Aug. 8, 2007 --One of the biggest resort developers in the Florida Keys said Tuesday it has missed $1 million in loan payments and that a cash crunch brought on by a slow real estate market could force it into bankruptcy protection.

Cay Clubs Resorts & Marinas described a grim financial picture in a routine regulatory filing associated with an upcoming stock offering. Cay Clubs, with eight hotels and marinas between Key Largo and Marathon, lost $1.2 million in the first three months of 2007. It also needs help repaying the nearly $74 million in loans coming due this fall, the company said.

"Due to the general weakness of the real estate market, the current challenges that exist in the mortgage market and other individual circumstances, the company's sales and cash flows have been significantly reduced," the report stated. "These conditions raise substantial doubt about the company's ability to continue as a going concern."

Though the report raises the possibility of filing bankruptcy, Cay Clubs spokesman Chris Brown said executives have not considered such a move. He said the company is in "very real negotiations" with private equity firms that would provide cash in exchange for a stake in the company.

The documents filed with the Securities and Exchange Commission offered the first detailed look at a rough year for Cay Clubs, which has been laying off workers, cutting expenses and delaying incentive payments to condo buyers. Though flush with cash at the end of the real estate boom -- it posted $46 million in profits last year -- Cay Clubs has watched business deflate this year.

Condominium sales dropped 57 percent in the first three months of 2007 to $34.5 million, the company said. Cay Clubs blamed speculators abandoning the condominium market. And it said tightening lending standards have made it harder to sell real estate -- saying buyers are facing hurdles from banks "that were not issues just 90 days ago."

Founded in late 2004, Cay Clubs quickly assembled a development portfolio stretching from Crested Butte, Colo., to Key West, where it has the A&B Lobster House site under contract. It fueled growth by selling hotel rooms as condominium units, which buyers could rent out for a share of the profits.

Now Cay Clubs is having trouble paying the bills expansion brought. Cay Clubs said it owes buyers $10.5 million in overdue lease payments under a program where the developer would temporarily contract to rent back the units.

The resort division cleared a modest profit in the first quarter for 2007: $870,000 on a 61 percent increase in revenues as room rates increased and more properties opened.

Executives remain "optimistic" about the future, given an uptick in qualified buyers this summer and a pending merger with Key Hospitality Acquisition, a publicly traded holding company with $47 million in cash reserves.

The company seeks a joint venture to complete development of its Sombrero Resort in Marathon and other sites in the island chain, and also is negotiating with the Royal Bank of Canada to refinance the $74 million in loans due within the next 12 months.

A lender has declared the company in default of $9 million in debt related to the missed loan payments, the filings stated. The company said it does not have enough assets to cover its debts should lenders declare Cay Clubs in default and call all the loans.

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