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SADDP Saddlebrook Resorts

Filed: 16 Nov 20, 6:07am
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 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 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


Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

 

   September 30,
2020
(Unaudited)
   December 31,
2019
 

Assets

    

Current assets:

    

Cash and cash equivalents

  $—     $325,696 

Escrowed cash

   983,340    1,124,074 

Trade accounts receivable, net

   114,372    1,129,572 

Due from related parties

   1,591,472    465,623 

Resort inventory and supplies

   875,755    1,011,923 

Prepaid expenses and other assets

   402,287    350,539 
  

 

 

   

 

 

 

Total current assets

   3,967,226    4,407,427 

Property, buildings and equipment, net

   13,468,555    14,800,528 

Operating lease right-of-use assets

   92,353    147,223 
  

 

 

   

 

 

 

Total assets

  $17,528,134   $19,355,178 
  

 

 

   

 

 

 

Liabilities and Shareholder’s Equity

    

Current liabilities:

    

Checks issued in excess of cash and cash equivalents

  $22,984   $—   

Current portion of long-term debt, less deferred financing of $2,922

   6,785,540    6,953,178 

Current portion of Paycheck Protection Program loan

   1,801,895   

Current portion of finance lease liabilities

   101,000    96,206 

Current portion of operating lease liabilities

   76,642    73,650 

Escrowed deposits

   983,340    1,124,074 

Accounts payable

   299,881    492,452 

Accrued rental distribution

   123,115    344,367 

Accrued expenses and other liabilities

   771,456    1,089,527 

Current portion of deferred income

   742,334    786,125 

Guest deposits

   1,115,030    1,393,571 
  

 

 

   

 

 

 

Total current liabilities

   12,823,217    12,353,150 

Long-term portion of Economic Injury Disaster loan

   150,000    —   

Long-term portion of Payroll Protection Program loan

   1,146,660    —   

Long-term finance lease liabilities

   177,476    258,258 

Long-term operating lease liabilities

   15,711    73,573 

Deferred income

   652,345    627,685 
  

 

 

   

 

 

 

Total liabilities

   14,965,409    13,312,666 
  

 

 

   

 

 

 

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

   1,449,598    4,929,385 
  

 

 

   

 

 

 

Total shareholder’s equity

   2,562,725    6,042,512 
  

 

 

   

 

 

 

Total liabilities and shareholder’s equity

  $17,528,134   $19,355,178 
  

 

 

   

 

 

 

The accompanying Notes to Financial Statements are an integral part of these financial statements

 

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SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS

AND RETAINED EARNINGS (ACCUMULATED DEFICIT)

(Unaudited)

 

   Three months ended
September 30,
  Nine Months ended
September 30,
 
   2020  2019  2020  2019 

Revenues

  $1,724,182  $3,505,158  $10,853,689  $21,940,324 
  

 

 

  

 

 

  

 

 

  

 

 

 

Costs and expenses:

     

Operating costs

   2,417,908   4,186,070   10,113,103   17,803,226 

Sales and marketing

   117,334   390,470   659,503   1,467,987 

General and administrative

   665,487   683,172   2,037,871   2,122,557 

Depreciation

   394,393   512,646   1,375,427   1,547,052 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total costs and expenses

   3,595,122   5,772,358   14,185,904   22,940,822 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net operating loss before other income (expenses)

   (1,870,940  (2,267,200  (3,332,215  (1,000,498
  

 

 

  

 

 

  

 

 

  

 

 

 

Other income (expenses)

     

Other income

   3,363   1,267   13,425   819 

Interest expense

   (62,785  (102,715  (160,997  (313,774
  

 

 

  

 

 

  

 

 

  

 

 

 

Total other income (expenses), net

   (59,422  101,448   (147,572  314,594 

Net loss

   (1,930,362  (2,368,648  (3,479,787  (1,315,092

Retained earnings (accumulated deficit) at beginning of period

   3,379,960   (4,337,717  4,929,385   (5,391,273
  

 

 

  

 

 

  

 

 

  

 

 

 

Retained earnings (accumulated deficit) at end of period

  $1,449,598  $(6,706,365 $1,449,598  $(6,706,365
  

 

 

  

 

 

  

 

 

  

 

 

 

The accompanying notes are an integral part of these financial statements

 

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SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine months ended
September 30,
 
   2020  2019 

Operating activities:

   

Net loss

  $(3,479,787 $(1,315,093

Non-cash items included in net loss:

   

Depreciation

   1,375,427   1,547,053 

Gain on the disposal of assets

   (6,000  —   

Bad debt expense

   3,143   —   

Amortization of debt financing costs

   8,644   14,906 

Amortization of operating lease right-of-use assets

   54,870   52,062 

Interest paid on finance leases

   (14,570  (19,062

Decrease (increase) in:

   

Accounts receivable

   1,012,057   267,928 

Inventory and supplies

   136,168   27,630 

Prepaid expenses and other assets

   (51,748  793,768 

(Decrease) increase in:

   

Checks issued in excess of cash and cash equivalents

   22,984   —   

Escrowed deposits

   (140,734  (637,031

Accounts payable

   (192,571  (131,403

Accrued rental distribution

   (221,252  (301,615

Guest deposits

   (278,541  (1,673,372

Accrued expenses and other liabilities

   (318,071  (320,688

Deferred income

   (19,131  (58,099

Operating lease liabilities

   (54,870  (52,062
  

 

 

  

 

 

 

Cash flows from operating activities

   (2,163,982  (1,805,078
  

 

 

  

 

 

 

Investing activities:

   

Capital expenditures

   (37,454  (404,474
  

 

 

  

 

 

 

Cash flows from investing activities

   (37,454  (404,474
  

 

 

  

 

 

 

Financing activities:

   

Payments on long-term debt

   (176,282  (264,424

Proceeds from line of credit

   —     1,500,000 

Proceeds from long-term debt

   150,000   —   

Proceeds from payroll protection program loan

   2,948,555   —   

Payments on finance lease obligations

   (61,418  (22,465

Net advances from (payments to) related parties

   (1,125,849  164,363 
  

 

 

  

 

 

 

Cash flows from financing activities

   1,735,006   1,377,474 
  

 

 

  

 

 

 

Net decrease in cash, cash equivalents and escrowed cash

   (466,430  (715,880

Cash, cash equivalents and escrowed cash at beginning of period

   1,449,770   2,625,471 
  

 

 

  

 

 

 

Cash, cash equivalents and escrowed cash at end of period

  $983,340  $1,909,591 
  

 

 

  

 

 

 

Supplemental disclosure of cash flow information:

   

Cash paid for interest

  $92,449  $313,774 
  

 

 

  

 

 

 

The accompanying notes are an integral part of these financial statements

 

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SADDLEBROOK RESORTS, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

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

The Company’s accompanying balance sheet for September 30, 2020, and its statements of operations and accumulated earnings and cash flows for the nine month periods ended September 30, 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 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, 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 $1,902,000 and $2,807,000 as of September 30, 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 $983,000 and $1,124,000 as of September 30, 2020 and December 31, 2019, respectively.

The Company’s net trade accounts receivables were $114,000 and $1,130,000 as of September 30, 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

 

   September 30,
2020
(Unaudited)
   December 31,
2019
 

Trade accounts receivable

  $114,989   $1,161,500 

Less reserve for bad debts

   (617   (31,928
  

 

 

   

 

 

 
  $ 114,372   $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 nine months ended September 30, 2020 compared to the previous year. Towards the end of December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) emerged globally. The COVID-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 by COVID-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.

In September 2020, the Company received $150,000 of proceeds from an Economic Injury Disaster Loan (“EIDL”) note payable funded by the U.S. Small Business Administration. The note bears interest at 3.75% per annum, matures in September 2050, and requires monthly interest and principal payments of $731 beginning in September 2021 and through maturity.

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.

Note 5. Operating Leases

The Company leases certain equipment under non-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 a right-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 nine months ended September 30, 2020 is as follows:

 

Lease costs (included in operating costs)

  $54,870 

Incremental borrowing rate

   5.32

Note 6. Property, Buildings and Equipment

 

   September 30,
2020
(Unaudited)
   December 31,
2019
 

Land and land improvements

  $8,830,867   $8,830,867 

Buildings and recreational facilities

   32,105,123    32,093,233 

Machinery and equipment

   21,798,595    21,863,715 

Construction in progress

   96,234    94,379 
  

 

 

   

 

 

 
   62,830,819    62,882,194 

Less accumulated depreciation

   (49,362,264   (48,081,666
  

 

 

   

 

 

 
  $13,468,555   $14,800,528 
  

 

 

   

 

 

 

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 September 30, 2020, $5,288,462 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 (3.14%) at September 30, 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 (3.14%) at September 30, 2020). The line of credit will terminate on December 6, 2020. As of September 30, 2020, the Company had $1,500,000 in outstanding borrowings on this agreement. Lender hereby agrees to defer payment of principal plus interest (the “Payment Deferral”) through and including June 6, 2020 with regularly scheduled payments of principal plus interest to resume July 6, 2020.

In April 2020, the Company entered into a term note agreement with the same third party lender for approximately $2,949,000 funded under the Paycheck Protection Program as part of the CARES Act. The note bears interest of 1% per annum, matures in April 2022, and requires a 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 entire balance of the loan proceeds in full. At September 30, 2020, $2,948,555 was outstanding under the note.

On September 25, 2020, the Company entered into an EIDL note payable for $150,000 funded by the U.S. Small Business Administration. The note bears interest at 3.75% per annum, matures in September 2050, and requires monthly interest and principal payments of $731 beginning in September 2021 and through maturity. At September 30, 2020, $150,000 was outstanding under the note.

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’s trade-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 September 30, 2020, the amount due on this finance lease liability was $174,005.

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’s trade-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 September 30, 2020, the amount due on this finance lease liability was $84,817.

 

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Note 8. Related Party Receivables

Related party receivables at September 30, 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 are unsecured and non-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

BALANCE SHEETS

DISTRIBUTION FUND

 

   September 30,
2020
(Unaudited)
   December 31,
2019
 

Assets

    

Receivable from Saddlebrook Resorts, Inc.

  $123,115    344,366 
  

 

 

   

 

 

 

Liabilities and Participants’ Fund Balance

    

Due to participants for rental pool distribution

  $106,205   $299,020 

Due to maintenance escrow fund

   16,910    45,346 
  

 

 

   

 

 

 
  $123,115   $344,366 
  

 

 

   

 

 

 

MAINTENANCE ESCROW FUND

 

   September 30,
2020
(Unaudited)
   December 31,
2019
 

Assets

    

Cash and cash equivalents

  $970,565   $1,108,892 

Receivables:

    

Distribution fund

   16,910    45,346 

Prepaid expenses and other assets

   43,269    14,605 

Linen Inventory

   15,419    —   

Furniture Inventory

   39,651    39,651 
  

 

 

   

 

 

 
  $1,085,814   $1,208,494 
  

 

 

   

 

 

 

Liabilities and Participants’ Fund Balance

    

Due to Saddlebrook Resorts, Inc.

  $98,469   $127,354 

Participants’ fund balance

   987,345    1,081,140 
  

 

 

   

 

 

 
  $1,085,814   $1,208,494 
  

 

 

   

 

 

 

 

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Table of Contents

SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three months ended
September 30,
  Nine months ended
September 30,
 
   2020  2019  2020  2019 

Rental pool revenues

  $319,049  $614,217  $2,524,646  $5,885,397 
  

 

 

  

 

 

  

 

 

  

 

 

 

Deductions:

     

Marketing fee

   23,929   46,066   189,348   441,405 

Management fee

   39,881   76,777   315,580   735,674 

Travel agent commissions

  ��15,295   90,840   180,524   474,728 

Credit card expense

   3,933   20,839   75,135   153,926 
  

 

 

  

 

 

  

 

 

  

 

 

 
   83,038   234,522   760,587   1,805,733 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net rental income

   236,011   379,695   1,764,059   4,079,664 

Less operator share of net rental income

   (106,205  (170,863  (793,826  (1,835,849

Other revenues (expenses):

     

Complimentary room revenues

   4,307   4,083   11,162   25,957 

Minor repairs and replacements

   (10,998  (11,464  (86,407  (59,387
  

 

 

  

 

 

  

 

 

  

 

 

 

Amount available for distribution

  $123,115  $201,451  $894,988  $2,210,385 
  

 

 

  

 

 

  

 

 

  

 

 

 

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

 

   Nine months ended
September 30,
 
   2020  2019 

Balance at beginning of period

  $—    $—   

Additions:

   

Amount available for distribution

   894,988   2,210,385 

Reductions:

   

Amount withheld for maintenance escrow fund

   {101,162  (374,535

Amount accrued or paid to participants

   (793,826  (1,835,850
  

 

 

  

 

 

 

Balance at end of period

  $—    $—   
  

 

 

  

 

 

 

MAINTENANCE ESCROW FUND

 

   Nine months ended
September 30,
 
   2020  2019 

Balance at beginning of period

  $1,081,140   2,135,913 

Additions:

   

Amount withheld from distribution fund

   101,162   374,535 

Unit owner payments

   157,133   292,213 

Interest earned

   2,783   13,789 

Reductions:

   

Escrow account refunds

   (99,968  (306,483

Maintenance charges

   (114,829  (172,493

Unit renovations

   (75,284  (957,807

Linen replacement

   (64,792  (96,789
  

 

 

  

 

 

 

Balance at end of period

  $987,345  $1,282,878 
  

 

 

  

 

 

 

The accompanying notes are an integral part of these financial statements

 

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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.

 

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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 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

Three months ended September 30, 2020 compared to three months ended September 30, 2019

The Company’s total revenues decreased approximately $1,781,000 or about 50%, for the three months ended September 30, 2020 compared to the same period in the prior year. Total revenues for the Rental Pool decreased about $295,000, or about 53%.

Total costs and expenses decreased approximately $2,177,000 or about 38%, for the Company, and approximately $151,000 or about 36%, for the Rental Pool Operation.

The Company experienced a net loss for the quarter in the amount of approximately $1,930,000 compared to the net loss of the prior comparable quarter of approximately $2,267,000. Amounts available for distribution for the Rental Pool Operation decreased approximately $78,000 from the comparable period last year.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

The Company’s total revenues decreased approximately $11,087,000 or about 50%, for the nine months ended September 30, 2020 compared to the same period in the prior year. Total revenues for the Rental Pool decreased about $3,360,000, or about 43%.

Total costs and expenses decreased approximately $8,755,000 or about 62%, for the Company, and approximately $1,045,000 or about 57%, for the Rental Pool Operation.

The Company experienced a net loss for the period of approximately $3,480,000 compared to the net loss of the prior period of approximately $1,315,000. Amounts available for distribution for the Rental Pool Operations decreased approximately $1,315,000 over the same period in the prior year.                

Impact of Current Economic Conditions

The Company experienced a significant decrease in revenue for the period ending September 30, 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 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.

Toward the end of December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) emerged globally. The COVID-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 by COVID-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 September 30, 2020 was $1,930,000. Excluding non-cash expenses such as Depreciation and Amortization of $1,384,000 the company’s actual operating cash deficit was $546,000.

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.

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 September 30, 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 (3.14%) at September 30, 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. (3.14%) at September 30, 2020). The line of credit will terminate on December 6, 2020. As of September 30, 2020, the Company had $1,500,000 in outstanding borrowings on this agreement. Effective April 24, 2020, the lender agreed to defer payment of interest (the ”Payment Deferral”) through and including June 24, 2020 with regularly scheduled payments interest resuming July 24, 2020.

In April 2020, the Company entered into a term note agreement with the same third party lender for approximately $2,949,000 funded under the Paycheck 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. At September 30, 2020, $2,948,555 was outstanding under the note.

On September 25, 2020, the Company entered into an EIDL note payable for $150,000 funded by the U.S. Small Business Administration. The note bears interest at 3.75% per annum, matures in September 2050, and requires monthly interest and principal payments of $731 beginning in September 2021 and through maturity. At September 30, 2020, $150,000 was outstanding under the note.

The Company experienced a significant decrease in revenue for the three months ended September 30, 2020 compared to the previous year. Towards the end of December 2019, an outbreak of a novel strain of coronavirus emerged globally. The COVID-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 by COVID-19 is expected to affect the Company’s results of operations and financial position.

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 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. 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.

 

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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.

Item 4. Controls and Procedures

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures as of September 30, 2020, pursuant to Exchange Act Rule 15d-15. Based upon that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 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 September 30, 2020 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:

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: November 16, 2020  

/s/ Donald L. Allen

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

 

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