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, 2015
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NUMBER: 333-147447
SALAMANDER INNISBROOK, LLC
(Exact name of registrant as specified in its charter)
| Florida | 26-0442888 | |
|
(State of incorporation) |
(IRS employer identification no.) |
36750 US Highway 19 North, Palm Harbor, FL 34684
(Address of principal executive offices)
727-942-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of the Regulation S-T (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ¨ NO x
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ
The Rental Pool operated by the Registrant has 516 condominium rental pool units owned by approximately 422 condominium owners as of June 30, 2015.
INDEX
| 2 |
Cautionary Note Regarding Forward-Looking Statements
The following report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that predict or describe future events or trends and that do not relate solely to historical matters. All of our projections in this annual report are forward-looking statements. You can generally identify forward-looking statements as statements containing the words “appears,” “believe,” “expect,” “hope,” “may,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or other similar expressions. Certain factors that might cause such a difference include the following: changes in general economic conditions; including changes that may influence group conference and guests’ vacation plans; changes in travel patterns; changes in consumer tastes in destinations or accommodations for group conferences and vacations; changes in Rental Pool participation by the current condominium owners; our ability to continue to operate the Innisbrook Resort and Golf Club, or the “Resort” under our management contracts; and the resale of condominiums to owners who elect neither to participate in the Rental Pool nor to become members of the Resort. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the limited information currently available to us and speak only as of the date on which this report was filed with the Securities Exchange Commission. Our continued internet posting or subsequent distribution of this dated report does not imply continued affirmation of the forward-looking statements included in it. We undertake no obligation, and we expressly disclaim any obligation, to issue any updates to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Future events are inherently uncertain. Moreover, it is particularly difficult to predict business activity levels at the Resort with any certainty. Accordingly, our projections in this annual report are subject to particularly high uncertainty. Our projections should not be regarded as legal promises, representations or warranties of any kind whatsoever. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and harmful to your interests.
| 3 |
PART I — FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2015 | 2014 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 1,613,499 | $ | 1,063,338 | ||||
| Accounts receivable, net | 1,071,814 | 1,587,499 | ||||||
| Inventories and supplies | 775,159 | 760,389 | ||||||
| Prepaid expenses and other | 505,649 | 715,972 | ||||||
| Total current assets | 3,966,121 | 4,127,198 | ||||||
| Property, buildings and equipment, net | 38,256,288 | 35,577,286 | ||||||
| Intangibles, net | 4,330,001 | 4,330,001 | ||||||
| Due from affiliates | - | 51,165 | ||||||
| Deposits and other assets | 262,171 | 262,142 | ||||||
| Total assets | $ | 46,814,581 | $ | 44,347,792 | ||||
| Liabilities and Member's Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 496,174 | $ | 1,909,907 | ||||
| Accrued liabilities | 3,056,034 | 2,079,632 | ||||||
| Deferred revenue | 2,280,846 | 2,824,369 | ||||||
| Current portion - capital leases | 396,933 | - | ||||||
| Due to affiliates | 170,055 | - | ||||||
| Total current liabilities | 6,400,042 | 6,813,908 | ||||||
| Deferred revenue | 1,130,171 | 1,215,180 | ||||||
| Capital leases net of current portion | 1,527,807 | - | ||||||
| Total liabilities | 9,058,020 | 8,029,089 | ||||||
| Commitments and Contingencies (Note 5) | ||||||||
| Member's equity | 37,756,561 | 36,318,703 | ||||||
| Total liabilities and member’s equity | $ | 46,814,581 | $ | 44,347,792 | ||||
See accompanying notes to unaudited condensed financial statements.
| 4 |
CONDENSED STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER’S EQUITY
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Resort revenues | $ | 9,003,170 | $ | 9,304,241 | $ | 24,531,228 | $ | 21,990,939 | ||||||||
| Costs and expenses: | ||||||||||||||||
| Operating costs and expenses | 4,055,782 | 4,283,713 | 9,535,606 | 9,089,648 | ||||||||||||
| General and administrative | 4,760,317 | 4,812,727 | 11,275,095 | 10,614,798 | ||||||||||||
| Depreciation | 489,053 | 531,649 | 1,015,572 | 1,062,530 | ||||||||||||
| Total costs and expenses | 9,305,152 | 9,628,089 | 21,826,273 | 20,766,976 | ||||||||||||
| Operating income (loss) | (301,982 | ) | (323,848 | ) | 2,704,955 | 1,223,963 | ||||||||||
| Interest income (expense), net | (12,700 | ) | (3,389 | ) | (27,894 | ) | (19,975 | ) | ||||||||
| Net income (loss) | (314,682 | ) | (327,237 | ) | 2,677,061 | 1,203,988 | ||||||||||
| Member's equity, beginning of period | 38,074,489 | 40,379,240 | 36,318,703 | 38,850,155 | ||||||||||||
| Member's distributions | (3,246 | ) | (503,182 | ) | (1,239,203 | ) | (505,322 | ) | ||||||||
| Member's equity, end of period | $ | 37,756,561 | $ | 39,548,821 | $ | 37,756,561 | $ | 39,548,821 | ||||||||
See accompanying notes to unaudited condensed financial statements.
| 5 |
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six months ended June 30, | ||||||||
| 2015 | 2014 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 2,677,061 | $ | 1,203,988 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Provision for bad debts | 24,583 | 1,510 | ||||||
| Depreciation | 1,015,572 | 1,062,531 | ||||||
| Deposits and other assets | (29 | ) | (8,214 | ) | ||||
| Other changes in operating assets and liabilities | (157,989 | ) | (1,240,088 | ) | ||||
| Net cash provided by (used in) operating activities | 3,559,198 | 1,019,727 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (1,635,331 | ) | (215,856 | ) | ||||
| Cash used in investing activities | (1,635,331 | ) | (215,856 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of capital lease obligations | (134,503 | ) | - | |||||
| Member distributions | (1,239,203 | ) | (505,322 | ) | ||||
| Cash provided by (used in) financing investing activities | (1,373,706 | ) | (505,322 | ) | ||||
| Net change in cash | 550,161 | 298,549 | ||||||
| Cash, beginning of period | 1,063,338 | 1,795,042 | ||||||
| Cash, end of period | $ | 1,613,499 | $ | 2,093,591 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 27,894 | $ | 19,975 | ||||
| Non-cash investing and financing activities: | ||||||||
| Acquisition of equipment with capital leases | $ | 2,059,243 | $ | - | ||||
See accompanying notes to unaudited condensed financial statements.
| 6 |
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies
Nature of business
Salamander Innisbrook, LLC (the “Company”, “we”, “us”, or “our”), together with our affiliates, Salamander Innisbrook Securities, LLC, and Salamander Innisbrook Condominium, LLC owns and operates the Innisbrook Resort and Golf Club (the “Resort”).
The Company controls and operates the Rental Pool Lease Operation (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 414 units or 516 hotel rooms participate at any given time). Pursuant to the new Innisbrook Rental Pool Master Lease Agreement, dated January 1, 2014 (the “Master Lease” or “MLA”), the Company is obligated to make quarterly distributions of a percentage of room revenues. Other resort facilities include four 18-hole golf courses, four restaurants, three convention facilities, a health spa, fitness center, tennis and recreation facilities, themed water park and five swimming pools.
Basis of presentation
The accompanying interim condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America 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, 2014.
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.
Note 2. Accounts Receivable
Accounts receivable consist of the following as of June 30, 2015 and December 31, 2014:
| June 30, 2015 | December 31, 2014 | |||||||
| Trade accounts receivable | $ | 938,236 | $ | 1,554,626 | ||||
| Other receivables | 160,573 | 77,267 | ||||||
| Less allowance for bad debts | (26,995 | ) | (44,394 | ) | ||||
| $ | 1,071,814 | $ | 1,587,499 | |||||
| 7 |
Note 3. Property, Buildings and Equipment
Property, buildings and equipment consist of the following as of June 30, 2015 and December 31, 2014:
| June 30, 2015 | December 31, 2014 | |||||||
| Land and land improvements | $ | 16,998,660 | $ | 16,998,660 | ||||
| Buildings | 25,460,388 | 25,460,387 | ||||||
| Furniture, fixtures and equipment | 10,970,149 | 8,802,853 | ||||||
| Contruction in progress | 1,527,277 | - | ||||||
| 54,956,474 | 51,261,900 | |||||||
| Less accumulated depreciation | (16,700,186 | ) | (15,684,614 | ) | ||||
| $ | 38,256,288 | $ | 35,577,286 | |||||
During the six months ended June 30, 2015, we acquired approximately $2.1 million of equipment under capital leases. We incurred $0 of depreciation expense for the three and six months ended June 30, 2015 for such equipment, as it has not yet been placed in service.
Note 4. Long-term Obligations
Leases, which transfer substantially all of the benefits and risks of ownership of property, are classified as capital leases. Assets and liabilities are recorded at amounts equal to the present value of the minimum lease payments at the beginning of the lease term. Interest expense relating to the lease liabilities is recorded to affect constant rates of interest over the terms of the leases. As mentioned above we entered in certain capital leases in 2015. Future payments under all capital leases, are as follows:
| 2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||
| $ | 396,933 | $ | 433,331 | $ | 433,331 | $ | 433,331 | $ | 227,814 | |||||||||
Leases, which do not transfer substantially all of the benefits and risks of ownership of property, are classified as operating leases, and the related rentals are charged to expense as incurred.
Note 5. Commitments and Contingencies
In the normal course of our operations, we are subject to claims and lawsuits. We do not believe that the ultimate resolution of such matters will materially impair operations or have an adverse effect on our financial position and results of operations.
On January 16, 2015, the Company entered into a settlement agreement and release with our former insurance carrier whereby the parties mutually released and resolved all disputes. The Company has agreed to provide a credit to be used over a three-year period commencing March 1, 2015 through March 1, 2018. The credit will be divided equally among the three-year period with no rollover of unused amounts from one year to another. We estimate the value of our liability to be approximately $350,000 and recorded the liability at December 31, 2014. During the second quarter ended June 30, 2015, this carrier utilized a substantial portion of the amount allocated for the first year.
On April 15, 2015, we entered into an agreement with a contractor for the restoration of the Resort’s Copperhead Course. The total amount of the contract is approximately $3.8 million of which we had paid approximately $2,211,125 at June 30, 2015. The restoration began in April and is expected to be complete by October, 2015. As of this reporting period construction is on schedule.
Note 6. Related Party Transactions
We incurred management fees to an affiliate of $270,593 and $279,160 for the three months ended and $735,976 and $659,835 for the six months ended June 30, 2015 and 2014, respectively. These fees are included in general and administrative expenses in the Condensed Statements of Operations.
At June 30, 2015 and December 31, 2014, amounts due (to)/ from affiliates were $(170,055) and $51,165, respectively, which balances are non-interest bearing, unsecured and due on demand.
The Innisbrook Rental Pool Lease Operation paid us $83,929 and $80,500 for the three months ended; and $159,556 and $165,173 for the six months ended June 30, 2015 and 2014, 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.
| 8 |
RENTAL POOL LEASE OPERATION
The operation of the Rental Pool is tied closely to the Resort’s operations. The Rental Pool Master Lease Agreement provides for a quarterly distribution of a percentage of the Company’s room revenues to participating condominium owners (“Participants”), as defined in the agreement (see Note 1 of the Rental Pool Lease Operation financial statements). Because the Rental Pool participants share in a percentage of the 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 Member’s interest.
| 9 |
INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
DISTRIBUTION FUND
| June 30, | December 31, | |||||||
| 2015 | 2014 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| RECEIVABLE FROM SALAMANDER INNSIBROOK, LLC FOR DISTRIBUTION | $ | 893,156 | $ | 736,445 | ||||
| INTEREST RECEIVABLE FROM MAINTENANCE ESCROW FUND | 467 | 494 | ||||||
| $ | 893,623 | $ | 736,939 | |||||
| LIABILITIES AND PARTICIPANTS' FUND BALANCES | ||||||||
| DUE TO PARTICIPANTS FOR DISTRIBUTION | $ | 893,623 | $ | 736,939 | ||||
| $ | 893,623 | $ | 736,939 | |||||
MAINTENANCE ESCROW FUND
| June 30, | December 31, | |||||||
| 2015 | 2014 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CASH | $ | 225,075 | $ | 227,980 | ||||
| CASH EQUIVALENTS | 550,000 | 600,000 | ||||||
| INTEREST RECEIVABLE | 5,450 | 5,641 | ||||||
| $ | 780,525 | $ | 833,621 | |||||
| LIABILITIES AND PARTICIPANTS' FUND BALANCES | ||||||||
| ACCOUNTS PAYABLE | $ | 53,659 | $ | 44,794 | ||||
| INTEREST PAYABLE TO DISTRIBUTION FUND | 467 | 494 | ||||||
| TOTAL LIABILITIES | 54,126 | 45,288 | ||||||
| CARPET CARE RESERVE | 40,975 | 44,158 | ||||||
| PARTICIPANTS' FUND BALANCES | 685,424 | 744,175 | ||||||
| $ | 780,525 | $ | 833,621 | |||||
See accompanying notes to unaudited condensed financial statements.
| 10 |
INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED STATEMENTS OF OPERATIONS
DISTRIBUTION FUND
(unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| GROSS REVENUES | $ | 2,463,610 | $ | 2,474,148 | $ | 7,007,361 | $ | 6,066,150 | ||||||||
| DEDUCTIONS: | ||||||||||||||||
| Agents' commissions | 84,338 | 85,775 | 216,479 | 202,354 | ||||||||||||
| Credit card fees | 69,589 | 69,832 | 197,649 | 171,612 | ||||||||||||
| Audit fees | 16,500 | 15,000 | 33,000 | 30,000 | ||||||||||||
| Linen replacements | 19,312 | 27,577 | 53,251 | 40,637 | ||||||||||||
| Uncollected room rents | 4,362 | 3,894 | 4,362 | 3,894 | ||||||||||||
| Rental pool complimentary fees | 7,363 | 6,272 | 17,442 | 13,469 | ||||||||||||
| 201,464 | 208,350 | 522,183 | 461,966 | |||||||||||||
| ADJUSTED GROSS REVENUES | 2,262,146 | 2,265,798 | 6,485,178 | 5,604,184 | ||||||||||||
| AMOUNT RETAINED BY LESSEE | (1,357,288 | ) | (1,359,479 | ) | (3,891,107 | ) | (3,362,510 | ) | ||||||||
| GROSS INCOME DISTRIBUTION | 904,858 | 906,319 | 2,594,071 | 2,241,674 | ||||||||||||
| ADJUSTMENTS TO GROSS INCOME DISTRIBUTION: | ||||||||||||||||
| General pooled expense | (1,475 | ) | (1,423 | ) | (3,103 | ) | (3,302 | ) | ||||||||
| Miscellaneous pool adjustments | - | (412 | ) | - | (412 | ) | ||||||||||
| Corporate complimentary occupancy fees | 3,481 | 1,573 | 7,105 | 5,214 | ||||||||||||
| Occupancy fees | (332,383 | ) | (313,932 | ) | (785,467 | ) | (681,938 | ) | ||||||||
| Advisory Committee expenses | (30,432 | ) | (33,622 | ) | (58,793 | ) | (62,828 | ) | ||||||||
| NET INCOME DISTRIBUTION | 544,049 | 558,503 | 1,753,813 | 1,498,408 | ||||||||||||
| ADJUSTMENTS TO NET INCOME DISTRIBUTION: | ||||||||||||||||
| Occupancy fees | 332,383 | 313,932 | 785,467 | 681,938 | ||||||||||||
| Hospitality suite fees | 897 | 493 | 8,584 | 1,607 | ||||||||||||
| Associate room fees | 15,827 | 13,818 | 28,224 | 29,694 | ||||||||||||
| AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS | $ | 893,156 | $ | 886,746 | $ | 2,576,088 | $ | 2,211,647 | ||||||||
See accompanying notes to unaudited condensed financial statements.
| 11 |
INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCES
(unaudited)
DISTRIBUTION FUND
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| BALANCE, beginning of period | $ | - | $ | - | $ | - | $ | - | ||||||||
| ADDITIONS: | ||||||||||||||||
| Amounts available for distribution | 893,156 | 886,746 | 2,576,088 | 2,211,647 | ||||||||||||
| Interest received or receivable from Maintenance Escrow Fund | 467 | 373 | 923 | 888 | ||||||||||||
| REDUCTIONS: | ||||||||||||||||
| Amounts accrued or paid to participants | (893,623 | ) | (887,119 | ) | (2,577,011 | ) | (2,212,535 | ) | ||||||||
| BALANCE, end of period | $ | - | $ | - | $ | - | $ | - | ||||||||
MAINTENANCE ESCROW FUND
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| BALANCE, beginning of period | $ | 723,041 | $ | 907,308 | $ | 744,175 | $ | 990,575 | ||||||||
| ADDITIONS: | ||||||||||||||||
| Charges to participants to establish or restore escrow balances | 86,678 | 78,544 | 190,155 | 163,421 | ||||||||||||
| REDUCTIONS: | ||||||||||||||||
| Maintenance charges | (121,063 | ) | (118,530 | ) | (224,734 | ) | (230,735 | ) | ||||||||
| Member accounts & miscellaneous | (383 | ) | - | (2,603 | ) | - | ||||||||||
| Refunds to participants as prescribed by the master lease agreements | (2,849 | ) | (9,896 | ) | (21,569 | ) | (65,835 | ) | ||||||||
| BALANCE, end of period | $ | 685,424 | $ | 857,426 | $ | 685,424 | $ | 857,426 | ||||||||
See accompanying notes to unaudited condensed financial statements.
| 12 |
INNISBROOK RENTAL POOL LEASE OPERATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Rental Pool Lease Operation
Basis of Accounting
The Rental Pool funds are accounted for using the accrual method of accounting
Organization and Operations
Salamander Innisbrook, LLC (the “Company”) 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 such 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 of Adjusted Gross Revenues; 45% between $10 million and $11 million and 50% above $11 million. Adjusted Gross Revenues are defined as Gross Revenues less agent’s 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 deposits.
| 13 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We operate Innisbrook Resort and Golf Club (the “Resort”) in Palm Harbor, Florida, containing 1,216 condominium units; all of which have been sold to third parties or to affiliates of the Company. 516 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, 2015 and 2014 (unaudited)
| Three months ended June 30, | ||||||||||||||||||||||||
| 2015 | % | 2014 | % | Inc/(dec) | % Chg | |||||||||||||||||||
| Resort Revenues | $ | 9,003,170 | 100.0 | % | $ | 9,304,241 | 100.0 | % | $ | (301,071 | ) | -3.2 | % | |||||||||||
| Costs and Expenses: | ||||||||||||||||||||||||
| Operating costs and expenses | 4,055,782 | 45.0 | % | 4,283,713 | 46.0 | % | (227,931 | ) | -5.3 | % | ||||||||||||||
| General and administrative | 4,760,317 | 52.9 | % | 4,812,727 | 51.7 | % | (52,410 | ) | -1.1 | % | ||||||||||||||
| Depreciation and amortization | 489,053 | 5.4 | % | 531,649 | 5.7 | % | (42,596 | ) | -8.0 | % | ||||||||||||||
| Total costs and expenses | 9,305,152 | 103.4 | % | 9,628,089 | 103.5 | % | (322,937 | ) | -3.4 | % | ||||||||||||||
| Loss before interest | (301,982 | ) | -3.4 | % | (323,848 | ) | -3.5 | % | 21,866 | -6.8 | % | |||||||||||||
| Interest (expense), net | (12,700 | ) | -0.1 | % | (3,389 | ) | 0.0 | % | (9,311 | ) | -274.7 | % | ||||||||||||
| Net loss | $ | (314,682 | ) | -3.5 | % | $ | (327,237 | ) | -3.5 | % | $ | 12,555 | -3.8 | % | ||||||||||
During the second quarter 2015, Resort Revenues decreased $(301,071) or 3.2% as compared to the same period last year. The Group revenue experienced the greatest decrease in market segments, 67.6% or $1,577,918 for the same period last year. Our Transient market was relatively flat over the same time last year. The Package segment was down 38% which was anticipated with the Copperhead course down for renovation.
Operating costs and expenses were in line with the decreased revenues during this period. General and Administrative expenses were down a percentage point. Depreciation expense continues to decline as older assets are now fully depreciated, and because the largest amount of additions are still in construction in process or have not yet been placed in service and were therefore not depreciated. Our interest expense has increased over last year due to the capital leases acquired during this period.
| 14 |
Results of operations for the six months ended June 30, 2015 and 2014 (unaudited)
| Six months ended June 30, | ||||||||||||||||||||||||
| 2015 | % | 2014 | % | Inc/(dec) | % Chg | |||||||||||||||||||
| Resort Revenues | $ | 24,531,228 | 100.00 | % | $ | 21,990,939 | 100.00 | % | $ | 2,540,289 | 11.6 | % | ||||||||||||
| Costs and Expenses: | ||||||||||||||||||||||||
| Operating costs and expenses | 9,535,606 | 38.87 | % | 9,089,648 | 41.33 | % | 445,958 | 4.9 | % | |||||||||||||||
| General and administrative | 11,275,095 | 45.96 | % | 10,614,798 | 48.27 | % | 660,297 | 6.2 | % | |||||||||||||||
| Depreciation and amortization | 1,015,572 | 4.14 | % | 1,062,530 | 4.83 | % | (46,958 | ) | -4.4 | % | ||||||||||||||
| Total costs and expenses | 21,826,273 | 88.97 | % | 20,766,976 | 94.43 | % | 1,059,297 | 5.1 | % | |||||||||||||||
| Income before interest | 2,704,955 | 11.03 | % | 1,223,963 | 5.57 | % | 1,480,992 | 121.0 | % | |||||||||||||||
| Interest expense, net | (27,894 | ) | -0.11 | % | (19,975 | ) | -0.09 | % | (7,919 | ) | -39.6 | % | ||||||||||||
| Net income | $ | 2,677,061 | 10.91 | % | $ | 1,203,988 | 5.47 | % | $ | 1,473,073 | 122.3 | % | ||||||||||||
For the six months ended June 30, 2015, our revenue increased $2,540,289 or 11.6% over the same time last year. This is consistent with the strong first quarter result. Operating costs and expenses are lower as a percentage of revenue due to operating efficiencies. Operating costs continues to run higher than last year due to the increase in course maintenance incurred during the first quarter. General and administrative cost are up due to increased distribution to our Rental Pool participants. Depreciation expense continues to decline as older assets are not fully depreciated, and because the larger amount of additions are still in construction in process or have not yet been placed in service.
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.
Our revenue stream is not considered to be dependent on any individual or small group of customers; accordingly, the loss of any such individual or group of customers 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 on our Annual Report on Form 10-K for the year ended December 31, 2014, and there have been no material changes during the three or six months ended June 30, 2015.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
| 15 |
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, 2015, 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.
| 16 |
In the normal course of our operations, we are subject to claims and lawsuits. We do not believe that the ultimate resolution of such matters will materially impair operations or have an adverse effect on our financial position and results of operations.
On January 16, 2015, the Company entered into a settlement agreement and release with our former insurance carrier whereby the parties mutually released and resolved all disputes. The Company has agreed to provide a credit to be used over a three-year period commencing March 1, 2015 through March 1, 2018. The credit will be divided equally among the three-year period with no rollover of unused amounts from one year to another. We estimate the value of our liability to be approximately $350,000 and recorded the liability at December 31, 2014. During the second quarter ended June 30, 2015, this carrier utilized a substantial portion of the amount allocated for the first year.
Not required
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Not applicable
(a). Exhibits
| 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.
| 17 |
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 27, 2015 | /s/ Prem Devedas | |
| Prem Devedas | ||
| Manager | ||
| (Chief Executive Officer) |
| Date: August 27, 2015 | /s/ Dale Pelletier | |
| Dale Pelletier | ||
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
| 18 |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
SALAMANDER INNISBROOK, LLC
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(CHAPTER 98, TITLE 15 U.S.C. SS. 7241)
I, Prem Devedas, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Salamander Innisbrook, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Executive Committee:
a) all significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
| Date: August 27, 2015 | |
| /s/ Prem Devedas | |
| Prem Devedas, Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
SALAMANDER INNISBROOK, LLC
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(CHAPTER 98, TITLE 15 U.S.C. SS. 7241)
I, Dale Pelletier certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Salamander Innisbrook, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Executive Committee;
a) all significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
| Date: August 27, 2015 | |
| /s/ Dale Pelletier | |
| Dale Pelletier, Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the period ended June 30, 2015 of Salamander Innisbrook, LLC (the “Company”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: August 27, 2015 | |
| /s/ Prem Devedas | |
| Prem Devedas, Chief Executive Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Salamander Innisbrook, LLC and will be retained by Salamander Innisbrook, LLC and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the period ended June 30, 2015 of Salamander Innisbrook, LLC (the “Company”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: August 27, 2015 | |
| /s/ Dale Pelletier | |
| Dale Pelletier , Chief Financial Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Salamander Innisbrook, LLC and will be retained by Salamander Innisbrook, LLC and furnished to the Securities and Exchange Commission or its staff upon request.