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EX-31.2 - EXHIBIT 31.2 - SADDLEBROOK RESORTS INCc14895exv31w2.htm
EX-14.1 - EXHIBIT 14.1 - SADDLEBROOK RESORTS INCc14895exv14w1.htm
EX-32.1 - EXHIBIT 32.1 - SADDLEBROOK RESORTS INCc14895exv32w1.htm
EX-31.1 - EXHIBIT 31.1 - SADDLEBROOK RESORTS INCc14895exv31w1.htm
EX-32.2 - EXHIBIT 32.2 - SADDLEBROOK RESORTS INCc14895exv32w2.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, 2010
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 o   Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES 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 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Removed and Reserved
PART II
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters
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, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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.
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.

 

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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, 2010, 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.
Item 1B.   Unresolved Staff Comments
None.
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, 2010, 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.

 

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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.   Removed and Reserved
PART II
Item 5.   Market for the Registrant’s Common Equity and Related Stockholder Matters
The Company’s stock is privately held and there is no established market for the stock.
The right to participate in a rental pool that accompanies the condominium units that were developed and sold by the Company is deemed to be a security. However, there is no market for such securities other than the normal real estate market.
Since the security is the participation right in a rental pool, no dividends have been paid or will be paid to condominium unit owners. However, the condominium unit owners participating in the Rental Pool receive a contractual distribution of rent from the Company quarterly.
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, (rounded to thousands)  
    2010     2009     2008     2007     2006  
Resort
                                       
Resort revenues
  $ 26,790,000     $ 26,756,000     $ 45,766,000     $ 43,616,000     $ 43,608,000  
Interest expense
    291,000       360,000       599,000       861,000       808,000  
Net (loss) income
    (2,964,000 )     (1,014,000 )     2,571,000       531,000       1,833,000  
Total assets
    27,844,000       30,781,000       36,684,000       35,447,000       36,429,000  
Total debt
    8,745,000       9,805,000       11,167,000       11,217,000       11,267,000  
Capital leases
    203,000       292,000             128,000       282,000  
Rental Pool
                                       
Rental Pool revenues
    6,954,000       7,089,000       13,497,000       12,260,000       12,005,000  
Net income
    2,719,000       2,824,000       5,347,000       4,909,000       4,841,000  
Total assets
    550,000       544,000       674,000       905,000       692,000  
Average distribution per Rental Pool participant
    5,064       5,259       9,983       9,125       8,981  

 

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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.
Recent Accounting and Reporting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on our accounting and reporting. We believe that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on our accounting or reporting or that such impact will not be material to our financial position, results of operations, and cash flows when implemented.
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, 2010, 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.
Loss Contingencies — The Company estimates loss contingencies in accordance with FASB ASC 450-20 Loss Contingencies, which states that a loss contingency shall be accrued by a charge to income if both of the following conditions are met: (a) information available before the financial statements are issued or are available to be issued indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can be reasonably estimated. We do not believe that the ultimate resolution of our litigation matters will have an adverse effect on the Company’s financial position and results of operations. As such, there have been no adjustments for loss contingencies to the accompanying financial statements as of and for the year ended December 31, 2010.
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.

 

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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, overall marketing expenses have increased as the Company continues to direct 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.
As a result of the continuing economic recession, the hospitality industry has suffered significant declines in terms of hotel rates and occupancy during 2010 and 2009. These negative industry trends have similarly impacted the Company’s revenues during this period, which contributed to the Company’s approximate $2,964,000 net loss in 2010 and approximate $1,014,000 net loss in 2009. 2010 and 2009 were the first 2 years that the Company has incurred a net loss since 2003.
In response to this situation, management has implemented the following programs and measures to help the Company get back to positive operating income for the year ending December 31, 2011. These programs and measures include the following:
1. Management has embarked on a significant cost control program with regard to many of its variable expenses. All departments have been charged to reduce and additional 5% from their department expenses.
2. The Company has moved the operations of its higher end steakhouse during the week to another restaurant on the property. Increased profits and cost savings expected to be generated by this move is estimated to be $350,000 to $500,000 during the year ending December 31, 2011.
3. During the first quarter of 2011, the Company is experiencing increased group bookings for 2011 and 2012 that were not experienced during 2010 and 2009. These group bookings have been in the range from small meetings to as large as 1,000-2,000 paid unit nights and are expected to have a positive impact to the Company’s operations.
4. The Company has developed plans to significantly increase the brand awareness and recognition of its Golf Academy by becoming associated with 2 top golf teaching professionals. These golf professionals will bring immediate name recognition to the Company through this association which is expected to contribute additional revenues to both the Company and Saddlebrook International Sports (“SIS”) with the expansion of the Golf Academy.
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 and its affiliates’ current cash reserves, or cash generated by the Resort’s operations.
The Company’s shareholder has the financial ability and intent to continue to fund operations through affiliated companies that are 100% owned by the Company’s shareholder to the extent required to support the Company’s operations.
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,  
    2010     2009     2008  
Rental Pool Revenues
    26 %     26 %     29 %
Food and beverage
    33       31       34  
Resort facilities and other
    41       43       37  
 
                 
 
                       
 
    100 %     100 %     100 %
 
                 
2010 Compared to 2009
The Company’s total revenue increased $34,000, which is less than 1%, from the prior year. Rental Pool revenue decreased $135,000, or approximately 2% from the prior year. Although occupied room nights were up about 17% over the prior year, the average room rate was reduced by 12%. Additionally, 2009 Rental Pool revenue was positively impacted by the collection of cancellation penalties paid by groups who had booked prior to the economic changes that occurred during late 2008, and later opted to cancel their arrangements. 2010 Cancellation penalty revenue was decreased by 88% over the prior year. Food and Beverage revenue benefited from a 10% increase in the total number of guests on property which resulted in an approximately 7% increase compared to 2009.
The Company’s costs and expenses increased by $1,831,000, or about 7%. This increase is related to the increase in occupancy and number of guests, which resulted in increase payroll and repair and maintenance costs. The increase is also impacted by the net gain recorded in 2009 on the sale of assets of approximately $403,000 discussed in Note 5 of the accompanying financial statements. Costs and expenses of the Rental Pool Operation decreased by $25,000 and this decrease is directly related to the reduction in Rental Pool revenues.
The Company’s net loss increased by $1,950,000. Amounts available for distribution to participants decreased by $105,000.
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 its costs as a result of economic conditions, and was partially offset by the net gain on the sale of assets of approximately $404,000 discussed in Note 5 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 decreased by $2,533,000.

 

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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, 2010
                                         
    Less than     1-3     3-5     More than        
    1 year     years     years     5 years     Total  
 
                                       
Long-term debt
  $ 1,060,000     $ 7,685,000     $ 0     $ 0     $ 8,745,000  
Interest on long-term debt
    227,000       405,000       0       0       632,000  
Capital lease
    95,000       108,000       0       0       203,000  
Interest on capital lease
    8,000       3,000       0       0       11,000  
Operating leases
    69,000       153,000       0       0       222,000  
 
                             
 
                                       
Total
  $ 1,459,000     $ 8,354,000     $ 0     $ 0     $ 9,813,000  
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 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, 2010, 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, 2010, 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, 2010, 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, 2010, 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, Executive Officers and Corporate Governance
The Directors and Executive Officers of the Company are as follows:
     
Name   Position and Background
 
   
Thomas L. Dempsey
Age 84
  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 54
  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 52
  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 50
  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 71
  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, 2010.
Summary Compensation Table
                                         
    Fiscal                     Other annual        
Name and Principal Position   year     Salary     Bonus     compensation (1)     Total  
 
                                       
Thomas L. Dempsey
    2010     $ 96,000     $     $ 15,680     $ 111,680  
Chairman of the Board and
    2009       107,692             15,291       122,983  
Chief Executive Officer
    2008       200,000             16,555       216,555  
 
                                       
Eleanor Dempsey
    2010       86,916             23,722       110,638  
Vice Chairman of the Board
    2009       76,498             22,931       99,429  
 
    2008       141,000             24,736       165,736  
 
                                       
Donald Allen
    2010       55,000       25,590       124       80,714  
Vice President and Treasurer
    2009       57,690             76       57,766  
 
    2008       55,000       7,860       705       63,565  
 
                                       
Gregory R. Riehle
    2010       132,830             14,380       147,210  
Vice President, Secretary and
    2009       122,152       4,778       16,581       143,511  
General Manager
    2008       150,288       59,756       20,207       230,251  
 
                                       
Maureen Dempsey
    2010       128,592       75,590       26,882       231,064  
Vice President and Assistant
    2009       118,798             26,379       145,177  
Secretary
    2008       141,000             23,168       164,168  
 
                                       
Diane L. Riehle
    2010       128,592       75,590       24,579       228,761  
Vice President and Assistant
    2009       118,798             29,776       148,574  
Secretary
    2008       141,000             27,340       168,340  
(1)   Other Annual Compensation for 2010 consists of the following;
 
    Vehicle Allowances
Tax Preparation Fees
Health Insurance premiums paid on behalf of greater than 2% shareholders
Group Term Life Insurance (“GTL”)
The following table shows the amounts for each category received by each named executive.
                                 
                    Health        
Executive   Vehicle     Tax Prep.     Premium     GTL  
 
                               
Thomas L. Dempsey
  $     $ 7,800     $ 5,482     $ 2,398  
Eleanor Dempsey
    21,250                   2,472  
Donald Allen
                      124  
Gregory R. Riehle
    14,380                    
Maureen Dempsey
    17,594       4,380       4,516       392  
Diane L. Riehle
    11,928       5,550       6,805       296  

 

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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 and Related Stockholder Matters
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”), which is solely owned by SHI, owns a 70% interest in Saddlebrook International Sports LLC (“SIS”) which operates a tennis training facility and preparatory school at the Resort. SIS owns 10 condominium units at the Resort, two of which participate in the Rental Pool Operation. The Company receives revenue for services provided to SIS’s guests. In addition, the Company is reimbursed for actual expenses and other costs incurred on behalf of SIT and SIS.
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, 2010 and December 31, 2009. PricewaterhouseCoopers, L.L.P. provided tax preparation services for the fiscal years ended December 31, 2010 and 2009.
The following fees were paid for services rendered during the Company’s last two fiscal years:
Audit Fees: $115,000 and $107,000 for the fiscal years ended December 31, 2010 and 2009, 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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  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
       
 
  31.1    
Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  31.2    
Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  32.1    
Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
 
  32.2    
Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*   Identification of exhibit incorporated by reference from the Registration Statement No. 2-65481 previously filed by Registrant, effective December 28, 1979.

 

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  SADDLEBROOK RESORTS, INC.
(Registrant)
 
 
Date: March 31, 2011  /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, 2011.
     
/s/ Thomas L. Dempsey
  /s/ Maureen Dempsey
 
   
Thomas L. Dempsey
  Maureen Dempsey
Chairman of the Board and Chief Executive Officer
  Director, Vice President and Assistant Secretary
(Principal Executive Officer)
   
 
   
/s/ Gregory R. Riehle
  /s/ Diane L. Riehle
 
   
Gregory R. Riehle
  Diane L. Riehle
Director, Vice President and Secretary
  Director, Vice President and Assistant Secretary
 
   
/s/ Donald L. Allen
   
 
   
Donald L. Allen
   
Vice President and Treasurer
   
(Principal Financial and Accounting Officer)
   

 

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Saddlebrook Resorts, Inc.
Index
December 31, 2010, 2009 and 2008
         
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 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, 2010 and 2009 and the related statements of operations, changes in shareholder’s equity, and cash flows for each of the years in the three-year period ended December 31, 2010. 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 audit 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, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
/s/ Cherry, Bekaert & Holland, L.L.P.
March 31, 2011

 

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Saddlebrook Resorts, Inc.
Balance Sheets
December 31, 2010 and 2009
                 
    2010     2009  
Assets
               
Current assets
               
Cash and cash equivalents
  $ 1,038,368     $ 1,044,573  
Escrowed cash
    611,012       777,729  
Trade accounts receivable, net of allowance for doubtful accounts of $39,355 (2010) and $55,227 (2009)
    1,521,404       1,872,364  
Due from related parties
    373,254       1,319,304  
Resort inventory and supplies
    1,625,960       1,566,950  
Prepaid expenses and other assets
    707,043       704,088  
 
           
Total current assets
    5,877,041       7,285,008  
Property, buildings and equipment, net
    21,930,690       23,448,520  
Deferred charges, net
    36,309       47,482  
 
           
Total assets
  $ 27,844,040     $ 30,781,010  
 
           
Liabilities and Shareholder’s Equity
               
Current liabilities
               
Current portion of long-term debt
  $ 1,060,000     $ 1,060,000  
Current portion of capital lease obligation
    94,512       89,697  
Escrowed deposits
    611,012       777,729  
Accounts payable
    791,674       687,585  
Accrued rental distribution
    549,951       544,090  
Accrued expenses and other liabilities
    1,884,865       1,622,891  
Current portion of deferred income
    851,791       852,864  
Guest deposits
    827,741       1,266,157  
Due to related parties
    133,660        
 
           
Total current liabilities
    6,805,206       6,901,013  
Long-term debt
    7,685,000       8,745,000  
Capital lease obligation
    108,134       202,648  
Deferred income
    1,197,866       1,371,871  
Other liabilities
    149,000       149,000  
 
           
Total liabilities
    15,945,206       17,369,532  
 
           
Commitments and contingencies (Note 10)
               
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
    11,625,169       14,589,264  
Due from related parties
    (839,462 )     (2,290,913 )
 
           
Total shareholder’s equity
    11,898,834       13,411,478  
 
           
Total liabilities and shareholder’s equity
  $ 27,844,040     $ 30,781,010  
 
           
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, 2010, 2009 and 2008
                         
    2010     2009     2008  
 
                       
Resort revenues
  $ 26,790,225     $ 26,756,142     $ 45,765,908  
 
                 
Costs and expenses:
                       
Operating costs of resort
    22,878,018       21,523,014       33,686,206  
Sales and marketing
    1,585,412       1,449,793       2,881,335  
General and administrative
    3,078,329       3,042,547       4,166,773  
Net (gain) loss on assets sold
          (403,008 )     2,149  
Depreciation
    1,938,793       2,036,837       2,110,455  
 
                 
Total costs and expenses
    29,480,552       27,649,183       42,846,918  
 
                 
Net operating (loss) income before other expenses and (income)
    (2,690,327 )     (893,041 )     2,918,990  
 
                 
Other expenses and (income):
                       
Interest expense
    291,142       359,704       598,583  
Interest income
    (2,274 )     (8,747 )     (45,918 )
Other income
    (15,100 )     (229,667 )     (204,211 )
 
                 
Total other expense
    273,768       121,290       348,454  
 
                 
Net (loss) income
  $ (2,964,095 )   $ (1,014,331 )   $ 2,570,536  
 
                 
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, 2010, 2009 and 2008
                                         
            Additional                     Total  
    Common     Paid-In     Retained     Due from     Shareholder’s  
    Stock     Capital     Earnings     Related Parties     Equity  
 
                                       
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 )
Change in due from related parties (Note 9)
                      (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  
Net loss
                (2,964,095 )           (2,964,095 )
Change in due from related parties (Note 9)
                      1,451,451       1,451,451  
 
                             
Balances at December 31, 2010
  $ 100,000     $ 1,013,127     $ 11,625,169     $ (839,462 )   $ 11,898,834  
 
                             
The accompanying notes are an integral part of these financial statements.

 

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Saddlebrook Resorts, Inc.
Statements of Cash Flows
Years ended December 31, 2010, 2009 and 2008
                         
    2010     2009     2008  
Cash flows from operating activities
                       
Net (loss) income
  $ (2,964,095 )   $ (1,014,331 )   $ 2,570,536  
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
                       
Depreciation and amortization
    1,949,965       2,079,069       2,130,754  
(Gain) loss on disposal of property, buildings and equipment
          (403,008 )     2,149  
(Reductions) additions to allowance for doubtful accounts
    (15,872 )     10,436       270  
Change in assets and liabilities
                       
Decrease (increase) in
                       
Escrowed cash
    166,717       (655,928 )     768,268  
Escrowed investments
          399,205       (399,205 )
Trade accounts receivable
    366,832       (520,461 )     1,837,976  
Resort inventory and supplies
    (59,010 )     265,870       (153,175 )
Prepaid expenses and other assets
    (2,955 )     (55,428 )     108,296  
(Decrease) increase in
                       
Escrowed deposits
    (166,717 )     256,723       (369,063 )
Accounts payable
    104,089       (83,226 )     (897,239 )
Accrued rental distribution
    5,861       (130,057 )     (231,087 )
Accrued expenses and other liabilities
    261,974       (273,893 )     (365,782 )
Deferred income
    (175,078 )     (110,971 )     (88,787 )
Guest deposits
    (438,416 )     (1,187,274 )     796,237  
 
                 
Net cash (used in) provided by operating activities
    (966,705 )     (1,423,274 )     5,710,148  
 
                 
Cash flows from investing activities
                       
Proceeds from sales of property, buildings and equipment
          510,387       9,396  
Capital expenditures
    (420,962 )     (476,606 )     (1,372,596 )
Proceeds from investments
          175,000        
 
                 
Net cash (used in) provided by investing activities
    (420,962 )     208,781       (1,363,200 )
 
                 
Cash flows from financing activities
                       
Proceeds from long-term debt
                750,000  
Principal payments on long-term debt
    (1,060,000 )     (1,361,650 )     (800,004 )
Payments on capital leases
    (89,699 )     (78,197 )     (127,845 )
Debt issue costs
          (55,895 )     (23,946 )
Net collections from (advances to) related parties
    2,531,161       2,530       (1,384,195 )
 
                 
Net cash provided by (used in) financing activities
    1,381,462       (1,493,212 )     (1,585,990 )
 
                 
Net (decrease) increase in cash and cash equivalents
    (6,205 )     (2,707,705 )     2,760,958  
Cash and cash equivalents, beginning of year
    1,044,573       3,752,278       991,320  
 
                 
Cash and cash equivalents, end of year
  $ 1,038,368     $ 1,044,573     $ 3,752,278  
 
                 
Supplemental disclosure
                       
Cash paid for interest
  $ 279,970     $ 315,621     $ 578,284  
 
                 
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, 2010 and 2009
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 (“GAAP”) 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. The Federal Deposit Insurance Corporation (“FDIC”) insures up to $250,000 for substantially all depository accounts. During the year, the Company may, from time to time, have had amounts on deposit in excess of the insured limits. As of December 31, 2010, the Company had approximately $1,370,000 which exceeded these insured amounts.
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.
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.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2010 and 2009
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, 2010 or December 31, 2009.
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.
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, 2010 and 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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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2010 and 2009
Deferred Charges
Deferred charges represents costs incurred in connection with the refinancing of the Company’s long-term debt. Amortization expense for deferred charges amounted to approximately $11,000, $44,000 and $20,000 for the years ended December 31, 2010, 2009 and 2008, respectively. Deferred charges are expected to be amortized approximately $11,000 per year from 2011 through 2013 and approximately $3,000 in 2014.
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 the 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 the resort for the years ended December 31, 2010, 2009 and 2008 include rental pool distributions to participants and the maintenance escrow fund approximating $2,700,000, $2,800,000 and $5,300,000, respectively.
Advertising
The Company charges costs of advertising to sales and marketing as incurred. The Company incurred advertising costs of approximately $374,000, $298,000 and $535,000 during the years ended December 31, 2010, 2009 and 2008, respectively.
Income Taxes
The Company is currently a Qualified Subchapter S Subsidiary. 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 that could have a significant effect on the financial statements for the year ended December 31, 2010. The parent company’s federal income tax returns for 2007, 2008 and 2009 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 ended December 31, 2009 and has continued the suspension through 2010. Company contributions approximated $46,000 for the year ended December 31, 2008.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2010 and 2009
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on our accounting and reporting. We believe that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on our accounting or reporting or that such impact will not be material to our financial position, results of operations, and cash flows when implemented.
3.   Management’s Plans Regarding Liquidity and Capital Resources
As a result of the continuing economic recession, the hospitality industry has suffered significant declines in terms of hotel rates and occupancy during 2010 and 2009. These negative industry trends have similarly impacted the Company’s revenues during this period, which contributed to the Company’s approximate $2,964,000 net loss in 2010 and approximate $1,014,000 net loss in 2009. 2010 and 2009 were the first 2 years that the Company has incurred a net loss since 2003.
In response to this situation, management has implemented the following programs and measures to help the Company get back to positive operating income for the year ending December 31, 2011. These programs and measures include the following:
1. Management has embarked on a significant cost control program with regard to many of its variable expenses. All departments have been charged to reduce an additional 5% from their department expenses.
2. The Company has moved the operations of its higher end steakhouse during the week to another restaurant on the property. Increased profits and cost savings expected to be generated by this move is estimated to be $350,000 to $500,000 during the year ending December 31, 2011.
3. During the first quarter of 2011, the Company is experiencing increased group bookings for 2011 and 2012 that were not experienced during 2010 and 2009. These group bookings have been in the range from small meetings to as large as 1,000-2,000 paid unit nights and are expected to have a positive impact to the Company’s operations.
4. The Company has developed plans to significantly increase the brand awareness and recognition of its Golf Academy by becoming associated with 2 top golf teaching professionals. These golf professionals will bring immediate name recognition to the Company through this association which is expected to contribute additional revenues to both the Company and Saddlebrook International Sports (“SIS”) with the expansion of the Golf Academy.
5. The Company’s shareholder has the financial ability and intent to continue to fund operations through affiliated companies that are 100% owned by the Company’s shareholder to the extent required to support the Company’s operations.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2010 and 2009
4.   Escrowed Cash
Escrowed cash, restricted as to use, as of December 31, is comprised of the following:
                 
    2010     2009  
 
               
Rental pool unit owner deposits for maintenance reserve fund held in a bank account which bears an interest rate of 1.48%
  $ 599,712     $ 761,829  
Security deposits held on long-term rentals
    11,300       15,900  
 
           
 
  $ 611,012     $ 777,729  
 
           
5.   Property, Buildings and Equipment, Net
Property, buildings and equipment as of December 31, consist of the following:
                     
    Estimated            
    Useful            
    Lives   2010     2009  
 
                   
Land and land improvements
      $ 6,802,067     $ 6,802,067  
Buildings and recreational facilities
  10–40     29,738,834       29,702,374  
Machinery and equipment
  5–15     17,463,682       17,332,183  
Construction in progress
        447,964       194,960  
 
               
 
        54,452,547       54,031,584  
Accumulated depreciation
        (32,521,857 )     (30,583,064 )
 
               
 
      $ 21,930,690     $ 23,448,520  
 
               
Substantially all property, buildings and equipment are mortgaged, pledged or otherwise subject to lien under a loan agreement (Note 7).
Depreciation expense amounted to approximately $1,939,000, $2,037,000 and $2,110,000, for the years ended December 31, 2010, 2009 and 2008, respectively.
During 2009, the Company leased equipment under an agreement which is classified as a capital lease obligation in the accompanying balance sheet. The equipment and obligations related to the leases are recorded at the present value of the minimum lease payments. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Total cost of equipment and vehicles acquired during 2009 through a capital lease obligation was $370,542. Total depreciation expense on the assets under the leases was approximately $44,000 for each of the years ended December 31, 2010 and 2009 and approximately $114,000 for the year ended December 31, 2008.
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. The total settlement was approximately $607,000, which includes proceeds for the land, land improvements and net damages and /or cost to cure such damages. The Company received all remaining proceeds from this settlement in 2010.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2010 and 2009
6.   Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities as of December 31 consist of the following:
                 
    2010     2009  
 
               
Accrued payroll and related expenses
  $ 651,844     $ 622,898  
Accrued insurance
    973,741       689,794  
Other accrued expenses and liabilities
    259,280       310,199  
 
           
 
  $ 1,884,865     $ 1,622,891  
 
           
7.   Long-term Debt and Capital Lease Obligation
Long-term debt at December 31 consists of the following:
                 
    2010     2009  
 
               
Note payable to lender
  $ 8,745,000     $ 9,805,000  
Less current portion
    (1,060,000 )     (1,060,000 )
 
           
 
  $ 7,685,000     $ 8,745,000  
 
           
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, 2010 was 2.75%. The note is collateralized by all current and subsequently acquired real and personal property. The Company is required to maintain an annual minimum debt service coverage ratio, as defined. At December 31, 2010, the Company was not in compliance with the debt service coverage ratio. The Company has obtained a waiver for this covenant violation as of December 31, 2010. The Company had 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 expired in March 2011. At December 31, 2010, the Company had no borrowings on the line of credit.
Future maturities of long-term debt as of December 31, 2010 were as follows;
         
2011
  $ 1,060,000  
2012
    1,060,000  
2013
    1,060,000  
2014
    5,565,000  
 
     
 
  $ 8,745,000  
 
     
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%. Interest expense related to the capital lease was approximately $13,000 and $16,000 for the years ended December 31, 2010 and 2009, respectively.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2010 and 2009
Future minimum payments under the capital lease obligation at December 31, 2010 were as follows:
         
Years ending December 31,        
 
       
2011
  $ 102,892  
2012
    102,892  
2013
    8,574  
 
     
 
    214,358  
Less amount representing interest
    (11,712 )
 
     
 
    202,646  
Less current portion
    (94,512 )
 
     
 
  $ 108,134  
 
     
8.   Resort Revenues and Operating Costs of Resort
Resort revenues and operating costs of resort are comprised of the following:
                         
    Years Ended December 31,  
    2010     2009     2008  
 
                       
Resort Revenues
                       
Room revenue subject to rental pool agreement
  $ 6,953,925     $ 7,088,595     $ 13,496,999  
Food and beverage
    8,839,022       8,256,144       15,549,305  
Resort facilities and other
    10,997,278       11,411,403       16,719,604  
 
                 
 
  $ 26,790,225     $ 26,756,142     $ 45,765,908  
 
                 
 
                       
Operating Costs of Resort
                       
Distribution to rental pool participants
  $ 2,719,327     $ 2,823,848     $ 5,346,747  
Food and beverage
    8,660,280       7,791,128       13,724,644  
Resort facilities and other
    11,498,411       10,908,038       14,614,815  
 
                 
 
  $ 22,878,018     $ 21,523,014     $ 33,686,206  
 
                 

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2010 and 2009
9.   Related Party Transactions
Amounts due from related parties as of December 31, are comprised of the following:
                 
    2010     2009  
 
               
Saddlebrook Resort Condominium Association, Inc.
  $ 73,801     $ 89,110  
Saddlebrook Holdings, Inc.
    839,462       3,290,913  
Dempsey and Daughters, Inc.
    141,332       141,954  
Dempsey Resort Management, Inc.
    3,046       9,665  
Saddlebrook Properties LLC
    4,200       4,061  
Saddlebrook Realty, Inc.
    140,270       64,579  
Saddlebrook Investments, Inc.
    4,750       4,750  
Other
    5,855       5,185  
 
           
 
    1,212,716       3,610,217  
Less reclassification of due from SHI to a reduction of shareholder’s equity
    (839,462 )     (2,290,913 )
 
           
 
  $ 373,254     $ 1,319,304  
 
           
The Company also had amounts due to Saddlebrook International Sports LLC (“SIS”) for a total of $133,660 as of December 31, 2010. There were no amounts due to related parties as of December 31, 2009.
The Company currently funds expenditures for Saddlebrook Holdings, Inc. (“SHI”), the shareholders 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 to 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 $839,462 and $2,290,913 as a component of shareholder’s equity in the accompanying 2010 and 2009 balance sheets, respectively.
Saddlebrook International Tennis, Inc. (“SIT”) operated a tennis training facility and preparatory school at the resort through April 30, 2010. SIT is solely owned by SHI. SIT owned 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 $308,000, $1,046,000 and $1,203,000, for the years ended December 31, 2010, 2009 and 2008, respectively. In addition, the Company was reimbursed for actual expenses and other costs incurred on behalf of SIT.
On May 1, 2010, SIT transferred its assets, liabilities and operations to SIS. The Company received revenue from SIS for use of its facilities and services provided to SIS and its guests, which amounted to approximately $744,000 for the year ended December 31, 2010.
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.

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2010 and 2009
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 $1,353,000, $1,266,000 and $1,281,000, for the years ended December 31, 2010, 2009 and 2008, respectively.
Other related party receivables and payables consist of transactions with several other entities, along with receivables from employees for resort charges and travel advances.
10.   Commitments and Contingencies
The Company is involved in litigation in the ordinary course of business. In the opinion of management, these matters are adequately covered by insurance or indemnification from other third parties and/or the effect, if any, of these claims is not material to the reported financial condition or results of operations of the Company as of December 31, 2010.
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 $86,000, $82,000 and $106,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
Future minimum lease payments under non-cancelable operating leases with initial lease terms in excess of one year are as follows:
         
2011
  $ 69,000  
2012
    69,000  
2013
    56,000  
2014
    28,000  
 
     
 
  $ 222,000  
 
     

 

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Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2010 and 2009
11.   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, 2010) and the increase in equity cumulative to date ($215,606 as of December 31, 2010) are recorded as a component of prepaid expenses and other assets in the accompanying balance sheets. 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, 2010. 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.
12.   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 deductible 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 and 2008 statements of operations.

 

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REPORT OF INDEPENDENT REGISTERED 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, 2010 and 2009 and the related statements of operations and changes in participants’ fund balance for each of the years in the three-year period ended December 31, 2010. 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 audit 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, 2010 and 2009 and the results of their operations and changes in participants’ fund balance for each of the years in the three-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
/s/ Cherry, Bekaert & Holland, L.L.P.
March 31, 2011

 

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Saddlebrook Rental Pool Operation
Balance Sheets
December 31, 2010 and 2009
                 
    2010     2009  
Distribution Fund
               
Assets
               
Receivable from Saddlebrook Resorts, Inc.
  $ 549,951     $ 544,090  
 
           
Liabilities and Participants’ Fund Balance
               
Due to participants for rental pool distribution
  $ 472,237     $ 456,994  
Due to maintenance escrow fund
    77,714       87,096  
 
           
 
  $ 549,951     $ 544,090  
 
           
Maintenance Escrow Fund
               
Assets
               
Cash in bank
  $ 599,712     $ 761,829  
Receivables
               
Distribution fund
    77,714       87,096  
Owner payments
    8,124        
Prepaid expenses and other assets
    12,580       7,816  
Furniture inventory
    48,619       60,174  
 
           
 
  $ 746,749     $ 916,915  
 
           
Liabilities and Participants’ Fund Balance
               
Due to Saddlebrook Resorts, Inc.
  $ 89,250     $ 112,455  
Participants’ fund balance
    657,499       804,460  
 
           
 
  $ 746,749     $ 916,915  
 
           
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, 2010, 2009 and 2008
                         
    2010     2009     2008  
Distribution Fund
                       
Rental pool revenues
  $ 6,953,925     $ 7,088,595     $ 13,496,999  
 
                 
Deductions
                       
Marketing fee
    521,543       531,645       1,012,275  
Management fee
    869,241       886,074       1,687,125  
Travel agent commissions
    237,456       243,082       624,878  
Credit card expense
    163,291       156,106       263,283  
 
                 
 
    1,791,531       1,816,907       3,587,561  
 
                 
Net rental income
    5,162,394       5,271,688       9,909,438  
Operator share of net rental income
    (2,323,077 )     (2,372,260 )     (4,459,247 )
Other revenues (expenses)
                       
Complimentary room revenues
    21,307       43,845       62,287  
Minor repairs and replacements
    (141,297 )     (119,425 )     (165,731 )
 
                 
Amounts available for distribution to participants and maintenance escrow fund
  $ 2,719,327     $ 2,823,848     $ 5,346,747  
 
                 
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, 2010, 2009 and 2008
                         
    2010     2009     2008  
Distribution Fund
                       
Balances, beginning of year
  $     $     $  
Additions
                       
Amounts available for distribution
    2,719,327       2,823,848       5,346,747  
Reductions
                       
Amounts withheld for maintenance escrow fund
    (396,250 )     (451,588 )     (887,500 )
Amounts accrued or paid to participants
    (2,323,077 )     (2,372,260 )     (4,459,247 )
 
                 
Balances, end of year
  $     $     $  
 
                 
Maintenance Escrow Fund
                       
Balances, beginning of year
  $ 804,460     $ 555,680     $ 981,674  
Additions
                       
Amount withheld from distribution fund
    396,250       451,588       887,500  
Unit owner payments
    45,692       50,951       317,676  
Interest earned
    3,764       4,727       12,111  
Reductions
                       
Unit renovations
    (145,272 )     (141,889 )     (1,057,552 )
Refunds of excess amounts in escrow accounts
    (26,530 )     (11,631 )     (40,131 )
Maintenance charges
    (285,511 )     (72,197 )     (342,410 )
Linen amortization
    (135,354 )     (32,769 )     (203,188 )
 
                 
Balances, end of year
  $ 657,499     $ 804,460     $ 555,680  
 
                 
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, 2010 and 2009
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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