Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2008
OR
o | 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.
YESþ NOo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero | Accelerated filero | Non-accelerated filerþ (Do not check if a smaller reporting company) | Smaller reporting companyo |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo NOþ
Registrant has 100,000 shares of common stock outstanding, all of which are held by an affiliate of the Registrant.
INDEX
Page | ||||||||
Saddlebrook Resorts, Inc. | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
Saddlebrook Rental Pool Operation | ||||||||
9 | ||||||||
10 | ||||||||
11 | ||||||||
12 | ||||||||
14 | ||||||||
14 | ||||||||
14 | ||||||||
15 | ||||||||
15 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SADDLEBROOK RESORTS, INC.
BALANCE SHEETS
September 30, | ||||||||
2008 | December 31, | |||||||
(Unaudited) | 2007 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,529,664 | $ | 991,320 | ||||
Escrowed cash | 442,238 | 890,069 | ||||||
Short-term investments | 175,000 | 175,000 | ||||||
Short-term escrowed investments | 199,057 | — | ||||||
Accounts receivable, net | 1,522,990 | 3,200,585 | ||||||
Due from related parties | 3,308,810 | 2,228,553 | ||||||
Inventory and supplies | 1,759,206 | 1,679,645 | ||||||
Prepaid expenses and other current assets | 876,588 | 756,956 | ||||||
Total current assets | 12,813,553 | 9,922,128 | ||||||
Property, buildings and equipment, net | 25,025,897 | 25,493,141 | ||||||
Deferred charges, net | 19,791 | 32,022 | ||||||
Total assets | $ | 37,859,241 | $ | 35,447,291 | ||||
Liabilities and Shareholder’s Equity | ||||||||
Current liabilities: | ||||||||
Current portion of note payable | $ | 800,004 | $ | 800,004 | ||||
Current portion of capital leases | 29,691 | 127,845 | ||||||
Current portion of line of credit | 2,500,000 | 1,750,000 | ||||||
Escrowed deposits | 641,295 | 890,069 | ||||||
Accounts payable | 799,863 | 1,668,050 | ||||||
Accrued rental distribution | 472,108 | 905,234 | ||||||
Accrued expenses and other liabilities | 2,432,028 | 2,411,566 | ||||||
Current portion of deferred income | 774,023 | 814,861 | ||||||
Guest deposits | 1,575,213 | 1,657,194 | ||||||
Due to related parties | 137,772 | — | ||||||
Total current liabilities | 10,161,997 | 11,024,823 | ||||||
Note payable due after one year | 8,066,647 | 8,666,650 | ||||||
Long-term portion of deferred income | 1,557,944 | 1,609,632 | ||||||
Total liabilities | 19,786,588 | 21,301,105 | ||||||
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 | ||||||
Accumulated earnings | 16,959,526 | 13,033,059 | ||||||
Total shareholder’s equity | 18,072,653 | 14,146,186 | ||||||
$ | 37,859,241 | $ | 35,447,291 | |||||
The accompanying Notes to Financial Statements are
an integral part of these financial statements
an integral part of these financial statements
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SADDLEBROOK RESORTS, INC.
STATEMENTS OF OPERATIONS
AND ACCUMULATED EARNINGS
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Revenues | $ | 5,594,686 | $ | 7,029,033 | $ | 38,596,767 | $ | 34,627,515 | ||||||||
Costs and expenses: | ||||||||||||||||
Operating costs | 5,710,973 | 6,516,547 | 27,443,049 | 25,597,501 | ||||||||||||
Sales and marketing | 509,048 | 600,284 | 2,385,878 | 2,072,833 | ||||||||||||
General and administrative | 959,509 | 1,070,328 | 3,066,213 | 3,329,636 | ||||||||||||
Depreciation | 528,058 | 497,919 | 1,587,037 | 1,475,196 | ||||||||||||
Total costs and expenses | 7,707,588 | 8,685,078 | 34,482,177 | 32,475,166 | ||||||||||||
Net operating income (loss) before | ||||||||||||||||
Other expenses (income) | (2,112,902 | ) | (1,656,045 | ) | 4,114,590 | 2,152,349 | ||||||||||
Other expenses (income) | ||||||||||||||||
Interest income | (16,252 | ) | (9,680 | ) | (28,909 | ) | (43,154 | ) | ||||||||
Other income | (254,362 | ) | (16,909 | ) | (232,632 | ) | (41,622 | ) | ||||||||
Interest expense | 136,054 | 211,661 | 449,664 | 653,153 | ||||||||||||
Total other (income) expenses | (134,560 | ) | 185,072 | 188,123 | 568,377 | |||||||||||
Net (loss) income | (1,978,342 | ) | (1,841,117 | ) | 3,926,467 | 1,583,972 | ||||||||||
Accumulated earnings at beginning of period | 18,937,868 | 15,927,086 | 13,033,059 | 12,501,997 | ||||||||||||
Accumulated earnings at end of period | $ | 16,959,526 | $ | 14,085,969 | $ | 16,959,526 | $ | 14,085,969 | ||||||||
The accompanying Notes to Financial Statements are
an integral part of these financial statements
an integral part of these financial statements
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SADDLEBROOK RESORTS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Operating activities: | ||||||||
Net income | $ | 3,926,467 | $ | 1,583,972 | ||||
Non-cash items included in net income: | ||||||||
Provision for doubtful accounts | 3,300 | — | ||||||
Depreciation | 1,587,037 | 1,475,196 | ||||||
Amortization of debt financing costs | 12,231 | 12,231 | ||||||
(Gain) loss on sale of assets | (2,665 | ) | 60,639 | |||||
Decrease (increase) in: | ||||||||
Accounts receivable | 1,674,295 | 375,670 | ||||||
Inventory and supplies | (79,561 | ) | 14,184 | |||||
Prepaid expenses and other assets | (119,632 | ) | (270,227 | ) | ||||
(Decrease) increase in: | ||||||||
Accounts payable | (868,186 | ) | (203,138 | ) | ||||
Accrued rental distribution | (433,126 | ) | (14,249 | ) | ||||
Guest deposits | (81,981 | ) | (82,430 | ) | ||||
Accrued expenses and other liabilities | 20,462 | 262,935 | ||||||
Deferred income | (92,526 | ) | (135,051 | ) | ||||
Cash flow provided by operating activities | 5,546,115 | 3,079,732 | ||||||
Investing activities: | ||||||||
Proceeds from sale of property and equipment | 9,396 | 5,700 | ||||||
Proceeds from maturity of short term investment | — | 375,000 | ||||||
Purchase of short term investment | — | (175,000 | ) | |||||
Capital expenditures | (1,126,525 | ) | (1,648,258 | ) | ||||
Cash flow used in investing activities | (1,117,129 | ) | (1,442,558 | ) | ||||
Financing activities: | ||||||||
Proceeds from line of credit | 750,000 | — | ||||||
Payments on notes payable | (600,003 | ) | (600,003 | ) | ||||
Payments on capital lease obligations | (98,154 | ) | (115,251 | ) | ||||
Net payments to related parties | (942,485 | ) | (1,310,307 | ) | ||||
Cash flow used in financing activities | (890,642 | ) | (2,025,561 | ) | ||||
Net increase in cash | 3,538,344 | (388,387 | ) | |||||
Cash at beginning of period | 991,320 | 977,849 | ||||||
Cash at end of period | $ | 4,529,664 | $ | 589,462 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 437,433 | $ | 640,921 | ||||
The accompanying Notes to Financial Statements are
an integral part of these financial statements.
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, 2008, and its statements of operations and accumulated earnings and cash flows for the periods ended September 30, 2008 and 2007, are unaudited but reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature.
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 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, consequently, do not include all disclosures normally provided in the Company’s Annual Report on Form 10-K. 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, 2007.
Note 2. Accounts Receivable
September 30, | ||||||||
2008 | December 31, | |||||||
(Unaudited) | 2007 | |||||||
Trade accounts receivable | $ | 1,539,066 | $ | 3,245,106 | ||||
Less allowance for bad debts | (16,076 | ) | (44,521 | ) | ||||
$ | 1,522,990 | $ | 3,200,585 | |||||
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Note 3. Property, Buildings and Equipment
September 30, | ||||||||
2008 | December 31, | |||||||
(Unaudited) | 2007 | |||||||
Land and land improvements | $ | 6,809,179 | $ | 6,809,179 | ||||
Buildings and recreational facilities | 28,942,407 | 27,520,130 | ||||||
Machinery and equipment | 17,010,899 | 16,090,540 | ||||||
Construction in progress | 734,017 | 1,982,166 | ||||||
53,496,502 | 52,402,015 | |||||||
Less accumulated depreciation | (28,470,605 | ) | (26,908,874 | ) | ||||
$ | 25,025,897 | $ | 25,493,141 | |||||
The Company’s property, buildings and equipment are pledged as security for its debt (see Note 5).
Note 4. Deferred Charges
September 30, | ||||||||
2008 | December 31, | |||||||
(Unaudited) | 2007 | |||||||
Debt issue costs | $ | 83,730 | $ | 83,730 | ||||
Less accumulated amortization | (63,939 | ) | (51,708 | ) | ||||
$ | 19,791 | $ | 32,022 | |||||
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Note 5. Note Payable and Line of Credit
The Company’s term note is due November 1, 2009, and requires monthly principal payments of $66,667, together with monthly payment of all accrued interest. The term note bears interest at 2% over the one month LIBOR index. The rate as of September 30, 2008 was 4.49%. At September 30, 2008, the outstanding balance on this term note was $8,866,651.
The Company has the ability to obtain an additional $5 million under a line of credit facility from the same lender under the same terms as the term note subject to specific covenants. The Company had an outstanding balance of $2,500,000 on the line of credit at September 30, 2008.
Note 6. Related Party Receivables and Payables
Related party receivables and payables at September 30, 2008 and December 31, 2007 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 and expected to be fully collected/paid within one year.
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 its parent company.
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SADDLEBROOK RENTAL POOL OPERATION
BALANCE SHEETS
DISTRIBUTION FUND
September 30, | ||||||||
2008 | December 31, | |||||||
(Unaudited) | 2007 | |||||||
Assets | ||||||||
Receivable from Saddlebrook Resorts, Inc. | $ | 472,108 | $ | 905,234 | ||||
Liabilities and Participants’ Fund Balance | ||||||||
Due to participants for rental pool distribution | $ | 399,208 | $ | 758,745 | ||||
Due to maintenance escrow fund | 72,900 | 146,489 | ||||||
$ | 472,108 | $ | 905,234 | |||||
MAINTENANCE ESCROW FUND
September 30, | ||||||||
2008 | December 31, | |||||||
(Unaudited) | 2007 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 626,894 | $ | 869,796 | ||||
Receivables: | ||||||||
Distribution fund | 72,900 | 146,489 | ||||||
Accrued interest receivable | 425 | — | ||||||
Linen inventory | 17,118 | 84,317 | ||||||
Prepaid expenses and other assets | 2,494 | 1,774 | ||||||
$ | 719,831 | $ | 1,102,376 | |||||
Liabilities and Participants’ Fund Balance | ||||||||
Accounts payable | $ | 133,217 | $ | 120,702 | ||||
Participants’ fund balance | 586,614 | 981,674 | ||||||
$ | 719,831 | $ | 1,102,376 | |||||
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SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Rental pool revenues | $ | 1,210,015 | $ | 1,696,494 | $ | 11,803,836 | $ | 9,980,354 | ||||||||
Deductions: | ||||||||||||||||
Marketing fee | 90,751 | 127,237 | 885,288 | 748,526 | ||||||||||||
Management fee | 151,252 | 212,062 | 1,475,480 | 1,247,545 | ||||||||||||
Travel agent commissions | 46,901 | 39,722 | 574,046 | 360,321 | ||||||||||||
Credit card expense | 33,982 | 41,126 | 223,231 | 185,487 | ||||||||||||
322,886 | 420,147 | 3,158,045 | 2,541,879 | |||||||||||||
Net rental income | 887,129 | 1,276,347 | 8,645,791 | 7,438,475 | ||||||||||||
Less operator share of net rental income | (399,208 | ) | (574,356 | ) | (3,890,606 | ) | (3,347,313 | ) | ||||||||
Other revenues (expenses): | ||||||||||||||||
Complimentary room revenues | 8,350 | 16,101 | 48,113 | 52,468 | ||||||||||||
Minor repairs and replacements | (24,163 | ) | (41,908 | ) | (130,698 | ) | (139,716 | ) | ||||||||
Amount available for distribution | $ | 472,108 | $ | 676,184 | $ | 4,672,600 | $ | 4,003,914 | ||||||||
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SADDLEBROOK RENTAL POOL OPERATION
STATEMENTS OF CHANGES IN PARTICIPANTS’ FUND BALANCES
(Unaudited)
DISTRIBUTION FUND
Nine months ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Balance at beginning of period | $ | — | $ | — | ||||
Additions: | ||||||||
Amount available for distribution | 4,672,600 | 4,003,914 | ||||||
Reductions: | ||||||||
Amount withheld for maintenance escrow fund | (781,994 | ) | (656,601 | ) | ||||
Amount accrued or paid to participants | (3,890,606 | ) | (3,347,313 | ) | ||||
Balance at end of period | $ | — | $ | — | ||||
MAINTENANCE ESCROW FUND
Nine months ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Balance at beginning of period | $ | 981,674 | 769,905 | |||||
Additions: | ||||||||
Amount withheld from distribution fund | 781,994 | 656,601 | ||||||
Unit owner payments | 306,155 | 11,154 | ||||||
Interest earned | 10,604 | 20,059 | ||||||
Reductions: | ||||||||
Escrow account refunds | (35,885 | ) | (37,658 | ) | ||||
Maintenance charges | (256,965 | ) | (186,118 | ) | ||||
Unit renovations | (1,050,827 | ) | (165,577 | ) | ||||
Linen replacement | (150,136 | ) | (137,498 | ) | ||||
Balance at end of period | $ | 586,614 | $ | 930,868 | ||||
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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, swimming pools, a fitness center, an executive challenge course, a spa, restaurants and conference center facilities.
Impact of Current Economic Conditions
The Company believes that the reduced occupancy rates in 2008 are due in large part to the current state of the United States’ economy and higher oil and gasoline prices that have impacted travel costs. Businesses appear to have altered their spending patterns in response to the current economic conditions, resulting in fewer group bookings.
Given the current economic conditions we have increased our focus on managing costs. For example, we have reduced our salaried management positions and are managing staffing levels across the Company. We will continue to review costs to identify future opportunities for cost reduction.
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’s and its affiliates’ current cash reserves and cash generated by resort operations. The Company’s current debt agreement also contains a commitment for an additional $5,000,000, of which $2,500,000 was outstanding at September 30, 2008, provided the Company is in compliance with certain financial covenants. The Company’s financing from a third-party lender bears interest at 2% over the one month LIBOR index (4.49% at September 30, 2008) and matures on November 1, 2009.
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Results of Operations
Third quarter 2008 compared to third quarter 2007
The Company’s total revenues decreased approximately $1,434,000, or about 20%, for the three months ended September 30, 2008 compared to the same period in the prior year. This decrease is directly related to a 30% decrease in occupancy over the prior period. Total revenues for the Rental Pool decreased approximately $486,000, or about 29%. This decrease is directly related to the decrease in occupancy, partially offset by a 3% increase in the average room rate.
The decreases of $977,000 in total costs and expenses for the Company, and $97,000 in total costs and expenses for the Rental Pool Operation, are consistent with the decreases in revenues.
Net loss for the Company increased $137,000 over the comparable period last year. Amounts available for distribution for the Rental Pool Operation decreased $204,000 over the comparable period last year.
On August 12, 2007 the Company experienced lightning damage that impacted our fire alarm, electrical and HVAC systems. The damage to the fire alarm system not only affected the Company’s property but also resulted in the need to replace and upgrade the fire alarm system for the condominium units which are governed by Saddlebrook Resorts Condominium Association, Inc., (the “Association”). This event resulted in the filing of an insurance claim for an estimated total of $871,000 in damages, to be reduced by a $100,000 deductible. As of this filing, the Company and the Association have received a total of $636,669 in settlement on this claim. The Association received approximately $271,000 of such amount. The Company received approximately $150,000 in the fourth quarter of 2007 and approximately $215,000 in the third quarter of 2008. Such amounts, net of non-capital expenses have been recorded as a component of Other Income for the Company in such quarters. The replacement of the damaged systems is substantially completed and we expect to receive reimbursement for the remaining balance on the claim of approximately $135,000 prior to the end of this year.
First nine months 2008 compared to first nine months 2007
The Company’s total revenues increased approximately $3,969,000, or about 11% for the nine months ended September 30, 2008 compared to the same period in the prior year. This increase is directly related to a 4% increase in occupancy over the prior year. The total revenues for the Rental Pool increased approximately $1,823,000, or about 18%. This increase is directly related to the increase in occupancy, along with a 14% increase in the average room rate.
The increases of $2,007,000 in total costs and expenses for the Company, and $616,000 in total costs and expenses for the Rental Pool Operation, are consistent with the increases in revenues.
Net income for the Company increased $2,342,000 over the comparable period last year. Amounts available for distribution for the Rental Pool Operation increased $669,000 over the same period in the prior year.
Seasonality
The Company’s operations are seasonal with the highest volume of revenues 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 periods shown in this report are not necessarily indicative of results to be expected for the full fiscal year.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company’s invested cash, including investments escrowed on behalf of the condominium unit owners in the Rental Pool’s Maintenance Escrow Fund, 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 bears interest at 2% over the one month LIBOR index and matures on November 1, 2009.
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, 2008, 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, 2008 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 significant changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2008 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 from time to time 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
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