Attached files
file | filename |
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EX-32.2 - EXHIBIT 32.2 - Salamander Innisbrook, LLC | tv479702_ex32-2.htm |
EX-32.1 - EXHIBIT 32.1 - Salamander Innisbrook, LLC | tv479702_ex32-1.htm |
EX-31.2 - EXHIBIT 31.2 - Salamander Innisbrook, LLC | tv479702_ex31-2.htm |
EX-31.1 - EXHIBIT 31.1 - Salamander Innisbrook, LLC | tv479702_ex31-1.htm |
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, 2017
OR
o | 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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ
No established markets exist for the Registrant’s membership interests and there is no common stock issued or outstanding subject to this report.
INDEX
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. 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 annual report are forward-looking statements. You can generally identify forward-looking statements as statements containing the words “appears,” “believe,” “expect,” “hope,” “may,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions. Certain factors that might cause such a difference include the following: changes in general economic conditions; including changes that may influence group conference and guests’ vacation plans; changes in travel patterns; changes in consumer tastes in destinations or accommodations for group conferences and vacations; changes in Rental Pool participation by the current condominium owners; our ability to continue to operate the Innisbrook Resort and Golf Club, or the “Resort” under our management contracts; and the resale of condominiums to owners who elect neither to participate in the Rental Pool nor to become members of the Resort. 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 Securities Exchange Commission. 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 annual 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.
3
PART I — FINANCIAL INFORMATION
(Unaudited)
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 1,227,800 | $ | 1,141,869 | ||||
Accounts receivable, net | 1,347,801 | 1,714,624 | ||||||
Inventories and supplies | 873,147 | 909,599 | ||||||
Prepaid expenses and other | 943,077 | 803,480 | ||||||
Total current assets | 4,391,825 | 4,569,572 | ||||||
Property, buildings and equipment, net | 36,518,240 | 38,106,125 | ||||||
Intangibles | 4,330,001 | 4,330,001 | ||||||
Due from affiliates | 47,673 | 120,104 | ||||||
Deferred expenses | 15,215 | - | ||||||
Deposits and other assets | 292,550 | 267,054 | ||||||
Restricted cash | 1,503,128 | - | ||||||
Total assets | $ | 47,098,632 | $ | 47,392,856 | ||||
Liabilities and Member's Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,696,104 | $ | 1,541,263 | ||||
Accrued liabilities | 3,090,903 | 2,491,209 | ||||||
Deferred revenue | 3,014,092 | 3,310,280 | ||||||
Current portion - capital leases | 416,202 | 425,837 | ||||||
Current portion - note payable | 785,484 | - | ||||||
Total current liabilities | 9,002,785 | 7,768,589 | ||||||
Deferred revenue | 927,879 | 918,020 | ||||||
Capital leases, net of current portion | 638,014 | 934,198 | ||||||
Note payable, net of current portion and unamortized deferred financing costs | 13,603,584 | - | ||||||
Total liabilities | 24,172,262 | 9,620,807 | ||||||
Commitments and Contingencies (Notes 4 and 6) | ||||||||
Member's equity | 22,926,370 | 37,772,049 | ||||||
Total liabilities and member’s equity | $ | 47,098,632 | $ | 47,392,856 |
See accompanying notes to unaudited condensed financial statements.
4
CONDENSED STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER’S EQUITY
(Unaudited)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Resort revenues | $ | 6,698,447 | $ | 7,267,564 | $ | 32,643,148 | $ | 31,247,520 | ||||||||
Costs and expenses: | ||||||||||||||||
Operating costs and expenses | 3,797,916 | 3,960,721 | 14,281,251 | 13,444,651 | ||||||||||||
General and administrative | 4,725,903 | 4,663,652 | 16,650,727 | 16,029,107 | ||||||||||||
Depreciation and amortization | 583,928 | 613,436 | 1,886,531 | 1,835,604 | ||||||||||||
Total costs and expenses | 9,107,747 | 9,237,809 | 32,818,509 | 31,309,362 | ||||||||||||
Operating loss | (2,409,300 | ) | (1,970,245 | ) | (175,361 | ) | (61,842 | ) | ||||||||
Interest expense, net | (155,123 | ) | (11,721 | ) | (325,439 | ) | (40,657 | ) | ||||||||
Net loss | (2,564,423 | ) | (1,981,966 | ) | (500,800 | ) | (102,499 | ) | ||||||||
Member's equity, beginning of period | 25,493,181 | 39,757,000 | 37,772,049 | 38,883,918 | ||||||||||||
Member distributions | (2,388 | ) | (2,737 | ) | (14,344,879 | ) | (1,009,122 | ) | ||||||||
Member's equity, end of period | $ | 22,926,370 | $ | 37,772,297 | $ | 22,926,370 | $ | 37,772,297 |
See accompanying notes to unaudited condensed financial statements.
5
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (500,800 | ) | $ | (102,499 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Provision for bad debts | 9,020 | 25,770 | ||||||
Deposits and other assets | (40,711 | ) | - | |||||
Depreciation and amortization | 1,886,531 | 1,835,605 | ||||||
Amorization of deferred financing costs | 31,828 | - | ||||||
Other changes in operating assets and liabilities | 795,295 | 75,571 | ||||||
Net cash provided by operating activities | 2,181,163 | 1,834,447 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (298,646 | ) | (422,653 | ) | ||||
Net cash used in investing activities | (298,646 | ) | (422,653 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from note payable | 15,000,000 | - | ||||||
Payment to cash reserve | (1,503,128 | ) | - | |||||
Repayment of note payable | (324,482 | ) | - | |||||
Payment of deferred financing costs | (318,278 | ) | - | |||||
Repayment of capital lease obligations | (305,819 | ) | (298,304 | ) | ||||
Member distributions | (14,344,879 | ) | (1,009,122 | ) | ||||
Net cash used in financing activities | (1,796,586 | ) | (1,307,426 | ) | ||||
Net change in cash | 85,931 | 104,368 | ||||||
Cash, beginning of period | 1,141,869 | 1,429,716 | ||||||
Cash, end of period | $ | 1,227,800 | $ | 1,534,084 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 251,709 | $ | 40,657 |
See accompanying notes to unaudited condensed financial statements.
6
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 own and operate 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 contractual 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 381 units or 478 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 interim 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, 2016.
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 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.
Note 2. Accounts Receivable
Accounts receivable consist of the following as of September 30, 2017 and December 31, 2016:
September 30, 2017 | December 31, 2016 | |||||||
Trade accounts receivable | $ | 1,233,411 | $ | 1,477,231 | ||||
Other receivables | 140,947 | 252,534 | ||||||
Less allowance for bad debts | (26,557 | ) | (15,141 | ) | ||||
$ | 1,347,801 | $ | 1,714,624 |
7
Note 3. Property, Buildings and Equipment
Property, buildings and equipment consist of the following as of September 30, 2017 and December 31, 2016:
September 30, 2017 | December 31, 2016 | |||||||
Land and land improvements | $ | 21,422,543 | $ | 21,422,543 | ||||
Buildings | 25,460,387 | 25,460,387 | ||||||
Furniture, fixtures and equipment | 11,927,454 | 11,758,250 | ||||||
Construction in progress | 150,563 | 21,121 | ||||||
58,960,947 | 58,662,301 | |||||||
Less accumulated depreciation | (22,442,707 | ) | (20,556,176 | ) | ||||
$ | 36,518,240 | $ | 38,106,125 |
Note 4. Commitments and Contingencies
In the normal course of our operations, we are periodically subject to claims and lawsuits. However, no such matters existed at September 30, 2017 or December 31, 2016, respectively.
Note 5. Related Party Transactions
We incurred management fees to an affiliate of $199,532 and $219,653 for the three month periods ended September 30, 2017 and 2016 and $978,320 and $937,406 for the nine month periods ended September 30, 2017 and 2016, respectively. These fees are included in general and administrative expenses in the Condensed Statements of Operations and Changes in Member’s Equity.
At September 30, 2017 and December 31, 2016, the amounts due from affiliates of $47,673 and $120,104, respectively, are non-interest bearing, unsecured and due on demand.
The Innisbrook Rental Pool Lease Operation paid us $127,922 and $99,267 for the three month periods ended September 30, 2017 and 2016 and $303,284 and $262,908 for the nine month periods ended September 30, 2017 and 2016, respectively, as reimbursement for maintenance and housekeeping labor, use of the telephone lines and other supplies. These reimbursements are included in general and administrative expenses in the Condensed Statements of Operations and Changes in Members Equity.
Note 6. Note Payable
On March 28, 2017, the Company and Salamander Innisbrook Condominium, LLC, a related party, obtained a loan in the amount of fifteen million dollars ($15,000,000) from Branch Banking and Trust Company (BB&T). The loan is to be repaid over a five (5) year period in monthly installments of principal plus interest based on a 15 year amortization schedule commencing on May 5, 2017 with the remaining unpaid balance due in full on May 5, 2022. The interest for the loan is the One Month LIBOR Rate plus two and one quarter percent (2.25%) per annum adjusted monthly on the first day of each LIBOR interest period (3.235% as of September 30, 2017). The loan is collateralized by the real and personal property of the Company and Salamander Innisbrook Condominium, LLC, the assignment and/or subordination of leases and our management agreement with an affiliate and guarantees by certain affiliates. We have distributed these funds to our Member as a partial return of the capital it has invested. As of September 30, 2017, the carrying value of the Note Payable approximates fair value.
The loan agreement contains customary financial covenants, including a covenant to maintain a debt service coverage ratio of at least 1.10 to 1.0, measured annually at the end of each fiscal year and a covenant to maintain a tangible net worth of not less than $15,000,000 at all times.
As part of our loan agreement, we were required to deposit $1,500,000 into a cash reserve account. No later than February 28, 2018, we are required to deposit an additional $1,000,000 into such account. The reserve account is restricted and may not be used to service the loan.
8
We incurred financing costs of $318,279, which are deferred and are being amortized over the term of the loan. These costs have been reflected as a reduction of the note payable.
Below is a table of scheduled maturities of our note payable for the years ending September 30:
2018 | $ | 785,484 | ||
2019 | 813,421 | |||
2020 | 842,352 | |||
2021 | 872,312 | |||
2022 | 11,361,949 | |||
14,675,518 | ||||
Less unamortized deferred financing costs | (286,450 | ) | ||
$ | 14,389,068 |
Note 7. Legal Proceedings
The Company is periodically involved in litigation in the normal course of operations. In the opinion of the Company’s management, the effect of these claims, if any, is not material to the Company’s financial condition and results of operations.
On January 16, 2015, we entered into a settlement agreement and release with our former insurance carrier whereby the parties mutually released and resolved all disputes. We agreed to provide a credit towards future resort usage to be used over a three-year period which commenced on March 1, 2015. The credit, which approximated $350,000, is divided equally among the three-year period with no rollover of unused amounts from one year to another. At September 30, 2017, our remaining liability under this arrangement is approximately $119,127.
RENTAL POOL LEASE OPERATION
The operation of the Rental Pool is tied closely to the Resort operations. The Rental Pool Master Lease Agreements provide for a quarterly distribution of a percentage of the Company’s room revenues to participating condominium owners (“Participants”), as defined in the agreements (see Note 1 of the Rental Pool Lease Operation condensed financial statements). Because the Rental Pool participants share in a percentage of the Company’s room revenues, the condominium units allowing Rental Pool participation are deemed to be securities. However, there is no market for such securities other than the normal real estate market. Since the security is real estate, no dividends have been paid or will be paid.
The Company is a single-member limited liability company, wholly owned by Salamander Farms, LLC. There is no established market for the Company’s membership interests.
9
INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED BALANCE SHEETS
(unaudited)
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
RECEIVABLE FROM SALAMANDER INNSIBROOK, LLC | ||||||||
FOR DISTRIBUTION | $ | 696,262 | $ | 849,189 | ||||
INTEREST RECEIVABLE FROM MAINTENANCE | ||||||||
ESCROW FUND | 974 | 607 | ||||||
$ | 697,236 | $ | 849,796 | |||||
LIABILITIES AND PARTICIPANTS' FUND BALANCES | ||||||||
DUE TO PARTICIPANTS FOR DISTRIBUTION | $ | 697,236 | $ | 849,796 | ||||
$ | 697,236 | $ | 849,796 | |||||
MAINTENANCE ESCROW FUND
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
CASH | $ | 71,093 | $ | 124,885 | ||||
INVESTMENTS | 450,000 | 500,000 | ||||||
INTEREST RECEIVABLE | 4,665 | 5,243 | ||||||
$ | 525,758 | $ | 630,128 | |||||
LIABILITIES AND PARTICIPANTS' FUND BALANCES | ||||||||
ACCOUNTS PAYABLE | $ | 43,149 | $ | 66,663 | ||||
INTEREST PAYABLE TO DISTRIBUTION FUND | 974 | 607 | ||||||
TOTAL LIABILITIES | 44,123 | 67,270 | ||||||
CARPET CARE RESERVE | 17,460 | 26,641 | ||||||
PARTICIPANTS' FUND BALANCES | 464,175 | 536,217 | ||||||
$ | 525,758 | $ | 630,128 |
See accompanying notes to unaudited condensed financial statements.
10
INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
DISTRIBUTION FUND
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
GROSS REVENUES | $ | 2,022,979 | $ | 2,113,254 | $ | 9,468,563 | $ | 8,798,303 | ||||||||
DEDUCTIONS: | ||||||||||||||||
Agents' commissions | 113,877 | 87,832 | 436,798 | 339,810 | ||||||||||||
Credit card fees | 56,993 | 59,278 | 266,052 | 246,817 | ||||||||||||
Audit fees | 18,501 | 18,000 | 55,503 | 54,000 | ||||||||||||
Linen replacements | 8,886 | 17,992 | 68,050 | 52,812 | ||||||||||||
Uncollected room rents | - | 594 | - | 17,360 | ||||||||||||
Rental pool complimentary fees | 6,619 | 8,023 | 22,960 | 21,213 | ||||||||||||
204,876 | 191,719 | 849,363 | 732,012 | |||||||||||||
ADJUSTED GROSS REVENUES | 1,818,103 | 1,921,535 | 8,619,200 | 8,066,291 | ||||||||||||
AMOUNT RETAINED BY LESSEE | (1,090,862 | ) | (1,152,921 | ) | (5,171,520 | ) | (4,839,775 | ) | ||||||||
GROSS INCOME DISTRIBUTION | 727,241 | 768,614 | 3,447,680 | 3,226,516 | ||||||||||||
ADJUSTMENTS TO GROSS INCOME DISTRIBUTION: | ||||||||||||||||
General pooled expense | (3,155 | ) | (1,749 | ) | (11,407 | ) | (5,240 | ) | ||||||||
Miscellaneous pool adjustments | - | 979 | 1,519 | 924 | ||||||||||||
Corporate complimentary occupancy fees | 4,843 | 992 | 8,463 | 6,432 | ||||||||||||
Occupancy fees | (303,767 | ) | (334,618 | ) | (1,132,769 | ) | (1,109,491 | ) | ||||||||
Advisory Committee expenses | (41,361 | ) | (32,986 | ) | (116,570 | ) | (105,120 | ) | ||||||||
NET INCOME DISTRIBUTION | 383,801 | 401,232 | 2,196,916 | 2,014,021 | ||||||||||||
ADJUSTMENTS TO NET INCOME DISTRIBUTION: | ||||||||||||||||
Occupancy fees | 303,767 | 334,618 | 1,132,769 | 1,109,491 | ||||||||||||
Hospitality suite fees | 224 | 449 | 3,773 | 2,188 | ||||||||||||
Associate room fees | 8,470 | 4,075 | 21,246 | 16,116 | ||||||||||||
AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS | $ | 696,262 | $ | 740,374 | $ | 3,354,704 | $ | 3,141,816 |
See accompanying notes to unaudited condensed financial statements.
11
INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCES
(unaudited)
DISTRIBUTION FUND
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
BALANCE, beginning of period | $ | - | $ | - | $ | - | $ | - | ||||||||
ADDITIONS: | ||||||||||||||||
Amounts available for distribution | 696,262 | 740,374 | 3,354,704 | 3,141,816 | ||||||||||||
Interest received or receivable from Maintenance Escrow Fund | 974 | 717 | 2,305 | 717 | ||||||||||||
REDUCTIONS: | ||||||||||||||||
Amounts accrued or paid to participants | (697,236 | ) | (741,091 | ) | (3,357,009 | ) | (3,142,533 | ) | ||||||||
BALANCE, end of period | $ | - | $ | - | $ | - | $ | - |
MAINTENANCE ESCROW FUND
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
BALANCE, beginning of period | $ | 533,610 | $ | 620,029 | $ | 536,217 | $ | 620,809 | ||||||||
ADDITIONS: | ||||||||||||||||
Charges to participants to establish or restore escrow balances | 110,705 | 130,300 | 422,361 | 386,270 | ||||||||||||
REDUCTIONS: | ||||||||||||||||
Maintenance charges | (169,371 | ) | (140,805 | ) | (451,301 | ) | (371,939 | ) | ||||||||
Member accounts & miscellaneous | 40 | (1,016 | ) | 124 | (1,512 | ) | ||||||||||
Refunds to participants as prescribed by the master lease agreements | (10,809 | ) | (932 | ) | (43,226 | ) | (26,052 | ) | ||||||||
BALANCE, end of period | $ | 464,175 | $ | 607,576 | $ | 464,175 | $ | 607,576 |
See accompanying notes to unaudited condensed financial statements.
12
INNISBROOK RENTAL POOL LEASE OPERATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Rental Pool Lease Operation
Basis of Accounting
The Rental Pool funds are accounted for using the accrual method of accounting.
Organization and Operations
Salamander Innisbrook, LLC (the “Company”, “the “Resort”, ”we”, “us”, or “our”) follows accounting policies that require estimates that are based on assumptions and judgments, 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 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 Master Lease Agreement (“MLA”) provides that on an annual basis each owner (the “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 new Agreement, the Resort pays the participant a quarterly distribution equal to 40% of the Adjusted Gross Revenues on the first $10 million; 45% between $10 million and $11 million and 50% above $11 million. Adjusted Gross Revenues are defined as Gross Revenues less agents’ commissions, audit fees, occupancy fees when the unit is used for Rental Pool Comps or as a model, linen replacements and credit card fees. Each participant receives a fixed occupancy fee, based upon apartment size, for each day the unit is occupied. After allocation of occupancy fees and the payment of general Rental Pool expenses, the balance is allocated proportionally to the Participants, based on the Participation Factor as defined in the Agreement. Additionally, occupancy fees are paid by the Resort to Participants as rental fees for complimentary rooms unrelated to the Rental Pool operations. Associate room fees are also paid by the Resort to Participants for total room revenues earned from the rental of condominiums by Company employees.
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 ALA and MLA.
The Rental Pool consists of the Distribution Fund and the Maintenance Escrow Fund. The Distribution Fund’s balance sheet primarily reflects amounts receivable from the Company for the Rental Pool distribution payable to Participants and amounts due to Participants for such distribution. The operations of the Distribution Fund 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 on behalf of Participants or due from the Distribution Fund to meet minimum escrow requirements, fund the carpet care reserve and maintain the interior of the units.
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 generally held in certificates of deposit.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We operate Innisbrook Resort and Golf Club (the “Resort” or the “Company”) in Palm Harbor, Florida, containing 1,216 condominium units; all of which have been sold to third parties or to affiliates of the Company. 478 of the condominium units are hotel accommodations that participate in a rental-pooling program (the “Rental Pool”) that provides owners with a percentage distribution of related room revenues minus certain fees and expenses. The remainders of the condominium units are 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 and 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 economic downturns adversely affecting our 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, 2017 and 2016 (unaudited) were as follows:
Three months ended September 30, | ||||||||||||||||||||||||
2017 | % | 2016 | % | Inc/(dec) | % Chg | |||||||||||||||||||
Resort Revenues | $ | 6,698,447 | 100.0 | % | $ | 7,267,564 | 100.0 | % | $ | (569,117 | ) | -7.8 | % | |||||||||||
Costs and Expenses: | ||||||||||||||||||||||||
Operating costs and expenses | 3,797,916 | 56.7 | % | 3,960,721 | 54.5 | % | (162,805 | ) | -4.1 | % | ||||||||||||||
General and administrative | 4,725,903 | 70.6 | % | 4,663,652 | 64.2 | % | 62,251 | 1.3 | % | |||||||||||||||
Depreciation and amortization | 583,928 | 8.7 | % | 613,436 | 8.4 | % | (29,508 | ) | -4.8 | % | ||||||||||||||
Total costs and expenses | 9,107,747 | 136.0 | % | 9,237,809 | 127.1 | % | (130,062 | ) | -1.4 | % | ||||||||||||||
Operating loss | (2,409,300 | ) | -36.0 | % | (1,970,245 | ) | -27.1 | % | (439,055 | ) | 22.3 | % | ||||||||||||
Interest (expense), net | (155,123 | ) | -2.3 | % | (11,721 | ) | 0.2 | % | (143,402 | ) | -1223.5 | % | ||||||||||||
Net loss | $ | (2,564,423 | ) | -38.3 | % | $ | (1,981,966 | ) | -27.3 | % | $ | (582,457 | ) | 29.4 | % |
For the third quarter 2017, resort revenues decreased by approximately $569,000 or 7.8% compared to the same period last year due to decreased occupancy and spending. Overall room revenues were down approximately $79,000 over last year. The decrease was due to our Group segment with revenue down approximately $378,000 or 40.4% due to a change in venue of a prior year conference. Our Transient segment pick up during this quarter was up approximately $262,000 or 30.8% and Golf segment had a modest gain of approximately $30,000 or 18.7% quarter over quarter. With the reduction of Group segment, Food and Beverage revenues were down approximately $205,000 or 16.4%. Golf revenues were down by approximately $128,000 or 23.6%.
Operating costs and expenses were better controlled year over year, down approximately $163,000 or 4.1%, due to the diligence in spending and payroll costs. General and administrative expenses were higher in Marketing as more hard dollars are being committed to advertising costs and travel. In Fixed expenses, our Rental Pool distribution is down due to a reduction in rooms revenue as well as an increase in interest expense due to the note payable obtained on March 28, 2017.
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Results of operations for the nine months ended September 30, 2017 and 2016 (unaudited) were as follows:
Nine months ended September 30, | ||||||||||||||||||||||||
2017 | % | 2016 | % | Inc/(dec) | % Chg | |||||||||||||||||||
Resort Revenues | $ | 32,643,148 | 100.0 | % | $ | 31,247,520 | 100.0 | % | $ | 1,395,628 | 4.5 | % | ||||||||||||
Costs and Expenses: | ||||||||||||||||||||||||
Operating costs and expenses | 14,281,251 | 43.7 | % | 13,444,651 | 43.0 | % | 836,600 | 6.2 | % | |||||||||||||||
General and administrative | 16,650,727 | 51.0 | % | 16,029,107 | 51.3 | % | 621,620 | 3.9 | % | |||||||||||||||
Depreciation and amortization | 1,886,531 | 5.8 | % | 1,835,604 | 5.9 | % | 50,927 | 2.8 | % | |||||||||||||||
Total costs and expenses | 32,818,509 | 100.5 | % | 31,309,362 | 100.2 | % | 1,509,147 | 4.8 | % | |||||||||||||||
Operating loss | (175,361 | ) | -0.5 | % | (61,842 | ) | -0.2 | % | (113,519 | ) | 183.6 | % | ||||||||||||
Interest expense, net | (325,439 | ) | -1.0 | % | (40,657 | ) | -0.1 | % | (284,782 | ) | -700.5 | % | ||||||||||||
Net loss | $ | (500,800 | ) | -1.5 | % | $ | (102,499 | ) | -0.3 | % | $ | (398,301 | ) | 388.6 | % |
For the nine months ended, the Company finished ahead in overall revenue of approximately $1,400,000 or 4.5%. Rooms revenue was up from the prior year approximately $692,000 or 7.8% with all room segments increasing. Food and Beverage, Banquets and Catering are approximately $318,000 or 20.4% above last year and our Golf operation increased approximately $135,000 or 1.8% from our strong performance.
Operating costs and expenses allowed for a 40% flow through of revenue. Our General and Administrative expenses exceeded last year due to planned increases in sales, employee benefits and energy costs. Depreciation expense increased approximately $51,000 as more of our older assets become fully depreciated. Our interest expense has increased approximately $285,000 due to the new note payable entered into March 28, 2017.
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 and funding from our sole member or affiliates’ current cash reserves.
The operation of the Resort is not considered to be dependent on any individual or small group of customers; accordingly the loss of any such individual or group would not 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 to 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 in our Annual Report on Form 10-K for the year ended December 31, 2016, and there have been no material changes during the three months ended September 30, 2017.
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. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. ASU No. 2014-09 supersedes most existing revenue recognition guidance in U.S. GAAP, and it permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date", which delayed the effective date of ASU No. 2014-09 by one year. As a result, ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods. In the first six months of fiscal 2016, the FASB issued guidance clarifying the interpretation of certain principles of ASU No. 2014-09. The Company will adopt for its fiscal year beginning January 1, 2018, including interim periods within that reporting period.
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In February 2016, the FASB issued ASU No. 2016 – 02, “Leases (Topic 842).” This standard establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. Upon implementation, lessees will need to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. It will be critical to identify leases embedded in a contract to avoid misstating the lessee’s balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees and lessors. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company will adopt for its fiscal year beginning January 1, 2019, including interim periods within that reporting period.
There are no other accounting standards that have been issued but not yet adopted that we believe could have a material impact on our financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential loss arising from an adverse change in market rates and prices, such as foreign currency exchange rates, interest rates and other relevant market or price changes. The Company is exposed to market risk associated with changes in the LIBOR interest rate on our variable rate debt. The Company regularly evaluates its exposure to such changes and may elect to minimize this risk through the use of interest rate swap agreements. If a 10% change in interest rates were to have occurred on September 30, 2017, this change would not have had a material effect on our results of operations.
Item 4. 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. However, 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, 2017, 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.
The Company is periodically involved in litigation in the normal course of operations. In the opinion of the Company’s management, the effect of these claims, if any, is not material to the Company’s financial condition and results of operations.
On January 16, 2015, we entered into a settlement agreement and release with our former insurance carrier whereby the parties mutually released and resolved all disputes. We agreed to provide a credit towards future resort usage to be used over a three-year period commenced on March 1, 2015. The credit, which approximated $350,000, is divided equally among the three-year period with no rollover of unused amounts from one year to another. At September 30, 2017, our remaining liability under this arrangement is approximately $119,127.
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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
Not applicable
(a). Exhibits
* 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.
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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 29, 2017 | /s/ Prem Devadas |
Prem Devadas | |
Manager | |
(Chief Executive Officer) |
Date: November 29, 2017 | /s/ Dale Pelletier |
Dale Pelletier | |
Chief Financial Officer | |
(Principal Financial and Accounting Officer) |
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