ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with
the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 201
6
. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q
.
Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to the “Company”, “Peak”, “our”, “us”, or “we” refer to Peak Resorts, Inc. and its consolidated subsidiaries.
Overview
We are a leading owner and operator of high-quality, individually branded ski resorts in the U.S. We currently operate 1
4
ski resorts primarily located in the Northeast and Midwest, 1
3
of which we own. The majority of our resorts are
located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Cleveland and St. Louis, enabling day and overnight drive accessibility. Our resorts are comprised of nearly 1,650 acres of skiable terrain that appeal to a wide range of ages and abilities. We offer a breadth of activities, services and amenities, including skiing, snowboarding, terrain parks, tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction and mountain biking and other summer activities. We believe that both the day and overnight drive segments of the ski industry are appealing given their stable revenue base, high margins and attractive risk-adjusted returns. We have successfully acquired and integrated
11
ski resorts since our incorporation in 1997 and we expect to continue executing this strategy.
We and our subsidiaries operate in a single business segment—resort operations. The consolidated unaudited financial data presented in this Quarterly Report on Form 10-Q is comprised of the data of our 1
4
ski resorts. Also included in the financial information presented are ancillary services, primarily consisting of food and beverage services, equipment rental, ski instruction, hotel/lodging and retail.
Seasonality and Quarterly Results
Our resort operations are seasonal in nature. In particular, revenue and profits for our operations are substantially lower and historically result in losses from late spring to late fall, which occur during our first and second fiscal quarters. Revenue and profits generated by our summer operations are not sufficient to fully offset our off-season expenses from our operations. Therefore, the operating results for any interim period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year.
Recent Events
We experienced unfavorably warm weather across all of our resorts during the 2015/2016 ski season. While weather trends during the 2016/2017 ski season have still trailed historical average levels, we have not experienced the significant weather challenges during the three months ended January 31, 2017 as experienced during the same period last year. Season pass sales from the beginning of the 2016/2017 ski season through the end of the third quarter were up 28.0% in units and 23.0% in dollars, compared to the prior year. In addition, paid skier visits for the Company’s 14-resort portfolio were up 40.0% through the end of the third quarter compared to the same prior-year period
.
These preliminary, unaudited results are interim period data for the individually branded ski resorts and are subject to completion of the Company's customary
year-end
closing procedures.
We unveiled the new Peak Pass for the 2016/2017 winter season, which is our new multi-resort ski pass product that features a total of six pass options valid at seven different mountain locations across four states in the Northeast, including Mount Snow in Vermont; Attitash, Wildcat and Crotched Mountains in New Hampshire; Hunter Mountain in New York; and Jack Frost and Big Boulder in Pennsylvania.
At
the beginning of fiscal 2017, the Company experienced lower than normal liquidity levels. The
unfavorably warm
weather during the 2015/2016 ski season resulted in fewer ski days and lower profitability for the Company. Furthermore,
the Company
experienced unexpected delays in the release of funds raised pursuant to the U.S. government’s Immigrant Investor Program (the “EB-5 program”)
, as more fully discussed in “Liquidity and Capital Resources – Significant Uses of Cash,”
to finance the development of two capital projects at our Mount Snow resort—the West Lake
Water
Project and the Carinthia Ski Lodge Project.
We
raised $
52.0
million for the Mount Snow development projects, which
was sitting in
escrow pending the approval of the first program investor’s I-526
P
etition
, as defined herein,
at the beginning of fiscal 2017
.
Based on the timeline originally anticipated for approval of the first investor’s I-526
P
etition and corresponding release of EB-5 program funds from escrow, we commenced construction of the West Lake
Water
Project in the second half of calendar year 2015.
Through the second quarter of fiscal 2017
, we
had
funded approximately $1
5
.0 million of the West Lake
Water
Project costs, for which we
would be
reimbursed once the EB-5 funds
were
released from escrow.
In December 2016, we received approval from the United States Citizenship and Immigration Services (
“
USCIS
”
) for our first investor’s I-526 Petition, allowing the funds spent by the Company to be released from escrow and reimbursed to the Company
in full
.
We now
estimate
the West Lake
Water
Project will be substantially completed in advance of the 2017-2018 ski season, and the Carinthia Lodge Project substantially completed in advance of the 2018-2019 ski season.
Due to our constrained liquidity position as a result of the unfavorable weather during the prior ski season and delay in the release of EB-5 program funds, the Company
took
a number of steps in fiscal 2017 to manage cash flow and improve the Company’s liquidity position.
T
he Company borrowed additional funds for working capital and received significant capital in connection with a private placement, as discussed in more detail below.
As a result of these steps,
and with the release of EB-5 funds from escrow,
we believe that
we are now i
n
a strong
cash position
to
carry us through the 2017/2018 ski season
.
Financing
On July 20, 2016 and August 5, 2016, the Company borrowed an additional $1.75 million and $2.75 million, respectively, under its line of credit with Royal Banks of Missouri for working capital purposes. In addition, the Company entered into a new credit agreement with EPR Properties (“EPR”), its primary lender, pursuant to which the Company borrowed $5.5 million as a bridge loan for working capital purposes. See “Liquidity and Capital Resources—Line of Credit” and “Liquidity and Capital Resources—Bridge Loan Financing” for additional information. On November 4, 2016, we used a portion of the proceeds from the closing of the Private Placement discussed below to repay the entire $5.5 million outstanding under this credit agreement.
Private Placement
On August 22, 2016, the Company entered into the securities purchase agreement (the “Purchase Agreement”) with CAP 1 LLC (the “Investor”) in connection with the sale and issuance (the “Private Placement”) of $20 million in Series A Cumulative Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), and three warrants (the “Warrants”) to purchase shares of the Company’s common stock, as follows: (i) 1,538,462 shares of common stock at $6.50 per share; (ii) 625,000 shares of common stock at $8.00 per share; and (iii) 555,556 shares of common stock at $9.00 per share.
The Purchase Agreement also grants to the Company the right to
require
the Investor
to purchase
an additional 20,000 shares of Series A Preferred Stock
for $1,000 per share
, along with additional warrants, all on the same terms and conditions as the Private Placement, as long as (i) there is no material adverse effect; (ii) the average closing price of the
c
ommon
s
tock for the ten trading days prior to the execution of the documents for such additional shares is not less than the average closing price of the
c
ommon
s
tock for the ten trading days prior to the execution of the Purchase Agreement; (iii) the Investor is reasonably satisfied with the manner in which the Company intends to use the net cash proceeds of such issuance; and (iv) the Company has successfully implemented an EB-5
p
rogram with respect to Mount Snow and one investor’s application has
been
approved.
The Company’s right to require the additional purchase expires two years from the closing of the Private Placement.
In order to close the Private Placement, the Company’s stockholders were required to approve amendments to the Company’s amended and restated articles of incorporation to provide for an increase in the number of authorized shares of common stock and authorize the creation of preferred stock. Pursuant to applicable rules of The Nasdaq Stock Market, the Company’s stockholders were also required to approve the issuance of the Series A Preferred Stock and the Warrants, as well as the issuance of shares of common stock upon the conversion of the Series A Preferred Stock and exercise of the Warrants pursuant to the terms of the Private Placement. The Company’s stockholders approved these matters on October 24, 2016 at the Company’s 2016 Annual Meeting of Stockholders. On November 2, 2016, the Company completed the sale and issuance of the Series A Preferred Stock and the Warrants to the Investor in the Private Placement.
The terms of the Series A Preferred Stock are set forth in the Certificate of Designation filed by the Company with the Missouri Secretary of State on October 26, 2016. The key terms of the Series A Preferred Stock are as follows:
|
·
|
|
$1,000 per share liquidation value (the
“
Liquidation Value
”);
|
|
·
|
|
Convertible upon a change of control, or after nine months, into a number of shares of common stock equal to the number of shares to be converted times the
L
iquidation
V
alue, divided by $6.29
(the “Conversion Price”)
;
|
|
·
|
|
Initial nine-month, dividend-free period with a subsequent cumulative dividend of 8.0% per annum on the
L
iquidation
V
alue;
|
|
·
|
|
Redeemable by the Company after three years at 125% of the
L
iquidation
V
alue, plus accrued and unpaid dividends if the common stock trades at more than 130% of the conversion price for a 30-day period;
|
|
·
|
|
Senior as to dividends, liquidation and redemption, with limitations on the Company’s ability to issue convertible debt and senior securities; and
|
|
·
|
|
Voting rights on an as-converted basis with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company.
|
The terms of the Warrants issued in the Private Placement are all identical except for the number of shares for which the Warrants are exercisable and the exercise prices of each of the Warrants. Each of the Warrants may be exercised in whole or in part at any time for a period of 12 years from the date of issuance. The exercise price must be paid in cash. The exercise price of the Warrants and the number of shares of common stock issuable upon exercise of the Warrants are subject to
adjustment in the event of a stock split, stock dividend, reorganization, reclassification, consolidation, merger, sale and similar transaction.
Concurrently with the closing of the Private Placement, the Company entered into the Registration Rights Agreement with the Investor providing the Investor with certain on-demand and piggy-back registration rights with respect to the common stock issuable upon conversion of the Series A Preferred Stock and exercise of the Warrants. In addition, the Company, management stockholders and the Investor executed the Stockholders’ Agreement upon the Private Placement closing, generally granting the Investor pre-emptive rights, rights of first offer, director nomination rights and approval rights over certain changes in the Company’s business and certain acquisitions and divestitures.
On November 2, 2016, the board of directors appointed Rory A. Held to serve as a director of the Company upon the nomination of the Investor pursuant to the terms of the Stockholders’ Agreement and the recommendation of the Nominating and Corporate Governance Committee.
Modification Agreement
The Company is currently a party to credit agreements with EPR that required the Company to pay to EPR an additional three months of lease payment obligations and debt service payments upon the Company’s failure to maintain a consolidated fixed charge coverage ratio of 1.50:1.00 on a rolling four quarter basis. In June 2016, the Company and EPR had determined that the Company did not maintain the necessary consolidated fixed charge coverage ratio for the year ended April 30, 2016. The amount of the additional debt service deposits due to EPR was approximately $3.23 million.
Effective as of October 24, 2016, the Company and EPR entered into an agreement that eliminates the need of the Company to pay these additional debt service deposits, as required by the credit agreements. Instead, pursuant to the modification agreement, the additional debt service deposits due to EPR have been reduced to $1.1 million in cash or letter of credit, subject to increase upon failure to meet the fixed charge coverage ratio, which will not be measured again until on or after May 1, 2017.
The terms of the modification agreement became effective in connection with the closing of the Private Placement on November 2, 2016. On December 1, 2016, the Company provided a letter of credit to EPR in the amount of $1.1 million in satisfaction of the terms of the modification agreement. See “Liquidity and Capital Resources—Debt Restructure” for a more detailed discussion of the modification agreement.
Resort Acquisition
On January 6, 2016, the Company completed the acquisition of the Hunter Mountain ski resort located in Hunter, New York, through the purchase of all of the outstanding stock of each of Hunter Mountain Ski Bowl, Inc., Hunter Mountain Festivals, Ltd., Hunter Mountain Rentals, Inc., Hunter Resort Vacations, Inc., Hunter Mountain Base Lodge, Inc., and Frosty Land, Inc. (collectively, “Hunter Mountain”) pursuant to the terms of the Stock Purchase Agreement with Paul Slutzky, Charles B. Slutzky, David Slutzky, Gary Slutzky and Carol Slutzky-Tenerowicz entered into on November 30, 2015. The Company acquired Hunter Mountain for total cash consideration of $35.0 million plus the assumption of two capital leases estimated at approximately $1.7 million.
A portion of the Hunter Mountain acquisition price was financed pursuant to the Master Credit and Security Agreement (the “Hunter Mountain Credit Agreement”) entered into between the Company and
EPR, the Company’s primary lender, on January 6, 2016. The remainder was financed with funds drawn on the Company’s line of credit with Royal Banks of Missouri pursuant to the Credit Facility, Loan and Security Agreement (the “Line of Credit Agreement”) between the Company and Royal Banks of Missouri, effective as of December 22, 2015. See “Liquidity and Capital Resources—Significant Sources of Cash” for additional information.
Capital Projects
The Company did not have any major capital projects in the quarter ended
January
31, 201
7
. In fiscal 2016, the Company had one major capital project. We started the construction of the West Lake
Water
P
roject
at Mount Snow
which
has been
financed through the EB-5 program. The West Lake
Water
P
roject includes the construction of a new water storage reservoir for snowmaking with capacity of up to 120 million gallons.
Results of Operations
The following historical unaudited consolidated statements of operations during the three
and
nine
months ended
January
31, 201
7
and 201
6
have been derived from the condensed unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Effective January 6, 2016, we acquired the Hunter Mountain ski resort. The results of operations of Hunter Mountain have been included in our financial statements since the date of the acquisition.
Comparison of Operating Results for the Three Months Ended
January
31,
201
7
and
201
6
The
following table presents our condensed unaudited consolidated statements of operations for the three months ended
January
31, 201
7
and 201
6
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
January 31,
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ change
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Lift and tubing tickets
|
|
$
|
30,470
|
|
$
|
20,717
|
|
$
|
9,753
|
|
47.1%
|
Food and beverage
|
|
|
8,946
|
|
|
5,972
|
|
|
2,974
|
|
49.8%
|
Equipment rental
|
|
|
4,886
|
|
|
3,354
|
|
|
1,532
|
|
45.7%
|
Ski instruction
|
|
|
4,683
|
|
|
3,384
|
|
|
1,299
|
|
38.4%
|
Hotel/lodging
|
|
|
2,883
|
|
|
2,080
|
|
|
803
|
|
38.6%
|
Retail
|
|
|
3,314
|
|
|
2,133
|
|
|
1,181
|
|
55.4%
|
Other
|
|
|
1,203
|
|
|
1,027
|
|
|
176
|
|
17.1%
|
|
|
|
56,385
|
|
|
38,667
|
|
|
17,718
|
|
45.8%
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Resort operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Labor and labor related expenses
|
|
|
18,202
|
|
|
13,858
|
|
|
4,344
|
|
31.3%
|
Retail and food and beverage cost of sales
|
|
|
4,876
|
|
|
3,426
|
|
|
1,450
|
|
42.3%
|
Power and utilities
|
|
|
3,736
|
|
|
2,477
|
|
|
1,259
|
|
50.8%
|
Other
|
|
|
6,855
|
|
|
5,585
|
|
|
1,270
|
|
22.7%
|
|
|
|
33,669
|
|
|
25,346
|
|
|
8,323
|
|
32.8%
|
Depreciation and amortization
|
|
|
3,209
|
|
|
2,558
|
|
|
651
|
|
25.4%
|
General and administrative expenses
|
|
|
1,793
|
|
|
1,104
|
|
|
689
|
|
62.4%
|
Land and building rent
|
|
|
345
|
|
|
357
|
|
|
(12)
|
|
-3.4%
|
Real estate and other taxes
|
|
|
654
|
|
|
664
|
|
|
(10)
|
|
-1.5%
|
|
|
|
39,670
|
|
|
30,029
|
|
|
9,641
|
|
32.1%
|
Other operating income
|
|
|
|
|
|
|
|
|
|
|
|
Gain on involuntary conversion
|
|
|
-
|
|
|
195
|
|
|
(195)
|
|
-100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
16,715
|
|
|
8,833
|
|
|
7,882
|
|
89.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of interest capitalized of $411 and $83 in 2017 and 2016, respectively
|
|
|
(3,289)
|
|
|
(2,802)
|
|
|
(487)
|
|
17.4%
|
Gain on sale/leaseback
|
|
|
84
|
|
|
84
|
|
|
-
|
|
0.0%
|
Investment income
|
|
|
1
|
|
|
-
|
|
|
1
|
|
|
|
|
|
(3,204)
|
|
|
(2,718)
|
|
|
(486)
|
|
17.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax expense
|
|
|
13,511
|
|
|
6,115
|
|
|
7,396
|
|
120.9%
|
Income tax expense
|
|
|
5,346
|
|
|
2,415
|
|
|
2,931
|
|
121.4%
|
Net Income
|
|
$
|
8,165
|
|
$
|
3,700
|
|
$
|
4,464
|
|
120.6%
|
Total Reported EBITDA
|
|
$
|
19,924
|
|
$
|
11,196
|
|
$
|
8,728
|
|
78.0%
|
Revenue
increased
$
17.7
million, or
45.8
%, for the three months ended
January
31, 201
7
compared to the three months ended
January
31, 201
6
. The
increase
is
attributable
to more normalized weather patterns compared to the same period in the prior year. In addition the full period impact of the
Hunter Mountain acquisition, which was effective January 6, 2016
, had a favorable impact in all revenue categories
.
Resort operating expenses increased $
8.3
million, or
32.8
%, for the three months ended
January 31, 2017
compared to the same period in the prior year. This was primarily attributable to the impact
of increased revenues in all categories and the full period impact
of the Hunter Mountain acquisition
.
Depreciation and amortization increased $0
.
7
million, or
25.4
%, for the
three months ended
January 31, 2017
compared to the three months ended
January 31, 2016
as a result of
assets acquired from the Hunter Mountain acquisition
.
General and administrative expenses
increased
$0.
7
million, or
62
.4
%,
for the three months ended
January 31,
2017 compared
to the three months ended
January 31, 2016
primarily driven by an increase in
salary expense due to the adoption of the Annual Incentive Plan (“AIP”), a performance
-
based
incentive
program for key management employees. In addition, there was an increase in director compensation due to the additional work associated with the closing of the
Private Placement
.
During the three months ended January 31, 2016, the
C
ompany’s Mad River Mountain resort burned down due to a fire, resulting in a gain on involuntary conversion during the period. The same period in the current year did not have any involuntary conversions.
The
increase
in interest expense of $
0.
5
million result
ed
from the
additional interest associated with the debt incurred for the acquisition of Hunter Mountain
as well as additional borrowings associated with our
Royal Banks of Missouri
line of credit.
Income tax
expense
in
creased $
2.9
million as a result of
a
n
in
crease in the
income
before income tax
expense
of $
7.
4
million for the three months ended
January 31, 2017
compared to the three months ended
January 31, 2016
.
Comparison of Operating Results for the
Nine
Months Ended
January
31, 201
7
and 201
6
The following table presents our condensed unaudited consolidated statements of operations for the
nine
months ended
January 31, 2017
and 201
6
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
January 31,
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ change
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Lift and tubing tickets
|
|
$
|
30,470
|
|
$
|
20,717
|
|
$
|
9,753
|
|
47.1%
|
Food and beverage
|
|
|
14,161
|
|
|
8,913
|
|
|
5,248
|
|
58.9%
|
Equipment rental
|
|
|
4,886
|
|
|
3,354
|
|
|
1,532
|
|
45.7%
|
Ski instruction
|
|
|
4,683
|
|
|
3,384
|
|
|
1,299
|
|
38.4%
|
Hotel/lodging
|
|
|
6,743
|
|
|
4,855
|
|
|
1,888
|
|
38.9%
|
Retail
|
|
|
3,736
|
|
|
2,588
|
|
|
1,148
|
|
44.4%
|
Summer activities
|
|
|
4,748
|
|
|
4,302
|
|
|
446
|
|
10.4%
|
Other
|
|
|
2,559
|
|
|
2,141
|
|
|
418
|
|
19.5%
|
|
|
|
71,986
|
|
|
50,254
|
|
|
21,732
|
|
43.2%
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Resort operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Labor and labor related expenses
|
|
|
33,719
|
|
|
26,411
|
|
|
7,308
|
|
27.7%
|
Retail and food and beverage cost of sales
|
|
|
6,549
|
|
|
4,693
|
|
|
1,856
|
|
39.5%
|
Power and utilities
|
|
|
5,167
|
|
|
3,725
|
|
|
1,442
|
|
38.7%
|
Other
|
|
|
13,013
|
|
|
11,507
|
|
|
1,506
|
|
13.1%
|
|
|
|
58,448
|
|
|
46,336
|
|
|
12,113
|
|
26.1%
|
Depreciation and amortization
|
|
|
9,642
|
|
|
7,471
|
|
|
2,171
|
|
29.1%
|
General and administrative expenses
|
|
|
4,682
|
|
|
3,069
|
|
|
1,613
|
|
52.6%
|
Land and building rent
|
|
|
998
|
|
|
1,033
|
|
|
(35)
|
|
-3.4%
|
Real estate and other taxes
|
|
|
1,754
|
|
|
1,545
|
|
|
209
|
|
13.5%
|
|
|
|
75,524
|
|
|
59,454
|
|
|
16,070
|
|
27.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,538)
|
|
|
(9,200)
|
|
|
5,662
|
|
61.5%
|
Other Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
Gain on involuntary conversion
|
|
|
-
|
|
|
195
|
|
|
(195)
|
|
-100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(3,538)
|
|
|
(9,005)
|
|
|
5,467
|
|
-60.7%
|
Other Income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of interest capitalized of $1,194 and $279 in 2017 and 2016, respectively
|
|
|
(9,493)
|
|
|
(8,080)
|
|
|
(1,413)
|
|
17.5%
|
Gain on sale/leaseback
|
|
|
250
|
|
|
250
|
|
|
-
|
|
0.0%
|
Investment income
|
|
|
4
|
|
|
4
|
|
|
-
|
|
0.0%
|
|
|
|
(9,239)
|
|
|
(7,826)
|
|
|
(1,413)
|
|
18.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(12,777)
|
|
|
(16,831)
|
|
|
(4,054)
|
|
-24.1%
|
Income tax benefit
|
|
|
(5,056)
|
|
|
(6,564)
|
|
|
(1,508)
|
|
-23.0%
|
Net Loss
|
|
$
|
(7,721)
|
|
$
|
(10,267)
|
|
$
|
(2,546)
|
|
-24.8%
|
Total reported EBITDA
|
|
$
|
6,104
|
|
$
|
(1,729)
|
|
$
|
7,833
|
|
453.0%
|
Revenues increased $
21.7
million, or
43.2
%,
for the
nine
months ended
January 31, 2017
compared to the
nine
months ended
January 31, 2016
as a result of the
addition
of Hunter Mountain
to our
portfolio as well a return to more normalized weather patterns across our resort portfolio
.
Increases were seen across all revenue categories.
Resort operating expenses
,
including labor and labor related expenses, r
etail and food and beverage cost of sales
, power and utilities, and other expenses
,
were up $
12.1
million, or
26.1
%,
for the
nine
months ended
January 31, 2017
compared to the
nine
months ended
January 31, 2016
, primarily related to the
addition
of Hunter Mountain to our portfolio
and associated costs related to improved revenue streams during the period.
Depreciation and amortization increased $
2.2
million, or
29.1
%, for the
nine
months ended
January 31, 2017
compared the
nine
months ended
January 31, 2016
as a result of the
addition
of Hunter Mountain to our portfolio.
General and
a
dministrative expenses increased $
1.6
million, or
52.6
%, for the
nine
months ended
January 31, 2017
compared the
nine
months ended
January 31, 2016
primarily driven by an increase in professional fees related to incremental legal costs and public company expenses
as well as from an increase in
salary expense due to the adoption of the AIP bonus program.
Real estate and other taxes increased $0.2 million, or
13.5
%,
for the
nine
months ended
January 31, 2017
compared the
nine
months ended
January 31, 2016
as a result of the a
ddition
of Hunter Mountain to our portfolio.
During the nine months ended January 31, 2016, the company’s Mad River Mountain resort burned down due to a fire, resulting in a gain on involuntary conversion during the period. The same period in the current year did not have any involuntary conversions.
The
increase
in interest expense of $
1.4
million for the
nine
months ended
January 31, 2017
compared to the
nine
months ended
January 31, 2016
was
primarily
a result of the
additional debt associated with our Hunter Mountain acquisition
as well as additional borrowings associated with our
Royal Banks of Missouri
line of credit and
EPR
bridge loan financing.
Income tax benefit
decreased
$
1
.
5
million as a result of a
decrease
in the loss before income tax benefit of $
4.1
million for the
nine
months ended
January 31, 2017
compared to the
nine
months ended
January 31, 2016
.
Non-GAAP Financial Measures
Reported EBITDA is not a measure of financial performance under U.S.
generally accepted accounting principles (“
GAAP
”)
.
The following table includes a reconciliation of Reported EBITDA to net loss (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
January 31
|
|
|
January 31
|
|
|
|
2017
|
|
|
2016
(1)
|
|
|
2017
|
|
|
2016
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
8,165
|
|
$
|
3,700
|
|
$
|
(7,721)
|
|
$
|
(10,267)
|
Income tax expense (benefit)
|
|
|
5,346
|
|
|
2,415
|
|
|
(5,056)
|
|
|
(6,564)
|
Interest expense, net
|
|
|
3,289
|
|
|
2,802
|
|
|
9,493
|
|
|
8,080
|
Depreciation and amortization
|
|
|
3,209
|
|
|
2,558
|
|
|
9,642
|
|
|
7,471
|
Investment income
|
|
|
(1)
|
|
|
-
|
|
|
(4)
|
|
|
(4)
|
Gain on involuntary conversion
|
|
|
-
|
|
|
(195)
|
|
|
-
|
|
|
(195)
|
Gain on sale/leaseback
|
|
|
(84)
|
|
|
(84)
|
|
|
(250)
|
|
|
(250)
|
|
|
$
|
19,924
|
|
$
|
11,196
|
|
$
|
6,104
|
|
$
|
(1,729)
|
|
(1)
|
|
Effective January 6, 2016, we acquired the Hunter Mountain ski resort. The results of operations of Hunter Mountain have been included in the reconciliation since the date of the acquisition.
|
We have chosen to specifically include Reported EBITDA (defined as net income before interest, income taxes, depreciation and amortization, gain on sale leaseback, investment income, other income or expense and other non
‑recurring items) as a measurement of our results of operations because we consider this measurement to be a significant indication of our financial performance and available capital resources. Because of large depreciation and other charges relating to our ski resorts, it is difficult for management to fully and accurately evaluate our financial results and available capital resources using net income. Management believes that by providing investors with Reported EBITDA, investors will have a clearer understanding of our financial performance and cash flow because Reported EBITDA: (i) is widely used in the ski industry to measure a company’s operating performance without regard to items excluded from the calculation of such measure, which can vary by company primarily based upon the structure or existence of their financing; (ii) helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating structure; and (iii) is used by our management for various purposes, including as a measure of performance of our operating entities and as a basis for planning.
Items excluded from Reported EBITDA are significant components in understanding and assessing financial performance or liquidity. Reported EBITDA should not be considered in isolation or as alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Reported EBITDA is not a measurement determined in accordance with GAAP and is susceptible to varying calculations, Reported EBITDA as presented may not be comparable to other similarly titled measures of other companies.
Liquidity and Capital Resources
Significant Sources of Cash
Our available cash is the highest in our fourth quarter primarily due to the seasonality of our resort business.
At the beginning of fiscal 2017,
the
Company experienced lower than normal liquidity levels. The weather during the 2015/2016 ski season was unfavorably warm, which resulted in fewer ski days and lower profitability for the Company.
We had $
3
3
.
9
million of cash and cash equivalents at
January
31, 201
7
compared to $
5.
4
million at April 30, 201
6
.
Cash
of
$
2.
1
million
was
provided from
operating
activities during the
nine
months ended
January
31, 201
7
compared to $
8
.
1
million of
cash
provided from
the
nine
months ended
January
31, 201
6
due to the
increase in aged
accounts payable during the first
nine
months of fiscal
2016 as a result of the liquidity issues
during that period
described above
.
We generate the majority of our cash from operations during the ski season, which occurs in our third and fourth quarters
of our fiscal year
. We currently anticipate that
cash flow from operations
will continue to provide a significant source of our future cash flows. We expect that our liquidity needs for the near term and the next fiscal year will be met by continued operating cash flows (primarily those generated in our third and fourth fiscal quarters)
and
current cash reserves.
As described in more detail in “—Significant Uses of Cash,” the USCIS approved the first I-526 Petition submitted by an investor in the Company’s EB-5 program, upon which the $52.0 million raised in the EB-5 offering was released from escrow. The Company was reimbursed in full for the approximately $15.0 million of operating cash that the Company had used to begin construction on the West Lake
Water
Project. In addition, on November 2, 2016, the Company completed the Private Placement with the Investor pursuant to which it issued to the Investor 20,000 Shares of Preferred Stock and Warrants in exchange for $20.0 million. These actions have significantly strengthened the liquidity position of the Company and are discussed in more detail throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Long-term debt at
January
31, 201
7
and April 30, 201
6
consisted of borrowings pursuant to the loans and other credit facilities with EPR, our primary lender
as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
January 31,
2017
|
|
April 30,
2016
|
|
|
|
Attitash/Mount Snow Debt; payable in monthly interest only payments at an increasing interest rate (11.10% at January 31, 2017 and April 30, 2016); remaining principal and interest due on December 1, 2034
|
|
$
|
51,050
|
|
$
|
51,050
|
|
|
|
Credit Facility Debt; payable in monthly interest only payments at an increasing interest rate (10.28% at January 31, 2017 and 10.13% at April 30, 2016); remaining principal and interest due on December 1, 2034
|
|
|
37,562
|
|
|
37,562
|
|
|
|
West Lake Water Project EB-5 Debt; payable in quarterly interest only payments (1.0% at January 31, 2017); remaining principal and interest due on December 27, 2021
|
|
|
30,000
|
|
|
-
|
|
|
|
Carinthia Ski Lodge EB-5 Debt; payable in quarterly interest only payments (1.0% at January 31, 2017); remaining principal and interest due on December 27, 2021
|
|
|
21,500
|
|
|
-
|
|
|
|
Hunter Mountain Debt; payable in monthly interest only payments at an increasing interest rate (8.0% at January 31, 2017 and April 30, 2016); remaining principal and interest due on January 5, 2036
|
|
|
21,000
|
|
|
21,000
|
|
|
|
Royal Banks of Missouri Debt; payable in principal and interest payment at prime plus 1.0% (4.75% at January 31, 2017); remaining principal and interest due on February 6, 2020
|
|
|
10,000
|
|
|
-
|
|
|
|
Sycamore Lake (Alpine Valley) Debt; payable in monthly interest only payments at an increasing interest rate (10.72% at January 31, 2017 and 10.56% at April 30, 2016); remaining principal and interest due on December 1, 2034
|
|
|
4,550
|
|
|
4,550
|
|
|
|
Wildcat Mountain Debt; payable in monthly installments of $27, including interest at a rate of 4.00%; remaining principal and interest due on December 22, 2020
|
|
|
3,472
|
|
|
3,612
|
|
|
|
Other debt
|
|
|
2,964
|
|
|
3,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less unamortized debt issuance costs
|
|
|
(5,666)
|
|
|
(1,903)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,432
|
|
|
119,102
|
|
|
|
Less: current maturities
|
|
|
2,453
|
|
|
759
|
|
|
|
|
|
$
|
173,979
|
|
$
|
118,343
|
|
|
|
Debt Restructure
On November 10, 2014, in connection with our initial public offering, we entered into a Restructure Agreement (the “Restructure Agreement”) with certain affiliates of EPR, providing for the (i) prepayment of approximately $75.8 million of formerly non-prepayable debt secured by the Crotched Mountain, Attitash, Paoli Peaks, Hidden Valley and Snow Creek
resorts and (ii) retirement of one of the notes associated with the future development of Mount Snow (the “Debt Restructure”). On December 1, 2014, we entered into various agreements in order to effectuate the Debt Restructure, as more fully described in the Company’s Current Report on Form 8-K filed with the SEC on December 5, 2014
and below (collectively, the “Debt Restructure Agreements”)
. Pursuant to the Debt Restructure, we paid a defeasance fee of $5 million to EPR in addition to the consideration described below.
In exchange for the prepayment right, we granted EPR a purchase option on the Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley properties, subject to certain conditions. If EPR exercises a purchase option, EPR will enter into an agreement with the Company for the lease of each such acquired property for an initial term of 20 years, plus options to extend the lease for two additional periods of ten years each. All previously existing option agreements between the Company and EPR were terminated.
Additionally, we agreed to extend the maturity dates on all non-prepayable notes and mortgages secured by the Mount Snow, Boston Mills, Brandywine, Jack Frost, Big Boulder and Alpine Valley properties remaining after the Debt Restructure by seven years to December 1, 2034, and to extend the lease for the Mad River property, previously terminating in 2026, until December 31, 2034 (the “Mad River Lease Amendment”).
The Company
also granted EPR a right of first refusal to provide all or a portion of the financing associated with any purchase, ground lease, sale/leaseback, management or financing transaction contemplated by the Company with respect to any new or existing ski resort property for a period of seven years or until financing provided by EPR for such transactions equals or exceeds $250 million in the aggregate. Proposed financings from certain types of institutional lenders providing a loan to value ratio of less than 60% (as relates to the applicable property being financed) are excluded from the right of first refusal. We granted EPR a separate right of first refusal in the event that the Company wishes to sell, transfer, convey or otherwise dispose of any or all of the Attitash ski resort for seven years. The Attitash right excludes the financing or mortgaging of Attitash.
In connection with the Debt Restructure, the Company entered into
a
Master Credit
and Security
Agreement with EPR
(the “Master Credit Agreement”)
governing the restructured debt with EPR. Pursuant to the Master Credit Agreement, EPR agreed to maintain the following loans to the Company following the prepayment of certain outstanding debt with proceeds from the Company’s initial public offering: (i) a term loan in the amount of approximately $51.1 million to the Company and its subsidiary Mount Snow, Ltd., (included in the table above as the “Attitash/Mount Snow Debt”); (ii) a term loan in the amount of approximately $23.3 million to the Company and its subsidiaries Brandywine Ski Resort, Inc. and Boston Mills Ski Resort, Inc. (the “Boston Mills/Brandywine Debt”); (iii) a term loan in the amount of approximately $14.3 million to the Company and its subsidiary JFBB Ski Areas, Inc. (the “JFBB Debt” and together with the Boston Mills/Brandywine Debt, included in the table above as the “Credit Facility Debt”); and (iv) a term loan in the amount of approximately $4.6 million to the Company and its subsidiary Sycamore Lake, Inc. (included in the table above as the “Sycamore Lake (Alpine Valley) Debt”).
Interest will be charged at a rate of (i) 10.13% per annum as to each of the Boston Mills/Brandywine Debt and JFBB Debt; (ii) 10.40% per annum as to the Sycamore Lake (Alpine Valley) Debt; and (iii) 10.93% per annum pursuant to the Attitash/Mount Snow Debt. Each of the notes governing the restructured debt provides that interest will increase each year by the lesser of the following: (x) three times the percentage increase in the Consumer Price Index as defined in the notes (“CPI”) from the CPI in effect on the applicable adjustment date over the CPI in effect on the immediately preceding adjustment date or (y) 1.5%. Past due amounts will be charged a higher interest rate and be subject to late charges.
The Master Credit Agreement further provides that in addition to interest payments, the Company must pay the following with respect to all restructured debt other than the Attitash/Mount Snow Debt: an additional annual payment equal to 10% of the gross receipts attributable to the properties serving as collateral of the restructured debt (other than Mount Snow) for such year in excess of an amount equal to the quotient obtained by dividing (i) the annual interest payments payable pursuant to the notes governing the restructured debt (other than with respect to the Attitash/Mount Snow Debt) for the immediately preceding year by (ii)
10%
. The Company must pay the following with respect to the Attitash/Mount Snow Debt: an additional annual payment equal to
12%
of the gross receipts generated at Mount Snow for such year in excess of an amount equal to the quotient obtained by dividing (i) the annual interest payments payable under the note governing the Attitash/Mount Snow Debt for the immediately preceding year by (ii) 12%.
An additional interest payment of $0.2 million was due for the three and nine months ended January 31, 2017.
The Master Credit Agreement includes restrictions on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens. The Master Credit Agreement includes certain financial covenants, some of which were modified by the terms set forth in the Modification of Master Credit Agreements entered into by the Company and EPR effective as of October 24, 2016 (the “Modification Agreement”). The Modification Agreement modified the financial covenants of the Master Credit Agreement, Hunter Mountain Credit Agreement and Bridge Loan Agreement, as defined herein (together, the “EPR Credit Agreements”).
Financial covenants set forth in the Master Credit Agreement consist of a maximum leverage ratio (as defined in the Master Credit Agreement) of 65%, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, and a consolidated fixed charge coverage ratio (as defined in the Master Credit Agreement) covenant. As modified by the Modification Agreement, no later than 30 days after the closing of
the
Private Placement
, the Company shall deliver to the lender either (the “One Month Interest Obligation”) (i) a letter of credit in favor of the lender in the amount equal to one month of the lease payment obligations and debt service payments, as defined in the EPR Credit Agreements; or (ii) cash equal to the same amount. The terms of the Modification Agreement further provide that the lender may draw upon any letter of credit issued pursuant to the Modification Agreement upon the occurrence of certain events (the “Letter of Credit Events”), including, but not limited to, (i) any event of default under the EPR Credit Agreements; (ii) the Company’s failure to maintain a consolidated fixed charge coverage ratio of 1.50:1.00 on a rolling four quarter basis, as calculated pursuant to the terms of the EPR Credit Agreements, on or after May 1, 2017; and (iii) at any time within 60 days prior to the expiration date of any letter of credit. In the event of the occurrence of any Letter of Credit Events, the Company must replace the One Month Interest Obligation with (i) a replacement letter of credit in favor of the lender in the amount equal to three months of lease payment obligations and debt service payments, as defined in the EPR Credit Agreements; or (ii) cash in the same amount. Pursuant to the terms of the Modification Agreement, the Company must obtain the consent of the lender prior to redeeming any preferred or common stock.
The Private Placement closed on November 2, 2016, and the Company provided EPR with the One Month Interest Obligation letter of credit (the “Interest Letter of Credit”) in the amount of $1.1 million on December 1, 2016 in accordance with the terms of the Modification Agreement. The Interest Letter of Credit is collateralized by a certificate of deposit in the amount of $1.1 million.
The Master Credit Agreement prohibits the Company from paying dividends if the fixed charge coverage ratio is below 1.25:1.00 and during default situations.
During the first two quarters of fiscal year 2017, the
C
ompany’s fixed charge coverage ratios fell below the required ratios, resulting in the actions described above.
As of
January
31, 201
7
,
the Company is in compliance with all debt covenants
.
Under the terms of the Master Credit Agreement
and pursuant to the Master Cross Default Agreement, as amended
, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) within two years after the effective date of the
Hunter Mountain
Credit Agreement, the Company’s named executive officers (Messrs. Timothy Boyd, Stephen Mueller and Richard Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Master Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of those subsidiaries which are borrowers under the Master Credit Agreement. Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.
None of the restructured debt may be prepaid without the consent of EPR. Upon an event of default, as defined in the Debt Restructure Agreements, EPR may, among other things, declare all unpaid principal and interest due and payable. Each of the notes governing the restructured debt matures on December 1, 2034.
Wildcat Mountain Debt
The Wildcat Mountain Debt due December 22, 2020 represents amounts owed pursuant to a promissory note in the principal amount of $4.5 million made by WC Acquisition Corp. in favor of Wildcat Mountain Ski Area, Inc., Meadow Green-Wildcat Skilift Corp. and Meadow Green-Wildcat Corp. (the “Wildcat Note”). The Wildcat Note, dated November 22, 2010, was made in connection with the acquisition of Wildcat Mountain, which was effective as of October 20, 2010. The interest rate as set forth in the Wildcat Note is fixed at 4.00%.
Hunter Mountain
Debt
The Hunter Mountain Debt due January 5, 2036 represents amounts owed pursuant to a promissory note (the “Hunter Mountain Note”) in the principal amount of $21.0 million made by the Company in favor of EPR pursuant to the Hunter Mountain Credit Agreement in connection with the Company’s acquisition of Hunter Mountain, which was effective as of January 6, 2016. The Company used $20.0 million of the Hunter Mountain Debt to finance the Hunter Mountain acquisition and $1.0 million to cover closing costs and to add to its interest reserve account.
The Hunter Mountain Credit Agreement and Hunter Mountain Note provide that interest will be charged at an initial rate of 8.00%, subject to an annual increase beginning on February 1, 2017 by the lesser of the following: (x) three times the percentage increase in the CPI (as defined in the Hunter Mountain Note) from the CPI in effect on the applicable adjustment date over the CPI in effect on the immediately preceding adjustment date or (y) 1.75%. Past due amounts will be charged a higher interest rate and be subject to late charges.
The Hunter Mountain Credit Agreement further provides that in addition to interest payments, the Company must pay an additional annual payment equal to 8.00% of the gross receipts in excess of $35.0 million that are attributable to all collateral under the Hunter Mountain Note for such year.
The Hunter Mountain Credit Agreement includes restrictions or limitations on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence or guaranty of certain additional debt and liens. Financial covenants and dividend restrictions set forth in the Hunter Mountain Credit Agreement are identical to those set forth in the Master Credit Agreement, as modified by the Modification Agreement, described above.
In accordance with the terms of the Modification Agreement, the Company provided EPR with the Interest Letter of Credit on December 1, 2016 in the amount of $1.1 million, collateralized by a certificate of deposit for the same amount.
During the first two quarters of fiscal year 2017, the company’s fixed charge coverage ratios fell below the required ratios, resulting in the actions described above.
As of January 31, 201
7
, the Company is in compliance with all debt covenants.
Under the terms of the Hunter Mountain Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) within two years after the effective date of the Hunter Mountain Credit Agreement, the Company’s named executive officers (Messrs. Timothy Boyd, Stephen Mueller and Richard Deutsch) cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Hunter Mountain Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of those subsidiaries which are borrowers under the Hunter Mountain Credit Agreement. Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.
The Hunter Mountain Note may not be prepaid without the consent of EPR. Upon an event of default, as defined in the Hunter Mountain Note, EPR may, among other things, declare all unpaid principal and interest due and payable. The Hunter Mountain Note matures on January 5, 2036.
As a condition to the Debt Restructure described above, the Company entered into the Master Cross Default Agreement with EPR (the “Master Cross Default Agreement”), which provides that any event of default under existing or future loan or lien agreements between the Company or its affiliates and EPR, and any event of default under the Mad River Lease Amendment, shall automatically constitute an event of default under each of such loan and lien agreements and Mad River Lease Amendment, upon which EPR will be entitled to all of the remedies provided under such agreements and Mad River Lease Amendment in the case of an event of default. In connection with entry into the Hunter Mountain Credit Agreement on January 6, 2016, the Company entered into the Amended and Restated Master Cross-Default Agreement with EPR, which adds the Hunter Mountain Credit Agreement, Hunter Mountain Note and related transaction documents to the scope of loan agreements to which the cross-default provisions of the Master Cross Default Agreement apply.
Also in connection with the Debt Restructure, the Company and EPR entered into the Guaranty Agreement (the “2014 Guaranty Agreement”). The 2014 Guaranty Agreement obligates the Company and its subsidiaries as guarantors of all debt evidenced by the evidenced by the Master Credit Agreement and other Debt Restructure agreements. On January 6, 2016, in connection with entry into the Hunter Mountain Credit Agreement, the Company entered into a Guaranty Agreement for the benefit of EPR, which adds the Company’s new Hunter Mountain subsidiary borrowers under the Hunter Mountain Credit Agreement as guarantors pursuant to the same terms of the 2014 Guaranty Agreement and adds the debt evidenced by the Hunter Mountain Credit Agreement and Hunter Mountain Note to the debt guaranteed by the Company pursuant to the 2014 Guaranty Agreement.
Substantially all of the Company’s assets serve as collateral for the Company’s long term debt.
Line of Credit
/ Royal Banks of Missouri Debt
The remaining
$15.0
million of the Hunter Mountain acquisition price was financed with funds drawn on the Company’s line of credit with Royal Banks of Missouri pursuant to the Credit Facility, Loan and Security Agreement (the “Line of Credit Agreement”) between the Company and Royal Banks of Missouri, effective as of December 22, 2015. The Company drew an additional
$0.5
million to pay closing costs. On July 20, 2016
,
the Company borrowed an additional
$1.75
million under the
Line of
Credit Agreement for working capital purposes.
Additionally, on August 5, 2016, the Company borrowed the remaining $2.75 million under the Credit Agreement for working capital purposes, bringing the total principal amount borrowed under the
Line of
Credit Agreement to $20
.0
million.
The Line of Credit Agreement provides for a 12-month line of credit for up to
$20.0
million to be used for acquisition purposes and working capital of up to
5.0%
of the acquisition purchase price, subject to the Company’s ability to extend the line of credit for up to an additional
12
-month period upon the satisfaction of certain conditions. In connection with entry into the Line of Credit Agreement, the Company executed a promissory note
(the “Initial Line of Credit Note”) in favor of Royal Banks of Missouri,
pursuant to which the initial amounts borrowed under the Line of Credit Agreement matured on December 22, 2016 and January 6, 2017 and were repaid or converted, as described in the paragraph below
. The
additional $1.75 million borrowed by the Company on July 20, 2016 was borrowed pursuant to the terms of the Initial Line of Credit Note. The remaining $2.75 million drawn under the Line of Credit Agreement on August 5, 2016 was borrowed pursuant to a second promissory note executed by the Company on August 5, 2016 (the “Second Line of Credit Note”), maturing on August 5, 2017.
On December 15, 2016 and January 5, 2017, the Company repaid $0.5 million and $5.0 million, respectively, of the total amount outstanding
under the Line of Credit Agreement with proceeds from the Private Placement. On January 6, 2017, pursuant to the terms of the Line of Credit Agreement, the Company elected to convert $10.0 million of the outstanding amount to a term loan (included in the table above as the “Royal Banks of Missouri Debt”). The terms of the Royal Banks of Missouri Debt are evidenced by a promissory note in favor of Royal Banks of Missouri in the principal amount of $10.0 million, dated as of January 6, 2017 (the “Royal Banks Note”).
The Royal Banks of Missouri Debt bears interest at the prime rate plus 1.0% per annum. The Royal Banks Note matures on January 6, 2020. Except in the case of default, the Company may prepay the Royal Banks of Missouri Debt without penalty. From and after maturity of the Royal Banks Note and in the case of any default, interest on the unpaid principal and interest shall accrue at an annual rate equal to five percentage points over the rate of interest otherwise payable on outstanding amounts. Events of default under the Royal Banks Note include any default under the terms of the Line of Credit Agreement.
The Royal Banks Note is subject to the terms and conditions set forth in the Line of Credit Agreement, as described herein.
As of January 31, 2017, a total of $4.5 million remained outstanding under the Line of Credit Agreement, which includes $1.75 million borrowed pursuant to the terms of the Initial Line of Credit Note and $2.75 million borrowed pursuant to the Second Line of Credit Note. The remaining line of credit debt is included as a current liability given the initial 12-month term.
Interest on the amounts borrowed
pursuant to the Initial Line of Credit Note is
charged at the prime rate plus
1.0%
, provided that past due amounts shall be subject to higher interest rates and late charges. The effective rate at
January
31, 201
7
was
4.
7
5%
on the line of credit borrowings
made pursuant to the Initial
Line of Credit Note
.
Interest on the amount borrowed pursuant to the Second Line of Credit Note is charged at 6.00% per annum, provided that past due amounts shall be subject to higher interest rates and late charges. The Company is required to make interest only payments under the Second Line of Credit Note.
The Line of Credit Agreement includes restrictions or limitations on certain transactions, including mergers, acquisitions, leases, asset sales, loans to third parties, and the incurrence of certain additional debt and liens. Financial covenants set forth in the Line of Credit Agreement consist of a maximum leverage ratio (as defined in the Line of Credit Agreement) of
65%
, above which the Company is prohibited from incurring additional indebtedness, and a debt service coverage ratio (as defined in the Line of Credit Agreement) of
1
.
25
:
1
.
00
on a fiscal year basis.
The Line of Credit Agreement requires that the Company comply with the consolidated fixed charge coverage ratio requirements and provisions set forth in the Master Credit Agreement, as modified by the Modification Agreement, and includes identical dividend payment restrictions as the Master Credit Agreement.
In accordance with the terms of the Modification Agreement, the Company provided EPR with the Interest Letter of Credit on December 1, 2016 in the amount of $1.1 million, collateralized by a certificate of deposit for the same amount.
During the first two quarters of fiscal year 2017, the
C
ompany’s fixed charge coverage ratios fell below the required ratios, resulting in the actions described above.
As of January 31, 2017, the Company is in compliance with all debt covenants.
If the outstanding line of credit debt is not paid in full by the maturity date, and the Company is otherwise in full compliance with the terms and conditions of the Line of Credit Agreement and Initial Line of Credit Note, the Company may elect to convert
only
the outstanding debt borrowed pursuant to the Initial Line of Credit Note to a three-year term loan, subject to an additional extension, with principal payments amortized over a 20-year period bearing interest at the prime rate plus 1.00% per annum. The amount borrowed pursuant to the Second Line of Credit Note is not subject to the renewal and conversion provisions of the Line of Credit Agreement.
Except in the case of a default, the Company may prepay all or any portion of the outstanding line of credit debt and all accrued and unpaid interest due prior to the maturity date without prepayment penalty.
In the case of a default, the outstanding
l
ine of
c
redit
d
ebt shall, at the lender’s option, bear interest at the rate of
5.0%
percent per annum in excess of the interest rate otherwise payable thereon, which interest shall be payable on demand.
Under the terms of the Line of Credit Agreement, the occurrence of a change of control is an event of default. A change of control will be deemed to occur if (i) for so long as the line of credit debt is outstanding and such individuals are employed by the Company, the Company’s key shareholders (Messrs. Timothy Boyd, Stephen Mueller and Richard Deutsch)
cease to beneficially own and control less than 50% of the amount of the Company’s outstanding voting stock that they own as of the effective date of the Line of Credit Agreement, or (ii) the Company ceases to beneficially own and control less than all of the outstanding shares of voting stock of the subsidiary borrowers. Other events of default include, but are not limited to, a default on other indebtedness of the Company or its subsidiaries.
Amounts outstanding under the Line of Credit Agreement are secured by the assets of each of the subsidiary borrowers under the Line of Credit Agreement.
West Lake Water Project and Carinthia Ski Lodge EB-5 Debt
The Company established two affiliate limited partnerships of Mount Snow, Carinthia Group 1, L.P. and Carinthia Group 2, L.P. (collectively, the ‘‘Partnership’’), to operate two Mount Snow development projects funded by $52.0 million raised by the Partnership pursuant to the U.S. government’s Immigrant Investor Program, commonly known as the EB-5 program. The EB-5 program is discussed in more detail in “—Significant Uses of Cash” below.
Mount Snow GP Services LLC
, a wholly owned subsidiary of Mount Snow, Ltd. (wholly owned by the Company),
serves as the general partner for the Partnership.
The Company has evaluated the Partnership under
Accounting Standards Codification 8
1
0, “
Consolidations
” (“ASC 8
1
0”),
and determined the Partnership does not require consolidation because the Company does not have a variable interest in the Partnership.
The Mount Snow development projects include: (i) the West Lake
Water
Project, which includes the construction of a new water storage reservoir for snowmaking; and (ii) the Carinthia Ski Lodge Project, which includes the construction of a new skier service building. In December 2016, the first I-526 petition submitted by an investor in the EB-5 Program was approved, and the $52.0 million was released from escrow to the Partnership. Upon release of the EB-5 Program funds, the Company was reimbursed in full for the
approximately
$15
.0
million
that the
Company had invested in the construction of the Mount Snow development projects while awaiting release of the funds.
The remaining $3
6.5
million is included in
long-term asset
restricted cash
, construction,
due to the earmark associated with the Mount Snow development project.
Mount Snow, Ltd
.
formed West Lake Water Project LLC and Carinthia Ski Lodge LLC, each wholly owned by Mount Snow, Ltd., to manage the construction of the West Lake
Water
Project and Carinthia Ski Lodge Project, respectively.
Pursuant to the terms of the EB-5 Program, the Partnership is obligated to invest or loan the funds raised from its EB-5 investor
s
in or to a business carrying on a commercial venture. In accordance with these requirements, on December 27, 2016,
the Partnership entered into a loan agreement with West Lake Water Project LLC providing West Lake Water Project LLC a line of credit of up to $30.0 million (the “West Lake Loan Agreement”) to be used in the construction of the West Lake
Water
Project. In connection with entry into the West Lake Loan Agreement, West Lake Water Project LLC executed a line of credit note in favor of the Partnership in the amount of $30.0 million (the “West Lake Note”). The debt owed pursuant to the West Lake Loan Agreement and West Lake Note is included in the table above
as the “West Lake Water Project EB-5 Debt.”
Also on December 27, 2016, the Partnership entered into a loan agreement with Carinthia Ski Lodge LLC providing Carinthia Ski Lodge LLC a line of credit of up to $22.0 million (the “Carinthia Lodge Loan Agreement”) to be used in the construction of the new Carinthia skier service building. In connection with entry into the Carinthia Lodge Loan Agreement, Carinthia Ski Lodge LLC executed a line of credit note in favor of the Partnership in the amount of $22.0 million (the “Carinthia Lodge Note”). The debt owed pursuant to the Carinthia Lodge Loan Agreement and Carinthia Lodge Note is included in the table above as the “Carinthia Ski Lodge EB-5 Debt.” Amounts borrowed pursuant to the EB-5 Loan Agreements
, as defined below,
can be used only for construction of the West Lake
Water
Project and Carinthia Ski Lodge Project.
The terms of the West Lake Loan Agreement and Carinthia Lodge Loan Agreement (together, the “EB-5 Loan Agreements”) and the West Lake Note and Carinthia Lodge Note (together, the “EB-5 Notes”) are identical. Amounts outstanding under the EB-5 Notes accrue simple interest at a fixed rate of 1.0% per annum until the maturity date, which is December 27, 2021, subject to extension of up to an additional two years at the option of the borrowers with lender consent. If the maturity date is extended, amounts outstanding under the EB-5 Notes will accrue simple interest at a fixed rate of 7.0% per annum during the first year of extension and a fixed rate of 10.0% per annum during the second year of extension.
Upon an event of default, amounts outstanding shall bear interest at the rate of 5.0% per annum, subject to the extension increases. Events of default under the EB-5 Loan Agreements include failure to make payments due; breaches of covenants, representations and warranties; incurrence of certain judgments and liens against the borrowers or assets; assignments or notice of bulk sales of assets on behalf of creditors; commencement of bankruptcy or dissolution proceedings; and cessation of the West Lake
Water
Project or Carinthia Ski Lodge Project prior to completion.
For so long as amounts under the EB-5 Loan Agreements are outstanding, the borrowers are restricted from taking certain actions without the consent of the lenders, including, but not limited to, transferring or disposing and of the properties
or assets financed with the loan proceeds; selling equity interests to any person other than the Company
;
merging; and making loans to or investing in affiliates or other persons.
The borrowers under the EB-5 Notes are prohibited from prepaying outstanding amounts owed if such prepayment would jeopardize any of the EB-5 investor limited partners’ ability to be admitted to the U.S. via the EB-5 Program.
As a condition to entry into each of the EB-5 Loan Agreements, the Company executed guaranties
of collection
(the
“EB-5 Guaranties”) with respect to each of the West Lake Loan Agreement and Carinthia Lodge Loan Agreement pursuant to which the Company unconditionally guaranteed all amounts due under the EB-5 Notes
owed to the Partnership
. Pursuant to the terms of the EB-5 Guaranties,
which are guaranties of collection rather than payment,
in the event the borrowers under the EB-5 Loan Agreements fail to make any payments due, or upon the acceleration of payments due, the lenders
must
exhaust any and all legal remedies for collection against the borrowers before proceeding against the Company.
Bridge Loan Financing
On September 1, 2016, the Company entered into the Master Credit and Security Agreement with EPR (the “Bridge Loan Agreement”) pursuant to which EPR agreed to loan up to $10.0 million to the Company for working capital purposes, subject to certain conditions and adjustment as provided in the Bridge Loan Agreement and as previously disclosed. Amounts borrowed pursuant to the Bridge Loan Agreement were evidenced by a promissory note (the “Bridge Loan Note”), also dated as of September 1, 2016. The Company borrowed a total of $5.5 million under the Bridge Loan Agreement and Bridge Loan Note. The total outstanding balance and all interest due was repaid by the Company upon receipt of the proceeds from the Private Placement, as defined in Note 5, which closed on November 2, 2016.
Nine
Months Ended
January
31, 201
7
Compared to the
Nine
Months Ended
January
31, 201
6
Cash of $
2.
1
million
was
provided by
operating activities in the first
nine
months of fiscal 201
7
, a
decrease
of $
6.0
million when compared to the $
8.1
million
provided by
the first
nine
months of fiscal 201
6
.
The
decrease
was mainly driven by the
increase of
aged accounts payable during the first
nine
months of fiscal 2016
as a result of the liquidity issues described
herein
. In addition
,
our ne
t
loss was $2.
5
million lower during the first nine month of fiscal 2017 due to a retu
r
n of more normalized weather patterns during the period compared to the same period in the prior year.
Cash
of $
1
3
.6
million was provided by
investing activities
in
the first
nine
months of fiscal 201
7
, an inc
rease
of
$
8
1
.6
million
when compared to the $
6
8
.0
million used in the first
nine
months of fiscal 201
6
.
The increase during the first nine months of fiscal 2017 was driven by the release of $15
.0
million of escrow funds received as reimbursement
for
the Company’s initial spending on the
West Lake
Water
P
roject described below. In addition, during the same period in fiscal 2016
,
the
C
ompany had acquir
ed Hunter Mountain for a net cash impact of $33.2 million
as well as
spending
$11.5 million more on property additions
.
Lastly
,
the prior year
increase
in restricted cash
was
mainly
a result of the
EB-5
funds being deposited in fiscal year 2016
.
Cash
of $
12.
7
million was
provided by
financing activities
in
the first
nine
months of fiscal 201
7
, a
decrease
of
$
4
1.8
million
when compared to the $
54.5
million
provided by
financing activities
in
the first
nine
months of fiscal 201
6
.
The decrease
primarily related to
the proceeds from the loans associated with the Hunter Mountain acquisition,
the EB-5 investor funds
being
released from escrow
and
capital lease
borrowings
in fiscal 201
6
,
offset
by
dividend
payments.
The increases from fiscal 2016 were also offset by the proceeds from the
Private Placement, which was completed
during the period.
Additionally, during the nine months ended January 31, 2017, the Company borrowed funds pursuant to the Bridge Loan Agreement and Bridge Loan Note, which were subsequently repaid in full from the Private Placement proceeds, and the EB-5 program funds were released from escrow, upon which wholly owned subsidiaries of Mount Snow, Ltd. (a wholly owned subsidiary of the Company) received funds pursuant to the West Lake Loan Agreement and Carinthia Lodge Loan Agreement.
Significant Uses of Cash
Our cash uses currently include operating expenditures and capital expenditures for assets to be used in operations. We have historically invested significant cash in capital expenditures for our resort operations and expect to continue to invest in the future. Resort capital expenditures for
the first nine months of
fiscal 201
6
were
approximately $
16.6
million
compared to $5.1 million in fiscal 2017. The increase in the previous year was related to spending on the West Lake
Water
Project.
There are no major capital expenditure projects for fiscal 2017 anticipated
, other than continued work on the West Lake
Water
Project now that we have broken escrow
of the EB-5 program fund
s
. We currently
plan to use cash on hand and/or cash flow generated from future operations to provide the cash necessary to execute our capital plans and believe that
these sources of cash will be adequate to meet our needs.
The Company also
sold shares
of Series A Preferred
Stock
and Warrants
pursuant to the Private Placement
to meet long term liquidity needs
.
As part of the acquisition of Hunter Mountain discussed in
“
Recent Events
”
above, we assumed $1.7 million related to
six
capital leases. The leases were used to finance equipment throughout the resort. The leases expire
during the current fiscal year through
2020, with payments being required only during the peak ski season. Annual lease expenses are $0.4 million in 2017, $0.4 million in 2018, $0.3 million in 2019, and $0.3 million in 2020.
In October 2014, we entered into a capital lease to finance the construction of the Zip Rider at Attitash. The lease is payable in 60 monthly payments of $38,800, commencing November 2014. The Company has a $1.00 purchase option at the end of the lease term. Messrs. Boyd, Mueller and Deutsch have personally guaranteed the lease.
In addition, in June 2015, the Company entered into capital leases to finance the installation of Low-E snow guns at Mount Snow, Attitash and Wildcat, as well as to fund the purchase of groomers for Mount Snow and Attitash. The Low-E snow guns lease is payable in 48 monthly payments of $61,770 and the groomers lease is payable in 60 monthly payments of $23,489, both commencing July 2015. The Company has a $1.00 purchase option at the end of each lease term.
Messrs. Boyd, Mueller and Deutsch have personally guaranteed the leases.
The Company originally funded these purchases during fiscal 201
5
with operating cash.
As of
January
31, 201
7
,
w
e ha
d
$
4.2
million in third party commitments currently outstanding with our main contractor on the Mount Snow development. We may incur additional costs to support the ongoing Mount Snow development, subject to obtaining required permits and approvals. We intend to
continue to
fund our Mount Snow development by raising funds under the Immigrant Investor Program administered by the
USCIS
pursuant to the Immigration and Nationality Act. This program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. The program allocates 10,000 immigrant visas (‘‘EB-5 Visas’’) per year to qualified individuals seeking lawful permanent resident status on the basis of their investment in a U.S. commercial enterprise. Under the regional center pilot immigration program first enacted in 1992, certain EB-5 Visas also are set aside for investors in regional centers designated by the USCIS based on proposals for promoting economic growth. Regional centers are organizations, either publicly owned by cities, states or regional development agencies or privately owned, which facilitate investment in job-creating economic development projects by pooling capital raised under the EB-5 Immigrant Investor Program. Areas within regional centers that are rural areas or areas experiencing unemployment numbers higher than the national unemployment average rates are designated as Targeted Employment Areas (‘‘TEA’’). The regional center pilot program was recently extended and is set to expire
on April 28, 2017
. Both the Senate and House leadership have been working on reforms to the program and various bills have been proposed.
We do not expect this process to have a negative effect on our current EB-5
program
. We refer to the Immigrant Investor Program and the regional center pilot program herein as the ‘‘EB-5 program.’’
We have established the Partnership to operate within a TEA within the State of Vermont Regional Center.
The Company has evaluated the Partnership under ASC 8
1
0 and determined the Partnership does not require consolidation because the Company does not have a variable interest in the Partnership.
The Partnership raised $52.0 million by offering units in the Partnership to qualified EB-5 investors primarily located in China, Taiwan, Vietnam and certain countries in the Middle East for a subscription price of $500,000 per unit, which is the minimum investment that an investor in a TEA project is required to make pursuant to EB-5 program rules. The funds will be used to finance the development of two capital projects at Mount Snow—the West Lake
Water
Project and the Carinthia Ski Lodge Project. The West Lake
Water
Project includes the construction of a new water storage reservoir for snowmaking with capacity of up to 120 million gallons, three new pump houses and the installation of snowmaking pipelines, trail upgrades and expansion, new ski lift and ancillary equipment. The Carinthia Ski Lodge Project includes the construction of Carinthia Ski Lodge, a new three-story, approximately 36,000-square foot skier service building located at the base of the Carinthia slopes. Carinthia Ski Lodge will include a restaurant, cafeteria and bars with seating for over 600 people, a retail store, convenience store and sales center for lift tickets and rentals. The anticipated overall cost of the Projects is $66.0 million, of which $52.0 million will be funded with the proceeds from the EB-5 offering. The remaining $14.0 million has been provided by Mount Snow with investments in land, snow gun installations, and improved snowmaking technology.
Once the Partnership accepted an EB-5 investor’s funds, the investor was required to file a petition (“I-526 Petition”) with the USCIS seeking, among other things, approval of the investment’s suitability under the EB-5 program requirements and the investor’s suitability and source of funds. The $52.0 million in total investments were held in an escrow account and were not released until the USCIS approved the first I-526 Petition filed by an investor in the Partnership, which occurred in December 2016. Upon receipt of this approval, the $52.0 million was released from escrow to the Partnership.
Pursuant to the rules and regulations governing the EB-5 program, the Partnership is obligated to invest or loan the funds raised from its EB-5 investor
s
in or to a business carrying on a commercial venture. In accordance with these requirements, on December 27, 2016,
the Partnership entered into the West Lake Loan Agreement and Carinthia Lodge Loan Agreement, which are more fully described in “—Significant Sources of Cash.”
We estimate that the West Lake
Water
Project will be substantially completed in advance of the 2017-2018 ski season, and the Carinthia Lodge Project substantially completed in advance of the 2018-2019 ski season.
Due to the delay on the first investor’s I-526 Petition to be approved by the USCIS, as well as the unseasonably warm weather during the 2015/2016 ski season which drove down revenue compared to the prior season, the Company’s board of directors decided it was not prudent to declare a dividend in the first three quarters of fiscal 2017. The Company’s board of directors declared three cash dividends of $0.1375 each during the nine-month period ended January 31, 2016. The dividends were payable on August 21, 2015, November 25, 2015 and February 24, 2016 to shareholders of record on July 10, 2015, October 13, 2015 and January 4, 2016, respectively.
On February 15, 2017, the Company’s board of directors declared a cash dividend of $0.07 per share payable on March 10, 2017 to shareholders of record on February 27, 2017. The declaration and payment of future dividends will be at the sole discretion of our board of directors, and will depend on many factors, including our actual results of operations, financial condition, capital requirements, contractual restrictions, restrictions in our debt agreements, economic conditions and other factors that could differ materially from our current expectations.
The Company’s various credit agreements include or incorporate financial covenants which consist of a maximum leverage ratio of 65%, above which the Company and certain of its subsidiaries are prohibited from incurring additional indebtedness, and a consolidated fixed charge coverage ratio. As modified by the Modification Agreement, no later than 30 days after the closing of the Private Placement, the Company shall deliver to the lender the One Month Interest Obligation in cash or a letter of credit. The terms of the Modification Agreement further provide that the lender may draw upon any letter of credit issued pursuant to the Modification Agreement upon the occurrence of
the Letter of Credit Events.
In the event of the occurrence of any Letter of Credit Events, the Company must replace the One Month Interest Obligation with (i) a replacement letter of credit in favor of the lender in the amount equal to three months of lease payment obligations and debt service payments, as defined in the EPR Credit Agreements; or (ii) cash in the same amount. Pursuant to the terms of the Modification Agreement, the Company must obtain the consent of the lender prior to redeeming any preferred or common stock.
The Private Placement closed on November 2, 2016, and the Company provided EPR with the Interest Letter of Credit in the amount of $1.1 million on December 1, 2016 in accordance with the terms of the Modification Agreement. The Interest Letter of Credit is collateralized by a certificate of deposit in the amount of $1.1 million.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors
.
Forward-Looking Statements
Except for any historical information contained herein, the matters discussed in this Form 10-Q contain certain “forward-looking statements'' within the meaning of the federal securities laws. This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management's Discussion and Analysis of Financial Condition and Results of Operations''.
These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,'' “will,'' “expect,'' “intend,'' “estimate,'' “anticipate,'' “believe,'' “continue'' or similar terminology, although not all forward-looking statements contain these words
.
These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control
.
Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict
.
Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements
.
Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this Form 10-Q
.
Important factors that could cause actual results to differ materially from our exp
ectations include, among others
:
|
·
|
|
weather, including climate change;
|
|
·
|
|
competition with other indoor and outdoor winter leisure activities and ski resorts;
|
|
·
|
|
the leases and permits for property underlying certain of our ski resorts;
|
|
·
|
|
ability to integrate new acquisitions;
|
|
·
|
|
environmental laws and regulations;
|
|
·
|
|
our dependence on key personnel;
|
|
·
|
|
funds for capital expenditures, including funds raised under the EB-5 program;
|
|
·
|
|
the effect of declining revenues on margins;
|
|
·
|
|
the future development and continued success of our Mount Snow ski resort;
|
|
·
|
|
our reliance on information technology;
|
|
·
|
|
our current dependence on a single lender and the lender's option to purchase certain of our ski resorts;
|
|
·
|
|
our dependence on a seasonal workforce; and
|
|
·
|
|
the securities markets
.
|
You should also refer to
Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K and
Part II, Item 1A, “Risk Factors”,
of this Form 10-Q for a discussion of factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements
.
As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-Q will prove to be accurate, Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material
.
In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.