The Steppingstone Foundation, Inc. and Affiliate

The Steppingstone Foundation, Inc. and Affiliate Consolidated Financial Statements Years Ended December 31, 2010 and 2009 The Steppingstone Mission Statement: Founded in 1990, the Steppingstone Foundation is a non-profit organization that develops and implements programs which prepare urban schoolchildren for educational opportunities that lead to college. Based on the premise that, regardless of circumstance, most children can achieve at high levels if they are prepared in a focused, demanding academic environment, all Steppingstone programs emphasize rigorous standards and achieve meaningful results.

The Steppingstone Foundation, Inc. and Affiliate

CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2010 and 2009

C O N T E N T S

Page Independent Auditor’s Report ............................................................................................................... 1 Consolidated Financial Statements:

Statements of Financial Position .............................................................................................. 2 Statements of Activities ............................................................................................................ 3 Statements of Functional Expenses ........................................................................................ 4-5 Statements of Cash Flows ....................................................................................................... 6 Notes to Consolidated Financial Statements ........................................................................... 7-18

Supplementary Information:

Independent Auditor’s Report on Supplementary Information ................................................. 19 Consolidating Schedule of Financial Position .......................................................................... 20 Consolidating Schedule of Activities ........................................................................................ 21

80 City Square Boston, MA 02129-3742 O 617.912.9050 F 617.912.9051 www.mcgladrey.com

INDEPENDENT AUDITOR’S REPORT Board of Directors The Steppingstone Foundation, Inc. and Affiliate Boston, Massachusetts We have audited the accompanying consolidated statements of financial position of The Steppingstone Foundation, Inc. and Affiliate as of December 31, 2010 and 2009, and the related consolidated statements of activities, functional expenses and cash flows for the years then ended. These financial statements are the responsibility of the Foundation'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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Steppingstone Foundation, Inc. and Affiliate as of December 31, 2010 and 2009, and the changes in their net assets and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

September 22, 2011 Boston, Massachusetts

The Steppingstone Foundation, Inc., and Affiliate Consolidated Statements of Financial Position

December 31, 2010 and 2009

2010 2009

ASSETS

Cash and cash equivalents 990,020$ 176,534$

Contributions receivable (Notes 2 and 10) 718,556 584,536

Other receivables 1,720 -

Prepaid expenses and deposit 168,593 165,277

Cash restricted for endowment - 1,000,438

Investments (Note 3) 3,255,511 3,691,519

Beneficial interest in perpetual trust (Note 4) 60,264 54,105

Property and equipment, at cost less accumulated

depreciation (Note 5) 64,377 114,469

Total assets 5,259,041$ 5,786,878$

LIABILITIES AND NET ASSETS

Current liabilities:

Accounts payable and accrued expenses (Note 7) 319,333$ 535,504$

Deferred revenue 87,220 102,877

Total liabilities 406,553 638,381

Net Assets:

Unrestricted:

Operations 1,625,275 2,160,949

Board designated 1,000,000 1,000,000

Total unrestricted net assets 2,625,275 3,160,949

Temporarily restricted (Notes 9 and 10) 1,182,307 943,408

Permanently restricted (Note 11) 1,044,906 1,044,140

Total net assets 4,852,488 5,148,497

Total liabilities and net assets 5,259,041$ 5,786,878$

See notes to consolidated financial statements.

The Steppingstone Foundation, Inc., and Affiliate Consolidated Statements of Activities

Years Ended December 31, 2010 and 2009

Temporarily Permanently Temporarily Permanently

Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total

Revenue, gains and other support:

Fundraising events 1,233,067$ 33,000$ -$ 1,266,067$ 1,007,479$ 16,000$ -$ 1,023,479$

Less - cost of direct benefit to donors (236,887) - - (236,887) (282,473) - - (282,473)

Net fundraising event revenue 996,180 33,000 - 1,029,180 725,006 16,000 - 741,006

Contributions and grants 2,821,709 750,746 766 3,573,221 2,524,417 150,257 1,000,000 3,674,674

Growth campaign contributions (Note 10) - 4,649 - 4,649 8,832 - - 8,832

Interest income 4,252 17,478 - 21,730 11,821 438 - 12,259

Other income 7,193 - - 7,193 2,919 - - 2,919

Membership income 127,333 - - 127,333 61,920 - - 61,920

Realized and unrealized gains (losses) on investments 6,927 36,242 - 43,169 (35,781) - - (35,781)

Gain on beneficial interest in perpetual trust - 6,159 - 6,159 - 9,965 693 10,658

Satisfaction of restrictions (Note 13) 609,375 (609,375) - - 977,202 (977,202) - -

Total revenue, gains and other support 4,572,969 238,899 766 4,812,634 4,276,336 (800,542) 1,000,693 4,476,487

Expenses and losses:

Program services:

Boston Academy 2,483,126 - - 2,483,126 2,659,401 - - 2,659,401

College Success Academy 95,602 - - 95,602 - - - -

Scholars Program - Philadelphia 650,551 - - 650,551 590,992 - - 590,992 National Partnership for Educational Access 327,845 - - 327,845 318,795 - - 318,795 Replication 130,496 - - 130,496 176,999 - - 176,999

Total program services 3,687,620 - - 3,687,620 3,746,187 - - 3,746,187

Supporting services:

General and administrative 604,904 - - 604,904 640,798 - - 640,798

Development 816,119 - - 816,119 692,059 - - 692,059

Total supporting services 1,421,023 - - 1,421,023 1,332,857 - - 1,332,857

Total expenses 5,108,643 - - 5,108,643 5,079,044 - - 5,079,044

Change in net assets (535,674) 238,899 766 (296,009) (802,708) (800,542) 1,000,693 (602,557)

Net assets at beginning of year 3,160,949 943,408 1,044,140 5,148,497 3,963,657 1,743,950 43,447 5,751,054

Net assets at end of year 2,625,275$ 1,182,307$ 1,044,906$ 4,852,488$ 3,160,949$ 943,408$ 1,044,140$ 5,148,497$

20092010


The Steppingstone Foundation, Inc., and Affiliate Consolidated Statement of Functional Expenses

Year Ended December 31, 2010

National

College Partnership Scholars Total General

Boston Success for Educational Program - Program and

Academy Academy Access Replication Philadelphia Services Administrative Development Totals

Staff and faculty salaries 1,468,084$ 63,461$ 145,062$ 51,691$ 361,425$ 2,089,723$ 360,268$ 454,552$ 2,904,543$

Donated goods and services 1,000 2,500 3,250 39,080 - 45,830 - 16,748 62,578

Benefits and taxes (Note 8) 268,961 9,298 20,227 7,761 66,009 372,256 55,377 57,430 485,063

Occupancy (Note 7) 218,186 6,803 22,477 5,601 28,224 281,291 46,480 39,569 367,340

Bad debt expense - - - - - - - -

Office equipment and supplies 34,918 797 1,856 584 44,555 82,710 10,303 13,733 106,746

Professional fees 157,320 9,932 18,765 17,232 34,421 237,670 94,789 151,400 483,859

Contributions - - - 1,000 - 1,000 - - 1,000

Recruitment and admission 31,821 189 - - - 32,010 - - 32,010

Scholar transportation 45,941 - - - 40,572 86,513 - - 86,513

Books and classroom materials 24,494 22 - - 14,712 39,228 - - 39,228

Classroom facility 75,175 - - - 12,390 87,565 - - 87,565

Insurance 13,111 247 914 224 23,119 37,615 7,205 1,372 46,192

Depreciation 26,080 571 5,659 2,986 - 35,296 8,486 6,311 50,093

Information technology 18,469 741 8,254 446 9,544 37,454 5,928 5,874 49,256

Scholar and family services 85,191 - 685 1,259 7,358 94,493 6,686 1,853 103,032

Meetings and travel 9,806 933 5,890 2,524 8,210 27,363 6,518 64,357 98,238

Miscellaneous 4,414 108 2,487 108 12 7,129 2,864 2,920 12,913

Program evaluation 155 - - - - 155 - - 155

Conference - - 92,319 - - 92,319 - - 92,319

2,483,126$ 95,602$ 327,845$ 130,496$ 650,551$ 3,687,620$ 604,904$ 816,119$ 5,108,643$


The Steppingstone Foundation, Inc., and Affiliate Consolidated Statement of Functional Expenses


National

Partnership Scholars Total General

Boston for Educational Program - Program and

Academy Access Replication Philadelphia Services Administrative Development Totals

Staff and faculty salaries 1,586,166$ 148,304$ 50,079$ 339,866$ 2,124,415$ 354,182$ 452,577$ 2,931,174$

Donated goods and services 4,999 1,500 - - 6,499 14,114 12,949 33,562

Benefits and taxes (Note 8) 299,736 18,492 8,086 81,607 407,921 33,629 60,348 501,898

Occupancy (Note 7) 233,765 19,222 4,462 33,163 290,612 36,890 45,620 373,122

Bad debt expense - - - - - - - -

Office equipment and supplies 38,823 2,551 405 25,097 66,876 30,859 12,956 110,691

Professional fees 135,381 15,608 6,324 3,398 160,711 130,441 80,142 371,294

Contributions - - 102,000 - 102,000 - - 102,000

Recruitment and admission 36,310 - - - 36,310 - - 36,310

Scholar transportation 40,260 - - 40,460 80,720 - - 80,720

Books and classroom materials 22,151 - - 13,261 35,412 - - 35,412

Classroom facility 64,821 - - 8,840 73,661 - - 73,661

Insurance 15,175 919 226 9,493 25,813 10,488 3,390 39,691

Depreciation 36,576 6,139 3,543 - 46,258 9,672 8,488 64,418

Information technology 13,080 3,651 157 2,772 19,660 3,733 9,947 33,340

Scholar and family services 104,012 - - 25,692 129,704 - - 129,704

Meetings and travel 24,205 6,465 1,711 7,243 39,624 11,126 4,316 55,066

Miscellaneous 3,941 770 6 100 4,817 5,664 1,326 11,807

Program evaluation - 11,000 - - 11,000 - - 11,000

Conference - 84,174 - - 84,174 - - 84,174

2,659,401$ 318,795$ 176,999$ 590,992$ 3,746,187$ 640,798$ 692,059$ 5,079,044$


The Steppingstone Foundation, Inc., and Affiliate Consolidated Statements of Cash Flows

Years Ended December 31, 2010 and 2009

2010 2009

Cash flows from operating activities:

Change in net assets (296,009)$ (602,557)$

Adjustments to reconcile change in net assets to

net cash (provided by (used in) operating activities:Depreciation 50,093 64,418 Realized and unrealized (gain) loss on investments (43,169) 35,781 Gain loss on beneficial interest in perpetual trust (6,159) (10,658) Contributions restricted for permanent endowment - (1,000,000) Change in other receivables (1,720) 12,000 Change in contributions receivable (134,020) 195,509 Change in prepaid expenses and deposit (3,317) (21,207) Change in cash restricted for endowment 1,000,438 - Change in accounts payable and accrued expenses (216,171) 138,053 Change in deferred revenue (15,657) 70,152

Total adjustments 630,318 (515,952)

Net cash provided by (used in) operating activities 334,309 (1,118,509)

Cash flows from investing activities:Purchase of investments (1,020,543) (11,067) Proceeds from sale of investments 1,499,720 1,032,907

Net cash provided by investing activities 479,177 1,021,840

Net change in cash and cash equivalents 813,486 (96,669)

Cash and cash equivalents, beginning of year 176,534 273,203

Cash and cash equivalents, end of year 990,020$ 176,534$

Supplemental disclosure of non-cash activities:

Donated goods and services totaling $84,821 and $137,187, respectively, were contributed to the

Foundation and recorded as contributions and expense or equipment during 2009 ($66,889 and

$149,586 during 2009, respectively).


The Steppingstone Foundation, Inc. And Affiliate Notes to Consolidated Financial Statements Years Ended December 31, 2010 and 2009

1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES Nature of Activities The Steppingstone Foundation, Inc., is a nonprofit organization that was established and incorporated on May 11, 1990. Its primary purpose is to provide educational opportunities that lead to college for underserved schoolchildren regardless of their race, gender, or ethnic background. The Steppingstone Academy in Boston targets motivated underserved fourth-, fifth-, and seventh-grade students and provides these students with an intensive 14-month after-school and summer academic program designed to assist these students in gaining admission to independent and public exam schools in the sixth, seventh, and ninth grades, respectively. After completing the 14-month academic component, support services such as mentoring, counseling, and college guidance are provided to ensure that the students graduate from high school and go on to college. Steppingstone Scholars, Inc., in Philadelphia, initiated in 1998, is modeled after The Steppingstone Academy and prepares motivated underserved students for admission to independent schools in the sixth grade. Effective January 1, 2004, The Steppingstone Foundation, Inc. entered into a new charter agreement in which the Scholars Program in Philadelphia became a separate corporate entity, with The Steppingstone Foundation as the sole member of the corporation. All of the activities in connection with the Scholars Program in Philadelphia were transferred to the new entity effective January 1, 2004. The Steppingstone Foundation, Inc. transferred $100,000 to the Scholars Program in Philadelphia in 2005. The Philadelphia program has its own Board of Directors. Effective January 1, 2011, the Steppingstone Foundation is no longer the sole member of Steppingstone Scholars. In 2007, The Steppingstone Foundation launched the National Partnership for Educational Access (NPEA), a membership organization for programs working in collaboration with college preparatory schools to increase educational opportunities for motivated underserved students. In 2010, The Steppingstone Foundation launched the College Success Academy a program that admits hardworking 4th graders in Boston public K-8 schools. The program includes a six-week summer session and after school classes during the academic year starting the summer before 5th grade and continuing until 9th grade. This program provides scholars with the skills they need to enter high school ready to participate in a college-preparatory curriculum. Additional academic programming is offered to support 9th graders as they make the transition to a traditional Boston public high school. Services in high school including academic support and college guidance, ensure that Scholars have the skills and support they need to navigate the college process. A summary of significant accounting policies follows: Basis of Consolidation The consolidated financial statements include the accounts of The Steppingstone Foundation, Inc. and Steppingstone Scholars, Inc. (the “Foundation”).


1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES…continued Classification and Reporting of Net Assets The Foundation’s financial statement presentation follows the requirements of accounting principles generally accepted in the United States of America (“GAAP”). Under GAAP, the Foundation 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. A description of the net asset classes follows:

Unrestricted net assets represent the portion of net assets of the Foundation that is neither permanently restricted nor temporarily restricted by donor-imposed stipulations.

Temporarily restricted net assets represent contributions and other inflows of assets whose use by the Foundation is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the Foundation pursuant to those stipulations.

Permanently restricted net assets represent contributions and other inflows of assets whose use by the Foundation is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the Foundation.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Foundation maintains its cash in bank deposit accounts which, at times, may exceed Federally insured limits. The Foundation has not experienced any losses in such accounts. The Foundation believes it is not exposed to any significant credit risks on cash and cash equivalents. The Foundation considers investments with an original maturity of ninety days or less to be cash equivalents. Contributions Receivable Contributions receivable consist of unrestricted contributions intended for the current fiscal year and received after year end, and pledges for contributions expected to be received in future periods. An allowance for uncollectible contributions receivable is provided based upon management's judgment of potential defaults. Management determines the allowance for doubtful contributions by identifying troubled accounts and by using historical experience applied to an aging of pledges. The Foundation currently does not have an allowance for doubtful contributions. If a pledge is deemed uncollectible, it is written off. Recoveries of pledges previously written off are recorded when received.


1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES…continued Investments Investments, excluding non-marketable alternatives, are carried at fair value, as established by the major securities markets. Purchases and sales of securities are recorded on trade dates, and realized gains and losses are determined on the basis of the average cost of securities sold. Non-marketable alternatives (investments for which there may not be a value established by major security markets) are carried at estimated fair values. Non-marketable alternatives, in general, are exposed to various risks such as interest rate, credit, and overall market volatility. As such, it is reasonably possible that changes in the values of Alternative investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of financial position and statements of activities. Management has reviewed the risk associated with these investments and has determined it is not material to the Foundation as of December 31, 2010 and 2009. Investment income and realized and unrealized losses are reflected in the statements of activities. Investment income from unrestricted investments and unrestricted investment income of permanently restricted net assets are reported as unrestricted revenue. Restricted investment income and gains (losses) on investments of permanently restricted net assets are reported as increases (decreases) in temporarily restricted net assets unless permanently restricted by the donor, in which case they are recorded as increases (decreases) in permanently restricted net assets. Net gains of permanently restricted net assets classified as temporarily restricted remain in temporarily restricted net assets until appropriated by the Board of Trustees (the “Board”) and expended. Investment interest and gains (losses) on investments of temporarily restricted net assets are reported as increases (decreases) in temporarily restricted net assets. Fair Value Measurements The Foundation follows the fair value measurements accounting standard. The standard defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. It clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, the guidance establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level I - Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level 1 includes listed equities and listed derivatives. As required by GAAP, the Organization does not adjust the quoted prices for these investments, even in situations where the Organization may hold a large position and a sale could reasonably impact the quoted price.


1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES…continued Fair Value Measurements…continued

Securities that are listed on the United States securities exchange are valued at their last sales price on the largest United States securities exchange on which such securities have traded. Securities that are listed on an international exchange are valued at the last sales price from the largest exchange within the individual security's country of jurisdiction.

Level II - Pricing inputs are other than quoted prices in active markets of comparable

instruments, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments which are generally included in this category include corporate bonds and loans, less liquid and restricted equity securities and certain over-the-counter derivatives.

Level III - Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value are based upon the best information in the circumstances and may require significant management judgment or estimation. Investments that are included in this category generally include equity and debt positions in private companies.

The following is a description of the valuation methodologies used for instruments measured at fair value: Equity Securities, Bonds, Exchange Traded Funds, and Mutual Funds The fair value of equity securities, bonds, exchange traded funds, mortgage backed securities, and mutual funds is the market value based on quoted market prices. Money Market Funds Valuation inputs utilized by the independent pricing services for those U.S. treasury and federal agency securities include benchmark yields, reported trades, broker/dealer quotes, issue spreads, benchmark securities, bids, offers, and reference data including market research publications. Also included are data from the vendor trading platform. Common Trust Funds Valuation inputs utilized by the funds include quoted prices in active markets for identical, unrestricted assets or liabilities and observable inputs are inputs that other market participants would use in valuing a portfolio instrument. These may include quoted prices for similar securities, interest rates, foreign exchange rates, prepayment speeds, credit risk and others. Property and Equipment Property and equipment consists of capitalized software, furniture and office equipment and is recorded at cost and depreciated over the estimated useful lives of the respective assets (3-10 years) using the straight-line method.


1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES…continued Endowment As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments are classified and reported based on the existence or absence of donor-imposed restrictions. The Board has interpreted Massachusetts General Law as requiring realized and unrealized gains and interest and dividend income of permanently restricted net assets to be retained in a restricted net asset classification until appropriated by the Board and expended. Massachusetts General Law allows the Board to appropriate for expenditure or accumulate so much of an endowment fund as the Foundation determines is prudent for the uses, benefits, purposes and duration for which the endowment fund is established. In making a determination to appropriate or accumulate, the Foundation shall act in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and shall consider, if relevant, the following factors: the duration and preservation of the endowment fund; the purposes of the Foundation and the endowment fund; general economic conditions; the possible effect of inflation or deflation; the expected total return from income and the appreciation of investments; other resources of the Foundation; and the investment policy of the Foundation. The Foundation has not maintained a spending policy and all earnings, gains, and losses on the endowment are reported as temporarily restricted net assets. Contributions Contributions, including unconditional promises to give, are recognized as revenues in the period the promise is received. 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 value. Contributions to be received after one year are discounted at an appropriate discount rate commensurate with the risk involved. Amortization of discount is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions. Contributions received with donor-imposed restrictions that are met in the same year as received are reported as revenues of the unrestricted net asset class. The Foundation reports contributions as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, either when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Gifts of items other than cash or investments represent in-kind contributions, which are recorded as received or, if related to a fundraising event, at the time of the event. In-kind gifts totaled $222,008 and $216,475 in 2010 and 2009, respectively. Contributions of property and equipment without donor stipulations concerning the use of such long-lived assets are reported as revenues of the unrestricted net asset class. Contributions of cash or other assets to be used to acquire property and equipment with donor stipulations are reported as revenues of the temporarily restricted net asset class; the restrictions are considered to be released at the time of acquisition of such long-lived assets.


1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES…continued Fundraising Events Revenue earned from sponsorship or attendance at fundraising events is recognized at the time of the event. Amounts received in advance of the event are recorded as deferred revenue until the event is held. Expenses incurred in connection with an event that provides direct benefit to the donors are charged against the revenue earned from the event. Income Tax Status The Steppingstone Foundation and its Affiliate are qualified under Section 501(c)(3) of the Internal Revenue Code and are exempt from Federal and state income taxes. Advertising Costs The Foundation expenses advertising costs as incurred. Expenses for the years ended December 31, 2010 and 2009 were $44,945 and $43,161, respectively.

2. CONTRIBUTIONS RECEIVABLE Unconditional promises to give (pledges) are expected to be collected as follows: 2010 2009 Less than one year $ 538,817 $ 493,834 One to three years 183,334 100,000 722,151 593,834 Less – unamortized discount (3,595) (9,298) $ 718,556 $ 584,536

3. INVESTMENTS The following is a summary of investments carried at fair value at December 31, 2010 and 2009: 2010 2009 Money market funds $ 2,059,890 $ 4,545,448 Mutual funds – domestic equities 580,324 - Mutual funds –international equities 100,787 - Mutual funds – fixed income 363,834 - Investment Trust 150,676 144,053 Equity securities - 2,456

$ 3,255,511 $ 4,691,957


3. INVESTMENTS…continued The following table summarizes the valuation of the Foundation’s investments by the fair value hierarchy levels as of December 31, 2010 and 2009: Assets Measured at Fair Value on a Recurring Basis Fair Value Measurements Using Quoted Observable Unobservable December 31, Prices Inputs Inputs 2010 Assets Level I Level II Level III

Money market funds $ 2,059,890 $ - $ - $ 2,059,890 Mutual funds – domestic equities 580,324 - - 580,324 Mutual funds – international equities 100,787 - - 100,787 Mutual funds – fixed income 363,834 - - 363,834 Limited partnership - - 150,676 150,676

$ 3,104,835 $ - $ 150,676 $ 3,255,511 Beneficial interest in

perpetual trust (Note 4) $ - $ - $ 60,264 $ 60,264 Assets Measured at Fair Value on a Recurring Basis Fair Value Measurements Using Quoted Observable Unobservable December 31, Prices Inputs Inputs 2009 Assets Level I Level II Level III Money market funds $ 4,545,448 $ - $ - $ 4,545,448 Equity securities 2,456 - - 2,456 Investment Trust - - 144,053 144,053 $ 4,547,904 $ - $ 144,053 $ 4,691,957 Beneficial interest in

perpetual trust (Note 4) $ - $ - $ 54,105 $ 54,105


3. INVESTMENTS…continued The changes in investments measured at fair value for which the Foundation’s has used Level III inputs to determine fair value are as follows for the years ended December 31, 2010 and 2009: Beneficial Interest in Perpetual Investment Trust Trust Total Balance, December 31, 2008 $ 43,447 $ 362,579 $ 406,026

Gain on Beneficial interest in perpetual trust 10,658 - 10,658 Net realized/unrealized losses on investments - (35,601) (35,601) Proceeds from sale of investments - (182,925) (182,925)

Balance, December 31, 2009 54,105 144,053 198,158

Gain on Beneficial interest in perpetual trust 6,159 - 6,159 Net realized/unrealized losses on investments - 6,623 6,623

Balance, December 31, 2010 $ 60,264 $ 150,676 $ 210,940

4. BENEFICIAL INTEREST IN PERPETUAL TRUST The Foundation has a beneficial interest in a perpetual trust held by a third party trustee for the benefit of the Foundation. The principal is restricted in perpetuity. Annual gains or losses on the trust investments are included in temporarily restricted net assets. The trust may make distributions to the Foundation in accordance with the trust’s spending policy of an amount equal to or less than the amount in temporarily restricted net assets.

5. PROPERTY AND EQUIPMENT Property and equipment consists of the following as of December 31, 2010 and 2009: 2010 2009 Office equipment $ 149,904 $ 160,256 Furniture 121,516 121,676 Capitalized software 57,944 57,944 329,364 339,876 Less - accumulated depreciation (264,987) (225,407) $ 64,377 $ 114,469

6. LINE-OF-CREDIT AGREEMENT During the year ended December 31, 2010, the Foundation’s affiliate renewed a line-of-credit agreement with Sovereign Bank and signed a new Promissory Note and Security Agreement. The line is an unsecured, working capital line-of-credit with maximum borrowings of $50,000. Advances on the line are charged interest at the Bank’s prime rate plus 5% (8.25% at December 31, 2010). There were no outstanding borrowings under the line of credit at December 31, 2010 and 2009.


7. OPERATING LEASES In October 2004, the Foundation entered into a subsequent lease for office space which commenced in January 2005. This lease was rent-free through November 2005, at which time monthly rent payments commenced. This lease expires in January 2015. The Foundation records the related rent expense on a straight line basis over the life of the lease. As of December 31, 2010 and 2009, accrued rent of $231,233 and $254,785, respectively, is included in accounts payable and accrued expenses. In April 2004, the Organization entered into a lease for office space in Philadelphia which expired in June 2009. In May 2009, the Organization entered into a new lease for office space in Philadelphia which expired in March 2011. In June 2011, the Organization entered into a new lease for office space in Philadelphia which will expire in May 2013. In addition, the Foundation has operating leases for various office equipment with monthly lease payments totaling $2,473 expiring through July 2014. Following is a schedule of future minimum lease payments for the year ending December 31:

2011 $ 387,670 2012 395,910 2013 380,428 2014 356,313 2015 32,259 $ 1,552,580

Total rent expense under these leases was $366,552 and $356,465 for the years ended December 31, 2010 and 2009, respectively.

8. RETIREMENT PLANS In 1999, the Foundation established a defined contribution retirement plan and tax deferred annuity plan covering substantially all employees. The Foundation’s contribution is equal to the employee contribution with a limit based on length of service for eligible employees. The defined contribution plan allows employees to make supplementary voluntary contributions subject to IRS limits. Contributions to the plan for the years ended December 31, 2010 and 2009 were $71,354 and $52,378, respectively.


9. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes as of December 31, 2010 and 2009: 2010 2009 Gifts and other unexpended revenue and gains restricted to:

Time (not yet received) $ 99,100 $ 374,054 Professional Development Fund 392,535 400,035 McLane Fund - 120,191 Summer Opportunities Fund 56,696 33,725 Other grants 149,020 - SSATB College Tour 2,341 - College Success Academy 411,832 - Teaching Assistants - 5,000 Strategic planning 500 - Appreciation on permanently restricted endowment 54,159 438 Appreciation in beneficial interest in trust 16,124 9,965

$ 1,182,307 $ 943,408

10. CAMPAIGN FOR GROWTH In 2004, The Foundation initiated a fundraising campaign – the “Campaign for Growth” – with the goal of raising $15 million in annual giving and multi-year pledges by the end of the year 2009 to support growth and expansion of services provided to scholars, including the expansion of the core program, the creation of a ninth grade program, and the development of a program to support innovation, dissemination and outreach. As of December 31, 2009, the Foundation has raised $19,355,511 in pledges and annual giving in connection with the campaign. Amounts not yet collected as of December 31, 2010 and 2009 are included in contributions receivable (Note 2), and temporarily restricted net assets (Note 9).

11. PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets are investments restricted in perpetuity, the income from which is expendable for operations. As of December 31, 2010 and 2009, permanently restricted net assets totaled $1,044,906 and $1,044,170, respectively.


12. ENDOWMENT NET ASSETS Following is a summary of endowment net asset composition by type of fund as of December 31, 2010: Temporarily Permanently Restricted Restricted Total Donor Restricted Endowment Funds $ 68,888 $ 1,000,000 $ 1,068,888 Following is a summary of the changes in endowment net assets for the year ended December 31, 2010. Temporarily Permanently Restricted Restricted Total Endowment net asset, beginning of year $ 438 $ 1,000,000 $ 1,000,438 Investment return: Investment income 17,478 - 17,478 Realized gain 50,972 - 50,972 Endowment net assets, end of year $ 68,888 $ 1,000,000 $ 1,068,888 Following is a summary of endowment net asset composition by type of fund as of December 31, 2009: Temporarily Permanently Restricted Restricted Total Donor Restricted Endowment Funds $ 438 $ 1,000,000 $ 1,000,438 Following is a summary of the changes in endowment net assets for the year ended December 31, 2009. Temporarily Permanently Restricted Restricted Total Endowment net asset, beginning of year $ - $ - $ - New endowment - 1,000,000 1,000,000 Investment return:

Interest income 438 - 438 Endowment net assets, end of year $ 438 $ 1,000,000 $ 1,000,438


13. SATISFACTION OF RESTRICTIONS Net assets released from restrictions resulting from the satisfaction of restrictions during the years ended December 31, 2010 and 2009 are as follows: 2010 2009 Satisfaction of time restrictions $ 418,699 $ 269,502 McLane Fund 120,191 549,714 College Success Academy 36,455 - Summer opportunities 10,030 7,529 Strategic Planning 9,500 24,500 Teaching Assistants 5,000 - Senior Class Gift 2,000 - National Partnership for Educational Access - 91,402 Professional Development 7,500 24,555 Plymouth SAT Preparation - 5,000 Lung Health Education - 5,000 $ 609,375 $ 977,202

14. SUBSEQUENT EVENTS The Foundation has evaluated subsequent events through September 22, 2011, when the financial statements were available to be issued.

SUPPLEMENTARY INFORMATION

INDEPENDENT AUDITOR’S REPORT ON SUPPLEMENTARY INFORMATION Board of Directors The Steppingstone Foundation, Inc. and Affiliate Boston, Massachusetts Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidating information is presented for purposes of additional analysis of the basic consolidated financial statements rather than to present the financial position, results of operations, and changes in net assets of the individual organizations. The consolidating information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

September 22, 2011 Boston, Massachusetts

The Steppingstone Foundation, Inc., and Affiliate Consolidating Schedule of Financial Position

December 31, 2010

The Steppingstone Steppingstone

Foundation, Inc. Scholars, Inc. Eliminations Total

ASSETS

Current assets:

Cash and cash equivalents 537,218$ 452,802$ -$ 990,020$

Contributions receivable 718,556 - - 718,556

Other receivables 1,720 - - 1,720

Prepaid expenses and deposit 157,101 11,492 - 168,593

Investments 2,201,397 1,054,114 - 3,255,511

Beneficial interest in perpetual trust - 60,264 - 60,264

Property and equipment, at cost less accumulated -

depreciation 58,755 5,622 - 64,377

Total assets 3,674,747$ 1,584,294$ -$ 5,259,041$

LIABILITIES AND NET ASSETS

Current liabilities:

Accounts payable and accrued expenses 302,162$ 17,171$ -$ 319,333$

Deferred revenue 77,220 10,000 - 87,220

Total liabilities 379,382 27,171 - 406,553

Net assets:

Unrestricted: -

Operations 1,179,191 446,084 - 1,625,275

Board designated 1,000,000 - - 1,000,000

Total unrestricted net assets 2,179,191 446,084 - 2,625,275

Temporarily restricted 1,116,174 66,133 - 1,182,307

Permanently restricted - 1,044,906 - 1,044,906

Total net assets 3,295,365 1,557,123 - 4,852,488

Total liabilities and net assets 3,674,747$ 1,584,294$ -$ 5,259,041$

The Steppingstone Foundation, Inc. and AffiliateConsolidating Schedule of Activities


Temporarily Permanently Temporarily Permanently Temporarily Permanently

Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Eliminations Unrestricted Restricted Restricted Total

Revenue, gains and other support:

Fundraising events 815,885$ 33,000$ -$ 848,885$ 417,182$ -$ -$ 417,182$ -$ 1,233,067$ 33,000$ -$ 1,266,067$

Less cost of direct benefit to donors (107,094) - - (107,094) (129,793) - - (129,793) - (236,887) - - (236,887)

Net fundraising event revenue 708,791 33,000 - 741,791 287,389 - - 287,389 - 996,180 33,000 - 1,029,180

Contributions and grants 1,942,185 738,746 - 2,680,931 880,524 12,000 766 893,290 (1,000) 2,821,709 750,746 766 3,573,221

Growth campaign contributions 4,649 - - 4,649 - - - - - - 4,649 - 4,649

Investment income 2,671 - - 2,671 1,581 17,478 - 19,059 - 4,252 17,478 - 21,730

Other income 7,193 - - 7,193 - - - - 7,193 - - 7,193

Membership income 127,333 - - 127,333 - - - - - 127,333 - - 127,333

Realized and unrealized gains - - - -

on investments 6,927 - - 6,927 - 36,242 - 36,242 - 6,927 36,242 - 43,169

Gain on beneficial interest in perpetual trust - - - - - 6,159 - 6,159 - - 6,159 - 6,159

Satisfaction of restrictions 363,625 (363,625) - - 245,750 (245,750) - - - 609,375 (609,375) - -

Total revenue, gains

and other support 3,163,374 408,121 - 3,571,495 1,415,244 (173,871) 766 1,242,139 (1,000) 4,572,969 238,899 766 4,812,634

Expenses and losses:

Program services:

Boston Academy 2,483,126 - - 2,483,126 - - - - - 2,483,126 - - 2,483,126

College Success Academy 95,602 - - 95,602 - - - - - 95,602 - - 95,602

Scholars Program - Philadelphia - - - - 650,551 - - 650,551 - 650,551 - - 650,551

National Partnership for

Educational Access 327,845 - - 327,845 - - - - - 327,845 - - 327,845

Replication 131,496 - - 131,496 - - - - (1,000) 130,496 - - 130,496

Total program services 3,038,069 - - 3,038,069 650,551 - - 650,551 (1,000) 3,687,620 - - 3,687,620

Supporting services:

General and administrative 435,491 - - 435,491 169,413 - - 169,413 - 604,904 - - 604,904

Development 611,822 - - 611,822 204,297 - - 204,297 - 816,119 - - 816,119

Total supporting services 1,047,313 - - 1,047,313 373,710 - - 373,710 - 1,421,023 - - 1,421,023

Total expenses 4,085,382 - - 4,085,382 1,024,261 - - 1,024,261 (1,000) 5,108,643 - - 5,108,643

Change in net assets (922,008) 408,121 - (513,887) 390,983 (173,871) 766 217,878 - (535,674) 238,899 766 (296,009)

Net assets at beginning of year 3,105,848 703,404 - 3,809,252 55,101 240,004 1,044,140 1,339,245 - 3,160,949 943,408 1,044,140 5,148,497

Net assets at end of year 2,183,840$ 1,111,525$ -$ 3,295,365$ 446,084$ 66,133$ 1,044,906$ 1,557,123$ -$ 2,625,275$ 1,182,307$ 1,044,906$ 4,852,488$

The Steppingstone Foundation, Inc. Steppingstone Scholars, Inc. Consolidated

The Steppingstone Foundation, Inc. and Affiliate

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