UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM10-Q10-Q/A
(Amendment No. 1)
(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,September 30, 2020
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 every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-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, anon-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 Rule12b-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 Rule12b-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.
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This Amendment No. 1 on Form 10-Q/A amends the Quarterly Report on Form 10-Q of Saddlebrook Resorts, Inc. for the quarter ended September 30, 2020 filed on November 16, 2020 (the “Form 10-Q”) for the sole purpose of furnishing the interactive data files as Exhibit 101 in accordance with Rule 405(a)(2) of Regulation S-T.
- 2 -No other changes have been made to the Form 10-Q except for the furnishing of the exhibit described above. This Form 10-Q/A speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Form 10-Q.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SADDLEBROOK RESORTS, INC.
| March 31, 2020 (Unaudited) | December 31, 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | — | $ | 325,696 | ||||
Escrowed cash | 976,488 | 1,124,074 | ||||||
Trade accounts receivable, net | 1,286,045 | 1,129,572 | ||||||
Due from related parties | 841,623 | 465,623 | ||||||
Resort inventory and supplies | 996,610 | 1,011,923 | ||||||
Prepaid expenses and other assets | 467,159 | 350,539 | ||||||
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Total current assets | 4,567,925 | 4,407,427 | ||||||
Property, buildings and equipment, net | 14,364,870 | 14,800,528 | ||||||
Operating leaseright-of-use assets | 129,175 | 147,223 | ||||||
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Total assets | $ | 19,061,970 | $ | 19,355,178 | ||||
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Liabilities and Shareholder’s Equity | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt, net of deferred issuance costs of $8,685 and $11,566 at March 31, 2020 and December 31, 2019, Respectively | $ | 6,867,918 | $ | 6,953,178 | ||||
Current portion of finance lease liabilities | 97,778 | 96,206 | ||||||
Current portion of operating lease liabilities | 74,634 | 73,650 | ||||||
Checks issued in excess of cash and cash equivalents | 301,116 | — | ||||||
Escrowed deposits | 976,488 | 1,124,074 | ||||||
Accounts payable | 506,861 | 492,452 | ||||||
Accrued rental distribution | 772,756 | 344,367 | ||||||
Accrued expenses and other liabilities | 882,779 | 1,089,527 | ||||||
Current portion of deferred income | 769,940 | 786,125 | ||||||
Guest deposits | 522,381 | 1,393,571 | ||||||
Due to related parties | 391,545 | — | ||||||
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Total current liabilities | 12,164,196 | 12,353,150 | ||||||
Long-term finance lease liabilities | 231,743 | 258,258 | ||||||
Long-term operating lease liabilities | 54,541 | 73,573 | ||||||
Deferred income | 651,706 | 627,685 | ||||||
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Total liabilities | 13,102,186 | 13,312,666 | ||||||
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Shareholder’s equity: | ||||||||
Common stock, $1.00 par value, 100,000 shares authorized and outstanding | 100,000 | 100,000 | ||||||
Additionalpaid-in capital | 1,013,127 | 1,013,127 | ||||||
Retained earnings | 4,846,657 | 4,929,385 | ||||||
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Total shareholder’s equity | 5,959,784 | 6,042,512 | ||||||
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Total liabilities and shareholder’s equity | $ | 19,061,970 | $ | 19,355,178 | ||||
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The accompanying Notes to Financial Statements are an integral part of these financial statements
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SADDLEBROOK RESORTS, INC.
AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited)
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
Revenues | $ | 7,251,566 | $ | 12,116,004 | ||||
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Costs and expenses: | ||||||||
Operating costs | 5,707,139 | 8,028,358 | ||||||
Sales and marketing | 350,781 | 531,897 | ||||||
General and administrative | 693,187 | 715,620 | ||||||
Depreciation | 498,027 | 518,248 | ||||||
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Total costs and expenses | 7,249,134 | 9,794,123 | ||||||
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Net operating income before other income (expenses) | 2,432 | 2,321,881 | ||||||
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Other (income) expenses | ||||||||
Other income | (5,312 | ) | (5,091 | ) | ||||
Interest expense | 90,472 | 110,623 | ||||||
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Total other expenses, net | 85,160 | 105,532 | ||||||
Net (loss) income | (82,728 | ) | 2,216,349 | |||||
Retained earnings (accumulated deficit) at beginning of period | 4,929,385 | (5,391,272 | ) | |||||
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Retained earnings (accumulated deficit)at end of period | $ | 4,846,657 | $ | (3,174,923 | ) | |||
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The accompanying notes are an integral part of these financial statements
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SADDLEBROOK RESORTS, INC.
(Unaudited)
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
Operating activities: | ||||||||
Net (loss) income | (82,728 | ) | $ | 2,216,349 | ||||
Non-cash items included in net (loss) income: | ||||||||
Depreciation | 498,027 | 518,248 | ||||||
Gain on the disposal of assets | (6,000 | ) | — | |||||
Bad debt expense | 3,143 | — | ||||||
Amortization of debt financing costs | 2,881 | 6,638 | ||||||
Amortization of operating leaseright-of-use assets | 18,048 | 17,144 | ||||||
Interest paid on finance leases | (5,161 | ) | (6,715 | ) | ||||
Decrease (increase) in: | ||||||||
Accounts receivable | (159,616 | ) | (2,240,913 | ) | ||||
Inventory and supplies | 15,313 | 19,364 | ||||||
Prepaid expenses and other assets | (116,620 | ) | 18,798 | |||||
(Decrease) increase in: | ||||||||
Checks issued in excess of cash and cash equivalents | 301,116 | — | ||||||
Escrowed deposits | (147,586 | ) | (268,588 | ) | ||||
Accounts payable | 14,409 | 378,234 | ||||||
Accrued rental distribution | 428,389 | 926,527 | ||||||
Guest deposits | (871,190 | ) | (1,801,768 | ) | ||||
Accrued expenses and other liabilities | (206,748 | ) | (285,992 | ) | ||||
Deferred income | 7,836 | 93,736 | ||||||
Operating lease liabilities | (18,048 | ) | (17,144 | ) | ||||
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Cash flows from operating activities | (324,535 | ) | (426,082 | ) | ||||
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Investing activities: | ||||||||
Capital expenditures | (56,369 | ) | (140,262 | ) | ||||
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Cash flows from investing activities | (56,369 | ) | (140,262 | ) | ||||
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Financing activities: | ||||||||
Payments on long-term debt | (88,141 | ) | (88,141 | ) | ||||
Proceeds from line of credit | — | 1,500,000 | ||||||
Payments on finance lease obligations | (19,782 | ) | (15,284 | ) | ||||
Net advances from (payments to) related parties | 15,545 | (356,898 | ) | |||||
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Cash flows from financing activities | (92,378 | ) | 1,039,677 | |||||
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Net (decrease) increase in cash, cash equivalents and escrowed cash | (473,282 | ) | 473,333 | |||||
Cash, cash equivalents and escrowed cash at beginning of period | 1,449,770 | 2,625,471 | ||||||
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Cash, cash equivalents and escrowed cash at end of period | $ | 976,488 | $ | 3,098,804 | ||||
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Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 87,591 | $ | 103,985 | ||||
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The accompanying notes are an integral part of these financial statements
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SADDLEBROOK RESORTS, INC.
(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, 2020, and its statements of operations and accumulated earnings and cash flows for the three month periods ended March 31, 2020 and 2019, 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, 2019 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 Form10-Q and Article 10 of RegulationS-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 Form10-K for the year ended December 31, 2019.
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Note 2. Revenue
Revenue Recognition
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.
Contract Balances
Timing differences among revenue recognition may result in contract assets or liabilities. Contract liabilities consists of guest deposits and deferred income and totaled approximately $1,944,000 and $2,807,000 as of March 31, 2020 and December 31, 2019, respectively. Contract assets consist of escrowed cash relating to rental pool owner deposits for the maintenance reserve fund and long-term security deposits and totaled approximately $976,000 and $1,124,000 as of March 31, 2020 and December 31, 2019, respectively.
The Company’s net trade accounts receivables were $1,286,000 and $1,130,000 as of March 31, 2020 and December 31, 2019, respectively. Trade accounts receivable are stated in the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to the allowance of doubtful accounts based on its assessment of the current status of individual accounts. Balances still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance of doubtful accounts and a credit to trade accounts receivable. Changes in the allowance for doubtful accounts have not been material to the consolidated financial statements.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under the new revenue recognition standard. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our revenue transactional and the contracts performance obligation is generally satisfied at the time of the transaction.
Note 3. Trade Accounts Receivable
| March 31, 2020 (Unaudited) | December 31, 2019 | |||||||
Trade accounts receivable | $ | 1,286,662 | $ | 1,161,500 | ||||
Less reserve for bad debts | (617 | ) | (31,928 | ) | ||||
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| $ 1,286,045 | $ | 1,129,572 | ||||||
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Note 4. Management’s Plans Regarding Liquidity and Capital Resources
The Company experienced a significant decrease in revenue for the three months ended March 31, 2020 compared to the previous year. Towards the end of December 2019, an outbreak of a novel strain of coronavirus(“COVID-19”) emerged globally. TheCOVID-19 outbreak in the United States has resulted in a reduction of hotel occupancy and cancellations of future reservations. It is difficult to estimate the length or severity of this outbreak; however, a significant reduction in occupancy caused byCOVID-19 is expected to affect the Company’s results of operations and financial position.
In April 2020, the Company received approximately $2,949,000 of proceeds from a note payable funded under the Payroll Protection Program as part of the CARES Act. The note bears interest at 1% per annum, matures in April 2022, and requires monthly interest and principal payments of $165,529 beginning in November 2020 and through maturity. The currently issued guidelines of the program allow for the loan proceeds to be forgiven if certain requirements are met. If the Company is unable to or does not follow those guidelines, the Company would be required to repay a portion of or the entire balance of the loan proceeds in full.
The current economic conditions, expected effect on the Company’s results of operations and financial position, and uncertainty of the length or severity of the outbreak raise substantial doubt about the Company’s ability to continue as a going concern.
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 $0.4 million as of March 31, 2020. In addition to the shareholders’ financial ability, these affiliated Companies are expected to continue to generate positive cash flows during fiscal year 2020 should additional funding be required to support the Company’s operations.
Note 5. Operating Leases
The Company leases certain equipment undernon-cancellable operating leases, which begin to expire in 2021. The leases are classified as operating leases in conformity with the provisions of Topic 842. Accordingly, the Company recorded aright-of-use asset and related operating lease liability totaling approximately $217,000 upon adoption of Topic 842 as of January 1, 2019. Aggregated information regarding the leases as of and for the three months ended March 31, 2020 is as follows:
Lease costs (included in operating costs) | $ | 18,048 | ||
Incremental borrowing rate | 5.32 | % |
Note 6. Property, Buildings and Equipment
| March 31, | ||||||||
| 2020 | December 31, | |||||||
| (Unaudited) | 2019 | |||||||
Land and land improvements | $ | 8,830,867 | $ | 8,830,867 | ||||
Buildings and recreational facilities | 32,105,123 | 32,093,233 | ||||||
Machinery and equipment | 21,778,127 | 21,863,715 | ||||||
Construction in progress | 135,626 | 94,379 | ||||||
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| 62,849,743 | 62,882,194 | |||||||
Less accumulated depreciation | (48,484,873 | ) | (48,081,666 | ) | ||||
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| $ | 14,364,870 | $ | 14,800,528 | |||||
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The Company’s property, buildings and equipment are pledged as security for its debt (see Note 7).
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Note 7. Notes Payable and Finance Lease Liabilities
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, 2020, $5,376,603 was outstanding under the note. The term note requires monthly principal payments of $29,380 plus interest of 3% over the one month LIBOR index (3.92% at March 31, 2020). 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 Service Ratio, as defined, of 1.25%. The Company was in default of this covenant as of December 31, 2019; however, the Company received a waiver for this default from its lender. The Company is currently discussing refinancing of its current mortgage.
On April 24, 2017, the Company entered in to a revolving line of credit agreement with the same third party lender with maximum borrowings of $1,500,000 to be used as working capital as needed. The agreement is cross collateralized with the existing term note 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 (3.92% at March 31, 2020). The line of credit will terminate on December 6, 2020. As of March 31, 2020, the Company had $1,500,000 in outstanding borrowings on this agreement.
On March 1, 2018, the Company entered into a finance lease liability for equipment in the amount of $332,206. The assets associated with this lease cost $461,506, of which $129,300 was reduced through the Company’strade-in of existing equipment. This finance lease is secured by the equipment purchased, matures in February 2023 and requires monthly payments of $6,500, including interest at 6.5%. At March 31, 2020, the amount due on this finance lease liability was $206,727.
On April 1, 2018, the Company entered into a finance lease liability for equipment in the amount of $156,942. The assets associated with this lease cost $178,942, of which $22,000 was reduced through the Company’strade-in of existing equipment. This finance lease is secured by the equipment purchased, matures in March 2023 and requires monthly payments of $3,071, including interest at 6.5%. At March 31, 2020, the amount due on this finance lease liability was $100,192.
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Note 8. Related Party Receivables and Payables
Related party receivables and payables at March 31, 2020 and December 31, 2019 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 andnon-interest bearing.
Note 9. 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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SADDLEBROOK RENTAL POOL OPERATION
DISTRIBUTION FUND
| March 31, | ||||||||
| 2020 | December 31, | |||||||
| (Unaudited) | 2019 | |||||||
Assets | ||||||||
Receivable from Saddlebrook Resorts, Inc. | $ | 772,757 | $ | 503,066 | ||||
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Liabilities and Participants’ Fund Balance | ||||||||
Due to participants for rental pool distribution | $ | 653,884 | $ | 299,020 | ||||
Due to maintenance escrow fund | 118,883 | 45,346 | ||||||
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| $ | 772,757 | $ | 344,366 | |||||
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MAINTENANCE ESCROW FUND
| March 31, | ||||||||
| 2020 | December 31, | |||||||
| (Unaudited) | 2019 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 961,306 | $ | 1,108,892 | ||||
Receivables: | ||||||||
Distribution fund | 118,873 | 45,346 | ||||||
Prepaid expenses and other assets | 14,606 | 14,605 | ||||||
Linen Inventory | 45,953 | — | ||||||
Furniture Inventory | 39,650 | 39,651 | ||||||
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| $ | 1,180,388 | $ | 1,208,494 | |||||
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Liabilities and Participants’ Fund Balance | ||||||||
Due to Saddlebrook Resorts, Inc. | $ | 70,769 | $ | 127,354 | ||||
Participants’ fund balance | 1,109,619 | 1,081,140 | ||||||
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| $ | 1,180,388 | $ | 1,208,494 | |||||
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SADDLEBROOK RENTAL POOL OPERATION
(Unaudited)
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
Rental pool revenues | $ | 1,975,818 | $ | 3,617,250 | ||||
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Deductions: | ||||||||
Marketing fee | 148,186 | 271,394 | ||||||
Management fee | 246,977 | 452,156 | ||||||
Travel agent commissions | 69,230 | 176,921 | ||||||
Credit card expense | 58,349 | 86,488 | ||||||
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| 522,742 | 986,859 | |||||||
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Net rental income | 1,453,076 | 2,630,391 | ||||||
Less operator share of net rental income | (653,884 | ) | (1,183,676 | ) | ||||
Other revenues (expenses): | ||||||||
Complimentary room revenues | 6,251 | 12,853 | ||||||
Minor repairs and replacements | (32,686 | ) | (29,975 | ) | ||||
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Amount available for distribution | $ | 772,757 | $ | 1,429,593 | ||||
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The accompanying notes are an integral part of these financial statements
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SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES
(Unaudited)
DISTRIBUTION FUND
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
Balance at beginning of period | $ | — | $ | — | ||||
Additions: | ||||||||
Amount available for distribution | 772,757 | 1,429,593 | ||||||
Reductions: | ||||||||
Amount withheld for maintenance escrow fund | (118,873 | ) | (245,917 | ) | ||||
Amount accrued or paid to participants | (653,884 | ) | (1,183,676 | ) | ||||
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Balance at end of period | $ | — | $ | — | ||||
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MAINTENANCE ESCROW FUND
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
Balance at beginning of period | $ | 1,081,140 | 2,135,913 | |||||
Additions: | ||||||||
Amount withheld from distribution fund | 118,873 | 245,917 | ||||||
Unit owner payments | 120,777 | 88,966 | ||||||
Interest earned | 2,617 | 123 | ||||||
Reductions: | ||||||||
Escrow account refunds | (94,419 | ) | (75,612 | ) | ||||
Maintenance charges | (80,974 | ) | (47,969 | ) | ||||
Unit renovations | (8,393 | ) | (212,975 | ) | ||||
Linen replacement | (30,002 | ) | (233,614 | ) | ||||
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Balance at end of period | $ | 1,109,619 | $ | 1,900,749 | ||||
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The accompanying notes are an integral part of these financial statements
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SADDLEBROOK RENTAL POOL OPERATION
(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.
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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 anon-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
Three months ended March 31, 2020 compared to three months ended March 31, 2019
The Company’s total revenues decreased approximately $4,864,000 or about 40%, for the three months ended March 31, 2020 compared to the same period in the prior year. Total revenues for the Rental Pool decreased about $1,641,000, or about 45%.
Total costs and expenses decreased approximately $2,545,000, or about 26%, for the Company, and approximately $464,000 or about 47%, for the Rental Pool Operation.
The Company experienced a net loss for the quarter in the amount of approximately $83,000 compared to the net income of the prior comparable quarter of approximately $2,216,000. Amounts available for distribution for the Rental Pool Operation decreased approximately $657,000 from the comparable period last year.
Impact of Current Economic Conditions
The Company experienced a significant decrease in revenue for the period ending March 31, 2020 compared to the previous year.
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 one-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.
Toward the end of December 2019, an outbreak of a novel strain of coronavirus(“COVID-19”) emerged globally. TheCOVID-19 outbreak in the United States has resulted in a reduction of hotel occupancy and cancellations of future reservations. It is difficult to estimate the length or severity of the outbreak; however, a significant reduction in occupancy caused byCOVID-19 is expected to affect the Company’s results of operations and financial position.
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Liquidity and Capital Resources
Net loss for the 3 months ended March 31, 2020 was $82,728. Excludingnon-cash expenses such as Depreciation and Amortization of $498,027 the company’s actual operating cash was $415,299.
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, 2020, $5,376,603 was outstanding under the note. The term note requires monthly principal payments of $29,380 plus interest of 3% over the one month LIBOR index (3.92% at March 31, 2020). 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 Service Ratio, as defined, of 1.25%. The Company was in default of this covenant as of December 31, 2019; however, the Company received a waiver for this default from its lender. The Company is currently discussing refinancing of its current mortgage.
On April 24, 2017, the Company entered in to a revolving line of credit agreement with the same third party lender with maximum borrowings of $1,500,000 to be used as working capital as needed. The agreement is cross collateralized with the existing term note 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. (3.92% at March 31, 2020). The line of credit will terminate on December 6, 2020. As of March 31, 2020, the Company had $1,500,000 in outstanding borrowings on this agreement.
In April 2020, the Company received approximately $2,949,000 of proceeds from a note payable funded under the Payroll Protection Program as part of the CARES Act. The note bears interest at 1% per annum, matures in April 2022, and requires monthly interest and principal payments of $165,529 beginning in November 2020 and through maturity. The currently issued guidelines of the program allow for the loan proceeds to be forgiven if certain requirements are met. If the Company is unable to or does not follow those guidelines, the Company would be required to repay a portion of or the entire balance of the loan proceeds in full.
The current economic conditions, expected effect on the Company’s results of operations and financial position, and uncertainty of the length or severity of the outbreak raise substantial doubt about the Company’s ability to continue as a going concern.
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 $0.4 million as of March 31, 2020. In addition to the shareholders’ financial ability, these affiliated Companies are expected to continue to generate positive cash flows during fiscal year 2020 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.
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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, 2020, pursuant to Exchange Act Rule15d-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, 2020 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, 2020 that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II – OTHER INFORMATION
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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The following exhibits are included in this Form10-Q:10-Q/A:
31.1 - Chief Executive Officer Rule15d-14(a) Certification
31.2 - Chief Financial Officer Rule15d-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
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: | /s/ Donald L. Allen | |||||
| Donald L. Allen | ||||||
| Vice President and Treasurer | ||||||
| (Principal Financial and | ||||||
| Accounting Officer) | ||||||
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