UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

(Mark one)

 

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

 

OR

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

 

COMMISSION FILE NUMBER: 333-147447

 

SALAMANDER INNISBROOK, LLC

(Exact name of registrant as specified in its charter)

 

Florida		26-0442888
(State of incorporation)		(IRS employer identification no.)

 

36750 US Highway 19 North, Palm Harbor, FL 34684

(Address of principal executive offices)

727-942-2000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x   NO ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of the Regulation S-T (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ¨      NO x

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨      Accelerated filer ¨    Non-accelerated filer ¨ Smaller reporting company þ

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o      NO þ

 

The Rental Pool operated by the Registrant has 557 condominium rental pool units owned by approximately 455 condominium owners as of November 15, 2012.

 

 

INDEX

 

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Salamander Innisbrook, LLC
Condensed Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011		3
Condensed Statements of Operations and Changes in Member’s Equity (Unaudited) for the three and nine months ended September 30, 2012 and 2011		4
Condensed Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2012 and 2011		5
Notes to Condensed Financial Statements (Unaudited)		6
Innisbrook Rental Pool Lease Operation
Condensed Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011		10
Condensed Statements of Operations (Unaudited) for the three and nine months ended September 30, 2012 and 2011		11
Condensed Statements of Changes in Participants’ Fund Balances (Unaudited) for the three and nine months ended September 30, 2012 and 2011		12
Notes to Condensed Financial Statements (Unaudited)		13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3. Quantitative and Qualitative Disclosures about Market Risk		15
Item 4T. Controls and Procedures		15
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		16
Item 1A. Risk Factors		16
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 3.    Defaults Upon Senior Securities		16
Item 4.    Mine Safety Disclosures		16
Item 5.    Other information		16
Item 6. Exhibits		17
Signature		18
EX-31.1
EX-31.2
EX-32.1
EX-32.2

  

 

Cautionary Note Regarding Forward-Looking Statements

 

The following report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are statements that predict or describe future events or trends and that do not relate solely to historical matters. All of our projections in this quarterly report are forward-looking statements. You can generally identify forward-looking statements as statements containing the words "believe," "expect," "will," "anticipate," "intend," "estimate," "project," "assume" or other similar expressions. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the limited information currently available to us and speak only as of the date on which this report was filed with the SEC. Our continued internet posting or subsequent distribution of this dated report does not imply continued affirmation of the forward-looking statements included in it. We undertake no obligation, and we expressly disclaim any obligation, to issue any updates to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Future events are inherently uncertain. Moreover, it is particularly difficult to predict business activity levels at the Resort with any certainty. Accordingly, our projections in this quarterly report are subject to particularly high uncertainty. Our projections should not be regarded as legal promises, representations or warranties of any kind whatsoever. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and harmful to your interests.

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

SALAMANDER INNISBROOK, LLC

CONDENSED BALANCE SHEETS

 

		September 30,				December 31,
		2012				2011
		(Unaudited)
Assets
Current assets:
Cash		$	554,072			$	943,216
Accounts receivable trade, net			1,364,693				1,983,012
Inventories and supplies			842,627				826,625
Prepaid expenses and other			695,142				729,341
Due from affiliates			96,724				84,003
Total current assets			3,553,258				4,566,197
Property, buildings and equipment, net			39,018,457				40,551,300
Intangibles, net			5,670,539				6,474,862
Deposits and other assets			263,943				286,550
Total assets		$	48,506,197			$	51,878,909
Liabilities and Member's Equity
Current liabilities:
Accounts payable		$	511,237			$	956,503
Accrued liabilities			2,460,482				2,091,856
Deferred revenue			2,774,760				2,741,979
Long term-refurbishment liability			14,589				36,250
Capital lease obligations			-				30,532
Total current liabilities			5,761,068				5,857,120
Deferred revenue			1,098,999				1,100,491
Total liabilities			6,860,067				6,957,611
Member's equity			41,646,130				44,921,298
Total liabilities and member’s equity		$	48,506,197			$	51,878,909

 

See accompanying notes to unaudited condensed financial statements.

 

 

SALAMANDER INNISBROOK, LLC

CONDENSED STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER’S EQUITY

(Unaudited)

 

		For the three months ended September 30,								For the nine months ended September 30,
		2012				2011				2012				2011
Resort revenues		$	5,893,065			$	4,883,543			$	27,046,513			$	26,421,028
Costs and expenses:
Operating costs and expenses			3,142,704				2,878,701				11,881,356				11,739,647
General and administrative			4,003,993				3,788,762				13,660,198				13,768,378
Depreciation and amortization			832,494				850,658				2,499,826				2,572,928
Total costs and expenses			7,979,191				7,518,121				28,041,380				28,080,953
Operating loss			(2,086,126	)			(2,634,578	)			(994,867	)			(1,659,925	)
Interest income/(expense), net			11,299				(4,524	)			(12,250	)			(16,168	)
Net loss			(2,074,827	)			(2,639,102	)			(1,007,117	)			(1,676,093	)
Member's equity, beginning of period			43,732,268				47,490,475				44,921,298				48,403,525
Member's contributions/(distributions), net			(11,311	)			200,001				(2,268,051	)			(1,676,058	)
Member's equity, end of period		$	41,646,130			$	45,051,374			$	41,646,130			$	45,051,374

 

See accompanying notes to unaudited condensed financial statements.

 

 

SALAMANDER INNISBROOK, LLC

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine months ended September 30,
		2012				2011
Operating activities:
Net loss		$	(1,007,117	)		$	(1,676,093	)
Adjustments to reconcile net loss to net cash provided by operating activities
Provision for bad debt expense			3,546				27,810
Depreciation and amortization			2,499,826				2,572,928
Deposits and other assets			22,607				(58,549	)
Other changes in operating assets and liabilities			574,899				127,314
Net cash provided by operating activities			2,093,761				993,410
Cash flows from investing activities:
Capital expenditures			(162,661	)			(264,638	)
Net cash used in investing activities			(162,661	)			(264,638	)
Cash flows from financing activities:
Member distributions			(2,268,051	)			(1,676,058	)
Repayment of capital lease obligations			(30,532	)			(76,429	)
Repayment of refurbishment obligation			(21,661	)			(19,804	)
Net cash used in financing activities			(2,320,244	)			(1,772,291	)
Net decrease in cash			(389,144	)			(1,043,519	)
Cash at beginning of period			943,216				1,168,250
Cash at end of period		$	554,072			$	124,731
Supplemental disclosure of cash flow information:
Cash paid for interest		$	12,250			$	16,168

 

See accompanying notes to unaudited condensed financial statements.

 

 

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

 

On July 16, 2007, Salamander Innisbrook, LLC (the “Company”, “we”, “us”, or “our”), together with its affiliates, Salamander Innisbrook Securities, LLC, and Salamander Innisbrook Condominium, LLC (collectively, the “Buyer”) completed the purchase of the Innisbrook Resort and Golf Club (the “Resort”) and all of the equity interest in Golf Host Securities, Inc.

 

We assumed control and operation of the Rental Pool Lease Operations (the “Rental Pool”) which is a securitized pool of condominiums owned by participating condominium owners (the “Participating Owners”) and rented as hotel rooms to guests of the Resort; currently, an average of 455 owners or 557 hotel rooms participate at any given time. The Rental Pool obligated the Company to make quarterly distributions of a percentage of room revenues under the Amended and Restated Innisbrook Rental Pool Master Lease Agreement, dated January 1, 2004 (the “Master Lease” or “MLA”). 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 interim condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America and  the instructions of Quarterly Report on Form 10-Q. Consequently, they do not include all disclosures normally provided 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, 2011. 

 

In the opinion of management, the condensed financial statements reflect all adjustments which are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.   These results are not necessarily indicative of results for any other period or for a full year.  It is important to note that the Company’s business is seasonal.

 

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 any economic downturn adversely affecting 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.

 

Note 2. Accounts Receivable

 

Accounts receivable consist of the following as of September 30, 2012 and December 31, 2011:

 

		September 30, 2012				December 31, 2011
		(Unaudited)
Trade accounts receivable		$	1,131,358			$	1,591,984
Less allowance for bad debts			(114,629	)			(111,083	)
Other receivables			347,964				502,111
		$	1,364,693			$	1,983,012

 

 

 

Note 3. Property, Buildings and Equipment

 

Property, buildings and equipment consist of the following as of September 30, 2012 and December 31, 2011:

 

		September 30, 2012				December 31, 2011
		(Unaudited)
Land and land improvements		$	16,645,171			$	16,645,171
Buildings			24,961,772				24,961,772
Furniture, fixtures and equipment			7,952,997				7,952,997
Construction in progress			200,345				37,685
			49,760,285				49,597,625
Less accumulated depreciation			(10,741,828	)			(9,046,325	)
		$	39,018,457			$	40,551,300

 

Note 4. Intangibles

 

Intangible assets represent the value of the following contractual relationships acquired in connection with the acquisition of the Resort. The intangible assets are being amortized over the specific term or benefit period of each related contract.

  

				September 30,				December 31,
Intangible Assets		Amortization Period		2012				2011
				(Unaudited)
Water Contract		None since renewable in perpetuity		$	2,030,000			$	2,030,000
Rental Pool		77.5 months			9,481,717				9,481,717
Trade Name		None since renewable in perpetuity			2,300,000				2,300,000
					13,811,717				13,811,717
Less accumulated amortization					(8,141,178	)			(7,336,855	)
				$	5,670,539			$	6,474,862

 

Note 5. Long-term Obligations

 

Leases - Leases, which transfer substantially all of the benefits and risks of ownership of property, are classified as capital leases. Assets and liabilities are recorded at amounts equal to the present value of the minimum lease payments at the beginning of the lease term. Interest expense relating to the lease liabilities is recorded to affect constant rates of interest over the terms of the leases.

 

Leases, which do not transfer substantially all of the benefits and risks of ownership of property, are classified as operating leases, and the related rentals are charged to expense as incurred.

 

Master Lease Refurbishment Program – On July 16, 2007, the Company assumed a liability to certain condominium owners under the refurbishment program committed to in the Rental Pool Master Lease Agreement (“MLA”). The liability of $14,589 as of September 30, 2012, represents the Company’s obligation to pay certain Rental Pool participants an amount equal to 25% of the cost to refurbish their respective units. Principal and interest payments are due quarterly for the five year repayment period of the program.

 

Note 6. Commitments and Contingencies

 

Contingencies

 

In the normal course of our operations, we are subject to claims and lawsuits. Our former insurance carrier has requested reimbursement of monies from us that they paid in 2010 to settle certain claims asserted against us. We believe the request for reimbursement has no basis and, through our legal counsel, have denied the insurance carrier’s request for reimbursement and we intend to fully defend our position. The outcome of this matter cannot be determined at this time. We believe this matter will not have a material effect on our financial condition and results of operations, and accordingly, there have been no adjustments to the accompanying condensed financial statements as of September 30, 2012 for the effects of this matter.

 

 

PGA TOUR Event

 

Innisbrook Resort has been the site of a PGA TOUR event since 1990. The annual event typically takes place in March, our peak demand month. Transitions Optical, presenting sponsor of the PGA TOUR event for the past three years, did not exercise its option as sponsor beyond the March 2012 event. Because the Innisbrook Resort event is so highly regarded by the United States and foreign-based PGA TOUR players (strength of the Copperhead Golf Course, superior accommodations, place in the PGA TOUR’s “Florida Swing” schedule), we fully expect to continue to be the site of a PGA TOUR event for many years to come. Because the PGA TOUR event is held during our peak demand month, we do not anticipate any adverse financial impact in the unlikely event that the PGA TOUR event is not held at Innisbrook Resort in future years.

Note 7. Related Party Transactions

 

We paid management fees to an affiliate of $176,703 and $146,490 for the three months ended; $811,717 and $792,623 for the nine months ended September 30, 2012 and 2011, respectively, which is included in general and administrative expense.

 

At September 30, 2012 and December 31, 2011, the amounts due from affiliates were $96,724 and $84,003, respectively, which are due on demand.

 

 

RENTAL POOL LEASE OPERATIONS

 

The operation of the Rental Pool is tied closely to the Resort Operation. The MLA provides for quarterly distribution of a percentage of the Company room revenues to participating condominium owners (“Participants”). Because the participants share a percentage of the Company’s room revenue, the condominium units allowing Rental Pool participation are deemed securities. However, there is no market for these securities other than the normal real estate market. Since the security is real estate, no dividends have been paid or will be. However, Participants are entitled to a contractual distribution paid quarterly, as defined in the lease agreements, for the Company’s right to use the Participants’ condominium units in resort operations.

 

 

INNISBROOK RENTAL POOL LEASE OPERATION

CONDENSED BALANCE SHEETS

 

		September 30,				December 31,
		2012				2011
		(unaudited)
DISTRIBUTION FUND
ASSETS
RECEIVABLE FROM SALAMANDER INNSIBROOK, LLC FOR DISTRIBUTION		$	666,729			$	621,480
INTEREST RECEIVABLE FROM MAINTENANCE ESCROW FUND			1,260				3,254
		$	667,989			$	624,734
LIABILITIES AND PARTICIPANTS' FUND BALANCES
DUE TO PARTICIPANTS FOR DISTRIBUTION		$	566,753			$	624,734
DUE TO MAINTENANCE ESCROW FUND			101,236				-
		$	667,989			$	624,734
MAINTENANCE ESCROW FUND
ASSETS
CASH		$	305,860			$	217,859
CASH EQUIVALENTS			1,200,000				1,745,000
RECEIVABLE FROM DISTRIBUTION FUND			101,236				-
INTEREST RECEIVABLE			6,012				3,971
		$	1,613,108			$	1,966,830
LIABILITIES AND PARTICIPANTS' FUND BALANCES
ACCOUNTS PAYABLE		$	241,740			$	78,840
INTEREST PAYABLE TO DISTRIBUTION FUND			1,387				3,254
			243,127				82,094
CARPET CARE RESERVE			62,994				70,044
PARTICIPANTS' FUND BALANCES			1,306,987				1,814,692
		$	1,613,108			$	1,966,830

 

See accompanying notes to unaudited condensed financial statements.

 

 

INNISBROOK RENTAL POOL LEASE OPERATION

CONDENSED STATEMENTS OF OPERATIONS

DISTRIBUTION FUND

(unaudited)

 

		Three months ended September 30,								Nine months ended September 30,
		2012				2011				2012				2011
GROSS REVENUES		$	1,876,501			$	1,292,348			$	7,447,717			$	7,148,856
DEDUCTIONS:
Agents' commissions			73,106				23,620				232,580				189,512
Credit card fees			52,749				36,541				208,743				201,715
Audit fees			15,000				15,000				45,000				45,000
Uncollectible/model room rents							1,554								1,554
Linen replacements			7,002				9,686				62,616				48,485
Rental pool complimentary fees			2,472				4,212				16,104				19,028
			150,329				90,613				565,043				505,294
ADJUSTED GROSS REVENUES			1,726,172				1,201,735				6,882,674				6,643,562
AMOUNT RETAINED BY LESSEE			(1,035,703	)			(721,041	)			(4,129,605	)			(3,986,137	)
GROSS INCOME DISTRIBUTION			690,469				480,694				2,753,069				2,657,425
ADJUSTMENTS TO GROSS INCOME DISTRIBUTION:
General pooled expense			(1,156	)			(650	)			(3,488	)			(3,560	)
Miscellaneous pool adjustments			81				95				(687	)			(730	)
Corporate complimentary occupancy fees			1,551				3,320				7,407				9,201
Occupancy fees			(253,090	)			(227,092	)			(929,510	)			(955,186	)
Advisory Committee expenses			(32,546	)			(35,548	)			(91,674	)			(98,692	)
NET INCOME DISTRIBUTION			405,309				220,819				1,735,117				1,608,458
ADJUSTMENTS TO NET INCOME DISTRIBUTION:
Occupancy fees			253,090				227,092				929,510				955,186
Hospitality suite fees			441				121				2,162				1,879
Associate room fees			7,889				8,575				43,218				39,053
AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS		$	666,729			$	456,607			$	2,710,007			$	2,604,576

 

See accompanying notes to unaudited condensed financial statements.

 

 

INNISBROOK RENTAL POOL LEASE OPERATION

CONDENSED STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCES

(unaudited)

 

DISTRIBUTION FUND

 

		Three months ended September 30,								Nine months ended September 30,
		2012				2011				2012				2011
BALANCE, beginning of period		$	-			$	-			$	-			$	-
ADDITIONS:
Amounts available for distribution			666,729				456,607				2,710,007				2,604,576
Interest received or receivable from Maintenance Escrow Fund			1,260				2,468				4,225				7,599
REDUCTIONS:
Amounts withheld for Maintenance escrow fund			(101,236	)			-				(371,803	)			-
Amounts accrued or paid to participants			(566,753	)			(459,075	)			(2,342,429	)			(2,612,175	)
BALANCE, end of period		$	-			$	-			$	-			$	-

 

MAINTENANCE ESCROW FUND

 

		Three months ended September 30,								Nine months ended September 30,
		2012				2011				2012				2011
BALANCE, beginning of period		$	1,641,781			$	1,982,635			$	1,814,692			$	2,229,631
ADDITIONS:
Amounts withheld from occupancy fees			101,237				-				371,805				-
Interest earned			6,394				1,817				18,724				4,017
Charges to participants to establish or restore escrow balances			43,318				813,594				205,002				965,350
REDUCTIONS:
Maintenance charges			(454,518	)			(605,817	)			(970,205	)			(942,055	)
Interest accrued or paid to Distribution Fund			(6,394	)			(1,817	)			(18,724	)			(4,017	)
Refunds to participants as prescribed by the master lease agreements			(24,831	)			(17,262	)			(114,307	)			(79,776	)
BALANCE, end of period		$	1,306,987			$	2,173,150			$	1,306,987			$	2,173,150

 

See accompanying notes to unaudited condensed financial statements.

 

 

INNISBROOK RENTAL POOL LEASE OPERATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1. Rental Pool Lease Operations

 

Organization and Operations

 

The Company follows accounting policies that require estimates that are based on assumptions and judgment, which affect revenues, expenses, assets, liabilities and disclosure of contingencies in our financial statements. These estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. However, actual results may differ from these estimates due to different conditions.

 

The Rental Pool operation is highly dependent upon the operations of the Resort, and likewise, the Resort is also dependent upon the continued participation of condominium owners in the Rental Pool. Additionally, the Rental Pool and Resort are both impacted by the general economic conditions related to the destination resort industry.

The Rental Pool consists of condominiums at the Resort which are leased by the Company from their owners and used as hotel accommodations for the Resort. The Company has assumed the Master Lease Agreement (“MLA”) from the predecessor owner which provides that on an annual basis each Participant may elect to participate in the Rental Pool for the following year by signing an Annual Lease Agreement (“ALA”). Any condominium unit owner who does not sign the ALA is not permitted to participate in the Rental Pool for the following year. Under the MLA, 40% of the Adjusted Gross Revenues, as defined in the MLA, are distributed to the Rental Pool Participants and the remaining 60% is retained by the Company.

 

The Lessors’ Advisory Committee (“LAC”) consists of nine Participants who are elected by the Participants to advise the Company of Rental Pool Matters and to negotiate amendments to the lease agreement, the Annual Lease Agreement (“ALA”) and the MLA.

 

The Rental Pool consists of two funds: the Distribution Fund and the Maintenance Escrow Fund. The Distribution Fund balance sheet primarily reflects amounts receivable from the Company for the Rental Pool distribution payable to Participants and amounts due to the Maintenance Escrow Fund. The operations of the Distribution Funds reflect Participants’ earnings in the Rental Pool. The Maintenance Escrow Fund reflects the accounting for certain escrowed assets of the Participants and, therefore, has no operations. It consists primarily of amounts escrowed by Participants or due to the Distribution Fund to meet escrow requirements, fund the carpet care reserve and maintain the interior of the units.

 

In addition, the MLA provided to the Participants who refurbished units entering the Rental Pool during 2005, the Company assumed the obligation to reimburse the Participants an amount up to 25% of the actual unit refurbishment costs, plus interest at a rate of 2.5% per annum.

 

The Resort has initiated a Phase One Turnkey Refurbishment Program. The program, which is a requirement for participation in the Rental Pool for 2012, was offered to all condominium owners that participated in the Phase One Turnkey Refurbishment Program in 2000. The program, which commenced in November, 2011, included improvement of furnishings, soft goods and fixtures plus other upgrades in bathrooms and living areas which is included in the maintenance charge caption included in these financial statements. The participants have contributed and expended, through their individual maintenance escrow accounts, $1 million for payment of these upgrades as of September 30, 2012; the program which was completed during August, 2012, will bring these rooms to the overall quality level of more recent phases of room renovations. This program, when combined with the $26 million renovation that Salamander has made to modernize the Resort and the Innisbrook Condominium Association’s lobby and hallway renovation program will provide an even greater number of quality accommodations for all overnight clientele thereby continuing to enhance Innisbrook’s growing reputation as one of the finest resorts in Florida.

 

Maintenance Escrow Fund Accounts

 

The MLA generally provides that 90% of the occupancy fees earned by each Participant are ultimately deposited in that Participant’s Maintenance Escrow Fund account. The occupancy fee percentage deposited into the Fund was reduced to 40% in 2012 as was agreed to and amended by the 2012 Annual Lease Agreement. The account provides funds for payment of amounts that are due from all Participants for maintenance and refurbishment services for or related to their condominium unit. In the event that a Participant’s balance falls below the amount necessary to pay for maintenance and replacements in the Participants unit, the Participant is required to restore the escrow balance to a defined minimum level. The MLA requires specific fund balances be maintained, by unit type, size and age of refurbishment.

 

 

The LAC, subject to the restriction in the MLA, invests the Maintenance Escrow Fund on behalf of the Participants. Income earned on the investments of the Maintenance Escrow Funds is allocated proportionately to the respective Maintenance Escrow Fund accounts and paid quarterly through the Distribution Fund. The funds are held in certificates of deposits.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

General

 

We operate Innisbrook Resort and Golf Club (the “Resort”) in Innisbrook, Florida, which contains 1,216 condominium units of which all have been sold to third parties or to affiliates of the Company. A large number of the condominium units, 557, are hotel accommodations that participate in a rental-pooling program (the “Rental Pool”) that provides its owners with a percentage distribution of related room revenues minus certain fees and expenses; the remainder of the condominium units is owner-occupied. Other resort property owned by the Company and its affiliates include golf courses, restaurants, tennis courts, a spa and fitness center, swimming pools, conference center facilities as well as administrative offices.

 

Results of Operations

 

The Resort is a destination golf resort that appeals to group and transient guests within all market segments. The Resort provides condominium accommodations, food and beverage dining locations (three restaurants, room service, banquet and/or catering options) and recreational entertainment to members, business meetings, group guests, leisure guests and their families. The Resort offers room-only rates, golf packages, and family vacation packages.

 

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 any economic downturn adversely affecting operating results. The Company’s 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.

 

Results of operations for the three months ended September 30, 2012 and 2011 (unaudited)

 

		Three months ended								Three months ended
		September 30, 2012				%				September 30, 2011				%				Inc/(dec)				% Chg
Resort Revenues		$	5,893,065				100.0	%		$	4,883,543				100.0	%		$	1,009,522				20.7	%
Costs and Expenses:
Operating costs and expenses			3,142,704				53.3	%			2,878,701				58.9	%			264,003				9.2	%
General and administrative			4,003,993				67.9	%			3,788,762				77.6	%			215,231				5.7	%
Depreciation and amortization			832,494				14.1	%			850,658				17.4	%			(18,164	)			-2.1	%
Total costs and expenses			7,979,191				135.4	%			7,518,121				153.9	%			461,070				6.1	%
Loss before interest			(2,086,126	)			-35.4	%			2,634,578				-53.9	%			548,452				-20.8	%
Interest income/(expense), net			11,299				0.2	%			(4,524	)			-0.1	%			15,823				-349.8	%
Net loss		$	(2,074,827	)			-35.2	%		$	(2,639,102	)			-54.0	%		$	564,275				21.4	%

 

For the third quarter of 2012, resort revenues of $5,893,065 exceeded 2011 third quarter revenue by $1,009,522 or 20.7%. The growth in the third quarter was partly attributed to the Republican National Convention held during the month of August.

 

 

As a direct result of the increased business levels, Costs and Expenses were up for the three-month period at $7,979,191 but were down as a relative percentage of overall revenue. Due to the seasonal nature of the industry, this is typically the most financially challenging period for most Florida golf resort destinations. The Resort experienced a Net Loss (after interest, depreciation and amortization) of $2,074,827 for the three-month period. This figure reflected an improvement of $554,275 or 21% when compared to the same time last year.

 

Results of operations for the nine months ended September 30, 2012 and 2011 (unaudited)

 

		Nine months ended								Nine months ended
		September 30, 2012				%				September 30, 2011				%				Inc/(dec)				% Chg
Resort Revenues		$	27,046,513				100.0	%		$	26,421,028				100.0	%		$	625,485				2.4	%
Costs and Expenses:
Operating costs and expenses			11,881,356				43.9	%			11,739,647				44.4	%			141,709				1.2	%
General and administrative			13,660,198				50.5	%			13,768,378				52.1	%			(108,180	)			-0.8	%
Depreciation and amortization			2,499,826				9.2	%			2,572,928				9.7	%			(73,102	)			-2.8	%
Total costs and expenses			28,041,380				103.7	%			28,080,953				106.3	%			(39,573	)			-0.1	%
Loss before interest			(994,867	)			-3.7	%			(1,659,925	)			-6.3	%			665,058				-40.1	%
Interest (expense), net			(12,250	)			0.0	%			(16,168	)			-0.1	%			3,918				-24.2	%
Net loss		$	(1,007,117	)			-3.7	%		$	(1,676,093	)			-6.3	%		$	668,976				39.9	%

 

For the nine month period ended September 30, 2012, Resort Revenues were $27,046,513 compared to $26,421,028 in the prior year. Costs and Expenses were $28,041,380 or 103.7% of revenues which resulted in an overall Net Loss after interest, depreciation and amortization of $1,007,117 or -3.7% margin; a 2.6 point improvement to the bottom line over the same time last year.

 

Liquidity and Capital Resources

 

Future operating costs and planned expenditures for capital additions and improvements are expected to be adequately funded by cash generated by the Resort’s operations, funding from our sole member or affiliates’ current cash reserves.

 

Our revenue is not considered to be dependent on any individual or small group of customers, the loss of which could have a material adverse effect on the Company’s business or financial condition.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions and select accounting policies that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These accounting policies have been described on our Annual Report on Form 10-K for the year ended December 31, 2011, and there have been no material changes during the nine ended September 30, 2012.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB that are adopted by the company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the company’s financial statements upon adoption.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4T. Controls and Procedures

 

 

Disclosure Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act (defined below)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

Changes in Internal Control Over Financial Reporting

  

In addition, our management with the participation of our Principal Executive Officer and Principal Financial Officer have determined that no change in our internal control over financial reporting occurred during or subsequent to the quarter ended September 30, 2012 that has materially affected, or is (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934) reasonably likely to materially affect, our internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

In the normal course of operations, the Company is subject to claims and lawsuits.  The Company does not believe that the ultimate resolution of such matters will materially impair operations or have an adverse effect on its financial position.

 

 Item 1A. Risk Factors

 

Not required

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable

 

Item 3. Defaults Upon Senior Securities

 

Not applicable

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other information

 

Not applicable

 

  

Item 6. Exhibits

 

(a). Exhibits

Exhibit		Item
31.1		Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Principal Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
101		Interactive Data Files

 

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	SALAMANDER INNISBROOK, LLC  (Registrant)
Date:  November 15, 2012	/s/ Prem Devedas
	Prem Devedas
	Manager
	(Chief Executive Officer)

 

Date:  November 15, 2012	/s/ Dale Pelletier
	Dale Pelletier
	Chief Financial Officer
	(Principal Financial and Accounting Officer)