SADDLEBROOK RESORTS INC - Annual Report: 2018 (Form 10-K)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark one)

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

For the fiscal period ended December 31, 2018

☐	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 ☒

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 ☒

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 ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). YES ☒ 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, a smaller reporting company, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☒

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, 2018, there were approximately 431 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, 2018, there were 508 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 ASU No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) and requires entities to recognize revenue in a way that depicts the transfer of 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 goods or services. Subsequent to ASU 2014-09, the FASB issued several related ASUs. We adopted the provisions of ASU 2014-09 and the related ASUs as of January 1, 2018 using a modified retrospective approach, which resulted in no cumulative effect adjustment to retained earnings as of January 1, 2018. The timing and amount of revenue recognition from rooms, food and beverage and other ancillary hotel goods and services will not change. Revenue will continue to be recognized at the point in time or over the period of time when goods and services have been delivered or rendered to the customer. Payment for room rentals is generally due on the last date of the hotel stay and the payment for goods and services are generally due at the time the goods and services are delivered or rendered to the customer.

whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases” (“ASU 2018-10”), and ASU No. 2018-11, Leases (Topic 842) Targeted Improvements (“ASU 2018-11”). ASU 2018-10 provides certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt the ASUs on January 1, 2019. Based on management’s assessment, the adoption of ASU 2016-02 will not have a material impact on the Company’s financial statements and related disclosures.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted ASU 2016-18 effective January 1, 2018 and the prior period has been adjusted to conform to the current period presentation.

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, 2017 and 2016, 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—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.

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, 2018.

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 experienced a minor decrease in revenue for the year ending December 31, 2018 compared to the previous year. The Company believes this trend will improve during 2019. The decrease in expenses for the year ending December 31, 2018 as compared to the prior year is a result of reductions in wages, benefits, and operating expenses.

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

Net loss for the 12 month period ended December 31, 2018 was $2,645,326. Excluding non-cash expenses such as depreciation and amortization of $2,136,836, the Company’s actual operation cash loss was $506,490.

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 due to the affiliated companies of approximately $14.7 million and $11.9 million as of December 31, 2018 and 2017, respectively. In addition to the shareholder’s financial ability, these affiliated companies are expected to continue to generate positive cash flows during fiscal year 2019 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.

Results of Operations

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


	Year ended December 31,
	2018			2017
Rental Pool Revenues		28	%		29	%
Food and beverage		36			35
Resort facilities and other		36			36

		100	%		100	%

2018 Compared to 2017

The Company’s total revenue decreased $607,000 or approximately 2%, from the prior year. Rental Pool revenue decreased $404,000 or approximately 5%. Food and Beverage revenue increased $212,000 or approximately 2%.

The Company’s costs and expenses decreased $876,000, or approximately 3%. Costs and expenses of the Rental Pool Operation decreased $137,000, or approximately 5%.

The Company’s net loss was approximately $2,645,000, compared with a net loss of approximately $2,984,000 in the prior year. Amounts available for distribution to rental pool participants decreased by approximately $140,000.

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 is not party to any off-balance sheet arrangement.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

The financial statements and notes thereto, including the Reports of Independent Registered Certified Public Accountants, for Saddlebrook Resorts, Inc. and for Saddlebrook Rental Pool Operation are set forth beginning on page 17 of this Report.

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 13a – 15(e) and 15d – 15(e) 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, 2018, 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, 2018, 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 Tread way Commission. Based on the assessment, management concluded that, as of December 31, 2018, 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, 2018, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None

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 92		Chairman of the Board and Chief Executive Officer of the Company. Chairman of the Board of

		Saddlebrook Holdings, Inc.

Maureen Dempsey Age 60		Director, President and Assistant Secretary of the Company. Director and President of Saddlebrook Holdings, Inc. Daughter of Thomas Dempsey.

Diane L. Riehle Age 58		Director, Vice President and Assistant Secretary of the Company. Director and Vice Chairman of the Board of Saddlebrook Holdings, Inc. Daughter of Thomas Dempsey.

Donald L. Allen Age 79		Vice President and Treasurer of the Company.

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, 2018 and 2017.

Summary Compensation Table


Name and Principal Position	Fiscal year		Salary		Bonus		Other annual compensation (1)		Total
Thomas L. Dempsey		2018	$	50,000	$	—	$	15,452	$	65,452
Chairman of the Board and		2017		50,000		—		16,080		66,080
Chief Executive Officer
Maureen Dempsey		2018		125,000		650		21,078		146,078
President and Assistant		2017		125,000		650		18,685		144,335
Secretary
Pat Ciaccio		2018		125,000		650		387		126,037
General Manager		2017		125,000		650		207		125,857

(1)	Other Annual Compensation for 2018 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	$	—	$	11,376	$	2,840	$	1,236
Maureen Dempsey		12,240		4,000		3,896		942
Pat Ciaccio		—		—		—		387

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

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, of which 2 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 33 individual condominium units at the Resort, 22 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, 2018 and December 31, 2017.

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

Audit Fees: $95,175 and $91,250 for the fiscal years ended December 31, 2018 and 2017, respectively, for professional services rendered for the audit of the Company’s annual financial statements, review of financial statements included in its Forms 10-Q and services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements for those fiscal years.

Audit-Related Fees: None

Tax Fees: 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 (P).

3.2 Corporate By-laws of Saddlebrook Resorts, Inc. (P).

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. (P).

10.1

Management Contract between Saddlebrook Resorts, Inc. and the Saddlebrook Association of Condominium Owners, Inc. (P).

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 (P).

10.4

Form of Purchase Agreement (P).

10.5

Form of Deed (P).

10.6

Form of Bill of Sale (P).

10.7

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).

10.8

Renewal Promissory Note, dated December 6, 2015, between Saddlebrook Resorts, Inc. and USAmeriBank. (incorporated by reference to the Registrant’s Form 10-K for the fiscal year ending December 31, 2015).

10.9

Revolving Line of Credit Agreement dated April 24, 2017 (incorporated by reference to the Registrant’s Form 10-Q for the period ending March 31, 2017).

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 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.

Item 16. Form 10-K Summary.

We have elected not to include a summary pursuant to this Item 16.

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 29, 2019		/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 29, 2019.


/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				Vice President and Treasurer
and Assistant Secretary				(Principal Financial and
				Accounting Officer)

Saddlebrook Resorts, Inc.

Index

December 31, 2018 and 2017


Saddlebrook Resorts, Inc.

Report of Independent Registered Public Accounting Firm			18

Financial Statements

Balance Sheets as of December 31, 2018 and 2017			19

Statements of Operations for the years ended December 31, 2018 and 2017			20

Statements of Changes in Shareholder’s Equity (Deficit) for the years ended December 31, 2018 and 2017			21

Statements of Cash Flows for the years ended December 31, 2018 and 2017			22

Notes to Financial Statements			23-35

Saddlebrook Rental Pool Operation

Report of Independent Registered Public Accounting Firm			36

Financial Statements

Balance Sheets as of December 31, 2018 and 2017			37

Statements of Operations for the years ended December 31, 2018 and 2017			38

Statements of Changes in Participants’ Fund Balance for the years ended December 31, 2018 and 2017			39

Notes to Financial Statements			40

Report of Independent Registered Certified Public Accounting Firm

To the Shareholder and the Board of Directors of

Saddlebrook Resorts, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Saddlebrook Resorts, Inc. (“the Company”) as of December 31, 2018 and, 2017, and the related statements of operations, changes in shareholder’s equity (deficit), and cash flows for years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Cherry Bekaert LLP

We have served as the Company’s auditor since 2007.

Tampa, Florida

March 29, 2019

Saddlebrook Resorts, Inc.

Balance Sheets

December 31, 2018 and 2017


	2018			2017
Assets
Current assets
Cash and cash equivalents	$	745,240		$	698,033
Escrowed cash		1,880,231			263,558
Trade accounts receivable, net of allowance for doubtful accounts of $19,810 (2018) and $29,704 (2017)		1,319,156			1,666,447
Due from related parties		1,966,456			1,654,129
Resort inventory and supplies		1,053,645			1,151,386
Prepaid expenses and other assets		1,157,022			969,927

Total current assets		8,121,750			6,403,480
Property, buildings and equipment, net		16,566,016			17,531,676

Total assets	$	24,687,766		$	23,935,156

Liabilities and Shareholder’s Deficit
Current liabilities
Current portion of long-term debt	$	352,560		$	1,052,560
Current portion of capital lease obligations		90,167			57,236
Escrowed deposits		1,880,231			263,558
Accounts payable		673,135			639,533
Accrued rental distribution		503,066			637,290
Accrued expenses and other liabilities		1,157,553			1,317,159
Current portion of deferred income		729,485			708,362
Guest deposits		2,566,150			2,703,941
Due to related parties		14,698,670			11,897,345

Total current liabilities		22,651,017			19,276,984
Long-term debt, net of deferred issuance costs of $29,354 and $53,916 at December 31, 2018 and December 31, 2017,respectively		5,435,394			5,763,396
Capital lease obligations		330,391			—
Deferred income		549,109			527,595

Total liabilities		28,965,911			25,567,975

Commitments and contingencies (Note 11)
Shareholder’s deficit
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
Accumulated deficit		(5,391,272	)		(2,745,946	)

Total shareholder’s deficit		(4,278,145	)		(1,632,819	)

Total liabilities and shareholder’s deficit	$	24,687,766		$	23,935,156

See notes to financial statements.

Saddlebrook Resorts, Inc.

Statement of Operations

Years ended December 31, 2018 and 2017


	2018			2017
Resort revenues	$	29,535,732		$	30,142,484

Costs and expenses:
Operating costs of resort		24,400,001			25,130,083
Sales and marketing		2,285,380			2,510,399
General and administrative		3,140,107			3,167,891
Depreciation		2,110,274			2,003,795

Total costs and expenses		31,935,762			32,812,168

Net operating loss before other expenses (income)		(2,400,030	)		(2,669,684	)

Other expenses (income):
Interest expense		477,490			369,162
Other income		(232,194	)		(54,754	)

Total other expense		245,296			314,408

Net loss	$	(2,645,326	)	$	(2,984,092	)

See notes to financial statements.

Saddlebrook Resorts, Inc.

Statements of Changes in Shareholder’s Equity (Deficit)

Years ended December 31, 2018 and 2017


	Common Stock		Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			Total Shareholder’s Equity (Deficit)
Balances at January 1, 2017	$	100,000	$	1,013,127	$	238,146		$	1,351,273
Net loss		—		—		(2,984,092	)		(2,984,092	)

Balances at December 31, 2017		100,000		1,013,127		(2,745,946	)		(1,632,819	)
Net loss		—		—		(2,645,326	)		(2,645,326	)

Balances at December 31, 2018	$	100,000	$	1,013,127	$	(5,391,272	)	$	(4,278,145	)

See notes to financial statements.

Saddlebrook Resorts, Inc.

Statements of Cash Flow

Years ended December 31, 2018 and 2017


	2018			2017
Cash flows from operating activities
Net loss	$	(2,645,326	)	$	(2,984,092	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		2,110,274			2,003,795
Amortization of debt financing costs		26,562			28,439
(Reductions) additions to allowance for doubtful accounts		(9,894	)		12,027
(Gain) loss on sale of assets		(96,816	)		5,464
Change in operating assets and liabilities
(Increase) decrease in
Trade accounts receivable		357,185			132,391
Resort inventory and supplies		97,741			33,647
Prepaid expenses and other assets		(187,095	)		103,663
Increase (decrease) in
Escrowed deposits		1,616,673			(146,122	)
Accounts payable		33,602			(116,666	)
Accrued rental distribution		(134,224	)		50,529
Accrued expenses and other liabilities		(159,606	)		(117,655	)
Deferred income		42,637			(30,352	)
Guest deposits		(137,791	)		503,629

Net cash flows from operating activities		913,922			(521,303	)

Cash flows from investing activities
Proceeds from the sale of assets		165,550			—
Capital expenditures		(724,200	)		(317,024	)

Net cash flows from investing activities		(558,650	)		(317,024	)


Cash flows from financing activities
Principal payments on long-term debt		(352,564	)		(352,564	)
(Payments) proceeds from line of credit		(700,000	)		700,000
Payments on capital lease obligations		(125,826	)		(128,376	)
Cash paid for debt issuance costs		(2,000	)		(24,247	)
Net advances from related parties		2,488,998			361,054

Net cash flows from financing activities		1,308,608			555,867

Net increase (decrease) in cash, cash equivalents and escrowed cash		1,663,880			(282,460	)
Cash, cash equivalents and escrowed cash, beginning of year		961,591			1,244,051

Cash, cash equivalents and escrowed cash, end of year	$	2,625,471		$	961,591

Supplemental disclosure
Cash paid for interest	$	450,918		$	340,723


In March 2018, the Company acquired equipment through a capital lease obligation totaling approximately $461,506, net of existing equipment trade in of $129,300. In April, 2018, the Company acquired equipment through a capital lease obligation totaling approximately $178,942, net of existing equipment trade in of $22,000.

See notes to financial statements.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

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 following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the accompanying balance sheets with the total of these amounts shown in the accompanying statements of cash flows:


	2018	2017
Cash and cash equivilents	745,240	698,033
Escrowed cash	1,880,231	263,558

Total cash, cash equivalents, and escrowed cash shown in the statement of cash flows	2,625,471	961,591

Amounts included in restricted cash represent escrowed cash. See Note 5 – Escrowed Cash.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

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, 2018, the Company had approximately $2,216,000 of cash and cash equivalents which exceeded these insured limits.

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, 2018 and 2017, 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, 2018 or 2017.

Debt Issuance Costs

Finance costs represent costs incurred in connection with the refinancing of the Company’s long-term debt. Amortization expense for finance costs, included in interest expense on the accompanying statements of operations, amounted to approximately $26,600 for the year ended December 31, 2018 and $28,400 for 2017.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

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, 2018 and 2017 include rental pool distributions to participants and the maintenance escrow fund approximating $3,100,000 and $3,200,000, respectively. See Note 3—Revenue for the required disclosures per the guidance in ASC 606.

Advertising

The Company charges costs of advertising to sales and marketing as incurred. The Company incurred advertising costs of approximately $404,000 and $356,000 during the years ended December 31, 2018 and 2017, 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, 2018 and 2017. The parent company’s federal income tax returns for 2015, 2016 and 2017 are subject to examination by the Internal Revenue Service, generally for a period of three years after the federal income tax returns were filed.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases” (“ASU 2018-10”), and ASU No. 2018-11, Leases (Topic 842) Targeted Improvements (“ASU 2018-11”). ASU 2018-10 provides certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt the ASUs on January 1, 2019. Based on management’s assessment, the adoption of ASU 2016-02 will not have a material impact on the Company’s financial statements and related disclosures.

3. Revenue

On January 1, 2018, we adopted the new accounting standard Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers and all the related amendments (“the new revenue standard”) using the modified retrospective method. We assessed the basis of our various revenue streams and did not need to record a cumulative effect adjustment to accumulated deficit upon adoption of the new revenue standard as of January 1, 2018. Under ASC 606, revenue is recognized when a company transfers the promised goods or services to a customer in an amount that reflects consideration that is expected to be received for those goods and services.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

Adoption of the standard did not have a material impact on the Company’s financial position, results of operations, cash flow, accounting policies, business processes, internal controls or disclosures.

Contract Balances

Timing differences among revenue recognition may result in contract assets or liabilities. Contract liabilities on the accompanying balance sheets totaled approximately $3,845,000 and $3,940,000 as of December 31, 2018 and 2017, respectively.

Our net trade accounts receivables were $1,319,000 and $1,666,000 as of December 31, 2018 and 2017, respectively. Trade accounts receivable are stated in the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to the allowance of doubtful accounts based on its assessment of the current status of individual accounts. Balances still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance of doubtful accounts and a credit to trade accounts receivable. Changes in the allowance for doubtful accounts have not been material to the consolidated financial statements.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under the new revenue recognition standard. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our revenue transactional and the contracts performance obligation is generally satisfied at the time of the transaction.

Revenue Recognition

Practical Expedients and Exemptions

There are several practical expedients and exemptions allowed under ASC 606 that impact timing of revenue recognition and our disclosures. Below is the practical expedient the Company applied in the adoption and application of ASC 606:

Application

•

The Company elects to treat similar contracts as part of a portfolio of contracts, primarily initiation fee contracts. The contracts for have the same provision terms, and management has the expectation the result will not be materially different from the consideration of each individual contract.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

4.	Management’s Plans Regarding Liquidity and Capital Resources

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 $14.7 million and $11.9 million as of December 31, 2018 and 2017, respectively. In addition to the shareholders financial ability these affiliated companies are expected to continue to generate positive cash flows during fiscal year 2019 should additional funding be required to support the Company’s operations.

5.	Escrowed Cash

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


	2018		2017
Rental pool unit owner deposits for maintenance reserve fund held in a bank account which bears an interest rate of 0.05%	$	1,864,132	$	244,559
Security deposits held on long-term rentals		16,099		18,999

	$	1,880,231	$	263,558

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

6.	Property, Buildings and Equipment, Net

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


	Estimated Useful Lives		2018			2017
Land and land improvements			$	8,830,867		$	8,740,994
Buildings and recreational facilities		10–40		32,055,525			31,962,963
Machinery and equipment		5–15		21,592,565			21,178,583
Construction in progress				118,722			126,683

				62,597,679			62,009,223
Accumulated depreciation				(46,031,663	)		(44,477,547	)

			$	16,566,016		$	17,531,676

Substantially all property, buildings and equipment are mortgaged, pledged or otherwise subject to lien under a loan agreement (Note 8).

Depreciation expense amounted to approximately $2,110,000 and $2,004,000 for the years ended December 31, 2018 and 2017, 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 $651,000 and $252,000 at December 31, 2018 and 2017, respectively. Depreciation expense totaled $105,000 and $92,500 on the leased equipment at December 31, 2018 and 2017.

7.	Accrued Expenses and Other Liabilities

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


	2018		2017
Accrued payroll and related expenses	$	684,054	$	704,503
Accrued insurance		44,571		64,252
Accrued property taxes		306,066		294,370
Other accrued expenses and liabilities		122,862		254,034

	$	1,157,553	$	1,317,159

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

8.	Long-term Debt and Capital Lease Obligations

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


	2018			2017
Note payable to lender	$	5,817,308		$	6,169,872
Revolving line of credit		—			700,000
Less unamortized finance costs		(29,354	)		(53,916	)
Less current portion		(352,560	)		(1,052,560	)

	$	5,435,394		$	5,763,396

On December 6, 2015 the Company’s financing agreement with a third party lender 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, 2018, $5,817,308 was outstanding under the note. The term note requires monthly principal payments of $29,380 plus interest of 3% over the one month Libor index (5.32% at December 31, 2018). 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 Service Ratio, as defined, of 1.25%. The Company was in default of this covenant as of December 31, 2018; however, the Company received a waiver for this default from its lender. The debt service covenant will be re-measured at December 31, 2019. Management believes, based on its expectations, that the Company will be in compliance with the debt service covenant at that date; however, there can be no assurances that it will be in compliance. Should the Company not be in compliance at December 31, 2019, it will seek a waiver or modification of the covenant. In addition, under the terms of the loan agreement, the Company has certain remedies available to it by which it can cure the default, and it is management’s intent to do so if necessary.

On April 24, 2017, the Company entered in to a revolving line of credit agreement with the same third party lender with maximum borrowings of $1,500,000 to be used as working capital as needed. The agreement is cross collateralized with the existing term note under the same terms and conditions. Amounts borrowed under the revolving line of credit will bear interest at 3% over the one month LIBOR index. (5.32% at December 31, 2018). The line of credit will terminate on December 6, 2020. As of December 31, 2018, the Company had no outstanding borrowings on this agreement.

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.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

Future maturities of note payable to lender as of December 31, 2018 were as follows:


	Years ending December 31,
2019		352,560
2020		5,464,748

	$	5,817,308

On March 1, 2018, the Company entered into a capital lease obligation for equipment in the amount of $332,206. The assets associated with this lease cost $461,506, of which $129,300 was reduced through the Company’s trade-in of existing equipment. This capital lease is secured by the equipment purchased, matures in February 2023 and requires monthly payments of $6,500, including interest at 6.5%. At December 30, 2018, the amount due on this capital lease obligation was $284,038.

On April 1, 2018, the Company entered into a capital lease obligation for equipment in the amount of $156,942. The assets associated with this lease cost $178,942, of which $22,000 was reduced through the Company’s trade-in of existing equipment. This capital lease is secured by the equipment purchased, matures in March 2023 and requires monthly payments of $3,071, including interest at 6.5%. At December 31, 2018, the amount due on this capital lease obligation was $136,520.

Future minimum payments under the capital lease obligations as of December 31, 2018 are as follows:


Years ending December 31,
2019	$	114,852
2020	$	114,852
2021	$	114,852
2022	$	114,852
2023	$	22,216
Less interest		(61,066	)
Less current portion		(90,167	)

	$	330,391

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

9.	Resort Revenues and Operating Costs of Resort

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


	Years Ended 2018		December 31, 2017
Resort Revenues
Room revenue subject to rental pool agreement	$	8,190,463	$	8,594,792
Food and beverage		10,679,402		10,467,208
Resort facilities and other		10,665,867		11,080,484

	$	29,535,732	$	30,142,484

Operating Costs of Resort
Distribution to rental pool participants	$	3,082,094	$	3,221,949
Food and beverage		5,927,775		6,270,265
Resort facilities and other		15,390,132		15,637,869

	$	24,400,001	$	25,130,083

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

10.

Related Party Transactions

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


	2018		2017
Saddlebrook Resort Condominium Association, Inc.	$	123,324	$	159,185
Saddlebrook International Sports, LLC		569,224		402,456
Dempsey Resort Management, Inc.		4,608		4,608
Saddlebrook Properties LLC		5,463		5,325
Saddlebrook Realty, Inc.		1,235,382		1,059,096
Saddlebrook Investments, Inc.		19,508		19,508
Other		8,947		3,951

	$	1,966,456	$	1,654,129

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


	2018		2017
Saddlebrook Holdings, Inc.	$	14,698,670	$	11,897,345

	$	14,698,670	$	11,897,345

Saddlebrook Holdings, Inc. (“SHI”) the Company’s parent company advanced SRI in the amount of $2,801,325 and $1,008,211 during the year ended December 31, 2018 and 2017, respectively.

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, of which 2 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 $1,885,000 and $1,816,000 for the years ended December 31, 2018 and 2017 respectively. The Company had amounts due from SIS which amounted to $569,224 and $402,456 for the years ended December 31, 2018 and 2017 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 include 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, 2018 and 2017

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 $1,438,571 and $1,654,000 for each of the years ended December 31, 2018 and 2017, 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.

11.

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, 2018.

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 $77,500 and $77,100 for each of the years ended December 31, 2018 and 2017, respectively.

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


2019	$	79,716
2020		79,716
2021		75,656

	$	235,088

12.

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 20% and all amounts contributed as capital ($132,866 as of December 31, 2018) and the increase in equity cumulative to date ($513,951 as of December 31, 2018) 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

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2018 and 2017

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, 2018. 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.

Report of Independent Registered Certified Public Accounting Firm

Board of Directors of Saddlebrook

Resorts, Inc., as Operators under the Saddlebrook

Rental Pool and Agency Appointment Agreement

Wesley Chapel, FL

Opinion on the Financial Statements

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, 2018 and, 2017, and the related statements of operations and changes in participants’ fund balance for years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Saddlebrook Rental Pool Operation as of December 31, 2018 and 2017, and the results of its operations and changes in participants’ fund balance for years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

/s/ Cherry Bekaert LLP

We have served as the Company’s auditor since 2007.

Tampa, Florida

March 29, 2019

Saddlebrook Rental Pool Operation

Balance Sheets

December 31, 2018 and 2017


Distribution Fund
	2018		2017
Assets
Receivable from Saddlebrook Resorts, Inc.	$	503,066	$	637,290

Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution	$	424,193	$	522,179
Due to maintenance escrow fund		78,873		115,111

	$	503,066	$	637,290

Maintenance Escrow Fund
Assets
Cash in bank	$	1,864,132	$	244,558
Receivables
Distribution fund		78,873		115,111
Owner payments		—		1,503
Prepaid expenses and other assets		58,710		51,098
Due from Saddlebrook Resorts, Inc.		94,547		—
Furniture inventory		39,651		49,747

	$	2,135,913	$	462,017

Liabilities and Participants’ Fund Balance
Due to Saddlebrook Resorts, Inc.	$	—	$	127,625
Participants’ fund balance		2,135,913		334,392

	$	2,135,913	$	462,017

See notes to financial statements.

Saddlebrook Rental Pool Operation

Statements of Operations

December 31, 2018 and 2017


Distribution Fund
	2018			2017
Rental pool revenues	$	8,190,463		$	8,594,792

Deductions
Marketing fee		614,284			644,609
Management fee		1,023,808			1,074,349
Travel agent commissions		585,086			590,694
Bad debt expense		—			45,000
Credit card expense		246,519			251,976

		2,469,697			2,606,628

Net rental income		5,720,766			5,988,164
Operator share of net rental income		(2,574,345	)		(2,694,673	)
Other revenues (expenses)
Complimentary room revenues		34,546			35,214
Minor repairs and replacements		(98,873	)		(106,756	)

Amounts available for distribution to participants and maintenance escrow fund	$	3,082,094		$	3,221,949

See notes to financial statements.

Saddlebrook Rental Pool Operation

Statements of Changes in Participants’ Fund Balance

Years Ended December 31, 2018 and 2017


Distribution Fund
	2018			2017
Balances, beginning of year	$	—		$	—
Additions
Amounts available for distribution		3,082,094			3,221,949
Reductions
Amounts withheld for maintenance escrow fund		(507,749	)		(527,275	)
Amounts accrued or paid to participants		(2,574,345	)		(2,694,674	)

Balances, end of year	$	—		$	—

Maintenance Escrow Fund
Balances, beginning of year	$	334,392		$	371,247
Additions
Amount withheld from distribution fund		507,749			527,275
Unit owner payments		2,098,143			168,761
Interest earned		180			111
Reductions
Unit renovations		(400,280	)		(102,377	)
Refunds of excess amounts in escrow accounts		(7,148	)		(30,436	)
Maintenance charges		(260,329	)		(376,205	)
Linen expense		(136,794	)		(223,984	)

Balances, end of year	$	2,135,913		$	334,392

See notes to financial statements.

Saddlebrook Rental Pool Operation

Notes to Financial Statements

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.