RIVER STRAND GOLF COUNTRY CLUB, INC. FINANCIAL...

RIVER STRAND GOLF &

COUNTRY CLUB, INC.

FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

YEAR ENDED DECEMBER 31, 2016

TABLE OF CONTENTS

Independent Auditor's Report.... .................................... ......................... 1-3

Financial Statements

Balance Sheet...... ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Statement of Revenues and Expenses ....................................................... 5

Statement of Changes in Fund Balances.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Statement of Cash Flows... .... .. .................... .... ... ............. ... .. ...... ........ . 7-8

Notes to the Financial Statements.................... . ............ ... ......... .. .. .. ... .. . .. 9-22

Supplementarv Information

Statement of Revenues and Expenses - Operating Fund Detail (Unaudited). ......... 23

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 December 31, 2016, 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

1-855-STROEMER • www.stroemercpa.com 14030 Metropolis Avenue, Suite 200, Fort Myers, FL 33912

Aventura • Fort Myers • Jacksonville' • Naples • Orlando' • Sanibel • Tampa' • West Palm Beach'

'By Appointment Only

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 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.

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, 3 96. 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

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 Q Fort Myers, Florida April 12, 2017

RIVER STRAND GOLF & COUNTRY CLUB, INC. Page 4 of23 BALANCE SHEET December 31, 2016

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 308,995 308,995 Interfund receivable/(payable) 6,380 (6,380) Prepaid expenses 46,216 46,216 Inventory 140,875 140,875 Property and equipment, net 101,628 101,628

Deposits 17,453 17 453

TOTAL ASSETS $ 1,589,339 $ 2191626 $ 118081965

LIABILITIES AND FUND BALANCES Accounts payable $ 448,727 $ $ 448,727 Accrued payroll 147,013 147,013 Prepaid assessments 249,825 249,825 Deferred revenue 145,723 145,723

Capital lease obligations 10,129 10,129

TOT AL LIABILITIES 1,001,417 1,001,417

FUND BALANCES 587,922 219,626 807,548

TOT AL LIABILITIES

AND FUND BALANCES $ 1,5891339 $ 219,626 $ 118081965

The accompanying notes are an integral part of this statement.

RIVER STRAND GOLF & COUNTRY CLUB, INC. Page 5 of23 STATEMENT OF REVENUES AND EXPENSES Year ended December 31, 2016


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 198,000 198,000 Tennis 134,719 134,719 Interest income 566 385 951

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 865,378 865,378

Tennis 205,995 205,995 Pool 190,228 190,228 Fitness 70,314 70 314

TOTAL EXPENSES 8,983,059 42 733 9,025,792

EXCESS OF REVENUES OVER (UNDER) EXPENSES

BEFORE OTHER EXPENSES 247,409 5 826 253,235

OTHER EXPENSES Depreciation expense 31 774 31 774

TOTAL OTHER EXPENSES 31,774 31,774

EXCESS OF REVENUES

OVER (UNDER) EXPENSES $ 2152635 $ 5,826 $ 2212461


RIVER STRAND GOLF & COUNTRY CLUB, INC. Page 6 of23 STATEMENT OF CHANGES IN FUND BALANCES Year ended December 31, 2016


Balances, January 1, 2016, as originally stated $ (589,329) $ 213,800 $ (375,529)

Prior period adjustment (Note L) 961,616 961,616

Balances, January 1, 2016, as restated 372,287 213,800 586,087

Excess of revenues

over (under) expenses 215,635 5,826 221,461

Balances, December 31, 2016 $ 5871922 $ 219,626 $ 807,548


RIVER STRAND GOLF & COUNTRY CLUB, INC. Page 7 of23

STATEMENT OF CASH FLOWS Year ended December 31, 2016


CASH FLOWS FROM OPERATING ACTIVITIES Cash collected from members $ 9,331,719 $ 48,174 $ 9,379,893

Other cash received 234,560 234,560 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 566 385 951 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, 2016 991,368 206,189 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


RIVER STRAND GOLF & COUNTRY CLUB, INC. Page 8 of23

STATEMENT OF CASH FLOWS, CONTINUED Year ended December 31, 2016

RECONCILIATION OF EXCESS OF REVENUES OVER (UNDER) EXPENSES TO NET CASH PROVIDED BY (USED IN) OPERATING ACTMTIES


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 343,591 343,591

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 225,825 225,825

Deferred revenue (591,665) (591 ,665)

NET CASH PROVIDED BY

(USED IN) OPERATING

ACTIVITIES $ 12,047 $ 3,981 $ 16,028


RIVER STRAND GOLF & COUNTRY CLUB, INC. NOTES TO THE FINANCIAL STATEMENTS December 31, 2016

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of organization

Page 9 of23

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 11Declaration11

) was filed in the official records of Manatee County, Florida on October 25, 2005. 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, 2016. The Club's operations began during 2005.

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 (

11ASC 11).


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 972-360, "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.

RIVER STRAND GOLF & COUNTRY CLUB, INC. NOTES TO THE FJNANCIAL STATEMENTS December 31, 2016

Page 11 of23


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, 5 00. 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 70-604 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 December 31, 2016.

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.

RIVER STRAND GOLF & COUNTRY CLUB, JNC. NOTES TO THE FINANCIAL STATEMENTS December 31, 2016

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.


Page 13 of23


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 December 31, 2016, the Club had assessments receivable of:

Assessments receivable Allowance for doubtful accounts

$

Amount

41,783 (19,396)

$ 22,387


NOTE C - INVENTORY

Inventory at December 31, 2016 consists of the following:

Pro shop merchandise Tennis merchandise

Food and beverage

NOTED - PROPERTY AND EQUIPMENT

Page 14 of23

Amount

$ 77,095 11,639

52, 141

$ 140,875

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 1 331

599,537 Accumulated depreciation (497,909)

$ 1012628

Depreciation expense for the year ended December 31, 2016 was $31,774, of which $6,403 related to property and equipment under capital lease obligations.


NOTE E - DEFERRED REVENUE

Page 15of23

Deferred revenue represents monies received on or before December 31, 2016 for services to be performed or benefits to be received after December 31, 2016. At December 31, 2016, deferred income consists of the following:

Prepaid annuaVinterim membership fees

Credit book and gift certificates, prepaid events

$

NOTE F - DUE FROM DEVELOPER

Amount

104,600

41,123

145,723

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 December 31, 2016, 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 December 31, 2016


NOTE F - DUE FROM DEVELOPER, CONTINUED

Page 16 of23

leaving no amount due to or from the Developer at December 31, 2016.

This is comprised of the following items:

January 1, 2016 through December 31, 2016 (Golt)


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 247,409 247,409

Developer's subsidy obligation

Payments made by the Developer

Due from Developer- golf December 3 1, 2015

Due from Developer - golf

at December 31, 2016 $ - $ - $



Page 17 of23

The Developer's subsidy obligation credit for the Club's social membership for the year ended December 31, 2016 was $331,517. During the year ended December 31, 2016, 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 December 31, 2016.

This is comprised of the following items:

January 1, 2016 through December 31, 2016 (Social)

Social related operating expenses (other than reserves):

Funded reserves

Reserve assessments

All social income from sources other than the Developer

Developer's subsidy obligation credit - social

Due to Developer, at December 3 1, 2015 as originally stated

Prior period adjustment

(Note L)

$

Operating Fund

5,084,262

(5,415,779)

(331,517)

(621, 104)

961 ,616

Replacement Fund

-

48,174

(48,174)

$

Total

5,084,262

48,174

(48,174)

(5,415,779)

(331 ,517)

(621,104)

961 2616



Due from Developer, at

December 31, 2015 as

restated

Payments made to the Developer by the Club

Developer payments to the Club

Operating Fund

340,512

300,000

Replacement Fund

Page 18 of23

Total

340,512

300,000

Due from Developer - social

at December 31, 2016 $ 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 December 31, 2016, 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 December 31, 2016.

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


NOTE G - CAPITAL LEASE OBLIGATIONS, CONTINUED

of future minimum lease payments as of December 31, 2016:

Year Ending December 31,

2017 2018 2019

Total future minimum lease payments Less amount representing interest

Present value of future minimum lease payments

NOTE H - REPLACEMENT FUND

Page 19 of23

Amount 7,400 2,984

194 10,578

(449)

$ 10,129

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.


Page 20 of23

NOTE H - REPLACEMENT FUND, CONTINUED

NOTE I-

The following presents the changes in the replacement fund :

Beginning Ending

Fund Fund Balance Revenues Ex~enses Balance

Restricted for:

Roofs $ 54,300 $ 19,462 $ - $ 73,762

Painting 47,517 (42,733) 4,784

Pavement 110,783 28,712 139,495

Unallocated interest 1,200 385 1,585

$ 213,800 $ 48,559 $ (42,733) $ 219,626

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 December 31, 2016 were $3 73 ,200. Future minimum lease payments under the noncancellable operating lease are as follows:

Year Ending

December 31 , Amount

2017 $ 344,235 2018 337,170 2019 226,785

2020 43,104

$ 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 $3 3. 50 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:


NOTE I - COMMITMENTS, CONTINUED

Bulk cable agreement, continued

Year Ending

December 3 1.

2017 2018 2019 2020

Amount

$ 590,136 590,136 590, 136 590,136

$ 2,360,544

Page 21 of23

Expenses relating to the agreement for the year ended December 3 1, 2016 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, 2016.

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 2016. Included in accounts payable is approximately $18,553 due to the affiliate.

Developer

During the year ended December 31, 2016, 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 December 31, 2016 0% of the Association's revenue was derived from the Developer


NOTE K - RELATED PARTY TRANSACTIONS, CONTINUED

Developer, continued

Page 22 of23

The Developer also maintains a normal membership account for charges relating to the Club's amenities. Charges on the account for the year ended December 31, 2016, 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.

SUPPLEMENTARY INFORMATION

RIVER STRAND GOLF & COUNTRY CLUB, INC. Page 23 of23 STATEMENT OF REVENUES AND EXPENSES -OPERATING FUND DETAIL (UNAUDITED)

Year ended December 31, 2016 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 1,063,933 572,886 1,636,819 Resale capital assessments 198,000 198,000 Tennis 134,719 134,719 Interest income 566 566

Developer subsidy (331,517) (3312517)

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 1,873,651 313,559 2, 187,210 Common ground 1,519,570 1,519,570 Restaurant and concession 763,717 411,232 1,174,949 Cost of sales 460,787 404,591 865,378 Tennis 205,995 205,995 Pool 190,228 190,228 Fitness 70,314 70,314

TOTAL EXPENSES 5,0842262 3,898,797 82983,059

EXCESS OF REVENUES OVER(UNDER)EXPENSES

BEFORE OTHER EXPENSES 247,409 2472409

OTHER EXPENSES

Depreciation expense 5 885 25,889 31 774

TOT AL OTHER EXPENSES 5 885 25,889 31 774

EXCESS OF REVENUES

OVER (UNDER) EXPENSES $ (5,885) $ 221,520 $ 215,635


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