E.C.S.V. AND E.C.S.V. REAL ESTATE (California Nonprofit Public Benefit Corporations) *** CONSOLIDATED FINANCIAL STATEMENTS Year Ended June 30, 2014

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1 *** CONSOLIDATED FINANCIAL STATEMENTS Year Ended June 30, 2014 with Comparative Totals for the Year Ended June 30, 2013

2 TABLE OF CONTENTS Pages I. FINANCIAL SECTION INDEPENDENT AUDITOR'S REPORT 1-2 FINANCIAL STATEMENTS: Consolidated Statement of Financial Position 3 Consolidated Statement of Activities 4 Consolidated Statement of Functional Expenses 5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7-17 II. SUPPLEMENTARY INFORMATION: Consolidating Schedule of Financial Position 18 Consolidating Schedule of Activities 19 Consolidating Schedule of Functional Expenses 20 Consolidating Schedule of Cash Flows 21

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4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of E.C.S.V. and E.C.S.V. Real Estate as of June 30, 2014, and the changes in their net assets and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information The prior year summarized comparative information has been derived from E.C.S.V. s financial statements for the year ended June 30, Those financial statements were audited by other auditors whose report dated December 12, 2013 expressed an unmodified opinion on those financial statements. Other Matter Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplementary information on pages 18 through 21 is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. BERGER LEWIS ACCOUNTANCY CORPORATION San Jose, California September 30,

5 SECTION I FINANCIAL SECTION FINANCIAL STATEMENTS

6 CONSOLIDATED STATEMENT OF FINANCIAL POSITION June 30, 2014 with Comparative Totals as of June 30, 2013 ASSETS CURRENT ASSETS: Cash and Cash Equivalents $ 78,396 $ 135,760 Cash - Reserve, Current Portion (Note 2) 92,753 - Cash - Restricted (Notes 2 and 3) 12,023,453 1,098,298 Accounts Receivable 2,550 - Grants Receivable, Current Portion 391,666 1,129,500 Pledge Receivable 5,000 - Prepaid Expenses and Deposits 9,958 52,500 Total Current Assets 12,603,776 2,416,058 OTHER ASSETS: Cash - Reserve, Noncurrent Portion (Note 2) 425,919 - Note Receivable (Notes 5 and 16) 9,993,000 - Grants Receivable, Noncurrent Portion 931,185 - Construction in Progress 1,027, ,190 Debt Issuance Costs 482,194 - Total Other Assets 12,859, ,190 TOTAL ASSETS $ 25,463,240 $ 2,907,248 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts Payable and Accrued Liabilities $ 119,335 $ 120,800 Notes Payable, Current Portion 725,000 - Total Current Liabilities 844, ,800 LONG-TERM LIABILITIES, NET OF CURRENT PORTION: The David and Lucille Packard Foundation Note Payable 2,341,667 - LCD New Markets Fund XVI Loan A Note Payable (Notes 8 and 16) 9,993,000 - LCD New Markets Fund XVI Loan B Note Payable (Notes 8 and 16) 4,274,223 - Less: Current Portion of Notes Payable (725,000) - Total Long-Term Liabilities, Net of Current Portion 15,883,890 - Total Liabilities 16,728, ,800 NET ASSETS: Unrestricted Net Assets 1,952, ,940 Temporarily Restricted Net Assets 6,782,581 2,187,508 Total Net Assets 8,735,015 2,786,448 TOTAL LIABILITIES AND NET ASSETS $ 25,463,240 $ 2,907,248 The Accompanying Notes are an Integral Part of these Financial Statements

7 CONSOLIDATED STATEMENT OF ACTIVITIES Year Ended June 30, 2014 with Comparative Totals for the Year Ended June 30, 2013 Unrestricted Temporarily Restricted TOTAL TOTAL SUPPORT AND REVENUE: Foundation Grants $ 1,002,933 $ 4,928,684 $ 5,931,617 $ 462,500 Contributions 7, , ,600 10,000 Contributions In-Kind 159, ,281 - Interest 3,802-3, Total Support and Revenue 1,173,566 5,131,734 6,305, ,400 Net Assets Released from Restrictions 536,661 (536,661) - - Total Support, Revenue and Net Assets Released from Restrictions 1,710,227 4,595,073 6,305, ,400 EXPENSES: Program Services Supporting Services: Management and General 256, ,733 26,555 Fundraising 100, , ,780 Total Supporting Services 356, , ,335 Total Expenses 356, , ,335 CHANGE IN NET ASSETS 1,353,494 4,595,073 5,948, ,065 NET ASSETS, Beginning of Year 598,940 2,187,508 2,786,448 2,523,383 NET ASSETS, End of Year $ 1,952,434 $ 6,782,581 $ 8,735,015 $ 2,786,448 The Accompanying Notes are an Integral Part of these Financial Statements

8 CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year Ended June 30, 2014 with Comparative Totals for the Year Ended June 30, 2013 PROGRAM SERVICES SUPPORTING SERVICES TOTAL Management and General Fundraising Total EXPENSES: Legal Fees $ - $ 204,281 $ - $ 204,281 $ 204,281 $ 150 Consultants , , , ,006 Professional Services - 47,547-47,547 47,547 21,445 Bank Fees - 1,619-1,619 1,619 1,143 Travel/Mileage - 1,353-1,353 1,353 2,324 Supplies ,782 Occupancy Postage and Shipping Fees, Dues and Subscriptions Printing and Publication Taxes and Fees ,035 Total Functional Expenses $ - $ 256,733 $ 100,000 $ 356,733 $ 356,733 $ 210,335 Percentage of Total 0 % 72 % 28 % 100 % 100 % The Accompanying Notes are an Integral Part of these Financial Statements

9 CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended June 30, 2014 with Comparative Totals for the Year Ended June 30, CASH FLOWS FROM OPERATING ACTIVITIES: Change in Net Assets $ 5,948,567 $ 263,065 Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Contributions Restricted for Long-Term Purposes (4,909,047) - (Increase) Decrease in Assets: Accounts Receivable (2,550) - Grants Receivable (193,351) 100,000 Pledge Receivable (5,000) - Prepaid Expenses and Deposits 42,542 (52,500) Increase (Decrease) in Liabilities: Accounts Payable and Accrued Liabilities (1,465) 86,257 Net Cash Provided by Operating Activities 879, ,822 CASH FLOWS FROM INVESTING ACTIVITIES: Funding of Note Receivable (9,993,000) - Increase in Cash - Reserve (518,672) - Increase in Cash - Restricted (10,925,155) (398,101) Purchase of Construction In Progress (535,976) (157,485) Net Cash Used by Investing Activities (21,972,803) (555,586) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Issuance of Notes Payable 16,608,890 - Debt Issuance Costs (482,194) - Proceeds from Contributions Restricted for Long-Term Purposes 4,909,047 - Net Cash Provided by Financing Activities 21,035,743 - NET DECREASE IN CASH AND CASH EQUIVALENTS (57,364) (158,764) CASH AND CASH EQUIVALENTS, Beginning of Year 135, ,524 CASH AND CASH EQUIVALENTS, End of Year $ 78,396 $ 135,760 The Accompanying Notes are an Integral Part of these Financial Statements

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION: Overview - E.C.S.V. and E.C.S.V. Real Estate's (the "Organization") mission is to build and support California's first "Educare" school co-located with the Santee Elementary School and Franklin- McKinley Children s Initiative. Educare will serve as the region and state s leading professional development and research institute, training early childhood education professionals in scientifically proven best practices in an effort to improve the quality of care and instruction in sites beyond the walls of the center, including K-12. A signature component of the Educare school will be its Professional Development Institute ("Institute"), a center that will provide high quality training to early education providers (public and private sector) and to K-8 teachers from throughout the Bay Area and northern California in the latest science and evidence-based teaching methods. The Institute will partner with the region s colleges and universities to ensure that educators bring robust teaching practices back to their schools and classrooms. The Organization and its member entities, the Silicon Valley Leadership Group, David and Lucille Packard Foundation, FIRST 5 Santa Clara County, First 5 California, Franklin-McKinley School District, Santa Clara County Office of Education, Buffet Early Childhood Fund, Educare Learning Network and East Side Union High School District, among others conducted a private capital campaign to raise the majority of the $14 million needed to build the school and the Professional Development Institute. In order to finance the project, the Organization qualified for tax credit financing through the federal New Markets Tax Credit ("NMTC") program. E.C.S.V. - As part of the structure of the NMTC, E.C.S.V., which was incorporated in April 2012, and is doing business as Educare of California at Silicon Valley, functions as the leverage lender and project operator. In this role, E.C.S.V. has raised funds for the construction and operation of the new Educare School and provided the receipts of this fundraising activity via a leverage loan to the NMTC investment fund, ECSV Investment Fund, LLC ("IF"). The other part of the NMTC funding has been provided through a qualified equity investment ("QEI") in a community development entity ("CDE"), certified as such by the Community Development Financial Institutions Fund ("CDFI Fund"). E.C.S.V. Real Estate - This entity was formed as a separate nonprofit organization in November 2013 to function as the NMTC qualified active low-income community business ("QALICB"). As a real estate QALICB, E.C.S.V. Real Estate's function is to facilitate construction of the new Educare School facility at the project site on a ground lease from Franklin-McKinley School District, and lease the completed facility and related improvements to E.C.S.V. The leverage loan from E.C.S.V. to IF and the NMTC equity investment in IF and a sub-cde, LCD New Markets Fund XVI, LLC were then funneled through to E.C.S.V. Real Estate in the form of qualified low income community investment ("QLICI") loans totaling approximately $14 million. The School Districts have pledged to provide $1,800,000 of bond proceeds for project site improvements outside of the NMTC financing structure

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1 - ORGANIZATION (Continued): Pre-Development and Construction Phase - Transactions related to the NMTC financing were recorded in June Subsequent to this financing transaction, E.C.S.V. continues to fund raise to address additional expenses that will be incurred to bring the project to fruition. As of June 30, 2014, E.C.S.V. Real Estate as a stand-alone entity reports a net asset deficit of $(293,575), indicating a shortfall in funds available for its operations. In order to fund operations during the construction phase, the Organization continues to receive donations from corporate sponsors, individual pledges and grants from nonprofit organizations. Subsequent to year end and prior to the issuance of the financial statements, fund raising has generated $117,650 in additional contributions. Construction of the Educare School building began in June 2014 and is expected to be completed in July Educare program services are scheduled to begin August 10, NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation - The consolidated financial statements include the accounts of E.C.S.V. and E.C.S.V. Real Estate. The entities are consolidated since both have an economic interest in each other and control each other through a majority voting interest in their governing boards. All significant intra-entity transactions have been eliminated. Basis of Accounting - The consolidated financial statements of E.C.S.V. and E.C.S.V. Real Estate have been prepared on the accrual basis of accounting. Basis of Presentation - The Organization follows standards of accounting and financial reporting for voluntary health and welfare organizations. In accordance with accounting principles generally accepted in the United States of America, the Organization reports its financial position and operating activities in three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Unrestricted net assets include those assets over which the Board of Directors has discretionary control in carrying out the operations of the Organization. Under this category, the Organization maintains an operating fund, property and equipment fund plus any net assets designated by the Board for specific purposes. Temporarily restricted net assets include those assets which are subject to donor restriction and for which the applicable restriction was not met as of the year end of the current reporting period. Permanently restricted net assets include those assets which are subject to a nonexpiring donor restriction, such as endowments. There are currently no permanently restricted net assets

12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Comparative Financial Information - The consolidated financial statements include certain prior-year summarized comparative information in total but not by net asset class or functional expense categories. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Organization's financial statements for the year ended June 30, 2013, from which the summarized information was derived. Use of Estimates - The preparation of consolidated 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 at the date of the consolidated financial statements and the reported amounts of support, revenue and expenses during the period. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents - Cash and cash equivalents include highly liquid investments and investments with a maturity of three months or less, and exclude donor restricted receipts and amounts designated for long-term purposes. The Organization maintains its cash in bank deposit accounts which, at times, may exceed Federally insured limits. The Organization has not experienced any losses in such accounts. Management believes it is not exposed to any significant risk on cash accounts. Cash - Reserve - In accordance with the New Markets Tax Credit Fee Agreement between E.C.S.V. Real Estate and its lender, E.C.S.V. Real Estate was required to fund a reserve in the amount of $518,672 during 2014 to be applied to asset management fees and other costs. Cash - Restricted - The loan agreement for the LCD New Markets Fund XVI, LLC QLICI Loan A and B Notes require that E.C.S.V. Real Estate maintain the proceeds of the loan in a restricted account. Except for disbursements detailed in the NMTC closing Flow of Funds Memorandum, disbursements must be approved by the lender. See Note 8, Proceeds Use Restrictions. Restricted cash includes these restricted loan proceeds and also includes amounts restricted for building construction and teacher development. See Note 3. Accounts and Grants Receivable - The Organization considers all accounts and grants receivable to be fully collectible; accordingly, no allowance for doubtful accounts is considered necessary. Promises to Give - Unconditional promises to give, less an allowance for uncollectible amounts, are recognized as support in the period received and as assets, decreases of liabilities or expenses depending on the form of the benefits received. Promises are recorded at net realizable value if expected to be collected in one year and at fair value if expected to be collected in more than one year. Conditional promises to give, if any, are recognized only when the conditions on which they depend are substantially met and the promises become unconditional. Present value is measured using a risk-adjusted discount rate of return at initial recognition and is not revised later. Revenue Recognition - The Organization recognizes support and revenue on the accrual basis of accounting. Revenue from grants which have been classified as "exchange transactions" and program fees are recognized as revenue in the period in which the service is provided

13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Contributions - Contributions are recognized when the donor makes a pledge to give that is, in substance, an unconditional promise. Contributions are recorded as unrestricted, temporarily restricted, or permanently restricted depending on the nature of donor restrictions. Restricted contributions are reported as increases in restricted net assets. When the restriction is met the amount is shown as a reclassification of restricted net assets to unrestricted net assets. Contributions In-Kind - Donated equipment and other donated goods are recorded at their estimated fair value as of the date of the donation. Contributed services, which require a specialized skill and which the Organization would have paid for if not donated, are recorded at the estimated fair value at the time the services are rendered. The Organization also receives donated services that do not require specific expertise but which are nonetheless central to the Organization's operations. Expense Allocation - The costs of providing the various programs and other activities have been summarized on a functional basis in the consolidated statement of activities and in the consolidated statement of functional expenses. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Income Taxes - E.C.S.V. is exempt and E.C.S.V. Real Estate has applied for and is waiting on approval for exemption from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and state income taxes under Section 23701(d) of the California Revenue Taxation Code. Accordingly, no provision for income taxes has been made in the accompanying statements. In addition E.C.S.V. qualified for and E.C.S.V. Real Estate is expected to qualify for the charitable contribution deduction under Section 170(b)(1)(A) of the Internal Revenue Code and E.C.S.V. has been and E.C.S.V. Real Estate is expected to be classified as an organization that is not a private foundation under Section 509(a)(1) of the Internal Revenue Code. Uncertainty in Income Taxes - Generally accepted accounting principles provide accounting and disclosure guidance about positions taken by an organization in its tax returns that might be uncertain. Management has considered its tax positions and believes that all of the positions taken by the Organizations in their federal and state exempt organization tax returns are more-likely-than-not to be sustained upon examination. The Organizations file information returns in the U.S. federal jurisdiction and state of California. The Organizations' federal returns could be subject to examination by federal taxing authorities for 3 years after they are filed. The Organization's California returns could be subject to examination by the state taxing authorities for 4 years after they are filed. Reclassifications - Certain amounts in the prior year have been reclassified in order to be consistent with the current year presentation

14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Subsequent Events - Management of the Organizations have evaluated events and transactions subsequent to June 30, 2014 for potential recognition or disclosure in the financial statements. The Organizations did not have subsequent events that required recognition or disclosure in the financial statements for the fiscal year ended June 30, Subsequent events have been evaluated through the date the financial statements became available to be issued, September 30, NOTE 3 - CASH - RESTRICTED: Cash - restricted as of June 30, consisted the following: E.C.S.V.: Building Construction $ 59,268 $ 1,098,298 Teacher Development 50,000 - Total E.C.S.V 109,268 1,098,298 E.C.S.V. Real Estate: NMTC Loan Proceeds 11,914,185 - Total Cash - Restricted $ 12,023,453 $ 1,098,298 NOTE 4 - GRANTS AND PLEDGES RECEIVABLE: Grants and pledges receivable as of June 30, consisted of the following: Receivable in Less Than One Year $ 396,666 $ 1,129,500 Receivable in One to Five Years 949,999 - Total Grants and Pledges Receivable 1,346,665 1,129,500 Less: Discounts to Net Present Value 18,814 - Total Net Present Value of Grants and Pledges Receivable 1,327,851 1,129,500 Less: Current Portion of Grants and Pledges Receivable 396,666 1,129,500 Grants and Pledges Receivable, Net of Current Portion $ 931,185 $

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 5 - NOTE RECEIVABLE: In June 2014, E.C.S.V. issued a $9,993,000 leverage loan to IF to finance a portion of IF s QEI in a sub-cde. The note receivable requires annual interest payments of 1.427% on the outstanding principal balance beginning in December 2014 and continuing through December From December 2021 through the maturity date of December 2041, the note requires annual payments of accrued interest on the outstanding principal balance plus an amount of principal sufficient to amortize the outstanding principal amount over the remaining term of the note on a level payment basis, estimated at $554,075 per year. The note is secured by a security interest granted by the IF in its equity interest in LCD New Markets Fund XVI, LLC, the sub-cde. The outstanding balance of the note receivable at June 30, 2014 was $9,993,000 (see Note 16). NOTE 6 - CONSTRUCTION IN PROGRESS: As detailed in Note 1, E.C.S.V. Real Estate is constructing a new building to be leased to E.C.S.V. for the operation of a new Educare School building. Construction in progress includes architecture, design, permit and other costs incurred to date. Construction of the Educare School building began in June 2014 and is expected to be completed in July Educare program services are scheduled to begin August 10, Construction in progress at June 30, 2014 and 2013 totaled $1,027,166 and $491,190, respectively. NOTE 7 - DEBT ISSUANCE COSTS: As detailed in Notes 1 and 8, in June 2014 E.C.S.V. Real Estate obtained financing for the construction of the new Educare School building. The $482,194 in costs incurred in obtaining this financing will be amortized on the straight-line method over the 34 year life of the loans. During construction, the amortization will be capitalized in construction in progress. NOTE 8 - NOTES PAYABLE: Notes payable as of June 30, consisted of the following:

16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - NOTES PAYABLE (Continued): The David and Lucille Packard Foundation Note - In June 2014, E.C.S.V. entered into a $2,341,667 term loan to support the construction of the new Educare building. Principal payments ranging from $166,667 to $500,000 are due every six months beginning in November 2014 and ending in May The agreement requires that in addition to these principal payments, if and to the extent E.C.S.V. collects funds for the facility (excluding funds raised that are expressly restricted for purposes inconsistent with repayment of the loan, less out of pocket expenses incurred in fundraising efforts) during the period preceding any principal payment date that in the aggregate exceed the principal payment amount, E.C.S.V. will increase the principal payment due by such amount. Payments of interest at 1% on the unpaid balance are also due on or before each principal payment date. $ 2,341,667 $ - LCD New Markets Fund XVI, LLC QLICI Loan A Note - In June 2014, E.C.S.V. Real Estate entered into a $9,993,000 construction loan, secured by a construction leasehold deed of trust on the new Educare building. The note includes annual interest only payments at 1% of the unpaid balance from December 2014 until December 2021 at which time annual principal and interest payments of $410,056 per year are required. The note matures in December The loan and the completion of the project are guaranteed by E.C.S.V. (see Note 2 Cash - Restricted and Note 16). 9,993,000 - LCD New Markets Fund XVI, LLC QLICI Loan B Note - In June 2014, E.C.S.V. Real Estate entered into a $4,274,223 construction loan, secured by a construction leasehold deed of trust on the new Educare building. The note includes annual interest only payments at 1% of the unpaid balance from December 2014 until December 2021 at which time annual principal and interest payments of $175,775 per year are required. The note matures in December The loan and the completion of the project are guaranteed by E.C.S.V. (see Note 2 Cash - Restricted and Note 16). 4,274,223 - Total Notes Payable 16,608,890 - Current Portion (725,000)

17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8 - NOTES PAYABLE (Continued): Total Notes Payable, Net of Current Portion $ 15,883,890 $ - Future minimum principal payments are as follows: Year Ending June 30, Amount 2015 $ 725, , ,667 Thereafter 14,267,223 Total Future Minimum Principal Payments $ 16,608,890 Proceeds Use Restrictions - The building construction in progress additions were partially acquired using funds provided by restrictive, low interest rate loans from CDEs that hold NMTC allocation authority. The LCD NMTC loans were made to E.C.S.V. Real Estate because of its status as a QALICB pursuant to Section 45D of the Internal Revenue Code. The terms of these loans restrict the use of the project and generally require low-income qualified persons to benefit for the NMTC compliance period of seven years. Failure to comply with the terms of the loans and related agreements would result in an event of default. NOTE 9 - TEMPORARILY RESTRICTED NET ASSETS: The Organization's temporarily restricted net assets at June 30, consisted of the following: Construction of School $ 6,559,894 $ 2,187,508 Repayment of Packard Program - Related Investment Loan 172,687 - Teacher Development 50,000 - Total Temporarily Restricted Net Assets $ 6,782,581 $ 2,187,

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 10 - NET ASSETS RELEASED FROM RESTRICTIONS: Net assets were released from restrictions during the year by incurring expenses satisfying the restricted purpose or by the expiration of time as follows: 2014 Construction of School $ 536,661 Total Net Assets Released from Restrictions $ 536,661 NOTE 11 - CONTRIBUTIONS IN-KIND: The estimated fair value of donated expert services received are recorded as contributions. During the years ended June 30, the following contributions in-kind were received: Professional Services $ 159,281 $ - NOTE 12 - CONFLICT OF INTEREST POLICY: Included among the Organization's Board of Directors and Officers are volunteers from the community who provide valuable assistance to the Organization in the development of policies and programs and in the evaluation of business transactions. The Organization has adopted a conflict of interest policy whereby Board members are disqualified from participation in the final decisions regarding any action affecting their related company or agency. NOTE 13 - CONTINGENCIES: Grants and contracts awarded to E.C.S.V. and E.C.S.V. Real Estate are subject to the funding agencies' criteria, contract terms and regulations under which expenditures may be charged and are subject to audit under such terms, regulations and criteria. Occasionally, such audits may determine that certain costs incurred in connection with the grants do not comply with the established criteria that govern them. In such cases, the Organization could be held responsible for repayments to the funding agency for the costs or be subject to a reduction of future funding in the amount of the costs. Management does not anticipate any material questioned costs for the contracts and grants administered during the period

19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 14 - CONCENTRATIONS: During the year ended June 30, 2014, five organizations provided 27%, 16%, 16%, 15% and 11% of the total support and revenue. NOTE 15 - OPERATING LEASE COMMITMENTS: In June 2014, E.C.S.V. Real Estate entered into a ground lease with the Franklin McKinley School District ("FMSD") to lease real property as the site for the construction of the new Educare building. The lease, which required a $1 rent payment at commencement, will be effective for thirty-five years at which time E.C.S.V. Real Estate will convey fee title to the improvements constructed on the real property without any liens or encumbrances thereto as payment in full of all rent due. In connection with the ground lease, E.C.S.V. Real Estate entered into a development agreement with FMSD and East Since Union High School District for the construction of the facility on the site by FMSD. Also in connection with the ground lease, E.C.S.V. Real Estate entered into an agreement to lease the facility to E.C.S.V. for the operation of the Educare School for a term of twenty-eight years with accelerated rent payments beginning December Future minimum lease payments on the facility are as follows: Year Ending June 30, Amount 2015 $ , , , ,000 Thereafter 13,598,000 Total Future Minimum Lease Payments $ 14,152,000 Also in connection with the ground lease, E.C.S.V. entered into an agreement to sublease the equivalent of four classrooms to East Side Union High School District commencing upon the completion of the building and continuing for a term of twenty-two years. In addition to the sublessee's $1 million contribution to the building construction project in accordance with the development agreement, the lease requires an annual rent payment of $1 plus shared operating expenses allocated to all occupants

20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 15 - OPERATING LEASE COMMITMENTS (Continued): Similarly, E.C.S.V. entered into a facility use agreement with the Santa Clara County Office of Education ("SCCOE"), whereby the SCCOE was granted the use of eight classrooms for early childhood education purposes for an indefinite term. In return for the right to use the classrooms and shared spaces (hallways, play areas, etc.), the agreement obliges the SCCOE to pay a pro rata share of shared expenses (47% of the total, based on square footage), maintain classrooms in good condition, clean and repair (if necessary) shared use areas following use, and maintain appropriate insurance coverages. SCCOE is not required to pay rent. NOTE 16 - NEW MARKETS TAX CREDIT TRANSACTIONS: As a component of the NMTC financing transaction, the E.C.S.V. Real Estate recorded debt of $14,267,223 (see Note 8) payable to LCD New Markets Fund XVI, LLC, a sub-cde. Simultaneous with these transactions, E.C.S.V. entered into a put and call agreement with U.S. Bancorp Community Development Corporation (USBCDC), the federal tax credit investor, who is the sole member in IF, an upstream effective owner of the sub-cde, LCD New Markets Fund XVI, LLC. Under the terms of the put and call agreement, USBCDC is expected to sell its ownership interest in IF to E.C.S.V. for $1,000 during the six month put option period beginning after the end of the seven-year tax credit investment period. Exercise of this option will effectively extinguish E.C.S.V. Real Estate's outstanding debt owed to the sub-cde. The consolidated Organization will recognize income on the forgiveness of debt on the $4,274,223 of book value of the debt, excluding E.C.S.V.'s note receivable from E.C.S.V. Real Estate. All entities related to the NMTC financing transaction, excluding E.C.S.V. and E.C.S.V. Real Estate will then be dissolved, ending the NMTC structured financing deal

21 SECTION II SUPPLEMENTARY INFORMATION

22 CONSOLIDATING SCHEDULE OF FINANCIAL POSITION June 30, 2014 ASSETS E.C.S.V. E.C.S.V. Real Estate Eliminations TOTAL CURRENT ASSETS: Cash and Cash Equivalents $ 78,396 $ - $ - $ 78,396 Cash - Reserve, Current Portion (Note 2 ) - 92,753-92,753 Cash - Restricted (Notes 2 and 3) 109,268 11,914,185-12,023,453 Accounts Receivable 2, ,550 Grants Receivable, Current Portion 391, ,666 Pledge Receivable 5, ,000 Intra-Entity Receivables - 22,413 (22,413) - Prepaid Expenses and Deposits - 9,958-9,958 Total Current Assets 586,880 12,039,309 (22,413) 12,603,776 OTHER ASSETS: Cash - Reserve, Noncurrent Portion (Note 2) - 425, ,919 Note Receivable (Note 5 and Note 16) 9,993, ,993,000 Grants Receivable, Noncurrent Portion 931, ,185 Construction in Progress - 1,027,166-1,027,166 Debt Issuance Costs - 482, ,194 Total Other Assets 10,924,185 1,935,279-12,859,464 TOTAL ASSETS $ 11,511,065 $ 13,974,588 $ (22,413) $ 25,463,240 LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Accounts Payable and Accrued Liabilities $ 118,395 $ 940 $ - $ 119,335 Notes Payable, Current Portion 725, ,000 Intra-Entity Payables 22,413 - (22,413) - Total Current Liabilities 865, (22,413) 844,335 LONG-TERM LIABILITIES, NET OF CURRENT PORTION: The David and Lucille Packard Foundation Note Payable 2,341, ,341,667 LCD New Markets Fund XVI Loan A Note Payable - 9,993,000-9,993,000 LCD New Markets Fund XVI Loan B Note Payable - 4,274,223-4,274,223 Less: Current Portion of Notes Payable (725,000) - - (725,000) Total Long-Term Liabilities, Net of Current Portion 1,616,667 14,267,223-15,883,890 Total Liabilities 2,482,475 14,268,163 (22,413) 16,728,225 NET ASSETS: Unrestricted Net Assets (Deficit) 2,246,009 (293,575) - 1,952,434 Temporarily Restricted Net Assets 6,782, ,782,581 Total Net Assets (Deficit) 9,028,590 (293,575) - 8,735,015 TOTAL LIABILITIES AND NET ASSETS $ 11,511,065 $ 13,974,588 $ (22,413) $ 25,463,

23 CONSOLIDATING SCHEDULE OF ACTIVITIES Year Ended June 30, 2014 E.C.S.V. E.C.S.V. REAL ESTATE Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total Eliminations TOTAL SUPPORT AND REVENUE: Foundation Grants $ 1,002,933 $ 4,928,684 $ 5,931,617 $ - $ - $ - $ - $ 5,931,617 Contributions 7, , ,600 92,500-92,500 (92,500) 210,600 Contributions In-Kind 159, ,281 79,640-79,640 (79,640) 159,281 Interest 3,802-3, ,802 Management and Administration Fees 362, , (362,090) - Total Support and Revenue 1,535,656 5,131,734 6,667, , ,140 (534,230) 6,305,300 Net Assets Released from Restrictions 536,661 (536,661) Total Support, Revenue and Net Assets Released from Restrictions 2,072,317 4,595,073 6,667, , ,140 (534,230) 6,305,300 EXPENSES: Program Services Supporting Services: Management and General 325, , , ,715 (534,230) 256,733 Fundraising 100, , ,000 Total Supporting Services 425, , , ,715 (534,230) 356,733 Total Expenses 425, , , ,715 (534,230) 356,733 CHANGE IN NET ASSETS 1,647,069 4,595,073 6,242,142 (293,575) - (293,575) - 5,948,567 NET ASSETS, Beginning of Year 598,940 2,187,508 2,786, ,786,448 NET ASSETS, End of Year $ 2,246,009 $ 6,782,581 $ 9,028,590 $ (293,575) $ - $ (293,575) $ - $ 8,735,

24 CONSOLIDATING SCHEDULE OF FUNCTIONAL EXPENSES Year Ended June 30, 2014 Program Services E.C.S.V. Management and General Fundraising Total Program Services E.C.S.V. Real Estate Management and General Fundraising Total Eliminations TOTAL EXPENSES: Legal Fees $ - $ 102,141 $ - $ 102,141 $ - $ 102,140 $ - $ 102,140 $ - $ 204,281 Consultants , , ,525 Professional Services - 46,607-46, ,547 Bank Fees - 1,619-1, ,619 Travel/Mileage - 1,353-1, ,353 Supplies Occupancy Postage and Shipping Fees, Dues and Subscriptions Management Fees , ,090 (362,090) - Donation - 172, , (172,140) - Total Functional Expenses $ - $ 325,248 $ 100,000 $ 425,248 $ - $ 465,715 $ - $ 465,715 $ (534,230) $ 356,733 Percentage of Total - % 76 % 24 % 100 % - % 100 % - % 100 %

25 CONSOLIDATING SCHEDULE OF CASH FLOWS Year Ended June 30, 2014 E.C.S.V. E.C.S.V. Real Estate Eliminations TOTAL CASH FLOWS FROM OPERATING ACTIVITIES: Change in Net Assets $ 6,242,142 $ (293,575) $ - $ 5,948,567 Adjustments to Reconcile Change in Net Assets to Net Cash Provided (Used) by Operating Activities: Contributions Restricted for Long-Term Purposes (4,909,047) - - (4,909,047) (Increase) Decrease in Assets: Accounts Receivable (2,550) - - (2,550) Grants Receivable (193,351) - - (193,351) Pledges Receivable (5,000) - - (5,000) Prepaid Expenses and Deposits 52,500 (9,958) - 42,542 Intra-Entity Receivables - (22,413) 22,413 - Increase (Decrease) in Liabilities: Accounts Payable and Accrued Liabilities (2,405) (1,465) Intra-Entity Payables 22,413 - (22,413) - Net Cash Provided (Used) by Operating Activities 1,204,702 (325,006) - 879,696 CASH FLOWS FROM INVESTING ACTIVITIES: Funding of Note Receivable (9,993,000) - - (9,993,000) Increase in Cash-Reserves - (518,672) - (518,672) Increase (Decrease) in Cash-Restricted 989,030 (11,914,185) - (10,925,155) Purchase of Construction in Progress (535,977) (1,027,166) 1,027,167 (535,976) Proceeds from Disposal of Assets 1,027,167 - (1,027,167) - Net Cash Used by Investing Activities (8,512,780) (13,460,023) - (21,972,803) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Issuance of Notes Payable 2,341,667 14,267,223-16,608,890 Debt Issuance Costs - (482,194) - (482,194) Proceeds from Contributions Restricted for Long-Term Purposes 4,909, ,909,047 Net Cash Provided by Financing Activities 7,250,714 13,785,029-21,035,743 NET DECREASE IN CASH AND CASH EQUIVALENTS (57,364) - - (57,364) CASH AND CASH EQUIVALENTS, Beginning of Year 135, ,760 CASH AND CASH EQUIVALENTS, End of Year $ 78,396 $ - $ - $ 78,