UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
Amendment No. 1
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
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Commission file number 333-48312
AMERICAN LEISURE HOLDINGS, INC.
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(Name of small business issuer in its charter)
Nevada 75-2877111
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(State of organization) (I.R.S. Employer Identification No.)
2460 Sand Lake Road, Orlando, FL 32809
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(Address of principal executive offices) (Zip Code)
Park 80 Plaza East, Saddle Brook, New Jersey 07663
(Former Address of principal executive offices)
Issuer's telephone number (407) 251-2240
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT:
NONE
The Registrant is filing this Amended Report on Form 10-KSB, to amend its
December 31, 2005, audited financial statements ("Statements") as filed in its
Annual Report on Form 10-KSB, for the fiscal year ended December 31, 2005, which
was filed with the Securities and Exchange Commission on March 31, 2006, to:
o amend the ordering of its Independent Registered Public
Accounting Firm report and cover page in relation to the rest of its
Statements and to amend the report to state that our auditors have
conducted their review in accordance with Standards of the Public
Company Accounting Oversight Board (United States);
o revise its statements of operations, to include and clarify its
direct costs associated with operating revenues in arriving at gross
margin for the year ended December 31, 2005;
o revise the statements of cash flows as provided in the Statements
to exclude restricted cash from cash and cash equivalents, and instead
reclassified restricted cash relating to pre-sold units or deposits as
a change in operating assets and the restricted cash relating to the
bank financing as an investing activity;
o revise the statements of cash flows to record the proper amount
of non-cash interest expense and change in other assets;
o clarify how the Registrant accounts for the minority interests of
its subsidiaries;
o add a description of the Registrant's accounting policy in
connection with its "Land Held for Development";
o to revise and clarify the terms of the restrictions on the
Registrant's restricted cash account;
o to revise and clarify the minority equity instruments the Registrant
holds;
o to revise and clarify the terms of the Registrant's pre-sales
contracts on resort units, including rights retained by the buyer to
require a full or partial refund;
o to clarify the terms of the Registrant's prepaid commission
arrangements in connection with the sale of resort properties;
o to revise and clarify the entities involved in the Registrant's
purchase of the minority interest in Tierra del Sol Resorts, Inc.
("TDSR"), as well as any profit sharing arrangements which existed
between TDSR and the Registrant;
o to revise Note 9 - Other Assets, to clarify the method and period
over which the Registrant amortized its deferred financing costs;
o to revise Note 11 to re-order the notes payable described therein
by maturity dates;
o to revise Note 14 of the Statements to clarify the definition of
"Stated Value" as used therein and to disclose the amount of
cumulative unpaid dividends for each issuance described therein;
o to revise and expand upon the description of the warrants in the
Registrant granted throughout the year ended December 31, 2005;
o to revise Note 17 to include a more detailed description of the
terms of the Registrant's management agreement with Around the World
Travel; and
o to revise and reconcile the disclosure under Note 20 regarding
operating segments.
Other than the items mentioned above, this Amended Report on Form 10-KSB remains
identical to the Form 10-KSB filed with the Securities and Exchange Commission
on March 31, 2006, 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.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter periods that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
The issuer's revenues for its most recent fiscal year were $19,381,284.
The aggregate market value of the issuer's voting and non-voting common equity
held by non-affiliates computed by reference to the average bid and ask price of
such common equity as of December 31, 2005, was approximately $2,180,519.
At December 31, 2005, there were 10,334,974 shares of the Issuer's common stock
outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS 6
ITEM 2. DESCRIPTION OF PROPERTY 28
ITEM 3. LEGAL PROCEEDINGS 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 31
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 31
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 35
ITEM 7. FINANCIAL STATEMENTS F-1
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE. 67
ITEM 8A. CONTROLS AND PROCEDURES. 69
ITEM 8B. OTHER INFORMATION. 69
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. 70
ITEM 10. EXECUTIVE COMPENSATION. 75
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 79
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 83
ITEM 13. EXHIBITS 89
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. 100
SIGNATURES 101
PART I
FORWARD-LOOKING STATEMENTS
All statements in this discussion that are not historical are forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Statements preceded by, followed by or that otherwise include
the words "believes", "expects", "anticipates", "intends", "projects",
"estimates", "plans", "may increase", "may fluctuate" and similar expressions or
future or conditional verbs such as "should", "would", "may" and "could" are
generally forward-looking in nature and not historical facts. These
forward-looking statements were based on various factors and were derived
utilizing numerous important assumptions and other important factors that could
cause actual results to differ materially from those in the forward-looking
statements. Forward-looking statements include the information concerning our
future financial performance, business strategy, projected plans and objectives.
These factors include, among others, the factors set forth above under the
heading "Risk Factors" in "Item 6. Management's Discussion and Analysis or Plan
of Operation." Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Most of these factors are
difficult to predict accurately and are generally beyond our control. We are
under no obligation to publicly update any of the forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Readers are cautioned not to place undue
reliance on these forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
American Leisure Holdings, Inc. is in the process of developing a large,
multi-national travel services, travel management and travel distribution
organization. We have established a Travel Division, a Resort Development
Division and a Communications Division. Through our various subsidiaries, we
manage and distribute travel services, and develop, construct and will manage
vacation home ownership and travel destination resorts and properties, develop
and operate affinity-based travel clubs and own a call center in
Antigua-Barbuda. Our businesses are intended to complement each other and create
cross-marketing opportunities within our business. We intend to take advantage
of the synergies between the distribution of travel services and the
development, marketing, sale and management of vacation home ownership and
travel destination properties.
On October 1, 2003, we acquired a 50.83% majority interest in Hickory Travel
Systems, Inc. ("Hickory" or HTS") as the first building block 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 that focus primarily on
corporate travel. 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. We view the members of Hickory as a resource for future acquisitions
of viable travel agencies as we intend to continue to add well-positioned travel
agencies to our Travel Division.
6
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 is operated through Caribbean Media Group, Ltd., an international
business corporation formed under the laws of Barbados. We own 49% of Caribbean
Media Group, Ltd., which is currently operating the call center. Our
co-venturer, IMA, Ltd. owns the remaining 51%.
On December 31, 2004, American Leisure Equities Corporation ("ALEC"), one of our
wholly owned subsidiaries, acquired substantially all of the assets of Around
The World Travel, Inc. ("Around The World Travel" or "AWT") which included all
of the tangible and intangible assets necessary to operate the business
including the business name "TraveLeaders". We engaged Around The World Travel
to manage the assets and granted Around The World Travel a license to use the
name "TraveLeaders". TraveLeaders is a fully-integrated travel 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 is based in Coral Gables,
Florida.
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
vacation travel services.
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.
Except as expressly indicated or unless the context otherwise requires, "we,"
"our," or "us" means American Leisure Holdings, Inc. and its subsidiaries.
7
BUSINESS INTEGRATION
Our mission is to Develop Resort Properties in areas which we believe have good
year round occupancy levels and then to manage the completed Resort Property and
distribute its room nights through our multi-national travel services, travel
management and travel distribution organization. We are in the process of
developing both the Sonesta Orlando Resort which when completed will have 972
vacation resort units and our Reedy Creek Property which is currently planned to
consist of approximately 522 residential units as defined and described below.
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.
We are focused on the development, construction and management of vacation homes
and vacation condominiums in Vacation Travel Destination Resorts and as such
have completed the planning stage 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 0.75 miles from the
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.
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
rent 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. We plan
to develop, on average, a new travel club every two months for the next eighteen
months.
During the fiscal year ended December 31, 2005, we received the majority of our
revenues through the operations of Hickory, which manages and distributes travel
services, which subsidiary accounted for approximately 53.6% of our revenues for
the year ended December 31, 2005. Additionally, we received approximately 26.1%
of our revenues through the operations of our subsidiary Tierra Del Sol, Inc.
(described below), which is currently constructing the Sonesta Resort;
approximately 8.6% of our revenues through the operations of our subsidiary
American Leisure Equities Corporation, which manages our TraveLeaders assets;
and approximately 8.6% of our assets through our subsidiary Advantage
Professional Management Group, Inc., which is involved in the management of
8
properties other than the Sonesta Resort, and which sold its sole asset, a hotel
in Davenport, Florida during the year ended December 31, 2005.
TRAVEL SERVICES
TRAVEL SERVICES INDUSTRY OVERVIEW
---------------------------------
The travel services industry is made up of two broad categories, corporate
business travel and individual leisure travel. TraveLeaders does the majority
of their business in the corporate travel management category and a small
portion of individual leisure travel, while Hickory provides services to a
variety of agencies that focus on corporate business travel.
Corporate travel management became prevalent largely as a result of the
deregulation of the airline industry in 1978. Complex pricing strategies and
airline rules and the elimination of previously available commission
arrangements created an opportunity for travel management companies to assist
corporate clients in optimizing the value of their travel expenditures.
Travel is generally the second largest controllable expense, behind personnel,
for most companies. Corporate travel management companies like TraveLeaders and
most of Hickory's members reduce travel expenses for their clients by creating
and documenting travel policies, negotiating favorable pricing directly with
travel suppliers, and streamlining the reservation process with customized
profiles and client-selected technologies including on-line booking tools.
The corporate travel management industry has changed significantly in the last
ten years. Elimination of airline commissions drove the industry to
fee-for-service arrangements, and rapid enhancements to technology allowed an
expansion of service offerings to clients. Successfully servicing those clients
requires significant technological, financial and operational resources, meaning
that larger corporate travel management companies such as TraveLeaders and
Hickory may have a competitive advantage. We believe the corporate travel
management industry is undergoing a period of consolidation as a result and that
significant growth opportunity exists in the industry.
The industry's role and capacity as a distribution channel, and its relationship
with both clients and suppliers, is also undergoing significant change as a
result of the Internet and other technological innovations. We believe these
innovations offer opportunities for corporate travel management companies to
increase the efficiency of their distribution capacities and enhance services
provided to travelers and management.
OUR TRAVEL SERVICES
-------------------
We manage and distribute travel services through Hickory, our 50.83% owned
subsidiary and have contracted with Around The World Travel, Inc. to manage
TraveLeaders, a fully integrated travel services distribution business based in
Coral Gables, Florida. We acquired our interest in Hickory in October 2003.
9
On December 30, 2004, we and ALEC, entered into an Asset Purchase Agreement with
AWT (the "Asset Purchase Agreement") to acquire substantially all of Around The
World Travel's assets which included the business name "TraveLeaders" and all of
the tangible and intangible assets necessary to operate TraveLeaders. The
purchase price was originally $17.5 million, which price was determined by an
independent valuation company based, in part, on economic information provided
by Around The World Travel, Inc. and was comprised of the value as determined by
the valuation firm, $16 million, calculated on a going concern basis plus $1.5
million.
We amended the Asset Purchase Agreement effective March 31, 2005 ("Amended
Purchase Agreement"), to change the form of consideration that we paid for the
TraveLeaders assets. Under the amendment, the liabilities assumed were reduced
to $4,242,051, we forgave certain working capital loans in the amount of
$4,774,619 that Around The World Travel, Inc. owed to us and we cancelled the
issuance of Series F preferred stock, which was originally included in the
purchase price. In addition, we issued a 60 month, 6% per annum note in favor of
Around The World Travel in the principal amount of $8,483,330 (the "Purchaser
Note"). During the first quarter of 2005, we transferred to Around The World
Travel allowance for doubtful accounts, pre-paids and security deposits that we
had acquired pursuant to the Asset Purchase Agreement to reduce the amount of
the note. The allowance for doubtful accounts is a reserve for the possibility
that certain receivables will not be collected and the prepaid expenses
represented things such as prepaid insurance and prepaid taxes. We also allowed
Around The World Travel to retain an amount of accounts receivable that we had
acquired, which further offset the note.
On or about November 14, 2005, the Company and ALEC asserted certain claims
against AWT with respect to the alleged breach of the Asset Purchase Agreement
and a Management Agreement (the "Management Agreement"). The claimed breach of
the Management Agreement was the failure of AWT to pay withholding taxes for its
employees to the Internal Revenue Service. After negotiations among the
parties, the parties agreed to settle the claims made by the Company and ALEC
regarding the Asset Purchase Agreement pursuant to the terms of a Settlement
Agreement entered into on February 24, 2006, and effective as of December 31,
2005 (the "Settlement Agreement"). The claimed breach of the Management
Agreement remains unsettled pending the good faith efforts of AWT to completely
fund its tax deposit obligations.
The Settlement Agreement provides that the purchase price under the Amended
Purchase Agreement will be reduced from $17,500,000 to $9,000,000. The parties
agreed to implement the reduction of the purchase price by eliminating the
remaining balance of the Purchaser Note (which had a balance of $5,297,788 as of
December 31, 2005) and by establishing an obligation of AWT to pay to ALEC the
amount of $3,185,548 as of December 31, 2005. This amount is payable on demand.
Under the terms of the Settlement Agreement, the Company, ALEC and AWT agreed to
release each other (and their respective officers and directors) from all claims
based upon the Asset Purchase Agreement. Additionally, the parties agree to
waive any right to indemnity or contribution which they may have against each
other (and their respective officers and directors) for any liability which they
might incur to certain plaintiff's in certain pending litigation including Simon
Hassine and Seamless Technologies, provided that the waiver does not cover any
liability incurred by the releasing party that is attributable to any act or
omission of the released party that constitutes bad faith or is not known to the
releasing party.
10
TRAVELEADERS
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We provide our clients with a comprehensive range of business and vacation
travel services, including corporate travel management (including reservations,
profiled service levels, financial and statistical reporting and supplier
negotiations), leisure sales (including sales to individuals and to travel and
vacation clubs), and meeting, special event and incentive planning. We provide
integrated solutions for managing corporate travel on a worldwide scale. We also
offer corporate travel services on a local and regional level. Our corporate
travel services provide our clients with a complete suite of travel services
that range from completely 'agent-free' Internet booking tools to specialized
expert travel agent guidance. Our private label websites provide our corporate
clients with an exclusive portal for corporate and leisure travel planning and
booking. Our corporate-clients range in size from companies with as few as two
to three travelers to companies with several hundred travelers or more. We
develop corporate travel policies, manage corporate travel programs and design
and develop information systems tailored for our clients. The benefits derived
by our clients typically increase proportionately with the amount of spending,
in that we can obtain direct benefits for the clients by negotiating favored
terms with suppliers and provide the client with better management information
regarding their spending patterns through active, involved account management
and customized reporting capabilities.
We provide vacation travel services using destination specialists who have
first-hand knowledge of various destinations and the capability to handle a
client's specific vacation travel needs. We help our clients design and
implement vacations suited to their particular needs and try to do this in the
most cost-efficient manner. We provide meeting, special event and incentive
planning to corporate clients ranging from Fortune 500 companies with thousands
of travelers to smaller companies with more modest meeting requirements. We plan
events ranging in size from 10 to over 3,000 people. We have the capability to
coordinate all aspects of a client's conference or event including servicing
general travel needs, booking group airline tickets as well as meeting
supervision and the production of all collateral needs. Our meeting, special
event and incentive planning services include program development, promotion
support, site selection, contract negotiations, registration and on-site
management for corporate events in addition to fulfillment of travel service
requirements. We also provide discount airline ticket and hotel programs.
HICKORY TRAVEL SYSTEMS, INC.
----------------------------
Hickory is a travel management service organization that serves its
network/consortium of approximately 160 well-established travel agency members,
comprising more than 3,000 travel agency locations worldwide, that focus
primarily on corporate travel. We intend to utilize Hickory's 24-hour
reservation services, international rate desk services, discount hotel programs,
preferred supplier discounts, commission enhancement programs, marketing
services, professional services, automation and information exchange.
11
AMERICAN TRAVEL & MARKETING GROUP
---------------------------------
American Travel & Marketing Group, Inc., our 81% owned subsidiary, develops and
operates affinity-based travel clubs. We believe that highly advantageous travel
benefits are the key to distinguishing our affinity club creation and management
from the older model of single purpose clubs. In addition to travel benefits, we
actively promote cross-marketing strategies to engage non-traditional sponsors
to provide significant benefits to the members that would otherwise not be
available to them in a traditional affinity club. We utilize TraveLeaders to
fulfill the travel service needs of these affinity-based clubs.
DISTRIBUTION OF OUR TRAVEL SERVICES
-----------------------------------
We provide our travel services to our clients through several distribution
channels, including traditional brick and mortar regional and branch offices,
dedicated on-site corporate travel departments, call centers and Internet based
technologies.
TraveLeaders has two large customer service operations in Coral Gables, Florida
and Irvine, California with five branch offices as follows:
FLORIDA
o Boca Raton;
o Orlando;
o Tampa
OHIO
o Cincinnati
CALIFORNIA
o San Francisco
These branch offices provide several corporate and vacation travel services to
our clients. These offices are primarily used by small companies as well as
vacation travelers seeking expertise in domestic and international destinations.
In addition, TraveLeaders has one leisure travel office in Largo, Florida.
We operate approximately twenty-two (22) on-site offices through TraveLeaders
located at corporate client premises, where we provide private label websites,
customized trip planning, reservation and ticketing services to the employees of
such corporate clients.
Hickory operates a 24-hour call center that we plan to use to service our travel
clients and provide travel marketing services.
We also maintain an online reservation and booking website at
www.traveleaders.com. This website permits both corporate and vacation clients
to book airline flights, hotel reservations, car rental reservations, cruises
and vacation specials. We currently operate over a dozen web sites dedicated to
specific types of travel planning.
12
COMPETITION IN THE TRAVEL INDUSTRY
----------------------------------
The travel services industry is highly competitive. We compete with a large
number of other providers of corporate and vacation travel services. Some of our
competitors include multi-national corporations that have significantly greater
resources than we have. These significantly larger competitors continue to
expand their size, which may provide them access to new products and more
competitive pricing than we can offer and may provide them certain economies of
scale, which we may be unable to compete with. We also compete with Internet
travel service providers and directly with travel suppliers including, airlines,
cruise companies, hotels and car rental companies. Additionally, we are faced
with increasing use of the Internet by both business and vacation travelers to
purchase products and services directly from travel suppliers that could result
in bypassing us and travel service providers similarly situated to us. To meet
that competition, we have developed and will continue to develop business models
to enable TraveLeaders to obtain a growing market share of the 'agent free'
travel business. We also compete by bundling our products in competitively
priced tour packages.
VACATION HOME AND TRAVEL RESORT OPERATIONS
Our vacation home and travel resort operations will be conducted within three
business segments. One will acquire tracts of real estate suitable for the
development of vacation resort properties, which will be subdivided, improved
and sold, typically on a retail basis as vacation home sales. The second segment
is the ongoing hospitality management of the resorts built by us. The third
operation is planned to develop, market and sell vacation ownership interests in
our future resort properties primarily through vacation clubs. While our
vacation home management programs will not be a condition of purchase at any of
our resorts, the consumer may elect to employ our management subsidiary to
handle all aspects of the care and economics of their vacation home, including
but not limited to the supervision of the home in a rental arrangement.
VACATION HOMES AND TRAVEL DESTINATION RESORTS
---------------------------------------------
We derive our expertise from our founding shareholders who have successfully
developed real estate abroad. Our first vacation home resort in the United
States will be developed through our subsidiary, Tierra Del Sol Resort, Inc.
("Tierra Del Sol"). We intend to develop additional high-quality vacation
resort properties comprised of vacation homes and extensive resort amenities. We
seek to acquire suitable land for this purpose in locations where the demand for
vacation properties is strong throughout the year, including Florida and the
Caribbean. We intend to create and promote our vacation and travel clubs to the
general public to provide revenue for our vacation home and travel resort
properties. In addition, we hope to derive additional revenues from vacation and
travel club membership dues, conversion of travel club members to vacation club
members, and travel commissions from the fulfillment of services by our Travel
Division. We plan to provide qualifying vacation resort homeowners a
comprehensive set of vacation rental and property management and rental services
through our subsidiary Wright Resort Villas & Hotels, Inc. so that their
homeowners may include their homes in voluntary rental arrangements with our
subsidiary. The services will consist of marketing, reservations, guest
services, basic resort services, maintenance, repair and cleaning, management of
13
home owner and condo associations, record keeping and billing, and
representation of homeowners' interests with transient guests.
We have finished the planning stage for The Sonesta Orlando Resort at Tierra Del
Sol ("Sonesta Resort"), a 972-unit vacation home resort to be located just 10
miles from Walt Disney World in Orlando, Florida. On January 29, 2005, Wright
Resort Villas & Hotels, Inc. entered into an operating agreement with a
subsidiary of Sonesta International Hotels Corporation of Boston, Massachusetts,
a nationally recognized luxury resort management company. We retained the
primary management responsibility, but we delegated substantially all of the
hospitality responsibilities within the management of the resort to Sonesta.
Site development of the Sonesta Resort commenced in June of 2005.
As currently planned, the Sonesta Resort will be a 972 luxury town home and
condominium unit property located near the Orlando, Florida theme park area. The
Company plans to complete the Sonesta Resort in two phases with completion of
both phases during the winter of 2007.
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 consist of a $40,000,000 revolving
construction loan to be used to construct Phase 1 of the Sonesta Resort (the
"Construction Loan") and a $14,850,000 term loan on the Phase 2 land the
proceeds of which were contributed to the Phase 1 partnership as equity and used
to repay existing debt on the property and finance part of the site work of the
property for the Resort and to pay certain related costs (the "Land Loan").
To facilitate the financing for the Sonesta Resort, the Company has formed two
limited partnerships, each of which will develop Phase 1 and Phase 2 of the
Resort (the "Development Partnerships"). Each Development Partnership has
several subsidiaries, which have been formed to develop different portions of
the Sonesta Resort.
Phase 1 will also include construction of related amenities, including a
swimming pool complex and sun decks, a lazy river, a poolside restaurant and
other amenities typical of a resort of this kind. 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, which owns a 99.9% interest in each Development Partnership. The
Company owns 100% of Tierra Del Sol Resort, Inc., as a result of the
transactions described below under "Recent Events."
Each Development Partnership has granted Stanford Venture Capital Holdings, Inc.
("Stanford") the right to acquire a 2% interest in each partnership in
connection with the release of a mortgage lien formerly held by Stanford. See
"Release of Lien by Stanford" below.
14
THE CONSTRUCTION LOAN
The borrowers under the Construction Loan are Tierra Del Sol Resort (Phase 1),
Ltd. (the "Phase 1 Partnership") and three other special purpose entities that
are owned by the Phase 1 Partnership. The Construction Loan is structured as a
$40,000,000 revolving credit facility, with maximum borrowings of up to
$72,550,000.
The interest rate on the outstanding balance of the Construction Loan is the
daily London Interbank Offered Rate ("LIBOR") Rate plus 2.75%. The term of the
Construction Loan is 24 months, with a maturity date of December 28, 2007.
Interest on the Construction Loan is due and payable monthly beginning on the
fifth day of the first month following the closing. If an event of default
occurs under the Construction Loan (as described and defined below), the
interest rate then in effect will become the greater of (a) the interest rate
otherwise applicable plus 3%; or (b) 18%.
The Construction Loan is secured by a first lien on the land within Phase 1 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 will be able to draw amounts under the Construction Loan upon the
fulfillment of various conditions. One of these conditions is, in the case of
borrowings to construct a condominium building, the sale of at least 33 of the
36 units of each such building. As of the closing, the Company had delivered
approximately 100% of the contracts required for construction of the town homes
and 84% of the contracts required to commence construction of the condominium
buildings. The Company's management believes that vertical construction of the
Phase 1 units will begin as early as May 2006.
The obligations of the borrowers under the Construction Loan are guaranteed by
the Company, its Chief Executive Officer and Chairman, Malcolm J. Wright, and
TDS Development, LLC, pursuant to a Payment Guaranty and a Performance and
Completion Guarantee. In connection with Mr. Wright's guarantee of the
Construction Loan, he earned 1,200,000 warrants of the Company's common stock
for such guarantee equal to three percent (3%) of the total indebtedness of the
Construction Loan at an exercise price of $1.02 per share.
In consideration of Mr. Wright's guarantee of the Construction Loan, the Phase 1
Partnership has agreed to pay Mr. Wright an annual guaranty fee equal to 2.5% of
the amount of such guarantee. The payment of this fee is subordinated to the
Partnership's obligations under the Construction Loan and the Partnership will
accrue Mr. Wright's annual guaranty fee until such time as the Construction Loan
is satisfied.
The borrowers paid 1% of the maximum borrowings under Construction Loan as a
commitment fee, which totaled approximately $725,500. The Company was obligated
to pay all costs and expenses of KeyBank in connection with the commitment and
the closing of the loan.
15
On December 29, 2005, KeyBank and the borrowers entered into the "Addendum to
Construction Loan Agreement Condominium and Townhouse Project Development,"
which changed and amended some of the terms of the Construction Loan (the
"Construction Addendum"). The Construction Addendum sets forth certain terms
whereby condominium and/or townhouse units to be constructed pursuant to the
Construction Loan may be released from the first priority lien on the units held
by KeyBank so that the units may be sold. Unless stated otherwise, all
discussions of the Construction Loan herein include the changes and additions to
the Construction Loan affected by the Construction Addendum.
The occurrence of any one or more "events of default" under the Construction
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.
PCL CONSTRUCTION GUARANTEE AND LOAN.
The Orlando based contractor, PCL Construction Services, Inc., a subsidiary of
PCL Construction Enterprises, Inc. of Denver, Colorado ("PCL"), is 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.
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.
In consideration of Mr. Wright's guarantee, and pursuant to an existing
agreement between Mr. Wright and the Company, Mr. Wright will earn a fee equal
to three percent (3%) of the loan. The Company paid this fee through the grant
of 120,000 warrants to purchase 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.
We may choose to repay the PCL Loan in the future, with separately sourced
capital in order to facilitate a more favorable financial arrangement in
relation to the proposed construction and related costs, of which there can be
no assurance.
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.
16
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.
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.
The Company and Mr. Wright have issued guarantees to KeyBank on the Land Loan.
Pursuant to an existing agreement between Mr. Wright and the Company, Mr. Wright
will earn a fee for such guarantee equal to three percent (3%) of the total
original indebtedness of the Land Loan. This fee was paid by granting 445,500
warrants to purchase the Company's common stock to Mr. Wright at an exercise
price of $1.02 per share which warrants will expire 5 years from the expiration
of the guarantee.
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 (Phase1), 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.
Additionally, on January 11, 2006, the Company sold forty-two acres of land in
the Sonesta Resort for $9,090,130 to the District and received an additional
$4,039,116 from the District in connection with reimbursements for site
improvements on the land purchased by the District. The land sold to the
17
District will be used for public infrastructure for the Sonesta Resort,
including the creation of roads and for water collection among other purposes.
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").
Tierra Del Sol utilized 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 is also required to pay a minimum fee equal to 3%. After
six months, this fee increases by 1% each month until the letters of credit are
released. 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. 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
18
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
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.
19
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.
Disbursement of the Construction Loan proceeds is structured as a $40,000,000
revolving construction loan credit facility. A Land Loan was also funded by Key
Bank which was described above in the amount of $14,850,000 in connection with
our planned Phase 2 development. As a result, we currently believe that we have
sufficient funds to provide for the completion of Phase 1. Phase 2 will be
financed separately.
In November 2003, we entered into an exclusive sales and marketing agreement
with Xpress Ltd. ("Xpress") to sell the vacation homes in the Sonesta Resort.
Malcolm J. Wright, one of our founders and our Chief Executive Officer and
Chairman, and members of his family are the majority shareholders of Xpress. As
of December 31, 2005, Xpress has pre-sold 673 vacation homes in a combination of
contracts on town homes and reservations on condominiums for total sales volume
of over $234 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 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.
20
At the time of the acquisition of the Reedy Creek Property, Reedy Creek
Acquisition Company was owned 99% by SFG and 1% by one of the Company's wholly
owned subsidiaries, American Leisure Reedy Creek Inc. ("ALRC"). In connection
with the acquisition of the Reedy Creek Property, the Company, ALRC and SFG
entered into an Option Agreement (the "Option Agreement"), pursuant to which SFG
granted ALRC the right to acquire SFC's 99% interest in Reedy Creek Acquisition
Company (the "Reedy Creek Option").
Option Exercise
----------------
On December 27, 2005, the Company and ALRC entered in to an Option Exercise
Agreement with SFG, pursuant to which ALRC acquired the 99% interest in Reedy
Creek Acquisition Company held by SFG for the exercise price of $600,000 (the
"Exercise Price"), which was less than the exercise price originally stated in
the Option Agreement.
Pursuant to the terms of the Option Exercise Agreement, the parties took the
following actions:
- SFG transferred its 99% interest in Reedy Creek Acquisition Company to
ALRC.
- SIBL loaned an additional $850,000 to Reedy Creek Acquisition Company.
This amount was used by Reedy Creek Acquisition Company to pay the Exercise
Price and to pay an additional placement fee of $250,000 to certain
affiliates of SIBL.
- The Company issued warrants to SIBL. The warrants entitle SIBL to
purchase 154,000 shares of the Company's common stock at an exercise price
of $5.00 per share and 77,000 shares of the Company's common stock at $.001
per share. Additionally, the Company granted warrants to four affiliates of
SIBL, entitling them to purchase an aggregate of 154,000 shares of the
Company's common stock at an exercise price of $5.00 per share and 77,000
shares at an exercise price of $.001 per share. The warrants have a term of
five years and are immediately exercisable. 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.
- The Company entered into a Registration Rights Agreement (the "Ready
Creek Registration Rights Agreement") with Stanford, pursuant to which, 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
Stanford of their demand and to use its best efforts to obtain
effectiveness of such Registration Statement as soon as practicable
thereafter. In the event that 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 must 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.
21
- Reedy Creek Acquisition Company agreed to modify the existing SIBL
mortgage on the Reedy Creek Property to secure the additional $850,000 loan
made by SIBL. As a result, the principal amount secured by the SIBL
mortgage was increased to $8,000,000.
- SIBL agreed to subordinate its mortgage on the Reedy Creek Property to
a new $7,000,000 loan to be made to Reedy Creek Acquisition Company by
Bankers Credit Corporation. This loan is described below.
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. Interest on the Amended Note is
payable quarterly on March 31, 2006, 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. 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.
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 March
22
15, 2006 was 15% (with a prime rate, as reported by the Wall Street Journal of
7.5%). 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. Additionally, if repaid by Reedy Creek Acquisition
Company prior to July 3, 2006, the Bankers Credit Note is subject to an
additional 1% repayment fee; however, if repaid after July 3, 2006, the Bankers
Credit Note is not subject to the repayment 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. 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
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.
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.
23
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. 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.
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 permitting. The Company will not know the total
estimated cost of the development of the Reedy Creek Property until it has
determined the market and completed designs for the properties. The Company does
not currently have any funding in place for any of the capital which will be
required to complete the development of the Reedy Creek Property and there is no
assurance that funding will be available on favorable terms, if at all. The
Company is currently seeking a joint venture partner for this property.
Note Modification Agreement
-----------------------------
In February 2006, we entered into a Note Modification Agreement with SIBL,
whereby we agreed to modify certain provisions of our outstanding promissory
notes with SIBL to grant extensions of payments due. Pursuant to the Note
Modification Agreement, we and SIBL agreed that all interest due on our
$6,000,000 note, from January 1, 2005, through September 30, 2006, shall be due
and payable on September 30, 2006, with all interest thereafter payable with the
original terms of that note; that all interest accrued on the $3,000,000 note we
have with SIBL, from the date of the note until September 30, 2006, shall be due
and payable on September 30, 2006, with all interest thereafter payable with the
original terms of that note; that the maturity date of our $1,250,000 note with
SIBL be extended until September 30, 2006, and that no payments of principal or
interest on that note shall be payable until the extended due date of that note;
that the maturity date of our $1,355,000 note with SIBL be extended until June
30, 2007, and that no payments of principal or interest on that note shall be
payable until the extended due date of that note; that the maturity date of our
$305,000 note with SIBL be extended until June 30, 2007, and that no payments of
principal or interest on that note shall be payable until the extended due date
of that note; and that interest on our $2,100,000 note with SIBL be payable in
arrears, on a quarterly basis, with the first payment due on March 28, 2006, and
subsequent payments due on each June 28, September 28, December 28 and March 28,
until the maturity date of December 27, 2007, with the outstanding principal and
interest shall be due (collectively, all the notes described above shall be
referred to as the "Notes").
Furthermore, SIBL agreed, pursuant to the Note Modification Agreement, to waive
any defaults arising under the Notes prior to the date of the Note Modification
Agreement, attributable to our failure to make any payments of interest due
under the Notes prior to the date of the Note Modification Agreement; and any
default of us and/or Around The World Travel, Inc. ("AWT") under the $1,250,000
24
note to fulfill the financial reporting requirements under the loan documents
related to the $1,250,000 note. SIBL also waived our obligation and AWT's under
the $1,250,000 note to fulfill the financial reporting requirements described in
the note in the future, provided that SIBL may reinstate such requirements at
any time upon written demand to us of such note.
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, for which he
received a guaranty fee equal to three percent (3%)_of the amount guaranteed.
The Company paid this fee through the grant of 102,351 warrants to purchase
shares of the Company's common stock at an exercise price of $1.02 per share.
These warrants will expire 5 years from the expiration date of the guaranty.
TRAVEL CLUBS
We are also in the process of developing additional affinity clubs. We plan to
open approximately nine clubs in the next 18 months. We have developed a travel
club system and travel incentive strategy that creates and fulfills the travel
and incentive needs of corporations, organizations and associations with
significant member bases. Typically, we identify a national retail entity and
propose to create a club comprising persons in their target demographic for the
purpose of fostering loyalty to the entity's brands. The incentives for
membership are a rich assortment of discounted travel opportunities that are
tailored to the target demographic as well as a significant array of special
membership benefits that are provided by sponsors of nationally known products
and services. We will derive revenues from membership dues, sponsorship premiums
and travel commissions. In addition to revenue generation, we will also seek to
provide traffic to our vacation home and resort properties. We believe that we
will generate increased travel business through the creation of additional clubs
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comprised of affinity-based travelers. We believe that we are poised to secure a
strong market share of the affinity-travel marketing segment. We are the
proprietor and manager of the clubs that it creates. As such, we anticipate that
we will generate substantial revenue from annual membership fees and commissions
earned on the sale of travel services once our infrastructure has been finalized
to enable our other businesses to communicate and sell to the affinity-based
club databases we operate. We expect to derive revenue from sales opportunities
to Hickory's corporate clients, Hickory's bulk purchasing power and fulfillment
capacity, and access to vacation home and resort properties that we plan to
develop. We recently unveiled a vacation creation program, which enables
consumers to employ our proprietary budgeting and finance technique to enjoy
annual vacations at premier properties that would otherwise not be available to
them at the pricing that we are able to offer. We have contracted with premier
properties to enhance the properties' occupancy rates during their off-season
and the few weeks just before and after their prime season. We have received
favored pricing from these properties as a result.
COMMUNICATIONS SERVICES
In December 2004 we entered into a joint venture with IMA Antigua, Ltd., a
Barbados company, to operate a call center in Antigua that we own. The joint
venture is operated through Caribbean Media Group, Ltd., an international
business corporation formed under the laws of Barbados. We own 49% of this joint
venture which is currently operating the call center. Our co-venturer, IMA, Ltd.
owns the remaining 51%. The call center provides in-bound and out-bound traffic
for customer service, customer retention and accounts receivable management. The
clients of the call center are well known national businesses with
well-established credit and operational systems.
We opened the call center in Antigua due to the new demand for call centers in
the Caribbean. The call center business is in demand in the Caribbean as a
result of telecommunications deregulation in the islands, which has reduced
costs and caused companies in the United States to spread their growing overseas
call center business to lower-cost sites near the United States. Based on a news
release by Global Information, Inc. dated January 31, 2005, interpreting the
Zagada Institute's "Caribbean Call Center Report 2005: A CRM Market", persons
employed in Caribbean call centers have more than doubled to 25,000 over the
past two years and likely will double again by the end of 2006. Proximity means
U.S. managers can easily visit and troubleshoot. Plus, it means call-center
agents tend to be more familiar with U.S. culture than agents in more distant
lands such as India. Caribbean nations are pursuing the call-center business,
anxious to create jobs and nurture clean industry that complements their vital
tourism industry. Many islands offer tax breaks, training programs and other
incentives. Competition may be robust but at present we believe that the demand
continues to exceed the supply. We cannot provide any assurance as to how long
these market conditions may persist.
We also own telecommunications equipment such as switches, dialers and other
telephone equipment that may have application for a telecommunications program
that we are considering in the United States. Part of this equipment can be used
to serve as the switches for a telephone system that we plan to operate for the
Sonesta Resort while other parts of the equipment are used for the travel
fulfillment operations by TraveLeaders.
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PATENTS, TRADEMARKS & LICENSES
We, through our wholly owned subsidiary American Leisure Equities Corporation
("ALEC"), have filed for a trademark, Serial Number 78611764, for the service
mark "Traveleaders." While we are currently in the process of having such
trademark registered, no final determination as to the registrability of the
mark has been made by the United States Patent and Trademark Office.
GOVERNMENT REGULATION
The travel, real estate development and vacation ownership industries are
subject to extensive and complex regulation. We are, and may in the future be,
subject to compliance with various federal, state, and local environmental,
zoning, consumer protection and other statutes and regulations regarding the
acquisition, subdivision and sale of real estate and vacation ownership
interests. On a federal level, the Federal Trade Commission has taken an active
regulatory role through the Federal Trade Commission Act, which prohibits unfair
or deceptive acts or competition in interstate commerce. We are, or may be
subject to the Fair Housing Act and various other federal statutes and
regulations. In addition, there can be no assurance that in the future, vacation
ownership interests will not be deemed to be securities subject to regulation,
which could increase the cost of such products. We believe that we are in
compliance in all material respects with applicable regulations. However, the
cost of complying with applicable laws and regulations may be significant. Any
failure to comply with current or future applicable laws or regulations could
have a material adverse effect on us.
We are subject to various federal and state laws regarding our tele-service
sales and telemarketing activities. We believe we are in compliance in all
material respects with all federal and state telemarketing regulations. Our
practices and methods may be or become subject to additional regulation or
regulatory challenge.
The industries we will serve may also be subject to varying degrees of
government regulation. Generally, in these instances, we rely on our clients and
their advisors to develop and provide us with the scripts for their particular
purposes. We anticipate that our clients will indemnify us against claims and
expenses arising with respect to the scripts provided by our clients.
EMPLOYEES
We have approximately 84 employees, all of which are employed on a full-time
basis. Those employees are distributed among our parent and subsidiary companies
as follows:
o Hickory Travel Systems, Inc. - 78 employees;
o American Leisure Equities Corporation - 1 employee; and
o American Leisure Holdings, Inc. - 5 employees.
There are no collective bargaining contracts covering any of our employees. We
believe our relationship with our employees is satisfactory.
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ITEM 2. DESCRIPTION OF PROPERTY
Our corporate headquarters are located in Orlando, Florida. Our Orlando facility
is approximately 9,000 square feet, of which 250 square feet houses our
executive offices. This facility is leased by American Leisure Real Estate
Group, Inc., a company owed by Mr. Wright, our Chairman and Chief Executive
Officer, that manages the development of our resort properties in return for a
fee of 4% of the total costs as per the agreement entered into in November 2003
with Tierra Del Sol Resort, Inc., see below. The lease on our corporate
headquarters expires on April 30, 2008.
Our subsidiary owns the land on which The Sonesta Orlando Resort at Tierra Del
Sol will be situated. It purchased this land for $5,560,366 in February 2000. We
have spent approximately $4,450,000 to entitle and create the Westridge
Community Development District. The land is currently subject to the KeyBank
mortgages described above. As a developer of vacation resort properties, we plan
to also purchase additional parcels of land for resort development.
Reedy Creek Property: The Reedy Creek Property is situated in the northern
section of Osceola County, Florida and lies on three contiguous development
parcels located to the immediate north of U.S. Highway 192 West, about one mile
from the "Maingate" entrance to Walt Disney World, Orlando and 0.75 miles from
the entrance to "Disney's Animal Kingdom" theme park. The property is one of
only a small number of privately owned parcels abutting Walt Disney World (north
and east boundaries).
The Reedy Creek Property consists of three parcels totaling over 40 gross acres
with approximately 29 acres of buildable land. The Osceola County Comprehensive
Land Plan for the site allows vacation homes at a density of 18 units per acre,
which results in a maximum allowable project density of 522 residential units.
To achieve the maximum density, it is anticipated that the project will consist
of mid-rise condominium buildings. Amenities proposed on-site include a water
park with swimming pools, guest services clubhouse, and other related on-site
resort amenities.
The TraveLeaders assets are located in a building leased by Around The World
Travel, Inc. TraveLeaders occupies almost all of the 30,000 square feet at 1701
Ponce De Leon Boulevard, Coral Gables, Florida. The lease expires in December of
2006 and we have commenced our search for alternative leaseholds.
ITEM 3. 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
28
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
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 intend to vigorously defend the
lawsuit.
In February 2003, American Leisure, Inc. and Malcolm J. Wright were joined in a
lawsuit captioned as Howard C. Warren v. Travelbyus, Inc., William Kerby, David
Doerge, DCM/Funding III, LLC, and Balis, Lewittes and Coleman, Inc. in the
Circuit Court of Cook County, Illinois, Law Division, which purported to state a
claim against us as a "joint venturer" with the primary defendants. The
plaintiff alleged damages in an amount of $5,557,195.70. On November 4, 2004,
the plaintiff moved to voluntarily dismiss its claim against us. Pursuant to an
order granting the voluntary dismissal, the plaintiff had one (1) year from the
date of entry of such order to seek to reinstate its claims, which claims were
not restated by such deadline.
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.
29
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
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 has been postponed to a to be determined date
later in 2006 due to a declared conflict of interest held by the sitting judge
who has recused herself as a result of the potential for a conflict of interest.
30
In the ordinary course of our business, we may from time to time become subject
to routine litigation or administrative proceedings, which are incidental to our
business.
We are not aware of any proceeding to which any of our directors, officers,
affiliates or security holders are a party adverse to us or have a material
interest adverse to us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote of security holders during the fourth
quarter of 2005.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock, $.001 par value per share, is traded on the over-the-counter
Bulletin Board (the "OTCBB") under the trading symbol "AMLH."
The following table sets forth the high and low bid prices for our common stock
for the periods indicated as reported on the OTCBB, except as otherwise noted.
The quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions.
HIGH BID LOW BID
-------------- ----------------
December 31, 2005 $ 1.50 $ 0.86
September 30, 2005 $ 1.50 $ 0.76
June 30, 2005 $ 3.00 $ 1.50
HIGH BID LOW BID
-------------- ----------------
December 31, 2004 $ 1.50 $ 1.25
September 30, 2004 $ 2.02 $ 1.30
June 30, 2004 $ 2.00 $ 0.45
31
(1) Our common stock was de-listed from the OTCBB during the period from May
21, 2004 to January 26, 2005, as a result of one delinquent filing with the
Commission. Our common stock was cleared for quotation on the OTCBB on January
26, 2005.As of December 31, 2005, the Company had approximately 326 holders of
record of its common stock. The number of holders of the common stock includes
nominees of various depository trust accounts for an undeterminable number of
individual stockholders.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock. We do not
anticipate paying dividend on our common stock in the foreseeable future. We
intend to reinvest in our business operations any funds that could be used to
pay dividends. Our common stock is junior in priority to our preferred stock
with respect to dividends.
Cumulative dividends on our issued and outstanding Series A preferred stock,
Series B preferred stock, Series C preferred stock and Series E preferred stock
accrue at a rate of $1.20, $12.00, $4.00, and $4.00, respectively, per share per
annum, payable in preference and priority to any payment of any cash dividend on
our common stock. We have authorized Series F preferred stock, which accrues
dividends at a rate of $1.00 per share per annum, payable in preference and
priority to any payment of any cash dividend on our common stock; however no
shares of Series F preferred stock are currently outstanding. Dividends on our
preferred stock accrue from the date on which such shares of preferred stock are
issued and outstanding and thereafter from day to day whether or not earned or
declared and whether or not there exists profits, surplus or other funds legally
available for the payment of dividends. We may authorize and/or issue additional
shares of preferred stock with dividends rights that are superior to our common
stock. We have never paid any cash dividends on our preferred stock. We have
never paid any cash dividends on our preferred stock. We will be required to pay
accrued dividends on our preferred stock before we can pay any dividends on our
common stock.
RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued the following securities without registration under the
Securities Act of 1933 (the "Act" or the "Securities Act") during the period
covered by this report:
On December 28, 2005 we granted warrants to Malcolm J. Wright, our Chief
Executive Officer and Director, to purchase 2,008,500 shares of our common stock
at an exercise price of $1.02 per share. We issued the warrants to Mr. Wright as
consideration for his personal guarantee regarding the construction and land
loans with KeyBank, N.A. We claim an exemption from registration afforded by
Section 4(2) of the Act since the foregoing grants did not involve a public
offering, the recipient took the warrants for investment and not resale and we
took appropriate measures to restrict transfer.
In December 2005, in connection with the Stanford Credit Facility, the Company
granted SIBL and its designees warrants to purchase 308,000 shares of the
Company's common stock at an exercise price of $5.00 per share and warrants to
32
purchase 154,000 shares of the Company's common stock at an exercise price of
$0.001 per share, which warrants expire five years from their grant date. (The
Stanford Credit Facility and warrants are described in greater detail above).
The Warrants have an exercise price of $1.02 per share. We claim an exemption
from registration afforded by Section 4(2) of the Act since the foregoing
issuance did not involve a public offering, the recipient took the warrants for
investment and not resale and we took appropriate measures to restrict transfer.
In December 2005 in connection with their guaranty of the Stanford Credit
Facility pursuant to the Irrevocable and Unconditional Guaranty, the Company
agreed to issue an aggregate of 405,000 warrants to purchase shares of the
Company's common stock to certain third party entities. The warrants have an
exercise price of $1.02 and expire 5 years from the expiration date of the third
parties guaranties. (the Stanford Credit Facility and Irrevocable and
Unconditional Guaranty are described in greater detail above). The Warrants
have an exercise price of $1.02 per share. We claim an exemption from
registration afforded by Section 4(2) of the Act since the foregoing grant did
not involve a public offering, the recipient took the warrants for investment
and not resale and we took appropriate measures to restrict transfer.
Subsequent Events
-----------------
In January 2006, in connection with the SIBL Reedy Creek Loan, the Company
granted SIBL warrants to purchase 154,000 shares of the Company's common stock
at an exercise price of $5.00 per share and warrants to purchase 77,000 shares
of the Company's common stock at an exercise price of $0.001 per share, which
warrants expire five years from their grant date. We claim an exemption from
registration afforded by Section 4(2) of the Act since the foregoing issuance
did not involve a public offering, the recipient took the warrants for
investment and not resale and we took appropriate measures to restrict transfer.
In January 2006, in connection with the SIBL Reedy Creek Loan, the Company
granted warrants to four separate affiliates of SIBL entitling them to purchase
an aggregate of 154,000 shares of the Company's common stock at an exercise
price of $5.00 per share and 77,000 shares at an exercise price of $.001 per
share. The warrants have a term of five years and are immediately exercisable.
The warrants have an exercise price of $1.02 per share. We claim an exemption
from registration afforded by Section 4(2) of the Act since the foregoing grant
did not involve a public offering, the recipient took the warrants for
investment and not resale and we took appropriate measures to restrict transfer.
In January 2006, in connection with Mr. Wright's guarantee of the Amended Note,
the Company agreed to grant Mr. Wright warrants to purchase 240,000 shares of
the Company's common stock at an exercise price of $1.02 per share. The warrants
are being granted pursuant to an existing agreement between the Company and Mr.
Wright and expire 5 years from the expiration date of the guarantees. In
addition, the Company has agreed to register the shares underlying the warrants
granted to Mr. Wright on its next registration statement. The Warrants have an
exercise price of $1.02 per share. We claim an exemption from registration
afforded by Section 4(2) of the Act since the foregoing grant did not involve a
public offering, the recipient took the warrants for investment and not resale
and we took appropriate measures to restrict transfer.
33
In March 2006, we agreed to grant 100,000 warrants to our General Counsel,
Executive Vice President and Secretary, Michael Crosbie in consideration for
accepting his position as General Counsel to the Company and services to be
rendered to the Company, of which 50,000 warrants vested immediately, with the
remaining 50,000 vesting over the next two years of employment. The Warrants
have an exercise price of $1.02 per share. We claim an exemption from
registration afforded by Section 4(2) of the Act since the foregoing grant did
not involve a public offering, the recipient took the warrants for investment
and not resale and we took appropriate measures to restrict transfer.
In March 2006, we appointed Jeffrey Scott as President of Hickory. In
connection with Mr. Scott's appointment and continued employment, we agreed to
grant him warrants to purchase 100,000 shares of the Company's common stock.
The warrants have an exercise price of $5.00 per share. One half, or 50,000 of
Mr. Scott's warrants vested on March 2, 2006, with the remaining 50,000 warrants
vesting as follows, 25,000 warrants on March 2, 2007 and the remaining 25,000
warrants on March 2, 2008, assuming Mr. Scott is still employed by the Company
on those dates. The Company will rely on the exemption from registration set
forth in Section 4(2) of the Act in issuing these warrants as the issuance of
these securities will not involve a public offering, the recipient acquired the
warrants for investment purposes and the Company will take appropriate measures
to restrict transfer. No underwriters or agents were involved in the foregoing
issuances and no underwriting discounts were paid by the Company.
On March 23, 2006, and effective as of December 30, 2005, we purchased the
minority interest of our now wholly owned subsidiary, Tierra Del Sol, Inc. (the
"Minority Interest") from Harborage Leasing Corporation ("Harborage"). The
purchase price of the Minority Interest from Harborage was a promissory note for
$1,411,705 ("Harborage Note"); the right to receive, without payment, two (2)
three-bedroom condominium units to be constructed in Phase 2 of the Tierra Del
Sol Resort, or in the event title to both such units is not delivered by
December 31, 2007, then, in lieu thereof, payment of $500,000.00 for each such
unit that is not transferred by such date; 197,000 shares of the Company's
common stock; and warrants to acquire 300,000 additional shares of the Company's
common stock at a price of $5.00 per share. The 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
Chairman, for which he received a guaranty fee equal to three percent (3%)_of
the amount guaranteed. The Company paid this fee through the grant of 102,351
warrants to purchase shares of the Company's common stock at an exercise price
of $1.02 per share. These warrants will expire 5 years from the expiration date
of the guaranty.
34
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
We are developing an organization that will provide, on an integrated basis,
travel services, travel distribution as well as development, sales, management
and rentals of destination resorts. To that end we have acquired or established
businesses that manage and distribute travel services, develop vacation home
ownership and travel destination resorts and develop and operate affinity-based
clubs. The continuing trend in the travel industry is towards consolidation,
which has caused us to seek to create a vertically integrated travel services
organization that provides comprehensive services to our clients and generates
revenue from several sources. We believe that we have a synergistic strategy
that involves using our travel distribution, fulfillment and management services
to provide consumer bookings at our planned resorts, selling and renting
vacation homes that we plan to manage at these resorts, and fulfilling the
travel service needs of our affinity-based travel clubs. We also own a 49%
interest in a call center in Antigua-Barbuda.
Malcolm J. Wright, our Chief Executive Officer and Chairman and one of our
founders, has successfully developed vacation properties in Europe. We are
currently developing our first luxury vacation home and destination resort, The
Sonesta Orlando Resort at Tierra Del Sol and relying on Mr. Wright's experience
to do so. This resort is currently planned to include 540 town homes and 432
condominiums. As of December 31, 2005, we have pre-sold 673 town homes,
resulting in over $234,000,000 in gross contract value. In June 2005, we began
the earth moving and clearing process on the land for the resort. We anticipate
commencing the delivery of the town home units in October 2006, with all 540
units planned to be finished during the summer of 2007. We anticipate completing
the construction of the first condominium units in March 2007, with all 452
units planned to be finished during the winter of 2007. Upon completion of these
units, we will offer our management services to certain qualified purchasers to
permit them to voluntarily include their qualifying units in a rental program
that our subsidiary Wright Resort Villas & Hotels, Inc. will operate. In
addition, we will retain a 45-day, right of first refusal to repurchase the
units in the resort that become available for resale.
Our TraveLeaders business is a fully integrated travel services distribution
business that provides its clients with a comprehensive range of business and
vacation travel services in both traditional and e-commerce platforms including
corporate travel management, leisure sales, and meeting, special event and
incentive planning. We acquired the assets of TraveLeaders effective December
31, 2004, from Around The World Travel, Inc. Around The World Travel is
currently managing the assets for us. See the discussion below under "Recent
Events." Our business plan includes the acquisition of additional travel
agencies so that we can compete for greater volume buying discounts and market
share.
In October 2003, we acquired a 50.83% interest in Hickory. Hickory is a travel
management service organization that primarily serves its network/consortium of
approximately 160 well-established travel agency members, comprised of over
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3,000 travel agents worldwide that focus on corporate travel. The services
provided by Hickory include a 24-hour reservation service, international rate
desk services, discount hotel programs, preferred supplier discounts, commission
enhancement programs and marketing services. Additionally, we may acquire
additional travel agencies in the future so that we can compete for greater
volume buying discounts and market share. We view the members of Hickory as a
resource for future acquisitions of viable travel agencies.
We are 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 "Item 3. Legal Proceedings." As such, expenditures have
been higher than anticipated.
Our American Travel & Management Group subsidiary develops and operates Internet
structured clubs that specialize in using demographic affinities to promote
brand loyalty through the delivery of customized travel and other benefits to a
constituency that is built under the auspices of a national retailer, publisher
or national cause. A vital component to the benefits provided to club members
and the sponsors is the inclusion of a sophisticated rewards program that will
provide customer retention tracking data to those sponsors while enabling the
members to enjoy significant discounts and rewards for their loyalty. We have
recently entered into agreements with a prominent sports media organization, a
national publisher and an international retail food service company. Based upon
current agreements, we expect to launch a new club on an average of one every
other month for the next eighteen months. We fulfill travel service orders
produced by these clubs through TraveLeaders.
In December 2004, we entered into a joint venture with IMA Antigua, Ltd. to
operate a call center that we own located in Antigua. The joint venture is
operated through Caribbean Media Group, Ltd. We own 49% of this joint venture
company. Our co-venturer, IMA, Ltd. owns the remaining 51%. The call center
provides in-bound and out-bound traffic for customer service, customer retention
and accounts receivable management. The clients of the call center are well
known national businesses with well-established credit and operational systems.
During the first quarter of 2005, we generated approximately 43% of our revenue
from the sale of land held for development in Davenport, Florida. For that
period, we also recognized revenue from fees derived from Hickory's services and
our affinity-based travel clubs as well as revenue from the operations of
TraveLeaders.
Under our arrangement with Around The World Travel, which operates the
TraveLeaders assets on our behalf and from whom we acquired the assets, we
receive and recognize as income 90% of the net earnings of the TraveLeaders
assets before interest, taxes, depreciation and amortization. The balance is
retained by Around The World Travel as a management fee.
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We are currently generating modest revenues from our call center joint venture
in Antigua. We expect revenues from our call center operations to increase
throughout the year based on existing contracts with major clients that will
require an increase in the number of seats in the first and second quarters of
2006.
As discussed in "Liquidity and Capital Resources," the capital requirement for
the first phase of the resort is 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").
KeyBank, N.A. is the lender of two credit facilities for the benefit of AMLH.
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 is a $40,000,000 revolving construction loan, for up to $72,550,000 in
funding that will fund the development and construction for Phase 1 of the
Resort. Both loans are part of a comprehensive finance plan from KeyBank, N.A.
who had the underwriting role in the sale of the Community Development District
Bonds. 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 approximately May 2006.
RECENT EVENTS
On December 30, 2005 we closed on $54,850,000 in senior debt to be used in the
development of The Sonesta Orlando Resort at Tierra Del Sol (the "Project").
KeyBank, N.A. is the lender of two credit facilities for the benefit of AMLH.
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 is a $40,000,000 revolving construction loan, which will provide up to
$72,550,000 in funding, which will fund the development and construction for
Phase 1 of the Resort. Phase 1 consists of 114 town homes and 180 mid-rise
condominiums in a luxury vacation home resort community. Both loans are part of
a comprehensive finance plan for the development of the Project that also
includes funding in the amount of $25,825,000 from the Westridge Community
Development District ("CDD"). The Westridge Community Development District, is 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, 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
37
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.
On December 30, 2005, we paid off two notes (payable to third parties) in the
aggregate amount of $7,862,250 that matured on March 31, 2005 and were extended
through the date of the closing of the credit facilities from KeyBank, N.A.
On or about November 14, 2005, the Company and ALEC asserted certain claims
against AWT with respect to the alleged breach of the Asset Purchase Agreement
and a Management Agreement (the "Management Agreement"). The claimed breach of
the Management Agreement was the failure of AWT to pay withholding taxes for its
employees to the Internal Revenue Service. After negotiations among the
parties, the parties agreed to settle the claims made by the Company and ALEC
regarding the Asset Purchase Agreement pursuant to the terms of a Settlement
Agreement entered into on February 24, 2006, and effective as of December 31,
2005 (the "Settlement Agreement"). The claimed breach of the Management
Agreement remains unsettled pending the good faith efforts of AWT to completely
fund its tax deposit obligations.
The Settlement Agreement provides that the purchase price under the Amended
Purchase Agreement will be reduced from $17,500,000 to $9,000,000. The parties
agreed to implement the reduction of the purchase price by eliminating the
remaining balance of the Purchaser Note (which had a balance of $5,297,788 as of
December 31, 2005) and by establishing an obligation of AWT to pay to ALEC the
amount of $3,185,548 as of December 31, 2005. This amount is payable on demand.
Under the terms of the Settlement Agreement, the Company, ALEC and AWT agreed to
release each other (and their respective officers and directors) from all claims
based upon the Asset Purchase Agreement. Additionally, the parties agree to
waive any right to indemnity or contribution which they may have against each
other (and their respective officers and directors) for any liability which they
might incur to certain plaintiff's in certain pending litigation including Simon
Hassine and Seamless Technologies, provided that the waiver does not cover any
liability incurred by the releasing party which is attributable to any act or
omission of the released party which constitutes bad faith or is not known to
the releasing party.
On December 28, 2005, the Company completed the sale of 41 acres of its
development property located in Polk County, Florida (adjacent to the Sonesta
Resort property) for $8,000,000 and realized a profit of $3,334,774 on the sale.
The sale was brokered through American Leisure Real Estate Group, Inc, an entity
controlled by Malcolm J. Wright, the Company's Chief Executive Officer and
Chairman; the broker commission on the sale amounted to $400,000, and the
Company therefore received net profits of $2,934,774, of which $1,823,000
was due to the Company as of December 31, 2005.
On December 31, 2005, the Company acquired the minority interest of Tierra Del
Sol (the "Minority Interest") in connection with the entry into a Stock Purchase
Agreement with Harborage Leasing Corporation ("Harborage"). The Minority
Interest was purchased from Harborage for a promissory note for $1,432,046,
which is due on July 1, 2006, and which bears interest at 12% per year (the
38
"Harborage Note"); two (2) three-bedroom condominium units to be constructed in
Phase 2 of the Sonesta Resort, which are to be delivered to Harborage by
December 31, 2007 (or if such units are not available, $500,000 for each such
unit not transferred by December 31, 2007); 197,000 shares of the Company's
restricted common stock (the "Harborage Shares") and warrants to purchase
300,000 shares of 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, for which he received a guaranty fee equal to
three percent (3%) of the amount guaranteed. The Company paid this fee through
the grant of 102,351 warrants to purchase shares of the Company's common stock
at an exercise price of $1.02 per share. These warrants will expire 5 years from
the expiration date of the guaranty.
On January 9, 2006, with an effective date of June 14, 2002, the Company entered
into an Amended Debt Guarantor Agreement ("Amended Debt Agreement") with Malcolm
J. Wright, its Chief Executive Officer and Chairman and L. William Chiles, a
Director of the Company (collectively, Mr. Wright and Mr. Chiles are referred to
herein as the "Guarantors"). Pursuant to the Amended Debt Agreement, the Company
and the Guarantors agreed to amend the terms of the prior Debt Guarantor
Agreement entered into between the parties. The original Debt Guarantor
Agreement provided for the Guarantors to receive warrants to purchase shares of
the Company's common stock at $2.96 per share in an amount equal to 3% of any
Company indebtedness that they personally guarantee. The Amended Debt Agreement
decreased the exercise price of the warrants to be issued in connection with any
of the Guarantor's guarantees to $1.02 per share (the "Guarantor Warrants").
Under the Amended Debt Agreement, the warrants issued to the Guarantors are
exercisable until five years after the date the Guarantor is no longer obligated
to personally guarantee such Company indebtedness.
Additionally, under the Amended Debt Agreement, the fee which the Guarantors
receive for a pledge of personally owned collateral to secure Company
indebtedness was increased from 1% of such total indebtedness guaranteed (as was
provided under the original Debt Guarantor Agreement), to 2% of the total amount
of indebtedness guaranteed. The 2% fee is paid to the Guarantors in Guarantor
Warrants with the same terms and conditions as provided above.
We also entered into a Third Party Debt Guarantor Agreement (the "3rd Party
Guarantor Agreement") on March 20, 2006, with an effective date of June 14,
2002, which provided for fees identical to those which are provided to Mr.
Wright and Mr. Chiles pursuant to the Amended Debt Agreement, described above,
to be issued to certain third parties who guarantee the indebtedness of the
Company.
39
As of the date of this filing, the Company anticipates using "Resorts
Construction LLC," to construct and develop part of the Sonesta Resort and
properties ("Resorts Construction"). It is anticipated that Resorts
Construction will be 40.5% owned by Malcolm J. Wright, the Company's Chief
Executive Officer and Chairman. It is also anticipated that the yet to be
signed construction contract with Resorts Construction will provide significant
construction savings over the PCL contract described in detail above under "PCL
Construction Guarantee and Loan," Under "Item 1. Description of Business,"
above.
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:
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. We expect our travel operations through the end of the
current fiscal year to require additional working capital of approximately
40
$2,000,000 and Hickory to require approximately $500,000 in working capital
during the next twelve months. If we are unable to obtain these funds, we may
have to curtail or delay our travel business plan. In addition to our ability to
raise additional capital, our continuation as a going concern also depends upon
our ability to generate sufficient cash flow to conduct our operations. If we
are unable to raise additional capital or generate sufficient cash flow to
conduct our Travel Division operations and/or to complete the construction of
our planned vacation homes, we may be required to delay the acquisition of
additional travel agencies and restructure or refinance all or a portion of our
outstanding debt. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
REVENUE RECOGNITION
-------------------
We recognize revenues on the accrual method of accounting. Revenues from Hickory
are recognized as earned, which is primarily at the time of delivery of the
related service, publication or promotional material. Fees from advertisers to
be included in the hotel book and web service operated by Hickory are recognized
upon the annual publication of the book or when performance levels are achieved.
Revenue from the delivery of services is recognized when it is invoiced to the
recipient of the service.
One of our principal sources of revenue is associated with access to the travel
portals that provide a database of discounted travel services. Annual renewals
occur at various times during the year. Costs and revenue related to portal
usage charges are incurred in the month prior to billing. Customers are charged
additional fees for hard copies of the site access information. Occasionally
these items are printed and shipped at a later date, at which time both revenue
and expenses are recognized.
Revenues and expenses from our TraveLeaders business are not included in our
results as the same are borne by Around The World Travel, Inc., the third party
manager of the business. We recognize as revenue only the net operating results
of TraveLeaders after deducting the management fee paid to Around The World
Travel of 10% of net earnings before interest expense, taxes, depreciation and
amortization.
We have entered into 673 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.
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
41
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
December 31, 2005. 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.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005 COMPARED TO
FISCAL YEAR ENDED DECEMBER 31, 2004
We had revenues of $19,381,284 for the fiscal year ended December 31, 2005, as
compared to revenues of $6,419,320 for the fiscal year ended December 31, 2004,
which represents a $12,961,964 increase in revenue from the prior period. The
increase in revenue was due to increased revenue due to our sale of 41 acres of
property in December 2005, located in Polk County, Florida (adjacent to the
Sonesta Resort property) for $8,000,000 and a profit of $3,324,736, as well as
the sale of 13.5 acres of undeveloped property for approximately $4,000,0000
during the year ended December 31, 2005.
Revenues of $19,381,284 for the fiscal year ended December 31, 2005, included
operating revenues of $7,361,284 and undeveloped land sales of $12,020,000.
We had cost of undeveloped land sales of $8,122,562 as of December 31, 2005,
compared to cost of undeveloped land sales of $-0- as of December 31, 2004.
We had total operating expenses of $19,892,825 for the fiscal year ended
December 31, 2005, as compared to total operating expenses of $10,629,069 for
the fiscal year ended December 31, 2004, which represented an increase of
$9,263,756 or 87.2% from the prior period. Total operating expenses for the year
ended December 31, 2005, included depreciation and amortization of $1,476,326,
an increase of $813,791 or 122.8% compared to depreciation and amortization
expense for the prior year of $662,535 and general and administrative expenses
of $5,136,413, an increase of $862,770 or 20.2% from the prior period.
Additionally, although there was a goodwill impairment expense of $1,500,000 for
the year ended December 31, 2004, there was no such expense for the year ended
December 31, 2005. The increase in general and administrative expenses was due
to increased professional fees and increased travel and insurance expenses
during the year ended December 31, 2005, compared to the year ended December 31,
2004. These increased professional fees were due to increased fees paid to
independent contractors at American Travel and Marketing Group, Inc., legal fees
in connection with the Sonesta resort, Reedy Creek Property and KeyBank
closings, as well as the Company's SEC filings. The increased travel expenses
were attributable to increased costs associated with the travel by American
Travel and Marketing Group, Inc. and Comtech Fibernet, Inc., as well as
increased travel expenses due to Caribbean Leisure Marketing, Inc.'s supervision
of the Antiguan call center which was launched in January 2005. Also attributing
to the increase in travel expenses was increased travel due to the Company's
operations of AWT.
We had a loss from operations of $511,541 for the year ended December 31, 2005,
compared to a loss from operations of $4,209,749 for the year ended December 31,
2004, a decrease of $3,698,208 or 87.8% from the prior period. The decrease in
loss from operations was associated with increased revenues and profits in the
travel division and the profits from the sale of two properties during 2005.
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We had interest expense of $3,317,033 for the year ended December 31, 2005,
compared to interest expense of $736,798 for the year ended December 31, 2004,
an increase of $2,580,235 or 350% from the prior period. This increase in
interest expense was mainly attributable to interest on the credit facilities
provided by Stanford, which are described in greater detail below, which credit
facilities were received towards the end of the year ended December 31, 2004 and
during the year ended December 31, 2005 and amortization of deferred financing
costs related to the aforementioned credit facilities.
We had $-0- of unrealized loss on marketable securities for the year ended
December 31, 2005, compared to $2,185,278 of unrealized loss on marketable
securities for the year ended December 31, 2004, which was due to a loss of $
2,185,278 on the write down of acquiring Around The World Travel's preferred
stock in April 2004.
We had $-0- of minority interest for the year ended December 31, 2005, compared
to $510,348 of minority interests for the year ended December 31, 2004. We own
50.83% of Hickory, with the minority interests owning the remaining 49.17%. In
the event Hickory generates net profits, as it did in 2003, it is required to
reserve and allocate such profits to the minority shareholders, in the event
Hickory incurs operating losses, as it did in 2004 and 2005, that is not the
case.
We had ($293,201) of equity in loss from operations of unconsolidated affiliate
during the year ended December 31, 2005, compared to $-0- of equity operations
of unconsolidated affiliate during the year ended December 31, 2004. This was
due to the loss from certain of our subsidiaries, including Caribbean Media
Group, Inc. ("CMG"), which we own 49% of, and which runs our call center
operations in Antigua; which like CMG, we own less than 50% of, and which are
therefore accounted for separately as unconsolidated affiliates. The call
center commenced operations in January 2005 and we therefore had no results to
report in 2004.
We had $3,610,234 of total other expenses during the year ended December 31,
2005, compared to total other expenses of $2,411,728 for the year ended December
31, 2004, an increase of $1,198,506 or 49.7% from the prior period. Total other
expenses for the year ended December 31, 2005 included interest expense and the
amortization of deferred financing costs from the additional notes entered into
in 2005 and late 2004 plus the loss from operations of unconsolidated affiliate,
while the unrealized loss from marketable securities and the allocated minority
interest reversal were non-reoccurring 2004 events.
We had loss before income taxes of $4,121,775 for the year ended December 31,
2005, compared to a loss before income taxes of $6,621,477 for the year ended
December 31, 2004, a decrease in loss before income taxes of $2,499,702 or 37.8%
from the prior period.
We had provision for income taxes of $5,004 for the year ended December 31,
2005, compared to provision for income taxes of $12,824 for the year ended
December 31, 2004, a decrease in provision for income taxes of $7,820 or 61.0%
from the prior period. Provision for income taxes for the year ended December
31, 2005 was due to state income tax due by Hickory.
We had a net loss of $4,126,779 for the year ended December 31, 2005, compared
to a net loss of $6,634,301 for the year ended December 31, 2004, which
43
represented a decrease in net loss of $2,507,522 or 37.8% from the prior period.
The decrease in net loss was mainly attributable to increased revenues and
profits in the travel division and the profits from the sale of two properties
during 2005.
LIQUIDITY AND CAPITAL RESOURCES
We had total current assets of $11,054,971 as of December 31, 2005, which
included cash of $225,055, restricted cash of $2,100,000, accounts receivable
of $2,043,141, other receivable of $6,587,357 and prepaid expenses and other of
$99,418. This represented an increase in total assets of $5,054,606 from
December 31, 2004, when total current assets were $6,000,365. The main reasons
for the increase in total current assets as of December 31, 2005, compared
to December 31, 2004, include a $2,100,000 increase in restricted cash and a
$6,474,357 increase in other receivables. 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 December 31, 2005 of $4,583,853, which
was a decrease of $1,504,647 from net property and equipment of $6,088,500 as of
December 31, 2004. The decrease in net property and equipment from prior period
was caused by additional depreciation expense and the write-off of some obsolete
assets.
We had $34,695,281 of land held for development as of December 31, 2005, which
as an increase in land held for development from $23,448,214 of land held for
development as of December 31, 2004. 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. The $34,695,281 of land held for development
as of December 31, 2005, represented the total costs capitalized since 2002
including the cost of the land.
We had total other assets of $39,589,142 as of December 31, 2005, which included
restricted cash of $11,075,354, prepaid sales commissions of $7,770,949; prepaid
sales commissions from an affiliated entity, Xpress, Ltd., of $3,516,209;
investment senior notes $5,170,000; goodwill of $5,925,437; trademark of
$975,000 and other assets of$5,156,193, which included deferred financing costs,
our 1% investment in Reedy Creek Acquisition Corp., member contracts and
customer lists. Total other assets as of December 31, 2005 were $7,724,240 more
than total other assets of $31,864,902 as of December 31, 2004. The increase in
other assets from the prior period was mainly attributable to a decrease of
$8,500,000 in goodwill from the prior period, which was due to the re-pricing of
the purchase of Around The World Travel, Inc., as described above offset by an
increase in deferred financing costs related to the credit facilities, an
increase in restricted cash to be used for future construction, and the increase
in prepaid sales commissions. Trademark of $975,000 as of December 31, 2005,
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.
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We had total assets of $89,923,247 as of December 31, 2005, which included total
current assets of $11,054,971; net property and equipment of $4,583,853; land
held for development of $34,695,281 and total other assets of $39,589,142,
compared to total assets of $67,401,981 as of December 31, 2004. 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 $12,764,605 as of December 31, 2005, which
included current maturities of long-term debt and notes payable of $3,652,235;
current maturities of notes payable-related parties of $1,650,605; accounts
payable and accrued expenses of $3,782,822; accrued expenses-officers of
$3,393,500 and other liabilities of $285,443. Accrued expenses-officers
included $2,700,000 in salaries due to our Chief Executive Officer and Chairman,
Malcolm J. Wright, as well as $477,000 in interest due on that amount (accrued
officer and director salaries bear interest at 12% per year, compounded annually
until paid), and $200,000 due to L. William Chiles, the Chief Executive Officer
of Hickory and our Director, and $16,500 of interest on such salary. This was a
decrease in current liabilities of $11,083,965 from total current liabilities of
$23,848,570 as of December 31, 2004. The decrease in current liabilities was
mainly attributable to a decrease of $5,953,000 in current maturities of
long-term debt and notes payable; a decrease of $1,836,151 in accounts payable
and accrued expenses; a decrease of $2,752,535 in customer deposits and a
decrease of $2,047,443 in other liabilities.
As of December 31, 2005, we owed $1,650,605 in connection with notes payable to
related parties including $327,028 owed to a company controlled by our
significant shareholder, Roger Maddock, which amount bears interest at 12% per
annum and is payable on demand; $232,208 owed to our Director, William Chiles;
$591,500 owed to Charles Sieberling, the Secretary of Hickory, and $178,366 owed
to our Chief Executive Officer and Chairman, Malcolm J. Wright.
We had total liabilities of $83,704,893 as of December 31, 2005, which included
total current liabilities of $12,764,605; long-term debt and notes payable of
$32,288,920; a put liability related to the purchase of the minority interest in
Tierra Del Sol, Inc., and deposits on pre-unit sales of $37,666,368.
We had total working capital deficit of $1,709,634 and a ratio of current assets
to current liabilities of 0.87 as of December 31, 2005.
We had net cash flows provided by operating activities of $7,179,347 for the
year ended December 31, 2005, which was mainly attributable to an increase in
deposits on unit pre-sales in the Sonesta Resort of $20,997,022; and an increase
in accounts payable and accrued expenses of $6,468,380, which items were offset
by the following major line items, net loss of $4,126,779, increase in
shareholder advances and notes payable of $71,823; and increase in prepaid
commissions of $2,655,267. The increase in prepaid and other assets was caused
by our settlement of the Around The World Travel, Inc. ("AWT") Asset Purchase
Agreement, described in greater detail above, which caused certain funds and
assets that had been remitted to AWT to be treated as receivables.
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We had total cash flows used in investing activities of $14,527,299 as of
December 31, 2005, which was used as follows: $3,185,547 for the acquisition of
the assets of Around The World Travel, Inc.; $175,689 of acquisition of fixed
assets; $141,400 of advances to Caribbean Media Group, Inc.; $2,100,000 of
restricted cash and $7,782,776 of capitalization of real estate carrying costs.
The $7,782,776 of capitalized real estate carrying costs are costs related to
the construction and development of the Sonesta Resort properties, which are
capitalized until the units are closed (ownership is transferred to the buyer).
Once the units close, the accumulation of costs related to that particular unit
is recognized as cost of goods sold.
We had net cash provided by financing activities of $5,066,783 for the year
ended December 31, 2005, which was due to $13,077,538 of proceeds from notes
payable and $241,725 of proceeds of notes payable - related parties, which was
offset by $7,308,532 of payment of debt and $943,947 of payments of note payable
- related parties.
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 $135,500,000 of which $ 8,000,000 will be for resort amenities,
$64,000,000 will be for vertical construction on 294 units and $49,500,000 will
be for other costs such as contingencies, closing costs and soft costs such as
architectural, engineering, and legal costs. An additional approximate amount of
$14,000,000 will be expended for horizontal construction costs which include all
of Phase I requirements plus most of the infrastructure requirements for the
entire Project. As of December 31, 2005, approximately $10,250,376 had been
advanced to the Company pursuant to the Construction Loan.
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 is a $40,000,000 revolving construction
loan that will fund the development and construction for Phase 1 of the Sonesta
Resort. Both loans are part of a comprehensive finance plan for the development
of the Project that also includes funding in the amount of $25,825,000 from the
Westridge Community Development District ("CDD"), 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).
46
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.
In addition, to partially fund our development costs at The Sonesta Orlando
Resort at Tierra Del Sol, we have used cash from buyer's deposits, after
providing the disclosure required by Florida law, on the pre-sold town homes for
which the buyer has waived the requirements to maintain the funds in escrow. The
deposits on the town homes range from 10% to 20% of the purchase price. As of
December 31, 2005, approximately 2% of the buyers of town homes in the Sonesta
Orlando Resort have waived the escrow requirement and these funds have been
expended for our project related costs. Our contract for the condominiums
requires a 20% deposit. All of the deposits received on condominium contracts
are maintained in escrow. Provided the purchaser has waived escrow, we may use
any condominium contract deposit in excess of 10% to fund the hard costs of
construction of their unit. In the event we post a bond according to Florida
law, we will also be permitted to use the bonded portion of the deposits on the
condominiums for the projects development and construction costs.
We believe that the sum of the construction loan 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 approximately May 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 complete
our planned development activities on our Reedy Creek Property.
At December 31, 2005, 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 quarterly in arrears and matures on
December 18, 2008. At the sole election of the lender, any amount outstanding
under the credit facility may be converted into shares of our common stock at a
conversion price of $15.00 per share. The $6,000,000 credit facility is
guaranteed by Malcolm 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.
As of December 31, 2005, we had an outstanding principal balance of $4,250,000,
under another secured revolving credit facility with Stanford, which bears
interest at a fixed rate of 8% per annum payable quarterly in arrears. The
47
credit facility is comprised of two tranches. The first tranche of $1,250,000
matures on September 30, 2006, may solely be used for the working capital of our
Hickory and TraveLeaders travel business and must immediately be repaid to the
extent that the borrowed amount together with accrued and unpaid interest
exceeds a borrowing base which is generally calculated as the lesser of
$1,250,000, or 50% of the dollar amount of TraveLeaders eligible accounts
receivable minus such reserves as the lender may establish from time to time in
its discretion. The second tranche of $3,000,000 matures on April 22, 2007. At
the sole election of the lender, any amount outstanding under the credit
facility may be converted into shares of our common stock at a conversion price
of $10.00 per share. The credit facility is secured by collateral assignments of
our stock in the active Travel Division subsidiaries as well as a collateral
assignment of our first lien security interest in the assets formerly owned by
Around The World Travel, Inc.
Our $1,355,000 secured revolving credit facility with Stanford bears interest at
a fixed rate of 8% per annum and matures April 22, 2007. The proceeds of this
facility may be used solely for our call center operations in Antigua. Interest
for the period from January 1, 2005 to March 31, 2006 is due on April 3, 2006
and interest is due quarterly in arrears for periods after April 1, 2006. At the
sole election of the lender, any amount outstanding under the credit facility
may be converted into shares of our common stock at a conversion price of $10.00
per share. The credit facility is secured by all of the issued and outstanding
stock of our subsidiary, Caribbean Leisure Marketing Limited.
We entered into another credit facility in the amount of $305,000 with Stanford
in September 2005 of which $289,000 had been drawn as of December 31, 2005. The
credit facility bears interest at 8.0% per annum and is secured by the assets
and stock of the Company.
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"), 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"). As additional
consideration for this financial assistance, we granted SIBL and its affiliates
warrants to purchase 308,000 shares of our common stock at an exercise price of
$5.00 per share and warrants to purchase 154,000 shares of our common stock at
an exercise price of $0.001 per share. Additionally, in January 2006, in
connection with the SIBL Reedy Creek Loan, we granted SIBL and its affiliates
warrants to purchase 308,000 shares of our common stock at an exercise price of
$5.00 per share and warrants to purchase 154,000 shares of the Company's common
stock at an exercise price of $0.001 per share. The warrants expire 5 years
from issuance. The warrants contain anti-dilution provisions, including a
provision which requires us to issue additional shares under the warrants if we
issue or sell any common stock at less than $1.02 per share, or grant, issue or
sell any options or warrants for shares of the Company's common stock to convert
into shares of our common stock at less than $1.02 per share. If we do issue or
sell common stock, which would cause a re-pricing of the warrants issued to
SIBL, it would likely have an adverse effect on the trading value of our common
stock and could cause substantial dilution to our then shareholders.
48
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 $369,687 has been drawn as of December 31, 2005.
The SBA loan is due by May 2033 and bears interest at 4% per annum with
principal and interest payments of $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 December 31, 2005 there is a balance from those liabilities we
assumed from AWT of $3,893,915, of which approximately $270,000 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 December 31, 2005, we
believe we were in compliance with the covenants and other restrictions
applicable to us under each credit facility.
On December 31, 2005, the Company acquired the minority interest of Tierra Del
Sol (the "Minority Interest") in connection with the entry into a Stock Purchase
Agreement with Harborage Leasing Corporation ("Harborage"). The Minority
Interest was purchased from Harborage for a promissory note for $1,432,046,
which is due on July 1, 2006, and which bears interest at 12% per year (the
"Harborage Note"); two (2) three-bedroom condominium units to be constructed in
Phase 2 of the Sonesta Resort, which are to be delivered to Harborage by
December 31, 2007 (or if such units are not available, $500,000 for each such
unit not transferred by December 31, 2007); 197,000 shares of the Company's
restricted common stock (the "Harborage Shares") and warrants to purchase
300,000 shares of 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 197,000 Harborage 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
49
$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 Chairman, for which he received a guaranty fee equal to
three percent (3%) of the amount guaranteed. The Company paid this fee through
the grant of 102,351 warrants to purchase shares of the Company's common stock
at an exercise price of $1.02 per share. These warrants will expire 5 years from
the expiration date of the guaranty.
Additionally, we have an indemnity obligation in conjunction with the
acquisition of the Galileo Senior Secured Debt from GCD Acquisition Corp.
regarding any and all liability on a $5,000,000 note wherein GCD Acquisition
Corp. is the "Maker" and CNG Hotels, Ltd. is the Holder (the "Note"), which note
bears interest at the rate of the 3 month LIBOR plus 1% per year, and is
unsecured. Maker's obligation (an indemnified obligation) to make payments of
principal and interest under the Note is conditioned by the Maker's receipt of
payments of principal or interest by AWT pursuant to its obligations under the
Galileo Senior Secured Debt. Subject to the condition of receipt of payment by
AWT, the interest on the Note is payable every six (6) months in arrears. Maker
is under no obligation to seek enforcement or collection of the Galileo Senior
Secured Debt. The Note matures on February 22, 2009. Maker's obligation to
pay the principal amount (an indemnified obligation) is conditioned upon the
receipt of payment from AWT, as aforesaid. In addition, the Note is
non-recourse to Maker, and, but for payments actually received from AWT, no
claim, suit or judgment may lie against Maker.
SUBSEQUENT EVENTS
In February 2006, we entered into a Note Modification Agreement with SIBL,
whereby we agreed to modify certain provisions of our outstanding promissory
notes with SIBL to grant extensions of payments due. Pursuant to the Note
Modification Agreement, we and SIBL agreed that all interest due on our
$6,000,000 note, from January 1, 2005, through September 30, 2006, shall be due
and payable on September 30, 2006, with all interest thereafter payable with the
original terms of that note; that all interest accrued on the $3,000,000 note we
have with SIBL, from the date of the note until September 30, 2006, shall be due
and payable on September 30, 2006, with all interest thereafter payable with the
original terms of that note; that the maturity date of our $1,250,000 note with
SIBL be extended until September 30, 2006, and that no payments of principal or
interest on that note shall be payable until the extended due date of that note;
that the maturity date of our $1,355,000 note with SIBL be extended until June
30, 2007, and that no payments of principal or interest on that note shall be
payable until the extended due date of that note; that the maturity date of our
$305,00 note with SIBL be extended until June 30, 2007, and that no payments of
principal or interest on that note shall be payable until the extended due date
of that note; and that interest on our $2,100,000 note with SIBL be payable in
arrears, on a quarterly basis, with the first payment due on March 28, 2006, and
subsequent payments due on each June 28, September 28, December 28 and March 28,
until the maturity date of December 27, 2007, with the outstanding principal and
interest shall be due (collectively, all the notes described above shall be
referred to as the "Notes").
Furthermore, SIBL agreed, pursuant to the Note Modification Agreement, to waive
any defaults arising under the Notes prior to the date of the Note Modification
Agreement, attributable to the failure of us to make any payments of interest
due under the Notes prior to the date of the Note Modification Agreement; and
50
any default of us and/or Around The World Travel, Inc. ("AWT") under the
$1,250,000 note to fulfill the financial reporting requirements under the loan
documents related to the $1,250,000 note. SIBL also waived our obligation and
AWT's under the $1,250,000 note to fulfill the financial reporting requirements
described in the note in the future, provided that SIBL may reinstate such
requirements at any time upon written demand to us of such note.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources that is material to investors.
RISK FACTORS
RISKS RELATING TO OUR CAPITAL AND LIQUIDITY NEEDS
WE HAVE A LIMITED HISTORY OF OPERATIONS AND WE HAVE A HISTORY OF OPERATING
LOSSES.
Since our inception, we have been assembling our Travel Division including the
acquisition of Hickory in October 2003 and TraveLeaders in December 2004,
planning The Sonesta Orlando Resort at Tierra Del Sol, building travel club
membership databases, and assembling our management team. We have incurred net
operating losses since our inception. As of December 31, 2005, we had an
accumulated deficit of $13,499,420.
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 to be used to construct
Phase 1 of the Sonesta Resort (the "Construction Loan") 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"). If we are unable to generate enough
operating revenue to satisfy our capital needs, or we cannot obtain future
capital from our founding and majority shareholders or from Stanford, and/or if
we are not able to repay the Construction Loan or the Land Loan, it will have a
material adverse effect on our financial condition and results of operation.
51
WE OWE A SIGNIFICANT AMOUNT OF MONEY TO KEYBANK IN CONNECTION WITH THE
CONSTRUCTION LOAN AND LAND LOAN, WHICH MONEY WE DO NOT CURRENTLY HAVE, AND WHICH
LOANS ARE SECURED BY THE SONESTA RESORT.
The occurrence of any one or more "events of default" under the Land Loan and/or
Construction 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 $10,250,376 which was borrowed from
KeyBank pursuant to the Land Loan and Construction Loan as of December 31, 2005.
The Land Loan and Construction Loan are due on June 28, 2007 and December 28,
2007, respectively, and we do not currently have sufficient cash to repay such
loans when due. Furthermore, we will likely not have sufficient cash to repay
such loans until the completion of the units in the Sonesta Report, if at all.
If we do not repay the amounts owning under the Construction Loan and Land Loan
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.
WE HAVE RECEIVED $11,605,000 MILLION OF CONVERTIBLE DEBT FINANCING FROM
STANFORD, WHICH IS SECURED BY MORTGAGES ON OUR PROPERTY AND LIENS ON OUR ASSETS.
We have received an aggregate of $11,605,000 million of convertible debt
financing from Stanford. The terms of our financial arrangements with Stanford
are secured by the following mortgages on our properties and liens on our
assets:
- Our $6,000,000 credit facility 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 $2,100,000
loan to Tierra Del Sol and 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. 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 $4,250,000 credit facility is secured by collateral assignments of our
stock in the active Travel Division subsidiaries as well as a collateral
assignment of our first lien security interest in the assets formerly owned by
Around The World Travel, Inc.
52
- Our $1,355,000 credit facility is secured by all of the issued and outstanding
stock of our subsidiary, Caribbean Leisure Marketing Limited. This facility is
non-recourse to the Company but for the assets and revenues of that subsidiary.
In addition, Malcolm J. Wright, our Chief Executive Officer and Chairman
provided a personal guarantee for our $6,000,000 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;
- 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, for financing up to
$72,550,000 (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"). The
53
Construction Loan and the Land Loan bear interest at the rate of the daily
London Interbank Offered Rate ("LIBOR") plus 2.75%, and plus 3.10%,
respectively. The maturity date of the Construction Loan is December 28, 2007
and the maturity date of the Land Loan is June 28, 2007. The Construction Loan
and the Land Loan are secured by a first lien on the land within Phase 1 and
Phase 2, respectively 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 $0.00 from KeyBank pursuant to the Construction Loan and $14,850,000
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. We intend to use the proceeds of the sale of the units built
with the Phase 1 Construction Loan. Since any units that are built with the
Construction Loan are subject to bona fide third party sales agreements that
have been approved by Key Bank, we believe that the risk of not repaying any
amounts drawn under the Construction Loan is manageable.
WE NEED SIGNIFICANT ADDITIONAL FINANCE FACILITIES TO BEGIN AND COMPLETE THE
DEVELOPMENT OF PHASE 2 OF THE SONESTA RESORT AND OUR PLANNED CONSTRUCTION OF THE
REEDY CREEK PROPERTY.
While we currently believe we have sufficient capital to complete the
development of Phase 1 of the Sonesta Resort, we do not plan to use Company's
revenue to begin or complete Phase 2 of the Sonesta Resort and/or our planned
development of the Reedy Creek Property (as described above). 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 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 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 2 until such time as we have adequate funding
available. We may never have sufficient capital to begin or complete the
development of Phase 2 of the Sonesta Resort which could force us to modify 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.
54
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.
We believe that we currently have sufficient capital to complete Phase 1 of the
Sonesta Resort. However, all construction projects, especially construction
projects as large as our planned Sonesta Resort are subject to delays and cost
overruns. We have experienced 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. 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, or both, we could be forced to
obtain additional financing to complete the project, which could be at terms
worse than our current funding, 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, a significant number of claims for
development-related defects could be brought against us. To the extent that
claims brought against us are not covered by insurance, our payment of those
claims could adversely affect our liquidity, financial condition, and results of
operations.
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
55
Sol ("ALREG"). Mr. Wright has an 81% interest in ALREG; however, we have no
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. Mr. Wright is also an officer and shareholder
of Innovative Concepts, Inc., which operates a landscaping business, M J Wright
Productions, Inc., which owns our Internet domain names, Resorts Development
Group, LLC which develops resort properties in Orlando including Bella Citta,
Los Jardines Del Sol, The Preserve, Tortuga Cay and Sherberth Development LLC,
Resorts Construction, LLC with whom we intend to contract to construct part of
the Sonesta Resort as described above, Resorts Concepts, LLC which operates a
design business, Titan Manufacturing, LLC with 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 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. Additionally, to preserve Company liquidity,
Mr. Wright has been deferring his annual base salary since 2002.
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., Innovative 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., It is possible that the demands on Mr. Wright from these other
businesses could increase with the result that he may have less time to devote
to our business. We do not have an employment agreement with Mr. Wright and he
is under no requirement to spend a specified amount of time on our business. As
a result, Mr. Wright may not spend sufficient time in his roles as an executive
officer and as Chairman of our company to realize our business plan. If Mr.
Wright does not have sufficient time to serve our company, it could have a
material adverse effect on our business and results of operations.
56
WE MAY PROVIDE THE EXECUTIVE OFFICERS OF OUR SUBSIDIARIES AN AGGREGATE BONUS OF
UP TO 19% OF THE PRE-TAX PROFITS OF THE SUBSIDIARY IN WHICH THEY SERVE AS OUR
EXECUTIVE OFFICERS, WHICH WOULD REDUCE ANY PROFITS THAT WE MAY EARN.
We may provide the executive officers of each of our subsidiaries an aggregate
bonus of up to 19% of the pre-tax profits, if any, of the subsidiaries in which
they serve as executive officers. For example, Malcolm J. Wright would receive
19% of the pre-tax profits of Leisureshare International Ltd, Leisureshare
International Espanola SA, American Leisure Homes, Inc., Advantage Professional
Management Group, Inc., Tierra Del Sol Resort, Inc., and Wright Resorts Villas &
Hotels, Inc. However, we do not have any agreements with our officers regarding
the bonus other than our agreement with L. William Chiles. Mr. Chiles is
entitled to receive 19% of the profits of Hickory up to a maximum payment over
the life of his contract of $2,700,000. As Mr. Chiles' bonus is limited, it is
not subject to the buy-out by us described below. The executive officers of our
other subsidiaries would share a bonus of up to 19% of the pre-tax profits of
the subsidiary in which they serve as executive officers. We would retain the
right, but not the obligation to buy out all of the above agreements after a
period of five years by issuing such number of shares of our common stock equal
to the product of 19% of the average after-tax profits for the five-year period
multiplied by one-third of the price-earnings ratio of our common stock at the
time of the buyout divided by the greater of the market price of our common
stock or $5.00. If we pay bonuses in the future, it will reduce our profits and
the amount, if any, that we may otherwise have available to pay dividends to our
preferred and common stockholders. Additionally, if we pay bonuses in the
future it will take away from the amount of money we have to repay our
outstanding loans and the amount of money we have available for reinvestment in
our operations and as a result, our future results of operations and business
plan could be affected by such bonuses, and we could be forced to curtail or
abandon our current business plan and plans for future expansion.
WE HAVE EXPERIENCED DELAYS IN OBTAINING SIGNATURES FOR AGREEMENTS AND
TRANSACTIONS, WHICH HAVE PREVENTED THEM FROM BEING FINALIZED AND/OR DISCLOSED IN
OUR FILINGS.
We have experienced delays in obtaining signatures for various agreements and
transactions in the past. In some cases, we have either disclosed the terms of
these agreements and transactions in our periodic and other filings with the SEC
and/or filed such agreements with only the limited signatures which we could
obtain by the required filing dates of such reports, with the intention to
re-file such agreements at a later date once we are able to obtain all of the
required signatures; however, these agreements and transactions are not final.
Until they are finalized, their terms are subject to change although we do not
have any present intention to do so. If the terms of these agreements and
transactions were to change, we may be required to amend our prior 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, L. William Chiles, and Frederick Pauzar. Mr. Wright is the Chairman
of the Company and the Company's Chief Executive Officer. Mr. Chiles is a
Director of the Company and Chief Executive Officer of Hickory, and Mr. Pauzar
is the President, Chief Operating Officer and a Director of the Company. Our
57
ability to operate and implement our business plan is dependent on the continued
service of Messrs. Wright, Chiles and Pauzar. We have entered into an employment
agreement with Mr. Chiles. 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, Mr. Chiles or Mr. Pauzar may force us to seek a
replacement who may have less experience or who may not understand our business
as well.
IF WE DO NOT EVENTUALLY PAY MALCOLM J. WRIGHT, OUR CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER FOR HIS SERVICES AS AN EXECUTIVE OFFICER AND A DIRECTOR,
WE COULD LOSE HIS SERVICES.
We have not paid cash to Malcolm J. Wright for his services as an executive
officer and a Director as of the filing of this report; however, he is entitled
to receive various forms of remuneration from us such as accrued salary of
$500,000 per year beginning in 2004, accrued salary of $250,000 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. As of December 31, 2005, the total remuneration which Mr.
Wright had accrued in connection with his salary as an officer of the Company
had totaled $2,700,000. If we do not eventually pay cash to Mr. Wright for his
salary, director's compensation and bonus, he may determine to spend less of his
time on our business or to resign his positions as an officer and a director.
RISKS RELATED TO OUR TRAVEL DIVISION
WE NEED APPROXIMATELY $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 modelsIf 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.
58
OUR COMMISSIONS AND FEES ON CONTRACTS WITH SUPPLIERS OF TRAVEL SERVICES FOR OUR
TRAVEL DIVISION MAY BE REDUCED OR THESE CONTRACTS MAY BE CANCELLED AT WILL BY
THE SUPPLIERS BASED ON OUR VOLUME OF BUSINESS, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
Our suppliers of travel services including airline, hotel, cruise, tour and car
rental suppliers may reduce the commissions and fees that we earn under contract
with them based on the volume of business that we generate for them. These
contracts generally renew annually and in some cases may be cancelled at will by
the suppliers. If we cannot maintain our volume of business, our suppliers could
contract with us on terms less favorable than the current terms of our contracts
or the terms of their contracts with our competitors, exclude us from the
products and services that they provide to our competitors, refuse to renew our
contracts, or, in some cases, cancel their contracts with us at will. In
addition, our suppliers may not continue to sell services and products through
global distribution systems on terms satisfactory to us. If we are unable to
maintain or expand our volume of business, our ability to offer travel service
or lower-priced travel inventory could be significantly reduced. Any
discontinuance or deterioration in the services provided by third parties, such
as global distribution systems providers, could prevent our customers from
accessing or purchasing particular travel services through us. If these
suppliers were to cancel or refuse to renew our contracts or renew them on less
favorable terms, it could have a material adverse effect on our business,
financial condition or results of operations.
OUR SUPPLIERS OF TRAVEL SERVICES TO OUR TRAVEL DIVISION COULD REDUCE OR
ELIMINATE OUR COMMISSION RATES ON BOOKINGS MADE THROUGH US BY PHONE AND OVER THE
INTERNET, WHICH COULD REDUCE OUR REVENUES.
We receive commissions paid to us by our travel suppliers such as hotel chains
and cruise companies for bookings that our customers make through us by phone
and over the Internet. Consistent with industry practices, our suppliers are not
obligated by regulation to pay any specified commission rates for bookings made
through us or to pay commissions at all. Over the last several years, travel
suppliers have substantially reduced commission rates and our travel suppliers
have reduced our commission rates in certain instances. Future reductions, if
any, in our commission rates that are not offset by lower operating costs or
increased volume could have a material adverse effect on our business and
results of operations.
FAILURE TO MAINTAIN RELATIONSHIPS WITH TRADITIONAL TRAVEL AGENTS FOR OUR TRAVEL
DIVISION COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS.
Hickory has historically received, and expects to continue to receive, a
significant portion of its revenue through relationships with traditional travel
agents. Maintenance of good relationships with these travel agents depends in
large part on continued offerings of travel services in demand, and good levels
of service and availability. If Hickory does not maintain good relations with
its travel agents, these agents could terminate their memberships and use of
59
Hickory's products and services, which would have a material adverse effect on
our business and results of operations.
DECLINES OR DISRUPTIONS IN THE TRAVEL INDUSTRY COULD SIGNIFICANTLY REDUCE OUR
REVENUE FROM THE TRAVEL DIVISION.
Potential declines or disruptions in the travel industry may result from any one
or more of the following factors:
- price escalation in the airline industry or other travel related
industries;
- airline or other travel related strikes;
- political instability, war and hostilities;
- long term bad weather;
- fuel price escalation;
- increased occurrence of travel-related accidents; and
- economic downturns and recessions.
OUR TRAVEL REVENUES MAY FLUCTUATE FROM QUARTER TO QUARTER DUE TO SEVERAL FACTORS
INCLUDING 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.
60
OUR CONTRACTS WITH CLIENTS OF THE TRAVELEADERS BUSINESS DO NOT GUARANTEE THAT WE
WILL RECEIVE A MINIMUM LEVEL OF REVENUE, ARE NOT EXCLUSIVE, AND MAY BE
TERMINATED ON RELATIVELY SHORT NOTICE.
Our contracts with clients of the TraveLeaders business do not ensure that we
will generate a minimum level of revenue, and the profitability of each client
may fluctuate, sometimes significantly, throughout the various stages of our
sales cycles. Although we will seek to enter into multi-year contracts with our
clients, our contracts generally enable the client to terminate the contract, or
terminate or reduce customer interaction volumes, on relatively short notice.
Although some contracts require the client to pay a contractually agreed amount
in the event of early termination, there can be no assurance that we will be
able to collect such amount or that such amount, if received, will sufficiently
compensate us for our investment in any canceled sales campaign or for the
revenues we may lose as a result of the early termination. If we do not generate
minimum levels of revenue from our contracts or our clients terminate our
multi-year contracts, it will have a material adverse effect on our business,
results of operation and financial condition.
WE RECEIVE CONTRACTUALLY SET SERVICE FEES AND HAVE LIMITED ABILITY TO INCREASE
OUR FEES TO MEET INCREASING COSTS.
Most of our travel contracts have set service fees that we may not increase if,
for instance, certain costs or price indices increase. For the minority of our
contracts that allow us to increase our service fees based upon increases in
cost or price indices, these increases may not fully compensate us for increases
in labor and other costs incurred in providing the services. If our costs
increase and we cannot, in turn, increase our service fees or we have to
decrease our service fees because we do not achieve defined performance
objectives, it will have a material adverse effect on our business, results of
operations and financial condition.
THE TRAVEL INDUSTRY IS LABOR INTENSIVE AND INCREASES IN THE COSTS OF OUR
EMPLOYEES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, LIQUIDITY OR
RESULTS OF OPERATIONS.
The travel industry is labor intensive and has experienced high personnel
turnover. A significant increase in our personnel turnover rate could increase
our recruiting and training costs and decrease operating effectiveness and
productivity. If we obtain a significant number of new clients or implement a
significant number of new, large-scale campaigns, we may need to recruit, hire
and train qualified personnel at an accelerated rate, but we may be unable to do
so. Because significant portions of our operating costs relate to labor costs,
an increase in wages, costs of employee benefits, employment taxes or other
costs associated with our employees could have a material adverse effect on our
business, results of operations or financial condition.
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OUR INDUSTRY IS SUBJECT TO INTENSE COMPETITION AND COMPETITIVE PRESSURES COULD
ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We believe that the market in which we operate is fragmented and highly
competitive and that competition may intensify in the future. We compete with
small firms offering specific applications, divisions of large entities, large
independent firms and the in-house operations of clients or potential clients. A
number of competitors have or may develop greater capabilities and resources
than us. Additional competitors with greater resources than us may enter our
market. Competitive pressures from current or future competitors could cause our
services to lose market acceptance or result in significant price erosion, all
of which could have a material adverse effect upon our business, results of
operations or financial condition.
WE RELY AND PLAN TO RELY ON ONLY A FEW MAJOR CLIENTS FOR OUR REVENUES.
We plan to focus our marketing efforts on developing long-term relationships
with companies in our targeted travel and vacation resort industry. As a result,
we will derive a substantial portion of our revenues from relatively few
clients. There can be no assurances that we will not continue to be dependent on
a few significant clients, that we will be able to retain those clients, that
the volumes of profit margins will not be reduced or that we would be able to
replace such clients or programs with similar clients or programs that would
generate a comparable profit margin. Consequently, the loss of one or more of
those clients could have a material adverse effect on our business, results of
operations or financial condition.
RISKS RELATED TO OUR COMMUNICATIONS DIVISION
WE MAY NOT BE ABLE TO KEEP UP WITH CURRENT AND CHANGING TECHNOLOGY ON WHICH OUR
BUSINESS IS DEPENDENT.
Our call center and communications business is dependent on our computer and
communications equipment and software capabilities. The underlying technology is
continually changing. Our continued growth and future profitability depends on a
number of factors affected by current and changing technology, including our
ability to
- expand our existing service offerings;
- achieve cost efficiencies in our existing call centers; and
- introduce new services and products that leverage and respond to changing
technological developments.
The technologies or services developed by our competitors may render our
products or services non competitive or obsolete. We may not be able to develop
and market any commercially successful new services or products. We have
considered integrating and automating our customer support capabilities, which
we expect would decrease costs by a greater amount than any decrease in
revenues; however, we could be wrong in these expectations. Our failure to
maintain our technological capabilities or respond effectively to technological
changes could have a material adverse effect on our business, results of
operations or financial condition.
62
A BUSINESS INTERRUPTION AT OUR CALL CENTER, WHETHER OR NOT PROLONGED, COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.
Our call center business operations depend upon our ability to protect our call
center, computer and telecommunications equipment and software systems against
damage from fire, power loss, telecommunications interruption or failure,
natural disaster and other similar events. In the event we experience a
temporary or permanent interruption at our call center and our contracts do not
provide relief, our business could be materially adversely affected and we could
be required to pay contractual damages to some clients or allow some clients to
terminate or renegotiate their contracts with us. In the event that we
experience business interruptions, it would have a material adverse effect on
our business, results of operations and financial condition.
RISKS RELATING TO OUR 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 additional dilution to our existing
shareholders.
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"), 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"). 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
63
an exercise price of $0.001 per share. Additionally, in January 2006, in
connection with the SIBL Reedy Creek Loan, we granted SIBL and its affiliates
warrants to purchase 308,000 shares of our common stock at an exercise price of
$5.00 per share and warrants to purchase 154,000 shares of the Company's common
stock at an exercise price of $0.001 per share. The warrants expire 5 years
from issuance. The warrants contain anti-dilution provisions, including a
provision which requires us to issue additional shares under the warrants if we
issue or sell any common stock at less than $1.02 per share, or grant, issue or
sell any options or warrants for shares of the Company's common stock to convert
into shares of our common stock at less than $1.02 per share. If we do issue or
sell common stock, which would cause a re-pricing of the warrants issued to
SIBL, it would likely have an adverse effect on the trading value of our common
stock and could cause substantial dilution to our then shareholders.
THERE MAY NOT BE AN ACTIVE OR LIQUID TRADING MARKET FOR OUR COMMON STOCK, WHICH
MAY LIMIT INVESTORS' ABILITY TO RESELL THEIR SHARES.
An active and liquid trading market for our common stock may not develop or, if
developed, such a market may not be sustained. In addition, we cannot predict
the price at which our common stock will trade. If there is not an active or
liquid trading market for our common stock, investors in our common stock may
have limited ability to resell their shares.
WE HAVE AND MAY CONTINUE TO ISSUE PREFERRED STOCK THAT HAS RIGHTS AND
PREFERENCES OVER OUR COMMON STOCK.
Our Articles of Incorporation, as amended, authorize our Board of Directors to
issue preferred stock, the relative rights, powers, preferences, limitations,
and restrictions of which may be fixed or altered from time to time by the Board
of Directors. Accordingly, the Board of Directors may, without approval from the
shareholders of our common stock, issue preferred stock with dividend,
liquidation, conversion, voting, or other rights that could adversely affect the
voting power and other rights of the holders of our common stock. The preferred
stock can be utilized, under certain circumstances, as a method of discouraging,
delaying, or preventing a change in our ownership and management that
shareholders might not consider to be in their best interests. We have issued
various series of preferred stock, which have rights and preferences over our
common stock including, but not limited to, cumulative dividends and preferences
upon liquidation or dissolution.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE NEAR FUTURE.
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
64
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 73.1% of the voting power
in our company. As a result, these persons control our affairs and management,
as well as all matters requiring shareholder approval, including the election
and removal of members of the Board of Directors, transactions with directors,
officers or affiliated entities, the sale or merger of the Company or
substantially all of our assets, and changes in dividend policy. This
concentration of ownership and control could have the effect of delaying,
deferring, or preventing a change in our ownership or management, even when a
change would be in the best interest of other shareholders.
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 to the issuer by the filing of a
Form 12b-25), three (3) times during any twenty-four (24) month period is
automatically de-listed from the OTCBB. Such removed issuer would not be
re-eligible to be listed on the OTCBB for a period of one-year, during which
time any subsequent late filing would reset the one-year period of de-listing.
If we are late in our filings three times in any twenty-four (24) month period
and are de-listed from the OTCBB, our securities may become worthless and we may
be forced to curtail or abandon our business plan.
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.
65
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.
[Remainder of Page Left Intentionally Blank.]
66
ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
American Leisure Holdings, Inc. and Subsidiaries
Orlando, Florida
We have audited the accompanying consolidated balance sheets of American Leisure
Holdings, Inc. and Subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Leisure Holdings, Inc. and Subsidiaries as of December 31, 2005 and
2004, and the results of its operations and its cash flows for the years ended
December 31, 2005 and 2004, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 3 to the financial statements, the Company's recurring
losses from operations and the need to raise additional financing in order to
satisfy its vendors and other creditors and execute its Business Plan raise
substantial doubt about its ability to continue as a going concern. Management's
plans as to these matters are also described in Note 3. The 2005 consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Lopez, Blevins, Bork & Associates, LLP
Houston, Texas
March 30, 2006
F-1
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2005 AND 2004
2005 2004
----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 225,055 $2,266,042
Cash - Restricted 2,100,000 -
Accounts receivable, net 2,043,141 3,539,387
Other receivables 6,587,357 113,000
Prepaid expenses and other 99,418 51,460
Other current assets - 30,476
------------- ------------
Total Current Assets 11,054,971 6,000,365
------------- ------------
PROPERTY AND EQUIPMENT, NET 4,583,853 6,088,500
------------- ------------
LAND HELD FOR DEVELOPMENT 34,695,281 23,448,214
------------- ------------
OTHER ASSETS
Cash - Restricted 11,075,354 -
Prepaid Sales Commissions 7,770,949 5,966,504
Prepaid Sales Commissions - affiliated entity 3,516,209 2,665,387
Investment-Senior Notes 5,170,000 5,170,000
Goodwill 5,925,437 14,425,437
Trademark 975,000 1,000,000
Other 5,156,193 2,637,574
------------- ------------
Total Other Assets 39,589,142 31,864,902
------------- ------------
TOTAL ASSETS $ 89,923,247 $ 67,401,981
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 3,652,235 $ 9,605,235
Current maturities of notes payable-related parties 1,650,605 1,910,629
Accounts payable and accrued expenses 3,782,822 5,618,973
Accrued expenses - officers 3,393,500 1,355,000
Customer deposits - 2,752,535
Other 285,443 2,332,886
Shareholder advances - 273,312
------------- ------------
Total Current Liabilities 12,764,605 23,848,570
Long-term debt and notes payable 32,288,920 20,600,062
Put liability 985,000 -
Deposits on unit pre-sales 37,666,368 16,669,347
------------- ------------
Total liabilities 83,704,893 61,117,979
------------- ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock; 1,000,000 shares authorized; $.001 par value;
1,000,000 Series "A" shares issued and outstanding at
December 31, 2005 and December 31, 2004 10,000 10,000
Preferred stock; 100,000 shares authorized; $.01 par value;
2,825 Series "B" shares issued and outstanding at
December 31, 2005 and December 31, 2004 28 28
Preferred stock, 28,000 shares authorized; $.01 par value
27,189 Series "C" shares issued and outstanding at
December 31, 2005 and December 31, 2004 272 272
Preferred stock; 50,000 shares authorized; $.001 par value;
24,101 Series "E" shares issued and outstanding at
December 31, 2005 and December 31, 2004 24 24
Preferred stock; 150,000 shares authorized; $.01 par value;
0 and 1,936 Series "F" shares issued and outstanding at
December 31, 2005 and December 31, 2004 - 19
Common stock, $.001 par value; 100,000,000 shares authorized;
10,334,974 and 9,977,974 shares issued and outstanding at
December 31, 2005 and December 31, 2004 10,335 9,978
Additional paid-in capital 19,697,115 15,636,322
Accumulated deficit (13,499,420) (9,372,641)
------------- ------------
Total Stockholders' Equity 6,218,354 6,284,002
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 89,923,247 $ 67,401,981
============= ============
See accompanying notes to financial statements.
F-2
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2005 2004
------------- ------------
Revenue:
Operating Revenues $ 7,361,284 $ 6,419,320
Undeveloped Land Sales 12,020,000 -
------------- ------------
Total Revenue 19,381,284 6,419,320
Cost of Operating Revenues 5,157,524 4,192,891
Cost of Undeveloped Land Sales 8,122,562 -
------------- ------------
13,280,086 4,192,891
Gross Margin 6,101,198 2,226,429
Operating Expenses:
Depreciation and amortization (1,476,326) (662,535)
General and administrative expenses (5,136,413) (4,273,643)
Goodwill impairment - (1,500,000)
------------- ------------
(6,612,739) (6,436,178)
Loss from Operations (511,541) (4,209,749)
Interest Expense (3,317,033) (736,798)
Unrealized loss on marketable securities - (2,185,278)
Minority Interest - 510,348
Equity in operations of unconsolidated affiliate (293,201) -
------------- ------------
Total Other Income (Expense) (3,610,234) (2,411,728)
------------- ------------
Loss before Income Taxes (4,121,775) (6,621,477)
PROVISIONS FOR INCOME TAXES (5,004) (12,824)
------------- ------------
NET LOSS $ (4,126,779) $ (6,634,301)
============= ============
NET INCOME (LOSS) PER SHARE:
BASIC AND DILUTED $ (0.55) $ (0.83)
============= ============
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 10,070,467 8,607,614
============= ============
See accompanying notes to financial statements.
F-3
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2005 2004
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (4,126,779) $(6,634,301)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 1,680,336 936,874
Interest expense 1,887,623 437,394
Impairment loss - 3,685,278
Bad debt expense - 21,864
Common stock issued for services - 150,555
Loss on sale of AVR - (145,614)
Minority interests - (510,348)
Changes in assets and liabilities:
(Increase) in restricted cash (11,075,354) -
Decrease (Increase) in receivables 1,496,246 (382,125)
(Increase) Decrease in prepaid and other assets (7,564,683) 362,516
(Increase) in prepaid commissions (2,655,267) (8,355,410)
(Decrease) in shareholder advances ¬es payable 71,823 -
Increase in deposits on unit pre-sales 20,997,022 16,669,347
Increase in accounts payable and accrued expenses 6,468,380 2,872,777
------------- -------------
Net cash provided by operating activities 7,179,347 9,108,807
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of AWT Assets (3,185,547) 767,291
Advances to Around The World Travel, Inc - (4,789,463)
Advances to Caribbean Media Group (141,400) -
Acquisition of fixed assets (175,689) (3,511,881)
Investment in Reedy Creek Acquisition Corp (901,705) -
Sale of AVR - 800,000
Restricted cash (2,100,000) -
Capitalization of real estate carrying costs (7,782,776) (8,124,587)
------------- -------------
Net cash from investing activities (14,287,117) (14,858,640)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (7,308,532) (316,218)
Proceeds from notes payable 13,077,537 8,860,943
Payments of notes payable - related parties (943,947) (818,508)
Proceeds of notes payable - related parties 241,725 312,377
Payments on advances - (757,571)
------------- -------------
Net cash from financing activities 5,066,783 7,281,023
------------- -------------
Net decrease in cash (2,040,987) 1,531,190
CASH AT BEGINNING PERIOD 2,266,042 734,852
------------- -------------
CASH AT END OF PERIOD $ 255,055 $ 2,266,042
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 1,010,308 $ 1,052,308
============= =============
Cash paid for income taxes $ - $ -
============= =============
NON-CASH TRANSACTION
Issuance of Series B preferred stock for assets $ - $ 62,640
============= =============
Issuance of Series E preferred stock for investment
in debt and equity securities $ - $ 2,410,100
============= =============
Stock and warrants issued in connection with acquisition $ 416,923 $ -
============= =============
Exchange of 1913 Mercedes-Benz for debt to an
affiliated entity $ - $ 500,000
============= =============
Issuance of warrants to acquire common stock for
debt issuance costs $ 3,837,696 $ 2,597,998
============= =============
Issuance of Series A preferred stock for debt to an
affiliated entity $ - $ 1,200,000
============= =============
Purchase of minority interest of TDS in exchange for
notes payable of $2,062,206, put liability
of $985,000, common stock valued at $183,210
and warrants valued at $233,713 $ 3,464,129 $ -
============= =============
See accompanying notes to financial statements.
F-4
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31,
Additional Retained Total
Preferred Stock Common Stock Paid-in Retained Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
--------- --------- --------- -------- ---------- ----------- -------------
Balance-December 31, 2003 882,500 $ 8,825 7,488,983 $ 7,489 $6,166,488 $(2,738,340) $ 3,444,462
Issuance of common stock for
acquisition of senior
secured notes - - 340,000 340 169,660 - 170,000
Issuance of common stock for debt
issue costs - - 600,000 600 329,400 - 330,000
Issuance of common stock for debt
issue costs - - 1,450,000 1,450 2,022,200 - 2,023,650
Issuance of warrants in connection
with debt - - - - 244,348 - 244,348
Reclassification of Series C
preferred stock 27,189 272 - - 2,718,628 - 2,718,900
Issuance of Series E preferred stock
in exchange for preferred stock of
Around the World Travel, Inc. 24,101 24 - - 2,410,076 - 2,410,100
Issuance of common stock for services - - 98,991 99 120,456 - 120,555
Issuance of Series B preferred stock
for assets 325 3 - - 62,637 - 62,640
Issuance of Series A preferred stock
for debt to an affiliated entity 120,000 1,200 - - 1,198,800 - 1,200,000
Issuance of Series F preferred stock
in connection with the acquisition of
certain assets and assumumption of
certain liabilities of Around the
World Travel 1,936 19 - - 193,629 - 193,648
Net loss - - - - - (6,634,301) (6,634,301)
--------- --------- --------- --------- ----------- ------------ -------------
Balance-December 31, 2004 1,056,051 $ 10,343 9,977,974 $ 9,978 $15,636,322 $ (9,372,641) $ 6,284,002
Issuance of Series F preferred stock
in connection with the acquisition
of certain assets and assumption of
certain liabilities of Around the
World Travel (1,936) (19) - - (193,629) - (193,648)
Issuance of common stock in connection
with the exercise of warrants by an
affiliate 160,000 160 160
Purchase of Tierra Del Sol, Inc
minority interest 197,000 197 416,726 416,923
Issuance of warrants in connection
with debt - - - - 3,837,696 - 3,837,696
Net loss - - - - - (4,126,779) (4,126,779)
--------- --------- ---------- --------- ----------- ------------ -------------
Balance-December 31, 2005 1,054,115 $ 10,324 10,334,974 $ 10,335 $19,697,115 $(13,499,420) $ 6,218,354
See accompanying notes to financial statements.
F-5
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
American Leisure Holdings, Inc., a Nevada corporation, was incorporated in May
2002. American Leisure, through its subsidiaries, is involved in the development
of vacation real estate in Orlando, Florida and the supplying of products
related to the travel and leisure business throughout the United States of
America. The consolidated entity is hereinafter referred to as "American
Leisure" and "the Company" and "AMLH".
PRINCIPLES OF CONSOLIDATION
In determining whether American Leisure has a direct or indirect controlling
financial interest in affiliates, consideration is given to various factors,
including common stock ownership, possession of securities convertible into
common stock and the related conversion terms, voting rights, representation on
the board of directors, rights or obligations to purchase additional ownership
interests as well as the existence of contracts or agreements that provide
control features. Generally, when American Leisure determines that its
ownership, direct or indirect, exceeds fifty percent of the outstanding voting
shares of an affiliate, American Leisure will consolidate the affiliate.
Furthermore, when American Leisure determines that it has the ability to control
the financial or operating policies through its voting rights, board
representation or other similar rights, American Leisure will consolidate the
affiliate.
For those affiliates that American Leisure does not have the ability to control
the operating and financial policies thereof, the investments are accounted for
under the equity or cost method, as appropriate. American Leisure applies the
equity method of accounting when it has the ability to exercise significant
influence over operating and financial policies of an investee in accordance
with APB Opinion No. 18, "The Equity Method of Accounting for Investments in
Common Stock." In determining whether American Leisure has the ability to
exercise significant influence, consideration is given to various factors
including the nature and significance of the investment, the capitalization
structure of the investee, representation on the board of directors, voting
rights, veto rights and other protective and participating rights held by
investors and contractual arrangements.
F-6
Additionally, American Leisure applies accounting principles generally accepted
in the United States of America and interpretations when evaluating whether it
should consolidate entities. Typically, if American Leisure does not retain both
control of the assets transferred to the entities, as well as the risks and
rewards of those assets, American Leisure will not consolidate such entities. In
determining whether the securitization entity should be consolidated, American
Leisure considers whether the entity is a qualifying special purpose entity, as
defined by Statement of Financial Accounting Standards ("SFAS") No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities-a replacement of FASB Statement No. 125."
The consolidated financial statements include the accounts of American Leisure
Holdings, Inc. and its owned and/or controlled subsidiaries as follows:
Company Percentage
------- ----------
American Leisure Corporation, Inc. (ALC) and Subsidiaries 100.00%
Florida Golf Group, Inc.(FGG) 100.00%
American Leisure Equities Corporation 100.00%
American Leisure Homes, Inc. (ALH) 100.00%
I-Drive Limos, Inc. (ID) 100.00%
Orlando Holidays, Inc. (OH) 100.00%
Welcome to Orlando, Inc. (WTO) 100.00%
American Leisure, Inc. (ALI) 100.00%
Pool Homes Managers, Inc. (PHM) 100.00%
Advantage Professional Management Group, Inc. (APMG) 100.00%
Leisureshare International Ltd (LIL) 100.00%
Leisureshare International Espanola S.A. (LIESA) 100.00%
American Travel & Marketing Group, Inc. (ATMG) 81.00%
American Leisure Marketing and Technology, Inc. 100.00%
Tierra Del Sol, Inc. 100.00%
Hickory Travel Systems, Inc. 50.83%
American Travel Club, Inc. 100.00%
American Access Telecommunications Corporation 100.00%
American Switching Technologies, Inc. 100.00%
F-7
Affinity Travel Club, Inc. 100.00%
Club Turistico Latinoamericano, Inc. 100.00%
Affinity Travel, Inc. 100.00%
Pool Homes, Inc. 100.00%
American Sterling Corp. 100.00%
American Sterling Motorcoaches, Inc. 100.00%
Caribbean Leisure Marketing, Ltd. 100.00%
Comtech Fibernet, Inc. 100.00%
TDS Amenities, Inc. 100.00%
TDS Clubhouse, Inc 100.00%
Costa Blanca Real Estate, Inc. 100.00%
Ameritel, Inc. 100.00%
American Leisure Travel Group, Inc. 100.00%
Luxshare, Inc. 100.00%
AAH Kissimmee LLC 100.00%
Castlechart Ltd. 100.00%
Wright Resort Villas & Hotels, Inc. 100.00%
Minority interests are reflected in the consolidated statements of operations to
the extent income or losses are allocated to the minority interest shareholder.
Losses in excess of the minority shareholders' basis are not allocated to the
minority interest shareholders.
All significant inter-company accounts and transactions have been eliminated in
the consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of American Leisure is presented
to assist in understanding American Leisure's financial statements. The
financial statements and notes are representations of American Leisure's
management, which is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-8
CONCENTRATION OF RISK
American Leisure places its cash and temporary cash investments with established
financial institutions. At various times during the year, the Company maintained
cash balances in excess of FDIC insurable limits. Management feels this risk is
mitigated due to the longstanding reputation of these banks.
In the normal course of business, the Company extends unsecured credit to the
majority of its travel business customers. Management periodically reviews its
outstanding accounts receivable and establishes an allowance for doubtful
accounts based on historical collection trends and other criteria.
MARKETABLE EQUITY SECURITIES AND OTHER INVESTMENTS
AMLH holds various minority equity investments in companies that meet AMLH's
investment criteria. AMLH applies the equity method of accounting for minority
investments when AMLH has the ability to exert significant influence over the
operating and financial policies of an investment. In the absence of such
ability, AMLH accounts for these minority investments under the cost method.
Certain investments carry restrictions on immediate disposition. Declines in
value that are judged to be other than temporary are reported in other income
and expense.
LONG-LIVED ASSETS
Long-lived assets are stated at cost. Maintenance and repairs are expensed as
incurred. Depreciation is determined using the straight-line method over the
estimated useful lives of the assets, which is between three to seven years.
Where an impairment of a property's value is determined to be other than
temporary, an allowance for the estimated potential loss is established to
record the property at its net realizable value.
When items of land, building or equipment are sold or retired, the related cost
and accumulated depreciation are removed from the accounts and any gain or loss
is included in the results of operations. The Company does not have any
long-lived tangible assets that are considered to be impaired as of December 31,
2005.
Land held for development
Land held for development includes the initial cost of acquisition of the land
and all subsequent capitalized construction and development costs.
Construction and development costs include all expenditures incurred in readying
certain construction and development related assets of the Company for their
intended use. These expenditures consist of direct costs, interest costs, and an
allocation of indirect overhead.
Interest costs are capitalized during the capitalization period, which commences
when i) expenditures for the asset have been made, ii) activities that are
necessary to get the asset ready for its intended use are in progress, and iii)
interest cost is being incurred, and continues as long as these three conditions
are present. The amount capitalized in an accounting period shall be determined
by applying an interest rate(s) ("the capitalization rate") to the average
amount of accumulated expenditures for the asset during the period. The
capitalization rates is based on the rates applicable to borrowings, both
directly and indirectly associated with the subject asset, outstanding during
the period.
For the periods ending December 31, 2005 and 2004, interest capitalized totaled
$2,198,853 and $1,497,904, respectively. As of December 31, 2005 and 2004,
$1,240,403 and $920,134, respectively, of interest expense was accrued and
unpaid.
All capitalized construction costs are subject to write-down inasmuch as the
Company's construction and development assets are carried at the lower of cost
or net realizable value.
The Company defers costs directly relating to the acquisition of new properties
and resort businesses that, in management's judgment, have a high probability of
closing. If the acquisition is abandoned, any deferred costs are expensed
immediately. These costs are capitalized as land held for development upon
closing.
INTANGIBLES WITH FINITE LIVES
In June 2001, the Financial Accounting Standards Board issued "Statement of
Financial Accounting Standards, ("FAS") No. 142 "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. FAS No.
142 addressed the recognition and measurement of intangible assets acquired
individually or with a group of other assets and the recognition and measurement
of goodwill and other intangible assets subsequent to their acquisition. Under
these rules, goodwill and intangible assets with indefinite lives are no longer
amortized, but are subject to annual or more frequent impairment testing. Other
intangible assets deemed to have a finite life continue to be amortized over
their useful lives.
F-9
The Company amortizes the following intangible assets with finite lives using
straight-line method.
Trademarks 20 Years
Customer List 5 Years
These intangible assets with finite lives are reviewed for potential impairment
whenever events or circumstances indicate that their carrying amounts may not be
recoverable. During 2005 and 2004 management determined that no impairment
adjustment related to these intangibles was necessary.
INCOME TAXES
American Leisure accounts for income taxes using the asset and liability method.
The differences between the financial statement and tax basis of assets and
liabilities are determined annually. Deferred income tax assets and liabilities
are computed for those differences that have future tax consequences using the
currently enacted tax laws and rates that apply to the period in which they are
expected to affect taxable income. Valuation allowances are established, if
necessary, to reduce deferred tax asset accounts to the amounts that will more
likely than not be realized. Income tax expense is the current tax payable or
refundable for the period, plus or minus the net change in the deferred tax
asset and liability accounts.
GOODWILL
American Leisure adopted the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets". This statement requires that goodwill and intangible assets
deemed to have indefinite lives not be amortized, but rather be tested for
impairment on an annual basis. Finite-lived intangible assets are required to be
amortized over their useful lives and are subject to impairment evaluation under
the provisions of SFAS No. 144. The intangible assets relate to 1) the
acquisition goodwill for the controlling interest of HTS, and 2) the net assets
purchased from Around The World Travel, Inc. pursuant to the Asset Purchase
Agreement between Around The World Travel, Inc. and American Leisure Equity
Corporation.
In December 2005, American Leisure tested goodwill for impairment and concluded
there were no events or changes in circumstances that would indicate impairment
had occurred.
CASH AND RESTRICTED CASH
American Leisure considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
The restricted cash represents funds held in escrow for deposits received for
condo and townhome sales for the units at Tierra Del Sol Resorts. The escrowed
funds will be applied to the purchase price by the buyer at closing. Also
included in the escrowed funds are the equity requirements from KeyBank of $2.1
million as part of the credit facilities. The funds are not readily available to
the Company and can only be disbursed with the consent of KeyBank to be used for
the construction of Tierra Del Sol Resorts.
ACCOUNTS RECEIVABLE, NET
At December 31, 2005 and 2004, accounts receivable, net consisted of the
following:
2005 2004
----------------------------------
Due from customers $ 2,143,982 $ 4,036,323
Miscellaneous receivables 13,000 575
----------------------------------
2,156,982 4,036,898
Less: reserve for doubtful accounts (113,841) (497,511)
----------------------------------
$ 2,043,141 $ 3,539,387
==================================
F-10
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Our reported balance of accounts receivable, net of the allowance for doubtful
accounts, represents our estimate of the amount that ultimately will be realized
in cash. We review the adequacy of our allowance for doubtful accounts on an
ongoing basis, using historical payment trends and the age of the receivables
and knowledge of our individual customers. When our analyses indicate, we
increase or decrease our allowance accordingly. However, if the financial
condition of our customers were to deteriorate, additional allowances may be
required.
SHARES FOR SERVICES AND OTHER ASSETS
American Leisure accounts for non-cash stock-based compensation issued to
employees in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and complies
with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, issued by the Financial Accounting Standards Board and EITF No.
96-18, Accounting for Equity (deficit) Investments That Are Issued to
Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Under APB No. 25, compensation cost is recognized over the vesting period based
on the difference, if any, on the date of grant between the fair value of
American Leisure's stock and the amount an employee must pay to acquire the
stock. Common stock issued to non-employees and consultants is based upon the
value of the services received or the quoted market price, whichever value is
more readily determinable. Accordingly, no compensation expense has been
recognized for grants of options to employees with the exercise prices at or
above market price of the Company's common stock on the measurement dates.
Had compensation expense been determined based on the estimated fair value at
the measurement dates of awards under those plans consistent with the method
prescribed by SFAS No. 123, the Company's December 31, 2005 and 2004, net loss
would have been changed to the pro forma amounts indicated below.
2005 2004
---------- ----------
Net Loss
As reported (4,126,779) (6,634,301)
Less: stock based compensation under intrinsic - 120,555
Stock based compensation under fair value method (129,573) (340,065)
---------- ----------
Pro forma (4,256,352) (6,853,811)
========== ==========
Net income (loss) per share - basic and diluted
As reported (0.55) (0.83)
Pro forma (0.57) (0.86)
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 196% for 2005 and 161% for 2004 with no assumed
dividend yield; and expected lives of five years.
F-11
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 close of escrow for the sales of its real estate.
Revenues 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.
RESORT UNIT PRE-SALES
American Leisure receives deposits between 5% and 20% of the sales price and
these amounts are recorded as deposits on unit pre-sales. Certain amounts
received are restricted and recorded in restricted cash. American Leisure
prepays brokers commissions up to 6% of the total commission, which is up to
12%, and prepays Xpress, Ltd. a commission of 1.5% of the total sales and
marketing fees of 4.5%. Brokers commissions and sales and marketing fees are due
upon closing of a unit. Commissions and sales and marketing fees are earned upon
the closing of a unit. Prepaid commissions and sales and marketing fees are
refundable to American Leisure in the event of buyer withdrawal.
If a buyer defaults, the seller is entitled to retain all deposits and any
interest earned. If the buyer properly terminates the agreement in a manner
allowed by the agreement, all deposits will be returned to the buyer within
thirty (30) days of the effective date of Buyer's rightful cancellation date.
The buyer has 15 days to terminate the purchase and sale agreement.
In the event American Leisure fails to perform any of its obligations of the
agreement within the time specified, the buyer shall give American Leisure
written notice specifying such a default. American Leisure has 30 days
subsequent to receipt of said notice to cure the specified default, i.e. a
conveyance of the Unit, or the cancellation of the agreement in which event the
buyer may request a return of buyer's deposit, together with interest earned.
LOSS PER SHARE
American Leisure is required to provide basic and dilutive earnings (loss) per
common share information.
The basic net loss per common share is computed by dividing the net loss
applicable to common stockholders by the weighted average number of common
shares outstanding.
Diluted net loss per common share is computed by dividing the net loss
applicable to common stockholders, adjusted on an "as if converted" basis, by
the weighted average number of common shares outstanding plus potential dilutive
securities.
For the period ended December 31, 2005 and 2004, potential dilutive securities
had an anti-dilutive effect and were not included in the calculation of diluted
net loss per common share. Total shares issuable upon the exercise of warrants
and the conversion of preferred stock for the years ended December 31, 2005 and
2004, were 17,223,230 and 12,672,236, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2005, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 154, Accounting Changes and Error
Corrections ("SFAS 154"). SFAS 154 replaces Accounting Principles Board ("APB")
Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes
in Interim Financial Statements. SFAS 154 requires that a voluntary change in
accounting principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle. SFAS 154 also requires
that a change in method of depreciating or amortizing a long-lived non-financial
asset be accounted for prospectively as a change in estimate, and correction of
errors in previously issued financial statements should be termed a restatement.
SFAS 154 is effective for accounting changes and correction of errors made in
fiscal years beginning after December 15, 2005. The Company does not expect the
adoption of SFAS 154 to have a material impact on the Company's consolidated
financial statements.
F-12
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for share-based payments to employees using the intrinsic value
method under Accounting Principles Board, or APB, Opinion No. 25. As such, the
Company generally does not recognize compensation cost related to employee stock
options or shares issued under the Company's employee stock purchase plan. In
December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which is
a revision of SFAS No. 123 and supersedes APB Opinion No. 25.
SFAS No. 123(R) allows for two adoption methods:
- The modified prospective method which requires companies to recognize
compensation cost beginning with the effective date of adoption based on (a) the
requirements for all share-based payments granted after the effective date of
adoption and (b) the requirements for all unvested awards granted to employees
prior to the effective date of adoption; or
- The modified retrospective method which includes the requirements of the
modified prospective method described above, but also requires restatement of
prior period financial statements using amounts previously disclosed under the
pro-forma provisions of Statement 123.
SFAS No. 123(R) require all share-based payments to employees and directors to
be recognized in the financial statements based on their fair values, using
prescribed option-pricing models. Upon adoption pro-forma disclosure will no
longer be an alternative to financial statement recognition. The Company will
adopt the provisions of SFAS No. 123(R) in the first quarter of 2006. The
Company intends to use the modified prospective method of adoption and continue
to use the Black-Scholes option pricing model to value share-based payments,
though alternatives for adoption under the new pronouncement continue to be
reviewed by the Company. The Company continues to review the impact of SFAS No.
123(R) as relates to future use of share-based payments to compensate employees
in 2006. The adoption of the fair-value method will not have a significant
impact on the Company's results of operations as the fair value of stock option
grants and stock purchases under the employee stock purchase plan will be
required to expense beginning in 2006.
Statement No. 123(R) also requires the benefit related to income tax deductions
in excess of recognized compensation cost to be reported as a financing cash
flow, rather than as an operating cash flow as required under current accounting
guidance. This requirement will reduce net operating flows and increase
financing cash flows of the Company in periods subsequent to adoption. These
future amounts cannot be estimated, as they depend on, among other things, when
employees exercise stock options.
RECLASSIFICATIONS
Certain amounts in the December 31, 2004 financial statements have been
reclassified to conform to the December 31, 2005 financial statement
presentation.
F-13
NOTE 3 - FINANCIAL CONDITION AND GOING CONCERN
American Leisure's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. American Leisure
has working capital of $11,609,651 and has obtained adequate debt financing on
the Orlando Resort property; however, American Leisure incurred a net loss of
$4,126,779 during 2005 and there is substantial doubt as to American Leisure's
ability to achieve profitable operations.
American Leisure's management intends to raise additional operating funds
through equity and/or debt offerings. However, there can be no assurance
management will be successful in its endeavors. Ultimately, American Leisure
will need to achieve profitable operations in order to continue as a going
concern.
American Leisure has adequate capital to maintain its operations. The proceeds
from the sale of a parcel of Orlando Resort property and the cash received from
the pre-sales of The Company's Orlando Resort units have provided current
operational funds while the construction and land loans funded in December 2005
and the financing from the Community Development District Bond in January 2006
financed through KeyBank, N.A., provided American Leisure with adequate funds to
maintain its operations until the balance of the financing is obtained for the
construction of the Orlando Resort property.
There are no assurances that American Leisure will be able to either (1) achieve
a level of revenues adequate to generate sufficient cash flow from operations;
or (2) obtain additional financing through either private placement, public
offerings and/or bank financing necessary to support American Leisure's working
capital requirements. To the extent that funds generated from operations and any
private placements, public offerings and/or bank financing are insufficient,
American Leisure will have to raise additional working capital. No assurance can
be given that additional financing will be available, or if available, will be
on terms acceptable to American Leisure. If adequate working capital is not
available, American Leisure may be required to curtail its operations.
NOTE 4 - ACQUISITIONS
On December 30, 2004, American Leisure through one of its subsidiaries, 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 American Leisure. American
Leisure believes this acquisition will allow American Leisure to capture more
travel consumers to visit its resort, buy property and consume its services. The
business acquired will continue to operate as travel agencies under the name
TraveLeaders. 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 American Leisure all of the assets necessary to
operate the Business, including substantially all of AWT's tangible and
intangible assets and certain agreed liabilities. Pursuant to the terms of the
Original Purchase Agreement, AWT and American Leisure entered into a Management
Agreement, under which AWT manages the Business on behalf of American Leisure.
AWT and American Leisure also entered into a License Agreement, under which
American Leisure granted AWT a non-exclusive license to use certain trade names
and related intellectual property in connection with the performance of ts
duties under the Management Agreement. The Management Agreement has been renewed
and the License Agreement hasve been renewed and will expire simultaneously with
the Management Agreement.
F-14
Prior to the Original Purchase Agreement, American Leisure had acquired from the
creditors and minority shareholders of the Seller the following: 1) senior
secured noted of the Seller with an outstanding principal balance of
$18,761,000, subject to $5,000,000 of liabilities in exchange for 340,000
restricted shares of American Leisure common stock; 2) 907,877 shares of Series
A Preferred Stock of the Seller (constituting approximately 42% of the issued
and outstanding shares of such preferred stock) in exchange for 24,101 shares of
newly designated Series E Convertible Preferred Stock of American Leisure, a
promissory note in the principal amount of $1,698,340 and a cash payment of
$5,250; 3) an option to purchase the Parent of the Seller (Around The World
Holdings, Inc.), which owned approximately 62% of the issued and outstanding
common stock of the Seller; 4) approximately 5% of the minority interest common
and preferred stock of the Seller; and 5) options to purchase approximately 27%
of the common stock and 42% of the preferred stock of the Seller from minority
shareholders of the Seller. The excess purchase price over the fair value of net
tangible assets was stated at $12,496,568, as of December 31, 2004 all of which
was allocated to goodwill.
The parties subsequently entered to a First Amendment to Asset Purchase
Agreement dated as of March 31, 2005 (the "First Amendment"), pursuant to which
---------------
the parties agreed to modify certain of the provisions of the Original Purchase
Agreement. Under the terms of the Amended Purchase Agreement, the purchase
price for the AWT assets was to be $17,500,000, which amount was stated as
$17,500,000 to be paid as follows:
Form of Consideration Amount
-----------
Assumption of designated liabilities $ 4,242,051
Forgiveness of loans and indebtedness owed by AWT to the Company 4,774,619
Issuance of note by American Leisure to AWT (the "Purchaser Note") 8,483,330
-----------
Total $17,500,000
Prior to December 31, 2005, American Leisure paid a portion of the principal
amount of the Purchase Note through: (i) the transfer of certain assets by
American Leisure to AWT (consisting of certain accounts receivable, prepaid
expenses and deposits); (ii) the retention by AWT of the proceeds from certain
accounts receivable sold by AWT to American Leisure; and (iii) payments made by
American Leisure to AWT. As of December 31, 2005, the outstanding balance of the
Purchaser Note was $5,297,788.
On or about November 14, 2005, the Company and American Leisure asserted certain
claims against AWT with respect to the alleged breach of the Purchase Agreement
and the Management Agreement dated as of December 31, 2005 between American
Leisure and AWT. After negotiations among the parties, the parties agreed to
settle the claims made by the Company and American Leisure pursuant to the terms
of the Settlement Agreement (the "Settlement Agreement") effective December 31,
2005.
The Settlement Agreement provides that the purchase price under the Amended
Purchase Agreement will be reduced from $17,500,000 to $9,000,000. The parties
agreed to implement the reduction of the purchase price by eliminating the
remaining balance of the Purchaser Note (which had a balance of $5,297,788 as of
December 31, 2005) and by establishing an obligation of AWT to pay to American
Leisure the amount of $3,185,548 as of December 31, 2005. This amount is payable
on demand.
F-15
The following table summarizes the estimated fair value of the net assets
acquired and liabilities assumed as reported:
2005 2004
------------- --------------
Current assets $ 1,850,109 $ 1,850,109
Property and equipment 287,975 287,975
Deposits 276,481 276,481
Trademark 1,000,000 1,000,000
Goodwill 4,085,435 12,585,435
------------- --------------
Total assets acquired $ 7,500,000 $ 16,000,000
------------- --------------
Notes Assumed $ 4,242,051 $ 11,040,320
Accounts Payable & Accrued Expenses - 6,266,032
------------- --------------
Total liabilities assumed 4,242,051 17,306,352
------------- --------------
Debt forgiven 4,757,949 -
Series F Preferred Stock issued - 193,648
------------- --------------
Consideration $ 9,000,000 $ 17,500,000
============= ==============
As of December 31, 2005 and December 31, 2004, the Acquisition Goodwill amounted
to $5,585,435 and $14,085,435 respectively. After an impairment of $1,500,000
for the excess paid over fair value of the assets (recognized in 2004), the
balance of Goodwill is $4,085,435 and $12,585,435 as of December 31, 2005 and
December 31, 2004 respectively.
On December 31, 2005, the Company through its subsidiary Tierra Del Sol, Inc.
("TDS") acquired the minority interest held by Harborage Leasing Corporation in
TDS for $3,464,129 consisting of a note payable of $1,432,046 which is due on
July 1, 2006, and 197,000 shares of American Leisure common stock shares valued
at market price on the date of the transaction or $183,210 and 300,000 warrants
with an exercise price at $5.00 per share valued at $233,713 using the
Black-Scholes option pricing model with the following assumptions: Risk free
rate of 1.5%; volatility of 157% and no dividends, two 3 bedroom condominium to
be built in Phase II of the Orlando Resort valued at $630,160. Furthermore,
subsequent to January 2007, Harborage Leasing Corporation can sell the American
Leisure shares to American Leisure for $985,000, which is recorded as a put
liability in the accompanying financial statements. The put option is void if
AMLH's stock price is greater than $5.00 per share for 30 consecutive days in
2007. The Company accounted for this acquisition using the purchase method of
accounting and allocated the purchase price to the land held for development.
Full ownership gives the Company the ability to recognize all of the profits on
the development of the Orlando Resort property. American Leisure has agreed to
provide its executive officers a bonus of up to 19% of the profits, if any, of
TDS.
NOTE 5 - OTHER RECEIVABLES
Other receivables consist of unsecured advances to Around the World Travel, Inc.
of $4,536,312 and other amounts due from West Villas, Inc., Maingate Towers,
Inc. and Orlando Tennis Village, Inc. of $1,828,390 which is from the sale of
the 40 acres described in Note 7, and $222,655 due from other third parties. The
amounts due from AWT are predominantly from advances and from amounts earned by
the Company in connection with the management agreement, under which AWT manages
the assets acquired December 31, 2004. During 2005, the Company earned
approximately $973,610 under this arrangement.
F-16
NOTE 6 - PROPERTY AND EQUIPMENT, NET
At December 31, 2005, property and equipment consisted of the following:
Useful
Lives 2005 2004
----------- -----------
Computer equipment 3-5 $ 419,683 $ 576,783
Furniture & fixtures 5-7 302,024 60,374
Automobiles 5 63,230 63,230
Leasehold improvements 5 31,919 -
Telecommunications equipment 7 6,764,848 6,782,110
----------- -----------
7,581,704 7,482,497
Less: accumulated depreciation and amortization 2,997,851 1,393,997
----------- -----------
$ 4,583,853 $ 6,088,500
=========== ===========
Depreciation expense was $1,603,854 and $936,874 for 2005 and 2004,
respectively.
NOTE 7 - LAND HELD FOR FUTURE DEVELOPMENT
American Leisure is planning to construct a 972-unit resort ("Orlando Resort")
in Orlando, Florida on 122 acres of undeveloped land. Pre-construction sales
commenced in February 2004.
As of December 31, 2005, the Company, has pre-sold 673 vacation homes in a
combination of contracts on town homes and reservations on condominiums for a
total sales volume of approximately $234 million. In connection with the sales,
the Company has received deposits totaling approximately $37,666,000 and has
prepaid sales commissions to various brokers and agents of approximately
$7,771,000 and has prepaid sales commissions of approximately $3,516,000 to
Xpress, Ltd., a related party.
On December 28, 2005, The Company completed the sale of 41 acres of its
development property located in Polk County, Florida (adjacent to the Orlando
Resort property) for $8,000,000 and realized a profit of $3,324,736 on the sale.
The sale was brokered through American Leisure Real Estate Group, Inc, an entity
controlled by Malcolm Wright (American Leisure's CEO); the broker commission on
the sale amounted to $400,000. The Company has approximately $1,823,000 due from
the buyers West Villas, Inc., Maingate Towers, Inc. and Orlando Tennis Village
which is due upon demand and is recorded in other receivables at December 31,
2005.
On March 8, 2005, American Leisure sold 13.5 acres of commercial property for
$4,020,000, plus the reimbursement of expenses in the amount of $157,219.
Profits realized on the sale amounted to approximately $968,000.
F-17
NOTE 8 - INVESTMENT IN SENIOR SECURED NOTES
During 2004, AMLH acquired senior secured notes receivable paper (the ""Notes"")
for 340,000 shares of AMLH stock and the assumption of a non-recourse note
payable to CNG Hotels (CNG Note) for $5,000,000. The Notes are secured by
substantially all of the assets of Around the World Travel (""AWT""), the maker.
The approximately $24,000,000 balance of the Notes includes unpaid interest of
approximately $6,000,000. The Notes are in default and no interest is being
accrued by AMLH relating to these Notes. Because of default status of the Notes
and the uncertain nature of the future collections on the Notes, AMLH does not
accrue any interest income relating to these Notes. The provisions of the CMG
Note include, among other things, a limitation of the AMLH liability under CMG
Note to that amount collected from AWT on the Notes, not to exceed $5,000,000.
NOTE 9 - OTHER ASSETS
Other assets include the following at December 31, 2005 and 2004:
2005 2004
------------ ------------
Deferred financing costs $ 4,192,988 $ 2,131,763
Deposits and other 61,500 505,811
Investment in Reedy Creek 901,705 -
$ 5,156,193 $ 2,637,574
============ ============
Deferred financing costs are derived from warrants issued in connection with
obtaining debt. Deferred financing costs are amortized over the life of the
notes using the effective interest method. American Leisure has capitalized
deferred financing costs of $3,837,696 and $2,267,998 for 2005 and 2004,
respectively. American Leisure has recorded amortization expense $1,887,623 and
$477,235 for the years ended December 31, 2005 and 2004, respectively.
NOTE 10 - INVESTMENTS
In January 2005, American Leisure acquired its interest in Caribbean Media
Group, Ltd., (""CMG"") which provides call center, contact center and media
services in Antigua. As of December 31, 2005, American Leisure owned
approximately 49% of the total outstanding shares. American Leisure is
accounting for its investment under the equity method of accounting as American
Leisure has significant influence but not control, over the financing and
operating activities of CMG. For the year ended December 31, 2005, the Company
recognized a net loss in the equity of an unconsolidated affiliate, CMG, of
$293,201.
Summarized financial information of CMG is as follows:
December 31,
2005 2004
---------- ---------
Current assets $ 341,737 $ -
Non-current assets 90,682 -
Current liabilities 830,789 -
Non-current liabilities - -
Year ended December 31,
2005 2004
--------- ---------
Revenue $ 948,392 $ -
Gross Margin 231,829 -
Net loss 598,369 -
American Leisure's equity in net loss 293,201 -
In November 2003, the Company entered into an agreement with Mr. Frederick
Pauzar (who became American Leisure's COO and Director in September 2005) to
sell their ownership interests in the stock of American Vacation Resorts Inc.
("AVR") for $1,500,000. In January 2005, the sale was completed and the Company
recorded a reduction of $800,000 of debt due to Arvimex and a profit of
$145,614.
NOTE 11 - LONG-TERM DEBT AND NOTESPAYABLE
Below is a summary of long-term debt and notes payable as of December 31, 2005
and 2004:
Maturity Interest Principal Outstanding
Collateral Date Rate 2005 2004
---------- -------- -------- ----------- -----------
Third party entity Unsecured Demand 10% $ 30,000 $ -
Financial institution Personal guarantees 12/2003 8% 250,000 250,000
Financial institution Assets, personal
guarantees 8/2004 8.75% - 1,454
Third party individual 1st lien 13.5
commercial acres,
guarantees 10/2004 12% - 1,300,000
Financial institution Assets of the Company 11/2004 12% - 9,528
Third party entities Equipment 3/2005 18% 9,029 28,097
Third party individual 3rd lien 163 acres
of undeveloped land 3/2005 12% - 1,862,250
Financial institution 1st lien 163 acres
of undeveloped land,
guarantees 4/2005 12% - 6,000,000
Credit line Assets, personal
guarantees 1/2006 8.75% 51,000 -
Third party entity Unsecured 7/2006 12% 2,062,206 -
Financial institution Lien on property,
assets and common
stock and guarantees 9/2006 8% 1,250,000 * 1,250,000
Financial institution Lien on property,
assets and common
stock and guarantees 4/2007 8% 3,000,000 * 3,000,000
Financial institution 1st lien 122 acres
of undeveloped land,
guarantees 6/2007 12% 10,250,376 -
F-18
Financial institution Lien on property,
assets and common
stock and guarantees 6/2007 8% 1,355,000 * 1,255,000
Financial institution Lien on property,
assets and common
stock and guarantees 6/2007 8% 289,000 * -
Financial institution Lien on property,
assets and common
stock and guarantees 12/2007 8% 2,100,000 * -
Financial institution Lien on property,
assets and common
stock and guarantees 12/2008 6% 6,000,000 * 6,140,964
Third party entity Certain assets 2/2009 5% 5,000,000 5,000,000
Third party entity Vehicle 3/2010 9.39% 30,942 38,955
Third party entity Common stock of AWT 4/2011 4% - 1,698,340
Third party entity Common stock of AWT 4/2011 4% 3,893,915 -
Financial institution Assets, personal
guarantees 5/2033 4% 369,687 375,900
----------- -----------
35,941,155 28,210,488
Less: current portion (3,652,235) (9,605,235)
----------- -----------
Long-term debt $32,288,920 $18,605,253
=========== ===========
F-19
* Effective December 31, 2005, Stanford International Bank Limited, an Antiguan
banking corporation, modified the terms of the notes due them as follows:
- Interest on the $6,000,000 Note has been paid through December
31, 2004. Interest accrued from January 1, 2005, through September 30,
2006, on the $6,000,000 Note shall be due and payable on December 28,
2008. Interest accruing after September 30, 2006, on the $6,000,000
Note shall be paid in accordance with the original terms of the Note.
- Interest accrued on the $3,000,000 Note from the date of the Note
through September 30, 2006, shall be due and payable on April 22,
2007. Interest accruing after September 30, 2006, on the $3,000,000
Note shall be paid in accordance with the original terms of the Note.
- The Maturity Date of the $1,250,000 Note is hereby extended to
September 30, 2006. The principal amount of the $1,250,000 Note,
together with all interest accrued from the date of the $1,250,000
Note, shall be due and payable in full on that date. No payments shall
be required prior to the revised Maturity Date.
- The Maturity Date of the $1,355,000 Note is hereby extended to
June 30, 2007. The principal amount of the $1,355,000 Note, together
with all interest accrued from the date of the Note, shall be due and
payable in full on that date. No payments shall be required prior to
the revised Maturity Date.
- The Maturity Date of the $305,000 Note is hereby extended to June
30, 2007. The principal amount of the Note, together with all interest
accrued from the date of the Note, shall be due and payable in full on
that date. No payments shall be required prior to the Maturity Date.
As of December 31, 2005, $289,000 had been drawn from this facility.
- Interest on the outstanding principal balance of the $2,100,000
Note will be payable in arrears, on a quarterly basis, with the first
payment due on March 28, 2006 and with subsequent payments due on each
subsequent June 28, September 28, December 28 and March 28, until the
Maturity Date of December 27, 2007, when the outstanding principal
balance and all accrued but unpaid interest will be due and payable in
full.
Principal maturities of long-term debt are as follows:
Amount
-------------
2006 $ 3,652,235
2007 16,994,376
2008 6,000,000
2009 5,000,000
2010 30,942
2011 3,893,915
Thereafter 369,687
-------------
$ 35,941,155
=============
F-20
NOTE 12 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties, consists of the following as of December 31,
2005 and 2004.
Interest Principal Outstanding
Collateral Maturity Date Rate\ 2005 2004
---------- ------------- --------- ----------- ----------
Related Party Unsecured Demand 12% $ 131,945 $ 140,044
Related Party Unsecured Demand 12% 306,500 659,000
Related Party Unsecured Demand 12% 180,000 180,000
Related Party Unsecured Demand 12% 20,000 20,000
Related Party Unsecured Demand 12% 327,028 531,232
Related Party Unsecured Demand 12% 124,262 -
Related Party Unsecured Demand 10% 97,504 -
Related Party Unsecured Demand 10% 285,000 -
Shareholder Unsecured Demand 12% 178,366 -
Shareholder 3rd lien on 163
acres of
undeveloped land 5/1/05 12% - 380,353
----------- ----------
1,650,605 1,910,629
Less: current portion
(1,650,605) (1,910,629)
----------- ----------
$ - $ -
=========== ==========
Principal repayments for next years are as follows:
Amount
------------
2006 1,650,605
------------
$ 1,650,605
============
NOTE 13 - SHAREHOLDER ADVANCES
As of December 31, 2005 and 2004, American Leisure has shareholder advances
totaling $0 and $273,312 respectively with interest at 12%. The advances were
unsecured and due on demand.
F-21
NOTE 14 - STOCKHOLDERS EQUITY AND REDEEMABLE PREFERRED STOCK
COMMON STOCK AND REDEEMABLE PREFERRED STOCK
In March 2004, we issued 340,000 shares of restricted Common Stock in connection
with the acquisition of the Senior Debt of Traveleaders.
In June 2004, 600,000 warrants were exercised by holders at par value of $.001
per share.
In August 2004, 1,450,000 warrants were exercised by holders at par value of
$.001 per share.
In April 2004, 24,101 shares of the Company's Series "E" Preferred Stock were
issued for the acquisition of the controlling interest in the Preferred Stock of
Around the World Travel.
In 2004, 98,991 shares were issued for services at $1.50 per share.
In November 2004, 325 shares of the Company's Series "B" Preferred Stock were
issued for $32,460 of telecommunications equipment.
In December 2004, 120,000 shares of the Company's Series "A" Preferred Stock
were issued for $1,200,000 of payables to a related party for the sales and
marketing agreement of the Orlando property.
On June 30 2005, 160,000 shares of common stock were issued upon the exercise of
warrants at $0.001 per share.
PREFERRED STOCK
American Leisure is authorized to issue up to 10,000,000 shares in aggregate of
preferred stock:
Annual
Total Series Liquidated Dividends Conversion
Authorized Value Voting per Share Rate
------------- ---------- -------- ---------- ----------
Series A 1,000,000 $ 10.00 Yes $ 1.20 10 to 1
Series B 100,000 100.00 Yes 12.00 20 to 1
Series C 28,000 100.00 Yes 4.00 20 to 1
Series E 50,000 100.00 Yes 4.00 6.66 to 1
Series F 150,000 100.00 Yes 1.00 2 to 1
Series A have voting rights equal to 10 common shares to 1 Series A preferred
share.
Series A are redeemable at American Leisure's option after 5 years if not
converted by the holder. The conversion period is 5 years from the date of
issue. The redemption amount per share will equal the liquidation value plus
accrued but unpaid dividends.
Conversion is at 10 for 1 or if the market price is below $1.00 then the average
daily market price for the 10 consecutive trading days prior to conversion.
Dividends are payable if funds are available. Accrued but unpaid dividends do
not pay interest.
Series B have voting rights equal to 20 common shares to 1 Series B preferred
share.
Series B are redeemable at American Leisure's option after 5 years if not
converted by the holder. The conversion period is 5 years from the date of
issue. The redemption amount per share will equal the liquidation value plus
accrued but unpaid dividends.
F-22
Conversion is not less than 20 for 1 nor more than 12.5 for 1 based on the
market price.
Dividends are payable if funds are available. Accrued but unpaid dividends do
not pay interest.
Series C are redeemable at American Leisure's option after 5 years if not
converted by the holder. The conversion period expires 5 years from the date of
issue. The redemption amount per share will equal the liquidation value plus
accrued but unpaid dividends.
Conversion is not less than 20 for 1 nor more than 12.5 for 1 based on the
market price.
Series E are redeemable at American Leisure's option after 5 years if not
converted by the holder. The conversion period expires 5 years from the date of
issue. The redemption amount per share will equal the liquidation value plus
accrued but unpaid dividends.
Series E have voting rights equal to 6.66 common shares to 1 Series E preferred
share.
Series F issuance was retracted.
Dividends are payable if funds are available. Accrued but unpaid dividends do
not pay interest.
American Leisure has not declared dividends as of December 31, 2005, however
cumulative and unpaid dividends are as follows:
December 31, 2005 December 31, 2004
Series A $ 5,094,049 $ 3,894,049
Series B 140,852 106,952
Series C 304,219 195,463
Series E 261,824 165,075
----------------- -----------------
$ 5,800,944 $ 4,361,540
================= =================
WARRANTS
In March 2004, the Company issued warrants to Bill Chiles, a director of the
Company, to purchase 168,672 shares of the Company's common stock at an exercise
price of $2.96 per share of common stock which were subsequently revised to an
exercise price of $1.02 as consideration for personal loan guarantees to
Stanford. Also, in March 2004, the Company issued warrants to Malcolm Wright, a
director of the Company and the Company's Chief Executive Officer and Chief
Financial Officer, to purchase 347,860 shares of the Company's common stock at
an exercise price of $1.02 per share of common stock. The Company issued the
warrants to Messrs. Chiles and Wright as consideration for their personal
guarantees of the Company's debt and pledges of their shares of the Company's
stock to Stanford as part of the security for the financing that Stanford
provided to the Company. In addition, Mr. Wright has personally guaranteed the
Company's indebtedness of $6,000,000 to StanfordIn July 2005, the Company
authorized the issuance of warrants to Mr. Wright and Mr. Chiles to purchase
347,860 shares and 168,672 shares, respectively, of our common stock at an
exercise price of $1.02 per share and in December 2005, the Company authorized
the issuance of warrants to Mr. Wright to purchase 2,008,500 shares of our
common stock at an exercise price of $1.02 per share. The Company is under a
continued obligation to issue warrants at $1.02 to Messrs Chiles and Wright for
guarantees they may be required to give on the Company's behalf going forward.
During 2004, the Company issued 1,433,064 warrants in connection with the loan
guarantees and in connection with obtaining additional debt financing. The
warrants were valued using the Black-Scholes option pricing model and recorded
as deferred financing costs.
During 2005, American Leisure issued 3,449,032 warrants valued at $3,254,029.
The warrants were issued in connection with loan guarantees and in connection
with obtaining additional financing and recorded as deferred financing costs.
These warrants are exercisable from $.001 to $5 and have terms ranging from 3 to
5 years. The estimated fair value of the warrants was valued using the
black-scholes option pricing model with the following assumptions: dividend
yield 0.0%, expected volatility of 195%, risk-free interest rate of 1.5% and
expected lives of 36 to 60 months.
Also, during 2005, American Leisure issued 300,000 warrants valued at $233,713.
The warrants were issued in connection with the acquisition of minority interest
in Tierra Del Sol, Inc. The warrants are exercisable at $5 and have term of 5
years. The estimated fair value of the warrants was valued using the
black-scholes option pricing model with the following assumptions: dividend
yield 0.0%, expected volatility of 157%, risk-free interest rate of 1.5% and an
expected life of 60 months.
At December 31, 2005, there are 6,782,096 warrants outstanding with exercise
prices ranging from $0.001 to $5.00 that expire between 2008 and 2010.
On December 31, 2005, in connection with the acquisition of the minority
interest subsidiaries, we issued 300,000 warrants with an exercise price of
$5.00.
F-23
NOTE 15 - NET INCOME (LOSS) PER SHARE
Dividends have not been declared on the Company's cumulative preferred stock.
The accumulated dividends are deducted from Net Loss to arrive at Net income
(loss) per share as follows:
Description 2005 2004
----------- -----------
Net Loss (as reported) $(4,129,779) $(6,634,301)
Less Undeclared Preferred Stock Dividend (1,439,405) (551,938)
----------- -----------
Net Loss after Preferred Stock Dividend $(5,566,184) $(7,186,239)
=========== ===========
Net Income (Loss) per share Basic and Diluted $ (0.55) $ (0.83)
=========== ===========
NOTE 16 - INCOME TAXES
Deferred taxes are determined based on the temporary differences between the
financial statement and income tax bases of assets and liabilities as measured
by the enacted tax rates which will be in effect when these differences reverse.
The components of deferred income tax assets (liabilities) at December 31, 2005
and 2004, were as follows:
2005 2004
Net operating loss carryforwards $ 3,700,000 $ 2,200,000
Valuation allowance (3,700,000) (2,200,000)
---------------------------
Net deferred tax assets $ - $ -
===========================
At December 31, 2005, American Leisure had a net operating loss carryforward for
Federal income tax purposes totaling approximately $11,000,000 which, if not
utilized, will expire in the years up to 2025.
At December 31, 2004, American Leisure had a net operating loss carryforward for
federal income tax purposes totaling approximately $6,500,000 which, if not
utilized, will expire in the years up to 2024.
In June 2002, American Leisure had a change in ownership, as defined by Internal
Revenue Code Section 382, which has resulted in American Leisure's net operating
loss carryforward being subject to certain utilization limitations in the
future.
F-24
NOTE 17 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
American Leisure leases office facilities and reservation service center
equipment under non-cancelable operating lease agreements for a monthly base
rent of $14,838 through April 2008, and the reservation service center equipment
leases call for a monthly base rent of $6,461 through December 2005. Future
minimum rental payments are as follows:
December 31,
2006 178,056
2007 178,056
2008 59,352
----------
$ 415,464
==========
Rent expense totaled $243,509 and $382,316 for 2005 and 2004, respectively.
EMPLOYMENT AGREEMENTS
The Company has various employment agreements with select members of their
management. These agreements provide for a base salary plus bonuses of up to 19%
of the profits of each subsidiary company based upon the Company's operating
earnings as defined in each agreement.
Management and License Agreement
AWT and American Leisure entered into a one year management and license
agreement, under which AWT is entitled to use the TraveLeaders brand name in the
operation of there travel business. AWT is to supervise, direct and control the
management and operation of the business. AWT will a) recruit, employ,
supervise, direct and discharge the employees of the business, b) establish
prices, rates and charges for services provided by the business, c) establish
and revise administrative policies and procedures for the control of revenue and
expenditures, d) make payments on accounts payable and handle collections of
accounts receivable, e) arrange for and supervise public relations and
advertising, f) prepare and deliver interim accountings, annual accounting and
such other information at reasonable times and g) obtain and keep in full force
all licenses and permits. The management agreement expires on December 31, 2006.
AWT pays American Leisure 90% of earnings before interest depreciation and taxes
as calculated under accounting principles generally accepted in the United
States of America. The management agreement is cancelable by both parties with
30 days notice.
LITIGATION
In the ordinary course of its business, the Company may from time to time become
subject to claims or proceedings relating to the purchase, subdivision, sale
and/or financing of its real estate or its operations. The Company believes that
substantially all of the above are incidental to its business.
We are a party in an action that was filed in Orange County, Florida and styled
as Rock Investment Trust, P.L.C. and RIT, L.L.C. vs. Malcolm J. Wright, American
Vacation Resorts, Inc., American Leisure, Inc., Inversora Tetuan, S.A., Sunstone
Golf Resort, Inc., and Sun Gate Resort Villas, Inc., Case No. CIO-01-4874, Ninth
Judicial Circuit, Orange County, Florida. In June, 2001, after almost 2 years
from receiving notice from Malcolm Wright that one Mr. Roger Smee, doing
business under the names Rock Investment Trust, PLC (a British limited company)
and RIT, LLC (a Florida limited liability company) (collectively, the Smee
Entities) had defaulted under various agreements to loan or to joint venture or
to fund investment into various real estate enterprises founded by Mr. Wright,
the Smee Entities brought the Lawsuit against Mr. Wright, American Leisure, Inc.
(ALI) and several other entities. The gravamen of the initial complaint is that
the Smee Entities made financial advances to Wright with some expectation of
participation in a Wright real estate enterprise. In general, the suit requests
either a return of the Smee Entities alleged advances of $500,000 or an
undefined ownership interest in one or more of the defendant entities. Mr.
Wright, American Leisure, Inc., and Inversora Tetuan, S.A., have filed a
counterclaim and cross complaint against the Smee Entities and Mr. Smee denying
the claims and such damages in the amount of $10 million. If the court rules
that Mr. Wright is liable under his guarantee of the American Leisure, Inc.
obligation to Smee, it is believed that such a ruling would not directly affect
American Leisure Holdings, Inc. The litigation is in the discovery phase and is
not currently set for trial. We have been advised by our attorneys in this
matter that Mr. Wrights position on the facts and the law is stronger than the
positions asserted by the Smee Entities.
In March 2004, Manuel Sanchez and Luis Vanegas as plaintiffs filed a lawsuit
against American Leisure Holdings, Inc. American Access Corporation, Hickory
F-25
Travel Systems, Inc. Malcolm J. Wright and L. William Chiles, et al., seeking a
claim for securities fraud, violation of Florida Securities and Investor
Protection Act, breach of their employment contracts, and claims for fraudulent
inducement. All defendants have denied all claims and have a counterclaim
against Manuel Sanchez and Luis Vanegas for damages. The litigation commenced in
March 2004 and will shortly enter the discovery phase and is not currently set
for trial. We believe that Manuel Sanchez and Luis Vanegas claims are without
merit and the claims are not material to us. We intend to vigorously defend the
lawsuit.
In February 2003, we and Malcolm J. Wright were joined in a lawsuit captioned as
Howard C. Warren v. Travelbyus, Inc., William Kerby, David Doerge, DCM/Funding
III, LLC, and Balis, Lewittes and Coleman, Inc. in the Circuit Court of Cook
County, Illinois, Law Division, which purported to state a claim against us as a
joint venturer with the primary defendants. The plaintiff alleged damages in an
amount of $5,557,195.70. On November 4, 2004, the plaintiff moved to voluntarily
dismiss its claim against us. Pursuant to an order granting the voluntary
dismissal, the plaintiff has one (1) year from the date of entry of such order
to seek to reinstate its claims.
On March 30, 2004, Malcolm Wright, was individually named as a third-party
defendant in the Circuit Court of Cook County, Illinois, Chancery Division,
under the caption: Cahnman v. Travelbyus, et al. On July 23, 2004, the primary
plaintiffs filed a motion to amend their complaint to add direct claims against
our subsidiary, American Leisure as well as Mr. Wright. On August 4, 2004, the
plaintiffs withdrew that motion and have not asserted or threatened any direct
claims against American Leisure, Mr. Wright or us.
In early May 2004, Around The World Travel, Inc. substantially all of the assets
of which we purchased, filed a lawsuit in the Miami-Dade Florida Circuit Court
against Seamless Technologies, Inc. and e-TraveLeaders, Inc. alleging breach of
contract and seeking relief that includes monetary damages and termination of
the contracts. They were granted leave to intervene as plaintiffs in the
original lawsuits against Seamless and e-TraveLeaders. On June 28, 2004, the
above named defendants brought suit against Around The World Travel and American
Leisure Holdings, Inc. in an action styled Seamless Technologies, Inc. et al. v.
Keith St. Clair et al. This suit alleges that Around The World Travel has
breached the contracts and also that American Leisure Holdings, Inc. and Around
The World Travels Chief Executive Officer were complicit with certain officers
and directors of Around The World Travel in securing ownership of certain assets
for American Leisure Holdings, Inc. that were alleged to have been a business
opportunity for Around The World Travel. This lawsuit involves allegations of
fraud against Malcolm J. Wright. The lawsuit filed by Seamless has been abated
and consolidated with the original lawsuit filed by Around The World Travel. In
a related matter, Seamlesss attorneys brought another action entitled Peter
Hairston v. Keith St. Clair et al. This suit mimics the misappropriation of
business opportunity claim, but it is framed within a shareholder derivative
action. The relief sought against American Leisure Holdings, Inc. includes
monetary damages and litigation costs. We intend to vigorously support the
original litigation filed against Seamless and defend the counterclaim and
allegations against us.
On May 4, 2005, Simon Hassine, along with members of his family, filed a lawsuit
against us and Around The World Travel in the Circuit Court of Dade County,
Florida, Civil Division, Case Number 05-09137CA. The plaintiffs are the former
majority shareholders of Around The World Travel and former owners of the assets
of TraveLeaders. The plaintiffs allege that that they have not been paid for i)
a subordinated promissory note in the principal amount of $3,550,000 plus
interest on such note which they allege was issued to them by Around The World
Travel in connection with their sale of 88% of the common stock of Around The
World Travel; and ii) subordinated undistributed retained earnings and accrued
F-26
bonuses in an aggregate amount of $1,108,806 which they allege were due to them
as part of the sale. The plaintiffs allege that the note was issued to them net
of $450,000 of preferred stock of Around The World Travel that they further
allege they never received. The plaintiffs also allege that in December 2004
they entered into a settlement agreement with the Company regarding these
matters. The plaintiffs are pursuing a claim of breach of the alleged settlement
agreement with damages in excess of $1,000,000, interest and costs as well as
performance under the alleged settlement agreement or, in the alternative, a
declaratory judgment that the promissory note, undistributed retained earnings
and accrued bonuses are not subordinated to the Galileo Debt and full payment of
the promissory note, undistributed retained earnings and accrued bonuses plus
prejudgment interest, stated interest on the note, costs and reasonable
attorneys fees. The plaintiffs are also pursuing a claim for breach of contract
regarding the preferred stock of Around The World Travel and seeking $450,000
plus interest, costs and reasonable attorneys fees. The plaintiffs are also
pursuing claims of fraudulent transfer regarding our acquisition of interests in
the debt and equity of Around The World Travel and seeking unspecified amounts.
We intend to vigorously defend the lawsuit. We have authorized our counsel to
file various motions including a motion to dismiss the complaint in its entirety
as against us and Malcolm J. Wright due to the failure by the plaintiffs to
comply with a provision in the underlying document that grants exclusive
jurisdiction to the courts located in Cook County, Illinois.
In the ordinary course of our business, we may from time to time become subject
to routine litigation or administrative proceedings, which are incidental to our
business.
We are not aware of any proceeding to which any of our directors, officers,
affiliates or security holders are a party adverse to us or have a material
interest adverse to us.
NOTE 18 - EMPLOYEE BENEFITS
The Company's subsidiary, HTS, maintains a qualified 401(k) profit sharing plan
covering substantially all of its full time employees who have completed ninety
days of service. Eligible employees may voluntarily contribute a percentage of
their compensation up to established limits imposed by the Internal Revenue
Service. At the discretion of the Board of Directors, the Company may make a
matching contribution equal to a percentage of each employee's contribution.
There were no matching contributions made for the year ended December 31, 2005.
NOTE 19 - SELF-INSURED HEALTH INSURANCE
The Company's subsidiary, HTS, is partially self-insured for benefits provided
under an employee health insurance plan through Great West Life Insurance
Company. Benefits include medical, prescription drug, dental and group term life
insurance. The plan provides for self-insurance up to $30,000 per employee per
year. Accordingly, there exists a contingent liability for unprocessed claims in
excess of those reflected in the accompanying consolidated financial statements.
American Leisure has accrued $149,758 at December 31, 2005 for claims reported
and incurred but not reported as of December 31, 2005.
NOTE 20 - OPERATING SEGMENTS
The Company has adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". At December 31, 2005, 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.
F-27
As noted in Note 6, Tierra Del Sol, Inc. is planning to construct a 972-unit
resort in Orlando, Florida on 122 acres of undeveloped land. Development is
scheduled to commence in the spring of 2006. Presales commenced in February
2004.
American Leisure's operates a call center and revenues are 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 year ending December 31, 2005:
In (000's) Real Estate Call Center Travel Other Elim. Consol.
----------- ----------- -------- -------- --------- ----------
Revenues:
Services $ 1,851 $ - $ 7,074 $ - $ (1,564) $ 7,361
Undeveloped land $ 12,020 $ - $ - $ - $ - $ 12,020
Segment income
(loss) $ (1,929) $ (1,051) $ (466) $ - $ (681) $ (4,127)
Total Assets $ 94,150 $ 2,898 $ 12,366 $ - $ (19,490) $ 89,923
2005 Capital
expenditures $ 5 $ 0 $ 171 $ - $ - $ 176
Depreciation $ 720 $ 649 $ 312 $ - $ - $ 1,680
For the year ending December 31, 2004:
In (000's) Real Estate Call Center Travel Other Elim. Consol.
----------- ------------ -------- ------- --------- ----------
Revenue $ 753 $ - $ 6,169 $ - $ (503) $ 6,419
Segment income
(loss) $ (2,161) $ (16) $ (2,581) $(1,168) $ (1,876) $ (6,634)
Total Assets $ 59,225 $ 3,284 $ 19,353 $ - $ (14,460) $ 67,402
Capital
expenditures $ 3,512 $ - $ 288 $ - $ - $ 3,800
Depreciation $ 717 $ - $ 220 $ - $ - $ 937
The accounting policies of the reportable segments are the same as those
described in Note 2. The Company evaluates the performance of its operating
segments based on income before net interest expense, income taxes, depreciation
and amortization expense, accounting changes and non-recurring items.
NOTE 21 - RELATED PARTY TRANSACTIONS
We accrue salaries payable to our Chief Executive Officer, President and Chief
Financial Officer, Malcolm J. Wright. As of December 31, 2005, the aggregate
amount of unpaid salaries payable to Mr. Wright was $2,700,000. The Company
accrues interest at a rate of 12% compounded annually on the salaries payable to
Mr. Wright. As of December 31, 2005, the aggregate amount of interest accrued on
salaries payable to Mr. Wright was $477,000.
F-28
We accrue salaries payable to L. William Chiles, the President of Hickory, at
$100,000 per year as for his services. Mr. Chiles also receives paid
compensation for his services from Hickory. As of December 31, 2005, the
aggregate amount of salaries payable to Mr. Chiles was $200,000. The Company
accrues interest at a rate of 12% compounded annually on the salaries payable to
Mr. Chiles beginning in January 2005. As of December 31, 2005, the aggregate
amount of interest accrued on salaries payable to Mr. Chiles was $16,500.
We pay or accrue directors' fees to each of our directors in an amount of
$18,000 per year for their services as directors. During the last two fiscal
years the Company paid an aggregate of $32,521 to directors and accrued an
aggregate of $135,000.
The Company entered into an agreement with Mr. Wright and Mr. Chiles whereby the
Company agreed to indemnify Mr. Wright and Mr. Chiles against all losses, costs
or expenses relating to the incursion of or the collection of the Company's
indebtedness against Mr. Wright or Mr. Chiles or their collateral. This
indemnity extends to the cost of legal defense or other such reasonably incurred
expenses charged to or assessed against Mr. Wright or Mr. Chiles. In the event
that Mr. Wright or Mr. Chiles make a personal guarantee for the Company's
benefit in conjunction with any third-party financing, and Mr. Wright or Mr.
Chiles elect to provide such guarantee, then Mr. Wright and/or Mr. Chiles shall
earn a fee for such guarantee equal to three per cent (3%) of the total original
indebtedness and two per cent (2%) of any collateral posted as security. This
fee is to be paid by the issuance of warrants to purchase the Company's common
stock at a fixed strike price of $1.02 per share, when the debt is incurred. Mr.
Wright personally guaranteed (the "Guarantees") the Company's $6,000,000 Credit
Facility from Stanford. In addition, Mr. Wright pledged to Stanford 845,733
shares of the Company's common stock held by Mr. Wright. L. William Chiles had
personally guaranteed $2,000,000 of the $6,000,000 Credit Facility and pledged
to Stanford 850,000 shares of the Company's common stock held by Mr. Chiles.
Stanford released Mr. Chiles from the personal guarantee and released his common
stock from the pledge when the Company closed the $6,000,000 Credit Facility. In
March 2004, the Company authorized the issuance of warrants to Mr. Wright and
Mr. Chiles to purchase 347,860 shares and 168,672 shares, respectively, of our
common stock at an exercise price of $2.96 per share, which was subsequently
reduced to $1.02 per share of common stock. In July 2005, the Company authorized
the issuance of warrants to Mr. Wright and Mr. Chiles to purchase 347,860 shares
and 168,672 shares, respectively, of our common stock at an exercise price of
$1.02 per share and in December 2005, the Company authorized the issuance of
warrants to Mr. Wright to purchase 2,008,500 shares of our common stock at an
exercise price of $1.02 per share.
The Company has generally agreed to provide the executive officers of each of
its subsidiaries a bonus of up to 19% of the profits, if any, of the subsidiary
in which they serve as our executive officers. The bonus will be paid for the
five-year period beginning on the date that the Company enters into such an
agreement with the subsidiary. Pursuant to this general agreement, Malcolm J.
Wright is entitled to receive up to 19% of the profits of Leisureshare
International Ltd, Leisureshare International Espanola SA, TDSR, American
Leisure Homes, Inc., Advantage Professional Management Group, Inc., and American
Leisure Hospitality Group Inc. and any new company formed for the development
and sale of vacation homes, hospitality management, and vacation ownership . In
2005, $182,647 was accrued to Malcolm Wright from the profits of Advantage
Professional Management Group, Inc. L. William Chiles is entitled to receive 19%
of the profits of Hickory up to a maximum payment of $2,700,000. Although Mr.
Chiles' bonus is limited, it is not subject to the buy-out by the Company as
discussed below as it will cease as soon as the $2,700,000 amount has been paid
to him. The executive officers of other the Company's other subsidiaries are
F-29
entitled to share a bonus of up to 19% of the profits of the subsidiary in which
they serve as our executive officers. The Company has the right to buy-out of
these agreements after a period of five years by issuing such number of shares
of its common stock equal to the product of the average after-tax profits for
the five-year period multiplied by one-third (1/3) of the P/E ratio of the
Company's common stock at the time of the buyout divided by the greater of the
market price of the Company's common stock or $5.00. The Company has not paid
bonus as of the filing of this report.
Malcolm J. Wright is the President and 81% majority shareholder of American
Leisure Real Estate Group, Inc. (ALRG). On November 3, 2003 TDSR, entered into
an exclusive development agreement with ALRG to provide development services for
the development of the Sonesta Orlando Resort. Pursuant to this development
agreement, ALRG is responsible for all development logistics and TDSR is
obligated to reimburse ALRG for all of ALRG's costs and to pay ALRG a
development fee in the amount of 4% of the total costs of the project paid by
ALRG. During the fiscal year ended December 31, 2005, ALRG administered
operations and paid bills in the amount of $8,007,889 and received a fee of 4%
(or approximately $320,316) under the development agreement. Total fees earned
since November 2003 amount to $466,561.
Malcolm J. Wright and members of his family are the majority shareholders of
Xpress. On November 3, 2003, TDSR entered into an exclusive sales and marketing
agreement with Xpress to sell the units being developed by TDSR. This agreement
provides for a sales fee in the amount of 3% of the total sales prices received
by TDSR plus a marketing fee of 1.5%. During the period since the contract was
entered into and ended December 31, 2005 the total sales made by Xpress amounted
to approximately $234,413,949. As a result of the sales, TDSR is obligated to
pay Xpress a total sales fee of $7,032,418 and a marketing fee of $3,516,209. As
of December 31, 2005, the Company has paid Xpress $4,758,269 of cash, issued
Xpress 120,000 shares of Series A Preferred Stock valued at $1,200,000, and
transferred to Xpress a 1913 Mercedes Benz valued at $500,000. In February 2004,
Malcolm J. Wright, individually and on behalf of Xpress, and Roger Maddock,
individually and on behalf of Arvimex, entered into contracts with TDSR to
purchase an aggregate of 32 townhomes for $13,116,800 and paid a deposit of
$1,311,680.
M J Wright Productions, Inc., of which Mr. Wright is the President, owns our
Internet domain names.
The Company and Mr. Wright have agreed to terms in principle of an employment
agreement pursuant to which Mr. Wright will serve as our Chief Executive Officer
and Chief Financial Officer. The Company will provide the terms of a definitive
employment agreement in a future filing with the Commission.
On or about November 14, 2005, the Company and American Leisure asserted certain
claims against AWT with respect to the alleged breach of the Purchase Agreement
and the Management Agreement dated as of December 31, 2005 between ALEC and AWT.
After negotiations among the parties, the parties agreed to settle the claims
made by the Company and ALEC pursuant to the terms of the Settlement Agreement
(the "Settlement Agreement") effective December 31, 2005. The Settlement
Agreement provides that the purchase price under the Amended Purchase Agreement
will be reduced from $17,500,000 to $9,000,000. The parties agreed to implement
the reduction of the purchase price by eliminating the remaining balance of the
Purchaser Note (which had a balance of $5,297,788 as of December 31, 2005) and
by establishing an obligation of AWT to pay to ALEC the amount of $3,185,548 as
of December 31, 2005. This amount is payable on demand.
F-30
NOTE 22 - SUBSEQUENT EVENTS
PURCHASE OF LAND HELD FOR DEVELOPMENT
-------------------------------------
On July 5, 2005, the Company acquired a 1% interest in Reedy Creek Acquisition
Company, LLC ("Reedy Creek") for $901,705. Reedy Creek owns 40.68 acres of
undeveloped land in Osceola County, Florida located 1.5 miles west of Walt
Disney World Orlando Maingate Entrance. The property will be used in the
development of vacation second homes with resort amenities. On January 3, 2006,
The Company acquired an additional 99% interest in Reedy Creek (total ownership
of 100%) for a purchase price of $12,400,000. The Company is holding this land
for future development.
KEYBANK, NA LAND LOAN DRAWS
----------------------------
In January 2006, draws were made from the $14,850,000 land loan with KeyBank,
NA. The draws increased the loan outstanding to $13,350,000 and those funds were
transferred to a restricted cash account. The $1,500,000 balance of the loan is
reserved for interest on the loan.
NOTE MODIFICATION AGREEMENT
---------------------------
In February 2006, we entered into a Note Modification Agreement with SIBL,
whereby we agreed to modify certain provisions of our outstanding promissory
notes with SIBL to grant extensions of payments due. Pursuant to the Note
Modification Agreement, we and SIBL agreed that all interest due on our
$6,000,000 note, from January 1, 2005, through September 30, 2006, shall be due
and payable on September 30, 2006, with all interest thereafter payable with the
original terms of that note; that all interest accrued on the $3,000,000 note we
have with SIBL, from the date of the note until September 30, 2006, shall be due
and payable on September 30, 2006, with all interest thereafter payable with the
original terms of that note; that the maturity date of our $1,250,000 note with
SIBL be extended until September 30, 2006, and that no payments of principal or
interest on that note shall be payable until the extended due date of that note;
that the maturity date of our $1,355,000 note with SIBL be extended until June
30, 2007, and that no payments of principal or interest on that note shall be
payable until the extended due date of that note; that the maturity date of our
$305,00 note with SIBL be extended until June 30, 2007, and that no payments of
principal or interest on that note shall be payable until the extended due date
of that note; and that interest on our $2,100,000 note with SIBL be payable in
arrears, on a quarterly basis, with the first payment due on March 28, 2006, and
subsequent payments due on each June 28, September 28, December 28 and March 28,
until the maturity date of December 27, 2007, with the outstanding principal and
interest shall be due (collectively, all the notes described above shall be
referred to as the "Notes").
F-31
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective August 25, 2004, the client auditor relationship between us and
Bateman & Co., Inc., P.C. ceased as the former principal independent accountant
was dismissed. On that date, our Board of Directors approved a change of
accountants and the Company's management engaged Lopez, Blevins, Bork &
Associates, LLP as our principal independent public accountant for the fiscal
year ended December 31, 2004. Prior to that, we had engaged Bateman on August
16, 2004 and dismissed Malone & Bailey, PLLC as our principal independent
accountant on August 17, 2004. In both cases, the decision to change principal
independent accountants was approved by our Board of Directors. Bateman had been
engaged when the audit partner in charge of our account left Malone to join
Bateman. The audit partner left Bateman and joined Lopez. We reported the change
of auditors from Bateman to Lopez on Form 8-K filed with the Commission on March
28, 2005. We reported the change of auditors from Malone to Bateman on our Form
8-K filed with the Commission on August 18, 2004.
Lopez succeeded Bateman who succeeded Malone. Malone audited our balance sheet
as of December 31, 2002 and December 31, 2003, and the related consolidated
statements of operations, stockholders' equity and cash flows for the period
from June 14, 2002 (Inception) through December 31, 2002, and the fiscal year
ended December 31, 2003. Malone's report on our financial statements for the
period from June 14, 2002 (Inception) through December 31, 2002, and the fiscal
year ended December 31, 2003, did not contain any adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles except for concerns about our ability to continue as a
going concern.
In connection with the audit of our financial statements for the period from
June 14, 2002 (Inception) through December 31, 2002, and the fiscal year ended
December 31, 2003, and any later interim period, including the interim period up
to and including the date the relationship with Malone ceased, there were no
disagreements with Malone on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of Malone would have caused
Malone to make reference to the subject matter of the disagreement(s) in
connection with its report on our financial statements. There were no reportable
events as defined in Item 304(a)(1)(iv)(B) of Regulation S-B during the period
from June 14, 2002 (Inception) through December 31, 2002, and the fiscal year
ended December 31, 2003, and any later interim period, including the interim
period up to and including the date the relationship with Malone ceased.
Bateman reviewed our interim financial statements included in the Form 10-QSB
filed with the Commission on August 20, 2004. During the interim period
beginning August 16, 2004 (the date that we engaged Bateman) up to and including
the date that the relationship with Bateman ceased, there were no disagreements
with Bateman on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement(s), if
not resolved to the satisfaction of Bateman would have caused Bateman, if
Bateman had issued a report on our financial statements, to make reference to
67
the subject matter of the disagreement(s) in connection with such report. There
have been no reportable events as defined in Item 304(a)(1)(iv)(B) of Regulation
S-B during the interim period up to and including the date the relationship with
Bateman ceased.
We authorized Malone and Bateman to respond fully to any inquiries of any new
auditors hired by us relating to their engagement as our principal independent
accountant. We requested that Malone review the disclosure in the report on Form
8-K filed with the Commission on August 18, 2004, and Malone was given an
opportunity to furnish us with a letter addressed to the Commission containing
any new information, clarification of our expression of its views, or the
respect in which it did not agree with the statements made by us therein. Such
letter was filed as an exhibit to such report on Form 8-K. We requested that
Bateman review the disclosure in our report on Form 8-K filed with the
Commission on March 28, 2005, and Bateman was given an opportunity to furnish us
with a letter addressed to the Commission containing any new information,
clarification of our expression of its views, or the respect in which it did not
agree with the statements made by us therein. Such letter was filed as an
exhibit to such report on Form 8-K.
We did not previously consult with Bateman regarding either (i) the application
of accounting principles to a specified transaction, either completed or
proposed; or (ii) the type of audit opinion that might be rendered on our
financial statements; or (iii) any matter that was either the subject matter of
a disagreement (as defined in Item 304(a)(1)(iv)(A) of Regulation S-B) between
us and Malone, our previous principal independent accountant, as there were no
such disagreements, or an other reportable event (as defined in Item
304(a)(1)(iv)(B) of Regulation S-B) during the period from June 14, 2002
(Inception) through December 31, 2002, and the fiscal year ended December 31,
2003, and any later interim period, including the interim period up to and
including the date the relationship with Malone ceased. Neither have we received
any written or oral advice concluding there was an important factor to be
considered by us in reaching a decision as to an accounting, auditing, or
financial reporting issue.
We did not previously consult with Lopez regarding either (i) the application of
accounting principles to a specified transaction, either completed or proposed;
or (ii) the type of audit opinion that might be rendered on our financial
statements; or (iii) any matter that was either the subject matter of a
disagreement (as defined in Item 304(a)(1)(iv)(A) of Regulation S-B) between us
and Bateman or Malone, our previous principal independent accountants, as there
were no such disagreements, or an other reportable event (as defined in Item
304(a)(1)(iv)(B) of Regulation S-B) during the interim period up to an including
the date the relationship with Bateman ceased, or the period from June 14, 2002
(Inception) through December 31, 2002, and the fiscal year ended December 31,
2003, and any later interim period, including the interim period up to and
including the date the relationship with Malone ceased. Neither have we received
any written or oral advice concluding there was an important factor to be
considered by us in reaching a decision as to an accounting, auditing, or
financial reporting issue.
We requested Bateman review the disclosure in our report on Form 8-K before it
was filed with the Commission on August 18, 2004, and provided Bateman the
opportunity to furnish us with a letter addressed to the Commission containing
any new information, clarification of our expression of its views, or the
respects in which Bateman did not agree with the statements made by us in such
68
report. Bateman did not furnish a letter to the Commission. We requested Lopez
review the disclosure in the report on Form 8-K before it was filed with the
Commission on March 28, 2005, and provided Lopez an opportunity to furnish us
with a letter addressed to the Commission containing any new information,
clarification of our expression of its views, or the respects in which Lopez did
not agree with the statements made by us in such report. Lopez did not furnish a
letter to the Commission.
ITEM 8A. CONTROLS AND PROCEDURES.
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 annual 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 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.
Changes in internal control over financial reporting. There were no significant
changes in the Company's internal control over financial reporting during the
fourth fiscal quarter that materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
ITEM 8B. OTHER INFORMATION.
On December 28, 2005, the Company's Board of Directors appointed Frederick
Pauzar, who has served as the Company's Chief Operating Officer and Director
since September 1, 2005, as Secretary of the Company. In connection with Mr.
Pauzar's appointment, Malcolm J. Wright, the Company's Chief Executive Officer,
resigned as Secretary of the Company.
69
On March 7, 2006, at a Special Telephonic Meeting of the Board of Directors of
the Company (the "Meeting"), Michael Crosbie was nominated to serve as the
Company's General Counsel, Executive Vice President and Secretary and of the
Company, which nomination was approved by a majority of the Directors present at
the Meeting. Mr. Crosbie's appointment to his offices was effective March 15,
2006. In connection with Mr. Crosbie's appointment as Secretary of the Company,
Mr. Pauzar resigned as Secretary of the Company.
Additionally at the Meeting, the Board of Directors nominated Malcolm J. Wright,
the Company's Chief Executive Officer and then President and Director as
Chairman of the Company's Board of Directors, and Mr. Wright's nomination was
approved by a majority of the Directors present at the Meeting. Mr. Wright
replaces William Chiles, who stepped down as Chairman of the Board of Directors,
but will continue to serve as a Director of the Company.
At the Meeting, the Board of Directors also nominated Frederick Pauzar, the
Company's Chief Operating Officer and a Director of the Company to serve as the
Company's President, which nomination was approved by a majority of the
Directors present at the Meeting. As a result of Mr. Pauzar's appointment, Mr.
Wright will no longer serve as the Company's President, but will continue to
serve as the Company's Chief Executive Officer and Chairman of the Board of
Directors.
Finally, a majority of the Directors who attended the Meeting, voted to appoint
Jeffrey Scott as the President of the Company's 50.83% owned subsidiary, Hickory
Travel Systems, Inc. ("Hickory") and to reconfirm William Chiles, also a
Director of the Company, as the Chief Executive Officer of Hickory.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
OFFICERS AND DIRECTORS:
Our executive officers and directors, and their ages and positions are as
follows:
NAME AGE TITLE
------------------- --- ------------------------------
Malcolm J. Wright 55 Chief Executive Officer,
Chairman of the Board of Directors,
Chief Financial Officer
Frederick Pauzar 51 President, Chief Operating Officer and
Director
Michael Crosbie 37 Corporate General Counsel, Executive
Vice President, Secretary and Director
L. William Chiles 63 Director, Chief Executive Officer and
Chairman of the Board of Directors of
Hickory Travel Systems, Inc.
James Leaderer 52 Director
Jeffrey Scott 49 President of Hickory Travel Systems, Inc.
70
BIOGRAPHICAL INFORMATION
CURRENT OFFICERS AND DIRECTORS
------------------------------
MALCOLM J. WRIGHT is the driving force behind our business model, has served as
a member of our Board of Directors and as our Chief Executive Officer and Chief
Financial Officer since June 2002. Mr. Wright served as our Secretary from June
2002 until December 28, 2005 and as our President from June 2002 until March 7,
2006. Since March 7, 2006, Mr. Wright has served as the Chairman of our Board
of Directors. Prior to joining us, Mr. Wright successfully developed vacation
properties abroad that are similar to the ones planned at The Sonesta Orlando
Resort at Tierra Del Sol. Since 1998, Mr. Wright served as the President of
American Leisure Inc, which we acquired in June 2002. Mr. Wright currently
serves as the President of American Leisure Real Estate Group, Inc., a real
estate development company with which we have contracted for the development of
the resort, Xpress Ltd., with which we contracted for the exclusive sales and
marketing for resort, Innovative Concepts, Inc., which operates a landscaping
business, M J Wright Productions, Inc., which owns our Internet domain names,
and Resorts Development Group, LLC, which engages in real estate development.
Mr. Wright is also the President of Osceola Business Managers, Inc., Florida
World, Inc. and SunGate Resort Villas, Inc. which do not currently conduct any
business operations. Since 1980, Mr. Wright has spent a considerable amount of
time and money in establishing a large and effective marketing network in the
United Kingdom and parts of Europe, that has been responsible for the pre-sales
at The Sonesta Orlando Resort at Tierra Del Sol Mr. Wright was admitted to
Associate Membership of the Institute of Chartered Accountants in England &
Wales in 1974 and admitted to Fellowship of the Institute of Chartered
Accountants in England & Wales in 1978.
Mr. Wright has devoted substantially all of his time over the past few years to
the growth and success of the Company. In addition to providing the vision and
strategy for the acquisition and integration of the various subsidiaries, Mr.
Wright has taken personal responsibility for the welfare of the Company. Mr.
Wright has also guaranteed certain loan facilities, without which the Company
would be in a decidedly different position. He has put his personal assets at
stake to advance the interests of the Company. Furthermore, Mr. Wright has
accrued his salary since 2002 in an effort to preserve capital. He has led the
Company to transactions that have the potential to provide greater shareholder
value.
FREDERICK PAUZAR has served as our Director and Chief Operating Officer since
September 1, 2005. Since March 7, 2006, Mr. Pauzar has served as our President.
From December 28, 2005 until March 15, 2006, Mr. Pauzar served as our Secretary.
Mr. Pauzar currently serves as Chairman and Chief Executive Officer of Group One
Productions, Inc., a Florida-based business and real estate consulting and
development firm, and has held these positions since he co-founded the company
in 1991. Mr. Pauzar also currently serves as Vice President and as a Director of
Fugleberg Koch Architects, Inc. and has held these positions since February 2005
and January 1997, respectively. From January 1997 to February 2005, Mr. Pauzar
served as Chief Executive Officer of Fugleberg. Mr. Pauzar received an Associate
in Science degree from Excelsior College in Albany, New York. Mr. Pauzar serves
on the board of the Downtown Digital Media Arts Center in Orlando, Florida.
71
MICHAEL CROSBIE, has served as our General Counsel, Executive Vice President,
Director and Secretary since March 15, 2006. Mr. Crosbie previously served as a
Partner with Foley & Lardner, a national law firm in its Orlando, Florida,
office from February 2004 until March 2006. From February 2002 until January
2004, Mr. Crosbie served as senior counsel with Foley & Lardner and from
September 1998 until January 2002, he served as an associate with Foley &
Lardner. Prior to joining Foley & Lardner, Mr. Crosbie served as a law clerk
for United States District Judge Steven D. Merryday in Tampa, Florida, from June
1997 until August 1998. From August 1995 until May 1997, he was employed as an
associate attorney with Rumberger, Kirk & Caldwell, in Orlando, Florida. Mr.
Crosbie obtained his bachelors degree from the University of Central Florida in
Political Science in 1992 and obtained his Juris Doctorate from the University
of Florida in 1995. Mr. Crosbie is a member of The Florida Bar, the Supreme
Court of Florida, the United States District Court for the Middle District of
Florida, the United States Court of Appeals for the Ninth and Eleventh Circuits
and is also a member of the Federalist Society.
L. WILLIAM CHILES has served as a member of our board of directors since June
2002. Mr. Chiles served as our Chief Executive Officer from August 2002 to May
2004. Since August 1998, Mr. Chiles has served as the Chief Executive Officer
and President of Hickory Travel Systems, Inc., which we acquired in October
2003. Mr. Chiles received a Masters degree in marketing and finance from the
University of Colorado and a Bachelors degree in business administration from
Colorado State University. Mr. Chiles has specialized education in management.
He is a Member of the Young Presidents Organization, the Chicago Presidents
Organization and the Minister ARC Advisory Board.
JAMES LEADERER has served as a member of our board of directors since May 2002,
and served as our President, Chief Executive Officer, Treasurer and Secretary
from May 2002 to July 2002. From January 1999 to November 2003, Mr. Leaderer
served as the General Principal of Momentum Securities. Mr. Leaderer received a
Bachelor of Science degree in engineering from Syracuse University.
JEFFREY SCOTT was appointed as the President of Hickory Travel Systems, Inc. on
March 7, 2006. Mr. Scott served as General Manager of Thor, Inc, a Cendant
company. a travel services company, from November 2002 until March 2006. From
August 2002 until November 2002, he served as Vice President of Sales and Client
Services for Thor, Inc. From June 1990 to March 2001, he served in various
positions with Worldspan L.P, including serving as Director of Customer
Operations from April 1996 to March 2001; serving as Manager in the Sales and
Marking Department from April 1994 to April 1996; and serving as a Regional
Sales Manager of Zone Manager from June 1990 until April 1994. Mr. Scott
obtained a Bachelor of Science degree in Management from National Louis
University, in Atlanta, Georgia in June 2001.
72
There are no family relationships among our directors, executive officers or
persons nominated to become directors or executive officers.
------------------------------------------
We are not aware of the occurrence during the last five years of any events
described in Item 401(d) of Regulation S-B under the Securities Act regarding
our directors, persons nominated to become directors, executive officers, or
control persons.
TERM OF OFFICE
Our Directors are elected annually and hold office until our next annual meeting
of the shareholders and until their successors are elected and qualified. Our
officers are appointed by our board of directors and hold office until they are
removed by the board or they resign.
AUDIT COMMITTEE
We do not have an audit committee or an audit committee financial expert. We
expect the nomination and acceptance of several directorships in the future. We
anticipate that we will form an audit committee when new members join our board
of directors, and anticipate that one of them will serve as an independent audit
committee financial expert.
COMPENSATION COMMITTEE
We do not have a compensation committee. We expect the nomination and acceptance
of several directorships in the future. We anticipate that we will form a
compensation committee when new members join our board of directors.
COMPENSATION OF DIRECTORS
We pay or accrue $18,000 per year for each person who serves on the board of
directors. During the last two fiscal years we accrued all Directors salaries,
which amount totaled approximately $177,000 as December 31, 2005.
In June 2004, we granted to each of Malcolm J. Wright and L. William Chiles
warrants to purchase 100,000 shares (or an aggregate of 200,000 shares) of our
common stock at an exercise price of $1.02 per share for their services.
Warrants to purchase 75,000 shares have vested to each of them. Warrants to
purchase the remaining 25,000 shares will vest to each of them on their next
anniversary dates as Directors, provided that they are still serving as
Directors. They may exercise the warrants for a period of five years from the
dates on which such warrants vest.
In September 2005, we granted warrants to purchase 100,000 shares of our
common stock at an exercise price of $1.02 per share to Frederick Pauzar for his
services as a director. The warrants vested immediately with respect to 25% of
73
the shares and will vest with respect to 25% of the shares on the next three
anniversaries of the date on which Mr. Pauzar became a director, provided that
Mr. Pauzar is still serving as a director on such dates.
In March 2006, in connection with Mr. Crosbie's employment as Executive Vice
President, General Counsel and Secretary of the Company, Mr. Crosbie was granted
100,000 warrants to purchase shares of the Company's common stock at an exercise
price of $1.02 per share. One half of the warrants, or 50,000 vested on March
15, 2006, with the remaining warrants vesting 25,000 at a time on March 15, 2007
and March 15, 2008, assuming he is still employed by the Company on those dates.
CODE OF ETHICS
The Company has adopted a code of ethics that applies to the Company's principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Company will provide to
any person without charge, upon request, a copy of such code of ethics. Persons
wishing to make such a request should do so in writing to the Secretary at
American Leisure Holdings, Inc., 2460 Sand Lake Road, Orlando, Florida, 32809.
74
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the compensation that we
paid to our Chief Executive Officer and each of our four other most highly
compensated executive officers during the three years ended December 31, 2005.
We refer to these officers in this report as the named executive officers.
SUMMARY COMPENSATION TABLE
Annual Compensation*
Long Term Compensation (1)
Awards
Restricted Securities
Other annual Stock Underlying
Salary Bonus compensation award(s) Options/SARs
Name and Principal Position Year ($) ($) ($) ($) (#)
--------------------------- ------ ---------- ------- ------------- ------------ ------------
Malcolm J. Wright 2005 $518,000(2) $182,647 2,135,851 (6)
Chief Executive Officer, 2004 $578,000(3) -- -- -- 230,000 (6)
Secretary, Chief Financial 2003 $313,000(3) -- -- -- --
Officer and Chairman
L. William Chiles 2005 $263,438(4) -- -- -- 193,672 (6)
Director and the Chief 2004 $270,902(5) -- -- -- 218,672 (6)
Executive Officer of Hickory 2003 $168,579(5) -- -- -- --
Travel Systems, Inc.
Christopher Dane 2005(7) $108,496
Former President of
Hickory Travel Systems, Inc.
Frederick Pauzar 2005 $93,333(8)
President, Chief Operating
Officer and Director
Charles Sieberling 2005 $128,240
Secretary of Hickory 2004 $131,731
Travel Systems, Inc. 2003 $ 86,000
75
* Does not include perquisites and other personal benefits in amounts
less than 10% of the total annual salary and other compensation.
(1) There are no stock option, retirement, pension, or profit sharing
plans for the benefit of our officers and directors.
(2) Mr. Wright was accrued $500,000 for his salary as an officer of the
Company and $18,000 for directors compensation for the year ended December
31, 2005, which amount bears interest at 12% annum, compounded annually
until paid. Additionally, we pay $940 per month and related expenses to
provide Mr. Wright with business use of a motor vehicle. The amount listed
in the table above includes the $500,000 annual salary, the $18,000
director's compensation, the $940 a month vehicle expense and a bonus of
$182,647 which was paid to Mr. Wright equal to 19% of the total net
revenues of the Company's subsidiary, Advantage Professional Management,
Inc. in connection with the terms of Mr. Wright's employment with the
Company, which have not as of the date of this filing been finalized in a
written employment agreement. The $182,647 bonus accrued to Mr. Wright
during the year ended December 31, 2005. The amount of salary listed in the
table above for the year ended December 31,2 005 does not include any
interest on Mr. Wright's salary which has accrued. As of December 31, 2005,
the Company had accrued approximately $2,700,000 of officer's and Directors
salary for Mr. Wright, earned by Mr. Wright from the year 2000 to December
31, 2005, which amount has accrued approximately $477,000 of interest as of
December 31, 2005.
(3) Includes $500,000, $250,000 and $250,000 of accrued salary for Mr.
Wright's services as an executive officer for 2004, 2003 and 2002,
respectively, $60,000 and $45,000 of accrued interest on salaries payable
in 2004 and 2003, respectively, at 12% per annum, compounded annually, and
$18,000 of accrued director compensation per year for Mr. Wright's services
as a director of the Company for 2004, 2003 and 2002. We pay $940 per month
and related expenses to provide Mr. Wright with business use of a motor
vehicle.
(4) Mr. Chiles was paid $145,438 in salary for his services to the Company
as Chief Executive Officer of Hickory Travel Systems, Inc. He also accrued
$100,000 of salary for his services to the Company as Chief Executive
Officer of Hickory Travel Systems, Inc., which accrued salary bears
interest at the rate of 12% per year compounded annually until paid. Mr.
Chiles also accrued $18,000 in Directors fees for the year ended December
31, 2005.
(5) Includes $152,902 and $150,579 of salary paid to Mr. Chiles for his
services as an executive officer of Hickory for 2004 and 2003,
respectively, $100,000 of accrued salary for 2004, and $18,000 of accrued
director compensation per year for his services as a director for 2004,
2003 and 2002. Mr. Chiles is provided a new insured automobile for his use
during the term of his employment with Hickory, which vehicle shall have an
approximate value of $80,000.
(6) In July 2004, Mr. Wright was issued 100,000 options, of which 50,000
vested immediately and 25,000 vested as of July 2005, with the remaining
25,000 to vest as of July 2006 (which unvested 25,000 shares are not
included in the compensation table above). In July 2004, Mr. Chiles was
issued 100,000 options, of which 50,000 vested immediately and 25,000
vested as of July 2005, with the remaining 25,000 to vest as of July 2006
(which unvested 25,000 shares are not included in the compensation table
above). Additionally, in 2004, in connection with personal guarantees
pursuant to the Debt Guarantor Agreement described above under "Description
of Business," we issued Mr. Wright 205,000 warrants to purchase shares of
our common stock, and Mr. Chiles warrants to purchase 168,672 shares of
common stock. In 2005, in connection with personal guarantees pursuant to
the Debt Guarantor Agreement, we issued Mr. Wright warrants to purchase
2,110,851 shares of our common stock and we issued Mr. Chiles 168,672
warrants to issue shares of our common stock. All of Mr. Wright's warrants
are exercisable at $1.02 per share.
(7) Mr. Dane served as president of Hickory Travel Systems, Inc. from
March 1, 2005 until March 1, 2006.
(8) Mr. Pauzar was paid $93,333 for his services as the Company's Chief
Operating Officer from September 1, 2005 until December 31, 2005 and for
his services as the Company's Secretary from December 28, 2005 until
December 31, 2005. Mr. Pauzar did not accrue any salary for the year ended
December 31, 2005. Mr. Pauzar's current annual salary for his services to
the Company is $500,000. Mr. Pauzar does not have an employment agreement
with the Company as of the date of this filing.
76
EMPLOYMENT AGREEMENTS
Mr. Wright and we are negotiating an employment agreement pursuant to which Mr.
Wright will serve as our Chief Executive Officer and Chief Financial Officer.
Mr. Pauzar and we are negotiating an employment agreement pursuant to which Mr.
Pauzar will serve as our President and Chief Operating Officer.
Mr. Crosbie and we are negotiating an employment agreement pursuant to which Mr.
Crosbie will serve as our Vice President, General Counsel and Secretary.
On May 18, 2004, we entered into a three-year employment agreement with L.
William Chiles to serve as Chairman of our board of directors and a separate
three-year employment agreement for him to serve as the President and Chief
Executive Officer of Hickory Travel Systems, Inc. ("Hickory"). Mr. Chiles
ceased serving as President of Hickory on March 7, 2006 and ceased serving as
the Chairman of our board of directors on March 7, 2006. The agreements provide
that Mr. Chiles will receive a base salary of $100,000 for his services as our
Chairman and $150,000 for his services as the Chief executive Officer of
Hickory. Under each agreement, Mr. Chiles is eligible to receive an annual
incentive-based bonus based on his achievement of goals and objectives that he
and our board of directors agree upon. Mr. Chiles is entitled to one and
one-half weeks of vacation at two times his base salary rate per week per
$50,000 of his base salary for his services as Chairman and $75,000 of his base
salary for his services as Chief Executive Officer of Hickory. Mr. Chiles is
also entitled to share in the profits of Hickory in an amount not to exceed
$2,700,000 over the life of his employment agreement with Hickory. Hickory is
required to provide Mr. Chiles with key man life insurance equal to eight times
his base salary; however, neither we nor Hickory have obtained such policy as of
the date of this report. Hickory is also required to provide Mr. Chiles with one
insured automobile having a value of $80,000 every year of his employment
agreement. If Mr. Chiles is terminated without cause, under each agreement, he
will receive thirty-six months' base salary and any incentive-based bonus that
otherwise would have been payable to him through the date that we terminate his
employment. We do not have an obligation to pay base salary or incentive-based
bonus to Mr. Chiles under either agreement if he voluntarily terminates his
employment or he is terminated for cause. For purposes of these employment
agreements, "cause" means the following activities:
- Use of alcohol, narcotics or other controlled substances that prevent
him from efficiently performing his duties;
- Disclosure of confidential information or competes against us in
violation of the employment agreements;
- Theft, dishonesty, fraud, or embezzlement from us or a violation of
the duty of loyalty to us;
- If Mr. Chiles is directed by a regulatory or governmental authority to
terminate his employment with us or engages in activities that cause
actions to be taken by regulatory or government authorities, that have a
material adverse effect on us;
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- Conviction of a felony (other than a felony resulting in a traffic
violation) involving any crime of moral turpitude or any crime involving
us;
- Sexual harassment or sexually inappropriate behavior;
- Materially disregards duties under the employment agreements;
- Egregious misconduct or pattern of conduct; or
- Entering into enforceable commitments on our behalf without conforming
to our policies and procedures or in violation of any of our directives.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth information as of March 30, 2006, with respect to
the beneficial ownership of our common stock by (i) each director and officer of
the Company, (ii) all directors and officers as a group and (iii) each person
known by the Company to own beneficially 5% or more of our common stock:
TOTAL
PREFERRED TOTAL PERCENTAGE OF
COMMON STOCK VOTING VOTING BENEFICIAL
STOCK (1) RIGHTS (1) WARRANTS (1) SHARES (1) VOTING SHARES (1)
--------- ------------ ------------ ---------- ------------------
Roger Maddock 2,447,616 (2) 5,050,000 (3) 513,000 (4) 8,010,616 (2)(3)(4) 50.9% (5)
Malcolm J. Wright 1,592,981 (6) 4,000,000 (7) 2,923,711 (8) 8,516,692 (6)(7)(8) 49.8% (9)
Stanford Venture
Capital Holdings, Inc. 845,733 (10) - 708,000 (11) 1,553,733 (10)(11) 13.6% (12)
Stanford International
Bank Limited 2,085,500 (13) 500,000 (14) 385,000 (15) 2,970,500 (13)(14)(15) 28.1% (16)
L William Chiles 850,000 - 412,344 (17) 1,262,344 (17) 11.9% (18)
James Leaderer 10,000 - 10,000 0.1% (19)
Frederick Pauzar - - 50,000 (20) 50,000 (20) 0.5% (21)
Michael Crosbie - - 50,000 (22) 50,000 (22) 0.5% (23)
(All officers and
Directors 2,452,981 4,000,000 (7) 3,436,055 (8)(17) 9,889,036 (6)(7)(8) 56.1% (24)
five persons)
(20)(22) (17)(20)(22)
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(1) The number of shares of common stock owned are those "beneficially
owned" as determined under the rules of the Commission, including any
shares of common stock as to which a person has sole or shared voting or
investment power and any shares of common stock which the person has the
right to acquire within sixty (60) days through the exercise of any option,
warrant or right. As of March 1, 2006, there were 10,176,474 shares of
common stock outstanding, which amount does not include the 197,000 shares
of common stock we agreed to issue Harborage Leasing Corporation, in
connection with our purchase of the minority interest in Tierra Del Sol
Resort, Inc.
(2) Includes 2,102,268 shares of common stock owned by Arvimex, Inc.,
whose president is Mr. Maddock and 345,348 shares of common stock owned
directly by Mr. Maddock.
(3) Includes 30,000 shares of Series A Preferred Stock, which are
convertible into 300,000 shares of common stock, owned directly by Mr.
Maddock and 475,000 shares of Series A Preferred Stock, which are
convertible into 4,750,000 shares of common stock held by Arvimex, Inc.,
whose president is Mr. Maddock.
(4) Includes 270,000 warrants to purchase shares of the Company's common
stock which were granted to Avirmex, Inc., whose president is Mr. Maddock,
in January 2004 (terms, expiration date, price, etc.) and 243,00 warrants
to purchase shares of the Company's common stock at $1.02 per share, which
warrants were issued to Mr. Maddock in connection with his guaranty of the
Company's $8,100,000 credit facility from Stanford International Bank,
Ltd., which is described in greater detail under under "Item 1. Description
of Business," above.
(5) Using 15,739,474 shares outstanding, which assumes the conversion of
Mr. Maddock's 5,050,000 shares of Series A Preferred Stock and the exercise
of all 513,000 warrants which he beneficially owns.
(6) Includes 845,733 shares of common stock held individually by Mr.
Wright; 719,942 shares held by Xpress, Ltd. ("Xpress"), which Mr. Wright is
the president of; and 27,306 shares of common stock held by Mr. Wright's
daughter who resides in the same household as Mr. Wright and which shares
Mr. Wright has voting control of until his daughter reaches the age of 18,
in April 2006.
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(7) Includes 55,000 shares of Series A Preferred Stock which are
convertible into 550,000 shares of the common stock, which are owned
individually by Mr. Wright; 335,000 shares of Series A Preferred Stock
owned directly by Xpress, which Mr. Wright is the president of, which are
convertible into 3,350,000 shares of common stock and 10,000 shares of
Series A Preferred Stock, which are convertible into 100,000 shares of the
Company's commons stock, which shares are held by Mr. Wright's daughter.
Mr. Wright has pledged 845,733 shares of common stock to Stanford as
collateral for an aggregate of $6,000,000 of financing that Stanford has
provided to us. Mr. Wright disclaims beneficial ownership of 302,000 shares
of common stock owned directly by James Hay Trustees, Ltd. as Mr. Wright
does not have voting or investment power over these shares, which the trust
is holding for the benefit of Mr. Wright's pension.
(8) Includes 3,121,571 warrants to purchase shares of the Company's common
stock at $1.02 per share.
(9) Using 17,100,185 shares of common stock outstanding, assuming the
conversion of Mr. Wright's 400,000 shares of Series A Preferred Stock and
the exercise of all 2,923,711 warrants held by Mr. Wright.
(10) Includes 1,125,000 shares of common stock held directly by Stanford
Venture Capital Holdings, Inc. ("Stanford") and 845,733 shares of common
stock pledged by Malcolm J. Wright, see footnote (7) above. However, this
amount does not include the shares of common stock directly owned by four
Stanford employees or shares issuable upon exercise of the warrants owned
by such employees, as there are no contracts, agreements or understandings
pursuant to which Stanford has or shares voting power, which includes the
power to vote, or direct the voting of, or investment power, which includes
the power to dispose or direct the disposition of, in connection with the
shares of the four Stanford employees. Stanford International Bank Limited
received the securities of which it is the beneficial owner from R. Allen
Stanford who received them from Stanford Venture Capital Holdings, Inc. as
set forth in an Assignment and Assumption Agreement, filed as Exhibit 10.1
to Schedule 13D by Stanford International Bank Limited on July 15, 2005.
(11) Includes 708,000 warrants to purchase shares of the Company's common
stock at $5.00 per share.
(12) Using 10,884,474 shares of common stock outstanding, which amount
assumes the exercise by Stanford of all 708,000 warrants which it holds.
(13) Includes 1,125,000 shares of common stock held by Stanford
International Bank, Ltd., and an aggregate of $5,605,000 which in
convertible promissory notes convertible into shares of common stock at $10
per share, and $6,000,000 in a convertible promissory note convertible into
shares of common stock at $15 per share, which are in aggregate convertible
into 960,500 shares of common stock at the option of Stanford International
Bank, Ltd.
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(14) Includes 25,000 shares of Series C Preferred Stock held by Stanford
International Bank, Ltd., which are convertible into 500,000 shares of
common stock.
(15) Includes 231,000 warrants to purchase shares of the Company's common
stock at $0.001 per share and 154,000 shares of the Company's common stock
at $5.00 per share.
(16) Using 11,061,474 shares outstanding, which amount includes the
conversion of all 25,000 shares of Series C Preferred Stock held by
Stanford International Bank, Ltd., and the exercise of all 385,000 warrants
which Stanford International Bank, Ltd. holds.
(17) Includes 412,344 warrants held by Mr. Chiles, 143,672 of which have an
exercise price of $2.96 per share and 268,672 of which have an exercise
price of $1.02 per share.
(18) Using 10,588,818 shares of common stock outstanding, which amount
assumes the exercise by Mr. Chiles of all 412,344 warrants which he holds
to purchase shares of the Company's common stock.
(19) Using 10,176,474 shares of common stock outstanding as of March 30,
2006, which amount does not include the 197,000 shares of common stock we
agreed to issue Harborage Leasing Corporation, in connection with our
purchase of the minority interest in Tierra Del Sol Resort, Inc., which
shares have not been issued as of the date of this filing.
(20) Includes 50,000 warrants to purchase shares of the Company's common
stock at $1.02 per share.
(21) Using 10,226,474 shares of common stock outstanding, which amount
assumes the exercise by Mr. Pauzar of all 50,000 warrants which he holds to
purchase shares of the Company's common stock.
(22) Includes 50,000 warrants to purchase shares of the Company's common
stock at $1.02 per share.
(23) Using 10,226,474 shares of common stock outstanding, which amount
assumes the exercise by Mr. Crosbie of all 50,000 warrants which he holds
to purchase shares of the Company's common stock.
(24) Using 17,612,529 shares of common stock outstanding, which amount
assumes the exercise by the officers and Directors of all shares of
Preferred Stock which they hold, as described in footnote (7) and the
exercise of all warrants to purchase shares of the Company's common stock
held by the officers and directors, as described in footnotes
(8),(15),(17)(20) and (22).
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CHANGE IN CONTROL
We are unaware of any arrangement or understanding that may, at a subsequent
date, result in a change of control of our Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We believe that all prior related party transactions have been entered into upon
terms no less favorable to us than those that could be obtained from
unaffiliated third parties. Our reasonable belief of fair value is based upon
proximate similar transactions with third parties or attempts to obtain the
services from third parties, if such transaction would be available from third
parties. All past, ongoing and future transactions with such persons, including
any loans from or compensation to such persons, have been or will in the future
be approved by a majority of disinterested members of the Board of Directors.
We accrue $500,000 per year as salary payable to Malcolm J. Wright, our Chief
Executive Officer. Prior to 2004, we accrued $250,000 per year as salary payable
to Mr. Wright. We accrue interest at a rate of 12% compounded annually on the
salary owed to Mr. Wright. As of December 31, 2005, the aggregate amount of
salary payable and accrued interest owed to Mr. Wright was $2,700,000. We also
accrue $100,000 per year as salary payable to L. William Chiles, a director of
the Company and the President of Hickory, for his services, and interest at a
rate of 12% compounded annually beginning in 2005. As of December 31, 2005, the
aggregate amount of salary payable to Mr. Chiles was $116,500.
We pay or accrue directors' fees to each of our directors in an amount of
$18,000 per year for their services as directors. During the last two fiscal
years, we have accrued approximately $135,000 in director's fees.
We may provide the executive officers of each of our subsidiaries an aggregate
bonus of up to 19% of the pre-tax profits, if any, of the subsidiaries in which
they serve as executive officers. Malcolm J. Wright will receive 19% of the
pre-tax profits of Leisureshare International Ltd, Leisureshare International
Espanola SA, American Leisure Homes, Inc., APMG, TDSR, and American Leisure
Hospitality Group, Inc. We do not have any agreements with our officers
regarding the bonus other than with L. William Chiles. Mr. Chiles is entitled to
receive 19% of the profits of Hickory up to a maximum payment over the life of
his contract of $2,700,000. As Mr. Chiles' bonus is limited, it is not subject
to the buy-out by us (discussed below) as it will cease as soon as the
$2,700,000 amount has been paid to him. The executive officers of our other
subsidiaries would share a bonus of up to 19% of the pre-tax profits of the
subsidiary in which they serve as executive officers. We would retain the right,
but not have the obligation to buy-out all of the above agreements after a
period of five years by issuing such number of shares of our common stock equal
to the product of 19% of the average after-tax profits for the five-year period
multiplied by one-third of the price to earnings ratio of our common stock at
the time of the buyout divided by the greater of the market price of our common
stock or $5.00. We have not paid or accrued any bonus as of the filing of this
report. While the terms of Mr. Wright's bonus agreement have been agreed to,
such terms have not been memorialized in a formal agreement as of the date of
this filing.
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Since the reverse merger in July of 2002, we have relied almost exclusively upon
Malcolm J. Wright for the experience and energy required to cultivate
opportunities for us in vacation real estate development. We have accrued salary
and other compensation to Mr. Wright up to this point. Therefore, we have
entered into agreements with entities owned or controlled by Mr. Wright to
secure advancement of our real estate development projects.
Malcolm J. Wright is the President and 81% majority shareholder of American
Leisure Real Estate Group, Inc. ("ALREG"). We do not own any interest in ALREG.
On November 3, 2003, we entered into an exclusive development agreement with
American Leisure Real Estate Group to provide development services for the
development of The Sonesta Orlando Resort at Tierra Del Sol. Pursuant to this
development agreement, it is responsible for all development logistics and we
are obligated to reimburse it for all of its costs and to pay it a development
fee in the amount of 4% of the total costs of the project paid by it. As of
December 31, 2004, it had administered operations and paid bills in the amount
of $3,543,784 and received a fee of 4% (or approximately $141,751) under the
development agreement, and for the year ended December 31, 2005, it had
administered operations and paid bills in approximately the amount of $8,000,000
and had received a fee of 4% of such amount or $320,316.
Mr. Wright is also an officer and shareholder of Innovative Concepts, Inc.,
which operates a landscaping business, M J Wright Productions, Inc., which owns
our Internet domain names, Resorts Development Group, LLC which develops resort
properties in Orlando including Bella Citta, Los Jardines Del Sol, The Preserve,
Tortuga Cay and Sherberth Development LLC, Resorts Construction, LLC with whom
we intend to contract to construct part of the Sonesta Resort as described
above, Resorts Concepts, LLC which operates a design business, Titan
Manufacturing, LLC with 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 the Boulevard Hotel on South Beach, Miami.
Malcolm J. Wright and members of his family are the majority shareholders of
Xpress Ltd., a company that has experience marketing vacation homes in Europe.
On November 3, 2003, we entered into an exclusive sales and marketing agreement
with Xpress to sell the units in The Sonesta Orlando Resort at Tierra Del Sol
being developed by us. This agreement provides for a sales fee in the amount of
3% of the total sales prices received by us plus a marketing fee of 1.5%.
Pursuant to the terms of the agreement, one-half of the sales fee is payable
upon entering into a sales contract (with deposits paid as required by the sales
contract) for a unit in the resort and the other half is due upon closing the
sale. As of December 31, 2004, we had paid Xpress $3,505,748 of cash, issued
Xpress 120,000 shares of Series A Preferred Stock valued at $1,200,000, and
transferred to Xpress a 1913 Benz automobile valued at $500,000 in connection
with sales fees. For the fiscal year ended December 31, 2005, Xpress was paid
a total of $2,654,735 in sales fees. As of December 31, 2005, we had pre-
paid Xpress a total of $3,516,000 in sales commissions in connection with
approximately $37,666,000 in deposits received on sales in the Sonesta Resorts.
In February 2004, Malcolm J. Wright, individually and on behalf of Xpress, and
Roger Maddock, individually and on behalf of Arvimex, Inc., entered into
contracts with us to purchase an aggregate of 32 town homes for $13,116,800. Mr.
Wright and Mr. Maddock paid an aggregate deposit of $1,311,680 and were given a
10% discount that we otherwise would have had to pay as a commission to a
84
third-party real estate broker. Roger Maddock is directly (and indirectly
through Arvimex) the beneficial owner of more than 5% of our common stock.
In November 2003, Malcolm Wright, our Chief Executive Officer and Chairman,
Gillian Wright our former Director, and our subsidiary, American Leisure, Inc.,
sold 82.5% of the ownership interests of American Vacation Resorts, Inc.
("AVR"), a vacation club to our current President and Director, Frederick
Pauzar, in consideration for an aggregate of $1,500,000 in promissory notes,
pursuant to the terms of a Stock Purchase Agreement. In April 2004, pursuant to
an amendment to the stock purchase agreement, the parties agreed to substitute
seventeen (17) vacation properties located in Kissimmee, Florida, as
consideration for the purchase of the interests of AVR, in place of the payment
of $1,500,000 in promissory notes.
In June 2004, we granted warrants to each of Malcolm J. Wright and L. William
Chiles for their services as directors to purchase 100,000 shares (or an
aggregate of 200,000 shares) of our common stock at an exercise price of $1.02
per share. Warrants to purchase 75,000 shares have vested to each of them.
Warrants to purchase the remaining 25,000 shares will vest to each of them on
the next anniversary date of each of their terms as a director, provided they
are then serving in said capacity. While the terms of these warrants have been
agreed to, they have not been memorialized in a formal agreement as of the date
of this filing.
On February 1, 2005, Gillian Wright resigned as one of our Directors.
M J Wright Productions, Inc., of which Mr. Wright is the President, owns our
Internet domain names.
Mr. Wright and we are negotiating an employment agreement pursuant to which Mr.
Wright will serve as our Chief Executive Officer and Chief Financial Officer. We
will provide the terms of the employment agreement when it is finalized. In June
2005, we entered into an indemnification agreement with Mr. Wright.
In March 2005, we closed on the sale of 13.5 acres of commercial property in
Davenport, Polk County, Florida at the corner of U.S. Hwy. 27 and Sand Mine
Road. The property was sold for $4,020,000. We paid-off secured debt on the
property of $1,300,000 plus accrued interest and other costs. We used the net
proceeds for working capital and to pay $1,948,411 of notes payable to related
parties attributable to the acquisition and retention of the property.
Profits on the sale of this property amounted to approximately $968,000.
Thomas Cornish has previously served as a member of our advisory board, which we
no longer have. He is the President of the Seitlin Insurance Company. Our board
of directors has authorized Seitlin to place a competitive bid to provide
insurance for The Sonesta Orlando Resort at Tierra del Sol. During 2004 and
2005, Mr. Cornish provided services on our advisory board in consideration for
$1,500 and $3,000, respectively. David Levine has served as a member of our
advisory board, which we no longer have. He provided services on our advisory
board during 2004 and 2005 in consideration for $3,000 and $1,500, respectively.
We reimbursed Mr. Levine for travel expenses in the amount of $1,613 and $8,521
during 2004 and 2005, respectively. Charles J. Fernandez, a member of our
advisory board provided services on our advisory board during 2005 for which he
was paid $3,000. We authorized warrants to each of Thomas Cornish, Charles J.
85
Fernandez and David Levine to purchase 100,000 shares (or an aggregate of
300,000 shares) of our common stock at an exercise price of $1.02 per share in
consideration for their services as advisors. The warrants vested immediately
with respect to the purchase of 50,000 shares by each of them. Warrants to
purchase the remaining 50,000 shares will vest to by each of them in equal
amounts on their next two anniversary dates as advisors. While the terms of
these warrant agreements have been agreed to, they have not been memorialized in
a formal agreement as of the date of this filing. We previously announced Messrs
Cornish, Levine and Fernandez as Director nominees, however we currently have no
present intention for such individuals to serve on our Board of Directors.
In June 2005, Arvimex, Inc., which is controlled by our significant shareholder,
Roger Maddock, exercised warrants to purchase 160,000 shares of our common stock
at $0.001 per share, for aggregate consideration of $160.
In July 2005, we issued 171 shares of Series E preferred stock to The
Martin Topolsky Trust in exchange for an equity interest in Around The World
Travel Holdings, Inc., consisting of 13,500 shares of its Series A preferred
stock and 21,687 shares of its common stock.
On July 1, 2005, we granted warrants to L. William Chiles, a Director, to
purchase 168,672 shares of our common stock at an exercise price of $1.02 per
share and warrants to Malcolm J. Wright, our Chief Executive Officer and
Director, to purchase 347,860 shares of our common stock at an exercise price
of $1.02 per share. We issued the warrants to Mr. Chiles and Mr. Wright as
consideration for them renewing their personal guarantees regarding the loan
with Grand Bank & Trust of Florida in connection with our renewal of that
loan.
South Beach Resorts, LLC, has contracted with one of the Company's subsidiaries
Wright Resort Villas & Hotels, Inc. to receive hotel management services for a
hotel wish it owns and is redeveloping. Mr. Pauzar, Mr. Wright and Mr. Maddock
control the membership interests of the limited liability company which owns and
controls South Beach Resorts, LLC.
In September 2005, we reported in a Form 8-K filing, our entry into a
non-binding term sheet with Vici Marketing Group, LLC ("Vici"), whereby we were
to purchase 100% of the assets of Vici in return for 235,000 shares of common
stock to members of Vici and up to an additional 2,000,000 shares of the
Company's common stock. The acquisition of Vici was anticipated to close by
October 30, 2005. We never closed the acquisition with Vici, did not issue Vici
any shares, and do not anticipate closing such acquisition in the future.
On December 28, 2005 we granted warrants to Malcolm J. Wright, our Chief
Executive Officer and Director, to purchase 2,008,500 shares of our common stock
at an exercise price of $1.02 per share. We issued the warrants to Mr. Wright as
consideration for his personal guarantee regarding the construction and land
loans with KeyBank, N.A. While the terms of these warrants have been agreed to,
they have not been memorialized in a formal agreement as of the date of this
filing.
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In December 2005, in connection with the Stanford Credit Facility, the Company
granted SIBL and its designees warrants to purchase 308,000 shares of the
Company's common stock at an exercise price of $5.00 per share and warrants to
purchase 154,000 shares of the Company's common stock at an exercise price of
$0.001 per share, which warrants expire five years from their grant date. (The
Stanford Credit Facility and warrants are described in greater detail above).
In December 2005 in connection with their guaranty of the Stanford Credit
Facility pursuant to the Irrevocable and Unconditional Guaranty, the Company
agreed to issue an aggregate of 405,000 warrants to purchase shares of the
Company's common stock to certain third party entities. The warrants have an
exercise price of $1.02 and expire 5 years from the expiration date of the third
parties guaranties. (the Stanford Credit Facility and Irrevocable and
Unconditional Guaranty are described in greater detail above). While the terms
of these warrants have been agreed to, they have not been memorialized in a
formal agreement as of the date of this filing.
On January 9, 2006, with an effective date of June 14, 2002, the Company entered
into an Amended Debt Guarantor Agreement ("Amended Debt Agreement") with Malcolm
J. Wright, its Chief Executive Officer and Director and L. William Chiles, a
Director of the Company (collectively, Mr. Wright and Mr. Chiles are referred to
herein as the "Guarantors"). Pursuant to the Amended Debt Agreement, the Company
and the Guarantors agreed to amend the terms of the prior Debt Guarantor
Agreement entered into between the parties. The original Debt Guarantor
Agreement provided for the Guarantors to receive warrants to purchase shares of
the Company's common stock at $2.96 per share in an amount equal to 3% of any
Company indebtedness that they personally guarantee. The Amended Debt Agreement
decreased the exercise price of the warrants to be issued in connection with any
of the Guarantor's guarantees to $1.02 per share (the "Guarantor Warrants").
Under the Amended Debt Agreement, the warrants issued to the Guarantors are
exercisable until five years after the date the Guarantor is no longer obligated
to personally guarantee such Company indebtedness. Additionally, under the
Amended Debt Agreement, the fee which the Guarantors receive for a pledge of
personally owned collateral to secure Company indebtedness was increased from 1%
of such total indebtedness guaranteed (as was provided under the original Debt
Guarantor Agreement), to 2% of the total amount of indebtedness guaranteed. The
2% fee is paid to the Guarantors in Guarantor Warrants with the same terms and
conditions as provided above.
Mr. Wright pledged to Stanford 845,733 shares of our common stock which he
holds. Stanford is currently in possession of the shares of our common stock
that Mr. Wright pledged; however, Mr. Wright retained the power to vote (or to
direct the voting) and the power to dispose (or direct the disposition) of those
shares. Mr. Chiles had personally guaranteed $2,000,000 of the $6,000,000
received from Stanford and pledged to Stanford 850,000 shares of our common
stock held by Mr. Chiles. Stanford released Mr. Chiles from the personal
guarantee and released his common stock from the pledge when we closed the
$6,000,000 credit facility. Mr. Wright and Mr. Chiles have each also given a
personal guarantee regarding a loan in the principal amount of $6,000,000 that
was made to Tierra Del Sol Resort Inc. by Grand Bank & Trust of Florida. We have
authorized the issuance of warrants to Mr. Wright and Mr. Chiles to purchase
587,860 shares and 168,672 shares, respectively, of our common stock at an
exercise price of $1.02 per share. We are under a continued obligation to issue
warrants at $1.02 to Messrs. Wright and Chiles for guarantees that they may be
required to give on our behalf going forward.
87
Additionally, Mr. Wright has guaranteed the Harborage Note, as described in
greater detail under "Description of Business," above, for which he received
42,962 warrants to purchase shares of the Company's common stock at an exercise
price of $1.02 per share. While the terms of these warrants have been agreed to,
they have not been memorialized in a formal agreement as of the date of this
filing.
In January 2006, in connection with the SIBL Reedy Creek Loan, the Company
granted SIBL warrants to purchase 154,000 shares of the Company's common stock
at an exercise price of $5.00 per share and warrants to purchase 77,000 shares
of the Company's common stock at an exercise price of $0.001 per share, which
warrants expire five years from their grant date.
In January 2006, in connection with the SIBL Reedy Creek Loan, the Company
granted warrants to four separate affiliates of SIBL entitling them to purchase
an aggregate of 154,000 shares of the Company's common stock at an exercise
price of $5.00 per share and 77,000 shares at an exercise price of $.001 per
share. The warrants have a term of five years and are immediately exercisable.
In January 2006, in connection with Mr. Wright's guarantee of the Amended Note,
the Company agreed to grant Mr. Wright warrants to purchase 240,000 shares of
the Company's common stock at an exercise price of $1.02 per share. The warrants
are being granted pursuant to an existing agreement between the Company and Mr.
Wright and expire 5 years from the expiration date of the guarantees. In
addition, the Company has agreed to register the shares underlying the warrants
granted to Mr. Wright on its next registration statement. While the terms of
these warrants have been agreed to, they have not been memorialized in a formal
agreement as of the date of this filing.
In March 2006, in connection with Mr. Crosbie's appointment as Executive Vice
President, General Counsel and Secretary of the Company, Mr. Crosbie was granted
100,000 warrants to purchase shares of the Company's common stock at an exercise
price of $1.02 per share. One half of the warrants, or 50,000 vested on March
15, 2006, with the remaining warrants vesting 25,000 at a time on March 15, 2007
and March 15, 2008, assuming he is still a Director of the Company on those
dates. While the terms of these warrants have been agreed to, they have not
been memorialized in a formal agreement as of the date of this filing.
In March 2006, we appointed Jeffrey Scott as President of Hickory. In
connection with Mr. Scott's appointment, we agreed to grant him warrants to
purchase 100,000 shares of the Company's common stock. The warrants have an
exercise price of $5.00 per share. One half, or 50,000 of Mr. Scott's warrants
vested on March 2, 2006, with the remaining 50,000 warrants vesting as follows,
25,000 warrants on March 2, 2007 and the remaining 25,000 warrants on March 2,
2008, assuming Mr. Scott is still employed by the Company on those dates.
While the terms of these warrants have been agreed to, they have not been
memorialized in a formal agreement as of the date of this filing.
In March 2006, with an effective date of December 30, 2005, we purchased the
minority interest of our now wholly owned subsidiary, Tierra Del Sol, Inc. (the
"Minority Interest") from Harborage Leasing Corporation ("Harborage"). The
88
purchase price of the Minority Interest from Harborage was a promissory note for
$1,411,705 ("Harborage Note"); the right to receive, without payment, two (2)
three-bedroom condominium units to be constructed in Phase 2 of the Tierra Del
Sol Resort, or in the event title to both such units is not delivered by
December 31, 2007, then, in lieu thereof, payment of $500,000.00 for each such
unit that is not transferred by such date; 197,000 shares of the Company's
common stock; and warrants to acquire 300,000 additional shares of the Company's
common stock at a price of $5.00 per share. The Harborage Note is guaranteed by
Malcolm J. Wright, the Company's Chief Executive Officer and Director, for which
he received a guaranty fee equal to three percent (3%)_of the amount guaranteed.
The Company paid this fee through the grant of 102,321 warrants to purchase
shares of the Company's common stock at an exercise price of $1.02 per share.
These warrants will expire 5 years from the expiration date of the guaranty.
While the terms of these warrants have been agreed to, they have not been
memorialized in a formal agreement as of the date of this filing.
ITEM 13. EXHIBITS
The exhibits listed below are filed as part of this annual report.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 (1) Stock Purchase Agreement
3.1 (2) Articles of Incorporation
3.2 (3) Amended and Restated Articles of Incorporation filed July 24, 2002
3.3 (3) Certificate of Amendment of Amended and Restated Articles of
Incorporation filed July 24, 2002
3.4 (3) Amended and Restated Bylaws
4.1 (3) Certificate of Designation of Series A Convertible Preferred Stock
4.2 (5) Certificate of Designation of Series B Convertible Preferred Stock
4.3 (5) Certificate of Designation of Series C Convertible Preferred Stock
4.4 (10) Amended and Restated Certificate of Designation of Series C
Convertible Preferred Stock
4.5 (20) Corrected Certificate of Designation of Series E Convertible
Preferred Stock, which replaces the Form of Certificate of
Designation of Series E Convertible Preferred Stock, filed as
Exhibit 1 to the Registrant's Form 8-K on April 12, 2004
89
4.6 (18) Certificate of Designation of Series F Convertible Preferred Stock,
which replaces the Form of Certificate of Designation of Series
F Convertible Preferred Stock, filed as Exhibit 3.1 to the
Registrant's Form 8-K on January 6, 2005
10.1 (3) Stock Option Agreement with L. William Chiles Regarding Hickory
Travel Systems, Inc.
10.2 (5) Securities Purchase Agreement with Stanford Venture Capital
Holdings, Inc. dated January 29, 2003
10.3 (5) Registration Rights Agreement with Stanford dated January 29, 2003
10.4 (5) Securities Purchase Agreement with Charles Ganz dated January 29,
2003
10.5 (5) Asset Sale Agreement with Charles Ganz dated January 29, 2003
10.6 (5) Registration Rights Agreement with Charles Ganz dated January 29,
2003
10.7 (5) Securities Purchase Agreement with Ted Gershon dated January 29,
2003
10.8 (5) Asset Sale Agreement with Ted Gershon dated January 29, 2003
10.9 (5) Registration Rights Agreement with Ted Gershon dated January 29,
2003
10.10(6) Confirmation of Effective Date and Closing Date of $6,000,000 Line
of Credit
10.11(6) Credit Agreement with Stanford for $6,000,000 Line of Credit
10.12(6) First Amendment to Credit Agreement with Stanford for $6,000,000
Line of Credit
10.13(6) Mortgage Modification and Restatement Agreement between Tierra Del
Sol Resort Inc., formerly Sunstone Golf Resort, Inc., formerly
Sunstone Golf Resort, Inc. ("TDSR") and Stanford dated
December 18, 2003
10.14(6) Registration Rights Agreement with Stanford dated December 18,
2003
10.15(6) Florida Mortgage and Security Agreement securing the $6,000,000
Line of Credit
90
10.16(6) Second Florida Mortgage and Security Agreement securing the
$6,000,000 Line of Credit
10.17(6) Security Agreement by Caribbean Leisure Marketing Limited and
American Leisure Marketing and Technology Inc. dated December 18,
2003, securing the $6,000,000 Line of Credit
10.18(6) Warrants issued to Daniel T. Bogar to purchase 168,750 shares at
$2.96 per share
10.19(7) Warrants issued to Arvimex, Inc. to purchase 120,000 shares at
$0.001 per share
10.20(7) Warrant Purchase Agreement with Stanford to purchase 600,000
shares at $0.001 per share and 1,350,000 shares at $2.96
per share
10.21(7) Warrants issued to Arvimex to purchase 270,000 shares at $2.96 per
share
10.22(10) Credit Agreement with Stanford for $1,000,000 Credit Facility
10.23(10) Credit Agreement with Stanford for $3,000,000 Credit Facility
10.24(10) Instrument of Warrant Repricing to purchase 1,350,000 shares at
$0.001 per share
10.25(10) Warrant Purchase Agreement with Stanford to purchase 500,000
shares at $5.00 per share
10.26(10) Registration Rights Agreement with Stanford dated June 17, 2004
10.27(8) Agreement and First Amendment to Agreement to Purchase Galileo
Notes with GCD Acquisition Corp. ("GCD"), dated March 19, 2004
and March 29, 2004, respectively
10.28(8) Assignment Agreement for Security for Galileo Notes
10.29(18) Bridge Loan Note for $6,000,000 issued by Around The World
Travel, Inc. in favor of Galileo International, LLC and
acquired by the Registrant
10.30(18) Third Amended and Restated Acquisition Loan Note for $6,000,000
issued by Around The World Travel, Inc. in favor of Galileo
International, LLC and acquired by the Registrant
10.31(18) Amended and Restated Initial Loan Note for $7,200,000 issued by
Around The World Travel in favor of Galileo and acquired by
the Registrant
91
10.32(18) Promissory Note for $5,000,000 issued by Around The World Travel,
Inc. in favor of CNG Hotels, Ltd. and assumed by the Registrant
10.33(18) Promissory Note for $2,515,000 issued by TDSR in favor of Arvimex
and Allonge dated January 31, 2000
10.34(18) Registration Rights Agreement with Arvimex dated January 23, 2004
10.35(13) Development Agreement between TDSR and American Leisure Real
Estate Group, Inc.
10.36(14) Exclusive Sales and Marketing Agreement between TDSR and Xpress
Ltd.
10.37(15) Asset Purchase Agreement with Around The World Travel, Inc. for
TraveLeaders
10.38(16) Operating Agreement between American Leisure Hospitality Group,
Inc. and Sonesta Orlando, Inc., dated January 29, 2005
10.39(17) Second Re-Instatement and Second Amendment to Contract of
Advantage Professional Management Group, Inc. to sell unimproved
land in Davenport, Florida to Thirteen Davenport, LLC
10.40(17) Purchase Agreement between Advantage Professional Management
Group, Inc. and Paradise Development Group, Inc. to sell part of
unimproved land in Davenport, Florida
10.41(17) First Amendment to Purchase Agreement between Advantage
Professional Management Group, Inc. and Paradise Development Group,
Inc. to sell part of unimproved land in Davenport, Florida
10.42(17) Assignment of Purchase Agreement, as amended, to Thirteen
Davenport, LLC to sell part of unimproved land in Davenport,
Florida
10.43(20) Note and Mortgage Modification Agreement dated May 12, 2005,
regarding a Promissory Note in the original amount of $985,000
dated January 31, 2000, issued by TDSR in favor of Raster
Investments, Inc. and a Mortgage in favor of Raster Investments,
Inc.
10.44(20) First Amendment to Asset Purchase Agreement with Around The World
Travel, Inc. for TraveLeaders dated March 31, 2005
10.45(21) Management Agreement with Around The World Travel, Inc. dated
January 1, 2005
92
10.46(21) License Agreement with Around The World Travel, Inc. dated
January 1, 2005
10.47(21) Agreement with Shadmore Trust U/A/D dated April 1, 2004 to
acquire common stock, preferred stock and indebtedness of AWT
10.48(21) Promissory Note for $1,698,340 issued by the Registrant in favor
of Shadmore Trust U/A/D and dated April 1, 2004
10.49(21) Stock Purchase Agreement dated April 12, 2004 to acquire
preferred stock of Around The World Travel, Inc.
10.50(21) Additional $1.25M issued by the Registrant in favor of Stanford
and dated November 15, 2004.
10.51(21) Third Amendment to Credit Agreement with Stanford for $1,000,000
and Second Additional Stock Pledge Agreement dated
December 13, 2004
10.52(21) Second Renewal Promissory Note for $1,355,000 issued by the
Registrant in favor of Stanford and dated December 13, 2004
10.53(21) Agreement dated March 17, 2005, to Terminate Right of First
Refusal Agreement and Amend Registration Rights Agreement with
Stanford
10.54(22) Warrant Agreement and Warrants to Malcolm J. Wright to purchase
100,000 shares at $1.02 per share
10.55(22) Warrant Agreement and Warrants to L. William Chiles to purchase
100,000 shares at $1.02 per share
10.56(22) Warrant Agreement and Warrants to T. Gene Prescott to purchase
100,000 shares at $1.02 per share
10.57(22) Warrant Agreement and Warrants to Charles J. Fernandez to
purchase 100,000 shares at $1.02 per share
10.58(22) Warrant Agreement and Warrant to Steven Parker to purchase
200,000 shares at $1.02 per share
10.59(22) Warrant Agreement and Warrants to Toni Pallatto to purchase
25,000 shares at $1.02 per share
10.60(21) Employment Agreement, as amended, between L. William Chiles and
Hickory Travel Systems, Inc.
10.61(21) Employment Agreement between L. William Chiles and the Registrant
93
10.62(21) First Amendment to $3 Million Credit Agreement
10.63(21) Instrument of Warrant Repricing to purchase 100,000 shares at
$0.001 per share
10.60(23) Commitment Letter with KeyBank National Association for
$96,000,000 for Phase I
10.61(23) Commitment Letter with KeyBank National Association for
$14,850,000 for Phase II
10.62(24) Re-Stated Promissory Note for $6,356,740 issued in favor of Around
The World Travel, Inc. dated June 30, 2005.
10.63(26) Commitment Letter with KeyBank National Association for
$96,000,000 for Phase I
10.63(27) Commitment Letter with KeyBank National Association for
$14,850,000 for Phase II
10.64(27) Commitment Letter with KeyBank National Association for up to
72,550,000, with a maximum principal balance of $40,000,000 for
Phase 1 dated December 1, 2005
10.65(27) Commitment Letter with KeyBank National Association for up to
$14,850,000 for Phase 2 dated December 1, 2005
10.66(28) Construction Loan Agreement with KeyBank National Association for
$40,000,000 for Phase 1 dated December 29, 2005
10.67(28) Promissory Note with KeyBank National Association for $40,000,000
10.68(28) Loan Agreement with KeyBank National Association for $14,850,000
for Phase 2 dated December 29, 2005
10.69(28) Promissory Note with KeyBank National Association for $14,850,000
10.70(28) Promissory Note for $4,000,000 issued by TDS Management, LLC in
favor of PCL Construction Enterprises, Inc.
10.71(28) Guaranty by the Registrant of the $4,000,000 Promissory Note to
PCL Construction Enterprises, Inc.
10.72(28) Guaranty of Malcolm J. Wright guaranteeing the $4,000,000
Promissory Note to PCL Construction Enterprises, Inc.
94
10.73(28) Addendum to Construction Loan Agreement Condominium and Townhouse
Project Development
10.74(28) Payment Guaranty Phase 1
10.75(28) Payment Guaranty Phase 2
10.76(28) Amended Debt Guarantor Agreement
10.77(28) Guaranty of Tierra Del Sol (Phase 1), Ltd. guaranteeing the
$4,000,000 Promissory Note to PCL Construction Enterprises, Inc.
(exhibit 10.7)
10.78(28) Performance and Completion Guaranty
10.79(28) Pledge and Security Agreement
10.80(29) Option Exercise Agreement with Stanford Financial Group Company
10.81(29) Assignment of Interest in Reedy Creek Acquisition Company, LLC
10.82(30) Registration Rights Agreement with SIBL dated January 4, 2006
10.4(30) Credit Agreement with SIBL
10.83(29) $7,000,000 Promissory Note with Bankers Credit Corporation
10.7(29) Modification and Reaffirmation of Guaranty and Environmental
Indemnity Agreement
10.84(29) Renewed, Amended and Increased Promissory Note
10.85(30) Stanford International Bank, Ltd. Warrant for 77,000 shares at
$0.001 per share
10.86(30) Stanford International Bank, Ltd. Warrant for 154,000 shares at
$5.00 per share
10.87(29) Irrevocable and Unconditional Guaranty
10.88(30) Registration Rights Agreement with SIBL dated December 28, 2005
10.89(29) SIBL $2.1 million note
10.90(30) Partnership Interest Pledge and Security Agreement and Collateral
Assignment (Phase 1)
95
10.91(30) Partnership Interest Pledge and Security Agreement and Collateral
Assignment (Phase 2)
10.92(30) SIBL Warrant Agreement for 2% Phase 1 interest
10.93(30) SIBL Warrant Agreement for 2% Phase 2 interest
10.94(29) Stanford International Bank, Ltd. Warrant for 154,000 at $0.001
per share
10.95(29) Stanford International Bank, Ltd. Warrant for 308,000 at $5.00 per
share
10.96(31) Original Purchase Agreement
10.97(32) First Amendment to Asset Purchase Agreement
10.98(33) Settlement Agreement effective as of December 31, 2005 by and
among American Leisure Holdings, Inc., American Leisure Equities
Corporation and Around The World Travel, Inc.
10.99(34) Stock Purchase Agreement between Harborage Leasing Corporation and
the Company
10.100(34) $1,411,705 Promissory Note payable to Harborage Leasing
Corporation
10.101(34) Malcolm J. Wright Guaranty Agreement regarding $1,411,705
Promissory Note with Harborage Leasing Corporation
10.102(34) Harborage Leasing Corporation warrant to purchase 300,000 shares
of common stock at $5.00 per share
10.103(35) Third Party Debt Guarantor Agreement
10.104(35) Note Modification Agreement with SIBL
16.1 (3) Letter from J.S. Osborn, P.C. dated August 1, 2002
16.2 (4) Letter from J.S. Osborn, P.C. dated May 22, 2003
16.3 (11) Letter from J.S. Osborn, P.C. dated August 17, 2004
16.4 (11) Letter from Charles Smith
16.5 (11) Letter from Marc Lumer & Company
16.6 (11) Letter from Byrd & Gantt, CPA's, P.A.
96
16.7 (12) Letter from Malone & Bailey, PLLC
16.8 (19) Letter from Bateman & Co., Inc., P.C.
21.1(35) Subsidiaries of American Leisure Holdings, Inc.
31* Chief Executive Officer and Chief Financial Officer Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32* Chief Executive Officer and Chief Financial Officer
Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.1 (6) Personal Guarantee by Malcolm J. Wright guaranteeing the
$6,000,000 Line of Credit
99.2(25) Press Release issued September 6, 2005, announcing Frederick
W. Pauzar as Chief Operating Officer and a Director
* Filed herein.
(1) Filed as Exhibit 2.1 to the Registrant's Form 8-K on June 28, 2002,
and incorporated herein by reference.
(2) Filed as Exhibit 3.1 to the Registrant's Form SB-1 on October 20,
2000, and incorporated herein by reference.
(3) Filed as Exhibits 3.1, 3.2, 3.3, 3.4 10.2, and 16.1, respectively, to
the Registrant's Form 10-QSB on August 19, 2002, and incorporated herein by
reference.
(4) Filed as Exhibit 16.1 to the Registrant's Form 8-K on May 23, 2003,
and incorporated herein by reference.
(5) Filed as Exhibits 99.2, 99.1, 99.3, 99.5, 99.6, 99.7, 99.8, 99.9,
99.10 and 99.11, respectively, to the Registrant's Form 10-KSB on May 23,
2003, and incorporated herein by reference.
(6) Filed as Exhibits 99.1, 99.2, 99.3, 99.4, 99.7, 99.8, 99.9, 99.10,
99.11 and 99.5, respectively, to the Registrant's Form 8-K on April 1,
2004, and incorporated herein by reference.
(7) Filed as Exhibits 99.11, 99.12 and 99.13, respectively, to the
Registrant's Form 10-QSB on May 25, 2004, and incorporated herein by
reference.
(8) Filed as Exhibits 99.1 and 99.2, respectively, to the Registrant's
Form 8-K on April 6, 2004, and incorporated herein by reference.
97
(9) Filed as Exhibits 3.1, 10.1, 10.2, 10.3, 10.4, 10.5 and 99.2,
respectively, to the Registrant's Forms 8-K/A filed on August 6, 2004, and
incorporated herein by reference.
(10) Filed as Exhibits 3.1, 10.1, 10.2, 10.3, 10.4, 10.5 and 99.2,
respectively, to the Registrant's Forms 8-K/A filed on August 6, 2004, and
incorporated herein by reference.
(11) Filed as Exhibits 16.2, 16.3, 16.4 and 16.5, respectively, to the
Registrant's Forms 8-K/A filed on August 18, 2004, and incorporated herein
by reference.
(12) Filed as Exhibit 16.1 to the Registrant's Form 8-K on August 18, 2004,
and incorporated herein by reference.
(13) Filed as Exhibit 10.6 to the Registrant's Form 10-QSB on August 20,
2004, and incorporated herein by reference.
(14) Filed as Exhibit 10.6 to the Registrant's Form 10-QSB/A on December 8,
2004, and incorporated herein by reference.
(15) Filed as Exhibit 10.1 to the Registrant's Form 8-K on January 6, 2005,
and incorporated herein by reference.
(16) Filed as Exhibit 10.1 to the Registrant's Form 8-K on February 2,
2005, and incorporated herein by reference.
(17) Filed as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to the
Registrant's Form 8-K on March 14, 2005, and incorporated herein by
reference.
(18) Filed as Exhibits 4.6, 10.29, 10.30, 10.31, 10.32, 10.33, and 10.34,
respectively, to the Registrant's Form 10-KSB on March 31, 2005, and
incorporated herein by reference.
(19) Filed as Exhibit 16.2 to the Registrant's Form 8-K on March 28, 2005,
and incorporated herein by reference.
(20) Filed as Exhibits 4.5, 10.43 and 10.44, respectively to the
Registrant's Form 10-QSB on May 23, 2005, and incorporated herein by
reference.
(21) Filed as Exhibits 10.45, 10.46, 10.47, 10.48, 10.49, 10.50, 10.51,
10.52, 10.53, 10.60, 10.61, 10.62, 10.63 and 23.1, respectively, to the
Registrant's Form SB-2 on June 30, 2005, and incorporated herein by
reference.
(22) Filed as Exhibits 10.54, 10.55, 10.56, 10.57, 10.58 and 10.59,
respectively, to the Registrant's Form SB-2/A on July 7, 2005, an
incorporated herein by reference.
(23) Filed as Exhibit 10.1 and 10.2, respectively to the Registrant's Form
8-K on August 18, 2005, and incorporated herein by reference.
98
(24) Filed as Exhibit 10.5 to the Registrant's Form 8-K on August 19, 2005,
and incorporated herein by reference.
(25) Filed as Exhibit 99.1 to the Registrant's Form 8-K on September 6,
2005, and incorporated herein by reference.
(26) Filed as Exhibits to our Report on Form 8-K filed with the Commission
on August 18, 2005, and incorporated herein by reference.
(27) Filed as Exhibits to our Report on Form 8-K filed with the Commission
on December 15, 2005 and incorporated herein by reference.
(28) Filed as Exhibits to the Registrant's report on form 8-K on January
12, 2006 and incorporated by reference herein.
(29) Filed as Exhibits to the Registrant's report on Form 8-K filed on
January 19, 2006 and incorporated herein by reference.
(30) Filed as Exhibits to the Company's report on Form 8-K, which was filed
with the SEC on March 28, 2006.
(31) Filed as Exhibit 10.1 to the Company's report on Form 8-K, which was
filed with the SEC on January 6, 2005, and is incorporated herein by
reference.
(32) Filed as Exhibit 10.44 to the Company's report on Form 10-QSB for the
quarter ended March 31, 2005, which was filed with the SEC on May 23, 2005,
and is incorporated herein by reference.
(33) Filed as Exhibit 10.3 to the Company's report on Form 8-K, which was
filed with the SEC on March 2, 2006, and is incorporated herein by
reference.
(34) Filed as Exhibits to the Company's Report on Form 8-K, which was filed
with the SEC on March 29, 2006, and is incorporated herein by reference.
(35) Filed as 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.
(i) In addition to Stanford International Bank, Ltd. ("SIBL"), four individuals
were granted warrants in connection with the Option Agreement. Those four
individuals, Ronald Stein, Osvaldo Pi, Daniel Bogar and William Fusselman were
each granted warrants to purchase 19,250 shares of the Company's common stock at
$0.001 per share, and warrants to purchase 38,500 shares of the Company's common
stock at $5.00 per share, which warrants are identical to the SIBL warrants
attached hereto as Exhibits 10.9 and 10.10, respectively, other than the number
of shares which those warrants are exercisable for.
99
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
The audit and audit related fees billed for audit and review of the Company's
annual and quarterly financial statements were $56,000 and $83,257 for the
fiscal years ended December 31, 2005 and December 31, 2004, respectively.
AUDIT RELATED FEES
The Company did not pay any additional fees for the years ended December 31,
2005 and 2004 for assurance and related services reasonably related to the
performance of the audit or review of the Company's financials statements.
TAX FEES
The Company paid $41,990 and $0, in fees for the years ended December 31, 2005
and 2004, respectively, for professional services rendered for tax compliance,
tax advice and tax planning.
ALL OTHER FEES
The Company's principal independent accountants did not bill the Company for any
services other than the foregoing for the fiscal years ended December 31, 2005
and December 31, 2004.
100
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN LEISURE HOLDINGS, INC.
By: /s/ Malcolm J. Wright
--------------------------
Name: Malcolm J. Wright
Title: Chief Executive Officer and
Director
Date: October 18, 2006
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Malcolm J. Wright Chief Financial Officer, October 18, 2006
---------------------- Chief Executive Officer, and
Malcolm J. Wright Chairman of the Board of Directors
/s/ Frederick Pauzar President, Chief Operating Officer, October 18, 2006
---------------------- and Director
Frederick Pauzar
/s/ Michael Crosbie General Counsel, October 18, 2006
---------------------- Executive Vice President,
Michael Crosbie and Secretary
/s/ L. William Chiles Director October 18, 2006
----------------------
L. William Chiles
101