THE ROSE SINGLE AUDIT REPORTING PACKAGE …The Rose had temporarily restricted net assets of...

THE ROSE

SINGLE AUDIT REPORTING PACKAGEJuly 31, 2017 and 2016

Page

I. Financial Statements with Independent Auditor's Reportand Schedule of Expenditures of Federal and State Awards 2

II. 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 22

III. Independent Auditor's Report on Compliance for Each Major Program and onInternal Control Over Compliance Required by the Uniform Guidance 25

IV. Schedule of Findings and Questioned Costs 28

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THE ROSETABLE OF CONTENTS

PART I.

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FINANCIAL STATEMENTSWITH INDEPENDENT AUDITOR'S REPORT AND

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDSas of and for the years ended July 31, 2017 and 2016

THE ROSE TABLE OF CONTENTS

Page Independent Auditor’s Report 4 Financial Statements: Statements of Financial Position As of July 31, 2017 and 2016 6 Statement of Activities For the Year Ended July 31, 2017 7 Statement of Activities For the Year Ended July 31, 2016 8 Statements of Functional Expenses For the Years Ended July 31, 2017 and 2016 9 Statements of Cash Flows For the Years Ended July 31, 2017 and 2016 10 Notes to Financial Statements 11 Supplemental Schedule: Schedule of Expenditures of Federal and State Awards 20 Notes to Schedule of Expenditures of Federal and State Awards 21

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INDEPENDENT AUDITOR’S REPORT To the Board of Directors of The Rose Report on the Financial Statements We have audited the accompanying financial statements of The Rose (a Texas nonprofit organization), which comprise the statements of financial position as of July 31, 2017 and 2016, and the related statements of activities, functional expenses, 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 Rose as of July 31, 2017 and 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

11550 Fuqua Street, Suite 475, Houston, TX 77034 281-481-1040 1011 Tremont Street, Galveston, TX 77550 409-765-9311

www.hlb-cpa.com

ASSETS

Cash and cash equivalents $ 1,994,819 $ 2,124,292Accounts receivable, net of allowance for doubtful accounts 992,578 1,036,373 of $49,899 and $25,073 at July 31, 2017 and 2016Grants receivable 346,700 383,859Other receivables 54,847 4,971Prepaid expenses and other assets 591,084 138,584Property and equipment, net 5,863,182 5,264,629

Total assets $ 9,843,210 $ 8,952,708

LIABILITIES AND NET ASSETS

Liabilities:Accounts payable $ 207,997 $ 201,551Accrued liabilities 652,233 623,921Capital lease obligation 38,947 61,205Notes payable 1,748,920 1,984,335

Total liabilities 2,648,097 2,871,012

Net assets:Unrestricted 6,470,443 5,844,727Temporarily restricted 724,670 236,969

Total net assets 7,195,113 6,081,696

Total liabilities and net assets $ 9,843,210 $ 8,952,708

The accompanying notes are an integral part of these financial statements.- 6 -

2017 2016

THE ROSESTATEMENTS OF FINANCIAL POSITION

JULY 31, 2017 AND 2016

Temporarily Unrestricted Restricted Total

Revenue and support:Support and grants 2,272,313$ 1,200,906$ 3,473,219$ Program service fees, net 9,156,101 - 9,156,101 Special events, net 208,887 - 208,887 Investment income 18,432 - 18,432 Building lease income, net 165,161 165,161 Other income, net 38,217 - 38,217 Net assets released from restrictions:

Donor restrictions satisfied 713,205 (713,205) -

Total revenue and support 12,572,316 487,701 13,060,017

Expenses:Program services 10,498,760 - 10,498,760 Management and general 841,351 - 841,351 Fundraising 606,489 - 606,489

Total expenses 11,946,600 - 11,946,600

Change in net assets 625,716 487,701 1,113,417

Net assets, beginning of year 5,844,727 236,969 6,081,696

Net assets, end of year 6,470,443$ 724,670$ 7,195,113$


THE ROSESTATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JULY 31, 2017

Temporarily Unrestricted Restricted Total

Revenue and support:Support and grants 2,142,832$ 351,627$ 2,494,459$ Program service fees, net 8,729,398 - 8,729,398 Special events, net 247,642 - 247,642 Investment income 28,896 - 28,896 Building lease income, net 93,783 - 93,783 Other income, net 56,081 - 56,081 Net assets released from restrictions:

Donor restrictions satisfied 348,916 (348,916) -

Total revenue and support 11,647,548 2,711 11,650,259

Expenses:Program services 10,045,619 - 10,045,619 Management and general 830,152 - 830,152 Fundraising 606,599 - 606,599

Total expenses 11,482,370 - 11,482,370

Change in net assets 165,178 2,711 167,889

Net assets, beginning of year 5,679,549 234,258 5,913,807

Net assets, end of year 5,844,727$ 236,969$ 6,081,696$

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THE ROSESTATEMENT OF ACTIVITIES


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

Program Management Program ManagementDescription Services and General Fundraising Totals Services and General Fundraising Totals

Expenses:Salaries and related expenses 4,528,111$ 486,883$ 358,240$ 5,373,234$ 4,590,319$ 472,423$ 348,948$ 5,411,690$ Medical supplies 239,039 - - 239,039 214,214 - - 214,214 Physician fees 1,912,284 - - 1,912,284 1,693,892 - - 1,693,892 Professional fees 756,685 124,909 58,515 940,109 709,083 136,850 75,678 921,611 Occupancy 374,977 47,230 46,872 469,079 366,982 45,872 45,872 458,726 Rent 322,897 16,000 14,000 352,897 314,739 14,918 12,994 342,651 Software, repairs and maintenance 655,030 31,000 34,800 720,830 597,483 29,738 33,969 661,190 Insurance 508,536 47,763 25,071 581,370 497,399 46,755 24,078 568,232 Interest - SBA and telephone 15,303 664 664 16,631 21,917 922 922 23,761 Office expense and printing 66,314 19,790 21,560 107,664 87,236 20,690 22,460 130,386 Telephone and utilities 79,331 8,100 8,100 95,531 88,672 8,280 8,012 104,964 Postage and delivery 80,331 5,695 4,557 90,583 76,889 5,155 3,961 86,005 Provision for doubtful accounts 93,229 - - 93,229 45,329 - - 45,329 Pension 26,900 6,159 2,607 35,666 28,785 5,760 2,935 37,480 Depreciation of equipment 707,542 10,786 5,402 723,730 581,896 9,265 4,012 595,173 Vehicle expenses 60,494 7,730 5,920 74,144 63,263 7,281 4,739 75,283 Other 71,757 28,642 20,181 120,580 67,521 26,243 18,019 111,783

Total expenses 10,498,760$ 841,351$ 606,489$ 11,946,600$ 10,045,619$ 830,152$ 606,599$ 11,482,370$

2016


THE ROSESTATEMENTS OF FUNCTIONAL EXPENSES

FOR THE YEARS ENDED JULY 31, 2017 AND 2016

2017

2017 2016Cash flows from operating activities:

Change in net assets 1,113,417$ 167,889$ Adjustments to reconcile net assets to net cash

provided by operating activities: Depreciation expense 838,545 707,883

Bad debt expense 93,229 45,329 Change in operating assets and liabilities:

Accounts receivable (49,434) 116,955 Grants receivable 37,159 (8,124) Other receivables (49,876) 20,213 Prepaid expenses and other assets (502,376) 8,880 Accounts payable 6,446 12,758 Accrued liabilities 28,313 46,465

Net cash provided by operating activities 1,515,423 1,118,248

Cash flows from investing activities:Purchase of property and equipment (1,437,099) (149,898)

Net cash used in investing activities (1,437,099) (149,898)

Cash flows from financing activities:Payments on capital lease obligation (22,258) (19,679) Payments on notes payable (235,415) (223,064)

Net cash used in financing activities (257,673) (242,743)

Net (decrease) increase in cash and cash equivalents (129,473) 725,607

Cash and cash equivalents, beginning of year 2,124,292 1,398,685

Cash and cash equivalents, end of year 1,994,819$ 2,124,292$

Supplemental disclosures of cash flows information:Interest paid 129,834$ 145,279$

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THE ROSESTATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JULY 31, 2017 AND 2016

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

THE ROSE NOTES TO FINANCIAL STATEMENTS

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1. Organization and Nature of Operations

The Rose is a Texas nonprofit corporation organized in 1986 for the purpose of providing breast cancer screening, diagnostic services and education, and assisting in the placement of women for any needed treatment. The Rose currently operates in two locations in the Houston, Texas area as well as providing access to mobile screening services. The Rose’s Empower Her sponsorship program and other programs are supported primarily by patient services fees, by contributions from foundations and other nonprofit organizations, and by federal and state awards.

2. Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements of The Rose have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) promulgated by the Financial Accounting Standards Board (“FASB”) related to financial statements of not-for-profit organizations. Accordingly, net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. The net assets of The Rose and changes therein are classified and reported as follows:

Unrestricted net assets – Net assets that are not subject to donor-imposed restrictions. Unrestricted net assets may be designated for specific purposes by action of the Board of Directors or may otherwise be limited by contractual agreements with outside parties. The Rose had unrestricted net assets of $6,470,443 and $5,844,727 as of July 31, 2017 and 2016, respectively. Temporarily restricted net assets – Net assets subject to donor-imposed restrictions that either expire by passage of time or can be fulfilled and removed by actions of the Board of Directors. When a purpose restriction is accomplished or a time restriction ends, temporarily restricted net assets are released to unrestricted net assets. The Rose had temporarily restricted net assets of $724,670 and $236,969 as of July 31, 2017 and 2016, respectively. Permanently restricted net assets – Net assets subject to permanent donor-imposed restrictions that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the Board of Directors. There were no permanently restricted net assets as of July 31, 2017 and 2016.

Use of Estimates The preparation of The Rose’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period, and the allocation of expenses among various programs. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statement of cash flows, The Rose considers all highly-liquid investments available for current use with an initial maturity of three months or less to be cash equivalents. Accounts Receivable Accounts receivable consists primarily of fees due from program services and are stated at the amount management expects to collect from outstanding balances. The Rose uses the allowance method to determine uncollectible accounts receivable. The allowance method is based on prior years’ experience and management’s analysis of specific receivables. Management believes the allowance for doubtful accounts at July 31, 2017 and 2016 is adequate. Account balances are charged off against the allowance after all reasonable means for collection have been exhausted and the potential for recovery is considered remote.


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2. Summary of Significant Accounting Policies, continued Property and Equipment Property and equipment is recorded at cost, or in the case of donated assets, at estimated fair value at the date of donation. The Rose’s policy is to capitalize expenditures of these items in excess of $1,000 with a useful life greater than one year. Expenditures for substantial renewals and betterments are capitalized, while repairs and maintenance are charged to expense as incurred. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets which range from five to thirty-nine years. Assets under capital leases are included in equipment and depreciated as such (See Note 4). Revenue and Support Program service fees are recognized when services are performed and are net of related insurance, policy, or sponsorship adjustments. Pledges for The Rose’s capital campaign and programs are accrued as revenues when an unconditional promise to give has been made by the donor. Grants receivable as of July 31, 2017 and 2016 consisted of pledges received as of July 31, 2017 and 2016, respectively, in support of The Rose’s medical equipment acquisitions and other programs, which are expected to be collected within one year. Grants and other contributions of cash and other assets are reported 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 elapses or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions. In-kind contributions are recorded at their fair values in the period received. In accordance with FASB Accounting Standards Codification Topic 958-605, Not-for-Profit Entities – Accounting for Contributions Received and Contributions Made, The Rose recognizes contributed services at their estimated fair value if the services received (a) create or enhance long-lived assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. The Rose receives donated services from volunteers, including board members, in support of program services. The Rose reports gifts of land, buildings and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets, with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Income Taxes The Rose is a not-for-profit organization exempt from federal income taxes under Internal Revenue Code (“IRC”) Section 501(c)(3) except on net income derived from unrelated business activities. The Rose qualifies for charitable contribution deductions and has been classified as an organization other than a private foundation under IRC Section 509(a)(2). The Rose has a real estate rental activity which is subject to tax on unrelated business income. A portion of The Rose’s office building, located in Southeast Houston, houses The Rose’s operations and the remaining space is leased to unrelated parties. During the years ended July 31, 2017 and 2016, The Rose did not incur any federal income tax liability as a result of any unrelated business income. The Rose believes that it has appropriate support for any tax positions taken, and as such, does not have any uncertain tax positions that are material to the financial statements. The most significant tax positions of The Rose are its assertions that it is exempt from income taxes and its determination of whether any amounts are subject to unrelated business income tax. All significant tax positions have been considered by management. It has been determined that it is more likely than not that all tax positions would be sustained upon examination by taxing authorities. The Rose's Federal Exempt Organization Business Income Tax Return (Form 990) for the years ended July 31, 2016, 2015, and 2014 are subject to examination by the IRS, generally for three years after the return was filed.


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2. Summary of Significant Accounting Policies, continued Functional Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the Statements of Activities and in the Statements of Functional Expenses. Directly identifiable expenses are charged to programs and supporting services. Management and general expenses include those expenses that are not directly identifiable with any other specific function but provide for the overall support and direction of The Rose, and the allocation of such expenses is based on approximations developed by management. Recent Accounting Standards In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-14, Not-for-Profit Entities (Topic 958) – Presentation of Financial Statements of Not-for-Profit Entities. ASU No. 2016-14 changes presentation and disclosure requirements for not-for-profit entities to provide more relevant information about the resources (and the changes in those resources) to donors, grantors, creditors, and other users. The changes include more qualitative and quantitative requirements in the following areas:

Net asset classes; Investment return; Expenses; Liquidity and availability of resources; and Presentation of operating cash flows.

ASU No. 2016-14 is effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. Early application is permitted. Management is currently evaluating the impact that adoption of ASU No. 2016-14 will have on The Rose’s financial statements and disclosures. Reclassifications Certain prior balances have been reclassified in order to conform to current year presentation. Such reclassifications have no impact on The Rose’s net assets or changes in net assets as previously reported.

3. Grants Receivable and Temporarily Restricted Net Assets Grants receivable consist of amounts expected to be collected within one year. At July 31, 2017 and 2016, grants receivable consist of the following: 2017 2016 Unrestricted $ 245,033 $ 368,859 Temporarily restricted 101,667 15,000 Total grants receivable $ 346,700 $ 383,859 At July 31, 2017 and 2016, temporarily restricted net assets are restricted for the following purposes: 2017 2016 Equipment acquisitions and digital conversion $ 624,670 $ 136,969 Patient navigation program 100,000 100,000 Total temporarily restricted net assets $ 724,670 $ 236,969


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4. Prepaid Expenses and Other Assets At July 31 2017 and 2016, prepaid expenses and other assets, as presented in the Statements of Financial Position, include the following: 2017 2016 Prepaid insurance $ 13,002 $ 6,764 Prepaid equipment and maintenance contracts 569,818 127,129 Other assets 8,264 4,691 Total prepaid expenses and other assets $ 591,084 $ 138,584

5. Property and Equipment

At July 31, 2017 and 2016, property and equipment consists of the following:

2017 2016

Furniture, fixture and equipment $ 7,498,687 $ 6,170,738 Building 4,115,482 4,029,991 Land 460,496 460,496 Vehicles 262,141 262,141

12,336,806 10,923,366

Accumulated depreciation (6,473,624) (5,658,737)

Property and equipment, net $ 5,863,182 $ 5,264,629 Included in total accumulated depreciation at July 31, 2017 and 2016 is accumulated depreciation on equipment acquired under capital lease in the amount of $75,304 and $53,215, respectively. Depreciation expense for all property and equipment, including equipment acquired under capital lease, for the years ended July 31, 2017 and 2016 was $838,545 and $707,883, respectively.

6. Lines of Credit Effective May 9, 2017, The Rose renewed and extended an existing $500,000 line of credit agreement with Texas Citizens Bank, N.A, secured by deeds of trust for real property tracts I, II and III, located in the South Green subdivision of Harris County, Texas and all fixtures, accessories and personal property attached to or associated with the real estate. Interest, at a rate of 6.00% per year, is due and payable monthly. Principal and accrued unpaid interest is due and payable on May 9, 2018. At July 31, 2017 and 2016, no balance was outstanding on this line of credit. Effective June 22, 2017, The Rose renewed and extended an existing $2,000,000 line of credit agreement with Texas Citizens Bank, N.A., secured by deeds of trust for real property tracts I, II and III, located in the South Green subdivision of Harris County, Texas, accounts receivable and all fixtures, accessories and personal property attached to or associated with the real estate. Interest, at a rate of 6.00% per year, is due and payable monthly. Principal and accrued unpaid interest is due and payable on June 22, 2018. At July 31, 2017 and 2016, no balance was outstanding in this line of credit.


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7. Notes Payable At July 31, 2017 and 2016, notes payable consist of the following: 2017 2016 Note payable to a financial institution effective August 2011, payable in 180 monthly installments of $19,399 including interest at 6.85% per annum, maturing August 2026, secured by deeds of trust for real property tracts I, II and III, located in the South Green subdivision of Harris County, Texas $ 1,563,976 $ 1,683,076 Note payable to a financial institution effective March 2009, payable in 115 monthly installments of $10,528 beginning August 2009, including interest at 4.00% per annum, maturing March 2019, secured by deed of trust on real estate located at 12700 North Featherwood Drive, Houston, Texas 184,944 301,259 Total notes payable $ 1,748,920 $ 1,984,335 Future maturities of notes payable at July 31, 2017 are as follows:

For the Year Ending July 31 2018 $ 249,268 2019 201,122 2020 146,927 2021 157,699 2022 169,006 Thereafter 824,898 $ 1,748,920

8. Capital Lease Obligation Effective February 2014, The Rose entered into a lease agreement for a telephone communications system requiring monthly payments of $2,408 over a period of sixty months. The value of the system at the date of installation was determined to be $108,438. Future minimum payments required under the lease at July 31, 2017 are as follows: For the Year Ending July 31 2018 $ 28,896 2019 14,448 Total future minimum lease payments 43,344 Less amount representing interest (4,397) Present value of minimum lease payments $ 38,947

9. Commitments The Rose has various non-cancelable operating lease agreements for equipment and equipment maintenance. The existing leases have varying expiration dates with the longest current lease expiring in September 2021. During the years ended July 31, 2017 and 2016, The Rose incurred equipment lease and equipment lease maintenance expense of $516,267 and $692,471, respectively.


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9. Commitments, continued Future annual minimum lease payments for equipment and equipment maintenance at July 31, 2017 are as follows:

For the Year Ending July 31 2018 $ 515,884 2019 298,833 2020 213,444 2021 193,865 2022 563 $ 1,222,589 Effective March 27, 2009, The Rose executed a lease agreement for its Galleria area facility. The lease has an initial term of 122 months and requires base monthly rental payments of $17,566 during the initial two years with escalating payments during the remaining years. During the years ended July 31, 2017 and 2016, rental expense for this facility was $276,392 and $266,803, respectively. Future annual minimum lease payments for this facility at July 31, 2017 are as follows: For the Year Ending July 31 2018 $ 269,592 2019 278,196 2020 93,210 $ 640,998

10. Accrued Liabilities At July 31, 2017 and 2016, accrued liabilities, as presented in the Statements of Financial Position, include the following: 2017 2016 Accrued property taxes $ 63,070 $ 55,532 Accrued salaries and payroll taxes 229,270 197,803 Accrued employee leave 321,274 321,548 Other accrued expenses 38,619 49,038 Total accrued liabilities $ 652,233 $ 623,921

11. Concentrations of Credit Risk and Major Contributors Cash Balances The Rose holds a portion of its cash and cash equivalents at a single financial institution which is insured under the Federal Deposit Insurance Corporation’s (“FDIC”). At various times during the years ended July 31, 2017 and 2016, these balances exceeded FDIC and alternative insurance coverage limits; however, The Rose has not experienced any losses from these deposits. Accounts Receivable At July 31, 2017 and 2016, approximately $498,031 (48%) and $445,880 (42%) of The Rose’s accounts receivable from program service fees were due from various agencies of the State of Texas resulting from contracts with Cancer Prevention & Research Institute of Texas, Department of State Health Services, Medicare of Texas and Medicaid of Texas.


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11. Concentrations of Credit Risk and Major Contributors, continued Program Service Fees Revenue For the years ended July 31, 2017 and 2016, approximately $1,022,106 (11%) and $1,053,032 (12%) of The Rose’s program service fees revenue was from various agencies of the State of Texas resulting from contracts with Cancer Prevention & Research Institute of Texas, Department of State Health Services, Medicare of Texas and Medicaid of Texas. Support and Grants Revenue For the years ended July 31, 2017 and 2016, approximately $362,388 (10%) and $353,656 (14%) of The Rose’s support and grants revenue was from various agencies of the State of Texas resulting from contracts with Cancer Prevention & Research Institute of Texas, Department of State Health Services, Medicare of Texas and Medicaid of Texas. For the years ended July 31, 2017 and 2016, approximately $500,000 (14%) and $255,000 (10%) of The Rose’s support and grant revenues were from a single donor.

12. Retirement Plan The Rose sponsors a defined contribution pension plan available to all employees meeting certain age and service requirements. Employer matching and profit sharing contributions to the plan are made at the discretion of the Board of Directors. The plan also has a 401(k) feature which allows employees to defer up to 100% of their wages as contributions subject to Internal Revenue Service maximum limitations. The plan was adopted in August 2002 and has a December year end. Effective January 1, 2007, the Board elected to make employer matching contributions of 50% of an employee’s salary deferrals up to 3% of the employee’s compensation. Pension expense, as reported in the Statements of Functional Expenses for the years ended July 31, 2017 and 2016, includes employer matching contributions of $35,666 and $37,480, respectively.

13. Building Operations Included in property and equipment is a 33,532 square foot building in Southeast Houston where The Rose Diagnostic Imaging Center and its administrative offices are located. The Rose leases a portion of such building to unrelated parties. Effective September 30, 2014, The Rose amended and extended an existing operating lease agreement with an unrelated third party for 4,926 square feet of office space for 36 months, expiring on September 30, 2017. Effective October 1, 2017, this agreement was amended and extended for an additional 60 months with substantially the same terms. Effective January 1, 2017, The Rose amended and extended an additional existing operating lease agreement with another unrelated third party for 7,375 square feet of office space for 12 months, expiring on December 31, 2017. Lease payments for both leases are due and payable in monthly installments. During the years ended July 31, 2017 and 2016, The Rose received lease income of $436,941 and $359,761, respectively. Future annual minimum lease payments due to The Rose at July 31, 2017 are as follows:

For the Year Ending July 31 2018 $ 291,313 2019 170,748 2020 170,748 2021 183,498 2022 186,048 Thereafter 31,008 $ 1,033,363


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13. Building Operations, continued Included in the Statements of Activities is building lease income presented net of related expenses. Related expenses are allocated between The Rose and the lessees based on square footage. The Rose currently occupies 21,231 square feet of the building (approximately 63%) and the two lessees occupy the remaining 12,301 square feet (approximately 37%). For the years ended July 31, 2017 and 2016, the allocation of building expense between The Rose and the lessees are as follows: 2017 The Rose Lessees Total Depreciation $ 72,696 $ 42,119 $ 114,815 Mortgage interest 71,675 41,528 113,203 Property taxes 71,510 41,432 112,942 Insurance 22,064 12,783 34,847 Other operating costs 231,134 133,918 365,052 Total building expenses $ 469,079 $ 271,780 $ 740,859 2016 The Rose Lessees Total Depreciation $ 71,363 $ 41,347 $ 112,710 Mortgage interest 76,938 44,577 121,515 Property taxes 61,131 35,419 96,550 Other operating costs 249,294 144,635 393,929 Total building expenses $ 458,726 $ 265,978 $ 724,704 For the years ended July 31, 2017 and 2016, building lease income, net of related expenses, as presented in the Statements of Activities, are as follows: 2017 2016 Building lease income $ 436,941 $ 359,761 Building expenses allocable to lessees 271,780 265,978 Building lease income, net $ 165,161 $ 93,783

14. Related Party Transactions For the years ended July 31, 2017 and 2016, The Rose had a checking account with, and three notes payable to, Texas Citizens Bank, N.A., where a board member of The Rose is a regional president. For the years ended July 31, 2017 and 2016, included in support and grants revenue are donations from board members, or their respective employers, totaling $50,031 and $124,574, respectively. For the years ended July 31, 2017 and 2016, included in support and grants revenue are donations from The Rose’s officers of $16,859 and $27,310, respectively.

15. Subsequent Events Management has evaluated subsequent events through October 25, 2017, which is the date the financial statements were available to be issued and has concluded that there were no significant events to be reported.

SUPPLEMENTAL SCHEDULE

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Federal

CFDANumber

U.S. Department of Human and Health Services

Texas Department of State Health Services

Breast and Cervical Cancer Program 93.283 2015-047037 $ 411,571

Total expenditures under federal grants 411,571

State

ContractNumber

State of Texas

Cancer Prevention and Research Institute of Texas

Empower Her to Care Expansion PP150080 786,960

Navigating Rural Highways II PP140171 190,963

Total expenditures under state grants 977,923

Total expenditures under federal and state grants $ 1,389,494

Federal or State Grantor/Pass-through Grantor/Program Title

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Program Title NumberGrantor

Expenditures

See accompanying note to schedule

of expenditures of federal awards

Pass-through

Federal or State Grantor/Pass-through Grantor/

THE ROSE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

for the year ended July 31, 2017

THE ROSE NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS

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1. Basis of Presentation The accompanying schedule of expenditures of federal and state awards (“the Schedule”) is presented on the accrual basis of accounting and in accordance with the requirements of the Uniform Guidance, Audits of States, Local Government, and Non-Profit Organizations and of Uniform Grant Management Standards, Part V, State of Texas Single Audit Circular. Therefore, amounts presented in the schedule may differ from amounts presented in, or used in, the preparation of the basic financial statements. Because the Schedule presents only a selected portion of the operations of The Rose, it is not intended to and does not present the financial position, changes in net assets, or cash flows of The Rose.

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PART II.

WITH GOVERNMENT AUDITING STANDARDS

INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND

STATEMENTS PERFORMED IN ACCORDANCEOTHER MATTERS BASED ON AN AUDIT OF FINANCIAL

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 of The Rose: We 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 The Rose (a Texas nonprofit organization), which comprise the Statement of Financial Position as of July 31, 2017, and the related Statements of Activities, Functional Expenses and Cash Flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated October 25, 2017. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered The Rose’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 opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of The Rose’s internal control. Accordingly, we do not express an opinion on the effectiveness of The Rose’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, 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 and therefore, material weaknesses or significant deficiencies may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether The Rose’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.


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PART III.

AND ON INTERNAL CONTROL OVER COMPLIANCEREQUIRED BY THE UNIFORM GUIDANCE

INDEPENDENT AUDITOR'S REPORT ONCOMPLIANCE FOR EACH MAJOR PROGRAM

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR MAJOR PROGRAMS AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE AND UNIFORM GRANT

MANAGEMENT STANDARDS, THE STATE OF TEXAS SINGLE AUDIT CIRCULAR To the Board of Directors of The Rose: Report on Compliance for Each Major Federal or State Program We have audited The Rose’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 Rose’s major federal or state programs for the year ended July 31, 2017. The Rose’s major federal and state programs are identified in the Summary of Independent Auditor’s Results section of the accompanying Schedule of Findings and Questioned Costs. Management’s Responsibility Management is responsible for compliance with federal and state statutes, regulations, and the terms and conditions of its federal and state awards applicable to its federal and state programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of The Rose’s major federal and state programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance 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, the 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”) and the Uniform Grant Management Standards, State of Texas Single Audit Circular. Those standards and the 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 or state programs occurred. An audit includes examining, on a test basis, evidence about The Rose’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 major federal and state programs. However, our audit does not provide a legal determination of The Rose’s compliance. Opinion on Each Major Federal and State Program In our opinion, The Rose complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal and state programs for the year ended July 31, 2017. Report on Internal Control Over Compliance Management of The Rose 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 Rose’s internal control over compliance with the types of requirements that could have a direct and material effect on its major federal and state programs to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for its major federal and state programs and to test and report on internal control over compliance in accordance with the 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 Rose’s internal control over compliance.


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SCHEDULE OF FINDINGS ANDQUESTIONED COSTS

PART IV.

THE ROSE SCHEDULE OF FINDINGS AND QUESTIONED COSTS


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SECTION I – SUMMARY OF INDEPENDENT AUDITOR’S RESULTS

FINANCIAL STATEMENTS Type of independent auditor’s report issued: Unmodified Internal control over financial reporting:

Material weakness identified? Yes X No

Significant deficiency identified that is not considered to be a material weakness? Yes X No

Noncompliance material to financial statements noted? Yes X No FEDERAL AND STATE AWARDS Internal control over major programs:

Material weakness identified? Yes X No

Significant deficiency identified that is not considered to be a material weakness? Yes X No

Type of independent auditor’s report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Uniform Guidance or Uniform Grants Management Standards, State of Texas Single Audit Circular? Yes X No Identification of major program: Name of Federal Program CFDS Number U.S. Department of Human and Health Services Centers for Disease Control and Prevention Breast and Cervical Cancer Program 93.283 Name of State Program State Contract Number Cancer Prevention Research Institute of Texas Empower Her to Care PP120040 Empower Her to Care Expansion PP150080 Navigating Rural Highways II PP140171 Dollar threshold used to distinguish between type A and type B programs: $ 750,000 Auditee qualified as low-risk auditee? X Yes No

THE ROSE SCHEDULE OF FINDINGS AND QUESTIONED COSTS


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SECTION II – FINANCIAL STATEMENT FINDINGS None.

SECTION III – FEDERAL AND STATE AWARD FINDINGS AND QUESTIONED COSTS FEDERAL AND STATE AWARD FINDINGS None. FEDERAL AND STATE AWARD QUESTIONED COSTS None.

SECTION IV – SCHEDULE OF PRIOR YEAR FINDINGS None.

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