U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________to ________________.
COMMISSION FILE NUMBER 333-48312
AMERICAN LEISURE HOLDINGS, INC. formerly FreewillPC.com
(Exact name of registrant as specified in its charter)
Nevada 75-2877111
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number.)
Park 80 Plaza East
Saddlebrook, New Jersey 07663
(Address of principal executive offices) (ZIP code)
(201) 226-2060
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirement for the past 90 days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Registrant had $24,082 in gross revenues for the year ended December
31, 2002.
The aggregate market value of the Registrant's voting stock that was held by
non-affiliates of the Registrant on May 21, 2003 was $1,327,796 based on the
average bid and asked price of the Registrant's common stock on such date as
reported on the Over the Counter Bulletin Board.
As of May 21, 2003, there were 6,638,983 shares of the registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
TABLE OF CONTENTS
PART I
Item 1. Description of Business.............................................. 4
Item 2. Description of Property.............................................. 17
Item 3. Legal Proceedings.................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.................. 18
PART II
Item 5. Market for Common Equity and Related Stockholder Matters............. 18
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 23
Item 7. Financial Statements and supplementary data.......................... 28
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 28
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................ 29
Item 10. Executive Compensation.............................................. 29
Item 11. Security Ownership of Certain Beneficial Owners and
Management..................................................... 29
Item 12. Certain Relationships and Related Transactions...................... 30
Item 13. Controls and Procedures............................................. 30
Item 14. Exhibits and Reports on Form 8-K.................................... 30
SIGNATURES................................................................... 31
Financial Statements ........................................................F-1
2
PART I
FORWARD-LOOKING STATEMENTS
Forward-looking statements in our public filings or other public statements are
subject to known and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These forward-looking statements were based on
various factors and were derived utilizing numerous important assumptions and
other important factors that could cause actual results to differ materially
from those in the forward-looking statements. Forward-looking statements include
the information concerning our future financial performance, business strategy,
projected plans and objectives. Statements preceded by, followed by or that
otherwise include the words "believes", "expects", "anticipates", "intends",
"projects", "estimates", "plans", "may increase", "may fluctuate" and similar
expressions or future or conditional verbs such as "will", "should", "would",
"may" and "could" are generally forward-looking in nature and not historical
facts. You should understand that the following important factors and
assumptions could affect our future results and could cause actual results to
differ materially from those expressed in such forward-looking statements:
terrorist attacks, such as the September 11, 2001 terrorist attacks on New York
City and Washington, D.C., other attacks, acts of war or measures taken by
governments in response thereto may negatively affect the travel industry, our
financial results and could also result in a disruption in our business;
the effect of economic or political conditions or any outbreak or escalation of
hostilities on the economy on a national, regional or international basis and
the impact thereof on our businesses;
the effects of a decline in the volume or value of U.S. existing home sales, due
to adverse economic changes or otherwise, on our real estate related businesses;
the accounting the effects of changes in current interest rates;
our ability to develop and implement operational, technological and financial
systems to manage growing operations and to achieve enhanced earnings or effect
cost savings;
competition in our existing and potential future lines of business and the
financial resources of, and products available to, competitors;
failure to reduce quickly our substantial technology costs and other overhead
costs in response to a reduction in revenue, particularly in our computer
reservations business;
our failure to provide fully integrated disaster recovery technology solutions
in the event of a disaster; our ability to integrate and operate successfully
acquired and merged businesses;
our ability to obtain financing on acceptable terms to finance our growth
strategy and to operate within the limitations imposed by financing arrangements
and to maintain our credit ratings;
competitive and pricing pressures in the travel industry, filing of bankruptcy
by or the loss of business of any of our significant customers;
changes in laws and regulations, including changes in accounting standards,
global distribution services rules, telemarketing and timeshare sales
regulations, state and federal tax laws and privacy policy regulation.
Other factors and assumptions not identified above were also involved in the
derivation of these forward-looking statements, and the failure of such other
assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. Most of these factors are
difficult to predict accurately and are generally beyond our control. Readers
are cautioned not to place undue reliance on these forward-looking statements.
You should consider the areas of risk described above in connection with any
forward-looking statements that may be made by us and our businesses generally.
Except for our ongoing obligations to disclose material information under the
federal securities laws, we undertake no obligation to release publicly any
revisions to any forward-looking statements, to report events or to report the
occurrence of unanticipated events unless required by law. For any
3
forward-looking statements contained in any document, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
ITEM 1 DESCRIPTION OF BUSINESS
References in this report to "we" and "our" are to American Leisure Holdings,
Inc. (herein after referred to as "AMLH" and its wholly-owned subsidiaries,
American Leisure, Inc., American Professional Management Group, Inc., Sunstone
Golf Resort, Inc., American Leisure Marketing & Technology, Inc., American
Travel & Marketing Group, Inc., American Leisure Homes, Inc., Florida Golf
Group, Inc., I-Drive Limos Inc., Orlando Holidays, Inc., Welcome to Orlando,
Inc., Pool Homes Managers, Inc., Leisureshare International Ltd and Leisureshare
International Espanola S.A. , which collectively may also be referred to herein
as the "Company".
We were incorporated in Nevada on June 13, 2000. And operated the website
http//:www.freewillpc.com. We were a web-based retailer of built-to-order
personal computers and brand name related peripherals, software, accessories and
networking products. We also offered computer consulting and design, which
enabled us to sell more built to order systems. Our primary target customers
were individual end users (IEU), home based business (HBB) owners, and small
business owners (SBO). Through an interactive web site, customers had the
ability to browse the products offered by Freewill PC and order. We offered a
broad selection of approximately 15,000 products targeted for business/home use
at competitive prices. When that business proved to be too competitive for our
resources, on June 14, 2002, we entered into a Merger Agreement (Merger
Agreement) with American Leisure Corporation (formerly know as American Leisure
Holdings, Inc.) and its subsidiaries (American Leisure, Inc., American
Professional Management Group, Inc., Sunstone Golf Resort, Inc. and Leisureshare
International Ltd.). and as consideration, issued 4,819,665 shares of common
stock and 880,000 shares of Series A Preferred Stock. Also, in connection with
the Registrant's acquisition of American Leisure Corporation, Vyrtex Limited a
UK company, which had acquired 3,830,000 shares of Common Stock of the
Registrant, surrendered 3,791,700 shares of Common Stock, as required under the
terms of the acquisition of American Leisure Corporation. Though FWC was the
legal surviving entity, the merger was treated as an acquisition of Freewill and
a recapitalization of American Leisure. American Leisure is the accounting
acquirer and the results of its operations carry over. Accordingly, the
operations of Freewill are not carried over and are adjusted to $0. On July 9,
2002, FWC changed its name to American Leisure Holdings, Inc.
The Company has been re-designed and structured to own, control and direct a
series of companies in the travel and tourism industries so that it can achieve
significant vertical and horizontal integration in the sourcing of, and the
delivery of, corporate and vacation travel services. Our mission is to:
own and operate vacation hotel/resort properties,
build large travel club membership bases through various travel club
programs,
build a large membership base for our vacation and travel clubs, and
promote our vacation resort assets and sell travel services and vacation
ownership to those club members and other corporate and vacation travelers.
4
Principal Operating Companies:-
American Leisure, Inc. ("ALI")
------------------------------
ALI will package holidays and vacations and sell these within the trade and to
the travel club membership bases.
Sunstone Golf Resort, Inc. ("SGR")
-----------------------------------
SGR is currently in the final planning stage as a 976-unit vacation destination
resort in Orlando, Florida. Development is scheduled to commence in autumn of
2003 with the first vacation investment properties estimated to be delivered in
the summer of 2004. It is expected that the horizontal construction finance and
resort amenities will be funded via a Community Development District Bond
placement. AMLH intends to provide development, guarantees and financing support
for the development of the resort so that it will become one of many fine
vacation destinations to be owned by AMLH.
American Travel & Marketing Group, Inc. ("ATMG")
------------------------------------------------
We believe that ATMG will generate significant travel business through the
creation of clubs comprised of affinity-based travelers. ATMG has developed a
travel club system and travel incentive strategy that creates and fulfills the
travel and incentive needs of corporations, organizations and associations with
significant member bases. AMTG is poised to secure a significant market share of
the affinity-travel marketing segment. As the proprietor and manager of clubs it
creates, ATMG anticipates substantial revenue from annual membership fees and
commissions earned on the sale of travel services once the infrastructure has
been finalized to communicate and sell to its affinity-based club databases. The
value added to ATMG programs by being a part of the AMLH family includes the
sales opportunities to HTS Holdings, Inc. (HTS) corporate clients, the
fulfillment capacity of the bulk buying power of HTS and the hotel/resort assets
to be provided by AMLH through its resort division.
Once the infrastructure has been finalized in conjunction with American Leisure
Marketing & Technology, Inc., to communicate and sell to its affinity-based club
databases, we anticipate that ATMG will derive substantial revenue from annual
membership fees and commissions earned from ALI on the sale of packaged travel
services.
American Leisure Marketing & Technology, Inc. ("ALMT)
-----------------------------------------------------
ALMT has acquired the assets of a sophisticated, state of the art communications
center. The communications center facilities are as up to date as can be
imagined, with all technology linked to the Internet. This allows the Customer
Service representative to respond to the individual consumer with accuracy,
speed and knowledge, thus providing the consumer with relevant and immediate
information that is current at all times. This technological capacity allows
American Leisure Marketing & Technology, Inc. to market the products and
services of HTS (HTS Holdings, Inc) ALI, AMLH, and American Travel & Marketing,
as well as for third parties, in a cost effective, all encompassing way. This
resource will be offered to the 3,000 HTS affiliated travel agencies, providing
an unsurpassed service to the hundreds of major HTS corporate clients, in real
time telephony and web based applications via the upgrade of the equipment to IP
technology.
In July 2002, the Company entered into a option to acquire a controlling
interest of HTS Holdings, Inc. (HTS), the parent to, among other companies,
Hickory Travel Services, Inc. which will focus on the fulfillment of all of our
companies' travel needs. We anticipate completing the acquisition in the Summer
of 2003.
5
Strategy
Our business model is based on four basic premises:
Club Creation and Administration.
We intend to promote and service both travel clubs and vacation clubs to derive
membership dues revenue, travel commissions revenue and prospects for conversion
of travel club members to vacation club members. To enhance membership benefits,
we intend to affiliate with vacation exchange programs and provide finance to
its members.
Vacation Resort Real Estate.
In addition to our current vacation resort assets, we intend to purchase
additional vacation resort assets, particularly in the Caribbean and Florida
resort areas where the demand for vacation property is strong the majority of
the year.
Such resorts assets will likely include the following:
Resort properties suitable for conversion, for use for vacation club
ownership, such as suites, one bedroom and two bedroom units;
Resort properties with contiguous vacant land suitable for further
expansion;
Resort properties that have consistently sustained at least break-even
occupancy;
For developable land- acreage suitable for hotel, vacation resort and/or
vacation club development in prime locations with room for a substantial amenity
packages; and
Locations that have appeal throughout the year rather than limited
"seasonal" attraction.
Vacation Ownership.
We intend to market vacation assets and vacation club memberships to the general
public. The membership bases of our vacation and travel clubs and guests staying
at our resort assets will likely provide an ongoing source of prospects for our
vacation assets and vacation club membership sales. Revenues from the sale of
vacation assets and vacation club memberships is expected to be a substantial
component in our ability to capitalize the front end of developments and the
equity requirement for resort acquisitions.
Travel Services.
We intend to capitalize on the travel requirements of servicing the travel clubs
and vacation clubs to garner significant group purchasing, branding and third
party branding power. By actively focusing on the demand side coupled with
having the structure to fulfill the travel requirements both at our resort
assets and at other venues, we will seek to obtain seamless vertical and
horizontal integration of services such that the traveler's entire range of
needs can be fulfilled or provided by us.
Additional information.
We have made various public announcements to date. In addition, we don't intend
to spend funds in the field of research and development; no money has been spent
or is contemplated to be spent on customer sponsored research activities
relating to the development of new products, services or techniques; and we
don't anticipate spending funds on improvement of existing products, services or
techniques.
6
Competition
AMLH group of companies will compete with other wholesale and retail suppliers
of travel packages and providers of travel and vacation clubs and leisure
services. There are other companies in the industry that are much larger and
have greater financial resources. The Company will compete for airline tickets
through its expertise and marketing in the sectors that the airlines wish to
promote and its ability to sell tickets in a lower profile manner. The Company
will be viewed by its' vendors based on annual performance. The Company will
also compete by bundling its products in attractively priced tour packages.
The outsourced management solutions provider industry is highly fragmented and
competitive. Some competitors in this industry are providing integrated Internet
services with their current service offerings. Our competitors range from small
firms catering to specialized programs and/or short-term projects to large
independent companies. We will also compete with the in-house operations of
existing clients and potential clients. The principal competitive factors in
this industry are quality of service, range of product offerings, flexibility
and speed of implementing customized solutions to meet the clients' needs,
capacity, industry specific experience, technological expertise and price.
Our state of the art call center technology and management experience in both
the travel and telecommunications industries is intended to set us apart from
our competition.
Proprietary Rights and Licenses
We will register or apply to register our trademarks when we believe
registration to be important to our ongoing business operations. We have
registered and own the Internet domain names which we are currently using in the
operation of our business which are:-
americanleisureholdings.com
americanleisureinc.com
americanleisureholdingsinc.com
americanleisure.net
americanlesiurehomes.com
americantravelandmarketing.com
americantravelclub.co.uk
americantravelclub.net
americantravelmarketing.com
americanleisuremarketing.com
americantravelmarketinggroup.com
americanlesiuretravel.com
americanleisuretravel.net
americanlesiureresorts.com
americanleisurevacations.com
americanleisurecruises.com
americanlesiurehotel.com
americanleisureholidays.com
affinitytravelclub.com
affinity-travel.com
affinitytravel.com
clubtouristicola.com
ladolcevitaclub.com
enjoyyourtour.com
almt.info
almt.biz
Sunstonegolfresort.com
7
We currently do not have any United States patents.
Although we believe that our intellectual property rights do no infringe upon
the proprietary rights of third parties, there can be no assurances that third
parties will not assert infringement claims against us.
Government Regulations
The Vacation Ownership and real estate industries are subject to extensive and
complex regulation. The Company is or will be subject to compliance with various
federal, state, and local environmental, zoning, consumer protection and other
statutes and regulations regarding the acquisition, subdivision and sale of real
estate and Vacation Ownership Interests and various aspects of its future
financing operations. On a federal level, the Federal Trade Commission has taken
an active regulatory role through the Federal Trade Commission Act, which
prohibits unfair or deceptive acts or competition in interstate commerce. In
addition to the laws applicable to the Company's customer financing and other
operations discussed below, the Company is or may be subject to the Fair Housing
Act and various other federal statutes and regulations. In addition, there can
be no assurance that in the future, Vacation Ownership Interests will not be
deemed to be securities subject to regulation as such, which could have a
material adverse effect on the Company. The Company believes that it is in
compliance in all-material respects with applicable regulations. However, no
assurance can be given that the cost of complying with applicable laws and
regulations will not be significant or that the Company is in fact in compliance
with all applicable laws. Any failure to comply with current or future
applicable laws or regulations could have a material adverse effect on the
Company.
Tele-service sales practices are regulated at both the federal and state level.
The Telephone Consumer Protection Act, which was enacted in 1991, authorized and
directed the Federal Communications Commission (the "FCC") to enact rules to
regulate the telemarketing industry. In December of 1992, the FCC enacted rules,
which place restrictions on the methods and timing of telemarketing sales calls.
The Federal Telemarketing Consumer Fraud and Abuse Act of 1994 (the "TCFAA")
authorizes the Federal Trade Commission (the "FTC") to issue regulations
designed to prevent deceptive and abusive telemarketing acts and practices. The
FTC issued its Telemarketing Sales Rule (the "Sales Rule"), which went into
effect in January 1996. This Sales Rule applies to most direct tele-service
telemarketing calls and certain operator tele-service telemarketing calls and
generally prohibits a variety of deceptive, unfair or abusive practices in
telemarketing sales. The FTC has initiated administrative rule making
proceedings to review and possibly remove the Sales Rule. We cannot predict
whether any modifications will be made to the Sales Rule, and if so, what impact
such revisions would have on our business, results of operations or financial
condition.
In addition to federal legislation and regulation, there are numerous state
statutes and regulations governing telemarketing activities. For example, states
such as Alaska, Florida, Georgia and New York have passed binding "do not call"
lists, for which consumers can sign-up and prevent unwanted solicitation. Many
states such as Alabama, Michigan, New York and Texas have adopted day and time
call limits more restrictive than those imposed by the FTC.
Other pending state legislation would prohibit telemarketers from blocking their
identities on consumers' telephone caller identification equipment, prohibit
telemarketing calls during the hours of 5 pm to 7 pm, and impose civil penalties
for telemarketers that violate the "do not call" lists.
Increased use of predictive dialers has also led to public requests for
government restriction. Predictive dialers can hang up on a recipient if the
sales representative is not available and often result in a lag between the
point when the recipient answers the call and the sales representative first
makes verbal contact. In addition, the efficiency of the predictive dialer has
led to an increase in the number of calls that sales representatives place to
peoples' homes, increasing the desire for relief from some consumers.
8
Recently, the Kansas legislature passed a law requiring call center agents to
first make verbal contact within five seconds of a recipient answering the call
when a predictive dialer is used. If no one answers the call, the recipient's
voice mail must receive a prerecorded message stating the caller's name and
company, without any promotional content.
The industries we will serve may also be subject to varying degrees of
government regulation. Generally, in these instances, we will rely on our
clients and their advisors to develop and provide us with the scripts for each
campaign. We will require our clients to indemnify us against claims and
expenses arising with respect to the scripts provided by our clients.
We will comply with federal and state regulations by comparing all lists to "do
not call" lists. We believe we are compliance in all material respects with all
federal and state telemarketing regulations. There can be no assurances,
however, that our practices and methods would not be subject to regulatory
challenge.
In recent years, state regulators have increased legislation and enforcement
regarding telemarketing operations including requiring the adherence to state
"do not call" lists. In addition, the Federal Trade Commission has implemented
national "do not call" legislation. The Company believes that its exposure to
adverse impacts from this heightened telemarketing legislation and enforcement
will be mitigated in some instances by the use of "permission marketing"
techniques, whereby prospective purchasers have directly or indirectly granted
the Company permission to contact them in the future, and through marketing
agreements with various clubs and membership databases. The Company has
implemented procedures which it believes will help ensure that individuals who
have formally requested to their state regulators that they be placed on a "do
not call" list are not contacted through its in-house telemarketing operations,
although there can be no assurances that such procedures are 100% effective in
ensuring regulatory compliance. There can be no assurances that the Company will
be able to efficiently or effectively market to prospective purchasers through
its telemarketing operations in the future or that the Company will be able to
develop alternative sources of prospective purchasers of its vacation ownership
products at acceptable costs.
Employees
As of December 31, 2002, we had approximately nine full time employees including
the President, and no leased service representatives. Our employee costs are
categorized as payroll. We believe that our relations with our employees are
good. None of our employees are represented by a labor union or collective
bargaining agreement, and we have never experienced a work stoppage.
L. William Chiles (Chairman and CEO) is one of the travel industry's most
successful and innovative executives, serving as President & CEO of Hickory
Travel Systems since 1989. In addition, Bill is Chairman of both the First
Travel Management and GlobalStar supervisory board of directors. He also sits on
advisory boards for the Airline Reporting Corp. (ARC) and the American Society
of Travel Agents (ASTA).
Malcolm J. Wright (President and COO) was formerly a partner at Kingston Smith,
a prominent London-based accounting firm, from 1977-1988. He served as Chairman
and Managing Dir. of Zurich Group, a London stock exchange company, from
1985-1989. For a number of years, Malcolm worked as the driving force behind the
AMLH business model and bringing together the companies that were rolled up to
create American Leisure Holdings, Inc.
Gillian M. Wright, Director of American Leisure Holding, Inc., has been involved
in corporate travel and residential real estate development.
9
Risk Factors
The travel industry is significantly affected by general economic conditions.
Because a substantial portion of business and personal airline travel is
discretionary, the industry tends to experience adverse financial results during
general economic downturns. Economic and competitive conditions since
deregulation of the airline industry in 1978 have contributed to a number of
bankruptcies and liquidations among airlines. A worsening of current economic
conditions, or an extended period of recession nationally or regionally could
have a material adverse effect on operations. The Company does not have any
control over general economic conditions.
Risks Relating to AMLH Common Stock
AMLH's common stock price could and has fluctuated significantly, and
shareholders may be unable to resell their shares at a profit.
The trading prices for small capitalization companies often fluctuate
significantly. Market prices and trading volume for stocks of these types of
companies have been volatile. If revenue or earnings are less than expected for
any quarter, the market price of AMLH's common stock could significantly
decline, even if the decline in consolidated revenue or earnings is not
reflective of any long-term problems with AMLH's business.
Active trading markets for AMLH's common stock may not develop.
While the listing of AMLH's common stock was a condition to the closing of the
merger arrangement, an active and liquid trading market for AMLH's common stock
may not develop or be sustained in the future. In addition, AMLH cannot predict
the price at which AMLH's common stock will trade.
AMLH has and may issue preferred stock that may adversely affect the rights of
holders of common stock.
AMLH's articles of incorporation authorize its board of directors to issue
"blank check" preferred stock, the relative rights, powers, preferences,
limitations, and restrictions of which may be fixed or altered from time to time
by the board of directors or the majority of the preferred stockholders.
Accordingly, the board of directors may, without shareholder approval, issue
preferred stock with dividend, liquidation, conversion, voting, or other rights
that could adversely affect the voting power and other rights of the holders of
common stock. The preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying, or preventing a change in
ownership and management of the company that shareholders might not consider to
be in their best interests.
No dividends on AMLH's common stock have been declared.
Dividends will not be paid unless and until the board of directors declares
them. Holders of AMLH's common stock have no authority to compel the board to
declare dividends.
Because of the significant number of shares owned by directors, officers and
principal shareholders, other shareholders may not be able to significantly
influence the management of AMLH.
AMLH's directors, officers, and principal shareholders beneficially own a
substantial portion of AMLH's outstanding common and preferred stock. As a
result, these persons have a significant influence on the affairs and management
of AMLH, as well as all matters requiring shareholder approval, including
election and removal of members of the board of directors, transactions with
directors, officers or affiliated entities, the sale or merger of AMLH, and
changes in dividend policy. This concentration of ownership and control could
10
have the effect of delaying, deferring, or preventing a change in ownership and
management of AMLH, even when a change would be in the best interest of other
shareholders.
Risks Relating to the Travel Business
Adverse changes or interruptions in relationships with travel suppliers,
distribution partners and other third party service providers could reduce
revenue.
If AMLH companies are unable to maintain or expand their relationships with
travel suppliers, including airline, hotel, cruise, tour and car rental
suppliers, its ability to offer and expand travel service offerings or
lower-priced travel inventory could be significantly reduced. Travel suppliers
may not make their services and products available to AMLH group companies on
satisfactory terms, or at all. They may choose to provide their products and
services only to competitors of AMLH. In addition, these travel suppliers may
not continue to sell services and products through global distribution systems
on terms satisfactory to AMLH. Any discontinuance or deterioration in the
services provided by third parties, such as global distribution systems
providers, could prevent customers from accessing or purchasing particular
travel services through AMLH.
The contracts of AMLH group companies with travel suppliers are generally
renewed on an annual basis and, in some cases, can be canceled at will by the
supplier. If these suppliers cancel or do not renew the contracts, AMLH would
not have the range or volume of services it will require to meet demand and its
future revenue would decline.
A decline in commission rates or the elimination of commissions by travel
suppliers would also reduce revenues.
We expect that a substantial portion of AMLH's revenue will come from the
commissions paid by travel suppliers, such as hotel chains, and cruise
companies, for bookings made through its online travel services. Consistent with
industry practices, these travel suppliers are not obligated to pay any
specified commission rates for bookings made through it or to pay commissions at
all. Over the last several years, travel suppliers have reduced commission rates
substantially. Future reductions, if any, in commission rates that are not
offset by lower operating costs from our Internet platforms could have a
material adverse effect on the operations of AMLH.
Failure to maintain relationships with traditional travel agents could adversely
affect AMLH's business.
HTS has historically received, and expects to continue in the foreseeable future
to receive, a significant portion of their revenue through relationships with
traditional travel agents. Maintenance of good relations with these travel
agents depends in large part on continued offerings of travel services in
demand, and good levels of service and availability. If HTS does not maintain
good relations with its travel agents, these agents could terminate their
memberships and use of its products.
Declines or disruptions in the travel industry could significantly reduce AMLH's
revenue.
Potential declines or disruptions in the travel industry include:
- price escalation in the airline industry or other travel-related
industries;
- airline or other travel related strikes;
- political instability, war and hostilities;
- bad weather;
- fuel price escalation;
- increased occurrence of travel-related accidents; and
- economic downturns and recessions.
11
AMLH has only recently focused their businesses on the travel sector and their
recent business experience in unrelated industries might not carry over into the
business of being an Internet-based provider for travel services.
Other Risk Factors
The companies may not identify or complete acquisitions in a timely manner, on a
cost-effective basis or at all. In the event of any future acquisitions, the
companies could:
- issue additional stock that would further dilute current shareholders'
percentage ownership;
- incur debt;
- assume unknown or contingent liabilities; or
- experience negative effects on reported operating resultsfrom
acquisition-related charges and amortization of acquired technology,
goodwill and other intangibles.
These transactions involve numerous risks that could harm operating results and
cause the companies' stock prices to decline, including:
- potential loss of key employees of acquired organizations;
- problems integrating the acquired business, including its information
systems and personnel;
- unanticipated costs that may harm operating results;
- diversion of management's attention from business concerns;
- adverse effects on existing business relationships with customers; and
- risks associated with entering an industry in which the companies have
no or limited prior experience.
Any of these risks could harm the businesses and operating results.
- attract additional travel suppliers and consumers to its services;
- maintain and enhance its brand;
- expand its service offerings; - operate, expand and develop its
operations and systems efficiently;
- maintain adequate control of its expenses; - raise additional capital;
- attract and retain qualified personnel; - respond to technological
changes; and
Other Risks Relating to the Business of AMLH
AMLH may not be able to obtain additional capital on reasonable terms, or at
all, to fund cash acquisitions, and this inability may prevent AMLH from taking
advantage of opportunities, hurt its business and negatively impact its
shareholders.
AMLH has historically made most of its acquisitions using all preferred shares
or a combination of preferred and common shares. AMLH does not at this time have
any commitments to make acquisitions for cash. Nevertheless, acquisitions may be
undertaken that require cash capital to consummate. If adequate funds are not
available on reasonable terms, or at all, AMLH may be unable to take advantage
of future opportunities to make additional acquisitions for cash. AMLH believes
that it currently has sufficient capital resources to satisfy on-going cash
requirements for its operations, and material commitments, however if capital
requirements vary from those currently planned, or start up losses are greater
than expected, additional financing will be required. If additional funds are
raised through the issuance of debt or equity securities, the percentage
ownership of existing shareholders may be diluted, the securities issued may
have rights and preferences senior to those of shareholders, and the terms of
the securities may impose restrictions on operations.
12
If AMLH does not manage its growth effectively, the quality of its services may
suffer.
AMLH plans to grow rapidly and will be subject to related risks, including
capacity constraints and pressure on its management, internal systems and
controls. The ability of AMLH to manage its growth effectively requires it to
continue to implement and improve its operational and financial systems and to
expand, train and manage its employee base. The inability of AMLH to manage this
growth would have a material adverse effect on its business, operations and
prospects.
Because AMLH depends on key personnel, their loss could harm its business.
AMLH's key personnel are: Malcolm Wright and RD Blankenship. AMLH may not be
able to retain the services of these key personnel. These key personnel would be
difficult to replace. AMLH does not carry any insurance covering the loss of any
of these key personnel.
Recent Developments - Summary
o Reverse Merger on June 14, 2002 with American Leisure Corporation,
Inc.
o Acquisition of $250,000 of call center equipment in July 2002
o Acquisition of $2,850,000 of call center equipment in January 2003
o Acquisition of Panther Access in February 2003 and cancellation of the
acquisition agreement on May 22, 2003.
o Refinancing of Sunstone's land in March 2003 for $6,000,000.
Recent Significant Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations," SFAS No. 142,
"Goodwill and Other Intangible Assets," and SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 141 changes certain accounting methods used
for business combinations. Specifically, it requires use of the purchase method
of accounting for all business combinations initiated after June 30, 2001,
thereby eliminating use of the pooling-of-interests method. SFAS No. 142
establishes new guidance on how to account for goodwill and intangible assets
after a business combination is completed. Among other things, goodwill and
certain other intangible assets will no longer be amortized, but will now be
tested for impairment at least annually, and expensed only when impaired. This
statement will apply to existing goodwill and intangible assets, beginning with
fiscal years starting after December 15, 2001. Early adoption of the statement
is permitted for certain companies with a fiscal year beginning after March 15,
2001. SFAS No. 143 addresses accounting for obligations associated with the
retirement of tangible long-lived assets. We are currently evaluating these
statements but do not expect that they will have a material impact on our
financial position, results of operations, or cash flows.
Factors That May Affect Future Operating Results
We make statements in this Report on Form 10-KSB as well as in our press
releases or verbal statements that may be made by our officers, directors or
employees acting on behalf of our Company, that are not historical fact and
constitute "forward-looking statements." Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that could cause our
actual results to be materially different from the historical results or from
any results expressed or implied by such forward-looking statements. Factors
that might cause such a difference include, without limitation, the information
set forth below. In addition to statements, which explicitly describe such risks
and uncertainties, statements labeled with the terms "believes", "belief",
"expects", "plans", or "anticipates" should be considered uncertain and
forward-looking. All cautionary statements made in this Report should be read as
being applicable to all related forward-looking statements wherever they may
appear.
13
Limited Operating History ~ Continuing Operating Losses
We have a very limited history of operations. Since AMLH's inception, we have
engaged primarily in the development of vacation/resort properties, building
travel club membership bases, and recently, the designing, developing, building
and implementing the technology in the primary business center, and assembly of
our management team. We have incurred net operating losses since our inception.
At December, 31 2002, we have an accumulated deficit of approximately $611,490.
Such losses have resulted primarily from costs associated with general and
administrative costs associated with our operations.
Uncertainty of Future Profitability
We have incurred losses since our inception and continue to require additional
capital to fund operations and capacity and facilities upgrades. Our fixed
commitments, including salaries and fees for current employees and consultants,
equipment rental, and other contractual commitments, are substantial and will
increase if additional agreements are entered into and additional personnel are
retained. We do not expect to generate a positive internal cash flow for at
least 6 months, due to expected increases in working capital needs and ongoing
start up losses. We intend to generate the necessary capital to operate for the
next twelve months by achieving break-even cash flow from operations and
subsequent profitability, selling equity and/or debt securities and/or a
sale-lease back transactions of our equipment. The Company believes that such a
transaction, if completed, would generate a substantial portion of the funds
required. Unless we are successful in our efforts to achieve break-even cash
flow and subsequent profitability and raise capital through sales of securities
and/or entering into a sale-lease back transaction, we believe we may not be
able to continue operations for the next twelve months. We have put a plan into
effect to achieve profitability late in the fiscal year 2003; however, there can
be no assurances that the Company will be able to successfully achieve the plan.
Going Concern Considerations
Our financial statements appearing in this Report have been prepared on a going
concern basis that contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. Management
recognizes that we must generate capital and revenue resources to enable us to
achieve profitable operations. We are planning on obtaining additional capital
by achieving break-even cash flow from operations and selling equity and/or debt
securities and/or a sale-lease back transaction on our equipment. The
realization of assets and satisfaction of liabilities in the normal course of
business is dependent upon us obtaining additional revenues and equity and or
debt capital and ultimately achieving profitable operations. However, no
assurances can be made that we will be successful in these activities. Should
any of these events not occur, our financial statements will be materially
affected.
Uncertain Ability to Meet Capital Needs
We need additional capital to fund our operations and we are seeking to obtain
additional capital through equity and/or debt financing or a sale lease back
transaction on our equipment. If additional funds are raised by issuing equity
securities and/or debt convertible into equity, further dilution to existing
stockholders will result, and future investors may be granted rights superior to
those of existing stockholders. There can be no assurance, however, that
additional financing will be available when needed, or if available, will be
available on acceptable terms.
Reliance on a Few Major Clients
We will focus our marketing efforts on developing long-term relationships with
companies in our targeted travel and vacation resort industry. As a result, we
will derive a substantial portion of our revenues from relatively few clients.
There can be no assurances that we will not continue to be dependent on a few
significant clients, that we will be able to retain those clients, that the
14
volumes of profit margins will not be reduced or that we would be able to
replace such clients or programs with similar clients or programs that would
generate a comparable profit margin. Consequently, the loss of one or more of
those clients could have a material adverse effect on our business, results of
operations or financial condition.
Economic Downturn
Our ability to enter into new multi-year contracts may be dependent upon the
general economic environment in which our clients and their customers are
operating. A weakening of the U.S. or global marketplace could cause longer
sales cycles, delays in closing contracts for new business and slower growth
under existing contracts. As a result of the terrorist attacks on the United
States of America on September 11, 2001, the Company is unable to predict the
impact of an economic downturn, if any, on the Company's financial condition or
results of operations.
Our Contracts
Our contracts do not ensure that we will generate a minimum level of revenues,
and the profitability of each client campaign may fluctuate, sometimes
significantly, throughout the various stages of the campaign. Although we seek
to enter into multi-year contracts with our clients, our contracts generally
enable the client to terminate the contract, or terminate or reduce customer
interaction volumes, on relatively short notice. Although some contracts require
the client to pay a contractually agreed amount in the event of early
termination, there can be no assurance that we will be able to collect such
amount or that such amount, if received, will sufficiently compensate us for our
investment in the canceled campaign or for the revenues we may lose as a result
of the early termination. We are usually not designated as our client's
exclusive service provider; however, we believe that meeting our clients'
expectations can have a more significant impact on revenues generated by us than
the specific terms of our client campaign.
Cost and Price Increases
Only a few of our contracts allow us to increase our service fees if and to the
extent certain cost or price indices increase; however, most of our significant
contracts do not contain such provisions and some contracts require us to
decrease our service fees if, among other things, we do not achieve certain
performance objectives. Increases in our service fees that are based upon
increases in cost or price indices may not fully compensate us for increases in
labor and other costs incurred in providing services.
Changing Technology
Our business is highly dependent on our computer and communications equipment
and software capabilities. Our failure to maintain the superiority of our
technological capabilities or to respond effectively to technological changes
could have a material adverse effect on our business, results of operations or
financial condition. Our continued growth and future profitability will be
highly dependent on a number of factors, including our ability to (i) expand our
existing service offerings; (ii) achieve cost efficiencies in our existing
contact centers; and (iii) introduce new services and products that leverage and
respond to changing technological developments. There can be no assurance that
technologies or services developed by our competitors will not render our
products or services non-competitive or obsolete, that we can successfully
develop and market any new services or products, that any such new services or
products will be commercially successful or that the integration of automated
customer support capabilities will achieve intended cost reductions.
Key Personnel
Continued growth and profitability will depend upon our ability to maintain our
leadership infrastructure by recruiting and retaining qualified, experienced
executive personnel. On July 9, 2002 we appointed Mr. Wright as President and a
15
Director of the Company and Mr. Chiles as Chief Executive Officer and Chairman
of the Board of Directors and a Director of the Company. Competition in our
industry for executive-level personnel is fierce and there can be no assurance
that we will be able to hire, motivate and retain highly effective executive
employees, or that we can do so on economically feasible terms.
Labor Forces
Our success will be largely dependent on our ability to recruit, hire, train and
retain qualified personnel. Our industry is very labor intensive and has
experienced high personnel turnover. A significant increase in our personnel
turnover rate could increase our recruiting and training costs and decrease
operating effectiveness and productivity. Also, if we obtain several significant
new clients or implement several new, large-scale campaigns, we may need to
recruit, hire and train qualified personnel at an accelerated rate. We may not
be able to continue to hire, train and retain sufficient qualified personnel to
adequately staff new customer management campaigns. Because significant portions
of our operating costs relate to labor costs, an increase in wages, costs of
employee benefits or employment taxes could have a material adverse effect on
our business, results of operations or financial condition.
Competitive Market
We believe that the market in which we operate is fragmented and highly
competitive and that competition is likely to intensify in the future. We
compete with small firms offering specific applications, divisions of large
entities, large independent firms and the in-house operations of clients or
potential clients. A number of competitors have or may develop greater
capabilities and resources than us. Similarly, there can be no assurance that
additional competitors with greater resources than us will not enter our market.
In addition, competitive pressures from current or future competitors also could
cause our services to lose market acceptance or result in significant price
erosion, which could have a material adverse effect upon our business, results
of operations or financial condition.
Business Acquisitions or Joint Ventures May Disrupt Our Business, Dilute
Shareholder Value or Distract Management's Attention
As part of our business strategy, we may consider acquisition of, or investments
in, businesses that offer services and technologies complementary to ours. Such
acquisitions could materially adversely affect our operating results and/or the
price of our common stock. Acquisitions also entail numerous risks, including:
(i) difficulty in assimilating the operations, products and personnel of the
acquired business; (ii) potential disruption of our ongoing business; (iii)
unanticipated costs associated with the acquisition; (iv) inability of
management to manage the financial and strategic position of acquired or
developed services and technologies; (v) the division of management's attention
from our core business; (vi) inability to maintain uniform standards, controls,
policies and procedures; and (vii) impairment of relationships with employees
and customers which may occur as a result of integration of the acquired
business.
Business Interruption
Our operations are dependent upon our ability to protect our contact center,
computer and telecommunications equipment and software systems against damage
from fire, power loss, telecommunications interruption or failure, natural
disaster and other similar events. In the event we experience a temporary or
permanent interruption at our contact center, through casualty, operating
malfunction or otherwise, our business could be materially adversely affected
and we may be required to pay contractual damages to some clients or allow some
clients to terminate or renegotiate their contracts with us. We maintain
property and business interruption insurance; however, such insurance may not
adequately compensate us for any losses we may incur.
16
Varying Quarterly Results
We have experienced and could continue to experience quarterly variations in
operating results because of a variety of factors, many of which are outside our
control. Such factors may include, but not be limited to, the timing of new
contracts; reductions or other modifications in our clients' marketing and sales
strategies; the timing of new product or service offerings; the expiration or
termination of existing contracts or the reduction in existing programs; the
timing of increased expenses incurred to obtain and support new business;
changes in the revenue mix among our various service offerings; labor strikes
and slowdowns; and the seasonal pattern of certain businesses serviced by us. In
addition, we make decisions regarding staffing levels, investments and other
operating expenditures based on our revenue forecasts. If our revenues are below
expectations in any given quarter, our operating results for that quarter would
likely be materially adversely affected.
Penny Stock Regulations and Restrictions
The Securities and Exchange Commission (SEC or Commission) has adopted
regulations, which generally define penny stocks to be an equity security that
has a market price less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exemptions. As of December 31, 2002, the
closing price of our common stock was less than $5.00 per share and therefore is
a "penny stock" pursuant to the rules under the Securities Exchange Act of 1934,
as amended. Such designation requires any broker or dealer selling such
securities to disclose certain information concerning the transactions, obtain a
written agreement from the purchaser, and determine that the purchaser is
reasonably suitable to purchase such securities. These rules may restrict the
ability of brokers and dealers to sell our common stock and may adversely affect
the ability of investors to sell their shares.
Possible Volatility of Stock Price
The price of our common stock has fluctuated substantially since it began
trading on the Over-the-Counter Bulletin Board (OTCBB). The market price of the
shares of common stock is likely to continue to be highly volatile. Factors such
as a number of our issued and outstanding shares becoming subject to Rule 144 in
June 2003, terms of any equity and/or debt financing, fluctuations in our
operating results and market conditions could have a significant impact on the
future price of our common stock and could have a depressive effect on the then
market price of the common stock.
Given these uncertainties, investors should not place undue reliance on these
forward-looking statements. Please see other sections of this report and our
other periodic reports we have filed with the SEC for more information on these
factors.
ITEM 2. Description of Property
Our corporate headquarters are located in our Saddleback, NJ. We also lease a
call center facility located in Tamarac, Florida, which is in the Fort
Lauderdale area of South Florida.
Our Tamarac facility is approximately 17,000 square feet and houses our
corporate headquarters and our contact center with 110 workstations dedicated to
our outbound and inbound voice technologies as well as our on-line e-commerce
solutions. This facility was constructed for and is planned to be our 24 x 7
contact center and began to operate on May 19, 2003. It can be expanded to 410
workstations. This facility is leased pursuant to a five-year operating lease
commencing December 1, 2002 and terminating November 30, 2007. The annual
obligation during the first year will be approximately $180,000 and is scheduled
to increase 5% per annum over the term of the lease.
17
Our Saddlebrook facility is approximately 250 square feet. This facility is
leased pursuant to a master lease from Hickory Travel Systems. Currently, the
Company pays no rent on this facility.
Based on anticipated growth of our business, we may experience significantly
higher capacity utilization during peak periods than during off-peak (night and
weekend) periods. We may be required to open or expand contact centers to create
the additional peak period capacity necessary to accommodate new or expanded
customer management programs. The opening or expansion of a contact center may
result, at least in the short term, in idle capacity during peak periods until
any new or expanded program is fully implemented.
ITEM 3 LEGAL PROCEEDINGS
In the ordinary course of its business, the Company may from time to time become
subject to claims or proceedings relating to the purchase, subdivision, sale
and/or financing of its real estate. The Company believes that substantially all
of the above are incidental to its business.
The Company became a defendant in an action that was filed in Orange County,
Florida. In June, 2001, Rock Investment Trust, P.L.C., a British limited
liability company, and RIT, L.C., a related Florida limited liability company,
filed suit against Malcolm J. Wright, American Vacation Resorts, Inc., American
Leisure, Inc., Inversora Tetuan, S.A., Sunstone Golf Resort, Inc., and SunGate
Resort Villas, Inc., seeking either the return of an alleged $500,000 investment
or ownership interest in one or more of the defendant entities equivalent to the
alleged investment amount. Defendants have denied all claims and Mr. Wright,
American Vacation Resorts, Inc., American Leisure, Inc., Inversora Tetuan, S.A.,
Sunstone Golf Resort, Inc., and SunGate Resort Villas, Inc. have counterclaimed
against Rock Investment Trust and its principal, Roger Smee, seeking damages in
excess of $10 million, assuming success on all aspects of the litigation. The
litigation is in the discovery phase and is not currently set for trial. While
many depositions and other discovery of facts remains to be done, based on the
status of the record developed thus far, counsel believes that Rock Investment
Trust's and RIT's claims are without merit and that the counterclaim will be
successful. The amount of damages, which may be recovered, on the counterclaim
is subject to a variety of factors and considerations.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters for a vote to the security holders during
2002.
PART II.
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
April 15, 2003, AMLH had 326 holders of record of common stock.
The following table sets forth, for the fiscal quarters indicated, the high and
low closing sales prices of AMLH Common Stock based on information published by
the OTCBB.
18
AMLH Common Stock
-----------------
High Low
---- ----
Fiscal Year 2001
----------------
First Quarter no quotation
Second Quarter no quotation
Third Quarter no quotation
Fourth Quarter no quotation
Fiscal Year 2002
----------------
First Quarter 0.40 0.40
Second Quarter 2.60 1.75
Third Quarter 0.46 0.42
Fourth Quarter 0.15 0.11
On April 21, 2003, the closing trading price for AMLH's common stock as reported
by the OTCBB was $0.20
During the fiscal year ended December 31, 2002, AMLH created 10,000,000
Preferred shares that could be split into different classes of shares. AMLH has
created three new series of its preferred stock and issued shares of Series A &
B in 2002 and Series C of these Series of shares in 2003. The following summary
describes the rights and preferences of these Series of preferred stock, as
compared to AMLH's common stock and to each other Series of preferred stock. For
the full details of the rights and designations of each class of Preferred Stock
the investor is advised to read the appropriate 8K or the attachments to this
10K which gives full disclosure.
Series A Preferred Stock.
-------------------------
AMLH has designated 1,000,000 shares of Series A convertible preferred stock,
par value $0.01 per share. As of December 31, 2002, 880,000 shares of Series A
preferred stock were issued and outstanding.
Ranking. The Series A preferred stock ranks senior to the common stock as to
dividends and liquidation preference.
Dividends. If declared by the board of directors of AMLH, dividends on each
share of the Series A preferred stock will be paid annually at an annual rate of
12% of the liquidation preference per share. Dividends will be payable in
preference and priority to any payment of any cash dividend on Common Stock or
any other shares of capital stock of the Company junior in priority to the
Series A Preferred Stock (such Common Stock and other inferior stock being
collectively referred to as "Junior Stock"), Any unpaid dividends accrue and are
cumulative.
Liquidation Preference. Upon liquidation, dissolution or winding up of AMLH,
before payment of any amount due to any Junior Stock, each share of Series A
preferred stock will be entitled to be paid out of assets available for
distribution $10 per share plus all accrued unpaid dividends, calculated through
the date of liquidation.
Voting Rights. Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are convertible (as adjusted from time to time) at each meeting of
stockholders of the Company (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
19
the Company for their action or consideration. Except as provided by law, or by
the provisions of Subsection 3(b) of the certificate of designation of Series A,
or by the provisions establishing any other series of Preferred Stock, holders
of Series A Preferred Stock and of any other outstanding Series of Preferred
Stock shall vote together with the holders of Common Stock as a single class.
Redemption. AMLH has the right to redeem all or part of the outstanding Series A
preferred stock at any time after five years from the date of issue. The
redemption price per share will be $10 per share plus all accrued unpaid
dividends, calculated through the date of redemption.
Conversion. Each share of Series A Preferred Stock shall be convertible, at the
option of the holder thereof, at any time and from time to time, into ten (10)
fully paid and non-assessable shares of Common Stock (the "Conversion Rate").
Such initial Conversion Rate, and the rate at which shares of Series A Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below. In the event of a liquidation of the Company, the
Conversion Rights shall terminate at the close of business on the first full day
preceding the date fixed for the payment of any amounts distributable on
liquidation to the holders of Series A Preferred Stock.
Adjustment for Common Stock Price Below $1.00. In the event that the average
Market Price of the Common Stock for any thirty (30) consecutive Trading Days is
below $1.00 and the Market Price of the Common Stock remains below $1.00 through
the Trading Day immediately prior to the Conversion Date, then the Conversion
Rate shall be the lower of (i) the Liquidation Value divided by the average
Market Price of the Common Stock for the ten (10) consecutive Trading Days
immediately prior to the Conversion Date, and (ii) the Conversion Price as
determined under Section 4, excluding this Section 4(k) of the certificate of
Designation of the Series A stock.
No fractional shares of Common Stock shall be issued upon conversion of the
Series A Preferred Stock. In lieu of fractional shares, the Company shall pay
cash equal to such fraction multiplied by the quotient of the Liquidation Value
divided by the Conversion Rate.
Series B Preferred Stock
------------------------
AMLH has designated 100,000 shares of Series B preferred stock, par value $0.01
per share. As of December 31, 2002, 2,500 shares of Series B preferred stock
were issued and outstanding.
Ranking. The Series B Preferred Stock ranks senior to the common stock as to
dividends and liquidation preference but after and subject to the payment in
full of all amounts required to be distributed to the holders of any other class
or series of stock of the Company ranking on liquidation or dividend prior and
in preference to the Series B Preferred Stock (collectively referred to as
"Senior Preferred Stock"), but before any payment shall be made to the holders
of Junior Stock by reason of their ownership thereof,
Dividends. Dividends on the Series B preferred stock, if declared by the board
of directors of AMLH, will be paid annually at an annual rate of 12% of
liquidation preference per share. Dividends will be payable in preference and
priority to any payment of any cash dividend on Common Stock or any other shares
of capital stock of the Company junior in priority to the Series B Preferred
Stock (such Common Stock and other inferior stock being collectively referred to
as "Junior Stock"), Any unpaid dividends accrue and are cumulative.
Liquidation Preference. Upon liquidation, dissolution or winding up of AMLH, and
after payment of any amount due to any Series A or C Preferred Stock holder of
AMLH, but before any Junior Stock holder, each share of Series B preferred stock
will be entitled to be paid out of the assets available for distribution, $100
per share, plus all accrued unpaid dividends calculated through the date of
liquidation.
20
Voting Rights. Each holder of outstanding shares of Series B Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series B Preferred Stock held by such
holder are convertible (as adjusted from time to time) at each meeting of
stockholders of the Company (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Company for their action or consideration. Except as provided by law, or by
the provisions of Subsection 3(b) of the certificate of designation of Series B,
or by the provisions establishing any other series of Preferred Stock, Holders
of Series B Preferred Stock and of any other outstanding series of Preferred
Stock shall vote together with the holders of Common Stock as a single class.
Redemption. AMLH has the right to redeem all or part of the outstanding Series B
preferred stock at any time after five years from the date of issue. The Series
B preferred stock will be redeemed at a price per share equal to $100 per share,
plus all accrued unpaid dividends, calculated through the date of redemption.
Conversion. Each share of Series B Preferred Stock shall be convertible, at the
option of the holder thereof, at one time, into such number of paid and
non-assessable shares of Common Stock (the "Conversion Rate") calculated by
dividing the Liquidation Value by the Market Price (as defined herein) but such
Conversion Rate shall not be greater than twenty (20) (the "High Conversion
Rate") and not less than twelve and one-half (12.5) (the Low Conversion rate").
The term "Market Price" shall mean, with respect to a share of Common Stock on
any date, either: (1) if there shall not then be a public market for the Common
Stock, the fair market value per share of Common Stock as determined by the
Board of Directors in good faith exercising its fiduciary duties; or (2) if
there shall then be a public market for the Common Stock, the average of the
Daily Market Prices (as defined below) for the ten (10) consecutive Trading Days
immediately prior to the Conversion Date.
No fractional shares of Common Stock shall be issued upon conversion of the
Series B Preferred Stock. In lieu of fractional shares, the Company shall pay
cash equal to such fraction multiplied by the quotient of the Liquidation Value
divided by the Conversion Rate.
Mandatory Conversion. Each share of Series B Preferred Stock shall be
automatically converted into such number of paid and non-assessable shares of
Common Stock on the date six (6) months after the Company has listed its Common
Stock for trading on the American Stock Exchange (the "Automatic Conversion
Date") at the Conversion Rate determined on the Automatic Conversion Date.
Series C Preferred Stock
------------------------
AMLH has designated 28,000 shares of Series C convertible preferred stock, par
value $0.01 per share. No shares of Series C convertible preferred stock were
outstanding on December 31, 2002. 27,189 of these shares were issued on January
29, 2003.
Ranking. The Series C Preferred Stock ranks on parity with Series A Preferred
Stock and senior to common stock and any other series of preferred stock except
Series A as to dividends and liquidation preference.
Dividends. If declared by the board of directors of AMLH, dividends on each
share of the Series C preferred stock will be paid annually at an annual rate of
4% of the liquidation preference per share. Dividends will be payable in
preference and priority to any payment of any cash dividend on Common Stock or
any other shares of capital stock of the Company junior in priority to the
Series C Preferred Stock (such Common Stock and other inferior stock being
collectively referred to as "Junior Stock"), Any unpaid dividends will accrue
and are cumulative.
Liquidation Preference. Upon liquidation, dissolution or winding up of AMLH, and
before payment of any amount due to any Junior Stock, each share of Series C
preferred stock will be entitled to be paid out of assets available for
21
distribution $100, plus all accrued unpaid dividends calculated through the date
of liquidation.
Voting Rights. Each holder of outstanding shares of Series C Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series C Preferred Stock held by such
holder are convertible (as adjusted from time to time) at each meeting of
stockholders of the Company (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Company for their action or consideration. Except as provided by law, or by
the provisions of Subsection 3(b) of the certificate of designation of Series C,
or by the provisions establishing any other series of Preferred Stock, holders
of Series C Preferred Stock and of any other outstanding series of Preferred
Stock shall vote together with the holders of Common Stock as a single class.
Redemption. If, on or after the date five (5) years after the Original Issue
Date, any shares of Series C Preferred Stock shall be then outstanding, the
Company shall have the right to redeem (unless otherwise prevented by law) all
(but not less than all) such outstanding shares at an amount per share equal to
the Liquidation Value plus an amount equal to accrued but unpaid dividends, if
any, to the date of redemption on such share.
Mandatory Redemption. If, on or after the date five (5) years after the Original
Issue Date, any shares of Series C Preferred Stock shall be then outstanding,
one or more holders of the then-outstanding shares of Series C Preferred Stock
("Electing Holders") shall have the right to require the Company to redeem all
(but not less than all) such outstanding shares held by such holder; provided,
however, that in the event that less than 4,770 shares of Series C Preferred
Stock shall have been converted into Common Stock prior to the date that is five
(5) years from the Original Issue Date that such right to require the redemption
of the Series C Preferred Stock shall arise on and after the date that is six
(6) years from the Original Issue Date.
Conversion. Each share of Series C Preferred Stock shall be convertible, at the
option of the holder thereof, in amounts of not less than 1000 share increments,
into such number of paid and non-assessable shares of Common Stock (the
"Conversion Rate") calculated by dividing the Liquidation Value by the Market
Price but such Conversion Rate shall not be greater than twenty (20) (the "High
Conversion Rate") and not less than twelve and one-half (12.5) (the "Low
Conversion Rate"). The term "Market Price" shall mean, with respect to a share
of Common Stock on any date, either: (1) if there shall not then be a public
market for the Common Stock, the fair market value per share of Common Stock as
determined by the Board of Directors in good faith exercising its fiduciary
duties; or (2) if there shall then be a public market for the Common Stock, the
average of the Daily Market Prices (as defined below) for the ten (10)
consecutive Trading Days immediately prior to the Conversion Date.
No fractional shares of Common Stock shall be issued upon conversion of the
Series C Preferred Stock. In lieu of fractional shares, the Company shall pay
cash equal to such fraction multiplied by the quotient of the Liquidation Value
divided by the Conversion Rate.
Dividends
During the last two fiscal years, AMLH has not paid any dividends on its common
stock. AMLH does not anticipate payment of any dividends on its common stock in
the near future because AMLH intends to retain earnings to fund growth of its
operations.
22
Issuance of Unregistered Securities
The following table and discussion contains details of the prior issuances of
unregistered securities of AMLH the fiscal year ended December 31, 2002:
Number of Number of Shares Number of Shares
Shares of of Series A of Series B
Date of Issue Common Stock Preferred Stock Preferred Stock
------------- ------------ ---------------- -----------------
June 14,2002 4,819,665 880,000
August 9, 2002 2,500
a. Market Information.
The stock traded in the $0.30 to $0.40 range up to May 9, 2002. From that date
to December 31, 2002 it reached a high of $3.75 on May 17, 2002 and a low of
$0.10 on December 17, 2002
b. Holders.
There are approximately 326 shareholders.
c. Dividends
Registrant has not paid a dividend to the holders of its common stock and does
not anticipate paying dividends in the near future.
d. Warrants
Registrant has no warrants outstanding.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
Certain Definitions, Cautionary Statement Regarding Forward-Looking Statements
--------------------------------------------------------------------------------
and Risk Factors
-----------------
The following discussion of the results of operations and financial condition of
the Company should be read in conjunction with the Company's Consolidated
Financial Statements and related Notes and other financial information included
elsewhere in this Annual Report. Unless otherwise indicated in this discussion
(and throughout this Annual Report), references to "real estate" and to
"inventories" collectively encompass the Company's inventories held for sale.
Market and industry data used throughout this Annual Report were obtained from
Company surveys, industry publications, unpublished industry data and estimates,
discussions with industry sources and currently available information. Industry
publications generally state that the information contained therein has been
obtained from sources believed to be reliable, but there can be no assurance as
to the accuracy and completeness of such information. The Company has not
independently verified such market data. Similarly, Company surveys, while
believed by the Company to be reliable, have not been verified by any
independent sources. Accordingly, no assurance can be given that any such data
will prove to be accurate.
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Reform Act of 1995 (the "Act") and is making the following
statements pursuant to the Act to do so. Certain statements herein and elsewhere
in this report and the Company's other filings with the Securities and Exchange
Commission constitute "forward-looking statements" within the meaning of Section
23
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company may also make written or oral
forward-looking statements in its annual report to stockholders, in press
releases and in other written materials, and in oral statements made by its
officers, directors and employees. Such statements may be identified by
forward-looking words such as "may", "intend", "expect", "anticipate,"
"believe," "will," "should," "project," "estimate," "plan" or other comparable
terminology or by other statements that do not relate to historical facts. All
statements, trend analyses and other information relative to the market for the
Company's products, the Company's expected future sales, financial position,
operating results and liquidity and capital resources and its business strategy,
financial plan and expected capital requirements and trends in the Company's
operations or results are forward-looking statements. Such forward-looking
statements are subject to known and unknown risks and uncertainties, many of
which are beyond the Company's control, that could cause the actual results,
performance or achievements of the Company, or industry trends, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Given these uncertainties, investors
are cautioned not to place undue reliance on such forward-looking statements and
no assurance can be given that the plans, estimates and expectations reflected
in such statements will be achieved. Factors that could adversely affect the
Company's future results can also be considered general "risk factors" with
respect to the Company's business, whether or not they relate to a
forward-looking statement. The Company wishes to caution readers that the
following important factors, among other risk factors, in some cases have
affected, and in the future could affect, the Company's actual results and could
cause the Company's actual consolidated results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company:
a) Changes in national, international or regional economic conditions that can
adversely affect the real estate market, which is cyclical in nature and highly
sensitive to such changes, including, among other factors, levels of employment
and discretionary disposable income, consumer confidence, available financing
and interest rates.
b) The imposition of additional compliance costs on the Company as the result of
changes in or the interpretation of any environmental, zoning or other laws and
regulations that govern the acquisition, subdivision and sale of real estate and
various aspects of the Company's financing operation or the failure of the
Company to comply with any law or regulation. Also the risks that changes in or
the failure of the Company to comply with laws and regulations governing the
marketing (including telemarketing) of the Company's inventories and services
will adversely impact the Company's ability to make sales in any of its future
markets at its estimated marketing costs.
c) Risks associated with a large investment in real estate inventory at any
given time (including risks that real estate inventories will decline in value
due to changing market and economic conditions and that the development,
financing and carrying costs of inventories may exceed those anticipated).
d) Risks associated with an inability to locate suitable inventory for
acquisition, or with a shortage of available inventory in the Company's
anticipated markets.
e) Risks associated with delays in bringing the Company's inventories to market
due to, among other things, changes in regulations governing the Company's
operations, adverse weather conditions, natural disasters or changes in the
availability of development financing on terms acceptable to the Company.
f) Changes in applicable usury laws or the availability of interest deductions
or other provisions of federal or state tax law, which may limit the effective
interest rates that the Company may charge on its future notes receivable.
24
g) A decreased willingness on the part of banks to extend direct customer
vacation home financing, which could result in the Company receiving less cash
in connection with the sales of vacation real estate and/or lower sales.
h) The fact that the Company requires external sources of liquidity to support
its operations, acquire, carry, develop and sell real estate and satisfy its
debt and other obligations, and the Company may not be able to locate external
sources of liquidity on favorable terms or at all.
i) The inability of the Company to locate sources of capital on favorable terms
for the pledge and/or sale of land and vacation ownership notes receivable,
including the inability to consummate or fund securitization transactions or to
consummate fundings under facilities.
j) Costs to develop inventory for sale and/or selling, general and
administrative expenses materially exceed (i) those anticipated or (ii) levels
necessary in order for the Company to achieve anticipated profit and operating
margins or be profitable.
k) An increase or decrease in the number of resort properties subject to
percentage-of-completion accounting, which requires deferral of profit
recognition on such projects until development is substantially complete. Such
increases or decreases could cause material fluctuations in future
period-to-period results of operations.
l) The failure of the Company to satisfy the covenants contained in the
indentures governing certain of its debt instruments, and/or other credit, loan
agreements, which, among other things, place certain restrictions on the
Company's ability to incur debt, incur liens, make investments, pay dividends or
repurchase debt or equity.
m) The risk of the Company incurring an unfavorable judgment in any litigation,
and the impact of any related monetary or equity damages.
n) The risk that the Company's sales and marketing techniques are not
successful, and the risk that its Clubs are not accepted by consumers or imposes
limitations on the Company's operations, or is adversely impacted by legal or
other requirements.
o) The risk that any contemplated transactions currently under negotiation will
not close or conditions to funding under existing or future facilities will not
be satisfied.
p) Risks relating to any joint venture that the Company is a party to, including
risks that a dispute may arise with a joint venture partner, that the Company's
joint ventures will not be as successful as anticipated and that the Company
will be required to make capital contributions to such ventures in amounts
greater than anticipated.
q) Risks that any currently proposed or future changes in accounting principles
will have an adverse impact on the Company.
r) Risks that a short-term or long-term decrease in the amount of
vacation/corporate travel (whether as a result of economic, political or other
factors), including, but not limited to, air travel, by American consumers will
have an adverse impact on the Company's sales.
s) Risks that the acquisition of a business by the Company will result in
unforeseen liabilities, decreases of net income and/or cash flows of the Company
or otherwise prove to be less successful than anticipated.
The Company does not undertake and expressly disclaims any duty to update or
revise forward-looking statements, even if the Company's situation may change in
the future.
25
General
The Company's vacation real estate operations are or will be managed under two
business segments. One will develop, market and sell Vacation Ownership
Interests in the Company's resorts, primarily through the Vacation /Travel
Clubs, and the other (currently Sunstone Golf Resort) will acquires tracts of
real estate suitable for vacation resort properties, which will be subdivided,
improved and sold, typically on a retail basis as vacation home sales.
The Company expects to experience seasonal fluctuations in its gross revenues
and net earnings. This seasonality may cause significant fluctuations in the
quarterly operating results of the Company. In addition, other material
fluctuations in operating results may occur due to the timing of development and
the Company's use of the percentage-of-completion method of accounting.
Management expects that the Company will continue to invest in projects that
will require substantial development (with significant capital requirements).
The Company believes that the terrorist attacks on September 11, 2001 in the
United States, the recent hostilities in the Middle East and other world events
that have decreased the amount of vacation and corporate air travel by Americans
but have not materially changed the companies business plan. There can be no
assurances, however, that a long-term decrease in air travel or increase in
anxiety regarding actual or possible future terrorist attacks or other world
events will not have a material adverse impact on the Company's future results
of operations.
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.
Strategy
Our business model is based on four basic premises:
Club Creation and Administration.
We intend to promote and service both travel clubs and vacation clubs to derive
membership dues revenue, travel commissions revenue and prospects for conversion
of travel club members to vacation club members. To enhance membership benefits,
we intend to affiliate with vacation exchange programs and provide finance to
members.
Vacation Resort Real Estate.
In addition to our current vacation resort assets, we intend to purchase
additional vacation resort assets, particularly in the Caribbean and Florida
resort areas where the demand for vacation property is strong the majority of
the year.
Such resorts assets will likely include the following:
o Resort properties suitable for conversion, for use for vacation club
ownership, such as suites, one bedroom and two bedroom units;
o Resort properties with contiguous vacant land suitable for further
expansion;
o Resort properties that have consistently sustained at least break-even
occupancy;
o For developable land- acreage suitable for hotel, vacation resort
and/or vacation club development in prime locations with room for a
substantial amenity packages; and
o Locations that have appeal throughout the year rather than limited
"seasonal" attraction.
Vacation Ownership.
We intend to market vacation assets and vacation club memberships to the general
public. The membership bases of our vacation and travel clubs and guests staying
at our resort assets will likely provide an ongoing source of prospects for our
vacation assets and vacation club membership sales. Revenues from the sale of
26
vacation assets and vacation club memberships is expected to be a substantial
component in our ability to capitalize the front end of developments and the
equity requirement for resort acquisitions.
Travel Services.
We intend to capitalize on the travel requirements of servicing the travel clubs
and vacation clubs to garner significant group purchasing, branding and third
party branding power. By actively focusing on the demand side coupled with
having the structure to fulfill the travel requirements both at our resort
assets and at other venues, we will seek to obtain seamless vertical and
horizontal integration of services such that the traveler's entire range of
needs can be fulfilled or provided by us.
Cash Flow Requirements
We will require substantial capital to adequately finance our proposed
acquisitions, meet our obligations under our business model, and provide for our
working capital. We anticipate that we will require approximately $9.5 million
over the next twelve months to fully implement our business model. We anticipate
that we will use such funds as follows:
Program Development and Implementation Costs $ 5,500,000
Payoff Debt $ 2,000,000
Working Capital $ 2,000,000
LIQUIDITY
During the three months ended March 31, 2003, the Company's working Capital
decreased. This was due to administrative and financing costs incurred as
carrying costs of the Company's assets and to maintain its operations. The
Company does not currently have sufficient capital in its accounts, nor
sufficient firm commitments for capital to assure its ability to meet its
current obligations or to continue its planned operations. The Company is
continuing to pursue working capital and additional revenue through the seeking
of the capital it needs to carry on its planned operations. There is no
assurance that any of the planned activities will be successful.
CAPITAL RESOURCES
As a result of its limited liquidity, the Company has limited access to
additional capital resources. The Company does not have the capital to totally
fund the obligations that have matured to its shareholders. The shareholders
have agreed to roll over their loans until the company has stronger liquidity
and take security for their loans.
The Company has received additional capital through the expansion of vendor
financing and loans from its directors and shareholders during the most recent
quarter.
Additionally, the Company refinanced its' Orlando property in March of 2003 and
repaid loans that it had borrowed since February 2000 at high rates of interest.
It obtained a $6,000,000 loan that the Company believes will enable it to
further develop the property by finalizing its revised planning, engineering and
permitting for an increase from 799 to 976 vacation properties.
The Company has obtained strong interest to fund up to $5,000,000 from a
financial institution. The Company has certain operational requirements to
receive a firm commitment from the institution over the next ninety days. The
Company believes that with the recent opening of its call center in Tamarac,
South Florida, that it will achieve the required operational parameters to
transform the strong interest into a funding commitment.
Management has also made certain loan requests from several banking institutions
that it believes will be funded. However, discussions are in the preliminary
stages and have not yet been approved by any lending institution.
27
Though the obtaining of the additional capital is not guaranteed, the management
of the Company believes it will be able to obtain the capital required to meet
its current obligations and actively pursue its planned business activities.
OPERATIONS
The previous operations of the Company were ceased. On June 14, 2002 the Company
acquired American Leisure Holdings, Inc. (hereafter Corporation) and its
subsidiaries. Until the Company obtains the capital required to developed it
properties and businesses and obtain the revenues needed from its operations to
meet its obligations, the Company will be dependent upon sources other than
operating revenues to meet its operating and capital needs. Operating revenues
may never satisfy these needs.
The Company recently opened up its' call center in Tamarac, South Florida, which
it believes after ninety days will be a profitable operation and will provide
the required cash flow to fund its own expansion and operations. However, due to
the nature of the industry the Company is currently operating in, the management
cannot predict that it will necessarily achieve the level of operations needed
to provide the cash flow it requires to expand its operations.
Until the capital is obtained to enter into its planned operations discussed
above, the Company will need additional capital.
ITEM 3. CONTROLS AND PROCEDURES
Based on the evaluation by Mr. Wright, the chief financial officer of the
company, the effectiveness of the company's disclosure controls and procedures
conducted as of a date within 90 days of the filing date of this quarterly
report, Mr. Wright concluded that, as of the evaluation date, (i) there were no
significant deficiencies or material weaknesses of the company's disclosure
controls and procedures, (ii) there were no significant changes in the internal
controls or in other factors that could significantly affect internal controls
subsequent to the evaluation date, and (iii) no corrective actions were required
to be taken.
SUMMARY OF 2002
Our accomplishments in 2002 are detailed in Section 1 above.
American Leisure Holdings, Inc. will provide an annual report including audited
statements without charge on request made by any shareholder to the Secretary of
the Company, American Leisure Holdings, Inc. Park 80 Plaza East Saddlebrook, New
Jersey, 07663.
Public may read and copy any materials filed by American Leisure Holdings, Inc.
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC- 0330. The SEC maintains
an Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC at
www.sec.gov.
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Certified Public Accountant is attached hereto.
ITEM 8 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
Malone & Bailey, PLLC. is the auditor for the Company and there have been no
disagreements with our auditor on accounting or financial disclosure issues.
28
PART III.
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following persons serve as directors and officers of Registrant:
Malcolm J Wright, President, Secretary, Chief Financial Officer and Director.
Served since July 2002 and expires at the next annual meeting. Malcolm was
formerly a partner at Kingston Smith, a prominent London-based accounting firm,
from 1977-1988. He served as Chairman and Managing Director. of Zurich Group, a
London stock exchange company, from 1985-1989. For a number of years, Malcolm
worked as the driving force behind the AMLH business model and bringing together
the companies that were rolled up to create American Leisure Holdings, Inc.
L. William Chiles Chairman and Chief Executive Officer is one of the travel
industry's most successful and innovative executives, serving as President & CEO
of Hickory Travel Systems since 1989. In addition, Bill is Chairman of both the
First Travel Management and GlobalStar supervisory board of directors. He also
sits on advisory boards for the Airline Reporting Corp. (ARC) and the American
Society of Travel Agents (ASTA).
Gillian M. Wright, Director of American Leisure Holding, Inc., has been involved
in corporate travel and residential real estate development and has helped
Malcolm J. Wright, her husband, to bring together the roll up companies.
James Leaderer. Director of American Leisure Holdings, Inc.
ITEM 10 EXECUTIVE COMPENSATION
The Company has accrued $250,000 compensation to Malcolm Wright in the calendar
year 2002. The Company has no retirement or stock option or bonus plan. The
Company accrued directors compensation to L William Chiles and Gillian M Wright
of $9,000 each.
ITEM 11 SECURITY OWNERSHIP OF MANAGEMENT AND BENEFICIAL OWNERS
Set forth below is the direct ownership of Registrant's common Stock by
management and any owner of 5% or more of Stock of Registrant.
Title of Name and address Amount of shares % of class
Securities of owner owned
--------------------------------------------------------------------------------
Common Malcolm J Wright 845,733 12.96%
Preferred 2701 Spivey Lane 55,000 6.25%
Orlando, FL 32837
Common Gillian Wright
As above 230,000 3.52%
Common Wright Family 895,080 13.72%
Preferred Silver Birches, Boughton Hall Ave 305,000 34.65%
Send, Woking, Surrey. UK
Common Roger Maddock 2,287,616 35.06%
Preferred Roseville, St Aubins Village 505,000 57.38%
St Brelade, Jersey, CI.
--------------------------------------------------------------------------------
29
Common All Officers, Directors & 4,258,429 65.26%
Preferred Beneficial Holders as a Group 865,000 98.29%
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had no transactions with related persons in 2002 except as described
in the footnotes to the financial statements.
ITEM 13 CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-14(c)
and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"). Based on such evaluation, such officers
have concluded that, as of the Evaluation Date, our disclosure controls and
procedures are effective in alerting them on a timely basis to material
information relating to our company (including our consolidated subsidiaries)
required to be included in our reports filed or submitted under the Exchange
Act. (b) Changes in Internal Controls. Since the Evaluation Date, there have not
been any significant changes in our internal controls or in other factors that
could significantly affect such controls.
PART IV.
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
Included in Part II, Item 8 of this report:
Report of Independent Public Accountant
Balance Sheet as of December 31, 2002
Statement of Operations - Inception through December 31, 2002
Statement of Stockholders' Equity - Inception to December 31, 2002
Statement of Cash Flows - Inception through December 31, 2002
Notes to the Financial Statements
Code of Ethics
(b) The Company filed various reports on Form 8-K in 2002.
(c) The Company is filing exhibits.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN LEISURE HOLDINGS, INC.
(Registrant)
Date: May 22, 2003 By: /S/ MALCOLM J WRIGHT
-------------------------------------------
Malcolm J Wright,
President and Chief Financial Officer
Date: May 22, 2003 By: /S/ L. WILLIAM CHILES
-------------------------------------------
L. William Chiles, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 25th day of February 2003.
Signature Title
--------- -----
/S/ L. WILLIAM CHILES Chief Executive Officer
-------------------------
/S/ Malcolm J Wright Chief Financial Officer
-------------------------
CERTIFICATIONS
I, L. William Chiles, certify that:
1. I have reviewed this annual report on Form 10-K of American Leisure Holdings,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed
such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in
which this annual report is being prepared; b) evaluated the effectiveness of
the registrant's disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the "Evaluation Date"); and c)
presented in this annual report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
5.The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
31
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 21, 2003
/s/ L. William Chiles
-----------------------
L. William Chiles
Chief Executive Officer
I, Malcolm J. Wright, certify that:
1. I have reviewed this annual report on Form 10-K of American Leisure Holdings,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 21, 2003
/S/ Malcolm J. Wright
-------------------------
Malcolm J. Wright
Chief Financial Officer
32
EXHIBIT 1
---------
AMERICAN LEISURE HOLDINGS, INC.
CODE OF ETHICS
FOR ALL SENIOR EXECUTIVE AND FINANCIAL OFFICERS EMPLOYED WITHIN THE
AMERICAN LEISURE GROUP OF COMPANIES
I. Purpose of Code of Ethics
----------------------------
The purpose of this Code of Ethics is: to promote the honest and ethical conduct
of our Senior Executive and Financial Officers (described below), including the
ethical handling of actual or apparent conflicts of interest between personal
and professional relationships; to promote full, fair, accurate, timely and
understandable disclosure in periodic reports required to be filed by American
Leisure Holdings, Inc (the "Company"); and to promote compliance with all
applicable rules and regulations that apply to the Company and its officers.
II. Introduction
----------------
This Code of Ethics is applicable to the Company's chief executive officer,
chief financial officer, chief operating officers, general counsel, chief
administrative, chief accounting officer and comptroller (or any persons
performing similar functions, together, the "Senior Executive and Financial
Officers"). References in this Code of Ethics to the Company means the Company
or any of its subsidiaries.
While we expect honest and ethical conduct in all aspects of our business from
all of our employees, we expect the highest possible honest and ethical conduct
from our Senior Executive and Financial Officers. As a Senior Executive or
Financial Officer, you are an example for other employees and we expect you to
foster a culture of transparency, integrity and honesty. Compliance with this
Code is a condition to your employment and any violations of the Code may result
in disciplinary action, up to and including termination of your employment.
Waivers of this Code may be made only by the Board or a Board committee and will
be disclosed in accordance with applicable law.
III. Conflicts of Interest
--------------------------
A conflict of interest occurs when your private interests interfere, or appear
to interfere, in any way, with the interests of the Company as a whole.
Conflicts of interest can also arise when you take action or you or a member of
your family have interests that may make it difficult for you to perform your
duties to the Company effectively.
Although we cannot list every conceivable conflict, following are some common
examples that illustrate actual or apparent conflicts of interest that should be
avoided:
Improper Personal Benefits from the Company
-------------------------------------------
Conflicts of interest arise when an officer or a member of his or her family
receives improper personal benefits as a result of his or her position in the
Company. You may not accept any benefits from the Company that have not been
duly authorized and approved pursuant to Company policy and procedure, including
any Company loans or guarantees of your personal obligations.
Financial Interests in Other Businesses
---------------------------------------
You should avoid having an ownership interest in any other enterprise if that
interest compromises or appears to compromise your loyalty to the Company. For
example, you may not own an interest in a company that competes with the Company
or that does business with the Company (such as a supplier) unless you obtain
the written approval of the General Counsel (or, with respect to the General
Counsel, approval by the Chief Executive Officer) before making any such
investment. However, it is not typically considered, and the Company does not
consider it, a conflict of interest (and therefore prior written approval is not
33
required) to make investments in competitors, clients or suppliers that are
listed on a national or international securities exchange so long as the total
value of the investment is less than one percent (1%) of the outstanding stock
of the corporation and the amount of the investment is not so significant that
it would affect your business judgment on behalf of the Company.
Business Arrangements with the Company
--------------------------------------
Without the prior written approval of the General Counsel (or, with respect to
the General Counsel, approval by the Chief Executive Officer), you may not
participate in a joint venture, partnership or other business arrangement with
the Company.
Corporate Opportunities
-----------------------
If you learn of a business or investment opportunity through the use of
corporate property or information or your position at the Company, such as from
a competitor or actual or potential supplier or business associate of the
Company (including a principal, officer, director or employee of any of the
above), you may not participate in the business or make the investment without
the prior written approval of the General Counsel (or, with respect to the
General Counsel, approval by the Chief Executive Officer). Such an opportunity
should be considered an investment opportunity for the Company in the first
instance.
Outside Employment or Activities With a Competitor
--------------------------------------------------
Simultaneous employment with or serving as a director of a competitor of the
Company is strictly prohibited, as is any activity that is intended to or that
you should reasonably expect to advance a competitor's interests at the expense
of the Company's interests. You may not market products or services in
competition with the Company's current or potential business activities. It is
your responsibility to consult with the Chief Executive Officer to determine
whether a planned activity will compete with any of the Company's business
activities before you pursue the activity in question.
Outside Employment With a Supplier
----------------------------------
Without the prior written approval of the General Counsel (or, with respect to
the General Counsel, approval by the Chief Executive Officer), you may not be a
supplier or be employed by, serve as a director of or represent a supplier to
the Company. Without the prior written approval of the General Counsel (or, with
respect to the General Counsel, approval by the Chief Executive Officer), you
may not accept money or benefits of any kind from a third party as compensation
or payment for any advice or services that you may provide to a client, supplier
or anyone else in connection with its business with the Company.
Family Members Working In The Industry
--------------------------------------
If your spouse or significant other, your children, parents, or in-laws, or
someone else with whom you have a familial relationship is a competitor or
supplier of Company or is employed by one, you must disclose the situation to
the General Counsel (or, with respect to the General Counsel, to the Chief
Executive Officer) so that the Company may assess the nature and extent of any
concern and how it can be resolved. You must carefully guard against
inadvertently disclosing Company confidential information and being involved in
decisions on behalf of the Company that involve the other enterprise.
If you have any doubt as to whether or not conduct would be considered a
conflict of interest, please consult with the General Counsel.
IV. Accurate Periodic Reports and Other Public Communications
-------------------------------------------------------------
As you are aware, full, fair, accurate, timely and understandable disclosure in
our periodic reports filed with the SEC and in our other public communications
is required by SEC rules and is essential to our continued success. Please
exercise the highest standard of care in preparing such materials. We have
established the following guidelines in order to ensure the quality of our
periodic reports.
34
All Company accounting records, as well as reports produced from those records,
must be kept and presented in accordance with the laws of each applicable
jurisdiction. All records must fairly and accurately reflect the transactions or
occurrences to which they relate. All records must fairly and accurately reflect
in reasonable detail the Company's assets, liabilities, revenues and expenses.
The Company's accounting records must not contain any false or intentionally
misleading entries. No transaction may be intentionally misclassified as to
accounts, departments or accounting periods or in any other manner.
All transactions must be supported by accurate documentation in reasonable
detail and recorded in the proper account and in the proper accounting period.
No information may be concealed from the internal auditors or the independent
auditors. Compliance with Generally Accepted Accounting Principles and the
Company's system of internal accounting controls is required at all times.
V. Compliance with Laws and Ethics Code
---------------------------------------
You are expected to comply with both the letter and spirit of all applicable
governmental rules and regulations and this Code, and to report any suspected
violations of applicable governmental rules and regulations or this Code to the
General Counsel or the CEO. No one will be subject to retaliation because of a
good faith report of a suspected violation. If you fail to comply with this Code
or any applicable laws or regulations, you may be subject to disciplinary
measures, up to and including discharge.
No Rights Created
-----------------
This Code is a statement of certain fundamental principles, policies and
procedures that govern the Company's Senior Executive and Financial Officers in
the conduct of the Company's business. It is not intended to and does not create
any rights in any employee, customer, supplier, competitor, shareholder or any
other person or entity.
================================================================================
AMERICAN LEISURE HOLDINGS, INC. ACKNOWLEDGMENT FORM
---------------------------------------------------
I have received and read the Code of Ethics for Senior Executive and Financial
Officers, and I understand its contents. I agree to comply fully with the
standards contained in the Code of Ethics and the Company's related policies and
procedures. I understand that I have an obligation to report to the General
Counsel any suspected violations of the Code of Ethics.
Name of Company
================================================================================
Position Printed Name
Witness Signature
================================================================================
Printed Name
================================================================================
Signature Date
35
Exhibit 2
---------
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section
906 of The Sarbanes-Oxley Act of 2002
I, L. William Chiles, Chief Executive Officer of American Leisure Holdings, Inc.
(the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350, that:
o the Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 2003, as filed with the Securities and Exchange Commission on
the date hereof (the "Report") fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
o the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company for the periods presented therein.
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section
906 of The Sarbanes-Oxley Act of 2002
I, Malcolm J. Wright, Chief Financial Officer of American Leisure Holdings, Inc.
(the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350, that:
o the Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 2003, as filed with the Securities and Exchange Commission on
the date hereof (the "Report") fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
o the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company for the periods presented therein.
36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
American Leisure Holdings, Inc. and Subsidiaries
(A Development Stage Company)
Tamarac, Florida
We have audited the accompanying consolidated balance sheet of American Leisure
Holdings, Inc. and Subsidiaries as of December 31, 2002, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from June 14, 2002 (Inception) through December 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Leisure Holdings, Inc. and Subsidiaries as of December 31, 2002, and
the results of its operations and its cash flows for each of the period from
June 14, 2002 (Inception) through December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 3 to the financial statements, the Company's recurring
losses from operations and the need to raise additional financing in order to
satisfy its vendors and other creditors and execute its Business Plan raise
substantial doubt about its ability to continue as a going concern.
(Management's plans as to these matters are also described in Note 3.) The 2002
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Malone & Bailey, PLLC
----------------------------
Malone & Bailey, PLLC
www.malone-bailey.com
Houston, Texas
May 21, 2003
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
ASSETS
CURRENT ASSETS:
Cash $ 50,499
Prepaid expenses and other 31,093
------------
Total Current Assets 81,592
------------
PROPERTY, PLANT EQUIPMENT, NET 295,031
------------
LAND HELD FOR FUTURE DEVELOPMENT 10,056,005
LAND HELD FOR SALE 2,018,638
------------
OTHER ASSETS
Investment 635,886
1913 Mercedes Benz 500,000
Other 31,766
------------
Total Other Assets 1,167,652
------------
TOTAL ASSETS $ 13,618,918
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 1,719,606
Current maturities of notes payable - related parties 476,643
Accounts payable and accrued expenses 822,232
Shareholder advances 870,032
------------
Total Current Liabilities 3,888,513
Long-term debt and notes payable 3,675,920
Notes payable - related parties 911,773
------------
Total Liabilities 8,476,206
------------
COMMITMENTS AND CONTINGENCIES
Minor liability --
STOCKHOLDERS' EQUITY:
Preferred stock; 1,000,000 shares authorized; $.01 par value;
880,000 Series "A" shares issued and outstanding 8800
Preferred stock; 100,000 shares authorized; $.01 par value;
2,500 Series "B" shares issued and outstanding 25
Capital stock, $.001 par value; 100,000,000 shares authorized;
6,524,983 shares issued and outstanding 6,525
Additional paid-in capital 5,738,852
Deficit accumulated during the development stage (611,490)
------------
Total Stockholders' Equity 5,142,712
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,618,918
============
The accompanying notes are an integral part of these financial statements.
F-1
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JUNE 14, 2002 (INCEPTION) THROUGH DECEMBER 31, 2002
Inception
Through
December 31,
2002
-----------
REVENUES $ 24,082
COST OF REVENUES 18,425
-----------
GROSS MARGIN 5,657
-----------
OPERATING EXPENSES:
Depreciation and amortization 21,446
Impairment loss 101,937
General and administrative expenses 493,764
-----------
TOTAL OPERATING EXPENSES 617,147
-----------
LOSS FROM OPERATIONS BEFORE MINORITY INTERESTS (611,490)
Minority interests --
-----------
NET LOSS $ (611,490)
===========
NET LOSS PER SHARE:
BASIC AND DILUTED $ (0.09)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC AND DILUTED 6,524,983
===========
The accompanying notes are an integral part of these financial statements.
F-2
AMERICAN LEISURE HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JUNE 14, 2002 (INCEPTION) TO DECEMBER 31, 2002
Preferred Stock Capital Stock Additional
------------------------- ------------------------- Paid-in
Shares Amount Shares Amount Capital
----------- ----------- ----------- ----------- -----------
Issuance of preferred and common shares to founders
for assets 880,000 $ 8800 4,893,974 $ 4,894 $ 5,353,973
Issuance of common shares in connection with reverse
merger and recapitalization of American Holdings -- -- 831,009 831 (831)
Issuance of shares for services -- -- 800,000 800 135,713
Issuance of shares for equipment 2,500 25 -- -- 249,997
----------- ----------- ----------- ----------- -----------
Balance,
December 31, 2002 882,500 $ 8,825 6,524,983 $ 6,525 $ 5,738,852
=========== =========== =========== =========== ===========
Deficit
Accumulated
During the Total
Development Stockholders'
Stage Equity
----------- -----------
Issuance of preferred and common shares to founders
for assets $ -- $ 5,367,689
Issuance of common shares in connection with reverse
merger and recapitalization of American Holdings -- --
Issuance of shares for services -- 136,513
Issuance of shares for equipment -- 250,000
Net loss (611,490) (611,490)
----------- -----------
Balance,
December 31, 2002 $ (611,490) $ 5,142,712
=========== ===========
The accompanying notes are an integral part of these financial statements
F-3
AMERICAN LEISURE HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JUNE 14, 2002 (INCEPTION) THROUGH DECEMBER 31, 2002
Inception
Through
December 31,
2002
--------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (611,490)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 21,446
Impairment loss 101,937
Common stock issued for services 136,513
Changes in assets and liabilities:
Decrease in receivables 42,926
Increase in prepaid and other assets (32,859)
Increase in accounts payable and accrued expense 634,009
-----------
-----------
Net cash provided by operating activities 292,482
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (149,020)
-----------
CAPITALIZATIONOF REAL ESTATE CARRYING COST (1,099,484)
Net cash used in investing activities 1,248,504
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 390,973
Proceeds from notes payable - related parties 248,536
Proceeds from shareholder advances 316,198
-----------
Net cash provided by financing activities 955,707
-----------
Net decrease in cash (315)
CASH AT BEGINNING PERIOD 50,814
-----------
CASH AT END OF PERIOD $ 50,499
===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ --
===========
Cash paid for income taxes $ --
===========
NON-CASH TRANSACTIONS:
Stock issued in exchange for assets $ 250,000
===========
Stock issued for assets, net of liabilities of $7,111,668 $ 5,367,689
===========
The accompanying notes are an integral part of these financial statements.
F-4
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 2002
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
American Leisure Holdings, Inc. (A development stage company), a Nevada
corporation, was incorporated in May 2002. American Leisure's objective was to
obtain through acquisitions and/or merger transactions, assets, which could
benefit its shareholders. Effective June 14, 2002, Freewillpc.com, Inc., a
Nevada corporation , acquired American Leisure Holdings, Inc., a Nevada
corporation ("American Leisure") in exchange for the issuance of 880,000 shares
of Series A preferred stock and 4,893,974 shares of common stock, and changed
its name to American Leisure Holdings, Inc.
For accounting purposes this transaction was treated as an acquisition of
Freewill and a recapitalization of American Leisure. American Leisure is the
accounting acquirer and the results of its operations carry over. Accordingly,
the operations of Freewill are not carried over and are adjusted to $0.
Simultaneously with the reverse merger, the founders contributed the following
assets and their associated liabilities (at their bases) as follows:
o 163 acres of undeveloped commercial and residential real estate for
future development
o Land Held for sale, which consist of 13.5 acres of commercial real
estate
o 1913 Mercedes Benz
o Investment-41.25% pf A,erocam Vacatopm Resprts
Because none of these contributed properties had significant business operations
prior to June 14, 2002, no predecessor entity previous operations are included
in these financials statements.
American Leisure through its subsidiaries is involved in the development of
vacation real estate and the supplying of products related to the travel and
leisure business.
PRINCIPLES OF CONSOLIDATION
In determining whether American Leisure has a direct or indirect controlling
financial interest in affiliates, consideration is given to various factors,
including common stock ownership, possession of securities convertible into
common stock and the related conversion terms, voting rights, representation on
the board of directors, rights or obligations to purchase additional ownership
interests as well as the existence of contracts or agreements that provide
control features. Generally, when American Leisure determines that its
ownership, direct or indirect, exceeds fifty percent of the outstanding voting
shares of an affiliate, American Leisure will consolidate the affiliate.
Furthermore, when American Leisure determines that it has the ability to control
the financial or operating policies through its voting rights, board
representation or other similar rights, American Leisure will consolidate the
affiliate.
For those affiliates that American Leisure does not have the ability to control
the operating and financial policies thereof, the investments are accounted for
under the equity or cost method, as appropriate. American Leisure applies the
equity method of accounting when it has the ability to exercise significant
influence over operating and financial policies of an investee in accordance
with APB Opinion No. 18, "The Equity Method of Accounting for Investments in
F-5
Common Stock." In determining whether American Leisure has the ability to
exercise significant influence, consideration is given to various factors
including the nature and significance of the investment, the capitalization
structure of the investee, representation on the board of directors, voting
rights, veto rights and other protective and participating rights held by
investors and contractual arrangements. Additionally, American Leisure applies
accounting principles generally accepted in the United States of America and
interpretations when evaluating whether it should consolidate securitization
entities. Typically, if American Leisure does not retain both control of the
assets transferred to the securitization entities, as well as the risks and
rewards of those assets, American Leisure will not consolidate such entities. In
determining whether the securitization entity should be consolidated, American
Leisure considers whether the entity is a qualifying special purpose entity, as
defined by Statement of Financial Accounting Standards ("SFAS") No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities--a replacement of FASB Statement No. 125."
The consolidated financial statements include the accounts of American Leisure
Holdings, Inc. and its subsidiaries owned and/or controlled by American Leisure
as follows:
Company Percentage
American Leisure Corporation, Inc. (ALC) and Subsidiaries 100.00%
Florida Golf Group, Inc.(FGG) 100.00%
American Leisure Homes, Inc. (ALH) 100.00%
I-Drive Limos, Inc. (ID) 100.00%
Orlando Holidays, Inc. (OH) 100.00%
Welcome to Orlando, Inc. (WTO) 100.00%
American Leisure, Inc. (ALI) 100.00%
Pool Homes Managers, Inc. (PHM) 100.00%
Advantage Professional Management Group, Inc. (APMG) 100.00%
Leisureshare International Ltd (LIL) 100.00%
Leisureshare International Espanola S.A. (LIESA) 100.00%
American Travel & Marketing Group, Inc. (ATMG) 81.00%
American Leisure Marketing and Technologies, Inc. 81.00%
Sunstone Golf Resorts, Inc. 81.00%
F-6
o American Vacation Resorts (AVR) is not included in the consolidated
financial statements as of 2002, but shown as an investment under other
assets. As of December 31, 2002, ALI owns 41.25% of American Vacation
Resorts, Inc. (AVR), a Florida corporation. Malcolm and Gillian Wright,
shareholders also own 41.25% of AVR. Under a voting trust, neither American
Leisure nor the Wrights are allowed any decision-making authority in AVR.
Additionally, they are prohibited from releasing any information about AVR
without the permission of the Board of Directors. Therefore, AVR is not
consolidated and is treated as an investment at cost of $635,886 as of
December 31, 2002.
o I-Drive Limos is a wholly owned subsidiary of ALI as of December 31, 2002.
This company, whose sole asset is an antique motor vehicle, a 1913 Benz, in
December 1998. The asset is a one of a kind vehicle and is shown at cost of
$500,000. The vehicle was originally purchased at auction in May of 1990
for $434,732 and subsequently restored increasing its total cost to
$500,000. Antique Mercedes-Benz vehicles sold in the last six years range
widely in price, from $1,700,000 for a 1928 Brevette to $22,500 for a 1938
Sedan. Most of the antique Mercedes-Benz sold are dated from the 1930s are
sold for approximately $200,000. Until an outside appraisal can be made,
the closest to an unbiased assessment of value was considered to be the
insurance valuation of $500,000. Per FASB 93, paragraph 6 ("Consistent with
the accepted practice for land used as a building site, depreciation need
not be recognized on individual works or art of historical treasures whose
economic benefit or service potential is used up so slowly that their
estimated useful lives are extraordinarily long") no depreciation expense
is assessed. Nor has any appreciation in value been estimated. American
Leisure, along with the asset, was transferred to American Leisure
Corporation on June 14, 2002 at book value.
No amounts for minority interests were reflected in the consolidated statement
of operations since there were no losses applicable to the subsidiary.
All significant inter-company accounts and transactions have been eliminated in
the consolidation.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of American Leisure Holdings,
Inc. (American Leisure) is presented to assist in understanding American
Leisure's financial statements. The financial statements and notes are
representations of American Leisure's management, which is responsible for their
integrity and objectivity. These accounting policies conform to accounting
F-7
principles generally accepted in the United States of America and have been
consistently applied in the preparation of the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CONCENTRATION OF RISK
American Leisure places its cash and temporary cash investments with established
financial institutions.
LONG-LIVED ASSETS
Long-lived assets are stated at cost. Maintenance and repairs are expensed as
incurred. Depreciation is determined using the straight-line method over the
estimated useful lives of the assets, which is between three to ten years.
Where an impairment of a property's value is determined to be other than
temporary, an allowance for the estimated potential loss is established to
record the property at its net realizable value.
When items of land, building or equipment are sold or retired, the related cost
and accumulated depreciation are removed from the accounts and any gain or loss
is included in the results of operations.
INCOME TAXES
American Leisure accounts for income taxes using the asset and liability method.
The differences between the financial statement and tax bases of assets and
liabilities are determined annually. Deferred income tax assets and liabilities
are computed for those differences that have future tax consequences using the
currently enacted tax laws and rates that apply to the period in which they are
expected to affect taxable income. Valuation allowances are established, if
necessary, to reduce deferred tax asset accounts to the amounts that will more
likely than not be realized. Income tax expense is the current tax payable or
refundable for the period, plus or minus the net change in the deferred tax
asset and liability accounts.
F-8
CASH
American Leisure considers (if and when they have any) all highly liquid
investments with maturities of three months or less to be cash equivalents.
SHARES FOR SERVICES AND OTHER ASSETS
American Leisure accounts for non-cash stock-based compensation issued to
non-employees in accordance with the provisions of SFAS No. 123 and EITF No.
96-18, Accounting for Equity (deficit) Investments That Are Issued to
Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Common stock issued to non-employees and consultants is based upon the value of
the services received or the quoted market price, whichever value is more
readily determinable.
REVENUE RECOGNITION
American Leisure upon the initiation of its proposed operations will recognize
revenues on the accrual method of accounting. For the sales of units on the
Orlando property, revenues will be recognized upon the close of escrow for the
sales of its real estate. Operating revenues earned will be recognized upon the
completion of the earning process.
Revenues from American Leisure's call center will be recognized upon the
completion of the earning process from the completion of the travel of the
customer, the trip to the properties for the potential purchase, or the
appropriate event based on the agreement with American Leisure's client as to
the ability to be paid for the service.
LOSS PER SHARE
American Leisure is required to provide basic and dilutive earnings (loss) per
common share information.
The basic net loss per common share is computed by dividing the net loss
applicable to common stockholders by the weighted average number of common
shares outstanding.
Diluted net loss per common share is computed by dividing the net loss
applicable to common stockholders, adjusted on an "as if converted" basis, by
the weighted average number of common shares outstanding plus potential dilutive
securities.
For the period ended December 31, 2002, potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
F-9
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This statement addresses the diverse accounting practices for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. American Leisure will be required to adopt
this statement effective January 1, 2003. American Leisure does not expect that
the adoption of SFAS No. 143 will have any effect on American Leisure's
financial statement presentation or disclosures.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This SFAS made revisions to the accounting for gains and losses from the
extinguishment of debt, rescinded SFAS No. 44 and required certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. American
Leisure will be required to adopt SFAS No. 145 on January 1, 2003. The adoption
of SFAS No. 145 is not expected to have a material impact on American Leisure's
financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Such costs covered by
the standard include lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued operation, plant
closing, or other exit or disposal activity. SFAS No. 146 replaces the previous
accounting guidance provided by the Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. American Leisure does not anticipate that the adoption
of SFAS No. 146 will have any effect on American Leisure's financial statement
presentation or disclosures.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN45"). FIN45 elaborates on the existing disclosure
requirements for most guarantees, including loan guarantees such as standby
letters of credit. It also clarifies that at the time a company issues a
guarantee, American Leisure must recognize an initial liability for the fair
market value of the obligations it assumes under that guarantee and must
disclose that information in its interim and annual financial statements. The
initial recognition and measurement provisions of FIN 45 apply on a prospective
basis to guarantees issued or modified after December 31, 2002. American Leisure
F-10
has implemented the disclosure provisions of FIN45 in its December 31, 2002
financial statements, without significant impact.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities (and Interpretation of ARB No. 51)" ("FIN46"). FIN46
addresses consolidation by business enterprises of certain variable interest
entities, commonly referred to as special purpose entities. American Leisure
will be required to implement the other provisions of FIN46 in 2003. American
Leisure does not anticipate that the adoption of FIN46 will have any effect on
American Leisure's financial statement presentation or disclosure.
NOTE 3 - FINANCIAL CONDITION AND GOING CONCERN
American Leisure's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. American Leisure
incurred a net loss of $611,490 for the period ended December 31, 2002 and has
negative working capital of $3,806,921. These factors raise substantial doubt as
to American Leisure's ability to obtain debt and/or equity financing and achieve
profitable operations.
American Leisure's management intends to raise additional operating funds
through equity and/or debt offerings. However, there can be no assurance
management will be successful in its endeavors. Ultimately, American Leisure
will need to achieve profitable operations in order to continue as a going
concern.
During March 2003, American Leisure refinanced certain obligations secured by
its undeveloped land. American Leisure signed a promissory note for $6,000,000.
American Leisure paid off approximately $3,401,217 and certain other expenses
and prepaid interest for the 1st year with approximately $500,000 remaining for
working capital requirements. The promissory note bears interest at 12% and is
due in March 2005.
American Leisure has a non-binding commitment from a financial institution for a
$5,000,000 credit facility. As of May 20, 2003, American Leisure has not closed
on this transaction.
There are no assurances that American Leisure will be able to either (1) achieve
a level of revenues adequate to generate sufficient cash flow from operations;
or (2) obtain additional financing through either private placement, public
offerings and/or bank financing necessary to support American Leisure's working
capital requirements. To the extent that funds generated from operations and any
private placements, public offerings and/or bank financing are insufficient,
American Leisure will have to raise additional working capital. No assurance can
be given that additional financing will be available, or if available, will be
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on terms acceptable to American Leisure. If adequate working capital is not
available American Leisure may be required to curtail its operations.
NOTE 4 - REVERSE MERGER
Effective June 14, 2002, Freewillpc.com, Inc., a Nevada corporation, acquired
American Leisure Holdings, Inc., a Nevada corporation ("American Leisure") in
exchange for the issuance of 880,000 shares of convertible preferred stock and
4,893,974 shares of common stock, and changed its name to American Leisure
Holdings, Inc.
For accounting purposes this transaction was treated as an acquisition of
Freewill and a recapitalization of American Leisure. American Leisure is the
accounting acquirer and the results of its operations carry over. Accordingly,
the operations of Freewill are not carried over and are adjusted to $0.
Pro forma information giving effect to the acquisition as if the acquisition
took place on June 14, 2002 is presented as follows. June 14, 2002 is the balance sheet
date for American Leisure Because it was created from the combination of properties
contributed by the forwarding shareholders.
Historical Pro-Forma
------------------------------------ -----------------------------------
American
Freewill Leisure
12/31/01 6/14/02 Adjustments Total
----------------- --------------- --------------- ----------------
Cash $ - $ 50,814 $ - $ 50,814
Receivables, net - 42,926 - 42,926
Prepaid expenses - 10,000 - 10,000
----------------- --------------- --------------- ----------------
- 103,740 - 103,740
Property and equipment, net - 256,941 - 256,941
Land held for future development - 8,956,521 8,956,521
Land held for sale - 2,020,936 - 2,020,936
Investment - 621,219 - 621,219
1913 Mercedes Benz - 500,000 - 500,000
Other - 20,000 - 20,000
----------------- --------------- --------------- ----------------
$ - $ 12,479,357 $ - $ 12,479,357
================= =============== =============== ================
Current maturities of long-term
debt $ - $ 1,832,962 $ - $ 1,832,962
Current maturities of notes-
payable related parties - 416,800 - 416,800
Accounts payable and accrued
expenses - 188,223 - 188,223
Shareholder advances - 553,834 - 553,834
Long-term debt - 3,396,769 - 3,396,769
Notes payable - shareholder - 723,080 - 723,080
----------------- --------------- --------------- ----------------
- 7,111,668 - 7,111,668
----------------- --------------- --------------- ----------------
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Preferred stock 1,669 8800 (1,669) 8800
Common stock - 4,894 - 4,894
Additional paid-in capital 241,981 5,353,995 (241,981) 5,353,995
Accumulated deficit (243,650) - 243,650 -
----------------- --------------- --------------- ----------------
- 5,367,689 - 5,367,689
----------------- --------------- --------------- ----------------
$ - $ 12,479,357 $ - $ 12,479,357
================= =============== =============== ================
The pro forma presentation and adjustments reflect the following items:
o Elimination of all equity accounts of Freewillpc, since American Leisure is
the accounting acquirer.
o The common stock and additional paid in capital amounts and retained
deficit are decreased for the net liabilities assumed from Freewillpc in
the merger. The net liabilities acquired were $0.
NOTE 5 - PROPERTY AND EQUIPMENT, NET
At December 31, 2002, property and equipment consisted of the following:
Useful Lives
Amount
------------- ---------------
---------------
Computer equipment 3-5 $ 19,674
Furniture & fixtures 5-7 24,617
Leasehold improvements 5 36,239
Telecommunications equipment 7 250,412
Undeveloped land 10,056,005
---------------
10,386,947
Less: accumulated depreciation and amortization 35,911
---------------
$ 10,351,036
Depreciation expense for the period ended December 31, 2002 was $21,446.
NOTE 6 - ASSET HELD FOR SALE
American Leisure owns 13.5 acres of commercial property in Polk County Florida
at the corner of U.S. Hwy. 27 at the corner of Tri-county road. As of May 20,
2003 American Leisure has received a letter of intent for the sale of the
property and is in process of evaluating this offer. American Leisure recorded
an impairment charge of $100,000 to record the property at its anticipated
market value.
NOTE 7 - ASSET HELD FOR SALE
American Leisure owns 13.5 acres of commercial property in Polk County Florida
at the corner of U.S. Hwy. 27 at the corner of Tri-county road. As of May 20,
2003 American Leisure has received a letter of intent for the sale of the
property and is in process of evaluating this offer. American Leisure recorded
an impairment charge of $100,000 to record the property at its anticipated
selling price.
NOTE 8 - LONG-TERM DEBT AND NOTE PAYABLE
Maturity Date Interest
Collateral rate 2002
--------------------------- ------------ ----------- ---------------
1st lien on 13.5 acres
Mortgage Company commercial property 6/1/03 16% $ 600,000
Third party entity 3rd lien on 13.5 acres 5/1/03 10% 172,031
1st lien on 53 acres of
Individual undeveloped land 3/31/03 16% 947,575
1st lien on 110 acres of
Individual undeveloped land 3/31/05 12% 1,777,576
2nd lien on 110 acres of
Individual undeveloped land 3/31/05 12% 1,898,344
-------------
5,395,526
Less: current portion of long-term debt (1,719,606)
-------------
Long-term debt $ 3,675,920
=============
Principal repayments for each of the next five years are as follows:
Amount
----------------
2003 $ 1,719,606
2004 -
2005 3,675,920
---------------
$ 5,395,526
===============
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NOTE 8 - NOTES PAYABLE - RELATED PARTIES
Maturity Date Interest
Collateral rate 2002
--------------------------- ------------ ----------- ---------------
Affiliated entity 2nd lien on 13.5 acres 5/1/07 4.75% $ 200,000
2nd lien on 53 acres of
Shareholder undeveloped land 3/31/03 18% 476,643
2nd lien on 110 acres of
Shareholder undeveloped land 3/31/05 12% 711,773
-------------
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1,388,416
Less: current portion of long-term debt (476,643)
-------------
Long-term debt $ 911,773
=============
Principal repayments for each of the next five years are as follows:
Amount
----------------
2003 $ 476,643
2004 -
2005 711,773
---------------
$ 1,388,416
===============
2006 --
2007 200,000
NOTE 9 - SHAREHOLDER ADVANCES
American Leisure has shareholder advances totaling $870,032 that bear interest
at 0% to 12%, non-interest bearing notes have imputed interest at 8%. The
advances are unsecured and are due upon demand.
NOTE 10 - PREFERRED STOCK
American Leisure is authorized to issue up to 10,000,000 shares in aggregate of
preferred stock:
Annual
Total Series Stated Value Dividends per Conversion Rate
Authorized Voting Share
-------------------- ------------- ---------- --------------- ------------------
Series A 1,000,000 $ 10.00 Yes $ 0.12 10 to1
Series B 2,500 $100.00 Yes $ 0.12 20 to1
Series A have voting rights equal to 10 common shares to 1 Series A preferred
share.
Series A are redeemable at the American Leisure's option after 5 years if not
converted by the holder. The conversion period is 5 years.
Conversion is at 10 for 1 or if the market price is below $1.00 then the average
daily market price for the 10 consecutive trading days prior to conversion.
Dividends are payable if funds are available. Accrued but unpaid dividends do
not pay interest.
Series B have voting rights equal to 20 common shares to 1 Series B preferred
share.
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Series B are redeemable at the American Leisure's option after 5 years if not
converted by the holder. The conversion period is 5 years.
Conversion is up to 20 for 1 based on the market price.
Dividends are payable if funds are available. Accrued but unpaid dividends do
not pay interest.
NOTE 11 - INCOME TAXES
Deferred taxes are determined based on the temporary differences between the
financial statement and income tax bases of assets and liabilities as measured
by the enacted tax rates which will be in effect when these differences reverse.
The components of deferred income tax assets (liabilities) at December 31, 2002,
were as follows:
Amount
----------------
Net operating loss carryforwards $ 206,000
Valuation allowance (206,000)
---------------
Net deferred tax assets $ -
===============
At December 31, 2002, American Leisure had a net operating loss carryforward for
federal income tax purposes totaling approximately $600,000 which, if not
utilized, will expire in the year 2022.
In June 2002, American Leisure had a change in ownership, which has resulted in
American Leisure's net operating loss carryforward being subject to certain
utilization limitations in the future.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
American Leisure entered into a lease in November 2002 for office space located
in Tamarac, Florida on a five year lease term through November 2007. The monthly
rental payment is $17,708 and the future minimum lease payments are as follows:
December 31, Amount
------------
2003 $ 212,500
2004 212,500
2005 212,500
2006 212,500
2007 194,788
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Rent expense for the period ended December 31, 2002 $17,708.
LITIGATION
In June 2001, Rock Investment Trust, P.L.C., a British limited liability
company, and RIT, L.C., a related Florida limited liability company, filed suit
against Malcolm J. Wright, American Vacation Resorts, Inc., Inversora Tetuan,
S.A., Sunstone Golf Resort, Inc., and Sun Gate Resort Villas, Inc., seeking
either the return of an alleged $500,000 investment or ownership interest in one
or more of the defendant entities equivalent to the alleged investment amount.
Defendants have denied all claims and Mr. Wright, American Leisure and Inversora
Tetuan have a counterclaim against Rock Investment Trust and its principal,
Roger Smee for damages. American Leisure is seeking to recover deposits and
costs on two real estate transactions totaling approximately $440,000 plus
damages. The litigation is in the discovery phase and is not currently set for
trial. American Leisure believes that Rock Investment Trust's and RITs claims
are without merit and the claim is not material to American Leisure, Inc.
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