SADDLEBROOK RESORTS INC - Annual Report: 2019 (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, 2019

☐	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 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 ☒ 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, 2019, there were approximately 428 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, 2019, there were 513 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

Effective January 1, 2019, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2016-02, “Leases,” which created a new Topic 842 within the Accounting Standards Codification. Topic 842 established the core principle that a lessee should recognize the assets, representing rights-of-use, and liabilities to make lease payments, that arise from leases.

The Company adopted the standard using an optional transition method allowed with the issuance of ASU 2018-11, “Leases – Targeted Improvements (Topic 842),” in July 2018. ASU 2018-11 provides entities the option to not provide comparative period financial statements and instead apply the transition requirements as of the effective date of the new standard. Pursuant to additional guidance under Topic 842, the Company also elected the optional package of practical expedients, which allowed the Company to not reassess: (i) whether expired or existing contracts contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated, continues to be reported under ASC 840, “Leases”, which did not require the recognition of operating lease liabilities on the consolidated balance sheet, and is not comparative. Under Topic 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases, which is determined at the inception of the lease. The Company also elected under the package of practical expedients, to combine lease and non-lease components.

Under the new standard, the Company’s lease liability is based on the present value of such payments and the related right-of-use asset will generally be based on the lease liability.

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, 2019 and 2018, 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 performance obligations are satisfied which is generally 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, 2019.

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 significant decrease in revenue for the year ending December 31, 2018 compared to the previous year. The Company is optimistic the trend will improve during 2020; however, actual results may differ from expectations. The decrease in expenses for the year ending December 31, 2019 as compared to the prior year is a result of decreased occupancy and reductions in wages, benefits, and operating expenses.

Toward the end of December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) emerged globally. The COVID-19 outbreak in the United States has resulted in a reduction of hotel occupancy and cancellations of future reservations. It is difficult to estimate the length or severity of this outbreak; however, a significant reduction in occupancy caused by COVID-19 is expected to affect the Company’s results of operations and financial position.

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, 2019 was $3,443,036. Excluding non-cash expenses such as depreciation and amortization of $2,067,795 the Company’s actual operation cash loss was $1,375,241.

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’s loans outstanding due to certain affiliated companies were forgiven during 2019 and was recorded as a capital transaction due to the related party nature. In addition to the shareholder’s financial ability, these affiliated companies are expected to continue to generate positive cash flows during fiscal year 2020 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,
	2019			2018
Rental Pool Revenues		26	%		28	%
Food and beverage		36			36
Resort facilities and other		38			36

		100	%		100	%

2019 Compared to 2018

The Company’s total revenue decreased $3,226,000 or approximately 11%, from the prior year. Rental Pool revenue decreased $1,375,000 or approximately 17%. Food and Beverage revenue decreased $1,110,000 or approximately 10%.

The Company’s costs and expenses decreased $2,589,000, or approximately 8%. Costs and expenses of the Rental Pool Operation decreased $527,000, or approximately 17%.

The Company’s net loss was approximately $3,443,000, compared with a net loss of approximately $2,645,000 in the prior year. Amounts available for distribution to rental pool participants decreased by approximately $527,000.

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, 2019, 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, 2019, 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, 2019, 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, 2019, 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 93		Chairman of the Board and Chief Executive Officer of the Company. Chairman of the Board of Saddlebrook Holdings, Inc.

Maureen Dempsey Age 61		Director, President and Assistant Secretary of the Company. Director and President of Saddlebrook Holdings, Inc. Daughter of Thomas Dempsey.

Diane L. Riehle Age 59		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 80		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, 2019 and 2018.

Summary Compensation Table


Name and Principal Position	Fiscal year		Salary		Bonus		Other annual compensation (1)		Total
Thomas L. Dempsey		2019	$	50,000	$	—	$	25,492	$	75,492
Chairman of the Board and Chief Executive Officer		2018		50,000		—		15,452		65,452

Maureen Dempsey		2019		125,000		650		16,756		142,406
President and Assistant Secretary		2018		125,000		650		21,078		146,728

Pat Ciaccio		2019		125,000		650		483		126,133
General Manager		2018		125,000		650		387		126,037

(1)	Other Annual Compensation for 2019 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	$	—	$	21,252	$	3,004	$	1,236
Maureen Dempsey		3,060		9,750		3,004		942
Pat Ciaccio		—		—		—		483

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 48 individual condominium units at the Resort, 27 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, 2019 and December 31, 2018.

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

Audit Fees: $98,030 and $95,175 for the fiscal years ended December 31, 2019 and 2018, 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 30, 2020		/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 00, 2020.


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

/s/ 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, 2019 and 2018


Saddlebrook Resorts, Inc.

Report of Independent Registered Public Accounting Firm			17

Financial Statements

Balance Sheets as of December 31, 2019 and 2018			18

Statements of Operations for the years ended December 31, 2019 and 2018			19

Statements of Changes in Shareholder’s Equity (Deficit) for the years ended December 31, 2019 and 2018			20

Statements of Cash Flows for the years ended December 31, 2019 and 2018			21

Notes to Financial Statements			22-33

Saddlebrook Rental Pool Operation

Report of Independent Registered Public Accounting Firm			34

Financial Statements

Balance Sheets as of December 31, 2019 and 2018			35

Statements of Operations for the years ended December 31, 2019 and 2018			36

Statements of Changes in Participants’ Fund Balance for the years ended December 31, 2019 and 2018			37

Notes to Financial Statements			38

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, 2019 and 2018, 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, 2019 and 2018, 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.

Emphasis of Matter

As more fully described in Note 4 to the financial statements, the Company has been negatively impacted by the outbreak of a novel coronavirus (“COVID-19”), which was declared a global pandemic by the World Health Organization in March 2020.

/s/ Cherry Bekaert LLP

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

Tampa, Florida

March 30, 2020

Saddlebrook Resorts, Inc.

Balance Sheets

December 31, 2019 and 2018


	2019		2018
Assets
Current assets
Cash and cash equivalents	$	325,696	$	745,240
Escrowed cash		1,124,074		1,880,231
Trade accounts receivable, net		1,129,572		1,319,156
Due from related parties		465,623		1,966,456
Resort inventory and supplies		1,011,923		1,053,645
Prepaid expenses and other assets		350,539		1,157,022

Total current assets		4,407,427		8,121,750
Property, buildings and equipment, net		14,800,528		16,566,016
Operating lease right-of-use assets		147,223		—

Total assets	$	19,355,178	$	24,687,766

Liabilities and Shareholder’s Equity (Deficit)
Current liabilities
Current portion of long-term debt, net of deferred issuance costs of $11,566 at December 31, 2019	$	6,953,178	$	352,560
Current portion of finance lease liabilities		96,206		90,167
Current portion of operating lease liabilities		73,650		—
Escrowed deposits		1,124,074		1,880,231
Accounts payable		492,452		673,135
Accrued rental distribution		344,367		503,066
Accrued expenses and other liabilities		1,089,527		1,157,553
Current portion of deferred income		786,125		729,485
Guest deposits		1,393,571		2,566,150
Due to related parties		—		14,698,670

Total current liabilities		12,353,150		22,651,017
Long-term debt, net of deferred issuance costs of $29,354 at December 31, 2018		—		5,435,394
Long-term finance lease liabilities		258,258		330,391
Long-term operating lease liabilities		73,573		—
Deferred income		627,685		549,109

Total liabilities		13,312,666		28,965,911

Shareholder’s equity (deficit):
Common stock		100,000		100,000
APIC		1,013,127		1,013,127
Retained earnings (accumulated deficit)		4,929,385		(5,391,272	)

Total shareholder’s equity (deficit)		6,042,512		(4,278,145	)

Total liabilities and shareholder’s equity (deficit)	$	19,355,178	$	24,687,766

See notes to financial statements.

Saddlebrook Resorts, Inc.

Statements of Operations

Years ended December 31, 2019 and 2018


	2019			2018
Resort revenues	$	26,309,406		$	29,535,732

Costs and expenses:
Operating costs of resort		22,376,484			24,400,001
Sales and marketing		1,805,613			2,285,380
General and administrative		3,114,476			3,140,107
Depreciation		2,050,007			2,110,274

Total costs and expenses		29,346,580			31,935,762

Net operating loss		(3,037,174	)		(2,400,030	)

Other expenses (income):
Interest expense		424,505			477,490
Other income		(18,643	)		(232,194	)

Total other expense		405,862			245,296

Net loss	$	(3,443,036	)	$	(2,645,326	)

See notes to financial statements.

Saddlebrook Resorts, Inc.

Statements of Changes in Shareholder’s Equity (Deficit)

Years ended December 31, 2019 and 2018


	Common Stock		Additional Paid-In Capital		(Accumulated Deficit) Retained Earnings			Total Shareholder’s Equity (Deficit)
Balances at January 1, 2018	$	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	)

Net loss						(3,443,036	)		(3,443,036	)
Elimination of related party receivables and payables, net		—		—		13,763,693			13,763,693

Balances at December 31, 2019	$	100,000	$	1,013,127	$	4,929,385		$	6,042,512

See notes to financial statements.

Saddlebrook Resorts, Inc.

Statements of Cash Flows

Years ended December 31, 2019 and 2018


	2019			2018
Cash flows from operating activities
Net loss	$	(3,443,036	)	$	(2,645,326	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		2,050,007			2,110,274
Amortization of debt financing costs		17,788			26,562
Amortization of operating lease right of use assets		69,872			—
Interest paid on finance leases		24,681			—
(Reductions) additions to allowance for doubtful		12,118			(9,894	)
Gain on sale of assets		—			(96,816	)
Change in operating assets and liabilities (Increase) decrease in
Trade accounts receivable		177,466			357,185
Resort inventory and supplies		41,722			97,741
Prepaid expenses and other assets		806,483			(187,095	)
Increase (decrease) in
Escrowed deposits		(756,157	)		1,616,673
Accounts payable		(180,683	)		33,602
Accrued rental distribution		(158,699	)		(134,224	)
Accrued expenses and other liabilities		(68,026	)		(159,606	)
Deferred income		135,216			42,637
Guest deposits		(1,172,579	)		(137,791	)
Operating lease liabilities		(69,872	)		—

Net cash flows from operating activities		(2,513,699	)		913,922

Cash flows from investing activities
Proceeds from the sale of assets		—			165,550
Capital expenditures		(284,519	)		(724,200	)

Net cash flows from investing activities		(284,519	)		(558,650	)

Cash flows from financing activities
Principal payments on long-term debt		(352,564	)		(352,564	)
Proceeds (payments) from (on) line of credit		1,500,000			(700,000	)
Payments on finance lease obligations		(90,775	)		(125,826	)
Cash paid for debt issuance costs		—			(2,000	)
Net advances from related parties		565,856			2,488,998

Net cash flows from financing activities		1,622,517			1,308,608

Net change in cash, cash equivalents and escrowed cash		(1,175,701	)		1,663,880
Cash, cash equivalents and escrowed cash, beginning of year		2,625,471			961,591

Cash, cash equivalents and escrowed cash, end of year	$	1,449,770		$	2,625,471

Supplemental disclosure
Cash paid for interest	$	406,718		$	450,918

On January 1, 2019, the Company adopted the provisions of Topic 842 within the Accounting Standards Codification, which resulted in the establishment of operating lease right-of-use assets and an operating lease liability each in the aggregate amount of $217,095 (see Notes 1 and 6).

During 2019, the Company eliminated certain related party receivables and payables, which resulted in a decrease to due from related parties of $1,457,134 and a decrease to due to related parties of $15,220,827.

See notes to financial statements.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2019 and 2018

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:


	2019		2018
Cash and cash equivalents		325,696		745,240
Escrowed cash		1,124,074		1,880,231

Total cash, cash equivalents, and escrowed cash shown in the statements of cash flows		1,449,770		2,625,471

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

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

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2019 and 2018

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, 2019, the Company had approximately $1,386,000 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, 2019 and 2018, 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, 2019 or 2018.

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 $17,800 and $26,600 for the years ended December 31, 2019 and 2018, respectively.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2019 and 2018

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, 2019 and 2018 include rental pool distributions to participants and the maintenance escrow fund approximating $2,600,000 and $3,100,000, 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 $248,000 and $404,000 during the years ended December 31, 2019 and 2018, 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, 2019 and 2018. The parent company’s federal income tax returns for 2016, 2017 and 2018 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, 2019 and 2018

Recent Accounting Pronouncements

Under the new standard, the Company’s lease liability is based on the present value of such payments and the related right-of-use asset will generally be based on the lease liability.

See Note 6 for additional information regarding operating leases.

3. Revenue

On January 1, 2018, the Company 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. The Company assessed the basis of their 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.

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 consists of guest deposits and deferred income and totaled approximately $2,807,000 and $3,845,000 as of December 31, 2019 and 2018, respectively. Approximately $3,296,000 of contract liabilities at December 31, 2018 were recognized as revenue during the year ended December 31, 2019. Contract assets consist of escrowed cash relating to rental pool owner deposits for the maintenance reserve fund and long-term security deposits and totaled approximately $1,124,000 and $1,880,000 as of December 31, 2019 and 2018, respectively.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2019 and 2018

The Company’s net trade accounts receivables were $1,130,000 and $1,319,000 as of December 31, 2019 and 2018, 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, 2019 and 2018

4.	Management’s Plans Regarding Liquidity and Capital Resources

The Company experienced a significant decrease in revenue for the year ending December 31, 2019 compared to the previous year. The Company is optimistic the trend will improve during 2020; however, actual results may differ from expectations. The decrease in expenses for the year ending December 31, 2019 as compared to the prior year is a result of decreased occupancy and reductions in wages, benefits, and operating expenses.

Towards the end of December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) emerged globally. The COVID-19 outbreak in the United States has resulted in a reduction of hotel occupancy and cancellations of future reservations. It is difficult to estimate the length or severity of this outbreak; however, a significant reduction in occupancy caused by COVID-19 is expected to affect the Company’s results of operations and financial position.

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’s loans outstanding due to the affiliated companies were forgiven during 2019 and was recorded as a capital transaction due to the related party nature. In addition to the shareholders financial ability these affiliated companies are expected to continue to generate positive cash flows during fiscal year 2020 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:


	2019		2018
Rental pool unit owner deposits for maintenance reserve fund held in a bank account which bears an interest rate of 0.05%	$	1,108,892	$	1,864,132
Security deposits held on long-term rentals		15,182		16,099

	$	1,124,074	$	1,880,231

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2019 and 2018

6.	Operating Leases

The Company leases certain equipment under non-cancellable operating leases, which begin to expire in 2021. The leases are classified as operating leases in conformity with the provisions of Topic 842. Accordingly, the Company recorded a right-of-use asset and related operating lease liability totaling approximately $217,000 upon adoption of Topic 842 as of January 1, 2019. Aggregated information regarding the leases as of December 31, 2019 is as follows:


Lease costs (included in operating costs)	$	69,872
Incremental borrowing rate		5.32	%

Operating lease expense amounted to approximately $69,900 and $77,100 for each of the years ended December 31, 2019 and 2018, respectively.

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


2020	$	79,716
2021		75,656

	$	155,372
Less: Interest expense	$	8,149

Operating lease liabilities	$	147,223

7.	Property, Buildings and Equipment, Net

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


	Estimated Useful Lives		2019			2018
Land and land improvements			$	8,830,867		$	8,830,867
Buildings and recreational facilities		10–40		32,093,233			32,055,525
Machinery and equipment		5–15		21,863,715			21,592,565
Construction in progress				94,379			118,722

				62,882,194			62,597,679
Accumulated depreciation				(48,081,666	)		(46,031,663	)

			$	14,800,528		$	16,566,016

Substantially all property, buildings and equipment are mortgaged, pledged or otherwise subject to lien under a loan agreement (Note 9).

Depreciation expense amounted to approximately $2,050,000 and $2,110,000 for the years ended December 31, 2019 and 2018, respectively.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2019 and 2018

The Company leases equipment under agreements which are classified as finance 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 finance lease obligations was approximately $651,000 at both December 31, 2019 and 2018. Depreciation expense totaled $130,000 and $105,000 on the leased equipment at December 31, 2019 and 2018.

8.	Accrued Expenses and Other Liabilities

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


	2019		2018
Accrued payroll and related expenses	$	639,473	$	684,054
Accrued insurance		43,476		44,571
Accrued property taxes		295,965		306,066
Other accrued expenses and liabilities		110,613		122,862

	$	1,089,527	$	1,157,553

9.	Long-term Debt and Finance Lease Obligations

Total debt at December 31, 2019 amounted to $6,964,744, net of $11,566 of unamortized finance costs. It is presented as current debt on the accompanying balance sheet since it matures in December 2020. Total debt at December 31, 2018 amounted to $5,817,308, of which $352,560 is presented as current debt and $5,435,394, net of $29,354 of unamortized finance costs, is presented as long-term debt on the accompanying balance sheet.

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, 2019, $5,464,744 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 (4.75% at December 31, 2019). 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, 2019; however, the Company received a waiver for this default from its lender. The company is currently discussing refinancing of its current mortgage.

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

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2019 and 2018

one month LIBOR index. (4.75% at December 31, 2019). The line of credit will terminate on December 6, 2020. At December 31, 2019, the Company had $1,500,000 of outstanding borrowings on this agreement. There were no borrowings outstanding at December 31, 2018.

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.

On March 1, 2018, the Company entered into a finance 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 finance 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, 2019, the amount due on this finance lease obligation was $222,694.

On April 1, 2018, the Company entered into a finance 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 finance 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, 2019, the amount due on this finance lease obligation was $107,693.

Future minimum payments under the finance lease obligations as of December 31, 2019 are as follows:


Years ending December 31,
2020	$	114,852
2021	$	114,852
2022	$	114,852
2023	$	22,216
Less interest		(18,308	)
Less current portion		(90,206	)

	$	258,258

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2019 and 2018

10.

Resort Revenues and Operating Costs of Resort

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


	2019		2018
Resort Revenues
Room revenue subject to rental pool agreement		6,815,885		8,190,463
Food and beverage		9,569,352		10,679,402
Resort facilities and other		9,924,169		10,665,867

		26,309,406		29,535,732
Operating Costs of Resort
Distribution to rental pool participants		2,554,750		3,082,094
Food and beverage		5,550,086		5,927,775
Resort facilities and other		14,271,648		15,390,132

		22,376,484		24,400,001

11.

Related Party Transactions

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


	2019		2018
Saddlebrook Resort Condominium Association, Inc.	$	41,723	$	123,324
Saddlebrook International Sports, LLC		405,626		569,224
Dempsey Resort Management, Inc.		4,608		4,608
Saddlebrook Properties LLC		—		5,463
Saddlebrook Realty, Inc.		—		1,235,382
Saddlebrook Investments, Inc.		—		19,508
Other		13,666		8,947

		$465,623	$	1,966,456

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


	2019		2018
Saddlebrook Holdings, Inc.	$	—	$	14,698,670


	$	—	$	14,698,670

Saddlebrook Holdings, Inc. (“SHI”) the Company’s parent company advanced SRI in the amount of $1,406,770 and $2,801,325 during the year ended December 31, 2019 and 2018, respectively. During 2019, advances owed to SHI of $15,220,827 were forgiven and recorded as an equity transaction.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2019 and 2018

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 $1,671,000 and $1,885,000 for the years ended December 31, 2019 and 2018 respectively. The Company had amounts due from SIS which amounted to $405,626 and $569,224 for the years ended December 31, 2019 and 2018 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. During 2019, amounts owed from Saddlebrook Investments, Inc. of $19,508 were forgiven and recorded as an equity transaction.

During 2019, amounts owed from Saddlebrook Properties, LLC and Saddlebrook Realty, Inc. of $5,602 and $1,432,024, respectively were forgiven and recorded as an equity transaction.

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 $1,134,000 and $1,439,000 for each of the years ended December 31, 2019 and 2018, 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.

Saddlebrook Resorts, Inc.

Notes to Financial Statements

December 31, 2019 and 2018

12.

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, 2019.

13.

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 retained an equity interest in and paid insurance premiums to RHIC. The Company’s ownership was 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 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. During 2019, the ownership interest in RHIC was transferred to the Company’s parent company, Saddlebrook Holdings, Inc., through a related party transaction prior to the forgiveness of advances owed as described in Note 11.

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, 2019 and 2018, 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, 2019 and 2018, 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 30, 2020

Saddlebrook Rental Pool Operation

Balance Sheets

December 31, 2019 and 2018


Distribution Fund
	2019		2018
Assets
Receivable from Saddlebrook Resorts, Inc.	$	344,366	$	503,066

Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution	$	299,020	$	424,193
Due to maintenance escrow fund		45,346		78,873

	$	344,366	$	503,066

Maintenance Escrow Fund
Assets
Cash in bank	$	1,108,892	$	1,864,132
Receivables
Distribution fund		45,346		78,873
Prepaid expenses and other assets		14,605		58,710
Due from Saddlebrook Resorts, Inc.		—		94,547
Furniture inventory		39,651		39,651

	$	1,208,494	$	2,135,913

Liabilities and Participants’ Fund Balance
Due to Saddlebrook Resorts, Inc.	$	127,354	$	—
Participants’ fund balance		1,081,140		2,135,913

	$	1,208,494	$	2,135,913

See notes to financial statements.

Saddlebrook Rental Pool Operation

Statements of Operations

Years Ended December 31, 2019 and 2018


Distribution Fund
	2019			2018
Rental pool revenues	$	6,815,885		$	8,190,463

Deductions
Marketing fee		511,191			614,284
Management fee		851,986			1,023,808
Travel agent commissions		510,045			585,086
Bad debt expense		9,393			—
Credit card expense		189,073			246,519

		2,071,688			2,469,697

Net rental income		4,744,197			5,720,766
Operator share of net rental income		2,134,889			(2,574,345	)
Other revenues (expenses)
Complimentary room revenues		31,396			34,546
Minor repairs and replacements		(85,928	)		(98,873	)

Amounts available for distribution to participants and maintenance escrow fund	$	2,554,776		$	3,082,094

See notes to financial statements.

Saddlebrook Rental Pool Operation

Statements of Changes in Participants’ Fund Balance

Years Ended December 31, 2019 and 2018


Distribution Fund
	2019			2018
Balances, beginning of year	$	—		$	—
Additions
Amounts available for distribution		2,554,776			3,082,094
Reductions
Amounts withheld for maintenance escrow fund		(419,887	)		(507,749	)
Amounts accrued or paid to participants		(2,134,889	)		(2,574,345	)

Balances, end of year	$	—		$	—

Maintenance Escrow Fund
Balances, beginning of year	$	2,135,913		$	334,392
Additions
Amount withheld from distribution fund		419,887			507,749
Unit owner payments		419,556			2,098,143
Interest earned		17,761			180
Reductions
Unit renovations		(1,166,199	)		(400,280	)
Refunds of excess amounts in escrow accounts		(337,853	)		(7,148	)
Maintenance charges		(284,334	)		(260,329	)
Linen expense		(123,591	)		(136,794	)

Balances, end of year	$	1,081,140		$	2,135,913

See notes to financial statements.

Saddlebrook Rental Pool Operation

Notes to Financial Statements

December 31, 2019 and 2018

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.