SADDLEBROOK RESORTS INC - Annual Report: 2008 (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, 2008

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

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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, 2008, there were approximately 712 persons employed by the Company. The Company’s management relationship with its employees is excellent and there are no collective bargaining agreements.

Item 1A. Risk Factors

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

A total of 556 condominium units are at the Resort comprised of one-, two- and three-bedroom suites. Of these condominium units, 408 are designed for hotel occupancy and located in an area called the Walking Village. The remaining 148 are slightly larger, designed for longer-termed rental, and are located in an area called the Lakeside Village. At December 31, 2008, there were 537 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,
		2008				2007				2006				2005				2004
Resort
Resort revenues		$	45,766,000			$	43,616,000			$	43,608,000			$	40,674,000			$	40,020,000
Interest expense			599,000				861,000				808,000				661,000				1,727,000
Write off debt issue costs			—				—				—				—				345,000
Litigation settlement, net			—				—				—				—				3,178,000
Net income			2,571,000				531,000				1,833,000				1,221,000				3,021,000
Total assets			36,684,000				35,447,000				36,429,000				33,227,000				33,578,000
Total debt			11,167,000				11,217,000				11,267,000				11,067,000				11,867,000
Capital leases			—				128,000				282,000				470,000				69,000
Rental Pool
Rental Pool revenues			13,497,000				12,260,000				12,005,000				11,590,000				11,502,000
Total assets			674,000				905,000				692,000				720,000				919,000
Net income			5,347,000				4,909,000				4,841,000				4,672,000				4,607,000
Average distribution per Rental Pool participant			9,983				9,125				8,981				8,620				8,469

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 March 2008, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 161 Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133, which requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently evaluating the effect of adopting SFAS No. 161 on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 162, Hierarchy of Generally Accepted Accounting Principles. This statement is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement will be effective 60 days following the U.S. Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendment to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The adoption of this Statement is not expected to have a material impact on the Company’s 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 SFAS 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, 2008, the Company’s management evaluated assets for impairment in accordance with SFAS 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.

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

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

Impact of Current Economic Conditions

The Company believes that the reduced occupancy rates during the third and fourth quarters of 2008 were due in large part to the current state of the United States’ economy and the increased oil and gasoline prices that impacted travel costs. Businesses appear to have altered their spending patterns in response to the economic conditions, resulting in fewer corporate bookings.

Given these economic conditions the Company has increased its focus on managing costs. For example, the Company has made some staffing reductions. The Company will continue to review costs to identity future opportunities for cost reduction.

Liquidity and Capital Resources

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. The Company’s current debt agreement contains a provision for additional financing from the lender, subject to specific covenants. As of December 31, 2008 the outstanding balance related to this line was $2,500,000.

On March 12, 2009 the Company refinanced $10,600,000 (the remaining principle balance of the term note along with the outstanding balance of the additional line of financing). The new term note is due March 12, 2014, and requires monthly principal payments of $88,333, together with monthly payment of all accrued interest. The term note bears interest at 2.5% over the one month LIBOR index. The debt agreement contains a provision for additional financing from the lender for amounts up to $2,500,000.

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 on the Company’s business or financial condition.

Results of Operations

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

		Year ended December 31,
		2008				2007				2006
Rental Pool Revenues			29	%			28	%			27	%
Food and beverage			34				35				34
Resort facilities and other			37				37				39
			100	%			100	%			100	%

2008 Compared to 2007

The Company’s total revenues increased $2,150,000, which is approximately 5% over the prior year. Paid room nights decreased slightly, (less than 1%), however the average room rate increased by about 10%, resulting in an increase of $1,237,000 in Rental Pool revenues.

The Company’s costs and expenses increased $433,000, a 1% increase over the prior year. Expenses of the Rental Pool Operation increased $452,000, or about 14% over the prior year. This increase is directly related to the increase in Rental Pool revenues, along with increases in commissions paid to third party travel agents.

The Company’s net income for the year 2008 of $2,571,000 is a $2,039,000 increase from the prior year. The Rental Pools’ increase in amounts available for distribution to participants was $438,000.

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.

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 as of December 31, 2008

		Less than				1-3				3-5				More than
		1 year				years				years				5 years				Total
Long-term debt		$	1,362,000			$	3,180,000			$	6,625,000			$	0			$	11,167,000
Interest on long-term debt			347,000				966,000				275,000				0				1,588,000
Operating leases			125,000				0				0				0				125,000
Total		$	1,834,000			$	4,146,000			$	6,900,000			$	0			$	12,880,000

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, 2008, under the direction of our chief executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures and concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

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

As of December 31, 2008, management conducted an assessment of the Company’s internal control over financial reporting based on the criteria established in the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management concluded that, as of December 31, 2008, 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, 2008, 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 82		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 74		Director and Chief Marketing Officer. Previously, Director and President for more than five years.
Gregory R. Riehle Age 52		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 50		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 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.
Donald L. Allen Age 69		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, 2008.

Summary Compensation Table

		Fiscal												Other annual
Name and Principal Position		year				Salary				Bonus				compensation (1)				Total
Thomas L. Dempsey			2008			$	200,000			$	—			$	16,555			$	216,555
Chairman of the Board and			2007				200,000				—				16,584				216,584
Chief Executive Officer			2006				200,000				—				37,350				237,350
Eleanor Dempsey			2008				141,000				—				24,736				165,736
Vice Chairman of the Board			2007				141,000				—				24,736				165,736
			2006				141,000				—				3,486				144,486
Donald Allen			2008				55,000				7,860				705				63,565
Vice President and Treasurer			2007				76,154				7,830				916				84,900
			2006				80,000				15,000				1,407				96,407
Gregory R. Riehle			2008				150,288				59,756				20,207				230,251
Vice President, Secretary and			2007				120,000				31,914				27,194				179,108
General Manager			2006				120,000				38,816				32,308				191,124
Maureen Dempsey			2008				141,000				—				23,168				164,168
Vice President and Assistant			2007				141,000				—				18,926				159,926
Secretary			2006				141,000				—				21,469				162,469
Diane L. Riehle			2008				141,000				—				27,340				168,340
Vice President and Assistant			2007				141,000				—				20,954				161,954
Secretary			2006				141,000				—				23,349				164,349
Richard Boehning			2008				144,800				34,238				3,236				182,274
Chief Marketing Officer			2007				144,800				9,110				3,389				157,299
			2006				144,800				34,477				5,484				184,761

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		$	—			$	6,900			$	4,711			$	4,944				—
Eleanor Dempsey			21,250				—				—				3,486				—
Donald Allen			—				—				—				76				629
Gregory R. Riehle			20,207				—				—				—				—
Maureen Dempsey			14,942				3,990				3,847				389				—
Diane L. Riehle			16,303				5,150				5,887				—				651
Richard Boehning			—				—				—				2,348				888

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

Saddlebrook International Tennis, Inc. (“SIT”) 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. 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 is reimbursed for actual expenses and other costs incurred on behalf of this company.

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

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

Item 14. Principal Accounting Fees and Services

Cherry, Bekaert & Holland, L.L.P. served as the Company’s independent registered certified pubic accounting firm for the fiscal year ended December 31, 2008. Aidman, Piser & Company, P.A., whose practice was merged into Cherry, Bekaert & Holland, L.L.P. in 2008, served as the Company’s independent registered certified public accounting firm for the fiscal years ended December 31, 2007 and December 31, 2006.

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

Audit Fees: $100,000,$91,500 and $91,500 for the fiscal years ended December 31, 2008, 2007 and 2006, 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: $22,604, $21,394 and $20,002 for the fiscal years ended December 31, 2008, 2007 and 2006, 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).
	10.11		Notice of Future Advance and Fifth Amended and Restated Mortgage, Security Agreement and Fixture Filing dated March 12, 2009.
	10.12		Third Amendment to Loan Agreement dated March 12, 2009.
	10.13		Consolidated, Amended and Restated Promissory Note dated March 12, 2009.
	10.14		Future Advance Promissory Note dated March 12, 2009.
	10.15		Revolving Line of Credit Promissory Note dated March 12, 2009.
	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.

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 30, 2009.

/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, 2008, 2007 and 2006

Saddlebrook Resorts, Inc.
Report of Independent Registered Certified Public Accounting Firm			19
Financial Statements
Balance Sheets as of December 31, 2008 and 2007			20
Statements of Operations for the years ended December 31, 2008, 2007 and 2006			21
Statements of Changes in Shareholder’s Equity for the years ended December 31, 2008, 2007 and 2006			22
Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006			23
Notes to Financial Statements			24-33
Saddlebrook Rental Pool Operation
Report of Independent Registered Certified Public Accounting Firm			34
Financial Statements
Balance Sheets as of December 31, 2008 and 2007			35
Statements of Operations for the years ended December 31, 2008, 2007 and 2006			36
Statements of Changes in Participants’ Fund Balance for the years ended December 31, 2008, 2007 and 2006			37
Notes to Financial Statements			38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholder of
Saddlebrook Resorts, Inc.

We have audited the accompanying balance sheets of Saddlebrook Resorts, Inc. (the “Company”) as of December 31, 2008 and 2007 and the related statements of operations, shareholder’s equity, and cash flows for the years ended December 31, 2008, 2007 and 2006. 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 audits 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 audits 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 the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years ended December 31, 2008, 2007 and 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/ Cherry, Bekaert & Holland, L.L.P.

March 30, 2009

Saddlebrook Resorts, Inc.
Balance Sheets
December 31, 2008 and 2007

		2008				2007
Assets
Current assets
Cash and cash equivalents		$	3,752,278			$	991,320
Escrowed cash			121,801				890,069
Short-term investments			175,000				175,000
Short-term escrowed investments			399,205				—
Trade accounts receivable, net of allowance for doubtful accounts of $44,791 and $44,521			1,362,339				3,200,585
Due from related parties			2,112,747				2,228,553
Resort inventory and supplies			1,832,820				1,679,645
Prepaid expenses and other assets			648,660				756,956
Total current assets			10,404,850				9,922,128
Property, buildings and equipment, net			24,743,737				25,493,141
Due from related parties, net of current portion			1,500,000				—
Deferred charges, net			35,670				32,022
Total assets		$	36,684,257			$	35,447,291
Liabilities and Shareholder’s Equity
Current liabilities
Current portion of long-term debt		$	1,361,667			$	800,004
Current portion of capital leases			—				127,845
Line of credit			—				1,750,000
Escrowed deposits			521,006				890,069
Accounts payable			770,811				1,668,050
Accrued rental distribution			674,147				905,234
Accrued expenses and other liabilities			2,045,784				2,411,566
Current portion of deferred income			823,223				814,861
Guest deposits			2,453,431				1,657,194
Total current liabilities			8,650,069				11,024,823
Long-term debt due after one year			9,804,983				8,666,650
Long-term portion of deferred income			1,512,483				1,609,632
Total liabilities			19,967,535				21,301,105
Commitments and contingencies (Note 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			15,603,595				13,033,059
Total shareholder’s equity			16,716,722				14,146,186
Total liabilities and shareholder’s equity		$	36,684,257			$	35,447,291

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

Saddlebrook Resorts, Inc.
Statements of Operations
Years ended December 31, 2008, 2007 and 2006

		2008				2007				2006
Resort revenues (Note 7)		$	45,765,908			$	43,615,917			$	43,608,192
Costs and expenses:
Operating costs of resort (Note 7)			33,686,206				33,214,157				32,151,174
Sales and marketing			2,881,335				2,813,049				2,712,147
General and administrative			4,168,922				4,402,492				4,415,405
Depreciation			2,110,455				1,984,502				1,824,697
Total costs and expenses			42,846,918				42,414,200				41,103,423
Net operating income before other expenses and (income)			2,918,990				1,201,717				2,504,769
Other expenses and (income):
Interest expense			598,583				860,914				807,935
Interest income			(45,918	)			(49,571	)			(80,912	)
Other income			(204,211	)			(140,688	)			(55,667	)
Total other expense (income)			348,454				670,655				671,356
Net income		$	2,570,536			$	531,062			$	1,833,413

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, 2008, 2007 and 2006

						Additional								Total
		Common				Paid-In				Retained				Shareholder’s
		Stock				Capital				Earnings				Equity
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
Net income			—				—				2,570,536				2,570,536
Balances at December 31, 2008		$	100,000			$	1,013,127			$	15,603,595			$	16,716,722

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

Saddlebrook Resorts, Inc.
Statements of Cash Flows
Years ended December 31, 2008, 2007 and 2006

		2008				2007				2006
Cash flows from operating activities
Net income		$	2,570,536			$	531,062			$	1,833,413
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			2,130,754				2,000,810				1,841,005
Loss (gain) on disposal of property, buildings and equipment			2,149				63,894				(17,638	)
Additions (reductions) to allowance for doubtful accounts			270				(3,026	)			2,128
Change in assets and liabilities
Decrease (increase) in
Escrowed cash			768,268				(353,819	)			(343,246	)
Escrowed investments			(399,205	)			197,561				(197,561	)
Trade accounts receivable			1,837,976				(745,767	)			60,948
Resort inventory and supplies			(153,175	)			(130,298	)			(167,601	)
Prepaid expenses and other assets			108,296				87,416				(66,913	)
(Decrease) increase in
Escrowed deposits			(369,063	)			156,259				540,806
Accounts payable			(897,239	)			495,080				81,270
Accrued rental distribution			(231,087	)			214,801				(76,732	)
Accrued expenses and other liabilities			(365,782	)			18,567				66,073
Deferred income			(88,787	)			36,645				55,201
Guest deposits			796,237				258,743				153,261
Net cash provided by operating activities			5,710,148				2,827,928				3,764,414
Cash flows from investing activities
Proceeds from sales of equipment			9,396				7,050				71,471
Capital expenditures			(1,372,596	)			(2,844,837	)			(3,204,056	)
Proceeds from investments			—				200,000				—
Net cash used in investing activities			(1,363,200	)			(2,637,787	)			(3,132,585	)
Cash flows from financing activities
Proceeds from long-term debt			750,000				750,000				1,000,000
Principal payments on long-term debt			(800,004	)			(800,004	)			(800,004	)
Payments on capital leases			(127,845	)			(154,645	)			(187,227	)
Debt issue costs			(23,946	)			—				—
Net (advances to) collections from related parties			(1,384,195	)			27,979				(697,032	)
Net cash used in financing activities			(1,585,990	)			(176,670	)			(684,263	)
Net increase (decrease) in cash and cash equivalents			2,760,958				13,471				(52,434	)
Cash and cash equivalents, beginning of year			991,320				977,849				1,030,283
Cash and cash equivalents, end of year		$	3,752,278			$	991,320			$	977,849
Supplemental disclosure
Cash paid for interest		$	578,284			$	844,606			$	791,627

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

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2008 and 2007

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 and Escrowed Cash
		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 and cash equivalents and escrowed cash on deposit with financial institutions in the United States. In October and November 2008, the Federal Deposit Insurance Corporation (FDIC) temporarily increased coverage to $250,000 for substantially all depository accounts and temporarily provides unlimited coverage for certain qualifying and participating non-interest bearing transactions accounts. The increased coverage is scheduled to expire on December 31, 2009, at which time it is anticipated amounts insured by the FDIC will return to $100,000. During the year, the Company from time to time had amounts on deposit in excess of the insured limits. As of year end, the Company had $3,624,079 which exceed these insured amounts.
		Investments and Escrowed Investments
		Investments held at December 31, 2008 consist of a Certificate of Deposit yielding interest of 1.98%, which matures in March 2009 and escrowed investments consist of U.S. Treasury Securities yielding interest between .25% and .46% and maturing through July 2009. Investments held at December 31, 2007 consisted of a Certificate of Deposit yielding interest of 5.07%, which matured in April 2008. Investments are held to maturity and recorded at amortized cost, which approximates fair market value.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2008 and 2007

		Fair Value of Financial Instruments
		In September 2006, the Financial Accounting Standard Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements.
		Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157 for financial assets and liabilities, as well as for any other assets and liabilities that are carried at fair value on a recurring basis. The adoption of the provisions of SFAS No. 157 related to financial assets and liabilities and other assets and liabilities that are carried at fair value on a recurring basis did not materially impact the Company’s financial position and results of operations.
		In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, “Effective Date of FASB Statement No. 157” which provides for a one-year deferral of the provisions of SFAS No. 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis. The Company has evaluated the impact of adopting the provisions of Statement No. 157 for non-financial assets and liabilities that are recognized or disclosed on a nonrecurring basis and deems there to be no material impact on the financial statements.
		In October 2008, the FASB issued FSP No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for that Asset is not Active”, which provides guidance for determining the fair value of a financial asset in an inactive market. The adoption of FSP 157-3 did not have a material impact on the Company’s financial statements.
		SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS No. 157 describes three levels of inputs that may be used to measure fair value:
		Level 1 — quoted prices in active markets for identical assets or liabilities;
		Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable;
		Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions).

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2008 and 2007

The following table summarizes assets measured at fair value on a recurring basis at December 31, 2008, as required by SFAS No. 157. These investments are recorded as short-term investments and short term-escrowed investments in the balance sheets.

		Fair Value Measurements Using:
		Level 1				Level 2				Level 3				Total
Assets:
Investments		$	175,000			$	—			$	—			$	175,000
Escrowed Investments			399,205			$	—			$	—				399,205
		$	574,205			$	—			$	—			$	574,205

		The fair value of all of the Company’s other financial assets and liabilities approximate their carrying value due to their short-term nature or market rates of interest associated with long-term obligations.
		Accounts Receivable
		Substantially all of the Company’s accounts receivable is due from direct billings to companies or individuals who hold conferences or large group stays at the resort. Other receivables include quarterly membership fees and credit card charges. The Company performs ongoing credit evaluations of its customers’ financial conditions and establishes an allowance for doubtful accounts based upon factors surrounding specific customers, historical trends and other information. The Company generally does not require collateral or other security to support accounts receivable, although advance deposits may be required in certain circumstances.
		Resort Inventory and Supplies
		Inventory includes operating materials and supplies, principally food and beverage, golf and tennis merchandise, and is accounted for at the lower of first-in, first-out average cost or market.
		Property, Buildings and Equipment
		Property, buildings and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets on a straight-line basis.
		Certain expenditures for renewals and improvements that significantly add to or extend the useful life of an asset are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. When property, buildings and equipment are retired or otherwise disposed, the cost of the assets and related accumulated depreciation amounts are removed from the accounts, and any resulting gains or losses are reflected in operations.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2008 and 2007

		Asset Impairments
		The Company’s management periodically evaluates whether there has been a permanent impairment of long-lived assets, in accordance with SFAS 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, 2008, the Company’s management evaluated assets for impairment in accordance with SFAS 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.
		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. During 2008, approximately $24,000 in additional financing costs were incurred with the renewal of the Company’s line of credit facility. That renewal extended the maturity on the line of credit facility to coincide with the maturity on the original debt. The additional financing costs are being amortized over the remaining life of the debt outstanding.
		Amortization expense for deferred charges amounted to approximately $20,300 for the year ended December 31, 2008 and $16,300 for each of the years ended December 31, 2007 and 2006.
		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, 2008, 2007 and 2006 include rental pool distributions to participants and maintenance escrow fund approximating $5,300,000, $4,900,000 and $4,800,000, respectively.
		Advertising
		The Company charges costs of advertising to sales and marketing as incurred. The Company incurred advertising costs of approximately $535,000, $593,000 and $511,000 during the years ended December 31, 2008, 2007 and 2006, 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, 2008 and 2007

		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 matched one-half of the first 2% of an employee’s contribution through the year ended December 31, 2008. Company contributions approximated $46,000, $48,000 and $53,000 for the years ended December 31, 2008, 2007 and 2006, respectively. The Company has indefinitely suspended future matching contributions.
		Recent Accounting Pronouncements
		In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133, which requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently evaluating the effect of adopting SFAS No. 161 on the Company’s financial statements.
		In May 2008, the FASB issued SFAS No. 162, Hierarchy of Generally Accepted Accounting Principles. This statement is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement will be effective 60 days following the U.S. Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendment to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The adoption of this Statement is not expected to have a material impact on the Company’s financial statements.
		Also see Note 2, Fair Value of Financial Instruments.
3.		Escrowed Cash
		Escrowed cash, restricted as to use, as of December 31, is comprised of the following:

		2008				2007
Rental pool unit owner deposits for maintenance reserve fund held in a bank account which bears an interest rate of 1.48% and 3%		$	104,601			$	869,796
Security deposits held on long-term rentals			17,200				20,273
		$	121,801			$	890,069

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2008 and 2007

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

		Estimated
		Useful
		Lives				2008				2007
Land and land improvements						$	6,809,179			$	6,809,179
Buildings and recreational facilities			10—40				29,475,098				27,520,130
Machinery and equipment			5—15				16,967,184				16,090,540
Construction in progress							350,737				1,982,166
							53,602,198				52,402,015
Accumulated depreciation							(28,858,461	)			(26,908,874	)
						$	24,743,737			$	25,493,141

		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 $2,110,000, $1,985,000 and $1,825,000, for the years ended December 31, 2008, 2007 and 2006, respectively.
		The Company leased 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 2008, 2007 and 2006, the Company recorded approximately $6,000, $11,000 and $17,000, 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 for each of the years ended December 31, 2008, 2007 and 2006. The leases were satisfied during the year ending December 31, 2008.
5.		Accrued Expenses and Other Liabilities
		Accrued expenses and other liabilities as of December 31 consist of the following:

		2008				2007
Accrued payroll and related expenses		$	740,080			$	1,278,031
Accrued insurance			1,056,732				695,965
Other accrued expenses and liabilities			248,972				437,570
		$	2,045,784			$	2,411,566

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2008 and 2007

6.		Long-term Debt
		Long-term debt consist of the following:

		2008				2007
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		$	8,666,650			$	9,466,654
Less: Current portion			(1,361,667	)			(800,004	)
		$	7,304,983			$	8,666,650

		The term note at December 31, 2008 was due November 1, 2009, and required monthly principal payments of $66,667, together with monthly payment of all accrued interest. The term note bore interest at 2% over the one month LIBOR index. The rate at December 31, 2008 was 3.9%.
		At December 31, 2008 the Company had the ability to obtain an additional $5 million under a line of credit facility from the same lender subject to specific covenants until November 1, 2009. The line of credit facility bears interest at 2.5% over the one month LIBOR index. As of December 31, 2008, the outstanding balance related to this line was $2,500,000. The rate at December 31, 2008 was 4.4%.
		As discussed in Note 12, the Company refinanced both the term note and line of credit in March 2009.
		Future maturities of Long-term debt as of December 31, 2008 were as follows (which gives effect to the terms of the refinancing including rolling the $2,500,000 line of credit balance at December 31, 2008 into the new term loan):

2009		$	1,361,667
2010			1,060,000
2011			1,060,000
2012			1,060,000
2013			1,060,000
Thereafter			5,564,983
		$	11,166,650

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2008 and 2007

7.		Resort Revenues and Operating Costs of Resort
		Resort revenues and operating costs of resort are comprised of the following:

		Year Ended December 31,
		2008				2007				2006
Resort Revenues
Room revenue subject to rental pool agreement		$	13,496,999			$	12,259,889			$	12,005,201
Food and beverage			15,549,305				15,117,109				15,259,409
Resort facilities and other			16,719,604				16,238,919				16,343,582
		$	45,765,908			$	43,615,917			$	43,608,192
Operating Costs of Resort
Distribution to rental pool participants		$	5,346,747			$	4,909,148			$	4,840,873
Food and beverage			13,724,644				12,897,162				12,251,041
Resort facilities and other			14,614,815				15,407,847				15,059,260
		$	33,686,206			$	33,214,157			$	32,151,174

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

		2008				2007
Saddlebrook Resort Condominium Association, Inc.		$	133,162			$	98,805
Saddlebrook Holdings, Inc.			—				61,804
Dempsey and Daughters, Inc.			159,292				109,917
Dempsey Resort Management, Inc.			30,062				—
Saddlebrook Properties LLC			3,908				3,766
Saddlebrook Realty, Inc.			8,429				7,311
Saddlebrook Investments, Inc.			—				—
Saddlebrook International Tennis, Inc.			3,262,885				1,926,293
Other			15,009				20,657
		$	3,612,747			$	2,228,553

There were no amounts due to related parties as of December 31, 2008 and 2007.

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 its guests, which amounted to approximately $1,203,000, $1,552,000 and $1,739,000, for the years ended December 31, 2008, 2007 and 2006, respectively.

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2008 and 2007

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 $1,281,000, $1,650,000 and $1,729,000, for the years ended December 31, 2008, 2007 and 2006, 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, 2008.
		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 $106,000, $209,000 and $206,000 for the years ended December 31, 2008, 2007 and 2006, respectively.
		Future minimum lease payments under noncancelable operating leases with initial lease terms in excess of one year are as follows:

2009		$	78,000
2010			47,000
		$	125,000

Saddlebrook Resorts, Inc.
Notes to Financial Statements
December 31, 2008 and 2007

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, 2008) and the increase in equity cumulative to date ($182,795 as of December 31, 2008) 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, 2008. 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, which also resulted in the need to replace and upgrade the fire alarm system for the condominium units which are governed by Saddlebrook Resorts Condominium Association, Inc., (the “Association”). The Company and the Association filed an insurance claim. As of December 31, 2008, the Company and the Association have incurred approximately $882,000 toward the repair of the damaged electrical facilities and fire alarm systems and have received reimbursement of $637,000 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 2008 and 2007 statements of operations. The Company estimates that all of the remaining costs related to this event, net of the $100,000 insurance deductible, will be reimbursed by insurance. However, actual amounts reimbursed could differ from this estimate. Insurance proceeds expected to be received during 2009 have not been recorded as a receivable at December 31, 2008.
12.		Subsequent Event
		On March 12, 2009, the Company refinanced $10,600,000 (the remaining $8,100,000 principle balance of the term note along with the $2,500,000 line of credit outstanding). The new consolidated term note is due March 12, 2014, and requires monthly principal payments of $88,333, together with monthly payment of all accrued interest. The term note bears interest at 2.5% over the one month LIBOR index. The debt agreement contains a provision for a new line of credit from the lender for amounts up to $2,500,000. Borrowings under this line of credit bears interest at 2.5% over the one month LIBOR index (which is payable monthly). The new line of credit expires on March 12, 2011.

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, 2008 and 2007 and the related statements of operations and changes in participants’ fund balance for the years ended December 31, 2008, 2007 and 2006. 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 audits 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 audits 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, such financial statements present fairly, in all material respects, the financial position of Saddlebrook Rental Pool Operation as of December 31, 2008 and 2007 and the results of their operations and changes in participants’ fund balance for the years ended December 31, 2008, 2007 and 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/ Cherry, Bekaert & Holland, L.L.P.

March 30, 2009

Saddlebrook Rental Pool Operation
Balance Sheets
December 31, 2008 and 2007

		2008				2007
Distribution Fund
Assets
Receivable from Saddlebrook Resorts, Inc.		$	674,147			$	905,234
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	568,641			$	758,745
Due to maintenance escrow fund			105,506				146,489
		$	674,147			$	905,234
Maintenance Escrow Fund
Assets
Cash in bank		$	503,806			$	869,796
Receivables
Distribution fund			105,506				146,489
Interest			762				—
Prepaid expenses and other assets			2,301				1,774
Linen inventory			—				84,317
		$	612,375			$	1,102,376
Liabilities and Participants’ Fund Balance
Due to Saddlebrook Resorts, Inc.		$	56,695			$	120,702
Participants’ fund balance			555,680				981,674
		$	612,375			$	1,102,376

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

Saddlebrook Rental Pool Operation
Statements of Operations
Years Ended December 31, 2008, 2007 and 2006

		2008				2007				2006
Distribution Fund
Rental pool revenues		$	13,496,999			$	12,259,889			$	12,005,201
Deductions
Marketing fee			1,012,275				919,491				900,390
Management fee			1,687,125				1,532,487				1,500,650
Travel agent commissions			624,878				451,747				418,246
Credit card expense			263,283				231,588				216,087
Bad debt expense and other			—				—				1,000
			3,587,561				3,135,313				3,036,373
Net rental income			9,909,438				9,124,576				8,968,828
Operator share of net rental income			(4,459,247	)			(4,106,058	)			(4,035,972	)
Other revenues (expenses)
Complimentary room revenues			62,287				73,453				63,932
Minor repairs and replacements			(165,731	)			(182,823	)			(155,915	)
Amounts available for distribution to participants and maintenance escrow fund		$	5,346,747			$	4,909,148			$	4,840,873

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, 2008, 2007 and 2006

		2008				2007				2006
Distribution Fund
Balances, beginning of year		$	—			$	—			$	—
Additions
Amounts available for distribution			5,346,747				4,909,148				4,840,873
Reductions
Amounts withheld for maintenance escrow fund			(887,500	)			(803,090	)			(804,901	)
Amounts accrued or paid to participants			(4,459,247	)			(4,106,058	)			(4,035,972	)
Balances, end of year		$	—			$	—			$	—
Maintenance Escrow Fund
Balances, beginning of year		$	981,674			$	769,905			$	566,450
Additions
Amount withheld from distribution fund			887,500				803,090				804,901
Unit owner payments			317,676				16,411				65,883
Interest earned			12,111				27,401				18,720
Reductions
Unit renovations			(1,057,552	)			(163,798	)			(307,469	)
Refunds of excess amounts in escrow accounts			(40,131	)			(48,416	)			(25,205	)
Maintenance charges			(342,410	)			(304,754	)			(281,863	)
Linen amortization			(203,188	)			(118,165	)			(71,512	)
Balances, end of year		$	555,680			$	981,674			$	769,905