UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 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 December 8, 2004, 13,706,674 shares of Common Stock of the issuer were
outstanding, of which 3,791,700 shares are treasury stock.
This Form 10-QSB/A is being filed due to adjustments that were made to the
Registrant's financial statements which also affect the section entitled
"Management's Discussion and Analysis or Plan of Operation."
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 2004
and December 31, 2003 F-1
Condensed Consolidated Statements of Operations for the nine and
three months ended September 30, 2004 and 2003 F-2
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2004 and 2003 F-3
Notes to Interim Condensed Consolidated Financial Statements F-4
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
ASSETS
September 30, December 31,
2004 2003
------------ ------------
Unaudited Audited
CURRENT ASSETS:
Cash $ 2,835,641 $ 734,852
Accounts receivable, net of allowance of $75,000 938,050 2,148,134
Advances receivable 134,685 -
Prepaid expenses and other 104,530 40,867
------------ ------------
Total Current Assets 4,012,906 2,923,853
------------ ------------
PROPERTY AND EQUIPMENT, NET, at cost 2,732,697 3,192,878
------------ ------------
LAND HELD FOR DEVELOPMENT 17,257,034 15,323,627
------------ ------------
OTHER ASSETS
Prepaid broker commission 5,821,488 -
Prepaid sales and marketing fees - related party 3,643,215
Deferred financing costs, net $255,117 of amortization 2,342,881
Investment and advances to Around the World Travel 13,069,908 654,386
1913 Mercedes Benz 500,000 500,000
Goodwill 1,840,001 1,840,001
Other 3,464,869 941,730
------------ ------------
Total Other Assets 30,682,362 3,936,117
------------ ------------
TOTAL ASSETS $54,684,999 $25,376,475
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 9,216,465 $ 4,699,201
Current maturities of notes payable-related parties 1,193,902 741,760
Accounts payable and accrued expenses 2,183,249 1,787,699
Accrued expenses - related parties 2,866,100 500,000
Deposits and other 24,752 -
Shareholder advances 298,658 1,030,883
------------ ------------
Total Current Liabilities 15,783,126 8,759,543
Commitments and contingencies
Minority liability - 510,348
Long-term debt and notes payable 17,466,550 8,268,222
Notes payable-related parties 595,771 1,675,000
Deposits 12,459,921 -
Mandatorily redeemable preferred stock, 28,000 shares authorized;
$.01 par value; 27,189 Series "C" shares issued and outstanding at
September 30, 2004 and December 31, 2003 - 2,718,900
------------ ------------
Total liabilities 46,305,368 21,932,013
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock; 1,000,000 shares authorized; $.001 par value;
880,000 Series "A" shares issued and outstanding at
September 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
September 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
September 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
September 30, 2004 24
Capital stock, $.001 par value; 100,000,000 shares authorized;
9,778,983 and 7,488,983 shares issued and outstanding at
September 30, 2004 and December 31, 2003 9,779 7,489
Additional paid-in capital 13,882,243 6,166,488
Accumulated (deficit) (5,521,512) (2,738,340)
------------ ------------
Total Stockholders' Equity 8,379,631 3,444,462
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $54,684,999 $25,376,475
============ ============
F-1
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
September 30, September 3 September 30, September 30,
2004 2003 2004 2003
------------ ------------ ----------- -----------
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
REVENUES $ 3,701,469 $ 199,647 $1,356,522 $ 164,457
COST OF SALES - - - -
------------ ------------ ----------- -----------
Gross margin 3,701,469 199,647 1,356,522 164,457
------------ ------------ ----------- -----------
EXPENSES:
Depreciation and amortization 679,543 305,349 236,551 130,061
Impairment loss - - - -
General and administrative expenses 6,310,124 1,372,904 2,335,369 629,357
------------ ------------ ----------- -----------
TOTAL OPERATING EXPENSES 6,989,667 1,678,253 2,571,920 759,418
------------ ------------ ----------- -----------
LOSS FROM OPERATIONS BEFORE MINORITY INTERESTS (3,288,198) (1,478,606) (1,215,398) (594,961)
Minority interests 510,348 - 26,062 -
------------ ------------ ----------- -----------
NET LOSS BEFORE INCOME TAXES (2,777,850) (1,478,606) (1,189,336) (594,961)
PROVISIONS FOR INCOME TAXES (5,322) - (1,452) -
------------ ------------ ----------- -----------
NET LOSS $(2,783,172) $(1,478,606) $(1,190,788) $ (594,961)
============ ============ =========== ===========
NET LOSS PER SHARE:
BASIC AND DILUTED $ (0.34) $ (0.22) $ (0.13) $ (0.09)
============ ============ =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 8,211,027 6,626,873 9,103,983 6,638,983
============ ============ =========== ===========
F-2
AMERICAN LEISURE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Nine Months
Ended Ended
September 30, September 30,
2004 2003
------------ ------------
UNAUDITED UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,783,172) $(1,478,606)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 679,543 305,349
Loss on disposal of assets (32,085) -
Provision for bad debt 75,000 -
Amortization of deferred financing costs 255,117 -
Changes in assets and liabilities:
Decrease in receivables 1,135,084 (76,688)
(Increase) in advances receivable (134,685) (392,846)
(Increase) in prepaid and other assets (63,663) 25,089
(Increase) in deposits and other (5,335,524) (31,455)
Increase in accounts payable and accrued expenses (614,798) 143,212
Increase in deposits and other 12,484,673 -
------------ ------------
Net cash used in operating activities 5,665,490 (1,505,945)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Around the World Travel (3,148,082) -
Advances to affiliates (3,786,218) -
Capitalization of real estate carrying costs and
prepaid sales and marketing costs (1,933,407) (1,907,983)
Acquisition of fixed assets (187,277) (464,827)
------------ ------------
Net cash used in investing activities (9,054,984) (2,372,810)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 6,968,757 4,422,208
Payments on notes payable-related parties (746,249) (446,656)
Payments on shareholder advances (732,225) 242,365
------------ ------------
Net cash provided by financing activities 5,490,283 4,217,917
------------ ------------
Net Increase (decrease) in Cash 2,100,789 339,162
CASH AT BEGINNING PERIOD 734,852 50,499
------------ ------------
CASH AT END OF PERIOD $ 2,835,641 $ 389,661
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 432,308 $ 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
September 30, 2004
Note A - Presentation
The condensed balance sheets of the Company as of September 30, 2004, the
related condensed consolidated statements of operations for the nine and three
months ended September 30, 2004, and the condensed consolidated statements of
cash flows for the nine months ended September 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 nine and
three months ended September 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 September 30, 2004, property and equipment consisted of the following:
Useful
Lives Amount
---------- ----------
Computer equipment 3-5 $ 983,542
Automobiles 5 63,230
Furniture & fixtures 5-7 73,269
Leasehold improvements 5 29,729
Telecommunications equipment 5 3,515,783
----------
4,665,553
Less: accumulated depreciation and amortization 1,932,856
----------
$2,732,697
==========
Depreciation expense for the nine month period ended September 30, 2004 was
$679,543.
F-4
NOTE D - LONG-TERM DEBT AND NOTES PAYABLE
1. New Credit Facilities
On June 17, 2004, American Leisure Holdings, Inc. (the "Company" or "American
Leisure") entered into two new credit facilities (one for $1,000,000 and the
other for $3,000,000) with Stanford Venture Capital Holdings, Inc. ("Stanford").
Both of these credit facilities were fully funded as of September 30, 2004. 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 were 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 dated as of June
17, 2004, pursuant to which the Company borrowed $3,000,000 from Stanford.
The proceeds of the loan were 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, 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
for American Leisure 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 (excluding accounts receivable and the assets of 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 $1 and $3 million 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 the
warrants to $.001 per share. No other terms of the warrants were changed. The
modified warrants were valued at the market price at the date of modification
(or June 17, 2004) and recorded as deferred financing costs. The deferred
financing costs will be amortized over the life of the debt using the effective
interest method.
Subsequent to September 30, 2004 and in connection with a new credit facility of
$1,250,000, to be reported on Form 8-K in the next few days, 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 June 2004 (see 4, below), entitled the holders to purchase 500,000 shares of
the Company's Common Stock at an exercise price of $5.00 per share. Under the
terms of the amendment, the Company agreed to reduce the exercise price of
100,000 of these warrants to $.001 per share. No other terms of these warrants
were changed.
4. Issuance of New Warrants
As additional consideration for the $3 million credit facility, 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. The 500,000 warrants were valued using
Black-Scholes. These warrants have a five-year term. As provided in 5, above,
the Company agreed to reduce the exercise price of 100,000 of these warrants to
$.001 per share. No other terms of these warrants were changed.
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 agreed to file a
registration statement for this purpose with the Securities and Exchange
Commission on or before August 15, 2004. In November 2004, the Company and
Stanford agreed to extend the date by which the Company has to file the
registration statement to March 31, 2005. If a registration statement is not
filed by March 31, 2005, American Leisure will incur a penalty of 10% of the
warrants issued for every 90 days the registration statement is not filed.
6. Acquisition of Galileo Loans
In March 2004, AMLH has acquired the Galileo loans from GCD Acquisition Corp.
("GCD") Under the terms of this agreement, AMLH has assumed GCD's obligations
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
common stock in AMLH valued at $170,000.
The assets acquired were in the form of senior, secured notes owed by Around The
World Travel, Inc., a Florida Corporation, ("AWT" or TraveLeaders) in the amount
of $22,600,000. AMLH acquired the assets from GCD for $1,170,000, which was paid
via the issuance of 340,000 restricted shares of common stock of AMLH at $5.00
per share. The Company booked the transaction at the market price of the Common
Stock which was $170,000 at the date of issuance and not at the agreed value of
the transaction between the parties. 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.
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 the loans can be used as part of a capital
restructuring of TraveLeaders, which is fair and reasonable to all of
TraveLeaders' shareholders and creditors.
F-7
In connection with the Galileo loans and the note to Shadmore Trust, the Company
has made advances to AWT of approximately $3 million at September 30, 2004, for
a total investment in AWT of approximately $13 million at September 30, 2004.
The investment is accounted for under the cash method as the investment in AWT
was less than 20% at September 30, 2004.
7. $6,000,000 Credit Facility
In December 2003, 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 secured by way of (i) a second
mortgage in favor of Stanford (Arvimex's assignee) on
real estate located in Polk County, Florida, owned by
Sunstone Golf Resort, Inc., 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.
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. In November 2004, the Company and Stanford
agreed to extend the date by which the Company has to
file the registration statement to March 31, 2005. If a
registration statement is not filed by March 31, 2005,
American Leisure will incur a penalty of 10% of the
warrants issued for every 90 days the registration
statement is not filed.
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. $ 436,804
Roger C. Maddock 94,428
Arvimex Inc. 380,353
Minority shareholders -
Hickory Travel Systems, Inc. 282,317
-------
Notes payable - related parties $1,193,902
=========
Roger C. Maddock beneficially owns more than 10% of the Company's common stock
and he is the majority owner of Azure, Ltd.
The long-term portion of notes payable of $595,771 is owed to the minority
shareholders of Hickory Travel Systems, Inc., a subsidiary of the Company.
$208,561 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 as 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
As provided above, the Company granted Stanford, and certain individuals
associated with Stanford, a reduction in the price of 1,350,000 warrants to
purchase an aggregate of 1,350,000 shares of the Company's Common Stock from
$2.96 to $.001 per share. These reductions in the exercise price of the warrants
were issued as a cost paid by the Company for the receipt of the $3,000,000
credit facility in June 2004. During the month of August, 2004, all 1,350,000
warrants were exercised which resulted in the issuance of an additional
1,350,000 shares of Common Stock.
Preferred Stock
American Leisure is authorized to issue up to 10,000,000 shares in aggregate of
preferred stock:
Annual
Total Series Stated Dividends Conversion
Authorized Value Voting per Share 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(2) 50,000 $100.00 Yes 0.04 Liquidation
value
divided by
market
value but
not less or
more than
than
6.666:1
(1) 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.
(2) 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.
F-10
NOTE G - RELATED PARTY TRANSACTIONS
The Company accrues salaries payable to Malcolm Wright in the amount of $250,000
per year. As of September 30, 2004, the amount of salaries payable accrued to
Mr. Wright was $687,500.
The Company accrues directors' fees 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 $14,000 to two
directors.
Malcolm Wright, the Company's CEO, and Bill Chiles, a director of the Company,
have personally guaranteed part of the Company's long-term and short term debt
in the aggregate amounts of $17,300,000 and $7,000,000, respectively. In March
2004 and effective June 14, 2002, the Company entered into an agreement with Mr.
Wright and Mr. 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 make a personal guarantee for
the benefit of AMLH in conjunction with third-party financing, and Mr. Wright or
Mr. Chiles elect to provide such guarantee, then Mr. Wright and/or Mr. Chiles
shall earn a fee for such guarantee equal to three per cent (3%) of the total
original indebtedness and two per cent (2%) of any collateral posted as
security. 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 also 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.
F-11
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 September 30, 2004 the fee amounted to $91,783.
Malcolm Wright and members of his family are the majority shareholders of Xpress
Ltd. ("Xpress") a shareholder of the Company. On November 3, 2003, TDSR entered
into an exclusive sales and marketing agreement with Xpress to sell the units
being developed by TDSR. This agreement provides for a sales fee in the amount
of 3% of the total sales prices received by TDSR plus a marketing fee of 1.5%.
During the period since the contract was entered into and ended September 30,
2004 the total sales amounted to approximately $139,000,000. As a result of the
sales, TDSR is obligated to pay Xpress a total fee of $6,255,000. As of
September 30, 2004. As of September 30, 2004, $1,402,214 has been paid to Xpress
and a marketing fee of $2,241,000 was recorded in accrued expenses - related
parties. The fees accrued represent 3% of the total fees per the contract. The
remaining 3% will be paid at closing.
In February 2004, Xpress entered into Contracts with TDSR to purchase 32
Townhomes for $8,925,120 and paid a deposit of $892,512.
F-12
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.
F-12
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.
t) Risk that the Company is unable to obtain a construction loan or other
additional financing needed to begin the construction of Tierra Del Sol resort.
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 distribution company.
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 Advantage 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 three (3) subsidiaries are the Company's principal operating
companies:
Tierra Del Sol Resort, Inc. ("TDSR")
TDSR completed the final planning stage of a 971-unit vacation destination
resort in Orlando, Florida. The Company plans to construct the resort in two
phases consisting of 418 units, a clubhouse and resort amenities ("Phase 1") and
553 units ("Phase 2"). TDSR estimates that the cost to complete the construction
of Phase 1 will be $127 million, of which $17 million will be for horizontal
construction, $23 million will be for the clubhouse and resort amenities, and
$69 million will be for vertical construction on 418 units and $18m for other
costs. The Company was expecting to fund the $17 million for horizontal
construction 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 resort has been delayed while TDSR seeks to
obtain conventional construction financing or possible placement of the CDD
Bonds at more favorable rates. TDSR is currently negotiating with a banking
institution for the provision of a $95,000,000 conventional construction loan.
TDSR expects to receive a binding letter of commitment from the banking
institution during the latter half of December 2004, with a closing during
January 2005. TDSR is currently in negotiation with the same banking institution
to underwrite the issue of approximately $20,000,000 of CDD Bonds. TDSR does not
plan to begin construction of Phase 1 until it has a conventional construction
loan and CDD Bonds in place, or an increased conventional construction loan for
an aggregate of $112,000,000.
Presales of the vacation homes commenced on February 1, 2004. As of the date of
this report, TDSR has executed pre-sale contracts for 267 Phase 1 units and 261
Phase 2 units (or an aggregate of 528 units). TDSR plans to sell the remainder
of the Phase 1 units prior to starting vertical construction on those units.
TDSR is seeking a $95,000,000 construction loan net of CDD Bond financing of
$17,000,000. The Company intends to continue to provide financial and guarantee
support to TDSR for the development of the resort. Provided that TDSR obtains
financing and receives its final permit from Polk County, Florida as planned,
the Company intends to commence horizontal construction in January 2005 and
vertical construction in March 2005 to deliver the first vacation investment
properties in the Winter of 2005.
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. As
part of the refinancing, the Company obtained a $6,000,000 loan that the Company
used to further develop the property by finalizing its revised planning,
obtaining a permit for an increase from 799 to 971 vacation residences, and
starting engineering work. TDSR will seek to refinance the $6,000,000 loan (the
repayment of which is due on March 31, 2005) as part of a construction loan
facility.
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 AMTG 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
group of companies 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.
Hickory Travel Systems, Inc. ("HTS")
On October 1, 2003, American Leisure acquired controlling interest in HTS, the
parent to, among other companies, Hickory Travel Systems, 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 had seasonal losses during the first three quarters of
each calendar year. HTS incurred a loss of $1,348,230 during the first three
quarters of 2004. The Company estimates that HTS will realize net profit in the
last quarter of 2004. The Company bases its estimates on previous trends as well
as new business opportunities available to HTS such as HTS' ability to offer its
members special prices on various products and services via HTS' desktop
intranet as well as Voice over Internet Protocol ("VoIP") services. 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 future fiscal years.
The Company is currently planning the following acquisitions and business
ventures:
Around The World Travel, Inc. ("AWT" or "TraveLeaders")
AWT does business as TraveLeaders, a US-based travel service distribution
company 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 (the "Galileo Loans"), 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; 4) approximately 5% of the minority
interest common and preferred stock of AWT; and 5) options to purchase
approximately 89% of the minority interests common stock and 93% of the minority
interests preferred stock of AWT. The Company plans to complete the acquisition
of AWT by virtue of the acquisition of the assets or by exercising the
Corporations options to buy the common stock during December, 2004. The Company
plans to complete the acquisition of AWT during December 2004 by either
acquiring the assets or exercising the option to buy the common stock of Around
The World Holdings, LLC.
The Company has estimated that TraveLeaders will require a total of
approximately $5,000,000 of working capital during the period from March to
December 2004. As of the date of this report, the Company has advanced
TraveLeaders $4,200,000, which are secured by the collateral securing the
Galileo Loans.
Antigua - Caribbean Leisure Marketing Ltd. ("CLM")
During September 2003, the Company agreed with Stanford to form CLM in Antigua,
West Indies to acquire a call center, and the related assets (the "Antigua Call
Center") which was previously run by another Stanford portfolio company, Oak
Holdings (Antigua) Ltd. ("Oak Holdings"), for $3,000,000. In connection with the
acquisition, Stanford agreed to advance the Company $2,000,000 for its working
capital and equipment needs and for the Company's call center in Coral Gables,
Florida (the "Florida Call Center") as part of a $6,000,000, 5-year convertible
loan. The Company expects the acquisition to close during December 2004. Once
CLM has acquired and upgraded the Antigua Call Center, it will be linked to the
Florida Call Center to take advantage of the technology available in the Florida
Call center and run various inbound and outbound marketing campaigns for our
group of companies and third parties. Stanford advanced an additional $1,000,000
as part of its $4,000,000, 3-year convertible loan for use in Antigua. American
Leisure has made advances of $3,180,000 to Oak Holdings as of September 30,
2004. Oak Holdings is an affiliate of Stanford.
Advantage Professional Management Group, Inc. ("APMG")
On July 8, 2003, APMG received revised planning on its property to establish the
property with TCX (town center) zoning. The Company has entered into a contract
to sell APMG's property for $4,150,000 which it expects to close in December,
2004.
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 including the war
in Iraq, 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, wars 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 future development of 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, which have recently been on the rise in the United States;
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. In
addition, we may not successfully execute our growth strategy, which includes
the expansion of the number of vacation resorts we develop. Risks associated
with such expansion include the following:
o adequate financing;
o actual construction costs in excess of 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 fluctuation of our quarterly results 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 (if any) on
projects on a pro rata basis as development is completed;
o lack of market demand; and
o declining values of our inventories.
Any of the foregoing risks could impede our planned expansion. 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 any new resorts may reduce our overall
operating margins.
Vacation Ownership
------------------
We intend to market vacation assets and vacation club memberships to the general
public. We believe that the membership base of our vacation and travel clubs and
the guests staying at our resort assets will provide an ongoing source of
prospects for our vacation assets and vacation club membership sales. We expect
that revenues from the sale of vacation assets and vacation club memberships
will be a substantial component in our ability to finance future vacation asset
developments and resort acquisitions.
Travel Services
---------------
We intend to capitalize on the travel requirements of the travel clubs and
vacation clubs that we service to garner significant group purchasing, and
Company 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 SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER
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 the acquisition of
HTS.
The Company had revenues of $1,356,522 for the three months ended September 30,
2004, as compared to $164,457 for the three months ended September 30, 2003,
which represents a 725% increase in revenues.
Total operating expenses increased $1,812,502 (or 239%) to $2,571,920 for the
three months ended September 30, 2004, as compared to $759,418 for the three
months ended September 30, 2003. The increase in total operating expenses was
due to the following increases in depreciation and amortization and increases in
general and administrative ("G&A") expenses. Depreciation and amortization
increased $106,490 (or 82%) to $236,551 for the three months ended September 30,
2004, as compared to $130,061 for the three months ended September 30, 2003.
Likewise, G&A expenses increased $1,706,012 (or 271%) to $2,335,369 for the
three months ended September 30, 2004, as compared to $629,357 for the three
months ended September 30, 2003.
Loss from operations before minority interests was $1,215,398 for the three
months ended September 30, 2004, as compared to loss from operations before
minority interests of $594,961 for the three months ended September 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 $26,062 attributable to minority interests for the three months
ended September 30, 2004, as compared to $0 attributable to minority interests
for the three months ended September 30, 2003.
Net loss before income taxes for the three months ended September 30, 2004 was
$1,189,336 as compared to net loss before income taxes of $594,961 for the three
months ended September 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 $26,062 attributable to minority interests.
The Company recorded a provision for income taxes of $(1,452) for the three
months ended September 30, 2004, as compared to a provision for income taxes of
$0 for the three months ended September 30, 2003.
The Company had net loss of $1,190,788 for the three months ended September 30,
2004, as compared to net loss of $594,961 for the three months ended September
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.
Basic and diluted net loss per share was $0.13 for the three months ended
September 30, 2004, as compared to basic and diluted net loss per share of $0.09
for the three months ended September 30, 2003.
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003
The Company had revenues of $3,701,469 for the nine months ended September 30,
2004, as compared to $199,647 for the nine months ended September 30, 2003,
which represents a 1,754% increase in revenues. The increase in revenues was due
to the acquisition of HTS.
Total operating expenses increased $5,311,414 (or 316%) to $6,989,667 for the
nine months ended September 30, 2004, as compared to $1,678,253 for the nine
months ended September 30, 2003. The increase in total operating expenses was
due to the following increases in depreciation and amortization and increases in
G&A expenses. Depreciation and amortization increased $374,194 (or 123%) to
$679,543 for the nine months ended September 30, 2004, as compared to $305,349
for the nine months ended September 30, 2003. Likewise, G&A expenses increased
$4,937,220 (or 360%) to $6,310,124 for the nine months ended September 30, 2004,
as compared to $1,372,904 for the nine months ended September 30, 2003.
Loss from operations before minority interests was $3,288,198 for the nine
months ended September 30, 2004, as compared to loss from operations before
minority interests of $1,478,606 for the nine months ended September 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 $510,348 attributable to minority interests for the nine months
ended September 30, 2004, as compared to $0 attributable to minority interests
for the nine months ended September 30, 2003.
Net loss before income taxes for the nine months ended September 30, 2004 was
$2,777,850 as compared to net loss before income taxes of $1,478,606 for the
nine months ended September 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 $510,348 attributable to
minority interests.
The Company recorded a provision for income taxes of $(5,322) for the nine
months ended September 30, 2004, as compared to a provision for income taxes of
$0 for the nine months ended September 30, 2003.
The Company had net loss of $2,783,172 for the nine months ended September 30,
2004 after taxes, as compared to net loss of $1,478,606 for the nine months
ended September 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.
Basic and diluted net loss per share was $0.34 for the nine months ended
September 30, 2004, as compared to basic and diluted net loss per share of $0.22
for the nine months ended September 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total current assets of $4,012,906 as of September 30, 2004,
which consisted of $2,835,641 of cash, $938,050 of accounts receivable, $134,685
of advances receivable, and $104,530 of prepaid expenses and other current
assets.
The Company had total current liabilities of $15,783,126 as of September 30,
2004, which consisted of $9,216,465 of current maturities of long-term debt and
notes payable, $2,866,100 of accrued expenses to related parties, $2,183,249 of
accounts payable and accrued expenses, $1,193,902 of current maturities of notes
payable to related parties, $298,658 of shareholder advances, and $24,752 of
deposits and other current liabilities.
The Company had negative net working capital of $11,770,220 as of September 30,
2004. The ratio of total current assets to total current liabilities was
approximately 25% as of September 30, 2004.
During the three months ended September 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 (due in
March 2005) is now a current liability. The Company intends to refinance this
note prior to its due date.
The Company has a history of generating net losses though cash increased
$2,100,789 during the nine months ended September 30, 2004. The Company's
primary sources of cash have been the acceptance of deposits on presales of its
TDSR project, increases in its credit facilities from Stanford, increases in
accounts payable and accrued expenses, and decreases in receivables.
Net cash provided by operating activities was $5,665,490 for the nine months
ended September 30, 2004, as compared to net cash used in operating activities
of $1,505,945 for the nine months ended September 30, 2003. The change from net
cash used in (to net cash provided by) operating activities was primarily due to
an increase in deposits and other liabilities of $12,484,673 associated with
presales of the TDSR project, a decrease in accounts payable and accrued
expenses of $614,798, a decrease in receivables of $1,135,084, an adjustment for
depreciation of $679,543, which were primarily offset by an increase in deposits
and other current assets of $5,335,524, an increase in advances and receivables
of $134,685, and an increase in prepaid and other assets of $63,663.
Net cash used in investing activities was $9,054,984 for the nine months ended
September 30, 2004, as compared to net cash used in investing activities of
$2,372,810 for the nine months ended September 30, 2003. The increase in net
cash used in investing activities was due to the capitalization of real estate
carrying costs and prepaid sales and marketing costs of $1,933,407, an increase
in notes receivable of $3,786,218, and the acquisition of fixed assets of
$187,277.
Net cash provided by financing activities was $5,490,283 for the nine months
ended September 30, 2004, as compared to net cash provided by financing
activities of $4,217,917 for the nine months ended September 30, 2003. The
increase in net cash provided by financing activities was primarily due to
proceeds from notes payable of $6,968,757.
As a result of its limited liquidity, the Company has limited access to
additional capital resources. The Company does not expect to have the capital to
totally fund certain obligations due to its shareholders of approximately
$1,193,902 that have already matured. The shareholders have agreed to defer
receipt of the balance remaining on their loans until the Company has stronger
liquidity. The Company has agreed to maintain their security for their loans.
We estimate that TDSR, HTS and TraveLeaders (if acquired) will require
additional capital until the third quarter of 2005. Even though the Company has
obtained various credit facilities from Stanford (discussed below), the Company
will still have to obtain new sources of capital until operations provide
sufficient cash flow to finance these activities. Although obtaining additional
capital is not guaranteed, the Company's management believes it will be able to
obtain the capital required to meet the Company's current obligations and
actively pursue the Company's planned business activities.
The Company needs an aggregate of $112 million to begin the construction and
development of Phase 1 of the TDSR project and approximately $100,000 for ATMG
which is in addition to the receipt of certain financing, as discussed below.
The Company expects that TraveLeaders (if acquired) will also require additional
working capital. During the period covered by this report, the Company received
$5,231,529 in deposits from the presale of units for TDSR and $1,350 from the
exercise of warrants. In November 2004, the Company amended the $3 million
Credit Facility from Stanford for an additional $1.25 million for working
capital. The Company intends to raise additional capital in one or more private
placements of equity or convertible debt financing, or through a sale-leaseback
of its equipment. The Company is currently negotiating with a banking
institution to provide a $95 million conventional construction loan for the TDSR
project which it expects to close in January 2005. If additional funds are
raised by issuing equity and/or convertible debt, the ownership interest of our
current stockholders may be diluted. 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 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 construction of the TDSR project and 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 intends
to raise additional capital in one or more private placements of equity or
convertible debt financing, or through a sale-leaseback of its equipment. 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.
CONDITIONS TO FINANCING RECEIVED FROM STANFORD. The Company received a
$6,000,000 credit facility and an aggregate of $4,000,000 of credit facilities
from Stanford in December 2003 and June 2004, respectively (collectively, the
"Credit Facilities"), that are convertible into shares of the Company's common
stock at $15 and $10 per share, respectively. The Credit Facilities impose
certain obligations on the Company including, but not limited to, the issuance
of warrants, some of which have been modified to provide for an exercise price
of $.001 per share to secure additional financing from Stanford, the
registration under the Securities Act of the shares of common stock that may be
received upon conversion of the Credit Facilities and exercise of the warrants,
and the issuance of a security interest in the Company's assets including the
Company's ownership interest in certain subsidiaries. The Company was required
to register the shares no later than 180 days following the closing of the
Credit Facilities. In the event a registration statement is not filed within 180
days of closing, the Company is required to issue Stanford, as a penalty,
additional warrants equal to 10% of the warrants originally issued for every
quarter the filing is not made. As of the filing of this report, the Company has
not filed a registration statement under any of the Credit Facilities. In
November 2004, the Company modified the terms of the Credit Facilities pursuant
to which the Company must file the registration statement before March 31, 2005.
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 ALMH 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 AHLH'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.
RE-PRICING WARRANTS MAY CAUSE SUBSTANTIAL DILUTION TO OUR EXISTING SHAREHOLDERS.
In the past, to obtain additional financing, we have modified the terms of our
warrant agreements to lower the exercise price per share from $5.00 and $2.96 to
$.001. We are currently in need of additional financing and may be required to
lower the exercise price of other warrants. The modified warrants are valued at
the market price at the date of modification and recorded as deferred financing
costs, which is included in other assets. The deferred financing costs will be
amortized over the life of the debt using the effective interest method.
Re-pricing of our warrant agreements may cause substantial dilution to our
existing shareholders.
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
"delisted" 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 September 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 approval from the
shareholders of Common Stock, issue preferred stock with dividend, liquidation,
conversion, voting, or other rights that could adversely affect the voting power
and other rights of the holders of 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. The Company does not
anticipate that it will pay any cash dividends in the foreseeable future. The
Company's shareholders do not have authority to compel the Company's Board of
Directors to declare dividends. While the Company's dividend policy will be
based on the operating results and capital needs of the business, it is
anticipated that any earnings will be retained to finance the Company's planned
expansion.
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 COMPANY MAY NOT IDENTIFY OR COMPLETE ACQUISITIONS IN A TIMELY,
COST-EFFECTIVE MANNER, OR AT ALL. In the event of any future acquisitions, the
Company could issue additional stock that would further dilute current
shareholders' percentage ownership; incur debt; assume unknown or contingent
liabilities; or experience negative effects on reported operating results from
acquisition-related charges and amortization of acquired technology, goodwill
and other intangibles. In the event that any of these events occur, it could
have a material adverse effect on shareholder value, or the Company's results of
operation or financial condition.
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.
EXCESSIVE CLAIMS FOR DEVELOPMENT-RELATED DEFECTS COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND RESULTS OF OPERATION. 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.
BECAUSE AMLH DEPENDS ON KEY PERSONNEL, THEIR LOSS COULD HARM ITS BUSINESS.
AMLH's key personnel are Malcolm Wright and L. William ("Bill") Chiles.
Competition in our industry for executive-level personnel 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 been engaged primarily in the development of
Tierra Del Sol Resort, building travel club membership databases, the
acquisition of HTS, the due diligence and planning to acquire TraveLeaders, and
the assembly of our management team. We have incurred net operating losses since
our inception. As of September 30, 2004, we had an accumulated deficit of
$5,521,512. Such losses have resulted primarily from 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. 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 intend to generate the necessary capital to operate for the next
twelve months by achieving break-even cash flow from operations and subsequent
profitability, selling equity and/or debt securities and/or entering into a
sale-leaseback of our equipment. There can be no assurances that we will be
successful in its efforts. If we are unsuccessful 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-leaseback transaction, we will
not be able to continue our operations for the next twelve months, in which case
you will lose your entire investment in the Company.
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 operate. A weak United States or global marketplace could cause us to
have longer sales cycles, delays in closing contracts for new business, and
slower growth under existing contracts. If an economic downturn frustrates our
ability to enter into new multi-year contracts, it would have a material adverse
effect on our business and 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. If we do not generate minimum levels
of revenue from our contracts or our clients terminate our multi-year contracts,
it will have a material adverse effect on our business, results of operation and
financial condition.
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. If our
costs increase and we cannot, in turn, increase our service fees or we have to
decrease our service fees because we do not achieve defined performance
objectives, it will have a material adverse effect on our business, results of
operation and financial condition.
CHANGING TECHNOLOGY. Our business is highly dependent on our computer and
communications equipment and software capabilities. Our continued growth and
future profitability will be highly dependent on a number of factors affected by
technology, including our ability to (i) expand our existing service offerings;
(ii) achieve cost efficiencies in our existing call 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. Our failure to maintain our technological
capabilities or respond effectively to technological changes could have a
material adverse effect on our business, results of operations or financial
condition.
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 or our call
centers. 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 diversion of management's attention from our core
business; (vi) inability to maintain uniform standards, controls, policies and
procedures; (vii) impairment of relationships with employees and customers which
may occur as a result of integration of the acquired business; (viii) potential
loss of key employees of acquired organizations; (ix) problems integrating the
acquired business, including its information systems and personnel; (x)
unanticipated costs that may harm operating results; (xi) adverse effects on
existing business relationships with customers; and (xii) risks associated with
entering an industry in which we have no (or limited) prior experience. Any of
these risks could harm the Company's business, operating results or financial
condition.
BUSINESS INTERRUPTION. Our operations are dependent upon our ability to protect
our call center, computer and telecommunications equipment and software systems
against damage from fire, power loss, telecommunications interruption or
failure, natural disaster and other similar events. In the event we experience a
temporary or permanent interruption at our call center, 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. In the event that
we experience such interruptions and are not adequately compensated by
insurance, it would have a material adverse effect on our business, results of
operation or financial condition.
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, selling equity and/or debt securities, and/or a sale-leaseback
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, additional equity 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 them 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 became a defendant in an action that was filed in Miami-Dade County,
Florida. In March 2004, Manuel Sanchez and Luis Vanegas filed suit against
American Leisure Holdings, Inc. various subsidiaries and various officers
alleging claims of breach of their employment contracts and related stock
purchase agreements. Those executory agreements were components of a venture to
which the Company had conditionally committed but did not consummate due to
non-performance by other parties to the venture. AMLH has vigorously defended
the lawsuit. The Company does not believe that the claims have any merit. The
case is in the early discovery phase and dispositive motions by the Company are
pending.
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. An order was entered dismissing the lawsuit without
prejudice on November 1, 2004. The dismissal becomes irreversible one year from
the date that the order was entered.
In early May, 2004, AWT, 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
seeking 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. The lawsuit filed by Seamless has been abated and
consolidated with the original lawsuit filed by 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
In August 2004 the Company issued an aggregate of 1,350,000 shares of Common
Stock that was 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 $1,350). 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Related Party Transactions
--------------------------
As of September 30, 2004, the Company owed $1,193,902 of demand notes payable to
related parties most of which bear interest at a rate of 10% or 12% per annum.
Although the notes are 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 September
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 September 30, 2004, shareholder advances were $298,658. The shareholder
advances are currently due and payable upon demand and bear interest at 12% per
annum. As of September 30, 2004, the amount of shareholder advances from Malcolm
Wright, the Company's Chief Executive Officer, Chief Financial Officer, and a
Director of the Company was $116,896.
The Company accrues salaries payable to Malcolm Wright in the amount of $250,000
per year. As of September 30, 2004, the amount of salaries payable accrued to
Mr. Wright was $687,500.
The Company accrues directors' fees 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 $14,000 to two (2)
directors.
Malcolm Wright, the Company's CEO, and Bill Chiles, a director of the Company,
have personally guaranteed part of the Company's long-term and short term debt
in the aggregate amounts of $17,300,000 and $7,000,000, respectively. In March
2004 and effective June 14, 2002, the Company entered into an agreement with Mr.
Wright and Mr. 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 make a personal guarantee for
the benefit of AMLH in conjunction with third-party financing, and Mr. Wright or
Mr. Chiles elect to provide such guarantee, then Mr. Wright and/or Mr. Chiles
shall earn a fee for such guarantee equal to three per cent (3%) of the total
original indebtedness and two per cent (2%) of any collateral posted as
security. 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 also 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 September 30, 2004 the fee amounted to $91,783.
Malcolm Wright and members of his family are the majority shareholders of Xpress
Ltd. ("Xpress") a shareholder of the Company. On November 3, 2003, TDSR entered
into an exclusive sales and marketing agreement with Xpress to sell the units
being developed by TDSR. This agreement provides for a sales fee in the amount
of 3% of the total sales prices received by TDSR plus a marketing fee of 1.5%.
During the period since the contract was entered into and ended September 30,
2004 the total sales amounted to approximately $139,000,000. As a result of the
sales, TDSR is obligated to pay Xpress a fee of $6,255,000. As of September 30,
2004, $1,402,214 has been paid to Xpress and a marketing fee of $2,241,000 was
recorded in accrued expenses - related parties. The fees accrued represent 3% of
the total fees per the contract. The remaining 1.5% will be paid at closing.
In February 2004, Xpress entered into Contracts with TDSR to purchase 32
Townhomes for $8,925,120 and paid a deposit of $892,512.
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)
10.1 Credit Agreement for $1,000,000 Credit Facility (2)
10.2 Credit Agreement for $3,000,000 Credit Facility (2)
10.3 Instrument of Warrant Repricing (2)
10.4 Warrants Purchase Agreement for 500,000 Shares (2)
10.5 Registration Rights Agreement dated
June 17, 2004 (2)
10.6 Exclusive Sales and Marketing Agreement
with Xpress Ltd. *
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 (2)
99.3 Letter dated August 3, 2004 from the Company
to the shareholders of AWT (2)
(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 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.
* 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 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.
(2) 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.
(3) 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.
(4) 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: December 8, 2004 By: /S/ Malcolm J. Wright
--------------------
Malcolm J. Wright
Chief Executive Officer
Chief Financial Officer