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EX-32.1 - EXHIBIT 32.1 - SADDLEBROOK RESORTS INCc98625exv32w1.htm
EX-31.2 - EXHIBIT 31.2 - SADDLEBROOK RESORTS INCc98625exv31w2.htm
EX-32.2 - EXHIBIT 32.2 - SADDLEBROOK RESORTS INCc98625exv32w2.htm
EX-31.1 - EXHIBIT 31.1 - SADDLEBROOK RESORTS INCc98625exv31w1.htm
EX-14.1 - EXHIBIT 14.1 - SADDLEBROOK RESORTS INCc98625exv14w1.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark one)
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 2009
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
COMMISSION FILE NUMBER: No 1934 act file number assigned
(1933 act file no. 2-65481)
SADDLEBROOK RESORTS, INC.
(Exact name of registrant as specified in its charter)
     
Florida   59-1917822
     
(State of incorporation)   (IRS employer identification no.)
5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499
(Address of principal executive offices)
813-973-1111
(Registrant’s telephone number, including area code)
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES o NO þ
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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. Not applicable
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated Filer o   Non-accelerated filer þ   Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ
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
Item 1A. Risk Factors
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Reserved
PART II
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A(T). Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Exhibit 14.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


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 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.

 

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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, 2009, there were approximately 525 persons employed by the Company. The Company’s management relationship with its employees is excellent and there are no collective bargaining agreements.
Item 1A.   Risk Factors
The Company is subject to operating risks common to the hotel industry which could adversely affect our results of operations.
Common hotel industry risks outside of our control include (but are not limited to) terrorism (including threatened terrorist activity), the uncertainty of military conflicts, outbreaks of contagious diseases and the cost and availability of travel options.
Continued weakness and further weakening in economic conditions may adversely affect consumer and corporate spending and tourism trends which could have a negative impact on our results of operation.
We are vulnerable to the risk of unfavorable weather conditions and the impact of natural disasters. There is no way for us to predict future weather patterns or the impact weather patterns may have on our results of operation or visitation.

 

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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 480 acres of land that are owned by the Company and an affiliate. Located on the Resort’s property are convention facilities with over 95,000 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 7,500-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, 2009, there were 537 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.   Reserved
PART II
Item 5.   Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
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.
                                         
    Year ended December 31,  
    2009     2008     2007     2006     2005  
Resort
                                       
 
                                       
Resort revenues
  $ 26,756,000     $ 45,766,000     $ 43,616,000     $ 43,608,000     $ 40,674,000  
 
                                       
Interest expense
    360,000       599,000       861,000       808,000       661,000  
 
                                       
Net (loss) income
    (1,014,000 )     2,571,000       531,000       1,833,000       1,221,000  
 
                                       
Total assets
    30,781,000       36,684,000       35,447,000       36,429,000       33,227,000  
 
                                       
Total debt
    9,805,000       11,167,000       11,217,000       11,267,000       11,067,000  
 
                                       
Capital leases
    292,000             128,000       282,000       470,000  
 
                                       
Rental Pool
                                       
 
                                       
Rental Pool revenues
    7,089,000       13,497,000       12,260,000       12,005,000       11,590,000  
 
                                       
Total assets
    544,000       674,000       905,000       692,000       720,000  
 
                                       
Net income
    2,824,000       5,347,000       4,909,000       4,841,000       4,672,000  
 
                                       
Average distribution per Rental Pool participant
    5,259       9,983       9,125       8,981       8,620  
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.

 

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Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168” or Accounting Standards Update No. 2009-01 (“ASU No. 2009-01”)), on June 29, 2009 and, in doing so, authorized the Codification as the sole source for authoritative U.S. GAAP, aside from those issued by the SEC. The Company adopted ASU 2009-01 during the three months ended September 30, 2009 and its adoption did not have any impact on the Company’s financial statements.
In January 2010, the FASB issued new guidance for fair value measurements and disclosures. The new guidance, which is now part of ASC 820, Fair Value Measurements and Disclosures, clarifies existing disclosure requirements regarding the level of desegregation and inputs and valuation techniques and provides new disclosure requirements about, among other things, transfer in and out of levels 1 and 2 of the fair value hierarchy and details of the activity in level 3 of the fair value hierarchy. The new guidance is effective for fiscal years beginning after December 15, 2009 for the level 1 and 2 disclosures and for fiscal years beginning after December 15, 2010 for level 3 disclosures. The disclosure requirements will be applied prospectively to the Company’s fair value disclosure subsequent to the effective date and are not expected to have a significant effect on the financial statements.
Critical Accounting Policies and Estimates
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.
Asset Impairments — The Company’s management periodically evaluates whether there has been a permanent impairment 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 December 31, 2009, the Company’s management evaluated assets for impairment and concluded that the sum of the undiscounted expected future cash flows (excluding interest charges) from its assets exceeded their then current carrying values. Accordingly, the Company did not recognize an impairment charge.

 

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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.
Revenue Recognition — The Company’s revenues are derived from a variety of sources including, but not limited to, hotel operations, food and beverage operations, retail sales, golf course greens fees, and are recognized as products are delivered or services are performed. Revenues from membership initiation fees are recognized over the average life of the memberships.
Allowance for Doubtful Accounts — The Company establishes an allowance for doubtful accounts for accounts receivable based upon factors surrounding specific customers, historical trends and other information.
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.
Impact of Current Economic Conditions
Businesses appear to have altered their spending patterns in response to the current economic conditions, resulting in fewer corporate bookings.
In response to this trend, although overall marketing expenses have decreased, the Company has increased its marketing efforts toward the social clientele by developing packages designed to target more social guests, including families. These social packages are being promoted through the Company’s website as well as through travel wholesalers and with emphasis on e-commerce sites.
Given these economic conditions the Company has increased its focus on managing costs. The Company will continue to review costs to identity future opportunities for cost reduction.
Liquidity and Capital Resources
Future operating costs and planned expenditures for minor capital additions and improvements are expected to be adequately funded by the Company’s current cash reserves, or cash generated by the Resort’s operations. The Company’s current debt agreement contains a line of credit for additional financing from the lender for amounts up to $2,500,000, subject to specific covenants. As of December 31, 2009 there were no outstanding borrowings under this line of credit.
The Company’s operation of the Resort is not considered to be dependent on any individual or small group of customers, the loss of which would have a material adverse effect on the Company’s business or financial condition.

 

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Results of Operations
The following chart highlights changes in the sources of Company revenues:
                         
    Year ended December 31,  
    2009     2008     2007  
Rental Pool Revenues
    26 %     29 %     28 %
Food and beverage
    31       34       35  
Resort facilities and other
    43       37       37  
 
                 
 
 
    100 %     100 %     100 %
 
                 
2009 Compared to 2008
The Company’s total revenue decreased $19,010,000, which is approximately 42%, from the prior year. Rental Pool revenue decreased $6,408,000, or approximately 47% from the prior year. Both of these decreases are directly related to the reduced occupancy levels in units participating in the rental pool program, when comparing the two fiscal periods. Total paid unit nights decreased by 41%, and the average room rate also decreased by about 13%. Food and Beverage revenue was also negatively impacted by the reduction in resort guests, decreasing by approximately 47% from the prior year.
The Company’s costs and expenses decreased by $15,198,000, or about 35%. This decrease is related to the reduction in revenues and also a result of the Company’s focus on managing it’s costs as a result of the current economic conditions, and was partially offset by the net gain on the sale of assets of approximately $403,000 discussed in Note 4 of the accompanying financial statements. Costs and expenses of the Rental Pool Operation decreased by $1,771,000 and this decrease is directly related to the reduction in Rental Pool revenues.
The Company’s net loss for the year of $1,014,000 was a change of about $3,585,000 from the prior year’s net income of $2,571,000. Amounts available for distribution to participants in the Rental Pool decreased by $2,523,000.
2008 Compared to 2007
The Company’s total revenues increased $2,150,000, which was approximately 5% over the prior year. Paid room nights decreased slightly, (less than 1%), however the average room rate increased by about 10%, resulting in an increase of $1,237,000 in Rental Pool revenues.
The Company’s costs and expenses increased $433,000, a 1% increase over the prior year. Expenses of the Rental Pool Operation increased $452,000, or about 14% over the prior year. This increase was directly related to the increase in Rental Pool revenues, along with increases in commissions paid to third party travel agents.
The Company’s net income for the year 2008 of $2,571,000 was a $2,039,000 increase from the prior year. The Rental Pools’ increase in amounts available for distribution to participants was $438,000.

 

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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.
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
Payments Due By Period as of December 31, 2009
                                         
    Less than     1-3     3-5     More than        
    1 year     years     years     5 years     Total  
 
Long-term debt
  $ 1,060,000     $ 3,180,000     $ 5,565,000     $ 0     $ 9,805,000  
Interest on long-term debt
    255,000       424,000       206,000       0       885,000  
Capital lease
    90,000       203,000       0       0       293,000  
Interest on capital lease
    13,000       12,000       0       0       25,000  
Operating leases
    66,000       0       0       0       66,000  
 
                             
 
                                       
Total
  $ 1,484,000     $ 3,819,000     $ 5,771,000     $ 0     $ 11,074,000  
 
                             
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk
The Company’s primary market risk exposure is to changes in interest rates as a result of its variable interest rate long term debt.
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. Otherwise, the Company does not have significant market risk with respect to foreign currency exchanges or other market rates.
Item 8.   Financial Statements and Supplementary Data
The financial statements, including the Reports of Independent Registered Certified Public Accountants, for Saddlebrook Resorts, Inc. are included on pages 19 to 33 and for Saddlebrook Rental Pool Operation on pages 34 to 38. An index to the financial statements is on page 18.
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.
None.

 

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Item 9A(T).   Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 15d — 15 under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be reported in the Company’s SEC filings is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2009, under the direction of our chief executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures and concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
In addition, management is responsible for establishing and maintaining adequate internal controls over financial reporting. The Company’s internal control framework and processes are designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles accepted in the United States.
As of December 31, 2009, management conducted an assessment of the Company’s internal control over financial reporting based on the criteria established in the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management concluded that, as of December 31, 2009, the Company’s internal control over financial reporting was effective.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures and internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must be considered relative to its cost. Because of the inherent limitation in all control systems, no evaluation of controls can provide absolute assurance that all control issues within the Company have been detected.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2009, 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:
     
Name   Position and Background
   
 
Thomas L. Dempsey
Age 83
 
Chairman of the Board and Chief Executive Officer of the Company for more than five years. President of the Company until November 2000. Chairman of the Board and President of Saddlebrook Holdings, Inc. for more than five years.
   
 
Eleanor Dempsey  
Vice Chairman of the Board of the Company for more than five years. Director and Executive Vice President of Saddlebrook Holdings, Inc. for more than five years. Wife of Thomas Dempsey.
   
 
Gregory R. Riehle
Age 53
 
Director, Vice President and Secretary of the Company for more than five years. Director and Executive Vice President of Saddlebrook Holdings, Inc. for more than five years. Son-in- law of Thomas Dempsey.
   
 
Maureen Dempsey
Age 51
 
Director, Vice President and Assistant Secretary of the Company for more than five years. Director and Executive Vice President of Saddlebrook Holdings, Inc. for more than five Years. Daughter of Thomas Dempsey.
   
 
Diane L. Riehle
Age 49
 
Director, Vice President and Assistant Secretary of the Company for more than five years. Director and Executive Vice President of Saddlebrook Holdings, Inc. for more than five Years. Daughter of Thomas Dempsey.
   
 
Donald L. Allen
Age 70
 
Vice President and Treasurer of the Company for more than five years.

 

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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 controlling shareholder of Saddlebrook Holdings, Inc., which owns all of the stock in the Company. All of the capital stock of Saddlebrook Holdings, Inc. is owned by Mr. Dempsey and trusts for the benefit of his two daughters, Maureen Dempsey and Diane L. Riehle, and their children, therefore, it is primarily for the benefit of Mr. Dempsey that the Code has been adopted.
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 trusts for the benefit of his daughters and grandchildren.

 

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Item 11.   Executive Compensation
The following table sets forth the remuneration paid to the Company’s executive officers by the Company and its parent, Saddlebrook Holdings, Inc. consolidated, during the three years ended December 31, 2009.
Summary Compensation Table
                                         
    Fiscal                     Other annual        
Name and Principal Position   year     Salary     Bonus     compensation (1)     Total  
 
                                       
Thomas L. Dempsey
    2009     $ 107,692     $     $ 15,291     $ 122,983  
Chairman of the Board and
    2008       200,000             16,555       216,555  
Chief Executive Officer
    2007       200,000             16,584       216,584  
 
                                       
Eleanor Dempsey
    2009       76,498             22,931       99,429  
Vice Chairman of the Board
    2008       141,000             24,736       165,736  
 
    2007       141,000             24,736       165,736  
 
                                       
Donald Allen
    2009       57,690             76       57,766  
Vice President and Treasurer
    2008       55,000       7,860       705       63,565  
 
    2007       76,154       7,830       916       84,900  
 
                                       
Gregory R. Riehle
    2009       122,152       4,778       16,581       143,511  
Vice President, Secretary and
    2008       150,288       59,756       20,207       230,251  
General Manager
    2007       120,000       31,914       27,194       179,108  
 
                                       
Maureen Dempsey
    2009       118,798             26,379       145,177  
Vice President and Assistant
    2008       141,000             23,168       164,168  
Secretary
    2007       141,000             18,926       159,926  
 
                                       
Diane L. Riehle
    2009       118,798             29,776       148,574  
Vice President and Assistant
    2008       141,000             27,340       168,340  
Secretary
    2007       141,000             20,954       161,954  
     
(1)   Other Annual Compensation for 2009 consists of the following;
Vehicle Allowances
Tax Preparation Fees
Health Insurance premiums paid on behalf of greater than 2% shareholders
Group Term Life Insurance
401K Matching Contributions
The following table shows the amounts for each category received by each named executive.
                                         
                    Health              
Executive   Vehicle     Tax Prep.     Premium     GTL     401K Match  
 
                                       
Thomas L. Dempsey
  $     $ 7,800     $ 5,093     $ 2,398        
Eleanor Dempsey
    21,250                   1,681        
Donald Allen
                      76        
Gregory R. Riehle
    16,581                          
Maureen Dempsey
    17,594       4,280       4,196       309        
Diane L. Riehle
    18,057       5,400       6,319              

 

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Director Compensation and Independence
All of the Company’s directors are executive officers of the Company and their compensation is described in the summary compensation table above.
Compensation Committee; Compensation Committee Interlocks and Insider Participation
The entire board of directors of the Company serves as the compensation committee.
Item 12.   Security Ownership of Certain Beneficial Owners and Management
All of the outstanding shares of the Company’s capital stock are owned by Saddlebrook Holdings, Inc. All of the capital stock of Saddlebrook Holdings, Inc. is owned by Thomas L. Dempsey and trusts for the benefit of his two daughters, Maureen Dempsey and Diane L. Riehle, and their children. Thomas L. Dempsey is the controlling shareholder of Saddlebrook Holdings, Inc.
Item 13.   Certain Relationships and Related Transactions
The Company currently funds (through intercompany loans) 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, two of which participate in the Rental Pool Operation. 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. holds certain tracts of real estate and owns 24 individual condominium units at the Resort, 10 of which participate in the Rental Pool Operation. 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
Cherry, Bekaert & Holland, L.L.P. served as the Company’s independent registered certified public accounting firm for the fiscal years ended December 31, 2009 and December 31, 2008.
The following fees were paid for services rendered during the Company’s last two fiscal years:
Audit Fees: $107,000 and $100,000 for the fiscal years ended December 31, 2009 and 2008, 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: None
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.
PART IV
Item 15.   Exhibits and Financial Statement Schedules
(a)   Financial statements and schedules required to be filed are listed in Item 8 of this Form 10-K.
(b)   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. (incorporated by reference to Registrant’s Form 10-K for the annual period ended December 31, 2003)

 

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Table of Contents

         
  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*).
       
 
  10.7    
Loan Agreement between the Registrant and SunTrust Bank, dated November 1, 2004 (incorporated by reference from the Registrant’s Form 10-Q for the quarterly period ended September 30, 2004).
       
 
  10.8    
Second Amended and Restated Mortgage, Security Agreement and Fixture Filing, between the Registrant and SunTrust Bank, dated November 1, 2004 (incorporated by reference to Registrants Form 10-Q for the quarterly period ended September 30, 2004).
       
 
  10.9    
Promissory Note ($12 million) made by the Registrant and payable to SunTrust Bank, dated November 1, 2004 (incorporated by reference to Registrant’s Form 10-Q for the quarterly period ended September 30, 2004).
       
 
  10.10    
Revolving Line of Credit Promissory Note ($5 million) made by the Registrant and payable to SunTrust Bank, dated January 31, 2007 (incorporated by reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2006).
       
 
  10.11    
Notice of Future Advance and Fifth Amended and Restated Mortgage, Security Agreement and Fixture Filing dated March 12, 2009 (incorporated by Reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2009).
       
 
  10.12    
Third Amendment to Loan Agreement dated March 12, 2009 (incorporated by reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2009).
       
 
  10.13    
Consolidated, Amended and Restated Promissory Note dated March 12, 2009 (incorporated by reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2009).
       
 
  10.14    
Future Advance Promissory Note dated March 12, 2009 (incorporated by reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2009).
       
 
  10.15    
Revolving Line of Credit Promissory Note dated March 12, 2009 (incorporated by reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2009).
       
 
  14.1    
Code of Ethics

 

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  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.
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.
         
  SADDLEBROOK RESORTS, INC.
(Registrant)
 
 
Date: March 31, 2010  /s/ Donald L. Allen    
  Donald L. Allen   
  Vice President and Treasurer
(Principal Financial and Accounting Officer) 
 
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 31, 2010.
     
/s/ Thomas L. Dempsey
  /s/ Maureen Dempsey
 
   
Thomas L. Dempsey
  Maureen Dempsey
Chairman of the Board and
  Director, Vice President
Chief Executive Officer
  and Assistant Secretary
(Principal Executive Officer)
   
 
   
/s/ Gregory R. Riehle
  /s/ Diane L. Riehle
 
   
Gregory R. Riehle
  Diane L. Riehle
Director, Vice President
  Director, Vice President
and Secretary
  and Assistant Secretary
 
   
/s/ Donald L. Allen
   
 
   
Donald L. Allen
   
Vice President and Treasurer
 
 
   

 

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Table of Contents

Saddlebrook Resorts, Inc.
Index
December 31, 2009, 2008 and 2007
         
 
       
Saddlebrook Resorts, Inc.
       
 
       
    19  
 
       
Financial Statements
       
 
       
    20  
 
       
    21  
 
       
    22  
 
       
    23  
 
       
    24-33  
 
       
Saddlebrook Rental Pool Operation
       
 
       
    34  
 
       
Financial Statements
       
 
       
    35  
 
       
    36  
 
       
    37  
 
       
    38  

 

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REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholder of
Saddlebrook Resorts, Inc.
We have audited the accompanying balance sheets of Saddlebrook Resorts, Inc. (the “Company”) as of December 31, 2009 and 2008 and the related statements of operations, changes in shareholder’s equity, and cash flows for the years ended December 31, 2009, 2008 and 2007. 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 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years ended December 31, 2009, 2008 and 2007, in conformity with accounting principles generally accepted in the United States of America.
/s/ Cherry, Bekaert & Holland, L.L.P.
March 31, 2010

 

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Saddlebrook Resorts, Inc.
Balance Sheets
December 31, 2009 and 2008
                 
    2009     2008  
Assets
               
Current assets
               
Cash and cash equivalents
  $ 1,044,573     $ 3,752,278  
Escrowed cash
    777,729       121,801  
Short-term investments
          175,000  
Short-term escrowed investments
          399,205  
Trade accounts receivable, net of allowance for doubtful accounts of $55,227 and $44,791
    1,872,364       1,362,339  
Due from related parties
    1,319,304       2,112,747  
Resort inventory and supplies
    1,566,950       1,832,820  
Prepaid expenses and other assets
    704,088       648,660  
 
           
Total current assets
    7,285,008       10,404,850  
Property, buildings and equipment, net
    23,448,520       24,743,737  
Due from related parties, net of current portion
          1,500,000  
Deferred charges, net
    47,482       35,670  
 
           
Total assets
  $ 30,781,010     $ 36,684,257  
 
           
Liabilities and Shareholder’s Equity
               
Current liabilities
               
Current portion of long-term debt
  $ 1,060,000     $ 1,361,667  
Current portion of capital lease obligation
    89,697        
Escrowed deposits
    777,729       521,006  
Accounts payable
    687,585       770,811  
Accrued rental distribution
    544,090       674,147  
Accrued expenses and other liabilities
    1,622,891       2,045,784  
Current portion of deferred income
    852,864       823,223  
Guest deposits
    1,266,157       2,453,431  
 
           
Total current liabilities
    6,901,013       8,650,069  
Long-term debt
    8,745,000       9,804,983  
Long-term capital lease obligation
    202,648        
Deferred income
    1,371,871       1,512,483  
Other liabilities
    149,000        
 
           
Total liabilities
    17,369,532       19,967,535  
 
           
Commitments and contingencies (Note 9)
               
Shareholder’s equity
               
Common stock, $1 par, 100,000 shares authorized, issued and outstanding
    100,000       100,000  
Additional paid-in capital
    1,013,127       1,013,127  
Retained earnings
    14,589,264       15,603,595  
Due from related parties
    (2,290,913 )      
 
           
Total shareholder’s equity
    13,411,478       16,716,722  
 
           
Total liabilities and shareholder’s equity
    30,781,010       36,684,257  
 
           
The accompanying notes are an integral part of these financial statements.

 

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Saddlebrook Resorts, Inc.
Statements of Operations
Years ended December 31, 2009, 2008 and 2007
                         
    2009     2008     2007  
 
                       
Resort revenues (Note 7)
  $ 26,756,142     $ 45,765,908     $ 43,615,917  
 
                 
Costs and expenses:
                       
Operating costs of resort (Note 7)
    21,523,014       33,686,206       33,214,157  
Sales and marketing
    1,449,793       2,881,335       2,813,049  
General and administrative
    3,042,547       4,166,773       4,338,598  
Net (gain) loss on assets sold
    (403,008 )     2,149       63,894  
Depreciation
    2,036,837       2,110,455       1,984,502  
 
                 
Total costs and expenses
    27,649,183       42,846,918       42,414,200  
 
                 
Net operating (loss) income before other expenses and (income)
    (893,041 )     2,918,990       1,201,717  
 
                 
Other expenses and (income):
                       
Interest expense
    359,704       598,583       860,914  
Interest income
    (8,747 )     (45,918 )     (49,571 )
Other income
    (229,667 )     (204,211 )     (140,688 )
 
                 
Total other expense
    121,290       348,454       670,655  
 
                 
Net (loss) income
  $ (1,014,331 )   $ 2,570,536     $ 531,062  
 
                 
The accompanying notes are an integral part of these financial statements.

 

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Saddlebrook Resorts, Inc.
Statements of Changes in Shareholder’s Equity
Years ended December 31, 2009, 2008 and 2007
                                         
            Additional                     Total  
    Common     Paid-In     Retained     Due from     Shareholder’s  
    Stock     Capital     Earnings     Related Party     Equity  
 
Balances at December 31, 2006
  $ 100,000     $ 1,013,127     $ 12,501,997     $     $ 13,615,124  
Net income
                531,062             531,062  
 
                             
Balances at December 31, 2007
    100,000       1,013,127       13,033,059             14,146,186  
Net income
                2,570,536             2,570,536  
 
                             
Balances at December 31, 2008
    100,000       1,013,127       15,603,595             16,716,722  
Net loss
                (1,014,331 )           (1,014,331 )
Due from related party (Note 8)
                      (2,290,913 )     (2,290,913 )
 
                             
Balances at December 31, 2009
  $ 100,000     $ 1,013,127     $ 14,589,264     $ (2,290,913 )   $ 13,411,478  
 
                             
The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

Saddlebrook Resorts, Inc.
Statements of Cash Flows
Years ended December 31, 2009, 2008 and 2007
                         
    2009     2008     2007  
 
                       
Cash flows from operating activities
                       
Net (loss) income
  $ (1,014,331 )   $ 2,570,536     $ 531,062  
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
                       
Depreciation and amortization
    2,079,069       2,130,754       2,000,810  
(Gain) loss on disposal of property, buildings and equipment
    (403,008 )     2,149       63,894  
Additions (reductions) to allowance for doubtful accounts
    10,436       270       (3,026 )
Change in assets and liabilities
                       
(Increase) decrease in
                       
Escrowed cash
    (655,928 )     768,268       (353,819 )
Escrowed investments
    399,205       (399,205 )     197,561  
Trade accounts receivable
    (520,461 )     1,837,976       (745,767 )
Resort inventory and supplies
    265,870       (153,175 )     (130,298 )
Prepaid expenses and other assets
    (55,428 )     108,296       87,416  
(Decrease) increase in
                       
Escrowed deposits
    256,723       (369,063 )     156,259  
Accounts payable
    (83,226 )     (897,239 )     495,080  
Accrued rental distribution
    (130,057 )     (231,087 )     214,801  
Accrued expenses and other liabilities
    (273,893 )     (365,782 )     18,567  
Deferred income
    (110,971 )     (88,787 )     36,645  
Guest deposits
    (1,187,274 )     796,237       258,743  
 
                 
Net cash (used in) provided by operating activities
    (1,423,274 )     5,710,148       2,827,928  
 
                 
Cash flows from investing activities
                       
Proceeds from sales of property, buildings and equipment
    510,387       9,396       7,050  
Capital expenditures
    (476,606 )     (1,372,596 )     (2,844,837 )
Proceeds from investments
    175,000             200,000  
 
                 
Net cash provided by (used in) investing activities
    208,781       (1,363,200 )     (2,637,787 )
 
                 
Cash flows from financing activities
                       
Proceeds from long-term debt
          750,000       750,000  
Principal payments on long-term debt
    (1,361,650 )     (800,004 )     (800,004 )
Payments on capital leases
    (78,197 )     (127,845 )     (154,645 )
Debt issue costs
    (55,895 )     (23,946 )      
Net collections from (advances to) related parties
    2,530       (1,384,195 )     27,979  
 
                 
Net cash used in financing activities
    (1,493,212 )     (1,585,990 )     (176,670 )
 
                 
Net (decrease) increase in cash and cash equivalents
    (2,707,705 )     2,760,958       13,471  
Cash and cash equivalents, beginning of year
    3,752,278       991,320       977,849  
 
                 
Cash and cash equivalents, end of year
  $ 1,044,573     $ 3,752,278     $ 991,320  
 
                 
Supplemental disclosure
                       
Cash paid for interest
  $ 315,621     $ 578,284     $ 844,606  
 
                 
 
                       
Non-cash investing activities
                       
In February 2009, the Company acquired vehicles for $370,542 through a capital lease obligation
                       
The accompanying notes are an integral part of these financial statements.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2009 and 2008
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, most of which 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 95,000 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 and Escrowed Cash
    All short-term highly liquid instruments purchased with an original maturity of three months or less are considered to be cash equivalents.
    The Company places its cash and cash equivalents on deposit with financial institutions in the United States. In 2008, the Federal Deposit Insurance Corporation (“FDIC”) temporarily increased coverage to $250,000 for substantially all depository accounts and temporarily provides unlimited coverage for certain qualifying and participating non-interest bearing transaction accounts. The unlimited coverage for participating accounts expired on December 31, 2009 and the $250,000 increased coverage for other accounts is scheduled to expire on December 31, 2013, at which time it is anticipated amounts insured by the FDIC will return to $100,000. During the year, the Company from time to time may have had amounts on deposit in excess of the insured limits. As of December 31, 2009, the Company had approximately $947,000 which exceed these insured amounts.
    Investments and Escrowed Investments
    There were no investments held at December 31, 2009.
    Investments held at December 31, 2008 consisted of a Certificate of Deposit yielding interest of 1.98%, which matured in March 2009 and escrowed investments consisting of U.S. Treasury Securities yielding interest between .25% and .46% and maturities through July 2009.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2009 and 2008
    Fair Value of Financial Instruments
    The Company measures the fair value of financial assets and liabilities in accordance with GAAP which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
    Effective January 1, 2008, the Company adopted provisions in accordance with GAAP related to financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis. The adoption of the provisions did not materially impact the Company’s consolidated financial position and results of operations.
    GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes three levels of inputs that may be used to measure fair value:
    Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
    Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
    Level 3 — Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
    There were no assets or liabilities that were required to be measured at fair value on a recurring basis on December 31, 2009.
    The following table summarizes assets measured at fair value on a recurring basis at December 31, 2008. These investments are recorded as short-term investments and short term-escrowed investments in the 2008 balance sheets.
                                 
    Fair Value Measurements Using:        
    Level 1     Level 2     Level 3     Total  
Assets:
                               
Investments
  $ 175,000     $     $     $ 175,000  
Escrowed Investments
  $ 399,205     $     $     $ 399,205  
 
                       
 
  $ 574,205     $     $     $ 574,205  
 
                       
    The fair value of all of the Company’s other financial assets and liabilities approximate their carrying value due to their short-term nature or market rates of interest associated with long-term obligations.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2009 and 2008
    Accounts Receivable
    Substantially all of the Company’s accounts receivable is 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. The Company generally does not require collateral or other security to support accounts receivable, although advance deposits may be required in certain circumstances.
    Resort Inventory and Supplies
    Inventory includes operating materials and supplies, principally food and beverage, golf and tennis merchandise, and is accounted for at the lower of first-in, first-out average cost or market.
    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.
    Asset Impairments
    The Company’s management periodically evaluates whether there has been a permanent impairment of long-lived assets, in accordance with generally accepted accounting principles. 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 years ended December 31, 2009 and 2008, the Company’s management evaluated assets for impairment and concluded that the sum of the undiscounted expected future cash flows (excluding interest charges) from its assets exceeded their then current carrying values. Accordingly, the Company did not recognize an impairment charge.
    Deferred Charges
    During 2008, approximately $24,000 in additional financing costs were incurred with the renewal of the Company’s line of credit facility. The additional financing costs are being amortized over the remaining life of the debt outstanding. During 2009, approximately $56,000 in additional financing costs were incurred with the renewal of the note payable and the line of credit facility and are being amortized of the term of that renewal. The unamortized balance of the prior financing costs were expensed.
    Amortization expense for deferred charges amounted to approximately $44,000, $20,000 and $16,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2009 and 2008
    Deferred Income
    Deferred income includes deferred liabilities related to the sale of gift certificates, prepaid dues, and deferred income of membership initiation fees. Revenue from gift certificates is recorded when the certificate is redeemed. Revenue from dues is recorded over the annual membership period, and the deferred membership initiation fees are recognized over the historical average life of a membership which approximates 12 years.
    Resort Revenues
    Resort revenues are recognized as services are performed or products are delivered with the exception of initiation fee revenue, which is recognized over the average life of our memberships. Resort revenues also 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, operating costs of resort for the years ended December 31, 2009, 2008 and 2007 include rental pool distributions to participants and maintenance escrow fund approximating $2,800,000, $5,300,000 and $4,900,000, respectively.
    Advertising
    The Company charges costs of advertising to sales and marketing as incurred. The Company incurred advertising costs of approximately $298,000, $535,000 and $593,000 during the years ended December 31, 2009, 2008 and 2007, respectively.
    Income Taxes
    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.
    Management has determined that the Company had no uncertain income tax positions in accordance with ASC 740 that could have a significant effect on the financial statements for the year ended December 31, 2009. The parent company’s federal income tax returns for 2006, 2007 and 2008 are subject to examination by the Internal Revenue Service, generally for a period of three years after the federal income tax returns were filed.
    Employee Benefit Plan
    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 matched one-half of the first 2% of an employee’s contribution through the year ended December 31, 2008. The Company indefinitely suspended future matching contributions effective with the year ending December 31, 2009. Company contributions approximated $46,000 and $48,000 for the years ended December 31, 2008 and 2007.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2009 and 2008
    Recent Accounting Pronouncements
    The Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168” or Accounting Standards Update No. 2009-01 (“ASU 2009-01”)) on June 29, 2009 and, in doing so, authorized the Codification as the sole source for authoritative U.S. GAAP. SFAS No. 168 was effective for financial statements issued for reporting periods that ended after September 15, 2009. Upon effectiveness, it superseded all prior accounting standards in U.S. GAAP, aside from those issued by the SEC. The Company adopted ASU 2009-01 during the three months ended September 30, 2009 and its adoption did not have any impact on the Company’s financial statements.
    In January 2010, the FASB issued new guidance for fair value measurements and disclosures. The new guidance, which is now part of ASC 820, Fair Value Measurements and Disclosures, clarifies existing disclosure requirements regarding the level of desegregation and inputs and valuation techniques and provides new disclosure requirements about, among other things, transfers in and out of levels 1 and 2 of the fair value hierarchy and details of the activity in level 3 of the fair value hierarchy. The new guidance is effective for fiscal years beginning after December 15, 2009 for levels 1 and 2 disclosures and for fiscal years beginning after December 15, 2010 for level 3 disclosures. The disclosure requirements will be applied prospectively to the Company’s fair value disclosure subsequent to the effective date and are not expected to have a significant effect on the financial statements.
3.   Escrowed Cash
    Escrowed cash, restricted as to use, as of December 31, is comprised of the following:
                 
    2009     2008  
 
               
Rental pool unit owner deposits for maintenance reserve fund held in a bank account which bears an interest rate of 1.48%
  $ 761,829     $ 104,601  
Security deposits held on long-term rentals
    15,900       17,200  
 
           
 
  $ 777,729     $ 121,801  
 
           
4.   Property, Buildings and Equipment, Net
    Property, buildings and equipment as of December 31, consist of the following:
                         
    Estimated              
    Useful              
    Lives     2009     2008  
 
                       
Land and land improvements
          $ 6,802,067     $ 6,809,179  
Buildings and recreational facilities
  10–40       29,702,374       29,475,098  
Machinery and equipment
  5–15       17,332,183       16,967,184  
Construction in progress
            194,960       350,737  
 
                   
 
            54,031,584       53,602,198  
Accumulated depreciation
            (30,583,064 )     (28,858,461 )
 
                   
 
          $ 23,448,520     $ 24,743,737  
 
                 
    Substantially all property, buildings and equipment are mortgaged, pledged or otherwise subject to lien under a loan agreement (Note 6).

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2009 and 2008
    Depreciation expense amounted to approximately $2,037,000, $2,110,000 and $1,985,000, for the years ended December 31, 2009, 2008 and 2007, respectively.
    The Company leased equipment under an agreement which is classified as a capital lease obligation. The equipment and obligation related to the lease are recorded at the present value of the minimum lease payments. During 2009, the Company acquired approximately $371,000 of assets through a capital lease obligation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Total depreciation expense and accumulated depreciation on the assets under the leases was approximately $43,500 for the year ended December 31, 2009.
    In August 2009, the Company recorded a gain of approximately $404,000 in connection with the transfer of a strip of land at the entrance to the resort property to the county in connection with a planned road widening project by the county. It is anticipated that the total settlement will be approximately $607,000, which includes proceeds for the land, land improvements and net damages and /or cost to cure such damages. Approximately $348,000 of the settlement has been received by the Company. The remaining $259,000 has been recorded in trade accounts receivable in the accompanying 2009 balance sheet.
5.   Accrued Expenses and Other Liabilities
    Accrued expenses and other liabilities as of December 31 consist of the following:
                 
    2009     2008  
 
               
Accrued payroll and related expenses
  $ 622,898     $ 740,080  
Accrued insurance
    689,794       1,056,732  
Other accrued expenses and liabilities
    310,199       248,972  
 
           
 
  $ 1,622,891     $ 2,045,784  
 
           
6.   Long-term Debt and Capital Lease Obligation
    Long-term debt at December 31 consists of the following:
                 
    2009     2008  
 
               
Note payable to lender, 5 year term (maturity date of March 12, 2014), interest rate at 2.5% over the one month LIBOR index, monthly principal and interest payments, collateralized by all current and subsequently acquired real and personal property
  $ 9,805,000     $ 8,666,650  
Less: Current portion
    (1,060,000 )     (1,361,667 )
 
           
 
  $ 8,745,000     $ 7,304,983  
 
           

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2009 and 2008
On March 12, 2009, the Company refinanced $10,600,000 (the remaining principal balance of a term note along with the outstanding balance of a line of credit facility). The new term note is due March 12, 2014, and requires monthly principal payments of $88,333, together with monthly payment of all accrued interest. The term note bears interest at 2.5% over the one month LIBOR index. The rate at December 31, 2009 was 2.74%. The note is collateralized by all current and subsequently acquired real and personal property. The Company has the ability to obtain an additional $2,500,000 under a line of credit facility from the same lender subject to meeting certain financial covenants on an annual basis. The line of credit expires in March 2011. At December 31, 2009, the Company has no borrowings on the line of credit.
    Future maturities of long-term debt as of December 31, 2009 were as follows;
         
2010
  $ 1,060,000  
2011
    1,060,000  
2012
    1,060,000  
2013
    1,060,000  
2014
    5,565,000  
 
     
 
       
 
  $ 9,805,000  
 
     
On February 11, 2009, the Company entered into a capital lease obligation for the purchase of equipment and vehicles in the amount of $370,542. The Capital lease is secured by the equipment and vehicles purchased, matures in January 2013 and requires monthly payments of $8,574, including interest at 5.24%.
    Future minimum payments under the capital lease obligation at December 31, 2009 were as follows;
         
Years ending December 31,        
2010
  $ 102,892  
2011
    102,892  
2012
    102,892  
2013
    8,537  
 
     
 
    317,213  
Less amount representing interest
    (24,868 )
 
     
 
  $ 292,345  
 
     

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2009 and 2008
7.   Resort Revenues and Operating Costs of Resort
    Resort revenues and operating costs of resort are comprised of the following:
                         
    Year Ended December 31,  
    2009     2008     2007  
 
                       
Resort Revenues
                       
Room revenue subject to rental pool agreement
  $ 7,088,595     $ 13,496,999     $ 12,259,889  
Food and beverage
    8,256,144       15,549,305       15,117,109  
Resort facilities and other
    11,411,403       16,719,604       16,238,919  
 
                 
 
  $ 26,756,142     $ 45,765,908     $ 43,615,917  
 
                 
 
                       
Operating Costs of Resort
                       
Distribution to rental pool participants
  $ 2,823,848     $ 5,346,747     $ 4,909,148  
Food and beverage
    7,791,128       13,724,644       12,897,162  
Resort facilities and other
    10,908,038       14,614,815       15,407,847  
 
                 
 
  $ 21,523,014     $ 33,686,206     $ 33,214,157  
 
                 
8.   Related Party Transactions
    Amounts due from related parties as of December 31, are comprised of the following:
                 
    2009     2008  
 
               
Saddlebrook Resort Condominium Association, Inc.
  $ 89,110     $ 133,162  
Saddlebrook Holdings, Inc.
    3,290,913        
Dempsey and Daughters, Inc.
    141,954       159,292  
Dempsey Resort Management, Inc.
    9,665       30,062  
Saddlebrook Properties LLC
    4,061       3,908  
Saddlebrook Realty, Inc.
    64,579       8,429  
Saddlebrook Investments, Inc.
    4,750        
Saddlebrook International Tennis, Inc.
          3,262,885  
Other
    5,185       15,009  
 
           
 
    3,610,217       3,612,747  
 
               
Less reclassification of due from SHI to a reduction of shareholder’s equity
    (2,290,913 )      
 
           
 
  $ 1,319,304     $ 3,612,747  
 
           
    There were no amounts due to related parties as of December 31, 2009 and 2008.
    The Company currently funds expenditures for Saddlebrook Holdings, Inc. (“SHI”), the Company’s parent company. SHI’s expenditures include dividends to its shareholders, which are primarily income taxes related to the operations of SHI and its subsidiaries. During the year ended December 31, 2009, the Company continued to make advances on behalf of SHI; however, during 2009, the Company became uncertain when the due from SHI will be repaid. Subsequent to year ending December 31, 2009, SHI made repayment in the amount of $1,000,000. Until such time as definitive repayment terms of the remaining due from SHI are established and collectability of the due from SHI can be assessed, the Company has reclassified due from related parties in the amount of $2,290,913 as a component of shareholder’s equity in the accompanying 2009 balance sheet.
    Saddlebrook International Tennis, Inc. (“SIT”) operates a tennis training facility and preparatory school at the resort. SIT is solely owned by SHI. SIT owns 10 condominium units at the Resort, two of which participate in the Rental Pool Operation. The Company received revenue from SIT for services provided to SIT and its guests, which amounted to approximately $1,046,000, $1,203,000 and $1,552,000, for the years ended December 31, 2009, 2008 and 2007, respectively. In addition, the Company was reimbursed for actual expenses and other costs incurred on behalf of SIT.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2009 and 2008
    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 is reimbursed for actual expenses and costs incurred on behalf of these entities.
    Dempsey and Daughters, Inc. holds certain tracts of real estate and owns 24 individual condominium units at the Resort, 10 of which participate in the Rental Pool Operation. This company is solely owned by SHI. The Company was reimbursed for actual expenses incurred on behalf of Dempsey and Daughters, Inc.
    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 Association amounted to approximately $1,266,000, $1,281,000 and $1,650,000, for the years ended December 31, 2009, 2008 and 2007, 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.
9.   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, 2009.
    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 $82,000, $106,000 and $209,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
    Future minimum lease payments under non-cancelable operating leases with initial lease terms in excess of one year are as follows:
         
2010
  $ 66,000  
 
     

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2009 and 2008
10.   Investment in Stock
    In 1993, the Company invested in and formed a captive insurance company, Resort Hotel Insurance Company (RHIC), with other resorts participating in Resort Hotel Association (RHA), an insurance risk purchasing group. The Company retains an equity interest in and pays insurance premiums to RHIC. The Company’s ownership is less than 10% and all amounts contributed as capital ($132,866 as of December 31, 2009) and the increase in equity cumulative to date ($214,499 as of December 31, 2009) are recorded as a component of prepaid expenses and other assets. Any change in equity is reflected as a component of other income in the Statements of Operations. The Company’s investment approximates the proportionate net book value of the insurance company at December 31, 2009. The Company’s stock in RHIC is restricted and may not be sold in the open market. The Company may withdraw from RHA annually at the renewal date of any of its property or casualty policies.
11.   Insurance Claim
    On August 12, 2007, the Company experienced damage to electrical facilities and the fire alarm system, which also resulted in the need to replace and upgrade the fire alarm system for the condominium units which are governed by Saddlebrook Resorts Condominium Association, Inc., (the “Association”). The Company and the Association filed an insurance claim. As of December 31, 2009, the Company and the Association together had incurred approximately $922,000 in cost for the repair of the damaged electrical facilities and fire alarm systems. Total reimbursement from the insurance company, adjusted by the $100,000 insurance deducible and some minor expenses not covered by the insurance policy amounted to $802,000. The Company’s share of the insurance proceeds, net of expenses not related to the replacement of the facilities and the alarm system, is recorded in other income in the accompanying 2009, 2008 and 2007 statements of operations.

 

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REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Saddlebrook
Resorts, Inc., as Operators under the Saddlebrook
Rental Pool and Agency Appointment Agreement
We have audited the accompanying balance sheets of Saddlebrook Rental Pool Operation (funds created for participants who have entered into a rental pool agreement as explained in Note 1) as of December 31, 2009 and 2008 and the related statements of operations and changes in participants’ fund balance for the years ended December 31, 2009, 2008 and 2007. These financial statements are the responsibility of the rental pool operator’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Saddlebrook Rental Pool Operation as of December 31, 2009 and 2008 and the results of their operations and changes in participants’ fund balance for the years ended December 31, 2009, 2008 and 2007, in conformity with accounting principles generally accepted in the United States of America.
/s/ Cherry, Bekaert & Holland, L.L.P.
March 31, 2010

 

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Saddlebrook Rental Pool Operation
Balance Sheets
December 31, 2009 and 2008
                 
    2009     2008  
Distribution Fund
Assets
               
Receivable from Saddlebrook Resorts, Inc.
  $ 544,090     $ 674,147  
 
           
Liabilities and Participants’ Fund Balance
               
Due to participants for rental pool distribution
  $ 456,994     $ 568,641  
Due to maintenance escrow fund
    87,096       105,506  
 
           
 
  $ 544,090     $ 674,147  
 
           
Maintenance Escrow Fund
Assets
               
Cash in bank
  $ 761,829     $ 503,806  
Receivables
               
Distribution fund
    87,096       105,506  
Interest
          762  
Prepaid expenses and other assets
    7,816       2,301  
Furniture inventory
    60,174        
 
           
 
  $ 916,915     $ 612,375  
 
           
Liabilities and Participants’ Fund Balance
               
Due to Saddlebrook Resorts, Inc.
  $ 112,455     $ 56,695  
Participants’ fund balance
    804,460       555,680  
 
           
 
  $ 916,915     $ 612,375  
 
           
The accompanying notes are an integral part of these financial statements.

 

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Saddlebrook Rental Pool Operation
Statements of Operations
Years Ended December 31, 2009, 2008 and 2007
                         
    2009     2008     2007  
 
                       
Distribution Fund
                       
Rental pool revenues
  $ 7,088,595     $ 13,496,999     $ 12,259,889  
 
                 
Deductions
                       
Marketing fee
    531,645       1,012,275       919,491  
Management fee
    886,074       1,687,125       1,532,487  
Travel agent commissions
    243,082       624,878       451,747  
Credit card expense
    156,106       263,283       231,588  
 
                 
 
    1,816,907       3,587,561       3,135,313  
 
                 
Net rental income
    5,271,688       9,909,438       9,124,576  
Operator share of net rental income
    (2,372,260 )     (4,459,247 )     (4,106,058 )
Other revenues (expenses)
                       
Complimentary room revenues
    43,845       62,287       73,453  
Minor repairs and replacements
    (119,425 )     (165,731 )     (182,823 )
 
                 
Amounts available for distribution to participants and maintenance escrow fund
  $ 2,823,848     $ 5,346,747     $ 4,909,148  
 
                 
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
Years Ended December 31, 2009, 2008 and 2007
                         
    2009     2008     2007  
 
                       
Distribution Fund
                       
Balances, beginning of year
  $     $     $  
Additions
                       
Amounts available for distribution
    2,823,848       5,346,747       4,909,148  
Reductions
                       
Amounts withheld for maintenance escrow fund
    (451,588 )     (887,500 )     (803,090 )
Amounts accrued or paid to participants
    (2,372,260 )     (4,459,247 )     (4,106,058 )
 
                 
Balances, end of year
  $     $     $  
 
                 
Maintenance Escrow Fund
                       
Balances, beginning of year
  $ 555,680     $ 981,674     $ 769,905  
Additions
                       
Amount withheld from distribution fund
    451,588       887,500       803,090  
Unit owner payments
    50,951       317,676       16,411  
Interest earned
    4,727       12,111       27,401  
Reductions
                       
Unit renovations
    (141,889 )     (1,057,552 )     (163,798 )
Refunds of excess amounts in escrow accounts
    (11,631 )     (40,131 )     (48,416 )
Maintenance charges
    (72,197 )     (342,410 )     (304,754 )
Linen amortization
    (32,769 )     (203,188 )     (118,165 )
 
                 
Balances, end of year
  $ 804,460     $ 555,680     $ 981,674  
 
                 
The accompanying notes are an integral part of these financial statements.

 

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Table of Contents

Saddlebrook Rental Pool Operation
Notes to Financial Statements
December 31, 2009 and 2008
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.
    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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