SADDLEBROOK RESORTS INC - Quarter Report: 2002 September (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark one)

COMMISSION FILE NUMBER: No 1934 act file number assigned
(1933 act file no. 2-65481)

SADDLEBROOK RESORTS, INC.

5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499

813-973-1111

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   x    NO   o

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Not Applicable*

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INDEX

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.
BALANCE SHEETS

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

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SADDLEBROOK RESORTS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)

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

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SADDLEBROOK RESORTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)

The accompanying Notes to Financial Statements 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

The accompanying balance sheet for September 30, 2002, and statements of operations and cash flows for the periods ended September 30, 2002 and 2001, are unaudited but reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.

The Registrant’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 the fiscal years.

These financial statements and related notes are presented for interim periods in accordance with the requirements of Form 10-Q and, consequently, do not include all disclosures normally provided in the Registrant’s Annual Report on Form 10-K. Accordingly, these financial statements and related notes should be read in conjunction with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.

Note 2. Accounts Receivable

Note 3. Property, Buildings and Equipment

The Registrant’s property, buildings and equipment are pledged as security for its debt (see Note 5).

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Note 4. Deferred Charges

Note 5. Notes Payable

The Registrant’s financing from a third-party lender has an annual interest rate fixed at 7.7% and monthly payments for principal and interest of $243,988. The debt is secured by the Registrant’s real and personal property.

An additional $5,000,000 is available from the same lender as long as certain financial covenants are maintained. If received by the Registrant, the additional financing would be due on June 30, 2013.

Note 6. Related Party Receivables and Liabilities

Related party receivables and payables at September 30, 2002 and December 31, 2001 are the result of net intercompany transactions and cash transfers between the Registrant and its shareholder company and affiliated companies. There are no advances from the Registrant to its Directors or Officers.

Note 7. Income Taxes

The Registrant previously elected S Corporation status and is currently a member of a Qualified Subchapter S Subsidiary Group. Accordingly, the Registrant has had no income tax expense since the initial election as the tax is assessed at the shareholder level.

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SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS

DISTRIBUTION FUND

MAINTENANCE ESCROW FUND

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SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)

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SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCE
(Unaudited)

DISTRIBUTION FUND

MAINTENANCE ESCROW FUND

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

Liquidity and Capital Resources

The Registrant’s operations are seasonal with the highest volume of sales occurring in the first quarter of each calendar year. The third quarter has historically produced the lowest volume of sales. Consequently, the Registrant’s financial condition declined slightly during the third quarter of 2002. However, due to the earlier seasonal period, the Registrant’s financial condition at September 30, 2002 is improved when compared with its fiscal year-end of December 31, 2001. The primary effect of this seasonal period was an increase in current assets and accumulated earnings.

The Registrant’s loan agreement for its existing debt provides for an additional $5,000,000 from the same lender if the Registrant remains in compliance with certain financial covenants (see Note 5. Notes Payable of the Notes to Financial Statements in Part I, Item 1 of this Form 10-Q, which is incorporated herein by reference).

The Registrant has completed construction of new laundry and warehouse facilities to replace a structure that was damaged by fire in January of 2001. The cost for this project (net of related insurance proceeds) was $1,305,000. There were no other significant capital additions or improvements during the nine months ended September 30, 2002 and no other major capital projects are anticipated in the remaining fiscal period. Future operating costs and planned expenditures for capital additions and improvements should be funded by the Registrant’s current cash reserves, cash generated by resort operations or by additional funds, if available, from it’s current lender discussed above.

Results of Operations

Total revenues decreased $365,000, or 7%, for the third quarter of 2002 when compared with the same period in 2001 and decreased $9,731,000, or 25%, for the first nine months of 2002 when compared with the same period in 2001. These results reflect less occupied unit nights, average daily room rates and numbers of guests in the resort for the current periods when compared to the prior year. Anticipated occupied room nights for the remainder of 2002 are expected to approximate the prior year’s low level due to the continued slowdown in the nation’s economy and concerns about national security that have adversely affected travel. Projections for occupied room nights in the year 2003 and subsequent fiscal periods are expected to remain at the resort’s current volume of business pending an improvement in national concerns.

A net loss for the third quarter of 2002 decreased $873,000, or 31%, from the same period in 2001 while the net income for the first nine months of 2002 decreased $2,019,000, or 61%, from the same period in 2001. These results were directly related the lower revenues for the current periods and are benefited by several measures that were taken in the fall of 2001 to reduce the Registrant’s cost of operation.

Due to the seasonal business of the Registrant, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for their full fiscal year.

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

Saddlebrook Rental Pool Operation

The results of the Saddlebrook Rental Pool Operation (the “Rental Pool”) are directly related to the hotel operations of the Registrant. The Registrant operates the Rental Pool that provides for a distribution of a percentage of net rental income to participating condominium unit owners. Net rental income is calculated and distributed according to the provisions of a Rental Pool and Agency Appointment Agreement (the “Agreement”). The level of the Registrant’s occupancy and related average daily room rate directly impacts revenues and expenses used to determine the distribution. The Agreement also provides for a portion of the Rental Pool distribution to be held in escrow by the Registrant (the “Escrow Fund”) to pay for the maintenance of and improvements to the condominium unit interiors.

The average occupancies for the Rental Pool for the quarters ended September 30, 2002 and 2001 were 26% and 27%, respectively. The average distributions of net rental income per participating condominium unit for the same periods were $900 and $881, respectively. The slight increase in the average distribution of net rental income was directly related to slightly higher Rental Pool revenues that increased the net amount available for distribution for the current quarter when compared to the same period the prior year.

The Registrant is currently renovating the condo unit kitchens, bathrooms and carpeting. This project commenced in 1998 and has been completed for unit Clusters One through Eight with an aggregate billing to the Escrow Fund of $5,239,000.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Registrant does not have significant market risk with respect to foreign currency exchanges or other market rates. The Registrant’s debt has a fixed interest rate through the year 2012 and, accordingly, fluctuations in interest rates are not expected to affect financial results in the near future.

Item 4. Controls and Procedures

Within the 90 days prior to the date of this report, the Registrant’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 pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Registrant’s Chief Executive Officer and the Chief Financial Officer concluded that the Registrant’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Registrant’s periodic SEC filings.

There have been no significant changes in the Registrant’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Chief Executive Officer and the Chief Financial Officer carried out this evaluation.

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PART II — OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

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.

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CERTIFICATION

I, Thomas L. Dempsey, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Saddlebrook Resorts, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant is made known to us by others within the Registrant, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

6.     The Registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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CERTIFICATION

I, Donald L. Allen, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Saddlebrook Resorts, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant is made known to us by others within the Registrant, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

6.     The Registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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