Attached files

file filename
EX-32.2 - CERTIFICATION - SADDLEBROOK RESORTS INCd282759dex322.htm
EX-32.1 - CERTIFICATION - SADDLEBROOK RESORTS INCd282759dex321.htm
EX-31.2 - CERTIFICATION - SADDLEBROOK RESORTS INCd282759dex312.htm
EX-31.1 - CERTIFICATION - SADDLEBROOK RESORTS INCd282759dex311.htm
EX-14.1 - CODE OF ETHICS - SADDLEBROOK RESORTS INCd282759dex141.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-K

 

 

(Mark one)

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

For the fiscal period ended December 31, 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: No 1934 act file number assigned

(1933 act file no. 2-65481)

 

 

SADDLEBROOK RESORTS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Florida   59-1917822

(State

of incorporation)

 

(IRS employer

identification no.)

5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499

(Address of principal executive offices)

813-973-1111

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ☐    NO  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    YES  ☐    NO  ☒

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  ☒    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  ☒    NO  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. Not applicable

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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

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

The aggregate market value of the voting and nonvoting common equity held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completed second fiscal quarter was zero, as all of the common equity of the Registrant is held by an affiliate of the Registrant.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: Not applicable

 

 

 


Table of Contents

PART I

Item 1. Business

Saddlebrook Resorts, Inc., (the “Company”) was incorporated in the State of Florida on June 20, 1979. It was formed to acquire an existing golf course and tennis club located in Pasco County, Florida, and develop it into a condominium resort and residential homes project named Saddlebrook Resort (the “Resort”). In November 1988, the Company transferred its real estate development division to its prior parent company and retained only its operation of the Resort.

The Company is currently owned by Saddlebrook Holdings, Inc., which is ultimately owned by Thomas L. Dempsey and his family. Mr. Dempsey acquired the Company from its prior parent company in November 1988.

Based on its numerous awards, the Resort has a reputation as a world-class facility that caters to corporate meeting planners and sports enthusiasts at all skill levels. As a destination resort, it offers luxury accommodations, convention facilities, restaurants, two golf courses, tennis courts, a spa and other recreational areas. An accredited preparatory school at the Resort and an on-site real estate sales office are operated by affiliates of the Company.

The Resort’s accommodations are condominium units that have been sold to third parties or to affiliates of the Company. The majority of the condominium units participate in a rental-pooling program (the “Rental Pool”) that provides its owners with a percentage distribution of related room revenues minus certain fees and expenses. The remainder of the condominium units participate in a non-pooling rental program, are owner-occupied or are designated as hospitality suites or housing for young athletes independent of the rental programs.

All of the Resort’s condominium units are governed by the Saddlebrook Resort Condominium Association, Inc. (the “Association”) in accordance with Florida statutes. The Board of Directors for the Association is elected by the condominium unit owners. The condominium unit owners also approve an annual budget of common expenses for the Association that determines the quarterly assessments that must be paid regardless of the units’ participation in rental programs.

A Resort condominium unit’s participation in a rental program also requires a club membership at the Resort with its separate initiation fees and quarterly dues. The club membership is directed by a Board of Governors appointed by the Company’s management.

The Company’s operation of the Resort is not considered to be dependent upon the availability of raw materials, nor the effect of the duration of patents, licenses, franchises or concessions held.

The Resort’s business is considered to be seasonal with a higher volume of sales during the winter and spring seasons.

Although the Resort’s reputation in the conference-hosting industry is excellent, the market for these services is extremely competitive. Consequently, the Resort aggressively competes against numerous resort hotels and convention facilities both in central Florida and nationwide.

At December 31, 2016, there were approximately 545 persons employed by the Company. The Company’s management relationship with its employees is excellent and there are no collective bargaining agreements.

 

2


Table of Contents

Item 1A. Risk Factors

Not applicable.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Saddlebrook Resort is located in Wesley Chapel, Florida, which is in south central Pasco County, immediately north of Tampa, Florida.

The Resort is inside the gated community of Saddlebrook. The Resort’s property includes approximately 480 acres of land that are owned by the Company and an affiliate. Located on the Resort’s property are convention facilities with over 95,000 square feet of meeting and function space, three restaurants, two 18-hole golf courses, 45 tennis courts, a 7,000-square foot luxury health spa, a 7,500-square foot fitness center, three swimming pools, shops, and other operational and recreation areas.

A total of 556 condominium units are at the Resort comprised of one-, two- and three-bedroom suites. Of these condominium units, 408 are designed for hotel occupancy and located in an area called the Walking Village. The remaining 148 are slightly larger, designed for longer-termed rental, and are located in an area called the Lakeside Village. At December 31, 2016, there were 511 hotel accommodations participating in the Rental Pool. The three-bedroom condominium units become hotel accommodations as a two-bedroom suite with a separate adjoining hotel room. Some two-bedroom condominium units become hotel accommodations as a one-bedroom suite with a separate adjoining hotel room.

Item 3. Legal Proceedings

The Company is involved in litigation in the ordinary course of business. In the opinion of the Company’s management, insurance or indemnification from other third parties adequately covers these matters. The effect, if any, of these claims is considered immaterial to the Company’s financial condition and results of operations.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s stock is privately held and there is no established market for the stock.

The right to participate in a rental pool that accompanies the condominium units that were developed and sold by the Company is deemed to be a security. However, there is no market for such securities other than the normal real estate market.

Since the security is the participation right in a rental pool, no dividends have been paid or will be paid to condominium unit owners. However, the condominium unit owners participating in the Rental Pool receive a contractual distribution of rent from the Company quarterly.

Item 6. Selected Financial Data

Not applicable.

 

3


Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The Company operates the Resort, which contains condominium units that have been sold to third parties or to affiliates of the Company. The majority of the condominium units are hotel accommodations that participate in the Rental Pool. Other resort facilities owned by the Company and its affiliates include golf courses, tennis courts, a spa, restaurants and a conference center.

Recent Accounting and Reporting Pronouncements

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which provides guidance on determining when and how to disclose going-concern uncertainties in financial statements. The new standard required management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and became effective for annual periods ending after December 15, 2016. Under the provisions of ASU 2014-15, an entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. These disclosures are included in Note 3, under the heading Management’s Plans Regarding Liquidity and Capital Resources, and are substantially unchanged from the Company’s historical disclosures.

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related debt rather than as an asset. In 2016, the Company retrospectively adopted this update, as required, and the amounts reclassified from other assets to long-term debt on the condensed consolidated balance sheets. These reclassifications did not impact net income.

In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which creates a new Topic, Accounting Standards Codification (“ASC”) Topic 606. The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that an entity should recognize revenue when it transfers promised good or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard is effective for the Company beginning in 2017 and allows for either full retrospective adoption or modified retrospective adoption. The Company is currently evaluating the impact of the adoption of ASC Topic 606 on its financial statements.

In February, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), intending to improve financial reporting about leasing transactions. This ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a capital or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet the new ASU will require both types of leases to be recognized. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for

 

4


Table of Contents

in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of the leases. The leasing standard will be effective for calendar year end public companies beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of this update.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effective for the Company beginning in the first quarter of 2018 and early adoption is permitted. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements and related disclosures.

Critical Accounting Policies and Estimates

The following accounting policies are considered critical by the Company’s management. These and other accounting policies require that estimates be made based on assumptions and judgment that affect revenues, expenses, assets, liabilities and disclosure of contingencies in the Company’s financial statements. These estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. However, actual results may differ from these estimates due to different conditions.

Asset Impairments - The Company’s management periodically evaluates whether there has been a permanent impairment of long-lived assets. The Company’s management believes that the accounting estimates related to asset impairments are critical estimates for the following reasons: (1) the ongoing changes in management’s expectations regarding future utilization of assets; and (2) the impact of an impairment on reported assets and earnings could be material. During the years ended December 31, 2016 and 2015, the Company’s management evaluated assets for impairment and concluded that the sum of the undiscounted expected future cash flows (excluding interest charges) from its assets exceeded their then current carrying values. Accordingly, the Company did not recognize an impairment charge.

Depreciation Expense - The Company provides for depreciation using the straight-line method at annual rates that amortize the original costs, net of salvage values, of the depreciable assets over their estimated useful lives. Management’s estimation of assets’ useful lives are critical estimates for the following reasons: (1) forecasting the salvage value for long-lived assets over a long period of time is subjective; (2) changes may take place that could render an asset obsolete or uneconomical; and (3) a change in the useful life of a long-lived asset could have a material impact on reported results of operations and reported asset values. The Company’s management believes the estimated useful life corresponds to the anticipated physical life for most assets. Although it is difficult to predict values far into the future, the Company has a long history of actual costs and values that are considered in reaching a conclusion as to the appropriate useful life of an asset.

Revenue Recognition – The Company’s revenues are derived from a variety of sources including, but not limited to, hotel operations, food and beverage operations, retail sales and golf course greens fees, and are recognized as products are delivered or services are performed. Revenues from membership initiation fees are recognized over the average life of the memberships, which management has estimated to be approximately 12 years.

Allowance for Doubtful Accounts – The Company establishes an allowance for doubtful accounts for accounts receivable based upon factors surrounding specific customers, historical trends and other information.

 

5


Table of Contents

Loss Contingencies – The Company estimates loss contingencies in accordance with FASB ASC 450-20 Loss Contingencies, which states that a loss contingency shall be accrued by a charge to income if both of the following conditions are met: (a) information available before the financial statements are issued or are available to be issued indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can be reasonably estimated. We do not believe that the ultimate resolution of our litigation matters will have an adverse effect on the Company’s financial position and results of operations. As such, there have been no adjustments for loss contingencies to the accompanying financial statements as of and for the year ended December 31, 2016.

See the Notes to the Financial Statements for Saddlebrook Resorts, Inc. in Item 8 hereof for additional accounting policies used in the preparation of the financial statements.

Impact of Current Economic Conditions

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

Net loss for the twelve month period ended December 31, 2016 was $1,235,000. Excluding non-cash expenses such as depreciation and amortization of $1,961,000, the Company’s actual operating cash flow was $726,000.

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.

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 $10.9 million and $10.1 million as of December 31, 2016 and 2015, respectively. In addition to the shareholder’s financial ability, these affiliated companies are expected to continue to generate positive cash flows during fiscal year 2017 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.

 

6


Table of Contents

Results of Operations

The following chart highlights changes in the sources of Company revenues:

 

     Year ended December 31,  
     2016     2015  

Rental Pool Revenues

     27     28

Food and beverage

     37       35  

Resort facilities and other

     36       37  
  

 

 

   

 

 

 
     100     100
  

 

 

   

 

 

 

2016 Compared to 2015

The Company’s total revenue increased $679,000 or approximately 2%, from the prior year. Rental Pool revenue increased $28,000 or less than 1%. Food and Beverage revenue increased $665,000 or approximately 6%. This increase is a direct result of the Company marketing its food and beverage more aggressively to corporate meetings as well as price adjustments.

The Company’s costs and expenses increased $1,630,000, or approximately 5%. Costs and expenses of the Rental Pool Operation increased $54,000, or approximately 2%.

The Company’s net loss was approximately $1,235,000, compared with a net loss of approximately $597,000 in the prior year. Amounts available for distribution to rental pool participants decreased by approximately $15,000.

 

7


Table of Contents

The Company is currently a member of a Qualified Subchapter S Subsidiary Group. Accordingly, no income tax expense was reflected in the Company’s operating results as the tax is assessed to the shareholders of its parent company. Income tax expense was not reflected in the Company’s Rental Pool financial statements as the related income tax is assessed to its participating condominium unit owners.

Off-Balance Sheet Arrangements

The Company does not have any material Off-Balance Sheet Arrangements that have or are reasonably likely to have a current or future effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources as defined in Regulation S-K Item 303(a)(4).

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

The financial statements, including the Reports of Independent Registered Certified Public Accountants, for Saddlebrook Resorts, Inc. are included on pages 18 to 33 and for Saddlebrook Rental Pool Operation on pages 34 to 38. An index to the financial statements is on page 17.

Financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

 

8


Table of Contents

Item 9A. Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 15d – 15 under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be reported in the Company’s SEC filings is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2016, under the direction of our chief executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures and concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

In addition, management is responsible for establishing and maintaining adequate internal controls over financial reporting. The Company’s internal control framework and processes are designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles accepted in the United States.

As of December 31, 2016, management conducted an assessment of the Company’s internal control over financial reporting based on the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Tread way Commission. Based on the assessment, management concluded that, as of December 31, 2016, the Company’s internal control over financial reporting was effective.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures and internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must be considered relative to its cost. Because of the inherent limitation in all control systems, no evaluation of controls can provide absolute assurance that all control issues within the Company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2016, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

9


Table of Contents

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The Directors and Executive Officers of the Company are as follows:

 

Name

  

Position and Background

Thomas L. Dempsey   Age 90    Chairman of the Board and Chief Executive Officer of the Company for more than five years. President of the Company Until November 2000. Chairman of the Board of Saddlebrook Holdings, Inc. for more than five years.
Eleanor Dempsey    Vice Chairman of the Board of the Company for more than five years. Director and Vice Chairman of the Board of Saddlebrook Holdings, Inc. for more than five years. Wife of Thomas Dempsey.

Maureen Dempsey

  Age 58

   Director, President and Assistant Secretary of the Company for more than five years. Director and President of Saddlebrook Holdings, Inc. for more than five years. Daughter of Thomas Dempsey.

Diane L. Riehle

  Age 56

   Director, Vice President and Assistant Secretary of the Company for more than five years. Director and Vice Chairman of the Board of Saddlebrook Holdings, Inc. for more than five years. Daughter of Thomas Dempsey.

Donald L. Allen

  Age 77

   Vice President and Treasurer of the Company for more than five years.

Code of Ethics

The Board of Directors of the Company has adopted a Code of Ethics that covers the Company’s principal financial officer, principal accounting officer and controller, as well as its Executive Committee. The Board did not provide for the Code to cover the Company’s principal executive officer, Mr. Thomas Dempsey, as Mr. Dempsey is the controlling shareholder of Saddlebrook Holdings, Inc., which owns all of the stock in the Company. All of the capital stock of Saddlebrook Holdings, Inc. is owned by Mr. Dempsey and trusts for the benefit of his two daughters, Maureen Dempsey and Diane L. Riehle, and their children, therefore, it is primarily for the benefit of Mr. Dempsey that the Code has been adopted.

Audit Committee Financial Expert

The Board of Directors of the Company has determined that it does not have an “audit committee financial expert,” as defined by the rules of the Securities and Exchange Commission, serving on the Board of Directors. The Board and Mr. Dempsey, the Company’s principal shareholder, believe that there is adequate financial expertise on the Board and within the senior management of the Company to serve the interests of the shareholders of Saddlebrook Holdings, Inc., which owns all of the stock of the Company, such shareholders being Mr. Dempsey and trusts for the benefit of his daughters and grandchildren.

 

10


Table of Contents

Item 11. Executive Compensation

The following table sets forth the remuneration paid to the Company’s named executive officers by the Company and its parent, Saddlebrook Holdings, Inc. consolidated, during the two years ended December 31, 2016 and 2015.

Summary Compensation Table

 

Name and Principal Position

   Fiscal
year
     Salary      Bonus      Other annual
compensation (1)
     Total  

Thomas L. Dempsey

Chairman of the Board and Chief Executive Officer

    

2016

2015

 

 

   $

 

50,000

49,808

 

 

   $

 

—  

—  

 

 

   $

 

14,354

13,928

 

 

   $

 

64,354

63,736

 

 

Maureen Dempsey

President and Assistant Secretary

    

2016

2015

 

 

    

125,000

124,519

 

 

    

3,297

3,149

 

 

    

20,896

20,361

 

 

    

149,193

148,029

 

 

Pat Ciaccio

General Manager

    

2016

2015

 

 

    

125,000

124,519

 

 

    

2,839

14,098

 

 

    

207

207

 

 

    

128,046

138,824

 

 

 

(1) Other Annual Compensation for 2016 consists of the following;

Vehicle Allowances

Tax Preparation Fees

Health Insurance premiums paid on behalf of greater than 2% shareholders

Group Term Life Insurance (“GTL”)

The following table shows the amounts for each category received by each named executive.

 

Executive

   Vehicle      Tax Prep.      Health
Premium
     GTL  

Thomas L. Dempsey

   $ —        $ 9,830      $ 4,524      $ 1,236  

Maureen Dempsey

     11,996        5,000        3,900        45  

Pat Ciaccio

     —          —          —          207  

Director Compensation and Independence

All of the Company’s directors are executive officers of the Company and their compensation is described in the summary compensation table above.

Compensation Committee; Compensation Committee Interlocks and Insider Participation

The entire board of directors of the Company serves as the compensation committee.

 

11


Table of Contents

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

All of the outstanding shares of the Company’s capital stock are owned by Saddlebrook Holdings, Inc. All of the capital stock of Saddlebrook Holdings, Inc. is owned by Thomas L. Dempsey and trusts for the benefit of his two daughters, Maureen Dempsey and Diane L. Riehle, and their children. Thomas L. Dempsey is the controlling shareholder of Saddlebrook Holdings, Inc.

Item 13. Certain Relationships and Related Transactions

The Company currently funds (through intercompany loans) a portion of the expenditures for Saddlebrook Holdings, Inc. (”SHI”), its sole shareholder, which is offset by dividends declared thereto, if necessary. SHI’s expenditures include dividends to its shareholders, which are primarily amounts that approximate their income taxes related to the operations of SHI and its subsidiaries.

Saddlebrook International Tennis, Inc. (“SIT”), which is solely owned by SHI, owns a 70% interest in Saddlebrook International Sports, LLC (“SIS”) which operates a tennis training facility and preparatory school at the Resort. SIS owns 10 condominium units at the Resort, two of which participate in the Rental Pool Operation. The Company receives revenue for services provided to SIS’s guests. In addition, the Company is reimbursed for actual expenses and other costs incurred on behalf of SIT and SIS.

Saddlebrook Investments, Inc. is a broker/dealer for the Resort’s condominium units. Saddlebrook Realty, Inc. is a broker for sales of other general real estate in the area. Both companies are owned by Thomas L. Dempsey. These companies collectively operate an on-site real estate office at the Resort and the Company is reimbursed for actual expenses and other costs incurred on their behalf.

Dempsey and Daughters, Inc. hold certain tracts of real estate and own 24 individual condominium units at the Resort, 10 of which participate in the Rental Pool Operation. This company is solely owned by SHI. The Company is reimbursed for actual expenses and other costs incurred on behalf of this company.

Saddlebrook Resort Condominium Association, Inc. is a nonprofit corporation whose membership is comprised of the Resort’s condominium unit owners pursuant to Florida statutes. The Company is compensated by this entity for various services provided and is reimbursed for actual expenses and other costs incurred on its behalf.

The Company’s management and ownership are involved with other related entities and operations that are considered minor.

 

12


Table of Contents

Item 14. Principal Accounting Fees and Services

Cherry Bekaert LLP served as the Company’s independent registered certified pubic accounting firm for the fiscal years ended December 31, 2016 and December 31, 2015.

The following fees were paid for services rendered during the Company’s last two fiscal years:

Audit Fees: $88,000 for each of the fiscal years ended December 31, 2016 and 2015 for professional services rendered for the audit of the Company’s annual financial statements, review of financial statements included in its Forms 10-Q and services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements for those fiscal years.

Audit-Related Fees: None

Tax Fees: None

All Other Fees: None

Effective May 6, 2003, the Board of Directors has implemented a policy requiring the Board of Directors, which functions as the Company’s audit committee, to approve the engagement of the Company’s independent auditors prior to the engagement of the independent auditor to render audit or non-audit related services in accordance with the rules of the Securities and Exchange Commission. The Board of Directors has not adopted any pre-approval policies or procedures.

 

13


Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules

 

(a) Financial statements and schedules required to be filed are listed in Item 8 Of this Form 10-K.

 

(b) Exhibits:

 

  3.1    Articles of Incorporation of Saddlebrook Resorts, Inc., a Florida corporation (incorporated by reference to Exhibit A*).
  3.2    Corporate By-laws of Saddlebrook Resorts, Inc. (incorporated by reference to Exhibit B*).
  4.    Declaration of Condominium, together with the following: (1) Articles of Incorporation of the Saddlebrook Association of Condominium Owners, Inc. a Florida non-profit corporation; (2) By-laws of the Saddlebrook Association of Condominium Owners, Inc., and (3) Rules and Regulations of the Saddlebrook Association of Condominium Owners, Inc. (incorporated by reference to Exhibit C*).
10.1    Management Contract between Saddlebrook Resorts, Inc. and the Saddlebrook Association of Condominium Owners, Inc. (incorporated by reference to Exhibit C*).
10.2    Saddlebrook Rental Pool and Agency Appointment Agreement. (incorporated by reference to Registrant’s Form 10-K for the annual period ended December 31, 2003)
10.3    Saddlebrook Rental Management Agency Employment (incorporated by reference to Exhibit E*).
10.4    Form of Purchase Agreement (incorporated by reference to Exhibit H*).
10.5    Form of Deed (incorporated by reference to Exhibit I*).
10.6    Form of Bill of Sale (incorporated by reference to Exhibit J*).
10.7    Loan Agreement, dated June 6, 2014, between Saddlebrook Resorts, Inc. and USAmeriBank (incorporated by reference to the Registrant’s Form 8-K dated June 6, 2014).
10.8    Renewal Promissory Note, dated December 6, 2015, between Saddlebrook Resorts, Inc. and USAmeriBank. (incorporated by reference to the Registrant’s Form 10-K for the fiscal year ending December 31, 2015).
14.1    Code of Ethics
31.1    Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

14


Table of Contents
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

 

* Identification of exhibit incorporated by reference from the Registration Statement No. 2-65481 previously filed by Registrant, effective December 28, 1979.

Item 16. Form 10-K Summary.

Not applicable.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    SADDLEBROOK RESORTS, INC.
    (Registrant)
Date: March 30, 2017    

/s/ Donald L. Allen

    Donald L. Allen
    Vice President and Treasurer
    (Principal Financial and
    Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on March 31, 2017.

 

 

/s/ Thomas L. Dempsey

   

/s/ Maureen Dempsey

  Thomas L. Dempsey     Maureen Dempsey
  Chairman of the Board and     Director, President
  Chief Executive Officer     and Assistant Secretary
  (Principal Executive Officer)    
 

/s/ Diane L. Riehle

   

/s/ Donald L. Allen

  Diane L. Riehle     Donald L. Allen
 

Director, Vice President

and Assistant Secretary

   

Vice President and Treasurer

(Principal Financial and Accounting Officer)

 

15


Table of Contents

Saddlebrook Resorts, Inc.

Index

December 31, 2016 and 2015

 

Saddlebrook Resorts, Inc.

  

Report of Independent Registered Public Accounting Firm

     17  

Financial Statements

  

Balance Sheets as of December 31, 2016 and 2015

     18  

Statements of Operations for the years ended December 31, 2016 and 2015

     19  

Statements of Changes in Shareholder’s Equity for the years ended December 31, 2016 and 2015

     20  

Statements of Cash Flows for the years ended December 31, 2016 and 2015

     21  

Notes to Financial Statements

     22-32  

Saddlebrook Rental Pool Operation

  

Report of Independent Registered Public Accounting Firm

     33  

Financial Statements

  

Balance Sheets as of December 31, 2016 and 2015

     34  

Statements of Operations for the years ended December 31, 2016 and 2015

     35  

Statements of Changes in Participants’ Fund Balance for the years ended December 31, 2016 and 2015

     36  

Notes to Financial Statements

     37  

 

16


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholder of

Saddlebrook Resorts, Inc.

Wesley Chapel, Florida

We have audited the accompanying balance sheets of Saddlebrook Resorts, Inc. (the “Company”) as of December 31, 2016 and 2015 and the related statements of operations, changes in shareholder’s equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Cherry Bekaert LLP

Tampa, Florida

March 30, 2017

 

17


Table of Contents

Saddlebrook Resorts, Inc.

Balance Sheets

December 31, 2016 and 2015

 

     2016      2015  

Assets

     

Current assets

     

Cash and cash equivalents

   $ 834,371      $ 375,912  

Escrowed cash

     409,680        397,721  

Trade accounts receivable, net of allowance for doubtful accounts of $17,677 (2016) and $29,712 (2015)

     1,810,865        1,521,133  

Due from related parties

     1,006,972        1,108,339  

Resort inventory and supplies

     1,185,033        1,270,969  

Prepaid expenses and other assets

     1,073,590        1,020,292  
  

 

 

    

 

 

 

Total current assets

     6,320,511        5,694,366  

Property, buildings and equipment, net

     19,223,911        20,019,161  
  

 

 

    

 

 

 

Total assets

   $ 25,544,422      $ 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 obligations

     128,376        121,008  

Escrowed deposits

     409,680        397,721  

Accounts payable

     756,199        593,328  

Accrued rental distribution

     586,761        488,021  

Accrued expenses and other liabilities

     1,434,814        1,509,529  

Current portion of deferred income

     764,660        715,661  

Guest deposits

     2,200,312        1,632,372  

Due to related parties

     10,889,134        10,101,171  
  

 

 

    

 

 

 

Total current liabilities

     17,522,496        15,911,371  

Long-term debt, net of deferred issuance costs of $58,108 and $78,174 at December 31, 2016 and December 31, 2015, respectively

     6,111,768        6,444,266  

Capital lease obligations

     57,236        185,612  

Deferred income

     501,649        585,571  
  

 

 

    

 

 

 

Total liabilities

     24,193,149        23,126,820  
  

 

 

    

 

 

 

Commitments and contingencies (Note 10)

     

Shareholder’s equity

     

Common stock, $1 par, 100,000 shares authorized, issued and outstanding

     100,000        100,000  

Additional paid-in capital

     1,013,127        1,013,127  

Retained earnings

     238,146        1,473,580  
  

 

 

    

 

 

 

Total shareholder’s equity

     1,351,273        2,586,707  
  

 

 

    

 

 

 

Total liabilities and shareholder’s equity

   $ 25,544,422      $ 25,713,527  
  

 

 

    

 

 

 

The accompanying notes are an integral part of these financial statements.

 

18


Table of Contents

Saddlebrook Resorts, Inc.

Statements of Operations

Years ended December 31, 2016 and 2015

 

     2016     2015  

Resort revenues

   $ 30,774,092     $ 30,095,086  
  

 

 

   

 

 

 

Costs and expenses:

    

Operating costs of resort

     24,736,251       23,878,116  

Sales and marketing

     2,324,639       2,175,487  

General and administrative

     3,138,615       3,063,598  

Net gain on assets sold/disposed

     —         (454,618

Depreciation

     1,940,932       1,847,987  
  

 

 

   

 

 

 

Total costs and expenses

     32,140,437       30,510,570  
  

 

 

   

 

 

 

Net operating loss before other expenses (income)

     (1,366,345     (415,484
  

 

 

   

 

 

 

Other expenses (income):

    

Interest expense

     322,822       231,536  

Other income

     (453,733     (50,121
  

 

 

   

 

 

 

Total other (income) expense

     (130,911     181,415  
  

 

 

   

 

 

 

Net loss

   $ (1,235,434   $ (596,899
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

19


Table of Contents

Saddlebrook Resorts, Inc.

Statements of Changes in Shareholder’s Equity

Years ended December 31, 2016 and 2015

 

            Additional            Total  
     Common      Paid-In      Retained     Shareholder’s  
     Stock      Capital      Earnings     Equity  

Balances at January 1, 2015

   $ 100,000      $ 1,013,127      $ 2,070,479     $ 3,183,606  

Net loss

     —          —          (596,899     (596,899
  

 

 

    

 

 

    

 

 

   

 

 

 

Balances at December 31, 2015

     100,000        1,013,127        1,473,580       2,586,707  

Net loss

     —          —          (1,235,434     (1,235,434
  

 

 

    

 

 

    

 

 

   

 

 

 

Balances at December 31, 2016

   $ 100,000      $ 1,013,127      $ 238,146     $ 1,351,273  
  

 

 

    

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

20


Table of Contents

Saddlebrook Resorts, Inc.

Statements of Cash Flows

Years ended December 31, 2016 and 2015

 

     2016     2015  

Cash flows from operating activities

    

Net loss

   $ (1,235,434   $ (596,899

Adjustments to reconcile net loss to net cash used in operating activities

    

Depreciation and amortization

     1,960,998       1,862,110  

Reductions to allowance for doubtful accounts

     (12,035     (9,594

Change in assets and liabilities

    

(Increase) decrease in

    

Escrowed cash

     (11,959     (269,082

Trade accounts receivable

     (277,697     14,171  

Resort inventory and supplies

     85,936       (17,542

Prepaid expenses and other assets

     (53,298     (157,240

Increase (decrease) in

    

Escrowed deposits

     11,959       269,082  

Accounts payable

     162,871       (14,537

Accrued rental distribution

     98,740       (37,550

Accrued expenses and other liabilities

     (74,715     (204,761

Deferred income

     (34,923     (75,206

Guest deposits

     567,940       (40,268
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,188,383       722,684  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures

     (1,145,682     (1,864,711
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,145,682     (1,864,711
  

 

 

   

 

 

 

Cash flows from financing activities

    

Principal payments on long-term debt

     (352,564     (125,000

Proceeds from long-term debt

     —         2,000,000  

Payments on capital lease obligations

     (121,008     (112,864

Debt Issuance Costs

     —         (31,944

Net advances from (payments to) related parties

     889,330       (1,087,567
  

 

 

   

 

 

 

Net cash provided by financing activities

     415,758       642,625  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     458,459       (499,402

Cash and cash equivalents, beginning of year

     375,912       875,314  
  

 

 

   

 

 

 

Cash and cash equivalents, end of year

   $ 834,371     $ 375,912  
  

 

 

   

 

 

 

Supplemental disclosure

    

Cash paid for interest

   $ 302,757     $ 217,413  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

21


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

1. Organization and Business

Saddlebrook Resorts, Inc. (the “Company” or “SRI”), a wholly-owned subsidiary of Saddlebrook Holdings, Inc. (“SHI” or the “Parent Company”), was incorporated in the State of Florida in June 1979 at which time it purchased a golf course and tennis complex, as well as certain undeveloped land, located in Pasco County, Florida, which was developed as a resort-condominium and residential homes project. Property improvements for the resort include condominiums, most of which were sold to outside parties. The majority of the condominium units sold are provided as hotel accommodations by their owners under a Rental Pool and Agency Appointment Agreement (the “Rental Pool”). Other resort facilities include two 18-hole golf courses, 45 tennis courts, three swimming pools, three restaurants, a convention facility with approximately 95,000 square feet of meeting and function space, a health spa, a fitness center, shops, and other facilities necessary for the operation of a resort.

 

2. Significant Accounting Policies

A summary of the Company’s significant accounting policies are as follows:

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents and Escrowed Cash

All short-term highly liquid instruments purchased with an original maturity of three months or less is considered to be cash equivalents.

The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. As of December 31, 2016, the Company had approximately $948,000 of cash and cash equivalents which exceeded these insured limits.

Fair Value of Financial Instruments

The Company measures the fair value of financial assets and liabilities in accordance with GAAP which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes three levels of inputs that may be used to measure fair value:

Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 – Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

 

22


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

Level 3 – Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

There were no assets or liabilities that were required to be measured at fair value on a recurring basis on December 31, 2016 or 2015.

The fair value of all of the Company’s financial assets and liabilities approximate their carrying value due to their short-term nature or market rates of interest associated with long-term obligations.

Accounts Receivable

Substantially all of the Company’s accounts receivable is due from direct billings to companies or individuals who hold conferences or large group stays at the resort. Other receivables include quarterly membership fees and credit card charges. The Company performs ongoing credit evaluations of its customers’ financial conditions and establishes an allowance for doubtful accounts based upon factors surrounding specific customers, historical trends and other information. The Company generally does not require collateral or other security to support accounts receivable, although advance deposits may be required in certain circumstances.

Resort Inventory and Supplies

Inventory includes operating materials and supplies, principally food and beverage, golf and tennis merchandise, and is accounted for at the lower of first-in, first-out, average cost or market.

Property, Buildings and Equipment

Property, buildings and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets on a straight-line basis.

Certain expenditures for renewals and improvements that significantly add to or extend the useful life of an asset are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. When property, buildings and equipment are retired or otherwise disposed, the cost of the assets and related accumulated depreciation amounts are removed from the accounts, and any resulting gains or losses are reflected in operations.

Asset Impairments

The Company’s management periodically evaluates whether there has been a permanent impairment of long-lived assets (property, buildings and equipment), in accordance with generally accepted accounting principles. During the years ended December 31, 2016 and 2015, the Company’s management evaluated assets for impairment and concluded that the sum of the undiscounted expected future cash flows (excluding interest charges) from its assets exceeded their then current carrying values. Accordingly, the Company did not recognize an impairment loss during the years ended December 31, 2016 or 2015.

 

23


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

Finance Costs

Finance costs represent costs incurred in connection with the refinancing of the Company’s long-term debt. Amortization expense for finance costs amounted to approximately $20,100 for the year ended December 31, 2016 and $14,000 for 2015.

Deferred Income

Deferred income includes deferred liabilities related to the sale of gift certificates, prepaid dues, and deferred income of membership initiation fees. Revenue from gift certificates is recorded when the certificate is redeemed. Revenue from dues is recorded over the annual membership period, and the deferred membership initiation fees are recognized over the historical average life of a membership which approximates 12 years.

Resort Revenues

Resort revenues are recognized as services are performed or products are delivered with the exception of initiation fee revenue, which is recognized over the average life of the memberships. Resort revenues also include rental revenues for condominium units owned by third parties participating in the Rental Pool. If these rental units were owned by the Company, normal costs associated with ownership such as depreciation, real estate taxes, unit maintenance and other costs would have been incurred. Instead, operating costs of the resort for the years ended December 31, 2016 and 2015 include rental pool distributions to participants and the maintenance escrow fund approximating $3,000,000 and $3,100,000, respectively.

Advertising

The Company charges costs of advertising to sales and marketing as incurred. The Company incurred advertising costs of approximately $349,000 and $256,000 during the years ended December 31, 2016 and 2015, respectively.

Income Taxes

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

Management has determined that the Company had no uncertain income tax positions that could have a significant effect on the financial statements at December 31, 2016 and 2015. The parent company’s federal income tax returns for 2013, 2014 and 2015 are subject to examination by the Internal Revenue Service, generally for a period of three years after the federal income tax returns were filed.

Employee Benefit Plan

The Company sponsors a defined contribution plan (the “Plan”), which provides retirement benefits for all eligible employees who have elected to participate. Employees must fulfill a one year service requirement to be eligible. The Company indefinitely suspended matching contributions effective with the year ended December 31, 2009 and has continued the suspension through 2016.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which provides guidance on determining when and how to disclose going-concern uncertainties in financial statements. The new standard required management to perform interim and annual assessments of an entity’s ability to continue as a going

 

24


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

concern within one year of the date the financial statements are issued and became effective for annual periods ending after December 15, 2016. Under the provisions of ASU 2014-15, an entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. These disclosures are included in Note 3, under the heading Management’s Plans Regarding Liquidity and Capital Resources, and are substantially unchanged from the Company’s historical disclosures.

These disclosures are included in Note 1, under the heading “Liquidity and Management’s Plans,” and are substantially unchanged from the Company’s historical disclosures.

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related debt rather than as an asset. In 2016, the Company retrospectively adopted this update, as required, and the amounts reclassified from other assets to long-term debt on the condensed consolidated balance sheets. These reclassifications did not impact net income.

In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which creates a new Topic, Accounting Standards Codification (“ASC”) Topic 606. The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that an entity should recognize revenue when it transfers promised good or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard is effective for the Company beginning in 2017 and allows for either full retrospective adoption or modified retrospective adoption. The Company is currently evaluating the impact of the adoption of ASC Topic 606 on its financial statements.

In February, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), intending to improve financial reporting about leasing transactions. This ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a capital or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet the new ASU will require both types of leases to be recognized. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of the leases. The leasing standard will be effective for calendar year end public companies beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of this update.

 

25


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effective for the Company beginning in the first quarter of 2018 and early adoption is permitted. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements and related disclosures.

 

3. Management’s Plans Regarding Liquidity and Capital Resources

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 as a result of the 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.

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 $10.9 million and $10.1 million as of December 31, 2016 and 2015, respectively. In addition to the shareholders financial ability these affiliated companies are expected to continue to generate positive cash flows during fiscal year 2016 should additional funding be required to support the Company’s operations.

 

4. Escrowed Cash

Escrowed cash, restricted as to use, as of December 31, is comprised of the following:

 

     2016      2015  

Rental pool unit owner deposits for maintenance reserve fund held in a bank account which bears an interest rate of 0.05%

   $ 385,931      $ 372,021  

Security deposits held on long-term rentals

     23,749        25,700  
  

 

 

    

 

 

 
   $ 409,680      $ 397,721  
  

 

 

    

 

 

 

 

26


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

5. Property, Buildings and Equipment, Net

Property, buildings and equipment as of December 31, consist of the following:

 

     Estimated
Useful
Lives
     2016      2015  

Land and land improvements

      $ 8,458,554      $ 8,417,431  

Buildings and recreational facilities

     10–40        31,942,695        31,230,183  

Machinery and equipment

     5–15        20,836,945        20,017,312  

Construction in progress

        481,816        926,792  
     

 

 

    

 

 

 
        61,720,010        60,591,718  

Accumulated depreciation

        (42,496,099      (40,572,557
     

 

 

    

 

 

 
      $ 19,223,911      $ 20,019,161  
     

 

 

    

 

 

 

Substantially all property, buildings and equipment are mortgaged, pledged or otherwise subject to lien under a loan agreement (Note 7).

Depreciation and amortization expense amounted to approximately $1,941,000 and $1,848,000 for the years ended December 31, 2016 and 2015, respectively.

The Company leases equipment under agreements which are classified as capital lease obligations in the accompanying balance sheets. The equipment and obligations related to the leases are recorded at the present value of the minimum lease payments. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Total cost of equipment acquired through capital lease obligations was approximately $588,000 at December 31, 2016 and 2015. Amortization expense totaled $59,577 on the leased equipment at both December 31, 2016 and 2015.

 

6. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities as of December 31 consist of the following:

 

     2016      2015  

Accrued payroll and related expenses

   $ 731,852      $ 648,594  

Accrued insurance

     137,373        229,324  

Accrued property taxes

     309,746        309,746  

Other accrued expenses and liabilities

     255,843        321,865  
  

 

 

    

 

 

 
   $ 1,434,814      $ 1,509,529  
  

 

 

    

 

 

 

 

27


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

7. Long-term Debt and Capital Lease Obligations

Long-term debt at December 31 consists of the following:

 

     2016      2015  

Note payable to lender

   $ 6,522,440      $ 6,875,000  

Less unamortized finance costs

     (58,108      (78,174

Less current portion

     (352,560      (352,560
  

 

 

    

 

 

 
   $ 6,111,772      $ 6,444,266  
  

 

 

    

 

 

 

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. On December 6, 2015, this financing agreement 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 December 31, 2016, $6,522,440 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 (3.62% at December 31, 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 of 1.25%. The Company is in default of this covenant as of December 31, 2016; however, the Company received a waiver for this default from its lender. Under the terms of its agreement, the debt service covenant will be re-measured at December 31, 2017. Management believes, based on its expectations that it will be in compliance with the debt covenant at that date; however there can be no assurances that it will be in compliance. Should the Company not be in compliance at December 31, 2017, it will seek a waiver or modification of the covenant. In addition, under the terms of the loan agreement, the company has certain remedies available to it by which it can cure the default, and it is management’s intent to do so if necessary.

Operating costs and planned expenditures for 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 operations.

Future maturities of long-term debt as of December 31, 2016 were as follows;

 

Years ending December 31,

 

2017

     352,560  

2018

     352,560  

2019

     352,560  

2020

     5,464,760  
  

 

 

 
   $ 6,522,440  

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 December 31, 2016, the amount due on the capital lease obligation was $15,496.

 

28


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

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 December 31, 2016, the amount due on the capital lease obligation was $57,916.

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 December 31, 2016, the amount due on the capital lease obligation was $64,432.

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 December 31, 2016 the amount due on the capital lease obligation was $47,772.

Future minimum payments under the capital lease obligations at December 31, 2016 were as follows:

 

Years ending December 31,

      

2017

   $ 138,717  

2018

     63,083  
  

 

 

 
     201,800  

Less interest

     (13,592)  

Less current portion

     (128,170
  

 

 

 
   $ 60,038  
  

 

 

 

 

29


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

8. Resort Revenues and Operating Costs of Resort

Resort revenues and operating costs of resort are comprised of the following:

 

     Years Ended December 31,  
     2016      2015  

Resort Revenues

     

Room revenue subject to rental pool agreement

   $ 8,297,216      $ 8,268,838  

Food and beverage

     11,248,492        10,583,028  

Resort facilities and other

     11,228,384        11,243,220  
  

 

 

    

 

 

 
   $ 30,774,092      $ 30,095,086  
  

 

 

    

 

 

 

Operating Costs of Resort

     

Distribution to rental pool participants

   $ 3,079,211      $ 3,093,958  

Food and beverage

     6,430,443        5,966,197  

Resort facilities and other

     15,226,597        14,817,961  
  

 

 

    

 

 

 
   $ 24,736,251      $ 23,878,116  
  

 

 

    

 

 

 

 

9. Related Party Transactions

Amounts due from related parties as of December 31 are comprised of the following:

 

     2016      2015  

Saddlebrook Resort Condominium Association, Inc.

   $ 15,195      $ 188,988  

Saddlebrook International Sports, LLC

     46,286        93,351  

Dempsey Resort Management, Inc.

     4,608        4,608  

Saddlebrook Properties LLC

     5,186        4,947  

Saddlebrook Realty, Inc.

     913,661        786,400  

Saddlebrook Investments, Inc.

     16,250        16,250  

Other

     5,786        13,795  
  

 

 

    

 

 

 
   $ 1,006,972      $ 1,108,339  
  

 

 

    

 

 

 

Amounts due to related parties as of December 31 are comprised of the following:

 

     2016      2015  

Saddlebrook Holdings, Inc.

   $ 10,889,134      $ 10,101,171  
  

 

 

    

 

 

 
   $ 10,889,134      $ 10,101,171  
  

 

 

    

 

 

 

Saddlebrook Holdings, Inc. (“SHI”) the Company’s parent company advanced SRI the amount of $787,963 during the year ended December 31, 2016. During the year ending December 31, 2015 SRI made repayments to SHI amounting to $765,248.

 

30


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

Saddlebrook International Tennis, Inc. (“SIT”), which is solely owned by SHI, owns a 70% interest in Saddlebrook International Sports, LLC (“SIS”) which operates a tennis training facility and preparatory school at the resort. SIS owns 10 condominium units at the Resort, two of which participate in the Rental Pool Operation. The Company received revenue from SIS for use of its facilities and services provided to SIS and its guests, which amounted to approximately $1,751,000 and $1,587,000 for the years ended December 31, 2016 and 2015 respectively. The Company had amounts due from SIS which amounted to $46,286 and $93,351 for the years ended December 31, 2016 and 2015 respectively.

In October 2013, the Company entered into a rental agreement with SIT for certain equipment used by SRI in operations. The terms of the agreement are 48 monthly payments of $8,712 which began in October 2013.

Saddlebrook Investments, Inc. is a broker/dealer for sales of Saddlebrook Resort condominium units. Saddlebrook Realty, Inc. is a broker for the sale of other general real estate. These companies are solely owned by a shareholder of the Company’s parent.

Dempsey and Daughters, Inc. hold certain tracts of real estate and own 24 individual condominium units at the Resort, 10 of which participate in the Rental Pool Operation. This company is solely owned by SHI.

The Company performs certain accounting and property management activities on behalf of the Saddlebrook Resort Condominium Association (the “Association”) and is reimbursed for expenses paid on behalf of the Association. Expenses paid on behalf of and services provided to the Association amounted to approximately $1,654,000 for each of the years ended December 31, 2016 and 2015.

Other related party receivables and payables consist of transactions with several other entities, along with receivables from employees for resort charges and travel advances.

 

10. Commitments and Contingencies

The Company is involved in litigation in the ordinary course of business. In the opinion of management, these matters are adequately covered by insurance or indemnification from other third parties and/or the effect, if any, of these claims is not material to the reported financial condition or results of operations of the Company as of December 31, 2016.

During the year ended December 31, 2012, the Company entered into a supply chain agreement with an external organization to purchase certain inventory and supplies. The agreement called for the Company to purchase at least 80% of its annual purchase requirements for these items, which was estimated to be $2.9 million with the external organization. The agreement had an initial term of two years and expired September 8, 2014. The Company continues to utilize this agreement on a monthly basis with no set contract.

The Company also leases equipment under operating leases. Some of the leases contain annual renewal options after the initial lease term. Lease expense amounted to approximately $77,100 and $70,000 for the years ended December 31, 2016 and 2015, respectively.

 

31


Table of Contents

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2016 and 2015

 

Future minimum lease payments under non-cancelable operating leases with initial lease terms in excess of one year are as follows:

 

2017

   $ 77,076  

2018

     46,080  

2019

     3,840  
  

 

 

 
   $ 126,996  
  

 

 

 

 

11. Investment in Stock

In 1993, the Company invested in and formed a captive insurance company, Resort Hotel Insurance Company (“RHIC”), with other resorts participating in Resort Hotel Association (“RHA”), an insurance risk purchasing group. The Company retains an equity interest in and pays insurance premiums to RHIC. The Company’s ownership is approximately 14% and all amounts contributed as capital ($132,866 as of December 31, 2016) and the increase in equity cumulative to date ($397,715 as of December 31, 2016) are recorded as a component of prepaid expenses and other assets in the accompanying balance sheets. Any change in equity is reflected as a component of other income in the statements of operations. The Company’s investment approximates the proportionate net book value of the insurance company at December 31, 2016. The Company’s stock in RHIC is restricted and may not be sold in the open market. The Company may withdraw from RHA annually at the renewal date of any of its property or casualty policies.

 

12. BP Settlement

In March 2011, the Company entered into an agreement with a legal firm to represent them on a claim occurring from the BP oil spill. In July 2016, the Company received a settlement on the claim in the amount of $397,488. This amount is included as Other Income on the Company’s Statement of Operations.

 

32


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors of Saddlebrook

Resorts, Inc., as Operators under the Saddlebrook

Rental Pool and Agency Appointment Agreement

Wesley Chapel, Florida

We have audited the accompanying balance sheets of Saddlebrook Rental Pool Operation (funds created for participants who have entered into a rental pool agreement as explained in Note 1) as of December 31, 2016 and 2015 and the related statements of operations and changes in participants’ fund balance for the years then ended. These financial statements are the responsibility of the rental pool operator’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Saddlebrook Rental Pool Operation as of December 31, 2016 and 2015 and the results of its operations and changes in participants’ fund balance for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Cherry Bekaert LLP

Tampa, Florida

March 30, 2017

 

33


Table of Contents

Saddlebrook Rental Pool Operation

Balance Sheets

December 31, 2016 and 2015

 

Distribution Fund     
     2016     2015  

Assets

    

Receivable from Saddlebrook Resorts, Inc.

   $ 586,761     $ 488,021  
  

 

 

   

 

 

 

Liabilities and Participants’ Fund Balance

    

Due to participants for rental pool distribution

   $ 536,148     $ 439,589  

Due to maintenance escrow fund

     50,613       48,432  
  

 

 

   

 

 

 
   $ 586,761     $ 488,021  
  

 

 

   

 

 

 
Maintenance Escrow Fund     

Assets

    

Cash in bank

   $ 385,931     $ 372,021  

Receivables

    

Distribution fund

     50,613       48,432  

Accrued Interest

     (71     (16

Prepaid expenses and other assets

     14,589       34  

Linen inventory

     68,190       17,925  

Furniture inventory

     54,112       43,421  
  

 

 

   

 

 

 
   $ 573,364     $ 481,817  
  

 

 

   

 

 

 

Liabilities and Participants’ Fund Balance

    

Due to Saddlebrook Resorts, Inc.

   $ 202,117     $ 186,109  

Participants’ fund balance

     371,247       295,708  
  

 

 

   

 

 

 
   $ 573,364     $ 481,817  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

34


Table of Contents

Saddlebrook Rental Pool Operation

Statements of Operations

Years Ended December 31, 2016 and 2015

 

Distribution Fund     
     2016     2015  

Rental pool revenues

   $ 8,297,216     $ 8,268,838  
  

 

 

   

 

 

 

Deductions

    

Marketing fee

     622,291       620,162  

Management fee

     1,037,153       1,033,604  

Travel agent commissions

     405,632       357,457  

Bad debt expense

     1,000       —    

Credit card expense

     211,767       213,033  
  

 

 

   

 

 

 
     2,277,843       2,224,256  
  

 

 

   

 

 

 

Net rental income

     6,019,373       6,044,582  

Operator share of net rental income

     (2,708,718     (2,720,062

Other revenues (expenses)

    

Complimentary room revenues

     45,700       25,818  

Minor repairs and replacements

     (277,144     (256,380
  

 

 

   

 

 

 

Amounts available for distribution to participants and maintenance escrow fund

   $ 3,079,211     $ 3,093,958  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

35


Table of Contents

Saddlebrook Rental Pool Operation

Statements of Changes in Participants’ Fund Balance

Years Ended December 31, 2016 and 2015

 

Distribution Fund     
     2016     2015  

Balances, beginning of year

   $ —       $ —    

Additions

    

Amounts available for distribution

     3,079,211       3,093,958  

Reductions

    

Amounts withheld for maintenance escrow fund

     (370,493     (373,896

Amounts accrued or paid to participants

     (2,708,718     (2,720,062
  

 

 

   

 

 

 

Balances, end of year

   $ —       $ —    
  

 

 

   

 

 

 
Maintenance Escrow Fund     

Balances, beginning of year

   $ 295,708     $ 236,911  

Additions

    

Amount withheld from distribution fund

     370,943       373,896  

Unit owner payments

     156,530       142,510  

Interest earned

     —         22  

Reductions

    

Unit renovations

     (567     (79,940

Refunds of excess amounts in escrow accounts

     (1,914     (11,462

Maintenance charges

     (394,441     (282,311

Linen expense

     (55,012     (83,918
  

 

 

   

 

 

 

Balances, end of year

   $ 371,247     $ 295,708  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

36


Table of Contents

Saddlebrook Rental Pool Operation

Notes to Financial Statements

December 31, 2016 and 2015

 

1. Rental Pool Operations and Rental Pool Agreement

Condominium units are provided as rental (hotel) accommodations by their owners under the Rental Pool and Agency Appointment Agreement (the “Agreement”) with Saddlebrook Resorts, Inc. (collectively, the “Rental Pool”). Saddlebrook Resorts, Inc. (“Saddlebrook”) acts as operator of the Rental Pool which provides for the distribution of a percentage of net rental income, as defined, to the owners.

The Saddlebrook Rental Pool Operation consists of two funds: the Rental Pool Income Distribution Fund (“Distribution Fund”) and the Maintenance and Furniture Replacement Escrow Fund (“Maintenance Escrow Fund”). The operations of the Distribution Fund reflect the earnings of the Rental Pool. The Distribution Fund balance sheets reflect amounts due from Saddlebrook for the rental pool distribution payable to participants and amounts due to the Maintenance Escrow Fund. The amounts due from Saddlebrook are required to be distributed no later than forty-five days following the end of each calendar quarter. The Maintenance Escrow Fund reflects the accounting for escrowed assets used to maintain unit interiors and replace furniture as it becomes necessary.

Rental pool participants and Saddlebrook share rental revenues according to the provisions of the Agreement. Net Rental Income shared consists of rentals received less a marketing surcharge of 7.5%, a 12.5% management fee, travel agent commissions, credit card expense and provision for bad debts, if warranted. Saddlebrook receives 45% of Net Rental Income as operator of the Rental Pool. The remaining 55% of Net Rental Income, after adjustments for complimentary room revenues (ten percent of the normal unit rental price paid by Saddlebrook for promotional use of the unit) and certain minor repair and replacement charges, is available for distribution to the participants and maintenance escrow fund based upon each participant’s respective participation factor (computed using the value of a furnished unit and the number of days it was available to the pool). Quarterly, 45% of Net Rental Income is distributed to participants and 10%, as adjusted for complimentary room revenues and minor interior maintenance and replacement charges, is deposited in an escrow account until a maximum of 20% of the set value of the individual owner’s furniture package has been accumulated. Excess escrow balances are refunded to participants.

 

2. Summary of Significant Accounting Policies

Basis of Accounting

The accounting records of the funds are maintained on the accrual basis of accounting.

Income Taxes

No federal or state taxes have been reflected in the accompanying financial statements as the tax effect of fund activities accrues to the rental pool participants and Saddlebrook.

 

37