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SADDP Saddlebrook Resorts

Filed: 28 Apr 21, 3:24pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-K

 

 

(Mark one)

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

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

(1933 act file no. 2-65481)

 

 

SADDLEBROOK RESORTS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Florida 59-1917822
(State of incorporation) 

(IRS employer

identification no.)

5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499

(Address of principal executive offices)

813-973-1111

(Registrant’s telephone number, including area code)

 

 

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

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

 

 

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ☒    NO  ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report  ☒

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

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

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

 

 

 


PART I

 

Item 1.

Business

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

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

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

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

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

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

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

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

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

At December 31, 2020, there were approximately 170 persons employed by the Company. The Company’s management relationship with its employees is excellent and there are no collective bargaining agreements.


Item 1A.

Risk Factors

Not applicable.

 

Item 1B.

Unresolved Staff Comments

None.

 

Item 2.

Properties

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

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

A total of 556 condominium units are at the Resort comprised of one-, two- and three-bedroom suites. Of these condominium units, 408 are designed for hotel occupancy and located in an area called the Walking Village. The remaining 148 are slightly larger, designed for longer-termed rental, and are located in an area called the Lakeside Village. At December 31, 2020, there were 508 hotel accommodations participating in the Rental Pool. The three-bedroom condominium units become hotel accommodations as a two-bedroom suite with a separate adjoining hotel room. Some two-bedroom condominium units become hotel accommodations as a one-bedroom suite with a separate adjoining hotel room.

 

Item 3.

Legal Proceedings

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

 

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

 

Item 5.

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

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

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

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

 

Item 6.

Selected Financial Data

Not applicable.


Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

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

Recent Accounting and Reporting Pronouncements

In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-06, which amends and simplifies existing guidance in an effort to reduce the complexity of accounting for convertible instruments and to provide financial statement users with more meaningful information. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods therein, with early adoption permitted for fiscal years beginning after December 15, 2020. This update may be applied retrospectively or on a modified retrospective basis with the cumulative effect recognized as an adjustment to the opening balance of retained earnings on the date of adoption. Additionally, this update provides for a one-time irrevocable election by entities to apply the fair value option in accordance with ASC Topic 825-10,Financial Instruments - Overall,” for any liability-classified convertible securities, with the difference between the carrying amount and the fair value recorded as a cumulative-effect adjustment to opening retained earnings as of the beginning of the period of adoption. We do not anticipate any impact upon adoption.

Critical Accounting Policies and Estimates

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


Asset Impairments - The Company’s management periodically evaluates whether there has been a permanent impairment of long-lived assets. The Company’s management believes that the accounting estimates related to asset impairments are critical estimates for the following reasons: (1) the ongoing changes in management’s expectations regarding future utilization of assets; and (2) the impact of an impairment on reported assets and earnings could be material. During the years ended December 31, 2020 and 2019, the Company’s management evaluated long-lived assets for impairment and concluded that no impairment charge was necessary during the years then ended.

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

Revenue Recognition - 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.

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

Loss Contingencies – The Company estimates loss contingencies in accordance with FASB ASC 450-20 Loss Contingencies, which states that a loss contingency shall be accrued by a charge to income if both of the following conditions are met: (a) information available before the financial statements are issued or are available to be issued indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can be reasonably estimated. We do not believe that the ultimate resolution of our litigation matters will have an adverse effect on the Company’s financial position and results of operations. As such, there have been no adjustments for loss contingencies to the accompanying financial statements as of and for the year ended December 31, 2020.

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

Impact of Current Economic Conditions

The Company experienced a significant decrease in revenue for the year ending December 31, 2020 compared to the previous year. The Company is optimistic the trend will improve during 2021; however, actual results may differ from expectations. The decrease in expenses for the year ending December 31, 2020 as compared to the prior year is a result of decreased occupancy and reductions in wages, benefits, and operating expenses.


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 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 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.

Going Concern

Net loss for the 12 month period ended December 31, 2020 was $4,536,477. Excluding non-cash expenses such as depreciation and amortization of $1,782,603 the Company’s actual operation cash loss was $2,752,874.

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.

These financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. The continuation of the Company as a going concern is dependent upon financial support from the Company’s current stockholder and the Company’s ability to generate sufficient cash flows from operations. As there can be no assurance that the Company will be able to achieve positive cash flows (become profitable), there is substantial doubt about the Company’s ability to continue as a going concern.

These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.


Results of Operations

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

 

   Year ended December 31, 
   2020  2019 

Rental Pool Revenues

   23  26

Food and beverage

   28   36 

Resort facilities and other

   49   35 
  

 

 

  

 

 

 
   100  100
  

 

 

  

 

 

 

2020 Compared to 2019

The Company’s total revenue decreased $12,802,000 or approximately 49%, from the prior year. Rental Pool revenue decreased $5,711,000 or approx. 60%. Food and Beverage revenue Decreased $5,711,000 or approx. 60%.

The Company’s costs and expenses decreased $11,534,000, or approximately 39%. Costs and expenses of the Rental Pool Operation decreased $1,153,000 or approximately 56%.

The Company’s net loss was approximately $4,508,000, compared with a net loss of approximately $3,443,000 in the prior year. Amounts available for distribution to rental pool participants decreased by approximately $1,438,000.

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

Off-Balance Sheet Arrangements

The Company is not party to any off-balance sheet arrangement.

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

 

Item 8.

Financial Statements and Supplementary Data

The financial statements and notes thereto, including the Reports of Independent Registered Certified Public Accountants, for Saddlebrook Resorts, Inc. and for Saddlebrook Rental Pool Operation are set forth beginning on page 17 of this Report.

 

Item 9.

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

None.


Item 9A.

Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be reported in the Company’s SEC filings is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2020, under the direction of our chief executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures and concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

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

The Company’s management has assessed the effectiveness of internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Due to a lack of accounting personnel, the Company’s inability to segregate various accounting functions, lack of a control function over original documentation of agreements, and a lack of a documented control environment with respect to our operating entities, management has concluded that there was a material weakness in our internal control environment based on these matters and has concluded that as of December 31, 2020, our internal control over financial reporting was not effective.

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

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

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B.

Other Information

None


PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

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

 

Name

  

Position and Background

Thomas L. Dempsey
Age 94

  Chairman of the Board and Chief Executive Officer of the Company. Chairman of the Board of Saddlebrook Holdings, Inc.

Maureen Dempsey
Age 62

  Director, President and Assistant Secretary of the Company. Director and President of Saddlebrook Holdings, Inc. Daughter of Thomas Dempsey.

Diane L. Riehle
Age 60

  Director, Vice President and Assistant Secretary of the Company. Director and Vice Chairman of the Board of Saddlebrook Holdings, Inc. Daughter of Thomas Dempsey.

Donald L. Allen
Age 80

  Vice President and Treasurer of the Company.

Code of Ethics

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


Audit Committee Financial Expert

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

 

Item 11.

Executive Compensation

The following table sets forth the remuneration paid to the Company’s named executive officers by the Company and its parent, Saddlebrook Holdings, Inc. consolidated, during the two years ended December 31, 2020 and 2019.

Summary Compensation Table

 

Name and Principal Position

  Fiscal
year
  Salary   Bonus   Other annual
compensation (1)
   Total 

Thomas L. Dempsey

  2020  $48,846   $—     $10,720   $59,566 

Chairman of the Board and Chief Executive Officer

  2019   50,000    —      25,492    75,492 

Maureen Dempsey

  2020   116,346    —      15,025    131,371 

President and Assistant Secretary

  2019   125,000    —      16,756    142,406 

Pat Ciaccio

  2020   128,845    —      142    128,987 

General Manager

  2019   125,000    650    483    126,133 

 

(1)

Other Annual Compensation for 2020 consists of the following;

Tax Preparation Fees

Health Insurance premiums paid on behalf of greater than 2% shareholders Group Term Life Insurance (“GTL”)


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

 

Executive

  Tax Prep.   Health
Premium
   GTL 

Thomas L. Dempsey

  $21,252   $3,024   $1,195 

Maureen Dempsey

   4,000    3,024    —   

Pat Ciaccio

   —      —      —   

Director Compensation and Independence

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

Compensation Committee

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

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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

 

Item 13.

Certain Relationships and Related Transactions

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

Saddlebrook International Tennis, Inc. (“SIT”), which is solely owned by SHI, owns a 70% interest in Saddlebrook International Sports, LLC (“SIS”) which operates a tennis training facility and preparatory school at the Resort. SIS owns 10 condominium units at the Resort, of which 2 participate in the Rental Pool Operation. The Company receives revenue for services provided to SIS’s guests. In addition, the Company is reimbursed for actual expenses and other costs incurred on behalf of SIT and SIS.

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

Dempsey and Daughters, Inc. hold certain tracts of real estate and own 33 individual condominium units at the Resort, 22 of which participate in the Rental Pool Operation. This company is solely owned by SHI. The Company is reimbursed for actual expenses and other costs incurred on behalf of this company.

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

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


Item 14.

Principal Accounting Fees and Services

Cherry Bekaert LLP served as the Company’s independent registered certified pubic accounting firm for the fiscal years ended December 31, 2020 and December 31, 2019.

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

Audit Fees: $101,100 and $98,030 for the fiscal years ended December 31, 2020 and 2019, respectively, for professional services rendered for the audit of the Company’s annual financial statements, review of financial statements included in its Forms 10-Q and services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements for those fiscal years.

Audit-Related Fees: None

Tax Fees: None

All Other Fees: None

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


PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

 

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

 

   3.1  Articles of Incorporation of Saddlebrook Resorts, Inc., a Florida corporation (P).

     

   3.2  Corporate By-laws of Saddlebrook Resorts, Inc. (P).
   4.  Declaration of Condominium, together with the following:
   (1) Articles of Incorporation of the Saddlebrook Association of Condominium Owners, Inc. a Florida non-profit corporation; (2) By-laws of the Saddlebrook Association of Condominium Owners, Inc., and (3) Rules and Regulations of the Saddlebrook Association of Condominium Owners, Inc. (P).
 10.1  Management Contract between Saddlebrook Resorts, Inc. and the Saddlebrook Association of Condominium Owners, Inc. (P).
 10.2  Saddlebrook Rental Pool and Agency Appointment Agreement. (incorporated by reference to Registrant’s Form 10-K for the annual period ended December 31, 2003)
 10.3  Saddlebrook Rental Management Agency Employment (P).
 10.4  Form of Purchase Agreement (P).
 10.5  Form of Deed (P).
 10.6  Form of Bill of Sale (P).
 10.7  Loan Agreement, dated June  6, 2014, between Saddlebrook Resorts, Inc. and USAmeriBank (incorporated by reference to the Registrant’s Form 8-K dated June 6, 2014).
 10.8  Renewal Promissory Note, dated December  6, 2015, between Saddlebrook Resorts, Inc. and USAmeriBank. (incorporated by reference to the Registrant’s Form 10-K for the fiscal year ending December 31, 2015).


 10.9  Revolving Line of Credit Agreement dated April 24, 2017 (incorporated by reference to the Registrant’s Form 10-Q for the period ending March 31, 2017).
 14.1  Code of Ethics (incorporated by reference to the Registrant’s Form 10-K for the fiscal year ending December 31, 2020)
 31.1  Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 31.2  Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 32.1  Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 32.2  Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 101.  INS XBRL Instance Document
 101.  SCH XBRL Taxonomy Extension Schema Document
 101.  CAL XBRL Taxonomy Extension Calculation Linkbase Document
 101.  DEF XBRL Taxonomy Extension Definition Linkbase Document
 101.  LAB XBRL Taxonomy Extension Label Linkbase Document
 101.  PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

*

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

 

Item 16.

Form 10-K Summary.

We have elected not to include a summary pursuant to this Item 16.

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

 

  SADDLEBROOK RESORTS, INC.
  (Registrant)
Date: April 28, 2021  

/s/ Donald L. Allen

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


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on April 28, 2021.

 

/s/ Thomas L. Dempsey

   

/s/ Maureen Dempsey

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

/s/ Diane L. Riehle

       

/s/ Donald L. Allen

Diane L. Riehle   Donald L. Allen
Director, Vice President   Vice President and Treasurer
and Assistant Secretary   (Principal Financial and
   Accounting Officer)



Report of Independent Registered Certified Public Accounting Firm

To the Shareholder and the Board of Directors

Saddlebrook Resorts, Inc.

Wesley Chapel, Florida

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Saddlebrook Resorts, Inc. (the “Company”) as of December 31, 2020 and 2019, and the related statements of operations, comprehensive loss, changes in shareholder’s equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Property, Buildings, and Equipment Impairment Assessment

Description of Matter

The Company’s net property, buildings, and equipment was approximately $13,107,000 at December 31, 2020. The Company’s impairment assessment of property, buildings and equipment involved assessing the recoverability of the carrying value of assets. Management’s assessment included significant judgments and assumptions relating to the recoverability of the carrying value of these assets.

Management made significant judgments when assessing the recoverability of property, buildings, and equipment. As a result, a high degree of auditor judgment and effort was required in performing audit procedures to evaluate the reasonableness of management’s significant judgments and assumptions identified above. These judgements are sensitive to future events or economic conditions.

How We Addressed the Matter in Our Audit

Our audit procedures included the following:

 

  

Obtained an understanding of the internal controls and processes in place over the Company’s impairment assessment.

 

  

Evaluated the significant assumptions and inputs used in management’s assessment.

 

  

Reviewed corroborating documentation to support management’s assumptions and inputs.

 

/s/ Cherry Bekaert LLP
We have served as the Company’s auditor since 2007.

Tampa, Florida

April 28, 2021

 

17


Saddlebrook Resorts, Inc.

Balance Sheets

December 31, 2020 and 2019

 

 

   2020   2019 

Assets

    

Current assets

    

Cash and cash equivalents

  $235,245   $325,696 

Escrowed cash

   977,391    1,124,074 

Trade accounts receivable, net

   483,561    1,129,572 

Due from related parties

   2,539,401    465,623 

Resort inventory and supplies

   847,527    1,011,923 

Prepaid expenses and other assets

   542,233    350,539 
  

 

 

   

 

 

 

Total current assets

   5,625,358    4,407,427 

Property, buildings and equipment, net

   13,106,914    14,800,528 

Operating lease right-of-use assets

   73,573    147,223 
  

 

 

   

 

 

 

Total assets

  $18,805,845   $19,355,178 
  

 

 

   

 

 

 

Liabilities and Shareholder’s Deficit

    

Current liabilities

    

Current portion of long-term debt

  $6,664,219   $6,953,178 

Current portion of Paycheck Protection Program loan

   1,474,278    —   

Current portion of finance lease liabilities

   102,649    96,206 

Current portion of operating lease liabilities

   73,573    73,650 

Escrowed deposits

   977,391    1,124,074 

Accounts payable

   477,024    492,452 

Accrued rental distribution

   221,528    344,367 

Accrued expenses and other liabilities

   1,007,001    1,089,527 

Current portion of deferred income

   696,544    786,125 

Guest deposits

   2,002,139    1,393,571 

Due to related parties

   1,186,165    —   
  

 

 

   

 

 

 

Total current liabilities

   14,882,511    12,353,150 

Long-term portion of economic injury disaster loan

   150,000    —   

Long-term portion of Paycheck Protection Program loan

   1,474,278    —   

Long-term finance lease liabilities

   149,714    258,258 

Long-term operating lease liabilities

   —      73,573 

Deferred income

   643,307    627,685 
  

 

 

   

 

 

 

Total liabilities

   17,299,810    13,312,666 
  

 

 

   

 

 

 

Commitments and contingencies (Note 9 and 12)

    

Shareholder’s equity

    

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

   100,000    100,000 

Additional paid-in capital

   1,013,127    1,013,127 

Retained earnings

   392,908    4,929,385 
  

 

 

   

 

 

 

Total shareholder’s equity

   1,506,035    6,042,512 
  

 

 

   

 

 

 

Total liabilities and shareholder’s equity

  $18,805,845   $19,355,178 
  

 

 

   

 

 

 

See notes to financial statements.

 

18


Saddlebrook Resorts, Inc.

Statements of Operations

Years ended December 31, 2020 and 2019

 

 

   2020  2019 

Resort revenues

  $13,507,608  $26,309,406 
  

 

 

  

 

 

 

Costs and expenses:

   

Operating costs of resort

   12,713,508   22,376,484 

Sales and marketing

   669,995   1,805,613 

General and administrative

   2,686,077   3,114,476 

Depreciation

   1,749,209   2,050,007 
  

 

 

  

 

 

 

Total costs and expenses

   17,818,789   29,346,580 
  

 

 

  

 

 

 

Net operating loss before other expenses (income)

   (4,311,181  (3,037,174
  

 

 

  

 

 

 

Other expenses (income):

   

Interest expense

   258,325   424,505 

Other income

   (33,029  (18,643
  

 

 

  

 

 

 

Total other expense

   225,296   405,862 
  

 

 

  

 

 

 

Net loss

  $(4,536,477 $(3,443,036
  

 

 

  

 

 

 

See notes to financial statements.

 

19


Saddlebrook Resorts, Inc.

Statements of Changes in Shareholder’s (Deficit) Equity

Years ended December 31, 2020 and 2019

 

 

   Common
Stock
   Additional
Paid-In
Capital
   (Accumulated
Deficit)
Retained
Earnings
  Total
Shareholder’s
(Deficit) Equity
 

Balances at January 1, 2019

  $100,000   $1,013,127   $(5,391,272 $(4,278,145

Net loss

   —      —      (3,443,036  (3,443,036

Elimination of related party receivables and payables, net

       13,763,693   13,763,693 
  

 

 

   

 

 

   

 

 

  

 

 

 

Balances at December 31, 2019

   100,000    1,013,127    4,929,385   6,042,512 

Net loss

   —      —      (4,536,477  (4,536,477
  

 

 

   

 

 

   

 

 

  

 

 

 

Balances at December 31, 2020

  $100,000   $1,013,127   $392,908  $1,506,035 
  

 

 

   

 

 

   

 

 

  

 

 

 

See notes to financial statements.

 

20


Saddlebrook Resorts, Inc.

Statements of Cash Flows

Years ended December 31, 2020 and 2019

 

 

   2020  2019 

Cash flows from operating activities

   

Net loss

  $(4,536,477 $(3,443,036

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

   

Depreciation

   1,749,209   2,050,007 

Amortization of debt financing costs

   33,395   17,788 

Amortization of lease right-of-use assets

   73,650   69,872 

Interest paid on finance leases

   18,643   24,681 

Allowance for doubtful accounts

   31,311   12,118 

On sale of assets

   12,938   —   

Change in operating assets and liabilities

   

(Increase) decrease in

   

Trade accounts receivable

   614,700   177,466 

Resort inventory and supplies

   164,396   41,722 

Prepaid expenses and other assets

   (191,694  806,483 

Increase (decrease) in

   

Escrowed deposits

   (146,683  (756,157

Accounts payable

   (15,428  (180,683

Accrued rental distribution

   (122,839  (158,699

Accrued expenses and other liabilities

   (82,526  (68,026

Deferred income

   (73,959  135,216 

Guest deposits

   608,568   (1,172,579

Operating lease liabilities

  

 

 

 

(73,650

 

  (69,872
  

 

 

  

 

 

 

Net cash flows from operating activities

  

 

 

 

(1,936,446

 

  (2,513,699
  

 

 

  

 

 

 

Cash flows from investing activities

   

Proceeds from the sale of assets

   6,000   —   

Capital expenditures

  

 

 

 

(74,533

 

  (284,519
  

 

 

  

 

 

 

Net cash flows from investing activities

  

 

 

 

(68,533

 

  (284,519
  

 

 

  

 

 

 
   

 

 

 

Cash flows from financing activities

   

Principal payments on long-term debt

   (322,354  (352,564

(Payments) proceeds from line of credit

   —     1,500,000 

Proceeds from Economic Injury Disaster Loan

   150,000   —   

Proceeds from Payroll Protection Program Loan

   2,948,556   —   

Payments on finance lease obligations

   (120,744  (90,775

Net (repayments to) advances from related parties

  

 

 

 

(887,613

 

  565,856 
  

 

 

  

 

 

 

Net cash flows from financing activities

  

 

 

 

1,767,845

 

 

  1,622,517 
  

 

 

  

 

 

 

Net change in cash, cash equivalents and escrowed cash

   (237,134  (1,175,701

Cash, cash equivalents and escrowed cash, beginning of year

  

 

 

 

1,449,770

 

 

  2,625,471 
  

 

 

  

 

 

 

Cash, cash equivalents and escrowed cash, end of year

  

 

$

 

1,212,636

 

 

 $1,449,770 
  

 

 

  

 

 

 

Supplemental disclosure

   

Cash paid for interest

  $92,449  $406,718 
  

 

 

  

 

 

 

See notes to financial statements.

 

21


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

1.

Organization and Business

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

 

2.

Significant Accounting Policies

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, particularly given the significant social and economic disruptions and uncertainties associated with the ongoing coronavirus pandemic (“COVID-19”) and the COVID-19 control responses.

Cash and Cash Equivalents and Escrowed Cash

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

The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the accompanying balance sheets with the total of these amounts shown in the accompanying statements of cash flows:

 

   2020   2019 

Cash an cash equivilents

   235,245    325,696 

Escrowed cash

   977,391    1,124,074 
  

 

 

   

 

 

 

Total cash, cash equivalents, and escrowed cash shown in the statement of cash flows

   1,212,636    1,449,770 
  

 

 

   

 

 

 

Amounts included in restricted cash represent escrowed cash. See Note 5 – Escrowed Cash.

The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. As of December 31, 2020, the Company had no amounts on deposit which exceeded approximately $1,548,000 of cash and cash equivalents which exceeded these insured limits.

 

22


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

Accounts Receivable

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

Resort Inventory and Supplies

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

Property, Buildings and Equipment

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

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

Asset Impairments

The Company’s management periodically evaluates whether there has been a permanent impairment of long-lived assets (property, buildings and equipment), in accordance with generally accepted accounting principles. During the years ended December 31, 2020 and 2019, the Company’s management evaluated long-lived assets for impairment and concluded that no impairment charge was necessary during the years then ended.

Debt Issuance Costs

Finance costs represent costs incurred in connection with the refinancing of the Company’s long-term debt. Amortization expense for finance costs, included in interest expense on the accompanying statements of operations, amounted to approximately $33,400 and $17,800 for the years ended December 31, 2020 and 2019, respectively.

 

23


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

Deferred Income

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

Resort Revenues

Resort revenues are recognized as services are performed or products are delivered with the exception of initiation fee revenue, which is recognized over the average life of the memberships. Resort revenues also include rental revenues for condominium units owned by third parties participating in the Rental Pool. If these rental units were owned by the Company, normal costs associated with ownership such as depreciation, real estate taxes, unit maintenance and other costs would have been incurred. Instead, operating costs of the resort for the years ended December 31, 2020 and 2019 include rental pool distributions to participants and the maintenance escrow fund approximating $1,100,000 and $2,600,000, respectively. See Note 3—Revenue for the required disclosures per the guidance in ASC 606.

Advertising

The Company charges costs of advertising to sales and marketing as incurred. The Company incurred advertising costs of approximately $158,000 and $248,000 during the years ended December 31, 2020 and 2019, respectively.

Income Taxes

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

Management has determined that the Company had no uncertain income tax positions that could have a significant effect on the financial statements at December 31, 2020 and 2019. The parent company’s federal income tax returns for 2016, 2017 and 2018 are subject to examination by the Internal Revenue Service, generally for a period of three years after the federal income tax returns were filed.

 

24


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-06, which amends and simplifies existing guidance in an effort to reduce the complexity of accounting for convertible instruments and to provide financial statement users with more meaningful information. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods therein, with early adoption permitted for fiscal years beginning after December 15, 2020. This update may be applied retrospectively or on a modified retrospective basis with the cumulative effect recognized as an adjustment to the opening balance of retained earnings on the date of adoption. Additionally, this update provides for a one-time irrevocable election by entities to apply the fair value option in accordance with ASC Topic 825-10,Financial Instruments - Overall,” for any liability-classified convertible securities, with the difference between the carrying amount and the fair value recorded as a cumulative-effect adjustment to opening retained earnings as of the beginning of the period of adoption. We do not anticipate any impact upon adoption.

 

25


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

3.

Revenue

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 $3,342,000 and $2,807,000 as of December 31, 2020 and 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 $977,000 and $1,124,000 as of December 31, 2020 and 2019, respectively.

Our net trade accounts receivables were $484,000 and $1,130,000 as of December 31, 2020 and 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.

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.

 

26


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

Practical Expedients and Exemptions

There are several practical expedients and exemptions allowed under ASC 606 that impact timing of revenue recognition and our disclosures. Below is the practical expedient we applied in the adoption and application of ASC 606:

 

  

The Company treats similar contracts as part of a portfolio of contracts, primarily initiation fee contracts. The contracts for have the same provision terms, and management has the expectation the result will not be materially different from the consideration of each individual contract.

 

4.

Going Concern

The Company experienced a significant decrease in revenue for the year ending December 31, 2020 compared to the previous year. The Company is optimistic the trend will improve during 2021; however, actual results may differ from expectations. The decrease in expenses for the year ending December 31, 2020 as compared to the prior year is a result of decreased occupancy and reductions in wages, benefits, and operating expenses.

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.

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.

These financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. The continuation of the Company as a going concern is dependent upon financial support from the Company’s current stockholder and the Company’s ability to generate sufficient cash flows from operations. As there can be no assurance that the Company will be able to achieve positive cash flows (become profitable), there is substantial doubt about the Company’s ability to continue as a going concern.

These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

 

27


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

5.

Escrowed Cash

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

 

   2020   2019 

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

  $963,970   $1,108,892 

Security deposits held on long-term rentals

   13,421    15,182 
  

 

 

   

 

 

 
  $977,391   $1,124,074 
  

 

 

   

 

 

 

 

6.

Operating Leases

The Company leases certain equipment under non-cancellable operating leases, which 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 December 31, 2020 is as follows:

 

Lease costs (included in operating costs)

  $73,650 

Incremental borrowing rate

   5.32

Operating lease expense amounted to approximately $73,700 and $69,900 for each of the years ended December 31, 2020 and 2019, respectively.

There are no non-cancelable operating leases with initial lease terms in excess of one year as of December 31, 2020.

 

28


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

7.

Property, Buildings and Equipment, Net

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

 

   Estimated         
   Useful         
   Lives   2020   2019 

Land and land improvements

    $8,830,867   $8,830,867 

Buildings and recreational facilities

   10–40    32,105,124    32,093,233 

Machinery and equipment

   5–15    21,805,495    21,863,715 

Construction in progress

     96,235    94,379 
    

 

 

   

 

 

 
     62,837,721    62,882,194 
    

 

 

   

 

 

 

Accumulated depreciation

     (49,730,807   (48,081,666
    

 

 

   

 

 

 
    $13,106,914   $14,800,528 
    

 

 

   

 

 

 

Substantially all property, buildings and equipment are mortgaged, pledged or otherwise subject to lien under a loan agreement (Note 9).

Depreciation expense amounted to approximately $1,749,000 and $2,050,000 for the years ended December 31, 2020 and 2019, respectively.

The Company leases equipment under agreements which are classified as finance lease obligations in the accompanying balance sheets. The equipment and obligations related to the leases are recorded at the present value of the minimum lease payments. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Total cost of equipment acquired through finance lease obligations was approximately $651,000 at both December 31, 2019 and 2020. Depreciation expense totaled $167,500 and $130,000 on the leased equipment at December 31, 2020 and 2019.

 

29


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

8.

Accrued Expenses and Other Liabilities

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

 

   2020   2019 

Accrued payroll and related expenses

  $439,887   $639,473 

Accrued insurance

   60,373    43,476 

Accrued property taxes

   262,180    295,965 

Other accrued expenses and liabilities

   244,561    110,613 
  

 

 

   

 

 

 
  $1,007,001   $1,089,527 
  

 

 

   

 

 

 

 

9.

Long-term Debt and Finance Lease Obligations

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 term note required monthly principal payments of $29,380 plus interest of 3% over the one month LIBOR. In April 2020, the Company’s lender deferred interest and principal payments from April 6, 2020 through June 6, 2020 (the “deferral period”) and monthly payments resumed in July 6, 2020. There was no change to interest rate or maturity date as part of the deferral. In December 2020, this term loan was modified and consolidated with the existing revolving line of credit as described below.

On April 24, 2017, the Company entered into 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 was cross collateralized with the existing term note under the same terms and conditions. Amounts borrowed under the revolving line of credit bears interest at 3% over the one month LIBOR index. In April 2020, the Company’s lender deferred interest and principal payments from April 24, 2020 through June 24, 2020 (the “deferral period”) and monthly payments resumed on July 24, 2020. There was no change to interest rate or maturity date as part of the deferral. In December 2020, this revolving line of credit was modified and consolidated with the existing term loan as described below.

On December 6, 2020, the Company entered into a Renewal and Consolidation Promissory Note (the “renewal note”) with the same third party lender, which consolidated the existing balances on the term note and revolving line of credit. The renewal note requires monthly principal payments of $28,040 plus interest of 3% over the Prime Rate with a minimum interest rate of no lower than 6.25% (6.25% at December 31, 2020). The renewal term note is collateralized by all current and subsequently acquired real and personal property. The renewal 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, 2020; however, the Company received a waiver for this default from its lender. Effective on March 6, 2021, the Company entered into a loan modification and forbearance agreement with the lender which extended the maturity date to June 6, 2021, at which any unpaid principal and interest will be due. The loan modification requires monthly principal payments of $28,040 plus interest of 4% over the Prime Rate with a minimum interest rate of no lower than 7.25%. At December 2020, $6,729,701 was outstanding under the renewal note.

 

30


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

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 (“PPP”) as part of the Coronavirus Aid, Relief and Economic Security Act (“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. See Note 12 for additional information.

On September 25, 2020, the Company entered into an Economic Injury Disaster Loan (“EIDL”) 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 December 31, 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 December 31, 2020, the amount due on this finance lease liability was $157,242.

 

31


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

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 December 31, 2020, the amount due on this finance lease liability was $76,939.

Future minimum payments under the finance lease obligations as of December 31, 2020 are as follows:

 

Years ending December 31,

  

2021

  $114,852 

2022

   114,852 

2023

   22,216 

Less interest

   (61,066

Less current portion

   (90,167
  

 

 

 
  $100,687 
  

 

 

 

 

10.

Resort Revenues and Operating Costs of Resort

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

 

   Years Ended December 31, 
   2020   2019 

Resort Revenues

    

Room revenue subject to rental pool agreement

  $3,499,368   $6,815,885 

Food and beverage

   4,913,036    9,569,352 

Resort facilities and other

   5,095,204    9,924,169 
  

 

 

   

 

 

 
  $13,507,608   $26,309,406 
  

 

 

   

 

 

 

Operating Costs of Resort

    

Distribution to rental pool participants

  $1,451,516   $2,554,750 

Food and beverage

   3,153,358    5,550,086 

Resort facilities and other

   8,108,634    14,271,648 
  

 

 

   

 

 

 
  $12,713,508   $22,376,484 
  

 

 

   

 

 

 

 

32


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

11.

Related Party Transactions

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

 

   2020   2019 

Saddlebrook Resort Condominium Association, Inc.

  $226,850   $41,723 

Saddlebrook International Sports, LLC

   1,482,328    405,626 

Dempsey Resort Management, Inc.

   4,608    4,608 

Saddlebrook Properties LLC

   139    —   

Saddlebrook Realty, Inc.

   140,794    —   

Other

   526,992    13,666 
  

 

 

   

 

 

 
  $2,381,711   $465,623 
  

 

 

   

 

 

 

Saddlebrook International Tennis, Inc. (“SIT”), which is solely owned by SHI, owns a 70% interest in Saddlebrook International Sports, LLC (“SIS”) which operates a tennis training facility and preparatory school at the resort. SIS owns 10 condominium units at the Resort, of which 2 participate in the Rental Pool Operation. The Company received revenue from SIS for use of its facilities and services provided to SIS and its guests, which amounted to approximately $1,885,000 and $1,816,000 for the years ended December 31, 2020 and 2019 respectively. The Company had amounts due from SIS which amounted to $569,224 and $402,456 for the years ended December 31, 2020 and 2019 respectively.

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

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

 

33


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

Dempsey and Daughters, Inc. hold certain tracts of real estate and own 33 individual condominium units at the Resort, 22 of which participate in the Rental Pool Operation. This company is solely owned by SHI.

The Company performs certain accounting and property management activities on behalf of the Saddlebrook Resort Condominium Association (the “Association”) and is reimbursed for expenses paid on behalf of the Association. Expenses paid on behalf of and services provided to the Association amounted to approximately $1,438,571 and $1,654,000 for each of the years ended December 31, 2020 and 2019, respectively.

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

 

12.

Commitments, Contingencies, and Uncertainties/COVID-19 Pandemic

Legal – The Company is involved in litigation in the ordinary course of business. In the opinion of management, these matters are adequately covered by insurance or indemnification from other third parties and/or the effect, if any, of these claims is not material to the reported financial condition or results of operations of the Company as of December 31, 2020.

COVID-19 Pandemic and Paycheck Protection Program Note Payable – On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 11, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of COVID-19 include restrictions on travel, quarantines, or “stay-at-home” restrictions in certain areas and forced closures for certain types of public places and businesses. COVID-19 and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets globally, including the geographical area in which the Company operates.

While it is unknown how long these conditions will last and what the complete financial impact will be, the Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of the business/operations and are unable at this time to predict the continued impact that COVID-19 will have on their business, financial position, and operating results in future periods due to numerous uncertainties.

As discussed in Note 9, the Company received a PPP loan for an amount of approximately $2,949,000, which was established under the CARES Act and administered by the Small Business Administration (“SBA”). The application for the PPP loan requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operation of the Company. This certification further requires the Company to take into account their current business activity and ability to access other sources of liquidity sufficient to support the ongoing operations in a manner that is not significantly detrimental to the business. The receipt of the funds from the PPP loan and the forgiveness of the PPP loan is dependent on the Company having initially qualified for the PPP loan and qualifying for the forgiveness of such PPP loan based on funds being used for certain expenditures such as payroll costs and rent, as required by the terms of the PPP loan. If the SBA determines that the PPP loan was not properly obtained and/or expenditures supporting forgiveness were not appropriate, the Company would need to repay some or all of the PPP loan and record additional expense which could have a material adverse effect on the Company’s business, financial condition and results of operations in a future period.

 

34


Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors

Saddlebrook Resorts, Inc., as Operations under the

Saddlebrook Rental Pool and Agency Appointment Agreement

Wesley Chapel, Florida

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Saddlebrook Rental Pool Operation (the “Company”) (funds created for participants who have entered into a rental pool agreement as explained in Note 1) as of December 31, 2020 and 2019, and the related statements of operations, changes in shareholder’s equity, and cash flows for years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Saddlebrook Rental Pool Operation as of December 31, 2020 and 2019,, and the results of its operations and its cash flows for years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

 

/s/ Cherry Bekaert LLP
We have served as the Company’s auditor since 2007.

Tampa, Florida

April 28, 2021

 

35


Saddlebrook Rental Pool Operation

Balance Sheets

December 31, 2020 and 2019

 

 

   2020   2019 
Distribution Fund    

Assets

    

Receivable from Saddlebrook Resorts, Inc.

  $221,527   $344,366 
  

 

 

   

 

 

 

Liabilities and Participants’ Fund Balance

    

Due to participants for rental pool distribution

  $184,099   $299,020 

Due to maintenance escrow fund

   37,428    45,346 
  

 

 

   

 

 

 
  $221,527   $344,366 
  

 

 

   

 

 

 
Maintenance Escrow Fund    

Assets

    

Cash in bank

  $964,616   $1,108,892 

Receivables

    

Distribution fund

   37,428    45,346 

Prepaid expenses and other assets

   60,018    14,605 

Furniture inventory

   41,433    39,651 
  

 

 

   

 

 

 
  $1,103,495   $1,208,494 
  

 

 

   

 

 

 

Liabilities and Participants’ Fund Balance

    

Due to Saddlebrook Resorts, Inc.

  $106,689   $127,354 

Participants’ fund balance

   996,806    1,081,140 
  

 

 

   

 

 

 
  $1,103,495   $1,208,494 
  

 

 

   

 

 

 

See notes to financial statements.

 

36


Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

Statements of Operations for the years ended December 31, 2020 and 2019

 

   2020  2019 
Distribution Fund   

Rental pool revenues

  $3,092,215  $6,815,885 
  

 

 

  

 

 

 

Deductions

   

Marketing fee

   231,916   511,191 

Management fee

   386,526   851,986 

Travel agent commissions

   209,745   510,045 

Bad debt expense

   —     9,393 

Credit card expense

   90,861   189,073 
  

 

 

  

 

 

 
   919,048   2,071,688 
  

 

 

  

 

 

 

Net rental income

   2,173,167   4,744,197 

Operator share of net rental income

   (977,925  (2,134,889

Other revenues (expenses)

   

Complimentary room revenues

   14,667   31,396 

Minor repairs and replacements

   (93,394  (85,928
  

 

 

  

 

 

 

Amounts available for distribution to participants and maintenance escrow fund

  $1,116,515  $2,554,776 
  

 

 

  

 

 

 

 

37


Saddlebrook Rental Pool Operation

Statements of Changes in Participants’ Fund Balance

Years Ended December 31, 2020 and 2019

 

 

   2020  2019 
Distribution Fund   

Balances, beginning of year

  $—    $—   

Additions

   

Amounts available for distribution

   1,116,515   2,554,776 

Reductions

   

Amounts withheld for maintenance escrow fund

   (138,590  (419,887

Amounts accrued or paid to participants

   (977,925  (2,134,889
  

 

 

  

 

 

 

Balances, end of year

  $—    $—   
  

 

 

  

 

 

 
Maintenance Escrow Fund       

Balances, beginning of year

  $1,081,140  $2,135,913 

Additions

   

Amount withheld from distribution fund

   138,590   419,887 

Unit owner payments

   192,687   419,556 

Interest earned

   2,838   17,761 

Reductions

   

Unit renovations

   (72,284  (1,166,199

Refunds of excess amounts in escrow accounts

   (104,530  (337,853

Maintenance charges

   (158,262  (284,334

Linen expense

   (83,373  (123,591
  

 

 

  

 

 

 

Balances, end of year

  $996,806  $1,081,140 
  

 

 

  

 

 

 

See notes to financial statements.

 

38


Saddlebrook Rental Pool Operation

Notes to Financial Statements

December 31, 2020 and 2019

 

 

1.

Rental Pool Operations and Rental Pool Agreement

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

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

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

 

2.

Summary of Significant Accounting Policies

Basis of Accounting

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

Income Taxes

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

 

39