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EX-32.2 - CERTIFICATION - SADDLEBROOK RESORTS INCd177528dex322.htm
EX-32.1 - CERTIFICATION - SADDLEBROOK RESORTS INCd177528dex321.htm
EX-31.2 - CERTIFICATION - SADDLEBROOK RESORTS INCd177528dex312.htm
EX-31.1 - CERTIFICATION - SADDLEBROOK RESORTS INCd177528dex311.htm

 

 

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, 2016

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.

 

 

 


INDEX

 

     Page  

PART I – FINANCIAL INFORMATION

  

Item 1. Financial Statements

  

Saddlebrook Resorts, Inc.

  

Balance Sheets at June 30, 2016 and December 31, 2015

     3   

Statements of Operations and Accumulated Earnings for the three months and six months ended June 30, 2016 and 2015

     4   

Statements of Cash Flows for the six months ended June 30, 2016 and 2015

     5   

Notes to Financial Statements

     6   

Saddlebrook Rental Pool Operation

  

Balance Sheets at June 30, 2016 and December 31, 2015

     9   

Statements of Operations for the three months and six months ended June 30, 2016 and 2015

     10   

Statements of Changes in Participants’ Fund Balance for the six months ended June 30, 2016 and 2015

     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

     16   

 

-  2  -


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

 

     June 30,
2016
(Unaudited)
     December 31,
2015
 

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 1,047,817       $ 375,912   

Escrowed cash

     345,966         397,721   

Accounts receivable, net

     2,148,356         1,521,133   

Due from related parties

     1,191,333         1,108,339   

Inventory and supplies

     1,192,527         1,270,969   

Prepaid expenses and other current assets

     1,039,777         1,020,292   
  

 

 

    

 

 

 

Total current assets

     6,965,776         5,694,366   

Property, buildings and equipment, net

     19,698,939         20,019,161   
  

 

 

    

 

 

 

Total assets

   $ 26,664,715       $ 25,713,527   
  

 

 

    

 

 

 

Liabilities and Shareholder’s Equity

     

Current liabilities:

     

Current portion of long-term debt

   $ 352,560       $ 352,560   

Current portion of capital lease obligation

     125,319         121,008   

Escrowed deposits

     345,966         397,721   

Accounts payable

     539,372         593,328   

Accrued rental distribution

     738,512         488,021   

Accrued expenses and other liabilities

     1,362,483         1,509,529   

Current portion of deferred income

     839,628         715,661   

Guest deposits

     1,065,501         1,632,372   

Due to related parties

     10,090,654         10,101,171   
  

 

 

    

 

 

 

Total current liabilities

     15,459,995         15,911,371   

Long-term debt, net of deferred issuance costs of $68,141 and $78,174 at June 30, 2016 and December 31, 2015, respectively

     6,278,017         6,444,266   

Long-term capital lease obligation

     121,855         185,612   

Deferred income

     532,330         585,571   
  

 

 

    

 

 

 

Total liabilities

     22,392,197         23,126,820   
  

 

 

    

 

 

 

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

     3,159,391         1,473,580   
  

 

 

    

 

 

 

Total shareholder’s equity

     4,272,518         2,586,707   
  

 

 

    

 

 

 
   $ 26,664,715       $ 25,713,527   
  

 

 

    

 

 

 

The accompanying notes are an integral part

of these financial statements

 

-  3  -


SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS

AND ACCUMULATED EARNINGS

(Unaudited)

 

     Three months ended
June 30,
    Six months ended
June 30,
 
     2016     2015     2016     2015  

Revenues

   $ 7,597,930      $ 9,469,412      $ 19,941,773      $ 20,934,914   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

        

Operating costs

     5,944,298        6,900,029        14,347,655        14,561,884   

Sales and marketing

     657,626        647,400        1,196,050        1,237,913   

General and administrative

     728,468        735,985        1,616,956        1,086,906   

Depreciation

     481,367        409,850        949,873        832,223   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     7,811,759        8,693,264        18,110,534        17,718,926   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (213,829     776,148        1,831,239        3,215,988   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expenses)

        

Other income

     5,906        13,450        13,921        51,603   

Interest expense

     (80,464     (58,309     (159,349     (116,985
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses, net

     (74,558     (44,859     (145,428     (65,382

Net (loss) income

     (288,387     731,289        1,685,811        3,150,606   

Accumulated earnings at beginning of period

     3,447,778        4,489,796        1,473,580        2,070,479   
  

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated earnings at end of period

   $ 3,159,391      $ 5,221,085      $ 3,159,391      $ 5,221,085   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part

of these financial statements

 

-  4  -


SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six months ended
June 30,
 
     2016     2015  

Operating activities:

    

Net income

   $ 1,685,811      $ 3,150,606   

Non-cash items included in net income:

    

Depreciation

     949,873        832,223   

Amortization of debt financing costs

     10,033        6,839   

Decrease (increase) in:

    

Accounts receivable

     (627,223     (1,505,777

Inventory and supplies

     78,442        32,958   

Prepaid expenses and other assets

     (19,485     (154,599

(Decrease) increase in:

    

Accounts payable

     (53,956     (8,283

Accrued rental distribution

     250,491        528,963   

Guest deposits

     (566,871     (843,068

Accrued expenses and other liabilities

     (147,046     (383,194

Deferred income

     70,726        (27,214
  

 

 

   

 

 

 

Cash flow provided by operating activities

     1,630,795        1,629,454   
  

 

 

   

 

 

 

Investing activities:

    

Capital expenditures

     (629,651     (604,337
  

 

 

   

 

 

 

Cash flow used in investing activities

     (629,651     (604,337
  

 

 

   

 

 

 

Financing activities:

    

Payments on long-term debt

     (176,282     —     

Payments on capital lease obligations

     (59,446     (55,455

Net repayments to related parties

     (93,511     (491,365
  

 

 

   

 

 

 

Cash flow used in financing activities

     (329,239     (546,820
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     671,905        478,297   

Cash and cash equivalents at beginning of period

     375,912        875,314   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,047,817      $ 1,353,611   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 149,316      $ 110,147   
  

 

 

   

 

 

 

Non-cash investing activities

As a result of a fire on the property that occurred in September 2013, the Company received insurance proceeds of $354,618 during March 2015.

The accompanying notes are an integral part

of these financial statements

 

-  5  -


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, 2016, and its statements of operations and accumulated earnings and cash flows for the three and six month periods ended June 30, 2016 and 2015, 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, 2015 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, 2015.

Note 2. Accounts Receivable

 

     June 30,
2016
(Unaudited)
     December 31,
2015
 

Trade accounts receivable

   $ 2,177,803       $ 1,550,845   

Less allowance for bad debts

     (29,447      (29,712
  

 

 

    

 

 

 
   $ 2,148,356       $ 1,521,133   
  

 

 

    

 

 

 

Note 3. Property, Buildings and Equipment

 

     June 30,
2016
(Unaudited)
     December 31,
2015
 

Land and land improvements

   $ 8,417,431       $ 8,417,431   

Buildings and recreational facilities

     31,323,131         31,230,183   

Machinery and equipment

     20,652,025         20,017,312   

Construction in progress

     811,391         926,792   
  

 

 

    

 

 

 
     61,203,978         60,591,718   

Less accumulated depreciation

     (41,505,039      (40,572,557
  

 

 

    

 

 

 
   $ 19,698,939       $ 20,019,161   
  

 

 

    

 

 

 

The Company’s property, buildings and equipment are pledged as security for its long-term debt (see Note 4).

 

-  6  -


Note 4. Long-term debt and Capital Lease Obligation

On December 6, 2015, the Company’s financing agreement with a third party lender was modified to include renewal for the existing principal balance of $4,875,000, along with an advance of an additional $2,000,000. The new term note expires December 6, 2020. At June 30, 2016, $6,698,718 was outstanding under the note. The term note requires monthly principle payments of $29,380 plus interest of 3% over the one month Libor index (3.46% at June 30, 2016). The term note is collateralized by all current and subsequently acquired real and personal property. The term note requires the Company to maintain a Debt Ratio, as defined, of 1.25%.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 required retrospective adoption and became effective with respect to the Company’s financial statements on January 1, 2016. Prior to the effective date, such issuance costs were classified as assets and included as deferred charges, net, in the Company’s balance sheet. Under the provisions of ASU 2015-03, such issuance costs are presented as a direct deduction from the carrying amount of the related debt in the accompanying June 30, 2016 balance sheet, and have been reclassified in the December 31, 2015 balance sheet to conform to the 2016 presentation.

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, 2016, the amount due on this capital lease obligation was $23,804.

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, 2016, the amount due on this capital lease obligation was $85,513.

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 of 7.75%. At June 30, 2016, the amount due on this capital lease obligation was $79,728.

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 an 11.30%. At June 30, 2016, the amount due on this capital lease obligation was $58,129.

 

-  7  -


Note 5. Related Party Receivables and Payables

Related party receivables and payables at June 30, 2016 and December 31, 2015 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 6. 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 the Company’s parent company.

 

-  8  -


SADDLEBROOK RENTAL POOL OPERATION

BALANCE SHEETS

DISTRIBUTION FUND

 

     June 30,
2016
(Unaudited)
     December 31,
2015
 

Assets

     

Receivable from Saddlebrook Resorts, Inc.

   $ 738,512       $ 488,021   
  

 

 

    

 

 

 

Liabilities and Participants’ Fund Balance

     

Due to participants for rental pool distribution

   $ 647,828       $ 439,589   

Due to maintenance escrow fund

     90,684         48,432   
  

 

 

    

 

 

 
   $ 738,512       $ 488,021   
  

 

 

    

 

 

 

MAINTENANCE ESCROW FUND

 

     June 30,
2016
(Unaudited)
    December 31,
2015
 

Assets

    

Cash and cash equivalents

   $ 322,966      $ 372,021   

Receivables:

    

Distribution fund

     90,684        48,432   

Interest accrued

     (42     (16

Owner payments

     —          —     

Linen inventory

     123,202        17,925   

Furniture inventory

     54,679        43,421   

Prepaid expenses and other assets

     227        34   
  

 

 

   

 

 

 
   $ 591,716      $ 481,817   
  

 

 

   

 

 

 

Liabilities and Participants’ Fund Balance

    

Accounts payable

   $ 91,436      $ 186,109   

Participants’ fund balance

     500,280        295,708   
  

 

 

   

 

 

 
   $ 591,716      $ 481,817   
  

 

 

   

 

 

 

The accompanying notes are an integral part

of these financial statements

 

-  9  -


SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three months ended
June 30,
    Six months ended
June 30,
 
     2016     2015     2016     2015  

Rental pool revenues

   $ 2,071,871      $ 2,765,127      $ 5,708,644      $ 6,263,314   
  

 

 

   

 

 

   

 

 

   

 

 

 

Deductions:

        

Marketing fee

     155,390        207,384        428,148        469,748   

Management fee

     258,984        345,641        713,581        782,914   

Travel agent commissions

     156,531        118,033        245,066        300,271   

Credit card expense

     61,349        73,546        132,857        155,239   
  

 

 

   

 

 

   

 

 

   

 

 

 
     632,254        744,604        1,519,652        1,708,172   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net rental income

     1,439,617        2,020,523        4,188,992        4,555,142   

Less operator share of net rental income

     (647,828     (909,235     (1,885,047     (2,049,814

Other revenues (expenses):

        

Complimentary room revenues

     11,821        7,381        28,720        13,821   

Minor repairs and replacements

     (65,098     (64,135     (138,053     (131,631
  

 

 

   

 

 

   

 

 

   

 

 

 

Amount available for distribution

   $ 738,512      $ 1,054,534      $ 2,194,612      $ 2,387,518   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part

of these financial statements

 

-  10  -


SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND

 

     Six months ended
June 30,
 
     2016     2015  

Balance at beginning of period

   $ —        $ —     

Additions:

    

Amount available for distribution

     2,194,612        2,387,518   

Reductions:

    

Amount withheld for maintenance escrow fund

     (309,565     (337,704

Amount accrued or paid to participants

     (1,885,047     (2,049,814
  

 

 

   

 

 

 

Balance at end of period

   $ —        $ —     
  

 

 

   

 

 

 

MAINTENANCE ESCROW FUND

 

     Six months ended
June 30,
 
     2016     2015  

Balance at beginning of period

   $ 295,708        236,911   

Additions:

    

Amount withheld from distribution fund

     309,565        337,704   

Unit owner payments

     67,974        95,342   

Interest earned

     —          10   

Reductions:

    

Escrow account refunds

     (1,647     (9,045

Maintenance charges

     (171,320     (93,761

Unit renovations

     —          (81,379

Linen replacement

     —          (63,491
  

 

 

   

 

 

 

Balance at end of period

   $ 500,280      $ 422,291   
  

 

 

   

 

 

 

The accompanying notes are an integral part

of these financial statements

 

-  11  -


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  -


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

Second quarter 2016 compared to second quarter 2015

The Company’s total revenues decreased approximately $1,871,000, or about 20%, for the three months ended June 30, 2016 compared to the same period in the prior year. Total revenues for the Rental Pool decreased approximately $693,000, or about 25%. The decreases in the Company’s revenue and the Rental Pool revenue are directly related to a decrease in group occupancy of approximately 7%. Overall group bookings had a soft second quarter due to a lack of repeat business.

Total costs and expenses decreased approximately $881,000, or about 10%, for the Company, and $113,000, or about 15%, for the Rental Pool Operation. These reductions in costs and expenses are directly related to the decreases in revenue when comparing the two periods.

The Company experienced a net loss for the quarter in the amount of approximately $288,000, compared to the net income of the prior comparable quarter of approximately $731,000. Amounts available for distribution for the Rental Pool Operation decreased approximately $316,000, or about 30%, from the comparable period last year.

First six months 2016 compared to first six months 2015

The Company’s total revenues decreased approximately $993,000, about 5%, for the six months ended June 30, 2016 compared to the same period in the prior year. The total revenues for the Rental Pool decreased approximately $554,000, or about 9%.

Total costs and expenses for the Company increased approximately $392,000 or 2%. Total costs and expenses for the Rental Pool Operation decreased by about $188,000, about 11%. The nature of the business does not allow a dollar for dollar reduction in fixed costs, such as Sales, Marketing, Administration and Accounting when the business is down.

The Company had a net income for the period of approximately $1,686,000, compared with net income of approximately $3,151,000 in the comparable period last year. Amounts available for distribution for the Rental Pool Operation decreased approximately $193,000, or about 8%, over the same period in the prior year.

 

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Impact of Current Economic Conditions

The Company expects to see a strong increase in occupancy for the balance of 2016. The Company believes that businesses have begun to alter their spending patterns and that this is a result of a turnaround in the economy.

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 and its affiliates’ current cash reserves and cash generated by the Resort’s operations.

On December 6, 2015, the Company’s financing agreement with a third party lender was modified to include renewal for the existing principal balance of $4,875,000, along with an advance of an additional $2,000,000. The new term note expires December 6, 2020. At June 30, 2016, $6,698,718 was outstanding under the note. The term note requires monthly principle payments of $29,380 plus interest of 3% over the one month Libor index (3.46% at June 30, 2016). The term note is collateralized by all current and subsequently acquired real and personal property. The term note requires the Company to maintain a Debt Ratio, as defined, of 1.25%.

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. The

Company has loans outstanding to the affiliated companies of approximately $10.1 million at both June 30, 2016 and December 31, 2015. In addition to the shareholders’ financial ability these affiliated Companies are expected to continue to generate positive cash flows from operations during fiscal year 2016 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 December 2020.

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, 2016, 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, 2016 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 six months ended June 30, 2016 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:

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.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

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 12, 2016  

/s/ Donald L. Allen

  Donald L. Allen
  Vice President and Treasurer
 

(Principal Financial and

Accounting Officer)

 

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