UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

(Mark one)

 

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

For the quarterly period ended June 30, 2017

 

OR

 

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

For the transition period from                      to

 

COMMISSION FILE NUMBER: 333-147447

 

SALAMANDER INNISBROOK, LLC

(Exact name of registrant as specified in its charter)

 

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

 

36750 US Highway 19 North, Palm Harbor, FL 34684

(Address of principal executive offices)

727-942-2000

(Registrant’s telephone number, including area code)

 

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

 

YES x   NO ¨

 

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

 

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

Smaller reporting company þ Emerging growth company o

 

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

 

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

 

No established markets exist for the Registrant’s membership interests and there is no common stock issued or outstanding subject to this report.

 

 

 

INDEX

 

PART I — FINANCIAL INFORMATION	Page
Item 1. Financial Statements	4
Salamander Innisbrook, LLC
Condensed Balance Sheets (unaudited) as of  June 30, 2017 and December 31, 2016	4
Condensed Statements of Operations and Changes in Member’s Equity (Unaudited) for the three and six months ended June 30, 2017 and 2016	5
Condensed Statements of Cash Flows (Unaudited) for the six months ended June 30, 2017 and 2016	6
Notes to Condensed Financial Statements (Unaudited)	7
Innisbrook Rental Pool Lease Operation
Condensed Balance Sheets (unaudited) as of June 30, 2017 and December 31, 2016	10
Condensed Statements of Operations (Unaudited) for the three and six months ended June 30, 2017 and  2016	11
Condensed Statements of Changes in Participants’ Fund Balances (Unaudited) for the three months and six months ended June 30, 2017 and 2016	12
Notes to Condensed Financial Statements (Unaudited)	13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures about Market Risk	16
Item 4. Controls and Procedures	16
PART II — OTHER INFORMATION
Item 1.    Legal Proceedings	17
Item 1A. Risk Factors	17
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.    Defaults Upon Senior Securities	17
Item 4.    Mine Safety Disclosures	17
Item 5.    Other Information	17
Item 6.    Exhibits	17
Signatures	18
EX-31.1
EX-31.2
EX-32.1
EX-32.2

  

  

Cautionary Note Regarding Forward-Looking Statements

 

The following report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that predict or describe future events or trends and that do not relate solely to historical matters. All of our projections in this annual report are forward-looking statements. You can generally identify forward-looking statements as statements containing the words “appears,” “believe,” “expect,” “hope,” “may,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions. Certain factors that might cause such a difference include the following: changes in general economic conditions; including changes that may influence group conference and guests’ vacation plans; changes in travel patterns; changes in consumer tastes in destinations or accommodations for group conferences and vacations; changes in Rental Pool participation by the current condominium owners; our ability to continue to operate the Innisbrook Resort and Golf Club, or the “Resort” under our management contracts; and the resale of condominiums to owners who elect neither to participate in the Rental Pool nor to become members of the Resort. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the limited information currently available to us and speak only as of the date on which this report was filed with the Securities Exchange Commission. Our continued internet posting or subsequent distribution of this dated report does not imply continued affirmation of the forward-looking statements included in it. We undertake no obligation, and we expressly disclaim any obligation, to issue any updates to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Future events are inherently uncertain. Moreover, it is particularly difficult to predict business activity levels at the Resort with any certainty. Accordingly, our projections in this annual report are subject to particularly high uncertainty.

 

Our projections should not be regarded as legal promises, representations or warranties of any kind whatsoever. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and harmful to your interests.

 

 

 PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

 

SALAMANDER INNISBROOK, LLC

CONDENSED BALANCE SHEETS

(unaudited)

 

		June 30,				December 31,
		2017				2016
Assets
Current assets:
Cash		$	2,148,084			$	1,141,869
Accounts receivable, net			1,354,965				1,714,624
Inventories and supplies			963,726				909,599
Prepaid expenses and other			535,414				803,480
Total current assets			5,002,189				4,569,572
Property, buildings and equipment, net			36,951,606				38,106,125
Intangibles			4,330,001				4,330,001
Due from affiliates			340,508				120,104
Deferred expenses			6,911				-
Deposits and other assets			283,488				267,054
Restricted cash			1,501,235				-
Total assets		$	48,415,938			$	47,392,856
Liabilities and Member's Equity
Current liabilities:
Accounts payable		$	865,988			$	1,541,263
Accrued liabilities			2,841,361				2,491,209
Deferred revenue			2,443,349				3,310,280
Current portion - capital leases			429,671				425,837
Current portion - note  payable			760,379				-
Total current liabilities			7,340,748				7,768,589
Deferred revenue			1,045,564				918,020
Capital leases net of current portion			727,016				934,198
Note payable, net of current portion and unamortized deferred financing costs			13,809,429				-
Total liabilities			22,922,757				9,620,807
Commitments and Contingencies (Notes 4 and 6)
Member's equity			25,493,181				37,772,049
Total liabilities and member’s equity		$	48,415,938			$	47,392,856

 

See accompanying notes to unaudited condensed financial statements.

 

 

SALAMANDER INNISBROOK, LLC

CONDENSED STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER’S EQUITY

(Unaudited)

 

		Three months ended June 30,								Six months ended June 30,
		2017				2016				2017				2016
Resort revenues		$	10,424,395			$	9,647,781			$	25,944,701			$	23,979,956
Costs and expenses:
Operating costs and expenses			4,686,805				4,328,105				10,483,335				9,483,930
General and administrative			5,241,481				4,988,595				11,924,824				11,365,455
Depreciation and amortization			654,037				617,679				1,302,603				1,222,168
Total costs and expenses			10,582,323				9,934,379				23,710,762				22,071,553
Operating income (loss)			(157,928	)			(286,598	)			2,233,939				1,908,403
Interest expense, net			(159,878	)			(11,200	)			(170,316	)			(28,936	)
Net income (loss)			(317,806	)			(297,798	)			2,063,623				1,879,467
Member's equity, beginning of period			25,813,864				41,061,183				37,772,049				38,883,918
Member distributions			(2,877	)			(1,006,385	)			(14,342,491	)			(1,006,385	)
Member's equity, end of period		$	25,493,181			$	39,757,000			$	25,493,181			$	39,757,000

 

See accompanying notes to unaudited condensed financial statements.

 

 

SALAMANDER INNISBROOK, LLC

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Six months ended June 30,
		2017				2016
Cash flows from operating activities:
Net income		$	2,063,623			$	1,879,467
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for bad debts			6,020				12,770
Deposits and other assets			(23,345	)			-
Depreciation and amortization			1,302,602				1,222,168
Amortization of deferred financing costs			15,914				-
Other changes in operating assets and liabilities			(717,336	)			(1,732,523	)
Net cash provided by operating activities			2,647,478				1,381,882
Cash flows from investing activities:
Purchases of property and equipment			(148,083	)			(326,904	)
Net cash used in investing activities			(148,083	)			(326,904	)
Cash flows from financing activities:
Proceeds from note payable			15,000,000				-
Payment to cash reserve			(1,501,235	)			-
Repayment of note payable			(127,827	)			-
Payment of deferred financing costs			(318,279	)			-
Repayment of capital lease obligations			(203,348	)			(197,946	)
Member distributions			(14,342,491	)			(1,006,385	)
Net cash used in financing activities			(1,493,180	)			(1,204,331	)
Net change in cash			1,006,215				(149,353	)
Cash, beginning of period			1,141,869				1,429,716
Cash, end of period		$	2,148,084			$	1,280,363
Supplemental disclosure of cash flow information:
Cash paid for interest		$	129,078			$	28,936

 

See accompanying notes to unaudited condensed financial statements.

 

 

SALAMANDER INNISBROOK, LLC

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

 

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

 

Nature of business

 

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

 

The Company controls and operates the Rental Pool Lease Operations (the “Rental Pool”); a securitized pool of condominiums owned by participating condominium owners (the “Participating Owners”) and rented as hotel rooms to guests of the Resort (an average of 385 units or 482 hotel rooms participate at any given time). Pursuant to the Innisbrook Rental Pool Master Lease Agreement, dated January 1, 2014 (the “Master Lease” or “MLA”), the Company is obligated to make quarterly distributions of a percentage of room revenues. Other resort facilities include four 18-hole golf courses, three restaurants, three convention facilities, a health spa, fitness center, tennis and recreation facilities, themed water park and five swimming pools.

 

Basis of presentation

 

The accompanying interim condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and  the instructions to Quarterly Report on Form 10-Q. Consequently, they do not include all disclosures normally provided in the audited financial statements included in our Company’s Annual Report on Form 10-K.  Accordingly, these condensed financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. 

 

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

 

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

 

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

 

  

Note 2. Accounts Receivable

 

Accounts receivable consist of the following as of June 30, 2017 and December 31, 2016:

 

		June 30, 2017				December 31, 2016
Trade accounts receivable		$	1,155,354			$	1,477,231
Other receivables			220,039				252,534
Less allowance for bad debts			(20,428	)			(15,141	)
		$	1,354,965			$	1,714,624

 

Note 3. Property, Buildings and Equipment

 

Property, buildings and equipment consist of the following as of June 30, 2017 and December 31, 2016:

 

		June 30, 2017				December 31, 2016
Land and land improvements		$	21,422,543			$	21,422,543
Buildings			25,460,387				25,460,387
Furniture, fixtures and equipment			11,927,454				11,758,250
Construction in progress			-				21,121
			58,810,384				58,662,301
Less accumulated depreciation			(21,858,778	)			(20,556,176	)
		$	36,951,606			$	38,106,125

 

Note 4. Commitments and Contingencies

 

In the normal course of our operations, we are periodically subject to claims and lawsuits. However, no such matters existed at June 30, 2017 or December 31, 2016, respectively.

 

Note 5. Related Party Transactions

 

We incurred management fees to an affiliate of $315,546 and $287,990 for the three month periods ended June 30, 2017 and 2016, respectively, and $778,788 and $717,753 for the six month periods ended June 30, 2017 and 2016, respectively. These fees are included in general and administrative expenses in the Condensed Statements of Operations and Changes in Member’s Equity.

 

At June 30, 2017 and December 31, 2016, amounts due from affiliates were $340,508 and $120,104, respectively, which balances are non-interest bearing, unsecured and due on demand.

 

The Innisbrook Rental Pool Lease Operation paid us $87,179 and $80,963 for the three month periods ended June 30, 2017 and 2016, respectively, and $175,362 and $163,641 for the six month periods ended June 30, 2017 and 2016, respectively, as reimbursement for maintenance and housekeeping labor, use of the telephone lines and other supplies. These reimbursements are included in general and administrative expenses in the Condensed Statements of Operations and Changes in Members Equity.

 

Note 6. Note Payable

 

On March 28, 2017, the Company and Salamander Innisbrook Condominium, LLC, a related party, obtained a loan in the amount of fifteen million dollars ($15,000,000) from Branch Banking and Trust Company (BB&T). The loan is to be repaid over a five (5) year period in monthly installments of principal plus interest based on a 15 year amortization schedule commencing on May 5, 2017 with the remaining unpaid balance due in full on May 5, 2022. The interest for the loan is the One Month LIBOR Rate plus two and one quarter percent (2.25%) per annum adjusted monthly on the first day of each LIBOR interest period (3.3125% as of June 30, 2017). The loan is collateralized by the real and personal property of the Company and Salamander Innisbrook Condominium, LLC, the assignment and/or subordination of leases and our management agreement with an affiliate and guarantees by certain affiliates. We have distributed these funds to our Member as a partial return of the capital it has invested. As of June 30, 2017, the carrying value of the note payable approximates fair value.

 

  

The loan agreement contains customary financial covenants, including a covenant to maintain a debt service coverage ratio of at least 1.10 to 1.0, measured annually at the end of each fiscal year and a covenant to maintain a tangible net worth of not less than $15,000,000 at all times.

 

As part of our loan agreement, we were required to deposit $1,500,000 into a cash reserve account. No later than February 28, 2018, we are required to deposit an additional $1,000,000 into such account. The reserves account is restricted and may not be used to service the loan.

 

We incurred financing cost of $318,279, which are deferred and are being amortized over the term of the loan. These costs have been reflected as a reduction of the note payable.

 

Below is a table of scheduled maturities of our note payable for the year ending June 30:

 

2018		$	760,379
2019			789,916
2020			820,601
2021			852,478
2022			11,648,799
			14,872,173
Less unamortized deferred financing costs			(302,365	)
		$	14,569,808

 

RENTAL POOL LEASE OPERATION

 

The operation of the Rental Pool is tied closely to the Resort operations. The Rental Pool Master Lease Agreements provide for a quarterly distribution of a percentage of the Company’s room revenues to participating condominium owners (“Participants”), as defined in the agreements (see Note 1 of the Rental Pool Lease Operation financial statements). Because the Rental Pool participants share in a percentage of the Company’s room revenues, the condominium units allowing Rental Pool participation are deemed to be securities. However, there is no market for such securities other than the normal real estate market. Since the security is real estate, no dividends have been paid or will be paid.

 

The Company is a single-member limited liability company, wholly owned by Salamander Farms, LLC. There is no established market for the Company’s membership interests.

 

 

INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED BALANCE SHEETS
(unaudited)
DISTRIBUTION FUND
		June 30,				December 31,
		2017				2016
ASSETS
RECEIVABLE FROM SALAMANDER INNSIBROOK, LLC
FOR DISTRIBUTION		$	966,176			$	849,189
INTEREST RECEIVABLE FROM MAINTENANCE
ESCROW FUND			755				607
		$	966,931			$	849,796
LIABILITIES AND PARTICIPANTS' FUND BALANCES
DUE TO PARTICIPANTS FOR DISTRIBUTION		$	966,931			$	849,796
		$	966,931			$	849,796
MAINTENANCE ESCROW FUND
			June 30,				December 31,
			2017				2016
ASSETS
CASH		$	148,882			$	124,885
INVESTMENTS			450,000				500,000
INTEREST RECEIVABLE			4,403				5,243
		$	603,285			$	630,128
LIABILITIES AND PARTICIPANTS' FUND BALANCES
ACCOUNTS PAYABLE		$	49,025			$	66,663
INTEREST PAYABLE TO DISTRIBUTION FUND			755				607
TOTAL LIABILITIES			49,780				67,270
CARPET CARE RESERVE			19,895				26,641
PARTICIPANTS' FUND BALANCES			533,610				536,217
		$	603,285			$	630,128

 

See accompanying notes to unaudited condensed financial statements.

 

 

INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED STATEMENTS OF OPERATIONS
DISTRIBUTION FUND
(unaudited)
		Three months ended June 30,								Six months ended June 30,
		2017				2016				2017				2016
GROSS REVENUES		$	2,739,228			$	2,486,309			$	7,445,584			$	6,685,049
DEDUCTIONS:
Agents' commissions			134,203				128,806				322,921				251,978
Credit card fees			77,047				70,013				209,059				187,539
Audit fees			18,501				18,000				37,002				36,000
Linen replacements			5,514				18,836				59,164				34,821
Uncollected room rents			-				16,766				-				16,766
Rental pool complimentary fees			9,544				5,373				16,341				13,190
			244,809				257,794				644,487				540,294
ADJUSTED GROSS REVENUES			2,494,419				2,228,515				6,801,097				6,144,755
AMOUNT RETAINED BY LESSEE			(1,496,652	)			(1,337,109	)			(4,080,658	)			(3,686,853	)
GROSS INCOME DISTRIBUTION			997,767				891,406				2,720,439				2,457,902
ADJUSTMENTS TO GROSS
INCOME DISTRIBUTION:
General pooled expense			(6,042	)			(1,248	)			(8,251	)			(3,491	)
Miscellaneous pool adjustments			1,141				189				1,519				(55	)
Corporate complimentary
occupancy fees			719				1,867				3,620				5,441
Occupancy fees			(357,267	)			(341,813	)			(829,003	)			(774,873	)
Advisory Committee expenses			(35,615	)			(41,726	)			(75,210	)			(72,134	)
NET INCOME DISTRIBUTION			600,703				508,675				1,813,114				1,612,790
ADJUSTMENTS TO NET INCOME
DISTRIBUTION:
Occupancy fees			357,267				341,813				829,003				774,873
Hospitality suite fees			251				693				3,549				1,739
Associate room fees			7,955				8,458				12,775				12,040
AVAILABLE FOR DISTRIBUTION
TO PARTICIPANTS		$	966,176			$	859,639			$	2,658,441			$	2,401,442

 

See accompanying notes to unaudited condensed financial statements.

 

 

INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCES
(unaudited)
DISTRIBUTION FUND
		For the three months ended June 30,								For the six months ended June 30,
		2017				2016				2017				2016
BALANCE, beginning of period		$	-			$	-			$	-			$	-
ADDITIONS:
Amounts available for distribution			966,176				859,639				2,658,441				2,401,442
Interest received or receivable from Maintenance
Escrow Fund			755				602				1,331				1,172
REDUCTIONS:
Amounts accrued or paid
to participants			(966,931	)			(860,241	)			(2,659,772	)			(2,402,614	)
BALANCE, end of period		$	-			$	-			$	-			$	-

 

MAINTENANCE ESCROW FUND
		For the three months ended June 30,								For the six months ended June 30,
		2017				2016				2017				2016
BALANCE, beginning of period		$	536,516			$	621,449			$	536,217			$	620,809
ADDITIONS:
Charges to participants to establish or restore
escrow balances			142,721				121,183				311,656				255,970
REDUCTIONS:
Maintenance charges			(136,752	)			(120,284	)			(281,930	)			(231,133	)
Member accounts & miscellaneous			54				(5	)			84				(497	)
Refunds to participants as
prescribed by the master lease
agreements			(8,929	)			(2,314	)			(32,417	)			(25,120	)
BALANCE, end of period		$	533,610			$	620,029			$	533,610			$	620,029

 

See accompanying notes to unaudited condensed financial statements.

 

 

INNISBROOK RENTAL POOL LEASE OPERATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1. Rental Pool Lease Operation

 

Basis of Accounting

 

The Rental Pool funds are accounted for using the accrual method of accounting.

 

Organization and Operations

 

Salamander Innisbrook, LLC (the “Company”, “the “Resort”, ”we”, “us”, or “our”) follows accounting policies that require estimates that are based on assumptions and judgments, which affect revenues, expenses, assets, liabilities and disclosure of contingencies in our financial statements. These estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. However, actual results may differ from these estimates due to different conditions.

 

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

 

The Rental Pool consists of condominiums at the Resort which are leased by the Company from their owners and used as hotel accommodations for the resort. The Master Lease Agreement (“MLA”) provides that on an annual basis each owner (the “Participant”) may elect to participate in the Rental Pool for the following year by signing an Annual Lease Agreement (“ALA”). Any condominium unit owner who does not sign the ALA is not permitted to participate in the Rental Pool for the following year. Under the MLA, the Resort pays the participant a quarterly distribution equal to 40% of the Adjusted Gross Revenues on the first $10 million; 45% between $10 million and $11 million and 50% above $11 million. Adjusted Gross Revenues are defined as Gross Revenues less agents’ commissions, audit fees, occupancy fees when the unit is used for Rental Pool Comps or as a model, linen replacements and credit card fees. Each participant receives a fixed occupancy fee, based upon apartment size, for each day the unit is occupied. After allocation of occupancy fees and the payment of general Rental Pool expenses, the balance is allocated proportionally to the Participants, based on the Participation Factor as defined in the Agreement. Additionally, occupancy fees are paid by the Resort to Participants as rental fees for complimentary rooms unrelated to the Rental Pool operations. Associate room fees are also paid by the Resort to Participants for total room revenues earned from the rental of condominiums by Company employees.

 

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

 

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

 

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

 

 

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

 

General

 

We operate Innisbrook Resort and Golf Club (the “Resort” or the “Company”) in Palm Harbor, Florida, containing 1,216 condominium units; all of which have been sold to third parties or to affiliates of the Company. 482 of the condominium units are hotel accommodations that participate in a rental-pooling program (the “Rental Pool”) that provides owners with a percentage distribution of related room revenues minus certain fees and expenses. The remainders of the condominium units are owner-occupied. Other resort property owned by the Company and its affiliates include golf courses, restaurants, tennis courts, a spa and fitness center, swimming pools, conference center facilities and administrative offices.

 

Results of Operations

 

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

 

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

 

Results of operations for the three months ended June 30, 2017 and 2016 (unaudited) were as follows:

 

		Three months ended June 30,
		2017				%				2016				%				Inc/(dec)				% Chg
Resort Revenues		$	10,424,395				100.0	%		$	9,647,781				100.0	%		$	776,614				8.0	%
Costs and Expenses:
Operating costs and expenses			4,686,805				45.0	%			4,328,105				44.9	%			358,700				8.3	%
General and administrative			5,241,481				50.3	%			4,988,595				51.7	%			252,886				5.1	%
Depreciation and amortization			654,037				6.3	%			617,679				6.4	%			36,358				5.9	%
Total costs and expenses			10,582,323				101.5	%			9,934,379				103.0	%			647,944				6.5	%
Operating loss			(157,928	)			-1.5	%			(286,598	)			-3.0	%			128,670				-44.9	%
Interest (expense), net			(159,878	)			-1.5	%			(11,200	)			0.1	%			(148,678	)			-1327.5	%
Net loss		$	(317,806	)			-3.0	%		$	(297,798	)			-3.1	%		$	(20,008	)			6.7	%

 

For the second quarter 2017, resort revenues increased by $776,614 or 8.0% as compared to the same period last year due to increased occupancy and rates.  Room revenues were up $257,500 (+10.2%) over last year.  Package Rooms were up, due to the increased e-commerce advertising; and the Group segment generated approximately $274,800 (+29.7%) over last year, and the transient segment fell behind by $104,800 (-10.0%) compared to last year.  Our Food and Beverage operations increased $356,900 (+12.7%) over 2016 with a Banquets increase of approximately $344,000 and Restaurants up approximately $13,000 over prior year.   Golf revenues were up by approximately $92,400 (3.9%) over last year. 

 

Operating costs and expenses were impacted by a significant amount of groups which were commissionable and costs for supply costs crept up, largely due to volatility of food product pricing. General and Administrative expenses were higher in Rental Pool distribution, employee recognition, credit card commissions, recruitment and energy, all increased over the 2016 mid-year. 

 

 

Results of operations for the six months ended June 30, 2017 and 2016 (unaudited) were as follows:

 

		Six months ended June 30,
		2017				%				2016				%				Inc/(dec)				% Chg
Resort Revenues		$	25,944,701				100.00	%		$	23,979,956				100.00	%		$	1,964,745				8.2	%
Costs and Expenses:
Operating costs and expenses			10,483,335				40.41	%			9,483,930				39.55	%			999,405				10.5	%
General and administrative			11,924,824				45.96	%			11,365,455				47.40	%			559,369				4.9	%
Depreciation and amortization			1,302,603				5.02	%			1,222,168				5.10	%			80,435				6.6	%
Total costs and expenses			23,710,762				91.39	%			22,071,553				92.04	%			1,639,209				7.4	%
Operating incoming			2,233,939				8.61	%			1,908,403				7.96	%			325,536				17.1	%
Interest  expense, net			(170,316	)			-0.66	%			(28,936	)			-0.12	%			(141,380	)			-488.6	%
Net income		$	2,063,623				7.95	%		$	1,879,467				7.84	%		$	184,156				9.8	%

 

During the six months ended June 30, 2017, resort revenues increased $1.964 million or 8.2% as compared to the same period last year. Reasons for the gain were due to a successful first quarter 2017 and an extension of our “season” when Easter moved into April. Room revenues were up $769,000 or 11.4%. Gains in group business and package business offset the small shortfall in leisure business. The food and beverage division increased by $859,800 (12.3%) to last year. With the lengthening of our season, golf operations posted revenues higher by $271,400 (4.5%) over last year.

 

Operating costs and expenses increased by $999,400 to handle the additional demand. Our general and administrative expenses exceeded last year due to planned increases in the sales and marketing area. Depreciation expense increased this quarter primarily because of depreciation of equipment under capital leases that was placed in service late in 2015. Our interest expense has increased over last year due to our $15m note payable entered into on March 28, 2017.

 

Liquidity and Capital Resources

 

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

 

The operation of the Resort is not considered to be dependent on any individual or small group of customers; accordingly the loss of any such individual or group would not have a material adverse effect on the Company’s business or financial condition.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions and to select accounting policies that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These accounting policies have been described in our Annual Report on Form 10-K for the year ended December 31,2016, and there have been no material changes during the three months ended June 30, 2017.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. ASU No. 2014-09 supersedes most existing revenue recognition guidance in U.S. GAAP, and it permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date", which delayed the effective date of ASU No. 2014-09 by one year. As a result, ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods. In the first six months of fiscal 2016, the FASB issued guidance clarifying the interpretation of certain principles of ASU No. 2014-09. The Company is evaluating the effect that this revenue recognition guidance will have on its financial statements and related disclosures.

 

  

In February 2016, the FASB issued ASU No. 2016–02, “Leases (Topic 842).” This standard establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. Upon implementation, lessees will need to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. It will be critical to identify leases embedded in a contract to avoid misstating the lessee’s balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees and lessors. The new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted.  The Company is currently evaluating the impact of adopting the new standard, but have not yet determined the impact of adoption on our financial statements.

 

There are no other accounting standards that have been issued but not yet adopted that we believe could have a material impact on our financial statements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Market risk is the potential loss arising from adverse change in market rates and prices, such as foreign currency exchange rates, interest rates and other relevant market or price changes. The Company is exposed to market risk associated with changes in the LIBOR interest rate on our variable rate debt. The Company regularly evaluates its exposure to such changes and may elect to minimize this risk through the use of interest rate swap agreements. If a 10% change in interest rates were to have occurred on June 30, 2017, this change would not have had a material effect on our results of operations.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

Changes in Internal Control over Financial Reporting

  

In addition, our management with the participation of our Principal Executive Officer and Principal Financial Officer, have determined that no change in our internal control over financial reporting occurred during or subsequent to the quarter ended June 30, 2017, that has materially affected, or is (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934) reasonably likely to materially affect our internal control over financial reporting.

 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company is periodically involved in litigation in the normal course of operations. In the opinion of the Company’s management, the effect of these claims, if any, is not material to the Company’s financial condition and results of operations.

 

On January 16, 2015, we entered into a settlement agreement and release with our former insurance carrier whereby the parties mutually released and resolved all disputes. We agreed to provide a credit towards future resort usage to be used over a three-year period which commenced on March 1, 2015. The credit, which approximated $350,000, is divided equally among the three-year period with no rollover of unused amounts from one year to another. At June 30, 2017, our remaining liability under this arrangement is approximately $119,127.

 

Item 1A. Risk Factors

 

Not required

 

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

 

Not applicable

 

Item 3. Defaults upon Senior Securities

 

Not applicable

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other information

 

Not applicable

 

Item 6. Exhibits

 

(a). Exhibits

 

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

 

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

 

 

SIGNATURES

 

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

 

		SALAMANDER INNISBROOK, LLC   (Registrant)
Date:  August 14, 2017		/s/ Prem Devadas
		Prem Devadas
		Manager       (Chief Executive Officer)

 

Date:  August 14, 2017		/s/ Dale Pelletier
		Dale Pelletier
		Chief Financial Officer       (Principal Financial and Accounting Officer)