Table of Contents

 

 

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 March 31, 2018

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 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 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.

 

 

 

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INDEX

 

		Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Saddlebrook Resorts, Inc.
Balance Sheets at March 31, 2018 and December 31, 2017			3
Statements of Operations and Accumulated Earnings for the three months ended March 31, 2018 and 2017			4
Statements of Cash Flows for the three months ended March  31, 2018 and 2017			5
Notes to Financial Statements			6
Saddlebrook Rental Pool Operation
Balance Sheets at March 31, 2018 and December 31, 2017			11
Statements of Operations for the three months ended March  31, 2018 and 2017			12
Statements of Changes in Participants’ Fund Balance for the three months ended March 31, 2018 and 2017			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			16
Item 4. Controls and Procedures			17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			17
Item 6. Exhibits			18
Signature			18

 

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PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements

SADDLEBROOK RESORTS, INC.

BALANCE SHEETS

 

		March 31, 2018 (Unaudited)				December 31, 2017
Assets
Current assets:
Cash and cash equivalents		$	259,813			$	698,033
Escrowed cash			199,999				263,558
Accounts receivable, net			4,006,230				1,666,447
Due from related parties			1,814,068				1,654,129
Inventory and supplies			1,182,670				1,151,386
Prepaid expenses and other assets			1,130,157				969,927
Total current assets			8,592,937				6,403,480
Property, buildings and equipment, net			17,492,437				17,531,676
Total assets		$	26,085,374			$	23,935,156
Liabilities and Shareholder’s Equity
Current liabilities:
Current portion of long-term debt		$	1,052,560			$	1,052,560
Current portion of capital lease obligation			101,119				57,236
Escrowed deposits			199,999				263,558
Accounts payable			961,389				639,533
Accrued rental distribution			1,622,688				637,290
Accrued expenses and other liabilities			984,161				1,317,159
Current portion of deferred income			735,037				708,362
Guest deposits			1,496,666				2,703,941
Due to related parties			11,525,776				11,897,345
Total current liabilities			18,679,395				19,276,984
Long-term debt, net of deferred issuance costs of $48,694 and $53,916 at March 31, 2018 and December 31, 2017, respectively			5,680,477				5,763,396
Long-term capital lease obligation			269,074				—
Deferred income			533,172				527,595
Total liabilities			25,162,118				25,567,975
Shareholder’s equity (deficit):
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			(189,871	)			(2,745,946	)
Total shareholder’s equity (deficit)			923,256				(1,632,819	)
Total liabilities and shareholder’s equity (deficit)		$	26,085,374			$	23,935,156

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 ACCUMULATED EARNINGS

(Unaudited)

 

		Three months ended March 31,
		2018				2017
Resort revenues		$	12,797,685			$	12,422,339
Costs and expenses:
Operating costs			8,457,726				8,512,844
Sales and marketing			570,116				674,535
General and administrative			719,800				850,243
Depreciation			509,782				492,004
Total costs and expenses			10,257,424				10,529,626
Net operating income before other (income) and expense			2,540,261				1,892,713
Other (income) and expense:
Other income			(121,293	)			(4,976	)
Interest expense			105,479				81,935
Total other (income) expense			(15,814	)			76,959
Net income			2,556,075				1,815,754
Accumulated (deficit) earnings at beginning of period			(2,745,946	)			238,146
Accumulated (deficit) earnings at end of period		$	(189,871	)		$	2,053,900

The accompanying Notes to Financial Statements are

an integral part of these financial statements

 

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SADDLEBROOK RESORTS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three months ended
		March 31,
		2018				2017
Operating activities:
Net income		$	2,556,075			$	1,815,754
Non-cash items included in net income:
Depreciation			509,782				492,004
Amortization of debt financing costs			6,587				5,016
Gain on the sale of assets			(60,666	)			—
(Increase) decrease in:
Accounts receivable			(2,339,783	)			(3,110,919	)
Inventory and supplies			(31,284	)			9,122
Prepaid expenses and other assets			(160,230	)			(154,246	)
Increase (decrease) in:
Accounts payable			321,856				423,965
Guest deposits			(1,207,275	)			(1,080,884	)
Accrued rental distribution			985,398				944,272
Accrued expenses and other liabilities			(332,998	)			(461,838	)
Deferred income			32,252				71,871
Cash flow provided by (used in) operating activities			279,714				(1,045,883	)
Investing activities:
Capital expenditures			(77,672	)			(60,253	)
Cash flow used in investing activities			(77,672	)			(60,253	)
Financing activities:
Payments on long-term debt			(89,505	)			(88,141	)
Payments on capital lease obligations			(19,249	)			(31,597	)
Net (payments to) borrowings from related parties			(531,508	)			1,165,046
Cash flow (used in) provided by financing activities			(640,262	)			1,045,308
Net decrease in cash			(438,220	)			(60,828	)
Cash at beginning of period			698,033				834,371
Cash at end of period		$	259,813			$	773,543
Supplemental disclosure of cash flow information:
Cash paid for interest		$	98,892			$	76,959

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

The accompanying Notes to Financial Statements 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 March 31, 2018, and its statements of operations and accumulated earnings and cash flows for the three month periods ended March 31, 2018 and 2017, 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, 2017 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, 2017.

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

Note 2.    Revenue

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

 

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Contract Balances

Timing differences among revenue recognition may result in contract assets or liabilities. Contract liabilities totaled $1,236,000 and $1,268,000 as of December 31, 2017 and March 31, 2018, respectively.

Our net trade accounts receivables were $1,666,000 and $4,006,000 as of December 31, 2017 and March 31, 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

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.

Practical Expedients and Exemptions

There are several practical expedients and exemptions allowed under ASC 606 that impact timing of revenue recognition and our disclosures. In the adoption and application of ASC 606, the Company has elected to treat similar contracts as part of a portfolio of contracts, primarily initiation fee contracts. These contracts have the same provision terms, and management has the expectation the result will not be materially different from the consideration of each individual contract.

Note 3. Accounts Receivable

 

		March 31,
		2018				December 31,
		(Unaudited)				2017
Trade accounts receivable		$	4,035,935			$	1,696,151
Less reserve for bad debts			(29,705	)			(29,704	)
		$4,006,230				$1,666,447

 

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Note 4. Property, Buildings and Equipment

 

		March 31,
		2018				December 31,
		(Unaudited)				2017
Land and land improvements		$	8,740,994			$	8,740,994
Buildings and recreational facilities			31,964,694				31,962,963
Machinery and equipment			21,411,889				21,178,583
Construction in progress			103,222				126,683
			62,220,799				62,009,223
Less accumulated depreciation			(44,728,362	)			(44,477,547	)
		$17,492,437				$17,531,676

The Company’s property, buildings and equipment are pledged as security for its debt (see Note 5).

 

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Note 5. Notes Payable and Capital Lease Obligation

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 March 31, 2018, $6,081,731 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 (4.69% at March 31, 2018). The term note is collateralized by all current and subsequently acquired real and personal property. The term note requires the Company to maintain a Debt Service Ratio, as defined, of 1.25%. The Company was in default of this covenant as of December 31, 2017; however, the Company received a waiver for this default from its lender. Under the terms of its agreement, the debt service covenant will be re-measured at June 30, 2018. Management believes, based on its expectations, that the Company will be in compliance with the debt service covenant at that date; however, there can be no assurances that it will be in compliance. Should the Company not be in compliance at June 30, 2018, it will seek a waiver or modification of the covenant. In addition, under the terms of the loan agreement, the Company has certain remedies available to it by which it can cure the default, and it is management’s intent to do so if necessary.

On April 24, 2017, the Company entered in to a revolving line of credit agreement with the same third party lender with maximum borrowings of $1,500,000 to be used as working capital as needed. The agreement is cross collateralized with the existing term note under the same terms and conditions. Amounts borrowed under the revolving line of credit will bear interest at 3% over the one month LIBOR index.(4.69% at March 31, 2018). The line of credit will terminate on December 6, 2020. The Company has drawn $700,000 on this agreement as of March 31, 2018. The outstanding borrowings on the revolving line of credit are due upon demand of the lender. Accordingly, outstanding borrowings are included in current portion of long term debt in the accompanying balance sheets.                

On January 15, 2014 the Company entered into a capital lease obligation for equipment in the amount of $150,000. The capital lease is secured by equipment purchased, matures in December 2018 and requires monthly payments of $3,024 including interest of 7.75%. At March 31, 2018, the amount due on this capital lease obligation was $23,501.

On January 15, 2014, the Company entered into a capital lease obligation for equipment in the amount of $102,000. The capital lease is secured by equipment purchased, matures in December 2018 and requires monthly payments of $2,233, including interest an 11.30%. At March 31, 2018 the amount due on this capital lease obligation was $19,187.

On March 1, 2018, the Company entered into a capital lease obligation for equipment in the amount of $332,206. The assets associated with this lease cost $461,506, of which $129,300 was reduced through the Company’s trade-in of existing equipment. This capital lease is secured by the equipment purchased, matures in February 2023 and requires monthly payments of $6,500, including interest at 6.5%. At March 31, 2018, the amount due on this capital lease obligation was $327,505.

 

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Note 6. Related Party Receivables and Payables

Related party receivables and payables at March 31, 2018 and December 31, 2017 are the result of net intercompany transactions and cash transfers between the Company and its shareholder and affiliated companies. Related party receivables and payables are unsecured and non-interest bearing.

Note 7. 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

 

		March 31,
		2018				December 31,
		(Unaudited)				2017
Assets
Receivable from Saddlebrook Resorts, Inc.		$	1,622,688			$	637,290
Liabilities and Participants’ Fund Balance
Due to participants for rental pool distribution		$	1,336,773			$	522,179
Due to maintenance escrow fund			285,915				115,111
		$	1,622,688			$	637,290

MAINTENANCE ESCROW FUND

 

		March 31,
		2018				December 31,
		(Unaudited)				2017
Assets
Cash and cash equivalents		$	181,000			$	244,558
Receivables:
Distribution fund			285,915				115,111
From owners			—				1,503
Prepaid expenses and other assets			15,220				51,098
Linen Inventory			75,722				—
Furniture Inventory			39,650				49,747
		$597,507				$462,017
Liabilities and Participants’ Fund Balance
Accounts payable		$	83,524			$	127,625
Participants’ fund balance			513,983				334,392
		$	597,507			$	462,017

 

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SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF OPERATIONS

(Unaudited)

DISTRIBUTION FUND

 

		Three months ended
		March 31,
		2018				2017
Rental pool revenue		$	4,017,818			$	3,805,618
Deductions:
Marketing fee			301,336				285,421
Management fee			502,227				475,702
Travel agent commissions			150,386				113,575
Credit card expense			93,261				80,535
Bad debt expense			—				25,000
			1,047,210				980,233
Net rental income			2,970,608				2,825,385
Less operator share of net rental income			(1,336,774	)			(1,271,423	)
Other revenues (expenses):
Complimentary room revenues			11,645				9,490
Minor repairs and replacements			(22,791	)			(32,419	)
Amount available for distribution		$	1,622,688			$	1,531,033

 

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SADDLEBROOK RENTAL POOL OPERATION

STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES

(Unaudited)

DISTRIBUTION FUND

 

		Three months ended
		March 31,
		2018				2017
Balance at beginning of period		$	—			$	—
Additions:
Amount available for distribution			1,622,688				1,531,033
Reductions:
Amount withheld for maintenance escrow fund			(285,915	)			(259,610	)
Amount accrued or paid to participants			(1,336,773	)			(1,271,423	)
Balance at end of period		$	—			$	—
MAINTENANCE ESCROW FUND
		Three months ended
		March 31,
		2018				2017
Balance at beginning of period		$	334,392				371,247
Additions:
Amount withheld from distribution fund			285,915				259,610
Unit owner payments			29,341				45,983
Interest earned			6				—
Reductions:
Maintenance charges			(60,168	)			(93,420	)
Linen replacement			(49,435	)			(78,056	)
Refunds			(8,170	)			—
Major unit upgrades			(17,898	)			—
Balance at end of period		$	513,983			$	505,364

 

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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

First quarter 2018 compared to first quarter 2017

The Company’s total revenues increased $375,000, or about 3%, for the three months ended March 31, 2018 compared to the same period in the prior year. Total revenues for the Rental Pool increased $212,000, or 6%. These changes are directly related to an increase in occupancy over the prior period.

Total costs and expenses decreased $272,000, or about 3%. Total costs and expenses for the Rental Pool Operation increased $67,000, or about 7%.

The Company’s net income for the quarter increased in the amount of $740,000 compared to the same period in the prior year. Amounts available for distribution for the Rental Pool Operation increased $92,000 from the comparable period last year.

Impact of Current Economic Conditions

The Company experienced a minor increase in revenue for the period ending March 31, 2018 compared to the previous year. The Company believes this trend will continue during 2018.

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.

 

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Liquidity and Capital Resources

Future operating costs and planned expenditures for minor capital additions and improvements are expected to be adequately funded by the Company and its affiliates’ current cash reserves and cash generated by the Resort’s operations.

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 March 31, 2018, $6,081,731 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 (4.69% at March 31, 2018). The term note is collateralized by all current and subsequently acquired real and personal property. The term note requires the Company to maintain a Debt Service Ratio, as defined, of 1.25%. The Company was in default of this covenant as of December 31, 2017; however, the Company received a waiver for this default from its lender. Under the terms of its agreement, the debt service covenant will be re-measured at June 30, 2018. Management believes, based on its expectations, that the Company will be in compliance with the debt service covenant at that date; however, there can be no assurances that it will be in compliance. Should the Company not be in compliance at June 30, 2018, it will seek a waiver or modification of the covenant. In addition, under the terms of the loan agreement, the Company has certain remedies available to it by which it can cure the default, and it is management’s intent to do so if necessary.

On April 24, 2017, the Company entered in to a revolving line of credit agreement with the same third party lender with maximum borrowings of $1,500,000 to be used as working capital as needed. The agreement is cross collateralized with the existing term note under the same terms and conditions. Amounts borrowed under the revolving line of credit will bear interest at 3% over the one month LIBOR index. (4.69% at March 31, 2018). The line of credit will terminate on December 6, 2020. The Company has drawn $700,000 on this agreement as of March 31, 2018. The outstanding borrowings on the revolving line of credit are due upon demand of the lender. Accordingly, outstanding borrowings are included in current portion of long term debt in the accompanying balance sheets.

The Company’s ultimate shareholder has the financial ability and intent to continue to fund operations through affiliated companies that are 100% owned by the Company’s ultimate shareholder to the extent required to support the Company’s operations. The

Company has loans outstanding to the affiliated companies of approximately $11.5 million and $11.9 million as of March 31, 2018 and December 31, 2017, respectively. In addition to the shareholders’ financial ability, these affiliated Companies are expected to continue to generate positive cash flows during fiscal year 2018 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.

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.

 

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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 March 31, 2018, 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 March 31, 2018 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 March 31, 2018 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:

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

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: May 21, 2018						/s/ Donald L. Allen
						Donald L. Allen
						Vice President and Treasurer
						(Principal Financial and
						Accounting Officer)

 

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