SADDLEBROOK RESORTS INC - Annual Report: 2012 (Form 10-K)

SADDLEBROOK RESORTS INC - Annual Report: 2012 (Form 10-K)

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Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark one)

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

For the fiscal period ended December 31, 2012

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

For the transition period from to

COMMISSION FILE NUMBER: No 1934 act file number assigned

(1933 act file no. 2-65481)

SADDLEBROOK RESORTS, INC.

(Exact name of registrant as specified in its charter)


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

5700 Saddlebrook Way, Wesley Chapel, Florida 33543-4499

(Address of principal executive offices)

813-973-1111

(Registrant’s telephone number, including area code)

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

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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.

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

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

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

At December 31, 2012, there were approximately 492 persons employed by the Company. The Company’s management relationship with its employees is excellent and there are no collective bargaining agreements.

Item 1A. Risk Factors

Not applicable.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

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

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

A total of 556 condominium units are at the Resort comprised of one-, two- and three-bedroom suites. Of these condominium units, 408 are designed for hotel occupancy and located in an area called the Walking Village. The remaining 148 are slightly larger, designed for longer-termed rental, and are located in an area called the Lakeside Village. At December 31, 2012, there were 533 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.

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Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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

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

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

Item 6. Selected Financial Data

Not applicable.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

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

Recent Accounting and Reporting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that may have an impact on our accounting and reporting. We believe that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on our accounting or reporting or that such impact will not be material to our financial position, results of operations, and cash flows when implemented.

Critical Accounting Policies and Estimates

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

Asset Impairments - The Company’s management periodically evaluates whether there has been a permanent impairment of long-lived assets. The Company’s management believes that the accounting estimates related to asset impairments are critical estimates for the following reasons: (1) the ongoing changes in management’s expectations regarding future utilization of assets; and (2) the impact of an impairment on reported assets and earnings could be material. During the years ended December 31, 2012 and 2011, the Company’s management evaluated assets for impairment 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 using the straight-line method at annual rates that amortize the original costs, net of salvage values, of the depreciable assets over their estimated useful lives. Management’s estimation of assets’ useful lives are critical estimates for the following reasons: (1) forecasting the salvage value for long-lived assets over a long period of time is subjective; (2) changes may take place that could render an asset obsolete or uneconomical; and (3) a change in the useful life of a long-lived asset could have a material impact on reported results of operations and reported asset values. The Company’s management believes the estimated useful life corresponds to the anticipated physical life for most assets. Although it is difficult to predict values far into the future, the Company has a long history of actual costs and values that are considered in reaching a conclusion as to the appropriate useful life of an asset.

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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 the memberships, which management has estimated to be approximately 12 years.

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

Loss Contingencies – The Company estimates loss contingencies in accordance with FASB ASC 450-20 Loss Contingencies, which states that a loss contingency shall be accrued by a charge to income if both of the following conditions are met: (a) information available before the financial statements are issued or are available to be issued indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can be reasonably estimated. We do not believe that the ultimate resolution of our litigation matters will have an adverse effect on the Company’s financial position and results of operations. As such, there have been no adjustments for loss contingencies to the accompanying financial statements as of and for the year ended December 31, 2012.

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

As a result of the continuing economic recession, the hospitality industry has suffered declines in terms of hotel rates and occupancy during 2012 and 2011. These negative industry trends have similarly impacted the Company’s revenues during this period, which contributed to the Company’s approximate $2,722,000 net loss in 2012 and an approximate $3,244,000 net loss in 2011.

In response to this situation, management has implemented the following programs and measures to help the Company mitigate these unfavorable conditions:

A. Management has continued its focus on controlling the variable costs for the Company. This includes reducing labor costs and sales and marketing expenses by actively reviewing the Company’s lodging, food and beverage, and facilities demands and attempting to match them with the appropriate level of resources.

B. During the first quarter of 2013, the Company has experienced increased resort revenues primarily due to increased group bookings and the related activity compared to the same period in 2012. During 2012 and through the first quarter of 2013, the Company has continued to invest significantly in the grounds and building exteriors to increase the attractiveness of the Resort for potential group and social customers planning for conferences, meetings or social events such as weddings. As a result of this investment, the Company has experienced and expects to continue to experience increased group bookings for the remainder of the first half of 2013. These increased bookings are expected to positively impact the Company’s results of operations and cash flows during 2013.

C. The Company is in its third year of its association with two top golf teaching professionals which has significantly increased the brand awareness and recognition of the Company’s affiliated Golf and Tennis Academy by industry leaders. As stated above, the Company has significantly invested in the Resort’s grounds, specifically upgraded golf training facilities. In addition, the Company has been and will continue to appeal to international students by aligning with organizations that have the ability to direct these potential students to the Golf and Tennis Academy. These investments have resulted in increased numbers of students attending the Golf and Tennis Academy during 2012 and 2013.

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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 and its affiliates’ current cash reserves and cash generated by the Resort’s operations.

The Company’s term note obtained from a third-party lender bears interest at 2.5% over the one month LIBOR index (2.75% at December 31, 2012) and matures in March 2014. The Company has the ability to obtain an additional $1,500,000 under a line of credit facility from the same lender subject to meeting certain financial covenants on an annual basis. The line of credit’s original expiration of November 2012 was extended to June 2013. At December 31, 2012, the Company had drawn $1,500,000 on the line of credit and such amount is included in the current portion of long-term debt in the accompanying balance sheets.

The Company’s ultimate shareholder has the financial ability and intent to continue to fund operations through affiliated companies that are 100% owned by the Company’s ultimate shareholder to the extent required to support the Company’s operations. During 2012, the Company received approximately $2.6 million in loans from these affiliated Companies which was a reduction of the amount of loans the Company received from these affiliated entities by approximately $2.8 million in 2011. In addition to the shareholder’s financial ability, these affiliated companies are expected to continue to generate positive cash flows during fiscal 2013 should additional funding be required to support the Company’s operations.

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.

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Results of Operations

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


	Year ended December 31,
	2012			2011
Rental Pool Revenues		28	%		26	%
Food and beverage		31			31
Resort facilities and other		41			43

		100	%		100	%

2012 Compared to 2011

The Company’s total revenue increased $4,234,000, or approximately 18%, from the prior year. Rental Pool revenue increased $1,679,000, or approximately 28%. These increases are directly related to an increase in occupied room nights of approximately 27%.

The Company’s costs and expenses increased $3,797,000, or approximately 14%. Costs and expenses of the Rental Pool Operation increased $531,000, or approximately 34%. This increase is directly related to the increase in Rental Pool revenues.

The Company’s net loss improved by approximately $522,000. Amounts available for distribution to rental pool participants increased by approximately $608,000.

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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).

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

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 18 to 32 and for Saddlebrook Rental Pool Operation on pages 33 to 37. An index to the financial statements is on page 17.

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

None.

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Item 9A. 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, 2012, 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, 2012, 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, 2012, 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 rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

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

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

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


Name		Position and Background

Thomas L. Dempsey Age 86		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 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 Vice Chairman of the Board of Saddlebrook Holdings, Inc. for more than five years. Wife of Thomas Dempsey.

Gregory R. Riehle Age 56		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 54		Director, President and Assistant Secretary of the Company for more than five years. Director and President of Saddlebrook Holdings, Inc. for more than five years. Daughter of Thomas Dempsey.

Diane L. Riehle Age 52		Director, Vice President and Assistant Secretary of the Company for more than five years. Director and Vice Chairman of the Board of Saddlebrook Holdings, Inc. for more than five years. Daughter of Thomas Dempsey.

Donald L. Allen Age 73		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. 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.

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Item 11. Executive Compensation

The following table sets forth the remuneration paid to the Company’s named executive officers by the Company and its parent, Saddlebrook Holdings, Inc. consolidated, during the two years ended December 31, 2012 and 2011.

Summary Compensation Table


Name and Principal Position	Fiscal year		Salary		Bonus		Other annual compensation (1)		Total

Thomas L. Dempsey		2012	$	50,000	$	—	$	16,777	$	66,777
Chairman of the Board and Chief Executive Officer		2011		55,131		—		14,777		69,908

Maureen Dempsey		2012		104,250		—		28,453		132,703
President and Assistant Secretary		2011		82,952		—		26,533		109,485

Pat Ciaccio		2012		125,000		—		135		125,135
General Manager

(1)	Other Annual Compensation for 2012 consists of the following;

Vehicle Allowances

Tax Preparation Fees

Health Insurance premiums paid on behalf of greater than 2% shareholders

Group Term Life Insurance (“GTL”)

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


Executive	Vehicle		Tax Prep.		Health Premium		GTL

Thomas L. Dempsey	$	—	$	10,000	$	5,541	$	1,236
Maureen Dempsey		17,589		6,300		4,564		—
Pat Ciaccio		—		—		—		135

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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 and Related Stockholder Matters

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

Item 13. Certain Relationships and Related Transactions

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

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

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

Dempsey and Daughters, Inc. 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.

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Item 14. Principal Accounting Fees and Services

Cherry Bekaert LLP served as the Company’s independent registered certified public accounting firm for the fiscal years ended December 31, 2012 and December 31, 2011.

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

Audit Fees: $86,000 per year for each of the fiscal years ended December 31, 2012 and 2011 for professional services rendered for the audit of the Company’s annual financial statements, review of financial statements included in its Forms 10-Q and services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements for those fiscal years.

Audit-Related Fees: None

Tax Fees: None

All Other Fees: None

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

PART IV

Item 15. Exhibits and Financial Statement Schedules

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

(b)

Exhibits:


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

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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 Registrant’s 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 Registrant’s 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 Registrant’s 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 (incorporated by Reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2009).

10.12		Third Amendment to Loan Agreement dated March 12, 2009 (incorporated by reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2009).

10.13		Consolidated, Amended and Restated Promissory Note dated March 12, 2009 (incorporated by reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2009).

10.14		Future Advance Promissory Note dated March 12, 2009 (incorporated by reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2009).

10.15		Revolving Line of Credit Promissory Note dated March 12, 2009 (incorporated by reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2009).

10.16		Fifth Amendment to Loan Agreement and First Amendment to Consolidated, Amended and Restated Promissory Note dated December 15, 2011 (incorporated by reference to Registrant’s Form 10-K for the fiscal year ending December 31, 2011).

10.17		Fourth Amended and Restated Revolving Line of Credit Promissory Note dated December 15, 2011 (incorporated by reference to the Registrant’s Form 10-K for the fiscal year ending December 31, 2011).

14.1		Code of Ethics

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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.


				SADDLEBROOK RESORTS, INC.
				(Registrant)

Date: April 11, 2013				/s/ Donald L. Allen
				Donald L. Allen
				Vice President and Treasurer
				(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on April 1, 2013.


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

/s/ Gregory R. Riehle				/s/ Diane L. Riehle
Gregory R. Riehle				Diane L. Riehle
Director, Vice President and Secretary				Director, Vice President and Assistant Secretary

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

-16-

Saddlebrook Resorts, Inc.

Index

December 31, 2012 and 2011


Saddlebrook Resorts, Inc.

Report of Independent Registered Public Accounting Firm			18

Financial Statements

Balance Sheets as of December 31, 2012 and 2011			19

Statements of Operations for the years ended December 31, 2012 and 2011			20

Statements of Changes in Shareholder’s Equity for the years ended December 31, 2012 and 2011			21

Statements of Cash Flows for the years ended December 31, 2012 and 2011			22

Notes to Financial Statements			23-32

Saddlebrook Rental Pool Operation

Report of Independent Registered Public Accounting Firm			33

Financial Statements

Balance Sheets as of December 31, 2012 and 2011			34

Statements of Operations for the years ended December 31, 2012 and 2011			35

Statements of Changes in Participants’ Fund Balance for the years ended December 31, 2012 and 2011			36

Notes to Financial Statements			37

-17-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholder of

Saddlebrook Resorts, Inc.

Wesley Chapel, Florida

We have audited the accompanying balance sheets of Saddlebrook Resorts, Inc. (the “Company”) as of December 31, 2012 and 2011 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 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, 2012 and 2011, 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/ Cherry Bekaert LLP

Tampa, Florida

April 11, 2013

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Saddlebrook Resorts, Inc.

Balance Sheets

December 31, 2012 and 2011


	2012		2011
Assets
Current assets
Cash and cash equivalents	$	2,098,331	$	592,313
Escrowed cash		258,941		216,851
Trade accounts receivable, net of allowance for doubtful accounts of $49,927 (2012) and $37,193 (2011)		928,030		1,124,269
Due from related parties		665,043		438,238
Resort inventory and supplies		1,367,232		1,576,875

Prepaid expenses and other assets		741,145		745,410

Total current assets		6,058,722		4,693,956
Property, buildings and equipment, net		20,531,351		21,024,081

Deferred charges, net		13,965		25,137

Total assets	$	26,604,038	$	25,743,174

Liabilities and Shareholder’s Equity
Current liabilities
Current portion of long-term debt	$	2,077,332	$	577,332
Current portion of capital lease obligations		68,735		99,593
Escrowed deposits		258,941		216,851
Accounts payable		585,609		734,427
Accrued rental distribution		527,234		571,598
Accrued expenses and other liabilities		1,753,426		1,728,111
Current portion of deferred income		730,210		798,981
Guest deposits		675,473		667,606
Due to related parties		7,495,320		4,704,094

Total current liabilities		14,172,280		10,098,593
Long-term debt		4,530,335		5,107,668
Capital lease obligations		274,878		8,537
Deferred income		854,380		1,034,071

Total liabilities		19,831,873		16,248,869


Commitments and contingencies (Note 10)
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		5,659,038		8,381,178

Total shareholder’s equity		6,772,165		9,494,305

Total liabilities and shareholder’s equity	$	26,604,038	$	25,743,174

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

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Saddlebrook Resorts, Inc.

Statements of Operations

Years ended December 31, 2012 and 2011


	2012			2011

Resort revenues	$	28,015,091		$	23,781,391

Costs and expenses:
Operating costs of resort		23,673,524			20,525,718
Sales and marketing		1,666,619			1,376,567
General and administrative		3,429,026			3,005,531
Net gain on assets sold		(41,185	)		(428	)
Depreciation		1,850,328			1,914,836

Total costs and expenses		30,578,312			26,822,224

Net operating loss before other expenses and (income)		(2,563,221	)		(3,040,833	)

Other expenses (income):
Interest expense		182,388			252,197
Interest income		(610	)		(766	)
Other income		(22,859	)		(48,273	)

Total other expense		158,919			203,158

Net loss	$	(2,722,140	)	$	(3,243,991	)

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

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Saddlebrook Resorts, Inc.

Statements of Changes in Shareholder’s Equity

Years ended December 31, 2012 and 2011


	Common Stock		Additional Paid-In Capital		Retained Earnings			Due from Related Parties			Total Shareholder’s Equity

Balances at January 1, 2011	$	100,000	$	1,013,127	$	11,625,169		$	(839,462	)	$	11,898,834
Net loss		—		—		(3,243,991	)		—			(3,243,991	)
Change in due from related parties (Note 9)		—		—		—			839,462			839,462

Balances at December 31, 2011		100,000		1,013,127		8,381,178			—			9,494,305
Net loss		—		—		(2,722,140	)		—			(2,722,140	)

Balances at December 31, 2012	$	100,000	$	1,013,127	$	5,659,038		$	—		$	6,772,165

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

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Saddlebrook Resorts, Inc.

Statements of Cash Flows

Years ended December 31, 2012 and 2011


	2012			2011
Cash flows from operating activities
Net loss	$	(2,722,140	)	$	(3,243,991	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		1,861,500			1,926,008
Gain on disposal of property, buildings and equipment		(41,185	)		(428	)
Additions (reductions) to allowance for doubtful accounts		12,734			(2,162	)
Change in assets and liabilities
(Increase) decrease in
Escrowed cash		(42,090	)		394,161
Trade accounts receivable		183,505			399,297
Resort inventory and supplies		209,643			49,085
Prepaid expenses and other assets		4,265			(38,367	)
Increase (decrease) in
Escrowed deposits		42,090			(394,161	)
Accounts payable		(148,818	)		(57,247	)
Accrued rental distribution		(44,365	)		21,647
Accrued expenses and other liabilities		25,314			(305,754	)
Deferred income		(248,462	)		(216,605	)
Guest deposits		7,867			(160,135	)

Net cash used in operating activities		(900,142	)		(1,628,652	)

Cash flows from investing activities
Proceeds from sales of property, buildings and equipment		2,335			1,800
Capital expenditures		(982,410	)		(1,009,599	)

Net cash used in investing activities		(980,075	)		(1,007,799	)

Cash flows from financing activities
Principal payments on long-term debt		(577,333	)		(3,060,000	)
Payments on capital leases		(100,853	)		(94,516	)
Proceeds from line of credit		1,500,000			—
Net advances from related parties		2,564,421			5,344,912

Net cash provided by financing activities		3,386,235			2,190,396

Net increase (decrease) in cash and cash equivalents		1,506,018			(446,055	)
Cash and cash equivalents, beginning of year		592,313			1,038,368

Cash and cash equivalents, end of year	$	2,098,331		$	592,313

Supplemental disclosure
Cash paid for interest	$	241,025		$	241,025

Non-cash investing activities

In December 2012, the Company acquired lawn mowers for approximately $80,500 through a capital lease obligation.

In December 2012, the Company entered into a capital lease agreement for new golf carts with a value of approximately $295,000. The Company received $39,000 for trade-ins and recorded a capital lease obligation for approximately $256,000.

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

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Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2012 and 2011

1.	Organization and Business

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

2.	Significant Accounting Policies

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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 on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. In addition, the FDIC provided unlimited coverage for certain qualifying and participating non-interest bearing transaction accounts through December 31, 2012; however, effective January 1, 2013 the FDIC discontinued the additional unlimited coverage. The Company from time to time may have amounts on deposit in excess of the insured limits. As of December 31, 2012, the Company did not have cash balances which exceeded these insured these limits. Additional uninsured cash balances on January 1, 2013 resulting from the FDIC’s discontinuance of unlimited coverage on non-interest bearing accounts were approximately $1,800,000.

Fair Value of Financial Instruments

The Company measures the fair value of financial assets and liabilities in accordance with GAAP which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

GAAP 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. GAAP 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. GAAP describes three levels of inputs that may be used to measure fair value:

Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets.

-23-

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2012 and 2011

Level 2 – Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

There were no assets or liabilities that were required to be measured at fair value on a recurring basis on December 31, 2012 or 2011.

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

Resort Inventory and Supplies

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

Property, Buildings and Equipment

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

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

Asset Impairments

The Company’s management periodically evaluates whether there has been a permanent impairment of long-lived assets (property, buildings and equipment), in accordance with generally accepted accounting principles. During the years ended December 31, 2012 and 2011, the Company’s management evaluated assets for impairment and concluded that the sum of the

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Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2012 and 2011

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 loss during the years ended December 31, 2012 or 2011.

Deferred Charges

Deferred charges represents costs incurred in connection with the refinancing of the Company’s long-term debt. Amortization expense for deferred charges amounted to approximately $11,000 for each of the years ended December 31, 2012 and 2011. Deferred charges are expected to be amortized approximately $11,000 in 2013 and approximately $3,000 in 2014.

Deferred Income

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

Resort Revenues

Resort revenues are recognized as services are performed or products are delivered with the exception of initiation fee revenue, which is recognized over the average life of the memberships. Resort revenues also include rental revenues for condominium units owned by third parties participating in the Rental Pool. If these rental units were owned by the Company, normal costs associated with ownership such as depreciation, real estate taxes, unit maintenance and other costs would have been incurred. Instead, operating costs of the resort for the years ended December 31, 2012 and 2011 include rental pool distributions to participants and the maintenance escrow fund approximating $3,000,000 and $2,400,000, respectively.

Advertising

The Company charges costs of advertising to sales and marketing as incurred. The Company incurred advertising costs of approximately $299,000 and $267,000 during the years ended December 31, 2012 and 2011, respectively.

Income Taxes

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

Management has determined that the Company had no uncertain income tax positions that could have a significant effect on the financial statements at December 31, 2012 and 2011. The parent company’s federal income tax returns for 2009, 2010 and 2011 are subject to examination by the Internal Revenue Service, generally for a period of three years after the federal income tax returns were filed.

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 indefinitely suspended matching contributions effective with the year ended December 31, 2009 and has continued the suspension through 2012.

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Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2012 and 2011

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on our accounting and reporting. We believe that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on our accounting or reporting or that such impact will not be material to our financial position, results of operations, and cash flows when implemented.

3.	Management’s Plans Regarding Liquidity and Capital Resources

In response to this situation, management has implemented the following programs and measures to help the Company mitigate these unfavorable conditions:

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Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2012 and 2011

4.	Escrowed Cash

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


	2012		2011

Rental pool unit owner deposits for maintenance reserve fund held in a bank account which bears an interest rate of 0.15%	$	237,059	$	195,369
Security deposits held on long-term rentals		21,882		21,482

	$	258,941	$	216,851

5.	Property, Buildings and Equipment, Net

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


	Estimated Useful Lives	2012			2011

Land and land improvements		$	6,802,067		$	6,802,067
Buildings and recreational facilities	10–40		30,321,030			30,164,381
Machinery and equipment	5–15		18,343,095			17,669,598
Construction in progress			1,163,830			807,611

			56,630,022			55,443,657
Accumulated depreciation			(36,098,671	)		(34,419,576	)

		$	20,531,351		$	21,024,081

Substantially all property, buildings and equipment are mortgaged, pledged or otherwise subject to lien under a loan agreement (Note 7).

Depreciation expense amounted to approximately $1,850,000 and $1,915,000, for the years ended December 31, 2012 and 2011, respectively.

During 2012, the Company leased equipment under an agreement which is classified as a capital lease obligation in the accompanying balance sheets. The equipment and obligations related to the leases are recorded at the present value of the minimum lease payments. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Total cost of equipment and vehicles acquired during 2012 through capital lease obligations was $375,188.

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Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2012 and 2011

6.	Accrued Expenses and Other Liabilities

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


	2012		2011

Accrued payroll and related expenses	$	728,825	$	713,739
Accrued insurance		840,986		886,330
Other accrued expenses and liabilities		183,615		128,042

	$	1,753,426	$	1,728,111

7.	Long-term Debt and Capital Lease Obligations

Long-term debt at December 31 consists of the following:


	2012			2011

Note payable to lender	$	6,607,667		$	5,685,000
Less current portion		(2,077,332	)		(577,332	)

	$	4,530,335		$	5,107,668

On December 15, 2011, the Company amended the Note Payable Agreement (the “Agreement”) on the term note and made a principal payment in the amount of $2,000,000. The balance on the term note is due March 12, 2014, and requires monthly principal payments of $48,111, together with monthly payment of all accrued interest. The term note bears interest at 2.5% over the one month LIBOR index. The rate at December 31, 2012 was 2.71%. The note is collateralized by all current and subsequently acquired real and personal property. The Company is required to maintain an annual debt service coverage ratio as defined in the Agreement. As of December 31, 2012, the Company was not in compliance with the debt service coverage ratio; however, the lender has agreed not to exercise its rights under the Agreement to demand payment in full of the total outstanding note amount. No other terms of the Agreement were modified or amended. Therefore, the Company has classified the note in accordance with maturity dates stated in the Agreement. The Company has the ability to obtain an additional $1,500,000 under a line of credit facility from the same lender subject to meeting certain financial covenants on an annual basis.

The line of credit bears interest at 3% over the one month LIBOR index. The rate at December 31, 2012 was 3.21%. The line of credit’s original expiration of November 2012 was extended to June 2013. At December 31, 2012, the Company had drawn $1,500,000 on the line of credit and such amount is included in the current portion of long-term debt in the accompanying balance sheets.

Future maturities of long-term debt as of December 31, 2012 were as follows;


2013	$	2,077,332
2014		4,530,335

	$	6,607,667

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Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2012 and 2011

On February 11, 2009, the Company entered into a capital lease obligation for the purchase of equipment and vehicles in the amount of $370,542. The capital lease is secured by the equipment and vehicles purchased, matured in January 2013 and required monthly payments of $8,574, including interest at 5.24%. Interest expense related to the capital lease was approximately $3,000 and $8,000 for the years ended December 31, 2012 and 2011, respectively.

On December 13, 2012, the Company entered into a capital lease obligation for equipment in the amount of $80,479. The capital lease is secured by the equipment purchased, matures in November 2017 and requires monthly payments of $1,426, including interest at 2.44%.

On December 2, 2012, the Company entered into a capital lease obligation for equipment in the amount of $255,874. The assets associated with this lease cost $294,724, of which $38,850 was reduced through the Company’s trade-in of existing equipment. This capital lease is secured by the equipment purchased, matures in December 2017 and requires monthly payments of $4,995, including interest at 6.41%, beginning in January 2013.

Future minimum payments under the capital lease obligations at December 31, 2012 were as follows:


Years ending December 31,
2013	$	85,634
2014		77,060
2015		77,060
2016		77,060
2017		75,634

		392,448
Less amount representing interest		(48,835	)

		343,613
Less current portion		(68,735	)

	$	274,878

8.	Resort Revenues and Operating Costs of Resort

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


	Years Ended December 31,
	2012		2011

Resort Revenues
Room revenue subject to rental pool agreement	$	7,764,308	$	6,084,980
Food and beverage		8,741,981		7,420,174
Resort facilities and other		11,508,802		10,276,237

	$	28,015,091	$	23,781,391

Operating Costs of Resort
Distribution to rental pool participants	$	3,030,281	$	2,422,457
Food and beverage		8,428,827		7,532,822
Resort facilities and other		12,214,416		10,570,439

	$	23,673,524	$	20,525,718

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Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2012 and 2011

9.	Related Party Transactions

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


	2012		2011

Saddlebrook Resort Condominium Association, Inc.	$	93,257	$	128,840
Saddlebrook International Sports, LLC		140,503		—
Dempsey Resort Management, Inc.		2,300		7,346
Saddlebrook Properties LLC		4,478		4,339
Saddlebrook Realty, Inc.		404,833		265,900
Saddlebrook Investments, Inc.		9,350		7,050
Other		10,323		24,763

	$	665,043	$	438,238

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


	2012		2011

Saddlebrook International Sports, LLC	$	—	$	13,540
Saddlebrook Holdings, Inc.		7,495,319		4,690,554

	$	7,495,319	$	4,704,094

The Company previously funded expenditures for Saddlebrook Holdings, Inc. (“SHI”), the Company’s parent company. SHI’s expenditures include dividends to its shareholders, which are primarily income taxes related to the operations of SHI and its subsidiaries. During the year ended December 31, 2009, the Company continued to make advances to SHI; however, during 2009, the Company became uncertain when the due from SHI would be repaid. While the definitive repayment terms of the remaining due from SHI were established and collectability of the due from SHI was being assessed, the Company reclassified due from related parties in the amount of $839,462 as a component of shareholder’s equity. During 2011, SHI repaid the amount due from SHI of $839,462. In addition, SHI advanced SRI the amount of $2,804,765 and $4,690,554 during the years ended December 31, 2012 and 2011, respectively.

Saddlebrook International Tennis, Inc. (“SIT”), which is soley owned by SHI, owns a 70% interest in Saddlebrook International Sports, LLC (“SIS”) which operates a tennis training facility and preparatory school at the resort. SIS owns 10 condominium units at the Resort, two of which participate in the Rental Pool Operation. The Company received revenue from SIS for use of its facilities and services provided to SIS and its guests, which amounted to approximately $1,714,000 and $1,457,000 for the years ended December 31, 2012 and 2011, respectively. The Company had amounts due from SIS for a total of $140,503 as of December 31, 2012 and amounts due to SIS for a total of $13,540 as of December 31, 2011.

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Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2012 and 2011

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

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 $1,445,000 and $1,348,000 for the years ended December 31, 2012 and 2011, 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.

10.

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, 2012.

During February 2011, the Company entered into a five-year professional services agreement with a company that specializes in golf instruction and player development with its primary focus on the development and support of the junior golf students enrolled at the Company’s golf academy. The Company is obligated to pay a specified amount per semester for each student enrolled in the golf academy. The Company is also obligated to pay a commission for each student that the golf instruction company recruits to the golf academy. During the years ended December 31, 2012 and 2011, the Company paid approximately $97,000 and $70,000, respectively, under this agreement.

During the year ended December 31, 2012, the Company entered into a supply chain agreement with an external organization to purchase certain inventory and supplies. The agreement calls for the Company to purchase at least 80% of its annual purchase requirements for these items, which is estimated to be $2.9 million with the external organization. The agreement has an initial term of two years and expires September 8, 2014.

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 approximately $69,000 for each of the years ended December 31, 2012 and 2011.

Future minimum lease payments under non-cancelable operating leases with initial lease terms in excess of one year are as follows:


2013	$	56,000
2014		28,000

	$	84,000

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Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2012 and 2011

11.

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 ($132,866 as of December 31, 2012) and the increase in equity cumulative to date ($242,430 as of December 31, 2012) are recorded as a component of prepaid expenses and other assets in the accompanying balance sheets. 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, 2012. 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.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors of Saddlebrook

Resorts, Inc., as Operators under the Saddlebrook

Rental Pool and Agency Appointment Agreement

Wesley Chapel, Florida

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, 2012 and 2011 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.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Saddlebrook Rental Pool Operation as of December 31, 2012 and 2011 and the results of its operations and changes in participants’ fund balance for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Cherry Bekaert LLP

Tampa, Florida

April 11, 2013

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Saddlebrook Rental Pool Operation

Balance Sheets

December 31, 2012 and 2011


	2012		2011
Distribution Fund

Assets
Receivable from Saddlebrook Resorts, Inc.	$	527,234	$	571,598

Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution	$	449,362	$	473,950
Due to maintenance escrow fund		77,872		97,648

	$	527,234	$	571,598

Maintenance Escrow Fund

Assets
Cash in bank	$	237,059	$	195,369
Receivables
Distribution fund		77,872		97,648
Prepaid expenses and other assets		14,234		7,545
Linen inventory		43,600		—
Furniture inventory		49,748		48,418

	$	422,513	$	348,980

Liabilities and Participants’ Fund Balance
Due to Saddlebrook Resorts, Inc.	$	92,946	$	82,194
Participants’ fund balance		329,567		266,786

	$	422,513	$	348,980

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

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Saddlebrook Rental Pool Operation

Statements of Operations

Years Ended December 31, 2012 and 2011


	2012			2011
Distribution Fund

Rental pool revenues	$	7,764,308		$	6,084,980

Deductions
Marketing fee		582,323			456,373
Management fee		970,539			760,623
Travel agent commissions		340,310			179,557
Bad debt reserve		—			3,000
Credit card expense		184,228			146,971

		2,077,400			1,546,524

Net rental income		5,686,908			4,538,456
Operator share of net rental income		(2,559,109	)		(2,042,305	)
Other revenues (expenses)
Complimentary room revenues		35,350			39,497
Minor repairs and replacements		(132,868	)		(113,191	)

Amounts available for distribution to participants and maintenance escrow fund	$	3,030,281		$	2,422,457

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

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Saddlebrook Rental Pool Operation

Statements of Changes in Participants’ Fund Balance

Years Ended December 31, 2012 and 2011


	2012			2011
Distribution Fund

Balances, beginning of year	$	—		$	—
Additions
Amounts available for distribution		3,030,281			2,422,457
Reductions
Amounts withheld for maintenance escrow fund		(471,172	)		(380,152	)
Amounts accrued or paid to participants		(2,559,109	)		(2,042,305	)

Balances, end of year	$	—		$	—

Maintenance Escrow Fund

Balances, beginning of year	$	266,786		$	657,499
Additions
Amount withheld from distribution fund		471,172			380,152
Unit owner payments		252,425			313,214
Interest earned		90			1,241
Reductions
Unit renovations		(81,462	)		(704,528	)
Refunds of excess amounts in escrow accounts		(1,414	)		(19,051	)
Maintenance charges		(402,649	)		(234,890	)
Linen expense		(175,381	)		(126,851	)

Balances, end of year	$	329,567		$	266,786

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

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Saddlebrook Rental Pool Operation

Notes to Financial Statements

December 31, 2012 and 2011

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.

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Large accelerated filer

Accelerated Filer

Non-accelerated filer

Smaller reporting company