UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark one)

COMMISSION FILE NUMBER: No 1934 act file number assigned
(1933 act file no. 2-65481)

SADDLEBROOK RESORTS, INC.

5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499

813-973-1111

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES (X)  NO (  )

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  YES (  )  NO (X)

The aggregate market value of the voting and nonvoting common equity held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completed second fiscal quarter was zero, as all of the common equity of the Registrant is held by an affiliate of the Registrant.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: Not applicable

Table of Contents

PART I

Item 1. Business

Saddlebrook Resorts, Inc., (the “Company”) was incorporated in the State of Florida on June 20, 1979. It was formed to acquire an existing golf course and tennis club located in Pasco County, Florida, and develop it into a condominium resort and residential homes project named Saddlebrook Resort (the “Resort”). In November 1988, the Company transferred its real estate development division to its prior parent company and retained only its operation of the Resort.

The Company is currently owned by Saddlebrook Holdings, Inc., which is ultimately owned by Thomas L. Dempsey and his family. Mr. Dempsey acquired the Company from its prior parent company in November 1988.

Based on its numerous awards, the Resort has a reputation as a world-class facility that caters to corporate meeting planners and sports enthusiasts at all skill levels. As a destination resort, it offers luxury accommodations, convention facilities, restaurants, two golf courses, tennis courts, a spa and other recreational areas. An accredited preparatory school at the Resort and an on-site real estate sales office are operated by affiliates of the Company.

The Resort’s accommodations are condominium units that have been sold to third parties or to affiliates of the Company. The majority of the condominium units participate in a rental-pooling program (the “Rental Pool”) that provides its owners with a percentage distribution of related room revenues minus certain fees and expenses. The remainder of the condominium units either participate in a non-pooling rental program, are owner-occupied or are designated as hospitality suites or housing for young athletes independent of the rental programs.

All of the Resort’s condominium units are governed by the Saddlebrook Resort Condominium Association, Inc. (the “Association”) in accordance with Florida statutes. The Board of Directors for the Association is elected by the condominium unit owners. The condominium unit owners also approve an annual budget of common expenses for the Association that determines their quarterly assessments that must be paid regardless of the units’ participation in rental programs.

A Resort condominium unit’s participation in a rental program also requires a club membership at the Resort with its separate initiation fees and quarterly dues. The club membership is directed by a Board of Governors appointed by the Company’s management.

The Company’s operation of the Resort is not considered to be dependent upon the availability of raw materials, nor the effect of the duration of patents, licenses, franchises or concessions held.

The Resort’s business is considered to be seasonal with a higher volume of sales during the winter and spring seasons.

Although the Resort’s reputation in the conference-hosting industry is excellent, the market for these services is extremely competitive. Consequently, it aggressively competes against numerous resort hotels and convention facilities both in central Florida and nationwide.

At December 31, 2003, there were approximately 720 persons employed by the Company. The Company’s management relationship with employees is excellent and there are no collective bargaining agreements.

Additional information may be obtained on the Resort’s website at www.saddlebrookresort.com.

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Item 2. Properties

Saddlebrook Resort is located in Wesley Chapel, Florida, which is in south central Pasco County, immediately north of Tampa, Florida.

The Resort is inside the gated community of Saddlebrook. The Resort’s property includes approximately 450 acres of land that are owned by the Company and an affiliate. Located on the Resort’s property are convention facilities with approximately 82,000 square feet of meeting and function space, three restaurants, two 18-hole golf courses, 45 tennis courts, a 7,000-square foot luxury health spa, a 3,300-square foot fitness center, three swimming pools, shops and other operational and recreation areas.

A total of 556 condominium units are at the Resort comprised of one-, two- and three-bedroom suites. Of these condominium units, 408 are designed for hotel occupancy and located in an area called the Walking Village. The remaining 148 are slightly larger, designed for longer-termed rental, and are located in an area called the Lakeside Village. At December 31, 2003, there were 551 hotel accommodations participating in the Rental Pool. The three-bedroom condominium units become hotel accommodations as a two-bedroom suite with a separate adjoining hotel room. Some two-bedroom condominium units become hotel accommodations as a one-bedroom suite with a separate adjoining hotel room.

Item 3. Legal Proceedings

The Company is involved in litigation in the ordinary course of business. In the opinion of the Company’s management, insurance or indemnification from other third parties adequately covers these matters. The effect, if any, of these claims is considered immaterial to the Company’s financial condition and results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

The Company’s stock is privately held and there is no established market for the stock.

The right to participate in a rental pool that accompanies the condominium units that were developed and sold by the Company is deemed to be a security. However, there is no market for such securities other than the normal real estate market.

Since the security is the participation right in a rental pool, no dividends have been paid or will be paid to condominium unit owners. However, the condominium unit owners participating in the Rental Pool receive a contractual distribution of rent from the Company quarterly.

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Item 6. Selected Financial Data

The following selected financial data should be read in conjunction with the financial statements and related notes in Item 8 hereof.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The Company operates the Resort, which contains condominium units that have been sold to third parties or to affiliates of the Company. The majority of the condominium units are hotel accommodations that participate in the Rental Pool. Other resort facilities owned by the Company and its affiliates include golf courses, tennis courts, a spa, restaurants and a conference center.

Critical Accounting Policies and Estimates

In 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 which requires the consolidation of a Variable Interest Entity (“VIE”), if any, in the Company’s financial statements if the Company is at risk for the VIE’s expected losses or receives a majority of its gains. The adoption of the provisions of this interpretation in 2004 is not expected to have an effect on the Company’s financial statements.

The following accounting policies are considered critical by the Company’s management. These and other accounting policies require that estimates be made, based on assumptions and judgment, that affect revenues, expenses, assets, liabilities and disclosure of contingencies in the Company’s financial statements. These estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. However, actual results may differ from these estimates due to different conditions.

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Asset Impairments — The Company’s management periodically evaluates whether there has been a permanent impairment of long-lived assets, in accordance with Financial Accounting Standard (“FAS”) No. 144 — Accounting for the Impairment or Disposal of Long-Lived Assets. The Company’s management believes that the accounting estimates related to asset impairments are critical estimates for the following reasons: (1) the ongoing changes in management’s expectations regarding future utilization of assets; and (2) the impact of an impairment on reported assets and earnings could be material. During the year ended Dec. 31, 2003, the Company’s management evaluated assets for impairment in accordance with FAS 144 and concluded that the sum of the undiscounted expected future cash flows (excluding interest charges) from its assets exceeded its then current carrying values. Accordingly, the Company did not recognize an impairment charge.

Depreciation Expense — The Company provides for depreciation by the straight-line method at annual rates that amortize the original costs, net of salvage values, of depreciable assets over their estimated useful lives. Management’s estimation of assets’ useful lives are critical estimates for the following reasons: (1) forecasting the salvage value for long-lived assets over a long period of time is subjective; (2) changes may take place that could render an asset obsolete or uneconomical; and (3) a change in the useful life of a long-lived asset could have a material impact on reported results of operations and reported asset values. The Company’s management believes the estimated useful life corresponds to the anticipated physical life for most assets. Although it is difficult to predict values far into the future, the Company has a long history of actual costs and values that are considered in reaching a conclusion as to the appropriate useful life of an asset.

See the Notes to the Financial Statements for Saddlebrook Resorts, Inc. in Item 8 hereof for additional accounting policies used in the preparation of the financial statements. Other new accounting pronouncements initially effective in 2003 are considered not applicable to the Company.

Liquidity and Capital Resources

Construction of the Resort was substantially completed by December of 1982 and sales of existing condominium units were substantially completed by November of 1988. The Company had no significant capital expenditures during the fiscal year ended December 31, 2003.

During April of 2002, the Company completed construction on new laundry and warehouse facilities to replace a structure that was damaged by fire in January of 2001. The aggregate cost for this project’s buildings and equipment was approximately $1,907,000 before application of related insurance proceeds of approximately $601,000. There were no other significant capital expenditures during the fiscal year ended December 31, 2002.

During the fiscal year ended December 31, 2001, the Company made various improvements to its main conference center building and repaired a portion of it that was damaged by a fire at an aggregate cost of approximately $3,498,000 before application of related insurance proceeds of approximately $2,615,000. The Company also commenced construction on the new laundry and warehouse facilities discussed above. There were no other significant capital expenditures during that fiscal period.

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The Company’s management presently has no major capital projects anticipated during 2004. Future operating costs and planned expenditures for minor capital additions and improvements are expected to be adequately funded by the Company’s and its affiliates’ current cash reserves, cash generated by the Resort’s operations or by additional funds, if available, from the Company’s current lender discussed below.

The Company obtained financing from a third-party lender in June 1998 that replaced its prior debt. This financing has a fixed annual interest rate of 7.7%, monthly principal and interest payments of approximately $244,000 and matures on June 30, 2013. The debt agreement also contains a provision for additional financing from the same lender of $5,000,000 provided the Company is in compliance with certain financial covenants for a fiscal reporting period ending on June 30 of each year. For the debt’s reporting period ended June 30, 2003, the Company did not meet the financial covenants related to this additional financing. However, the Company was in compliance with the financial covenants related to its existing debt. There are currently no other lines-of-credit in place as the cash reserves of the Company and its affiliates are considered sufficient to support its anticipated minor capital expenditures and operating capital needs in the immediate future.

During January 2004, the Company and Honeywell Corporation (the owner of the Company’s former parent company), settled a legal dispute with a prior insurance provider. The case involved the Company and its former parent company seeking reimbursement for defense and settlement costs incurred in connection with a lawsuit that alleged damages covered by policies issued by the insurance company. A favorable settlement of $4,950,000 was agreed to and received by the Company in 2004.

Regarding the Company’s operation of the Rental Pool, the related condominium units’ kitchens, bathrooms and carpeting are currently being renovated and upgraded. This project commenced in 1998 and has been completed for unit Clusters One through Ten with an aggregate billing to the maintenance escrow fund of $6,235,000. The project is currently underway in the Resort’s Lakeside Village units and the Company’s management expects the related billing to the condominium owners’ maintenance escrow fund accounts to occur in 2004. Additionally, the Company’s management has commenced a project to replace and upgrade unit furniture packages. The aggregate cost to be billed to the condominium owners’ maintenance escrow fund accounts is expected to be approximately $7,700,000.

The Company’s management is not aware of any environmental matters that are currently present.

The Company’s operation of the Resort is not considered to be dependent on any individual or small group of customers, the loss of whom would have a material adverse effect.

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Results of Operations

The following chart highlights changes in the sources of Company revenues:

2003 Compared to 2002

The Company’s total revenues decreased approximately $1,482,000, which was 4% down from the prior year. Total revenues for the Rental Pool decreased $1,135,000 or 10% from the prior year. These reductions were primarily due to a 4% decrease in the average daily room rate and a 6% decrease in paid room nights for the condominium units that participated in the Rental Pool. Paid room nights were down 8% for the Resort’s group business and off 4% for social hotel stays. However, the reduction in the Company’s total resort revenues was partially offset by business in its food and beverage and other areas of operations that resulted from a 6% increase in the number of individual guests that stayed at the Resort.

As in the 2002 discussion below, the current year reductions in business are attributed to the continued slowdown in the nation’s economy and concerns about national security that have adversely affected travel. Regarding the projection of future revenues, these negative events have created a trend in the booking of resort business where reservations for both group and social guests are now generally occurring within two to four months before arrival dates instead of ten months or more in advance as in previous years. Although this trend makes it difficult to project future business, the Company’s management believes the occupied room nights for the year 2004 will improve from the prior year’s level.

The net loss for 2003 of $132,000 was a $256,000 reduction from the profit in the prior year. This change from a net income to net loss was a direct result of lower revenues partially offset by management’s continued efforts to control the Company’s costs throughout all areas of operations. Depreciation and amortization expense was effectively unchanged. Interest expense decreased approximately 6% as the Company continued to pay down its self-amortizing debt discussed in Liquidity and Capital Resources above.

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The Company is currently a member of a Qualified Subchapter S Subsidiary Group. Accordingly, no income tax expense was reflected in the Company’s operating results as the tax is assessed to the shareholders of its parent company. Income tax expense was not reflected in the Company’s Rental Pool financial statements as the related income tax is assessed to its participating condominium unit owners.

2002 Compared to 2001

The Company’s total revenues decreased approximately $8,952,000, which was 19% down from the prior year. Total revenues for the Rental Pool decreased $2,602,000 or 18% from the prior year. These reductions were primarily due to an 8% decrease in the average daily room rate and a 12% decrease in paid room nights for the condominium units that participated in the Rental Pool. Paid room nights were down 14% for the Resort’s group business and off 4% for social hotel stays. The Company’s total resort revenues also reflected reductions in its food and beverage and other areas of operations that resulted from a 19% decrease in the number of individual guests that stayed at the Resort.

The above reductions in business were attributed to the continued slowdown in the nation’s economy and concerns about national security that adversely affected travel.

The Company’s net income decreased $3,263,000, which was a 96% reduction from the prior year. This decrease in net income was a direct result of lower revenues partially offset by management’s continued efforts to control the Company’s costs throughout all areas of operations. Depreciation and amortization expense increased approximately 6% due primarily to the Company’s new laundry and warehouse facilities placed in service in early 2002. Interest expense decreased approximately 5% as the Company continued to pay down its self-amortizing debt discussed in Liquidity and Capital Resources above.

Off-Balance Sheet Arrangements

The Company does not have any material Off-Balance Sheet Arrangements that have or are reasonably likely to have a current or future effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources as defined in Regulation S-K Item 303(a)(4).

Contractual Obligations

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company’s invested cash, including investments escrowed on behalf of the condominium unit owners in the Rental Pool’s Maintenance Escrow Fund, are subject to changes in market interest rates. Consequently, the related yields for these investments continue to have a downward trend. Otherwise, the Company does not have significant market risk with respect to foreign currency exchanges or other market rates.

The Company’s debt is self-amortizing and has a fixed contractual interest rate through June of 2013. Accordingly, fluctuations in related market costs of capital are not expected to affect its financial results.

Item 8. Financial Statements and Supplementary Data

The financial statements, including the Reports of Independent Certified Public Accountants, for Saddlebrook Resorts, Inc. are included on pages 17 to 29 and for Saddlebrook Rental Pool Operation on pages 30 to 34. An index to the financial statements is on page 16.

Financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

As of December 31, 2003, the Company’s management, under the direction of its Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Exchange Act Rule 15d-15. Based upon that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic SEC filings.

There were no significant changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2003, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART III

Item 10. Directors and Executive Officers of the Registrant

The Directors and Executive Officers of the Company are as follows:

Code of Ethics

The Board of Directors of the Company has adopted a Code of Ethics that covers the Company’s principal financial officer, principal accounting officer and controller, as well as its Executive Committee. The Board did not provide for the Code to cover the Company’s principal executive officer, Mr. Thomas Dempsey, as Mr. Dempsey is the owner of 87% of the stock of Saddlebrook Holdings, Inc., which owns all of the stock of the Company, and the remainder of the stock of Saddlebrook Holdings is owned by two trusts for the benefit of Mr. Dempsey’s daughters and his grandchildren; therefore, it is primarily for the benefit of Mr. Dempsey that the Code has been adopted.

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Audit Committee Financial Expert

The Board of Directors of the Company has determined that it does not have an “audit committee financial expert,” as defined by the rules of the Securities and Exchange Commission, serving on the Board of Directors. The Board, and Mr. Thomas Dempsey, the Company’s principal shareholder, believe that there is adequate financial expertise on the Board and within the senior management of the Company to serve the interests of the shareholders of Saddlebrook Holdings, Inc., which owns all of the stock of the Company, such shareholders being Mr. Dempsey and two trusts for the benefit of his daughters and grandchildren.

Item 11. Executive Compensation

The following table sets forth the remuneration paid, distributed or accrued to the Company’s executive officers by the Company and its parent, Saddlebrook Holdings, Inc. consolidated, during the three years ended December 31, 2003.

The Company commenced a 401(k) plan effective January 1, 2001. Compensation paid thereunder is included in Other Annual Compensation above. In addition, corporate officers and executive staff are allowed to use the Resort’s facilities and are provided various discounts on related purchases in accordance with hospitality industry standards. The Company had no other compensation plans for directors and officers at December 31, 2003.

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Item 12. Security Ownership of Certain Beneficial Owners and Management

In December 1994, the Company’s Articles of Incorporation were amended to increase the number of shares of authorized common stock from 25,000 to 100,000 shares. Each of the 500 shares of stock that was previously outstanding was then exchanged for 100 shares of voting stock and 100 shares of nonvoting stock. The par value of each share remains unchanged at $1. On October 1, 1995, 6,500 shares of nonvoting stock were gifted by Thomas L. Dempsey to each of two family trusts.

In June 1998, each share of the Company’s outstanding capital stock was exchanged for one share of Saddlebrook Holdings, Inc. stock. After the exchange, Thomas L. Dempsey and the family trusts own 100% of Saddlebrook Holdings, Inc. which owns 100% of the Company.

Item 13. Certain Relationships and Related Transactions

The Company currently funds a portion of the expenditures for Saddlebrook Holdings, Inc. (“SHI”), its sole shareholder, which is offset by dividends declared thereto, if necessary. SHI’s expenditures include dividends to its shareholders, which are primarily amounts that approximate their income taxes related to the operations of SHI and its subsidiaries.

Saddlebrook International Tennis, Inc. (“SIT”) operates a tennis training facility and preparatory school at the Resort and is solely owned by SHI. SIT owns 10 condominium units at the Resort. The Company receives revenue for services provided to SIT’s guests. In addition, the Company is reimbursed for actual expenses and other costs incurred on behalf of SIT.

Saddlebrook Investments, Inc. is a broker/dealer for the Resort’s condominium units. Saddlebrook Realty, Inc. is a broker for sales of other general real estate in the area. Both companies are owned by Thomas L. Dempsey. These companies collectively operate an on-site real estate office at the Resort and the Company is reimbursed for actual expenses and other costs incurred on their behalf.

Dempsey and Daughters, Inc. hold certain tracts of real estate and owns 23 individual condominium units at the Resort. This company is solely owned by SHI. The Company is reimbursed for actual expenses and other costs incurred on behalf of this company.

Saddlebrook Resort Condominium Association, Inc. is a nonprofit corporation whose membership is comprised of the Resort’s condominium unit owners pursuant to Florida statutes. The company is compensated by this entity for various services provided and is reimbursed for actual expenses and other costs incurred on its behalf.

The Company’s management and ownership are involved with other related entities and operations that are considered minor.

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Item 14. Principal Accounting Fees and Services

PricewaterhouseCoopers LLP served as the Company’s independent auditors for the fiscal year ended December 31, 2003 and has been appointed to serve in that capacity again for fiscal 2004.

The following fees were paid to PricewaterhouseCoopers LLP for services rendered during the Company’s last two fiscal years:

Audit Fees: $120,700 and $116,100 for the fiscal years ended December 31, 2003 and 2002, respectively, for professional services rendered for the audit of the Company’s annual financial statements, review of financial statements included in its Forms 10-Q and services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements for those fiscal years.

Audit-Related Fees: None

Tax Fees: $15,350 and $15,200 for the fiscal years ended December 31, 2003 and 2002, respectively, for tax compliance, tax advice and tax planning services.

All Other Fees: None

Effective May 6, 2003, the Board of Directors has implemented a policy requiring the Board of Directors, which functions as the Company’s audit committee, to approve the engagement of the Company’s independent auditors prior to the engagement of the independent auditor to render audit or non-audit related services in accordance with the rules of the Securities and Exchange Commission. The Board of Directors has not adopted any pre-approval policies or procedures.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)		Financial statements and schedules required to be filed are listed in Item 8 of this Form 10-K.
(b)		Reports on Form 8-K: None
(c)		Exhibits:

			3.1  Articles of Incorporation of Saddlebrook Resorts, Inc., a Florida corporation (incorporated by reference to Exhibit A*).
			3.2  Corporate By-laws of Saddlebrook Resorts, Inc. (incorporated by reference to Exhibit B*).
			4.  Declaration of Condominium, together with the following: (1) Articles of Incorporation of the Saddlebrook Association of Condominium Owners, Inc. a Florida non-profit corporation; (2) By-laws of the Saddlebrook Association of Condominium Owners, Inc., and (3) Rules and Regulations of the Saddlebrook Association of Condominium Owners, Inc. (incorporated by reference to Exhibit C*).
			10.1  Management Contract between Saddlebrook Resorts, Inc. and the Saddlebrook Association of Condominium Owners, Inc.(incorporated by reference to Exhibit C*).
			10.2  Saddlebrook Rental Pool and Agency Appointment Agreement.
			10.3  Saddlebrook Rental Management Agency Employment (incorporated by reference to Exhibit E*).
			10.4  Form of Purchase Agreement (incorporated by reference to Exhibit H*).
			10.5  Form of Deed (incorporated by reference to Exhibit I*).
			10.6  Form of Bill of Sale (incorporated by reference to Exhibit J*).
			14.1  Code of Ethics
			31.1  Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
			31.2  Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
			32.1  Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
			32.2  Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*

Identification of exhibit incorporated by reference from the Registration Statement No. 2-65481 previously filed by Registrant, effective December 28, 1979.

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on March 29, 2004.

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Saddlebrook Resorts, Inc.
Index
December 31, 2003 and 2002

16

Report of Independent Certified Public Accountants

To the Board of Directors and Shareholder of
Saddlebrook Resorts, Inc.

In our opinion, the accompanying balance sheets and the related statements of operations, of changes in shareholder’s equity and of cash flows present fairly, in all material respects, the financial position of Saddlebrook Resorts, Inc. at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers, LLP
Tampa, FL

March 15, 2004

17

Saddlebrook Resorts, Inc.
Balance Sheets
December 31, 2003 and 2002

The accompanying notes are an integral part of these financial statements.

18

Saddlebrook Resorts, Inc.
Statements of Operations
For the year ended December 31, 2003, 2002 and 2001

The accompanying notes are an integral part of these financial statements.

19

Saddlebrook Resorts, Inc.
Statements of Changes in Shareholder’s Equity
For the year ended December 31, 2003, 2002 and 2001

The accompanying notes are an integral part of these financial statements.

20

Saddlebrook Resorts, Inc.
Statements of Cash Flows
For the year ended December 31, 2003, 2002 and 2001

The accompanying notes are an integral part of these financial statements.

21

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2003 and 2002

1.		Organization and Business:
		Saddlebrook Resorts, Inc. (the “Company”), a wholly-owned subsidiary of Saddlebrook Holdings, Inc. (“SHI” or the “Parent Company”), was incorporated in the State of Florida in June 1979 at which time it purchased a golf course and tennis complex, as well as certain undeveloped land, located in Pasco County, Florida, which was developed as a resort-condominium and residential homes project. Property improvements for the resort include condominiums, of which most were sold to outside parties. The majority of the condominium units sold are provided as hotel accommodations by their owners under a Rental Pool and Agency Appointment Agreement (the “Rental Pool”). Other resort facilities include two 18 hole golf courses, 45 tennis courts, three swimming pools, three restaurants, a convention facility with approximately 82,000 square feet of meeting and function space, a health spa, a fitness center, shops and other facilities necessary for the operation of a resort.
2.		Significant Accounting Policies:
		A summary of the Company’s significant accounting policies are as follows:
		Use of Estimates
		The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
		Cash and Cash Equivalents
		All short-term highly liquid instruments purchased with an original maturity of three months or less are considered to be cash equivalents.
		Investments
		Investments held at December 31, 2003 consist of U.S. Treasury Securities and a Certificate of Deposit yielding interest ranging between 1.006% and 1.980%, which mature through June 2005. Investments are held to maturity and recorded at amortized cost, which approximates fair market value. Escrowed investments relate to Rental Pool unit owner deposits for the maintenance reserve fund.
		Accounts Receivable
		Substantially all of the Company’s accounts receivable are due from direct billings to companies or individuals who hold conferences or large group stays at the resort. Other receivables include quarterly membership fees and credit card charges. The Company performs ongoing credit evaluations of its customers’ financial conditions and establishes an allowance for doubtful accounts based upon factors surrounding specific customers, historical trends and other information.
		Resort Inventory and Supplies
		Inventory includes operating materials and supplies and is accounted for at the lower of first-in, first-out cost or market.

22

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2003 and 2002

		Property, Buildings and Equipment
		Property, buildings and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets on a straight-line basis.
		Certain expenditures for renewals and improvements that significantly add to or extend the useful life of an asset are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. When property, buildings and equipment are retired or otherwise disposed, the cost of the assets and related accumulated depreciation amounts are removed from the accounts, and any resulting gains or losses are reflected in operations.
		Recoverability of Long-Lived Assets
		On January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS No. 144”). This statement requires the measurement and recognition of the impairment of long-lived assets to be held and used and long-lived assets to be held for sale. The adoption of FAS No. 144 did not have a material impact on the Company’s results of operations or financial position for the year ended December 31, 2002.
		Long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the estimated future cash flows expected to result from the use of the assets. If the carrying amount of the assets exceeds the estimated expected undiscounted future cash flows, the Company estimates fair value based on the best information available making whatever estimates, judgments and projections are considered necessary. No adjustment to the carrying value or estimated period of recovery was necessary for the year ended December 31, 2003.
		Deferred Charges
		In connection with the Company’s refinancing debt during 1998, financing costs in the amount of approximately $597,000 were incurred and deferred. These financing costs are being amortized using a method that approximates the effective interest method over fifteen years, the life of the related debt outstanding.
		Accumulated amortization amounted to approximately $219,000 and $179,000 at December 31, 2003 and 2002, respectively. Amortization expense for deferred charges amounted to approximately $40,000 for each of the years ended December 31, 2003, 2002 and 2001.
		Resort Revenues
		Resort revenues are recognized as the related service is performed and include rental revenues for condominium units owned by third parties participating in the Rental Pool. If these rental units were owned by the Company, normal costs associated with ownership such as depreciation, real estate taxes, unit maintenance and other costs would have been incurred. Instead, resort operating expenses for the years ended December 31, 2003, 2002 and 2001 include rental pool distributions to condominium unit owners approximating $4,100,000, $4,600,000, and $5,659,000, respectively.

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2003 and 2002

		Income Taxes
		Effective February 1, 1990, the Company elected S Corporation status for federal and state income tax purposes. Taxable income and losses are ultimately passed through to the Parent Company and, accordingly, no provision for income taxes has been made in the accompanying financial statements. As of December 31, 2003, the Company has approximately $470,000 in tax net operating loss carryforwards, which expire in 2005, available only to offset future C Corporation taxable income.
		Employee Benefit Plans
		Effective January 1, 2001, the Company sponsors a defined contribution plan (the “Plan”), which provides retirement benefits for all eligible employees who have elected to participate. Employees must fulfill a one year service requirement to be eligible. The Company currently matches one-half of the first 2% of an employee’s contribution. Company contributions approximated $51,000, $52,000 and $72,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
		Recent Accounting Pronouncements
		In November 2002, the Financial Accounting Standards Board (the “FASB”) issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 elaborates on the disclosures to be made by a guarantor in its annual financial statements about its obligations under certain guarantees that it has issued. FIN No. 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligations undertaken in issuing the guarantee. The disclosure provisions of FIN No. 45 were effective for financial statements for periods ending after December 15, 2002. Additionally, the recognition of a guarantor’s obligation was to be applied on a prospective basis to guarantees issued after December 31, 2002. The adoption of the disclosure and recognition provisions of FIN No. 45 had no effect on the Company’s financial statements.
		In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities.” In December 2003, the FASB issued FIN No. 46 (Revised) (“FIN 46-R”) to address certain FIN No. 46 implementation issues and clarify the application of Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements for companies that have interests in entities that are Variable Interest Entities (“VIE”),” as defined under FIN No. 46. According to this interpretation, if a company has an interest in a VIE and is at risk for a majority of the VIE’s expected losses or receives a majority of the VIE’s expected gains it shall consolidate the VIE. This interpretation is effective no later than the end of the reporting period ending after March 15, 2004. The adoption of the provisions of this interpretation is not expected to have an effect on the Company’s financial statements.
		In April 2003, the FASB issued FAS No. 149, “Amendments of Statement 133 on Derivative Instruments and Hedging Activities.” FAS No. 149 amends and clarifies accounting for derivative instruments embedded in other contracts and for hedging activities under FAS No. 133. FAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of the provisions of FAS No. 149 had no effect on the Company’s financial statements.

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2003 and 2002

		In May 2003, the FASB issued FAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” FAS No. 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. FAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first reporting period beginning after June 15, 2003. The adoption of the provisions of FAS No. 150 did not have a material effect on the Company’s financial statements.
		Reclassifications
		Certain prior year balances have been reclassified to conform with current year presentation.
3.		Common Stock:
		At December 31, 2003 and 2002, the Company had 50,000 shares of voting common stock and 50,000 shares of nonvoting common stock authorized, issued and outstanding. The par value of the voting and nonvoting common stock was $1.00 at December 31, 2003 and 2002.
4.		Escrowed Cash:
		Escrowed cash, restricted as to use, as of December 31, is comprised of the following:

5.		Property, Buildings and Equipment, Net:
		Property, buildings and equipment as of December 31, consist of the following:

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2003 and 2002

		Substantially all property, buildings and equipment are mortgaged, pledged or otherwise subject to lien under a loan agreement (Note 7).
		Depreciation expense amounted to approximately $2,075,000 and $2,175,000, and $2,047,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
		The Company leases equipment under an agreement which is classified as a capital lease. The equipment and obligations related to the lease are recorded at the present value of the minimum lease payments. During 2003, 2002 and 2001, the Company recorded approximately $9,000, $6,000 and $9,000, respectively, of interest expense related to the lease. Depreciation is computed on a straight-line basis over the estimated useful life of the asset. Total depreciation expense on the asset under lease was approximately $28,000, $39,000 and $24,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Future minimum lease payments under this lease are payable as follows:

The Company also leases equipment under operating leases. Some of the leases contain annual renewal options after the initial lease term. Lease expense amounted to $295,000, $174,000 and $269,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Future minimum lease payments under noncancelable operating leases with initial lease terms in excess of one year are as follows:

6.		Accrued Expenses and Other Liabilities
		Accrued expenses and other liabilities as of December 31, consist of the following:

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2003 and 2002

7.		Notes Payable
		Notes payable consist of the following:

Under the terms of the agreement, the Company is required to meet debt service coverage ratios as defined. The Company was in compliance at December 31, 2003. The Company has the ability to obtain an additional $5 million from the same lender under the terms of the agreement subject to separate covenants that the Company was not in compliance with at December 31, 2003.

Principal maturities of the notes payable are due as follows:

8.		Resort Revenues and Operating Costs of Resort:
		Resort revenues and operating costs of resort are comprised of the following:

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2003 and 2002

9.		Related Party Transactions
		Amounts due from related parties as of December 31 are comprised of the following:

Amounts due to related parties as of December 31 are comprised of the following:

		The Company currently funds expenditures for SHI, the Company’s parent, which are offset by dividends declared thereto. SHI’s expenditures include dividends to its shareholders, which are primarily income taxes related to the operations of SHI and its subsidiaries.
		Saddlebrook International Tennis, Inc. (“SIT”) is a tennis training facility and preparatory school operating at the resort. SIT is solely owned by the Company’s parent. The Company charges SIT various amounts for services provided to SIT guests, which amounted to approximately $1,371,000, $2,019,000, and $2,527,000 for the years ended December 31, 2003, 2002 and 2001, respectively. In addition, the Company was reimbursed for actual expenses and other costs incurred on behalf of SIT.
		Saddlebrook Investments, Inc. is a broker/dealer for sales of Saddlebrook Resort condominium units. Saddlebrook Realty, Inc. is a broker for the sale of other general real estate. These companies are solely owned by the shareholder of the Company’s parent.
		The Company performs certain accounting and property management activities on behalf of the Saddlebrook Resort Condominium Association (the “Association”) and is reimbursed for expenses paid on behalf of the Association. Expenses paid on behalf of and services provided to the

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2003 and 2002

		Association amounted to approximately $1,365,000 and $1,330,000, and $1,070,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
		Other related party receivables and payables consist of transactions with several other entities, along with receivables from employees for resort charges and travel advances.
10.		Commitments and Contingencies
		The Company is involved in litigation in the ordinary course of business. In the opinion of management, these matters are adequately covered by insurance or indemnification from other third parties and/or the effect, if any, of these claims is not material to the reported financial condition or results of operations of the Company as of December 31, 2003.
		Insurance pool
		The Company has pooled its risks with other resorts by forming an insurance purchasing group in which they retain an equity interest and to which they pay insurance premiums. The Company’s ownership is less than 10% and all amounts contributed as capital ($122,950 as of December 31, 2003) and the increase in equity cumulative to date ($76,531 as of December 31, 2003) were recorded as a component of Prepaid expenses and other assets. Any change in equity is reflected as a component of Resort revenues in the Statements of Operations. The Company’s investment approximates the proportionate net book value of the insurance company at December 31, 2003. The Company may withdraw from the risk pool annually at any renewal date.
11.		Insurance Claims
		During 2001, the Company incurred fire damages to two separate buildings at the resort which were adequately covered by insurance from third parties. The Company has received approximately $601,000 and $2,615,000 of insurance proceeds relating to those buildings during the years ended December 31, 2002 and 2001, respectively. These proceeds were used to repair and/or replace the damaged buildings.
12.		Subsequent Event
		During January 2004, the Company and Honeywell Corporation (the owner of Pittway Corporation, its former parent company) settled a legal dispute with a prior insurance provider. The case involved the Company and it’s former parent company seeking reimbursement for defense and settlement costs incurred in connection with a lawsuit that alleged damages covered by policies issued by the insurance company. A favorable settlement of $4,950,000 was agreed to and received by the Company in 2004.

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Report of Independent Certified Public Accountants

To the Board of Directors of Saddlebrook
Resorts, Inc., as Operators under the Saddlebrook
Rental Pool and Agency Appointment Agreement

In our opinion, the accompanying balance sheets and the related statements of operations and of changes in participants’ fund balance present fairly, in all material respects, the financial position of the Saddlebrook Rental Pool Operation (funds created for participants who have entered into a rental pool agreement as explained in Note 1) at December 31, 2003 and 2002, and the results of its operations and the changes in participants’ fund balance for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the rental pool’s operators; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers, LLP
Tampa, FL

March 15, 2004

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Saddlebrook Rental Pool Operation
Balance Sheets
December 31, 2003 and 2002

The accompanying notes are an integral part of these financial statements.

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Saddlebrook Rental Pool Operation
Statements of Operations
December 31, 2003, 2003 and 2002

The accompanying notes are an integral part of these financial statements.

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Saddlebrook Rental Pool Operation
Statements of Changes in Participants’ Fund Balance
December 31, 2003, 2003 and 2002

The accompanying notes are an integral part of these financial statements.

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Saddlebrook Rental Pool Operation
Notes to Financial statements
December 31, 2003, 2003 and 2002

1.		Rental Pool Operations and Rental Pool Agreement
		Condominium units are provided as rental (hotel) accommodations by their owners under the Rental Pool and Agency Appointment Agreement (the “Agreement”) with Saddlebrook Resorts, Inc. (collectively, the “Rental Pool”). Saddlebrook Resorts, Inc. (“Saddlebrook”) acts as operator of the Rental Pool which provides for the distribution of a percentage of net rental income, as defined, to the owners.
		The Saddlebrook Rental Pool Operation consists of two funds: the Rental Pool Income Distribution Fund (“Distribution Fund”) and the Maintenance and Furniture Replacement Escrow Fund (“Maintenance Escrow Fund”). The operations of the Distribution Fund reflect the earnings of the Rental Pool. The Distribution Fund balance sheets reflect amounts due from Saddlebrook for the rental pool distribution payable to participants and amounts due to the Maintenance Escrow Fund. The amounts due from Saddlebrook are required to be distributed no later than forty-five days following the end of each calendar quarter. The Maintenance Escrow Fund reflects the accounting for escrowed assets used to maintain unit interiors and replace furniture as it becomes necessary.
		Rental pool participants and Saddlebrook share rental revenues according to the provisions of the Agreement. Net Rental Income shared consists of rentals received less a marketing surcharge of 7.5%, a 12.5% management fee, travel agent commissions, credit card expense and provision for bad debts, if warranted. Saddlebrook receives 45% of Net Rental Income as operator of the Rental Pool. The remaining 55% of Net Rental Income, after adjustments for complimentary room revenues (ten percent of the normal unit rental price paid by Saddlebrook for promotional use of the unit) and certain minor repair and replacement charges, is available for distribution to the participants and maintenance escrow fund based upon each participant's respective participation factor (computed using the value of a furnished unit and the number of days it was available to the pool). Quarterly, 45% of Net Rental Income is distributed to participants and 10%, as adjusted for complimentary room revenues and minor interior maintenance and replacement charges, is deposited in an escrow account until a maximum of 20% of the set value of the individual owner’s furniture package has been accumulated. Excess escrow balances are refunded to participants.
2.		Summary of Significant Accounting Policies
		Basis of accounting
		The accounting records of the funds are maintained on the accrual basis of accounting.
		Investments
		Investments consist of U.S. Treasury Securities which bear interest ranging from 1.006% to 1.179% with maturity dates through June 2005. At December 31, 2003, investments of approximately $1,000 mature in one year or less.
		Income taxes
		No federal or state taxes have been reflected in the accompanying financial statements as the tax effect of fund activities accrues to the rental pool participants and Saddlebrook.

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