FOREST LAKES CONDOMINIUM ASSOCIATION, INC. NAPLES, FLORIDA FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016

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1 FOREST LAKES CONDOMINIUM ASSOCIATION, INC. NAPLES, FLORIDA FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016

2 TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORT FINANCIAL STATEMENTS Balance Sheet... 4 Statement of Revenues, Expenses and Changes in Fund Balances... 5 Statement of Cash Flows Notes to Financial Statements SUPPLEMENTARY INFORMATION Supplementary Information on Future Major Repairs and Replacements Schedule of Operating Fund Revenues, Expenses and Changes in Fund Balance - by Condominium Schedule of Replacement Fund Revenues, Expenses and Changes in Fund Balance - by Condominium... 20

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4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Forest Lakes Condominium Association, Inc., as of December 31, 2016, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Report on Supplementary Information The audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The schedules of operating fund revenues, expenses and changes in fund balance - by condominium and replacement fund revenues, expenses and changes in fund balance - by condominium are presented pursuant to Florida statutes. Such information is the responsibility of the Association s management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. That information has been subjected to the auditing procedures applied during 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 taken as a whole. Disclaimer of Opinion on Required Supplementary Information Accounting principles generally accepted in the United States of America require that the accompanying supplementary information on future major repairs and replacements on pages be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Financial Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. July 14, 2017 CINDY D ARTAGNAN, CPA, LLC

5 BALANCE SHEET DECEMBER 31, 2016 FUNDS Operating Replacement Total ASSETS Cash and cash equivalents $ 264,666 $ 154,859 $ 419,525 Accounts receivable - members 17,038-17,038 Prepaid expenses 84,364-84,364 Property and equipment (net of accumulated depreciation of $53,600) 9,614-9,614 Due from operating fund - 198, ,053 Total assets $ 375,682 $ 352,912 $ 728,594 LIABILITIES AND FUND BALANCES LIABILITIES Accounts payable $ 51,816 $ - $ 51,816 Assessments received in advance 12,312-12,312 Deferred revenue Due to replacement fund 198, ,053 Total liabilities 262, ,325 FUND BALANCES 113, , ,269 Total liabilities and fund balances $ 375,682 $ 352,912 $ 728,594 Read Independent Auditor's Report. The accompanying notes are an integral part of the financial statements. 4

6 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED DECEMBER 31, 2016 FUNDS Operating Replacement Total REVENUES Maintenance fees $ 1,253,276 $ 120,300 $ 1,373,576 Interest Late fees 8,396-8,396 Recovery of bad debt 3,412-3,412 Laundry 3,966-3,966 Application fees 5,525-5,525 Miscellaneous Total revenues 1,274, ,413 1,395,286 EXPENSES Administrative 103, ,964 Insurance 210, ,576 Personnel 140, ,105 Buildings 140, ,546 Grounds 243, ,368 Utilities 382, ,101 Total expenses 1,220,660-1,220,660 Excess of revenues over expenses 54, , ,626 FUND BALANCES - January 1, ,197 34, ,643 INTERFUND TRANSFER (198,053) 198,053 - FUND BALANCES - December 31, 2016 $ 113,357 $ 352,912 $ 466,269 Read Independent Auditor's Report. The accompanying notes are an integral part of the financial statements. 5

7 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2016 FUNDS Operating Replacement Total CASH FLOWS FROM OPERATING ACTIVITIES Maintenance fees collected $ 1,162,305 $ 120,300 $ 1,282,605 Interest income received Late fees received 8,396-8,396 Laundry revenue received 3,966-3,966 Application fees received 5,525-5,525 Miscellaneous income received Cash paid for operating expenditures (1,212,908) - (1,212,908) Due to (from) funds 196,363 (196,363) - Net cash provided (used) by operating activities 163,945 (75,950) 87,995 CASH FLOWS FROM FINANCING ACTIVITIES Interfund transfer (198,053) 198,053 - Net (decrease) increase in cash (34,108) 122,103 87,995 CASH AND CASH EQUIVALENTS - January 1, ,774 32, ,530 CASH AND CASH EQUIVALENTS - December 31, 2016 $ 264,666 $ 154,859 $ 419,525 6

8 FUNDS RECONCILIATION OF EXCESS OF REVENUES OVER EXPENSES TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating Replacement Total Excess of revenues over expenses $ 54,213 $ 120,413 $ 174,626 Adjustments to reconcile excess of revenues over expenses to net cash provided (used) by operating activities Depreciation 4,841-4,841 Decrease in accounts receivable - members 15,543-15,543 Increase in prepaid expenses (23,850) - (23,850) Increase in accounts payable 26,761-26,761 Decrease in assessments received in advance (109,926) - (109,926) Due to (from) funds 196,363 (196,363) - Total adjustments 109,732 (196,363) (86,631) Net cash provided (used) by operating activities $ 163,945 $ (75,950) $ 87,995 Read Independent Auditor's Report The accompanying notes are an integra part of the financial statements. 7

9 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 - THE ASSOCIATION Forest Lakes Condominium Association, Inc. (the "Association") was incorporated on January 26, 1973, under the laws of Florida as a corporation not-for-profit, to operate and manage Forest Lakes Condominium, a multicondominium development consisting of 352 residential units located on approximately 28 acres in Collier County, Florida. The Association consists of six condominiums as follows: Forest Lakes I Forest Lakes II Forest Lakes III Forest Lakes IV Forest Lakes V Forest Lakes VI 32 units 52 units 33 units 135 units 56 units 44 units 352 units The owners of all units in the condominiums are the only members. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Accounting The Association prepares its financial statements using the accrual reporting framework and presents them as separate funds based on its different funding policies for operations and replacement expenditures. Furniture and Equipment Ownership of commonly owned real and personal property is vested directly or indirectly in the unit owners, and those assets are not deemed to be severable. As a result, commonly owned assets are not presented in the Association's financial statements. Commonly owned assets include the buildings, pools, clubhouse, tennis courts, and common areas. Certain personal property to which the Association holds title has been recorded at cost and is being depreciated using accelerated and straight-line methods over their estimated useful lives. See Note 5 for additional information. Allocation of Revenues and Expenses All operating expenses directly associated with a condominium are charged to that condominium. All other operating expenses of the Association are allocated to the Association (the Commons ). The funding for future major repairs and replacements is allocated between the condominiums and the Commons based on statutory calculations. Read Independent Auditor s Report. 8

10 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition Maintenance fees revenue is recorded quarterly in the amount of the membership assessment allocation specified for current period operations based on the annual budget determined and approved by the Board of Directors (the "Board"). Each unit owner is an Association member, and is assessed a proportionate share of the maintenance fees per condominium. Accounts Receivable Accounts receivable are generally considered delinquent when they are 10 days past due. The Association accounts for potential losses in accounts receivable utilizing the allowance method. The Association maintains an allowance for bad debt at an amount that it believes is sufficient to provide adequate protection against future losses. Provisions for losses are determined principally on the basis of experiences in the preceding years, taking into account historical losses, industry standards, statutory regulations and current economic conditions. All accounts or portions thereof deemed to be uncollectible are written off to the allowance for bad debt. Funds Accounts receivable are recorded at cost. The operating fund reflects the operating portion of the quarterly assessments paid by the owners to meet the various day-to-day expenditures incurred in the administration, maintenance, and operation of the condominiums and common areas. The replacement fund is composed of the portion of the quarterly assessments designated in the budget to fund for future major repairs and replacements, as further discussed in Note 7. Income Taxes The Association files its tax return as a homeowners association, in accordance with Internal Revenue Code Section 528. Under that Section, the Association is not taxed on common assessments to Association members and other income received from Association members solely as a function of their membership in the Association. The Association is taxed at the rate of 30% on its investment income and other non-exempt function income, less allocated expenses. The Association incurred no income tax liability for the year ended December 31, The Association has not identified any tax positions that it would consider uncertain tax positions as defined by the Financial Accounting Standards Board ( FASB ) Accounting Code Section 740. The 2013, 2014, and 2015 tax returns remain open to examination. Read Independent Auditor s Report. 9

11 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash Flows For purposes of the statement of cash flows, the Association considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents The Association made no cash payments for income taxes or interest during the year ended December 31, Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Subsequent events Subsequent events have been evaluated through the date of the audit report, which is the date the financial statements were available to be issued. NOTE 3 - CONCENTRATION OF CREDIT RISK The Association maintains its cash and cash equivalents accounts at various financial institutions located in Naples, Florida. Accounts at the commercial banking institutions are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. In addition, an account at one of the commercial banking institutions utilizes an Insured Cash Sweep which transfers all funds to FDIC insured accounts at member banks. As of December 31, 2016, these balances were fully insured, based on the bank balances, less FDIC insurance. Read Independent Auditor s Report. 10

12 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 4 - ACCOUNTS RECEIVABLE - MEMBERS As of December 31, 2016, accounts receivable - members consisted of the following: Maintenance fees $ 1,699 Late fees and interest 66 Attorney fees 15,098 Other $ ,038 Management considers all accounts receivable to be collectible; therefore no allowance for bad debt has been recorded. During the year ended December 31, 2016, the Association recognized $3,412 of recovery of bad debt revenue, and $10,863 of bad debt expense, which is included in administrative expenses. NOTE 5 - PROPERTY AND EQUIPMENT As of December 31, 2016, property and equipment consisted of the following: Estimated Useful Lives Costs Furniture and fixtures 5-7 years $ 20,177 Golf carts 5 years 7,775 Office equipment 5-7 years 6,318 Other equipment 3-7 years 28,944 Less: accumulated depreciation $ (53,600) 9,614 Depreciation during the year ended December 31, 2016, was $4,841, and is included in building expense. NOTE 6 - ASSESSMENTS RECEIVED IN ADVANCE Assessments received in advance consisted of 2017 maintenance fees received by the Association prior to January 1, NOTE 7 - REPLACEMENT FUND The Association's replacement fund is utilized to accumulate funds for future major repairs and replacements, by an allocation of the maintenance fees assessment charged to each owner and specifically designated for the fund in the annual budget. Deductions from the fund are recorded as costs, as incurred, which are determined by the Board to meet the objective for which the fund was established Read Independent Auditor s Report. 11

13 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 7 - REPLACEMENT FUND (Continued) The following is a table of the current year s activity in the replacement fund: Balance Additions Charges Interfund Balance Components Jan. 1, 2016 to Fund to Fund Transfer Dec. 31, 2016 Commons - Deferred maintenance $ 4,647 $ 13,000 $ - $ - $ 17,647 Contingencies/cashflows , ,053 Interest ,647 13, , ,717 Condominium I - Deferred maintenance Interest Condominium II - Deferred maintenance - 4, ,000 Interest - (51) - - (51) - 3, ,949 Condominium III - Deferred maintenance 13,319 3, ,619 Interest ,319 3, ,626 Condominium IV - Deferred maintenance 16, , ,480 Interest , , ,620 Condominium V - Deferred maintenance Interest Condominium VI - Deferred maintenance Interest Total $ 34,446 $ 120,413 $ - $ 198,053 $ 352,912 Additions to fund include $167 of interest income, net of bank charges of $54. Interest is allocated to the condominiums based on their percentages of replacement fund balances. The Board approved a transfer of $198,053 of operating surplus to the Commons replacement fund. The funds are to be used for contingencies, cash flow shortages, minor repairs and improvements, and special projects. Read Independent Auditor s Report. 12

14 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 7 - REPLACEMENT FUND (Continued) During the year ended December 31, 2016, the Association calculated the funding for future major repairs and replacements based on a professional appraiser s estimates of future replacement costs, in accordance with Florida Statutes. At duly called meetings, the statutory funding for 2016 and 2017 was waived by the members for the Commons and all of the condominiums. The Commons and Condominiums II, III, and IV voted to partially fund for deferred maintenance. The statutory replacement funding for 2017 is $1,443,073, as shown in the unaudited supplementary information. The budgeted replacement funding for 2017 is $122,000, as shown in the unaudited supplementary information. The components actual replacement costs, useful lives, and investment income may vary from estimated amounts, and the variation may be material. Therefore, amounts accumulated in the replacement fund may not be adequate to meet all future needs for major repairs and replacements. The failure to fund for future major repairs and replacements increases the likelihood of a special assessment in the future. If additional funds are needed, the Association has the right to increase regular assessments, pass special assessments, or delay major repairs and replacements until funds are available. NOTE 8 - COMMITMENTS The Association has entered into contracts for accounting, grounds maintenance, and various other services. Read Independent Auditor s Report. 13

15 SUPPLEMENTARY INFORMATION

16 SUPPLEMENTARY INFORMATION ON FUTURE MAJOR REPAIRS AND REPLACEMENTS DECEMBER 31, 2016 (Unaudited) The following table is based on estimates provided by a professional appraiser during 2015, and presents significant information about the components of common property: Estimated Estimated Estimated Remaining Future Useful Useful Lives Replacement Statutory Budgeted Components Lives Lives Costs Funding Funding Commons - Exterior building element 7-40 years 2-28 years $ 162,450 $ 11,549 - Interior building elements years 3-28 years 108,014 18,091 - Building services element 20 years 6-17 years 20,102 2,266 - Property site elements 6-40 years 3-14 years 480,837 62,456 - Clubhouse pool elements years 1-22 years 248,500 73,203 - North pool elements years 1-22 years 204,897 82,228 - South pool elements years 1-22 years 215,268 93,113 - Reserve study 2 years 0 years 5,654 5,654 - Deferred maintenance N/A N/A N/A N/A 13,000 1,445, ,560 13,000 Condominium I - Exterior building element 7-30 years 2-28 years $ 512,715 $ 34,420 - Interior building elements 40 years 3 years 15,934 5, ,649 39,731 - Condominium II - Exterior building element 7-30 years 2-28 years $ 835,055 $ 55,984 - Interior building elements 40 years 3 years 31,868 10,623 - Deferred maintenance N/A N/A N/A N/A 4, ,923 66,607 4,000 15

17 Estimated Estimated Estimated Remaining Future Useful Useful Lives Replacement Statutory Budgeted Components Lives Lives Costs Funding Funding Condominium III - Exterior building element 7-50 years 0-13 years 439,306 88,732 - Interior building elements years 2-8 years 12,305 5,008 - Building services element years 2-18 years 325,259 58,373 - Property site elements years 2-22 years 154,919 25,689 - Deferred maintenance N/A N/A N/A N/A 5, , ,802 5,000 Condominium IV - Exterior building element 7-50 years 0-26 years 2,025, ,392 - Interior building elements years 3-8 years 58,750 16,981 - Building services element years 3-23 years 1,426, ,085 - Property site elements 5-40 years 1-13 years 273,905 44,994 - Deferred maintenance N/A N/A N/A N/A 100,000 3,784, , ,000 Condominium V - Exterior building element 7-50 years 4-26 years 660,387 57,016 - Interior building elements years 2-13 years 112,309 30,125 - Building services element years 4-23 years 412,948 26,998-1,185, ,139 - Condominium VI - Exterior building element 7-50 years 3-23 years 521,916 57,489 - Building services element years 4-23 years 314,157 19,689 - Property site elements years 2-13 years 86,352 23, , ,782 - $ 9,666,117 $ 1,443,073 $ 122,000 Estimated future replacement costs are based on the assumption that the rate of investment income earned on replacement funds will be equal to the rate of inflation. Read Independent Auditor's Report. 16

18 SCHEDULE OF OPERATING FUND REVENUES, EXPENSES AND CHANGES IN FUND BALANCE - BY CONDOMINIUM FOR THE YEAR ENDED DECEMBER 31, 2016 Condo. Condo. Condo. Condo. Condo. Condo. Commons I II III IV V VI Total REVENUES Maintenance fees $ 572,722 $ 79,872 $ 116,640 $ 60,245 $ 222,613 $ 112,480 $ 88,704 $ 1,253,276 Interest Late fees , , ,396 Recovery of bad debt - - 2, ,412 Laundry , ,966 Application fees 5, ,525 Miscellaneous Total operating fund revenues 578,545 80, ,915 61, , ,053 90,199 1,274,873 EXPENSES ADMINISTRATIVE Management fees 47, ,496 Bad debt , ,863 Background checks 4, ,178 Licenses and fees 1, ,969 Professional fees 16,646-2, , ,052 26,579 Office and administration 11, ,784 Miscellaneous Total administrative 81, , ,405 1,104 1, ,964 INSURANCE Package 47,767 21,096 34,548 12,382 31,185 28,433 20, ,201 Flood 1,516 9,352 3, ,375 Total insurance 49,283 30,448 38,055 12,382 31,185 28,433 20, ,576 PERSONNEL 140, ,105 Read Independent Auditor's Report 17

19 SCHEDULE OF OPERATING FUND REVENUES, EXPENSES AND CHANGES IN FUND BALANCE - BY CONDOMINIUM - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2016 Condo. Condo. Condo. Condo. Condo. Condo. Commons I II III IV V VI Total BUILDINGS Clubhouse Building maintenance 6, ,033 2,289 12, ,675 30,141 Depreciation 4, ,841 Elevator ,743 14, ,267 Fire protection 77 1,072 1, ,053 1, ,004 Janitorial 23, ,631 13,098 5,244 3,159 47,474 Pest control 9, , ,454 Supplies 7, ,375 Sewer cleanout ,200 6, ,668 Pavement , ,750 Golf cart 1, ,806 Total buildings 54,685 1,633 3,855 11,469 49,168 8,578 11, ,546 GROUNDS Fertilizer 6,474 6,492 6,972 1,698 6,764 6,034 6,192 40,626 Irrigation 1, , ,483 Lawn contract 13,213 14,299 17,467 4,254 14,842 13,236 13,213 90,524 Mulch 6,529 1,727 7, ,472 2,024 2,014 25,399 Tennis 11, ,489 Plants 3,446-2, , ,356 Pool contract 9, ,695 Pool heat 33, ,523 Pool repairs 3, ,757 Pool renovations 2, ,267 Tree trimming 1,258 2,384 1, ,252 1,628 2,012 16,249 Total grounds 92,936 24,959 35,819 7,529 34,571 24,023 23, ,368 Read Independent Auditor's Report 18

20 SCHEDULE OF OPERATING FUND REVENUES, EXPENSES AND CHANGES IN FUND BALANCE - BY CONDOMINIUM - CONTINUED FOR THE YEAR ENDED DECEMBER 31, 2016 Condo. Condo. Condo. Condo. Condo. Condo. Commons I II III IV V VI Total UTILITIES Cable 156, ,498 Electricity 13, ,214 3, ,497 Irrigation water 2,764 2,991 4, ,105 2,764 2,764 19,764 Telephone 6, ,696 Trash removal ,376 10,096 4,157 3,168 19,797 Water and sewer - 14,530 23,610 14,994 61,302 25,432 19, ,849 Total utilities 179,717 17,521 28,096 19,474 77,561 33,062 26, ,101 Total operating fund expenses 598,486 74, ,732 51, ,890 95,200 83,377 1,220,660 (Deficiency) excess of revenues over expenses (19,941) 5,810 2,183 9,906 31,580 17,853 6,822 54,213 ALLOCATION OF COMMON 19,941 (1,813) (2,945) (1,870) (7,647) (3,173) (2,493) - OPERATING FUND BALANCE - January 1, (3,497) 15,043 24,871 15,435 16,012 (8,720) 59,144 OPERATING FUND BALANCE - December 31, 2016 $ - $ 500 $ 14,281 $ 32,907 $ 39,368 $ 30,692 $ (4,391) $ 113,357 Read Independent Auditor's Report 19

21 SCHEDULE OF REPLACEMENT FUND REVENUES, EXPENSES AND CHANGES IN FUND BALANCE - BY CONDOMINIUM FOR THE YEAR ENDED DECEMBER 31, 2016 Condo. Condo. Condo. Condo. Condo. Condo. Commons I II III IV V VI Total REVENUES Maintenance fees $ 13,000 $ - $ 4,000 $ 3,300 $ 100,000 $ - $ - $ 120,300 Interest 17 - (51) Total replacement fund revenues 13,017-3,949 3, , ,413 EXPENSES Pooled Excess (deficiency) of revenues over expenses 13,017-3,949 3, , ,413 REPLACEMENT FUND BALANCE - January 1, , ,319 16, ,446 INTERFUND TRANSFER 198, ,053 REPLACEMENT FUND BALANCE - December 31, 2016 $ 215,717 $ - $ 3,949 $ 16,626 $ 116,620 $ - $ - $ 352,912 Read Independent Auditor's Report 20