SADDLEBROOK RESORTS INC - Annual Report: 2015 (Form 10-K)

SADDLEBROOK RESORTS INC - Annual Report: 2015 (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, 2015

¨	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 the 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, the Resort aggressively competes against numerous resort hotels and convention facilities both in central Florida and nationwide.

At December 31, 2015, there were approximately 510 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, 2015, there were 525 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. 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.

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

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU 2014-09, “Revenue from Contracts with Customers,” which creates a new Topic, Accounting Standards Codification (“ASC”) Topic 606. The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those good and services. This standard is effective for the Company beginning in 2017 and allows for either full retrospective adoption or modified retrospective adoption. The Company is currently evaluating the impact of the adoption of ASC Topic 606 on its financial statements.

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which provides guidance on determining when and how to disclose going-concern uncertainties in financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of this guidance is not expected to have any impact on the Company’s results of operations or financial position. The Company is currently evaluating the impact of this update on future disclosures concerning its liquidity position.

In April, 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest,” as part of the FASB’s initiative to simplify the presentation of debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability must be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amortization of such costs should continue to be calculated using the interest method and be reported as interest expense. The Company is currently in the process of evaluating the impact of this update.

In February, 2016, the FASB issued ASU 2016-02, Leases (Topic 842), intending to improve financial reporting about leasing transactions. This ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a capital or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet the new ASU will require both types of leases to be recognized. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of the leases. The leasing standard will be effective for calendar year end public companies beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of this update.

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 is 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, 2015 and 2014, 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.

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, 2015.

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 continues to experience increased occupancy rates, when compared to prior periods. Ancillary service revenue is now beginning to show increases when compared to the prior periods as well. The Company believes that businesses have begun to alter their spending patterns and that this is a result of a turnaround in the economy.

In response to this trend, the Company has increased its sales force to focus more in the area of corporate meetings. The Company continues its marketing efforts toward the social clientele by developing packages designed to target more social guests, including families. These social packages are being promoted through the Company’s website as well as through travel wholesalers and with emphasis on e-commerce sites. Management has implemented programs and measures to help the Company get back to positive operating income. These programs and measures include cost control programs, consolidation of restaurant operations and efforts to increase brand awareness and recognition of the Resort.

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 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. The Company has loans outstanding to the affiliated companies of approximately $10.1 million and $10.9 million as of December 31, 2015 and 2014, respectively. In addition to the shareholders financial ability these affiliated Companies are expected to continue to generate positive cash flows during fiscal year 2016 should additional funding be required to support the Companies 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.

Results of Operations

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


	Year ended December 31,
	2015			2014
Rental Pool Revenues		28	%		29	%
Food and beverage		35			34
Resort facilities and other		37			37

		100	%		100	%

2015 Compared to 2014

The Company’s total revenue increased $3,146,000 or approximately 12%, from the prior year. Rental Pool revenue increased $831,000 or approximately 11%. Food and Beverage revenue increased $1,448,204 or approximately 16%. This increase is a direct result of the Company marketing its food and beverage more aggressively to corporate meetings as well as price adjustments. Other revenue areas also increased due to the increase in corporate meeting attendees utilizing the Company’s golf, tennis and audio/visual services. Other ancillary amenities also increased due to increases in corporate usage.

The Company’s costs and expenses increased $927,000, or approximately 3% due to increased occupancy. Costs and expenses of the Rental Pool Operation increased $139,000, or approximately 7%. This increase is directly related to the increase in Rental Pool revenues.

The Company’s net loss improved by approximately $2,169,000. Amounts available for distribution to rental pool participants increased by approximately $366,000.

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 33 and for Saddlebrook Rental Pool Operation on pages 34 to 38. 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.

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, 2015, 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, 2015, management conducted an assessment of the Company’s internal control over financial reporting based on the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Tread way Commission. Based on the assessment, management concluded that, as of December 31, 2015, 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, 2015, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 89		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.

Maureen Dempsey Age 57		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 55		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 76		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.

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, 2015 and 2014.

Summary Compensation Table


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

Thomas L. Dempsey		2015	$	49,808	$	—	$	13,928	$	63,736
Chairman of the Board and Chief Executive Officer		2014		45,000		—		14,652		59,652

Maureen Dempsey		2015		124,519		3,149		20,361		148,029
President and Assistant Secretary		2014		112,500		590		20,868		133,958

Pat Ciaccio		2015		124,519		14,098		207		138,824
General Manager		2014		112,500		—		174		113,264

(1)	Other Annual Compensation for 2015 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	$	—	$	8,000	$	4,692	$	1,236
Maureen Dempsey		11,508		4,800		4,008		45
Pat Ciaccio		—		—		—		207

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. hold certain tracts of real estate and own 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 LLP served as the Company’s independent registered certified pubic accounting firm for the fiscal years ended December 31, 2015 and December 31, 2014.

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

Audit Fees: $88,000 for the fiscal years ended December 31, 2015 and 2014 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)

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).

10.18		Fifth amended and Restated Revolving Line of Credit Promissory Note dated March 19.2013 (incorporated by reference to the Registrant’s Form 10-K for the fiscal year ending December 31, 2013).

10.19		Sixth Amendment to Loan Agreement dated March 19, 2013 (incorporated by reference to the Registrant’s Form 10-K for the fiscal year ending December 31, 2013).



10.20		Second Amendment to Consolidated, Amended and Restated Promissory Note (incorporated by reference to the Registrant’s Form 10-K for the fiscal year ending December 31, 2013).

10.21		Loan Agreement, dated June 6, 2014, between Saddlebrook Resorts, Inc. and USAmeriBank (incorporated by reference to the Registrant’s Form 8-K dated June 6, 2014).

10.22		Renewal Promissory Note, dated December 6, 2015, between Saddlebrook Resorts, Inc. and USAmeriBank.

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.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Data Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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

SIGNATURES

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: March 30, 2016				/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 March 31, 2016.


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

		/s/ Diane L. Riehle				/s/ Donald L. Allen
		Diane L. Riehle				Donald L. Allen
		Director, Vice President and Assistant Secretary				Vice President and Treasurer (Principal Financial and Accounting Officer)

Saddlebrook Resorts, Inc.

Index

December 31, 2015 and 2014



Saddlebrook Resorts, Inc.

Report of Independent Registered Public Accounting Firm			18

Financial Statements

Balance Sheets as of December 31, 2015 and 2014			19

Statements of Operations for the years ended December 31, 2015 and 2014			20

Statements of Changes in Shareholder’s Equity for the years ended December 31, 2015 and 2014			21

Statements of Cash Flows for the years ended December 31, 2015 and 2014			22

Notes to Financial Statements			23-33

Saddlebrook Rental Pool Operation

Report of Independent Registered Public Accounting Firm			34

Financial Statements

Balance Sheets as of December 31, 2015 and 2014			35

Statements of Operations for the years ended December 31, 2015 and 2014			36

Statements of Changes in Participants’ Fund Balance for the years ended December 31, 2015 and 2014			37

Notes to Financial Statements			38

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, 2015 and 2014 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, 2015 and 2014, 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

March 30, 2016

Saddlebrook Resorts, Inc.

Balance Sheets

December 31, 2015 and 2014


	2015		2014
Assets
Current assets
Cash and cash equivalents	$	375,912	$	875,314
Escrowed cash		397,721		128,639
Trade accounts receivable, net of allowance for doubtful accounts of $29,712 (2015) and $39,306 (2014)		1,521,133		1,525,710
Due from related parties		1,108,339		786,021
Resort inventory and supplies		1,270,969		1,253,427
Prepaid expenses and other assets		1,020,292		863,052

Total current assets		5,694,366		5,432,163
Property, buildings and equipment, net		20,019,161		20,002,436
Deferred charges, net		78,174		60,353

Total assets	$	25,791,701	$	25,494,952

Liabilities and Shareholder’s Equity
Current liabilities
Current portion of long-term debt	$	352,560	$	125,000
Current portion of capital lease obligations		121,008		112,864
Escrowed deposits		397,721		128,639
Accounts payable		593,328		607,865
Accrued rental distribution		488,021		525,571
Accrued expenses and other liabilities		1,509,529		1,714,290
Current portion of deferred income		715,661		740,101
Guest deposits		1,632,372		1,672,640
Due to related parties		10,101,171		10,866,419

Total current liabilities		15,911,371		16,493,389
Long-term debt		6,522,440		4,875,000
Capital lease obligations		185,612		306,620
Deferred income		585,571		636,337

Total liabilities		23,204,994		22,311,346

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		1,473,580		2,070,479

Total shareholder’s equity		2,586,707		3,183,606

Total liabilities and shareholder’s equity	$	25,791,701	$	25,494,952

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

Saddlebrook Resorts, Inc.

Statements of Operations

Years ended December 31, 2015 and 2014


	2015			2014
Resort revenues	$	30,095,086		$	26,949,187

Costs and expenses:
Operating costs of resort		23,878,116			22,334,017
Sales and marketing		2,175,487			2,334,605
General and administrative		3,063,598			3,061,212
Net (gain) loss on assets sold/diposed		(454,618	)		1,942
Depreciation		1,847,987			1,851,716

Total costs and expenses		30,510,570			29,583,492

Net operating loss before other expenses and (income)		(415,484	)		(2,634,305	)

Other expenses (income):
Interest expense		231,536			205,556
Other income		(50,121	)		(74,386	)

Total other expense		181,415			131,170

Net loss	$	(596,899	)	$	(2,765,475	)

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, 2015 and 2014


	Common Stock		Additional Paid-In Capital		Retained Earnings			Total Shareholder’s Equity
Balances at January 1, 2014	$	100,000	$	1,013,127	$	4,835,954		$	5,949,081
Net loss		—		—		(2,765,475	)		(2,765,475	)

Balances at December 31, 2014		100,000		1,013,127		2,070,479			3,183,606
Net loss		—		—		(596,899	)		(596,899	)

Balances at December 31, 2015	$	100,000	$	1,013,127	$	1,473,580		$	2,586,707

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

Saddlebrook Resorts, Inc.

Statements of Cash Flows

Years ended December 31, 2015 and 2014


	2015			2014
Cash flows from operating activities
Net loss	$	(596,899	)	$	(2,765,475	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		1,862,110			1,862,539
Loss (gain) on disposal of property, buildings and equipment		—			1,942
Additions (reductions) to allowance for doubtful accounts		(9,594	)		—
Change in assets and liabilities
(Increase) decrease in
Escrowed cash		(269,082	)		113,407
Trade accounts receivable		14,171			147,251
Resort inventory and supplies		(17,542	)		70,879
Prepaid expenses and other assets		(157,240	)		(149,908	)
Increase (decrease) in
Escrowed deposits		269,082			(113,407	)
Accounts payable		(14,537	)		(212,322	)
Accrued rental distribution		(37,550	)		128,111
Accrued expenses and other liabilities		(204,761	)		226,297
Deferred income		(75,206	)		(90,891	)
Guest deposits		(40,268	)		679,189

Net cash provided by (used in) operating activities		722,684			(102,388	)

Cash flows from investing activities
Capital expenditures		(1,864,711	)		(2,254,241	)

Net cash used in investing activities		(1,864,711	)		(2,254,241	)

Cash flows from financing activities
Principal payments on long-term debt		(125,000	)		(4,530,334	)
Proceeds from long-term debt		2,000,000			5,000,000
Payments on capital lease obligations		(112,864	)		(107,395	)
Debt Issuance Costs		(31,944	)		(68,383	)
Net advances from related parties		(1,087,567	)		2,270,865

Net cash provided by financing activities		642,625			2,564,753

Net (decrease) increase in cash and cash equivalents		(499,402	)		208,124
Cash and cash equivalents, beginning of year		875,314			667,190

Cash and cash equivalents, end of year	$	375,912		$	875,314

Supplemental disclosure
Cash paid for interest	$	217,413		$	194,732

Non-cash investing activities

In January 2014, the Company acquired equipment through capital lease obligations of approximately $252,000.

As a result of a fire on the property that occurred in November 2013, the Company received insurance proceeds of

$650,000 during 2014. Such amount is recorded in Other Receivables at December 31, 2014. In March, 2015,

the Company received additional proceeds of $354,618

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

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014

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 is 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. The Company from time to time may have amounts on deposit in excess of the insured limits. As of December 31, 2015, the Company had approximately $541,000 of cash and cash equivalents which exceeded these insured limits.

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.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014

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, 2015 or 2014.

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.

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, 2015 and 2014, 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 loss during the years ended December 31, 2015 or 2014.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014

Deferred Charges

Deferred charges represent costs incurred in connection with the refinancing of the Company’s long-term debt. Amortization expense for deferred charges amounted to approximately $14,000 for the year ended December 31, 2015 and $8,000 for 2014. Deferred charges are expected to be amortized approximately $15,000 in 2016, 2017, 2018, and 2019.

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, 2015 and 2014 include rental pool distributions to participants and the maintenance escrow fund approximating $3,100,000 and $2,700,000, respectively.

Advertising

The Company charges costs of advertising to sales and marketing as incurred. The Company incurred advertising costs of approximately $256,000 and $378,000 during the years ended December 31, 2015 and 2014, 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, 2015 and 2014. The parent company’s federal income tax returns for 2012, 2013 and 2014 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 2015.

Recent Accounting Pronouncements

In May, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which creates a new Topic, Accounting Standards Codification (“ASC”) Topic 606. The standard is principle-based and

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014

provides a five-step model to determine when and how revenue is recognized. The core principle is that an entity should recognize revenue when it transfers promised good or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard is effective for the Company beginning in 2017 and allows for either full retrospective adoption or modified retrospective adoption. The Company is currently evaluating the impact of the adoption of ASC Topic 606 on its financial statement.

In August 2014, the FASB issued ASU 2014-15 “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which provides guidance on determining when and how to disclose going-concern uncertainties in financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or evens raise substantial doubt about the entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of this guidance is not expected to have any impact on the Company’s results of operations or financial position. The Company is currently evaluating the impact of this update on future disclosures concerning its liquidity position.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014

3.	Management’s Plans Regarding Liquidity and Capital Resources

4.	Escrowed Cash

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


	2015		2014
Rental pool unit owner deposits for maintenance reserve fund held in a bank account which bears an interest rate of 0.05%	$	372,021	$	111,839
Security deposits held on long-term rentals		25,700		16,800

	$	397,721	$	128,639

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014

5.	Property, Buildings and Equipment, Net

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


	Estimated Useful Lives		2015			2014
Land and land improvements			$	8,417,431		$	7,623,070
Buildings and recreational facilities		10–40		31,230,183			31,104,781
Machinery and equipment		5–15		20,017,312			18,099,905
Construction in progress				926,792			1,911,503

				60,591,718			58,739,259
Accumulated depreciation				(40,572,557	)		(38,736,823	)

			$	20,019,161		$	20,002,436

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 $1,848,000 and $1,852,000 for the years ended December 31, 2015 and 2014, respectively.

The Company leases equipment under agreements which are classified as capital lease obligations 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 acquired through capital lease obligations was approximately $588,000 at December 31, 2015 and 2014. Accumulated amortization totaled $59,577 and $59,577 on the leased equipment at December 31, 2015 and 2014, respectively.

6.	Accrued Expenses and Other Liabilities

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


	2015		2014
Accrued payroll and related expenses	$	648,594	$	913,344
Accrued insurance		229,324		91,253
Accrued property taxes		309,746		309,851
Other accrued expenses and liabilities		321,865		399,842

	$	1,509,529	$	1,714,290

7.	Long-term Debt and Capital Lease Obligations

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

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014


	2015			2014
Note payable to lender	$	6,875,000		$	5,000,000
Less current portion		(352,560	)		(125,000	)

	$	6,522,440		$	4,875,000

On June 6, 2014 the Company entered into a new financing agreement with a third party lender for $5,000,000. The proceeds were used to retire the existing term note due June 12, 2014 of $4,386,000. The remaining proceeds were used to pay closing costs and provide additional working capital. On December 6, 2015 this financing agreement was modified to include renewal for the existing principal balance of 4,875,000, along with an advance of an additional $2,000,000. The new term note expires December 6, 2020. At December 31, 2015 $6,875,000 was outstanding under the note. The term note requires monthly principle payments of $29,380 plus interest of 3% over the one month Libor index (3.27% at December 31, 2015). The term note is collateralized by all current and subsequently acquired real and personal property. The term note requires the Company to maintain a Debt Ratio of 1.25%.

Operating costs and planned expenditures for 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 operations.

Future maturities of long-term debt as of December 31, 2015 were as follows;


Years ending December 31,
2016	$	352,560
2017		352,560
2018		352,560
2019		352,560
2020		5,464,760

	$	6,875,000

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%. At December 31, 2015, the amount due on the capital lease obligation was $32,011

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.At December 31, 2015, the amount due on the capital lease obligation was $112,245.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014

On January 15, 2014 the Company entered into a capital lease obligation for equipment in the amount of $150,000. The capital lease is secured by equipment purchased, matures in December 2018 and requires monthly payments of $3,024 including interest of 7.75%. At December 31, 2015, the amount due on the capital lease obligation was $94,447.

On January 15, 2014, the Company entered into a capital lease obligation for equipment in the amount of $102,000. The capital lease is secured by equipment purchased, matures in December 2018 and requires monthly payments of $2,233, including interest an 11.30%. At December 31, 2015 the amount due on the capital lease obligation was $67,917.

Future minimum payments under the capital lease obligations at December 31, 2015 were as follows:


Years ending December 31,
2016	$	121,008
2017		128,376
2018		57,236

		306,620
Less current portion		(121,008	)

	$	185,612

8.	Resort Revenues and Operating Costs of Resort

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


	Years Ended December 31,
	2015		2014
Resort Revenues
Room revenue subject to rental pool agreement	$	8,268,838	$	7,438,071
Food and beverage		10,583,028		9,148,916
Resort facilities and other		11,243,220		10,362,200

	$	30,095,086	$	26,949,187

Operating Costs of Resort
Distribution to rental pool participants	$	3,093,958	$	2,728,364
Food and beverage		5,966,197		5,491,169
Resort facilities and other		14,817,961		14,114,484

	$	23,878,116	$	22,334,017

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014

9.	Related Party Transactions

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


	2015		2014
Saddlebrook Resort Condominium Association, Inc.	$	188,988	$	52,642
Saddlebrook International Sports, LLC		93,351		25,874
Dempsey Resort Management, Inc.		4,608		4,600
Saddlebrook Properties LLC		4,947		4,808
Saddlebrook Realty, Inc.		786,400		667,078
Saddlebrook Investments, Inc.		16,250		13,950
Other		13,795		17,069

	$	1,108,339	$	786,021

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


	2015		2014
Saddlebrook Holdings, Inc.	$	10,101,171	$	10,866,419

	$	10,101,171	$	10,866,419

Saddlebrook Holdings, Inc. (‘SHI”) the Company’s parent company advanced SRI the amount of $2,460,615 during the year ended December 31, 2014. During the year ending December 31, 2015 SRI made repayments to SHI amounting to $765,248.

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 received revenue from SIS for use of its facilities and services provided to SIS and its guests, which amounted to approximately $1,587,000 and $1,800,000 for the years ended December 31, 2015 and 2014 respectively. The Company had amounts due from SIS which amounted to $93,351 and $25,874 for the years ended December 31, 2015 and 2014 respectively.

In October 2013, the Company entered into a rental agreement with SIT for certain equipment used by SRI in operations. The terms of the agreement are 48 monthly payments of $8,712 which began in October 2013.

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.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014

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 $1,654,000 and $1,516,000 for the years ended December 31, 2015 and 2014, 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, 2015.

In February 2011, the Company entered into a five-year professional services agreement with a company that specializes in golf instruction. Effective July 2014, the Company terminated its agreement for these services. During the year ended December 31, 2014 the Company paid approximately $50,000 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 called for the Company to purchase at least 80% of its annual purchase requirements for these items, which was estimated to be $2.9 million with the external organization. The agreement had an initial term of two years and expired September 8, 2014. The Company continues to utilize this agreement on a monthly basis with no set contract.

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 $70,000 and $69,000 for the years ended December 31, 2015 and 2014, respectively.

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


2016	$	77,076
2017		77,076
2018		46,080
2019		3,840

	$	204,072

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2015 and 2014

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 approximately 14% and all amounts contributed as capital ($132,866 as of December 31, 2015) and the increase in equity cumulative to date ($365,055 as of December 31, 2015) 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, 2015. 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.

12.

Insurance Claim

On November 2, 2013, the Company experienced damage to storage facilities and equipment due to a fire. As of December 31, 2015, the Company has incurred approximately $790,826 toward the repair of the facility and replacement of equipment. The Company filed an insurance claim and received $1,304,618 toward the settlement of the insurance claim of which $300,000 in 2013, $650,000 in 2014 (recorded as other receivable at December 31, 2013) and $354,618 in 2015 and has been reflected as an offset to general and administrative expenses.

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, 2015 and 2014 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, 2015 and 2014 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

March 30, 2016

Saddlebrook Rental Pool Operation

Balance Sheets

December 31, 2015 and 2014


Distribution Fund
	2015			2014
Assets
Receivable from Saddlebrook Resorts, Inc.	$	488,021		$	525,571

Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution	$	439,589		$	475,229
Due to maintenance escrow fund		48,432			50,342

	$	488,021		$	525,571

Maintenance Escrow Fund
Assets
Cash in bank	$	372,021		$	111,839
Receivables
Distribution fund		48,432			50,342
Accrued Interest		(16	)
Prepaid expenses and other assets		34			14,925
Linen inventory		17,925			—
Furniture inventory		43,421			138,331

	$	481,817		$	315,437

Liabilities and Participants’ Fund Balance
Due to Saddlebrook Resorts, Inc.	$	186,109		$	78,526
Participants’ fund balance		295,708			236,911

	$	481,817		$	315,437

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

Saddlebrook Rental Pool Operation

Statements of Operations

Years Ended December 31, 2015 and 2014


Distribution Fund
	2015			2014
Rental pool revenues	$	8,268,838		$	7,438,071

Deductions
Marketing fee		620,162			557,855
Management fee		1,033,604			929,759
Travel agent commissions		357,457			406,703
Bad debt reserve		—			—
Credit card expense		213,033			191,247

		2,224,256			2,085,564

Net rental income		6,044,582			5,352,507
Operator share of net rental income		(2,720,062	)		(2,408,628	)
Other revenues (expenses)
Complimentary room revenues		25,818			29,362
Minor repairs and replacements		(256,380	)		(244,877	)

Amounts available for distribution to participants and maintenance escrow fund	$	3,093,958		$	2,728,364

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, 2015 and 2014


Distribution Fund
	2015			2014
Balances, beginning of year	$	—		$	—
Additions
Amounts available for distribution		3,093,958			2,728,364
Reductions
Amounts withheld for maintenance escrow fund		(373,896	)		(319,736	)
Amounts accrued or paid to participants		(2,720,062	)		(2,408,628	)

Balances, end of year	$	—		$	—

Maintenance Escrow Fund
Balances, beginning of year	$	236,911		$	322,816
Additions
Amount withheld from distribution fund		373,896			319,736
Unit owner payments		142,510			128,630
Interest earned		22			25
Reductions
Unit renovations		(79,940	)		(24,652	)
Refunds of excess amounts in escrow accounts		(11,462	)		(15,381	)
Maintenance charges		(282,311	)		(286,150	)
Linen expense		(83,918	)		(208,113	)

Balances, end of year	$	295,708		$	236,911

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

Saddlebrook Rental Pool Operation

Notes to Financial Statements

December 31, 2015 and 2014

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.

Large accelerated filer

Accelerated Filer

Non-accelerated filer

Smaller reporting company