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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 September 30, 2015

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 September 30, 2015 and December 31, 2014

     3   

Statements of Operations and Accumulated Earnings for the three months and nine months ended September  30, 2015 and 2014

     4   

Statements of Cash Flows for the nine months ended September 30, 2015 and 2014

     5   

Notes to Financial Statements

     6   

Saddlebrook Rental Pool Operation

  

Balance Sheets at September 30, 2015 and December 31, 2014

     9   

Statements of Operations for the three months and nine months ended September 30, 2015 and 2014

     10   

Statements of Changes in Participants’ Fund Balance for the nine months ended September  30, 2015 and 2014

     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

 

     September 30,
2015
(Unaudited)
     December 31,
2014
 

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 510,477       $ 875,314   

Escrowed cash

     372,585         128,639   

Accounts receivable, net

     772,569         1,525,710   

Due from related parties

     996,918         786,021   

Inventory and supplies

     1,202,694         1,253,427   

Prepaid expenses and other current assets

     962,559         863,052   
  

 

 

    

 

 

 

Total current assets

     4,817,802         5,432,164   

Property, buildings and equipment, net

     20,137,365         20,002,436   

Deferred charges, net

     50,095         60,353   
  

 

 

    

 

 

 

Total assets

   $ 25,005,262       $ 25,494,953   
  

 

 

    

 

 

 

Liabilities and Shareholder’s Equity

     

Current liabilities:

     

Current portion of long-term debt

   $ 250,000       $ 125,000   

Current portion of capital lease obligation

     118,722         112,864   

Escrowed deposits

     372,585         128,639   

Accounts payable

     556,569         607,865   

Accrued rental distribution

     218,419         525,571   

Accrued expenses and other liabilities

     1,636,866         1,714,290   

Current portion of deferred income

     713,093         740,101   

Guest deposits

     978,973         1,672,640   

Due to related parties

     10,607,253         10,866,419   
  

 

 

    

 

 

 

Total current liabilities

     15,452,480         16,493,390   

Long-term debt

     4,687,500         4,875,000   

Long-term capital lease obligation

     216,852         306,620   

Deferred income

     622,112         636,337   
  

 

 

    

 

 

 

Total liabilities

     20,978,944         22,311,347   
  

 

 

    

 

 

 
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

     2,913,191         2,070,479   
  

 

 

    

 

 

 

Total shareholder’s equity

     4,026,318         3,183,606   
  

 

 

    

 

 

 
   $ 25,005,262       $ 25,494,953   
  

 

 

    

 

 

 

 

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
September 30,
    Nine months ended
September 30,
 
     2015     2014     2015     2014  

Revenues

   $ 3,432,437      $ 3,496,539      $ 24,367,351      $ 20,818,961   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

        

Operating costs

     4,118,931        3,962,757        18,680,815        17,157,305   

Sales and marketing

     447,130        518,391        1,685,043        1,625,836   

General and administrative

     694,380        704,372        1,781,285        2,251,656   

Depreciation

     420,636        462,028        1,252,860        1,391,913   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     5,681,077        5,647,548        23,400,003        22,426,710   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net operating income (loss)

        

before other income (expenses)

     (2,248,640     (2,151,009     967,348        (1,607,749
  

 

 

   

 

 

   

 

 

   

 

 

 
Other income (expenses)         

Other income

     —          4,271        49,907        71,308   

Interest expense

     (59,254     (56,680     (174,543     (147,444
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other (expenses) income

     (59,254     (52,409     (124,636     (76,136

Net income (loss)

     (2,307,894     (2,203,418     842,712        (1,683,885

Accumulated earnings at beginning of period

     5,221,085        5,355,487        2,070,479        4,835,954   
  

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated earnings at end of period

   $ 2,913,191      $ 3,152,069      $ 2,913,191      $ 3,152,069   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part

of these financial statements

 

–  4  –


Table of Contents

SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Nine months ended

September 30,

 
     2015     2014  

Operating activities:

    

Net income (loss)

   $ 842,712      $ (1,683,885

Non-cash items included in net income (loss):

    

Depreciation

     1,252,860        1,391,913   

Amortization of debt financing costs

     10,258        7,404   

Loss on sale of assets

     —          1,942   

Decrease (increase) in:

    

Accounts receivable, net

     753,141        1,166,256   

Inventory and supplies

     50,733        39,529   

Prepaid expenses and other assets

     (99,507     (209,007

(Decrease) increase in:

    

Accounts payable

     (51,296     (280,302

Accrued rental distribution

     (307,152     (156,019

Guest deposits

     (693,667     44,947   

Accrued expenses and other liabilities

     (77,424     (42,877

Deferred income

     (41,233     (87,138
  

 

 

   

 

 

 

Cash flow provided by operating activities

     1,639,425        192,763   
  

 

 

   

 

 

 

Investing activities:

    

Capital expenditures

     (1,387,789     (1,907,277
  

 

 

   

 

 

 

Cash flow used in investing activities

     (1,387,789     (1,907,277
  

 

 

   

 

 

 

Financing activities:

    

Proceeds from long-term debt

     —          5,000,000   

Payments on long-term debt

     (62,500     (4,530,334

Payments on capital lease obligations

     (83,910     (80,377

Debt issuance costs

     —          (68,383

Net (repayments to) borrowings from related parties

     (470,063     1,239,190   
  

 

 

   

 

 

 

Cash flow (used in) provided by financing activities

     (616,473     1,560,096   
  

 

 

   

 

 

 

Net (decrease) in cash and cash equivalents

     (364,838     (154,418

Cash and cash equivalents at beginning of period

     875,314        667,190   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 510,477      $ 512,772   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 164,286      $ 140,040   
  

 

 

   

 

 

 

Non-cash investing activities

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

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 March 31, 2014. In March 2015, the Company received additional proceeds of $354,618.

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 September 30, 2015, and its statements of operations and accumulated earnings and cash flows for the three and nine month periods ended September 30, 2015 and 2014, 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, 2014 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 future interim periods or 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, 2014.

Note 2. Accounts Receivable

 

     September 30,
2015
(Unaudited)
     December 31,
2014
 

Trade accounts receivable

   $ 810,467       $ 1,565,016   

Less allowance for bad debts

     (37,898      (39,306
  

 

 

    

 

 

 
   $ 772,569       $ 1,525,710   
  

 

 

    

 

 

 

Note 3. Property, Buildings and Equipment

 

     September 30,
2015
(Unaudited)
     December 31,
2014
 

Land and land improvements

   $ 7,623,070       $ 7,623,070   

Buildings and recreational facilities

     31,697,679         31,104,781   

Machinery and equipment

     18,732,244         18,099,905   

Construction in progress

     2,061,931         1,911,503   
  

 

 

    

 

 

 
     60,114,924         58,739,259   

Less accumulated depreciation

     (39,977,559      (38,736,823
  

 

 

    

 

 

 
   $ 20,137,365       $ 20,002,436   
  

 

 

    

 

 

 

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

 

–  6  –


Table of Contents

Note 4. Deferred Charges

 

     September 30,
2015
(Unaudited)
     December 31,
2014
 

Debt issue costs

   $ 68,383       $ 68,383   

Less accumulated amortization

     (18,288      (8,031
  

 

 

    

 

 

 
   $ 50,095       $ 60,353   
  

 

 

    

 

 

 

Note 5. Long-term debt and Capital Lease Obligation

On June 6, 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 (3.20% at September 30, 2015) 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. The new term note requires the Company to maintain a Debt Coverage Ratio of 1.25 on a rolling twelve month basis measured quarterly. The Company was in default of this covenant as of December 31, 2014; however, the Company received a waiver for this default from its lender and on May 1, 2015, the lender modified the covenant so that the Debt Ratio will only be measured on an annual basis as of December 31 each year. At September 30, 2015, the outstanding balance on this term note was $4,937,500.

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 September 30, 2015, the amount due on the capital lease obligation was $36,077.

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%. At September 30, 2015, the amount due on the capital lease obligation was $125,293.

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 equipment purchased, matures in December 2018 and requires monthly payments of $3,024 including interest at 7.75%. At September 30, 2015, the amount due on the capital lease obligation was $101,595.

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 equipment purchased, matures in December 2018 and requires monthly payments of $2,233, including interest at 11.30%. At September 30, 2015 the amount due on the capital lease obligation was $72,609.

 

–  7  –


Table of Contents

Note 6. Related Party Receivables and Payables

Related party receivables and payables at September 30, 2015 and December 31, 2014 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 Proceeds

On November 2, 2013, the Company experienced damage to storage facilities and equipment due to a fire. As of September 30, 2015, the Company has incurred approximately $767,667 toward the repair of the facility and replacement of equipment. The Company filed an insurance claim and received $1,304,618 toward the settlement of the insurance claim of which $300,000 was received in 2013, $650,000 was received in 2014 (recorded as other receivable at December 31, 2013) and $354,618 was received in 2015 and has been reflected as an offset to general and administrative expenses. The Company estimates that all of the costs related to this event 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

 

     September 30,
2015
(Unaudited)
    December 31,
2014
 

Assets

    

Receivable from Saddlebrook Resorts, Inc.

   $ 218,419      $ 525,571   
  

 

 

   

 

 

 

Liabilities and Participants’ Fund Balance

    

Due to participants for rental pool distribution

   $ 230,659      $ 475,229   

Due (from) to maintenance escrow fund

     (12,240     50,342   
  

 

 

   

 

 

 
   $ 218,419      $ 525,571   
  

 

 

   

 

 

 

MAINTENANCE ESCROW FUND

 

     September 30,
2015
(Unaudited)
    December 31,
2014
 

Assets

    

Cash and cash equivalents

   $ 347,585      $ 111,839   

Receivables:

    

Distribution fund

     (12,240     50,342   

Owner payments

     2,072        —     

Linen inventory

     17,924        —     

Furniture inventory

     43,421        138,331   

Prepaid expenses and other assets

     10,795        14,925   
  

 

 

   

 

 

 
   $ 409,557      $ 315,437   
  

 

 

   

 

 

 

Liabilities and Participants’ Fund Balance

    

Accounts payable

   $ 94,455      $ 78,526   

Participants’ fund balance

     315,102        236,911   
  

 

 

   

 

 

 
   $ 409,557      $ 315,437   
  

 

 

   

 

 

 

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
September 30,
    Nine months ended
September 30,
 
     2015     2014     2015     2014  

Rental pool revenues

   $ 692,546      $ 745,831      $ 6,955,860      $ 5,950,327   
  

 

 

   

 

 

   

 

 

   

 

 

 

Deductions:

        

Marketing fee

     51,941        55,937        521,689        446,274   

Management fee

     86,568        93,229        869,482        743,791   

Travel agent commissions

     18,580        34,095        318,851        307,938   

Credit card expense

     22,881        24,461        178,120        155,882   
  

 

 

   

 

 

   

 

 

   

 

 

 
     179,970        207,722        1,888,142        1,653,885   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net rental income

     512,576        538,109        5,067,718        4,296,442   

Less operator share of net rental income

     (230,659     (242,149     (2,280,473     (1,933,399

Other revenues (expenses):

        

Complimentary room revenues

     5,031        5,314        18,852        24,670   

Minor repairs and replacements

     (68,529     (59,834     (200,160     (184,920
  

 

 

   

 

 

   

 

 

   

 

 

 

Amount available for distribution

   $ 218,419      $ 241,440      $ 2,605,937      $ 2,202,793   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

     Nine months ended
September 30,
 
     2015     2014  

Balance at beginning of period

   $ —        $ —     

Additions:

    

Amount available for distribution

     2,605,937        2,202,793   

Reductions:

    

Amount withheld for maintenance escrow fund

     (325,464     (269,394

Amount accrued or paid to participants

     (2,280,473     (1,933,399
  

 

 

   

 

 

 

Balance at end of period

   $ —        $ —     
  

 

 

   

 

 

 

 

MAINTENANCE ESCROW FUND

 

  

     Nine months ended
September 30,
 
     2015     2014  

Balance at beginning of period

   $ 236,911      $ 322,816   

Additions:

    

Amount withheld from distribution fund

     325,464        269,394   

Unit owner payments

     116,531        106,546   

Interest earned

     22        17   

Reductions:

    

Escrow account refunds

     (11,462     (14,392

Maintenance charges

     (188,506     (206,497 )

Unit renovations

     (79,940     (1,280 )

Linen replacement

     (83,918     (151,662
  

 

 

   

 

 

 

Balance at end of period

   $ 315,102      $ 324,942   
  

 

 

   

 

 

 

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 expenses 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 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

Third quarter 2015 compared to third quarter 2014

The Company’s total revenues decreased approximately $64,000, or about 2%, for the three months ended September 30, 2015 compared to the same period in the prior year. Total revenues for the Rental Pool decreased approximately $53,000, or about 7%.

Total costs and expenses increased approximately $34,000, or about 1%, for the Company, and decreased $28,000, or about 13%, for the Rental Pool Operation.

The Company experienced a net loss for the quarter in the amount of approximately $2,308,000, compared to the net loss of the prior comparable quarter of approximately $2,203,000. Amounts available for distribution for the Rental Pool Operation decreased approximately $23,000, or about 10%, from the comparable period last year.

First nine months 2015 compared to first nine months 2014

The Company’s total revenues increased approximately $3,548,000, about 17%, for the nine months ended September 30, 2015 compared to the same period in the prior year. The total revenues for the Rental Pool increased approximately $1,006,000, or about 17%.

Total costs and expenses for the Company increased approximately $973,000 or 4%. Total costs and expenses for the Rental Pool Operation increased by about $234,000, about 14%.

The Company experienced a net income for the period of approximately $843,000, compared with a net loss of approximately $1,684,000 in the comparable period last year. Amounts available for distribution for the Rental Pool Operation increased approximately $403,000 over the same period in the prior year.

 

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Impact of Current Economic Conditions

The Company continues to experience increased occupancy rates, when compared to prior periods. Ancillary service revenue is now beginning to show increases when compared to the prior periods as well. The Company believes that businesses have begun to alter their spending patterns and that this is a result of a turnaround in the economy.

In response to this trend, the Company has increased its sales force to focus more in the area of corporate meetings. The Company continues 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.

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 and cash generated by resort operations. On June 6, 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 (3.20% at September 30, 2015) 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. The new term note requires the Company to maintain a Debt Coverage Ratio of 1.25 on a rolling twelve month basis measured quarterly. The Company was in default of this covenant as of December 31, 2014; however, the Company received a waiver for this default from its lender and on May 1, 2015, the lender modified the covenant so that the Debt Ratio will only be measured on an annual basis as of December 31 each year. At September 30, 2015, the outstanding balance on this term note was $4,937,500.

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 $2.4 million in loans from these affiliated Companies which was an increase over the amount of loans the Company received from these affiliated entities by approximately $1 million in 2013. In addition to the shareholder’s financial ability, these affiliated companies are expected to continue to generate positive cash flows during fiscal 2015 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.

Seasonality

The Company’s operations are seasonal with the highest volume of revenue 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 period shown in this report are not necessarily indicative of results to be expected for the full fiscal year.

 

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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 bears interest at 3.0% over the one month LIBOR index 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 September 30, 2015, 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 September 30, 2015 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 September 30, 2015 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
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: November 13, 2015     /s/    Donald L. Allen        
    Donald L. Allen
    Vice President and Treasurer
    (Principal Financial and Accounting Officer)

 

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