SADDLEBROOK RESORTS INC - Annual Report: 2006 (Form 10-K)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark one)

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

For the fiscal period ended December 31, 2006

o		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

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 o   NO þ

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 o   NO þ

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 þ   NO o

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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer o      Accelerated Filer o      Non-accelerated filer þ

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

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 their 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, it aggressively competes against numerous resort hotels and convention facilities both in central Florida and nationwide.

At December 31, 2006, there were approximately 744 persons employed by the Company. The Company’s management relationship with employees is excellent and there are no collective bargaining agreements.

Item 1A. Risk Factors

The Company is subject to operating risks common to the hotel industry which could adversely affect our results of operations.

Common hotel industry risks include (but are not limited to);

		Reduction in business travel or decrease in demand for transient rooms and related lodging services resulting from a downturn in general economic conditions;
		The impact of war and terrorist activity (including threatened terrorist activity) and heightened travel security measures instituted in response thereto;
		Financial condition of the airline industry and the resulting impact on air travel.

Severe weather could result in depressed bookings, adversely affecting the Company’s results of operations and reducing proceeds to the participants of the Rental Pool.

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 450 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, 2006, there were 545 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. Submission of Matters to a Vote of Security Holders

Not applicable.

PART II

Item 5. Market for the Registrant’s Common Equity and 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

The following selected financial data should be read in conjunction with the financial statements and related notes in Item 8 hereof.

		Year ended December 31,
		2006				2005				2004				2003				2002
Resort
Resort revenues		$	43,608,000			$	40,674,000			$	40,020,000			$	36,711,000			$	38,189,000
Interest expense			808,000				661,000				1,727,000				1,622,000				1,721,000
Write off debt issue			—				—				345,000				—				—
Litigation settlement,net			—				—				3,178,000				—				—
Net income (loss)			1,833,000				1,221,000				3,021,000				(219,000	)			65,000
Total assets			36,429,000				33,227,000				33,578,000				34,254,000				36,189,000
Total debt			11,267,000				11,067,000				11,867,000				19,685,000				21,040,000
Capital leases			282,000				470,000				69,000				94,000				119,000
Rental Pool
Rental Pool revenues			12,005,000				11,590,000				11,502,000				10,380,000				11,515,000
Total assets			692,000				720,000				919,000				777,000				868,000
Net income			4,841,000				4,672,000				4,607,000				4,100,000				4,600,000
Average distribution per Rental Pool participant			8,981				8,620				8,469				7,496				8,349

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 pronouncements

The Financial Accounting Standards Board (“FASB”) has announced a new interpretation, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which will be effective for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Management believes the adoption of FIN 48 will have no material impact on its financial statements.

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective for the Company’s fiscal 2008 financial statements and is not expected to have a material impact upon adoption.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. This statement is effective for fiscal years beginning after November 15, 2007. Management believes the adoption of SFAS 157 will have no material impact on its financial statements.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides guidance on the process of quantifying financial statement misstatements, advising companies to use both a balance sheet (“iron curtain”) and an income statement (“rollover”) approach when quantifying and evaluating the materiality of a misstatement. Under the guidance of SAB 108, companies will be required to adjust their financial statements if either the iron curtain or rollover approach results in the quantification of a material misstatement. Management believes the adoption of SAB 108 will not have an effect on its financial statements.

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, in accordance with Financial Accounting Standard (“FAS”) No. 144 — Accounting for the Impairment or Disposal 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 year ended December 31, 2006 the Company’s management evaluated assets for impairment in accordance with FAS 144 and concluded that the sum of the undiscounted expected future cash flows (excluding interest charges) from its assets exceeded their then current carrying values. Accordingly, the Company did not recognize an impairment charge.

Depreciation Expense — The Company provides for depreciation by the straight-line method at annual rates that amortize the original costs, net of salvage values, of 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 – The Company’s revenues are derived from a variety of sources including, but not limited to, hotel operations, food and beverage operations, retail sales, golf course greens fees, and are recognized as products are delivered or services are performed. Revenues from membership initiation fees are recognized over the average life of our memberships.

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.

Liquidity and Capital Resources

During 2006 the Company spent $3,204,000 in capital improvements including completion of the renovation of the greens on the Saddlebrook golf course for a total cost of $2,000,000, and modification of an area previously containing a seldom used roadway into additional outdoor function space now known as the Royal Palm Commons, for a total cost of $550,000. The Company is also currently participating in a project to redesign the shared entrance to its property, including the installation of a traffic light, widening of the existing entry and exit roads and installation of a new security/ welcome center. The Company’s share of the expenditures for this joint project is expected to be approximately $370,000.

Future operating costs and planned expenditures for minor capital additions and improvements are expected to be adequately funded by the Company’s and its affiliates’ current cash reserves, or cash generated by the Resort’s operations. Also, the Company’s current debt agreement contains a provision for additional financing from the lender of $5,000,000, subject to specific covenants, until January 31, 2008. As of December 31, 2006 the outstanding balance related to this line was $1,000,000.

The Company’s management is not aware of any environmental matters that are currently present.

The Company’s operation of the Resort is not considered to be dependent on any individual or small group of customers, the loss of which would have a material adverse effect.

Results of Operations

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

		Year ended December 31,
		2006				2005				2004
Rental Pool Revenues			27	%			28	%			29	%
Food and beverage			34				33				33
Resort facilities and other			39				39				38
			100	%			100	%			100	%

2006 Compared to 2005

The Company’s total revenues increased $2,934,000, which is an increase of 7% over the prior year. The majority of that increase was experienced by our Food and Beverage division. Total income in that division increased by $1,808,000, or about 13%. This can be attributed to an overall increase of food and beverage pricing, averaging about 20%, which went into effect on January 1, 2006. Rental Pool revenues increased $415,000, or about 3.5%. The increase in Rental Pool revenue was partly due to a 7% increase in average room rate partially offset by a decrease of 3% in paid room nights.

The Company’s costs and expenses increased $2,209,000, a 6% increase over the prior year. This increase is directly related to the increase in revenues. Expenses of the Rental Pool Operation increased $71,000, or about 2%. This increase is directly related to the increase in Rental Pool revenues.

The Company’s net income for the year 2006 of $1,833,000 is a $613,000 increase from the prior year. The Rental Pool’s increase of $169,000 in amounts available for distribution is a result of the increase in rental pool revenues.

2005 Compared to 2004

The Company’s total revenues increased $654,000, which was an increase of 2% over the prior year. Some areas of the resort, particularly our spa and our fine dining restaurants, benefited from an aggressive advertising campaign to attract more local and social business. Spa revenues increased 25% over the prior year, accounting for $363,000 of the total increase, while the fine dining restaurants increased $271,000, or about 9%. These increases were partially offset by a 4% decrease in overnight guests on property, which affects other areas of the resort more dependent on that business, such as Banquets and Guest Activities. Rental Pool revenues increased $88,000, or about 1%. The increase in Rental Pool revenue was partly due to a 3% increase in average room rate partially offset by a decrease of 3% in paid room nights.

The Company’s costs and expenses increased $722,000, a 2% increase over the prior year. This increase was directly related to the increase in revenues. Expenses of the Rental Pool Operation decreased $39,000, or about 2%. This was related to a decrease of about 14% in commissions paid to travel agents.

The Company’s net income for the year 2005 of $1,221,000 was a $1,800,000 decrease from the prior year. This change was directly related to the receipt in 2004 of the litigation settlement discussed in note 10 of the financial statements, along with decreased interest expense in 2005 as a result of the refinancing and partial payment of the prior debt. The Rental Pool’s increase of $65,000 in amounts available for distribution was a result of the increase in rental pool revenues.

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 does not have any material Off-Balance Sheet Arrangements that have or are reasonably likely to have a current or future effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources as defined in Regulation S-K Item 303(a)(4).

Contractual Obligations

		Payments Due By Period
		Less than				1-3				3-5				More than
		1 year				years				years				5 years				Total
Long-term debt		$	800,000			$	9,467,000			$	0			$	0			$	10,267,000
Interest on long-term debt			730,000				1,235,000				0				0				1,965,000
Line of credit			1,000,000				0				0				0				1,000,000
Interest on line of credit			73,000				0				0				0				73,000
Capital lease			155,000				128,000				0				0				283,000
Interest on capital lease			11,000				3,000				0				0				14,000
Operating leases			90,000				64,000				16,000				0				170,000
Total		$	2,859,000			$	10,897,000			$	16,000			$	0			$	13,772,000

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company’s primary market risk exposure is to changes in interest rates as a result of its variable interest rate long term debt.

The Company’s invested cash, including investments escrowed on behalf of the condominium unit owners in the Rental Pool’s Maintenance Escrow Fund, are subject to changes in market interest rates. Otherwise, the Company does not have significant market risk with respect to foreign currency exchanges or other market rates.

Item 8. Financial Statements and Supplementary Data

The financial statements, including the Reports of Independent Registered Certified Public Accountants, for Saddlebrook Resorts, Inc. are included on pages 19 to 32 and for Saddlebrook Rental Pool Operation on pages 33 to 38. An index to the financial statements is on page 18.

Financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

Item 9A. Controls and Procedures

As of December 31, 2006, 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, as defined in Rule 15d – 15 under the Securities Exchange Act of 1934, as amended. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms, and is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. We concluded that, as of December 31, 2006, our disclosure controls and procedures were effective at the reasonable assurance level.

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

Changes in Internal Control over Financial Reporting

There were no significant changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2006, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the Registrant

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

Name		Position and Background
Thomas L. Dempsey Age 80		Chairman of the Board and Chief Executive Officer of the Company for more than five years. President of the Company until November 2000. Chairman of the Board and President of Saddlebrook Holdings, Inc. for more than five years.
Eleanor Dempsey		Vice Chairman of the Board of the Company for more than five years. Director and Executive Vice President of Saddlebrook Holdings, Inc. for more than five years. Wife of Thomas Dempsey.
Richard Boehning Age 72		Director and Chief Marketing Officer. Previously, Director and President for more than five years.
Gregory R. Riehle Age 50		Director, Vice President and Secretary of the Company for more than five years. Director and Executive Vice President of Saddlebrook Holdings, Inc. for more than five years. Son-in- law of Thomas Dempsey.
Maureen Dempsey Age 48		Director, Vice President and Assistant Secretary of the Company for more than five years. Director and Executive Vice President of Saddlebrook Holdings, Inc. for more than five Years. Daughter of Thomas Dempsey.
Diane L. Riehle Age 46		Director, Vice President and Assistant Secretary of the Company for more than five years. Director and Executive Vice President of Saddlebrook Holdings, Inc. for more than five Years. Daughter of Thomas Dempsey.
Donald L. Allen Age 67		Vice President and Treasurer of the Company for more than five years.

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. Thomas 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 executive officers by the Company and its parent, Saddlebrook Holdings, Inc. consolidated, during the three years ended December 31, 2006.

Summary Compensation Table

		Fiscal												Other annual
Name and Principal Position		year				Salary				Bonus				compensation (1)				Total
Thomas L. Dempsey			2006			$	200,000			$	—			$	37,350			$	237,350
Chairman of the Board and			2005				200,000				—				34,352				234,352
Chief Executive Officer			2004				200,000				150,000				32,664				382,664
Eleanor Dempsey			2006				141,000				—				3,486				144,486
Vice Chairman of the Board			2005				141,000				—				3,510				144,510
			2004				141,000				—				2,250				143,250
Donald Allen			2006				80,000				15,000				1,407				96,407
Vice President and Treasurer			2005				80,000				6,000				860				86,860
			2004				79,700				15,000				947				95,647
Gregory R. Riehle			2006				120,000				38,816				32,308				191,124
Vice President and Secretary			2005				120,000				23,283				19,190				162,473
			2004				120,000				529,015				23,472				672,487
Maureen Dempsey			2006				141,000				—				21,469				162,469
Vice President and Assistant			2005				141,000				—				20,969				161,969
Secretary			2004				141,000				440,000				21,301				602,301
Diane L. Riehle			2006				141,000				—				23,349				164,349
Vice President and Assistant			2005				141,000				—				17,648				158,648
Secretary			2004				141,000				—				20,037				161,037
Jeffery J. Clough			2006				149,615				42,477				2,101				194,193
General Manager			2005				140,000				28,656				1,851				170,507
			2004				137,529				38,765				1,925				178,219
Richard Boehning			2006				144,800				34,477				5,484				184,761
Chief Marketing Officer			2005				144,800				17,656				3,331				165,787
			2004				144,800				60,529				4,418				209,747

(1) Other Annual Compensation for 2006 consists of the following;

Vehicle Allowances
Tax Preparation Fees
Health Insurance premiums paid on behalf of greater than 2% shareholders
Group Term Life Insurance
401K Matching Contributions

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

										Health
Executive		Vehicle				Tax Prep.				Premium				GTL				401K Match
Thomas L. Dempsey		$	21,250			$	6,386			$	4,770			$	4,944				—
Eleanor Dempsey			—				—				—				3,486				—
Donald Allen			—				—				—				457				950
Gregory R. Riehle			25,064				—				6,144				235				865
Maureen Dempsey			14,325				3,137				3,754				253				—
Diane L. Riehle			17,898				4,583				—				—				868
Jeffery J. Clough			—				—				—				180				1,921
Richard Boehning			—				—				—				3,691				1,793

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; Compensation Committee Interlocks and Insider Participation

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

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 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”) operates a tennis training facility and preparatory school at the Resort and is solely owned by SHI. SIT owns 10 condominium units at the Resort, two of which participate in the Rental Pool Operation. The Company receives revenue for services provided to SIT’s guests. In addition, the Company is reimbursed for actual expenses and other costs incurred on behalf of SIT.

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 owns 24 individual condominium units at the Resort, 10 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

Aidman, Piser & Company, P.A. served as the Company’s independent registered certified public accounting firm for the fiscal year ended December 31, 2006.

PricewaterhouseCoopers LLP served as the Company’s independent registered certified public accounting firm for the fiscal year ended December 31, 2005.

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

Audit Fees: $91,500 and $128,000 for the fiscal years ended December 31, 2006 and 2005, 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: $20,002 and $15,961 for the fiscal years ended December 31, 2006 and 2005, respectively, for tax compliance, tax advice and tax planning services.

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 (incorporated by reference to Exhibit A*).
3.2		Corporate By-laws of Saddlebrook Resorts, Inc. (incorporated by reference to Exhibit B*).
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. (incorporated by reference to Exhibit C*).
10.1		Management Contract between Saddlebrook Resorts, Inc. and the Saddlebrook Association of Condominium Owners, Inc.(incorporated by reference to Exhibit C*).
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 (incorporated by reference to Exhibit E*).
10.4		Form of Purchase Agreement (incorporated by reference to Exhibit H*).
10.5		Form of Deed (incorporated by reference to Exhibit I*).
10.6		Form of Bill of Sale (incorporated by reference to Exhibit J*).
10.7		Loan Agreement between the Registrant and SunTrust Bank, dated November 1, 2004 (incorporated by reference from the Registrants Form 10-Q for the quarterly period ended September 30, 2004).
10.8		Second Amended and Restated Mortgage, Security Agreement and Fixture Filing, between the Registrant and SunTrust Bank, dated November 1, 2004 (incorporated by reference to Registrants Form 10-Q for the quarterly period ended September 30, 2004).
10.9		Promissory Note ($12 million) made by the Registrant and payable to SunTrust Bank, dated November 1, 2004 (incorporated by reference to Registrants Form 10-Q for the quarterly period ended September 30, 2004).
10.10		Revolving Line of Credit Promissory Note ($5 million) made by the Registrant and payable to SunTrust Bank, dated January 31, 2007

14.1		Code of Ethics
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.

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 13, 2007		/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 13, 2007.

/s/ Thomas L. Dempsey				/s/ Richard Boehning
Thomas L. Dempsey				Richard Boehning
Chairman of the Board and				Director and Chief Marketing Officer
Chief Executive Officer
(Principal Executive Officer)
/s/ Gregory R. Riehle				/s/ Maureen Dempsey
Gregory R. Riehle				Maureen Dempsey
Director, Vice President				Director, Vice President
and Secretary				and Assistant Secretary
/s/ Diane L. Riehle
Diane L. Riehle
Director, Vice President
and Assistant Secretary

Saddlebrook Resorts, Inc.
Index
December 31, 2006 and 2005

		Page(s)
Saddlebrook Resorts, Inc.
Reports of Independent Registered Certified Public Accounting Firms			19-20
Financial Statements
Balance Sheets as of December 31, 2006 and 2005			21
Statements of Operations for the years ended December 31, 2006, 2005 and 2004			22
Statements of Changes in Shareholder’s Equity for the years ended December 31, 2006, 2005 and 2004			23
Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004			24
Notes to Financial Statements			25-32
Saddlebrook Rental Pool Operation
Reports of Independent Registered Certified Public Accounting Firms			33-34
Financial Statements
Balance Sheets as of December 31, 2006 and 2005			35
Statements of Operations for the years ended December 31, 2006, 2005 and 2004			36
Statements of Changes in Participants’ Fund Balance for the years ended December 31, 2006, 2005 and 2004			37
Notes to Financial Statements			38

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of
Saddlebrook Resorts, Inc.

We have audited the accompanying balance sheet of Saddlebrook Resorts, Inc. as of December 31, 2006, and the related statements of operations, changes in shareholder’s equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Saddlebrook Resorts, Inc. as of December 31, 2006, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Aidman Piser & Company, P.A.
Tampa, Florida
April 12, 2007

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Shareholder of Saddlebrook Resorts, Inc.

In our opinion, the accompanying balance sheet and the related statements of operations, of changes in shareholder’s equity and of cash flows present fairly, in all material respects, the financial position of Saddlebrook Resorts, Inc. (the “Company”) at December 31, 2005, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers, LLP
Orlando, Florida
September 11, 2006

Saddlebrook Resorts, Inc.
Balance Sheets
December 31, 2006 and 2005

		2006				2005
Assets
Current assets
Cash and cash equivalents		$	977,849			$	1,030,283
Escrowed cash			536,250				468,956
Short-term investments			375,000				375,000
Short-term escrowed investments			197,561				—
Trade accounts receivable, net of allowances for doubtful accounts of $47,547 and $45,419			2,451,792				2,514,867
Due from related parties			4,745,234				3,235,465
Resort inventory and supplies			1,549,348				1,381,747
Prepaid expenses and other assets			844,373				777,460
Total current assets			11,677,407				9,783,778
Property, buildings and equipment, net			24,703,749				23,378,224
Deferred charges, net			48,330				64,638
Total assets		$	36,429,486			$	33,226,640
Liabilities and Shareholder’s Equity
Current liabilities
Current portion of notes payable		$	800,004			$	800,004
Current portion of capital leases			154,645				178,854
Line of credit			1,000,000				—
Escrowed deposits			733,810				468,956
Accounts payable			1,172,970				1,091,700
Accrued rental distribution			690,433				767,165
Accrued expenses and other liabilities			2,393,000				2,326,927
Current portion of deferred income			778,646				714,587
Guest deposits			1,398,451				1,245,190
Due to related parties			2,488,702				1,675,965
Total current liabilities			11,610,661				9,269,348
Notes payable due after one year			9,466,654				10,266,658
Capital lease obligations due after one year			127,845				290,863
Long-term portion of deferred income			1,609,202				1,618,060
Total liabilities			22,814,362				21,444,929
Commitments and contingencies (Notes 4 and 9)
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			12,501,997				10,668,584
Total shareholder’s equity			13,615,124				11,781,711
Total liabilities and shareholder’s equity		$	36,429,486			$	33,226,640

The accompanying notes are an integral part of these financial statements.

Saddlebrook Resorts, Inc.
Statements of Operations
Years ended December 31, 2006, 2005 and 2004

		2006				2005				2004
Resort revenues (Note 7)		$	43,608,192			$	40,673,774			$	40,020,142
Costs and expenses:
Operating costs of resort (Note 7)			32,151,174				30,693,354				29,698,436
Sales and marketing			2,712,147				2,581,581				2,718,732
General and administrative			4,415,405				3,814,695				3,972,061
Depreciation			1,824,697				1,804,948				1,783,114
Total costs and expenses			41,103,423				38,894,578				38,172,343
Net operating income before other expenses and (income)			2,504,769				1,779,196				1,847,799
Other expenses & (income):
Interest expense			807,935				661,237				1,726,693
Interest income			(80,912	)			(50,584	)			(102,943	)
Write off of debt issue costs			—				—				344,776
Litigation settlement (net)			—				—				(3,177,832	)
Other (income) expense			(55,667	)			(52,129	)			36,055
Total other expense (income)			671,356				558,524				(1,173,251	)
Net income		$	1,833,413			$	1,220,672			$	3,021,050

The accompanying notes are an integral part of these financial statements.

Saddlebrook Resorts, Inc.
Statements of Changes in Shareholder’s Equity
Years ended December 31, 2006, 2005 and 2004

						Additional								Total
		Common				Paid-In				Retained				Shareholder’s
		Stock				Capital				Earnings				Equity
Balances at December 31, 2003		$	100,000			$	1,013,127			$	6,426,862			$	7,539,989
Net income			—				—				3,021,050				3,021,050
Balances at December 31, 2004			100,000				1,013,127				9,447,912				10,561,039
Net income			—				—				1,220,672				1,220,672
Balances at December 31, 2005			100,000				1,013,127				10,668,584				11,781,711
Net income			—				—				1,833,413				1,833,413
Balances at December 31, 2006		$	100,000			$	1,013,127			$	12,501,997			$	13,615,124

The accompanying notes are an integral part of these financial statements.

Saddlebrook Resorts, Inc.
Statements of Cash Flows
Years ended December 31, 2006, 2005 and 2004

		2006				2005				2004
Cash flows from operating activities
Net income		$	1,833,413			$	1,220,672			$	3,021,050
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			1,841,005				1,821,256				1,819,047
Write off of debt issue costs			—				—				344,776
(Gain) loss on disposal of property, buildings and equipment			(17,638	)			(67,791	)			14,635
Additions to allowance for doubtful accounts			2,128				13,440				10,320
Change in assets and liabilities
(Increase) decrease in
Escrowed cash			(343,246	)			2,781,406				(3,001,447	)
Escrowed investments			(197,561	)			399,576				995
Trade accounts receivable			60,948				(227,884	)			(663,484	)
Resort inventory and supplies			(167,601	)			132,786				(174,075	)
Prepaid expenses and other assets			(66,913	)			(66,411	)			466,200
Increase (decrease) in
Escrowed deposits			540,806				(3,180,982	)			3,000,452
Accounts payable			81,270				286,679				3,033
Accrued rental distribution			(76,732	)			(43,004	)			111,174
Accrued expenses and other liabilities			66,073				22,091				735,169
Deferred income			55,201				288,261				228,354
Guest deposits			153,261				(221,295	)			86,439
Net cash provided by operating activities			3,764,414				3,158,800				6,002,638
Cash flows from investing activities
Proceeds from sales of equipment			71,471				140,100				400
Capital expenditures			(3,204,056	)			(2,020,538	)			(2,033,463	)
Investments			—				—				(75,000	)
Net cash used in investing activities			(3,132,585	)			(1,880,438	)			(2,108,063	)
Cash flows from financing activities
Proceeds from line of credit/notes payable			1,000,000								17,000,000
Payments on notes payable			(800,004	)			(800,004	)			(24,817,910	)
Proceeds from capital leases			—				559,592				—
Payments on capital leases			(187,227	)			(159,310	)			(24,792	)
Debt issue costs			—				—				(83,729	)
Net advances to related parties			(697,032	)			(571,488	)			(443,728	)
Net cash used in financing activities			(684,263	)			(971,210	)			(8,370,159	)
Net increase (decrease) in cash and cash equivalents			(52,434	)			307,152				(4,475,584	)
Cash and cash equivalents, beginning of year			1,030,283				723,131				5,198,715
Cash and cash equivalents, end of year		$	977,849			$	1,030,283			$	723,131
Supplemental disclosure
Cash paid for interest		$	791,627			$	644,929			$	1,690,760
Noncash financing and investing activities
Capital lease obligation		$	282,490			$	469,717			$	69,435

The accompanying notes are an integral part of these financial statements.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

1.		Organization and Business
		Saddlebrook Resorts, Inc. (the “Company”), 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, of which most 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 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.
		Cash and Cash Equivalents
		All short-term highly liquid instruments purchased with an original maturity of three months or less are considered to be cash equivalents.
		Investments
		Investments held at December 31, 2006 consist of a Certificate of U.S. Treasury Securities and a Certificate of Deposit yielding interest between 2.96% and 4.94%, which mature through April 2007. Investments are held to maturity and recorded at amortized cost, which approximates fair market value. Escrowed investments relate to Rental Pool unit owner deposits for the maintenance reserve fund.
		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 cost or market.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

		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.
		Deferred Charges In connection with the Company’s debt refinancing during 2004, financing costs in the amount of approximately $84,000 were incurred and deferred. These financing costs are being amortized over five years, the life of the related debt outstanding. In addition, the Company wrote-off approximately $345,000 of costs related to the early extinguishment of the previous debt (Note 6). Those costs have been recorded separately as “write off of debt issue costs” in the statements of operation.
		Accumulated amortization amounted to approximately $35,400 and $19,100 at December 31, 2006 and 2005, respectively. Amortization expense for deferred charges amounted to approximately $16,300 for each of the years ended December 31, 2006 and 2005.
		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 our 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 resort for the years ended December 31, 2006, 2005 and 2004 include rental pool distributions to condominium unit owners approximating $4,800,000, $4,700,000 and $4,600,000, respectively.
		Income Taxes The Company is currently a member of a Qualified Subchapter S Subsidiary Group. Accordingly, no income tax expense was reflected in the Company’s operating results as the tax is assessed to the shareholders of its parent company.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

		Employee Benefit Plans The Company sponsors a defined contribution plan (the “Plan”), which provides retirement benefits for all eligible employees who have elected to participate. Employees must fulfill a one year service requirement to be eligible. The Company currently matches one-half of the first 2% of an employee’s contribution. Company contributions approximated $53,000, $55,000 and $53,000 for the years ended December 31, 2006, 2005 and 2004, respectively.
		Recent Accounting Pronouncements The Financial Accounting Standards Board (“FASB”) has announced a new interpretation, FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which will be effective for fiscal years beginning after December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.
		In February 2007, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective for the Company’s fiscal 2008 financial statements and is not expected to have a material impact upon adoption.
		In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. This statement is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 will have no material impact on the Company’s financial statements.
		In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides guidance on the process of quantifying financial statement misstatements, advising companies to use both a balance sheet (“iron curtain”) and an income statement (“rollover”) approach when quantifying and evaluating the materiality of a misstatement. Under the guidance of SAB 108, companies will be required to adjust their financial statements if either the iron curtain or rollover approach results in the quantification of a material misstatement. The adoption of SAB 108 did not have an effect on the Company’s financial statements.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

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

		2006				2005
Rental pool unit owner deposits for maintenance reserve fund held in a bank account which bears an interest rate of 1.36%		$	517,680			$	441,433
Security deposits held on long-term rentals			18,570				27,523
		$	536,250			$	468,956

4.		Property, Buildings and Equipment, Net
		Property, buildings and equipment as of December 31, consist of the following:

		Estimated
		Useful
		Lives		2006				2005
Land and land improvements				$	6,809,179			$	4,859,372
Buildings and recreational facilities		10–40			27,415,173				26,597,059
Machinery and equipment		5–15			15,191,068				14,942,049
Construction in progress					418,353				441,875
					49,833,773				46,840,355
Accumulated depreciation					(25,130,024	)			(23,462,131	)
				$	24,703,749			$	23,378,224

		Substantially all property, buildings and equipment are mortgaged, pledged or otherwise subject to lien under a loan agreement (Note 6).
		Depreciation expense amounted to approximately $1,825,000, $1,805,000 and $1,783,000, for the years ended December 31, 2006, 2005 and 2004, respectively.
		The Company leases equipment under agreements which are classified as capital leases. The equipment and obligations related to the lease are recorded at the present value of the minimum lease payments. During 2006, 2005 and 2004, the Company recorded approximately $17,000, $28,000 and $7,000, respectively, of interest expense related to the leases. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Total depreciation expense on the assets under lease was approximately $114,300, $129,100 and $28,200 for the years ended December 31, 2006, 2005 and 2004, respectively. Future minimum lease payments under these leases are payable as follows:

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

2007		$	165,416
2008			131,194
			296,610
Less: Amount representing interest			14,120
		$	282,490

The Company also leases equipment under operating leases. Some of the leases contain annual renewal options after the initial lease term. Lease expense amounted to $206,000, $249,000 and $217,000 for the years ended December 31, 2006, 2005 and 2004, respectively. Future minimum lease payments under noncancelable operating leases with initial lease terms in excess of one year are as follows:

2007		$	90,206
2008			32,052
2009			32,052
2010			16,026
2011 and thereafter			—
		$	170,336

5.		Accrued Expenses and Other Liabilities
		Accrued expenses and other liabilities as of December 31, consist of the following:

		2006				2005
Accrued payroll and related expenses		$	1,183,699			$	1,125,312
Accrued insurance			907,633				974,532
Other accrued expenses and liabilities			301,668				227,083
		$	2,393,000			$	2,326,927

6.		Notes Payable
		Notes payable consist of the following:

		2006				2005
Note payable to lender, 5 year term (maturity date of November 1, 2009), interest rate at 2% over the one month LIBOR index, monthly principal and interest payments, collateralized by all current and subsequently acquired real and personal property		$	10,266,658			$	11,066,662
Less: Current portion			(800,004	)			(800,004	)
		$	9,466,654			$	10,266,658

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

On November 1, 2004, the Company refinanced $12 million of the note payable due on June 30, 2013 with a new term note with a new lender. As part of the refinancing, the Company paid the remaining principal balance due under the prior note. The new term note is due November 1, 2009, and requires monthly principal payments of $66,667, together with monthly payment of all accrued interest. The new term note bears interest at 2% over the one month LIBOR index. The rate at December 31, 2006 was 7.32%.

The Company has the ability to obtain an additional $5 million under a line of credit facility from the same lender under the same terms of the agreement subject to specific covenants until January 31, 2008. As of December 31, 2006, the outstanding balance related to this line was $1,000,000.

Future maturities of Notes Payable are as follows:

2007		$	800,004
2008			800,004
2009			8,666,650
		$	10,266,658

7. Resort Revenues and Operating Costs of Resort

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

		Year Ended December 31,
		2006				2005				2004
Resort Revenues
Room revenue subject to rental pool agreement		$	12,005,201			$	11,589,794			$	11,501,652
Food and beverage			15,259,409				13,451,252				13,427,166
Resort facilities and other			16,343,582				15,632,728				15,091,324
		$	43,608,192			$	40,673,774			$	40,020,142
Operating Costs of Resort
Distribution to rental pool participants		$	4,840,873			$	4,672,047			$	4,607,151
Food and beverage			12,251,041				11,070,251				10,572,221
Resort facilities and other			15,059,260				14,951,056				14,519,064
		$	32,151,174			$	30,693,354			$	29,698,436

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

8. Related Party Transactions

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

		2006				2005
Saddlebrook Resort Condominium Association, Inc.		$	133,879			$	75,026
Saddlebrook Holdings, Inc.			3,916,278				2,586,962
Dempsey and Daughters, Inc.			597,312				532,195
Dempsey Resort Management, Inc.			70,391				3,192
Saddlebrook Properties LLC			3,716				3,666
Saddlebrook Realty, Inc.			6,658				12,439
Saddlebrook Investments, Inc.			343				4,271
Other			16,657				17,714
		$	4,745,234			$	3,235,465

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

		2006				2005
Saddlebrook International Tennis, Inc.		$	2,488,702			$	1,675,965

The Company currently funds expenditures for SHI, the Company’s parent, which are offset by dividends, declared to SHI, if necessary. SHI’s expenditures include dividends to its shareholders, which are primarily income taxes related to the operations of SHI and its subsidiaries.

Saddlebrook International Tennis, Inc. (“SIT”) operates is a tennis training facility and preparatory school operating at the resort. SIT is solely owned by SHI. SIT owns 10 condominium units at the Resort, two of which participate in the Rental Pool Operation. The Company received revenue from SIT for services provided to SIT guests, which amounted to approximately $1,739,000, $1,579,000 and $1,443,000, for the years ended December 31, 2006, 2005 and 2004, respectively. In addition, the Company was reimbursed for actual expenses and other costs incurred on behalf of SIT.

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 the shareholder of the Company’s parent. The Company was reimbursed for actual expenses and costs incurred on behalf of these entities.

Dempsey and Daughters, Inc. holds certain tracts of real estate and owns 24 individual condominium units at the Resort, 10 of which participate in the Rental Pool Operation. This company is solely owned by SHI. The Company was reimbursed for actual expenses incurred on behalf of Dempsey and Daughters, Inc.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2006 and 2005

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 $1,729,000, $1,504,000 and $1,382,000, for the years ended December 31, 2006, 2005 and 2004, 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.

9. Commitments and Contingencies

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, 2006.

10. Insurance

In 1993, the Company invested in and formed a captive insurance company, Resort Hotel Insurance Company (RHIC), with other resorts participating in Resort Hotel Association (RHA), an insurance risk purchasing group. The Company retains an equity interest in and pays insurance premiums to RHIC. The Company’s ownership is less than 10% and all amounts contributed as capital ($122,950 as of December 31, 2006) and the increase in equity cumulative to date ($179,874 as of December 31, 2006) are recorded as a component of prepaid expenses and other assets. Any change in equity is reflected as a component of other income in the Statements of Operations. The Company’s investment approximates the proportionate net book value of the insurance company at December 31, 2006. The Company’s stock in RHIC is restricted and may not be sold in the open market. The Company may withdraw from RHA annually at the renewal date of any of its property or casualty policies.

11. Litigation Settlement

During January 2004, the Company and Honeywell Corporation (the owner of the Company’s former parent company), settled a legal dispute with a prior insurance provider. The case involved the Company and its former parent company seeking reimbursement for the defense and settlement costs incurred in connection with a lawsuit that alleged damages covered by the policies issued by the insurance company. A favorable settlement of $4,950,000 was received by the Company in February 2004. Certain related expenses for legal services and bonuses have been netted against this amount resulting in a net litigation settlement of $3,177,832.

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Saddlebrook
Resorts, Inc., as Operators under the Saddlebrook
Rental Pool and Agency Appointment Agreement

We have audited the accompanying balance sheet of Saddlebrook Rental Pool Operation (funds created for participants who have entered into a rental pool agreement as explained in Note 1) as of December 31, 2006, and the related statements of operations and changes in participants’ fund balance for the year then ended. These financial statements are the responsibility of the rental pool operator’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Saddlebrook Rental Pool Operation. as of December 31, 2006, and the results of its operations and the changes in participants’ fund balance for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Aidman, Piser & Company, P.A.
Tampa, Florida
April 12, 2007

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors of Saddlebrook
Resorts, Inc., as Operators under the Saddlebrook
Rental Pool and Agency Appointment Agreement

In our opinion, the accompanying balance sheet and the related statements of operations, and of changes in participants’ fund balance present fairly, in all material respects, the financial position of Saddlebrook Rental Pool Operation (funds created for participants who have entered into a rental pool agreement as explained in Note 1) at December 31, 2005, and the results of its operations and the changes in participants’ fund balance for each of the two years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the rental pool operator’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers, LLP
Orlando, Florida
September 11, 2006

Saddlebrook Rental Pool Operation
Balance Sheets
December 31, 2006 and 2005

		2006				2005
Distribution Fund
Assets
Receivable from Saddlebrook Resorts, Inc.		$	691,861			$	719,793
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	590,663			$	607,008
Due to maintenance escrow fund			101,198				112,785
		$	691,861			$	719,793
Maintenance Escrow Fund
Assets
Cash in bank		$	715,241			$	441,433
Receivables
Distribution fund			101,198				112,785
Interest			268				—
Owner payments			—				31,108
Prepaid expenses and other assets			788				16,186
Linen inventory			77,155				26,498
		$	894,650			$	628,010
Liabilities and Participants’ Fund Balance
Due to Saddlebrook Resorts, Inc.		$	124,745			$	50,908
Other			—				10,652
Participants’ fund balance			769,905				566,450
		$	894,650			$	628,010

The accompanying notes are an integral part of these financial statements.

Saddlebrook Rental Pool Operation
Statements of Operations
Years Ended December 31, 2006, 2005 and 2004

		2006				2005				2004
Distribution Fund
Rental pool revenues		$	12,005,201			$	11,589,794			$	11,501,652
Deductions
Marketing fee			900,390				869,235				862,624
Management fee			1,500,650				1,448,724				1,437,707
Travel agent commissions			418,246				445,167				513,125
Credit card expense			216,087				196,234				184,603
Bad debt expense and other			1,000				6,000				6,000
			3,036,373				2,965,360				3,004,059
Net rental income			8,968,828				8,624,434				8,497,593
Operator share of net rental income			(4,035,972	)			(3,880,995	)			(3,823,917	)
Other revenues (expenses)
Complimentary room revenues			63,932				73,450				80,026
Minor repairs and replacements			(155,915	)			(144,842	)			(146,551	)
Amounts available for distribution to participants and maintenance escrow fund		$	4,840,873			$	4,672,047			$	4,607,151

The accompanying notes are an integral part of these financial statements.

Saddlebrook Rental Pool Operation
Statements of Changes in Participants’ Fund Balance
Years Ended December 31, 2006, 2005 and 2004

		2006				2005				2004
Distribution Fund
Balances, beginning of period		$	—			$	—			$	—
Additions
Amounts available for distribution			4,840,873				4,672,047				4,607,151
Reductions
Amounts withheld for maintenance escrow fund			(804,901	)			(791,052	)			(783,235	)
Amounts accrued or paid to participants			(4,035,972	)			(3,880,995	)			(3,823,916	)
Balances, end of period		$	—			$	—			$	—
Maintenance Escrow Fund
Balances, beginning of period		$	566,450			$	3,735,450			$	1,089,720
Additions
Amount withheld from distribution fund			804,901				791,052				783,235
Unit owner payments			65,883				1,207,780				6,807,301
Interest earned			18,720				15,357				41,852
Reductions
Unit renovations			(307,469	)			(4,595,843	)			(4,381,219	)
Refunds of excess amounts in escrow accounts			(25,205	)			(38,612	)			(58,775	)
Maintenance charges			(281,863	)			(303,988	)			(310,469	)
Linen amortization			(71,512	)			(244,746	)			(236,195	)
Balances, end of period		$	769,905			$	566,450			$	3,735,450

The accompanying notes are an integral part of these financial statements.

Saddlebrook Rental Pool Operation
Notes to Financial Statements
December 31, 2006 and 2005

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.