UNITED STATES
1SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from to
---------- ----------
Commission file number 333-48312
AMERICAN LEISURE HOLDINGS, INC.
-------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 75-2877111
------------------------------ -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Park 80 Plaza East, Saddlebrook, New Jersey 07663
-------------------------------------------------
(Address of principal executive offices)
(201) 226-2060
--------------
(Registrant's telephone number)
N/A
--------------
(Former name and address)
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
As of August 20, 2004, 8,428,983 shares of Common Stock of the issuer were
outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 2004
and December 31, 2003 F-1
Condensed Consolidated Statements of Operations for the six and
three months ended June 30, 2004 and 2003 F-2
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2004 and 2004 F-3
Notes to Interim Condensed Consolidated Financial Statements F-4
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 AND DECEMBER 31, 2003
ASSETS
June 30, December 31,
2004 2003
------------ ------------
Unaudited Audited
CURRENT ASSETS:
Cash $ 2,518,701 $ 734,852
Accounts receivable 765,884 2,148,134
Advances receivable 101,864 -
Note receivable 2,114,020 -
Prepaid expenses and other 99,497 40,867
------------ ------------
Total Current Assets 5,599,966 2,923,853
------------ ------------
PROPERTY AND EQUIPMENT, NET, at cost 2,848,562 3,192,878
------------ ------------
LAND HELD FOR DEVELOPMENT 17,126,153 15,323,627
------------ ------------
OTHER ASSETS
Deposits 3,773,590 -
Investment 20,427 654,386
Investment in senior, secured notes 5,170,000 -
Investment in non-marketable securities 4,113,690 -
1913 Mercedes Benz 500,000 500,000
Goodwill 1,840,001 1,840,001
Other 3,115,354 941,730
------------ ------------
Total Other Assets 18,533,062 3,936,117
------------ ------------
TOTAL ASSETS $44,107,743 $25,376,475
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 9,885,454 $ 4,699,201
Current maturities of notes payable-related parties 911,586 741,760
Accounts payable and accrued expenses 2,303,920 2,287,699
Deposits and other 23,525 -
Shareholder advances 327,978 1,030,883
------------ ------------
Total Current Liabilities 13,452,463 8,759,543
Commitments and contingencies
Minority liability 26,062 510,348
Long-term debt and notes payable 15,296,478 8,268,222
Notes payable-related parties 952,670 1,675,000
Deposits 7,228,392 -
Mandatorily redeemable preferred stock, 28,000 shares authorized;
$.01 par value; 27,189 Series "C" shares issued and outstanding at
June 30, 2004 and December 31, 2003 - 2,718,900
------------ ------------
Total liabilities 36,956,065 21,932,013
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock; 1,000,000 shares authorized; $.001 par value;
880,000 Series "A" shares issued and outstanding at
June 30, 2004 and December 31, 2003 8,800 8,800
Preferred stock; 100,000 shares authorized; $.01 par value;
2,500 Series "B" shares issued and outstanding at
June 30, 2004 and December 31, 2003 25 25
Preferred stock; 28,000 shares authorized; $.01 par value;
27,189 Series "C" shares issued and outstanding at
June 30, 2004 and December 31, 2003 272 -
Preferred stock; 50,000 shares authorized; $.001 par value;
24,101 Series "E" shares issued and outstanding at
June 30, 2004 24
Capital stock, $.001 par value; 100,000,000 shares authorized;
8,428,983 and 7,488,983 shares issued and outstanding at
June 30, 2004 and December 31, 2003 8,429 7,489
Additional paid-in capital 11,464,852 6,166,488
Accumulated (deficit) (4,330,724) (2,738,340)
------------ ------------
Total Stockholders' Equity 7,151,678 3,444,462
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $44,107,743 $25,376,475
============ ============
F-1
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
------------ ----------- ------------ -----------
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
REVENUES $ 2,344,947 $ 35,190 $ 1,158,282 $ 35,190
COST OF SALES - - - -
------------ ----------- ------------ -----------
Gross margin 2,344,947 35,190 1,158,282 35,190
------------ ----------- ------------ -----------
EXPENSES:
Depreciation and amortization 442,992 175,288 222,920 99,198
Impairment loss - - - -
General and administrative expenses 3,974,755 743,547 2,000,289 549,801
------------ ----------- ------------ -----------
TOTAL OPERATING EXPENSES 4,417,747 918,835 2,223,209 648,999
------------ ----------- ------------ -----------
LOSS FROM OPERATIONS BEFORE MINORITY INTERESTS (2,072,800) (883,645) (1,064,927) (613,809)
------------
Minority interests 484,286 - 227,662 -
------------ ----------- ------------ -----------
NET LOSS BEFORE INCOME TAXES (1,588,514) (883,645) (837,265) (613,809)
PROVISIONS FOR INCOME TAXES (3,870) - (1,135) -
------------ ----------- ------------ -----------
NET LOSS $(1,592,384) $ (883,645) $ (838,400) $ (613,809)
============ =========== ============ ===========
NET LOSS PER SHARE:
BASIC AND DILUTED $ (0.21) $ (0.13) $ (0.11) $ (0.12)
============ =========== ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 7,759,642 6,620,718 7,888,324 6,537,510
============ =========== ============ ===========
F-2
AMERICAN LEISURE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Six Months
Ended Ended
June 30, June 30,
2004 2003
------------ ------------
UNAUDITED UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,592,384) $ (883,645)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 442,992 76,160
Loss on disposal of assets 113,529 -
Gain on settlement of litigation (145,614) -
Impairment loss - -
Common stock issued for services and contributed capital - -
Changes in assets and liabilities:
Decrease in receivables 1,382,250 (22,849)
(Increase) in advances receivable (101,864) (63,536)
(Increase) in prepaid and other assets (58,630) 24,655
(Increase) in deposits and other (5,947,214) (56,993)
Increase in accounts payable and accrued expenses 16,221 (113,217)
Increase in deposits and other 7,251,917 -
------------ ------------
Net cash used in operating activities 1,361,203 (1,039,425)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Investment) in non-marketable securities (5,250) -
(Increase) in investment in non-consolidated subsidiaries (20,427) -
(Increase) in notes receivable (2,114,020) -
Capitalization of real estate carrying costs (1,802,526) (1,082,797)
Acquisition of fixed assets (212,205) (346,698)
------------ ------------
Net cash used in investing activities (4,154,428) (1,429,495)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 5,516,169 3,781,802
Proceeds from notes payable-related parties (552,504) (596,655)
Proceeds from shareholder advances (387,191) (78,348)
------------
Proceeds from sale of securities 600 -
------------ ------------
Net cash provided by financing activities 4,577,074 3,106,799
------------ ------------
Net Increase (decrease) in Cash 1,783,849 637,879
CASH AT BEGINNING PERIOD 734,852 50,499
------------ ------------
CASH AT END OF PERIOD $ 2,518,701 $ 688,378
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 360,000 $ 180,000
============ ============
Cash paid for income taxes $ - $ -
============ ============
NON-CASH TRANSACTION
Stock issued in exchange for assets $ - $ 2,850,000
============ ============
Stock issued in exchange for senior, secured notes $ 5,170,000 $ -
============ ============
Preferred stock and debt issued for non-marketable securities $ 4,108,440 $ -
============ ============
F-3
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
June 30, 2004
Note A - Presentation
The condensed balance sheets of the Company as of June 30, 2004, the related
condensed consolidated statements of operations for the six and three months
ended June 30, 2004, and the condensed consolidated statements of cash flows for
the six months ended June 30, 2004, included in the condensed financial
statements include all adjustments (consisting of normal, recurring adjustments)
necessary to summarize fairly the Company's financial position and results of
operations. The results of operations for the six and three months ended June
30, 2004 are not necessarily indicative of the results of operations for the
full year or any other interim period. The information included in this Form
10-QSB should be read in conjunction with Management's Discussion and Analysis
and Financial Statements and notes thereto included in the Company's December
31, 2003, Form 10-KSB and the Company's Forms 8K & 8-K/A filings.
NOTE B - REVENUE RECOGNITION
American Leisure recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or determinable and
collectibility is probable. These criteria are generally met at the time
services are performed.
Note C - Property and equipment, net
At June 30, 2004, property and equipment consisted of the following:
Useful
Lives Amount
---------- ----------
Computer equipment 3-5 $ 872,973
---------- ----------
Automobiles 5 63,230
Furniture & fixtures 5-7 73,269
Leasehold improvements 5 29,729
Telecommunications equipment 5 3,514,424
----------
4,553,625
Less: accumulated depreciation and 1,705,063
amortization ----------
$2,848,562
==========
Depreciation expense for the six month period ended June 30, 2004 was $442,992.
F-4
NOTE D - LONG-TERM DEBT AND NOTES PAYABLE
1. New Credit Facilities
Effective June 17, 2004, American Leisure Holdings, Inc. (the "Company") entered
Into two new credit facilities with Stanford Venture Capital Holdings, Inc.
("Stanford"). The terms of these facilities and certain related transactions are
described below.
$1,000,000 Credit Facility.
The Company and Stanford have entered into a Credit Agreement dated as of June
17, 2004, pursuant to which the Company has borrowed $1,000,000 from Stanford.
The proceeds of the loan will be used by the Company to fund operating and
related costs of the Company's customer service and marketing center located in
Antigua. This facility is owned by Caribbean Leisure Marketing Ltd. ("CLM").
CLM is 100% owned by Castlechart Limited, which in turn is 100% owned by the
Company.
The loan bears interest at 8% per annum, payable quarterly in arrears. All
principal is due in one lump sum on April 22, 2007.
The loan is secured by a lien on all shares of CLM and all of the shares of
Castlechart Limited. Both liens are subordinated to existing liens previously
granted to Stanford for an earlier loan.
Under the credit agreement, the loan is non-recourse to the Company except in
certain limited circumstances.
The loan is convertible by Stanford at any time into shares of the Common Stock
of the Company, at a conversion price of $10.00 per share.
$3,000,000 Credit Facility.
The Company and Stanford have entered into a Credit Agreement effective as of
June 17, 2004, pursuant to which the Company may borrow up to $3,000,000 from
Stanford. To date, the Company has received $2,535,000, and received
the remaining $465,000 in August 2004.
The proceeds of the loan will be used by the Company to support the Company's
proposed acquisition of Around The World Travel, Inc. and to pay expenses of the
Company's travel division. Certain of the Company's travel division
subsidiaries are co-borrowers.
F-5
The loan bears interest at 8% per annum and is payable quarterly in arrears. The
principal balance is due in one lump sum on April 22, 2007.
The loan is secured by the following:
(i) A lien on the stock owned by the Company in all of the co-borrowers except
the Corporation;
(ii) a collateral assignment of the Company's rights under a certain Option
Agreement dated as of May 17, 2004, under which the Company has the right to
acquire all of the membership interests in Around The World Holdings, LLC.
This company owns a majority of the outstanding common stock of AWT.
(iii) a collateral assignment of certain notes payable made by AWT which are
held by the Company. These notes evidence loans in the outstanding principal
amount of $19,200,000, and are secured by a first priority lien on substantially
all of the assets of AWT.
(iv) all of the other assets, property and rights of the Company's active
travel division subsidiaries other than CLM and Castlechart.
The loan is convertible at the option of Stanford at any time into shares of the
Company's Common Stock, at a conversion price of $10.00 per share.
2. Amendment of the Designation of the Series C Preferred Stock Terms
In connection with the new credit facilities, the Company, with the consent of
the holders of more than 75% of the issued and outstanding shares of Series C
Preferred Stock, amended the terms of the Company's Series C Preferred Stock to
eliminate any obligation of the Company to redeem the Series C Preferred Stock.
Stanford holds approximately 82% of the Series C shares.
3. Modification of Certain Existing Warrants
In connection with the new credit facilities, the Company agreed to modify the
terms of certain warrants previously issued to Stanford and certain individuals
affiliated with Stanford. These warrants, which were issued in December 2003,
entitled the holders to purchase 1,350,000 shares of the Company's Common Stock
at an exercise price of $2.96 per share. Under the terms of the amendment, the
Company agreed to reduce the exercise price of warrants to $.001 per share. No
other terms of these existing warrants were changed.
4. Issuance of New Warrants
As additional consideration for the new credit facilities, the Company issued
warrants to purchase Common Stock of the Company to Stanford and certain of its
affiliates. These warrants allow the holders to purchase 500,000 shares at an
exercise price of $5.00 per share. These warrants have a five-year term.
F-6
5. Grant of Registration Rights
In conjunction with the new credit facilities, the Company and Stanford entered
into a Registration Rights Agreement pursuant to which the Company agreed to
register the shares issuable to Stanford and its affiliates upon the conversion
of the loans under the new credit facilities. The Company has agreed to file a
registration statement for this purpose with the Securities and Exchange
Commission on or before August 15, 2004. The Company is currently seeking to
modify this agreement to extend the date for filing the registration statement
until February 2005.
6. Acquisition of Galileo Loans
AMLH has acquired the Galileo loans from GCD Acquisition Corp. ("GCD") Under the
terms of this agreement, AMLH has assumed GCD's obligation under a $5.0 million
promissory note, which GCD made when it acquired the Galileo loans.
Additionally, AMLH paid GCD other consideration in the form of 340,000 shares of
common stock in AMLH valued at $5.00 per share or an aggregate of $1.7 million.
AMLH believes that its acquisition of the Galileo loans is ultimately in the
best interests of the shareholders and creditors of TraveLeaders since these
loans were in default and were secured by substantially all of the assets of
TraveLeaders. AMLH believes that they can be used as part of a restructuring of
TraveLeaders, which will be fair and reasonable to all of TraveLeaders'
Shareholders and creditors.
The assets acquired were in the form of senior, secured notes owed by Around The
World Travel, Inc., a Florida Corporation,("AWT") in the amount of $22,600,000.
AMLH acquired the assets from GCD for $1,700,000, which was paid via the
issuance of 340,000 restricted shares of common stock of AMLH at $5 a share. In
addition, AMLH gave the seller various indemnities and agreed to assume the
seller's liability for, among other things, the responsibilities of GCD to
service the purchase money financing for the assets as defined in a certain
promissory note dated February 23, 2004, wherein the Maker is AWT and the Payee
is CNG Hotels, Ltd. in the amount of $5,000,000 that carries an interest rate of
the 3 month LIBOR + 1% per annum. This note is to be serviced on an interest
only basis every six months in arrears, until it reaches final maturity in
February, 2009.
7. $6,000,000 Credit Facility
The Company received a $6,000,000 loan credit facility from Stanford evidenced
by a promissory note in the original principal balance of $6,000,000, with
interest at the rate of 6% per annum, due on December 31, 2008, with conversion
rights for common stock of the Company. Certain other material terms of the
credit facility are set forth below:
Security: The credit facility is currently secured by way
of (i) an assignment of a second mortgage in favor
of Arvimex, Inc. on real estate located in Polk
County, Florida, owned by Tierra Del Sol, a
subsidiary of AMLH; (ii) a second mortgage in favor
of Stanford on real estate located in Polk County,
Florida, owned by Advantage Professional Management
Group, Inc., a subsidiary of AMLH; (iii) a pledge
by AMLH of all of its issued and outstanding
capital stock of American Leisure Marketing &
Technology, Inc., a subsidiary of AMLH; (iv) a
pledge from Castlechart Limited of all of its
issued and outstanding capital stock of Caribbean
Leisure Marketing Limited, a subsidiary of AMLH;
(v) a security interest in the equipment, fixtures
and proceeds thereof of American Leisure Marketing
& Technology, Inc.; (vi) a security interest in all
assets, property and rights of Caribbean Leisure
Marketing Limited; (vii) the issuance of warrants
for 600,000 shares of AMLH Common Stock at an
exercise price of $.001 per share, expiring on
December 31, 2008; and (viii) the issuance of
warrants for 1,350,000 shares of AMLH Common Stock
at an exercise price of $2.96 per share, expiring
on December 31, 2008.
F-7
Conversion: The note is convertible into the common stock of
the Company at a conversion price based on that
number of shares of the Company's Common Stock
calculated by dividing the amount due under the
credit facility by $15.00.
Expenses: The Company shall reimburse Stanford for all of
its reasonable costs and expenses incurred in
connection with the credit facility, including
fees of its counsel.
Registration Rights: No later than 180 days following the closing of
the exercise of the warrants or conversion of the
note, the Company shall file an SB-2 Registration
Statement under the Securities Act covering all of
the shares of common stock that may be received
through the exercise of warrants and conversion of
the note. In the event a filing is not made within
180 days of closing, the Company will issue
Stanford, as a penalty, additional warrants equal
to 10% of the warrants originally issued for every
quarter the filing is not made. The costs of the
registration statement shall be covered by the
Company.
Description of
the Warrants: The Company shall issue to Stanford or its assigns
warrants to purchase 1,950,000 shares of the
Company's Common Stock, at an average conversion
price of $2.05 per share, of which 600,000
warrants shall have an exercise price of $0.001
per share and 1,350,000 shall have an exercise
price of $2.96 per share. The warrants shall be
exercisable until December 31, 2008.
F-8
8. $1,698,340 Note to Shadmore Trust
As part of the acquisition of the majority interest in the preferred stock of
AWT, the Company issued 24,101 shares of its Series E Preferred Stock and issued
a note in the amount of $1,698,340 to the Shadmore Trust. The note calls for an
interest rate of four percent (4%) per annum with weekly payments in the amount
of $5,000 until the note is fully paid or April 1, 2011, whichever is first.
Payments shall commence upon the Company's acquisition of majority control of
AWT. The note is unsecured.
NOTE E - NOTES PAYABLE - RELATED PARTIES
The current portion of notes payable to related parties is as follows:
Azure, Ltd. $ 436,805
Roger C. Maddock 94,428
Arvimex Inc. 380,353
-------
Notes payable - related parties $ 911,586
=========
Roger C. Maddock beneficially owns more than 10% of the Company's common
stock and he is the majority owner of Axure, Ltd.
The long-term portion of notes payable of $952,670 is owed to the minority
shareholders of Hickory Travel Systems, Inc., a subsidiary of the Company.
$193,815 of such amount is owed to L. William Chiles, a Director of the
Company.
The majority of notes payable to related parties bear interest at a rate of 12%
per annum.
Note F - STOCKHOLDERS EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK
Common Stock and Mandatory Redeemable Preferred Stock
In March 2004, we issued 340,000 shares of restricted Common Stock in connection
with the acquisition of the senior, secured debt of AWT.
As reported in an earlier filing, the Company granted to Stanford, and to
certain individuals associated with Stanford, warrants to purchase an aggregate
of 600,000 shares of the Company's Common Stock at $.001 per share. These
warrants were issued at a cost paid by the Company for the issuance of the
$6,000,000 credit facility in December, 2003. During the month of April, 2004,
all 600,000 warrants were exercised which resulted in the issuance of 600,000
shares of Common Stock.
F-9
Preferred Stock
American Leisure is authorized to issue up to 10,000,000 shares of preferred
stock:
Annual
Total Series Stated Dividends Conver-
Class Authorized Value Voting per Share sion Rate
--------- ------------ ------- --------- ------- -----------
Series A 1,000,000 $ 10.00 Yes 0.12 10 shares
of common
per share
of Series A
Series B 100,000 $100.00 Yes 0.12 Liquidation
value
divided by
market
value but
not less
than 20:1
nor more
than 12.5:1
Series C (1) 28,000 $100.00 Yes 0.04 Liquidation
value
divided by
market
value but
not less
than 20:1
nor more
than 12.5:1
Series E 50,000 $100.00 Yes 0.04 Liquidation
value
divided by
market
value but
not less or
more than
than
6.666:1
(1) In April of 2004, the Company designated the Class E Preferred Stock.
Its authorization was made expressly for the purpose of using said class as the
currency of exchange for acquisitions such as for Around The World Travel, Inc.
The Designation was previously reported on Form 8-K filed with the Securities
and Exchange Commission (the "Commission") on April 12, 2004. In summary, said
class has a liquidation value of $100.00 per share and a strike price (for
Common Stock) of a minimum of $15.00.
Effective June 17, 2004, the Company amended the Certificate of Designation of
the Series C, Preferred Stock. By permission of more than the required minimum
percentage of the Class, the feature requiring the mandatory redemption of the
Series C Preferred Stock by the Company was deleted. The Company previously
reported the amendment on Form 8-K filed with the Commission on August 6, 2004.
F-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH ON THE FORWARD LOOKING STATEMENTS AS A RESULT OF
THE RISKS SET FORTH IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION, GENERAL ECONOMIC CONDITIONS, AND CHANGES IN THE ASSUMPTIONS USED IN
MAKING SUCH FORWARD LOOKING STATEMENTS. GIVEN THESE UNCERTAINTIES, INVESTORS
ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS AND
NO ASSURANCE CAN BE GIVEN THAT THE PLANS, ESTIMATES AND EXPECTATIONS REFLECTED
IN SUCH STATEMENTS WILL BE ACHIEVED.
THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES AND OTHER FINANCIAL INFORMATION INCLUDED
ELSEWHERE IN THIS QUARTERLY REPORT. UNLESS OTHERWISE INDICATED IN THIS
DISCUSSION (AND THROUGHOUT THIS QUARTERLY REPORT ), REFERENCES TO "REAL ESTATE"
AND TO "INVENTORIES" COLLECTIVELY ENCOMPASS THE COMPANY'S INVENTORIES HELD FOR
SALE. MARKET AND INDUSTRY DATA USED THROUGHOUT THIS QUARTERLY REPORT WERE
OBTAINED FROM COMPANY SURVEYS, INDUSTRY PUBLICATIONS, UNPUBLISHED INDUSTRY DATA
AND ESTIMATES, DISCUSSIONS WITH INDUSTRY SOURCES AND CURRENTLY AVAILABLE
INFORMATION. INDUSTRY PUBLICATIONS GENERALLY STATE THAT THE INFORMATION
CONTAINED THEREIN HAS BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT
THERE CAN BE NO ASSURANCE AS TO THE ACCURACY AND COMPLETENESS OF SUCH
INFORMATION. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED SUCH MARKET DATA.
SIMILARLY, COMPANY SURVEYS, WHILE BELIEVED BY THE COMPANY TO BE RELIABLE, HAVE
NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES. ACCORDINGLY, NO ASSURANCE CAN BE
GIVEN THAT ANY SUCH DATA WILL PROVE TO BE ACCURATE.
THE COMPANY DESIRES TO TAKE ADVANTAGE OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES REFORM ACT OF 1995 (THE "ACT") AND IS MAKING THE FOLLOWING
STATEMENTS PURSUANT TO THE ACT TO DO SO. CERTAIN STATEMENTS HEREIN AND ELSEWHERE
IN THIS REPORT AND THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY MAY ALSO MAKE WRITTEN OR ORAL
FORWARD-LOOKING STATEMENTS IN ITS ANNUAL REPORT TO STOCKHOLDERS, IN PRESS
RELEASES AND IN OTHER WRITTEN MATERIALS, AND IN ORAL STATEMENTS MADE BY ITS
OFFICERS, DIRECTORS AND EMPLOYEES. SUCH STATEMENTS MAY BE IDENTIFIED BY
FORWARD-LOOKING WORDS SUCH AS "MAY", "INTEND", "EXPECT", "ANTICIPATE,"
"BELIEVE," "WILL," "SHOULD," "PROJECT," "ESTIMATE," "PLAN" OR OTHER COMPARABLE
TERMINOLOGY OR BY OTHER STATEMENTS THAT DO NOT RELATE TO HISTORICAL FACTS. ALL
STATEMENTS, TREND ANALYSES AND OTHER INFORMATION RELATIVE TO THE MARKET FOR THE
COMPANY'S PRODUCTS, THE COMPANY'S EXPECTED FUTURE SALES, FINANCIAL POSITION,
OPERATING RESULTS AND LIQUIDITY AND CAPITAL RESOURCES AND ITS BUSINESS STRATEGY,
FINANCIAL PLAN AND EXPECTED CAPITAL REQUIREMENTS AND TRENDS IN THE COMPANY'S
OPERATIONS OR RESULTS ARE FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, MANY OF
WHICH ARE BEYOND THE COMPANY'S CONTROL, THAT COULD CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY TRENDS, TO DIFFER
MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. GIVEN THESE UNCERTAINTIES, INVESTORS
ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS AND
NO ASSURANCE CAN BE GIVEN THAT THE PLANS, ESTIMATES AND EXPECTATIONS REFLECTED
IN SUCH STATEMENTS WILL BE ACHIEVED. FACTORS THAT COULD ADVERSELY AFFECT THE
COMPANY'S FUTURE RESULTS CAN ALSO BE CONSIDERED GENERAL "RISK FACTORS" WITH
RESPECT TO THE COMPANY'S BUSINESS, WHETHER OR NOT THEY RELATE TO A
FORWARD-LOOKING STATEMENT. THE COMPANY WISHES TO CAUTION READERS THAT THE
FOLLOWING IMPORTANT FACTORS, AMONG OTHER RISK FACTORS, IN SOME CASES HAVE
AFFECTED, AND IN THE FUTURE COULD AFFECT, THE COMPANY'S ACTUAL RESULTS AND COULD
CAUSE THE COMPANY'S ACTUAL CONSOLIDATED RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY, OR ON BEHALF OF, THE
COMPANY:
a) Changes in national, international or regional economic conditions that can
adversely affect the real estate market, which is cyclical in nature and highly
sensitive to such changes, including, among other factors, levels of employment
and discretionary disposable income, consumer confidence, available financing
and interest rates.
b) The imposition of additional compliance costs on the Company as the result of
changes in or the interpretation of any environmental, zoning or other laws and
regulations that govern the acquisition, subdivision and sale of real estate and
various aspects of the Company's financing operation or the failure of the
Company to comply with any law or regulation. Also the risks that changes in or
the failure of the Company to comply with laws and regulations governing the
marketing (including telemarketing) of the Company's inventories and services
will adversely impact the Company's ability to make sales in any of its future
markets at its estimated marketing costs.
c) Risks associated with a large investment in vacation real estate inventory at
any given time (including risks that vacation real estate inventories will
decline in value due to changing market and economic conditions and that the
development, financing and carrying costs of inventories may exceed those
anticipated).
d) Risks associated with an inability to locate suitable inventory for
acquisition, or with a shortage of available inventory in the Company's
anticipated markets.
e) Risks associated with delays in bringing the Company's inventories to market
due to, among other things, changes in regulations governing the Company's
operations, adverse weather conditions, natural disasters or changes in the
availability of development financing on terms acceptable to the Company.
f) Changes in applicable usury laws or the availability of interest deductions
or other provisions of federal or state tax law, which may limit the effective
interest rates that the Company may charge on its future notes receivable.
g) A decreased willingness on the part of banks to extend direct customer
vacation home financing, which could result in the Company receiving less cash
in connection with the sales of vacation real estate and/or lower sales.
h) The fact that the Company requires external sources of liquidity to support
its operations, acquire, carry, develop and sell real estate and satisfy its
debt and other obligations, and the Company may not be able to locate external
sources of liquidity on favorable terms or at all.
i) The inability of the Company to locate sources of capital on favorable terms
for the pledge and/or sale of land and vacation ownership notes receivable,
including the inability to consummate or fund securitization transactions or to
consummate funding under facilities.
j) Costs to develop inventory for sale and/or selling, general and
administrative expenses materially exceed (i) those anticipated or (ii) levels
necessary in order for the Company to achieve anticipated profit and operating
margins or be profitable.
k) An increase or decrease in the number of resort properties subject to
percentage-of-completion accounting, which requires deferral of profit
recognition on such projects until development is substantially complete. Such
increases or decreases could cause material fluctuations in future
period-to-period results of operations.
l) The failure of the Company to satisfy the covenants contained in the
indentures governing certain of its debt instruments, and/or other credit, loan
agreements, which, among other things, place certain restrictions on the
Company's ability to incur debt, incur liens, make investments, pay dividends or
repurchase debt or equity.
m) The risk of the Company incurring an unfavorable judgment in any litigation,
and the impact of any related monetary or equity damages.
n) The risk that the Company's sales and marketing techniques are not
successful, and the risk that its Clubs are not accepted by consumers or imposes
limitations on the Company's operations, or is adversely impacted by legal or
other requirements.
o) The risk that any contemplated transactions currently under negotiation will
not close or conditions to funding under existing or future facilities will not
be satisfied.
p) Risks relating to any joint venture that the Company is a party to, including
risks that a dispute may arise with a joint venture partner, that the Company's
joint ventures will not be as successful as anticipated and that the Company
will be required to make capital contributions to such ventures in amounts
greater than anticipated.
q) Risks that any currently proposed or future changes in accounting principles
will have an adverse impact on the Company.
r) Risks that a short-term or long-term decrease in the amount of
vacation/corporate travel (whether as a result of economic, political or other
factors), including, but not limited to, air travel, by American consumers will
have an adverse impact on the Company's sales.
s) Risks that the acquisition of a business by the Company will result in
unforeseen liabilities, decreases of net income and/or cash flows of the Company
or otherwise prove to be less successful than anticipated.
The Company does not undertake and expressly disclaims any duty to update or
revise forward-looking statements, even if the Company's situation may change in
the future.
The Public may read and copy any materials filed by American Leisure Holdings,
Inc. with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC- 0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at www.sec.gov.
OVERVIEW
American Leisure Holdings, Inc. ("American Leisure," "AMLH" or "the
Registrant"), through its subsidiaries, is a developer of vacation real estate.
The Company has been re-designed and structured to own, control and direct a
series of companies in the travel and tourism industries so that it can achieve
significant vertical and horizontal integration in the sourcing of, and the
delivery of, corporate and vacation travel services. During the fourth quarter
of 2003, AMLH acquired HTS Holdings, Inc. and its subsidiaries ("HTS") to enter
into the travel and tourism industry. In May 2004, AMLH acquired an option to
purchase Around The World Holdings, LLC, the majority stockholder of
"TraveLeaders", discussed below. The acquisition of TraveLeaders, coupled with
the acquisition of HTS, will make AMLH both a brick-and-mortar and
Internet-based travel agency with a huge travel consortium distribution
system through HTS.
The Registrant was originally incorporated as Freewillpc.com, Inc. ("Freewill"),
a Nevada corporation, on June 13, 2000. American Leisure Corporation, formerly
American Leisure Holdings, Inc., a Nevada corporation ("ALC"), was incorporated
on May 10, 2002. Effective June 14, 2002, the Registrant acquired ALC and its
subsidiaries in exchange for the issuance of 880,000 shares of Series A
Preferred Stock and 4,893,974 shares of Common Stock (the "Acquisition"). In
connection with the Acquisition, the Registrant changed its name to American
Leisure Holdings, Inc.
For accounting purposes, the Acquisition was treated as an acquisition of
American Leisure and a recapitalization of ALC. ALC emerged as the surviving
financial reporting entity, but American Leisure remained as the legal reporting
entity. ALC is the accounting acquirer and the results of its operations carry
over. Accordingly, the operations of American Leisure were not carried over and
were adjusted to $0.
American Leisure Holdings, Inc. serves as a holding company to several operating
subsidiaries. The terms "Company," "we" or "our" as used herein refer to
American Leisure Holdings, Inc. and its wholly-owned and majority-owned
subsidiaries which include the following:
o American Leisure Corporation
o American Leisure, Inc.
o American Professional Management Group, Inc.
o Tierra Del Sol Resort, Inc.
o American Leisure Marketing & Technology, Inc.
o American Travel & Marketing Group, Inc.
o American Leisure Homes, Inc.
o Florida Golf Group, Inc.
o I-Drive Limos Inc.
o Orlando Holidays, Inc.
o Welcome to Orlando, Inc.
o Pool Homes, Inc.
o Pool Homes Managers, Inc.
o Leisureshare International Ltd.
o Leisureshare International Espanola S.A.
o American Travel Club, Inc.
o American Access Telecommunications Corporation
o American Switching Technologies, Inc.
o Club Touristico Latinoamericano, Inc.
o Affinity Travel Club, Inc.
o Affinity Travel, Inc.
o Luxshares, Inc.
o American Sterling Motorcoaches, Inc.
o HTS Holdings, Inc.
o Hickory Travel Systems, Inc.
The following four (4) subsidiaries are the Company's principal operating
companies:
Tierra Del Sol Resort, Inc. ("TDSR")
TDSR has completed the final planning stage of a 971-unit vacation destination
resort in Orlando, Florida. The Company expected that the horizontal
construction finance and resort amenities would be funded via a Community
Development District Bond ("CDD Bonds") placement. Due to the re-rating of
these bonds in December 2003, the placement of these bonds and the development
of the project has been delayed while TDSR seeks to obtain conventional
construction financing. TDSR expects to receive offers for conventional
construction funding during the third quarter of 2004. TDSR expects to sell CDD
Bonds on the "back end" when the vacation homes have been sold to third party
buyers with a view to recovering the monies it will have expended for the
horizontal infrastructure and resort amenities.
Presales of the vacation homes commenced on February 1, 2004. As of the date of
this report, TDSR has executed pre-sales contracts for 390 properties
representing sales of approximately $113,000,000. The Company will realize
income from the sales after development, construction and delivery of the
vacation homes to the purchasers. The company expects to complete the
construction of these presales in the third and fourth quarters of 2005.
TDSR is seeking a $95,000,000 construction loan to enter into the
construction/development stage in the winter of 2004. The Company is currently
seeking to strengthen its bank guarantees with a third party guarantor for the
construction loan. The Company also intends to continue to provide financial and
guarantee support to TDSR for the development of the resort. Provided that TDSR
obtains the necessary construction loan, development will commence with
horizontal construction during the winter of 2004 and vertical construction on
all pre-sales commencing in the spring of 2005, with the first vacation
investment properties estimated to be delivered late in the summer of 2005. At
this time, the Company does not have any commitments for the construction loan.
There can be no assurance that the Company will obtain the construction loan, or
that other arrangements will be available when needed or on terms satisfactory
to the Company. If the Company does not obtain the construction loan it cannot
begin the construction/development phase for TDSR.
On May 10, 2004, TDSR changed its name from Sunstone Golf Resort, Inc.
("Sunstone") to Tierra Del Sol Resort, Inc.
The Company refinanced the TDSR business operations in March of 2003 and repaid
loans that it had borrowed since February 2000 at high rates of interest. It
obtained a $6,000,000 loan that enabled the Company to further develop the
property by finalizing its revised planning, to obtain permitting for an
increase from 799 to 971 vacation residences, to commence engineering and to
establish the CDD Bonds.
On November 3, 2003 TDSR entered into an agreement with Town Center Commercial
Group, LLC for the sale and purchase of 40 acres of TDSR's property for the
amount of $7,000,000. The closing is conditional upon TDSR obtaining the release
of this property from its mortgage with Grand Bank & Trust of Florida. Of the
$7,000,000 sales price, $3,000,000 will be paid in cash and the balance of the
purchase consideration will be paid via the transfer of $4,000,000 of the
existing mortgages on the property due to Arvimex, Inc. and Raster Investments,
Inc.
American Travel & Marketing Group, Inc. ("ATMG")
We believe that ATMG will generate significant travel business through the
creation of clubs comprised of affinity-based travelers. ATMG has 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. We believe that ATMG is poised to secure a significant
market share of the affinity-travel marketing segment. As the proprietor and
manager of clubs it creates, ATMG anticipates substantial revenue from annual
membership fees and commissions earned on the sale of travel services once the
infrastructure has been finalized to communicate and sell to its affinity-based
club databases. The value added to ATMG programs by being a part of the AMLH
family includes the sales opportunities to the corporate clients of HTS, the
fulfillment capacity of the bulk buying power of HTS and the hotel/resort assets
to be provided by AMLH through its resort division.
American Leisure Marketing & Technology, Inc. ("ALMT)
ALMT began its marketing and sales in the Summer of 2003. The initial marketing
efforts were the sales of tours for various resorts and other tour operators.
The Company experienced revenues from these efforts, but experienced significant
weaknesses in its senior management. The management was not strong enough to
generate sufficient revenues to cover its overhead costs. The management
resigned in March 2004. The Company is currently setting a new direction for
its sales effort from the call center. In this regard, it closed its Tamarac
facility in June 2004 and moved the center to TraveLeaders' premises in Coral
Gables Florida and expects to re-open the facility during the last quarter of
2004.
Hickory Travel Systems, Inc. ("HTSI")
On October 1, 2003, American Leisure acquired controlling interest in HTS, the
parent to, among other companies, Hickory Travel Services, Inc. which will focus
on the fulfillment of all of our companies' travel needs. The Company is
currently beginning the integration of its various travel and marketing programs
into the HTS system.
HTS brings to the Company a network/consortium of approximately 160 well
established travel agency members, comprised of over 3,000 seasoned travel
agency locations worldwide. HTS will focus on the fulfillment of all of the
AMLH group companies travel needs. The Company intends to take advantage of
HTS' 24-hour reservation services, international rate desk, discount hotel
programs, preferred supplier discount and commission enhancement programs,
marketing services, training, consultation, legal and financial services,
automation and information exchange and make significant improvements to the
operating methods of HTS for the benefit of the Company and HTS' member base.
Historically, HTS has seasonal losses during the first three quarters of each
calendar year. In the 2004 fiscal year, the Company estimates that HTS will
incur approximately $1,500,000 in losses during this period and realize
approximately $2,000,000 in net profit in the last quarter of 2004. The Company
bases its estimates on previous trends as well as new business opportunities
which the Company believes will come to fruition in the last quarter of 2004.
HTS will require a loan of approximately $1,000,000 of working capital from AMLH
during its seasonal period of losses. The Company's management is in the
process of changing the HTS business model in an attempt to significantly reduce
the amount of losses incurred during the first three quarters of each fiscal
year.
The Company is currently planning the following acquisitions and business
ventures:
Around The World Travel, Inc. ("AWT")
AWT does business as TraveLeaders, one of the largest US-based travel service
distribution companies in North America. In March 2004, the Company began a
process of acquiring AWT or AWT's assets. As of the date of this report, the
Company has acquired the following: 1) senior secured notes of AWT in the total
amount of $22,600,000 (subject to $5,000,000 of liabilities) in exchange for
340,000 restricted shares of the Company's Common Stock; 2) 907,877 shares of
Series A Preferred Stock of AWT (constituting approximately 51% 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 the Company and a
promissory note in the principal amount of $1,698,340; 3) an option to purchase
Around The World Holdings, LLC, which owns approximately 62% of the issued and
outstanding common stock of AWT; and 4) approximately 5% of the minority
interests common and preferred stock of AWT. The Company plans to complete the
acquisition of AWT in November 2004.
TraveLeaders will require approximately $3,000,000 of additional working capital
during 2004. The Company intends to loan TraveLeaders any additional advances
under the credit agreement it acquired as part of the acquisition of the senior
secured notes of AWT. At the date of this report the Company had advanced
$2,800,000 under this arrangement.
Antigua - Caribbean Leisure Marketing Ltd. ("CLM")
During September 2003, forming part of the Company's negotiations with Stanford
Venture Capital Holdings, Inc. ("Stanford"), the Company agreed with Stanford to
form a new Company in Antigua, West Indies and to acquire the assets of a call
center previously run by another Stanford Portfolio company. Stanford agreed to
advance the sum of $2,000,000 for the Company's call centers working capital and
equipment needs as part of its $6,000,000 5-year convertible loan. Once the
assets in Antigua have been acquired and upgraded, the center will be linked via
satellite to ALMT's new call center in Coral Gables, FL to take advantage of the
state of the art technology available in this center and to run various inbound
and outbound marketing campaigns for group and third party companies. Stanford
advanced an additional $1,000,000 as part of its $4,000,000 3-year convertible
loan for use in Antigua.
Advantage Professional Management Group, Inc. ("APMG")
The Company has entered into a contract to sell APMG's property for $4,000,000
(the $1,300,000 mortgage due on the property will be repaid from the sale
proceeds) which it expects to close in September 2004. $1,500,000 of the
proceeds from the sale will be deferred until such time as adequate amounts of
water can be supplied to the property. The Company will take a first mortgage on
the property to secure the remaining $1,500,000.
KNOWN TRENDS, EVENTS AND UNCERTAINTIES
The Company's vacation real estate operations will be managed under two business
segments. One will develop, market and sell Vacation Ownership Interests in the
Company's future resort properties, primarily through Vacation/Travel Clubs.
The other operation (currently Tierra Del Sol) will acquire tracts of real
estate suitable for vacation resort properties, which will be subdivided,
improved and sold, typically on a retail basis as vacation home sales.
The Company expects to experience seasonal fluctuations in its gross revenues
and net earnings. This seasonality may cause significant fluctuations in the
Company's quarterly operating results. In addition, other material fluctuations
in operating results may occur due to the timing of development of certain
projects and the Company's use of the percentage-of-completion 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. The
Company's management expects that the Company will continue to invest in
projects that will require substantial development and significant amounts of
capital funding.
The Company believes that the terrorist attacks on September 11, 2001 in the
United States, the continuing hostilities in the Middle East and other world
events have decreased the amount of vacation and corporate air travel by
Americans but have not required the Company to materially change its business
plan. There can be no assurances, however, that a long-term decrease in air
travel or increase in anxiety regarding actual or possible future terrorist
attacks or other world events will not have a material adverse effect on the
Company's future results of operations.
Strategy
Our current business model is based on four basic premises: Club Creation and
Administration, Vacation Resort Real Estate, Vacation Ownership and Travel
Services.
Club Creation and Administration.
We intend to promote and service both travel clubs and vacation clubs to derive
membership dues revenue, travel commissions revenue and prospects for conversion
of travel club members to vacation club members. To enhance membership benefits,
we intend to affiliate with vacation exchange programs and provide finance to
members.
Vacation Resort Real Estate.
In addition to our current vacation resort assets, we intend to purchase
additional vacation resort assets, particularly in the Caribbean and Florida
resort areas where the demand for vacation property is strong during the
majority of the year. Such resorts assets will likely include the following:
o Resort properties suitable for conversion, for use for vacation club
ownership, such as suites, one bedroom and two bedroom units;
o Resort properties with contiguous vacant land suitable for further
expansion;
o Resort properties that have consistently sustained at least break-even
occupancy;
o Developable land suitable for hotel, vacation resort and/or vacation club
development in prime locations with room for a substantial amenity
packages; and
o Locations that have appeal throughout the year rather than limited
"seasonal" attraction.
Vacation real estate markets are cyclical in nature and highly sensitive to
changes in national and regional economic conditions including the following:
o levels of unemployment;
o levels of discretionary disposable income;
o levels of consumer confidence;
o the availability of financing;
o overbuilding or decreases in demand;
o interest rates; and
o our ability to identify and enter into agreements with strategic
marketing partners.
A downturn in the economy in general or in the market for vacation resort
properties could have a material adverse effect on our future business.
We may not successfully execute our growth strategy.
Our growth strategy includes the expansion of the number of vacation resorts we
develop. Risks associated with such expansion include the following:
o construction costs may exceed original estimates;
o inability to complete construction, conversion or required legal
registrations and approvals as scheduled;
o inability to control the timing, quality and completion of any construction
activity;
o our quarterly results may fluctuate due to an increase or decrease in the
number of vacation resort properties completed subject to "percentage of
completion accounting," which requires that we recognize profit on projects
on a pro rata basis as development is completed;
o market demand may not be present; and
o declining values of our inventories.
Any of the foregoing could make any expansion less profitable in the future.
There is no assurance that we will complete all of our planned expansion of our
vacation properties or, if completed that such expansion will be profitable.
Moreover, to successfully implement our growth strategy, we must integrate any
newly acquired or developed resort property into our sales and marketing
programs. During the start-up phase of a new resort or vacation resort project,
we could experience lower operating margins at that project until its operations
mature. The lower margins could be substantial and could negatively impact our
cash flow. We cannot provide assurance that we will maintain or improve our
operating margins as our projects achieve maturity and our new resorts may
reduce our overall operating margins.
Excessive claims for development-related defects could adversely affect our
financial condition and operating results.
We will engage third-party contractors to construct our resorts and to develop
our communities. However, our customers may assert claims against us for
construction defects or other perceived development defects, including
structural integrity, the presence of mold as a result of leaks or other
defects, asbestos, electrical issues, plumbing issues, road construction, water
and sewer defects, etcetera. In addition, certain state and local laws may
impose liability on property developers with respect to development defects
discovered in the future. A significant number of claims for development-related
defects could adversely affect our liquidity, financial condition, and operating
results.
Vacation Ownership.
We intend to market vacation assets and vacation club memberships to the general
public. The membership bases of our vacation and travel clubs and guests staying
at our resort assets will likely provide an ongoing source of prospects for our
vacation assets and vacation club membership sales. The Company expects that
revenues from the sale of vacation assets and vacation club memberships will be
a substantial component in our ability to capitalize the front end of
developments and the equity requirement for resort acquisitions.
Travel Services.
We intend to capitalize on the travel requirements of servicing the travel clubs
and vacation clubs to garner significant group purchasing, branding and third
party branding power. By actively focusing on the demand side coupled with
having the structure to fulfill the travel requirements both at our resort
assets and at other venues, we will seek to obtain seamless vertical and
horizontal integration of services such that the traveler's entire range of
needs can be fulfilled or provided by us.
COMPARISON OF OPERATING RESULTS
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003
The Company had revenues of $1,158,282 for the three months ended June 30, 2004,
as compared to $35,190 for the three months ended June 30, 2003. The Company
acquired HTS during the fourth quarter of 2003. Prior to that, the Company had
generated very little revenue since its inception. The significant increase in
the Company's revenues and expenses is due to HTS.
Total operating expenses increased $1,574,210 from $648,999 for the three months
ended June 30, 2003, to $2,223,209 (or 243%) for the three months ended June 30,
2004. The increase in total operating expenses was due to increases in
depreciation and amortization and increases in general and administrative
("G&A") expenses. Depreciation and amortization increased $123,722 from $99,198
for the three months ended June 30, 2003, to $222,920 (or 125%) for the three
months ended June 30, 2004. Likewise, G&A expenses increased $1,450,488 from
$549,801 for the three months ended June 30, 2003 to $2,000,289 (or (264%) for
the three months ended June 30, 2004.
Loss from operations before minority interests was $1,064,927 for the three
months ended June 30, 2004, as compared to loss from operations before minority
interests of $613,809 for the three months ended June 30, 2003. The increase in
loss from operations before minority interests was directly attributable to the
increases in depreciation and amortization and G&A expenses.
The Company had $227,662 attributable to minority interests for the three months
ended June 30, 2004, as compared to $0- attributable to minority interests for
the three months ended June 30, 2003.
Net loss before income taxes for the three months ended June 30, 2004 was
$837,265 as compared to net loss before income taxes of $613,809 for the three
months ended June 30, 2003. The increase in net loss before income taxes was
directly attributable to the increases in depreciation and amortization and G&A
expenses which were offset by $227,662 attributable to minority interests.
The Company recorded a provision for income taxes of $(1,135) for the three
months ended June 30, 2004, as compared to a provision for income taxes of $0-
for the three months ended June 30, 2003.
The Company had a net loss of $838,400 for the three months ended June 30, 2004
after taxes, as compared to a net loss of $613,809 for the three months ended
June 30, 2003. The increase in net loss is primarily attributable to the
operations of HTS. Historically, HTS has had seasonal losses during the first
three quarters and net profits during the fourth quarter of each year.
Net loss per share was $0.11 for the three months ended June 30, 2004, as
compared to net loss per share of $0.12 for the three months ended June 30,
2003.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003
The Company had revenues of $2,344,947 for the six months ended June 30, 2004,
as compared to $35,190 for the six months ended June 30, 2003. The Company
acquired HTS during the fourth quarter of 2003. Prior to that, the Company had
generated very little revenue since its inception. The significant increase in
the Company's revenues is due to HTS.
Total operating expenses increased $3,498,915 from $918,835 for the six months
ended June 30, 2003, to $4,417,747 (or 381%) for the six months ended June 30,
2004. The increase in total operating expenses was due to increases in
depreciation and amortization and increases in general and administrative
("G&A") expenses. Depreciation and amortization increased $267,704 from
$175,288 for the six months ended June 30, 2003, to $442,992 (or 153%) for the
six months ended June 30, 2004. Likewise, G&A expenses increased $3,231,208
from $743,547 for the six months ended June 30, 2003 to $3,974,755 (or (435%)
for the six months ended June 30, 2004.
Loss from operations before minority interests was $2,072,800 for the six months
ended June 30, 2004, as compared to loss from operations before minority
interests of $883,645 for the six months ended June 30, 2003. The increase in
loss from operations before minority interests was directly attributable to the
increases in depreciation and amortization and G&A expenses.
The Company had $484,286 attributable to minority interests for the six months
ended June 30, 2004, as compared to $0- attributable to minority interests for
the six months ended June 30, 2003.
Net loss before income taxes for the six months ended June 30, 2004 was
$1,588,514 as compared to net loss before income taxes of $883,645 for the six
months ended June 30, 2003. The increase in net loss before income taxes was
directly attributable to the increases in depreciation and amortization and G&A
expenses which were offset by $484,286 attributable to minority interests.
The Company recorded a provision for income taxes of $(3,870) for the six months
ended June 30, 2004, as compared to a provision for income taxes of $0- for the
six months ended June 30, 2003.
The Company had net loss of $1,592,384 for the six months ended June 30, 2004
after taxes, as compared to net loss of $883,645 for the six months ended June
30, 2003. The increase in net loss is primarily attributable to the operations
of HTS. Historically, HTS has had seasonal losses during the first six quarters
and net profits during the fourth quarter of each year.
Net loss per share was $0.21 for the six months ended June 30, 2004, as compared
to net loss per share of $0.13 for the six months ended June 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total current assets of $5,599,966 as of June 30, 2004, which
consisted of $2,518,701 of cash, $765,884 of accounts receivable, $101,864 of
advances, $2,114,020 of notes receivable and $99,497 of prepaid expenses and
other current assets.
The Company had total current liabilities of $13,452,463 as of June 30, 2004,
which consisted of $9,885,454 of current maturities of long-term debt and notes
payable, $911,586 of current maturities of notes payable to related parties,
$2,303,920 of accounts payable and accrued expenses, $23,525 of deposits and
other current liabilities and $327,978 of shareholder advances.
The Company had negative net working capital of $7,852,497 as of June 30, 2004.
The ratio of total current assets to total current liabilities was 42% as of
June 30, 2004
During the three months ended June 30, 2004, the Company's working capital
decreased. This was due to administrative and financing costs incurred as
carrying costs of the Company's assets and to maintain its operations.
Additionally, the note on the TDSR property in the amount of $6,000,000 has
become a current maturity as it is due on April 1, 2005. The Company is
currently seeking permanent construction financing on the TDSR project and
expects to refinance the property in the Fall of 2004. The Company is currently
seeking a $95,000,000 construction loan to enter into the
construction/development phase on the TDSR property. The Company is currently
in discussions with banks to provide the construction loan. At this time, the
Company does not have any commitments for the construction loan. There can be
no assurance that the Company will obtain the construction loan, or that other
arrangements will be available when needed or on terms satisfactory to the
Company. If the Company does not obtain the construction loan it cannot begin
the construction/development phase for TDSR.
The Company has a history of generating net losses though cash increased
$1,783,849 during the six months ended June 30, 2004. The Company's primary
source of cash has come from financing activities and the acceptance of deposits
on presales of its Tierra Del Sol project, plus increases in its credit
facilities from Stanford of approximately $4,000,000.
Net cash provided by operating activities was $1,361,203 for the six months
ended June 30, 2004, as compared to net cash used in operating activities of
$1,039,425 for the six months ended June 30, 2003.
Net cash used in investing activities was $4,154,428 for the six months ended
June 30, 2004, as compared to net cash used in investing activities of
$1,429,495 for the six months ended June 30, 2003.
Net cash provided by financing activities was $4,577,074 for the six months
ended June 30, 2004, as compared to net cash provided by financing activities of
$3,106,799 for the six months ended June 30, 2003.
As a result of its limited liquidity, the Company has limited access to
additional capital resources. The Company does not have the capital to totally
fund the obligations that have matured to its shareholders. On June 30, 2004 the
company closed on the sale of its investment in American Vacation Resorts, Inc.
("AVR") for $800,000. This was satisfied by way of the transfer of real property
from AVR to the Company. The Company simultaneously assigned these sale proceeds
to various shareholders to reduce the amounts overdue on loans previously made
by them. The shareholders have agreed to defer receipt of the balance remaining
on their loans until the Company has stronger liquidity and the company has
agreed to maintain their security for their loans.
The Company needs an aggregate of $96,400,000 for continuing operations
consisting of $95,000,000 for TDSR for the construction and development phase,
$150,000 for ATMG, $250,000 for ALMT, and $1,000,000 for HTS. We also estimate
that AWT's TraveLeaders (if acquired) will require additional working capital.
The Company successfully closed on two new credit facilities of $3,000,000 and
$1,000,000 with Stanford. In anticipation of closing Stanford had advanced the
Company the approximate amount of $2,800,000 as of June 30,2004. The Company
will use $2,800,000 of the credit facilities towards the acquisition of AWT,
$1,000,000 to acquire assets for CLM, and $200,000 for the Company's overhead.
The Company estimates that it will need an additional $200,000 to complete the
acquisition of AWT and an additional $750,000 for CLM. If additional funds are
raised by issuing equity securities and/or debt convertible into equity, further
dilution to existing stockholders will result. Future investors may be granted
rights superior to those of existing stockholders. At this time, the Company
does not have any commitments for additional financing either from its officers,
directors and affiliates or otherwise. There can be no assurance that any new
capital will be available to the Company or that adequate funds will be
sufficient, whether from the Company's financial markets or working capital
commitments from Stanford, or that other arrangements will be available when
needed or on terms satisfactory to the Company. If adequate funds are not
available to us on acceptable terms, we will have to delay, curtail or scale
back some or all of our operations, including our planned expansion.
RISK FACTORS
AMLH MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL ON REASONABLE TERMS, OR AT
ALL, TO FUND CASH ACQUISITIONS, AND THIS INABILITY MAY PREVENT AMLH FROM TAKING
ADVANTAGE OF OPPORTUNITIES, HURT ITS BUSINESS AND NEGATIVELY IMPACT ITS
SHAREHOLDERS. AMLH has historically made most of its acquisitions using all
preferred shares or a combination of preferred and common shares. AMLH does not
at this time have any commitments to make acquisitions for cash. Nevertheless,
acquisitions may be undertaken that require cash capital to consummate. If
adequate funds are not available on reasonable terms, or at all, AMLH may be
unable to take advantage of future opportunities to make additional acquisitions
for cash or to satisfy on-going cash requirements for its operations, and
material commitments. If additional funds are raised through the issuance of
debt or equity securities, the percentage ownership of existing shareholders may
be diluted, the securities issued may have rights and preferences senior to
those of shareholders, and the terms of the securities may impose restrictions
on operations. If AMLH cannot obtain additional financing, it will have to
delay, curtail or scale back some or all of its operations which would have a
materially adverse effect upon its business operations and its ability to
expand.
CERTAIN SEC INQUIRIES. In September 2003, the SEC made inquiries concerning the
Company's press releases. Generally, the SEC requested that the Company provide
supporting documents for certain statements that the Company had made in its
press releases. The Company provided these documents to the SEC, the last of
which were provided in February 2004. As a result of the earlier inquiry, the
Company may be subject to future liability in connection with its press
releases. Any future inquiries and any such liability could have a material
adverse effect on the Company's business operations or its ability to obtain
debt and/or equity on terms that are acceptable to the Company, if at all.
RISKS RELATING TO AMLH COMMON STOCK
AMLH'S COMMON STOCK WAS DE-LISTED FROM THE OTC BULLETIN BOARD AND NOW TRADES ON
THE PINK SHEETS. Due to an inadvertent oversight by the Company's management,
the Company submitted its report on Form 10-KSB for the fiscal year ended
December 31, 2003 on the Commission's Edgar database four hours after the
Commission's deadline for timely filing such report. As a result, AMLH's Common
Stock was "de-listed" from the OTC Bulletin Board on May 21, 2004. AMLH's
Common Stock now trades on the Pink Sheets, which is generally considered to be
a less liquid market than the OTC Bulletin Board. AMLH is taking steps to
remedy the situation; however, there can be no assurance that AMLH's Common
Stock will become listed on the OTC Bulletin Board. If AMLH is unsuccessful in
listing its Common Stock on the OTC Bulletin Board, AMLH's Common Stock will
likely have less liquidity than it had, and may trade at a lesser value than it
did, on the OTC Bulletin Board.
AMLH'S COMMON STOCK PRICE COULD AND HAS FLUCTUATED SIGNIFICANTLY, AND
SHAREHOLDERS MAY BE UNABLE TO RESELL THEIR SHARES AT A PROFIT. The price of
AMLH's Common Stock has fluctuated substantially since it began trading. The
trading prices for small capitalization companies like AMLH often fluctuate
significantly. Market prices and trading volume for stocks of these types of
companies like AMLH have been volatile. The market price of AMLH's Common Stock
is likely to continue to be highly volatile. If revenue or earnings are less
than expected for any quarter, the market price of AMLH's Common Stock could
significantly decline, whether or not the decline in AMLH's consolidated revenue
or earnings is reflective of any long-term problems with the AMLH's business.
Other factors such as AMLH's issued and outstanding Common Stock becoming
eligible for sale under Rule 144, terms of any equity and/or debt financing, and
market conditions could have a significant impact on the future price of AMLH's
Common Stock and could have a depressive effect on the then market price of the
Common Stock.
ACTIVE TRADING MARKETS FOR AMLH'S COMMON STOCK MAY NOT DEVELOP. While the
listing of AMLH's Common Stock was a condition to closing certain transactions,
an active and liquid trading market for AMLH's Common Stock may not develop or
be sustained. In addition, AMLH cannot predict the price at which AMLH's Common
Stock will trade. Furthermore, as stated above AMLH Common Stock has been
"de-listed" from trading on the OTC Bulletin Board which may adversely affect
the development of an active trading market for AMLH's Common Stock and the
price at with AMLH's Common Stock trades.
PENNY STOCK REGULATIONS AND RESTRICTIONS. The Commission has adopted
regulations, which generally define penny stocks to be an equity security that
has a market price less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exemptions. As of June 30, 2004, the
closing price of our Common Stock was less than $5.00 per share and therefore is
a "penny stock" pursuant to the rules under the Securities Exchange Act of 1934,
as amended. Such designation requires any broker or dealer selling such
securities to disclose certain information concerning the transactions, obtain a
written agreement from the purchaser, and determine that the purchaser is
reasonably suitable to purchase such securities. These rules may restrict the
ability of brokers and dealers to sell our Common Stock and may adversely affect
the ability of investors to sell their shares.
AMLH HAS AND MAY ISSUE PREFERRED STOCK THAT MAY ADVERSELY AFFECT THE RIGHTS OF
HOLDERS OF COMMON STOCK. AMLH's Articles of Incorporation authorize its Board
of Directors to issue "blank check" 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 or the majority of the
preferred stockholders. Accordingly, the Board of Directors may, without
shareholder approval, 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 Common Stock. The preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying, or
preventing a change in ownership and management of the company that shareholders
might not consider to be in their best interests.
NO DIVIDENDS ON AMLH'S COMMON STOCK HAVE BEEN DECLARED. Dividends will not be
paid unless and until the Board of Directors declares them. Holders of AMLH's
Common Stock have no authority to compel the board to declare dividends.
BECAUSE OF THE SIGNIFICANT NUMBER OF SHARES OWNED BY DIRECTORS, OFFICERS AND
PRINCIPAL SHAREHOLDERS, OTHER SHAREHOLDERS MAY NOT BE ABLE TO SIGNIFICANTLY
INFLUENCE THE MANAGEMENT OF AMLH. AMLH's directors, officers, and principal
shareholders beneficially own a substantial portion of AMLH's outstanding common
and preferred stock. As a result, these persons have a significant influence on
the affairs and management of AMLH, as well as all matters requiring shareholder
approval, including election and removal of members of the board of directors,
transactions with directors, officers or affiliated entities, the sale or merger
of AMLH, and changes in dividend policy. This concentration of ownership and
control could have the effect of delaying, deferring, or preventing a change in
ownership and management of AMLH, even when a change would be in the best
interest of other shareholders.
RISKS RELATING TO THE TRAVEL BUSINESS
The travel industry is significantly affected by general economic conditions.
Because a substantial portion of business and personal airline travel is
discretionary, the industry tends to experience adverse financial results during
general economic downturns. Economic and competitive conditions since
deregulation of the airline industry in 1978 have contributed to a number of
bankruptcies and liquidations among airlines. A worsening of current economic
conditions, or an extended period of recession nationally or regionally could
have a material adverse effect on operations. The Company does not have any
control over general economic conditions.
ADVERSE CHANGES OR INTERRUPTIONS IN RELATIONSHIPS WITH TRAVEL SUPPLIERS,
DISTRIBUTION PARTNERS AND OTHER THIRD PARTY SERVICE PROVIDERS COULD REDUCE
REVENUE. If AMLH companies are unable to maintain or expand their relationships
with travel suppliers, including airline, hotel, cruise, tour and car rental
suppliers, its ability to offer and expand travel service offerings or
lower-priced travel inventory could be significantly reduced. Travel suppliers
may not make their services and products available to AMLH group companies on
satisfactory terms, or at all. They may choose to provide their products and
services only to competitors of AMLH. In addition, these travel suppliers may
not continue to sell services and products through global distribution systems
on terms satisfactory to AMLH. Any discontinuance or deterioration in the
services provided by third parties, such as global distribution systems
providers, could prevent customers from accessing or purchasing particular
travel services through AMLH.
The contracts of AMLH group companies with travel suppliers are generally
renewed on an annual basis and, in some cases, can be canceled at will by the
supplier. If these suppliers cancel or do not renew the contracts, AMLH would
not have the range or volume of services it will require to meet demand and its
future revenue would decline.
A DECLINE IN COMMISSION RATES OR THE ELIMINATION OF COMMISSIONS BY TRAVEL
SUPPLIERS WOULD ALSO REDUCE REVENUES. We expect that a substantial portion of
AMLH's revenue will come from the commissions paid by travel suppliers, such as
hotel chains, and cruise companies, for bookings made through its online travel
services. Consistent with industry practices, these travel suppliers are not
obligated to pay any specified commission rates for bookings made through it or
to pay commissions at all. Over the last several years, travel suppliers have
reduced commission rates substantially. Future reductions, if any, in
commission rates that are not offset by lower operating costs from our Internet
platforms could have a material adverse effect on the operations of AMLH.
FAILURE TO MAINTAIN RELATIONSHIPS WITH TRADITIONAL TRAVEL AGENTS COULD ADVERSELY
AFFECT AMLH'S BUSINESS. HTS has historically received, and expects to continue
in the foreseeable future to receive, a significant portion of their revenue
through relationships with traditional travel agents. Maintenance of good
relations with these travel agents depends in large part on continued offerings
of travel services in demand, and good levels of service and availability. If
HTS does not maintain good relations with its travel agents, these agents could
terminate their memberships and use of its products.
DECLINES OR DISRUPTIONS IN THE TRAVEL INDUSTRY COULD SIGNIFICANTLY REDUCE AMLH'S
REVENUE. Potential declines or disruptions in the travel industry include:
o price escalation in the airline industry or other travel related
industries;
o airline or other travel related strikes;
o political instability, war and hostilities;
o bad weather;
o fuel price escalation;
o increased occurrence of travel-related accidents; and
o economic downturns and recessions.
AMLH HAS ONLY RECENTLY FOCUSED THEIR BUSINESSES ON THE TRAVEL SECTOR AND THEIR
RECENT BUSINESS EXPERIENCE IN UNRELATED INDUSTRIES MIGHT NOT CARRY OVER INTO THE
BUSINESS OF BEING AN INTERNET-BASED PROVIDER FOR TRAVEL SERVICES.
OTHER RISK FACTORS
THE COMPANIES MAY NOT IDENTIFY OR COMPLETE ACQUISITIONS IN A TIMELY MANNER,
COST-EFFECTIVE BASIS OR AT ALL. In the event of any future acquisitions, the
companies could:
o issue additional stock that would further dilute current shareholders'
percentage ownership;
o incur debt;
o assume unknown or contingent liabilities; or
o experience negative effects on reported operating results from
acquisition-related charges and amortization of acquired technology,
goodwill and other intangibles.
These transactions involve numerous risks that could harm operating results and
cause the Company's stock prices to decline, including:
o potential loss of key employees of acquired organizations;
o problems integrating the acquired business, including its information
systems and personnel;
o unanticipated costs that may harm operating results;
o diversion of management's attention from business concerns;
o adverse effects on existing business relationships with customers; and
o risks associated with entering an industry in which the companies have no
or limited prior experience.
Any of these risks could harm the businesses and operating results.
o attract additional travel suppliers and consumers to its services;
o maintain and enhance its brand;
o operate, expand and develop its operations and systems efficiently;
o maintain adequate control of its expenses;
o raise additional capital;
o attract and retain qualified personnel; and
o respond to technological changes.
OTHER RISKS RELATING TO THE BUSINESS OF AMLH
IF AMLH DOES NOT MANAGE ITS GROWTH EFFECTIVELY, THE QUALITY OF ITS SERVICES MAY
SUFFER. AMLH plans to grow rapidly and will be subject to related risks,
including capacity constraints and pressure on its management, internal systems
and controls. The ability of AMLH to manage its growth effectively requires it
to continue to implement and improve its operational and financial systems and
to expand, train and manage its employee base. The inability of AMLH to manage
this growth would have a material adverse effect on its business, operations and
prospects.
BECAUSE AMLH DEPENDS ON KEY PERSONNEL, THEIR LOSS COULD HARM ITS BUSINESS.
AMLH's key personnel are Malcolm Wright, the Company's Chief Executive Officer
and Chief financial Officer and a Director of the Company, and L. William
("Bill") Chiles, a Director of the Company. Competition in our industry for
executive-level personnel and directors such as Messrs. Wright and Chiles is
fierce and there can be no assurance that we will be able to motivate and retain
them, or that we can do so on economically feasible terms. These key personnel
would be difficult to replace. AMLH does not carry any insurance covering the
loss of any of these key personnel.
WE HAVE A VERY LIMITED HISTORY OF OPERATIONS AND CONTINUING OPERATING LOSSES.
Since AMLH's inception, we have engaged primarily in the development of
vacation/resort properties, building travel club membership data bases, and
recently, the designing, developing, building and implementing the technology in
the primary business center, and assembly of our management team. We have
incurred net operating losses since our inception. As of June 30, 2004, we had
an accumulated deficit of $4,330,724. Such losses have resulted primarily from
costs associated with general and administrative costs associated with our
operations.
UNCERTAINTY OF FUTURE PROFITABILITY. We have incurred losses since our
inception and continue to require additional capital to fund operations and
capacity and facilities upgrades. Our fixed commitments, including salaries and
fees for current employees and consultants, equipment rental, and other
contractual commitments, are substantial and will increase if additional
agreements are entered into and additional personnel are retained. We do not
expect to generate a positive internal cash flow within the next twelve months.
We will have to generate the necessary capital to operate our business by
achieving break-even cash flow from operations and subsequent profitability,
selling equity and/or debt securities and/or sale-lease back transactions of our
equipment. Unless we are successful in our efforts to achieve break-even cash
flow and subsequent profitability and raise capital through sales of securities
and/or entering into a sale-lease back transaction, we believe we may not be
able to continue operations. We have put a plan into effect aimed at achieving
profitability late in the fiscal year 2005; however, there can be no assurances
that the Company will be able to successfully achieve the plan.
UNCERTAIN ABILITY TO MEET CAPITAL NEEDS. The Company needs an aggregate of
$96,400,000 for continuing operations consisting of $95,000,000 for TDSR for the
construction and development phase, $150,000 for ATMG, $250,000 for ALMT, and
$1,000,000 for HTSI. We also estimate that AWT's TraveLeaders (if acquired)
will require additional working capital. Company successfully closed on two new
credit facilities of $3,000,000 and $1,000,000 with Stanford. In anticipation of
closing Stanford had advanced the Company the approximate amount of $2,800,000
as of June 30, 2004. The Company will use $2,800,000 of the credit facilities
towards the acquisition of AWT, $1,000,000 to acquire assets for CLM, and
$200,000 for the Company's overhead. The Company estimates that it will need an
additional $200,000 to complete the acquisition of AWT and an additional
$750,000 for CLM for working capital. If additional funds are raised by issuing
equity securities and/or debt convertible into equity, further dilution to
existing stockholders will result. Future investors may be granted rights
superior to those of existing stockholders. At this time, the Company does not
have any commitments for additional financing either from its officers,
directors and affiliates or otherwise. There can be no assurance that any new
capital will be available to the Company or that adequate funds will be
sufficient, whether from the Company's financial markets or working capital
commitments from Stanford, or that other arrangements will be available when
needed or on terms satisfactory to the Company. If adequate funds are not
available to us on acceptable terms, we will have to delay, curtail or scale
back some or all of our operations, including our planned expansion.
RELIANCE ON A FEW MAJOR CLIENTS. We will 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.
ECONOMIC DOWNTURN. Our ability to enter into new multi-year contracts may be
dependent upon the general economic environment in which our clients and their
customers are operating. A weakening of the U.S. or global marketplace could
cause longer sales cycles, delays in closing contracts for new business and
slower growth under existing contracts. As a result of the terrorist attacks on
the United States of America on September 11, 2001, the Company is unable to
predict the impact of an economic downturn, if any, on the Company's financial
condition or results of operations.
OUR CONTRACTS. Our contracts do not ensure that we will generate a minimum
level of revenues, and the profitability of each client campaign may fluctuate,
sometimes significantly, throughout the various stages of our sales campaigns.
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 the canceled campaign or for the revenues we may lose as a
result of the early termination. We are usually not designated as our client's
exclusive service provider; however, we believe that meeting our clients'
expectations can have a more significant impact on revenues generated by us than
the specific terms of our client campaign.
COST AND PRICE INCREASES. Only a few of our contracts allow us to increase our
service fees if and to the extent certain cost or price indices increase;
however, most of our significant contracts do not contain such provisions. Some
contracts require us to decrease our service fees if, among other things, we do
not achieve certain performance objectives. Increases in our service fees that
are based upon increases in cost or price indices may not fully compensate us
for increases in labor and other costs incurred in providing services.
CHANGING TECHNOLOGY. Our business is highly dependent on our computer and
communications equipment and software capabilities. Our failure to maintain the
superiority of our technological capabilities or to respond effectively to
technological changes could have a material adverse effect on our business,
results of operations or financial condition. Our continued growth and future
profitability will be highly dependent on a number of factors, including our
ability to (i) expand our existing service offerings; (ii) achieve cost
efficiencies in our existing contact centers; and (iii) introduce new services
and products that leverage and respond to changing technological developments.
There can be no assurance that technologies or services developed by our
competitors will not render our products or services non-competitive or
obsolete, that we can successfully develop and market any new services or
products, that any such new services or products will be commercially successful
or that our intended integration of automated customer support capabilities will
achieve intended cost reductions.
LABOR FORCES. Our success will be largely dependent on our ability to recruit,
hire, train and retain qualified personnel. Our industry is very 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. Also, if we obtain
several significant new clients or implement several new, large-scale campaigns,
we may need to recruit, hire and train qualified personnel at an accelerated
rate. We may not be able to continue to hire, train and retain sufficient
qualified personnel to adequately staff new customer management campaigns.
Because significant portions of our operating costs relate to labor costs, an
increase in wages, costs of employee benefits or employment taxes could have a
material adverse effect on our business, results of operations or financial
condition.
COMPETITIVE MARKET. We believe that the market in which we operate is
fragmented and highly competitive and that competition is likely to 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. Similarly, there can be no
assurance that additional competitors with greater resources than us will not
enter our market. In addition, competitive pressures from current or future
competitors also could cause our services to lose market acceptance or result in
significant price erosion, which could have a material adverse effect upon our
business, results of operations or financial condition.
BUSINESS ACQUISITIONS OR JOINT VENTURES MAY DISRUPT OUR BUSINESS, DILUTE
SHAREHOLDER VALUE OR DISTRACT MANAGEMENT'S ATTENTION. As part of our business
strategy, we may consider acquisition of, or investments in, businesses that
offer services and technologies complementary to ours. Such acquisitions could
materially adversely affect our operating results and/or the price of our Common
Stock. Acquisitions also entail numerous risks, including: (i) difficulty in
assimilating the operations, products and personnel of the acquired business;
(ii) potential disruption of our ongoing business; (iii) unanticipated costs
associated with the acquisition; (iv) inability of management to manage the
financial and strategic position of acquired or developed services and
technologies; (v) the division of management's attention from our core business;
(vi) inability to maintain uniform standards, controls, policies and procedures;
and (vii) impairment of relationships with employees and customers which may
occur as a result of integration of the acquired business.
BUSINESS INTERRUPTION. Our operations are dependent upon our ability to protect
our contact 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 contact center, through casualty,
operating malfunction or otherwise, our business could be materially adversely
affected and we may be required to pay contractual damages to some clients or
allow some clients to terminate or renegotiate their contracts with us. We
maintain property and business interruption insurance; however, such insurance
may not adequately compensate us for any losses we may incur.
VARYING QUARTERLY RESULTS. We have experienced and could continue to experience
quarterly variations in operating results because of a variety of factors, many
of which are outside our control. Such factors may include, but not be 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; and the seasonal pattern of certain
businesses serviced by us. 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.
CRITICAL ACCOUNTING POLICIES
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. On
an on-going basis, we evaluate our estimates. 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. Actual
results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policy affects our more significant
judgments and estimates used in the preparation of our financial statements:
Going Concern Considerations. The Company has incurred substantial losses since
inception, and has negative working capital. These factors among others
indicate that the Company may be unable to continue as a going concern,
particularly in the event that it cannot obtain additional debt and/or equity
financing to continue its operations or achieve profitable operations, as
discussed above under the headings "Liquidity and Capital Resources" and "Risk
Factors." The Company's continuation as a going concern depends upon its
ability to generate sufficient cash flow to conduct its operations and its
ability to obtain additional sources of capital and financing. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Management recognizes that we must generate capital
and revenue resources to enable us to achieve profitable operations. We are
planning on obtaining additional capital by achieving break-even cash flow from
operations and selling equity and/or debt securities and/or a sale-lease back
transaction on our equipment. The realization of assets and satisfaction of
liabilities in the normal course of business is dependent upon us obtaining
additional revenues and equity and or debt capital and ultimately achieving
profitable operations. However, no assurances can be made that we will be
successful in these activities. Should any of these events not occur, our
financial statements will be materially affected.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our chief executive
officer and chief financial officer, after evaluating the effectiveness of the
Company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period
covered by this quarterly report (the "Evaluation Date"), has concluded that as
of the Evaluation Date, our disclosure controls and procedures were adequate and
designed to ensure that material information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act of 1934
is 1) recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms; and 2) accumulated and
communicated to him as appropriate to allow timely decisions regarding required
disclosure.
(b) Changes in internal control over financial reporting. There were no
significant changes in our internal control over financial reporting during our
most recent fiscal quarter that materially affected, or were reasonably likely
to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. The Company believes that substantially all
of the above are incidental to its business.
The Company became a defendant in an action that was filed in Orange County,
Florida. In June, 2001, Rock Investment Trust, P.L.C., a British limited
liability company, and RIT, L.C., a related Florida limited liability company
(collectively the "Plaintiff") filed suit against Malcolm J. Wright, American
Vacation Resorts, Inc., American Leisure, Inc., Inversora Tetuan, S.A., Sunstone
Golf Resort, Inc., and SunGate Resort Villas, Inc. (collectively the
"Defendant"), seeking either the return of an alleged $500,000 investment or
ownership interest in one or more of the defendant entities equivalent to the
alleged investment amount. Defendants have denied all claims and have
counterclaimed against Rock Investment Trust and its principal, Roger Smee,
seeking damages in excess of $10 million. The litigation is in the discovery
phase and is not currently set for trial. While many depositions and other
discovery of facts remains to be done, based on the status of the record
developed thus far, the Company's counsel believes that Rock Investment Trust's
and RIT's claims are without merit and that the counterclaim will be successful.
The Company has become aware of a lawsuit, filed in March 2004, by Manuel
Sanchez and Luis Vanegas against American Leisure Holdings, Inc. various
subsidiaries and various officers alleging claims of federal and state
securities fraud breach of their employment contracts and related stock purchase
agreements, and fraudulent inducement. The Company was subsequently
served with this lawsuit. AMLH intends to vigorously defend the lawsuit. The
plaintiffs are seeking an aggregate amount of damages of approximately
$5,310,000. The Company does not believe that the claims have any merit.
The Court has ruled in favor of the Company in recent court proceedings seeking
to dismiss the complaint of the Plaintiff.
In February 2003, American Leisure Inc., and Malcolm Wright were joined in a
third party lawsuit filed in the Circuit Court of Cook County Illinois as Howard
Warren v. Travelbyus, Inc. William Kerby, David Doerge, DCM/ Funding III, LLC,
Balis Lewittes and Coleman, Inc. under a theory of joint venture liability with
the defendants. The plaintiff claims losses of $1.5 million from an alleged
breach of a promissory note as well as punitive damages for willful and gross
negligence. The litigation is in the discovery phase and is not currently set
for trial. While many depositions and other discovery of facts remains to be
done, based on the status of the record developed thus far, the Company believes
that the claims are without merit. The Company has instructed its legal counsel
to defend the allegations.
In early May, 2004, AWT, an unrelated company which was then and is now a target
for acquisition by the Company, filed a suit with the clerk of the Miami-Dade
Circuit Court against Seamless Technologies, Inc. and e-TraveLeaders, Inc.
alleging breach of contract and sought relief that includes monetary damages and
termination of the contracts. The Company was granted leave to intervene as a
plaintiff in the original lawsuit filed against Seamless. On June 28, 2004, the
above named defendants brought suit against AWT as well as the Company in a suit
named Seamless Technologies, Inc. et al vs. Keith St. Clair et al. This suit
alleges that AWT has breached the contracts and also that the Company and its
chief executive officer were complicit with certain officers and directors of
AWT in securing ownership of certain assets for the Company that are alleged to
have been a business opportunity for AWT. In a related matter, the attorneys
for Seamless brought another action entitled Peter Hairston vs. Keith St. Clair
et al. This suit parrots the misappropriation of business opportunity claim,
but it is framed within a shareholder derivative action. The relief sought
against the Company includes monetary damages and litigation costs. All three
suits have been brought to the Circuit Court of the 11th Judicial Circuit in and
for Dade County, Florida. The Company has retained legal counsel regarding
these matters. The Company intends to vigorously support the original lawsuit
filed against Seamless and defend the counterclaim and allegations against the
Company.
ITEM 2. CHANGES IN SECURITIES
(b) In April 2004, the Company issued 24,101 shares of Series E Convertible
Preferred Stock, par value $0.001 per share. The Series E Convertible Preferred
Stock ranks senior to the Company's Common Stock, $.001 par value per share (the
"Common Stock") as to dividends and liquidation preference. Each share of
Series E Preferred Stock is convertible, at the option of the holder thereof, at
any time and from time to time, into a maximum of 6.666 fully paid and
non-assessable shares of Common Stock at a minimum of $15 per share of common
stock. Each share of Series E Convertible Preferred Stock has a liquidation
preference of $100 per share and carries a cumulative dividend of 4% of the
liquidation preference per share.
(c) In March 2004, the Company issued 340,000 shares Common Stock which were not
registered under Securities Act of 1933, as amended (the "Act") to GCD
Acquisition Corp. as partial consideration for the purchase of $22,600,000
secured notes. The Company claims an exemption from registration afforded by
Section 4(2) of the Act since the foregoing issuance did not involve a public
offering, the recipient took the shares for investment and not resale and the
Company took appropriate measures to restrict transfer. No underwriters or
agents were involved in the foregoing issuances and no underwriting discounts or
commissions were paid by the Company.
In March 2004, the Company issued warrants to purchase an aggregate of 600,000
shares of the Company's Common Stock at an exercise price of $.001 per share of
Common Stock and an aggregate of 1,350,000 shares of the Company's Common Stock
at an exercise price of $2.96 per share (or an aggregate of 1,950,000 warrants
to purchase 1,950,000 shares of the Company's Common Stock at an average
conversion price of $2.05 per share) at anytime prior to December 31, 2008, to
Stanford (and individuals related to Stanford) as consideration for providing a
$6,000,000 line of credit to the Company and to Arvimex, Inc. for Arvimex
releasing various of its security to Stanford. The exercise price of the
warrants received by Stanford (and individuals related to Stanford) to purchase
shares of Common Stock at $2.96 per share was subsequently reduced to $.001 per
share. Neither the warrants nor the underlying Common Stock was registered under
the Act. The Company claims an exemption from registration afforded by Section
4(2) of the Act since the foregoing issuances did not involve a public offering,
the recipients took the shares for investment and not resale and the Company
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuances and no underwriting discounts were paid by
the Company. The company has paid a fee of $100,000 to a third party agent as an
introductory fee.
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. Also in March 2004, the Company issued
warrants to Malcolm Wright, the Company's Chief Executive Officer, Chief
Financial Officer, and a Director of the Company, to purchase 347,860 shares of
the Company's Common Stock at an exercise price of $2.96 per share of Common
Stock. The exercise price of the warrants was subsequently reduced to $1.02 per
share of Common Stock. Neither the warrants nor the underlying Common Stock was
registered under the Act. The Company claims an exemption from registration
afforded by Section 4(2) of the Act since the foregoing issuances did not
involve a public offering, the recipients took the shares for investment and not
resale and the Company took appropriate measures to restrict transfer. No
underwriters or agents were involved in the foregoing issuances and no
underwriting discounts were paid by the Company.
In April 2004, the Company issued 24,101 shares of Series E Convertible
Preferred Stock, par value $0.001 per share to Shadmore Trust in consideration
for the acquisition of 907,877 shares of preferred stock (Series A) of Around
The World Travel, Inc. The Company claims an exemption from registration
afforded by Section 4(2) of the Act since the foregoing issuance did not involve
a public offering, the recipient took the shares for investment and not resale
and the Company took appropriate measures to restrict transfer. No underwriters
or agents were involved in the foregoing issuances and no underwriting discounts
or commissions were paid by the Company. Each share of Series E Preferred Stock
is convertible, at the option of the holder thereof, at any time and from time
to time, into a maximum of six point six, six, six (6.666) fully paid and
non-assessable shares of Common Stock (the "Conversion Rate") at a minimum of
$15 per share of Common Stock. In the event of a liquidation of the Company, the
conversion rights will terminate at the close of business on the first full day
preceding the date fixed for the payment of any amounts distributable on
liquidation to the holders of Series E Convertible Preferred Stock.
In May 2004, the Company issued an aggregate of 600,000 shares of Common Stock
that were not registered under the Act to Stanford (and individuals related to
Stanford) upon their exercise of warrants to purchase such shares at an exercise
price of $.001 per share (or an aggregate of $600). The Company claims an
exemption from registration afforded by Section 4(2) of the Act since the
foregoing issuances did not involve a public offering, the recipients took the
shares for investment and not resale and the Company took appropriate measures
to restrict transfer. No underwriters or agents were involved in the foregoing
issuances and no underwriting discounts were paid by the Company.
Effective June 2004, the Company issued warrants to purchase an aggregate of
500,000 shares of the Company's Common Stock at an exercise price of $5.00 per
share of Common Stock at anytime during the next five years, to Stanford
(and individuals related to Stanford) as consideration for providing a
$3,000,000 and a $1,000,000 (or an aggregate $4,000,000) credit facility to
the Company. Neither the warrants nor the underlying Common Stock was
registered under the Act. The Company claims an exemption from registration
afforded by Section 4(2) of the Act since the foregoing issuances did not
involve a public offering, the recipients took the shares for investment and
not resale and the Company took appropriate measures to restrict transfer. No
underwriters or agents were involved in the foregoing issuances and no
underwriting discounts were paid by the Company. The Company has paid a fee
of $75,000 to a third party agent as an introductory fee.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In June, 2004, the holders of Series C Preferred Stock, via signed written
consented to action without a meeting pursuant to Nevada law, approved an
amendment to the designation of their Series C Preferred Stock to eliminate any
obligation of the Company to redeem the Series C Preferred Stock. Of the
27,189 shares of Series C Preferred Stock eligible to vote, shareholders
representing 23,850 shares (87.7%) of Series C Preferred Stock gave their
signed, written consent to action.
ITEM 5. OTHER INFORMATION
Related Party Transactions
--------------------------
As of June 30, 2004, the Company owed approximately $1,105,401 of demand notes
payable to related parties most of which bear interest at a rate of 12% per
annum. Although $911,586 is currently due and payable upon demand, the related
parties have chosen to "roll-over" the notes until such future time as the
Company has resources adequate to satisfy such demand payments. As of June 30,
2004, the Company owed $193,815 of the demand notes payable to related parties
to Bill Chiles, a Director of the Company. The amount owed to Mr. Chiles bears
interest at a rate of 10% per annum.
As of June 30, 2004, shareholder advances were $643,692. Shareholder advances
are currently due and payable upon demand and bear interest at a rate of 12% per
annum. As of June 30, 2004, Malcolm Wright, the Company's Chief Executive
Officer, Chief Financial Officer, and a Director of the Company advanced
$146,216 of shareholder advances to the Company.
The Company accrued salaries payable to Malcolm Wright in the amount of $250,000
per year. As of June 30, 2004, the amount of salaries payable accrued to Mr.
Wright was $625,000. The accrued salaries bear interest at a rate of 12% per
annum.
The Company accrues salaries to each of its four (4) directors in an amount of
$18,000 per year for their services as directors of the Company. During the
quarter covered by this Report, the Company paid $12,000 to two (2) directors.
Malcolm Wright, the Company's Chief Executive Officer, Chief Financial Officer
and a Director of the Company, and Bill Chiles, a Director of the Company, have
personally guaranteed a significant amount of the AMLH's indebtedness. In March
2004 and effective June 14, 2002, the Company entered into an agreement with
Malcolm Wright and Bill Chiles whereby the Company has agreed to indemnify Mr.
Wright and Mr. Chiles against all losses, costs or expenses relating to the
incursion of or the collection of AMLH'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 makes a
personal guarantee for the benefit of AMLH in conjunction with third party
financing, and Mr. Wright or Mr. Chiles elects to provide such guarantee, then
in that event 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. The fee shall be paid by the issuance
of warrants to purchase AMLH's Common Stock at a fixed strike price of $1.02 per
share, as amended, when the debt is incurred. In March 2004, the Company issued
warrants to Mr. Chiles to purchase 168,672 shares of the Company's Common Stock
at an exercise price of $2.96 per share, which was subsequently reduced to $1.02
per share, of Common Stock. In March 2004, the Company issued warrants to
Malcolm Wright to purchase 347,860 shares of the Company's Common Stock at an
exercise price of $2.96 per share, which was subsequently reduced to $1.02 per
share, of Common Stock.
As a direct consequence of the guarantees issued by Mr. Chiles and Mr. Wright
for the $6,000,000 credit facility, and, the re-pricing of the $2.96 warrants
issued to Stanford (and individuals related to Stanford), the exercise price of
the warrants issued to Mr. Wright and Mr. Chiles was reduced from $2.96 to $1.02
per warrant share of Common Stock.
Malcolm Wright is the 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 Tierra Del Sol Resort. Pursuant to the Development Agreement
ALRG is responsible for all development logistics and TDSR is obligated to
reimburse ALRG for all of ALRG's costs and to pay ALRG a development fee in the
amount of 4% of the total costs of the project paid by ALRG. During the period
from inception through June 30, 2004 the fee amounted to $53,163.
Malcolm Wright and members of his family are the majority shareholders of Xpress
Ltd. ("Xpress"). On November 3, 2003 TDSR entered into an exclusive sales and
marketing agreement with Xpress to sell the units being developed by TDSR to
European buyers. This agreement provides for a fee in the amount of 3% of the
total sales prices received by TDSR. During the period since the contract was
entered into and ended June 30, 2004 the total European sales amounted to
approximately $93,500,000. As a result of the sales, TDSR is obligated to
pay Xpress a fee of $2,804,428.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description
4.1 Amended and Restated Certificate of Designation
of Series E Convertible Preferred Stock (1)
4.2 Certificate of Designation of Series E
Convertible Preferred Stock (2)
10.1 Credit Agreement for $1,000,000 Credit Facility (3)
10.2 Credit Agreement for $3,000,000 Credit Facility (3)
10.3 Instrument of Warrant Repricing (3)
10.4 Warrants Purchase Agreement for 500,000 Shares (3)
10.5 Registration Rights Agreement dated
June 17, 2004 (3)
10.6 Development Agreement with ALRG *
31 Certificate of the Chief Executive Officer
and Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 *
32 Certificate of the Chief Executive Officer
and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *
99.2 Press Release dated August 3, 2004 (3)
99.3 Letter dated August 3, 2004 from the Company
to the shareholders of AWT (3)
(1) Filed as Exhibit 3.1 to both the report of Form 8-K filed on August 5,
2004, and the report of Form 8-K/A filed on August 6, 2004, and
incorporated herein by reference.
(2) Filed as an Exhibit 1 to report on Form 8-K filed on April 12, 2004, and
incorporated herein by reference.
(3) Filed as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 99.1, and 99.2,
respectively, to both the report on Form 8-K filed on August 5, 2004, and
the report of Form 8-K/A filed on August 6, 2004, and incorporated herein
by reference.
(4) Filed as 99.11, 99.12 and 99.13, respectively, to the report of Form 10-QSB
filed on May 25, 2004.
(5) Filed as Exhibits 99.1 and 99.2, respectively, to report on Form 8-K filed
on April 6, 2004, and incorporated herein by reference.
* Filed Herein.
b) Reports on Form 8-K
The Company filed the following four (4) reports on Form 8-K during the
quarter for which this report is being filed:
(1) Form 8-K filed on April 1, to report the acquisition of a $6,000,000 line
of credit.
(2) Form 8-K filed on April 6, to report the purchase of $22,600,000 of senior,
secured notes (the "Galileo Notes").
(3),(4) Two Forms 8-K filed on April 12, to report the designation of 50,000
shares of Series E Convertible Preferred Stock, par value $0.001 per share.
The Company filed the following four (4) reports on Form 8-K subsequent to
the quarter for which this report is being filed:
(5) Form 8-K filed on August 5, 2004, to report the closing of the $4,000,000
Credit Facility with Stanford, the re-pricing of the $2.96 Warrants, the
issuance of 500,000 warrants to Stanford that bear a strike price of $5.00
per warrant share, a press release about said closing, a letter to be sent
to the shareholders of Around The World Travel, Inc.; and an amendment and
restatement of the Certificate of Designation of the Series C Preferred
Stock.
(6) Form 8-K/A filed on August 6, 2004, to report a minor change in the letter
to the shareholders of Around The World Travel, Inc.
(7) Form 8-K/A filed on August 18, 2004, to amend the Form 8-K filed on May 23,
2004, regarding changes in the Company's certifying accountant that
occurred during 2002.
(8) Form 8-K filed on August 18, 2004, to report a change in the Company's
certifying accountant.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN LEISURE HOLDINGS, INC.
(Registrant)
Date: August 20, 2004 By: /S/ Malcolm J. Wright
----------------------
Malcolm J. Wright
Chief Executive Officer, and
Chief Financial Officer
EXHIBIT 10.6
AMERICAN LEISURE REAL ESTATE GROUP, INC.
2015 RESTON RD., SUITE 2211- ORLANDO, FL 32837
407 251-2240 FAX 407 251-8455
DEVELOPMENT AGREEMENT
Date: November 3, 2003
Project: Tierra del Sol Resort, Polk County, FL
Client: Sunstone Golf Resort, Inc.
Orlando, Florida
SCOPE OF WORK:
----------------
American Leisure Real Estate Group, Inc. ("ALREG") shall provide development
services for the above referenced project ("Project") as follows:
DESIGN & SITE APPROVAL PROCESS
----------------------------------
As pertains to the design of the Project and the obtaining of all permits and
appropriate governmental approvals, ALREG shall do the following:
a. Recommend for hire, assist and supervise the various professionals
associated with the design of the Project and the contemplated units to be
constructed including but not limited to the civil engineer, architect,
landscape architect and providers of third party reports.
b. Cause to be presented to the Client, until the Client gives its final
approval, a site plan, clubhouse plan, amenities plan and construction
plans for the units to be offered for sale.
c. Assist and supervise the completion of the site approval process so that
the Project receives all necessary permits to commence construction of the
contemplated Project.
SALES & MARKETING
-------------------
As pertains to the sales and marketing of the units offered for purchase in the
Project, ALREG shall do the following:
a. Recommend for hire, assist and supervise the various professionals
associated with the marketing of the Project and production of marketing
materials.
b. Hire and supervise a sales team to work with other brokers and to conduct
in-house sales programs until all units have been sold.
ALREG Agreement
November 3, 2003
Page 2 of 3
CONSTRUCTION MANAGEMENT
------------------------
Provide construction management services as directed by the client, including
but not limited to:
- planning and scheduling,
- develop and maintain action list of issues requiring attention,
- coordinate efforts between designers, contractors, building authorities,
and other involved parties,
- schedule and run coordination meetings during the design and construction
phase,
- provide estimating services as needed,
- make recommendations related to agreements with other parties,
- make periodic visits to the site to review progress, bring any observed
defects to the clients attention,
- review and comment on any claims or change order requests by other
parties,
- review design documents for contractibility, and
- provide value engineering recommendations.
COMPENSATION
------------
1) Fees:
a) ALREG shall be paid a fee for the above services which shall be an amount
equivalent to FOUR PERCENT (4%) of the total costs of the Project with the
fees deemed earned and payable at the time of payment of the costs paid by
either ALRG or the Client.
b) All reasonable operating expenses for ALREG, shall be the responsibility
and the expense of Client.
2) Terms: ALREG will invoice by the 15th of each month for all fees earned
in the previous calendar month. All fees are due and payable within 10 days of
receipt of invoice. Any amount not paid after 30 days of receipt of invoice
will accrue interest at a rate of 1.5% per month.
3) Reimbursable Expenses
The Client shall pay directly or reimburse ALREG for all costs associated
with the design, site approval process, sales and marketing including the
following:
1. All third party costs, third party professionals, all sales and marketing
materials, sales center materials and operating costs, all payments and
commissions to brokers and sales agents and all travel and entertainment
associated with sales and marketing. ALREG shall present a monthly budget to
Client scheduling projected third party costs and shall be subject to Client's
approval.
2. Any travel and entertainment mandated by the Client shall be reimbursed;
however, travel and entertainment in ALREG's normal course of business to
fulfill the requirements of this Agreement shall not be reimbursable.
ALREG Agreement
November 3, 2003
Page 3 of 3
3. Any additional services related to litigation or dispute resolution,
including but not limited to: depositions, testimony, producing discovery
documents, or any other efforts related to dispute resolution involving the
Client and another party(s) shall be reimbursed to ALREG at a rate of $150.00
per ALREG man-hour spent and shall not be subject to any not to exceed price
when ALREG is compelled to be involved.
EXCLUSIONS:
-----------
ALREG shall not be held responsible for the performance of any other party,
including but not limited to consultants, designers, engineers, architects,
suppliers, and contractors, however, ALREG shall promptly advise the Client of
any known defects in the design or construction.
MISCELLANEOUS:
--------------
a. The Client will indemnify and hold harmless ALREG and its agents and its
employees from and against any and all claims, damages, losses, and
expenses including attorney fees arising out of or resulting from vicarious
liability imposed upon ALREG by operation of law or by contract from the
intentional act or negligent performance of any duty or contract obligation
owed by the Client, its clients, contractors, architects, engineers,
consultants, suppliers, or subcontractors.
b. Statements made in reports are opinions based upon judgment and are not to
be construed as representations of fact. Should ALREG or any of its
employees be found to be negligent in the performance of its work, or to
have made and breached any expressed or implied warranty, representation,
or contract, the client and all parties claiming through the Client agree
that the maximum aggregate amount of liability of ALREG, its officers,
employees, agents shall be limited to $1,000. All claims, disputes and
other matters in question between the parties to this agreement, arising
out of or related to this agreement or breach thereof, shall be decided by
Arbitration in accordance with the Construction Industry Arbitration Rules
of the American Arbitration Association. No arbitration arising out of or
relating to this agreement shall include by consolidation, joinder or in
any other manner, any additional person not a party to this agreement,
except by written consent of all parties. The award rendered by the
arbitrators shall be final, and judgment may be entered upon it in
accordance with applicable law in any court having jurisdiction thereof.
Attorney' fees and arbitration costs shall be awarded to the prevailing
party.
c. Nothing contained in this agreement/proposal shall create a contractual
relationship with or a cause of action in favor of a third party against
ALREG or the Client. This agreement shall be governed by the law in Orange
County, Florida.
d. Neither Party may materially obligate the other to any performance,
agreement or financial obligation without the express written consent of
the other Party.
Developer: Client:
American Leisure Real Estate Group, Inc. Sunstone Golf Resort, Inc.
By:______________________________ By:___________________________
Steve Parker Malcolm Wright
President President
EXHIBIT 31
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Malcolm J. Wright, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of American
Leisure Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the small business issuer as of, and for, the periods presented in
this report;
4. As the small business issuer's certifying officer, I am responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly
during the period in which this report is being prepared;
b) Paragraph omitted in accordance with SEC transition instructions
contained in SEC Release No. 33-8238;
c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report
my conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter
(the small business issuer's fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably
likely to materially affect, the small business issuer's internal
control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the small business issuer's
auditors and the audit committee of the small business issuer's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the small
business issuer's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: August 20, 2004
By: /s/Malcolm J. Wright
------------------------
Malcolm J. Wright,
Chief Executive Officer, and
Chief Financial Officer
Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Malcolm J. Wright, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report of American Leisure Holdings, Inc. on Form 10-QSB for the quarterly
period ended June 30, 2004 fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and that information contained
in such Form 10-QSB fairly presents in all material respects the financial
condition and results of operations of American Leisure Holdings, Inc.
By:/s/Malcolm J. Wright
--------------------
Malcolm J. Wright
Chief Executive Officer, and
Chief Financial Officer
August 20, 2004