls, and security agreements as part of the refinancing of its long-term debt. The following are highlights of the agreements:

Call Option Agreement: This agreement between CSDC Capital III, LLC (seller) and TMA (purchaser) provides that the purchaser can purchase from the seller up to 100% of the seller’s interest in its loan of $11,913,014 to TMA QALICB LLC (borrower) during the option period. The option period commences on the seventh anniversary of February 21, 2007 and continues for a period of one year thereafter. The purchase price will be the percentage to be purchased multiplied by the then outstanding principal, accrued and unpaid interest, and fees.

Put Option and Security Agreement: This agreement between PNC New Markets Investment Partners, LLC (investor), TMA Investment Fund, LLC (investment entity), and TMA (purchaser) provides that the investor has an irrevocable and exclusive right and option to require the purchaser to purchase, and the purchaser shall have the obligation to purchase up to 100% of the investor’s interest and the bonds for the sale price on the sale date during the option period, as provided for in the agreement. The interest and the bonds refer to (a) the investor’s membership interest in the investment entity and (b) the District of Columbia Revenue Bonds (Thurgood Marshall Academy Project) Series 2007 in the amount of $1,160,000, plus accrued interest thereon. The sale price is based on the fair value of the property on various sale dates, as provided for in the agreement.

As security for the option, the purchaser granted to the investor a security interest in all of its now or hereafter owned assets and properties, wherever located, and simultaneously granted the investor a deed of trust and security agreement lien on its land, improvements, easements, fixtures and personal property, and leases and rents.

TMA QALICB LLC – Operating Agreement – Put and Call: The operating agreement of TMA QALICB LLC (the Company) provides that commencing on the seventh anniversary (February 21, 2014) (a) TMA shall have a non-expiring “put” option to sell at any time to the Company 98.2% of its interest in the Company, or 49.2% of the Company, and (b) the Company shall have a non-expiring “call” option to purchase at any time from TMA 49.2% of the Company. If the Company does not have sufficient cash to purchase the interest from TMA, TMA will provide financing to the Company under a “seller financing” requirement in the agreement. Further, TMA shall have a non-expiring “put” option to sell to the non-member manager, TMA Support Corporation, its remaining 0.09% of the Company, and TMA Support Corporation shall have a non-expiring “call” to purchase the remaining 0.09% of TMA’s interest in the Company. It provided, however, that the exercise of the put or call options described herein shall not be permitted unless the exercise shall result in a complete redemption of TMA’s interest in the Company. The sale or purchase price under either of the forgoing “put” and “call” options shall be equal to the fair market value of the interest in the Company at the time of the exercises of the “put” or “call” provided, however, that the purchase price of the “call” for the 49.2% of the Company shall not be less than $138,135.

Note 9. Noncash Contributions At June 30, 2008 and 2007, noncash professional fees, supplies and service contributions with a fair value of $58,624 and $375,190, respectively, were received.


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Note 10. Retirement Plans Effective June 1, 2004, the School adopted a 403(b) plan (the Plan), which provides for employee and employer contributions for substantially all full-time employees. Employer contributions to the Plan are based on a percentage of eligible wages for the Plan year, as determined by management. The Academy’s contribution to the Plan was $53,641 and $28,495 at June 30, 2008 and 2007, respectively.

Independent Auditor’s Report On The Supplementary Information To the Board of Trustees Thurgood Marshall Academy Washington, D.C. The audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidating and other supplementary information which follows is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and in our opinion the information is fairly stated, in all material respects, in relation to the basic consolidated financial statements taken as a whole.

Gaithersburg, Maryland October 31, 2008

McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities.

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Consolidating Balance SheetJune 30, 2008

Thurgood TMAMarshall QALICB

Assets Academy LLC Eliminations TotalCurrent Assets

Cash – checking accounts 1,099,818 $ 20,541 $ -$ 1,120,359 $ Federal Title Fund receivable 54,582 - - 54,582 Accounts receivable 100 - - 100 Contributions receivable 342,169 - - 342,169 Accrued interest receivable - 231,552 (231,552) - Notes receivable, short-term - 88,919 (88,919) - Prepaid expenses 82,423 - - 82,423

Total current assets 1,579,092 341,012 (320,471) 1,599,633

Cash Accounts Held for Restricted Purposes 1,186,161 1,284,435 - 2,470,596 Property and Equipment, net 14,109,356 - - 14,109,356 Loan Issuance Costs, net 95,556 1,603,606 - 1,699,162 Notes Receivable - 11,553,259 (11,553,259) - Investment in TMA QALICB LLC 10,108,954 - (10,108,954) -

27,079,119 $ 14,782,312 $ (21,982,684) $ 19,878,747 $

Liabilities And Net AssetsCurrent Liabilities

Mortgages payable, current portion 88,919 $ -$ (88,919) $ -$ Accounts payable and accrued expenses 348,601 10,609 - 359,210 Accrued salaries and benefits 183,255 - - 183,255 Accrued interest 231,552 - (231,552) - Deferred contract revenue – tuition 196,654 - - 196,654

Total current liabilities 1,048,981 10,609 (320,471) 739,119

Long-Term DebtMortgages payable 12,827,520 11,913,014 (11,553,260) 13,187,274 Members’ notes payable 9,175,212 - (9,175,212) - Accrued interest payable - 1,164,222 - 1,164,222

22,002,732 13,077,236 (20,728,472) 14,351,496

Minority Interest in TMA QALICB LLC - - 760,726 760,726

Net AssetsUnrestricted

Fund balance 3,582,737 20,163,667 (20,163,667) 3,582,737 Member distributions - (155,401) 155,401 - Members’ notes (receivable) - (18,313,799) 18,313,799 -

3,582,737 1,694,467 (1,694,467) 3,582,737 Temporarily restricted 444,669 - - 444,669

4,027,406 1,694,467 (1,694,467) 4,027,406 27,079,119 $ 14,782,312 $ (21,982,684) $ 19,878,747 $

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Consolidating Statement Of ActivitiesYear Ended June 30, 2008

Thurgood TMAMarshall QALICBAcademy LLC Eliminations Total

Support and revenue:Tuition – per-pupil funding allocation 5,209,026 $ -$ -$ 5,209,026 $ Federal entitlements (Titles 1, 2, 4, & 5) 355,808 - - 355,808 Free and reduced lunch program 57,384 - - 57,384 Grants, donations, and gifts 1,111,655 - - 1,111,655 Special event revenues 102,392 - - 102,392 Special event costs (56,609) - - (56,609) Interest 76,042 1,183,561 (1,117,170) 142,433 Other revenues 1,176,937 - (1,021,041) 155,896

Total support and revenue 8,032,635 1,183,561 (2,138,211) 7,077,985

Expenses:Program services:

Educational:Instructional 4,771,747 - - 4,771,747

Support services:Occupancy costs 598,251 - - 598,251 Depreciation expense 438,446 - - 438,446 Debt service cost 1,119,654 925,501 (885,618) 1,159,537

6,928,098 925,501 (885,618) 6,967,981 Management and general:

General and administrative 301,985 1,162,692 (1,021,041) 443,636 Fundraising 410,052 - - 410,052

712,037 1,162,692 (1,021,041) 853,688 Total expenses 7,640,135 2,088,193 (1,906,659) 7,821,669

Minority interest in TMA QALICB LLC loss 452,747 - (1,136,184) (683,437)

Change in net assets (60,247) (904,632) 904,632 (60,247)

Net assets:Beginning 4,087,653 2,754,500 (2,754,500) 4,087,653 Member distributions - (155,401) 155,401 - Ending 4,027,406 $ 1,694,467 $ (1,694,467) $ 4,027,406 $

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Consolidated Schedule Of Functional ExpensesYear Ended June 30, 2008

General AndEducation Administrative Fundraising Total

Personnel salaries and benefits:Principal/executive salaries 311,389 $ 44,802 $ 18,201 $ 374,392 $ Teachers’ salaries 2,013,018 - - 2,013,018 Other educational professional salaries 87,374 - - 87,374 Clerical salaries 79,582 - - 79,582 Other staff salaries 621,522 - 175,808 797,330 Staff program stipends 112,065 - - 112,065 Employee benefits 296,115 4,102 17,759 317,976 Payroll taxes 253,476 3,511 15,202 272,189 Staff development costs 30,261 419 1,815 32,495 Other staff related expenses 44,953 623 2,696 48,272

Total personnel salaries and benefits 3,849,755 53,457 231,481 4,134,693

Direct student costs:Food service 118,000 - - 118,000 Textbooks and subscriptions 59,833 - - 59,833 Student supplies and materials 109,003 - - 109,003 Student assessment materials 15,675 - - 15,675 Contracted instructional/student services 27,827 - - 27,827 Student travel and field trips 76,098 - - 76,098 Library and media materials 20,526 - - 20,526 Miscellaneous direct student costs 54,459 - - 54,459

Total direct student costs 481,421 - - 481,421

Occupancy costs:Maintenance, repairs, and supplies 35,006 485 2,099 37,590 Utilities 189,530 2,625 11,367 203,522 Equipment rental and maintenance 57,932 803 3,474 62,209 Contracted building services 315,783 4,374 18,939 339,096

Total occupancy costs 598,251 8,287 35,879 642,417

Depreciation expense 438,446 6,073 26,295 470,814

(Continued)

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Consolidated Schedule Of Functional Expenses (Continued)Year Ended June 30, 2008

General AndEducation Administrative Fundraising Total

Debt service costs:Interest expense 1,104,279 $ 15,297 $ 66,227 $ 1,185,803 $ Loan cost amortization 55,258 764 3,314 59,337

Total debt service costs 1,159,537 16,061 69,541 1,245,140

Management and general:Management consultant - 60,000 - 60,000 Office supplies and materials 58,841 815 3,529 63,185 Telephone/telecommunications 47,524 659 2,850 51,033 Legal fees - 269,293 - 269,293 Accounting services - 24,858 - 24,858 Printing and copying 22,460 311 1,347 24,118 Postage and shipping 18,276 253 1,096 19,625 Insurance 66,118 916 3,965 70,999 Other professional fees 7,254 100 435 7,789 Other fundraising costs - - 22,586 22,586 Administrative fees 35,881 - - 35,881 Dues 68,923 955 4,133 74,011 Computer consulting 50,323 697 3,018 54,038 Other general expenses 64,971 901 3,897 69,768

Total management and general 440,571 359,758 46,856 847,184 Total expenses 6,967,981 $ 443,636 $ 410,052 $ 7,821,669 $

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Financial Statement Template

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