I-LEAD CHARTER SCHOOL -READING DBA I-LEAD CHARTER...

I-LEAD CHARTER SCHOOL - READING DBA I-LEAD CHARTER SCHOOL

FINANCIAL STATEMENTS

JUNE 30, 2014


JUNE 30, 2014

TABLE OF CONTENTS

INDEPENDENT AUDITOR'S REPORT

FINANCIAL STATEMENTS:

Statement of Financial Position

Statement of Activities

Statement of Functional Expenses

Statement of Cash Flows

Notes to Financial Statements

Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

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March 5, 2015

To the Board of Directors I-LEAD Charter School - Reading dba I-LEAD Charter School Reading, Pennsylvania

Report on the Financial Statements

INDEPENDENT AUDITOR'S REPORT

Barbacane, Thornton & Company LLP 200 Springer Building 34 1 1 Silvcrsidc Road

Wilmington. Delaware I ~8 1 0

T 302478 8940 F 3024684001 "'"'''.btcpa.com

We have audited the accompanying financial statements of the I-LEAD Charter School- Reading, dba ILEAD Charter School (a nonprofit organization), which comprise the statement of financial position as of June 30, 2014, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financia l statements in accordance with accounting principles generally accepted in the United States of America ; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America 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 from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the School's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the School's

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BARBAO\NE TI-IORNIDN &CDMPANY CERTIFIED PU BLIC ACCOUNTANTS

To the Board of Directors I-LEAD Charter School - Reading dba I-LEAD Charter School

internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the I-LEAD Charter School- Reading, dba I-LEAD Charter School as of June 30, 2014 and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America .

Other Matters

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated March 5, 2015 on our consideration of the I-LEAD Charter School- Reading, dba I-LEAD Charter School's internal control over financial reporting and on our tests of its compliance with certain provisions of taws, 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 on 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 in considering the I-LEAD Charter School - Reading, dba I-LEAD Charter School's internal control over financial reporting and compliance.

/J~~~a.r LLP BARBACANE, THO~NTON & COMPANY LLP?

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ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable Due from related party Inventory Prepaid expenses

Total Current Assets NONCURRENT ASSETS: Leashold improvements Furniture and equipment


STATEMENT OF FINANCIAL POSITION JUNE 30,2014

Less: Accumulated depreciation Property and Equipment, Net

TOTAL ASSETS

LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts payable Accrued salaries and benefits Capital lease payable

Total Current Liabilities

Total Liabilities

NET ASSETS: Unrestricted

Total Net Assets

TOTAL LIABILITIES AND NET ASSETS

The accompanying notes are an integral part of these financial statements.

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$ 112,917 609,400

5,541 10,539 41,564

779,961

80,765 58,755

(130,919) 8,601

$ 788,562

$ 111,584 330,420

10,483 452,487

452,487

336,075 336,075

$ 788,562

I-LEAD CHARTER SCHOOL- READING DBA I-LEAD CHARTER SCHOOL

STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014

UNRESTRICTED NET ASSETS PUBLIC SUPPORT AND REVENUE Public support:

Receipts from other Local Educational Agencies Federal revenues State revenues Other income

TOTAL PUBLIC SUPPORT AND REVENUE

EXPENSES Program services Support services:

Management and general Fund raising

TOTAL EXPENSES

CHANGE IN UNRESTRICTED NET ASSETS

NET ASSETS, BEGINNING OF YEAR

NET ASSETS, END OF YEAR


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$ 4,080,309 463,462 481 ,320 109,451

5,134,542

4,296,425

526,617 89,080

4,912,122

222,420

113,655

$ 336,075

Salaries Benefits and payroll taxes

Total Salaries and Related Expenses

Advertising expenses Depreciation Insurance Interest expense Legal services Miscellaneous Occupancy Postage Printing Professional services Rental expense Repairs and maintenance Supplies Telephone and Internet Travel and entertainment

TOTAL EXPENSES

I-LEAD CHARTER SCHOOL- READING DBA I-LEAD CHARTER SCHOOL

STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2014

Supporting Services Program Management Services and General Fundraising

$ 2,494,923 $ 197,401 $ 49,350 876,370 114,178 11,017

3,371 ,293 311,579 60,367

308 60 32 48,065 2,024 506 11,310 3,190

7,201 31,790 8,967 16,076 24,1 15

370,874 37,504 8,334 1,867 534 24

17,165 3,065 204 340,074 73,525 18,900

24,040 36,061 5,834 577

46,921 13,406 610 8,630 1,541 103 2,178 3,268

$ 4,296,425 $ 526,617 $ 89,080


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Total

$ 2,741 ,674 1,001 ,565

3,743,239

400 50,595 14,500

7,201 40,757 40,191

416,712 2,425

20,434 432,499

60,101 6,411

60,937 10,274 5,446

$ 4,912,122

I-LEAD CHARTER SCHOOL- READING DBA I-LEAD CHARTER SCHOOL STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JUNE 30, 2014

CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets Adjustments to reconcile change in net assets to net

cash provided by operating activities : Depreciation (Increase) Decrease in:

Accounts receivable Due from related party Inventory Prepaid expenses

Increase (Decrease) in: Accounts payable Accrued salaries and benefits

NET CASH PROVIDED BY OPERATING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES: Repayments on notes payable Capital lease payments NET CASH USED BY FINANCING ACTIVITIES

NET CHANGE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS, END OF YEAR

SUPPLEMENTAL DISCLOSURES: Interest paid


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$ 222,420

50,595

(282,358) (5,541)

(552) 58,136

(100,340) 60,977

3,337

(151,283) (19,709)

(170,992)

(167,655)

280,572

$ 112,917

$ 7,201

NOTE 1

NOTE 2


NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

NATURE OF THE ORGANIZATION

I-LEAD Charter School - Reading, dba I-LEAD Charter School (the "School"), is a nonprofit organization, incorporated under the laws of Pennsylvania in 201 0, that operates a charter school located in Reading, Pennsylvania. The School serves youth disconnected from school with the opportunity to re-engage in their education and transition successfully into adulthood. Currently, the School serves students enrolled in grades nine through twelve.

The School's primary source of revenue is from local educational agencies (''LEAs") for education provided to students from the paying LEAs. The School and Reading School District are parties to a Charter Agreement through 2019.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The financial statements of the School have been prepared using the accrual basis of accounting.

Financial Statement Presentation

In accordance with the portion of the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") regarding financial statements of not-for-profit organizations, the School 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. In addition, the School is required to present a statement of cash flows.

Income Tax Status

The School is exempt from federal income taxes under Section 501 (c)(3) of the Internal Revenue Code. However, income from certain activities not directly related to the School's tax-exempt purpose may be subject to taxation as unrelated business income.

Generally accepted accounting principles prescribe rules for the recognition, measurement, classification, and disclosure in the financial statements of uncertain tax positions taken or expected to be taken in the School's tax returns. Management has determined that the School does not have any uncertain tax positions or associated unrecognized benefits that materially impact the financial statements or related disclosures. Since tax matters are subject to some degree of uncertainty, there can be no assurance that the School's tax returns will not be challenged by the taxing authorities and that the School will not be subject to additional tax, penalties, and interest as a result of such challenge. Income tax returns of the School are subject to examination by tax authorities, generally for three years after they were filed .

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JUNE 30, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

Cash and Cash Equivalents

The School considers all short-term highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on its assessment of the current status of individual receivables from grants, contracts, and others. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance. As of June 30, 2014, management has determined that all amounts will be collected and, accordingly , an allowance for uncollectible accounts has not been recorded.

Property and Equipment

The School capitalizes all expenditures for property in excess of $1 ,000. Property and equipment are stated at cost at date of acquisition or fair market value at date of donation. Property and equipment are depreciated on the straight-line method over the estimated service lives of the respective assets. Expenditures for maintenance, repairs, minor renewals, and betterments which do not improve or extend the useful life of the respective asset are expensed. Depreciation expense for the year ended June 30, 2014 was $50,595.

Allocation of Functional Expenses

The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the program and supporting services benefited.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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JUNE 30, 2014

CASH AND CASH EQUIVALENTS

Custodial credit risk is the risk that in the event of a bank failure, the School's deposits may not be returned . The School maintains two bank accounts at VIST Bank. Accounts at this institution are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. At June 30, 2014, the carrying amount of the School's deposits totaled $108,230 (excluding petty cash of $4,687) and the bank balance was $195,27 5. The bank balance may at times exceed federally insured limits; however, there were no uninsured balances as of June 30, 2014.

ACCOUNTS RECEIVABLE

Accounts receivable at June 30, 2014 consisted of the following:

Due from school districts $ 281,083 Federal receivables 128,510 State receivables 191,707 Other 8,100

TOTAL $ 609,400

CAPITAL LEASE OBLIGATION

The School has two capital lease agreements used to obtain various technology items and related accessories; both of which expire in 2015. The leased items are amortized over their lease terms. Amortization of the items under the capital lease is included in depreciation expense. Equipment under the capital leases are reported in the statement of financial position at a combined capitalized cost of $53,748 as of June 30, 2014. Accumulated amortization related to this equipment amounted to $44,790 as of June 30, 2014.

Aggregate future minimum lease payments under the capital lease obligation as of June 30, 2014 are as follows:

Year Ending June 30,

2015 $ 10,933 Less amount representing interest (450)

Present value of future minimum lease payments $ 10,483

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NOTE 8

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PENSION PLAN

Plan Description



JUNE 30, 2014

The School contributes to the Public School Employees' Retirement System ("PSERS"), a governmental cost-sharing multiple-employer defined benefit pension plan administered by the Commonwealth of Pennsylvania Public School Employees' Retirement System. The PSERS provides retirement and disability, legislative-mandated ad hoc cost-of-living adjustments, and certain healthcare insurance premium assistance to plan members and beneficiaries. The Public School Employees' Retirement Code (Act No. 96 of October 2, 1975, as amended) provides the authority to establish and amend benefit provisions. The PSERS issues a comprehensive annual financial report that includes financial statements and required supplementary information for the plan. A copy of the report may be obtained by writing to Public School Employees' Retirement System, P. 0. Box 125, Harrisburg, Pennsylvania 17108-0125.

Funding Policy

The contribution policy is established in the Public School Employees' Retirement Code and requires contributions by active members, employers, and the Commonwealth. Eligible active members contribute at 7.5 percent of their qualifying compensation. Contributions required of employers are based upon an actuarial valuation. For fiscal year ended June 30, 2014, the rate of employer contribution was 16.93 percent of covered payroll. The School's contribution to PSERS for the years ended June 30, 2014, 2013, and 2012 was $467,097, $308,937, and $109,539, respectively, equal to the required contribution.

ADVERTISING EXPENSE

The School is required to accept students from throughout the Commonwealth of Pennsylvania. Accordingly, the School advertises to ensure citizens of the Commonwealth are informed of the School's mission.

The School expenses the production cost of advertising when incurred. Advertising expense totaled $400 for the year ended June 30, 2014.

COMMITMENTS AND CONTINGENCIES

The School is subject to various claims, legal proceedings, and investigations covering a wide range of matters that arise in the normal course of business. In the opinion of management, all such matters are adequately covered by insurance, and if not so covered are without merit or are of such kind, or involve such amounts, as would not have a significant effect on the financial position or results of activities of the School if disposed of unfavorably.

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NOTE 9

NOTE 10

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JUNE 30, 2014

COMMITMENTS AND CONTINGENCIES (cont'd)

The School receives financial assistance from federal and state agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audits by the grantors or their representatives. Any disallowed claims resulting from such audits could become a liability of the School. Management believes such disallowance, if any, would be immaterial.

OCCUPANCY

During the year, the School rented c lassroom and administration office space at 200 North S'h Street, Reading, Pennsylvania. Lease terms stated that monthly rent was $7.50 per square foot. The resulting occupancy expense relating to the rental of learning and administration space was $336,253 for the year ended June 30, 2014. The lease expired on June 30, 2014.

CONCENTRATIONS

The School's primary source of revenue is from local educational agencies ("LEAs") for education provided to students from the paying LEAs. Revenue received from other local educational agencies totaled $4,080,309 for the year ended June 30, 2014, of which $3,995,413 was received from Reading School District. In addition, as of June 30, 2014, $252,667 of the School's total accounts receivable of $609,400 was due from the Reading School District.

RELATED-PARTY TRANSACTIONS

The operations of the School are governed by The Institute for Leadership Education, Advancement and Development, Inc. (I-LEAD, Inc.), a related party. Pursuant to the School's bylaws, I-LEAD, Inc. appoints a majority of the School's Board. Three executives of I-LEAD, Inc. serve on the Board of the School, along with community members.

As has been done in years past, I-LEAD, Inc. provided the School with unsecured interest-free loans during the year for certain expenses paid by the School. Loans In the amount of $1 ,500,000 were available to the School throughout 2014, with the largest balance outstanding at any one time being $450,000. All loan balances were paid off during the year ended June 30, 2014; including $2,100 due to I-LEAD, Inc. from the year ended June 30, 2013.

The School also incurred expenses which are to be repaid by I-LEAD, Inc. These costs amounted to $7,593; of this, $5,541 is due to the School as of June 30, 2014.

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NOTE 13

NOTE 14

NOTE 15



JUNE 30, 2014

IN-KIND CONTRIBUTIONS

The School is provided with furniture, fixtures, and equipment from I-LEAD, Inc. These assets are the property of I-LEAD, Inc., and as a result, the School recognizes in-kind revenue and expense on a straight-line basis over the estimated economic life of the asset. This is calculated based upon the fair value purchase price of the asset. In-kind furniture, fixtures, and equipment recognized for the year ended June 30, 2014 is $3 7,504 and is included in rental expense in the financial statements.

LINE OF CREDIT

The School maintains a $1 00,000 unsecured line of credit with VIST Bank. Amounts outstanding against the line accrue interest at a rate of 4.25 percent as of June 30, 2014. There was no outstanding balance on the line of credit as of June 30, 2014.

SUBSEQUENT EVENTS

The School moved from 208 North 81h Street, Reading, PA to 401 Penn Street, Reading, PAin July

2014. The new location is a building that was donated to I-LEAD, Inc. The School will pay I-LEAD, Inc. a below-market rent for use of this space. All leasehold improvements made to accommodate the School were paid by I-LEAD, Inc.

The School has evaluated all subsequent events through March 5, 2015, the date the financial statements were available to be issued.

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INDEPENDENT AUDITOR'S

Barbacane, Thornton & Company LLP 200 Springer Building

March 5, 2015

To the Board of Directors

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON

COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS

PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

I-LEAD Charter School - Reading dba I-LEAD Charter School Reading, Pennsylvania

34 1 1 Silverside Road Wilmington. Delaware 19810

T 302.478.8940 F 302.468.4001 www.btcpa.com

We have audited, 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, the financial statements of the I-LEAD Charter School- Reading, dba I-LEAD Charter School, Reading, Pennsylvania (a nonprofit organization), which comprise the statement of financial position as of June 30, 2014, and the related statements of activities, functional expenses, and cosh flows for the year then ended, and the related notes to the financial statements, and hove issued our report thereon dated March 5, 2015.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the School's internal control over financial reporting ("internal control") to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the School's internal control. Accordingly, we do not express an opinion on the effectiveness of the School's internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the School's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

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BARBAO\NE 1HORNIDN &CDMPANY CERTIFlED PUBLIC ACCOUNTANTS

To the Board of Directors I-LEAD Charter School - Reading dba I-LEAD Charter School

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the School's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the School's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the School's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

;J~~~L'~ LLP BARBACANE, TH;RNTON & COMPANY LL~

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