SALAMANDER INNISBROOK, LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies

Nature of business

Salamander Innisbrook, LLC (the “Company”, “we”, “us”, or “our”), together with our affiliates, Salamander Innisbrook Securities, LLC, and Salamander Innisbrook Condominium, LLC owns and operates the Innisbrook Resort and Golf Club (the “Resort”). The Company is owned by a sole member who does not have any personal liability for any of the Company’s obligations except as expressly provided by law and/or contract obligation.

The Company controls and operates the Rental Pool Lease Operations (the “Rental Pool”); a securitized pool of condominiums owned by participating condominium owners (the “Participating Owners”) and rented as hotel rooms to guests of the Resort (an average of 346 units or 431 hotel rooms participate at any given time). Pursuant to the Innisbrook Rental Pool Master Lease Agreement, dated January 1, 2014 (the “Master Lease” or “MLA”), the Company is obligated to make quarterly distributions of a percentage of room revenues. Other resort facilities include four 18‑hole golf courses, four restaurants, three convention facilities, a health spa, fitness center, tennis and recreation facilities, themed water park and five swimming pools.

Basis of presentation

The accompanying condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Quarterly Report on Form 10‑Q. Consequently, they do not include all disclosures normally provided in the audited financial statements included in the Company’s Annual Report on Form 10‑K. Accordingly, these condensed financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10‑K for the year ended December 31, 2017.

In the opinion of management, the condensed financial statements reflect all adjustments which are necessary for a fair presentation of the financial information. All such adjustments are of a normal recurring nature.

As a destination golf resort, open year round, the Resort’s performance is sensitive to weather conditions and seasonality as well as general trends in the economy, with economic downturns adversely affecting our operating results. Our operations are seasonal with the highest volume of revenue generated in the first two quarters of each calendar year. Due to the seasonal business of the Company, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full fiscal year.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and 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. Estimates that are critical to the accompanying condensed financial statements include our belief that long-lived assets, including intangibles, are recoverable, and our estimates of the average lives of memberships from which we base our revenue recognition are reasonable. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period they are determined to be necessary. It is at least reasonably possible that our estimates could change in the near term. Future results could be materially affected if actual results differ from these estimates and assumptions.

Revenue Recognition

Our revenue is derived from a variety of sources including, but not limited to, hotel, food and beverage operations, retail sales and golf course operations. With the exception of membership dues and initiation fees, all revenues net of any sales and other taxes collected are recognized as products are delivered or services are performed, as incurred. The membership dues are recognized ratably over the applicable period (three months to one year depending on type of membership). The membership initiation fees at the Resort are nonrefundable and are initially recorded to deferred revenue and amortized over the average life of a membership which, based on historical information, is ten years for full golf memberships and five years for resort and executive golf memberships. Refer to “Recent Accounting Pronouncements” for further discussion.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2014‑09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014‑09 replaced most existing revenue recognition guidance in GAAP when it became effective. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption beginning January 1, 2017. The standard permits the use of either the full retrospective or modified retrospective adoption. We completed our evaluation of the effect that ASU No. 2014‑09 had on our financial statements and our evaluation of our revenue streams (ie: Rooms, Food & Beverage, Golf and Membership) under the new standard. Because of the short-term day-to-day nature of our hotel revenues as well as the future treatment of revenues related to future events and membership, we determined that the pattern of revenue recognition did not change significantly. We evaluated how we recognize revenue related to initiation deposits when adopting ASU 2014‑09 and determined that we will continue to recognize revenue over a period of time which represents the pattern of transfer of our services to our members. We will also continue recognizing revenue over the estimated life of the member and as a result the adoption of ASU 2014‑09 did not impact how we recognize member revenue. The Company adopted this standard on its effective date of January 1, 2018 under the modified retrospective method. No adjustment was recorded to our opening balance of retained earnings on January 1, 2018 as there was no impact to our net income. Additionally, comparative information beginning in 2018 was not restated and will continue to be reported under Revenue Recognition (Topic 605). We also expect that the effect of adoption of ASU No. 2014‑09 will be immaterial to us on an on-going basis.

In November 2016, the FASB issued ASU No. 2016‑18, “Classification of Restricted Cash,” which requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effective for the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company adopted this standard on January 1, 2018. As a result, restricted cash reserves are included with cash on the Company’s condensed statements of cash flows. The adoption did not change the presentation of the Company’s condensed balance sheets.

In February 2016, the FASB issued ASU No. 2016-02, Leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption was permitted. The Company adopted this standard on its effective date of January 1, 2019 under the modified retrospective method and using the optional transition method to apply the new lease accounting standard prospectively as of January 1, 2019, rather than as of the earliest period presented. Adoption of this standard resulted in the recording of net operating lease right-of-use ("ROU") assets of approximately $251,000 included in property, building and equipment, net, and corresponding operating lease liabilities of approximately $247,000. The adoption did not materially impact the Company's statements of operations or cash flows. .

The following table provides additional detail, by financial statement line item, of the ASU 2016-18 impacts in our condensed statements of cash flows for the nine months ended September 30, 2018 and 2017.


	As Reported		ASU 2016 - 18		Reported
	(Pre-Adoption)		Impact		(Post- Adoption)
Nine months ended September 30, 2018
Cash and restricted cash, end of period, shown in the statement of cash flows	$	330,790	$	2,513,741	$	2,844,531


	As Reported		ASU 2016 - 18		Reported
	(Pre-Adoption)		Impact		(Post- Adoption)
Nine months ended September 30, 2017
Cash and restricted cash, end of period, shown in the statement of cash flows	$	1,227,800	$	1,503,128	$	2,730,928

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.