The statements contained in the following MD&A and elsewhere throughout this
Quarterly Report on Form 10-Q, including any documents incorporated by
reference, that are not historical facts, including statements about our beliefs
and expectations, are "forward-looking statements" within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements preceded by, followed by or that include the words
"may," "could," "would," "should," "believe," "expect," "anticipate," "plan,"
"estimate," "target," "project," "intend" and similar words or expressions. In
addition, any statements that refer to expectations, projections, or other
characterizations of future events or circumstances are forward-looking
statements.
These forward-looking statements, which reflect our management's beliefs,
objectives, and expectations as of the date hereof, are based on the best
judgment of our management. All forward-looking statements speak only as of the
date on which they are made. Such forward-looking statements are subject to
certain risks, uncertainties and assumptions relating to factors that could
cause actual results to differ materially from those anticipated in such
statements, including, without limitation, the following: economic, social and
political conditions, global economic downturns resulting from extraordinary
events such as the COVID-19 pandemic and other securities industry risks;
interest rate risks; liquidity risks; credit risk with clients and
counterparties; risk of liability for errors in clearing functions; systemic
risk; systems failures, delays and capacity constraints; network security risks;
competition; reliance on external service providers; new laws and regulations
affecting our business; net capital requirements; extensive regulation,
regulatory uncertainties and legal matters; failure to maintain relationships
with employees, customers, business partners or governmental entities; the
inability to achieve synergies or to implement integration plans and other
consequences associated with risks and uncertainties detailed in our filings
with the SEC, including our most recent filings on Forms 10-K and 10-Q.
We caution that the foregoing list of factors is not exclusive, and new factors
may emerge, or changes to the foregoing factors may occur, that could impact our
business. We undertake no obligation to publicly update or revise these
statements, whether as a result of new information, future events or otherwise,
except to the extent required by the federal securities laws.
This discussion should be read in conjunction with our financial statements on
our 2021 Form 10-K, and our financial statements and the notes thereto contained
elsewhere in this Quarterly Report on Form 10-Q.
Plan of Operation
The 2022 operational plan consists of:
1. Continue establishing and expanding the different segments associated with
the expanded ALTD operations. The divisions include:
a. Altitude Chamber Technology Division
b. Tennis, Golf, Basketball, Volleyball and Academic Academies Division
c. Soccer Academy Division, including RUSH Soccer
d. Water Manufacturing / Technology Division
e. Cleaning and Sanitation Division
f. Altitude Wellness Division
g. Altitude Online Learning Division
2. Adopt a comprehensive branding, marketing, digital and social media strategy
for the revenue lines above.
3. Update a back-office administration plan and adopt a staffing and management
hierarchy for the multi-discipline operation.
4. Plan to expand in complementary ways, including establishing a basketball
division (estimated to be ready for student athletes in 2022) and swimming
and lacrosse divisions) estimated to be ready for student athletes in 2023).
No assurances can be given that any of these plans will come to fruition or that
if implemented that they will necessarily yield positive results.
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Recent Developments
Purchase Agreement
On April 27, 2022, the Company entered into a purchase and sale agreement (the
"Purchase Agreement") by and among the Company, Sandpiper Resort Properties,
Inc. ("SRP") and Holiday Village of Sandpiper, Inc. ("HVS", and together with
SRP, the "Sellers"), whereby the Company agreed to purchase Sellers' real estate
property in Port Saint Lucie, Florida (the "Property"). The Property being sold
in the Purchase Agreement is the Property on which the Company's facilities are
currently located and where the Company currently operates and includes
approximately 216 acres and approximately 3,000 feet of waterfront property.
The purchase price for the Property is $55,000,000, with an initial deposit of
$500,000 due within five business days of the execution of the Purchase
Agreement. This deposit was delivered by the Company on May 2, 2022. The Company
has until May 31, 2022 to complete its due diligence on the Property, until
which time it can terminate the Purchase Agreement or elect to proceed to a
closing. If the Company elects to proceed to a closing, an additional
nonrefundable deposit of $500,000 is due within five days following the
expiration of the due diligence period.
On May 31, 2022, the Company executed a First Addendum to Purchase and Sale
Agreement (the "Addendum") with Sandpiper, acknowledging the deposit became
nonrefundable and allowing an extension of the Closing until July 29, 2022, if
elected.
On June 20, 2022, the Company's second deposit in the amount of $500,000 to
Sandpiper Resort Properties, Inc. and Holiday Village of Sandpiper, Inc.
(collectively, "Sandpiper"), delivered according to the terms of that certain
Purchase and Sale Agreement effective as of April 25, 2022 (the "Agreement") for
the purchase by the Company of property in Port Saint Lucie, Florida (the
"Property"), became nonrefundable except in certain circumstances. The first
deposit of $500,000 and the second deposit shall be applied to the Purchase
Price of the Property upon closing and is nonrefundable to the Company except in
the event of a default by Sandpiper of its obligations under the Agreement that
is not cured within any applicable cure period provided in the Agreement or as
otherwise specifically provided in this Agreement.
On July 27, 2022, the Company executed a Third Addendum to Purchase and Sale
Agreement (the "Addendum") with Sandpiper Resort Properties, Inc. and Holiday
Village of Sandpiper, Inc. (collectively, "Sandpiper"), modifying that certain
Purchase and Sale Agreement effective as of April 25, 2022 (the "Agreement") for
the purchase by the Company of property in Port Saint Lucie, Florida (the
"Property"). The Property being sold is the Property on which the Company's
facilities are currently located and where the Company currently operates and
includes approximately 216 acres and approximately 3,000 feet of waterfront
property.
Under the terms of the Addendum, the Agreement is modified such that the Company
shall pay a Third Deposit of $250,000 to Sandpiper by July 29, 2022. The
Company's total deposit shall then be $1,250,000. Additionally, the parties have
agreed that the Closing Date shall be August 31, 2022.
Further, section 12.12.2 and 12.12.3 of the Agreement, discussing Material Loss
and Nonmaterial Loss respectively, are amended by the Addendum. Section 12.12.2
is changed such that if the Casualty Renovation Cost exceeds $250,000 and either
party elects not to pay the excess then either party may terminate the Agreement
by Notice delivered to the other party, in which case the deposit shall be
returned to the Company. Pursuant to the amended 12.12.3 section, if the
Casualty Renovation Cost is less than or equal to $250,000, neither party shall
have any right to terminate the Agreement.
Bridge Loan
On April 29, 2022, the Company and its wholly owned subsidiary, Trident Water,
LLC, entered into a Second Amendment to Loan Agreement (the "Amended Loan
Agreement") with FVP Servicing, LLC, a Delaware limited liability company
("FVP"). The Amended Loan Agreement amends that certain loan agreement dated as
of December 20, 2022, as amended on February 8, 2022 between the Company and
FVP.
Under the terms of the Amended Loan Agreement, the Company received an increase
to the amount of the loan from FVP in an incremental advance in the amount of
$2,650,000 in the form of a promissory note (the "FVP Note") secured by the
assets of the Company and its wholly owned subsidiaries and guaranteed by the
Company and its subsidiaries. The Amended Loan Agreement combines all amounts
previously advanced under the FVP loan agreements and amends the principal
amount of the FVP Note to $3,250,000. The FVP Note bears interest at eight
percent (8%) per annum and the maturity date of the note is April 22, 2023. The
Company will pay FVP interest-only payments monthly for the duration of the
term.
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Impact of COVID-19 Pandemic
In response to the COVID-19 pandemic, during 2020 and continuing in 2021, the
Company established policies and protocols to address safety considerations. The
extent to which the COVID-19 pandemic will continue to affect the Company's
business, financial condition, liquidity, and the Company's operating results
will depend on future developments, which are highly uncertain and cannot be
predicted.
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 are material to investors.
Results of Operations
For the three months ended June 30, 2022, compared to the three months ended
June 30, 2021
Revenue
The Company had revenue of $2,660,202 for the three months ended June 30, 2022,
compared to $1,670,640 for the comparable period in 2021. The increase in 2022
compared to 2021 is due to 2021 being impacted by COVID-19 restrictions whereas
2022 reflects the rebound in the tuition business as the Company works its way
out of the impact of COVID-19. Additionally, the acquisition of Soccer Partners
("Rush Soccer") on March 7, 2022 provided $773,950 for the three months ended
June 30, 2022.
Direct Costs of Revenue
The Company had direct costs of revenue of $1,680,992 for the three months ended
June 30, 2022, compared to $1,162,804 for the comparable period in 2021. In
2021, direct costs of revenue were at a higher percentage of sales, compared to
the same period in 2022. In 2022 the Company was able to reduce the expenses
related to sales due to a renegotiated contract. Additionally, the acquisition
of Rush Soccer added approximately $774,000 for the three months ended June 30,
2022.
Operating Expenses
The Company had operating expenses of $3,396,320 for the three months ended June
30, 2022, compared to $1,786,785 for the three months ended June 30, 2021. The
increase was primarily due to professional fees ($220,182 for the three months
ended June 30, 2022, compared to $108,681 for the same period in 2021) and
salary and related expenses ($1,103,576 for the three months ended June 30,
2022, compared to $223,681 for the same period in 2021). The operating expenses
for the three months ended June 30, 2022 are comprised of the following: direct
costs of revenue, $1,680,992, professional fees, $220,182, salary and related
expenses, $1,103,576, stock-based compensation, $409, marketing expense,
$97,373, rent expense, $57,183, and other general and administrative, $236,606.
Additionally, the acquisition of Rush Soccer added approximately $359,000 for
the three months ended June 30, 2022.
25
Net Income (Loss)
The Company had a net loss of $911,806 for the three months ended June 30, 2022,
compared to net income of $124,542 for the three months ended June 30, 2021.
For the six months ended June 30, 2022, compared to the six months ended June
30, 2021
Revenue
The Company had revenue of $4,781,938 for the six months ended June 30, 2022,
compared to $3,575,979 for the comparable period in 2021. The increase in 2022
compared to 2021 is due to 2021 being impacted by COVID-19 restrictions whereas
2022 reflects the rebound in the tuition business as the Company works its way
out of the impact of COVID-19. Additionally, the acquisition of Soccer Partners
("Rush Soccer") on March 7, 2022 provided approximately $1,012,000 for the six
months ended June 30, 2022.
Direct Costs of Revenue
The Company had direct costs of revenue of $2,376,997 for the six months ended
June 30, 2022, compared to $1,964,315 for the comparable period in 2021. In
2021, direct costs of revenue were at a higher percentage of sales, compared to
the same period in 2022. In 2022 the Company was able to reduce the expenses
related to sales due to a renegotiated contract. Additionally, the acquisition
of Rush Soccer added approximately $699,000 for the six months ended June 30,
2022.
Operating Expenses
The Company had operating expenses of $5,806,369 for the six months ended June
30, 2022, compared to $3,664,026 for the six months ended June 30, 2021. The
increase was primarily due to stock-based compensation ($86,309 for the six
months ended June 30, 2022, compared to $0 for the same period in 2021),
professional fees ($536,330 for the six months ended June 30, 2022, compared to
$162,047 for the same period in 2021), and marketing expense ($145,687 for the
six months ended June 30, 2022, compared to $80,888 for the same period in
2021). The operating expenses for the six months ended June 30, 2022 are
comprised of the following: direct costs of revenue, $2,376,997, professional
fees, $536,330, salary and related expenses, $1,821,671, stock-based
compensation, $86,309, marketing expense, $145,687, rent expense, $223,673, and
other general and administrative, $615,703. Additionally, the acquisition of
Rush Soccer added approximately $486,000 for the six months ended June 30, 2022.
Net Income (Loss)
The Company had a net loss of $1,216,089 for the six months ended June 30, 2022,
compared to $105,912 for the six months ended June 30, 2021.
Liquidity and Capital Resources
As of June 30, 2022, the Company had cash and cash equivalents of $1,699,450. We
do not have sufficient resources to effectuate our business. We expect to incur
expenses offset by revenues during the next twelve months of operations. We
estimate that these expenses will be comprised primarily of general expenses
including overhead, legal and accounting fees. To maintain our plan of growth,
we need to raise a minimum of an additional $750,000. These factors raise
substantial doubts about the Company's ability to continue as a going concern.
Operations used cash of $1,025,539 for the six months ended June 30, 2022
compared to $1,284,820 for the same period in 2021.
We provided cash from investing for financing activities of $78,807 for the six
months ended June 30, 2022 compared to $139,976 for the same period in 2021.
We had cash provided by financing activities for the six months ended June 30,
2022, of $2,223,017 compared to $1,673,155 for the same period in 2021.
26
We will have to raise funds to pay for our expenses. We may have to borrow money
from shareholders or issue debt or equity or enter into a strategic arrangement
with a third party. There can be no assurance that additional capital will be
available to us. We currently have no arrangements or understandings with any
person to obtain funds through bank loans, lines of credit or any other sources.
Since we have no such arrangements or plans currently in effect, our inability
to raise funds for our operations will have a severe negative impact on our
ability to remain a viable company.
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ALTITUDE INTERNATIONAL HOLDINGS, INC. 
