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 June 30, 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 July 31, 2010:  2,759,094








ULTIMATE
ESCAPES, INC.


FORM
10-Q


FOR
THE SIX MONTHS ENDED JUNE 30, 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
                    24Item
      3.
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    33Item
      4T.
                    Controls
      and Procedures
                    33PART
      II OTHER INFORMATIONItem
      1.
                    Legal
      Proceedings
                    34Item
      1A.
                    Risk
      Factors
                    34Item
      2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    34Item 3.
                    Defaults
      Upon Senior Securities
                    34Item
      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)







June 30, 2010
                                                                                          (unaudited)
                                                                                        
                                                                                        
                                                                                        December 31,
                                                                                          2009ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                                                                        
                                                                                        $
                                                                                        599
                                                                                        
                                                                                        
                                                                                        $
                                                                                        2,747Restricted
      cash
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        4,343Membership
      receivables – net
                                                                                        
                                                                                        
                                                                                        2,853
                                                                                        
                                                                                        
                                                                                        
                                                                                        3,264Prepaid
      expenses and other current assets
                                                                                        
                                                                                        
                                                                                        989
                                                                                        
                                                                                        
                                                                                        
                                                                                        699TOTAL
      CURRENT ASSETS
                                                                                        
                                                                                        
                                                                                        4,441
                                                                                        
                                                                                        
                                                                                        
                                                                                        11,053PROPERTY
      AND EQUIPMENT – net
                                                                                        
                                                                                        
                                                                                        145,032
                                                                                        
                                                                                        
                                                                                        
                                                                                        151,397OTHER
      ASSETS:Properties
      held for sale
                                                                                        
                                                                                        
                                                                                        2,546
                                                                                        
                                                                                        
                                                                                        
                                                                                        6,067Deferred
      loan costs, net of amortization
                                                                                        
                                                                                        
                                                                                        2,044
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,896Deposits
                                                                                        
                                                                                        
                                                                                        234
                                                                                        
                                                                                        
                                                                                        
                                                                                        217Intangible
      assets, net
                                                                                        
                                                                                        
                                                                                        25,510
                                                                                        
                                                                                        
                                                                                        
                                                                                        27,117Goodwill
                                                                                        
                                                                                        
                                                                                        8,473
                                                                                        
                                                                                        
                                                                                        
                                                                                        8,473Other
      assets
                                                                                        
                                                                                        
                                                                                        396
                                                                                        
                                                                                        
                                                                                        
                                                                                        396TOTAL
      OTHER ASSETS
                                                                                        
                                                                                        
                                                                                        39,203
                                                                                        
                                                                                        
                                                                                        
                                                                                        45,166TOTAL
      ASSETS
                                                                                        
                                                                                        $
                                                                                        188,676
                                                                                        
                                                                                        
                                                                                        $
                                                                                        207,616LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)CURRENT
      LIABILITIES:Revolving
      loan
                                                                                        
                                                                                        $
                                                                                        89,837
                                                                                        
                                                                                        
                                                                                        $
                                                                                        14,503Receivables
      financing loan
                                                                                        
                                                                                        
                                                                                        1,046
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Mortgage
      and other loans
                                                                                        
                                                                                        
                                                                                        3,175
                                                                                        
                                                                                        
                                                                                        
                                                                                        3,773Accounts
      payable
                                                                                        
                                                                                        
                                                                                        3,135
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,762Accrued
      liabilities
                                                                                        
                                                                                        
                                                                                        6,283
                                                                                        
                                                                                        
                                                                                        
                                                                                        6,089Membership
      deposits to be refunded
                                                                                        
                                                                                        
                                                                                        5,806
                                                                                        
                                                                                        
                                                                                        
                                                                                        5,037Membership
      annual dues not yet recognized
                                                                                        
                                                                                        
                                                                                        13,201
                                                                                        
                                                                                        
                                                                                        
                                                                                        12,600TOTAL
      CURRENT LIABILITIES
                                                                                        
                                                                                        
                                                                                        122,483
                                                                                        
                                                                                        
                                                                                        
                                                                                        43,764OTHER
      LIABILITIES:Revolving
      loan
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        84,479Mortgage
      and other loans
                                                                                        
                                                                                        
                                                                                        10,090
                                                                                        
                                                                                        
                                                                                        
                                                                                        10,524Note
      payable to shareholder
                                                                                        
                                                                                        
                                                                                        10,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        10,000Membership
      initiation fees not yet recognized
                                                                                        
                                                                                        
                                                                                        15,056
                                                                                        
                                                                                        
                                                                                        
                                                                                        15,785Membership
      deposits – redemption assurance program
                                                                                        
                                                                                        
                                                                                        46,037
                                                                                        
                                                                                        
                                                                                        
                                                                                        47,046Membership
      deposits – other programs
                                                                                        
                                                                                        
                                                                                        18,344
                                                                                        
                                                                                        
                                                                                        
                                                                                        19,004TOTAL
      OTHER LIABILITIES
                                                                                        
                                                                                        
                                                                                        99,527
                                                                                        
                                                                                        
                                                                                        
                                                                                        186,838TOTAL
      LIABILITIES
                                                                                        
                                                                                        
                                                                                        222,010
                                                                                        
                                                                                        
                                                                                        
                                                                                        230,602COMMITMENTS
      AND CONTINGENCIES (NOTE 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, 2,759,094 and
      1,582,323 shares issued and outstanding
                                                                                        
                                                                                        
                                                                                        1
                                                                                        
                                                                                        
                                                                                        
                                                                                        1Stock
      subscription receivable – Redemption Assurance Exchange
      Program
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        8,963Additional
      paid-in capital
                                                                                        
                                                                                        
                                                                                        47,210
                                                                                        
                                                                                        
                                                                                        
                                                                                        37,793Accumulated
      deficit
                                                                                        
                                                                                        
                                                                                        (81,616
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (70,814
                                                                                        )ULTIMATE
      ESCAPES’ STOCKHOLDERS’ EQUITY (DEFICIT)
                                                                                        
                                                                                        
                                                                                        (34,404
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (24,056
                                                                                        )NON-CONTROLLING
      INTERESTS
                                                                                        
                                                                                        
                                                                                        1,070
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,070TOTAL
      STOCKHOLDERS’ EQUITY (DEFICIT)
                                                                                        
                                                                                        
                                                                                        (33,334
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (22,986
                                                                                        )TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
                                                                                        
                                                                                        $
                                                                                        188,676
                                                                                        
                                                                                        
                                                                                        $
                                                                                        207,616







See notes to unaudited 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 Ended
                                                              
                                                              
                                                              For the Six Months EndedJune 30, 2010
                                                              
                                                              
                                                              June 30, 2009
                                                              
                                                              
                                                              June 30, 2010
                                                              
                                                              
                                                              June 30, 2009REVENUESMembership
      – membership fees
                                                              
                                                              $
                                                              2,135
                                                              
                                                              
                                                              $
                                                              875
                                                              
                                                              
                                                              $
                                                              3,464
                                                              
                                                              
                                                              $
                                                              1,727Membership
      – annual dues
                                                              
                                                              
                                                              4,945
                                                              
                                                              
                                                              
                                                              4,174
                                                              
                                                              
                                                              
                                                              9,433
                                                              
                                                              
                                                              
                                                              7,992Other
      revenue
                                                              
                                                              
                                                              478
                                                              
                                                              
                                                              
                                                              726
                                                              
                                                              
                                                              
                                                              1,977
                                                              
                                                              
                                                              
                                                              1,6487,558
                                                              
                                                              
                                                              
                                                              5,775
                                                              
                                                              
                                                              
                                                              14,874
                                                              
                                                              
                                                              
                                                              11,367Membership
      – assessment
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              3,036
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              6,072REVENUES
                                                              
                                                              
                                                              7,558
                                                              
                                                              
                                                              
                                                              8,811
                                                              
                                                              
                                                              
                                                              14,874
                                                              
                                                              
                                                              
                                                              17,439OPERATING
      EXPENSES:Property
      operating costs
                                                              
                                                              
                                                              2,358
                                                              
                                                              
                                                              
                                                              2,388
                                                              
                                                              
                                                              
                                                              5,600
                                                              
                                                              
                                                              
                                                              5,070Depreciation
                                                              
                                                              
                                                              1,181
                                                              
                                                              
                                                              
                                                              993
                                                              
                                                              
                                                              
                                                              2,354
                                                              
                                                              
                                                              
                                                              2,031Amortization
      of intangible assets
                                                              
                                                              
                                                              803
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              1,607
                                                              
                                                              
                                                              
                                                              -Lease
      costs
                                                              
                                                              
                                                              945
                                                              
                                                              
                                                              
                                                              815
                                                              
                                                              
                                                              
                                                              2,368
                                                              
                                                              
                                                              
                                                              1,702Advertising
                                                              
                                                              
                                                              147
                                                              
                                                              
                                                              
                                                              267
                                                              
                                                              
                                                              
                                                              330
                                                              
                                                              
                                                              
                                                              418Salaries
      and contract labor
                                                              
                                                              
                                                              1,601
                                                              
                                                              
                                                              
                                                              1,499
                                                              
                                                              
                                                              
                                                              3,616
                                                              
                                                              
                                                              
                                                              3,223General
      and administrative
                                                              
                                                              
                                                              1,466
                                                              
                                                              
                                                              
                                                              743
                                                              
                                                              
                                                              
                                                              2,836
                                                              
                                                              
                                                              
                                                              1,467Sales
      commissions
                                                              
                                                              
                                                              136
                                                              
                                                              
                                                              
                                                              140
                                                              
                                                              
                                                              
                                                              346
                                                              
                                                              
                                                              
                                                              254Loss
      on sale of property and equipment
                                                              
                                                              
                                                              292
                                                              
                                                              
                                                              
                                                              126
                                                              
                                                              
                                                              
                                                              613
                                                              
                                                              
                                                              
                                                              126Impairment
      of assets held for sale
                                                              
                                                              
                                                              17
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              306
                                                              
                                                              
                                                              
                                                              258OPERATING
      EXPENSES
                                                              
                                                              
                                                              8,946
                                                              
                                                              
                                                              
                                                              6,971
                                                              
                                                              
                                                              
                                                              19,976
                                                              
                                                              
                                                              
                                                              14,549INCOME
      (LOSS) BEFORE OTHER INCOME (EXPENSE)
                                                              
                                                              
                                                              (1,388
                                                              )
                                                              
                                                              
                                                              1,840
                                                              
                                                              
                                                              
                                                              (5,102
                                                              )
                                                              
                                                              
                                                              2,890OTHER
      INCOME (EXPENSE):Interest
      expense
                                                              
                                                              
                                                              (3,080
                                                              )
                                                              
                                                              
                                                              (2,298
                                                              )
                                                              
                                                              
                                                              (6,084
                                                              )
                                                              
                                                              
                                                              (4,591
                                                              )Interest
      income
                                                              
                                                              
                                                              3
                                                              
                                                              
                                                              
                                                              24
                                                              
                                                              
                                                              
                                                              23
                                                              
                                                              
                                                              
                                                              46Change
      in contingent consideration - acquisition
                                                              
                                                              
                                                              135
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              381
                                                              
                                                              
                                                              
                                                              -OTHER
      EXPENSE – net
                                                              
                                                              
                                                              (2,942
                                                              )
                                                              
                                                              
                                                              (2,274
                                                              )
                                                              
                                                              
                                                              (5,680
                                                              )
                                                              
                                                              
                                                              (4,545
                                                              )INCOME
      (LOSS) BEFORE INCOME TAXES
                                                              
                                                              $
                                                              (4,330
                                                              )
                                                              
                                                              $
                                                              (434
                                                              )
                                                              
                                                              $
                                                              (10,782
                                                              )
                                                              
                                                              $
                                                              (1,655
                                                              )BENEFIT
      (PROVISION) FOR INCOME TAX
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (6
                                                              )
                                                              
                                                              
                                                              (20
                                                              )
                                                              
                                                              
                                                              (7
                                                              )NET
      INCOME (LOSS)
                                                              
                                                              $
                                                              (4,330
                                                              )
                                                              
                                                              $
                                                              (440
                                                              )
                                                              
                                                              $
                                                              (10,802
                                                              )
                                                              
                                                              $
                                                              (1,662
                                                              )Weighted
      average shares outstanding – basic and diluted
                                                              
                                                              
                                                              2,745,836
                                                              
                                                              
                                                              
                                                              1,573,523
                                                              
                                                              
                                                              
                                                              2,602,283
                                                              
                                                              
                                                              
                                                              1,573,523Income/(loss)
      per share – basic and diluted
                                                              
                                                              $
                                                              (1.58
                                                              )
                                                              
                                                              $
                                                              (0.28
                                                              )
                                                              
                                                              $
                                                              (4.15
                                                              )
                                                              
                                                              $
                                                              (1.06
                                                              )







See notes
to unaudited 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
                                                      
                                                      
                                                      1,128,806
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      8,963
                                                      
                                                      
                                                      
                                                      (8,963
                                                      )
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Shares
      issued for payment of equity funding costs related to shares issued in
      reverse merger.
                                                      
                                                      
                                                      31,298
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      248
                                                      
                                                      
                                                      
                                                      —
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      248Stock-based
      compensation expense
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      140
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      140Net
      loss
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (10,802
                                                      )
                                                      
                                                      
                                                      (10,802
                                                      )Balance
      – June 30, 2010
                                                      
                                                      
                                                      2,759,094
                                                      
                                                      
                                                      $
                                                      1
                                                      
                                                      
                                                      
                                                      7,556,675
                                                      
                                                      
                                                      $
                                                      1
                                                      
                                                      
                                                      $
                                                      47,210
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      (81,616
                                                      )
                                                      
                                                      $
                                                      (34,404
                                                      )







See notes
to condensed consolidated financial statements.


5





ULTIMATE
ESCAPES, INC.





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited,
in thousands)







For the Six Months EndedJune
      30,2010
                                                                
                                                                
                                                                2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                                                                
                                                                $
                                                                (10,802
                                                                )
                                                                
                                                                $
                                                                (1,662
                                                                )Adjustments
      to reconcile net income (loss) to
                                                                  net
      cash provided by operating activities:Depreciation
                                                                
                                                                
                                                                2,354
                                                                
                                                                
                                                                
                                                                2,031Amortization
      of intangible assets
                                                                
                                                                
                                                                1,607
                                                                
                                                                
                                                                
                                                                -Provision
      for bad debt
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                12Amortization
      of deferred loan costs
                                                                
                                                                
                                                                852
                                                                
                                                                
                                                                
                                                                555Employee
      stock-based  compensation
                                                                
                                                                
                                                                140
                                                                
                                                                
                                                                
                                                                838Stock-based
      consulting services
                                                                
                                                                
                                                                66
                                                                
                                                                
                                                                
                                                                -Loss
      on sale of property and equipment
                                                                
                                                                
                                                                613
                                                                
                                                                
                                                                
                                                                126Impairment
      of assets held for sale
                                                                
                                                                
                                                                306
                                                                
                                                                
                                                                
                                                                258Cash
      flows from changes in:Restricted
      cash
                                                                
                                                                
                                                                4,343
                                                                
                                                                
                                                                
                                                                989Membership
      receivables
                                                                
                                                                
                                                                411
                                                                
                                                                
                                                                
                                                                (3,504
                                                                )Prepaid
      expenses and other current assets
                                                                
                                                                
                                                                (290
                                                                )
                                                                
                                                                
                                                                (589
                                                                )Accounts
      payable
                                                                
                                                                
                                                                1,621
                                                                
                                                                
                                                                
                                                                (196
                                                                )Accrued
      liabilities
                                                                
                                                                
                                                                194
                                                                
                                                                
                                                                
                                                                774Membership
      fees and dues not yet recognized
                                                                
                                                                
                                                                (1,339
                                                                )
                                                                
                                                                
                                                                2,897Net
      cash provided by operating activities
                                                                
                                                                
                                                                76
                                                                
                                                                
                                                                
                                                                2,529CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
                                                                
                                                                
                                                                (473
                                                                )
                                                                
                                                                
                                                                -Proceeds
      from sale of property and equipment
                                                                
                                                                
                                                                7,086
                                                                
                                                                
                                                                
                                                                1,337Net
      change in deposits
                                                                
                                                                
                                                                (17
                                                                )
                                                                
                                                                
                                                                (1
                                                                )Net
      cash provided by investing activities
                                                                
                                                                
                                                                6,596
                                                                
                                                                
                                                                
                                                                1,336CASH
      FLOWS FROM FINANCING ACTIVITIES:Revolving
      loan repaid, net
                                                                
                                                                
                                                                (9,146
                                                                )
                                                                
                                                                
                                                                (1,647
                                                                )Receivables
      financing loan
                                                                
                                                                
                                                                1,700
                                                                
                                                                
                                                                
                                                                -Receivables
      financing loan repaid
                                                                
                                                                
                                                                (654
                                                                )
                                                                
                                                                
                                                                -Mortgage
      and other loans repaid
                                                                
                                                                
                                                                (720
                                                                )
                                                                
                                                                
                                                                -Net
      cash (used in) financing activities
                                                                
                                                                
                                                                (8,820
                                                                )
                                                                
                                                                
                                                                (1,647
                                                                )NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                                                                
                                                                
                                                                (2,148
                                                                )
                                                                
                                                                
                                                                2,218CASH
      AND CASH EQUIVALENTS – Beginning of period
                                                                
                                                                
                                                                2,747
                                                                
                                                                
                                                                
                                                                966CASH
      AND CASH EQUIVALENTS – End of period
                                                                
                                                                $
                                                                599
                                                                
                                                                
                                                                $
                                                                3,184SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION andNON-CASH
      INVESTING AND FINANCING ACTIVITIES:Cash
      paid for interest
                                                                
                                                                $
                                                                4,106
                                                                
                                                                
                                                                $
                                                                3,823Shares
      issued under Redemption Assurance Exchange Program
                                                                
                                                                $
                                                                8,963
                                                                
                                                                
                                                                $
                                                                -Payment
      of equity funding costs related to shares issued in reverse
      merger
                                                                
                                                                $
                                                                248
                                                                
                                                                
                                                                $
                                                                -Shares
      issued for consulting services
                                                                
                                                                $
                                                                66
                                                                
                                                                
                                                                $
                                                                -







See notes
to condensed consolidated financial statements.


6





ULTIMATE
ESCAPES, INC.




NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




(In
thousands, except share and per share amounts)




As Of and
For the Three and Six Months Ended June 30, 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 unaudited 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 unaudited 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.  Certain amounts in the six month ended June 30, 2009
financial statements have been reclassified to conform to current period
presentation.





Principles of
Consolidation – The unaudited 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.




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.


7




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 June 30,
2010, and December 31, 2009, we had 1,232 and 1,214 active members,
respectively.  In addition, at June 30, 2010 and December 31, 2009, there
were 60 and 46 members, respectively, who had resigned.  The redemption
assurance obligation (as described below) to these resigned members at June 30,
2010 and December 31, 2009 was $5,806 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 on April 6, 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.





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 June 30, 2010 and December 31, 2009, the
allowance for doubtful accounts amounted to approximately $204 and $273,
respectively.




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.


8


Restricted
Cash – Restricted cash at December 31, 2009 represents six months of
estimated interest payments under our revolving loan agreement (see Note
6).  Use of these proceeds was 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.  On April 19,
2010, the balance in the restricted cash account at that date of $2,890 was
applied against the outstanding loan.  As of June 30, 2010, in
accordance with the April 19, 2010 amendment, the Company does not have any cash
in a restricted account.




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 June 30, 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.





June 30, 2010
                              
                              
                              December 31, 2009Deferred
      loan costs
                              
                              $
                              6,009
                              
                              
                              $
                              6,009Less:
      accumulated amortization
                              
                              
                              3,965
                              
                              
                              
                              3,113$
                              2,044
                              
                              
                              $
                              2,896Amortization
      expense for the period
                              
                              $
                              852
                              
                              
                              $
                              1,296





Future
amortization of these deferred costs is expected to be as follows:





Year
      Ending December 31,2010
                      
                      $
                      8512011
                      
                      
                      6412012
                      
                      
                      1052013
                      
                      
                      1032014
                      
                      
                      103Thereafter
                      
                      
                      241$
                      2,044




9




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 June
30, 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   – 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 six months ended June 30, 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 and warrants and conversion of ownership units of Ultimate
Escapes Holdings but which were excluded from the computation of earnings per
share for the six months ended June 30, 2010 were 927,927, 12,075,000 and
7,556,675 respectively.





Advertising
Costs – The costs of advertising are expensed as
incurred.




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)
convey 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 and
elsewhere.  We perform a credit evaluation of our members’ financial
condition and have not incurred any significant credit related
losses.




Fair Value
Measurements —At June 30, 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.  At June 30, 2009, we did not have any other items to be
measured at fair value.




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:


10





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 MeasurementsASU
      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
      DerivativesASU
      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 of Revenue
      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 ForceASU
      No. 2010-19
                        
                        May
      2010
                        
                        Foreign
      Currency (Topic 830): Foreign currency Issues: Multiple Foreign Currency
      Exchange Rates (SEC Update)ASU
      No. 2010-20
                        
                        July
      2010
                        
                        Receivables
      (Topic 310): Receivables: Disclosure about the Credit Quality of Financing
      Receivables and the Allowance for Credit LossesASU
      No. 2010-21
                        
                        August
      2010
                        
                        Accounting
      for Technical Amendments to Various SEC Rules and Schedules Amendments to
      SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to
      Rules, Forms, Schedules and Codification of Financial Reporting Policies
      (SEC
Update)




11





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.





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.




12





(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 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 Private Escapes, 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:





Owner
                                
                                UnitsUltimate
      Resort Holdings LLC
                                
                                
                                3,858,571Private
      Escapes Holdings LLC
                                
                                
                                574,307JDI
      Ultimate L.L.C.
                                
                                
                                3,123,797Ultimate
      Escapes, Inc. (f/k/a SAAC)
                                
                                
                                1,232,6018,789,276





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.




13





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 losses of
($10,802) and $(1,662) during the six months ended June 30, 2010, and 2009,
respectively. As of June 30, 2010, the Company's current liabilities exceed its
current assets by $118,042; this is largely due to the classification of $89,837
of revolving loan debt from CapitalSource which currently matures on April 30,
2011.  In addition, at June 30, 2010, the amount of cash and cash
equivalents on hand was less than the one month debt service required under the
CapitalSource agreement.  We are in active discussions with
CapitalSource to modify the covenant. 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
throughout 2009 and continuing in 2010.  For the month of July 2010
officers of the Company made approximately $55 of debt payments on behalf of the
Company, and in August 2010, the Company was late meeting its payroll
obligations to its employees.





The
above factors, among others, indicate that we may encounter a liquidity event,
which may cause us to receive a notice of 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 as compared
to plan. On June 3, 2010, we entered into a receivables financing loan with
Monterey Financial Services, Inc. Profit Sharing Plan and Trust (“Monterey”)
under which we sold an undivided interest in $2,000 of membership dues for
$1,700 (see Note 15).  In addition, the Company is actively seeking to
raise additional working capital.  We cannot predict whether we will
be able to obtain the necessary additional capital on a timely basis, on
acceptable terms, or at all.  In the event that this capital raise does not
materialize, or that we are unsuccessful in increasing our revenues and profits,
we may be unable to implement our current operating plans, repay our debt
obligations as they become due or continue as a going concern, any of which
circumstances would have a material adverse effect on our business, prospects,
financial condition and results of operations. Should our lender, CapitalSource,
choose not to modify our revolving loan agreement or grant us a waiver on our
covenants, as they have in the past, or if we do not find alternative sources of
financing to fund our operations, or if we are unable to generate significant
revenues or sell excess properties in our portfolio, we may not have sufficient
funds to sustain current operations through the next quarter.





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.


14





NOTE
4 - PROPERTY AND EQUIPMENT




As of
June 30, 2010 and December 31, 2009, we operated a total of 120 and 141 club
properties, respectively, located in various resort destinations. Of these
properties, 94 and 104, respectively, are owned, and 26 and 37 are leased. The
owned properties provide the borrowing base for our CapitalSource revolving loan
(see Note 6).





At June
30, 2010 and December 31, 2009, property and equipment consists of the
following:





June
      30,
                                2010
                              
                              
                              December
      31, 2009Land,
      club properties, and improvements
                              
                              $
                              148,583
                              
                              
                              $
                              152,649Furniture
      and fixtures at club properties
                              
                              
                              9,005
                              
                              
                              
                              9,868Office
      equipment
                              
                              
                              456
                              
                              
                              
                              446158,044
                              
                              
                              
                              162,963Less
      accumulated depreciation
                              
                              
                              13,012
                              
                              
                              
                              11,566$
                              145,032
                              
                              
                              $
                              151,397





Properties
held for sale were $2,546 and $6,067 as of June 30, 2010 and December 31, 2009,
respectively.  Impairment recognized on properties held for sale for the
six months ended June 30, 2010 and 2009 was $306 and $258, respectively. 
Depreciation expense was $2,354 and $2,031 for the six months ended June 30,
2010 and 2009, respectively.




NOTE
5 - GOODWILL AND INTANGIBLE ASSETS




At June
30, 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 June 30,
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
                            
                            
                            (790
                            )
                            
                            
                            (817
                            )
                            
                            
                            (1,607
                            )Balance,
      June 30, 2010
                            
                            $
                            14,550
                            
                            
                            $
                            10,960
                            
                            
                            $
                            25,510Weighted-average
      remaining amortization period in years
                            
                            
                            9.25
                            
                            
                            
                            6.75




As of
June 30, 2010, we estimate future amortization expense of intangible assets for
the next five years to be:





2010
                          
                          $
                          1,6072011
                          
                          
                          3,2142012
                          
                          
                          3,2142013
                          
                          
                          3,2142014
                          
                          
                          3,21414,463Thereafter
                          
                          
                          11,047$
                          25,510




15


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 June 30, 2010, the
necessary repayments due on or 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%.




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 (0.53% and 0.25% at June 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.




16


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 June 30, 2010 and December 31, 2009, $89,837 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.  As of June 30, 2010 the amount
of cash and cash equivalents was less than one month debt service; however the
Company is in active discussions with CapitalSource to modify the
covenant.





On June
2, 2010, the CapitalSource agreement was amended to change the definitions of
Permitted Debt and Permitted Exceptions to allow for all liabilities related to
a Receivables Purchase Agreement with Monterey, under which we sold to Monterey
an undivided interest in $2,000 of membership dues for $1,700 (see Note
15).  On the same date, CapitalSource agreed to release and discharge
their security interest in the same $2,000 of membership dues.





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 as of June 30,
2010.


Total
                              
                              
                              Current
                              
                              
                              Long
                                TermNote
      payable to CapitalSource, bearing interest at three-month LIBOR (0.53% at
      June 30, 2010) plus 5% per annum, with a floor of 8.75%, with principal
      and interest payments, maturing on April 30, 2011.
                              
                              $
                              89,837
                              
                              
                              $
                              89,837
                              
                              
                              $
                              -Note
      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).
                              
                              
                              13,265
                              
                              
                              
                              3,175
                              
                              
                              
                              10,090Receivables
      financing loan, due September 2, 2010 (see Note 15)
                              
                              
                              1,046
                              
                              
                              
                              1,046
                              
                              
                              
                              -Total
                              
                              $
                              114,148
                              
                              
                              $
                              94,058
                              
                              
                              $
                              20,090




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.


17




NOTE
8 - MORTGAGE AND OTHER LOANS





In
addition to the Receivable factoring loan of $1,046 we have 13 loans that have
either matured or will mature within the next twelve months.  The current
portion of these loans is $3,175 June 30, 2010.  These loans are
collateralized by various properties and bear interest rates ranging from 6% to
15%.  The notes mature at various dates through June 30, 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 $10,090. 
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 June
30, 2010 and December 31, 2009, accrued liabilities consist of the
following:





June 30,
                              2010
                            
                            
                            December 31,
                              2009Payroll
                            
                            $
                            279
                            
                            
                            $
                            317Interest
                            
                            
                            1,739
                            
                            
                            
                            841Loan
      agreement exit fee
                            
                            
                            1,650
                            
                            
                            
                            1,650Property
      taxes
                            
                            
                            211
                            
                            
                            
                            458Marketing,
      consulting, credit fees, and other expenses
                            
                            
                            1,280
                            
                            
                            
                            1,318Accrued
      distributions
                            
                            
                            963
                            
                            
                            
                            963Contingent
      consideration – Private Escapes acquisition
                            
                            
                            161
                            
                            
                            
                            542$
                            6,283
                            
                            
                            $
                            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 each
reporting date, we re-measure the fair value of the outstanding contingent
consideration related to our acquisition of Private Escapes (see Note 2) and,
for the three and six month periods ended June 30, 2010, we recorded a gain of
$135 and $381, respectively, in Other Income in the Condensed Consolidated
Statement of Operations.  The estimated fair values of $161 and $542 at
June 30, 2010 and December 31, 2009 were calculated by multiplying the estimated
number of shares that could be potentially earned per the weighted average
analysis (approximately 1,831,000 shares at each reporting date) by the Private
Escapes equity ownership in Ultimate Escapes Holdings of 8%, and by our closing
share price at June 30, 2010 and December 31, 2009 of $1.10 and $3.70,
respectively.




The
aggregate range of contingent consideration at June 30, 2010 is as follows
(dollars in thousands):





Range of Additional
                                
                                Range of
                                
                                
                                WeightedOwnership %
                                
                                Fair Values
                                
                                
                                Average ValuePerformance
      targets
                                
                                0 -
      200,000 shares
                                
                                $
                                0
      - $220
                                
                                
                                $
                                161





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 June 30, 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.


18





We
evaluate each of our tax positions at the end of each period and determined that
no significant uncertainties existed as of June 30, 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





Under our
2009 Stock Option Plan (the “Plan”), the Compensation Committee can award stock
options 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.





We
granted 874,500 stock options under the Plan to officers and key employees
during the 2010 second quarter.  These options expire 10 years after the
date of grant and both vest and are exercisable in cumulative installments of
one third at the end of each of the first three years following the date of
grant.  The weighted average grant-date fair value of these options was
$0.80, and the weighted average exercise price was $2.00.  To estimate the
fair value of each option granted, we use the Black Scholes method.





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
                          
                          
                          874,500
                          
                          
                          $
                          2.00Exercised
                          
                          
                          -
                          
                          
                          $
                          -Canceled
                          
                          
                          -
                          
                          
                          $
                          -Outstanding
      at June 30, 2010
                          
                          
                          927,927
                          
                          
                          $
                          2.11Exercisable
      at June 30, 2010
                          
                          
                          26,713
                          
                          
                          $
                          3.93





Stock
compensation expense recognized for the three and six months ended June 30,
2010, was $53 and $140, respectively.  For the three and six months
ended June 30, 2009, we recognized $419 and $838, respectively, of stock
compensation expense related to a prior plan that has since
terminated.





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.


19


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
June 30, 2010, there were 2,759,094 shares of common stock
outstanding.





Preferred
Stock





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.





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 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 (see
Note 2), 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
June 30, 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.


20





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 (“SAAH”), the principal initial stockholder of
SAAC, 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.





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.  The registration statement was
filed on June 4, 2010, and is currently subject to review by the
SEC.





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 was 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.




21


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.





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 we expect 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 (a
member of our board of directors), 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 members of SAAH (including Mr. McMillen) use of an Elite Club platinum
membership for a period of three years.





NOTE
13 - COMMITMENTS AND CONTINGENCIES





Leases –
At June 30, 2010 and December 31, 2009, we leased 26 and 37 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
six months ended June 30, 2010 and 2009 was approximately $2,368 and $1,702,
respectively, of which approximately $70 and  $76, respectively, was
paid to the entity controlled by the related party.


22





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.





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.  On
March 10, 2010 the Company entered into an agreement with the fractional
provider to exchange the rights to fees for the future fractional ownership of
one of the properties.  The Company has assessed the likelihood of the
provider being a going concern at the time of the receipt of the fractional
ownership and has decided not to recognize the transaction at this
time.





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 June 30, 2010 and December 31, 2009 is as
follows:


23





June 30,
                    2010
                  
                  
                  December 31,
                    2009United
      States
                  
                  $
                  75,508
                  
                  
                  $
                  80,164Bahamas
                  
                  
                  8,100
                  
                  
                  
                  9,024Mexico
                  
                  
                  30,621
                  
                  
                  
                  30,977Nevis
                  
                  
                  19,061
                  
                  
                  
                  19,269St.
      Thomas (USVI)
                  
                  
                  1,336
                  
                  
                  
                  1,359Tortola
      (BVI)
                  
                  
                  614
                  
                  
                  
                  683Dominican
      Republic
                  
                  
                  2,460
                  
                  
                  
                  2,494Turks
      & Caicos
                  
                  
                  3,645
                  
                  
                  
                  3,694Belize
                  
                  
                  690
                  
                  
                  
                  697Italy
                  
                  
                  2,986
                  
                  
                  
                  3,036Costa
      Rica
                  
                  
                  11
                  
                  
                  
                  -Total
      net book value
                  
                  $
                  145,032
                  
                  
                  $
                  151,397





NOTE
15 – RECEIVABLES FINANCING LOAN





On June
3, 2010, we entered into a Receivables Purchase Agreement with Monterey. Under
the agreement, Monterey advanced $1,700 to us, in exchange for an undivided
interest in $2,000 of current and future membership dues.  The
principal amount due of $2,000 is repayable as the dues are received. Repayments
commenced on June 15 and at June 30, 2010, the remaining amount outstanding was
$1,046, (net of interest expense of $131 not yet recognized), which is expected
to be repaid by August 31, 2010.  In the event that the facility is
not repaid in full by September 2, 2010, a fee of 5% of the remaining
outstanding amount is due on that date and on each monthly anniversary
thereafter, until paid in full.  Based on the expected repayment
schedule, the effective interest rate is approximately 170%.





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. 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 under “Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2009.





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.
You should be aware that the occurrence of the events described in the “Risk
Factors” section of our Annual Report on Form 10-K for the year ended December
31, 2009, among other things, could have a material adverse effect on
us.




24





The
following discussion should be read in conjunction with our 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. 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
1,232 and 1,214 members as of June 30, 2010, and December 31, 2009,
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:




•
            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.


25





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 FASB
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 June 30, 2010.





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 -Under our 2009 Stock Option Plan, we award stock options to provide an
additional incentive to attract and retain qualified personnel who provide
services and upon whose efforts and judgment our success is largely dependent.
  We grant awards at exercise prices or strike prices that are
equal or above the market price of our Common Stock on the date of
grant.





During
the second quarter of 2010, we granted 874,500 stock options with a strike price
of $2.00.   Our Common Stock was trading for $1.85 at the close of
business on the date of the grant.





See Note
11 - Equity Compensation in the accompanying condensed consolidated financial
statements for additional information.





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.




26


Results
of Operations





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





For the Three Months Ended
                          
                          
                          %
                          
                          
                          For the Six Months Ended
                          
                          
                          %June 30, 2010
                          
                          
                          June 30, 2009
                          
                          
                          change
                          
                          
                          June 30, 2010
                          
                          
                          June 30, 2009
                          
                          
                          changeREVENUESMembership
      – membership fees
                          
                          $
                          2,135
                          
                          
                          $
                          875
                          
                          
                          
                          144.0
                          %
                          
                          $
                          3,464
                          
                          
                          $
                          1,727
                          
                          
                          
                          100.6
                          %Membership
      – annual dues
                          
                          
                          4,945
                          
                          
                          
                          4,174
                          
                          
                          
                          18.5
                          %
                          
                          
                          9,433
                          
                          
                          
                          7,992
                          
                          
                          
                          18.0
                          %Other
      revenue
                          
                          
                          478
                          
                          
                          
                          726
                          
                          
                          
                          -34.2
                          %
                          
                          
                          1,977
                          
                          
                          
                          1,648
                          
                          
                          
                          20.0
                          %7,558
                          
                          
                          
                          5,775
                          
                          
                          
                          30.9
                          %
                          
                          
                          14,874
                          
                          
                          
                          11,367
                          
                          
                          
                          30.9
                          %Membership
      – assessment
                          
                          
                          -
                          
                          
                          
                          3,036
                          
                          
                          
                          *
                          
                          
                          
                          -
                          
                          
                          
                          6,072
                          
                          
                          
                          *REVENUES
                          
                          
                          7,558
                          
                          
                          
                          8,811
                          
                          
                          
                          -14.2
                          %
                          
                          
                          14,874
                          
                          
                          
                          17,439
                          
                          
                          
                          -14.7
                          %OPERATING
      EXPENSES:Property
      operating costs
                          
                          
                          2,358
                          
                          
                          
                          2,388
                          
                          
                          
                          -1.3
                          %
                          
                          
                          5,600
                          
                          
                          
                          5,070
                          
                          
                          
                          10.5
                          %Depreciation
                          
                          
                          1,181
                          
                          
                          
                          993
                          
                          
                          
                          18.9
                          %
                          
                          
                          2,354
                          
                          
                          
                          2,031
                          
                          
                          
                          15.9
                          %Amortization
      of intangible assets
                          
                          
                          803
                          
                          
                          
                          -
                          
                          
                          
                          *
                          
                          
                          
                          1,607
                          
                          
                          
                          -
                          
                          
                          
                          *Lease
      costs
                          
                          
                          945
                          
                          
                          
                          815
                          
                          
                          
                          16.0
                          %
                          
                          
                          2,368
                          
                          
                          
                          1,702
                          
                          
                          
                          39.1
                          %Advertising
                          
                          
                          147
                          
                          
                          
                          267
                          
                          
                          
                          -44.9
                          %
                          
                          
                          330
                          
                          
                          
                          418
                          
                          
                          
                          -21.1
                          %Salaries
      and contract labor
                          
                          
                          1,601
                          
                          
                          
                          1,499
                          
                          
                          
                          6.8
                          %
                          
                          
                          3,616
                          
                          
                          
                          3,223
                          
                          
                          
                          12.2
                          %General
      and administrative
                          
                          
                          1,466
                          
                          
                          
                          743
                          
                          
                          
                          97.3
                          %
                          
                          
                          2,836
                          
                          
                          
                          1,467
                          
                          
                          
                          93.3
                          %Sales
      commissions
                          
                          
                          136
                          
                          
                          
                          140
                          
                          
                          
                          -2.9
                          %
                          
                          
                          346
                          
                          
                          
                          254
                          
                          
                          
                          36.2
                          %Loss
      on sale of property and equipment
                          
                          
                          292
                          
                          
                          
                          126
                          
                          
                          
                          131.7
                          %
                          
                          
                          613
                          
                          
                          
                          126
                          
                          
                          
                          386.5
                          %Loss
      on impairment of assets held for sale
                          
                          
                          17
                          
                          
                          
                          -
                          
                          
                          
                          *
                          
                          
                          
                          306
                          
                          
                          
                          258
                          
                          
                          
                          18.1
                          %OPERATING
      EXPENSES
                          
                          
                          8,946
                          
                          
                          
                          6,971
                          
                          
                          
                          28.3
                          %
                          
                          
                          19,976
                          
                          
                          
                          14,549
                          
                          
                          
                          37.3
                          %INCOME
      (LOSS) BEFORE OTHER INCOME (EXPENSE)
                          
                          
                          (1,388
                          )
                          
                          
                          1,840
                          
                          
                          
                          -175.4
                          %
                          
                          
                          (5,102
                          )
                          
                          
                          2,890
                          
                          
                          
                          -276.5
                          %OTHER
      INCOME (EXPENSE):Interest
      expense
                          
                          
                          (3,080
                          )
                          
                          
                          (2,298
                          )
                          
                          
                          34.0
                          %
                          
                          
                          (6,084
                          )
                          
                          
                          (4,591
                          )
                          
                          
                          32.5
                          %Interest
      income
                          
                          
                          3
                          
                          
                          
                          24
                          
                          
                          
                          -87.5
                          %
                          
                          
                          23
                          
                          
                          
                          46
                          
                          
                          
                          -50.0
                          %Change
      in contingent consideration acquisition
                          
                          
                          135
                          
                          
                          
                          -
                          
                          
                          
                          *
                          
                          
                          
                          381
                          
                          
                          
                          -
                          
                          
                          
                          *OTHER
      EXPENSE – net
                          
                          
                          (2,942
                          )
                          
                          
                          (2,274
                          )
                          
                          
                          29.4
                          %
                          
                          
                          (5,680
                          )
                          
                          
                          (4,545
                          )
                          
                          
                          25.0
                          %INCOME
      BEFORE INCOME TAXES
                          
                          $
                          (4,330
                          )
                          
                          $
                          (434
                          )
                          
                          
                          897.7
                          %
                          
                          $
                          (10,782
                          )
                          
                          $
                          (1,655
                          )
                          
                          
                          551.5
                          %BENEFIT
      (PROVISION) FOR INCOME TAX
                          
                          
                          -
                          
                          
                          
                          (6
                          )
                          
                          
                          *
                          
                          
                          
                          (20
                          )
                          
                          
                          (7
                          )
                          
                          
                          185.7
                          %NET
      INCOME (LOSS)
                          
                          $
                          (4,330
                          )
                          
                          $
                          (440
                          )
                          
                          
                          884.1
                          %
                          
                          $
                          (10,802
                          )
                          
                          $
                          (1,662
                          )
                          
                          
                          549.9
                          %Weighted
      average shares outstanding – basic and diluted
                          
                          
                          2,745,836
                          
                          
                          
                          1,573,523
                          
                          
                          
                          74.5
                          %
                          
                          
                          2,602,283
                          
                          
                          
                          1,573,523
                          
                          
                          
                          65.4
                          %Income/(loss)
      per share – basic and diluted
                          
                          $
                          (1.58
                          )
                          
                          $
                          (0.28
                          )
                          
                          
                          464.3
                          %
                          
                          $
                          (4.15
                          )
                          
                          $
                          (1.06
                          )
                          
                          
                          291.5
                          %





* %
change not meaningful


27





Results
of Operations





Three
month period ended June 30, 2010 compared with the three month period ended June
30, 2009 (in thousands)





Revenues





For the
three months ended June 30, 2010 revenues of $7,558 decreased by $1,253, or 14%,
from $8,811 for the same period in 2009. Membership fees of $2,135 for the three
months ended June 30, 2010 increased by $1,260 or 144% compared with $875 for
the same period in 2009.  Membership annual dues were $4,945 the three
months ended June 30, 2010, representing an increase of $771, or 19% from annual
dues of $4,174 for the same period in 2009.  Both membership fees and
annual dues increased because of the larger membership base resulting from the
September 2009 acquisition of Private Escapes.  Other revenue was $478
for the three months ended June 30, 2010, representing a net decrease of $248,
or 34%, compared with $726 for the same period in 2009.  The decrease
was mostly due to $203 of nightly fees charged to Private Escapes’ members in
2009 as cross reservation program fees allowing their members to stay at our
properties. This cross reservation program ended effective September 15, 2009,
when we acquired Private Escapes.  The remaining $45 of the decrease
is due to trips in 2010 having fewer goods and services billable back to the
members.  Revenues for the three months ended June 30, 2009 included a
$3,036 assessment fees charged to members in 2009 that were not charged in
2010.





Operating
Expenses





For the
three months ended June 30, 2010, operating expenses were $8,946, an increase of
$1,975, or 28%, from operating costs of $6,971 for the same period in
2009.  This increase is primarily due to the inclusion of the Private
Escapes properties and related expenses in 2010.  For the three months
ended June 30, 2010, property operating costs were $2,358, an increase of $56
from the 2009 total of $2,388.  Depreciation increased by $188 to
$1,181 for the three months ended June 30, 2010, from $993 in 2009 reflecting
the acquisition of Private Escape properties in September 2009. Amortization
increased by $803 from zero for the three months ended June 30, 2010, related to
the intangible assets acquired.   Lease costs increased $130, or
16%, to $945 for the three months ended June 30, 2010 from $815 during the same
period in 2009.  This was partially due to the 23% increase in the
number of leases from the acquisition of Private Escapes and the implementation
in 2010 of winter seasonal leases that increased our costs in the first quarter
but which reduced costs in this quarter and through the balance of the
year.  Salary costs increased by $102 for the three months ended June
30, 2010 compared with 2009, primarily as a result of the Private Escapes
acquisition.  For the three months ended June 30, 2010, general and
administrative costs increased compared with the same period in 2009 by $723 due
primarily to legal, accounting, brokerage, consulting, investor related fees and
insurance increases of $668 over 2009.  Sales commissions decreased by
$4 for the three months ended June 30, 2010 compared with the same period in
2009 as a result of lower sales in 2010.  For the three months ended
June 30, 2010, we incurred a net loss of $292 on the sale of certain properties
compared with a loss for the same period in 2009 of $126.  We
recognized an impairment loss of $17 for the three months ended June 30,
2010.  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 $(1,388) for the
three months ended June 30, 2010 compared with income of $1,840 for the same
period in 2009, a decrease of $(3,228).  This change was due primarily
to the membership 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 $782 for the three months ended June 30, 2010 to a total of
$3,080 compared with $2,298 for the same period in 2009.





For
the three months ended June 30, 2010, we recognized a gain of $135 related to
the outstanding contingent consideration for our September 15, 2009 acquisition
of certain assets and liabilities 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 based.





Six
month period ended June 30, 2010 compared with the six month period ended June
30, 2009 (in thousands)





Revenues





For the
six months ended June 30, 2010, revenues of $14,874 decreased by $2,565, or 15%,
from $17,439 during the same period in 2009.  Membership fees of
$3,464 in 2010 increased by $1,787 or 101% compared with $1,727 for the same
period in 2009.  Membership annual dues of $9,433 for the six months
ended June 30, 2010, represent an increase of $1,441, or 18% from annual dues of
$7,992 for the same period in 2009.  Both membership fees and annual
dues increased because of the larger membership base resulting from the
September 2009 acquisition of Private Escapes.  Other revenue was
$1,977 for the six months ended June 30, 2010, representing a net increase of
$329, or 20%, compared with $1,648 for the same period 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 $467 relating to nightly fees charged to Private
Escapes’ members in 2009 as cross reservation program fees allowing their
members to stay at our properties.  This cross-reservation program
ended effective September 15, 2009, when we acquired Private Escapes. The
remaining decrease of $104 was due to trips having fewer billable items to
members.  Revenues for the six months ended June 30, 2009 included
$6,072 assessment fees charged to members that were not charged in
2010.


28





Operating
Expenses





For the
six months ended June 30, 2010, operating expenses were $19,976, representing an
increase of $5,427, or 37%, from operating costs of $14,549 for the same period
in 2009.  Property operating costs increased by $530 for the six
months ended June 30, 2010 to $5,600 from $5,070 for the same period in
2009.  This increase is primarily due to the inclusion of the Private
Escapes properties and related expenses in 2010 less the $857 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 increased by
$323 to $2,354 for the six months ended June 30, 2010, from $2,031 for the same
period in 2009 reflecting the acquisition of Private Escape properties in
September 2009.  Amortization increased by $1,607 from zero related to
the intangible assets acquired.   Lease costs increased by $666,
or 39%, to $2,368 for the six months ended June 30, 2010 from $1,702 for the
same period in 2009 due partially to the 23% increase in the number of leases
from the acquisition of Private Escapes and the implementation in 2010 of winter
seasonal leases that increased our costs in the first quarter but which reduce
costs during the balance of the year.  Salary costs increased by $393
for the six months ended June 30, 2010 compared with the same period in 2009,
primarily as a result of the Private Escapes acquisition.  General and
administrative costs increased for the six months ended June 30, 2010 compared
with the same period in 2009 by $1,369, or 93%, due primarily to legal,
accounting, brokerage, consulting, investor related fees and insurance increases
of $1,367 over 2009.  Sales commissions increased by $92 for the six
months ended June 30, 2010 compared with the same period in 2009 as a result of
a membership dues rebalancing program implemented in March 2010.  In
2010, we incurred a loss of $613 on the sale of certain properties and
recognized an impairment loss of $306 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) for the six months
ended June 30, 2010 was $(5,102) compared with $2,890 for the same period in
2009, a decrease of $(7,992). This change was due primarily to the membership
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)





For the
six months ended June 30, 2010, interest expense was $6,084 compared with $4,591
for the same period in 2009, an increase of $1,493. These increases are due
primarily to the additional debt acquired in the September 2009 purchase of
Private Escapes.





For
the six months June 30, 2010, we recognized a gain of $381 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.





Cash and
cash equivalents, consisting primarily of deposits with financial institutions
and credit card holdbacks was $599 at June 30, 2010, compared with $2,747 at
December 31, 2009, a decrease of $2,148.




29





We
currently do not have sufficient cash to sustain us for the next twelve months.
We will require additional financing in order to execute our operating plan and
continue as a going concern.  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 primarily by completing an equity capital raise. We cannot
predict whether we will be able to obtain the necessary additional capital on a
timely basis, on acceptable terms, or at all.  In the event that this
capital raise does not materialize, or that we are unsuccessful in increasing
our revenues and profits, we may be unable to implement our current operating
plans, repay our debt obligations as they become due or continue as a going
concern, any of which circumstances would have a material adverse effect on our
business, prospects, financial condition and results of operations. Should our
lender, CapitalSource, choose not to modify our revolving loan agreement or
grant us a waiver on our covenants, as they have in the past, or if we do not
find alternative sources of financing to fund our operations, or if we are
unable to generate significant revenues or sell excess properties in our
portfolio, we may not have sufficient funds to sustain current operations
through the next quarter.





We
incurred net losses of $12,965 and $23,222 during the years ended December 31,
2009 and 2008, respectively, and a loss of $10,802 for the six months ended June
30, 2010.  As of June 30, 2010, our current liabilities, excluding
$13,201 of deferred annual membership dues that we expect to recognize in income
over the next twelve months, were $109,282, which exceeded our current assets of
$4,441, by $104,841.  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,
and currently are not in compliance with certain covenants as of June 30, 2010.
We have also experienced a decrease in new membership sales and existing member
upgrades over the last twenty-four months.





The above
factors, among others, indicate that we may encounter a liquidity event in the
future, which may cause us to receive a notice of 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.  On June 3, 2010, we entered into a receivables
financing loan with Monterey under which we sold an undivided interest in $2,000
of membership dues for $1,700 (see Note 15 in our consolidated financial
statements included in this Report).





Total
current and long-term debt outstanding at June 30, 2010 was $114,148
compared with $123,279 outstanding at December 31, 2009, as described in Notes
6, 7, 8, and 15 of our condensed consolidated financial statements included in
this Report.  The debt outstanding at June 30, 2010 is
primarily the amount outstanding under our CapitalSource credit facility of
$89,837, a shareholder note payable of $10,000, and various mortgages and other
notes payable aggregating $14,311.





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 June
30, 2010 and December 31, 2009, $89,837 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.  As
of June 30, 2010 the amount of cash and cash equivalents was less than one month
debt service; however we are in active discussions with CapitalSource to modify
the covenant.





On June
3, 2010, the loan agreement was amended to change the definitions of the
Permitted Debt and Permitted Exceptions to allow for all liabilities related to
a Receivables Purchase Agreement to be dated June 3, 2010 with Monterey under
which we entered into a factoring agreement under which we sold to Monterey an
undivided interest in $2,000 of future dues in return for a purchase price of
$1,700.  On the same date, CapitalSource agreed to release and
discharge their security interest in and to an undivided interest in the same
$2,000 of future dues.




30





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
0.53% at June 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;





•
            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.





Capital
Owed to Others





At June
30, 2010, we have various mortgage loans, aggregating $13,265, which we acquired
when Ultimate Escapes Holdings acquired certain assets and liabilities of
Private Escapes and an outstanding loan of $1,046 as a result of the June 3,
2010 transaction with Monterey.  The 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 loan from Kederike, LLC, an entity in which Richard Keith,
our Chairman, is a 50% owner.  The loan was repaid on August 9,
2010.





Six
Months Ended June 30, 2010 Compared with the Six Months Ended June 30, 2009 (in
thousands)





Operating
Activities





Net cash
provided by operating activities during the six months ended June 30, 2010 was
$76, compared with net cash provided of $2,529 for the same period in
2009.  This decrease in cash from operating activities of $2,453
reflects an increase in our net loss of $(9,140), from a net loss of $(1,662) in
2009 to a net loss of $(10,802) in 2010, offset by a net increase of $859 in
non-cash charges to income in 2010, a net reduction of $3,354 in our restricted
cash requirements, and a net cash improvement in current assets and liabilities
and other membership receivables of $1,215, primarily reflecting lower
membership receivable balances.  The decrease in net income primarily
reflects the 2009 benefit of the $6,072 membership special assessment, which was
not repeated in 2010.


31





Investing
Activities





For the
six months ended June 30, 2010, net cash of $6,596 was provided by investing
activities compared with $1,336 for the same period in 2009, an increase of
$5,260 due primarily to the sale of properties. There were no acquisitions of
properties during the periods ended June 30, 2010 or 2009 and limited capital
expenditures for the quarter and six months ended June 30, 2010 of $278 and
$417, respectively compared with none for the same periods in
2009.





Financing
Activities





For the
six months ended June 30, 2010, net cash used to repay debt was $8,820, an
increase of $7,173 compared with repayments of $1,647 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.





Six
      Months Ended
                                  June
      30, 2010GAAP
                                
                                
                                AdjustedFinancial
                                
                                
                                GAAPInformation
                                
                                
                                Revenue(thousands)Total
      Revenues
                                
                                $
                                14,874
                                
                                
                                $
                                14,874Add:
      Non-GAAP Revenue Accretion
                                
                                
                                
                                
                                
                                
                                1,296Adjusted
      Non-GAAP Revenue
                                
                                
                                
                                
                                
                                $
                                16,170Six
      Months EndedJune
      30, 2010GAAP
                                  Financial
                                  Information
                                
                                
                                Non-GAAP(thousands)Net
      Loss
                                
                                $
                                (10,802
                                )
                                
                                $
                                (10,802
                                )Add:Non-GAAP
      Revenue Accretion
                                
                                
                                
                                
                                
                                
                                1,296Adjusted
      loss
                                
                                
                                (10,802
                                )
                                
                                
                                (9,506
                                )Add:Non
      cash stock-based compensation
                                
                                
                                
                                
                                
                                
                                140Interest
      expense
                                
                                
                                6,084
                                
                                
                                
                                6,084Taxes
                                
                                
                                20
                                
                                
                                
                                20Depreciation
      and amortization (1)
                                
                                
                                4,267
                                
                                
                                
                                4,267EBITDA
                                
                                $
                                (431
                                )Adjusted
      EBITDA
                                
                                
                                
                                
                                
                                $
                                1,005





(1)
            Depreciation
      and amortization include 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 June 30, 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 our 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.




33





PART
II — OTHER INFORMATION





ITEM
1 — LEGAL PROCEEDINGS





As of
June 30, 2010, we are not subject to any material legal
proceedings.  From time to time, however, we 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





Not
Applicable.





ITEM
3 — DEFAULTS UPON SENIOR SECURITIES





Not
Applicable.





ITEM
4 — (Removed and Reserved)





Not
Applicable.





ITEM
5 — OTHER INFORMATION





None.




ITEM
6 — EXHIBITS





3.1
              
              Second
      Amendment and Restated Certificate of Incorporation (1)3.2
              
              Certificate
      of Designation of Series A Preferred Stock (1)3.3
              
              Bylaws
      (2)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.




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:
      August 9, 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 Accounting Officer)


35


EXHIBIT
INDEX





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.




36