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EX-32.2 - CHIEF FINANCIAL OFFICER SECTION 1350 CERTIFICATION - SADDLEBROOK RESORTS INCd373746dex322.htm
EX-32.1 - CHIEF EXECUTIVE OFFICER SECTION 1350 CERTIFICATION - SADDLEBROOK RESORTS INCd373746dex321.htm
EX-31.2 - CHIEF FINANCIAL OFFICER RULE 15D-14(A) CERTIFICATION - SADDLEBROOK RESORTS INCd373746dex312.htm
EX-31.1 - CHIEF EXECUTIVE OFFICER RULE 15D-14(A) CERTIFICATION - SADDLEBROOK RESORTS INCd373746dex311.htm
EX-10.1 - REVOLVING LINE OF CREDIT AGREEMENT DATED APRIL 24, 2017 - SADDLEBROOK RESORTS INCd373746dex101.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

(Mark one)

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

For the quarterly period ended March 31, 2017

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  ☒                     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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

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

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

 

 

 


Table of Contents

INDEX

 

     Page  

PART I - FINANCIAL INFORMATION

  

Item 1. Financial Statements

  

Saddlebrook Resorts, Inc.

  

Balance Sheets at March 31, 2017 and December 31, 2016

     3  

Statements of Operations and Accumulated Earnings for the three months ended March 31, 2017 and 2016

     4  

Statements of Cash Flows for the three months ended March  31, 2017 and 2016

     5  

Notes to Financial Statements

     6  

Saddlebrook Rental Pool Operation

  

Balance Sheets at March 31, 2017 and December 31, 2016

     9  

Statements of Operations for the three months ended March  31, 2017 and 2016

     10  

Statements of Changes in Participants’ Fund Balance for the three months ended March 31, 2017 and 2016

     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

     14  

Item 4. Controls and Procedures

     15  

PART II - OTHER INFORMATION

  

Item 1. Legal Proceedings

     15  

Item 6. Exhibits

     16  

Signature

     17  

 

- 2 -


Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

 

     March 31,
2017
(Unaudited)
     December 31,
2016
 

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 773,543      $ 834,371  

Escrowed cash

     279,250        409,680  

Accounts receivable, net

     4,921,784        1,810,865  

Due from related parties

     990,736        1,006,972  

Inventory and supplies

     1,175,911        1,185,033  

Prepaid expenses and other assets

     1,227,836        1,073,590  
  

 

 

    

 

 

 

Total current assets

     9,369,060        6,320,511  

Property, buildings and equipment, net

     18,792,160        19,223,911  
  

 

 

    

 

 

 

Total assets

   $ 28,161,220      $ 25,544,422  
  

 

 

    

 

 

 

Liabilities and Shareholder’s Equity

     

Current liabilities:

     

Current portion of long-term debt

   $ 352,560      $ 352,560  

Current portion of capital lease obligation

     111,327        128,376  

Escrowed deposits

     279,250        409,680  

Accounts payable

     1,180,164        756,199  

Accrued rental distribution

     1,531,033        586,761  

Accrued expenses and other liabilities

     972,976        1,434,814  

Current portion of deferred income

     791,007        764,660  

Guest deposits

     1,119,428        2,200,312  

Due to related parties

     12,037,944        10,889,134  
  

 

 

    

 

 

 

Total current liabilities

     18,375,689        17,522,496  

Long-term debt, net of deferred issuance costs of $53,092 and $58,108 at March 31, 2017 and December 31, 2016, respectively

  

 

6,028,643

 

  

 

6,111,768

 

     

Long-term capital lease obligation

     42,688        57,236  

Deferred income

     547,173        501,649  
  

 

 

    

 

 

 

Total liabilities

     24,994,193        24,193,149  
  

 

 

    

 

 

 

Shareholder’s equity:

     

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

     100,000        100,000  

Additional paid-in capital

     1,013,127        1,013,127  

Retained earnings

     2,053,900        238,146  
  

 

 

    

 

 

 

Total shareholder’s equity

     3,167,027        1,351,273  
  

 

 

    

 

 

 

Total liabilities and shareholder’s equity

   $ 28,161,220      $ 25,544,422  
  

 

 

    

 

 

 

The accompanying Notes to Financial Statements are

an integral part of these financial statements

 

- 3 -


Table of Contents

SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS

AND ACCUMULATED EARNINGS

(Unaudited)

 

     Three months ended
March 31,
 
     2017     2016  

Resort revenues

   $ 12,422,339     $ 12,343,843  
  

 

 

   

 

 

 

Costs and expenses:

    

Operating costs

     8,512,844       8,403,355  

Sales and marketing

     674,535       538,424  

General and administrative

     850,243       888,488  

Depreciation

     492,004       468,509  
  

 

 

   

 

 

 

Total costs and expenses

     10,529,626       10,298,776  
  

 

 

   

 

 

 

Net operating income before other (income) and expense

     1,892,713       2,045,067  
  

 

 

   

 

 

 

Other (income) and expense:

    

Other income

     (4,976     (8,017

Interest expense

     81,935       78,886  
  

 

 

   

 

 

 

Total other expense

     76,959       70,869  
  

 

 

   

 

 

 

Net income

     1,815,754       1,974,198  

Accumulated earnings at beginning of period

     238,146       1,473,580  
  

 

 

   

 

 

 

Accumulated earnings at end of period

   $ 2,053,900     $ 3,447,778  
  

 

 

   

 

 

 

The accompanying Notes to Financial Statements are

an integral part of these financial statements

 

- 4 -


Table of Contents

SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Three months ended
March 31,
 
     2017     2016  

Operating activities:

    

Net income

   $ 1,815,754     $ 1,974,198  

Non-cash items included in net income:

    

Depreciation

     492,004       468,509  

Amortization of debt financing costs

     5,016       5,017  

(Increase) decrease in:

    

Accounts receivable

     (3,110,919     (2,101,796

Inventory and supplies

     9,122       26,470  

Prepaid expenses and other assets

     (154,246     (77,173

Increase (decrease) in:

    

Accounts payable

     423,965       260,002  

Guest deposits

     (1,080,884     (535,249

Accrued expenses and other liabilities

     482,434       1,190,002  

Deferred income

     71,871       94,102  
  

 

 

   

 

 

 

Cash flow (used in) provided by operating activities

     (1,045,883     1,304,082  
  

 

 

   

 

 

 

Investing activities:

    

Capital expenditures

     (60,253     (322,462
  

 

 

   

 

 

 

Cash flow used in investing activities

     (60,253     (322,462
  

 

 

   

 

 

 

Financing activities:

    

Payments on long-term debt

     (88,141     (88,141

Payments on capital lease obligations

     (31,597     (29,463

Net borrowings from related parties

     1,165,046       445,411  
  

 

 

   

 

 

 

Cash flow provided by (used in) financing activities

     1,045,308       327,807  
  

 

 

   

 

 

 

Net (decrease) increase in cash

     (60,828     1,309,427  

Cash at beginning of period

     834,371       375,912  
  

 

 

   

 

 

 

Cash at end of period

   $ 773,543     $ 1,685,339  
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 76,959     $ 73,869  
  

 

 

   

 

 

 

The accompanying Notes to Financial Statements are

an integral part of these financial statements.

 

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Table of Contents

SADDLEBROOK RESORTS, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

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

The Company’s accompanying balance sheet for March 31, 2017, and its statements of operations and accumulated earnings and cash flows for the three month periods ended March 31, 2017 and 2016, 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, 2016 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, 2016.

Note 2. Accounts Receivable

 

     March 31,
2017
(Unaudited)
     December 31,
2016
 

Trade accounts receivable

   $ 4,987,606      $ 1,828,542  

Less reserve for bad debts

     (65,821      (17,677
  

 

 

    

 

 

 
   $ 4,921,785      $ 1,810,865  
  

 

 

    

 

 

 

Note 3. Property, Buildings and Equipment

 

     March 31,
2017
(Unaudited)
     December 31,
2016
 

Land and land improvements

   $ 8,458,554      $ 8,458,554  

Buildings and recreational facilities

     31,947,870        31,942,695  

Machinery and equipment

     20,891,843        20,836,945  

Construction in progress

     481,996        481,816  
  

 

 

    

 

 

 
     61,780,263        61,720,010  

Less accumulated depreciation

     (42,988,103      (42,496,099
  

 

 

    

 

 

 
   $ 18,792,160      $ 19,223,911  
  

 

 

    

 

 

 

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

 

- 6 -


Table of Contents

Note 4. Notes Payable 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 March 31, 2017 $6,434,295 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 (3.79% at March 31, 2017). 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 was 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.

On April 24, 2017, the Company entered in to a revolving line of credit agreement with the same third party lender in the maximum amount of $1,500,000 to be used as working capital as needed. The agreement is cross collateralized with the existing mortgage under the same terms and conditions. Amounts borrowed under the revolving line of credit will bear interest at 3% over the one month LIBOR index. The line of credit will terminate on December 6, 2020. The line of credit must be fully repaid at least 60 days of each year of the agreement. As of the date of this filing, the Company has not made any draw on this agreement.

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 March 31, 2017, the amount due on this capital lease obligation was $11,304.

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 March 31, 2017, the amount due on this capital lease obligation was $43,781.

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 March 31, 2017, the amount due on this capital lease obligation was $56,558.

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 March 31, 2017 the amount due on this capital lease obligation was $42,372.

 

 

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Table of Contents

Note 5. Related Party Receivables and Payables

Related party receivables and payables at March 31, 2017 and December 31, 2016 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.

 

 

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Table of Contents

SADDLEBROOK RENTAL POOL OPERATION

BALANCE SHEETS

DISTRIBUTION FUND

 

     March 31,
2017
(Unaudited)
     December 31,
2016
 

Assets

     

Receivable from Saddlebrook Resorts, Inc.

   $ 1,531,033      $ 586,761  
  

 

 

    

 

 

 

Liabilities and Participants’ Fund Balance

     

Due to participants for rental pool distribution

   $ 1,271,423      $ 536,148  

Due to maintenance escrow fund

     259,610        50,613  
  

 

 

    

 

 

 
   $ 1,531,033      $ 586,761  
  

 

 

    

 

 

 

MAINTENANCE ESCROW FUND

 

     March 31,
2017
(Unaudited)
    December 31,
2016
 

Assets

    

Cash and cash equivalents

   $ 252,993     $ 385,931  

Receivables:

    

Distribution fund

     259,610       50,613  

Accrued Interest

     (86     (71

Prepaid expenses and other assets

     14,943       14,589  

Linen Inventory

     149,517       68,190  

Furniture Inventory

     49,747       54,112  
  

 

 

   

 

 

 
   $ 726,724     $ 573,364  
  

 

 

   

 

 

 

Liabilities and Participants’ Fund Balance

    

Accounts payable

   $ 221,360     $ 202,117  

Participants’ fund balance

     505,364       371,247  
  

 

 

   

 

 

 
   $ 726,724     $ 573,364  
  

 

 

   

 

 

 

 

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Table of Contents

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

DISTRIBUTION FUND

 

     Three months ended
March 31,
 
     2017     2016  

Rental pool revenue

   $ 3,805,618     $ 3,636,773  
  

 

 

   

 

 

 

Deductions:

    

Marketing fee

     285,421       272,758  

Management fee

     475,702       454,597  

Travel agent commissions

     113,575       88,535  

Credit card expense

     80,535       71,508  

Bad debt expense

     25,000       —    
  

 

 

   

 

 

 
     980,233       887,398  
  

 

 

   

 

 

 

Net rental income

     2,825,385       2,749,375  

Less operator share of net rental income

     (1,553,962     (1,237,219

Other revenues (expenses):

    

Complimentary room revenues

     9,490       16,899  

Minor repairs and replacements

     (32,419     (72,955
  

 

 

   

 

 

 

Amount available for distribution

   $ 1,531,033     $ 1,456,100  
  

 

 

   

 

 

 

 

- 10 -


Table of Contents

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND

 

     Three months ended
March 31,
 
     2017     2016  

Balance at beginning of period

   $ —       $ —    

Additions:

    

Amount available for distribution

     1,531,033       1,456,100  

Reductions:

    

Amount withheld for maintenance escrow fund

     (259,610     (218,881

Amount accrued or paid to participants

     (1,271,423     (1,237,219
  

 

 

   

 

 

 

Balance at end of period

   $ —       $ —    
  

 

 

   

 

 

 

MAINTENANCE ESCROW FUND

 

     Three months ended
March 31,
 
     2017     2016  

Balance at beginning of period

   $ 371,247       295,708  

Additions:

    

Amount withheld from distribution fund

     259,610       218,881  

Unit owner payments

     45,983       13,864  

Reductions:

    

Maintenance charges

     (93,420     (83,947

Linen replacement

     (78,056     —    
  

 

 

   

 

 

 

Balance at end of period

   $ 505,364     $ 444,506  
  

 

 

   

 

 

 

 

- 11 -


Table of Contents

SADDLEBROOK RENTAL POOL OPERATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Rental Pool Operations and Rental Pool Agreement

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

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

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

Note 2. Summary of Significant Accounting Policies

Basis of Accounting

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

Income Taxes

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

 

- 12 -


Table of Contents

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

General

The Company operates Saddlebrook Resort (the “Resort”) in Wesley Chapel, Florida, which contains condominium units that have been sold to third parties or to affiliates of the Company. The majority of the condominium units are hotel accommodations that participate in a rental-pooling program (the “Rental Pool”) that provides its owners with a percentage distribution of related room revenues minus certain fees and expenses. The remainder of the condominium units participate in a non-pooling rental program, are owner-occupied or are designated as hospitality suites or housing for young athletes independent of the rental programs. Other resort property owned by the Company and its affiliates include golf courses, tennis courts, a spa, restaurants and conference center facilities.

Results of Operations

First quarter 2017 compared to first quarter 2016

The Company’s total revenues increased $78,000, or about 1%, for the three months ended March 31, 2017 compared to the same period in the prior year. Total revenues for the Rental Pool increased $169,000, or 5%. These changes are directly related to an increase in occupancy over the prior period.

Total costs and expenses increased $231,000, or about 2%. Total costs and expenses for the Rental Pool Operation increased $93,000, or about 10%.

The Company’s net income for the quarter decreased in the amount of $158,000 compared to the same period in the prior year. Amounts available for distribution for the Rental Pool Operation increased $75,000 from the comparable period last year.

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.

 

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Table of Contents

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 March 31, 2017 $6,434,299 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 (3.79% at March 31, 2017). 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 was 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.

On April 24, 2017, the Company entered in to a revolving line of credit agreement with the same third party lender in the maximum amount of $1,500,000 to be used as working capital as needed. The agreement is cross collateralized with the existing mortgage under the same terms and conditions. Amounts borrowed under the revolving line of credit will bear interest at 3% over the one month LIBOR index. The line of credit will terminate on December 6, 2020. The line of credit must be fully repaid at least 60 days of each year of the agreement. As of the date of this filing, the Company has not made any draw on this agreement.

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 $12 million and $10.9 million as of March 31, 2017 and December 31, 2016, respectively. In addition to the shareholders’ 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.

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.

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 and its line of credit bear interest at 3.0% over the one month LIBOR index and mature in December 2020.

 

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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 March 31, 2017, 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 March 31, 2017 in timely alerting them to material information required to be included in the Company’s periodic SEC filings.

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

There were no changes in the Company’s internal controls over financial reporting during the three months ended March 31, 2017 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 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:

 

  10.1 - Revolving Line of Credit Agreement dated April 24, 2017
  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

 

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SIGNATURE

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

 

SADDLEBROOK RESORTS, INC.

(Registrant)

 

Date: May 15, 2017      

/s/    Donald L. Allen        

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

 

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