RIVER STRAND GOLF & COUNTRY CLUB, INC. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2016

Transcription

1 RIVER STRAND GOLF & COUNTRY CLUB, INC. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2016

2 TABLE OF CONTENTS Independent Auditor's Report Financial Statements Balance Sheet Statement of Revenues and Expenses... 5 Statement of Changes in Fund Balances Statement of Cash Flows Notes to the Financial Statements Supplementarv Information Statement of Revenues and Expenses - Operating Fund Detail (Unaudited)

3 INTEGRITY... KNOWLEDGE... SERVICE... COMMITMENT Independent Auditor's Report To the Board of Directors River Strand Golf and Country Club, Inc. Fort Myers, Florida We have audited the accompanying financial statements of River Strand Golf & Country Club, Inc., (the "Club") which comprise the balance sheet as of, and the related statements of revenues and expenses, changes in fund balances and cash flows for the year ended December 3 1, 2016, 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. 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 Affiliations Florida Institute of Certified Public Accountants American Institute of Certified Public Accountants - Management Consulting Services Division/Private Companies Practice Section/Tax Division STROEMER Metropolis Avenue, Suite 200, Fort Myers, FL Aventura Fort Myers Jacksonville' Naples Orlando' Sanibel Tampa' West Palm Beach' 'By Appointment Only

4 River Strand Golf and Country Club, Inc. Page2 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 River Strand Golf & Country Club, Inc. as of 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. Emphasis of Matters As reflected in the balance sheet of the financial statements, there is an inter-fund receivable/payable of $6,380. Even though management does not maintain detail reflecting the inter-fund activity, these balances exist because of the relationship between the operating and replacement fund, and the movement of cash. On a combined basis, there is no economic impact on the Association. Because management does not maintain the inter-fund activity, the account detail is not presently determinable. Our opinion is not modified with respect to this matter. As discussed in Note B to the financial statements, there are delinquent assessments receivable of which the ultimate collectability cannot be presently determined. Management has made an allowance for doubtful accounts in the amount of $19, The ultimate realizable value of the assessments receivable may be less than $22,387. Our opinion is not modified with respect to this matter. As discussed in Note F to the financial statements, due to an ambiguity in the Florida statutes, there is an uncertainty as to whether the Developer is excused from funding contributions to the reserve accounts. It is not possible to predict at this time whether the Developer will ultimately be responsible for funding their share of the reserve accounts. Our opinion is not modified with respect to this matter. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. We have not applied procedures to determine whether the funds designated for future major repairs and replacements as discussed in Note Hare adequate to meet such future costs because that determination is outside the scope of our audit. Our opinion is not modified with respect to this matter. As discussed in Note L of the financial statements, Management has recorded a prior period adjustment to exclude Developer payments relating to the acquisition of initial fixed asset purchases from the Developer's subsidy obligation to the Club. The overall effect of this change in accounting

5 River Strand Golf and Country Club, Inc. Page 3 policy is an increase the Developer's subsidy obligation to the Club's social membership as well as beginning fund balance of $961,616. Our opinion is not modified with respect to this matter. Omission of Required Supplementary Information about Future Major Repairs and Replacements Management has omitted the required supplementary information about future major repairs and replacements that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing 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. Our opinion is not modified by the missing information. Disclaimer of Opinion on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary Statement of Revenues and Expenses - Operating Fund Detail, which is the responsibility of the Association's management, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on it. _'St -, _,, ~... l.l\,lll STROEMER & COMP ANY, LLC Fort Myers, Florida April 12, 2017 Q

6 BALANCE SHEET Page 4 of23 Operating Replacement Fund Fund Total ASSETS Cash and cash equivalents $ 945,405 $ 226,006 $ 1, 171,411 Accounts receivable, net 22,387 22,387 Due from Developer 308, ,995 Interfund receivable/(payable) 6,380 (6,380) Prepaid expenses 46,216 46,216 Inventory 140, ,875 Property and equipment, net 101, ,628 Deposits 17, TOTAL ASSETS $ 1,589,339 $ $ LIABILITIES AND FUND BALANCES Accounts payable $ 448,727 $ $ 448,727 Accrued payroll 147, ,013 Prepaid assessments 249, ,825 Deferred revenue 145, ,723 Capital lease obligations 10,129 10,129 TOT AL LIABILITIES 1,001,417 1,001,417 FUND BALANCES 587, , ,548 TOT AL LIABILITIES AND FUND BALANCES $ 1, $ 219,626 $ The accompanying notes are an integral part of this statement.

7 STATEMENT OF REVENUES AND EXPENSES Year ended Page 5 of23 Operating Replacement Fund Fund Total REVENUES Administrative $ 4,031,686 $ 48,174 $ 4,079,860 Golf course and pro shop 3,560,195 3,560,195 Restaurant and concession 1,636,819 1,636,819 Resale capital assessments 198, ,000 Tennis 134, ,719 Interest income Developer subsidy (331,517) (331,517) TOT AL REVENUES 9,230,468 48,559 9,279,027 EXPENSES Golf course and pro shop 2,769,415 2,769,415 Administrative 2, 187,210 42,733 2,229,943 Common ground 1,519,570 1,519,570 Restaurant and concession 1,174,949 1,174,949 Cost of sales 865, ,378 Tennis 205, ,995 Pool 190, ,228 Fitness 70, TOTAL EXPENSES 8,983, ,025,792 EXCESS OF REVENUES OVER (UNDER) EXPENSES BEFORE OTHER EXPENSES 247, ,235 OTHER EXPENSES Depreciation expense TOTAL OTHER EXPENSES 31,774 31,774 EXCESS OF REVENUES OVER (UNDER) EXPENSES $ $ 5,826 $ The accompanying notes are an integral part of this statement.

8 STATEMENT OF CHANGES IN FUND BALANCES Year ended Page 6 of23 Operating Replacement Fund Fund Total Balances, January 1, 2016, as originally stated $ (589,329) $ 213,800 $ (375,529) Prior period adjustment (Note L) 961, ,616 Balances, January 1, 2016, as restated 372, , ,087 Excess of revenues over (under) expenses 215,635 5, ,461 Balances, $ $ 219,626 $ 807,548 The accompanying notes are an integral part of this statement.

9 STATEMENT OF CASH FLOWS Year ended Page 7 of23 Operating Replacement Fund Fund Total CASH FLOWS FROM OPERATING ACTIVITIES Cash collected from members $ 9,331,719 $ 48,174 $ 9,379,893 Other cash received 234, ,560 Cash paid to suppliers and employees (9,254,057) (44,578) (9,298,635) Cash paid to Developer (300,000) (300,000) Interest income received Cash paid for interest (741) {741) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 12,047 3,981 16,028 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (351710) (35,710) NET CASH PROVIDED BY (USED IN) INVESTING ACTMTIES (35,710) (35,710) CASH FLOWS FROM FINANCING ACTIVITIES Payments on capital lease obligations (6,464) (6,464) lnterfund transfers {151836) 15,836 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (22,300) 15,836 (6,464) NET CHANGE IN CASH AND CASH EQUIVALENTS (45,963) 19,817 (26,146) Cash and cash equivalents, as of January 1, , ,189 1,197,557 CASH AND CASH EQUIVALENTS, AS OF DECEMBER31, 2016 $ 945,405 $ 226,006 $ 1,171,411 SUPPLEMENTAL DISCLOSURES Non-cash financing and investing activities Property and Equipment purchased through capital lease obligations $ 2,142 Property and Equipment included in accounts payable $ 40,858 The accompanying notes are an integral part of this statement.

10 STATEMENT OF CASH FLOWS, CONTINUED Year ended Page 8 of23 RECONCILIATION OF EXCESS OF REVENUES OVER (UNDER) EXPENSES TO NET CASH PROVIDED BY (USED IN) OPERATING ACTMTIES Operating Replacement Fund Fund Total Excess of revenues over (under) expenses $ 215,635 $ 5,826 $ 221,461 Adjustments to reconcile excess of revenues over (under) expenses to net cash provided by (used in) operating activities: Depreciation expense 31,774 31,774 Bad debt expense 12,000 12,000 (Increase)/decrease in assets: Accounts receivable 343, ,591 Other receivables 27,109 27,109 Due from Developer 31,517 31,517 Prepaid expenses (25,804) (25,804) Inventory (4,749) (4,749) Deposits (12,469) (12,469) Increase/( decrease) in liabilities: Accounts payable (241,772) (1,845) (243,617) Accrued payroll 1,055 1,055 Prepaid assessments 225, ,825 Deferred revenue (591,665) (591,665) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 12,047 $ 3,981 $ 16,028 The accompanying notes are an integral part of this statement.

11 NOTES TO THE FINANCIAL STATEMENTS Page 9 of23 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of organization River Strand Golf & Country Club, Inc. (the "Club"), which is located in Manatee, Florida was incorporated on October 4, 2005 under Chapter 617 ofthe Florida Statutes as a not-for-profit organization. The Club's Declaration of Covenants, Conditions and Restrictions (the 11 Declaration 11 ) was filed in the official records of Manatee County, Florida on October 25, The Club is responsible for the preservation and maintenance of the Club common areas including, but not limited to, the golf course, clubhouse, roadways, swimming pools, tennis courts, all wetlands and other preservation areas, surface water drainage, management systems and entranceway in accordance with the terms of Florida Statutes, Chapter 720, and the provisions of the Declaration. The Club consists of 1,870 residential units of which 1,696 were closed at December 31, The Club's operations began during Fund accounting The Club's governing documents provide certain guidelines for governing its financial activities. To ensure observance of limitations and restrictions on the use of financial resources, the Club maintains its accounts using fund accounting. Financial resources are classified for accounting and reporting purposes in the following funds established according to their nature and purpose: Operating fund This fund is used to account for financial resources available for the general operations of the Club. In addition, property and equipment of the Club is recorded in the operating fund. Replacement fund This fund is used to accumulate financial resources designated for future major repairs and replacements. The Club prepares its financial statements on the accrual basis of accounting and in accordance with the "Real Estate - Common Interest Realty Associations" topic of the Financial Accounting Standards Board ("F ASB 11 ) Accounting Standard Codification ( 11 ASC 11 ).

12 NOTES TO THE FINANCIAL STATEMENTS Page 10of23 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Management estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Club to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents For purposes of reporting cash flows, the Club considers all short-term highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Prepaid assessments Prepaid assessments represent amounts paid to the Club before the assessments were due. Inventory Inventories consist primarily of food, beverages and golf shop supplies and are stated at the lower of cost or market using the specific identification method. Property and equipment The Association follows prevalent industry practice, as contained in ASC Subtopic , "Real Estate - Common Interest Realty Associations - Property, Plant and Equipment" in accounting for the common property of the Association. Property is capitalized only if the Association has title or other evidence of ownership of the property, and either the Association can dispose of the property or the property is used by the Association to generate significant cash flow from members on the basis of usage or from nonmembers. Property directly associated with the units is not capitalized. Property not directly associated with the units consists of buildings, golf course, common areas and roadways. These items are not capitalized as they do not meet the capitalization criteria.

13 NOTES TO THE FJNANCIAL STATEMENTS Page 11 of23 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Property and equipment, continued If the Club determines that the property should be capitalized in accordance with the criteria above, the property is recorded at estimated fair value if contributed by the Developer. If the property is purchased directly by the Club, it is recorded at cost. Capitalized common property is depreciated over its estimated useful life using the straight-line method of depreciation. Resale capital assessments Purchasers of units from owners other than the Developer are required to pay a resale capital assessment in the amount of $1, For the year ended December 31, 2016, the Club collected $198, 000 of resale capital assessments. Resale capital assessments are treated as income to the Club's social membership. Income taxes The Club has selected a December 31 year-end and files its income tax return as a regular Corporation under Section 277 of the Internal Revenue Code. Under this Section, the Club is taxed on all net income from nonmembership activities reduced only by losses from nonmembership activities for which a profit motive Nonmembership income may not be offset by membership losses, and any net membership losses may only be carried forward to offset membership income of future tax periods. Due to the nature of the Club's operations, the Club believes it is remote that it would utilize either type of loss carryforward. As a result, it is the Club's policy not to disclose the deferred tax asset and related valuation allowance associated with these carryforwards. Any net membership income not applied to the subsequent tax year under Revenue Ruling is subject to taxation. The Club files Form 1120, which has graduated federal tax rates of 15% to 39% and a state tax rate of 5.5%, after a $50,000 income exclusion. The Association had no tax due for the year ended. The Club's tax filings are subject to audit by various taxing authorities. Certain income tax returns filed by the Club remain open to examination by these government agencies. The Club follows ASC Topic 740, "Income Taxes" in accounting for uncertain tax positions. The Club has evaluated its tax positions and any estimates utilized in its tax returns, and concluded that the Club has taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. Interest and penalties associated with uncertain tax positions will be recognized in income tax expense, if required.

14 RIVER STRAND GOLF & COUNTRY CLUB, JNC. NOTES TO THE FINANCIAL STATEMENTS Page 12 of23 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTJNUED Interest earned Interest income earned in the operating fund or the replacement fund is recorded in its respective fund. Advertising The Club expenses advertising production costs as they are incurred and advertising communication costs the first time the advertising takes place. Advertising expense was approximately $191in2016. Concentration of credit risk The Club maintains accounts at various financial institutions in bank deposits which, at times, may exceed federally-insured limits. The Club has not experienced any losses on such accounts and believes it is not exposed to any significant risk on cash. Concentration of credit risk with respect to the receivables relates to billings to members in west-central Florida who pay assessments to the Club. The Club does not anticipate credit losses in the near future. Fair value of financial instruments The carrying value of cash and cash equivalents, receivables, payables, deferred revenue and amounts due from the Developer approximate fair value due to the short maturity of these financial instruments. Revenue recognition Assessment revenue is collected annually and recorded monthly in the amount of the assessment allocation specified for current period operations, based on the annual budget adopted by the Board of Directors. Each unit owner is a social member and an equal portion of the assessment is assessed for each unit regarding resident's social membership. Member's may also be a Golf member of the Club. Golf members are assessed additional assessments relating to this membership in addition to assessments relating to their Social membership.

15 NOTES TO THE FINANCIAL STATEMENTS Page 13 of23 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Revenue recognition. continued Single-family unit owners are also assessed a landscaping assessment, the amount of which is based on a lots square-footage, regardless of membership type. Compensated absences The Club has not accrued compensated absences because the amount cannot be reasonably estimated. Management is of the opinion that the amounts omitted will not have a material impact on the Clubs financial position. NOTE B - ASSESSMENTS RECEIVABLE Assessments receivable are carried at the original charge amount less an estimate made for doubtful receivables, if any, based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Assessments receivable are written off when deemed uncollectible. Recoveries of assessments receivable previously written off are recorded as revenue when received. An assessment receivable is considered to be past due if any portion of the receivable balance is outstanding for more than one month. A late fee is charged on assessments receivable that are outstanding for more than one month and is recognized as income as it is charged. As of, the Club had assessments receivable of: Assessments receivable Allowance for doubtful accounts $ Amount 41,783 (19,396) $ 22,387

16 NOTES TO THE FINANCIAL STATEMENTS Page 14 of23 NOTE C - INVENTORY Inventory at consists of the following: Pro shop merchandise Tennis merchandise Food and beverage Amount $ 77,095 11,639 52, 141 $ 140,875 NOTED - PROPERTY AND EQUIPMENT Property and equipment consists of the following as of December 3 1, 2016: Useful Lives Amount Golf course equipment 5-10 years $ 303,245 Golf course equipment under capital lease obligations 3 years 18,245 Restaurant equipment 5 years 122,644 Computer hardware 5-10 years 40,793 Pro shop equipment 5 years 22,775 Restaurant furniture 10 years 15,426 Signage 10 years 14,081 Fire pit 10 years 5,717 Gatehouse equipment 5 years 13,796 Office furniture and equipment 10 years 10,776 Computer software 3 years 9,507 Tennis equipment 5 years 8,369 Golf course accessories 5 years 7,899 Tennis maintenance building 15 years 4,933 Pro shop fixtures 5 years ,537 Accumulated depreciation (497,909) $ Depreciation expense for the year ended was $31,774, of which $6,403 related to property and equipment under capital lease obligations.

17 NOTES TO THE FINANCIAL STATEMENTS Page 15of23 NOTE E - DEFERRED REVENUE Deferred revenue represents monies received on or before for services to be performed or benefits to be received after. At, deferred income consists of the following: Prepaid annuavinterim membership fees Credit book and gift certificates, prepaid events $ Amount 104,600 41, ,723 NOTE F - DUE FROM DEVELOPER In accordance with the Declaration of Covenants, Conditions and Restrictions for River Strand Golf & Country Club, Inc., Section 9.2: "During the period that Developer membership exists, the Developer covenants to subsidize the general operating expenses of the Club, by contributing the difference, if any, between net operating expenses and all income of the Club including but not limited to assessment income from members other than the Developer, pro-shop income, restaurant income, interest income and income from ancillary operations. Developer, however, shall not be obligated to contribute to or pay for funding any reserves for capital expenditures or deferred assessment, capital improvement fund, or special assessment. During the period of Developer control, in return for subsidizing the general operating expenses of the Club, any net operating profit made by the Club, will revert back to the Developer to offset existing and future capital improvements, operating expenses, support costs, and start-up costs. Net operating profit shall mean the amount by which income from all sources of the Club exceeds operating costs and expenses, but excluding depreciation expense and amortization expense." The Club is comprised of both Social and Golf related memberships, each ofwhich has its own Developer Subsidy as outlined in Section 9.2 above, exclusive of the activity from the other. For the year ended, the Developer had a credit subsidy obligation of $24 7, 409 for activities relating to the Club's golf membership. This resulted in no subsidy obligation to the Club's golf membership. The Developer has made no payments to the golf membership from inception through the year ended

18 NOTES TO THE FINANCIAL STATEMENTS Page 16 of23 NOTE F - DUE FROM DEVELOPER, CONTINUED leaving no amount due to or from the Developer at. This is comprised of the following items: January 1, 2016 through (Golt) Operating Replacement Fund Fund Total Golf related operating expenses $ 3,898,797 $ - $ 3,898,797 All golf income from sources other than the Developer ( 4, 146,206) (4,146,206) Developer's subsidy obligation credit - golf (247,409) (247,409) Revenues over expenses in excess of Developer payments 247, ,409 Developer's subsidy obligation Payments made by the Developer Due from Developer- golf December 3 1, 2015 Due from Developer - golf at $ - $ - $

19 NOTES TO THE FINANCIAL STATEMENTS Page 17 of23 NOTE F - DUE FROM DEVELOPER, CONTINUED The Developer's subsidy obligation credit for the Club's social membership for the year ended was $331,517. During the year ended, the Club reimbursed $300,000 to the Developer, received no payments from the Developer, and had a restated Due from Developer of$340,512 as of December 31, 2015, leaving a due from Developer of $308,995 at. This is comprised of the following items: January 1, 2016 through (Social) Operating Fund Replacement Fund Total Social related operating expenses (other than reserves): $ 5,084,262 - $ 5,084,262 Funded reserves 48,174 48,174 Reserve assessments (48,174) (48,174) All social income from sources other than the Developer (5,415,779) (5,415,779) Developer's subsidy obligation credit - social (331,517) (331,517) Due to Developer, at December 3 1, 2015 as originally stated (621, 104) (621,104) Prior period adjustment (Note L) 961,

20 NOTES TO THE FINANCIAL STATEMENTS Page 18 of23 NOTE F - DUE FROM DEVELOPER, CONTINUED Operating Fund Replacement Fund Total Due from Developer, at December 31, 2015 as restated 340, ,512 Payments made to the Developer by the Club 300, ,000 Developer payments to the Club Due from Developer - social at $ 308,995 _$ -- - $ 308,995 The Developer has paid subsidy payments to the Club's social membership totaling $3,194,254 from October 4, 2005 (date of inception) through, of which $961,616 was for the acquisition of initial fixed asset and not a part of the Developer's subsidy obligation. The Association has refunded $300,000 to the Developer from the period October 4, 2005 (date ofinception) through. The accompanying financial statements have been prepared assuming that since the Developer has elected to fund the deficit in operating expenses, they are excused from any obligation to fund their share of contributions to the reserve accounts. Due to an ambiguity in the Florida statutes, there is an uncertainty as to whether the Developer is excused from funding contributions to the reserve accounts or if they are merely excused from paying regular assessments. It is not possible to predict at this time whether the Developer will ultimately be responsible for funding their share of the reserve accounts. Accordingly, no adjustments that may result from the final resolution of this uncertainty have been made in the accompanying financial statements. NOTE G - CAPITAL LEASE OBLIGATIONS The club leases golf course equipment under capital leases. The following is a schedule of future minimum lease payments under the capital lease together with the present value

21 NOTES TO THE FINANCIAL STATEMENTS Page 19 of23 NOTE G - CAPITAL LEASE OBLIGATIONS, CONTINUED of future minimum lease payments as of : Year Ending December 31, Total future minimum lease payments Less amount representing interest Present value of future minimum lease payments Amount 7,400 2, ,578 (449) $ 10,129 NOTE H - REPLACEMENT FUND The Association's governing documents allow the accumulation funds for future major repairs and replacements, unless funding is waived or modified by the unit owners at a unit owner meeting. These funds are generally not available for expenditures for normal operations. Management periodically reviews the major components of common property and establishes estimated remaining useful lives and replacement costs for Association assets. No outside independent analysis of remaining useful lives or future replacement costs has been conducted by the Association. The Association is currently fully funding for such major repairs and replacements over the estimated useful lives of the components based on current replacement costs, using the straight-line method. Actual expenditures may vary from the estimated amounts and the variations may be material. Therefore, amounts accumulated in the replacement fund may not be adequate to meet all future major repairs and replacements. If additional funds are needed, the Association has the right to increase regular assessments, levy special assessments, borrow, or delay repairs and replacements until funds are available.

22 NOTES TO THE FINANCIAL STATEMENTS Page 20 of23 NOTE H - REPLACEMENT FUND, CONTINUED The following presents the changes in the replacement fund : Restricted for: Beginning Ending Fund Fund Balance Revenues Ex~enses Balance Roofs $ 54,300 $ 19,462 $ - $ 73,762 Painting 47,517 (42,733) 4,784 Pavement 110,783 28, ,495 Unallocated interest 1, ,585 $ 213,800 $ 48,559 $ (42,733) $ 219,626 NOTE I- COMMITMENTS Ouerating leases The Club is committed under noncancellable operating leases for the rental of golf carts and golf course equipment. Rental charges for the period ended were $3 73,200. Future minimum lease payments under the noncancellable operating lease are as follows: Year Ending December 31, Amount 2017 $ 344, , , ,104 $ 951,294 Bulk cable agreement The Club entered into an agreement with Bright House Networks, LLC in January, 2016 to provide bulk cable services to its members at a cost of $ per unit per month, subject to no more than a 5% increase per year. The agreement calls for an initial term of five years, after which the agreement will automatically renew for successive one year terms, unless either party gives 90 days written notice of their intent not to renew prior to the expiration of the initial terms or any renewal term thereafter. Future payments under the agreement are as follows:

23 NOTES TO THE FINANCIAL STATEMENTS Page 21 of23 NOTE I - COMMITMENTS, CONTINUED Bulk cable agreement, continued Year Ending December Amount $ 590, , , ,136 $ 2,360,544 Expenses relating to the agreement for the year ended totaled $729,683, and are included in administrative expense under the Social membership. NOTE J - RETIREMENT PLAN The Club has a defined contribution plan covering substantially all employees. The plan provides that employees who have completed one year of service and 1,000 hours can voluntarily contribute from 1 % to 50% of their earnings to the plan. Employer contributions are discretionary and are determined and authorized by the Board of Directors each plan year. The Club is not currently matching employee contributions. Any employer contributions vest 20% per year after the first year and are fully vested after six years. There are no expenses related to the plan for the year ended December 31, NOTE K - RELATED PARTY TRANSACTIONS Transactions with affiliate The Developer provides irrigation services to the Club through an affiliate. Expenses related to these services were approximately $216,059 in Included in accounts payable is approximately $18,553 due to the affiliate. Developer During the year ended, the Club's Board of Directors was controlled by Lennar Homes, LLC (the "Developer"). As such, the Developer controls the Club's management, policy setting, and finances. For the year ended December 31, 2016, the Club had a balance due from the Developer of $308,995. For the year ended 0% of the Association's revenue was derived from the Developer

24 NOTES TO THE FINANCIAL STATEMENTS Page 22 of23 NOTE K - RELATED PARTY TRANSACTIONS, CONTINUED Developer, continued The Developer also maintains a normal membership account for charges relating to the Club's amenities. Charges on the account for the year ended, totaled $21,789. The Developer had a balance of $13,345 on the account at December 31, 2016, which is included in accounts receivable. Community Development District Harbour North Community Development Districts, which is a local limited purpose independent governmental agency designed to provide community related services to residents by maintaining the Community's infrastructure. NOTE L - PRIOR PERIOD ADJUSTMENT Management has recorded a prior period adjustment to exclude Developer payments relating to the acquisition of initial fixed asset purchases from the Developer's subsidy obligation to the Club. The overall effect of this change in accounting policy is an increase the Developer's subsidy obligation to the Club's social membership as well as beginning fund balance of $961,616 NOTE M - SUBSEQUENT EVENTS Management has assessed subsequent events through April 12, 2017, the date on which the financial statements were available to be issued. On February 28, 2017, control of the Club's Board of Directors was turned over from the Developer to the Club's membership.

25 SUPPLEMENTARY INFORMATION

26 Page 23 of23 STATEMENT OF REVENUES AND EXPENSES - OPERATING FUND DETAIL (UNAUDITED) Year ended Operating Operating Fund- Fund- Social Golf Total REVENUES Golf course and pro shop $ $ 3,560,195 $ 3,560,195 Administrative 4,018,561 13,125 4,031,686 Restaurant and concession 1,063, ,886 1,636,819 Resale capital assessments 198, ,000 Tennis 134, ,719 Interest income Developer subsidy (331,517) ( ) TOT AL REVENUES 5,084,262 4,146,206 9,230,468 EXPENSES Golf course and pro shop 2,769,415 2,769,415 Administrative 1,873, ,559 2, 187,210 Common ground 1,519,570 1,519,570 Restaurant and concession 763, ,232 1,174,949 Cost of sales 460, , ,378 Tennis 205, ,995 Pool 190, ,228 Fitness 70,314 70,314 TOTAL EXPENSES 5, ,898, ,059 EXCESS OF REVENUES OVER(UNDER)EXPENSES BEFORE OTHER EXPENSES 247, OTHER EXPENSES Depreciation expense , TOT AL OTHER EXPENSES , EXCESS OF REVENUES OVER (UNDER) EXPENSES $ (5,885) $ 221,520 $ 215,635 The accompanying notes are an integral part of this statement.