SADDLEBROOK RESORTS INC - Annual Report: 2007 (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, 2007

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

For the transition period from                      to                     

SADDLEBROOK RESORTS, INC.

(Exact name of registrant as specified in its charter)

Florida		59-1917822
(State of incorporation)		(IRS employer identification no.)

5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499 (Address of principal executive offices)

813-973-1111 (Registrant’s telephone number, including area code)

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

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

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, 2007, there were approximately 753 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, 2007, there were 538 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,
		2007				2006				2005				2004				2003
Resort
Resort revenues		$	43,616,000			$	43,608,000			$	40,674,000			$	40,020,000			$	36,711,000
Interest expense			861,000				808,000				661,000				1,727,000				1,622,000
Write off debt issue costs			—				—				—				345,000				—
Litigation settlement, net			—				—				—				3,178,000				—
Net income (loss)			531,000				1,833,000				1,221,000				3,021,000				(219,000	)
Total assets			35,447,000				36,429,000				33,227,000				33,578,000				34,254,000
Total debt			11,217,000				11,267,000				11,067,000				11,867,000				19,685,000
Capital leases			128,000				282,000				470,000				69,000				94,000
Rental Pool
Rental Pool revenues			12,260,000				12,005,000				11,590,000				11,502,000				10,380,000
Total assets			905,000				692,000				720,000				919,000				777,000
Net income			4,909,000				4,841,000				4,672,000				4,607,000				4,100,000
Average distribution per Rental Pool participant			9,125				8,981				8,620				8,469				7,496

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

In December 2007, the FASB issued Statement No. 141 (revised), Business Combinations (SFAS No. 141(R)). The standard changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. Management is currently evaluating the effect, if any, the adoption will have on the Company’s financial position and results of operations.

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No. 160). The standard changes the accounting for noncontrolling (minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated stockholders’ equity, and the elimination of “minority interest” accounting in results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS No. 160 revises the accounting for both increases and decreases in a parent’s controlling ownership interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. Management is currently evaluating the effect, if any, the adoption will have on the Company’s financial position and results of operations.

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.

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, 2007, 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 2007 the Company spent approximately $2,845,000 in capital improvements, the majority of which was toward the renovation of our hotel lobby, including the installation of new marble flooring, and the renovation and redesign of Tropics Restaurant and Lounge (formally known as Cypress Restaurant and Polo Lounge). 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. These projects are all substantially complete.

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. As of December 31, 2007 the outstanding balance related to this line was $1,750,000.

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,
		2007				2006				2005
Rental Pool Revenues			28	%			27	%			28	%
Food and beverage			35				34				33
Resort facilities and other			37				39				39
			100	%			100	%			100	%

2007 Compared to 2006

The Company’s total revenues increased $8,000, which is less than a 1% increase over the prior year. Although paid room nights decreased approximately 3%, the average room rate increased by about 5%, resulting in an increase of approximately $255,000, or about 2% in Rental Pool revenues. This amount was mostly offset by decreases in Food and Beverage and other revenues. The decrease in Food and Beverage revenues can be attributed to the closing of one of our restaurants during the period it was being renovated.

The Company’s costs and expenses increased $1,311,000, a 3% increase over the prior year. These increases are mostly related to increases in wages and salaries, along with increased depreciation expense related to the golf course and other facility improvements completed late in 2006. Expenses of the Rental Pool Operation increased $99,000, or about 3%. This increase is directly related to the increase in Rental Pool revenues, along with increases in commissions paid to third party travel agents and increases in credit card merchant fees.

The Company’s net income for the year 2007 of $531,000 is a $1,302,000 decrease from the prior year. The Rental Pool’s increase of $68,000 in amounts available for distribution is a result of the increase in rental pool revenues.

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.

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			$	8,667,000			$	0			$	0			$	9,467,000
Interest on long-term debt			666,000				559,000				0				0				1,225,000
Line of credit			1,750,000				0				0				0				1,750,000
Interest on line of credit			118,000				0				0				0				118,000
Capital lease			128,000				0				0				0				128,000
Interest on capital lease			6,000				0				0				0				6,000
Operating leases			106,000				125,000				0				0				231,000
Total		$	3,574,000			$	9,351,000			$	0			$	0			$	12,925,000

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 31 and for Saddlebrook Rental Pool Operation on pages 32 to 36. 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(T). Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 15d — 15 under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be reported in the Company’s SEC filings is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2007, under the direction of our chief executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures and concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

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

As of December 31, 2007, management conducted an assessment of the Company’s internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on the assessment, management concluded that, as of December 31, 2007, the Company’s internal control over financial reporting was effective.

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

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures and internal controls over financial reporting will prevent all 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 its cost. Because of the inherent limitation in all control systems, no evaluation of controls can provide absolute assurance that all control issues within the Company have been detected.

Changes in Internal Control over Financial Reporting

There were no significant changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2007, 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 81		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 73		Director and Chief Marketing Officer. Previously, Director and President for more than five years.
Gregory R. Riehle Age 51		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 49		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 47		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 68		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, 2007.

Summary Compensation Table

		Fiscal												Other annual
Name and Principal Position		year				Salary				Bonus				compensation (1)				Total
Thomas L. Dempsey			2007			$	200,000			$	—			$	16,584			$	216,584
Chairman of the Board and			2006				200,000				—				37,350				237,350
Chief Executive Officer			2005				200,000				—				34,352				234,352
Eleanor Dempsey			2007				141,000				—				24,736				165,736
Vice Chairman of the Board			2006				141,000				—				3,486				144,486
			2005				141,000				—				3,510				144,510
Donald Allen			2007				76,154				7,830				916				84,900
Vice President and Treasurer			2006				80,000				15,000				1,407				96,407
			2005				80,000				6,000				860				86,860
Gregory R. Riehle			2007				120,000				31,914				27,194				179,108
Vice President, Secretary and			2006				120,000				38,816				32,308				191,124
General Manager			2005				120,000				23,283				19,190				162,473
Maureen Dempsey			2007				141,000				—				18,926				159,926
Vice President and Assistant			2006				141,000				—				21,469				162,469
Secretary			2005				141,000				—				20,969				161,969
Diane L. Riehle			2007				141,000				—				20,954				161,954
Vice President and Assistant			2006				141,000				—				23,349				164,349
Secretary			2005				141,000				—				17,648				158,648
Richard Boehning			2007				144,800				9,110				3,389				157,299
Chief Marketing Officer			2006				144,800				34,477				5,484				184,761
			2005				144,800				17,656				3,331				165,787

(1) Other Annual Compensation for 2007 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		$	—			$	6,550			$	5,090			$	4,944				—
Eleanor Dempsey			21,250				—				—				3,486				—
Donald Allen			—				—				—				76				840
Gregory R. Riehle			20,207				—				6,536				—				451
Maureen Dempsey			11,229				3,425				4,018				254				—
Diane L. Riehle			17,898				4,583				—				—				651
Richard Boehning			—				—				—				2,348				1,041

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 years ended December 31, 2007 and 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,$91,500 and $128,000 for the fiscal years ended December 31, 2007, 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: $21,394, $20,002 and $15,961 for the fiscal years ended December 31, 2007, 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 (incorporated by reference to Registrants Form 10-K for the fiscal year ending December 31, 2006).

	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.

*

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

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.

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 March 28, 2008.

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

Saddlebrook Resorts, Inc.
Index
December 31, 2007, 2006 and 2005

Saddlebrook Resorts, Inc.
Reports of Independent Registered Certified Public Accounting Firms			19-20
Financial Statements
Balance Sheets as of December 31, 2007 and 2006			21
Statements of Operations for the years ended December 31, 2007, 2006 and 2005			22
Statements of Changes in Shareholder’s Equity for the years ended December 31, 2007, 2006 and 2005			23
Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005			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, 2007 and 2006			35
Statements of Operations for the years ended December 31, 2007, 2006 and 2005			36
Statements of Changes in Participants’ Fund Balance for the years ended December 31, 2007, 2006 and 2005			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 sheets of Saddlebrook Resorts, Inc. as of December 31, 2007 and 2006, and the related statements of operations, changes in shareholder’s equity, and cash flows for the years 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 audits.

We conducted our audits 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 audits provide 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, 2007 and 2006, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Aidman, Piser & Company, P.A..

Tampa, Florida
March 28, 2008

Report of Independent Registered Certified Public Accounting Firm

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

In our opinion, the accompanying statements of operations, of changes in shareholder’s equity and of cash flows present fairly, in all material respects, the results of operations and cash flows of Saddlebrook Resorts, Inc. (the “Company”) for the year 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Orlando, Florida

September 11, 2006

Saddlebrook Resorts, Inc.
Balance Sheets
December 31, 2007 and 2006

		2007				2006
Assets
Current assets
Cash and cash equivalents		$	991,320			$	977,849
Escrowed cash			890,069				536,250
Short-term investments			175,000				375,000
Short-term escrowed investments			—				197,561
Trade accounts receivable, net of allowance for doubtful accounts of $44,521 and $47,547			3,200,585				2,451,792
Due from related parties			2,228,553				4,745,234
Resort inventory and supplies			1,679,645				1,549,348
Prepaid expenses and other assets			756,956				844,373
Total current assets			9,922,128				11,677,407
Property, buildings and equipment, net			25,493,141				24,703,749
Deferred charges, net			32,022				48,330
Total assets		$	35,447,291			$	36,429,486
Liabilities and Shareholder’s Equity
Current liabilities
Current portion of notes payable		$	800,004			$	800,004
Current portion of capital leases			127,845				154,645
Line of credit			1,750,000				1,000,000
Escrowed deposits			890,069				733,810
Accounts payable			1,668,050				1,172,970
Accrued rental distribution			905,234				690,433
Accrued expenses and other liabilities			2,411,566				2,393,000
Current portion of deferred income			814,861				778,646
Guest deposits			1,657,194				1,398,451
Due to related parties			—				2,488,702
Total current liabilities			11,024,823				11,610,661
Notes payable due after one year			8,666,650				9,466,654
Capital lease obligations due after one year			—				127,845
Long-term portion of deferred income			1,609,632				1,609,202
Total liabilities			21,301,105				22,814,362
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			13,033,059				12,501,997
Total shareholder’s equity			14,146,186				13,615,124
Total liabilities and shareholder’s equity		$	35,447,291			$	36,429,486

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

Saddlebrook Resorts, Inc.
Statements of Operations
Years ended December 31, 2007, 2006 and 2005

		2007				2006				2005
Resort revenues (Note 7)		$	43,615,917			$	43,608,192			$	40,673,774
Costs and expenses:
Operating costs of resort (Note 7)			33,214,157				32,151,174				30,693,354
Sales and marketing			2,813,049				2,712,147				2,581,581
General and administrative			4,402,492				4,415,405				3,814,695
Depreciation			1,984,502				1,824,697				1,804,948
Total costs and expenses			42,414,200				41,103,423				38,894,578
Net operating income before other expenses and (income)			1,201,717				2,504,769				1,779,196
Other expenses and (income):
Interest expense			860,914				807,935				661,237
Interest income			(49,571	)			(80,912	)			(50,584	)
Other income			(140,688	)			(55,667	)			(52,129	)
Total other expense (income)			670,655				671,356				558,524
Net income		$	531,062			$	1,833,413			$	1,220,672

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, 2007, 2006 and 2005

						Additional								Total
		Common				Paid-In				Retained				Shareholder’s
		Stock				Capital				Earnings				Equity
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
Net income			—				—				531,062				531,062
Balances at December 31, 2007		$	100,000			$	1,013,127			$	13,033,059			$	14,146,186

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

Saddlebrook Resorts, Inc.
Statements of Cash Flows
Years ended December 31, 2007, 2006 and 2005

		2007				2006				2005
Cash flows from operating activities
Net income		$	531,062			$	1,833,413			$	1,220,672
Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization			2,000,810				1,841,005				1,821,256
Loss (gain) loss on disposal of property, buildings and equipment			63,894				(17,638	)			(67,791	)
(Reductions) additions to allowance for doubtful accounts			(3,026	)			2,128				13,440
Change in assets and liabilities (Increase) decrease in
Escrowed cash			(353,819	)			(343,246	)			2,781,406
Escrowed investments			197,561				(197,561	)			399,576
Trade accounts receivable			(745,767	)			60,948				(227,884	)
Resort inventory and supplies			(130,298	)			(167,601	)			132,786
Prepaid expenses and other assets			87,416				(66,913	)			(66,411	)
Increase (decrease) in
Escrowed deposits			156,259				540,806				(3,180,982	)
Accounts payable			495,080				81,270				286,679
Accrued rental distribution			214,801				(76,732	)			(43,004	)
Accrued expenses and other liabilities			18,567				66,073				22,091
Deferred income			36,645				55,201				288,261
Guest deposits			258,743				153,261				(221,295	)
Net cash provided by operating activities			2,827,928				3,764,414				3,158,800
Cash flows from investing activities
Proceeds from sales of equipment			7,050				71,471				140,100
Capital expenditures			(2,844,837	)			(3,204,056	)			(2,020,538	)
Proceeds from investments			200,000				—				—
Net cash used in investing activities			(2,637,787	)			(3,132,585	)			(1,880,438	)
Cash flows from financing activities
Proceeds from line of credit/notes payable			750,000				1,000,000				—
Principal payments on notes payable			(800,004	)			(800,004	)			(800,004	)
Proceeds from capital leases			—				—				559,592
Payments on capital leases			(154,645	)			(187,227	)			(159,310	)
Net collections from (advances to) related parties			27,979				(697,032	)			(571,488	)
Net cash used in financing activities			(176,670	)			(684,263	)			(971,210	)
Net increase (decrease) in cash and cash equivalents			13,471				(52,434	)			307,152
Cash and cash equivalents, beginning of year			977,849				1,030,283				723,131
Cash and cash equivalents, end of year		$	991,320			$	977,849			$	1,030,283
Supplemental disclosure
Cash paid for interest		$	844,606			$	791,627			$	644,929

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

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2007 and 2006

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, most of which were sold to outside parties. The majority of the condominium units sold are provided as hotel accommodations by their owners under a Rental Pool and Agency Appointment Agreement (the “Rental Pool”). Other resort facilities include two 18-hole golf courses, 45 tennis courts, three swimming pools, three restaurants, a convention facility with approximately 95,000 square feet of meeting and function space, a health spa, a fitness center, shops and other facilities necessary for the operation of a resort.
2.		Significant Accounting Policies
		A summary of the Company’s significant accounting policies are as follows:
		Use of Estimates
		The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. The Company places its cash with high credit quality financial institutions. Cash balances with these financial institutions may exceed the amount insured by the FDIC.
		Investments
		Investments held at December 31, 2007 consist of a Certificate of Deposit yielding interest of 5.07%, which mature in April 2008. Investments held at December 31, 2006 consisted of a U.S. Treasury Securities and a Certificate of Deposit yielding interest between 2.96% and 4.94%, which matured through April 2007. Investments are held to maturity and recorded at amortized cost, which approximates fair market value.
		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.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2007 and 2006

		Resort Inventory and Supplies
		Inventory includes operating materials and supplies, principally food and beverage, golf and tennis merchandise, and is accounted for at the lower of first-in, first-out average cost or market.
		Property, Buildings and Equipment
		Property, buildings and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets on a straight-line basis.
		Certain expenditures for renewals and improvements that significantly add to or extend the useful life of an asset are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. When property, buildings and equipment are retired or otherwise disposed, the cost of the assets and related accumulated depreciation amounts are removed from the accounts, and any resulting gains or losses are reflected in operations.
		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.
		Amortization expense for deferred charges amounted to approximately $16,300 for each of the years ended December 31, 2007, 2006 and 2005. Amortization expense will be approximately $16,000 for each of the years ending December 31, 2008 and 2009.
		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, 2007, 2006 and 2005 include rental pool distributions to participants and maintenance escrow fund approximating $4,900,000, $4,800,000 and $4,700,000, 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, 2007 and 2006

		Employee Benefit Plan
		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 $48,000, $53,000 and $55,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
		Recent Accounting Pronouncements
		In December 2007, the FASB issued Statement No. 141 (revised), Business Combinations (SFAS No. 141(R)). The standard changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. Management is currently evaluating the effect, if any, the adoption will have on the Company’s financial position and results of operations.
		In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No. 160). The standard changes the accounting for noncontrolling (minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated stockholders’ equity, and the elimination of “minority interest” accounting in results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS No. 160 revises the accounting for both increases and decreases in a parent’s controlling ownership interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. Management is currently evaluating the effect, if any, the adoption will have on the Company’s financial position and results of operations.
		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.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2007 and 2006

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

		2007				2006
Rental pool unit owner deposits for maintenance reserve fund held in a bank account which bears an interest rate of 3% and 1.36%		$	869,796			$	517,680
Security deposits held on long-term rentals			20,273				18,570
		$	890,069			$	536,250

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

		Estimated
		Useful
		Lives				2007				2006
Land and land improvements						$	6,809,179			$	6,809,179
Buildings and recreational facilities			10–40				27,520,130				27,415,173
Machinery and equipment			5–15				16,090,540				15,191,068
Construction in progress							1,982,166				418,353
							52,402,015				49,833,773
Accumulated depreciation							(26,908,874	)			(25,130,024	)
						$	25,493,141			$	24,703,749

		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 $1,985,000, $1,825,000 and $1,805,000, for the years ended December 31, 2007, 2006 and 2005, respectively.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2007 and 2006

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 2007, 2006 and 2005, the Company recorded approximately $11,000, $17,000 and $28,000, 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, $114,300 and $129,100 for the years ended December 31, 2007, 2006 and 2005, respectively. Future minimum lease payments under these leases are payable during the year ending December 31 as follows:

2008		$	133,531
Less: Amount representing interest			5,686
		$	127,845

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

		2007				2006
Accrued payroll and related expenses		$	1,278,031			$	1,183,699
Accrued insurance			695,965				907,633
Other accrued expenses and liabilities			437,570				301,668
		$	2,411,566			$	2,393,000

6.		Notes Payable and line of credit
		Notes payable consist of the following:

		2007				2006
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		$	9,466,654			$	10,266,658
Less: Current portion			(800,004	)			(800,004	)
		$	8,666,650			$	9,466,654

The 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, 2007 was 6.72%.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2007 and 2006

Future maturities of Notes Payable during the year ending December 31 are as follows:

2008		$	800,004
2009			8,666,650
		$	9,466,654

		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 term note subject to specific covenants until January 31, 2008. As of December 31, 2007, the outstanding balance related to this line was $1,750,000. As of March 28, 2008, the Company is working with the lender to extend the maturity date of the line of credit.
7.		Resort Revenues and Operating Costs of Resort
		Resort revenues and operating costs of resort are comprised of the following:

		Year Ended December 31,
		2007				2006				2005
Resort Revenues
Room revenue subject to rental pool agreement		$	12,259,889			$	12,005,201			$	11,589,794
Food and beverage			15,117,109				15,259,409				13,451,252
Resort facilities and other			16,238,919				16,343,582				15,632,728
		$	43,615,917			$	43,608,192			$	40,673,774
Operating Costs of Resort
Distribution to rental pool participants		$	4,909,148			$	4,840,873			$	4,672,047
Food and beverage			12,897,162				12,251,041				11,070,251
Resort facilities and other			15,407,847				15,059,260				14,951,056
		$	33,214,157			$	32,151,174			$	30,693,354

8.		Related Party Transactions
		Amounts due from related parties as of December 31, are comprised of the following:

		2007				2006
Saddlebrook Resort Condominium Association, Inc.		$	98,805			$	133,879
Saddlebrook Holdings, Inc.			61,804				3,916,278
Dempsey and Daughters, Inc.			109,917				597,312
Dempsey Resort Management, Inc.			—				70,391
Saddlebrook Properties LLC			3,766				3,716
Saddlebrook Realty, Inc.			7,311				6,658
Saddlebrook Investments, Inc.			—				343
Saddlebrook International Tennis, Inc.			1,926,293				—
Other			20,657				16,657
		$	2,228,553			$	4,745,234

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2007 and 2006

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

		2007				2006
Saddlebrook International Tennis, Inc.		$	—			$	2,488,702

		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 a tennis training facility and preparatory school 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 and it’s guests, which amounted to approximately $1,552,000, $1,739,000 and $1,579,000, for the years ended December 31, 2007, 2006 and 2005, 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 is 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.
		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 $1,650,000, $1,729,000 and $1,504,000, for the years ended December 31, 2007, 2006 and 2005, 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, 2007.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2007 and 2006

		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 $209,000, $206,000 and $249,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
		Future minimum lease payments under noncancelable operating leases with initial lease terms in excess of one year are as follows:

2008		$	106,154
2009			78,155
2010			46,761
2011			—
2012 and thereafter			—
		$	231,070

10.		Investment in Stock
		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, 2007) and the increase in equity cumulative to date ($215,504 as of December 31, 2007) 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, 2007. 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.		Insurance Claim
		On August 12, 2007 the Company experienced damage to electrical facilities and the fire alarm system for which the Company filed a claim with its insurance company. As of December 31, 2007, the Company has incurred approximately $371,000 toward the repair of the damaged electrical facilities and fire alarm system and received reimbursement of $150,000 from the insurance company toward settlement of this claim. The insurance proceeds, net of expenses not related to the replacement of the facilities and the alarm system, is recorded in other income in the accompanying 2007 statements of operations. The Company estimates that all of the costs related to this expense, net of the $100,000 insurance deductible, to be reimbursed by insurance during the second quarter of 2008. However, actual amounts reimbursed could differ from this estimate. Insurance proceeds expected to be received during 2008 have not been recorded as a receivable at December 31, 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

We have audited the accompanying balance sheets 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, 2007 and 2006, and the related statements of operations and changes in participants’ fund balance for the years 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 audits.

We conducted our audits 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 audits provide 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, 2007 and 2006, and the results of its operations and the changes in participants’ fund balance for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Aidman, Piser & Company, P.A.

Tampa, Florida
March 28, 2008

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 statements of operations, and of changes in participants’ fund balance present fairly, in all material respects, the results of operations and changes in participants’ fund balance of Saddlebrook Rental Pool Operation (funds created for participants who have entered into a rental pool agreement as explained in Note 1) for the year 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Orlando, Florida

September 11, 2006

Saddlebrook Rental Pool Operation
Balance Sheets
December 31, 2007 and 2006

		2007				2006
Distribution Fund
Assets
Receivable from Saddlebrook Resorts, Inc.		$	905,234			$	691,861
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	758,745			$	590,663
Due to maintenance escrow fund			146,489				101,198
		$	905,234			$	691,861
Maintenance Escrow Fund
Assets
Cash in bank		$	869,796			$	715,241
Receivables
Distribution fund			146,489				101,198
Interest			—				268
Prepaid expenses and other assets			1,774				788
Linen inventory			84,317				77,155
		$	1,102,376			$	894,650
Liabilities and Participants’ Fund Balance
Due to Saddlebrook Resorts, Inc.		$	120,702			$	124,745
Participants’ fund balance			981,674				769,905
		$	1,102,376			$	894,650

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

Saddlebrook Rental Pool Operation
Statements of Operations
Years Ended December 31, 2007, 2006 and 2005

		2007				2006				2005
Distribution Fund
Rental pool revenues		$	12,259,889			$	12,005,201			$	11,589,794
Deductions
Marketing fee			919,491				900,390				869,235
Management fee			1,532,487				1,500,650				1,448,724
Travel agent commissions			451,747				418,246				445,167
Credit card expense			231,588				216,087				196,234
Bad debt expense and other			—				1,000				6,000
			3,135,313				3,036,373				2,965,360
Net rental income			9,124,576				8,968,828				8,624,434
Operator share of net rental income			(4,106,058	)			(4,035,972	)			(3,880,995	)
Other revenues (expenses)
Complimentary room revenues			73,453				63,932				73,450
Minor repairs and replacements			(182,823	)			(155,915	)			(144,842	)
Amounts available for distribution to participants and maintenance escrow fund		$	4,909,148			$	4,840,873			$	4,672,047

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, 2007, 2006 and 2005

		2007				2006				2005
Distribution Fund
Balances, beginning of year		$	—			$	—			$	—
Additions
Amounts available for distribution			4,909,148				4,840,873				4,672,047
Reductions
Amounts withheld for maintenance escrow fund			(803,090	)			(804,901	)			(791,052	)
Amounts accrued or paid to participants			(4,106,058	)			(4,035,972	)			(3,880,995	)
Balances, end of year		$	—			$	—			$	—
Maintenance Escrow Fund
Balances, beginning of year		$	769,905			$	566,450			$	3,735,450
Additions
Amount withheld from distribution fund			803,090				804,901				791,052
Unit owner payments			16,411				65,883				1,207,780
Interest earned			27,401				18,720				15,357
Reductions
Unit renovations			(163,798	)			(307,469	)			(4,595,843	)
Refunds of excess amounts in escrow accounts			(48,416	)			(25,205	)			(38,612	)
Maintenance charges			(304,754	)			(281,863	)			(303,988	)
Linen amortization			(118,165	)			(71,512	)			(244,746	)
Balances, end of year		$	981,674			$	769,905			$	566,450

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

Saddlebrook Rental Pool Operation
Notes to Financial Statements
December 31, 2007 and 2006

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.