UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM
For
the quarterly period ended
For the transition period from _________ to _________.
(Exact Name of Registrant as Specified in its Charter)
(f/ka/ Altitude International, Inc.)
| (State or Other Jurisdiction | (Commission | (I.R.S. Employer | ||
| of Incorporation) | File Number) | Identification No.) |
(Address of Principal Executive Offices)
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check One):
| Large Accelerated filer ☐ | Accelerated filer ☐ | ||
| Smaller
reporting company |
|||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Regulation 12b-2 of the Exchange Act): YES ☐
Securities registered to Section 12(b) of the Act: None.
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares issued, issuable, and outstanding as of October 31, 2022.
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1 - CONDENSED FINANCIAL STATEMENTS
ALTITUDE INTERNATIONAL HOLDINGS, INC.
(UNAUDITED)
Contents
| 3 |
ALTITUDE INTERNATIONAL HOLDINGS, INC.
and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expense | ||||||||
| Deferred offering costs | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Land | ||||||||
| Fixed assets, net | ||||||||
| Construction-in-process | ||||||||
| Intangible assets, net | ||||||||
| Cash, restricted | ||||||||
| Franchise fees | ||||||||
| Deposits | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Notes payable, net of discounts | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Stockholders’ advance | ||||||||
| PPP loan | ||||||||
| Loan payable | ||||||||
| Hotel financing, current | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Other non-current liability | ||||||||
| Hotel financing, non-current | ||||||||
| Notes payable, net of discounts | ||||||||
| Notes payable, net of current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies - Note 8 | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock - | ||||||||
| Common stock - | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALTITUDE INTERNATIONAL HOLDINGS, INC.
and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Direct costs of revenue | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Salary and related expenses | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Marketing expense | ||||||||||||||||
| Rent expense | ( | ) | ||||||||||||||
| Depreciation and amortization expense | ( | ) | ||||||||||||||
| Other general and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Gain on settlement of debt | ||||||||||||||||
| Gain on forgiveness of PPP loans | ||||||||||||||||
| Impairment expense | ( | ) | ||||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Earnings per share - basic and fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares of common stock - basic and fully diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALTITUDE INTERNATIONAL HOLDINGS, INC.
and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
September 30, 2022 and 2021
(unaudited)
| Members’ | ||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Deficit and | Non-controlling | ||||||||||||||||||||||||||||||||
| No | No | Paid in | BHI Common | Members’ | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Stock | Deficit | Deficit | Total | ||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss for the period ended March 31, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss for the period ended June 30, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||||||||||||||
| Conversion of debt to common stock | ||||||||||||||||||||||||||||||||||||
| Options exercised into common stock | ||||||||||||||||||||||||||||||||||||
| Acquisition of BHI | ||||||||||||||||||||||||||||||||||||
| Net loss for the period ended September 30, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Issuance of common stock for acquisition | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||||||
| Net loss for the period ended March 31, 2022 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock as debt discount to loan | - | |||||||||||||||||||||||||||||||||||
| Net loss for the period ended June 30, 2022 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | - | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for financing | - | |||||||||||||||||||||||||||||||||||
| Net loss for the period ended September 30, 2022 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALTITUDE INTERNATIONAL HOLDINGS, INC.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months ended September 30,
(unaudited)
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Amortization of debt discount | ||||||||
| Stock-based compensation | ||||||||
| Bad debt expense | ||||||||
| Gain on settlement of debt | ( | ) | ||||||
| Forgiveness of PPP loan | ( | ) | ||||||
| Impairment expense | ||||||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expense | ( | ) | ||||||
| Franchise fees | ( | ) | ||||||
| Deposits | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable and accrued expenses - related party | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows provided by (used in) investing activities: | ||||||||
| Acquisition of Rush Soccer, net of cash acquired | ||||||||
| Construction in progress | ( | ) | ||||||
| Purchase of fixed assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from notes payable | ||||||||
| Proceeds from stock options exercised | ||||||||
| Proceeds from loans | ||||||||
| Repayment of notes payable to related parties | ( | ) | ||||||
Repayment of financing | ( | ) | ||||||
| Deferred offering costs | ( | ) | ||||||
| Repayment of notes payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and restricted cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash and restricted cash at end of period | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Issuance of common stock for financing | $ | $ | ||||||
| Conversion of related party debt to common stock | $ | $ | ||||||
| Fixed assets acquired through financing | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALTITUDE INTERNATIONAL HOLDINGS, INC.
(f/k/a Altitude International, Inc.)
and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(unaudited)
NOTE 1 – NATURE OF OPERATIONS
Company Background
Altitude International Holdings, Inc. (f/k/a Altitude International, Inc. or “Altitude-NY,” now referred to as the “Company,” “we,” “us,” “our,” or “Altitude”), was incorporated in the State of New York on July 13, 1994 as “Titan Computer Services, Inc.” On August 21, 2020, the Company filed with the State of New York to change its name from Altitude International, Inc. to Altitude International Holdings, Inc.
On June 27, 2017, the Company successfully closed a Share Exchange transaction (the “Share Exchange”) with the shareholders of Altitude International, Inc. (“Altitude International”), a Wisconsin corporation. Altitude International was incorporated on May 18, 2017, under the laws of the state of Wisconsin and has been operating as a wholly owned subsidiary of Altitude since the Share Exchange. Altitude International operates through Northern, Central, and South America sales to execute the current business plan of athletic training industry, specifically altitude training. Our objective is to be recognized as one of the upper tier specialty altitude training equipment providers in the Americas.
On April 24, 2020, the Company formed a wholly owned subsidiary in Wisconsin called “Altitude Sports Management Corp.,” which has no activity to date.
On July 6, 2021, Altitude entered into a Share Exchange Agreement (the “Agreement”) with Breunich Holdings, Inc., a Delaware entity (“BHI”). For financial reporting purposes, the acquisition of BHI and the change of control in connection with the acquisition represented a “reverse merger” and BHI is deemed to be the accounting acquirer in the transaction. BHI is the acquirer for financial reporting purposes, and the Company (Altitude International Holdings, Inc.) is the acquired company. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the acquisition are those of BHI.
Pursuant to the terms of the Agreement, the Company agreed to issue shares of its common stock to the shareholders of BHI in exchange for % ownership of BHI. The Company also agreed to issue shares of its Series A preferred stock to Gregory Breunich, CEO and primary owner of BHI, as part of the agreement.
Following the closing of the Agreement, BHI is a wholly owned subsidiary of the Company, with each of its subsidiaries operating as wholly owned subsidiaries. The Company is a holding company comprised of multiple scalable related revenue streams that together create a vertically integrated high-performance sports, education, and technology group. Our mission is to redefine and revolutionize athletic preparation and training.
On July 26, 2022, the Company formed Altitude Hospitality LLC which was formed for the operations of the hotel resort acquired on September 2, 2022.
On July 28, 2022, the Company formed Rush Education LLC. On August 26, 2022, Rush Education registered as a foreign corporation in Hawaii. The Company projects Rush Education being operated in various states.
We operate through the following 12 wholly owned subsidiaries: BHI, Altitude International, Inc., a Wisconsin corporation (“Altitude Chambers”), Altitude Hospitality LLC (“Altitude Hospitality”), Florida limited liability company, Rush Education LLC (“Rush Education”), a Florida limited liability company, Altitude Sports Management Corp., a Wisconsin corporation (“Altitude Sports Management Corp.”), ITA-USA Enterprise, LLC, a Florida limited liability company (“Altitude Academies”), CMA Soccer, LLC, a Florida limited liability company (“CMAS”), Trident Water, LLC, a Florida limited liability company (“Altitude Water”), Altitude Wellness, LLC, a Florida limited liability company (“Altitude Wellness”), NVL Academy, LLC, a Florida limited liability company (“Altitude Volleyball”), North Miami Beach Academy LLC, a Florida limited liability company (“NMBA”), Six Log Cleaning & Sanitizing LLC, a Florida limited liability company (“SLCS”), and Altitude Online, LLC, a Florida limited liability company (“Altitude Online”).
Nature of Operations
Altitude is a holding company focused on a people-first, global wellness group through its operating subsidiaries which are comprised of multiple scalable related revenue streams that together create a vertically integrated high-performance sports, education, and technology group. Our mission is to redefine and revolutionize athletic preparation and training while providing relief, opportunity, and wellness to those that need it the most. Additionally, through the September 2, 2022 acquisition of Sandpiper Bay Resort, now a Trademark Collection® by Wyndham, the Company is utilizing the opportunity with an all-inclusive hotel resort in Port St. Lucie, Florida to diversify its operations. This previously owned Club Med resort has been the headquarters and training site for the Company’s academies for approximately 12 years. Sandpiper Bay Resort is expected to provide a significant revenue stream and additional customers to the academies.
Our sports and education properties comprise what is currently known as Altitude Academies. Our wholly owned subsidiary, Altitude International, Inc. manufactures a variety of world-class hypoxic training chambers, which enables competitive athletes of all kinds to train in a simulated high-altitude environment. This controlled oxygen-deficient environment coupled with specific training protocols achieves numerous scientifically proven benefits in athletic development. Altitude recently has launched its high-performance wellness center, Altitude Wellness, LLC, to serve as the reoccurring revenue model for Altitude’s chamber technology. Altitude Water manufactures several types of Atmospheric Water Generators (“AWG”) ranging from small residential and light commercial to heavy-duty military-grade machines designed for larger-scale uses. Altitude Water’s next-generation air-to-water machines and our proprietary “EnviroGuard™” purification system controlled by our proprietary software produce some of the purest and finest drinking water in the world. Altitude Water’s drinking water is highly oxygenated, ideally suited for athlete hydration amid competitive performance.
| 8 |
Altitude’s growth initiatives include scaling the existing tuition categories, adding new ones in sports, arts, and sciences in the coming years, pursuing a consolidation strategy within the soccer club system in the United States, and exponentially growing our accredited academic model. Strategic to our continued growth, the establishment of Altitude’s headquarters in Port Saint Lucie, Florida marked our international destination footprint by adding to our asset base and securing control of the hospitality side of our business. The management team of Altitude is well versed in developing an ecosystem where the business sectors drive network and growth impact between one another, providing increased earnings and value to the Altitude properties.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company follows the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America and has a year-end of December 31.
The unaudited condensed consolidated financial statements of the Company for the nine month periods ended September 30, 2022, and 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments unless otherwise indicated), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2021, was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2022. These financial statements should be read in conjunction with that report.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Altitude. All significant intercompany balances and transactions have been eliminated in the consolidation. The consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles (“GAAP”) and stated in United States dollars, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission.
ITA-USA Enterprise LLC, doing business as Club Med Academies and as Altitude Academies, specializes in training and education of young aspiring student-athletes from around the world, providing a pathway from middle school to college to the professional ranks. The Company has no direct relationship with Club Med. ITA’s proprietary educational model currently focuses on sports and academics. The business model is scalable to other disciplines, i.e., the arts and science sectors. It is a tuition-based business hosting boarding and non-boarding students.
CMA Soccer LLC, doing business as Altitude Soccer, the soccer division of Club Med Academies, hosts student-athletes from multiple nations worldwide like all other Club Med Academy sports. CMAS utilizes highly specialized training methodologies blending all of the critical elements required to build an elite-level player. Those who attend participate in a 10 hour per day regimen of soccer and academics. CMAS is a college and professional bound program placing its graduates in colleges throughout the United States and even some in the professional ranks throughout Europe, South America, and the USA. Rush Soccer is a nationally competitive youth soccer club network that administers boys’ and girls’ teams internationally with proprietary training methodology, documentation, and materials, technologies and platforms, and a database of individuals.
NVL Academy LLC, doing business as Altitude Volleyball, is the beach volleyball and indoor volleyball tuition-based operation. Most of the athletes, except for a few individuals, come from the USA. For the most part, Volleyball in the United States is a women’s sport. NVL operates and functions like all other academy sports.
Trident Water LLC manufactures Atmospheric Water Generators (“AWG’s”). They range from smaller residential, light commercial, and heavy-duty military-grade machines. The machines supply 12, 100, to 200 gallons per day. Trident’s patented purification process produces what management believes is the purest of water that is then put through filters replenishing the calcium and magnesium minerals to make the finest drinking water on the market today.
North Miami Beach Academy LLC, a local park operation with the City of North Miami Beach, provides junior, adult, and family programming for the city residents. In addition to the local park deliverables, NMBA operates a non-boarding tennis and academic academy. The operation has an additional location at the Florida International University on the Bay Biscayne campus.
Six Log Cleaning & Sanitizing, LLC provides a wide variety of services to its corporate customers, including but not limited to: general office cleaning, carpet cleaning, window cleaning, and other janitorial protocols. Fogging to prevent and protect against exposure to various bacteria, fungi, and viruses is another Six Log offering.
Altitude International, Inc. manufactures air separation systems and chambers to regulate oxygen, carbon dioxide, humidity and temperature levels in Altitude’s hypoxic chamber training environments. Altitude’s chambers simulate altitudes from 0-39,000 feet, ideal for athletic training. Altitude’s chambers are currently utilized by the National Football League (“NFL,” the Miami Dolphins) and one university (Tulane University) sports teams to train and develop their athletes. An Altitude chamber was installed in 2022 for a National Basketball Association (“NBA,” Orlando Magic).
Altitude Wellness LLC is our high-performance wellness reoccurring revenue model designed to augment Altitude Chamber sales offering various experiences that enhance your overall fitness and well-being. Multiple modalities ranging from altitude chambers, cryo chambers, ozone chambers, IV therapy, infrared sauna, and neurofeedback are just a few of the treatments that will be available. The Altitude Wellness Experience will be a combination of a hundred little things that make each member feel special. The highly trained staff will include nurses, dietitians, trainers, therapists, and health specialists. Each will know the patient by name and be familiar with their profile, which will be completed on the app and available to the Experience Specialists upon each check-in. As of September 30, 2022, Altitude Wellness is not operating.
Altitude Online Learning LLC was established in 2021 to support and address the global demand for distance learning. This is a natural extension of our existing brick-and-mortar academic operations. Through our corporation system status, Altitude Online Learning is fully accredited. The economics of an online distance school presents a significant potential opportunity. Now students from around the world will have the opportunity to earn an American diploma in their home countries while attending Altitude Online Learning.
Altitude Sports Management Corp. has not been defined for its use as of September 30, 2022.
| 9 |
Altitude Hospitality LLC was established in 2022 to be the operations for the hotel resort acquired on September 2, 2022. The hotel resort operates under the name “Sandpiper Bay Resort, a Trademark Collection® by Wyndham. The hotel resort is a 216-acre 335 room resort with amenities for various sports, a golf course and a marina. The hotel resort is also the corporate office for the Company and the various sports academies run by the Company operate from this location.
Rush Education LLC was established in 2022 to house all of Rush’s club operations and to bring the Altitude Academies training and education model to the network of Rush Soccer clubs delivering sport and academic training throughout the day. The Altitude Rush relationship was developed to fulfil Altitude’s initiative to consolidating soccer clubs in the United States. The business brings academics together with elite soccer training, creating a comprehensive high-performance environment for all of its students. Blended learning gives student-athletes the opportunity to focus on their sport and education in a block-style schedule that provides greater opportunity to achieve their best. This concept has been in practice for 35 years and can be credited for the college placement of thousands of student-athletes, on athletic and academic scholarships, to every type of high-level form of education available – NCAA: DI, II, and III, NAIA, Junior College, etc. Rush Education is different from most schools. because of its custom individualized approach to blending soccer and academic training on a daily basis at the club.
Liquidity and Going Concern
We
have incurred recurring losses since inception and expect to continue to incur losses as a result of legal and professional fees and
our corporate general and administrative expenses. On September 30, 2022, we had $
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent 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.
Cash
Cash
is comprised of cash balances. Cash is held at major financial institutions and is subject to credit risk to the extent that those balances
exceed applicable Federal Deposit Insurance Corporation (“FDIC”) insurance amounts of $
The following table provides a reconciliation of cash and restricted cash reported within the balance sheet that sum to the total of the same such amounts shown in the statement of cash flows:
| September 30, | ||||
| 2022 | ||||
| Cash | $ | |||
| Restricted cash included in other long-term assets (see Note 5) | ||||
| Total cash and restricted cash shown in the statement of cash flows | $ | |||
Accounts Receivable
As
of September 30, 2022, and December 31, 2021, the net accounts receivable balances were $
| 1. | Altitude Academies – The tuition is paid typically in two installments but, on a case-by-case basis, modifications do occur. | |
| 2. | Rush Soccer – Rebates for soccer kits purchased by club members and membership rebates. | |
| 3. | Altitude Water – The normal credit terms are 50% down with final payment upon delivery. | |
| 4. | Altitude Chambers – The normal credit terms are 50% down with progress payments until final payment upon delivery. | |
| 5. | Altitude Hospitality – The normal hotel terms related to the collection of revenue. |
Bad debt expense is determined based on the aging of accounts receivable and subsequent collections. Typically, receivables aged 60 days, or more are reviewed for determination. Receivables over 90 days, unless payment terms with some payments made to date, are reserved as additional allowance for doubtful accounts.
Deferred Costs
Deferred
offering costs as of September 30, 2022, is $
Fixed Assets
Fixed assets are stated at cost, net of accumulated depreciation. Expenditures that extend the life, increase the capacity, or improve the efficiency of property and equipment are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Depreciation is recognized using the straight-line method over the following approximate useful lives:
| Computers, software, and office equipment | ||
| Machinery and equipment | ||
| Leasehold improvements | ||
| Operating / shop equipment | ||
Transportation equipment Hotel |
| 10 |
Inventory and Direct Costs of Revenue
The
inventory is comprised of Atmospheric Water Generators (“AWG’s”) at Trident and chamber related parts at Altitude International
and is valued at the lower of cost or market. As of September 30, 2022, and December 31, 2021, the inventory was valued at $
Inventory is comprised of:
| Finished Goods | $ | |||
| Parts | ||||
| Total | $ |
Impairment of Long-Lived Assets
The Company’s long-lived assets and other assets (consisting of property and equipment) are reviewed for impairment in accordance with the guidance of the FASB ASC Topic 360-10, Property, Plant, and Equipment. Long lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by that asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Revenue Recognition
Our sales are generated from seven revenue streams: 1) contracts with customers for the design, development, manufacture, and installation of simulated altitude athletic equipment, 2) sports training and academic tuition, 3) hosting events, 4) membership fees, 5) uniform sales, 6) sale of atmospheric water generators, and 7) revenues for hotel reservations. For the simulated athletic equipment and the water filtration systems, we provide our products under fixed-price contracts. Under fixed-price contracts, we agree to perform the specified work for a pre-determined price. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss.
We account for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
We evaluate the products or services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. The products and services in our contracts are typically not distinct from one another due to their complex relationships, customization, and the significant contract management functions required to perform under the contract. Accordingly, our contracts are typically accounted for as one performance obligation, except for the simulated altitude athletic equipment whereas there is a service obligation over a period of time.
We determine the transaction price for each contract based on the consideration we expect to receive for the products or services being provided under the contract.
In regard to the simulated altitude athletic equipment and the atmospheric water generators (“AWG”), we recognize revenue as performance obligations are satisfied and the customer obtains control of the products and services. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms and whether there is an alternative future use of the product or service. Substantially all of our revenue is recognized over time as we perform under the contract because if our customer were to terminate the contract for reasons other than our non-performance, we would have the right to recover damages which would include, among other potential damages, the right to payment for our work performed to date plus a reasonable profit to deliver products or services that do not have an alternative use to us.
In regard to the sports training and academics tuition revenue recognition policy, the tuition is recognized over the course of the training period which is typically a semester. In determining when performance obligations are satisfied, we consider factors as to actual attendance at the academy.
In regard to the revenue associated with Rush Soccer, the revenue related to events is recognized at the time of the event. The revenue associated with uniforms is recognized at the time of delivery. Membership fees are recognized at the beginning of the membership period.
In regard to the simulated athletic equipment and the atmospheric water generators, the revenue is recognized upon delivery and/or installation, specific to the customer.
In regard to the hotel resort, the revenue is recognized daily during the stay of the hotel guest for all services including, but not limited to, spa services and green fees for golf course.
Deferred Revenue
Our
payment terms generally require a substantial initial deposit to confirm a reservation and tuition for the school year or training period.
Historically, our deferred revenue balances are comprised solely of customer deposit balances and changes from period to period due to
the seasonal nature of billings and cash collections, the number of students in each program and the recognition of revenue. A deposit
made to the Company for tuition is contractually non-refundable. As of September 30, 2022, and December 31, 2021, deferred revenue amounted
to $
Stock-Based Compensation
The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718, Compensation – Stock Compensation, and Certain Redeemable Financial Instruments. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method.
| 11 |
Fair Value of Financial Instruments
The book values of cash, accounts receivable, and accounts payable approximate their respective fair values due to the short-term nature of these instruments. The fair value hierarchy under GAAP distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs).
The hierarchy consists of three levels
| ● | Level one — Quoted market prices in active markets for identical assets or liabilities; | |
| ● | Level two — Inputs other than level one inputs that are either directly or indirectly observable; and | |
| ● | Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use. |
Determining which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter.
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by FASB, ASC Topic 260, Earnings per Share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. The Company does not have any dilutive shares of common stock as of September 30, 2022, or December 31, 2021.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income (loss) in the years in which those temporary differences are expected to be recovered or settled.
The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Tax benefits of uncertain tax positions are recognized only if it is more likely than not that the Company will be able to sustain a position taken on an income tax return. The Company has no liability for uncertain tax positions as of September 30, 2022. Interest and penalties in any, related to unrecognized tax benefits would be recognized as interest expense. The Company does not have any accrued interest or penalties associated with unrecognized tax benefits, nor was any significant interest expense recognized during the nine months ended September 30, 2022.
Goodwill and Intangible Assets
The
Company accounts for intangible assets in accordance with the authoritative guidance issued by the FASB. Intangibles are valued at their
fair value and are amortized taking into account the character of the acquired intangible asset and the expected period of benefit. The
Company evaluates intangible assets for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its estimated undiscounted future cash flows. Recoverability of intangible
assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering
a number of factors, including past operating results, budgets, economic projections, market trends, and product development cycles.
If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is
performed to measure the amount of impairment loss. The Company tests its goodwill using a market-based approach to determine the estimated
fair value of the reporting unit as to which the goodwill has been allocated. As of September 30, 2022, based on the assessment of Management,
the Company determined that goodwill associated with the share exchange in which the Company acquired BHI amounted to $
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options, which simplifies accounting for convertible instruments. The new guidance eliminates two of the three models in ASC 470-20 that require separating embedded conversion features from convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation. The guidance is effective for fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.
Recently Issued Accounting Standards: Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
NOTE 3 – ACQUISITION
Soccer Partners America
On
March 7, 2022, Altitude International Holdings, Inc. and CMA Soccer LLC entered into a Consulting, Management and License Agreement with
Soccer Partners America (“Soccer Partners”), a Colorado not for profit corporation. Soccer Partners, under the brand name
of Rush Soccer, has developed the largest known network of affiliated independent youth soccer clubs and with CMA Soccer, will establish
a Rush residential academy program and a men’s professional soccer team. As part of the agreement, certain members of the management
of Soccer Partners were granted a combined total of shares of common stock of the Company and employment agreements for five
individuals. The Company’s common stock is not historically traded at a significant volume which has caused significant fluctuations
in the price per share. For the initial valuation, the stock was valued at $ per share per the closing price on March 4, 2022, or
$
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The following table summarizes the consideration given for Altitude and the provisional fair values of the assets and liabilities assumed at the acquisition date.
| Consideration given: | ||||
| Common stock shares given | $ | |||
| Future consideration | ||||
| Total consideration given | $ | |||
| Fair value of identifiable assets acquired, and liabilities assumed: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Prepaid expenses | ||||
| Other current assets | ||||
| Fixed assets, net | ||||
| Loan payable | ( | ) | ||
| Accounts payable and accrued expenses | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Note payable | ( | ) | ||
| Total identifiable net asset | ||||
| Goodwill | ||||
| Total consideration | $ | |||
Pro-Forma Financial Information
The following unaudited pro-forma data summarizes the result of operations for the nine months ended September 30, 2021, and 2020, as if the acquisition Rush Soccer had been completed on January 1, 2021. The pro-forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2021.
| For the Nine Months Ended September 30, 2022 | ||||||||||||||||
| Rush | Pro-forma | |||||||||||||||
| ALTD | Soccer | Adjustments | Total | |||||||||||||
| Revenue and income, net | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Net loss per common share - basic and fully diluted | $ | ( | ) | $ | ( | ) | ||||||||||
| Weighted average number of common shares outstanding during the period - basic and fully diluted | ||||||||||||||||
| For the Nine Months Ended September 30, 2021 | ||||||||||||||||
| Rush | Pro-forma | |||||||||||||||
| ALTD | Soccer | Adjustments | Total | |||||||||||||
| Revenue and income, net | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||
| Net loss per common share - basic and fully diluted | $ | ( | ) | $ | ( | ) | ||||||||||
| Weighted average number of common shares outstanding during the period - basic and fully diluted | ||||||||||||||||
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NOTE 4 – FIXED ASSETS
The
Company has fixed assets related to computer and equipment, furniture and fixtures, leasehold improvements, operating / shop equipment,
and transportation equipment. The depreciation of the equipment is over a three-year period. As of September 30, 2022, and December 31,
2021, the Company had fixed assets, net of accumulated depreciation, of $
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Hotel | $ | $ | ||||||
| Computer and equipment | ||||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Operating / shop equipment | ||||||||
| Transportation equipment | ||||||||
| Total fixed assets | ||||||||
| Less: Accumulated depreciation | ||||||||
| Total fixed assets, net | $ | $ | ||||||
Depreciation
for the nine months ended September 30, 2022, and 2021 was $
NOTE 5 – RESERVES, LEASE AGREEMENT AND PURCHASE OPTION FOR ACQUISITION
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
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 $
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 $
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
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.
Financing 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
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.
| 14 |
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
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 $
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 (“FVP”), a Delaware limited liability company, in its capacity as administrative agent, 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 ($
Pursuant to the Revenue Share Agreement, Altitude Hospitality agreed to pay FVP an amount equal to twenty percent (%) of all net operating income (the “Revenue Share”) for such calendar quarter (on a cumulative basis). The term of the Revenue Share Agreement is , 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 $, plus the amount of all Revenue Share payments accrued through the proposed termination date. See Note 8.
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.
Accounting for the Transaction
The Company recognized the transaction as a finance lease in accordance with ASC 820. The various components of the lease were accounted for as follows:
Reserve Accounts
With the execution of the various agreements, the Company was required to have various reserve accounts as follows:
| ● | Construction
Reserve – Utilized for the costs of capital improvements on the hotel resort. Draws taken periodically to reimburse the Company
for costs. The reserve is maintained by FVP Servicing LP. The balance at closing was $ | |
| ● | Interest
Reserve – Utilized for the interest payments to STORE for the monthly lease payments. The reserve is maintained by FVP Servicing
LP. The balance at closing was $ | |
| ● | STORE
Reserve – Utilized for a security deposit. The reserve is maintained by FVP Servicing LP. The balance at closing was $ |
| 15 |
The reserve accounts are maintained by STORE and Feenix, as applicable. These accounts are reflected on the balance sheet as “Cash, restricted.”
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
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.
The future lease payments, assuming the purchase option is not exercised, is as follows:
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ |
Summary
The Company recorded the transaction as follows:
Hotel
and Land – The $
The Construction Reserve, STORE Reserve and the Interest Reserve were recorded on the balance sheet as restricted cash.
Lease Agreement – Purchase Option
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.
Should a third-party acquire the property prior to the expiration of the period for the purchase option, assuming that the Company does not exercise its right of first refusal, the lease continues forward under the same terms and conditions.
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
The
Company has goodwill related to the acquisition of Altitude International Holdings, Inc. As of September 30, 2022, and December 31, 2021,
the Company had goodwill of $
The
Company has intangible assets related to the license agreement between Altitude International, Inc. and Sporting Edge. The Company is
amortizing this intangible asset over a period of ten years. As of September 30, 2022, and December 31, 2021, the intangible assets were
$
The future amortization of the license agreement is as follows:
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ |
| 16 |
NOTE 7 – NOTES PAYABLE
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||
| Accrued | Accrued | |||||||||||||||||||||||
| Principal | Interest | Total | Principal | Interest | Total | |||||||||||||||||||
| SBA EIDL | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| FVPO Funds | ||||||||||||||||||||||||
| Grand Slam | ||||||||||||||||||||||||
| FVPO Funds (a) | ||||||||||||||||||||||||
| FVPO Funds (a) | ||||||||||||||||||||||||
| SBA EIDL | ||||||||||||||||||||||||
| SBA | ||||||||||||||||||||||||
| Subtotal | ||||||||||||||||||||||||
| Debt Discounts (a) | ( | ) | ( | ) | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
(a) Debt discounts related to FVPO Funds.
On
May 5, 2020, the Company received $
On
January 11, 2019, ITA entered into a Term Loan Commitment (the “Loan Note”) with Feenix, which provides for a loan of $
On
October 31, 2011, ITA entered into a Promissory Loan (the “Loan Note”) with Grand Slam Partners (“Grand Slam”),
which provides for a loan of $
On
May 27, 2020, and August 25, 2020, ITA and NVL received unsecured loans from the Small Business Administration (“SBA”) of
$
On
December 20, 2021, Trident Water and Altitude International Holdings, Inc. entered into an unsecured Loan Agreement with FVP Servicing,
LLC for $
In
the acquisition of Soccer America (see Note 3), the Company assumed the SBA loan dated June 15, 2020, with a balance of $
On
September 2, 2022, the Company, Altitude Hospitality and Trident Water (collectively, the “Borrowers”) entered into a Loan
Agreement with FVP Servicing, LLC, 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 $
NOTE 8 – COMMITMENTS AND CONTINGENCIES
The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows.
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
| 17 |
Sporting Edge UK
On June 27, 2017, Altitude entered a license agreement with Sporting Edge UK. Sporting Edge UK is the sole and exclusive owner of and has the right to license to the licensee the ability to manufacture and sell rights to the full range of membrane-based systems for the production of reduced oxygen environments and associated services as well as the use of patents and trademarks held by Sporting Edge UK or Vincent.
On
January 24, 2019, Altitude and Sporting Edge UK entered into a Revised Licensing Agreement that grants a license to Altitude to use Sporting
Edge UK’s proprietary technology related to properly engineered, membrane-based designs for simulated altitude training equipment.
| ● | The Continent of North America, Central America and South America. |
| ● | Other territories as may be agreed upon from time to time, on a temporary or permanent basis. |
All royalty amounts due under the 2017 license agreement were waived. The Company will continue to pay for equipment per the agreement.
16929 Wellness Consultants Inc.
On
October 31, 2021, Altitude Wellness LLC and 16929 Wellness Consultants Inc. (“16929 Wellness”) entered into a Management
Agreement. As part of the agreement, the Company pays the management of 16929 Wellness a monthly payment of $
Sandpiper Bay Resort
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
Pursuant to the Revenue Share Agreement, Altitude Hospitality agreed to pay FVP an amount equal to twenty percent () of all net operating income (the “Revenue Share”) for such calendar quarter (on a cumulative basis). The term of the Revenue Share Agreement is , 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 $, plus the amount of all Revenue Share payments accrued through the proposed termination date. See Note 3.
NOTE 9 – RELATED PARTY TRANSACTIONS
For
the nine months ended September 30, 2022, the Company compensated Gregory Breunich (“Breunich”), CEO and Chairman, and
Gabriel Jaramillo (“Jaramillo”), Executive Vice President, and Director, collectively $
For
the nine months ended September 30, 2022, and 2021, the Company compensated Gregory Breunich $
The above balances were paid during the periods ended September 30, 2022, and 2021. The payments are reflected in professional fees on the statements of operations for the nine months ended September 30, 2022, and 2021.
NOTE 10 – STOCKHOLDERS’ EQUITY
Preferred Stock
On
February 5, 2015, the Board of Directors of the Company authorized shares of preferred stock with
On
July 21, 2021, the Company filed a Certificate of Designation for Series A Preferred Stock. The Series A Preferred Stock shares vote
together with the common stock and have voting rights equal to 0.019607 multiplied by the total issued and outstanding shares of common
stock eligible (the “Numerator”) to vote at the time of the respective vote divided by 0.49 minus the Numerator. As of September
30, 2022, with shares of common stock outstanding,
On July 23, 2021, the Company issued shares of preferred stock to Gregory Breunich as part of the July 23, 2021 agreement between the Company and BHI.
As of September 30, 2022, and December 31, 2021, the Company had shares of preferred stock and shares of preferred stock issued and outstanding, respectively.
Common Stock
Altitude
was incorporated on May 18, 2017, under the laws of the state of Wisconsin with authorized common stock with $ par value.
| 18 |
After the closing of certain Stock Purchase Agreements, in private sale transaction and the Share Exchange Agreement, the Company’s common stock had no par value and is registered in New York.
On
February 10, 2021, the Company filed amended Articles of Incorporation with the State of New York to amend its authorized shares of common
stock by an additional whereas the total authorized is a total of
On
January 1, 2022, the Company issued its legal counsel shares of common stock for legal work for January 2022. The common stock
of the Company is thinly traded and had a value of $ per share, therefore the Company recorded the transaction at $
On
February 1, 2022, the Company issued its legal counsel shares of common stock for legal work for February 2022. The common stock
of the Company is thinly traded and had a value of $ per share, therefore the Company recorded the transaction at $
On
February 22, 2022, the Company issued shares of common stock of the Company to Hospitality Funding Inc. in exchange for services
related to consulting. The common stock of the Company is thinly traded and had a value of $ per share, therefore the Company recorded
the transaction at $
On
March 1, 2022, the Company issued its legal counsel shares of common stock for legal work for March 2022. The common stock of
the Company is thinly traded and had a value of $ per share, therefore the Company recorded the transaction at $
On
March 17, 2022, the Company issued a consultant shares of common stock for services. The common stock is thinly traded and had
a value of $ per share, therefore the Company recorded the transaction at $
On
March 7, 2022, Altitude International Holdings, Inc. and CMA Soccer LLC entered into a Consulting, Management and License Agreement with
Soccer Partners America (“Soccer Partners”), a Colorado not for profit corporation. Soccer Partners, under the brand name
of Rush Soccer, has developed the largest known network of affiliated independent youth soccer clubs and with CMA Soccer, will establish
a Rush residential academy program and a men’s professional soccer team. As part of the agreement, certain members of the management
of Soccer Partners were granted a combined total of shares of common stock of the Company and employment agreements for five
individuals. The common stock of the Company is thinly traded and had a value of $ per share, therefore the Company recorded the
transaction at $
On
April 1, 2022, the Company issued its legal counsel shares of common stock for legal work for April 2022. The common stock of
the Company is thinly traded and had a value of $ per share, therefore the Company recorded the transaction at $
On April 29, 2022, as part of the financing with Feenix (see Note 7), the Company issued Feenix shares of common stock as a loan discount.
On
September 2, 2022, the Company issued shares of common stock to FVP Opportunity Fund III, LP ( shares), FVP Opportunity
Fund IV, LP ( shares), GT Partners Private Credit Finance LLC ( shares) and GT Monterey Cypress Finance LLC (
shares), in conjunction with the financing by FVP Servicing LLC (see Notes 5 and 7). The common stock of the Company is thinly traded
and had a value of $ per share, therefore the Company recorded the transaction at $
On
September 7, 2022, the Company issued shares of common stock to MZ Group, Inc., the Company’s investor relations firm.
The common stock of the Company is thinly traded and had a value of $ per share, therefore the Company recorded the transaction
at $
Stock Option Plan
On February 13, 2018, the Company’s shareholders and Board of Directors approved the 2017 Incentive Stock Plan.
There are currently no stock options currently issued and outstanding under the 2017 Plan, as all remaining stock options issued and outstanding were exercised on February 8, 2021.
NOTE 11 – INCOME TAXES
As
of September 30, 2022, the Company has net operating loss carry forwards of $
The
Company’s tax expense differs from the “expected” tax expense for Federal income tax purposes (computed by applying
the United States Federal tax rate of
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Tax expense (benefit) at the statutory rate | $ | ( | ) | $ | ( | ) | ||
| State income taxes, net of federal income tax benefit | ( | ) | ( | ) | ||||
| Change in valuation allowance | ||||||||
| Total | $ | $ | ||||||
The tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as deferred tax assets and liabilities.
The tax years 2021 and 2020 remains for examination by federal agencies and other jurisdictions in which it operates.
| 19 |
The tax effect of significant components of the Company’s deferred tax assets and liabilities at September 30, 2022, and December 31, 2021, are as follows:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforward | $ | $ | ||||||
| Timing differences | ||||||||
| Total gross deferred tax assets | ||||||||
| Less: Deferred tax asset valuation allowance | ( | ) | ( | ) | ||||
| Total net deferred taxes | $ | $ | ||||||
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Because
of the historical earnings history of the Company, the net deferred tax assets for 2022 and 2021 were fully offset by a
NOTE 12 – REVENUE CLASSES
The Company has seven distinct revenue streams: hotel resort reservations, altitude chambers, tuition-based sports academies, hosting events, membership fees, uniform sales and atmospheric water generators. Selected financial information for the Company’s operating revenue classes are as follows:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Hotel resort | $ | $ | ||||||
| Altitude chambers | ||||||||
| Tuition-based sports academies | ||||||||
| Hosting events | ||||||||
| Uniform sales | ||||||||
| Membership fees | ||||||||
| Water systems | ||||||||
| Total | $ | $ | ||||||
NOTE 13 – RECLASSIFICATION OF PRIOR YEAR
The Company has reclassified certain line items on the statement of operations for the three months ended September 30, 2021, and for the nine months ended September 30, 2021, from the Form 10-Q for the period ended September 30, 2022, as filed with the United States Securities and Exchange Commission.
In the 2021 filing, certain expenses, specifically direct costs of revenue, and salary and related expenses. In 2021, certain compensation expenses were classified as general and administrative versus direct costs of revenue. For the year ended December 31, 2021, and forward, the Company has classified certain costs to direct costs of revenue as they are a part of the direct costs. Additionally, rent expense and depreciation and amortization expense was included in other general and administrative expenses for the periods ended September 30, 2021, whereas, due to the significance of these expenses, they are segregated for the periods ended September 30, 2022, therefore, for comparison purposes, these expenses have been extracted for the periods ended September 30, 2021.
NOTE 14 – SUBSEQUENT EVENTS
On October 24, 2022, the Company executed Employment Agreements with Breunich, Del Mastro and Jaramillo. Breunich will receive $ annually, of which $ is deferred for one year. Del Mastro and Jaramillo each will receive $ annually, of which $ is deferred for one year. Additionally, there are incentives included in the agreements.
On October 25, 2022, the Company received a waiver notice from its legal counsel for shares of common stock which was recorded as issuable.
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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not required.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information that it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and interim chief financial officer to allow timely decisions regarding disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer / Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer / Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are not effective as of such date. The Chief Executive Officer / Chief Financial Officer have determined that the Company continues to have the following deficiencies which represent a material weakness:
| ● | The Company does not have a majority of independent directors; | |
| ● | Lack of in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding certain complex or non-routine transactions. With material, complex and non-routine transactions, management has and will continue to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions; | |
| ● | Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting; and |
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| ● | Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes. | |
| ● | To remediate our internal control weaknesses, management intends to implement the following measures: as funding permits, the Company will add sufficient accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements; the Company will hire staff technically proficient at applying U.S. GAAP to financial transactions and reporting; and upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures. |
The additional hiring is contingent upon The Company’s efforts to obtain additional funding through equity or debt and the results of its operations. Management hopes to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.
Limitations on the Effectiveness of Controls
The Company’s officers do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control Over Financial Reporting
During the fiscal quarter covered by this Quarterly Report, there has been a significant change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. With the acquisition of Sandpiper Bay Resort, the Company now has a staffed accounting department with a separation of duties.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such pending or threatened legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition, or operating results.
Item 1A. Risk Factors
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On September 2, 2022, the Company issued 102,754,802 shares of common stock to FVP Opportunity Fund III, LP (41,101,921 shares), FVP Opportunity Fund IV, LP (10,275,480 shares), GT Partners Private Credit Finance LLC (38,533,051 shares) and GT Monterey Cypress Finance LLC (12,844,350 shares) in conjunction with the financing for the acquisition of Sandpiper Bay Resort. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.
On September 7, 2022, the Company issued 3,500,000 shares of common stock to MZ Group, Inc., for services. These shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(a)(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
* Filed Herewith.
# Certain schedules to this exhibit have been omitted pursuant to Regulation S-K Item 601(a)(5). The registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SIGNATURE | TITLE | DATE | ||
| /s/ Gregory Breunich | Principal Executive Officer and Principal Financial and Accounting Officer | October 31, 2022 | ||
| Gregory Breunich |
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