1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 2001
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
Commission File Number: 0-23054
HOTELWORKS.COM, INC.
(exact name of registrant as specified in its charter)
NEW YORK 11-3096379
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 ALHAMBRA CIRCLE, MIAMI, FL 33134
- ----------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
(305) 774-3200
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed all reports 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.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUER
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: 15,112,867 as of July 17, 2001.
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HOTELWORKS.COM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000...................................................................................3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2001 and 2000....................................................................4
Condensed Consolidated Statement of Stockholders'
Equity for the three months ended March 31, 2001........................................................5
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2001 and 2000 ...................................................................6
Notes to Condensed Consolidated Financial Statements ................................................7-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations..........................................................................................11-13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................................14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................................................14
Signatures.......................................................................................................15
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995.
Except for historical information contained herein, the Report on Form 10-Q
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 which involve certain risks and uncertainties. The
Company's actual results or outcomes may differ materially from those
anticipated. Certain factors that might cause such a difference are set forth in
the Company's 10-K for the period ended December 31, 2000. In assessing
forward-looking statements contained herein, readers are urged to carefully read
those statements. When used in the Report on Form 10-Q, the words "estimate,"
"anticipate," "expect," "believe" and similar expressions are intended to
identify forward-looking statements. Such statements, including without
limitation, those relating to our future business, prospects, revenues, working
capital, liquidity, capital needs, interest costs and income, wherever they may
appear in this document or in other statements attributable to us, involve
estimates, assumptions and uncertainties which could cause actual results to
differ materially from those expressed in the forward-looking statements.
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HOTELWORKS.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
UNAUDITED
ASSETS
Cash and cash equivalents $ 2,044 $ 4,977
Accounts receivable, net of allowance for doubtful accounts of
$2,032 and $1,743 22,436 33,677
Deposits with vendors 5,182 10,762
Income taxes refundable 304 490
Prepaid and other current assets 471 447
-------- --------
Total current assets 30,437 50,353
Property and equipment, net 3,285 5,315
Goodwill, net 10,539 10,639
Other assets 55 102
Non-current assets of discontinued operations 88 94
-------- --------
$ 44,404 $ 66,503
======== ========
LIABILITIES AND CAPITAL DEFICIT
Accounts payable $ 13,877 $ 26,988
Accrued expenses and other liabilities 4,951 5,085
Billings in excess of costs and estimated earnings 733 1,294
Customer deposits 10,253 14,136
Current portion of long-term debt 1,011 3,166
Net current liabilities of discontinued
Operations 7,098 7,367
-------- --------
Total current liabilities 37,923 58,036
Long-term debt 10,105 10,256
-------- --------
Total liabilities 48,028 68,292
Commitments and contingencies
CAPITAL DEFICIT
8% convertible preferred stock, $.01 par value, $1 stated value,
5,000,000 shares authorized, 1,000,000 and 1,000,000 shares
issued and outstanding 1,000 1,000
Common stock, $.01 par value, 50,000,000 shares authorized,
15,112,867 and 14,912,867 shares issued and outstanding 151 149
Additional paid-in capital 60,073 60,019
Deficit (64,848) (62,957)
-------- --------
Total capital deficit (3,624) (1,789)
-------- --------
$ 44,404 $ 66,503
======== ========
See notes to condensed consolidated financial statements.
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HOTELWORKS.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Unaudited
THREE MONTHS ENDED MARCH 31,
-----------------------------
2001 2000
-------- --------
Revenues $ 32,076 $ 41,555
Cost of revenues 29,798 38,409
-------- --------
Gross profit 2,278 3,146
Selling, general and administrative
Expenses 3,954 3,960
-------- --------
Loss from operations (1,676) (814)
Other income (expense):
Interest income 74 272
Interest expense (269) (420)
-------- --------
Total other income (expense) (195) (148)
-------- --------
Net (loss) (1,871) (962)
======== ========
Basic and diluted (loss) per common share $ (0.13) $ (0.07)
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 14,952 14,777
======== ========
See notes to condensed consolidated financial statements.
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HOTELWORKS.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(in thousands)
Unaudited
PREFERRED STOCK COMMON STOCK
------------------ ------------------ ADDT'L TOTAL
NUMBER STATED NUMBER PAR PAID IN CAPITAL
OF SHARES VALUE OF SHARES VALUE CAPITAL DEFICIT DEFICIT
---------- ------ --------- ------ -------- ------- --------
BALANCE, JANUARY 1, 2001 1,000 $ 1,000 14,913 $ 149 $ 60,019 $(62,957) $ (1,789)
Stock issued in settlements -- -- 200 2 54 -- 56
Net loss -- -- -- -- -- (1,871) (1,871)
Preferred dividends accrued -- -- -- -- -- (20) (20)
-------- -------- -------- -------- -------- -------- --------
BALANCE, MARCH 31, 2001 1,000 $ 1,000 15,113 $ 151 $ 60,073 $(64,848) $ (3,624)
======== ======== ======== ======== ======== ======== ========
See notes to condensed consolidated financial statements.
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HOTELWORKS.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
THREE MONTHS ENDED MARCH 31,
------------------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (1,871) $ (962)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation and amortization 324 321
Provision for bad debts 59 95
(Increase) decrease in current assets:
Accounts receivable 11,182 (5,344)
Costs and estimated earnings in excess of billings -- (27)
Deposits with vendors 5,580 (2,827)
Income taxes refundable 186 (6)
Prepaid and other current assets (25) 361
(Increase) decrease in other assets 47 (40)
Increase (decrease) in current liabilities:
Accounts payable (13,111) (107)
Accrued expenses and other liabilities (99) (14)
Billings in excess of costs and estimated earnings (561) 24
Customer deposits (3,883) 5,318
-------- --------
NET CASH (USED IN) OPERATING ACTIVITIES OF CONTINUING OPERATIONS (2,172) (3,208)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS (262) 207
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property and equipment 2,077 --
Purchases of property and equipment (270) (267)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS 1,807 (267)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (2,306) (155)
Proceeds from exercise of stock options and warrants -- 295
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,306) 140
-------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (2,933) (3,128)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,977 4,560
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,044 $ 1,432
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 15 $ 30
Interest $ 204 $ 412
Cash received during the period for:
Income tax refunds $ 180 $ --
NON-CASH ACTIVITIES:
Preferred stock in-kind dividend accrued $ 20 $ --
Stock issued in settlements $ 56 $ --
See notes to condensed consolidated financial statements.
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HOTELWORKS.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: CONSOLIDATION
The condensed consolidated financial statements of Hotelworks.com, Inc. and
subsidiaries (the "Company") and related notes thereto as of March 31, 2001 and
for the three months ended March 31, 2001 and 2000 are presented as unaudited,
but in the opinion of management include all adjustments necessary to present
fairly the information set forth therein. These adjustments consist solely of
normal recurring adjustments. The condensed consolidated balance sheet
information for December 31, 2000 was derived from the audited consolidated
financial statements included in the Company's Form 10-K. These interim
condensed consolidated financial statements should be read in conjunction with
that report. The interim results are not necessarily indicative of the results
for any future period. Certain prior period balances have been reclassified in
the condensed consolidated financial statements in order to provide a
presentation consistent with the current period.
NOTE 2: GOING CONCERN
The Company's condensed consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
liquidity of the Company was severely affected during 1999 and 2000 by
significant losses from continuing operations and discontinued operations, which
has resulted in a significant deterioration of the stockholders' equity of the
Company. In addition, the Company projects negative cash flows from operations
in 2001. These circumstances raise substantial doubt about the Company's ability
to continue as a going concern.
Management has taken the following steps in 2001 to improve its operations and
reduce its losses from continuing operations. Management has (a) undertaken a
comprehensive review of its on-going businesses, (b) implemented steps to
improve the gross margin on its contracts by reducing overhead and labor costs,
(c) reduced its selling, general and administrative expenses from $22.7 million
in 1999 to $16.4 million in 2000 to a budgeted amount of $14.3 million in 2001,
and (d) sold its Orlando warehouse in March 2001, the proceeds of which were
used to payoff substantially all of the mortgage note and term loan with Bank of
America.
NOTE 3: DISCONTINUED OPERATIONS
In September, 1999, the Company announced a strategic initiative to reposition
the core supply and distribution businesses, and to divest itself of its
renovation business and real estate investment and asset management business. In
December, 1998, the Company decided to discontinue its hotel development
business.
The remaining assets and liabilities of the discontinued operations as of March
31, 2001 and December 31, 2000, as presented in the accompanying consolidated
balance sheets, are as follows: (in thousands):
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March 31, 2001: REAL ESTATE
INVESTMENT &
ASSET HOTEL
RENOVATION MANAGEMENT DEVELOPMENT TOTAL
---------- ----------- ----------- --------
Accounts receivable $ 19,269 $ -- $ -- $ 19,269
Allowance for doubtful accounts (19,072) -- -- (19,072)
Prepaids and other current assets, net 29 -- -- 29
Accounts payable (1,283) -- -- (1,283)
Accrued and other liabilities (409) (1,000) (47) (1,456)
Current portion of long-term debt (4,585) -- -- (4,585)
-------- -------- -------- --------
Net current liabilities $ (6,051) $ (1,000) $ (47) $ (7,098)
-------- -------- -------- --------
Property and equipment, net $ 27 $ -- $ 21 $ 48
Other assets 19 -- 21 40
-------- -------- -------- --------
Net non-current assets $ 46 $ -- $ 42 $ 88
-------- -------- -------- --------
December 31, 2000: REAL ESTATE
INVESTMENT &
ASSET HOTEL
RENOVATION MANAGEMENT DEVELOPMENT TOTAL
---------- ----------- ----------- --------
Accounts receivable $ 19,484 $ -- $ -- $ 19,484
Allowance for doubtful accounts (19,072) -- -- (19,072)
Prepaids and other current assets, net 110 -- -- 110
Accounts payable (1,549) -- -- (1,549)
Accrued and other liabilities (707) (1,000) (48) (1,755)
Current portion of long-term debt (4,585) -- -- (4,585)
-------- -------- -------- --------
Net current liabilities $ (6,319) $ (1,000) $ (48) $ (7,367)
-------- -------- -------- --------
Property and equipment, net $ 30 $ 0 $ 24 $ 54
Other assets 19 -- 21 40
-------- -------- -------- --------
Net non-current assets $ 49 $ -- $ 45 $ 94
-------- -------- -------- --------
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Net current liabilities of discontinued operations at March 31, 2001 and
December 31, 2000, include renovation accounts receivables which include
unapproved change orders and estimated net claims, which involve negotiations
with customers and in some cases has resulted in litigation. The Company
believes that it has established contractual or legal bases for pursuing
recovery of change orders and claims and it is management's intention to pursue
these matters and litigate, if necessary, until a decision or settlement is
reached. Unapproved change orders and claims involve the use of estimates and it
is reasonably possible that revisions to the estimated recoverable amounts could
be made within the next year. The settlement of these amounts depends on
individual circumstances and negotiations with the counter party, accordingly,
the timing of the collection will vary and may extend beyond one year.
NOTE 4: DEBT
In March 2001, the Company's wholly-owned subsidiary, Bekins Distribution
Services, Inc. ("Bekins"), sold for $2,265,500 its warehouse facility in
Orlando, Florida, the net proceeds of which were used to repay its mortgage with
Bank of America, N.A. in full and reduce the remaining balance on the term loan
with Bank of America, N.A. to $107,000. In accordance with the Amended and
Restated Loan Agreement signed in September 2000, the remaining balance of the
term loan was transferred to the overadvance term loan and the term loan was
retired.
In connection with the Company's Amended and Restated Loan Agreement with HSBC
Bank USA ("HSBC"), the Company executed a three-year promissory note with HSBC.
The note contains a covenant requiring the Company to submit quarterly financial
statements to HSBC within 45 days of quarter-end. Due to the late filing of this
Form 10-Q, the Company is not in compliance with this covenant. The Company will
cure the default upon the filing of this Form 10-Q. Additionally, HSBC has
notified the Company that they will not call the note as a result of this
violation.
NOTE 5: OPERATING SEGMENTS
The Company's operating segments are based on the separate lines of business
acquired over the past several years which provide different services to the
hospitality industry, namely purchasing, reorder and logistics services. The
purchasing business provides "project-managed" procurement of furniture,
fixtures and equipment for new and refurbished properties. The reorder business
provides reordering of operating supplies and equipment for daily use in hotels.
The logistics business provides warehousing, transportation and installation
services to the hospitality industry and other related fields, including retail
merchandising. Segment data is as follows (in thousands):
THREE MONTHS ENDED MARCH 31,
-------------------------------
2001 2000
------- -------
Sales to Customers:
Purchasing $26,106 $31,580
Reorder 879 4,579
Logistics 5,091 5,396
Corporate -- --
------- -------
$32,076 $41,555
======= =======
Inter-segment Sales:
Purchasing $ -- $ --
Reorder -- --
Logistics 861 758
Corporate -- --
------- -------
$ 861 $ 758
======= =======
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Income (loss) from Operations:
Purchasing $ (728) $ 623
Reorder (457) (486)
Logistics (27) (267)
Corporate (464) (684)
------- -------
$(1,676) $ (814)
======= =======
The Company's revenue and assets predominately relate to the United States
operations.
For the three months ended March 31, 2001, the following customers accounted for
over 10% of the Company's revenues:
Florida Resort and Convention Hotel 16.7%
Lodging and Entertainment Company 12.2%
Lodging and Hotel Development Company 11.1%
Lodging and Condominium Developer 10.6%
For the three months ended March 31, 2000, no customers accounted for over 10%
of the Company's revenues.
NOTE 6: EARNINGS PER SHARE
The following table reconciles the components of basic and diluted earnings per
common share for loss from continuing operations for the three months ended
March 31, 2001 and 2000 (in thousands).
THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
-------- --------
Numerator:
Loss from continuing operations $ (1,871) $ (962)
Preferred stock dividends (20) --
-------- --------
Loss available to common shareholders
from continuing operations - basic (1,891) (962)
Effect of dilutive securities
Preferred stock dividends (20) --
-------- --------
Loss available to common shareholders
from continuing operations - diluted $ (1,871) $ (962)
Denominator:
Weighted average common shares
outstanding - basic 14,952 14,777
Effect of dilutive securities (a)
Stock-based compensation plans -- --
Convertible preferred stock -- --
--------
Weighted average common and
common equivalent shares
outstanding - diluted 14,952 14,777
(a) Antidilutive
NOTE 7: COMMITMENTS AND CONTINGENCIES
There has been no change in the status of the Company's material outstanding
litigation as disclosed in the Company's Form 10-K for the period ended December
31, 2000.
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HOTELWORKS.COM, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2
DESCRIPTION OF BUSINESS
OVERVIEW
The Company believes that historical comparisons of revenue levels, gross profit
levels and gross profit percentages may not be meaningful on a period to period
basis because revenue recognition methodologies vary across the Company's
businesses. The Company recognizes revenues and the associated earnings of fixed
fee service contracts under the percentage of completion method. Under this
method, the Company recognizes earnings relating to the portion of the total
earnings anticipated from a contract which the efforts expended bears to the
estimated efforts over the life of the contract. Earnings for variable fee
service contracts are generally recognized upon completion of the associated
service. In addition, in the purchasing and reorder business, the Company
performs its services either acting as a principal, for which it functions in a
manner similar to a purchaser and reseller of merchandise, or as an agent. As an
agent, revenues include solely the service fee income and the cost of the
contracts includes labor and other direct costs associated with the contract and
those indirect costs related to contract performance. As a principal, the
revenues and costs of contracts also include the cost of the associated
merchandise purchased for the customer, which are recognized when the
merchandise is shipped directly from the vendor to the customer.
RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2001 vs. THREE MONTHS ENDED
MARCH 31, 2000.
Revenues for the three months ended March 31, 2001 were $32,076,000 compared to
$41,555,000 for the three months ended March 31, 2000. Sales in the purchasing
business declined from $31.6 million in 2000 to $26.1 million in 2001 primarily
as a result of the economic downturn and pricing pressures in the hotel industry
where development and renovation of hotel properties decreased. Sales in the
reorder business dropped from $4.6 million to $900,000 due primarily to the loss
of a significant customer in May 2000 and the conversion of a large percentage
of business with the largest remaining customer from principal to agent status,
whereby the merchandise sales and cost is no longer recorded on the Company's
books. Revenue dropped $305,000 or approximately 6% in the logistics business
due to a drop in development in Las Vegas, where the Company maintains a
warehouse and staff.
Cost of revenues for the quarter ended March 31, 2001 decreased to $29,798,000
as compared to $38,409,000 for the first quarter of 2000 due primarily to lower
revenues across all business segments.
Gross profit for the first quarter of 2001 was $2,278,000 or 7.1% of revenues,
compared to $3,146,000 or 7.6% of revenues for the first quarter of 2000. The
decrease in gross profit dollars was primarily attributable to the drop in
revenues. In gross profit percentages, the purchasing business accounted for
most of the decrease as it declined from 6.8% in the first quarter of 2000 to
3.3% primarily due to a drop in fee income and volume discounts as a result of
the drop in revenues.
Selling, general and administrative ("S,G&A") expenses remained relatively
unchanged between the three months ended March 31, 2001 and 2000. As a percent
of revenues, the first quarter of 2001 measured 12.3% compared to 9.5% for the
first quarter of 2000. The increase in the percent in the current quarter was
due to the decrease in revenues discussed above. In response to the economic
downturn and the resulting drop in revenues, the Company in the first quarter of
2001 instituted additional cost reductions, including employee layoffs and
expense reductions.
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The loss from operations for the quarter ended March 31, 2001 was $1,676,000
compared to a loss of $814,000 for the quarter ended March 31, 2000. The
increase in the loss in the current quarter was due to the factors cited above.
Interest expense decreased from $420,000 in the three months ended March 31,
2000 to $269,000 in the three months ended March 31, 2001. The decrease was due
to a drop in interest rates as the majority of the Company's long-term debt is
subject to variable interest rates, as well as the refinancing of the debt with
HSBC Bank USA in December 2000 whereby the debt currently accruing interest
dropped by approximately $5.5 million. Interest income decreased primarily due
to the drop in funds available for investment.
Due to the losses sustained in the three months ended March 31, 2001 and 2000
and the lack of any additional carryback opportunity, no provision or benefit
for income taxes was recorded.
Based on the above factors, the loss from operations increased from a loss of
$962,000 in the three months ended March 31, 2000 to a $1,871,000 loss in the
current three month period. Basic and diluted loss per share from operations
increased from a $0.07 loss in last year's first quarter to a loss of $0.13 in
the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's condensed consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
liquidity of the Company was severely affected during 1999 and 2000 by
significant losses from continuing operations and discontinued operations, which
has resulted in a significant deterioration of the stockholders' equity of the
Company. In addition, the Company projects negative cash flows from operations
in 2001. These circumstances raise substantial doubt about the Company's ability
to continue as a going concern.
Management has taken the following steps in 2001 to improve its operations and
reduce its losses from continuing operations. Management has (a) undertaken a
comprehensive review of its on-going businesses, (b) implemented steps to
improve the gross margin on its contracts by reducing overhead and labor costs,
(c) reduced its selling, general and administrative expenses from $22.7 million
in 1999 to $16.4 million in 2000 to a budgeted amount of $14.3 million in 2001,
and (d) sold its Orlando warehouse in March 2001, the proceeds of which were
used to payoff substantially all of the mortgage note and term loan with Bank of
America.
In March 2001, the Company's wholly-owned subsidiary, Bekins Distribution
Services, Inc. ("Bekins"), sold for $2,265,500 its warehouse facility in
Orlando, Florida, the net proceeds of which were used to repay its mortgage with
Bank of America, N.A. in full and reduce the remaining balance on the term loan
with Bank of America, N.A. to $107,000. In accordance with the Amended and
Restated Loan Agreement signed in September 2000, the remaining balance of the
term loan was transferred to the overadvance term loan and the term loan was
retired.
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In connection with the Company's Amended and Restated Loan Agreement with HSBC
Bank USA ("HSBC"), the Company executed a three-year promissory note with HSBC.
The note contains a covenant requiring the Company to submit quarterly financial
statements to HSBC within 45 days of quarter-end. Due to the late filing of this
Form 10-Q, the Company is not in compliance with this covenant. The Company will
cure the default upon the filing of this Form 10-Q. Additionally, HSBC has
notified the Company that they will not call the note as a result of this
violation.
For 2001, the Company projects a net cash flow deficit from operations and cash
requirements related to the development of its internet web-based reorder
system. The net cash flow deficit from operations for the first quarter of 2001
primarily relates to losses in the purchasing business. Management believes that
measures taken to positively impact profit and cash flows, including its review
of the on-going businesses' gross margins and related expense reductions, the
receipt of settlement payments from former officers and customers, the proceeds
from the sale of Bekins' Orlando warehouse, and its ability to defer certain
capital expenditures and other current payment obligations, if necessary, will
provide sufficient funds to cover cash flow deficits in 2001. However, there can
be no assurance that the measures taken will allow the Company to achieve
profitability or positive cash flows.
Net cash used by operating activities of continuing operations for the three
months ended March 31, 2001 was $2,172,000 compared to net cash used of
$3,208,000 for the three months ended March 31, 2000. During the current
quarter, cash was primarily used to fund the net loss of the Company. The cash
generated by the drop in accounts receivable and vendor deposits was entirely
offset by the cash used by the decrease in accounts payable and customer
deposits. These accounts dropped in the current first quarter due primarily to
the economic slowdown whereby the hotel industry delayed and in some instances
cancelled renovation projects and new construction.
Net cash used in operating activities of discontinued operations was $262,000
for the three months ended March 31, 2001 compared to net cash provided of
$207,000 in the three months ended March 31, 2000. The use of cash in 2001
primarily relates to expenses for litigation as claims against former customers
of the renovation business are pursued.
Net cash provided by investing activities was $1,807,000 for the three months
ended March 31, 2001 compared to net cash used of $267,000 for the three months
ended March 31, 2000. For the first quarter of 2001, cash was provided by the
sale of the Bekins warehouse in March 2001 offset by $270,000 of property and
equipment purchases. The use of cash in 2001 related entirely to purchases of
property and equipment.
Net cash used in financing activities for the first quarter of 2001 was
$2,306,000 compared to cash provided of $140,000 in the first quarter of 2000.
The use of cash in 2001 related to payments on long-term debt, primarily the use
of the warehouse sale proceeds by Bekins to payoff their mortgage with Bank of
America, N.A. and to substantially reduce the balance of their term loan with
Bank of America, N.A. For 2000, the proceeds from stock option and warrant
exercises exceeded the repayments of long-term debt by $140,000.
The Company has been notified that it has fallen below the continued listing
requirements of the American Stock Exchange ("AMEX"). Also, on April 20, 2001,
the AMEX halted trading of the Company's common stock because the Company had
failed to file its Form 10-K for the period ended December 31, 2000. The Company
filed its Form 10-K on June 21, 2001,( as amended on July 13, 2001) however, the
Company's Form 10-Q for the quarter ended March 31, 2001 was not filed on a
timely basis. Until the trading halt on the Company's common stock is lifted,
there is no public liquidity in the Company's common stock. As a result of
falling below the listing requirements, the AMEX may move to delist the common
stock and if the common stock is delisted, the Company's ability to raise
capital and its liquidity would be adversely affected.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Although the Company does maintain small offices outside the United States and
does conduct immaterial transactions in foreign currencies, the Company does not
believe that it has material exposure to risks associated with foreign currency
fluctuations related to its operations given the terms of its contracts with
customers. The Company does not use derivative financial instruments in its
operations. The Company does have exposure to market risks associated with
changes in interest rates given that the Company does maintain long-term debt
facilities which have variable interest rates. If short-term interest rates
averaged 1% more in the three months ended March 31, 2001, the Company's
interest expense and net loss would have increased by approximately $32,000.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of earnings per share (Incorporated herein by reference
to Note 6 to the Company's Condensed Consolidated Financial
Statements).
(b) Reports on Form 8-K
None.
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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.
HOTELWORKS.COM, INC.
/s/ DOUGLAS A. PARKER
---------------------------
Douglas A. Parker
Chief Executive Officer,
President and Director
/s/ JOHN F. WILKENS
---------------------------
John F. Wilkens
Vice President - Treasurer
(principal financial officer,
principal accounting officer)
Dated: July 23, 2001
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