SADDLEBROOK RESORTS INC - Quarter Report: 2020 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

(Mark one)

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

For the quarterly period ended September 30, 2020

OR

 

☐	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: 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)

 

 

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 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 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.:

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☒
Emerging growth company		☐

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  ☒

Registrant has 100,000 shares of common stock outstanding, all of which are held by an affiliate of the Registrant.

 

 

 

INDEX

 

		Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at September 30, 2020 and December 31, 2019			3
Statements of Operations and Retained Earnings (Accumulated Deficit) For the three and nine months ended September 30, 2020 and 2019			4
Statements of Cash Flows for the three and nine months ended September  30, 2020 and 2019			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at September 30, 2020 and December 31, 2019			11
Statements of Operations for the three and nine months ended September  30, 2020 and 2019			12
Statements of Changes in Participants’ Fund Balance for the three and nine months ended September 30, 2020 and 2019			13
Notes to Financial Statements			14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures About Market Risk			17
Item 4. Controls and Procedures			17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			17
Item 6. Exhibits			18
Signature			19

 

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

 

		September 30, 2020 (Unaudited)				December 31, 2019
Assets
Current assets:
Cash and cash equivalents		$	—			$	325,696
Escrowed cash			983,340				1,124,074
Trade accounts receivable, net			114,372				1,129,572
Due from related parties			1,591,472				465,623
Resort inventory and supplies			875,755				1,011,923
Prepaid expenses and other assets			402,287				350,539
Total current assets			3,967,226				4,407,427
Property, buildings and equipment, net			13,468,555				14,800,528
Operating lease right-of-use assets			92,353				147,223
Total assets		$	17,528,134			$	19,355,178
Liabilities and Shareholder’s Equity
Current liabilities:
Checks issued in excess of cash and cash equivalents		$	22,984			$	—
Current portion of long-term debt, less deferred financing of $2,922			6,785,540				6,953,178
Current portion of Paycheck Protection Program loan			1,801,895
Current portion of finance lease liabilities			101,000				96,206
Current portion of operating lease liabilities			76,642				73,650
Escrowed deposits			983,340				1,124,074
Accounts payable			299,881				492,452
Accrued rental distribution			123,115				344,367
Accrued expenses and other liabilities			771,456				1,089,527
Current portion of deferred income			742,334				786,125
Guest deposits			1,115,030				1,393,571
Total current liabilities			12,823,217				12,353,150
Long-term portion of Economic Injury Disaster loan			150,000				—
Long-term portion of Payroll Protection Program loan			1,146,660				—
Long-term finance lease liabilities			177,476				258,258
Long-term operating lease liabilities			15,711				73,573
Deferred income			652,345				627,685
Total liabilities			14,965,409				13,312,666
Shareholder’s equity:
Common stock, $1.00 par value, 100,000 shares authorized and outstanding			100,000				100,000
Additional paid-in capital			1,013,127				1,013,127
Retained earnings			1,449,598				4,929,385
Total shareholder’s equity			2,562,725				6,042,512
Total liabilities and shareholder’s equity		$	17,528,134			$	19,355,178

The accompanying Notes to Financial Statements are an integral part of these financial statements

 

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SADDLEBROOK RESORTS, INC.

STATEMENTS OF OPERATIONS

AND RETAINED EARNINGS (ACCUMULATED DEFICIT)

(Unaudited)

 

		Three months ended September 30,								Nine Months ended September 30,
		2020				2019				2020				2019
Revenues		$	1,724,182			$	3,505,158			$	10,853,689			$	21,940,324
Costs and expenses:
Operating costs			2,417,908				4,186,070				10,113,103				17,803,226
Sales and marketing			117,334				390,470				659,503				1,467,987
General and administrative			665,487				683,172				2,037,871				2,122,557
Depreciation			394,393				512,646				1,375,427				1,547,052
Total costs and expenses			3,595,122				5,772,358				14,185,904				22,940,822
Net operating loss before other income (expenses)			(1,870,940	)			(2,267,200	)			(3,332,215	)			(1,000,498	)
Other income (expenses)
Other income			3,363				1,267				13,425				819
Interest expense			(62,785	)			(102,715	)			(160,997	)			(313,774	)
Total other income (expenses), net			(59,422	)			101,448				(147,572	)			314,594
Net loss			(1,930,362	)			(2,368,648	)			(3,479,787	)			(1,315,092	)
Retained earnings (accumulated deficit) at beginning of period			3,379,960				(4,337,717	)			4,929,385				(5,391,273	)
Retained earnings (accumulated deficit) at end of period		$	1,449,598			$	(6,706,365	)		$	1,449,598			$	(6,706,365	)

The accompanying notes are an integral part of these financial statements

 

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SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine months ended September 30,
		2020				2019
Operating activities:
Net loss		$	(3,479,787	)		$	(1,315,093	)
Non-cash items included in net loss:
Depreciation			1,375,427				1,547,053
Gain on the disposal of assets			(6,000	)			—
Bad debt expense			3,143				—
Amortization of debt financing costs			8,644				14,906
Amortization of operating lease right-of-use assets			54,870				52,062
Interest paid on finance leases			(14,570	)			(19,062	)
Decrease (increase) in:
Accounts receivable			1,012,057				267,928
Inventory and supplies			136,168				27,630
Prepaid expenses and other assets			(51,748	)			793,768
(Decrease) increase in:
Checks issued in excess of cash and cash equivalents			22,984				—
Escrowed deposits			(140,734	)			(637,031	)
Accounts payable			(192,571	)			(131,403	)
Accrued rental distribution			(221,252	)			(301,615	)
Guest deposits			(278,541	)			(1,673,372	)
Accrued expenses and other liabilities			(318,071	)			(320,688	)
Deferred income			(19,131	)			(58,099	)
Operating lease liabilities			(54,870	)			(52,062	)
Cash flows from operating activities			(2,163,982	)			(1,805,078	)
Investing activities:
Capital expenditures			(37,454	)			(404,474	)
Cash flows from investing activities			(37,454	)			(404,474	)
Financing activities:
Payments on long-term debt			(176,282	)			(264,424	)
Proceeds from line of credit			—				1,500,000
Proceeds from long-term debt			150,000				—
Proceeds from payroll protection program loan			2,948,555				—
Payments on finance lease obligations			(61,418	)			(22,465	)
Net advances from (payments to) related parties			(1,125,849	)			164,363
Cash flows from financing activities			1,735,006				1,377,474
Net decrease in cash, cash equivalents and escrowed cash			(466,430	)			(715,880	)
Cash, cash equivalents and escrowed cash at beginning of period			1,449,770				2,625,471
Cash, cash equivalents and escrowed cash at end of period		$	983,340			$	1,909,591
Supplemental disclosure of cash flow information:
Cash paid for interest		$	92,449			$	313,774

The accompanying notes are an integral part of these financial statements

 

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SADDLEBROOK RESORTS, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

Saddlebrook Resorts, Inc. (the “Company”) developed and operates Saddlebrook Resort, which is a condominium hotel and resort located in Wesley Chapel, Florida.

The Company’s accompanying balance sheet for September 30, 2020, and its statements of operations and accumulated earnings and cash flows for the nine month periods ended September 30, 2020 and 2019, are unaudited but reflect all adjustments which are, in the opinion of management, necessary for the fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The balance sheet at December 31, 2019 has been derived from the audited financial statements as of that date.

The Company’s business is seasonal. Therefore, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for future interim periods or the full fiscal year.

These financial statements and related notes are presented for interim periods in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X, and, consequently, do not include all disclosures normally required by accounting principles generally accepted in the United States. Accordingly, these financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

 

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Note 2. Revenue

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.

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 $1,902,000 and $2,807,000 as of September 30, 2020 and December 31, 2019, respectively. 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 $983,000 and $1,124,000 as of September 30, 2020 and December 31, 2019, respectively.

The Company’s net trade accounts receivables were $114,000 and $1,130,000 as of September 30, 2020 and December 31, 2019, 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.

Note 3. Trade Accounts Receivable

 

		September 30, 2020 (Unaudited)				December 31, 2019
Trade accounts receivable		$	114,989			$	1,161,500
Less reserve for bad debts			(617	)			(31,928	)
		$	114,372			$	1,129,572

 

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Note 4. Management’s Plans Regarding Liquidity and Capital Resources

The Company experienced a significant decrease in revenue for the nine months ended September 30, 2020 compared to the previous year. 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.

In April 2020, the Company received approximately $2,949,000 of proceeds from a note payable funded under the Payroll Protection Program as part of the CARES Act. The note bears interest at 1% per annum, matures in April 2022, and requires monthly interest and principal payments of $165,529 beginning in November 2020 and through maturity. The currently issued guidelines of the program allow for the loan proceeds to be forgiven if certain requirements are met. If the Company is unable to or does not follow those guidelines, the Company would be required to repay a portion of or the entire balance of the loan proceeds in full.

In September 2020, the Company received $150,000 of proceeds from an Economic Injury Disaster Loan (“EIDL”) note payable funded by the U.S. Small Business Administration. The note bears interest at 3.75% per annum, matures in September 2050, and requires monthly interest and principal payments of $731 beginning in September 2021 and through maturity.

The current economic conditions, expected effect on the Company’s results of operations and financial position, and uncertainty of the length or severity of the outbreak raise substantial doubt about the Company’s ability to continue as a going concern.

Note 5. 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 and for the nine months ended September 30, 2020 is as follows:

 

Lease costs (included in operating costs)		$	54,870
Incremental borrowing rate			5.32	%

Note 6. Property, Buildings and Equipment

 

		September 30, 2020 (Unaudited)				December 31, 2019
Land and land improvements		$	8,830,867			$	8,830,867
Buildings and recreational facilities			32,105,123				32,093,233
Machinery and equipment			21,798,595				21,863,715
Construction in progress			96,234				94,379
			62,830,819				62,882,194
Less accumulated depreciation			(49,362,264	)			(48,081,666	)
		$	13,468,555			$	14,800,528

The Company’s property, buildings and equipment are pledged as security for its debt (see Note 7).

 

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Note 7. Notes Payable and Finance Lease Liabilities

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 September 30, 2020, $5,288,462 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 (3.14%) at September 30, 2020). 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 one month LIBOR index (3.14%) at September 30, 2020). The line of credit will terminate on December 6, 2020. As of September 30, 2020, the Company had $1,500,000 in outstanding borrowings on this agreement. Lender hereby agrees to defer payment of principal plus interest (the “Payment Deferral”) through and including June 6, 2020 with regularly scheduled payments of principal plus interest to resume July 6, 2020.

In April 2020, the Company entered into a term note agreement with the same third party lender for approximately $2,949,000 funded under the Paycheck Protection Program as part of the CARES Act. The note bears interest of 1% per annum, matures in April 2022, and requires a monthly interest and principal payments of $165,529 beginning in November 2020 and through maturity. The currently issued guidelines of the program allow for the loan proceeds to be forgiven if certain requirements are met. If the Company is unable to or does not follow those guidelines, the Company would be required to repay a portion of or the entire balance of the entire balance of the loan proceeds in full. At September 30, 2020, $2,948,555 was outstanding under the note.

On September 25, 2020, the Company entered into an EIDL note payable for $150,000 funded by the U.S. Small Business Administration. The note bears interest at 3.75% per annum, matures in September 2050, and requires monthly interest and principal payments of $731 beginning in September 2021 and through maturity. At September 30, 2020, $150,000 was outstanding under the note.

On March 1, 2018, the Company entered into a finance lease liability 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 September 30, 2020, the amount due on this finance lease liability was $174,005.

On April 1, 2018, the Company entered into a finance lease liability 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 September 30, 2020, the amount due on this finance lease liability was $84,817.

 

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Note 8. Related Party Receivables

Related party receivables at September 30, 2020 and December 31, 2019 are the result of net intercompany transactions and cash transfers between the Company and its shareholder and affiliated companies. Related party receivables are unsecured and non-interest bearing.

Note 9. Income Taxes

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

 

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SADDLEBROOK RENTAL POOL OPERATION

BALANCE SHEETS

DISTRIBUTION FUND

 

		September 30, 2020 (Unaudited)				December 31, 2019
Assets
Receivable from Saddlebrook Resorts, Inc.		$	123,115				344,366
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	106,205			$	299,020
Due to maintenance escrow fund			16,910				45,346
		$	123,115			$	344,366

MAINTENANCE ESCROW FUND

 

		September 30, 2020 (Unaudited)				December 31, 2019
Assets
Cash and cash equivalents		$	970,565			$	1,108,892
Receivables:
Distribution fund			16,910				45,346
Prepaid expenses and other assets			43,269				14,605
Linen Inventory			15,419				—
Furniture Inventory			39,651				39,651
		$	1,085,814			$	1,208,494
Liabilities and Participants’ Fund Balance
Due to Saddlebrook Resorts, Inc.		$	98,469			$	127,354
Participants’ fund balance			987,345				1,081,140
		$	1,085,814			$	1,208,494

 

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SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three months ended September 30,								Nine months ended September 30,
		2020				2019				2020				2019
Rental pool revenues		$	319,049			$	614,217			$	2,524,646			$	5,885,397
Deductions:
Marketing fee			23,929				46,066				189,348				441,405
Management fee			39,881				76,777				315,580				735,674
Travel agent commissions			15,295				90,840				180,524				474,728
Credit card expense			3,933				20,839				75,135				153,926
			83,038				234,522				760,587				1,805,733
Net rental income			236,011				379,695				1,764,059				4,079,664
Less operator share of net rental income			(106,205	)			(170,863	)			(793,826	)			(1,835,849	)
Other revenues (expenses):
Complimentary room revenues			4,307				4,083				11,162				25,957
Minor repairs and replacements			(10,998	)			(11,464	)			(86,407	)			(59,387	)
Amount available for distribution		$	123,115			$	201,451			$	894,988			$	2,210,385

The accompanying notes are an integral part of these financial statements

 

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SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND

 

		Nine months ended September 30,
		2020				2019
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			894,988				2,210,385
Reductions:
Amount withheld for maintenance escrow fund			{101,162	)			(374,535	)
Amount accrued or paid to participants			(793,826	)			(1,835,850	)
Balance at end of period		$	—			$	—

MAINTENANCE ESCROW FUND

 

		Nine months ended September 30,
		2020				2019
Balance at beginning of period		$	1,081,140				2,135,913
Additions:
Amount withheld from distribution fund			101,162				374,535
Unit owner payments			157,133				292,213
Interest earned			2,783				13,789
Reductions:
Escrow account refunds			(99,968	)			(306,483	)
Maintenance charges			(114,829	)			(172,493	)
Unit renovations			(75,284	)			(957,807	)
Linen replacement			(64,792	)			(96,789	)
Balance at end of period		$	987,345			$	1,282,878

The accompanying notes are an integral part of these financial statements

 

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SADDLEBROOK RENTAL POOL OPERATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 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 expenses 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 maintenance 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.

Note 2. Summary of Significant Accounting Policies

Basis of Accounting

The accounting records of the funds are maintained on the accrual basis of accounting.

Income Taxes

No federal or state taxes have been reflected in the accompanying financial statements as the tax effect of fund activities accrues to the rental pool participants and Saddlebrook.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The Company operates Saddlebrook Resort (the “Resort”) in Wesley Chapel, Florida, 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 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. Other resort property owned by the Company and its affiliates include golf courses, tennis courts, a spa, restaurants and conference center facilities.

Results of Operations

Three months ended September 30, 2020 compared to three months ended September 30, 2019

The Company’s total revenues decreased approximately $1,781,000 or about 50%, for the three months ended September 30, 2020 compared to the same period in the prior year. Total revenues for the Rental Pool decreased about $295,000, or about 53%.

Total costs and expenses decreased approximately $2,177,000 or about 38%, for the Company, and approximately $151,000 or about 36%, for the Rental Pool Operation.

The Company experienced a net loss for the quarter in the amount of approximately $1,930,000 compared to the net loss of the prior comparable quarter of approximately $2,267,000. Amounts available for distribution for the Rental Pool Operation decreased approximately $78,000 from the comparable period last year.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

The Company’s total revenues decreased approximately $11,087,000 or about 50%, for the nine months ended September 30, 2020 compared to the same period in the prior year. Total revenues for the Rental Pool decreased about $3,360,000, or about 43%.

Total costs and expenses decreased approximately $8,755,000 or about 62%, for the Company, and approximately $1,045,000 or about 57%, for the Rental Pool Operation.

The Company experienced a net loss for the period of approximately $3,480,000 compared to the net loss of the prior period of approximately $1,315,000. Amounts available for distribution for the Rental Pool Operations decreased approximately $1,315,000 over the same period in the prior year.                

Impact of Current Economic Conditions

The Company experienced a significant decrease in revenue for the period ending September 30, 2020 compared to the previous year.

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.

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 the outbreak; however, a significant reduction in occupancy caused by COVID-19 is expected to affect the Company’s results of operations and financial position.

 

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Liquidity and Capital Resources

Net loss for the 3 months ended September 30, 2020 was $1,930,000. Excluding non-cash expenses such as Depreciation and Amortization of $1,384,000 the company’s actual operating cash deficit was $546,000.

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.

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 September 30, 2020, $5,376,603 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 (3.14%) at September 30, 2020). 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 one month LIBOR index. (3.14%) at September 30, 2020). The line of credit will terminate on December 6, 2020. As of September 30, 2020, the Company had $1,500,000 in outstanding borrowings on this agreement. Effective April 24, 2020, the lender agreed to defer payment of interest (the ”Payment Deferral”) through and including June 24, 2020 with regularly scheduled payments interest resuming July 24, 2020.

In April 2020, the Company entered into a term note agreement with the same third party lender for approximately $2,949,000 funded under the Paycheck Protection Program as part of the CARES Act. The note bears interest at 1% per annum, matures in April 2022, and requires monthly interest and principal payments of $165,529 beginning in November 2020 and through maturity. The currently issued guidelines of the program allow for the loan proceeds to be forgiven if certain requirements are met. If the Company is unable to or does not follow those guidelines, the Company would be required to repay a portion of or the entire balance of the loan proceeds in full. At September 30, 2020, $2,948,555 was outstanding under the note.

On September 25, 2020, the Company entered into an EIDL note payable for $150,000 funded by the U.S. Small Business Administration. The note bears interest at 3.75% per annum, matures in September 2050, and requires monthly interest and principal payments of $731 beginning in September 2021 and through maturity. At September 30, 2020, $150,000 was outstanding under the note.

The Company experienced a significant decrease in revenue for the three months ended September 30, 2020 compared to the previous year. Towards the end of December 2019, an outbreak of a novel strain of coronavirus 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 current economic conditions, expected effect on the Company’s results of operations and financial position, and uncertainty of the length or severity of the outbreak raise substantial doubt about the Company’s ability to continue as going concern.

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. 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.

 

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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.                

Seasonality

The Company’s operations are seasonal with the highest volume of revenue generally occurring in the first quarter of each calendar year.

Due to the seasonal business of the Company, the results of operations for the interim period shown in this report are not necessarily indicative of results to be expected for the full fiscal year.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s invested cash is subject to changes in market interest rates. Otherwise, the Company does not have significant market risk with respect to foreign currency exchanges or other market rates.

The Company’s term note and its line of credit bear interest at 3.0% over the one month LIBOR index and mature in December 2020.

Item 4. Controls and Procedures

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures as of September 30, 2020, pursuant to Exchange Act Rule 15d-15. Based upon that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2020 in timely alerting them to material information required to be included in the Company’s periodic SEC filings.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures over internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must be considered relative to their costs. 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.

There were no changes in the Company’s internal controls over financial reporting during the three months ended September 30, 2020 that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. 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. Accordingly, the effect, if any, of these claims is considered immaterial to the Company’s financial condition and results of operations.

 

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Item 6. Exhibits                

The following exhibits are included in this Form 10-Q:

31.1 - Chief Executive Officer Rule 15d-14(a) Certification

31.2 - Chief Financial Officer Rule 15d-14(a) Certification

32.1 - Chief Executive Officer Section  1350 Certification

32.2 - Chief Financial Officer Section 1350 Certification

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

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

				SADDLEBROOK RESORTS, INC.
				(Registrant)
Date: November 16, 2020				/s/ Donald L. Allen
				Donald L. Allen
				Vice President and Treasurer
				(Principal Financial and
				Accounting Officer)

 

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