ENERGIZED FOR STEM ACADEMY, INC. ANNUAL FINANCIAL AND COMPLIANCE REPORT FOR THE FISCAL YEAR ENDED JULY 31, 2016 GEORGE EDWARD GRIGSBY, CPA STAFFORD, TEXASENERGIZED FOR STEM ACADEMY, INC. TABLE OF CONTENTS REPORT NAME Certificate of the Board Independent Auditor's Report. General-Purpose Financial Statements Statement of Financial Position Statement of Activities . Statement of Cash Flows Notes to the Financial Statements ‘Supplementary Data Schedule of Expenses for Campus #321 Schedule of Expenses for Campus #390. Schedule of Expenses for Campus #455. Schedule of Expenses for Campus #459. Statement of Capital Assets for Campus Statement of Capital Assets for Campus#390 Statement of Capital Assets for Campusi#455. Statement of Capital Assets for Campusi#459 .. Budgetary Comparison Schedule Campus #321 Budgetary Comparison Schedule Campus #390 Budgetary Comparison Schedule Campus #455... Budgetary Comparison Schedule Campus #4559... Compliance and Internal Control 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 StaNdALMS oes Schedule of Findings and Questioned CostsCERTIFICATE OF THE BOARD Name of Charter Holder: Energized for STEM Academy, Inc. Name of School: Energized for STEM Academy, Inc. HISD Campus Numbers: 321, 390, 455, and 459 We, the undersigned, certify that the attached Annual Financial and Compliance Report of Energized for STEM ACADEMY, Inc. was reviewed and se Approved Disapproved for the year ended July 31, 2016 at a meeting of the governing body of said Charter Holder on the Qad day of (Jefe hie, 2017. a ean wear —t Signature of Board Secretary Signature of Board PresidentGEORGE EDWARD GRIGSBY, CPA P.0.Box 1924 STAFFORD, 1, 797 Phone: (281) 879-4442 Fax: (281) 879-4443 INDEPENDENT AUDITOR'S REPORT The Board of Directors Energized for STEM Academy, Inc, Report on the Financial Statements We have audited the accompanying financial statements of Energized for STEM Academy, Inc. (ESTEM) (a nonprofit organization), which comprise the statement of financial position as of July 31, 2016, and the related statements of activities, and cash fiows 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 financial 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 ur 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 entity’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 entity's 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 ESTEM as of July 31, 2016, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America Other Matters Other Information My audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying Supplementary Schedules are presented for purposes of additional analysis as required by the Texas Education Agency and are not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In my opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. | believe that the audit evidence | have obtained is sufficient and appropriate to provide a basis for my audit opinion. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, | have also issued my report dated December 28, 2016, on my consideration of ESTEM'’s internal control over financial reporting and on my tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of my testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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 ESTEM ‘s internal control over financial reporting and compliance. George Edward Grigsby CPA Stafford, Texas December 28, 2016General Purpose Financial StatementsENERGIZED FOR STEM ACADEMY, INC, ‘Statement of Financial Position July 31, 2016 Assets Current assets: Cash and Cash Equivalents Due from Affiliates Accounts Receivable Total Current Assets Property and Equipment, Net Total Assets Current Liabilities: Deferred Revenues Accounts Payable Accrued Salaries and Related Liabilities Accrued Rent Payable Due to Management Net assets: Unrestricted ‘Temporarily restricted Total Net Assets See the accompanying notes to the financial statements. $ 1,553,918 1,774,184 410,282 3,738,384 170,754 ESOL : $ 2,080,576 388,139 246,196 350,220 427,426 3.192.557 20,892 695,689 716,581 saeENERGIZED FOR STEM ACADEMY, INC. Statement of Activities For the year ended July 31, 2016 Revenues and other support: Local Suppo 8740 Other Revenues from Local Sources State Program Revenues: 812 Foundation School Program 5820 Other State Grants and Fees Total State Program Revenues Federal Program Revenues: 5920 Title |, Part A- Regular Grant 5920 Title Il, LEP Grant Total Federal Program Revenues Total Revenues and Support Not Assets Released From Restrictions: Satisfaction of Program Restrictions Total Revenues and Other Support Expenses: 11 Instruction 23 Schoo! Leadership 30 Support Services - Students 34 Student Transportation 35 Food Services 36 Co-curicular/Extracurricular Activities 41 General Administration 51 Facilities Maintenance and Operations 52 Security and Monitoring Services ‘Total Expenses Chango in Not Assets Net Assets at Beginning of Year Net Assets at End of Year ‘See the accompanying notes to the financial statements Unrestricted 8 8,025 8,025 5,851,575 2,906,404 545,052 79,382 53,086 10.916 100,800 691,487 1,080,234 174.216 8,025 12,867 Temporarily Restricted 5,651,575) 695,689 695,689, sa § Total 8,025 5,844,967 309,729 5 154,606— 186,185 6413 702,568" 6,355,289 2,908,404 545,052 79,82 53,086 10,916 100,800 691,487 703,714 12,967 T7858ENERGIZED FOR STEN ACADEMY, INC. Statement of Cash Flows Year ended July 31, 2018 Cash flows from operating activities: Foundation School Program Receipts Federal Grant Receipts Other State Grants and Fees Local Support Receipts Payments to charter school personnel for services rendered Payments to vendors for goods and services rendered Net cash provided by operating acti Cash flows from investing activities: Increase in amount due from related parties Net cash used in investing activities Cash flows from financing activities Net increase in cash Cash at beginning of year Cash at the end of year Reconciliation of changes in net assets to net cash provided by operating activities: Change in net assets Depreciation and amortization expense (Increase) decrease in operating assets: Receivable from HISD Increase (decrease) in operating liabilities: ‘Accounts payable Accrued salaries, wages and related liabilities Accrued rent payable ‘Amount to officers and directors Deferred revenues Net cash provided by operating activities ‘See accompanying notes to financial statements, $ 6,125,182 192,568 309,729 141,615 (2,770,281) (2,264,849) 1,739,964 4,136,591 (1,136,591 597,373 956,545 $ 703,714 275,266 (84,384) 69.277 56,371 350,220 (1,107) 364,607 $(1) ENERGIZED FOR STEM ACADEMY, ING. Note To The Financial Statements July 31, 2016 ‘Summary of Significant Accounting Policies The general-purpose financial statements of ESTEM Charter Holder (the corporation) were prepared in conformity with accounting principles generally accepted in the United States. The Financial Accounting Standards Board is the accepted standard setting body for establishing non- for-profit accounting and financial reporting principles. Corporate Operations Energized for STEM Academy, Inc. (ESTEM) was registered as a Texas Corporation on May 22, 2008, and started operations in July 2008, ESTEM operates as a charter school through the Houston Independent School District (HISD) and is funded through an annual agreement with HISD. ESTEM is recognized as an exempt organization for federal income taxes under section 501 (c) (8) of the Internal Revenue Code, effective July 14, 2008. ESTEM operated 4 Alternative Education Campuses (AEC) and was funded through HISD contracts identified as ESTEM Central and ESTEM West. Reporting Entity The corporation is a not-for-profit organization incorporated in the State of Texas in May 2008, and exempt from federal income taxes pursuant to Section 501(c)(3) of the Internal Revenue Code. The corporation is governed by a Board of Directors comprised of three members. The Board of Directors is selected pursuant to the bylaws of the corporation and has the authority to make decisions, appoint the chief executive office of the corporation, and significantly influence operations. The Board of Directors has the primary accountability for the fiscal affairs of the corporation. Since the corporation received funding from local, state, and federal government sources, it must comply with the requirements of the entities Providing those funds. ESTEM Central and ESTEM West The purpose of the Energized for Science, Technology, Engineering, and Mathematics Academy (ESTEM Central and ESTEM West) is to increase student achievement in Houston Independent School District by engaging and exposing students to innovative science and math instruction.ENERGIZED FOR STEM ACADEMY, INC. Note To The Financial Statements July 31, 2016 Campus Locations The charter holder operates 2 campuses (Central campus located at 9220 Jutland Street and West campus at 6107 Bissonnet Street) in Houston, Texas. Basis of Presentation ESTEM's financial statements have been prepared in conformity with generally accepted accounting principles as applied to non-profit organizations in conjunction with the Texas Education Agency's Financial Accountability System Resource Guide. Use of Estimates The accompanying financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America, Accordingly, management made certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts as revenues and expenses during the reporting period. Actual results could differ from those estimates. Net Assets Net assets and revenues, expenses, gains and losses are classified based on the existence and nature or absence of donor-imposed restrictions. Restricted revenues whose restrictions are met in the same year as received are shown as unrestricted revenues. Accordingly, net assets of the organization and changes therein are classified and reported as follows: Unrestricted net assets — net assets that are not subject to donor- imposed stipulations. Temporarily restricted - net assets subject to donor-imposed stipulations that may or will be met, either by actions of the corporation, the charter school and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions.ENERGIZED FOR STEM ACADEMY, INC. Note To The Financial Statements July 31, 2016 Permanently restricted_net_assets — net assets required to be maintained in perpetuity with only the income to be used for the School's activities due to donor-imposed restrictions. Cash and Cash Equivalents For purposes of the statement of cash flows, the School considers all highly liquid investment instruments purchased with original maturities of three months or less to be cash equivalents. Property, Equipment, and Depreciation Property and equipment are stated at cost. The School capitalization policy is $5,000 and above. Depreciation and amortization of property and equipment are calculated using the straight-line method over the estimated useful lives of the assets, which range from three to twenty years. Donations of property and equipment are recorded at fair value at the date of donation. HISD agrees to provide (a) district adopted state textbooks at no cost; and (b) student desk and other appropriate furnishings as currently available at no cost. All tile to HISD furnished supplies, equipment, furniture, materials and/or textbooks shall remain the sole property of HISD. Deferred Revenues ESTEM records the quarterly advances of ADA funds received from HISD as deferred revenues (uneamed income). As income is eamed, it is removed from deferred revenue and recorded as Foundation School Program revenues. Contributions The school records unconditional contributions, including promises to give, as revenue when received. Conditional contributions are recognized as revenue when the conditions on which they depend have been substantially met. Contributions are recorded net of estimates of uncollectible amounts. The School reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or a purpose restriction is accomplished, temporarily(2) ENERGIZED FOR STEM ACADEMY, INC. Note To The Financial Statements July 31, 2016 restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities and changes in net assets as net assets released from restrictions. Gifts of property and equipment are reported as unrestricted support unless explicit donor stipulations specify how the donated assets must be used, Revenues Revenues from HISD are a flow-through from the Texas Education Agency. School funds are earned (a) based on reported attendance and (b) project- by-project approved reimbursable expenses. Revenues for (a) are recognized as earned and billed based on the monthly Average Dally Attendance (ADA). The billing rates per enrolled student are stipulated in the agreement. HISD retains 5% of the School's revenues from ADA for administrative purposes. HISD's support per student (ADA billing) is per school year, which is estimated at 180 school days. These anticipated allotments are disbursed quarterly, in advance, with the final settlement on or before the end of the school year; and (b) reimbursable expenses are recognized as earned when the related program expenditures are incurred. These reimbursable expenses are project specific. Consequently, the use of these funds are temporarily restricted and released from restriction as the projects are completed Should the cumulative attendance rate fall below 96% for either campus, HISD has the option of implementing a revised payment schedule based on the actual cumulative attendance rate. Related Organizations Related organizations are excluded from the financial reporting entity because ESTEM's accountability does not extend beyond its own actions. Audited financial statements are available from the respective organizations. Related organizations are described as follows: Energized for Excellence Academy (EEA) and Inspired for Excellence Academy (IEA) are charter schools and have been organized by the same individuals. EEA share board members while IEA and ESTEM have the same board of directors.(3) (4) ENERGIZED FOR STEM ACADEMY, INC. Note To The Financial Statements July 31, 2016 EEA and IEA maintain separate books and records, and separate bank accounts, from those of ESTEM. Title to all property owned EEA and IEA are recorded in their respective names. Educational Leaming and Enrichment Center, Inc. (ELEC) is a for-profit organization owned by the School's Founder and Head of Schools. Related Party Transactions From time to time non-interest bearing advances are made between these related organizations based on cash flow needs. The advances and repayments are approved by the Board. The amount due from affiliates are the amounts due from EEA, ELEC and Inspired in the amount of $428,081, $1,131,077 and $215,026, respectively, for operating expense reimbursements. Management believes the related entity receivables are 100% collectible at July 31, 2016; therefore, no allowance for bad debt has been recorded. See Note 12 for disposition of amounts due from related parties. The board chairman of EEA (a related entity), served as legal counsel and management consultant for ESTEM. There is a written agreement. The legal counsel/consultant was paid $34,000. There were no unpaid or outstanding fees at July 31, 2016, Property and Equipment Property and equipment as of July 31, 2016 is as follows: Depreciation of property and equipment for the year ended July 31, 2016 was $275,266, Land Improvements $ 303,909 Building and Improvements 203,432 Leasehold Improvement 469,238 Furniture and Equipment 439,708 Total Property and Equipment 1,416,287 Less: Accumulated Depreciation (1,245,533) Net Propertyand Equipment $170,754 10(5) (6) a) (8) (9) ENERGIZED FOR STEM ACADEMY, INC. Note To The Financial Statements July 31, 2016 Operating Leases In July 2011, ESTEM Central entered a Lease Agreement with HISD (funding agency) for the school building located at 9220 Jutland Road in Houston, Texas, for a monthly lease of $14,816. The lease is for the period July 14, 2011 to July 13, 2017. ESTEM West utilizes space leased by EEA at 6107 Bissonnet Street at no cost to ESTEM. Future minimum lease payments related to operating leases are detailed as follows: Total rental expense for the year ended July 31, 2016 was $711,035. Legal Issues ESTEM had no outstanding legal claims. Commitments and Contingencies ESTEM receives pass-through funds from HISD that are governed by various statues and regulations. State program funding is based primarily on student attendance; data submitted to HISD and is subject to audit and adjustments, The programs administered by ESTEM have complex compliance requirements, and should State or Federal auditors discover areas of noncompliance, charter school funds may be subject to refund Concentrations of Credit Risk Arising from Cash Deposits in Excess of Insured Limits ESTEM maintains its cash accounts in one financial institution located in Houston. The accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 each. At July 31, 2016, $1,303,918 of ESTEM's. cash balances were not fully insured Health Care Coverage During the year ended July 31, 2016, eligible employees of the charter school, who elected to participate, were covered by a Health Insurance Plan (the Plan). Employees become eligible upon completion of their probationary period (90 days) and pay $139.69 towards the cost of their health care premiums. Employees may enroll family members and pay the required premiums. Premiums were paid to licensed insurers 4(10) (11) (12) ENERGIZED FOR STEM ACADEMY, INC. Note To The Financial Statements July 31, 2016 Income Taxes No provision for federal income taxes has been made due to the tax-exempt status of ESTEM under Intemal Revenue Code 501 (c )(3). ESTEM has also been classified as an entity that is not a private foundation within the meaning of Section 509(a) and qualifies for deductible contributions as provided in Section 170(b)(1)(A)(ii). ESTEM’s Forms 990, Return of Organization Exempt from Income Tax, for the years ending 2013, 2014 and 2015 are subject to examination by the IRS, generally for three years after they are filed. Management Fee Liability ESTEM computed and recorded a liability of approximately $100,000, the value of unpaid management fees due to ELEC. Subsequent Events The date through which subsequent events have been evaluated is July 31, 2017, which is the date the financial statements were available to be issued. Subsequent to year-end, ESTEM received the payments of the $428,081 owed by EEA and the $216,026 owed to Inspired at July 31,2016, as noted in Note 3 above. 12SUPPLEMENTAL DATAENGERGIZED FOR STEM ACADEMY, INC. ‘Schedule of Expenses By Campus Campus # 321 For the year ended July 31, 2016 Expenses 6100 Payroll Costs $614,772 6200 Professional and Contracted Services 589,454 6300 Supplies and Materials 40,893, 6400 Other Operating Costs Total Expenses $ _ 1,415,530 ‘See accompanying notes to financial statements. 13ENGERGIZED FOR STEM ACADEMY, INC. ‘Schedule of Expenses By Campus Campus # 390 For the year ended July 31, 2016 Expenses 6100 Payroll Costs $ 831,818 6200 Professional and Contracted Services 388,973 6300 Supplies and Materials 60,741 6400 Other Operating Costs 35,854 Total Expenses $_ 1,317,386 ‘See accompanying notes to financial statements, 14ENGERGIZED FOR STEM ACADEMY, INC. Schedule of Expenses By Campus Campus # 455, For the year ended July 31, 2016 Expenses 6100 Payroll Costs $ 827,823 6200 Professional and Contracted Services 570,665, 6300 Supplies and Materials 59,521 6400 Other Operating Costs 370,063 Total Expenses $_ 1,828,072 ‘See accompanying notes to financial statements. 15Expenses 6100 6200 6300 6400 ‘See accompanying notes to financial statements, ENGERGIZED FOR STEM ACADEMY, INC. ‘Schedule of Expenses By Campus For the year ended July 31, 2016 Payroll Costs Professional and Contracted Services ‘Supplies and Materials Other Operating Costs Total Expenses Campus # 459 16 $ 552,238 365,289 23,727 149,333, 1,090,5871510 1520 1539 1520 ENERGIZED FOR STEM ACADEMY, INC. ‘Schedule of Capital Assets Campus # 321 July 34, 2016 Ownership Interest Local ‘State Land and improvements 8 “8 8 Building and Building Equipment 5 - Furniture and equipment 5 n,775 Leasehold Improvements Total Property and Equipment $ _$__ T4775 § 7 Fe TotalENERGIZED FOR STEM ACADEMY, INC. Schedule of Capital Assets Campus # 390 July 31, 2016 Ownership Interest “Local __ State 1510 Land and Improvements s - $ 166,361 $ -$ 1520. Builcing and Building Equipment = 141362 2 411362 1589 Fumture and Equpmont = 183.924 = 483,924 1520 Leasehold Improvements 271,606 271,606 Total Property and Equipment $ = $_ 733,243 $ = §__ 733,243 18srs or 012 eae ENERGIZED FOR STEM FOR ACADEMY, INC, Budgetary Comparison Schedule Campus #450 ‘Year ended July 31, 2016, Variance Budgeted Amounts ‘Actual from Final ‘Original Fina Amounts Budget and other support: Local Support: ‘Other revenues from Local Sources «$_—2.500 $__—2.000 $_ 27.82 $_25,88 “Total Local Support 2.500 2.000 27882 25,882 ‘State Program Revenues: Foundation Schoo! Program 1200000 © 1.185000 1,120,581 (24419) Other State Grants and Fees : - a “Total State Program Revenues Taos a resoooe Se aay Federal Program Revenues: Tie |, Part A - Regular 5,380 5.380 5372 @ Tie ll LEP. ‘100 90 90 a “Total Federal Program Revenues 5480 BAT Bae @ Total Revenues and Other Support ——TZ0TSBO- Kea. “TSS Tes, Instruction 550,000 530,000 521,356 2e Instructional Resources and Media Servos 2,500 - : : Curriculum Delvlopment and Insirecional Staff Devolopemnt 4.500, 3 : Instructional Leadership 46,000 2 : School Leadership 65,000, 48,000 47513 487 ‘Suppor Services Students 3.500 : = : Guidance, Counseling & Evaluation Services 4100 . 2 Z Heath Servicos. 2.000 : a : Student (Pupi) Transportation 11500 4,500 1407 3 Food Services ‘500 : a Cocurrewarfextracuriculer Activities 2.500 2.500 2.408 2 General Administration 460,000, 160,000, 154,583 5.337 Plant Maintenance and Operations 205,000, 200/500 3261926 (128,426) Security and Monitoring Services 35,000, 35,000, 34,312 ‘86 “Total expenses. 7078 500 B77 S00 ——T.Ga0.ses 111065} Change in net assets $_120480_ §, 24 184970, $_63.340 $_1121,630)GEORGE EDWARD GRIGSBY, CPA 0. Box 1824 STAFFORD, TX 77497 Phone: (281) 879-4442 Fax: (281) 879-4443 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. To: The Board of Directors and Management have audited, in accordance with the 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 Inspired for Excellence Academy Inc. ESTEM (a nonprofit organization), which comprise the statement of financial position as of July 31, 2016, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements, and have issued my report thereon dated December 28, 2016. Internal Control Over Financial Reporting In planning and performing my audit of the financial statements, | considered ESTEM’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 (IEA’s) internal control. Accordingly, | do not express an opinion on the effectiveness of (EA'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 entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, ot a combination of deficiencies, in intemal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance, My 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 my audit | did not identify any deficiencies in internal control that | consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 25Compliance and Other Matters As part of obtaining reasonable assurance about whether ESTEM's financial statements are free from material misstatement, | 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 my audit, and accordingly, | do not express such an opinion. The results of my tests disclosed no instances of noncompliance or other matters that are required to be reported under Goverment Auditing Standards. However, | noted certain matters that I reported to management in my management letter dated December 28, 2016. Purpose of this Report The purpose of this report is solely to describe the scope of my testing of intemal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization'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 organization's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. George Edward Grigsby, CPA Stafford TX December 28, 2016 26Energized for STEM Academy, Inc. Schedule of Findings and Questioned Costs For the year ended July 31, 2016 ‘Summary of Auditor's Results Type of auditor’s report issued on the financial statements: Unmodified. Significant deficiencies identified that were not considered to be material weaknesses: None. Material weaknesses identified: None. Noncompliance material to the financial statements: None. Findings disclosed by the audit of the financial statements which the auditor is required to report: None. Federal Awards: Auditee did not meet the $750,000 threshold for a Single Audit Findings related to the Financial Statements None noted. 27