UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2018
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
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 ¨ NO x
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ¨ NO x
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one): | Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x |
Smaller reporting company x | Emerging growth company ¨ |
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 ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
No established markets exist for the Registrant’s membership interests and there is no common stock issued or outstanding subject to this report.
INDEX
2
Cautionary Note Regarding Forward-Looking Statements
The following report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that predict or describe future events or trends and that do not relate solely to historical matters. All of our projections in this annual report are forward-looking statements. You can generally identify forward-looking statements as statements containing the words “appears”, “believe”, “expect”, “hope”, “may”, “will”, “anticipate”, “intend”, “estimate”, “project”, “assume” or other similar expressions. Certain factors that might cause such a difference include the following: changes in general economic conditions; including changes that may influence group conference and guests’ vacation plans; changes in travel patterns; changes in consumer tastes in destinations or accommodations for group conferences and vacations; changes in Rental Pool participation by the current condominium owners; our ability to continue to operate the Innisbrook Resort and Golf Club, or the “Resort” under our management contract; 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.
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PART I — FINANCIAL INFORMATION
(Unaudited)
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 330,790 | $ | 787,554 | ||||
Accounts receivable, net | 1,201,477 | 1,991,844 | ||||||
Inventories and supplies | 882,562 | 959,396 | ||||||
Prepaid expenses and other | 885,452 | 782,800 | ||||||
Total current assets | 3,300,281 | 4,521,594 | ||||||
Property, buildings and equipment, net | 34,868,847 | 36,130,652 | ||||||
Intangibles | 4,330,001 | 4,330,001 | ||||||
Due from affiliates | 274,039 | 430,282 | ||||||
Deposits and other assets | 274,425 | 270,613 | ||||||
Restricted cash | 2,513,741 | 1,505,642 | ||||||
Total assets | $ | 45,561,334 | $ | 47,188,784 | ||||
Liabilities and Member's Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 2,639,146 | $ | 2,360,876 | ||||
Accrued liabilities | 2,470,366 | 2,729,073 | ||||||
Deferred revenue | 3,196,419 | 3,082,512 | ||||||
Current portion - capital leases | 424,028 | 417,524 | ||||||
Current portion - note payable | 797,467 | 792,377 | ||||||
Total current liabilities | 9,527,426 | 9,382,362 | ||||||
Deferred revenue | 934,868 | 916,940 | ||||||
Capital leases, net of current portion | 214,638 | 533,404 | ||||||
Note payable, net of current portion and unamortized deferred financing costs | 12,915,486 | 13,416,266 | ||||||
Total liabilities | 23,592,418 | 24,248,972 | ||||||
Commitments and Contingencies (Notes 4 and 7) | ||||||||
Member's equity | 21,968,916 | 22,939,812 | ||||||
Total liabilities and member’s equity | $ | 45,561,334 | $ | 47,188,784 |
See accompanying notes to unaudited condensed financial statements.
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SALAMANDER INNISBROOK, LLC
CONDENSED STATEMENTS OF OPERATIONS AND CHANGES IN MEMBER’S EQUITY
(Unaudited)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Resort revenues: | ||||||||||||||||
Room revenues | $ | 1,759,870 | $ | 2,058,771 | $ | 8,706,887 | $ | 9,595,866 | ||||||||
Other resort revenues | 4,870,549 | 4,639,676 | 24,209,070 | 23,047,282 | ||||||||||||
Total resort revenues | 6,630,419 | 6,698,447 | 32,915,957 | 32,643,148 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Operating costs and expenses | 3,830,178 | 3,797,916 | 14,948,423 | 14,281,251 | ||||||||||||
General and administrative | 4,532,937 | 4,725,903 | 16,763,127 | 16,650,727 | ||||||||||||
Depreciation and amortization | 514,573 | 583,928 | 1,613,210 | 1,886,531 | ||||||||||||
Total costs and expenses | 8,877,688 | 9,107,747 | 33,324,760 | 32,818,509 | ||||||||||||
Operating loss | (2,247,269 | ) | (2,409,300 | ) | (408,803 | ) | (175,361 | ) | ||||||||
Interest expense | (179,406 | ) | (155,123 | ) | (562,093 | ) | (325,439 | ) | ||||||||
Net loss | (2,426,675 | ) | (2,564,423 | ) | (970,896 | ) | (500,800 | ) | ||||||||
Member's equity, beginning of period | 24,395,591 | 25,493,181 | 22,939,812 | 37,772,049 | ||||||||||||
Member distributions | - | (2,388 | ) | - | (14,344,879 | ) | ||||||||||
Member's equity, end of period | $ | 21,968,916 | $ | 22,926,370 | $ | 21,968,916 | $ | 22,926,370 |
See accompanying notes to unaudited condensed financial statements.
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SALAMANDER INNISBROOK, LLC
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (970,896 | ) | $ | (500,800 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,613,210 | 1,886,531 | ||||||
Amortization of deferred financing costs | 47,742 | 31,828 | ||||||
Provision for bad debts | 31,010 | 9,020 | ||||||
Deposits and other assets | (3,812 | ) | (40,711 | ) | ||||
Other changes in operating assets and liabilities | 884,936 | 795,295 | ||||||
Net cash provided by operating activities | 1,602,190 | 2,181,163 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (351,405 | ) | (298,646 | ) | ||||
Due from affiliates | 156,243 | - | ||||||
Net cash used in investing activities | (195,162 | ) | (298,646 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from notes payable | - | 15,000,000 | ||||||
Repayment of note payable | (543,431 | ) | (324,482 | ) | ||||
Repayment of capital lease obligations | (312,262 | ) | (305,819 | ) | ||||
Payment of deferred financing costs | - | (318,278 | ) | |||||
Member distributions | - | (14,344,879 | ) | |||||
Net cash used in financing activities | (855,693 | ) | (293,458 | ) | ||||
Net change in cash and restricted cach | 551,335 | 1,589,059 | ||||||
Cash and restricted cash, beginning of period | 2,293,196 | 1,141,869 | ||||||
Cash and restricted cash, end of period | $ | 2,844,531 | $ | 2,730,928 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 554,863 | $ | 251,709 |
See accompanying notes to unaudited condensed financial statements.
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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 owns and operates 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 contract 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 346 units or 431 hotel rooms participate at any given time). Pursuant to the Innisbrook Rental Pool Master Lease Agreement, dated January 1, 2014 (the “Master Lease” or “MLA”), the Company is obligated to make quarterly distributions of a percentage of room revenues. Other resort facilities include four 18-hole golf courses, four restaurants, three convention facilities, a health spa, fitness center, tennis and recreation facilities, themed water park and five swimming pools.
Basis of presentation
The accompanying condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Quarterly Report on Form 10-Q. Consequently, they do not include all disclosures normally provided in the audited financial statements included in the Company’s Annual Report on Form 10-K. Accordingly, these condensed financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
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 condensed 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.
Revenue Recognition
Our revenue is derived from a variety of sources including, but not limited to, hotel, food and beverage operations, retail sales and golf course operations. With the exception of membership dues and initiation fees, all revenues net of any sales and other taxes collected are recognized as products are delivered or services are performed, as incurred. The membership dues are recognized ratably over the applicable period (three months to one year depending on type of membership). The membership initiation fees at the Resort are nonrefundable and are initially recorded to deferred revenue and amortized over the average life of a membership which, based on historical information, is ten years for full golf memberships and five years for resort and executive golf memberships. Refer to “Recent Accounting Pronouncements” for further discussion.
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Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 replaced most existing revenue recognition guidance in GAAP when it became effective. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption beginning January 1, 2017. The standard permits the use of either the full retrospective or modified retrospective adoption. We completed our evaluation of the effect that ASU No. 2014-09 had on our financial statements and our evaluation of our revenue streams (ie: Rooms, Food & Beverage, Golf and Membership) under the new standard. Because of the short-term day-to-day nature of our hotel revenues as well as the future treatment of revenues related to future events and membership, we determined that the pattern of revenue recognition did not change significantly. We evaluated how we recognize revenue related to initiation deposits when adopting ASU 2014-09 and determined that we will continue to recognize revenue over a period of time which represents the pattern of transfer of our services to our members. We will also continue recognizing revenue over the estimated life of the member and as a result the adoption of ASU 2014-09 did not impact how we recognize member revenue. The Company adopted this standard on its effective date of January 1, 2018 under the modified retrospective method. No adjustment was recorded to our opening balance of retained earnings on January 1, 2018 as there was no impact to our net income. Additionally, comparative information beginning in 2018 was not restated and will continue to be reported under Revenue Recognition (Topic 605). We also expect that the effect of adoption of ASU No. 2014-09 will be immaterial to us on an on-going basis.
In November 2016, the FASB issued ASU No. 2016-18, “Classification of Restricted Cash,” which requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effective for the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company adopted this standard on January 1, 2018. As a result, restricted cash reserves are included with cash on the Company’s condensed statements of cash flows. The adoption did not change the presentation of the Company’s condensed balance sheets.
In February 2016, the FASB issued ASU No. 2016-02, Leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption was permitted. The Company adopted this standard on its effective date of January 1, 2019 under the modified retrospective method and using the optional transition method to apply the new lease accounting standard prospectively as of January 1, 2019, rather than as of the earliest period presented. Adoption of this standard resulted in the recording of net operating lease right-of-use (“ROU”) assets of approximately $251,000 included in property, building and equipment, net, and corresponding operating lease liabilities of approximately $247,000. The adoption did not materially impact the Company’s statements of operations or cash flows. .
The following table provides additional detail, by financial statement line item, of the ASU 2016-18 impacts in our condensed statements of cash flows for the nine months ended September 30, 2018 and 2017.
8
As Reported | ASU 2016 - 18 | Reported | ||||||||||
(Pre-Adoption) | Impact | (Post- Adoption) | ||||||||||
Nine months ended September 30, 2018 | ||||||||||||
Cash and restricted cash, end of period, shown in the statement of cash flows | $ | 330,790 | $ | 2,513,741 | $ | 2,844,531 | ||||||
As Reported | ASU 2016 - 18 | Reported | ||||||||||
(Pre-Adoption) | Impact | (Post- Adoption) | ||||||||||
Nine months ended September 30, 2017 | ||||||||||||
Cash and restricted cash, end of period, shown in the statement of cash flows | $ | 1,227,800 | $ | 1,503,128 | $ | 2,730,928 |
Reclassifications
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.
Note 2. Accounts Receivable
Accounts receivable consist of the following as of September 30, 2018 and December 31, 2017:
September 30, 2018 | December 31, 2017 | |||||||
Trade accounts receivable | $ | 1,167,051 | $ | 1,812,660 | ||||
Other receivables | 80,097 | 211,027 | ||||||
Less allowance for bad debts | (45,671 | ) | (31,843 | ) | ||||
$ | 1,201,477 | $ | 1,991,844 |
Note 3. Property, Buildings and Equipment
Property, buildings and equipment consist of the following as of September 30, 2018 and December 31, 2017:
September 30, 2018 | December 31, 2017 | |||||||
Land and land improvements | $ | 21,603,610 | $ | 21,603,610 | ||||
Buildings | 25,460,387 | 25,460,387 | ||||||
Furniture, fixtures and equipment | 12,238,845 | 12,014,451 | ||||||
Construction in progress | 179,280 | 52,269 | ||||||
59,482,122 | 59,130,717 | |||||||
Less accumulated depreciation | (24,613,275 | ) | (23,000,065 | ) | ||||
$ | 34,868,847 | $ | 36,130,652 |
Note 4. Commitments and Contingencies
In the normal course of our operations, we are periodically subject to claims and lawsuits. However, no such matters existed at September 30, 2018 or December 31, 2017.
Note 5. Related Party Transactions
We incurred management fees to an affiliate of $198,227 and $199,532 for the three month periods ended September 30, 2018 and 2017, respectively, and $986,733 and $978,320 for the nine months periods ended September 30, 2018 and 2017, respectively. These fees are included in general and administrative expenses in the condensed statements of operations and changes in member’s equity.
9
Golf Host Securities, Inc. is a fully owned subsidiary of Salamander Farms, LLC, our sole member. It operates as an on-site real estate broker at the Resort for the resale of the condominium units with a Rental Pool option. The brokers are required to have specific broker/dealer licenses to present all of the disclosures associated with the investment. Approximately $7,750 was paid to the Company for rent and related accounting services for each of the three month periods ended September 30, 2018 and 2017, and approximately $23,250 was paid to the Company for rent and related accounting services for each of the nine month periods ended September 30, 2018 and 2017.
At September 30, 2018 and December 31, 2017, the amounts due from affiliates of $274,039 and $430,282, respectively, are non-interest bearing, unsecured and due on demand.
The Innisbrook Rental Pool Lease Operation paid us $67,655 and $127,922 for the three month periods ended September 30, 2018 and 2017, respectively, and $242,060 and $303,284 for the nine month periods ended September 30, 2018 and 2017, 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 member’s equity.
The Company has recorded the estimated quarterly Rental Pool distribution liability of $569,713 and $961,654 at September 30, 2018 and December 31, 2017, respectively.
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 April 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 (4.515% as of September 30, 2018). The loan is collateralized by the real and personal property of the Company and Salamander Innisbrook Condominium, LLC, the assignment and/or subordination of leases and our management agreement with an affiliate and guarantees by certain affiliates. We have distributed these funds to our Member as a partial return of the capital it has invested. As of September 30, 2018, the carrying value of the loan 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. In April 2019, we entered into an amendment to the loan agreement which waived the debt service coverage ratio requirement for the year ended December 31, 2018 and reduced the debt service coverage ratio requirement to at least 1.0 to 1.0 for the fiscal year ending December 31, 2019. The debt service coverage ratio requirement returns to at least 1.10 to 1.0 for the fiscal year ending December 31, 2020 through maturity.
As part of our loan agreement, we deposited $1,500,000 into a cash reserve account in March 2017. On February 27, 2018, we deposited an approximate amount of $1,000,000 into such account as required. The reserve account is restricted and may not be used to service the loan.
We incurred financing costs of $318,279, which were deferred and are being amortized over the term of the loan using a method that approximates the effective interest method. These costs have been reflected as a reduction of the note payable.
Below is a table of scheduled maturities of our note payable for the years ending December 31,
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2018 (remaining 3 months) | $ | 196,527 | ||
2019 | 805,102 | |||
2020 | 836,378 | |||
2021 | 868,870 | |||
2022 | 11,228,871 | |||
13,935,748 | ||||
Less unamortized deferred financing costs | (222,795 | ) | ||
$ | 13,712,953 |
Note 7. Leases
On August 1, 2015, we entered into a new master lease agreement with Agricredit-Acceptance, LLC for vehicles by Club Car, LLC. The agreement replaced our expired lease agreement and provides for two leases, golf carts and utility vehicles, with payments commencing in December 2015. The term of each lease is 48 months and the monthly lease payments are approximately $21,200 and $11,100, respectively. Lease expense amounted to approximately $291,000 for each of the nine month periods ended September 30, 2018 and 2017. Future minimum lease payments under operating leases for the years ended December 31 are as follows:
2018 | 2019 | Total | ||||||||||
Agri Credit - golf & utility carts | $ | 94,048 | $ | 219,445 | $ | 313,493 |
During the fourth quarter of 2014, the Company entered into a master lease agreement with PNC Equipment Finance, LLC for the lease of golf course equipment. The Company is obligated under five capital leases that were recorded in the first quarter 2015 when all of the equipment was received. The term of each lease is 60 months, with interest rates ranging from 2% to 4.45%, and the monthly lease payments vary in amount. The leases contain bargain purchase options that allow us to purchase the leased equipment for a minimal amount upon the expiration of the lease term. Equipment acquired under capital leases is pledged as collateral to secure the performance of the future minimum lease payments. Future minimum lease payments under capital leases for the years ended December 31 are as follows:
Years ending December 31, | ||||
2018 (remaining 3 months) | $ | 114,442 | ||
2019 | 459,331 | |||
2020 | 116,925 | |||
Total future minimum lease payments | 690,698 | |||
Less amount representing interest and taxes | (52,032 | ) | ||
Present value of future minimum lease payments | 638,666 | |||
Less: current maturities | (424,028 | ) | ||
Obligations under capital leases - long term | $ | 214,638 |
Note 8. Legal Proceedings
The Company is periodically involved in litigation in the normal course of operations. In the opinion of the Company’s management, the effect of these claims, if any, is not material to the Company’s financial condition and results of operations.
On January 16, 2015, we entered into a settlement agreement and release with our former insurance carrier whereby the parties mutually released and resolved all disputes. We agreed to provide a credit towards future resort usage to be used over a three-year period which commenced on March 1, 2015. The credit, which approximated $350,000, is divided equally among the three-year period with no rollover of unused amounts from one year to another. At September 30, 2018, our remaining liability under this arrangement was $42,000. In April 2018, we agreed to extend the credit through October 2018 as our client committed to host two additional meetings at the resort. As of the date of this report, there was no remaining liability under this agreement.
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Note 9. Subsequent events
In April 2019 the Company agreed to modify the Loan Agreement (Agreement) dated March 28, 2017 and agreed to the release of $500,000 from the Cash Reserve Account prescribed in Section 2.01(g) of the Agreement which was used to pay down the principle. The amendment also waived the debt service coverage ratio requirement for the year ended December 31, 2018 and reduced the debt service coverage ratio requirement to at least 1.0 to 1.0 for the fiscal year ending December 31, 2019.
In early 2020, an outbreak of a novel strain of coronavirus that causes COVID-19 emerged globally. As a result, events have occurred, including mandates from federal, state and local authorities leading to significant declines in guest visits and closures of hotels, including the Resort. The significant reduction in guest visits to, and spending at, the Resort caused by the coronavirus pandemic have resulted in a loss of revenue and other material adverse effects to the Company’s financial position, results of operations, and cash flows. The Company is not able to estimate the length or severity of this outbreak and the related financial impact.
In March 2020, approximately one week from the beginning of the 2020 PGA Valspar Tournament, Copperhead Charities and the PGA Tour notified the Company that the PGA Valspar Tournament would be cancelled for 2020 due to the impacts of the COVID-19 pandemic. No cancellation fees were paid by Copperhead Charities but the Company was reimbursed for its out-of-pocket expenses. As of the date of this report, the Company is negotiating with Copperhead Charities and the PGA Tour for a multi-year renewal of the contract.
In March 2020, we entered into an amendment to the loan agreement which defers the scheduled loan repayments for April, May, and June 2020. These repayments along with accrued interest are deferred until the loan matures in April 2022.
In April 2020, the Resort obtained a United States government subsidy of $3,394,500. The Paycheck Protection Program (“PPP”), is a United States government temporary program created with the intent to provide a subsidy to assist businesses in keeping employees employed during the pandemic. The PPP Loan may not need to be repaid if certain requirements are met. Under the Coronavirus Aid, Relief, and Economic Security Act, as modified, any amounts not forgiven will be required to be repaid over a term having a minimum maturity of five (5) years and a maximum maturity of 10 years from the date on which the borrower applies for forgiveness. The loan will carry a one percent (1%) interest rate.
RENTAL POOL LEASE OPERATION
The operation of the Rental Pool is tied closely to the Resort operations. The Rental Pool Master Lease Agreements provide for a quarterly distribution of a percentage of the Company’s room revenues to participating condominium owners (“Participants”), as defined in the agreements (see Note 1 of the Rental Pool Lease Operation condensed financial statements). Because the Rental Pool participants share in a percentage of the Company’s room revenues, the condominium units allowing Rental Pool participation are deemed to be securities. However, there is no market for such securities other than the normal real estate market. Since the security is real estate, no dividends have been paid or will be paid.
The Company is a single-member limited liability company, wholly owned by Salamander Farms, LLC. There is no established market for the Company’s membership interests.
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INNISBROOK RENTAL POOL LEASE OPERATION
SEPTEMBER 30, 2018
(Unaudited)
DISTRIBUTION FUND
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
ASSETS | ||||||||
RECEIVABLE FROM SALAMANDER INNSIBROOK, LLC FOR DISTRIBUTION | $ | 569,713 | $ | 927,153 | ||||
INTEREST RECEIVABLE FROM MAINTENANCE ESCROW FUND | 17,442 | 1,214 | ||||||
$ | 587,155 | $ | 928,367 | |||||
LIABILITIES AND PARTICIPANTS' FUND BALANCES | ||||||||
DUE TO PARTICIPANTS FOR DISTRIBUTION | $ | 587,155 | $ | 928,367 | ||||
$ | 587,155 | $ | 928,367 |
MAINTENANCE ESCROW FUND
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
ASSETS | ||||||||
CASH | $ | 3,951,985 | $ | 187,281 | ||||
INVESTMENTS | 350,000 | 350,000 | ||||||
INTEREST RECEIVABLE | 6,468 | 5,616 | ||||||
$ | 4,308,453 | $ | 542,897 | |||||
LIABILITIES AND PARTICIPANTS' FUND BALANCES | ||||||||
ACCOUNTS PAYABLE | $ | 40,444 | $ | 43,703 | ||||
INTEREST PAYABLE TO DISTRIBUTION FUND | 17,442 | 1,214 | ||||||
TOTAL LIABILITIES | 57,886 | 44,917 | ||||||
CARPET CARE RESERVE | 4,635 | 14,154 | ||||||
PARTICIPANTS' FUND BALANCES | 4,245,932 | 483,826 | ||||||
$ | 4,308,453 | $ | 542,897 |
See accompanying notes to unaudited condensed financial statements.
13
INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED STATEMENTS OF OPERATIONS
DISTRIBUTION FUND
(Unaudited)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
GROSS REVENUES | $ | 1,729,061 | $ | 2,022,979 | $ | 8,594,267 | $ | 9,468,563 | ||||||||
DEDUCTIONS: | ||||||||||||||||
Agents' commissions | 105,390 | 113,877 | 406,819 | 436,798 | ||||||||||||
Credit card fees | 77,948 | 56,993 | 270,590 | 266,052 | ||||||||||||
Audit fees | 19,002 | 18,501 | 57,006 | 55,503 | ||||||||||||
Linen replacements | 14,474 | 8,886 | 64,355 | 68,050 | ||||||||||||
Rental pool complimentary fees | 6,278 | 6,619 | 24,962 | 22,960 | ||||||||||||
223,092 | 204,876 | 823,732 | 849,363 | |||||||||||||
ADJUSTED GROSS REVENUES | 1,505,969 | 1,818,103 | 7,770,535 | 8,619,200 | ||||||||||||
AMOUNT RETAINED BY LESSEE | (903,581 | ) | (1,090,862 | ) | (4,662,321 | ) | (5,171,520 | ) | ||||||||
GROSS INCOME DISTRIBUTION | 602,388 | 727,241 | 3,108,214 | 3,447,680 | ||||||||||||
ADJUSTMENTS TO GROSS INCOME DISTRIBUTION: | ||||||||||||||||
General pooled expense | (504 | ) | (3,155 | ) | (5,540 | ) | (11,407 | ) | ||||||||
Miscellaneous pool adjustments | (2,861 | ) | - | (2,029 | ) | 1,519 | ||||||||||
Corporate complimentary occupancy fees | 1,128 | 4,843 | 5,050 | 8,463 | ||||||||||||
Occupancy fees | (259,853 | ) | (303,767 | ) | (1,011,501 | ) | (1,132,769 | ) | ||||||||
Advisory Committee expenses | (35,054 | ) | (41,361 | ) | (102,338 | ) | (116,570 | ) | ||||||||
NET INCOME DISTRIBUTION | 305,244 | 383,801 | 1,991,856 | 2,196,916 | ||||||||||||
ADJUSTMENTS TO NET INCOME DISTRIBUTION: | ||||||||||||||||
Occupancy fees | 259,853 | 303,767 | 1,011,501 | 1,132,769 | ||||||||||||
Hospitality suite fees | 286 | 224 | 4,358 | 3,773 | ||||||||||||
Associate room fees | 4,330 | 8,470 | 14,495 | 21,246 | ||||||||||||
AVAILABLE FOR DISTRIBUTION TO PARTICIPANTS | $ | 569,713 | $ | 696,262 | $ | 3,022,210 | $ | 3,354,704 |
See accompanying notes to unaudited condensed financial statements.
14
INNISBROOK RENTAL POOL LEASE OPERATION
CONDENSED STATEMENTS OF CHANGES IN PARTICIPANTS' FUND BALANCES
(Unaudited)
DISTRIBUTION FUND
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
BALANCE, beginning of period | $ | - | $ | - | $ | - | $ | - | ||||||||
ADDITIONS: | ||||||||||||||||
Amounts available for distribution | 569,713 | 696,262 | 3,022,210 | 3,354,704 | ||||||||||||
Interest received or receivable from Maintenance Escrow Fund | 17,442 | 974 | 25,693 | 2,305 | ||||||||||||
REDUCTIONS: | ||||||||||||||||
Amounts accrued or paid to participants | (587,155 | ) | (697,236 | ) | (3,047,903 | ) | (3,357,009 | ) | ||||||||
BALANCE, end of period | $ | - | $ | - | $ | - | $ | - |
MAINTENANCE ESCROW FUND
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
BALANCE, beginning of period | $ | 5,022,265 | $ | 533,610 | $ | 483,826 | $ | 536,217 | ||||||||
ADDITIONS: | ||||||||||||||||
Charges to participants to establish or restore escrow balances | 2,773,837 | 110,705 | 7,549,754 | 422,361 | ||||||||||||
REDUCTIONS: | ||||||||||||||||
Maintenance charges | (3,530,442 | ) | (169,371 | ) | (3,732,562 | ) | (451,301 | ) | ||||||||
Member accounts & miscellaneous | (74 | ) | 40 | (7 | ) | 124 | ||||||||||
Refunds to participants as prescribed by the master lease agreements | (19,654 | ) | (10,809 | ) | (55,079 | ) | (43,226 | ) | ||||||||
BALANCE, end of period | $ | 4,245,932 | $ | 464,175 | $ | 4,245,932 | $ | 464,175 |
See accompanying notes to unaudited condensed financial statements.
15
INNISBROOK RENTAL POOL LEASE OPERATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Item 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 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 Agreement, the Resort pays the participant a quarterly distribution equal to 40% of the Adjusted Gross Revenues on $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 the Company’s 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.
16
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. An average of 346 units or 431 rooms 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 remainder of the condominium units are owner-occupied. Other resort property owned by the Company and its affiliates include golf courses, restaurants, tennis courts, a spa and fitness center, swimming pools, conference center facilities and administrative offices.
Results of Operations
The Resort is a destination golf resort that appeals to group and transient guests within all market segments. The Resort provides condominium accommodations, food and beverage dining locations (three restaurants, room service, banquet and/or catering options) and recreational entertainment to members, business meetings, group guests, leisure guests and their families. The Resort offers room-only rates, golf packages, and family vacation packages.
As a destination golf resort, open year round, the Resort’s performance is sensitive to weather conditions and seasonality as well as general trends in the economy, with economic downturns adversely affecting our operating results. The Company’s operations are seasonal with the highest volume of revenue generated in the first two quarters of each calendar year. Due to the seasonal business of the Company, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full fiscal year.
Results of operations for the three months ended September 30, 2018 and 2017 (unaudited) were as follows:
Three months ended September 30, | ||||||||||||||||||||||||
2018 | % | 2017 | % | Inc/(dec) | % Chg | |||||||||||||||||||
Resort revenues: | ||||||||||||||||||||||||
Room revenues | $ | 1,759,870 | 26.5 | % | $ | 2,058,771 | 30.7 | % | $ | (298,901 | ) | -14.5 | % | |||||||||||
Other resort revenues | 4,870,549 | 73.5 | % | 4,639,676 | 69.3 | % | 230,873 | 5.0 | % | |||||||||||||||
Total resort revenues | 6,630,419 | 100.0 | % | 6,698,447 | 100.0 | % | (68,028 | ) | -1.0 | % | ||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Operating costs and expenses | 3,830,178 | 57.8 | % | 3,797,916 | 56.7 | % | 32,262 | 0.8 | % | |||||||||||||||
General and administrative | 4,532,937 | 68.4 | % | 4,725,903 | 70.6 | % | (192,966 | ) | -4.1 | % | ||||||||||||||
Depreciation and amortization | 514,573 | 7.8 | % | 583,928 | 8.7 | % | (69,355 | ) | -11.9 | % | ||||||||||||||
Total costs and expenses | 8,877,688 | 133.9 | % | 9,107,747 | 136.0 | % | (230,059 | ) | -2.5 | % | ||||||||||||||
Operating loss | (2,247,269 | ) | -33.9 | % | (2,409,300 | ) | -36.0 | % | 162,031 | -6.7 | % | |||||||||||||
Interest expense | (179,406 | ) | -2.7 | % | (155,123 | ) | -2.3 | % | (24,283 | ) | 15.7 | % | ||||||||||||
Net loss | $ | (2,426,675 | ) | -36.6 | % | $ | (2,564,423 | ) | -38.3 | % | $ | 137,748 | -5.4 | % |
The revenues for the three month period ended September 30, 2018 were relativity flat compared to the same period in the prior year, with a decrease of $68,028 or 1%. Our Rooms revenue decreased approximately $299,000 or 14.5% as a result of a reduction of room nights year-over-year. This decrease was offset by a 5% increase in Other resort revenues driven primarily by increased golf and merchandise sales. Gold rounds increased 10.9% over the same period in the prior year.
Operating and general and administrative costs were well controlled finishing the quarter with a decrease of approximately $161,000. Our depreciation expense continues to decrease as more of the our fixed assets are becoming fully retired.
17
Results of operations for the nine months ended September 30, 2018 and 2017 (unaudited) were as follows:
Nine months ended September 30, | ||||||||||||||||||||||||
2018 | % | 2017 | % | Inc/(dec) | % Chg | |||||||||||||||||||
Resort revenues: | ||||||||||||||||||||||||
Room revenues | $ | 8,706,887 | 26.5 | % | $ | 9,595,866 | 29.4 | % | $ | (888,979 | ) | -9.3 | % | |||||||||||
Other resort revenues | 24,209,070 | 73.5 | % | 23,047,282 | 70.6 | % | 1,161,788 | 5.0 | % | |||||||||||||||
Total resort revenues | 32,915,957 | 100.0 | % | 32,643,148 | 100.0 | % | 272,809 | 0.8 | % | |||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Operating costs and expenses | 14,948,423 | 45.4 | % | 14,281,251 | 43.7 | % | 667,172 | 4.7 | % | |||||||||||||||
General and administrative | 16,763,127 | 50.9 | % | 16,650,727 | 51.0 | % | 112,400 | 0.7 | % | |||||||||||||||
Depreciation and amortization | 1,613,210 | 4.9 | % | 1,886,531 | 5.8 | % | (273,321 | ) | -14.5 | % | ||||||||||||||
Total costs and expenses | 33,324,760 | 101.2 | % | 32,818,509 | 100.5 | % | 506,251 | 1.5 | % | |||||||||||||||
Operating loss | (408,803 | ) | -1.2 | % | (175,361 | ) | -0.5 | % | (233,442 | ) | 133.1 | % | ||||||||||||
Interest expense | (562,093 | ) | -1.7 | % | (325,439 | ) | -1.0 | % | (236,654 | ) | 72.7 | % | ||||||||||||
Net income | $ | (970,896 | ) | -2.9 | % | $ | (500,800 | ) | -1.5 | % | $ | (470,096 | ) | 93.9 | % |
Rooms revenue decreased approximately $889,000 or 9.3% compared to the same period in prior year due to a reduction in room nights of 4,870 as we were in the process of our rooms renovation program. This decrease was offset by increased Other resort revenues of approximately 5% driven by golf revenues which increased in both number of rounds and green fees.
The increase in our operating and general and administrative expenses of approximately $790,000 is primarily due to additional payroll costs for staffing and credit card commission fees for a total of approximately $218,000. Additionally, sales and marketing costs have increased from our exposure via e-commerce, newspaper and representation fees resulting in additional expense of approximately $255,000. The increase in our interest expense of approximately $237,000 is the result of the 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.
Revenue Recognition
Our revenue is derived from a variety of sources including, but not limited to, hotel operations, food and beverage operations, retail sales and golf course operations. With the exception of membership dues and initiation fees, all revenues are recognized as products are delivered or services are performed. The membership dues are recognized ratably over the applicable period (three months to a year depending on type of membership). The membership initiation fees at the Resort are nonrefundable and are initially recorded to deferred revenue and amortized over the average life of a membership which, based on historical information, is deemed to be ten years for full golf memberships and five years for resort and executive golf memberships.
Critical Accounting Policies
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. We frequently maintain cash balances in excess of federally insured limits. We have not experienced any losses in such accounts. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. Although due dates of receivables vary based on contract terms, credit losses have been within management’s estimates in determining the level of allowance for doubtful accounts. Overall financial strategies are reviewed periodically.
18
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date.
In May 2014, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 replaced most existing revenue recognition guidance in GAAP when it became effective. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption beginning January 1, 2017. The standard permits the use of either the full retrospective or modified retrospective adoption. We completed our evaluation of the effect that ASU No. 2014-09 had on our financial statements and our evaluation of our revenue streams (ie: Rooms, Food & Beverage, Golf and Membership) under the new standard. Because of the short-term day-to-day nature of our hotel revenues as well as the future treatment of revenues related to future events and membership, we determined that the pattern of revenue recognition did not change significantly. We evaluated how we recognize revenue related to initiation deposits when adopting ASU 2014-09 and determined that we will continue to recognize revenue over a period of time which represents the pattern of transfer of our services to our members. We will also continue recognizing revenue over the estimated life of the member and as a result the adoption of ASU 2014-09 did not impact how we recognize member revenue. The Company adopted this standard on its effective date of January 1, 2018 under the modified retrospective method. No adjustment was recorded to our opening balance of retained earnings on January 1, 2018 as there was no impact to our net income. Additionally, comparative information beginning in 2018 was not restated and will continue to be reported under Revenue Recognition (Topic 605). We also expect that the effect of adoption of ASU No. 2014-09 will be immaterial to us on an on-going basis.
In November 2016, the FASB issued ASU No. 2016-18, “Classification of Restricted Cash,” which requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effective for the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company adopted this standard on January 1, 2018. As a result, restricted cash reserves are included with cash on the Company’s condensed statements of cash flows. The adoption did not change the presentation of the Company’s condensed balance sheets.
In February 2016, the FASB issued ASU No. 2016-02, Leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption was permitted. The Company adopted this standard on its effective date of January 1, 2019 under the modified retrospective method and using the optional transition method to apply the new lease accounting standard prospectively as of January 1, 2019, rather than as of the earliest period presented. Adoption of this standard resulted in the recording of net operating lease right-of-use (“ROU”) assets of approximately $251,000 included in property, building and equipment, net, and corresponding operating lease liabilities of approximately $247,000. The adoption did not materially impact the Company’s statements of operations or cash flows.
There are no other accounting standards that have been issued but not yet adopted that we believe could have a material impact on our condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential loss arising from an adverse change in market rates and prices, such as foreign currency exchange rates, interest rates and other relevant market or price changes. The Company is exposed to market risk associated with changes in the LIBOR interest rate on our variable rate debt.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 15d -15 under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be reported in the Company’s SEC filings is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, 2018, under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as September 30, 2018, the Company’s disclosure controls and procedures were not effective because of the material weaknesses in our internal control over financial reporting as discussed below.
Notwithstanding such material weaknesses, which are described below in Management’s Report on Internal Control over Financial Reporting, our management has concluded that the condensed financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
19
Management’s Report Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed 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. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal controls over financial reporting as of September 30, 2018, based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the assessment, management concluded that, as of September 30, 2018, the Company’s internal control over financial reporting was not effective as a result of the material weaknesses described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that material misstatements of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
We have identified the following material weaknesses: (i) an ineffective control environment due to the hiring of one or more individuals with a lack of an appropriate level of knowledge and experience with generally accepted accounting principles, (ii) ineffective control activities due to improper design of internal controls over financial reporting which led to the inability to implement proper controls, and (iii) ineffective monitoring controls to ascertain, in a timely manner, whether such individuals were following proper internal controls and that the components of internal control were present and functioning.
As of September 30, 2018, our remediation of these deficiencies was incomplete.
Remediation Efforts to Address Material Weaknesses
Management is committed to maintaining a strong internal control environment. In response to the identified material weaknesses, management, with the oversight of the Audit Committee of the Board of Directors, has taken actions toward the remediation of the respective material weaknesses in internal control over financial reporting as outlined below.
In 2019, we terminated the employment of those individuals who lacked the appropriate level of knowledge and experience with generally accepted accounting principles, and hired a new Director of Finance. Additionally, we hired an outside consultant who is trained and experienced in internal controls, financial reporting and public accounting. And finally, the oversight of internal controls and financial reporting has been transitioned to our parent’s corporate accounting department.
We will continue to make improvements to our internal controls and monitoring procedures as necessary to ensure consistent application of generally accepted accounting principles and allow for more effective monitoring of compliance. Management believes the steps taken above have remediated the material weakness described above as of the date of this report.
Changes in Internal Control over Financial Reporting
In addition, our management with the participation of our Principal Executive Officer and Principal Financial Officer, have determined that no change in our internal control over financial reporting occurred during or subsequent to the quarter ended September 30, 2018, 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, except as described above.
20
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, 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, which approximated $350,000, is being divided equally among the three-year period with no rollover of unused amounts from one year to another. The liability was $42,000 at September 30, 2018
As of April 2018, we agreed to extend the credit through October 2018 as our client has committed to two additional programs at the resort. As of the date of this report, there was no remaining liability under this agreement.
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
21
* 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.
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: September 18, 2020 | /s/ Prem Devadas | |
Prem Devadas | ||
Manager (Chief Executive Officer) | ||
Date: September 18, 2020 | /s/ Dale Pelletier | |
Dale Pelletier | ||
Chief Financial Officer (Principal Financial and Accounting Officer) |
22