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. Sandpiper Bay Resort, a Trademark Collection® by Wyndham
b. Altitude Chamber Technology Division
c. Tennis, Golf, Basketball, Volleyball and Academic Academies Division
d. Soccer Academy Division, including RUSH Soccer
e. Water Manufacturing / Technology Division
f. Cleaning and Sanitation Division
g. Altitude Wellness Division
h. 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.
Recent Developments
Sandpiper Resort Property Acquisition
On April 27, 2022, the Company entered into a purchase and sale agreement (the
"Property Purchase Agreement") by and among the Company, Sandpiper Resort
Properties, Inc. ("Sandpiper") and Holiday Village of Sandpiper, Inc. ("HVS,"
and together with Sandpiper, 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 Property 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.
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 and HVS, delivered according to the terms of that certain Property
Purchase Agreement became nonrefundable except in certain circumstances.
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On July 27, 2022, the Company executed a Third Addendum to Purchase and Sale
Agreement with Sandpiper and HVS, modifying that certain Property Purchase
Agreement to allow for the Company paying a Third Deposit of $250,000 to
Sandpiper by July 29, 2022, and to extend the Closing Date to August 31, 2022.
The Company's total deposit was then $1,250,000.
On September 2, 2022, the Company assigned to Altitude Hospitality, its newly
formed wholly owned subsidiary its rights under the Property Purchase Agreement
and Altitude Hospitality agreed to designate STORE Capital Acquisitions, LLC, a
Delaware limited liability company ("STORE") as the grantee under the deed from
Sandpiper and HVS through the entrance into that certain Purchase and Sale
Agreement between Altitude Hospitality and STORE (the "STORE PSA"). The purchase
price paid by STORE under the STORE PSA for payment to Sandpiper under the
Property Purchase Agreement was $55,000,000.
The title to the Property was conveyed to STORE through the Property Purchase
Agreement in a simultaneous closing. Concurrently with the sale of, Altitude
Hospitality entered into a Lease Agreement with STORE for Altitude Hospitality's
lease and use of the Property through September 30, 2042, with five-year
extension options through 2062.
The Property Purchase Agreement and STORE PSA contain customary representations,
warranties, covenants, indemnification, and other terms for transactions of a
similar nature.
Through the Agreements described below, Altitude Hospitality will operate the
resort as "Sandpiper Bay Resort" under the "Trademark Collection® by Wyndham"
and will expand and develop the Property as described below. The Property will
also serve as the Company's world headquarters for the Company and its wholly
owned subsidiaries, including, but not limited to, the sports academies (which
have operated from the Property for the past thirteen years), Rush Soccer,
Altitude International, the resort operations and the Company's other
operations.
Lease Agreement
Concurrently with the assignment of the Property Purchase Agreement and the
ultimate purchase of the Property by STORE, Altitude Hospitality entered into a
Lease Agreement (the "Lease") with STORE for Altitude Hospitality's lease and
use of the Property through September 30, 2042, with five-year extension options
through 2062. The base annual rental under the Lease is $4,400,000, subject to
certain adjustments, and the security deposit required is $6,600,000.
Additionally, Altitude Hospitality is required to establish a Capital
Replacement Reserve Account into which Altitude Hospitality will deposit monthly
an amount between 2-4% of the gross revenue of the Property for the preceding
month. If no event of default is occurring under the Lease, then Altitude
Hospitality shall have the right to withdraw certain Approved Expenditures (as
defined therein) from the Capital Replacement Reserve Account (as defined
therein) to be used to pay for the cost of furniture, fixtures and equipment for
the Property or other real property improvements to the Property, subject to
certain requirements of STORE.
The Company agreed to unconditionally guarantee the payment and performance of
Altitude Hospitality under the Lease until all obligations are paid under the
Lease. Any debt of the Company is and will be subordinated to the indebtedness
of Altitude Hospitality to STORE under the Lease.
After thirty-six months after the completion of the property improvements
("PIP") as required by the Franchisor (as defined below), and until four years
after the completion of the PIP, Altitude Holdings shall have the option (the
"Purchase Option") to give STORE written notice to purchase the Property for a
price equal to the greater of (i) 110% of STORE's total investment; or (ii) the
then current base annual rental divided by the applicable cap rate. The closing
for such Purchase Option must occur within ninety (90) days following STORE's
receipt of the Purchase Option notice. Altitude Hospitality's rights under the
Purchase Option shall terminate if the Lease terminates or if the initial term
expires before the exercise of the Purchase Option, except if the Lease
terminates prior to the end of the initial term or any extension term, then
Altitude Hospitality may elect to exercise the Purchase Option if written notice
is given to Lessor at least ten days prior to such termination. The Purchase
Option may not be assigned.
Altitude Hospitality also has a right of first refusal to purchase the Property
if STORE desires to the sell the Property and receives a bona fide written offer
from a third-party purchaser. Altitude Hospitality must purchase the Property on
the same terms as the third party offer and must notify STORE of its election to
complete the purchase within ten days of receiving notice of the sale from
STORE.
The Lease contains customary representations, warranties, covenants,
indemnification and other terms for transactions of a similar nature.
Membership Agreement
Altitude Hospitality entered into a Membership Agreement (the "Membership
Agreement") with TMH Worldwide, LLC (the "Franchisor"), through which Altitude
Hospitality was granted franchise rights to operate under the "Trademark
Collection® by Wyndham" brand. Pursuant to the Membership Agreement, Altitude
Hospitality agreed to make certain property improvements. The term of the
Membership Agreement is twenty years. Fees due to the Franchisor under the
Membership Agreement include a "Combined Fee" of up to 6% of gross revenue
during the term of the Membership Agreement. Pursuant to the terms of the
Membership Agreement, Altitude Hospitality agreed to pay the Franchisor a
nonrefundable fee of $101,000 as an "Affiliation Fee."
The Membership Agreement contains customary representations, warranties,
covenants, indemnification, and other terms for transactions of a similar
nature.
Disbursement Agreement
The Company executed a disbursement agreement (the "Disbursement Agreement")
with STORE through which STORE agreed to fund up to $25,000,000 to Altitude
Hospitality for construction costs to enable Altitude Hospitality, as lessee
under the Lease, to construct and renovate improvements to the Property and
complete the property improvement plan construction and remodel work required by
Franchisor under the Membership Agreement at the Premises. The terms of the
Disbursement Agreement are subject to certain conditions, including the funding
by Altitude Hospitality of at least $8,000,000 toward improvements at the
Property (including establishing a construction deposit of $3,000,000 in
segregated funds for such purpose), all of which may be reimbursed by STORE
under the Disbursement Agreement if certain conditions are met. The Disbursement
Agreement contains customary representations, warranties, covenants,
indemnification, and other terms for transactions of a similar nature.
22
Loan Agreement
On September 2, 2022, the Company, Altitude Hospitality and Altitude Water
(collectively, the "Borrowers") entered into a Loan Agreement with FVP
Servicing, LLC, a Delaware limited liability company, in its capacity as
administrative agent ("FVP"), among others (the "Loan Agreement"), and ancillary
documents including an Exclusivity Agreement, Revenue Share Agreement, Security
Agreement, and Payment Guaranty (each as defined in the Loan Agreement) under
which the Borrowers borrowed Fifteen Million Dollars ($15,000,000) with an
interest rate per annum of SOFR (with a 2% floor) + thirteen percent (13%) and a
maturity date of September 2, 2025 (with an option to extend one additional year
if certain conditions are met) (the "Loan"). As additional consideration for the
Loan, FVP or its designees will receive 102,754,802 restricted shares of common
stock of the Company (the "Loan Consideration Shares").
Pursuant to the Revenue Share Agreement, Altitude Hospitality agreed to pay FVP
an amount equal to twenty percent (20%) of all net operating income (the
"Revenue Share") for such calendar quarter (on a cumulative basis). The term of
the Revenue Share Agreement is ten years, however the Company has an option,
upon ten business days' prior written notice, to terminate the Revenue Share
Agreement upon the payment to FVP an amount equal to $2,500,000, plus the amount
of all Revenue Share payments accrued through the proposed termination date.
Pursuant to the Exclusivity Agreement, the Company and its subsidiaries agreed
to use Feenix Payment Systems, LLC as the exclusive agent to provide credit card
processing and related services. The Exclusivity Agreement shall remain in
effect until one year after all obligations under the Loan Agreement have been
satisfied.
Pursuant to the Security Agreement and Payment Guaranty, the Company's wholly
owned subsidiaries (except for Rush Education, LLC) have agreed to guarantee the
Borrowers' obligations under the Loan and have pledged their equity and granted
a security interest in all their assets.
The Loan contains customary representations, warranties, covenants,
indemnification, and other terms for transactions of a similar nature.
FVP and Altitude Hospitality entered into two separate agreements related to the
Loan on September 2, 2022. A Consent Agreement with STORE allows Altitude
Hospitality to enter into the Loan Agreement and Security Agreement with FVP and
requires STORE to give FVP notice of default and an opportunity to cure if
Altitude Hospitality does not perform under the Lease Agreement or Disbursement
Agreement. A Three-Party Agreement with the Franchisor allows FVP to cure any
defaults of Altitude Hospitality and to take possession of the Property and the
Lease in an event of default under the Loan Documents.
Management Agreement
On August 6, 2022, the Company and its wholly owned subsidiary, Altitude
Hospitality LLC, entered into a Hotel Management Agreement (the "Management
Agreement") with Our Town Hospitality LLC doing business as OTH Hotels Resorts,
a Virginia limited liability company (the "Manager"). Pursuant to the terms of
the Management Agreement, the Manager was engaged to perform certain management
duties and services related to the hotel located on the Port St. Lucie property,
including (i) to operate the hotel in accordance with the standard of the
franchise brand, (ii) to protect, preserve and maintain in good working order
the assets of the hotel, (iii) to control operating expenses and capital
expenditures, and (iv) to maximize the net operating income of the hotel. In
exchange for these services, the Manager shall be paid monthly at the following
rates: for the first twelve months of the Management Agreement, the greater of
$25,000 per month or 3% gross revenue per month, and for the remainder of the
term of the Management Agreement, 3% of the gross revenue per month. The term of
the Management Agreement goes through September 30, 2027. If the Company
terminates the Management Agreement prior to the term's expiration, they will
pay the Manager a $100,000 fee.
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 September 30, 2022, compared to the three months
ended September 30, 2021
Revenue
The Company had revenue of $2,929,759 for the three months ended September 30,
2022, compared to $1,946,520 for the comparable period in 2021, which was an
increase of 50.5%. 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 $888,000 for the three months ended September 30,
2022.
Direct Costs of Revenue
The Company had direct costs of revenue of $1,067,091 for the three months ended
September 30, 2022, compared to $958,214 for the comparable period in 2021. In
2021, direct costs of revenue were at a higher percentage of sales, 49.2%,
compared to the same period in 2022, 36.4%. In 2022, the Company was able to
reduce the expenses related to sales due to a renegotiated contract offset by
the acquisition of Rush Soccer which added approximately $301,000 for the three
months ended September 30, 2022.
Operating Expenses
The Company had operating expenses of $3,507,710 for the three months ended
September 30, 2022, compared to $5,183,806 for the three months ended September
30, 2021. The decrease was primarily due to stock-based compensation of $136,500
for the three months ended September 30, 2022, compared to $3,063,185 for the
three months ended September 30, 2021 offset by the increase of salary and
related expenses of $1,107,602 for the three months ended September 30, 2022
compared to $376,123 for the three months ended September 30, 2021.
Additionally, the acquisition of Rush Soccer added approximately $1,414,000 for
the three months ended September 30, 2022.
Other Income / Expenses
The Company had other expenses of $505,682 for the three months ended September
30, 2022, compared to $1,779 for the three months ended September 30, 2021.
Net Income (Loss)
The Company had a net loss of $1,083,635 for the three months ended September
30, 2022, compared to net income of $3,239,065 for the three months ended
September 30, 2021.
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For the nine months ended September 30, 2022, compared to the nine months ended
September 30, 2021
Revenue
The Company had revenue of $7,711,597 for the nine months ended September 30,
2022, compared to $5,522,499for the comparable period in 2021 which was an
increase of 39.6%. 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 $1,900,000 for the nine months ended September 30,
2022.
Direct Costs of Revenue
The Company had direct costs of revenue of $3,444,088 for the nine months ended
September 30, 2022, compared to $2,922,529 for the comparable period in 2021. In
2021, direct costs of revenue were at a higher percentage of sales, 52.9%,
compared to the same period in 2022, 44.7%. In 2022 the Company was able to
reduce the expenses related to sales due to a renegotiated contract offset by
the acquisition of Rush Soccer which added approximately $1,000,000 for the nine
months ended September 30, 2022.
Operating Expenses
The Company had operating expenses of $9,314,083 for the nine months ended
September 30, 2022, compared to $8,860,978 for the nine months ended September
30, 2021. The increase was primarily due to the increases in salary and related
expenses ($2,929,273 for the nine months ended September 30, 2022 compared to
$1,123,565 for the nine months ended September 30, 2021) and other general and
administrative expenses ($1,273,348 for the nine months ended September 30, 2022
compared to $903,202 for the nine months ended September 30, 2021) offset by the
decrease in stock-based compensation ($222,809 for the nine months ended
September 30, 2022, compared to $3,063,185 for the same period in 2021).
Additionally, the acquisition of Rush Soccer added approximately $1,900,000 for
the nine months ended September 30, 2022.
Other Income / Expenses
The Company had other expenses of $676,540 for the nine months ended September
30, 2022, compared to $943,311 for the nine months ended September 30, 2021.
Net Loss
The Company had a net loss of $2,279,026 for the nine months ended September 30,
2022, compared to $4,281,791 for the nine months ended September 30, 2021.
Liquidity and Capital Resources
As of September 30, 2022, the Company had cash of $2,148,417. 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 $555,225 for the nine months ended September 30, 2022,
compared to $716,572 for the same period in 2021.
We used cash in investing for financing activities of $346,706 for the nine
months ended September 30, 2022, compared to $0 for the same period in 2021.
We had cash provided by financing activities for the nine months ended September
30, 2022, of $12,818,071 compared to $907,333 for the same period in 2021.
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.
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA
In addition to reporting net loss from operations as defined under GAAP, the
Company also presents adjusted net earnings before interest, income taxes,
depreciation, depletion, and amortization from operations (adjusted EBITDA),
which is a non-GAAP performance measure. Adjusted EBITDA consists of net loss
from operations after adjustment for those items shown in the table below.
Adjusted EBITDA does not represent, and should not be considered an alternative
to, GAAP measurements such as net loss from operations (its most comparable GAAP
financial measure), and the Company's calculations thereof may not be comparable
to similarly titled measures reported by other companies.
By eliminating the items shown below, the Company believes the measure is useful
in evaluating its fundamental core operating performance. The Company also
believes that adjusted EBITDA is useful to investors because similar measures
are frequently used by securities analysts, investors, and other interested
parties in their evaluation of companies. The Company's management uses adjusted
EBITDA to manage its business, including in preparing its annual operating
budget and financial projections. The Company's management does not view
adjusted EBITDA in isolation and also uses other measurements, such as net loss
from operations and revenues to measure operating performance. The following
table provides a reconciliation of net loss from operations, the most directly
comparable GAAP measure, to adjusted EBITDA for the periods presented:
24
EBITDA / Adjusted EBITDA
For the Three Months Ended
September 30,
2022 2021
Net loss $ (1,062,937 ) $ (3,239,065 )
Interest expense 194,796 1,779
Amortization of debt discount 310,886 -
Gain on forgiveness of PPP loans (20,800 ) -
Depreciation and amortization 80,389 (9,630 )
EBITDA $ (497,666 ) $ (3,246,916 )
Weighted average shares outstanding 417,015,842 281,000,854
Adjusted earnings per share - basic and fully diluted $ (0.00 ) $ (0.01 )
EBITDA $ (497,666 ) $ (3,246,916 )
Stock-based compensation 136,500 3,063,185
Adjusted EBITDA $ (361,166 ) $ (183,731 )
For the Nine Months Ended
September 30,
2022 2021
Net loss $ (2,279,026 ) $ (4,281,791 )
Interest expense 265,268 5,770
Amortization of debt discount 432,072 -
Gain on settlement of debt - (41,254 )
Gain on forgiveness of PPP loans (20,800 ) -
Impairment expense - 978,795
Depreciation and amortization 108,183 3,516
EBITDA $ (1,494,303 ) $ (3,334,964 )
Weighted average shares outstanding 386,465,519 132,448,232
Adjusted earnings per share - basic and fully diluted $ (0.00 ) $ (0.03 )
EBITDA $ (1,494,303 ) $ (3,334,964 )
Stock-based compensation 222,809 3,063,185
Adjusted EBITDA $ (1,271,494 ) $ (271,779 )
Note: Adjusted EBITDA is to adjust for non-cash expenses.
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ALTITUDE INTERNATIONAL HOLDINGS, INC. 
