THOUGHT LEADERSHIP & INNOVATION FOUNDATION FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

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1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION JUNE 30, 2017 AND 2016

2 TABLE OF CONTENTS Page Numbers Independent Auditor s Report Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 5 Note to Financial Statements Supplementary Information: Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards 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 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Cost... 16

3 Independent Auditor s Report To the Board of Directors Thought Leadership & Innovation Foundation We have audited the accompanying financial statements of Thought Leadership & Innovation Foundation (a nonprofit organization) (the Foundation), which comprise the statement of financial position as of June 30, 2017, the related statements of activities and cash flows for the years 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 Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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 the Foundation as of June 30, 2017, 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. 36 South Charles Street, 18 th Floor 3877 Fairfax Ridge Road, Suite 200N Baltimore, MD Fairfax, VA f: f:

4 Independent Auditor s Report (Continued) Other Matters Supplementary and Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also 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 our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have issued our report dated March 30, 2018, on our consideration of the Foundation s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Foundation s internal control over financial reporting and compliance. Prior Period Financial Statements The 2016 financial statements were not compiled, reviewed, or audited by us and, accordingly, we express no opinion or other form of assurance on them. Fairfax, Virginia March 30, 2018

5 Statements of Financial Position June 30, 2017 and (Unaudited) Assets Cash and cash equivalents $ 388,302 $ 8,611 Grants and contracts receivable 303,081 3,479 Prepaid expenses 16, Property, net -0-45,443 Total Assets $ 707,717 $ 57,533 Liabilities Accounts payable and accrued expenses $ 343,619 $ 22,326 Deferred revenue 416, Total Liabilities 759,895 22,326 Commitments and Contingencies (Notes 6 & 7) Liabilities and Net Assets Net Assets - Unrestricted (52,178) 35,207 Total Liabilities and Net Assets $ 707,717 $ 57,533-3-

6 Statements of Activities Years Ended June 30, 2017 and (Unaudited) Unrestricted Net Assets Support and Revenue Grants $ 1,148,754 $ 111,040 Contract revenue 1,133, Contributions -0-9,725 Loss on disposal of property (38,074) (2,143) Net other income 5,677 35,021 Total Support and Revenue 2,249, ,643 Expenses Program Services Health and wellness research 1,880,868 88,726 Supporting Services General and administrative 456,370 80,717 Total Expenses 2,337, ,443 Change in Net Assets (87,385) (15,800) Unrestricted Net Assets - Beginning of Year 35,207 51,007 Unrestricted Net Assets - End of Year $ (52,178) $ 35,207-4-

7 Statements of Cash Flows Years Ended June 30, 2017 and (Unaudited) Cash Flow from Operating Activities Change in net assets $ (87,385) $ (15,800) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 7,369 14,738 Loss on disposal of property 38,074 2,143 Change in operating assets and liabilities: Grants and contracts receivable (299,602) 6,275 Prepaid expenses (16,334) -0- Accounts payable and accrued expenses 321,293 (3,939) Deferred revenue 416, Net Increase in Cash and Cash Equivalents 379,691 3,417 Cash and Cash Equivalents - Beginning of Year 8,611 5,194 Cash and Cash Equivalents - End of Year $ 388,302 $ 8,611 Supplemental Disclosure of Cash Flow Information Interest paid $ 448 $

8 Notes to Financial Statements June 30, 2017 and 2016 Note 1: Organization and Summary of Significant Accounting Policies Thought Leadership & Innovation Foundation (the Foundation) was incorporated under the laws of Virginia in 2011 to advance the development and delivery of personalized health care and to build a safer, cleaner, and more sustainable future for humanity. The accounting and reporting policies of the Foundation conform to the accounting principles generally accepted in the United States of America. The following is a description of the most significant of those policies: Financial Statement Presentation: The Foundation reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The Foundation only had unrestricted net assets as of June 30, 2017 and Unrestricted net assets are neither permanently restricted nor temporarily restricted by donor-imposed stipulations even though their use may be designated by the Board of Directors. Temporarily restricted net assets result from contributions whose use is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the Foundation pursuant to those stipulations. Net assets may be temporarily restricted for various purposes, such as use in future periods or use for specified purposes. Permanently restricted net assets result from contributions whose use is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by the Foundation s actions. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those accounts. Cash and Cash Equivalents: The Foundation classifies all investments which are readily convertible to cash and which have a maturity of 3 months or less when purchased to be cash equivalents. Grants and Contracts Receivable: Grants and contracts receivable are carried at original invoice amount less an estimate made for doubtful receivables. The Foundation provides for doubtful accounts based on anticipated collection losses. Estimated losses are determined from a review of outstanding grant and contract receivables, historical collection experience, and existing economic conditions. The Foundation has not recorded an allowance for doubtful accounts at June 30, 2017 and 2016, since in the opinion of management, all outstanding receivables are collectible. Receivables are generally considered delinquent when they are more than 90 days past due. Receivables are written off by management when, in their determination, all collection efforts have been exhausted. The Foundation does not require collateral or other security to support contract receivables. -6-

9 Notes to Financial Statements June 30, 2017 and 2016 Note 1: Organization and Summary of Significant Accounting Policies (Continued) Property: Property and equipment is stated at cost or, if donated, at the approximate fair value at the date of donation less accumulated depreciation. It is the Foundation s policy to capitalize all property acquisitions over $2,000 having useful lives greater than one year. Depreciation is computed using the straight-line method based over the estimated useful lives of the assets, which is 5 years for furniture and equipment. Expenditures for maintenance and routine repairs that materially extend the useful lives of assets are capitalized. Revenue Recognition: The Foundation derives its revenue primarily from grants and contracts to perform health and wellness research. Grants and contracts are recognized as revenue when earned. Conditional grants are earned and recognized as revenue in proportion to the related expenditures incurred or when all conditions of the grant have been substantially met. Grants earned but not yet received are recorded as grant receivables. Contract proceeds received in advance and not yet earned are recorded as deferred revenue. Grants or contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of any donor or grantor restrictions. Support that is temporarily restricted by the grantor or donor is reclassified to unrestricted net assets with the time restriction, if any, expires and/or the purpose of the restriction is accomplished. Functional Allocation of Expenses: The costs of providing various programs and other support activities have been summarized on a functional basis in the statements of activities. Costs that can be identified with specific programs or support services are allocated directly. Costs that cannot be specifically identified with a particular function and that benefit more than one functional category are allocated based on estimates. Income Taxes: The Foundation is exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code except on activities unrelated to its exempt purpose. The Partnership is classified as an other-than-private foundation under Section 509(a)(1) of the Internal Revenue Code. Income that is not related to exempt purposes, less applicable deductions, is subject to federal and state income taxes. The Partnership did not have any unrelated business income during the years ended June 30, 2017 and Accordingly, no provision for income taxes is reflected in these financial statements. The Partnership's federal exempt organization tax returns are subject to examination by the IRS, generally for a period of 3 years after the returns are filed. Subsequent Events: In preparing these financial statements, the Partnership has evaluated the events and transactions for potential recognition or disclosure through March 30, 2018, the date the financial statements were available to be issued. During the period from July 1, 2017, through March 30, 2018, the Partnership did not have any material recognizable subsequent events. -7-

10 Notes to Financial Statements June 30, 2017 and 2016 Note 2: Property The Foundation s property consists of the following as of June 30, 2017 and 2016: (Unaudited) Furniture and equipment $ -0- $ 73,691 Less: accumulated depreciation -0- (28,248) $ -0- $ 45,443 Depreciation expense was $7,369 and $14,738 during the years ended June 30, 2017 and 2016, respectively. Note 3: Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consists of the following as of June 30, 2017 and 2016: (Unaudited) Trade accounts payable $ 195,340 $ 10,951 Accrued compensation 148, Due to Inergix -0-11,375 $ 343,619 $ 22,326 Note 4: Retirement Plan Effective January 1, 2016, the Foundation established the Thought Leadership & Innovation Foundation 401(k) Plan covering all employees who meet the eligibility requirements of the plan. The plan allows eligible employees to contribute an amount not in excess of limits established by the Internal Revenue Code. The Foundation may make contributions to the plan at the Foundation s discretion. For each of the the years ended June 30, 2017 and 2016, the Foundation made no employer contributions to the Plan. Note 5: Related Party Transactions Inergix, Inc. is owned by an officer of the Foundation. There were no transactions between the Foundation and Inergix, Inc. during each of the years ended June 30, 2017 and 2016, and the Foundation owed $0 and $11,375 to Inergix, Inc. at June 30, 2017 and 2016,respectively. -8-

11 Notes to Financial Statements June 30, 2017 and 2016 Note 6: Lease Commitments The Foundation leases office space in Tyson s Corner, Virginia. The lease agreement is a year-toyear lease and will expire on October 31, Base rent is $7,411 per month. Rent expense for the years ended June 30, 2017 and 2016, was $53,834 and $1,139, respectively. Note 7: Other Matters Federal Awards: The Foundation received $1,078,852 and $25,040 in federal awards during the years ended June 30, 2017 and 2016, respectively. Amounts received and expended by the Foundation under various federal programs are subject to audit by government agencies. Management believes that adjustments, if any, which might result from audits or inquiries by government agencies would not have a material impact on the financial position of the Foundation. Uninsured Deposits: The Foundation maintains its cash balances in various financial institutions. Periodically during the year, the Partnership's cash balances may have exceeded federally insured limits. The uninsured portions of the cash balances are backed solely by the assets of the financial institution. The Foundation has not experienced any losses in such accounts and believes it is not exposed to significant risk on cash and cash equivalents. Major Customers: Approximately $1.8 million or 76.9 percent of the Foundation s revenue for the year ended June 30, 2017 was derived from two grantors. The Foundation has no reason to believe that relationships with these organizations will be discontinued in the foreseeable future. However, any interruption of these relationships (i.e., the failure to renew grant agreements or withholding funds) may adversely affect the Foundation s ability to finance ongoing operations. -9-

12 SUPPLEMENTARY INFORMATION JUNE 30, 2017 AND 2016

13 THOUGHT LEADERSHIP & INNOVATIVE FOUNDATION Schedule of Expenditures of Federal Awards Year Ended June 30, 2017 Pass-through Federal Entity Passed Federal Grantor / Pass-through Grantor / CFDA Identifying Through to Federal Program or Cluster Title Number Number Subrecipient Expenditures Research and Development Cluster Department of Defense Direct Programs Military Medical Research and Development N/A $ -0- $ 113,900 Pass-Through Programs from Samueli Institute Military Medical R&D Program None identified -0-56,134 Total Military Medical R&D Program ,034 Pass-Through Programs from The Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc. Uniform Services University Medical Research Projects None identified ,818 Total Expenditures of Federal Awards $ -0- $ 1,078,852 The accompanying notes are an integral part of the schedule of expenditures of federal awards. -10-

14 Notes to Schedule of Expenditures of Federal Awards JUNE 30, 2017 Note 1: Basis of Presentation The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal grants activity of Thought Leadership & Innovation Foundation (the Foundation) under programs of the federal government for the year ended June 30, The information in the Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the Foundation, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the Foundation. Note 2: Summary of Significant Accounting Policies Basis of Accounting: Expenditures reported in the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in Uniform Guidance wherein certain types of expenditures are not allowable or are limited as to reimbursement. Pass-Through Identifying Numbers: Pass-through entity identifying numbers are presented where available. Note 3: Indirect Cost Rate The Foundation has elected not to use the 10 percent de minimus indirect cost rate allowed under the Uniform Guidance. -11-

15 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statement s Performed in Accordance with Government Auditing Standards To the Board of Directors Thought Leadership & Innovation Foundation We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Thought Leadership & Innovation (the Foundation), which comprise the statement of financial position as of June 30, 2017, the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated March XX, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Foundation s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control. Accordingly, we do not express an opinion on the effectiveness of the Foundation 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 Foundation s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 36 South Charles Street, 18 th Floor 3877 Fairfax Ridge Road, Suite 200N Baltimore, MD Fairfax, VA f: f:

16 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statement s Performed in Accordance with Government Auditing Standards (Continued) Compliance and Other Matters As part of obtaining reasonable assurance about whether the Foundation s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standard. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing and not to provide an opinion on the effectiveness of the Foundation 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 Foundation s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Fairfax, Virginia March 30, 2018

17 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance To the Board of Directors Thought Leadership & Innovation Foundation Report on Compliance for Each Major Federal Program We have audited Thought Leadership & Innovation Foundation s (the Foundation s) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Foundation s major federal programs for the year ended June 30, The Foundation s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, contracts, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Foundation s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Foundation s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Foundation s compliance. 36 South Charles Street, 18 th Floor 3877 Fairfax Ridge Road, Suite 200N Baltimore, MD Fairfax, VA f: f:

18 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control over Compliance Required by the Uniform Guidance (Continued) Opinion on Each Major Program In our opinion, the Foundation complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control over Compliance Management of the Foundation is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Foundation s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Foundation s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Fairfax, Virginia March 30, 2018

19 Schedule of Findings and Questioned Costs Year Ended June 30, 2017 Summary of Auditor s Results 1. The auditor s report expresses an unmodified opinion on whether the financial statements of Thought Leadership & Innovation Foundation were prepared in accordance with GAAP. 2. No significant deficiencies or material weaknesses relating to the audit of the financial statements are reported in the 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. 3. No instances of noncompliance material to the financial statements of Thought Leadership & Innovation Foundation which would be required to be reported in accordance with Government Auditing Standards, were disclosed during the audit. 4. No significant deficiencies or material weaknesses relating to the audit of the major federal award programs are reported in the Independent Auditor's Report on Compliance for Each Major Program and on Internal Control over Compliance Required by Uniform Guidance. 5. The auditor s report on compliance for the major federal award programs for Thought Leadership & Innovation Foundation expresses an unmodified opinion on all major federal programs. 6. No audit findings were disclosed that are required to be reported in accordance with 2 CFR section (a). 7. The programs tested as major program were: CFDA Number Federal Program Title Research and Development Cluster Military Medical Research and Development Uniformed Services University Medical Research Projects 8. The threshold used for distinguishing between Type A and B programs was $750, Thought Leadership & Innovation Foundation was determined not to be a low risk auditee. Financial Statement Audit No findings were reported. Findings and Questioned Costs - Major Federal Award Program Audit No findings were reported. Summary Schedule of Prior Audit Findings No findings were reported in the prior year. -16-

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