As filed with the Securities and Exchange Commission on July 27, 2005
Registration No. 333-126309
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2/A
Amendment No. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICAN LEISURE HOLDINGS, INC.
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(Name of Registrant in Our Charter)
NEVADA 4724 75-2877111
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification No.)
MALCOLM J. WRIGHT
PARK 80 PLAZA EAST PARK 80 PLAZA EAST
SADDLE BROOK, NEW JERSEY 07663 SADDLE BROOK, NEW JERSEY 07663
(800) 546-9676 ext. 2076 (800) 546-9676 ext. 2076
(Address and telephone number of principal (Name, address and telephone number
executive offices and principal place of business) of agent for service)
Copies to:
David M. Loev, Esq. Trae O'Neil High, Esq.
David M. Loev, Attorney at Law David M. Loev, Attorney at Law
2777 Allen Parkway, Suite 1000 2777 Allen Parkway, Suite 1000
Houston, Texas 77019 Houston, Texas 77019
Telephone: (713) 524-4110 Telephone: (713) 524-4110
Telecopier: (713) 524-4122 Telecopier: (713) 524-4122
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE (2)
---------------------------------------- ----------------- ------------------ -------------------- ---------------------
Common Stock, par value $0.001 per share 5,983,222 shares $1.525 $9,124,413.55 $1,073.94
(1) Includes 2,168,000 shares of common stock, 1,440,750 shares issuable
upon conversion of convertible promissory notes, 1,811,532 shares issuable
upon exercise of warrants, and 562,940 shares issuable upon conversion of
convertible Series C preferred stock.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, using the
average of the bid and asked price as reported on the over-the-counter
Bulletin Board as
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PROSPECTUS
Dated July 27, 2005
AMERICAN LEISURE HOLDINGS, INC.
5,983,222 SHARES OF COMMON STOCK
The selling stockholders are offering 5,983,222 shares of our common stock
for resale under this prospectus for their own account. The selling
stockholders directly own 2,168,000 shares of the common stock being offered and
have the right to acquire the remaining 3,815,222 shares upon the conversion of
up to 150% of the principal balance of convertible notes, the exercise of
warrants and/or the conversion of Series C preferred stock. We are not selling
any shares of common stock in this offering; therefore, we will not receive any
proceeds from this offering. We may, however, receive proceeds from the
exercise of warrants by the selling stockholders as discussed in more detail
elsewhere in this prospectus.
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High and low bid information for our common stock is listed on the
over-the-counter Bulletin Board (the "OTCBB") under the trading symbol "AMLH."
The selling stockholders have advised us that the shares of common stock offered
by them may be sold directly to purchasers by the selling stockholders as
principals or through one or more underwriters, brokers, dealers or agents from
time to time in one or more transactions (which may involve crosses or block
transactions) (i) on the over-the-counter market or in any other market on which
the price of our shares of common stock are quoted or (ii) in transactions other
than on the over-the-counter market or in any other market on which the price of
our shares of common stock are quoted. As of the date of this prospectus, we do
not have knowledge of an intention by the selling stockholders to sell the
shares of common stock being offered in this prospectus.
-----------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
PURCHASE OUR COMMON STOCK ONLY IF YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT.
WE URGE YOU TO READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE 3 ALONG WITH
THE REST OF THIS PROSPECTUS BEFORE YOU MAKE YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information that is different from
that contained in this prospectus. The information in this prospectus is
complete and accurate only as of the date on this front cover regardless of the
time of delivery of this prospectus or of any sale of shares. Except where the
context requires otherwise, in this prospectus, the "Company," "we," "us"
"AMLH," and "our" refer to American Leisure Holdings, Inc., a Nevada
corporation, and, where appropriate, its subsidiaries.
TABLE OF CONTENTS
PROSPECTUS SUMMARY 1
RISK FACTORS 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 11
USE OF PROCEEDS 12
SELLING STOCKHOLDERS 12
PLAN OF DISTRIBUTION 15
LEGAL PROCEEDINGS 16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 18
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 20
DESCRIPTION OF SECURITIES 21
EXPERTS 24
LEGAL MATTERS 24
INTEREST OF NAMED EXPERTS 24
DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES 24
DESCRIPTION OF BUSINESSES 25
MANAGEMENT'S DISCUSSION AND ANALYSIS 31
DESCRIPTION OF PROPERTY 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 38
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 40
EXECUTIVE COMPENSATION 41
FINANCIAL STATEMENTS 44
CHANGES IN ACCOUNTANTS 76
AVAILABLE INFORMATION 78
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus
and does not contain all of the information you should consider in making your
investment decision. You should read this summary together with the more
detailed information, including our financial statements and the related notes,
elsewhere in this prospectus. You should carefully consider, among other things,
the matters discussed in "Risk Factors."
AMERICAN LEISURE HOLDINGS, INC.
American Leisure Holdings, Inc. is in the process of developing a large,
multi-national travel services, travel management and travel distribution
organization. Our Travel Division offers a wide range of corporate and leisure
services that will merge the best available technology with traditional client
service to promote an efficient and complete travel management experience. In
addition, to our Travel Division, we also have a Resort Development Division to
develop, construct and manage vacation home ownership and travel destination
resorts and properties. Our founding shareholders and officers have had
experience in developing vacation properties in Europe that we intend to utilize
in the development and marketing of our resorts. Our first such resort is THE
SONESTA ORLANDO RESORT AT TIERRA DEL SOL, a 972 luxury, town home and
condominium unit property to be located in the Orlando, Florida theme park area.
We now have pre-sold 100% of the town homes and have accepted reservations on
41% of the condominiums, resulting in over $243,000,000 in gross contract value
as of June 15, 2005. We have received a term sheet from a national lender for
the vertical construction of the resort and are currently negotiating the final
terms. We anticipate receiving a firm binding commitment during July 2005. Our
Travel Division is currently comprised of a retail, corporate and leisure travel
management company as well as a travel systems provider that services travel
agencies worldwide. We also promote the sale of our travel products by marketing
through affinity clubs that we develop and operate. We plan to launch on average
a new club every two months for the next eighteen months. We also have a
Communications Division. One of our subsidiaries owns a call center in
Antigua-Barbuda that is currently being operated on our behalf through a joint
venture in which we have a 39.69% interest. Our businesses are intended to
complement each other and create cross-marketing opportunities. We intend to
take advantage of the synergies between the distribution of travel services and
the development, marketing, sale and management of luxury vacation home
ownership and travel destination resorts.
In October 2003, we acquired a 51% stock interest in Hickory Travel
Systems, Inc. as the first building block of our Travel Division. Hickory is a
travel management service organization that primarily serves a
network/consortium of approximately 160 well-established travel agency members,
comprised of over 3,000 travel agents worldwide that focus primarily on
corporate travel. We intend to complement our other businesses through the use
of Hickory's 24-hour reservation services, international rate desk services,
discount hotel programs, preferred supplier discounts, commission enhancement
programs, marketing services, professional services, automation and information
exchange. We view the members of Hickory as a potential resource for future
acquisitions of viable travel agencies to add to our Travel Division, as we
intend to continue to expand our Travel Division via the acquisition of
well-positioned travel agencies.
In December 2004, we acquired substantially all of the assets of Around The
World Travel, Inc., which included the business name "TraveLeaders" and all of
the tangible and intangible assets necessary to operate TraveLeaders.
TraveLeaders is a fully integrated travel services distribution business that
provides its clients with a comprehensive range of business and vacation travel
services in both traditional and e-commerce platforms including corporate travel
management, leisure sales, and meeting, special event and incentive planning.
We are in the process of integrating the administrative operations of
Hickory and TraveLeaders to distribute, fulfill and manage our travel services.
We will use the travel distribution, fulfillment and management services of the
combined resources of Hickory and TraveLeaders to provide customized corporate
travel management and consumer bookings at our planned resorts, to rent vacation
homes that we plan to manage at these resorts, and to fulfill the travel service
needs of our affinity-based travel clubs. TraveLeaders currently fulfills travel
orders produced by our affinity travel clubs.
CORPORATE INFORMATION
Our principal executive offices are located at Park 80 Plaza East, Saddle
Brook, New Jersey 07663 and our telephone number is (800) 546-9676, extention
2076. Our corporate website is www.americanleisureholdings.com. The information
on our web sites is not a part of this prospectus.
We were incorporated in Nevada in June 2000 as Freewillpc.com, Inc., and
until June 2002, operated as a web-based retailer of built-to-order personal
computers and brand name related peripherals, software, accessories and
networking products. In June 2002, we acquired American Leisure Corporation in a
reverse merger. We re-designed and structured our business to own, control and
direct a series of companies in the travel and tourism industries so that we can
achieve vertical and horizontal integration in the sourcing and delivery of
corporate and vacation travel services for vacation resorts that we plan to
develop as well as for the corporate and leisure travel markets.
1
THE OFFERING
COMMON STOCK OFFERED (1) 5,983,222 shares by selling stockholders
OFFERING PRICE Market price
COMMON STOCK OUTSTANDING
BEFORE THE OFFERING 10,137,974 shares as of June 30, 2005
COMMON STOCK OUTSTANDING
AFTER THE OFFERING (2) 12,990,256
USE OF PROCEEDS We will not receive any proceeds from
the shares offered by the selling
stockholders. (3)
MARKET FOR OUR COMMON STOCK Our common stock is quoted on the OTCBB
under the trading symbol "AMLH." The market
for our common stock is highly volatile. The
securities offered hereby involve a high
degree of risk and substantial dilution. We
can provide no assurance that a market for
our common stock will continue or provide
more liquidity than currently available. If a
market is created, it will likely be illiquid
and sporadic. See "Risk Factors."
(1) Includes 1,440,750 shares issuable to the selling stockholders upon
the conversion of up to 150% (rather than 100%) of the principal amount of
convertible promissory notes for principal, and any accrued interest or
other charges, 2,168,000 shares directly owned by the selling stockholders,
1,411,532 shares issuable to the selling stockholders upon the exercise of
warrants at $1.02 per share, 400,000 shares issuable to the selling
stockholders upon the exercise of warrants at $5.00 per share, and 562,940
shares issuable to the selling stockholders upon the conversion of Series C
preferred stock With respect to the convertible promissory notes, the
selling stockholders may receive one share for every $15.00 of principal,
accrued interest or other charges converted under a $6,000,000 note and one
share for every $10.00 converted under a $4,000,000 note, a $1,250,000 note
and a $1,355,000 note.
(2) Assuming full conversion of 150% (rather than 100%) of the principal
amount of the convertible promissory notes for principal, and accrued
interest or other charges and exercise of the warrants to purchase
1,411,532 shares at $1.02 per share.
(3) We may, however, receive proceeds from the exercise of warrants held
by selling stockholders. We will use any proceeds that we may receive from
the exercise of the warrants for general working capital purposes. See "Use
of Proceeds."
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following tables summarize financial data regarding our business and
should be read together with "Management's Discussion and Analysis" and our
consolidated financial statements and the related notes included elsewhere in
this prospectus.
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
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2004 2003 2005 2004
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(Audited) (Unaudited)
Restated Restated
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue $ 6,419,320 $ 3,327,483 $ 2,675,674 $ 1,186,665
Loss from Operations (4,209,749) (1,616,502) (160,864) (1,007,873)
Other Expense (2,922,076) -- (393,319) --
Minority Interest (510,348) 510,348 -- 256,624
Provision for Income Taxes (12,824) -- -- (1,135)
Net Loss (6,634,301) (2,126,850) (554,183) (752,384)
Net Loss Available to Common Stockholders $ (7,882,632) $(3,209,875) $ (905,073) $(1,028,353)
Loss Per Share Available to Common
Stockholders: Basic and Diluted $ (0.92) $ (0.47) $ (0.09) $ (0.13)
2
AT DECEMBER 31, AT MARCH 31,
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2004 2003 2005 2004
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(Audited) (Unaudited)
Restated Restated
CONSOLIDATED BALANCE SHEETS DATA:
Total assets $ 67,401,981 $25,376,475 66,608,315 31,615,550
Total liabilities 61,117,979 21,932,013 61,072,144 28,752,337
Common and preferred stock and additional paid-in capital 18,579,123 7,856,970 18,736,365 6,352,802
Accumulated deficit (12,295,121) (4,412,488) (13,200,194) (3,489,589)
Total shareholders' equity 6,284,002 3,444,462 5,536,171 2,863,213
RISK FACTORS
We are subject to various risks that may materially harm our business,
financial condition and results of operations. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding to purchase our common stock. If any of these risks
or uncertainties actually occurs, our business, financial condition or operating
results could be materially harmed. In that case, the trading price of our
common stock could decline and you could lose all or part of your investment.
RISKS RELATING TO OUR CAPITAL AND LIQUIDITY NEEDS
WE HAVE A LIMITED HISTORY OF OPERATIONS AND WE HAVE A HISTORY OF OPERATING
LOSSES.
Since our inception, we have been assembling our Travel Division including
the acquisition of Hickory in October 2003 and TraveLeaders in December 2004,
planning The Sonesta Orlando Resort at Tierra del Sol, building travel club
membership databases, and assembling our management team. We have incurred net
operating losses since our inception. As of March 31, 2005, we had an
accumulated deficit of $13,200,194.
WE MAY NOT GENERATE ENOUGH OPERATING REVENUE OR CAPITAL TO MEET OUR OPERATING
AND DEVELOPMENT COSTS.
Our costs of establishing our business models for both the Travel Division
and the Resort Development Division, including acquisitions and the due
diligence costs of that process, together with the un-financed development costs
incurred in the Resort Development Division requires significant capital.
Historically, our sources for capital have been through loans from our founding
and majority shareholders as well as from loans from our capital partner,
Stanford Venture Capital Holdings, Inc. ("Stanford"). If we are unable to
generate enough operating revenue to satisfy our capital needs or we cannot
obtain future capital from our founding and majority shareholders or from
Stanford, it will have a material adverse effect on our financial condition and
results of operation.
3
WE HAVE RECEIVED $11,605,000 OF CONVERTIBLE DEBT FINANCING FROM STANFORD VENTURE
CAPITAL HOLDINGS, INC., WHICH IS SECURED BY MORTGAGES ON OUR PROPERTY AND LIENS
ON OUR ASSETS.
We have received an aggregate of $11,605,000 of convertible debt
financing from Stanford. The terms of our financial arrangements with Stanford
are secured by the following mortgages on our properties and liens on our
assets:
- Our $6,000,000 credit facility is secured by a second mortgage on
The Sonesta Orlando Resort at Tierra del Sol which we plan to develop,
including all fixtures and personal property to be located on or used
in connection with this property, and all of the issued and
outstanding capital stock and assets of two of our subsidiaries,
American Leisure Marketing & Technology, Inc. and Caribbean Leisure
Marketing Limited.
- Our $4,250,000 credit facility is secured by collateral
assignments of our stock in the active Travel Division subsidiaries as
well as a collateral assignment of our first lien security interest in
the assets formerly owned by Around The World Travel, Inc.
- Our $1,355,000 credit facility is secured by all of the issued
and outstanding stock of our subsidiary, Caribbean Leisure Marketing
Limited.
In addition, Malcolm J. Wright, our President, Chief Executive Officer, Chief
Financial Officer and a member of our board of directors provided a personal
guarantee for our $6,000,000 credit facility. If we fail to comply with the
covenants in our credit facility, Stanford may accelerate the amounts due under
the credit facility and may foreclose on our assets and property that secure the
loans.
RESORT DEVELOPMENT DIVISION
WE NEED TO CLOSE A $96,600,000 CONSTRUCTION LOAN FOR THE RESORT DEVELOPMENT
DIVISION IN ORDER TO BUILD THE SONESTA ORLANDO RESORT AT TIERRA DEL SOL.
We need to complete the process of complying with the terms of a term sheet
offer made to us by a national lender to provide the $96,600,000 of construction
financing for The Sonesta Orlando Resort at Tierra del Sol. Our compliance is
also necessary to trigger the issuance and sale of $26,000,000 of Westridge
Community Development District bonds. Proceeds from the sale of the bonds will
be used to construct the infrastructure of the resort and to acquire certain
lands from us for public dedication. Proceeds from the sale of the bonds are a
necessary component to the capital structure of the project to develop the
resort. If we cannot complete the compliance required by the term sheet offer,
it will cause a delay in the construction of the resort.
EXCESSIVE CLAIMS FOR DEVELOPMENT-RELATED DEFECTS IN ANY REAL ESTATE PROPERTIES
THAT WE PLAN TO BUILD THROUGH OUR RESORT DEVELOPMENT DIVISION COULD ADVERSELY
AFFECT OUR LIQUIDITY, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We will engage third-party contractors to construct our resorts. However,
our customers may assert claims against us for construction defects or other
perceived development defects including, but not limited to, structural
integrity, the presence of mold as a result of leaks or other defects,
electrical issues, plumbing issues, or road construction, water or sewer
defects. In addition, certain state and local laws may impose liability on
property developers with respect to development defects discovered in the
future. To the extent that the contractors do not satisfy any proper claims as
they are primarily responsible, a significant number of claims for
development-related defects could be brought against us. To the extent that
claims brought against us are not covered by insurance, our payment of those
claims could adversely affect our liquidity, financial condition, and results of
operations.
MALCOLM J. WRIGHT, WHO SERVES AS OUR CHIEF EXECUTIVE OFFICER, PRESIDENT AND
CHIEF FINANCIAL OFFICER AND AS A DIRECTOR, IS INVOLVED IN OTHER BUSINESSES THAT
HAVE CONTRACTED WITH US AND IS ALSO INVOLVED WITH PROPERTY DEVELOPMENT PROJECTS
THAT MAY BE IN COMPETITION WITH US.
Malcolm J. Wright is the President of American Leisure Real Estate Group,
Inc., a real estate development company with which we have contracted for the
development of The Sonesta Orlando Resort at Tierra del Sol. Mr. Wright is an
officer of Xpress Ltd., with which we have contracted for exclusive sales and
marketing for The Sonesta Orlando Resort at Tierra del Sol. Mr. Wright is also
an officer of Innovative Concepts, Inc., which operates a landscaping business,
and M J Wright Productions, Inc., which owns our Internet domain names. Because
Mr. Wright is employed by us and the other party to these transactions, these
transactions may be or may be considered to be on terms that are not
arms'-length and may not be as advantageous to us as agreements with unrelated
third parties. From time to time, Mr. Wright pursues real estate investment and
sales ventures that may be in competition with ventures that we pursue or plan
to pursue.
BECAUSE MALCOLM J. WRIGHT, WHO SERVES AS OUR CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHIEF FINANCIAL OFFICER AND AS A DIRECTOR, IS INVOLVED IN A NUMBER OF OTHER
BUSINESSES, HE MAY NOT BE ABLE OR WILLING TO DEVOTE A SUFFICIENT AMOUNT OF TIME
TO OUR BUSINESS OPERATIONS.
Malcolm J. Wright is the President of American Leisure Real Estate Group,
Inc., Xpress Ltd., Innovative Concepts, Inc., M J Wright Productions, Inc.,
Resorts Development Group, LLC, Osceola Business Managers, Inc., Florida World,
Inc. and SunGate Resort Villas, Inc. It is possible that the demands on Mr.
Wright from these other businesses could increase with the result that he may
have less time to devote to our business. We do not have an employment agreement
with Mr. Wright and he is under no requirement to spend a specified amount of
time on our business. As a result, Mr. Wright may not spend sufficient time in
his roles as an executive officer and a director of our company to realize our
business plan. If Mr. Wright does not have sufficient time to serve our company,
it could have a material adverse effect on our business and results of
operations.
4
WE MAY PROVIDE THE EXECUTIVE OFFICERS OF OUR SUBSIDIARIES AN AGGREGATE BONUS OF
UP TO 19% OF THE PRE-TAX PROFITS OF THE SUBSIDIARY IN WHICH THEY SERVE AS OUR
EXECUTIVE OFFICERS, WHICH WOULD REDUCE ANY PROFITS THAT WE MAY EARN.
We may provide the executive officers of each of our subsidiaries an
aggregate bonus of up to 19% of the pre-tax profits, if any, of the subsidiaries
in which they serve as executive officers. Malcolm J. Wright would receive 19%
of the pre-tax profits of Leisureshare International Ltd, Leisureshare
International Espanola SA, American Leisure Homes, Inc., Advantage Professional
Management Group, Inc., Tierra del Sol Resort, Inc., and American Leisure
Hospitality Group, Inc. We do not have any agreements with our officers
regarding the bonus other than with L. William Chiles. Mr. Chiles is entitled to
receive 19% of the profits of Hickory up to a maximum payment over the life of
his contract of $2,700,000. As Mr. Chiles' bonus is limited, it is not subject
to the buy-out by us described below. The executive officers of our other
subsidiaries would share a bonus of up to 19% of the pre-tax profits of the
subsidiary in which they serve as executive officers. We would retain the right,
but not have the obligation to buy out all of the above agreements after a
period of five years by issuing such number of shares of our common stock equal
to the product of 19% of the average after-tax profits for the five-year period
multiplied by one-third of the price-earnings ratio of our common stock at the
time of the buyout divided by the greater of the market price of our common
stock or $5.00. If we pay bonuses in the future, it will reduce our profits and
the amount, if any, that we may otherwise have available to pay dividends to our
preferred and common stockholders.
WE HAVE EXPERIENCED DELAYS IN OBTAINING SIGNATURES FOR AGREEMENTS AND
TRANSACTIONS, WHICH HAVE PREVENTED THEM FROM BEING FINALIZED.
We have experienced delays in obtaining signatures for various agreements
and transactions. In some cases, we have either disclosed the terms of these
agreements and transactions in our periodic and other filings with the SEC;
however, these agreements and transactions are not final. Until they are
finalized, their terms are subject to change although we do not have any present
intention to do so. If the terms of these agreements and transactions were to
change, we may be required to amend our prior disclosure and any revisions could
be substantial.
WE ARE RELIANT ON KEY MANAGEMENT AND IF WE LOSE ANY OF THEM, IT COULD HAVE A
MATERIAL ADVERSE AFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.
Our success depends, in part, upon the personal efforts and abilities of
Malcolm J. Wright and L. William Chiles. Mr. Wright is a Director of the Company
and the Company's Chief Executive Officer, President and Chief Financial
Officer. Mr. Chiles is a Director of the Company and President of Hickory. Our
ability to operate and implement our business plan is dependent on the continued
service of Messrs. Wright and Chiles. We have entered into an employment
agreement with Mr. Chiles as discussed elsewhere in this prospectus. We are in
the process of entering into a written employment agreement with Mr. Wright. If
we are unable to retain and motivate them on economically feasible terms, our
business and results of operations will be materially adversely affected.
IF WE DO NOT EVENTUALLY PAY MALCOLM J. WRIGHT, OUR CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER FOR HIS SERVICES AS AN EXECUTIVE OFFICER AND A DIRECTOR,
WE COULD LOSE HIS SERVICES.
We have not paid cash to Malcolm J. Wright for his services as an executive
officer and a director as of the date of this prospectus; however, he is
entitled to receive various forms of remuneration from us such as accrued salary
of $500,000 per year beginning in 2004 and accrued compensation of $18,000 per
year for serving as a director. We may pay Mr. Wright a bonus of up to 19% of
the pre-tax profits, if any, of various subsidiaries as discussed above. We
have made payments to entities controlled by Mr. Wright in consideration for
substantial services that those entities have provided to us for The Sonesta
Orlando Resort at Tierra del Sol. If we do not eventually pay cash to Mr.
Wright for his salary, director's compensation and bonus, he may determine to
spend less of his time on our business or to resign his positions as an officer
and a director.
TRAVEL DIVISION
WE NEED APPROXIMATELY $1,500,000 OF CAPITAL THROUGH THE END OF THE CURRENT
FISCAL YEAR FOR THE TRAVEL DIVISION THAT MAY NOT BE AVAILABLE TO US ON FAVORABLE
TERMS, IF AT ALL.
We need to raise approximately $1,500,000 through the end of the current fiscal
year for the working capital needs for the Travel Division which includes
Hickory's requirement through the third quarter of 2005 to cover its seasonal
losses, TraveLeaders requirements during its reorganization to adopt our
business models, and our operating costs prior to closing a construction loan
(discussed below). If we do not receive a sufficient amount of additional
capital on acceptable terms, or at all, we may be unable to fully implement our
business plan. We have identified sources of additional working capital, but we
do not have any written commitments from third parties or from our officers,
directors or majority shareholders. Additional capital may not be available to
us on favorable terms, if at all. If we cannot obtain a sufficient amount of
additional capital, we will have to delay, curtail or scale back some or all of
our travel operations, any of which would materially adversely affect our travel
businesses. In addition, we may be required to delay the acquisition of
additional travel agencies and restructure or refinance all or a portion of our
outstanding debt.
OUR COMMISSIONS AND FEES ON CONTRACTS WITH SUPPLIERS OF TRAVEL SERVICES FOR OUR
TRAVEL DIVISION MAY BE REDUCED OR THESE CONTRACTS MAY BE CANCELLED AT WILL BY
THE SUPPLIERS BASED ON OUR VOLUME OF BUSINESS, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
Our suppliers of travel services including airline, hotel, cruise, tour and
car rental suppliers may reduce the commissions and fees that we earn under
contract with them based on the volume of business that we generate for them.
These contracts generally renew annually and in some cases may be cancelled at
will by the suppliers. If we cannot maintain our volume of business, our
suppliers could contract with us on terms less favorable than the current terms
of our contracts or the terms of their contracts with our competitors, exclude
us from the products and services that they provide to our competitors, refuse
to renew our contracts, or, in some cases, cancel their contracts with us at
will. In addition, our suppliers may not continue to sell services and products
through global distribution systems on terms satisfactory to us. If we are
unable to maintain or expand our volume of business, our ability to offer travel
service or lower-priced travel inventory could be significantly reduced. Any
discontinuance or deterioration in the services provided by third parties, such
as global distribution systems providers, could prevent our customers from
accessing or purchasing particular travel services through us. If these
suppliers were to cancel or refuse to renew our contracts or renew them on less
favorable terms, it could have a material adverse effect on our business,
financial condition or results of operations.
5
OUR SUPPLIERS OF TRAVEL SERVICES TO OUR TRAVEL DIVISION COULD REDUCE OR
ELIMINATE OUR COMMISSION RATES ON BOOKINGS MADE THROUGH US BY PHONE AND OVER THE
INTERNET, WHICH COULD REDUCE OUR REVENUES.
We receive commissions paid to us by our travel suppliers such as hotel
chains and cruise companies for bookings that our customers make through us by
phone and over the Internet. Consistent with industry practices, our suppliers
are not obligated by regulation to pay any specified commission rates for
bookings made through us or to pay commissions at all. Over the last several
years, travel suppliers have substantially reduced commission rates. Our travel
suppliers have reduced our commission rates in certain instances. Future
reductions, if any, in our commission rates that are not offset by lower
operating costs could have a material adverse effect on our business and results
of operations.
FAILURE TO MAINTAIN RELATIONSHIPS WITH TRADITIONAL TRAVEL AGENTS FOR OUR TRAVEL
DIVISION COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS.
Hickory has historically received, and expects to continue to receive, a
significant portion of its revenue through relationships with traditional travel
agents. Maintenance of good relationships with these travel agents depends in
large part on continued offerings of travel services in demand, and good levels
of service and availability. If Hickory does not maintain good relations with
its travel agents, these agents could terminate their memberships and use of
Hickory's products and services, which would have a material adverse effect on
our business and results of operations.
DECLINES OR DISRUPTIONS IN THE TRAVEL INDUSTRY COULD SIGNIFICANTLY REDUCE OUR
REVENUE FROM THE TRAVEL DIVISION.
Potential declines or disruptions in the travel industry may result from
any one or more of the following factors:
- price escalation in the airline industry or other travel related
industries;
- airline or other travel related strikes;
- political instability, war and hostilities;
- long term bad weather;
- fuel price escalation;
- increased occurrence of travel-related accidents; and
- economic downturns and recessions.
6
OUR TRAVEL REVENUES MAY FLUCTUATE FROM QUARTER TO QUARTER DUE TO SEVERAL FACTORS
INCLUDING ONES THAT ARE OUTSIDE OF OUR CONTROL, AND IF OUR REVENUES ARE BELOW
OUR EXPECTATIONS IT WOULD LIKELY HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS
OF OPERATIONS.
We may experience fluctuating revenues because of a variety of factors,
many of which are outside of our control. These factors may include, but are not
limited to, the timing of new contracts; reductions or other modifications in
our clients' marketing and sales strategies; the timing of new product or
service offerings; the expiration or termination of existing contracts or the
reduction in existing programs; the timing of increased expenses incurred to
obtain and support new business; changes in the revenue mix among our various
service offerings; labor strikes and slowdowns at airlines or other travel
businesses; and the seasonal pattern of TraveLeaders' business and the travel
agency members of Hickory. In addition, we make decisions regarding staffing
levels, investments and other operating expenditures based on our revenue
forecasts. If our revenues are below expectations in any given quarter, our
operating results for that quarter would likely be materially adversely
affected.
GLOBAL TRAVEL DISTRIBUTION SYSTEM CONTRACTS THAT WE MAY ENTER INTO GENERALLY
PROVIDE FOR FINANCIAL PENALTIES FOR NOT ACHIEVING PERFORMANCE OBJECTIVES.
We are seeking to enter into multi-year global distribution system
contracts. These contracts typically cover a five-year period and would require
us to meet certain performance objectives. If we do not structure a global
distribution system contract effectively, it may trigger financial penalties if
the performance objectives are not met. In the event that we enter into global
distribution system contracts and are unable to meet the performance objectives,
it would have a material adverse effect on our business, liquidity and results
of operations.
OUR CONTRACTS WITH CLIENTS OF THE TRAVELEADERS BUSINESS DO NOT GUARANTEE THAT WE
WILL RECEIVE A MINIMUM LEVEL OF REVENUE, ARE NOT EXCLUSIVE, AND MAY BE
TERMINATED ON RELATIVELY SHORT NOTICE.
Our contracts with clients of the TraveLeaders business do not ensure that
we will generate a minimum level of revenue, and the profitability of each
client may fluctuate, sometimes significantly, throughout the various stages of
our sales cycles. Although we will seek to enter into multi-year contracts with
our clients, our contracts generally enable the client to terminate the
contract, or terminate or reduce customer interaction volumes, on relatively
short notice. Although some contracts require the client to pay a contractually
agreed amount in the event of early termination, there can be no assurance that
we will be able to collect such amount or that such amount, if received, will
sufficiently compensate us for our investment in any canceled sales campaign or
for the revenues we may lose as a result of the early termination. If we do not
generate minimum levels of revenue from our contracts or our clients terminate
our multi-year contracts, it will have a material adverse effect on our
business, results of operation and financial condition.
WE RECEIVE CONTRACTUALLY SET SERVICE FEES AND HAVE LIMITED ABILITY TO INCREASE
OUR FEES TO MEET INCREASING COSTS.
Most of our travel contracts have set service fees that we may not increase
if, for instance, certain costs or price indices increase. For the minority of
our contracts that allow us to increase our service fees based upon increases in
cost or price indices, these increases may not fully compensate us for increases
in labor and other costs incurred in providing the services. If our costs
increase and we cannot, in turn, increase our service fees or we have to
decrease our service fees because we do not achieve defined performance
objectives, it will have a material adverse effect on our business, results of
operations and financial condition.
7
THE TRAVEL INDUSTRY IS LABOR INTENSIVE AND INCREASES IN THE COSTS OF OUR
EMPLOYEES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, LIQUIDITY OR
RESULTS OF OPERATIONS.
The travel industry is labor intensive and has experienced high personnel
turnover. A significant increase in our personnel turnover rate could increase
our recruiting and training costs and decrease operating effectiveness and
productivity. If we obtain a significant number of new clients or implement a
significant number of new, large-scale campaigns, we may need to recruit, hire
and train qualified personnel at an accelerated rate, but we may be unable to do
so. Because significant portions of our operating costs relate to labor costs,
an increase in wages, costs of employee benefits, employment taxes or other
costs associated with our employees could have a material adverse effect on our
business, results of operations or financial condition.
OUR INDUSTRY IS SUBJECT TO INTENSE COMPETITION AND COMPETITIVE PRESSURES
COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.
We believe that the market in which we operate is fragmented and highly
competitive and that competition may intensify in the future. We compete with
small firms offering specific applications, divisions of large entities, large
independent firms and the in-house operations of clients or potential clients. A
number of competitors have or may develop greater capabilities and resources
than us. Additional competitors with greater resources than us may enter our
market. Competitive pressures from current or future competitors could cause our
services to lose market acceptance or result in significant price erosion, all
of which could have a material adverse effect upon our business, results of
operations or financial condition.
CALL CENTER
WE MAY NOT BE ABLE TO KEEP UP WITH CURRENT AND CHANGING TECHNOLOGY ON WHICH OUR
BUSINESS IS DEPENDENT.
Our call center and communications business is dependent on our computer
and communications equipment and software capabilities. The underlying
technology is continually changing. Our continued growth and future
profitability depends on a number of factors affected by current and changing
technology, including our ability to
- expand our existing service offerings;
- achieve cost efficiencies in our existing call centers; and
- introduce new services and products that leverage and respond to
changing technological developments.
The technologies or services developed by our competitors may render our
products or services non competitive or obsolete. We may not be able to develop
and market any commercially successful new services or products. We have
considered integrating and automating our customer support capabilities, which
we expect would decrease costs by a greater amount than any decrease in
revenues; however, we could be wrong in these expectations. Our failure to
maintain our technological capabilities or respond effectively to technological
changes could have a material adverse effect on our business, results of
operations or financial condition.
A BUSINESS INTERRUPTION AT OUR CALL CENTER, WHETHER OR NOT PROLONGED, COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.
Our call center business operations depend upon our ability to protect our
call center, computer and telecommunications equipment and software systems
against damage from fire, power loss, telecommunications interruption or
failure, natural disaster and other similar events. In the event we experience a
temporary or permanent interruption at our call center and our contracts do not
provide relief, our business could be materially adversely affected and we could
be required to pay contractual damages to some clients or allow some clients to
terminate or renegotiate their contracts with us. In the event that we
experience business interruptions, it would have a material adverse effect on
our business, results of operations and financial condition.
RISKS RELATING TO OUR COMMON STOCK
IF WE FAIL TO FILE OUR PERIODIC REPORTS AND REPORTS ON FORM 8-K WITH THE
COMMISSION IN A TIMELY MANNER, WE COULD RECEIVE AN "E" ON OUR TRADING SYMBOL OR
OUR COMMON STOCK COULD BE DE-LISTED FROM THE OTCBB.
We are in the process of integrating the business operations of Hickory and
TraveLeaders, which includes the financial accounting function. We face
increased pressure related to recording, processing, summarizing and reporting
consolidated financial information required to be disclosed by us in the reports
that we file or submit under the Exchange Act in a timely manner. We also face
increased pressure accumulating and communicating such information to our
management as appropriate to allow timely decisions regarding required
disclosure. We believe that until we have fully integrated our financial
accounting function, we will continue to face such pressure. If we are unable to
file our periodic reports with the Commission in a timely manner, we could
receive an "e" on our trading symbol, which could result in our common stock
being de-listed from the OTCBB. In addition, investors who hold restricted
shares of our common stock would be precluded from reselling their shares
pursuant to Rule 144 of the Securities Act until such time as we were able to
establish a history of current filings with the Commission. In the event that
our common stock is de-listed from the OTCBB, it is likely that our common stock
will have less liquidity than it has, and will trade at a lesser value than it
does, on the OTCBB.
8
OUR COMMON STOCK COULD AND HAS FLUCTUATED, AND SHAREHOLDERS MAY BE UNABLE TO
RESELL THEIR SHARES AT A PROFIT.
The price of our common stock has fluctuated since it began trading. The
trading prices for small capitalization companies like ours often fluctuate
significantly. Market prices and trading volume for stocks of these types of
companies including ours have also been volatile. The market price of our common
stock is likely to continue to be highly volatile. If revenues or earnings are
less than expected for any quarter, the market price of our common stock could
significantly decline, whether or not there is a decline in our consolidated
revenues or earnings that reflects long-term problems with our business. Other
factors such as our issued and outstanding common stock becoming eligible for
sale under Rule 144, terms of any equity and/or debt financing, and market
conditions could have a significant impact on the future price of our common
stock and could have a depressive effect on the then market price of our common
stock.
RE-PRICING WARRANTS AND ISSUING ADDITIONAL WARRANTS TO OBTAIN FINANCING HAS
CAUSED AND MAY CAUSE ADDITIONAL DILUTION TO OUR EXISTING STOCKHOLDERS.
In the past, to obtain additional financing, we have modified the terms of
our warrant agreements to lower the exercise price per share to $.001 from $5.00
with respect to warrants to purchase 100,000 shares of our common stock and to
$.001 from $2.96 with respect to warrants to purchase 1,350,000 shares of our
common stock. We are currently in need of additional financing and may be
required to lower the exercise price of our existing warrants or issue
additional warrants in connection with future financing arrangements. Re-pricing
of our warrants and issuing additional warrants has caused and may cause
additional dilution to our existing shareholders.
THERE MAY NOT BE AN ACTIVE OR LIQUID TRADING MARKET FOR OUR COMMON STOCK, WHICH
MAY LIMIT INVESTORS' ABILITY TO RESELL THEIR SHARES.
An active and liquid trading market for our common stock may not develop
or, if developed, such a market may not be sustained. In addition, we cannot
predict the price at which our common stock will trade. If there is not an
active or liquid trading market for our common stock, investors in our common
stock may have limited ability to resell their shares.
WE HAVE AND MAY CONTINUE TO ISSUE PREFERRED STOCK THAT HAS RIGHTS AND
PREFERENCES OVER OUR COMMON STOCK.
Our Articles of Incorporation, as amended, authorize our Board of Directors
to issue preferred stock, the relative rights, powers, preferences, limitations,
and restrictions of which may be fixed or altered from time to time by the Board
of Directors. Accordingly, the Board of Directors may, without approval from the
shareholders of our common stock, issue preferred stock with dividend,
liquidation, conversion, voting, or other rights that could adversely affect the
voting power and other rights of the holders of our common stock. The preferred
stock can be utilized, under certain circumstances, as a method of discouraging,
delaying, or preventing a change in our ownership and management that
shareholders might not consider to be in their best interests. We have issued
various series of preferred stock, which have rights and preferences over our
common stock including, but not limited to, cumulative dividends and preferences
upon liquidation or dissolution.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE NEAR FUTURE.
We have never declared or paid dividends on our common stock. We do not
anticipate paying dividends on our common stock in the
near future. Our ability to pay dividends is dependent upon, among other things,
future earnings as well as our operating and financial condition, capital
requirements, general business conditions and other pertinent factors. We intend
to reinvest in our business operations any funds that could be used to pay
dividends. Our common stock is junior in priority to our preferred stock with
respect to dividends. Cumulative dividends on our issued and outstanding Series
A preferred stock, Series B preferred stock, Series C preferred stock and Series
E preferred stock accrue dividends at a rate of $1.20, $12.00, $4.00, and $4.00,
respectively, per share per annum, payable in preference and priority to any
payment of any cash dividend on our common stock. We have authorized Series F
preferred stock with cumulative dividends that accrue at a rate of $1.00 per
share per annum and are also payable in preference and priority to any payment
of any cash dividend on our common stock. Dividends on our preferred stock
accrue from the date on which we agree to issue such preferred shares and
thereafter from day to day whether or not earned or declared and whether or not
there exists profits, surplus or other funds legally available for the payment
of dividends. We have never paid any cash dividends on our preferred stock. We
will be required to pay accrued dividends on our preferred stock before we can
pay any dividends on our common stock.
9
BECAUSE OF THE SIGNIFICANT NUMBER OF SHARES OWNED BY OUR DIRECTORS, OFFICERS AND
PRINCIPAL SHAREHOLDERS, OTHER SHAREHOLDERS MAY NOT BE ABLE TO SIGNIFICANTLY
INFLUENCE OUR MANAGEMENT.
Our directors, officers, and principal shareholders beneficially own a
substantial portion of our outstanding common and preferred stock. Malcolm J.
Wright, who serves as our President, Chief Executive Officer and Chief Financial
Officer and as a Director, and Roger Maddock, one of our majority shareholders,
own, directly and indirectly, an aggregate of 62.6% of the voting power in our
company. As a result, these persons control our affairs and management, as well
as all matters requiring shareholder approval, including the election and
removal of members of the Board of Directors, transactions with directors,
officers or affiliated entities, the sale or merger of the Company or
substantially all of our assets, and changes in dividend policy. This
concentration of ownership and control could have the effect of delaying,
deferring, or preventing a change in our ownership or management, even when a
change would be in the best interest of other shareholders.
RISKS RELATING TO THIS OFFERING
THIS OFFERING MAY CAUSE SUBSTANTIAL DILUTION TO THE EXISTING HOLDERS OF OUR
COMMON STOCK AND PREFERRED STOCK.
As of June 30, 2005, we had 10,137,974 shares of common stock issued and
outstanding. Upon the effectiveness of the registration statement of which this
prospectus is a part, the selling stockholders will have the right to sell up to
5,983,222 shares of our common stock for resale under this prospectus. The
shares being offered in this prospectus include up to 150% of the principal
amount of convertible promissory notes for principal and any accrued interest or
other obligations that become due under our credit agreements with Stanford
Venture Capital Holdings, Inc. The selling stockholders have a right to acquire
a majority of the shares being offered from the conversion of convertible
promissory notes, the exercise of warrants and the conversion of Series C
preferred stock. The selling stockholders may be more likely to convert the
notes or Series C preferred stock or exercise the warrants if the registration
statement to which this prospectus is a part is effective. If the selling
stockholders convert the notes it will reduce both our long-term and short-term
liabilities. However, if the selling stockholders convert the notes or Series C
preferred stock or exercise the warrants, it will cause substantial dilution to
the existing holders of our common and preferred stock.
THIS OFFERING COULD REDUCE THE MARKET PRICE OF OUR COMMON STOCK.
Of the shares of common stock being offered by the selling stockholders for
resale under this prospectus, up to 1,753,940 shares are being offered by
non-affiliates. If the registration statement to which this prospectus is a
part is effective, these non-affiliates may freely resell their shares into the
market. Although we have no knowledge of any intention by the selling
stockholders to sell the shares of common stock being offered in this
prospectus, in the event they were to resell their shares, it could reduce
the market price of our common stock.
10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. All statements other
than statements of historical facts contained in this prospectus, including
statements regarding our future financial position, planned business model,
business strategy and plans and objectives of management for future operations,
are forward-looking statements. The words "believe," "may," "estimate,"
"continue," "anticipate," "intend," "expect" and similar expressions are
intended to identify forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends that we believe may affect our
financial condition, results of operations, planned business model, business
strategy, short term and long term business operations and objectives, and
financial needs. In addition, a number of our "objectives," "intentions,"
"beliefs," "expectations," or "goals" described in "Description of Business" and
"Management's Discussion and Analysis" and as well as in this prospectus
generally are also forward-looking statements. The forward-looking statements
included in this prospectus are subject to a number of risks, uncertainties and
assumptions, including those described in "Risk Factors."
In light of these risks, uncertainties and assumptions, the forward-looking
events and circumstances discussed in this prospectus may not occur and actual
results could differ materially and adversely from those anticipated or implied
in the forward-looking statements.
11
USE OF PROCEEDS
The selling stockholders are offering 5,983,222 shares of our common stock
for resale under this prospectus for their own account. We are not selling any
shares of common stock in this offering; therefore, we will not receive any
proceeds from this offering. We may, however, receive up to $3,439,763 in
proceeds from the exercise of warrants by the selling stockholders to purchase
1,411,532 shares of common stock at $1.02 per share, and 400,000 shares of
common stock at $5.00 per share. These shares are included in the shares being
offered for resale under this prospectus. We will use any proceeds that we may
receive from the exercise of the warrants for general working capital purposes.
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders.
PERCENTAGE OF
OUTSTANDING PERCENTAGE OF
SHARES OUTSTANDING
BENEFICIALLY SHARES
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY
OWNED BEFORE BEFORE TO BE SOLD IN THE OWNED AFTER
SELLING SECURITY HOLDER OFFERING(1) OFFERING(2) OFFERING OFFERING
----------- ----------- ------------- ---------
Stanford International
Bank Limited 3,608,233 30.6% 3,242,750 (3) 0%
Malcolm J. Wright 6,015,841 41.3% 447,860 (4) 31.2%
Arvimex, Inc. 7,122,268 47.0% 270,000 (5) 36.6%
L. William Chiles 1,093,672 10.5% 268,672 (6) 6.1%
Daniel T. Bogar 306,250 3.0% 306,250 (7) *
William R. Fusselmann 306,250 3.0% 306,250 (7) *
Osvaldo Pi 306,250 3.0% 306,250 (7) *
Ronald M. Stein 306,250 3.0% 306,250 (7) *
Steven Parker 200,000 1.9% 200,000 (8) *
Charles J. Fernandez 75,000 * 100,000 (9) *
T. Gene Prescott 415,000 4.1% 100,000 (9) 2.4%
Charles Ganz 80,820 * 80,820 (10) *
Toni Pallatto 25,000 * 25,000 (11) *
Ted Gershon 23,120 * 23,120 (12) *
TOTAL 19,883,954 5,983,222
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Under such rules, beneficial ownership
includes any shares as to which the selling security holder has sole or
shared voting power or investment power and also any shares, which the
selling security holder has the right to acquire within 60 days. Shares of
common stock subject to securities exercisable or convertible into shares
of common stock that are currently exercisable or convertible, or
exercisable or convertible within 60 days, are deemed to be beneficially
owned by the person holding such securities for the purpose of computing
the percentage of ownership of such person, but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Applicable percentage of ownership is based on 10,137,974 shares of
common stock outstanding as of June 30, 2005, together with securities
exercisable or convertible into shares of common stock within 60 days of
such date, for each security holder.
(3) Includes 1,125,000 shares of common stock owned directly by Stanford,
1,440,750 shares of common stock issuable upon conversion of 150% of the
principal amount of convertible notes for principal and any accrued
interest or other charges, 477,000 shares of common stock issuable upon the
conversion of Series C preferred stock and 200,000 shares of common stock
issuable upon the exercise of warrants at $5.00 per share; however, this
amount does not include shares of common stock directly owned by four
Stanford employees or shares issuable upon exercise of the warrants owned
by them, as there are no contracts, agreements or understandings pursuant
to which Stanford has or shares voting power, which includes the power to
vote, or direct the voting of, or investment power, which includes the
power to dispose or direct the disposition of, in connection with the
shares of the four Stanford employees. Stanford International Bank Limited
received the securities which it is offering under this prospectus from R.
Allen Stanford who received them from Stanford Venture Capital Holdings,
Inc. as set forth in an Assignment and Assumption Agreement, filed as
Exhibit 10.1 to Schedule 13D by Stanford International Bank Limited on July
15, 2005. A reference in this prospectus to the ownership, or offering of
these securities for sale, by Stanford relates to Stanford International
Bank Limited.
12
(4) The shares of common stock being offered by Mr. Wright are issuable to
him upon his exercise of warrants at $1.02 per share. Mr. Wright is not
deemed to be the beneficial owner of 25,000 of these shares represented by
unvested warrants. Mr. Wright disclaims beneficial ownership of 302,000
shares of common stock owned directly by James Hay Trustees, Ltd. as Mr.
Wright does not have voting or investment power over these shares, which
the trust is holding for the benefit of Mr. Wright's children.
(5) The shares of common stock being offered by Arvimex are issuable to it
upon its exercise of warrants at $1.02 per share. Roger Maddock is the
President of Arvimex and the beneficial owner of more than 10% of our
common stock.
(6) The shares of common stock being offered by Mr. Chiles are issuable to
him upon his exercise of warrants at $1.02 per share. Mr. Chiles is not
deemed to be the beneficial owner of 25,000 of these shares represented by
unvested warrants.
(7) Includes 256,250 shares of common stock that Daniel T. Bogar, William
R. Fusselmann, Osvaldo Pi, and Ronald M. Stein each own directly and 50,000
shares of common stock issuable upon the exercise by each of them of
warrants at $5.00 per share, but does not include shares of common stock
directly owned by Stanford or shares issuable upon exercise of the warrants
or conversion of promissory notes or Series C preferred stock owned by
Stanford, as there are no contracts, agreements or understandings pursuant
to which Stanford has or shares voting power, which includes the power to
vote, or direct the voting of, or investment power, which includes the
power to dispose or direct the disposition of, in connection with the
shares owned by Stanford.
(8) The shares of common stock being offered by Mr. Parker are issuable to
him upon his exercise of warrants at $1.02 per share.
(9) The shares of common stock being offered by each of Mr. Fernandez and
Mr. Prescott are issuable to them upon their exercise of warrants at $1.02
per share. Mr. Fernandez and Mr. Prescott are not deemed to be the
beneficial owners of 50,000 and 25,000 of the shares, respectively,
represented by unvested warrants that each of them is offering in this
prospectus.
(10) Includes 14,000 shares of common owned directly by Charles Ganz and
66,820 shares of common stock issuable to him upon his conversion of Series
C preferred stock.
(11) The shares of common stock being offered by Ms. Pallatto are issuable
to her upon her exercise of warrants at $1.02 per share.
(12) Includes 4,000 shares of common owned directly by Ted Gershon and
19,120 shares of common stock issuable to him upon his conversion of Series
C preferred stock.
The following information contains a description of how each selling
stockholder acquired or will acquire the shares to be sold in this offering:
In January 2003, we acquired $2,850,000 of call center equipment in
exchange for the issuance of an aggregate of 114,000 shares of our common stock
and 27,191 shares of our Series C preferred stock. Pursuant to securities
purchase agreements and asset sale agreements, we issued 100,000 shares of the
common stock and 23,850 shares of the Series C preferred stock to Stanford,
14,000 shares of the common stock and 3,341 shares of Series C preferred stock
to Charles Ganz, and 4,000 shares of the common stock and 956 shares of Series C
preferred stock to Ted Gershon. Each share of our Series C preferred stock is
presently convertible into 20 shares of our common stock. The Series C
preferred stock ranks senior to our common stock with respect to the receipt of
dividends and distributions on our liquidation, dissolution or winding up. The
details regarding each series of our preferred stock are discussed elsewhere in
this prospectus. Stanford, Mr. Ganz and Mr. Gershon are offering for resale
under this prospectus the shares of common stock that they own directly and the
shares of common stock that they have the right to acquire upon their conversion
of the Series C preferred stock.
Effective December 18, 2003, we entered into a credit agreement with
Stanford for a maximum loan commitment by Stanford in the aggregate principal
amount of up to $6,000,000. We borrowed the full amount under this credit
agreement during the period from December 2003 to April 2004. In connection with
this transaction, we issued a convertible promissory note in the principal
amount of $6,000,000 to Stanford with an interest rate of 6% per annum and a
maturity date of December 31, 2008. Interest is payable quarterly in arrears on
the unpaid principal balance of the note and computed on the basis of a year of
360 days and actual days elapsed. The note has a conversion price of $15.00 per
share and may be converted into 400,000 shares of our common stock. In
connection with the note, we also issued warrants to purchase up to an aggregate
of 600,000 shares of our common stock at an exercise price of $0.001 per share
and warrants to purchase up to an aggregate of 1,350,000 shares of our common
stock which originally had an exercise price of $2.96 per share. We reduced the
exercise price of the warrants from $2.96 to $0.001 per share in June 2004 in
connection with $4,000,000 of additional financing (discussed below) that we
received from Stanford. We issued one-half of the warrants to Stanford and
one-half of the warrants in equal amounts to four Stanford employees: Messrs.
Bogar, Fusselmann, Osvaldi and Pi. Stanford and these employees exercised all of
these warrants and acquired an aggregate of 1,950,000 shares of common stock.
Stanford is offering for resale under this prospectus the shares of common stock
issuable upon conversion of up to 150% of the principal amount of the $6,000,000
note and the shares which it received upon exercise of the related warrants at
$0.001 per share. Messrs. Bogar, Fusselmann, Osvaldi and Pi are offering the
shares which they received upon exercise of the warrants that they received in
connection with the $6,000,000 financing provided by Stanford. Messrs. Bogar,
Fusselmann, Osvaldi and Pi acquired the securities in the ordinary course of
business in a private placement for investment purposes and without a view to
distribution, and had no agreements, understandings or arrangements with any
other person, either directly or indirectly, to dispose of the securities.
13
Effective June 17, 2004, we entered into two additional credit agreements
with Stanford for a maximum loan commitment by Stanford in the aggregate
principal amount of up to $1,000,000 and $3,000,000. We borrowed the full amount
under this credit agreement during the period from April 2004 to August 2004. In
connection with this transaction, we issued two convertible promissory notes to
Stanford in the principal amount of $1,000,000 and $3,000,000. Each note bears
interest at a rate of 8% per annum and has a maturity date of April 22, 2007.
The notes have a conversion price of $10.00 per share and may be converted into
an aggregate of 400,000 shares of our common stock. In connection with the
notes, we also issued warrants to purchase up to 500,000 shares of our common
stock at an exercise price of $5.00. In November 2004, we reduced the exercise
price from $5.00 to $0.001 per share with respect to warrants to purchase up to
100,000 of those shares. We reduced the exercise price in connection with
$1,250,000 of additional financing (discussed below) that we received from
Stanford. We issued one-half of the warrants to Stanford and one-half of the
warrants in equal amounts to four Stanford employees: Messrs. Bogar, Fusselmann,
Osvaldi and Pi. Stanford and these Stanford employees exercised part of their
warrants and acquired an aggregate of 100,000 shares at $0.001 per share. The
remaining warrants to purchase up to 400,000 shares will expire on May 26, 2009.
We and Stanford amended the $1,000,000 credit agreement and the $3,000,000
credit agreement to increase the maximum loan commitments to $1,355,000 and
$4,250,000, respectively. We borrowed the additional amounts during the period
from September 2004 to January 2005. Interest of 8% on the principal balance of
$1,355,000 for the period from January 1, 2005 to March 31, 2006 is due on April
3, 2006 and interest is due quarterly in arrears for periods after April 1,
2006. Interest of 8% is payable quarterly in arrears on the unpaid principal
balance of $4,250,000. Stanford is offering for resale under this prospectus the
shares of common stock issuable upon conversion of up to 150% of the principal
amount of a $1,355,000 note, a $3,000,000 note and an additional $1,250,000
note, the shares that it received upon exercise of the warrants discussed in
this paragraph, and the shares underlying the unexercised warrants. Messrs.
Bogar, Fusselmann, Osvaldi and Pi are offering for resale under this prospectus
the shares that they received upon exercise of some of the warrants discussed in
this paragraph and the shares underlying the unexercised warrants. Messrs.
Bogar, Fusselmann, Osvaldi and Pi acquired the securities in the ordinary course
of business in a private placement for investment purposes and without a view to
distribution, and had no agreements, understandings or arrangements with any
other person, either directly or indirectly, to dispose of the securities.
In January 2004, we granted Arvimex, Inc. warrants to purchase up to an
aggregate of 120,000 shares of common stock at an exercise price of $0.001 per
share and warrants to purchase up to an aggregate of 270,000 shares of common
stock at an exercise price of $2.96 per share, which was reduced to $1.02 per
share in connection with a reduction in the exercise price of warrants issued to
Stanford for additional financing. We granted the warrants to Arvimex as
consideration for Arvimex assigning a promissory note in the principal amount of
$2,515,000 and a mortgage deed securing the note to Stanford in connection with
$6,000,000 of financing that we received from Stanford. We had originally
issued the note to Arvimex and mortgaged land that we owned to secure the note.
We issued 120,000 shares to Arvimex upon exercise of the warrants at $0.001 per
share. The warrants issued to Arvimex to purchase shares at $1.02 per share are
exercisable until December 31, 2008. In October 2004, we granted Arvimex
warrants to purchase 40,000 shares of common stock at an exercise price of
$0.001 per share in consideration for an unsecured loan in the principal amount
of $500,000 that Arvimex made to Around the World Travel. Arvimex loaned the
money to Around the World Travel to provide it working capital while we
conducted due diligence of TraveLeaders and sought to secure additional
financing from Stanford. We issued 40,000 shares to Arvimex upon exercise of
the warrants at $0.001 per share. Roger Maddock is the President of Arvimex and
the beneficial owner of more than 10% of our common stock. Mr. Maddock and
Arvimex may be deemed to be our affiliates within the meaning of Rule 144 under
the Securities Act.
We have entered into an agreement with L. William Chiles, a member of our
board of directors, and Malcolm J. Wright, our President, Chief Executive
Officer and Chief Financial Officer and also a member of our board of directors,
for them to earn a fee in the event that they personally guarantee our debt or
provide personally owned collateral for our debt. They will earn a fee of 3% of
the total original indebtedness for personal guarantees and a fee of 2% of the
total original indebtedness for providing personally owned collateral. The fees
are payable by the issuance of warrants to purchase one share of our common
stock at an exercise price of $1.02 per share for each dollar of fees. The
agreement originally provided for an exercise price of $2.96 per share which we
reduced to $1.02 in connection with a reduction in the exercise price of
warrants that we had issued to Stanford from $2.96 to $0.001 per share. Messrs.
Chiles and Wright may exercise the warrants until five years after the date on
which they are released from their personal guarantee or any personally owned
collateral that they have provided is no longer subject to our debt. We have
issued warrants to Mr. Chiles and Mr. Wright to purchase up to 168,672 shares
and 587,860 shares, respectively, of common stock for their personal guarantees.
The shares being offered in this prospectus include the shares underlying these
warrants. Messrs. Chiles and Wright are our affiliates.
In July 2004, we granted warrants to Malcolm J. Wright, L. William Chiles
and T. Gene Prescott for each of them to purchase 100,000 shares of common stock
at an exercise price of $1.02 per share for services. In February 2005, we
granted warrants on the same terms to Charles J. Fernandez. Messrs. Wright and
Chiles currently serve as Directors. Messrs. Fernandez and Prescott currently
serve on our advisory board providing us with general corporate and business
advice. Warrants to purchase 50,000 shares vested immediately to each of them.
Warrants to purchase the remaining 50,000 shares will vest in equal amounts to
each of them on their next two anniversary dates as Directors or advisors. They
may exercise the warrants for a period of five years beginning on the vesting
dates. The shares being offered in this prospectus include the shares underlying
the warrants granted to Messrs. Wright and Chiles for their services as
Directors and to Messrs. Fernandez and Prescott for their services as advisors.
14
In December 2004, we issued Steven Parker a warrant to purchase 200,000 shares
of common stock at an exercise price of $1.02 per share in consideration for
services rendered. Also in December 2004, we issued Toni Pallatto a warrant to
purchase 25,000 shares of common stock at an exercise price of $1.02 per share
in consideration for services rendered. Mr. Parker and Ms. Pallatto are offering
for resale under this prospectus the shares of common stock underlying their
warrants.
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the shares of common stock
offered by them may be sold directly to purchasers by the selling stockholders
as principals or through one or more underwriters, brokers, dealers or agents
from time to time in one or more transactions (which may involve crosses or
block transactions) (i) on the over-the-counter market or in any other market on
which the price of our shares of common stock may be quoted or (ii) in
transactions otherwise than on the over-the-counter market or in any other
market on which the price of our shares of common stock may be quoted. Any of
such transactions may be effected at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed prices, in each case as
determined by the selling stockholders or by agreement between the selling
stockholders and underwriters, brokers, dealers or agents, or purchasers. If the
selling stockholders effect such transactions by selling their shares of common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the common stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents will be negotiated outside of our influence).
As of the date of this prospectus, we do not have knowledge of an intention
by the selling stockholders to sell the shares of common stock being offered in
this prospectus.
The selling shareholders and any broker/dealers who act in connection with
the sale of the shares hereunder may be deemed an underwriter within the meaning
of the Securities Act, and any commissions received by them and profit on any
resale of the shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act. The selling stockholders will not
receive any discounts or commissions (including cash, securities, contracts or
other consideration) from us in connection with the resale of the shares of
common stock being offered in this prospectus.
We have also advised each selling shareholder that in the event of a
"distribution" of the shares owned by the selling shareholder, such selling
shareholder, any "affiliated purchasers", and any broker/dealer or other person
who participates in such distribution, may be subject to Rule 102 under the
Securities Exchange Act of 1934 until their participation in that distribution
is completed. Rule 102 makes it unlawful for any person who is participating in
a distribution to bid for or purchase stock of the same class as is the subject
of the distribution. A "distribution" is defined in Rule 102 as an offering of
securities "that is distinguished from ordinary trading transactions by the
magnitude of the offering and the presence of special selling efforts and
selling methods". We have also advised the selling shareholders that Rule 101
under the 1934 Act prohibits any "stabilizing bid" or "stabilizing purchase" for
the purpose of pegging, fixing or stabilizing the price of the common stock in
connection with this offering.
We have advised each selling shareholder that during the time as they may
be engaged in a distribution of the shares included in this prospectus they are
required to comply with Regulation M of the Securities Exchange Act of 1934.
During such time as the selling shareholders may be engaged in a distribution of
the securities covered by this prospectus, the selling shareholders are required
to comply with Regulation M promulgated under the Exchange Act. With certain
exceptions, Regulation M precludes the selling shareholders, any affiliated
purchasers, and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to introduce any
person to bid for or purchase any security which is the subject to the
distribution until the entire distribution is complete. Regulation M also
restricts bids or purchases made in order to stabilize the price of a security
in connection with the distribution of that security. All of the foregoing may
affect the marketability of our common stock.
We will pay all expenses incident to the registration, offering and sale of
the shares of common stock to the public hereunder other than commissions, fees
and discounts of underwriters, brokers, dealers and agents. If any of these
other expenses exists, we expect the selling stockholders to pay these expenses.
We entered into a registration rights agreements with Stanford that
includes indemnification provisions. Pursuant to the registration rights
agreement, we have agreed to indemnify any person owning or having the right to
acquire any of the shares of common stock being offered for resale under this
prospectus including Stanford and their controlling persons against any losses,
claims, damages or liabilities, joint or several including, but not limited to,
all reasonable costs of defense and investigation and all reasonable attorneys'
fees and expenses, to which the indemnified party may become subject, under the
Securities Act or otherwise, insofar as the losses arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement to which this prospectus is a part, or
any related final prospectus or amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading. We will not be liable to the extent that any losses (i) arise
out of or are based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon, and in conformity with,
written information furnished to us by the party being indemnified, its counsel,
or affiliates, specifically for use in the preparation of the registration
statement, preliminary prospectus, final prospectus or amendment or supplement
or (ii) arise out of or are based upon the indemnified party's failure to
deliver to the purchaser a copy of the most recent prospectus (including any
amendments or supplements thereto). Stanford has provided us with a similar
indemnity with respect to any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon, and in conformity with,
written information furnished to us by them. We and Stanford will contribute on
the basis of relative fault to the aggregate losses to which we may be subject
in any case in which (i) it is judicially determined that our indemnification of
Stanford may not be enforced without regard to our express agreement to provide
such indemnification; or (ii) contribution under the Securities Act may be
required on the part of Stanford. We and Stanford will determine relative fault
by reference to, among other things, whether the untrue or alleged untrue
15
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by us on the one hand or Stanford
on the other hand, and the party's relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided that, no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. In no event shall any party being indemnified be required to
contribute any amount in excess of the dollar amount of the proceeds received by
the party being indemnified from the resale of their common stock in this
offering or any "underwriter" be required to undertake liability to any person
pursuant to the indemnification agreement for any amounts in excess of the
aggregate discount, commission or other compensation payable to such
"underwriter" with respect to the shares of common stock underwritten by it and
distributed pursuant to the registration statement to which this prospectus is a
part. We have also entered into registration rights agreements with Arvimex,
Inc., Charles Ganz and Ted Gershon, which also include similar indemnification
provisions.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
RULE 144
As of the date of this prospectus, there are 10,137,974 shares of common
stock issued and outstanding. Upon the effectiveness of the registration
statement to which this prospectus is a part, 1,753,940 shares of common stock
to be resold pursuant to this prospectus will be eligible for immediate resale.
The remaining 4,229,282 shares of common stock being offered in this
prospectus by Malcolm J. Wright, Arvimex or Roger Maddock, L. William Chiles and
Stanford will be subject to the resale provisions of Rule 144 of the Securities
Act. Sales of shares of our common stock in the public markets may have an
adverse effect on prevailing market prices for our common stock.
Rule 144 governs resale of "restricted securities" for the account of any
person (other than us), and restricted and unrestricted securities for the
account of an "affiliate" of ours. Restricted securities generally include any
securities acquired directly or indirectly from us or our affiliates, which were
not issued or sold in connection with a public offering registered under the
Securities Act. An affiliate of ours is any person who directly or indirectly
controls us, is controlled by us, or is under common control with us. Our
affiliates may include our directors, executive officers, and persons directly
or indirectly owning 10% or more of our outstanding common stock. Under Rule 144
unregistered resales of our restricted common stock cannot be made until the
restricted common stock has been held for one year from the later of its
acquisition from us or an affiliate of ours. Thereafter, restricted shares of
our common stock may be resold without registration subject to requirements of
Rule 144 regarding volume limitation, aggregation, broker transaction, notice
filing and publicly available information about us. Resales of our restricted
and unrestricted common stock by our affiliates are subject to these
requirements. The volume limitations provide that a person (or persons who must
aggregate their sales) cannot, within any three-month period, sell more than the
greater of one percent of the then outstanding shares, or the average weekly
reported trading volume during the four calendar weeks preceding each such sale.
A non-affiliate may resell restricted common stock, which has been held for two
years free of the requirements of Rule 144 mentioned above.
LEGAL PROCEEDINGS
We are a party in an action that was filed in Orange County, Florida and
styled as Rock Investment Trust, P.L.C. and RIT, L.L.C. vs. Malcolm J. Wright,
American Vacation Resorts, Inc., American Leisure, Inc., Inversora Tetuan, S.A.,
Sunstone Golf Resort, Inc., and Sun Gate Resort Villas, Inc., Case No.
CIO-01-4874, Ninth Judicial Circuit, Orange County, Florida. In June, 2001,
after almost 2 years from receiving notice from Malcolm Wright that one Mr.
Roger Smee, doing business under the names Rock Investment Trust, PLC (a British
limited company) and RIT, LLC (a Florida limited liability company)
(collectively, the "Smee Entities") had defaulted under various agreements to
loan or to joint venture or to fund investment into various real estate
enterprises founded by Mr. Wright, the Smee Entities brought the Lawsuit against
Mr. Wright, American Leisure, Inc. ("ALI") and several other entities. The
gravamen of the initial complaint is that the Smee Entities made financial
advances to Wright with some expectation of participation in a Wright real
estate enterprise. In general, the suit requests either a return of the Smee
Entities' alleged advances of $500,000 or an undefined ownership interest in one
or more of the defendant entities. Mr. Wright, American Leisure, Inc., and
Inversora Tetuan, S.A., have filed a counterclaim and cross complaint against
the Smee Entities and Mr. Smee denying the claims and such damages in the amount
of $10 million. If the court rules that Mr. Wright is liable under his
guarantee of the American Leisure, Inc. obligation to Smee, it is believed that
such a ruling would not directly affect American Leisure Holdings, Inc. The
litigation is in the discovery phase and is not currently set for trial. We
have been advised by our attorneys in this matter that Mr. Wright's position on
the facts and the law is stronger than the positions asserted by the Smee
Entities.
16
In March 2004, Manuel Sanchez and Luis Vanegas as plaintiffs filed a
lawsuit against American Leisure Holdings, Inc. American Access Corporation,
Hickory Travel Systems, Inc. Malcolm J. Wright and L. William Chiles, et al.,
seeking a claim for securities fraud, violation of Florida Securities and
Investor Protection Act, breach of their employment contracts, and claims for
fraudulent inducement. All defendants have denied all claims and have a
counterclaim against Manuel Sanchez and Luis Vanegas for damages. The litigation
commenced in March 2004 and will shortly enter the discovery phase and is not
currently set for trial. We believe that Manuel Sanchez' and Luis Vanegas'
claims are without merit and the claims are not material to us. We intend to
vigorously defend the lawsuit.
In February 2003, we and Malcolm J. Wright were joined in a lawsuit
captioned as Howard C. Warren v. Travelbyus, Inc., William Kerby, David Doerge,
DCM/Funding III, LLC, and Balis, Lewittes and Coleman, Inc. in the Circuit Court
of Cook County, Illinois, Law Division, which purported to state a claim against
us as a "joint venturer" with the primary defendants. The plaintiff alleged
damages in an amount of $5,557,195.70. On November 4, 2004, the plaintiff moved
to voluntarily dismiss its claim against us. Pursuant to an order granting the
voluntary dismissal, the plaintiff has one (1) year from the date of entry of
such order to seek to reinstate its claims.
On March 30, 2004, Malcolm Wright, was individually named as a third-party
defendant in the Circuit Court of Cook County, Illinois, Chancery Division,
under the caption: Cahnman v. Travelbyus, et al. On July 23, 2004, the primary
plaintiffs filed a motion to amend their complaint to add direct claims against
our subsidiary, American Leisure as well as Mr. Wright. On August 4, 2004, the
plaintiffs withdrew that motion and have not asserted or threatened any direct
claims against American Leisure, Mr. Wright or us.
In early May 2004, Around The World Travel, Inc. substantially all of the
assets of which we purchased, filed a lawsuit in the Miami-Dade Florida Circuit
Court against Seamless Technologies, Inc. and e-TraveLeaders, Inc. alleging
breach of contract and seeking relief that includes monetary damages and
termination of the contracts. They were granted leave to intervene as plaintiffs
in the original lawsuits against Seamless and e-TraveLeaders. On June 28, 2004,
the above named defendants brought suit against Around The World Travel and
American Leisure Holdings, Inc. in an action styled Seamless Technologies, Inc.
et al. v. Keith St. Clair et al. This suit alleges that Around The World Travel
has breached the contracts and also that American Leisure Holdings, Inc. and
Around The World Travel's Chief Executive Officer were complicit with certain
officers and directors of Around The World Travel in securing ownership of
certain assets for American Leisure Holdings, Inc. that were alleged to have
been a business opportunity for Around The World Travel. This lawsuit involves
allegations of fraud against Malcolm J. Wright. The lawsuit filed by Seamless
has been abated and consolidated with the original lawsuit filed by Around The
World Travel. In a related matter, Seamless' attorneys brought another action
entitled Peter Hairston v. Keith St. Clair et al. This suit mimics the
misappropriation of business opportunity claim, but it is framed within a
shareholder derivative action. The relief sought against American Leisure
Holdings, Inc. includes monetary damages and litigation costs. We intend to
vigorously support the original litigation filed against Seamless and defend the
counterclaim and allegations against us.
On May 4, 2005, Simon Hassine, along with members of his family, filed a
lawsuit against us and Around The World Travel in the Circuit Court of Dade
County, Florida, Civil Division, Case Number 05-09137CA. The plaintiffs are the
former majority shareholders of Around The World Travel and former owners of the
assets of TraveLeaders. The plaintiffs allege that that they have not been paid
for i) a subordinated promissory note in the principal amount of $3,550,000 plus
interest on such note which they allege was issued to them by Around The World
Travel in connection with their sale of 88% of the common stock of Around The
World Travel; and ii) subordinated undistributed retained earnings and accrued
bonuses in an aggregate amount of $1,108,806 which they allege were due to them
as part of the sale. The plaintiffs allege that the note was issued to them net
of $450,000 of preferred stock of Around The World Travel that they further
allege they never received. The plaintiffs also allege that in December 2004
they entered into a settlement agreement with the Company regarding these
matters. The plaintiffs are pursuing a claim of breach of the alleged
settlement agreement with damages in excess of $1,000,000, interest and costs as
well as performance under the alleged settlement agreement or, in the
alternative, a declaratory judgment that the promissory note, undistributed
retained earnings and accrued bonuses are not subordinated to the Galileo Debt
and full payment of the promissory note, undistributed retained earnings and
accrued bonuses plus prejudgment interest, stated interest on the note, costs
and reasonable attorney's fees. The plaintiffs are also pursuing a claim for
breach of contract regarding the preferred stock of Around The World Travel and
seeking $450,000 plus interest, costs and reasonable attorney's fees. The
plaintiffs are also pursuing claims of fraudulent transfer regarding our
acquisition of interests in the debt and equity of Around The World Travel and
seeking unspecified amounts. We intend to vigorously defend the lawsuit. We
have authorized our counsel to file various motions including a motion to
dismiss the complaint in its entirety as against us and Malcolm J. Wright due to
the failure by the plaintiffs to comply with a provision in the underlying
document that grants exclusive jurisdiction to the courts located in Cook
County, Illinois.
In the ordinary course of our business, we may from time to time become subject
to routine litigation or administrative proceedings that are incidental to our
business.
17
We are not aware of any proceeding to which any of our directors, officers,
affiliates or security holders are a party adverse to us or have a material
interest adverse to us.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages and positions are as
follows:
NAME AGE TITLE
Malcolm J. Wright 54 Chief Executive Officer, President, Secretary,
Chief Financial Officer and Director
L. William Chiles 63 Director
James Leaderer 51 Director
BIOGRAPHICAL INFORMATION
Current Directors
------------------
MALCOLM J. WRIGHT, is the driving force behind our business model, has
served as our President, Secretary, Chief Executive Officer and Chief Financial
Officer and as a member of our Board of Directors since June 2002, and as our
Chief Executive Officer since May 2004. Prior to joining us, Mr. Wright
successfully developed vacation properties abroad that are similar to the ones
planned at The Sonesta Orlando Resort at Tierra del Sol. Since 1998, Mr. Wright
served as the President of American Leisure Inc, which we acquired in June 2002.
Mr. Wright currently serves as the President of American Leisure Real Estate
Group, Inc., a real estate development company with which we have contracted for
the development of the resort, Xpress Ltd., with which we have contracted for
the exclusive sales and marketing for the resort, Innovative Concepts, Inc.,
which operates a landscaping business, M J Wright Productions, Inc., which owns
our Internet domain names, and Resorts Development Group, LLC, which engages in
real estate development. Mr. Wright is also the President of Osceola Business
Managers, Inc., Florida World, Inc. and SunGate Resort Villas, Inc., which do
not currently conduct any business operations. Since 1980, Mr. Wright has spent
a considerable amount of time and money in establishing a large and effective
marketing network in the United Kingdom and parts of Eurpoe, that has been
responsible for the pre-sales at The Sonesta Orlando Resort at Tierra del Sol.
Mr. Wright was admitted to Associate Membership of the Institute of Chartered
Accountants in England & Wales in 1974 and admitted to Fellowship of the
Institute of Chartered Accountants in England & Wales in 1978.
L. WILLIAM CHILES has served as a chairman of our board of directors since
June 2002. Mr. Chiles served as our Chief Executive Officer from August 2002 to
May 2004. Since August 1998, Mr. Chiles has served as the President and Chief
Executive Officer of Hickory Travel Systems, Inc., which we acquired in October
2003. Mr. Chiles received a Masters degree in marketing and finance from the
University of Colorado and a Bachelors degree in business administration from
Colorado State University. Mr. Chiles has specialized education in management.
He is a Member of the Young Presidents Organization, the Chicago Presidents
Organization and the Minister ARC Advisory Board.
JAMES LEADERER has served as a member of our Board of Directors since May
2002, and served as our President, Chief Executive Officer, Treasurer and
Secretary from May 2002 to July 2002. From January 1999 to November 2003, Mr.
Leaderer served as the General Principal of Momentum Securities. Mr. Leaderer
received a Bachelor of Science degree in engineering from Syracuse University.
Our Advisory Board and Our Director Nominees
----------------------------------------------
We have an advisory board consisting of Charles J. Fernandez and T. Gene
Prescott. The members of our advisory board provide us with general corporate
and business advice. Thomas Cornish and David Levine have served on our advisory
board. Our board of directors, via signed written consent, has nominated Thomas
Cornish, Charles J. Fernandez and David Levine to serve as directors; however,
they have not accepted directorship as of the date of this prospectus and we do
not currently have plans for them to come onto our board of directors.
18
CHARLES J. FERNANDEZ, age 67, has been nominated as a director. He has
served on our advisory board since February 2005. Since June 2004, Mr.
Fernandez has been a self-employed Financial Consultant. Mr. Fernandez worked
for the public accounting firm of KPMG in various capacities for over 37 years.
From May 1994 until his second retirement in May 2004, Mr. Fernandez served KPMG
as Managing Director and held other responsibilities within the Audit,
Transaction Services and Forensic and Litigation Support groups. Mr. Fernandez
had previously been an audit partner with KPMG from July 1971 through October
1991, when he took voluntary early retirement. Mr. Fernandez is a Certified
Public Accountant licensed in Florida. Mr. Fernandez is a member of the AICPA,
FICPA, Florida International Bankers Association, Florida International
University Board of Trustees, International Center of Florida, Cuban Banking
Study Group, Dade Marine Institute, and Greater Miami Chamber of Commerce. Mr.
Fernandez received a Bachelors degree in accounting from the University of
Florida. We anticipate that Mr. Fernandez will serve as an audit committee
financial expert on an audit committee which we anticipate forming shortly after
Mr. Fernandez has been duly elected and qualified.
T. GENE PRESCOTT, age 61, has served on our advisory board since July 2004.
Mr. Prescott is Chairman and Owner of Seaway Two Corp, a hospitality business,
located in Coral Gables Florida, and has served in these capacities since 1979.
Mr. Prescott received a bachelor's degree in accounting from The University of
Ohio in 1965. Mr. Prescott attended Carnegie Mellon from 1965 to 1967. Mr.
Prescott is a director and the Treasurer of the Miami Dade Expressway Authority
and a director of Miami Children's Hospital. Mr. Prescott is a member of the
Orange Bowl Committee, various chambers of commerce and the Coral Gables
Foundation.
There are no family relationships among our directors, executive officers
or persons nominated to become directors or executive officers.
We are not aware of the occurrence during the last five years of any events
described in Item 401(d) of Regulation S-B under the Securities Act regarding
our directors, persons nominated to become directors, executive officers, or
control persons.
TERM OF OFFICE
Our directors are appointed for an initial term of three years. Our
officers are appointed by our board of directors and hold office until they are
removed by the board or they resign.
AUDIT COMMITTEE
We do not have an audit committee or an audit committee financial expert.
We expect the nomination and acceptance of several directorships in the future.
We anticipate that we will form an audit committee when new members join our
board of directors, and anticipate that one of them will serve as an independent
audit committee financial expert.
COMPENSATION OF DIRECTORS
We pay or accrue $18,000 per year for each person who serves on our board
of directors. During the last two fiscal years we paid an aggregate of $66,000
to directors and accrued an aggregate of $114,000. During 2005, we have accrued
an additional $18,000 to directors.
We granted to each of Malcolm J. Wright and L. William Chiles warrants to
purchase 100,000 shares (or an aggregate of 200,000 shares) of our common stock
at an exercise price of $1.02 per share for their services. Warrants to purchase
75,000 shares have vested to each of them. Warrants to purchase the remaining
25,000 shares will vest to each of them on their next anniversary dates as
Directors, provided that they are still serving as Directors. They may exercise
the warrants for a period of five years from the dates on which such warrants
vest.
CODE OF ETHICS
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. We will provide to any
person without charge, upon request, a copy of such code of ethics. Persons
wishing to make such a request should do so in writing to the Secretary at
American Leisure Holdings, Inc., Park 80 Plaza East, Saddle Brook, New Jersey,
07663.
19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 30, 2005, with
respect to the beneficial ownership of our common stock by (i) each director,
director nominee and officer of the Company, (ii) all directors and officers as
a group and (iii) each person known by the Company to own beneficially 5% or
more of our common stock:
COMMON STOCK
BENEFICIALLY OWNED(1)
------------------------------
NAME AND ADDRESS NUMBER PERCENT
-------------------- --------
Roger Maddock 7,767,616 (2) 50.3%
Arvimex, Inc. 7,122,268 (3) 47.0%
Malcolm J. Wright 6,015,841 (4) 41.3%
Stanford International Bank Limited 3,608,233 (5) 30.6%
Xpress, Ltd. 4,069,942 (6) 30.2%
L. William Chiles 1,093,672 (7) 10.5%
James Leaderer 10,000 *
Thomas Cornish 50,000 (8) *
Charles J. Fernandez 50,000 (9) *
David Levine 50,000 (8) *
All officers and directors as a group (3 people) 7,119,513 (4) (7)(10) 48.1%
*Less than 1%.
(1) The number of shares of common stock owned are those "beneficially
owned" as determined under the rules of the Commission, including any
shares of common stock as to which a person has sole or shared voting or
investment power and any shares of common stock which the person has the
right to acquire within sixty (60) days through the exercise of any option,
warrant or right. As of June 30, 2005, there were 10,137,974 shares of
common stock outstanding.
(2) Includes 345,348 shares of common stock and 30,000 shares of Series A
preferred stock, which are convertible into 300,000 shares of common stock,
owned directly by Mr. Maddock, 2,102,268 shares of common stock owned
directly by Arvimex, 475,000 shares of Series A preferred stock owned
directly by Arvimex which are convertible into 4,750,000 shares of common
stock, and a warrant to purchase 270,000 shares of common stock at an
exercise price of $1.02 per share owned by Arvimex and exercisable within
the next sixty days. Mr. Maddock is the President of Arvimex and
beneficially owns the shares of common stock, Series A preferred stock and
warrants owned by Arvimex.
(3) Includes 2,102,268 shares of common stock and 475,000 shares of Series
A preferred stock, which are convertible into 4,750,000 shares of common
stock, owned directly by Arvimex, and a warrant to purchase 270,000 shares
of common stock at an exercise price of $1.02 per share, which may be
exercised by Arvimex within the next sixty days. Roger Maddock is the
President of Arvimex and the beneficial owner of the securities owned by
Arvimex.
(4) Includes 845,733 shares of common stock and 55,000 shares of Series A
preferred stock, which are convertible into 550,000 shares of common stock,
owned directly by Mr. Wright, 719,942 shares of common stock owned directly
by Xpress Ltd., 335,000 shares of Series A preferred stock owned directly
by Xpress which are convertible into 3,350,000 shares of common stock,
27,306 shares of common stock and 10,000 shares of Series A preferred
stock, which are convertible into 100,000 shares of common stock, owned
directly by Mr. Wright's daughter who resides in the same household as Mr.
Wright, and warrants to purchase 422,860 shares of common stock at an
exercise price of $1.02 per share, which may be exercised by Mr. Wright
within the next sixty days. Mr. Wright is the President of Xpress and
beneficially owns the shares of common stock and Series A preferred stock
owned by Xpress. Mr. Wright has pledged 845,733 shares of common stock to
Stanford as collateral for an aggregate of $6,000,000 of financing that
Stanford has provided to us. Mr. Wright disclaims beneficial ownership of
302,000 shares of common stock owned directly by James Hay Trustees, Ltd.
as Mr. Wright does not have voting or investment power over these shares,
which the trust is holding for the benefit of Mr. Wright's children.
(5) Includes 1,125,000 shares of common stock and 23,850 shares of Series
C preferred stock which are convertible into 477,000 shares of common
stock, owned directly by Stanford, 200,000 shares of common stock issuable
upon the exercise of warrants at $5.00 per share, 960,500 shares issuable
upon conversion of convertible promissory notes and 845,733 shares pledged
by Malcolm J. Wright, but does not include the shares of common stock
directly owned by four Stanford employees or shares issuable upon exercise
of the warrants owned by them, as there are no contracts, agreements or
understandings pursuant to which Stanford has or shares voting power, which
includes the power to vote, or direct the voting of, or investment power,
which includes the power to dispose or direct the disposition of, in
connection with the shares of the four Stanford employees. Stanford
International Bank Limited received the securities of which it is the
beneficial owner from R. Allen Stanford who received them from Stanford
Venture Capital Holdings, Inc. as set forth in an Assignment and Assumption
Agreement, filed as Exhibit 10.1 to Schedule 13D by Stanford International
Bank Limited on July 15, 2005. A reference in this prospectus to the
ownership, or offering of these securities for sale, by Stanford relates
to Stanford International Bank Limited.
(6) Includes 719,942 shares of common stock and 335,000 shares of Series A
preferred stock, which are convertible into 3,350,000 shares of common
stock, owned directly by Xpress. Malcolm J. Wright is the President of
Xpress and the beneficial owner of the securities owned by Xpress.
20
(7) Includes 850,000 shares of common stock owned directly by Mr. Chiles
and warrants to purchase 243,672 shares of common stock at an exercise
price of $1.02 per share, which may be exercised by Mr. Chiles within the
next sixty days.
(8) The shares beneficially owned by each of Mr. Cornish and Mr. Levine
represent 50,000 shares of common stock issuable upon the exercise of a
warrant at $1.02 which has vested as of the date of this prospectus. Mr.
Cornish and Mr. Levine are director nominees; however, they have not
accepted directorship as of the date of this prospectus and we do not
currently have plans for them to come onto our board of directors.
(9) The shares beneficially owned by Mr. Fernandez represent 50,000 shares
of common stock issuable upon the exercise of a warrant at $1.02 per share
which has vested as of the date of this prospectus. Mr. Fernandez is a
director nominee; however, he has not accepted directorship as of the date
of this prospectus and we do not currently have plans for him to come onto
our board of directors.
(10) Does not include 50,000 shares of common stock beneficially owned by
each of the director nominees, Messrs. Cornish, Levine and Fernandez.
CHANGE IN CONTROL
We are unaware of any arrangement or understanding that may, at a
subsequent date, result in a change of control of us.
DESCRIPTION OF SECURITIES
The following is a summary of the rights of our common stock and preferred
stock and related provisions of our certificate of incorporation and bylaws, and
certain other warrants and debt securities that provide for issuance of our
common stock upon their exercise or conversion. For more detailed information,
please see our articles of incorporation and bylaws, as both are amended and
restated, and the terms of our preferred stock designations, warrants and debt
securities which have been either incorporated by reference or filed as exhibits
to the registration statement of which this prospectus is a part.
COMMON STOCK
We are authorized to issue 100,000,000 shares of common stock, $0.001, of
which 10,137,974 shares were issued and outstanding at June 30, 2005.
Voting Rights
--------------
Holders of shares of common stock are entitled to one vote per share. All
shares have equal voting rights and are nonassessable. Voting rights are not
cumulative and, therefore, the holders of more than 50% of the combined voting
power of common stock and preferred stock (discussed below) that is convertible
into common stock could, if they choose to do so, elect all of the directors.
Dividend Rights
----------------
Subject to preferences that apply to shares of our preferred stock
(discussed below), the holders of common stock shall be entitled to share
equally in any dividends that our board of directors may determine to issue from
time to time. As of the date of this prospectus, we have not paid any cash
dividends to stockholders. The declaration of any future cash dividend will be
at the discretion of our board of directors and will depend upon our earnings,
if any, our capital requirements and financial position, our general economic
conditions, and other pertinent conditions including the prior payment of
cumulative dividends on our preferred stock as discussed below. We intend to
reinvest in our business operations any funds that could be used to pay cash
dividends.
Liquidation Rights
-------------------
Upon our liquidation, dissolution or winding-up, the holders of common
stock shall be entitled to share equally all assets remaining after the payment
of any liabilities and the liquidation preferences on any outstanding preferred
stock as discussed below.
Conversion and Other Rights
------------------------------
Our common stock is not convertible into any other shares of our capital
stock. Holders of common stock have no preemptive or other subscription rights.
There are no redemption or sinking fund provisions with respect to our common
stock.
21
PREFERRED STOCK
Our board of directors has authority, without the approval by our
stockholders, to issue 10,000,000 shares of preferred stock, $0.001, in one or
more series. Our board of directors may establish the number of shares to be
included in each such series and may fix the designations, preferences, powers
and other rights of a series of preferred stock. Our board of directors has
designated five series of preferred stock: Series A preferred stock, Series B
preferred stock, Series C preferred stock, Series E preferred stock and Series F
preferred stock, with voting and conversion rights that dilute the voting power
or rights of the holders of common stock and have other rights, preferences, and
privileges over our common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect of delaying,
deterring or preventing a change in control of AMLH and might harm the market
price of our common stock. The Company previously stated that that the Series A
and Series C preferred stock had been amended, but such filing with the State of
Nevada has not occurred as of the filing of this prospectus.
As of the date of this prospectus, we were authorized to issue and had
issued and outstanding the following series of preferred stock:
- 1,000,000 shares of Series A preferred stock, of which 1,000,000
shares were issued and outstanding;
- 100,000 shares of Series B preferred stock, of which 2,825 shares
were issued and outstanding;
- 28,000 shares of Series C preferred stock, of which 27,191 shares
were issued and outstanding;
- 50,000 shares of Series E preferred stock, of which 24,101 shares
were issued and outstanding; and
- 150,000 shares of Series F preferred stock, of which no shares
are currently issued and outstanding.
Voting Rights
--------------
Holders of shares of each series of our preferred stock are entitled to
vote at each meeting of our stockholders along with holders of our common stock.
Holders of shares of Series A preferred stock are entitled to ten votes per
share. The voting rights of holders of our Series B preferred stock, Series C
preferred stock, Series E preferred stock and Series F preferred stock have that
number of votes as if they had been converted into shares of common stock. See
"Conversion and Other Rights," below.
Holders of each series of our preferred stock are entitled to vote
separately as a class with respect to amendments, alterations or repeal of
preferences, rights, powers or other terms of the respective series of preferred
stock that adversely affect such preferred stock. The authorization or issuance
of any series of preferred stock, which is on parity with or has preferences or
priority over any other series of preferred stock as to the right to receive
dividends or amounts distributable upon our liquidation, dissolution or
winding-up is deemed to adversely affect the other series of preferred stock.
Holders of each series of our preferred stock are also entitled to vote
separately as a class with respect to amendments to the terms of the respective
series of preferred stock even if such preferred stock is not adversely
affected.
Dividend Rights
----------------
The holders of Series A preferred stock are entitled to receive cumulative
dividends at the rate of $1.20 per share per annum. The holders of Series B
preferred stock are entitled to receive cumulative dividends at the rate of
$12.00 per share per annum. The holders of Series C preferred stock are
entitled to receive cumulative dividends at the rate of $4.00 per share per
annum. The holders of Series E preferred stock are entitled to receive
cumulative dividends at the rate of $4.00 per share per annum. The holders of
Series F preferred stock will be entitled to receive cumulative dividends at the
rate of $1.00 per share per annum. Dividends on our preferred stock are payable
in preference and priority to any payment of any cash dividend on our common
stock. Dividends on each series of our preferred stock are payable in
alphabetical order in preference and priority to any payment of any cash
dividend on any other series of our preferred stock, except that our Series C
preferred stock is on parity with our Series A preferred stock and our Series B
preferred stock with respect to the payment of dividends. Dividends on our
preferred stock accrue from the date on which we agree to issue shares of such
preferred stock and thereafter from day to day whether or not earned or declared
and whether or not there exists profits, surplus or other funds legally
available for the payment of dividends. We have never paid any cash dividends on
our preferred stock. We will be required to pay accrued dividends on our
preferred stock before we can pay any dividends on our common stock.
22
Liquidation Rights
-------------------
Upon our liquidation, dissolution or winding-up, holders of Series A
preferred stock are entitled to an amount equal to $10.00 per share plus any
accrued but unpaid dividends. Holders of Series B preferred stock, Series C
preferred stock, Series E preferred stock and Series F preferred stock are
entitled to an amount equal to $100.00 per share plus any accrued but unpaid
dividends. Upon our liquidation, dissolution or winding-up, holders of
preferred stock are entitled to receive payment in full before any similar
payment on our common stock. Upon our liquidation, dissolution or winding-up,
holders of each series of preferred stock are entitled to receive payment in
full in alphabetical order before any similar payment on any other series of our
preferred stock, except that our Series C preferred stock is on parity with our
Series A preferred stock and our Series B preferred stock with respect to
payments upon our liquidation, dissolution or winding-up. If upon any such
liquidation, dissolution or winding up, our remaining assets available for
distribution to our stockholders are insufficient to pay the holders of shares
of any series of our preferred stock the full amount to which they are entitled,
such holders and any class or series of stock ranking on liquidation on a parity
with such preferred stock shall share ratably in any distribution of our
remaining assets and funds in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
Conversion and Other Rights
------------------------------
Each share of our Series A preferred stock is convertible at any time at
the option of the holder into ten shares of common stock, subject to adjustment.
The conversion rate for each share of our Series B preferred stock, Series C
preferred stock, Series E preferred stock and Series F preferred stock is
calculated by dividing the amount that a share of such series of preferred stock
may receive upon our liquidation, dissolution or winding-up by the market price
(as defined in each certificate of designation of preferred stock) of our common
stock, subject to a high and low conversion rate. The high and low conversion
rate is 20 and 12.5, respectively, for our Series B preferred stock and Series C
preferred stock. Our Series B preferred stock and Series C preferred stock are
currently convertible at their high conversion rates. There is no low conversion
rate for our Series E preferred stock or our Series F preferred stock. The high
conversion rate is 6.666 and 2 for our Series E preferred stock and Series F
preferred stock, respectively. In addition, our Series B preferred stock will
automatically convert into common stock on the date which is six months after
our common stock is listed for trading on the New York Stock Exchange, the
American Stock Exchange or Nasdaq.
Redemption Rights
------------------
We generally have the right to redeem any shares of our preferred stock
that remain outstanding on a date five years (except for the Series A preferred
stock, pending a filing with the Nevada Secretary of State) after the original
issue date of such shares at an amount per share equal to the amount that such
share of preferred stock may receive upon our liquidation, dissolution or
winding-up plus an amount equal to accrued but unpaid dividends, if any, to the
date of redemption of such share of preferred stock. The Company previously
stated that the Series A preferred stock had been amended to extend its right to
redeem the Series A preferred stock from five to ten years, but such filing with
the State of Nevada has not occured as of the filing of this prospectus. Any
shares of preferred stock redeemed by us shall be canceled and shall not under
any circumstances be reissued. The holders of any shares of our preferred stock
to be redeemed have the right to convert their shares into common stock at any
time prior to the close of business on the applicable redemption date.
WARRANTS
As of the date of this prospectus, we had granted warrants to purchase
1,611,532 shares of our common stock at an exercise price of $1.02 per share, of
which warrants to purchase 600,000 shares that we granted to some of our
Directors and members of our advisory board are subject to a vesting schedule
based on length of service. We had also granted warrants to purchase 400,000
shares of our common stock at an exercise price of $5.00 per share. Our
warrants have varying expiration dates, the earliest of which is in March 2009.
SECURED CONVERTIBLE DEBT
As of the date of this prospectus, we had an outstanding principal balance
of $11,605,000 under our credit facilities with Stanford Venture Capital
Holdings, Inc.
Our $6,000,000 secured revolving credit facility with Stanford bears
interest at a fixed rate of 6% per annum payable quarterly in arrears and
matures on December 18, 2008. At the sole election of the lender, any amount
outstanding under the credit facility may be converted into shares of our common
stock at a conversion price of $15.00 per share. The credit facility is
guaranteed by Malcolm J. Wright, our Chief Executive Officer and is secured by a
second mortgage on our Sonesta Orlando Resort property, including all fixtures
and personal property located on or used in connection with this property, and
all of the issued and outstanding capital stock and assets of two of our
subsidiaries, American Leisure Marketing & Technology, Inc. and Caribbean
Leisure Marketing Limited. We borrowed the full amount under this credit
facility during the period from December 2003 to April 2004.
Our $4,250,000 secured revolving credit facility with Stanford bears
interest at a fixed rate of 8% per annum payable quarterly in arrears. The
credit facility is comprised of two tranches. The first tranche of $1,250,000
matures on September 30, 2005, may solely be used for the working capital of our
Hickory and TraveLeaders travel business and must immediately be repaid to the
extent that the borrowed amount together with accrued and unpaid interest
exceeds a borrowing base which is generally calculated as the lesser of
$1,250,000, or 50% of the dollar amount of TraveLeaders' eligible accounts
receivable minus such reserves as the lender may establish from time to time in
its discretion. The second tranche of $3,000,000 matures on April 22, 2007. At
the sole election of the lender, any amount outstanding under the credit
facility may be converted into shares of our common stock at a conversion price
of $10.00 per share. The credit facility is secured by collateral assignments of
our stock in the active travel division subsidiaries as well as a collateral
assignment of our first lien security interest in the assets formerly owned by
Around The World Travel, Inc.
23
Our $1,355,000 secured revolving credit facility with Stanford bears
interest at a fixed rate of 8% per annum and matures April 22, 2007. The
proceeds of this facility may be used solely for our call center operations in
Antigua. Interest for the period from January 1, 2005 to March 31, 2006 is due
on April 3, 2006 and interest is due quarterly in arrears for periods after
April 1, 2006. At the sole election of the lender, any amount outstanding under
the credit facility may be converted into shares of our common stock at a
conversion price of $10.00 per share. The credit facility is secured by all of
the issued and outstanding stock of our subsidiary, Caribbean Leisure Marketing
Limited. We borrowed the full amount under our $4,250,000 credit facility and
our $1,355,000 credit facility during the period from April 2004 to August 2004.
All of our credit facilities with Stanford contain customary covenants and
restrictions, including covenants that prohibit us from incurring certain types
of indebtedness, paying dividends and making specified distributions. Failure to
comply with these covenants and restrictions would constitute an event of
default under our credit facilities, notwithstanding our ability to meet our
debt service obligations. Upon the occurrence of an event of default, the lender
may accelerate amounts due under the applicable credit facility and may
foreclose on collateral and/or seek payment from a guarantor of the credit
facility. At June 30, 2005, we believe we were in compliance with the covenants
and other restrictions applicable to us under each credit facility.
TRANSFER AGENT
The Company's transfer agent is Signature Stock Transfer, Inc., One Preston
Park, 2301 Ohio Drive, Suite 100, Plano, Texas 75093.
EXPERTS
Lopez, Blevins, Bork & Associates, LLP has audited our consolidated balance
sheets as of December 31, 2004 and 2003, and the related consolidated statements
of operations, stockholders' equity and cash flows for the years ended December
31, 2004 and 2003, as set forth in their report. We have included our audited
consolidated financial statements elsewhere in this prospectus in reliance on
the report, given on their authority as experts in accounting and auditing. The
report of Lopez, Blevins, Bork & Associates contained in this prospectus
contains an explanatory paragraph regarding our ability to continue as a going
concern. Lopez, Blevins, Bork & Associates has also reviewed our unaudited
consolidated balance sheet as of March 31, 2005, and the related consolidated
statements of operations, stockholders' equity and cash flows for the period
ended March 31, 2005 and March 31, 2004, which we have also included in this
prospectus.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by David M. Loev, Attorney at Law, Houston, Texas.
INTEREST OF NAMED EXPERTS
None.
DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our articles of incorporation, as amended and restated, contain a provision
that gives our board of directors the power to indemnify our officers and
directors to the fullest extent permitted by Nevada law. Our bylaws, as amended
and restated, obligate us to indemnify our directors and officers to the fullest
extent permitted by Section 78.7502 of the Nevada Revised Statutes, as that
section may be amended and supplemented from time to time. Section 78.7502
generally provides that we may indemnify any of our officers and directors in
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by us or in our
right, if such officer or director acted in good faith and in a manner which
they reasonably believed to be in or not opposed to our best interest, and with
respect to any criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful.
24
We have entered into an indemnification agreement with Malcolm J. Wright,
our Chief Executive Officer and a Director. We will indemnify Mr. Wright to the
fullest extent permitted by law if Mr. Wright was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any threatened, pending or completed claim by
reason of (or arising in part out of) any event or occurrence related to the
fact that Mr. Wright is or was a director, officer, employee, agent or fiduciary
of ours, or any subsidiary of ours, or is or was serving at our request as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action or inaction on the part of Mr. Wright while serving in such capacity
against any and all expenses, judgments, fines, penalties and amounts paid in
settlement and any federal, state, local or foreign taxes imposed on Mr. Wright
as a result of the actual or deemed receipt of any indemnification payments made
by us to or on behalf of Mr. Wright. We are entitled to reimbursement of any
advance indemnification payments that we make to or on behalf of Mr. Wright if,
when and to the extent that a disinterested director, group of disinterested
directors or independent legal counsel determines that Mr. Wright would not be
permitted to be so indemnified under applicable law. We are not obligated to
indemnify Mr. Wright for the following:
- Acts, omissions or transactions for which Mr. Wright is
prohibited from receiving indemnification under applicable law.
- Claims initiated or brought voluntarily by Mr. Wright and not by
way of defense, except for claims brought to establish or enforce a
right to indemnification or in specific cases if our board of
directors has approved the initiation or bringing of such claim, or as
otherwise required under the Nevada Revised Statutes, regardless of
whether Mr. Wright ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the
case may be.
- Any proceeding instituted by Mr. Wright to enforce or interpret
his indemnification agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Mr. Wright in
such proceeding was not made in good faith or was frivolous.
- Violations of Section 16(b) of the Exchange Act or any similar
successor statute.
Our articles of incorporation, as amended, also contain a provision that
limits the liability of our directors. Consequently, our directors will not be
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duties as directors, except liability for the following:
- Any breach of their duty of loyalty to our company or our
stockholders.
- Acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law.
- Any transaction from which the director derived an improper
personal benefit.
- Any act or omission occurring prior to their directorship.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
DESCRIPTION OF BUSINESSES
BUSINESS DEVELOPMENT
American Leisure Holdings, Inc. is in the process of developing a large,
multi-national travel services, travel management and travel distribution
organization. We have established a Travel Division, a Resort Development
Division and a Communications Division. Through our subsidiaries, we manage and
distribute travel services, and develop, construct and will manage vacation home
ownership and travel destination resorts and properties, develop and operate
affinity-based travel clubs and own a call center in Antigua-Barbuda. Our
businesses are intended to complement each other and create cross-marketing
opportunities within our business. We intend to take advantage of the synergies
between the distribution of travel services and the development, marketing, sale
and management of vacation home ownership and travel destination properties.
On October 1, 2003, we acquired a 51% majority interest in Hickory Travel
Systems, Inc. as the first building block of our Travel Division. Hickory is a
travel management service organization that serves its network/consortium of
approximately 160 well-established travel agency members, comprised of over
3,000 travel agents worldwide that focus primarily on corporate travel. We
intend to complement our other businesses through the use of Hickory's 24-hour
reservation services, international rate desk services, discount hotel programs,
preferred supplier discounts, commission enhancement programs, marketing
services, professional services, automation and information exchange. We view
the members of Hickory as a resource for future acquisitions of viable travel
agencies as we intend to continue to add well-positioned travel agencies to our
Travel Division.
25
In December 2004, Caribbean Leisure Marketing, Ltd., a segment of our
company that is focused on telecommunications, entered into a joint venture with
IMA Antigua, Ltd. to operate a call center in Antigua that Caribbean Leisure
Marketing owns. The joint venture is operated through Caribbean Media Group,
Ltd., an International Business Corporation formed under the laws of Barbados.
We own 49% of the joint venture company that is currently operating the call
center.
On December 31, 2004, American Leisure Equities Corporation, one of our
wholly owned subsidiaries, acquired substantially all of the assets of Around
The World Travel, Inc. which included all of the tangible and intangible assets
necessary to operate the business including the business name "TraveLeaders". We
engaged Around The World Travel to manage the assets and granted Around The
World Travel a license to use the name "TraveLeaders" in doing so. TraveLeaders
is a fully integrated travel services distribution business that provides its
clients with a comprehensive range of business and vacation travel services in
both traditional and e-commerce platforms including corporate travel management,
leisure sales, and meeting, special event and incentive planning. TraveLeaders
is based in Coral Gables, Florida.
We were incorporated in Nevada in June 2000 as Freewillpc.com, Inc., and
until June 2002, operated as a web-based retailer of built-to-order personal
computers and brand name related peripherals, software, accessories and
networking products. In June 2002, we acquired American Leisure Corporation in a
reverse merger (discussed below). We re-designed and structured our business to
own, control and direct a series of companies in the travel and tourism
industries so that we can achieve vertical and horizontal integration in the
sourcing and delivery of corporate and vacation travel services.
On June 14, 2002, we entered into a stock purchase agreement with the
former stockholders of American Leisure Corporation pursuant to which we issued
to the former stockholders of American Leisure Corporation 4,893,974 shares of
our common stock and 880,000 shares of our Series A preferred stock having 10
votes per share. As part of this transaction, Vyrtex Limited, a UK company,
which owned 3,830,000 shares of our common stock, surrendered 3,791,700 of the
3,830,000 shares owned by them. The transaction was treated as a reverse merger
and a re-capitalization of American Leisure Corporation, which was considered
the accounting acquirer. The operations of Freewillpc.com prior to the
transaction were not carried over and were adjusted to $0. On July 9, 2002, we
changed our name to American Leisure Holdings, Inc.
Except as expressly indicated or unless the context otherwise requires,
"we," "our," or "us" means American Leisure Holdings, Inc. and its subsidiaries.
BUSINESS INTEGRATION
We are on a mission to develop a large, multi-national travel services,
travel management and travel distribution organization. We are in the process of
integrating the administrative operations of Hickory and TraveLeaders to
distribute, fulfill and manage our travel services.
Our business model for support between our divisions is to use the travel
distribution, fulfillment and management services of the combined resources of
Hickory and TraveLeaders to provide consumer bookings at our planned resorts, to
rent vacation homes that we plan to manage at these resorts, and to fulfill the
travel service needs of our affinity-based travel clubs. We intend to complement
our other businesses through the use of Hickory's 24-hour reservation services,
international rate desk services, discount hotel programs, preferred supplier
discounts, commission enhancement programs, marketing services, professional
services, automation and information exchange. TraveLeaders is a fully
integrated travel services distribution business that provides its clients with
a comprehensive range of business and vacation travel services in both
traditional and e-commerce platforms including corporate travel management,
leisure sales, and meeting, special event and incentive planning. TraveLeaders
currently fulfills travel orders produced by our affinity travel clubs. We plan
to develop, on average, a new club every two months for the next eighteen
months.
TRAVEL SERVICES
Travel Services Industry Overview
------------------------------------
The travel services industry is made up of two broad categories, corporate
business travel and individual leisure travel. According to preliminary
estimates by the Travel Industry Association of America, Americans spent over
$500 billion on domestic travel in 2004. TraveLeaders does the majority of their
business in the corporate travel management category, while Hickory provides
services to a variety of agencies that focus on business travel.
26
Corporate travel management became prevalent largely as a result of the
deregulation of the airline industry in 1978. Complex pricing strategies and
airline rules and the elimination of previously available commission
arrangements created an opportunity for travel management companies to assist
corporate clients in optimizing the value of their travel expenditures.
Travel is generally the second largest controllable expense, behind
personnel, for most companies. Corporate travel management companies like
TraveLeaders and most of Hickory's members reduce travel expenses for their
clients by creating and documenting travel policies, negotiating favorable
pricing directly with travel suppliers, and streamlining the reservation process
with customized profiles and client-selected technologies including on-line
booking tools.
The corporate travel management industry has changed significantly in the
last ten years. Elimination of airline commissions drove the industry to
fee-for-service arrangements, and rapid enhancements to technology allowed an
expansion of service offerings to clients. Successfully servicing those clients
requires significant technological, financial and operational resources, meaning
that larger corporate travel management companies like TraveLeaders and Hickory
may have a competitive advantage. We believe the corporate travel management
industry is undergoing a period of consolidation as a result and that
significant growth opportunity exists.
The industry's role and capacity as a distribution channel, and its
relationship with both clients and suppliers, is also undergoing significant
change as a result of the Internet and other technological innovations. We
believe these innovations offer opportunities for corporate travel management
companies to increase the efficiency of their distribution capacities and
enhance services provided to travelers and management.
The industry has faced numerous challenges since the September 11, 2001
terrorist attacks, including the decline in travel, volatility in the U.S.
economy and continued geopolitical instability. These challenges, in part, led
to bankruptcy filings by several major airlines, and along with more recent
phenomena like rising fuel prices continue to cause other airlines to experience
adverse economic pressure. These ongoing financial pressures are driving almost
daily renovations in travel reservation economics and process, which in turn
affects the traditional supplier-intermediary-corporation-traveler
relationships.
Our Travel Services
---------------------
We manage and distribute travel services through Hickory, our subsidiary,
and have contracted with Around the World Travel to manage TraveLeaders, a fully
integrated travel services distribution business based in Coral Gables, Florida.
We acquired Hickory in October 2003. On December 31, 2004, we acquired
substantially all of the assets of Around the World Travel, which included all
of the tangible and intangible assets necessary to operate TraveLeaders.
TraveLeaders
------------
We provide our clients with a comprehensive range of business and vacation
travel services, including corporate travel management (including reservations,
profiled service levels, financial and statistical reporting and supplier
negotiations), leisure sales (including sales to individuals and to travel and
vacation clubs), and meeting, special event and incentive planning. We provide
integrated solutions for managing corporate travel on a worldwide scale. We also
offer corporate travel services on a local and regional level. Our corporate
travel services provide our clients with a complete suite of travel services
that range from completely 'agent free' Internet booking tools to specialized
expert travel agent guidance. Our private label websites provide our corporate
clients with an exclusive portal for corporate and leisure travel planning and
booking. Our corporate-clients range in size from companies with as few as two
to three travelers to companies with several hundred travelers or more. We
develop corporate travel policies, manage corporate travel programs and design
and develop information systems tailored for our clients. The benefits derived
by our clients typically increase proportionately with the amount of spending,
in that we can obtain direct benefits for the clients by negotiating favored
terms with suppliers and provide the client with better management information
regarding their spending patterns through active, involved account management
and customized reporting capabilities.
We provide vacation travel services using destination specialists who have
first-hand knowledge of various destinations and the capability to handle a
client's specific vacation travel needs. We help our clients design and
implement vacations suited to their particular needs and try to do this in the
most cost-efficient manner. We provide meeting, special event and incentive
planning to corporate clients ranging from Fortune 500 companies with thousands
of travelers to smaller companies with more modest meeting requirements. We plan
events ranging in size from 10 to over 3,000 people. We have the capability to
coordinate all aspects of a client's conference or event including servicing
general travel needs, booking group airline tickets as well as meeting
supervision and the production of all collateral needs. Our meeting, special
event and incentive planning services include program development, promotion
support, site selection, contract negotiations, registration and on-site
management for corporate events in addition to fulfillment of travel service
requirements. We also provide discount airline ticket and hotel programs.
27
Hickory Travel Systems, Inc.
-------------------------------
Hickory is a travel management service organization that serves its
network/consortium of approximately 160 well-established travel agency members,
comprised of over 3,000 travel agency locations worldwide, that focus primarily
on corporate travel. We intend to utilize Hickory's 24-hour reservation
services, international rate desk services, discount hotel programs, preferred
supplier discounts, commission enhancement programs, marketing services,
professional services, automation and information exchange.
American Travel & Marketing Group
-------------------------------------
American Travel & Marketing Group, Inc., our subsidiary, develops and
operates affinity-based travel clubs. Highly advantageous travel benefits are
the key to distinguishing our affinity club creation and management from the
older model of single purpose clubs. In addition to travel benefits, we actively
promote cross-marketing strategies to engage non-traditional sponsors to provide
significant benefits to the members that would otherwise not be available to
them in a traditional affinity club. We utilize TraveLeaders to fulfill the
travel service needs of these affinity-based clubs.
Distribution of Our Travel Services
---------------------------------------
We provide our travel services to our clients through several distribution
channels, including traditional brick and mortar regional and branch offices,
dedicated on-site corporate travel departments, call centers and Internet based
technologies.
TraveLeaders has two large customer service operations in Coral Gables,
Florida and Irvine, California with eight branch offices as follows:
- Florida - Ft. Lauderdale, Boca Raton, Orlando, Tampa
- Pennsylvania - Philadelphia, Lancaster
- Ohio - Cincinnati
- California - San Francisco
These branch offices provide several corporate and vacation travel services
to our clients. These offices are primarily used by small companies as well as
vacation travelers seeking expertise in domestic and international destinations.
In addition, TraveLeaders has three leisure travel offices in Largo, Florida,
Mt. Laurel, New Jersey, and Sinking Springs, Pennsylvania.
We operate approximately fourteen on-site offices located at corporate
client premises, where we provide private label websites, customized trip
planning, reservation and ticketing services to the employees of such corporate
clients.
Hickory operates a 24-hour call center that we plan to use to service our
travel clients and provide travel marketing services.
We also maintain an online reservation and booking website at
www.traveleaders.com. This website permits both corporate and vacation clients
to book airline flights, hotel reservations, car rental reservations, cruises
and vacation specials. We currently operate over a dozen web sites dedicated to
specific types of travel planning.
Competition in the Travel Industry
--------------------------------------
The travel services industry is highly competitive. We compete with a large
number of other providers of corporate and vacation travel services. Some of our
competitors include multi-national corporations that have significantly greater
resources than we have. These significantly larger competitors continue to
expand their size, which may give them access to new products and more
competitive pricing than we can offer. We also compete with Internet travel
service providers and directly with travel suppliers including, airlines, cruise
companies, hotels and car rental companies. We are faced with increasing use of
the Internet by both business and vacation travelers to purchase products and
services directly from travel suppliers that could result in bypassing us and
travel service providers similarly situated to us. To meet that competition, we
have developed and will continue to develop business models to enable
TraveLeaders to obtain a growing market share of the 'agent free' travel
business. We also compete by bundling our products in competitively priced tour
packages.
28
VACATION HOME AND TRAVEL RESORT OPERATIONS
Our vacation home and travel resort operations will be conducted within
three business segments. One will acquire tracts of real estate suitable for the
development of vacation resort properties, which will be subdivided, improved
and sold, typically on a retail basis as vacation home sales. The second
operation is planned to develop, market and sell vacation ownership interests in
our future resort properties primarily through vacation clubs. The third segment
is the ongoing hospitality management programs of the resorts built by us. While
our vacation home management will not be a condition of purchase at any of our
resorts, the consumer may elect to employ our management subsidiary to handle
all aspects of the care and economics of their vacation home, including but not
limited to the supervision of the home in a rental arrangement.
Vacation Homes and Travel Resorts
-------------------------------------
We derive our expertise from our founding shareholders who have
successfully developed real estate abroad. Our first vacation home resort in the
United States will be developed through our subsidiary, Tierra Del Sol Resort,
Inc. We intend to develop additional high-quality vacation resort properties
comprised of vacation homes and extensive resort amenities. We seek to acquire
suitable land for this purpose in locations where the demand for vacation
properties is strong throughout the year, including Florida and the Caribbean.
We intend to create and promote our vacation and travel clubs to the general
public to provide revenue for our vacation home and travel resort properties. In
addition, we hope to derive additional revenues from vacation and travel club
membership dues, conversion of travel club members to vacation club members, and
travel commissions from the fulfillment of services by our Travel Division. We
plan to develop our vacation resort properties to include qualified units so
that the homeowners may include their homes in voluntary rental arrangements.
We plan to provide qualifying vacation resort homeowners a comprehensive
set of vacation rental and property management and rental services. The services
will consist of marketing, reservations, guest services, basic resort services,
maintenance, repair and cleaning, management of home owner and condo
associations, record keeping and billing, and representation of homeowners'
interests with transient guests.
We have finished the planning stage for The Sonesta Orlando Resort at
Tierra del Sol, a 972-unit vacation home resort to be located just outside of
Orlando, Florida. On January 29, 2005, we entered into an operating agreement
with a subsidiary of Sonesta International Hotels Corporation of Boston,
Massachusetts, a nationally recognized luxury resort management company. We
retained the primary management responsibility, but we delegated substantially
all of the hospitality responsibilities within the management of the resort to
Sonesta.
We plan to construct The Sonesta Orlando Resort at Tierra del Sol in two
phases. Phase I is scheduled to include 430 residential units, a 126,000 square
foot clubhouse, and one of Central Florida's largest swimming and recreation
complexes which includes a combination pool and lazy river swimming feature, an
outdoor sports bar with food service, restroom facilities, showers, water
slides, beach volleyball and extensive sundecks. Phase II is scheduled to
include 542 residential units and additional amenities. The Phase II resort
amenities contemplated include miniature golf, a flow rider water attraction, a
wave pool, rapid river, and a children's multilevel interactive water park.
Phase II clubhouse improvements will include the finishing, equipping and
furnishing of banquet/meeting rooms, casual and fine dining restaurants, a full
service spa, a sales center and an owners' club. We estimate that the cost to
complete the construction of Phase I will be $156,500,000, of which $19,200,000
will be the cost of the horizontal construction, $24,900,000 will be for the
clubhouse and resort amenities, $67,600,000 will be for vertical construction on
430 units and $44,800,000 will be for other costs such as contingencies, closing
costs and soft costs such as architectural, engineering, and legal costs. We
plan to have the first phase of horizontal construction cost of $19,200,000
funded by the Westridge Community Development District via the sale by the
district of bonds issued on a non-recourse basis to the Company. The Westridge
Community Development District was initially created by the Company and enabled
by an order of the State District Court. The debt service on the bonds will be
paid by all of the owners of real property within the district as an additional
property tax assessment over thirty years as a quasi-public cost for the
community benefit provided by the infra-structure and green spaces that the
district will create and preserve. We are currently in the final stages of the
negotiations with a national banking institution for the provision of a
$96,600,000 conventional construction loan that we expect to close in the third
quarter of 2005. We have also given the same banking institution the
underwriting role in the sale of the bonds. We expect to close the first
offering of the bonds in August 2005. In June 2005, we began the earth moving
and clearing process on the land for the resort.
29
In November 2003, we entered into an exclusive sales and marketing
agreement with Xpress Ltd. to sell the vacation homes in The Sonesta Orlando
Resort at Tierra del Sol. Malcolm J. Wright, one of our founders and directors
and our Chief Executive Officer and Chief Financial Officer, and members of his
family are the majority shareholders of Xpress. As of June 15, 2005, Xpress has
pre-sold 720 vacation homes in a combination of contracts on town homes and
reservations on condominiums for total sales volume of over $243 million.
We are developing additional affinity clubs. Our launch schedule of clubs
in development calls for an average of 9 new clubs in the next 18 months. We
have developed a travel club system and travel incentive strategy that creates
and fulfills the travel and incentive needs of corporations, organizations and
associations with significant member bases. Typically, we identify a national
retail entity and propose to create a club to be comprised of persons in their
target demographic for the purpose of fostering loyalty to the entity's brands.
The incentives for membership are a rich assortment of discounted travel
opportunities that are tailored to the target demographic as well as a
significant array of special membership benefits that are provided by sponsors
of nationally known products and services. We derive revenues from membership
dues, sponsorship premiums and travel commissions. In addition to revenue
generation, we will also provide traffic to our vacation home and resort
properties. We believe that we will generate increased travel business through
the creation of additional clubs comprised of affinity-based travelers. We
believe that we are poised to secure a strong market share of the
affinity-travel marketing segment. We are the proprietor and manager of the
clubs that we create. As such, we anticipate that we will generate substantial
revenue from annual membership fees and commissions earned on the sale of travel
services once our infrastructure has been finalized to enable our other
businesses to communicate and sell to the affinity-based club databases we
operate. We expect to derive revenue from sales opportunities to Hickory's
corporate clients, Hickory's bulk purchasing power and fulfillment capacity, and
access to vacation home and resort properties that we plan to develop. We
recently unveiled a vacation creation program, which enables consumers to employ
our proprietary budgeting and finance technique to enjoy annual vacations at
premier properties that would otherwise not be available to them at the pricing
that we are able to offer. We have contracted with premier properties to enhance
the properties' occupancy rates during their off-season and the few weeks just
before and after their prime season. We have received favored pricing from these
properties as a result.
COMMUNICATIONS SERVICES
In December 2004 we entered into a joint venture with IMA Antigua, Ltd., a
Barbados company, to operate a call center in Antigua that we own. The joint
venture is operated through Caribbean Media Group, Ltd., an International
Business Corporation formed under the laws of Barbados. We own 39.69% of this
joint venture which is currently operating the call center. The call center
provides in-bound and out-bound traffic for customer service, customer retention
and accounts receivable management. The clients of the call center are well
known national businesses with well-established credit and operational systems.
We opened the call center in Antigua due to the new demand for call centers
in the Caribbean. The call center business is in demand in the Caribbean as a
result of telecommunications deregulation in the islands, which has reduced
costs and caused companies in the United States to spread their growing overseas
call center business to lower-cost sites near the United States. Based on a news
release by Global Information, Inc. dated January 31, 2005, interpreting the
Zagada Institute's "Caribbean Call Center Report 2005: A CRM Market", persons
employed in Caribbean call centers have more than doubled to 25,000 over the
past two years and likely will double again by the end of 2006. Proximity means
U.S. managers can easily visit and troubleshoot. Plus, it means call-center
agents tend to be more familiar with U.S. culture than agents in more distant
lands such as India. Caribbean nations are pursuing the call-center business,
anxious to create jobs and nurture clean industry that complements their vital
tourism industry. Many islands offer tax breaks, training programs and other
incentives. Competition may be robust but at present we believe that the demand
continues to exceed the supply. We cannot provide any assurance as to how long
these market conditions may persist.
We also own telecommunications equipment such as switches, dialers and
telephone booths that may have application for a telecommunications program that
we are considering in the United States. Part of this equipment can be used to
serve as the switches for a telephone system that we plan to operate for The
Sonesta Orlando Resort at Tierra del Sol. We plan to begin using the dialers and
operator booths during 2005 for the travel fulfillment operations that
TraveLeaders provides to our affinity-based travel clubs.
PATENTS, TRADEMARKS & LICENSES
We do not own any patents, trademarks, copyrights or other forms of
intellectual property. We will register or apply to register our trademarks when
we believe registration is warranted, and important, to our ongoing business
operations.
30
GOVERNMENT REGULATION
The travel, real estate development and vacation ownership industries are
subject to extensive and complex regulation. We are, and may in the future be,
subject to compliance with various federal, state, and local environmental,
zoning, consumer protection and other statutes and regulations regarding the
acquisition, subdivision and sale of real estate and vacation ownership
interests. On a federal level, the Federal Trade Commission has taken an active
regulatory role through the Federal Trade Commission Act, which prohibits unfair
or deceptive acts or competition in interstate commerce. We are, or may be
subject to the Fair Housing Act and various other federal statutes and
regulations. In addition, there can be no assurance that in the future, vacation
ownership interests will not be deemed to be securities subject to regulation,
which could increase the cost of such products. We believe that we are in
compliance in all material respects with applicable regulations. However, the
cost of complying with applicable laws and regulations may be significant. Any
failure to comply with current or future applicable laws or regulations could
have a material adverse effect on us.
We are subject to various federal and state laws regarding our tele-service
sales and telemarketing activities. We believe we are in compliance in all
material respects with all federal and state telemarketing regulations. Our
practices and methods may be or become subject to additional regulation or
regulatory challenge.
The industries we will serve may also be subject to varying degrees of
government regulation. Generally, in these instances, we rely on our clients and
their advisors to develop and provide us with the scripts for their particular
purposes. We anticipate that our clients will indemnify us against claims and
expenses arising with respect to the scripts provided by our clients.
EMPLOYEES
We have approximately 30 employees, all of which are employed on a
full-time basis. There are no collective bargaining contracts covering any of
our employees. We believe our relationship with our employees is satisfactory.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of the financial condition and
results of our operations should be read in conjunction with the consolidated
financial statements and the notes to those statements included elsewhere in
this prospectus. This discussion contains forward-looking statements reflecting
our current expectations that involve risks and uncertainties. Actual results
and the timing of events may differ materially from those contained in these
forward-looking statements due to a number of factors, including those discussed
in the section entitled "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We are in the process of developing an organization that will provide, on
an integrated basis, travel services, travel distribution as well as
development, sales, management and rentals of destination resorts. To that end
we have acquired or established businesses that manage and distribute travel
services, develop vacation home ownership and travel destination resorts and
develop and operate affinity-based clubs. There is a trend toward consolidation
in the travel industry, which has caused us to seek to create a vertically
integrated travel services organization that provides comprehensive services to
our clients and generates revenue from several sources. We believe that we have
a synergistic strategy that involves using our travel distribution, fulfillment
and management services to provide consumer bookings at our planned resorts,
selling and renting vacation homes that we plan to manage at these resorts, and
fulfilling the travel service needs of our affinity-based travel clubs. We also
own a call center in Antigua-Barbuda.
Malcolm J. Wright, our President, Chief Executive Officer, Chief Financial
Officer, a Director and one of our founders, has successfully developed vacation
properties in Europe. We are currently developing our first luxury vacation home
and destination resort, The Sonesta Orlando Resort at Tierra del Sol and relying
on Mr. Wright's experience to do so. This resort will include 540 town homes and
432 condominiums. As of June 15, 2005, we have pre-sold all of the town homes
and have accepted reservations on 41% of the condominiums, resulting in over
$243,000,000 in gross contract value. In June 2005, we began the earth moving
and clearing process on the land for the resort. Upon completion of these units,
we will offer our management services to certain purchasers to permit them to
voluntarily include their qualifying units in a rental program that we will
operate. In addition, we will retain a 45-day, right of first refusal to
repurchase the units in the resort that become available for resale.
31
Our TraveLeaders business is a fully integrated travel services
distribution business that provides its clients with a comprehensive range of
business and vacation travel services in both traditional and e-commerce
platforms including corporate travel management, leisure sales, and meeting,
special event and incentive planning. We acquired the assets of TraveLeaders
effective December 31, 2004, from Around The World Travel, Inc. Around The World
Travel is currently managing the assets for us. See the discussion below under
"Recent Events."
In October 2003, we acquired a 51% interest in Hickory. Hickory is a travel
management service organization that primarily serves its network/consortium of
approximately 160 well-established travel agency members, comprised of over
3,000 travel agents worldwide that focus on corporate travel. The services
provided by Hickory include a 24-hour reservation service, international rate
desk services, discount hotel programs, preferred supplier discounts, commission
enhancement programs and marketing services. Our business plan includes the
acquisition of additional travel agencies so that we can compete for greater
volume buying discounts and market share. We view the members of Hickory as a
resource for future acquisitions of viable travel agencies.
We are in the process of integrating the administrative operations of
Hickory and TraveLeaders. The integration process has been slower than we
anticipated because it has taken us longer than expected to identify those
operations that could be consolidated and determine the allocation and
re-assignment of the personnel best suited for the consolidated enterprise. In
addition, time has been required to analyze and determine the impact, if any, of
certain litigation commenced by Around the World Travel regarding its contracts
with Seamless Technologies, Inc. and others, as discussed elsewhere in this
prospectus. As such, expenditures have been higher than anticipated.
Our American Travel & Management Group business develops and operates
Internet structured clubs that specialize in using demographic affinities to
promote brand loyalty through the delivery of customized travel and other
benefits to a constituency that is built under the auspices of a national
retailer, publisher or national cause. A vital component to the benefits
provided to club members and the sponsors is the inclusion of a sophisticated
rewards program that will provide customer retention tracking data to those
sponsors while enabling the members to enjoy significant discounts and rewards
for their loyalty. We have recently entered into agreements with a prominent
sports media organization, a national publisher and an international retail food
service company. Based upon current agreements, we expect to launch a new club
on an average of one every other month for the next eighteen months. We fulfill
travel service orders produced by these clubs through TraveLeaders.
In December 2004, we entered into a joint venture with IMA Antigua, Ltd. to
operate a call center that we own located in Antigua. The joint venture is
operated through Caribbean Media Group, Ltd. We own 39.69% of this joint venture
company. The call center provides in-bound and out-bound traffic for customer
service, customer retention and accounts receivable management. The clients of
the call center are well known national businesses with well-established credit
and operational systems.
During the first quarter of 2005, we generated 41% of our revenue from the
sale of land held for development in Davenport, Florida. For that period, we
also recognized revenue from fees derived from Hickory's services and our
affinity-based travel clubs as well as revenue from the operations of
TraveLeaders.
Under our arrangement with Around The World Travel, which operates the
TraveLeaders assets on our behalf and from whom we acquired the assets, we
receive and recognize as income 90% of the net earnings of the TraveLeaders
assets before interest, taxes, depreciation and amortization. The balance is
retained by Around The World Travel as a management fee.
We also currently generate modest revenue from our call center joint
venture in Antigua. We expect revenues from our call center operations to
increase throughout the year based on indications from a major client that it
will require more seats in the third and fourth quarter.
As discussed in "Liquidity and Capital Resources," the capital requirement
for the first phase of the resort is approximately $122,600,000. We are
currently negotiating the final terms of a $96,600,000 construction loan with a
national construction lender. We expect to finance the balance of the
development budget, which includes infrastructure, retention, roads and green
space of approximately $26,000,000, through the sale of Westridge Community
Development District bonds. We intend to complete the capitalization process in
the third quarter of 2005 and begin the vertical construction during the fourth
quarter of 2005.
RECENT EVENTS
On January 29, 2005, we entered into an operating agreement with a
subsidiary of Sonesta International Hotels Corporation of Boston, Massachusetts,
a luxury resort hospitality management company. Pursuant to the operating
agreement, we sub-contracted to Sonesta substantially all of the hospitality
responsibilities for The Sonesta Orlando Resort at Tierra del Sol. We retain
primary management control of the resort. We had previously engaged Fugelberg
Koch to design the residential units of the resort, amenities and the clubhouse.
In February 2005, we held the official groundbreaking ceremony for the resort.
32
On March 7, 2005, we sold land located in Davenport, Florida that had been
held for commercial development. The land was acquired in 2002 for approximately
$1,975,359 and sold for $4,020,000 and paid-off secured debt on the property in
the amount of $1,300,000 plus accrued interest and other costs. We received
approximately $2,100,000 in net proceeds from the sale and realized a profit of
$1,100,000. We used the net proceeds for working capital and to pay $1,948,411
of notes payable to related parties attributable to the acquisition and
retention of the property.
We amended our agreement with Around The World Travel, Inc. effective March
31, 2005, to change the manner in which we will pay for the TraveLeaders assets
that we acquired on December 31, 2004. The purchase price of $17,500,000 was
determined by adding $1,500,000 to the fair value of the business as a going
concern as determined by an independent investment banking firm to be
$16,000,000. Pursuant to the terms of the original asset purchase agreement and
prior to the completion of the independent valuation, we were to assume
$17,306,352 in liabilities and issue 1,936 shares of our Series F preferred
stock valued at $193,648 in consideration for the assets. Under the amendment,
the liabilities assumed are reduced to $4,242,051, we will forgive certain
working capital loans that Around The World Travel owes to us and we will not
issue any Series F preferred stock. In addition, we will issue a 60 month, 6%
per annum balloon note in favor of Around The World Travel in the principal
amount of $8,483,330, which amount may be offset by any and all amounts payable
to us by Around The World Travel including any sums owed to us from the
management of the TraveLeaders assets.
In May 2005, we extended for six months the maturity dates of two notes
(payable to third parties) in the aggregate amount to $7,862,250 that matured on
March 31, 2005. These notes are not in default as the terms have been extended
for six months to September 30, 2005. Total accrued interest on the notes amount
to $256,512 as of March 31, 2005.
KNOWN TRENDS, EVENTS, AND UNCERTAINTIES
We expect to experience seasonal fluctuations in our gross revenues and net
earnings due to higher sales volume during peak periods. Advertising revenue
from the publication of books by Hickory listing hotel availability is
recognized once per year in December when the books are published. This
seasonality may cause significant fluctuations in our quarterly operating
results and our cash flows. In addition, other material fluctuations in
operating results may occur due to the timing of development of resort projects
and our use of the completed contracts method of accounting with respect
thereto. Furthermore, costs associated with the acquisition and development of
vacation resorts, including carrying costs such as interest and taxes, are
capitalized as inventory and will be allocated to cost of real estate sold as
the respective revenues are recognized. We intend to continue to invest in
projects that will require substantial development and significant amounts of
capital funding during 2005 and in the years ahead.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principals generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of any contingent assets and liabilities. We
base our estimates on various assumptions that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments
about carrying values of assets and liabilities that are not readily apparent
from other sources. On an on-going basis, we evaluate our estimates. Actual
results may differ from these estimates if our assumptions do not materialize or
conditions affecting those assumptions change. For a detailed discussion of our
significant accounting policies, see Note 2, Summary of Significant Accounting
Policies to the Notes to our audited consolidated financial statements included
elsewhere in this prospectus.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements:
Going Concern Considerations
------------------------------
We have incurred predictable losses during the development stage during our
existence, and we have negative retained earnings. We expect our travel
operations through the end of the current fiscal year to require additional
working capital of approximately $1,500,000. If we are unable to obtain these
funds, we may have to curtail or delay our travel business plan. In addition to
our ability to raise additional capital, our continuation as a going concern
also depends upon our ability to generate sufficient cash flow to conduct our
operations. If we are unable to raise additional capital or generate sufficient
cash flow to conduct our Travel Division operations, we may be required to delay
the acquisition of additional travel agencies and restructure or refinance all
or a portion of our outstanding debt. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
33
Revenue Recognition
--------------------
We recognize revenues on the accrual method of accounting. Revenues from
Hickory are recognized as earned, which is primarily at the time of delivery of
the related service, publication or promotional material. Fees from advertisers
to be included in the hotel book and web service operated by Hickory are
recognized upon the annual publication of the book. Revenue from the delivery
of services is recognized when it is invoiced to the recipient of the service.
One of our principal sources of revenue is associated with access to the
travel portals that provide a database of discounted travel services. Annual
renewals occur at various times during the year. Costs and revenue related to
portal usage charges are incurred in the month prior to billing. Customers are
charged additional fees for hard copies of the site access information.
Occasionally these items are printed and shipped at a later date, at which time
both revenue and expenses are recognized.
Revenues and expenses from our TraveLeaders business are not included in
our results as the same are borne by Around the World Travel, Inc., the third
party manager of the business. We recognize as revenue only the net operating
results of TraveLeaders after deducting the management fee paid to Around the
World Travel of 10% of net earnings before interest expense, taxes, depreciation
and amortization.
Revenues from our call center are recognized as generated by the joint
venture that operates the call center.
We have entered into pre-construction sales contracts for units in The
Sonesta Orlando Resort at Tierra del Sol. We will recognize revenue when title
is transferred to the buyer.
Goodwill
--------
We adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets." This statement
requires that goodwill and intangible assets deemed to have indefinite lives not
be amortized, but rather be tested for impairment on an annual basis.
Finite-lived intangible assets are required to be amortized over their useful
lives and are subject to impairment evaluation under the provisions of SFAS No.
144. In 2004, we recorded an impairment of $1,500,000 related to the
acquisition of the TraveLeaders assets in December 2004, based on our payment of
more than fair value as determined by an independent investment bank. Our
remaining goodwill of $14,425,437 has not been further impaired as of March 31,
2005, and will be evaluated on a quarterly basis and whenever events or
circumstances indicate the carrying value of the goodwill may not be
recoverable.
RESULTS OF OPERATIONS
Three Months ended March 31, 2005 Compared to Three Months Ended March 31, 2004
--------------------------------------------------------------------------------
Revenue increased $1,489,009, or 125%, to $2,675,674 for the three months
ended March 31, 2005, as compared to revenue of $1,186,665 for the three months
ended March 31, 2004. The increase in revenue was primarily attributable to
$1,100,000 from the sale of land in Davenport, Florida.
Depreciation and amortization expenses increased $211,310, or 96%, to
$431,382 for the three months ended March 31, 2005, as compared to depreciation
and amortization expenses of $220,072 for the three months ended March 31, 2004.
The increase in depreciation and amortization expenses was primarily
attributable to the call center and TraveLeaders. We opened the call center and
acquired TraveLeaders in the fourth quarter of 2004.
General and administrative expenses increased $430,690, or 22%, to
$2,405,156 for the three months ended March 31, 2005, as compared to general and
administrative expenses of $1,974,466 for the three months ended March 31, 2004.
The increase in general and administrative expenses was primarily attributable
to refurbishment and start-up of the call center and other telecommunications
operations.
34
Loss from operations decreased $847,009, or 84%, to $160,864 for the three
months ended March 31, 2005, as compared to a loss from operations of $1,007,873
for the three months ended March 31, 2004. The decrease in loss from operations
was largely due to the sale of land and the resulting increase in revenue.
We had interest expense of $393,319 for three months ended March 31, 2005.
During the period from December 2003 to December 2004, we received a total of
$11,505,000 of convertible debt financing from Stanford. The increase in
interest expense is due to the debt financing that we received from Stanford.
We did not have income or loss attributable to minority interest for the
three months ended March 31, 2005, as compared to income attributable to
minority interest of $256,624 for the three months ended March 31, 2004.
Loss before income taxes decreased $197,066, or 26%, to $554,183 for the
three months ended March 31, 2005, as compared to loss before income taxes of
$751,249 for the three months ended March 31, 2004. The decrease in loss before
income taxes was largely due to the sale land and the resulting increase in our
revenue.
We did not record a provision for income taxes for the three months ended
March 31, 2005. We recorded a provision for income taxes of $1,135 for the three
months ended March 31, 2004. Although we have net operating loss carry-forwards
that may be used to offset future taxable income and generally expire in varying
amounts through 2024, no tax benefit has been reported in the financial
statements.
Net loss decreased $198,201, or 26%, to $554,183 for the three months ended
March 31, 2005, as compared to net loss of $752,384 for the three months ended
March 31, 2004. The decrease in net loss and basic and diluted net loss per
share was largely due to the sale of land and the resulting increase in our
revenue.
We accrued preferred stock dividend of $350,890 for the three months ended
March 31, 2005, as compared to preferred stock dividend of $275,969 for the
three months ended March 31, 2004.
Net loss available to common stockholders decreased $123,280, or 12%, to
$905,073 with basic and diluted net loss per share available to common
stockholders of $0.09 for the three months ended March 31, 2005, as compared to
net loss of $1,028,353 with basic and diluted net loss per share available to
common stockholders of $0.13 for the three months ended March 31, 2004. The
decrease in net loss and basic and diluted net loss per share available to
common stockholders was largely due to the sale of land and the resulting
increase in our revenue.
We had an accumulated deficit of $13,200,194 as of March 31, 2005.
Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended December 31,
------------------------------------------------------------------------------
2003
----
We had revenues of $6,419,320 for the fiscal year ended December 31, 2004,
as compared to $3,327,483 for the fiscal year ended December 31, 2003, which
represents a 93% increase in revenues. The increase in revenues was due to the
inclusion of revenues from Hickory for the full year of 2004 as compared to
three months of revenues from Hickory for the prior year beginning on the date
of acquisition, which was October 1, 2003.
Loss from operations increased $2,593,247 to $4,209,749 for the fiscal year
ended December 31, 2004, as compared to loss from operations of $1,619,502 for
the fiscal year ended December 31, 2003. Loss from operations consisted of
depreciation and amortization of $936,874, general and administrative expenses
of $8,192,195 and goodwill impairment loss of $1,500,000 for the fiscal year
ended December 31, 2004, as compared to depreciation and amortization of
$716,175, general and administrative expenses of $4,227,810 and goodwill
impairment loss of $0 for the fiscal year ended December 31, 2003. The increase
in loss from operations was due to the increase in depreciation and
amortization, general and administrative expenses and goodwill impairment loss.
We realized goodwill impairment loss during 2004 due to the write-down of our
investment in the purchase of assets of Around The World Travel, Inc., which
were valued by an independent third party at $16,000,000, and we wrote off
$1,500,000 from the purchase consideration of $17,500,000.
Loss from operations before minority interests was $7,131,825 for the
fiscal year ended December 31, 2004, as compared to loss from operations before
minority interests of $1,616,502 for the fiscal year ended December 31, 2003.
The increase in loss from operations before minority interests was directly
attributable to the increases in depreciation and amortization and general and
administrative expenses as well as the goodwill impairment loss on acquiring the
TraveLeaders assets and a loss of $ 2,185,278 on the write down of acquiring
Around The World Travel's preferred stock in April 2004.
35
We had $510,348 attributable to minority interests for the fiscal year
ended December 31, 2004 and the fiscal year ended December 31, 2003.
Loss before income taxes for the fiscal year ended December 31, 2004 was
$6,621,477 as compared to loss before income taxes of $2,126,850 for the fiscal
year ended December 31, 2003. The increase in net loss before income taxes was
directly attributable to the increases in depreciation and amortization and
general and administrative expenses as well as the goodwill impairment loss on
acquiring the TraveLeaders assets and a loss of $ 2,185,278 on the write down of
acquiring Around The World Travel's preferred stock in April 2004.
We recorded a benefit from income taxes of $(12,824) for the fiscal year
ended December 31, 2004, as compared to a provision for income taxes of $0 for
the fiscal year ended December 31, 2003.
We had a net loss of $6,634,301 for the fiscal year ended December 31,
2004, as compared to a net loss of $2,126,850 for the fiscal year ended December
31, 2003, which represents an 86% increase in net loss. The increase in net loss
resulted from the increased expenses and the impairment and write down described
above.
We accrued preferred stock dividend of $1,248,331 for the fiscal year ended
December 31, 2004, as compared to preferred stock dividend of $1,083,025 for the
fiscal year ended December 31, 2003.
We had a net loss available to common stockholders of $7,882,632 for the
fiscal year ended December 31, 2004, as compared to a net loss available to
common stockholders of $3,209,875 for the fiscal year ended December 31, 2003,
which represents a 146% increase in net loss. Basic and diluted net loss per
share available to common stockholders was $0.92 for the fiscal year ended
December 31, 2004, as compared to the basic and diluted net loss per share
available to common stockholders of $0.47 for the fiscal year ended December 31,
2003. The increase in net loss and net loss per share available to common
stockholders resulted from the increased expenses and the impairment and write
down described above.
Historically, Hickory has had seasonal losses during the first three
quarters, and net profits during the fourth quarter of each year.
We had an accumulated deficit of $12,295,121 as of December 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
We expect that we will require approximately $1,500,000 through the end of
the current fiscal year for working capital for our travel management and
services businesses. We are in receipt of a term sheet offer and are currently
negotiating the final terms with a national banking institution to provide a
$96,600,000 construction loan for the first phase of the Sonesta Orlando Resort
at Tierra del Sol. We anticipate closing on the loan during the third quarter
of 2005. In connection with this loan, we have also engaged the same banking
institution to underwrite the sale of $26,000,000 in bonds issued by Westridge
Community Development District. The underwriting on the bonds is completed and
the pre-sale bids have been received. We anticipate that the bond sale will be
consummated upon the completion of our final negotiations with our construction
lender. These bonds will be repaid by residential unit owners in the district
over a 30-year period, through a tax assessment by the district. Upon closing
of the loan, we expect to repay $7,862,250 of short-term debt plus accrued
interest of $256,512. This short-term debt originally matured on March 31,
2005, but in May 2005 was extended for six months. The sum of the construction
loan and the bond sale proceeds will provide sufficient capital for the
construction of the first phase of The Sonesta Orlando Resort at Tierra del Sol.
In addition, to partially fund our development costs at The Sonesta Orlando
Resort at Tierra del Sol, we have used cash from buyers deposits, after
providing the disclosures required by Florida law, on the pre-sold town homes
for which the buyer has waived the requirements to maintain the funds in escrow.
The deposits on the town homes range from 10% to 20% of the purchase price. As
of June 15, 2005, approximately 90% of the buyers of town homes in the Sonesta
Orlando Resort have waived the escrow requirement and these funds have been
expended for our project related costs. Our contract for the condominiums
requires a 20% deposit. All of the deposits received on condominium contracts
are maintained in escrow. Provided the purchaser has waived escrow, we may use
any condominium contract deposit in excess of 10% to fund the hard costs of
construction on their unit. In the event we post a bond according to Florida
law, we will also be permitted to use the bonded portion of the deposits on the
condominiums for the projects development and construction costs.
We had total current assets of $3,185,174 as of March 31, 2005, which
consisted of cash of $1,767,769, accounts receivable of $1,079,308, prepaid
expenses and other of $267,843, and note receivable of $70,254.
36
We had total current liabilities of $13,621,422 as of March 31 2005, which
consisted of current maturities of long-term debt and notes payable of
$9,302,704, accounts payable and accrued expenses of $2,007,621, accrued
expenses to officers of $1,518,110, shareholder advances of $393,559 of which
approximately $209,004 was owed to a director, current maturities of notes
payable to related parties of $262,312 of which approximately $82,050 was owed
to our CEO/director, other current liabilities of $96,616, and customer deposits
of $40,500. We anticipate the closing of a construction and land loan for The
Sonesta Orlando Resort during the third quarter of 2005, of which there can be
no assurance. In the event that we close the loan as anticipated, we intend to
pay off current maturities of long-term debt and notes payable of $9,302,704.
We had negative net working capital of $10,436,248 as of March 31, 2005.
The ratio of total current assets to total current liabilities was approximately
23% as of March 31, 2005. That ratio will improve upon the retirement of our
short-term debts as of the closing of the construction loan referred
to above.
Net cash used in operating activities was $3,891,814 for the three months
ended March 31, 2005, as compared to net cash provided by operating activities
of $756,335 for the three months ended March 31, 2004. The change from net cash
provided by operating activities to net cash used in operating activities was
attributable to a net loss of $554,183, an increase in prepaid and other assets
of $1,388,560, and an increase in prepaid commissions of $1,157,752 which were
primarily offset by an increase in deposits on unit pre-sales of $2,867,598, a
decrease in accounts payable and accrued expenses of $4,231,662, a decrease in
customer deposits of $2,712,035 and a decrease in receivables of $2,460,079 for
the three months ended March 31, 2005.
Net cash used in investing activities decreased $2,570,171 to $49,757 for
the three months ended March 31, 2005, as compared to net cash used in investing
activities of $2,619,928 for the three months ended March 31, 2004. The decrease
was a result of a decrease in capitalization of real estate carrying costs to
$49,757 for the three months ended March 31, 2005, from $733,643 for the three
months ended March 31, 2004, a decrease in security deposits and other to $0 for
the three months ended March 31, 2005, from $970,429 for the three months ended
March 31, 2004, a decrease in advances to Around The World Travel, Inc. to $0
for the three months ended March 31, 2005, from $808,487 for the three months
ended March 31, 2004, and a decrease in acquisition of fixed assets to $0 for
the three months ended March 31, 2005, from $107,369 for the three months ended
March 31, 2004.
Net cash provided by financing activities increased $1,977,018 to
$3,443,298 for the three months ended March 31, 2005, as compared to net cash
provided by financing activities of $1,466,280 for the three months ended March
31, 2004. The increase was due to proceeds from debt of $6,391,615 from Stanford
that was offset by a payment of debt of $1,300,000 that was retired upon the
sale of the land in Davenport, Florida and payments to related parties of
$1,648,317 for the three months ended March 31, 2005.
Previously we have relied on loans from third parties and from related
parties to provide working capital and other funding needs. Our outstanding debt
includes three credit facilities totaling $11,605,000 in principal amount
provided by Stanford.
At March 31, 2005, we had outstanding principal balance of $11,605,000
under our three credit facilities with Stanford. Our $6,000,000 secured
revolving credit facility with Stanford bears interest at a fixed rate of 6% per
annum payable quarterly in arrears and matures on December 18, 2008. At the sole
election of the lender, any amount outstanding under the credit facility may be
converted into shares of our common stock at a conversion price of $15.00 per
share. The $6,000,000 credit facility is guaranteed by Malcolm Wright, our chief
executive officer and is secured by a second mortgage on our Sonesta Orlando
Resort property, including all fixtures and personal property located on or used
in connection with these properties, and all of the issued and outstanding
capital stock and assets of two of our subsidiaries, American Leisure Marketing
& Technology, Inc. and Caribbean Leisure Marketing Limited.
Our $4,250,000 secured revolving credit facility with Stanford bears
interest at a fixed rate of 8% per annum payable quarterly in arrears. The
credit facility is comprised of two tranches. The first tranche of $1,250,000
matures on September 30, 2005, may solely be used for the working capital of our
Hickory and TraveLeaders travel business and must immediately be repaid to the
extent that the borrowed amount together with accrued and unpaid interest
exceeds a borrowing base which is generally calculated as the lesser of
$1,250,000, or 50% of the dollar amount of TraveLeaders eligible accounts
receivable minus such reserves as the lender may establish from time to time in
its discretion. The second tranche of $3,000,000 matures on April 22, 2007. At
the sole election of the lender, any amount outstanding under the credit
facility may be converted into shares of our common stock at a conversion price
of $10.00 per share. The credit facility is secured by collateral assignments of
our stock in the active Travel Division subsidiaries as well as a collateral
assignment of our first lien security interest in the assets formerly owned by
Around The World Travel, Inc.
37
Our $1,355,000 secured revolving credit facility with Stanford
bears interest at a fixed rate of 8% per annum and
matures April 22, 2007. The proceeds of this facility may be used solely for our
call center operations in Antigua. Interest for the period from January 1, 2005
to March 31, 2006 is due on April 3, 2006 and interest is due quarterly in
arrears for periods after April 1, 2006. At the sole election of the lender, any
amount outstanding under the credit facility may be converted into shares of our
common stock at a conversion price of $10.00 per share. The credit facility is
secured by all of the issued and outstanding stock of our subsidiary, Caribbean
Leisure Marketing Limited.
All of our credit facilities with Stanford contain
customary covenants and restrictions, including covenants that prohibit us from
incurring certain types of indebtedness, paying dividends and making specified
distributions. Failure to comply with these covenants and restrictions would
constitute an event of default under our credit facilities, notwithstanding our
ability to meet our debt service obligations. Upon the occurrence of an event of
default, the lender may convert the debt to the company's common stock,
accelerate amounts due under the applicable credit facility and may foreclose on
collateral and/or seek payment from a guarantor of the credit facility. At March
31, 2005, we believe we were in compliance with the covenants and other
restrictions applicable to us under each credit facility.
As of June 15, 2005, we owe a total of $1,518,110 to related parties. These
amounts bear interest at 12% per annum and are payable on demand.
Our ability to construct The Sonesta Orlando Resort at Tierra del Sol and
repay our current debt is contingent upon us closing the construction financing
and receiving the district bond sale proceeds. We have experienced delays in
closing the construction loan and bond financing as a result of various factors
including difficulty determining a guaranteed maximum price of construction
costs for phase one from our general contractor. We have now concluded the
determination of the guaranteed maximum price of the construction and we
anticipate receiving a firm commitment for the construction loan in July 2005.
If we are unable to obtain financing for our working capital needs or close the
construction loan or the community development district bond financing, we will
be required to find alternative sources of capital that may not be available
when needed or on terms satisfactory to us, if at all. In the past, most of our
working capital has been obtained through loans from or the purchase of equity
by our officers, directors, large shareholders and some third parties. At this
time, we do not have any written commitments for additional capital from any of
these parties. If we do not receive a sufficient amount of additional capital on
acceptable terms, we will have to consider the sale of assets or securities or
scale back some or all of our operations or we may be unable to continue as a
going concern.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures, or capital resources that is
material to investors.
DESCRIPTION OF PROPERTY
Our corporate headquarters are located in Saddle Brook, New Jersey. Our
Saddle Brook facility is approximately 5,000 square feet, of which 250 square
feet houses our executive offices. This facility is leased by Hickory Travel
Systems, Inc. for approximately $178,056 per year. The lease expires on
April 14, 2008.
Our subsidiary owns the land on which The Sonesta Orlando Resort at Tierra
del Sol will be situated. It purchased this land for $5,560,366 in February
2000. We have spent approximately $1,123,000 to entitle and create the Westridge
Community Development District. The land is currently subject to mortgages in an
amount equal to approximately $12,000,000 that represents approximately a 35%
loan to value ratio. As a developer of vacation resort properties, we plan to
also purchase additional parcels of land for resort development.
The TraveLeaders assets are located in a building leased by Around The
World Travel, Inc. TraveLeaders occupies almost all of the 40,000 square feet at
1701 Ponce De Leon Boulevard, Coral Gables, Florida. We plan to move various
other subsidiaries into the available space. The lease expires in December of
2006. We have commenced our search for alternative leaseholds.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We believe that all prior related party transactions have been entered into
upon terms no less favorable to us than those that could be obtained from
unaffiliated third parties. Our reasonable belief of fair value is based upon
proximate similar transactions with third parties or attempts to obtain the
services from third parties, if such transaction would be available from third
parties. All past, ongoing and future transactions with such persons, including
any loans from or compensation to such persons, have been or will in the future
be approved by a majority of disinterested members of the Board of Directors.
38
We accrue $500,000 per year as salary payable to Malcolm J. Wright, our
Chief Executive Officer. Prior to 2004, we accrued $250,000 per year as salary
payable to Mr. Wright. We accrue interest at a rate of 12% compounded annually
on the salary owed to Mr. Wright. As of March 31, 2005, the aggregate amount of
salary payable and accrued interest owed to Mr. Wright was $1,390,110. We also
accrue $100,000 per year as salary payable to L. William Chiles, a director of
the Company and the President of Hickory, for his services, and interest at a
rate of 12% compounded annually beginning in 2005. As of March 31, 2005, the
aggregate amount of salary payable and accrued interest owed to Mr. Chiles was
$128,000.
We pay or accrue directors' fees to each of our directors in an amount of
$18,000 per year for their services as directors. During the three months ended
March 31, 2005, we accrued directors' fees for four directors; however, Gillian
Wright resigned as a director on February 1, 2005. As of March 31, 2005, we had
accrued an aggregate amount of directors' fees of $132,000.
We entered into a debt guarantor agreement with Mr. Wright and Mr. Chiles
whereby we agreed to indemnify Mr. Wright and Mr. Chiles against all losses,
costs or expenses relating to the incursion of or the collection of our
indebtedness against Mr. Wright or Mr. Chiles or their collateral. This
indemnity extends to the cost of legal defense or other such reasonably incurred
expenses charged to or assessed against Mr. Wright or Mr. Chiles. In the event
that Mr. Wright or Mr. Chiles make a personal guarantee for our benefit in
conjunction with any third-party financing, and Mr. Wright or Mr. Chiles elect
to provide such guarantee, then Mr. Wright and/or Mr. Chiles shall earn a fee
for such guarantee equal to three per cent (3%) of the total original
indebtedness and two per cent (2%) of any collateral posted as security. This
fee is to be paid by the issuance of warrants to purchase our common stock at a
fixed strike price of $1.02 per share, when the debt is incurred. Mr. Wright
personally guaranteed $6,000,000 that we received from Stanford pursuant to a
convertible promissory note. In addition, Mr. Wright pledged to Stanford 845,733
shares of our common stock held by Mr. Wright. Stanford is currently in
possession of the shares of our common stock that Mr. Wright pledged; however,
Mr. Wright retained the power to vote (or to direct the voting) and the power to
dispose (or direct the disposition) of those shares. Mr. Chiles had personally
guaranteed $2,000,000 of the $6,000,000 received from Stanford and pledged to
Stanford 850,000 shares of our common stock held by Mr. Chiles. Stanford
released Mr. Chiles from the personal guarantee and released his common stock
from the pledge when we closed the $6,000,000 credit facility. Mr. Wright and
Mr. Chiles have each also given a personal guarantee regarding a loan in the
principal amount of $6,000,000 that was made to Tierra Del Sol Resort, Inc. by
Grand Bank & Trust of Florida. We have authorized the issuance of warrants to
Mr. Wright and Mr. Chiles to purchase 587,860 shares and 168,672 shares,
respectively, of our common stock at an exercise price of $1.02 per share. We
are under a continued obligation to issue warrants at $1.02 to Messrs. Wright
and Chiles for guarantees that they may be required to give on our behalf going
forward.
We may provide the executive officers of each of our subsidiaries an
aggregate bonus of up to 19% of the pre-tax profits, if any, of the subsidiaries
in which they serve as executive officers. Malcolm J. Wright will receive 19% of
the pre-tax profits of Leisureshare International Ltd, Leisureshare
International Espanola SA, American Leisure Homes, Inc., APMG, TDSR, and
American Leisure Hospitality Group, Inc. We do not have any agreements with our
officers regarding the bonus other than with L. William Chiles. Mr. Chiles is
entitled to receive 19% of the profits of Hickory up to a maximum payment over
the life of his contract of $2,700,000. As Mr. Chiles' bonus is limited, it is
not subject to the buy-out by us (discussed below) as it will cease as soon as
the $2,700,000 amount has been paid to him. The executive officers of our other
subsidiaries would share a bonus of up to 19% of the pre-tax profits of the
subsidiary in which they serve as executive officers. We would retain the right,
but not have the obligation to buy-out all of the above agreements after a
period of five years by issuing such number of shares of our common stock equal
to the product of 19% of the average after-tax profits for the five-year period
multiplied by one-third of the price to earnings ratio of our common stock at
the time of the buyout divided by the greater of the market price of our common
stock or $5.00. We have not paid or accrued any bonus as of the filing of this
report.
Since the reverse merger in July of 2002, we have relied almost exclusively
upon Malcolm J. Wright for the experience and energy required to cultivate
opportunities for us in vacation real estate development. We have accrued salary
and other compensation to Mr. Wright up to this point. Therefore, we have
entered into agreements with entities owned or controlled by Mr. Wright to
secure advancement of our real estate development projects.
Malcolm J. Wright is the President and 81% majority shareholder of American
Leisure Real Estate Group, Inc. On November 3, 2003, we entered into an
exclusive development agreement with American Leisure Real Estate Group to
provide development services for the development of The Sonesta Orlando Resort
at Tierra del Sol. Pursuant to this development agreement, it is responsible for
all development logistics and we are obligated to reimburse it for all of its
costs and to pay it a development fee in the amount of 4% of the total costs of
the project paid by it. As of March 31, 2005, it had administered operations and
paid bills in the amount of $5,639,975 and received a fee of 4% (or
approximately $225,599) under the development agreement.
39
Malcolm J. Wright and members of his family are the majority shareholders
of Xpress Ltd., a company that has experience marketing vacation homes in
Europe. On November 3, 2003, we entered into an exclusive sales and marketing
agreement with Xpress to sell the units in The Sonesta Orlando Resort at Tierra
del Sol being developed by us. This agreement provides for a sales fee in the
amount of 3% of the total sales prices received by us plus a marketing fee of
1.5%. Pursuant to the terms of the agreement, one-half of the sales fee is
payable upon entering into a sales contract (with deposits paid as required by
the sales contract) for a unit in the resort and the other half is due upon
closing the sale. During the period since the contract was entered into and
ended March 31, 2005, the total sales made by Xpress amounted to approximately
$215,730,333. As a result of the sales, we are currently obligated to pay Xpress
a sales fee of approximately $3,235,955 and a marketing fee of $3,235,955. We
will be obligated to pay Xpress the remaining sales fee upon closing the sales
of the units. As of March 31, 2005, we have paid Xpress $3,505,748 of cash,
issued Xpress 120,000 shares of Series A Preferred Stock valued at $1,200,000,
and transferred to Xpress a 1913 Benz automobile valued at $500,000.
In February 2004, Malcolm J. Wright, individually and on behalf of Xpress,
and Roger Maddock, individually and on behalf of Arvimex, Inc., entered into
contracts with us to purchase an aggregate of 32 town homes for $13,116,800. Mr.
Wright and Mr. Maddock paid an aggregate deposit of $1,311,680 and were given a
10% discount that we otherwise would have had to pay as a commission to a
third-party real estate broker. Roger Maddock is directly (and indirectly
through Arvimex) the beneficial owner of more than 5% of our common stock.
We granted warrants to each of Malcolm J. Wright and L. William Chiles for
their services as directors to purchase 100,000 shares (or an aggregate of
200,000 shares) of our common stock at an exercise price of $1.02 per share.
Warrants to purchase 75,000 shares have vested to each of them. Warrants to
purchase the remaining 25,000 shares will vest to each of them in equal amounts
on the next anniversary date of each of their terms as a director, provided they
are then serving in said capacity.
M J Wright Productions, Inc., of which Mr. Wright is the President, owns
our Internet domain names.
Mr. Wright and we are negotiating an employment agreement pursuant to which
Mr. Wright will serve as our President, Chief Executive Officer and Chief
Financial Officer. We will provide the terms of the employment agreement when it
is finalized. In June 2005, we entered into an indemnification agreement with
Mr. Wright.
In March 2005, we closed on the sale of 13.5 acres of commercial property
in Davenport, Polk County, Florida at the corner of U.S. Hwy. 27 and Sand Mine
Road. The property was sold for $4,020,000. We paid-off secured debt on the
property of $1,300,000 plus accrued interest and other costs. We used the net
proceeds for working capital and to pay $1,948,411 of notes payable to related
parties attributable to the acquisition and retention of the property.
Thomas Cornish is a director nominee and has served as a member of our
advisory board. He is the President of the Seitlin Insurance Company. Our board
of directors has authorized Seitlin to place a competitive bid to provide
insurance for The Sonesta Orlando Resort at Tierra del Sol. During 2004 and
2005, Mr. Cornish provided services on our advisory board in consideration for
$1,500 and $3,000, respectively. David Levine is a director nominee and has
served as a member of our advisory board. He provided services on our advisory
board during 2004 and 2005 in consideration for $3,000 and $1,500, respectively.
We reimbursed Mr. Levine for travel expenses in the amount of $1,613 and $8,521
during 2004 and 2005, respectively. Charles J. Fernandez, a member of our
advisory board and a director nominee, provided services on our advisory board
during 2005 for which he was paid $3,000. We authorized warrants to each of
Thomas Cornish, Charles J. Fernandez and David Levine to purchase 100,000 shares
(or an aggregate of 300,000 shares) of our common stock at an exercise price of
$1.02 per share in consideration for their services as advisors. The warrants
vested immediately with respect to the purchase of 50,000 shares by each of
them. Warrants to purchase the remaining 50,000 shares will vest to each of them
in equal amounts on their next two anniversary dates as advisors or Directors,
provided they are then serving in one of said capacities. The director nominees
have not accepted directorship as of the date of this prospectus and we do not
currently have plans for them to come onto our board of directors.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock, $.001 par value per share, is traded on the OTCBB under
the trading symbol "AMLH."
The following table sets forth the high and low bid prices for our common
stock for the periods indicated as reported on the OTCBB, except as otherwise
noted. The quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.
40
2005 HIGH BID LOW BID
-------------- ---------------
First Quarter $3.30 $0.80
2004 HIGH BID LOW BID
-------------- ---------------
Fourth Quarter $1.50 $1.25
Third Quarter $2.02 $1.30
Second Quarter $2.00 $0.45
First Quarter $0.60 $0.25
2003 HIGH BID LOW BID
-------------- ---------------
Fourth Quarter $0.75 $0.26
Third Quarter $0.40 $0.10
Second Quarter $0.27 $0.08
First Quarter $0.20 $0.10
(1) Our common stock was de-listed from the OTCBB during the period from
May 21, 2004 to January 26, 2005, as a result of one delinquent filing with
the Commission. The high and low bid prices for our common stock for the
second, third and fourth quarter of 2004, as listed above, were reported by
Pink Sheets, LLC. Our common stock was cleared for quotation on the OTCBB
on January 26, 2005.
As of the date of this prospectus, we had 329 holders of record of our
common stock. The number of holders of the common stock includes nominees of
various depository trust accounts for an undeterminable number of individual
stockholders.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock. We do not
anticipate paying dividends on our common stock in the near future. We intend to
reinvest in our business operations any funds that could be used to pay
dividends. Our common stock is junior in priority to our preferred stock with
respect to dividends.
Cumulative dividends on our issued and outstanding Series A preferred
stock, Series B preferred stock, Series C preferred stock and Series E preferred
stock accrue at a rate of $1.20, $12.00, $4.00, and $4.00, respectively, per
share per annum, payable in preference and priority to any payment of any cash
dividend on our common stock. We have authorized Series F preferred stock, which
accrues dividends at a rate of $1.00 per share per annum, payable in preference
and priority to any payment of any cash dividend on our common stock. Dividends
on our preferred stock accrue from the date on which such shares of preferred
stock are issued and outstanding and thereafter from day to day whether or not
earned or declared and whether or not there exists profits, surplus or other
funds legally available for the payment of dividends. We may authorize and/or
issue additional shares of preferred stock with dividends rights that are
superior to our common stock. We have never paid any cash dividends on our
preferred stock. We will be required to pay accrued dividends on our preferred
stock before we can pay any dividends on our common stock.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation that
we paid to our Chief Executive Officer and each of our four other most highly
compensated executive officers during the year ended December 31, 2004. We refer
to these officers in this report as the named executive officers.
41
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION (2)
ANNUAL COMPENSATION(1) AWARDS
--------------------------------------------- ------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS
POSITION YEAR ($) ($) ($) ($) (#)
------------------------------ ------ ----------- ------------ ----------- ---------- -----------
Malcolm J. Wright 2004 $578,000 (3) -- -- -- 347,860 (5)
Chief Executive Officer, 2003 $313,000 (3) -- -- -- --
President, Secretary, Chief 2002 $268,000 (3) -- -- -- --
Financial Officer and Director
L. William Chiles 2004 $ 270,902(4) -- -- -- 168,672 (5)
Our Chairman and the Chief 2003 $168,579 (4) -- -- -- --
Executive Officer of Hickory
Travel Systems, Inc.
(1) Does not include perquisites and other personal benefits in amounts
less than 10% of the total annual salary and other compensation.
(2) There are no stock option, retirement, pension, or profit sharing
plans for the benefit of our officers and directors; however, see Footnote
5 to this table, below.
(3) Includes $500,000, $250,000 and $250,000 of accrued salary for Mr.
Wright's services as an executive officer for 2004, 2003 and 2002,
respectively, $60,000 and $45,000 of accrued interest on salaries payable
in 2004 and 2003, respectively, at 12% per annum, compounded annually, and
$18,000 of accrued director compensation per year for Mr. Wright's services
as a director for 2004, 2003 and 2002. We pay $940 per month and related
expenses to provide Mr. Wright with business use of a motor vehicle.
(4) Includes $152,902 and $150,579 of salary paid to Mr. Chiles for his
services as an executive officer of Hickory for 2004 and 2003,
respectively, $100,000 of accrued salary for 2004, and $18,000 of accrued
director compensation per year for L. William Chiles' services as a
director for 2004, 2003 and 2002. Mr. Chiles is provided a new insured
automobile for his use during the term of his employment with Hickory,
which vehicle shall have an approximate value of $80,000.
(5) In March 2004, pursuant to a debt guarantor agreement, we authorized
the issuance of warrants to Mr. Wright and Mr. Chiles to purchase 347,860
shares and 168,672 shares, respectively, of our common stock at an exercise
price of $2.96 per share, which were subsequently reduced to $1.02 per
share of common stock.
EMPLOYMENT AGREEMENTS
Mr. Wright and we are negotiating an employment agreement pursuant to which
Mr. Wright will serve as our President, Chief Executive Officer and Chief
Financial Officer.
On May 18, 2004, we entered into a three-year employment agreement with L.
William Chiles to serve as Chairman of our board of directors and a separate
three-year employment agreement for him to serve as the President and Chief
Executive Officer of Hickory Travel Systems, Inc. The agreements provide that
Mr. Chiles will receive a base salary of $100,000 for his services as our
Chairman and $150,000 for his services as the President and Chief executive
Officer of Hickory. Under each agreement, Mr. Chiles is eligible to receive an
annual incentive-based bonus based on his achievement of goals and objectives
that he and our board of directors agree upon. Mr. Chiles is entitled to one and
one-half weeks of vacation at two times his base salary rate per week per
$50,000 of his base salary for his services as Chairman and $75,000 of his base
salary for his services as President and Chief Executive Officer of Hickory. Mr.
Chiles is also entitled to share in the profits of Hickory in an amount not to
exceed $2,700,000 over the life of his employment agreement with Hickory.
Hickory is required to provide Mr. Chiles with key man life insurance equal to
eight times his base salary; however, neither we nor Hickory have obtained such
policy as of the date of this prospectus. Hickory is also required to provide
Mr. Chiles with one insured automobile having a value of $80,000 every year of
his employment agreement. If Mr. Chiles is terminated without cause, under each
agreement, he will receive thirty-six months' base salary and any
incentive-based bonus that otherwise would have been payable to him through the
date that we terminate his employment. We do not have an obligation to pay base
salary or incentive-based bonus to Mr. Chiles under either agreement if he
voluntarily terminates his employment or he is terminated for cause. For
purposes of these employment agreements, "cause" means the following activities:
- Use of alcohol, narcotics or other controlled substances that prevent
him from efficiently performing his duties;
- Disclosure of confidential information or competes against us in
violation of the employment agreements;
42
- Theft, dishonesty, fraud, or embezzlement from us or a violation of
the duty of loyalty to us;
- If Mr. Chiles is directed by a regulatory or governmental authority to
terminate his employment with us or engages in activities that cause
actions to be taken by regulatory or government authorities, that have a
material adverse effect on us;
- Conviction of a felony (other than a felony resulting in a traffic
violation) involving any crime of moral turpitude or any crime involving
us;
- Sexual harassment or sexually inappropriate behavior;
- Materially disregards duties under the employment agreements;
- Egregious misconduct or pattern of conduct;
- Entering into enforceable commitments on our behalf without conforming
to our policies and procedures or in violation of any of our directives.
43
FINANCIAL STATEMENTS
The Financial Statements required by Item 310 of Regulation S-B are stated
in U.S. dollars and are prepared in accordance with U.S. Generally Accepted
Accounting Principles.
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004
MARCH 31, 2005 DECEMBER 31, 2004
---------------- -------------------
ASSETS Unaudited Audited
(Restated) (Restated)
CURRENT ASSETS:
Cash $ 1,767,769 $ 2,266,042
Accounts receivable 1,079,308 3,539,387
Note receivable 70,254 113,000
Prepaid expenses and other 267,843 51,460
Other Current Assets 0 30,476
---------------- -------------------
Total Current Assets 3,185,174 6,000,365
---------------- -------------------
PROPERTY AND EQUIPMENT, NET 5,623,959 6,088,500
---------------- -------------------
LAND HELD FOR DEVELOPMENT 23,531,130 23,448,214
---------------- -------------------
OTHER ASSETS
Prepaid Sales Commissions 6,553,688 5,966,504
Prepaid Sales Commissions - affiliated entity 3,235,955 2,665,387
Investment-Senior Notes 5,170,000 5,170,000
Goodwill 14,425,437 14,425,437
Trademark 1,008,478 1,000,000
Other 3,874,494 2,637,574
---------------- -------------------
Total Other Assets 34,268,052 31,864,902
---------------- -------------------
TOTAL ASSETS $ 66,608,315 $ 67,401,981
================ ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 9,302,704 $ 9,605,235
Current maturities of notes payable-related parties 262,312 1,910,629
Accounts payable and accrued expenses 2,007,621 5,618,973
Accrued expenses - officers 1,518,110 1,355,000
Customer deposits 40,500 2,752,535
Other 96,616 2,332,886
Shareholder advances 393,559 273,312
---------------- -------------------
Total Current Liabilities 13,621,422 23,848,570
Long-term debt and notes payable 27,913,777 20,600,062
Deposits on unit pre-sales 19,536,945 16,669,347
---------------- -------------------
Total liabilities 61,072,144 61,117,979
STOCKHOLDERS' EQUITY:
Preferred stock; 1,000,000 shares authorized; $.001 par value;
1,000,000 Series "A" shares issued and outstanding at
March 31, 2005 and December 31, 2004 10,000 10,000
Preferred stock; 100,000 shares authorized; $.01 par value;
2,825 Series "B" shares issued and outstanding at
March 31, 2005 and December 31, 2004 28 28
Preferred stock, 28,000 shares authorized; $.01 par value
27,189 Series "C" shares issued and outstanding at
March 31, 2005 and December 31, 2004 272 272
Preferred stock; 50,000 shares authorized; $.001 par value;
24,101 and 0 Series "E" shares issued and outstanding at
March 31, 2005 and December 31, 2004 24 24
Preferred stock; 150,000 shares authorized; $.01 par value;
0 and 1,936 Series "F" shares issued and outstanding at
March 31, 2005 and December 31, 2004 - 19
Common stock, $.001 par value; 100,000,000 shares authorized;
9,977,974 shares issued and outstanding at
March 31, 2005 and December 31, 2004 9,978 9,978
Additional paid-in capital 18,716,063 18,558,802
Accumulated deficit (13,200,194) (12,295,121)
---------------- -------------------
Total Stockholders' Equity 5,536,171 6,284,002
---------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 66,608,315 $ 67,401,981
================ ===================
44
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2005 MARCH 31, 2004
-------------- -------------
UNAUDITED UNAUDITED
(Restated) (Restated)
Revenue $ 2,675,674 $ 1,186,665
Operating Expenses:
Depreciation and amortization (431,382) (220,072)
General and administrative expenses (2,405,156) (1,974,466)
----------- -----------
Loss from Operations (160,864) (1,007,873)
Interest Expense (393,319)
Minority Interest - 256,624
----------- -----------
Total Other Income (Expense) (393,319) 256,624
----------- -----------
Loss before Income Taxes (554,183) (751,249)
PROVISIONS FOR INCOME TAXES - (1,135)
----------- -----------
NET LOSS (554,183) (752,384)
Preferred Stock Dividend (350,890) (275,969)
----------- -----------
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS $ (905,073) $(1,028,353)
=========== ===========
NET LOSS PER SHARE AVAILABLE
TO COMMON STOCKHOLDERS:
BASIC AND DILUTED (0.09) (0.13)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 9,977,974 7,630,961
=========== ===========
45
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2005 MARCH 31, 2004
-------------- ---------------
UNAUDITED UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (554,183) $ (752,384)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 431,382 220,072
Interest Expense 393,319 -
Changes in assets and liabilities:
Decrease in receivables 2,460,079 1,149,956
Increase in prepaid and other assets (1,388,560) (85,733)
Increase in prepaid commissions (1,157,752) -
Increase in deposits on unit pre-sales 2,867,598 -
(Decrease)/Increase in customer deposits (2,712,035) 145,474
(Decrease)/Increase in accounts payable and
accrued expenses (4,231,662) 78,950
------------ ------------
Net cash provided by (used in) operating activities (3,891,814) 756,335
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Security deposits and other - (970,429)
Acquisition of fixed assets - (107,369)
Advances to AWT - (808,487)
Capitalization of real estate carrying costs (49,757) (733,643)
------------ ------------
Net cash used in investing activities (49,757) (2,619,928)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 6,391,615 -
Payment of debt (1,300,000) -
Proceeds from notes payable - 1,289,834
Proceeds from notes payable - related parties - (8,531)
Payments to related parties (1,648,317) -
Proceeds from shareholder advances - 184,977
------------ ------------
Net cash provided by financing activities 3,443,298 1,466,280
------------ ------------
Net decrease in cash (498,273) (397,313)
CASH AT BEGINNING PERIOD 2,266,042 734,852
------------ ------------
CASH AT END OF PERIOD $ 1,767,769 $ 337,539
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 636,065 $ 180,000
============ ============
NON-CASH TRANSACTIONS:
Stock issued for assets, net of liabilities of $7,111,668 $ - $ 5,170,000
============ ============
46
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
March 31, 2005
NOTE A - PRESENTATION
The condensed balance sheets of the Company as of March 31, 2005 and December
31, 2004, the related condensed consolidated statements of operations for the
three months ended March 31, 2005 and 2004, and the condensed consolidated
statements of cash flows for the three months ended March 31, 2005 and 2004,
(the condensed financial statements) include all adjustments (consisting of
normal, recurring adjustments) necessary to summarize fairly the Company's
financial position and results of operations. The results of operations for the
three months ended March 31, 2005 are not necessarily indicative of the results
of operations for the full year or any other interim period. The information
included in this Form 10-QSB should be read in conjunction with Management's
Discussion and Analysis and Financial Statements and notes thereto included in
the Company's December 31, 2004, Form 10-KSB & 10-KSB/A and the Company's Forms
8-K & 8-K/A filings.
NOTE B - REVENUE RECOGNITION
American Leisure recognizes 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 are recognized as generated and on
a periodic basis from the joint venture entity, Caribbean Media Group, Ltd.
Revenues from Hickory Travel Systems, Inc. are recognized as earned, which is
primarily at the time of delivery of the related service, publication or
promotional material. Costs associated with the current period are expensed as
incurred; those costs associated with future periods are deferred.
Revenues from American Leisure Equities Corporation are recognized as the net
operating result of the Business managed by Around The World Travel, Inc. (third
party travel management company). Revenues and expenses are borne by Around The
World Travel and the net operating results recognized as Revenues by American
Leisure Equities Corporation.
One of American Leisure's principal sources of revenue is associated with access
to the travel portal that provides a database of discounted travel services.
Annual renewals occur at various times during the year. Costs related to site
changes are incurred in the months prior to annual billing renewals. Customers
are charged additional fees for hard copies of the site access information.
Occasionally these items are printed and shipped at a later date, at which time
both revenue and expenses are recognized.
47
NOTE C - PROPERTY AND EQUIPMENT, NET
As of March 31, 2005, property and equipment consisted of the following:
Useful
Lives Amount
---------- ----------
Equipment 3-5 $7,600,083
Furniture & fixtures 5-7 1,538,437
----------
Subtotal 9,138,520
Less: accumulated depreciation
and amortization 3,514,561
----------
Property and equipment, net $5,623,959
==========
Depreciation expense for the three-month period ended March 31, 2005 amounts to
$431,382.
NOTE D - LONG-TERM DEBT AND NOTES PAYABLE
Two notes which amount to $7,862,250 ($6 million with Grand Bank and $1,862,250
with Raster Investments) matured on March 31, 2005. These notes are not in
default and the terms have been extended for an additional six months. Total
accrued interest on the notes amount to $256,512.
On March 4, 2005 unimproved property in Davenport, Florida was sold for
$4,020,000 which provided profits of $1,069,920 and debt relief of $1,300,000
(note payable to Emmitt Foster Trustee).
NOTE E - NOTES PAYABLE - RELATED PARTIES
The current portion of notes payable to related parties is as follows:
James Hay Trustee $ 56,000
Malcolm Wright 82,050
Peter Webb 124,262
-----------
Notes payable - related parties $ 262,312
===========
Included in Long-term debt and notes payable are debts and notes payable to the
following related parties:
Xpress Ltd. $1,041,685
American Leisure Equities Corp 10,432,791
Hickory Travel Services 768,004
-----------
Related party debt and notes $12,242,480
===========
The long-term portion of notes payable owed to Hickory Travel Systems of
$768,004 is owed to the former minority shareholders of Hickory Travel Systems,
Inc., a subsidiary of the Company. $209,004 of such amount is owed to L.
William Chiles, a Director of the Company.
48
NOTE F - ACQUISITIONS
On December 31, 2004, American Leisure Equities Corporation (the "Purchaser") a
wholly-owned subsidiary of American Leisure, entered into an Asset Purchase
Agreement (hereinafter referred to as "APA") with Around The World Travel, Inc.
(the "Seller"), pursuant to which the Seller agreed to sell substantially all of
its assets to the Purchaser. Under the terms of the APA, the Seller conveyed to
the Purchaser all of the assets necessary to operate the Business, including
substantially all of the Seller's tangible and intangible assets and certain
agreed liabilities.
The purchase price for the assets transferred under the APA is an amount equal
to the fair value of the Business ($16 million, established by an unaffiliated
investment-banking firm, calculated on a going concern basis), plus $1.5
million, for a total purchase price of $17.5 million.
The APA has been amended and it can be further amended through June 30, 2005.
The original APA indicated that the Purchaser will pay the purchase price on or
before June 30, 2005 through a combination of a number of different currencies
including but limited to the application of short term debt owed to the Company,
the assumption of specific liabilities, the payment to certain AWT creditors on
behalf of AWT and potentially certain preferred stock of the Company. Pursuant
to the terms of the APA, the Seller and the Purchaser have entered into a
Management Agreement, under which the Seller manages the Business on behalf of
the Purchaser. The Seller and the Purchaser also entered into a License
Agreement, under which the Purchaser granted the Seller a non-exclusive license
to use certain trade names and related intellectual property in connection with
the performance of its duties under the Management Agreement. The License
Agreement will expire simultaneously with the Management Agreement. The
amendment has changed the consideration for the purchase price to a combination
of 1) issuance to Seller of a note payable in the amount of $8,483,330, 2)
reduction of certain amounts owed by the Seller to Purchaser in the amount of
$4,774,619 and 3) the assumption of certain liabilities of the Seller in the
amount of $4,242,051. The preferred stock issuance in the original APA was
retracted. During the first quarter, certain of the assets, to wit: doubtful
receivables, pre-paids and security deposits were transferred to Seller as
reduction of the note payable. The note was further reduced by a set-off of the
amount of the Accounts Receivable deemed received and retained by AWT. AWT had
sold the Accounts Receivable to the Company on 12/31/04. In lieu of segregating
and remitting the payments received on the Accounts Receivables, AWT was
permitted to apply said amounts as a credit to the Company's note payable. The
final balance due under the note payable will be ascertained on or before June
30, 2005.
The excess purchase price over the fair value of net tangible assets was
$12,585,435, all of which was allocated to goodwill. No impairment of the
goodwill amount occurred during the quarter covered by this report.
49
The following table summarizes the estimated fair value of the net assets
acquired and liabilities assumed at the acquisition dates.
Total
-------------
Current assets $ 1,850,109
Property and equipment 287,975
Deposits 276,481
Trademark 1,000,000
Goodwill 12,585,435
-------------
Total assets acquired $ 16,000,000
=============
Notes assumed 4,242,051
Debt forgiven 4,774,619
Note issued 8,483,330
-------------
Consideration $ 17,500,000
=============
NOTE G - RELATED PARTY TRANSACTIONS
The Company accrues salaries payable to Malcolm Wright in the amount of $500,000
per year (and $250,000 per year in 2002 and 2003) with interest at 10%. As of
March 31, 2005, the amount of salaries payable accrued to Mr. Wright amounts to
$1,390,110.
The Company accrues director fees to each of its four (4) directors in an amount
of $18,000 per year for their services as directors of the Company. No payments
of director fees were paid during the current quarter and the balance of accrued
director fees as of the end of the quarter covered by this report amounts to
$132,000.
Malcolm Wright is the majority shareholder of American Leisure Real Estate
Group, Inc. (ALRG). On November 3, 2003 TDSR entered into an exclusive
Development Agreement with ALRG to provide development services for the
development of the Tierra Del Sol Resort. Pursuant to the Development Agreement
ALRG is responsible for all development logistics and TDSR is obligated to
reimburse ALRG for all of ALRG's costs and to pay ALRG a development fee in the
amount of 4% of the total costs of the project paid by ALRG. During the period
from inception through March 31, 2005 the total costs plus fees amounted to
$5,639,975.
A trust for the natural heirs of Malcolm Wright is the majority shareholders of
Xpress Ltd. ("Xpress"). On November 3, 2003, TDSR entered into an exclusive
sales and marketing agreement with Xpress to sell the units being developed by
TDSR. This agreement provides for a sales fee in the amount of 1.5% of the total
sales prices received by TDSR plus a marketing fee of 1.5%. During the period
since the contract was entered into and ended March 31, 2005 the total sales
amounted to approximately $215,730,000. As a result of the sales, TDSR is
obligated to pay Xpress a total fee of $6,471,910. As of March 31, 2005,
$4,630,225 has been paid to Xpress and $1,041,685 remains unpaid and is included
in Long-term debt and notes payable (see Note E regarding Notes payable -
Related parties).
NOTE H - RESTATEMENT
American Leisure has corrected its financial statements to include the accrual
of dividends on its preferred stock. American Leisure increased the carrying
value of the preferred stock $3,273,370 and increased the accumulated deficit
$(3,273,370) at March 31, 2005. The preferred stock dividend increased the loss
available to common stockholders $(350,890) and $(275,969) for the three months
ended March 31, 2005 and 2004, respectively.
A summary of the restatement is as follows:
Increase As
As previously reported (Decrease) Restated
------------------------ -------------------- ---------------------
At March 31, 2005
Balance sheet:
Additional paid-in capital $ 15,442,693 $ 3,273,370 $ 18,716,063
Accumulated deficit $ (9,926,824) $ (3,273,370) $ (13,200,194)
Three months ended
March 31, 2005:
Statements of Operations:
Preferred stock dividend $ - $ (350,890) $ (350,890)
Net loss available to
common stockholders $ (554,183) $ (350,890) $ (905,073)
Three months ended
March 31, 2004:
Statements of Operations:
Preferred stock dividend $ - $ (275,969) $ (275,969)
Net loss available to
common stockholders $ (752,384) $ (275,969) $ (1,028,353)
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
50
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
American Leisure Holdings, Inc. and Subsidiaries
Orlando, Florida
We have audited the accompanying consolidated balance sheets of American Leisure
Holdings, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 2004 and 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Leisure Holdings, Inc. and Subsidiaries as of December 31, 2004 and
2003, and the results of its operations and its cash flows for the years ended
December 31, 2004 and 2003, 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 2004 consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As discussed in Note 20, the consolidated financial statements as of December
31, 2004 and 2003 and for each of the years ended December 31, 2004 and 2003
have been restated.
Lopez, Blevins, Bork & Associates, LLP
Houston, Texas
March 30, 2005, except note 20, which is as of June 27, 2005
51
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2004
Consolidated Consolidated
American American
Leisure Leisure
Holdings, Inc. Holdings, Inc.
2004 2003
------------ ------------
(Restated) (Restated)
ASSETS
CURRENT ASSETS:
Cash $ 2,266,042 $ 734,852
Accounts receivable 3,539,387 2,148,134
Note receivable 113,000
Prepaid expenses and other 51,460 40,867
Other Current Assets 30,476
------------ ------------
Total Current Assets 6,000,365 2,923,853
PROPERTY AND EQUIPMENT, NET 6,088,500 3,192,878
LAND HELD FOR DEVELOPMENT 23,448,214 15,323,627
OTHER ASSETS
Prepaid Sales Commissions 5,966,504 0
Prepaid Sales Commissions - affiliated entity 2,665,387 0
Investment-Senior Notes 5,170,000 0
Investment-Non-marketable securities 0 654,386
Goodwill 14,425,437 1,840,001
Trademark 1,000,000 0
Other 2,637,574 1,441,730
------------ ------------
Total Other Assets 31,864,902 3,936,117
------------ ------------
TOTAL ASSETS $67,401,981 $25,376,475
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable $ 9,605,235 $ 5,048,025
Current maturities of notes payable-related parties 1,910,629 1,619,575
Accounts payable and accrued expenses 5,618,973 1,787,699
Accrued expenses - officers 1,355,000 500,000
Customer deposits 2,752,535 0
Other 2,332,886 0
Shareholder advances 273,312 1,030,883
------------ ------------
Total Current Liabilities 23,848,570 9,986,182
Long-term debt and notes payable 18,605,253 7,919,398
Deferred revenues 1,994,809 0
Notes payable-related parties 0 797,185
Mandatory redeemable preferred stock 0 2,718,900
Deposits on unit pre-sales 16,669,347 0
Minority interest 0 510,348
------------ ------------
Total liabilities 61,117,979 21,932,013
STOCKHOLDERS' EQUITY:
Preferred stock; 1,000,000 shares authorized; $.001 par value;
1,00,000 Series "A" shares issued and outstanding at
December 31, 2004 and December 31, 2003 10,000 8,800
Preferred stock; 100,000 shares authorized; $.01 par value;
2,825 Series "B" shares issued and outstanding at
December 31, 2004 and December 31, 2003 28 25
Preferred stock, 28,000 shares authorized;
$.01 par value; 27,189 Series "C" shares issued and outstanding at
December 31, 2004 and 2003 272 -
Preferred stock; 50,000 shares authorized; $.001 par value;
24,101 and 0 Series "E" shares issued and outstanding at
December 31, 2004 and 2003 24 -
Preferred stock; 150,000 shares authorized; $.01 par value;
1,936 and 0 Series "F" shares issued and outstanding at
December 31, 2004 and 2003 19 -
Common stock, $.001 par value; 100,000,000 shares authorized;
9,977,974 and 7,488,983 shares issued and outstanding at
December 31, 2004 and December 31, 2003 9,978 7,489
Additional paid-in capital 18,558,802 7,840,656
Accumulated deficit (12,295,121) (4,412,488)
------------ ------------
Total Stockholders' Equity 6,284,002 3,444,462
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $67,401,981 $25,376,475
============ ============
52
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED PROFIT AND LOSS STATEMENT
YEARS ENDED DECEMBER 31, 2004 AND 2003
Consolidated Consolidated
American American
Leisure Leisure
Holdings, Inc. Holdings, Inc.
2004 2003
------------ ------------
(Restated) (Restated)
Revenue $ 6,419,320 $ 3,327,483
Operating Expenses:
Depreciation and amortization (936,874) (716,175)
General and administrative expenses (8,192,195) (4,227,810)
Goodwill Impairment Loss - Traveleaders (1,500,000) 0
------------ ------------
Loss from Operations (4,209,749) (1,616,502)
Other Income (Expense):
Interest Expense (736,798) 0
Unrealized Loss on Marketable
Securities(AWT) (2,185,278) 0
------------ ------------
(2,922,076) 0
------------ ------------
Loss Before Minority Interest in Subsidiary (7,131,825) (1,616,502)
Minority Interest (510,348) 510,348
------------ ------------
Loss before Income Taxes (6,621,477) (2,126,850)
PROVISIONS FOR INCOME TAXES (12,824) 0
------------ ------------
NET LOSS (6,634,301) (2,126,850)
Preferred Stock Dividend (1,248,331) (1,083,025)
------------ ------------
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS $(7,882,632) $(3,209,875)
============ ============
NET LOSS PER SHARE AVAILABLE
TO COMMON STOCKHOLDERS:
BASIC AND DILUTED $ (0.92) $ (0.47)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 8,607,614 6,844,172
============ ============
53
AMERICAN LEISURE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004 AND 2003 (Restated)
Preferred Stock Capital Stock Additional Retained Total
--------------- ------------- Paid-in Earnings/ Stockholders
Shares Amount Shares Amount Capital (Deficit) Equity
----------- ------------ --------- ---------- ----------- ------------ -----------
Balance-December 31, 2002 882,500 $ 8,825 6,524,983 $ 6,525 $ 6,329,975 $ (1,202,613) $5,142,712
Issuance of shares for equipment - - 114,000 114 130,986 - 131,100
Issuance of shares for 50.83 % of
Hickory Travel Systems, Inc. - - 850,000 850 296,650 - 297,500
Accrual of preferred stock dividend - - - - 1,083,025 (1,083,025) -
Net loss - - - - - (2,126,850) (2,126,850)
----------- ------------ --------- ---------- ----------- ------------ -----------
Balance-December 31, 2003 882,500 8,825 7,488,983 7,489 7,840,636 (4,412,488) 3,444,462
Issuance of common stock
to acquire senior debt of Around the
World Travel, Inc. 340,000 340 169,660 170,000
Issuance of common stock for
debt issue costs 600,000 600 329,400 330,000
Issuance of common stock for
debt issue costs 1,450,000 1,450 2,022,200 2,023,650
Issuance of warrants in connection
with debt 244,348 244,348
Reclassification of Series C
preferred stock 27,189 272 2,718,628 2,718,900
Issuance of Series E preferred stock in
Exchange for preferred stock of
Around the World Travel, Inc. 24,101 24 2,410,076 2,410,100
Issuance of common stock for services 98,991 99 120,456 120,555
Issuance of Series B preferred stock
for assets 325 3 62,637 62,640
Issuance of Series A preferred stock
for debt to an affiliated entity 120,000 1,200 1,198,800 1,200,000
Issuance of Series F preferred stock
in connection with the acquisition
of certain assets and assumption
of certain liabilities of Around the
World Travel, Inc. 1,936 19 193,629 193,648
Accrual of preferred stock dividend - - - - 1,248,331 (1,248,331) -
Net loss (6,634,301) (6,634,301)
----------- ------------ --------- ---------- ----------- ------------ -----------
1,056,051 $ 10,323 9,977,974 $ 9,978 $18,558,802 $(12,295,121) $6,284,002
=========== ============ ========= ========== =========== ============ ===========
54
AMERICAN LEISURE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004 AND 2003
Year Year
Ended Ended
December 31, December 31,
2004 2003
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,634,301) $(2,126,850)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 936,874 716,175
Impairment loss (AWT) 3,685,278 -
Bad Debt Expense 21,864
Interest Expense 437,394
Common stock issued for services 150,555 -
Profit on Sale of AVR stock (145,614)
Minority interests (510,348) 510,348
Changes in assets and liabilities:
Decrease in receivables (382,125) (926,124)
Increase in prepaid and other assets 362,516 8,060
Increase in prepaid commissions (8,355,410) -
Increase in deposits 16,669,347
Increase in accounts payable and accrued expense 2,872,777 (521,054)
------------- ------------
Net cash provided by (used in) operating activities 9,108,807 (2,339,445)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Security deposits and other - (18,500)
Acquisition of AWT Assets 767,291 196,444
Acquisition of fixed assets (3,511,881) (1,211,027)
Advances to AWT (4,789,463) -
Sale of AVR stock 800,000 -
Capitalization of real estate carrying costs (8,124,587) (3,248,984)
------------- ------------
Net cash used in investing activities (14,858,640) (4,282,067)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of advances (757,571) -
Proceeds from debt 8,860,943 -
Payment of debt (316,218) -
Proceeds from notes payable - 6,116,670
Proceeds from notes payable - related parties 312,377 1,028,344
Payments to related parties (818,508) -
Proceeds from shareholder advances - 160,851
------------- ------------
Net cash provided by financing activities 7,281,023 7,305,865
------------- ------------
Net decrease in cash 1,531,190 684,353
CASH AT BEGINNING PERIOD 734,852 50,499
------------- ------------
CASH AT END OF PERIOD $ 2,266,042 $ 734,852
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 1,052,308 $ 571,500
============= ============
Cash paid for income taxes $ - $ -
============= ============
NON-CASH TRANSACTIONS:
Issuance of Series B preferred stock for assets $ 4,209,749 $ 2,850,000
============= ============
Issuance of Series E preferred stock for investment
in debt and equity securities $ 2,410,100 $ -
============= ============
Stock issued in connection with acquisition $ - $ 297,500
============= ============
Exchange of 1913 Mercedes-Benz for debt to an
affiliated entity $ 500,000 $ -
============= ============
Issuance of warrants to acquire common stock for
debt issuance costs $ 2,597,998 $ -
============= ============
Issuance of Series A preferred stock for debt to an
affiliated entity $ 1,200,000 $ -
============= ============
55
AMERICAN LEISURE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
American Leisure Holdings, Inc. ("American Leisure" or "the Company"), a
Nevada corporation, was incorporated in May 2002. On 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. This transaction was
treated as an acquisition of Freewill and a recapitalization of American
Leisure.
On October 1, 2003, American Leisure acquired controlling interest in
Hickory Travel Systems, Inc. ("HTS"). American Leisure has consolidated HTS and
is included in its Statement of Operations and the Statement of Cash Flows the
activities of HTS for the calendar year 2004 and the period October 1, 2003
through December 31, 2003.
On December 31, 2004, American Leisure Equities Corporation (the
"Purchaser") a wholly-owned subsidiary of American Leisure, entered into an
Asset Purchase Agreement (hereinafter, referred to as "APA") with Around The
World Travel, Inc. (the "Seller"), pursuant to which the Seller agreed to sell
substantially all of its assets to the Purchaser. Under the terms of the APA,
the Seller conveyed to the Purchaser all of the assets necessary to operate the
Business, including substantially all of the Seller's tangible and intangible
assets and certain agreed liabilities. The assets and liabilities of the
Purchaser have been included in the consolidated balance sheet at December 31,
2004. There are no operating results and net cash flow activity since the
purchase occurred on December 31, 2004.
The purchase price for the assets transferred under the APA was 17,500,000
based upon an independent appraisal. The parties agreed that the purchase price
will be an amount equal to the fair value of the Business (calculated on a going
concern basis), plus $1,500,000, but in no event more than $29,000,000. The fair
value was determined to be $16,000,000 pursuant to a valuation from an
unaffiliated investment-banking firm.
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.
56
For those affiliates that American Leisure does not have the ability to
control the operating and financial policies thereof, the investments are
accounted for under the equity or cost method, as appropriate. American Leisure
applies the equity method of accounting when it has the ability to exercise
significant influence over operating and financial policies of an investee in
accordance with APB Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock." In determining whether American Leisure has the
ability to exercise significant influence, consideration is given to various
factors including the nature and significance of the investment, the
capitalization structure of the investee, representation on the board of
directors, voting rights, veto rights and other protective and participating
rights held by investors and contractual arrangements.
Additionally, American Leisure applies accounting principles generally
accepted in the United States of America and interpretations when evaluating
whether it should consolidate entities. Typically, if American Leisure does not
retain both control of the assets transferred to the entities, as well as the
risks and rewards of those assets, American Leisure will not consolidate such
entities. In determining whether the securitization entity should be
consolidated, American Leisure considers whether the entity is a qualifying
special purpose entity, as defined by Statement of Financial Accounting
Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities-a replacement of FASB Statement No.
125."
The consolidated financial statements include the accounts of American
Leisure Holdings, Inc. and its 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 Equities Corporation 100.00%
American Leisure Homes, Inc. (ALH) 100.00%
I-Drive Limos, Inc. (ID) 100.00%
Orlando Holidays, Inc. (OH) 100.00%
Welcome to Orlando, Inc. (WTO) 100.00%
American Leisure, Inc. (ALI) 100.00%
Pool Homes Managers, Inc. (PHM) 100.00%
Advantage Professional Management Group, Inc. (APMG) 100.00%
Leisureshare International Ltd (LIL) 100.00%
Leisureshare International Espanola S.A. (LIESA) 100.00%
American Travel & Marketing Group, Inc. (ATMG) 81.00%
American Leisure Marketing and Technology, Inc. 100.00%
Tierra Del Sol Resort, Inc. 81.00%
Hickory Travel Systems, Inc. 50.83%
American Travel Club, Inc. 100.00%
American Access Telecommunications Corporation 100.00%
American Switching Technologies, Inc. 100.00%
Affinity Travel Club, Inc. 100.00%
AAH Kissimmee LLC 100.00%
Club Turistico Latinoamericano, Inc. 100.00%
Affinity Travel, Inc. 100.00%
Pool Homes, Inc. 100.00%
American Sterling Corp. 81.00%
American Sterling Motorcoaches, Inc. 81.00%
Caribbean Leisure Marketing, Ltd. 81.00%
Comtech Fibernet, Inc. 81.00%
Caribbean Media Group, Ltd 39.69%
57
No amounts for minority interests, except for Hickory Travel Systems, Inc.,
were reflected in the consolidated statement of operations since there were
losses applicable to those subsidiaries.
All significant inter-company accounts and transactions have been
eliminated in the consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of American Leisure
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 generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF RISK
American Leisure places its cash and temporary cash investments with
established financial institutions. At various times during the year, the
Company maintained cash balances in excess of FDIC insurable limits. Management
feels this risk is mitigated due to the longstanding reputation of these banks.
58
In the normal course of business, the Company extends unsecured credit to
the majority of its customers. Management periodically reviews its outstanding
accounts receivable and establishes an allowance for doubtful accounts based on
historical collection trends and other criteria.
LONG-LIVED ASSETS
Long-lived assets are stated at cost. Maintenance and repairs are expensed
as incurred. Depreciation is determined using the straight-line method over the
estimated useful lives of the assets, which is between three to seven years.
Where an impairment of a property's value is determined to be other than
temporary, an allowance for the estimated potential loss is established to
record the property at its net realizable value.
When items of land, building or equipment are sold or retired, the related
cost and accumulated depreciation are removed from the accounts and any gain or
loss is included in the results of operations. The Company does not have any
long-lived tangible assets that are considered to be impaired as of December 31,
2004.
INTANGIBLES WITH FINITE LIVES
In June 2001, the Financial Accounting Standards Board issued "Statement of
Financial Accounting Standards, ("FAS") No. 142 "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. FAS No.
142 addressed the recognition and measurement of intangible assets acquired
individually or with a group of other assets and the recognition and measurement
of goodwill and other intangible assets subsequent to their acquisition. Under
these rules, goodwill and intangible assets with indefinite lives are no longer
amortized, but are subject to annual or more frequent impairment testing. Other
intangible assets deemed to have a finite life continue to be amortized over
their useful lives. The Company adopted the new rules on accounting for goodwill
and other intangible assets as of January 1, 2002.
The Company amortizes the following intangible assets with finite lives using
straight-line method.
Trademarks 20 Years
Customer List 5 Years
These intangible assets with finite lives are reviewed for potential
impairment whenever events or circumstances indicate that their carrying amounts
may not be recoverable. During 2004 management determined that no impairment
adjustment related to these intangibles was necessary.
INCOME TAXES
American Leisure accounts for income taxes using the asset and liability
method. The differences between the financial statement and tax basis of assets
and liabilities are determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax consequences
using the currently enacted tax laws and rates that apply to the period in which
they are expected to affect taxable income. Valuation allowances are
established, if necessary, to reduce deferred tax asset accounts to the amounts
that will more likely than not be realized. Income tax expense is the current
tax payable or refundable for the period, plus or minus the net change in the
deferred tax asset and liability accounts.
59
GOODWILL
American Leisure adopted the provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets". This statement requires that goodwill and intangible
assets deemed to have indefinite lives not be amortized, but rather be tested
for impairment on an annual basis. Finite-lived intangible assets are required
to be amortized over their useful lives and are subject to impairment evaluation
under the provisions of SFAS No. 144. The intangible assets relate to 1) the
acquisition goodwill for the controlling interest of HTS, and 2) the net assets
purchased from Around The World Travel, Inc. pursuant to the Asset Purchase
Agreement between Around The World Travel, Inc. and American Leisure Equities
Corporation.
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
employees in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and complies
with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, issued by the Financial Accounting Standards Board and EITF No.
96-18, Accounting for Equity (deficit) Investments That Are Issued to
Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Under APB No. 25, compensation cost is recognized over the vesting period based
on the difference, if any, on the date of grant between the fair value of
American Leisure's stock and the amount an employee must pay to acquire the
stock. Common stock issued to non-employees and consultants is based upon the
value of the services received or the quoted market price, whichever value is
more readily determinable. Accordingly, no compensation expense has been
recognized for grants of options to employees with the exercise prices at or
above market price of the Company's common stock on the measurement dates.
Had compensation expense been determined based on the estimated fair value
at the measurement dates of awards under those plans consistent with the method
prescribed by SFAS No. 123, the Company's December 31, 2004 and 2003, net loss
would have been changed to the pro forma amounts indicated below.
December 31, December 31,
2004 2003
------------ ------------
Net loss:
As reported (6,634,301) $(2,126,850)
Stock based compensation under fair value method (671,560) -
Pro forma $(7,305,861) $(2,126,850)
Net income (loss) per share - basic and diluted:
As reported $ (0.77) $ (0.31)
Stock based compensation under fair value method (0.08) (0.00)
Pro forma $ (0.85) $ (0.31)
------------ ------------
60
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
risk free rate of 3.5%; volatility of 161% for 2004 and 2003 with no assumed
dividend yield; and expected lives of five years.
REVENUE RECOGNITION
American Leisure recognizes 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 are recognized upon the
completion of the earning process from the completion of the travel of the
customer, the trip to the properties for the potential purchase, or the
appropriate event based on the agreement with American Leisure's client as to
the ability to be paid for the service.
Revenues from Hickory Travel Systems, Inc. are recognized as earned, which
is primarily at the time of delivery of the related service, publication or
promotional material. Costs associated with the current period are expensed as
incurred; those costs associated with future periods are deferred.
One of American Leisure's principal sources of revenue is associated with
access to the travel portal that provides a database of discounted travel
services. Annual renewals occur at various times during the year. Costs related
to site changes are incurred in the months prior to annual billing renewals.
Customers are charged additional fees for hard copies of the site access
information. Occasionally these items are printed and shipped at a later date,
at which time both revenue and expenses are recognized.
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, 2004, potential dilutive securities had
an anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity" (the
"Statement"). The Statement establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. The Statement is generally effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of this Statement had no effect on our consolidated financial
statements.
61
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46")
Consolidation of Variable Interest Entities, which addresses the consolidation
of variable interest entities ("VIEs") by business enterprises that are the
primary beneficiaries. A VIE is an entity that does not have sufficient equity
investment at risk to permit it to finance its activities without additional
subordinated financial support, or whose equity investors lack the
characteristics of a controlling financial interest. The primary beneficiary of
a VIE is the enterprise that has the majority of the risks or rewards associated
with the VIE. In December 2003, the FASB issued a revision to FIN 46,
Interpretation No. 46R ("FIN 46R"), to clarify some of the provisions of FIN 46,
and to defer certain entities from adopting until the end of the first interim
or annual reporting period ending after March 15, 2004. Application of FIN 46R
is required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application for all other types of VIEs is
required in financial statements for periods ending after March 15, 2004. We
believe we have no arrangements that would require the application of FIN 46R.
We have no material off-balance sheet arrangements.
American Leisure adopted FASB Interpretation No. 46 and 46R, "Consolidation
of Variable Interest Entities," effective December 31, 2002. Interpretation 46,
as revised in December 2003, changes the accounting model for consolidation from
one based on control through voting interests to one based on control through
economic interests. Whether to consolidate an entity now considers whether that
entity has sufficient equity at risk to enable it to operate without additional
subordinated financial support, whether the equity owners in that entity lack
the obligation to absorb expected losses or the right to receive residual
returns of the entity, or whether voting rights in the entity are not
proportional to the equity interest and substantially all of the entity's
activities are conducted for an investor with few voting rights. This
interpretation requires a Company to consolidate variable interest entities
("VIE"s") if the enterprise is a primary beneficiary of the VIE and the VIE
possesses specific characteristics. It also requires additional disclosure for
parties involved with VIE's. The adoption of this statement did not have a
material impact on the American Leisure's consolidated results of operations or
financial position because American Leisure does not invest or participate in
any entities, which would be considered VIE's under Interpretation 46.
The FASB issued Statement of Financial Accounting Standards ("SFAS") No.
123 (Revised 2004), Share-Based Payments. The new FASB rule requires that the
compensation cost relating to share-based payment transactions be recognized in
financial statements. That cost will be measured based on the fair value of the
equity or liability instruments issued. The adoption of this statement did not
have a material impact on the American Leisure's consolidated results of
operations or financial position because American Leisure has not incurred
share-based payments.
RECLASSIFICATIONS
Certain amounts in the December 31, 2003 financial statements have been
reclassified to conform to the December 31, 2004 financial statement
presentation.
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 $6,634,301 during 2004 and has negative working capital
of $18,848,205. These factors raise substantial doubt as to American Leisure's
ability to obtain debt and/or equity financing and achieve profitable
operations.
62
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.
The Company expects that with the proceeds from the sale of its' Davenport,
Florida land, the cash received from the pre-sales of its' Orlando Resort units,
and positive cash flows from its' travel and leisure business through the first
five months of 2005, it will have adequate capital to maintain its operations
until the construction and permanent financing is obtained on the Orlando Resort
property.
The Company may need additional financing to support these operations
beyond the above expected and received cash flows and is currently preparing a
Board approved SB-2 filing to be submitted to the SEC for approval by June 30,
2005.
There are no assurances that American Leisure will be able to either (1)
achieve a level of revenues adequate to generate sufficient cash flow from
operations; or (2) obtain additional financing through either private placement,
public offerings and/or bank financing necessary to support American Leisure's
working capital requirements. To the extent that funds generated from operations
and any private placements, public offerings and/or bank financing are
insufficient, American Leisure will have to raise additional working capital. No
assurance can be given that additional financing will be available, or if
available, will be on terms acceptable to American Leisure. If adequate working
capital is not available, American Leisure may be required to curtail its
operations.
NOTE 4 - ACQUISITIONS
On December 31, 2004, American Leisure Equities Corporation (the
"Purchaser") a wholly-owned subsidiary of American Leisure, entered into an
Asset Purchase Agreement (hereinafter referred to as "APA") with Around The
World Travel, Inc. (the "Seller"), pursuant to which the Seller agreed to sell
substantially all of its assets to the Purchaser. Under the terms of the APA,
the Seller conveyed to the Purchaser all of the assets necessary to operate the
Business, including substantially all of the Seller's tangible and intangible
assets and certain agreed liabilities.
The purchase price for the assets transferred under the APA is $17,500,000
or the fair value plus $1,500,000. The fair value was determined by an
independent investment-banking firm.
The Purchaser has paid the Seller through a combination of the assumption
of certain liabilities of the Seller, and the reduction of certain amounts owed
by the Seller to AMLH; and the issuance of Series F preferred shares. Pursuant
to the terms of the APA, the Seller and the Purchaser have entered into a
Management Agreement, under which the Seller will manage the Business on behalf
of the Purchaser. The Seller and the Purchaser have also entered into a License
Agreement, under which the Purchaser will grant the Seller a non-exclusive
license to use certain trade names and related intellectual property in
connection with the performance of its duties under the Management Agreement.
The License Agreement will expire simultaneously with the Management Agreement.
63
The following table summarizes the estimated fair value of the net assets
acquired and liabilities assumed at the acquisition dates.
Total
=====
Current assets $ 1,850,109
Property and equipment 287,975
Deposits 276,481
Trademark 1,000,000
Goodwill 12,585,435
-----------
Total assets acquired 16,000,000
Notes Assumed 11,040,320
Accounts Payable & Accrued Expenses 6,266,032
-----------
Total liabilities assumed 17,306,352
Series F Preferred Stock issued 193,648
-----------
Consideration $17,500,000
The following summarized the estimated Statement of Operations as if the
acquisition had occurred as of January 1, 2004.
Proforma Combined Condensed Statement of Operations
For the Period of January 1, 2004 through December 31, 2004
Revenues $26,629,000
Depreciation & Amortization Expense $ 1,411,000
General & Administrative Expenses $31,788,000
-----------
Net Loss from Operations $ 6,570,000
NOTE 5 - PROPERTY AND EQUIPMENT, NET
At December 31, 2004, property and equipment consisted of the following:
Useful
Lives Amount
Computer equipment 3-5 $ 576,783
----------
Furniture & fixtures 5-7 60,374
Automobiles 5 63,230
Telecommunications equipment 7 6,782,110
----------
7,482,497
Less: accumulated depreciation and amortization 1,393,997
----------
$6,088,500
==========
Depreciation expense was $936,874 and $716,175 for 2004 and 2003, respectively.
NOTE 6 - LAND HELD FOR FUTURE DEVELOPMENT
American Leisure is planning to construct a 972-unit resort in Orlando,
Florida on 122 of its 163 acres of undeveloped land. Development is scheduled to
commence in the summer of 2005. Presales commenced in February 2004.
American Leisure owned 13.67 acres of commercial property in Polk County
Florida at the corner of U.S. Hwy. 27 and Sand Mine Road. In late 2003, American
Leisure received a letter of intent for the sale of the property and closed on
the sale March 8, 2005. American Leisure recorded an impairment charge of
$100,000 to record the property at its anticipated selling price for the year
ended December 31, 2002. No impairment was recorded at December 31, 2003 based
on an independent appraisal. The Company sold the property for a sales price of
$4,020,000, plus the reimbursement of expenses in the amount of $157,219.
64
NOTE 7 - OTHER ASSETS
Other assets include the following at December 31, 2004 and 2003:
2004 2003
Advances - Caribbean Leisure $ - $ 791,108
----------- ----------
Deposits and other 505,811 98,953
1913 Mercedes-Benz - 500,000
Deferred financing costs 2,131,763 51,669
----------- ----------
$ 2,637,574 $1,441,730
=========== ==========
NOTE 8 - INVESTMENT - 41.25% OF AMERICAN VACATION RESORTS, INC.
In November 2003 the Company and Mr. & Mrs. Wright entered into an
agreement with a Mr. Frederick Pauzar to sell their ownership interests in the
stock of American Vacation Resorts Inc. ("AVR") for $1,500,000. In April 2004
the sale was completed by the transfer of the ownership from Mr. Pauzar of a
company AAH Kissimmee LLC. which owned 17 Condo's in Kissimmee, Florida. Upon
the completion of the sale to Mr. Pauzar, the Company held 4 units in trust for
account of Mrs. Wright, 4 units in trust for the account of Mr. Wright and 9
units in trust for the account of Arvimex in return for a reduction of $800,000
of debt due to Arvimex. The company made a profit of $145,614 upon the sale of
its share of the stock in AVR to Mr. Pauzar. The Company will receive no
additional benefit from the sale or management of these units.
NOTE 9 - 1913 MERCEDES BENZ
I-Drive Limos is a wholly owned subsidiary of ALI as of December 31, 2003.
I-Drive Limos sole asset, acquired in December 1998, was an antique motor
vehicle, a 1913 Mercedes Benz. The asset was a one of a kind vehicle and was
shown at its 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 seven years range
widely in price, from $1,700,000 to $22,500 for a 1928 Brevette and for a 1938
Sedan, respectively. Most of the antique Mercedes-Benz sold are dated from the
1930s are sold for approximately $200,000. The car was insured for $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.
This asset was exchanged for a payable to Xpress, Ltd, a related party, for
$500,000 owed to it under a sales and marketing contract for the sales of its
Orlando property units.
NOTE 10 - LONG-TERM DEBT AND NOTE PAYABLE
Below is a summary of Long-term debt and notes payable as of December 31, 2004
and 2003:
Maturity Interest
Collateral Date rate 2004 2003
--------------------- ------------ ----- ------------ -----------
Assets of the
Company and
Note Payable, Personal
Bank Guarantees 8/04 8.75% $ 1,454 $ 101,253
Note Payable,
Lending Personal
Institution Guarantees 3/31/04 8% 250,000 250,000
Note Payable,
Lending
Institution Company Assets 11/04 12% 9,528 44,415
Assets of the
Note Payable, Company and
Lending Personal
Institution Guarantees 11/04 4% 375,900 375,900
Equipment,
Third Party
Entities Equipment 3/31/05 18% 28,097 57,148
1st lien on 163
Financial acres of
Institution undeveloped land 4/1/05 12% 6,000,000 6,000,000
1st lien on 13.5
acres commercial
Individual property 10/11/04 16% 1,300,000 1,300,000
Lien on property,
Financial assets and stock of
Institution the company 12/18/2008 6% 6,140,964 2,976,457
Note payable,
Third Party Lien on assets 2/23/09 5% 5,000,000 -
Secured by
common stock of
Note payable, Around the World
Third Party Travel, Inc. 4/1/2011 4% 1,698,340 -
Lien on property,
Financial assets and stock of
Institution the company 4/22/07 8% 4,000,000 -
Lien on property,
Financial assets and stock of
Institution the company 9/1/2005 8% 1,250,000 -
Lien on property,
Financial assets and stock of
Institution the company 4/22/07 6% 255,000 -
Auto Loan Vehicle 3/10/09 9.39% 38,955 -
3rd lien on 163
acres of
Individual undeveloped land 3/31/05 12% 1,862,250 1,862,250
------------ -----------
28,210,488 12,967,423
Less: current portion of long-term debt (9,605,235) (5,048,025)
------------ -----------
Long-term debt $18,605,253 $ 7,919,398
============ ===========
Principal repayments for the next years are as follows:
Amount
-----------------
2005 $ 9,605,235
2006 -
2007 5,505,000
2008 6,000,000
2009 5,000,000
Thereafter 2,100,253
-----------------
$ 28,210,488
=================
65
NOTE 11 - NOTES PAYABLE - RELATED PARTIES
Maturity Interest
Collateral Date rate 2004 2003
---------------- ------ ----- ---------- ------------
Related Party Unsecured Demand 12% $ 140,042 $ 193,815
Related Party Unsecured Demand 12% 659,000 484,000
Related Party Unsecured Demand 12% 180,000 180,000
Related Party Unsecured Demand 12% 20,000 20,000
Related Party Unsecured Demand 12% 531,232 741,760
Affiliated 2nd lien on
entity 13.5 acres 5/1/07 4.75% - -
3rd lien on
163 acres of
Shareholder undeveloped land 5/1/05 12% - -
3rd lien on
163 acres of
Shareholder undeveloped land 5/1/05 12% 380,353 797,185
---------- ------------
1,910,629 2,416,760
- (1,619,575)
---------- ------------
$1,910,629 $ 797,185
========== ============
Principal repayments for next years are as follows:
Amount
2005 $1,910,629
==========
NOTE 12 - SHAREHOLDER ADVANCES
American Leisure has shareholder advances totaling $273,312 that bear
interest at 12%. The advances are unsecured and are due upon demand.
NOTE 13 - STOCKHOLDERS EQUITY AND MANDATORILY REDEEMABLE PREFERRED STOCK
Common Stock and Mandatory Redeemable Preferred Stock
In March, 2003, American Leisure issued 27,189 Mandatory Redeemable Series
C preferred stock and 114,000 shares of common stock for telecommunications
equipment valued at $2,850,000.
66
In October 2003, American Leisure issued 850,000 shares of restricted
Common Stock in connection with the acquisition of 50.83% of Hickory travel
Systems, Inc.
In March 2004, we issued 340,000 shares of restricted Common Stock in
connection with the acquisition of the Senior Debt of Traveleaders.
In June 2004, 600,000 warrants were exercised by holders at par value of
$.001 per share.
In August 2004, 1,350,000 warrants were exercised by holders at par value
of $.001 per share.
In April 2004, 24,101 shares of the Company's Series "E" Preferred Stock
were issued for the acquisition of the controlling interest in the Preferred
Stock of Around the World Travel.
In 2004, 98,991 shares were issued for services at $1.50 per share.
In November 2004, 325 shares of the Company's Series "B" Preferred Stock
were issued for $32,460 of telecommunications equipment.
In December 2004, 120,000 shares of the Company's Series "A" Preferred
Stock were issued for $1,200,000 of payables to a related party for the sales
and marketing agreement of the Orlando property.
Preferred Stock
American Leisure is authorized to issue up to 10,000,000 shares in aggregate of
preferred stock:
Annual
Total Series Stated Dividends Conversion
Authorized Value Voting per Share Rate
Series A 1,000,000 $ 10.00 Yes $1.20 10 to 1
Series B 100,000 100.00 Yes 12.00 20 to 1
Series C 28,000 100.00 Yes 4.00 20 to 1
Series E 50,000 100.00 Yes 4.00 6.66 to 1
Series F 150,000 100.00 Yes 1.00 2 to 1
Series A have voting rights equal to 10 common shares to 1 Series A
preferred share.
Series A are redeemable at the American Leisure's option after 10 years if
not converted by the holder. The conversion period is 10 years from the date of
issue.
Conversion is at 10 for 1 or if the market price is below $1.00 then the
average daily market price for the 10 consecutive trading days prior to
conversion.
Dividends are payable if funds are available. Accrued but unpaid dividends
do not pay interest.
Series B have voting rights equal to 20 common shares to 1 Series B
preferred share.
Series B are redeemable at the American Leisure's option after 5 years if
not converted by the holder. The conversion period is 5 years from the date of
issue.
Conversion is not less than 20 for 1 nor more than 12.5 for 1 based on the
market price.
67
Dividends are payable if funds are available. Accrued but unpaid dividends
do not pay interest.
Series C are redeemable after 5 years if not converted by the holder. The
conversion period expires 5 years from the date of issue.
Conversion is not less than 20 for 1 nor more than 12.5 for 1 based on the
market price.
Dividends are payable if funds are available. Accrued but unpaid dividends
do not pay interest
Warrants
In March 2004, the Company issued warrants to Bill Chiles, a director of
the Company, to purchase 168,672 shares of the Company's common stock at an
exercise price of $2.96 per share of common stock. Also, in March 2004, the
Company issued warrants to Malcolm Wright, a director of the Company and the
Company's Chief Executive Officer and Chief Financial Officer, to purchase
347,860 shares of the Company's common stock at an exercise price of $1.02 per
share of common stock. The Company issued the warrants to Messrs. Chiles and
Wright as consideration for their personal guarantees of the Company's debt and
pledges of their shares of the Company's stock to Stanford as part of the
security for the financing that Stanford provided to the Company. In addition,
Mr. Wright has personally guaranteed the Company's indebtedness of $6,000,000 to
Stanford. The Company is under a continued obligation to issue warrants at $1.02
to Messrs Chiles and Wright for guarantees they may be required to give on the
Company's behalf going forward.
During its years ended December 31, 2004 and 2003, the Company accrued
$1,248,331 and $1,083,025 of dividends, respectively, which are included in the
carrying value of the preferred stock in the accompanying consolidated balance
sheet.
NOTE 14 - 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, 2004
and 2003, were as follows:
2004 2003
Net operating loss carryforwards $ 2,200,000 $ 661,000
Valuation allowance (2,200,000) (661,000)
------------ ----------
Net deferred tax assets $ - $ -
============ ==========
At December 31, 2004, American Leisure had a net operating loss
carryforward for Federal income tax purposes totaling approximately $6,500,000
which, if not utilized, will expire in the year 2024.
At December 31, 2003, American Leisure had a net operating loss
carryforward for federal income tax purposes totaling approximately $2,556,000
which, if not utilized, will expire in the year 2023.
In June 2002, American Leisure had a change in ownership, as defined by
Internal Revenue Code Section 382, which has resulted in American Leisure's net
operating loss carryforward being subject to certain utilization limitations in
the future.
68
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
American Leisure had leased office space located in Tamarac, Florida
Through November 2007. The monthly base rental payment was $17,708. In June of
2004, the Company was able to terminate the lease.
American Leisure leases office facilities and reservation service center
equipment under non-cancelable operating lease agreements for a monthly base
rent of $14,838 through April 2008, and the reservation service center equipment
leases call for a monthly base rent of $6,461 through December 2005. Future
minimum rental payments are as follows:
December 31,
2005 255,588
2006 178,056
2007 178,056
2008 59,352
-------
671,052
========
69
Rent expense totaled $382,316 and $293,728 for 2004 and 2003, respectively.
Employment Agreements
The Company has various employment agreements with select members of their
management. These agreements provide for a base salary plus bonuses of up to 19%
of the profits of each subsidiary company based upon the Company's operating
earnings as defined in each agreement. These are currently verbal agreements and
will be documented in the near future.
LITIGATION
In the ordinary course of its business, the Company may from time to time
become subject to claims or proceedings relating to the purchase, subdivision,
sale and/or financing of its real estate or its operations. The Company believes
that substantially all of the above are incidental to its business.
We are a party in an action that was filed in Orange County, Florida and
styled as Rock Investment Trust, P.L.C. and RIT, L.L.C. vs. Malcolm J. Wright,
American Vacation Resorts, Inc., American Leisure, Inc., Inversora Tetuan, S.A.,
Sunstone Golf Resort, Inc., and Sun Gate Resort Villas, Inc., Case No.
CIO-01-4874, Ninth Judicial Circuit, Orange County, Florida. In June, 2001,
after almost 2 years from receiving notice from Malcolm Wright that one Mr.
Roger Smee, doing business under the names Rock Investment Trust, PLC (a British
limited company) and RIT, LLC (a Florida limited liability company)
(collectively, the Smee Entities) had defaulted under various agreements to loan
or to joint venture or to fund investment into various real estate enterprises
founded by Mr. Wright, the Smee Entities brought the Lawsuit against Mr. Wright,
American Leisure, Inc. (ALI) and several other entities. The gravamen of the
initial complaint is that the Smee Entities made financial advances to Wright
with some expectation of participation in a Wright real estate enterprise. In
general, the suit requests either a return of the Smee Entities alleged advances
of $500,000 or an undefined ownership interest in one or more of the defendant
entities. Mr. Wright, American Leisure, Inc., and Inversora Tetuan, S.A., have
filed a counterclaim and cross complaint against the Smee Entities and Mr. Smee
denying the claims and such damages in the amount of $10 million. If the court
rules that Mr. Wright is liable under his guarantee of the American Leisure,
Inc. obligation to Smee, it is believed that such a ruling would not directly
affect American Leisure Holdings, Inc. The litigation is in the discovery phase
and is not currently set for trial. We have been advised by our attorneys in
this matter that Mr. Wrights position on the facts and the law is stronger than
the positions asserted by the Smee Entities.
In March 2004, Manuel Sanchez and Luis Vanegas as plaintiffs filed a
lawsuit against American Leisure Holdings, Inc. American Access Corporation,
Hickory Travel Systems, Inc. Malcolm J. Wright and L. William Chiles, et al.,
seeking a claim for securities fraud, violation of Florida Securities and
Investor Protection Act, breach of their employment contracts, and claims for
fraudulent inducement. All defendants have denied all claims and have a
counterclaim against Manuel Sanchez and Luis Vanegas for damages. The litigation
commenced in March 2004 and will shortly enter the discovery phase and is not
currently set for trial. We believe that Manuel Sanchez and Luis Vanegas claims
are without merit and the claims are not material to us. We intend to vigorously
defend the lawsuit.
In February 2003, we and Malcolm J. Wright were joined in a lawsuit
captioned as Howard C. Warren v. Travelbyus, Inc., William Kerby, David Doerge,
DCM/Funding III, LLC, and Balis, Lewittes and Coleman, Inc. in the Circuit Court
of Cook County, Illinois, Law Division, which purported to state a claim against
us as a joint venturer with the primary defendants. The plaintiff alleged
damages in an amount of $5,557,195.70. On November 4, 2004, the plaintiff moved
to voluntarily dismiss its claim against us. Pursuant to an order granting the
voluntary dismissal, the plaintiff has one (1) year from the date of entry of
such order to seek to reinstate its claims.
On March 30, 2004, Malcolm Wright, was individually named as a third-party
defendant in the Circuit Court of Cook County, Illinois, Chancery Division,
under the caption: Cahnman v. Travelbyus, et al. On July 23, 2004, the primary
plaintiffs filed a motion to amend their complaint to add direct claims against
our subsidiary, American Leisure as well as Mr. Wright. On August 4, 2004, the
plaintiffs withdrew that motion and have not asserted or threatened any direct
claims against American Leisure, Mr. Wright or us.
In early May 2004, Around The World Travel, Inc. substantially all of the
assets of which we purchased, filed a lawsuit in the Miami-Dade Florida Circuit
Court against Seamless Technologies, Inc. and e-TraveLeaders, Inc. alleging
breach of contract and seeking relief that includes monetary damages and
termination of the contracts. They were granted leave to intervene as plaintiffs
in the original lawsuits against Seamless and e-TraveLeaders. On June 28, 2004,
the above named defendants brought suit against Around The World Travel and
American Leisure Holdings, Inc.in an action styled Seamless Technologies, Inc.
et al. v. Keith St. Clair et al. This suit alleges that Around The World Travel
has breached the contracts and also that American Leisure Holdings, Inc.and
Around The World Travels Chief Executive Officer were complicit with certain
officers and directors of Around The World Travel in securing ownership of
certain assets for American Leisure Holdings, Inc.that were alleged to have been
a business opportunity for Around The World Travel. This lawsuit involves
allegations of fraud against Malcolm J. Wright. The lawsuit filed by Seamless
has been abated and consolidated with the original lawsuit filed by Around The
World Travel. In a related matter, Seamlesss attorneys brought another action
entitled Peter Hairston v. Keith St. Clair et al. This suit mimics the
misappropriation of business opportunity claim, but it is framed within a
shareholder derivative action. The relief sought against American Leisure
Holdings, Inc. includes monetary damages and litigation costs. We intend to
vigorously support the original litigation filed against Seamless and defend the
counterclaim and allegations against us.
On May 4, 2005, Simon Hassine, along with members of his family, filed a
lawsuit against us and Around The World Travel in the Circuit Court of Dade
County, Florida, Civil Division, Case Number 05-09137CA. The plaintiffs are the
former majority shareholders of Around The World Travel and former owners of the
assets of TraveLeaders. The plaintiffs allege that that they have not been paid
for i) a subordinated promissory note in the principal amount of $3,550,000 plus
interest on such note which they allege was issued to them by Around The World
Travel in connection with their sale of 88% of the common stock of Around The
World Travel; and ii) subordinated undistributed retained earnings and accrued
bonuses in an aggregate amount of $1,108,806 which they allege were due to them
as part of the sale. The plaintiffs allege that the note was issued to them net
of $450,000 of preferred stock of Around The World Travel that they further
allege they never received. The plaintiffs also allege that in December 2004
they entered into a settlement agreement with the Company regarding these
matters. The plaintiffs are pursuing a claim of breach of the alleged settlement
agreement with damages in excess of $1,000,000, interest and costs as well as
performance under the alleged settlement agreement or, in the alternative, a
declaratory judgment that the promissory note, undistributed retained earnings
and accrued bonuses are not subordinated to the Galileo Debt and full payment of
the promissory note, undistributed retained earnings and accrued bonuses plus
prejudgment interest, stated interest on the note, costs and reasonable
attorneys fees. The plaintiffs are also pursuing a claim for breach of contract
regarding the preferred stock of Around The World Travel and seeking $450,000
plus interest, costs and reasonable attorneys fees. The plaintiffs are also
pursuing claims of fraudulent transfer regarding our acquisition of interests in
the debt and equity of Around The World Travel and seeking unspecified amounts.
We intend to vigorously defend the lawsuit. We have authorized our counsel to
file various motions including a motion to dismiss the complaint in its entirety
as against us and Malcolm J. Wright due to the failure by the plaintiffs to
comply with a provision in the underlying document that grants exclusive
jurisdiction to the courts located in Cook County, Illinois.
We are not aware of any proceeding to which any of our directors,
officers, affiliates or security holders are a party adverse to us
or have a material interest adverse to us.
70
NOTE 16 - EMPLOYEE BENEFITS
The Company's subsidiary, HTS, maintains a qualified 401(k) profit sharing
plan covering substantially all of its full time employees who have completed
ninety days of service. Eligible employees may voluntarily contribute a
percentage of their compensation up to established limits imposed by the
Internal Revenue Service. At the discretion of the Board of Directors, the
Company may make a matching contribution equal to a percentage of each
employee's contribution. There were no matching contributions made for the year
ended December 31, 2004.
NOTE 17 - SELF-INSURED HEALTH INSURANCE
The Company's subsidiary, HTS, is partially self-insured for benefits
provided under an employee health insurance plan through Great West Life
Insurance Company. Benefits include medical, prescription drug, dental and group
term life insurance. The plan provides for self-insurance up to $25,000 per
employee per year. Accordingly, there exists a contingent liability for
unprocessed claims in excess of those reflected in the accompanying consolidated
financial statements.
NOTE 18 - OPERATING SEGMENTS
The Company has adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". At December 31, 2003, the
Company's three business units have separate management teams and
infrastructures that offer different products and services. The business units
have been aggregated into three reportable segments.
As noted in Note 6, American Leisure is planning to construct a 971-unit
resort in Orlando, Florida on 122 of its 163 acres of undeveloped land.
Development is scheduled to commence in the summer of 2005. Presales commenced
in February 2004.
American Leisure's operates a call center and revenues are recognized upon
the completion of the earning process from the completion of the travel of the
customer, the trip to the properties for the potential purchase, or the
appropriate event based on the agreement with American Leisure's client as to
the ability to be paid for the service.
Hickory Travel Systems, Inc. ("HTS") provides travel related services.
For the year ending December 31, 2004:
In (000's) Am. Leisure Call Center HTS Other Elim. Consol.
----------- ----------- ------- ------- --------- ---------
Revenue $ - $ 200 $ 6,046 $ - $ - $ 3,328
Segment income (loss) $ (1,455) $ (264) $ (938) $ (1,168) $ - $ (2,127)
Total Assets $ 16,751 $ 264 $ 3,347 $ - $ (3,309) $ 25,376
Capital expenditures $ 3,354 $ 283 $ 30 $ - $ - $ 4,460
Depreciation $ 716 $ 190 $ 4 $ - $ - $ 644
For the year ending December 31, 2003:
In (000's) Am. Leisure Call Center HTS Other Elim. Consol.
----------- ----------- ------- ------- --------- ---------
Revenue $ - $ 496 $ 2,832 $ - $ - $ 3,328
Segment income (loss) $ (1,455) $ 12 $ 484 $(1,168) $ - $ (2,127)
Total Assets $ 16,751 $ 7,542 $ 4,392 $ - $ (3,309) $ 25,376
Capital expenditures $ 3,249 $ 1,181 $ 30 $ - $ - $ 4,460
Depreciation $ 2 $ 638 $ 4 $ - $ - $ 644
The accounting policies of the reportable segments are the same as those
described in Note 2. The Company evaluates the performance of its operating
segments based on income before net interest expense, income taxes, depreciation
and amortization expense, accounting changes and non-recurring items.
71
Note 19 - RELATED PARTY TRANSACTIONS
We accrue salaries payable to our Chief Executive Officer, President and
Chief Financial Officer, Malcolm J. Wright. As of December 31, 2004, the
aggregate amount of unpaid salaries payable to Mr. Wright was $1,000,000. The
Company accrues interest at a rate of 12% compounded annually on the salaries
payable to Mr. Wright. As of December 31, 2004, the aggregate amount of interest
accrued on salaries payable to Mr. Wright was $105,000.
In May 2004, we began accruing $100,000 per year as salaries payable to L.
William Chiles, the President of Hickory, for his services. Mr. Chiles also
receives paid compensation for his services from Hickory. As of December 31,
2004, the aggregate amount of salaries payable to Mr. Chiles was $66,400. The
Company does not accrue interest on the salaries payable to Mr. Chiles.
We pay or accrue directors' fees to each of our directors in an amount of
$18,000 per year for their services as directors. During the last two fiscal
years the Company paid an aggregate of $66,000 to directors and accrued an
aggregate of $114,000.
The Company entered into an agreement with Mr. Wright and Mr. Chiles
whereby the Company agreed to indemnify Mr. Wright and Mr. Chiles against all
losses, costs or expenses relating to the incursion of or the collection of the
Company's indebtedness against Mr. Wright or Mr. Chiles or their collateral.
This indemnity extends to the cost of legal defense or other such reasonably
incurred expenses charged to or assessed against Mr. Wright or Mr. Chiles. In
the event that Mr. Wright or Mr. Chiles make a personal guarantee for the
Company's benefit in conjunction with any third-party financing, and Mr. Wright
or Mr. Chiles elect to provide such guarantee, then Mr. Wright and/or Mr. Chiles
shall earn a fee for such guarantee equal to three per cent (3%) of the total
original indebtedness and two per cent (2%) of any collateral posted as
security. This fee is to be paid by the issuance of warrants to purchase the
Company's common stock at a fixed strike price of $1.02 per share, when the debt
is incurred. Mr. Wright personally guaranteed (the "Guarantees") the Company's
$6,000,000 Credit Facility from Stanford. In addition, Mr. Wright pledged to
Stanford 845,733 shares of the Company's common stock held by Mr. Wright. L.
William Chiles had personally guaranteed $2,000,000 of the $6,000,000 Credit
Facility and pledged to Stanford 850,000 shares of the Company's common stock
held by Mr. Chiles. Stanford released Mr. Chiles from the personal guarantee
and released his common stock from the pledge when the Company closed the
$6,000,000 Credit Facility. In March 2004, the Company authorized the issuance
of warrants to Mr. Wright and Mr. Chiles to purchase 347,860 shares and 168,672
shares, respectively, of our common stock at an exercise price of $2.96 per
share, which was subsequently reduced to $1.02 per share of common stock.
The Company has generally agreed to provide the executive officers of each
of its subsidiaries a bonus of up to 19% of the profits, if any, of the
subsidiary in which they serve as our executive officers. The bonus will be paid
for the five-year period beginning on the date that the Company enters into such
an agreement with the subsidiary. Pursuant to this general agreement, Malcolm J.
Wright is entitled to receive up to 19% of the profits of Leisureshare
International Ltd, Leisureshare International Espanola SA, TDSR, American
Leisure Homes, Inc., Advantage Professional Management Group, Inc., and American
Leisure Hospitality Group Inc. and any new company formed for the development
and sale of vacation homes, hospitality management, and vacation ownership . L.
William Chiles is entitled to receive 19% of the profits of Hickory up to a
maximum payment of $2,700,000. Although Mr. Chiles' bonus is limited, it is not
subject to the buy-out by the Company as discussed below as it will cease as
soon as the $2,700,000 amount has been paid to him . The executive officers of
other the Company's other subsidiaries are entitled to share a bonus of up to
19% of the profits of the subsidiary in which they serve as our executive
officers. The Company has the right to buy-out of these agreements after a
period of five years by issuing such number of shares of its common stock equal
to the product of 10% of the average after-tax profits for the five-year period
multiplied by one-third (1/3) of the P/E ratio of the Company's common stock at
the time of the buyout divided by the greater of the market price of the
Company's common stock or $5.0. The Company has not paid or accrued any bonus as
of the filing of this report.
72
Malcolm J. Wright is the President and 81% majority shareholder of American
Leisure Real Estate Group, Inc. (ALRG). On November 3, 2003 TDSR, entered into
an exclusive development agreement with ALRG to provide development services for
the development of the Sonesta Orlando Resort. Pursuant to this development
agreement, ALRG is responsible for all development logistics and TDSR is
obligated to reimburse ALRG for all of ALRG's costs and to pay ALRG a
development fee in the amount of 4% of the total costs of the project paid by
ALRG. During the fiscal year ended December 31, 2004, ALRG administered
operations and paid bills in the amount of $3,543,784 and received a fee of 4%
(or approximately $141,751) under the development agreement.
Malcolm J. Wright and members of his family are the majority shareholders
of Xpress. On November 3, 2003, TDSR entered into an exclusive sales and
marketing agreement with Xpress to sell the units being developed by TDSR. This
agreement provides for a sales fee in the amount of 3% of the total sales prices
received by TDSR plus a marketing fee of 1.5%. During the period since the
contract was entered into and ended December 31, 2004 the total sales made by
Xpress amounted to approximately $173,979,572. As a result of the sales, TDSR is
obligated to pay Xpress a total sales fee of $5,219,387 and a marketing fee of
$2,609,693. As of December 31, 2004, the Company has paid Xpress $2,103,534 of
cash, issued Xpress 120,000 shares of Series A Preferred Stock valued at
$1,200,000, and transferred to Xpress a 1913 Mercedes Benz valued at $500,000.
In February 2004, Malcolm J. Wright, individually and on behalf of Xpress, and
Roger Maddock, individually and on behalf of Arvimex, entered into contracts
with TDSR to purchase an aggregate of 32 townhomes for $8,925,120 and paid a
deposit of $892,512.
M J Wright Productions, Inc., of which Mr. Wright is the President, owns
our Internet domain names.
The Company and Mr. Wright have agreed to terms in principle of an
employment agreement pursuant to which Mr. Wright will serve as our Chief
Executive Officer and Chief Financial Officer. The Company will provide the
terms of a definitive employment agreement in a future filing with the
Commission.
Thomas Cornish, a director nominee, is the President of the Seitlin
Insurance Company. The Board of Directors has authorized Seitlin to place a
competitive bid to provide insurance for the Sonesta Orlando Resort. Mr.
Cornish has provided consulting services to the Company valued at $1,500.
David Levine, a director nominee, has provided consulting services to the
Company valued at $3,000.
Malcolm Wright and members of his family are the majority shareholders of
Xpress Ltd. ("Xpress") a shareholder of the Company. On November 3, 2003, TDSR
entered into an exclusive sales and marketing agreement with Xpress to sell the
units being developed by TDSR. This agreement provides for a sales fee in the
amount of 3% of the total sales prices received by TDSR plus a marketing fee of
1.5%. During the period since the contract was entered into and ended December
31, 2004 the total sales amounted to approximately $173,979,572. As a result
of the sales, TDSR is obligated to pay Xpress a fee of $2,609,694.
As of December 31, 2004, Xpress has been paid approximately $2,100,000 in
cash, and tendered the 1913 Mercedes-Benz for $500,000.
The Company also issued 120,000 shares of Series A preferred stock valued
at $1,200,000 for accounts payable and debt.
73
NOTE 20 - RESTATEMENT
American Leisure has corrected its financial statements to include the
accrual of dividends on its preferred stock. American Leisure increased the
carrying value of the preferred stock $2,922,480 and $1,674,148 and increased
the accumulated deficit $(2,922,480) and $(1,674,148) at December 31, 2004 and
2003, respectively. The preferred stock dividend increased the loss available
to common stockholders $(1,248,331) and $(1,083,025) for the year ended December
31, 2004.
A summary of the restatement is as follows:
As previously Increase As
reported (Decrease) Restated
------------ ------------ -------------
At December 31, 2004
Balance sheet:
Additional paid-in capital $15,636,322 $ 2,922,480 $ 18,558,802
Accumulated deficit $(9,372,641) $(2,922,480) $(12,295,121)
Year ended
December 31, 2004:
Statements of Operations:
Preferred stock dividend $ - $(1,248,331) $ (1,248,331)
Net loss available to
common stockholders $(6,634,301) $(1,248,331) $ (7,882,632)
At December 31, 2003
Balance sheet:
Additional paid-in capital $ 6,166,488 $ 1,674,148 $ 7,840,636
Accumulated deficit $(2,738,340) $(1,674,148) $ (4,412,488)
Year ended
December 31, 2003:
Statements of Operations:
Preferred stock dividend $ - $(1,083,025) $ (1,083,025)
Net loss available to
common stockholders $(2,126,850) $(1,083,025) $ (3,209,875)
74
NOTE 21 - SUBSEQUENT EVENTS
SALE OF LAND HELD FOR DEVELOPMENT
---------------------------------
The Company, as discussed in Note 6, owned 13.67 acres of commercial land
in Davenport, Polk County, Florida. The Company was holding this land for future
development.
On March 4, 2005, the Company sold this land for $4,020,000, plus
reimbursement of certain costs in the amount of $157,219.
The Company after paying certain closing costs, commissions, the first deed
of trust on the property, received $2,724,090 in cash from the sale of the
property.
JOINT VENTURE MARKETING AGREEMENT-ANTIGUA FACILITY
------------------------------------------------------
The Company in early 2005, signed a Joint Venture Operating Agreement for
its' Antigua state of the art call center and contact center facility.
The Company, through one of its' majority owned subsidiaries, formed an
Operating corporation to be known as Caribbean Media Group, Ltd, pursuant to the
Companies Act of Barbados. The Company's subsidiary will own 49% of this joint
venture company.
As part of the agreement, the Company provided $100,000 in start-up funding
and agreed to transfer another $100,000 into the joint venture operating account
when the account balance is less than $25,000. Additionally, it will maintain
the equipment it owns and maintain the facility that the Company currently
leases.
75
CHANGES IN ACCOUNTANTS
Effective August 25, 2004, the client auditor relationship between us and
Bateman & Co., Inc., P.C. ceased as the former principal independent accountant
was dismissed. On that date, our Board of Directors approved a change of
accountants and the Company's management engaged Lopez, Blevins, Bork &
Associates, LLP as our principal independent public accountant for the fiscal
year ended December 31, 2004. Prior to that, we had engaged Bateman on August
16, 2004 and dismissed Malone & Bailey, PLLC as our principal independent
accountant on August 17, 2004. In both cases, the decision to change principal
independent accountants was approved by our Board of Directors. Bateman had
been engaged when the audit partner in charge of our account left Malone to join
Bateman. The audit partner left Bateman and joined Lopez. We reported the
change of auditors from Bateman to Lopez on Form 8-K filed with the Commission
on March 28, 2005. We reported the change of auditors from Malone to Bateman on
Form 8-K filed with the Commission on August 18, 2004.
Lopez is succeeding Bateman who succeeded Malone. Malone audited our
balance sheet as of December 31, 2002 and December 31, 2003, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from June 14, 2002 (Inception) through December 31, 2002, and the
fiscal year ended December 31, 2003. Malone's report on our financial statements
for the period from June 14, 2002 (Inception) through December 31, 2002, and the
fiscal year ended December 31, 2003, did not contain any adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles except for concerns about our ability to continue
as a going concern.
In connection with the audit of our financial statements for the period
from June 14, 2002 (Inception) through December 31, 2002, and the fiscal year
ended December 31, 2003, and any later interim period, including the interim
period up to and including the date the relationship with Malone ceased, there
were no disagreements with Malone on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of Malone would have caused
Malone to make reference to the subject matter of the disagreement(s) in
connection with its report on our financial statements. There were no reportable
events as defined in Item 304(a)(1)(iv)(B) of Regulation S-B during the period
from June 14, 2002 (Inception) through December 31, 2002, and the fiscal year
ended December 31, 2003, and any later interim period, including the interim
period up to and including the date the relationship with Malone ceased.
Bateman reviewed our interim financial statements included in the Form
10-QSB filed with the Commission on August 20, 2004. During the interim period
beginning August 16, 2004 (the date that we engaged Bateman) up to and including
the date that the relationship with Bateman ceased, there were no disagreements
with Bateman on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement(s), if
not resolved to the satisfaction of Bateman would have caused Bateman, if
Bateman had issued a report on our financial statements, to make reference to
the subject matter of the disagreement(s) in connection with such report. There
have been no reportable events as defined in Item 304(a)(1)(iv)(B) of Regulation
S-B during the interim period up to and including the date the relationship with
Bateman ceased.
We authorized Malone and Bateman to respond fully to any inquiries of any
new auditors hired by us relating to their engagement as our principal
independent accountant. We requested that Malone review the disclosure in the
report on Form 8-K filed with the Commission on August 18, 2004, and Malone was
given an opportunity to furnish us with a letter addressed to the Commission
containing any new information, clarification of our expression of its views, or
the respect in which it did not agree with the statements made by us therein.
Such letter was filed as an exhibit to such report on Form 8-K. We requested
that Bateman review the disclosure in the report on Form 8-K filed with the
Commission on March 28, 2005, and Bateman was given an opportunity to furnish us
with a letter addressed to the Commission containing any new information,
clarification of our expression of its views, or the respect in which it did not
agree with the statements made by us therein. Such letter was filed as an
exhibit to such report on Form 8-K.
We did not previously consult with Bateman regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed; or (ii) the type of audit opinion that might be rendered
on our financial statements; or (iii) any matter that was either the subject
matter of a disagreement (as defined in Item 304(a)(1)(iv)(A) of Regulation S-B)
between us and Malone, our previous principal independent accountant, as there
were no such disagree-ments, or an other reportable event (as defined in Item
304(a)(1)(iv)(B) of Regulation S-B) during the period from June 14, 2002
(Inception) through December 31, 2002, and the fiscal year ended December 31,
2003, and any later interim period, including the interim period up to and
including the date the relationship with Malone ceased. Neither have we received
any written or oral advice concluding there was an important factor to be
considered by us in reaching a decision as to an accounting, auditing, or
financial reporting issue.
76
We did not previously consult with Lopez regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed; or (ii) the type of audit opinion that might be rendered
on our financial statements; or (iii) any matter that was either the subject
matter of a disagreement (as defined in Item 304(a)(1)(iv)(A) of Regulation S-B)
between us and Bateman or Malone, our previous principal independent
accountants, as there were no such disagreements, or an other reportable event
(as defined in Item 304(a)(1)(iv)(B) of Regulation S-B) during the interim
period up to an including the date the relationship with Bateman ceased, or the
period from June 14, 2002 (Inception) through December 31, 2002, and the fiscal
year ended December 31, 2003, and any later interim period, including the
interim period up to and including the date the relationship with Malone ceased.
Neither have we received any written or oral advice concluding there was an
important factor to be considered by us in reaching a decision as to an
accounting, auditing, or financial reporting issue.
We requested Bateman review the disclosure in the report on Form 8-K before
it was filed with the Commission on August 18, 2004, and provided Bateman the
opportunity to furnish us with a letter addressed to the Commission containing
any new information, clarification of our expression of its views, or the
respects in which Bateman did not agree with the statements made by us in such
report. Bateman did not furnish a letter to the Commission. We requested Lopez
review the disclosure in the report on Form 8-K before it was filed with the
Commission on March 28, 2005, and provided Lopez an opportunity to furnish us
with a letter addressed to the Commission containing any new information,
clarification of our expression of its views, or the respects in which Lopez did
not agree with the statements made by us in such report. Lopez did not furnish a
letter to the Commission.
77
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all of the information set forth in the
registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the to the exhibits for a
complete statement of their terms and conditions. The registration statement
and other information may be read and copied at the Commission's Public
Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our articles of incorporation, as amended and restated, contain a provision
that gives our board of directors the power to indemnify our officers and
directors to the fullest extent permitted by Nevada law. Our bylaws, as amended
and restated, obligate us to indemnify our directors and officers to the fullest
extent permitted by Section 78.7502 of the Nevada Revised Statutes, as that
section may be amended and supplemented from time to time. Section 78.7502
generally provides that we may indemnify any of our officers and directors in
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by us or in our
right, if such officer or director acted in good faith and in a manner which
they reasonably believed to be in or not opposed to our best interest, and with
respect to any criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful.
We have entered into an indemnification agreement with Malcolm J. Wright,
our chief executive officer and a director. We will indemnify Mr. Wright to the
fullest extent permitted by law if Mr. Wright was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any threatened, pending or completed claim by
reason of (or arising in part out of) any event or occurrence related to the
fact that Mr. Wright is or was a director, officer, employee, agent or fiduciary
of ours, or any subsidiary of ours, or is or was serving at our request as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action or inaction on the part of Mr. Wright while serving in such capacity
against any and all expenses, judgments, fines, penalties and amounts paid in
settlement and any federal, state, local or foreign taxes imposed on Mr. Wright
as a result of the actual or deemed receipt of any indemnification payments made
by us to or on behalf of Mr. Wright. We are entitled to reimbursement of any
advance indemnification payments that we make to or on behalf of Mr. Wright if,
when and to the extent that a disinterested director, group of disinterested
directors or independent legal counsel determines that Mr. Wright would not be
permitted to be so indemnified under applicable law. We are not obligated to
indemnify Mr. Wright for the following:
- Acts, omissions or transactions for which Mr. Wright is prohibited
from receiving indemnification under applicable law.
- Claims initiated or brought voluntarily by Mr. Wright and not by way
of defense, except for claims brought to establish or enforce a right to
indemnification or in specific cases if our board of directors has approved
the initiation or bringing of such claim, or as otherwise required under
the Nevada Revised Statutes, regardless of whether Mr. Wright ultimately is
determined to be entitled to such indemnification, advance expense payment
or insurance recovery, as the case may be.
- Any proceeding instituted by Mr. Wright to enforce or interpret his
indemnification agreement, if a court of competent jurisdiction determines
that each of the material assertions made by Mr. Wright in such proceeding
was not made in good faith or was frivolous.
- Violations of Section 16(b) of the Exchange Act or any similar
successor statute.
Our articles of incorporation, as amended, also contain a provision that
limits the liability of our directors. Consequently, our directors will not be
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duties as directors, except liability for the following:
- Any breach of their duty of loyalty to our company or our stockholders.
- Acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law.
- Any transaction from which the director derived an improper personal
benefit.
- Any act or omission occurring prior to their directorship.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses expected to be incurred
in connection with the issuance and distribution of the securities being
registered. We will pay all expenses in connection with this offering.
Securities and Exchange Commission Registration Fee $ 1,074.00
Printing and Engraving Expenses 2,500.00
Accounting Fees and Expenses 15,000.00
Legal Fees and Expenses 50,000.00
Miscellaneous 16,504.00
---------
TOTAL $85,078.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has issued the following securities without registration under
the Securities Act within the past three (3) years:
In January 2002, the Company issued 20,000 shares of common stock to three
individuals pursuant to a financial advisory agreement with Viewtrade
Securities, Inc. The Company claims an exemption from registration afforded by
Section 4(2) of the Act since the foregoing issuances did not involve a public
offering, the recipients took the shares for investment and not resale and the
Company took appropriate measures to restrict transfer. No underwriters or
agents were involved in the foregoing issuances and no underwriting discounts or
commissions were paid by the Company.
In June 2002, the Company issued an aggregate of 36,365 shares of common
stock to more than two hundred individuals for $1.50 per share. The Company
claims an exemption from registration afforded by Regulation S under the
Securities Act. No underwriters or agents were involved in the foregoing
issuances and no underwriting discounts or commissions were paid by the Company.
In July 2002, the Company issued an aggregate of 5,016,665 shares of common
stock and an aggregate of 880,000 shares of Series A preferred stock to the
former shareholders of American Leisure in exchange for all of the issued and
outstanding shares of common stock and preferred stock of American Leisure. The
exchange of shares was one-for-one. American Leisure had issued an aggregate of
5,016,665 shares of common stock to twelve individuals and four companies and an
aggregate of 880,000 shares of preferred stock to seven of the individuals and
two of the companies. The Company claims the exemption from registration
afforded by Rule 506 of Regulation D under the Securities Act. No underwriters
or agents were involved in the foregoing issuances and no underwriting discounts
or commissions were paid by the Company.
In August 2002, the Company issued an aggregate of 600 shares of common
stock to two individuals for $1.50 per share. The Company claims an exemption
from registration afforded by Regulation S under the Securities Act. No
underwriters or agents were involved in the foregoing issuances and no
underwriting discounts or commissions were paid by the Company.
In December 2002, the Company issued an aggregate of 114,000 shares of
common stock and 27,191 shares of Series C preferred stock to Stanford Venture
Capital Holdings, Inc., Charles Ganz and Ted Gershon to acquire $2,850,000 of
call center equipment. The Company claims an exemption from registration
afforded by Section 4(2) of the Act since the foregoing issuances did not
involve a public offering, the recipients took the shares for investment and not
resale and the Company took appropriate measures to restrict transfer. No
underwriters or agents were involved in the foregoing issuances and no
underwriting discounts or commissions were paid by the Company.
In September 2003, the Company issued 850,000 shares of common stock to L.
William Chiles, a Director of the Company, to acquire Hickory. The Company
claims an exemption from registration afforded by Section 4(2) of the Act since
the foregoing issuance did not involve a public offering, the recipient took the
shares for investment and not resale and the Company took appropriate measures
to restrict transfer. No underwriters or agents were involved in the foregoing
issuance and no underwriting discounts or commissions were paid by the Company.
In January 2004, the Company issued warrants to purchase 390,000 shares of
the Company's common stock to Arvimex. The warrants are divided into two
classes. The first class, comprised of 120,000 warrants, bears an exercise price
of $0.001 per share of common stock and are exercisable until December 31, 2008.
The second class, comprised of 270,000 shares, bears an exercise price of $2.96
per share of common stock and are exercisable until December 31, 2008. In March
2004, the Company reduced the exercise price of the warrants to purchase 270,000
shares from $2.96 to $1.02 in connection with a reduction in the exercise price
of warrants that the Company had issued to Stanford from $2.96 to $0.001 per
share. The Company claims an exemption from registration afforded by Section
4(2) of the Act since the foregoing issuances did not involve a public offering,
the recipient took the warrants for investment and not resale and the Company
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuances and no underwriting discounts or commissions
were paid by the Company.
II-2
In March 2004, the Company issued 340,000 shares of common stock to GCD
Acquisition Corp. as partial consideration for the purchase of $22,600,000 in
secured notes. The Company also assumed liability for a $5,000,000 promissory
note that GCD Acquisition Corp. had issued to acquire the secured notes. The
Company claims an exemption from registration afforded by Section 4(2) of the
Act since the foregoing issuance did not involve a public offering, the
recipient took the shares for investment and not resale and the Company took
appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuance and no underwriting discounts or commissions
were paid by the Company.
In March 2004, the Company issued warrants to purchase 300,000 shares of
the Company's common stock to Stanford and warrants to purchase an aggregate of
300,000 shares of the Company's common stock equally to four employees of
Stanford. The warrants to purchase an aggregate of 600,000 shares that were
issued to Stanford and the Stanford employees had an exercise price of $0.001
per share of common stock and were exercised as discussed below. Also in March
2004, the Company issued warrants to purchase 675,000 shares of the Company's
common stock to Stanford and warrants to purchase an aggregate of 675,000 shares
of the Company's common stock to the Stanford employees. The warrants to
purchase an aggregate of 1,350,000 shares that were issued to Stanford and the
Stanford employees had an exercise price of $2.96 per share. The warrants were
issued as consideration for Stanford providing a $6,000,000 line of credit to
the Company. The Company issued a promissory note for $6,000,000 to Stanford. In
June 2004 the Company reduced the exercise price on the warrants to purchase
1,350,000 shares from $2.96 to $0.001 per share in connection with $4,000,000 of
additional financing provided by Stanford. The Company issued a promissory note
for $3,000,000 and a promissory note for $1,000,000 to Stanford for the
additional financing. In May 2004, the Company issued an aggregate of 600,000
shares of common stock to Stanford and the Stanford employees upon their
exercise of their warrants at $0.001 per share of common stock (or an aggregate
of $600). In June 2004, the Company also issued warrants to purchase 500,000
shares of the Company's common stock to Stanford in connection with the
additional $4,000,000 of financing. The warrants to purchase 500,000 shares had
an exercise price of $5.00 per share, but in November 2004, the Company reduced
the exercise price to $0.001 with respect to warrants to purchase 100,000 of the
shares as consideration for $1,605,000 of additional financing provided by
Stanford. The Company increased the principal amount of the $3,000,000 note and
the $1,000,000 note to $4,250,000 and $1,355,000, respectively. In September
2004 and December 2004, the Company issued an aggregate of 1,350,000 shares and
100,000 shares of common stock, respectively, to Stanford and the Stanford
employees upon their exercise of their warrants at $0.001 per share of common
stock (or an aggregate of $1,350 and $100, respectively). The Company claims an
exemption from registration afforded by Section 4(2) of the Act since the
foregoing issuances did not involve a public offering, the recipients took the
warrants, the notes and the shares for investment and not resale and the Company
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuances and no underwriting discounts were paid by
the Company. However, the Company's relationship with Stanford includes the
requirement that the Company utilize services provided by US Funding
Corporation, an investment banking firm. US Funding Corporation received a fee
of 5% for $6,000,000 of financing provided by Stanford and a fee of 2.5% of an
aggregate of $5,605,000 of additional financing provided by Stanford.
In March 2004, the Company issued warrants to L. William Chiles, a Director
of the Company, to purchase 168,672 shares of the Company's common stock at an
exercise price of $2.96 per share. Also, in March 2004, the Company issued
warrants to Malcolm J. Wright, a Director of the Company and the Company's Chief
Executive Officer and Chief Financial Officer, to purchase 347,860 shares of the
Company's common stock at an exercise price of $2.96 per share of common stock.
The Company issued the warrants to Messrs. Chiles and Wright as consideration
for their personal guarantees of the Company's debt and pledges of their shares
of the Company's stock to Stanford as part of the security for the financing
that Stanford provided to the Company. In addition, Mr. Wright has personally
guaranteed the Company's indebtedness of $6,000,000 to Stanford. The Company
reduced the exercise price of the warrants from $2.96 to $1.02 in connection
with a reduction of the exercise price of warrants issued to Stanford from $2.96
to $0.001. The Company claims an exemption from registration afforded by Section
4(2) of the Act since the foregoing issuances did not involve a public offering,
the recipients took the warrants for investment and not resale and the Company
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuances and no underwriting discounts were paid by
the Company.
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In April 2004, the Company approved the issuance of 24,101 shares of Series
E preferred stock to The Shadmore Trust U/A/D 12/26/89 as part of the Company's
acquisition of the majority interest in the preferred stock of AWT. The Series E
preferred stock ranks senior to the Company's common stock as to dividends and
liquidation preference. Each share of Series E preferred stock is convertible,
at the option of the holder thereof, at any time and from time to time, into a
maximum of 6.666 fully paid and non-assessable shares of common stock. The
Company also issued an unsecured note in the original amount of $1,698,340 to
Shadmore Trust in connection with the acquisition of debt owed to Shadmore Trust
by AWT. The note bears interest at a rate of four percent (4%) per annum with
weekly payments in the amount of $5,000 until the note is fully paid or April 1,
2011, whichever is first. The Company claims an exemption from registration
afforded by Section 4(2) of the Act since the foregoing issuances did not
involve a public offering, the recipient took the shares and the note for
investment and not resale and the Company took appropriate measures to restrict
transfer. No underwriters or agents were involved in the foregoing issuance and
no underwriting discounts were paid by the Company.
In July 2004, we granted warrants to Malcolm J. Wright, L. William Chiles,
Thomas Cornish, David Levine and T. Gene Prescott for each of them to purchase
100,000 shares of common stock at an exercise price of $1.02 per share for
services rendered. In February 2005, we granted warrants on the same terms to
Charles J. Fernandez. Messrs. Wright and Chiles currently serve as Directors.
Messrs. Fernandez and Prescott currently serve on our advisory board providing
us with general corporate and business advice. Messrs. Cornish and Levine have
also served on the advisory board. Warrants to purchase 50,000 shares vested
immediately to each of them. Warrants to purchase the remaining 50,000 shares
would vest in equal amounts to each of them on their next two anniversary dates
as Directors or advisors provided they remain in such position. They may
exercise the warrants for a period of five years beginning on such vesting
dates. The Company claims an exemption from registration afforded by Section
4(2) of the Act since the foregoing issuances did not involve a public offering,
the recipients took the warrants for investment and not resale and the Company
took appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuances and no underwriting discounts were paid by
the Company.
In November 2004, the Company issued to Arvimex warrants to purchase 40,000
shares of the Company's common stock at an exercise price of $0.001 per share of
common stock in consideration for an unsecured loan for Around The World Travel,
Inc. in the principal amount of $500,000. Arvimex loaned the money to provide
funds to Around The World Travel while the Company conducted due diligence of
TraveLeaders and sought to secure an additional $1,250,000 of financing from
Stanford. The Company claims an exemption from registration afforded by Section
4(2) of the Act since the foregoing issuance did not involve a public offering,
the recipient took the warrants and the note for investment and not resale and
the Company took appropriate measures to restrict transfer. No underwriters or
agents were involved in the foregoing issuance and no underwriting discounts
were paid by the Company.
In November 2004, the Company exchanged 325 shares of its Series B
preferred stock with American Communications, LLC for equipment valued at
$32,640. The Company claims an exemption from registration afforded by Section
4(2) of the Act since the foregoing issuance did not involve a public offering,
the recipient took the shares for investment and not resale and the Company took
appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuances and no underwriting discounts were paid by
the Company.
In December 2004, the Company issued 120,000 shares of Series A preferred
stock, par value $0.001 per share, to Xpress Ltd. valued at $1,200,000. The
Series A preferred stock was issued to Xpress as partial payment under its
excusive sales and marketing agreement with us. The Series A preferred stock
ranks senior to the Company's common stock as to dividends and liquidation
preference. Each share of Series A preferred stock is 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 Company claims an exemption
from registration afforded by Section 4(2) of the Act since the foregoing
issuance did not involve a public offering, the recipient took the shares for
investment and not resale and the Company took appropriate measures to restrict
transfer. No underwriters or agents were involved in the foregoing issuance and
no underwriting discounts were paid by the Company.
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In December 2004, the Company issued Steven Parker warrants to purchase
200,000 shares of the Company's common stock at an exercise price of $1.02 per
share of common stock in consideration for services rendered. The Company claims
an exemption from registration afforded by Section 4(2) of the Act since the
foregoing issuance did not involve a public offering, the recipient took the
warrants for investment and not resale and the Company took appropriate measures
to restrict transfer. No underwriters or agents were involved in the foregoing
issuance and no underwriting discounts were paid by the Company.
In December 2004, the Company issued Toni Pallatto warrants to purchase
25,000 shares of the Company's common stock at an exercise price of $1.02 per
share of common stock in consideration for services rendered. The Company claims
an exemption from registration afforded by Section 4(2) of the Act since the
foregoing issuance did not involve a public offering, the recipient took the
warrants for investment and not resale and the Company took appropriate measures
to restrict transfer. No underwriters or agents were involved in the foregoing
issuance and no underwriting discounts were paid by the Company.
In December 2004, the Company issued 120,000 shares of common stock to
Xpress Ltd., of which Malcolm J. Wright, the Company's Chief Executive Officer
and Chief Financial Officer, is the beneficial owner, 10,000 shares of common
stock to James Leaderer, a director of the Company, 20,000 shares of common
stock to an entity and 10,000 shares of common stock to an employee of Hickory
(or an aggregate of 160,000 shares of common stock) for various services that
they provided to the Company. The Company claims an exemption from registration
afforded by Section 4(2) of the Act since the foregoing issuances did not
involve a public offering, the recipients took the shares for investment and not
resale and the Company took appropriate measures to restrict transfer. No
underwriters or agents were involved in the foregoing issuances and no
underwriting discounts were paid by the Company.
In March 2005, the Company cancelled an aggregate of 3,988,700 shares of
common stock, of which 3,791,700 shares had been returned to the Company by
Vyrtex Limited in June 2002 in connection with the reverse merger, and 197,000
shares had been authorized for issuance in June 2002, but never cancelled, in
connection with the reverse merger.
In June 2005, the Company issued to Arvimex an aggregate of 160,000 shares
of the Company's common stock upon the exercise of warrants at $0.001 per share
(or $160). The Company claims an exemption from registration afforded by Section
4(2) of the Act since the foregoing issuances did not involve a public offering,
the recipient took the shares for investment and not resale and the Company took
appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuances and no underwriting discounts were paid by
the Company.
ITEM 27. EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 (1) Stock Purchase Agreement
3.1 (2) Articles of Incorporation
3.2 (3) Amended and Restated Bylaws
3.3 (3) Amended and Restated Articles of Incorporation filed July 24, 2002
3.4 (3) Certificate of Amendment of Amended and Restated Articles of
Incorporation filed July 24, 2002
4.1 (3) Certificate of Designation of Series A Convertible Preferred Stock
4.2 (5) Certificate of Designation of Series B Convertible Preferred Stock
4.3 (5) Certificate of Designation of Series C Convertible Preferred Stock
4.4 (10) Amended and Restated Certificate of Designation of Series C
Convertible Preferred Stock
4.5 (21) Corrected Certificate of Designation of Series E Convertible
Preferred Stock, which replaces the Form of Certificate of
Designation of Series E Convertible Preferred Stock, filed as
Exhibit 1 to the Registrant's Form 8-K on April 12, 2004
4.6 (18) Certificate of Designation of Series F Convertible Preferred Stock,
which replaces the Form of Certificate of Designation of Series F
Convertible Preferred Stock, filed as Exhibit 3.1 to the
Registrant's Form 8-K on January 6, 2005
5.1* Opinion and consent of David M. Loev, Attorney at Law re: the
legality of the shares being registered
10.1 (3) Stock Option Agreement with L. William Chiles Regarding Hickory
Travel Systems, Inc.
10.2 (5) Securities Purchase Agreement with Stanford Venture Capital
Holdings, Inc. dated January 29, 2003
10.3 (5) Registration Rights Agreement with Stanford dated January 29, 2003
10.4 (5) Securities Purchase Agreement with Charles Ganz dated January 29,
2003
10.5 (5) Asset Sale Agreement with Charles Ganz dated January 29, 2003
10.6 (5) Registration Rights Agreement with Charles Ganz dated January 29,
2003
10.7 (5) Securities Purchase Agreement with Ted Gershon dated January 29,
2003
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10.8 (5) Asset Sale Agreement with Ted Gershon dated January 29, 2003
10.9 (5) Registration Rights Agreement with Ted Gershon dated January 29,
2003
10.10 (6) Confirmation of Effective Date and Closing Date of $6,000,000 Line
of Credit
10.11 (6) Credit Agreement with Stanford for $6,000,000 Line of Credit
10.12 (6) First Amendment to Credit Agreement with Stanford for $6,000,000
Line of Credit
10.13 (6) Mortgage Modification and Restatement Agreement between Tierra Del
Sol Resort Inc., formerly Sunstone Golf Resort, Inc. ("TDSR") and
Stanford dated December 18, 2003
10.14 (6) Registration Rights Agreement with Stanford dated December 18, 2003
10.15 (6) Florida Mortgage and Security Agreement securing the $6,000,000
Line of Credit
10.16 (6) Second Florida Mortgage and Security Agreement securing the
$6,000,000 Line of Credit
10.17 (6) Security Agreement by Caribbean Leisure Marketing Limited and
American Leisure Marketing and Technology Inc. dated December 18,
2003, securing the $6,000,000 Line of Credit
10.18 (6) Warrants issued to Daniel T. Bogar to purchase 168,750 shares at
$2.96 per share
10.19 (7) Warrants issued to Arvimex, Inc. to purchase 120,000 shares at
$0.001 per share
10.20 (7) Warrant Purchase Agreement with Stanford to purchase 600,000
shares at $0.001 per share and 1,350,000 shares at $2.96 per share
10.21 (7) Warrants issued to Arvimex to purchase 270,000 shares at $2.96 per
share
10.22 (10) Credit Agreement with Stanford for $1,000,000 Credit Facility
10.23 (10) Credit Agreement with Stanford for $3,000,000 Credit Facility
10.24 (10) Instrument of Warrant Repricing to purchase 1,350,000 shares at
$0.001 per share
10.25 (10) Warrant Purchase Agreement with Stanford to purchase 500,000
shares at $5.00 per share
10.26 (10) Registration Rights Agreement with Stanford dated June 17, 2004
10.27 (9) Agreement and First Amendment to Agreement to Purchase Galileo
Notes with GCD Acquisition Corp. ("GCD"), dated March 19, 2004 and
March 29, 2004, respectively
10.28 (9) Assignment Agreement for Security for Galileo Notes
10.29 (18) Bridge Loan Note for $6,000,000 issued by Around The World Travel,
Inc. in favor of Galileo International, LLC and acquired by the
Registrant
10.30 (18) Third Amended and Restated Acquisition Loan Note for $6,000,000
issued by Around The World Travel, Inc. in favor of Galileo
International, LLC and acquired by the Registrant
10.31 (18) Amended and Restated Initial Loan Note for $7,200,000 issued by
Around The World Travel in favor of Galileo and acquired by the
Registrant
10.32 (18) Promissory Note for $5,000,000 issued by Around The World Travel,
Inc. in favor of CNG Hotels, Ltd. and assumed by the Registrant
10.33 (18) Promissory Note for $2,515,000 issued by TDSR in favor of Arvimex
and Allonge dated January 31, 2000
10.34 (18) Registration Rights Agreement with Arvimex dated January 23, 2004
10.35 (13) Development Agreement between TDSR and American Leisure Real
Estate Group, Inc.
10.36 (14) Exclusive Sales and Marketing Agreement between TDSR and Xpress Ltd.
10.37 (15) Asset Purchase Agreement with Around The World Travel, Inc. for
TraveLeaders
10.38 (16) Operating Agreement between American Leisure Hospitality Group, Inc.
and Sonesta Orlando, Inc., dated January 29, 2005
10.39 (17) Second Re-Instatement and Second Amendment to Contract of Advantage
Professional Management Group, Inc. to sale unimproved land in
Davenport, Florida to Thirteen Davenport, LLC
10.40 (17) Purchase Agreement between Advantage Professional Management Group,
Inc. and Paradise Development Group, Inc. to sale part of unimproved
land in Davenport, Florida
10.41 (17) First Amendment to Purchase Agreement between Advantage Professional
Management Group, Inc. and Paradise Development Group, Inc. to sale
part of unimproved land in Davenport, Florida
10.42 (17) Assignment of Purchase Agreement, as amended, to Thirteen Davenport,
LLC to sale part of unimproved land in Davenport, Florida
10.43 (21) Note and Mortgage Modification Agreement dated May 12, 2005,
regarding a Promissory Note in the original amount of $985,000 dated
January 31, 2000, issued by TDSR in favor of Raster Investments,
Inc. and a Mortgage in favor of Raster Investments, Inc.
10.44 (21) First Amendment to Asset Purchase Agreement with Around The World
Travel, Inc. for TraveLeaders dated March 31, 2005
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10.45 (22) Management Agreement with Around The World Travel, Inc. dated
January 1, 2005
10.46 (22) License Agreement with Around The World Travel, Inc. dated
January 1, 2005
10.47 (22) Agreement with Shadmore Trust U/A/D dated April 1, 2004 to acquire
common stock, preferred stock and indebtedness of AWT
10.48 (22) Promissory Note for $1,698,340 issued by the Registrant in favor of
Shadmore Trust U/A/D and dated April 1, 2004
10.49 (22) Stock Purchase Agreement dated April 12, 2004 to acquire preferred
stock of Around The World Travel, Inc.
10.50 (22) Additional $1.25M issued by the Registrant in favor of Stanford and
dated November 15, 2004.
10.51 (22) Third Amendment to Credit Agreement with Stanford for $1,000,000 and
Second Additional Stock Pledge Agreement dated December 13, 2004
10.52 (22) Second Renewal Promissory Note for $1,355,000 issued by the
Registrant in favor of Stanford and dated December 13, 2004
10.53 (22) Agreement dated March 17, 2005, to Terminate Right of First Refusal
Agreement and Amend Registration Rights Agreement with Stanford
10.54* Warrant Agreement and Warrants to Malcolm J. Wright to purchase
100,000 shares at $1.02 per share
10.55* Warrant Agreement and Warrants to L. William Chiles to purchase
100,000 shares at $1.02 per share
10.56* Warrant Agreement and Warrants to T. Gene Prescott to purchase
100,000 shares at $1.02 per share
10.57* Warrant Agreement and Warrants to Charles J. Fernandez to purchase
100,000 shares at $1.02 per share
10.58* Warrant Agreement and Warrant to Toni Pallatto to purchase 200,000
shares at $1.02 per share
10.59* Warrant Agreement and Warrants to Steven Parker to purchase 25,000
shares at $1.02 per share
10.60 (22) Employment Agreement, as amended, between L. William Chiles and
Hickory Travel Systems, Inc.
10.61 (22) Employment Agreement between L. William Chiles and the Registrant
10.62 (22) First Amendment to $3 Million Credit Agreement
10.63 (22) Instrument of Warrant Repricing to purchase 100,000 shares at
$0.001 per share
16.1 (3) Letter from J.S. Osborn, P.C. dated August 1, 2002
16.2 (4) Letter from J.S. Osborn, P.C. dated May 22, 2003
16.3 (11) Letter from J.S. Osborn, P.C. dated August 17, 2004
16.4 (11) Letter from Charles Smith
16.5 (11) Letter from Marc Lumer & Company
16.6 (11) Letter from Byrd & Gantt, CPA's, P.A.
16.7 (12) Letter from Malone & Bailey, PLLC
16.8 (19) Letter from Bateman & Co., Inc., P.C.
21 (18) Subsidiaries of American Leisure Holdings, Inc.
23.1* Consent of Lopez, Blevins, Bork & Associates, LLP
23.2 (20) Consent of David M. Loev, Attorney at Law
99.1 (6) Personal Guarantee by Malcolm J. Wright guaranteeing the $6,000,000
Line of Credit
99.2 (10) Letter to the Shareholders of Around The World Travel, Inc.
* Filed herein.
(1) Filed as Exhibit 2.1 to the Registrant's Form 8-K on June 28, 2002,
and incorporated herein by reference.
(2) Filed as Exhibit 3.1 to the Registrant's Form SB-1 on October 20,
2000, and incorporated herein by reference.
(3) Filed as Exhibits 3.4, 3.1, 3.2, 3.3, 10.2, and 16.1, respectively, to
the Registrant's Form 10-QSB on August 19, 2002, and incorporated herein by
reference.
(4) Filed as Exhibit 16.1 to the Registrant's Form 8-K on May 23, 2003,
and incorporated herein by reference.
(5) Filed as Exhibits 99.2, 99.1, 99.3, 99.5, 99.6, 99.7, 99.8, 99.9,
99.10 and 99.11, respectively, to the Registrant's Form 10-KSB on May 23,
2003, and incorporated herein by reference.
(6) Filed as Exhibits 99.1, 99.2, 99.3, 99.4, 99.7, 99.8, 99.9, 99.10,
99.11 and 99.5, respectively, to the Registrant's Form 8-K on April 1,
2004, and incorporated herein by reference.
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(7) Filed as Exhibits 99.11, 99.12 and 99.13, respectively, to the
Registrant's Form 10-QSB on May 25, 2004, and incorporated herein by
reference.
(8) Filed as Exhibit 99.1 to the Registrant's Form 10-KSB on May 21, 2004,
and incorporated herein by reference.
(9) Filed as Exhibits 99.1 and 99.2, respectively, to the Registrant's
Form 8-K on April 6, 2004, and incorporated herein by reference.
(10) Filed as Exhibits 3.1, 10.1, 10.2, 10.3, 10.4, 10.5 and 99.2,
respectively, to the Registrant's Forms 8-K/A filed on August 6, 2004, and
incorporated herein by reference.
(11) Filed as Exhibits 16.2, 16.3, 16.4 and 16.5, respectively, to the
Registrant's Forms 8-K/A filed on August 18, 2004, and incorporated herein
by reference.
(12) Filed as Exhibit 16.1 to the Registrant's Form 8-K on August 18, 2004,
and incorporated herein by reference.
(13) Filed as Exhibit 10.6 to the Registrant's Form 10-QSB on August 20,
2004, and incorporated herein by reference.
(14) Filed as Exhibit 10.6 to the Registrant's Form 10-QSB/A on December 8,
2004, and incorporated herein by reference.
(15) Filed as Exhibit 10.1 to the Registrant's Form 8-K on January 6, 2005,
and incorporated herein by reference.
(16) Filed as Exhibit 10.1 to the Registrant's Form 8-K on February 2,
2005, and incorporated herein by reference.
(17) Filed as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to the
Registrant's Form 8-K on March 14, 2005, and incorporated herein by
reference.
(18) Filed as Exhibits 4.6, 10.29, 10.30, 10.31, 10.32, 10.33, and 10.34,
respectively, to the Registrant's Form 10-KSB on March 31, 2005, and
incorporated herein by reference.
(19) Filed as Exhibit 16.2 to the Registrant's Form 8-K on March 28, 2005,
and incorporated herein by reference.
(20) Included in Exhibit 5.1, filed herein.
(21) Filed as Exhibits 4.5, 10.43 and 10.44, respectively to the Registrant's
Form 10-QSB on May 23, 2005, and incorporated herein by reference.
(22) Filed as Exhibits 10.45, 10.46, 10.47, 10.48, 10.49, 10.50, 10.51, 10.52,
10.53, 10.60, 10.61, 10.62, and 10.63, respectively, to the Registrants
Form SB-2 on June 30, 2005, and incorporated herein by reference.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which the selling stockholders offer or
sell securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) Include any additional or changed material information on
the plan of distribution;
(2) That, for the purpose of determining any liability under the Securities
Act, to treat each such post-effective amendment as a new registration statement
relating to the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, in the City of Orlando
State of Florida on July 27, 2005.
AMERICAN LEISURE HOLDINGS, INC.
By: /s/Malcolm J. Wright
----------------------
Name: Malcolm J. Wright
Title: Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
SIGNATURE TITLE DATE
By: /s/ Malcolm J. Wright
---------------------
Malcolm J. Wright Chief Executive Officer, July 27, 2005
Principal Financial Officer,
Chief Financial Officer and Director
By: /s/L. William Chiles
----------------------
L. William Chiles Director July 27, 2005
By: /s/ James Leaderer
--------------------
James Leaderer Director July 27, 2005
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