UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 333-48312
AMERICAN LEISURE HOLDINGS, INC.
-------------------------------
(Exact name of the small business issuer as specified in its charter)
Nevada 75-2877111
---------------------- -------------------------------
(State of incorporation) (IRS Employer Identification No.)
Park 80 Plaza East, Saddle Brook, NJ 07663
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(Address of principal executive offices)
(800) 546-9676 ext. 2076
------------------------
(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
NONE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
At August 9, 2005, there were outstanding 10,137,974 shares of the Issuer's
common stock, $.001 par value per share.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
The registrant has restated the financial statements for the six months ended
June 30, 2005 to include the gross revenues and expenses for the business that
we acquired from Around the World Travel on December 31, 2004. The revenues and
expenses were previously reported on a net basis. This amended Form 10-QSB
includes these restated financial statements and revisions to the related
disclosure in "Item 2. Management's Discussion and Analysis or Plan of
Operation" including the disclosure under the heading "Risk Factors." The
financial information and related disclosure is current through June 30, 2005,
unless otherwise stated. This report also includes new disclosure under "Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds" and other revised
disclosure in "Item 3. Legal Proceedings" and "Item 5. Other Information" under
the heading "Related Party Transactions." The other revised disclosures are
current through the filing of this report, unless otherwise stated. Investors
should read this report in its entirety along with our second amended Form
10-KSB, which we are filing simultaneously with this filing.
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2005 AND DECEMBER 31, 2004
JUNE 30, 2005 DECEMBER 31, 2004
----------------- -----------------
UNAUDITED AUDITED
(Restated) (Restated)
ASSETS
CURRENT ASSETS:
Cash $ 1,857,918 $ 2,266,042
Cash - Restricted 4,649,377 0
Accounts receivable, net 762,212 3,539,387
Note receivable 76,755 113,000
Prepaid expenses and other 725,373 51,460
Other Current Assets 0 30,476
----------------- -----------------
Total Current Assets 8,071,635 6,000,365
----------------- -----------------
PROPERTY AND EQUIPMENT, NET 5,352,149 6,088,500
----------------- -----------------
LAND HELD FOR DEVELOPMENT 28,686,579 23,448,214
----------------- -----------------
OTHER ASSETS
Prepaid Sales Commissions 7,365,517 5,966,504
Prepaid Sales Commissions - affiliated entity 3,643,695 2,665,387
Investment-Senior Notes 5,170,000 5,170,000
Goodwill 14,425,437 14,425,437
Trademark 1,000,794 1,000,000
Other 594,246 2,637,574
----------------- -----------------
Total Other Assets 32,199,689 31,864,902
----------------- -----------------
TOTAL ASSETS $ 74,310,052 $67,401,981
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 8,613,354 $ 9,605,235
Current maturities of notes payable-related parties 1,033,216 1,910,629
Accounts payable and accrued expenses 2,694,954 5,618,973
Accrued expenses - officers 1,624,083 1,355,000
Customer deposits 0 2,752,535
Other 140,915 2,332,886
Shareholder advances 0 273,312
----------------- -----------------
Total Current Liabilities 14,106,522 23,848,570
Long-term debt and notes payable 27,415,853 20,600,062
Deposits on unit pre-sales 28,641,009 16,669,347
----------------- -----------------
Total liabilities 70,163,384 61,117,979
STOCKHOLDERS' EQUITY:
Preferred stock; 1,000,000 shares authorized; $.001 par value;
1,000,000 Series "A" shares issued and outstanding at
June 30, 2005 and December 31, 2004 10,000 10,000
Preferred stock; 100,000 shares authorized; $.01 par value;
2,825 Series "B" shares issued and outstanding at
June 30, 2005 and December 31, 2004 28 28
Preferred stock, 28,000 shares authorized; $.01 par value
27,189 Series "C" shares issued and outstanding at
June 30, 2005 and December 31, 2004 272 272
Preferred stock; 50,000 shares authorized; $.001 par value;
24,101 and 0 Series "E" shares issued and outstanding at
June 30, 2005 and December 31, 2004 24 24
Preferred stock; 150,000 shares authorized; $.01 par value;
1,936 and 0 Series "F" shares issued and outstanding at
June 30, 2005 and December 31, 2004 0 19
Common stock, $.001 par value; 100,000,000 shares authorized;
10,137,974 and 9,977,974 shares issued and outstanding at
June 30, 2005 and December 31, 2004 10,138 9,978
Additional paid-in capital 15,442,693 15,636,322
Accumulated deficit (11,316,487) (9,372,641)
----------------- -----------------
Total Stockholders' Equity 4,146,668 6,284,002
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 74,310,052 $67,401,981
================= =================
2
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 2005 AND 2004
SIX MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
------------ ------------ ------------ ------------
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
(Restated) (Restated) (Restated) (Restated)
Revenue $13,934,667 $ 2,344,947 $ 6,125,286 $ 1,158,282
Cost of Service Revenues (13,008,978) (2,941,544) (6,181,356) (1,448,814)
------------ ------------ ------------ ------------
Gross Margin 925,689 (596,597) (56,070) (290,532)
Operating Expenses:
Depreciation and amortization (685,305) (354,618) (341,809) (178,300)
General and administrative expenses (1,447,384) (929,513) (648,257) (475,987)
------------ ------------ ------------ ------------
Total Operating Expenses (2,132,689) (1,284,131) (990,066) (654,287)
------------ ------------ ------------ ------------
Loss from Operations (1,207,000) (1,880,728) (1,046,136) (944,819)
Interest Expense (736,845) (192,072) (343,526) (120,108)
Minority Interest - 484,286 - 227,662
------------ ------------ ------------ ------------
Total Other Income (Expense) (736,845) 292,214 (343,526) 107,554
------------ ------------ ------------ ------------
Loss before Income Taxes (1,943,845) (1,588,514) (1,389,662) (837,265)
PROVISIONS FOR INCOME TAXES - (3,870) - (1,135)
------------ ------------ ------------ ------------
NET LOSS $(1,943,845) $(1,592,384) $(1,389,662) $ (838,400)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE:
BASIC AND DILUTED (0.26) (0.28) (0.17) (0.14)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 10,001,841 7,759,642 10,025,447 7,888,324
============ ============ ============ ============
3
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2005 JUNE 30, 2004
------------ ------------
UNAUDITED UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(1,943,845) $(1,592,384)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 813,927 442,992
Non-cash interest expense 736,845 -
Loss on Sale of AVR - 113,529
Gain on settlement of litigation - (145,614)
Changes in assets and liabilities:
Decrease in receivables 2,777,175 1,382,250
Decrease (Increase) in prepaid and other assets 1,435,342 (58,630)
Increase in advances receivable - (101,864)
Increase in prepaid commissions (2,377,321) -
Increase (Decrease) in shareholder advances & notes payable 141,635 (101,864)
Increase (Decrease) in deposits on unit pre-sales 11,971,662 (5,947,214)
Decrease (Increase) in customer deposits (2,752,535) 7,251,917
Decrease (Increase) in accounts payable and accrued expenses (5,015,865) 16,221
------------ ------------
Net cash provided by (used in) operating activities 5,787,020 1,259,339
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of AWT Assets 10,602,635 -
Investment in non-marketable securities - (5,250)
Investment in non-consolidated subsidiaries - (20,427)
Increase in notes receivable - (2,114,020)
Increase in restricted cash (4,649,377) -
Acquisition of fixed assets (77,576) (212,205)
Capitalization of real estate carrying costs (5,238,206) (1,802,526)
------------ ------------
Net cash used in investing activities 637,476 (4,154,428)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (6,114,651) -
Proceeds from notes payable - 5,516,169
Payments of notes payable - related parties (717,969) (552,504)
Proceeds from sale of securities - 600
Proceeds from shareholder advances - (387,191)
------------ ------------
Net cash provided by financing activities (6,832,620) 4,577,074
------------ ------------
Net increase (decrease) in cash (405,124) 1,681,985
CASH AT BEGINNING PERIOD 2,266,042 734,852
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CASH AT END OF PERIOD $ 1,857,918 $ 2,416,837
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 696,065 $ 360,000
============ ============
Cash paid for income taxes $ - $ -
============ ============
4
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
NOTE A - PRESENTATION
The consolidated balance sheets of the Company as of June 30, 2005 and December
31, 2004, the related consolidated statements of operations for the six and
three months ended June 30, 2005 and 2004, and the consolidated statements of
cash flows for the six months ended June 30, 2005 and 2004, (the financial
statements) include all adjustments (consisting of normal, recurring
adjustments) necessary to summarize fairly the Company's financial position and
results of operations. The results of operations for the six months ended June
30, 2005 are not necessarily indicative of the results of operations for the
full year or any other interim period. The information included in this Form
10-QSB should be read in conjunction with Management's Discussion and Analysis
and restated Financial Statements and notes thereto included in the Company's
December 31, 2004, Form 10-KSB/A, Amendment No. 2, the Company's March 31, 2005
Form 10-QSB/A, Amendment No. 1 and the Company's Forms 8-K & 8-K/A filings.
NOTE B - REVENUE RECOGNITION
American Leisure recognizes revenues on the accrual method of accounting. For
the sales of units on the Orlando property, revenues will be recognized upon the
close of escrow for the sales of its real estate. Operating revenues earned will
be recognized upon the completion of the earning process.
Revenues from American Leisure's call center are recognized on the equity basis
from the joint venture entity, Caribbean Media Group, Ltd.
Revenues from Hickory Travel Systems, Inc. are recognized as earned, which is
primarily at the time of delivery of the related service, publication or
promotional material. Costs associated with the current period are expensed as
incurred; those costs associated with future periods are deferred.
Revenues from our wholly owned subsidiary ALEC are recognized as earned, which
is primarily at the time of delivery of the related service. 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.
One of American Leisure's principal sources of revenue is associated with access
to the travel portal that provides a database of discounted travel services.
Annual renewals occur at various times during the year. Costs related to site
changes are incurred in the months prior to annual billing renewals. 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.
5
NOTE C - PROPERTY AND EQUIPMENT, NET
As of June 30, 2005, property and equipment consisted of the following:
Useful
Lives Amount
---------- ----------
Equipment 3-5 $7,655,203
Furniture & fixtures 5-7 1,578,861
----------
Subtotal 9,234,064
Less: accumulated depreciation and amortization 3,881,915
----------
Property and equipment, net $5,352,149
==========
Depreciation expense for the six-month and three-month period ended June 30,
2005 amounts to $813,927 and $382,545 respectively.
NOTE D - LONG-TERM DEBT AND NOTES PAYABLE
Two notes which amount to $7,862,250 ($6 million with Grand Bank and $1,862,250
with Raster Investments) matured on March 31, 2005. These notes are not in
default and the terms have been extended for an additional six months. Total
accrued interest on the notes amount to $431,936.
NOTE E - NOTES PAYABLE - RELATED PARTIES
The Current maturities of notes payable - related parties is as follows:
Xpress Ltd $ 522,145
Officers of Hickory Travel Services 374,445
Malcolm Wright 12,364
Peter Webb 124,262
-----------
Notes payable - related parties $1,033,216
===========
The current portion of notes payable includes amounts owed to the officers of
Hickory Travel Systems, Inc., a subsidiary of the Company in the amount of
$374,445. $222,892 of such amount is owed to L. William Chiles, a Director of
the Company.
Included in Long-term debt and notes payable are debts and notes payable to the
following related parties:
Officers of Hickory Travel Services $589,947
--------------
Related party debt and notes $589,947
==============
The long-term portion of notes payable includes amounts owed to the officers of
Hickory Travel Systems, Inc., a subsidiary of the Company in the amount of
$589,947. $209,004 of such amount is owed to L. William Chiles, a Director of
the Company.
6
NOTE F - ACQUISITIONS
On December 31, 2004, American Leisure Equities Corporation (the "Purchaser") a
wholly-owned subsidiary of American Leisure, entered into an Asset Purchase
Agreement (hereinafter referred to as "APA") with Around The World Travel, Inc.
(the "Seller"), pursuant to which the Seller agreed to sell substantially all of
its assets to the Purchaser. Under the terms of the APA, the Seller conveyed to
the Purchaser all of the assets necessary to operate the Business, including
substantially all of the Seller's tangible and intangible assets and certain
agreed operating liabilities.
The purchase price for the assets transferred under the APA is an amount equal
to the fair value of the Business ($16 million, established by an unaffiliated
investment-banking firm, calculated on a going concern basis), plus $1.5
million, for a total purchase price of $17.5 million. On the date of acquisition
the company impaired the value of the acquired assets in the amount of
$1,500,000 resulting in total assets acquired of $16,000,000.
The APA was amended on March 31, 2005. The original APA indicated that the
Purchaser will pay the purchase price on or before June 30, 2005 through a
combination of a number of different currencies including but limited to the
application of short term debt owed to the Company, the assumption of specific
liabilities, the payment to certain AWT creditors on behalf of AWT and
potentially certain preferred stock of the Company. Pursuant to the terms of the
APA, the Seller and the Purchaser have entered into a Management Agreement,
under which the Seller manages the Business on behalf of the Purchaser. The
Seller and the Purchaser also entered into a License Agreement, under which the
Purchaser granted the Seller a non-exclusive license to use certain trade names
and related intellectual property in connection with the performance of its
duties under the Management Agreement. The License Agreement will expire
simultaneously with the Management Agreement. The amendment changed the
consideration for the purchase price to a combination of 1) issuance to Seller
of a note payable in the amount of $8,483,330; 2) reduction of certain amounts
owed by the Seller to Purchaser in the amount of $4,774,619; and 3) the
assumption of certain liabilities of the Seller in the amount of $4,242,051. The
Series F preferred stock issuance in the original APA was cancelled. During the
first quarter, certain of the assets, doubtful receivables, pre-paids and
security deposits were transferred to Seller as reduction of the note payable.
The note was further reduced by a set-off of the amount of the Accounts
Receivable deemed received and retained by AWT. AWT had sold the Accounts
Receivable to the Company on December 31, 2004. In lieu of segregating and
remitting the payments received on the Accounts Receivables, AWT was permitted
to apply said amounts as a credit to the Company's note payable. The balance due
under the note payable, as determined on June 30, 2005, by application of the
known credits for accounts receivable and other authorized offsets is
$6,356,740. The note provides for the right of the holder (Purchaser) to set off
any sums incurred by the holder (Purchaser) for the business affairs of the
maker (Seller) and any cash advances made by holder (Purchaser) to maker
(Seller) outside of the amortization schedule.
The excess purchase price over the fair value of net tangible assets was
$12,585,435, all of which was allocated to goodwill. No impairment of the
goodwill amount occurred during the quarter covered by this report.
7
The following table summarizes the estimated fair value of the net assets
acquired and liabilities assumed at the acquisition dates.
Total
-----------
Current assets $ 1,850,109
Property and equipment 287,975
Deposits 276,481
Trademark 1,000,000
Goodwill 12,585,435
-----------
Total assets acquired $16,000,000
===========
Notes assumed 4,424,051
Debt forgiven 4,774,619
Note issued 8,483,330
-----------
Consideration $17,500,000
===========
NOTE G - RELATED PARTY TRANSACTIONS
The Company accrues salaries payable to Malcolm Wright in the amount of $500,000
per year (and $250,000 per year in 2002 and 2003) with interest at 12%. As of
June 30, 2005, the amount of salaries payable accrued to Mr. Wright was
$1,418,750.
The Company accrued director fees to each of its three (3) directors in an
amount of $18,000 per year for their services as directors of the Company. No
payments of director fees were paid during the current quarter and the balance
of accrued director fees as of the end of the quarter covered by this report
amounts to $145,500.
Malcolm Wright is the majority shareholder of American Leisure Real Estate
Group, Inc. (ALRG). On November 3, 2003 Tierra Del Sol Resort, Inc. ("TDSR"), a
wholly-owned subsidiary of American Leisure, entered into an exclusive
Development Agreement with ALRG to provide development services for the
development of The Sonesta Orlando Resort at Tierra del Sol. Pursuant to the
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 period from inception through June 30, 2005 the total costs
plus fees amounted to $6,427,706.
A trust for the natural heirs of Malcolm Wright is the majority shareholders of
Xpress Ltd. ("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 payable in two installments: one-half of the fee
is paid when the rescission period has elapsed in a unit sales agreement and
one-half is paid upon the conveyance of the unit. The agreement also provides
for a marketing fee of 1.5% of the total sales prices received by TDSR. The
marketing fee is paid when the first segment of the sales fee is paid. During
the period since the contract was entered into and ended June 30, 2005 the total
sales amounted to approximately $242,912,970. As a result of the sales, TDSR is
currently obligated to pay Xpress a total fee of $7,287,389. As of June 30,
2005, $6,765,244 has been paid to Xpress and $522,145 remains unpaid and is
included in Current maturities of notes payable - related parties (see Note E
regarding Notes payable - Related parties). Based on the sales contracts as of
June 30, 2005, TDSR will be obligated to pay Xpress $3,643,694, the other half
of the sales fee, upon the conveyance of the units.
8
NOTE H - NET INCOME (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 income
(loss) per share as follows:
Description Six months Six months Three months Three months
ended ended ended ended
6/30/2005 6/30/2004 6/30/2005 6/30/2004
----------- ----------- ----------- -----------
NET LOSS (as reported) (1,943,845) (1,592,384) (1,389,662) (838,400)
UNDECLARED PREFERRED
STOCK DIVIDEND (701,780) (551,938) (350,890) (275,969)
----------- ----------- ----------- -----------
NET LOSS AFTER PREFERRED
STOCK DIVIDEND (2,645,625) (2,144,322) (1,740,552) (1,114,369)
NET INCOME (LOSS) PER SHARE
BASIC AND DILUTED (0.26) (0.28) (0.17) (0.14)
NOTE I - SUBSEQUENT EVENTS
On August 16, 2005, TDSR received two commitments from KeyBank, N.A. for credit
facilities that will be used for the development of TDSR Phase I. One credit
facility provides $96.6 million for a term of twenty-four months as a
development loan at 275 basis points over the 30-day LIBOR. An additional credit
facility provides $14.85 million for a term of eighteen months as a land loan
secured by Phase II at 310 basis points over the 30-day LIBOR. The total credit
facility amounts to $111.45 million. The industry standard fees to KeyBank, N.A.
for the credit facilities include a 1% commitment fee ($1,114,500) plus an
administration fee of $150,000 per annum.
NOTE J - RECLASSIFICATIONS
Certain amounts in the June 30, 2004 financial statements have been reclassified
to conform with the June 30, 2005 financial statement presentation.
NOTE K - RESTATEMENT
American Leisure has restated the financial statements for the three and six
months ended June 30, 2005, to include gross revenues and expenses for the
TraveLeaders business interests acquired from Around the World Travel on
December 31, 2004, which business assets and interests were thereupon combined
with American Leisure. The revenues and expenses were previously reported on a
net basis in connection with the terms of the Management Agreement pursuant to
which AWT acted as the manager. As such, AWT was responsible for such
TraveLeaders revenues and related expenses. The entitlement of American Leisure
in relation to TraveLeaders and the combined business interests was an
entitlement to a net operating result pursuant to the Management Agreement.
Therefore, the restated financial statements do not involve any change to the
cash flow, net income or balance sheet of American Leisure.
9
A summary of the restatement is as follows:
Increase As
As previously reported (Decrease) Restated
------------------------ -------------------- ---------------------
Six months ended
June 30, 2005:
Statements of Operations:
Revenue $ 4,498,920 $ 9,435,747 $ 13,934,667
Cost of Service Revenues $ - $ (13,008,978) $ (13,008,978)
Gross Margin $ 4,898,920 $ (3,573,231) $ (925,689)
Depreciation and
Amortization $ (813,927) $ 128,622 $ (685,305)
General and
administrative expenses $ (4,677,198) $ 3,229,814 $ (1,447,384)
Loss From Operations $ (992,205) $ (214,795) $ (1,207,000)
Equity in Operations of
unconsolidated entities $ (214,795) $ 214,795 $ -
Six months ended
June 30, 2004:
Statements of Operations:
Cost of Service Revenues $ - $ (2,941,544) $ (2,941,544)
Depreciation and
Amortization $ (442,992) $ 88,374 $ (354,618)
General and
Administrative expenses $ (3,782,683) $ 2,853,170 $ (929,513)
Three months ended
June 30, 2005:
Statements of Operations:
Revenue $ 1,823,246 $ 4,302,040 $ 6,125,286
Cost of Service Revenues $ - $ (6,181,356) $ (6,181,356)
Gross Margin $ 1,823,246 $ (1,879,316) $ (56,070)
Depreciation and
Amortization $ (382,545) $ 40,736 $ (341,809)
General and
administrative expenses $ (2,272,042) $ 1,623,785 $ (648,257)
Loss From Operations $ (831,341) $ (214,795) $ (1,046,136)
Equity in Operations of
unconsolidated entities $ (160,849) $ 160,849 $ -
Three months ended
June 30, 2004:
Statements of Operations:
Cost of Service Revenues $ - $ (1,448,814) $ (1,448,814)
Depreciation and
amortization $ (222,920) $ 44,620 $ (178,300)
General and
Administrative expenses $ (1,880,181) $ 1,404,194 $ (475,987)
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements in this discussion and elsewhere in this report that are not
historical are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended. Statements preceded by,
followed by or that otherwise include the words "believes", "expects",
"anticipates", "intends", "projects", "estimates", "plans", "may increase", "may
fluctuate" and similar expressions or future or conditional verbs such as
"should", "would", "may" and "could" are generally forward-looking in nature and
not historical facts. These forward-looking statements were based on various
factors and were derived utilizing numerous important assumptions and other
important factors that could cause actual results to differ materially from
those in the forward-looking statements. Forward-looking statements include the
information concerning our future financial performance, business strategy,
projected plans and objectives. These factors include, among others, the
factors set forth under the heading "Risk Factors." Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Most of these factors are difficult to predict accurately and are
generally beyond our control. We are under no obligation to publicly update any
of the forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events. Readers are
cautioned not to place undue reliance on these forward-looking statements.
OVERVIEW
--------
American Leisure Holdings, Inc. (the "Company") is in the process of
developing an organization that will provide, on an integrated basis, travel
services, travel distribution as well as development, sales, management and
rentals of destination resorts. To that end we have acquired or established
businesses that manage and distribute travel services, develop vacation home
ownership and travel destination resorts and develop and operate affinity-based
clubs. There is a trend toward consolidation in the travel industry, which has
caused us to seek to create a vertically integrated travel services organization
that provides comprehensive services to our clients and generates revenue from
several sources. We believe that we have a synergistic strategy that involves
using our travel distribution, fulfillment and management services to provide
consumer bookings at our planned resorts, selling and renting vacation homes
that we plan to manage at these resorts, and fulfilling the travel service needs
of our affinity-based travel clubs. We also own a call center in
Antigua-Barbuda.
Except as expressly indicated or unless the context otherwise requires,
"we," "our," or "us" means American Leisure Holdings, Inc. and its subsidiaries.
Malcolm J. Wright, our President, Chief Executive Officer, Chief Financial
Officer, a Director and one of our founders, has successfully developed vacation
properties in Europe. We are currently developing our first luxury vacation home
and destination resort, The Sonesta Orlando Resort at Tierra del Sol and relying
on Mr. Wright's experience to do so. The resort will include 540 town homes and
432 condominiums. The resort will be constructed in two phases. The first phase
is scheduled to include a total of 430 units, a 126,000 square foot clubhouse
(84,000 approximate square footage under air), and a large swimming and
recreation complex which will include a combination pool and lazy river swimming
feature, an outdoor sports bar and food service area, restroom facilities,
showers, water-slides, beach volleyball and extensive sundecks. In June 2005, we
began the earth moving and clearing process on the land for the resort.
Construction on the second phase is expected to start during 2006 and overlap
with construction on the first phase. The second phase is scheduled to include
542 units and additional resort amenities, including miniature golf, a flow
rider water attraction, a wave pool, a rapid river and a children's multilevel
interactive water park as well as additional clubhouse improvements, include the
finishing, equipping and furnishing of banquet and meeting rooms, casual and
fine dining restaurants, a full service spa, a sales center and an owners' club.
The first phase has been fully pre-sold for $166,000,000. Total sales to date on
both phases currently total $255,000,000. Upon completion of these units, we
will offer our management services to certain purchasers to permit them to
voluntarily include their qualifying units in a rental program that we will
operate. In addition, we will retain a 45-day, right of first refusal to
repurchase the units in the resort that become available for resale. We recently
obtained commitments from KeyBank National Association ("KeyBank") for two
credit facilities: one in the amount of $96,600,000 as a development and
construction facility for the first phase of the resort, and the other in the
amount of $14,850,000 as a land loan for the second phase of the resort. In
addition, KeyBank Capital Markets, an entity related to KeyBank, will underwrite
the sale of $25,995,000 in bonds issued by the Westridge Community Development
District to fund the first phase of sitework for the resort. The credit
facilities and the bond sale are discussed below in more detail in "Liquidity
and Capital Resources" under the heading "KeyBank Commitments."
11
Our TraveLeaders business 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. We acquired the assets of TraveLeaders
effective December 31, 2004, from Around The World Travel, Inc. Around The World
Travel is currently managing the assets for us. See the discussion below under
"Recent Events."
In October 2003, we acquired a 51% interest in Hickory Travel Systems, Inc.
Hickory is a travel management service organization that primarily serves its
network/consortium of approximately 160 well-established travel agency members,
comprised of over 3,000 travel agents worldwide that focus on corporate travel.
The services provided by Hickory include a 24-hour reservation service,
international rate desk services, discount hotel programs, preferred supplier
discounts, commission enhancement programs and marketing services. Our business
plan includes the acquisition of additional travel agencies so that we can
compete for greater volume buying discounts and market share. We view the
members of Hickory as a resource for future acquisitions of viable travel
agencies.
We are in the process of integrating the administrative operations of
Hickory and TraveLeaders. The integration process has been slower than we
anticipated because it has taken us longer than expected to identify those
operations that could be consolidated and determine the allocation and
re-assignment of the personnel best suited for the consolidated enterprise. In
addition, 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 such, expenditures have been
higher than anticipated. We now have been fully indemnified for any and all
costs in relation to any litigation in relation to the acquisition of Around the
World Travel assets.
Our American Travel & Management Group business develops and operates
Internet structured clubs that specialize in using demographic affinities to
promote brand loyalty through the delivery of customized travel and other
benefits to a constituency that is built under the auspices of a national
retailer, publisher or national cause. A vital component to the benefits
provided to club members and the sponsors is the inclusion of a sophisticated
rewards program that will provide customer retention tracking data to those
sponsors while enabling the members to enjoy significant discounts and rewards
for their loyalty. We have recently entered into agreements with a prominent
sports media organization, a national publisher and an international retail food
service company. Based upon current agreements, we expect to launch a new club
on an average of one every other month for the next eighteen months. We fulfill
travel service orders produced by these clubs through TraveLeaders.
In December 2004, we entered into a joint venture with IMA Antigua, Ltd. to
operate a call center that we own located in Antigua. The joint venture is
operated through Caribbean Media Group, Ltd. We own 39.69% of this joint venture
company. 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.
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 is
retained by Around The World Travel as a management fee.
We also currently generate modest revenue from our call center joint
venture in Antigua. We expect revenues from our call center operations to
increase throughout the year based on indications from a major client that it
will require more seats in September 2005.
12
RECENT EVENTS
On January 29, 2005, we entered into an operating agreement with a
subsidiary of Sonesta International Hotels Corporation of Boston, Massachusetts,
a luxury resort hospitality management company. Pursuant to the operating
agreement, we sub-contracted to Sonesta substantially all of the hospitality
responsibilities for The Sonesta Orlando Resort at Tierra del Sol. We retain
primary management control of the resort. We had previously engaged Fugelberg
Koch to design the residential units of the resort, amenities and the clubhouse.
In February 2005, we held the official groundbreaking ceremony for the resort.
On March 7, 2005, we sold land located in Davenport, Florida that had been
held for commercial development. The land was acquired in 2002 for approximately
$1,975,359 and sold for $4,020,000 and paid-off secured debt on the property in
the amount of $1,300,000 plus accrued interest and other costs. We received
approximately $2,100,000 in net proceeds from the sale and realized a profit of
$1,100,000. 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.
We amended our agreement with Around The World Travel, Inc. effective March
31, 2005, to change the manner in which we paid for the TraveLeaders assets that
we acquired on December 31, 2004. The purchase price of $17,500,000 was
determined by adding $1,500,000 to the fair value ($16,000,000) of the business
as a going concern as determined by management using an appraisal performed by
an independent investment banking firm. Pursuant to the terms of the original
asset purchase agreement and prior to the completion of the independent
valuation, we were to assume and forgive an aggregate of $17,306,352 in
liabilities and issue 1,936 shares of our Series F preferred stock valued at
$193,648 in consideration for the assets. Under the amendment, the liabilities
assumed were reduced to $4,242,051, we forgave certain working capital loans in
the amount of $4,774,619 that Around The World Travel owed to us and we
cancelled the issuance of Series F preferred stock. 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. During the first quarter of 2005, we transferred to Around
The World Travel doubtful receivables, 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. The
final balance due under the note as of June 30, 2005, after the offsets, was
$6,356,740, which was evidenced by a new note.
In May 2005, we extended the maturity dates of two notes (payable to third
parties) in the aggregate amount to $7,862,250 that matured on March 31, 2005 to
September 30, 2005.
On August 16, 2005, we obtained commitments from KeyBank for two credit
facilities to be used in the development of The Sonesta Orlando Resort at Tierra
del Sol. KeyBank has committed to fund or to syndicate $96,600,000 as a
development and construction facility for the first phase of the resort. KeyBank
has also committed to fund a second credit facility in the amount of $14,850,000
as a land loan for the second phase of the resort. We expect to close both
credit facilities within sixty to ninety days of the commitment letters. In
addition, KeyBank Capital Markets will underwrite the sale of $25,995,000 in
bonds issued by the Westridge Community Development District to fund the first
phase of sitework for the resort. See "Liquidity and Capital Resources" under
the heading "KeyBank Commitments," below.
KNOWN TRENDS, EVENTS, AND UNCERTAINTIES
We expect to experience seasonal fluctuations in our gross revenues and net
earnings. This seasonality may cause significant fluctuations in our quarterly
operating results. In addition, other material fluctuations in operating results
may occur due to the timing of development of certain 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 2005 and in the years ahead.
13
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations is based upon our unaudited 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 predictable losses while developing our business, and we have
negative retained earnings. We expect our travel operations through the end of
the current fiscal year to require additional working capital of approximately
$750,000. 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, 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. 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 third
party manager of the business. We recognize as revenue only the net operating
results of TraveLeaders after deducting the management fee paid to Around The
World Travel of 10% of net earnings before interest expense, taxes, depreciation
and amortization.
Revenues from our call center are recognized on the equity basis from the
joint venture that operates the call center. We own 39.69% of the joint venture.
We have entered into 720 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.
14
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. In 2004, we recorded an impairment of $1,500,000 related to the
acquisition of the TraveLeaders assets in December 2004, based on our payment of
more than fair value as determined by an independent investment bank. Our
remaining goodwill of $14,425,437 has not been impaired as of June 30, 2005, and
is evaluated on an annual basis or whenever events or circumstances indicate the
carrying value of the goodwill may not be recoverable.
RESULTS OF OPERATIONS
Three Months ended June 30, 2005 Compared to Three Months Ended June 30, 2004
--------------------------------------------------------------------------------
Revenue increased $4,967,004, or 429%, to $6,125,286 for the three months
ended June 30, 2005, as compared to revenue of $1,158,282 for the three months
ended June 30, 2004. The increase in revenue was primarily attributable to
increased travel revenues for summer travel which was offset by a higher than
expected loss from the call center operations and TraveLeaders. We acquired
TraveLeaders in the fourth quarter of 2004.
Cost of revenue increased $4,732,542, or 327%, to $6,181,356 for the three
months ended June 30, 2005, as compared to cost of revenue of $1,448,814 for the
three months ended June 30, 2004. The increase in cost of revenue was
attributable to TraveLeaders. We acquired TraveLeaders in the fourth quarter of
2004.
Depreciation and amortization expense increased $163,509, or 92%, to
$341,809 for the three months ended June 30, 2005, as compared to depreciation
and amortization expense of $178,300 for the three months ended June 30, 2004.
The increase in depreciation and amortization expense was primarily attributable
to the additional assets that we acquired from Around The World Travel, Inc. and
the call center assets becoming eligible for depreciation when our call center
operations began in January 2005. Our depreciable assets consisted of office
equipment, furniture and fixtures and telecommunications equipment.
General and administrative expenses increased $172,270, or 36%, to
$648,257 for the three months ended June 30, 2005, as compared to general and
administrative expenses of $475,987 for the three months ended June 30, 2004.
The increase in general and administrative expenses was primarily attributable
to general expenses, personnel and rent for the call center operations which
began in January 2005 as well as an increase in administrative personnel and
professional fees for the real estate operations that we have incurred since the
groundbreaking in February 2005 of The Sonesta Orlando Resort at Tierra del Sol.
Our general and administrative expenses consisted of the following categories:
personnel, facility, technology and telecommunications, professional fees and
other general and administrative expenses.
15
Loss from operations increased $101,317, or 11%, to $1,046,136 for the
three months ended June 30, 2005, as compared to a loss from operations of
$944,819 for the three months ended June 30, 2004. The increase in loss from
operations was due to the increase in revenue which was offset by the increase
in depreciation and amortization expense and general and administrative
expenses.
Interest expense increased $223,418, or 186%, to $343,526 for the three
months ended June 30, 2005, as compared to interest expense of $120,108 for the
three months ended June 30, 2004. During the period from December 2003 to
December 2004, we received a total of $11,505,000 of convertible debt financing
from Stanford Venture Capital Holdings, Inc. ("Stanford"). Interest expense
increased as a result of the debt financing that we received from Stanford.
We did not have income or loss attributable to minority interest for the
three months ended June 30, 2005, as compared to income attributable to minority
interest of $227,662 for the three months ended June 30, 2004.
Loss before income taxes increased $552,397, or 66%, to $1,389,662 for the
three months ended June 30, 2005, as compared to loss before income taxes of
$837,265 for the three months ended June 30, 2004. The increase in loss before
income taxes was due to the increase in interest expense, the loss from equity
in operations of unconsolidated affiliate and the decrease in income
attributable to minority interest.
16
We did not record a provision for income taxes for the three months ended
June 30, 2005. We recorded a provision for income taxes of $(1,135) for the
three months ended June 30, 2004. Although we have net operating loss
carry-forwards that may be used to offset future taxable income and generally
expire in varying amounts through 2024, no tax benefit has been reported in the
financial statements.
Net loss increased $551,262, or 66%, to $1,389,662 for the three months
ended June 30, 2005, as compared to net loss of $838,400 for the three months
ended June 30, 2004. The increase in net loss and basic and diluted net loss per
share was due to the increase in loss before income taxes.
We accrued undeclared preferred stock dividend of $350,890 for the three
months ended June 30, 2005, as compared to undeclared preferred stock dividend
of $275,969 for the three months ended June 30, 2004. The increase in undeclared
preferred stock dividend was due to the issuance of additional shares of
preferred stock with cumulative dividends during 2004.
Net loss after preferred stock dividend increased $626,183, or 56%, to
$1,740,552 with basic and diluted net loss per share of $0.17 for the three
months ended June 30, 2005, as compared to net loss of $1,114,369 with basic and
diluted net loss per share of $0.14 for the three months ended June 30, 2004.
The increase in net loss after preferred stock dividend and basic and diluted
net loss per share was due to the increase in preferred stock dividend.
Six Months ended June 30, 2005 Compared to Six Months Ended June 30, 2004
--------------------------------------------------------------------------------
Revenue increased $11,589,720, or 494%, to $13,934,667 for the six months
ended June 30, 2005, as compared to revenue of $2,344,947 for the six months
ended June 30, 2004. The increase in revenue was primarily attributable to the
additional revenues from the acquisition of assets from Around The World Travel,
Inc and the gain from the sale of property in March 2005.
Cost of revenue increased $10,067,434, or 342%, to $13,008,978 for the six
months ended June 30, 2005, as compared to cost of revenue of $2,941,544 for the
six months ended June 30, 2004. The increase in cost of revenue was attributable
to TraveLeaders. We acquired TraveLeaders in the fourth quarter of 2004.
Depreciation and amortization expense increased $330,687, or 93%, to
$685,305 for the six months ended June 30, 2005, as compared to depreciation and
amortization expense of $354,618 for the six months ended June 30, 2004. The
increase in depreciation and amortization expense was primarily attributable to
the additional assets that we acquired from Around The World Travel, Inc. and
the call center assets becoming eligible for depreciation when our call center
operations began in January 2005. Our depreciable assets consisted of office
equipment, furniture and fixtures and telecommunications equipment.
General and administrative expenses increased $517,871, or 56%, to
$1,447,384 for the six months ended June 30, 2005, as compared to general and
administrative expenses of $929,513 for the six months ended June 30, 2004.
The increase in general and administrative expenses was primarily attributable
to general expenses, personnel and rent for the call center operations which
began in January 2005 as well as an increase in administrative personnel and
professional fees for the real estate operations that we have incurred since the
groundbreaking in February 2005 of The Sonesta Orlando Resort at Tierra del Sol.
Our general and administrative expenses consisted of the following categories:
personnel, facility, technology and telecommunications, professional fees and
other general and administrative expenses.
17
Loss from operations decreased $673,728, or 36%, to $1,207,000 for the six
months ended June 30, 2005, as compared to a loss from operations of $1,880,728
for the six months ended June 30, 2004. The decrease in loss from operations was
due to the increase in revenue which was offset by the increase in depreciation
and amortization expense and cost of service revenues.
Interest expense increased $544,773, or 284%, to $736,845 for the six
months ended June 30, 2005, as compared to interest expense of $192,072 for the
six months ended June 30, 2004. During the period from December 2003 to December
2004, we received a total of $11,505,000 of convertible debt financing from
Stanford. Interest expense increased as a result of the debt financing that we
received from Stanford.
We did not have income or loss attributable to minority interest for the
six months ended June 30, 2005, as compared to income attributable to minority
interest of $484,286 for the six months ended June 30, 2004.
18
Loss before income taxes increased $355,331, or 22%, to $1,943,845 for the
six months ended June 30, 2005, as compared to loss before income taxes of
$1,588,514 for the six months ended June 30, 2004. The increase in loss before
income taxes was due to the increase in interest expense, the loss from equity
in operations of unconsolidated affiliate and the decrease in income
attributable to minority interest.
We did not record a provision for income taxes for the six months ended
June 30, 2005. We recorded a provision for income taxes of $(3,870) for the six
months ended June 30, 2004. Although we have net operating loss carry-forwards
that may be used to offset future taxable income and generally expire in varying
amounts through 2024, no tax benefit has been reported in the financial
statements.
Net loss increased $351,461, or 22%, to $1,943,845 for the six months ended
June 30, 2005, as compared to net loss of $1,592,384 for the six months ended
June 30, 2004. The increase in net loss was due to the increase in loss before
income taxes.
We accrued undeclared preferred stock dividend of $701,780 for the six
months ended June 30, 2005, as compared to undeclared preferred stock dividend
of $551,938 for the six months ended June 30, 2004. The increase in undeclared
preferred stock dividend was due to the issuance of additional shares of
preferred stock with cumulative dividends during 2004.
Net loss after preferred stock dividend increased $501,303, or 23%, to
$2,645,625 with basic and diluted net loss per share of $0.26 for the six months
ended June 30, 2005, as compared to net loss of $2,144,322 with basic and
diluted net loss per share of $0.28 for the six months ended June 30, 2004. The
increase in net loss after preferred stock dividend was due to the increase in
preferred stock dividend. The decrease in basic and diluted net loss per share
was due to an increase in the basic and diluted weighted average shares
outstanding of 10,001,841 for the six months ended June 30, 2005, as compared to
basic and diluted weighted average shares outstanding of 7,759,642 for the six
months ended June 30, 2004.
We had an accumulated deficit of $11,316,487 as of June 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
We expect that we will require approximately $750,000 through the end of
the current fiscal year for working capital for our travel management and
services businesses. Also, in November, 2005, $1,250,000 of our credit facility
with Stanford is scheduled to mature, we anticipate either revolving the
facility or repaying them via refinancing our accounts receivable with a
commercial bank. In September 2005 two notes (payable to third parties) in the
aggregate amount $7,862,250 plus accrued interest of $431,936 as of June 30,
2005 are due to mature. We plan to repay the notes with part of the funds that
we plan to receive from KeyBank and the bond sale by the Westridge Community
Development District. As discussed below, we recently obtained commitments from
KeyBank for two credit facilities in the aggregate amount of $111,450,000 for
The Sonesta Orlando Resort at Tierra del Sol. In addition, KeyBank Capital
Markets will underwrite the sale of $25,995,000 in bonds issued by the Westridge
Community Development District to fund the first phase of sitework for the
resort. The underwriting on the bonds is completed and the pre-sale bids have
been received. We anticipate that the bond sale will be consummated upon the
completion of the syndication by KeyBank of part of the credit facilities. The
bonds will be repaid by residential unit owners in the district over a 30-year
period, through a tax assessment by the district. We estimate that the sum of
the funds from the credit facilities, the completion of the sale of our 40 acres
of commercial land and the bond sale proceeds will provide sufficient capital
for the construction of the first phase of The Sonesta Orlando Resort at Tierra
del Sol.
19
In addition, to partially fund our development costs at The Sonesta Orlando
Resort at Tierra del Sol, we have used cash from buyers' deposits, after
providing the disclosure required by Florida law, on the pre-sold town homes for
which the buyer has waived the requirements to maintain the funds in escrow. The
deposits on the town homes range from 10% to 20% of the purchase price. As of
June 15, 2005, approximately 90% of the buyers of town homes in the resort have
waived the escrow requirement and these funds have been expended for our project
related costs. Our contract for the condominiums requires a 20% deposit. All of
the deposits received on condominium contracts are maintained in escrow.
Provided the purchaser has waived escrow, we may use any condominium contract
deposit in excess of 10% to fund the hard costs of construction of their unit.
In the event we post a bond according to Florida law, we will also be permitted
to use the bonded portion of the deposits on the condominiums for the projects
development and construction costs.
We had total current assets of $8,071,635 as of June 30, 2005, which
consisted of cash of $6,507,295, of which $4,649,377 was restricted, accounts
receivable of $762,212, prepaid expenses and other assets of $725,373, and note
receivable of $76,755. The restricted cash is for deposits received on pre-sale
contracts, which are being held in escrow. The majority of accounts receivable
represents the travel receivables of Hickory. Other assets consist of deferred
acquisition costs, investment in subsidiaries, and member contracts and customer
lists of our Travel Division.
We had total current liabilities of $14,106,522 as of June 30, 2005, which
consisted of current maturities of long-term debt and notes payable of
$8,613,354, accounts payable and accrued expenses of $2,694,954, accrued
expenses to officers of $1,624,083, current maturities of notes payable to
related parties of $1,033,216 of which approximately $534,509 was owed to our
CEO/director and his affiliates and $222,892 was owed to another director, and
other current liabilities of $140,915. We expect to close the credit facilities
with KeyBank during the fourth quarter of 2005, and use part of the funds to pay
off current maturities of long-term debt and notes payable of $8,613,354, which
includes two notes (payable to third parties) in the aggregate amount $7,862,250
plus accrued interest of $431,936 as of June 30, 2005 that are scheduled to
mature in September 2005.
We had negative net working capital of $6,034,887 as of June 30, 2005. The
ratio of total current assets to total current liabilities was approximately 57%
as of June 30, 2005. That ratio will improve after we pay off current maturities
of long-term debt and notes payable with part of the funds that we expect to
receive from KeyBank as referred to above.
Net cash provided by operating activities was $5,787,020 for the six months
ended June 30, 2005, as compared to net cash provided by operating activities of
$1,259,339 for the six months ended June 30, 2004. The increase in net cash
provided by operating activities for the six months ended June 30, 2005 was
attributable to an increase in deposits on unit pre-sales of $11,971,662, a
decrease in receivables of $2,777,175, a decrease in prepaid and other assets of
$1,435,342, an adjustment of $813,927 for depreciation and amortization, an
adjustment of $736,845 for non-cash interest expense, and an increase in
shareholder advances and notes payable of $141,635 which were offset by a
decrease in accounts payable and accrued expenses of $5,015,865, a decrease in
customer deposits of $2,752,535, net loss of $1,943,845 and an increase in
prepaid commissions of $2,377,321.
Net cash provided by investing activities was $5,286,853 for the six months
ended June 30, 2005, as compared to net cash used in investing activities of
$4,154,428 for the six months ended June, 2004. The change from net cash used in
investing activities to net cash provided by investing activities was primarily
attributable to the acquisition of AWT assets of $10,602,635 for the six months
ended June 30, 2004.
Net cash used in financing activities was $6,832,620 for the six months
ended June 30, 2005, as compared to net cash provided by financing activities of
$4,577,074 for the six months ended June 30, 2004. The change from net cash
provided by financing activities to net cash used in financing activities was
due to the payment of debt of $6,114,651 and payments of notes payable to
related parties of $717,969 for the six months ended June 30, 2005.
Previously we have relied on loans from third parties and from related
parties to provide working capital and other funding needs. Our outstanding debt
includes three credit facilities totaling $11,605,000 in principal amount
provided by Stanford. We recently obtained commitments from KeyBank for two
credit facilities in an aggregate of $111,450,000 for The Sonesta Orlando Resort
at Tierra del Sol. In addition, KeyBank Capital Markets will underwrite the sale
of $25,995,000 in bonds issued by the Westridge Community Development District
to fund the first phase of sitework for the resort.
20
Stanford Credit Facilities
----------------------------
At June 30, 2005, we had outstanding principal balance of $11,605,000 under
our three credit facilities with Stanford. Our $6,000,000 secured revolving
credit facility with Stanford bears interest at a fixed rate of 6% per annum
payable quarterly in arrears and matures on December 18, 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 $15.00 per
share. The $6,000,000 credit facility is guaranteed by Malcolm Wright, our chief
executive officer 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 two of our subsidiaries, American Leisure Marketing
& Technology, Inc. and Caribbean Leisure Marketing Limited.
Our $4,250,000 secured revolving credit facility with Stanford bears
interest at a fixed rate of 8% per annum payable quarterly in arrears. The
credit facility is comprised of two tranches. The first tranche of $1,250,000
matures in November, 2005, may solely be used for the working capital of our
Hickory and TraveLeaders travel business and must immediately be repaid to the
extent that the borrowed amount together with accrued and unpaid interest
exceeds a borrowing base which is generally calculated as the lesser of
$1,250,000, or 50% of the dollar amount of TraveLeaders eligible accounts
receivable minus such reserves as the lender may establish from time to time in
its discretion. The second tranche of $3,000,000 matures on April 22, 2007. 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.
Our $1,355,000 secured revolving credit facility with Stanford bears
interest at a fixed rate of 8% per annum and matures April 22, 2007. The
proceeds of this facility may be used solely for our call center operations in
Antigua. Interest for the period from January 1, 2005 to March 31, 2006 is due
on April 3, 2006 and interest is due quarterly in arrears for periods after
April 1, 2006. 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 all of
the issued and outstanding stock of our subsidiary, Caribbean Leisure Marketing
Limited.
All of our credit facilities with Stanford 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 our 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 June 30, 2005, we believe we were in
compliance with the covenants and other restrictions applicable to us under each
credit facility.
KeyBank Commitments
--------------------
On August 16, 2005, KeyBank and Tierra Del Sol Resort, Limited Partnership,
a special purpose development company of which a subsidiary of ours is the 99%
limited partner, along with seven special purpose entities that are owned by the
limited partnership, entered into commitment letter for KeyBank to provide a
credit facility to be used in the development of The Sonesta Orlando Resort at
Tierra del Sol. KeyBank has committed to fund or to syndicate $96,600,000 as a
development and construction facility for the first phase of the resort. KeyBank
has also committed to fund a second credit facility of $14,850,000 as a land
loan for the second phase of the resort, pursuant to a second commitment letter
that KeyBank entered into with TDS Resort Phase 2, L.P., a special purpose
development company of which a subsidiary of ours is the 99% limited partner.
Both credit facilities are expected to close within sixty to ninety days of the
commitment letters. The loans will be subject to various terms and conditions
standard in the industry for these types of loans as agreed to by the parties.
See "Risk Factors," below. In addition, KeyBank Capital Markets will underwrite
the sale of $25,995,000 in bonds issued by the Westridge Community Development
District to fund the first phase of sitework for the resort.
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The $96,600,000 credit facility will be evidenced by a promissory note and
a construction loan agreement. The loan will be used to construct the first
phase of The Sonesta Orlando Resort at Tierra del Sol. The loan will be for a
term of twenty-four months from the date of closing. Advances of proceeds of
the loan will bear interest at the 30-Day LIBOR Adjusted Daily Rate plus the
LIBOR Rate Margin of 2.75% (as those terms are defined by the parties) subject
to adjustment for any applicable reserves and taxes if required by future
regulations. Interest will be due and payable monthly beginning on the fifth
day of the first month following closing. In the event of default, the interest
rate will be the greater of 3% in excess of the interest rate otherwise
applicable on each outstanding advance or 18%. KeyBank may require the
borrowers to institute an interest rate hedging program through the purchase of
an interest rate swap, cap, or other such interest rate protection product from
KeyBank or any qualified banking institution. The loan will be secured by a
first lien on the resort, including the land, improvements, easements, 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
resort; 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. We, our Chief Executive Officer, Malcolm J. Wright and a
Florida single purpose limited liability company to be capitalized by PCL
Construction Enterprises, Inc. ("PCL") will guarantee repayment of the loan. We
and those other parties will guaranty performance and completion. Mr. Wright
obtained a surety bond in the amount of $4,000,000 to collateralize part of his
personal guarantee for this loan and the $14,850,000 loan discussed below. PCL,
an international construction company and parent to the company that will serve
as general contractor, will guaranty completion of the resort based on a fixed
price and time schedule pursuant to a construction contract. PCL will be
required to pay substantial penalties if the time schedule is not met. The
borrowers and some of the guarantors will enter into an environmental indemnity
agreement. KeyBank will enter into a subordination, nondisturbance and
attornment agreement with each tenant under any lease. KeyBank plans to hold
approximately $50 million of the combined commitments with the balance
syndicated to other banking organizations. Syndication of the loan, typical in
projects of this size, is a condition of closing (timing), but not a condition
of the commitment except for a material adverse change in our condition and of
loan syndication market conditions generally. The borrowers will pay 1% of the
loan amount as a commitment fee. The borrowers will pay $150,000 per year as a
loan administration fee. The borrowers are obligated to pay all costs and
expenses of KeyBank in connection with the commitment and closing of the loan.
The borrowers are required to maintain Project Equity (as that term is defined
by the parties) in the project equal to 44% of the total cost, which must be
deposited with KeyBank prior to closing or used to pay costs approved by
KeyBank. The borrowers are required to provide KeyBank with pre-construction
sales contracts on 100% of the units in the first phase with net proceeds equal
to or exceeding 120% of the loan amount. The borrowers are required to deliver,
or demonstrate valid expenditure of, pre-construction sales deposits of
$25,498,108 to KeyBank as part of the equity requirement otherwise the equity
requirement is increased, dollar-for-dollar for each dollar that deposits are
less than this amount.
We anticipate that the first phase of sitework for 600 units at an
estimated cost of $19,200,000 will be funded, in part, by the Westridge
Community Development District from the sale of $25,995,000 of Special
Assessment Capital Improvement bonds issued on a non-recourse basis to us. Bond
sale proceeds are to be used for infra-structure construction and the
acquisition of lands to be dedicated to the public purposes for which the
district was created. The district was initially proposed and underwritten by us
and enabled by an order of a Florida State District Court. The purchasers'
underwriting on the bonds is completed and the pre-sale bids have been received.
We anticipate that the bond sale will be consummated upon the syndication by
KeyBank of part of the credit facilities. The bonds will be repaid by
residential unit owners in the district over a 30-year period, through a tax
assessment by the district. The Borrowers will assign to KeyBank the proceeds to
be received from the funding of the bonds. KeyBank Capital Markets will
underwrite the bond issuance, with net proceeds in the amount of approximately
$21,139,322, of which $8,038,370 will be used for land, $6,038,370 will be used
for costs to construct the resort, and $2,000,000 will be placed in a collateral
account to be pledged as additional security for the $96,600,000 construction
loan.
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The $14,850,000 credit facility will be evidenced by a promissory note,
mortgage and a loan agreement. The loan will be used for investing in the equity
in the first phase of The Sonesta Orlando Resort at Tierra del Sol and to pay
off existing land loans encumbering the second phase of the resort. The loan
will be for a term of eighteen months from the date of closing. Advances of
proceeds of the loan will bear interest at the 30-Day LIBOR Adjusted Daily Rate
plus the LIBOR Rate Margin of 3.10% subject to adjustment for any applicable
reserves and taxes if required by future regulations. Interest will be due and
payable monthly beginning on the fifth day of the first month following closing.
In the event of default, the interest rate will be the greater of 3% in excess
of the interest rate otherwise applicable on each outstanding advance or 18%.
KeyBank may require the borrower to institute an interest rate hedging program
through the purchase of an interest rate swap, cap, or other such interest rate
protection product from KeyBank or another qualified banking institution. The
loan will be secured by a first lien on the second phase of the resort,
including the second phase land, improvements, easements, rights of way,
fixtures; a first lien and security interest in all fixtures and personal
property, an assignment of all leases, subleases and other agreements relating
to the resort; a guaranty of payment by us and our Chief Executive Officer,
Malcolm J. Wright; an environmental indemnity agreement by us, Mr. Wright and
the borrower; a subordination, nondisturbance and attornment agreement relating
to any leases; a collateral assignment of security agreements and contracts
related to the resort; and a collateral assignment of all purchase contracts and
purchase deposits. Mr. Wright obtained a surety bond in the amount of $4,000,000
to collateralize part of his personal guarantee for this loan and the
$96,600,000 loan discussed above. The borrower will pay 1% of the loan amount as
a commitment fee. The borrower will pay an exit fee equal to 4% of the maximum
loan amount for the second phase unless the loan is repaid with a construction
loan from KeyBank or KeyBank declines to grant a construction loan. The borrower
is obligated to pay all costs and expenses of KeyBank in connection with the
commitment and the closing of the loan. The borrower is required to provide
KeyBank with evidence that the land appreciation equity invested in the resort
indicates a loan-to-value ratio of not more than 50%. KeyBank received a written
appraisal from Integra Realty Resources on March 15, 2005 reflecting an
appraised land value of $29,700,000 which satisfies the borrower's equity
requirement.
Our ability to construct The Sonesta Orlando Resort at Tierra del Sol and
repay our current debt is contingent upon us closing the construction financing
and receiving the district bond sale proceeds. Both credit facilities are
expected to close within sixty to ninety days of the commitment letters;
however, there is no assurance that we will not experience delays in closing the
construction loan and bond financing. If we are unable to obtain financing for
our working capital needs or close the construction loan or the bond financing,
we will be required to find alternative sources of capital that may not be
available when needed or on terms satisfactory to us, if at all. In the past,
most of our working capital has been obtained through loans from or the purchase
of equity by our officers, directors, large shareholders and some third parties.
At this time, we do not have any written commitments for additional capital from
any of these parties, other than the commitments from KeyBank which are to be
used specifically for The Sonesta Orlando Resort at Tierra del Sol.
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
are material to investors.
23
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 June 30, 2005, we had an accumulated
deficit of $11,316,487.
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 require 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. If we are unable to generate enough operating revenue to satisfy our
capital needs or we cannot obtain future capital from our founding and majority
shareholders or from Stanford, it will have a material adverse effect on our
financial condition and results of operation.
WE HAVE RECEIVED $11,605,000 MILLION 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 $11,605,000 million 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:
- Our $6,000,000 credit facility is secured by a second mortgage on
The Sonesta Orlando Resort at Tierra del Sol which we plan to develop,
including all fixtures and personal property to be located on or used
in connection with this property, and all of the issued and
outstanding capital stock and assets of two of our subsidiaries,
American Leisure Marketing & Technology, Inc. and Caribbean Leisure
Marketing Limited.
- Our $4,250,000 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.
- Our $1,355,000 credit facility is secured by all of the issued
and outstanding stock of our subsidiary, Caribbean Leisure Marketing
Limited.
In addition, Malcolm J. Wright, our President, Chief Executive Officer, Chief
Financial Officer and a member of our board of directors provided a personal
guarantee for our $6,000,000 credit facility. If we fail to comply with the
covenants in our credit facility, Stanford can elect to accelerate the amounts
due under the credit facility and may foreclose on our assets and property that
secure 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:
- difficulty in assimilating the operations, products and personnel
of the acquired business;
- potential disruption of our ongoing business;
- unanticipated costs associated with the acquisition;
- inability of management to manage the financial and strategic
position of acquired or developed services and technologies;
- the diversion of management's attention from our core business;
- inability to maintain uniform standards, controls, policies and
procedures;
24
- impairment of relationships with employees and customers, which
may occur as a result of integration of the acquired business;
- potential loss of key employees of acquired organizations;
- problems integrating the acquired business, including its
information systems and personnel;
- unanticipated costs that may harm operating results; and
- 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 NEED TO CLOSE A $96,600,000 CONSTRUCTION LOAN AND A $14,850,000 LAND LOAN FOR
THE RESORT DEVELOPMENT DIVISION IN ORDER TO BUILD THE SONESTA ORLANDO RESORT AT
TIERRA DEL SOL.
Certain conditions are required to be meet, some of which are outside of
our control, to close a $96,600,000 construction loan and a $14,850,000 land
loan for The Sonesta Orlando Resort at Tierra del Sol. Pursuant to the
commitment letters that we obtained from KeyBank, these conditions include, but
are not limited to, the following:
- Syndication by KeyBank of part of its interest in the credit
facilities;
- Our delivery of fully executed pre-construction sales contracts
on 100% of the units in the first phase which will produce aggregate
net sales proceeds sufficient to cover 120% of the $96,600,000 loan
amount;
- Our delivery or a demonstration by us of valid expenditure of,
pre-construction sales deposits of $25,498,108; and an environmental
assessment of the land on which the resort will be constructed.
Our compliance is also necessary to trigger the issuance and sale of $25,995,000
of Westridge Community Development District bonds, the net proceeds of which are
needed for the first phase of sitework for the resort. Proceeds from the sale
of the bonds are a necessary component to the capital structure of the project
to develop the resort. If we cannot close the loans as committed to by KeyBank
in a timely manner, or at all, it will cause a delay in the construction of the
resort.
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 to construct 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, a significant number of 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.
25
MALCOLM J. WRIGHT, WHO SERVES AS OUR CHIEF EXECUTIVE OFFICER, PRESIDENT AND
CHIEF FINANCIAL OFFICER AND AS A DIRECTOR, 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 CEO of American Leisure Real Estate Group, Inc., a
real estate development company with which we have contracted for the
development of The Sonesta Orlando Resort at Tierra del Sol. Mr. Wright is the
CEO of Resorts Development Group LLC a real; estate development company. 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. Mr. Wright
is also an officer of Innovative Concepts, Inc., which operates a landscaping
business, and M J Wright Productions, Inc., which owns our Internet domain
names. Because Mr. Wright is employed by us and the other party to these
transactions, these transactions may be or may be considered to be on terms that
are not arms'-length and may not be as advantageous to us as agreements with
unrelated third parties. 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.
BECAUSE MALCOLM J. WRIGHT, WHO SERVES AS OUR CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHIEF FINANCIAL OFFICER AND AS A DIRECTOR, 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 CEO of American Leisure Real Estate Group, Inc.,
Xpress Ltd., Innovative Concepts, Inc., M J Wright Productions, Inc., Resorts
Development Group, LLC, Osceola Business Managers, Inc., Florida World, Inc. and
SunGate Resort Villas, Inc. It is possible that the demands on Mr. Wright from
these other businesses could increase with the result that he may have less time
to devote to our business. 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. As a result, Mr. Wright may not spend sufficient time in his roles as
an executive officer and a director of our company to realize our business plan.
If Mr. Wright does not have sufficient time to serve 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. 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 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 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 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-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.
WE HAVE EXPERIENCED DELAYS IN OBTAINING SIGNATURES FOR AGREEMENTS AND
TRANSACTIONS, WHICH HAVE PREVENTED THEM FROM BEING FINALIZED.
We have experienced delays in obtaining signatures for various agreements
and transactions. In some cases, we have either disclosed the terms of these
agreements and transactions in our periodic and other filings with the SEC;
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 disclosure and any revisions could
be substantial.
26
WE ARE RELIANT 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 and L. William Chiles. Mr. Wright is a Director of the Company
and the Company's Chief Executive Officer, President and Chief Financial
Officer. Mr. Chiles is a Director of the Company and President of Hickory. Our
ability to operate and implement our business plan is dependent on the continued
service of Messrs. Wright and Chiles. We have entered into an employment
agreement with Mr. Chiles. We are in the process of entering into a written
employment agreement with Mr. Wright. If we are unable to retain and motivate
them on economically feasible terms, our business and results of operations will
be materially adversely affected.
IF WE DO NOT EVENTUALLY PAY MALCOLM J. WRIGHT, OUR CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER FOR HIS SERVICES AS AN EXECUTIVE OFFICER AND A DIRECTOR,
WE COULD LOSE HIS SERVICES.
We have not paid cash to Malcolm J. Wright for his services as an executive
officer and a director as of the filing of this report; however, he is entitled
to receive various forms of remuneration from us such as accrued salary of
$500,000 per year beginning in 2004 and accrued compensation of $18,000 per year
for serving as a director. 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 services that those entities have provided to us for The Sonesta
Orlando Resort at Tierra del Sol. If we do not eventually pay cash to Mr.
Wright for his salary, director's compensation and bonus, he may determine to
spend less of his time on our business or to resign his positions as an officer
and a director.
RISKS RELATED TO OUR TRAVEL DIVISION
WE NEED APPROXIMATELY $750,000 OF CAPITAL THROUGH THE END OF THE CURRENT FISCAL
YEAR FOR THE TRAVEL DIVISION THAT MAY NOT BE AVAILABLE TO US ON FAVORABLE TERMS,
IF AT ALL.
We need to raise approximately $750,000 through the end of the current
fiscal year for the working capital needs for the Travel Division which includes
Hickory's requirement through the third quarter of 2005 to cover its seasonal
losses, TraveLeaders' requirements during its reorganization to adopt our
business models, and our operating costs prior to closing a construction loan
(discussed below). Also, in November, 2005, $1,250,000 of our credit facility
with Stanford is scheduled to mature. In September 2005 two notes (payable to
third parties) in the aggregate amount to $7,862,250 plus accrued interest of
$431,936 as of June 30, 2005 are scheduled to mature. We plan to repay the notes
with part of the funds that we plan to receive from KeyBank and the bond sale by
the Westridge Community Development District. 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
27
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. 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 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:
- price escalation in the airline industry or other travel related
industries;
- airline or other travel related strikes;
- political instability, war and hostilities;
- long term bad weather;
- fuel price escalation;
- increased occurrence of travel-related accidents; and
- economic downturns and recessions.
OUR TRAVEL REVENUES MAY FLUCTUATE FROM QUARTER TO QUARTER DUE TO SEVERAL FACTORS
INCLUDING ONES THAT ARE OUTSIDE OF OUR CONTROL, AND IF 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.
28
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.
29
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.
RISKS RELATED TO OUR COMMUNICATIONS DIVISION
WE MAY NOT BE ABLE TO KEEP UP WITH CURRENT AND CHANGING TECHNOLOGY ON WHICH OUR
BUSINESS IS DEPENDENT.
Our call center and communications business is dependent on our computer
and communications equipment and software capabilities. The underlying
technology is continually changing. Our continued growth and future
profitability depends on a number of factors affected by current and changing
technology, including our ability to
- expand our existing service offerings;
- achieve cost efficiencies in our existing call centers; and
- introduce new services and products that leverage and respond to
changing technological developments.
The technologies or services developed by our competitors may render our
products or services non competitive or obsolete. We may not be able to develop
and market any commercially successful new services or products. We have
considered integrating and automating our customer support capabilities, which
we expect would decrease costs by a greater amount than any decrease in
revenues; however, we could be wrong in these expectations. Our failure to
maintain our technological capabilities or respond effectively to technological
changes could have a material adverse effect on our business, results of
operations or financial condition.
A BUSINESS INTERRUPTION AT OUR CALL CENTER, WHETHER OR NOT PROLONGED, COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.
Our call center business operations depend upon our ability to protect our
call center, computer and telecommunications equipment and software systems
against damage from fire, power loss, telecommunications interruption or
failure, natural disaster and other similar events. In the event we experience a
temporary or permanent interruption at our call center and our contracts do not
provide relief, our business could be materially adversely affected and we could
be required to pay contractual damages to some clients or allow some clients to
terminate or renegotiate their contracts with us. In the event that we
experience business interruptions, it would have a material adverse effect on
our business, results of operations and financial condition.
RISKS RELATING TO OUR COMMON STOCK
IF WE FAIL TO FILE OUR PERIODIC REPORTS AND REPORTS ON FORM 8-K WITH THE
COMMISSION IN A TIMELY MANNER, WE COULD RECEIVE AN "E" ON OUR TRADING SYMBOL OR
OUR COMMON STOCK COULD BE DE-LISTED FROM THE OVER-THE-COUNTER BULLETIN BOARD
(THE "OTCBB").
We are in the process of integrating the business operations of Hickory and
TraveLeaders, which includes the financial accounting, function. We face
increased 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. We also face
increased pressure accumulating and communicating such information to our
management as appropriate to allow timely decisions regarding required
disclosure. We believe that until we have fully integrated our financial
accounting function, we will continue to face such pressure. If we are unable
to file our periodic reports with the Commission in a timely manner, we could
receive an "e" on our trading symbol, which could result in our common stock
being de-listed from the OTCBB. In addition, investors who hold restricted
shares of our common stock would be precluded from reselling their shares
pursuant to Rule 144 of the Securities Act until such time as we were able to
establish a history of current filings with the Commission. In the event that
our common stock is de-listed from the OTCBB, it is likely that our common stock
will have less liquidity than it has, and will trade at a lesser value than it
does, on the OTCBB.
30
OUR COMMON STOCK COULD AND HAS FLUCTUATED, AND SHAREHOLDERS MAY BE UNABLE TO
RESELL THEIR SHARES AT A PROFIT.
The price of our common stock has fluctuated since it began trading. The
trading prices for small capitalization companies like ours often fluctuate
significantly. Market prices and trading volume for stocks of these types of
companies including ours have also been volatile. The market price of our common
stock is likely to continue to be highly volatile. If revenues or earnings are
less than expected for any quarter, the market price of our common stock could
significantly decline, whether or not there is a decline in our consolidated
revenues or earnings that reflects long-term problems with our business. Other
factors such as our issued and outstanding common stock becoming eligible for
sale under Rule 144, terms of any equity and/or debt financing, and market
conditions could have a significant impact on the future price of our common
stock and could have a depressive effect on the then market price of our common
stock.
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. We are currently in need of additional financing and may be
required to lower the exercise price of our existing warrants or issue
additional warrants in connection with future financing arrangements.
Re-pricing of our warrants and issuing additional warrants has caused and may
cause additional dilution to our existing 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.
31
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE NEAR FUTURE.
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 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 President, Chief Executive Officer and Chief Financial
Officer and as a Director, and Roger Maddock, one of our majority shareholders,
own, directly and indirectly, an aggregate of 62.6% of the voting power in our
company. 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.
ITEM 3. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures. Our Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of our
"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"), has concluded that as of the
Evaluation Date, our disclosure controls and procedures were effective.
However, because we have not fully integrated our administrative operations, we
face increased 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. We believe
that until we have fully integrated our administrative operations, we will
continue to face such pressure regarding the timeliness of our filings as
specified in the Commission's rules and forms which could lead to a future
determination that our disclosure controls and procedures are not effective as
of a future evaluation date.
Changes in internal control over financial reporting. There were no
significant changes in our internal control over financial reporting during our
most recent fiscal quarter that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
32
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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. If 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
is in the discovery phase and is not currently set for trial. We have been
advised by our attorneys in this matter that Mr. Wright's position on the facts
and the law is stronger than the positions asserted by the Smee Entities.
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 and will shortly enter the discovery phase and is not
currently set for trial. We believe that Manuel Sanchez' and Luis Vanegas'
claims are without merit and the claims are not material to us. We intend to
vigorously defend the lawsuit.
In February 2003, we and Malcolm J. Wright were joined in a lawsuit
captioned as Howard C. Warren v. Travelbyus, Inc., William Kerby, David Doerge,
DCM/Funding III, LLC, and Balis, Lewittes and Coleman, Inc. in the Circuit Court
of Cook County, Illinois, Law Division, which purported to state a claim against
us as a "joint venturer" with the primary defendants. The plaintiff alleged
damages in an amount of $5,557,195.70. On November 4, 2004, the plaintiff moved
to voluntarily dismiss its claim against us. Pursuant to an order granting the
voluntary dismissal, the plaintiff has one (1) year from the date of entry of
such order to seek to reinstate its claims.
On March 30, 2004, Malcolm Wright, was individually named as a third-party
defendant in the Circuit Court of Cook County, Illinois, Chancery Division,
under the caption: Cahnman v. Travelbyus, et al. On July 23, 2004, the primary
plaintiffs filed a motion to amend their complaint to add direct claims against
our subsidiary, American Leisure as well as Mr. Wright. On August 4, 2004, the
plaintiffs withdrew that motion and have not asserted or threatened any direct
claims against American Leisure, Mr. Wright or us.
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. We 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, Seamless' 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.
33
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. 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.
Despite the absence of any executed agreements, 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 attorney's fees. Despite the absence of any executed agreements,
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 attorney's 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. We intend to
vigorously defend the lawsuit. We have authorized our counsel to file 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 documents that grant exclusive jurisdiction to the
courts located in Cook County, Illinois.
In the ordinary course of its business, we may from time to time become
subject to routine litigation or administrative proceedings, which are
incidental to our business.
The Company is not aware of any proceeding to which any of its directors,
officers, affiliates or security holders are a party adverse to the Company or
have a material interest adverse to the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In July 2005, previously granted warrants to purchase 25,000 shares of our
common stock at an exercise price of $1.02 per share vested to each of Malcolm
J. Wright, L. William Chiles and T. Gene Prescott Charles J. Fernandez to
purchase 100,000 shares of common stock at an exercise price of $1.02 per share
for services rendered. Messrs. Wright, Chiles and Prescott may exercise the
warrants for a period of five years beginning on the vesting date. The Company
claims an exemption from registration afforded by Section 4(2) of the Act since
the foregoing issuance did not involve a public offering, the recipient took the
warrants for investment and not resale and the Company took appropriate measures
to restrict transfer. No underwriters or agents were involved in the foregoing
issuance and no underwriting discounts were paid by the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In March 2005, via signed written consent without a meeting, The Shadmore
Trust U/A/D 12/26/89, the sole holder of our Series E preferred stock, approved
a correction to our certificate of designation of Series E preferred stock. The
original certificate of designation incorrectly stated that the Series E
preferred stock was non-redeemable, failed to define the terms "Parity Preferred
Stock" and "Senior Stock" and incorrectly stated that the conversion rate shall
not be less than 6.666, rather than stating that the conversion rate shall not
be more than 6.666. The Shadmore Trust U/A/D 12/26/89 voted all of the 24,101
shares of Series E preferred stock in favor of the correction.
In June 2005, via signed written consent without a meeting, our majority
shareholders ratified all past transaction in which we were a party including,
but not limited to the following related party transactions:
- our exclusive development agreement with American Leisure Real
Estate Group, Inc., a company in which Malcolm J. Wright, our Chief
Executive Officer, President, Chief Financial Officer and a Director,
owns 81%;
- our exclusive sales and marketing agreement with Xpress Ltd., a
company in which Mr. Wright and members of Mr. Wright's family are the
majority shareholders;
- our debt guarantor agreement with Malcolm J. Wright and L.
William Chiles, who each serve us as a director;
- the personal guarantee by Mr. Wright in the amount of $6,000,000
in favor of Stanford Venture Capital Holdings, Inc.;
- our grants and issuances 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 $2.96 per share and the
subsequent reduction in the exercise price to $1.02 per share of
common stock;
- our grant and issuance of a warrant to Arvimex, Inc. to purchase
40,000 shares of our common stock at an exercise price of $0.001 per
share and a warrant to purchase 270,000 shares of our common stock at
an exercise price of $2.96 per share and the subsequent reduction in
the exercise price to $1.02 per share of common stock; and
- our grant of warrants to each of Thomas Cornish, Carlos
Fernandez, David Levine and Gene Prescott for their services as
advisors to purchase 100,000 shares (or an aggregate of 400,000
shares) of our common stock at an exercise price of $1.02 per share,
subject to a two-year vesting period.
Shareholders representing an aggregate of 12,803,291 votes (or 61.7%) out
of 20,738,951 eligible votes cast their votes in favor of ratifying all past
transactions in which we were a party.
ITEM 5. OTHER INFORMATION.
RELATED PARTY 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. All ongoing and future transactions with such
persons, including any loans from or compensation to such persons, will 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 June 30, 2005, the aggregate amount of
salary payable accrued to Mr. Wright was $1,418,750. We also accrue $100,000
per year as salary payable to L. William Chiles, a director of the Company and
the President of Hickory Travel Systems, Inc., for his services, and interest at
a rate of 12% compounded annually beginning in 2005. As of June 30, 2005, the
aggregate amount of salary payable accrued to Mr. Chiles was $156,750.
35
We pay or accrue directors' fees to each of our three directors in an
amount of $18,000 per year for their services as directors. As of June 30, 2005,
we had accrued an aggregate amount of directors' fees of $145,500.
We entered into a debt guarantor agreement with Mr. Wright and Mr. Chiles
whereby we agreed to indemnify Mr. Wright and Mr. Chiles against all losses,
costs or expenses relating to the incursion of or the collection of our
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 our 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 3% of the total original indebtedness and 2% of any
collateral posted as security. This fee is to be paid by the issuance of
warrants to purchase our common stock at a fixed strike price of $1.02 per
share, when the debt is incurred. Mr. Wright personally guaranteed $6,000,000
that we received from Stanford pursuant to a convertible promissory note. In
addition, Mr. Wright pledged to Stanford 845,733 shares of our common stock held
by Mr. Wright. 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 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. We are under a continued 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. Mr. Wright has agreed to
personally guarantee repayment under the credit facilities that we plan to close
with KeyBank during the fourth quarter of 2005 Upon closing the credit
facilities from KeyBank, Mr. Wright will be issued additional warrants to
purchase up to 3,343,500 shares at $1.02 in consideration for his personal
guarantees. Mr. Wright obtained a surety bond in the amount of $4,000,000 to
collateralize part of his personal guarantee for those credit facilities.
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.
Malcolm J. Wright is the President and 81% majority shareholder of American
Leisure Real Estate Group, Inc. 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 June 30, 2005, the total costs plus fees amounted
to $6,427,706 which resulted in a development fee of $257,108 under the
development agreement.
36
Malcolm J. Wright and a trust of which Mr. Wright's natural heirs are the
beneficiaries are the majority shareholders of Xpress Ltd. Xpress 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. During the period since the
contract was entered into and ended June 30, 2005, the total sales made by
Xpress amounted to approximately $242,912,970. As a result of the sales, we are
currently obligated to pay Xpress a sales fee of approximately $3,643,694 and a
marketing fee of $3,643,694. Based on the sales contracts as of June 30, 2005,
we will be obligated to pay Xpress the remaining sales fee of $3,643,694 upon
closing the sales of the units. As of June 30, 2005, we had paid Xpress
$5,065,244 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 February 2004, Malcolm J. Wright, individually and on behalf of Xpress
Ltd., and Roger Maddock, individually and on behalf of Arvimex, Inc., entered
into contracts with us to purchase an aggregate of 32 town homes for
$13,116,800. Mr. Wright and Mr. Maddock paid an aggregate deposit of $1,311,680
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.
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.
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 President, Chief Executive Officer and Chief
Financial 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.
Thomas Cornish is a director nominee and has served as a member of our
advisory board. 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 the
six month period ended June 30, 2005, Mr. Cornish provided services on our
advisory board in consideration for $1,500 and $4,500, respectively. David
Levine is a director nominee and has served as a member of our advisory board.
Mr. Levine provided services on our advisory board during 2004 and the six month
period ended June 30, 2005 in consideration for $3,000 and $14,500,
respectively. We reimbursed Mr. Levine for travel expenses in the amount of
$1,613 and $8,521 during 2004 and the six month period ended June 30, 2005,
respectively. Charles J. Fernandez, a member of our advisory board and a
director nominee, provided services on our advisory board during the six month
period ended June 30, 2005 for which he was paid $4,500. 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 each of them in equal amounts on their next two anniversary dates as
advisors or Directors, provided they are then serving in one of said capacities.
37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 (1) Stock Purchase Agreement
3.1 (2) Articles of Incorporation
3.2 (3) Amended and Restated Bylaws
3.3 (3) Amended and Restated Articles of Incorporation filed
July 24, 2002
3.4 (3) Certificate of Amendment of Amended and Restated Articles of
Incorporation filed July 24, 2002
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
38
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.
("TDSR") and Stanford dated December 18, 2003
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
39
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 (9) 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 (9) 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 sale 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 sale part of
unimproved land in Davenport, Florida
40
10.41 (17) First Amendment to Purchase Agreement between Advantage
Professional Management Group, Inc. and Paradise Development
Group, Inc. to sale part of unimproved land in Davenport, Florida
10.42 (17) Assignment of Purchase Agreement, as amended, to Thirteen
Davenport, LLC to sale 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
10.64 (24) Commitment Letter with KeyBank National Association for
$96,000,000 for Phase I
10.65 (24) Commitment Letter with KeyBank National Association for
$14,850,000 for Phase II
10.66 (25) Re-Stated Promissory Note for $6,356,740 issued in favor of
Around The World Travel, Inc. dated June 30, 2005
16.1 (3) Letter from J.S. Osborn, P.C. dated August 1, 2002
16.2 (4) Letter from J.S. Osborn, P.C. dated May 22, 2003
41
16.3 (11) Letter from J.S. Osborn, P.C. dated August 17, 2004
16.4 (11) Letter from Charles Smith
16.5 (11) Letter from Marc Lumer & Company
16.6 (11) Letter from Byrd & Gantt, CPA's, P.A.
16.7 (12) Letter from Malone & Bailey, PLLC
16.8 (19) Letter from Bateman & Co., Inc., P.C.
21 (18) Subsidiaries of American Leisure Holdings, Inc.
23.1(22) Consent of Lopez, Blevins, Bork & Associates, LLP
23.2 (23) Consent of David M. Loev, Attorney at Law
31.1* CEO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2* CFO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1* CEO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2* CFO Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.1 (6) Personal Guarantee by Malcolm J. Wright guaranteeing the
$6,000,000 Line of Credit
99.2 (10) Letter to the Shareholders of Around The World Travel, Inc.
* 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 3.4, 3.1, 3.2, 3.3, 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.
42
(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 Exhibit 99.1 to the Registrant's Form 10-KSB on May 21, 2004,
and incorporated herein by reference.
(9) 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
(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 and 10.63, 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 and
23.1, respectively, to the Registrant's Form SB-2/A on July 27, 2005, and
incorporated herein by reference.
(23) Included in Exhibit 5.1 filed with the Registrant's Form SB-2/A on
July 27, 2005, and incorporated herein by reference.
(24) Filed as Exhibit 10.1 and 10.2, respectively, to the Registrant's Form
8-K on August 17, 2005, and incorporated herein by reference.
(25) Filed as Exhibit 10.5 to the Registrant's Form 8-K/A on August 19,
2005, and incorporated herein by reference.
43
REPORTS ON FORM 8-K
We did not file any reports on Form 8-K with the Commission during the
quarter for which this report is filed.
Subsequent to the quarter for which this report is filed, we filed the
following three reports on Form 8-K:
(1) Report on Form 8-K filed on July 1, 2005, to report the issuance of
shares upon the exercise of warrants and to report that we had restated our
financial statements for the years ended December 31, 2004 and 2003, and
the quarter ended March 31, 2005, and that as a result of the restatements,
the financial statements and independent auditors' report should no longer
be relied upon and investors should review our restated financial
statements which appear in the following filings:
- Our Form SB-2 and Form SB-2/A filed on June 30, 2005 and July 27,
2005, respectively; and
- Our Form 10-KSB/A and Form 10-QSB/A, which were both filed on
July 22, 2005.
(2) Report on Form 8-K filed on August 18, 2005, to report two commitments
by KeyBank National Association for an aggregate of $111,450,000 of
financing for The Sonesta Orlando Resort at Tierra del Sol.
(3) Report on Form 8-K/A filed on August 19, 2005, to include audited
financial statements for Around The World Travel, Inc. as of December 31,
2004 and December 31, 2003 and proforma financial information, management's
discussion and analysis regarding the financial statements, and disclosure
regarding the business, property and legal proceedings related to the
acquired assets acquired from Around The World Travel, Inc.
SIGNATURES
In accordance with the requirements 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
Chief Financial Officer
Date: August 23, 2007
44