UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
  FORM
10-Q
 
  (Mark
One)
 x
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the quarterly period ended March 31, 2010
  OR
   ̈
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  COMMISSION FILE NUMBER   001-33743
  
  ULTIMATE
ESCAPES, INC.
 (Exact
Name of Registrant as Specified in Its Charter)
 
 
 Delaware
                26-0188408(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification No.)
 
 3501
West Vine Street, Suite 225
 Kissimmee,
Florida 34741
 (Address
of principal executive office)(Zip code)
 (407)
483-1900
 (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 past 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  
x
    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 (§ 232.405 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, 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 filer    ̈
                Accelerated filer  
       ̈
                Non-accelerated
      filer    ̈
                Smaller reporting company  
      x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈ No x
 
 The
number of shares outstanding of the registrant’s common stock, par value $0.0001
per share, as of April 30, 2010:  2,759,094
 
 
 
 ULTIMATE
ESCAPES, INC.
 FORM
10-Q
 FOR
THE THREE MONTHS ENDED MARCH 31, 2010
 TABLE
OF CONTENTS
  PagePART
      I FINANCIAL INFORMATIONItem 1.
                      Financial
      Statements
                      3Item
      2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      25Item
      3.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      33Item
      4T.
                      Controls
      and Procedures
                      33PART
      II OTHER INFORMATIONItem
      1.
                      Legal
      Proceedings
                      33Item
      1A.
                      Risk
      Factors
                      33Item
      2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      33Item 3.
                      Defaults
      Upon Senior Securities
                      33Item
      4.
                      (Removed
      and Reserved)
                      34Item
      5.
                      Other
      Information
                      34Item
      6.
                      Exhibits
                      34SIGNATURES
                      
                      35
  2
  PART I
 
 ULTIMATE
ESCAPES, INC.
 
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (In
thousands, except share data)
 
 March 31,
                                2010
                                (unaudited)
                              
                              
                              December 31,
                                2009ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                              
                              $
                              1,846
                              
                              
                              $
                              2,747Restricted
      cash
                              
                              
                              2,890
                              
                              
                              
                              4,343Membership
      receivables – net
                              
                              
                              2,169
                              
                              
                              
                              3,264Prepaid
      expenses and other current assets
                              
                              
                              981
                              
                              
                              
                              699TOTAL
      CURRENT ASSETS
                              
                              
                              7,886
                              
                              
                              
                              11,053PROPERTY
      AND EQUIPMENT – net
                              
                              
                              146,550
                              
                              
                              
                              151,397OTHER
      ASSETS:Properties
      held for sale
                              
                              
                              6,399
                              
                              
                              
                              6,067Deferred
      loan costs, net of amortization
                              
                              
                              2,470
                              
                              
                              
                              2,896Deposits
                              
                              
                              200
                              
                              
                              
                              217Goodwill
                              
                              
                              8,473
                              
                              
                              
                              8,473Intangible
      assets, net
                              
                              
                              26,314
                              
                              
                              
                              27,117Other
      assets
                              
                              
                              396
                              
                              
                              
                              396TOTAL
      OTHER ASSETS
                              
                              
                              44,252
                              
                              
                              
                              45,166TOTAL
      ASSETS
                              
                              $
                              198,688
                              
                              
                              $
                              207,616LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)CURRENT
      LIABILITIES:Revolving
      loan
                              
                              $
                              11,964
                              
                              
                              $
                              14,503Accounts
      payable
                              
                              
                              1,639
                              
                              
                              
                              1,762Accrued
      liabilities
                              
                              
                              5,988
                              
                              
                              
                              6,089Mortgage
      and other loans
                              
                              
                              3,563
                              
                              
                              
                              3,773Membership
      deposits to be refunded
                              
                              
                              5,084
                              
                              
                              
                              5,037Membership
      annual dues not yet recognized
                              
                              
                              14,020
                              
                              
                              
                              12,600TOTAL
      CURRENT LIABILITIES
                              
                              
                              42,258
                              
                              
                              
                              43,764OTHER
      LIABILITIES:Revolving
      loan
                              
                              
                              84,479
                              
                              
                              
                              84,479Mortgage
      and other loans
                              
                              
                              10,112
                              
                              
                              
                              10,524Note
      payable to shareholder
                              
                              
                              10,000
                              
                              
                              
                              10,000Membership
      initiation fees not yet recognized
                              
                              
                              15,168
                              
                              
                              
                              15,785Membership
      deposits – redemption assurance program
                              
                              
                              47,068
                              
                              
                              
                              47,046Membership
      deposits – other programs
                              
                              
                              18,694
                              
                              
                              
                              19,004TOTAL
      OTHER LIABILITIES
                              
                              
                              185,521
                              
                              
                              
                              186,838TOTAL
      LIABILITIES
                              
                              
                              227,779
                              
                              
                              
                              230,602COMMITMENTS
      AND CONTINGENCIES (NOTES 13)ULTIMATE
      ESCAPES’ STOCKHOLDERS’ EQUITY (DEFICIT)Preferred
      Stock, $0.0001 par value; 20,000,000 shares authorized, Preferred Series A
      – 14,556,675 shares authorized, 7,556,675 shares issued and outstanding,
      $1 liquidation value
                              
                              
                              1
                              
                              
                              
                              1Common
      Stock, $0.0001 par value; 300,000,000 shares authorized, 2,517,793 and
      1,582,323 shares issued and outstanding
                              
                              
                              1
                              
                              
                              
                              1Stock
      subscription receivable – Redemption Assurance Exchange
      Program
                              
                              
                              1,916
                              
                              
                              
                              8,963Additional
      paid-in capital
                              
                              
                              45,207
                              
                              
                              
                              37,793Accumulated
      deficit
                              
                              
                              (77,286
                              )
                              
                              
                              (70,814
                              )ULTIMATE
      ESCAPES’ STOCKHOLDERS’ EQUITY (DEFICIT)
                              
                              
                              (30,161
                              )
                              
                              
                              (24,056
                              )NON-CONTROLLING
      INTERESTS
                              
                              
                              1,070
                              
                              
                              
                              1,070TOTAL
      STOCKHOLDERS’ EQUITY
                              
                              
                              (29,091
                              )
                              
                              
                              (22,986
                              )TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
                              
                              $
                              198,688
                              
                              
                              $
                              207,616
  See notes to condensed consolidated
financial statements.
  3
  ULTIMATE
ESCAPES, INC.
 
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited,
in thousands, except share and per share amounts)
 
  For the Three Months EndedMarch 31,
                    2010
                  
                  
                  March 31,
                    2009REVENUESMembership
      – membership fees
                  
                  $
                  1,329
                  
                  
                  $
                  801Membership
      – annual dues
                  
                  
                  4,487
                  
                  
                  
                  3,819Membership
      – upgrade fees
                  
                  
                  -
                  
                  
                  
                  50Membership
      – assessment
                  
                  
                  -
                  
                  
                  
                  3,036Other
      revenue
                  
                  
                  1,499
                  
                  
                  
                  922REVENUES
                  
                  
                  7,315
                  
                  
                  
                  8,628OPERATING
      EXPENSES:Property
      operating costs
                  
                  
                  3,242
                  
                  
                  
                  2,682Depreciation
      and amortization
                  
                  
                  1,976
                  
                  
                  
                  1,038Lease
      costs
                  
                  
                  1,423
                  
                  
                  
                  887Advertising
                  
                  
                  184
                  
                  
                  
                  151Salaries
      and contract labor
                  
                  
                  2,015
                  
                  
                  
                  1,725General
      and administrative
                  
                  
                  1,369
                  
                  
                  
                  725Sales
      commissions
                  
                  
                  210
                  
                  
                  
                  114Loss
      on sale of property and equipment
                  
                  
                  321
                  
                  
                  
                  -Loss
      on impairment of assets held for sale
                  
                  
                  289
                  
                  
                  
                  258OPERATING
      EXPENSES
                  
                  
                  11,029
                  
                  
                  
                  7,580INCOME
      (LOSS) BEFORE OTHER INCOME (EXPENSE)
                  
                  
                  (3,714
                  )
                  
                  
                  1,048OTHER
      INCOME (EXPENSE):Interest
      expense
                  
                  
                  (3,004
                  )
                  
                  
                  (2,293
                  )Interest
      income
                  
                  
                  20
                  
                  
                  
                  22Change
      in contingent consideration – acquisition
                  
                  
                  246
                  
                  
                  
                  -OTHER
      EXPENSE – net
                  
                  
                  (2,738
                  )
                  
                  
                  (2,271
                  )INCOME
      BEFORE INCOME TAXES
                  
                  $
                  (6,452
                  )
                  
                  $
                  (1,223
                  )BENEFIT
      (PROVISION) FOR INCOME TAX
                  
                  
                  (20
                  )
                  
                  
                  (1
                  )NET
      INCOME (LOSS)
                  
                  $
                  (6,472
                  )
                  
                  $
                  (1,224
                  )Weighted
      average shares outstanding – basic and diluted
                  
                  
                  2,457,135
                  
                  
                  
                  1,573,523Income/(loss)
      per share – basic and diluted
                  
                  $
                  (2.63
                  )
                  
                  $
                  (0.78
                  )
  See notes
to condensed consolidated financial statements.
  4
  ULTIMATE
ESCAPES, INC.
 
 CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
 (Unaudited,
in thousands, except share amounts)
 
  Common
      Stock
                      
                      
                      Preferred Stock
                      
                      
                      Additional
                        Paid-In
                      
                      
                      Stock
                        Subscription
                      
                      
                      AccumulatedShares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Receivable
                      
                      
                      Deficit
                      
                      
                      TotalBalance
      – December 31, 2009
                      
                      
                      1,582,323
                      
                      
                      $
                      1
                      
                      
                      
                      7,556,675
                      
                      
                      $
                      1
                      
                      
                      $
                      37,793
                      
                      
                      $
                      8,963
                      
                      
                      $
                      (70,814
                      )
                      
                      $
                      (24,056
                      )Shares
      issued for consulting services
                      
                      
                      16,667
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      66
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      66Shares
      issued under Redemption Assurance Exchange Program
                      
                      
                      887,505
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      7,047
                      
                      
                      
                      (7,047
                      )
                      
                      
                      -
                      
                      
                      
                      -Shares
      issued for payment of equity funding costs related to shares issued in
      reverse merger.
                      
                      
                      31,298
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      248
                      
                      
                      
                      —
                      
                      
                      
                      -
                      
                      
                      
                      248Stock-based
      compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      53
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      53Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (6,472
                      )
                      
                      
                      (6,472
                      )Balance
      – March 31, 2010
                      
                      
                      2,517,793
                      
                      
                      $
                      1
                      
                      
                      
                      7,556,675
                      
                      
                      $
                      1
                      
                      
                      $
                      45,207
                      
                      
                      $
                      1,916
                      
                      
                      $
                      (77,286
                      )
                      
                      $
                      (30,161
                      )
 
 See notes
to condensed consolidated financial statements.
  5
 ULTIMATE
ESCAPES, INC.
 
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited,
in thousands)
  
 For the Three
      Months EndedMarch 31,2010
                          
                          
                          2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                          
                          $
                          (6,472
                          )
                          
                          $
                          (1,224
                          )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
                          
                          
                          1,173
                          
                          
                          
                          1,038Amortization
      of intangible assets
                          
                          
                          803
                          
                          
                          
                          -Amortization
      of deferred loan costs
                          
                          
                          426
                          
                          
                          
                          277Employee
      stock-based compensation
                          
                          
                          53
                          
                          
                          
                          419Stock-based
      consulting services
                          
                          
                          66
                          
                          
                          
                          -Loss
      on sale of property and equipment
                          
                          
                          321
                          
                          
                          
                          -Loss
      on impairment of assets held for sale
                          
                          
                          289
                          
                          
                          
                          258Cash
      flows from changes in:Restricted
      cash
                          
                          
                          1,453
                          
                          
                          
                          1,010Membership
      receivables
                          
                          
                          1,095
                          
                          
                          
                          (2,924
                          )Prepaid
      expenses and other current assets
                          
                          
                          (282
                          )
                          
                          
                          (737
                          )Accounts
      payable
                          
                          
                          125
                          
                          
                          
                          109Accrued
      liabilities
                          
                          
                          (101
                          )
                          
                          
                          477Membership
      fees and dues not yet recognized
                          
                          
                          562
                          
                          
                          
                          1,373Net
      cash flows provided by (used in) operating activities
                          
                          
                          (489
                          )
                          
                          
                          76CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
                          
                          
                          (194
                          )
                          
                          
                          -Proceeds
      from sale of property and equipment
                          
                          
                          2,926
                          
                          
                          
                          -Net
      change in deposits
                          
                          
                          17
                          
                          
                          
                          3Net
      cash provided by (used in) investing activities
                          
                          
                          2,749
                          
                          
                          
                          3CASH
      FLOWS FROM FINANCING ACTIVITIES:Principal
      repayments on long-term debt
                          
                          
                          (3,161
                          )
                          
                          
                          (378
                          )Net
      cash provided by (used in) financing activities
                          
                          
                          (3,161
                          )
                          
                          
                          (378
                          )NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                          
                          
                          (901
                          )
                          
                          
                          (299
                          )CASH
      AND CASH EQUIVALENTS – Beginning of period
                          
                          
                          2,747
                          
                          
                          
                          966CASH
      AND CASH EQUIVALENTS – End of period
                          
                          $
                          1,846
                          
                          
                          $
                          667SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION and
                            NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Cash
      paid for interest
                          
                          $
                          2,176
                          
                          
                          $
                          1,516Shares
      issued under Redemption Assurance Exchange Program
                          
                          $
                          7,047
                          
                          
                          $
                          -Shares
      issued for settlement of equity funding costs
                          
                          $
                          248
                          
                          
                          $
                          -Shares
      issued for consulting services
                          
                          $
                          66
                          
                          
                          $
                          -
  See notes
to condensed consolidated financial statements.
  6
  ULTIMATE
ESCAPES, INC.
  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (In
thousands, except share and per share amounts)
  As Of and
For the Three Months Ended March 31, 2010 and 2009
  NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Business –
Ultimate Escapes, Inc, formerly known as Secure America Acquisition Corporation
(the “Company” or “we”, “our” or “us”) is a Delaware corporation and for
accounting purposes is the successor entity to Ultimate Resort Holdings, LLC
(see Note 2).  We operate as a luxury destination club that sells club
memberships offering the members reservation rights to use our vacation
properties, subject to the rules of the club member’s Club Membership
Agreement.  Our properties are located in various resort destinations,
including the Caribbean, Mexico, France, England, Italy and throughout the
USA.
 
 Basis of
Presentation -The condensed consolidated financial statements and notes
are presented in accordance with the rules and regulations of the Securities and
Exchange Commission and do not contain certain information included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2009. 
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included and are of a normal, recurring nature. Interim
results are not necessarily indicative of results for a full year. 
Therefore, the interim condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
contained in the Company’s Annual Report on Form 10-K.
 
 Principles of
Consolidation – The condensed consolidated financial statements include
the accounts of the Company and its subsidiaries, which own the individual club
properties. All intercompany balances and transactions have been eliminated in
consolidation.
  Use of
Estimates – The preparation of condensed consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires us to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements. The reported amounts of revenues and expenses during the
reporting period may be affected by the estimates and assumptions we are
required to make. Estimates that are critical to the accompanying condensed
consolidated financial statements arise from our belief that (1) we will be able
to raise and/or generate sufficient cash to continue as a going concern (2) all
long-lived assets are recoverable, and (3) our estimates of the expected lives
of the club memberships from which we derive our revenues and on which we base
our revenue recognition are reasonable.  Estimates and assumptions are
reviewed periodically and the effects of revisions are reflected in the period
that they are determined to be necessary. It is at least reasonably possible
that our estimates could change in the near term with respect to these
matters.
  Memberships and
Revenue Recognition – We derive our revenue from the club memberships we
sell, which allow the members to use the club properties owned or leased by
us.  Different levels of membership provide access to different properties
and/or increased usage of the properties.  Members pay a one-time
membership fee (which includes a non-refundable initiation fee), together with
annual dues.  Members sometimes pay additional fees or charges related to
their use of specific properties or club services.  Members may upgrade
their level of membership at any time by paying additional upgrade fees and
annual dues.  The terms of each membership is set out in a Club Membership
Agreement.
  Members
who resign may receive a partial refund of their membership fee (excluding the
non-refundable initiation fee).  For members who resign, we may provide
assistance to them with the re-sale of their membership (which re-sale is
subject to our approval), in which case the resigning member receives 80% of the
proceeds of sale and we retain the remainder.  We also provide our members
with a redemption assurance program that provides a partial refund of their
membership fee (excluding the initiation fee), based on a sliding scale that
declines to zero over a ten year period.
 
 The
non-refundable initiation fee and the remaining portion of the membership fee
are both recognized as revenue over ten years using the straight-line
method.  Management believes that, based on our knowledge of the industry
and our competitors, our own extrapolated experience, and practices in similar
membership organizations, that period reasonably reflects the expected life of
the memberships, and is consistent with any obligation we may have to provide a
partial refund of a portion of the membership fee.
  7
  Annual
membership dues are billed in advance; payment of these annual dues permits the
club member to continue to use the club properties during their membership year
and the annual dues are recognized in income on a straight-line basis over the
12 month period to which they relate.  Revenue from ancillary charges and
other services provided by us to club members when using club properties is
recognized at the time of sale.
  Membership Dues
Not Yet Recognized – represents members’ annual dues that have been
billed to members but not yet recognized as revenue.
  Membership
Initiation Fees Not Yet Recognized – represents members’ nonrefundable
initiation fees, which are being recognized as revenue over the estimated life
of the membership of ten years, using the straight-line method.
  Membership
Assessment – In January 2009, we made a one-time non-refundable
assessment fee to all club members in order to raise working capital for
2009.  The assessment, which was based on the amount of the members’ annual
dues paid in 2008, was payable in four equal monthly installments beginning in
January 2009 and was recognized in income ratably in 2009.  Members that
elected not to pay their required assessment were placed on suspended status and
were not able to use the Club’s properties until they paid their assessment and
any outstanding annual dues.  Members who paid their assessment received
certain benefits, including an increase in the redemption amount of their
membership to be refunded if they subsequently resign, as well as additional
accommodation privileges at club properties for the next three years.  In
August 2009, we reactivated the suspended members, including reinstating any
unused days and reservation rights in effect at the time of suspension and began
allowing reactivated members to make new club reservations, provided their
annual dues were paid when due.  If a reactivated member subsequently
resigns, any portion of their initial membership fee to be refunded to them
under their Club Membership Agreement will be reduced by the amount of the
special assessment fee plus interest at 10% per annum.
  Membership
Deposits To Be Refunded – Members may resign from the club after 18
months and receive a partial refund of their membership fee subject to the
redemption procedures identified in the Club Membership Agreements. At March 31,
2010, December 31, 2009 and 2008, the Company had 1,229, 1,214 and 922 active
members, respectively.  In addition, at March 31, 2010 and December 31,
2009, there were 52 and 46 members, respectively, who had resigned.  The
redemption assurance obligation (as described below) to these resigned members
at March 31, 2010 and December 31, 2009 was $5,084 and $5,037, respectively, and
is refundable to the respective members within the next 12-18 months in
accordance with their Club Membership Agreements.
  Membership
Deposits – Redemption Assurance Program – The Club Membership Agreements
provide members with a redemption assurance program that provides a partial
refund of their membership fee (excluding the initiation fee), based on a
sliding scale that declines to zero over a ten year period. As the obligation to
refund the membership fee declines, the appropriate portion of the membership
fee that is no longer refundable is recognized in income in accordance with our
estimate of the life of the membership. The Membership Deposits – Redemption
Assurance Program balance represents the membership fees that are still
potentially subject to refund.
  Membership
Deposits – Redemption Assurance Exchange Program – As described in Note
13, in connection with the reverse merger described in Note 2 below, Ultimate
Escapes Holdings offered to its club members who met certain eligibility
requirements an opportunity to elect to convert, at $7.94 per share, all or a
portion of their redemption value under the Redemption Assurance Program into
shares of our common stock, to be issued following the consummation of the
reverse merger. At December 31, 2009, the fair value of the shares to be issued
of $8,963 was recorded as a stock subscription receivable, the outstanding
membership deposits – redemption assurance program was reduced by the amount
converted of $8,249 and the difference of $714 was recognized as an
inducement expense. On January 5, 2010, we issued an aggregate of 887,505 shares
of our common stock ($7,047) to certain of those club members who had elected to
participate and in April 2010, we issued an additional 241,301 shares of our
common stock ($1,916) to the remaining club members who participated in the
Program.  The participating club members are obligated to pay annual dues
in order to continue to use club properties. At March 31, 2010, the fair value
of the shares issued after that date of $1,916 is recorded as a stock
subscription receivable.
 
 Membership
Deposits – Other Programs – Members who joined under a previous plan (no
longer offered) may receive a refund of their membership fee (excluding the
non-refundable initiation fee), subject to the redemption procedures identified
in their Club Membership Agreements. The Membership Deposits – Other Programs
balance represents the membership fees received under this previous program.
These fees are subject to refund should the member resign and are not recognized
in income.
  Membership
Receivables – Membership receivables principally represent amounts due
for annual membership dues and ancillary charges incurred by members while using
the club properties. We typically bill members for annual dues two months prior
to their membership anniversary date.  If a member with an amount due
terminates their membership, we have the right to deduct unpaid receivables from
that member's refundable membership deposit.   If the refundable
membership deposit is not enough to cover the member's receivable balance and
all other means of collection have been exhausted, the unpaid amount is written
off against the allowance.  At both March 31, 2010 and December 31, 2009
the allowance for doubtful accounts amounted to approximately
$273.
  8
 
 Cash and Cash
Equivalents – Cash and cash equivalents consists primarily of deposits
with financial institutions, which may, at times, exceed federally insured
limits and credit card holdbacks. We consider all highly liquid investments with
original maturities of three months or less to be cash equivalents.
  Restricted
Cash – Restricted cash represents six months of estimated interest
payments under our revolving loan agreement (see Note 6).  Use of these
proceeds is generally limited to the payment of interest on the loans. On
March 16, 2010, the lender agreed to reduce the restricted cash balance interest
reserve by approximately $1,500, to be replenished in equal installments at the
end of June, September, and December 2010. As described in Note 6, on April 19,
2010, the revolving loan agreement was amended and the requirement to maintain a
segregated restricted cash balance was removed. We are now required to maintain
a cash coverage amount of one month’s debt service as of June 30, 2010 and
through September 29, 2010, two months debt service as of September 30, 2010 and
through December 30, 2010 and three months debt service as of December 31, 2010
and thereafter.  The balance in the restricted cash account of $2,890
was applied against the outstanding loan.
  Property and
Equipment – Property and equipment are stated at cost less accumulated
depreciation and amortization.  Depreciation and amortization are
calculated using accelerated methods over the estimated useful lives of the
respective assets, which range from 1 to 39 years.  Leasehold improvements
are amortized over the lesser of the lease term or the estimated useful lives of
the leased assets.  Repairs and maintenance are charged to operations as
incurred and renovations and improvements are capitalized.  We classify a
property as held for sale if we commit to a plan to sell a property within one
year and actively market the property in its current condition for a price that
is reasonable in comparison to its estimated fair value. Properties held for
sale are stated at the lower of depreciated cost or estimated fair value less
expected disposition costs. Properties are not depreciated while they are
classified as held-for-sale.
  Intangible Assets
and Goodwill — Intangible assets acquired as part of a business
combination are accounted for in accordance with FASB ASC 805 ‘‘Business Combinations’’ and
are recognized apart from goodwill if the intangible asset arises from
contractual or other legal rights or the asset is capable of being separated
from the acquired business. Our intangible assets represent the member list
acquired from Private Escapes and the target names in Private Escapes lead
generation data base. We amortize identifiable intangible assets over their
contractual or estimated useful lives using the straight-line method. Estimated
useful lives are determined primarily based on forecasted cash flows, which
includes estimates for the revenues, expenses and member attrition associated
with the assets, and are as follows:
  Member
      list
                10
      yearsLead
      database
                7.5
      years
 
 Goodwill
consists of the excess of the purchase price paid for Private Escapes over the
fair value of the identifiable assets and liabilities acquired. Goodwill is not
amortized, but is tested for impairment, at least annually, by applying the
recognition and measurement provisions of FASB ASC 350-20 ‘‘Goodwill’’, which compares
the carrying amount of the asset with its fair value. If impairment of carrying
value based on the estimated fair value exists, we measure the impairment
through the use of projected discounted cash flows. We operate as a single
operating segment. We have not identified any components within our single
operating segment and thus have a single reporting unit for purposes of our
goodwill impairment test.
  Impairment of
Long-Lived Assets — We analyze our long-lived assets, including property
and equipment and intangible assets, in accordance with FASB ASC 360 ‘‘Property, Plant, and
Equipment’’ annually and when events and circumstances indicate that the
assets may not be recoverable. If the undiscounted net cash flows are less than
the asset’s carrying amount, we record an impairment based on the excess of the
asset’s carrying value over fair value. Fair value is determined based on
discounted cash flow models, quoted market values and third-party appraisals. We
evaluate our real estate assets on a combined basis, as future cash flows
include club membership sales and dues that are not identifiable to individual
properties. Estimates of future cash flows are based on internal projections
over the expected useful lives of the assets and include cash flows associated
with future maintenance and replacement costs but exclude cash flows associated
with future capital expenditures that would increase the assets’ useful lives.
Management believes there is no impairment as of March 31, 2010.
  Deferred Loan
Costs – Deferred loan costs, consisting of commitment and other fees, the
cost of warrants issued to a lender and a loan exit fee (see Note 6), are
included in Other Assets and are amortized to interest expense using the
straight-line method over the life of the applicable loan.
 
 March 31, 2010
                      
                      
                      December 31, 2009Deferred
      loan costs
                      
                      $
                      6,009
                      
                      
                      $
                      6,009Less:
      accumulated amortization
                      
                      
                      3,539
                      
                      
                      
                      3,113$
                      2,470
                      
                      
                      $
                      2,896Amortization
      expense for the period
                      
                      $
                      426
                      
                      
                      $
                      1,296
  9
 
 Future
amortization of these deferred costs is expected to be as follows:
 
 Year
      Ending December 31,2010
                    
                    $
                    1,2762011
                    
                    
                    6422012
                    
                    
                    1052013
                    
                    
                    1032014
                    
                    
                    103Thereafter
                    
                    
                    241$
                    2,470
  Non-controlling
interests — Certain of our club properties are held in single-purpose
subsidiaries and two of these subsidiaries are not wholly-owned by us. Private
Escapes Platinum Abaco, LLC is owned 60% by us and 40% by a third party and
Private Escapes Platinum Breckenridge, LLC is owned 85% by us and 15% by a third
party. The ownership interest of these third parties in the original cost of
these properties is reflected as non-controlling interests in the accompanying
condensed consolidated balance sheets. The operating agreements between us and
these minority owners provide that substantially all expenses pertaining to
maintenance or preservation of the properties are to be paid by us. Although the
Private Escapes Platinum Breckenridge, LLC agreement provides that we have the
right to request reimbursement of the minority owner’s proportionate share of
property taxes and insurance, it has not been our policy to do so. No allocation
of losses to the minority owners has been given effect to in the accompanying
condensed consolidated statements of operations and, accordingly, the balance of
these non-controlling interests in the accompanying condensed consolidated
balance sheets continues to reflect these third parties share of the original
cost of the properties. The minority owners in Private Escapes Platinum Abaco,
LLC have the right to require us to purchase their 40% ownership interest for an
amount equal to their proportionate share of the property’s fair value. At March
31, 2010, their pro rata share of the estimated fair value of the property did
not exceed the carrying value of their redeemable, non-controlling
interest.
  Basic and Diluted
Income (Loss) Per Share   – For periods subsequent to the reverse
merger described in Note 2, basic net income (loss) per share is computed by
dividing net income (loss) attributable to common shareholders by the weighted
average number of shares of common stock outstanding during the period. Diluted
net income (loss) per share reflects the effect of outstanding stock options and
warrants, when such instruments are dilutive. As described in Note 2, up to
7,556,675 outstanding ownership units in our operating subsidiary, Ultimate
Escapes Holdings, LLC (“Ultimate Escapes Holdings”) may be exchanged on a
one-for-one basis for shares of our common stock.  The effect of the
conversion of such units is included in diluted earnings per share only when the
effect is dilutive. Also as described in Note 2, up to 7,000,000 contingent
earn-out units, which units may be exchanged on a one-for-one basis for shares
of our common stock, may be issued if Ultimate Escapes Holdings meets certain
earnings targets in 2010 – 2012.  The potentially dilutive effect of
such earn-out units will not be included in the computation of diluted earnings
per share until the contingency is resolved.
 
 During
the three months ended March 31, 2010, we reported net loss per share and we
excluded all outstanding stock options and warrants and ownership units of
Ultimate Escapes Holdings from the calculation of diluted net loss per share, as
their effect would be anti-dilutive. As a result, basic and diluted loss per
share were equivalent.  The number of common shares issuable on assumed
exercise of options, warrants and conversion of ownership units of Ultimate
Escapes Holdings but which were excluded from the computation of earnings per
share for the three months ended March 31, 2010 was 53,427, 12,075,000 and
7,556,675, respectively.
  10
  Advertising
Costs – The costs of advertising are expensed as incurred.  For the
three months ended March 31, 2010 and 2009, advertising costs were $184 and
$151, respectively.
  Financial
Instruments and Concentrations of Credit Risk — Financial instruments, as
defined in FASB ASC 825 ‘‘Financial Instruments’’
consist of cash, evidence of ownership in an entity and contracts that both (1)
impose on one entity a contractual obligation to deliver cash or another
financial instrument to a second entity, or to exchange other financial
instruments on potentially unfavorable terms with the second entity, and (2)
conveys to that second entity a contractual right (a) to receive cash or another
financial instrument from the first entity or (b) to exchange other financial
instruments on potentially favorable terms with the first entity. Our financial
instruments consist primarily of cash and cash equivalents, restricted cash,
accounts receivable, accounts payable, accrued liabilities and credit
facilities. The carrying values of these financial instruments approximate their
respective fair values due to their short-term nature.
  Financial
instruments that potentially subject us to significant concentrations of credit
risk consist primarily of cash and cash equivalents, restricted cash and
membership receivables. We frequently maintain cash balances in excess of
federally insured limits. We have not experienced any losses in such
accounts.  Concentrations of credit risk with respect to membership
receivables are limited due to the number of members comprising our customer
base and their dispersion across the United States of America.  We perform
a credit evaluation of our customers’ financial condition and have not incurred
any significant credit related losses.
  Fair Value
Measurements — At March 31, 2009, we did not have any items to be
measured at fair value. At March 31, 2010, the outstanding contingent
consideration related to our September 15, 2009 acquisition of Private Escapes
(discussed in Note 2) was measured at fair value using primarily level three
inputs (unobservable) and will be re-measured at each subsequent reporting
date.
  Recent Accounting
Pronouncements – The following Accounting Standards Codification Updates
have been issued, or became effective, since the beginning of the current period
covered by these financial statements:
 
 Pronouncement
                    
                    Issued
                    
                    TitleASU
      No. 2010-01
                    
                    January 
      2010
                    
                    Equity
      (Topic 505):  Accounting for Distributions to Shareholders with
      Components of Stock and Cash – a consensus of the FASB Emerging Issues
      Task ForceASU
      No. 2010-02
                    
                    January 
      2010
                    
                    Consolidation
      (Topic 810):  Accounting and Reporting for Decreases in Ownership of
      a Subsidiary – a Scope ClarificationASU
      No. 2012-03
                    
                    January
      2010
                    
                    Extractive
      Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
      DisclosuresASU
      No. 2010-04
                    
                    January
      2010
                    
                    Accounting
      for Various Topics: Technical Corrections to SEC
  ParagraphsASU
      No. 2010-05
                    
                    January
      2010
                    
                    Compensation 
      - Stock Compensation (Topic718): Escrowed Share Arrangements and the
      Presumption of CompensationASU
      No. 2010-06
                    
                    January
      2010
                    
                    Fair
      Value Measurements and Disclosures (Topic 820): Improving Disclosures
      about Fair Value
Measurements
  ASU
      No. 2010-07
                      
                      January
      2010
                      
                      Not-for-Profit
      Entities (Topic 958): Not-for-Profit Entities – Mergers and
      AcquisitionsASU
      No. 2010-08
                      
                      February
      2010
                      
                      Technical
      Corrections to Various TopicsASU
      No. 2010-09
                      
                      February
      2010
                      
                      Subsequent
      Events (Topic 855): Amendments to Certain Recognition and Disclosure
      RequirementsASU
      No. 2010-10
                      
                      February
      2010
                      
                      Consolidation
      (Topic 810): Amendments for Certain Investment FundsASU
      No. 2010-11
                      
                      March 
      2010
                      
                      Derivatives
      and Hedging (Topic 815): Scope Exception Related to Embedded Credit
      Derivatives
  11
  ASU
      No. 2010-12
                  
                  April
      2010
                  
                  Income
      Taxes (Topic 740): Accounting for Certain Tax Effects of the 2010 Health
      Care Reform Acts (SEC Update)ASU
      No. 2010-13
                  
                  April
      2010
                  
                  Compensation—Stock
      Compensation (Topic 718): Effect of Denominating the Exercise Price of a
      Share-Based Payment Award in the Currency of the Market in Which the
      Underlying Equity Security Trades—a consensus of the FASB Emerging Issues
      Task ForceASU
      No. 2010-14
                  
                  April
      2010
                  
                  Accounting
      for Extractive Activities—Oil & Gas—Amendments to Paragraph
      932-10-S99-1 (SEC Update)ASU
      No. 2010-15
                  
                  April
      2010
                  
                  Financial
      Services—Insurance (Topic 944): How Investments Held through Separate
      Accounts Affect an Insurer’s Consolidation Analysis of Those Investments—a
      consensus of the FASB Emerging Issues Task ForceASU
      No. 2010-16
                  
                  April
      2010
                  
                  Entertainment—Casinos
      (Topic 924): Accruals for Casino Jackpot Liabilities—a consensus of the
      FASB Emerging Issues Task ForceASU
      No. 2010-17
                  
                  April
      2010
                  
                  Revenue
      Recognition—Milestone Method (Topic 605): Milestone Method ofRevenue
      Recognition—a consensus of the FASB Emerging Issues Task
    ForceASU
      No. 2010-18
                  
                  April
      2010
                  
                  Receivables
      (Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool
      That is Accounted for as a Single Asset—a consensus of the FASB Emerging
      Issues Task Force
  To the
extent appropriate, the guidance in the above Accounting Standards Codification
Updates is already reflected in our condensed consolidated financial statements
and management does not anticipate that these accounting pronouncements will
have any future effect on our condensed consolidated financial
statements.
  NOTE
2 – HISTORY AND ORGANIZATION
  Background
  Prior to
October 29, 2009, the operations of our operating subsidiary, Ultimate Escapes
Holdings, were conducted under an Operating Agreement dated April 30, 2007
between Ultimate Resort, LLC (‘‘Ultimate Resort’’) and JDI Ultimate L.L.C.
(‘‘JDI’’). The Operating Agreement was amended from time to time and, as
discussed further below, was amended and restated in its entirety on October 29,
2009.
  Prior to
the formalization of the Operating Agreement on April 30, 2007, our operations
were conducted by Ultimate Resort and from that date until September 15, 2009,
our operations were conducted by Ultimate Resort Holdings, LLC (“Ultimate Resort
Holdings”), an entity owned by Ultimate Resort (83.67%) and JDI
(16.33%).
 
 On
September 15, 2009, Ultimate Resort Holdings contributed all of its assets,
liabilities and business operations to Ultimate Escapes Holdings, which was
previously a non-operating wholly-owned subsidiary of Ultimate Resort Holdings.
The contribution of the assets and liabilities of Ultimate Resort Holdings was
accounted for as a transaction between entities under common control, with no
change in the basis of the assets and liabilities. For accounting purposes, in
accordance with FASB ASC 225-10-S99, our financial position and results of
operations for periods prior to September 15, 2009 reflect the assets,
liabilities and results of operations previously conducted by Ultimate Resort
Holdings and, for periods prior to April 30, 2007, by Ultimate Resort. Ultimate
Resort had also issued warrants in connection with Ultimate Resort Holdings’
debt financing and equity units in connection with its employee compensation. In
accordance with FASB ASC 225-10-S99, these warrant and employee compensation
transactions (see Notes 6 and 11) are also included in our condensed
consolidated financial statements.
 
 In
accordance with the April 30, 2007 Operating Agreement, both Ultimate Resort and
JDI had made certain capital contributions to Ultimate Resort Holdings. JDI had
also made a $10,000 loan to Ultimate Resort Holdings and, in connection with the
transfer to Ultimate Escapes Holdings of Ultimate Resort Holdings’ assets,
liabilities and operations, Ultimate Escapes Holdings assumed the obligations of
Ultimate Resort Holdings related to this loan (see Note 7). With effect from
October 29, 2009, the rights of JDI as lender under the loan were assigned by
JDI to Ultimate Resort Holdings. In addition, Ultimate Resort Holdings
re-purchased the minority ownership interest in itself held by JDI, in exchange
for the transfer to JDI of 3,123,797 ownership units in Ultimate Escapes
Holdings.
 
 12
  Acquisition of
Private Escapes Destination Clubs
  In May
2008, Ultimate Resort Holdings entered into a contribution agreement and a
marketing cooperation agreement with another unrelated luxury destination club,
Private Escapes Destination Clubs (“Private Escapes”). Under the marketing
cooperation agreement, we jointly marketed our respective Club Memberships under
the ‘‘Ultimate Escapes’’ brand. On September 15, 2009, contemporaneously with
the contribution to Ultimate Escapes Holdings by Ultimate Resort Holdings of all
its assets, liabilities and operations, Private Escapes contributed certain of
its club properties, club members and other assets to Ultimate Escapes Holdings
in exchange for an 8% minority equity interest in Ultimate Escapes Holdings. The
contribution of assets by Private Escapes was accounted for under the
acquisition method of accounting in accordance with FASB ASC 805 ‘‘Business Combinations’’ and,
accordingly, their revenues and expenses are included in our results of
operations from the date of acquisition.  Ultimate Resort Holdings,
Private Escapes and JDI are collectively referred to as the “UE
Owners”.
 
 The
purchase price of the assets and liabilities of Private Escapes acquired on
September 15, 2009, is summarized below.
  Fair
      value of equity issued (1)
                    
                    $
                    4,560Fair
      value of contingent consideration (2)
                    
                    
                    2,000Purchase
      Price
                    
                    $
                    6,560
  (1)
              Based upon our adjusted closing
      share price of $7.94 per share and Private Escapes beneficial ownership of
      8% of the 7,178,841 shares issuable by us to the UE Owners upon conversion
      of their units, as described
below.
 
 (2)
              An estimate was made for Private
      Escapes’ 8% pro-rata portion of the contingent consideration arrangement
      described below, which could result in the issuance to the UE Owners of up
      to 7,000,000 earn-out units that are convertible into shares of our common
      stock if certain earnings targets are achieved by Ultimate Escapes
      Holdings. The fair value of the contingent consideration was based on
      management's estimates of the probability of achievement of the earnings
      targets. The estimates and assumptions are subject to change and are
      updated quarterly.  A gain or loss is recorded in our condensed
      consolidated statement of operations for changes in the fair value of the
      contingent consideration.
  On
September 15, 2009, in connection with the contribution to Ultimate Escapes
Holdings of the assets and liabilities of Ultimate Resort Holdings, described
above, Ultimate Escapes Holdings and Private Escapes entered into a Consolidated
Amended and Restated Loan and Security Agreement (the “New Loan Agreement”) with
CapitalSource Finance LLC ("CapitalSource"). The New Loan Agreement replaces and
supersedes the previous April 30, 2007 Loan Agreement with CapitalSource and is
discussed in Note 6.
  Reverse
Merger with Ultimate Escapes Holdings
  On July
21, 2009, Ultimate Escapes Holdings and Ultimate Resort Holdings’ managing
member signed a Letter of Intent with us (then named Secure America Acquisition
Corporation (‘‘SAAC’’), a special purpose acquisition corporation, under which
it was expected that Ultimate Escapes Holdings would enter into a business
combination with SAAC. A definitive agreement was signed on September 2, 2009
and, after approval and certain other actions by SAAC’s stockholders and warrant
holders, the transaction closed on October 29, 2009. The business combination
with SAAC was accounted for as a reverse merger, whereby Ultimate Escapes
Holdings is the continuing entity for financial reporting purposes and is
deemed, for accounting purposes, to be the acquirer of SAAC. In accordance with
the applicable accounting guidance for accounting for the business combination
as a reverse merger, Ultimate Escapes Holdings is deemed to have undergone a
recapitalization, whereby Ultimate Escapes Holdings is deemed to have issued
equity units to SAAC’s common equity holders. Accordingly, although SAAC, as
Ultimate Escapes Holdings’ parent company (now named Ultimate Escapes, Inc.),
was deemed to have legally acquired Ultimate Escapes Holdings, in accordance
with the applicable accounting guidance for accounting for the business
combination as a reverse merger, Ultimate Escapes Holdings is the surviving
entity for accounting purposes and Ultimate Escapes Holdings’ assets and
liabilities continue to be recorded at their historical carrying amounts
(subject to the recording of Private Escapes assets and liabilities at fair
value, as a result of the acquisition of those assets by Ultimate Escapes
Holdings), with no additional goodwill or other intangible assets recorded as a
result of the accounting merger with SAAC.
 
 On
October 29, 2009, Ultimate Escapes Holdings, SAAC, Ultimate Resort Holdings, JDI
and Private Escapes Holdings, LLC ("PE Holdings") entered into an Amended and
Restated Operating Agreement, which provides for the management of Ultimate
Escapes Holdings’ operations following the business combination with SAAC.
After the consummation of the business combination on October 29, 2009, SAAC
changed its name to Ultimate Escapes, Inc. Under the terms of the Amended and
Restated Operating Agreement, the board of managers of Ultimate Escapes Holdings
will mirror the board of directors of Ultimate Escapes, Inc.
  At the
closing of the transaction with SAAC on October 29, 2009, SAAC contributed
$9,787 to Ultimate Escapes Holdings in exchange for 1,232,601 ownership units in
Ultimate Escapes Holdings and Ultimate Escapes Holdings issued 377,834 units to
Ultimate Resort Holdings to compensate it for certain tax liabilities incurred
in connection with the SAAC transaction. In addition, Ultimate Escapes Holdings
issued 6,604,534 and 574,307 ownership units (an aggregate of 7,178,841) to
Ultimate Resort Holdings, and PE Holdings, respectively, of which 3,123,797
units were transferred by Ultimate Resort Holdings to JDI, as described above.
Following the SAAC transaction, our subsidiary Ultimate Escapes Holdings has the
following ownership units outstanding:
  13
 
 Owner
                    
                    Units
                    
                    
                    Share of LossesUltimate
      Resort Holdings LLC
                    
                    
                    3,858,571
                    
                    
                    
                    56.13
                    %Private
      Escapes Holdings LLC
                    
                    
                    574,307
                    
                    
                    
                    8.00
                    %JDI
      Ultimate L.L.C.
                    
                    
                    3,123,797
                    
                    
                    
                    35.87
                    %Ultimate
      Escapes, Inc. (f/k/a SAAC)
                    
                    
                    1,232,601
                    
                    
                    
                    0
                    %8,789,276
                    
                    
                    
                    100
                    %
 
 The UE
Owners (Ultimate Resort Holdings, Private Escapes and JDI) have the right,
exercisable at any time, to exchange, on a one-for-one basis, each of their
ownership units, including all earn-out units received, if any, as described
below, for shares of our common stock. However, we may, in our sole discretion,
elect to make a cash payment to holders of ownership units in lieu of issuing
common stock.  For each ownership unit issued to the UE Owners in
connection with the consummation of the reverse merger, the UE Owners received
one share of our Series A Voting Preferred Stock (all of which shares of Series
A Voting Preferred Stock were issued in the name of Mr. Tousignant, as Owner
Representative). At any time that any UE Owner exchanges ownership units for
shares of our common stock, a like number of shares of Series A Voting Preferred
Stock will be canceled.  For each earn-out unit received by the UE Owners,
as described below, the UE Owners will also receive one share of our Series A
Voting Preferred Stock.
  Pursuant
to the Amended and Restated Operating Agreement, the UE Owners have the right to
receive, in the aggregate, the following additional ownership units, in
proportion to their respective Earn-Out Sharing Percentages (as such term is
defined in the Operating Agreement), subject to the conditions described
below:
   ̈
              Up to 3,000,000 earn-out units
      will be issued if Ultimate Escapes Holdings Adjusted EBITDA for fiscal
      2010 or fiscal 2011 is greater than $23 million, as
      follows:
 
 -
              If Adjusted EBITDA for fiscal
      2010 or fiscal 2011 is equal to or greater than $27 million, an aggregate
      of 3,000,000 earn-out units will be issued;
  or
 
 -
              If Adjusted EBITDA for fiscal
      2010 is greater than $23 million but less than $27 million, the number of
      earn-out units to be issued shall equal a corresponding
      proportionate percentage of the 3,000,000 earn-out units equal to (a)
      Adjusted EBITDA earned for the applicable year in excess of $23,000,000
      divided by (b) $4,000,000.
 
  ̈
              Up
      to 4,000,000 earn-out units will be issued if Ultimate Escapes Holdings
      Adjusted EBITDA for fiscal 2011 or fiscal 2012 is greater than $32
      million, as follows:
 
 -
              If Adjusted EBITDA for fiscal
      2011 or fiscal 2012 is equal to or greater than $45 million, an aggregate
      of 4,000,000 earn-out units will be issued;
  or
 
 -
              If Adjusted EBITDA for fiscal
      2011 is greater than $32 million but less than $45 million, the number of
      earn-out units to be issued shall equal a corresponding proportionate
      percentage of the 4,000,000 earn-out units equal to (a) Adjusted EBITDA
      earned for the applicable year in excess of $32,000,000 divided by (b)
      $13,000,000.
  “Adjusted
EBITDA,” with respect to any period, means, as determined in accordance with
GAAP, the difference between our revenues (plus the non-refundable portion of
membership fees to the extent such membership fees are not included in revenue
pursuant to GAAP) and our expenses, on a consolidated basis for such period,
plus the sum of (i) interest expense, (ii) income tax expense, (iii)
depreciation expense and (iv) amortization expense but (v) excluding all
non-cash compensation related to our 2009 Stock Option Plan.
  NOTE
3 – LIQUIDITY
  Our
condensed consolidated financial statements are prepared using accounting
principles generally accepted in the United States of America applicable to a
going concern, which contemplate the realization of assets and liquidation of
liabilities in the normal course of business. As shown in the accompanying
condensed consolidated financial statements, the Company incurred net
income/(losses) of ($6,472) and $1,400 during the three months ended March 31,
2010, and 2009, respectively. As of March 31, 2010, the Company's current
liabilities exceed its current assets by $34,372. In addition, although we have
completed the refinancing of our CapitalSource revolving loan facility, we may
not be able to meet certain covenants under the revolving loan agreement in the
future (see Note 6). We have also experienced a decrease in new membership sales
and existing member upgrades over the last six months of 2008 and throughout
2009 and continuing in 2010.
  The above
factors, among others, indicate that we may encounter a liquidity event, which
may cause us to be in default of our loan covenants. Our management has taken
steps to increase cash flow in order to cover 2010 operational expenses through,
if necessary, the sale of selected club properties, and closely monitoring and
reducing operating expenses. In addition, the Company is actively seeking to
raise additional working capital.
  14
  The items
discussed above raise substantial doubts about our ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and reclassification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary, should we be
unable to continue as a going concern.
  NOTE
4 - PROPERTY AND EQUIPMENT
  As of
March 31, 2010 and December 31, 2009, we operated a total of 135 and 141 club
properties, respectively, located in various resort destinations. Of these
properties, 103 and 104, respectively, are owned, and 32 and 37 are leased. The
owned properties provide the borrowing base for our CapitalSource revolving loan
(see Note 6).
 
 Effective
September 15, 2009, we acquired 47 properties, 1 yacht and other property and
equipment from Private Escapes for $49,200 (see Note 2).
  At March
31, 2010 and December 31, 2009, property and equipment consists of the
following:
 
 March 31,
                      2010
                    
                    
                    December 31,
                      2009Land,
      club properties, and improvements
                    
                    $
                    148,862
                    
                    
                    $
                    152,649Furniture
      and fixtures at club properties
                    
                    
                    9,677
                    
                    
                    
                    9,868Office
      equipment
                    
                    
                    446
                    
                    
                    
                    446158,985
                    
                    
                    
                    162,963Less
      accumulated depreciation
                    
                    
                    12,435
                    
                    
                    
                    11,566$
                    146,550
                    
                    
                    $
                    151,397
 
 Properties
held for sale were $6,399 and $6,067 as of March 31, 2010 and December 31, 2009,
respectively.  Impairment recognized on properties held for sale for the
three months ended March 31, 2010 and 2009 was $289 and $258,
respectively.  Depreciation expense was $1,173 and $1,038 for the three
months ended March 31, 2010 and 2009, respectively.
  NOTE
5 - GOODWILL AND INTANGIBLE ASSETS
  At March
31, 2010 and December 31, 2009, we had goodwill of $8,473 related to our
acquisition of certain assets and liabilities of Private Escapes.
 
 The
following table summarizes our intangible assets as of March 31,
2010:
 
 Member List
                    
                    
                    Lead
                      Database
                    
                    
                    TotalBalance,
      July 1, 2009
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Additions
                    
                    
                    15,800
                    
                    
                    
                    12,254
                    
                    
                    
                    28,054Amortization
                    
                    
                    (66
                    )
                    
                    
                    (68
                    )
                    
                    
                    (134
                    )Balance,
      September 30, 2009
                    
                    
                    15,734
                    
                    
                    
                    12,186
                    
                    
                    
                    27,920Amortization
                    
                    
                    (394
                    )
                    
                    
                    (409
                    )
                    
                    
                    (803
                    )Balance,
      December 31, 2009
                    
                    
                    15,340
                    
                    
                    
                    11,777
                    
                    
                    
                    27,117Amortization
                    
                    
                    (394
                    )
                    
                    
                    (409
                    )
                    
                    
                    (803
                    )Balance,
      March 31, 2010
                    
                    $
                    14,946
                    
                    
                    $
                    11,368
                    
                    
                    $
                    26,314Weighted-average
      remaining amortization period in years
                    
                    
                    9.5
                    
                    
                    
                    7.0
  15
  As of
March 31, 2010, we estimate future amortization expense of intangible assets for
the next five years to be:
 
 2010
                    
                    $
                    2,4092011
                    
                    
                    3,2142012
                    
                    
                    3,2142013
                    
                    
                    3,2142014
                    
                    
                    3,21415,265Thereafter
                    
                    
                    11,049$
                    26,314
  NOTE 6
- REVOLVING LOAN
  On April
30, 2007, we entered into a Loan and Security Agreement (the “Loan Agreement”)
with CapitalSource, which provided for both a revolving loan (discussed below)
and a term loan (since repaid).  The Loan Agreement was amended on October
15, 2007 and was further amended on February 14, 2008.  The loan was
collateralized by substantially all of our assets and was guaranteed by Ultimate
Resort.  On September 15, 2009, we entered into the New Loan Agreement
with CapitalSource, which is also discussed below.
 
 Prior Loan
Agreement
  The Loan
Agreement, as subsequently amended, provided for borrowings up to a defined
borrowing base amount.  At December 31, 2008, $86,387 was outstanding under
the revolving loan, which represented the maximum permitted at that date under
the then borrowing base formula. On and after March 31, 2009, the borrowing base
was an amount equal to the lesser of (i) $90,000 or (ii) 65% of the appraised
value of all owned property encumbered by a mortgage in favor of the
lenders.  At December 31, 2008, the appraised value of such property was
$127,290.
  Interest
was payable monthly at the three-month LIBOR plus 5%, with a floor of 8.75% per
annum, which floor rate applied during substantially all of 2009 and 2008. 
An exit fee of $1,425 was due on maturity or earlier if the loan was terminated
for any reason. The fee was included in deferred loan costs and was amortized to
interest expense over the term of the loan. No principal payments were due until
maturity on April 30, 2011.
  We were
required to meet certain covenants as defined in the Loan
Agreement.  As a result of our failure to meet certain of these
covenants, on July
10, 2009, we received a notice of default from CapitalSource.  In
connection with our proposed re-organization and business combination (see Note
2), we expected that CapitalSource would continue to be our primary lender and
on September 2, 2009, we received a waiver from CapitalSource.  As
discussed below, on September 15, 2009, we entered into a New Loan Agreement
with CapitalSource, which cured our default under the previous Loan
Agreement.
  In
connection with the Loan Agreement, we paid CapitalSource an initial commitment
fee of $950 and also paid other fees and expenses aggregating $775. These fees,
together with the exit fee of $1,425 required on maturity or earlier repayment
of the loan and the $750 cost of certain warrants issued to, and subsequently
re-purchased from, CapitalSource, were deferred and are being amortized over the
term of the Loan Agreement and the New Loan Agreement described
below.
  New
Loan Agreement
  On
September 15, 2009, in connection with the contribution to us of the assets and
liabilities of Ultimate Resort Holdings (see Note 2), we, together with Private
Escapes, entered into a New Loan Agreement with CapitalSource.  The New
Loan Agreement replaced and superseded our previous April 30, 2007 Loan
Agreement with CapitalSource discussed above.
  The New
Loan Agreement provides for borrowings up to the lesser of a defined maximum
amount or a defined borrowing base amount.
 
 The
maximum amount available, prior to the April 19, 2010 modifications discussed
below, was $110,000 through December 31, 2009, $108,000 from January 1, 2010
through June 30, 2010, $105,000 from July 1, 2010 through December 31, 2010 and
$100,000 from January 1, 2011 to the maturity date of April 30, 2011. The
maturity date may be extended at our request for two additional one-year
periods, provided we are not in default under the New Loan Agreement and on
payment of an extension fee of 0.25% of the then maximum loan amount. Except for
payments required on the sale of a mortgaged property, no principal payments are
due until maturity on April 30, 2011, except that we are required to make a cash
payment of $2,000 on December 31, 2009, a cash payment of $3,000 on June 30,
2010 and a cash payment of $5,000 on December 31, 2010. As of March 31, 2010,
the necessary repayments due before June 30, 2010 have both been
made.
 
 The
borrowing base amount is a percentage of the appraised value of all owned
property encumbered by a mortgage in favor of CapitalSource. Through March 31,
2010, that percentage was 75%, from April 1, 2010 through December 31, 2010 it
is 70% and from January 1, 2011 it is 65%.
  16
  Interest
is calculated on the actual days elapsed and the basis of a 360 day year and is
payable monthly at the three-month LIBOR (0.35% and 0.25% at April 30, 2010 and
December 31, 2009, respectively) plus 5% per annum, with a floor of 8.75%. 
An exit fee of $1,650 is due on maturity or earlier if the loan is terminated
for any reason (increased from $1,425 under the Prior Loan Agreement). We may
voluntarily prepay any part of the loan at any time but may terminate the New
Loan Agreement only by providing 30 days written notice and prepaying
outstanding amounts in full.
  On April
19, 2010, the loan agreement was amended to change the borrowing base to be 75%
through January 31, 2011 (instead of March 31, 2010), 70% from February 1, 2011
through April 30, 2011 (instead of December 31, 2010), and at all times after
May 1, 2011 the borrowing base will be no greater than 65%.  However,
the maximum loan amount was reduced to $95,093. In addition, revised minimum
loan amortization amounts have been established that require cumulative
amortization of $10,300 by June 30, 2010 and $17,800 by December 31, 2010, with
the remaining balance due on April 30, 2011 if we do not elect an
extension.  If we exercise the first one-year extension, then
cumulative amortization must be $22,800 by June 30, 2011 and $25,300 by December
31, 2011, with the remaining balance due on April 30, 2012 if we do not exercise
the second extension.  If we exercise the second one-year extension,
then cumulative amortization must be $27,800 by June 30, 2012 and $30,300 by
December 31, 2012, with the remaining balance due by April 30,
2013.  At March 31, 2010 and December 31, 2009, $96,443 and $98,982,
respectively, was outstanding under the New Loan Agreement.  As part
of the April 19, 2010 amendment, the requirement to maintain a segregated
restricted cash balance was removed and we are now required to maintain a cash
coverage amount of one month’s debt service as of June 30, 2010 through
September 29, 2010, two months debt service from September 30, 2010 through
December 30, 2010, and three months debt service after December 30,
2010.  The March 31, 2010 balance in the restricted cash account of
$2,890 was applied against the outstanding loan and as of April 19, 2010, the
cumulative amortization was $11,211.
 
 In
addition to maintaining the required cash coverage amount, we are required to
meet certain covenants as defined in the loan agreement,
including:
  •
              Remain in compliance at all times
      with applicable requirements as to the ratio of the number of properties
      to club members or “equivalent club members”, as set forth in the
      applicable club membership
plans;
 
 •
              Maintain a leverage ratio between
      debt and consolidated tangible net worth of no more than
      3.5:1;
 
 •
              For the year ending December 31,
      2010, our consolidated net loss must not exceed $5 million and for the
      year ending December 31, 2011 and each succeeding year, our consolidated
      net income must not be less than $1 (net loss is adjusted in each
      year for the non-refundable portion of new member initiation fees not yet
      recognized in income); and
 
 •
              The
      debt ratio (aggregate mortgage financing to the aggregate appraised value
      for all owned Property) on a consolidated basis must not exceed
      80%.
 
 In
addition to various covenants, the CapitalSource loan agreement contains
customary events of default that would permit CapitalSource to accelerate
repayment of amounts outstanding, including failure to pay any amounts
outstanding under the loan agreement when due, insolvency, judgment or
liquidation, failure to pay other borrowed money in excess of $500,000, failure
to comply with the terms and conditions of the loan agreement, suspension of the
sale of club memberships, termination of any club or club membership plan,
failure to pay (without CapitalSource’s consent) any amounts due to a resigning
club member in accordance with the terms of his or her club membership agreement
and a change in our management (as defined in the loan agreement).
 
 The table
below describes our revolving loan, mortgages and other loans, and a schedule of
maturities as of March 31, 2010.
 Total
                  
                  
                  Current
                  
                  
                  Long
                    TermNote
      payable to CapitalSource, bearing interest at three-month LIBOR (0.35% at
      April 30, 2010) plus 5% per annum, with a floor of 8.75%, with principal
      and interest payments, maturing on April 30, 2011.
                  
                  $
                  96,443
                  
                  
                  $
                  11,964
                  
                  
                  $
                  84,479Note
      payable to Ultimate Resort Holdings LLC, bearing interest at 5%, with
      interest only payments, maturing April 30, 2017 (see Note
    7).
                  
                  
                  10,000
                  
                  
                  
                  -
                  
                  
                  
                  10,000Various
      loans with interest rates ranging from 3.375% to 15.0%, maturing January
      1, 2010 through September 1, 2037 (see Note 8).
                  
                  
                  13,675
                  
                  
                  
                  3,563
                  
                  
                  
                  10,112Total
                  
                  $
                  120,118
                  
                  
                  $
                  15,527
                  
                  
                  $
                  104,591
  17
 
 NOTE
7 – NOTE PAYABLE TO SHAREHOLDER
  On April
30, 2007, we issued a $10,000 note payable to JDI (see Note 2). Interest is
payable quarterly at 5% per annum and no principal payments are due until
maturity on April 30, 2017. The note, which is subordinate to the revolving and
term loans from CapitalSource, is collateralized by a second security interest
in certain real property.  As described in Note 2, JDI subsequently
assigned the note to Ultimate Resort Holdings.   In connection with the
original loan from JDI, we paid fees and expenses aggregating $1,032, which were
deferred and are being amortized over the 10 year term of the note.
  NOTE
8 - MORTGAGE AND OTHER LOANS
 
 We have
11 loans that have either matured or will mature within the next twelve
months.  The current portion of these loans is $3,563 at March 31,
2010.  These loans are collateralized by various properties and bear
interest rates ranging from 6% to 15%.  The notes mature at various dates
through March 31, 2011.  For those notes that have matured, the company is
in negotiations to renew.
 
 We
currently have 13 long term loans with an outstanding balance of $10,112. 
These loans are collateralized by various properties and bear interest rates
ranging from 3.375% to 13.5%.  The notes mature at various dates ranging
from August 2011 through January 2038.
  NOTE
9 - ACCRUED LIABILITIES
 
 At March
31, 2010 and December 31, 2009, accrued liabilities consist of the
following:
 
 March 31,
                      2010
                    
                    
                    December 31,
                      2009Payroll
                    
                    $
                    383
                    
                    
                    $
                    317Interest
                    
                    
                    959
                    
                    
                    
                    841Loan
      agreement exit fee
                    
                    
                    1,650
                    
                    
                    
                    1,650Property
      taxes
                    
                    
                    628
                    
                    
                    
                    458Marketing,
      consulting, credit fees, and other expenses
                    
                    
                    1,109
                    
                    
                    
                    1,318Accrued
      distributions
                    
                    
                    963
                    
                    
                    
                    963Contingent
      consideration – Private Escapes acquisition
                    
                    
                    296
                    
                    
                    
                    542$
                    5,988
                    
                    
                    $
                    6,089
  Prior to
the reverse merger, Ultimate Resort was required to make distributions to
holders of certain of its equity units and those distributions were accrued and
charged to its capital account. The distribution requirement ceased when the
reverse merger was completed on October 29, 2009.  At that date, $963 was
outstanding for accrued but unpaid distributions. We do not expect that we will
be required to make a cash settlement of these accrued distributions in
2010.
 
 At March
31, 2010 and December 31, 2009, we re-measured the fair value of the outstanding
contingent consideration related to our acquisition of Private Escapes (see Note
2) and, for the three month period ended March 31, 2010, we recorded a gain of
$246 in Other Income in the Condensed Consolidated Statement of
Operations.  The estimated fair values of $296 and $542 were calculated by
multiplying the estimated number of shares that could be potentially earned per
the weighted average analysis (approximately 1,831,000 shares) by the Private
Escapes equity ownership in Ultimate Escapes Holdings of 8%, and by our closing
share price at March 31, 2010 and December 31, 2009 of $2.02 and $3.70,
respectively.
  The
aggregate range of contingent consideration at March 31, 2010 is as follows
(dollars in thousands):
 
 Range of Additional
                      
                      Range of
                      
                      
                      WeightedOwnership %
                      
                      Fair Values
                      
                      
                      Average ValuePerformance
      targets
                      
                      0 -
      200,000 shares
                      
                      
                      $0 - $740
                      
                      
                      $
                      296
  18
  NOTE
10 – INCOME TAXES
  The
provision for income taxes is the tax payable or refundable for the period, plus
or minus the change during the period in deferred tax assets and
liabilities.  Our deferred tax assets and liabilities are recognized
to reflect the estimated future tax effects, calculated at currently effective
tax rates, of future deductible or taxable amounts attributable to events that
have been recognized on a cumulative basis in the financial statements. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.  The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which temporary differences representing net future deductible amounts become
deductible.  If in the future we determine that it is more likely than
not that we will be able to realize our net deferred tax asset in excess of
our net recorded amount, an adjustment to increase the net deferred tax asset
would increase income in such period.  As of March 31, 2010 we have
recorded a valuation allowance to reserve 100% of our deferred tax assets. We
are required to consider and weight all available evidence, both positive and
negative, including our performance, the market environment in which we operate,
and expectations of future profits when determining whether the valuation
allowance should be changed.  Generally, greater weight is required to
be placed on objectively verifiable evidence when making this assessment, in
particular on recent historical operating results.
 
 We
evaluate each of our tax positions at the end of each period and determined that
no significant uncertainties existed as of March 31, 2010.  We file
income tax returns in the U.S. federal jurisdiction and various state
jurisdictions.  There have been no audits of our tax returns since
inception and all periods remain open to tax examination.
 
 NOTE
11 - EQUITY COMPENSATION
 
 Prior
Compensation Plan
 
 Beginning
in 2004, Ultimate Resort granted incentive rights to certain key employees to
acquire Class C equity units of Ultimate Resort, subject to minimum vesting
periods, at no cost to the employee.  The rights generally vested 100%
after four years, although for certain grants the rights vested at 25% per annum
for four years. Until the rights had vested, the employees were not entitled to
any benefit associated with the ownership of the Class C equity units. On
completion of the reverse merger transaction with SAAC described in Note 2, all
equity units that had not previously vested immediately became fully vested and
we recognized all compensation expense previously not recognized.  No
further equity units will be issued under this plan.
 
 2009
Stock Option Plan
 
 At the
special meeting of our stockholders held on October 28, 2009, the Company’s
stockholders approved the adoption of the 2009 Stock Option Plan (the “Plan”).
The purpose of the Plan is to provide an additional incentive to attract and
retain qualified personnel who provide services and upon whose efforts and
judgment the success of the company is largely dependent. In furtherance of this
purpose, the Plan authorizes the granting of incentive or nonqualified stock
options to purchase common stock to persons selected by the administrators of
the Plan from the class of all regular employees of the company, including
officers who are regular employees, directors and consultants.
 
 The Plan
provides for the issuance of a maximum of 1,200,000 shares of our common
stock in connection with the grant of options.  On October 29, 2009, we
granted to our employees a total of 8,800 options with an exercise price of
$0.01, all of which were immediately exercised. In 2009, we also granted to our
non-employee directors a total of 8,862 and 44,565 options with exercise prices
of $ 0.001 and $6.77, respectively, representing the par value of the underlying
common stock and the market price on the grant date, respectively. As of March
31, 2010, none of those options had been exercised. No options were granted
during the three months ended March 31, 2010. As of March 31, 2010, options to
purchase a total of 62,227 shares of common stock had been issued, of which
8,800 have been exercised, and 1,137,773 shares remained available for issuance.
On April 23, 2010, 874,500 options were granted to certain officers and
directors, at an exercise price of $2.00 per share, vesting one-third on each of
the first three anniversaries of the grant date and expiring after ten
years.
 
 The
status of our stock options and stock awards are summarized as
follows:
 
 Number
                      of
                      Shares
                    
                    
                    Weighted
                      Average
                      Exercise
                      PriceOutstanding
      at December 31, 2009
                    
                    
                    53,427
                    
                    
                    $
                    3.93Granted
                    
                    
                    -
                    
                    
                    $
                    -Exercised
                    
                    
                    -
                    
                    
                    $
                    -Canceled
                    
                    
                    -
                    
                    
                    $
                    -Outstanding
      at March 31, 2010
                    
                    
                    53,427
                    
                    
                    $
                    3.93Exercisable
      at March 31, 2010
                    
                    
                    13,354
                    
                    
                    $
                    3.93
  19


Stock
compensation expense recognized for the three months ended March 31, 2010 and
2009, including expense recognized under the Prior Compensation Plan described
above, was $53 and $419, respectively.





NOTE
12 – CAPITAL STOCK





General





Our
authorized capital stock consists of 300,000,000 shares of common stock, $0.0001
par value, and 20,000,000 shares of preferred stock, $0.0001 par
value.





Units





Each unit
issued in SAAC’s initial public offering consisted of one share of common stock
and one warrant. Each warrant entitles the holder to purchase one share of
common stock. The units began trading on the NYSE Amex on October 23, 2007, and
ceased trading on October 30, 2009.  Our common stock and warrants
comprising the units began separate trading on January 18, 2008. Our common
stock and warrants now trade on the OTC Bulletin Board under the symbols ULEI
and ULEI.WT, respectively. Prior to October 23, 2007 and January 18, 2008, there
was no established public trading market for our units or for our common stock
and warrants, respectively.





Common
Stock





Holders
of common stock are entitled to one vote per share on matters submitted to a
vote of stockholders. Holders of common stock do not have cumulative voting
rights. Holders of common stock are entitled to receive dividends as may be
declared from time to time by our board of directors out of funds legally
available for the payment of dividends, subject to the preferences that apply to
any outstanding preferred stock. Upon our liquidation, dissolution or winding
up, the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and after giving effect to the
liquidation preference of any outstanding preferred stock. The common stock has
no preemptive or conversion rights and no additional subscription rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable. We have
not paid any dividends to date on our common stock.





As of
March 31, 2010, there were 2,517,793 shares of common stock outstanding.
Subsequent to March 31, 2010, 241,301 shares were issued to club members under
the Redemption Assurance Exchange Program, described below and in Note 1. In
addition, 47,348 shares will be issued for consulting services.





Preferred
Stock





The
Company was initially authorized to issue 1,000,000 shares of preferred stock
with such designations, voting and other rights and preferences as may be
determined from time to time by the board of directors. Under the Company’s
Second Amended and Restated Certificate of Incorporation, as filed with the
Secretary of State of the State of Delaware on October 29, 2009, the Company is
authorized to issue 20,000,000 shares of preferred stock with such designations,
voting and other rights and preferences as may be determined from time to time
by the board of directors.





On October 29, 2009 the
Company filed with the Secretary of State of Delaware a Certificate of
Designation of Series A Preferred Stock (the ‘‘Certificate of Designation’’)
designating 14,556,675 shares of its authorized preferred stock as Series A
Preferred Voting Stock (the ‘‘Series A Preferred Voting Stock’’). The
Certificate of Designation was approved by the Company’s board of directors. The
Series A Preferred Voting Stock is entitled to one vote per share and to vote as
a single class with the common stock on all matters. In addition, the holders of
Series A Preferred Voting Stock have a separate right to vote as a single class
on (a) amendments to the Second Amended and Restated Certificate of
Incorporation that effect a division or combination of the Company’s common
stock unless such amendment proportionately divides or combines the Series A
Preferred Voting Stock, (b) the declaration of any dividend or distribution on
the Company’s common stock (other than in connection with a dissolution and
liquidation) on shares of the Company’s common stock unless a proportionate
dividend or distribution is declared on the Series A Preferred Voting Stock and
(c) a division or subdivision of the Series A Preferred Voting Stock into a
greater number of shares of Series A Preferred Voting Stock or a combination or
consolidation of the Series A Preferred Voting Stock.





20


The
Series A Preferred Voting Stock is not entitled to receive any liquidation
preference. In the event of the Company’s liquidation, the holders of the Series
A Preferred Voting Stock are only entitled to receive $0.001 per share, plus any
accrued but unpaid dividends thereon, if any, pari passu with the holders of
shares of the Company’s common stock, and nothing more. The shares of Series A
Preferred Voting Stock are subject to transfer restrictions intended to cause
such shares to be transferred only together with exchangeable units of Ultimate
Escapes Holdings. The holders of Series A Preferred Voting Stock have no
conversion, preemptive or other subscription rights and there are no sinking
fund provisions applicable to the Series A Preferred Voting Stock.





For each
ownership unit of Ultimate Escapes Holdings issued to the UE Owners in
connection with the consummation of the reverse merger on October 29, 2009, the
UE Owners received one share of Series A Voting Preferred Stock (all of which
shares of Series A Voting Preferred Stock were issued in the name of Mr.
Tousignant, as Owner Representative). At any time that any UE Owner exchanges
ownership units of Ultimate Escapes for shares of the Company’s common stock, a
like number of shares of Series A Voting Preferred Stock will be
canceled.





Common
Stock Warrants





As of
March 31, 2010, there were warrants to purchase a total of 12,075,000 shares of
our common stock outstanding.





Public
Stockholder Warrants





On
October 29, 2007, as part of its initial public offering of units, SAAC sold
10,000,000 warrants to purchase one share of common stock at an exercise price
of $5.25, exercisable commencing on the later of the completion of a business
combination or 12 months from the date of the offering and expiring four years
from the date of the offering. The Company could redeem the warrants, at a price
of $.01 per warrant, upon 30 days’ notice, in the event that the last sale price
of the common stock was at least $11.50 per share for any 20 trading days within
a 30 trading day period ending on the third day prior to the date on which
notice of redemption is given.





At the
special meeting of warrant holders held on October 28, 2009 in connection with
the reverse merger, a majority of the warrant holders approved amendments to the
warrants that increased the exercise price to $8.80 per share, increased the
last reported sale price of the common stock at which the Company may require
redemption of the warrants to $15.05 per share, and extended the expiration date
of the warrants to four years from the closing date of the reverse merger. These
warrant amendments became effective upon the closing of the reverse merger on
October 29, 2009.




The
Company is only required to use its best efforts to maintain the effectiveness
of the registration statement covering the warrants. The Company will not be
obligated to deliver securities, and there are no contractual penalties for
failure to deliver securities, if a registration statement is not effective at
the time of exercise of the warrants. Additionally, in the event that a
registration statement is not effective at the time of exercise, the holder of
such warrant is not entitled to exercise such warrant and in no event (whether
in the case of a registration statement not being effective or otherwise) will
the Company be required to net cash settle the warrant exercise. Consequently,
the warrants may expire unexercised and unredeemed.  The exercise price and
number of shares of common stock issuable on exercise of the warrants may be
adjusted in certain circumstances including in the event of a stock dividend, or
our recapitalization, reorganization, merger or consolidation. However, the
warrants will not be adjusted for issuances of common stock at a price below
their exercise price.





Founder
Warrants





Secure
America Acquisition Holdings, LLC, the principal initial stockholder of SAAC
("SAAH"), purchased a total of 2,075,000 warrants (‘‘Founder Warrants’’) at
$1.00 per Warrant (for an aggregate purchase price of $2,075,000) privately from
SAAC. This purchase took place simultaneously with the consummation of the
Company’s initial public offering of units. The Founder Warrants are identical
to the warrants sold in the Offering, except that (i) the Founder Warrants are
not subject to redemption, (ii) the Founder Warrants may be exercised on a
cashless basis while the warrants included in the units sold in the offering
cannot be exercised on a cashless basis, (iii) upon an exercise of the Founder
Warrants, the holders of the Founder Warrants may receive unregistered shares of
our common stock, and (iv) subject to certain limited exceptions, the Founder
Warrants were not transferable until they were released from escrow, as
described below, which would only be after the consummation of the reverse
merger.





Exercising
warrants on a ‘‘cashless basis’’ means that, in lieu of paying the aggregate
exercise price for the shares of common stock being purchased upon exercise of
the warrant in cash, the holder forfeits a number of shares issuable upon
exercise of the warrant with a market value equal to such aggregate exercise
price. Accordingly, the Company will not receive additional proceeds to the
extent the Founder Warrants are exercised on a cashless basis.  Warrants
included in the units sold in the offering are not exercisable on a cashless
basis and the exercise price with respect to these warrants will be paid
directly to the Company.





21


SAAH and
its permitted transferees are entitled to registration rights with respect to
the Founder Warrants and the shares of common stock issuable upon exercise of
the Founder Warrants pursuant to the terms of an agreement dated October 23,
2007, which rights are described below.





Registration
Rights





The
holders of 314,705 issued and outstanding founder common shares, the Founder
Warrants, and the shares of common stock issuable upon exercise of the Founder
Warrants are entitled to registration rights pursuant to a Registration Rights
Agreement, dated as of October 23, 2007. The holders of these securities are
entitled to make up to two demands at any time after the date on which their
shares or warrants, as applicable, are released from escrow, which is one year
after the consummation of the reverse merger and 60 days after the consummation
of the reverse merger, respectively, that we register the initial shares, the
Founder Warrants and the shares of common stock issuable upon exercise of such
Founder Warrants and also have ‘‘piggy-back’’ registration rights to participate
in other registrations filed subsequent to such date. We will bear the expenses
incurred in connection with any such registration statements other than
underwriting discounts or commissions for securities not sold by us.  The
Registration Rights Agreement requires us to effect registration on a
best-efforts basis and does not provide for any explicit penalties in the event
we are not able to effect registration on a timely basis.





In
connection with the reverse merger, on October 29, 2009, we entered into a
Registration Rights Agreement with the UE Owners, pursuant to which the UE
Owners are entitled to registration rights, subject to certain limitations, with
respect to shares of our common stock for which their ownership units of
Ultimate Escapes Holdings may be exchanged. We agreed to file as soon as
possible after the closing date of the reverse merger but in no event later than
June 29, 2010, a registration statement covering the shares of our common stock
for which their ownership units of Ultimate Escapes Holdings may be exchanged.
In addition, the UE Owners have certain ‘‘piggyback’’ registration rights on
registration statements filed by us.




None of
our Registration Rights Agreements provide for registration delay payments in
the event that we do not file the required registration statement by the
prescribed date.





Redemption
Assurance Exchange Program





In
connection with the reverse merger, Ultimate Escapes Holdings offered to its
club members who met certain eligibility requirements an opportunity to elect to
convert all or a portion of their redemption value under the Redemption
Assurance Program (see Note 1) into shares of our common stock, to be issued
following the consummation of the reverse merger. A club member’s redemption
value under the redemption assurance program is a guaranteed amount of the
member’s initial membership fees that we are obligated to refund in accordance
with specified procedures if the member resigns from the club within a defined
period.





Eligible
club members who elected to participate in the Redemption Assurance Exchange
Program were entitled, following the consummation of the reverse merger, to
convert up to the full amount of their redemption value into that number of
shares of our common stock determined by dividing the redemption value which
they elected to convert by $7.94. All shares of common stock issued pursuant to
this program are restricted securities, and are subject to a lock-up agreement,
whereby 25% of the shares issued to each club member will be released from the
lock-up every six months following the consummation of the reverse merger. We
agreed to use commercially reasonable efforts to cause a resale registration
statement to be filed following the consummation of the reverse merger, covering
50% of the total number of shares of common stock issued pursuant to the
program, otherwise such shares will only be eligible to be resold one year after
the consummation of the reverse merger in accordance with rules applicable to
“shell” companies.





Only
accredited investors were eligible to participate in the Redemption Assurance
Exchange Program, and the issuance of the shares of common stock pursuant to the
program was intended to be exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act and
Rule 506 of Regulation D promulgated under such Act. In addition, in order to
participate, a club member must have owned shares of our common stock on October
25, 2009, and must have continued to hold such shares for at least 30 days after
the closing of the reverse merger. The maximum amount of a club member’s
redemption value which a club member could elect to convert into shares of our
common stock pursuant to the program was the dollar amount (at $7.94 per share)
of all shares of our common stock the club member owned on October 25,
2009.




On
January 5, 2010, we issued an aggregate of 887,505 shares of our common stock
($7,047) to certain of those club members who had elected to convert all or
portion of their redemption value under the Redemption Assurance Exchange
Program into shares of common stock and in April 2010 we issued an additional
241,301 shares of our common stock ($1,916) to the remaining club members who
participated in the Program.  The fair value of the shares issued of
$8,963 exceeded the redemption value converted of $8,249 and as of December 31,
2009 we recognized an inducement expense of $714.





22


Voting
Agreement





Also in
connection with the reverse merger, on October 29, 2009, the SAAC founders,
Ultimate Resort Holdings and Ultimate Escapes Holdings entered into a voting
agreement, pursuant to which, until October 28, 2012, our board of directors is
set at six directors, and the SAAC founders or their respective affiliates have
the right to nominate two individuals for appointment to our board of directors
following the reverse merger and Ultimate Resort Holdings or its affiliates have
the right to nominate four individuals for appointment to our board of directors
following the reverse merger. Both of the nominees of the SAAC founders and two
of the nominees of Ultimate Resort Holdings must be independent pursuant to the
Securities and Exchange Commission and the NYSE Amex rules and regulations. The
SAAC founders caused their nominees to be appointed to the board of directors
immediately prior to the reverse merger, and Ultimate Resort Holdings caused
three out of its four nominees to be appointed to the board of directors
immediately prior to the reverse merger. There is one vacancy on the board of
directors, which will be filled at a later date.





Secure
America Acquisition Holdings Voting Agreement





On
November 11, 2009, Ultimate Escapes Holdings, Ultimate Resort
Holdings, SAAH and certain direct or indirect owners of SAAH, including C.
Thomas McMillen, entered into a voting agreement pursuant to which, among other
things, SAAH granted to Ultimate Resort Holdings a proxy to vote the shares of
our common stock owned by SAAH or its direct or indirect owners until November
11, 2010. Also pursuant to this voting agreement, we agreed to repay certain
advances previously made by certain members of SAAH to us, in the aggregate
amount of $225 plus interest at the rate of 6% through payment in full on
January 31, 2010. We also agreed to provide to SAAH, for the benefit of certain
SAAH members (including Mr. McMillen) use of an Elite Club platinum
membership for a period of three years.




NOTE
13 - COMMITMENTS AND CONTINGENCIES




Leases –
At March 31, 2010 and December 31, 2009, we leased 37 and 25 club properties,
respectively, as well as certain office space under various operating
leases.  The leases are non-cancelable and expire on various dates through
December 2010.  Some of the leases have various renewal and fair
market value purchase options and one of the leases is with an entity controlled
by a related party.  This lease has a five year term and expires in
October 2010.  Total rent expense for the properties we lease for the
three months ended March 31, 2010 and 2009 was approximately $3,503 and $3,593,
respectively, of which approximately $244 and  $170, respectively, was
paid to the entity controlled by the related party.





Employment
Agreements – We are obligated under employment agreements with our Chief
Executive Officer, James M. Tousignant, our Chairman Richard Keith, and our
Chief Financial Officer, Philip Callaghan.




The
employment agreement for Mr. Tousignant has an initial term of three years, from
October 29, 2009. The agreement is subject to automatic renewals for 12 month
periods upon the expiration of the initial term, unless otherwise terminated in
writing by either party 90 days before the end of the current term. The
employment agreement provides to Mr. Tousignant an initial annual salary of
$450, which is subject to periodic adjustments of no less than 10% annually. Mr.
Tousignant also receives a performance-based bonus as additional cash
compensation. In addition, Mr. Tousignant is entitled to participate in all
employee benefit plans including medical and other benefits and 20 days annual
vacation. If we terminate Mr. Tousignant without cause, we will be required
to pay severance to Mr. Tousignant in an amount equal to twelve months
compensation and the prorated amount of bonuses Mr. Tousignant would have
otherwise earned during the current fiscal year. The employment agreement also
entitles Mr. Tousignant to certain equity incentives, in an amount yet to be
determined by the Compensation Committee but which will vest ratably in three
equal annual installments commencing on the first anniversary of the initial
grant date(s) thereof, and may be further accelerated or forfeited as set forth
in the equity agreement that the parties will enter into in connection with the
employment agreement. Such equity incentives have not yet been
determined.





Mr. Keith
has an agreement which has an initial term of one year, from October 29, 2009.
The agreement is subject to automatic renewals for 12 month periods upon the
expiration of the initial term, unless otherwise terminated in writing by either
party 90 days before the end of the current term. The employment agreement
provides to Mr. Keith an initial annual salary of $375. Mr. Keith may also
receive a performance-based bonus as additional cash compensation. In addition,
Mr. Keith is entitled to participate in all employee benefit plans including
medical and other benefits and 20 days annual vacation. If we terminate Mr.
Keith without cause, we will be required to pay severance to Mr. Keith in an
amount equal to six months compensation and the prorated amount of bonuses Mr.
Keith would have otherwise earned during the current fiscal year.





Mr.
Callaghan has an agreement which has an initial term of one year, from October
29, 2009. The agreement is subject to automatic renewals for 12 month periods
upon the expiration of the initial term, unless otherwise terminated in writing
by either party 90 days before the end of the current term. The employment
agreement provides to Mr. Callaghan an initial annual salary of $375. Mr.
Callaghan may also receive a performance-based bonus as additional cash
compensation. In addition, Mr. Callaghan is entitled to participate in all
employee benefit plans including medical and other benefits and 20 days annual
vacation. If we terminate Mr. Callaghan without cause, we will be required
to pay severance to Mr. Callaghan in an amount equal to six months compensation
and the prorated amount of bonuses Mr. Callaghan would have otherwise earned
during the current fiscal year.





23


Hotel Rooms and
Marketing Agreement – On July 9, 2007, we entered into an agreement with
an entity under which we were required to pay a one-time non-refundable joining
fee of $50.  The agreement also requires us to pay an annual sales and
marketing fee of $60 and the pre-purchase of a number of hotel rooms and suites
at various luxury hotels worldwide for a specified nightly fee.  The
agreement terminates on December 31, 2010; however, it will automatically be
extended for one year increments unless either party gives written notice of
termination.  We can terminate the agreement at any time without cause
by paying an early termination fee of $75.





Reciprocity
Program and Membership Sales Agreement – In May 2008, we entered into a
five year Reciprocity Program and Membership Sales Marketing Agreement with a
developer and seller of luxury fractional and whole-ownership real properties in
Cabo San Lucas, Mexico.  This agreement provides revenue to us through
an annual program fee paid for each participating fractional or whole-ownership
affiliate club member, as well as a per customer transaction
fee.





During
October 2008, we entered into a similar agreement with another developer of
fractional properties in St. John and St. Barth in the
Caribbean.  During 2008, we received one third of the program fee of
$100 which is being amortized over the term of the agreement.





Litigation
– We are involved in claims and litigation in the ordinary course of
business.  In our opinion, such claims and litigation will not have a
material effect upon our financial position or results of
operations.





Earn-Out
Units - As
described in Note 2, the UE Owners may receive up to an additional 7,000,000
earn-out ownership units if Ultimate Escapes Holdings meets certain Adjusted
EBITDA targets in each of the years ending December 31, 2010, 2011 and
2012.





NOTE
14 - SEGMENT AND GEOGRAPHICAL INFORMATION




We
operate in a single business segment.  Less than 5% of our revenue is
derived from club members who reside outside the United
States.  Geographic information related to the net book value of our
property and equipment at March 31, 2010 and December 31, 2009 is as follows:




March 31,
                        2010
                      
                      
                      December 31,
                        2009United
      States
                      
                      $
                      76,584
                      
                      
                      $
                      80,164Bahamas
                      
                      
                      8,158
                      
                      
                      
                      9,024Mexico
                      
                      
                      30,772
                      
                      
                      
                      30,977Nevis
                      
                      
                      19,174
                      
                      
                      
                      19,269St.
      Thomas (USVI)
                      
                      
                      1,348
                      
                      
                      
                      1,359Tortola
      (BVI)
                      
                      
                      649
                      
                      
                      
                      683Dominican
      Republic
                      
                      
                      2,477
                      
                      
                      
                      2,494Turks
      & Caicos
                      
                      
                      3,670
                      
                      
                      
                      3,694Belize
                      
                      
                      693
                      
                      
                      
                      697Italy
                      
                      
                      3,011
                      
                      
                      
                      3,036Costa
      Rica
                      
                      
                      14
                      
                      
                      
                      -Total
      net book value
                      
                      $
                      146,550
                      
                      
                      $
                      151,397





24





ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS




Certain
statements made in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”).  We intend the forward-looking
statements to be covered by the safe harbor for forward-looking statements in
such sections of the Securities Act and the Exchange Act.Forward-looking statements include statements preceded by, followed by or
that include the words “may,” “could,” “would,” “should,” “believe,” “expect,”
“anticipate,” “plan,” “estimate,” “target,” “project,” “potential,” “intend” or
similar expressions. These statements include, among others, statements
regarding our expected business outlook, anticipated financial and operating
results, business strategy and means to implement the strategy, the amount and
timing of capital expenditures, the likelihood of our success in building our
business, financing plans, budgets, working capital needs and sources of
liquidity.  We believe it is important to communicate our expectations
to our stockholders. However, there may be events in the future that we are not
able to predict accurately or over which we have no control.




Forward-looking
statements, estimates and projections are based on management’s beliefs and
assumptions, are not guarantees of performance and may prove to be inaccurate.
Forward-looking statements also involve risks and uncertainties that could cause
actual results to differ materially from those contained in any forward-looking
statement and which may have a material adverse effect on our business,
financial condition, results of operations and liquidity. A number of important
factors could cause actual results or events to differ materially from those
indicated by forward-looking statements. These risks and uncertainties include,
but are not limited to, those factors listed in our Annual Report on
Form 10-K for the year ended December 31, 2009 under “Risk Factors.”




You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Report. Forward-looking statements involve
known and unknown risks and uncertainties that may cause our actual future
results to differ materially from those projected or contemplated in the
forward-looking statements.




All
forward-looking statements included herein attributable to us or any person
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. Except to the extent
required by applicable laws and regulations, we undertake no obligation to
update these forward-looking statements to reflect events or circumstances after
the date of this report or to reflect the occurrence of unanticipated events.




The
following discussion should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes thereto included elsewhere in
this Quarterly Report.




Overview




We are a
luxury destination club that sells club memberships offering members reservation
rights to use our vacation properties, subject to the rules of the club member’s
Club Membership Agreement. Our properties are located in various resort
locations throughout the world.




On
September 15, 2009, we consummated the acquisition of certain of the assets,
liabilities, properties and rights thereto of Private Escapes, in exchange for
ownership units in our subsidiary Ultimate Escapes Holdings. The operating
results of Private Escapes are included in our condensed consolidated financial
statements from September 16, 2009. On October 29, 2009, we consummated the
reverse merger with Ultimate Escapes Holdings.




The
following discussion of financial condition and results of operations does not
include the operating results of Secure America Acquisition Corporation (as we
were named prior to the consummation of the reverse merger) prior to October 30,
2009.




We had
1,229 members, 1,214 members and 826 members as of March 31, 2010, December 31,
2009, and December 31, 2008, respectively.




Critical
Accounting Policies




Our
financial statements and the notes to our financial statements contain
information that is pertinent to management’s discussion and analysis. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities. Management bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. On a continual basis, management
reviews its estimates utilizing currently available information, changes in
facts and circumstances, historical experience and reasonable assumptions. After
such reviews, and if deemed appropriate, those estimates are adjusted
accordingly. Actual results may vary from these estimates and assumptions under
different and/or future circumstances. Management considers an accounting
estimate to be critical if:




25




•
            it requires assumptions to be
      made that were uncertain at the time the estimate was made;
      and





•
            changes in the estimate, or the
      use of different estimating methods that could have been selected, could
      have a material impact on our results of operations or financial
      condition.




The
following critical accounting policies have been identified that affect the more
significant judgments and estimates used in the preparation of our financial
statements. We believe that the following are some of the more critical judgment
areas in the application of our accounting policies that affect our financial
condition and results of operations. The following critical accounting policies
are not intended to be a comprehensive list of all of our accounting policies or
estimates.




Use of
Estimates - The preparation of condensed consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires us to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements. The reported amounts of revenues and expenses during the
reporting period may be affected by the estimates and assumptions we are
required to make. Estimates that are critical to our accompanying condensed
consolidated financial statements arise from our belief that (1) we will be able
to raise and/or generate sufficient cash to continue as a going concern, (2) our
estimates of the expected lives of the club memberships from which we derive our
revenues and on which we base our revenue recognition are reasonable, (3) all
long-lived assets are recoverable, and (4) our estimates of the cost of our
stock-based compensation plans are reasonable. Estimates and assumptions are
reviewed periodically and the effects of revisions are reflected in the period
that they are determined to be necessary. It is at least reasonably possible
that our estimates could change in the near term with respect to these
matters.




Revenue
Recognition - We derive our revenue from the club memberships we sell,
which allow the club members to use the club properties owned or leased by us.
Different levels of club membership provide access to different properties
and/or increased usage of the properties. Club members pay a one-time club
membership fee (which includes a non-refundable initiation fee), together with
annual dues. Club members sometimes pay additional fees or charges related to
their use of specific properties or club services. Club members may upgrade
their level of membership at any time by paying additional upgrade fees and
annual dues. The terms of each club membership is set out in a Club Membership
Agreement.




Club
members who resign may receive a partial redemption of their membership fee. We
provide assistance to club members who resign by using commercially reasonable
efforts to resell a resigned club members’ membership, and upon such resale, the
resigning club member generally receives 80% of the proceeds of sale and we
retain the remainder as a transfer fee. In the event we are unable to resell a
resigning club members’ membership after an agreed period of time, we have
certain arrangements with such club members to provide a partial redemption of
their membership fee (excluding the initiation fee), based on a sliding scale
that declines to zero over a 10 year period.




We
amortize the non-refundable initiation fee over the expected life of the club
membership, currently estimated as 10 years. The remaining portion of the club
membership fee, which is included in membership deposits-redemption assurance
program in our condensed consolidated balance sheet, is amortized over a 10 year
period using the straight line method. Management believes that, based on their
knowledge of the industry and our competitors, our own extrapolated experience,
and practices in similar membership organizations, that period reasonably
reflects the expected life of the club memberships, and is consistent with any
obligation we may have to provide a partial refund of the membership fee.
Members who joined under a previous plan (no longer offered) may receive a
refund of their membership fee (excluding the non-refundable initiation fee),
subject to the redemption procedures identified in their Club Membership
Agreements. These fees, which are included in membership deposits - other
programs in our condensed consolidated balance sheet, are subject to refund
should the member resign and are not recognized in income.




Annual
club membership dues are billed in advance. Payment of these annual dues permits
the club member to continue to make reservations and use the club properties
during their membership year and the annual dues are recognized in income on a
straight-line basis over the 12 month period to which they relate. Revenue from
ancillary charges and other services provided by us to club members when using
club properties is recognized at the time of sale.




Impairment of
Long-Lived Assets and Goodwill - We analyze our long-lived assets,
including property and equipment and intangible assets, in accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 360 “ Property, Plant
and Equipment ” annually and when events and circumstances might indicate
that the assets may not be recoverable. If the undiscounted net cash flows are
less than the assets’ carrying amounts, we record an impairment based on the
excess of the assets’ carrying value over fair value. Fair value is determined
based on discounted cash flow models, quoted market values and third-party
appraisals. We evaluate our real estate assets on a combined basis, as future
cash flows include club membership sales and dues that are not identifiable to
individual properties. Estimates of future cash flows are based on internal
projections over the expected useful lives of the assets and include cash flows
associated with future maintenance and replacement costs, but exclude cash flows
associated with future capital expenditures that would increase the assets’
useful lives. Our management currently believes there is no impairment beyond
that already recognized for those assets held for sale at March 31,
2010.




26


Goodwill
consists of the excess of the purchase price paid for Private Escapes over the
fair value of the identifiable assets and liabilities acquired. Goodwill is not
amortized, but is tested for impairment, at least annually, by applying the
recognition and measurement provisions of FASB ASC 350-20 “Goodwill”, which compares the
carrying amount of the asset with its fair value. If impairment of carrying
value based on the estimated fair value exists, we measure the impairment
through the use of projected discounted cash flows.  We operate as a
single operating segment. We have not identified any components within our
single operating segment and thus have a single reporting unit for purposes of
our goodwill impairment test.




Stock-based
Compensation - As
described in our financial statements in “Note 11 — Equity
Compensation”, we previously had a stock-based compensation plan
utilizing equity units of our former parent company, Ultimate Resort, LLC.  That plan was
discontinued on completion of the reverse merger on October 29, 2009, and as of
that date we adopted the 2009 Stock Option Plan, which provides for the issuance
of options to acquire up to 1,200,000 shares of our common stock.




We
recognize compensation expense in an amount equal to the grant-date fair value
of the equity units or, following adoption of the 2009 Stock Option Plan, the
grant-date fair value of the common stock options. The estimated fair value of
these equity units and options, as of the date of grant, is recorded as
compensation cost over the vesting period.





Recent Accounting
Pronouncements




Accounting
Standards Codification Updates that have been issued, or became effective, since
the beginning of the current period covered by this discussion are summarized in
Note 1 of the condensed consolidated financial statements included in this
Report. To the extent appropriate, the guidance in these Accounting Standards
Codification Updates is already reflected in our condensed consolidated
financial statements.  Adoption of the Updates that have become
effective did not have a material effect on our condensed consolidated financial
statements and management does not anticipate that adoption of the Updates that
are not yet effective will have any future effect on our condensed consolidated
financial statements.




27




Results of Operations





The
following table sets forth our historical condensed consolidated income
statement data (in thousands of dollars):




For the Three Months EndedMarch 31,2010
                  
                  
                  2009
                  
                  
                  %
                    ChangeREVENUESMembership
      – membership fees
                  
                  $
                  1,329
                  
                  
                  $
                  801
                  
                  
                  
                  66
                  %Membership
      – annual dues
                  
                  
                  4,487
                  
                  
                  
                  3,819
                  
                  
                  
                  17
                  %Membership
      – upgrade fees
                  
                  
                  -
                  
                  
                  
                  50
                  
                  
                  
                  *Membership
      – assessment fees
                  
                  
                  -
                  
                  
                  
                  3,036
                  
                  
                  
                  *Other
      revenue
                  
                  
                  1,499
                  
                  
                  
                  922
                  
                  
                  
                  63
                  %REVENUES
                  
                  
                  7,315
                  
                  
                  
                  8,628
                  
                  
                  
                  15
                  %OPERATING
      EXPENSES:Property
      operating costs
                  
                  
                  3,242
                  
                  
                  
                  2,682
                  
                  
                  
                  21
                  %Depreciation
      and amortization
                  
                  
                  1,976
                  
                  
                  
                  1,038
                  
                  
                  
                  90
                  %Lease
      costs
                  
                  
                  1,423
                  
                  
                  
                  887
                  
                  
                  
                  60
                  %Advertising
                  
                  
                  184
                  
                  
                  
                  151
                  
                  
                  
                  22
                  %Salaries
      and contract labor
                  
                  
                  2,015
                  
                  
                  
                  1,725
                  
                  
                  
                  17
                  %General
      and administrative
                  
                  
                  1,369
                  
                  
                  
                  725
                  
                  
                  
                  89
                  %Sales
      commissions
                  
                  
                  210
                  
                  
                  
                  114
                  
                  
                  
                  84
                  %Loss
      on sale of property and equipment
                  
                  
                  321
                  
                  
                  
                  -
                  
                  
                  
                  *Loss
      on impairment of assets held for sale
                  
                  
                  289
                  
                  
                  
                  258
                  
                  
                  
                  12
                  %OPERATING
      EXPENSES
                  
                  
                  11,029
                  
                  
                  
                  7,580
                  
                  
                  
                  46
                  %INCOME
      (LOSS) FROM OPERATIONS
                  
                  
                  (3,714
                  )
                  
                  
                  1,048
                  
                  
                  
                  -453
                  %OTHER
      INCOME (EXPENSE):Interest
      expense
                  
                  
                  (3,004
                  )
                  
                  
                  (2,293
                  )
                  
                  
                  31
                  %Interest
      income
                  
                  
                  20
                  
                  
                  
                  22
                  
                  
                  
                  -9
                  %Change
      in contingent acquisition consideration
                  
                  
                  246
                  
                  
                  
                  -
                  
                  
                  
                  *OTHER
      INCOME (EXPENSE) – Net
                  
                  
                  (2,738
                  )
                  
                  
                  (2,271
                  )
                  
                  
                  21
                  %INCOME
      BEFORE INCOME TAXES
                  
                  
                  (6,452
                  )
                  
                  
                  (1,223
                  )
                  
                  
                  -428
                  %BENEFIT
      (PROVISION) FOR INCOME TAXES
                  
                  
                  (20
                  )
                  
                  
                  (1
                  )
                  
                  
                  *NET
      INCOME (LOSS)
                  
                  $
                  (6,472
                  )
                  
                  $
                  (1,224
                  )
                  
                  
                  -429
                  %





*  %
change not meaningful


28




Three
Months Ended March 31, 2010 compared with the Three Months Ended March 31, 2009
(in thousands)




Revenues




Revenues
of $7,315 decreased by $1,313, or 15%, during the quarter ended March 31, 2010,
from $8,628 during the same period in 2009. Revenues in 2009 included a $3,036
assessment fee charged to members in 2009 that was not charged in
2010.  Membership annual dues were $4,487 in 2010, representing an
increase of $668, or 17% from annual dues of $3,819 in 2009.  Membership
fees of $1,329 in 2010 increased by $528 or 66% compared with $801 for the same
period in 2009.  Both annual dues and membership fees increased because of
the larger membership base resulting from the September 2009 acquisition of
Private Escapes.  Other revenue was $1,499 in 2010, representing a net
increase of $577, or 63% compared with $922 in 2009.  In February 2008, we
acquired six properties from an unrelated luxury destination club for
approximately $15,100.  The purchase price was financed by borrowings under
our CapitalSource loan agreement and the issuance of nine corporate memberships
valued at $2,700.  In 2010, the holders of those memberships have now
elected not to continue to pay annual dues for three of the memberships and, as
a result, their redemption rights related to those memberships were surrendered,
resulting in a reduction in our membership liability of $900. This increase in
other revenue was partially offset by a decrease of $263 relating to nightly
fees charged to Private Escapes members as compared with the cross reservation
program fees charged in 2009 for allowing their members to stay at our
properties.  This cross-reservation program ended effective September
15, 2009, when we acquired Private Escapes.




Operating
Expenses




Operating expenses were $11,029 in
2010, representing an increase of $3,449, or 46%, from operating costs of $7,580
in 2009.  Property operating costs increased $560 in 2010 from 2009
primarily due to the increase in the number of properties due to the acquisition
of Private Escapes less the $397 of cross reservation program fees in 2009
charged by Private Escapes for allowing our members to stay at their properties
prior to the September 15, 2009 acquisition of certain of their assets and
liabilities.  Depreciation and amortization increased by
$938 to $1,976 in 2010, from $1,038 in 2009 reflecting the acquisition of
Private Escape properties in September 2009 and amortization of $803 related to
the intangible assets acquired.   Lease costs increased $536 to $1,423
in 2010 from $887 in 2009 due partially to the 23% increase in the number of
leases from the acquisition of Private Escapes but also due the implementation
in 2010 of winter seasonal leases that will increase our costs in the first
quarter but reduce costs during the balance of the year. Salary costs
increased by $290 in 2010 compared with 2009, primarily as a result of the
Private Escapes acquisition.  General and administrative costs
increased in 2009 compared with 2008 by $644 due primarily to legal, accounting,
consulting, and investor related fee increases of $604 over
2009.  Sales commissions increased $96 in 2010 compared with 2009 as a
result of a membership dues rebalancing program implemented in March
2010.  In
2010, we incurred a net loss of $321 on the sale of certain
properties and recognized an impairment loss of $289 related to certain
properties held for sale, compared with an impairment charge of $258 for certain
properties in 2009.  Impairment charges are determined by comparing
the carrying value of the assets held for sale with the expected net proceeds of
sale.




Income
(Loss) Before Other Income (Expense)




As a
result of the above, our loss before other income (expense) was $(3,714) in the
first quarter of 2010 compared with income of $1,048 for the same period in
2009, a decrease of $(4,762) or 453%. This change was due primarily to the
assessment revenue program in 2009 not repeated in 2010, and increased operating
costs resulting from the acquisition of Private Escapes, including amortization
of intangible assets acquired.




Other
Income (Expense)




Interest
expense increased by $711 for 2010, from $2,293 in 2009, due to the additional
debt acquired in the September 2009 purchase of Private
Escapes.  Interest income decreased by $2 to $20 in 2010 from $22 in
2009.




As of
March 31, 2010, we recognized a gain of $246 related to the outstanding
contingent consideration for our September 15, 2009 acquisition of the business
of Private Escapes, as a result of a decrease since December 31, 2009 in the
fair value of our common stock, in which the consideration is
payable.




Liquidity
and Capital Resources (in thousands)




Historically,
our primary sources of cash have been cash flows from equity capital, club
membership fees, annual dues, bank borrowings and term loans. Cash has been used
for real estate purchase transactions, repayment of long term debt, purchases of
equipment and working capital to support our growth. In 2009, a one time
assessment fee was levied on our membership base. Membership fees and upgrade
fees are subject to the health of the economy and are less predictable. We do
not intend to levy an assessment fee in 2010 unless the majority of members vote
in favor of any proposed assessment. We intend to seek to raise more equity in
2010. We also plan to sell excess properties in our portfolio, the proceeds of
which will primarily be used to repay debt. We have plans to spread out the
collection of annual dues more evenly throughout the year.




29


Cash and
cash equivalents, consisting primarily of deposits with financial institutions
and credit card holdbacks, but excluding $2,890 of restricted cash, was $1,846
at March 31, 2010, compared with $2,747 at December 31, 2009, a decrease of
$901.




We
anticipate being able to meet our projected internal growth and operating needs,
including capital expenditures, and expect to meet the cash requirements of our
contractual obligations for at least the next 12 months if we are successful in
executing our plans to increase our capital resources.




We
incurred net losses of $12,965 and $23,222 during the years ended December 31,
2009 and 2008, respectively and a loss of $6,472 for the quarter ended March 31,
2010.  As of March 31, 2010, our current liabilities, excluding
$14,020 of deferred annual membership dues that we expect to recognize in income
over the next twelve months, were $28,238, which exceeded our current assets of
$4,996, excluding restricted cash of $2,890, by $23,242. Although we have
completed the acquisition of certain assets and liabilities of Private Escapes,
refinanced our credit facility with CapitalSource and completed the reverse
merger, we may not be able to meet certain covenants under the CapitalSource
credit facility in the future. We have also experienced a decrease in new
membership sales and existing member upgrades over the last twenty-one
months.




The above
factors, among others, indicate that we may encounter a liquidity event in the
future, which may cause us to be in default of our loan covenants. We are taking
steps to increase cash flow in order to cover 2010 operational expenses,
including, without limitation, the sale of selected club properties, and closely
monitoring and reducing operating expenses wherever possible.




Total
current and long-term debt outstanding at March 31, 2010 was $120,118
compared with $123,279 outstanding at December 31, 2009, as described in Notes
6, 7 and 8 of our condensed consolidated financial statements included in this
Report. The debt outstanding at March 31, 2010 is primarily the amount
outstanding under our CapitalSource credit facility of $96,443, a shareholder
note payable of $10,000, and various mortgages and other notes payable
aggregating $13,675.





CapitalSource
Revolving Credit Facility




Our
amended and restated loan and security agreement with CapitalSource, entered
into on September 15, 2009, provides for borrowings up to the lesser of a
defined maximum amount or a defined borrowing base amount. The borrowing base
amount is a percentage of the appraised value of all owned property encumbered
by a mortgage in favor of CapitalSource. Through March 31, 2010, that percentage
was 75%, from April 1, 2010 through December 31, 2010 it is 70% and from January
1, 2011 it is 65%.





On April
19, 2010, the loan agreement was amended to change the borrowing base to be 75%
through January 31, 2011 (instead of March 31, 2010), 70% from February 1, 2011
through April 30, 2011 (instead of December 31, 2010), and at all times after
May 1, 2011 the borrowing base will be no greater than 65%.  However,
the maximum loan amount was reduced to $95,093. In addition, revised minimum
loan amortization amounts have been established that require cumulative
amortization of $10,300 by June 30, 2010 and $17,800 by December 31, 2010, with
the remaining balance due on April 30, 2011 if we do not elect an
extension.  If we elect a first one-year extension, then cumulative
amortization must be $22,800 by June 30, 2011 and $25,300 by December 31, 2011,
with the remaining balance due on April 30, 2012 if we do not exercise a second
extension.  If we exercise the second one-year extension, then
cumulative amortization must be $27,800 by June 30, 2012 and $30,300 by December
31, 2012, with the remaining balance due by April 30, 2013.  At March
31, 2010 and December 31, 2009, $96,443 and $98,982, respectively, was
outstanding under the New Loan Agreement.  As part of the April 19,
2010 amendment, the requirement to maintain a segregated restricted cash balance
was removed and we are now required to maintain a cash coverage amount of one
month’s debt service as of June 30, 2010 through September 29, 2010, two months
debt service from September 30, 2010 through December 30, 2010, and three months
debt service after December 30, 2010.  The March 31, 2010 balance in
the restricted cash account of $2,890 was applied against the outstanding loan
and as of April 19, 2010, the cumulative amortization was $11,211.




Interest
under the loan agreement is calculated on the actual days elapsed and the basis
of a 360 day year and is payable monthly at the three-month LIBOR (approximately
0.35% at April 30, 2010) plus 5% per annum, subject to a floor of 8.75%. An exit
fee of $1.65 million is due on maturity or earlier if the loan is terminated for
any reason. We may voluntarily prepay any part of the loan at any time but may
terminate the loan agreement only by providing 30 days written notice and
prepaying outstanding amounts in full.




In
addition to maintaining the required cash coverage, we are required to meet
certain covenants as defined in the loan agreement, including:




•
            Remain in compliance at all times
      with applicable requirements as to the ratio of the number of properties
      to club members or “equivalent club members”, as set forth in the
      applicable club membership
plans;




30




•
            Maintain a leverage ratio between
      debt and consolidated tangible net worth of no more than
      3.5:1;





•
            For the year ending December 31,
      2010, the consolidated net loss must not exceed $5 million and for the
      year ending December 31, 2011 and each succeeding year, the consolidated
      net income must not be less than $1 (net loss is adjusted in each
      year for the non-refundable portion of new member initiation fees not yet
      recognized in income); and





•
            The
      debt ratio (aggregate mortgage financing to the aggregate appraised value
      for all owned Property) on a consolidated basis must not exceed
      80%.





In
addition to various covenants, the CapitalSource loan agreement contains
customary events of default that would permit CapitalSource to accelerate
repayment of amounts outstanding, including failure to pay any amounts
outstanding under the loan agreement when due, insolvency, judgment or
liquidation, failure to pay other borrowed money in excess of $500,000, failure
to comply with the terms and conditions of the loan agreement, suspension of the
sale of club memberships, termination of any club or club membership plan,
failure to pay (without CapitalSource’s consent) any amounts due to a resigning
club member in accordance with the terms of his or her club membership agreement
and a change in our management (as defined in the loan agreement).





Note
Payable to Shareholder




On April
30, 2007, Ultimate Resort Holdings issued a $10 million note payable to JDI,
which at the time was a minority owner of Ultimate Resort Holdings and is now a
minority owner of Ultimate Escapes Holdings. The obligations of Ultimate Resort
Holdings under this note were subsequently assigned to Ultimate Escapes
Holdings, when it assumed the Ultimate Resort Holdings operations, as discussed
in Note 2 to our condensed consolidated financial statements. On October 29,
2009, JDI assigned its interest in the note, as lender, to Ultimate Resort
Holdings. The financial terms of the note remained unchanged. At the same time,
Ultimate Resort, the majority owner of Ultimate Resort Holdings, acquired from
JDI the minority interest in Ultimate Resort Holdings held by JDI. In
consideration for the acquisition of the minority interest and the transfer, as
lender, to Ultimate Resort Holdings of the note, JDI received 3,123,797
ownership units of Ultimate Escapes Holdings.





The note
has a ten year term, with interest payable quarterly at 5% per annum and no
principal payments are due until maturity on April 30, 2017. The note, which is
subordinate to the revolving loan from CapitalSource, is collateralized by a
second security interest in our assets and in certain real
property.





Other
Mortgage Loans




At March
31, 2010, we have other mortgage loans, aggregating $13,675, which we acquired
when Ultimate Escapes Holdings acquired certain assets and liabilities of
Private Escapes.  These mortgages are held by a number of mortgage
providers and individuals and carry interest rates ranging from 3.4% to 15.0%.
Certain of the mortgages are due within twelve months and, where possible, we
are seeking to extend or renew these mortgages.





Included
in these mortgage loans is $234 of the remaining outstanding principal balance
of $936 related to a $3.75 million loan from Kederike, LLC, an entity in which
Richard Keith, our Chairman, is a 50% owner. The original loan proceeds were
used to pay a portion of the purchase price for the acquisition of four
properties. Ultimate Escapes Holdings assumed $234 of the remaining outstanding
principal balance when it acquired Private Escapes. The remainder of the
outstanding principal balance of $702 was assumed by an entity controlled by Mr.
Keith. Interest accrues on the loan at a rate equal to 1.5% above the interest
rate applicable to the primary bank loan financing the original acquisition of
the properties. The maturity date of the loan was October 15, 2009;
however, the parties have negotiated an extension of the maturity date until
June 30, 2010 on substantially the same terms.





Three
Months Ended March 31, 2010 Compared with the Three Months Ended March 31, 2009
(in thousands)




Operating
Activities




Net cash
used by operating activities during the quarter ended March 31, 2010 was $(489),
compared with net cash provided of $76 for the same period in
2009.  This decrease in cash from operating activities of $565
reflects an increase of $5,248 in our net loss, from net loss of $(1,224)
in 2009 to a net loss of $(6,472) in 2010, offset by a net increase of $1,139 in
non-cash charges to income in 2010, and a net change of $3,544 in our current
assets and liabilities and other membership receivables, primarily reflecting
lower membership receivable balances.  The decrease in net income
primarily reflects the 2009 benefit of the $3,036 membership special assessment,
which was not repeated in 2010.




31


Investing
Activities




Net cash
of $2,749 was provided by investing activities during the quarter ended March
31, 2010 compared with $3 for the same period in 2009, an increase of
$2,746, due primarily to the sale of properties.  There were no
acquisitions of properties during the periods ended March 31, 2010 or 2009 and
limited capital expenditures in 2010 of $194 compared with none for the
same period in 2009.




Financing
Activities




Net cash
used to repay debt was $3,161 during the quarter ended March 31, 2010, an
increase of $2,783 compared with repayments of $378 for the same period in
2009.   In 2010, the source of cash used for these repayments was
primarily the sale of properties.




Off-Balance
Sheet Arrangements




We do not
have any off-balance sheet arrangements.




Unaudited
Operating Results using Adjusted GAAP Revenue Recognition and Adjusted EBITDA
(in thousands)




We use an
adjusted revenue calculation as an integral part of our internal financial
management reporting and planning process, based on adjusted GAAP revenue
recognition. For this purpose, the non-refundable club membership initiation fee
is recognized over the first 18 months of membership, with the remaining club
membership fee amortized over ten years, rather than the full amount of the club
membership fee (including the non-refundable portion) being recognized over the
ten-year expected life of the club membership, as is reflected in
our condensed consolidated financial statements. Club members cannot resign
within the first 18 months of membership.  Because the club member
initiation fee is non-refundable, we believe that treating such non-refundable
initiation fee as earned over that 18 month minimum membership contract period
better reflects the current performance of our business and the actual
contractual terms of our club membership plan.




We also
measure performance based on Adjusted EBITDA, which is the metric used to
determine the UE Owners earn-out units as described in Note 2 to our condensed
consolidated financial statements.  Adjusted EBITDA with respect to
any period, means, as determined in accordance with GAAP, the difference between
our revenues (plus the non-refundable portion of membership fees to the extent
such membership fees are not included in revenue pursuant to GAAP) and our
expenses, on a consolidated basis for such period, plus the sum of (i) interest
expense, (ii) income tax expense, (iii) depreciation expense and (iv)
amortization expense but (v) excluding all non-cash compensation related to our
2009 Stock Option Plan and our previous employee stock-based compensation
plan.





GAAP
                            Financial
                            Information
                          
                          
                          Adjusted GAAP
                            Revenue
                            Recognition(in thousands)Total
      Revenues
                          
                          $
                          7,315
                          
                          
                          $
                          7,315Add:Non-GAAP
      revenue accretion
                          
                          
                          
                          
                          
                          
                          974Adjusted
      Non-GAAP Revenue
                          
                          
                          
                          
                          
                          $
                          8,289





GAAP
                          Financial
                          Information
                        
                        
                        Adjusted
                          EBITDA(in
      thousands)Net
      Loss
                        
                        $
                        (6,472
                        )
                        
                        $
                        (6,472
                        )Add:Non-GAAP
      revenue accretion
                        
                        
                        -
                        
                        
                        
                        974Adjusted
      loss
                        
                        
                        (6,472
                        )
                        
                        
                        (5,498
                        )Add:Non-cash
      stock-based compensation
                        
                        
                        
                        
                        
                        
                        53Interest
      expense
                        
                        
                        3,004
                        
                        
                        
                        3,004Taxes
                        
                        
                        20
                        
                        
                        
                        20Depreciation
      and amortization (1)
                        
                        
                        2,265
                        
                        
                        
                        2,265EBITDA
                        
                        $
                        (1,183
                        )Adjusted
      EBITDA
                        
                        
                        
                        
                        
                        $
                        (156
                        )




(1)
              Depreciation
      includes the impairment charge on assets held for
  sale.




32





ITEM 3.
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK




We
are a “smaller reporting company” as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide information under this
item.





ITEM
    4T.
            CONTROLS AND
      PROCEDURES





Management’s
Report on Internal Control Over Financial Reporting





Evaluation
of Disclosure Controls and Procedures





We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures as of March 31, 2010. Based on that evaluation, our principal
executive officer and principal financial officer concluded that our disclosure
controls and procedures are effective as of the end of the period covered by
this report to ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.





Changes
in Internal Control over Financial Reporting





We were
previously a blank check company formed with the objective of completing a
business combination with one or more operating businesses. On October 29,
2009, we completed a business combination with Ultimate Escapes Holdings,
in the form of a reverse acquisition, and we were renamed Ultimate Escapes,
Inc.




Prior to
the business combination, Ultimate Escapes Holdings was a private company. 
As a result of the consummation of the business combination with Ultimate
Escapes Holdings late in 2009, management was unable to conduct an assessment of
the internal control over financial reporting of Ultimate Escapes Holdings and
its subsidiaries during the period between the date of the business combination
and the end of 2009.  In addition, management considered the assets,
liabilities, and operations of our company to be insignificant when compared to
the consolidated entity.  Accordingly, in reliance on guidance issued
by the SEC, we excluded management's report on internal control over
financial reporting from the Company’s annual report on Form 10-K for the year
ended December 31, 2009.





During
the most recently completed fiscal quarter, there has been no significant change
in our internal control over financial reporting that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.




PART
II — OTHER INFORMATION





ITEM 1 — LEGAL
PROCEEDINGS





As of
March 31, 2010, we are not subject to any legal proceedings which we
believe to be material.  From time to time, however, we are or may
become involved in litigation and other legal proceedings relating to claims
arising from our operations in the normal course of business, including claims
involving membership disputes.





ITEM 1A — RISK
FACTORS





We are a
“smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide information under this
item.





ITEM 2 — UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS





On
January 5, 2010, we issued 16,667 shares to an individual from whom we acquired
certain assets, as part of the purchase price of those assets.
 
 The above
shares were issued in private placements not involving a public offering under
the Securities Act of 1933 pursuant to Section 4(2) of the Securities Act of
1933 and/or Regulation D promulgated thereunder. We have not engaged in general
solicitation or advertising with regard to the issuance of the shares of common
stock and have not offered securities to the public in connection with these
issuances.





ITEM 3 — DEFAULTS UPON SENIOR
SECURITIES





Not
Applicable.





33


ITEM 4 — (Removed and
Reserved)





Not
Applicable.





ITEM 5 — OTHER
INFORMATION





None.




ITEM 6 —
EXHIBITS




3.1
              
              Second
      Amended and Restated Certificate of Incorporation(1)3.2
              
              Certificate
      of Designation of Series A Preferred Stock(1)3.3
              
              Bylaws(2)10.1
              
              Fifth
      Amendment to Loan Documents between Private Escapes Pinnacle, LLC and
      Kederike, LLC, dated as of March 22, 2010(3)


31.1*
            
            Certification
      of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated
      under the Securities Exchange Act of 1934.31.2*
            
            Certification
      of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated
      under the Securities Exchange Act of 1934.32.1*
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2*
            
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.





*
            filed
      herewith


(1)
              Previously
      filed as an Exhibit to the Form 8-K, filed on November 4,
      2009.(2)
              Previously
      filed as an Exhibit to Amendment No. 1 to the Form S-1, filed on August 8,
      2007.(3)
              Previously
      filed as an Exhibit to the Form 10-K, filed on April 15,
    2010.




34


SIGNATURES





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.





Date:
      May 13, 2010
              ULTIMATE ESCAPES,
      INC.By:
              /s/ James M. TousignantName:
              James
      M. TousignantTitle:
              Chief
      Executive OfficerBy:
              /s/ Philip CallaghanName:
              Philip
      CallaghanTitle:
              Chief
      Financial Officer (Principal Financial and AccountingOfficer)






35








EXHIBIT INDEX




3.1
                
                Second
      Amended and Restated Certificate of Incorporation(1)3.2
                
                Certificate
      of Designation of Series A Preferred Stock(1)3.3
                
                Bylaws(2)10.1
                
                Fifth
      Amendment to Loan Documents between Private Escapes Pinnacle, LLC and
      Kederike, LLC, dated as of March 22, 2010(3)
 31.1*
              
              Certification
      of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated
      under the Securities Exchange Act of 1934.31.2*
              
              Certification
      of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated
      under the Securities Exchange Act of 1934.32.1*
              
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2*
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.
 
 *
              filed
      herewith
 (1)
                Previously
      filed as an Exhibit to the Form 8-K, filed on November 4,
      2009.(2)
                Previously
      filed as an Exhibit to Amendment No. 1 to the Form S-1, filed on August 8,
      2007.(3)
                Previously
      filed as an Exhibit to the Form 10-K, filed on April 15,
    2010.
  36