UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 14, 2011

 

DIAMOND RESORTS CORPORATION

(Exact name of registrant as specified in its charter)

Maryland		333-172772		95-4582157
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

10600 West Charleston Boulevard Las Vegas, Nevada		89135
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 702-684-8000

Not Applicable
Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

     On July 1, 2011, Diamond Resorts Corporation (the “Company”) completed the acquisition of certain assets of Tempus Resorts International, Ltd. and certain of its affiliates (the “Tempus Resorts Acquisition”) through Mystic Dunes, LLC, a wholly-owned indirect subsidiary of the Company, for a purchase price of $107.8 million in cash.

     In order to fund the Tempus Resorts Acquisition, Tempus Acquisition, LLC (“TAC”), a wholly-owned subsidiary of the Company, entered into a Loan and Security Agreement with Guggenheim Corporate Funding, LLC, as administrative agent for the lender parties thereto (the “Tempus Guggenheim Loan”). The Tempus Guggenheim Loan is collateralized by all assets of TAC. The Tempus Guggenheim Loan is in an aggregate amount of $41.1 million (which includes a $5.5 million revolving loan), has an interest rate of 18.0% (of which 10.0% is paid currently and the remaining may be paid, at TAC’s election, in cash or accrued and added to the principal amount of the Tempus Guggenheim Loan), and matures on June 30, 2015. An aggregate of $7.5 million of the Tempus Guggenheim Loan was used by TAC to purchase a 10% participating interest in the Loan and Security Agreement with Resort Finance America, LLC (the “Tempus Receivables Loan”) described below, and the remaining proceeds were loaned to Mystic Dunes, LLC pursuant to a Loan and Security Agreement having payment terms identical to the Tempus Guggenheim Loan (the “Mystic Dunes Loan”). The Mystic Dunes Loan is collateralized by all assets of Mystic Dunes, LLC. The proceeds of the Mystic Dunes Loan were used to repay certain existing indebtedness and closing costs associated with the Tempus Resorts Acquisition.

     To fund the balance of the purchase price for the Tempus Resorts Acquisition, a subsidiary of Mystic Dunes, LLC entered into the Tempus Receivables Loan. The Tempus Receivables Loan is a receivables credit facility in the amount of $74.5 million, collateralized by mortgages and contracts receivable acquired in the Tempus Resorts Acquisition. The Tempus Receivables Loan has an interest rate which is the higher of (i) one-month LIBOR plus 7.0% and (ii) 10%, adjusted monthly, and matures on July 1, 2015. Another subsidiary of Mystic Dunes, LLC entered into an Amended and Restated Inventory Loan and Security Agreement with Textron Financial Corporation (the “Tempus Inventory Loan”) in the maximum amount of $4.3 million, collateralized by certain VOI inventory acquired in the Tempus Resorts Acquisition. The Tempus Inventory Loan has an interest rate of three-month LIBOR plus 5.5% (with a floor of 2.0%) and matures on June 30, 2016, subject to extension to June 30, 2018.

     Each of TAC, Mystic Dunes, LLC and its wholly-owned subsidiaries are special purpose subsidiaries and unrestricted subsidiaries of the Company. Neither the Company nor any of its other subsidiaries has guaranteed, or is a party to, the Tempus Guggenheim Loan, the Tempus Receivables Loan or the Mystic Dunes Loan.

(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED

     The audited financial statements of Tempus Resorts International, Ltd. (Debtor-in-Possession) for the year ended December 31, 2010 are provided on pages 5 through 32. The unaudited financial statements of Tempus Resorts International, Ltd. (Debtor-in-Possession) for the six months ended June 30, 2011 are provided on pages 33 through 58.

(B) PRO FORMA FINANCIAL INFORMATION

     The required pro forma financial information is provided herein on pages 59 through 66.

SIGNATURES

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

CONTENTS

Financial Statements of Tempus Resorts International, Ltd. (Debtor-in-Possession)
Independent Auditors’ Report			5
Consolidated Balance Sheet as of December 31, 2010			6
Consolidated Statement of Operations for the year ended December 31, 2010			7
Consolidated Statement of Partners’ Equity and Comprehensive Income for the year ended December 31, 2010			8
Consolidated Statement of Cash Flows for the year ended December 31, 2010			9
Notes to Consolidated Financial Statements			11
Consolidated Balance Sheet as of June 30, 2011 (unaudited)			33
Consolidated Statements of Income for the six months ended June 30, 2011 and July 4, 2010 (unaudited)			34
Consolidated Statement of Partners’ Equity and Comprehensive Income for the six months ended June 30, 2011 (unaudited)			35
Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and July 4, 2010 (unaudited)			36
Notes to Consolidated Financial Statements (unaudited)			37
Basis of Presentation for the Unaudited Pro Forma Combined Condensed Financial Statements			59
Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30, 2011			60
Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended December 31, 2010			61
Unaudited Pro Forma Combined Condensed Statement of Operations for the six months ended June 30, 2011			62
Notes to Unaudited Pro Forma Combined Condensed Financial Statements			63
Consent of Independent Registered Public Accounting Firm			67

Independent Auditors’ Report

To the Partners of
Tempus Resorts International, Ltd.

We have audited the accompanying consolidated balance sheet of Tempus Resorts International, Ltd. (the “Partnership”) as of December 31, 2010 and the related consolidated statements of operations, partners’ equity and comprehensive income, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Partnership at December 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Partnership filed petitions for reorganization under Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code), and that raises substantial doubt about the Partnership’s ability to continue as a going concern. Management’s plan concerning this matter is also discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Certified Public Accountants

July 26, 2011

201 S. Orange Avenue, Suite 800 • Orlando, FL 32801 • 407-841-6930 • Fax: 407-841-6347
Lakeland • Tampa • Winter Haven
www.cfrcpa.com

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Consolidated Balance Sheet

		December 31,
		2010
Assets
Cash and cash equivalents		$	1,746,586
Restricted cash (Note 6)			1,725,686
Customer mortgage loans receivable — net (Note 7)			76,361,074
Other receivables (Note 8)			1,940,557
Inventory of Vacation Ownership Interests (Note 9)			61,763,885
Inventory of merchandise and tickets for resale			269,891
Prepaid expenses and other assets (Note 10)			1,948,152
Property and equipment — net (Note 11)			13,379,372
Land held for investment (Note 12)			945,000
Total assets		$	160,080,203
Liabilities and Partners’ Equity
Liabilities:
Liabilities not subject to compromise:
Accounts payable and accrued liabilities (Note 13)		$	3,832,216
Accrued compensation and benefits			595,313
Customer deposits			2,315,129
Debtor-in-possession note payable (Note 14)			3,005,000
Notes payable and obligations under capital leases (Notes 15 and 16)			116,148,105
Deferred revenue (Note 17)			2,807,580
Other liabilities (Note 18)			495,516
Liabilities subject to compromise (Note 4)			7,381,463
Total liabilities			136,580,322
Commitments and contingencies (Note 20)
Partners’ equity:
Partners’ capital — net			23,383,045
Accumulated other comprehensive income			116,836
Total partners’ equity			23,499,881
Total liabilities and partners’ equity		$	160,080,203

See accompanying notes to consolidated financial statements.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Consolidated Statement of Operations

		Year ended
		December 31,
		2010
Revenues:
Vacation Ownership Interest sales — gross (Note 2)		$	27,863,876
Provision for uncollectible related to VOI sales			(8,615,069	)
Interest income (Note 2)			20,216,395
Management and other services revenue (Note 2)			7,776,349
Other income (Note 2)			285,782
Total revenues			47,527,333
Costs and operating expenses:
Vacation Ownership Interest cost of sales			3,489,925
Sales and marketing			10,422,331
Management and other services			5,531,405
General and administrative			10,140,674
Depreciation and amortization			1,827,097
Interest expense			10,753,566
Other expense — net			621,008
Total costs and operating expenses			42,786,006
Total operating income			4,741,327
Reorganization items, net (Note 3)			(27,710,373	)
Net loss		$	(22,969,046	)

See accompanying notes to consolidated financial statements.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Consolidated Statement of Partners’ Equity
and Comprehensive Income

						Accumulated
						Other				Total
		Partners’				Comprehensive				Partners’
		Capital — Net				Income				Equity
Balance, January 3, 2010		$	46,352,091			$	97,588			$	46,449,679
Comprehensive (loss) income:
Net loss			(22,969,046	)			—				(22,969,046	)
Accumulated other comprehensive income:
Increase in fair value of investments available for sale			—				19,248				19,248
Comprehensive (loss) income			(22,969,046	)			19,248				(22,949,798	)
Balance, December 31, 2010		$	23,383,045			$	116,836			$	23,499,881

See accompanying notes to consolidated financial statements.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Consolidated Statement of Cash Flows

		Year ended
		December 31,
		2010
Cash flows from operating activities:
Net loss		$	(22,969,046	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Reorganization loss on impairment of golf course amenity allocable to future buildings			14,453,474
Reorganization loss on impairment of land held for development			11,020,500
Reorganization loss on impairment of construction in progress			1,886,985
Reorganization trustee and other fees			25,025
Reorganization professional fees			324,389
Depreciation and amortization			1,826,371
Provision for uncollectible VOI sales			8,615,069
Provision for doubtful notes receivable			42,760
Loss on disposal of property and equipment			539,185
Allowance on sales commission reserve			(938	)
Changes in operating assets and liabilities:
Restricted cash			(1,061,878	)
Customer mortgage loans receivable			(3,768,170	)
Other receivables			410,789
Inventory of Vacation Ownership Interests			4,387,187
Inventory of merchandise and tickets for resale			232,324
Prepaid expenses and other assets			(134,762	)
Accounts payable and accrued liabilities			650,777
Accrued compensation and benefits			(587,541	)
Customer deposits			(534,149	)
Deferred revenue			(1,719,590	)
Other liabilities			(381,622	)
Net cash provided by operating activities			13,257,139
Cash flows from investing activities:
Proceeds from disposal of property and equipment			588
Additions of property and equipment			(59,081	)
Net cash used in investing activities			(58,493	)
Cash flows from financing activities:
Proceeds from receivables credit facility			41,755,542
Proceeds from debtor-in-possession note payable			3,005,000
Repayment of receivables credit facility			(52,913,290	)
Repayment of notes payable			(4,466,828	)
Net cash used in financing activities			(12,619,576	)

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Consolidated Statement of Cash Flows

		Year ended
		December 31,
		2010
Net increase in cash and cash equivalents			579,070
Cash and cash equivalents, beginning of year			1,167,516
Cash and cash equivalents, end of year		$	1,746,586
Supplemental disclosure of cash flow information:
Cash paid during the year for interest		$	9,937,089

See accompanying notes to consolidated financial statements.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

1. Chapter 11 Reorganization

Tempus Resorts International, Ltd. (“TRI,” “Tempus” or the “Partnership”) is a Florida limited partnership organized on November 26, 1997, headquartered in Orlando, Florida. Tempus’ mission is to develop and market timeshare resort properties.

On November 19, 2010 (the “Petition Date”), Tempus and a number of its wholly-owned subsidiaries (the “Debtors”) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Middle District of Florida (the “Bankruptcy Court”). The filings included all wholly-owned subsidiaries except Hospitality Software Developers, LLC and Ameristate Title, LLC as they had insignificant assets or were inactive. The Debtor’s Chapter 11 filings were due to prevailing economic conditions and unanticipated reductions in credit facilities caused by instability in the credit markets, and the Partnership was in default on substantially all of its debt.

On March 22, 2011, the Debtors filed their first amended joint plan of reorganization with the Bankruptcy Court which was confirmed, as modified by the Court on May 6, 2011 and became effective on July 1, 2011 pursuant to which all of the debtors were substantively consolidated into Mystic Dunes, LLC, an affiliate of Diamond Resorts International. Upon the occurrence of the effective date and the substantial consummation of the plan, the Debtors shall administratively dissolve under applicable state law.

Upon the effective date of the plan of reorganization, the Partnership transferred certain land held for development (see Note 9) back to the mortgage holder of the other collateralized notes payable (see Note 15) for full satisfaction of the debt and related accrued interest. The principal balance outstanding under these notes was $5,686,238 as of December 31, 2010. The Partnership recorded a loss as of December 31, 2010 of $27,360,959, resulting from the impairment of golf course amenity costs, land held for future development and construction in progress costs associated with the land to be transferred.

Upon the effective date of the plan, the receivables collateralizing the Receivables Loans II (see Note 15) were transferred back to the lender for full satisfaction of the loans and related accrued interest. The principal balance outstanding under these loans was $1,485,568 as of December 31, 2010.

All of the remaining notes payable collateralized by real estate and customer mortgage loans receivable, totaling $112,942,966 as of December 31, 2010, were assumed in connection with the substantive consolidation in accordance with the plan of reorganization.

In addition, certain leases were rejected, and accounts payable and other accrued liabilities subject to compromise are to be satisfied through the future payment of approximately $165,000 of cash.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

The Partnership also incurred $349,414 of professional, trustee and other reorganization fees in connection with its restructuring and Chapter 11 filing as of December 31, 2010.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the activities of TRI and the following substantially wholly-owned subsidiaries — Tempus Palms International, Ltd. (“TPI”); Tempus International Marketing Enterprises, Ltd. (“TIME”); TIME Retail, LLC; Tempus Resorts Management, Ltd.; Tempus Resorts Realty, LLC; Hospitality Software Developers, LLC; Tempus Marketing International, LLC; Tempus Golf Development, LLC (“TGD”); Ameristate Title, LLC; and Backstage Myrtle Beach, LLC (“BMB”) (collectively referred to as “Tempus” or the “Partnership”). All intercompany balances and transactions have been eliminated.

Change in Fiscal Year

The Partnership’s fiscal year was historically based on a 52/53-week fiscal year ending each year on the Sunday nearest December 31. Due to the bankruptcy filing, the Partnership was required to change from a 52/53-week fiscal year to a calendar year ending on December 31 of each year, commencing December 31, 2010.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of all highly liquid investments purchased with an original maturity of three months or less. Cash and cash equivalents include cash and money market funds.

Restricted cash consists of: (1) escrow deposits received on sales of timeshare units that are held in escrow, until the applicable statutory rescission period has expired, the funds have been released from escrow and the deeding process has begun, or the customer defaults prior to the deeding process, (2) a premium holding account related to title insurance premiums received from an escrow agent, and (3) lender-controlled deposits.

Allowance for Losses on Customer Mortgage Loans Receivable

The Partnership provides for estimated future losses to be incurred related to uncollectible customer mortgage loans receivable. Management evaluates allowance requirements by examining current delinquencies, historical loan losses developed through a static pool analysis, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), current economic conditions, the value of the underlying collateral, and other relevant factors. Management believes that all such allowances are adequate.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

Inventory of Vacation Ownership Interests (“VOIs”)

Inventory of VOIs includes completed timeshare units available for sale, golf course amenity costs allocable to completed and future timeshare units, units and related infrastructure under construction and land held for development. Inventory of timeshare units and related construction in progress are carried at cost, which is lower than fair value less cost to sell. The recoverability of inventory is determined on an individual project basis, which is based on each resort phase. Land held for development is carried at the lower of cost or fair value less cost to sell.

As discussed in Notes 1, 3 and 9, during 2010 the Partnership recorded losses of $27,360,959 related to impairments of golf course amenity costs allocable to future buildings, land held for development and construction in progress.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the assets’ estimated useful lives ranging from 2 to 40 years.

In connection with the development of a resort property, the Partnership constructs guest registration, certain recreational, sales and marketing facilities. The Partnership retains ownership and control over these facilities. The facilities are capitalized as property and equipment and depreciated on a straight-line basis over the estimated useful life, which ranges from 3 to 40 years.

The Partnership reevaluates the recoverability of long-lived assets as well as the depreciation periods to determine whether an adjustment to carrying value or a revision to estimated useful lives is appropriate. The primary indicators of recoverability are a significant event or change in the environment in which the business operates and current and forecasted undiscounted operating cash flows.

Goodwill and Intangible Assets

The excess of the purchase price over the fair value of net assets of businesses acquired is allocated to goodwill. Intangible assets, other than goodwill, are amortized over their expected lives ranging from 1 to 5 years.

The Partnership reevaluates the recoverability of intangible assets as well as the amortization periods to determine whether an adjustment to carrying value or a revision to estimated useful lives is appropriate. The primary indicators of recoverability are a significant event or change in the environment in which the business operates and current and forecasted undiscounted operating cash flows.

Customer Deposits

Customer deposits primarily consist of payments on timeshare unit sales that have not met the criteria for revenue recognition.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

Deferred Revenue

Deferred revenue primarily consists of deferred revenue related to payments received on timeshare samplers and vacation packages. Tempus enters into sampler agreements whereby the prospective owner pays a minimum down payment and small monthly payments for the right to use a unit week within a stated time period (generally 18 to 24 months). Utilization of the unit week is dependent upon the sampler meeting specified payment criteria. Amounts collected under these sampler agreements are recorded as deferred revenue until the earlier of the use date, the expiration of the stated period, or the customer default date. Tempus sells vacation packages for which a deposit is collected in advance of travel. These deposits are recorded as deferred revenue until the earlier of the travel date or the expiration date (generally 3 to 18 months) as stated on the certificate (see Note 17).

Revenue Recognition — VOI Sales

Sales of timeshare units are included in revenues under the full accrual basis when minimum down payment requirements (at least 10%) have been met, the rescission period has expired, construction is substantially complete, certain minimum project levels have been met, and collectibility is reasonably assured. If construction is not substantially complete but all other criteria have been met, revenue is recognized under the percentage-of-completion method. For sales that do not meet the criteria described above, revenue is deferred under the deposit method.

VOI Cost of Sales

Product costs related to timeshare unit sales are recognized at the time the sale is recognized. Product costs include the cost of land, construction costs, capitalized interest, professional fees, certain infrastructure costs, and interior furnishings. Product costs are allocated to units sold based on the relative sales value method. The relative sales value method requires that VOI projects or phases be considered when determining the appropriate amount of cost of sales associated with the VOI sale. In determining the appropriate amount of costs, the Partnership considers the costs to build or acquire a VOI project, the estimated cost needed to complete a project under construction, the total revenues expected to be earned on a project, and the projected revenues relating to the recovered VOI on future cancelled sales. The effects of changes in estimates are accounted for on a retrospective basis using a current period adjustment, such that the balance sheet at the end of the period of change and the accounting in subsequent periods reflect the revised estimates as if such estimates had been the original estimates. Also, pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 978, Real Estate — Time-Sharing Activities, the Partnership does not relieve inventory for timeshare interval cost of sales related to anticipated credit losses.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

Sales and Marketing Costs

All sales and marketing costs are expensed as incurred.

Interest Income

Interest income is comprised of the following:

		December 31,
		2010
Customer mortgage loans receivable interest		$	19,672,590
Sampler and other interest income			543,805
		$	20,216,395

Interest income is accrued on customer mortgage loans receivable until the principal and interest payments on the individual receivables are more than 90 days contractually past due. Once a receivable becomes more than 90 days delinquent, the accrual of interest income ceases and is recognized on a cash basis. The Partnership had $2,672,370 of customer mortgage loans receivable that were more than 90 days delinquent at December 31, 2010.

Management and Other Services Revenue

Management and other services revenue is comprised of the following:

		December 31,
		2010
Management fee revenue		$	2,488,213
Revenue from golf course operations			1,523,790
Revenue from food and beverage operations			1,191,492
Revenue from amenity fees			2,423,460
Other			149,394
		$	7,776,349

Other Income

Other income is comprised of the following:

		December 31,
		2010
Customer late, NSF and other fees		$	14,655
Customer default revenue			271,127
		$	285,782

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

Incidental Operations

Rental operations, including mini-vacation packages and sampler programs and the related costs during the holding period of unsold VOIs, are accounted for as incidental operations, whereby incremental costs in excess of incremental revenue are charged to expense as incurred and the operations are presented as a net expense in the consolidated statement of operations. Conversely, incremental revenue in excess of incremental costs is recorded as a reduction of unsold VOIs. Incremental costs include costs that would not have otherwise been incurred by the Partnership during the holding period of unsold VOIs. Such costs include amounts due under the developer guarantee. For the year ended December 31, 2010, incremental revenues exceeded incremental costs by $1,018,288, which was recorded as a reduction in unsold VOIs.

Accounting for Leases

The Partnership accounts for leases under the provisions of FASB ASC 840, Leases, which require that the leases be evaluated and classified as operating or capital leases for financial reporting purposes. Capital leases, which transfer substantially all of the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments, other than contingent rentals, are recognized as an expense in the accompanying consolidated statement of operations on a straight-line basis over the lease term.

Fair Market Value of Financial Instruments

ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1 — Valuation based on quoted market prices in active markets for identical assets or liabilities.

Level 2 — Valuation based on quoted market prices for similar assets and liabilities in active markets.

Level 3 — Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of each fiscal year end. The carrying amount reported in the consolidated balance sheet for cash and cash equivalents, restricted cash, other receivables and accounts payable and accrued liabilities approximates fair market value due to the immediate or short-

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

term maturity of these financial instruments. The carrying value of customer mortgage loans receivable approximates fair value because the weighted-average interest rate on the portfolio of notes receivable approximates current interest rates to be received on similar current notes receivable. The carrying amount of notes payable approximates fair value because the interest rates on notes payable approximate current interest rates on debt with similar terms and remaining maturities. The carrying amount of common stock available for sale is measured at fair value based on Level 1 inputs and amounts to $116,836 as of December 31, 2010 and is included in prepaid expenses and other assets in the accompanying consolidated balance sheet.

Income Taxes

Tempus is a limited partnership and, accordingly, is not subject to income tax. Income or loss from the Partnership flows directly to the partners and is taxed at the individual partners’ level.

The Partnership files income tax returns in the U.S. federal jurisdiction and the state of Florida. The Partnership’s federal Partnership income tax returns for tax years 2007 and beyond remain subject to examination by the Internal Revenue Service. The Partnership’s Florida Partnership income tax returns for the years 2007 and beyond remain subject to examination by the Florida Department of Revenue.

The Partnership did not have unrecognized tax benefits as of December 31, 2010 and does not expect this to change significantly over the next 12 months. As of December 31, 2010, the Partnership has not accrued interest or penalties related to uncertain tax positions.

Concentrations of Credit Risk

The Partnership offers financing to the buyers of VOIs. The customer mortgage loans received by the Partnership bear interest at a fixed rate, are payable over a 1- to 10-year period, and are secured by a first mortgage on the VOI. Any adverse change in economic conditions or significant price increases or adverse events related to the travel and tourism industry could have a material adverse effect on the Partnership’s business. Such conditions may also adversely affect the future availability and cost of financing for the Partnership or its customers and result in a material adverse effect on the Partnership’s business. In addition, changes in general economic conditions may adversely affect the Partnership’s ability to collect on its outstanding customer mortgage loans receivable.

The Partnership has historically derived net interest income from its financing activities because the interest rates it charges its customers who finance the purchase of their VOIs exceed the interest rates the Partnership pays to its lenders. Because the Partnership’s indebtedness bears interest at variable rates and the Partnership’s customer mortgage loans receivable bear interest at fixed rates, increases in interest rates will erode the spread in interest rates that the Partnership has historically obtained and could cause the rate on the Partnership’s borrowings to exceed the rate at which the Partnership provides financing to its customers.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

The Partnership funds substantially all of the customer mortgage loans receivable, timeshare inventories, and land inventories which it originates or purchases with borrowings through its financing facilities and internally generated funds. Borrowings are in turn repaid with the proceeds received by the Partnership from repayments of such customer mortgage loans receivable.

Periodically during the year, the Partnership maintains cash and restricted cash in financial institutions in excess of amounts insured by the federal government. The Partnership has not experienced any losses on such accounts.

New Accounting Pronouncements

The FASB and other entities issued new or modifications to, or interpretations of, existing accounting guidance for the period ended December 31, 2010. The Partnership has carefully considered the new pronouncements that altered generally accepted accounting principles and, other than as disclosed in these notes to the consolidated financial statements, does not believe that any other new or modified principles will have a material impact on the Partnership’s reported financial position or operations in the near term.

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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Subsequent Events

The Partnership has evaluated events and transactions occurring subsequent to December 31, 2010 as of July 26, 2011, which is the date the financial statements were available to be issued. Subsequent events occurring after July 26, 2011 have not been evaluated by management. No material events have occurred since December 31, 2010 that require recognition or disclosure in the financial statements, except as disclosed in Note 22.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

3. Reorganization Items

FASB ASC 852, Reorganization, requires separate disclosure of reorganization items on both the statement of operations and the statement of cash flows. The Debtors’ reorganization items on the consolidated statements of operations consist of the following:

		December 31,
		2010
Loss on impairment of golf course amenity allocable to future buildings		$	14,453,474
Loss on impairment of land held for development			11,020,500
Loss on impairment of construction in progress			1,886,985
Trustee and other fees			25,025
Professional fees			324,389
		$	27,710,373

The impairment losses on golf course amenity costs allocable to future buildings, land held for development and construction in progress is due to the Partnership transferring undeveloped land back to the mortgage holder of the other collateralized notes payable as discussed in Note 1. Professional fees related to the reorganization are fees paid to legal and expert counsel and are estimated by the Debtors and will be reconciled when actual invoices are received.

The Debtors’ reorganization items on the consolidated statements of cash flows consist of the following:

		December 31,
		2010
Loss on impairment of golf course amenity allocable to future buildings		$	14,453,474
Loss on impairment of land held for development		$	11,020,500
Loss on impairment of construction in progress		$	1,886,985
Trustee and other fees		$	25,025
Professional fees		$	324,389
Change in accounts payable and accrued liabilities		$	1,157,300
Change in other liabilities		$	1,481,595
Notes payable		$	4,269,367
Capital lease obligations		$	473,201

The Partnership uses significant amounts of cash in the development and marketing of Vacation Ownership Interests, but collects the cash on the customer mortgage loans receivable over a long period of time. Historically, the Partnership borrowed against and/or sold receivables to provide sufficient cash to fund its operations. The Partnership is currently unable to borrow under any facility, but does have the use of cash collateral generated by management company operations and golf operations under a motion granted by the

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

Bankruptcy Court (see Note 1). In addition the Bankruptcy Court has granted and the Partnership has secured a Debtor-in-Possession credit facility to finance operations during the reorganization period (Note 14).

4. Liabilities Subject to Compromise

Liabilities subject to compromise (“LSTC”) refer to both secured and unsecured obligations that will likely be accounted for under a confirmed plan of reorganization. Actions to enforce or effect payment of pre-petition liabilities are stayed. FASB ASC 852 requires pre-petition liabilities that are subject to compromise to be reported at amounts expected to be allowed, even if they may be settled for lesser amounts. These liabilities represent the estimated amount expected to be allowed on known or potential claims to be resolved through the Chapter 11 proceedings and remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, the determination as to the value of collateral, proofs of claim, or other events. LSTC also includes certain items that may be assumed under the confirmed plan of reorganization and as such may be subsequently reclassified to liabilities not subject to compromise.

Liabilities subject to compromise consist of the following:

		December 31,
		2010
Accounts payable and accrued liabilities		$	1,157,300
Other liabilities			1,481,595
Notes payable			4,269,367
Capital lease obligations			473,201
Total liabilities subject to compromise		$	7,381,463

5. Acquisitions

The Palms Resort and Country Club

In addition to the $23,582,998 net purchase price of the Palms Resort and Country Club (the Palms - currently known as Mystic Dunes Resort and Golf Club) by TPI in April 1998, TPI agreed to pay the former owners a contingent fee of 2% of the “net contract sales price” on timeshare interval units sold, up to 3,950 units. Under the agreement, TPI is obligated to make minimum annual payments to the sellers in the amount of $300,000 per year for 1998 and 1999 and $500,000 per year from 2000 through 2013. Thereafter, there is no minimum payment due, and any amount due will be based solely on actual timeshare interval sales. Upon the acquisition, the present value of the future minimum payments totaling $4,548,833 was recorded as additional purchase price and included in other liabilities. The unamortized balance of the liability as of December 31, 2010 totaled $1,481,119 and is included in liabilities subject to compromise in the accompanying consolidated balance sheet (Note 4). During 2010, $253,383 was incurred and paid relating to the contingent fee.

As part of the Contract of Sale (the “Contract”) of the Palms, TPI acquired an Option Agreement to purchase additional land adjacent to the acreage included in the Contract. Upon acquisition, $9,562,688 was allocated to the value of this option in the purchase and included in land held under option (the option

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

premium). On each takedown purchase, a portion of the option premium was allocated to the land acquired based on the relative value of each takedown of land under the option. The Option Agreement, as amended, provides for the purchase of the additional land in eight takedown portions. The takedown schedule is listed below:

						Purchase
Takedown No.				Takedown Date		Amount
	1			June 21, 1999		$	3,800,000
	2			May 31, 2000			2,461,500
	3			June 6, 2001			1,260,000
	4			March 14, 2002			2,337,600
	5			December 29, 2004			1,413,600
	6			December 29, 2004			1,312,638
	7			December 1, 2006			1,030,545
	8			September 28, 2007			917,117
						$	14,533,000

In addition to the purchase price, the terms of the Amended Option Agreement included monthly option payments plus payment of carrying costs of the land under option. These payments were capitalized as land held under option and allocated to the purchased land upon exercise of the option takedowns noted above.

Yeehaw Travel Center, Inc.

On June 11, 1999, TIME entered into a brokerage and purchase option agreement with Florida’s Room Service, Inc. and Yeehaw Travel Center, Inc. (collectively “YTC”). The terms of this agreement were effectively renegotiated on November 26, 2004 and a new asset purchase agreement was executed. Under the terms of this agreement, TIME made certain payments, less contractually permitted reductions, and assumed limited liabilities in exchange for title to the assets of YTC and execution of separate employment agreements by the principals of YTC which included noncompetition agreements. The total amount incurred under this agreement of $2,795,717 was deemed to be an amortizable intangible asset. The amortizable intangible asset was amortized on a straight-line basis over a five-year period beginning January 3, 2005, and was fully amortized as of the year ended January 3, 2010.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

The assets related to the above acquisitions and other smaller acquisitions are as follows:

		December 31,
		2010
Goodwill:
Goodwill		$	3,377,689
Less accumulated amortization (ceased December 2001) and previously recognized impairment			(3,377,689	)
Goodwill — net		$	—
Amortized intangible assets:
Intangible assets		$	4,070,515
Less accumulated amortization			(4,070,515	)
Intangible assets — net		$	—

6. Restricted Cash

Restricted cash consisted of the following:

		December 31,
		2010
Timeshare escrow deposits		$	1,263,108
Other restricted cash			462,578
		$	1,725,686

7. Customer Mortgage Loans Receivable

Customer mortgage loans receivable consisted of the following:

		December 31,
		2010
Customer mortgage loans receivable		$	108,379,942
Allowance for loan losses			(33,033,259	)
Accrued interest			1,014,391
Customer mortgage loans receivable — net		$	76,361,074

Stated interest rates on customer mortgage loans receivable outstanding at December 31, 2010 range from 0% to 17.75% per annum (yielding a weighted-average of approximately 16.97%). The Partnership has entered into financing arrangements with certain purchasers of VOIs, whereby no stated interest rate is charged if the customer meets certain payment criteria, including a substantial down payment and full payment within a one- or two-year period. Customer mortgage loans receivable with a 0% stated interest rate totaled $448,838 as of December 31, 2010. A discount is established to provide for an effective interest

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

rate of 9% on these customer mortgage loans receivable and is amortized over the terms of the notes receivable. The effective interest rate is based on the economic interest rate environment and similar industry data.

The Partnership’s borrowers are geographically diversified within the United States and internationally. As of December 31, 2010, borrowers residing in the United States accounted for 81.89% of customer mortgage loans. No state or foreign country concentration accounted for more than approximately 15% of gross outstanding customer mortgage loans receivable.

The following reflects the scheduled contractual principal maturities of customer mortgage loans receivable:

Fiscal year
2011		$	13,880,490
2012			13,581,740
2013			13,577,830
2014			13,479,376
2015			12,996,370
Thereafter			40,864,136
		$	108,379,942

The activity in the customer mortgage loans receivable allowance for loan losses is as follows:

		December 31,
		2010
Balance, beginning of year		$	42,343,682
Provision for uncollectible related to VOI sales			8,615,069
Charge-offs			(17,925,492	)
		$	33,033,259

8. Other Receivables

Other receivables consisted of:

		December 31,
		2010
Due from merchant service provider		$	291,992
Escrow funds receivable			101,015
Other			1,547,550
		$	1,940,557

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

9. Inventory of Vacation Ownership Interests

Inventory of VOIs consisted of the following:

		December 31,
		2010
Interval ownership interests-completed		$	55,723,599
Land held for development			6,040,286
		$	61,763,885

During 2001, the Partnership completed construction of Mystic Dunes Golf Club (the “Golf Course”), and an appraisal of the Golf Course was performed for the purpose of securing a loan collateralized by the Golf Course. According to the appraisal, the estimated market value of the Golf Course totaled $8,900,000 based on a marketing period of less than 12 months. The approximate $17,700,000 difference between the capitalized costs and the appraised value was allocated to inventory as golf course amenity costs and is included in cost of sales as the remaining inventory units are sold.

As discussed in Notes 1, 2 and 3, during the year ended December 31, 2010, the Partnership fully impaired all previously capitalized golf course amenity costs and construction in progress. In addition, certain land held for development costs was also impaired during 2010.

10. Prepaid Expenses and Other Assets

Prepaid expenses and other assets consisted of the following:

		December 31,
		2010
Prepaid expenses		$	1,278,571
Deferred financing costs			5,681
Rent deposits			82,510
Other			581,390
		$	1,948,152

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

11. Property and Equipment

Property and equipment consisted of the following:

		December 31,
		2010
Land		$	5,024,334
Land improvements			3,748,968
Leasehold improvements			1,470,554
Buildings and improvements			5,276,481
Equipment, furniture and fixtures			3,306,164
Computer hardware and software			6,952,456
Vehicles			159,825
Assets under development			49,594
			25,988,376
Less: Accumulated depreciation			(12,609,004	)
		$	13,379,372

12. Land Held for Investment

Land held for investment with a carrying value of $945,000 as of December 31, 2010 includes commercially zoned real estate that management intends to hold as an investment and does not plan to develop for VOI purposes.

13. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:

		December 31,
		2010
Accounts payable		$	1,822,628
Amount due under the developer guarantee			993,268
Other accrued liabilities			2,173,620
			4,989,516
Less: Liabilities subject to compromise (Note 4)			1,157,300
		$	3,832,216

14. Debtor-In-Possession Financing

On November 22, 2010, pursuant to authorization from the Florida Bankruptcy Court, the Partnership entered into a Post-Petition Term Credit and Security Agreement (“DIP Agreement”) with Tempus Acquisition, LLC (“TAC”), an affiliate of Diamond Resorts International. The DIP Agreement provides a term loan facility in a maximum principal amount of $6,500,000. The loan bears interest at a rate of 10% per annum. The note was converted to equity in connection with the substantive consolidation discussed in Note 1. The loan was collateralized by substantially all assets of the Partnership, including cash and cash equivalents, commercial tort claims, and real property, but expressly excluding causes of action under Chapter 5 of the Bankruptcy Code. Outstanding borrowings under the loan at December 31, 2010 were $3,005,000.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

15. Notes Payable

Notes payable consisted of:

Notes Payable — Credit Facility Collateralized by Real Estate and Customer Mortgage Loans Receivable

Effective October 28, 2004, TPI entered into a $30,000,000 Revolving Loan Agreement to finance various acquisition, development and construction projects (AD&C Loan) and a Loan and Security Agreement for a revolving receivables loan in the maximum amount of $200,000,000 (Receivables Loan) and a revolving pre-sale loan (Pre-Sales Loan) in the maximum amount of $30,000,000.

Effective July 6, 2006, the AD&C Loan was amended to include two components: a $30,000,000 Revolving AD&C Inventory Note to finance the development of timeshare inventory and a $20,000,000 Revolving AD&C Common Area Component Note (CA Note) to finance common area improvements to the Mystic Dunes Resort & Golf Club. Furthermore, the AD&C, Receivables and Pre-Sales Loan maximum combined outstanding balance was increased to $250,000,000, and the maturity dates were extended.

Effective October 15, 2008, TPI entered a Modification Agreement and related documents (Modification Documents) which resulted in the following changes to the AD&C, Receivables and Pre-sales loans:

a)		The maximum combined outstanding balance of the Receivables and Pre-Sales Loan was decreased to $130,000,000 and the maximum outstanding balance of the Pre-Sales Loan was decreased to $12,500,000.
b)		Beginning November 1, 2008, the interest rates were adjusted for the Receivables, Presales and AD&C Inventory Note.
c)		The Receivables Loan was divided into two tranches: an Existing Tranche for outstanding amounts as of October 31, 2008 and an Extended Tranche for advances occurring after October 31, 2008.
d)		The maturity dates for the AD&C Inventory Note and Pre-Sales Loan were extended as further described below.

Effective May 6, 2009, TPI entered into another Modification Agreement and related documents which extended the maturity date for the advance period on the Pre-Sales Loan and the Receivables Loan Extended Tranche and decreased the maximum combined outstanding balance of the Receivables and Pre-Sales Loan to $120,000,000 and the maximum outstanding balance of the Pre-Sales Loan to $7,000,000. The presale loan was repaid during 2010.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

Effective January 8, 2010, TPI and TGD entered into another Agreement which modified the Receivables Loan to provide a new credit line (“New Line”) in the maximum principal amount of $5,000,000 (as amended). New Line is not an increase in the total committed amount of the Receivables Loan or Receivables Note but constitutes additional revolving credit availability under the existing Receivables Loan documents that would not be available without the relief granted in the Agreement by the Lender and is not subject to the Receivables Borrowing base. The line is collateralized by receivables not collateralizing other Existing or Extended Receivables Loan Tranches, real property (as defined in the Agreement) and a security interest in other deposit accounts (as defined in the Agreement).

Notes Payable — Credit Facility Collateralized by Real Estate and Customer Mortgage Loans Receivable

Effective November 5, 2008, BMB entered into a revolving Receivables Loan (Receivables Loan II) in the maximum amount of $30,000,000 including a predeeded component in the maximum amount of $5,000,000 and an Inventory Loan (Inventory Loan II) in the amount of $5,811,000 to finance the acquisition of timeshare inventory located in Myrtle Beach, SC (collectively, Loan II).

Effective June 2, 2009, BMB entered into an amendment which extended the Inventory Loan II maturity date and decreased the maximum combined outstanding balance of Loan II to $12,000,000 and decreased the maximum outstanding balance of the Receivables Loan II including the predeeded component to $9,000,000 with a $3,000,000 maximum for the predeeded component.

The Receivables Loan II including the predeeded component is subject to a 24-month advance period expiring on November 30, 2010 and matures 60 months from the expiration of the advance period.

		December 31,
		2010
The Receivables Loan Existing Tranche bears interest at London InterBank Offered Rate (LIBOR) plus 5.0% per annum (5.3% at December 31, 2010), and had an advance period that ended on October 31, 2008 and matures on October 31, 2015. Gross mortgage loans receivable collateralizing this loan totaled $58,270,988 at December 31, 2010.		$	49,570,817
The Receivables Loan Extended Tranche bears interest at LIBOR plus 6.0% per annum (6.3% at December 31, 2010), and had an advance period that ended on November 5, 2010 and matures on October 31, 2015. Gross mortgage loans receivable collateralizing this loan totaled $51,263,397 at December 31, 2010.			39,501,837

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

		December 31,
		2010
The Tempus Palms Project Loan under the AD&C Inventory Note bears interest at LIBOR plus 6.5% per annum (6.8% at December 31, 2010). This loan requires equal monthly principal payments sufficient to fully amortize the outstanding principal amount calculated on April 30, 2010 over a 42 month amortization period beginning May 1, 2010 with a final maturity date of October 31, 2010. Direct inventory costs collateralizing this loan totaled $24,091,834 at December 31, 2010.			13,835,105
The Mystic Dunes Golf Course Project Commitment under the AD&C CA Note bears interest at LIBOR plus 4.9% per annum (5.2% at December 31, 2010) and matures based on a straight-line 10-year amortization period with such period commencing on October 31, 2008 and ending on October 31, 2018.			3,198,607
The New Line under the Receivables Loan bears interest at LIBOR plus 8.5% per annum (8.76% at December 31, 2010) and matured November 5, 2010 at which time all outstanding interest and principal was due.			2,567,233
The Receivables Loan II predeeded receivables component bears interest at LIBOR (minimum LIBOR rate of 2.35%) plus 5.15% (11.5% at December 31, 2010, which includes a 4% default interest penalty).			95,264
The Receivables Loan II receivables component bears interest at LIBOR (minimum LIBOR rate of 2.35%) plus 5.15% (11.5% at December 31, 2010, which includes a 4% default interest penalty). Gross mortgage loans receivable collateralizing this loan totaled $1,462,108 at December 31, 2010.			1,390,304
The Inventory Loan II bears interest at LIBOR (minimum LIBOR rate of 2.35%) plus 5.15% (11.5% at December 31, 2010, which includes a 4% default interest penalty) and is collateralized by timeshare inventory located in Myrtle Beach, SC. Minimum quarterly payments of $242,125 are required for this loan until maturity whereupon the remaining principal and interest is due on November 30, 2013.			4,269,367
Total credit facilities			114,428,534

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

		December 31,
		2010
Other Collateralized Notes Payable
On July 11, 2002, a $1,000,000 promissory note bearing interest at 10% per annum was executed by TPI. The loan is secured by a Mortgage and Security Agreement Filing dated July 12, 2002 and is collateralized by certain real property located in Osceola County, Florida. On October 25, 2002, a modification to Promissory Note and Notice of Future Advance Under Mortgage and Security Agreement was executed. The amendment includes an additional advance of $1,000,000, which was made on October 29, 2002. The remaining principal balance was due on or before December 31, 2010.			1,000,000
On December 29, 2004, a $2,726,238 promissory note bearing interest at 10% per annum was executed by TPI. The loan is secured by a Mortgage and Security Agreement Filing dated December 28, 2004, and is collateralized by certain real property. The principal balance was due on or before December 31, 2010.			2,726,238
On December 1, 2006, a $960,000 promissory note bearing interest at 9% per annum was executed by TPI. The loan is secured by a Mortgage and Security Agreement Filing dated December 1, 2006, and is collateralized by certain real property. The principal balance was due on or before December 31, 2010.			960,000
On April 10, 2009, a $1,000,000 promissory note bearing interest at 10% per annum was executed by TPI. The loan is secured by a Mortgage and Security Agreement Filing dated April 10, 2009, and is collateralized by certain real property. The principal balance was due on or before April 10, 2010.			1,000,000
Total other collateralized notes payable			5,686,238
Total notes payable			120,114,772
Less: liabilities subject to compromise (Note 4)			4,269,367
		$	115,845,405

As repayment of the notes payable collateralized by customer mortgage loans receivable is based upon collections of the related customer mortgage loans receivable, there are no scheduled amortization dates for these loans.

As discussed in Note 1, for the year ended December 31, 2010, the Partnership was in default on substantially all of its debt.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

16. Capital Leases

Tempus has entered into capital lease obligations for equipment which have 5 year terms. These capital lease obligations include bargain purchase options.

Obligations under capital leases were as follows:

		December 31,
		2010
Principal and interest payments due monthly for a period of 36 to 60 months, with an imputed interest rate ranging from 5.6% to 10.2% based on TRI’s internal borrowing rate at the inception of the lease.		$	775,901
Less: liabilities subject to compromise (Note 4)			473,201
		$	302,700

The following is a schedule of future minimum lease payments under capital lease obligations and the present value of the net minimum lease payments as of December 31, 2010:

2010		$	178,836
2011			149,030
Total minimum lease payments			327,866
Total amount representing interest			(25,166	)
Present value of minimum lease payments		$	302,700

The above schedule of future minimum lease payments does not include certain future payments for capital leases rejected by the Partnership under the Bankruptcy Code. At December 31, 2010, the equipment under capital leases is included in property and equipment with a carrying amount of $568,131 and accumulated depreciation of $388,223. The related lease obligations are included in notes payable and obligations under capital leases in the accompanying consolidated balance sheet.

17. Deferred Revenue

Deferred revenue consisted of the following:

		December 31,
		2010
Deferred revenue — “samplers”		$	1,752,151
Deferred revenue — vacation packages			816,414
Other deferred revenue			239,015
		$	2,807,580

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

18. Other Liabilities

Other liabilities consisted of the following:

		December 31,
		2010
Minimum contingent purchase fee payable (Note 3)		$	1,481,119
Other			495,992
			1,977,111
Less: liabilities subject to compromise (Note 4)			1,481,595
		$	495,516

19. Defined Contribution Plan

The Partnership maintains a 401(k) defined contribution plan offered to all employees who are age twenty-one or older and have completed one year of service, as defined in the plan. Under the terms of the plan, employer contributions are discretionary. During 2010, the Partnership made no discretionary contributions to the plan.

20. Commitments and Contingencies

Developer Guarantee

The purchasers of timeshare intervals automatically become members in the resort’s owners’ association. The association was formed to maintain, operate and manage the resort’s operations, including the maintenance of the recreational facilities and common areas. The association is governed by its articles of incorporation, by-laws and declaration of condominium. TPI (the Developer) has elected to guarantee any operating deficiencies of the association during 2010. This agreement is subject to an annual election by the Developer. The amount incurred by the Developer pursuant to the developer guarantee for 2010 was $4,420,245. In consideration of this guarantee, the Developer is excused from the payment of its share of the common expenses which otherwise would have been assessed against its unsold timeshare intervals during the term of the guarantee.

Litigation

The Partnership is, from time to time, party to certain litigation that relates to matters arising in the ordinary course of business. Management believes that such litigation will not have a material impact on the financial position or results of operations of the Partnership.

21. Leases

Tempus has entered into several operating leases including office, equipment, marketing booth, and billboard leases which have varying terms generally ranging from 1 to 10 years. Certain of these operating leases include renewal options, fair market value purchase options, and escalation clauses based on contractual rate increases.

Future minimum lease payments as of December 31, 2010, under operating leases with initial or remaining noncancelable lease terms in excess of one year are as follows:

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements

2011		$	1,248,614
2012			409,235
2013			116,186
2014			46,860
		$	1,820,895

Total rent expense for the year ended December 31, 2010 was $2,812,933.

22. Subsequent Event

As discussed in Note 1, on July 1, 2011, the Partnership’s plan of reorganization became effective and certain remaining assets were acquired and certain liabilities were assumed by Mystic Dunes, LLC. Also, certain land held for development was transferred back to the mortgage holder in full satisfaction of the secured debt.

In addition, as discussed in Note 14, subsequent to year end December 31, 2010, the debtor-in-possession note payable was converted to equity in connection with the substantive consolidation discussed in Note 1.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Consolidated Balance Sheet
(unaudited)

		As of
		June 30,
		2011
Assets
Cash and cash equivalents		$	3,169,751
Restricted cash (Note 6)			2,881,046
Customer mortgage loans receivable — net (Note 7)			68,816,835
Other receivables (Note 8)			2,048,654
Inventory of Vacation Ownership Interests (Note 9)			59,570,340
Inventory of merchandise and tickets for resale			246,352
Prepaid expenses and other assets (Note 10)			1,817,825
Property and equipment — net (Note 11)			12,705,662
Land held for investment (Note 12)			945,000
Total assets		$	152,201,465
Liabilities and Partners’ Equity
Liabilities:
Liabilities not subject to compromise:
Accounts payable and accrued liabilities (Note 13)		$	7,391,781
Accrued compensation and benefits			942,609
Customer deposits			2,437,877
Debtor-in-possession note payable (Note 14)			6,497,571
Notes payable and obligations under capital leases (Notes 15 and 16)			99,393,031
Deferred revenue (Note 17)			3,422,393
Other liabilities (Note 18)			281,411
Liabilities subject to compromise (Note 4)			7,405,905
Total liabilities			127,772,578
Commitments and contingencies (Note 20)			—
Partners’ equity:
Partners’ capital — net			24,304,297
Accumulated other comprehensive income			124,590
Total partners’ equity			24,428,887
Total liabilities and partners’ equity		$	152,201,465

See accompanying notes to consolidated financial statements.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Consolidated Statements of Income
(unaudited)

		Six months				Six months
		ended				ended
		June 30,				July 4,
		2011				2010
Revenues:
Vacation Ownership Interest sales — gross (Note 2)		$	3,904,671			$	13,857,769
Provision for uncollectible related to VOI sales			(1,309,196	)			(3,784,064	)
Interest income (Note 2)			8,784,938				10,632,799
Management and other services revenue (Note 2)			4,336,733				4,142,849
Other income (Note 2)			53,343				160,574
Total revenues			15,770,489				25,009,927
Costs and operating expenses:
Vacation Ownership Interest cost of sales			476,120				1,871,980
Sales and marketing			1,153,575				5,432,854
Management and other services			2,861,709				2,898,709
Incidental operations			56,498				156,558
General and administrative			4,516,705				5,104,248
Depreciation and amortization			673,710				942,436
Interest expense (see Note 15 for contractual interest)			4,360,068				5,910,224
Other expense — net			93,495				102,200
Total costs and operating expenses			14,191,880				22,419,209
Total operating income			1,578,609				2,590,718
Reorganization items, net (Note 3)			(657,357	)			—
Net income		$	921,252			$	2,590,718

See accompanying notes to consolidated financial statements.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Consolidated Statement of Partners’ Equity
and Comprehensive Income
(unaudited)

						Accumulated
						Other				Total
		Partners’				Comprehensive				Partners’
		Capital — Net				Income				Equity
Balance, December 31, 2010		$	23,383,045			$	116,836			$	23,499,881
Comprehensive income:
Net income			921,252				—				921,252
Accumulated other comprehensive income:
Increase in fair value of investments available for sale			—				7,754				7,754
Comprehensive income			921,252				7,754				929,006
Balance, June 30, 2011		$	24,304,297			$	124,590			$	24,428,887

See accompanying notes to consolidated financial statements.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Consolidated Statements of Cash Flows
(unaudited)

		Six months				Six months
		ended				ended
		June 30,				July 4,
		2011				2010
Cash flows from operating activities:
Net income		$	921,252			$	2,590,718
Adjustments to reconcile net income to net cash provided by operating activities:
Reorganization trustee and other fees			69,125				—
Reorganization professional fees			588,232				—
Depreciation and amortization			673,710				942,436
Provision for uncollectible VOI sales			1,309,196				3,784,064
Changes in operating assets and liabilities:
Restricted cash			(1,155,360	)			(727,640	)
Customer mortgage loans receivable			6,235,043				(886,522	)
Other receivables			(108,097	)			(828,438	)
Inventory of Vacation Ownership Interests			2,193,545				2,685,366
Inventory of merchandise and tickets for resale			23,539				58,926
Prepaid expenses and other assets			138,081				(1,103,598	)
Accounts payable and accrued liabilities			2,902,208				268,833
Accrued compensation and benefits			347,296				(2,071	)
Customer deposits			122,748				(620,683	)
Deferred revenue			614,813				572,068
Other liabilities			(214,104	)			(481,689	)
Net cash provided by operating activities			14,661,227				6,251,770
Cash flows from investing activities:
Additions of property and equipment			—				(53,420	)
Cash flows from financing activities:
Proceeds from receivables credit facility			—				27,424,989
Proceeds from debtor-in-possession note payable			3,492,571				—
Repayment of receivables credit facility			(15,074,766	)			(31,289,855	)
Repayment of notes payable			(1,655,867	)			(2,605,010	)
Net cash used in financing activities			(13,238,062	)			(6,469,876	)
Net increase (decrease) in cash and cash equivalents			1,423,165				(271,526	)
Cash and cash equivalents, beginning of period			1,746,586				1,167,516
Cash and cash equivalents, end of period		$	3,169,751			$	895,990
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	3,354,999			$	5,544,154

See accompanying notes to consolidated financial statements.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)

Notes to Consolidated Financial Statements
(unaudited)

1. Chapter 11 Reorganization

Tempus Resorts International, Ltd. (“TRI,” “Tempus” or the “Partnership”) is a Florida limited partnership organized on November 26, 1997, headquartered in Orlando, Florida. Tempus’ mission is to develop and market timeshare resort properties. The Partnership’s timeshare resort properties are located in Kissimmee, Florida and Myrtle Beach, South Carolina.

On November 19, 2010 (the “Petition Date”), Tempus and a number of its wholly-owned subsidiaries (the “Debtors”) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Middle District of Florida (the “Bankruptcy Court”). The filings included all wholly-owned subsidiaries except Hospitality Software Developers, LLC and Ameristate Title, LLC as they had insignificant assets or were inactive. The Debtors’ Chapter 11 filings were due to prevailing economic conditions and unanticipated reductions in credit facilities caused by instability in the credit markets, and the Partnership was in default on substantially all of its debt.

On March 22, 2011, the Debtors filed their first amended joint plan of reorganization with the Bankruptcy Court which was confirmed, as modified by the Court on May 6, 2011 and became effective on July 1, 2011 pursuant to which all of the debtors were substantively consolidated into Mystic Dunes, LLC, an affiliate of Diamond Resorts International. Upon the occurrence of the effective date and the substantial consummation of the plan, the Debtors shall administratively dissolve under applicable state law.

Upon the effective date of the plan of reorganization, the Partnership transferred certain land held for development (see Note 9) back to the mortgage holder of the other collateralized notes payable (see Note 15) for full satisfaction of the debt and related accrued interest. The principal balance outstanding under these notes was $5,686,238 as of June 30, 2011. In addition, the receivables collateralizing the Receivables Loans II (see Note 15) were transferred back to the lender for full satisfaction of the loans and related accrued interest. The principal balance outstanding under these loans was $1,155,685 as of June 30, 2011.

All of the remaining notes payable collateralized by real estate and customer mortgage loans receivable, totaling $96,620,184 as of June 30, 2011 were assumed in connection with the substantive consolidation in accordance with the plan of reorganization.

In addition, certain leases were rejected, and accounts payable and other accrued liabilities subject to compromise are to be satisfied through the future payment of approximately $165,000 of cash.

The Partnership also incurred $657,357 of professional, trustee and other reorganization fees in connection with its restructuring and Chapter 11 filing during the six months ended June 30, 2011.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

These unaudited financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended December 31, 2010. The financial statements are unaudited but include all adjustments, which include normal recurring adjustments, that in the opinion of management are necessary to present fairly the financial position, results of operations and cash flows of the Partnership for the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year as a whole.

Principles of Consolidation

The consolidated financial statements include the activities of TRI and the following substantially wholly-owned subsidiaries — Tempus Palms International, Ltd. (“TPI”); Tempus International Marketing Enterprises, Ltd. (“TIME”); TIME Retail, LLC; Tempus Resorts Management, Ltd.; Tempus Resorts Realty, LLC; Hospitality Software Developers, LLC; Tempus Marketing International, LLC; Tempus Golf Development, LLC (“TGD”); Ameristate Title, LLC; and Backstage Myrtle Beach, LLC (“BMB”) (collectively referred to as “Tempus” or the “Partnership”). All intercompany balances and transactions have been eliminated.

Change in Fiscal Year

The Partnership’s fiscal year was historically based on a 52/53-week fiscal year ending each year on the Sunday nearest December 31. Due to the bankruptcy filing, the Partnership was required to change from a 52/53-week fiscal year to a calendar year ending on December 31 of each year, commencing December 31, 2010.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of all highly liquid investments purchased with an original maturity of six months or less. Cash and cash equivalents include cash and money market funds.

Restricted cash consists of: (1) escrow deposits received on sales of timeshare units that are held in escrow, until the applicable statutory rescission period has expired, the funds have been released from escrow and the deeding process has begun, or the customer defaults prior to the deeding process, (2) a premium holding account related to title insurance premiums received from an escrow agent, and (3) lender-controlled deposits.

Allowance for Losses on Customer Mortgage Loans Receivable

The Partnership provides for estimated future losses to be incurred related to uncollectible customer mortgage loans receivable. Management evaluates allowance requirements by examining current delinquencies, historical loan losses developed through a static pool analysis, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), current economic conditions, the value of the underlying collateral, and other relevant factors. Management believes that all such allowances are adequate.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

Inventory of Vacation Ownership Interests (“VOIs”)

Inventory of VOIs includes completed timeshare units available for sale, golf course amenity costs allocable to completed timeshare units and land held for development. Inventory of timeshare units is carried at cost, which is lower than fair value less cost to sell. The recoverability of inventory is determined on an individual project basis, which is based on each resort phase. Land held for development is carried at the lower of cost or fair value less cost to sell.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the assets’ estimated useful lives ranging from 2 to 40 years.

In connection with the development of a resort property, the Partnership constructs guest registration, certain recreational, sales and marketing facilities. The Partnership retains ownership and control over these facilities. The facilities are capitalized as property and equipment and depreciated on a straight-line basis over the estimated useful life, which ranges from 3 to 40 years.

The Partnership reevaluates the recoverability of long-lived assets as well as the depreciation periods to determine whether an adjustment to carrying value or a revision to estimated useful lives is appropriate. The primary indicators of recoverability are a significant event or change in the environment in which the business operates and current and forecasted undiscounted operating cash flows.

Goodwill and Intangible Assets

The excess of the purchase price over the fair value of net assets of businesses acquired was allocated to goodwill. Intangible assets, other than goodwill, are amortized over their expected lives ranging from 1 to 5 years.

The Partnership reevaluates the recoverability of intangible assets as well as the amortization periods to determine whether an adjustment to carrying value or a revision to estimated useful lives is appropriate. The primary indicators of recoverability are a significant event or change in the environment in which the business operates and current and forecasted undiscounted operating cash flows.

Customer Deposits

Customer deposits primarily consist of payments on timeshare unit sales that have not met the criteria for revenue recognition.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

Deferred Revenue

Deferred revenue primarily consists of deferred revenue related to payments received on timeshare samplers and vacation packages. Tempus enters into sampler agreements whereby the prospective owner pays a minimum down payment and small monthly payments for the right to use a unit week within a stated time period (generally 18 to 24 months). Utilization of the unit week is dependent upon the sampler meeting specified payment criteria. Amounts collected under these sampler agreements are recorded as deferred revenue until the earlier of the use date, the expiration of the stated period, or the customer default date. Tempus sells vacation packages for which a deposit is collected in advance of travel. These deposits are recorded as deferred revenue until the earlier of the travel date or the expiration date (generally 3 to 18 months) as stated on the certificate (see Note 17).

Revenue Recognition — VOI Sales

Sales of timeshare units are included in revenues under the full accrual basis when minimum down payment requirements (at least 10%) have been met, the rescission period has expired, construction is substantially complete, certain minimum project levels have been met, and collectibility is reasonably assured. If construction is not substantially complete but all other criteria have been met, revenue is recognized under the percentage-of-completion method. For sales that do not meet the criteria described above, revenue is deferred under the deposit method.

VOI Cost of Sales

Product costs related to timeshare unit sales are recognized at the time the sale is recognized. Product costs include the cost of land, construction costs, capitalized interest, professional fees, certain infrastructure costs, and interior furnishings. Product costs are allocated to units sold based on the relative sales value method. The relative sales value method requires that VOI projects or phases be considered when determining the appropriate amount of cost of sales associated with the VOI sale. In determining the appropriate amount of costs, the Partnership considers the costs to build or acquire a VOI project, the estimated cost needed to complete a project under construction, the total revenues expected to be earned on a project, and the projected revenues relating to the recovered VOI on future cancelled sales. The effects of changes in estimates are accounted for on a retrospective basis using a current period adjustment, such that the balance sheet at the end of the period of change and the accounting in subsequent periods reflect the revised estimates as if such estimates had been the original estimates. Also, pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 978, Real Estate — Time-Sharing Activities, the Partnership does not relieve inventory for timeshare interval cost of sales related to anticipated credit losses.

Sales and Marketing Costs

All sales and marketing costs are expensed as incurred.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

Interest Income

Interest income is comprised of the following:

		Six months				Six months
		ended				ended
		June 30,				July 4,
		2011				2010
Customer mortgage loans receivable interest		$	8,636,867			$	10,315,149
Sampler and other interest income			148,071				317,650
		$	8,784,938			$	10,632,799

Interest income is accrued on customer mortgage loans receivable until the principal and interest payments on the individual receivables are more than 90 days contractually past due. Once a receivable becomes more than 90 days delinquent, the accrual of interest income ceases and is recognized on a cash basis. The Partnership had $1,201,792 of customer mortgage loans receivable that were more than 90 days delinquent at June 30, 2011.

Management and Other Services Revenue

Management and other services revenue is comprised of the following:

		Six months				Six months
		ended				ended
		June 30,				July 4,
		2011				2010
Management fee revenue		$	1,240,531			$	1,249,537
Revenue from golf course operations			987,647				993,005
Revenue from food and beverage operations			833,369				632,089
Revenue from amenity fees			1,211,730				1,211,730
Other			63,456				56,488
		$	4,336,733			$	4,142,849

Other Income

Other income is comprised of the following:

		Six months				Six months
		ended				ended
		June 30,				July 4,
		2011				2010
Customer default revenue		$	45,756			$	153,469
Customer late, NSF and other fees			7,587				7,105
		$	53,343			$	160,574

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

Incidental Operations

Rental operations, including mini-vacation packages and sampler programs and the related costs during the holding period of unsold VOIs, are accounted for as incidental operations, whereby incremental costs in excess of incremental revenue are charged to expense as incurred and the operations are presented as a net expense in the consolidated statements of income. Conversely, incremental revenue in excess of incremental costs is recorded as a reduction of unsold VOIs. Incremental costs include costs that would not have otherwise been incurred by the Partnership during the holding period of unsold VOIs. Such costs include amounts due under the developer guarantee. For the six months ended June 30, 2011, for the Myrtle Beach property, incremental costs exceeded the incremental revenue by $56,498, and for the Kissimmee properties, incremental revenues exceeded incremental costs by $1,724,278. For the six months ended July 4, 2010, for the Myrtle Beach property, incremental costs exceeded the incremental revenue by $156,558, and for the Kissimmee properties, incremental revenues exceeded incremental costs by $931,503.

Accounting for Leases

The Partnership accounts for leases under the provisions of FASB ASC 840, Leases, which require that the leases be evaluated and classified as operating or capital leases for financial reporting purposes. Capital leases, which transfer substantially all of the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments, other than contingent rentals, are recognized as an expense in the accompanying consolidated statements of income on a straight-line basis over the lease term.

Fair Market Value of Financial Instruments

ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

Level 1 — Valuation based on quoted market prices in active markets for identical assets or liabilities.

Level 2 — Valuation based on quoted market prices for similar assets and liabilities in active markets.

Level 3 — Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best estimate of what market participants would use as fair value.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of each fiscal year end. The carrying amount reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, other receivables and accounts payable and accrued liabilities approximates fair market value due to the immediate or short-term maturity of these financial instruments. The carrying value of customer mortgage loans receivable approximates fair value because the weighted-average interest rate on the portfolio of notes receivable approximates current interest rates to be received on similar current notes receivable. The carrying amount of notes payable approximates fair value because the interest rates on notes payable approximate current interest rates on debt with similar terms and remaining maturities. The carrying amount of common stock available for sale is measured at fair value based on Level 1 inputs and amounts to $124,590 as of June 30, 2011 and is included in prepaid expenses and other assets in the accompanying consolidated balance sheet.

Income Taxes

Tempus is a limited partnership and, accordingly, is not subject to income tax. Income or loss from the Partnership flows directly to the partners and is taxed at the individual partners’ level.

The Partnership files income tax returns in the U.S. federal jurisdiction and the state of Florida. The Partnership’s federal Partnership income tax returns for tax years 2007 and beyond remain subject to examination by the Internal Revenue Service. The Partnership’s Florida Partnership income tax returns for the years 2007 and beyond remain subject to examination by the Florida Department of Revenue.

The Partnership did not have unrecognized tax benefits as of June 30, 2011 and does not expect this to change significantly over the next 12 months. As of June 30, 2011, the Partnership has not accrued interest or penalties related to uncertain tax positions.

Concentrations of Credit Risk

The Partnership offers financing to the buyers of VOIs. The customer mortgage loans received by the Partnership bear interest at a fixed rate, are payable over a 1- to 10-year period, and are secured by a first mortgage on the VOI. Any adverse change in economic conditions or significant price increases or adverse events related to the travel and tourism industry could have a material adverse effect on the Partnership’s business. Such conditions may also adversely affect the future availability and cost of financing for the Partnership or its customers and result in a material adverse effect on the Partnership’s business. In addition, changes in general economic conditions may adversely affect the Partnership’s ability to collect on its outstanding customer mortgage loans receivable.

The Partnership has historically derived net interest income from its financing activities because the interest rates it charges its customers who finance the purchase of their VOIs exceed the interest rates the Partnership pays to its lenders. Because the Partnership’s indebtedness bears interest at variable rates and the Partnership’s customer mortgage loans receivable bear interest at fixed

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

rates, increases in interest rates will erode the spread in interest rates that the Partnership has historically obtained and could cause the rate on the Partnership’s borrowings to exceed the rate at which the Partnership provides financing to its customers.

The Partnership funds substantially all of the customer mortgage loans receivable, timeshare inventories, and land inventories which it originates or purchases with borrowings through its financing facilities and internally generated funds. Borrowings are in turn repaid with the proceeds received by the Partnership from repayments of such customer mortgage loans receivable.

Periodically during the year, the Partnership maintains cash and restricted cash in financial institutions in excess of amounts insured by the federal government. The Partnership has not experienced any losses on such accounts.

New Accounting Pronouncements

The FASB and other entities issued new or modifications to, or interpretations of, existing accounting guidance for the six months ended June 30, 2011. The Partnership has carefully considered the new pronouncements that altered generally accepted accounting principles and, other than as disclosed in these notes to the consolidated financial statements, does not believe that any other new or modified principles will have a material impact on the Partnership’s reported financial position or operations in the near term.

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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Subsequent Events

The Partnership has evaluated events and transactions occurring subsequent to June 30, 2011 as of September 1, 2011, which is the date the financial statements were available to be issued. Subsequent events occurring after September 1, 2011 have not been evaluated by management.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

3. Reorganization Items

FASB ASC 852, Reorganization, requires separate disclosure of reorganization items on both the statement of operations and the statement of cash flows. The Debtors’ reorganization items on the consolidated statements of operations consist of the following:

		Six months				Six months
		ended				ended
		June 30,				July 4,
		2011				2010
Professional fees		$	588,232			$	—
Trustee and other fees			69,125				—
		$	657,357			$	—

Professional fees related to the reorganization are fees paid to legal and expert counsel and are estimated by the Debtors and will be reconciled when actual invoices are received.

The Debtors’ reorganization items on the consolidated statements of cash flows consist of the following:

		Six months				Six months
		ended				ended
		June 30,				July 4,
		2011				2010
Professional fees		$	588,232			$	—
Trustee and other fees		$	69,125			$	—
Notes payable		$	24,442			$	—

The Partnership uses significant amounts of cash in the development and marketing of Vacation Ownership Interests, but collects the cash on the customer mortgage loans receivable over a long period of time. Historically, the Partnership borrowed against and/or sold receivables to provide sufficient cash to fund its operations. The Partnership is currently unable to borrow under any facility, but does have the use of cash collateral generated by management company operations and golf operations under a motion granted by the Bankruptcy Court (see Note 1). In addition the Bankruptcy Court has granted and the Partnership has secured a Debtor-in-Possession credit facility to finance operations during the reorganization period (Note 14).

4. Liabilities Subject to Compromise

Liabilities subject to compromise (“LSTC”) refer to both secured and unsecured obligations that will likely be accounted for under a confirmed plan of reorganization. Actions to enforce or effect payment of pre-petition liabilities are stayed. FASB ASC 852 requires pre-petition liabilities that are subject to compromise to be reported at amounts expected to be allowed, even if they may be settled for lesser amounts. These liabilities represent the estimated amount expected to be allowed on known or potential claims to be resolved through the Chapter 11 proceedings and remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy Court, rejection of executory

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

contracts and unexpired leases, the determination as to the value of collateral, proofs of claim, or other events. LSTC also includes certain items that may be assumed under the confirmed plan of reorganization and as such may be subsequently reclassified to liabilities not subject to compromise.

Liabilities subject to compromise consist of the following:

		As of
		June 30,
		2011
Accounts payable and accrued liabilities		$	1,157,300
Other liabilities			1,481,595
Notes payable			4,293,809
Capital lease obligations			473,201
Total liabilities subject to compromise		$	7,405,905

5. Acquisitions

The Palms Resort and Country Club

In addition to the $23,582,998 net purchase price of the Palms Resort and Country Club (the Palms - currently known as Mystic Dunes Resort and Golf Club) by TPI in April 1998, TPI agreed to pay the former owners a contingent fee of 2% of the “net contract sales price” on timeshare interval units sold, up to 3,950 units. Under the agreement, TPI is obligated to make minimum annual payments to the sellers in the amount of $300,000 per year for 1998 and 1999 and $500,000 per year from 2000 through 2013. Thereafter, there is no minimum payment due, and any amount due will be based solely on actual timeshare interval sales. Upon the acquisition, the present value of the future minimum payments totaling $4,548,833 was recorded as additional purchase price and included in other liabilities. The unamortized balance of the liability as of June 30, 2011 totaled $1,481,119 and is included in liabilities subject to compromise in the accompanying consolidated balance sheet (Note 4). During the six months ended June 30, 2011, no amounts were incurred and paid relating to the contingent fee.

As part of the Contract of Sale (the “Contract”) of the Palms, TPI acquired an Option Agreement to purchase additional land adjacent to the acreage included in the Contract. Upon acquisition, $9,562,688 was allocated to the value of this option in the purchase. On each takedown purchase, a portion of the option premium was allocated to the land acquired based on the relative value of each takedown of land under the option. The Option Agreement, as amended, provides for the purchase of the additional land in eight takedown portions. The takedown schedule is listed below:

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

						Purchase
Takedown No.		Takedown Date				Amount
1		June 21, 1999				$	3,800,000
2		May 31, 2000					2,461,500
3		June 6, 2001					1,260,000
4		March 14, 2002					2,337,600
5		December 29, 2004					1,413,600
6		December 29, 2004					1,312,638
7		December 1, 2006					1,030,545
8		September 28, 2007					917,117
						$	14,533,000

In addition to the purchase price, the terms of the Amended Option Agreement included monthly option payments plus payment of carrying costs of the land under option. These payments were capitalized as land held under option and allocated to the purchased land upon exercise of the option takedowns noted above.

Yeehaw Travel Center, Inc.

On June 11, 1999, TIME entered into a brokerage and purchase option agreement with Florida’s Room Service, Inc. and Yeehaw Travel Center, Inc. (collectively “YTC”). The terms of this agreement were effectively renegotiated on November 26, 2004 and a new asset purchase agreement was executed. Under the terms of this agreement, TIME made certain payments, less contractually permitted reductions, and assumed limited liabilities in exchange for title to the assets of YTC and execution of separate employment agreements by the principals of YTC which included noncompetition agreements. The total amount incurred under this agreement of $2,795,717 was deemed to be an amortizable intangible asset. The amortizable intangible asset was amortized on a straight-line basis over a five-year period beginning January 3, 2005, and was fully amortized in prior years.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

The assets related to the above acquisitions and other smaller acquisitions are as follows:

		As of
		June 30,
		2011
Goodwill:
Goodwill		$	3,377,689
Less accumulated amortization (ceased December 2001) and previously recognized impairment			(3,377,689	)
Goodwill — net		$	—
Amortized intangible assets:
Intangible assets		$	4,070,515
Less accumulated amortization			(4,070,515	)
Intangible assets — net		$	—

6. Restricted Cash

Restricted cash consisted of the following:

		As of
		June 30,
		2011
Timeshare escrow deposits		$	2,656,716
Other restricted cash			224,330
		$	2,881,046

7. Customer Mortgage Loans Receivable

Customer mortgage loans receivable consisted of the following:

		As of
		June 30,
		2011
Customer mortgage loans receivable		$	93,930,519
Allowance for loan losses			(25,983,473	)
Accrued interest			869,789
Customer mortgage loans receivable — net		$	68,816,835

Stated interest rates on customer mortgage loans receivable outstanding at June 30, 2011 range from 0% to 17.75% per annum (yielding a weighted-average of approximately 14.76%). The Partnership has entered into financing arrangements with certain purchasers of VOIs, whereby no stated interest rate is charged if the customer meets certain payment criteria, including a substantial down payment and full payment within a one- or two-year period. Customer mortgage loans receivable with a 0% stated interest rate totaled

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

$226,263 as of June 30, 2011. A discount is established to provide for an effective interest rate of 9% for the six months ended June 30, 2011 and July 4, 2010 on these customer mortgage loans receivable and is amortized over the terms of the notes receivable. The effective interest rate is based on the economic interest rate environment and similar industry data.

The Partnership’s borrowers are geographically diversified within the United States and internationally. As of June 30, 2011, borrowers residing in the United States accounted for 81.43% of customer mortgage loans. No state or foreign country concentration accounted for more than approximately 15% of gross outstanding customer mortgage loans receivable.

The following reflects the scheduled annual contractual principal maturities of customer mortgage loans receivable as of June 30, 2011:

Fiscal year
2011		$	12,726,505
2012			12,632,241
2013			12,548,671
2014			12,243,262
2015			11,530,077
Thereafter			32,249,763
		$	93,930,519

The activity in the customer mortgage loans receivable allowance for loan losses is as follows:

		As of
		June 30,
		2011
Balance, beginning of period		$	33,033,259
Provision for uncollectible related to VOI sales			1,309,196
Charge-offs			(8,358,982	)
		$	25,983,473

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

8. Other Receivables

Other receivables consisted of:

		As of
		June 30,
		2011
Due from merchant service provider		$	178,628
Escrow funds receivable			101,804
Receivables from rental operations			570,365
Due from affiliates			1,130,254
Other			67,603
		$	2,048,654

9. Inventory of Vacation Ownership Interests

Inventory of VOIs consisted of the following:

		As of
		June 30,
		2011
Interval ownership interests-completed		$	53,530,054
Land held for development			6,040,286
		$	59,570,340

10. Prepaid Expenses and Other Assets

Prepaid expenses and other assets consisted of the following:

		As of
		June 30,
		2011
Prepaid expenses		$	1,107,961
Deferred financing costs			2,616
Rent deposits			97,268
Other			609,980
		$	1,817,825

Tempus Resorts International, Ltd.

(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

11. Property and Equipment

Property and equipment consisted of the following:

		As of
		June 30,
		2011
Land		$	5,024,334
Land improvements			3,748,968
Leasehold improvements			1,470,554
Buildings and improvements			5,276,481
Equipment, furniture and fixtures			3,306,164
Computer hardware and software			6,952,456
Vehicles			159,825
Assets under development			49,594
			25,988,376
Less: Accumulated depreciation			(13,282,714	)
		$	12,705,662

12. Land Held for Investment

Land held for investment with a carrying value of $945,000 as of June 30, 2011 includes commercially zoned real estate that management intends to hold as an investment and does not plan to develop for VOI purposes.

13. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:

		As of
		June 30,
		2011
Accounts payable		$	1,739,797
Amount due under the developer guarantee			3,786,521
Other accrued liabilities			3,022,763
			8,549,081
Less: Liabilities subject to compromise (Note 4)			(1,157,300	)
		$	7,391,781

14. Debtor-In-Possession Financing

On November 22, 2010, pursuant to authorization from the Florida Bankruptcy Court, the Partnership entered into a Post-Petition Term Credit and Security Agreement (“DIP Agreement”) with Tempus Acquisition, LLC (“TAC”), an affiliate of Diamond Resorts International. The DIP Agreement provides a term loan facility in a maximum principal amount of $6,500,000. The loan bears interest at a rate of 10% per annum. The note was converted to equity in connection with the acquisition by TAC. The loan was collateralized by substantially all assets of the Partnership, including cash and cash equivalents, commercial tort claims, and real property, but expressly excluding causes of action under Chapter 5 of the Bankruptcy Code. Outstanding borrowings under the loan at June 30, 2011 were $6,497,571.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

15. Notes Payable

Notes payable consisted of:

Notes Payable — Credit Facility Collateralized by Real Estate and Customer Mortgage Loans Receivable

Effective October 28, 2004, TPI entered into a $30,000,000 Revolving Loan Agreement to finance various acquisition, development and construction projects (AD&C Loan) and a Loan and Security Agreement for a revolving receivables loan in the maximum amount of $200,000,000 (Receivables Loan) and a revolving pre-sale loan (Pre-Sales Loan) in the maximum amount of $30,000,000.

Effective July 6, 2006, the AD&C Loan was amended to include two components: a $30,000,000 Revolving AD&C Inventory Note to finance the development of timeshare inventory and a $20,000,000 Revolving AD&C Common Area Component Note (CA Note) to finance common area improvements to the Mystic Dunes Resort & Golf Club. Furthermore, the AD&C, Receivables and Pre-Sales Loan maximum combined outstanding balance was increased to $250,000,000, and the maturity dates were extended.

Effective October 15, 2008, TPI entered a Modification Agreement and related documents (Modification Documents) which resulted in the following changes to the AD&C, Receivables and Pre-sales loans:

a)		The maximum combined outstanding balance of the Receivables and Pre-Sales Loan was decreased to $130,000,000 and the maximum outstanding balance of the Pre-Sales Loan was decreased to $12,500,000.
b)		Beginning November 1, 2008, the interest rates were adjusted for the Receivables, Presales and AD&C Inventory Note.
c)		The Receivables Loan was divided into two tranches: an Existing Tranche for outstanding amounts as of October 31, 2008 and an Extended Tranche for advances occurring after October 31, 2008.
d)		The maturity dates for the AD&C Inventory Note and Pre-Sales Loan were extended as further described below.

Effective May 6, 2009, TPI entered into another Modification Agreement and related documents which extended the maturity date for the advance period on the Pre-Sales Loan and the Receivables Loan Extended Tranche and decreased the maximum combined outstanding balance of the Receivables and Pre-Sales Loan to $120,000,000 and the maximum outstanding balance of the Pre-Sales Loan to $7,000,000. The Pre-Sales Loan was repaid during 2010.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

Effective January 8, 2010, TPI and TGD entered into another Agreement which modified the Receivables Loan to provide a new credit line (“New Line”) in the maximum principal amount of $5,000,000 (as amended). New Line is not an increase in the total committed amount of the Receivables Loan or Receivables Note but constitutes additional revolving credit availability under the existing Receivables Loan documents that would not be available without the relief granted in the Agreement by the Lender and is not subject to the Receivables Borrowing base. The line is collateralized by receivables not collateralizing other Existing or Extended Receivables Loan Tranches, real property (as defined in the Agreement) and a security interest in other deposit accounts (as defined in the Agreement).

Notes Payable — Credit Facility Collateralized by Real Estate and Customer Mortgage Loans Receivable

Effective November 5, 2008, BMB entered into a revolving Receivables Loan (Receivables Loan II) in the maximum amount of $30,000,000 including a predeeded component in the maximum amount of $5,000,000 and an Inventory Loan (Inventory Loan II) in the amount of $5,811,000 to finance the acquisition of timeshare inventory located in Myrtle Beach, SC (collectively, Loan II).

Effective June 2, 2009, BMB entered into an amendment which extended the Inventory Loan II maturity date and decreased the maximum combined outstanding balance of Loan II to $12,000,000 and decreased the maximum outstanding balance of the Receivables Loan II including the predeeded component to $9,000,000 with a $3,000,000 maximum for the predeeded component.

The Receivables Loan II including the predeeded component is subject to a 24-month advance period expiring on November 30, 2010 and matures 60 months from the expiration of the advance period.

		As of
		June 30,
		2011
|
The Receivables Loan Existing Tranche bears interest at London InterBank Offered Rate (LIBOR) plus 5.0% per annum (5.2% at June 30, 2011), and had an advance period that ended on October 31, 2008 and matures on October 31, 2015. Gross mortgage loans receivable collateralizing this loan totaled $48,094,680 at June 30, 2011.		$	39,739,913
The Receivables Loan Extended Tranche bears interest at LIBOR plus 6.0% per annum (9.3% at June 30, 2011), which includes a 3% default interest penalty and had an advance period that ended on November 5, 2010 and matures on October 31, 2015. Gross mortgage loans receivable collateralizing this loan totaled $43,773,364 at June 30, 2011.			34,579,589

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

		As of
		June 30,
		2011
The Tempus Palms Project Loan under the AD&C Inventory Note bears interest at LIBOR plus 6.5% per annum (9.8% at June 30, 2011), which includes a 3% default interest penalty. This loan requires equal monthly principal payments sufficient to fully amortize the outstanding principal amount calculated on April 30, 2010 over a 42 month amortization period beginning May 1, 2010 with a final maturity date of October 31, 2010. Direct inventory costs collateralizing this loan totaled $25,134,122 at June 30, 2011.			12,181,408
The Mystic Dunes Golf Course Project Commitment under the AD&C CA Note bears interest at LIBOR plus 4.9% per annum (8.2% at June 30, 2011), which includes a 3% default interest penalty and matures based on a straight-line 10-year amortization period with such period commencing on October 31, 2008 and ending on October 31, 2018.			3,198,607
The New Line under the Receivables Loan bears interest at LIBOR plus 8.5% per annum (11.8% at June 30, 2011), which includes a 3% default interest penalty and matured November 5, 2010 at which time all outstanding interest and principal was due.			2,618,600
The Receivables Loan II predeeded receivables component bears interest at LIBOR (minimum LIBOR rate of 2.35%) plus 5.15% (11.5% at June 30, 2011), which includes a 4% default interest penalty.			8,258
The Receivables Loan II receivables component bears interest at LIBOR (minimum LIBOR rate of 2.35%) plus 5.15% (11.0% at June 30, 2011, which includes a 4% default interest penalty. Gross mortgage loans receivable collateralizing this loan totaled $1,451,237 at June 30, 2011.			1,155,685
The Inventory Loan II bears interest at LIBOR (minimum LIBOR rate of 2.35%) plus 5.15% (11.5% at June 30, 2011, which includes a 4% default interest penalty) and is collateralized by timeshare inventory located in Myrtle Beach, SC. Minimum quarterly payments of $242,125 are required for this loan until maturity whereupon the remaining principal and interest is due on November 30, 2013.			4,293,809
Total credit facilities			97,775,869

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

		As of
		June 30,
		2011
Other Collateralized Notes Payable
On July 11, 2002, a $1,000,000 promissory note bearing interest at 10% per annum was executed by TPI. The loan is secured by a Mortgage and Security Agreement Filing dated July 12, 2002 and is collateralized by certain real property located in Osceola County, Florida. On October 25, 2002, a modification to Promissory Note and Notice of Future Advance Under Mortgage and Security Agreement was executed. The amendment includes an additional advance of $1,000,000, which was made on October 29, 2002. The remaining principal balance was due on or before December 31, 2010.			1,000,000
On December 29, 2004, a $2,726,238 promissory note bearing interest at 10% per annum was executed by TPI. The loan is secured by a Mortgage and Security Agreement Filing dated December 28, 2004, and is collateralized by certain real property. The principal balance was due on or before December 31, 2010.			2,726,238
On December 1, 2006, a $960,000 promissory note bearing interest at 9% per annum was executed by TPI. The loan is secured by a Mortgage and Security Agreement Filing dated December 1, 2006, and is collateralized by certain real property. The principal balance was due on or before December 31, 2010.			960,000
On April 10, 2009, a $1,000,000 promissory note bearing interest at 10% per annum was executed by TPI. The loan is secured by a Mortgage and Security Agreement Filing dated April 10, 2009, and is collateralized by certain real property. The principal balance was due on or before April 10, 2010.			1,000,000
Total other collateralized notes payable			5,686,238
Total notes payable			103,462,107
Less: liabilities subject to compromise (Note 4)			(4,293,809	)
		$	99,168,298

As repayment of the notes payable collateralized by customer mortgage loans receivable is based upon collections of the related customer mortgage loans receivable, there are no scheduled amortization dates for these loans.

As a result of the Partnership’s bankruptcy filing, interest expense of $772,453 was not recorded for the six months ended June 30, 2011.

As discussed in Note 1, for the period ended June 30, 2011, the Partnership was in default on substantially all of its debt.

Tempus Resorts International, Ltd.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements
(unaudited)

16. Capital Leases

Tempus has entered into capital lease obligations for equipment which have 5 year terms. These capital lease obligations include bargain purchase options.

Obligations under capital leases were as follows:

		As of
		June 30,
		2011
Principal and interest payments due monthly for a period of 36 to 60 months, with an imputed interest rate ranging from 5.6% to 10.2% based on TRI’s internal borrowing rate at the inception of the lease.		$	697,934
Less: liabilities subject to compromise (Note 4)			(473,201	)
		$	224,733