COCO BEACH GOLF & COUNTRY CLUB ANNUAL REPORT 2012 ~~....••...... ~~ . I!!l ''II. 1 CocoiBeach GOLF. COUNTRY CLUB PO BOX 21420, SAN JUAN PR 00928-1420 * PHONE: 787-764-1000 * FAX: 787-758-7508 INDEX Financial Infonnation ...................................................................... I Operating Data. . . . . . . . . .. . .. . . .. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . .. . .. . . . . . . . . . . . . . .. .. 7 Audited Financial Statements... .. . .. . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . .. . . ..... . .... . . . . ... 26 Officer's Certificate of year-end Audited Financial Statements representations (Section 5.08 of the Loan Agreement) ............. ... ........ ...... 52 Borrower's Certificate Pursuant to Section 5.1 0 (c) of The Loan Agreement..................................................................... 55 FINANCIAL INFORlVlATION The Golf Cillb The Golf Club, which operates under the name Trump International Golf Puerto Rico, is a golf club that serves as the principal amenity to the Resort. The Golf Club's income is derived from tournament and event fees, membership dues, and the sale of rounds of golf, food and beverage and golf sporting retail goods. The Borrower has no other source of income and does not foresee developing new sources of income in the near futnre. The Golf Club also offers memberships upon application and payrnent ofa one-time refundable membership deposit and membership dues, the amounts of which are detennined by the Borrower from time to time. Members of the Golf Club have privileges with respect to tee times at the golf courses and the use of the facilities of the Golf Club. Purchasers of units at the Trump Residences are required to become members of the Golf Club, and a portion of the initial purchase price for a unit is applied to t.1}e payment of the membership deposit. In any subsequent sale of the unit, membership in the Golf Club is transferred with title to the unit. As of December 31, 2012, the Golf Club had 63 members, 4 of which are unit owners at Trump Residences. Membership deposits are refundable no later than 30 years from the date of the member's admission to the Golf Club and, accordingly, have been presented as deposits in the audited financial statements attached liereto. Futnre hotel developments planned for the Resort should increase revenues of the Borrower by increasing the use of the Golf Club and sales to tourists. Futnre residential developments sh.ould increase the number of Golf Club members and the use of the Golf Club. As of December 31, 2012, approximately 86% of the total client mix of the Golf Club represents local players and approxirnately 14% represents tourists, including Hotel guests. The Borrower does not expect this distribution to vary significantly in the near futnre. The follo\ving table summarizes the revenues of the Borrower for the last five fiscal years by the various categories and their respective percentages of the total revenues. Table I - Summary of Total Revenue For the Fiscal Years Ended Decem ber 31 2008 $ Golf 2009 ~ s ~ s 2010 0' -'-'- •• 2012 2011 ~ $ % $ 1,586,932 58.5 $ 1,365,719 56.0 $ 1,629,739 57.8 $ 1,690,256 59.1 $ 1,650,692 58.5 739,459 386,762 $ 2,713,153 27.3 14.3 100.0 773,857 298,129 $ 2,437,705 31.8 12.2 100.0 869,099 322,829 $ 2,821,667 30.8 ~ 834,679 335,606 $ 2,860,541 29.2 11.7 100.0 880,717 288,597 $ 2,820,006 31.2 10.3 Food and beverage Pro shop TOTAL 100.0 1iIoJ) The main sources of golf revenue of the Golf Club are the membership dues, the fees charged for playing golf 8Ild tournament and event fees ("Golf Revenues"), Golfers usually play one round of eighteen holes (a "Round"), Since 2008 Golf Revenues have fluctuated from $1,586,932 in 2008, decrease to $1,365,719 in 2009, increased $1,629,739 in 2010 and increase to $1,690,256 in 2011 because of an increase in the sale of Rounds. Golf Revenue decreased slightly for 2012 to $1,650,692 due to decrease in rounds. As to the other Golf Club revenue sources, revenues from the sale of food and beverage remained stable since 2007 in spite of the decrease in the Rounds sold, and decreased to $834,679 in 2011 but 1 increased for 2012 down to $880,717. As to the sales in the pro shop, which include sales of golf equipment and clothing and equipment rental, revenues have fluctuated from $386,762 in 2008, a decrease to $298,129 in 2009, increase to $322,829 in 2010, increase to $335,606 in 201! and decrease in 2012 to $288,597. This fluctuation has mainly been due to the fluctuations in the sale of Rounds. During the Puerto Rico Open, the Golf Club had total revenues of $247,330 in 2009, $246,479 in 2010, $210,113 in 2011 and $164,888 for 2012, which include pro shop sales, food and beverage sales, and the $40,000 annual facility fee. The following table shows the Rounds sold at the Golf Club broken down by type of players, and the number of Golf Club Members, on an annual basis since 2007. Table II - Rounds Summary & Membership Fiscal Year ended December 31 Tl'ee of Round 2008 2009 2010 2011 2012 Member 1,299 1,514 1,780 1,800 1,640 Member Guest 2,758 3,228 4,540 4,109 5,015 Local 2,761 3,693 3,798 3,067 3,080 6,285 4,519 h. 11.n ",.L-'V 6,830 6,398 727 613 685 585 659 Gran Melia Hotel 2,265 1,460 2,058 2,642 2,283 Other 2,152 2,387 2,088 2,057 1,877 Total Rounds 18,247 17,414 21,079 21,090 20,952 Membership 50 51 66 75 63 Tournament Outside Hotel The number of Rounds sold declined steadily from 2008 to 2009. From 2009 to 2010, the number of Rounds sold increased by 21 % and from 2010 to 2011 remained relatively the same. For 2012 the rounds decreased slightly to 20,952. 2 The following table illustrates the total operating expenses of the Borrower for the last five fiscal years. Table ill - Historical Direct and Operating Expenses For the Fiscal Years Ended December 31, Golf Food and beverage Pro shop Total direct expenses Selling, general, and administrative Management fees 2008 2009 2010 2011 2012 $ 2,758,076 $ 2,547,816 $ 2,397,292 $ 2,151,417 $ 2,287,209 799,508 745,869 737,336 621,500 623,575 242,957 191,136 193,852 196,573 151,658 $ 3,062,442 $ 3,800,541 $ 3,484,821 $ 3,328,479 $ 2,969,490 1,965,051 2,366,361 2,414,811 1,802,809 2,485,209 117,260 109,731 126,982 128,730 126,904 1,793,307 1,684,539 1,671,282 1,485,919 $ 2,082,311 $ 4,269,399 $ 4,226,332 $ 3,602,821 $ 4,098,032 $ 5,882,852 $ 7,754,220 $ 7,554,811 $ 6,572,311 $ 7,160,474 Depreciation and amortization • Total operating expenses TOTAL * As a result of a change in the independent auditors used by the Borrower for the year ended 2009, depreciation and !LTTIortization on property and equipment was treated as an operating expense instead of as a fixed charge in the audited financial statements for the year ended 2009. Total expenses of the Golf Club, excluding depreciation and amortization expenses, increased by 1.33% between 2008 and 2009. Such expenses decreased in 2010 by 1.6%, in 2011 decreased by 16.5% and increased by 9% in 2012. Golf expenses have steadily decreased from 2008 to 2011, with a slight increase in 2012. Selling, administrative and operating expenses have fluctuated during the past five years. In 2009, these expenses increased again to the highest levels since the commencement of operations due to an increase in the minimum wage and costs related to maintaining the golf course to PGA's standards. From 20 I 0 to 20 11, these expenses decreased because of management's cost reduction efforts. There was an increase for 2012 of $588,163 due mainly to TDF fees on the guarantee draws. 3 The following table sets forth the net losses of the Borrower for the past five fiscal years. Table IV - Net Losses For the Fiscal Years Ended December 31 Net loss before interest and other income and fixed charges Interest and other income Fixed charges NET LOSS 2008 2009 2010 2011 2012 $ 3,169,699 $ 5,316,515 $ 4,733,144 $ 3,711,765 $ 4,340,468 1,894,402 1,222,012 2,681,813 1,415,271 $ 7,210,917 $ 5,955,156 $ 6,393,578 $ 5,755,739 (280,188) 3,363,844 $ 6,253,355 * As a result of a change in the independent auditors used by the Borrower for the year ended 2009, depreciation and amortization on property and equipment was treated as an operating expense instead of as a fixed charge in the audited financial statements for the year ended 2009. Likewise, interest and other income were not inciuded in total fixed charges in the audited financial statements for the year ended 2008, whereas such amounts were included in total fixed charges for the year ended 2009. The unaudited financial statements for the year ended 2011 were prepared in the same method as the audited financial statements for the year ended 2009 and 2010. The Golf Club's net losses increased by 15.3% between 2008 arid 2009, this was caused by a decrease in Golf Revenues, another payroll increase due to the increase of minh'1lllm wage and the cost related to maintaining the golf courses to the highest standards. In 2010, the net loss decreased by 17.4%, in 2011 increased by 7.5% and in 2012 decreased by 10%. The Borrower's net losses during the past five fiscal years have been covered by loans from its partners and affiliates. As of December 3 L 2012, such loans and other amounts dne to affiliates of the Borrower totaled $37,539,780. Between 2007 and 2008, fixed charges were relatively stable. From 2009 to 2010, these decreased due to a change in the accounting methodology. In 2011 the increase in fixed charges was due to the refinancing oft.he AFICA loan and resulting loss of$I,144,899 on the debt extinguishment. See footnote under Table IV. Add.itional Financing Loans by Partners and Alli/isles As of December 31, 2012, loans ruld other amounts due by the Borrower to its partners and affiliates, other than the CBDC Note (defined below), totaled $35,965,883. Neither the partners nor other affiliates ofthe Borrower have any legal obligation to make capital contributions or extend credit to or on behalf of the Borrower, and therefore may cease to do so at any time. Pursuant to the Partnership Agreement, loans granted by the partners bear interest at 2% over the U.S. prime rate and are repaid from available cash flow prior to any distributions to the partners on account of their relative percentage partnership interests. The Borrower currently does not have any available cash flow for the repayment of the loans made by its partners. Outstanding Long Term Debt On March 30, 2011, the Borrower entered into a loan agreement with the Puerto Rico Industrial, Tourist, Edncational, Medical and Environmental Control Facilities Financing Authority ("AFICA") for $26,355,000. In connection with the loan agreement, AFICA issued the Tourism Revenue Refunding 4 Bonds, 2011 Series A. The Tourism Revenue Refunding Bonds are payable solely from revenues derived by AFICA under the loan agreement with the Borrower and from other monies pledged for payment under the trust agreement dated March 30, 2011 between AFICA and Banco Popular de Puerto Rico, as trustee (the "Trustee"). The Tourism Revenue Refunding Bonds are secured by an irrevocable, transferable standby letter of credit issued by TDF under a Letter of Credit and Reimbursement Agreement dated March 30,2011 between the Borrower and TDF. Revolving Line of Credit and Golf Carts Lease As of December 31, 2012, the Borrower had a line of credit with CBDC secured by a note payable to CBDC (the "CBDC Note"). The CBDC Note has a maturity date of December 31,2015, and bears interest at 2% over the U.S. prime rate. CBDC originally authorized a line of credit in the amount of $1 million and subsequently authorized an increase in the available line of credit for operational purposes. As of December 31, 2012, the outstanding principal balance under the line of credit amounted to $1,573,897. The CBDC Note is subordinated to the Borrower's obligations under H,e loan agreement with APICA and to the Borrower's obligations to TDF under the Reimbursement Agreement. The Borrower also has a capital lease with Popular Auto in the original principal amount of $710,000. The loan has a maturity date of March 1,2012, and bears interest at an annual rate of 8.5%. The proceeds of such lease were used to purchase golf carts for the Golf Club. The Borrower refinanced the residual value of the capital lease with Popular Auto on May 24,2012. As of December 31,2012, the lease had an outsta.l1ding pri.l1cipal RHlount of$72;188, Prepayment Agreement Pursuant to that certain Prepayment Agreement and Amendment Number 3 to the Letter of Credit and Reimbursement Agreement (the "Existing Prepayment Agreement") by and among CBDC, the Borrower, R-3 Development, Holdings and TDF, within 30 days of the closing of the sale of any unit developed by an affiliate of the Borrower at the Resort, such affiliate is required to deposit $85,000 with the trustee for the redemption of the Bonds, except that in the case of the closing of the sale of a unit in the Trump Residences, R-3 Development may defer depositing with the trustee $45,000 with respect to each unit until the repayment of the construction facility for the Trump Residences. After the repayment of the construction facility, R-3 Development must apply any excess cash flow after the payment of certain closing costs and other fees to the payment of such deferred amounts. As of December 31, 2011, R-3 Development had sold seven units at the Trump Residences. R-3 Development has deposited $280,000 with the Trustee in accordance with the terms of the Existing Prepayment Agreement. The Borrower, CEDC, R-3 Development, Holdings, TDF and the Authority have entered into a new Prepayment Agreement (the "Prepayment Agreement") under substantially the same terms and conditions as the Existing Prepayment Agreement. Any funds deposited with the Trustee as per the Prepayment Agreement will be applied towards the mandatory redemption of the Bonds semi-annually on each principal payment date of the Bonds. These a.~ounts may represent a major source for the payment of the Bonds. Market Area and Competition The Resort's and the Golf Club's main competitors in the Municipality of Rio Grande are the Rio Mar Resort located directly east of the Resort and the st. Regis Bahia Beach Resort located directly west of the Resort, both of which have at least one golf course as an amenity. The Resort also competes with varions other resort and golf communities located throughout Puerto Rico, including the Conquistador 5 Resort in Fajardo, the Palmas del Mar Golf Club in Humacao, and the Dorado Beach Plantation Resort in Dorado. Although there are several competing golf courses and resorts in Puerto Rico, the Golf Club has the only golf courses in Puerto Rico that meet the PGA Tour's standards for hosting its events, which includes superior drainage capacity to pennit its operation during times of greater rainfall. The Golf Club's golf courses have been recognized by Golf Week as among the best golf courses in the Caribbean and Mexico, with the International golf course being recognized among the top ten. The International golf course has also been recognized as the "Best Golf Course of Puerto Rico" by the American Academy of Hospitality Services. The Borrower believes it will capture a greater share of the Puerto Rico market for golf tournaments and events because of the superior quality of its golf courses. Seasonai Effects Historically, the Borrower has experienced seasonal variations in revenues due to an increase in visits by tourists during the high season, generally commencing on December 15th and ending on May 15 th of each year. The Borrower expects that such seasonal variations will continue in substantially the same pattern or become more pronounced in the future. Labor The Borrower currently employs 84 full-time and 2 part-time employees. These employees consist pri..'11arily of ma.l1agement, operations and maintenance. The Borrower outsources security to third parties. The Borrower believes that relations with its employees are satisfactory. The Borrower's employees are participants in a pension plan established in June 2007. participant's share iii the plan is based on his or her salary. Each Litigation The Borrower has filed a lawsuit against the Municipal Revenue Collection Center (known by its Spanish acronym as "CRLl\1") and its Executive Director with respect to certain real property taxes that have been assessed, and appraisals that have been issued, with respect to the Golf Parcel. Tne Borrower does not anticipate that an adverse judgment will have a materially adverse impact on its expenses. The Borrower is not currently involved in any other lawsuits, or administrative or arbitration proceedings. Licenses and Permits The Borrower is subject to the licensing requirements of a number of government agencies and, to the best of its knowledge, is in material compliance with such requirements. Environmental The Borrower, to the best of its knowledge, has no environmental compliance problems. 6 Coco Beach Golf & Country Club ConsolidatHd Financia~ Statement For the Twelve Months Ending December 31,2012 Jan Actual ltwome Golf Operations Felod & Beverage Other Income Feb Actual March Actual April Moy Act~lal Actual ,June Actual August Actual July Actual Sept Actual No, Oot Actual Dec Actual Actual Total ------p;ctua-'-- Total Budget $222,080 52,228 17,509 $252,062 45,327 17,506 $244,603 206,009 17,511 $202,332 81,708 17,522 $136,651 65,517 17,509 $158,144 71,186 17,504 $117,258 56,351 17,509 $130,085 57,758 17,507 $95,389 47,916 17.506 $115,550 65,029 17,509 $117,228 58,197 17,50B $147,907 73,491 17,511 $1,939,289 880,717 210,112 $3,138,201 1,088,569 212,400 TNallncome 291,81"{ 314,895 468,123 301,562 219,677 246,834 191,118 205,350 160,811 198,088 192,933 23~,909 3,030,118 4,439,170 Cost of Sales Merchandise Food & Beverage 13,35€i 17,872 20,531 18.952 27,963 66,224 16,305 20,770 9,802 12,806 10,021 16,162 10,951 B,240 19,275 7,789 12,364 5,636 11,503 9,931 21,327 11,134 14,818 151,658 249,431 240,361 326,308 ---------_. -------- ------- --------,-- --------- ---------- ---,----- _._-------- ----------- ------- ------ -------------- --------------- ------------- ----------- ---------- ---------- ------ ---- -- ---------- ------------- Total Cost of Sales --~~~~-~~ -----------,,-- ------ -------- --_._- ------ --------- -- ------------- - -------------- ---_.. _--- 31,228 39,483 94,187 3"1,0'1$ 22,608 26,183 28,309 27,515 20,153 17,139 31,258 25,952 401,089 566,669 142,624 24,499 19,313 9,852 153,801 23,671 20,957 11,157 194,927 45,223 23,990 16,044 126,8S9 33,364 21,8-'9 11,3:39 '118,274 27,397 27,722 12,644 108,769 24,673 26,814 11,171 97,456 19,674 24,509 10,763 104,7BO 20,685 24,597 11,774 117,828 23,385 24,626 13,733 106,159 19,029 28,513 10,832 115,465 26,224 28,352 15,256 1:18,114 29,966 26,868 '16,470 1,525,036 317,792 298,141 1:;1,034 1,697,870 325,604 260,807 146,411 Total Payroll & Related 196,288 209,586 280,184 193,441 186,037 171,427 152,402 161,816 179,572 164,533 185,297 2.1 \,418 2,292,003 2,430,692 Operating Expenses Golf Operations Food & Beverage General & Administrative Marketing Building Maintenance Utilities 89,647 3,609 18,699 7,650 9,349 39,196 129,519 10,775 19,954 11,197 6,215 52,049 86,053 12,484 20,705 7,936 5,544 34,111 8,397 17,279 '1.795 5,558 53,524 52,024 2,628 14,098 (1,414) 6,738 48,820 29,612 3,901 17,687 3,631 7,102 46,847 68,566 1,959 13,687 6,168 3,185 55,570 75,769 1,982 12,258 10,913 3,805 44,000 68,761 1,862 30,301 8,903 7,870 53,895 72,541 2,780 12,637 4,280 3,895 47,954 65,259 3,455 14,054 10,473 8,653 38,872 (7,072) 4,402 98,302 4,246 5,909 59,B19 37,167 - - - ------_.. ------ -------- -------------- ------------- --------- -------------- ------------ -_._----_.. _---- ----------- ------_ .. _------168,150 229,709 192,541 120,664 122,894 108,780 149,135 148,727 171,592 144,087 140,766 125,69) 764,790 58,232 289,661 75,779 73,823 577,712 857,820 80,100 278,348 103,100 107,950 466,960 1,839,997 1,894,278 Pltyroll & Relltted Golf Operations Food & Beverage General & Administrative Building Maintenance -------,- ----------- ---------- ----------- _._--------- -------,----- -_._-------- --------_.-------- ------------ ------------ ---------- ----------------- _._------------- --------------- Total Operating Expenses lrloome Before Fixed Charges _- (103,849) (163,883) (98,789) (49,618) (11 1,862) (59,556) (I38,728) (132,708) (210,506) (127,671) (2,565) 450 7,954 13,383 3,000 450 9,574 20,278 450 7,954 12,783 450 7,832 9,098 450 7,832 10,320 450 7,832 7,813 450 7,832 8,453 3,543 450 7,832 6,449 727 450 7,954 12,344 450 7,832 8,126 1,2'12 1,138 1,899 1,169 952 1,141 895 780 932 ---- ---------- --------------- (164,388) (141,415) (1,502,972) (452,469) 450 7,832 'r,894 1,454 450 7,832 9,963 35,828 6,159 5,400 96,092 126,904 35,828 12,743 14,400 5,400 110,400 190,201 36,000 12,000 Fixed Charges Gommon Area Maintenance Golf Course Maintenance Land Rent Insurance Management Fee Property Tax Municipal Tax --------- -----------_. ------------- -----------Total Fixed Charges :~el Operating Income Less Interest Expense Bonds Less Interest Expense~Grid Note Less BOnd Issuance Costs Less Capital Lease Interest Expense Less Depreciation Less TDF Fees --J 21,960 20,360 35,201 22,356 18,332 (\25,809) (184,243) (133,990) (71,974) (124,897) (7,018) (6,702) (392) (140,513) (124,897) (6,565) (6,702) (261) (140,513) (64,963) (124,897) (6,791) (6,702) (131) (140,513) (32,481) 974 ~-------.-- --------- _.. _----------- 19,743 16,990 17,709 19,054 (130,194) (79,299) (I55,718) (150,417) (229,560) ("124,897) (6,943) (6,702) (124,897) (124,897) (6,702) (6,702) (124,185) (20,827) (6,702) (124,185) (6,942) (6,702) (124,185) (6,773) (6,702) (140,513) (32,481) (140,513) (32,481) (140,513) (32,006) (140,513) (32,006) (140,513) (32,006) (140,513) (32,006) 829 -----~- 823 --------,------ ------------- _._----- 17,005 56,350 283,126 368,401 (145,738) (\8\,393) (197,765) (1,786,097) (820,870) (124,185) (124,185) (124,185) (6,702) (6,702) (140,513) (32,006) (140,513) (32,006) 9,306 (5,780) 59,727 (499,392) (1,494,492) (61,859) (64,416) (6,564) (1,485,916) (853,834) (1,494,486) (82,621) (64,416) (783) (1,680,000) (386,922) 18,067 Coco Beach Golf & Country Club Consolidated Financlan Statement For the Twelve lVIonths Ending December 31, 2012 Feb Actual Jan Actual Less Trustee Fees Acid Interest Income/Restricted Funds Add Interest Income FF&E Account April Actual March Actual ,June Actual M" Actual July Actual August Actual Sept Actual 001 Actual Total Actual (4,500) 171 112 142 173 148 172 145 6 143 (479,800) (460,622) 170 ----,------- ------- ---------- --------- ------------ --------- ----------- -,------- -----Nd Profit (Loss) Dec; Actual No" Actual (405,160) (528,032) (445,363) (387,83'1) (434,639) (383,245) (539,569) 188 189 182 Total BUdget «1,500) 1,935 (6,000) 3,600 6 --------------- ----------- ---------- ------------- --------(448,956) (48~,610) (757,907) (5,755,738) (4,532,498) =:====="'==== =========== =====.,==="':: =========='" ="'========= ======="'=== ========"'''''''' =""=="':,",""=""= ==:==="'''''===''' =========="" =="""=="'=,,::::= =======:==== =::========= =========== (Xl Coco Beach Golf & Country Club Golf Operations For the Twelve Months Ending December 31,2012 Fe' Jan Actual Mal'ch ActUal Actual ,Iune Actual May Actual April Actual July Actual August Actual Sept Dol Actual Actual Doc Actual "" Actual Total Actu,ll Total Budget Income M~!mber Duell Green Fees Celli Fees Toumament Fee Merchandise Other lncom€' Total income ee,st of Sales Merchandise COS $16,000 106,205 49,095 32,034 18,746 222,080 13,::~56 ---~-----, Total Cost of Sales Pa,yrol\ & Related Golf Ops Wages G~lf Maintenance Wages Employee Taxes Employee Benefits 43,613 11,641 $17,500 82,421 45,350 40,000 47,427 11,906 $15,000 89,666 49,165 $15,200 54,887 41,210 252,063 244,604 17,746 31,196 7,608 17,308 ..- -------------202,333 136,651 20,531 27,963 '10,305 ---------- --------- ---.---~ ------------ ----------- -------_.. __ .. _-- $15,200 39,004 40,240 $15,200 43,552 49,200 18,654 6,442 18,361 4,452 16,912 5,220 -------------- ----_._----158,145 9,802 ------,---~ $15,200 52,704 65,145 10,021 .. ---------~----- $15,200 32,140 33,330 $15,200 42,378 41,620 11,735 2,984 13,093 3,259 -------------~ ---.--~---- $11,000 46,270 33,610 $11,121 60,994 44,515 17,922 8,426 19,904 11,372 -------------- ------_.._------ $17"1,821 772,650 550,860 40,000 288,597 109,362 --- --'--'.---~ $285,350 1.445,886 830,504 40,000 437,020 99.441 ----------- 117,257 1)0,084 95,389 115,550 117,228 147,906 1,9:,9,290 3,138,201 10,951 8,240 7,789 5,636 9,931 11,134 151,659 240,361 ------------- ------------ ---------------- ------------- ------------ ---------------- -----------.---- ------------------ 13,:356 20,531 27,963 16,305 9,802 10,021 10,951 8,240 7,789 5,636 9,931 11,134 1:)1,659 240,361 31,:jQ2 81,432 15,!j61 14,a29 35,177 84,476 16,325 17,824 49,988 '105,353 20,043 19,543 35,444 60,816 10,816 19,783 33,470 59,860 9,270 15,675 26,722 59,595 8,139 14,313 26,959 50,394 6,579 13,524 29,948 52,496 6,696 15,620 30,385 65,707 7,851 13,885 31,713 53,433 7,182 13,830 29,514 61,727 7,482 16,742 41,665 e1,438 11,471 3,542 402,287 816,727 127,415 178,610 40'1,438 853,670 131,294 305,467 194,927 126,859 118,275 108,769 97,456 104,760 117,828 115,465 138,116 1,525,039 1,697,869 235 507 (150) (50) 592 1,177 3,550 1,059 11,128 1,500 3,500 1,800 2,400 6,000 4,800 12,500 6,000 12,000 9,500 4,800 1,200 1,500 2,400 -------.. _-Tiltal PaYTol! & Related $16,000 122,429 58,380 ---~-- 142,624 153,802 178 475 ----------- -----------_.- ---------- ----,---------- - ._--------- -------------_.- --------------- - ---------~-- 106,158 -------------- -------------- -------------- -------------- Operating Expenses Golf Operations Dues & Subscriptions Meetings & Seminars HandIcap Service Laundry & Dry Gleaning linen Members Amenities Supplies _ Bag Room Supplies - Golf Shop Supplies- Locker Room Supplies _ Range Printing & Stationery Rental Clubs Hental Shoes Telephone & Pagers Signage Uniforms 1,156 Golf Maintenance Consulting & Testing Dues & Subscriptions Contract Labor Gourse Supplies i::quipmenl Rentals '.0 1,925 530 2,161 74 1,753 3,600 325 1,164 512 130 793 163 1,039 91 109 3,963 1,996 142 600 491 526 70 100 125 2,033 100 125 100 125 100 125 435 2,880 96 363 87 6,771 1,951 3,618 4,249 8,280 3,795 2,402 1,664 o 387 3,945 678 646 118 (527) 256 240 240 765 139 202 100 125 125 1,095 100 125 225 621 424 125 223 100 125 148 2,6E>4 6,1ti5 124 -----~ 5,548 176 59 268 ----------Total Operations Expenses 524 535 1,063 100 3,573 4,784 2,424 125 275 323 153 2,813 10,824 2,197 1,819 1,513 3,906 1,591 1,500 2,617 2,880 6,300 7,474 1,013 5,093 52,653 83,100 7,538 2,615 1,500 26,130 540 21,058 3,089 1 700 15,000 12,000 1,000 110 100 65 125 150 750 527 10,000 (1,193) 12 31 ---------------- -------_.__.. _-- ------------- ---------------- -_._----- ------------ -- ------------ ------------ -------- ------------- -------------- 390 10,000 125 360 12,500 86 6,1l67 (240) 14,699 20,000 5,609 43 6,667 2,207 6,667 226 (72,260) 13,200 Coco Beach Golf & Country Club Golf Operations For the Twelve Months Ending December 31.2012 Joe Actual Feliilizers Tmatments & Pesticides Gas &Oit Generator Maint. Meetings & Seminars Mosquito Control Operating Supplies-Maint Bldg Refuse Removal Repairs & Maint.-Bul1ding Repairs & Maint.- Irrigation & Drain Repairs & Maint.-Equip & Machine Repairs & SuppUes - Carts Sand, Soil & Stone Tools & Supplies Plant, Seed, Sad Telephone & Pagers Uniforms 26,578 56,941 14,147 13,774 April Actual June Actual May Actual :M,389 1,064 "14,420 95H 752 600 July Actual August Actual Sept Actual 17,975 624 3,108 22,29'1 12,419 10,720 1,028 17,690 43,070 Od N" Actual Actual Total Actual Dec Actu;;i\ 31,973 31,179 7,254 10,225 -r,465 631 752 179 22,119 300 6,099 29,347 1,815 6,166 4,250 4,080 ---------------Total Maintenance Expenses Marcl, Actual Feb Actual 83,493 --~---- ..----- 123,971 2,552 15,477 1,107 2,257 252 3,519 9,737 7,600 6,714 3,219 1.032 7,600 040 204 9,259 754 140 80 161 40 321 82,481 29,329 11,400 4,495 12,575 467 3,800 1,736 207 8,060 80 329 163 ---~------- ~------.-.--- 7,768 -----.------- ---------..•""--- ------------- _._-----_.,--- ----------_..49,599 22,842 66,615 72,152 64,512 16,553 150 7,008 10,489 1,128 245 350 122 ------ -----------.65,067 64,245 4,475 113,856 5,468 16,422 1,548 120 269,087 1,064 109,142 0 0 0 631 4,613 179 1B,500 145,436 3'1,526 67,147 840 11,356 1,721 80 Tolal Gudget 356,000 36,000 128,400 2,400 3,000 3,000 4,800 3,600 2,400 18,000 125,000 6,000 24,000 4,500 3,000 1,920 24,000 ----- ------------- -----. (12,166) 712,140 774,720 La.ndscape -----------", Total Operating Expenses NI~t Profit (Loss) ~-------- --------- -------,-_._- --------- ------------ ---,-~---- -"-------- --~------- ------- ---~----- ------------- ----_.------- ------------ 89,648 129,519 86,054 3~,1l3 52,023 29,613 68,566 75,770 68,761 72,541 65,258 (7,073) 764,793 857,820 (23,548) (51,789) (64,340) 25,0;;6 (43,449) 9,742 (59,716) (58,686) (98,989) (68,785) (73,426) 5,729 (502,201) 342,151 "''''''''''''''''''''''=== =========== =====",===== =========== ===:0::======= =========== ======:::==== =========::"" =========:::= ::=====:::=== ========::=== ======,,:==== ====::====="''' ========,,== f-' o Coco Beach Golf & Country Club Food and Beverage Fo!' the Twelve Months Ending December 31,2012 F,' J" Actual March Actual Actual April M,y Actual Actual A U9 us t July Actual June Actual Sept Actual Actual Oct No" O,e Actual Actual Actual Total Budget Total Actual Income Grill & lounge Food Catering Food Course Outlet Food $8,214 11,727 6,543 $8,153 5,458 5,186 26,4~4 18,797 $8,210 149,151 7,822 $5,368 38,159 4,001 $3,824 32,701 2,815 $6,177 23,824 2,928 $4,815 35,494 2,899 $4,427 28,675 2,168 $4,865 21,447 2,164 $5,242 36,071 1,680 $5,067 26,B09 2,116 Grill & lounge Beverage CatJ~ring Beverage Course Oullet Beverage 165,183 47,528 39,340 Beverage Sales Gril~ & lounge \/Vine Catering \/Vine Toull Income 28,476 42,993 33,992 43,240 557,440 709,352 53,792 54,289 148,869 91,965 30,771 176,267 3,897 3,491 8,594 3,618 5,421 6,101 4,107 3,465 10,733 3,382 11,168 9,074 ----,------ ------------ ----------- ------------ ------------ -------~--- 18,808 17,563 15,869 \5,982 15,140 18,305 23,624 256,950 299,003 72 1,564 118 641 229 210 258 481 143 895 293 441 205 737 125 2,665 4,281 11,002 15,328 15,386 2,105 1,636 759 439 739 1,038 ))4 942 2,790 15,283 30,714 3,823 4,474 4,095 8,412 5,420 5,880 2,420 6,163 4,958 3,838 51,048 49,500 45,326 206,009 81,708 65,519 71,187 56,351 57,758 47,916 65,030 58,197 '13,492 88(),721 1,088,569 12,810 5,673 469 58,565 7,044 614 13,257 7,220 293 9,156 3,393 257 11,159 4,846 157 12,292 4,912 154 14,783 4,294 198 8,463 3,471 430 8,716 2,689 98 12,199 8,554 183,199 62,525 ::',,708 248,273 68,771 9,264 8,058 8,286 17,579 4,039 4,410 19,152 3,644 4,764 12,040 25,429 24,258 33,923 27,601 20,448 254 61 506 200 1,310 1,770 768 '1,337 315 706 3,080 1,565 52,228 9,591 8,238 44 Other Income 35,270 4,558 3,258 8,053 5,210 563 18,485 ---------- -------- --------- -------Total Wine Sales 32,929 $61,310 586,732 61,310 4,041 4,004 9,518 5,092 611 19,726 ------- -------- -------- ------ -----------Toll:~ 43,208 $69,432 444,667 43,341 ----------- ----------- ------------ - - - - - -------- ------ ------- -------- -------- -------- -------- --------- --------Total Food Sales $5,070 35,151 3,019 4,146 4,848 9,814 -----~---- ---------- ------------- -------- -_._------- ------------ ------------- ----------- ------------- ---------------- --'--------,----- Co~t of Sales Food Cost Beverage Cost Vl/ine Cost 575 1Z,208 ::~, 191 419 Total Cost of Sales 17,873 18,952 66,223 20,770 12,806 16,162 17,35a 19,275 12,364 11,503 21,328 14,818 249,432 3i6,308 Payroll & Related Wages Front of House Wages Employee Taxes Employee Benefits 9,152 9,760 3,003 2,584 8,024 9,629 2,497 3,521 24,298 13,247 3,822 3,856 14,162 12,402 2,986 3,815 10,333 11,563 2,121 3,380 9,562 11,049 1,821 2,241 9,5526,188 1,738 2;197 9,199 7,224 1,528 2,734 10,380 9,052 1,835 2,118 9,209 6,308 1,447 2,064 11,464 9,751 1,927 3,081 1:~,066 :2.572 138,401 117,923 2"1,303 34,163 122,032 112,958 34,560 56,054 24,499 23,671 45,223 33,365 27,397 24,673 19,675 20,685 23,385 19,028 26,223 29,966 317,790 3~5,604 o 306 1,688 297 5,797 2,055 3,749 4,227 12,014 1,658 1,593 521 4,671 251 1,339 4,900 10,348 9,377 6,679 1,292 2,400 8,700 5,700 3,600 3,900 2,400 3,600 1,300 14,000 8,700 4,800 2,400 -------- -----,~-- ------ ------- -----~----- ----------- ------------- -------------- ---------- ------_._-- ------------- ---------------- ------------------ ---------- -------- --------- ------------ -----,._----- ------------ ----------- ---------- ---------- ----------------Tola\ Payroll & Related 1 "1,750 2,578 ----------- ----------- -------,---- Operating Expenses Bar Snacks China, Glass, Silver Contract Cleaning Equipment leased 8:luipment Repairs Kitchen Fuel L~lundry & Dry Cleaning Lh:enses & Pennlls Uillen Rental Operating Supplies & Expense Paper Products SuppUes Plinting & Stationery t-' t-' 1,569 780 o 380 206 192 2,625 2,832 3,801 151 294 98 241 133 163 163 599 246 176 546 372 845 678 1,101 1,500 63 139 821 719 944 97 233 4:-11 217 247 193 1,382 225 4,900 866 461 692 131 251 65 1,726 184 608 108 335 98 514 600 493 Coco Beach Golf & Country Club Food .nnd Beverage For the Twelve Months Ending December 31,2012 Feb Actual J" Actual March Actual Refuse Removal Smallwares Spoilage & Waste Telephone Uniforms M,y April Actual June Actual Actual 500 187 40 124 111 -~~-------- Total Operating Ex.penses Net l'rofit (Loss) 3,609 6,247 "''''''''''::='''''''''=",''' f-' '" 10,775 12,484 8,397 2,627 (8,072) 82,079 19,176 22,689 =:"'=======:::::" ::=::=::="'::======= =::="'====::==== ========",== July Actual 559 297 _.. _---------3,900 26,452 ",====~:==",== August Actual 390 Oot Actual Sept Actual 269 56 ----- Dec Actual No" Actual 231 56 -~ 122 Total Actual '122 87 Total Budget o o 3,600 :;00 1,!lSO 751 3,000 3,600 2,400 6,000 -----------,- --------_._-- ------------,-- ------------ 1,959 1,981 1,861 2,779 3,~54 4,403 58,229 80,100 17,359 15,817 10,306 31,720 7,192 24,305 2,)5,270 356,557 ====:::==::::::::== ==:::======='" =="'======== =====",=",=== ==",===",,,,,,,:::,,, =====:::e:'::=::;=::= ::=====",==::",,::= "''''========::= Coco Beach Golf & Country Club General and Administrative FOI' the Twelve Month!~ Ending December 31, 2012 Payroll & Related WagEiS Employee Taxes Employee Benefits Total Payroll & Related Operating Expenses Accounting & Audil Bank Charges Computer Expense Dlrec:tors & Officers Expense Duel~ & Subscriptions Employee Relatlons LegHI Fees Meetings & Seminars MUsic & Cable Opel"ating Equip Leases Office Supplies Operating Expenses Payroll & HR Fee Postage Printing & Stationery Security Tele,phone & Pagers Uniforms J," F,b Actual Actual March Actual M,y April Actual Actual June Actual August Actual July Actual Sept Actual Oct Actual No, De' Actual Actual Net Profit (Loss) 1--'- UC. Total 8udaet $15,230 1,716 2,367 $16,399 1,681 2,877 $19,244 1,859 2,888 $17,623 1,591 2,B6S $22,663 2,438 2,621 $n,048 1,909 2,857 $19,-(15 1,621 3,173 $20,354 1,631 2,612 $20,549 1,645 2,432 $24,038 1,958 2,517 $24,040 1,444 2,869 $22,169 2,059 2,640 $244,072 21,552 32,518 $207,053 18,196 35,5;57 19,313 20,957 23,991 21,879 27,722 26,814 24,509 24,597 24,626 28,513 28,353 26,868 298,142 260,806 2,000 7,778 1,854 2,000 7,401 2,880 2,000 5,781 2,852 2,000 3,586 2,237 2,000 4,311 1,726 2,000 3,761 3,575 2,000 3,149 832 2,000 4,030 1,119 2,000 3,202 1,871 2,000 2,828 724 2,OOD 3,864 745 7,188 3,009 278 765 2,451 51 230 (460) 284 193 2,600 26 577 230 463 674 201 2,600 250 1,811 290 159 2,779 40 29,500 56,879 25.:i33 0 260 B94 59,'110 B28 2,947 5,281 3,327 2,879 31,200 1,370 361 37,1D6 31,883 705 24,000 92,062 12,000 12,000 600 3,200 36,000 1,250 3,000 7,548 5,400 5,400 31,200 2,400 2,004 6,000 31,884 2;400 17,689 289,663 278,348 (587,805) (539,154) --------- --------- -- ------,--- ------_.,--- ----,------ ---------- ---------- - ----------- ----- -------- ---------- ---------_.. --------- ---------_._- - ------"------- 7,~iOO 4,~118 260 838 230 336 523 247 2,600 180 275 2,675 230 567 407 85 2,600 2,686 230 415 188 155 :1,600 3,314 160 230 673 161 361 2,600 314 B59 3,215 315 230 450 212 250 2,600 (59) 277 14,343 ;101 37,'191 513 230 629 185 16 2,600 290 230 336 93 418 2,600 (6) 230 784 198 125 2,600 (9) 422 1,862 113 161 998 328 4,784 102 163 2,993 13,688 12,258 30,301 12,636 14,055 (38,197) (36,855) (54,927) (41,149) (42,408) 417 664 153 452 2,600 230 424 '249 376 2,600 384 84 162 2,401 34,577 2,365 ------- --------- -----.---- --------- --------- ---------- ------- --------- ------------ ---_._------ --------"- ----Tela.! Operating Expenses Tolal Actual 18,698 19,954 20,704 17,279 14,098 (38,01\) (40,911) (~4,695) (39,158) (41,820) (44,503) ="''''''''''==='''== ====",''''====" ",,,,=,,,===,,,,,== "'"'=====""== ====:==:===== ::====:=""=:::::'" ==:::======:::= ==="===:=""",, ======,,===::: ===:==:::==""== =="''''===='''''''' -------------- --- --_._-----98,303 (125,171) =========== ===:::=::,,===== ="'==="'''''i=== Coco Beach Golf & Country Club Marketing For the Twelve Months; Ending Decembel' 3'1,2012 Fob Actual J" Actual March Actual April Actual M,y June Actual Actual August Actual July Actual Sept Actual No, Oct Actual Actual Total Actual Dec Actual Total Budoet Operating Expenses Creative Design Collateral Matertals Promotion Public; Relations & Advertising Member Events Site Visits Web Site 1,248 5,842 161 684 10,113 500 6,636 400 400 SOO 625 1,020 '\50 224 (2,038) 699 2,133 566 5,202 448 10,065 400 800 400 400 ------------ -"'--------- ---------- ------------ ----------- ---------------- ----------- -------------Total Operating Expenses Net Ptofit (Loss) 542 7,961 400 ------~--- 1,000 2,880 400 --,------- 777 9,696 800 $0 0 8,337 61,813 431 0 5,200 1,024 2,303 120 -------.- ---------_.- - $2,400 4,200 4,800 76,5PO 3,500 6,900 4,800 ------------ 7,651 11,197 7,936 1,795 (1,414) 3,632 6,168 10,913 8,903 4,280 10,473 4,247 75,781 103,100 (7,651) (11,197) (7,936) (1,795) 1,414 (3,632) (6,168) (10,913) (8,903) (4,280) (10,473) (4,247) (75,731) (103,100) "'="'="''''='''''''= =",===",=",,,,,,,,,, ",,,,,,,====,,,,,,,,, ",=",=",,,=,,,":::,, '""':===="'==='" ==="'=='""'=== ===:==0:===== ,,====="'=""'= ======="''''''= ===,-,,,,,,,,,,:,,,,= =="''''''=''''''== ======="'==::: ="=====:0:=== =========== P -I:-- Coco Beach Golf & Country Club BUliiding F:or the Twelve Months Ending December 31, 2012 Jan Actual Payroll & Related WageH Employee Taxes Employee Benefits Total Payroll & Related March Actual Feb Actual April Actual $8,871 899 1,387 $13,134 1.414 1,497 ~------ ~--,----- 9,852 11,157 2,383 1,192 $7,981 751 1,120 ------- June: Actual May Actual Sept Actual August Actual July Actual Oot Actual Nw D" Actual Actual Total Actual Total Budget 1,123 $9,467 432 1,272 $9,251 483 1,029 $9,949 542 1,283 $11,952 684 1,098 $9,253 473 1,106 $13,234 689 1,333 $14.401 928 1,1 i ,1 11,339 12,644 11,171 10,763 11,774 13,734 10,832 15,256 16,470 151,0:17 146,410 240 31 1,125 517 854 32 400 752 655 1,179 510 2,029 1,062 600 1,200 674 200 735 27 200 1,140 1,636 11,400 6,000 2,400 5,700 1,169 496 2,056 9,01'13 8,944 2,400 2,352 1,460 14,680 1.728 (138) 333 1,116 277 1,738 2,111 1,738 1,206 450 64 450 1,679 1,65C1 (900) 5,483 O,289 18,qOO 3,600 1,200 10.800 6,300 1,800 3,600 2,400 4,500 7,200 $9,0'72 864 1,403 $10,809 16,045 1,760 880 600 712 -----,_..- ---------- ----------- -------- --------- -------- ----,._---- ------------- ----------- $127,374 8,871 14,792 ------~--,--- $114,223 10,850 21,337 ------------ Operating Expenses HVAC Opercltlng Supplies & Expense Pest Control Waste Disposal Heliport Cleaning & Jan!torial Supplies Cleaning Contract Building Repairs Decorations and Interior Plants Dust Control Electrical and Mechanical Elevators EquIpment Rental Fountain & Spa Maintenance Fire Protection Generator Maint. Painting & Decorating Permits Too[:s & Supplies Uniforms Hou:;ekeeplng Uniforms 1,861 Net Profit (Loss) 3,258 67 r< 150 519 1,200 21)0 500 638 523 684 655 1,920 a 468 186 1,946 592 600 370 918 1,643 450 a 595 1,206 605 829 315 347 315 3·15 876 740 2,885 3,258 a 892 1,296 256 2,836 8 1,149 846 -----,_._- ~------ 9,349 6,214 5,545 (19,201) (17,371) (21,590) =========== <=========== ="''''======='''= l.n H33 (j28 -------~- Total, Operating Expenses 2.00 1,100 154 471 777 21 -----5,558 (\6,897) =========== -------_.--- -------- --------- -- -~-------- 6,738 7,103 3,184 3,804 (19,382) ':18,274) (13,947) (15,578) =",,,,======,,,,,, =====,,===== ====:0====== =='"======== 478 691 659 6,9,50 5,000 451 6,680 a 2,~:\OO 364 64 3:143 1,690 0 4.800 2,400 1,500 107:950 ------------- ----------- ------------ ------- ------- --------------- -------------7,871 3,895 (21,605) (\4,727) =========== =========== 8,654 5,,909 73,824 (23,910) (22)79) (224,861) =========='" ="""="""=::::"== ====::::'''=='''== (254,360) =========== Coco Beach Golf & Country Club Utilities I=or the Twelve Months Ending December 3'1,20'12 Jao Actual Feb Actual March Actual Apnl Actual May Actual Jun'~ Actual July Actual August Actual Sept Actual Dot Actual Nw Actual D" Actuat Total Actual Total Budget Operaling Expenses Electricity Ga, Water & Sewer lnigation Fees Diesel Total Operating Expenses Net Profit (Loss) I~ ,:y, $37,031 2,166 $44,077 1,972 4,000 2,000 $52,318 1,501 4,000 2,000 -------- -------- ---------- $38,349 1,507 7,933 5,735 ------~----- $40,471 2,349 4,000 2,000 ---------- $40,106 2,081 3,005 1,655 ----~--.,---- $38,119 1,101 3,019 13,331 $36,884 1,116 4,000 2,000 ----------- $39,835 1,733 3,013 9,314 $40,176 1,129 3,110 3,540 $32,228 64' 4,000 2,000 ---------- ----,------- -_.- $31M1 1,8138 3,0'72 555 $471,245 19,187 43,152 44,1:30 $366,000 a 54,960 42,000 4,000 --------_._- ------------- -----------.---- 39,197 52,049 59,819 53,:524 48,820 46,847 55,570 44,000 53,895 47,955 38,872 37,166 577,714 466,960 (39,197) (52,049) (59,819) (53,524) (48,820) (46,847) (55,570) (44,000) (53,895) (47,955) (38,872) (37,166) (577,714) (466,960) Coco Beach Golf & Country Club Consolidated Financial Statement For the Twelve Months Ending December 31, 2012 YTD % of Sales 2012 Golf Rounds Income Golf Operations Food & Beverage Other !ncome YTD % Budset of Sales (9,703) 30,655 20,952 $1,939,289 880,717 210,112 64.0% 29.1% 6.9% Variance to Budget $3,138,201 1,088,569 212,400 70.7% 24.5% 4.8% ($1,198,912) (207,852) (2,288) --------------- ---------- ---------------- ------------- ------------------Total Income 3,030,118 ]00.0% 4,439,170 100.0% (1,409,052) Cost of Sales Merchandise Food & Beverage '151,658 249,431 5.0% 8.2% 240,361 326,308 5.4% 7.4% (88,703) (76,877) ------------- ------------- -------------------- ------------ ---------------Total Cost of Sales Payroll & Related Golf Operations Food & Beverage General & Administrative Building Maintenance 401,089 13.2% 566,669 12.8% (165,580) 1,525,036 317,792 298,141 151,034 50.3% 10.5% 9.8% 5.0% 1,697,870 325,604 260,807 146,411 38.2% 7.3% 5.9% 3.3% (172,834) (7,812) 37,334 4,623 ------------- ------- ------------- --------- -------------Total Payroll & Related 2,292,003 75.6% 2,430,692 54.8% (138,689) Operating Expenses Golf Operations Food & Beverage Genera! & Administrative Marketing Building Maintenance Utilities 764,790 58,232 289,661 75,779 73,823 577,712 25.2% 1.9% 9.6% 2.5% 2.4% 19.1% 857,820 80,100 278,348 103,100 107,950 466,960 19.3% 1.8% 6.3% 2.3% 2.4% 10.5% (93,030) (21,868) ~ ~ ':11 ':I I l , v , .... (27,321) (34,127) 110,752 -------------- -------- ----------- ----------- ------------Total Operating Expenses Income Before Fixed Charges 1,839,997 60.7% 1,894,278 42.7% (54,281) (1,502,971 ) -49.6% (452,469) -10.2% (1,050,502) 6,159 5,400 96,092 126,904 35,828 12,743 0.2% 0.2% 3.2% 4.2% 1.2% 0.4% 14,400 5,400 110,400 190,201 36,000 12,000 0.3 % 0.1% 2.5% 4.3% 0.8% 0.3% (8,241) 0 (14,308) (63,297) (172) 743 Fixed Charges Common Area Maintenance Golf Course Maintenance Land Rent Insurance Management Fee Property Tax Municipal Tax -------Total Fixed Charges Net Operating Income Less Interest Expense Bonds Less Interest Expense-Grid Note Less Bond Issuance Costs Less Capital Lease Interest Expense Less Depreciation Less TDF Fees Less Trustee Fees Add Interest lncomeJRestricted Fund~ Add Interest Income FF&E Account Net Profit (Loss) ----~---~- -----~-----~---- -------- ---------- 283,126 9.3% 368,401 8.3% (85,275) (1,786,097) -58.9% (820,870) -18.5% (965,227) (1,494,490) (61,859) (64,416) (6,564) (1,485,918) (853,836) (4,500) 1,935 7 -49.3% -2.0% -2.1% -0.2% -49.0% (1,494,486) (82,621) (64,416) (783) (1,680,000) (386,922) (6,000) 3,600 -33.7% -1.9% -1.5% 0.0% -37.8% -8.7% -0.1% 0.1% 0.0% (4) 20,762 0 (5,781) 194.os2 (466,914) 1,500 (1,665) 7 (5,755,738) -190.0% (4,532,498) -102.1% (1,223,240) ~28.2% -0.1% 0.1% 0.0% =========== ======= =========== ======= =========== 17 Coco Beach Golf & Country Club Golf Operations For the Twelve Months Ending December 31, 2012 YTD % of Sales 2012 Golf Rounds Income Member Dues Green Fees Cart Fees Tournament Fee Merchandise Other Income 201952 Cost of Sales Merchandise COS $171,821 712,649 550,860 40,000 288,597 109,362 1,939,289 151,658 -----------------T ctal Cost of Sales Payroll & Related Golf Ops Wages Golf Maintenance Wages Employee Taxes Employee Benefits Total PayroU & Related % of Sales Variance Budget ~o (9,703) 30,655 ---------------~- Total Income YTD Budget 9.2% 39.8% 28.4% 2.1% 14.9% 5.6% $285,350 1,445,886 830,504 40,000 437,020 99,441 9.1% 46.1% 26.5% 1.3% 13.9% 3.2% ---------- --------------- ----------100.0% 3,138,201 100.0% 240,361 52.6% -----------~ 55.0% -------------~---- ------------ ($107,529) (673,237) (279,644) 0 (148,423) 9,921 -------------~--- (1,198,912) (88,703) -------------~---~ 151,658 52.6% 240,361 55.0% (88,703) 402,287 816,727 127,415 178,610 20.7% 42.1% 6.6% 9.2% 407,438 853,670 131,294 305,467 13.0% 27.2% 4.2% 9.7% (5,151) (36,943) (3,879) (126,857) ---------~----- ---~-----~-- --------------- ----------- ~----~---------~- 1,525,039 78.6% 1,697,869 54.1% (J 72,830) 592 1,177 3,550 1,059 11,127 0.0% 0.1% 0.2% 0.1% 0.6% 0.0% 0.6% 1,500 3,500 1,800 2,400 6,000 4,800 12,500 0.0% 0.1% 0.1% 0.1% 0.2% 0.2% (908) (2,323) 1,750 (1,341) 5,127 (4,800) 0.4% (1,676) «-,''''' n"1 nv. 10,( , ,0 6,000 1,820 1,513 3,906 1,591 0.1% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% 0.3% 12,000 9,500 4,800 1,200 1,500 2,400 0.2% 0.4% 0.3% 0.2% 0.0% 0.0% 0.1% 0.0% 0.4% (3,803) (10,180) (7,987) (894) 391 0 218 2,880 (6,900) Operating Expenses Golf Operations Dues & Subscriptions Meetings & Seminars Handicap Service Laundry & Dry Cleaning Linen Members Amenities Supplies - Bag Room Supplies - Golf Shop Supplies- Locker Room Supplies - Range Printing & Stationery Rental Clubs Rental Shoes Telephone & Pagers Signage Uniforms 10,824 .., ~ 1,500 2,618 2,880 6,300 ------------Total Operations Expenses Golf Maintenance Consulting & Testing Dues & Subscriptions Contract Labor Course Supplies Equipment Rentals Fertilizers Treatments & Pesticides Gas & Oil Generator Maint. Meetings & Seminars Mosquito Control Operating Supplies-Maint Bldg Refuse Removal 13,200 ----------- -------~ ------~~--- ----~-- 52,654 2.7% 83,100 2.6% (30,446) 26,130 540 21,057 3,088 1.3% 0.0% 1.1% 0.2% 0.0% 13.9% 0.1% 5.6% 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.0% 0.5% 0.4% 0.0% 11.3% 1.1% 4.1% 0.1% 0.1% 0.1% 0.2% 0.1% 26,130 700 15,000 12,000 1,000 356,000 36,000 128,400 2,400 3,000 3,000 4,800 3,600 269,085 1,064 109,142 631 4,615 (160) 6,057 (8,912) (1,000) (86,915) (34,936) (19,258) (2,400) (3,000) (3,000) (4,169) 1,015 18 Coco Beach Golf & Country Club Golf Operations For the Twelve Months Ending December 31,2012 Repairs & Maint.-Building Repairs & Maint.- Irrigation & Drain Repairs & Maint.-Equip & Machine Repairs & Supplies - Carts Sand, Soil & Stone Tools & Supplies Plant, Seed, Sod Telephone & Pagers Uniforms YTD % of YTD % 2012 S"'le.~ Budget of Sales 179 18,499 145,436 31,527 67,148 840 11,356 1,721 80 0.0% 1.0% 7.5% 1.6 0/0 3.5% 0.0% 0.6% 0.1 % 0.0% 2,400 18,000 125,000 6,000 24,000 4,500 3,000 1,920 24,000 0.1% 0.6% 4.0% 0.2% 0.8% 0.1% 0.1% 0.1% 0.8% Variance to Budget (2,221) 499 20,436 25,527 43,148 (3,660) 8,356 (199) (23,920) ---------------- ---------- ------------- ------------ ----------------Total Maintenance Expenses 712,138 36.7% 774,720 24.7% (62,582) 764,792 39.4% 857,820 27.3% (93,028) (502,200) -25.9% 342,151 10.9% (844,351) Landscape Total Operating Expenses Net Profit (Loss) =========== ======= =========== ======= =========== 19 Coco Beach Golf & Country Club Food and Beverage For the Twelve Months Ending December 31, 2012 Golf Rounds YTD % of YTD % ':lDP Sales Budget of Sales Variance to Budget 30,655 20,952 (9,703) Income Grill & Lounge Food Catering Food Course Outlet Food $69,432 444,667 43,341 7.9% 50.5% 4.9% $61,310 586,732 61,310 5.6% 53.9% 5.6% -------------------- ------------ ------------------ ----------Total Food Sales Gril! & Lounge Beverage Catering Beverage Course Outlet Beverage $8,122 (142,065) (17,969) ----------~--- 557,440 63.3% 709,352 65.2% (151,912) 53,792 54,289 148,869 6.1% 6.2% 16.9% 91,965 30,771 176,267 8.4% 2.8% 16.2% (38,173) 23,518 (27,398) ------------------- ----------- -------------- ------------ ----------------Total Beverage Sales 256,950 29.2% 299,003 27.5% (42,053) Grill & Lounge Wine Catering Wine 4,281 11,002 0.5% 1.2% 15,328 15,386 1.4% 1.4% (11,047) (4,384) ------------------ ------------- ------------ ~--------------- ------~- 15,283 1.7% 30,714 2.8% (15,431) Other Income 51,048 5.8% 49,500 4.5% 1,548 Total Income 880,721 100.0% 1,088,569 100.0% (207,848) 183,199 62,525 3,708 32.9% 24.3% 24.3% 248,273 68,771 (65,074) (6,246) 9,264 35.0% 23.0% 3D.ZQ/o ----------~--- ---------~--- Total Wine Sales Cost of Sales Food Cost Beverage Cost Wine Cost ------------~--- Total Cost of Sales Paymn & Related Wages Front of House Wages Employee Taxes Empioyee Benefits Total Payroll & Related ------ (5,556) .~----------- 249,432 28.3% 326,308 30.0% (76,876) 138,401 117,923 27,302 15.7% 13.4% 3.1% 122,032 112,958 34,560 56,054 11.2% 10.4% 3.2% 5.1% 16,369 4,965 (7,258} (21,890) 34,164 3.8% -------~----~--- -~------- 317,790 36.1% 325,604 29.9% (7,814) 0.0% 0.5% 2,400 8,700 5,700 3,600 3,900 2,400 3,600 1,300 14,000 8,700 4,800 2,400 3,600 3,600 3,000 2,400 6,000 0.2% 0.8% 0.5% 0.3% (2,400) (4,473) 6,314 (3,600) 771 (2,149) (2,261) 3,600 (3,652) 677 1,879 (1,108) (3,600) (3,600) (2,500) (520) (5,249) ------------ ----------- ----------- Operating Expenses Bar Snacks China, Glass, Silver Contract Cleaning Equipment Leased Equipment Repairs Kitchen Fuel Laundrl & Dry Cleaning Licenses & Pennits Linen Rental Operating Supplies & Expense Paper Products Supplies Printing & Stationery Refuse Removal Smallwares Spoilage & Waste Telephone Uniforms Total Operating Expenses Net Profit (Loss) 4,227 12,014 4,671 251 1,339 4,900 10,348 9,377 6,679 1,292 1.4% 0.0% 0.5% 0.0% 0.2% 0.6% 1.2% 1.1% 500 1,880 751 0.8% 0.1% 0.0% 0.0% 0.1% 0.2% 0.1% ------. -----~¥ 0.4% 0.2% 0.3% 0.1% 1.3% 0.8% 0.4% 0.2% 0.3% 0.3% 0.3% 0.2% 0.6% -------- ----- 58,229 6.6% 80,100 7.4% 255,270 29.0% 356,557 32.8% =========== ======= =========== ======= (21,871) (101,287) ====;=~==== 20 Coco Beach Golf & Country Club General and Administrative For the Twelve Months Ending December 31,2012 YTD 2012 Golf Rounds Payroll & Related \AJages Employee Taxes Employee Benefits % of Sales 20,952 $244,073 21,551 32,518 ---------~-----.---------- Total Payroll & Related Operating Expenses Accounting & Audit Bank Charges Computer Expense Directors & Officers Expense Dues & Subscriptions Employee Relations Legal Fees Meetings & Seminars Music & Cable Operating Equip Leases Office Supplies Operating Expenses PayrolJ & HR Fee Postage Printing & Stationery Security Telephone & Pagers Uniforms Net Profit (Loss) % of Sales 30,655 $207,053 18,196 35,557 -------------------------.~---- Variance to Bud~et (9,703) $37,020 3,355 (3,039) ----------------- 298,142 260,806 37,336 29,500 56,879 25,333 24,000 92,062 12,000 12,000 600 3,200 5,500 (35,183) 13,333 (12,000) (340) (2,306) 36,000 23,110 1,250 3,000 7,548 5,400 5,400 31,200 2,400 2,004 6,000 31,884 2,400 (622) (53) (2,267) (2,073) (2,521) 0 (1,030) (1,643) 31,106 (1) (1,695) 260 894 59,110 628 2,947 5,281 3,327 2,879 31,200 1,370 361 37,105 31,883 705 ------------------------Total Operating Expenses YTD Bud~et ---------------~-------- ----~------- 289,663 278,348 11,315 (587,805) (539,154) (48,651) =========== ======= =========== ======= =========== 21 Coco Beach Golf & Country Club Marketing For the Twelve Months Ending December 31, 2012 YTD 2012 Golf Rounds 20,952 % of Sales YTD % Budget of Sales 30,655 Variance to Budget (9,703) Operating Expenses Creative Design Collateral Materials Promotion Public Relations & Advertising Member Events Site Visits Web Site 8,337 61,813 431 Total Operating Expenses Net Profit (Loss) ($2,400) (4,200) 3,537 (14,687) (3,069) (6,900) 5,200 $2,400 4,200 4,800 76,500 3,500 6,900 4,800 75,781 103,100 (27,319) (75,781) (103,100) 27,319 400 =========== ======= =========== ======= =========== 22 Coco Beach Golf & Country Club Building For the Twelve Months Ending December 31,2012 YTD 2012 Golf Rounds 20,952 % of Sales YTD % Variance BUdget of Sales to Budget 30,655 (9,703) Payroll & Related $127,374 8,871 14,792 $114,223 10,850 21,337 $13,151 (1,979) (6,545) 151,037 146,410 4,627 HVAC Operating Supplies & Expense Pest Control Waste Disposal Heliport Cleaning & Janitorial Supplies Cleaning Contract 9,083 8,944 2,400 2,352 1,460 14,680 1,728 11,400 6,000 2,400 5,700 (2,317) 2,944 0 (3,348) 1,460 7,730 (3,272) Building Repairs Decorations and Interior Plants Dust Contra! Electrical and Mechanical Elevators Equipment Rental Fountain & Spa Maintenance Fire Protection Generator Maint. Painting & Decorating Permits Tools & Supplies Uniforms Housekeeping Uniforms 2,111 1,738 18,000 3,600 1,200 10,800 6,300 1,800 3,600 Wages Employee Taxes Employee Benefits Total Payroll & Related Operating Expenses Total Operating Expenses Net Profit (Loss) 6,950 5,000 4,500 7,200 2,400 4,800 2,400 1,500 (15,889) (1,862) (1,200) (5,317) (11) (1,800) (715) 858 (4,500) (520) (2,400) (1,657) (810) (1,500) 73,824 107,950 (34,126) (224,861) (254,360) 29,499 5,483 6,289 2,885 3,258 6,680 3,143 1,590 2,400 =========== ======= =========== ======= =========== 23 Coco Beach Golf & Country Club Utilities For the T'.....elve Months Ending December 31,2012 YTD 2012 Golf Rounds 20,952 % of Sales YTD % Variance Budget of Sales to Budget 30,655 (9,703) Operating Expenses Electricity Gas Water & Sewer Irrigation Fees Diesel Total Operating Expenses Net Profit (Loss) $471,245 19,187 43,151 44,131 $366,000 54,960 42,000 4,000 $105,245 $19,187 ($11,809) $2,131 ($4,000) 577,714 466,960 110,754 (577,714) (466,960) (110,754) =========== ======= =========== ======= =========== 24 Gran Melia Occupancy :W12 52.5% I ActUcl1 Actual Actual ActUl~ Actual Actual Actua,+=, Actual Actual Actual 67.1% 75.5% 65.0% 520% 513% 85.9% 57.1% 43.7% 55.6% 64.3% 7,8341 Sol Melia Golf Rounds Capture Ratio Per Oce Rm r-.;, lJ1 JJJ 350 I 4.42% I 4.78% I 2.28% I 3.25% I 7,4841 12,!:135i 47.6% 8,5961 15,066 14,580 15,OBB 15,066 128 114 67 58 1.63% I 1.52% I 0.52% I 0.67% 6,9401 6,5821 8,1091 ~~~4'580 25 I 0.36% 61 I 0.93% 1.63% 59.8% 9,6841 3.40% 106,3861 2,2IJ3 329 I 59.8% I 2.15% 106,3861 2.283 I rm 2.1~i% EZ .. 56.0% 177'B~~77'876 15,066 132 I ~ast e6,593 19,793 154,062 23;814 4,025 4.65% (1, -2.50% Coco Beach Golf Country Ciub, SE. Financial Statements December 31, 2012 311d 2011 ho ch Table of Contents Independent Auditors' Report 1-3 Financial Statements: Balance Sheets 4 Statements of Operations 5 Statements of Partners' Deficit 6 Statements of Cash Flows 7 Notes to Financial Statements 8-24 27 CERTIFIED PUBliC ,t.,CCQUNTAI'lTS INDEPENDENT AlJDITORS' REPORT To the Partners of Coco Beach Golf & Country Club, S.E. We have audited the accompanying financial statements of Coco Beach Golf & Country Club, S.E. (the Partnership), which comprise the balance sheets as of December 31, 2012, and the related statements of operations, partners' deficit, and cash flows for the year then ended, and the related notes to the financial statements. Management's Responsibilitv for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibilitv Our responsibili-bJ is to express an opLnion on these financial statements based on our audit We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Partnership's preparation and fair presentation of the financial statements in order to design audit procedures L,.at are appropriate in iL~e circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership'S internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 28 TRUSTWOl'fhy www.fpvgaHndez.comlPOBox364i52.SanJuan.PR 00936-4152 Phone 787.725.4545 I 787.764.5049 Fax 787.724.5802 I 787.764.0528 ~Russell B(!dford To the Partners of Coco Beach Golf & Country Club, S.E. Page 2 Opinion In our opinion, the 2012 financial statements referred to in the preceding page present fairly, in ali material respects, the financial position of Coco Beach Golf & Country Club, S.E. as of December 31, 2012, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Related Parties As discussed in Note 1, the Partnership is a member of a group of affiliated companies through common ownership and management. During the years ended December 31, 2012 and 2011, the Partnership had significant transactions with its affiliates at terms and conditions arranged by management of the affiliated group, accordingly, t..he accompanying financial statements may not necessarily be indicative of the conditions that would have existed or the results of operations if the Partnership had been operated as an unaffiliated entity. These transactions lT10Stly included non-interest bearing cash advances to be used in the regular operations of the Partnership. Loan Payable As discussed in Note 8, during 2012 and 2011, the AFICA loan payable principal and interest payments due, were done by transferring funds from the debt service fund account to the loan payable fund account. This situation caused the Partnership to default on the required balance to be maintained on the debt service fund account. The replenishment of the debt service fund account is being made by Tourism Development Fund (TDF). The Partnership had not been able to pay TDF fees amounting as required by the letter of credit agreement. With the consent of TDF, this event of default gives the undersigned Trustee the right to declare the AFrCA loan payable immediately due and payable and to take any action at law or in equity to collect the payments then due and thereafter to become due, and to enforce performance and observance of any obligation, agreement of covenant under the loan agreement and all the related collateral documents. Also, as a result of the event of default for which no waiver has been issued as of and for the years ended December 31, 2012 and 2011 by any of the counterparties, the total outstarldi11g balance of the AFICA loan payable at such dates amounting to $24,826,894 and $25,560,114, respectively, was reclassified as a current liability. As required by various agreements related to the AFICA loan payable, the Partnership is required to comply with certain covenants. Due to the event of default on the AFICA loan payable there are certain covenants not being met by the Partnership. 29 To the Partners of Coco Beach Golf & Country Club, S. E. Page 3 Other Matters The financial statements of the Partnership as of December 31, 2011 were audited by other auditors whose report dated July 27, 2012 expressed an unmodified opinion on those statements. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As shown in the accompanying financial statements, the Partnership has incurred losses of $5,755,739 and $6,393,578 for the years ended December 31, 2012 and 2011, respectively, and as of that date, had a working capital deficiency of $29,305,844 and $27,120,726, respectively, and a net worth deficiency of $17,381,118 and $11,625,379, respectively. Total cumulative losses as of December 31, 2012 amounted to $50,821,586 and as described more fully in note 2 of financial statements, the continued operations of the Partnership are dependent upon its ability to attract customers and control operating expenses. The Club Manager has developed a plan to achieve and maintain positive operating cash flows sufficient to allow the Partnership to continue as a going concern. Those conditions raise substantial doubt about the Partnership'S ability to continuing as going concern. The financial statements do not include any adjustment that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter. San Juan, Puerto Rico October 31, 2013 30 Coco Beach Golf & Country Club, S.E. Balance Sheets December 31, 2012 and 2011 2012 2011 Assets Current assets: Cash Interest bearing deposits held in trust - restricted Accounts and other receivable Inventories $ Prepaid expenses Total current assets Property, plant and equipment, net Debt issue costs Other assets Total assets 87,297 636,562 130,169 98,789 $ 63,961 692,877 123,763 100,811 104,351 119,973 1,057,168 1,101,385 48,497,211 403,646 12,500 49,723,581 436,278 12,500 49,970,525 51,273,744 72,188 24,826,894 1,095,199 228,006 954,336 3,186,389 174,921 25,560,114 30,363,012 28,222,111 26,705,907 1,573,897 8,305,640 403,187 26,566,223 1,573,897 6,096,744 440,148 67,351,643 62,899,123 (17,381,118) (11,625,379) Liabilities and Partners' Deficit Current liabilities: Obligations under capital leases Loan payable Accounts payable Accrued expenses Accrued interest on note payable to partner Other liabilities Total current liabilities Due to partner Note payable to partner Due to affiliates Deposits Total liabilities Partners' deficit Total liabilities and partners' deficit $ 49,970,525 523,168 892,477 $ 51,273,744 See notes to financial statements -4- 31 Coco Beach Golf & Country Club, S.E. Statements of Operations Years Ended December 31, 2012 and 2011 2011 2012 Revenue: $ Golf Food and beverage Pro shop 1,650,692 880,717 288,597 $ 1,690,256 834,685 335,605 2,820,006 2,860,546 2,287,209 623,575 151,658 2,151,417 621,500 3,062,442 2,969,490 (242,436) (108,944) 2,485,209 126,904 1,485,919 1,802,809 128,730 1,671,282 Total operating expenses 4,098,032 3,602,821 Loss before other income (expenses) (4,340,468) (3,711,765) Total revenue Direct costs and exp enses: Golf Food and beverage Pro shop Total direct costs and expenses Gross loss Operating expenses: Selling, general, and administrative Management fees Depreciation and amortization 196,573 Other income (expenses): Interest income 210,000 (1,562,913) (64,412) 18,496 295,000 (1,781,911 ) (68,499) (1,144,899) (1,415,271) (2,681,813) 2,054 Other income Interest expense Amortization of debt issue costs and loan discount Loss on refunded debt Total other expenses, net Net loss $ (5,755,739) $ (6,393,578) See notes to financial statements -5- 32 Coco Beach Golf & Country Club, S.E. Statements of Partners' Deficit Years Ended December 31, 2012 and 2011 Coco Beach Partners' deficit, December 31, 2010 Net loss Partners' deficit, December 31, 2011 Net loss Development Decedent's estate Corporation of Arturo Diaz, Jr. $ (4,425,803) $ $ (5,231,801) (5,754,220) (639,358) (6,393,578) (10,180,023) (1,445,356) (11,625,379) (5,180,165) (575,574) (5,755,739) (2,020,930) $ (17,381,118) $ (15,360,188) Partners' deficit, December 31, 2012 (805,998) Total $ See notes to financial statements -6- 33 Coco Beach Golf & Country Club, S. E. Statements of Cash Flows Years Ended December 31, 2012 and 2011 2012 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization Loss On refunded debt - unamortized- debt issue costs Loss on refunded debt - unamortized loan discount Amortization of debt issue costs Amortization of loan discount Decrease (increase) in assets: Accounts and other receivables Inventories Prepaid expenses Increase (decrease) in liabilities: Accounts payable Accrued expenses Accrued interest on note payable to partner Deposits $ (5,755,739) 2011 $ (6,393,578) 1,671,282 877,707 267,192 Net cash used in operating activities Cash flows from investing activities: Withdrawal from th€: debt service reserve fund net Additions of property plant and equipment f Net cash provided by investing activities Cash flows from financing activities: Principal payments wlder capital leases Advances from partners Advances from affiliates Proceeds from loan Loan principal payments Debt issue costs of new debt issuance Other liabilities 32,632 40,080 31,780 28,419 (6,406) 63,649 2,022 15,622 52,599 (2,259) 23,768 280,687 (295,162) 61,859 (147,591) (36,961) 82,630 24,836 (4,440,666) (3,154,347) 2,257,555 (259,549) 663,188 1,998,006 631,703 (102,733) (167,487) 279,760 (31,485) 139,684 2,208,896 2,426,393 746,965 (765,000) (370,000) (460,039) 985,149 Net cash provided by financing activities Net change in cash Cash, beginning of year Cash, end of year $ 2,465,996 2,455,592 23,336 (67,052) 63,961 131,013 87,297 $ 63,961 See notes to financial statements -7- 34 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31, 2012 and 2011 Note 1 - Or!i;anization and Summary of Significant Accounting Policies Coco Beach Golf & Country Club, S.E. (the Partnership or the Club) is a special partnership organized on December 30, 1999 under the laws of the Commonwealth of Puerto Rico to acquire, develop, construct, own, use, sell, lease, operate, and manage two 18 holes championship golf courses, a clubhouse, and related facilities in the municipality of Rio Grande, Puerto Rico. During February 2008, the Gub changed its name to the Trump International Golf Gub Puerto Rico (the Club Manager). The property was developed in two phases, the first one entailed the construction of the first 18 holes championship golf course, a clubhouse for the two golf courses, and the installation of the land and irrigation system for the second golf course. This phase was completed during 2004. The second phase, which was completed in April200S, consisted of the construction of the second 18 holes golf course. The partners of the Partnership are Coco Beach Development Corporation (CBDC or the Managing Partner) and Mr. Arturo Diaz, Jr. (Diaz), owner of CBDC, who passed away in October 2012. The Partnership is a member of a group of affiliated companies through common ownership and management. During the years ended December 31, 2012 and 2011, the Partnership had siouificru-,.t transactions with its affiliates at terms and conditions arranged by management of the affiliated group, accordingly, the accompanying financial statements may not necessarily be indicative of the conditions that would have existed or the results of operations if the Partnership had been operated as an unaffiliated entity. These transactions mostly included non-interest bearing cash advances to be used in the regular operations of the Partnership. The following is a summary of significant accounting policies followed by the Partnership: _Use of Estimates The preparation of the financial statements requires the Partnership to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Significant item subject to such estimate and assumptions include the carrying amount of property and equipment. Actual results could differ from those estimates. Inventories Inventories are stated at the lower of cost or market. Cost is determined principally using the first in, first out (FIFO) method. -8- 35 Coco Beach Golf & Country Club, S. E. Notes to Financial Statements December 31, 2012 and 2011 Note 1- Organization and Summarv of Significant Accounting Policies - (Continued) Property, Plant and Equipment Property plant and equipment are stated at cost less accumulated depreciation and amortization. Equipment under capital leases is initially recorded at the present value of minimum lease payments. Depreciation and amortization is calculated on the straight-line method over the estimated useful lives of the assets as follows: Estimated useful lives (in years) Description Buildings and structures Land improvements Furniture, futures, and equipment 30 -40 15 4 -10 Equipment under capital leases is amortized on the straight-line method over the shorter of the lease term or estimated useful life of the asset. Maintenar'tce and repair costs are recorded as expenses as incurred while improvements and renewals to the property are capitalized. Income Taxes The Partnership has elected special partnership status and operates under Subchapter K of the Puerto Rico Internal Revenue Code of 1994, as amended. As a special partnership, the Partnership is not subject to income taxes, but rather, the income or loss of the Partnership is reportable by the partners in their tax returns, so long as the Partnership complies with certain provisions of Subchapter K. Management of the Partnership believes the Partnership complied with t.he provisions of the Subchapter K. Accordingly, no provision forPuerto Rico income taxes has been made in the accompanying financial statements. Discount on Loan and Debt Issue Costs Discount on loan and debt issue costs related to the Puerto Rico Industrial, Tourist, Educational, Medical, and Environmental Control Facilities Financing Authority (AFlCA) loan payable has been deferred and is being amortized over the terms of the debt using a method, which approximates the interest method. Amortizations of discount and debt issue costs were capitalized as financing costs during the construction period. Subsequent to the construction period, such amortization is recognized as expense in the accompanying statements of operations. The amortization of discount and debt issue costs at December 31, 2012 and 2011 amounted to $64,412 and $68,499, respectively. -9- 36 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31, 2012 and 2011 Note 1 - Organization and Summary of Significant Accounting Policies - (Continued) Impairment of Long-Lived Assets Long-lived assets, consisting of property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimate undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, 3.-'1 impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. During 2012 and 2011, the management of the Partnership has evaluated the circumstances that may trigger an impairment of its long lived assets that are principally associated with the golf courses as to their ability to recover its current carrying amount. Although external conditions have changed during the past years, management still believes that such changes have not been yet enough to the extent that the carrying value of the assets of the Partnership may not be recoverable during the remaining useful lives of such assets. In deed, management still have active other development projects plans that will come to interact along with the existing facilities of the Partnership and that new businesses might develop in the future. Nevertheless, the result of such projects could not be presently deterrnined. Ivfanagernent 'will closely mardto! on a year-toyear basis the upcoming events as to their effect, if any, over the Partnership operations and the recover ability of its long lived assets. Membership Deposits Any person who wishes to become a member of the Club will be required to pay a one-time membership deposit, the amount of which will be determined by the Partnership from time to time at its sole discretion. Membership deposits will be refunded no later than 30 years from the date of the member's admission to the Club and, accordingly, have been presented as deposits in the accompanying balance sheets. Revenue Recogpition Golf revenue is recognized when the rounds are paid. Food and beverage and pro shop revenue is recognized when the services are performed or at the point of sale. -10- 37 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31, 2012 and 2011 Note 1- Organization and Summary of Significant Accounting Policies - (Continued) Subsequent events The Partnership has evaluated the impact of subsequent events through October 31, 2013 which is the date these financial statements were issued, except for the matters discussed in Note 15, no events have occurred subsequent to the balance sheet date and to the date the financial statements were available to be issued, that would require adjustments to, or disclosure in, the financial statements. Reclassifications Certai.?1 reclassifications have been made in the prior year figures to conform with the current year presentation. Note 2- Operations The Partnership's Bn.ancial statements for t.l,.e years ended December 31, 2012 8.Ild 2011 have been prepared on a going concern basis, which contemplates the realization of assets and liabilities and commitments in the normal course of business. The Partnership has incurred losses of $5,755,739 and $6,393,578 and negative working capital of $29,305,844 and $27,120,726 for the years ended December 31, 2012 and 2011, respectively. Total cumulative losses as of December 31, 2012 amounted to $50,821,586. The continued operations of the Partnership are dependant upon its ability to attract customers and control operating expenses. The Club Manager has developed a plan to achieve and maintain positive operating cash flows sufficient to allow the Partnership to continue as a going concern. In particular, the Club Manager has developed programs to attract members, while containing operating costs. Also Betteroads Aspahlt Corp. and Empresas Diaz Inc., which are affiliated entities of f.L\e Partnership, are under negotiations with local governmental entities to expedite certain payments in arrears On behalf of Betteroads Asphalt Corp. Such monies would be used to pay all AFICA installments payments in arrears including principal and interests thereof, to make the funds reimbursement to the Puerto Rico Tourism Development Fund (TDF), to replenish the debt service reServe fund, to pay the payments in arrears regarding the TDF letter of credit fees and finally to continue making current and prospective required payments as scheduled originally. Negotiations are on the way with representatives from TDF to solve the event of default. Also negotiations are on the way with the Puerto Rico Aqueduct and Sewer Authority with respect to the operation of the used water treatment plant belonging to Coco Beach Utility Co. Inc., another afilliated entity. Management expects a cash surplus from this transaction which would be reassigned to the operations of the Partnership. Should, these transactions fail to end with a favorable outcome as managements expects, Betteroads Asphalt Corp. will assume full responsibility to fulfill all operating needs of the Partnership along with its liabilities and debts up to January 1, 2013. -11- 38 Coco Beach Golf & Country Club, S. E. Notes to Financial Statements December 31, 2012 and 2011 Note 2- Operations - (Continued) The success of management's plans described earlier cannot be assured, as it is dependent upon fu.tTIre events arld circumstances whose outcome cannot be anticipated. Note 3- Operations Agreements a) Toumament Facilities Agreement On January 24, 2007 the Partnership entered into a tournament facilities agreement with Puerto Rico Golf Foundation, Inc. (the Host Organization) and PGA Tour, Inc. to host a PGA tour event in Puerto Rico named Puerto Rico Open, a four day, 72 holes competition. On March I, 2011 the Partnership obtained an extension of the term of the agreement up to 2017. Under the tournament facilities agreement, the Partnership shall have the exclusive right to produce, market, and retain all gross revenues derived from the sale of merchandise bearing the Golf facility logo. Notwithstanding, the Host Organization shall have the right to produce, market, and sell merchandise bearing the event logo at locations other than golf facilities and agreed to pay the Partnership a royalty at the rate of ten (10%) percent of the wholesale price of each item sold. The rental fee for use by the Host Organization of the golf facility and the member clubhouse shall be a flat fee of $40,000 for each year which shall be paid on or before the conclusion of the event. The Host Organization shall provide, at its sale expense, commercial general liability insurance coverage for the injury or damage. b) Service Agreement The Partnership entered mto a service agreement vvi'Lh Betteroads Asphalt Corp., Parent Company of CBDC, for certain predevelopment and development services, including among others, the negotiation of certain agreements, applying for permits, and authorizations for the construction of the Club, arranging for an AFICA loan, receiving and approving all requisitions to be submitted by the construction manager, monitoring the construction manager's compliance with its obligations, and maintaining records of the Club. On the date of the issuance of the APICA loan, the Partnership paid Betteroads $150,000 as consideration for the APICA loan services presented as debt issue costs and a fee of $50,000 as consideration for other development services included in property and equipment. No commitment is outstanding under the service agreement except for reimbursement of expenses to be incurred by Betteroads in performing its obligation there under. -12- 39 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31, 2012 and 2011 Note 3- Operations Agreements - (Continued) c) Club Management Agreement Effective January'2008, the Club entered into a management agreement with the Club Manager. Under the agreement, the Partnership shall pay a management fee equal to 4.5% of the annual operating revenue (as defined in the agreement) and 12.5% of the annual net profits of the Club. Management fees amounted to $126,904 and $128,730 for the years ended December 31, 2012 and 2011, respectively. In addition to the management fee, the Partnership shall reimburse the Club Manager for costs incurred in performing its obligation thereunder, which are approved and qualify as reimbursable expenses under the agreement. d) Use and Access Agreement During 2000 the Partnership and its Club Manager entered into a ten (10) year term use and access agreement with the owner and the manager of Gran Melia Hotel, formerly k.nown as Paradisus Puerto Rico Hotel (the Hotel). This agreement shall be automatically renewed for successive terms of one (1) year each, unless otherwise notified by either party. Such agreement permit gnests staying at the Hotel to have access to the Club facilities and certain tee times for golf play, and to permit members of the Club and their gnests to have access to the Hotel facilities in accordance with the terms of the agreement. e) Prepayment Agreement The Partnershio has a oreoavment agreement with certain of its affiliates in which within 30 days of the closing of the sale of ru'1y unit developed by an affiliated of the Partnership at its facilities, such affiliate is required to deposit $85,000 with the trustee for the redemption of the loan payable with AFrCA, except that in the case of the closing of the sale of a unit in the Trump Residences, the affiliates may defer depositing with the tmstee $45,000 with respect to each unit until the repayment of the construction facility for the Trump Residences. After the repayment of the construction facility, the affiliates must apply any excess cash flow after the payment of certain closing costs and other fees to the payment of such deferred amounts. For the year ended December 31, 2011, the affiliates had sold one unit, at the Tmmp Residences, from which $85,000 was derived and recorded as other income. No unit was sold during the year ended December 31, 2012. ..I. ..I. J.. J '-' -13- 40 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31, 2012 and 2011 Note 4- Interest Bearing Deposit Held in Trust - Restricted At December 31, 2012 and 2011, trust funds amounting to $636,562 and $692,877, respectively, vvere held ir.'"l. interest bearing deposits to satisfy debt service reserve fund and loon payable fund requirements (See note 8). The type and outstanding amount of such interest bearing deposits are as follows: Type 2012 Debt service fund Loan payable bond fund account Note 5- 2011 $ 635,051 1,511 $ 648,645 44,232 $ 636,562 $ 692,877 Concentrations Crerlit Fisk Financial instruments that potentially expose the Partnership to concentrations of credit risk consist principally of cash deposits and accounts receivable. As scheduled, the unlirrdted insurance coverage for noninterest-bearing transaction accounts provided under the Federal Deposit Insurance Corporation (FDIC) expired on December 31, 2012. Deposits held in noninterest-bearing transaction account, since January 1, 2013, are aggregated with any interest bearing deposits held in the same ownership category, and the combined total insured is up to $250,000. As of December 31, 2012 the balances in excess of $250,000 amounted to $387,111. As of December 31, 2011 the Partnership had $448,419 in interest bearing accounts in excess of $250,000. The Partnership has not experienced any losses in such accounts in the past. Financing During the years ended December 31, 2012 and 2011, the Partnership received cash advances from partners amounting to $139,684 and $279,760, respectively. Also for the same periods, the Partnership received cash advances from affiliates amounting to $2,208,896 and $2,426,393, respectively. Given the reliance of the Partnership on this financing by its related parties, any change or curtailment of existing businesses between them would materially and adversely affect the Partnership's operations. This Space Is Intentionally Left In Blank -14- 41 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31, 2012 and 2011 Note 6 - Inventories Inventories as of December 31, 2012 and 2011 consist of: 2012 Note 7- Golf shop merchandise Food Beverage Others $ Total inventories $ 2011 68,870 9,505 16,059 4,355 $ 70,024 9,296 98,789 $ 100,811 14,436 7,055 Proj2ertv. Plant and E"!uij2ment Property, plant and equipment as of December 31, 2012 and 2011 consist of: Land Land improvements Building and structures Furniture, fixtures, and equipment Less accumulated depreciation and amortization Total property, plant and equipment, net 2012 2011 $ 28,728,977 9,584,651 16,243,891 5,440,443 $ 28,728,977 9,584,651 16,243,891 5,180,894 59,997,962 59,738,413 (11,500,751) (10,014,832) $ 48,497,211 $ 49,723,581 This Space Is Intentionally Left In Blank -15- 42 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31, 2012 and 2011 Note 8- Loan Payable The Partnership entered into an $18 million loan agreement with AFICA to finance a portion of the Club, In COlmeCTIOn with the lOrul agree.:·nent, AFICA issued the same pri..l1cipal a..l110unt in Tourism Revenue Bonds, 2000 Series A. The bonds were purchased by the underwriters with an aggregate original discount of $437,430 and are payable solely from revenue derived by AFICA under the loan agreement with the Partnership and from other moneys pledged for payment under the indenture of trust. The AFICA bonds are secured by an irrevocable and unconditional letter of credit of TDF, a subsidiary of the Government Development Bank for Puerto Rico (GDB) (an instrumentality of the Commonwealth of Puerto Rico). During 2004, the Partnership amended the loan agreement with AFICA to provide for an additional issuance of $7.5 million of Tourism Revenue Bonds, 2004 Series A. The bonds were purchased by the underwriters with an aggregate original discount of $56,234. The additional bonds issue will be entitled to the same benefits and security as the other bonds then outstanding under the trust agreement. On March 28, 2011, the Partnership entered into a new plan of fina11cing regarding a Tourism Revenue Refunding Bonds, 2011 Series A (the Bonds) amounting to $26,355,000 with AFICA which has determined to issue the Bonds and to lend the proceeds thereof to the Partnership for the purpose of providing funds, together with other available funds, to: (i) refund $16,150,000 of outstanding 2000 Bonds (including a reimbursement of any draw made under the outstanding letter of credit securing the 2000 Bonds to refund such bonds); (ii) refund $9,010,000 of outstanding 2004 Bonds (including a reimbursement of any draw made under the outstanding letter of credit securing the 2004 Bonds to refund such bonds) (i and ii together, the Refunded Bonds); (iii) pay the interest due on the Bonds during the first three interest payment dates after their issuance; and (iv) pay certain costs and expenses irlcurred in connection with the authorization, issuance and sale of the Bonds. The Refunded Bonds will be redeenled iii fuJI by t.~e Banco Popular de Puerto Rico (the Trustee) with funds drawn on the letter of credit issued by TDF to secure the Refunded Bonds (the Existing TDF Letter of Credit). This Space Is Intentionally Left In Blank -16- 43 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31,2012 and 2011 Note 8- Loan Pavable - (Continued) The bond type, interest rate yield, original maturity, outstanding amount, and unamortized original issue discount are as fo11ov'16: Outstanding amount at Bond type Interest rate/yield (%) Serial 225 - 6.10 Original maturity December 20, 2011 June 20, 2026 December 31, 2012 $ 14,535,000 Term 650 December 20, 2030 7,965,000 Term 6.60 December 20, 2034 2,720,000 25;220,000 (393,106) Unamortized diSCOilllt $ 24,826,894 During 2012 and 2011, the AFICA loan payable principal and interest payments due totaling $2,259,490 and $495,591, respectively, were done by transferring funds from the debt service fund account to the loan payable fund account This situation caused the Partnership to default on the required balance to be maintained on the debt service fund account. The replenishment of the debt service fund account is being made by TDF, however for 2012 and 2011, the Partnership had not been able to pay TDF fees amountir'g to $853,836 ili'1d $131,312, respectively. With the consent of TDF, this event of default gives the undersigned Trustee the right to declare the AFICA loan payable immediately due and payable and to take any action at law or in equity to collect the payments then due and thereafter to become due, and to enforce performance and observance of any obligation, agreement of covenant under the loan agreement and all the related collateral documents. Also, as a result of the event of default for which no waiver has been issued as of and for the years ended December 31, 2012 and 2011 by any of the counterparties, the total outstanding balance of the AFICA loan payable at such dates amounting to $24,826,894 and $25,560,114, respectively, was reclassified as a current liability. As required by various agreements related to the AFICA loan payable, the Partnership is required to comply with certain covenants. Due to the event of default on the AFICA loan payable there are certain covenants not being met by the Partnership. -17- 44 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31, 2012 and 2011 l"-,Jote 8 - Loa..'l. Payable - (Contin11 e n) Under the loan agreement, the Partnership is required to maintain a loan payable and debt service reserve funds. The funds deposited WiLh. a Trustee are restricted and win be used to pay debt service (principal and interest). The Trustee has deposited the proceeds of the issuance in several interest bearing accounts with commercial banks in Puerto Rico. The Partnership does not have required collateral or other security to support the deposits, nor are these guaranteed or insured by any authority, agency, or instrumentality of the United States orthe Commonwealth of Puerto Rico, except for deposits under $250,000 held by the commercial bank, which are insured by the FDIC. Accordingly, in the event of insolvency, receivership, or conservatorship, the Partnership may not be able to access the funds. Concurrent with the loan agreement, the Partnership entered into a guaranty and reimbursement agreement with TDF, which provides that the Partnership will reimburse TDF for any amounts funded by them pursuant to the above mentioned agreement. This agreement is seetlIed by liens on substantially all the assets of the Partnership, including a pledge of a mortgage note for $26,355,000 (the amount equal to the principal amount of the 2011 AFICA loan payable). The mortgage note is secured by a first mortgage on substantially all the personal property of the Partnership and a first priority security interest on substantially all the personal property of the Partnership, including the Partnership'S rights under various agreements and funds held in various accounts. In consideration of the aforementioned guaraniy and reilnbursement agreement, the Partnership agreed to pay to TDF, on each interest payment date, a letter-of-credit fee of 1.5 % of the outstanding principal amOW1l of tlle AFIeA loan, payable lTlOn-frJy on each interest payment date (provided the Partnership complies with debt coverage ratio requirements). The monthly fee shall . be payable by the Partnership in advance, in immediately available funds. On the date of issuance, the Partnership paid TDF the portion of the monthly fee due for the period from the date of issu~'lce to August 20,2011. In addition, the Partnership shall pay to TDF an amount equal to $3,000 for each interest, principal, or reserve fund deficiency drawing made by the Trustee under the guaranty and reimbursement agreement. The Partnership has agreed, under the loan agreement that during each of its taxable years while the AFIeA 10mi. payable are outsta..?).ding it will comply "'lith certain source of income requirements. Should the Partnership fail to comply with any of these requirements, it will be required to pay additional interest, subject to certain limitations, to each qualifying bondholder. 45 Coco Beach Golf & Country Club, S.E. Notes to Fi..nancial Statements December 31, 2012 and 2011 i'T ote 8 - T.nEln Povohle - (Continued) The AFICA loan payable is subject to redemption, at the option of the Partnership, in whole Or in part as directed by the Partnership, at any time on or after June 20~ 2016. To exercise such optional redemption, the Partnership will be required to deposit with the Trustee moneys necessary to effect such redemption not later than the 94th day immediately before the date on which the corresponding redemption price is due and payable. The written consent of TDF issuer shall be required for any optional redemption in whole or in part, if there exists an event of default or an event has occurred, which if not cured would constitute an event of default under the guaranty and reimbursement agreement. The guaranty and reimbursement agreement does not cover any premium payable in connection with any such optional redemption; TDF may, in its sole discretion, elect to cover such premiums. Should the Partnership obtain a waiver and the AFICA loan continues to be paid at the current terms the aggregate mattuities of the loa...'1s payable for the next five years and thereafter would be as follows: Year Ending December 31, Amount " 2013 4' 2014 2015 2016 2017 780,000 810,000 840,000 885,000 930,000 20,975,000 $ 25,220,000 Thereafter Total This Space Is Intentionally Left In Blank -19- 46 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31, 2012 and 2011 Other Liabilities Other liabilities of $3,186,389 consist of certain payments on behalf of the Partnership made by TOF to the loan payable debt service reserve fund,. which LTl turn makes the required pay~llents to the Trustee to pay the loan payable debt service. Total balance inc1udesloan payable principal and interests, the letter-of-credit and late fees to TDF in consideration for the guaranty and reimbursement agreement. Note 10 - Related Partv Transactions Due to related parties as of December 31, 2012 and 2011 consists of: 2012 2011 $ 26,705,907 $ 26,566,223 Due to parmer Coco Beach Development Corp. Note payable to parmer Coco Beach Development Corp. $ 1,573,897 ,. 5,704,826 849,067 728,770 (21,466) 1,044,443 8,305,640 Due to (from) affiliates Betteroads Asphalt Corp. Empresas Diaz, Inc. Coco Beach Utility Co., Inc. Coco Beach Development, R3 Development, LLC, and others Betterecycling $ 1,573,897 $ 3,676,558 818,454 641,437 127,896 832,399 6,096,744 The note payable to partner, as amended during 2006, consists of a revolving line-of-credit agreement in excess of $1 rnillion, 'which "vas the original a.."'I10lh"'1t established by Ll-te Partnership with CBDC on December 30,1999. Such line of credit bears interest at 2% over the U.S. prime rate aTld has a maturity date of December 31, 2015. This note is subordinated to TDF, and the interest under this note may only be paid from excess cash flow, as defined in the guaranty and reimbursement agreement. Interest is payable on the last day of each month for the actual number of days elapsed. US. prime rate at December 31, 2012 and 2011 was 3.25%. Interest incurred on such debts as of December 31, 2012 and 2011 amounted to $61,859 and $82,630, respectively. The outstanding principal balance of the note payable as of December 31, 2012 and 2011 amounted to $1,573,897 each year. The above related party balances are the result of advances made by the affiliates to the Parmership which have been mostly used for the repayment of the AFlCA loan payable outstanding balance and for the regular operations of the Partnership. Also certain services are provided between the affiliates which are also charged to the related parties accounts. ~n -L.U- 47 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31, 2012 a..l1d 2011 J>Jote 11 - PartnersrJp }'l,.llocations ~l1d nistrihutinTIS Pursuant to the amendment and restatement of the Partnership agreement, the interest of the partners in the Partnership is as follows: CEDe - 90% and Dfaz - 10%. The Partnership agreerrlent does not provide for the allocation of book net profit or loss. The allocation for the years ended December 31, 2012 and 2011 in the accompanying financial statements has been made in accordance with the percentage of interest of each partner. For income tax purposes, each partner shall include in its gross income, for each taxable year, its distribution share in the net income of the Partnership. All losses generated by the Partnership shall be allocated to CBDC. All tax credits generated pursuant to the tax concession issued under the Tourism Development Act of 1993, as amended, shall be allocated between Diaz and CBDC; such allocation shall be made in the following proportions: 19% for Diaz and 81 % for CBDC. The Partnership shall distribute, from time to time, in such amounts as partners representing the majority of the Partnership interest agreed, any available cash flow (as defined in the Partnership agreement) to the partners according to their respective Partnership interest from time to time in the following priority: (a) to pay the Puerto Rico income tax liability of CBDC and Diaz arising solely by reason of its Partnership interests; (b) to repay the partners on a pro rata basis any contribution loan made by them in accordance with the provisions of the partners' agreement; (c) to repay the partners on a pro rata basis any additional capital contributions (as defined in the partnership agreement) made by them in accordance with the provisions of Partnership agreement; (d) 90% to CBDC and 10% to Diaz, provided that distribution of available cash flow to CBDe under the first item mentioned above shall be set off against the distributions to be made. Additionally, the Partnership agreement provides for certain put and calls rights among the partners. The above represents a summary of the most significant provisions of the Partnership agreement (as amended); therefore, such agreement should be referred to for a more complete description of allocations and distributions. Note 12 - Leases The Partnership is obligated under capital leases covering certain golf carts that expired in April 2012. The residual value of the lease was refinanced on May 2012 into a new lease expiring in November 2013. The gross amount of equipment under capital leases amounts to $710,000 at December 31, 2012 and 2011, and related accumulated amortization amounts to $710,000 ""-cd $665,412 at December 31, 2012 and 2011, respectively. Amortization of assets held under capital leases is included in depreciation and amortization expense. -21- 48 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31 2012 arld 2011 f I'-.Jote 12 ~ Leases - (Continued) Future minimum lease payment under future minimum capital lease payments as of December 31, 2012 is as follows: Year ending December 31: 2013 75,467 $ 3,279 Less amount representing interest (at rate of 8.0% per annum) Present value of net minimum capital lease payments Note 13 - 72,188 $ Other Income Other income for the years ended December 31, 2012 and 2011 consist of: Description 2012 Prepayment agreement of sale of residencial units Maintenance contract Nate 14 - 2011 $ $ 85,000 "1 {\ linn .<:..l.V,VVV 210,000 $ 210,000 $ 295,000 Tax Concession The Puerto Rico Tourism Company has granted the Partnership a tax concession for a period of ten (10) years commencing in the year in which the Partnership commences its exempted tourism activity with respect to inc~me generated from the golfers who come from the Hotel as follows: Exemption rate Municipal, personal, and real property taxes Income taxes expenses License fees, excise taxes, and other mUnicipal taxes Municipal construction excise taxes Excise tax assessed on articles for use and consumption 90% 90% 100% 100% 100% -22- 49 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements December 31,2012 and 2011 Note 14 - Tax Concession - (Continued) The tax concession requires the Partnership to comply with the provisions of, and the regulations issued pursuant to, the Tourism Development Act, the Puerto Rico Internal Revenue Code (the Code), the terms of the tax concession granted to the Partnership, and certain filing requirements provided by the Code. Failure of the Partnership to comply with these requirements could result in the revocation of the tax concession and the elirnination of all the exemptions provided by the Tourism Development Act. During October 2010, the Tourism Company of Puerto Rico issued the fourth amendment of the Concession of the Tax Credit and Tax Exemption which requires that the Partnership must maintain an aggregate average armual employment requirement of a minimum of 90 direct employees. The Partnership maintained an aggregate average annual employment of approximately 92 and 103 employees for the fiscal years ended December 31, 2012 and 2011, respectively. Note 15 - Subsequent Events On January 31 2013, February 27, 2013 and March 27, 2013, the Trustee notified the Partnership that an unscheduled draw on debt service reserve, unscheduled draw on credit enhancement and no-replenished on debt service reserve occurred for the year ended December 31, 2012 and also for the months of January, February and March 2013. On February 19, 2013, the Trustee notified the Partnership that additional $123,222 shall be deposited into the debt service resen'e fund to cure the debt service reserve fund deficiency. On February- 27, 2013, t.\e Trustee notified TDF the certificate for debt service reserve fu.nd deficiency draWing upon the Irrevocable Stand-by Letter of Credit from TDF. On March 6, 2013, April 4, 2013 and May 3, 2013, the Partnership notified the Municipal Securities Rulemaking Board (MSRB) of the occurrence of unscheduled draws on the debt service reserve and on credit enhancement fund reflecting financial difficulties and non-payment related defaults. GDB requested the Partnership for the reimbursement of the $2,201,240 drawn from the letter of credit. Also, GDB notified the Partnership that the TOF letter of credit fees £r0111. October 2011 through December 2012 totaling $517,281 were not paid. GDB stated that failure by the Partnership to reimburse these balances constituted an event of default under the agreement that would entitle TDF to declare the APICA loan payable due and payable. On August 23, 2013, the Trustee notified the Partnership that this event of default along with the consent from TDF, gave them the right to declare the AFICA loan payable immediately due and payable and to notify the bondholders and rating agency of the failure to comply with the covenants. Such notifications to the bondholders and rating agency have been performed by the Partnership through the MSRB. -23- 50 Coco Beach Golf & Country Club, S.E. Notes to Financial Statements Deceinber 31, 2012 and 2011 Note 16 - Supplemental Cash Flow Information During 2012, TDF paid $2,201,240 to the debt service reserve fund on behalf of the Partnership. Such amount was included as other liabilities within these financial statements. During 2012 and 2011, the Partnership paid interests amounting to $1,501,054 and $1,699,281, respectively. During 2011, the Partnership entered into an advance refunding of the AFICA Revenue Bonds 2000 and 2004 Series A (the refunded bonds) through the issuance of new AFICA Revenue Refunding Bonds 2011 Series A (the refunding bonds). Total proceeds withheld within this transaction from the refunding bonds proceeds amounted to $25,160,000. From the total proceeds, the Partnership cancelled a net outstanding balance of the refunded bonds amounting to $24,568,778. * * * * * -24- 51 November 26, 2013 FPV & Galfndez, CPAs, PSC No.19 Ponce Street, Urb. Perez Morris San Juan, PR 00917 We are providjng this letter in connection with your review of the financial statements of Coco Beach Calf & CO/lIliry Club, SE, (tile OrgaJJization), which comprise the balance sheet as of September 30, 2013, and the related statement of operations and partners' deficit for the twelve-months period ended September 30, 2013, for the purpose of obtaining limited assurance that that there are no material modifications that should be Inade to the financial state111ents in order for them to be in conformity with accou1lting principles generally acceplen ill the United States of Amer;ca (CAAP). We confirm that we are responsible io1' the fair presentation of the fhnmdal statements in accordance yi,rlth GAAP and tbe selectiOll and application of the accounting poHcies. CertaiTl represen:tatiot1s in this letter are described as being lhnited to lTh1tters that are materiaL Items are considered material regardless of size, if-they involve an omission or lnisstatelnent of accounting information that, in the light of surrounding circumstances, makes it pfobable that the judgment of a reasonable person llsing the information would be changed or influenced by the 0111ission or 111isstatement. v.,rc cantin_TIl to the best of our knowledge and belief, as of Novernber 261 2013, the following representations lnade to you -during you r review. 1. The financial statements referred to previously are fairly presented in conformity with GAAP. 2. \Ne have made the-following available to you: a. Financial records and related data. b. Minutes of the meetings of stockholders, directors, and committees of directors, actions of recent meetings for which rniI1l1tes have not )'e~ been prepat·ed. 3. 01' sununaries of No Inaterial transactions exist that have not been properly recorded in the accounting records underlying the financial statenlents. 4. We acknowledge our responsibility for the preparation and fair presentatiou of the financial statements in acr:ordance with GAAP. 5. We acknowledge our responsibility for designing, implementing, and maintaining intemal control relevant to the preparation atld fair presentation of the financial statements. 100 Clubho1.lseDrivc, RCo Grande:, Puerto Rico .00745 tel: 787-651-2000 fax: 787-657-2003 rwww.coeobeaChgoif.c~kl 6, We acknowledge all[ responsibility to prevent and detect fralld, 7. \,Ve have no knmvledge of any fraud or suspected fraud affecting the entity invoiving rhanagenH:nt or others where the fraud could have a material effect on the financial statements, including any c01nmun.ications received from employees, former em..ployees, or others. 8. 1Ne have no plans or intentions that may materially affect and liabilities, thl~ ccH'rying amounts OT classification of assets 9, No luateriallosses exist (snch as £1'0111. obsolete inventory or purchase or sflles cOlnmitm.ents) that have not been properly accrued or disdosed in the financial statements. 10, None of the following exist: a. Violations or possible violations of laws or reguiatic;ms, whose effects- should be considered for disclosure in the financial statelllents or as a basi-s for recording a loss co.nf..ngency b, Un asserted cla.ims or asseSSlnents that our la'-Y)'e.r has advised us are prohable of assertion that U1USt be disclosed in accordance with -Financial Accounting Standards Board (FASB) Accou n til1g Standards Codification (ASC) 450, Contingencies, c Other fL1ateriat liabilities or gain or los-s contingencies that are required to be accrued or disdoseq. by FASll ASC 450, 11. The Organization has: satisfactory title to all owned assets, and 110 liens Of ellCmnbl'ances on such assets exist nor has any asset been pledged as colla-teral, except as disclosed to you and reported in the 'financial statements, 12. We have complied with all ~spects of ,contractual agreements that wouid have_ a Inatedal eHect on the financial statelnents -in the .event of noncon1pliance. 13, The followillg have been properly recorded or disclosed in the financial statements: a, Related party transactions,. -h1c1udiilg sale-s, purchases, loans, transrem, leasing arrangements, and guarmltees, and mnonnts receivable from or payable to related parties, b, Guarantees, whether written or oral, under which the .co111l'an), is contingently liable, c, Significant estimates and material concentrations known to management that are required to be disci01,ed in aecordm1ce with FASB ASC 275, RisksGHd Ul!certaillties, Significant estilnates are estimates at the balance sheet date that could change materially with the next year. COl1centrations refer to vohunes of business, revenues, available sources of supply, or inarkets or geographic areas for which events eould occur that would significmltly disrupt normal finances within the next year, 14, We have flllfilledour responsibilities, as set out in the terms of the review engagement letter dated November 25, 2013, including our responsibility for the preparation and fair presentation 01 the financial statements. 53 I~~l) ~~ Coco,~"B each I 15. Note 2 to the financial statelnents discloses all of the matters of which \-ve are aware that are relevant to the Organization's ability to continue as a going concern, including significant conditions and events, and management's plans. 16. All events subseqnent to the date of the financial statements and for which US. GAAP requires adjustment or disclosure have been adjusted or disclosed. Such disclosure is cap tured in note 15 to the financial statelnents "S lI bsequelll E'vcnfs;;j 1i-vhich di.sc1oses all events subsequent to the date of the financial statements for which u.s. GAAP requires adjustment or disclosure. 17. We have reviewed long-lived assets and certain identifiable intangibles to be held and lIsed for hnpainnent ,vhenever eVents 01" changes in circumstances have indicated that the 'carrying amount of assets might not be recoverable and have appropriately recorded the adjustment. 18. vVe have disclosed to you all known instances at noncompliance or suspected nonco111pliance. with laws and regulations whose effects should be consideted when preparing financial. statements as cUsdosed in Notes 8 and 15, "Lofln Pnyrrble" and IIS 11 iJsequenl Events", respectively. To the best of 0111' knowledge and belieL no -events have occurred subsequent to the balance-sheet date and through the date of this -letter that vvould require adjustment to or disclosure in the aforementioned financial statements. \IVC have responded funy and truthfully to all inquiries made to U$ by YOll during your revie\v. Name: 14arisel Rivera Title/posiHon: Vice President of Fjnance , -6)- "_U_'~,,--to__dil _____ Signature: _ _}cu_, Name: Sergio Mendez Title/Position: Comptroller 54 Coco Beach Golf & Country Club, S.E. Report on Borrower's Certificate Pursuant to Section 5.1O(c) of the Loan Agreement dated March 30, 2011 Between Coco Beach Golf & Country Club, S.E. and the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority 55 CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT ACCOUNTANTS' REPORT To the Partners of Coco Beach Golf & Country Club, S.E. We have exarnmed Coco Beach Golf & Country Club, S.E.'s (the Partnership) assertion about compliance with the covenants of section 5.10(a) and 5.10(b) and the representation of Section 2.02(g) of the loan agreement dated March 30, 2011, with the Puerto Rico Industrial Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (the Authority) during the year from January 1, 2012 through December 31, 2012, as included in the accompanying Borrower's Certificate dated November 26, 2013. Management is responsible for the Partnership's compliance with those requirements. Our responsIbility is to express an opinion on the Partnership's assertion based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about the Partnership's assertion about compliance with those requirements and performing such other procedures as We considered necessary ill t..he circumstances. We believe that our examination provides a reasonable basis for our opinion. Our exarnmation does not provide a legal determination on the Partnership's compliance with specified requirements. In our opinion, the Partnership complied, in all material respects, with t.he aforementioned covenants and representation during t.he year from January 1, 2012 through December 31, 2012. This report is intended solely for the information and use of the Authority, the Partners and management of the Partnership and is not intended to be and should not be used by anyone other than these specified parties. San Juan, Puerto Rico November 26, 2013 www.fpvgalindez.comIPOBox364152.SanJuan.PR 00936-4152 Phone 787.725.4545 I 787.764.5049 Fax 787.724.5802 I 787.764.0528 GOLF. COUNTRY CLUB Borrower's Certificate Pursuant to Section 5.10(c) of the Loan Agreement dated March 30. 2011 between Coco Beach Golf & Country Club, S.E. and the Puerto Rico Industrial. Tourist, Educational. Medical. and Environmental Control Facilities Financing Authoritv Noverrlber 26,2013 Banco Popular de Puerto Rico Att: Janet Rosas 209 Munoz Rivera Avenue Fifth Floor San Juan, Puerto Rico 00918 Puerto Rico Tourism Development Fund Att: :Mr. Rafael M. Arrillaga - Romany Executive Director Stop 22, De Diego Avenue Centro Gubemamental M.nillas San Juan, Puerto Rico 00942-2001 FPV & Galindez, CPAs, PSC Att: :Mr. Rafael Nieves Perez, CPA Audit Partner Urb. Perez Morris Ponce Street #19 San Juan, PR 00917-4152 Puerto Rico Industrial, Tourist, Educational, Medical, and Environmental Control Facilities Financing Authority Att::Mr. Jose R. Coleman-Tio, Esq. Executive Director Stop 22, De Diego Avenue Centro Gubemamental Minillas San Juan, Puerto Fico 00942-2001 Ladies and Gentlemen: This borrower's certificate is made pursuant to Section 5.10(c) of the loan agreement dated March 30, 2011 (the Loan Agreement; all capitalized terms used herein shall have the meaning set forth in the Loan Agreement unless otherwise defined herein) between Coco Beach Golf & Country Club, S.B. (the Partnership) and the Puerto Rico Industrial, Tourist, Educational, Medical, and Environmental Control Facilities Financing Authority (the Authority). We certify the following:. 57 to1:787-657-2000 fax: 787 -657 -2003 V www.cocobeachgolf.com ,J> ~~ CocolBeach .-=="~::;:s;=",~,~~ GOLF ~ COUNTRY CLUB The percentage of the Partnership's gross income during the year from January 1, 2012 through December 31, 2012 (the taxable year 2012) that was derived from sources outside Puerto Rico under the general sourcing rules of the Code as in effect on the date of issuance of the Bonds was 0%. The percentage of the Partnership's gross income during the year from January 1, 2012 through December 31, 2012 that was derived from sources withtn Puerto Rico under the sourcing rules of the Code as in effect on the date of issuance was 100%. The percentage of the Partnership's gross h""1COme durii'l.g -t.~e year froIn Ja.."1uary IF 2012 t..1-rrough December 31, 2012 (the taxable year 2012) that was, or was treated as, effectively connected with, or attributable to, the active conduct of its trade or business in Puerto Rico under the general sourcing rules of the Code as in effect on the date of the issuance was 93%. The percentage of the Partnership's gross income during the year from January 1, 2012 through December 31, 2012 (the taxable year 2012) that was, or was treated as, effectively connected with, or attributable to, the active conduct of its trade or business outside of Puerto Rico under the general sourcing rules of the Code as in effect on the date of the issuance was 0%. The Partnership has complied with each of the covenants of Section 5.10(a) and 5.10(b) and the representation of Section 2.02(g) of the Loan Agreement dated March 30, 2011 and, accordingly, an Event of Taxability has not occurred. Coco Beach Golf & Country Club, S.E. "Y~ ~LillaZ President and CEO Coco Beach Development Corporation 58