UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 2
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from __________ to ____________
Commission file number 333-48312
AMERICAN LEISURE HOLDINGS, INC.
-------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 75-2877111
------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2460 Sand Lake Road, Orlando, FL 32809
--------------------------------------
(Address of principal executive offices)
(407)-251-2240
--------------
(Registrant's telephone number)
Check whether the registrant (1) has 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 [ ].
As of August 18, 2006, 10,642,974 shares of Common Stock of the issuer were
outstanding.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
The registrant has restated the financial statements for the six months ended
June 30, 2006 to include the gross revenues and expenses for the business
that was 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 certain 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, 2006,
unless otherwise stated. None of the other sections of this amended report
on Form 10-QSB have been amended or updated since the Registrant's amended Form
10-QSB filed in March 2007, and investors are therefore cautioned to review the
Registrant's most recent periodic and current report filings for updated and
current information regarding the Registrant's operations and results of
operations.
Other than the items mentioned above, this Amended Report on Form 10-QSB remains
substantially similar to the amended Form 10-QSB/A filed with the Securities and
Exchange Commission on March 7, 2007, and investors should review the
Registrant's more recent periodic and current report filings to obtain current
information about the Registrant's business operations and financial condition.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2006 AND DECEMBER 31, 2005
JUNE 30, DECEMBER 31,
2006 2005
------------- -------------
UNAUDITED
ASSETS
CURRENT ASSETS:
Cash $ 3,641,725 $ 225,055
Cash - restricted 19,254,793 13,175,354
Accounts receivable, net 822,827 2,043,141
Other receivable 7,199,711 6,587,357
Prepaid expenses and other 119,387 99,418
------------- -------------
Total Current Assets 31,038,443 22,130,325
------------- -------------
PROPERTY AND EQUIPMENT, NET 1,595,774 4,583,853
------------- -------------
LAND HELD FOR DEVELOPMENT 50,480,540 34,695,281
------------- -------------
OTHER ASSETS
Prepaid sales commissions 8,776,125 7,770,949
Prepaid sales commissions - affiliated entity 3,354,823 3,516,209
Investment-senior notes 5,170,000 5,170,000
Goodwill 5,925,437 5,925,437
Trademark 962,500 975,000
Other 3,131,422 5,156,193
------------- -------------
Total Other Assets 27,320,307 28,513,788
------------- -------------
TOTAL ASSETS $ 110,435,064 $ 89,923,247
============= =============
3
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 16,870,617 $ 1,790,808
Current maturities of notes payable-related parties 4,455,159 1,268,101
Accounts payable and accrued expenses 3,058,521 3,782,822
Accrued expenses - officers 2,370,500 3,393,500
Other 639,960 285,443
------------- -------------
Total Current Liabilities 27,394,757 10,520,674
Long-term debt and notes payable 34,478,693 34,532,851
Put liability 985,000 985,000
Deposits on unit pre-sales 38,892,397 37,666,368
------------- -------------
Total liabilities 101,750,847 83,704,893
------------- -------------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock; 1,000,000 shares authorized; $.001 par value;
1,000,000 Series "A" shares issued and outstanding at
June 30, 2006 and December 31, 2005 10,000 10,000
Preferred stock; 100,000 shares authorized; $.01 par value;
2,825 Series "B" shares issued and outstanding at
June 30, 2006 and December 31, 2005 28 28
Preferred stock, 28,000 shares authorized; $.01 par value
27,189 Series "C" shares issued and outstanding at
June 30, 2006 and December 31, 2005 272 272
Preferred stock; 50,000 shares authorized; $.001 par value;
24,101 Series "E" shares issued and outstanding at June 30, 2006
and December 31, 2005 24 24
Preferred stock; 150,000 shares authorized; $.01 par value;
0 and 0 Series "F" shares issued and outstanding at
June 30, 2006 and December 31, 2005 - -
Common stock, $.001 par value; 100,000,000 shares authorized;
10,642,974 shares issued and outstanding at June 30, 2006 and
10,334,974 shares issued and outstanding at December 31, 2005 10,643 10,335
Additional paid-in capital 20,173,900 19,697,115
Accumulated deficit (11,510,650) (13,499,420)
------------- -------------
Total Stockholders' Equity 8,684,217 6,218,354
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 110,435,064 $ 89,923,247
============= =============
See accompanying notes to financial statements.
4
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
SIX MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2006 JUNE 30, 2005 JUNE 30, 2006 JUNE 30, 2005
------------ ------------ ------------ ------------
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
Restated Restated Restated Restated
Revenue
Operating Revenues $ 12,870,320 $ 10,016,551 $ 6,490,947 $ 6,340,081
Undeveloped Land Sales 13,129,246 4,132,911 - -
------------ ------------ ------------ ------------
Total Revenue 25,999,566 14,149,462 6,490,947 6,340,081
Cost of Travel Revenues (12,389,822) (9,896,392) (6,195,596) (6,232,429)
Cost of Undeveloped Land Sales (9,796,634) (3,062,990) - -
------------ ------------ ------------ ------------
Gross Margin 3,813,110 1,190,080 295,351 107,652
Operating Expenses:
Depreciation and amortization (361,735) (360,760) (159,993) (179,537)
General and administrative expenses (1,688,762) (1,447,384) (881,071) (619,737)
------------ ------------ ------------ ------------
Income (Loss) from Continuing Operations 1,762,613 (618,064) (745,713) (691,618)
Interest Expense (2,517,382) (736,845) (1,277,234) (343,526)
----------- ------------ ------------ -----------
Income (Loss) from Continuing Operations
before Income Taxes (754,769) (1,354,909) (2,022,947) (1,035,144)
PROVISIONS FOR INCOME TAXES (1,399) - - -
------------ ------------ ------------ ------------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS (756,168) (1,354,909) (2,022,947) (1,035,144)
GAIN(LOSS) FROM DISCONTINUED OPERATIONS 2,744,938 (588,936) 2,869,189 (354,518)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 1,988,769 $ (1,943,845) $ 846,242 $(1,389,662)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE:
BASIC AND DILUTED $ 0.12 $ (0.26) $ 0.05 $ (0.17)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 10,631,814 10,001,841 10,642,974 10,025,447
============ ============ ============ ============
See accompanying notes to financial statements.
5
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2006 AND 2005
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2006 JUNE 30, 2005
------------- ------------
UNAUDITED UNAUDITED
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,988,769 $(1,943,845)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 834,075 813,927
Non-cash interest expense 1,477,348 736,845
Non-cash warrant compensation 110,253 -
Gain on sale of subsidiary (2,988,082) -
Changes in assets and liabilities:
Decrease in accounts receivable and other receivables 1,220,314 2,777,175
Decrease (increase) in prepaid expenses and other (136,586) 1,435,342
Increase in prepaid sales commissions (843,790) (2,377,321)
(Increase) decrease in land held for development (785,259) (5,238,206)
Increase in shareholder advances and notes payable - 141,635
Increase in deposits on unit pre-sales 1,226,029 11,971,662
Decrease in customer deposits - (2,752,535)
(Decrease) increase in accounts payable and accrued expenses 920,392 (5,015,865)
------------ ------------
Net cash provided by operating activities 3,023,463 548,814
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (90,371) (77,576)
Acquisition of AWT assets - 10,602,635
Increase in restricted cash (6,079,439) -
------------ ------------
Net cash provided by (used in) investing activities (6,169,809) 10,525,059
------------ ------------
6
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (731,371) (6,114,651)
Proceeds from notes payable 7,294,080 -
Proceeds from exercise of warrants 308 -
Payments of notes payable - related parties - (717,969)
------------ ------------
Net cash provided (used) by financing activities 6,563,017 (6,832,620)
------------ ------------
Net increase in cash 3,416,670 4,241,253
CASH AT BEGINNING PERIOD 225,055 2,266,042
------------ ------------
CASH AT END OF PERIOD $ 3,641,725 $ 6,507,295
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 451,453 $ 696,065
============ ============
Cash paid for income taxes $ - $ -
============ ============
SUPPLEMENTAL DISCLOSURE OF NON CASH TRANSACTION:
Purchase of land held for development for notes payable $ 15,000,000 $ -
============ ============
See accompanying notes to financial statements.
7
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE A - PRESENTATION
The balance sheets of the Company as of June 30, 2006 and December 31, 2005, the
related consolidated statements of operations for the three and six months ended
June 30, 2006 and 2005, and the consolidated statements of cash flows for the
six months ended June 30, 2006 and 2005, (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 three and six months ended June 30, 2006 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,
2005, Form 10-KSB, the Company's March 31, 2006 Form 10-QSB/A and the Company's
Forms 8K and 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 and other property sales, revenues
will be recognized upon the Orlando property and other property sales, upon the
close of escrow for the sales of its real estate.
Revenues from travel, call center and other segments 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.
Costs associated with the acquisition and development, architectural and
engineering costs of vacation resorts, including carrying costs such as interest
and taxes, are capitalized as land held for development and will be allocated to
cost of real estate sold as the respective revenues are recognized.
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.
NOTE C - PROPERTY AND EQUIPMENT, NET
As of June 30, 2006, property and equipment consisted of the following:
Useful
Lives Amount
---------- ----------
Equipment 3-5 $4,401,620
Furniture & fixtures 5-7 1,629,196
----------
Subtotal 6,030,816
Less: accumulated depreciation and amortization 4,435,042
----------
Property and equipment, net $1,595,774
==========
8
Depreciation expense for the six-month and three-month period ended June 30,
2006 amounts to $834,075 and $418,703 respectively.
NOTE D - NOTES PAYABLE - RELATED PARTIES
The current maturities of notes payable - related parties is as follows:
Tri-County Road Ventures LLC $3,721,997
Officers of Hickory Travel Services 408,900
Peter Webb 124,262
Shareholders of Hickory Travel Services 180,000
Others 20,000
----------
Notes payable - related parties $4,455,159
==========
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
$408,900. $117,945 of such amount is owed to L. William Chiles, a Director of
the Company.
Included in long-term debt and notes payable are obligations to the following
related parties:
Officers of Hickory Travel Services $372,803
----------
Related party debt and notes $372,803
==========
$89,758 of this amount is owed to L. William Chiles, a Director of the Company.
NOTE E - RELATED PARTY TRANSACTIONS
The Company accrues salaries payable to Malcolm Wright in the amount of $800,000
per year (and $550,000 per year in 2002 and 2003) with interest at 12%. In June
2006, Malcolm Wright was paid $1,540,500 of the accrued salaries that consisted
of accrued salaries of $1,275,000 and accrued interest of $265,500. As of June
30, 2006, the amount of salaries payable accrued to Mr. Wright amounts to
$1,825,000 plus accrued interest on those salaries of $341,250.
The Company accrued director fees to each of its four (4) 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
$224,500.
9
Malcolm Wright is the majority shareholder of American Leisure Real Estate
Group, Inc. (ALRG). On November 3, 2003 Tierra Del Sol Resort ("TDSR") entered
into an exclusive Development Agreement with ALRG to provide development
services for the development of the Tierra Del Sol Resort. 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, 2006 the total costs
plus fees amounted to $22,398,243.
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, 2006 the total
sales amounted to approximately $223,654,843. As a result of the sales, TDSR was
obligated to pay Xpress a fee of $6,709,645, consisting of one-half of the sales
fee and the full amount of the marketing fee. As of June 30, 2006, $6,765,244
has been paid to Xpress. Based on the sales contracts as of June 30, 2006, TDSR
will be obligated to pay Xpress $3,354,823, the other half of the sales fee,
upon the conveyance of the units.
Effective June 30, 2006, we sold our subsidiary Caribbean Leisure Marketing Ltd.
("CLM"), CLM owns a 49% interest in Caribbean Media Group, Inc. (call center
operations), to Stanford International Bank, Ltd. ("SIBL") in exchange for
promissory notes in the amounts of $1,250,000 and $2,100,000 and $2,313,175 of
fees and accrued interest. The sale resulted in a gain of $2,988,082. We also
issued 355,000 warrants at an exercise price of $10.00 expiring on April 30,
2008. This was recorded as discontinued operations.
NOTE F - 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:
10
Description Six months Six months Three months Three months
ended ended ended ended
6/30/2006 6/30/2005 6/30/2006 6/30/2005
----------- ---------- --------- ---------
NET INCOME (LOSS)
(as reported) 1,988,769 (1,943,845) 846,242 (1,389,662)
UNDECLARED PREFERRED
STOCK DIVIDEND (713,955) (713,616) (358,950) (358,779)
----------- ---------- --------- ---------
NET LOSS AFTER PREFERRED
STOCK DIVIDEND 1,274,814 (2,657,461) 487,292 (1,748,441)
NET INCOME (LOSS) PER SHARE
BASIC AND DILUTED 0.12 (0.26) 0.05 (0.17)
NOTE G - SHARES FOR SERVICES
In December 2004, FASB issued a revision to SFAS 123 (also known as SFAS 123R)
that amends existing accounting pronouncements for share-based payment
transactions in which an enterprise receives employee and certain non-employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
SFAS 123R eliminates the ability to account for share-based compensation
transactions using APB 25 and generally requires such transactions be accounted
for using a fair-value-based method. SFAS 123R's effective date would be
applicable for awards that are granted, modified, become vested, or settled in
cash in interim or annual periods beginning after December 15, 2005. SFAS 123R
includes three transition methods: a prospective method, a modified prospective
method and a retroactive method. The Company adopted SFAS 123R in the first
quarter of the fiscal year ending December 31, 2006.
In accordance with SFAS No. 123R we have recorded approximately $110,000 as
stock based compensation under the fair value method for the six months ended
June 30, 2006. There was no proforma stock based compensation under the fair
value method for the six months ended June 30, 2005.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk free
rate of 3.5%; volatility of 120% for 2006 and 196% for 2005 with no assumed
dividend yield; and expected lives of five years.
During the six months ended June 30, 2006 the Company issued 200,000 warrants to
two executives of the Company (100,000 to Michael Crosbie as Corporate General
Counsel, Executive Vice President and Secretary of the Company and 100,000 to
Jeff Scott as President of Hickory Travel Services); for each executive, 50,000
were immediately vested and the other 50,000 will vest in equal amounts in the
next two years. In addition, 450,000 warrants were issued to Malcolm Wright for
debt guarantees related to the acquisition of land held for development during
11
the six months ended June 30, 2006. As noted in Note E above, in June 2006,
355,000 warrants were issued to Stanford International Bank Ltd. to replace the
equity conversion feature that was to expire on April 30, 2007, of an
outstanding loan with Stanford International Bank Limited. As of June 30, 2006,
there are 4,942,246 warrants outstanding to officers and directors and 2,546,000
warrants outstanding to third parties for a total outstanding of 7,488,246. In
January 2006, 308,000 warrants were exercised for the Company's common stock at
$.001 per share which increased the common stock outstanding to 10,642,974 share
and $10,643.
NOTE H - OPERATING SEGMENTS
The Company has adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". At June 30, 2006, the
Company's three business units have separate management teams and
infrastructures that offer different products and services. The business units
have been aggregated into three reportable segments.
Tierra Del Sol, Inc. represent the Company's Real Estate segment, and is
planning to construct a 972-unit resort in Orlando, Florida on 122 acres of
undeveloped land. Vertical development on the townhomes and amenities is
scheduled to commence in the summer of 2006. Presales commenced in February
2004.
Through June 30, 2006, American Leisure operated a call center where revenues
were recognized upon the completion of the earning process from the completion
of the travel of the customer, the trip to the properties for the potential
purchase, or the appropriate event based on the agreement with American
Leisure's client as to the ability to be paid for the service. Travel Unit
("Travel") provides travel related services. For the six months ending June 30,
2006:
In (000's) Real Estate Travel Elim. Consol.
------------ ------- -------- --------
Revenue $ 14,269 $ 12,631 $ (900) $ 26,000
Segment
income
(loss) $ (356) $ 116 $ (900) $ (1,140)
Total Assets $ 105,644 $12,024 $(7,233) $110,435
Capital
expenditures $ - $ 90 $ - $ 90
Depreciation $ 361 $ 148 $ 325 $ 834
12
For the six months ending June 30, 2005:
In (000's) Real Estate Travel Elim. Consol.
------------- -------- --------- --------
Revenue $ 5,486 $ 8,878 $ (215) $ 14,149
Segment
income
(loss) $ (954) $ (726) $ 325 $ (1,355)
Total Assets $ 83,159 $15,584 $ (8,820) $ 89,923
Capital
expenditures $ 22 $ 56 $ - $ 78
Depreciation $ 374 $ 115 $ 325 $ 814
NOTE I - DISCONTINUED OPERATIONS
Effective June 30, 2006, we sold our subsidiary, Caribbean Leisure Marketing
Limited ("CLM"), to Stanford International Bank Limited ("SIBL") under a stock
purchase agreement. SIBL was expanding their call center business in the
Caribbean and CLM would provide them with both synergies and effective economies
of scale (in terms of operations and sales force) for expansion into other
markets. In connection with the agreement, SIBL exchanged the following debts
which we owed to SIBL: a $1,250,000 promissory note and accrued interest thereon
through June 30, 2006; a $2,100,000 promissory note and accrued interest thereon
through June 30, 2006; all accrued and unpaid interest on our $6,000,000 note
with SIBL as of June 30, 2006; all accrued and unpaid interest on our $3,000,000
promissory note payable to SIBL as of June 30, 2006; $220,652 of the $331,178 of
accrued interest on our $8,000,000 promissory note payable to SIBL, and all
accrued fees on our $6,000,000 letter of credit, which SIBL agreed to guaranty
in connection with the KeyBank loans.
13
Results of Operations for discontinued operations:
Six months ended Three months ended
June 30, June 30,
2006 2005 2006 2005
Call center services revenues
$ - $ - $ - -
----------- ---------- ----------- ----------
Revenue from discontinued operations - - - -
Operating expenses 371,122 374,141 182,387 193,669
----------- ---------- ----------- ----------
Net loss on discontinued operations (371,122) (374,141) (182,387) (193,669)
Interest expense (12,266) - (12,266) -
Equity in operations of unconsolidated sub. 140,244 (214,795) 75,760 (160,849)
Gain on sale of discontinued operations 2,988,082 - 2,988,082 -
----------- ---------- ----------- ----------
Gain (loss) on discontinued operations $ 2,744,938 $ (588,936) $ 2,869,189 $ (354,518)
=========== ========== =========== ==========
In accordance with the provisions of Statement of Financial Accounting Standard,
Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"),
the results of operations of the disposed assets and the losses related to this
sale have been classified as discontinued operations for all periods presented
in the accompanying consolidated statements of operations.
NOTE J - SUBSEQUENT EVENT
On December 30, 2004, American Leisure Equities Corporation (ALEC) a
wholly-owned subsidiary of American Leisure, entered into an Asset Purchase
Agreement (hereinafter referred to as the "Original Purchase Agreement") with
Around The World Travel, Inc. (AWT), pursuant to which AWT agreed to sell
substantially all of its assets to ALEC. The parties agreed that the purchase
price is equal to the fair value of the Business, plus $1,500,000. Under the
terms of the Original Purchase Agreement, AWT conveyed to ALEC all of the assets
necessary to operate the Business, including substantially all of AWT's tangible
14
and intangible assets and certain agreed liabilities. Pursuant to the terms of
the Original Purchase Agreement, AWT and ALEC entered into a Management
Agreement, under which AWT manages the Business on behalf of ALEC. AWT and ALEC
also entered into a License Agreement, under which ALEC granted AWT 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.
On and effective as of August 1, 2006, the Management Agreement and the License
Agreement was terminated. Included in Other receivables is the amount from AWT
of $5,222,903 which is composed of $2,020,691 for cumulative earnings from
January 1, 2005 and $3,202,212 for working capital advances made from ALEC to
AWT.
NOTE K - Reclassifications and Restatements
Certain amounts in the 2005 financial statements have been reclassified to
conform to the 2006 financial statement presentation. The Company recorded in
revenue the net gain on the sale of undeveloped land. The Company is now showing
undeveloped land sales gross and the corresponding cost of undeveloped land
separately. The Company is also recording the direct costs of travel services
and reducing operating expenses. The Company has also removed CLM, the
subsidiary sold (as described above) and has shown it as discontinued
operations. The Company has restated the three and six months ended June 30,
2006 and 2005. There is no change to the net loss for the three and six months
ended June 30, 2006 and 2005, respectively. The restatement for:
15
As previously restated As Restated
SIX MONTHS ENDED 06/30/06 SIX MONTHS ENDED Increase SIX MONTHS ENDED
06/30/06 (Decrease) 06/30/06
Operating Revenues $ 3,506,489 $ 9,363,831 $ 12,870,320
--------------------------------------- ------------------------ ------------ --------------------
Undeveloped Land Sales $ 13,129,246 $ - $ 13,129,246
--------------------------------------- ------------------------ ------------ --------------------
Total Revenue $ 16,635,735 $ 9,363,831 $ 25,999,566
--------------------------------------- ------------------------ ------------ --------------------
Cost of Service Revenues $ (2,499,956) $(9,889,866) $ (12,389,822)
--------------------------------------- ------------------------ ------------ --------------------
Cost of Undeveloped Land Sales $ (9,796,634) $ - $ (9,796,634)
--------------------------------------- ------------------------ ------------ --------------------
Gross Margin $ 4,339,145 $ (526,035) $ 3,813,110
--------------------------------------- ------------------------ ------------ --------------------
Depreciation and amortization $ (414,476) $ 52,741 $ (361,735)
--------------------------------------- ------------------------ ------------ --------------------
General and administrative expenses $ (2,162,057) $ 473,295 $ (1,688,762)
--------------------------------------- ------------------------ ------------ --------------------
Interest Expense $ (2,517,382) $ - $ (2,517,382)
--------------------------------------- ------------------------ ------------ --------------------
Provisions for Income taxes $ (1,399) $ - $ (1,399)
--------------------------------------- ------------------------ ------------ --------------------
Gain(loss) from discontinued operations $ 2,744,938 $ - $ 2,744,938
--------------------------------------- ------------------------ ------------ --------------------
NET INCOME $ 1,988,769 $ 1 $ 1,988,770
--------------------------------------- ------------------------ ------------ --------------------
As previously restated As Restated
SIX MONTHS ENDED 06/30/05 SIX MONTHS ENDED Increase SIX MONTHS ENDED
06/30/05 (Decrease) 06/30/05
Operating Revenues $ 3,531,236 $ 6,485,315 $ 10,016,551
--------------------------------------- ------------------------ ------------ --------------------
Undeveloped Land Sales $ 4,352,672 $ (219,761) $ 4,132,911
--------------------------------------- ------------------------ ------------ --------------------
Total Revenue $ 7,883,908 $ 6,265,554 $ 14,149,462
--------------------------------------- ------------------------ ------------ --------------------
Cost of Service Revenues $ (2,568,007) $(7,328,385) $ (9,896,392)
--------------------------------------- ------------------------ ------------ --------------------
Cost of Undeveloped Land Sales $ (3,384,988) $ 321,998 $ (3,062,990)
--------------------------------------- ------------------------ ------------ --------------------
Gross Margin $ 1,930,913 $ (740,833) $ 1,190,080
--------------------------------------- ------------------------ ------------ --------------------
Depreciation and amortization $ (416,044) $ 55,284 $ (360,760)
--------------------------------------- ------------------------ ------------ --------------------
General and administrative expenses $ (2,132,933) $ 685,549 $ (1,447,384)
--------------------------------------- ------------------------ ------------ --------------------
Interest Expense $ (736,845) $ - $ (736,845)
--------------------------------------- ------------------------ ------------ --------------------
Provisions for Income taxes $ - $ - $ -
--------------------------------------- ------------------------ ------------ --------------------
Gain(loss) from discontinued operations $ (588,936) $ - $ (588,936)
--------------------------------------- ------------------------ ------------ --------------------
NET INCOME $ (1,943,845) $ - $ (1,943,845)
--------------------------------------- ------------------------ ------------ --------------------
As previously restated As Restated
THREE MONTHS ENDED 06/30/06 THREE MONTHS ENDED Increase THREE MONTHS ENDED
06/30/06 (Decrease) 06/30/06
Operating Revenues $ 1,844,194 $ 4,646,753 $ 6,490,947
--------------------------------------- ------------------------ ------------ --------------------
Total Revenue $ 1,844,194 $ 4,646,753 $ 6,490,947
--------------------------------------- ------------------------ ------------ --------------------
Cost of Service Revenues $ (1,286,550) $(4,909,046) $ (6,195,596)
--------------------------------------- ------------------------ ------------ --------------------
Gross Margin $ 557,644 $ (262,293) $ 295,351
--------------------------------------- ------------------------ ------------ --------------------
Depreciation and amortization $ (208,020) $ 48,027 $ (159,993)
--------------------------------------- ------------------------ ------------ --------------------
General and administrative expenses $ (1,095,337) $ 214,266 $ (881,071)
--------------------------------------- ------------------------ ------------ --------------------
Interest Expense $ (1,277,234) $ - $ (1,277,234)
--------------------------------------- ------------------------ ------------ --------------------
Gain(loss) from discontinued operations $ 2,869,189 $ - $ 2,869,189
--------------------------------------- ------------------------ ------------ --------------------
NET INCOME $ 846,242 $ - $ 846,242
--------------------------------------- ------------------------ ------------ --------------------
16
As previously restated As Restated
THREE MONTHS ENDED 06/30/05 THREE MONTHS ENDED Increase THREE MONTHS ENDED
06/30/05 (Decrease) 06/30/05
Operating Revenues $ 1,823,246 $ 4,516,835 $ 6,340,081
Total Revenue $ 1,823,246 $ 4,516,835 $ 6,340,081
--------------------------------------- ------------------------ ------------ --------------------
Cost of Service Revenues $ (1,117,790) $(5,114,639) $ (6,232,429)
--------------------------------------- ------------------------ ------------ --------------------
Cost of Undeveloped Land Sales $ - $ - $ -
--------------------------------------- ------------------------ ------------ --------------------
Gross Margin $ 705,456 $ (597,804) $ 107,652
--------------------------------------- ------------------------ ------------ --------------------
Depreciation and amortization $ (228,653) $ 49,116 $ (179,537)
--------------------------------------- ------------------------ ------------ --------------------
General and administrative expenses $ (1,114,475) $ 494,742 $ (619,733)
--------------------------------------- ------------------------ ------------ --------------------
Interest Expense $ (343,526) $ - $ (343,526)
--------------------------------------- ------------------------ ------------ --------------------
Gain(loss) from discontinued operations $ (354,518) $ - $ (354,518)
--------------------------------------- ------------------------ ------------ --------------------
NET INCOME $ (1,335,716) $ (53,946) $ (1,389,662)
--------------------------------------- ------------------------ ------------ --------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB (THIS "FORM 10-QSB"),
CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY ALL,
OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD", OR
"ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES.
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF AMERICAN LEISURE HOLDINGS, INC. ("AMLH", "AMERICAN LEISURE,"
"THE COMPANY", "WE", "US" OR "OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-QSB, UNLESS ANOTHER DATE
IS STATED, ARE TO JUNE 30, 2006. ALL REFERENCES IN THIS REPORT ON FORM 10-QSB TO
"THE COMPANY," "WE," "US," "OUR" OR WORDS OF SIMILAR MEANING INCLUDE THE
OPERATIONS OF AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES.
BUSINESS HISTORY
We were incorporated in Nevada in June 2000 as "Freewillpc.com, Inc.," and until
June 2002, operated as a web-based retailer of built-to-order personal computers
and brand name related peripherals, software, accessories and networking
products. In June 2002, we acquired American Leisure Corporation, Inc.
("American Leisure Corporation"), in a reverse merger (discussed below). We
re-designed and structured our business to own, control and direct a series of
companies in the travel and tourism industries so that we can achieve vertical
and horizontal integration in the sourcing and delivery of corporate and leisure
travel services and offerings.
17
On June 14, 2002, we entered into a stock purchase agreement with the former
stockholders of American Leisure Corporation, in connection with the acquisition
of American Leisure Corporation, pursuant to which we issued the former
stockholders of American Leisure Corporation 4,893,974 shares of our common
stock and 880,000 shares of our Series A preferred stock having 10 votes per
share. As part of this transaction, Vyrtex Limited, a UK company, which owned
3,830,000 shares of our common stock, surrendered 3,791,700 of the 3,830,000
shares owned by them. The transaction was treated as a reverse merger and a
re-capitalization of American Leisure Corporation, which was considered the
accounting acquirer. The operations of Freewillpc.com prior to the transaction
were not carried over and were adjusted to $0. Effective July 24, 2002, we
changed our name to American Leisure Holdings, Inc.
In addition to the Company's establishment and continuing operation of a Travel
Division, we have established a Resort Properties Division and related leisure
and travel support operations. Through our various subsidiaries, we: manage and
distribute travel services; develop, sell and will manage travel destination
resorts and vacation home properties; and develop and operate affinity-based
travel clubs. Further, we owned and operated a call center in Antigua-Barbuda
during the period covered by this report, which call center business was sold
effective June 30, 2006, as described below. Our businesses are intended to
complement each other and to enhance Company revenues by exploiting consumer
cross-marketing opportunities. We intend to take advantage of the synergies
between the distribution of travel services and the creation, marketing, sale
and management of vacation home ownership and travel destination resorts.
On October 1, 2003, we acquired a 50.83% majority interest in Hickory Travel
Systems, Inc. ("Hickory" or HTS") as the key element of our Travel Division.
Hickory is a travel management service organization that serves its
network/consortium of approximately 160 well-established travel agency members,
comprised of over 3,000 travel agents worldwide serving corporate and leisure
travelers. We intend to complement other Company businesses through the use of
Hickory's 24-hour reservation services, international rate desk services,
discount hotel programs, preferred supplier discounts, commission enhancement
programs, marketing services, professional services, technologies, and
information exchange.
In December 2004, Caribbean Leisure Marketing, Ltd. ("Caribbean Leisure
Marketing"), a wholly owned subsidiary of our company that is focused on
telecommunications, entered into a joint venture with IMA Antigua, Ltd. to
operate a call center in Antigua that Caribbean Leisure Marketing owns. The
joint venture was operated through Caribbean Media Group, Ltd., an international
business corporation formed under the laws of Barbados. On June 30, 2006,
pursuant to a Stock Purchase Agreement (described in greater detail below), the
call center operations and Caribbean Leisure Marketing were sold to Stanford.
18
On December 31, 2004, American Leisure Equities Corporation ("ALEC"), one of our
wholly owned subsidiaries, acquired substantially all of the assets of Around
The World Travel, Inc. ("Around The World Travel" or "AWT") which included all
of the tangible and intangible assets necessary to operate the business
including the business name "TraveLeaders". We engaged Around The World Travel
to manage the assets and granted Around The World Travel a license to use the
name "TraveLeaders" during the time that AWT enjoyed a management contract with
ALEC. TraveLeaders is a fully-integrated travel agency and travel services
distribution business that provides its clients with a comprehensive range of
business and vacation travel services including corporate travel management,
leisure sales, special event and incentive planning. TraveLeaders is based in
Coral Gables, Florida. On and effective as of August 1, 2006, the Management
Agreement and the License Agreement with AWT were terminated by ALEC which,
effective on that date, began directly managing the travel business assets and
operations of TraveLeaders.
Except as expressly indicated or unless the context otherwise requires, "we,"
"our,""us," or the "Company," means American Leisure Holdings, Inc. and its
subsidiaries.
BUSINESS INTEGRATION
Our mission is to remain focused on the development, sale and management of
vacation travel destination resorts. As such we have completed the planning and
initial site development, and begun the horizontal improvements for "The Sonesta
Orlando Resort at Tierra Del Sol" (the "Sonesta Resort"), a planned 972-unit
vacation home resort located just 10 miles from Walt Disney World, in Orlando,
Florida. Additionally, we are in the planning stages of developing our Reedy
Creek Property, which is situated in the northwest section of Osceola County,
Florida about one mile from the "Maingate" entrance to Walt Disney World,
Orlando and approximately one-half mile from the south entrance to "Disney's
Animal Kingdom" theme park. The Reedy Creek Property consists of three parcels
totaling over 40 gross acres with approximately 29 acres of buildable land. The
Ready Creek Property is currently planned to consist of approximately 522
residential units consisting of mid-rise condominium buildings.
Through "Developments of Regional Impact" (DRIs) underway, we are seeking to
maximize property development and sales by obtaining governmental approval for
more housing units than was initially planned at our Tierra del Sol and Reedy
Creek properties. Although there is no assurance of the additional density that
may be achieved through the DRI process we believe that both Tierra del Sol and
Reedy Creek may gain approval to develop as many as 700 additional units.
Subject to the provision of sufficient capital and our determination of value to
our shareholders, we intend to achieve growth through selected acquisitions of
real property and business assets and interests. Although no agreements related
to such future acquisitions have been concluded, we expect to negotiate and,
subject to our final determination as to the merits of such acquisitions(s) and
the availability of necessary capital, complete the acquisition of Florida
destination resort property holdings proximate to our existing resort
19
developments at initial entry prices for the developable land that may be
materially below current appraised values. These potential acquisitions would
come from a portfolio of undeveloped real estate currently controlled by related
third parties including the Company's Chairman, Mr. Malcolm Wright. Additional
growth may be realized through our continued creation of destination resorts,
and through the prospective acquisition of qualified, existing destination
resorts, thereby creating an extensive resort and vacation ownership network
further supported by the Company's travel services division. Our goal through
such expansion would be to further become an integrated, "one-stop" leisure
services company, seeking to seamlessly provide for the development, sales, and
management of and the ongoing generation of revenue from destination resorts
while offering vacation ownership and an extensive range of travel services to
an expanding customer and client base.
We are also in the process of integrating the administrative operations of
Hickory and TraveLeaders to distribute, fulfill and manage our travel services
and our Resort Properties which integration, we anticipate completing during
fiscal year 2006.
Our business model for support between our divisions is to use the travel
distribution, fulfillment and management services of the combined resources of
Hickory and TraveLeaders to provide consumer bookings at our planned resorts, to
increase the rental of vacation homes that we plan to manage at these resorts,
and to fulfill the travel service needs of our affinity-based travel clubs. We
intend to complement our other businesses through the use of Hickory's 24-hour
reservation services, international rate desk services, discount hotel programs,
preferred supplier discounts, commission enhancement programs, marketing
services, professional services, automation and information exchange.
TraveLeaders is a fully integrated travel services distribution business that
provides its clients with a comprehensive range of business and vacation travel
services in both traditional and e-commerce platforms including corporate travel
management, leisure sales, and meeting, special event and incentive planning.
TraveLeaders currently fulfills travel orders produced by our affinity travel
clubs.
During the six months ended June 30, 2006, we received the majority of our
operating revenues from ALEC, which accounted for approximately 18.6% of our
total revenues and through the operations of HTS which accounted for
approximately 4.5% of our operating revenues for the six months ended June 30,
2006. Additionally, we had undeveloped land sales of $13,129,246, during the six
months ended June 30, 2006, which were generated by Tierra del Sol in connection
with the sale of forty-two acres of land in the Sonesta Resort for $9,090,130 to
the Westridge Community Development District ("District") and an additional
$4,039,116, which was received from the District in connection with
reimbursements for site improvements on the land purchased by the District.
SONESTA RESORT FINANCING
On December 29, 2005, certain affiliates of the Company closed two (2) credit
facilities with Key Bank, National Association ("KeyBank") related to the
Sonesta Resort. The credit facilities consisted of a $40,000,000 revolving
20
construction loan to be used to construct Phase 1 of the Sonesta Resort (the
"Construction Loan") and a $14,850,000 term loan on the Phase 2 land the
proceeds of which were contributed to the Phase 1 partnership as equity and used
to repay existing debt on the property and finance part of the site work of the
property for the Resort and to pay certain related costs (the "Land Loan"). To
facilitate the financing for the Sonesta Resort, the Company has formed two
limited partnerships, each of which will develop Phase 1 and Phase 2 of the
Resort (the "Development Partnerships"). Each Development Partnership has
several subsidiaries, which have been formed to develop different portions of
the Sonesta Resort.
Phase 1 will also include construction of related amenities, including a
swimming pool complex and sun decks, a lazy river, a poolside restaurant and
other amenities typical of a resort of this kind. We have commenced preparation
of the land and infrastructure improvements in anticipation of vertical
construction. Phase 2 will include construction of 252 additional residential
condominium units and 426 additional town home units, as well as a 126,000
square foot clubhouse (84,000 square feet under air). Construction of Phase 2 is
expected to overlap with the construction of Phase 1.
The general partner of each Development Partnership is TDS Management LLC, a
newly organized limited liability company controlled by Malcolm J. Wright, the
Company's Chairman, Chief Executive Officer, Chief Financial Officer and a
Director. The principal limited partner of each Development Partnership is
Tierra Del Sol Resort, Inc., which owns a 99.9% interest in each Development
Partnership. The Company owns 100% of Tierra Del Sol Resort, Inc.
Each Development Partnership has granted Stanford Venture Capital Holdings, Inc.
("Stanford") the right to acquire a 2% interest in each partnership as
consideration for the release of a mortgage lien formerly held by Stanford.
On July 27, 2006, we, through one of our wholly owned subsidiary companies,
formally notified KeyBank, that we elected not to open the $40,000,000 revolving
credit Construction Loan. We have however, established a relationship with GMAC
Bank, through Millenium Capital Mortgage, to provide construction financing to
the individual purchasers of the Sonesta Resort town homes, which funding we
believe will enable all town homes and amenities at Tierra del Sol to be built
through this program. Additionally, we are in the process of negotiating with
several lenders for a construction loan on favorable terms for the condominiums
and/or for the clubhouse. We anticipate that such loan will be evidenced by a
firm commitment during the month of September 2006; however, we can provide no
assurances that we will receive such a commitment.
PCL CONSTRUCTION GUARANTEE AND LOAN.
The Orlando based contractor, PCL Construction Services, Inc., a subsidiary of
PCL Construction Enterprises, Inc. of Denver, Colorado ("PCL"), was the General
Contractor for Phase 1 of the project. In conjunction with its designation as
the General Contractor, PCL has committed to a guaranteed maximum price for the
construction of Phase 1.
21
PCL also provided a $4,000,000 loan to TDS Development, LLC, a subsidiary of
Tierra Del Sol Resort, Inc. (the "PCL Loan"). The proceeds of the PCL Loan were
used to establish a $4,000,000 account with KeyBank, which was pledged as
security for the Construction Loan. The loan bears interest at the rate of 14%
per annum. The term of the loan is two years. The PCL Loan is guaranteed by the
Company, the Company's Chief Executive Officer and Chairman, Malcolm J.
Wright, individually, and Tierra Del Sol Resort, Inc. We believe that without
the guarantees of Mr. Wright, it would have been more difficult, if not
impossible, for us to secure the PCL loan facility.
As part of our election not to open the Construction Loan with KeyBank, we have
agreed with KeyBank to release the PCL Loan.
THE LAND LOAN
The borrowers under the Land Loan are Tierra Del Sol Resort (Phase 2), Ltd. (the
"Phase 2 Partnership") and four other special purpose entities that are owned by
the Phase 2 Partnership.
The Land Loan is a $14,850,000 term loan with a maturity date of June 28, 2007.
The proceeds of the Land Loan were primarily used to repay existing debt of the
property for the Sonesta Resort. The Land Loan bears interest at LIBOR plus
3.10% per annum, equal to approximately 8.69% as of August 2, 2006, with the
LIBOR equal to 5.59% as of that date.
The Land Loan is secured by a first lien on the land within Phase 2 of the
Sonesta Resort, including any improvements, easements, and rights of way; a
first lien and security interest in all fixtures and personal property, an
assignment of all leases, subleases and other agreements relating to the
property; an assignment of construction documents; a collateral assignment of
all contracts and agreements related to the sale of each condominium unit; a
collateral assignment of all purchase deposits and any management and/or
operating agreement.
The borrowers paid 1% of the Land Loan Agreement as a commitment fee, which
totaled $148,500. The Borrowers were obligated to pay all costs and expenses of
KeyBank in connection with the commitment and closing of the loan. Additionally,
the Company will pay an exit fee equal to 4% of the maximum loan amount unless
the loan is repaid with a construction loan from KeyBank or KeyBank declines to
grant a construction loan to the Company for Phase 2. The Company was obligated
to pay all costs and expenses of KeyBank in connection with the commitment and
the closing of the loan.
In connection with the election not to open the Construction Loan, we and
KeyBank have agreed to modify the Land Loan. The Land Loan will remain in
place, and we will provide $1 million in cash or a letter of credit, as
additional collateral for the loan. We have also agreed to a principal payment
22
schedule related to the Company's planned construction of the 426 town homes in
Phase 2 of the Sonesta Resort to reduce the balance of the loan between January
2007 and its maturity date.
The Company and Mr. Wright have issued guarantees to KeyBank on the Land Loan.
We believe that without the guarantees of Mr. Wright, it would have been more
difficult, if not impossible, for us to secure the KeyBank credit facility. The
occurrence of any one or more "events of default" under the Land Loan allow
KeyBank to pursue certain remedies including taking possession of the Sonesta
Resort project; withholding further disbursement of the proceeds of the loan
and/or terminate KeyBank's obligations to make further disbursements thereunder;
and/or declaring the note evidencing the loans to be immediately due and
payable.
WESTRIDGE COMMUNITY DEVELOPMENT DISTRICT BONDS
The closing of the new credit facilities with KeyBank triggered the closing of
the sale of $25,825,000 in community development bonds issued by the Westridge
Community Development District (the "District"). The proceeds of the bonds will
be used, in part, to fund infrastructure at the Sonesta Resort and to acquire
land for public purposes from Tierra Del Sol Resort (Phase 1), Ltd., The debt
service and retirement of these bonds will be funded by a special district tax
upon the property owners in the District at an interest rate of 5.8% over a
30-year amortization period. Grading and infrastructure for the District are
more than 75% complete.
RELEASE OF LIEN BY STANFORD
In connection with the closing of the new credit facilities with KeyBank,
Stanford Venture Capital Holdings Inc. ("Stanford") released its existing
mortgage lien on the Sonesta Resort property. In consideration of this release,
the Development Partnerships granted Stanford warrants to acquire a 2% interest
in each Partnership at a nominal exercise price. The Company also granted
Stanford the right to exchange any distributions that it might receive on
account of these interests into shares of the Company's Series E preferred stock
at a strike price of $15.00 per common share.
SIBL CREDIT FACILITY
On December 29, 2005, Stanford International Bank, Ltd. ("SIBL") provided Tierra
Del Sol with financial assistance to facilitate the closings of the Land Loan
and the Construction Loan. The financial assistance consisted of a loan to
Tierra Del Sol of $2,100,000 (the "SIBL Tierra Del Sol Loan"), and the
establishment of letters of credit in favor of KeyBank in the amount of
$4,000,000 and $2,000,000, respectively (the "Letters of Credit"). The financial
assistance provided by SIBL was evidenced by a Credit Agreement dated as of
December 29, 2005 between SIBL, Tierra Del Sol Resort, Inc. and the Company (the
"SIBL Credit Agreement"). As consideration for the purchase of the Antiguan
call center including our subsidiary Caribbean Leisure Marketing, Inc.
(described below), SIBL forgave the $2,100,000 loan, as well as the accrued
interest on such loan in the amount of $191,100.
23
Tierra Del Sol used the proceeds of the SIBL Tierra Del Sol Loan to make a
capital contribution to the Phase 1 Development Partnership, which in turn
pledged this amount to KeyBank as additional collateral for the Construction
Loan. SIBL is an affiliate of Stanford Venture Capital Holdings Inc. Tierra Del
Sol used the Letters of Credit in lieu of cash to complete its equity
requirements under the Construction Loan.
The SIBL Tierra Del Sol Loan has a 2-year term, with an initial interest rate of
12% per annum. The Letters of Credit are in the amounts of $4,000,000 and
$2,000,000, with terms of 24 months and 12 months, respectively. Tierra Del Sol
is obligated to pay a monthly fee for each letter of credit equal to 1% of the
face amount of such letter of credit. Upon release of the letters of credit and
upon either the payment of the note in full or the maturity of the loan from
KeyBank, Tierra Del Sol was also required to pay a one-time minimum fee equal to
3%. After six months, this fee increased by 1% each month until the letters of
credit were released, which KeyBank did effective August 16, 2006. As
consideration for the purchase of the Antiguan call center including our
subsidiary Caribbean Leisure Marketing, Inc. (described below), SIBL forgave
these fees which amounted to $540,000. Any unpaid amounts on the SIBL Tierra
Del Sol Loan or Letters of Credit bear interest at the rate of 12% per year.
The obligations of Tierra Del Sol under the SIBL credit facility (the "Stanford
Credit Facility") were guaranteed by the Company and Malcolm J. Wright, the
Company's Chief Executive Officer and Chairman, along with other third party
entities, which third party entities are beneficially owned, in part, by Roger
Maddock, a significant shareholder of the Company, pursuant to an Irrevocable
and Unconditional Guaranty. We believe that without the guarantees of Mr. Wright
and other third parties, it would have been more difficult, if not impossible,
for us to secure the SIBL credit facility. These obligations were also secured
by a first mortgage lien on a parcel of real property owned by the third party
entities. The consideration paid for the third party entities' guarantees was
consistent with the existing debt guarantor agreement issued by the Company for
its executives. The third party entities will receive and share in a guarantee
fee equal to 3% of the amount guaranteed. The third party entities, by virtue of
pledging collateral for a debt that benefits the Company, will also receive a
collateral pledge fee equal to 2% of the amount guaranteed. The Company paid
this fee through the grant of 405,000 warrants to the third party entities to
purchase shares of the Company's common stock at an exercise price of $1.02 per
share. These warrants will expire 5 years from the expiration date of the
guarantees. In consideration of Mr. Wright's guarantee, and pursuant to an
existing agreement between Mr. Wright and the Company, Mr. Wright earned a fee
for such guarantee equal to three percent (3%) of the amount guaranteed. The
Company will pay this fee through the grant of 243,000 warrants to Mr. Wright to
purchase shares of the Company's common stock at an exercise price of $1.02 per
share. These warrants will expire 5 years from the expiration date of the
guarantee.
Tierra Del Sol has pledged its partnership interests in the Development
Partnerships to Stanford as additional collateral for this facility. Following
an event of default as defined under the Credit Agreement, Stanford has the
right for thirty (30) days following such event of default, directly or through
24
its affiliates, to purchase any unsold units in the Sonesta Resort at a price
equal to the developer's cost, but only to the extent permitted by KeyBank.
The Company's relationship with Stanford includes the requirement that the
Company utilize services provided by US Funding Corporation, an investment
banking firm. US Funding Corporation earned an administration fee of
approximately one half of one percent of the financing provided by Stanford.
As additional consideration for the loan, the Company granted SIBL warrants to
purchase 308,000 shares at an exercise price of $5.00 per share of common stock
and warrants to purchase 154,000 shares at an exercise price of $0.001 per
share. The warrants expire 5 years from issuance. The warrants contain
anti-dilution provisions, including a provision which requires the Company to
issue additional shares under the warrants if the Company issues or sells any
common stock at less than $1.02 per share, or grants, issues or sells any
options or warrants for shares of the Company's common stock to convert into
shares of the Company's common stock at less than $1.02 per share.
In connection with the warrants, the Company and Stanford entered into a
Registration Rights Agreement (the "Registration Rights Agreement"). Under the
Registration Rights Agreement, the Company agreed to prepare and file a
Registration Statement with the SEC covering the shares underlying the warrants
within 180 days of notice from SIBL of their demand that we file such
Registration Statement and to use the Company's best efforts to obtain
effectiveness of such Registration Statement as soon as practicable thereafter.
In the event the Company does not file a Registration Statement in connection
with the shares issuable in connection with the exercise of the warrants after
180 days notice from the warrant holders, the Company agreed to issue the
warrant holders as liquidated damages, warrants to purchase 10% of the shares
issuable in connection with the warrants, under the same terms and conditions as
the warrants, upon such default and for every consecutive quarter in which such
default is occurring.
We estimate that the cost to complete the construction of Phase I of the Sonesta
Resort will be $135,500,000 of which $8,000,000 will be for resort amenities,
$64,000,000 will be for vertical construction on 294 units and $ 49,500,000 will
be for other costs such as contingencies, closing costs and soft costs such as
architectural, engineering, and legal costs. An additional approximate amount of
$14,000,000 will be expended for horizontal construction costs which include all
of Phase I requirements plus most of the infrastructure requirements for the
entire Project. The $14,000,000 will be funded by the bonds proceeds held by the
Westridge Development District and from equity reserves held by Key Bank. A Land
Loan was also funded by Key Bank which was described above in the amount of
$14,850,000, of which $13,806,000 had been borrowed under as of June 30, 2006.
We previously had entered into the $40,000,000 Construction Loan with KeyBank,
which loan we decided not to open in favor of alternate, anticipated financing
arrangements which we believe will be beneficial to the timely completion of the
Sonesta Resort project. We are in the process of negotiating with several
lenders for a construction loan for the condominiums and clubhouse and
anticipate, although we cannot provide any assurances, that such loan will be
25
evidenced by a firm commitment by September 2006. Assuming we are able to enter
into a subsequent funding arrangement, we believe that we have sufficient funds
to provide for the completion of Phase 1, assuming there are no material cost
overruns, delays or further increases in material costs. Phase 2 will be
financed separately. It is anticipated, although we cannot provide any
assurances, that certain Phase 2 construction will commence by October, 2006.
In November 2003, we entered into an exclusive sales and marketing agreement
with Xpress Ltd. ("Xpress") to sell the vacation homes in the Sonesta Resort.
Malcolm J. Wright, one of our founders and our Chief Executive Officer and
Chairman, and members of his family are the majority shareholders of Xpress. As
of August 1, 2006, Xpress has pre-sold approximately 690 vacation homes in a
combination of contracts on town homes and reservations on condominiums for
total sales volume of over $220 million.
REEDY CREEK ACQUISITION COMPANY, LLC TRANSACTIONS
Background
----------
In July 2005, the Company and Stanford Financial Group Company ("SFG") formed a
new limited liability company named Reedy Creek Acquisition Company LLC ("Reedy
Creek Acquisition Company") for the purpose of acquiring a parcel of
approximately 40 acres of land located adjacent to the Animal Kingdom Theme Park
at Walt Disney World, in Orlando, Florida (the "Reedy Creek Property"). The
Reedy Creek Property is described in greater detail below under "Development
Plans for Reedy Creek Property."
Reedy Creek Acquisition Company acquired the Reedy Creek Property in July 2005
for a purchase price of $12,400,000. Reedy Creek Acquisition Company paid
$8,000,000 of the purchase price in cash and paid the $4,400,000 balance
pursuant to the terms of a promissory note issued to the sellers secured by a
first mortgage lien on the Reedy Creek Property. At the time of the purchase,
Reedy Creek Acquisition Company obtained a $7,150,000 loan from SIBL (the "SIBL
Reedy Creek Loan"), secured by a second mortgage lien on the property. The
proceeds of this loan were used to pay part of the cash portion of the purchase
price and for closing costs associated with the closing. The Company contributed
the remainder of the purchase price.
SFG and SIBL are affiliates of Stanford Venture Capital Holdings Inc., a
significant shareholder of the Company.
At the time of the acquisition of the Reedy Creek Property, Reedy Creek
Acquisition Company was owned 99% by SFG and 1% by one of the Company's wholly
owned subsidiary, American Leisure Reedy Creek Inc. ("ALRC"), however ALRC, has
since exercised its option (the "Reedy Creek Option") to receive 100% of the
interest in the Reedy Creek Acquisition Company in return for $600,000 paid to
SFG.
26
SIBL Reedy Creek Loan Terms
-------------------------------
In connection with the exercise of the Reedy Creek Option, Reedy Creek
Acquisition Company and SIBL agreed to modify the terms of the SIBL Reedy Creek
Loan made by SIBL to Reedy Creek Acquisition Company. The modified loan terms
are evidenced by a Renewed, Amended and Increased Promissory Note (the "Amended
Note") made by Reedy Creek Acquisition Company in favor of SIBL. The Amended
Note has a maturity date of December 31, 2006, a principal balance of $8,000,000
and bears interest at the rate of 8% per year payable quarterly. Interest in the
amount of $220,652 on the Amended Note has been forgiven as consideration for
the purchase of the Antiguan call center including our subsidiary Caribbean
Leisure Marketing, Inc. (described below), the balance of $110,526 is due and
payable on September 30, 2006. Upon an event of default as described in the
Amended Note, SIBL has several rights and remedies, including causing the
Amended Note to be immediately due and payable.
The Amended Note is secured by a second lien on the Reedy Creek Property. It is
guaranteed by the Company and Malcolm J. Wright, the Company's Chief Executive
Officer and Chairman pursuant to a Modification and Reaffirmation of Guaranty
and Environmental Indemnity Agreement. We believe that without the guarantees
of Mr. Wright, it would have been more difficult, if not impossible, for us to
secure the SIBL credit facility.
Bankers Credit Corporation Loan
----------------------------------
In connection with the exercise of the Reedy Creek Option, the Company and Reedy
Creek Acquisition Company arranged to receive a $7,000,000 loan from Bankers
Credit Corporation ("Bankers Credit").
Under the terms of the Bankers Credit loan, Bankers Credit advanced Reedy Creek
Acquisition Company $3,000,000 at closing and an additional $4,000,000
subsequent to the date of closing.
The Bankers Credit loan is evidenced by a Promissory Note (the "Bankers Credit
Note") and bears interest at the greater of the Wall Street Journal published
prime rate plus 7.75%, not to exceed the highest rate allowable under Florida
law or 15% per year. The interest rate of the Bankers Credit Note as of August
2, 2006 was 15% (with a prime rate, as reported by the Wall Street Journal of
8.25%). Interest on the Bankers Credit Note is payable monthly. The maturity
date of the Bankers Credit Note is January 3, 2007, when all principal and
unpaid interest is due and payable. Pursuant to the Bankers Credit Note, Reedy
Creek Acquisition Company agreed to pay a 10% late charge on any amount of
unpaid principal or interest under the Bankers Credit Note. The Bankers Credit
Note is subject to a 1% exit fee. Upon an event of default as described in the
Bankers Credit Note, Bankers Credit has several rights and remedies, including
causing the Bankers Credit Note to be immediately due and payable.
27
The Bankers Credit Note is secured by a first lien on the Reedy Creek Property.
Additionally, the Bankers Credit Note is guaranteed by the Company and Malcolm
J. Wright, the Company's Chief Executive Officer and Chairman pursuant to a
Guaranty Agreement. We believe that without the guarantees of Mr. Wright, it
would have been more difficult, if not impossible, for us to secure the Bankers
Credit, loan facility.
Reedy Creek Acquisition Company utilized the initial proceeds from the Bankers
Credit loan to pay a portion of the amount owed on the existing first mortgage
note issued to the sellers of the Reedy Creek Property. The holder of this
mortgage agreed to release the mortgage in exchange for this payment. Reedy
Creek Acquisition Company has now paid the balance of this mortgage note upon
the receipt of the balance of the Bankers Credit loan.
Development Plans for Reedy Creek Property
-----------------------------------------------
The Reedy Creek Property is situated in the northern section of Osceola County,
Florida and lies on three contiguous development parcels located to the
immediate north of U.S. Highway 192 West, about one mile from the "Maingate"
entrance to Walt Disney World, Orlando and 0.75 miles from the entrance to
"Disney's Animal Kingdom" theme park. The property is one of only a small number
of privately owned parcels abutting Walt Disney World (north and east
boundaries).
The Reedy Creek Property consists of three parcels totaling over 40 gross acres
with approximately 29 acres of buildable land. The Osceola County Comprehensive
Land Plan for the site allows vacation homes at a density of 18 units per acre,
which results in a maximum allowable project density of 522 residential units.
To achieve the maximum density, it is anticipated that the project will consist
of mid-rise condominium buildings. Amenities proposed on-site include a water
park with swimming pools, guest services clubhouse, and other related on-site
resort amenities.
It is anticipated that Walt Disney World's Reedy Creek Improvement District (the
"District"), a quasi-government body whose constituents are all affiliated with
Walt Disney World Company, will agree to construct and pave the widening and
extension of Reedy Creek Boulevard north and westward at its expense. We are
currently working with the District towards this end. The District will have a
public hearing during which it is anticipated that the District will be given
the authority to acquire the land from Reedy Creek Acquisition Company and make
the improvements to Reedy Creek Boulevard. If the District acquires the
requisite authority from its constituents, Reedy Creek Acquisition Company has
agreed to convey relatively small portions of the three combined properties to
constitute this roadway. Reedy Creek Acquisition Company will benefit from the
conveyance by saving the cost of the road it would have to build anyway and it
will enhance the required road frontage for the project.
28
The Company's development of the Reedy Creek Property is currently planned to
begin in the fourth quarter of 2007 and is currently planned to be completed
sometime in 2009, funding and scheduling permitting. The Company will not know
the total estimated cost of the development of the Reedy Creek Property until it
has determined the market and completed designs for the properties. The Company
does not currently have any funding in place for any of the capital which will
be required to complete the development of the Reedy Creek Property and there is
no assurance that funding will be available on favorable terms, if at all. The
Company is currently seeking a joint venture partner for this property.
Note Modification Agreement
-----------------------------
Effective June 30, 2006, we sold our subsidiary, Caribbean Leisure Marketing
Limited ("CLM), to Stanford International Bank Limited ("SIBL") under a stock
purchase agreement.
CLM owns a 49% in Caribbean Media Group, Ltd. ("Caribbean Media Group"),
which owns and operates a call center in Antigua. In exchange for the common
stock of CLM, SIBL exchanged certain promissory notes and accrued fees and
interest totaling $5,663,274.
In connection with the agreement, SIBL agreed to amend the due date of certain
notes, described in greater detail below, and we agreed to issue SIBL a warrant
to purchase 355,000 shares of our common stock at an exercise price of $10.00
per share, which warrants have an expiration date of April 30, 2008, and contain
certain anti-dilution clauses, whereby if we grant any options or sell any
shares of common stock for less than $1.02 per share, the exercise price of the
355,000 warrants will reset to such lower price.
In connection with the agreement, SIBL exchanged the following debts which we
owed to SIBL: a $1,250,000 promissory note and accrued interest thereon as of
June 30, 2006; a $2,100,000 promissory note and accrued interest thereon as of
June 30, 2006; all accrued and unpaid interest on our $6,000,000 note with SIBL
as of June 30, 2006; all accrued and unpaid interest on our $3,000,000
promissory note payable to SIBL as of June 30, 2006; $220,652 of the $331,178 of
accrued interest on our $8,000,000 promissory note payable to SIBL, and all
accrued fees on our $6,000,000 letter of credit, which SIBL agreed to guaranty
in connection with the KeyBank loans.
Additionally, in connection with the agreement, SIBL also agreed to amend the
due dates of the notes which we owe to SIBL, including, the $6,000,000 note,
which now has a maturity date of December 18, 2008; the $3,000,000 note, which
now has a maturity date of April 30, 2007; the $1,355,000 note, which now has a
maturity date of June 30, 2007; the $8,000,000 note, which now has a maturity
date of December 31, 2006; and the $305,000 note, which has a maturity date of
June 30, 2007.
Finally, we and SIBL agreed that CLM would be released and discharged from any
liability under the $6,000,000 note or the $305,000 note with SIBL, which it
previously agreed to guaranty.
29
PURCHASE OF MINORITY INTEREST IN TIERRA DEL SOL
-----------------------------------------------------
In March 2006, and effective as of December 31, 2005, we purchased the minority
interest of our now wholly owned subsidiary, Tierra Del Sol, Inc. (the "Minority
Interest") from Harborage Leasing Corporation ("Harborage"). The purchase price
of the Minority Interest from Harborage was a promissory note for $1,411,705
("Harborage Note"); the right to receive, without payment, two (2) three-bedroom
condominium units to be constructed in Phase 2 of the Sonesta Resort, or in the
event title to both such units is not delivered by December 31, 2007, then, in
lieu thereof, payment of $500,000 for each such unit that is not transferred by
such date; 197,000 shares of the Company's common stock; and warrants to acquire
300,000 additional shares of the Company's common stock at an exercise price of
$5.00 per share. The warrants expire if unexercised five (5) years from their
date of grant. Pursuant to the Stock Purchase Agreement, Harborage has the right
to require the Company to purchase all or a portion of the Harborage 197,000
shares at $5.00 per share, for sixty (60) days, beginning January 1, 2007 (the
"Put Option"). The Put Option will no longer be in effect provided that both of
the following events occur: (i) Harborage is able to sell the Harborage Shares
pursuant to an effective Registration Statement under the Securities Act of 1933
(the "Act"), or pursuant to Rule 144 of the Act; and after the fulfillment of
(i) above, the average closing price of the Company on the Over-The-Counter
Bulletin Board or principal exchange on which the Company's common stock then
trades, exceeds $5.00 per share for a period of thirty (30) consecutive days.
The Harborage Note and shares are guaranteed by Malcolm J. Wright, the Company's
Chief Executive Officer and Director of the Company.
RECENT EVENTS
-----------------
In August 2006, with an effective date of June 30, 2006, we and several of our
subsidiaries, including Castlechart Limited ("CLM"), our former wholly owned
subsidiary, which owns 81% of the issued and outstanding stock of Caribbean
Leisure Marketing Limited ("Caribbean Leisure Marketing"), which in turn owned
49% of the issued and outstanding stock of Caribbean Media Group, Ltd.
("Caribbean Media Group"), which owned and operated our call center in Antigua,
entered into a Stock Purchase Agreement with Stanford International Bank Limited
("SIBL" and the "Stock Purchase Agreement").
The Stock Purchase Agreement provided that we would sell SIBL, all of our
interest in CLM, along with a promissory note payable to us by CLM in the amount
of $5,663,274, which amount evidences our total investment in CLM, for an
aggregate purchase price of $5,663,275. In connection with the purchase, SIBL
also agreed to forgive the interest on several of our outstanding promissory
notes with SIBL, and to amend the due date of such notes, described in greater
detail below, and we agreed to grant SIBL a warrant to purchase 355,000 shares
of our common stock at an exercise price of $10.00 per share, which warrants
have an expiration date of April 30, 2008, and contain certain anti-dilution
clauses, whereby if we grant any options or sell any shares of common stock for
less than $1.02 per share, the exercise price of the 355,000 warrants will reset
to such lower price.
30
In connection with the Stock Purchase Agreement, SIBL forgave and permanently
discharged the following debts which we owed to SIBL: a $1,250,000 promissory
note and accrued interest thereon through June 30, 2006; a $2,100,000 promissory
note and accrued interest thereon through June 30, 2006; all accrued and unpaid
interest on our $6,000,000 note with SIBL as of June 30, 2006; all accrued and
unpaid interest on our $3,000,000 promissory note payable to SIBL as of June 30,
2006; $220,652 of the $331,178 of accrued interest on our $8,000,000 promissory
note payable to SIBL, and all accrued fees on our $6,000,000 letter of credit,
which SIBL agreed to guaranty in connection with the KeyBank loans.
Additionally, in connection with the Stock Purchase Agreement, SIBL also agreed
to restate the due dates of the notes which we owe to SIBL, including, the
$6,000,000 note, which now has a maturity date of December 18, 2008; the
$3,000,000 note, which now has a maturity date of $3,000,000; the $1,355,000
note, which now has a maturity date of June 30, 2007; the $8,000,000 note, which
now has a maturity date of December 31, 2006; and the $305,000 note, which has a
maturity date of June 30, 2007.
Finally, pursuant to the Stock Purchase Agreement, we and SIBL agreed that CLM
would be released and discharged from any liability under the $6,000,000 note or
the $305,000 note with SIBL, which it previously agreed to guaranteed.
On and effective as of August 1, 2006, our Management Agreement and the License
Agreement with Around the World Travel ("AWT"), which we entered into with AWT
on December 30, 2004, was terminated. American Leisure Equities Corporation,
which is a wholly owned subsidiary, is now operating and managing the
TraveLeaders assets.
In August 2006, Tierra del Sol Resorts, Inc. entered into a guaranteed minimum
price construction contract with Resorts Construction, LLP ("Resorts
Construction") to construct and develop part of the Sonesta Resort and its town
home properties. Resorts Construction is 50% owned by Malcolm J. Wright, the
Company's Chief Executive Officer and Chairman. We believe that the contract
with Resorts Construction provides significant savings over the PCL contract
described in detail above, and is advantageous to the Company in comparison with
terms available in the market from other third party contractors. Pursuant to
the contract with Resorts Construction, we agreed to pay Resorts Construction a
contractor's fee equal to 5% of the total cost of the construction performed by
Resorts Construction and 7.5% for general conditions. Any payments owed under
the Resorts Construction contract which are not paid when due bear interest at
the rate of 12% per annum. We provided Resorts Construction a payment of
$4,000,000 upon our entry into the construction agreement with Resorts
Construction, which funds Resorts Construction will use to begin construction of
Phase 1 of the Sonesta Resort.
31
PLAN OF OPERATIONS
We are currently 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;
however, we expect such integration process to be completed in fiscal 2006. 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 discussed in "Legal
Proceedings," herein.
Under our arrangement with Around The World Travel, which operates the
TraveLeaders assets on our behalf and from whom we acquired the assets, we incur
a fee of 10% of the net earnings of the TraveLeaders assets before interest,
taxes, depreciation and amortization. This management agreement has been
terminated.
During the six months ended June 30, 2006, we generated modest revenues from our
call center joint venture in Antigua. Effective June 30, 2006, we sold our call
center operations to Stanford, as described in greater detail above under
"Recent Events."
We believe that the capital requirement for the first phase of the resort will
be approximately $135,500,000, of which $8,000,000 will be for the resort
amenities, $64,000,000 will be for vertical construction on 294 units and
$49,500,000 will be for other costs such as contingencies, closing costs and
soft costs such as architectural, engineering, and legal costs. An additional
approximate amount of $14,000,000 will be expended for horizontal construction
costs which include all of Phase I requirements plus most of the infrastructure
requirements for the entire Project. On or about December 29, 2005 we closed on
$54.85 million of senior debt to be used in the development of The Sonesta
Orlando Resort at Tierra Del Sol (the "Project"), described in greater detail
above. KeyBank, N.A. is the lender of a credit facility for the benefit of AMLH.
32
The credit facility is a land loan in the amount of $14,850,000, which is
secured by Project land on phase two of the Sonesta Resort, that is dedicated to
specific phases of the development. KeyBank had also originally agreed to
provide us a $40,000,000 revolving construction loan, for up to $72,550,000 in
funding, however we have since decided not to move forward with such funding.
KeyBank Capital Markets had the underwriting role in the sale of the Community
Development District Bonds. We are in the process of negotiating with several
lenders for a construction loan for the condominiums and anticipate that such
loan will be evidenced by a firm commitment during the month of September 2006,
of which there can be no assurance. Financing for the balance of the development
budget, which includes infrastructure, retention, roads and green space of
approximately $26,000,000, was through the sale of Westridge Community
Development District bonds which was completed on December 29, 2005 as described
above. In June 2005, we began the earth moving and clearing process on the land
for the resort and we expect to begin the vertical construction in the third or
fourth quarters of 2006. We have established a relationship with GMAC Bank,
through Millennium Capital Mortgage, to provide construction financing to the
individual purchasers of the Sonesta Resort town homes, which funding we believe
will enable all town homes and amenities at Tierra del Sol to be built through
this program. Additionally, we are in the process of negotiating with several
lenders for a construction loan on favorable terms for the condominiums and/or
for the clubhouse. We anticipate that such loan will be evidenced by a firm
commitment during the month of September 2006, but we have no assurances that a
commitment will be secured. Assuming we are able to enter into a subsequent
funding arrangement, we believe that we have sufficient funds to provide for the
completion of Phase 1, assuming there are no material cost overruns, delays or
further increases in material costs. Phase 2 will be financed separately.
KNOWN TRENDS, EVENTS, AND UNCERTAINTIES
We expect to experience seasonal fluctuations in our gross revenues and net
earnings due to higher sales volume during peak periods. Advertising revenue
from the publication of books by Hickory that list hotel availability is
recognized either when the books are published (December) or on a performance
basis throughout the year, depending on the contractual terms. This seasonality
may cause significant fluctuations in our quarterly operating results and our
cash flows. In addition, other material fluctuations in operating results may
occur due to the timing of development of resort projects and our use of the
completed contracts method of accounting with respect thereto. Furthermore,
costs associated with the acquisition and development of vacation resorts,
including carrying costs such as interest and taxes, are capitalized as
inventory and will be allocated to cost of real estate sold as the respective
revenues are recognized. We intend to continue to invest in projects that will
require substantial development and significant amounts of capital funding
during 2006 and in the years ahead.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition and results of operations
is based upon our financial statements, which have been prepared in accordance
with accounting principals generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of any contingent assets and liabilities. We
base our estimates on various assumptions that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments
about carrying values of assets and liabilities that are not readily apparent
from other sources. On an on-going basis, we evaluate our estimates. Actual
results may differ from these estimates if our assumptions do not materialize or
conditions affecting those assumptions change. For a detailed discussion of our
significant accounting policies, see Note 2, Summary of Significant Accounting
Policies to the Notes to our audited consolidated financial statements included
in "Item 7. Financial Statements."
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements:
33
GOING CONCERN CONSIDERATIONS
------------------------------
We have incurred losses during the development stage during our existence, and
we have negative retained earnings. We had an accumulated deficit of $13,499,420
at December 31, 2005 and $11,510,650 as of June 30, 2006. We expect our travel
operations through the end of the current fiscal year to require additional
working capital of approximately $2,000,000 and Hickory to require approximately
$500,000 in working capital during the next twelve months. If we are unable to
obtain these funds, we may have to curtail or delay our travel business plan. In
addition to our ability to raise additional capital, our continuation as a going
concern also depends upon our ability to generate sufficient cash flow to
conduct our operations. If we are unable to raise additional capital or generate
sufficient cash flow to conduct our Travel Division operations and/or to
complete the construction of our planned vacation homes, we may be required to
delay the acquisition of additional travel agencies and restructure or refinance
all or a portion of our outstanding debt. The accompanying financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
REVENUE RECOGNITION
--------------------
We recognize revenues on the accrual method of accounting. Revenues from Hickory
are recognized as earned, which is primarily at the time of delivery of the
related service, publication or promotional material. Fees from advertisers to
be included in the hotel book and web service operated by Hickory are recognized
upon the annual publication of the book or when performance levels are achieved.
Revenue from the delivery of services is recognized when it is invoiced to the
recipient of the service.
One of our principal sources of revenue is associated with access to the travel
portals that provide a database of discounted travel services. Annual renewals
occur at various times during the year. Costs and revenue related to portal
usage charges are incurred in the month prior to billing. Customers are charged
additional fees for hard copies of the site access information. Occasionally
these items are printed and shipped at a later date, at which time both revenue
and expenses are recognized.
Revenues and expenses from our TraveLeaders business are 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.
We have entered into approximately 690 pre-construction sales contracts for
units in the Sonesta Orlando Resort at Tierra Del Sol. We will recognize revenue
when title is transferred to the buyer.
Revenues include property sales which are accounted for as the profits on the
sales at the time of closing.
34
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. The remaining goodwill of $14,425,437 as of December 31, 2004 was
composed of $12,585,435 from the TraveLeaders acquisition and $1,840,002 from
the Hickory acquisition. In 2005 we renegotiated and ultimately reached a
settlement on the acquisition which resulted in an acquisition of goodwill of
$5,585,435 of which $1,500,000 was previously impaired resulting in a goodwill
balance of $4,085,435. Our remaining goodwill of $1,840,002 is related to the
Hickory acquisition and has not been further impaired as of either June 30, 2006
or December 31, 2005. Therefore, total goodwill amounts to $5,925,437. The
goodwill will be evaluated on an annual basis and impaired whenever events or
circumstances indicate the carrying value of the goodwill may not be
recoverable.
COMPARISON OF OPERATING RESULTS
THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2005
We had total revenue for the three months ended June 30, 2006 of $6,490,947,
which was solely composed of operating revenues. This represented an increase in
total revenues of $150,866 or 2.4%, from total revenues of $6,340,081 of total
revenues for the three months ended June 30, 2005. The reasons for the increase
in total revenue for the three months ended June 30, 2006; compared to the three
months ended June 30, 2005 were due to increased revenues from our travel center
operations.
We had a gross margin of $295,351 for the three months ended June 30, 2006,
compared to a gross margin of $107,652 for the three months ended June 30, 2005,
an increase of $187,699 or 174.4% from the prior period, which increase in gross
margin was directly attributable to the 2.4% increase in operating revenues and
the .01% decrease in cost of service revenue for the three months ended June 30,
2006, compared to the three months ended June 30, 2005.
We had total operating expenses of $1,041,064 for the three months ended June
30, 2006, compared to total operating expenses of $799,270 for the three months
ended June 30, 2005, a increase in total operating expenses of $241,794 or 30.2%
from the prior period. The increase in total operating expenses from the
35
prior period was due to the $19,544 or 10.9% decrease in depreciation and
amortization and the $261,334 or 42% increase in general and administrative
expenses during the three months ended June 30, 2006.
We had loss from operations of $745,713 for the three months ended June 30,
2006, compared to loss from operations of $691,618 for the three months ended
June 30, 2005, an increase in loss from operations of $54,095 or 7.8% from the
prior period. The increase in loss from operations was mainly attributable to
increased general and administrative expenses.
We had total interest expense of $1,277,234 for the three months ended June 30,
2006, compared to total interest expense of $343,526 for the three months ended
June 30, 2005, an increase in interest expense of $933,708 from the prior
period. The increase in interest expense was mainly due to interest on loans
from Stanford that were not in place in during the three months ended June 30,
2005 and the amortization of deferred financing costs.
We had a gain (loss) from discontinued operations of $2,869,189 from the sale of
affiliate for the three months ended June 30, 2006, compared to gain (loss) from
discontinued operations of $(354,518) for the three months ended June 30, 2005.
Effective June 30, 2006, pursuant to a Stock Purchase Agreement between the
Company and Stanford International Bank Limited, we sold our call center
operations (Caribbean Leisure Marketing, Ltd.) In connection with the sale,
promissory notes in the amounts of $1,250,000 and $2,100,000 were forgiven by
Stanford, along with $2,313,175 of fees and accrued interest for total
consideration of $5,663,175. This sale resulted in a gain of $2,988,082.
36
We had loss before income taxes of $2,022,947 for the three months ended June
30, 2006, compared to loss before income taxes of $1,035,144 for the three
months ended June 30, 2005, an increase in income before income taxes of
$987,803 or 95.4% from the prior quarter.
We had net income of $846,242 for the three months ended June 30, 2006, compared
to net loss of $1,389,662 for the three months ended June 30, 2005, an increase
in net income of $2,235,904 or 160.9% from the prior period. The increase in net
income was due to the gain on the sale of Caribbean Leisure Marketing.
SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005
We had total revenue for the six months ended June 30, 2006 of $25,999,566,
which was composed of operating revenues of $12,870,320 and Undeveloped Land
Sales of $13,129,246. This represented an increase in total revenues of
$11,850,104, or 83.7% from total revenues of $14,149,462 for the six months
ended June 30, 2005 which was composed of $10,016,551 of Operating Revenues and
$4,132,911 Undeveloped Land Sales. The reasons for the increase in total revenue
for the six months ended June 30, 2006; compared to the six months ended June
30, 2005 were the $8,996,335 or 217.7% increase in undeveloped land sales
relating to the sale of forty-two acres of land to the District during the six
months ended June 30, 2006, and $2,853,769 or 28.5% increase in operating
revenues relating to decreased revenues during the six months ended June 30,
2006, relating to our travel business.
Total cost of undeveloped land sales for the six months ended June 30, 2006, was
$9,796,634, compared to cost of undeveloped land sales of $3,384,988 for the six
months ended June 30, 2005, an increase of $6,411,646 or 189.4% from the prior
period. The increase in cost of undeveloped land sales was directly related to
the increased land sales for the six months ended June 30, 2006, compared to the
six months ended June 30, 2005.
We had a gross margin of $3,813,110 for the six months ended June 30, 2006,
compared to a gross margin of $1,190,080 for the six months ended June 30, 2005,
an increase of $2,623,030 or 220.4% from the prior period, which increase in
gross margin was mainly due to the 83.7% increase in total revenue offset by
the 189.4% increase in cost of undeveloped land sales and a 25.2% increase in
Cost of Service Revenues for the six months ended June 30, 2006, compared to
the six months ended June 30, 2005.
We had total operating expenses of $2,050,497 for the six months ended June 30,
2006, compared to total operating expenses of $1,808,144 for the six months
ended June 30, 2005, an increase in total operating expenses of $242,353 or
13.4% from the prior period. The increase in total operating expenses from the
prior period was mainly due to the $241,378 or 16.7% increase in general and
administrative expenses.
37
We had total income from operations of $1,762,613 for the six months ended June
30, 2006, compared to total loss from operations of $618,064 for the six months
ended June 30, 2005, an increase in income from operations of $2,380,677 or
385,2% from the prior period. The increase in total income from operations was
mainly due to the sale of forty-two acres of undeveloped land to the District,
as described above.
We had total interest expense of $2,517,382 for the six months ended June 30,
2006, compared to total interest expense of $736,845 for the six months ended
June 30, 2005, an increase in interest expense of $1,80,537 or 241.6% from the
prior period. The increase in interest expense was mainly due to interest on
loans from Stanford that were not in place during the six months ended 2005 and
the amortization of deferred financing costs.
We had a gain from discontinued operations of $2,744,938 for the six months
ended June 30, 2006, compared to loss from discontinued operations of $(588,936)
for the six months ended June 30, 2005. Effective June 30, 2006, pursuant to a
Stock Purchase Agreement Between the Company and Stanford International Bank
Limited, we sold our call center operations (Caribbean Leisure Marketing, Ltd.)
In connection with the sale, promissory notes in the amounts of $1,250,000 and
$2,100,000 were forgiven by Stanford, along with $2,313,175 of fees and accrued
interest for total consideration of $5,663,175. This sale resulted in a gain
of $2,988,082.
We had loss before income taxes of $754,769 for the six months ended June
30, 2006, compared to loss before income taxes of $1,354,909 for the six months
ended June 30, 2005, a decrease in loss before income taxes of $600,140 or
44.3% from the prior six month period.
We had provision for income taxes of $1,399 for the six months ended June 30,
2006, compared to provision for income taxes of $-0- for the six months ended
June 30, 2005.
38
We had net income of $1,988,769 for the six months ended June 30, 2006, compared
to net loss of $1,943,845 for the six months ended June 30, 2005, an increase in
net income of $3,932,614 or 202.3% from the prior period. The increase in net
income was mainly due to the sale of forty-two acres of undeveloped land.
LIQUIDITY AND CAPITAL RESOURCES
We had total current assets of $31,038,433 as of June 30, 2006, which included
cash of $3,641,725, restricted cash of $19,254,793, accounts receivable of
$822,827, other receivable of $7,199,711 and prepaid expenses and other of
$119,387. This represented an increase in total current assets of $8,908,118
from December 31, 2005, when total current assets were $22,130,325. The main
reason for the increase in total current assets as of June 30, 2006, compared to
December 31, 2005, was a $6,079,439 increase in restricted cash in connection
with additional deposits on units in the Sonesta Resort and funds raised from
the sale of the District bond, as described above. Restricted cash consisted of
escrowed deposit funds from customers as well as funds devoted exclusively to
the development of the Sonesta Resort.
We had net property and equipment as of June 30, 2006 of $1,595,774, which was a
decrease of $2,988,079 from net property and equipment of $4,583,853 as of
December 31, 2005. The decrease in net property and equipment at June 30, 2006
compared to as of December 31, 2005 was mainly caused by the depreciation of our
call center equipment, which we sold to Stanford subsequent to June 30, 2006, as
described above.
We had $50,480,540 of land held for development as of June 30, 2006, which was
an increase of $15,785,259 or 45.5% from land held for development of
$34,695,281 as of December 31, 2005. The increase in land held for development
was due to capitalization of costs such as interest, professional fees,
operating expenses on Tierra Del Sol, Inc. until the units at the Sonesta Resort
property are completed and the acquisition of Reedy Creek Acquisition Company
for $13,386,265 which increased our ownership in such entity and the undeveloped
Reedy Creek Property from 1% to 100%. The $50,480,540 of land held for
development as of June 30, 2006, represented the total costs capitalized since
2002 including the cost of the land.
We had total other assets of $27,320,307 as of June 30, 2006, which included
prepaid sales commissions of $8,776,125; prepaid sales commissions from an
affiliated entity, Xpress, Ltd., of $3,354,823; investment senior notes
$5,170,000; goodwill of $5,925,437; trademark of $962,500 and other assets of
$3,131,422, which included deferred financing costs, member contracts and
customer lists. Trademark of $962,500 as of June 30, 2006, represented the
Company's trademark on "Traveleaders." Prepaid sales commissions are paid to a
sales agent at the point of sale and the agent then executes a note indicating
that if the customer does not ultimately close on the sale of the property, the
agent will return the advance. One half of the total sales commissions are paid
at the point of sale, with the remaining balance being paid to the agent at
closing.
39
We had total assets of $110,435,064 as of June 30, 2006, which included total
current assets of $31,038,443; net property and equipment of $1,595,774; land
held for development of $50,480,540 and total other assets of $27,320,307,
compared to total assets of $89,923,247 as of December 31, 2005. The increase in
total assets was mainly due to the increases in total current assets and land
held for development as described above.
We had total current liabilities of $27,394,757 as of June 30, 2006, which
included current maturities of long-term debt and notes payable of $16,870,617;
current maturities of notes payable-related parties of $4,455,159; accounts
payable and accrued expenses of $3,058,521; accrued expenses-officers of
$2,370,500 and other liabilities of $639,960. In June 2006, Malcolm J. Wright,
our Chief Executive Officer and Chairman was paid $1,540,500 in accrued salaries
and interest which he was owed. Accrued expenses-officers as of June 30, 2006,
included $1,825,000 in salaries and interest due to MrWright. Mr. Wright's
accrued and unpaid salaries accrue interest at the rate of 12% per year until
paid., Additionally included in accrued expenses-officers was $279,250 owed to
L. William Chiles, the Chief Executive Officer of Hickory and our Director,
which included $250,000 of unpaid salary accrued to Mr. Chiles and $29,250 of
accrued interest on such unpaid salary. Total current liabilities as of June 30,
2006 increased $16,874,083 or 160% from total current liabilities of $10,520,674
as of December 31, 2005. The increase in current liabilities was mainly
attributable to an increase of $15,079,809 or 842.1% in current maturities of
long term debt and notes payable which increase was mainly due to the Reedy
Creek Acquisition Company loans with SIBL and Banker's Credit, which we received
during the three months ended June 30, 2006 and the $3,187,058 or 251% increase
in current maturities of notes payable for advances from related parties and an
increase of $354,517 or 124% in other expenses, which was offset by a $1,023,000
or 30.1% decrease in accrued expenses due to officers and a $724,301 or 19.1%
decrease in accounts payable and accrued expenses.
As of June 30, 2006, we owed $4,827,962 in connection with notes payable to
related parties including $207,703 owed to our Director, William Chiles;
$574,000 owed to Charles Sieberling, the Secretary of Hickory, and $2,166,250
owed to our Chief Executive Officer and Chairman, Malcolm J. Wright.
We had total liabilities of $101,750,847 as of June 30, 2006, which included
total current liabilities of $27,394,757; long-term debt and notes payable of
$34,478,693; a put liability related to the purchase of the minority interest in
Tierra Del Sol, Inc. of $985,000, and deposits on pre-unit sales of $38,892,397.
This represents an increase in total liabilities of $18,045,954 or 21.6% from
total liabilities of $83,704,893 as of December 31, 2005, which increase was
mainly due to the $15,079,809 or 842.1% increase in current maturities of
long-term debt and notes payable and the $3,187,058 or 251% increase in current
maturities of notes payable to related parties, described in greater detail
above.
We had total working capital of $3,643,686 and a ratio of current assets to
current liabilities of 1.13 as of June 30, 2006.
40
We had net cash flows used in operating activities of $3,023,463 for the six
months ended June 30, 2006, which was mainly attributable to $1,988,769 of net
income, $1,477,348 of non-cash interest expense, $1,226,029 of increase in
deposits on unit pre-sales, $920,392 of decrease in accounts payable and accrued
expenses and $1,220,314 of decrease in receivables offset by a gain on sale of
subsidiary of $2,988,082 and an increase in prepaid commissions of $843,790.
We had total cash flows used in investing activities of $6,169,809 for the six
months ended June 30, 2006, which included $6,079,439 of increase in restricted
cash, and $90,371 of disposal of fixed assets. The increase in restricted cash
was in connection with additional deposits on units in the Sonesta Resort and
funds raised from the sale of the District bond, as described above. Restricted
cash consisted of escrowed deposit funds from customers as well as funds devoted
exclusively to the development of the Sonesta Resort.
We had net cash provided by financing activities of $6,563,017 for the six
months ended June 30, 2006, which was due to $7,294,080 of proceeds from notes
payable and $308 from proceeds from the exercise of warrants offset by $731,371
of payment of debt.
During the six months ended June 30, 2006, we borrowed an additional $228,900
under the Land Loan with KeyBank, bringing the total outstanding balance of such
loan to $13,806,000.
We expect that we will require approximately $2,500,000 through the end of the
2006 fiscal year for working capital for our travel management and services
businesses.
We estimate that the cost to complete the construction of Phase I of the Sonesta
Resort will be approximately $135,500,000 of which $ 8,000,000 will be for
resort amenities, $64,000,000 will be for vertical construction on 294 units and
$49,500,000 will be for other costs such as contingencies, closing costs and
soft costs such as architectural, engineering, and legal costs. An additional
approximate amount of $14,000,000 will be expended for horizontal construction
costs which include all of Phase I requirements plus most of the infrastructure
requirements for the entire Project. As of June 30, 2006, approximately
$13,806,000 had been advanced to the Company pursuant to the Land Loan (as
described and defined above).
41
On December 30, 2005, we closed on an aggregate of $54,850,000 in senior debt to
be used in the development of The Sonesta Orlando Resort at Tierra Del Sol.
KeyBank, N.A. is the lender of the senior debt, which was provided to us in the
form of two credit facilities. The first is a land loan in the amount of
$14,850,000, which is secured by Project land that is dedicated to specific
phases of the development. The second was a $40,000,000 revolving construction
loan that we originally planned to use to fund the development and construction
for Phase 1 of the Sonesta Resort, but which we subsequently decided not to use.
We are in the process of negotiating with several lenders for a construction
loan for the condominiums and anticipate that such loan will be evidenced by a
firm commitment during the month of August 2006, of which there can be no
assurance. We also have funding in the amount of $25,825,000 from the Westridge
Community Development District ("CDD" or the "District"), which bonds will be
used to pay for infrastructure facilities for public purposes such as water
supply and retention systems, roadways, green space and nature recreation areas.
In addition to the KeyBank provided senior debt, the Project is also benefiting
from $25,825,000 in bonds issued by the CDD, a special purpose taxing district
formed for the purpose of financing the installation of vital public services
such as water supply and retention, sanitary and storm water sewer systems,
roadways and the landscaping attendant to those uses. The CDD supports these
initiatives, through the provision of capital and maintenance, via a tax upon
the property owners of the district that utilizes a low finance rate (5.8% per
annum) and a long-term amortization of the capital costs (30 years).
The first phase of site work on the Sonesta Resort, at an estimated cost
exceeding $19 million, will be funded by the CDD via the sale by the CDD of
bonds issued on a non-recourse basis to the Company ("CDD Bonds"). The CDD was
initially created by the Company in September 2003 and enabled by an order of a
Florida State District Court. The CDD Bond issue was underwritten by KeyBanc
Capital Markets Group in the amount of $25,825,000. The first issue of the CDD
Bonds were successfully sold and closed simultaneous with the closing of the Key
Bank senior debt facilities. Upon closing of the loan, we repaid $7,862,250 of
short-term debt plus accrued interest of approximately $256,512. This short-term
debt originally matured on March 31, 2005, but it was extended until the closing
of the KeyBank credit facilities in December 2005.
We hope to obtain alternate financing for the amounts which were originally to
be loaned to us by KeyBank pursuant to the Construction Loan, which alternate
financing we hope to obtain in September 2006, of which there can be no
assurance. Assuming we raise such additional funding, we believe that such
funding and the bond sale proceeds will provide sufficient capital for the
construction of Phase 1 of The Sonesta Orlando Resort at Tierra Del Sol. In June
2005, we began the earth moving and clearing process on the land for the Sonesta
Resort and we expect to begin the vertical construction of Phase 1 in the third
or fourth quarters of 2006. We will need to raise additional capital to begin
and complete Phase 2 of the Sonesta Resort, assuming the construction of Phase 1
is successful, of which there can be no assurance. Additionally, we will need to
raise significant capital to plan and construct our planned development
activities on our Reedy Creek Property.
42
In August 2006, with an effective date of June 30, 2006, we and several of our
subsidiaries, including CLM, our former wholly owned subsidiary, which owns 81%
of the issued and outstanding stock of Caribbean Leisure Marketing, which in
turn owns 49% of the issued and outstanding stock of Caribbean Media Group,
which owned and operated our call center in Antigua, entered into a Stock
Purchase Agreement with Stanford International Bank Limited.
The Stock Purchase Agreement provided that we would sell SIBL, all of our
interest in CLM, along with a promissory note payable to us by CLM in the amount
of $5,663,274, which amount evidences our total investment in CLM, for an
aggregate purchase price of $5,663,275. In connection with the purchase, SIBL
also agreed to forgive the interest on several of our outstanding promissory
notes with SIBL, and to amend the due date of such notes, described in greater
detail below, and we agreed to grant SIBL a warrant to purchase 355,000 shares
of our common stock at an exercise price of $10.00 per share, which warrants
have an expiration date of April 30, 2008, and contain certain anti-dilution
clauses, whereby if we grant any options or sell any shares of common stock for
less than $1.02 per share, the exercise price of the 355,000 warrants will reset
to such lower price.
In connection with the Stock Purchase Agreement, SIBL forgave and permanently
discharged the following debts which we owed to SIBL: a $1,250,000 promissory
note and accrued interest thereon through June 30, 2006; a $2,100,000 promissory
note and accrued interest thereon through June 30, 2006; all accrued and unpaid
interest on our $6,000,000 note with SIBL as of June 30, 2006; all accrued and
unpaid interest on our $3,000,000 promissory note payable to SIBL as of June 30,
2006; $220,652 of the $331,178 of accrued interest on our $8,000,000 promissory
note payable to SIBL, and all accrued fees on our $6,000,000 letter of credit,
which SIBL agreed to guaranty in connection with the KeyBank loans.
Additionally, in connection with the Stock Purchase Agreement, SIBL also agreed
to restate the due dates of the notes which we owe to SIBL, including, the
$6,000,000 note, which now has a maturity date of December 18, 2008; the
$3,000,000 note, which now has a maturity date of $3,000,000; the $1,355,000
note, which now has a maturity date of June 30, 2007; the $8,000,000 note, which
now has a maturity date of December 31, 2006; and the $305,000 note, which has a
maturity date of June 30, 2007.
Finally, pursuant to the Stock Purchase Agreement, we and SIBL agreed that CLM
would be released and discharged from any liability under the $6,000,000 note or
the $305,000 note with SIBL, which it previously agreed to guaranteed.
At June 30, 2006, we had an outstanding principal balance of $6,000,000 under
our secured revolving credit facility with Stanford, which bears interest at a
fixed rate of 6% per annum payable accruing from July 1, 2006 quarterly in
arrears and matures on December 18, 2008. As of June 30, 2006, 355,000
warrants with a strike price of $10 per share with a maturity of April 30, 2008
were issued to replace the conversion feature of the credit facility whereby the
loan could previously be converted into shares of our common stock at a
43
conversion price of $15.00 per share in connection with our entry into the Stock
Purchase Agreement with SIBL. The $6,000,000 credit facility is guaranteed by
Malcolm J. Wright, our Chief Executive Officer and Chairman and is secured by a
second mortgage on our Sonesta Orlando Resort property, including all fixtures
and personal property located on or used in connection with these properties,
and all of the issued and outstanding capital stock and assets of two of our
subsidiaries, American Leisure Marketing & Technology, Inc. and Caribbean
Leisure Marketing Limited. We believe that without the guarantees of Mr.
Wright, it would have been more difficult, if not impossible, for us to secure
the Stanford, credit facility.
As of June 30, 2006, we had an outstanding principal balance of $3,000,000,
under another secured revolving credit facility with Stanford, which bears
interest at a fixed rate of 8% per annum accruing from July 1, 2006 payable
quarterly in arrears and matures on April 30, 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.
As of June 30, 2006, we had a total of $1,355,000 outstanding under our secured
revolving credit facility with Stanford, which bears interest at a fixed rate of
8% per annum and matures on June 30, 2007. Interest on the credit facility
accrues from July 1, 2006 and is due quarterly in arrears. At the sole election
of the lender, any amount outstanding under the credit facility may be converted
into shares of our common stock at a conversion price of $10.00 per share. The
credit facility is secured by all of the issued and outstanding stock of our
subsidiary, Caribbean Leisure Marketing Limited.
As of June 30, 2006 we had another credit facility in the amount of $305,000
with Stanford The credit facility bears interest at 8.0% per annum and accrues
interest from July 1, 2006 and is secured by the assets and stock of the
Company. The credit facility is due on June 30, 2007.
On December 29, 2005, Stanford International Bank, Ltd. ("SIBL") provided Tierra
Del Sol with financial assistance to facilitate the establishment of the Land
Loan and the Construction Loan. The financial assistance consisted of a loan to
Tierra Del Sol of $2,100,000 (the "SIBL Tierra Del Sol Loan"), however, as
consideration for the purchase of the Antiguan call center, SIBL forgave this
note and $191,100 of accrued interest and the establishment of letters of credit
in favor of KeyBank in the amount of $4,000,000 and $2,000,000, respectively
(the "Letters of Credit"), the fees for which amounting to $540,000, were also
forgiven as consideration for the purchase of the Antiguan call center, as
described above. As additional consideration for this financial assistance, we
granted SIBL and its affiliates warrants to purchase 308,000 shares of our
common stock at an exercise price of $5.00 per share and warrants to purchase
154,000 shares of our common stock at an exercise price of $0.001 per share.
Additionally, in January 2006, in connection with the SIBL Reedy Creek Loan, we
granted SIBL and its affiliates warrants to purchase 308,000 shares of our
common stock at an exercise price of $5.00 per share and warrants to purchase
44
154,000 shares of the Company's common stock at an exercise price of $0.001 per
share. The warrants expire 5 years from issuance. The warrants contain
anti-dilution provisions, including a provision which requires us to issue
additional shares under the warrants if we issue or sell any common stock at
less than $1.02 per share, or grant, issue or sell any options or warrants for
shares of the Company's common stock to convert into shares of our common stock
at less than $1.02 per share. If we do issue or sell common stock, which would
cause a re-pricing of the warrants issued to SIBL, it would likely have an
adverse effect on the trading value of our common stock and could cause
substantial dilution to our then shareholders.
Our subsidiary Hickory Travel Systems, Inc. owes $250,000 pursuant to a note
payable to Sabre, Inc. ("Sabre"), which final payment of $250,000 on such note
was due December 31, 2003. The note originally accrued interest at 8% per annum
and is secured by the personal guaranty of William Chiles who is a Director of
the Company. Interest has not been paid or accrued on this note since December
31, 2003, as there is no interest penalty or default rate applicable to the
final unpaid payment. Sabre has not requested the final payment of $250,000 of
the promissory note from Hickory to date.
Additionally, Hickory has a $375,900 loan through the U.S. Small Business
Administration ("SBA") of which $364,361 has been drawn as of June 30, 2006. The
SBA loan is due by May 2033 and bears interest at 4% per annum with principal
and interest payments of approximately $1,862 due monthly from May 2005 until
May 2033. The SBA note is secured by Hickory's assets and the personal guaranty
of William Chiles, who is our Director.
In connection with our purchase of the assets of Around The World Travel, Inc.
("AWT"), as of June 30, 2006 there is a balance from those liabilities we
assumed from AWT of $3,743,509, of which approximately $370,744 is due in the
next twelve months.
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 the company's common stock, accelerate amounts due under
the applicable credit facility and may foreclose on collateral and/or seek
payment from a guarantor of the credit facility. At March 31, 2006, we believe
we were in compliance with the covenants and other restrictions applicable to us
under each credit facility.
In connection with the exercise of the Reedy Creek Option, Reedy Creek
Acquisition Company and SIBL agreed to modify the terms of the SIBL Reedy Creek
Loan made by SIBL to Reedy Creek Acquisition Company. The modified loan terms
are evidenced by a Renewed, Amended and Increased Promissory Note (the "Amended
Note") made by Reedy Creek Acquisition Company in favor of SIBL. The Amended
Note has a maturity date of December 31, 2006, a principal balance of $8,000,000
45
and bears interest at the rate of 8% per year. Interest on the Amended Note is
payable quarterly on June 30, 2006, September 30, 2006 and on the maturity date
of the Amended Note. Upon an event of default as described in the Amended Note,
SIBL has several rights and remedies, including causing the Amended Note to be
immediately due and payable.
The Amended Note is secured by a second lien on the Reedy Creek Property. It is
guaranteed by the Company and Malcolm J. Wright, the Company's Chief Executive
Officer and Chairman pursuant to a Modification and Reaffirmation of Guaranty
and Environmental Indemnity Agreement. We believe that without the guarantees of
Mr. Wright, it would have been more difficult, if not impossible, for us to
secure the SIBL, loan facility. In consideration for Mr. Wright's guarantee, and
pursuant to an existing agreement between Mr. Wright and the Company, Mr. Wright
earned a fee equal to three percent (3%) of principal amount of the Amended
Note. The Company will pay this fee through the grant of 240,000 warrants to Mr.
Wright to purchase shares of the Company's common stock at an exercise price of
$1.02 per share. These warrants will expire 5 years from the expiration of the
guaranty.
In connection with the exercise of the Reedy Creek Option, the Company and Reedy
Creek Acquisition Company arranged to receive a $7,000,000 loan from Bankers
Credit Corporation ("Bankers Credit"). Under the terms of the Bankers Credit
loan, Bankers Credit advanced Reedy Creek Acquisition Company $3,000,000 at
closing and an additional $4,000,000 subsequent to the date of closing, for an
aggregate of $7,000,000.
The Bankers Credit loan is evidenced by a Promissory Note (the "Bankers Credit
Note") and bears interest at the greater of the Wall Street Journal published
prime rate plus 7.75%, not to exceed the highest rate allowable under Florida
law or 15% per year. The interest rate of the Bankers Credit Note as of August
2, 2006 was 15% (with a prime rate, as reported by the Wall Street Journal of
8.25%). Interest on the Bankers Credit Note is payable monthly. The maturity
date of the Bankers Credit Note is January 3, 2007, when all principal and
unpaid interest is due and payable. Pursuant to the Bankers Credit Note, Reedy
Creek Acquisition Company agreed to pay a 10% late charge on any amount of
unpaid principal or interest under the Bankers Credit Note. The Bankers Credit
Note is subject to a 1% exit fee. Upon an event of default as described in the
Bankers Credit Note, Bankers Credit has several rights and remedies, including
causing the Bankers Credit Note to be immediately due and payable.
The Bankers Credit Note is secured by a first lien on the Reedy Creek Property.
Additionally, the Bankers Credit Note is guaranteed by the Company and Malcolm
J. Wright, the Company's Chief Executive Officer and Chairman pursuant to a
Guaranty Agreement. We believe that without the guarantees of Mr. Wright, it
would have been more difficult, if not impossible, for us to secure the Bankers
Credit, loan facility. In consideration for Mr. Wright's guarantee, and pursuant
to an existing agreement between Mr. Wright and the Company, Mr. Wright earned a
fee equal to three percent (3%) of the Bankers Credit Note. The Company will pay
this fee through the grant of 210,000 warrants to Mr. Wright to purchase shares
46
of the Company's common stock at an exercise price of $1.02 per share. These
warrants will expire 5 years from the expiration of the guaranty.
Reedy Creek Acquisition Company utilized the initial proceeds from the Bankers
Credit loan to pay a portion of the amount owed on the existing first mortgage
note issued to the sellers of the Reedy Creek Property. The holder of this
mortgage agreed to release the mortgage in exchange for this payment. Reedy
Creek Acquisition Company has now paid the balance of this mortgage note upon
the receipt of the balance of the Bankers Credit loan.
While we currently believe we have sufficient funds to continue our business
plan, because we have decided not to move forward with the KeyBank Construction
Loan, we will need to find alternative financing for the construction of Phase 1
of the Sonesta Resort, of which there can be no assurance.
We have established a relationship with GMAC Bank, through Millennium Capital
Mortgage, to provide construction financing to the individual purchasers of the
Sonesta Resort town homes, which funding we believe will enable all town homes
and amenities at Tierra del Sol to be built through this program. Additionally,
we are in the process of negotiating with several lenders for a construction
loan on favorable terms for the condominiums and/or for the clubhouse. We
anticipate that such loan will be evidenced by a firm commitment during the
month of September 2006, but we have no assurances a commitment will be secured.
Assuming we are able to enter into a subsequent funding arrangement, we believe
that we have sufficient funds to provide for the completion of Phase 1, assuming
there are no material cost overruns, delays or further increases in material
costs. Phase 2 will be financed separately.
However, even if we are able to secure sufficient financing for the construction
of Phase 1 of the Sonesta Resort, moving forward, our growth and continued
operations may be impaired by limitations on our access to the capital markets.
In the event that our current anticipated costs of developing the Sonesta Resort
and/or the Reedy Creek Property, are more than we anticipate, and/or our other
travel service operations do not continue to generate revenue at their current
levels, we may not have sufficient funds to complete such construction projects
and/or repay amounts owed on the notes payable described above. As a result, we
may be forced to reduce our annual construction goals and maintain our
operations at current levels, and/or scale back our operations which could have
a material adverse impact upon our ability to pursue our business plan and/or
the value or common stock. There can be no assurance that capital from outside
sources will be available, or if such financing is available, that it will not
involve issuing further securities senior to our common stock or equity
financings which are dilutive to holders of our common stock.
While our common stock currently trades on the Over-The-Counter Bulletin Board
in the United States, there is the potential that we may choose to change our
common stock listing to an alternative market in order to improve our liquidity
and our access to the capital markets.
47
RISK FACTORS
---------------
RISKS RELATING TO OUR CAPITAL AND LIQUIDITY NEEDS
WE HAVE A LIMITED HISTORY OF OPERATIONS AND WE HAVE A HISTORY OF OPERATING
LOSSES.
Since our inception, we have been assembling our Travel Division including the
acquisition of Hickory in October 2003 and TraveLeaders in December 2004,
planning The Sonesta Orlando Resort at Tierra Del Sol, building travel club
membership databases, and assembling our management team. We have incurred net
operating losses since our inception. As of December 31, 2005, we had an
accumulated deficit of $13,499,420 and as of June 30, 2006, we had an
accumulated deficit of $11,510,650.
WE MAY NOT GENERATE ENOUGH OPERATING REVENUE OR CAPITAL TO MEET OUR OPERATING
AND DEVELOPMENT COSTS.
Our costs of establishing our business models for both the Travel Division and
the Resort Development Division, including acquisitions and the due diligence
costs of that process, together with the un-financed development costs incurred
in the Resort Development Division requires significant capital. Historically,
our sources for capital have been through loans from our founding and majority
shareholders as well as from loans from our capital partner, Stanford. On
December 29, 2005, certain affiliates of the Company closed two (2) credit
facilities with Key Bank related to the Sonesta Resort. The credit facilities
consisted of a $40,000,000 revolving construction loan which we planned to use
to construct Phase 1 of the Sonesta Resort (the "Construction Loan"), but which
we have subsequently elected not to open and a $14,850,000 term loan used to
finance the acquisition of the property for the Resort and to pay certain
related costs (the "Land Loan"). Since we have not decided to move forward with
the Construction Loan financing, we will need to obtain alternative financing
for the construction of Phase 1 of the Sonesta Resort, which may be on less
favorable terms than the Construction Loan, if such financing is available at
all. We are currently working with several financing sources and hope to close
additional financing in September 2006. If we are unable to enter into an
alternative funding arrangement in connection with the construction of Phase 1
of the Sonesta Resort, generate enough operating revenue to satisfy our capital
needs, or if we cannot obtain future capital from our founding and majority
shareholders or from Stanford, and/or if we are not able to repay the Land Loan,
it will have a material adverse effect on our financial condition and results of
operation.
WE OWE A SIGNIFICANT AMOUNT OF MONEY TO KEYBANK IN CONNECTION WITH THE LAND
LOAN, WHICH MONEY WE DO NOT CURRENTLY HAVE, AND WHICH LOANS ARE SECURED BY THE
SONESTA RESORT.
48
The occurrence of any one or more "events of default" under the Land Loan would
allow KeyBank to pursue certain remedies against us including taking possession
of the Sonesta Resort project; withholding further disbursement of the proceeds
of the loan and/or terminate KeyBank's obligations to make further disbursements
thereunder; and/or declaring the note evidencing the loans to be immediately due
and payable. We do not currently have cash on hand sufficient to repay the
approximately $13,806,000 which was borrowed from KeyBank pursuant to the Land
Loan as of June 30, 2006. The Land Loan is due for repayment on June 28, 2007,
and we do not currently have sufficient cash to repay such loan when due.
Furthermore, we currently anticipate the need for a significant amount of
additional funding to complete the construction of Phase 1 of the Sonesta
Resort, and as such, we will likely not have sufficient cash to repay the Land
Loan or any future loan in connection with the funding of Phase 1 of the Sonesta
Resort, assuming such financing is obtained, until the completion of the units
in the Sonesta Report, without additional financing. If we do not repay the
amounts owning under the Land Loan or any subsequent loans when due, KeyBank may
take possession of the Sonesta Resort project, and we may be forced to curtail
or abandon our current business plans, which could cause the value of our
securities to become worthless.
Furthermore, we have established a relationship with GMAC Bank, through
Millennium Capital Mortgage, to provide construction financing to the individual
purchasers of the Sonesta Resort town homes, which funding we believe will
enable all town homes and amenities at Tierra del Sol to be built through this
program. Additionally, we are in the process of negotiating with several lenders
for a construction loan on favorable terms for the condominiums and/or for the
clubhouse. We anticipate that such loan will be evidenced by a firm commitment
during the month of September 2006, but we have no assurances of a commitment
will be obtained. Assuming we are able to enter into a subsequent funding
arrangement, we believe that we will have sufficient funds to provide for the
completion of Phase 1, assuming there are no material cost overruns, delays or
further increases in material costs. We plan to finance Phase 2 separately.
WE HAVE RECEIVED $10,355,000 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 $10,355,000 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 has been re-structured to be
secured by a first mortgage on land owned by third parties. However,
Stanford has agreed that the mortgage securing the $6,000,000 credit
facility shall be released in exchange for payment of the primary
obligations it secures, which includes the the release of the Letters
Of Credit. In consideration of Stanford's release of the mortgage
securing the $6,000,000 credit facility, we have granted Stanford
warrants to acquire up to 2% of each of the Development Partnerships.
49
A component of that collateral is that Stanford has an option to elect
to receive warrants to purchase Series E Preferred Stock in lieu of
and equivalent to distributions (after tax) from the Development
Partnerships. Series E Preferred Stock has a conversion value to
common stock at $15.00 per common share. Other assets previously
provided to secure this credit facility, including 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 remain as security for the debt.
- Our $ $3,000,000 credit facility is secured by collateral
assignments of our stock in American Leisure Marketing & Technology,
Inc., Orlando Holidays, Inc, American Leisure, Inc, Welcome To
Orlando, Inc, American Travel & Marketing Group, Inc. and Hickory
Travel Systems, Inc.
- Our $1,355,000 credit facility is secured by all of the issued
and outstanding stock of our subsidiaries American Leisure Marketing &
Technology, Inc., Orlando Holidays, Inc, American Leisure, Inc,
Welcome To Orlando, Inc., American Travel & Marketing Group, Inc. and
Hickory Travel Systems, Inc. This facility is non-recourse to the
Company but for the assets and revenues of those subsidiaries.
In addition, Malcolm J. Wright, our Chief Executive Officer and Chairman
provided a personal guarantee for our $6,000,000 credit facility. We believe
that without the guarantees of Mr. Wright, it would have been more difficult, if
not impossible, for us to secure the Stanford credit facility. If we fail to
comply with the covenants in our credit facilities, Stanford can elect to
accelerate the amounts due under the credit facilities and may foreclose on our
assets and property that 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;
50
- 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 OWE A SIGNIFICANT AMOUNT OF MONEY TO KEYBANK, NATIONAL ASSOCIATION, WHICH WE
DO NOT CURRENTLY HAVE FUNDS TO RE-PAY, AND WHICH LOANS INCLUDE LIENS ON OUR
PROPERTIES.
In December 2005, we closed two credit facilities with KeyBank, National
Association ("KeyBank") related to the Sonesta Resort. The credit facilities
consisted of a $40,000,000 revolving credit line (the "Construction Loan") and a
$14,850,000 term loan to be used to finance the acquisition of the property for
the resort (the "Land Loan"). We have since decided not to move forward with the
Construction Loan, however we have approximately $13,806,000 outstanding under
the Land Loan to date. The Land Loan bears interest at the rate of the daily
London Interbank Offered Rate ("LIBOR") plus 3.10%, respectively, currently
8.69%, with the LIBOR equal to approximately 5.59% as of August 2, 2006. The
maturity date of the Land Loan is June 28, 2007. The Land Loan is secured by a
first lien on the land within Phase 2 of the Sonesta Resort, including any
improvements, easements, and rights of way; a first lien and security interest
in all fixtures and personal property, an assignment of all leases, subleases
and other agreements relating to the property; an assignment of construction
documents; a collateral assignment of all contracts and agreements related to
the sale of each condominium unit; a collateral assignment of all purchase
deposits and any management and/or operating agreement. As of the date of this
filing we have borrowed $13,806,000 under the Land Loan, which amount we do not
currently have funds on hand to repay. We are under no pressure to repay the
Land Loan. Our business plan includes retiring that debt with a construction
loan to build Phase 2 of the Sonesta Resort, assuming that we raise sufficient
funding to complete the construction of Phase 1 of the Sonesta Resort first, of
which there can be no assurance.
WE NEED SIGNIFICANT ADDITIONAL FINANCE FACILITIES TO BEGIN AND COMPLETE THE
DEVELOPMENT OF PHASE 2 OF THE SONESTA RESORT, TO BEGIN THE VERTICAL CONSTRUCTION
OF PHASE 1 OF THE SONESTA RESORT AND TO BEGIN AND COMPLETE OUR PLANNED
CONSTRUCTION OF THE REEDY CREEK PROPERTY.
51
As we have decided not to move forward with the Construction Loan, we currently
anticipate the need for a significant amount of additional funding to complete
the development of Phase 1 of the Sonesta Resort. Additionally, we do not
currently have sufficient capital to begin or complete Phase 2 of the Sonesta
Resort and/or our planned development of the Reedy Creek Property (as described
above). We are currently in discussions with several parties regarding obtaining
financing for the vertical construction of Phase 1 of the Sonesta Resort, which
we hope to obtain in September 2006, of which there can be no assurance. Our
plan for the financing of the Phase 2 town homes is to use a program from a
national mortgage lender to employ construction loans issued to each purchaser
that will, upon completion, convert to permanent, conventional mortgages. The
finance plan for the Phase 2 amenities is to employ a line of credit secured by
a segment of the profits from the sale of the residential units. We will employ
a conventional construction loan for the condominium units. As of this date, the
Company has not yet secured the line of credit for the amenities or the
construction loan for the condominium units. It is impossible at this time for
us to estimate the cost of completing Phase 1 or Phase 2 of the Sonesta Resort
and/or the development of the Reedy Creek Property, however, based upon the size
of the projects, we would anticipate such costs to be substantial. We will not
begin the construction of Phase 1 or Phase 2 until we have capitalized the
construction appropriately. If we cannot obtain the appropriate financing, we
may have to delay the commencement of the construction of Phase 1 and/or Phase 2
until such time as we have adequate funding available. We may never have
sufficient capital to begin or complete the development of Phase 1 or Phase 2 of
the Sonesta Resort which could force us to modify or abandon the development
plan for the Sonesta Resort. Our business plan for the development of the Reedy
Creek Property is to enter into a partnership agreement with an experienced and
high credit development partner, and as such, we do not expect to raise capital
or incur debt to begin or complete that project. At present, the Company has not
yet chosen such partner although we are in receipt of proposals from qualified
developers that are consistent with our business plan.
THE CONSTRUCTION OF THE SONESTA RESORT IS SUBJECT TO DELAYS AND COST OVERRUNS,
WHICH COULD CAUSE THE ESTIMATED COST OF THE RESORT TO INCREASE AND WHICH COULD
CAUSE US TO CURTAIL OR ABANDON THE CONSTRUCTION OF THE SONESTA RESORT.
All construction projects, especially construction projects as large as our
planned Sonesta Resort are subject to delays and cost overruns. We have
experienced very significant cost increases and overruns since sales commenced
in 2004, due to significant price increases in construction materials, which
have been exacerbated by the hurricanes of 2004 and 2005, as well as to a lesser
extent the threat of hurricanes in 2006. The increased costs have impacted
construction throughout the southeastern United States and are not unique to us.
Because of the significant cost increases, we are evaluating and plan to
implement a program to revise upwards the price of sold and unsold units or to
cancel contracts on units because of cost overruns. If we continue to experience
substantial delays or additional cost overruns during the construction of Phase
1 of the Sonesta Resort and/or Phase 2, we could be forced to obtain additional
financing to complete the projects, which could be at terms worse than our then
52
current funding, assuming such funding is available to us at all, of which there
can be no assurance, and could force us to curtail or abandon our current plans
for Phases 1 and 2 of the Sonesta Resort. As a result, sales of our town homes
and condominiums could be severely effected, which could force us to curtail or
abandon our business plans and/or could make it difficult if not impossible to
repay the significant amount of money due to KeyBank (as explained above), which
as a result could cause the value of our securities to become worthless.
EXCESSIVE CLAIMS FOR DEVELOPMENT-RELATED DEFECTS IN ANY REAL ESTATE PROPERTIES
THAT WE PLAN TO BUILD THROUGH OUR RESORT DEVELOPMENT DIVISION COULD ADVERSELY
AFFECT OUR LIQUIDITY, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We will engage third-party contractors 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, and to the extent claims are not satisfied by
third-party warranty coverage, claims for development-related defects could be
brought against us. To the extent that claims brought against us are not covered
by insurance, our payment of those claims could adversely affect our liquidity,
financial condition, and results of operations.
MALCOLM J. WRIGHT, WHO SERVES AS OUR CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL
OFFICER AND AS CHAIRMAN OF THE BOARD OF DIRECTORS, IS INVOLVED IN OTHER
BUSINESSES THAT HAVE CONTRACTED WITH US AND IS ALSO INVOLVED WITH PROPERTY
DEVELOPMENT PROJECTS THAT MAY BE IN COMPETITION WITH US.
Malcolm J. Wright is the President of American Leisure Real Estate Group, Inc.,
a real estate development company with which we have contracted for the
development of our resorts including The Sonesta Orlando Resort at Tierra Del
Sol ("ALREG") and Reedy Creek Property. Mr. Wright has a 100% interest in ALREG.
Additionally, Mr. Wright is an officer of Xpress Ltd., with which we have
contracted for exclusive sales and marketing for The Sonesta Orlando Resort at
Tierra Del Sol and Reedy Creek. Mr. Wright is also an officer and shareholder of
Inovative Concepts, Inc., which does not have any operations, M J Wright
Productions, Inc., which does not have any operations, but which owns our
Internet domain names, Resorts Development Group, LLC which develops resort
properties in Orlando including Bella Citta, Los Jardines Del Sol, The Preserve,
Tortuga Cay and Sherberth Development LLC, Resorts Construction, LLC with whom
we have contracted to construct part of the Sonesta Resort as described above,
Resorts Concepts, LLC which operates a design business, Titan Manufacturing, LLC
from whom we intend to purchase roof tiles for our developments, South Beach
Resorts LLC in conjunction with Mr. Pauzar and Mr. Maddock which is redeveloping
53
the Boulevard Hotel on South Beach, Miami. Because Mr. Wright is employed by us
and the other party to these transactions, Mr. Wright might profit from a
transaction when we do not.
Management believes that these transactions are in the best interest of, or not
detrimental to, the Company, and are as good or better than could be achieved,
if even possible to achieve, by contracting with a wholly unrelated party.
Additionally, the transactions were negotiated by us in a manner akin to an arms
length transaction. Additionally, from time to time, Mr. Wright pursues real
estate investment and sales ventures that may be in competition with ventures
that we pursue or plan to pursue. Mr. Wright, however, has personally guaranteed
our debts, and has encumbered his personal assets to secure financing for the
above described projects.
BECAUSE MALCOLM J. WRIGHT, WHO SERVES AS OUR CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER AND THE CHAIRMAN OF THE BOARD OF DIRECTORS, IS INVOLVED IN A
NUMBER OF OTHER BUSINESSES, HE MAY NOT BE ABLE OR WILLING TO DEVOTE A SUFFICIENT
AMOUNT OF TIME TO OUR BUSINESS OPERATIONS.
Malcolm J. Wright is the President of ALREG, Xpress Ltd., Inovative Concepts,
Inc., M J Wright Productions, Inc., Resorts Development Group, LLC, Resorts
Construction, LLC, Titan Manufacturing LLC, Tortuga Cay Resort, LLC, Osceola
Business Managers, Inc., Florida World, Inc., SBR Holding LLC (a non trading
holding company of South Beach Resorts, LLC), RDG LLC, and SunGate Resort
Villas, Inc. Mr. Wright is engaged full-time as the Company's Chairman and as a
senior executive officer. Although Mr. Wright has not indicated any intention
to reduce his activities on behalf of the Company, we do not have an employment
agreement with Mr. Wright and he is under no requirement to spend a specified
amount of time on our business. If Mr. Wright does not spend sufficient time
serving our company, it could have a material adverse effect on our business and
results of operations.
WE MAY PROVIDE THE EXECUTIVE OFFICERS OF OUR SUBSIDIARIES AN AGGREGATE BONUS OF
UP TO 19% OF THE PRE-TAX PROFITS OF THE SUBSIDIARY IN WHICH THEY SERVE AS OUR
EXECUTIVE OFFICERS, WHICH WOULD REDUCE ANY PROFITS THAT WE MAY EARN.
We may provide the executive officers of each of our subsidiaries an aggregate
bonus of up to 19% of the pre-tax profits, if any, of the subsidiaries in which
they serve as executive officers. For example, Malcolm J. Wright would receive
19% of the pre-tax profits of Leisureshare International Ltd, Leisureshare
International Espanola SA, American Leisure Homes, Inc., Advantage Professional
Management Group, Inc., Tierra Del Sol Resort, Inc., and Wright Resorts Villas &
Hotels, Inc. However, we do not have any agreements with our officers regarding
the bonus other than our agreement with L. William Chiles. Mr. Chiles is
entitled to receive 19% of the profits of Hickory up to a maximum payment over
the life of his contract of $2,700,000. As Mr. Chiles' bonus is limited, it is
not subject to the buy-out by us described below. The executive officers of our
54
other subsidiaries would share a bonus of up to 19% of the pre-tax profits of
the subsidiary in which they serve as executive officers. We would retain the
right, but not the obligation to buy out all of the above agreements after a
period of five years by issuing such number of shares of our common stock equal
to the product of 19% of the average after-tax profits for the five-year period
multiplied by one-third of the price-earnings ratio of our common stock at the
time of the buyout divided by the greater of the market price of our common
stock or $5.00. If we pay bonuses in the future, it will reduce our profits and
the amount, if any, that we may otherwise have available to pay dividends to our
preferred and common stockholders. Additionally, if we pay bonuses in the future
it will take away from the amount of money we have to repay our outstanding
loans and the amount of money we have available for reinvestment in our
operations and as a result, our future results of operations and business plan
could be affected by such bonuses, and we could be forced to curtail or abandon
our current business plan and plans for future expansion.
WE HAVE EXPERIENCED DELAYS IN OBTAINING SIGNATURES FOR AGREEMENTS AND
TRANSACTIONS, WHICH HAVE PREVENTED THEM FROM BEING FINALIZED AND/OR DISCLOSED IN
OUR FILINGS.
We have experienced delays in obtaining signatures for various agreements and
transactions in the past. In some cases, we have either disclosed the terms of
these agreements and transactions in our periodic and other filings with the SEC
and/or filed such agreements with only the limited signatures which we could
obtain by the required filing dates of such reports, with the intention to
re-file such agreements at a later date once we are able to obtain all of the
required signatures; however, these agreements and transactions are not final.
Until they are finalized, their terms are subject to change although we do not
have any present intention to do so. If the terms of these agreements and
transactions were to change, we may be required to amend our prior disclosure
and any revisions could be substantial.
WE RELY ON KEY MANAGEMENT AND IF WE LOSE ANY OF THEM, IT COULD HAVE A MATERIAL
ADVERSE AFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.
Our success depends, in part, upon the personal efforts and abilities of Malcolm
J. Wright and Frederick Pauzar. Mr. Wright is the Chairman of the Company and
the Company's Chief Executive Officer. Mr. Pauzar is the President, Chief
Operating Officer and a Director of the Company. Our ability to operate and
implement our business plan is dependent on the continued service of Messrs.
Wright and Pauzar. We are in the process of entering into written employment
agreements with Mr. Wright and Mr. Pauzar. If we are unable to retain and
motivate them on economically feasible terms, our business and results of
operations will be materially adversely affected. In addition, the absence of
Mr. Wright or Mr. Pauzar may force us to seek a replacement who may have less
experience or who may not understand our business as well.
55
IF WE DO NOT EVENTUALLY PAY MALCOLM J. WRIGHT, OUR CHIEF EXECUTIVE OFFICER AND
DIRECTOR 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 $
800,000 per year beginning in 2004, accrued salary of $ 550,000 per year from
2002 to 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 valuable
services that those entities have provided to us for The Sonesta Orlando Resort
at Tierra Del Sol. In June 2006, Mr. Wright was paid $1,540,500 of the accrued
salaries that he was owed which consisted of accrued salaries of $1,275,000 and
accrued interest of $265,500. As of June 30, 2006, the total accrued and unpaid
remuneration due to Mr. Wright in connection with his salary as an officer of
the Company totaled $1,825,000 and an additional 341,250 in interest as of June
30, 2006. If we do not have sufficient cash on hand to pay Mr. Wright for his
salary, director's compensation and bonus in the future, he may determine to
spend less of his time on our business or to resign his positions as an officer
and a director.
COMPANIES AFFILIATED WITH OUR CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD,
MALCOLM J. WRIGHT ARE PAID A SUBSTANTIAL AMOUNT OF OUR REVENUES IN CONNECTION
WITH SERVICES RENDERED.
Certain companies controlled by our Chief Executive Officer and Director,
Malcolm J. Wright, including American Leisure Real Estate Group, Inc. ("ALRG"),
which entered into an exclusive Development Agreement with our subsidiary,
Tierra del Sol Resort, Inc. ("TDSR") and Xpress, Ltd. ("Xpress"), which entered
into an exclusive sales and marketing agreement with TDSR in November 2003, are
paid substantial fees in connection with services rendered to us in connection
with such agreements. In connection with ALRG's Development Agreement with TDSR,
we are required to pay ALRG a fee in the amount of 4% of the total costs of the
development of the Sonesta Resort paid by ALRG. As of June 30, 2006, the total
costs and fees paid by ALRG amounted to $22,398,243, of which 4% of such amount
is equal to approximately $895,930. In connection with Xpress' sales and
marketing agreement, we agreed to pay Xpress a sales fee in the amount of 3% and
a marketing fee of 1.5% of the total sales prices received by TDSR in connection
with sales of units in the Sonesta Resort, which shares are payable in two
installments, one-half of the sales fee and all of the marketing fee when the
rescission period has elapsed in a unit sales agreement and the other half of
the sales fee upon the actual conveyance of the unit. As of June 30, 2006, total
sales of units in the Sonesta Resort were approximately $223,654,843, and as a
result, TDSR was obligated to pay Xpress a fee of $6,709,645 in connection with
sales and marketing fees, and as of June 30, 2006, $6,765,244 had been paid to
Xpress, which number includes fees paid on cancelled sales, which fees Xpress is
able to keep. Additionally, TDSR will be obligated to pay Xpress $3,354,823, the
56
other half of the sales fees upon conveyance of the units. These payments
represent a significant portion of our non-restricted current cash and
equivalents and as a result of such payments, we could have less cash on hand
than we will require for our operations and upcoming liabilities. Additionally,
as a result of such payments, we may be forced to curtail or scale back our
business plan, which could have a material adverse effect on the trading value
of our common stock. We believe, however, that the transactions with ALRG and
Xpress are in the best interest of the Company and provide efficiencies and
savings not otherwise available in the open market.
RISKS RELATED TO OUR TRAVEL DIVISION
WE NEED APPROXIMATELY $2,500,000 OF CAPITAL THROUGH THE END OF THE 2005 FISCAL
YEAR FOR OUR TRAVEL DIVISION OPERATIONS AND THE OPERATIONS OF HICKORY, WHICH MAY
NOT BE AVAILABLE TO US ON FAVORABLE TERMS, IF AT ALL.
We anticipate needing to raise approximately $2,000,000 through the end of the
2006 fiscal year for the working capital needs for the Travel Division, as well
as approximately $500,000 for the operations of Hickory, which includes
Hickory's requirement to cover its seasonal losses, and TraveLeaders'
requirements during its reorganization to adopt our business models. If we do
not receive a sufficient amount of additional capital on acceptable terms, or at
all, we may be unable to fully implement our business plan. We have identified
sources of additional working capital, but we do not have any written
commitments from third parties or from our officers, directors or majority
shareholders. Additional capital may not be available to us on favorable terms,
if at all. If we cannot obtain a sufficient amount of additional capital, we
will have to delay, curtail or scale back some or all of our travel operations,
any of which would materially adversely affect our travel businesses. In
addition, we may be required to delay the acquisition of additional travel
agencies and restructure or refinance all or a portion of our outstanding debt.
OUR COMMISSIONS AND FEES ON CONTRACTS WITH SUPPLIERS OF TRAVEL SERVICES FOR OUR
TRAVEL DIVISION MAY BE REDUCED OR THESE CONTRACTS MAY BE CANCELLED AT WILL BY
THE SUPPLIERS BASED ON OUR VOLUME OF BUSINESS, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
Our suppliers of travel services including airline, hotel, cruise, tour and car
rental suppliers may reduce the commissions and fees that we earn under contract
with them based on the volume of business that we generate for them. These
contracts generally renew annually and in some cases may be cancelled at will by
the suppliers. If we cannot maintain our volume of business, our suppliers could
contract with us on terms less favorable than the current terms of our contracts
or the terms of their contracts with our competitors, exclude us from the
products and services that they provide to our competitors, refuse to renew our
57
contracts, or, in some cases, cancel their contracts with us at will. In
addition, our suppliers may not continue to sell services and products through
global distribution systems on terms satisfactory to us. If we are unable to
maintain or expand our volume of business, our ability to offer travel service
or lower-priced travel inventory could be significantly reduced. Any
discontinuance or deterioration in the services provided by third parties, such
as global distribution systems providers, could prevent our customers from
accessing or purchasing particular travel services through us. If these
suppliers were to cancel or refuse to renew our contracts or renew them on less
favorable terms, it could have a material adverse effect on our business,
financial condition or results of operations.
OUR SUPPLIERS OF TRAVEL SERVICES TO OUR TRAVEL DIVISION COULD REDUCE OR
ELIMINATE OUR COMMISSION RATES ON BOOKINGS MADE THROUGH US BY PHONE AND OVER THE
INTERNET, WHICH COULD REDUCE OUR REVENUES.
We receive commissions paid to us by our travel suppliers such as hotel chains
and cruise companies for bookings that our customers make through us by phone
and over the Internet. Consistent with industry practices, our suppliers are not
obligated by regulation to pay any specified commission rates for bookings made
through us or to pay commissions at all. Over the last several years, travel
suppliers have substantially reduced commission rates and our travel suppliers
have reduced our commission rates in certain instances. Future reductions, if
any, in our commission rates that are not offset by lower operating costs or
increased volume could have a material adverse effect on our business and
results of operations.
FAILURE TO MAINTAIN RELATIONSHIPS WITH TRADITIONAL TRAVEL AGENTS FOR OUR TRAVEL
DIVISION COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS.
Hickory has historically received, and expects to continue to receive, a
significant portion of its revenue through relationships with traditional travel
agents. Maintenance of good relationships with these travel agents depends in
large part on continued offerings of travel services in demand, and good levels
of service and availability. If Hickory does not maintain good relations with
its travel agents, these agents could terminate their memberships and use of
Hickory's products and services, which would have a material adverse effect on
our business and results of operations.
DECLINES OR DISRUPTIONS IN THE TRAVEL INDUSTRY COULD SIGNIFICANTLY REDUCE OUR
REVENUE FROM THE TRAVEL DIVISION.
Potential declines or disruptions in the travel industry may result from any one
or more of the following factors:
- price escalation in the airline industry or other travel related
industries;
- airline or other travel related strikes;
58
- political instability, war and hostilities;
- long term bad weather;
- fuel price escalation;
- increased occurrence of travel-related accidents; and/or
- economic downturns and recessions.
OUR TRAVEL REVENUES MAY FLUCTUATE FROM QUARTER TO QUARTER DUE TO SEVERAL FACTORS
INCLUDING FACTORS THAT ARE OUTSIDE OF OUR CONTROL, AND IF BECAUSE OF THESE
FACTORS, OUR REVENUES ARE BELOW OUR EXPECTATIONS IT WOULD LIKELY HAVE A MATERIAL
ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
We may experience fluctuating revenues because of a variety of factors, many of
which are outside of our control. These factors may include, but are not limited
to, the timing of new contracts; reductions or other modifications in our
clients' marketing and sales strategies; the timing of new product or service
offerings; the expiration or termination of existing contracts or the reduction
in existing programs; the timing of increased expenses incurred to obtain and
support new business; changes in the revenue mix among our various service
offerings; labor strikes and slowdowns at airlines or other travel businesses;
and the seasonal pattern of TraveLeaders' business and the travel agency members
of Hickory. In addition, we make decisions regarding staffing levels,
investments and other operating expenditures based on our revenue forecasts. If
our revenues are below expectations in any given quarter, our operating results
for that quarter would likely be materially adversely affected.
GLOBAL TRAVEL DISTRIBUTION SYSTEM CONTRACTS THAT WE MAY ENTER INTO GENERALLY
PROVIDE FOR FINANCIAL PENALTIES FOR NOT ACHIEVING PERFORMANCE OBJECTIVES.
We are seeking to enter into multi-year global distribution system contracts.
These contracts typically cover a five-year period and would require us to meet
certain performance objectives. If we do not structure a global distribution
system contract effectively, it may trigger financial penalties if the
performance objectives are not met. In the event that we enter into global
distribution system contracts and are unable to meet the performance objectives,
it would have a material adverse effect on our business, liquidity and results
of operations.
OUR CONTRACTS WITH CLIENTS OF THE TRAVELEADERS BUSINESS DO NOT GUARANTEE THAT WE
WILL RECEIVE A MINIMUM LEVEL OF REVENUE, ARE NOT EXCLUSIVE, AND MAY BE
TERMINATED ON RELATIVELY SHORT NOTICE.
Our contracts with clients of the TraveLeaders business do not ensure that we
will generate a minimum level of revenue, and the profitability of each client
may fluctuate, sometimes significantly, throughout the various stages of our
sales cycles. Although we will seek to enter into multi-year contracts with our
clients, our contracts generally enable the client to terminate the contract, or
59
terminate or reduce customer interaction volumes, on relatively short notice.
Although some contracts require the client to pay a contractually agreed amount
in the event of early termination, there can be no assurance that we will be
able to collect such amount or that such amount, if received, will sufficiently
compensate us for our investment in any canceled sales campaign or for the
revenues we may lose as a result of the early termination. If we do not generate
minimum levels of revenue from our contracts or our clients terminate our
multi-year contracts, it will have a material adverse effect on our business,
results of operation and financial condition.
WE RECEIVE CONTRACTUALLY SET SERVICE FEES AND HAVE LIMITED ABILITY TO INCREASE
OUR FEES TO MEET INCREASING COSTS.
Most of our travel contracts have set service fees that we may not increase if,
for instance, certain costs or price indices increase. For the minority of our
contracts that allow us to increase our service fees based upon increases in
cost or price indices, these increases may not fully compensate us for increases
in labor and other costs incurred in providing the services. If our costs
increase and we cannot, in turn, increase our service fees or we have to
decrease our service fees because we do not achieve defined performance
objectives, it will have a material adverse effect on our business, results of
operations and financial condition.
THE TRAVEL INDUSTRY IS LABOR INTENSIVE AND INCREASES IN THE COSTS OF OUR
EMPLOYEES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, LIQUIDITY OR
RESULTS OF OPERATIONS.
The travel industry is labor intensive and has experienced high personnel
turnover. A significant increase in our personnel turnover rate could increase
our recruiting and training costs and decrease operating effectiveness and
productivity. If we obtain a significant number of new clients or implement a
significant number of new, large-scale campaigns, we may need to recruit, hire
and train qualified personnel at an accelerated rate, but we may be unable to do
so. Because significant portions of our operating costs relate to labor costs,
an increase in wages, costs of employee benefits, employment taxes or other
costs associated with our employees could have a material adverse effect on our
business, results of operations or financial condition.
OUR INDUSTRY IS SUBJECT TO INTENSE COMPETITION AND COMPETITIVE PRESSURES COULD
ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We believe that the market in which we operate is fragmented and highly
competitive and that competition may intensify in the future. We compete with
small firms offering specific applications, divisions of large entities, large
independent firms and the in-house operations of clients or potential clients. A
number of competitors have or may develop greater capabilities and resources
than us. Additional competitors with greater resources than us may enter our
60
market. Competitive pressures from current or future competitors could cause our
services to lose market acceptance or result in significant price erosion, all
of which could have a material adverse effect upon our business, results of
operations or financial condition.
WE RELY AND PLAN TO RELY ON ONLY A FEW MAJOR CLIENTS FOR OUR REVENUES.
We plan to focus our marketing efforts on developing long-term relationships
with companies in our targeted travel and vacation resort industry. As a result,
we will derive a substantial portion of our revenues from relatively few
clients. There can be no assurances that we will not continue to be dependent on
a few significant clients, that we will be able to retain those clients, that
the volumes of profit margins will not be reduced or that we would be able to
replace such clients or programs with similar clients or programs that would
generate a comparable profit margin. Consequently, the loss of one or more of
those clients could have a material adverse effect on our business, results of
operations or financial condition.
RISKS RELATING TO OUR STOCK AND GENERAL BUSINESS RISKS
RE-PRICING WARRANTS AND ISSUING ADDITIONAL WARRANTS TO OBTAIN FINANCING HAS
CAUSED AND MAY CAUSE ADDITIONAL DILUTION TO OUR EXISTING STOCKHOLDERS.
In the past, to obtain additional financing, we have modified the terms of our
warrant agreements to lower the exercise price per share to $.001 from $5.00
with respect to warrants to purchase 100,000 shares of our common stock and to
$.001 from $2.96 with respect to warrants to purchase 1,350,000 shares of our
common stock. Additionally, we have granted an additional 616,000 warrants to
SIBL and affiliates to purchase shares of our Common Stock at $5.00 per share
and 308,000 warrants to SIBL and affiliates to purchase shares of our Common
Stock at $0.001 per share. Re-pricing of our warrants and issuing additional
warrants has caused and may cause substantial additional dilution to our
existing shareholders and shareholders owning shares of our common stock at the
time of the exercise of such warrants described above, if exercised.
WARRANTS GRANTED TO STANFORD INTERNATIONAL BANK, LTD., IN CONNECTION WITH THE
TIERRA DEL SOL LOAN AND LETTERS OF CREDIT CONTAIN ANTI-DILUTION FEATURES, WHICH
COULD EFFECT THE VALUE OF OUR COMMON STOCK.
On December 29, 2005, Stanford International Bank, Ltd. ("SIBL") provided Tierra
Del Sol with financial assistance to facilitate the establishment of the Land
Loan and the Construction Loan. The financial assistance consisted of a loan to
Tierra Del Sol of $2,100,000 (the "SIBL Tierra Del Sol Loan") however, as
consideration for the purchase of our Antiguan call center and in connection
with our entry into the Stock Purchase Agreement, described above, SIBL forgave
this note and $191,100 of accrued interest, and the establishment of letters of
61
credit in favor of KeyBank in the amount of $4,000,000 and $2,000,000,
respectively (the "Letters of Credit"), the fees for which amounting to $540,000
were also forgiven as part of the consideration for the purchase of the Antiguan
call center. As additional consideration for this financial assistance, we
granted SIBL and its affiliates warrants to purchase 308,000 shares of our
common stock at an exercise price of $5.00 per share and warrants to purchase
154,000 shares of our common stock at an exercise price of $0.001 per share.
Additionally, in January 2006, in connection with the SIBL Reedy Creek Loan, we
granted SIBL and its affiliates warrants to purchase 308,000 shares of our
common stock at an exercise price of $5.00 per share and warrants to purchase
154,000 shares of the Company's common stock at an exercise price of $0.001 per
share. The warrants expire 5 years from the dates of issuance. The warrants
contain anti-dilution provisions, including a provision which requires us to
issue additional shares under the warrants if we issue or sell any common stock
at less than $1.02 per share, or grant, issue or sell any options or warrants
for shares of the Company's common stock to convert into shares of our common
stock at less than $1.02 per share. If we do issue or sell common stock which
causes a re-pricing of the warrants issued to SIBL, it would likely have an
adverse effect on the trading value of our common stock and could cause
substantial dilution to our then shareholders.
THERE MAY NOT BE AN ACTIVE OR LIQUID TRADING MARKET FOR OUR COMMON STOCK, WHICH
MAY LIMIT INVESTORS' ABILITY TO RESELL THEIR SHARES.
An active and liquid trading market for our common stock may not develop or, if
developed, such a market may not be sustained. In addition, we cannot predict
the price at which our common stock will trade. If there is not an active or
liquid trading market for our common stock, investors in our common stock may
have limited ability to resell their shares.
WE HAVE AND MAY CONTINUE TO ISSUE PREFERRED STOCK THAT HAS RIGHTS AND
PREFERENCES OVER OUR COMMON STOCK.
Our Articles of Incorporation, as amended, authorize our Board of Directors to
issue preferred stock, the relative rights, powers, preferences, limitations,
and restrictions of which may be fixed or altered from time to time by the Board
of Directors. Accordingly, the Board of Directors may, without approval from the
shareholders of our common stock, issue preferred stock with dividend,
liquidation, conversion, voting, or other rights that could adversely affect the
voting power and other rights of the holders of our common stock. The preferred
stock can be utilized, under certain circumstances, as a method of discouraging,
delaying, or preventing a change in our ownership and management that
shareholders might not consider to be in their best interests. We have issued
various series of preferred stock, which have rights and preferences over our
common stock including, but not limited to, cumulative dividends and preferences
upon liquidation or dissolution.
62
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 Chief Executive Officer and Chief Financial Officer
and as a Director, and Roger Maddock, one of our majority shareholders, own,
directly and indirectly, approximately an aggregate of 73% of the voting power
in us. As a result, these persons control our affairs and management, as well as
all matters requiring shareholder approval, including the election and removal
of members of the Board of Directors, transactions with directors, officers or
affiliated entities, the sale or merger of the Company or substantially all of
our assets, and changes in dividend policy. This concentration of ownership and
control could have the effect of delaying, deferring, or preventing a change in
our ownership or management, even when a change would be in the best interest of
other shareholders.
IF WE ARE LATE IN FILING OUR QUARTERLY OR ANNUAL REPORTS WITH THE SEC, WE MAY BE
DE-LISTED FROM THE OVER-THE-COUNTER BULLETIN BOARD.
Pursuant to new Over-The-Counter Bulletin Board ("OTCBB") rules relating to the
timely filing of periodic reports with the SEC, any OTCBB issuer which fails to
file a periodic report (Form 10-QSB's or 10-KSB's) by the due date of such
report (not withstanding any extension granted by the filing of a Form 12b-25),
63
three (3) times during any twenty-four (24) month period is automatically
de-listed from the OTCBB. Such removed issuer would not be re-eligible to be
listed on the OTCBB for a period of one-year, during which time any subsequent
late filing would reset the one-year period of de-listing. If we are late in our
filings three times in any twenty-four (24) month period and are de-listed from
the OTCBB, our securities may become worthless and we may be forced to curtail
or abandon our business plan.
IF THERE IS A MARKET FOR OUR COMMON STOCK, OUR STOCK PRICE MAY BE VOLATILE.
If there is a market for our common stock, we anticipate that such market will
be subject to wide fluctuations in response to several factors, including, but
not limited to:
(1) actual or anticipated variations in our results of operations;
(2) our ability or inability to generate new revenues;
(3) the number of shares in our public float;
(4) increased competition; and
(5) conditions and trends in the travel services, vacation, and/or real
estate and construction markets.
Furthermore, because our Common Stock is traded on the NASD over the counter
bulletin board, our stock price may be impacted by factors that are unrelated or
disproportionate to our operating performance. These market fluctuations, as
well as general economic, political and market conditions, such as recessions,
interest rates or international currency fluctuations may adversely affect the
market price of our common stock. Additionally, at present, we have a limited
number of shares in our public float, and as a result, there could be extreme
fluctuations in the price of our common stock. Further, due to the limited
volume of our shares which trade and our limited public float, we believe that
our stock prices (bid, asked and closing prices) are entirely arbitrary, are not
related to the actual value of the Company, and do not reflect the actual value
of our common stock (and in fact reflect a value that is much higher than the
actual value of our Common Stock). Shareholders and potential investors in our
Common Stock should exercise caution before making an investment in the Company,
and should not rely on the publicly quoted or traded stock prices in determining
our Common Stock value, but should instead determine value of our Common Stock
based on the information contained in the Company's public reports, industry
information, and those business valuation methods commonly used to value private
companies.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our Chief
Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of the Company's "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15d-15(e)) as of the end of the period covered by this quarterly
report (the "Evaluation Date"), has concluded that as of the
Evaluation Date, our disclosure controls and procedures are effective
to provide reasonable assurance that information we are required to
64
disclose in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms,
and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
However, because we have not fully integrated 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.
(b) Changes in internal control over financial reporting. There were
no significant changes in the Company's internal control over
financial reporting during the fiscal quarter covered by this report
that materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Our subsidiary American Leisure, Inc. and our Chief Executive Officer and
Chairman, Malcolm J. Wright are parties to 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 J. 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. 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
65
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 an 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,
Case No. 04-4549 CA 09, in the Circuit Court of the Eleventh Judicial Circuit in
and for Miami Dade County, Florida which includes American Leisure Holdings,
Inc., Hickory Travel Systems, Inc., Malcolm J. Wright and L. William Chiles as
defendants. They are claiming securities fraud, violation of Florida Securities
and Investor Protection Act, breach of their employment contracts, and claims
for fraudulent inducement. We and the other defendants have denied all claims
and have a counterclaim against Manuel Sanchez and Luis Vanegas for damages. The
litigation 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 are vigorously defending the
lawsuit.
In early May 2004, Around The World Travel, Inc., of which we subsequently
purchased substantially all of the assets, 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. In June of 2005, the
court dismissed certain claims of tortious interference against the Company and
Malcolm J. Wright and provided Seamless with leave to amend all of their other
claims with specificity. In addition, the court dismissed a claim of conspiracy
and a demand for judgment. As of January 18, 2006, the Defendants filed their
66
amended answer and amended counterclaim. The Company's attorneys have filed a
comprehensive reply seeking to dismiss the counterclaim against the Company and
Mr. Wright.
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 owed by AWT
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 in Around The World Travel to Around The World
Holdings, LLC; 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 to Around The World Holdings, LLC. 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 some of
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. The Plaintiffs also
seek a declaratory judgment that they are not bound by a provision in the
underlying documents on which they rely that their action is barred by said
provision. In the alternative, the Plaintiffs seek a ruling that the promissory
note, undistributed retained earnings and accrued bonuses are not subordinated
to the Galileo Debt. The suit seeks 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
filed various motions including a motion to dismiss the complaint in its
entirety as against us and Malcolm J. Wright due to the failure by the
plaintiffs to comply with a provision in the underlying documents that grants
exclusive jurisdiction to the courts located in Cook County, Illinois; a motion
to disqualify, based upon an alleged conflict of interest by the plaintiff's
attorneys. A hearing on the case is scheduled to occur in September 2006.
On August 10, 2006, Patsy Berman and Berman Mortgage Corporation served a
complaint against Tierra del Sol Resort, Inc., Malcolm Wright, our Chief
Executive Officer and Chairman, and a non-existent entity, Vantage Circa 39
Condotel Limited Partnership ("Vantage"), in the 11th Judicial Circuit in and
for Miami-Dade County, Florida. The complaint alleges that Tierra del Sol and
Vantage sought loans, that the plaintiffs offered to make loans, that Mr. Wright
guaranteed the loans, that valid contracts were formed, and that because such
loans did not close, the plaintiffs claim $3,550,000 in damages, representing
funding fees, brokerage fees, and interest. We have concluded that the
67
plaintiffs' complaint is wholly frivolous, and we intend to vigorously defend
the action and to seek attorney fees from the plaintiffs and their attorney.
We are not aware of any proceeding to which any of our directors, officers,
affiliates or security holders are a party adverse to us or have a material
interest adverse to us.
ITEM 2. CHANGES IN SECURITIES
In May 2006, Daniel Bogar exercised 19,250 of his outstanding stock options,
which options had an exercise price of $0.001 per share, in consideration for an
aggregate of $19.25, and was issued 19,250 shares of our restricted common stock
in consideration for such issuance. The Company relied on the exemption from
registration set forth in Section 4(2) of the Act in issuing the shares as the
issuance of the securities did not involve a public offering, the recipient
acquired the shares for investment purposes 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.
In May 2006, Osvaldo Pi exercised 19,250 of his outstanding stock options, which
options had an exercise price of $0.001 per share, in consideration for an
aggregate of $19.25, and was issued 19,250 shares of our restricted common stock
in consideration for such issuance. The Company relied on the exemption from
registration set forth in Section 4(2) of the Act in issuing the shares as the
issuance of the securities did not involve a public offering, the recipient
acquired the shares for investment purposes 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.
In May 2006, SIBL exercised 231,000 of its outstanding stock options, which
options had an exercise price of $0.001 per share, in consideration for an
aggregate of $231, and was issued 231,000 shares of our restricted common stock
in consideration for such issuance. The Company relied on the exemption from
registration set forth in Section 4(2) of the Act in issuing the shares as the
issuance of the securities did not involve a public offering, the recipient
acquired the shares for investment purposes 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.
Pursuant to a Stock Purchase Agreement SIBL, effective June 30, 2006, we sold
all of our interest in our former wholly owned subsidiary CLM, along with a
promissory note payable to us by CLM in the amount of $5,663,274, which amount
evidences our total investment in CLM, for an aggregate purchase price of
$5,663,275. In connection with the purchase, SIBL also agreed to forgive the
interest on several of our outstanding promissory notes with SIBL, and to amend
the due date of such notes, described in greater detail above under "Recent
Events," and we agreed to grant SIBL a warrant to purchase 355,000 shares of our
common stock at an exercise price of $10.00 per share, which warrants have an
expiration date of April 30, 2008, and contain certain anti-dilution clauses,
68
whereby if we grant any options or sell any shares of common stock for less than
$1.02 per share, the exercise price of the 355,000 warrants will reset to such
lower price. We relied on an exemption from registration set forth in Section
4(2) of the Act in issuing the securities as the issuance of the securities did
not involve a public offering, the recipient acquired the securities for
investment purposes and we took appropriate measures to restrict transfer. No
underwriters or agents were involved in the foregoing issuance and no
underwriting discounts were paid by us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description
----------- ------------
10.01(1) Commitment Letter with KeyBank National Association for $96,000,000
for Phase I
10.02(1) Commitment Letter with KeyBank National Association for $14,850,000
for Phase II
10.03(2) Re-Stated Promissory Note for $6,356,740 issued in favor of Around
The World Travel, Inc. dated June 30, 2005.
10.04(3) Commitment Letter with KeyBank National Association for $96,000,000
for Phase I
10.05(4) Commitment Letter with KeyBank National Association for $14,850,000
for Phase II
10.06(4) Commitment Letter with KeyBank National Association for up to
72,550,000, with a maximum principal balance of $40,000,000 for
Phase 1 dated December 1, 2005
10.07(4) Commitment Letter with KeyBank National Association for up to
$14,850,000 for Phase 2 dated December 1, 2005
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10.08(5) Construction Loan Agreement with KeyBank National Association for
$40,000,000 for Phase 1 dated December 29, 2005
10.09(5) Promissory Note with KeyBank National Association for $40,000,000
10.10(5) Loan Agreement with KeyBank National Association for 14,850,000
for Phase 2 dated December 29, 2005
10.11(5) Promissory Note with KeyBank National Association for $14,850,000
10.12(5) Promissory Note for $4,000,000 issued by TDS Management, LLC in
favor of PCL Construction Enterprises, Inc.
10.13(5) Guaranty by the Registrant of the $4,000,000 Promissory Note to
PCL Construction Enterprises, Inc.
10.14(5) Guaranty of Malcolm J. Wright guaranteeing the $4,000,000
Promissory Note to PCL Construction Enterprises, Inc.
10.15(5) Addendum to Construction Loan Agreement Condominium and Townhouse
Project Development
10.16(5) Payment Guaranty Phase 1
10.17(5) Payment Guaranty Phase 2
10.18(5) Amended Debt Guarantor Agreement
10.19(5) Guaranty of Tierra Del Sol (Phase 1), Ltd. guaranteeing the
$4,000,000 Promissory Note to PCL Construction Enterprises, Inc.
10.20(5) Performance and Completion Guaranty
10.21(5) Pledge and Security Agreement
10.22(6) Option Exercise Agreement with Stanford Financial Group Company
10.23(6) Assignment of Interest in Reedy Creek Acquisition Company, LLC
10.24(7) Registration Rights Agreement with SIBL dated January 4, 2006
10.25(7) Credit Agreement with SIBL
10.26(6) $7,000,000 Promissory Note with Bankers Credit Corporation
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10.27(6) Modification and Reaffirmation of Guaranty and Environmental
Indemnity Agreement
10.28(6) Renewed, Amended and Increased Promissory Note
10.29(7) Stanford International Bank, Ltd. Warrant for 77,000 shares at
$0.001 per share
10.30(7) Stanford International Bank, Ltd. Warrant for 154,000 shares at
$5.00 per share
10.31(6) Irrevocable and Unconditional Guaranty
10.32(7) Registration Rights Agreement with SIBL dated December 28, 2005
10.33(6) SIBL $2.1 million note
10.34(7) Partnership Interest Pledge and Security Agreement and Collateral
Assignment (Phase 1)
10.35(7) Partnership Interest Pledge and Security Agreement and Collateral
Assignment (Phase 2)
10.36(7) SIBL Warrant Agreement for 2% Phase 1 interest
10.37(7) SIBL Warrant Agreement for 2% Phase 2 interest
10.38(6) Stanford International Bank, Ltd. Warrant for 154,000 at $0.001
per share
10.39(6) Stanford International Bank, Ltd. Warrant for 308,000 at $5.00
per share
10.40(8) Original Purchase Agreement
10.41(9) First Amendment to Asset Purchase Agreement
10.42(10) Settlement Agreement effective as of December 31, 2005 by and
among American Leisure Holdings, Inc., American Leisure Equities
Corporation and Around The World Travel, Inc.
10.43(11) Stock Purchase Agreement between Harborage Leasing Corporation
and the Company
10.44(11) $1,411,705 Promissory Note payable to Harborage Leasing
Corporation
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10.45(11) Malcolm J. Wright Guaranty Agreement regarding $1,411,705
Promissory Note with Harborage Leasing Corporation
10.46(11) Harborage Leasing Corporation warrant to purchase 300,000 shares
of common stock at $5.00 per share
10.47(12) Note Modification Agreement with SIBL
10.48(13) Stock Purchase Agreement with SIBL for the purchase of our Antigua
call center operations
10.49(13) Warrant Agreement with SIBL for the purchase of up to 355,000
shares of common stock at the exercise price of $10.00 per share
31.1* Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1* Certification of Chief Executive Officer Pursuant to 10 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2* Certification of Chief Financial Officer Pursuant to 10 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
* Filed Herein.
(1) Filed as Exhibit 10.1 and 10.2, respectively to the Registrant's Form 8-K on
August 18, 2005, and incorporated herein by reference.
(2) Filed as Exhibit 10.5 to the Registrant's Form 8-K on August 19, 2005, and
incorporated herein by reference.
(3) Filed as Exhibits to our Report on Form 8-K filed with the Commission on
August 18, 2005, and incorporated herein by reference.
(4) Filed as Exhibits to our Report on Form 8-K filed with the Commission on
December 15, 2005 and incorporated herein by reference.
(5) Filed as Exhibits to the Registrant's report on form 8-K on January 12, 2006
and incorporated by reference herein.
(6) Filed as Exhibits to the Registrant's report on Form 8-K filed on January
19, 2006 and incorporated herein by reference.
(7) Filed as Exhibits to the Company's report on Form 8-K, which was filed with
the SEC on March 28, 2006.
(8) Filed as Exhibit 10.1 to the Company's report on Form 8-K, which was filed
with the SEC on January 6, 2005, and is incorporated herein by reference.
72
(9) Filed as Exhibit 10.44 to the Company's report on Form 10-QSB for the
quarter ended March 31, 2005, which was filed with the SEC on May 23, 2005, and
is incorporated herein by reference.
(10) Filed as Exhibit 10.3 to the Company's report on Form 8-K, which was filed
with the SEC on March 2, 2006, and is incorporated herein by reference.
(11) Filed as Exhibits to the Company's Report on Form 8-K, which was filed with
the SEC on March 29, 2006, and is incorporated herein by reference.
(12) Filed an Exhibit to the Company's Report on Form 10-KSB, which was filed
with the SEC on March 31, 2006, and is incorporated herein by reference.
(13) Filed as exhibits to the Company's Report on Form 10-QSB for the quarter
ended June 30, 2006, which was filed with the SEC on August 21, 2006, and is
incorporated herein by reference.
b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the fiscal period covered by
this report. The Company filed one report on Form 8-K subsequent to the fiscal
period covered by this report and prior to the date this report was filed:
o On August 1, 2006, to report that the Company had notified
KeyBank that it elected not to open the $40,000,000 revolving credit
facility for the construction of Phase 1 of the Sonesta Resort.
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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.
DATED: September 6, 2007 By: /s/ Malcolm J. Wright
------------------------
Malcolm J. Wright
Chief Executive Officer
74