American Leisure Holdings, Inc. Form 10-KSB Year Ended December 31, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
|
[X]
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
fiscal year ended December 31, 2006
|
[
]
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
transition period from ___________ to _____________
Commission
file number: 333-48312
AMERICAN
LEISURE HOLDINGS, INC.
(Name
of
small business issuer in its charter)
|
Nevada
|
|
75-2877111
|
|
(State
of organization)
|
|
(I.R.S.
Employer
|
| |
|
Identification
No.)
|
2460
Sand Lake Road, Orlando, FL 32809
(Address
of principal executive offices) (Zip Code)
Issuer's
telephone number: (407)
251-2240
SECURITIES
REGISTERED PURSUANT TO SECTION 12(B)
OF
THE
EXCHANGE ACT:
NONE
Check
whether the issuer (1) 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 periods 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 [ ]
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [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
issuer's revenues for its most recent fiscal year were $27,720,133.
The
aggregate market value of the issuer's voting and non-voting common equity
held
by non-affiliates computed by reference to the average bid and ask price of
such
common equity as of April 13, 2007 was approximately $3,000,390.
At
April
13, 2007, there were 10,877,974 shares of the Issuer's common stock
outstanding.
TABLE
OF CONTENTS
PART
I
|
ITEM
1.
|
DESCRIPTION
OF BUSINESS
|
4
|
| |
|
|
|
ITEM
2.
|
DESCRIPTION
OF PROPERTY
|
31
|
| |
|
|
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
32
|
| |
|
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
35
|
| |
|
|
|
PART
II
|
| |
|
|
|
ITEM
5.
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
36
|
| |
|
|
|
ITEM
6.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
40
|
| |
|
|
|
ITEM
7.
|
FINANCIAL
STATEMENTS
|
75
|
| |
|
|
|
ITEM
8.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
118
|
| |
|
|
|
ITEM
8A.
|
CONTROLS
AND PROCEDURES.
|
118
|
| |
|
|
|
ITEM
8B.
|
OTHER
INFORMATION.
|
118
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| |
|
|
|
PART
III
|
| |
|
|
|
ITEM
9.
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION
16(A) OF THE EXCHANGE ACT.
|
119
|
| |
|
|
|
ITEM
10
|
.
EXECUTIVE COMPENSATION.
|
123
|
| |
|
|
|
ITEM
11.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
131
|
| |
|
|
|
ITEM
12.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
133
|
| |
|
|
|
ITEM
13.
|
EXHIBITS
|
145
|
| |
|
|
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
158
|
| |
|
|
|
SIGNATURES
|
|
159
|
PART
I
ITEM
1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING
STATEMENTS
CERTAIN
STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-KSB (THIS "FORM 10-KSB"), CONSTITUTE
"FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY ALL, OF
SUCH
FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD", OR "ANTICIPATES",
OR
THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY,
OR
BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS
OF
AMERICAN LEISURE HOLDINGS, INC. TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-KSB, UNLESS ANOTHER
DATE
IS STATED, ARE TO DECEMBER 31, 2006. ALL REFERENCES IN THIS REPORT ON FORM
10-KSB TO "THE COMPANY," "WE," "US," "OUR," “AMLH,” “AMERICAN LEISURE” OR WORDS
OF SIMILAR MEANING INCLUDE THE OPERATIONS OF AMERICAN LEISURE HOLDINGS, INC.
AND
SUBSIDIARIES.
Business
Development
We
were
incorporated in Nevada in June 2000 as "Freewillpc.com, Inc.," and until June
2002, operated as a web-based retailer of built-to-order personal computers
and
brand name related peripherals, software, accessories and networking products.
In June 2002, we acquired American Leisure Corporation, Inc. ("American Leisure
Corporation"), in a reverse merger (discussed below). We re-designed and
structured our business to own, control and direct a series of companies in
the
travel and tourism industries so that we can achieve vertical and horizontal
integration in the sourcing and delivery of corporate and leisure travel
services and offerings.
On
June
14, 2002, we entered into a stock purchase agreement with the former
stockholders of American Leisure Corporation, in connection with the acquisition
of American Leisure Corporation, pursuant to which we issued the former
stockholders of American Leisure Corporation 4,893,974 shares of our common
stock and 880,000 shares of our Series A preferred stock having 10 votes per
share. As part of this transaction, Vyrtex Limited, a UK company, which owned
3,830,000 shares of our common stock, surrendered 3,791,700 of the 3,830,000
shares owned by them. The transaction was treated
as a reverse merger and a re-capitalization of American Leisure Corporation,
which was considered the accounting acquirer. The operations of Freewillpc.com
prior to the transaction were not carried over and were adjusted to $0.
Effective July 24, 2002, we changed our name to American Leisure Holdings,
Inc.
In
addition to the Company's establishment and continuing operation of a Travel
Division, we have established a Resort Properties Division and related leisure
and travel support operations. Through our various subsidiaries, we: manage
and
distribute travel services; develop, sell and will manage travel destination
resorts and vacation home properties; and develop and operate affinity-based
travel clubs. Further, we owned and operated a call center in Antigua-Barbuda,
which call center business was sold effective June 30, 2006, as described below,
and which operations are included in our financial statements and results of
operations as discontinued operations for the year ended December 31, 2006,
contained herein. Our businesses are intended to complement each other and
to
enhance Company revenues by exploiting consumer cross-marketing opportunities.
We intend to take advantage of the synergies between the distribution of travel
services and the creation, marketing, sale and management of vacation home
ownership and travel destination resorts. In connection with our development
of
vacation homes we will also buy and sell parcels of undeveloped
land.
On
October 1, 2003, we acquired a 50.83% majority interest in Hickory Travel
Systems, Inc. ("Hickory" or “HTS") as the key element of our Travel Division.
Hickory is a travel management service organization that serves its
network/consortium of approximately 160 well-established travel agency members,
comprised of over 3,000 travel agents worldwide serving corporate and leisure
travelers. We intend to complement other Company businesses through the use
of
Hickory's 24-hour reservation services, international rate desk services,
discount hotel programs, preferred supplier discounts, commission enhancement
programs, marketing services, professional services, technologies, and
information exchange.
In
December 2004, Caribbean Leisure Marketing, Ltd. ("Caribbean Leisure
Marketing"), our former wholly owned subsidiary that was focused on
telecommunications, entered into a joint venture with IMA Antigua, Ltd. to
operate a call center in Antigua that Caribbean Leisure Marketing owns. The
joint venture was operated through Caribbean Media Group, Ltd., an international
business corporation formed under the laws of Barbados. On June 30, 2006,
pursuant to a Stock Purchase Agreement (described in greater detail below),
the
call center operations and Caribbean Leisure Marketing were sold to Stanford
International Bank Limited (a minority shareholder and creditor of the
Company).
On
December 31, 2004, American Leisure Equities Corporation ("ALEC"), one of our
wholly owned subsidiaries, acquired substantially all of the assets of Around
The World Travel, Inc. ("Around The World Travel" or "AWT") which included
all
of the tangible and intangible assets necessary to operate the business
including the business name "TraveLeaders". We engaged Around The World Travel
to manage the assets and granted Around The World Travel a license to use the
name "TraveLeaders." TraveLeaders is a fully-integrated
travel agency and travel services distribution business that provides its
clients with a comprehensive range of business and vacation travel services
including corporate travel management, leisure sales, special events and
incentive planning. TraveLeaders is based in Coral Gables, Florida. On and
effective on August 1, 2006, the Management Agreement and the License Agreement
with AWT were terminated by ALEC which, effective on that date, began directly
managing the travel business assets and operations of
TraveLeaders.
Except
as
expressly indicated or unless the context otherwise requires, "we," "our,"
or
"us" means American Leisure Holdings, Inc. and its
subsidiaries.
Business
Integration
Our
mission is to remain focused on the development, sale and management of vacation
travel destination resorts. As such we have completed the planning and completed
most of the site development for "The Sonesta Orlando Resort at Tierra Del
Sol"
(the "Sonesta Resort"), a planned 972-unit vacation home resort located just
10
miles from Walt Disney World, in Orlando, Florida. Additionally, we are in
the
planning stages of developing our Reedy Creek Property, which is situated in
the
northwest section of Osceola County, Florida about one mile from the "Maingate"
entrance to Walt Disney World, Orlando and approximately one-half mile from
the
south entrance to "Disney's Animal Kingdom" theme park. The Reedy Creek Property
consists of three parcels totaling over 40 gross acres with approximately 29
acres of buildable land. The Ready Creek Property is currently planned to
consist of approximately 522 residential units consisting of mid-rise
condominium buildings.
Though
"Developments of Regional Impact" (DRIs) are underway, we are seeking to
maximize property development and sales by obtaining governmental approval
for
more housing units than was initially planned at our Tierra del Sol and Reedy
Creek properties. Although there is no assurance of the additional density
that
may be achieved through the DRI process we believe that both Tierra del Sol
and
Reedy Creek may gain approval to develop as many as 859 additional units for
Tierra del Sol Resort and 678 for Reedy Creek.
Subject
to having sufficient capital and our determination of value to our shareholders,
we intend to achieve growth through selected acquisitions of real property
and
business assets and interests. Although no agreements related to such future
acquisitions have been concluded, we expect to negotiate and, subject to our
final determination as to the merits of such acquisitions(s) and the
availability of necessary capital, complete the acquisition of Florida
destination resort property holdings proximate to our existing resort
developments at initial entry prices for the developable land that may be
materially below current appraised values. Growth may be realized through our
continued creation of destination resorts, and through the prospective
acquisition of qualified, existing destination resorts, thereby creating an
extensive resort and vacation ownership network further supported by the
Company's travel services division. Our goal through such expansion would be
to
further become an integrated, "one-stop" leisure services company,
seeking to seamlessly provide for the development, sales, and management of
and
the ongoing generation of revenue from destination resorts while offering
vacation ownership and an extensive range of travel services to an expanding
customer and client base. In connection with our development of vacation homes
we will continue to buy and sell parcels of undeveloped
land.
During
the year ended December 31, 2006, we worked to integrate the administrative
operations of Hickory and TraveLeaders to distribute, fulfill and manage our
travel services and our Resort Properties; however, the full integration of
these two divisions has become substantially harder than we anticipated due
to
the different operating and system platforms of the two divisions, and as such,
we have abandoned our previous plans to integrate the two divisions and are
currently evaluating the synergies and cost/benefits of continuing to maintain
the two separate divisions.
Our
business model for support between our divisions is to use the travel
distribution, fulfillment and management services of the combined resources
of
Hickory and TraveLeaders to provide consumer bookings at our planned resorts,
to
increase the rental of vacation homes that we plan to manage at these resorts,
and to fulfill the travel service needs of our affinity-based travel clubs.
We
intend to complement our other businesses through the use of Hickory's 24-hour
reservation services, international rate desk services, discount hotel programs,
preferred supplier discounts, commission enhancement programs, marketing
services, professional services, automation and information exchange.
TraveLeaders is a fully integrated travel services distribution business that
provides its clients with a comprehensive range of business and vacation travel
services in both traditional and e-commerce platforms including corporate travel
management, leisure sales, and meeting, special event and incentive planning.
TraveLeaders currently fulfills travel orders produced by our affinity travel
clubs.
Sonesta
Resort Financing
On
December 29, 2005, certain affiliates of the Company closed two (2) credit
facilities with Key Bank, National Association ("KeyBank") related to the
Sonesta Resort. The credit facilities consisted of a $40,000,000 revolving
construction loan to be used to construct Phase 1 of the Sonesta Resort (the
"Construction Loan") and a $14,850,000 term loan on the Phase 2 land, the
proceeds of which were contributed to the Phase 1 partnership as equity and
used
to repay existing debt on the property and finance part of the site work of
the
property for the Resort and to pay certain related costs (the "Land Loan").
To
facilitate the financing for the Sonesta Resort, the Company has formed two
limited partnerships, each of which will develop Phase 1 and Phase 2 of the
Resort (the "Development Partnerships"). Each Development Partnership has
several subsidiaries, which have been formed to develop different portions
of
the Sonesta Resort.
Phase
1
will also include construction of related amenities, including a swimming pool
complex and sun decks, a lazy river, a poolside restaurant and other amenities
typical of a resort of this kind. We have completed approximately 90% of the
grading and underground
infrastructure required for the Phase 1 construction to date and began vertical
construction of the phase one town homes in January 2007. Phase 2 will include
construction of 144 additional residential condominium units and 442 additional
town home units, as well as a 126,000 square foot clubhouse (84,000 square
feet
under air). Construction of Phase 2, which has not begun yet, is expected to
overlap with the construction of Phase 1 as soon as the TDS plat has been
recorded, which is expected to occur in April 2007.
The
general partner of each Development Partnership is TDS Management LLC, a limited
liability company controlled by Malcolm J. Wright, the Company's Chairman and
Chief Executive Officer. The principal limited partner of each Development
Partnership is Tierra Del Sol Resort, Inc., which owns a 99.9% interest in
each
Development Partnership. The Company owns 100% of Tierra Del Sol Resort,
Inc.
On
July
27, 2006, we, through one of our wholly owned subsidiary companies, formally
notified KeyBank, that we elected not to open the $40,000,000 revolving credit
Construction Loan. We have however, established a relationship with GMAC Bank,
through Millennium Capital Mortgage, to provide construction financing to the
individual purchasers of the Sonesta Resort town homes, which funding we believe
will enable all town homes and amenities at Tierra del Sol to be built through
this program. Additionally, we are in the process of negotiating with several
lenders for a construction loan on favorable terms for the condominiums and/or
for the clubhouse and anticipate entering into final agreements regarding such
funding by the end of the second quarter of fiscal 2007; however, we can provide
no assurances that we will be able to finalize such funding, or that assuming
such funding is available, that it will be on favorable terms.
The
Land Loan
The
borrowers under the Land Loan are Tierra Del Sol Resort (Phase 2), Ltd. (the
"Phase 2 Partnership") and other entities that are owned by the Phase 2
Partnership.
The
Land
Loan is a $14,850,000 term loan with a maturity date of June 28, 2007. The
proceeds of the Land Loan were primarily used to repay existing debt of the
property for the Sonesta Resort. The Land Loan bears interest at LIBOR plus
3.10% per annum, equal to approximately 8.50% as of February 14, 2007, with
the
LIBOR equal to 5.40% as of that date.
The
Land
Loan is secured by a first lien on the land within Phase 2 of the Sonesta
Resort, including any improvements, easements, and rights of way; a first lien
and security interest in all fixtures and personal property, an assignment
of
all leases, subleases and other agreements relating to the property; an
assignment of construction documents; a collateral assignment of all contracts
and agreements related to the sale of each condominium unit; a collateral
assignment of all purchase deposits and any management and/or operating
agreement.
The
borrowers paid 1% of the Land Loan Agreement as a commitment fee, which totaled
$148,500. The Borrowers were obligated to pay all costs and expenses of KeyBank
in connection with the commitment and closing of the loan. Additionally, the
Company will pay an exit fee equal to 4% of the maximum loan amount unless
the
loan is repaid with a construction loan from KeyBank or KeyBank declines to
grant a construction loan to the Company for Phase 2. The Company was obligated
to pay all costs and expenses of KeyBank in connection with the commitment
and
the closing of the loan.
In
connection with the election not to open the Construction Loan, we and KeyBank
have agreed to modify the Land Loan. The Land Loan will remain in place, and
we
have provided $1 million in cash as additional collateral for the loan. We
have
also agreed to a principal payment schedule related to the Company's planned
construction of the 442 town homes in Phase 2 of the Sonesta Resort to reduce
the balance of the loan between January 31, 2007 and its maturity
date.
The
Company and Mr. Wright have issued guarantees to KeyBank on the Land Loan.
We
believe that without the guarantees of Mr. Wright, it would have been more
difficult, if not impossible, for us to secure the KeyBank credit facility.
The
occurrence of any one or more "events of default" under the Land Loan allow
KeyBank to pursue certain remedies including taking possession of the Sonesta
Resort project; withholding further disbursement of the proceeds of the loan
and/or terminate KeyBank's obligations to make further disbursements thereunder;
and/or declaring the note evidencing the loans to be immediately due and
payable.
Westridge
Community Development District Bonds
The
closing of the new credit facilities with KeyBank triggered the closing of
the
sale of $25,825,000 in community development bonds issued by the Westridge
Community Development District (the "District"). The proceeds of the bonds
will
be used, in part, to fund infrastructure at the Sonesta Resort and to acquire
land for public purposes from Tierra Del Sol Resort (Phase 1), Ltd. The debt
service and retirement of these bonds will be funded by a special district
tax
upon the property owners in the District at an interest rate of 5.8% over a
30-year amortization period. Grading and infrastructure for the District are
more than 85% complete as of March 2007.
SIBL
Credit Facility
On
December 29, 2005, Stanford International Bank, Ltd. ("SIBL") provided Tierra
Del Sol with financial assistance to facilitate the closings of the Land Loan
and the Construction Loan. The financial assistance consisted of a loan to
Tierra Del Sol of $2,100,000 (the "SIBL Tierra Del Sol Loan"), and the
establishment of letters of credit in favor of KeyBank in the amount of
$4,000,000 and $2,000,000, respectively (the "Letters of Credit"), which Letters
of Credit were subsequently cancelled, effective June 30, 2006. The financial
assistance provided by SIBL was evidenced by a Credit Agreement dated as of
December 29, 2005 between SIBL, Tierra Del Sol Resort, Inc. and the Company
(the
"SIBL Credit Agreement"). As consideration for the purchase of the Antiguan
call
center including our subsidiary Caribbean Leisure Marketing, Inc. (described
below), SIBL exchanged the $2,100,000 loan, as well as the accrued interest
on
such loan in the amount of $85,867.
Tierra
Del Sol used the proceeds of the SIBL Tierra Del Sol Loan to make a capital
contribution to the Phase 1 Development Partnership, which in turn pledged
this
amount to KeyBank as additional collateral for the Construction Loan. SIBL
is an
affiliate of Stanford Venture Capital Holdings Inc. Tierra Del Sol used the
Letters of Credit in lieu of cash to complete its equity requirements under
the
Construction Loan.
The
SIBL
Tierra Del Sol Loan has a 2-year term, with an initial interest rate of 12%
per
annum. Upon the payment of the note in full or the maturity of the loan from
KeyBank, Tierra Del Sol was also required to pay a one-time minimum fee equal
to
3%. After six months, this fee increased by 1% each month until the letters
of
credit were released, which KeyBank did effective August 16, 2006. As
consideration for the purchase of the Antiguan call center including our
subsidiary Caribbean Leisure Marketing, Inc. (described below), SIBL exchanged
these fees which amounted to $540,000. Any unpaid amounts on the SIBL Tierra
Del
Sol Loan bear interest at the rate of 12% per year. This loan has been repaid
in
full.
The
obligations of Tierra Del Sol under the SIBL credit facility (the "Stanford
Credit Facility") were guaranteed by the Company and Malcolm J. Wright, the
Company's Chief Executive Officer and Chairman, along with other third party
entities, which third party entities are beneficially owned, in part, by Roger
Maddock, a significant shareholder of the Company, pursuant to an Irrevocable
and Unconditional Guaranty. We believe that without the guarantees of Mr. Wright
and other third parties, it would have been more difficult, if not impossible,
for us to secure the SIBL credit facility. These obligations were also secured
by a first mortgage lien on a parcel of real property owned by the third party
entities. The consideration paid for the third party entities' guarantees was
consistent with the existing debt guarantor agreement issued by the Company
for
its executives. The third party entities will receive and share in a guarantee
fee equal to 3% of the amount guaranteed. The third party entities, by virtue
of
pledging collateral for a debt that benefits the Company, will also receive
a
collateral pledge fee equal to 2% of the amount guaranteed. The Company paid
this fee through the grant of 405,000 warrants to the third party entities
to
purchase shares of the Company's common stock at an exercise price of $1.02
per
share in December 2005. These warrants will expire 5 years from the expiration
date of the guarantees. In consideration of Mr. Wright's guarantee, and pursuant
to an existing agreement between Mr. Wright and the Company, Mr. Wright earned
a
fee for such guarantee equal to three percent (3%) of the amount guaranteed.
The
Company will pay this fee through the grant of 243,000 warrants to Mr. Wright
to
purchase shares of the Company's common stock at an exercise price of $1.02
per
share in December 2005. These warrants will expire 5 years from the expiration
date of the guarantee.
Tierra
Del Sol has pledged its partnership interests in the Development Partnerships
to
Stanford as additional collateral for this facility. Following an event of
default as defined under the Credit Agreement, Stanford has the right for thirty
(30) days following such event of default, directly or through its affiliates,
to purchase any unsold units in the Sonesta Resort at a price equal to the
developer's cost, but only to the extent permitted by KeyBank.
As
additional consideration for the loan, the Company granted SIBL warrants to
purchase 308,000 shares at an exercise price of $5.00 per share of common stock
and warrants to purchase 154,000 shares at an exercise price of $0.001 per
share. Subsequent to the issuance of the warrants to SIBL, it exercised all
154,000 of the warrants to purchase shares of our common stock at an exercise
price of $0.001 per share, for aggregate consideration of $154. The warrants
expire 5 years from issuance (January 4, 2011). The warrants contain
anti-dilution provisions, including a provision which requires the Company
to
issue additional shares under the warrants if the Company issues or sells any
common stock at less than $1.02 per share, or grants, issues or sells any
options or warrants for shares of the Company's common stock to convert into
shares of the Company's common stock at less than $1.02 per share.
In
connection with the warrants, the Company and Stanford entered into a
Registration Rights Agreement (the "Registration Rights Agreement"). Under
the
Registration Rights Agreement, the Company agreed to prepare and file a
Registration Statement with the SEC covering the shares underlying the warrants
within 180 days of notice from SIBL of their demand that we file such
Registration Statement and to use the Company's best efforts to obtain
effectiveness of such Registration Statement as soon as practicable thereafter.
In the event the Company does not file a Registration Statement in connection
with the shares issuable in connection with the exercise of the warrants after
180 days notice from the warrant holders, the Company agreed to issue the
warrant holders as liquidated damages, warrants to purchase 10% of the shares
issuable in connection with the warrants, under the same terms and conditions
as
the warrants, upon such default and for every consecutive quarter in which
such
default is occurring.
We
estimate that the cost to complete the construction of Phase I of the Sonesta
Resort will be $136,500,000 of which $9,000,000 will be for resort amenities,
$64,000,000 will be for vertical construction on 294 units and $49,500,000
will
be for other costs such as contingencies, closing costs and soft costs such
as
architectural, engineering, and legal costs. An additional approximate amount
of
$14,000,000 will be expended for horizontal construction costs which include
all
of Phase I requirements plus most of the infrastructure requirements for the
entire Project. The $14,000,000 will be funded by the bonds proceeds held by
the
Westridge Development District and from equity reserves held by Key Bank. A
Land
Loan was also funded by Key Bank which was described above in the amount of
$14,850,000, of which approximately $14,352,900 had been borrowed under as
of
the date of this filing. We previously had entered into the $40,000,000
Construction Loan with KeyBank, which loan we decided not to open in favor
of
alternate, anticipated financing arrangements which we believe will be
beneficial to the timely completion of the Sonesta Resort project. We are in
the
process of negotiating with several lenders for a construction loan for the
condominiums and clubhouse and anticipate, although we cannot provide any
assurances, that such loan will be evidenced by a firm commitment during the
second quarter of 2007. Assuming we are able to enter into a subsequent funding
arrangement, we believe that we have sufficient funds to provide for the
completion of Phase 1, assuming there are no material cost overruns, delays
or
further increases in material costs. Phase 2 will be financed separately. It
is
anticipated that Phase 2 construction will commence by the second or third
quarters of 2007, although we cannot provide any assurances that we will have
adequate funding to begin construction at that time, if ever.
In
November 2003, we entered into an exclusive sales and marketing agreement with
Xpress Ltd. ("Xpress") to sell the vacation homes in the Sonesta Resort. Malcolm
J. Wright, one of our founders and our Chief Executive Officer and Chairman,
and
members of his family are the majority shareholders of Xpress. As of
December
31, 2006, Xpress had pre-sold approximately 600 vacation homes in a combination
of contracts on town homes and reservations on condominiums for total sales
volume of approximately $230 million.
REEDY
CREEK ACQUISITION COMPANY, LLC TRANSACTIONS
Background
In
July
2005, the Company and Stanford Financial Group Company ("SFG") formed a new
limited liability company named Reedy Creek Acquisition Company LLC ("Reedy
Creek Acquisition Company") for the purpose of acquiring a parcel of
approximately 40 acres of land located adjacent to the Animal Kingdom Theme
Park
at Walt Disney World, in Orlando, Florida (the "Reedy Creek Property"). The
Reedy Creek Property is described in greater detail below under "Development
Plans for Reedy Creek Property."
Reedy
Creek Acquisition Company acquired the Reedy Creek Property in July 2005 for
a
purchase price of $12,400,000. Reedy Creek Acquisition Company paid $8,000,000
of the purchase price in cash and paid the $4,400,000 balance pursuant to the
terms of a promissory note issued to the sellers secured by a first mortgage
lien on the Reedy Creek Property. At the time of the purchase, Reedy Creek
Acquisition Company obtained a $7,150,000 loan from SIBL (the "SIBL Reedy Creek
Loan"), secured by a second mortgage lien on the property. The proceeds of
this
loan were used to pay part of the cash portion of the purchase price and for
closing costs associated with the closing. The Company contributed the remainder
of the purchase price. At the time of the acquisition of the Reedy Creek
Property, Reedy Creek Acquisition Company was owned 99% by SFG and 1% by one
of
the Company's wholly owned subsidiaries, American Leisure Reedy Creek Inc.
("ALRC"), however ALRC, has since exercised its option (the "Reedy Creek
Option") to receive 100% of the interest in the Reedy Creek Acquisition Company
in return for $600,000 paid to SFG in January 2006.
SFG
and
SIBL are affiliates of Stanford Venture Capital Holdings Inc., a significant
shareholder of the Company.
SIBL Reedy Creek Loan
Terms
In
connection with the exercise of the Reedy Creek Option, Reedy Creek Acquisition
Company and SIBL agreed to modify the terms of the SIBL Reedy Creek Loan made
by
SIBL to Reedy Creek Acquisition Company. The modified loan terms are evidenced
by a Renewed, Amended and Increased Promissory Note (the "Amended Note") made
by
Reedy Creek Acquisition Company in favor of SIBL. The Amended Note had a
maturity date of December 31, 2006, but has since been extended until June
30,
2007, pursuant to an Amendment No. 1 to the Amended Note, a principal balance
of
$8,000,000 and bears interest at the rate of 8% per year payable quarterly.
Interest in the amount of $262,885 on the Amended Note has been exchanged as
consideration for the purchase of the Antiguan call center including our
subsidiary Caribbean Leisure Marketing, Inc. (described below). Upon an event
of
default as described in the Amended Note, SIBL has several rights and remedies,
including causing the Amended Note to be immediately due and
payable.
The
Amended Note was replaced in November 2006, by a Renewed, Amended and Increased
Promissory Note in the amount of $12,200,000, by a $13,420,000 note in December
2006 and by a $15,300,000 note in January 2007 (the "RC Note"). The RC Note
is
due and payable on June 30, 2007, with $8,000,000 of the RC Note bearing
interest at the rate of 8% per annum and the remaining $7,300,000 bearing
interest at the rate of 12% per annum.
The
RC
Note is secured by a second lien on the Reedy Creek Property. It is guaranteed
by the Company and Malcolm J. Wright, the Company's Chief Executive Officer
and
Chairman pursuant to a Modification and Reaffirmation of Guaranty and
Environmental Indemnity Agreement. We believe that without the guarantees of
Mr.
Wright, it would have been more difficult, if not impossible, for us to secure
the SIBL credit facility.
Bankers
Credit Corporation Loan
In
connection with the exercise of the Reedy Creek Option, the Company and Reedy
Creek Acquisition Company arranged to receive a $7,000,000 loan from Bankers
Credit Corporation ("Bankers Credit").
Under
the
terms of the Bankers Credit loan, Bankers Credit advanced Reedy Creek
Acquisition Company $3,000,000 at closing and an additional $4,000,000
subsequent to the date of closing. On February 1, 2007, the Bankers Credit
note
was replaced by an Amended and Restated Promissory Note in the amount of
$7,860,000, which included an additional advance of $860,000.
The
Bankers Credit loan is evidenced by a an Amended and Restated Promissory Note
(the "Bankers Credit Note") and bears interest at the greater of the Wall Street
Journal published prime rate plus 6.75%, not to exceed the highest rate
allowable under Florida law or 15% per year. The interest rate of the Bankers
Credit Note as of March 13, 2007, was 15% (with a prime rate, as reported by
the
Wall Street Journal of 8.25%). Interest on the Bankers Credit Note is payable
monthly. The maturity date of the Bankers Credit Note
was
January 3, 2007, but was extended until February 1, 2008, pursuant to the
amendment to the note. Pursuant to the Bankers Credit Note, Reedy Creek
Acquisition Company agreed to pay a 10% late charge on any amount of unpaid
principal or interest under the Bankers Credit Note. The Bankers Credit Note
is
subject to a 1% exit fee. Upon an event of default as described in the Bankers
Credit Note, Bankers Credit has several rights and remedies, including causing
the Bankers Credit Note to be immediately due and payable.
The
Bankers Credit Note is secured by a first lien on the Reedy Creek Property.
Additionally, the Bankers Credit Note is guaranteed by the Company and Malcolm
J. Wright, the Company's Chief Executive Officer and Chairman pursuant to a
Guaranty Agreement. We believe that without the guarantees of Mr. Wright, it
would have been more difficult, if not impossible, for us to secure the Bankers
Credit, loan facility.
Reedy
Creek Acquisition Company utilized the initial proceeds from the Bankers Credit
loan to pay a portion of the amount owed on the existing first mortgage note
issued to the sellers of the Reedy Creek Property. The holder of this mortgage
agreed to release the mortgage in exchange for this payment. Reedy Creek
Acquisition Company has now paid the balance of this mortgage note upon the
receipt of the balance of the Bankers Credit loan.
Development
Plans for Reedy Creek Property
The
Reedy
Creek Property is situated in the northern section of Osceola County, Florida
and lies on three contiguous development parcels located to the immediate north
of U.S. Highway 192 West, about one mile from the "Maingate" entrance to Walt
Disney World, Orlando and 0.75 miles from the entrance to "Disney's Animal
Kingdom" theme park. The property is one of only a small number of privately
owned parcels abutting Walt Disney World (north and east
boundaries).
The
Reedy
Creek Property consists of three parcels totaling over 40 gross acres with
approximately 29 acres of buildable land. The Osceola County Comprehensive
Land
Plan for the site allows vacation homes at a density of 18 units per acre,
which
results in a maximum allowable project density of 522 residential units. To
achieve the maximum density, it is anticipated that the project will consist
of
mid-rise condominium buildings. Amenities proposed on-site include a water
park
with swimming pools, guest services clubhouse, and other related on-site resort
amenities.
It
is
anticipated that Walt Disney World's Reedy Creek Improvement District (the
"District"), a quasi-government body whose constituents are all affiliated
with
Walt Disney World Company, will agree to construct and pave the widening and
extension of Reedy Creek Boulevard north and westward at its expense. We are
currently working with the District towards this end. The District will have
a
public hearing during which it is anticipated that the District will be given
the authority to acquire the land from Reedy Creek Acquisition Company and
make
the improvements to Reedy Creek Boulevard. If the District acquires the
requisite authority from its constituents, Reedy Creek Acquisition
Company has agreed to convey relatively small portions of the three combined
properties to constitute this roadway. Reedy Creek Acquisition Company will
benefit from the conveyance by saving the cost of the road it would have to
build anyway and it will enhance the required road frontage for the
project.
Though
"Developments of Regional Impact" (DRI) are underway, we are seeking to maximize
Reedy Creek's property development and sales by obtaining governmental approval
for more housing units than was initially planned. Although there is no
assurance of the additional density that may be achieved through the DRI
process, we believe that Reedy Creek may gain approval to develop as many as
678
additional units.
The
Company's development of the Reedy Creek Property is currently planned to begin
in the fourth quarter of 2009, with the completion of such property planned
for
2010 or 2011, subject to funding and scheduling permitting. The Company will
not
know the total estimated cost of the development of the Reedy Creek Property
until it has determined the market and completed designs for the properties.
The
Company does not currently have any funding in place for any of the capital
which will be required to complete the development of the Reedy Creek Property
and there is no assurance that funding will be available on favorable terms,
if
at all. The Company is currently seeking a joint venture partner for this
property.
Note
Modification Agreement
In
February 2006, we entered into a Note Modification Agreement with SIBL, whereby
we agreed to modify certain provisions of our outstanding promissory notes
with
SIBL to grant extensions of payments due. Pursuant to the Note Modification
Agreement, we and SIBL agreed that all interest due on our $6,000,000 note,
from
January 1, 2005, through September 30, 2006, shall be due and payable on
September 30, 2006, which due date has since been extended by SIBL to December
31, 2008, with all interest thereafter payable with the original terms of that
note however, as consideration for the purchase of the Antiguan call center
including our subsidiary Caribbean Leisure Marketing, Inc. (described below),
SIBL exchanged $546,000 of accrued interest; that all interest accrued on the
$3,000,000 note we have with SIBL, from the date of the note until September
30,
2006, shall be due and payable on September 30, 2006, which due date has since
been extended by SIBL to April 22, 2007, which has been further extended to
January 1, 2008, pursuant to the Modification Agreement effective December
31,
2006, described above, with all interest thereafter payable with the original
terms of that note; however, as consideration for the purchase of the Antiguan
call center including our subsidiary Caribbean Leisure Marketing, Inc.
(described below), SIBL exchanged the $654,080 of accrued interest as of June
30, 2006 as well as our $1,250,000 note with SIBL which was previously due
September 30, 2006, and that no payments of principal or interest on that note
shall be payable until the extended due date of that note; however, as
consideration for the purchase of the Antiguan call center including our
subsidiary Caribbean Leisure Marketing, Inc. (described below), SIBL exchanged
this note and $161,342 of accrued interest; that the maturity date of our
$1,355,000 note with SIBL be extended until June 30, 2007, which has been
further extended to January 1, 2008, pursuant to the Modification
Agreement effective December 31, 2006, described above, and that no payments
of
principal or interest on that note shall be payable until the extended due
date
of that note; that the maturity date of our $305,000 note with SIBL be extended
until June 30, 2007, which has further been extended until January 1, 2008,
pursuant to the Modification Agreement effective December 31, 2006, described
above, and that no payments of principal or interest on that note shall be
payable until the extended due date of that note, however, as consideration
for
the purchase of the Antiguan call center including our subsidiary Caribbean
Leisure Marketing, Inc. (described below), SIBL exchanged interest of $85,867
on
our $2,100,000 note with SIBL with a maturity date of December 27,
2007.
Purchase
of Minority Interest In Tierra Del Sol
In
March
2006, and effective as of December 31, 2005, we purchased the minority interest
of our now wholly owned subsidiary, Tierra Del Sol, Inc. (the "Minority
Interest") from Harborage Leasing Corporation ("Harborage"). The purchase price
of the Minority Interest from Harborage was a promissory note for $1,411,705
("Harborage Note"), which was paid in August 2006; the right to receive, without
payment, two (2) three-bedroom condominium units to be constructed in Phase
2 of
the Sonesta Resort, or in the event title to both such units is not delivered
by
December 31, 2007, then, in lieu thereof, payment of $500,000 for each such
unit
that is not transferred by such date; 197,000 shares of the Company's common
stock; and warrants to acquire 300,000 additional shares of the Company's common
stock at an exercise price of $5.00 per share. The warrants expire if
unexercised five (5) years from their date of grant. Pursuant to the Stock
Purchase Agreement, Harborage had the right to require the Company to purchase
all or a portion of the Harborage 197,000 shares at $5.00 per share, for sixty
(60) days, beginning January 1, 2007 (the "Put Option"), however such Put Option
was extended pursuant to an Amendment to the Stock Purchase Agreement entered
into with Harborage on January 1, 2007, and now allows Harborage the right
to
require us to repurchase the 197,000 shares at $5.00 per share, at any time
during the six (6) month period beginning January 1, 2008 and ending June 30,
2008. The Harborage Note and shares are guaranteed by Malcolm J. Wright, the
Company's Chief Executive Officer and Chairman of the Company.
TRAVEL
SERVICES
Travel
Services Industry Overview
The
travel services industry is made up of two broad categories, corporate business
travel and individual leisure travel. TraveLeaders does the majority of their
business in the corporate travel management category and a small portion of
individual leisure travel, while Hickory provides services to a variety of
agencies that focus on corporate business travel.
Corporate
travel management became prevalent largely as a result of the deregulation
of
the airline industry in 1978. Complex pricing strategies and airline rules
and
the elimination
of previously available commission arrangements created an opportunity for
travel management companies to assist corporate clients in optimizing the value
of their travel expenditures.
Travel
is
generally the second largest controllable expense, behind personnel, for most
companies. Corporate travel management companies like TraveLeaders and most
of
Hickory's members reduce travel expenses for their clients by creating and
documenting travel policies, negotiating favorable pricing directly with travel
suppliers, and streamlining the reservation process with customized profiles
and
client-selected technologies including on-line booking tools.
The
corporate travel management industry has changed significantly in the last
ten
years. Elimination of airline commissions drove the industry to fee-for-service
arrangements, and rapid enhancements to technology allowed an expansion of
service offerings to clients. Successfully servicing those clients requires
significant technological, financial and operational resources, meaning that
larger corporate travel management companies such as TraveLeaders and Hickory
may have a competitive advantage. We believe the corporate travel management
industry is undergoing a period of consolidation as a result and that
significant growth opportunity exists in the industry.
The
industry's role and capacity as a distribution channel, and its relationship
with both clients and suppliers, is also undergoing significant change as a
result of the Internet and other technological innovations. We believe these
innovations offer opportunities for corporate travel management companies to
increase the efficiency of their distribution capacities and enhance services
provided to travelers and management.
Our
Travel Services
We
manage
and distribute travel services through Hickory, our 50.83% owned subsidiary
and
previously contracted with Around The World Travel, Inc. to manage TraveLeaders,
a fully integrated travel services distribution business based in Coral Gables,
Florida, which contract was terminated on August 1, 2006. We acquired our
interest in Hickory in October 2003. On December 30, 2004, we and ALEC, entered
into an Asset Purchase Agreement with AWT (the "Asset Purchase Agreement")
to
acquire substantially all of Around The World Travel's assets which included
the
business name "TraveLeaders" and all of the tangible and intangible assets
necessary to operate TraveLeaders. The purchase price was originally $17.5
million, which price was determined by an independent valuation company based,
in part, on economic information provided by Around The World Travel, Inc.
and
was comprised of the value as determined by the valuation firm, $16 million,
calculated on a going concern basis plus $1.5 million.
We
amended the Asset Purchase Agreement effective March 31, 2005 ("Amended Purchase
Agreement"), to change the form of consideration that we paid for the
TraveLeaders assets. Under the amendment, the liabilities assumed were reduced
to $4,242,051, we exchanged certain working capital loans in the amount of
$4,774,619 that Around The World Travel, Inc. owed to us and we cancelled the
issuance of Series F preferred
stock, which was originally included in the purchase price. In addition, we
issued a 60 month, 6% per annum note in favor of Around The World Travel in
the
principal amount of $8,483,330 (the "Purchaser Note"). During the first quarter
of 2005, we transferred to Around The World Travel allowance for doubtful
accounts, pre-paids and security deposits that we had acquired pursuant to
the
Asset Purchase Agreement to reduce the amount of the note. We also allowed
Around The World Travel to retain an amount of accounts receivable that we
had
acquired, which further offset the note.
On
or
about November 14, 2005, the Company and ALEC asserted certain claims against
AWT with respect to the alleged breach of the Asset Purchase Agreement and
a
Management Agreement (the "Management Agreement"). The claimed breach of the
Management Agreement was the failure of AWT to pay withholding taxes for its
employees to the Internal Revenue Service. After negotiations among the parties,
the parties agreed to settle the claims made by the Company and ALEC regarding
the Asset Purchase Agreement pursuant to the terms of a Settlement Agreement
entered into on February 24, 2006, and effective as of December 31, 2005 (the
"Settlement Agreement").
The
Settlement Agreement provided that the purchase price under the Amended Purchase
Agreement be reduced from $17,500,000 to $9,000,000. The parties agreed to
implement the reduction of the purchase price by eliminating the remaining
balance of the Purchaser Note (which had a balance of $5,297,788 as of December
31, 2005) and by establishing an obligation of AWT to pay to ALEC the amount
of
$3,185,548 as of December 31, 2005, which has not been paid to date, but was
written-off during the three months ended December 31, 2006. As a result of
the
write-off, AWT no longer owes us any money.
Under
the
terms of the Settlement Agreement, the Company, ALEC and AWT agreed to release
each other (and their respective officers and Directors) from all claims based
upon the Asset Purchase Agreement. Additionally, the parties agree to waive
any
right to indemnity or contribution which they may have against each other (and
their respective officers and Directors) for any liability which they might
incur to certain plaintiffs in certain pending litigation including Simon
Hassine and Seamless Technologies, provided that the waiver does not cover
any
liability incurred by the releasing party that is attributable to any act or
omission of the released party that constitutes bad faith or is not known to
the
releasing party.
TraveLeaders
We
provide our clients with a comprehensive range of business and vacation travel
services, including corporate travel management (including reservations,
profiled service levels, financial and statistical reporting and supplier
negotiations), leisure sales (including sales to individuals and to travel
and
vacation clubs), and meeting, special event and incentive planning. We provide
integrated solutions for managing corporate travel on a worldwide scale. We
also
offer corporate travel services on a local and regional level. Our corporate
travel services provide our clients with a complete suite of travel services
that range from completely 'agent-free' Internet booking tools to specialized
expert travel agent guidance. Our private label websites provide our corporate
clients
with an exclusive portal for corporate and leisure travel planning and booking.
Our corporate-clients range in size from companies with as few as two to three
travelers to companies with several hundred travelers or more. We develop
corporate travel policies, manage corporate travel programs and design and
develop information systems tailored for our clients. The benefits derived
by
our clients typically increase proportionately with the amount of spending,
in
that we can obtain direct benefits for the clients by negotiating favored terms
with suppliers and provide the client with better management information
regarding their spending patterns through active, involved account management
and customized reporting capabilities.
We
provide vacation travel services using destination specialists who have
first-hand knowledge of various destinations and the capability to handle a
client's specific vacation travel needs. We help our clients design and
implement vacations suited to their particular needs and try to do this in
the
most cost-efficient manner. We provide meeting, special event and incentive
planning to corporate clients ranging from Fortune 500 companies with thousands
of travelers to smaller companies with more modest meeting requirements. We
plan
events ranging in size from 10 to over 3,000 people. We have the capability
to
coordinate all aspects of a client's conference or event including servicing
general travel needs, booking group airline tickets as well as meeting
supervision and the production of all collateral needs. Our meeting, special
event and incentive planning services include program development, promotion
support, site selection, contract negotiations, registration and on-site
management for corporate events in addition to fulfillment of travel service
requirements. We also provide discount airline ticket and hotel
programs.
Hickory
Travel Systems, Inc.
Hickory
is a travel management service organization that serves its network/consortium
of approximately 160 well-established travel agency members, comprising more
than 3,000 travel agency locations worldwide, that focus primarily on corporate
travel. We utilize Hickory's 24-hour reservation services, international rate
desk services, discount hotel programs, preferred supplier discounts, commission
enhancement programs, marketing services, professional services, automation
and
information exchange.
American
Travel & Marketing Group
American
Travel & Marketing Group, Inc., our 81% owned subsidiary, develops and
operates affinity-based travel clubs. We believe that highly advantageous travel
benefits are the key to distinguishing our affinity club creation and management
from the older model of single purpose clubs. In addition to travel benefits,
we
actively promote cross-marketing strategies to engage non-traditional sponsors
to provide significant benefits to the members that would otherwise not be
available to them in a traditional affinity club. We utilize TraveLeaders to
fulfill the travel service needs of these affinity-based clubs.
Distribution
Of Our Travel Services
We
provide our travel services to our clients through several distribution
channels, including traditional brick and mortar regional and branch offices,
dedicated on-site corporate travel departments, call centers and Internet based
technologies.
TraveLeaders
has two large customer service operations in Coral Gables, Florida and Irvine,
California with five branch offices as follows:
Florida
o
Boca
Raton;
o
Orlando; and
o
Tampa
Ohio
o
Cincinnati
California
o
Irving;
and
o
San
Francisco
These
branch offices provide several corporate and vacation travel services to our
clients. These offices are primarily used by small companies as well as vacation
travelers seeking expertise in domestic and international destinations. In
addition, TraveLeaders has one leisure travel office in Largo,
Florida.
We
operate approximately twenty-four (24) on-site offices through TraveLeaders
located at corporate client premises, where we provide private label websites,
customized trip planning, reservation and ticketing services to the employees
of
such corporate clients.
Hickory
operates a 24-hour call center that we use to service our travel clients and
provide travel marketing services.
We
also
maintain an online reservation and booking website at www.traveleaders.com.
This
website permits both corporate and vacation clients to book airline flights,
hotel reservations, car rental reservations, cruises and vacation specials.
We
currently operate over a dozen web sites dedicated to specific types of travel
planning.
Competition
In The Travel Industry
The
travel services industry is highly competitive. We compete with a large number
of other providers of corporate and vacation travel services. Some of our
competitors include multi-national corporations that have significantly greater
resources than we have.
These significantly larger competitors continue to expand their size, which
may
provide them access to new products and more competitive pricing than we can
offer and may provide them certain economies of scale, which we may be unable
to
compete with. We also compete with Internet travel service providers and
directly with travel suppliers including, airlines, cruise companies, hotels
and
car rental companies. Additionally, we are faced with increasing use of the
Internet by both business and vacation travelers to purchase products and
services directly from travel suppliers that could result in bypassing us and
travel service providers similarly situated to us. To meet that competition,
we
have developed and will continue to develop business models to enable
TraveLeaders to obtain a growing market share of the 'agent free' travel
business. We also compete by bundling our products in competitively priced
tour
packages.
Vacation
Home And Travel Resort Operations
Our
vacation home and travel resort operations will be conducted within three
business segments. One will acquire tracts of real estate suitable for the
development of vacation resort properties, which will be subdivided, improved
and sold, typically on a retail basis as vacation home sales. The second segment
is the ongoing hospitality management of the resorts built by us. The third
operation is planned to develop, market and sell vacation ownership interests
in
our future resort properties primarily through vacation clubs. While our
vacation home management programs will not be a condition of purchase at any
of
our resorts, the consumer may elect to employ our management subsidiary to
handle all aspects of the care and economics of their vacation home, including
but not limited to the supervision of the home in a rental
arrangement.
Travel
Clubs
We
have
developed a travel club system and travel incentive strategy that creates and
fulfills the travel and incentive needs of corporations, organizations and
associations with significant member bases. Typically, we identify a national
retail entity and propose to create a club comprising persons in their target
demographic for the purpose of fostering loyalty to the entity's brands. The
incentives for membership are a rich assortment of discounted travel
opportunities that are tailored to the target demographic as well as a
significant array of special membership benefits that are provided by sponsors
of nationally known products and services. We will derive revenues from
membership dues, sponsorship premiums and travel commissions. In addition to
revenue generation, we also plan to seek to provide traffic to our vacation
home
and resort properties. We believe that we will generate increased travel
business through the creation of additional clubs comprised of affinity-based
travelers. We are the proprietor and manager of the clubs that we create. As
such, we anticipate that we will generate revenues from annual membership fees
and commissions earned on the sale of travel services once our infrastructure
has been finalized to enable our other businesses to communicate and sell to
the
affinity-based club databases we operate. We expect to derive revenue from
sales
opportunities to Hickory's corporate clients, Hickory's bulk purchasing power
and fulfillment capacity, and access to vacation home and resort properties
that
we plan to develop.
Communications
Services
In
December 2004 we entered into a joint venture with IMA Antigua, Ltd., a Barbados
company, to operate a call center in Antigua that we own. The joint venture
is
operated through Caribbean Media Group, Ltd., an international business
corporation formed under the laws of Barbados. We owned 49% of this joint
venture which operated the call center, until August 2006, at which time we
sold
our interest in the call center to Stanford International Bank Limited (“SIBL”),
pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement"), as
described in greater detail under “Recent Events.” These operations are reported
as discontinued operations in the attached financial statements.
The
co-venturer in the call center, IMA, Ltd. owns the remaining 51% interest in
the
call center. The call center provides in-bound and out-bound traffic for
customer service, customer retention and accounts receivable management. The
clients of the call center are well known national businesses with
well-established credit and operational systems.
Due
to
the Stock Purchase Agreement, we no longer have any interest in the Caribbean
Media Group, Ltd. or the call center.
Patents,
Trademarks & Licenses
We,
through our wholly owned subsidiary American Leisure Equities Corporation
("ALEC"), hold a registered trademark, Serial Number 78611764, registration
number 3170741, for the service mark "TraveLeaders."
Government
Regulation
The
travel, real estate development and vacation ownership industries are subject
to
extensive and complex regulation. We are, and may in the future be, subject
to
compliance with various federal, state, and local environmental, zoning,
consumer protection and other statutes and regulations regarding the
acquisition, subdivision and sale of real estate and vacation ownership
interests. On a federal level, the Federal Trade Commission has taken an active
regulatory role through the Federal Trade Commission Act, which prohibits unfair
or deceptive acts or competition in interstate commerce. We are, or may be
subject to the Fair Housing Act and various other federal statutes and
regulations. In addition, there can be no assurance that in the future, vacation
ownership interests will not be deemed to be securities subject to regulation,
which could increase the cost of such products. We believe that we are in
compliance in all material respects with applicable regulations. However, the
cost of complying with applicable laws and regulations may be significant.
Any
failure to comply with current or future applicable laws or regulations could
have a material adverse effect on us.
We
are
subject to various federal and state laws regarding our tele-service sales
and
telemarketing activities. We believe we are in compliance in all material
respects with all federal
and state telemarketing regulations. Our practices and methods may be or become
subject to additional regulation or regulatory challenge.
The
industries we will serve may also be subject to varying degrees of government
regulation. Generally, in these instances, we rely on our clients and their
advisors to develop and provide us with the scripts for their particular
purposes. We anticipate that our clients will indemnify us against claims and
expenses arising with respect to the scripts provided by our
clients.
Employees
We
have
approximately 295 employees, all of which are full-time employees. Those
employees are distributed among our parent and subsidiary companies as
follows:
o
TraveLeaders
-200
employees;
o
Hickory
Travel Systems, Inc.
-
89
employees;
o
American Leisure Equities Corporation
-
1
employee; and
o
American Leisure Holdings, Inc.
-
5
employees.
There
are
no collective bargaining contracts covering any of our employees. We believe
our
relationship with our employees is satisfactory.
RECENT
EVENTS
In
August
2006, with an effective date of June 30, 2006, we and several of our
subsidiaries, including Castlechart Limited ("CLM"), our former wholly owned
subsidiary, which owns 81% of the issued and outstanding stock of Caribbean
Leisure Marketing Limited ("Caribbean Leisure Marketing"), which in turn owned
49% of the issued and outstanding stock of Caribbean Media Group, Ltd.
("Caribbean Media Group"), which owned and operated our call center in Antigua,
entered into a Stock Purchase Agreement with Stanford International Bank Limited
("SIBL" and the "Stock Purchase Agreement").
The
Stock
Purchase Agreement provided that we would sell SIBL, all of our interest in
CLM
for an aggregate purchase price of $5,663,274. In connection with the purchase,
SIBL also agreed to exchange the interest on several of our outstanding
promissory notes with SIBL, and to amend the due date of such notes,
described in greater detail below, and we agreed to grant SIBL a warrant to
purchase 355,000 shares of our common stock at an exercise price of $10.00
per
share, which warrants have an expiration date of April 30,
2008,
and contain certain anti-dilution clauses, whereby if we grant any options
or
sell any shares of common stock for less than $1.02 per share, the exercise
price of the 355,000 warrants will reset to such lower price.
In
connection with the Stock Purchase Agreement, SIBL exchanged the following
debts
which we owed to SIBL: a $1,250,000 promissory note and accrued interest thereon
through June 30, 2006; a $2,100,000 promissory note and accrued interest thereon
through June 30, 2006; all accrued and unpaid interest on our $6,000,000 note
with SIBL as of June 30, 2006; all accrued and unpaid interest on our $3,000,000
promissory note payable to SIBL as of June 30, 2006; and $262,885 of accrued
interest on our $8,000,000 promissory note payable to SIBL, and all accrued
fees
on our $6,000,000 letter of credit, which SIBL agreed to guaranty in connection
with the KeyBank loans.
Additionally,
in connection with the Stock Purchase Agreement, SIBL also agreed to restate
the
due dates of the notes which we owe to SIBL, including, the $6,000,000 note,
which due date has been further restated due to the Modification Agreement
described below to January 1, 2008; the $3,000,000 note, which now has a
maturity date of January 1, 2008 pursuant to the Modification Agreement; the
$1,355,000 note, which now has a maturity date of January 1, 2008 due to the
Modification Agreement; the $8,000,000 note, which has since been further
extended to June 30, 2007; and the $305,000 note, which has a maturity date
of
January 1, 2008, which was further extended in connection with the Modification
Agreement.
Finally,
in connection with the Stock Purchase Agreement, CLM was released and discharged
from any liability under the $6,000,000 note or the $305,000 note with SIBL,
which it previously agreed to guarantee.
On
and
effective as of August 1, 2006, our Management Agreement and the License
Agreement with Around the World Travel ("AWT"), which we entered into with
AWT
on December 30, 2004, was terminated. American Leisure Equities Corporation,
which is a wholly owned subsidiary, is now operating and managing the
TraveLeaders assets.
In
August
2006, Tierra del Sol Resorts, Inc. entered into a guaranteed maximum price
construction contract with Resorts Construction, LLP ("Resorts Construction")
to
construct and develop part of the Sonesta Resort and its town home properties.
Resorts Construction is 50% owned by Malcolm J. Wright, the Company's Chief
Executive Officer and Chairman. We believe that the contract with Resorts
Construction provides significant savings over our previous contract with PCL
Construction, and is advantageous to the Company in comparison with terms
available in the market from other third party contractors. Pursuant to the
contract with Resorts Construction, we agreed to pay Resorts Construction a
contractor's fee equal to 5% of the total cost of the construction performed
by
Resorts Construction and 7.5% for general conditions. Any payments owed under
the Resorts Construction contract which are not paid when due bear interest
at
the rate of 12% per annum. We provided Resorts Construction a payment of
$4,000,000 upon our entry into the construction agreement with Resorts
Construction, which
funds Resorts Construction has used to begin construction of Phase 1 of the
Sonesta Resort.
Purchase
of Vici Note
In
August
2006, we entered into a Purchase Agreement with SIBL, whereby we agreed to
purchase a $750,000 promissory note from SIBL, which note was originally
received by SIBL from Scott Roix, an individual, in connection with SIBL's
sale
of its interest in Vici Marketing Group, LLC ("Vici" and the "Vici Note") to
Mr.
Roix, and which Note bears interest at the rate of 8% pre annum, payable on
June
30, 2008. In consideration for the purchase of the Vici Note, we agreed to
issue
SIBL 235,000 shares of our common stock and a five year warrant to purchase
235,000 shares of our common stock at an exercise price of $20 per share (the
"Vici Warrant"). We also granted SIBL demand registration rights in connection
with the registration of the shares underlying the Vici Warrant. The balance
of
the Vici Note as of December 31, 2006 was $500,000.
Employment
Agreement
In
August
2006, we entered into an Employment Agreement with Jason Williams, who agreed
to
serve as our Associate General Counsel and Assistant Secretary for a period
of
two years, which Employment Agreement shall terminate on August 21, 2008, unless
terminated earlier pursuant to the agreement. Pursuant to the Employment
Agreement, Mr. Williams will receive a salary of $150,000 per year (pro rated
for any incomplete years), which salary shall increase by no less than 10%
per
annum each year he is employed under the Employment Agreement. He is also
eligible to receive a bonus in connection with his Employment Agreement and
received 50,000 warrants to purchase shares of our common stock at $1.02 per
share immediately upon his entry into the Employment Agreement and will receive
an additional 25,000 warrants upon the one and two year anniversaries,
respectively, of such Employment Agreement, if he is still employed by us at
that time. The Employment Agreement may be terminated by us at any time for
"cause" as defined in the agreement, or by Mr. Williams at any time. Upon the
expiration of the initial term of the agreement, if not terminated by either
party previously, the employment agreement shall continue for additional six
(6)
month terms subject to termination by either party with thirty (30) days written
notice.
Credit
Agreements
On
November 22, 2006, we entered into a Credit Agreement through our wholly owned
subsidiary Reedy Creek Acquisition Company, LLC ("RCAC") and Stanford
International Bank Limited ("SIBL"), to provide RCAC a $4,300,000 credit
facility (the "RC Credit Agreement"). SIBL had previously loaned RCAC $7,150,000
on July 8, 2005 and $850,000 on January 5, 2006, which loans were evidenced
by a
Renewed, Amended and Increased Promissory Note in the amount of $8,000,000,
which we had guaranteed. In connection with the RC Credit Agreement, the
Renewed, Amended and Increased Promissory Note was replaced by a Second Renewed,
Amended and Increased Promissory Note in the amount of $12,200,000, which was
replaced by a Third Renewed, Amended
and Increased Promissory Note in the amount of $13,420,000, which was replaced
by a Fourth Renewed, Amended and Increased Promissory Note in the amount of
$15,300,000 (the "Amended RC Note"). Malcolm J. Wright, our Chairman and Chief
Executive Officer personally guaranteed the repayment of the RC Note. In
December 2006, Mr. Wright received 366,000 warrants to purchase shares of our
common stock at an exercise price of $1.02 per share in connection with his
guaranty of the RC Credit Agreement, equal to three percent (3%) of to the
total
indebtedness of the RC Credit Agreement.
We
entered into a Second Mortgage Modification Agreement and Future Advance
Certificate with SIBL in connection with our entry into the RC Credit Agreement,
which provided SIBL a mortgage over certain real property owned by us in Osceola
County, Florida, to secure the repayment of the RC Note.
On
December 18, 2006, we entered into "Amendment No. 1 to the $4.3 Million Credit
Agreement" the ("Amended RC Credit Agreement") with SIBL and RCAC, which amended
the terms of the RC Credit Agreement, to increase the loan amount under such
agreement from $4,300,000 to $5,420,000, to include an advance of $1,120,000
which was received on December 18, 2006 to cover the placement of an appeal
bond
by us and related expenses paid by us on behalf of South Beach Resorts, LLC
("Resorts," which we purchased pursuant to the Purchase Agreement, described
and
defined below) in connection with Resorts' purchase of the Boulevard Hotel
(described below) from a company which was then in Chapter 11 bankruptcy, and
a
subsequent dispute regarding such purchase. The Amended RC Credit Agreement
also
amended and restated the RC Note in the amount of $13,420,000, evidenced by
a
"Third Renewed, Amended and Increased Promissory Note" (the "Amended RC Note"),
to include the increased Amended RC Credit Agreement amount and provided for
Malcolm J. Wright, our Chief Executive Officer and Chairman to provide a
restated Guaranty to SIBL to include the amended loan amount. Mr. Wright
received 33,600 warrants to purchase shares of our common stock at an exercise
price of $1.02 per share in connection with his guaranty of Amended RC Credit
Agreement, equal to three percent (3%) of the total indebtedness of the
increased amount of the RC Credit Agreement.
We
also
entered into a Third Mortgage Modification Agreement and Future Advance
Certificate in connection with the increased RC Loan, which increased SIBL's
mortgage on certain of our property in Osceola County, Florida to secure the
Amended RC Loan.
On
January 31, 2007, we entered into an "Amendment No. 2 to the $4.3 Million Credit
Agreement" the ("Second Amended RC Credit Agreement") with SIBL and RCAC, which
amended the terms of the Amended RC Credit Agreement, to increase the loan
amount under such agreement from $5,420,000 to $7,300,000, to include an advance
of $1,880,000. The Second Amended RC Credit Agreement also amended and restated
the RC Note in the amount of $15,300,000, evidenced by a "Fourth Renewed,
Amended and Increased Promissory Note" (the "Amended RC Note"), to include
the
increased Second Amended RC Credit Agreement amount and provided for Malcolm
J.
Wright, our Chief Executive Officer and Chairman to provide a restated Guaranty
to SIBL to include the amended
maximum loan amount of $7,300,000. Mr. Wright received 56,400 warrants to
purchase shares of our common stock at an exercise price of $1.02 per share
in
connection with his guaranty of Amended RC Credit Agreement, equal to three
percent (3%) of the total indebtedness of the increased amount of the RC Credit
Agreement.
On
November 22, 2006, we entered into a Credit Agreement with Stanford Venture
Capital Holdings, Inc. ("Stanford"), Tierra Del Sol Resort (Phase 2), Ltd.,
Costa Blanca II Real Estate, LLC, Costa Blanca III Real Estate, LLC, TDS Town
Homes (Phase 2) LLC and TDS Clubhouse, Inc. (the "TDSR Credit Agreement") to
provide $6,200,000 of capital for (1) the repayment of the RC Credit Agreement,
which was later amended to include the repayment of the increased amount of
the
Amended RC Credit Agreement in connection with the Amended TDSR Credit Agreement
(described below), (2) construction of the pool complex at the Tierra del Sol
Phase One project, (3) furniture, fixtures and equipment, and (4) various other
expenses. Any amounts borrowed under the TDSR Credit Agreement bear interest
at
the rate of 12% per annum, and any amounts not paid when due will bear interest
at the rate of 15% per annum. Any amounts borrowed under the TDSR Credit
Agreement are due and payable on June 30, 2007.
On
December 18, 2006, we also entered into "Amendment No. 1 to $6.2 Million Credit
Agreement" (the "Amended TDSR Credit Agreement") to amend the TDSR Credit
Agreement to reflect the Amended RC Credit Agreement amount, which is to be
repaid with any funds received in connection with the exercise of the Amended
TDSR Credit Agreement.
On
January 31, 2007, we entered into "Amendment No. 2 to $6.2 Million Credit
Agreement" (the "Second Amended TDSR Credit Agreement") to amend the TDSR Credit
Agreement to reflect the Second Amended RC Credit Agreement amount, which is
to
be repaid with any funds received in connection with the exercise of the Second
Amended TDSR Credit Agreement.
The
Second Amended TDSR Credit Agreement is not effective until we substitute a
portion of Tierra Del Sol Resorts, Inc. as collateral for future advances under
the Second Amended TDSR Credit Agreement, and as such, we have not borrowed
any
funds pursuant to the Second Amended TDSR Credit Agreement to date. We
anticipate the funds received from the Second Amended TDSR Credit Agreement,
if
such agreement is funded to be used to repay the Second Amended RC Credit
Agreement.
We
paid
Stanford a placement fee of $186,000 (or 3% of the TDSR Credit Agreement amount)
as a placement fee upon our execution of the TDSR Credit Agreement. Malcolm
J.
Wright has agreed to guarantee the repayment of a $6,200,000 promissory note,
which we plan to provide Stanford to evidence the amount borrowed under the
TDSR
Credit Agreement, assuming we choose to move forward with such credit facility.
It is anticipated that if the Amended TDSR Credit Agreement is funded, Mr.
Wright will receive approximately 186,000 warrants to purchase shares of our
common stock at an exercise price of $1.02 per share, in connection with his
guaranty.
Warrant
Participation Agreement
In
connection with SIBL's agreeing to enter into the Amended RC Credit Agreement,
we entered into a Warrant Participation Agreement with SIBL, Resorts, Malcolm
J.
Wright and Frederick Pauzar (the "Participation Agreement"), whereby we granted
SIBL and six (6) of its assigns the right to a 25% participation interest (the
"Participation Interest") in the Net Proceeds (as defined below) realized by
us
upon the disposition of the real property located at 740 Ocean Drive, Miami
Beach, Florida, known as the Boulevard Hotel (the "Property"), for aggregate
consideration of $1.00 per warrant (collectively, the "Warrant"). "Net Proceeds"
is defined as the proceeds realized upon the disposition or refinancing of
the
Property, less our cost basis in the Property, excluding any operating losses
or
operating profits. In the event the Property is not sold by us by December
22,
2009, we agreed to appoint SIBL as true and lawful proxy of us in connection
with the engagement of a real estate broker and the subsequent sale of the
Property. Mr. Wright and Mr. Pauzar are jointly and severally liable for our
obligations under the Participation Agreement, however they are not receiving
any warrants in connection with such guaranties.
The
Warrant was evidenced by seven (7) Warrants, which are exercisable at any time
prior to the disposition date of the Property, which Warrants were distributed
as follows:
|
|
|
Percentage
of
|
|
|
|
|
|
Percentage
of Participation Interest
|
|
Total
Net Proceeds
|
|
Name
|
|
Exercise
Price
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
SIBL
|
|
$
|
1.00
|
|
|
50
|
%
|
|
12.5
|
%
|
|
Daniel
T. Bogar
|
|
$
|
1.00
|
|
|
11.5625
|
%
|
|
2.891
|
%
|
|
William
R. Fusselmann
|
|
$
|
1.00
|
|
|
11.5625
|
%
|
|
2.891
|
%
|
|
Osvaldo
Pi
|
|
$
|
1.00
|
|
|
11.5625
|
%
|
|
2.891
|
%
|
|
Ronald
M. Stein
|
|
$
|
1.00
|
|
|
11.5625
|
%
|
|
2.891
|
%
|
|
Charles
M. Weiser
|
|
$
|
1.00
|
|
|
1.8750
|
%
|
|
0.468
|
%
|
|
Tal
Kimmel
|
|
$
|
1.00
|
|
|
1.8750
|
%
|
|
0.468
|
%
|
|
Totals
|
|
$
|
7.00
|
|
|
100
|
%
|
|
25
|
%
|
Purchase
of South Beach Resorts, LLC
On
December 21, 2006, we entered into a Purchase Agreement with SBR Holding
Company, LLC ("SBR") which was owned by Frederick Pauzar, a Director of us
and
our President, and Malcolm J. Wright, our Chairman and Chief Executive Officer
(the "Purchase Agreement"). Pursuant to the Purchase Agreement, we purchased
100% of the outstanding membership interests in South Beach Resorts, LLC, a
Florida limited liability company from SBR ("Resorts") and then acquired SBR
Holdings, LLC for no consideration. The Purchase price for Resorts was equal
to
75% of the Net Proceeds (as defined above) realized by us upon the planned
disposition the Property (as defined above), up to a maximum of $3,000,000.
The
ownership of Resorts was transferred to us in connection with our entry into
the
Purchase Agreement pursuant to an Assignment of Interest,
and the consideration payable to SBR in connection with the sale of the Property
will be paid immediately after the disposition of the
Property.
On
or
around the closing of the Resorts purchase, we also entered into a note with
Roger Maddock a significant shareholder of us, to evidence $3,590,811 in loans
and advances Mr. Maddock had previously made to Resorts (the "Maddock Note"),
the payment of which was guaranteed by us pursuant to a Guaranty
Agreement.
The
Maddock Note bears interest at the rate of 12% per annum until paid, provided
that any amount not paid when due shall bear interest at the rate of the lesser
of 18% per annum or the highest rate of interest allowable by law.
The
Maddock Note is due and payable by us, together with any accrued and unpaid
interest on December 31, 2008. Accrued interest is due quarterly in arrears
under the Maddock Note, on the last day of each calendar quarter. We have the
right to prepay the Maddock Note at any time prior to the due date of the note
without penalty.
On
January 11, 2007, Resorts, our wholly owned subsidiary defaulted on a loan
due
to Marathon Structured Finance Fund L.P. ("Marathon"). The loan principal is
$7,498,900 and accrued interest of $79,910 is due at January 11, 2007. Marathon
has a mortgage interest on the Property in connection with the loan.
A
Forbearance Agreement was subsequently executed with Marathon to waive the
default until April 11, 2007, provided SBR continues to make monthly interest
payments on the debt outstanding and a principal payment of $750,000 was made
on
February 8, 2007. An additional forbearance to July 11, 2007 is allowed provided
that an additional $500,000 principal payment is made on or before July 3,
2007.
On
February 9, 2007, SBR entered into a 180 day, $750,000 loan agreement at the
Wall Street Journal prime rate plus 1%, currently equal to 9.25%, with the
prime
rate at 8.25% as of the filing of this report, with International Property
Investors AG, a corporation organized under the laws of Liechtenstein, secured
by SBR’s property. The proceeds of the loan were used solely for the payment of
fees owed by SBR to Marathon pursuant to the Forbearance Agreement.
We
are
currently working to secure new financing to replace the Marathon loan; however
we can provide no assurances that such financing will be raised on favorable
terms, if at all. The Marathon loan bears interest at the rate of the greater
of
(a) ten percent (10%) or (b) the London Interbank Offered Rate (LIBOR) plus
seven percent (7%). The note also required a $180,000 exit fee to be paid at
the
time the loan was repaid, which amount has not been paid to date. Marathon
may
also require us to pay a 5% late payment fee in connection with our failure
to
repay the loan amount. We are required to pay the default rate of interest
on
the Marathon loan while obtaining a replacement loan. The default rate of
interest is LIBOR plus twelve percent (12%), which was equal to approximately
17.17%, with the LIBOR at 5.17% as of the filing of this Report.
With
an
effective date of December 31, 2006, we and SIBL entered into an amendment
to
the Amended RC Note, to extend the due date of such note to June 30,
2007.
With
an
effective date of December 31, 2006, we entered into a Note Modification
Agreement (the “Modification Agreement”) with SIBL, various of our subsidiaries
and Malcolm J. Wright, our Chief Executive Officer and Chairman. The
Modification Agreement extended the due date of our $3,000,000 note with SIBL
to
January 1, 2008; the due date of our $1,355,000 note with SIBL to January 1,
2008, and the due date of our $305,000 note with SIBL to January 1, 2008.
On
January 30, 2007, AMLH entered into a promissory note with Applebee Holding
Company in the amount of $150,000 at 4% for seven years. As part of the
agreement, 2,840 shares of AMLH Series E Convertible Preferred Stock were issued
bearing a 4% per annum cumulative preferred dividend rate, par value of $.001
and convertible into AMLH common stock at a strike price of $15.00 per
share.
In
January 2007, Reedy Creek entered into a Fourth Renewed, Amended and Increased
Promissory Note with SIBL, pursuant to which Reedy Creek obtained an advance
of
$1,880,000 and the RC Note was increased to $15,300,000. The RC Note is due
and
payable on June 30, 2007, with $8,000,000 of the RC Note bearing interest at
the
rate of 8% per annum and the remaining $7,300,000 bearing interest at the rate
of 12% per annum.
The
RC
Note is secured by a second lien on the Reedy Creek Property. It is guaranteed
by the Company and Malcolm J. Wright, the Company's Chief Executive Officer
and
Chairman pursuant to a Modification and Reaffirmation of Guaranty and
Environmental Indemnity Agreement. We believe that without the guarantees of
Mr.
Wright, it would have been more difficult, if not impossible, for us to secure
the SIBL credit facility.
We
also
entered into an Amendment No. 2 to $4.3 Million Credit Agreement with SIBL
and
an Amendment No. 2 to $6.2 Million Credit Agreement with Stanford on January
31,
2007, as described in greater detail above under “Credit
Agreements.”
On
March
13, 2007, we entered into a $10,000,000 Credit Agreement with SIBL, whereby
SIBL
agreed to loan us $10,000,000 to use for the construction and development of
Phase II of the Sonesta Resort. The loan was evidenced by a $10,000,000
Promissory Note, which bears interest at the rate of 10% per annum. The
Promissory Note is secured by a second priority security interest and lien
on
the land underlying Phase II of the Sonesta Resort, all buildings, structures
and other improvements on such land, and all fixtures, equipment, goods,
inventory or property owned by us currently or in the future, which security
interests are evidenced by a Mortgage and Security Agreement, which we and
several of our wholly owned subsidiaries entered into with SIBL in connection
with the Credit Agreement. The loan is due in full and payable along with any
accrued and unpaid interest on March 13, 2008. Any amounts not paid when due
under the loan bear interest at the rate of 15% per annum.
The
Credit Agreement provides for additional advances to be made to us in an amount
not to exceed $750,000, assuming that certain conditions are met by us in the
future, including (a) that SIBL has received current financial information
regarding our operations
(as further described in the Credit Agreement) and that we have issued SIBL
26,250 warrants to purchase shares of common stock and (b) that we are able
to
obtain additional loans in an aggregate amount of $750,000 from parties other
than SIBL; and an additional loan in an amount not to exceed $1,500,000,
assuming (a) and (b) above and that we have issued additional warrants (to
be
determined prior to such additional advance), to SIBL.
Immediately
upon our execution of the Credit Agreement, we paid SIBL a placement fee of
$200,000, plus SIBL’s reasonable costs and expenses incurred
in connection with the closing of the Credit Agreement.
We
have
received $2,905,000 from Resorts Funding Group, LLC, which has been matching
the
funds from the SIBL Credit Agreement (see above) through the end of March
2007.
We
intend
to enter into an agreement with Resorts Funding Group, LLC, on similar terms
and
conditions to those of the SIBL Credit Agreement.
ITEM
2. DESCRIPTION OF PROPERTY
Our
corporate headquarters are located in Orlando, Florida. Our Orlando facility
is
approximately 9,000 square feet, of which 250 square feet houses our executive
offices. This facility is leased by American Leisure Real Estate Group, Inc.,
a
company owned by Mr. Wright, our Chairman and Chief Executive Officer, that
manages the development of our resort properties in return for a fee of 4%
of
the total costs as per the agreement entered into in November 2003 with Tierra
Del Sol Resort, Inc. The lease on our corporate headquarters expires on April
30, 2008.
Our
subsidiary owns the land on which The Sonesta Orlando Resort at Tierra Del
Sol
will be situated. It purchased this land for $5,560,366 in February 2000. We
have spent approximately $4,450,000 to create the Westridge Community
Development District. The land is currently subject to the KeyBank mortgages
described above. As a developer of vacation resort properties, we plan to also
purchase additional parcels of land for resort development.
Reedy
Creek Property: The Reedy Creek Property is situated in the northern section
of
Osceola County, Florida and lies on three contiguous development parcels located
to the immediate north of U.S. Highway 192 West, about one mile from the
"Maingate" entrance to Walt Disney World, Orlando and 0.75 miles from the
entrance to "Disney's Animal Kingdom" theme park. The property is one of only
a
small number of privately owned parcels abutting Walt Disney World (north and
east boundaries).
The
Reedy
Creek Property consists of three parcels totaling over 40 gross acres with
approximately 29 acres of buildable land. The Osceola County Comprehensive
Land
Plan for the site allows vacation homes at a density of 18 units per acre,
which
results in a maximum allowable project density of 522 residential units. To
achieve the maximum density,
it is anticipated that the project will consist of mid-rise condominium
buildings. Amenities proposed on-site include a water park with swimming pools,
guest services clubhouse, and other related on-site resort
amenities.
South
Beach Resorts, LLC, which we recently purchased owns the Boulevard Hotel
Property located in Miami Beach, Florida, which is undergoing remodeling and
refurbishing to convert the property into a timeshare facility. As of December
31, 2006, approximately $3,405,000 had been incurred in the remodeling and
refurbishment of such facility.
Hickory
Travel Systems, Inc. (“HTS”) rents approximately 7,133 square feet of office
space in Saddle Brook, New Jersey, at a monthly rental cost of approximately
$13,077, which lease expires on April 14, 2008.
American
Leisure Equities Corp. (“ALEC”) rents approximately 12,850 square feet of office
space in Coral Gables, Florida, at a monthly rental cost of approximately
$24,621.50 per month, which rental cost shall increase to $25,156.75 from March
1, 2008 until February 28, 2009; and to $26,227.25 from March 1, 2009 to
February 28, 2010, at which time the current lease will expire. The lease also
provides for ALEC to pay various other amounts in connection with the upkeep
and
expenses associated with the common areas of the rental space.
ALEC
also
rents approximately 11,524 square feet of office space in Irving, California,
pursuant to a three year lease entered into on September 1, 2006, which expires
on August 31, 2009. The monthly rental cost of the office space during the
term
of the lease is $24,776. The lease also provides for ALEC to pay various other
amounts in connection with the upkeep and expenses associated with the common
areas of the rental space.
ITEM
3. LEGAL PROCEEDINGS
Litigation
In
the
ordinary course of its business, the Company may from time to time become
subject to claims or proceedings relating to the purchase, subdivision, sale
and/or financing of its real estate or its operations.
We
are a
party in an action that was filed in Orange County, Florida and styled as Rock
Investment Trust, P.L.C. and RIT, L.L.C. vs. Malcolm J. Wright, American
Vacation Resorts, Inc., American Leisure, Inc., Inversora Tetuan, S.A., Sunstone
Golf Resort, Inc., and Sun Gate Resort Villas, Inc., Case No. CIO-01-4874,
Ninth
Judicial Circuit, Orange County, Florida. In June, 2001, after almost 2 years
from receiving notice from Malcolm Wright that one Mr. Roger Smee, doing
business under the names Rock Investment Trust, PLC (a British limited company)
and RIT, LLC (a Florida limited liability company) (collectively, the Smee
Entities) had defaulted under various agreements to loan or to joint venture
or
to fund investment into various real estate enterprises founded by
Mr.
Wright, the Smee Entities brought the Lawsuit against Mr. Wright, American
Leisure, Inc. (ALI) and several other entities. The gravamen of the initial
complaint is that the Smee Entities made financial advances to Wright with
some
expectation of participation in a Wright real estate enterprise. In general,
the
suit requests either a return of the Smee Entities alleged advances of $500,000
or an undefined ownership interest in one or more of the defendant entities.
Mr.
Wright, American Leisure, Inc., and Inversora Tetuan, S.A., have filed a
counterclaim and cross complaint against the Smee Entities and Mr. Smee denying
the claims and such damages in the amount of $10 million for the tortuous acts
of the Smee entities. In the unlikely event the matter ever proceeds to trial
and the court rules that Mr. Wright is liable under his guarantee of the
American Leisure, Inc. obligation to Smee, it is believed that such a ruling
would not directly affect American Leisure Holdings, Inc. The litigation has
been in abeyance, with no activity by the Smee entities for one year, and is
not
currently set for trial. We expect that this case will either be dismissed
for
lack of activity or will result in a judgment in favor of Malcolm
Wright.
In
March
2004, Manuel Sanchez and Luis Vanegas as plaintiffs filed a lawsuit against
American Leisure Holdings, Inc. American Access Corporation, Hickory Travel
Systems, Inc., Malcolm J. Wright and L. William Chiles, et al., seeking a claim
for securities fraud, violation of Florida Securities and Investor Protection
Act, breach of their employment contracts, and claims for fraudulent inducement.
All defendants have denied all claims and have a counterclaim against Manuel
Sanchez and Luis Vanegas for damages. The litigation commenced in March 2004.
No
material activity has occurred in this case, and we do not expect any activity
in the near future. The claims are without merit and the claims are not material
to us. We intend to vigorously defend the lawsuit.
In
early
May 2004, Around The World Travel, Inc. substantially all of the assets of
which
we purchased, filed a lawsuit in the Miami-Dade Florida Circuit Court against
Seamless Technologies, Inc. and e-TraveLeaders, Inc. alleging breach of contract
and seeking relief that includes monetary damages and termination of the
contracts. They were granted leave to intervene as plaintiffs in the original
lawsuits against Seamless and e-TraveLeaders. On June 28, 2004, the above named
defendants brought suit against Around The World Travel and American Leisure
Holdings, Inc. in an action styled Seamless Technologies, Inc. et al. v. Keith
St. Clair et al. This suit alleges that Around The World Travel has breached
the
contracts and also that American Leisure Holdings, Inc's and Around The World
Travel’s Chief Executive Officers were complicit with certain officers and
directors of Around The World Travel in securing ownership of certain assets
for
American Leisure Holdings, Inc. that were alleged to have been a business
opportunity for Around The World Travel. This lawsuit involves allegations
of
fraud against Malcolm J. Wright. The lawsuit filed by Seamless has been abated
and consolidated with the original lawsuit filed by Around The World Travel.
In
a related matter, Seamlesss attorneys brought another action entitled Peter
Hairston v. Keith St. Clair et al. This suit mimics the misappropriation of
business opportunity claim, but it is framed within a shareholder derivative
action. The relief sought against American Leisure Holdings, Inc. includes
monetary damages and litigation costs. We intend to vigorously support the
original litigation filed against Seamless and defend the counterclaim
and allegations against us. On February 9, 2007, the court heard AMLH, ALEC,
and
Mr. Wright’s motion to dismiss the various counts of the complaint. The
court dismissed with prejudice the E-Traveleaders / Seamless claims for
rescission, constructive trust, and civil conspiracy. It dismissed without
prejudice the claims for tortuous interference and priority as against
TraveLeaders, and allowed the breach of contract claims to continue. We
believe that with further discovery, the court will dismiss or grant to AMLH,
ALEC, and Mr. Wright summary judgment on all remaining or repleaded
counts.
On
May 4,
2005, Simon Hassine, along with members of his family, filed a lawsuit against
us and Around The World Travel in the Circuit Court of Dade County, Florida,
Civil Division, Case Number 05-09137CA. The plaintiffs are the former majority
shareholders of Around The World Travel and former owners of the assets of
TraveLeaders. The plaintiffs allege that that they have not been paid for i)
a
subordinated promissory note in the principal amount of $3,550,000 plus interest
on such note which they allege was issued to them by Around The World Travel
in
connection with their sale of 88% of the common stock of Around The World
Travel; and ii) subordinated undistributed retained earnings and accrued bonuses
in an aggregate amount of $1,108,806 which they allege were due to them as
part
of the sale. The plaintiffs allege that the note was issued to them net of
$450,000 of preferred stock of Around The World Travel that they further allege
they never received. The plaintiffs also allege that in December 2004 they
entered into a settlement agreement with the Company regarding these matters.
The plaintiffs are pursuing a claim of breach of the alleged settlement
agreement with damages in excess of $1,000,000, interest and costs as well
as
performance under the alleged settlement agreement or, in the alternative,
a
declaratory judgment that the promissory note, undistributed retained earnings
and accrued bonuses are not subordinated to the Galileo Debt and full payment
of
the promissory note, undistributed retained earnings and accrued bonuses plus
prejudgment interest, stated interest on the note, costs and reasonable
attorneys fees. The plaintiffs are also pursuing a claim for breach of contract
regarding the preferred stock of Around The World Travel and seeking $450,000
plus interest, costs and reasonable attorneys fees. The plaintiffs are also
pursuing claims of fraudulent transfer regarding our acquisition of interests
in
the debt and equity of Around The World Travel and seeking unspecified amounts.
Our counsel filed various motions including a motion to dismiss the complaint
in
its entirety as against us and Malcolm J. Wright due to the failure by the
plaintiffs to comply with a provision in the underlying document that grants
exclusive jurisdiction to the courts located in Cook County, Illinois. The
parties are currently in discussions regarding a cessation of the litigation
while the plaintiffs seek relief from unrelated parties.
On
August
10, 2006, Patsy Berman and Berman Mortgage Corporation served a complaint
against Tierra del Sol Resort, Inc., Malcolm Wright, our Chief Executive Officer
and Chairman, and a non-existent entity, Vantage Circa 39 Condotel Limited
Partnership ("Vantage"), in the 11th Judicial Circuit in and for Miami-Dade
County, Florida. The complaint alleges that Tierra del Sol and Vantage sought
loans, that the plaintiffs offered to make loans, that Mr. Wright guaranteed
the
loans, that valid contracts were formed, and that because such loans did not
close, the plaintiffs claim $3,550,000 in damages,
representing funding fees, brokerage fees, and interest. We have concluded
that
the plaintiffs' complaint is wholly frivolous. We filed a Motion to Dismiss
and
a Motion for sanctions against the plaintiffs of the lawsuit, for failure to
state a good faith claim in law or fact and the court granted the motion to
dismiss without prejudice. Berman filed an amended complaint, and we responded
with another motion to dismiss and motion to strike the request for a jury
trial. The motions will be heard by the court in May 2007.
Lufthansa
City Center, et al (“LCC”) v. Hickory Travel Systems, Inc. LCC has sued
for Breach of Contract or, alternatively, Breach of a Settlement
Agreement. Hickory and LCC entered an agreement whereby LCC would
exclusively use Hickory’s hotel program and Hickory would pay $110,000 per year
to LCC. LCC did not bring the promised value to the deal.
Additionally, LCC entered an agreement with a competitor for hotel services
prior to termination of the agreement. Hickory vigorously disputes the
allegations in the complaint and intends to counterclaim to recoup the damages
from LCC’s breach of the agreement.
In
the
ordinary course of our business, we may from time to time become subject to
routine litigation or administrative proceedings, which are incidental to our
business.
We
are
not aware of any proceeding to which any of our directors, officers, affiliates
or security holders are a party adverse to us or have a material interest
adverse to us.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We
did
not submit any matters to a vote of security holders during the fourth quarter
of 2006.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our
common stock, $.001 par value per share, is traded on the over-the-counter
Bulletin Board (the "OTCBB") under the trading symbol "AMLH."
The
following table sets forth the high and low bid prices for our common stock
for
the periods indicated as reported on the OTCBB, except as otherwise noted.
The
quotations reflect inter-dealer prices, without retail mark-up, markdown
or
commission and may not represent actual transactions.
| |
|
High
Bid
|
|
Low
Bid
|
|
| |
|
|
|
|
|
|
|
|
December
31, 2006
|
|
$
|
1.15
|
|
$
|
0.61
|
|
|
September
31, 2006
|
|
$
|
1.20
|
|
$
|
0.64
|
|
|
June
30, 2006
|
|
$
|
1.80
|
|
$
|
0.90
|
|
|
March
31, 2006
|
|
$
|
1.95
|
|
$
|
0.93
|
|
| |
|
|
|
|
|
|
|
|
December
31, 2005
|
|
$
|
1.50
|
|
$
|
0.86
|
|
|
September
30, 2005
|
|
$
|
1.50
|
|
$
|
0.76
|
|
|
June
30, 2005
|
|
$
|
3.00
|
|
$
|
1.50
|
|
(1)
Our
common stock was de-listed from the OTCBB during the period from May 21,
2004 to
January 26, 2005, as a result of one delinquent filing with the Commission.
Our
common stock was cleared for quotation on the OTCBB on January 26, 2005.
As of
December 31, 2006, the Company had approximately 330 holders of record of
its
common stock. The number of holders of the common stock includes nominees
of
various depository trust accounts for an undeterminable number of individual
stockholders.
Dividend
Policy
We
have
never declared or paid dividends on our common stock. We do not anticipate
paying dividend on our common stock in the foreseeable future. We intend
to
reinvest in our business operations any funds that could be used to pay
dividends. Our common stock is junior in priority to our preferred stock
with
respect to dividends.
Cumulative
dividends on our issued and outstanding Series A preferred stock, Series
B
preferred stock, Series C preferred stock and Series E preferred stock accrue
at
a rate of $1.20, $12.00, $4.00, and $4.00, respectively, per share per annum,
payable in preference and priority to any payment of any cash dividend on
our
common stock. We have authorized Series F preferred stock, which accrues
dividends at a rate of $1.00 per share per annum, payable in preference and
priority to any payment of any cash dividend on our
common stock; however no shares of Series F preferred stock are currently
outstanding. Dividends on our preferred stock accrue from the date on which
such
shares of preferred stock are issued and outstanding and thereafter from
day to
day whether or not earned or declared and whether or not there exists profits,
surplus or other funds legally available for the payment of dividends. We
may
authorize and/or issue additional shares of preferred stock with dividends
rights that are superior to our common stock. We have never paid any cash
dividends on our preferred stock. We have never paid any cash dividends on
our
preferred stock. We will be required to pay accrued dividends on our preferred
stock before we can pay any dividends on our common
stock.
Recent
Sales Of Unregistered Securities
The
Company has issued the following securities without registration under the
Securities Act of 1933 (the "Act" or the "Securities Act") during the period
covered by this report:
Pursuant
to a Stock Purchase Agreement SIBL, effective June 30, 2006, we sold all
of our
interest in our former wholly owned subsidiary CLM, along with a promissory
note
payable to us by CLM in the amount of $5,663,274, which amount evidences
our
total investment in CLM, for an aggregate purchase price of $5,663,275. In
connection with the purchase, SIBL also agreed to exchange the interest on
several of our outstanding promissory notes with SIBL, and to amend the due
date
of such notes, described in greater detail above under "Recent Events," and
we
agreed to grant SIBL a warrant to purchase 355,000 shares of our common stock
at
an exercise price of $10.00 per share, which warrants have an expiration
date of
April 30, 2008, and contain certain anti-dilution clauses, whereby if we
grant
any options or sell any shares of common stock for less than $1.02 per share,
the exercise price of the 355,000 warrants will reset to such lower price.
We
relied on an exemption from registration set forth in Section 4(2) of the
Act in
issuing the securities as the issuance of the securities did not involve
a
public offering, the recipient acquired the securities for investment purposes
and we took appropriate measures to restrict transfer. No underwriters or
agents
were involved in the foregoing issuance and no underwriting discounts were
paid
by us.
In
August
2006, we agreed to grant Mr. Jason Williams, our current Associate
General Counsel and Assistant Secretary, warrants to purchase up to 50,000
shares of our common stock at an exercise price of $1.02 per share immediately
upon his entry into an Employment Agreement and agreed to grant him an
additional 25,000 warrants upon the one and two year anniversaries,
respectively, of his employment, assuming he is still employed by us at
those times (which warrants were granted in December 2007). We claim an
exemption from registration afforded by Section 4(2) of the Securities Act
of
1933, as amended, since the foregoing issuance did not involve a public
offering, the recipient took the securities for investment and not resale
and we
took appropriate measures to restrict transfer. No underwriters or agents
were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by us.
In
August
2006, in connection with the purchase of the Vici Note (as described above)
we
agreed to issue SIBL 235,000 shares of our common stock and a five year warrant
to purchase 235,000 shares of our common stock at an exercise price of $20
per
share. We also
granted SIBL demand registration rights in connection with the registration
of
the shares underlying the Vici Warrant. We claim an exemption from registration
afforded by Section 4(2) of the Securities Act of 1933, as amended, since
the
foregoing issuances did not involve a public offering, the recipient took
the
securities for investment and not resale and we took appropriate measures
to
restrict transfer. No underwriters or agents were involved in the foregoing
issuance and no underwriting discounts or commissions were paid by
us.
In
September 2005, we granted warrants to purchase 100,000 shares of our common
stock at an exercise price of $1.02 per share to Frederick Pauzar for his
services as a Director. One-fourth (25,000) of the warrants vested immediately
and an additional 25,000 shares vested on the first anniversary of the date
he
became a Director of the Company (September 2006). The remaining 50,000 shares
vest to Mr. Pauzar on the next two anniversaries of the date on which Mr.
Pauzar
became a Director (September 2007 and 2008), provided that Mr. Pauzar is
still
serving as a Director on such dates.
In
October 2006, we issued Joseph and Helena Palumbo 1,655 shares of our Series
E
Preferred Stock, which shares of Preferred Stock we had previously agreed
to
issue pursuant to and in connection with our purchase of the assets of AWT
in
December 2004. We claim an exemption from registration afforded by Section
4(2)
of the Securities Act of 1933, as amended, since the foregoing issuance did
not
involve a public offering, the recipients took the securities for investment
and
not resale and we took appropriate measures to restrict transfer. No
underwriters or agents were involved in the foregoing issuance and no
underwriting discounts or commissions were paid by us.
In
October 2006, we issued 170 shares of Series E Preferred Stock to Gregory
Wasik,
which shares of Preferred Stock we had previously agreed to issue pursuant
to
and in connection with our purchase of the assets of AWT in December 2004.
We
claim an exemption from registration afforded by Section 4(2) of the Securities
Act of 1933, as amended, since the foregoing issuance did not involve a public
offering, the recipient took the securities for investment and not resale
and we
took appropriate measures to restrict transfer. No underwriters or agents
were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by us.
On
December 22, 2006, pursuant to a Warrant Participation Agreement, we agreed
to
grant Stanford International Bank Limited, and six of its assigns, warrants
to
purchase up to a 25% participation interest in the net proceeds (defined
as the
proceeds realized upon the disposition or refinancing of the Property, less
our
cost basis, excluding any operating losses or profits) realized by us upon
the
disposition of the real property located at 740 Ocean Drive, Miami Beach,
Florida, known as the Boulevard Hotel (the "Property"). We claim an exemption
from registration afforded by Section 4(2) of the Securities Act of 1933,
as
amended, since the foregoing issuance did not involve a public offering,
the
recipient took the securities for investment and not resale and we took
appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by us.
In
December 2006, we granted Malcolm J. Wright, our Chief Executive Officer
and
Chairman an aggregate of 585,000 warrants to purchase shares of our common
stock
at an exercise price of $1.02 per share, in connection with Mr. Wright’s
guaranty of certain of our outstanding loans and debts pursuant to a Debt
Guaranty Agreement previously entered into with Mr. Wright. We relied on
an
exemption from registration set forth in Section 4(2) of the Act in issuing
the
securities as the issuance of the securities did not involve a public offering,
the recipient acquired the securities for investment purposes and we took
appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuance and no underwriting discounts were paid
by
us.
In
December 2006, we granted an aggregate of 300,000 warrants to purchase shares
of
our common stock at an exercise price of $1.02, to three employees of the
Company, which options shall expire if unexercised on December 22, 2010.
Of the
warrants granted, 100,000 warrants were granted to Omar Jimenez, who was
later
appointed as our Chief Financial Officer in April 2007, and the additional
200,000 warrants were granted to two other employees in consideration for
past
services rendered. We relied on an exemption from registration set forth
in
Section 4(2) of the Act in issuing the securities as the issuance of the
securities did not involve a public offering, the recipients acquired the
securities for investment purposes and we took appropriate measures to restrict
transfer. No underwriters or agents were involved in the foregoing issuance
and
no underwriting discounts were paid by us.
On
January 30, 2007, AMLH entered into a promissory note with Applebee Holding
Company in the amount of $150,000 at 4% for seven years. As part of the
agreement, 2,840 shares of AMLH Series E Convertible Preferred Stock were
issued
bearing a 4% per annum cumulative preferred dividend rate, par value of $.001
and convertible into AMLH common stock at a strike price of $15.00 per share.
We
relied on an exemption from registration set forth in Section 4(2) of the
Act in
issuing the securities as the issuance of the securities did not involve
a
public offering, the recipient acquired the securities for investment purposes
and we took appropriate measures to restrict transfer. No underwriters or
agents
were involved in the foregoing issuance and no underwriting discounts were
paid
by us.
In
March
2007, we issued Anthony Lastumbo 504 shares of our Series E Preferred Stock,
which shares of Preferred Stock we had previously agreed to issue pursuant
to
and in connection with our purchase of the assets of AWT in December 2004.
We
claim an exemption from registration afforded by Section 4(2) of the Securities
Act of 1933, as amended, since the foregoing issuance did not involve a public
offering, the recipient took the securities for investment and not resale
and we
took appropriate measures to restrict transfer. No underwriters or agents
were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by us.
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
PLAN
OF OPERATIONS
We
previously planned to integrate the administrative operations of Hickory
and
TraveLeaders; however, the integration process was slower than we anticipated
and we have since abandoned our plans to integrate those operations. We are
currently evaluating our options regarding Hickory and TraveLeaders, including
whether we should sell either of those divisions. Additionally, time has
been
required to analyze and determine the impact, if any, of certain litigation
commenced by Around The World Travel regarding its contracts with Seamless
Technologies, Inc. and others, as discussed in "Legal Proceedings,"
herein.
Under
our
arrangement with Around The World Travel, which operates the TraveLeaders
assets
on our behalf and from whom we acquired the assets, we receive and recognize
as
income 90% of the net earnings of the TraveLeaders assets before interest,
taxes, depreciation and amortization. The balance was retained by Around
The
World Travel as a management fee, although that management agreement has
been
terminated.
During
the year ended December 31, 2006, we generated modest revenues from our call
center joint venture in Antigua. Effective June 30, 2006, we sold our call
center operations to Stanford, as described in greater detail above under
"Recent Events."
We
believe that the capital requirement for the first phase of the resort will
be
approximately $136,500,000, of which $9,000,000 will be for the resort
amenities, $64,000,000 will be for vertical construction on 294 units and
$49,500,000 will be for other costs such as contingencies, closing costs
and
soft costs such as architectural, engineering, and legal costs. An additional
approximate amount of $14,000,000 will be expended for horizontal construction
costs which include all of Phase I requirements plus most of the infrastructure
requirements for the entire Project. On or about December 29, 2005, we closed
on
$54.85 million of senior debt to be used in the development of The Sonesta
Orlando Resort at Tierra Del Sol (the "Project"), described in greater detail
above. KeyBank, N.A. is the lender of a credit facility for the benefit of
AMLH.
The credit facility is a land loan in the amount of $14,850,000, which is
secured by Project land on phase two of the Sonesta Resort, that is dedicated
to
specific phases of the development. KeyBank had also originally agreed to
provide us a $40,000,000 revolving construction loan, for up to $72,550,000
in
funding, however we have since decided not to move forward with such funding.
KeyBank Capital Markets had the underwriting role in the sale of the Community
Development District Bonds. We are in the process of negotiating with several
lenders for a construction loan for the condominiums and anticipate that
such
loan will be evidenced by a firm commitment during the second quarter of
2007,
of which there can be no assurance. Financing for the balance of the development
budget, which includes infrastructure, retention, roads and green space of
approximately $26,000,000, was through the sale of Westridge Community
Development District bonds which was completed on December 29, 2005, as
described above. In June 2005,
we
began the earth moving and clearing process on the land for the resort and
have
completed approximately 90% of the grading and the underground infrastructure
on
the property to date. We began the vertical construction of Phase 1 of the
property in the first quarter of 2007. We have established a relationship
with
GMAC Bank, through Millennium Capital Mortgage, to provide construction
financing to the individual purchasers of the Sonesta Resort town homes,
which
funding we believe will enable all town homes and amenities at Tierra del
Sol to
be built through this program. Additionally, we are in the process of
negotiating with several lenders for a construction loan on favorable terms
for
the condominiums and/or for the clubhouse. We anticipate that such loan will
be
evidenced by a firm commitment during the second quarter of 2007, but we
have no
assurances that a commitment will be secured on favorable terms, if at all.
Assuming we are able to enter into a subsequent funding arrangement, we believe
that we have sufficient funds to provide for the completion of Phase 1, assuming
there are no material cost overruns, delays or further increases in material
costs. Phase 2 will be financed separately.
If
no
funding is raised subsequent to the filing of this report, we anticipate
being
able to satisfy our cash requirements for approximately two to three months.
We
anticipate the need for approximately $85,000,000 in additional funding during
the next twelve months to meet our construction and overhead demands in
connection with the construction of the Sonesta Resort.
Known
Trends, Events, And Uncertainties
We
expect
to experience seasonal fluctuations in our gross revenues and net earnings
due
to higher sales volume during peak periods. Advertising revenue from the
publication of books by Hickory that list hotel availability is recognized
either when the books are published (December) or on a performance basis
throughout the year, depending on the contractual terms. This seasonality
may
cause significant fluctuations in our quarterly operating results and our
cash
flows. In addition, other material fluctuations in operating results may
occur
due to the timing of development of resort projects and our use of the completed
contracts method of accounting with respect thereto. Furthermore, costs
associated with the acquisition and development of vacation resorts, including
carrying costs such as interest and taxes, are capitalized as inventory and
will
be allocated to cost of real estate sold as the respective revenues are
recognized. We intend to continue to invest in projects that will require
substantial development and significant amounts of capital funding during
2007
and in the years ahead.
Critical
Accounting Estimates
Our
discussion and analysis of our financial condition and results of operations
is
based upon our financial statements, which have been prepared in accordance
with
accounting principals generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments
that
affect the reported amounts of assets, liabilities, revenues and expenses,
and
related disclosure of any contingent assets and liabilities. We base our
estimates on various assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about carrying values of assets and liabilities that are not readily
apparent from other sources. On an on-going basis, we evaluate our estimates.
Actual results may differ from these estimates if our assumptions do not
materialize or conditions affecting those assumptions
change.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our financial
statements:
Going
Concern Considerations
We
have
incurred losses during our existence and we have negative retained earnings.
We
had an accumulated deficit of $21,607,362 at December 31, 2006 and a net
loss of
$8,148,896 for the year ended December 31, 2006. We expect our travel operations
for the year ended December 31, 2007, to require additional working capital
of
approximately $2,000,000 and Hickory to require approximately $500,000 in
working capital during the next twelve months. If we are unable to obtain
these
funds, we may have to curtail or delay our travel business plan. In addition
to
our ability to raise additional capital, our continuation as a going concern
also depends upon our ability to generate sufficient cash flow to conduct
our
operations. If we are unable to raise additional capital or generate sufficient
cash flow to conduct our Travel Division operations and/or to complete the
construction of our planned vacation homes, we may be required to delay the
acquisition of additional travel agencies and restructure or refinance all
or a
portion of our outstanding debt. The accompanying financial statements do
not
include any adjustments that might result from the outcome of this
uncertainty.
Revenue
Recognition
We
recognize revenues on the accrual method of accounting. Revenues from Hickory
are recognized as earned, which is primarily at the time of delivery of the
related service, publication or promotional material. Fees from advertisers
to
be included in the hotel book and web service operated by Hickory are recognized
upon the annual publication of the book or when performance levels are achieved.
Revenue from the delivery of services is recognized when it is invoiced to
the
recipient of the service.
One
of
our principal sources of revenue is associated with access to the travel
portals
that provide a database of discounted travel services. Annual renewals occur
at
various times during the year. Costs and revenue related to portal usage
charges
are incurred in the month prior to billing. Customers are charged additional
fees for hard copies of the site access information. Occasionally these items
are printed and shipped at a later date, at which time both revenue and expenses
are recognized.
Revenues
and expenses from our TraveLeaders business are not included in our results
as
the same are borne by Around The World Travel, Inc., the former third party
manager of the business from January 1, 2005 through July 31, 2006. We
recognized as revenue only the net operating results of TraveLeaders operations
after deducting the management fee paid
to
Around The World Travel of 10% of net earnings before interest expense, taxes,
depreciation and amortization through July 31, 2006.
Thereafter,
gross revenues are recognized by our wholly owned subsidiary ALEC. Specifically,
commission revenues for cruises, hotel and car rentals are recognized upon
completion of travel, hotel stay or car rental. Commission fees for ticketing
are recognized at the time of departure.
Revenues
also include undeveloped land sales, which is recognized at closing when
title
has passed.
Goodwill
We
adopted the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets." This statement requires
that
goodwill and intangible assets deemed to have indefinite lives not be amortized,
but rather be tested for impairment on an annual basis. Finite-lived intangible
assets are required to be amortized over their useful lives and are subject
to
impairment evaluation under the provisions of SFAS No. 144. The goodwill
will be
evaluated on an annual basis and impaired whenever events or circumstances
indicate the carrying value of the goodwill may not be recoverable.
COMPARISON
OF OPERATING RESULTS
YEAR
ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED DECEMBER 31,
2005
We
had
total revenues of $27,720,133 for the year ended December 31, 2006, compared
to
total revenues of $19,778,081 for the year ended December 31, 2005, an increase
in total revenues of $7,942,052 or 40.2% from the prior period. Revenues
for the
year ended December 31, 2006, consisted of operating revenues of $14,590,886,
which increased $6,832,805 or 88.1% over operating revenues of $7,758,081
for
the year ended December 31, 2005 and undeveloped land sales of $13,129,247,
which increased $1,109,247 or 9.2% over undeveloped land sales of $12,020,000
for the year ended December 31, 2005, which was due to higher valued land
sales
during the year ended December 31, 2006, compared to 2005.
Our
operating revenues increased due to our termination of our management agreement
with AWT on August 1, 2006. Previous to that date, AWT managed our travel
division, and we recognized revenues and expenses based on EBITDA (earnings
before the deduction of interest, tax, depreciation and amortization expenses)
and subsequent to that date, we recognized gross revenues received, which
were
much higher than the EBITDA amounts for the periods from August 1, 2006 to
December 31, 2006, which in turn increased our revenues for the year ended
December 31, 2006.
Operating
revenues for the year ended December 31, 2006, included approximately
$13,509,000 in revenues from our travel services division, HTS; $2,071,000
in
revenues from our real estate division, ALEC; $1,168,000 in revenues from
our
hospitality division; offset by $2,157,000 in elimination of consolidated
results of operations.
We
had
total cost of operating revenues of $12,647,116 for the year ended December
31,
2006, compared to total cost of operating revenues of $5,513,367 for the
year
ended December 31, 2005, an increase in total cost of operating revenues
of
$7,133,749 or 129.4% from the prior period. Our cost of operating revenues
increased due to the termination of our management agreement with AWT, as
described above, due to the fact that under the management agreement we
recognized revenues for our travel division after costs of operating revenues
were already deducted from those revenues and from August 1, 2006 to December
31, 2006, after we terminated the management agreement, we recognized direct
expenses from our travel division, which in turn increased our overall cost
of
operating revenues for the year ended December 31, 2006.
We
had
total cost of undeveloped land sales of $9,796,634 for the year ended December
31, 2006, compared to total cost of undeveloped land sales of $8,122,562
for the
year ended December 31, 2005, and increase of $1,674,072 or 20.6% from the
prior
period.
We
had a
total gross margin of $5,276,383 for the year ended December 31, 2006, compared
to a total gross margin of $6,142,152 for the year ended December 31, 2005,
a
decrease in total gross margin of $865,769 or 14.1% from the prior period,
which
decrease in gross margin was mainly due to the 129.4% increase in cost of
operating revenues and the 20.6% increase in the cost of undeveloped land
sales,
which was not sufficiently offset by the 88.1% increase in operating revenues
and the 9.2% increase in undeveloped land sales for the year ended December
31,
2006, compared to the year ended December 31, 2005.
We
had
total depreciation and amortization expenses of $784,155 for the year ended
December 31, 2006, compared to total depreciation and amortization expenses
of
$827,237 for the year ended December 31, 2005, a decrease in total depreciation
and amortization expenses of $43,082 or 5.2% from the prior period, which
decrease was due to the fact that our call center business was sold effective
as
of June 30, 2006, and the fact that such operations were therefore not
depreciated during the six months ended December 31, 2006.
We
had
total general and administrative expenses of $3,609,487 for the year ended
December 31, 2006, compared to total general and administrative expenses
of
$5,028,139 for the year ended December 31, 2005, a decrease in total general
and
administrative expenses of $1,418,652 or 28.2% from the prior period, which
decrease was mainly due to the fact that AWT had payroll and office rental
expenses that were not assumed by us after the AWT management agreement was
terminated in August 2006, as well as the fact that we closed down several
travel center offices during the year ended December 31, 2006, which caused
our
expenses for the year ended December 31, 2006, to be lower than our expenses
for
the year ended December 31, 2005.
We
had a
write-off of advances to receivables from AWT of $6,588,579 for the year
ended
December 31, 2006, which was not represented during the year ended December
31,
2005, which write-off was due to loans and advances owed from AWT to us and
earnings owed from AWT to ALEC which were not collectible and therefore written
off.
We
had
total operating expenses of $10,982,221 for the year ended December 31, 2006,
compared to total operating expenses of $5,855,376 for the year ended December
31, 2005, a decrease of $5,126,845 or 87.6% from the prior period. The decrease
in operating expenses for the year ended December 31, 2006, compared to the
year
ended December 31, 2005 was mainly due to the $6,588,579 write-off of advances
to receivables from AWT.
We
had
total interest expense of $5,183,620 for the year ended December 31, 2006,
compared to total interest expense of $3,317,033 for the year ended December
31,
2005, an increase in interest expense of $1,866,587 or 56.3% from the prior
period, which increase in interest expense was mainly in connection with
interest on the loans we entered into in the fourth quarter of 2005, which
accrued interest only during the fourth quarter of 2005, but during all four
quarters of 2006, including the Reedy Creek Loan and Land Loan (described
above).
We
a had
loss from operations of $10,889,458 for the year ended December 31, 2006,
compared to loss from operations of $3,030,257 for the year ended December
31,
2005, an increase in loss from operations of $7,859,201 or 259.4% from the
prior
period.
We
had
total provision for income taxes of $4,376 for the year ended December 31,
2006,
compared to $5,004 in income tax provision for the year ended December 31,
2005,
a decrease of $628 or 12.5% from the prior period.
We
had
$2,744,938 in gain from discontinued operations for the year ended December
31,
2006, compared to a loss from discontinued operations of $1,050,564 for the
year
ended December 31, 2005, an increase in gain from discontinued operations
of
$3,795,502 or 361.3% from the prior year.
Gain
from
discontinued operations for the year ended December 31, 2006 was due to the
call
center operations of Caribbean Media Group, Ltd. ("Caribbean Leisure
Marketing"), our former wholly owned subsidiary, which owns 49% of Caribbean
Media Group, Ltd. Subsequent to June 30, 2006, we sold Caribbean Leisure
Marketing to Stanford, as described in greater detail above. The increase
in
gain from discontinued operations for the year ended December 31, 2006, compared
to the year ended December 31, 2005, was due to the call center operations
being
profitable during the year ended December 31, 2006 (during the time we operated
such call center, i.e. until June 30, 2006) and was operating at a loss during
the year ended December 31, 2005.
We
had a
total net loss of $8,148,896 for the year ended December 31, 2006, compared
to
total net loss of $4,085,825 for the year ended December 31, 2005, an increase
in net loss
of
$4,063,071 or 99.4% from the prior period, which increase in net loss was
mainly
due to the operations of HTS, which accounted for approximately $283,000
of net
loss and the operations of ALEC, which accounted for approximately $5,548,000
in
net loss, coupled with approximately $243,000 of net loss from our call center
operations which we sold, effective June 30, 2006, and a further decrease
in net
income of approximately $6,588,579 in connection with the write-off of advances
to receivables from AWT.
LIQUIDITY
AND CAPITAL RESOURCES
We
had
total current assets as of December 31, 2006, of $7,282,498, consisting of
cash
of $1,110,000, restricted cash of $1,030,921, accounts receivable, net of
$3,148,730, other receivable of $217,233, and prepaid other expenses and
other
of $1,775,614. This represented a decrease in total current assets of $3,874,234
or 34.7% from total current assets of $11,156,732 as of December 31, 2005,
which
decrease was mainly due to the write-off of certain amounts owed by AWT,
during
the year ended December 31, 2006, as described above.
We
had
total non-current assets as of December 31, 2006 of $112,860,980, consisting
of
property and equipment, net of $9,170,540, land held for development of
$71,930,263 and total other assets of $31,760,177.
Other
assets as of December 31, 2006, consisted of restricted cash of $10,364,681,
prepaid sales commissions of $9,804,036, prepaid sales commissions-affiliated
entity of $3,443,851, goodwill of $4,559,134, trademark of $950,000 and other
assets of $2,638,475.
The
restricted cash represents funds held in escrow for deposits received for
condo
and townhome sales for the units at the Sonesta Resort. The escrowed funds
will
be applied to the purchase price by the buyer at closing. Also included in
the
escrowed funds are the equity requirements from KeyBank of $1.03 million
as part
of the credit facilities described above. The funds are not readily available
to
the Company and can only be disbursed with the consent of KeyBank to be used
for
the construction of Sonesta Resort.
We
had
total current liabilities as of December 31, 2006 of $56,631,757, which included
current maturities of long-term debt and notes payable of $35,681,931, current
maturities of notes payable-related parties of $7,480,395, accounts payable
and
accrued expenses of $4,518,175, accrued expenses-officers of $2,795,000 and
other expenses of $6,156,256.
In
June
2006, Malcolm J. Wright, our Chief Executive Officer and Chairman was paid
$1,540,500 in accrued salaries and interest which he was owed. Accrued
expenses-officers as of December 31, 2006, included $2,225,000 in salaries
and
$202,500 interest due to Mr. Wright. Mr. Wright's accrued and unpaid salaries
accrue interest at the rate of 12% per year until paid. Additionally included
in
accrued expenses-officers was $345,000 owed to L. William Chiles, the Chief
Executive Officer of Hickory and our Director, which included $300,000 of
unpaid
salary accrued to Mr. Chiles and $45,000 of accrued interest on such unpaid
salary. Total current liabilities as of December 31, 2006 increased
$43,859,446 or 343.4% from total current liabilities of $12,772,311 as of
December 31, 2005. The increase in current liabilities was mainly attributable
to an increase of $32,029,696 or 876.9% in current maturities of long term
debt
and notes payable which increase was mainly due to the Reedy Creek Acquisition
Company loan, the SIBL and Stanford loans and the Banker's Credit loan, which
are due and payable within the next twelve months.
As
of
December 31, 2006, we owed $7,480,395 in connection with current portion
of
notes payable to related parties including $310,363 owed to our Director,
L.
William Chiles.
We
had
long term debt and notes payable of $21,583,106 and note payable - related
parties, net of current liabilities of $3,353,252, as of December 31, 2006,
put
liability of $985,000, and $37,465,685 of deposits on unit pre-sales as of
December 31, 2006.
The
put
liability was in connection with 197,000 shares of common stock issued to
Harborage Leasing Corporation (“Harborage”) in connection with our entry into a
purchase agreement with Harborage in March 2006, which was effective as of
December 31, 2005, whereby we purchased the minority interest in Tierra Del
Sol,
Inc. from Harborage for a promissory note in the amount of $1,411,705
("Harborage Note"), which was paid in August 2006; the right to receive,
without
payment, two (2) three-bedroom condominium units to be constructed in Phase
2 of
the Sonesta Resort, or in the event title to both such units is not delivered
by
December 31, 2007, then, in lieu thereof, payment of $500,000 for each such
unit
that is not transferred by such date; 197,000 shares of the Company's common
stock; and warrants to acquire 300,000 additional shares of the Company's
common
stock at an exercise price of $5.00 per share. Harborage had the right to
require the Company to purchase all or a portion of the Harborage 197,000
shares
at $5.00 per share, during the six month period commencing January 1, 2008
and
ending June 30, 2008.
We
had
total negative working capital of $49,349,259 and a ratio of current assets
to
current liabilities of 0.129 as of December 31, 2006.
We
had
net cash used by operating activities of $30,693,906 for the year ended December
31, 2006, which was mainly due to net loss of $8,148,896 and $35,784,094
of
increase in land held for development, offset by $8,313,134 of increase in
accounts payable and accrued expenses, $6,588,579 of write-off of advances
and
receivables from AWT and $2,102,276 of non-cash interest expense.
We
had
$793,979 of net cash provided by investing activities for the year ended
December 31, 2006, which was due to $1,069,079 of increase in restricted
cash,
offset by $275,100 of acquisition of fixed assets.
We
had
cash provided by financing activities of $30,729,065 for the year ended December
31, 2006, which was due to $33,285,535 of proceeds from the sale of notes
payable
and $308 from the proceeds of the exercise of warrants, which was offset
by
$2,556,778 of payment of debt.
We
expect
that we will require approximately $2,500,000 through the end of the 2007
fiscal
year for working capital for our travel management and services businesses
and
up to $85,000,000 for construction and overhead on our Sonesta Resort, as
described below.
We
estimate that the cost to complete the construction of Phase I of the Sonesta
Resort will be approximately $135,500,000 of which $8,000,000 will be for
resort
amenities, $64,000,000 will be for vertical construction on 294 units and
$49,500,000 will be for other costs such as contingencies, closing costs
and
soft costs such as architectural, engineering, and legal costs. An additional
approximate amount of $14,000,000 will be expended for horizontal construction
costs which include all of Phase I requirements plus most of the infrastructure
requirements for the entire Project. As of December 31, 2006, approximately
$14,352,900 had been advanced to the Company pursuant to the Land Loan (as
described and defined above).
On
December 30, 2005, we closed on an aggregate of $54,850,000 in senior debt
to be
used in the development of The Sonesta Orlando Resort at Tierra Del Sol.
KeyBank, N.A. is the lender of the senior debt, which was provided to us
in the
form of two credit facilities. The first is a land loan in the amount of
$14,850,000, which is secured by Project land that is dedicated to specific
phases of the development. The second was a $40,000,000 revolving construction
loan that we originally planned to use to fund the development and construction
for Phase 1 of the Sonesta Resort, but which we subsequently decided not
to use.
We have received approximately three letters of intent with various lenders
and
anticipate finalizing the funding of the construction loan during the second
quarter of 2007, of which there can be no assurance. We also have funding
in the
amount of $25,825,000 from the Westridge Community Development District ("CDD"
or the "District"), which bonds will be used to pay for infrastructure
facilities for public purposes such as water supply and retention systems,
roadways, green space and nature recreation areas. In addition to the KeyBank
provided senior debt, the Project is also benefiting from $25,825,000 in
bonds
issued by the CDD, a special purpose taxing district formed for the purpose
of
financing the installation of vital public services such as water supply
and
retention, sanitary and storm water sewer systems, roadways and the landscaping
attendant to those uses. The CDD supports these initiatives, through the
provision of capital and maintenance, via a tax upon the property owners
of the
district that utilizes a low finance rate (5.8% per annum) and a long-term
amortization of the capital costs (30 years).
The
first
phase of site work on the Sonesta Resort, at an estimated cost exceeding
$19
million, will be funded by the CDD via the sale by the CDD of bonds issued
on a
non-recourse basis to the Company ("CDD Bonds"). The CDD was initially created
by the Company in September 2003 and enabled by an order of a Florida State
District Court. The CDD Bond issue was underwritten by KeyBanc Capital Markets
Group in the amount of $25,825,000. The first issue of the CDD Bonds was
successfully sold and closed simultaneous with the closing of the Key Bank
senior debt facilities. Upon closing of
the
loan, we repaid $7,862,250 of short-term debt plus accrued interest of
approximately $256,512. This short-term debt originally matured on March
31,
2005, but it was extended until the closing of the KeyBank credit facilities
in
December 2005.
We
had
borrowed approximately $14,352,900 pursuant to the land loan as of December
31,
2006. We hope to obtain alternate financing for the amounts which were
originally to be loaned to us by KeyBank pursuant to the Construction Loan,
which alternate financing we anticipate finalizing in the second quarter
of
2007, of which there can be no assurance. Assuming we raise such additional
funding, we believe that such funding and the bond sale proceeds will provide
sufficient capital for the construction of Phase 1 of The Sonesta Orlando
Resort
at Tierra Del Sol. In June 2005, we began the earth moving and clearing process
on the land for the Sonesta Resort, and have completed approximately 90%
of the
grading and underground infrastructure to date. We began the vertical
construction of Phase 1 in the first quarter of 2007. We will need to raise
additional capital to begin and complete Phase 2 of the Sonesta Resort, assuming
the construction of Phase 1 is successful, of which there can be no assurance.
Additionally, we will need to raise significant capital to plan and construct
our planned development activities on our Reedy Creek Property.
In
August
2006, with an effective date of June 30, 2006, we and several of our
subsidiaries, including CLM, our former wholly owned subsidiary, which owns
81%
of the issued and outstanding stock of Caribbean Leisure Marketing, which
in
turn owns 49% of the issued and outstanding stock of Caribbean Media Group,
which owned and operated our call center in Antigua, entered into a Stock
Purchase Agreement with Stanford International Bank Limited.
The
Stock
Purchase Agreement provided that we would sell SIBL, all of our interest
in CLM,
along with a promissory note payable to us by CLM in the amount of approximately
$5,663,275, which amount evidences our total investment in CLM, for an aggregate
purchase price of approximately $5,663,275. The sale of CLM resulted in a
gain
of $2,988,082, which is represented above in our net cash provided by operating
activities as "gain on sale of subsidiary." In connection with the purchase,
SIBL also agreed to forgive the interest on several of our outstanding
promissory notes with SIBL, and to amend the due date of such notes, described
in greater detail below, and we agreed to grant SIBL a warrant to purchase
355,000 shares of our common stock at an exercise price of $10.00 per share,
which warrants have an expiration date of April 30, 2008, and contain certain
anti-dilution clauses, whereby if we grant any options or sell any shares
of
common stock for less than $1.02 per share, the exercise price of the 355,000
warrants will reset to such lower price.
In
connection with the Stock Purchase Agreement, SIBL exchanged the following
debts
which we owed to SIBL: a $1,250,000 promissory note and accrued interest
thereon
through June 30, 2006; a $2,100,000 promissory note and accrued interest
thereon
through June 30, 2006; all accrued and unpaid interest on our $6,000,000
note
with SIBL as of June 30, 2006; all accrued and unpaid interest on our $3,000,000
promissory note payable to SIBL as of June 30, 2006; $262,885 of the $331,178
of
accrued interest on our $8,000,000
promissory note payable to SIBL, and all accrued fees on our $6,000,000 letter
of credit, which SIBL agreed to guaranty in connection with the KeyBank
loans.
Additionally,
in connection with the Stock Purchase Agreement, SIBL also agreed to restate
the
due dates of the notes which we owe to SIBL, including, the $6,000,000 note,
which now has a maturity date of December 31, 2008; the $3,000,000 note,
which
now has a maturity date of December 1, 2008; the $1,355,000 note, which now
has
a maturity date of December 31, 2008; the $8,000,000 Reedy Creek loan note,
which has since been increased to $13,420,000 and extended until June 30,
2007;
and the $305,000 note, which has a maturity date of January 1,
2008.
Finally,
pursuant to the Stock Purchase Agreement, we and SIBL agreed that CLM would
be
released and discharged from any liability under the $6,000,000 note or the
$305,000 note with SIBL, which it previously agreed to guarantee.
On
August
16, 2006, pursuant to a Purchase Agreement between us and SIBL, a promissory
note in the principal amount of $750,000 made by Scott Roix in favor of SIBL
was
purchased from SIBL for 235,000 shares of our common stock and a five year
warrant to purchase up to 235,000 shares of our stock at an exercise price
of
$20 per share. The note has a maturity date of June 30, 2008 and bears interest
at the rate of 8% per annum. As of December 31, 2006, the balance of the
promissory note totaled $500,000.
At
December 31, 2006, we had an outstanding principal balance of $6,000,000
under
our secured revolving credit facility with Stanford, which bears interest
at a
fixed rate of 6% per annum payable accruing from July 1, 2006 quarterly in
arrears and matures on December 31, 2008. We previously issued 355,000 warrants
with a strike price of $10 per share with a maturity of April 30, 2008 to
Stanford to replace the conversion feature of the credit facility whereby
the
loan could previously be converted into shares of our common stock at a
conversion price of $15.00 per share in connection with our entry into the
Stock
Purchase Agreement with SIBL. The $6,000,000 credit facility is guaranteed
by
Malcolm J. Wright, our Chief Executive Officer and Chairman and is secured
by a
second mortgage on our Sonesta Orlando Resort property, including all fixtures
and personal property located on or used in connection with these properties,
and all of the issued and outstanding capital stock and assets of our
subsidiary, American Leisure Marketing & Technology, Inc. We believe that
without the guarantees of Mr. Wright, it would have been more difficult,
if not
impossible, for us to secure the Stanford, credit facility.
As
of
December 31, 2006, we had an outstanding principal balance of $3,000,000,
under
another secured revolving credit facility with Stanford, which bears interest
at
a fixed rate of 8% per annum accruing from July 1, 2006 payable quarterly
in
arrears and matures on January 1, 2008. At the sole election of the lender,
any
amount outstanding under the credit facility may be converted into shares
of our
common stock at a conversion price of $10.00 per share. The credit facility
is
secured by collateral assignments of our stock in the
active Travel Division subsidiaries as well as a collateral assignment of
our
first lien security interest in the assets formerly owned by Around The World
Travel, Inc.
As
of
December 31, 2006, we had a total of $1,355,000 outstanding under our secured
revolving credit facility with Stanford, which bears interest at a fixed
rate of
8% per annum and matures on January 1, 2008. Interest on the credit facility
accrues from July 1, 2006 and is due quarterly in arrears. At the sole election
of the lender, any amount outstanding under the credit facility may be converted
into shares of our common stock at a conversion price of $10.00 per share.
As
of
December 31, 2006 we had another credit facility in the amount of $305,000
with
Stanford. The credit facility bears interest at 8.0% per annum and accrues
interest from July 1, 2006 and is secured by the assets and stock of the
Company. The credit facility is due on January 1, 2008.
On
December 29, 2005, Stanford International Bank, Ltd. ("SIBL") provided Tierra
Del Sol with financial assistance to facilitate the establishment of the
Land
Loan and the Construction Loan. The financial assistance consisted of a loan
to
Tierra Del Sol of $2,100,000 (the "SIBL Tierra Del Sol Loan"), however, as
consideration for the purchase of the Antiguan call center, SIBL exchanged
this
note and $191,100 of accrued interest and the establishment of letters of
credit
in favor of KeyBank in the amount of $4,000,000 and $2,000,000, respectively
(the "Letters of Credit"), the fees for which amounting to $540,000, were
also
exchanged as consideration for the purchase of the Antiguan call center,
as
described above. As additional consideration for this financial assistance,
we
granted SIBL and its affiliates warrants to purchase 308,000 shares of our
common stock at an exercise price of $5.00 per share and warrants to purchase
154,000 shares of our common stock at an exercise price of $0.001 per share.
Additionally, in January 2006, in connection with the SIBL Reedy Creek Loan,
we
granted SIBL and its affiliates warrants to purchase 308,000 shares of our
common stock at an exercise price of $5.00 per share and warrants to purchase
154,000 shares of the Company's common stock at an exercise price of $0.001
per
share. The warrants expire 5 years from issuance. The warrants contain
anti-dilution provisions, including a provision which requires us to issue
additional shares under the warrants if we issue or sell any common stock
at
less than $1.02 per share, or grant, issue or sell any options or warrants
for
shares of the Company's common stock to convert into shares of our common
stock
at less than $1.02 per share. If we do issue or sell common stock, which
would
cause a re-pricing of the warrants issued to SIBL, it would likely have an
adverse effect on the trading value of our common stock and could cause
substantial dilution to our then shareholders.
On
March
13, 2007, we entered into a $10,000,000 Credit Agreement with SIBL, whereby
SIBL
agreed to loan us $10,000,000 to use for the construction and development
of
Phase II of the Sonesta Resort. The loan was evidenced by a $10,000,000
Promissory Note, which bears interest at the rate of 10% per annum. The
Promissory Note is secured by a second priority security interest and lien
on
the land underlying Phase II of the Sonesta Resort, all buildings, structures
and other improvements on such land, and all fixtures, equipment, goods,
inventory or property owned by us currently or in the future, which
security interests are evidenced by a Mortgage and Security Agreement, which
we
and several of our wholly owned subsidiaries entered into with SIBL in
connection with the Credit Agreement. The loan is due in full and payable
along
with any accrued and unpaid interest on March 13, 2008. Any amounts not paid
when due under the loan bear interest at the rate of 15% per
annum.
The
Credit Agreement provides for additional advances to be made to us in an
amount
not to exceed $750,000, assuming that certain conditions are met by us in
the
future, including (a) that SIBL has received current financial information
regarding our operations (as further described in the Credit Agreement) and
that
we have issued SIBL 26,250 warrants to purchase shares of common stock and
(b)
that we are able to obtain additional loans in an aggregate amount of $750,000
from parties other than SIBL; and an additional loan in an amount not to
exceed
$1,500,000, assuming (a) and (b) above and that we have issued additional
warrants (to be determined prior to such additional advance), to
SIBL.
All
of
our credit facilities with SIBL contain customary covenants and restrictions,
including covenants that prohibit us from incurring certain types of
indebtedness, paying dividends and making specified distributions. Failure
to
comply with these covenants and restrictions would constitute an event of
default under our credit facilities, notwithstanding our ability to meet
our
debt service obligations. Upon the occurrence of an event of default, the
lender
may convert the debt to the Company's common stock, accelerate amounts due
under
the applicable credit facility, and may foreclose on collateral and/or seek
payment from a guarantor of the credit facility. At December 31, 2006, we
believe we were in compliance with the covenants and other restrictions
applicable to us under each credit facility.
Resorts
Funding Group, LLC Credit Facility
We
have
received $2,905,000 from Resorts Funding Group, LLC, which has been matching
the
funds from the SIBL Credit Agreement (see above) through the end of March
2007.
We
intend
to enter into an agreement with Resorts Funding Group, LLC, on similar terms
and
conditions to those of the SIBL Credit Agreement.
Our
subsidiary Hickory Travel Systems, Inc. owes $250,000 to Sabre, Inc. ("Sabre"),
which final payment of $250,000 on such amount was due December 31, 2003.
The
amount originally accrued interest at 8% per annum and is secured by the
personal guaranty of L. William Chiles who is a Director of the Company.
Interest has not been paid or accrued on this amount since December 31, 2003,
as
there is no interest penalty or default rate applicable to the final unpaid
payment. Sabre has not requested the final payment of $250,000 of the amount
due
from Hickory to date.
Additionally,
Hickory has a $375,900 loan through the U.S. Small Business Administration
("SBA") of which $361,272 had been drawn as of December 31, 2006. The SBA
loan
is due by May 2033 and bears interest at 4% per annum with principal and
interest
payments of approximately $1,862 due monthly from May 2005 until May 2033.
The
SBA note is secured by Hickory's assets and the personal guaranty of L. William
Chiles, who is our Director.
In
connection with our purchase of the assets of Around The World Travel, Inc.
("AWT"), as of December 31, 2006, there is a balance from those notes we
assumed
from AWT of $2,174,481.
In
connection with the exercise of the Reedy Creek Option, Reedy Creek Acquisition
Company and SIBL agreed to modify the terms of the SIBL Reedy Creek Loan
made by
SIBL to Reedy Creek Acquisition Company. The modified loan terms are evidenced
by a Renewed, Amended and Increased Promissory Note (the "Amended Note")
made by
Reedy Creek Acquisition Company in favor of SIBL. The Amended Note had a
principal balance of $8,000,000, bears interest at the rate of 8% per year
and
had a maturity date of December 31, 2006, but which date has since been verbally
extended until June 30, 2007. The Amended Note was replaced in November 2006,
by
a Renewed, Amended and Increased Promissory Note in the amount of $12,200,000
(the "RC Note"), which was in turn replaced by an additional amendment, which
increased the amount of the note to $13,420,000, and a fourth amendment in
January 2007, which increased the amount of the note to $15,300,000, in
connection with a $1,880,000 advance received from Reedy Creek (the “Amended RC
Note”). The Amended RC Note is due and payable on June 30, 2007, with $8,000,000
of the Amended RC Note bearing interest at the rate of 8% per annum and the
remaining $7,300,000 bearing interest at the rate of 12% per annum.
The
principal and accrued interest due on the Amended RC Note is due and payable
on
the maturity dates of the Amended RC Note. Upon an event of default as described
in the Amended RC Note, SIBL has several rights and remedies, including causing
the Amended RC Note to be immediately due and payable.
The
Amended RC Note is secured by a second lien on the Reedy Creek Property.
It is
guaranteed by the Company and Malcolm J. Wright, the Company's Chief Executive
Officer and Chairman pursuant to a Modification and Reaffirmation of Guaranty
and Environmental Indemnity Agreement. We believe that without the guarantees
of
Mr. Wright, it would have been more difficult, if not impossible, for us
to
secure such loan facility. In consideration for Mr. Wright's guarantee, and
pursuant to an existing agreement between Mr. Wright and the Company, Mr.
Wright
earned a fee equal to three percent (3%) of the principal amount of the Amended
Note. The Company paid this fee through the grant of warrants to Mr. Wright
to
purchase 240,000 shares of the Company's common stock at an exercise price
of
$1.02 per share. These warrants will expire 5 years from the expiration of
the
guaranty.
In
connection with the exercise of the Reedy Creek Option, the Company and Reedy
Creek Acquisition Company arranged to receive a $7,000,000 loan from Bankers
Credit Corporation ("Bankers Credit"). Under the terms of the Bankers Credit
loan, Bankers Credit advanced Reedy Creek Acquisition Company $3,000,000
at
closing and an additional $4,000,000 subsequent to the date of closing, for
an
aggregate of $7,000,000.
The
Bankers Credit loan is evidenced by a Promissory Note which previously accrued
interest at the greater of the Wall Street Journal published prime rate plus
7.75%, not to exceed the highest rate allowable under Florida law or 15%
per
year. The interest rate of the note as of March 13, 2007 was 15% (with a
prime
rate, as reported by the Wall Street Journal of 8.25%). In February 2007,
we
entered into an Amended and Restated Promissory Note with Bankers Credit,
which
increased the amount of the note to $7,860,000 in connection with an $860,000
advance and extended the due date of the note from January 3, 2007 to February
1, 2008, and decreased the interest rate to the greater of prime rate plus
6.75%
or 15%, which is equal to 15% as of the date of this filing (the "Bankers
Credit
Note").
Interest
on the Bankers Credit Note is payable monthly. Pursuant to the Bankers Credit
Note, Reedy Creek Acquisition Company agreed to pay a 10% late charge on
any
amount of unpaid principal or interest under the Bankers Credit Note. The
Bankers Credit Note is subject to a 1% exit fee. Upon an event of default
as
described in the Bankers Credit Note, Bankers Credit has several rights and
remedies, including causing the Bankers Credit Note to be immediately due
and
payable.
The
Bankers Credit Note is secured by a first lien on the Reedy Creek Property.
Additionally, the Bankers Credit Note is guaranteed by the Company and Malcolm
J. Wright, the Company's Chief Executive Officer and Chairman pursuant to
a
Guaranty Agreement. We believe that without the guarantees of Mr. Wright,
it
would have been more difficult, if not impossible, for us to secure the Bankers
Credit, loan facility. In consideration for Mr. Wright's guarantee, and pursuant
to an existing agreement between Mr. Wright and the Company, Mr. Wright earned
a
fee equal to three percent (3%) of the Bankers Credit Note. The Company paid
this fee through the grant of warrants to Mr. Wright to purchase 210,000
shares
of the Company's common stock at an exercise price of $1.02 per share. These
warrants will expire 5 years from the expiration of the guaranty.
Reedy
Creek Acquisition Company utilized the initial proceeds from the Bankers
Credit
loan to pay a portion of the amount owed on the existing first mortgage note
issued to the sellers of the Reedy Creek Property. The holder of this mortgage
agreed to release the mortgage in exchange for this payment.
In
August
2006, we received an aggregate of $5,714,569 in loans from West Villas, Inc.,
Orlando Tennis Village, Inc. and Maingate Towers, Inc., entities controlled
by
Roger Maddock, a significant shareholder of the Company. The loans bear interest
at the rate of 16% per annum until paid and are due and payable one year from
the date such loans were made. The loans totaled $5,875,444 as of December
31,
2006.
On
December 22, 2006 the Company acquired 100% of South Beach Resorts, LLC (“SBR”
or “Resorts”) for $1,120,000 plus 25% participation interest granted to Stanford
International Bank Limited in the net proceeds realized by SBR upon the
disposition of its Boulevard Hotel property located in Miami Beach, Florida.
We
also entered into a note with Roger Maddock a significant shareholder of
us, to
evidence $3,590,811 in loans and
advances Mr. Maddock had previously made to Resorts (the "Maddock Note"),
the
payment of which was guaranteed by us pursuant to a Guaranty Agreement, which
amount totaled $3,353,252 as of December 31, 2006.
While
we
currently believe we have sufficient funds to continue our business plan,
because we have decided not to move forward with the KeyBank Construction
Loan,
we will need to find alternative financing for the construction of Phase
1 of
the Sonesta Resort, of which there can be no assurance.
On
January 11, 2007, Resorts (which we now own) defaulted on a $7,700,000 loan
which it sold to Marathon Structured Finance Fund L.P. ("Marathon") in June
2005, in connection with its original purchase of the Property. To date,
the
loan principal is $7,498,900; there is accrued interest of $79,910 plus other
fees that amount to $567,968. Marathon has a mortgage interest on the Property
in connection with the June 2005 loan.
A
Forbearance Agreement was subsequently executed with Marathon to waive the
default until April 11, 2007, provided SBR continues to make monthly interest
payments on the debt outstanding and a principal payment of $750,000 was
made on
February 8, 2007. An additional forbearance to July 11, 2007 is allowed provided
that an additional $500,000 principal payment is made on or before July 3,
2007.
On
February 9, 2007, SBR entered into a 180 day, $750,000 loan agreement at
the
Wall Street Journal prime rate plus 1%, currently equal to 9.25%, with the
prime
rate at 8.25% as of the filing of this report, with International Property
Investors AG, a corporation organized under the laws of Liechtenstein, secured
by SBR’s property. The proceeds of the loan were used solely for the payment of
fees owed by SBR to Marathon pursuant to the Forbearance Agreement.
We
are
currently working to secure new financing to replace the Marathon loan; however
we can provide no assurances that such financing will be raised on favorable
terms, if at all. The Marathon loan bears interest at the rate of the greater
of
(a) ten percent (10%) or (b) the London Interbank Offered Rate (LIBOR) plus
seven percent (7%). The note also required a $180,000 exit fee to be paid
at the
time the loan was repaid, which amount has not been paid to date. Marathon
may
also require us to pay a 5% late payment fee in connection with our failure
to
repay the loan amount. We are required to pay the default rate of interest
on
the Marathon loan while obtaining a replacement loan. The default rate of
interest is LIBOR plus twelve percent (12%), which was equal to approximately
17.4%, with the LIBOR at 5.4% as of the filing of this Report.
On
January 30, 2007, AMLH executed a promissory note with Applebee Holding Company
in the amount of $150,000 at 4% for seven years. As part of the agreement,
2,840
shares of AMLH Series E Convertible Preferred Stock were issued bearing a
4% per
annum cumulative preferred dividend rate, par value of $.001 and convertible
into AMLH common stock at a strike price of $15.00 per share.
We
have
established a relationship with GMAC Bank, through Millennium Capital Mortgage,
to provide construction financing to the individual purchasers of the Sonesta
Resort town homes, which funding we believe will enable all town homes and
amenities at Tierra del Sol to be built through this program. Additionally,
we
are in the process of negotiating with several lenders for a construction
loan
on favorable terms for the condominiums and/or for the clubhouse which we
anticipate will be finalized during the second quarter of 2007. Although
we have
received letters of intent with various lending parties, we can provide no
assurances a commitment will be secured. Assuming we are able to enter into
a
subsequent funding arrangement, we believe that we will have sufficient funds
to
provide for the completion of Phase 1, assuming there are no material cost
overruns, delays or further increases in material costs. Phase 2 will be
financed separately.
However,
even if we are able to secure sufficient financing for the construction of
Phase
1 of the Sonesta Resort, moving forward, our growth and continued operations
may
be impaired by limitations on our access to the capital markets. In the event
that our current anticipated costs of developing the Sonesta Resort and/or
the
Reedy Creek Property, are more than we anticipate, and/or our other travel
service operations do not continue to generate revenue at their current levels,
we may not have sufficient funds to complete such construction projects and/or
repay amounts owed on the notes payable described above. As a result, we
may be
forced to reduce our annual construction goals and maintain our operations
at
current levels, and/or scale back our operations which could have a material
adverse impact upon our ability to pursue our business plan and/or the value
or
common stock. There can be no assurance that capital from outside sources
will
be available, or if such financing is available, that it will not involve
issuing additional securities senior to our common stock or equity financings
which are dilutive to holders of our common stock.
While
our
common stock currently trades on the Over-The-Counter Bulletin Board in the
United States, there is the potential that we may choose to change our common
stock listing to an alternative market in the future in order to improve
our
liquidity and our access to the capital markets.
Off-Balance
Sheet Arrangements
We
do not
have any off balance sheet arrangements that have or are reasonably likely
to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources that is material to investors.
RISK
FACTORS
RISKS
RELATING TO OUR CAPITAL AND LIQUIDITY NEEDS
WE
HAVE A LIMITED HISTORY OF OPERATIONS AND WE HAVE A HISTORY OF OPERATING
LOSSES.
Since
our
inception, we have been assembling our Travel Division including the acquisition
of Hickory in October 2003 and TraveLeaders in December 2004, planning The
Sonesta Orlando Resort at Tierra Del Sol, building travel club membership
databases, and assembling our management team. We have incurred net operating
losses since our inception. As of December 31, 2006, we had an accumulated
deficit of $21,607,362 and negative working capital of $52,541,876. If we
are
unable to obtain profitable operations and/or meeting our current liabilities,
we could be forced to curtail or abandon our operations, which could cause
any
investment in the Company to become worthless.
WE
MAY NOT GENERATE ENOUGH OPERATING REVENUE OR CAPITAL TO MEET OUR OPERATING
AND
DEVELOPMENT COSTS.
Our
costs
of establishing our business models for both the Travel Division and the
Resort
Development Division, including acquisitions and the due diligence costs
of that
process, together with the un-financed development costs incurred in the
Resort
Development Division requires significant capital. Historically, our sources
for
capital have been through loans from our founding and majority shareholders
as
well as from loans from our capital partner, Stanford. On December 29, 2005,
certain affiliates of the Company closed two (2) credit facilities with Key
Bank
related to the Sonesta Resort. The credit facilities consisted of a $40,000,000
revolving construction loan which we planned to use to construct Phase 1
of the
Sonesta Resort (the "Construction Loan"), but which we have subsequently
elected
not to open and a $14,850,000 term loan used to finance the acquisition of
the
property for the Resort and to pay certain related costs (the "Land Loan").
Since we have not decided to move forward with the Construction Loan financing,
we will need to obtain alternative financing for the construction of Phase
1 of
the Sonesta Resort, which may be on less favorable terms than the Construction
Loan, if such financing is available at all. We are currently hope to close
additional financing in the second quarter of 2006, of which there can be
no
assurance. If we are unable to enter into an alternative funding arrangement
in
connection with the construction of Phase 1 of the Sonesta Resort, generate
enough operating revenue to satisfy our capital needs, or if we cannot obtain
future capital from our founding and majority shareholders or from Stanford,
and/or if we are not able to repay the Land Loan, it will have a material
adverse effect on our financial condition and results of operation.
WE
OWE A SIGNIFICANT AMOUNT OF MONEY TO KEYBANK IN CONNECTION WITH THE LAND
LOAN,
WHICH MONEY WE DO NOT CURRENTLY HAVE, AND WHICH LOANS ARE SECURED BY THE
SONESTA
RESORT.
The
occurrence of any one or more "events of default" under the Land Loan would
allow KeyBank to pursue certain remedies against us including taking possession
of the Sonesta Resort project; withholding further disbursement of the proceeds
of the loan and/or terminate KeyBank's obligations to make further disbursements
thereunder; and/or declaring the note evidencing the loans to be immediately
due
and payable. We do not currently have cash on hand sufficient to repay the
approximately $14,352,900 which had been borrowed from KeyBank pursuant to
the
Land Loan as of December 31, 2006. The Land Loan is due for repayment on
June
28, 2007, and we do not currently have sufficient cash to repay such loan
when
due. Furthermore, we currently anticipate the need for a significant amount
of
additional funding to complete the construction of Phase 1 of the Sonesta
Resort, and as such, we will likely not have sufficient cash to repay the
Land
Loan or any future loan in connection with the funding of Phase 1 of the
Sonesta
Resort, assuming such financing is obtained, until the completion of the
units
in the Sonesta Report, without additional financing. If we do not repay the
amounts owing under the Land Loan or any subsequent loans when due, KeyBank
may
take possession of the Sonesta Resort project, and we may be forced to curtail
or abandon our current business plans, which could cause the value of our
securities to become worthless.
Furthermore,
we have established a relationship with GMAC Bank, through Millennium Capital
Mortgage, to provide construction financing to the individual purchasers
of the
Sonesta Resort town homes, which funding we believe will enable all town
homes
and amenities at Tierra del Sol to be built through this program. Additionally,
we are in the process of obtaining alternate financing for the construction
of
the condominiums and/or for the clubhouse in Phase 1 of the Sonesta Resort.
We
anticipate that such loan will be evidenced by a firm commitment during the
second quarter of 2007, but we can provide no assurances that a commitment
will
be obtained on favorable terms, if at all. Assuming we are able to enter
into a
subsequent funding arrangement, we believe that we will have sufficient funds
to
provide for the completion of Phase 1, assuming there are no material cost
overruns, delays or further increases in material costs. We plan to finance
Phase 2 separately.
A
SIGNIFICANT AMOUNT OF OUR LIABILITIES ARE CURRENT LIABILITIES WHICH ARE DUE
WITHIN THE NEXT TWELVE MONTHS, AND WHICH WE DO NOT CURRENTLY HAVE SUFFICIENT
CASH ON HAND TO REPAY.
As
of
December 31, 2006, we had a total of $56,631,757 in current liabilities,
which
liabilities are payable within the next twelve months. Included in those
liabilities was the Land Load, which currently has a balance of approximately
$14,352,900 and is due on June 28, 2007, the amended Reedy Creek Loan in
the
principal amount of $13,420,000 along with any accrued and unpaid interest,
which was due and payable on December 31, 2006,
but
which has since been extended until June 30, 2007, the Bankers Credit loan
in
the amount of $7,860,000 is due and payable, along with any accrued and unpaid
interest on February 1, 2008, as well as various other loans and notes payables.
As we do not currently have sufficient cash on hand to repay these amounts
as of
the filing of this report, we anticipate the need to raise substantial funding
in the next six to twelve months to repay these notes, which funding, if
available, could be on unfavorable terms and which could cause immediate
and
substantial dilution to our then existing shareholders. If we are unable
to
repay our substantial current liabilities when due, we could be forced to
curtail or abandon our business operations, which could cause the value of
our
securities to become worthless.
WE
HAVE RECEIVED $4,355,000 OF CONVERTIBLE DEBT FINANCING FROM STANFORD, WHICH
IS
SECURED BY MORTGAGES ON OUR PROPERTY AND LIENS ON OUR
ASSETS.
We
have
received an aggregate of $4,355,000 of convertible debt financing from Stanford.
The terms of our financial arrangements with Stanford are secured by the
following mortgages on our properties and liens on our assets:
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Our
$3,000,000 credit facility is secured by collateral assignments
of our
stock in American Leisure Marketing & Technology, Inc., Orlando
Holidays, Inc, American Leisure, Inc, Welcome To Orlando, Inc.,
American
Travel & Marketing Group, Inc. and Hickory Travel Systems,
Inc.
|
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|
Our
$1,355,000 credit facility is secured by all of the issued and
outstanding
stock of our subsidiaries American Leisure Marketing & Technology,
Inc., Orlando Holidays, Inc, American Leisure, Inc., Welcome To
Orlando,
Inc., American Travel & Marketing Group, Inc. and Hickory Travel
Systems, Inc. This facility is non-recourse to the Company but
for the
assets and revenues of those
subsidiaries.
|
If
we
fail to comply with the covenants in our credit facilities, Stanford can
elect
to accelerate the amounts due under the credit facilities and may foreclose
on
our assets and property that secures the loans.
BUSINESS
ACQUISITIONS OR JOINT VENTURES MAY DISRUPT OUR BUSINESS, DILUTE SHAREHOLDER
VALUE OR DISTRACT MANAGEMENT ATTENTION.
As
part
of our business strategy, we may consider the acquisition of, or investments
in,
other businesses that offer services and technologies complementary to ours.
If
the analysis used to value acquisitions is faulty, the acquisitions could
have a
material adverse affect on our operating results and/or the price of our
common
stock. Acquisitions also entail numerous risks, including:
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difficulty
in assimilating the operations, products and personnel of the acquired
business;
|
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|
potential
disruption of our ongoing business;
|
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|
unanticipated
costs associated with the
acquisition;
|
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inability
of management to manage the financial and strategic position of
acquired
or developed services and
technologies;
|
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the
diversion of management's attention from our core
business;
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inability
to maintain uniform standards, controls, policies and
procedures;
|
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impairment
of relationships with employees and customers, which may occur
as a result
of integration of the acquired
business;
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potential
loss of key employees of acquired
organizations;
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problems
integrating the acquired business, including its information systems
and
personnel;
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unanticipated
costs that may harm operating results;
and
|
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risks
associated with entering an industry in which we have no (or limited)
prior experience.
|
If
any of
these occur, our business, results of operations and financial condition
may be
materially adversely affected.
RISKS
RELATED TO OUR RESORT DEVELOPMENT DIVISION
WE
OWE A SIGNIFICANT AMOUNT OF MONEY TO KEYBANK, NATIONAL ASSOCIATION, WHICH
WE DO
NOT CURRENTLY HAVE FUNDS TO RE-PAY, AND WHICH LOANS INCLUDE LIENS ON OUR
PROPERTIES.
In
December 2005, we closed two credit facilities with KeyBank, National
Association ("KeyBank") related to the Sonesta Resort. The credit facilities
consisted of a $40,000,000 revolving credit line (the "Construction Loan")
and a
$14,850,000 term loan to be used to finance the acquisition of the property
for
the resort (the "Land Loan"). We have since decided not to move forward with
the
Construction Loan, however we have approximately $14,352,900 outstanding
under
the Land Loan to date. The Land Loan bears interest at the rate of the daily
London Interbank Offered Rate ("LIBOR") plus 3.10%, respectively, currently
8.27%, with the LIBOR equal to approximately 5.17% as of March 7, 2007. The
maturity date of the Land Loan is June 28, 2007. The Land Loan is secured
by a
first lien on the land within Phase 2 of the Sonesta Resort, including any
improvements,
easements, and rights of way; a first lien and security interest in all fixtures
and personal property, an assignment of all leases, subleases and other
agreements relating to the property; an assignment of construction documents;
a
collateral assignment of all contracts and agreements related to the sale
of
each condominium unit; a collateral assignment of all purchase deposits and
any
management and/or operating agreement. As of the date of this filing, we
have
borrowed $14,352,900 under the Land Loan, which amount we do not currently
have
funds on hand to repay. Our business plan includes retiring that debt with
a
construction loan to build Phase 2 of the Sonesta Resort, assuming that we
raise
sufficient funding to complete the construction of Phase 1 of the Sonesta
Resort
first, of which there can be no assurance.
WE
NEED SIGNIFICANT ADDITIONAL FINANCE FACILITIES TO BEGIN AND COMPLETE THE
DEVELOPMENT OF PHASE 2 OF THE SONESTA RESORT, TO CONTINUE THE VERTICAL
CONSTRUCTION OF PHASE 1 OF THE SONESTA RESORT AND TO BEGIN AND COMPLETE OUR
PLANNED CONSTRUCTION OF THE REEDY CREEK PROPERTY.
As
we
have decided not to move forward with the Construction Loan, we currently
anticipate the need for a significant amount of additional funding to complete
the development of Phase 1 of the Sonesta Resort. Additionally, we do not
currently have sufficient capital to begin or complete Phase 2 of the Sonesta
Resort and/or our planned development of the Reedy Creek Property (as described
above). We are currently in discussions with several parties regarding obtaining
financing for the vertical construction of Phase 1 of the Sonesta Resort,
and
hope to finalize such funding in the second quarter of 2007, of which there
can
be no assurance. Our plan for the financing of the Phase 2 town homes is
to use
a program from a national mortgage lender to employ construction loans issued
to
each purchaser that will, upon completion, convert to permanent, conventional
mortgages. The finance plan for the Phase 2 amenities is to employ a line
of
credit secured by a segment of the profits from the sale of the residential
units. We will employ a conventional construction loan for the condominium
units. As of this date, the Company has not yet secured the line of credit
for
the amenities or the construction loan for the condominium units. It is
impossible at this time for us to estimate the cost of completing Phase 1
or
Phase 2 of the Sonesta Resort and/or the development of the Reedy Creek
Property, however, based upon the size of the projects, we would anticipate
such
costs to be substantial. We will not begin the construction of Phase 1 or
Phase
2 until we have capitalized the construction appropriately. If we cannot
obtain
the appropriate financing, we may have to delay the commencement of the
construction of Phase 1 and/or Phase 2 until such time as we have adequate
funding available. We may never have sufficient capital to begin or complete
the
development of Phase 1 or Phase 2 of the Sonesta Resort which could force
us to
modify or abandon the development plan for the Sonesta Resort. Our business
plan
for the development of the Reedy Creek Property is to enter into a partnership
agreement with an experienced and high credit development partner, and as
such,
we do not expect to raise capital or incur debt to begin or complete that
project. At present, the Company has not yet chosen such partner although
we are
in receipt of proposals from qualified developers that are consistent with
our
business plan.
THE
CONSTRUCTION OF THE SONESTA RESORT IS SUBJECT TO DELAYS AND COST OVERRUNS,
WHICH
COULD CAUSE THE ESTIMATED COST OF THE RESORT TO INCREASE AND WHICH COULD
CAUSE
US TO CURTAIL OR ABANDON THE CONSTRUCTION OF THE SONESTA
RESORT.
All
construction projects, especially construction projects as large as our planned
Sonesta Resort are subject to delays and cost overruns. We have experienced
very
significant cost increases and overruns since sales commenced in 2004, due
to
significant price increases in construction materials, which have been
exacerbated by the hurricanes of 2004 and 2005, as well as to a lesser extent
the threat of hurricanes in 2006 and 2007. The increased costs have impacted
construction throughout the southeastern United States and are not unique
to us.
Because of the significant cost increases, we are evaluating and plan to
implement a program to revise upwards the price of sold and unsold units
or to
cancel contracts on units because of cost overruns. If we continue to experience
substantial delays or additional cost overruns during the construction of
Phase
1 of the Sonesta Resort and/or Phase 2, we could be forced to obtain additional
financing to complete the projects, which could be at terms worse than our
then
current funding, assuming such funding is available to us at all, of which
there
can be no assurance, and could force us to curtail or abandon our current
plans
for Phases 1 and 2 of the Sonesta Resort. As a result, sales of our town
homes
and condominiums could be severely effected, which could force us to curtail
or
abandon our business plans and/or could make it difficult if not impossible
to
repay the significant amount of money due to KeyBank and Stanford (as explained
above), which as a result could cause the value of our securities to become
worthless.
EXCESSIVE
CLAIMS FOR DEVELOPMENT-RELATED DEFECTS IN ANY REAL ESTATE PROPERTIES THAT
WE
PLAN TO BUILD THROUGH OUR RESORT DEVELOPMENT DIVISION COULD ADVERSELY AFFECT
OUR
LIQUIDITY, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We
will
engage third-party contractors and have additionally engaged Resorts Development
Group, LLC, which is owned by our Chief Executive Officer and Chairman, Malcolm
J. Wright, to construct portions of our resorts. However, our customers may
assert claims against us for construction defects or other perceived development
defects including, but not limited to, structural integrity, the presence
of
mold as a result of leaks or other defects, electrical issues, plumbing issues,
or road construction, water or sewer defects. In addition, certain state
and
local laws may impose liability on property developers with respect to
development defects discovered in the future. To the extent that the contractors
do not satisfy any proper claims as they are primarily responsible, and to
the
extent claims are not satisfied by third-party warranty coverage, claims
for
development-related defects could be brought against us. To the extent that
claims brought against us are not covered by insurance, our payment of those
claims could adversely affect our liquidity, financial condition, and results
of
operations.
MALCOLM
J. WRIGHT, WHO SERVES AS OUR CHIEF EXECUTIVE OFFICER AND AS CHAIRMAN OF THE
BOARD OF DIRECTORS, IS INVOLVED IN OTHER BUSINESSES THAT HAVE CONTRACTED
WITH US
AND IS ALSO INVOLVED WITH PROPERTY DEVELOPMENT PROJECTS THAT MAY BE IN
COMPETITION WITH US.
Malcolm
J. Wright is the President of American Leisure Real Estate Group, Inc., a
real
estate development company with which we have contracted for the development
of
our resorts including The Sonesta Orlando Resort at Tierra Del Sol ("ALREG")
and
Reedy Creek Property. Mr. Wright has a 100% interest in ALREG. Additionally,
Mr.
Wright is an officer of Xpress Ltd., with which we have contracted for exclusive
sales and marketing for The Sonesta Orlando Resort at Tierra Del Sol and
Reedy
Creek. Mr. Wright is also an officer and shareholder of Inovative Concepts,
Inc., which does not have any operations, M J Wright Productions, Inc., which
does not have any operations, but which owns our Internet domain names, Resorts
Development Group, LLC which develops resort properties in Orlando including
Bella Citta, Los Jardines Del Sol, The Preserve, Tortuga Cay and Sherberth
Development LLC, Resorts Construction, LLC with whom we have contracted to
construct part of the Sonesta Resort as described above, Resorts Concepts,
LLC
which operates a design business, and Titan Manufacturing, LLC from whom
we
intend to purchase roof tiles for our developments. Because Mr. Wright is
employed by us and the other party to these transactions, Mr. Wright might
profit from a transaction when we do not.
Management
believes that these transactions are in the best interest of, or not detrimental
to, the Company, and are as good or better than could be achieved, if even
possible to achieve, by contracting with a wholly unrelated party. Additionally,
the transactions were negotiated by us in a manner akin to an arms length
transaction. Additionally, from time to time, Mr. Wright pursues real estate
investment and sales ventures that may be in competition with ventures that
we
pursue or plan to pursue. Mr. Wright, however, has personally guaranteed
our
debts, and has encumbered his personal assets to secure financing for the
above
described projects.
BECAUSE
MALCOLM J. WRIGHT, WHO SERVES AS OUR CHIEF EXECUTIVE OFFICER AND THE CHAIRMAN
OF
THE BOARD OF DIRECTORS, IS INVOLVED IN A NUMBER OF OTHER BUSINESSES, HE MAY
NOT
BE ABLE OR WILLING TO DEVOTE A SUFFICIENT AMOUNT OF TIME TO OUR BUSINESS
OPERATIONS.
Malcolm
J. Wright is the President of ALREG, Xpress Ltd., Inovative Concepts, Inc.,
M J
Wright Productions, Inc., Resorts Development Group, LLC, Resorts Construction,
LLC, Titan Manufacturing LLC, Tortuga Cay Resort, LLC, Osceola Business
Managers, Inc., Florida World, Inc., SBR Holding LLC (a non trading holding
company which formerly held South Beach Resorts, LLC), RDG LLC, and SunGate
Resort Villas, Inc. Mr. Wright is engaged full-time as the Company's Chairman
and as a senior executive officer. Although Mr. Wright has not indicated
any
intention to reduce his activities on behalf of the Company, we do not have
an
employment agreement with Mr. Wright and he
is
under no requirement to spend a specified amount of time on our business.
If Mr.
Wright does not spend sufficient time serving our company, it could have
a
material adverse effect on our business and results of
operations.
WE
MAY PROVIDE THE EXECUTIVE OFFICERS OF OUR SUBSIDIARIES AN AGGREGATE BONUS
OF UP
TO 19% OF THE PRE-TAX PROFITS OF THE SUBSIDIARY IN WHICH THEY SERVE AS OUR
EXECUTIVE OFFICERS, WHICH WOULD REDUCE ANY PROFITS THAT WE MAY
EARN.
We
may
provide the executive officers of each of our subsidiaries an aggregate bonus
of
up to 19% of the pre-tax profits, if any, of the subsidiaries in which they
serve as executive officers. For example, Malcolm J. Wright would receive
19% of
the pre-tax profits of Leisureshare International Ltd, Leisureshare
International Espanola SA, American Leisure Homes, Inc., Advantage Professional
Management Group, Inc., Tierra Del Sol Resort, Inc., and Wright Resorts Villas
& Hotels, Inc. However, we do not have any agreements with our officers
regarding the bonus other than our agreement with L. William Chiles. Mr.
Chiles
is entitled to receive 19% of the profits of Hickory up to a maximum payment
over the life of his contract of $2,700,000. As Mr. Chiles' bonus is limited,
it
is not subject to the buy-out by us described below. The executive officers
of
our other subsidiaries would share a bonus of up to 19% of the pre-tax profits
of the subsidiary in which they serve as executive officers. We would retain
the
right, but not the obligation to buy out all of the above agreements after
a
period of five years by issuing such number of shares of our common stock
equal
to the product of 19% of the average after-tax profits for the five-year
period
multiplied by one-third of the price-earnings ratio of our common stock at
the
time of the buyout divided by the greater of the market price of our common
stock or $5.00. If we pay bonuses in the future, it will reduce our profits
and
the amount, if any, that we may otherwise have available to pay dividends
to our
preferred and common stockholders. Additionally, if we pay bonuses in the
future
it will take away from the amount of money we have to repay our outstanding
loans and the amount of money we have available for reinvestment in our
operations and as a result, our future results of operations and business
plan
could be affected by such bonuses, and we could be forced to curtail or abandon
our current business plan and plans for future expansion.
WE
HAVE EXPERIENCED DELAYS IN OBTAINING SIGNATURES FOR AGREEMENTS AND TRANSACTIONS,
WHICH HAVE PREVENTED THEM FROM BEING FINALIZED AND/OR DISCLOSED IN OUR
FILINGS.
We
have
experienced delays in obtaining signatures for various agreements and
transactions in the past. In some cases, we have either disclosed the terms
of
these agreements and transactions in our periodic and other filings with
the SEC
and/or filed such agreements with only the limited signatures which we could
obtain by the required filing dates of such reports, with the intention to
re-file such agreements at a later date once we are able to obtain all of
the
required signatures; however, these agreements and transactions are not final.
Until they are finalized, their terms are subject to change although we do
not
have any present intention to do so. If the terms of these agreements and
transactions were to change, we may be required to amend our prior disclosures
and any revisions could be substantial.
WE
RELY ON KEY MANAGEMENT AND IF WE LOSE ANY OF THEM, IT COULD HAVE A MATERIAL
ADVERSE AFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.
Our
success depends, in part, upon the personal efforts and abilities of Malcolm J.
Wright. Mr. Wright is the Chairman of the Company and the Company's Chief
Executive Officer. Our ability to operate and implement our business plan
is
dependent on the continued service of Mr. Wright. We are in the process of
entering into a written employment agreement with Mr. Wright. If we are unable
to retain and motivate him on economically feasible terms, our business and
results of operations will be materially adversely affected. In addition,
the
absence of Mr. Wright may force us to seek a replacement who may have less
experience or who may not understand our business as well.
WE
OWE A SUBSTANTIAL AMOUNT OF MONEY TO MALCOLM J. WRIGHT, OUR CHIEF EXECUTIVE
OFFICER AND CHAIRMAN FOR HIS SERVICES AS AN EXECUTIVE OFFICER AND A
DIRECTOR, AND IF WE DO NOT EVENTUALLY PAY HIM THESE ACCRUED AMOUNTS, WE COULD
LOSE HIS SERVICES.
We
currently accrue $500,000 per year which is payable to Malcolm J. Wright
for his
services as an executive officer and an additional $18,000 per year for his
services as a Chairman as of the filing of this report, which accrued
amount bears interest at the rate of 12% per annum until paid, compounded
annually. Although we paid Mr. Wright an aggregate of $1,540,500 in June
2006,
consisting of $1,275,000 of the principal amount he was owed in salary and
$265,500 of interest on such amount, we still owe Mr. Wright approximately
$2,225,000 as of the date of this filing. Furthermore, we may pay Mr. Wright
a
bonus of up to 19% of the pre-tax profits, if any, of various subsidiaries
as
discussed above. We have made payments to entities controlled by Mr. Wright
in
consideration for substantial valuable services that those entities have
provided to us for The Sonesta Orlando Resort at Tierra Del Sol. If we do
not
have sufficient cash on hand to pay Mr. Wright for his salary, Director's
compensation and bonus in the future, he may determine to spend less of his
time
on our business or to resign his positions as an officer and a
Director.
COMPANIES
AFFILIATED WITH OUR CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD,
MALCOLM
J. WRIGHT ARE PAID A SUBSTANTIAL AMOUNT OF OUR REVENUES IN CONNECTION WITH
SERVICES RENDERED.
Certain
companies controlled by our Chief Executive Officer and Chairman, Malcolm
J.
Wright, including American Leisure Real Estate Group, Inc. ("ALRG"), which
entered into an exclusive Development Agreement with our subsidiary, Tierra
del
Sol Resort, Inc. ("TDSR") and Xpress, Ltd. ("Xpress"), which entered into
an exclusive sales and marketing agreement with TDSR in November 2003,
are paid
substantial fees in connection with services rendered to us in connection
with
such agreements. In connection with ALRG's Development Agreement with TDSR,
we
are required to pay ALRG a fee in the amount of 4% of the total costs of
the
development of the Sonesta Resort paid by ALRG. As of December 31, 2006,
the
total costs and fees paid by ALRG amounted to $35,086,913, of which 4%
of such
amount is equal to approximately $1,403,777. In connection with Xpress'
sales
and marketing agreement, we agreed to pay Xpress a sales fee in the amount
of 3%
and a marketing fee of 1.5% of the total sales prices received by TDSR
in
connection with sales of units in the Sonesta Resort, which shares are
payable
in two installments, one-half of the sales fee and all of the marketing
fee when
the rescission period has elapsed in a unit sales agreement and the other
half
of the sales fee upon the actual conveyance of the unit. As of December
31,
2006, total sales of units in the Sonesta Resort were approximately
$229,590,043, and as a result, TDSR was obligated to pay Xpress a fee of
$6,887,701 in connection with sales and a fee of $3,443,851 in marketing
fees,
and as of December 31, 2006, $6,887,701 had been paid to Xpress, which
number
includes fees paid on cancelled sales, which fees Xpress is able to keep.
These
payments represent a significant portion of our non-restricted current
cash and
equivalents and as a result of such payments, we could have less cash on
hand
than we will require for our operations and upcoming liabilities. Additionally,
as a result of such payments, we may be forced to curtail or scale back
our
business plan, which could have a material adverse effect on the trading
value
of our common stock. We believe, however, that the transactions with ALRG
and
Xpress are in the best interest of the Company and provide efficiencies
and
savings not otherwise available in the open market.
RISKS
RELATED TO OUR TRAVEL DIVISION
WE
NEED APPROXIMATELY $2,500,000 OF CAPITAL THROUGH THE END OF THE 2007 FISCAL
YEAR
FOR OUR TRAVEL DIVISION OPERATIONS AND THE OPERATIONS OF HICKORY, WHICH MAY
NOT
BE AVAILABLE TO US ON FAVORABLE TERMS, IF AT ALL.
We
anticipate needing to raise approximately $2,000,000 through the end of the
2007
fiscal year for the working capital needs for the Travel Division, as well
as
approximately $500,000 for the operations of Hickory, which includes Hickory's
requirement to cover its seasonal losses, and TraveLeaders' requirements
during
its reorganization to adopt our business models. If we do not receive a
sufficient amount of additional capital on acceptable terms, or at all, we
may
be unable to fully implement our business plan. We have identified sources
of
additional working capital, but we do not have any written commitments from
third parties or from our officers, Directors or majority shareholders.
Additional capital may not be available to us on favorable terms, if at all.
If
we cannot obtain a sufficient amount of additional capital, we will have
to
delay, curtail or scale back some or all of our travel operations, any of
which
would materially adversely affect our travel businesses. In addition, we
may be
required to delay the acquisition of additional
travel agencies and restructure or refinance all or a portion of our outstanding
debt.
OUR
COMMISSIONS AND FEES ON CONTRACTS WITH SUPPLIERS OF TRAVEL SERVICES FOR OUR
TRAVEL DIVISION MAY BE REDUCED OR THESE CONTRACTS MAY BE CANCELLED AT WILL
BY
THE SUPPLIERS BASED ON OUR VOLUME OF BUSINESS, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS.
Our
suppliers of travel services including airline, hotel, cruise, tour and car
rental suppliers may reduce the commissions and fees that we earn under contract
with them based on the volume of business that we generate for them. These
contracts generally renew annually and in some cases may be cancelled at
will by
the suppliers. If we cannot maintain our volume of business, our suppliers
could
contract with us on terms less favorable than the current terms of our contracts
or the terms of their contracts with our competitors, exclude us from the
products and services that they provide to our competitors, refuse to renew
our
contracts, or, in some cases, cancel their contracts with us at will. In
addition, our suppliers may not continue to sell services and products through
global distribution systems on terms satisfactory to us. If we are unable
to
maintain or expand our volume of business, our ability to offer travel service
or lower-priced travel inventory could be significantly reduced. Any
discontinuance or deterioration in the services provided by third parties,
such
as global distribution systems providers, could prevent our customers from
accessing or purchasing particular travel services through us. If these
suppliers were to cancel or refuse to renew our contracts or renew them on
less
favorable terms, it could have a material adverse effect on our business,
financial condition or results of operations.
OUR
SUPPLIERS OF TRAVEL SERVICES TO OUR TRAVEL DIVISION COULD REDUCE OR ELIMINATE
OUR COMMISSION RATES ON BOOKINGS MADE THROUGH US BY PHONE AND OVER THE INTERNET,
WHICH COULD REDUCE OUR REVENUES.
We
receive commissions paid to us by our travel suppliers such as hotel chains
and
cruise companies for bookings that our customers make through us by phone
and
over the Internet. Consistent with industry practices, our suppliers are
not
obligated by regulation to pay any specified commission rates for bookings
made
through us or to pay commissions at all. Over the last several years, travel
suppliers have substantially reduced commission rates and our travel suppliers
have reduced our commission rates in certain instances. Future reductions,
if
any, in our commission rates that are not offset by lower operating costs
or
increased volume could have a material adverse effect on our business and
results of operations.
FAILURE
TO MAINTAIN RELATIONSHIPS WITH TRADITIONAL TRAVEL AGENTS FOR OUR TRAVEL DIVISION
COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF
OPERATIONS.
Hickory
has historically received, and expects to continue to receive, a significant
portion of its revenue through relationships with traditional travel agents.
Maintenance of good relationships with these travel agents depends in large
part
on continued offerings of travel services in demand, and good levels of service
and availability. If Hickory does not maintain good relations with its travel
agents, these agents could terminate their memberships and use of Hickory's
products and services, which would have a material adverse effect on our
business and results of operations.
DECLINES
OR DISRUPTIONS IN THE TRAVEL INDUSTRY COULD SIGNIFICANTLY REDUCE OUR REVENUE
FROM THE TRAVEL DIVISION.
Potential
declines or disruptions in the travel industry may result from any one or
more
of the following factors:
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price
escalation in the airline industry or other travel related industries;
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airline
or other travel related strikes;
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political
instability, war and hostilities;
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increased
occurrence of travel-related accidents; and/or
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economic
downturns and recessions.
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OUR
TRAVEL REVENUES MAY FLUCTUATE FROM QUARTER TO QUARTER DUE TO SEVERAL FACTORS
INCLUDING FACTORS THAT ARE OUTSIDE OF OUR CONTROL, AND IF BECAUSE OF THESE
FACTORS, OUR REVENUES ARE BELOW OUR EXPECTATIONS IT WOULD LIKELY HAVE A MATERIAL
ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
We
may
experience fluctuating revenues because of a variety of factors, many of
which
are outside of our control. These factors may include, but are not limited
to,
the timing of new contracts; reductions or other modifications in our clients'
marketing and sales strategies; the timing of new product or service offerings;
the expiration or termination of existing contracts or the reduction in existing
programs; the timing of increased expenses incurred to obtain and support
new
business; changes in the revenue mix among our various service offerings;
labor
strikes and slowdowns at airlines or other travel businesses; and the seasonal
pattern of TraveLeaders' business and the travel agency members of Hickory.
In
addition, we make decisions regarding staffing levels, investments and other
operating expenditures based on our revenue forecasts. If our revenues are
below
expectations in any given quarter, our operating results for that quarter
would
likely be materially adversely affected.
GLOBAL
TRAVEL DISTRIBUTION SYSTEM CONTRACTS THAT WE MAY ENTER INTO GENERALLY PROVIDE
FOR FINANCIAL PENALTIES FOR NOT ACHIEVING PERFORMANCE
OBJECTIVES.
We
are
seeking to enter into multi-year global distribution system contracts. These
contracts typically cover a five-year period and would require us to meet
certain performance objectives. If we do not structure a global distribution
system contract effectively, it may trigger financial penalties if the
performance objectives are not met. In the event that we enter into global
distribution system contracts and are unable to meet the performance objectives,
it would have a material adverse effect on our business, liquidity and results
of operations.
OUR
CONTRACTS WITH CLIENTS OF THE TRAVELEADERS BUSINESS DO NOT GUARANTEE THAT
WE
WILL RECEIVE A MINIMUM LEVEL OF REVENUE, ARE NOT EXCLUSIVE, AND MAY BE
TERMINATED ON RELATIVELY SHORT NOTICE.
Our
contracts with clients of the TraveLeaders business do not ensure that we
will
generate a minimum level of revenue, and the profitability of each client
may
fluctuate, sometimes significantly, throughout the various stages of our
sales
cycles. Although we will seek to enter into multi-year contracts with our
clients, our contracts generally enable the client to terminate the contract,
or
terminate or reduce customer interaction volumes, on relatively short notice.
Although some contracts require the client to pay a contractually agreed
amount
in the event of early termination, there can be no assurance that we will
be
able to collect such amount or that such amount, if received, will sufficiently
compensate us for our investment in any canceled sales campaign or for the
revenues we may lose as a result of the early termination. If we do not generate
minimum levels of revenue from our contracts or our clients terminate our
multi-year contracts, it will have a material adverse effect on our business,
results of operation and financial condition.
WE
RECEIVE CONTRACTUALLY SET SERVICE FEES AND HAVE LIMITED ABILITY TO INCREASE
OUR
FEES TO MEET INCREASING COSTS.
Most
of
our travel contracts have set service fees that we may not increase if, for
instance, certain costs or price indices increase. For the minority of our
contracts that allow us to increase our service fees based upon increases
in
cost or price indices, these increases may not fully compensate us for increases
in labor and other costs incurred in providing the services. If our costs
increase and we cannot, in turn, increase our service fees or we have to
decrease our service fees because we do not achieve defined performance
objectives, it will have a material adverse effect on our business, results
of
operations and financial condition.
THE
TRAVEL INDUSTRY IS LABOR INTENSIVE AND INCREASES IN THE COSTS OF OUR EMPLOYEES
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, LIQUIDITY OR RESULTS
OF
OPERATIONS.
The
travel industry is labor intensive and has experienced high personnel turnover.
A significant increase in our personnel turnover rate could increase our
recruiting and training costs and decrease operating effectiveness and
productivity. If we obtain a significant number of new clients or implement
a
significant number of new, large-scale campaigns, we may need to recruit,
hire
and train qualified personnel at an accelerated rate, but we may be unable
to do
so. Because significant portions of our operating costs relate to labor costs,
an increase in wages, costs of employee benefits, employment taxes or other
costs associated with our employees could have a material adverse effect
on our
business, results of operations or financial condition.
OUR
INDUSTRY IS SUBJECT TO INTENSE COMPETITION AND COMPETITIVE PRESSURES COULD
ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.
We
believe that the market in which we operate is fragmented and highly competitive
and that competition may intensify in the future. We compete with small firms
offering specific applications, divisions of large entities, large independent
firms and the in-house operations of clients or potential clients. A number
of
competitors have or may develop greater capabilities and resources than us.
Additional competitors with greater resources than us may enter our market.
Competitive pressures from current or future competitors could cause our
services to lose market acceptance or result in significant price erosion,
all
of which could have a material adverse effect upon our business, results
of
operations or financial condition.
WE
RELY AND PLAN TO RELY ON ONLY A FEW MAJOR CLIENTS FOR OUR
REVENUES.
We
plan
to focus our marketing efforts on developing long-term relationships with
companies in our targeted travel and vacation resort industry. As a result,
we
will derive a substantial portion of our revenues from relatively few clients.
There can be no assurances that we will not continue to be dependent on a
few
significant clients, that we will be able to retain those clients, that the
volumes of profit margins will not be reduced or that we would be able to
replace such clients or programs with similar clients or programs that would
generate a comparable profit margin. Consequently, the loss of one or more
of
those clients could have a material adverse effect on our business, results
of
operations or financial condition.
RISKS
RELATING TO OUR STOCK AND
GENERAL
BUSINESS RISKS
RE-PRICING
WARRANTS AND ISSUING ADDITIONAL WARRANTS TO OBTAIN FINANCING HAS CAUSED AND
MAY
CAUSE ADDITIONAL DILUTION TO OUR EXISTING STOCKHOLDERS.
In
the
past, to obtain additional financing, we have modified the terms of our warrant
agreements to lower the exercise price per share to $.001 from $5.00 with
respect to warrants to purchase 100,000 shares of our common stock and to
$.001
from $2.96 with respect to warrants to purchase 1,350,000 shares of our common
stock. Additionally, we have granted an additional 616,000 warrants to SIBL
and
affiliates to purchase shares of our common stock at $5.00 per share, 308,000
warrants to SIBL and affiliates to purchase shares of our common stock at
$0.001
per share, 355,000 warrants to purchase shares of our common stock at $10
per
share and 235,000 warrants to purchase shares of our common stock at $20
per
share. Re-pricing of our warrants and issuing additional warrants has caused
and
may cause substantial additional dilution to our existing shareholders and
shareholders owning shares of our common stock at the time of the exercise
of
such warrants described above, if exercised.
WARRANTS
GRANTED TO STANFORD INTERNATIONAL BANK, LTD., IN CONNECTION WITH THE TIERRA
DEL
SOL LOAN AND LETTERS OF CREDIT CONTAIN ANTI-DILUTION FEATURES, WHICH COULD
EFFECT THE VALUE OF OUR COMMON STOCK.
On
December 29, 2005, Stanford International Bank, Ltd. ("SIBL") provided Tierra
Del Sol with financial assistance to facilitate the establishment of the
Land
Loan and the Construction Loan. The financial assistance consisted of a loan
to
Tierra Del Sol of $2,100,000 (the "SIBL Tierra Del Sol Loan") however, as
consideration for the purchase of our Antiguan call center and in connection
with our entry into the Stock Purchase Agreement, described above, SIBL
exchanged this note and $191,100 of accrued interest, and the establishment
of
letters of credit in favor of KeyBank in the amount of $4,000,000 and
$2,000,000, respectively (the "Letters of Credit"), the fees for which amounting
to $540,000 were also exchanged as part of the consideration for the purchase
of
the Antiguan call center. As additional consideration for this financial
assistance, we granted SIBL and its affiliates warrants to purchase 308,000
shares of our common stock at an exercise price of $5.00 per share and warrants
to purchase 154,000 shares of our common stock at an exercise price of $0.001
per share. Additionally, in January 2006, in connection with the SIBL Reedy
Creek Loan, we granted SIBL and its affiliates warrants to purchase 308,000
shares of our common stock at an exercise price of $5.00 per share and warrants
to purchase 154,000 shares of the Company's common stock at an exercise price
of
$0.001 per share. Additionally, in June 2006, in connection with the sale
of our
call center operations and in August 2006, in connection with the Vici
transaction (described herein), we granted SIBL 355,000 warrants to purchase
shares of our common stock at $10 per share and 235,000 warrants to purchase
shares of our common stock at $20 per share, respectively. The warrants contain
anti-dilution provisions, including a provision
which requires us to issue additional shares under the warrants if we issue
or
sell any common stock at less than $1.02 per share, or grant, issue or sell
any
options or warrants for shares of the Company's common stock to convert into
shares of our common stock at less than $1.02 per share. If we do issue or
sell
common stock which causes a re-pricing of the warrants issued to SIBL, it
would
likely have an adverse effect on the trading value of our common stock and
could
cause substantial dilution to our then shareholders.
THERE
MAY NOT BE AN ACTIVE OR LIQUID TRADING MARKET FOR OUR COMMON STOCK, WHICH
MAY
LIMIT INVESTORS' ABILITY TO RESELL THEIR SHARES.
An
active
and liquid trading market for our common stock may not develop or, if developed,
such a market may not be sustained. In addition, we cannot predict the price
at
which our common stock will trade. If there is not an active or liquid trading
market for our common stock, investors in our common stock may have limited
ability to resell their shares.
WE
HAVE AND MAY CONTINUE TO ISSUE PREFERRED STOCK THAT HAS RIGHTS AND PREFERENCES
OVER OUR COMMON STOCK.
Our
Articles of Incorporation, as amended, authorize our Board of Directors to
issue
preferred stock, the relative rights, powers, preferences, limitations, and
restrictions of which may be fixed or altered from time to time by the Board
of
Directors. Accordingly, the Board of Directors may, without approval from
the
shareholders of our common stock, issue preferred stock with dividend,
liquidation, conversion, voting, or other rights that could adversely affect
the
voting power and other rights of the holders of our common stock. The preferred
stock can be utilized, under certain circumstances, as a method of discouraging,
delaying, or preventing a change in our ownership and management that
shareholders might not consider to be in their best interests. We have issued
various series of preferred stock, which have rights and preferences over
our
common stock including, but not limited to, cumulative dividends and preferences
upon liquidation or dissolution.
WE
DO NOT EXPECT TO PAY DIVIDENDS IN THE NEAR FUTURE, WHICH COULD MAKE AN
INVESTMENT IN OUR COMMON STOCK LESS ATTRACTIVE FOR CERTAIN INVESTORS THAN
OTHER
SIMILAR COMPANIES’ STOCK WHICH PAY DIVIDENDS.
We
have
never declared or paid dividends on our common stock. We do not anticipate
paying dividends on our common stock in the near future. Our ability to pay
dividends is dependent upon, among other things, future earnings as well
as our
operating and financial condition, capital requirements, general business
conditions and other pertinent factors. We intend to reinvest in our business
operations any funds that could be used to pay dividends. Our common stock
is
junior in priority to our preferred stock with respect to dividends. Cumulative
dividends on our issued and outstanding Series A preferred stock,
Series B preferred stock, Series C preferred stock and Series E preferred
stock
accrue dividends at a rate of $1.20, $12.00, $4.00, and $4.00, respectively,
per
share per annum, payable in preference and priority to any payment of any
cash
dividend on our common stock. We have authorized Series F preferred stock
with
cumulative dividends that accrue at a rate of $1.00 per share per annum and
are
also payable in preference and priority to any payment of any cash dividend
on
our common stock. Dividends on our preferred stock accrue from the date on
which
we agree to issue such preferred shares and thereafter from day to day whether
or not earned or declared and whether or not there exists profits, surplus
or
other funds legally available for the payment of dividends. We have never
paid
any cash dividends on our preferred stock. We will be required to pay accrued
dividends on our preferred stock before we can pay any dividends on our common
stock. Because we do not currently pay dividends on our preferred or common
stock, an investment in our Company may be less attractive to certain investors
who are looking to invest in company’s which pay regular dividends and as such,
the trading value of our common stock may decline in value and/or be less
than
similar sized companies which do pay dividends on their preferred and common
stock.
BECAUSE
OF THE SIGNIFICANT NUMBER OF SHARES OWNED BY OUR DIRECTORS, OFFICERS AND
PRINCIPAL SHAREHOLDERS, OTHER SHAREHOLDERS MAY NOT BE ABLE TO SIGNIFICANTLY
INFLUENCE OUR MANAGEMENT.
Our
Directors, officers, and principal shareholders beneficially own a substantial
portion of our outstanding common and preferred stock. Malcolm J. Wright,
who
serves as our Chief Executive Officer and Chairman, and Roger Maddock, one
of
our majority shareholders, own, directly and indirectly, approximately an
aggregate of 72% of the voting power in us. As a result, these persons control
our affairs and management, as well as all matters requiring shareholder
approval, including the election and removal of members of the Board of
Directors, transactions with Directors, officers or affiliated entities,
the
sale or merger of the Company or substantially all of our assets, and changes
in
dividend policy. This concentration of ownership and control could have the
effect of delaying, deferring, or preventing a change in our ownership or
management, even when a change would be in the best interest of other
shareholders.
IF
WE ARE LATE IN FILING OUR QUARTERLY OR ANNUAL REPORTS WITH THE SEC, WE MAY
BE
DE-LISTED FROM THE OVER-THE-COUNTER BULLETIN BOARD.
Pursuant
to Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely
filing
of periodic reports with the SEC, any OTCBB issuer which fails to file a
periodic report (Form 10-QSB's or 10-KSB's) by the due date of such report
(not
withstanding any extension granted by the filing of a Form 12b-25), three
(3)
times during any twenty-four (24) month period is automatically de-listed
from
the OTCBB. Such removed issuer would not be re-eligible to be listed on the
OTCBB for a period of one-year, during which time any subsequent late filing
would reset the one-year period of de-listing. If we are late in our filings
three times in any twenty-four (24) month period and are de-listed from
the
OTCBB, our securities may become worthless and we may be forced to curtail
or
abandon our business plan.
THERE
IS CURRENTLY A LIMITED MARKET FOR OUR COMMON STOCK AND OUR STOCK PRICE IS
VOLATILE.
There
is
currently a limited and volatile market for our common stock. Such market
has
been and will continue to be subject to wide fluctuations in response to
several
factors including, but not limited to:
(1)
actual or anticipated variations in our results of operations;
(2)
our
ability or inability to generate new revenues;
(3)
the
number of shares in our public float;
(4)
increased competition; and
(5)
conditions and trends in the travel services, vacation, and/or real estate
and
construction markets.
Furthermore,
because our common stock is traded on the NASD over the counter bulletin
board,
our stock price may be impacted by factors that are unrelated or
disproportionate to our operating performance. These market fluctuations,
as
well as general economic, political and market conditions, such as recessions,
interest rates or international currency fluctuations may adversely affect
the
market price of our common stock. Additionally, at present, we have a limited
number of shares in our public float, and as a result, there could be extreme
fluctuations in the price of our common stock. Further, due to the limited
volume of our shares which trade and our limited public float, we believe
that
our stock prices (bid, asked and closing prices) are entirely arbitrary,
are not
related to the actual value of the Company, and do not reflect the actual
value
of our common stock (and in fact reflect a value that is much higher than
the
actual value of our common stock). Shareholders and potential investors in
our
common stock should exercise caution before making an investment in the Company,
and should not rely on the publicly quoted or traded stock prices in determining
our common stock value, but should instead determine value of our common
stock
based on the information contained in the Company's public reports, industry
information, and those business valuation methods commonly used to value
private
companies.
ITEM
7. FINANCIAL STATEMENTS
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
American
Leisure Holdings, Inc. and Subsidiaries
Orlando,
Florida
We
have
audited the accompanying consolidated balance sheets of American Leisure
Holdings, Inc. and Subsidiaries (the "Company") as of December 31, 2006 and
2005, and the related consolidated statements of operations, stockholders’
equity and cash flows for each of the two years then ended. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of American
Leisure Holdings, Inc. and Subsidiaries as of December 31, 2006 and 2005,
and
the results of its operations and its cash flows for the years ended December
31, 2006 and 2005, in conformity with accounting principles generally accepted
in the United States of America.
As
discussed in Note 3 to the financial statements, the Company's recurring
losses
from operations and the need to raise additional financing in order to satisfy
its vendors and other creditors and execute its Business Plan raise substantial
doubt about its ability to continue as a going concern. Management's plans
as to
these matters are also described in Note 3. The 2006 consolidated financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
LBB
&
Associates Ltd., LLP
Houston,
Texas
March
27,
2007
|
AMERICAN
LEISURE HOLDINGS, INC. AND SUBSIDIARIES
|
|
| |
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
As
of December 31, 2006 and 2005
|
|
| |
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
As
restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,110,000
|
|
$
|
280,862
|
|
|
Cash
- restricted
|
|
|
1,030,921
|
|
|
2,100,000
|
|
|
Accounts
receivable, net
|
|
|
3,148,730
|
|
|
2,084,095
|
|
|
Other
receivable
|
|
|
217,233
|
|
|
6,592,357
|
|
|
Prepaid
expenses and other
|
|
|
1,775,614
|
|
|
99,418
|
|
|
Total
Current Assets
|
|
|
7,282,498
|
|
|
11,156,732
|
|
| |
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
9,170,540
|
|
|
12,574,334
|
|
| |
|
|
|
|
|
|
|
|
LAND
HELD FOR DEVELOPMENT
|
|
|
71,930,263
|
|
|
36,146,169
|
|
| |
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
Cash
- restricted
|
|
|
10,364,681
|
|
|
11,075,354
|
|
|
Prepaid
sales commissions
|
|
|
9,804,036
|
|
|
7,770,949
|
|
|
Prepaid
sales commissions - affiliated entity
|
|
|
3,443,851
|
|
|
3,516,209
|
|
|
Investment-senior
notes
|
|
|
-
|
|
|
5,170,000
|
|
|
Goodwill,
net
|
|
|
4,559,134
|
|
|
5,925,437
|
|
|
Trademark,
net
|
|
|
950,000
|
|
|
975,000
|
|
|
Other
|
|
|
2,638,475
|
|
|
5,156,193
|
|
|
Total
Other Assets
|
|
|
31,760,177
|
|
|
39,589,142
|
|
|
TOTAL
ASSETS
|
|
$
|
120,143,478
|
|
$
|
99,466,377
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt and notes payable
|
|
$
|
35,681,931
|
|
$
|
3,652,235
|
|
|
Current
maturities of notes payable-related parties
|
|
|
7,480,395
|
|
|
1,650,605
|
|
|
Accounts
payable and accrued expenses
|
|
|
4,518,175
|
|
|
3,790,528
|
|
|
Accrued
expenses - officers
|
|
|
2,795,000
|
|
|
3,393,500
|
|
|
Other
|
|
|
6,156,256
|
|
|
285,443
|
|
|
Total
Current Liabilities
|
|
|
56,631,757
|
|
|
12,772,311
|
|
| |
|
|
|
|
|
|
|
|
Long-term
debt and notes payable, net of current maturities
|
|
|
21,583,106
|
|
|
39,587,421
|
|
|
Notes
payable - related parties, net of current maturities
|
|
|
3,353,252
|
|
|
2,195,969
|
|
| |
|
|
|
|
|
|
|
|
Put
liability
|
|
|
985,000
|
|
|
985,000
|
|
|
Deposits
on unit pre-sales
|
|
|
37,465,685
|
|
|
37,666,368
|
|
|
Total
Liabilities
|
|
|
120,018,800
|
|
|
93,207,069
|
|
| |
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
Preferred
stock; 1,000,000 shares authorized; $.001 par value;
|
|
|
|
|
|
|
|
|
1,000,000
Series "A" shares issued and outstanding at
|
|
|
|
|
|
|
|
|
December
31, 2006 and 2005
|
|
|
10,000
|
|
|
10,000
|
|
|
Preferred
stock; 100,000 shares authorized; $.01 par value;
|
|
|
|
|
|
|
|
|
2,825
Series "B" shares issued and outstanding at
|
|
|
|
|
|
|
|
|
December
31, 2006 and 2005
|
|
|
28
|
|
|
28
|
|
|
Preferred
stock, 28,000 shares authorized; $.01 par value;
|
|
|
|
|
|
|
|
|
27,189
Series "C" shares issued and outstanding at
|
|
|
|
|
|
|
|
|
December
31, 2006 and 2005
|
|
|
272
|
|
|
272
|
|
|
Preferred
stock; 50,000 shares authorized; $.001 par value;
|
|
|
|
|
|
|
|
|
32,249
and 25,926 Series "E" shares issued and outstanding at
|
|
|
|
|
|
|
|
|
December
31, 2006 and 2005
|
|
|
32
|
|
|
25
|
|
|
Preferred
stock; 150,000 shares authorized; $.01 par value;
|
|
|
|
|
|
|
|
|
0
Series "F" shares issued and outstanding at
|
|
|
|
|
|
|
|
|
December
31, 2006 and 2005
|
|
|
-
|
|
|
-
|
|
|
Common
stock, $.001 par value; 100,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
10,877,974
and 10,334,974 shares issued and outstanding at
|
|
|
|
|
|
|
|
|
December
31, 2006 and 2005
|
|
|
10,878
|
|
|
10,335
|
|
| |
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
21,710,830
|
|
|
19,697,114
|
|
| |
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(21,607,362
|
)
|
|
(13,458,466
|
)
|
|
Total
Stockholders' Equity
|
|
|
124,678
|
|
|
6,259,308
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
120,143,478
|
|
$
|
99,466,377
|
|
| |
|
|
|
|
|
|
|
|
See
accompanying notes to financial statements.
|
|
|
|
|
|
|
|
|
AMERICAN
LEISURE HOLDINGS, INC. AND SUBSIDIARIES
|
|
| |
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
Years
Ended December 31, 2006 and 2005
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
As
restated
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Service
revenues
|
|
$
|
14,590,886
|
|
$
|
7,758,081
|
|
|
Undeveloped
land sales
|
|
|
13,129,247
|
|
|
12,020,000
|
|
| |
|
|
|
|
|
|
|
|
Total
revenue
|
|
|
27,720,133
|
|
|
19,778,081
|
|
| |
|
|
|
|
|
|
|
|
Costs
|
|
|
|
|
|
|
|
|
Cost
of service revenues
|
|
|
(12,647,116
|
)
|
|
(5,513,367
|
)
|
|
Cost
of undeveloped land sales
|
|
|
(9,796,634
|
)
|
|
(8,122,562
|
)
|
| |
|
|
|
|
|
|
|
|
Total
costs
|
|
|
(22,443,750
|
)
|
|
(13,635,929
|
)
|
| |
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
5,276,383
|
|
|
6,142,152
|
|
| |
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(784,155
|
)
|
|
(827,237
|
)
|
|
General
and administrative expenses
|
|
|
(3,609,487
|
)
|
|
(5,028,139
|
)
|
|
Write
off of advances and receivables from Around
|
|
|
|
|
|
|
|
|
the
World Travel, Inc.
|
|
|
(6,588,579
|
)
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
(10,982,221
|
)
|
|
(5,855,376
|
)
|
| |
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
(5,705,838
|
)
|
|
286,776
|
|
| |
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(5,183,620
|
)
|
|
(3,317,033
|
)
|
| |
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(10,889,458
|
)
|
|
(3,030,257
|
)
|
| |
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(4,376
|
)
|
|
(5,004
|
)
|
| |
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
|
(10,893,834
|
)
|
|
(3,035,261
|
)
|
| |
|
|
|
|
|
|
|
|
Gain
(loss) from discontinued operations (including gain
|
|
|
|
|
|
|
|
|
on
disposal of business of $2,998,082 and $0)
|
|
|
2,744,938
|
|
|
(1,050,564
|
)
|
| |
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,148,896
|
)
|
$
|
(4,085,825
|
)
|
| |
|
|
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.76
|
)
|
$
|
(0.41
|
)
|
| |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
10,725,227
|
|
|
10,070,467
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
See
accompanying notes to financial statements.
|
|
|
|
|
|
|
|
|
AMERICAN
LEISURE HOLDINGS, INC. AND SUBSIDIARIES
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Total
|
|
| |
|
Preferred
Stock
|
|
Capital
Stock
|
|
Paid-in
|
|
Accumulated
|
|
Stockholders'
|
|
| |
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-December
31, 2004
|
|
|
1,056,051
|
|
$
|
10,343
|
|
|
9,977,974
|
|
$
|
9,978
|
|
$
|
15,636,322
|
|
$
|
(9,372,641
|
)
|
$
|
6,284,002
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series F preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
connection with the acquisition of certain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
and assumumption of certain liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
Around the World Travel
|
|
|
(1,936
|
)
|
|
(19
|
)
|
|
-
|
|
|
-
|
|
|
(193,629
|
)
|
|
-
|
|
|
(193,648
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of warrants by an affiliate
|
|
|
-
|
|
|
-
|
|
|
160,000
|
|
|
160
|
|
|
-
|
|
|
-
|
|
|
160
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of Tierra Del Sol, Inc minority interest
|
|
|
-
|
|
|
-
|
|
|
197,000
|
|
|
197
|
|
|
416,726
|
|
|
-
|
|
|
416,923
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants in connection with debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,837,696
|
|
|
-
|
|
|
3,837,696
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,085,825
|
)
|
|
(4,085,825
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-December
31, 2005 (As restated)
|
|
|
1,054,115
|
|
|
10,324
|
|
|
10,334,974
|
|
|
10,335
|
|
|
19,697,115
|
|
|
(13,458,466
|
)
|
|
6,259,308
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of warrants
|
|
|
-
|
|
|
-
|
|
|
308,000
|
|
|
308
|
|
|
-
|
|
|
-
|
|
|
308
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants as compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
190,809
|
|
|
-
|
|
|
190,809
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants in connection with debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,073,146
|
|
|
-
|
|
|
1,073,146
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock and warrants in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with purchase of note receivable
|
|
|
-
|
|
|
-
|
|
|
235,000
|
|
|
235
|
|
|
749,765
|
|
|
-
|
|
|
750,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series E preferred stock in connection with the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
of certain assets of Around the World Travel, Inc.
|
|
|
8,148
|
|
|
8
|
|
|
-
|
|
|
-
|
|
|
(5
|
)
|
|
-
|
|
|
3
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,148,896
|
)
|
|
(8,148,896
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-December
31, 2006
|
|
|
1,062,263
|
|
$
|
10,332
|
|
|
10,877,974
|
|
$
|
10,878
|
|
$
|
21,710,830
|
|
$
|
(21,607,362
|
)
|
$
|
124,678
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN
LEISURE HOLDINGS, INC. AND SUBSIDIARIES
|
|
| |
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
Years
Ended December 31, 2006 and 2005
|
|
| |
|
|
|
|
|
| |
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
As
restated
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,148,896
|
)
|
$
|
(4,085,825
|
)
|
|
Adjustments
to reconcile net loss to net cash provided (used) by
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,434,519
|
|
|
1,680,336
|
|
|
Write-off
investments in marketable securities
|
|
|
170,000
|
|
|
-
|
|
|
Non-cash
interest expense
|
|
|
2,102,276
|
|
|
1,887,623
|
|
|
Non-cash
preferred stock and warrant compensation
|
|
|
190,812
|
|
|
-
|
|
|
Bad
debt expense
|
|
|
73,910
|
|
|
-
|
|
|
Gain
on sale of subsidiary
|
|
|
(2,988,082
|
)
|
|
-
|
|
|
Write-off
of advances and receivables from Around the World Travel, Inc.
|
|
|
6,588,579
|
|
|
-
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in restricted cash
|
|
|
710,673
|
|
|
(11,075,354
|
)
|
|
(Increase)
decrease in accounts receivable and other receivables
|
|
|
(1,138,545
|
)
|
|
1,455,292
|
|
|
Increase
in prepaid expenses and other
|
|
|
(56,780
|
)
|
|
(7,564,683
|
)
|
|
Increase
in prepaid sales commissions
|
|
|
(1,960,729
|
)
|
|
(2,655,267
|
)
|
|
Increase
in land held for development
|
|
|
(35,784,094
|
)
|
|
(7,782,776
|
)
|
|
Increase
in notes payable
|
|
|
-
|
|
|
71,823
|
|
|
Increase
(decrease) in deposits on unit pre-sales
|
|
|
(200,683
|
)
|
|
20,997,022
|
|
|
Increase
in accounts payable and accrued expenses
|
|
|
8,313,134
|
|
|
6,468,380
|
|
| |
|
|
|
|
|
|
|
|
Net
cash provided (used) by operating activities
|
|
|
(30,693,906
|
)
|
|
(603,429
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisition
of fixed assets
|
|
|
(275,100
|
)
|
|
(175,689
|
)
|
|
Acquisition
of AWT assets
|
|
|
-
|
|
|
(3,185,547
|
)
|
|
Advances
to Caribbean Media Group
|
|
|
-
|
|
|
(141,400
|
)
|
|
Acquisition
of SBR assets
|
|
|
-
|
|
|
55,807
|
|
|
Investment
in Reedy Creek
|
|
|
-
|
|
|
(901,705
|
)
|
|
(Increase)
decrease in restricted cash
|
|
|
1,069,079
|
|
|
(2,100,000
|
)
|
| |
|
|
|
|
|
|
|
|
Net
cash provided (used) in investing activities
|
|
|
793,979
|
|
|
(6,448,534
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payment
of debt
|
|
|
(2,556,778
|
)
|
|
(7,308,532
|
)
|
|
Proceeds
from notes payable
|
|
|
33,285,535
|
|
|
13,077,537
|
|
|
Proceeds
from exercise of warrants
|
|
|
308
|
|
|
-
|
|
|
Payments
of notes payable - related parties
|
|
|
-
|
|
|
(943,947
|
)
|
|
Proceeds
of notes payable - related parties
|
|
|
-
|
|
|
241,725
|
|
| |
|
|
|
|
|
|
|
|
Net
cash provided (used) by financing activities
|
|
|
30,729,065
|
|
|
5,066,783
|
|
| |
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
829,138
|
|
|
(1,985,180
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
AT BEGINNING PERIOD
|
|
|
280,862
|
|
|
2,266,042
|
|
| |
|
|
|
|
|
|
|
|
CASH
AT END OF PERIOD
|
|
$
|
1,110,000
|
|
$
|
280,862
|
|
| |
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
489,482
|
|
$
|
1,010,308
|
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
| |
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON CASH TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Purchase
of promissory note for equity
|
|
$
|
750,000
|
|
$
|
-
|
|
|
Stock
and warrants issued in connection with acquisition
|
|
$
|
-
|
|
$
|
416,923
|
|
|
Issuance
of warrants to acquire common stock for
|
|
|
|
|
|
|
|
|
debt
issuance costs
|
|
$
|
1,073,146
|
|
$
|
3,837,696
|
|
|
Purchase
of minority interest of TDS in exchange for
|
|
|
|
|
|
|
|
|
notes
payable of $2,062,206, put liability
|
|
|
|
|
|
|
|
|
of
$985,000, common stock valued at $183,210
|
|
|
|
|
|
|
|
|
and
warrants valued at $233,713
|
|
$
|
-
|
|
$
|
3,464,129
|
|
| |
|
|
|
|
|
|
|
|
See
accompanying notes to financial statements.
|
|
|
|
|
|
|
|
AMERICAN
LEISURE HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - THE COMPANY
American
Leisure Holdings, Inc., a Nevada corporation, was incorporated in May 2002.
American Leisure, through its subsidiaries, is involved in the development
of
vacation real estate in Orlando, Florida and the supplying of products related
to the travel and leisure business throughout the United States of America.
The
consolidated entity is hereinafter referred to as "American Leisure", “the
Company” or “AMLH".
The
Company operates in three segments, real estate, where we are developing
vacation real estate in Orlando Florida; travel, where we provide travel related
services and products (ticketing, reservations, travel packages, corporate
meetings and events etc.) and hospitality, where we operate a hotel in South
Beach Florida. We had operated a call center through June 2006 when it was
sold.
Principles
of Consolidation
In
determining whether American Leisure has a direct or indirect controlling
financial interest in affiliates, consideration is given to various factors,
including common stock ownership, possession of securities convertible into
common stock and the related conversion terms, voting rights, representation
on
the board of directors, rights or obligations to purchase additional ownership
interests as well as the existence of contracts or agreements that provide
control features. When American Leisure determines that its ownership, direct
or
indirect, exceeds fifty percent of the outstanding voting shares of an
affiliate, American Leisure will consolidate the affiliate. Furthermore, when
American Leisure determines that it has the ability to control the financial
or
operating policies through its voting rights, board representation or other
similar rights, American Leisure will consolidate the affiliate.
For
those
affiliates that American Leisure does not have the ability to control the
operating and financial policies thereof, the investments are accounted for
under the equity or cost method, as appropriate. American Leisure applies the
equity method of accounting when it has the ability to exercise significant
influence over operating and financial policies of an investee in accordance
with APB Opinion No. 18, "The Equity Method of Accounting for Investments in
Common Stock." In determining whether American Leisure has the ability to
exercise significant influence, consideration is given to various factors
including the nature and significance of the investment, the capitalization
structure of the investee, representation on the board of directors, voting
rights, veto rights and other protective and participating rights held by
investors and contractual arrangements.
American
Leisure applies accounting principles generally accepted in the United States
of
America and interpretations when evaluating whether it should consolidate
entities. Typically, if American Leisure does not retain both control of the
assets transferred to the entities, as well as the risks and rewards of those
assets, American Leisure will not consolidate such entities. In determining
whether the securitization entity should be consolidated, American Leisure
considers whether the entity is a qualifying special purpose entity, as defined
by Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a
replacement of FASB Statement No. 125."
The
consolidated financial statements include the accounts of American Leisure
Holdings, Inc. and its subsidiaries owned and/or controlled by American Leisure
as follows:
|
Company
|
|
Percentage
|
|
American
Leisure Corporation, Inc. (ALC)
|
|
100.00%
|
|
Florida
Golf Group, Inc.(FGG)
|
|
100.00%
|
|
American
Leisure Equities Corporation (ALEC)
|
|
100.00%
|
|
American
Leisure Homes, Inc. (ALH)
|
|
100.00%
|
|
I-Drive
Limos, Inc. (ID)
|
|
100.00%
|
|
Orlando
Holidays, Inc. (OH)
|
|
100.00%
|
|
Welcome
to Orlando, Inc. (WTO)
|
|
100.00%
|
|
American
Leisure, Inc. (ALI)
|
|
100.00%
|
|
Pool
Homes Managers, Inc. (PHM)
|
|
100.00%
|
|
Advantage
Professional Management Group, Inc. (APMG)
|
|
100.00%
|
|
Leisureshare
International Ltd (LIL)
|
|
100.00%
|
|
Leisureshare
International Espanola S.A. (LIESA)
|
|
100.00%
|
|
American
Travel & Marketing Group, Inc. (ATMG)
|
|
81.00%
|
|
American
Leisure Marketing and Technology, Inc.
|
|
100.00%
|
|
Tierra
Del Sol, Inc. (TDS)
|
|
100.00%
|
|
Hickory
Travel Systems, Inc. (Hickory)
|
|
50.83%
|
|
American
Travel Club, Inc.
|
|
100.00%
|
|
American
Access Telecommunications Corporation
|
|
100.00%
|
|
American
Switching Technologies, Inc.
|
|
100.00%
|
|
Affinity
Travel Club, Inc.
|
|
100.00%
|
|
Club
Turistico Latinoamericano, Inc.
|
|
100.00%
|
|
Affinity
Travel, Inc.
|
|
100.00%
|
|
Pool
Homes, Inc.
|
|
100.00%
|
|
American
Sterling Corp.
|
|
100.00%
|
|
American
Sterling Motorcoaches, Inc.
|
|
100.00%
|
|
Comtech
Fibernet, Inc.
|
|
100.00%
|
|
TDS
Amenities, Inc.
|
|
100.00%
|
|
TDS
Clubhouse, Inc
|
|
100.00%
|
|
Costa
Blanca Real Estate, Inc.
|
|
100.00%
|
|
Ameritel,
Inc.
|
|
100.00%
|
|
American
Leisure Travel Group, Inc.
|
|
100.00%
|
|
Luxshare,
Inc.
|
|
100.00%
|
|
AAH
Kissimmee LLC
|
|
100.00%
|
|
Castlechart
Ltd.
|
|
100.00%
|
|
Reedy
Creek Acquisition Corp.
|
|
100.00%
|
|
Wright
Resorts Villas & Hotels
|
|
100.00%
|
|
South
Beach Resorts, LLC
|
|
100.00%
|
Minority
interests are reflected in the consolidated statements of operations to the
extent income or losses are allocated to the minority interest shareholders.
Losses in excess of the minority shareholders’ basis are not allocated to the
minority interest shareholders.
All
significant inter-company accounts and transactions have been eliminated in
the
consolidation.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies of American Leisure is presented
to
assist in understanding American Leisure's financial statements. The financial
statements and notes are representations of American Leisure's management,
which
is responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could materially differ from those estimates.
Concentration
of Risk
American
Leisure places its cash and temporary cash investments with established
financial institutions. At various times during the year, the Company maintained
cash balances in excess of FDIC insurable limits. Management feels this risk
is
mitigated due to the longstanding
reputation of these banks. No losses have been incurred by the Company related
to this risk.
In
the
normal course of business, the Company extends unsecured credit to the majority
of its travel business customers. Management periodically reviews its
outstanding accounts receivable and establishes an allowance for doubtful
accounts based on historical collection trends and other criteria.
Fair
Value of Financial Instruments
The
Company's short-term financial instruments consist of cash, restricted cash,
accounts receivable, accounts payable, accrued expenses and debt. The carrying
amounts of these financial instruments approximate fair value because of their
short-term maturities. Financial instruments that potentially subject the
Company to a concentration of credit risk consist principally of cash and
accounts receivable.
The
Company does not hold or issue financial instruments for trading purposes nor
does it hold or issue interest rate or leveraged derivative financial
instruments.
Equity
Investments
AMLH
holds various minority equity investments in companies that meet AMLH’s
investment criteria. AMLH applies the equity method of accounting for minority
investments when AMLH has the ability to exert significant influence over the
operating and financial policies of an investment. In the absence of such
ability, AMLH accounts for these minority investments under the cost method.
Certain investments carry restrictions on immediate disposition. Declines in
value that are judged to be other than temporary are reported in other income
and expense.
Long-Lived
Assets
Long-lived
assets are stated at cost. Maintenance and repairs are expensed as incurred.
Depreciation is determined using the straight-line method over the estimated
useful lives of the assets, which is three to seven years.
Where
an
impairment of a property's value is determined to be other than temporary,
an
allowance for the estimated potential loss is established to record the property
at its net realizable value.
When
items of land, building or equipment are sold or retired, the related cost
and
accumulated depreciation are removed from the accounts and any gain or loss
is
included in the results of operations. The Company does not have any long-lived
tangible assets that are considered to be impaired as of December 31, 2006
and
2005.
Land
Held for development
Land
held
for development includes the initial cost of acquisition of the land and all
subsequent capitalized construction and development costs.
Construction
and development costs include all expenditures incurred in readying certain
construction and development related assets of the Company for their intended
use. These expenditures consist of direct costs such as land, financing costs,
interest, legal fees, consulting fees, surveying, engineering, architects,
contractors, real estate taxes, permits, licenses, fees, insurance, photos,
copies, printing, general and administrative, and sales and marketing costs.
Interest
costs are capitalized during the capitalization period, which commences when
i)
expenditures for the asset have been made, ii) activities that are necessary
to
get the asset ready for its intended use are in progress, and iii) interest
cost
is being incurred, and continues as long as these three conditions are present.
The amount capitalized in an accounting period shall be determined by applying
an interest rate(s) (the “capitalization rate") to the average amount of
accumulated expenditures for the asset during the period. The capitalization
rates are based on the rates applicable to borrowings, both directly and
indirectly associated with the subject asset, outstanding during the
period.
For
the
periods ending December 31, 2006 and 2005, interest capitalized totaled
$2,110,015 and $2,198,853, respectively. As of December 31, 2006 and 2005,
$187,271 and $1,240,403, respectively, of interest expense was accrued and
unpaid.
All
capitalized construction costs are subject to write-down inasmuch as the
Company’s construction and development assets are carried at the lower of cost
or net realizable value.
The
Company defers costs directly relating to the acquisition of new properties
and
resort businesses that, in management's judgment, have a high probability of
closing. If the acquisition is abandoned, any deferred costs are expensed
immediately. These costs are capitalized as land held for development upon
closing
Intangibles
with Finite Lives
In
June
2001, the Financial Accounting Standards Board issued "Statement of Financial
Accounting Standards, ("FAS") No. 142 "Goodwill and Other Intangible Assets",
effective for fiscal years beginning after December 15, 2001. FAS No. 142
addressed the recognition and measurement of intangible assets acquired
individually or with a group of other assets and the recognition and measurement
of goodwill and other intangible assets subsequent to their acquisition. Under
these rules, goodwill and intangible assets with indefinite lives are no longer
amortized, but are subject to annual or more frequent impairment testing. Other
intangible assets deemed to have a finite life continue to be amortized over
their useful lives.
The
Company amortizes the following intangible assets with finite lives using
straight-line method.
|
Trademarks
|
40
Years
|
|
Customer
List
|
5
Years
|
These
intangible assets with finite lives are reviewed for potential impairment
whenever events or circumstances indicate that their carrying amounts may not
be
recoverable. During 2006 and 2005 management determined that no impairment
adjustment related to these intangibles was necessary.
Income
Taxes
American
Leisure accounts for income taxes using the asset and liability method. The
differences between the financial statement and tax basis of assets and
liabilities are determined annually. Deferred income tax assets and liabilities
are computed for those differences that have future tax consequences using
the
currently enacted tax laws and rates that apply to the period in which they
are
expected to affect taxable income. Valuation allowances are established, if
necessary, to reduce deferred tax asset accounts to the amounts that will more
likely than not be realized. Income tax expense is the current tax payable
or
refundable for the period, plus or minus the net change in the deferred tax
asset and liability accounts.
Goodwill
American
Leisure adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible
Assets". This statement requires that goodwill and intangible assets deemed
to
have indefinite lives not be amortized, but rather be tested for impairment
on
an annual basis. Finite-lived intangible assets are required to be amortized
over their useful lives and are subject to impairment evaluation under the
provisions of SFAS No. 144. The intangible assets relate to 1) the acquisition
goodwill for the controlling interest of HTS, and 2) the net assets purchased
from Around The World Travel, Inc. pursuant to the Asset Purchase Agreement
between Around The World Travel, Inc. and American Leisure Equity Corporation.
American
Leisure reduced goodwill that resulted from the purchase of assets from Around
the World Travel, Inc. in 2006 for the release of an assumed liability of
$1,366,303.
Cash
and Cash Equivalents and Restricted Cash
American
Leisure considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
The
restricted cash classified as long-term represents funds held in escrow for
deposits received for condo and townhome sales for the units at Tierra Del
Sol
Resorts. The escrowed funds will be applied to the purchase price by the buyer
at closing. Restricted cash classified as current are the escrowed funds that
are the equity requirements from KeyBank of $1.03 million as part of the credit
facilities. The funds are not readily available to the Company and can only
be
disbursed with the consent of KeyBank to be used for the construction of Tierra
Del Sol Resorts.
Accounts
Receivable, Net
At
December 31, 2006 and 2005, accounts receivable, net consisted of the
following:
| |
|
2006
|
|
2005
|
|
|
Trade
receivables
|
|
$
|
3,064,849
|
|
$
|
2,184,936
|
|
|
Miscellaneous
receivables
|
|
|
201,090
|
|
|
13,000
|
|
| |
|
|
3,265,939
|
|
|
2,197,936
|
|
|
Less:
reserve for doubtful accounts
|
|
|
117,209
|
|
|
113,841
|
|
| |
|
$
|
3,148,730
|
|
$
|
2,084,095
|
|
Allowance
for Doubtful Accounts
Our
reported balance of accounts receivable, net of the allowance for doubtful
accounts, represents our estimate of the amount that ultimately will be realized
in cash. We review the adequacy of our allowance for doubtful accounts on an
ongoing basis, using historical payment trends and the age of the receivables
and knowledge of our individual customers. When our analyses indicate, we
increase or decrease our allowance accordingly. However, if the financial
condition of our customers were to deteriorate, additional allowances may be
required.
Shares
for Services and Other Assets
The
Company adopted the provisions of SFAS No. 123(R) in the first quarter of 2006
which requires all share-based payments to employees and directors to be
recognized in the financial statements based on their fair values, using
prescribed option-pricing models. The Company used the modified prospective
method of adoption and continues to use the Black-Scholes option pricing model
to value share-based payments. The modified prospective method requires
companies to recognize compensation cost beginning with the effective date
of
adoption based on (a) the requirements for all share-based payments granted
after the effective date of adoption and (b) the requirements for all unvested
awards granted to employees prior to the effective date of
adoption.
Prior
to
2006 American Leisure accounted for non-cash stock-based compensation issued
to
employees in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, “Accounting for Stock Issued to Employees,” and complies
with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation,” issued by the Financial Accounting Standards Board and EITF No.
96-18, “Accounting for Equity (deficit) Investments That Are Issued to
Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”
Under APB No. 25, compensation cost was recognized over the vesting period
based
on the difference, if any, on the date of grant between the fair value of
American Leisure's stock and the amount an employee must pay to acquire the
stock. Common stock issued to non-employees and consultants was based upon
the
value of the services received or the quoted market price, whichever value
is
more readily determinable. Accordingly, no compensation expense was recognized
for grants of options to employees with the exercise prices at or above market
price of the Company's common stock on the measurement dates.
Had
compensation expense been determined based on the estimated fair value at the
measurement dates of awards under those plans consistent with the method
prescribed by SFAS No. 123, the Company's December 31, 2005, net loss would
have
been changed to the pro forma amounts indicated below.
| |
|
2005
|
|
| |
|
|
|
|
|
Net
loss as reported
|
|
$
|
(4,085,825
|
)
|
|
Less:
stock based compensation under intrinsic
|
|
|
-
|
|
|
Stock
based compensation under fair value method
|
|
|
(129,573
|
)
|
|
Pro
forma
|
|
$
|
(4,215,398
|
)
|
|
Net
loss per share - basic and diluted
|
|
|
|
|
|
As
reported
|
|
$
|
(0.41
|
)
|
|
Pro
forma
|
|
$
|
(0.42
|
)
|
The
fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: Risk free
rate of 1.5% for 2006 and 2005; volatility of 131% to 146% for 2006 and 196%
for
2005 with no assumed dividend yield; and expected lives of five years for 2006
and 2005.
Revenue
Recognition
Revenues
from Hickory are recognized as earned, which is primarily at the time of
delivery of the related service, publication or promotional material. Fees
from
advertisers to be included in the hotel book and web service operated by Hickory
are recognized upon the annual publication of the book or when performance
levels are achieved. Revenue from the delivery of services is recognized upon
performance.
One
of
our sources of revenue is associated with access to the travel portals that
provide a database of discounted travel services. Annual renewals occur at
various times during the year. Costs and revenue related to portal usage charges
are incurred in the month prior to billing. Customers are charged additional
fees for hard copies of the site access information. Occasionally these items
are printed and shipped at a later date, at which time both revenue and expenses
are recognized.
Revenues
and expenses from our TraveLeaders business, for the period from January 1,
2005
through July 31, 2006 (the “Period”) are not included in our results as the same
are borne by Around The World Travel, Inc., the former third party manager
of
the business. We recognized as revenue only the net operating results of
TraveLeaders operations after deducting the management fee paid to Around the
World Travel of 10% of net earnings before interest expense, taxes, depreciation
and amortization during the period.
Thereafter,
gross revenues are recognized by our wholly owned subsidiary ALEC. Specifically,
commission revenues for cruises, hotel and car rentals are recognized upon
completion of travel, hotel stay or car rental. Commission fees for ticketing
are recognized at the time of departure.
We
have
entered into approximately 606 pre-construction sales contracts for units in
the
Sonesta Orlando Resort at Tierra Del Sol. We will recognize revenue when title
is transferred to the buyer.
Revenues
also include undeveloped land sales, which are recognized at closing when title
has passed.
Resort
Unit Pre-sales
American
Leisure receives deposits between 5% and 20% of the sales price and these
amounts are recorded as deposits on unit pre-sales. Certain amounts received
are
restricted and recorded in restricted cash. American Leisure prepays brokers
commissions up to 6% and prepays Xpress, Ltd. a commission of 1.5% and the
amounts are recorded as prepaid commissions and are expensed when the revenue
from the sale is recognized. Xpress, Ltd. is majority owned by Malcolm J. Wright
and members of his family.
Managed
Assets - TraveLeaders
Through
one of our wholly owned subsidiaries, ALEC we acquired the tradename of
TraveLeaders, as well as substantially all of the assets and certain other
liabilities of the TraveLeaders operations, on December 31, 2004 from Around
the
World Travel (“AWT”).
Concurrent
with this acquisition, ALEC entered into a management agreement with AWT,
whereby AWT manages the TraveLeaders franchise and employs the personnel
necessary to operate the TraveLeaders retail locations. The risk of loss from
this operation is that of AWT, as all agreements and licenses are in its name.
AWT is paid a management fee of 10% of earnings before interest, taxes, and
depreciation and amortization. The management agreement
was terminated on August 1, 2006. Revenues were $1,113,562 and $973,610 under
this agreement for the years ended December 31, 2006 and 2005,
respectively.
Loss
Per Share
American
Leisure is required to provide basic and dilutive earnings (loss) per common
share information.
The
basic
net loss per common share is computed by dividing the net loss applicable to
common stockholders by the weighted average number of common shares outstanding.
Diluted
net loss per common share is computed by dividing the net loss applicable to
common stockholders, adjusted on an "as if converted" basis, by the weighted
average number of common shares outstanding plus potential dilutive securities.
For
the
period ended December 31, 2006 and 2005, potential dilutive securities had
an
anti-dilutive effect and were not included in the calculation of diluted net
loss per common share. Total shares issuable upon the exercise of warrants
and
the conversion of preferred stock for the years ended December 31, 2006 and
2005, were 19,419,199 and 17,223,230, respectively.
Recent
Accounting Pronouncements
In
November 2004, the FASB ratified the consensus reached by the Emerging Issues
Task Force (“EITF”), on Issue NO. 03-13. “Applying the Conditions in Paragraph
42 of FASB Statement No. 144 on Determining Whether to Report Discontinued
Operations”. The Issue provides a model to assist in evaluating (a) which
cash flows should be considered in the determination of whether cash flows
of
the disposal component have been or will be eliminated from the ongoing
operations of the entity and (b) the types of continuing involvement that
constitute significant continuing involvement in the operations of the disposal
component. Should significant continuing ongoing involvement exist, then
the disposal component shall be reported in the results of continuing operations
or the consolidated statements of operations and cash flows. We are
currently evaluating the premises of EITF No. 03-13 and will adopt it as
required.
In
July
2006, the FASB issued FASB Interpretation (“FIN”) No. 48 “Accounting for
Uncertainly in Income Taxes - An Interpretation of FASB Statement No.
109.” FIN 48 prescribes detailed guidance for the financial statement
recognition, measurement, and disclosure of uncertain tax positions recognized
in an enterprise’s financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes. Tax positions must meet a
more-likely-than-not recognition threshold at the effective date to be
recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48
will be effective for fiscal years beginning after December 15, 2006, and the
provisions of FIN 48 will be applied to all positions upon the adoption of
the
Interpretation. The cumulative effect of this applying the provisions of
this Interpretation will be reported as an adjustment to the opening balance
of
retained earnings for that fiscal year. Management is currently evaluating
the impact of FIN 48 on the financial statements but does not believe that
its
adoption will have a material effect on the Companies’ financial position,
results of operations, or cash flows.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements” when Quantifying
Misstatements in Current Year Financial Statements (“SAB 108”).
SAB 108 requires companies to evaluate the materiality of identified
unadjusted errors on each financial statement and related financial statement
disclosure using both the rollover approach and the iron curtain approach,
as
those terms are defined in SAB 108. The rollover approach quantifies
misstatements based on the amount of the error in the current year financial
statement, whereas the iron curtain approach quantifies misstatements based
on
the effects of correcting the misstatement existing in the balance sheet at
the
end of the current year, irrespective of the misstatement’s year(s) of origin.
Financial statements would require adjustment when either approach results
in
quantifying a misstatement that is material. Correcting prior year financial
statements for immaterial errors would not require previously filed reports
to
be amended. If a Company determines that an adjustment to prior year financial
statements is required upon adoption of SAB 108 and does not elect to
restate its previous financial statements, then it must recognize the cumulative
effect of applying SAB 108 in fiscal 2006 beginning balances of the
affected assets and liabilities with a corresponding adjustment to the fiscal
2006 opening balance in retained earnings. SAB 108 is effective for interim
periods of the first fiscal year ending after November 15, 2006. The
Company does not expect the adoption of this interpretation to have an impact
on
its financial position or results of operations.
FSP
FAS
123(R)-6 was issued to make several technical corrections to SFAS 123(R). These
include exemption for non-public entities from disclosing the aggregate
intrinsic value of outstanding fully vested share options, revision to the
computation of the minimum compensation cost that must be recognized, indication
that at the date the illustrative awards were no longer probable of vesting,
any
previously recognized compensation cost should have been reversed, and changes
to the definition of short-term inducement to exclude an offer to settle an
award. The guidance in FSP FAS 123(R)-6 is effective in the first reporting
period beginning after October 20, 2006. Early application is permitted in
periods for which financial statements have not yet been issued. Management
is
currently evaluating the impact of FSP FAS 123(R)-6 on the financial statements
but does not believe that its adoption will have a material effect on the
Companies’ financial position, results of operations, or cash
flows.
In
February 2006, the FASB issued SFAS No. 155, “” (“SFAS No. 155”)
which amends SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (“SFAS No. 133”) and SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”
(“SFAS No. 140”). SFAS No. 155 simplifies the accounting for certain
derivatives embedded in other financial instruments by allowing them to be
accounted for as a whole if the holder elects to account for the whole
instrument on a fair value basis. SFAS No. 155 also clarifies and amends
certain other provisions of SFAS No. 133 and SFAS No. 140. SFAS
No. 155 is effective for all financial instruments acquired, issued or
subject to a re-measurement event occurring in fiscal years beginning after
September 15, 2006. Earlier adoption is permitted, provided the company has
not yet issued financial statements, including for interim periods, for that
fiscal year. SFAS No. 155 will be effective for the Company in the first
quarter of fiscal 2007 and is not expected to have an impact on the Company’s
financial statements.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, Fair Value Measurements. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. This statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007. Management is currently evaluating the impact SFAS No. 157 will have
on the Company’s financial position, results of operations, and cash
flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
statement No. 115.” This Statement permits all entities to choose, at specified
election dates, to measure eligible items at fair value (the “fair value
option”). A business entity shall report unrealized gains and losses on items
for which the fair value option has been elected in earnings (or another
performance indicator if the business entity does not report earnings) at each
subsequent reporting date. Upfront costs and fees related to items for which
the
fair value option is elected shall be recognized in earnings as incurred and
not
deferred. If an entity elects the fair value option for a held-to-maturity
or
available-for-sale security in conjunction with the adoption of this Statement,
that security shall be reported as a trading security under Statement 115,
but
the accounting for a transfer to the trading category under paragraph 15(b)
of
Statement 115 does not apply. Electing the fair value option for an existing
held-to-maturity security will not call into question the intent of an entity
to
hold other debt securities to maturity in the future. This statement is
effective as of the first fiscal year that begins after November 15, 2007.
The
Company is currently analyzing the effects SFAS 159 will have on the Company's
financial condition and results of operations.
RECLASSIFICATIONS
Certain
amounts in the December 31, 2005 financial statements have been reclassified
to
conform to the December 31, 2006 financial statement presentation.
NOTE
3 - FINANCIAL CONDITION AND GOING CONCERN
American
Leisure's financial statements have been presented on the basis that it is
a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. American Leisure has a working
capital deficiency of $49,349,259 and is seeking adequate financing to complete
the Orlando Resort property. American Leisure incurred a net loss of $8,148,896
during 2006 and a net loss of $4,085,825 during 2005; there is substantial
doubt
as to American Leisure’s ability to achieve profitable operations until it
delivers the 508 townhomes and 144 condominiums, expected in November 2007
through the summer of 2008.
American
Leisure's management intends to raise additional operating funds through equity
and/or debt offerings. However, there can be no assurance management will be
successful in its endeavors. Ultimately, American Leisure will need to achieve
profitable operations in order to continue as a going concern.
American
Leisure has insufficient capital to maintain its operations. The proceeds from
the sale of a parcel of Orlando Resort property, the cash received from the
pre-sales of the Company’s Orlando Resort units, the land loans funded in 2005
and 2006 and the Community Development District Bond in January 2006 financed
through KeyBank, N.A., have provided American Leisure with funds to continue
its
operations until the balance of the financing is obtained for the construction
of the Orlando Resort property.
There
are
no assurances that American Leisure will be able to either (1) achieve a level
of revenues adequate to generate sufficient cash flow from operations; or (2)
obtain additional financing through either private placement, public offerings
and/or bank financing necessary to support American Leisure's working capital
requirements. To the extent that funds generated from operations and any private
placements, public offerings and/or bank financing are insufficient, American
Leisure will have to raise additional working capital. No assurance can be
given
that additional financing will be available, or if available, will be on terms
acceptable to American Leisure. If adequate working capital is not available,
American Leisure may be required to curtail its operations.
NOTE
4 - ACQUISITIONS AND DIVESTMENTS
On
December 31, 2005, the Company through its subsidiary Tierra Del Sol, Inc.
(“TDS”) acquired the remaining 19% minority interest held by Raster Investments
in TDS for a note payable of $1,432,046 which was paid in August 2006, and
197,000 of American Leisure common stock shares valued at $183,210 and 300,000
warrants with an exercise price at $5.00 per share valued at $233,713, and
two 3
bedroom condominiums to be built in Phase II of the Orlando Resort valued at
$630,160. After January 2007, Raster can sell the American Leisure shares back
to American Leisure for $985,000, which is recorded as a put liability. The
put
option is void if AMLH’s stock price is greater than $5.00 per share for 30
consecutive days in 2007. The Company accounted for this acquisition using
the
purchase method of accounting and allocated the purchase price to the land
held
for development. Full ownership gives the Company the ability to recognize
all
of the profits on the development of the Orlando Resort property.
Effective
June 30, 2006, we sold our subsidiary, Caribbean Leisure Marketing Limited
("CLM), to Stanford International Bank Limited ("SIBL"), a minority shareholder
and creditor, under a stock purchase agreement. CLM owns a 49% in Caribbean
Media Group, Ltd. ("Caribbean Media Group"), which owns and operates a call
center in Antigua. In exchange for the common stock of CLM, SIBL exchanged
certain promissory notes in the amounts of $1,250,000 and $2,100,000, fees
and
accrued interest of $2,313,175 or $5,663,274. The sale resulted in a gain of
$2,988,082. We also issued 355,000 warrants with an exercise price of $10.00
expiring on April 30, 2008.
SIBL
was
expanding their call center business in the Caribbean and CLM would provide
them
with both synergies and effective economies of scale (in terms of operations
and
sales force) for expansion into other markets.
The
results of operations for CLM are reported as gain (loss) from discontinued
operations and these results are reported under the Call Center segment as noted
in Note 18 below. The following table reports the results of the component
of the Company’s operations reported as discontinued operations:
Results
of Operations for discontinued operations for the year ended December
31:
| |
|
2006
|
|
2005
|
|
|
Call
center services revenues
|
|
$
|
-
|
|
$
|
-
|
|
|
Revenue
from discontinued operations
|
|
|
-
|
|
|
-
|
|
|
Operating
expenses
|
|
|
371,122
|
|
|
757,363
|
|
|
Net
loss on discontinued operations
|
|
|
(371,122
|
)
|
|
(757,363
|
)
|
|
Interest
expense
|
|
|
(12,266
|
)
|
|
-
|
|
|
Equity
in operations of unconsolidated sub.
|
|
|
140,244
|
|
|
(293,201
|
)
|
|
Gain
on sale of discontinued operations
|
|
|
2,988,082
|
|
|
-
|
|
|
Gain
(loss) on discontinued operations
|
|
$
|
2,744,938
|
|
$
|
(1,050,564
|
)
|
In
accordance with the provisions of Statement of Financial Accounting Standard,
Accounting
for the Impairment or Disposal of Long-Lived Assets (“SFAS
No. 144”), the results of operations of the disposed assets and the losses
related to this sale have been classified as discontinued operations for all
periods presented in the accompanying consolidated statements of
operations.
On
July
5, 2005, the Company acquired a 1% interest in Reedy Creek Acquisition Company,
LLC (“Reedy Creek”) for $901,705 that was recorded in other assets. Reedy Creek
owns 40.68 acres of undeveloped land in Osceola County, Florida located 1.5
miles west of Walt Disney World Orlando Maingate Entrance. The property will
be
used in the development of vacation second homes with resort amenities. On
January 3, 2006, The Company acquired an additional 99% interest in Reedy Creek
(total ownership of 100%) for a purchase price of $12,400,000. The Company
is
holding this land for future development.
On
December 22, 2006 the Company acquired 100% of South Beach Resorts, LLC (“SBR”)
for $1,120,000 plus 25% participation interest to Stanford International Bank
Limited in the net proceeds realized by SBR upon the disposition of its
Boulevard Hotel property located in Miami Beach, Florida. The $1,120,000 was
provided as a loan from Stanford International Bank Limited to Reedy Creek
Acquisition Corporation. SBR was owned by SBR Holdings, LLC that is owned
equally by Malcolm Wright (CEO, CFO and Director of the Company) and Frederick
Pauzar (COO, President and Director of the Company). At the date of acquisition,
the Boulevard Hotel was encumbered with a mortgage due to LaSalle Bank, National
Association, as Trustee of Marathon Real Estate CDO 2006-1 Grantor Trust,
successor-in-interest to marathon Structured Finance Fund L.P. (“LaSalle”) in
the amount of $7,498,900 that matured on January 11, 2007. The mortgage has
matured and remains unpaid; however, the mortgage is not in default and a
forbearance agreement is in place with LaSalle. The Company is actively seeking
to replace the debt with a new lender. SBR was acquired by Malcolm Wright and
Frederick Pauzar in July 2005 and the financial statement presentation has
been
restated to present SBR as a subsidiary since that acquisition
date.
The
financial statements at December 31, 2005 have been restated to include SBR
and
to record the sale of CLM as discontinued operations as follows:
| |
|
As
originally filed
|
|
Adjustment
|
|
As
restated
|
|
|
Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
225,055
|
|
$
|
55,807
|
|
$
|
280,862
|
|
|
Accounts
receivable, net
|
|
|
2,043,141
|
|
|
40,954
|
|
|
2,084,095
|
|
|
Other
receivables
|
|
|
6,587,357
|
|
|
5,000
|
|
|
6,592,357
|
|
|
Total
current assets
|
|
|
11,054,971
|
|
|
101,761
|
|
|
11,156,732
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
4,583,853
|
|
|
7,990,481
|
|
|
12,574,334
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Land
held for development
|
|
|
34,695,281
|
|
|
1,450,888
|
|
|
36,146,169
|
|
|
Total
assets
|
|
|
89,923,247
|
|
|
9,543,130
|
|
|
99,466,377
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
3,782,822
|
|
|
7,706
|
|
|
3,790,528
|
|
|
Total
current liabilities
|
|
|
12,764,605
|
|
|
7,706
|
|
|
12,772,311
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt and notes payable
|
|
|
32,288,920
|
|
|
7,298,501
|
|
|
39,587,421
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Notes
payable -- related parties, net of current maturity |
|
|
- |
|
|
2,195,969 |
|
|
2,195,969 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
|
89,923,247
|
|
|
9,543,130
|
|
|
99,466,377
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Statements
of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
7,361,284
|
|
$
|
396,797
|
|
$
|
7,758,081
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cost
of operating revenues
|
|
|
5,157,524
|
|
|
355,843
|
|
|
5,513,367
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
6,101,198
|
|
|
40,954
|
|
|
6,142,152
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(1,476,326
|
)
|
|
649,089
|
|
|
(827,237
|
)
|
|
General
and administrative
|
|
|
(5,136,413
|
)
|
|
108,274
|
|
|
(5,028,139
|
)
|
|
Income
(loss) from continuing operations
|
|
|
(511,541
|
)
|
|
798,317
|
|
|
286,776
|
|
|
Interest
expense
|
|
|
(3,317,033
|
)
|
|
-
|
|
|
(3,317,033
|
)
|
|
Equity
in operations of unconsolidated
subsidiary
|
|
|
(293,201
|
)
|
|
293,201
|
|
|
-
|
|
|
Loss
from continuing operations
|
|
|
(4,121,775
|
)
|
|
1,091,518
|
|
|
(3,030,257
|
)
|
|
Provision
for income taxes
|
|
|
(5,004
|
)
|
|
-
|
|
|
(5,004
|
)
|
|
Net
loss from continuing operations
|
|
|
(4,126,779
|
)
|
|
1,091,518
|
|
|
(3,035,261
|
)
|
|
Gain
(loss) from discontinued operations
|
|
|
-
|
|
|
(1,050,564
|
)
|
|
(1,050,564
|
)
|
|
Net
loss
|
|
$
|
(4,126,779
|
)
|
$
|
40,954
|
|
$
|
(4,085,825
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Statements
of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,126,779
|
)
|
$
|
40,954
|
|
$
|
(4,082,825
|
)
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in accounts
receivable
|
|
|
1,496,246
|
|
|
(40,954
|
)
|
|
1,455,292
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of SBR
|
|
|
-
|
|
|
55,807
|
|
|
55,807
|
|
|
Net
cash from investing activities
|
|
|
(6,504,341
|
)
|
|
55,807
|
|
|
(6,448,534
|
)
|
The
SBR
transaction was recorded at the shareholders original basis and at their
original date of purchase which was July 2005. The transaction was recorded
like
a “pooling of interest” based on the shareholders ownership percentages of both
entities. The
following table summarizes the net assets acquired and liabilities assumed
in
the SBR transaction as reportedin July 2005:
| |
|
|
|
|
|
Cash
|
|
$
|
55,807
|
|
|
Other
receivables
|
|
|
5,000
|
|
|
Property
and equipment, net
|
|
|
7,990,481
|
|
|
Land
held for development
|
|
|
1,450,888
|
|
|
Accounts
payable
|
|
|
(7,706
|
)
|
|
Notes
payable - related parties
|
|
|
(2,195,969
|
)
|
|
Long-term
debt
|
|
|
(7,298,501
|
)
|
|
|
|
$ |
-
|
|
NOTE
5 - OTHER RECEIVABLES
Other
receivables consist of the following
| |
|
2006
|
|
2005
|
|
|
Advances
to Frederick Pauzar
|
|
$
|
100,000
|
|
$
|
-
|
|
|
Advances
to Around the World Travel
|
|
|
-
|
|
|
4,536,312
|
|
|
Due
from West Villas, Inc., Maingate Towers,
Inc.
and Orlando Tennis Village, Inc
|
|
|
-
|
|
|
1,828,390
|
|
|
Employee
advances
|
|
|
37,791
|
|
|
5,000
|
|
|
Due
from other third parties
|
|
|
79,442
|
|
|
222,655
|
|
| |
|
$
|
217,233
|
|
$
|
6,592,357
|
|
The
due
from West Villas, Inc., Maingate Towers, Inc. and Orlando Tennis Village, Inc.
of $1,828,390 is from the sale of the 40 acres described in Note 7. The amounts
due from Around the World Travel, Inc. (AWT) of $4,536,312 are predominantly
from advances and from amounts earned by the Company in connection with the
management agreement, under which AWT managed the assets acquired December
31,
2004. The Company earned $1,113,561 for the period from January 1, 2006 through
July 31, 2006 and $973,610 in 2005 under the management agreement. The
Management Agreement and Licensing Agreement with AWT were cancelled as of
August 1, 2006. The advances and other amounts due from AWT were deemed
uncollectible and the receivable of $6,588,579 was written off in December
2006.
NOTE
6 - PROPERTY AND EQUIPMENT, NET
At
December 31, 2006 and 2005, property and equipment consisted of the
following:
| |
|
Useful
Lives
|
|
2006
|
|
2005
|
|
|
Computer
equipment
|
|
3-5
|
|
$
451,008
|
|
$
419,683
|
|
|
Furniture
& fixtures
|
|
|
5-7
|
|
|
1,988,851
|
|
|
1,898,511
|
|
|
Automobiles
|
|
|
5
|
|
|
-
|
|
|
63,230
|
|
|
Leasehold
improvements
|
|
|
5
|
|
|
3,100
|
|
|
31,919
|
|
|
Telecommunications
equipment
|
|
|
7
|
|
|
3,536,664
|
|
|
6,764,848
|
|
|
Hotel
building
|
|
|
35
|
|
|
7,990,481
|
|
|
7,990,481
|
|
| |
|
|
|
|
|
13,970,104
|
|
|
17,168,672
|
|
|
Less:
accumulated depreciation and amortization
|
|
|
|
|
|
4,799,564
|
|
|
4,594,338
|
|
| |
|
|
|
|
$
|
9,170,540
|
|
$
|
12,574,334
|
|
Depreciation
expense was $1,434,519 and $1,603,854 for 2006 and 2005,
respectively.
NOTE
7 - LAND HELD FOR DEVELOPMENT
American
Leisure is developing a 972-unit resort in Orlando, Florida on 122 acres of
undeveloped land. Pre-construction sales commenced in February
2004.
As
of
December 31, 2006, Xpress, Ltd., a related party, see Note 20, has pre-sold
approximately 600 vacation homes in a combination of contracts on town homes
and
reservations on condominiums for a total sales volume of approximately $230
million. In connection with the sales, the Company has received deposits
totaling approximately $36,836,000 and has prepaid sales commissions and
advances to various brokers and agents of approximately $9,804,000 and has
prepaid sales commissions of approximately $3,444,000 to Xpress, Ltd., a related
party.
On
January 11, 2006, the Company sold 42 acres in the Sonesta Resort for $9,090,130
to the District and an additional $4,039,116 in connection with reimbursements
for site improvements. The land sold to the District will be used for public
infrastructure for the Sonesta Resort, including the creation of roads and
for
water collection.
On
December 28, 2005, The Company completed the sale of 41 acres of its development
property located in Polk County, Florida (adjacent to the Orlando Resort
property) for $8,000,000 and realized a profit of $3,324,736 on the sale. The
sale was brokered through American Leisure Real Estate Group, Inc, an entity
controlled by Malcolm Wright (American Leisure’s CEO); the broker commission on
the sale amounted to $400,000. The Company had approximately $1,823,000 due
from
the buyers West Villas, Inc., Maingate Towers, Inc. and Orlando Tennis Village
and included in other receivables at December 31, 2005. The amount was paid
off
in 2006. These entities are related to a shareholder.
On
March
8, 2005, American Leisure sold 13.5 acres of commercial property for $4,020,000,
plus the reimbursement of expenses in the amount of $157,219. The Company
realized a gain on the sale of approximately $968,000.
The
Boulevard Hotel property located in Miami Beach, Florida is undergoing
remodeling and refurbishing to convert the property into a timeshare facility.
As of December 31, 2006, $3,405,418 has been incurred in the remodeling and
refurbishment and, as of December 31, 2005, $1,450,888 has been
incurred.
NOTE
8 - INVESTMENT IN SENIOR SECURED NOTES AND CONTINGENT
LIABILTY
During
2004, AMLH acquired senior secured notes receivable paper (the “Notes”) for
340,000 shares of AMLH stock and the assumption of a non-recourse note payable
to CNG Hotels (CNG Note) for $5,000,000. The Notes are secured by substantially
all of the assets of Around the World Travel (“AWT”), the maker. The purpose of
the Company’s acquisition of the Notes was to allow AMLH to get in a senior
secured position in AWT at the time AMLH was evaluating purchase of the assets
of AWT.
The
approximately $24,000,000 balance of the Notes includes unpaid interest of
approximately $6,000,000. The Notes are in default and no interest is being
accrued by AMLH relating to these Notes. The Company’s projection of discounted
future cash flows from the Notes at the time of purchase exceeded the $5,170,000
carrying value, based primarily on the net realizable value of the collateral
assets.
Repayment
of the $5,000,000 CNG Note is contingent, and equal to, the proceeds received by
the Company on the investment in the Notes. The Company’s obligation will not
exceed $5,000,000 under this contingency, even in the event proceeds from the
investment in the note receivable exceed that amount.
In
December 2004, the Company acquired substantially all of the assets of AWT
(See
Note 4). This acquisition had the effect of impairing the Notes, in that the
collateral was no longer security for the Notes; however, AWT was managing
these
operations from January 1, 2005 through July 31, 2006 under a management
agreement with ALEC. After the cancellation of the management agreement, the
Company determined that the expected discounted future cash flow from the
investment in the Notes that the Company can reasonably expect is $0. Effective
December 30, 2006, the Company recorded an impairment charge of $5,170,000
related to these Notes.
In
conjunction with the net realizable value of the Notes being reduced to zero,
the future obligation under the CNG Note could not be reasonably estimated,
and
the likelihood of any required repayment became remote. Accordingly, because
of
the contingent nature of repayment being based on an asset with no estimated
future value, the CNG Note was adjusted to $0 at December 30, 2006, and the
Company recognized a gain on forgiveness of debt in the amount of $5,000,000,
the amount of debt previously recorded.
Because
of the economic interdependence of the above-described impairment charge and
gain on debt forgiveness, the two amounts are netted in the statement of
operations for the year ended December 31, 2006, and the net charge of $170,000
is included in general and administrative expenses.
NOTE
9 - OTHER ASSETS
Other
assets include the following at December 31:
| |
|
2006
|
|
2005
|
|
|
Deferred
financing Costs
|
|
$
|
2,102,725
|
|
$
|
4,192,988
|
|
|
Deposits
and Other
|
|
|
35,750
|
|
|
61,500
|
|
|
Investment
in Promissory Note
|
|
|
500,000
|
|
|
-
|
|
|
Investment
in Reedy Creek
|
|
|
-
|
|
|
901,705
|
|
|
Total
other assets
|
|
$
|
2,638,475
|
|
$
|
5,156,193
|
|
On
August
16, 2006, pursuant to Purchase Agreement between the Company and Stanford
International Bank Limited (a minority shareholder and creditor of the Company),
a promissory note in the principal amount of $750,000 made by Scott Roix in
favor of Stanford International Bank Limited was purchased for 235,000 shares
of
common stock of the Company and a five year warrant to purchase 235,000 share
of
the Company’s stock at an exercise price of $20 per share. The note will be
repaid in full on July 1, 2007. As of December 31, 2006, $250,000 of the note
had been repaid and the investment in promissory note had a balance of
$500,000.
NOTE
10 - LONG-TERM DEBT AND NOTES PAYABLE
Below
is
a summary of Long-term debt and notes payable as of December 31, 2006 and
2005:
| |
Collateral
|
|
Maturity
Date
|
|
Interest
rate
|
|
2006
|
|
2005
|
|
|
Note
Payable, Lending Institution
|
Personal
Guarantees
|
|
12/31/03
|
|
8%
|
|
$250,000
|
|
$250,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Individual
|
Unsecured
|
|
On
Demand
|
|
10%
|
|
-
|
|
30,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Equipment,
Third Party Entities
|
Equipment
|
|
3/31/05
|
|
18%
|
|
-
|
|
9,029
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company & personal
guarantees
|
|
9/30/06
|
|
8%
|
|
-
|
|
1,250,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company
|
|
1/11/07
|
|
8%
|
|
7,498,900
|
|
7,298,501
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
1st
lien on 53 acres of undeveloped land & personal
guarantees
|
|
6/28/07
|
|
12%
(libor +310 basis)
|
|
14,352,900
|
|
10,250,376
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company& personal
guarantees
|
|
6/30/07
|
|
8%
|
|
8,000,000
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company& personal
guarantees
|
|
6/30/07
|
|
12%
|
|
5,056,000
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company & personal
guarantees
|
|
12/27/07
|
|
8%
|
|
-
|
|
2,100,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Note
Payable, Credit Line
|
Assets
of the Company and Personal Guarantees
|
|
1/08
|
|
8.75%
|
|
51,463
|
|
51,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company & personal
guarantees
|
|
1/1/08
|
|
8%
|
|
3,000,000
|
|
3,000,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company & personal
guarantees
|
|
1/1/08
|
|
8%
|
|
1,355,000
|
|
1,355,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company
|
|
1/1/08
|
|
8%
|
|
305,000
|
|
289,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company& personal
guarantees
|
|
2/1/08
|
|
15%
|
|
7,000,000
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company& personal
guarantees
|
|
6/22/08
|
|
8%
|
|
1,229,861
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Individual
|
Personal
guarantees
|
|
7/1/08
|
|
12%
|
|
630,160
|
|
2,062,206
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Financial
Institution
|
Lien
on property, assets and stock of the company & personal
guarantees
|
|
12/31/08
|
|
6%
|
|
6,000,000
|
|
6,000,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Note
payable,
Third
Party
|
Lien
on assets
|
|
2/23/09
|
|
5%
|
|
-
|
|
5,000,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Auto
Loan
|
Vehicle
|
|
3/10/10
|
|
9.39%
|
|
-
|
|
30,942
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Third
Party notes assumed from assets purchased from Around The World Travel,
Inc.
|
Secured
by Common Stock of Around The World Travel, Inc.
|
|
4/1/11
|
|
4%
|
|
2,174,481
|
|
3,893,915
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Note
Payable, Lending Institution
|
Assets
of the Company and Personal Guarantees
|
|
5/1/33
|
|
4%
|
|
361,272
|
|
369,687
|
|
| |
|
|
|
|
|
|
57,265,037
|
|
43,239,656
|
|
|
Less:
current portion of long-term debt and notes payable
|
|
|
|
|
|
(35,681,931
|
)
|
(3,652,235
|
)
|
|
Long-term
debt and notes payable
|
|
|
|
|
|
$21,583,106
|
|
$39,587,421
|
|
*
Effective December 31, 2006, Stanford International Bank Limited, an Antiguan
banking corporation, further modified the terms of the notes due to extend
the
maturity dates of the notes and accrue the unpaid interest from October 1,
2006
and thereafter as follows:
|
·
|
The
maturity date of the $6,000,000 Note is extended to January 1, 2008.
Interest on the $6,000,000 Note has been paid through September 30,
2006.
The principal amount of the Note, together with all interest accrued
from
October 1, 2006 to the maturity date shall be due and payable on
that
date.
|
|
·
|
The
maturity date of the $3,000,000 Note is extended to January 1, 2008.
Interest on the $3,000,000 Note has been paid through September 30,
2006.
The principal amount of the Note, together with all interest accrued
from
October 1, 2006 to the maturity date shall be due and payable on
that
date.
|
|
·
|
The
maturity date of the $1,355,000 Note is extended to January 1, 2008.
Interest on the $1,355,000 Note has been paid through September 30,
2006.
The principal amount of the Note, together with all interest accrued
from
October 1, 2006 to the maturity date shall be due and payable on
that
date.
|
|
·
|
The
maturity date of the $305,000 Note is extended to January 1, 2008.
Interest on the $305,000 Note has been paid through September 30,
2006.
The principal amount of the Note, together with all interest accrued
from
October 1, 2006 to the maturity date shall be due and payable on
that
date.
|
The
weighted average interest rate on long-term debt and notes payable was 8.8%
and
6.4% for 2006 and 2005, respectively. The maximum amount outstanding was
$57,265,037 and $43,239,656 for 2006 and 2005, and the average amount
outstanding was approximately $45,691,050 and $27,165,215 during 2006 and 2005.
The effective interest rate, including the amortization of the deferred
financing costs was 11.3% and 12.2% in 2006 and 2005.
Principal
repayments for the next years are as follows:
| |
|
Amount
|
|
|
2007
|
|
$
|
35,681,931
|
|
|
2008
|
|
|
19,927,164
|
|
|
2009
|
|
|
355,681
|
|
|
2010
|
|
|
355,682
|
|
|
2011
|
|
|
355,683
|
|
|
Thereafter
|
|
|
588,896
|
|
| |
|
$
|
57,265,037
|
|
NOTE
11 - NOTES PAYABLE - RELATED PARTIES
| |
Collateral
|
|
Maturity
Date
|
|
Interest
Rate
|
|
2006
|
|
2005
|
|
Related
Party
|
Unsecured
|
|
Demand
|
|
12%
|
|
$117,300
|
|
$131,945
|
| |
|
|
|
|
|
|
|
|
|
|
Related
Party
|
Unsecured
|
|
Demand
|
|
12%
|
|
293,000
|
|
306,500
|
| |
|
|
|
|
|
|
|
|
|
|
Related
Party
|
Unsecured
|
|
Demand
|
|
12%
|
|
180,000
|
|
180,000
|
| |
|
|
|
|
|
|
|
|
|
|
Related
Party
|
Unsecured
|
|
Demand
|
|
12%
|
|
20,000
|
|
20,000
|
| |
|
|
|
|
|
|
|
|
|
|
Related
Party
|
Unsecured
|
|
Demand
|
|
12%
|
|
122,390
|
|
327,028
|
| |
|
|
|
|
|
|
|
|
|
|
Related
Party
|
Unsecured
|
|
12/31/08
|
|
12%
|
|
3,353,252
|
|
2,195,969
|
| |
|
|
|
|
|
|
|
|
|
|
Related
Party
|
Unsecured
|
|
Demand
|
|
12%
|
|
5,875,444
|
|
-
|
| |
|
|
|
|
|
|
|
|
|
|
Shareholder
|
Unsecured
|
|
Demand
|
|
12%
|
|
394,198
|
|
178,366
|
| |
|
|
|
|
|
|
|
|
|
|
Related
Party
|
Unsecured
|
|
Demand
|
|
10%
|
|
193,063
|
|
97,504
|
| |
|
|
|
|
|
|
|
|
|
|
Related
Party
|
Unsecured
|
|
Demand
|
|
10%
|
|
285,000
|
|
285,000
|
| |
|
|
|
|
|
|
|
|
|
|
Related
Party
|
Unsecured
|
|
Demand
|
|
12%
|
|
-
|
|
124,262
|
|
Less:
current portion of notes payable -- related parties
|
|
|
|
|
|
|
10,833,647
|
|
3,846,574
|
|
Notes
payable -- related parties
|
|
|
|
|
|
|
7,480,395
|
|
1,650,605
|
| |
|
|
|
|
|
|
$3,353,252
|
|
$2,195,969
|
The
weighted average interest rate on notes payable - related parties was 11.8%
and
11.1% for 2006 and 2005, respectively. The maximum amount outstanding was
$10,833,647 and $3,846,574 for 2006 and 2005, and the average amount outstanding
was approximately $7,277,980 and $2,579,079 during 2006 and 2005. The effective
interest rate was 12% and 11% in 2006 and 2005.
NOTE
12 - STOCKHOLDERS EQUITY AND REDEEMABLE PREFERRED STOCK
Common
Stock and Mandatory Redeemable Preferred Stock
On
August
16, 2006, pursuant to Purchase Agreement between the Company and SIBL (a
minority shareholder and creditor of the Company), a promissory note in the
principal amount of $750,000 made by Scott Roix in favor of SIBL was purchased
for 235,000 shares of common stock of the Company and a five year warrant to
purchase 235,000 share of the Company’s stock at an exercise price of $20 per
share. The note will be repaid in full on July 1, 2007.
In
August
2006, Tierra del Sol Resorts, Inc. entered into a guaranteed maximum price
construction contract with Resorts Construction, LLP ("Resorts Construction")
to
construct and develop part of the Sonesta Resort and its town home properties.
Resorts Construction is 50% owned by Malcolm J. Wright, the Company's Chief
Executive Officer and Chairman. Pursuant to the contract with Resorts
Construction, we agreed to pay Resorts Construction a contractor's fee equal
to
5% of the total cost of the construction performed by Resorts Construction
and
7.5% for general conditions. Any payments owed under the Resorts Construction
contract which are not paid when due bear interest at the rate of 12% per annum.
We provided Resorts Construction a non-refundable payment of $4,000,000 upon
our
entry into the construction agreement with Resorts Construction, which funds
Resorts Construction have been used to begin construction of Phase 1 of the
Sonesta Resort.
Effective
June 30, 2006, pursuant to Stock Purchase Agreement between the Company and
SIBL
(a minority shareholder and creditor of the Company), the Call Center operations
(Caribbean Leisure Marketing, Ltd.) was sold. Promissory notes in the amounts
of
$1,250,000 and $2,100,000 were exchanged along with $2,313,175 of fees and
accrued interest for total consideration of $5,663,175. This sale resulted
in a
gain of $2,988,082 attributable to the recapture of depreciation and interest
expense from prior periods. The Stock Purchase Agreement also cancelled the
equity conversion feature that was to expire on April 30, 2007, of an
outstanding loan with SIBL and provided for the issuance of 355,000 warrants
with an exercise price of $10.00 expiring on April 30, 2007.
On
June
30 2005, 160,000 shares of common stock were issued upon the exercise of
warrants at $0.001 per share (or $160).
Preferred
Stock
American
Leisure is authorized to issue up to 10,000,000 shares in aggregate of preferred
stock:
| |
Total
Series Authorized
|
|
Stated
Value
|
|
Voting
|
|
Annual
Dividends per Share
|
|
Conversion
Rate
|
|
Series
A
|
1,000,000
|
|
$
10.00
|
|
Yes
|
|
$
1.20
|
|
10
to 1
|
|
Series
B
|
100,000
|
|
100.00
|
|
Yes
|
|
12.00
|
|
20
to 1
|
|
Series
C
|
28,000
|
|
100.00
|
|
Yes
|
|
4.00
|
|
20
to 1
|
|
Series
E
|
50,000
|
|
100.00
|
|
Yes
|
|
4.00
|
|
6.66
to 1
|
|
Series
F
|
150,000
|
|
100.00
|
|
Yes
|
|
1.00
|
|
2
to 1
|
Series
A
have voting rights equal to 10 common shares to 1 Series A preferred share.
Series
A
are redeemable at the American Leisure's option after 10 years if not converted
by the holder. The conversion period is 10 years from the date of issue. The
redemption amount per share will equal the liquidation value plus accrued but
unpaid dividends.
Conversion
is at a fixed amount of 10 for 1, except for an adjustment if the common stock
market price is below $1.00 for any thirty (30) consecutive days. In the event
that the average market price of the common stock for any thirty (30)
consecutive trading days is below $1.00 and the market price of the common
stock
remains below $1.00 through the trading day immediately prior to the conversion
date, then the conversion rate shall be the lower of (i) the Liquidation Value
divided by the average market price of the common stock for the ten (10)
consecutive trading days immediately prior to the conversion date, or (ii)
10
for 1.
Upon
any
conversion, the holder, by converting, waives his right to the payment of cash
for such accrued but unpaid dividends. In lieu of a cash dividend the holder
shall receive such number of shares of Common Stock equal to (A) the amount
of
accrued but unpaid dividends on such Preferred Stock surrendered for conversion
by such holder, divided by (B) the market value of common stock on the
conversion date.
Dividends
are payable if funds are available. Accrued but unpaid dividends do not pay
interest.
Series
B
have voting rights equal to 20 common shares to 1 Series B preferred share.
Series
B
are redeemable at the American Leisure's option after 5 years if not converted
by the holder. The conversion period is 5 years from the date of issue. The
redemption amount per share will equal the liquidation value plus accrued but
unpaid dividends.
Conversion
is not less than 20 for 1 nor more than 12.5 for 1 based on the market price.
Conversion is calculated by dividing the liquidation value by the market price
but such conversion shall not be greater than 20 shares of common stock for
1
preferred share or not lower than 12.5 shares of common stock for 1 preferred
share. The maximum shares (20 to 1) will be issued when the market price of
common stock is $5 or below $5 and the minimum conversion (12.5 to 1) will
be
when the market price of common stock is $8 or above $8. Upon any conversion,
the holder, by converting, waives his right to the payment of cash for such
accrued but unpaid dividends. In lieu of a cash dividend the holder shall
receive such number of shares of Common Stock equal to (A) the amount of accrued
but unpaid dividends on such Preferred Stock surrendered for conversion by
such
holder, divided by (B) the market value of common stock on the conversion date.
Dividends
are payable if funds are available. Accrued but unpaid dividends do not pay
interest.
Series
C
are redeemable after 5 years if not converted by the holder. The conversion
period expires 5 years from the date of issue. The redemption amount per share
will equal the liquidation value plus accrued but unpaid dividends.
Conversion
is not less than 20 for 1 nor more than 12.5 for 1 based on the market price.
Conversion is calculated by dividing the liquidation value by the market price
but such conversion shall not be greater than 20 shares of common stock for
1
preferred share or not lower than 12.5 shares of common stock for 1 preferred
share. The maximum shares will be issued when the market price of common stock
is $5 or below and the minimum conversion will be when the market price of
common stock is $8 or higher. Upon any conversion, the holder, by converting,
waives his right to the payment of cash for such accrued but unpaid dividends.
In lieu of a cash dividend the holder shall receive such number of shares of
Common Stock equal to (A) the amount of accrued but unpaid dividends on such
Preferred Stock surrendered for conversion by such holder, divided by (B) the
market value of common stock on the conversion date.
Series
E
are redeemable after 5 years if not converted by the holder. The conversion
period expires 5 years from the date of issue. The redemption amount per share
will equal the liquidation value plus accrued but unpaid dividends.
Conversion
is at a maximum of 6.66 for 1 or if the market price is above $15.00 then the
conversion is $100 divided by the market price at the date of conversion, for
example $100/$20 or 5 common shares for 1 preferred share. Upon any conversion,
the holder, by converting, waives his right to the payment of cash for such
accrued but unpaid dividends. In lieu of a cash dividend the holder shall
receive such number of shares of Common Stock equal to (A) the amount of accrued
but unpaid dividends on such Preferred Stock surrendered for conversion by
such
holder, divided by (B) the market value of common stock on the conversion
date.
Series
E
have voting rights equal to 6.66 common shares to 1 Series E preferred share.
In
February 2006, we issued Joseph and Helena Palumbo 1,655 shares of our Series
E
Preferred Stock, which shares of Preferred Stock we had previously agreed to
issue pursuant to and in connection with our purchase of the assets of AWT
in
December 2004. We claim an exemption from registration afforded by Section
4(2)
of the Securities Act of 1933, as amended, since the foregoing issuance did
not
involve a public offering, the recipients took the securities for investment
and
not resale and we took appropriate measures to restrict transfer. No
underwriters or agents were involved in the foregoing issuance and no
underwriting discounts or commissions were paid by us.
In
February 2006, we issued 170 shares of Series E Preferred Stock to Gregory
Wasik, which shares of Preferred Stock we had previously agreed to issue
pursuant to and in connection with our purchase of the assets of AWT in December
2004. We claim an exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended, since the foregoing issuance did not involve
a public offering, the recipient took the securities for investment and not
resale and we took appropriate measures to restrict transfer. No underwriters
or
agents were involved in the foregoing issuance and no underwriting discounts
or
commissions were paid by us.
In
February 2006, we issued William and Margaret Applebee 2,840 shares of our
Series E Preferred Stock, which shares of Preferred Stock we had previously
agreed to issue pursuant to and in connection with our purchase of the assets
of
AWT in December 2004. We claim an exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended, since the foregoing
issuance did not involve a public offering, the recipients took the securities
for investment and not resale and we took appropriate measures to restrict
transfer. No underwriters or agents were involved in the foregoing issuance
and
no underwriting discounts or commissions were paid by us.
In
February 2006, we issued Randy Haddad 2,852 shares of our Series E Preferred
Stock, which shares of Preferred Stock we had previously agreed to issue
pursuant to and in connection with our purchase of the assets of AWT in December
2004. We claim an exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended, since the foregoing issuance did not involve
a public offering, the recipients took the securities for investment and not
resale and we took appropriate measures to restrict transfer. No underwriters
or
agents were involved in the foregoing issuance and no underwriting discounts
or
commissions were paid by us.
In
February 2006, we issued 631 shares of our Series E Preferred Stock to various
individuals in fulfillment of prior commitments. We claim an exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended,
since the foregoing issuance did not involve a public offering, the recipients
took the securities for investment and not resale and we took appropriate
measures to restrict transfer. No underwriters or agents were involved in the
foregoing issuance and no underwriting discounts or commissions were paid by
us.
Series
F
issuance was retracted in 2005 in connection with the purchase price adjustment
of the Around the World, Inc. assets.
Dividends
are payable if funds are available. Accrued but unpaid dividends do not pay
interest.
American
Leisure has not declared dividends as of December 31, 2006, however cumulative
and unpaid dividends are as follows:
| |
|
December
31, 2006
|
|
December
31, 2005
|
|
|
Series
A
|
|
$
|
6,294,049
|
|
$
|
5,094,049
|
|
|
Series
B
|
|
|
174,752
|
|
|
140,852
|
|
|
Series
C
|
|
|
412,975
|
|
|
304,219
|
|
|
Series
E
|
|
|
358,912
|
|
|
261,824
|
|
| |
|
$
|
7,240,688
|
|
$
|
5,800,944
|
|
American
Leisure would be required to issue up to 10,818,633 and 10,760,793 shares of
common stock if all preferred shares were converted at their most favorable
conversion terms at December 31, 2006 and 2005.
Warrants
In
2006,
American Leisure issued 2,175,000 warrants of which 1,035,000 were issued in
connection with loan guarantees and financing, 550,000 were issued for services,
355,000 were issued for the sale of a subsidiary and 235,000 were issued for
the
acquisition of a promissory note.
In
2005,
American Leisure issued 4,354,032 warrants of which 3,854,032 were issued in
connection with loan guarantees and financing, 200,000 were issued to directors
and 300,000 were issued for the acquisition of the minority interest in Tierra
Del Sol, Inc.
Warrants
for Loan Guarantees and Financing Costs
2006
During
2006, American Leisure issued 1,035,000 warrants valued at $865,518. The
warrants were issued in connection with loan guarantees and in connection with
obtaining additional financing and recorded as deferred financing costs. These
warrants are exercisable from $1.02 and have terms of 5 years. The estimated
fair value of the warrants was valued using the Black-Scholes option pricing
model with the following assumptions: dividend yield 0.0%, expected
volatility ranging from 131% to 146%, risk-free interest rate of 1.5% and
expected lives of 60 months.
In
January 2006, the Company authorized the issuance of warrants to Malcolm Wright,
a director of the Company and the Company's Chief Executive Officer to purchase
450,000 shares of our common stock at an exercise price of $1.02 per share.
In
December 2006, the Company authorized the issuance of warrants to Mr. Wright
to
purchase 585,000 shares of our common stock at an exercise price of $1.02 per
share. The Company is under a continued obligation to issue warrants at $1.02
to
Mr. Wright for guarantees he may be required to give on the Company's behalf
going forward. The warrants were recorded as deferred financing
costs.
2005
During
2005, American Leisure issued 3,854,032 warrants valued at $3,837,696. The
warrants were issued in connection with loan guarantees and in connection with
obtaining additional financing and recorded as deferred financing costs. These
warrants are exercisable from $0.001 to $5 and have terms ranging from 3 to
5
years. The estimated fair value of the warrants was valued using the
Black-Scholes option pricing model with the following assumptions: dividend
yield 0.0%, expected volatility of 195%, risk-free interest rate of 1.5% and
expected lives of 36 to 60 months.
In
July
2005, the Company authorized the issuance of warrants to Malcolm Wright, a
director of the Company and the Company's Chief Executive Officer and Bill
Chiles, a director of the Company to purchase 347,860 shares and 168,672 shares,
respectively, of our common stock at an exercise price of $1.02 per share.
In
December 2005, the Company authorized the issuance of warrants to Mr. Wright
to
purchase 2,008,500 shares of our common stock at an exercise price of $1.02
per
share. The Company is under a continued obligation to issue warrants at $1.02
to
Messrs Chiles and Wright for guarantees they may be required to give on the
Company's behalf going forward. The warrants were recorded as deferred financing
costs. In addition, in December 2005, the Company authorized the issuance of
warrants to Stanford International Bank, Stanford Venture Capital Holdings
and
their executives to purchase 924,000 shares of our common stock. These warrants
are exercisable from $0.001 to $5 and have terms of 3 years of which 308,000
warrants were exercised in 2006.
Warrants
for Services
2006
During
2006, American Leisure issued 550,000 warrants valued at $502,454. The warrants
were issued to executives and vendors for services. These warrants are
exercisable from $1.02 and have terms ranging from 3 to 5 years. The estimated
fair value of the warrants was valued using the Black-Scholes option pricing
model with the following assumptions: dividend yield 0.0%, expected volatility
ranging from 131% to 146%, risk-free interest rate of 4.0% and expected lives
of
36 to 60 months.
2005
During
2005, American Leisure issued 200,000 warrants valued at $144,057. The warrants
were issued to members of the board of directors. These warrants are exercisable
from $1.02 and have terms of 3 years. The estimated fair value of the warrants
was valued using the Black-Scholes option pricing model with the following
assumptions: dividend yield 0.0%, expected
volatility of 158%, risk-free interest rate of 1.5% and expected lives of 36
months.
Warrants
for Sale of Subsidiary
During
2006, American Leisure issued 355,000 warrants valued at $83,894 in connection
with the sale of our subsidiary, Caribbean Leisure Marketing Limited ("CLM),
to
SIBL under a stock purchase agreement. These warrants are exercisable at $10.00
and expire on April 30, 2008. The estimated fair value of the warrants was
valued using the black-scholes option pricing model with the following
assumptions: dividend yield 0.0%, expected volatility of 120%, risk-free
interest rate of 1.5% and expected lives of 22 months. In connection with the
agreement, SIBL agreed to amend the due date of certain notes, described in
greater detail in Note 11. The warrants contain certain anti-dilution clauses,
whereby if we grant any options or sell any shares of common stock for less
than
$1.02 per share, the exercise price of the 355,000 warrants will reset to such
lower price.
Warrants
for Purchase of Promissory Note
On
August
16, 2006, pursuant to Purchase Agreement between the Company and Stanford
International Bank Limited (a minority shareholder and creditor of the Company),
a promissory note in the principal amount of $750,000 made by Scott Roix in
favor of Stanford International Bank Limited was purchased for 235,000 shares
of
common stock of the Company and a five year warrant to purchase 235,000 shares
of the Company’s stock at an exercise price of $20 per share. The estimated fair
value of the warrants was valued at $122,336 using the Black-Scholes option
pricing model with the following assumptions: dividend yield 0.0%, expected
volatility of 127%, risk-free interest rate of 1.5% and expected life of 60
months. The note will be repaid in full on July 1, 2007.
Warrants
Issued for Minority Interest
During
2005, American Leisure issued 300,000 warrants valued at $233,713. The warrants
were issued in connection with the acquisition of minority interest in Tierra
Del Sol, Inc. The warrants are exercisable at $5 and have term of 5 years.
The
estimated fair value of the warrants was valued using the black-scholes option
pricing model with the following assumptions: dividend yield 0.0%, expected
volatility of 158%, risk-free interest rate of 1.5% and an expected life of
60
months.
At
December 31, 2006, there are 8,658,246 warrants outstanding (including 8,383,246
that were exercisable) with exercise prices ranging from $0.001 to $20.00 that
expire between 2008 and 2011.
Stock
Based Compensation
The
does
not maintain a formal stock option plan, however, the Company has granted
warrants to officers and directors.
Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised
2004) using the modified prospective transition method and, as a result did
not retroactively adjust results from prior periods. Under this transition
method, stock-based compensation expense for the year ended December 31,
2006 includes compensation expense for all stock options granted prior to,
but
not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS No. 123,
and expense related to all stock options granted on or subsequent to
January 1, 2006 based on the grant date fair value estimated
in accordance with the provisions of SFAS No. 123 (revised 2004).
Stock-based compensation expense totaled approximately $191,000 for the year
ended December 31, 2006.
During
2006, the Company granted 550,000 non-qualified warrants to certain employees
pursuant to employment agreements and for services. The warrants all have an
exercise price of $1.02 and lives ranging from 3 to 5 years.
100,000
options vested 100% on the date of grant and the other options vest 50% at
issuance and 25% over the next two years.
The
Company utilizes the Black-Scholes valuation model in determining the fair
value
of stock-based grants. The resulting compensation expense is recognized over
the
requisite service period, which is generally the warrant vesting term of up
to 2
years. The weighted average fair value at the grant date for options issued
during the years ended December 31, 2006 and 2005 was $0.91 and
$0.72 per warrant, respectively. The fair value of warrants at the date of
grant was estimated using the following assumptions during the years ended
December 31, 2006 and 2005, respectively: (a) no dividend yield on the
Company’s stock, (b) expected stock price volatility of approximately 146%
and 195%, (c) a risk-free interest rate of approximately 4%, and 1.5%, and
(d) an expected warrant term of 3 to 5 years.
The
expected term of the warrants granted in 2006 is calculated using the simplified
method as prescribed by Staff Accounting Bulletin No. 107. The
expected term for each warrant grant represents the vesting term plus the
original contract term divided by two. For 2006, expected stock price volatility
represent the one year historical annualized volatility calculated using daily
closing market prices for the Company’s common stock. The risk-free interest
rate is based on the five year U.S. Treasury yield at the date of grant.
The Company has not paid dividends in the past and does not currently anticipate
paying any dividends in the near future.
The
following summarizes warrant activity during the two years ended
December 31, 2006:
| |
|
Shares
|
|
Weighted
average exercise price
|
|
Weighted
average remaining contractual term
|
|
Aggregate
intrinsic value
|
|
|
Outstanding,
December
31, 2004
|
|
|
525,000
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
Granted
|
|
|
200,000
|
|
|
1.02
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Outstanding,
December
31, 2005
|
|
|
725,000
|
|
|
1.02
|
|
|
|
|
|
|
|
|
Granted
|
|
|
550,000
|
|
|
1.02
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Outstanding,
December
31, 2006
|
|
|
1,275,000
|
|
$
|
1.02
|
|
|
2.11
|
|
$
|
-
|
|
|
Exercisable,
December
31, 2006
|
|
|
1,000,000
|
|
$
|
1.02
|
|
|
3.9
|
|
$
|
-
|
|
The
following summarizes non vested stock options as of December 31, 2005 and
changes through the year ended December 31, 2006:
| |
|
Shares
|
|
Weighted
average grant date fair value
|
|
|
Non-vested
at December 31, 2004
|
|
|
262,500
|
|
|
.88
|
|
|
Granted
|
|
|
200,000
|
|
|
.72
|
|
|
Vested
|
|
|
(231,250
|
)
|
|
.72
|
|
|
Non-vested
at December 31, 2005
|
|
|
231,250
|
|
|
.91
|
|
|
Granted
|
|
|
550,000
|
|
|
.91
|
|
|
Vested
|
|
|
(506,250
|
)
|
|
.81
|
|
|
Canceled
|
|
|
-
|
|
|
-
|
|
|
Non-vested
at December 31, 2006
|
|
|
275,000
|
|
$
|
.91
|
|
The
aggregate intrinsic value in the table above represents the intrinsic value
(the
difference between the Company closing stock price on December 31, 2006 and
the exercise price, multiplied by the number of in-the-money options) that
would
have been received by the option holders had all option holders exercised their
options on December 31, 2006. No warrants were exercised in 2006 and 2005.
The total fair value of shares vesting during the years ended December 31,
2006 and 2005 was approximately $.88 and $.87, respectively. As of
December 31, 2006, total unrecognized stock-based compensation expense
related to non-vested stock options was approximately $300,000 which is
expected to be recognized over a weighted average period of approximately
2.5 years.
NOTE
13 - NET LOSS PER SHARE
Dividends
have not been declared on the Company’s cumulative preferred stock. The
accumulated dividends are deducted from Net Loss to arrive at Net loss per
share
as follows:
|
Description
|
|
2006
|
|
2005
|
|
|
Net
Loss (as reported)
|
|
$
|
(8,148,896
|
)
|
$
|
(4,085,825
|
)
|
|
Less
Undeclared Preferred Stock Dividend
|
|
|
(1,439,743
|
)
|
|
(1,439,405
|
)
|
|
Net
Loss after Preferred Stock Dividend
|
|
$
|
(9,588,639
|
)
|
$
|
(5,525,230
|
)
|
|
Net
Income (Loss) per share Basic and Diluted
|
|
$
|
(0.89
|
)
|
$
|
(0.55
|
)
|
NOTE
14 - INCOME TAXES
Deferred
taxes are determined based on the temporary differences between the financial
statement and income tax bases of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences
reverse.
The
components of deferred income tax assets (liabilities) at December 31, 2006
and
2005, were as follows:
| |
|
2006
|
|
2005
|
|
|
Net
operating loss carry forwards
|
|
$
|
6,500,000
|
|
$
|
3,700,000
|
|
|
Valuation
allowance
|
|
|
(6,500,000
|
)
|
|
(3,700,000
|
)
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
American
Leisure follows Statement of Financial Accounting Standards Number 109 (SFAS
109),
"Accounting for Income Taxes." SFAS No. 109 requires a valuation allowance,
if
any, to reduce the deferred tax assets reported if, based on the weight of
the
evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Management has determined that a valuation
allowance of $6,500,000 at December 31, 2006 is necessary to reduce the deferred
tax assets to the amount that will more than likely than not be realized. The
change in valuation allowance for 2006 was approximately
$2,800,000.
At
December 31, 2006, American Leisure had a net operating loss carry forward
for
Federal income tax purposes totaling approximately $17,100,000 which, if not
utilized, will expire in the year 2026.
In
June
2002, American Leisure had a change in ownership, as defined by Internal Revenue
Code Section 382, which has resulted in American Leisure’s net operating loss
carry forward being subject to certain utilization limitations in the
future.
The
federal statutory tax rate reconciled to the effective tax rate for 2006 is
as
follows:
|
|
|
2006
|
|
2005
|
|
|
Tax
at U.S. statutory rate
|
|
|
34.0
|
%
|
|
34
|
%
|
|
State
tax rate, net of federal benefits
|
|
|
0.0
|
|
|
0.0
|
|
|
Change
in valuation allowance
|
|
|
(34.0
|
)%
|
|
(34.0
|
)%
|
|
Effective
tax rate
|
|
|
0.0
|
%
|
|
0.0
|
%
|
NOTE
15 - COMMITMENTS AND CONTINGENCIES
Lease
Commitments
American
Leisure leases office facilities under non-cancelable operating lease
agreements. Future minimum rental payments are as follows:
|
December
31,
|
|
|
|
|
|
2007
|
|
$
|
748,633
|
|
|
2008
|
|
|
643,900
|
|
|
2009
|
|
|
510,799
|
|
|
2010
|
|
|
52,455
|
|
| |
|
$
|
1,955,787
|
|
Rent
expense totaled $913,023 and $243,509 for 2006 and 2005,
respectively.
Employment
Agreements
The
Company has various employment agreements with select members of their
management. These agreements provide for a base salary plus bonuses of up to
19%
of the
profits
of each subsidiary company based upon the Company’s operating earnings as
defined in each agreement.
Litigation
In
the
ordinary course of its business, the Company may from time to time become
subject to claims or proceedings relating to the purchase, subdivision, sale
and/or financing of its real estate or its operations.
We
are a
party in an action that was filed in Orange County, Florida and styled as
Rock
Investment Trust, P.L.C. and RIT, L.L.C. vs. Malcolm J. Wright, American
Vacation Resorts, Inc., American Leisure, Inc., Inversora Tetuan, S.A., Sunstone
Golf Resort, Inc., and Sun Gate Resort Villas, Inc., Case No. CIO-01-4874,
Ninth
Judicial Circuit, Orange County, Florida. In June, 2001, after almost 2 years
from receiving notice from Malcolm Wright that one Mr. Roger Smee, doing
business under the names Rock Investment Trust, PLC (a British limited company)
and RIT, LLC (a Florida limited liability company) (collectively, the Smee
Entities) had defaulted under various agreements to loan or to joint venture
or
to fund investment into various real estate enterprises founded by Mr. Wright,
the Smee Entities brought the Lawsuit against Mr. Wright, American Leisure,
Inc.
(ALI) and several other entities. The gravamen of the initial complaint is
that
the Smee Entities made financial advances to Wright with some expectation
of
participation in a Wright real estate enterprise. In general, the suit requests
either a return of the Smee Entities alleged advances of $500,000 or an
undefined ownership interest in one or more of the defendant entities. Mr.
Wright, American Leisure, Inc., and Inversora Tetuan, S.A., have filed a
counterclaim and cross complaint against the Smee Entities and Mr. Smee denying
the claims and such damages in the amount of $10 million for the tortuous
acts
of the Smee entities. In the unlikely event the matter ever proceeds to trial
and the court rules that Mr. Wright is liable under his guarantee of the
American Leisure, Inc. obligation to Smee, it is believed that such a ruling
would not directly affect American Leisure Holdings, Inc. The litigation
has
been in abeyance, with no activity by the Smee entities for one year, and
is not
currently set for trial. We expect that this case will either be dismissed
for
lack of activity or will result in a judgment in favor of Malcolm
Wright.
In
March
2004, Manuel Sanchez and Luis Vanegas as plaintiffs filed a lawsuit against
American Leisure Holdings, Inc. American Access Corporation, Hickory Travel
Systems, Inc., Malcolm J. Wright and L. William Chiles, et al., seeking a
claim
for securities fraud, violation of Florida Securities and Investor Protection
Act, breach of their employment contracts, and claims for fraudulent inducement.
All defendants have denied all claims and have a counterclaim against Manuel
Sanchez and Luis Vanegas for damages. The litigation commenced in March 2004.
No
material activity has occurred in this case, and we do not expect any activity
in the near future. The claims are without merit and the claims are not material
to us. We intend to vigorously defend the lawsuit.
In
early
May 2004, Around The World Travel, Inc. substantially all of the assets of
which
we purchased, filed a lawsuit in the Miami-Dade Florida Circuit Court against
Seamless Technologies, Inc. and e-TraveLeaders, Inc. alleging breach of contract
and seeking relief that includes monetary damages and termination of the
contracts. They were granted leave to intervene as plaintiffs in the original
lawsuits against Seamless and e-TraveLeaders.
On June 28, 2004, the above named defendants brought suit against Around
The
World Travel and American Leisure Holdings, Inc. in an action styled Seamless
Technologies, Inc. et al. v. Keith St. Clair et al. This suit alleges that
Around The World Travel has breached the contracts and also that American
Leisure Holdings, Inc. and Around The World Travel’s Chief Executive Officer
were complicit with certain officers and directors of Around The World Travel
in
securing ownership of certain assets for American Leisure Holdings, Inc.
that
were alleged to have been a business opportunity for Around The World Travel.
This lawsuit involves allegations of fraud against Malcolm J. Wright. The
lawsuit filed by Seamless has been abated and consolidated with the original
lawsuit filed by Around The World Travel. In a related matter, Seamlesss
attorneys brought another action entitled Peter Hairston v. Keith St. Clair
et
al. This suit mimics the misappropriation of business opportunity claim,
but it
is framed within a shareholder derivative action. The relief sought against
American Leisure Holdings, Inc. includes monetary damages and litigation
costs.
We intend to vigorously support the original litigation filed against Seamless
and defend the counterclaim and allegations against us. On February 9, 2007,
the
court heard AMLH, ALEC, and Mr. Wright’s motion to dismiss the various counts of
the complaint. The court dismissed with prejudice the E-Traveleaders /
Seamless claims for rescission, constructive trust, and civil conspiracy.
It dismissed without prejudice the claims for tortuous interference and priority
as against TraveLeaders, and allowed the breach of contract claims to
continue. We believe that with further discovery, the court will dismiss
or grant to AMLH, ALEC, and Mr. Wright summary judgment on all remaining
or
repleaded counts.
On
May 4,
2005, Simon Hassine, along with members of his family, filed a lawsuit
against
us and Around The World Travel in the Circuit Court of Dade County, Florida,
Civil Division, Case Number 05-09137CA. The plaintiffs are the former majority
shareholders of Around The World Travel and former owners of the assets
of
TraveLeaders. The plaintiffs allege that that they have not been paid for
i) a
subordinated promissory note in the principal amount of $3,550,000 plus
interest
on such note which they allege was issued to them by Around The World Travel
in
connection with their sale of 88% of the common stock of Around The World
Travel; and ii) subordinated undistributed retained earnings and accrued
bonuses
in an aggregate amount of $1,108,806 which they allege were due to them
as part
of the sale. The plaintiffs allege that the note was issued to them net
of
$450,000 of preferred stock of Around The World Travel that they further
allege
they never received. The plaintiffs also allege that in December 2004 they
entered into a settlement agreement with the Company regarding these matters.
The plaintiffs are pursuing a claim of breach of the alleged settlement
agreement with damages in excess of $1,000,000, interest and costs as well
as
performance under the alleged settlement agreement or, in the alternative,
a
declaratory judgment that the promissory note, undistributed retained earnings
and accrued bonuses are not subordinated to the Galileo Debt and full payment
of
the promissory note, undistributed retained earnings and accrued bonuses
plus
prejudgment interest, stated interest on the note, costs and reasonable
attorneys fees. The plaintiffs are also pursuing a claim for breach of
contract
regarding the preferred stock of Around The World Travel and seeking $450,000
plus interest, costs and reasonable attorneys fees. The plaintiffs are
also
pursuing claims of fraudulent transfer regarding our acquisition of interests
in
the debt and equity of Around The World Travel and seeking unspecified
amounts.
Our counsel filed various motions including a motion to dismiss the complaint
in
its entirety as against us and Malcolm J. Wright due to the failure by
the
plaintiffs to comply with a provision in the underlying document that grants
exclusive jurisdiction to the courts located in Cook County, Illinois.
The
parties are currently in discussions regarding a cessation of the litigation
while the plaintiffs seek relief from unrelated parties.
On
August
10, 2006, Patsy Berman and Berman Mortgage Corporation served a complaint
against Tierra del Sol Resort, Inc., Malcolm Wright, our Chief Executive
Officer
and Chairman, and a non-existent entity, Vantage Circa 39 Condotel Limited
Partnership ("Vantage"), in the 11th Judicial Circuit in and for Miami-Dade
County, Florida. The complaint alleges that Tierra del Sol and Vantage sought
loans, that the plaintiffs offered to make loans, that Mr. Wright guaranteed
the
loans, that valid contracts were formed, and that because such loans did
not
close, the plaintiffs claim $3,550,000 in damages, representing funding fees,
brokerage fees, and interest. We have concluded that the plaintiffs' complaint
is wholly frivolous. We filed a Motion to Dismiss and a Motion for sanctions
against the plaintiffs of the lawsuit, for failure to state a good faith
claim
in law or fact and the court granted the motion to dismiss without prejudice.
Berman filed an amended complaint, and we responded with another motion to
dismiss and motion to strike the request for a jury trial. The motions will
be
heard by the court in May 2007.
Lufthansa
City Center, et al (“LCC”) v. Hickory Travel Systems, Inc. LCC has sued
for Breach of Contract or, alternatively, Breach of a Settlement
Agreement. Hickory and LCC entered an agreement whereby LCC would
exclusively use Hickory’s hotel program and Hickory would pay $110,000 per year
to LCC. LCC did not bring the promised value to the deal.
Additionally, LCC entered an agreement with a competitor for hotel services
prior to termination of the agreement. Hickory vigorously disputes the
allegations in the complaint and intends to counterclaim to recoup the damages
from LCC’s breach of the agreement.
In
the
ordinary course of our business, we may from time to time become subject
to
routine litigation or administrative proceedings, which are incidental to
our
business.
We
are
not aware of any proceeding to which any of our directors, officers, affiliates
or security holders are a party adverse to us or have a material interest
adverse to us.
NOTE
16 - EMPLOYEE BENEFITS
The
Company’s subsidiaries, HTS and ALEC, maintain qualified 401(k) profit sharing
plans covering substantially all of its full time employees who have completed
ninety days of service. Eligible employees may voluntarily contribute a
percentage of their compensation up to established limits imposed by the
Internal Revenue Service. At the discretion of the Board of Directors, the
Company may make a matching contribution equal to a percentage of each
employee’s contribution. There were no matching contributions made for the year
ended December 31, 2006.
NOTE
17 - SELF-INSURED HEALTH INSURANCE
The
Company’s subsidiary, HTS, was partially self-insured for benefits provided
under an employee health insurance plan through Great West Life Insurance
Company through May 2006. Benefits included medical, prescription drug, dental
and group term life insurance. The plan provided for self-insurance up to
$30,000 per employee per year. Accordingly, there exists a contingent liability
for unprocessed claims in excess of those reflected in the accompanying
consolidated financial statements. Since June 2006, HTS has been insured through
a traditional health insurance plan that does not include any self-insured
components.
NOTE
18 - OPERATING SEGMENTS
The
Company has adopted the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". At December 31, 2006, the Company's
four business units have separate management teams and infrastructures that
offer different products and services. The business units have been aggregated
into four reportable segments.
As
noted
in Note 7, Tierra Del Sol, Inc. is planning to construct a 972-unit resort
in
Orlando, Florida on 122 acres of undeveloped land. Development is scheduled
to
commence in the spring of 2006. Presales commenced in February 2004.
Through
June 30, 2006, American Leisure operated a call center where revenues were
recognized upon the completion of the earning process from the completion of
the
travel of the customer, the trip to the properties for the potential purchase,
or the appropriate event based on the agreement with American Leisure's client
as to the ability to be paid for the service.
Travel
Unit ("Travel") provides travel related services.
Travel
Unit ("Travel") provides travel related services. On and effective as of August
1, 2006, the Management Agreement and the License Agreement was
terminated. The net receivable due from AWT of $6,588,579 is composed of
$2,087,168 for cumulative earnings from January 1, 2005 and $4,501,411 for
working capital advances made from ALEC to AWT. These amounts are
individually and unconditionally guaranteed by Jim Tolzien, the President of
AWT, and Keith St. Clair, its controlling owner. Collection of the $6,588,579
receivable is not expected and it has been written-off as of December 31,
2006.
Hospitality
segment is the Boulevard Hotel Property located in Miami Beach, Florida, which
is undergoing remodeling and refurbishing to convert the property into a
condominium and timeshare facility from a hotel.
For
the
year ending December 31, 2006:
|
In
(000’s)
|
|
Real
Estate
|
|
Call
Center *
|
|
Travel
|
|
Hospitality
|
|
Elim.
|
|
Consol.
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
2,071
|
|
$
|
-
|
|
$
|
13,509
|
|
$
|
1,168
|
|
$
|
(2,157
|
)
|
$
|
14,591
|
|
|
Undeveloped
land
|
|
$
|
13,129
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
13,129
|
|
|
Segment
income (loss)
|
|
$
|
(4,228
|
)
|
$
|
-
|
|
$
|
(4,967
|
)
|
$
|
162
|
|
$
|
(1,861
|
)
|
$
|
(10,894
|
)
|
|
Equity
in unconsolidated
affiliate
|
|
$
|
-
|
|
$
|
140
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
140
|
|
|
Gain
from discontinued
operations
|
|
$
|
-
|
|
$
|
2,605
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
2,605
|
|
|
Total
income (loss)
|
|
$
|
(1,240
|
)
|
$
|
(243
|
)
|
$
|
(4,967
|
)
|
$
|
162
|
|
$
|
(1,861
|
)
|
$
|
(8,149
|
)
|
|
Total
Assets
|
|
$
|
109,055
|
|
$
|
-
|
|
$
|
8,154
|
|
$
|
12,742
|
|
$
|
(9,807
|
)
|
$
|
120,144
|
|
|
Capital
Expenditures
|
|
$
|
28
|
|
$
|
-
|
|
$
|
269
|
|
$
|
7
|
|
$
|
(29
|
) |
$
|
275
|
|
|
Depreciation
|
|
$
|
783
|
|
$
|
324
|
|
$
|
328
|
|
$
|
1
|
|
$
|
-
|
|
$
|
1,435
|
|
*
Call
center was sold as of June 30, 2006, results are through June 30,
2006
**
Depreciation is included in cost of operating revenues.
For
the
year ending December 31, 2005 (as restated):
|
In
(000’s)
|
|
Real
Estate
|
|
Call
Center
|
|
Travel
|
|
Hospitality
|
|
Elim.
|
|
Consol.
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
1,851
|
|
$
|
-
|
|
$
|
7,074
|
|
$
|
386
|
|
$
|
(1,563
|
)
|
$
|
7,758
|
|
|
Undeveloped
land
|
|
$
|
12,020
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
12,020
|
|
|
Segment
income (loss)
|
|
$
|
(1,929
|
)
|
$
|
-
|
|
$
|
(466
|
)
|
$
|
-
|
|
$
|
(640
|
)
|
$
|
(3,035
|
)
|
|
Equity
in Unconsolidated
Affiliate
|
|
$
|
-
|
|
$
|
(293
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(293
|
)
|
|
Loss
from discontinued
operations
|
|
$
|
-
|
|
$
|
(758
|
)
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(758
|
)
|
|
Total
income (loss)
|
|
$
|
(1,929
|
)
|
$
|
(1,051
|
)
|
$
|
(466
|
)
|
$
|
-
|
|
$
|
(640
|
)
|
$
|
(4,086
|
)
|
|
Total
Assets
|
|
$
|
94,150
|
|
$
|
2,898
|
|
$
|
12,366
|
|
$
|
11,204
|
|
$
|
(21,152
|
)
|
$
|
99,466
|
|
|
Capital
Expenditures
|
|
$
|
5
|
|
$
|
-
|
|
$
|
171
|
|
$
|
-
|
|
$
|
-
|
|
$
|
176
|
|
|
Depreciation
|
|
$
|
720
|
|
$
|
649
|
|
$
|
311
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,680
|
|
| |
·
|
Depreciation
is included in cost of operating
revenues.
|
The
accounting policies of the reportable segments are the same as those described
in Note 2. The Company evaluates the performance of its operating segments
based
on our net loss.
Note
19 - RELATED PARTY TRANSACTIONS
We
accrue
salaries payable to our Chief Executive Officer, President and Chief Financial
Officer, Malcolm J. Wright. As of December 31, 2006 and 2005, the aggregate
amount of unpaid salaries payable to Mr. Wright was $2,225,000 and $2,700,000.
The Company accrues interest at a rate of 12% compounded annually on the
salaries payable to Mr. Wright. As of December 31, 2006 and 2005, the aggregate
amount of interest accrued on salaries payable to Mr. Wright was $477,000 and
$454,500.
We
accrue
salaries payable to L. William Chiles, the President of Hickory, at $100,000
per
year as for his services. Mr. Chiles also receives paid compensation for his
services from Hickory. As of December 31, 2006 and 2005, the aggregate amount
of
salaries payable to Mr. Chiles was $300,000 and $200,000. The Company accrues
interest at a rate of 12% compounded annually on the salaries payable to Mr.
Chiles beginning in January 2005. As of December 31, 2006 and 2005, the
aggregate amount of interest accrued on salaries payable to Mr. Chiles was
$45,000 and $16,500.
We
pay or
accrue directors' fees to each of our directors in an amount of $18,000 per
year
for their services as directors. During the last two fiscal years the Company
has not paid director fees and accrued $130,500. The balance of fees due to
directors as of December 31, 2006 and 2005 is $260,500 and $135,000.
The
Company entered into an agreement with Mr. Wright and Mr. Chiles whereby the
Company agreed to indemnify Mr. Wright and Mr. Chiles against all losses, costs
or expenses relating to the incursion of or the collection of the Company's
indebtedness against Mr. Wright or Mr. Chiles or their collateral. This
indemnity extends to the cost of legal defense or other such reasonably incurred
expenses charged to or assessed against Mr. Wright or Mr. Chiles. In the event
that Mr. Wright or Mr. Chiles make a personal guarantee for the Company's
benefit in conjunction with any third-party financing, and Mr. Wright or Mr.
Chiles elect to provide such guarantee, then Mr. Wright and/or Mr. Chiles shall
earn a fee for such guarantee equal to three per cent (3%) of the total original
indebtedness and two per cent (2%) of any collateral posted as security. This
fee is to be paid by the issuance of warrants to purchase the Company's common
stock at a fixed strike price of $1.02 per share, when the debt is incurred.
In
July 2005, the Company authorized the issuance of warrants to Mr. Wright and
Mr.
Chiles to purchase 347,860 shares and 168,672 shares, respectively, of our
common stock at an exercise price of $1.02 per share and in December 2005,
the
Company authorized the issuance of warrants to Mr. Wright to purchase 2,008,500
shares of our common stock at an exercise price of $1.02 per share. In January
2006, the Company authorized the issuance of warrants to Malcolm Wright, a
director of the Company and the Company's Chief Executive Officer to purchase
450,000 shares of our common stock at an exercise price of $1.02 per share.
In
December 2006, the Company authorized the issuance of warrants to Mr. Wright
to
purchase 585,000 shares of our common stock at an exercise price of $1.02 per
share. The Company is under a continued obligation to issue warrants at $1.02
to
Mr. Wright for guarantees he may be required to give on the Company's behalf
going forward. The warrants were valued using the Black-Scholes option pricing
model and recorded as deferred financing costs.
The
Company has generally agreed to provide the executive officers of each of its
subsidiaries a bonus of up to 19% of the profits, if any, of the subsidiary
in
which they serve as our executive officers. The bonus will be paid for the
five-year period beginning on the date that the Company enters into such an
agreement with the subsidiary. Pursuant to this general agreement, Malcolm
J.
Wright is entitled to receive up to 19% of the profits of Leisureshare
International Ltd, Leisureshare International Espanola SA, TDSR, American
Leisure Homes, Inc., Advantage Professional Management Group, Inc., and American
Leisure Hospitality Group Inc. and any new company formed for the development
and sale of vacation homes, hospitality management, and vacation ownership
. In
2005, $182,647 was accrued to Malcolm Wright from the profits of Advantage
Professional Management Group, Inc. L. William Chiles is entitled to receive
19%
of the profits of Hickory up to a maximum payment of $2,700,000. Although Mr.
Chiles' bonus is limited, it is not subject to the buy-out by the Company as
discussed below as it will cease as soon as the $2,700,000 amount has been
paid
to him. The executive officers of other the Company's other subsidiaries are
entitled to share a bonus of up to 19% of the profits of the subsidiary in
which
they serve as our executive officers. The Company has the right to buy-out
of
these agreements after a period of five years by issuing such number of shares
of its common stock equal to the product of the average after-tax profits for
the five-year period multiplied by one-third (1/3) of the P/E ratio of the
Company's common stock at the time of the buyout divided by the greater of
the
market price of the Company's common stock or $5.00. The Company has not paid
bonus as of the filing of this report. There were no such accruals in 2006.
Malcolm
J. Wright is the President and 81% majority shareholder of American Leisure
Real
Estate Group, Inc. (ALRG). On November 3, 2003 TDSR, entered into an exclusive
development agreement with ALRG to provide development services for the
development of the Sonesta Orlando Resort. Pursuant to this development
agreement, ALRG is responsible for all development logistics and TDSR is
obligated to reimburse ALRG for all of ALRG's costs and to pay ALRG a
development fee in the amount of 4% of the total costs of the project paid
by
ALRG. During the fiscal years ended December 31, 2006 and 2005, ALRG
administered operations and paid bills in the amount of $23,117,280 and
$8,007,899 and received a fee of 4% (or approximately $980,691 and $320,316)
under the development agreement. Total fees earned amount to $1,387,615 and
$466,561 for the years ended December 31, 2006 and 2005.
Malcolm
J. Wright and members of his family are the majority shareholders of Xpress.
On
November 3, 2003, TDSR entered into an exclusive sales and marketing agreement
with Xpress to sell the units being developed by TDSR. This agreement provides
for a sales fee in the
amount of 3% of the total sales prices received by TDSR plus a marketing fee
of
1.5%. During the period since the contract was entered into and ended December
31, 2006 and 2005 the total sales made by Xpress amounted to approximately
$229,590,043 and $234,413,949. As a result of the sales through December 31,
2006 and 2005, TDSR is obligated to pay Xpress a total sales fee of $6,887,701
and $7,032,418 and a marketing fee of $3,443,851 and $3,516,209. As of December
31, 2006 and 2005, the Company has paid Xpress $6,887,701 and $4,458,269 of
cash. Issued Xpress 120,000 shares of Series A Preferred Stock valued at
$1,200,000 in 2004, and transferred to Xpress a 1913 Mercedes Benz valued at
$500,000 in 2005.
M
J
Wright Productions, Inc., of which Mr. Wright is the President, owns our
Internet domain names.
The
Company and Mr. Wright have agreed to terms in principle of an employment
agreement pursuant to which Mr. Wright will serve as our Chief Executive
Officer. The Company will provide the terms of a definitive employment agreement
in a future filing with the Commission.
In
September 2006, the Company (through its subsidiaries TDS Town Homes (Phase
1),
LLC and TDS Town Homes (Phase 2), LLC) contracted with Resorts Construction,
LLC
to furnish construction administration and management services at the Tierra
Del
Sol Resort property. Resorts Construction, LLC will provide all labor,
materials, equipment and services necessary to construct 540 town homes. Malcolm
Wright, CEO and Director of the Company, owns a 50% membership interest in
Resorts Construction, LLC. The Company was required to pay to Resorts
Construction, LLC $4 million with the execution of the contract as a payment
for
material required to begin construction, which amount shall be credited against
reduction in retainage upon completion of 50% of the work. The contract has
a
lump sum price of $106,283,274 subject to certain increases. In addition,
Resorts Construction, LLC will construct stem wall foundations for the town
homes at the rate of $235.00 per linear foot which is in addition to the lump
sum price of $106,283,274.
In
September 2006, the Company (through its subsidiaries TDS Clubhouse, Inc.;
TDS
Amenities, Inc., and Costa Blanca I Real Estate, LLC) contracted with Resorts
Construction, LLC to furnish construction administration and management services
at the Tierra Del Sol Resort property. Resorts Construction, LLC will provide
all labor, materials, equipment and services necessary to construct the Club
House (Phase i), five Costa Blanca Condominium Buildings (Phase 2) and Water
Park, Sports Bar, Additional Pool, Flow Rider and Other Amenities (Phase 3).
Malcolm Wright, CEO and Director of the Company, owns a 50% membership interest
in Resorts Construction, LLC. The Company was required to pay to Resorts
Construction, LLC a non-refundable $500,000 payment with the execution of the
contract as a payment for commitment and mobilization, which amount shall be
credited against reduction in retainage upon completion of 50% of the work.
The
contract is stated at costs incurred plus 5%.
Through
December 31, 2006, Resorts Construction, LLC has been paid
$8,220,187.
On
December 22, 2006 the Company acquired 100% of South Beach Resorts, LLC (“SBR”)
for $1,120,000 plus 25% participation interest to Stanford International Bank
Limited in the net proceeds realized by SBR upon the disposition of its
Boulevard Hotel property located in Miami Beach, Florida. The $1,120,000 was
provided as a loan from Stanford International Bank Limited to Reedy Creek
Acquisition Corporation. SBR was owned by SBR Holdings, LLC that is owned
equally by Malcolm Wright (CEO, CFO and Director of the Company) and Frederick
Pauzar (COO, President and Director of the Company). At the date of acquisition,
the Boulevard Hotel was encumbered with a mortgage due to LaSalle Bank, National
Association, as Trustee of Marathon Real Estate CDO 2006-1 Grantor Trust,
successor-in-interest to marathon Structured Finance Fund L.P. in the amount
of
$7,498,900 that matured on January 11, 2007. The mortgage has matured and
remains unpaid however, the mortgage is not in default and a forbearance
agreement is in place with LaSalle Bank, National Association, as Trustee of
Marathon Real Estate CDO 2006-1 Grantor Trust, successor-in-interest to marathon
Structured Finance Fund L.P. The Company is actively seeking to replace the
debt
with a new lender. SBR was acquired by Malcolm Wright and Frederick Pauzar
in
July 2005 and the financial statement presentation has been restated to present
SBR as a subsidiary since that acquisition date.
NOTE
20 - SUBSEQUENT EVENTS
Forbearance
Agreement
On
January 11, 2007 the mortgage due from South Beach Resorts LLC (SBR) to LaSalle
Bank, National Association, as Trustee of Marathon Real Estate CDO 2006-1
Grantor Trust, successor-in-interest to marathon Structured Finance Fund L.P.
(Lender) became due and has not been paid. A Forbearance Agreement was executed
with Lender to waive the default until April 11, 2007 provided SBR continues
to
make monthly interest payments on the debt outstanding up to $9,000,000 of
which
$7,498,900 has been drawn as of December 31, 2006 and a principal payment of
$750,000 is made on February 8, 2007. An additional forbearance to July 11,
2007
is allowed provided that an additional $500,000 principal payment is made on
or
before July 3, 2007.
Applebee
Loan and Preferred Stock Issuance
On
January 30, 2007 AMLH entered executed a promissory note with Applebee Holding
Company in the amount of $150,000 at 4% for seven years. As part of the
agreement, 2,840 shares of AMLH Series E Convertible Preferred Stock were issued
bearing a 4% per annum cumulative preferred dividend rate, par value of $.001
and convertible into AMLH common stock at a strike price of $15.00 per
share.
International
Property Investors AG Loan
On
February 9, 2007 South Beach Resorts, LLC (SBR) entered into a 180 day, $750,000
loan agreement at the Wall Street Journal prime rate plus 1% with International
Property Investors AG, a corporation organized under the laws of Liechtenstein,
secured by SBR’s property. The proceeds of the loan were used solely for the
payment of fees owed by SBR to Lender pursuant to the Forbearance Agreement.
Litigation
with E-Traveleaders/Seamless
On
February 9, 2007, the court heard AMLH, ALEC, and Mr. Wright’s motion to dismiss
the various counts of the complaint. The court dismissed with prejudice
the E-Traveleaders/Seamless claims for rescission, constructive trust, and
civil
conspiracy. It dismissed without prejudice the claims for tortuous
interference and priority as against TraveLeaders, and allowed the breach of
contract claims to continue. We believe that with further discovery, the
court will dismiss or grant to AMLH, ALEC, and Mr. Wright summary judgment
on
all remaining or repleaded counts.
Put
Option Extension
On
December 31, 2005, the Company through its subsidiary Tierra Del Sol, Inc.
(“TDS”) acquired the remaining 19% minority interest held by Raster Investments
in TDS for a note payable of $1,432,046 which was paid in August 2006, and
197,000 of American Leisure common stock shares valued at market price on the
date of the transaction or $183,210 and 300,000
warrants with an exercise price at $5.00 per share valued at $233,713 using
the
Black-Scholes option pricing model with the following assumptions: Risk free
rate of 1.5%; volatility
of 157% and no dividends, two 3 bedroom condominium to be built in Phase II
of
the Orlando Resort valued at $630,160 and, post January 2007, Raster can sell
the American Leisure shares to American Leisure for $985,000, which is recorded
as a put liability. The put option is void if AMLH’s stock price is greater than
$5.00 per share for 30 consecutive days in 2007. The Company accounted for
this
acquisition using the purchase method of accounting and allocated the purchase
price to the land held for development. Full ownership gives the Company the
ability to recognize all of the profits on the development of the Orlando Resort
property. The put option was amended to state that the right to exercise the
Put
Option during the six months commencing twelve months after January 1, 2007
and
ending June 30, 2008.
Preferred
Stock Issued
In
March
2007, we issued Anthony Lastumbo 504 shares of our Series E Preferred Stock,
which shares of Preferred Stock we had previously agreed to issue pursuant
to
and in connection with our purchase of the assets of AWT in December 2004.
We
claim an exemption from registration afforded by Section 4(2) of the Securities
Act of 1933, as amended, since the foregoing issuance did not involve a public
offering, the recipients took the securities for investment and not resale
and
we took appropriate measures to restrict transfer. No underwriters or agents
were involved in the foregoing issuance and no underwriting discounts or
commissions were paid by us.
SBR
Holdings, LLC Acquisition
In
February 2007 the Company acquired 100% of SBR Holdings, LLC from Malcolm Wright
(CEO and Director of the Company) and Frederick Pauzar (COO and President and
Director of the Company) for no consideration. SBR Holdings, LLC sold South
Beach Resorts, LLC to the Company in December 2006 (see Note 4 - Acquisitions).
SBR Holdings, LLC’s only asset was its ownership of the membership interest in
South Beach Resorts, LLC. As of February 2007, the Company transferred its
membership interest in South Beach Resorts, LLC to SBR Holdings,
LLC.
SIBL
Credit Agreement
On
March
13, 2007, we entered into a $10,000,000 Credit Agreement with SIBL, whereby
SIBL
agreed to loan us $10,000,000 to use for the construction and development of
Phase II of the Sonesta Resort. The loan was evidenced by a $10,000,000
Promissory Note, which bears interest at the rate of 10% per annum. The
Promissory Note is secured by a second priority security interest and lien
on
the land underlying Phase II of the Sonesta Resort, all buildings, structures
and other improvements on such land, and all fixtures, equipment, goods,
inventory or property owned by us currently or in the future, which security
interests are evidenced by a Mortgage and Security Agreement, which we and
several of our wholly owned subsidiaries entered into with SIBL in connection
with the Credit Agreement. The loan is due in full and payable along with any
accrued and unpaid interest on March 13, 2008. Any amounts not paid when due
under the loan bear interest at the rate of 15% per annum. Through March 27,
2007 $2,950,000 has been drawn from the Credit Agreement.
The
Credit Agreement provides for additional advances to be made to us in an amount
not to exceed $750,000, assuming that certain conditions are met by us in the
future, including (a) that SIBL has received current financial information
regarding our operations (as further described in the Credit Agreement) and
that
we have issued SIBL 26,250 warrants to purchase shares of common stock and
(b)
that we are able to obtain additional loans in an aggregate amount of $750,000
from parties other than SIBL; and an additional loan in an amount not to exceed
$1,500,000, assuming (a) and (b) above and that we have issued additional
warrants (to be determined prior to such additional advance), to
SIBL.
Immediately
upon our execution of the Credit Agreement, we paid SIBL a placement fee of
$200,000, plus SIBL’s reasonable costs and expenses incurred in connection with
the closing of the Credit Agreement.
Resorts
Funding Group, LLC Credit Facility
We
have
received $2,905,000 from Resorts Funding Group, LLC which has been matching
the
funds from the SIBL Credit Agreement (see above) through the end of March
2007.
We
intend
to enter into an agreement with Resorts Funding Group, LLC on similar terms
and
conditions to those of the SIBL Credit Agreement.
ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
8A. CONTROLS AND PROCEDURES.
(a)
Evaluation of disclosure controls and procedures. Our Chief Executive Officer
and Chief Financial Officer, after evaluating the effectiveness of the Company's
"disclosure controls and procedures" (as defined in the Securities Exchange
Act
of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by
this quarterly report (the "Evaluation Date"), have concluded that as of
the
Evaluation Date, our disclosure controls and procedures are effective to
provide
reasonable assurance that information we are required to disclose in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and
Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
However,
because we have not fully integrated and no longer plan to integrate our
administrative operations, we face pressure related to recording, processing,
summarizing and reporting consolidated financial information required to
be
disclosed by us in the reports that we file or submit under the Exchange
Act in
a timely manner as well as accumulating and communicating such information
to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting. There were no changes
in
the Company's internal control over financial reporting during the fiscal
quarter covered by this report that materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
ITEM
8B. OTHER INFORMATION.
None.
PART
III
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH
SECTION 16(A) OF THE EXCHANGE ACT.
OFFICERS
AND DIRECTORS:
Our
executive officers and Directors, and their ages and positions are as
follows:
|
NAME
|
|
AGE
|
|
TITLE
|
| |
|
|
|
|
|
Malcolm
J. Wright
|
|
56
|
|
Chief
Executive Officer and
|
| |
|
|
|
Chairman
of the Board of Directors
|
|
|
|
|
|
|
|
Omar
Jimenez
|
|
45
|
|
Chief
Financial Officer
|
| |
|
|
|
|
|
Frederick
Pauzar
|
|
52
|
|
President,
Chief Operating Officer,
|
| |
|
|
|
and
Director
|
| |
|
|
|
|
|
Michael
Crosbie
|
|
38
|
|
Corporate
General Counsel,
|
| |
|
|
|
Executive
Vice President,
|
| |
|
|
|
and
Secretary
|
| |
|
|
|
|
|
L.
William Chiles
|
|
64
|
|
Director,
Chief Executive Officer,
|
| |
|
|
|
and
Chairman of the Board of
|
| |
|
|
|
Directors
of Hickory Travel Systems, Inc.
|
| |
|
|
|
|
|
James
Leaderer
|
|
53
|
|
Director
|
| |
|
|
|
|
|
Jeffrey
Scott
|
|
50
|
|
President
of Hickory Travel Systems, Inc.
|
BIOGRAPHICAL
INFORMATION OF
CURRENT
OFFICERS AND DIRECTORS
MALCOLM
J. WRIGHT
is the
driving force behind our business model, has served as a member of our Board
of
Directors and as our Chief Executive Officer since June 2002. Mr. Wright
served
as our Secretary from June 2002 until December 28, 2005 and as our President
from June 2002 until March 7, 2006. Since March 7, 2006, Mr. Wright has served
as the Chairman of our Board of Directors. Between June 2002 and March 2007,
Mr.
Wright served as our Chief Financial Officer. Prior to joining us, Mr. Wright
successfully developed vacation properties abroad that are similar to the
ones
planned at The Sonesta Orlando Resort at Tierra Del Sol. Since 1998, Mr.
Wright
served as the President of American Leisure Inc, which we acquired in June
2002.
Mr. Wright currently serves as the President of American Leisure Real Estate
Group, Inc., a real estate development company with which we have contracted
for
the development of the resort, Xpress Ltd., with which we contracted for
the
exclusive sales and marketing for resort, , M J Wright Productions, Inc.,
which
owns our Internet domain names, and Resorts Development Group, LLC, which
engages in real estate development. Mr. Wright is also the President of Osceola
Business Managers, Inc., Innovative Concepts, Inc. Florida World, Inc. and
SunGate Resort Villas, Inc. which do not currently conduct any business
operations. Since 1980, Mr. Wright has spent a considerable amount of time
and
money in establishing a large and effective marketing network in the United
Kingdom and parts of Europe, that has been responsible for the pre-sales
at The
Sonesta Orlando Resort at Tierra Del Sol Mr. Wright was admitted to Associate
Membership of the Institute of Chartered Accountants in England & Wales in
1974 and admitted to Fellowship of the Institute of Chartered Accountants
in
England & Wales in 1978.
Mr.
Wright has devoted substantially all of his time over the past few years
to the
growth and success of the Company. In addition to providing the vision and
strategy for the acquisition and integration of the various subsidiaries,
Mr.
Wright has taken personal responsibility for the welfare of the Company.
Mr.
Wright has also guaranteed certain loan facilities, without which the Company
would be in a decidedly different position. He has put his personal assets
at
stake to advance the interests of the Company. Furthermore, Mr. Wright has
accrued his salary since 2002 in an effort to preserve capital. He has led
the
Company to transactions that have the potential to provide greater shareholder
value.
OMAR
JIMENEZ, has
served as our Chief Financial Officer since March 2007. Mr. Jimenez has served
as the Chief Financial Officer of our wholly owned subsidiary, American Leisure
Equities Corporation since December 2004. From June 2004 until December 2004,
Mr. Jimenez served as a consultant to the Company. From April 2003 until
June
2004, Mr. Jimenez served as the Director of Operations of US Installation
Group,
Inc., which specialized in home improvement installations. From April 2002
until
April 2003, Mr. Jimenez served as Chief Financial Officer of Onyx Group,
which
specialized in finance, real estate, transportation, agriculture and insurance.
From March 1998 to April 2002, Mr. Jimenez served as Chief Financial Officer
of
BCC Financial Management, Inc., which specialized in employee leasing and
accounts receivable management services. From February 1991 until March 1998,
Mr. Jimenez served as Chief Financial Officer of various insurance and finance
companies.
Mr.
Jimenez received a Bachelors degree in Finance and Accounting from the
University of Miami in 1983, and received a Masters of Business Administration
degree from Florida International University in 2002. Mr. Jimenez is a Certified
Public Accountant, Chartered Property and Casualty Underwriter, a Mortgage
Broker, a Member of the American Institute of Certified Public Accountants
and a
Member of the Florida Institute of Certified Public Accountants.
FREDERICK
PAUZAR
has
served as our Director and Chief Operating Officer since September 1, 2005.
Since March 7, 2006, Mr. Pauzar has served as our President. From December
28,
2005 until March 15, 2006, Mr. Pauzar served as our Secretary. Mr. Pauzar
currently serves as Chairman of Group One Productions, Inc., a Florida-based
business and real estate consulting and development firm, and has held this
position since he co-founded the company in 1991. Also, Mr. Pauzar served
as the
Chief Executive Officer until December 2005. From January 1997 to February
2005,
Mr. Pauzar served as Chief Executive Officer of Fugleberg and from February
2005
to December 2005 Mr. Pauzar served as a Director and Vice President. Mr.
Pauzar
received an Associate in Science degree from Excelsior College in Albany,
New
York. Mr. Pauzar serves on the board of the University of Central Florida
Lou
Frey Institute of Politics and Government.
MICHAEL
CROSBIE
has
served as our General Counsel, Executive Vice President, and Secretary since
March 15, 2006. Mr. Crosbie previously served as a Partner with Foley &
Lardner, a national law firm in its Orlando, Florida, office from February
2004
until March 2006. From February 2002 until January 2004, Mr. Crosbie served
as
senior counsel with Foley & Lardner and from September 1998 until January
2002, he served as an associate with Foley & Lardner. Prior to joining Foley
& Lardner, Mr. Crosbie served as a law clerk for United States District
Judge Steven D. Merryday in Tampa, Florida, from June 1997 until August 1998.
From August 1995 until May 1997, he was employed as an associate attorney
with
Rumberger, Kirk & Caldwell, in Orlando, Florida. Mr. Crosbie obtained his
bachelors degree from the University of Central Florida in Political Science
in
1992 and obtained his Juris Doctorate from the University of Florida in 1995.
Mr. Crosbie is a member of The Florida Bar, the Supreme Court of Florida,
the
United States District Court for the Middle District of Florida, the United
States Court of Appeals for the Ninth and Eleventh Circuits and is also a
member
of the Federalist Society.
L.
WILLIAM CHILES
has
served as a member of our board of Directors since June 2002. Mr. Chiles
served
as our Chief Executive Officer from August 2002 to May 2004. Since August
1998,
Mr. Chiles has served as the Chief Executive Officer and President of Hickory
Travel Systems, Inc., which we acquired in October 2003. Mr. Chiles received
a
Masters degree in marketing and finance from the University of Colorado and
a
Bachelors degree in business administration from Colorado State University.
Mr.
Chiles has specialized education in management. He is a Member of the Young
Presidents Organization, the Chicago Presidents Organization and the Minister
ARC Advisory Board.
JAMES
LEADERER
has
served as a member of our board of Directors since May 2002, and served as
our
President, Chief Executive Officer, Treasurer and Secretary from May 2002
to
July 2002. From January 1999 to November 2003, Mr. Leaderer served as the
General Principal of Momentum Securities. Mr. Leaderer received a Bachelor
of
Science degree in engineering from Syracuse University.
JEFFREY
SCOTT
was
appointed as the President of Hickory Travel Systems, Inc. on March 7, 2006.
Mr.
Scott served as General Manager of Thor, Inc, a Cendant company. a travel
services company, from November 2002 until March 2006. From August 2002 until
November 2002, he served as Vice President of Sales and Client Services for
Thor, Inc.
From
June 1990 to March 2001, he served in various positions with Worldspan L.P,
including serving as Director of Customer Operations from April 1996 to March
2001; serving as Manager in the Sales and Marking Department from April 1994
to
April 1996; and serving as a Regional Sales Manager of Zone Manager from
June
1990 until April 1994. Mr. Scott obtained a Bachelor of Science degree in
Management from National Louis University, in Atlanta, Georgia in June
2001.
There
are
no family relationships among our Directors, executive officers or persons
nominated to become Directors or executive officers.
We
are
not aware of the occurrence during the last five years of any events described
in Item 401(d) of Regulation S-B under the Securities Act regarding our
Directors, persons nominated to become Directors, executive officers, or
control
persons.
Term
Of Office
Our
Directors are elected annually and hold office until our next annual meeting
of
the shareholders and until their successors are elected and qualified. Our
officers are appointed by our board of Directors and hold office until they
are
removed by the board or they resign.
Code
of Ethics
The
Company has adopted a code of ethics that applies to the Company's principal
executive officer, principal financial officer, principal accounting officer
or
controller, or persons performing similar functions. The Company will provide
to
any person without charge, upon request, a copy of such code of ethics. Persons
wishing to make such a request should do so in writing to the Secretary at
American Leisure Holdings, Inc., 2460 Sand Lake Road, Orlando, Florida,
32809.
ITEM
10. EXECUTIVE COMPENSATION.
The
following table sets forth information regarding the compensation that we
paid
to our Chief Executive Officer and each of our four other most highly
compensated executive officers during the three years ended December 31,
2006
(Mr. Jimenez was appointed Chief Financial Officer subsequent to the year
ended
December 31, 2006, and his compensation has therefore not been disclosed
below).
We refer to these officers in this report as the named executive
officers.
SUMMARY
COMPENSATION TABLE*
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Securities
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Total
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Other
annual
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Underlying
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Annual
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Name
and
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compensation
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Options/SARs
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Principal
Position
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Year
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($)
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($)
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($)
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($)
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($)
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Malcolm
J. Wright
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2006
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$1,275,000(1)
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$29,280
(2)(3)
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$865,518
(8)
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$2,169,798(4)
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Chief
Executive Officer
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2005
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$560,000(5)
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$182,647(6)
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$29,280
(2)(3)
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$2,256,657
(8)
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$3,028,584
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and
Chairman
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2004
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$545,000(5)
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--
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$29,280
(2)(3)
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$481,015(8)
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$1,055,295
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L.
William Chiles
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2006
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$241,800(9)
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--
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$46,500(2)(13)
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$288,300
(13)
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Director
and the Chief
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2005
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$245,438(10)
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--
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$18,000(2)
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$217,334
(12)
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$480,772
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Executive
Officer of
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2004
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$252,902(11)
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--
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$18,000(2)
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$237,382
(12)
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$588,284(14)
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Hickory
Travel
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Systems,
Inc.
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Michael
Crosbie
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2006(14)
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$165,063
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--
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--
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$110,253(15)
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$275,316
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General
Counsel,
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Executive
Vice
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President,
and Secretary
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Christopher
Dane
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2005(16)
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$108,496
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--
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--
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--
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$108,496
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Former
President
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of
Hickory
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Travel
Systems, Inc.
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Frederick
Pauzar
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2006
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$275,000
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--
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$18,000(2)
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--
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$293,000
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President,
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2005
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$93,333
(17)
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|
--
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$18,000(2)
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$72,029
(18)
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$183,362
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Chief
Operating
|
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Officer,
and Director
|
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Charles
Sieberling
|
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2006
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$125,000
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--
|
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--
|
|
--
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$125,000
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Secretary
of Hickory
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2005
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$128,240
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--
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--
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|
--
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$128,240
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Travel
Systems, Inc
|
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2004
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$131,731
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|
--
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|
--
|
|
--
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$131,731
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Jeffrey
Scott
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2006
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$118,173
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--
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|
--
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$110,253(19)
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$228,426
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President
of Hickory
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Travel
Systems, Inc.
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James
Leaderer
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2006
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$0
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--
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$18,000(2)
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--
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$18,000
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Director
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*Does
not
include perquisites and other personal benefits in amounts less than 10%
of the
total annual salary and other compensation listed for each individual above.
There are no stock option, retirement, pension, or profit sharing plans for
the
benefit of our officers and Directors and no individual listed above received
any restricted stock awards during the periods listed.
(1)
Includes $775,000 which Mr. Wright was paid for prior years services and
$500,000 in salary which was accrued during the year ended December 31,
2006.
(2)
Includes $18,000 accrued per year for each Director for services rendered
to the
Company as member of the Company’s Board of Directors, which amount bears
interest at the rate of 12% per annum, compounded annually until
paid.
(3)
We
pay $940 per month and related expenses to provide Mr. Wright with business
use
of a motor vehicle.
(4)
Includes $202,500 of accrued interest on salary payable to Mr.
Wright.
(5)
Includes $500,000 and $250,000 of accrued salary for Mr. Wright's services
as an
executive officer for 2005 and 2004, respectively, and $60,000 and $45,000
of
accrued interest on salaries payable in 2005 and 2004, respectively, at 12%
per
annum.
(6)
Represents a bonus of $182,647 which was paid to Mr. Wright equal to 19%
of the
total net revenues of the Company's subsidiary, Advantage Professional
Management, Inc. in connection with the terms of Mr. Wright's employment
with
the Company, which have not as of the date of this filing been finalized
in a
written employment agreement. The $182,647 bonus accrued to Mr. Wright during
the year ended December 31, 2005.
(8)
Includes 1,035,000 options granted to Mr. Wright during the year ended December
31, 2006; 2,365,510 options granted to Mr. Wright during the year ended December
31, 2005; and 695,720 options granted to Mr. Wright during the year ended
December 31, 2004 in connection with guarantees Mr. Wright made of debts
which
we owed, which pursuant to the terms of a Debt Guaranty Agreement we previously
entered into with Mr. Wright, provide for him to receive warrants to purchase
3%
of any amount he guarantees on our behalf at an exercise price of $1.02 per
share. The amount listed for the year ended December 31, 2004 also includes
100,000 options to purchase shares of our common stock at an exercise price
of
$1.02 per share, which were granted to him in consideration for services
rendered to the Company as a Director.
(9)
Mr.
Chiles was paid $141,800 in salary for his services to the Company as Chief
Executive Officer of Hickory Travel Systems, Inc. during the year ended December
31, 2006. He also accrued $100,000 of salary for his services to the Company
as
Chief Executive Officer of Hickory Travel Systems, Inc., which accrued salary
bears interest at the rate of 12% per year compounded annually until paid.
Mr.
Chiles is provided a new insured automobile for his use during the term of
his
employment with Hickory, which vehicle shall have an approximate value of
$80,000, and which amount is not included in the total compensation included
above as the value of the use of such vehicle by Mr. Chiles does not exceed
10%
of his salary for any year disclosed above.
(10)
Mr.
Chiles was paid $145,438 in salary for his services to the Company as Chief
Executive Officer of Hickory Travel Systems, Inc. during the year ended December
31, 2005. He also accrued $100,000 of salary for his services to the Company
as
Chief Executive Officer of Hickory Travel Systems, Inc., which accrued salary
bears interest at the rate of 12% per year compounded annually until paid.
(11)
Includes $152,902 of salary paid to Mr. Chiles for his services as an executive
officer of Hickory for 2004,and $100,000 of accrued salary for 2004.
(12)
Represents 168,672 options granted to Mr. Chiles during the year ended December
31, 2006 and 337,000 options granted to Mr. Chiles during the year ended
December 31, 2005, in connection with guarantees Mr. Chiles made of debts
which
we owed, which pursuant to the terms of a Debt Guaranty Agreement we previously
entered into with Mr. Chiles, provide for him to receive warrants to purchase
3%
of any amount he guarantees on our behalf at an exercise price of $1.02 per
share. The amount listed for the year ended December 31, 2004 also includes
100,000 options to purchase shares of our common stock at an exercise price
of
$1.02 per share, which were granted to him in consideration for services
rendered to the Company as the Company’s Director.
(13)
Includes $28,500 of accrued interest on amounts owed to Mr. Chiles.
(14)
Mr.
Crosbie was appointed as our General Counsel, Executive Vice President and
Secretary on March 15, 2006.
(15)
Includes 100,000 options with an exercise price of $1.02 per share, of which
50,000 options vested to Mr. Crosbie upon his appointment as our General
Counsel, Executive Vice President and Secretary on March 15, 2006, and the
remaining 50,000 options vest to Mr. Crosbie on the first and second
anniversaries of his appointment as an officer of the Company, assuming he
is
still employed by the Company at that time.
(16)
Mr.
Dane served as president of Hickory Travel Systems, Inc. from March 1, 2005
until March 1, 2006.
(17)
Mr.
Pauzar was paid $93,333 for his services as the Company's Chief Operating
Officer from September 1, 2005 until December 31, 2005 and for his services
as
the Company's Secretary from December 28, 2005 until December 31, 2005. Mr.
Pauzar did not accrue any salary for the year ended December 31, 2005. Mr.
Pauzar does not have an employment agreement with the Company as of the date
of
this filing.
(18)
Includes 100,000 options with an exercise price of $1.02 per share, of which
50,000 options vested to Mr. Pauzar upon his appointment as President of
the
Company in September 2005, and the remaining 50,000 options vest to Mr. Pauzar
on the first and second
anniversaries of his appointment as President of the Company (of which 25,000
additional options have vested to date on the first anniversary of his
appointment), assuming he is still employed by the Company at that
time.
(19)
Includes 100,000 options with an exercise price
of $1.02 per share, of which 50,000 options vested to Mr. Scott upon his
appointment as President of Hickory on March 2, 2006, and the remaining 50,000
options vest to Mr. Scott on the first and second anniversaries of his
appointment as President of Hickory (of which 25,000 additional options have
vested to date on the first anniversary of his appointment), assuming he
is
still employed by the Hickory at that time.
EMPLOYMENT
AGREEMENTS
Mr.
Wright and we are negotiating an employment agreement pursuant to which Mr.
Wright will serve as our Chief Executive Officer.
Mr.
Pauzar and we are negotiating an employment agreement pursuant to which Mr.
Pauzar will serve as our President and Chief Operating Officer.
Effective
March 15, 2006, we entered into a three year Employment Agreement with Michael
Crosbie to serve as our Executive Vice President, Secretary and General Counsel.
During the term of the employment agreement, Mr. Crosbie will receive a salary
equal to $170,000 per year, subject to yearly increases of no less than 10%
per
year. Pursuant to the Employment Agreement he is also eligible for yearly
bonuses. In connection with Mr. Crosbie’s Employment Agreement, Mr. Crosbie
received 100,000 warrants to purchase shares of our common stock at an exercise
price of $1.02 per share, of which 25,000 warrants vested on March 15, 2006,
and
25,000 warrants will vest to him as of March 15, 2007, 2008 and 2009 (assuming
he is still employed under the Employment Agreement on those dates). Mr.
Crosbie
is also eligible for a vehicle allowance equal to 5% of his annual
salary.
On
May
18, 2004, we entered into a three-year employment agreement with L. William
Chiles to serve as Chairman of our board of Directors and a separate three-year
employment agreement for him to serve as the President and Chief Executive
Officer of Hickory Travel Systems, Inc. ("Hickory"). Mr. Chiles ceased serving
as President of Hickory on March 7, 2006 and ceased serving as the Chairman
of
our board of Directors on March 7, 2006. The agreements provide that Mr.
Chiles
will receive a base salary of $100,000 for his services as our Chairman and
$150,000 for his services as the Chief executive Officer of Hickory. Under
each
agreement, Mr. Chiles is eligible to receive an annual incentive-based bonus
based on his achievement of goals and objectives that he and our board of
Directors agree upon. Mr. Chiles is entitled to one and one-half weeks of
vacation at two times his base salary rate per week per $50,000 of his base
salary for his services as Chairman and $75,000 of his base salary for his
services as Chief Executive Officer of Hickory. Mr. Chiles is also entitled
to
share in the profits of Hickory in an amount not to exceed $2,700,000 over
the
life of his employment agreement with Hickory. Hickory is required to provide
Mr. Chiles with key man life insurance equal to eight times his base salary;
however, neither we nor Hickory have obtained such policy as of the date
of this
report. Hickory is also required to provide Mr. Chiles with one insured
automobile having a value of $80,000 every year of his employment agreement.
If
Mr. Chiles is terminated without cause, under each agreement, he will receive
thirty-six months' base salary and any incentive-based bonus that otherwise
would have been payable to him through the date that we terminate his
employment. We do not have an obligation to pay base salary or incentive-based
bonus to Mr. Chiles under either agreement if he voluntarily terminates his
employment or he is terminated for cause. For purposes of these employment
agreements, "cause" means the following activities:
| |
-
|
Use
of alcohol, narcotics or other controlled substances that prevent
him from
efficiently performing his duties;
|
| |
-
|
Disclosure
of confidential information or competes against us in violation
of the
employment agreements;
|
| |
-
|
Theft,
dishonesty, fraud, or embezzlement from us or a violation of the
duty of
loyalty to us;
|
| |
-
|
If
Mr. Chiles is directed by a regulatory or governmental authority
to
terminate his employment with us or engages in activities that
cause
actions to be taken by regulatory or government authorities, that
have a
material adverse effect on us;
|
| |
-
|
Conviction
of a felony (other than a felony resulting in a traffic violation)
involving any crime of moral turpitude or any crime involving us;
|
| |
-
|
Sexual
harassment or sexually inappropriate behavior;
|
| |
-
|
Materially
disregards duties under the employment agreements;
|
| |
-
|
Egregious
misconduct or pattern of conduct; or
|
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-
|
Entering
into enforceable commitments on our behalf without conforming to
our
policies and procedures or in violation of any of our
directives.
|
COMPENSATION
DISCUSSION AND ANALYSIS
Audit
Committee
We
do not
have an audit committee or an audit committee financial expert. We expect
the
nomination and acceptance of several Directorships in the future. We anticipate
that we will form an audit committee when new members join our board of
Directors, and anticipate that one of them will serve as an independent audit
committee financial expert.
Compensation
Committee
We
do not
have a compensation committee. We expect the nomination and acceptance of
several Directorships in the future. We anticipate that we will form a
compensation committee when new members join our board of
Directors.
Compensation
Of Directors
We
pay or
accrue $18,000 per year for each person who serves on the board of Directors.
During the last two fiscal years we accrued all Directors salaries, which
amount
totaled approximately $260,500 as of December 31, 2006.
In
June
2004, we granted to each of Malcolm J. Wright and L. William Chiles warrants
to
purchase 100,000 shares (or an aggregate of 200,000 shares) of our common
stock
at an exercise price of $1.02 per share for their services. Warrants to purchase
75,000 shares have vested to each of them. Warrants to purchase the remaining
25,000 shares will vest to each of them on their next anniversary dates as
Directors, provided that they are still serving as Directors. They may exercise
the warrants for a period of five years from the dates on which such warrants
vest.
In
September 2005, we granted warrants to purchase 100,000 shares of our common
stock at an exercise price of $1.02 per share to Frederick Pauzar for his
services as a Director. The warrants vested immediately with respect to 25%
of
the shares and will vest with respect to 25% of the shares on the next three
anniversaries of the date on which Mr. Pauzar became a Director, provided
that
Mr. Pauzar is still serving as a Director on such dates.
Executive
Compensation Philosophy
Our
Board
of Directors determines the compensation provided to our executive officers
in
their sole determination. Our executive compensation program is designed
to
attract and retain talented executives to meet our short-term and long-term
business objectives. In doing so, we attempt to align our executives’ interests
with the interests of our shareholders by providing an adequate compensation
package to such executives. This compensation package includes a base salary,
which we believe is competitive with other companies of our relative size.
In
addition, we have previously granted certain options to our executive and
non-executive employees as part of our compensation package, and our Board
of
Directors reserves the right to award incentive bonuses which are linked
to our
performance,
as well as to the individual executive officer’s performance in the future. This
package may also include long-term, stock based compensation to certain
executives which is intended to align the performance of our executives with
our
long-term business strategies.
Base
Salary
The
base
salary of our executive officers, as described in the table and footnotes
above,
was established by evaluating the range of responsibilities of their positions,
as well as the anticipated impact that such individuals could have in meeting
our strategic objectives. The established base salary of each individual
was
then benchmarked to comparable positions within our industry and similarly
sized
companies. Base salaries may be adjusted to reflect the varying levels of
position responsibilities and individual executive performance.
Incentive
Bonus
Along
with our executives’ base salaries, the Board of Directors reserves the right to
give incentive bonuses to our executive officers, which bonuses the Board
of
Directors may grant in its sole discretion, if the Board of Directors believes
such bonuses are in the Company’s best interest, after analyzing our current
business objectives and growth, if any, and the amount of revenue we are
able to
generate each month, which revenue is a direct result of the actions and
ability
of such executives in the sole discretion of the Board of
Directors.
Long-term,
Stock Based Compensation
In
order
to attract, retain and motivate executive talent necessary to support the
Company’s long-term business strategy we may award certain executives with
long-term, stock based compensation in the future, in the sole discretion
of our
Board of Directors, which we do not currently have any immediate plans to
award.
Criteria
for Compensation Levels
The
Company has always sought to attract and retain qualified executives and
employees able to positively contribute to the success of the Company for
the
benefit of its various stakeholders, the most important of which is its
shareholders, but also including its customers, its employees, and the
communities in which the Company operates.
The
Board
of Directors (in establishing compensation levels for the Chief Executive
Officer and President, as well as other executive positions) and the Company
(in
establishing compensation levels for all executive and non-executives of
the
Company) consider many factors, including, but not limited to, the individual’s
abilities and executed performance that results in: the advancement of corporate
goals of the Company, execution of the Company’s business strategies,
contributions to positive financial results, contributions to the Company’s
overall image and reputation in the Company’s
industry, and contributions to the development of the management team and
other
employees. An employee must demonstrate his or her ability to deliver results
in
his or her areas of responsibility, which can include, among other things:
business development with new and existing customers, development of new
products, sales and marketing, efficient management of operations and systems,
implementation of appropriate changes and improvements to operations and
systems, personnel management, financial management, and strategic decision
making. In determining compensation levels, the Board of Directors also
considers: competitiveness of compensation packages relative to other comparable
companies, both inside and outside of the resort construction and travel
services industries, and the experience level of each particular individual.
Compensation
levels for executive officers are generally reviewed upon the expiration
of such
executive’s employment and/or consulting agreements (if any), or annually, but
may be reviewed more often as deemed appropriate by our Board of Directors.
Compensation
Philosophy and Strategy
In
addition to the “Criteria for Compensation Levels” set forth above, the Company
has a “Compensation Philosophy” for all employees of the Company (set forth
below), and a “Compensation Strategy for Key Management Personnel” (set forth
below), a substantial portion of which also applies to all employees of the
Company.
Compensation
Philosophy
The
Company’s compensation philosophy is as follows:
| |
·
|
The
Company believes that compensation is an integral component of
its overall
business and human resource strategies. The Company’s compensation plans
will strive to promote the hiring and retention of personnel necessary
to
execute the Company’s business strategies and achieve its business
objectives.
|
| |
·
|
The
Company’s compensation plans will be strategy-focused, competitive, and
recognize and reward individual and group contributions and results.
The
Company’s compensation plans will strive to promote an alignment of the
interests of employees with the interests of the shareholders by
having a
portion of compensation based on financial results and actions
that will
generate future shareholder value.
|
| |
·
|
In
order to reward financial performance over time, the Company’s
compensation programs generally will consist of: base compensation,
and
may also consist of short-term variable incentives and long-term
variable
incentives, as appropriate.
|
| |
·
|
The
Company’s compensation plans will be administered consistently and fairly
to promote equal opportunities for the Company’s
employees.
|
Compensation
Strategy for Key Management Personnel
The
Company’s compensation strategy for its key management personnel is as follows:
| |
·
|
Total
compensation may include base salary and short-term and long-term
variable
incentives based on annual and long term performance, and long-term
variable incentives, in each case, where
appropriate.
|
| |
·
|
Compensation
will be comparable to general and industry-specific compensation
practices.
|
| |
·
|
Generally,
base compensation, and targeted short and long-term variable compensation,
if any, will be established within the range of compensation of
similarly
situated companies in the Company’s industry. The Company’s organization
size and complexity will be taken into account, and therefore similarly
situated companies include companies of similar size and complexity
whether or not such companies are in the Company’s industry or
not.
|
| |
·
|
When
determining compensation for officers, managers and consultants,
the
Company takes into account the employee’s (and/or consultant’s) knowledge,
experience, past employment history and connections in the industry,
including industry specific knowledge and experience, to the extent
such
knowledge and experience contributes to the Company’s ability to achieve
its business objectives.
|
| |
·
|
The
Company reserves the right to adjust annual base salaries of employees
and/or to award performance based bonuses if individual performance
is at
or above pre-established performance
expectations.
|
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The
following table sets forth information as of March 1, 2007, with respect
to the
beneficial ownership of our common stock by (i) each Director and officer
of the
Company, (ii) all Directors and officers as a group and (iii) each person
known
by the Company to own beneficially 5% or more of our common stock:
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Preferred
|
|
|
|
Total
|
|
Percentage
of
|
|
|
|
Common
|
|
Stock
Voting
|
|
|
|
Voting
|
|
Beneficial
|
|
|
|
Stock(1)
|
|
Rights(1)
|
|
Warrants(1)
|
|
Shares(1)
|
|
Voting
Shares(1)
|
|
Roger
Maddock
|
|
2,447,616(2)
|
|
5,050,000(3)
|
|
513,000(4)
|
|
8,010,616(2)(3)(4)
|
|
48.7%(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malcolm
J. Wright
|
|
1,565,675(6)
|
|
3,900,000(7)
|
|
4,196,230(8)
|
|
9,661,905(6)(7)(8)
|
|
50.9%(9)
|
|
CEO
and Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Omar
Jimenez
|
|
-
|
|
-
|
|
100,000(24)
|
|
100,000(24)
|
|
0.1%
|
|
CFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stanford
Venture
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
845,733(10)
|
|
-
|
|
708,000(11)
|
|
1,553,733(10)(11)
|
|
13.4%(12)
|
|
Holdings,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stanford
|
|
1,560,500(13)
|
|
477,000(14)
|
|
744,000(15)
|
|
2,781,500(13)(14)(15)
|
|
22.2%(16)
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
Bank
Limited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L
William Chiles
|
|
850,000
|
|
-
|
|
606,016(17)
|
|
1,456,016(17)
|
|
12.7%(18)
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Leaderer
|
|
10,000
|
|
-
|
|
|
|
10,000
|
|
0.1%(19)
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frederick
Pauzar
|
|
1,000
|
|
-
|
|
75,000(20)
|
|
75,000(20)
|
|
0.7%(21)
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Crosbie
|
|
-
|
|
-
|
|
75,000(22)
|
|
75,000(22)
|
|
0.7%(23)
|
|
General
Counsel
Executive
Vice President and
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
(All
officers
|
|
2,426,675
|
|
3,900,000(7)
|
|
5,052,246(8)(17)
|
|
11,378,921(6)(7)(8)
|
|
57.3%(25)
|
|
and
Directors
|
|
|
|
|
|
|
|
(20)(22)(17)(20)(22)
|
|
|
|
as
a group six
persons)
|
|
|
|
|
|
|
|
|
|
|
(1)
The
number of shares of common stock owned are those "beneficially owned" as
determined under the rules of the Commission, including any shares of common
stock as to which a person has sole or shared voting or investment power
and any
shares of common stock which the person has the right to acquire within sixty
(60) days through the exercise of any option, warrant or right. As of March
1,
2007, there were 10,877,974 shares of common stock outstanding.
(2)
Includes 2,102,268 shares of common stock owned by Arvimex, Inc., whose
president is Mr. Maddock and 345,348 shares of common stock owned directly
by
Mr. Maddock.
(3)
Includes 30,000 shares of Series A Preferred Stock, which are convertible
into
300,000 shares of common stock, owned directly by Mr. Maddock and 475,000
shares
of Series A Preferred Stock, which are convertible into 4,750,000 shares
of
common stock held by Arvimex, Inc., whose president is Mr. Maddock.
(4)
Includes 270,000 warrants to purchase shares of the Company's common stock
which
were granted to Avirmex, Inc., whose president is Mr. Maddock, in January,
2004
and 243,000 warrants to purchase shares of the Company's common stock at
$1.02
per share, which warrants were issued to Mr. Maddock in connection with his
guaranty of the Company's $8,100,000 credit facility from Stanford International
Bank, Ltd.
(5)
Using
16,440,974 shares outstanding, which assumes the conversion of Mr. Maddock's
5,050,000 shares of Series A Preferred Stock and the exercise of all 513,000
warrants which he beneficially owns.
(6)
Includes 845,733 shares of common stock held individually by Mr. Wright and
719,942 shares held by Xpress, Ltd. ("Xpress"), of which Mr. Wright serves
as
president.
(7)
Includes 55,000 shares of Series A Preferred Stock which are convertible
into
550,000 shares of the common stock, which are owned individually by Mr. Wright
and 335,000 shares of Series A Preferred Stock owned directly by Xpress,
which
Mr. Wright is the president of, which are convertible into 3,350,000 shares
of
common stock. Mr. Wright has pledged 845,733 shares of common stock to Stanford
as collateral for an aggregate of $6,000,000 of financing that Stanford has
provided to us. Mr. Wright disclaims beneficial
ownership of 302,000 shares of common stock owned directly by James Hay
Trustees, Ltd. as Mr. Wright does not have voting or investment power over
these
shares, which the trust is holding for the benefit of Mr. Wright's
pension.
(8)
Includes 4,196,230 warrants to purchase shares of the Company's common stock
at
$1.02 per share.
(9)
Using
18,974,204 shares of common stock outstanding, assuming the conversion of
Mr.
Wright's 390,000 shares of Series A Preferred Stock and the exercise of all
4,196,230 warrants held by Mr. Wright.
(10)
Includes 845,733 shares of common stock pledged by Mr. Wright, see footnote
(7)
above. However, this amount does not include the shares of common stock directly
owned by four Stanford employees or shares issuable upon exercise of the
warrants owned by such employees, as there are no contracts, agreements or
understandings pursuant to which Stanford has or shares voting power, which
includes the power to vote, or direct the voting of, or investment power,
which
includes the power to dispose or direct the disposition of, in connection
with
the shares held by the Stanford employees.
(11)
Includes 708,000 warrants to purchase shares of the Company's common stock
at
$5.00 per share.
(12)
Using 11,585,974 shares of common stock outstanding, which amount assumes
the
exercise by Stanford of all 708,000 warrants which it holds.
(13)
Includes 1,125,000 shares of common stock held by Stanford International
Bank,
Ltd., and an aggregate of $4,355,000 in convertible promissory notes convertible
into shares of common stock at $10 per share, which are convertible into
an
aggregate of 435,500 shares of common stock at the option of Stanford
International Bank, Ltd.
(14)
Includes 23,850 shares of Series C Preferred Stock held by Stanford
International Bank, Ltd., which are convertible into 477,000 shares of common
stock.
(15)
Includes warrants to purchase 231,000 shares of the Company's common stock
at
$0.001 per share and warrants to purchase 154,000 shares of the Company's
common
stock at $5.00 per share.
(16)
Using 12,099,044 shares outstanding, which amount includes the conversion
of all
23,850 shares of Series C Preferred Stock held by Stanford International
Bank,
Ltd., and the exercise of warrants to purchase 744,000 shares which Stanford
International Bank, Ltd. holds.
(17)
Includes 606,026 warrants held by Mr. Chiles, 437,374 of which have an exercise
price of $1.02 per share and 168,672 of which have an exercise price of $2.96
per share.
(18)
Using 11,483,990 shares of common stock outstanding, which amount assumes
the
exercise by Mr. Chiles of all 606,016 warrants which he holds to purchase
shares
of the Company's common stock.
(19)
Using 10,877,974 shares of common stock outstanding as of March 1,
2007.
(20)
Includes 75,000 warrants to purchase shares of the Company's common stock
at
$1.02 per share.
(21)
Using 10,952,974 shares of common stock outstanding, which amount assumes
the
exercise by Mr. Pauzar of all 75,000 warrants which he holds to purchase
shares
of the Company's common stock.
(22)
Includes 75,000 warrants to purchase shares of the Company's common stock
at
$1.02 per share.
(23)
Using 10,952,974 shares of common stock outstanding, which amount assumes
the
exercise by Mr. Crosbie of all 75,000 warrants which he holds to purchase
shares
of the Company's common stock.
(24)
Mr.
Jimenez was granted 100,000 warrants to purchase shares of our common stock
in
December 2006, which warrants vested immediately.
(25)
Using 19,730,220 shares of common stock outstanding, which amount assumes
the
exercise by the officers and Directors of all shares of Preferred Stock which
they hold, as described in footnote (7) and the exercise of all warrants
to
purchase shares of the Company's common stock held by the officers and
Directors, as described in footnotes (8),(15),(17)(20) and (22).
Change
in Control
We
are
unaware of any arrangement or understanding that may, at a subsequent date,
result in a change of control of our Company.
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We
believe that all prior related party transactions have been entered into
upon
terms no less favorable to us than those that could be obtained from
unaffiliated third parties. Our reasonable belief of fair value is based
upon
proximate similar transactions with third parties or attempts to obtain the
services from third parties, if such transaction would be available from
third
parties. All past, ongoing and future transactions with such persons, including
any loans from or compensation to such persons, have been or will in the
future
be approved by a majority of disinterested members of the Board of
Directors.
We
accrue
$500,000 per year as salary payable to Malcolm J. Wright, our Chief Executive
Officer. Prior to 2004, we accrued $250,000 per year as salary payable to
Mr.
Wright. We accrue interest at a rate of 12% compounded annually on the salary
owed to Mr. Wright. As of December 31, 2006, the aggregate amount of salary
payable and accrued interest owed to Mr. Wright was $2,225,000. We also accrue
$100,000 per year as salary payable to L. William Chiles, a Director of the
Company and the President of Hickory, for his services, and interest at a
rate
of 12% compounded annually beginning in 2005. As of December 31, 2006, the
aggregate amount of salary payable to Mr. Chiles was $300,000.
We
pay or
accrue Directors' fees to each of our Directors in an amount of $18,000 per
year
for their services as Directors. During the last three fiscal years, we have
accrued approximately $260,500 in Directors’ fees, which amount has not been
paid to date.
We
may
provide the executive officers of each of our subsidiaries an aggregate bonus
of
up to 19% of the pre-tax profits, if any, of the subsidiaries in which they
serve as executive officers. Malcolm J. Wright will receive 19% of the pre-tax
profits of Leisureshare International Ltd, Leisureshare International Espanola
SA, American Leisure Homes, Inc., APMG, TDSR, and American Leisure Hospitality
Group, Inc. We do not have any agreements with our officers regarding the
bonus
other than with L. William Chiles. Mr. Chiles is entitled to receive 19%
of the
profits of Hickory up to a maximum payment over the life of his contract
of
$2,700,000. As Mr. Chiles' bonus is limited, it is not subject to the buy-out
by
us (discussed below) as it will cease as soon as the $2,700,000 amount has
been
paid to him. The executive officers of our other subsidiaries would share
a
bonus of up to 19% of the pre-tax
profits of the subsidiary in which they serve as executive officers. We would
retain the right, but not have the obligation
to buy-out all of the above agreements after a period of five years by issuing
such number of shares of our common stock equal to the product of 19% of
the
average after-tax profits for the five-year period multiplied by one-third
of
the price to earnings ratio of our common stock at the time of the buyout
divided by the greater of the market price of our common stock or $5.00.
We have
not paid or accrued any bonus as of the filing of this report. While the
terms
of Mr. Wright's bonus agreement have been agreed to, such terms have not
been
memorialized in a formal agreement as of the date of this
filing.
Since
the
reverse merger in July of 2002, we have relied almost exclusively upon Malcolm
J. Wright for the experience and energy required to cultivate opportunities
for
us in vacation real estate development. We have accrued salary and other
compensation to Mr. Wright up to this point. Therefore, we have entered into
agreements with entities owned or controlled by Mr. Wright to secure advancement
of our real estate development projects.
Malcolm
J. Wright is the President and 81% majority shareholder of American Leisure
Real
Estate Group, Inc. ("ALREG"). We do not own any interest in ALREG. On November
3, 2003, we entered into an exclusive development agreement with American
Leisure Real Estate Group to provide development services for the development
of
The Sonesta Orlando Resort at Tierra Del Sol. Pursuant to this development
agreement, it is responsible for all development logistics and we are obligated
to reimburse it for all of its costs and to pay it a development fee in the
amount of 4% of the total costs of the project paid by it. As of December
31,
2006, it had administered operations and paid bills in the amount of $23,117,280
and accrued a fee of 4% (or approximately $980,691) under the development
agreement.
Mr.
Wright is also an officer and shareholder of, M J Wright Productions, Inc.,
which owns our Internet domain names, Resorts Development Group, LLC which
develops resort properties in Orlando including Bella Citta, Los Jardines
Del
Sol, The Preserve, Tortuga Cay and Sherberth Development LLC, Resorts
Construction, LLC with whom we intend to contract to construct part of the
Sonesta Resort as described above, Titan Manufacturing, LLC with whom we
intend
to purchase roof tiles for our developments, Malcolm J. Wright and members
of
his family are the majority shareholders of Xpress Ltd., a company that has
experience marketing vacation homes in Europe. On November 3, 2003, we entered
into an exclusive sales and marketing agreement with Xpress to sell the units
in
The Sonesta Orlando Resort at Tierra Del Sol being developed by us. This
agreement provides for a sales fee in the amount of 3% of the total sales
prices
received by us plus a marketing fee of 1.5%. Pursuant to the terms of the
agreement, one-half of the sales fee is payable upon entering into a sales
contract (with deposits paid as required by the sales contract) for a unit
in
the resort and the other half is due upon closing the sale. For the fiscal
year
ended December 31, 2006, the total sales made by Xpress amounted to
approximately $229,590,043. As a result of the sales, we were obligated to
pay
Xpress a total sales fee of $6,887,701, which has been paid to date and a
marketing fee of $3,443,851, which has not been paid to date. As of December
31,
2006, we had paid Xpress $6,887,701 of cash, issued Xpress 120,000 shares
of
Series A Preferred Stock
valued at $1,200,000, and transferred to Xpress a 1913 Benz automobile valued
at
$500,000 in connection with sales fees.
In
February 2004, Malcolm J. Wright, individually and on behalf of Xpress, and
Roger Maddock, individually and on behalf of Arvimex, Inc., entered into
contracts with us to purchase an aggregate of 32 town homes for $13,356,800.
Mr.
Wright and Mr. Maddock paid an aggregate deposit of $2,327,360 and were given
a
10% discount that we otherwise would have had to pay as a commission to a
third-party real estate broker. Roger Maddock is directly (and indirectly
through Arvimex) the beneficial owner of more than 5% of our common
stock.
In
November 2003, Malcolm Wright, our Chief Executive Officer and Chairman,
Gillian
Wright our former Director, and our subsidiary, American Leisure, Inc., sold
82.5% of the ownership interests of American Vacation Resorts, Inc. ("AVR"),
a
vacation club to our current President and Director, Frederick Pauzar, in
consideration for an aggregate of $1,500,000 in promissory notes, pursuant
to
the terms of a Stock Purchase Agreement. In April 2004, pursuant to an amendment
to the stock purchase agreement, the parties agreed to substitute seventeen
(17)
vacation properties located in Kissimmee, Florida, as consideration for the
purchase of the interests of AVR, in place of the payment of $1,500,000 in
promissory notes.
In
June
2004, we granted warrants to each of Malcolm J. Wright and L. William Chiles
for
their services as Directors to purchase 100,000 shares (or an aggregate of
200,000 shares) of our common stock at an exercise price of $1.02 per share.
Warrants to purchase 75,000 shares have vested to each of them. Warrants
to
purchase the remaining 25,000 shares will vest to each of them on the next
anniversary date of each of their terms as a Director, provided they are
then
serving in said capacity. While the terms of these warrants have been agreed
to,
they have not been memorialized in a formal agreement as of the date of this
filing.
On
February 1, 2005, Gillian Wright resigned as one of our Directors.
M
J
Wright Productions, Inc., of which Mr. Wright is the President, owns our
Internet domain names.
Mr.
Wright and we are negotiating an employment agreement pursuant to which Mr.
Wright will serve as our Chief Executive Officer. We will provide the terms
of
the employment agreement when it is finalized. In June 2005, we entered into
an
indemnification agreement with Mr. Wright.
In
March
2005, we closed on the sale of 13.5 acres of commercial property in Davenport,
Polk County, Florida at the corner of U.S. Hwy. 27 and Sand Mine Road. The
property was sold for $4,020,000. We paid-off secured debt on the property
of
$1,300,000 plus accrued interest and other costs. We used the net proceeds
for
working capital and to pay $1,948,411 of notes payable to related parties
attributable to the acquisition and retention of the property. Profits on
the
sale of this property amounted to approximately $968,000.
Thomas
Cornish has previously served as a member of our advisory board, which we
no
longer have. He is the President of the Seitlin Insurance Company. Our board
of
Directors has authorized Seitlin to place a competitive bid to provide insurance
for The Sonesta Orlando Resort at Tierra del Sol. During 2004 and 2005, Mr.
Cornish provided services on our advisory board in consideration for $1,500
and
$3,000, respectively. David Levine has served as a member of our advisory
board,
which we no longer have. He provided services on our advisory board during
2004
and 2005 in consideration for $3,000 and $1,500, respectively. We reimbursed
Mr.
Levine for travel expenses in the amount of $1,613 and $8,521 during 2004
and
2005, respectively. Charles J. Fernandez, a member of our advisory board
provided services on our advisory board during 2005 for which he was paid
$3,000. We authorized warrants to each of Thomas Cornish, Charles J. Fernandez
and David Levine to purchase 100,000 shares (or an aggregate of 300,000 shares)
of our common stock at an exercise price of $1.02 per share in consideration
for
their services as advisors. The warrants vested immediately with respect
to the
purchase of 50,000 shares by each of them. Warrants to purchase the remaining
50,000 shares will vest to by each of them in equal amounts on their next
two
anniversary dates as advisors. While the terms of these warrant agreements
have
been agreed to, they have not been memorialized in a formal agreement as
of the
date of this filing. We previously announced Messrs Cornish, Levine and
Fernandez as Director nominees, however we currently have no present intention
for such individuals to serve on our Board of Directors.
In
June
2005, Arvimex, Inc., which is controlled by our significant shareholder,
Roger
Maddock, exercised warrants to purchase 160,000 shares of our common stock
at
$0.001 per share, for aggregate consideration of $160.
In
July
2005, we issued 171 shares of Series E preferred stock to The Martin Topolsky
Trust in exchange for an equity interest in Around The World Travel Holdings,
Inc., consisting of 13,500 shares of its Series A preferred stock and 21,687
shares of its common stock.
On
July
1, 2005, we granted warrants to L. William Chiles, a Director, to purchase
168,672 shares of our common stock at an exercise price of $1.02 per share
and
warrants to Malcolm J. Wright, our Chief Executive Officer and Chairman,
to
purchase 347,860 shares of our common stock at an exercise price of $1.02
per
share. We issued the warrants to Mr. Chiles and Mr. Wright as consideration
for
them renewing their personal guarantees regarding the loan with Grand Bank
&
Trust of Florida in connection with our renewal of that loan.
South
Beach Resorts, LLC, contracted with one of the Company's subsidiaries Wright
Resort Villas & Hotels, Inc. to receive hotel management services for a
hotel which it owns and is redeveloping. Mr. Pauzar, Mr. Wright and Mr. Maddock
controlled the membership interests of the limited liability company SBR
Holdings, LLC which owns and controls South Beach Resorts, LLC.
On
December 28, 2005 we granted warrants to Malcolm J. Wright, our Chief Executive
Officer and Chairman, to purchase 2,008,500 shares of our common stock at
an
exercise price of $1.02 per share. We issued the warrants to Mr. Wright as
consideration for his personal guarantee regarding the construction and land
loans with KeyBank, N.A. While the terms of these warrants have been agreed
to,
they have not been memorialized in a formal agreement as of the date of this
filing.
In
December 2005, in connection with the Stanford Credit Facility, the Company
granted SIBL and its designees warrants to purchase 308,000 shares of the
Company's common stock at an exercise price of $5.00 per share and warrants
to
purchase 154,000 shares of the Company's common stock at an exercise price
of
$0.001 per share, which warrants expire five years from their grant date.
(The
Stanford Credit Facility and warrants are described in greater detail
above).
In
December 2005 in connection with their guaranty of the Stanford Credit Facility
pursuant to the Irrevocable and Unconditional Guaranty, the Company agreed
to
issue an aggregate of 405,000 warrants to purchase shares of the Company's
common stock to certain third party entities. The warrants have an exercise
price of $1.02 and expire 5 years from the expiration date of the third parties
guaranties. (the Stanford Credit Facility and Irrevocable and Unconditional
Guaranty are described in greater detail above). While the terms of these
warrants have been agreed to, they have not been memorialized in a formal
agreement as of the date of this filing.
On
January 9, 2006, with an effective date of June 14, 2002, the Company entered
into an Amended Debt Guarantor Agreement ("Amended Debt Agreement") with
Malcolm
J. Wright, its Chief Executive Officer and Chairman and L. William Chiles,
a Director of the Company (collectively, Mr. Wright and Mr. Chiles are referred
to herein as the "Guarantors"). Pursuant to the Amended Debt Agreement, the
Company and the Guarantors agreed to amend the terms of the prior Debt Guarantor
Agreement entered into between the parties. The original Debt Guarantor
Agreement provided for the Guarantors to receive warrants to purchase shares
of
the Company's common stock at $2.96 per share in an amount equal to 3% of
any
Company indebtedness that they personally guarantee. The Amended Debt Agreement
decreased the exercise price of the warrants to be issued in connection with
any
of the Guarantor's guarantees to $1.02 per share (the "Guarantor Warrants").
Under the Amended Debt Agreement, the warrants issued to the Guarantors are
exercisable until five years after the date the Guarantor is no longer obligated
to personally guarantee such Company indebtedness. Additionally, under the
Amended Debt Agreement, the fee which the Guarantors receive for a pledge
of
personally owned collateral to secure Company indebtedness was increased
from 1%
of such total indebtedness guaranteed (as was provided under the original
Debt
Guarantor Agreement), to 2% of the total amount of indebtedness guaranteed.
The
2% fee is paid to the Guarantors in Guarantor Warrants with the same terms
and
conditions as provided above.
Mr.
Wright pledged to Stanford 845,733 shares of our common stock which he
holds.
Stanford is currently in possession of the shares of our common stock that
Mr.
Wright pledged; however, Mr. Wright retained the power to vote (or to direct
the
voting) and the power to dispose (or direct the disposition) of those shares.
Mr. Chiles had personally guaranteed $2,000,000 of the $6,000,000 received
from
Stanford and pledged to Stanford 850,000 shares of our common stock held
by Mr.
Chiles. Stanford released Mr. Chiles from the personal guarantee and released
his common stock from the pledge when we closed the $6,000,000 credit facility.
Mr. Wright and Mr. Chiles have each also given a personal guarantee regarding
a
loan in the principal amount of $6,000,000 that was made to Tierra Del
Sol
Resort Inc. by Grand Bank & Trust of Florida. We have authorized the grant
of warrants to Mr. Wright and Mr. Chiles to purchase 695,720 shares and
337,344
shares, respectively, of our common stock at an exercise price of $1.02
per
share. We are under a continuing obligation to issue warrants at $1.02
to
Messrs. Wright and Chiles for guarantees that they may be required to give
on
our behalf going forward.
In
January 2006, in connection with the SIBL Reedy Creek Loan, the Company granted
SIBL warrants to purchase 154,000 shares of the Company's common stock at
an
exercise price of $5.00 per share and warrants to purchase 77,000 shares
of the
Company's common stock at an exercise price of $0.001 per share, which warrants
expire five years from their grant date.
In
January 2006, in connection with the SIBL Reedy Creek Loan, the Company granted
warrants to four separate affiliates of SIBL entitling them to purchase an
aggregate of 154,000 shares of the Company's common stock at an exercise
price
of $5.00 per share and 77,000 shares at an exercise price of $.001 per share.
The warrants have a term of five years and are immediately
exercisable.
In
January 2006, in connection with Mr. Wright's guarantee of the Amended Note,
the
Company agreed to grant Mr. Wright warrants to purchase 240,000 shares of
the
Company's common stock at an exercise price of $1.02 per share. The warrants
are
being granted pursuant to an existing agreement between the Company and Mr.
Wright and expire 5 years from the expiration date of the guarantees. In
addition, the Company has agreed to register the shares underlying the warrants
granted to Mr. Wright on its next registration statement. While the terms
of
these warrants have been agreed to, they have not been memorialized in a
formal
agreement as of the date of this filing.
In
March
2006, in connection with Mr. Crosbie's appointment as Executive Vice President,
General Counsel and Secretary of the Company, Mr. Crosbie was granted 100,000
warrants to purchase shares of the Company's common stock at an exercise
price
of $1.02 per share. One half of the warrants, or 50,000 vested on March 15,
2006, with the remaining warrants vesting 25,000 at a time on March 15, 2007
and
March 15, 2008, assuming he is still employed by the Company on those dates.
In
March
2006, we appointed Jeffrey Scott as President of Hickory. In connection with
Mr.
Scott's appointment, we agreed to grant him warrants to purchase 100,000
shares
of the Company's common stock. The warrants have an exercise price of $5.00
per
share. One half, or 50,000 of Mr. Scott's warrants vested on March 2, 2006,
with
the remaining 50,000 warrants vesting as follows, 25,000 warrants on March
2,
2007 and the remaining 25,000
warrants on March 2, 2008, assuming Mr. Scott is still employed by the Company
on those dates. While the terms of these warrants have been agreed to, they
have
not been memorialized in a formal agreement as of the date of this
filing.
In
March
2006, with an effective date of December 30, 2005, we purchased the minority
interest of our now wholly owned subsidiary, Tierra Del Sol, Inc. (the "Minority
Interest") from Harborage Leasing Corporation ("Harborage"). The purchase
price
of the Minority Interest from Harborage was a promissory note for $1,411,705
("Harborage Note"); the right to receive, without payment, two (2) three-bedroom
condominium units to be constructed in Phase 2 of the Tierra Del Sol Resort,
or
in the event title to both such units is not delivered by December 31, 2007,
then, in lieu thereof, payment of $500,000.00 for each such unit that is
not
transferred by such date; 197,000 shares of the Company's common stock; and
warrants to acquire 300,000 additional shares of the Company's common stock
at a
price of $5.00 per share. The Harborage Note is guaranteed by Malcolm J.
Wright,
the Company's Chief Executive Officer and Chairman, for which he received
a
guaranty fee equal to three percent (3%) of the amount guaranteed. The Company
paid this fee through the grant of 102,321 warrants to purchase shares of
the
Company's common stock at an exercise price of $1.02 per share. These warrants
will expire 5 years from the expiration date of the guaranty. While the terms
of
these warrants have been agreed to, they have not been memorialized in a
formal
agreement as of the date of this filing.
In
September 2006, the Company (through its subsidiaries TDS Town Homes (Phase
1),
LLC and TDS Town Homes (Phase 2), LLC) contracted with Resorts Construction,
LLC
to furnish construction administration and management services at the Tierra
Del
Sol Resort property. Resorts Construction, LLC will provide all labor,
materials, equipment and services necessary to construct 508 townhomes. Malcolm
Wright, CEO and Director of the Company, owns a 50% membership interest in
Resorts Construction, LLC. The Company was required to pay to Resorts
Construction, LLC $4 million in connection with the execution of the contract
as
a payment for material required to begin construction. The contract has a
lump
sum price of $106,283,274, subject to certain price increases. In addition,
Resorts Construction, LLC will construct stem wall foundations for the townhomes
at the rate of $235.00 per linear foot which is in addition to the lump sum
price of $106,283,274.
In
September 2006, the Company (through its subsidiaries TDS Clubhouse, Inc.;
TDS
Amenities, Inc., and Costa Blanca I Real Estate, LLC) contracted with Resorts
Construction, LLC to furnish construction administration and management services
at the Tierra Del Sol Resort property. Resorts Construction, LLC will provide
all labor, materials, equipment and services necessary to construct the Club
House (Phase i), five Costa Blanca Condominium Buildings (Phase 2) and Water
Park, Sports Bar, Additional Pool, Flow Rider and Other Amenities (Phase
3).
Malcolm Wright, CEO and Director of the Company, owns a 50% membership interest
in Resorts Construction, LLC. The Company was required to pay to Resorts
Construction, LLC a non-refundable $500,000 payment with the execution of
the
contract as a payment for commitment and mobilization. The contract is stated
at
costs incurred plus 5%.
Through
December 31, 2006, Resorts Construction, LLC has been paid a total of $8,220,187
under the two contracts described above.
On
December 22, 2006 the Company acquired 100% of South Beach Resorts, LLC (“SBR”)
and SBR Holdings, LLC for $1,120,000 plus a 25% participation interest granted
to Stanford International Bank Limited in the net proceeds realized by SBR
upon
the disposition of its Boulevard Hotel property located in Miami Beach, Florida.
The $1,120,000 was provided as a loan from Stanford International Bank Limited
to Reedy Creek Acquisition Corporation. SBR was owned by SBR Holdings, LLC
which
was owned equally by Malcolm Wright (CEO, CFO and Director of the Company)
and
Frederick Pauzar (COO, President and Director of the Company). At the date
of
acquisition, the Boulevard Hotel was encumbered with a mortgage due to LaSalle
Bank, National Association, as Trustee of Marathon Real Estate CDO 2006-1
Grantor Trust, successor-in-interest to Marathon Structured Finance Fund
L.P. in
the amount of $7,498,900 that matured on January 11, 2007. The mortgage has
matured and remains unpaid however, the mortgage is not in default and a
forbearance agreement is in place with LaSalle Bank, National Association,
as
Trustee of Marathon Real Estate CDO 2006-1 Grantor Trust, successor-in-interest
to Marathon Structured Finance Fund L.P.. The Company is actively seeking
to
replace the debt with a new lender. SBR was acquired from Malcolm Wright
and
Frederick Pauzar in July 2005 and the financial statement presentation has
been
restated to present SBR as a subsidiary since that acquisition
date.
We
also
entered into a note with Roger Maddock, a significant shareholder of us,
to
evidence $3,590,811 in loans and advances Mr. Maddock had previously made
to
Resorts (the "Maddock Note"), the payment of which was guaranteed by us pursuant
to a Guaranty Agreement.
In
August
2006, we entered into a Purchase Agreement with SIBL, whereby we agreed to
purchase a $750,000 promissory note from SIBL, which note was originally
received by SIBL from Scott Roix, an individual, in connection with SIBL's
sale
of its interest in Vici Marketing Group, LLC ("Vici" and the "Vici Note")
to Mr.
Roix, and which Note bears interest at the rate of 8% per annum, payable
on June
30, 2008. In consideration for the purchase of the Vici Note, we agreed to
issue
SIBL 235,000 shares of our common stock and a five year warrant to purchase
235,000 shares of our common stock at an exercise price of $20 per share
(the
"Vici Warrant"). We also granted SIBL demand registration rights in connection
with the registration of the shares underlying the Vici Warrant. The balance
of
the Vici Note as of December 31, 2006 was $500,000.
In
August
2006, we entered into an Employment Agreement with Jason Williams, who agreed
to
serve as our Associate General Counsel and Assistant Secretary for a period
of
two years, which Employment Agreement shall terminate on August 21, 2008,
unless
terminated earlier pursuant to the agreement.
On
November 22, 2006, we entered into a Credit Agreement with Reedy Creek
Acquisition Company, LLC ("RCAC") and Stanford International Bank Limited
("SIBL"), to provide RCAC, our wholly owned subsidiary, a $4,300,000 credit
facility (the "RC Credit Agreement"). SIBL had previously loaned RCAC $7,150,000
on July 8, 2005 and $850,000 on January 5, 2006, which loans were evidenced
by a
Renewed, Amended and Increased Promissory Note in the amount of $8,000,000,
which we had guaranteed. In connection with the RC Credit Agreement, the
Renewed, Amended and Increased Promissory Note was replaced by a Second
Renewed,
Amended and Increased Promissory Note in the amount of $12,200,000 (the
"RC
Note"), which was replaced by a Third Renewed, Amended and Increased Promissory
Note in the amount of $13,420,000, which was replaced by a Fourth Renewed,
Amended and Increased Promissory Note in the amount of $15,300,000 (the
"Amended
RC Note"). The Amended RC Note provides that the principal amount of $8,000,000,
the initial indebtedness, together with all accrued and unpaid interest
under
the original note shall bear interest at the rate of eight percent per
annum and
shall be due and payable on June 30, 2007. The Amended RC Note provides
that the
principal amount of $7,300,000, future advance indebtedness, together with
all
accrued and unpaid interest on the future advance indebtedness shall bear
interest at the rate of twelve percent per annum and shall be due and payable
on
June 30, 2007. Malcolm J. Wright, our Chairman and Chief Executive Officer
personally guaranteed the repayment of the RC Note. Mr. Wright received
129,000
warrants to purchase shares of our common stock at an exercise price of
$1.02
per share in connection with his guaranty of the RC Credit Agreement, equal
to
three percent (3%) of to the total indebtedness of the RC Credit
Agreement.
We
entered into a Second Mortgage Modification Agreement and Future Advance
Certificate with SIBL in connection with our entry into the RC Credit Agreement,
which provided SIBL a mortgage over certain real property owned by us in
Osceola
County, Florida, to secure the repayment of the RC Note.
On
December 18, 2006, we entered into "Amendment No. 1 to the $4.3 Million Credit
Agreement" the ("Amended RC Credit Agreement") with SIBL and RCAC, which
amended
the terms of the RC Credit Agreement, to increase the loan amount under such
agreement from $4,300,000 to $5,420,000, to include an advance of $1,120,000
which was received on December 18, 2006 to cover the placement of an appeal
bond
by us and related expenses paid by us on behalf of South Beach Resorts, LLC
("Resorts," which we purchased pursuant to the Purchase Agreement, described
and
defined below) in connection with Resorts' purchase of the Boulevard Hotel
(described below) from a company which was then in Chapter 11 bankruptcy,
and a
subsequent dispute regarding such purchase. The Amended RC Credit Agreement
also
amended and restated the RC Note in the amount of $13,420,000, evidenced
by a
"Third Renewed, Amended and Increased Promissory Note" (the "Amended RC Note"),
to include the increased Amended RC Credit Agreement amount and provided
for
Malcolm J. Wright, our Chief Executive Officer and Chairman to provide a
restated Guaranty to SIBL to include the amended loan amount. Mr. Wright
received 33,600 warrants to purchase shares of our common stock at an exercise
price of $1.02 per share in connection with his guaranty of Amended RC Credit
Agreement, equal to three percent (3%) of the total indebtedness of the
increased amount of the RC Credit Agreement.
We
also
entered into a Third Mortgage Modification Agreement and Future Advance
Certificate in connection with the increased RC Loan, which increased SIBL's
mortgage on certain of our property in Osceola County, Florida to secure
the
Amended RC Loan.
On
January 31, 2007, we entered into we entered into "Amendment No. 2 to the
$4.3
Million Credit Agreement" the ("Second Amended RC Credit Agreement") with
SIBL
and RCAC, which amended the terms of the Amended RC Credit Agreement, to
increase the loan amount under such agreement from $5,420,000 to $7,300,000,
to
include an advance of $1,880,000. The Second Amended RC Credit Agreement
also
amended and restated the RC Note in the amount of $15,300,000, evidenced
by a
"Fourth Renewed, Amended and Increased Promissory Note" (the "Amended RC
Note"),
to include the increased Second Amended RC Credit Agreement amount and provided
for Malcolm J. Wright, our Chief Executive Officer and Chairman to provide
a
restated Guaranty to SIBL to include the amended loan amount. Mr. Wright
received 56,400 warrants to purchase shares of our common stock at an exercise
price of $1.02 per share in connection with his guaranty of Amended RC Credit
Agreement, equal to three percent (3%) of the total indebtedness of the
increased amount of the RC Credit Agreement.
On
November 22, 2006, we entered into a Credit Agreement with Stanford Venture
Capital Holdings, Inc. ("Stanford"), Tierra Del Sol Resort (Phase 2), Ltd.,
Costa Blanca II Real Estate, LLC, Costa Blanca III Real Estate, LLC, TDS
Town
Homes (Phase 2) LLC and TDS Clubhouse, Inc. (the "TDSR Credit Agreement")
to
provide $6,200,000 of capital for (1) the repayment of the RC Credit Agreement,
which was later amended to include the repayment of the increased amount
of the
Amended RC Credit Agreement in connection with the Amended TDSR Credit Agreement
(described below), (2) construction of the pool complex at the Tierra del
Sol
Phase One project, (3) furniture, fixtures and equipment, and (4) various
other
expenses. Any amounts borrowed under the TDSR Credit Agreement bear interest
at
the rate of 12% per annum, and any amounts not paid when due will bear interest
at the rate of 15% per annum. Any amounts borrowed under the TDSR Credit
Agreement are due and payable on June 30, 2007.
On
Janaury 31, 2007, we entered into "Amendment No. 2 to $6.2 Million Credit
Agreement" (the "Second Amended TDSR Credit Agreement") to amend the TDSR
Credit
Agreement to reflect the Second Amended RC Credit Agreement amount, which
is to
be repaid with any funds received in connection with the exercise of the
Second
Amended TDSR Credit Agreement.
The
Second Amended TDSR Credit Agreement is not effective until we substitute
a
portion of Tierra Del Sol Resorts, Inc. as collateral for future advances
under
the Second Amended TDSR Credit Agreement, and as such, we have not borrowed
any
funds pursuant to the Second Amended TDSR Credit Agreement to date. We
anticipate the funds received from the Second Amended TDSR Credit Agreement,
if
such agreement is funded to be used to repay the Second Amended RC Credit
Agreement.
We
paid
Stanford a placement fee of $186,000 (or 3% of the TDSR Credit Agreement
amount)
as a placement fee upon our execution of the TDSR Credit Agreement. Malcolm
J.
Wright has agreed to guarantee the repayment of a $6,200,000 promissory note,
which we plan to provide Stanford to evidence the amount borrowed under the
TDSR
Credit Agreement, assuming we choose to move forward with such credit facility.
In
connection with SIBL's agreeing to enter into the Amended RC Credit Agreement,
we entered into a Warrant Participation Agreement with SIBL, Resorts, Malcolm
J.
Wright and Frederick Pauzar (the "Participation Agreement"), whereby we agreed
to grant SIBL and six (6) of its assigns the right to a 25% participation
interest (the "Participation Interest") in the Net Proceeds (as defined below)
realized by us upon the disposition of the real property located at 740 Ocean
Drive, Miami Beach, Florida, known as the Boulevard Hotel (the "Property"),
for
aggregate consideration of $1.00 per warrant (collectively, the "Warrant").
"Net
Proceeds" is defined as the proceeds realized upon the disposition or
refinancing of the Property, less our cost basis in the Property, excluding
any
operating losses or operating profits. In the event the Property is not sold
by
us by December 22, 2009, we agreed to appoint SIBL as true and lawful proxy
of
us in connection with the engagement of a real estate broker and the subsequent
sale of the Property. Mr. Wright and Mr. Pauzar are jointly and severally
liable
for our obligations under the Participation Agreement, however they are not
receiving any warrants in connection with such guaranties.
With
an
effective date of December 31, 2006, we entered into a Note Modification
Agreement (the “Modification Agreement”) with SIBL, various of our subsidiaries
and Malcolm J. Wright, our Chief Executive Officer and Chairman. The
Modification Agreement extended the due date of our $3,000,000 note with
SIBL to
January 1, 2008; the due date of our $1,355,000 note with SIBL to January
1,
2008, and the due date of our $305,000 note with SIBL to January 1, 2008.
The
Modification Agreement also provided that no payments shall be required to
be
made prior to January 1, 2008, on the notes discussed above. Interest payments
were previously being made by the Company.
In
February 2007, we acquired 100% of SBR Holdings, LLC from Malcolm J. Wright,
our
Chief Executive Officer and Chairman, and Frederick Pauzar, our President
and a
Director of the Company, for no consideration. SBR Holdings, LLC sold South
Beach Resorts, LLC to the Company in December 2006. SBR Holdings, LLC’s only
asset was its ownership of the membership interest in South Beach Resorts,
LLC.
As of February 2007, the Company transferred its membership interest in South
Beach Resorts, LLC to SBR Holdings, LLC.
In
March,
2007, Malcolm J. Wright resigned as Chief Financial Officer of the Company
and
Omar Jimenez was appointed as Chief Financial Officer to fill the vacancy
left
by Mr. Wright’s departure as Chief Financial Officer.
On
March
13, 2007, we entered into a $10,000,000 Credit Agreement with SIBL, whereby
SIBL
agreed to loan us $10,000,000 to use for the construction and development
of
Phase II of the Sonesta Resort. The loan was evidenced by a $10,000,000
Promissory Note, which bears interest at the rate of 10% per annum. The
Promissory Note is secured by a second priority security interest and lien
on
the land underlying Phase II of the Sonesta Resort, all buildings, structures
and other improvements on such land, and all fixtures,
equipment, goods, inventory or property owned by us currently or in the future,
which security interests are evidenced by a Mortgage and Security Agreement,
which we and several of our wholly owned subsidiaries entered into with SIBL
in
connection with the Credit Agreement. The loan is due in full and payable
along
with any accrued and unpaid interest on March 13, 2008. Any amounts not paid
when due under the loan bear interest at the rate of 15% per
annum.
The
Credit Agreement provides for additional advances to be made to us in an
amount
not to exceed $750,000, assuming that certain conditions are met by us in
the
future, including (a) that SIBL has received current financial information
regarding our operations (as further described in the Credit Agreement) and
that
we have issued SIBL 26,250 warrants to purchase shares of common stock and
(b)
that we are able to obtain additional loans in an aggregate amount of $750,000
from parties other than SIBL; and an additional loan in an amount not to
exceed
$1,500,000, assuming (a) and (b) above and that we have issued additional
warrants (to be determined prior to such additional advance), to
SIBL.
Immediately
upon our execution of the Credit Agreement, we paid SIBL a placement fee
of
$200,000, plus SIBL’s reasonable costs and expenses incurred
in connection with the closing of the Credit Agreement.
Resorts
Funding Group, LLC Credit Facility
We
have
received $2,905,000 from Resorts Funding Group, LLC which has been matching
the
funds from the SIBL Credit Agreement (see above) through the end of March
2007.
We
intend
to enter into an agreement with Resorts Funding Group, LLC on similar terms
and
conditions to those of the SIBL Credit Agreement.
ITEM
13. EXHIBITS
The
exhibits listed below are filed as part of this annual report.
| |
|
|
|
Exhibit
No.
|
|
Description
of Exhibit
|
| |
|
|
|
2.1
(1)
|
|
Stock
Purchase Agreement
|
| |
|
|
|
3.1
(2)
|
|
Articles
of Incorporation
|
| |
|
|
|
3.2
(3)
|
|
Amended
and Restated Articles of Incorporation filed July 24,
2002
|
| |
|
|
|
3.3
(3)
|
|
Certificate
of Amendment of Amended and Restated Articles of Incorporation
filed July
24, 2002
|
| |
|
|
|
3.4
(3)
|
|
Amended
and Restated Bylaws
|
| |
|
|
|
4.1
(3)
|
|
Certificate
of Designation of Series A Convertible Preferred Stock
|
| |
|
|
|
4.2
(5)
|
|
Certificate
of Designation of Series B Convertible Preferred Stock
|
| |
|
|
|
4.3
(5)
|
|
Certificate
of Designation of Series C Convertible Preferred Stock
|
| |
|
|
|
4.4
(10)
|
|
Amended
and Restated Certificate of Designation of Series C Convertible
Preferred
Stock
|
| |
|
|
|
4.5
(20)
|
|
Corrected
Certificate of Designation of Series E Convertible Preferred Stock,
which
replaces the Form of Certificate of Designation of Series E Convertible
Preferred Stock, filed as Exhibit 1 to the Registrant's Form 8-K
on April
12, 2004
|
| |
|
|
|
4.6
(18)
|
|
Certificate
of Designation of Series F Convertible Preferred Stock, which replaces
the
Form of Certificate of Designation of Series F Convertible Preferred
Stock, filed as Exhibit 3.1 to the Registrant's Form 8-K on January
6,
2005
|
| |
|
|
|
10.1
(3)
|
|
Stock
Option Agreement with L. William Chiles Regarding Hickory Travel
Systems,
Inc.
|
| |
|
|
|
10.2
(5)
|
|
Securities
Purchase Agreement with Stanford Venture Capital Holdings, Inc.
dated
January 29, 2003
|
| |
|
|
|
10.3
(5)
|
|
Registration
Rights Agreement with Stanford dated January 29,
2003
|
|
10.4
(5)
|
|
Securities
Purchase Agreement with Charles Ganz dated January 29,
2003
|
| |
|
|
|
10.5
(5)
|
|
Asset
Sale Agreement with Charles Ganz dated January 29, 2003
|
| |
|
|
|
10.6
(5)
|
|
Registration
Rights Agreement with Charles Ganz dated January 29,
2003
|
| |
|
|
|
10.7
(5)
|
|
Securities
Purchase Agreement with Ted Gershon dated January 29,
2003
|
| |
|
|
|
10.8
(5)
|
|
Asset
Sale Agreement with Ted Gershon dated January 29, 2003
|
| |
|
|
|
10.9
(5)
|
|
Registration
Rights Agreement with Ted Gershon dated January 29,
2003
|
| |
|
|
|
10.10(6)
|
|
Confirmation
of Effective Date and Closing Date of $6,000,000 Line of
Credit
|
| |
|
|
|
10.11(6)
|
|
Credit
Agreement with Stanford for $6,000,000 Line of Credit
|
| |
|
|
|
10.12(6)
|
|
First
Amendment to Credit Agreement with Stanford for $6,000,000 Line
of
Credit
|
| |
|
|
|
10.13(6)
|
|
Mortgage
Modification and Restatement Agreement between Tierra Del Sol Resort
Inc.,
formerly Sunstone Golf Resort, Inc., formerly Sunstone Golf Resort,
Inc.
("TDSR")
|
| |
|
|
|
10.14(6)
|
|
Registration
Rights Agreement with Stanford dated December 18, 2003
|
| |
|
|
|
10.15(6)
|
|
Florida
Mortgage and Security Agreement securing the $6,000,000 Line of
Credit
|
| |
|
|
|
10.16(6)
|
|
Second
Florida Mortgage and Security Agreement securing the $6,000,000
Line of
Credit
|
| |
|
|
|
10.17(6)
|
|
Security
Agreement by Caribbean Leisure Marketing Limited and American Leisure
Marketing and Technology Inc. dated December 18, 2003, securing
the
$6,000,000 Line of Credit
|
| |
|
|
|
10.18(6)
|
|
Warrants
issued to Daniel T. Bogar to purchase 168,750 shares at $2.96 per
share
|
|
10.19(7)
|
|
Warrants
issued to Arvimex, Inc. to purchase 120,000 shares at $0.001 per
share
|
| |
|
|
|
10.20(7)
|
|
Warrant
Purchase Agreement with Stanford to purchase 600,000 shares at
$0.001 per
share and 1,350,000 shares at $2.96 per share
|
| |
|
|
|
10.21(7)
|
|
Warrants
issued to Arvimex to purchase 270,000 shares at $2.96 per
share
|
| |
|
|
|
10.22(10)
|
|
Credit
Agreement with Stanford for $1,000,000 Credit Facility
|
| |
|
|
|
10.23(10)
|
|
Credit
Agreement with Stanford for $3,000,000 Credit Facility
|
| |
|
|
|
10.24(10)
|
|
Instrument
of Warrant Repricing to purchase 1,350,000 shares at $0.001 per
share
|
| |
|
|
|
10.25(10)
|
|
Warrant
Purchase Agreement with Stanford to purchase 500,000 shares at
$5.00 per
share
|
| |
|
|
|
10.26(10)
|
|
Registration
Rights Agreement with Stanford dated June 17, 2004
|
| |
|
|
|
10.27(8)
|
|
Agreement
and First Amendment to Agreement to Purchase Galileo Notes with
GCD
Acquisition Corp. ("GCD"), dated March 19, 2004 and March 29, 2004,
respectively
|
| |
|
|
|
10.28(8)
|
|
Assignment
Agreement for Security for Galileo Notes
|
| |
|
|
|
10.29(18)
|
|
Bridge
Loan Note for $6,000,000 issued by Around The World Travel, Inc.
in favor
of Galileo International, LLC and acquired by the
Registrant
|
| |
|
|
|
10.30(18)
|
|
Third
Amended and Restated Acquisition Loan Note for $6,000,000 issued
by Around
The World Travel, Inc. in favor of Galileo International, LLC and
acquired
by the Registrant
|
| |
|
|
|
10.31(18)
|
|
Amended
and Restated Initial Loan Note for $7,200,000 issued by Around
The World
Travel in favor of Galileo and acquired by the
Registrant
|
| |
|
|
|
10.32(18)
|
|
Promissory
Note for $5,000,000 issued by Around The World Travel, Inc. in
favor of
CNG Hotels, Ltd. and assumed by the Registrant
|
| |
|
|
|
10.33(18)
|
|
Promissory
Note for $2,515,000 issued by TDSR in favor of Arvimex and Allonge
dated
January 31, 2000
|
|
10.34(18)
|
|
Registration
Rights Agreement with Arvimex dated January 23, 2004
|
| |
|
|
|
10.35(13)
|
|
Development
Agreement between TDSR and American Leisure Real Estate Group,
Inc.
|
| |
|
|
|
10.36(14)
|
|
Exclusive
Sales and Marketing Agreement between TDSR and Xpress
Ltd.
|
| |
|
|
|
10.37(15)
|
|
Asset
Purchase Agreement with Around The World Travel, Inc. for
TraveLeaders
|
| |
|
|
|
10.38(16)
|
|
Operating
Agreement between American Leisure Hospitality Group, Inc. and
Sonesta
Orlando, Inc., dated January 29, 2005
|
| |
|
|
|
10.39(17)
|
|
Second
Re-Instatement and Second Amendment to Contract of Advantage Professional
Management Group, Inc. to sell unimproved land in Davenport, Florida
to
Thirteen Davenport, LLC
|
| |
|
|
|
10.40(17)
|
|
Purchase
Agreement between Advantage Professional Management Group, Inc.
and
Paradise Development Group, Inc. to sell part of unimproved land
in
Davenport, Florida
|
| |
|
|
|
10.41(17)
|
|
First
Amendment to Purchase Agreement between Advantage Professional
Management
Group, Inc. and Paradise Development Group, Inc. to sell part of
unimproved land in Davenport, Florida
|
| |
|
|
|
10.42(17)
|
|
Assignment
of Purchase Agreement, as amended, to Thirteen Davenport, LLC to
sell part
of unimproved land in Davenport, Florida
|
| |
|
|
|
10.43(20)
|
|
Note
and Mortgage Modification Agreement dated May 12, 2005, regarding
a
Promissory Note in the original amount of $985,000 dated January
31, 2000,
issued by TDSR in favor of Raster Investments, Inc. and a Mortgage
in
favor of Raster Investments, Inc.
|
| |
|
|
|
10.44(20)
|
|
First
Amendment to Asset Purchase Agreement with Around The World Travel,
Inc.
for TraveLeaders dated March 31, 2005
|
| |
|
|
|
10.45(21)
|
|
Management
Agreement with Around The World Travel, Inc. dated January 1,
2005
|
| |
|
|
|
10.46(21)
|
|
License
Agreement with Around The World Travel, Inc. dated January 1,
2005
|
| |
|
|
|
10.47(21)
|
|
Agreement
with Shadmore Trust U/A/D dated April 1, 2004 to acquire common
stock,
preferred stock and indebtedness of AWT
|
| |
|
|
|
10.48(21)
|
|
Promissory
Note for $1,698,340 issued by the Registrant in favor of Shadmore
Trust
U/A/D and dated April 1, 2004
|
| |
|
|
|
10.49(21)
|
|
Stock
Purchase Agreement dated April 12, 2004 to acquire preferred stock
of
Around The World Travel, Inc.
|
| |
|
|
|
10.50(21)
|
|
Additional
$1.25M issued by the Registrant in favor of Stanford and dated
November
15, 2004.
|
| |
|
|
|
10.51(21)
|
|
Third
Amendment to Credit Agreement with Stanford for $1,000,000 and
Second
Additional Stock Pledge Agreement dated December 13,
2004
|
| |
|
|
|
10.52(21)
|
|
Second
Renewal Promissory Note for $1,355,000 issued by the Registrant
in favor
of Stanford and dated December 13, 2004
|
| |
|
|
|
10.53(21)
|
|
Agreement
dated March 17, 2005, to Terminate Right of First Refusal Agreement
and
Amend Registration Rights Agreement with Stanford
|
| |
|
|
|
10.54(22)
|
|
Warrant
Agreement and Warrants to Malcolm J. Wright to purchase 100,000
shares at
$1.02 per share
|
| |
|
|
|
10.55(22)
|
|
Warrant
Agreement and Warrants to L. William Chiles to purchase 100,000
shares at
$1.02 per share
|
| |
|
|
|
10.56(22)
|
|
Warrant
Agreement and Warrants to T. Gene Prescott to purchase 100,000
shares at
$1.02 per share
|
| |
|
|
|
10.57(22)
|
|
Warrant
Agreement and Warrants to Charles J. Fernandez to purchase 100,000
shares
at $1.02 per share
|
| |
|
|
|
10.58(22)
|
|
Warrant
Agreement and Warrant to Steven Parker to purchase 200,000 shares
at $1.02
per share
|
| |
|
|
|
10.59(22)
|
|
Warrant
Agreement and Warrants to Toni Pallatto to purchase 25,000 shares
at $1.02
per share
|
| |
|
|
|
10.60(21)
|
|
Employment
Agreement, as amended, between L. William Chiles and Hickory Travel
Systems, Inc.
|
|
10.61(21)
|
|
Employment
Agreement between L. William Chiles and the Registrant
|
| |
|
|
|
10.62(21)
|
|
First
Amendment to $3 Million Credit Agreement
|
| |
|
|
|
10.63(21)
|
|
Instrument
of Warrant Repricing to purchase 100,000 shares at $0.001 per
share
|
| |
|
|
|
10.60(23)
|
|
Commitment
Letter with KeyBank National Association for $96,000,000 for Phase
I
|
| |
|
|
|
10.61(23)
|
|
Commitment
Letter with KeyBank National Association for $14,850,000 for Phase
II
|
| |
|
|
|
10.62(24)
|
|
Re-Stated
Promissory Note for $6,356,740 issued in favor of Around The World
Travel,
Inc. dated June 30, 2005.
|
| |
|
|
|
10.63(26)
|
|
Commitment
Letter with KeyBank National Association for $96,000,000 for Phase
I
|
| |
|
|
|
10.63(27)
|
|
Commitment
Letter with KeyBank National Association for $14,850,000 for Phase
II
|
| |
|
|
|
10.64(27)
|
|
Commitment
Letter with KeyBank National Association for up to $72,550,000,
with a
maximum principal balance of $40,000,000 for Phase 1 dated December
1,
2005
|
| |
|
|
|
10.65(27)
|
|
Commitment
Letter with KeyBank National Association for up to $14,850,000
for Phase 2
dated December 1, 2005
|
| |
|
|
|
10.66(28)
|
|
Construction
Loan Agreement with KeyBank National Association for $40,000,000
for Phase
1 dated December 29, 2005
|
| |
|
|
|
10.67(28)
|
|
Promissory
Note with KeyBank National Association for $40,000,000
|
| |
|
|
|
10.68(28)
|
|
Loan
Agreement with KeyBank National Association for $14,850,000 for
Phase 2
dated December 29, 2005
|
| |
|
|
|
10.69(28)
|
|
Promissory
Note with KeyBank National Association for $14,850,000
|
| |
|
|
|
10.70(28)
|
|
Promissory
Note for $4,000,000 issued by TDS Management, LLC in favor of PCL
Construction Enterprises, Inc.
|
|
10.71(28)
|
|
Guaranty
by the Registrant of the $4,000,000 Promissory Note to PCL Construction
Enterprises, Inc.
|
| |
|
|
|
10.72(28)
|
|
Guaranty
of Malcolm J. Wright guaranteeing the $4,000,000 Promissory Note
to PCL
Construction Enterprises, Inc.
|
| |
|
|
|
10.73(28)
|
|
Addendum
to Construction Loan Agreement Condominium and Townhouse Project
Development
|
| |
|
|
|
10.74(28)
|
|
Payment
Guaranty Phase 1
|
| |
|
|
|
10.75(28)
|
|
Payment
Guaranty Phase 2
|
| |
|
|
|
10.76(28)
|
|
Amended
Debt Guarantor Agreement
|
| |
|
|
|
10.77(28)
|
|
Guaranty
of Tierra Del Sol (Phase 1), Ltd. guaranteeing the $4,000,000 Promissory
Note to PCL Construction Enterprises, Inc. (exhibit
10.7)
|
| |
|
|
|
10.78(28)
|
|
Performance
and Completion Guaranty
|
| |
|
|
|
10.79(28)
|
|
Pledge
and Security Agreement
|
| |
|
|
|
10.80(29)
|
|
Option
Exercise Agreement with Stanford Financial Group
Company
|
| |
|
|
|
10.81(29)
|
|
Assignment
of Interest in Reedy Creek Acquisition Company, LLC
|
| |
|
|
|
10.82(30)
|
|
Registration
Rights Agreement with SIBL dated January 4, 2006
|
| |
|
|
|
10.4(30)
|
|
Credit
Agreement with SIBL
|
| |
|
|
|
10.83(29)
|
|
$7,000,000
Promissory Note with Bankers Credit Corporation
|
| |
|
|
|
10.7(29)
|
|
Modification
and Reaffirmation of Guaranty and Environmental Indemnity
Agreement
|
| |
|
|
|
10.84(29)
|
|
Renewed,
Amended and Increased Promissory Note
|
| |
|
|
|
10.85(30)
|
|
Stanford
International Bank, Ltd. Warrant for 77,000 shares at $0.001 per
share
|
| |
|
|
|
10.86(30)
|
|
Stanford
International Bank, Ltd. Warrant for 154,000 shares at $5.00 per
share
|
|
10.87(29)
|
|
Irrevocable
and Unconditional Guaranty
|
| |
|
|
|
10.88(30)
|
|
Registration
Rights Agreement with SIBL dated December 28, 2005
|
| |
|
|
|
10.89(29)
|
|
SIBL
$2.1 million note
|
| |
|
|
|
10.90(30)
|
|
Partnership
Interest Pledge and Security Agreement and Collateral Assignment
(Phase
1)
|
| |
|
|
|
10.91(30)
|
|
Partnership
Interest Pledge and Security Agreement and Collateral Assignment
(Phase
2)
|
| |
|
|
|
10.92(30)
|
|
SIBL
Warrant Agreement for 2% Phase 1 interest
|
| |
|
|
|
10.93(30)
|
|
SIBL
Warrant Agreement for 2% Phase 2 interest
|
| |
|
|
|
10.94(29)
|
|
Stanford
International Bank, Ltd. Warrant for 154,000 at $0.001 per
share
|
| |
|
|
|
10.95(29)
|
|
Stanford
International Bank, Ltd. Warrant for 308,000 at $5.00 per
share
|
| |
|
|
|
10.96(31)
|
|
Original
Purchase Agreement
|
| |
|
|
|
10.97(32)
|
|
First
Amendment to Asset Purchase Agreement
|
| |
|
|
|
10.98(33)
|
|
Settlement
Agreement effective as of December 31, 2005 by and among American
Leisure
Holdings, Inc., American Leisure Equities Corporation and Around
The World
Travel, Inc.
|
| |
|
|
|
10.99(34)
|
|
Stock
Purchase Agreement between Harborage Leasing Corporation and the
Company
|
| |
|
|
|
10.100(34)
|
|
$1,411,705
Promissory Note payable to Harborage Leasing
Corporation
|
| |
|
|
|
10.101(34)
|
|
Malcolm
J. Wright Guaranty Agreement regarding $1,411,705 Promissory Note
with
Harborage Leasing Corporation
|
| |
|
|
|
10.102(34)
|
|
Harborage
Leasing Corporation warrant to purchase 300,000 shares of common
stock at
$5.00 per share
|
| |
|
|
|
10.103(35)
|
|
Third
Party Debt Guarantor Agreement
|
| |
|
|
|
10.104(35)
|
|
Note
Modification Agreement with SIBL
|
| |
|
|
|
10.105(35)
|
|
Stock
Purchase Agreement with SIBL for the purchase of our Antigua call
center
operations
|
| |
|
|
|
10.106(35)
|
|
Warrant
Agreement with SIBL for the purchase of up to 355,000 shares of
common
stock at the exercise price of $10.00 per share
|
| |
|
|
|
10.107(36)
|
|
Purchase
Agreement between Scott Roix, American Leisure Holdings, Inc. and
Stanford
International Bank Limited
|
| |
|
|
|
10.108(36)
|
|
Warrant
Agreement for the Purchase of 235,000 shares of common stock at
an
exercise price of $20.00 per share granted to Stanford International
Bank
Limited
|
| |
|
|
|
10.109(37)(ii)
|
|
Credit
Agreement - $4,300,000 credit facility
|
| |
|
|
|
10.110(37)
|
|
Second
Renewed, Amended and Increased Promissory Note issued by Reedy
Creek
Development Company, LLC
|
| |
|
|
|
10.111(37)
|
|
Second
Mortgage Modification Agreement and Future Advance Certificate
|
| |
|
|
|
10.112(37)
|
|
Modification
and Reaffirmation of Guaranty and Environmental Indemnity Agreement
(November 2006)
|
| |
|
|
|
10.113(37)(ii)
|
|
Amendment
No. 1 to $4.3 Million Credit Agreement
|
| |
|
|
|
10.114(37)
|
|
Third
Renewed, Amended and Increased Promissory Note issued by Reedy
Creek
Development Company, LLC
|
| |
|
|
|
10.115(37)
|
|
Modification
and Reaffirmation of Guaranty and Environmental Indemnity Agreement
(December 2006)
|
| |
|
|
|
10.116(37)
|
|
Third
Mortgage Modification Agreement and Future Advance
Certificate
|
| |
|
|
|
10.117(37)(iii)
|
|
Credit
Agreement - $6,200,000 credit facility
|
| |
|
|
|
10.118(37)(iii)
|
|
Amendment
No. 1 to $6.2 Million Credit Agreement
|
| |
|
|
|
10.119(37)
|
|
Purchase
Agreement (South Beach Resorts, LLC)
|
| |
|
|
|
10.120(37)
|
|
Assignment
of Interests in South Beach Resorts, LLC
|
| |
|
|
|
10.121(37)
|
|
Promissory
Note payable to Roger Maddock
|
|
10.122(37)
|
|
Guaranty
Agreement in connection with Maddock Promissory Note
|
| |
|
|
|
10.123(37)(ii)
|
|
Warrant
and Participation Agreement
|
| |
|
|
|
10.124(37)(iv)
|
|
Form
of Warrant
|
| |
|
|
|
10.125(37)
|
|
Promissory
Note (South Beach Resorts, LLC)
|
| |
|
|
|
10.126*
|
|
Amendment
No.1 to $13,420,000 Renewed, Amended and Increased Promissory Note
with
(Reedy Creek Note)
|
| |
|
|
|
10.127*
|
|
Amended
and Restated Promissory Note (Bankers Credit -
$7,860,000)
|
| |
|
|
|
10.128*
|
|
Note
Modification Agreement with SIBL (December 2006)
|
| |
|
|
|
10.129*
|
|
Amendment
to Stock Purchase Agreement (Harborage)
|
| |
|
|
|
10.130*
|
|
Forbearance
Agreement (LaSalle Bank/South Beach Resorts, LLC) |
| |
|
|
|
10.131*
|
|
Amendment
No. 2 to $4.3 Million Credit Agreement
|
| |
|
|
|
10.132*
|
|
Fourth
Renewed, Amended and Increased Promissory Note issued by Reedy
Creek
Development Company, LLC
|
| |
|
|
|
10.133*
|
|
Modification
and Reaffirmation of Guaranty and Environmental Indemnity Agreement
(January 2007)
|
| |
|
|
|
10.134*
|
|
Fourth
Mortgage Modification Agreement and Future Advance
Certificate
|
| |
|
|
|
10.135*
|
|
Amendment
No. 2 to $6.2 Million Credit Agreement
|
| |
|
|
|
10.136*
|
|
Malcolm
J. Wright - Guaranty Agreement of $7,000,000 Bankers Credit
Note
|
| |
|
|
|
10.137*
|
|
March
2007 - $10,000,000 Credit Agreement with Stanford International
Bank,
Ltd.
|
| |
|
|
|
10.138*
|
|
March
2007 - $10,000,000 Promissory Note payable to Stanford International
Bank,
Ltd.
|
| |
|
|
|
10.139*
|
|
March
2007, Mortgage and Security Agreement with Stanford International
Bank,
Ltd.
|
| |
|
|
| 10.140* |
|
Mortgage
and Security Agreement |
| |
|
|
| 10.141(38) |
|
Michael
D. Crosbie Employment Agreement |
|
21.1*
|
|
List
of Subsidiaries |
| |
|
|
|
31.1*
|
|
Chief
Executive Officer Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
| |
|
|
|
31.1*
|
|
Chief
Financial Officer Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
| |
|
|
|
32.1*
|
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Chief
Executive Officer Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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32.2*
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Chief
Financial Officer Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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99.1(6)
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Personal
Guarantee by Malcolm J. Wright guaranteeing the $6,000,000 Line
of
Credit
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99.2(25)
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Press
Release issued September 6, 2005, announcing Frederick W. Pauzar
as Chief
Operating Officer and a Director
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*
Filed
herein.
(1)
Filed
as Exhibit 2.1 to the Registrant's Form 8-K on June 28, 2002, and incorporated
herein by reference.
(2)
Filed
as Exhibit 3.1 to the Registrant's Form SB-1 on October 20, 2000, and
incorporated herein by reference.
(3)
Filed
as Exhibits 3.1, 3.2, 3.3, 3.4 10.2, and 16.1, respectively, to the Registrant's
Form 10-QSB on August 19, 2002, and incorporated herein by
reference.
(4)
Filed
as Exhibit 16.1 to the Registrant's Form 8-K on May 23, 2003, and incorporated
herein by reference.
(5)
Filed
as Exhibits 99.2, 99.1, 99.3, 99.5, 99.6, 99.7, 99.8, 99.9, 99.10 and 99.11,
respectively, to the Registrant's Form 10-KSB on May 23, 2003, and incorporated
herein by reference.
(6)
Filed
as Exhibits 99.1, 99.2, 99.3, 99.4, 99.7, 99.8, 99.9, 99.10, 99.11 and 99.5,
respectively, to the Registrant's Form 8-K on April 1, 2004, and incorporated
herein by reference.
(7)
Filed
as Exhibits 99.11, 99.12 and 99.13, respectively, to the Registrant's Form
10-QSB on May 25, 2004, and incorporated herein by reference.
(8)
Filed
as Exhibits 99.1 and 99.2, respectively, to the Registrant's Form 8-K on
April
6, 2004, and incorporated herein by reference.
(9)
Filed
as Exhibits 3.1, 10.1, 10.2, 10.3, 10.4, 10.5 and 99.2, respectively, to
the
Registrant's Forms 8-K/A filed on August 6, 2004, and incorporated herein
by
reference.
(10)
Filed as Exhibits 3.1, 10.1, 10.2, 10.3, 10.4, 10.5 and 99.2, respectively,
to
the Registrant's Forms 8-K/A filed on August 6, 2004, and incorporated herein
by
reference.
(11)
Filed as Exhibits 16.2, 16.3, 16.4 and 16.5, respectively, to the Registrant's
Forms 8-K/A filed on August 18, 2004, and incorporated herein by
reference.
(12)
Filed as Exhibit 16.1 to the Registrant's Form 8-K on August 18, 2004, and
incorporated herein by reference.
(13)
Filed as Exhibit 10.6 to the Registrant's Form 10-QSB on August 20, 2004,
and
incorporated herein by reference.
(14)
Filed as Exhibit 10.6 to the Registrant's Form 10-QSB/A on December 8, 2004,
and
incorporated herein by reference.
(15)
Filed as Exhibit 10.1 to the Registrant's Form 8-K on January 6, 2005, and
incorporated herein by reference.
(16)
Filed as Exhibit 10.1 to the Registrant's Form 8-K on February 2, 2005, and
incorporated herein by reference.
(17)
Filed as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to the Registrant's
Form 8-K on March 14, 2005, and incorporated herein by reference.
(18)
Filed as Exhibits 4.6, 10.29, 10.30, 10.31, 10.32, 10.33, and 10.34,
respectively, to the Registrant's Form 10-KSB on March 31, 2005, and
incorporated herein by reference.
(19)
Filed as Exhibit 16.2 to the Registrant's Form 8-K on March 28, 2005, and
incorporated herein by reference.
(20)
Filed as Exhibits 4.5, 10.43 and 10.44, respectively to the Registrant's
Form
10-QSB on May 23, 2005, and incorporated herein by reference.
(21)
Filed as Exhibits 10.45, 10.46, 10.47, 10.48, 10.49, 10.50, 10.51, 10.52,
10.53,
10.60, 10.61, 10.62, 10.63 and 23.1, respectively, to the Registrant's Form
SB-2
on June 30, 2005, and incorporated herein by reference.
(22)
Filed as Exhibits 10.54, 10.55, 10.56, 10.57, 10.58 and 10.59, respectively,
to
the Registrant's Form SB-2/A on July 7, 2005, an incorporated herein by
reference.
(23)
Filed as Exhibit 10.1 and 10.2, respectively to the Registrant's Form 8-K
on
August 18, 2005, and incorporated herein by reference.
(24)
Filed as Exhibit 10.5 to the Registrant's Form 8-K on August 19, 2005, and
incorporated herein by reference.
(25)
Filed as Exhibit 99.1 to the Registrant's Form 8-K on September 6, 2005,
and
incorporated herein by reference.
(26)
Filed as Exhibits to our Report on Form 8-K filed with the Commission on
August
18, 2005, and incorporated herein by reference.
(27)
Filed as Exhibits to our Report on Form 8-K filed with the Commission on
December 15, 2005 and incorporated herein by reference.
(28)
Filed as Exhibits to the Registrant's report on form 8-K on January 12, 2006
and
incorporated by reference herein.
(29)
Filed as Exhibits to the Registrant's report on Form 8-K filed on January
19,
2006 and incorporated herein by reference.
(30)
Filed as Exhibits to the Company's report on Form 8-K, which was filed with
the
SEC on March 28, 2006.
(31)
Filed as Exhibit 10.1 to the Company's report on Form 8-K, which was filed
with
the SEC on January 6, 2005, and is incorporated herein by
reference.
(32)
Filed as Exhibit 10.44 to the Company's report on Form 10-QSB for the quarter
ended March 31, 2005, which was filed with the SEC on May 23, 2005, and is
incorporated herein by reference.
(33)
Filed as Exhibit 10.3 to the Company's report on Form 8-K, which was filed
with
the SEC on March 2, 2006, and is incorporated herein by reference.
(34)
Filed as Exhibits to the Company's Report on Form 8-K, which was filed with
the
SEC on March 29, 2006, and is incorporated herein by reference.
(35)
Filed as Exhibits to the Company's Report on Form 10-QSB, which was filed
with
the SEC on August 21, 2006, and is incorporated herein by
reference.
(36)
Filed as exhibits to the Company’s Quarterly Report on Form 10-QSB filed with
the Commission on November 20, 2006, and incorporated herein by
reference.
(37)
Filed as Exhibits to the Company’s Form 8-K filed with the Commission on January
16, 2007, and incorporated herein by reference.
(38)
Filed as an Exhibit to the Company's Quarterly
Report on Form 10-QSB filed with the Commission on May 22, 2006, and
incorporated herein by reference.
(i)
In
addition to Stanford International Bank, Ltd. ("SIBL"), four individuals
were
granted warrants in connection with the Option Agreement. Those four
individuals, Ronald Stein, Osvaldo Pi, Daniel Bogar and William Fusselman
were
each granted warrants to purchase 19,250 shares of the Company's common stock
at
$0.001 per share, and warrants to purchase 38,500 shares of the Company's
common
stock at $5.00 per share, which warrants are identical to the SIBL warrants
attached hereto as Exhibits 10.9 and 10.10, respectively, other than the
number
of shares which those warrants are exercisable for.
(ii)
While we believe these documents to be final and in effect, and we have received
the entire amount of the funds required to be loaned pursuant to each of
these
agreements, we been unable to obtain the signatures of SIBL on such
documents.
(iii)
While we believe these documents to be final and in effect, as of the filing
of
this report, we have been unable to obtain the signatures of Stanford on
such
documents.
(iv)
We
granted Stanford International Bank Limited ("SIBL") and six of its assigns,
including Daniel T. Bogar ("Bogar"), William R. Fusselmann ("Fusselmann"),
Osvaldo Pi ("Pi"), Ronald M. Stein ("Stein"), Charles M. Weiser ("Weiser")
and
Tal Kimmel ("Kimmel") warrants to purchase up to a 25% participation interest
in
the net proceeds (defined as the proceeds realized upon the disposition or
refinancing of the Property, less our cost basis, excluding any operating
losses
or profits) realized by us upon the disposition of the real property located
at
740 Ocean Drive, Miami Beach, Florida, known as the Boulevard Hotel (the
"Property"). The warrants are identical other than as to the party the warrant
was granted to and the participation interest in the Net Proceeds granted.
As
such, we have only attached a form of warrant. Each warrant has an aggregate
exercise price of $1.00, and the participation interests in the Net Proceeds
granted to each grantee is as follows: SIBL 12.5%, Bogar 2.891%, Fusselmann
2.891%, Pi 2.891%, Stein 2.891%, Weiser 0.468%, and Kimmel 0.468%.
Reports
on Form 8-K:
We
file
no reports on Form 8-K during the three months ended December 31,
2006.
We
filed
one report on Form 8-K subsequent to the period ended December 31,
2006:
o On
January 16, 2007, to report our entries into the RC Credit Agreement, Amended
RC
Credit Agreement, the TDSR Credit Agreement, the Amended TDSR
Credit
Agreement, and related transactions, as well as our purchase of South Beach
Resorts, LLC.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit
Fees
The
audit
and audit related fees billed for audit and review of the Company's annual
and
quarterly financial statements were $71,112 and $83,257 for the fiscal years
ended December 31, 2006 and December 31, 2005, respectively.
Audit
Related Fees
The
Company did not pay any additional fees for the years ended December 31,
2006
and 2005 for assurance and related services reasonably related to the
performance of the audit or review of the Company's financials
statements.
Tax
Fees
The
Company paid $15,000 and $41,990, in fees for the years ended December 31,
2006
and 2005, respectively, for professional services rendered for tax compliance,
tax advice and tax planning.
All
Other Fees
The
Company's principal independent accountants did not bill the Company for
any
services other than the foregoing for the fiscal years ended December 31,
2006
and December 31, 2005.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN
LEISURE HOLDINGS, INC.
By:
/s/ Malcolm J. Wright
Name:
Malcolm J. Wright
Title:
Chief Executive Officer
and
Chairman of the Board of Directors
By:
/s/ Omar Jimenez
Name:
Omar Jimenez
Chief
Financial Officer
(Principal
Accounting Officer)
Date:
April 17, 2007
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
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SIGNATURE
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TITLE
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DATE
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/s/
Malcolm J. Wright
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Chief
Executive Officer
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April
17, 2007
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Malcolm
J. Wright
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and
Chairman of the Board of Directors
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/s/
Omar Jimenez
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Chief
Financial Officer
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April
17, 2007
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Omar
Jimenez
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(Principal
Accounting Officer)
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/s/
Frederick Pauzar
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President,
Chief Operating Officer,
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April
17, 2007
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Frederick
Pauzar
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and
Director
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/s/
Michael Crosbie
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General
Counsel,
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April
17, 2007
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Michael
Crosbie
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Executive
Vice President,
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and
Secretary
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/s/
James Leaderer
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Director
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April
17, 2007
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James
Leaderer
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