ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
CERTAIN
STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB (THIS "FORM 10-QSB"),
CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE
SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY
ALL,
OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD",
OR
"ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES.
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF AMERICAN LEISURE HOLDINGS, INC. TO BE MATERIALLY DIFFERENT
FROM
ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-QSB, UNLESS ANOTHER
DATE
IS STATED, ARE TO SEPTEMBER 30, 2007. ALL REFERENCES IN THIS REPORT ON FORM
10-QSB TO "THE COMPANY," "WE," "US," "OUR" OR WORDS OF SIMILAR MEANING INCLUDE
THE OPERATIONS OF AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES.
Business
Development
We
were
incorporated in Nevada in June 2000 as "Freewillpc.com, Inc.," and until June
2002, operated as a web-based retailer of built-to-order personal computers
and
brand name related peripherals, software, accessories and networking products.
In June 2002, we acquired American Leisure Corporation, Inc. ("American Leisure
Corporation"), in a reverse merger (discussed below). We re-designed and
structured our business to own, control and direct a series of companies in
the
travel and tourism industries so that we can achieve vertical and horizontal
integration in the sourcing and delivery of corporate and leisure travel
services and offerings.
On
June
14, 2002, we entered into a stock purchase agreement with the former
stockholders of American Leisure Corporation, in connection with the acquisition
of American Leisure Corporation, pursuant to which we issued the former
stockholders of American Leisure Corporation 4,893,974 shares of our common
stock and 880,000 shares of our Series A preferred stock having 10 votes per
share. As part of this transaction, Vyrtex Limited, a UK company, which owned
3,830,000 shares of our common stock, surrendered 3,791,700 of the 3,830,000
shares owned by them. The transaction was treated as a reverse merger and a
re-capitalization of American Leisure Corporation, which was considered the
accounting acquirer. The operations of Freewillpc.com prior to the transaction
were not carried over and were adjusted to $0. Effective July 24, 2002, we
changed our name to American Leisure Holdings, Inc.
In
addition to the Company's establishment and continuing operation of a Travel
Division, we have established a Resort Properties Division and related leisure
and travel support operations. Through our various subsidiaries, we manage
and
distribute travel services; develop, sell and will manage travel destination
resorts and vacation home properties; and develop and operate affinity-based
travel clubs. Further, we owned and operated a call center in Antigua-Barbuda,
which call center business was sold effective June 30, 2006. Our
businesses are intended to complement each other and to enhance Company revenues
by exploiting consumer cross-marketing opportunities. We intend to take
advantage of the synergies between the distribution of travel services and
the
creation, marketing, sale and management of vacation home ownership and travel
destination resorts. In connection with our development of vacation homes we
will also buy and sell parcels of undeveloped land.
On
October 1, 2003, we acquired a 50.83% majority interest in Hickory Travel
Systems, Inc. ("Hickory" or “HTS") as the key element of our Travel Division.
Hickory is a travel management service organization that serves its
network/consortium of approximately 160 well-established travel agency members,
comprised of over 3,000 travel agents worldwide serving corporate and leisure
travelers. We intend to complement other Company businesses through the use
of
Hickory's 24-hour reservation services, international rate desk services,
discount hotel programs, preferred supplier discounts, commission enhancement
programs, marketing services, professional services, technologies, and
information exchange.
In
December 2004, Caribbean Leisure Marketing, Ltd. ("Caribbean Leisure
Marketing"), our former wholly owned subsidiary that was focused on
telecommunications, entered into a joint venture with IMA Antigua, Ltd. to
operate a call center in Antigua that Caribbean Leisure Marketing owns. The
joint venture was operated through Caribbean Media Group, Ltd., an international
business corporation formed under the laws of Barbados. On June 30, 2006,
pursuant to a Stock Purchase Agreement (described in greater detail below),
the
call center operations and Caribbean Leisure Marketing were sold to Stanford
International Bank Limited (a significant shareholder and creditor of the
Company).
On
December 31, 2004, American Leisure Equities Corporation ("ALEC"), one of our
wholly owned subsidiaries, acquired substantially all of the assets of Around
The World Travel, Inc. ("Around The World Travel" or "AWT") which included
all
of the tangible and intangible assets necessary to operate the business
including the business name "TraveLeaders". We engaged Around The World Travel
to manage the assets and granted Around The World Travel a license to use the
name "TraveLeaders." TraveLeaders is a fully-integrated travel agency and travel
services distribution business that provides its clients with a comprehensive
range of business and vacation travel services including corporate travel
management, leisure sales, special events and incentive planning. TraveLeaders
is based in Coral Gables, Florida. Effective on August 1, 2006, the Management
Agreement and the License Agreement with AWT were terminated by ALEC which,
effective on that date, began directly managing the travel business assets
and
operations of TraveLeaders.
On
August
13, 2007, American Leisure Group, Ltd., a company incorporated in the British
Virgin Islands (“ALG”) began trading on the AIM market operated by the London
Stock Exchange in London, England (the “Admission”).
The
Admission triggered the effectiveness of certain Share Exchange and Share
Purchase Agreements and certain Preferred Share Purchase Agreements relating
to
shares of common and preferred stock of the Company. In total,
thirty-eight (38) of our then shareholders exchanged an aggregate of
approximately 7,770,717 shares of our common stock and 2,331,016 warrants to
purchase shares of our common stock for approximately 4,871,509 shares of ALG
stock.
The
Admission also triggered the consummation of certain Preferred Share Purchase
Agreements with twenty-one (21) of our then preferred stock shareholders,
pursuant to which such shareholders sold an aggregate of 525,000 shares of
our
Series A Preferred Stock, 27,191 shares of our Series C Preferred Stock and
33,340 shares of our Series E Preferred Stock to ALG for aggregate consideration
of $11,303,100 or $10 per Series A Preferred Stock share, $100 per Series C
Preferred Stock share, and $100 per Series E Preferred Stock
share.
Finally,
in connection with the Admission, Connolly Invest Corp. (“Connolly”), which is
beneficially owned by Mr. Roger Maddock, a former significant shareholder of
the
Company, entered into a Share Purchase Agreement with Mr. Malcolm J. Wright,
our
Chief Executive Officer and Chairman, Mr. Maddock, Polo Settlement Trust and
Solleric Settlement Trust, which Trusts are beneficially owned by Mr. Wright
and
Mr. Maddock (collectively the “Trusts”), and ALG, pursuant to which Connolly
sold ALG 100% of the outstanding stock of Arvimex Inc. (“Arvimex” and the
“Arvimex Shares”), which beneficially owned 475,000 shares of our Series A
Preferred Stock, 2,011,268 shares of our common stock, an outstanding loan
owed
to it by South Beach Resorts LLC, our wholly owned subsidiary, in the amount
of
$3,590,811 (not including accrued interest) and a debt of $1,363,571 (plus
accrued interest) owed to it by us (collectively the “Arvimex Loans”), plus
270,000 warrants to purchase shares of our common stock (the “Arvimex
Assets”). The purchase price of the Arvimex Shares was $100,000 in
cash and the repayment of $12,116,296 owed by Arvimex to the
Trusts.
As
a
result of the Share Exchange Agreements, ALG currently holds, directly or
indirectly, more than 95% of our common and preferred stock on a fully diluted
basis, and is our majority shareholder.
Except
as
expressly indicated or unless the context otherwise requires, "we," "our,"
or
"us" means American Leisure Holdings, Inc. and its subsidiaries.
Business
Integration
Our
mission is to remain focused on the development, sale and management of vacation
travel destination resorts. As such we have completed the planning and begun
the
initial stages of the construction of "The Sonesta Orlando Resort at Tierra
Del
Sol" (the "Sonesta Resort"), a planned 972-unit vacation home resort located
just 10 miles from Walt Disney World, in Orlando, Florida. Additionally, we
are
in the planning stages of developing our Reedy Creek Property, which is situated
in the northwest section of Osceola County, Florida about one mile from the
"Maingate" entrance to Walt Disney World, Orlando and approximately one-half
mile from the south entrance to "Disney's Animal Kingdom" theme park. The Reedy
Creek Property consists of three parcels totaling over 40 gross acres with
approximately 29 acres of buildable land. The Ready Creek Property is currently
planned to consist of approximately 522 residential units consisting of mid-rise
condominium buildings.
Though
"Developments of Regional Impact" (DRIs) are underway, we are seeking to
maximize property development and sales by obtaining governmental approval
for
more housing units than was initially planned at our Tierra del Sol and Reedy
Creek properties. Although there is no assurance of the additional density
that
may be achieved through the DRI process we believe that both Tierra del Sol
and
Reedy Creek may gain approval to develop as many as 859 additional units for
Tierra del Sol Resort and 678 for Reedy Creek.
Subject
to having sufficient capital and our determination of value to our shareholders,
we intend to achieve growth through selected acquisitions of real property
and
business assets and interests. Although no agreements related to such future
acquisitions have been concluded, we expect to negotiate and, subject to our
final determination as to the merits of such acquisitions(s) and the
availability of necessary capital, complete the acquisition of Florida
destination resort property holdings proximate to our existing resort
developments at initial entry prices for the developable land that may be
materially below current appraised values. Growth may be realized through our
continued creation of destination resorts, and through the prospective
acquisition of qualified, existing destination resorts, thereby creating an
extensive resort and vacation ownership network further supported by the
Company's travel services division. Our goal through such expansion would be
to
further become an integrated, "one-stop" leisure services company, seeking
to
seamlessly provide for the development, sales, and management of and the ongoing
generation of revenue from destination resorts while offering vacation ownership
and an extensive range of travel services to an expanding customer and client
base. In connection with our development of vacation homes we will continue
to
buy and sell parcels of undeveloped land.
During
the year ended December 31, 2006, we worked to integrate the administrative
operations of Hickory and TraveLeaders to distribute, fulfill and manage our
travel services and our Resort Properties; however, the full integration of
these two divisions proved substantially harder than we originally anticipated
due to the different operating and system platforms of the two divisions, and
as
such, we have abandoned our previous plans to integrate the two divisions and
are currently evaluating the synergies and cost/benefits of continuing to
maintain the two separate divisions.
Our
business model for support between our divisions is to use the travel
distribution, fulfillment and management services of the combined resources
of
Hickory and TraveLeaders to provide consumer bookings at our planned resorts,
to
increase the rental of vacation homes that we plan to manage at these resorts,
and to fulfill the travel service needs of our affinity-based travel clubs.
We
intend to complement our other businesses through the use of Hickory's 24-hour
reservation services, international rate desk services, discount hotel programs,
preferred supplier discounts, commission enhancement programs, marketing
services, professional services, automation and information exchange.
TraveLeaders is a fully
integrated
travel services distribution business that provides its clients with a
comprehensive range of business and vacation travel services in both traditional
and e-commerce platforms including corporate travel management, leisure sales,
and meeting, special event and incentive planning. TraveLeaders currently
fulfills travel orders produced by our affinity travel
clubs.
Recent
Funding Events
In
connection with the Share Exchange and Share Purchase Agreements described
above, which were conditioned upon ALG’s admission on the AIM (Alternative
Investment Market) market in London, England (the “Admission”) which occurred on
Monday, August 13, 2007, ALG obtained ownership of approximately 95% of our
outstanding stock.
Through
the Admission, ALG has provided additional working capital of more than $40
million for the benefit of our Tierra del Sol Resort in Orlando, to enable
it to
accelerate the development of certain Tierra del Sol amenities and the
acceleration of its current development program in order to open the resort
in
the Spring of 2008, of which we can provide no assurance.
Material
Agreements and Transactions
SIBL
Credit Facility
On
December 29, 2005, Stanford International Bank, Ltd. ("SIBL") provided Tierra
Del Sol with financial assistance to facilitate the closings of the Land Loan
and the Construction Loan. The financial assistance consisted of a loan to
Tierra Del Sol of $2,100,000 (the "SIBL Tierra Del Sol Loan"), and the
establishment of letters of credit in favor of KeyBank in the amount of
$4,000,000 and $2,000,000, respectively (the "Letters of Credit"), which Letters
of Credit were subsequently cancelled, effective June 30, 2006. The financial
assistance provided by SIBL was evidenced by a Credit Agreement dated as of
December 29, 2005 between SIBL, Tierra Del Sol Resort, Inc. and the Company
(the
"SIBL Credit Agreement"). As consideration for the purchase of the Antiguan
call
center including our subsidiary Caribbean Leisure Marketing, Inc. (described
below), SIBL exchanged the $2,100,000 loan, as well as the accrued interest
on
such loan in the amount of $85,867.
We
estimate that the cost to complete the construction of Phase I of the Sonesta
Resort will be $136,500,000 of which $9,000,000 will be for resort amenities,
$64,000,000 will be for vertical construction on 294 units and $49,500,000
will
be for other costs such as contingencies, closing costs and soft costs such
as
architectural, engineering, and legal costs. An additional approximate amount
of
$14,000,000 will be expended for horizontal construction costs which include
all
of Phase I requirements plus most of the infrastructure requirements for the
entire Project. The $14,000,000 will be funded by the bonds proceeds held by
the
Westridge Development District (the "District", which has sold $25,825,000
in
community development bonds to fund the infrastructure of the Sonesta Resort)
and funds previously raised. We have raised the required funding to
continue the planned construction of Phase 1 of the Sonesta Resort in connection
with the Admission and related transactions described above (the “BVI
Transaction”) and as such we believe that we will have sufficient funds to
provide for the completion of Phase 1, assuming there are no material cost
overruns, delays or further increases in material costs. Phase 2 will be
financed separately. It is anticipated that Phase 2 construction will commence
by the fourth quarter of 2007 or the first quarter of 2008.
In
November 2003, we entered into an exclusive sales and marketing agreement with
Xpress Ltd. ("Xpress") to sell the vacation homes in the Sonesta Resort. Malcolm
J. Wright, one of our founders and our Chief Executive Officer and Chairman,
and
members of his family are the majority shareholders of Xpress. As of September
30, 2007, Xpress had pre-sold approximately 600 vacation homes in a combination
of contracts on town homes and reservations on condominiums for total sales
volume of approximately $222 million.
On
or
about August 13, 2007, the amount then owed under the SIBL Credit Agreement
was
repaid by ALG. It is anticipated that the amount repaid by ALG
(including the principal amount of the SIBL Credit Agreement and accrued and
unpaid interest on such loan amount) will be memorialized by a Promissory Note
payable to ALG, under the same terms and conditions as the SIBL Credit
Agreement, but with an interest rate of 12% per annum. However, no Promissory
Note or other repayment agreements or loan documentation has been finalized
or
executed to date. As such, the terms and conditions of the ALG loan
are subject to change prior to the execution of documentation evidencing such
loan.
REEDY
CREEK ACQUISITION COMPANY, LLC TRANSACTIONS
Background
In
July
2005, the Company and Stanford Financial Group Company ("SFG") formed a new
limited liability company named Reedy Creek Acquisition Company LLC ("Reedy
Creek Acquisition Company") for the purpose of acquiring a parcel of
approximately 40 acres of land located adjacent to the Animal Kingdom Theme
Park
at Walt Disney World, in Orlando, Florida (the "Reedy Creek Property"). The
Reedy Creek Property is described in greater detail below under "Development
Plans for Reedy Creek Property."
Reedy
Creek Acquisition Company acquired the Reedy Creek Property in July 2005 for
a
purchase price of $12,400,000. Reedy Creek Acquisition Company paid $8,000,000
of the purchase price in cash and paid the $4,400,000 balance pursuant to the
terms of a promissory note issued to the sellers secured by a first mortgage
lien on the Reedy Creek Property. At the time of the purchase, Reedy Creek
Acquisition Company obtained a $7,150,000 loan from SIBL (the "SIBL Reedy Creek
Loan"), secured by a second mortgage lien on the property. The proceeds of
this
loan were used to pay part of the cash portion of the purchase price and for
closing costs associated with the closing. The Company contributed the remainder
of the purchase price. At the time of the acquisition of the Reedy Creek
Property, Reedy Creek Acquisition Company was owned 99% by SFG and 1% by one
of
the Company's wholly owned subsidiaries, American Leisure Reedy Creek Inc.
("ALRC"), however ALRC, has since exercised its option (the "Reedy Creek
Option") to receive 100% of the interest in the Reedy Creek Acquisition Company
in return for $600,000 paid to SFG in January 2006.
SFG
and
SIBL are affiliates of Stanford Venture Capital Holdings Inc., that were a
significant shareholder of the Company.
SIBL
Reedy Creek Loan Terms
In
connection with the exercise of the Reedy Creek Option, Reedy Creek Acquisition
Company and SIBL agreed to modify the terms of the SIBL Reedy Creek Loan made
by
SIBL to Reedy Creek Acquisition Company. The modified loan terms are evidenced
by a Renewed, Amended and Increased Promissory Note (the "Amended Note") made
by
Reedy Creek Acquisition Company in favor of SIBL. The Amended Note had a
maturity date of December 31, 2006, but has since been extended until June
30,
2007, pursuant to Amendment No. 1 to the Amended Note and was further extended
and replaced by the RC Note, described below. The loan originally had
a principal balance of $8,000,000 and accrued interest at the rate of 8% per
year payable quarterly. Interest in the amount of $262,885 on the Amended Note
was exchanged as consideration for the purchase of the Antiguan call center
including our subsidiary Caribbean Leisure Marketing, Inc. (described below).
Upon an event of default as described in the Amended Note, SIBL has several
rights and remedies, including causing the Amended Note to be immediately due
and payable.
The
Amended Note was replaced in November 2006, by a Renewed, Amended and Increased
Promissory Note in the amount of $12,200,000, by a $13,420,000 note in December
2006 and by a $15,300,000 note in January 2007 (the "RC Note"). The RC Note
was
due and payable on June 30, 2007, with $8,000,000 of the RC Note bearing
interest at the rate of 8% per annum and the remaining $7,300,000 bearing
interest at the rate of 12% per annum; however, the RC Note has since been
replaced by an Amended RC Note and a Second Amended RC Note, Third Amended
RC
Note and finally a Fourth Amended RC Note (as described below) and the maturity
date of the note was subsequently amended pursuant to the March 2007 Note
Modification Agreement (described below) to the earlier of (a) a public offering
by us, or any company that acquires a majority of any class of stock or assets
of us, which raises no less than $100,000,000; or (b) August 1, 2008 (the “New
Maturity Date”), with any accrued and unpaid interest payable on such New
Maturity Date.
On
or
about August 13, 2007, the amount then owed under the Fourth Amended RC Note
was
repaid by ALG. It is anticipated that the amount repaid by ALG
(including the principal amount of the Fourth Amended RC Note and accrued and
unpaid interest on such loan amount) will be memorialized by a Promissory Note
payable to ALG, under the same terms and conditions as the Fourth Amended RC
Note, but with an interest rate of 12% per annum. However no Promissory Note
or
other repayment agreements or loan documentation has been finalized or executed
to date. As such, the terms and conditions of the ALG loan are
subject to change prior to the execution of documentation evidencing such
loan.
Bankers
Credit Corporation Loan
In
connection with the exercise of the Reedy Creek Option, the Company and Reedy
Creek Acquisition Company arranged to receive a $7,000,000 loan from Bankers
Credit Corporation ("Bankers Credit").
Under
the
terms of the Bankers Credit loan, Bankers Credit advanced Reedy Creek
Acquisition Company $3,000,000 at closing and an additional $4,000,000
subsequent to the date of closing. On February 1, 2007, the Bankers Credit
note
was replaced by an Amended and Restated Promissory Note in the amount of
$7,860,000, which included an additional advance of $860,000.
The
Bankers Credit loan is evidenced by an Amended and Restated Promissory Note
(the
"Bankers Credit Note") and bears interest at the greater of the Wall Street
Journal published prime rate plus 6.75%, not to exceed the highest rate
allowable under Florida law or 15% per year. The interest rate of the Bankers
Credit Note as of September 30, 2007, was 15%. Interest on the Bankers
Credit Note is payable monthly. The maturity date of the Bankers Credit Note
was
January 3, 2007, but was extended until February 1, 2008, pursuant to the
amendment to the note. Pursuant to the Bankers Credit Note, Reedy Creek
Acquisition Company agreed to pay a 10% late charge on any amount of unpaid
principal or interest under the Bankers Credit Note. The Bankers Credit Note
is
subject to a 1% exit fee. Upon an event of default as described in the Bankers
Credit Note, Bankers Credit has several rights and remedies, including causing
the Bankers Credit Note to be immediately due and payable.
The
Bankers Credit Note is secured by a first lien on the Reedy Creek Property.
Additionally, the Bankers Credit Note is guaranteed by the Company and Malcolm
J. Wright, the Company's Chief Executive Officer and Chairman pursuant to a
Guaranty Agreement. We believe that without the guarantees of Mr. Wright, it
would have been more difficult, if not impossible, for us to secure the Bankers
Credit loan facility.
Reedy
Creek Acquisition Company utilized the initial proceeds from the Bankers Credit
loan to pay a portion of the amount owed on the existing first mortgage note
issued to the sellers of the Reedy Creek Property. The holder of this mortgage
agreed to release the mortgage in exchange for this payment. Reedy Creek
Acquisition Company has now paid the balance of this mortgage note upon the
receipt of the balance of the Bankers Credit loan.
Development
Plans for Reedy Creek Property
The
Reedy
Creek Property is situated in the northern section of Osceola County, Florida
and lies on three contiguous development parcels located to the immediate north
of U.S. Highway 192 West, about one mile from the "Maingate" entrance to Walt
Disney World, Orlando and 0.75 miles from the entrance to "Disney's Animal
Kingdom" theme park. The property is one of only a small number of privately
owned parcels abutting Walt Disney World (north and east
boundaries).
The
Reedy
Creek Property consists of three parcels totaling over 40 gross acres with
approximately 29 acres of buildable land. The Osceola County Comprehensive
Land
Plan for the site allows vacation homes at a density of 18 units per acre,
which
results in a maximum allowable project density of 522 residential units. To
achieve the maximum density, it is anticipated that the project will consist
of
mid-rise condominium buildings. Amenities proposed on-site include a water
park
with swimming pools, guest services clubhouse, and other related on-site resort
amenities.
It
is
anticipated that Walt Disney World's Reedy Creek Improvement District (the
"District"), a quasi-government body whose constituents are all affiliated
with
Walt Disney World Company, will agree to construct and pave the widening and
extension of Reedy Creek Boulevard north and westward at its expense. We are
currently working with the District towards this end. The District will have
a
public hearing during which it is anticipated that the District will be given
the authority to acquire the land from Reedy Creek Acquisition Company and
make
the improvements to Reedy Creek Boulevard. If the District acquires the
requisite authority from its constituents, Reedy Creek Acquisition Company
has
agreed to convey relatively small portions of the three combined properties
to
constitute this roadway. Reedy Creek
Acquisition
Company will benefit from the conveyance by saving the cost of the road it
would
have to build anyway and it will enhance the required road frontage for the
project.
Though
"Developments of Regional Impact" (DRI) are underway, we are seeking to maximize
Reedy Creek's property development and sales by obtaining governmental approval
for more housing units than was initially planned. Although there is no
assurance of the additional density that may be achieved through the DRI
process, we believe that Reedy Creek may gain approval to develop as many as
678
additional units.
The
Company's development of the Reedy Creek Property is currently planned to begin
in the fourth quarter of 2009, with the completion of such property planned
for
2010 or 2011, subject to funding and scheduling permitting. The Company will
not
know the total estimated cost of the development of the Reedy Creek Property
until it has determined the market and completed designs for the
properties.
Note
Modification Agreement
In
February 2006, we entered into a Note Modification Agreement with SIBL, whereby
we agreed to modify certain provisions of our then outstanding promissory notes
with SIBL to grant extensions of payments due. Pursuant to the Note Modification
Agreement, we and SIBL agreed that all interest due on our $6,000,000 note,
from
January 1, 2005, through September 30, 2006, would be due and payable on
September 30, 2006, which due date was further extended by SIBL to December
31,
2008, with all interest thereafter payable with the original terms of that
note
however, as consideration for the purchase of the Antiguan call center including
our subsidiary Caribbean Leisure Marketing, Inc. (described below), SIBL
exchanged $546,000 of accrued interest; that all interest accrued on the
$3,000,000 note we had with SIBL, from the date of the note until September
30,
2006, would be due and payable on September 30, 2006, which due date was
extended by SIBL to April 22, 2007, and to January 1, 2008, pursuant to the
Modification Agreement effective December 31, 2006, and pursuant to the March
2007 Note Modification Agreement (described below) to the earlier of
(a) a public offering by us, or any company that acquires a majority of any
class of stock or assets of us, which raises no less than $100,000,000; or
(b)
August 1, 2008 (the “New Maturity Date”), with any accrued and unpaid interest
payable on such New Maturity Date, additionally, as consideration for the
purchase of the Antiguan call center including our subsidiary Caribbean Leisure
Marketing, Inc. (described below), SIBL exchanged the $654,080 of accrued
interest as of June 30, 2006 as well as our $1,250,000 note with SIBL which
was
previously due September 30, 2006; and agreed that the maturity date of our
$1,355,000 note with SIBL would be extended until June 30, 2007, which has
been
further extended to January 1, 2008, pursuant to the Modification Agreement
effective December 31, 2006, and to the New Maturity Date pursuant to the March
2007 Note Modification Agreement, with any accrued and unpaid interest due
on
such New Maturity Date; that the maturity date of our $305,000 note with SIBL
be
extended until June 30, 2007, which was further been extended until January
1,
2008, pursuant to the Modification Agreement effective December 31, 2006, and
to
the new Maturity Date pursuant to the March 2007 Note Modification Agreement
(described below), with any accrued and unpaid interest payable on such New
Maturity Date.
On
or
about August 13, 2007, the amount then owed under the SIBL loans described
above, other than the $6,000,000 note, was repaid by ALG. It is
anticipated that the amount repaid by ALG (including the principal amount of
the
SIBL loans and accrued and unpaid interest on such loan amount) will be
memorialized by a Promissory Note payable to ALG, under the same terms and
conditions as the SIBL notes, but with an interest rate of 12% per annum.
However no Promissory Notes or other repayment agreements or loan documentation
has been finalized or executed to date. As such, the terms and
conditions of the ALG loan are subject to change prior to the execution of
documentation evidencing such loan. The $6,000,000 note remains
outstanding with the terms and conditions as modified above.
Stock
Purchase Agreement
In
August
2006, with an effective date of June 30, 2006, we and several of our
subsidiaries, including Castlechart Limited ("CLM"), our former wholly owned
subsidiary, which owns 81% of the issued and outstanding stock of Caribbean
Leisure Marketing Limited ("Caribbean Leisure Marketing"), which in turn
owned
49%
of the issued and outstanding stock of Caribbean Media Group, Ltd. ("Caribbean
Media Group"), which owned and operated our call center in Antigua, entered
into
a Stock Purchase Agreement with Stanford International Bank Limited ("SIBL"
and
the "Stock Purchase Agreement").
Pursuant
to the Stock Purchase Agreement we sold SIBL all of our interest in CLM for
an
aggregate purchase price of $5,663,274. In connection with the purchase, SIBL
also agreed to exchange the interest on several of our outstanding promissory
notes with SIBL, and to amend the due date of such notes, described in greater
detail below, and we agreed to grant SIBL a warrant to purchase 355,000 shares
of our common stock at an exercise price of $10.00 per share, which warrants
had
an expiration date of April 30, 2008, and contained certain anti-dilution
clauses, whereby if we granted any options or sell any shares of common stock
for less than $1.02 per share, the exercise price of the 355,000 warrants will
reset to such lower price. The warrants were assigned to ALG on August 13,
2007
in connection with the Share Purchase Agreements described above
In
connection with the Stock Purchase Agreement, SIBL exchanged the following
debts
which we owed to SIBL: a $1,250,000 promissory note and accrued interest thereon
through June 30, 2006; a $2,100,000 promissory note and accrued interest thereon
through June 30, 2006; all accrued and unpaid interest on our $6,000,000 note
with SIBL as of June 30, 2006; all accrued and unpaid interest on our $3,000,000
promissory note payable to SIBL as of June 30, 2006; and $262,885 of accrued
interest on our $8,000,000 promissory note payable to SIBL, and all accrued
fees
on our $6,000,000 letter of credit, which SIBL agreed to guaranty in connection
with the KeyBank loans.
Additionally,
in connection with the Stock Purchase Agreement, SIBL agreed to restate the
due
dates of certain of the notes which we then owed to SIBL, including,
the $6,000,000 note, which due date has been further restated due to the
Modification Agreement to January 1, 2008; and the $3,000,000 note, which was
extended until January 1, 2008 pursuant to the Modification Agreement; the
$1,355,000 note, which was extended to January 1, 2008 due to the Modification
Agreement; the $8,000,000 note, which was extended to June 30, 2007; and the
$305,000 note, which was extended to January 1, 2008; however, our $3,000,000
note, our $8,000,000 note, which were increased to $15,300,000 (as described
below), our $1,355,000 note and our $305,000 note were all been further extended
pursuant to the March 2007 Note Modification Agreement to the earlier of (a)
a
public offering by us, or any company that acquires a majority of any class
of
stock or assets of us, which raises no less than $100,000,000; or (b) August
1,
2008 (the “New Maturity Date”), with any accrued and unpaid interest payable on
such New Maturity Date.
On
or
about August 13, 2007, the amount then owed under the SIBL loans described
above, other than the $6,000,000 note, was repaid by ALG. It is
anticipated that the amount repaid by ALG (including the principal amount of
the
SIBL loans and accrued and unpaid interest on such loan amount) will be
memorialized by a Promissory Note payable to ALG, under the same terms and
conditions as the SIBL notes, but with an interest rate of 12% per annum.
However no Promissory Notes or other repayment agreements or loan documentation
has been finalized or executed to date. As such, the terms and
conditions of the ALG loan are subject to change prior to the execution of
documentation evidencing such loan. The $6,000,000 note remains
outstanding with the terms and conditions as modified above.
Construction
Contract with Resorts Construction
In
August
2006, Tierra del Sol Resorts, Inc. entered into a guaranteed maximum price
construction contract with Resorts Construction, LLP ("Resorts Construction")
to
construct and develop part of the Sonesta Resort and its town home properties.
Resorts Construction is 50% owned by Malcolm J. Wright, the Company's Chief
Executive Officer and Chairman. We believe that the contract with Resorts
Construction provides significant savings over our previous contract with PCL
Construction, and is advantageous to the Company in comparison with terms
available in the market from other third party contractors. Pursuant to the
contract with Resorts Construction, we agreed to pay Resorts Construction a
contractor's fee equal to 5% of the total cost of the construction performed
by
Resorts Construction and 7.5% for general conditions. Any payments owed under
the Resorts Construction contract which are not paid when due bear interest
at
the rate of 12% per annum. We provided Resorts Construction a payment of
$4,000,000 upon our entry into
the
construction agreement with Resorts Construction, which funds Resorts
Construction used to begin construction of Phase 1 of the Sonesta
Resort.
Purchase
of Vici Note
In
August
2006, we entered into a Purchase Agreement with SIBL, whereby we agreed to
purchase a $750,000 promissory note from SIBL, which note was originally
received by SIBL from Scott Roix, an individual, in connection with SIBL's
sale
of its interest in Vici Marketing Group, LLC ("Vici" and the "Vici Note") to
Mr.
Roix, and which Note bears interest at the rate of 8% pre annum, payable on
June
30, 2008. In consideration for the purchase of the Vici Note, we agreed to
issue
SIBL 235,000 shares of our common stock and a five year warrant to purchase
235,000 shares of our common stock at an exercise price of $20 per share (the
"Vici Warrant"). The Vici Warrants were assigned to ALG on August 13, 2007
in
connection with the Share Purchase Agreements described above. The balance
of
the Vici Note as of September 30, 2007 was $500,000.
Credit
Agreements
On
November 22, 2006, we entered into a Credit Agreement through our wholly owned
subsidiary Reedy Creek Acquisition Company, LLC ("RCAC") and Stanford
International Bank Limited ("SIBL"), to provide RCAC a $4,300,000 credit
facility (the "RC Credit Agreement"). SIBL had previously loaned RCAC $7,150,000
on July 8, 2005 and $850,000 on January 5, 2006, which loans were evidenced
by a
Renewed, Amended and Increased Promissory Note in the amount of $8,000,000,
which we had guaranteed. In connection with the RC Credit Agreement, the
Renewed, Amended and Increased Promissory Note was replaced by a Second Renewed,
Amended and Increased Promissory Note in the amount of $12,200,000 (the “Second
Amended RC Note”).
The
Second Amended RC Note was guaranteed by the Company and Malcolm J. Wright,
the
Company's Chief Executive Officer and Chairman pursuant to a Modification and
Reaffirmation of Guaranty and Environmental Indemnity Agreement. In
December 2006, Mr. Wright received 366,000 warrants to purchase shares of our
common stock at an exercise price of $1.02 per share in connection with his
guaranty of the RC Credit Agreement, equal to three percent (3%) of the total
indebtedness of the RC Credit Agreement. The warrants were cancelled on August
13, 2007 in connection with the Share Purchase Agreements described
above
We
entered into a Second Mortgage Modification Agreement and Future Advance
Certificate with SIBL in connection with our entry into the RC Credit Agreement,
which provided SIBL a mortgage over certain real property owned by us in Osceola
County, Florida, to secure the repayment of the Second Amended RC
Note.
On
December 18, 2006, we entered into "Amendment No. 1 to the $4.3 Million Credit
Agreement" the ("Amended RC Credit Agreement") with SIBL and RCAC, which amended
the terms of the RC Credit Agreement, to increase the loan amount under such
agreement from $4,300,000 to $5,420,000, to include an advance of $1,120,000
which was received on December 18, 2006 to cover the placement of an appeal
bond
by us and related expenses paid by us on behalf of South Beach Resorts, LLC
("Resorts," which we purchased pursuant to the Purchase Agreement, described
and
defined below) in connection with Resorts' purchase of the Boulevard Hotel
(described below) from a company which was then in Chapter 11 bankruptcy, and
a
subsequent dispute regarding such purchase. The Amended RC Credit Agreement
also
amended and restated the RC Note in the amount of $13,420,000, evidenced by
a
"Third Renewed, Amended and Increased Promissory Note" (the "Third Amended
RC
Note"), to include the increased Amended RC Credit Agreement amount and provided
for Malcolm J. Wright, our Chief Executive Officer and Chairman to provide
a
restated Guaranty to SIBL to include the amended loan amount. Mr. Wright
received 33,600 warrants to purchase shares of our common stock at an exercise
price of $1.02 per share in connection with his guaranty of Amended RC Credit
Agreement, equal to three percent (3%) of the total indebtedness of the
increased amount of the RC Credit Agreement. The warrants were cancelled on
August 13, 2007 in connection with the Share Purchase Agreements described
above.
We
also
entered into a Third Mortgage Modification Agreement and Future Advance
Certificate in connection with the increased RC Loan, which increased SIBL's
mortgage on certain of our property in Osceola County, Florida to secure the
Third Amended RC Note.
On
January 31, 2007, we entered into an "Amendment No. 2 to the $4.3 Million Credit
Agreement" the ("Second Amended RC Credit Agreement") with SIBL and RCAC, which
amended the terms of the Amended RC Credit Agreement, to increase the loan
amount under such agreement from $5,420,000 to $7,300,000, to include an advance
of $1,880,000. The Second Amended RC Credit Agreement also amended and restated
the RC Note in the amount of $15,300,000, evidenced by a "Fourth Renewed,
Amended and Increased Promissory Note" (the "Fourth Amended RC Note"), to
include the increased Second Amended RC Credit Agreement amount and provided
for
Malcolm J. Wright, our Chief Executive Officer and Chairman to provide a
restated Guaranty to SIBL to include the amended maximum loan amount of
$7,300,000. Mr. Wright received 56,400 warrants to purchase shares of our common
stock at an exercise price of $1.02 per share in connection with his guaranty
of
Amended RC Credit Agreement, equal to three percent (3%) of the total
indebtedness of the increased amount of the RC Credit Agreement. The warrants
were cancelled on August 13, 2007 in connection with the Share Purchase
Agreements described above
On
or
about August 13, 2007, the amount then owed under the Fourth Amended RC Note
was
repaid by ALG. It is anticipated that the amount repaid by ALG
(including the principal amount of the Fourth Amended RC Note and accrued and
unpaid interest on such loan amount) will be memorialized by a Promissory Note
payable to ALG, under the same terms and conditions as the Fourth Amended RC
Note, but with an interest rate of 12% per annum. However, no Promissory Note
or
other repayment agreements or loan documentation has been finalized or executed
to date. As such, the terms and conditions of the ALG loan are
subject to change prior to the execution of documentation evidencing such
loan.
Credit
Agreement with Stanford
On
November 22, 2006, we entered into a Credit Agreement with Stanford Venture
Capital Holdings, Inc. ("Stanford"), Tierra Del Sol Resort (Phase 2), Ltd.,
Costa Blanca II Real Estate, LLC, Costa Blanca III Real Estate, LLC, TDS Town
Homes (Phase 2) LLC and TDS Clubhouse, Inc. (the "TDSR Credit Agreement") to
provide $6,200,000 of capital for (1) the repayment of the RC Credit Agreement,
which was later amended to include the repayment of the increased amount of
the
Amended RC Credit Agreement in connection with the Amended TDSR Credit Agreement
(described below), (2) construction of the pool complex at the Tierra del Sol
Phase One project, (3) furniture, fixtures and equipment, and (4) various other
expenses. Any amounts borrowed under the TDSR Credit Agreement bear interest
at
the rate of 12% per annum, and any amounts not paid when due will bear interest
at the rate of 15% per annum. Any amounts borrowed under the TDSR Credit
Agreement are due and payable on June 30, 2007. No amounts have been
drawn from this Credit Agreement
On
December 18, 2006, we also entered into "Amendment No. 1 to $6.2 Million Credit
Agreement" (the "Amended TDSR Credit Agreement") to amend the TDSR Credit
Agreement to reflect the Amended RC Credit Agreement amount, which is to be
repaid with any funds received in connection with the exercise of the Amended
TDSR Credit Agreement.
On
January 31, 2007, we entered into "Amendment No. 2 to the $6.2 Million Credit
Agreement" (the "Second Amended TDSR Credit Agreement") to amend the TDSR Credit
Agreement to reflect the Second Amended RC Credit Agreement amount, which is
to
be repaid with any funds received in connection with the exercise of the Second
Amended TDSR Credit Agreement.
The
Second Amended TDSR Credit Agreement is not effective until we substitute a
portion of Tierra Del Sol Resorts, Inc. as collateral for future advances under
the Second Amended TDSR Credit Agreement, and as such, we have not borrowed
any
funds pursuant to the Second Amended TDSR Credit Agreement to date. We
anticipate the funds received from the Second Amended TDSR Credit Agreement,
if
such agreement is funded to be used to repay the Second Amended RC Credit
Agreement.
We
paid
Stanford a placement fee of $186,000 (or 3% of the TDSR Credit Agreement amount)
as a placement fee upon our execution of the TDSR Credit Agreement. Malcolm
J.
Wright has agreed to guarantee the repayment of a $6,200,000 promissory note,
which we plan to provide Stanford to evidence the amount borrowed under the
TDSR
Credit Agreement, assuming we choose to move forward with such credit
facility.
Warrant
Participation Agreement
In
connection with SIBL's agreeing to enter into the Amended RC Credit Agreement,
we entered into a Warrant Participation Agreement with SIBL, Resorts, Malcolm
J.
Wright and Frederick Pauzar (the "Participation Agreement"), whereby we granted
SIBL and six (6) of its assigns the right to a 25% participation interest (the
"Participation Interest") in the Net Proceeds (as defined below) realized by
us
upon the disposition of the real property located at 740 Ocean Drive, Miami
Beach, Florida, known as the Boulevard Hotel (the "Property"), for aggregate
consideration of $1.00 per warrant (collectively, the "Warrant"). "Net Proceeds"
is defined as the proceeds realized upon the disposition or refinancing of
the
Property, less our cost basis in the Property, excluding any operating losses
or
operating profits. In the event the Property is not sold by us by December
22,
2009, we agreed to appoint SIBL as true and lawful proxy of us in connection
with the engagement of a real estate broker and the subsequent sale of the
Property. Mr. Wright and Mr. Pauzar are jointly and severally liable for our
obligations under the Participation Agreement, however they are not receiving
any warrants in connection with such guaranties.
The
Warrant was evidenced by seven (7) Warrants, which are exercisable at any time
prior to the disposition date of the Property, which Warrants were distributed
as follows:
|
Name
|
|
Exercise
Price
|
|
|
Percentage
of
Participation
Interest
|
|
|
Percentage
of
Total
Net Proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIBL
|
|
$
|
1.00
|
|
|
|
50
|
%
|
|
|
12.5
|
%
|
|
Daniel
T. Bogar
|
|
$
|
1.00
|
|
|
|
11.5625
|
%
|
|
|
2.891
|
%
|
|
William
R. Fusselmann
|
|
$
|
1.00
|
|
|
|
11.5625
|
%
|
|
|
2.891
|
%
|
|
Osvaldo
Pi
|
|
$
|
1.00
|
|
|
|
11.5625
|
%
|
|
|
2.891
|
%
|
|
Ronald
M. Stein
|
|
$
|
1.00
|
|
|
|
11.5625
|
%
|
|
|
2.891
|
%
|
|
Charles
M. Weiser
|
|
$
|
1.00
|
|
|
|
1.8750
|
%
|
|
|
0.468
|
%
|
|
Tal
Kimmel
|
|
$
|
1.00
|
|
|
|
1.8750
|
%
|
|
|
0.468
|
%
|
|
Totals
|
|
$
|
7.00
|
|
|
|
100
|
%
|
|
|
25
|
%
|
The
warrants described above were assigned to ALG and cancelled on August 13, 2007
in connection with the Share Purchase Agreements described above.
Purchase
of South Beach Resorts, LLC
On
December 21, 2006, we entered into a Purchase Agreement with SBR Holding
Company, LLC ("SBR") which was owned by Frederick Pauzar, a Director of us
and
our President, and Malcolm J. Wright, our Chairman and Chief Executive Officer
(the "Purchase Agreement"). Pursuant to the Purchase Agreement, we purchased
100% of the outstanding membership interests in South Beach Resorts, LLC, a
Florida limited liability company from SBR ("Resorts") and then acquired SBR
Holdings, LLC for no consideration. The Purchase price for Resorts was equal
to
75% of the Net Proceeds (as defined above) realized by us upon the planned
disposition of the Property (as defined above), up to a maximum of $3,000,000.
The ownership of Resorts was transferred to us in connection with our entry
into
the Purchase Agreement pursuant to an Assignment of Interest, and the
consideration payable to SBR in connection with the sale of the Property will
be
paid immediately after the disposition of the Property.
On
or
around the closing of the Resorts purchase, we also entered into a note with
Roger Maddock, a significant shareholder of us, to evidence $3,590,811 in loans
and advances Mr. Maddock had previously made to Resorts (the "Maddock Note"),
the payment of which was guaranteed by us pursuant to a Guaranty
Agreement.
The
Maddock Note bears interest at the rate of 12% per annum until paid, provided
that any amount not paid when due shall bear interest at the rate of the lesser
of 18% per annum or the highest rate of interest allowable by law.
The
Maddock Note is due and payable by us, together with any accrued and unpaid
interest on December 31, 2008. Accrued interest is due quarterly in arrears
under the Maddock Note, on the last day of each calendar quarter. We have the
right to prepay the Maddock Note at any time prior to the due date of the note
without penalty.
On
or
about August 13, 2007, the amount then owed under the Maddock Note was repaid
by
ALG. It is anticipated that the amount repaid by ALG (including the
principal amount of the Maddock Note and accrued and unpaid interest on such
loan amount) will be memorialized by a Promissory Note payable to ALG, under
the
same terms and conditions as the Maddock Note. However, no Promissory Note
or
other repayment agreements or loan documentation has been finalized or executed
to date. As such, the terms and conditions of the ALG loan are
subject to change prior to the execution of documentation evidencing such
loan.
Note
Modification Agreement
With
an
effective date of December 31, 2006, we entered into a Note Modification
Agreement (the “Modification Agreement”) with SIBL, various of our subsidiaries
and Malcolm J. Wright, our Chief Executive Officer and Chairman. The
Modification Agreement extended the due date of our $3,000,000 note with SIBL
to
January 1, 2008; the due date of our $1,355,000 note with SIBL to January 1,
2008, and the due date of our $305,000 note with SIBL to January 1, 2008, which
dates have been further extended by the March 2007 Note Modification Agreement
described below.
On
or
about August 13, 2007, the amount then owed under the SIBL loans described
above, was repaid by ALG. It is anticipated that the amount repaid by
ALG (including the principal amount of the SIBL loans and accrued and unpaid
interest on such loan amount) will be memorialized by a Promissory Note payable
to ALG, under the same terms and conditions as the SIBL notes, but with an
interest rate of 12% per annum. However, no Promissory Notes or other repayment
agreements or loan documentation has been finalized or executed to
date. As such, the terms and conditions of the ALG loan are subject
to change prior to the execution of documentation evidencing such
loan.
Marathon
Loan
On
January 11, 2007, South Beach Resorts, LLC (“SBR”), our wholly owned subsidiary
defaulted on a loan due to LaSalle Bank National Association, as trustee of
Structured Finance Fund, L.P., successor-in-interest to Marathon Structured
Finance Fund L.P. ("LaSalle"). The loan principal at that time was $7,498,900
and accrued interest of $79,910 was due at January 11, 2007. LaSalle has a
mortgage interest on certain real property owed by SBR, located at 740 Ocean
Drive, Miami Beach, Florida, known as the Boulevard Hotel (the "Property")
in
connection with the loan.
A
Forbearance Agreement was subsequently executed with LaSalle on or about
February 2, 2007, to waive the default until April 11, 2007, provided SBR
continued to make monthly interest payments on the debt outstanding and a
principal payment of $750,000 was made on February 8, 2007, which payment and
monthly payments have been made to date. The Forbearance
Agreement was subsequently extended to July 11, 2007, pursuant to the terms
of
the Forbearance Agreement.
On
or
around July 11, 2007, we entered into the First Amendment to Forbearance
Agreement with LaSalle, whereby LaSalle agreed to extend the terms of the
Forbearance Agreement until 5:00 P.M. on October 11, 2007, assuming that we
continue to make the required payments of interest on the loan, and no event
of
default occurs under the loan. Additionally, pursuant to the terms of the First
Amendment to the Forbearance Agreement, we paid all accrued interest due under
the loan in connection with our entry into such agreement, totaling
approximately $64,442, with $6,248,900 of outstanding principal due under the
loan as of July 11, 2007; $500,000 which was paid as a principal reduction
in
connection with the extension of the note; LaSalle’s reasonable attorneys fees
in connection with the First Amendment to the Forbearance Agreement; and an
additional fee of $50,000 in connection with the extension to
LaSalle.
Effective
October 12, 1007, we entered into the Second Amendment to Forbearance Agreement
with LaSalle, whereby LaSalle agreed to extend the terms of the Forbearance
Agreement until 5:00 P.M. on May 11, 2008, assuming that we continue to make
the
required payments of interest on the loan, and no event of default occurs
under
the loan. Additionally, pursuant to the terms of the Second Amendment to
the
Forbearance Agreement, we paid all accrued interest due under the loan in
connection with our entry into such agreement, totaling approximately $425,180,
with $6,248,900 of outstanding principal due under the loan as of October
12,
2007. The Second Amendment to Forbearance Agreement also gives us the right
to
extend the maturity date of the note to July 11, 2008, in the event that
no
event of default has occurred under the note, and that we make an additional
$1,000,000 payment of principal on the note prior to May 11, 2008.
The
LaSalle loan bears interest at the rate of the greater of (a) ten percent (10%)
or (b) the London Interbank Offered Rate (LIBOR) plus seven percent (7%). The
note also required a $180,000 exit fee to be paid at the time the loan was
repaid, which amount has not been paid to date. LaSalle may also require us
to
pay a 5% late payment fee in connection with our failure to repay the loan
amount when due. LaSalle has agreed to waive the default rate of interest if
we
make all of our required payments. The default rate of interest is LIBOR plus
twelve percent (12%), which was equal to approximately 16.43%, with the LIBOR
at
approximately 4.63% as of the filing of this Report.
Applebee
Holding Loan
On
January 30, 2007, AMLH entered into a promissory note with Applebee Holding
Company in the amount of $150,000 at 4% for seven years. As part of the
agreement, 2,840 shares of AMLH Series E Convertible Preferred Stock were issued
bearing a 4% per annum cumulative preferred dividend rate, par value of $.001
and convertible into AMLH common stock at a strike price of $15.00 per
share. The shares of Series E Convertible Preferred Stock were
subsequently purchased by ALG on August 13, 2007 in connection with the Share
Purchase Agreements described above.
On
February 9, 2007, SBR entered into a 180 day, $750,000 loan agreement at the
Wall Street Journal prime rate plus 1%, with the prime rate at 8.25% as of
the
filing of this report, with International Property Investors AG, a corporation
organized under the laws of Liechtenstein, secured by SBR’s property. The
proceeds of the loan were used solely for the payment of fees owed by SBR to
Marathon pursuant to the Forbearance Agreement. This loan has been repaid to
date.
Credit
Agreements with SIBL and Resorts Funding
On
March
13, 2007, we entered into a $10,000,000 Credit Agreement with SIBL, whereby
SIBL
agreed to loan us $10,000,000 to use for the construction and development of
Phase 2 of the Sonesta Resort. The loan was evidenced by a $10,000,000
Promissory Note, which bears interest at the rate of 10% per annum. The
Promissory Note is secured by a second priority security interest and lien
on
the land underlying Phase 2 of the Sonesta Resort, all buildings, structures
and
other improvements on such land, and all fixtures, equipment, goods, inventory
or property owned by us currently or in the future, which security interests
are
evidenced by a Mortgage and Security Agreement, which we and several of our
wholly owned subsidiaries entered into with SIBL in connection with the Credit
Agreement. The loan is due in full and payable along with any accrued and unpaid
interest on March 13, 2008. Any amounts not paid when due under the loan bear
interest at the rate of 15% per annum. The SIBL Credit Agreement is personally
guaranteed by our Chief Executive Officer and Chairman, Malcolm J.
Wright.
The
Credit Agreement provided a provision whereby, in order to induce SIBL to enter
into the Credit Agreement, we agreed to issue SIBL (or its assigns) warrants
to
purchase up to 350,000 shares of our common stock at $1.02 per share, with
a
cashless exercise provision on a pro-rata basis in connection with advances
under the Credit Agreement, which warrants were assigned to ALG on August 13,
2007, in connection with the Share Purchase Agreements described
above.
Immediately
upon our execution of the Credit Agreement, we paid SIBL a placement fee of
$200,000, plus SIBL’s reasonable costs and expenses incurred in connection with
the closing of the Credit Agreement.
On
April
23, 2007, we entered into a $10,000,000 Credit Agreement with Resorts Funding
Group, LLC, whose managing partner is Malcolm J. Wright, our Chief
Executive Officer and Chairman, who does not have an ownership interest in
such
entity (“Resorts Funding”), on substantially similar terms to the SIBL
Credit Agreement, described above, whereby Resorts Funding agreed to loan us
$10,000,000 to use for the construction and development of Phase 2 of the
Sonesta Resort. The loan was evidenced by a $10,000,000 Promissory Note, which
bears interest at the rate of 10% per annum. The Promissory Note is secured
by a
second priority security interest and lien on the land underlying Phase 2 of
the
Sonesta Resort, all buildings, structures and other improvements on such land,
and all fixtures, equipment, goods, inventory or property owned by us currently
or in the future, which security interests are evidenced by a Mortgage and
Security Agreement, which we and several of our wholly owned subsidiaries
entered into with Resorts Funding in connection with the Credit Agreement.
The
loan is due in full and payable along with any accrued and unpaid interest
on
March 13, 2008. Any amounts not paid when due under the loan bear interest
at
the rate of 15% per annum. The Resorts Funding loan is personally guaranteed
by
our Chief Executive Officer and Chairman, Malcolm J. Wright.
The
Credit Agreement provided a provision whereby, in order to induce Resorts
Funding to enter into the Credit Agreement, we agreed to issue Resorts Funding
(or its assigns) warrants to purchase up to 350,000 shares of our common stock
at $1.02 per share, with a cashless exercise provision on a pro-rata basis
in
connection with advances under the Credit Agreement, which warrants were
assigned to ALG on August 13, 2007, in connection with the Share Purchase
Agreements described above.
We
also
agreed, pursuant to the Credit Agreement with Resorts Funding, that we would
pay
Resorts Funding an exit fee upon the repayment of the amounts owed to Resorts
Funding of $200,000.
We
had
received $2,905,000 from SIBL and Resorts Funding Group, LLC, as of March 31,
2007, and issued SIBL and Resorts Construction 87,500 warrants in connection
with the receipt of such funds, which funds were released prior to our execution
of the Credit Agreement, and which warrants were assigned to ALG on August
13,
2007, in connection with the Share Purchase Agreements described
above.
Through
April 2007, we drew an additional $5,810,000 on the Resorts Funding
Group LLC $10,000,000 credit facility for a total outstanding of $10,000,000
and
an additional $5,900,000 on the SIBL $10,000,000 credit facility, respectively
and granted Resorts Funding Group LLC an additional 262,500 warrants for a
total
of 350,000 warrants then issued and SIBL an additional 262,500 for a total
of
350,000 warrants then issued based on the amounts loaned. These
warrants were assigned to ALG on August 13, 2007, in connection with the Share
Purchase Agreements described above.
On
or
about August 13, 2007, the amount of principal and accrued and unpaid interest
then owed under the SIBL and Resorts Funding loans described above, an aggregate
of $20,000,000, not including any accrued and unpaid interest, was repaid by
ALG. It is anticipated that the amount repaid by ALG (including the
principal amount of the loans and accrued and unpaid interest on such loan
amount) will be memorialized by a Promissory Note payable to ALG, under the
same
terms and conditions as the original loans and notes, but with an interest
rate
of 12% per annum. However, no Promissory Notes or other repayment agreements
or
loan documentation have been finalized or executed to date. As such,
the terms and conditions of the ALG loan are subject to change prior to the
execution of documentation evidencing such loan.
March
2007 Note Modification Agreement
On
March
31, 2007, we, various of our wholly owned subsidiaries, and Malcolm J. Wright,
our Chief Executive Officer and Chairman, entered into a Note Modification
Agreement with SIBL (the “March 2007 Note Modification Agreement”). Pursuant to
the March 2007 Note Modification Agreement, we, SIBL and Mr. Wright agreed
that
the maturity dates of our $15,300,000 RC Note payable to SIBL, $3,000,000 note
payable
to SIBL, $1,355,000 note payable to SIBL, $305,000 note owed to SIBL and
$10,000,000 March 2007 note payable to SIBL shall all be extended to the earlier
of (a) a public offering by us, or any company that acquires a majority of
any
class of stock or assets of us, which raises no less than $100,000,000; or
(b)
August 1, 2008 (the “New Maturity Date”), with any accrued and unpaid interest
payable on such New Maturity Date.
On
or
about August 13, 2007, the amount of principal and accrued and unpaid interest
then owed under the notes described above, was repaid by ALG. It is
anticipated that the amount repaid by ALG (including the principal amount of
the
loans and accrued and unpaid interest on such loan amounts) will be memorialized
by Promissory Notes payable to ALG, under the same terms and conditions as
the
original loans and notes, but with an interest rate of 12% per annum. However,
no Promissory Notes or other repayment agreements or loan documentation has
been
finalized or executed to date. As such, the terms and conditions of
the ALG loan are subject to change prior to the execution of documentation
evidencing such loan.
Kennedy
Loan Funding
On
April
20, 2007, certain of our wholly owned subsidiaries which are engaged in the
construction and development of the Sonesta Resort, including Costa Blanca
Real
Estate II, LLC, Costa Blanca III Real Estate, LLC, TDS Town Homes (Phase 1),
LLC, and TDS Town Homes (Phase 2), LLC (the “Borrowers”), entered into a Loan
and Security Agreement with Kennedy Funding, Inc. as agent for certain lenders
(collectively “Kennedy” and the “Loan Agreement”). Pursuant to the Loan
Agreement, Kennedy agreed to make a loan to the Borrowers of up to $24,900,000.
The Loan Agreement provides that the Borrowers will receive an advance equal
to
$22,000,000 for repayment of an existing loan, closing costs and fees, and
construction of the Sonesta Resort; additionally, another $2,900,000 is
currently being held back from the initial loan funds and will be disbursed
to
the Borrowers from time to time to construct one of the swimming pools in the
Sonesta Resort, subject to the Borrowers complying with the representations
and
warranties described in the Loan Agreement, and subject to the loan to value
ratio of amounts loaned by Kennedy, in connection with the Sonesta Resort not
exceeding 60%. Additionally, approximately $1,786,000 of the amount loaned
by
Kennedy was immediately paid by the Borrowers in connection with closing costs
and to pay Kennedy’s commitment and loan fees, and an additional $2,196,000 of
the amount loaned was paid to Kennedy as an interest reserve, which amount
is to
be credited against the amount of monthly interest due under the loan, as such
interest payments become due and payable, as described below. We used
approximately $15,285,000 of the funds raised through the Loan Agreement to
repay all amounts owed under and to satisfy our Land Loan with KeyBank, National
Association, which we entered into in December 2005, and plan to use the
remaining funds received by the Borrowers from the Loan Agreement to continue
the construction of the Sonesta Resort. Events of default under the Loan
Agreement include, among other things, if one or more judgments are entered
against any Borrower or guarantor of the Loan Agreement, in excess of $25,000,
which are not fully paid or covered by insurance, and which have not been
discharged, stayed or bonded pending appeal within ninety days of the entry
thereof.
In
connection with the Loan Agreement, the Borrowers provided Kennedy a Promissory
Note in the amount of $24,900,000 (the “Kennedy Note”). The Kennedy Note, and
any accrued and unpaid interest is due and payable on April 20, 2010. The
Kennedy Note does not contain a pre-payment penalty The Kennedy Note bears
interest at varying rates of interest over the course of the note term, which
interest is due and payable monthly, in arrears, including:
|
(a)
|
12%
per annum for the first month that the Kennedy Note is
outstanding;
|
|
(b)
|
The
greater of 12% or the Prime Rate then in effect plus 3 and 3/4% per
annum
during the period from May 2007 through April 2008;
|
|
(c)
|
The
greater of 16% or the Prime Rate then in effect plus 7 and 3/4% per
annum
during the period from May 2008 through April 2009; and
|
|
(d)
|
The
greater of 18% or the Prime Rate then in effect plus 9 and 3/4% per
annum
during the period from May 2009, through the maturity date of the
Kennedy
Note.
|
Any
amounts not paid under the Kennedy Note when due bear interest at the rate
of
24% per annum until paid in full.
The
outstanding balance of the Kennedy Note was secured by a security interest
granted to Kennedy by the Borrowers in substantially all of their personal
property and assets. As additional security, American Leisure Holdings, Inc.,
TDS Amenities, Inc., a Florida corporation, which is owned by Tierra del Sol
Resort, Inc., and Malcolm J. Wright, our Chief Executive Officer and Chairman
entered into a Guaranty Agreement in favor of Kennedy, which guaranteed the
repayment of the Kennedy Note. Furthermore, the Borrowers agreed to assign
their
rights to various of our licenses, leases, permits and approvals to Kennedy
to
secure the repayment of the Kennedy Note and in connection with the security
agreement provided to Kennedy. Mr. Wright earned a fee equal to 747,000 warrants
to purchase shares of our common stock at an exercise price of $1.02 in
connection with his guaranty of the Kennedy Note. The warrants were cancelled
on
August 13, 2007 in connection with the Share Purchase Agreements described
above
In
addition to guarantying the repayment of the Kennedy Note, the Borrowers and
TDS
Amenities, Inc. granted Kennedy a Mortgage Agreement encumbering approximately
38 acres of property in our Sonesta Resort which the Borrowers own, to secure
the repayment of the Kennedy Note. American Leisure Holdings, Inc. the
Borrowers, and Mr. Wright also guaranteed that all of the property secured
by
the Mortgage Agreement fully complies with all environmental laws and agreed
to
indemnify Kennedy against any damages in connection with the violation of any
environmental hazardous waste disposal laws or regulations.
On
June
26, 2007, Kennedy and the Borrowers entered into a First Amendment to Loan
and
Security Agreement and Other Loan Documents (the “First Amendment to Loan”) in
connection with the Loan Agreement, whereby the parties agreed to add as an
event of default under the Loan Agreement, a default under the Second Kennedy
Note (as defined below); agreed that the amount secured by the Kennedy Note
would be cross collateralized with the Second Kennedy Note, and that any default
under the Second Kennedy Note of the Second Kennedy Agreements (as defined
below), would constitute an event of default under the Loan Agreement, as
amended. The First Amendment to the Loan also provided that Kennedy has the
right to assign the Kennedy Note; that Kennedy is required to consent to any
amendment of the Kennedy Note, or related documents entered into in connection
with the Kennedy Loan Agreement (the “Kennedy Agreements”), and/or consent to
any release of collateral secured by the Kennedy Loan; that Kennedy is able
to
advertise the fact that it made a loan to us, and/or erect signs on our
properties publicizing Kennedy’s role in our funding, with our consent, which
will not be unreasonably withheld; changed the prepayment requirements related
to the Borrower’s prepayment of the Kennedy Note; and provided Kennedy a
security interest in any and all deposits received by the Borrowers in
connection with the purchase of any of our condominiums and/or townhouses on
the
Mortgaged Property, among other things (the “Amendments”).
We
also
entered into a First Amendment to Mortgage and Security Agreement and an Amended
and Restated Promissory Note with Kennedy to confirm and reflect the Amendments.
Additionally, we entered into a Reaffirmation of Guaranty, to reaffirm our
previous guaranty of, and security interest granted in connection with the
Kennedy Note and the Kennedy Agreements as amended.
First
Commercial Bank Letter of Credit
On
or
about March 28, 2007, we obtained a Letter of Credit from First Commercial
Bank
of Florida (“First Commercial”) in the amount of $991,217, which amount has been
loaned to us in full by First Commercial, which amount bears interest at the
Prime Rate plus 1.5% per annum, currently equal to 9.00%, with the Prime Rate
at
7.5% as of the filing of this report. Interest on the Line of Credit is payable
monthly in arrears. The amount due under the Line of Credit is due and payable,
along with any accrued and unpaid interest on March 28, 2008. The Line of Credit
is secured by a mortgage and security interest on certain property in the
Sonesta Resort. The closing costs associated with the Line of Credit totaled
approximately $25,000. The Letter of Credit is secured by certain of our wholly
owned subsidiaries, and Malcolm J. Wright, our Chief Executive Officer and
Chairman.
June
2007 Kennedy Funding
On
June
26, 2007, Costa Blanca I Real Estate, LLC, a wholly owned subsidiary of our
wholly owned subsidiary, Tierra Del Sol Resort (Phase 1), Ltd. (“Costa Blanca”),
entered into a Loan and Security Agreement and related agreements (the “Second
Kennedy Agreements”) with Kennedy, whereby Kennedy agreed to loan Costa Blanca
$4,450,000 (the “Second Loan Agreement”).
In
connection with the Second Loan Agreement, Costa Blanca provided Kennedy a
Promissory Note in the amount of $4,450,000 (the “Second Kennedy Note”). The
Second Kennedy Note, and any accrued and unpaid interest are due and payable
on
June 25, 2010. The Second Kennedy Note does not contain a pre-payment penalty.
The Second Kennedy Note bears interest at varying rates of interest over the
course of the note term, which interest is due and payable monthly, in arrears,
including:
|
(a)
|
12%
per annum for the first month that the Second Kennedy Note is
outstanding;
|
|
(b)
|
The
greater of 12% or the Prime Rate then in effect plus 3 and 3/4% per
annum
during the period from July 2007 through June 2008;
|
|
(c)
|
The
greater of 16% or the Prime Rate then in effect plus 7 and 3/4% per
annum
during the period from July 2008 through June 2009;
and
|
|
(d)
|
The
greater of 18% or the Prime Rate then in effect plus 9 and 3/4% per
annum
during the period from July 2009, through the maturity date of the
Second
Kennedy Note.
|
Any
amounts not paid under the Second Kennedy Note when due bear interest at the
rate of 24% per annum until paid in full. Additionally, any payment of interest
not paid within five (5) days of the date it is due is charged a one-time
penalty equal to the lesser of: (i) ten percent (10%) of such payment or (ii)
the maximum amount permitted by law.
The
$3,950,000 initial advance under the Second Kennedy Note, which was advanced
on
or around June 26, 2007, included $464,000 which was paid to Kennedy as a
closing fee; $445,000 which is to be credited against interest payments due
under the Second Kennedy Note; and approximately $178,000 in closing costs,
brokers fees and legal fees in connection with the loan. The remaining $500,000
in loan funds was held back from the initial advance, and will be disbursed
to
Costa Blanca from time to time to construct one of the swimming pools in the
Sonesta Resort, subject to the Borrowers complying with the representations
and
warranties described in the Second Loan Agreement, and subject to the
loan-to-value ratio of amounts loaned by Kennedy, not exceeding 60% of the
then
value of the Sonesta Resort. Additionally, Costa Blanca agreed to pay all of
Kennedy’s out of pocket expenses incurred in connection with the Second Kennedy
Note and funding. The net proceeds of loan are being utilized by Costa Blanca
for construction costs and working capital associated with the Sonesta
Resort.
Events
of
default under the Second Loan Agreement include, among other things, if one
or
more judgments are entered against any Costa Blanca or any guarantor of the
Second Loan Agreement, in excess of $25,000, which are not fully paid or covered
by insurance, and which have not been discharged, stayed or bonded pending
appeal within ninety days of the entry thereof. Additionally, the default of
any
provision of the April 2007, Kennedy Note, triggers a cross-default of the
Second Kennedy Note.
The
Second Loan Agreement provided that Costa Blanca can not create, incur or suffer
any indebtedness other than the Kennedy Note and the Second Kennedy Note, other
than up to $25,000,000 in additional loans which may be obtained from Stanford
International Bank Limited and/or Resorts Funding Group, LLC, which shall be
subordinate to the Second Kennedy Note and security interests granted
therewith.
Additionally,
assuming that no Event of Default has occurred under the Second Kennedy Note,
in
the event that Costa Blanca or any of the Borrowers repays an amount equal
to at
least $16,000,000 of the amount due under the Kennedy Note and Second Kennedy
Note by the six (6) month anniversary of the Second Loan Agreement closing
date,
the Borrowers will receive a credit of $150,000 against the amount then
owed.
Similarly, in the event that Costa Blanca or the Borrowers repays $18,000,000
of
the amount due within the six (6) month anniversary of the Second Loan Agreement
closing date, they will receive a credit of $200,000 against amounts then owed.
Finally, assuming that the terms and conditions of the Second Kennedy Note
are
complied with in full, and no Event of Default has occurred, Costa Blanca will
receive a refund of $50,000 of the prepaid interest held on the Second Kennedy
Note.
The
outstanding balance of the Second Kennedy Note was secured by a security
interest granted to Kennedy by Costa Blanca in substantially all of its personal
property and assets, including certain real property in Polk County, Florida,
pursuant to the parties’ entry into a Mortgage and Security Agreement. As
additional security, American Leisure Holdings, Inc., TDS Amenities, Inc.,
a
Florida corporation, which is owned by Tierra del Sol Resort, Inc., and Malcolm
J. Wright, our Chief Executive Officer and Chairman, entered into a Guaranty
Agreement in favor of Kennedy, which guaranteed the repayment of the Second
Kennedy Note. Furthermore, Costa Blanca agreed to assign its rights to several
of its licenses, leases, permits and approvals to Kennedy to secure the
repayment of the Second Kennedy Note. Mr. Wright earned a fee equal to 133,500
warrants to purchase shares of our common stock at an exercise price of $1.02
in
connection with his guaranty of the Second Kennedy Note. The
warrants were cancelled on August 13, 2007 in connection with the Share Purchase
Agreements described above
Central
Florida Note
On
or
around June 29, 2007, TDS Amenities, Inc. and TDS Town Homes (Phase 2), LLC
(collectively “TDS”), two of our wholly owned subsidiaries issued Central
Florida Ventures, L.L.C. a Promissory Note (the “Central Florida Note”) in the
amount of $4,000,000 in connection with a $4,000,000 loan made to TDS. The
Central Florida Note is due and payable on June 29, 2008, and any amount
outstanding on the Central Florida Note bears interest at the rate of thirteen
percent (13%) per annum, compounded monthly until paid in full on the maturity
date. Any amount not paid on the Central Florida Note when due is subject to
a
“late charge” of 5% of such unpaid amount. TDS is able to repay all or any
portion of the Central Florida Note at any time without penalty. In the event
the Central Florida Note is not paid in full when due, any amounts then
outstanding will bear interest at the highest rate allowable by Florida
law.
In
July
2007, an additional $1,000,000 was advanced by Central Florida pursuant to
the
Central Florida Note described above.
On
or
about August 13, 2007, the amount then owed under the Central Florida Note
was
repaid by ALG. It is anticipated that the amount repaid by ALG
(including the principal amount of the Central Florida Note and accrued and
unpaid interest on such loan amount) will be memorialized by a Promissory Note
payable to ALG, under the same terms and conditions as the Central Florida
Note,
other than an interest rate of 12% per annum. However, no Promissory Note or
other repayment agreements or loan documentation has been finalized or executed
to date. As such, the terms and conditions of the ALG loan are
subject to change prior to the execution of documentation evidencing such
loan.
PLAN
OF OPERATIONS
TraveLeaders
We
previously planned to integrate the administrative operations of Hickory and
TraveLeaders; however, the integration process was slower than we anticipated
and we have since abandoned our plans to integrate those operations. We are
currently evaluating our options regarding Hickory and TraveLeaders, including
whether we should sell either of those divisions. Additionally, time has been
required to analyze and determine the impact, if any, of certain litigation
commenced by Around The World Travel regarding its contracts with Seamless
Technologies, Inc. and others, as discussed in "Legal Proceedings,"
herein.
Under
our
prior arrangement with Around The World Travel (through August 1, 2006), which
operated the TraveLeaders assets on our behalf and from whom we acquired the
assets, we recognized a management fee of 10% of the net earnings of the
TraveLeaders assets before interest, taxes, depreciation and
amortization.
Sonesta
Resort
We
believe that the capital requirement for the first phase of the resort will
be
approximately $136,500,000, of which $9,000,000 will be for the resort
amenities, $64,000,000 will be for vertical construction on 294 units and
$49,500,000 will be for other costs such as contingencies, closing costs and
soft costs such as architectural, engineering, and legal costs. An additional
approximate amount of $14,000,000 will be expended for horizontal construction
costs which include all of Phase I requirements plus most of the infrastructure
requirements for the entire Project.
On
or
about December 29, 2005, we closed on $54.85 million of senior debt to be used
in the development of The Sonesta Orlando Resort at Tierra Del Sol (the
"Project"), described in greater detail above. KeyBank, N.A. was the lender
of a
credit facility for the benefit of AMLH. The credit facility included a land
loan in the amount of $14,850,000, which has been repaid as of the date of
this
filing. KeyBank had also originally agreed to provide us a $40,000,000 revolving
construction loan, for up to $72,550,000 in funding, however we have since
decided not to move forward with such funding. As of June 30, 2007, we had
received approximately $22,000,000 for funding of the Sonesta Resort through
our
entry into the April 2007 Kennedy funding, $4,450,000 through our entry into
the
June Kennedy funding, $4,000,000 through the Central Florida loan (which an
additional $1,000,000 advance was provided to us in connection with subsequent
to June 30, 2007), and the right to up to $20,000,000 in funding through the
SIBL and Resorts Funding loans describe above, pursuant to which we had borrowed
the full $20,000,000 through June 30, 2007. On or about August 13,
2007, the amount then owed under those loans was repaid by ALG. It is
anticipated that the amount repaid by ALG (including the principal and accrued
and unpaid interest on such loan amount) will be memorialized by a Promissory
Note payable to ALG, under the same terms and conditions similar to the original
loans, but with an interest rate of 12% per annum. However, no Promissory Note
or other repayment agreements or loan documentation has been finalized or
executed to date. As such, the terms and conditions of the ALG loan
are subject to change prior to the execution of documentation evidencing such
loan.
Moving
forward, we will continue the planned construction of the Sonesta Resort with
the funds raised by ALG’s Admission and related transactions described above
(the “BVI Transaction”). Financing for the balance of the development
budget, which includes infrastructure, retention, roads and green space of
approximately $26,000,000, was through the sale of Westridge Community
Development District bonds which was completed on December 29, 2005, as
described above. In June 2005, we began the earth moving and clearing
process on the land for the resort and have completed approximately 90% of
the
grading and the underground infrastructure on the property to date. We began
the
vertical construction of Phase 1 of the property in the first quarter of 2007.
We have established a relationship with GMAC Bank, through Millennium Capital
Mortgage, to provide construction financing to the individual purchasers of
the
Sonesta Resort town homes, which funding we believe will enable all town homes
and amenities at Tierra del Sol to be built through this program.
We
anticipate the need for approximately $85,000,000 in additional funding during
the next twelve months to meet our construction and overhead demands in
connection with the construction of the Sonesta Resort.
Known
Trends, Events, And Uncertainties
We
expect
to experience seasonal fluctuations in our gross revenues and net earnings due
to higher sales volume during peak periods. Advertising revenue from the
publication of books by Hickory that list hotel availability is recognized
either when the books are published (December) or on a performance basis
throughout the year, depending on the contractual terms. This seasonality may
cause significant fluctuations in our quarterly operating results and our cash
flows. In addition, other material fluctuations in operating results may occur
due to the timing of development of resort projects and our use of the completed
contracts method of accounting with respect thereto. Furthermore, costs
associated with the acquisition and development of vacation resorts, including
carrying costs such as interest and taxes, are capitalized as inventory and
will
be allocated to cost of real estate sold as the respective revenues are
recognized.
We intend to continue to invest in projects that will require substantial
development and significant amounts of capital funding during 2007 and in the
years ahead.
Critical
Accounting Estimates
Our
discussion and analysis of our financial condition and results of operations
is
based upon our financial statements, which have been prepared in accordance
with
accounting principals generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses,
and
related disclosure of any contingent assets and liabilities. We base our
estimates on various assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
carrying values of assets and liabilities that are not readily apparent from
other sources. On an on-going basis, we evaluate our estimates. Actual results
may differ from these estimates if our assumptions do not materialize or
conditions affecting those assumptions change.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our financial
statements:
Going
Concern Considerations
We
have
incurred losses during our existence and we have negative retained earnings.
We
had an accumulated deficit of $28,177,502 at September 30, 2007 and a net loss
of $6,570,140 for the nine months ended September 30, 2007. We expect Hickory
to
require approximately $1,500,000 in working capital during the next twelve
months. If we are unable to obtain these funds, we may have to curtail or delay
our plans for Hickory. In addition to our ability to raise additional capital,
our continuation as a going concern also depends upon our ability to generate
sufficient cash flow to conduct our operations. If we are unable to raise
additional capital or generate sufficient cash flow for Hickory operations
and/or to complete the construction of our planned vacation homes, we may be
required to delay the expansion of Hickory and restructure or refinance all
or a
portion of our outstanding debt. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Revenue
Recognition
We
recognize revenues on the accrual method of accounting. Revenues from Hickory
are recognized as earned, which is primarily at the time of delivery of the
related service, publication or promotional material. Fees from advertisers
to
be included in the hotel book and web service operated by Hickory are recognized
upon the annual publication of the book or when performance levels are achieved.
Revenue from the delivery of services is recognized when it is invoiced to
the
recipient of the service.
One
of
our principal sources of revenue is associated with access to the travel portals
that provide a database of discounted travel services. Annual renewals occur
at
various times during the year. Costs and revenue related to portal usage charges
are incurred in the month prior to billing. Customers are charged additional
fees for hard copies of the site access information. Occasionally these items
are printed and shipped at a later date, at which time both revenue and expenses
are recognized.
Revenues
from our wholly owned subsidiary ALEC are recognized as earned, which is
primarily at the time of delivery of the related
service. Specifically, commission revenues for cruises, hotel and car
rentals are recognized upon completion of travel, hotel stay or car rental.
Commission fees for ticketing are
recognized
at the time of departure.
Revenues
also include undeveloped land sales, which are recognized at closing when title
has passed.
Goodwill
We
adopted the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets." This statement requires that
goodwill and intangible assets deemed to have
indefinite
lives not be amortized, but rather be tested for impairment on an annual basis.
Finite-lived intangible assets are required to be amortized over their useful
lives and are subject to impairment evaluation under the provisions of SFAS
No.
144. The goodwill will be evaluated on an annual basis and impaired whenever
events or circumstances indicate the carrying value of the goodwill may not
be
recoverable.
COMPARISON
OF OPERATING RESULTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2007, COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2006.
We
had
total revenues of $5,753,321, consisting solely of service revenues for the
three months ended September 30, 2007, compared to total revenues of $5,811,209,
consisting solely of service revenues for the three months ended September
30,
2006, a decrease in total revenues of $57,888 or 1.0% from the prior
period.
We
had
total cost of service revenues of $5,402,896 for the three months ended
September 30, 2007, compared to total cost of service revenues of $5,421,427
for
the three months ended September 30, 2006, a decrease in total cost of service
revenues of $18,531 or 0.3% from the prior period.
We
had a
total gross margin of $350,425 for the three months ended September 30, 2007,
compared to a total gross margin of $389,782 for the three months ended
September 30, 2006, a decrease in total gross margin of $39,357 or 10.1% from
the prior period, which decrease in gross margin was mainly due to the 1.0%
decrease in cost of service revenues, which was not sufficiently offset by
the
0.3% decrease in cost of service revenues for the three months ended
September 30, 2007, compared to the three months ended September 30,
2006.
We
had
depreciation and amortization expenses of $233,337 for the three months ended
September 30, 2007, compared to depreciation and amortization expenses of
$190,640 for the three months ended September 30, 2006, an increase in
depreciation and amortization expenses of $42,697 or 22.4% from the prior
period, which increase was due to the depreciation on the Boulevard Hotel which
was acquired on December 22, 2006, which building was depreciated during the
three months ended September 30, 2007 and not depreciated during the
three months ended September 30, 2006.
We
had
total general and administrative expenses of $1,450,624 for the three months
ended September 30, 2007, compared to total general and administrative expenses
of $787,576 for the three months ended September 30, 2006, an increase in total
general and administrative expenses of $663,048 or 84.2% from the three months
ended September 30, 2006, which increase was mainly due to increased expenses
associated with our subsidiaries, Wright Resorts and Hotels and American Leisure
Homes, due to increased payroll expenses associated with the addition of
employees during the three months September 30, 2007, as well as increases
in
the office space costs associated with such subsidiaries offset by decreases
in
travel and professional fees, during the three months ended September 30, 2007,
compared to the three months ended September 30, 2006.
We
had
total operating expenses of $1,683,961 for the three months ended September
30,
2007, compared to total operating expenses of $978,216 for the three months
ended September 30, 2006, an increase of $705,745 or 72.1% from the prior
period. The increase in operating expenses for the three months ended September
30, 2007, compared to the three months ended September 30, 2006 was mainly
due
to the $663,048 or 84.2% increase in general and administrative expense for
the
three months ended September 30, 2007, compared to the three months ended
September 30, 2006.
We
had
interest income of $111,832 for the three months ended September 30, 2007,
compared to total interest income of $51,996 for the three months ended
September 30, 2006, an increase in interest income of $59,836 or 115.1% from
the
three months ended September 30, 2006, which increase in interest income was
mainly due to the interest earned on higher average cash balances during the
period.
We
had
other income of $56,091 for the three months ended September 30, 2007 compared
to $0 in other income for the three months ended September 30,
2006.
We
had
total interest expense of $2,108,958 for the three months ended September 30,
2007, compared to total interest expense of $836,548 for the three months ended
September 30, 2006, an increase in interest expense of $1,272,410 or 152.1%
from
the three months ended September 30, 2006, which increase in interest expense
was mainly due to the write off of the balance of deferred financing costs
as
certain warrants issued as part of our prior financing costs were assigned
to
ALG during the three months ended September 30, 2007.
We
had a
loss from continuing operations before taxes of $3,274,571 for the three months
ended September 30, 2007, compared to a loss from continuing operations before
taxes of $1,372,986 for the three months ended September 30, 2006, an increase
in loss from continuing operations before taxes of $1,901,585 or 138.5% from
the
prior period. The increase in loss is attributed to the 22.4%
increase in depreciation expense plus the 84.2% increase in general and
administrative expenses and the 152.1% increase in interest expense due to
the
write-off of the balance of deferred financing costs.
We
had
total provision for income taxes of $0 for the three months ended September
30,
2007, compared to $477 in income tax provision for the three months ended
September 30, 2006.
We
had a
total net loss of $3,274,571 for the three months ended September 30, 2007,
compared to total net loss of $1,373,463 for the three months ended September
30, 2006, an increase in net loss of $1,901,108 or 138.4% from the prior
period.
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007, COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2006.
We
had
total revenues of $18,530,967, consisting solely of service revenues for the
nine months ended September 30, 2007, compared to total revenues of $31,641,582
for the nine months ended September 30, 2006, consisting of service revenues
of
$18,512,336 and undeveloped land sales of $13,129,246 for the nine months ended
September 30, 2006, a decrease in total revenues of $13,110,615 or 41.4% from
the prior period. Revenues for the nine months ended September 30,2007,
consisted of service revenues of $18,530,967, which increased $18,631 or 0.1%
over service revenues of $18,512,336 for the nine months ended September 30,
2006.
Our
service revenues increased due to our termination of our management agreement
with AWT on August 1, 2006.
We
had no
undeveloped land sales for the nine months ended September 30, 2007, compared
to
undeveloped land sales of $13,129,246 for the nine months ended September 30,
2006. The decrease in undeveloped land sales was due to the fact that while
we
had no such sales during the nine months ended September 30, 2007; during the
nine months ended September 30, 2006, Tierra del Sol sold forty-two acres of
land in the Sonesta Resort for $9,090,130 to the Westridge Community Development
District ("District") and received an additional $4,039,116 from the District
in
connection with reimbursements for site improvements on the land purchased
by
the District.
Service
revenues for the nine months ended September 30, 2007, included approximately
$14,701,000 in revenues from ALEC; $2,973,280 from HTS; and $1,121,000 in
revenues from our hospitality division, which were offset by $1,614,000 of
elimination of revenues in connection with the consolidation of the operations
of those divisions.
We
had
total cost of service revenues of $17,552,629 for the nine months ended
September 30, 2007, compared to total cost of service revenues of $17,811,249
for the nine months ended September 30, 2006, a decrease in total cost of
service revenues of $258,620 or 1.5% from the prior period.
We
had
total cost of undeveloped land sales of $0 for the nine months ended September
30, 2007, as we had no such land sales, compared to total cost of undeveloped
land sales of $9,796,634 for the nine months ended September 30,
2006.
We
had a
total gross margin of $978,338 for the nine months ended September 30, 2007,
compared to a total gross margin of $4,033,699 for the nine months ended
September 30, 2006, a decrease in total gross margin of $3,055,361 or 75.7%
from
the prior period, which decrease in gross margin was mainly due to the fact
that
we had no land sales during the nine months ended September 30, 2007 and a
$13
million land sale during the nine months ended September 30, 2006.
We
had
depreciation and amortization expenses of $699,984 the nine months ended
September 30, 2007, compared to depreciation and amortization expenses of
$552,375 for the nine months ended September 30, 2006, an increase in
depreciation and amortization expenses of $147,609 or 26.7% from the prior
period, which decrease was due to the fact that our call center business was
sold effective as of June 30, 2006, and the fact that such operations were
therefore not depreciated during the nine months ended September 30, 2007,
but
were depreciated during the nine months ended September 30, 2006.
We
had
total general and administrative expenses of $3,271,799 the nine months ended
September 30, 2007, compared to total general and administrative expenses of
$2,476,338 for the nine months ended September 30, 2006, an increase in total
general and administrative expenses of $795,461 or 32.1% for the nine months
ended September 30, 2007, compared to the nine months ended September 30, 2006,
which increase was mainly due to increased expenses associated with our
subsidiaries, Wright Resorts and Hotels and American Leisure Homes, due to
increased payroll expenses associated with the addition of employees during
the
nine months ended September 30, 2007, compared to the nine months ended
September 30, 2006, as well as increases in the office space costs
associated with such subsidiaries offset by decreases in travel and professional
fees, for the nine months ended September 30, 2007, compared to the nine months
ended September 30, 2006.
We
had
total operating expenses of $3,971,783 the nine months ended September 30,
2007,
compared to total operating expenses of $3,028,713 for the nine months ended
September 30, 2006, an increase of $943,070 or 31.1% from the prior period.
The
increase in operating expenses for the nine months ended September 30, 2007,
compared to the nine months ended September 30, 2006 was mainly due to the
26.7%
increase in depreciation and amortization plus the 32.1% increase in general
and
administrative expense for the nine months ended September 30, 2007, compared
to
the nine months ended September 30, 2006.
We
had
total interest expense of $4,115,570 for the nine months ended September 30,
2007, compared to total interest expense of 3,353,932 for the nine months ended
September 30, 2006, an increase in interest expense of $761,638 or 22.7% from
the nine months ended September 30, 2006, which increase in interest expense
was
mainly due to the write off of the balance of deferred financing costs as
certain warrants issued as part of our prior financing costs were assigned
to
ALG during the nine months ended September 30, 2007
We
had a
loss from operations before taxes of $6,565,241 for the nine months ended
September 30, 2007, compared to a loss from operations before taxes of
$2,127,757 for the nine months ended September 30, 2006, an increase in loss
from operations before taxes of $4,437,484 or 208.4% from the prior
period.
We
had
total provision for income taxes of $4,899 for the nine months ended September
30, 2007, compared to $1,876 in income tax provision for the nine months ended
September 30, 2006, an increase of $3,023 or 161.1% from the prior
period.
We
had $0
in gain from discontinued operations for the nine months ended September 30,
2007, compared to gain from discontinued operations of $2,744,938 for the nine
months ended September 30, 2006.
The
gain
from discontinued operations for the nine months ended September 30, 2006,
was
due to the call center operations of Caribbean Media Group, Ltd. ("Caribbean
Leisure Marketing"), our former wholly
owned
subsidiary, which owns 49% of Caribbean Media Group, Ltd. Effective June 30,
2006, we sold Caribbean Leisure Marketing to Stanford, as described in greater
detail above.
We
had a
total net loss of $6,570,140 for the nine months ended September 30, 2007,
compared to total net income of $615,305 for the nine months ended September
30,
2006, a change of $7,185,445 or 1,167.8% from the prior period, which was mainly
due to the gain on the sale of property of approximately $3.1 million during
the
nine months ended September 30, 2006, which gain was not present during the
nine
months ended September 30, 2007, the gain on sale of undeveloped land sales
of
$13,129,246 for the nine months ended September 30, 2006, which was not
represented during the nine months ended September 30, 2006, as well as a
$943,070 increase in total operating expenses and a $761,638 increase in
interest expense for the nine months ended September 30, 2007, compared to
the
nine months ended September 30, 2006.
LIQUIDITY
AND CAPITAL RESOURCES
We
had
total current assets as of September 30, 2007, of $10,826,345, consisting of
cash of $6,307,814, restricted cash of $0, accounts receivable, net of
$1,742,781, other receivable of $322,338, and prepaid expenses and other of
$2,453,412.
We
had
total non-current assets as of September 30, 2007 of $167,735,509, consisting
of
property and equipment, net of $8,488,559, land held for development of
$131,120,084 and total other assets of $28,126,866.
Other
assets as of September 30, 2007, consisted of restricted cash of $7,230,436,
prepaid sales commissions of $11,085,641, prepaid sales commissions-affiliated
entity of $3,803,655, goodwill of $4,559,134, trademark of $931,250 and other
assets of $516,750.
We
had
total current liabilities as of September 30, 2007 of $36,575,704, which
included current maturities of long-term debt and notes payable of $22,334,192,
current maturities of notes payable-related parties of $599,629, accounts
payable and accrued expenses of $6,182,103, accrued expenses-officers of
$833,729, and other liabilities of $6,626,051.
In
June
2006, Malcolm J. Wright, our Chief Executive Officer and Chairman was paid
$1,540,500 in accrued salaries and interest which he was owed. As of September
29, 2007, the amount of salaries payable accrued to Mr. Wright amounted to
$2,720,652 plus accrued interest on those salaries of
$634,750. On September 29, 2007, $2,309,783 of accrued salaries
and $606,750 of accrued interest on those salaries were paid to Mr.
Wright. Accrued expenses-officers as of September 30, 2007,
included $402,889 which is comprised of accrued salaries of $374,889 and accrued
interest of $28,000 due to Mr. Wright. Mr. Wright's accrued and unpaid salaries
accrue interest at the rate of 12% per year until paid. Additionally included
in
accrued expenses-officers as of September 30, 2007, was $430,840 owed to L.
William Chiles, the Chief Executive Officer of Hickory and our Director, which
included $361,957 of unpaid salary accrued to Mr. Chiles and $68,883 of accrued
interest on such unpaid salary. Total accrued expenses – officers
amounts to $833,729.
As
of
September 30, 2007, we owed $399,629 in connection with current portion of
notes
payable to related parties including $133,629 owed to our Director, L. William
Chiles.
As
of
September 30, 2007, we had $85,780,664 of notes payable to related parties,
which included $81,877 owed to Mr. Chiles, $385,000 owed to an officer of HTS,
$79,313,787 owed to ALG and $6,000,000 owed to Stanford Venture Capital
Holdings, Inc, a significant shareholder of the Company.
As
of
September 30, 2007, we had long term debt and notes payable of $27,310,606;
put
liability of $985,000 and deposits on pre-unit sales of
$33,309,250.
The
put
liability was in connection with 197,000 shares of common stock issued to
Harborage Leasing Corporation (“Harborage”) in connection with our entry into a
purchase agreement with Harborage in
March
2006, which was effective as of March 31, 2006, whereby we purchased the
minority interest in Tierra Del Sol, Inc. from Harborage for a promissory note
in the amount of $1,411,705 ("Harborage Note"), which was paid in August 2006;
the right to receive, without payment, two (2) three-bedroom condominium units
to be constructed in Phase 2 of the Sonesta Resort, or in the event title to
both such units is not delivered by December 31, 2007, then, in lieu thereof,
payment of $500,000 for each such unit that is not transferred by such date;
197,000 shares of the Company's common stock; and warrants to acquire 300,000
additional shares of the Company's common stock at an exercise price of $5.00
per share. Harborage had the right to require the Company to purchase all or
a
portion of the Harborage 197,000 shares at $5.00 per share, during the six
month
period commencing January 1, 2008 and ending June 30,
2008.
We
had
total negative working capital of $25,749,359 as of September 30,
2007.
We
had
net cash used by operating activities of $1,459,596 for the nine months ended
September 30, 2007, which was mainly due to a net loss of $6,570,140, an
increase in prepaid commissions of $1,641,409, $4,156,435 of increase
in deposits on unit pre-sales, offset by $3,028,473 of increase in accounts
payable and accrued expenses, an increase in restricted cash of $3,134,245,
an
increase in accounts receivables and other receivables of $1,405,949, an
increase in non-cash warrant compensation of $1,046,092 and an increase of
$1,381,843 of non-cash interest expense.
We
had
$58,412,976 of net cash used in investing activities for the nine months ended
September 30, 2007, which was due to a $59,189,821 increase in land held for
development and $254,076 of acquisition of fixed assets offset by $1,030,921
of
increase in restricted cash.
We
had
cash provided by financing activities of $65,070,386 for the nine months ended
September 30, 2007, which was due to $95,876,668 of proceeds from notes payable
offset by $30,806,282 of payment of notes payable and long-term
debt.
We
expect
that we will require approximately $1,500,000 through the end of the 2007 fiscal
year for working capital for Hickory and up to $85,000,000 through the second
quarter of 2008 for construction and overhead on our Sonesta Resort, as
described below.
We
estimate that the cost to complete the construction of Phase I of the Sonesta
Resort will be approximately $135,500,000 of which $8,000,000 will be for resort
amenities, $64,000,000 will be for vertical construction on 294 units and
$49,500,000 will be for other costs such as contingencies, closing costs and
soft costs such as architectural, engineering, and legal costs. An additional
approximate amount of $14,000,000 will be expended for horizontal construction
costs which include all of Phase I requirements plus most of the infrastructure
requirements for the entire Project. As of September 30, 2007, we had received
approximately $22,000,000 for funding of the Sonesta Resort through our entry
into the April 2007 Kennedy funding, $4,450,000 through our entry into the
June
Kennedy funding, $4,000,000 through the Central Florida loan, and the right
to
up to $20,000,000 in funding through the SIBL and Resorts Funding loans describe
above, of which we had borrowed $20,000,000 through August 13,
2007. On or about August 13, 2007 the Central Florida loan was
repaid by ALG. It is anticipated that the amount repaid by ALG
(including the principal amount of such loans and accrued and unpaid interest
on
such loan amounts) will be memorialized by a Promissory Note payable to ALG,
under the same terms and conditions as the original notes, other than an
interest rate of 12% per annum. However no Promissory Note or other repayment
agreements or loan documentation has been finalized or executed to
date. As such, the terms and conditions of the ALG loan are subject
to change prior to the execution of documentation evidencing such
loan.
While
we
previously obtained a $40,000,000 construction loan from KeyBank, National
Association (“KeyBank”) we have since decided not to move forward with that
loan. We raised the required funding to continue the planned construction of
Phase 1 of the Sonesta Resort in connection with the Admission and related
transactions described above (the “BVI Transaction”).
We
also
have funding in the amount of $25,825,000 from the Westridge Community
Development District ("CDD" or the "District"), which bonds will be used to
pay
for infrastructure facilities for public purposes such as water supply and
retention systems, roadways, green space and nature recreation areas. In
addition the Project is also benefiting from $25,825,000 in bonds issued by
the
CDD, a special purpose taxing district formed for the purpose of financing
the
installation of vital public services such as water supply and retention,
sanitary and storm water sewer systems, roadways and the landscaping attendant
to those uses. The CDD supports these initiatives, through the provision of
capital and maintenance, via a tax upon the property owners of the district
that
utilizes a low finance rate (5.8% per annum) and a long-term amortization of
the
capital costs (30 years).
The
first
phase of site work on the Sonesta Resort, at an estimated cost exceeding $19
million, was funded by the CDD via the sale by the CDD of bonds issued on a
non-recourse basis to the Company ("CDD Bonds"). The CDD was initially created
by the Company in September 2003 and enabled by an order of a Florida State
District Court. The CDD Bond issue was underwritten by KeyBanc Capital Markets
Group in the amount of $25,825,000. The first issue of the CDD Bonds was
successfully sold and closed simultaneous with the closing of the Key Bank
senior debt facilities (described above). Upon closing of the loan, we repaid
$7,862,250 of short-term debt plus accrued interest of approximately $256,512.
This short-term debt originally matured on March 31, 2005, but it was extended
until the closing of the KeyBank credit facilities in December
2005.
On
August
16, 2006, pursuant to a Purchase Agreement between us and SIBL, a promissory
note in the principal amount of $750,000 made by Scott Roix in favor of SIBL
was
purchased from SIBL for 235,000 shares of our common stock and a five year
warrant to purchase up to 235,000 shares of our stock at an exercise price
of
$20 per share. The note has a maturity date of June 30, 2008 and bears interest
at the rate of 8% per annum. As of September 30, 2007, the balance of the
promissory note totaled $500,000.
At
September 30, 2007, we had an outstanding principal balance of $6,000,000 under
our secured revolving credit facility with Stanford, which bears interest at
a
fixed rate of 6% per annum payable accruing from July 1, 2006 quarterly in
arrears and matures on December 31, 2008. We previously issued 355,000 warrants
with a strike price of $10 per share with a maturity of April 30, 2008 to
Stanford to replace the conversion feature of the credit facility whereby the
loan could previously be converted into shares of our common stock at a
conversion price of $15.00 per share in connection with our entry into the
Stock
Purchase Agreement with SIBL. The warrants were assigned to ALG and cancelled
on
August 13, 2007 in connection with the Share Purchase Agreements described
above. The $6,000,000 credit facility is guaranteed by Malcolm J.
Wright, our Chief Executive Officer and Chairman and is secured by a second
mortgage on our Sonesta Orlando Resort property, including all fixtures and
personal property located on or used in connection with these properties, and
all of the issued and outstanding capital stock and assets of our subsidiary,
American Leisure Marketing & Technology, Inc. We believe that without the
guarantees of Mr. Wright, it would have been more difficult, if not impossible,
for us to secure the Stanford credit facility.
As
of
August 13, 2007, ALG repaid certain of our outstanding loans, described above,
and as of September 30, 2007, we had an outstanding principal balance of
$79,313,787 with ALG. The loans made by ALG to us bear interest at a
fixed rate of 12% per annum and have identical terms (other than the interest
rate), and mature on the original maturity date of the loans set forth
below.
We
had an
outstanding principal balance of $3,000,000, under another secured revolving
credit facility with Stanford, prior to August 13, 2007, which previously
accrued interest at a fixed rate of 8% per annum and was to mature on January
1,
2008, but was extended pursuant to the March 2007 Note Modification Agreement
to
the earlier of (a) a public offering by us, or any company that acquires a
majority of any class of stock or assets of us, which raises no less than
$100,000,000; or (b) August 1, 2008 (the “New Maturity Date”), with any accrued
and unpaid interest payable on such New Maturity Date. At the sole election
of
the lender, any amount outstanding under the credit facility could be converted
into shares of our common stock at a conversion price of $10.00 per share.
On or
about August 13, 2007, this loan was repaid by ALG. It is anticipated
that the amount repaid by ALG (including the principal amount of such loan
and
accrued and unpaid interest on such loan amount) will be memorialized by a
Promissory Note payable to ALG,
under
the
same terms and conditions as the original note, other than an interest rate
of
12% per annum. However no Promissory Note or other repayment agreements or
loan
documentation has been finalized or executed to date. As such, the
terms and conditions of the ALG loan are subject to change prior to the
execution of documentation evidencing such loan.
We
had a
total principal balance of $1,355,000 outstanding under our secured revolving
credit facility with Stanford, as of August 13, 2007, which previously accrued
interest at a fixed rate of 8% per annum and was to mature on January 1, 2008,
but which was subsequently extended pursuant to the March 2007 Note Modification
Agreement to the New Maturity Date. At the sole election of the lender, any
amount outstanding under the credit facility could be converted into shares
of
our common stock at a conversion price of $10.00 per share. On or
about August 13, 2007, this loan was repaid by ALG. It is anticipated
that the amount repaid by ALG (including the principal amount of such loan
and
accrued and unpaid interest on such loan amount) will be memorialized by a
Promissory Note payable to ALG, under the same terms and conditions as the
original note, other than an interest rate of 12% per annum. However, no
Promissory Note or other repayment agreements or loan documentation has been
finalized or executed to date. As such, the terms and conditions of
the ALG loan are subject to change prior to the execution of documentation
evidencing such loan.
We
had
another credit facility in the amount of $305,000 with Stanford as of August
13,
2007. The credit facility accrued interest at 8.0% per annum and was secured
by
the assets and stock of the Company. The credit facility was due on January
1,
2008 but was subsequently extended pursuant to the March 2007 Note Modification
Agreement to the New Maturity Date. On or about August 13, 2007, this loan
was
repaid by ALG. It is anticipated that the amount repaid by ALG
(including the principal amount of the such loan and accrued and unpaid interest
on such loan amount) will be memorialized by a Promissory Note payable to ALG,
under the same terms and conditions as the original note, other than an interest
rate of 12% per annum. However, no Promissory Note or other repayment agreements
or loan documentation has been finalized or executed to date. As
such, the terms and conditions of the ALG loan are subject to change prior
to
the execution of documentation evidencing such loan.
On
March
13, 2007, we entered into a $10,000,000 Credit Agreement with SIBL, whereby
SIBL
agreed to loan us $10,000,000 to use for the construction and development of
Phase 2 of the Sonesta Resort. The loan was evidenced by a $10,000,000
Promissory Note, which accrued interest at the rate of 10% per annum. The
Promissory Note was secured by a second priority security interest and lien
on
the land underlying Phase 2 of the Sonesta Resort, all buildings, structures
and
other improvements on such land, and all fixtures, equipment, goods, inventory
or property owned by us currently or in the future, which security interests
were evidenced by a Mortgage and Security Agreement, which we and several of
our
wholly owned subsidiaries entered into with SIBL in connection with the Credit
Agreement. The loan was due in full and payable along with any accrued and
unpaid interest on March 13, 2008. On or about August 13, 2007, this loan was
repaid by ALG. It is anticipated that the amount repaid by ALG
(including the principal amount of the such loan and accrued and unpaid interest
on such loan amount) will be memorialized by a Promissory Note payable to ALG,
under the same terms and conditions as the original note, other than an interest
rate of 12% per annum. However, no Promissory Note or other repayment agreements
or loan documentation have been finalized or executed to date. As
such, the terms and conditions of the ALG loan are subject to change prior
to
the execution of documentation evidencing such loan.
The
SIBL Credit Agreement is personally guaranteed by our Chief Executive Officer
and Chairman, Malcolm J. Wright, who will earn a fee of warrants to purchase
shares of our common stock equal to 3% of such guaranteed indebtedness at an
exercise price of $1.02 per share, in connection with the debt guarantor
agreement we have in place with Mr. Wright. The warrants were assigned to ALG
on
August 13, 2007 in connection with the Share Purchase Agreements described
above.
The
Credit Agreement provided a provision whereby, in order to induce SIBL to enter
into the Credit Agreement, we agreed to issue SIBL (or its assigns) warrants
to
purchase up to 350,000 shares of our common stock at $1.02 per share, with
a
cashless exercise provision on a pro-rata basis in connection with
advances
under the Credit Agreement. The warrants were assigned to ALG on August 13,
2007
in connection with the Share Purchase Agreements described
above.
We
previously issued SIBL 350,000 warrants pursuant to the Credit Agreement in
connection with the receipt of an aggregate of $10,000,000 in funds. The
warrants were assigned to ALG on August 13, 2007 in connection with the Share
Purchase Agreements described above.
All
of
our credit facilities with SIBL contain customary covenants and restrictions,
including covenants that prohibit us from incurring certain types of
indebtedness, paying dividends and making specified distributions. Failure
to
comply with these covenants and restrictions would constitute an event of
default under our credit facilities, notwithstanding our ability to meet our
debt service obligations. Upon the occurrence of an event of default, the lender
may convert the debt to the Company's common stock, accelerate amounts due
under
the applicable credit facility, and may foreclose on collateral and/or seek
payment from a guarantor of the credit facility. As of the filing of this
report, we believe we are in compliance with the covenants and other
restrictions applicable to us under each credit facility.
On
April
23, 2007, we entered into a $10,000,000 Credit Agreement with Resorts Funding
Group, LLC, whose managing partner is Malcolm J. Wright, our Chief Executive
Officer and Chairman, who does not have an ownership interest in such entity
(“Resorts Funding”), on substantially similar terms to the SIBL Credit
Agreement, described above, whereby Resorts Funding agreed to loan us
$10,000,000 to use for the construction and development of Phase 2 of the
Sonesta Resort. The loan was evidenced by a $10,000,000 Promissory Note, which
accrued interest at the rate of 10% per annum. The Promissory Note was secured
by a second priority security interest and lien on the land underlying Phase
2
of the Sonesta Resort, all buildings, structures and other improvements on
such
land, and all fixtures, equipment, goods, inventory or property owned by us
currently or in the future, which security interests are evidenced by a Mortgage
and Security Agreement, which we and several of our wholly owned subsidiaries
entered into with Resorts Funding in connection with the Credit Agreement.
The
loan was due in full and payable along with any accrued and unpaid interest
on
March 13, 2008. Any amounts not paid when due under the loan were to bear
interest at the rate of 15% per annum. On or about August 13, 2007, this loan
was repaid by ALG. It is anticipated that the amount repaid by ALG
(including the principal amount of the such loan and accrued and unpaid interest
on such loan amount) will be memorialized by a Promissory Note payable to ALG,
under the same terms and conditions as the original note, other than an interest
rate of 12% per annum. However, no Promissory Note or other repayment agreements
or loan documentation has been finalized or executed to date. As
such, the terms and conditions of the ALG loan are subject to change prior
to
the execution of documentation evidencing such loan.
The
Credit Agreement provided a provision whereby, in order to induce Resorts
Funding to enter into the Credit Agreement, we agreed to issue Resorts Funding
(or its assigns) warrants to purchase up to 350,000 shares of our common stock
at $1.02 per share, with a cashless exercise provision on a pro-rata basis
in
connection with advances under the Credit Agreement The warrants were assigned
to ALG on August 13, 2007 in connection with the Share Purchase Agreements
described above.
We
also
agreed, pursuant to the Credit Agreement with Resorts Funding, that we would
pay
Resorts Funding an exit fee upon the repayment of the amounts owed to Resorts
Funding of $200,000.
We
previously issued Resorts Funding Group, LLC 350,000 warrants pursuant to the
Credit Agreement in connection with the receipt of an aggregate of $10,000,000
in funds. The warrants were assigned to ALG on August 13, 2007 in connection
with the Share Purchase Agreements described above.
During
April we drew a total of $5,810,000 on the Resorts Funding Group LLC credit
facility and $5,900,000 on the SIBL credit facility, respectively granted
Resorts Funding Group LLC 262,500 additional warrants and SIBL 262,500
additional warrants based on the amounts loaned. The warrants were assigned
to
ALG on August 13, 2007 in connection with the Share Purchase Agreements
described above.
Our
subsidiary Hickory Travel Systems, Inc. owes $250,000 to Sabre, Inc. ("Sabre"),
which final payment of $250,000 on such amount was due December 31, 2003. The
amount originally accrued interest at 8% per annum and is secured by the
personal guaranty of L. William Chiles who is a Director of the Company.
Interest has not been paid or accrued on this amount since December 31, 2003,
as
there is no interest penalty or default rate applicable to the final unpaid
payment. Sabre has not requested the final payment of $250,000 of the amount
due
from Hickory to date.
Additionally,
Hickory has a $375,900 loan through the U.S. Small Business Administration
("SBA") of which $354,525 had been drawn as of September 30, 2007. The SBA
loan
is due by May 2033 and bears interest at 4% per annum with principal and
interest payments of approximately $1,862 due monthly from May 2005 until May
2033. The SBA note is secured by Hickory's assets and the personal guaranty
of
L. William Chiles, who is our Director.
In
connection with the exercise of the Reedy Creek Option, Reedy Creek Acquisition
Company and SIBL agreed to modify the terms of the SIBL Reedy Creek Loan made
by
SIBL to Reedy Creek Acquisition Company. The modified loan terms are evidenced
by a Renewed, Amended and Increased Promissory Note (the "Amended Note") made
by
Reedy Creek Acquisition Company in favor of SIBL. The Amended Note had a
principal balance of $8,000,000, bears interest at the rate of 8% per year
and
had a maturity date of December 31, 2006, but has since been extended as
provided below. The Amended Note was replaced in November 2006, by a Renewed,
Amended and Increased Promissory Note in the amount of $12,200,000 (the "RC
Note"), which was in turn replaced by an additional amendment, which increased
the amount of the note to $13,420,000, and a fourth amendment in January 2007,
which increased the amount of the note to $15,300,000, in connection with a
$1,880,000 advance received from Reedy Creek (the “Amended RC Note”). The
Amended RC Note was due and payable on June 30, 2007, with $8,000,000 of the
Amended RC Note bearing interest at the rate of 8% per annum and the remaining
$7,300,000 bearing interest at the rate of 12% per annum; however, the maturity
date of the Amended RC Note was subsequently extended pursuant to the March
2007
Note Modification Agreement to the New Maturity Date, as defined
above. On or about August 13, 2007, this loan was repaid by
ALG. It is anticipated that the amount repaid by ALG (including the
principal amount of the such loan and accrued and unpaid interest on such loan
amount) will be memorialized by a Promissory Note payable to ALG, under the
same
terms and conditions as the original note, other than an interest rate of 12%
per annum. However, no Promissory Note or other repayment agreements or loan
documentation have been finalized or executed to date. As such, the
terms and conditions of the ALG loan are subject to change prior to the
execution of documentation evidencing such loan.
In
connection with the exercise of the Reedy Creek Option, the Company and Reedy
Creek Acquisition Company arranged to receive a $7,000,000 loan from Bankers
Credit Corporation ("Bankers Credit"). Under the terms of the Bankers Credit
loan, Bankers Credit advanced Reedy Creek Acquisition Company $3,000,000 at
closing and an additional $4,000,000 subsequent to the date of closing, for
an
aggregate of $7,000,000.
The
Bankers Credit loan is evidenced by a Promissory Note which previously accrued
interest at the greater of the Wall Street Journal published prime rate plus
7.75%, not to exceed the highest rate allowable under Florida law or 15% per
year. The interest rate of the note as of the date of this filing was 15.25%
(with a prime rate, as reported by the Wall Street Journal of 7.5%). In February
2007, we entered into an Amended and Restated Promissory Note with Bankers
Credit, which increased the amount of the note to $7,860,000 in connection
with
an $860,000 advance and extended the due date of the note from January 3, 2007
to February 1, 2008, and decreased the interest rate to the greater of prime
rate plus 6.75% or 15%, which is equal to 14.25% as of the date of this filing
(the "Bankers Credit Note").
Interest
on the Bankers Credit Note is payable monthly. Pursuant to the Bankers Credit
Note, Reedy Creek Acquisition Company agreed to pay a 10% late charge on any
amount of unpaid principal or interest under the Bankers Credit Note. The
Bankers Credit Note is subject to a 1% exit fee. Upon an event of default as
described in the Bankers Credit Note, Bankers Credit has several rights and
remedies, including causing the Bankers Credit Note to be immediately due and
payable.
The
Bankers Credit Note is secured by a first lien on the Reedy Creek Property.
Additionally, the Bankers Credit Note is guaranteed by the Company and Malcolm
J. Wright, the Company's Chief Executive Officer and Chairman pursuant to a
Guaranty Agreement.
Reedy
Creek Acquisition Company utilized the initial proceeds from the Bankers Credit
loan to pay a portion of the amount owed on the existing first mortgage note
issued to the sellers of the Reedy Creek Property. The holder of this mortgage
agreed to release the mortgage in exchange for this payment.
In
August
2006, we received an aggregate of $5,714,569 in loans from West Villas, Inc.,
Orlando Tennis Village, Inc. and Maingate Towers, Inc., entities controlled
by
Roger Maddock, a significant shareholder of the Company. The loans bear interest
at the rate of 16% per annum until paid and are due and payable one year from
the date such loans were made. The loan has been repaid as of September 30,
2007.
On
December 22, 2006 the Company acquired 100% of South Beach Resorts, LLC (“SBR”
or “Resorts”) for $1,120,000 plus 25% participation interest granted to Stanford
International Bank Limited in the net proceeds realized by SBR upon the
disposition of its Boulevard Hotel property located in Miami Beach, Florida.
We
also entered into a note with Roger Maddock a significant shareholder of us,
to
evidence $3,590,811 in loans and advances Mr. Maddock had previously made to
Resorts (the "Maddock Note").
On
January 11, 2007, Resorts, our wholly owned subsidiary defaulted on a loan
due
to Marathon Structured Finance Fund L.P. ("Marathon"). The loan principal is
$7,498,900 and accrued interest of $79,910 was due at January 11, 2007. Marathon
has a mortgage interest on the Property in connection with the loan. A
Forbearance Agreement was subsequently executed with Marathon to waive the
default until April 11, 2007, provided SBR continued to make monthly interest
payments on the debt outstanding and a principal payment of $750,000 was made
on
February 8, 2007, which payment and monthly payments have been made to date,
and
which forbearance was subsequently extended to July 11, 2007, and to May 11,
2008, pursuant to the terms of the Forbearance Agreements.
On
or
around July 11, 2007, we entered into the First Amendment to Forbearance
Agreement with LaSalle, whereby LaSalle agreed to extend the terms of the
Forbearance Agreement until 5:00 P.M. on October 11, 2007, assuming that we
continue to make the required payments of interest on the loan, and no event
of
default occurs under the loan. Additionally, pursuant to the terms of the First
Amendment to the Forbearance Agreement, we paid all accrued interest due under
the loan in connection with our entry into such agreement, totaling
approximately $64,442, with $6,248,900 of outstanding principal due under the
loan as of July 11, 2007; $500,000 which was paid as a principal reduction
in
connection with the extension of the note; LaSalle’s reasonable attorneys fees
in connection with the First Amendment to the Forbearance Agreement; and an
additional fee of $50,000 in connection with the extension to
LaSalle.
Effective
October 12, 1007, we entered into the Second Amendment to Forbearance Agreement
with LaSalle, whereby LaSalle agreed to extend the terms of the Forbearance
Agreement until 5:00 P.M. on May 11, 2008, assuming that we continue to make
the
required payments of interest on the loan, and no event of default occurs
under
the loan. Additionally, pursuant to the terms of the Second Amendment to
the
Forbearance Agreement, we paid all accrued interest due under the loan in
connection with our entry into such agreement, totaling approximately $425,180,
with $6,248,900 of outstanding principal due under the loan as of October
12,
2007. The Second Amendment to Forbearance Agreement also gives us the right to
extend the maturity date of the note to July 11, 2008, in the event that
no
event of default has occurred under the note, and that we make an additional
$1,000,000 payment of principal on the note prior to May 11, 2008.
The
Marathon loan bears interest at the rate of the greater of (a) ten percent
(10%)
or (b) the London Interbank Offered Rate (LIBOR) plus seven percent (7%). The
note also required a $180,000 exit fee to be paid at the time the loan was
repaid, which amount has not been paid to date. Marathon may also require us
to
pay a 5% late payment fee in connection with our failure to repay the loan
amount. We are required to pay the default rate of interest on the Marathon
loan
while obtaining a replacement loan. The default rate of interest is LIBOR plus
twelve percent (12%), which was equal to approximately 16.63%, with the LIBOR
at
4.63% as of September 30, 2007.
On
January 30, 2007, AMLH entered into a promissory note with Applebee Holding
Company in the amount of $150,000 at 4% for seven years. As part of the
agreement, 2,840 shares of AMLH Series E Convertible Preferred Stock were issued
bearing a 4% per annum cumulative preferred dividend rate, par value of $.001
and convertible into AMLH common stock at a strike price of $15.00 per
share. The shares of Series E Convertible Preferred Stock were
subsequently purchased by ALG on August 13, 2007 in connection with the Share
Purchase Agreements described above.
On
February 9, 2007, SBR entered into a 180 day, $750,000 loan agreement at the
Wall Street Journal prime rate plus 1%, currently equal to 9.25%, with the
prime
rate at 8.25% as of the filing of this report, with International Property
Investors AG, a corporation organized under the laws of Liechtenstein, secured
by SBR’s property. The proceeds of the loan were used solely for the payment of
fees owed by SBR to Marathon pursuant to the Forbearance
Agreement. On or about August 13, 2007, the amount of principal and
accrued and unpaid interest then owed under the SBR loan described above, was
repaid by ALG. It is anticipated that the amount repaid by ALG will
be memorialized by a Promissory Note payable to ALG, under the same terms and
conditions as the original loan, but with an interest rate of 12% per annum.
However, no Promissory Notes or other repayment agreements or loan documentation
have been finalized or executed to date. As such, the terms and
conditions of the ALG loan are subject to change prior to the execution of
documentation evidencing such loan.
On
April
20, 2007, certain of our wholly owned subsidiaries which are engaged in the
construction and development of the Sonesta Resort, including Costa Blanca
Real
Estate II, LLC, Costa Blanca III Real Estate, LLC, TDS Town Homes (Phase 1),
LLC, and TDS Town Homes (Phase 2), LLC (the “Borrowers”), entered into a Loan
and Security Agreement with Kennedy Funding, Inc. as agent for certain lenders
(collectively “Kennedy” and the “Loan Agreement”). Pursuant to the Loan
Agreement, Kennedy agreed to make a loan to the Borrowers of up to $24,900,000.
The Loan Agreement provides that the Borrowers will receive an advance equal
to
$22,000,000 for repayment of an existing loan, closing costs and fees, and
construction of the Sonesta Resort; additionally, another $2,900,000 will be
held back from the initial loan funds and will be disbursed to the Borrowers
from time to time to construct one of the swimming pools in the Sonesta Resort,
subject to the Borrowers complying with the representations and warranties
described in the Loan Agreement, and subject to the loan to value ratio of
amounts loaned by Kennedy, in connection with the Sonesta Resort not exceeding
60%. Additionally, approximately $1,786,000 of the amount loaned by Kennedy
was
immediately paid by the Borrowers in connection with closing costs and to pay
Kennedy’s commitment and loan fees, and an additional $2,196,000 of the amount
loaned was paid to Kennedy as an interest reserve, which amount is to be
credited against the amount of monthly interest due under the loan, as such
interest payments become due and payable, as described below. We used
approximately $15,285,000 of the funds raised through the Loan Agreement to
repay all amounts owed under and to satisfy our Land Loan with KeyBank, National
Association, which we entered into in December 2005, and plan to use the
remaining funds received by the Borrowers from the Loan Agreement to continue
the construction of the Sonesta Resort. Events of default under the Loan
Agreement include, among other things, if one or more judgments are entered
against any Borrower or guarantor of the Loan Agreement, in excess of $25,000,
which are not fully paid or covered by insurance, and which have not been
discharged, stayed or bonded pending appeal within ninety days of the entry
thereof.
In
connection with the Loan Agreement, the Borrowers provided Kennedy a Promissory
Note in the amount of $24,900,000 (the “Kennedy Note”). The Kennedy Note, and
any accrued and unpaid interest is due and payable on April 20, 2010. The
Kennedy Note does not contain a pre-payment penalty The Kennedy Note bears
interest at varying rates of interest over the course of the note term, which
interest is due and payable monthly, in arrears, including:
|
(a)
|
12%
per annum for the first month that the Kennedy Note is
outstanding;
|
|
(b)
|
The
greater of 12% or the Prime Rate then in effect plus 3 and 3/4% per
annum
during the period from May 2007 through April 2008;
|
|
(c)
|
The
greater of 16% or the Prime Rate then in effect plus 7 and 3/4% per
annum
during the period from May 2008 through April 2009; and
|
|
(d)
|
The
greater of 18% or the Prime Rate then in effect plus 9 and 3/4% per
annum
during the period from May 2009, through the maturity date of the
Kennedy
Note.
|
Any
amounts not paid under the Kennedy Note when due bear interest at the rate
of
24% per annum until paid in full.
The
outstanding balance of the Kennedy Note was secured by a security interest
granted to Kennedy by the Borrowers in substantially all of their personal
property and assets. As additional security, American Leisure Holdings, Inc.,
TDS Amenities, Inc., a Florida corporation, which is owned by Tierra del Sol
Resort,
Inc., and Malcolm J. Wright, our Chief Executive Officer and Chairman entered
into a Guaranty Agreement in favor of Kennedy, which guaranteed the repayment
of
the Kennedy Note. Furthermore, the Borrowers agreed to assign their rights
to
various of our licenses, leases, permits and approvals to Kennedy to secure
the
repayment of the Kennedy Note and in connection with the security agreement
provided to Kennedy.
In
addition to guarantying the repayment of the Kennedy Note, the Borrowers and
TDS
Amenities, Inc. granted Kennedy a Mortgage Agreement encumbering approximately
38 acres of property in our Sonesta Resort which the Borrowers own, to secure
the repayment of the Kennedy Note. American Leisure Holdings, Inc. the
Borrowers, and Mr. Wright also guarantied that all of the property secured
by
the Mortgage Agreement fully complies with all environmental laws and agreed
to
indemnify Kennedy against any damages in connection with the violation of any
environmental hazardous waste disposal laws or regulations.
On
June
26, 2007, Kennedy and the Borrowers entered into a First Amendment to Loan
and
Security Agreement and Other Loan Documents (the “First Amendment to Loan”) in
connection with the Loan Agreement, whereby the parties agreed to add as an
event of default under the Loan Agreement, a default under the Second Kennedy
Note (as defined below); agreed that the amount secured by the Kennedy Note
would be cross collateralized with the Second Kennedy Note, and that any default
under the Second Kennedy Note of the Second Kennedy Agreements (as defined
below), would constitute an event of default under the Loan Agreement, as
amended. The First Amendment to the Loan also provided that Kennedy has the
right to assign the Kennedy Note; that Kennedy is required to consent to any
amendment of the Kennedy Note, or related documents entered into in connection
with the Kennedy Loan Agreement (the “Kennedy Agreements”), and/or consent to
any release of collateral secured by the Kennedy Loan; that Kennedy is able
to
advertise the fact that it made a loan to us, and/or erect signs on our
properties publicizing Kennedy’s role in our funding, with our consent, which
will not be unreasonable withheld; changed the prepayment requirements related
to the Borrower’s prepayment of the Kennedy Note; and provided Kennedy a
security interest in any and all deposits received by the Borrowers in
connection with the purchase of any of our condominiums and/or townhouses on
the
Mortgaged Property, among other things (the “Amendments”).
We
also
entered into a First Amendment to Mortgage and Security Agreement and an Amended
and Restated Promissory Note with Kennedy to confirm and reflect the Amendments.
Additionally, we entered into a Reaffirmation of Guaranty, to reaffirm our
previous guaranty of, and security interest granted in connection with the
Kennedy Note and the Kennedy Agreements as amended.
On
or
about March 28, 2007, we obtained a Letter of Credit from First Commercial
Bank
of Florida (“First Commercial”) in the amount of $991,217.05, which amount has
been loaned to us in full by First Commercial, which amount bears interest
at
the Prime Rate plus 1.5% per annum, currently equal to 9.0%, with the Prime
Rate
at 7.5% as of the filing of this report. Interest on the Line of Credit is
payable monthly in arrears. The amount due under the Line of Credit is due
and
payable, along with any accrued and unpaid interest on March 28, 2008. The
Line
of Credit is secured by a mortgage and security interest on certain property
in
the Sonesta Resort. The closing costs associated with the Line of Credit totaled
approximately $25,000. The Letter of Credit is secured by certain of our wholly
owned subsidiaries, and Malcolm J. Wright, our Chief Executive Officer and
Chairman.
On
June
26, 2007, Costa Blanca I Real Estate, LLC, a wholly owned subsidiary of our
wholly owned subsidiary, Tierra Del Sol Resort (Phase 1), Ltd. (“Costa Blanca”),
entered into a Loan and Security Agreement and related agreements (the “Second
Kennedy Agreements”) with Kennedy, whereby Kennedy agreed to loan Costa Blanca
$4,450,000 (the “Second Loan Agreement”). In connection with the Second Loan
Agreement, Costa Blanca provided Kennedy a Promissory Note in the amount of
$4,450,000 (the “Second Kennedy Note”). The Second Kennedy Note, and any accrued
and unpaid interest is due and payable on June 25, 2010. The Second Kennedy
Note
does not contain a pre-payment penalty. The Second Kennedy Note bears interest
at varying rates of interest over the course of the note term, which interest
is
due and payable monthly, in arrears, including:
|
(a)
|
12%
per annum for the first month that the Second Kennedy Note is
outstanding;
|
|
(b)
|
The
greater of 12% or the Prime Rate then in effect plus 3 and 3/4% per
annum
during the period from July 2007 through June 2008;
|
|
(c)
|
The
greater of 16% or the Prime Rate then in effect plus 7 and 3/4% per
annum
during the period from July 2008 through June 2009;
and
|
|
(d)
|
The
greater of 18% or the Prime Rate then in effect plus 9 and 3/4% per
annum
during the period from July 2009, through the maturity date of the
Second
Kennedy Note.
|
Any
amounts not paid under the Second Kennedy Note when due bear interest at the
rate of 24% per annum until paid in full. Additionally, any payment of interest
not paid within five (5) days of the date it is due is charged a one-time
penalty equal to the lesser of: (i) ten percent (10%) of such payment or (ii)
the maximum amount permitted by law.
The
$3,950,000 initial advance under the Second Kennedy Note, which was advanced
on
or around June 26, 2007, included $464,000 which was paid to Kennedy as a
closing fee; $445,000 which is to be credited against interest payments due
under the Second Kennedy Note; and approximately $178,000 in closing costs,
brokers fees and legal fees in connection with the loan. The remaining $500,000
in loan funds was held back from the initial advance, and will be disbursed
to
Costa Blanca from time to time to construct one of the swimming pools in the
Sonesta Resort, subject to the Borrowers complying with the representations
and
warranties described in the Second Loan Agreement, and subject to the
loan-to-value ratio of amounts loaned by Kennedy, not exceeding 60% of the
then
value of the Sonesta Resort. Additionally, Costa Blanca agreed to pay all of
Kennedy’s out of pocket expenses incurred in connection with the Second Kennedy
Note and funding. The net proceeds of loan are being utilized by Costa Blanca
for construction costs and working capital associated with the Sonesta
Resort.
The
Second Loan Agreement provided that Costa Blanca can not create, incur or suffer
any indebtedness other than the Kennedy Note and the Second Kennedy Note, other
than up to $25,000,000 in additional loans which may be obtained from Stanford
International Bank Limited and/or Resorts Funding Group, LLC, which shall be
subordinate to the Second Kennedy Note and security interests granted
therewith.
Additionally,
assuming that no Event of Default has occurred under the Second Kennedy Note,
in
the event that Costa Blanca or any of the Borrowers repays an amount equal
to at
least $16,000,000 of the amount due under the Kennedy Note and Second Kennedy
Note by the six (6) month anniversary of the Second Loan Agreement closing
date,
the Borrowers will receive a credit of $150,000 against the amount then owed.
Similarly, in the event that Costa Blanca or the Borrowers repays $18,000,000
of
the amount due within the six (6) month anniversary of the Second Loan Agreement
closing date, they will receive a credit of $200,000 against amounts then owed.
Finally, assuming that the terms and conditions of the Second Kennedy Note
are
complied with in full, and no Event of Default has occurred, Costa Blanca will
receive a refund of $50,000 of the prepaid interest held on the Second Kennedy
Note.
The
outstanding balance of the Second Kennedy Note was secured by a security
interest granted to Kennedy by Costa Blanca in substantially all of its personal
property and assets, including certain real property in Polk County, Florida,
pursuant to the parties’ entry into a Mortgage and Security Agreement. As
additional security, American Leisure Holdings, Inc., TDS Amenities, Inc.,
a
Florida corporation, which is owned by Tierra del Sol Resort, Inc., and Malcolm
J. Wright, our Chief Executive Officer and Chairman, entered into a Guaranty
Agreement in favor of Kennedy, which guaranteed the repayment of the Second
Kennedy Note. Furthermore, Costa Blanca agreed to assign its rights to several
of its licenses, leases, permits and approvals to Kennedy to secure the
repayment of the Second Kennedy Note.
Central
Florida Note
On
or
around June 29, 2007, TDS Amenities, Inc. and TDS Town Homes (Phase 2), LLC
(collectively “TDS”), two of our wholly owned subsidiaries issued Central
Florida Ventures, L.L.C. a Promissory Note (the “Central Florida Note”) in the
amount of $4,000,000 in connection with a $4,000,000 loan made to
TDS.
The
Central Florida Note is due and payable on June 29, 2008, and any amount
outstanding on the Central Florida Note bears interest at the rate of thirteen
percent (13%) per annum, compounded monthly until paid in full on the maturity
date. Any amount not paid on the Central Florida Note when due is subject to
a
“late charge” of 5% of such unpaid amount. TDS is able to repay all or any
portion of the Central Florida Note at any time without penalty. In the event
the Central Florida Note is not paid in full when due, any amounts then
outstanding will bear interest at the highest rate allowable by Florida
law.
In
July
2007, an additional $1,000,000 was advanced by Central Florida pursuant to
Central Florida Note described above.
While
we
currently believe we have sufficient funds to continue our business plan,
because we have decided not to move forward with the KeyBank Construction Loan,
we will need to find alternative financing for the construction of Phase 1
of
the Sonesta Resort, of which there can be no assurance. We have
raised the required funding to continue the planned construction of Phase 1
of
the Sonesta Resort in connection with the Admission and related transactions
described above (the “BVI Transaction.
Additionally,
we have established a relationship with GMAC Bank, through Millennium Capital
Mortgage, to provide construction financing to the individual purchasers of
the
Sonesta Resort town homes, which funding we believe will enable all town homes
and amenities at Tierra del Sol to be built through this program. Assuming
we
are able to enter into a subsequent funding arrangement, we believe that we
will
have sufficient funds to provide for the completion of Phase 1, assuming there
are no material cost overruns, delays or further increases in material costs.
Phase 2 will be financed separately.
However,
even if we are able to secure sufficient financing for the construction of
Phase
1 of the Sonesta Resort, moving forward, our growth and continued operations
may
be impaired by limitations on our access to the capital markets. In the event
that our current anticipated costs of developing the Sonesta Resort and/or
the
Reedy Creek Property, are more than we anticipate, and/or our other travel
service operations do not continue to generate revenue at their current levels,
we may not have sufficient funds to complete such construction projects and/or
repay amounts owed on the notes payable described above. As a result, we may
be
forced to reduce our annual construction goals and maintain our operations
at
current levels, and/or scale back our operations which could have a material
adverse impact upon our ability to pursue our business plan and/or the value
or
common stock. There can be no assurance that capital from outside sources will
be available, or if such financing is available, that it will not involve
issuing additional securities senior to our common stock or equity financings
which are dilutive to holders of our common stock.
While
our
common stock currently trades on the Over-The-Counter Bulletin Board in the
United States and, as disclosed above, we are currently majority owned by ALG,
which trades its stock on the AIM alternative market in London,
England. Moving forward, we may take steps to cease the trading of
our common stock on the Over-The-Counter Bulletin Board, of which there can
be
no assurance and/or we may take steps to go private in the future, of which
there can be no assurance.
Off-Balance
Sheet Arrangements
We
do not
have any off balance sheet arrangements that have or are reasonably likely
to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources that is material to investors.
RISK
FACTORS
RISKS
RELATING TO OUR CAPITAL AND LIQUIDITY NEEDS
WE
HAVE A LIMITED HISTORY OF OPERATIONS AND WE HAVE A HISTORY OF OPERATING
LOSSES.
Since
our
inception, we have been assembling our Travel Division including the acquisition
of Hickory in October 2003 and TraveLeaders in December 2004, planning The
Sonesta Orlando Resort at Tierra Del Sol, building travel club membership
databases, and assembling our management team. We have incurred net operating
losses since our inception. As September 30, 2007, we had an accumulated deficit
of $28,177,502 and negative working capital of $25,749,359. If we are
unable to obtain profitable operations and/or meeting our current liabilities,
we could be forced to curtail or abandon our operations, which could cause any
investment in the Company to become worthless.
WE
MAY CHOOSE TO GO PRIVATE IN THE FUTURE AND/OR CEASE OUR PUBLIC FILINGS, WHICH
COULD CAUSE YOU TO LOSE ALL LIQUIDITY IN YOUR INVESTMENT, AND/OR COULD CAUSE
ANY
INVESTMENT IN THE COMPANY TO BECOME WORTHLESS.
We
are
currently in discussions with ALG and our senior management regarding taking
the
Company private through a merger transaction with ALG, a tender offer, a reverse
merger with a separate company, or otherwise. Additionally, the
Company may file a Form 15 in the future, which if approved by the Commission,
will suspend its periodic and current report filing obligations with the
Commission. In the event that ALG and our management decides to take the Company
private, any investors in the Company could be forced to be bought out or
receive shares of ALG in return for their shares of the Company or in the event
of a reverse merger, could own shares in a company with operations which may
be
completely different, more risky and have less assets and/or revenues than
the
Company. The shares they receive of ALG, in any merger transaction,
if any, may not have an equivalent value to their shares of the Company, and/or
may have diminished liquidity. In the event that we decide to go
private and/or file a Form 15 to suspend our reporting obligations with the
Commission, any investment in the Company could be lost, exchanged for shares
of
ALG, which may have a lesser value than our shares, and/or may have no value
or
liquidity, and investors should keep in mind that the Company is currently
discussing potential steps to go private. Due to ALG’s high
concentration of ownership, as described below, investors will have little
to no
say in whether the Company goes private (or files a Form 15 and suspends its
filing obligations) and/or in the value of ALG shares or other consideration
that shareholders of the Company receive in consideration for their shares
of
the Company, if any.
WE
MAY NOT GENERATE ENOUGH OPERATING REVENUE OR CAPITAL TO MEET OUR OPERATING
AND
DEVELOPMENT COSTS.
Our
costs
of establishing our business models for both the Travel Division and the Resort
Development Division, including acquisitions and the due diligence costs of
that
process, together with the un-financed development costs incurred in the Resort
Development Division require significant capital. Historically, our sources
for
capital have been through loans from our founding and majority shareholders
as
well as from loans from our capital partner, Stanford, and loans from our parent
company, ALG. On December 29, 2005, certain affiliates of the Company closed
two
(2) credit facilities with Key Bank related to the Sonesta Resort. The credit
facilities consisted of a $40,000,000 revolving construction loan which we
planned to use to construct Phase 1 of the Sonesta Resort (the "Construction
Loan"), but which we have subsequently elected not to open and a $14,850,000
term loan used to finance the acquisition of the property for the Resort and
to
pay certain related costs (the "Land Loan"), which was repaid in full in April
2007. As of September 30, 2007, we had received approximately $21,115,400 for
funding of the Sonesta Resort through our entry into the April 2007 Kennedy
funding, $3,643,,000 through our entry into the June Kennedy funding, $5,000,000
through the Central Florida and the right to up to $20,000,000 in funding
through the SIBL and Resorts Funding loans describe above, pursuant to which
we
had borrowed 20,000,000 as of September 30, 2007. Please note that
the funding of $10,000,000 through SIBL and
$10,000,000
through Resorts Funding have been repaid by ALG, and are now due ALG, on the
original terms of the such loans, bearing interest at the rate of 12% per annum,
until paid by us.
If
we are
unable to generate enough operating revenue to satisfy our capital needs, or
if
we cannot obtain future capital from our founding and majority shareholders
or
from Stanford or ALG, and/or if we are not able to repay the Kennedy Note or
any
other of our upcoming liabilities, including our outstanding loans with ALG,
which are described in greater detail herein, it will have a material adverse
effect on our financial condition and results of operation.
A
SIGNIFICANT AMOUNT OF OUR LIABILITIES ARE CURRENT LIABILITIES WHICH ARE DUE
WITHIN THE NEXT TWELVE MONTHS, AND WHICH WE DO NOT CURRENTLY HAVE SUFFICIENT
CASH ON HAND TO REPAY.
As
of
September 30, 2007, we had a total of $36,575,704 in current liabilities,
representing various loan and funding arrangements described in greater detail
above, which liabilities are payable within the next twelve months. As we do
not
currently have sufficient cash on hand to repay these amounts as of the filing
of this report, we anticipate the need to raise substantial funding in the
next
six to twelve months to repay these notes, which funding, if available, could
be
on unfavorable terms and which could cause immediate and substantial dilution
to
our then existing shareholders. If we are unable to repay our substantial
current liabilities when due, we could be forced to curtail or abandon our
business operations, which could cause the value of our securities to become
worthless.
BUSINESS
ACQUISITIONS OR JOINT VENTURES MAY DISRUPT OUR BUSINESS, DILUTE SHAREHOLDER
VALUE OR DISTRACT MANAGEMENT ATTENTION.
As
part
of our business strategy, we may consider the acquisition of, or investments
in,
other businesses that offer services and technologies complementary to ours.
If
the analysis used to value acquisitions is faulty, the acquisitions could have
a
material adverse affect on our operating results and/or the price of our common
stock. Acquisitions also entail numerous risks, including:
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difficulty
in assimilating the operations, products and personnel of the acquired
business;
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potential
disruption of our ongoing business;
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unanticipated
costs associated with the
acquisition;
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inability
of management to manage the financial and strategic position of acquired
or developed services and
technologies;
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the
diversion of management's attention from our core
business;
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inability
to maintain uniform standards, controls, policies and
procedures;
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impairment
of relationships with employees and customers, which may occur as
a result
of integration of the acquired
business;
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potential
loss of key employees of acquired
organizations;
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problems
integrating the acquired business, including its information systems
and
personnel;
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unanticipated
costs that may harm operating results;
and
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risks
associated with entering an industry in which we have no (or limited)
prior experience.
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If
any of
these occur, our business, results of operations and financial condition may
be
materially adversely affected.
RISKS
RELATED TO OUR RESORT DEVELOPMENT DIVISION
WE
OWE A SIGNIFICANT AMOUNT OF MONEY TO KENNEDY FUNDING, INC., WHICH WE DO NOT
CURRENTLY HAVE FUNDS TO RE-PAY, AND WHICH LOANS INCLUDE LIENS ON OUR
PROPERTIES.
In
April
2007, we closed a $24,900,000 loan facility with Kennedy Funding, Inc.
(“Kennedy”), of which we have received $21,115,400 to date. We immediately used
approximately $15,285,000 to repay our previous Land Loan with Keybank.
Additionally, approximately $1,786,000 of the amount loaned by Kennedy was
immediately paid by the Borrowers in connection with closing costs and to pay
Kennedy’s commitment and loan fees, and an additional $2,196,000 of the amount
loaned was paid to Kennedy as an interest reserve, which amount is to be
credited against the amount of monthly interest due under the loan. The Kennedy
loan was evidenced by a Promissory Note in the amount of $24,900,000 (the
“Kennedy Note”), which is due and payable, along with any accrued and unpaid
interest on April 20, 2010. The Kennedy Note bears interest at
varying rates of interest over the course of the note term, which interest
is
due and payable monthly, in arrears, including:
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(a)
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12%
per annum for the first month that the Kennedy Note is
outstanding;
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(b)
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The
greater of 12% or the Prime Rate then in effect plus 3 and 3/4% per
annum
during the period from May 2007 through April 2008;
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(c)
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The
greater of 16% or the Prime Rate then in effect plus 7 and 3/4% per
annum
during the period from May 2008 through April 2009; and
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(d)
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The
greater of 18% or the Prime Rate then in effect plus 9 and 3/4% per
annum
during the period from May 2009, through the maturity date of the
Kennedy
Note.
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On
June
26, 2007, Costa Blanca I Real Estate, LLC, a wholly owned subsidiary of our
wholly owned subsidiary, Tierra Del Sol Resort (Phase 1), Ltd. (“Costa Blanca”),
entered into a Loan and Security Agreement and related agreements (the “Second
Kennedy Agreements”) with Kennedy, whereby Kennedy agreed to loan Costa Blanca
$4,450,000 (the “Second Loan Agreement”). In connection with the
Second Loan Agreement, Costa Blanca provided Kennedy a Promissory Note in the
amount of $4,450,000 (the “Second Kennedy Note”). The Second Kennedy Note, and
any accrued and unpaid interest is due and payable on June 25, 2010. The Second
Kennedy Note does not contain a pre-payment penalty. The Second Kennedy Note
bears interest at varying rates of interest over the course of the note term,
which interest is due and payable monthly, in arrears, including:
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(a)
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12%
per annum for the first month that the Second Kennedy Note is
outstanding;
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(b)
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The
greater of 12% or the Prime Rate then in effect plus 3 and 3/4% per
annum
during the period from July 2007 through June 2008;
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(c)
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The
greater of 16% or the Prime Rate then in effect plus 7 and 3/4% per
annum
during the period from July 2008 through June 2009;
and
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(d)
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The
greater of 18% or the Prime Rate then in effect plus 9 and 3/4% per
annum
during the period from July 2009, through the maturity date of the
Second
Kennedy Note.
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Any
amounts not paid under the Kennedy Note or Second Kennedy Note when due bear
interest at the rate of 24% per annum until paid in full.
The
outstanding balance of the Kennedy Note was secured by a security interest
granted to Kennedy by the Borrowers in substantially all of their personal
property and assets. The outstanding balance of the Second Kennedy Note was
secured by a security interest granted to Kennedy by Costa Blanca in
substantially all of its personal property and assets, including certain real
property in Polk County, Florida, pursuant to the parties’ entry into a Mortgage
and Security Agreement. As additional security, American Leisure Holdings,
Inc.,
TDS Amenities, Inc., a Florida corporation, which is owned by Tierra del Sol
Resort, Inc., and Malcolm J. Wright, our Chief Executive Officer and Chairman
entered into a Guaranty Agreement in favor of Kennedy, which guaranteed the
repayment of the Kennedy Note and the Second Kennedy Note.
Furthermore,
the Borrowers and Costa Blanca agreed to assign their rights to various of
our
licenses, leases, permits and approvals to Kennedy to secure the repayment
of
the Kennedy Note and the Second Kennedy Note and in connection with the security
agreement provided to Kennedy.
As
of the
date of this filing, we do not have sufficient funds to repay the Kennedy Note
or the Second Kennedy Note and as such, we will need to raise additional capital
prior to April 20, 2010 and June 25, 2010, respectively, to repay such notes.
If
we are unable to repay the Kennedy Note and/or the Second Kennedy Note when
due
and/or if an event of default occurs under the notes, Kennedy make take control
of and/or force us to sell substantially all of our assets to satisfy such
debt,
which could force us to curtail or abandon our business plan and would like
cause any investment in us to become worthless.
WE
NEED SIGNIFICANT ADDITIONAL FINANCE FACILITIES TO BEGIN AND COMPLETE THE
DEVELOPMENT OF PHASE 2 OF THE SONESTA RESORT AND TO BEGIN AND COMPLETE OUR
PLANNED CONSTRUCTION OF THE REEDY CREEK PROPERTY.
We
currently anticipate the need for a significant amount of funding to begin
and
complete Phase 2 of the Sonesta Resort and our planned development of the Reedy
Creek Property (as described above). Our plan for the financing of the Phase
2
town homes is to use a program from a national mortgage lender to employ
construction loans issued to each purchaser that will, upon completion, convert
to permanent, conventional mortgages. The finance plan for the Phase 2 amenities
is to employ a line of credit secured by a segment of the profits from the
sale
of the residential units. We will employ a conventional construction loan for
the condominium units. As of this date, the Company has not yet secured the
line
of credit for the amenities or the construction loan for the condominium units.
It is impossible at this time for us to estimate the cost of completing Phase
1
or Phase 2 of the Sonesta Resort and/or the development of the Reedy Creek
Property, however, based upon the size of the projects, we would anticipate
such
costs to be substantial. We will not begin the construction of Phase 2 until
we
have capitalized the construction appropriately. If we cannot obtain the
appropriate financing, we may have to delay the commencement of the construction
of Phase 2 until such time as we have adequate funding available. We may never
have sufficient capital to begin or complete the development of Phase 2 of
the
Sonesta Resort or complete Phase 1 of the Sonesta Report, which could force
us
to modify or abandon the development plan for the Sonesta Resort. Our business
plan for the development of the Reedy Creek Property is to enter into a
partnership agreement with an experienced and high credit development partner,
and as such, we do not expect to raise capital or incur debt to begin or
complete that project. At present, the Company has not yet chosen such partner
although we are in receipt of proposals from qualified developers that are
consistent with our business plan.
THE
CONSTRUCTION OF THE SONESTA RESORT IS SUBJECT TO DELAYS AND COST OVERRUNS,
WHICH
COULD CAUSE THE ESTIMATED COST OF THE RESORT TO INCREASE AND WHICH COULD CAUSE
US TO CURTAIL OR ABANDON THE CONSTRUCTION OF THE SONESTA
RESORT.
All
construction projects, especially construction projects as large as our planned
Sonesta Resort are subject to delays and cost overruns. We have experienced
very
significant cost increases and overruns since sales commenced in 2004, due
to
significant price increases in construction materials, which have been
exacerbated by the hurricanes of 2004 and 2005, as well as to a lesser extent
the threat of hurricanes in 2006 and 2007. The increased costs have impacted
construction throughout the southeastern United States and are not unique to
us.
Because of the significant cost increases, we plan to implement a program to
revise upwards the price of sold and unsold units or to cancel contracts on
units because of cost overruns. If we continue to experience substantial delays
or additional cost overruns during the construction of Phase 1 of the Sonesta
Resort and/or Phase 2, we could be forced to obtain additional financing to
complete the projects, which could be at terms worse than our then current
funding, assuming such funding is available to us at all, of which there can
be
no assurance, and could force us to curtail or abandon our current plans for
Phases 1 and 2 of the Sonesta Resort. As a result, sales of our town homes
and
condominiums could be severely effected, which could force us to curtail or
abandon our business plans and/or could make it difficult if not impossible
to
repay the significant amount of money due to Kennedy, Stanford and ALG (as
explained above), which as a result could cause the value of our securities
to
become worthless.
EXCESSIVE
CLAIMS FOR DEVELOPMENT-RELATED DEFECTS IN ANY REAL ESTATE PROPERTIES THAT WE
PLAN TO BUILD THROUGH OUR RESORT DEVELOPMENT DIVISION COULD ADVERSELY AFFECT
OUR
LIQUIDITY, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We
will
engage third-party contractors and have additionally engaged Resorts
Construction, LLC, which is 50% owned by our Chief Executive Officer and
Chairman, Malcolm J. Wright, to construct portions of our resorts. However,
our
customers may assert claims against us for construction defects or other
perceived development defects including, but not limited to, structural
integrity, the presence of mold as a result of leaks or other defects,
electrical issues, plumbing issues, or road construction, water or sewer
defects. In addition, certain state and local laws may impose liability on
property developers with respect to development defects discovered in the
future. To the extent that the contractors do not satisfy any proper claims
as
they are primarily responsible, and to the extent claims are not satisfied
by
third-party warranty coverage, claims for development-related defects could
be
brought against us. To the extent that claims brought against us are not covered
by insurance, our payment of those claims could adversely affect our liquidity,
financial condition, and results of operations.
MALCOLM
J. WRIGHT, WHO SERVES AS OUR CHIEF EXECUTIVE OFFICER AND AS CHAIRMAN OF THE
BOARD OF DIRECTORS, IS INVOLVED IN OTHER BUSINESSES THAT HAVE CONTRACTED WITH
US
AND IS ALSO INVOLVED WITH PROPERTY DEVELOPMENT PROJECTS THAT MAY BE IN
COMPETITION WITH US.
Malcolm
J. Wright is the President of American Leisure Real Estate Group, Inc., a real
estate development company with which we have contracted for the development
of
our resorts including The Sonesta Orlando Resort at Tierra Del Sol ("ALREG")
and
Reedy Creek Property. Mr. Wright has a 100% interest in ALREG. Additionally,
Mr.
Wright is an officer of Xpress Ltd., with which we have contracted for exclusive
sales and marketing for The Sonesta Orlando Resort at Tierra Del Sol and Reedy
Creek. Mr. Wright is also an officer and shareholder of Inovative Concepts,
Inc., which does not have any operations, M J Wright Productions, Inc., which
does not have any operations, but which owns our Internet domain names, Resorts
Development Group, LLC which develops resort properties in Orlando including
Bella Citta, Los Jardines Del Sol, The Preserve, Tortuga Cay and Sherberth
Development LLC, Resorts Construction, LLC with whom we have contracted to
construct part of the Sonesta Resort as described above, Resorts Concepts,
LLC
which operates a design business, and Titan Manufacturing, LLC from whom we
intend to purchase roof tiles for our developments. Additionally, Mr.
Wright serves as an officer and Director of ALG, which holds a
majority of our outstanding shares Because Mr. Wright is
employed by us and the other party to these transactions, Mr. Wright may have
profited from this transaction when we did not.
Management
believes that these transactions are in the best interest of, or not detrimental
to, the Company, and are as good or better than could be achieved, if even
possible to achieve, by contracting with a wholly unrelated party. Additionally,
the transactions were negotiated by us in a manner akin to an arms length
transaction. Additionally, from time to time, Mr. Wright pursues real estate
investment and sales ventures that may be in competition with ventures that
we
pursue or plan to pursue. Mr. Wright, however, has personally guaranteed our
debts, and has encumbered his personal assets to secure financing for the above
described projects.
BECAUSE
MALCOLM J. WRIGHT, WHO SERVES AS OUR CHIEF EXECUTIVE OFFICER AND THE CHAIRMAN
OF
THE BOARD OF DIRECTORS, IS INVOLVED IN A NUMBER OF OTHER BUSINESSES, HE MAY
NOT
BE ABLE OR WILLING TO DEVOTE A SUFFICIENT AMOUNT OF TIME TO OUR BUSINESS
OPERATIONS.
Malcolm
J. Wright is the President of ALREG, Xpress Ltd., Inovative Concepts, Inc.,
M J
Wright Productions, Inc., Resorts Development Group, LLC, Resorts Construction,
LLC, Titan Manufacturing LLC, Tortuga Cay Resort, LLC, Osceola Business
Managers, Inc., Florida World, Inc., SBR Holding LLC (a non trading holding
company which formerly held South Beach Resorts, LLC), RDG LLC, and SunGate
Resort Villas, Inc. Mr. Wright is engaged full-time as the Company's Chairman
and as a senior executive
officer.
Mr. Wright also serves as an officer and Director of ALG, which currently owns
a
majority of our outstanding stock. Although Mr. Wright has not
indicated any intention to reduce his activities on behalf of the Company,
we do
not have an employment agreement with Mr. Wright and he is under no requirement
to spend a specified amount of time on our business. If Mr. Wright does not
spend sufficient time serving our company, it could have a material adverse
effect on our business and results of operations.
WE
MAY PROVIDE THE EXECUTIVE OFFICERS OF OUR SUBSIDIARIES AN AGGREGATE BONUS OF
UP
TO 19% OF THE PRE-TAX PROFITS OF THE SUBSIDIARY IN WHICH THEY SERVE AS OUR
EXECUTIVE OFFICERS THROUGH AUGUST 13, 2007 AND 10%
OF THE
PRE-TAX PROFITS OF THE SUBSIDIARY IN WHICH THEY SERVE AS OUR EXECUTIVE OFFICERS
THEREAFTER, WHICH WOULD REDUCE ANY PROFITS THAT WE MAY
EARN.
We
may
provide the executive officers of each of our subsidiaries an aggregate bonus
of
up to 19% of the pre-tax profits, if any, of the subsidiaries in which they
serve as executive officers through August 13, 2007 and 10% of the pre-tax
profits, if any, thereafter, pursuant to the terms of a non-memorialized
agreement between our executive officers and the Company, which has not been
formally approved by the Board of Directors or memorialized to date. For
example, Malcolm J. Wright would receive 19% of the pre-tax profits of
Leisureshare International Ltd, Leisureshare International Espanola SA, American
Leisure Homes, Inc., Advantage Professional Management Group, Inc., Tierra
Del
Sol Resort, Inc., and Wright Resorts Villas & Hotels, Inc. However, we do
not have any agreements with our officers regarding the bonus other than our
agreement with L. William Chiles. Mr. Chiles is entitled to receive 19% of
the
profits of Hickory up to a maximum payment over the life of his contract of
$2,700,000. As Mr. Chiles' bonus is limited, it is not subject to the buy-out
by
us described below. The executive officers of our other subsidiaries would
share
a bonus of up to 19% of the pre-tax profits of the subsidiary in which they
serve as executive officers. We would retain the right, but not the obligation
to buy out all of the above agreements after a period of five years by issuing
such number of shares of our common stock equal to the product of 19% of the
average after-tax profits for the five-year period multiplied by one-third
of
the price-earnings ratio of our common stock at the time of the buyout divided
by the greater of the market price of our common stock or $5.00. If we pay
bonuses in the future, it will reduce our profits and the amount, if any, that
we may otherwise have available to pay dividends to our preferred and common
stockholders. Additionally, if we pay bonuses in the future it will take away
from the amount of money we have to repay our outstanding loans and the amount
of money we have available for reinvestment in our operations and as a result,
our future results of operations and business plan could be affected by such
bonuses, and we could be forced to curtail or abandon our current business
plan
and plans for future expansion.
