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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR

 

¨ 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: 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)

 

 

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

Indicate by check mark whether the registrant 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  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

 

Large accelerated filer   ¨    Accelerated Filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

Registrant has 100,000 shares of common stock outstanding, all of which are held by an affiliate of the Registrant.

 

 

 


Table of Contents

INDEX

 

    Page  
PART I - FINANCIAL INFORMATION  

Item 1. Financial Statements

 

Saddlebrook Resorts, Inc.

 

Balance Sheets at June 30, 2014 and December 31, 2013

    3   

Statements of Operations and Accumulated Earnings for the three months and six months ended June 30, 2014 and 2013

    4   

Statements of Cash Flows for the six months ended June 30, 2014 and 2013

    5   

Notes to Financial Statements

    6   

Saddlebrook Rental Pool Operation

 

Balance Sheets at June 30, 2014 and December 31, 2013

    9   

Statements of Operations for the three months and six months ended June 30, 2014 and 2013

    10   

Statements of Changes in Participants’ Fund Balance for the six months ended June 30, 2014 and 2013

    11   

Notes to Financial Statements

    12   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

    13   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

    15   

Item 4. Controls and Procedures

    15   
PART II - OTHER INFORMATION  

Item 1. Legal Proceedings

    15   

Item 6. Exhibits

    16   
Signature     17   

 

- 2 -


Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

 

     June 30,
2014
(Unaudited)
     December 31,
2013
 

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 1,720,305       $ 667,190   

Escrowed cash

     154,661         242,046   

Accounts receivable, net

     1,519,953         1,022,961   

Other receivable

     —           650,000   

Due from related parties

     683,596         596,271   

Inventory and supplies

     1,279,946         1,324,306   

Prepaid expenses and other current assets

     934,553         713,144   
  

 

 

    

 

 

 

Total current assets

     6,293,014         5,215,918   

Property, buildings and equipment, net

     19,759,961         19,349,853   

Deferred charges, net

     67,191         2,793   
  

 

 

    

 

 

 

Total assets

   $ 26,120,166       $ 24,568,564   
  

 

 

    

 

 

 

Liabilities and Shareholder’s Equity

     

Current liabilities:

     

Current portion of long-term debt

   $ —         $ 4,530,334   

Current portion of capital lease obligations

     109,030         63,540   

Escrowed deposits

     154,661         242,046   

Accounts payable

     723,683         820,187   

Accrued rental distribution

     852,067         397,460   

Accrued expenses and other liabilities

     1,231,602         1,487,993   

Current portion of deferred income

     769,600         766,502   

Guest deposits

     632,137         993,451   

Due to related parties

     9,137,689         8,405,804   
  

 

 

    

 

 

 

Total current liabilities

     13,610,469         17,707,317   

Long-term debt

     5,000,000         —     

Long-term capital lease obligations

     364,027         211,339   

Deferred income

     677,056         700,827   
  

 

 

    

 

 

 

Total liabilities

     19,651,552         18,619,483   
  

 

 

    

 

 

 

Commitments and contingencies

     

Shareholder’s equity:

     

Common stock, $1.00 par value, 100,000 shares authorized and outstanding

     100,000         100,000   

Additional paid-in capital

     1,013,127         1,013,127   

Retained earnings

     5,355,487         4,835,954   
  

 

 

    

 

 

 

Total shareholder’s equity

     6,468,614         5,949,081   
  

 

 

    

 

 

 

Total liabilities and shareholder’s equity

   $ 26,120,166       $ 24,568,564   
  

 

 

    

 

 

 

The accompanying notes are an integral part

of these financial statements

 

- 3 -


Table of Contents

SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS

AND ACCUMULATED EARNINGS

(Unaudited)

 

     Three months ended
June 30,
    Six months ended
June 30,
 
     2014     2013     2014     2013  

Revenues

   $ 7,318,230      $ 6,472,504        17,322,422      $ 16,188,532   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

        

Operating costs

     6,106,892        5,107,452        13,194,547        11,526,155   

Sales and marketing

     501,751        317,014        1,107,445        761,226   

General and administrative

     728,520        756,462        1,547,283        1,545,198   

Depreciation

     460,270        460,570        929,886        921,043   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     7,797,433        6,641,498        16,779,161        14,753,622   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net operating (loss) income before other income (expenses)

     (479,203     (168,994     543,261        1,434,910   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other (expenses) income

        

Other income

     4,643        4,688        67,036        38,850   

Interest expense

     (45,102     (68,602     (90,764     (115,824
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

     (40,459     (63,914     (23,728     (76,974

Net (loss) income

     (519,662     (232,908     519,533        1,357,936   

Retained earnings at beginning of period

     5,875,149        7,249,882        4,835,954        5,659,038   
  

 

 

   

 

 

   

 

 

   

 

 

 

Retained earnings at end of period

   $ 5,355,487        7,016,974      $ 5,355,487      $ 7,016,974   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part

of these financial statements

 

- 4 -


Table of Contents

SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six months ended
June 30,
 
     2014     2013  

Operating activities:

    

Net income

   $ 519,533      $ 1,357,936   

Non-cash items included in net income

    

Depreciation

     929,886        921,043   

Amortization of debt financing costs

     3,985        12,092   

Loss on sale of assets

     1,942        —     

(Increase) decrease in:

    

Accounts receivable

     153,008        174,311   

Inventory and supplies

     44,360        105,197   

Prepaid expenses and other assets

     (221,409     (55,505

Increase (decrease) in:

    

Accounts payable

     (96,504     (79,994

Accrued rental distribution

     454,607        146,219   

Guest deposits

     (361,314     14,417   

Accrued expenses and other liabilities

     (256,391     (221,663

Deferred income

     (20,673     (87,758
  

 

 

   

 

 

 

Cash flow provided by operating activities

     1,151,030        2,286,295   
  

 

 

   

 

 

 

Investing activities:

    

Capital expenditures

     (1,089,936     (128,784
  

 

 

   

 

 

 

Cash flow used in investing activities

     (1,089,936     (128,784
  

 

 

   

 

 

 

Financing activities:

    

Proceeds from long-term debt

     5,000,000        —     

Payments on long-term debt

     (4,530,334     (288,667

Payments on line of credit

     —          (1,500,000

Payments on capital lease obligations

     (53,822     (38,231

Debt issuance costs

     (68,383     (6,506

Net borrowings from (advances to) related parties

     644,560        (497,607
  

 

 

   

 

 

 

Cash flow provided by (used in) financing activities

     992,021        (2,331,011
  

 

 

   

 

 

 

Net increase (decrease) in cash

     1,053,115        (173,500

Cash and cash equivalents at beginning of period

     667,190        2,098,331   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,720,305      $ 1,924,831   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 86,779      $ 103,730   
  

 

 

   

 

 

 

Non-cash investing activities

 

1. In January 2014, the Company acquired equipment through capital lease obligations of approximately $252,000.

 

2. As a result of a fire on the property that occurred in September 2013, the Company received insurance proceeds of $650,000 during 2014. Such amount was recorded in other receivables at December 31, 2013.

The accompanying notes are an integral part

of these financial statements

 

- 5 -


Table of Contents

SADDLEBROOK RESORTS, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Note 1. Basis of Presentation

Saddlebrook Resorts, Inc. (the “Company”) developed and operates Saddlebrook Resort, which is a condominium hotel and resort located in Wesley Chapel, Florida.

The Company’s accompanying balance sheet for June 30, 2014, and its statements of operations and accumulated earnings and cash flows for the periods ended June 30, 2014 and 2013, are unaudited but reflect all adjustments which are, in the opinion of management, necessary for the fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The balance sheet at December 31, 2013 has been derived from the audited financial statements as of that date.

The Company’s business is seasonal. Therefore, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full fiscal year.

These financial statements and related notes are presented for interim periods in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X, and, consequently, do not include all disclosures normally required by accounting principles generally accepted in the United States. Accordingly, these financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

Note 2. Accounts Receivable

 

    

June 30,

2014

    December 31,  
     (Unaudited)     2013  

Trade accounts receivable

   $ 1,559,719      $ 1,067,775   

Less allowance for bad debts

     (39,766     (44,814
  

 

 

   

 

 

 
   $ 1,519,953      $ 1,022,961   
  

 

 

   

 

 

 

 

- 6 -


Table of Contents
Note 3. Property, Buildings and Equipment

 

     June 30,
2014
(Unaudited)
    December 31,
2013
 

Land and land improvements

   $ 7,623,070      $ 7,623,070   

Buildings and recreational facilities

     30,570,148        30,551,220   

Machinery and equipment

     17,957,959        17,368,327   

Construction in progress

     1,423,776        693,881   
  

 

 

   

 

 

 
     57,574,953        56,236,498   

Less accumulated depreciation

     (37,814,992     (36,886,645
  

 

 

   

 

 

 
   $ 19,759,961      $ 19,349,853   
  

 

 

   

 

 

 

The Company’s property, buildings and equipment are pledged as security for its long-term debt (see Note 5).

 

Note 4. Deferred Charges

 

     June 30,
2014
(Unaudited)
    December 31,
2013
 

Debt issue costs

   $ 68,384      $ 62,402   

Less accumulated amortization

     (1,193     (59,609
  

 

 

   

 

 

 
   $ 67,191      $ 2,793   
  

 

 

   

 

 

 

 

- 7 -


Table of Contents
Note 5. Long-term Debt and Capital Lease Obligation

On June 06, 2014 the Company entered into a new financing agreement with a third party lender for $5,000,000. The proceeds were used to retire the existing term note due June 12, 2014 of $4,386,000. The remaining proceeds were used to pay closing costs and provide additional working capital. The new term note expires June 1, 2019. Interest only payments at a rate of 3% over the one month Libor index (3.15% at June 30,2014) are required for the first twelve months. After year one, the term note requires monthly principal payments of $20,833 plus interest of 3% over the one month Libor index. The term note is collateralized by all current and subsequently acquired real and personal property. Subsequent to June 30, 2014, the loan agreement was modified to state that the measurement date for the fixed charge coverage ratio begins on December 31, 2014.

Operating costs and planned expenditures for capital additions and improvements are expected to be adequately funded by the Company’s and its affiliates’ current cash reserves and cash generated by resort operations.

On January 15, 2014, the Company entered into a capital lease obligation for equipment in the amount of $150,000. The capital lease is secured by the equipment purchased, matures in December 2018 and requires monthly payments of $3,024, including interest at 7.75%. At June 30, 2014, the amount due on the capital lease obligation was $135,335.

On January 15, 2014, the Company entered into a capital lease obligation for equipment in the amount of $102,000. The capital lease is secured by the equipment purchased, matures in December 2018 and requires monthly payments of $2,233, including interest at 11.30%. At June 30, 2014, the amount due on the capital lease obligation was $94,184.

On December 13, 2012, the Company entered into a capital lease obligation for equipment in the amount of $80,479. The capital lease is secured by the equipment purchased, matures in November 2017 and requires monthly payments of $1,426, including interest at 2.44%. At June 30, 2014, the amount due on the capital lease obligation was $56,039.

On December 2, 2012, the Company entered into a capital lease obligation for equipment in the amount of $255,874. The assets associated with this lease cost $294,724, of which $38,850 was reduced through the Company’s trade-in of existing equipment. This capital lease is secured by the equipment purchased, matures in December 2017 and requires monthly payments of $4,995, including interest at 6.41%, beginning in January 2013. At June 30, 2014, the amount due on the capital lease obligation was $187,499.

 

Note 6. Related Party Receivables

Related party receivables and payables at June 30, 2014 and December 31, 2013 are the result of net intercompany transactions and cash transfers between the Company and its shareholder and affiliated companies. Related party receivables and payables are unsecured and non-interest bearing.

 

Note 7. Income Taxes

The Company is currently a member of a Qualified Subchapter S Subsidiary Group. Accordingly, no income tax expense was reflected in the Company’s operating results as the tax is assessed to the shareholders of its parent company.

 

Note 8. Insurance Claim

On September 30, 2013, the Company experienced damage to storage facilities and equipment due to a fire. As of June 30, 2014, the Company has incurred approximately $431,000 toward the repair of the facility and replacement of equipment. The Company filed an insurance claim and received $950,000 toward the settlement of the insurance claim of which $300,000 was received in 2013 and $650,000 was received in 2014 (recorded as other receivable at December 31, 2013). The Company estimates that all of the costs related to this event, net of a $100,000 insurance deductible, will be reimbursed by insurance. However, actual amounts reimbursed could differ from this estimate.

 

- 8 -


Table of Contents

SADDLEBROOK RENTAL POOL OPERATION

BALANCE SHEETS

DISTRIBUTION FUND

 

     June 30,
2014
(Unaudited)
     December 31,
2013
 

Assets

     

Receivable from Saddlebrook Resorts, Inc.

   $ 852,067       $ 397,460   
  

 

 

    

 

 

 

Liabilities and Participants’ Fund Balance

     

Due to participants for rental pool distribution

   $ 699,952       $ 391,667   

Due to maintenance escrow fund

     152,115         5,793   
  

 

 

    

 

 

 
   $ 852,067       $ 397,460   
  

 

 

    

 

 

 

MAINTENANCE ESCROW FUND

 

     June 30,
2014
(Unaudited)
     December 31,
2013
 

Assets

     

Cash and cash equivalents

   $ 133,261       $ 221,846   

Receivables:

     

Distribution fund

     152,115         5,793   

Owner payments

     5,071         —     

Linen inventory

     68,011         76,644   

Furniture inventory

     159,009         92,397   

Prepaid expenses and other assets

     11,199         10,861   
  

 

 

    

 

 

 
   $ 528,666       $ 407,541   
  

 

 

    

 

 

 

Liabilities and Participants’ Fund Balance

     

Accounts payable

   $ 111,236       $ 84,725   

Participants’ fund balance

     417,430         322,816   
  

 

 

    

 

 

 
   $ 528,666       $ 407,541   
  

 

 

    

 

 

 

The accompanying notes are an integral part

of these financial statements

 

- 9 -


Table of Contents

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three months ended
June 30,
    Six months ended
June 30,
 
     2014     2013     2014     2013  

Rental pool revenues

   $ 2,117,225      $ 1,765,014      $ 5,204,496      $ 4,530,314   
  

 

 

   

 

 

   

 

 

   

 

 

 

Deductions:

        

Marketing fee

     158,792        132,376        390,337        339,774   

Management fee

     264,653        220,627        650,562        566,290   

Travel agent commissions

     86,004        57,195        273,843        202,159   

Credit card expense

     52,327        52,535        131,421        117,507   
  

 

 

   

 

 

   

 

 

   

 

 

 
     561,776        462,733        1,446,163        1,225,730   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net rental income

     1,555,449        1,302,281        3,758,333        3,304,584   

Less operator share of net rental income

     (699,952     (586,026     (1,691,250     (1,487,062

Other revenues (expenses):

        

Complimentary room revenues

     11,015        6,446        19,356        13,010   

Minor repairs and replacements

     (14,445     (49,248     (125,086     (91,391
  

 

 

   

 

 

   

 

 

   

 

 

 

Amount available for distribution

   $ 852,067      $ 673,453      $ 1,961,353      $ 1,739,141   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part

of these financial statements

 

- 10 -


Table of Contents

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND

 

     Six months ended
June 30,
 
     2014     2013  

Balance at beginning of period

   $ —        $ —     

Additions:

    

Amount available for distribution

     1,961,353        1,739,141   

Reductions:

    

Amount withheld for maintenance escrow fund

     (270,103     (252,079

Amount accrued or paid to participants

     (1,691,250     (1,487,062
  

 

 

   

 

 

 

Balance at end of period

   $ —        $ —     
  

 

 

   

 

 

 

MAINTENANCE ESCROW FUND

 

     Six months ended
June 30,
 
     2014     2013  

Balance at beginning of period

   $ 322,816      $ 329,567   

Additions:

    

Amount withheld from distribution fund

     270,103        252,079   

Unit owner payments

     71,392        24,706   

Interest earned

     11        24   

Reductions:

    

Escrow account refunds

     (8,835     (2,712

Maintenance charges

     (118,742     (136,737

Unit renovations

     (1,185     (5,692

Linen replacement

     (118,130     (106,326
  

 

 

   

 

 

 

Balance at end of period

   $ 417,430      $ 354,909   
  

 

 

   

 

 

 

The accompanying notes are an integral part

of these financial statements

 

- 11 -


Table of Contents

SADDLEBROOK RENTAL POOL OPERATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Note 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 maintenance 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.

 

Note 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.

 

- 12 -


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The Company operates Saddlebrook Resort (the “Resort”) in Wesley Chapel, Florida, 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 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. Other resort property owned by the Company and its affiliates include golf courses, tennis courts, a spa, restaurants and conference center facilities.

Results of Operations

Second quarter 2014 compared to second quarter 2013

The Company’s total revenues increased $846,000, or 13%, for the three months ended June 30, 2014 compared to the same period in the prior year. Total revenues for the Rental Pool increased $352,000, or 19%. These changes are directly related to an increase in occupancy of 24% over the same period in the prior year.

Total costs and expenses increased $1,156,000, or 17%, for the Company, and $99,000, or 21%, for the Rental Pool Operation. These increases in costs and expenses are related to the increase in revenues as well as increasing our sales and marketing department. In addition, the Company experienced increase costs of maintaining the golf courses due to excessive rain and other abnormal conditions.

The Company experienced a net loss for the quarter in the amount of $520,000, compared to the net loss of the prior comparable quarter of $233,000. Amounts available for distribution for the Rental Pool Operation increased $179,000, or 26%, from the comparable period last year.

 

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First six months 2014 compared to first six months 2013

The Company’s total revenues increased $1,134,000, or 7%, for the six months ended June 30, 2014 compared to the same period in the prior year. The total revenues for the Rental Pool increased $674,000, or 14%. Both of these increases are directly related to the increase in occupancy of 14% when comparing the two periods.

Total costs and expenses for the Company increased $2,026,000 or 13% for the six months ended June 30, 2014 compared to the same period in the prior year. Total costs and expenses for the Rental Pool Operation increased $220,000, or 17%.

The Company experienced a net income for the period of $519,533, compared with a net income of $1,358,000 in the comparable period. Amounts available for distribution for the Rental Pool Operation increased $222,000 over the same period in the prior year.

Impact of Current Economic Conditions

The Company believes that while occupancy rates are increasing, when compared to prior periods, ancillary service revenue has not increased. The Company believes that businesses have altered their spending patterns after 2008 due to the economy.

In response to this trend, the Company has increased its marketing efforts toward the social clientele by developing packages designed to target more social guests, including families. These social packages are being promoted through the Company’s website as well as through travel wholesalers and with emphasis on e-commerce sites. Management has implemented programs and measures to help the Company get back to positive operating income. These programs and measures include cost control programs, consolidation of restaurant operations and efforts to increase brand awareness and recognition of the Resort. The Company has also expanded the Sales and Marketing department which has greatly impacted sales not only for 2014 but through 2016.

Liquidity and Capital Resources

Net income for the six month period ended June 30, 2014 was $519,533. Excluding non-cash expenses such as depreciation and amortization of $933,871, the Company’s actual operating profits were $1,453,404.

The Company’s term note from a third party lender bears interest at 3.0% over the one month Libor index (3.15% at June 30, 2014) and matures in June 2019.

The Company’s ultimate shareholder has the financial ability and intent to continue to fund operations through affiliated companies that are 100% owned by the Company’s ultimate shareholder to the extent required to support the Company’s operations. During 2014, the Company received approximately $650,000 in loans from these affiliated companies. In addition to the shareholder’s financial ability, these affiliated companies are expected to continue to generate positive cash flows during fiscal 2014 should additional funding be 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.

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 and cash generated by resort operations.

 

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Seasonality

The Company’s operations are seasonal with the highest volume of revenues generally occurring in the first quarter of each calendar year.

Due to the seasonal business of the Company, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full fiscal year.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s invested cash is 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.

The Company’s term note from a third party lender bears interest at 3.0% over the one month Libor index (3.15% at June 30, 2014) and matures in June 2019.

 

Item 4. Controls and Procedures

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures as of June 30, 2014, pursuant to Exchange Act Rule 15d-15. Based upon that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2014 in timely alerting them to material information required to be included in the Company’s periodic SEC filings.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures over internal controls 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 their costs. 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.

There were no changes in the Company’s internal controls over financial reporting during the three months ended June 30, 2014 that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

The Company is from time to time 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. Accordingly, the effect, if any, of these claims is considered immaterial to the Company’s financial condition and results of operations.

 

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Item 6. Exhibits

The following exhibits are included in this Form 10-Q:

 

  31.1    -    Chief Executive Officer Rule 15d-14(a) Certification
  31.2    -    Chief Financial Officer Rule 15d-14(a) Certification
  32.1    -    Chief Executive Officer Section 1350 Certification
  32.2    -    Chief Financial Officer Section 1350 Certification
  10.1    -    The Loan Agreement (filed as exhibit 10.1 to the Form 8K, dated June 6, 2014, filed with the SEC on August 8, 2014).
101    -    Interactive Data Files

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   

SADDLEBROOK RESORTS, INC.

    (Registrant)
Date: August 20, 2014    

/s/    Donald L. Allen        

    Donald L. Allen
   

Vice President and Treasurer

(Principal Financial and Accounting Officer)

 

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