10-K/A 1 g70496a1e10-ka.txt HOTELWORKS.COM, INC. AMEND #1 12/31/2000 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 [X] Annual Report under Section 13 or 15 (d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 [ ] Transition Report under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _________________ Commission file number 1-13381 HOTELWORKS.COM, INC. (Exact name of registrant as specified in its charter) NEW YORK 11-3096379 State or other jurisdiction of (IRS Employer incorporation or organization Identification No.) 201 ALHAMBRA CIRCLE, CORAL GABLES, FL 33134 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 305-774-3200 Securities registered under Section 12 (b) of the Exchange Act: COMMON STOCK, PAR VALUE $.01 PER SHARE Name of Exchange on which registered: AMERICAN STOCK EXCHANGE Securities registered under Section 12 (g) of the Exchange Act: NONE Check whether the Issuer: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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. [ ] YES [X] NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock, $.01 par value per share (the "Common Stock"), held by non-affiliates of the Registrant as of June 18, 2001 (based upon the last sale price for the Common Stock on the American Stock Exchange) was approximately $4,924,727. The number of shares of Common Stock outstanding as of June 18, 2001 was 15,112,867. 2 EXPLANATORY NOTE This Amendment No. 1 to the Form 10-K for the fiscal year ended December 31, 2000 of Hotelworks.com, Inc. (the "Company") is being filed to address certain requests from the staff of the Securities and Exchange Commission. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION REFORM ACT OF 1995 Except for historical information contained herein, this Annual Report on Form 10-K 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. Important factors that the Company believes might cause such differences are discussed in the cautionary statements accompanying the forward-looking statements in this Annual Report on Form 10-K. In assessing forward-looking statements contained herein, readers are urged to carefully read those statements. When used in the Annual Report on Form 10-K, 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. Such uncertainties include, among others, the following factors: GOING CONCERN The Company's 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 in 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 from $58.4 million at December 31, 1998 to $0.5 million at December 31, 1999 to a capital deficit of $1.8 million at December 31, 2000. In addition, the Company has a working capital deficiency and significant litigation. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Although management has taken measures intended to positively impact profit and cash flow, there can be no assurance that the measures taken will allow the Company to achieve profitability or maintain positive cash flows. RISKS OF FINANCIAL LEVERAGE Our long-term debt, including current portion, was approximately $18.0 million as of December 31, 2000, which is significant in relation to our total capitalization. While we believe that we will be able to service our debt, there can be no assurance to that effect. The degree to which we are leveraged could affect our ability to service our indebtedness, make capital expenditures, respond to market conditions and extraordinary capital needs, take advantage of certain business opportunities or obtain additional financing. Unexpected declines in our future business, or the inability to obtain additional financing on terms acceptable to us, if required, could impair our ability to meet our debt service obligations or fund acquisitions and therefore, could have material adverse effect on our business and future prospects. LIMITATIONS ON CAPITAL RAISING FUNCTIONS;STOCK LIQUIDITY ISSUES 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. 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. If the Company's common stock is delisted, the Company will likely apply to have its stock traded over-the-counter, more commonly known as the OTC market. OTC transactions 2 3 involve risks in addition to those associated with transactions in securities traded on an exchange. Many OTC stocks trade less frequently and in smaller volume than exchange-listed stocks and the values of these stocks may be more volatile than exchange-listed stocks. If the Company's stock is traded in the OTC market and a market maker sponsors the Company, the Company may have the price of its stock electronically displayed on the OTC Bulletin Board, or OTCBB. However, if the Company lacks sufficient market maker support for display on the OTCBB, it must have its price published by the National Quotations Bureau LLP in a paper publication known as the "Pink Sheets". The marketability of the Company's stock will be even more limited if its price must be published on the "Pink Sheets". In addition, the financial statements included in this Form 10-K do not meet all of the requirements under the rules and regulations of the Securities and Exchange Act of 1934, as amended, because our predecessor auditor has declined to accept the engagement to reissue their opinion on our 1998 and 1999 financial statements included in this Form 10-K because of an ongoing fee and service dispute with our predecessor auditor. As a result, we are currently restricted from filing registration statements with the Securities and Exchange Commission, which adversely affects our liquidity and our ability to raise capital. Additionally, there is no assurance that if our predecessor auditor were to reissue their opinion on our 1998 and 1999 financial statements, it would be issued in its original form and without qualification. SUPPLIER RELATIONSHIPS The Company's purchasing arrangements with suppliers of hospitality-related products are by purchase order and terminable at will by either party. There can be no assurance that any of the Company's supplier relationships will not be terminated in the future. While the Company has been able to obtain products on a timely basis in the past, the Company is subject to the risk that it will be unable to purchase sufficient products to meet its clients' requirements. Any shortages or delays in obtaining these products could have a material adverse effect on the Company. RISKS RELATED TO INTANGIBLE ASSETS As of December 31, 2000, intangible assets totaled approximately 16% of our total assets. For the year ended December 31, 1999, the Company recorded an asset impairment charge of approximately $9.3 million. At December 31, 2000, we did not consider any of the unamortized balance of intangible assets to be impaired. Any future determination, based on reevaluation of the underlying facts and circumstances, that a significant impairment has occurred would require the write-off of the impaired portion of un-amortized intangible assets, which could have a material effect on our business and results of operations. RISK ASSOCIATED WITH COLLECTION OF ACCOUNTS RECEIVABLE The Company carries accounts receivable at the amount it deems to be collectible. Accordingly, the Company provides allowances for accounts it deems to be uncollectible based on management's best estimates. Recoveries are recognized in the period they are received. The ultimate amount of accounts receivable that becomes uncollectible could differ from those estimated, which could have a material adverse effect on the Company. STOCKHOLDER RIGHTS PLAN The Company's Board of Directors adopted a Stockholder Rights Plan. These rights may have the effect of discouraging a third party from making an acquisition proposal for the Company and may thereby inhibit a change in control. For example, such provisions may deter tender offers for shares of common stock, which be attractive to shareholders, or deter purchases of large blocks of common stock, thereby limiting the opportunity for shareholders to receive a premium for their shares of common stock or exchangeable shares over the then-prevailing market prices. POSSIBLE ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK; POTENTIAL DILUTION OF COMMON STOCK The Company's Certificate of Incorporation authorizes the Board of Directors to issue up to 3,000,000 shares of preferred stock, par value $ .01 per share (the "Preferred Stock"). The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuances by the Board of Directors, without further action by shareholders. As of the date of this Form 10-K, 1.0 million shares of 8% convertible preferred stock (the "HSBC Preferred") are outstanding, which shares were issued in connection with the restructuring of a loan with HSBC Bank. Although the Company currently has no plans for the issuance of additional shares of Preferred Stock, there can be no assurance that the Company will not do so in the future. The ability of the Board of Directors to issue Preferred Stock could have the effect of delaying, deferring or preventing a change of control of the Company or the removal of 3 4 existing management and, as a result, could prevent the shareholders of the Company from being paid a premium over the market value for their shares of Common Stock. The risk factors described above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by or on behalf of us. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrences of unanticipated events. New factors emerge from time to time and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. PART I ITEM 6. SELECTED FINANCIAL DATA (a) In September 1999, Hotelworks.com, Inc. announced a strategic initiative to reposition the core purchasing, reorder and logistics businesses into a business-to-business e-commerce company 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. Given the change in strategic direction, the operating results of the purchasing, reorder and logistics businesses are presented as continuing operations and the operating results associated with the renovation, real estate investment and asset management, and hotel development businesses, as well as the estimated losses on disposal, are presented as discontinued operations in the consolidated statements of operations for all years presented. The following table presents selected financial data for the Company for each of the five years in the period ended December 31, 2000. The information in the table has been restated to reflect such amounts related solely to the continuing operations of the Company, comprising the purchasing and reorder businesses acquired in January 1997 and the logistics business acquired in January 1998. All amounts are in thousands except per share amounts.

------------ (a) No cash dividends were declared during the five-year period presented above. (b) Certain amounts have been reclassified for the effects of Emerging Issues Task Force Issue 00-10, "Accounting for Shipping and Handling Fees and Costs". (c) Includes revenues of LPC and Parker Reorder from the date of acquisition, January, 1997. (d) Includes revenues of Bekins from the date of acquisition, January, 1998. (e) See ITEM 7, RESULTS OF OPERATIONS: 1999 COMPARED TO 1998 for further description of this amount. 4 5 ITEM 8. FINANCIAL STATEMENTS See Index to Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On April 21, 2000, Arthur Andersen LLP ("Andersen") resigned as the Company's independent accountants. Andersen's accountants' report on the consolidated financial statements of the Company for the year ended December 31, 1999 did not contain an adverse opinion or a disclaimer of opinion but did contain a modification expressing substantial doubt about the Company's ability to continue as a going concern. There were no other reportable events or disagreements with Andersen in response to Item 304 of Regulation S-K. The Company is involved in an ongoing fee and service dispute with Andersen. In light of this dispute, Andersen has declined to accept the engagement to reissue their opinion on the 1998 and 1999 financial statements included in this Form 10-K. The most recent Exchange Act filing in which Andersen's opinion on the 1998 and 1999 financial statements are presented was the Company's Form 10-K for the year ended December 31, 1999. There is no assurance that, if Andersen were to reissue their opinion on the 1998 and 1999 financial statements, it would be issued in its original form and without qualification. On June 26, 2000, BDO Seidman LLP was engaged as the independent accountants to the Company. 5 6 PART IV ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K. (a) Index of Financial Statements of Hotelwork.com Inc. (1) Financial Statements included under Item 8: Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Operations for years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements (2) Financial Statements Schedules: Schedule I - Condensed Financial Information of Registrant Schedule II - Valuation and Qualifying Accounts (3) Report of Independent Certified Public Accountants 6 7 (b) Exhibits EXHIBIT NUMBER EXHIBITS -------------- -------- 3.1 Certificate of Incorporation, as amended, of the Company. 3.2 Amended and Restated By-laws of the Company. 4.1 Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form SB-2, No. 33-7094-NY). 4.2 Rights Agreement dated as of November 24, 1997, by and between the Company and Continental Stock Transfer & Trust Company, as rights agent (the "Rights Agreement") (Incorporated by reference to the Company's Registration Statement on Form 8-A filed with the Commission on December 2, 1997). 4.3 Amendment to Rights Agreement dated January 7, 1998 (Incorporated by reference to Exhibit 4.3 of the Company's Form 10-K for the year ended December 31, 1997). 10.1 Asset Purchase Agreement dated as of April 1, 1995, by and among AGF Interior Services Co., Watermark Investments Limited (Bahamas), Watermark Investments Limited (Delaware), HRB, the Company and Tova Schwartz (Incorporated by reference to the Company's Current Report on Form 8-K dated August 22, 1995). 10.2 Divestiture, Settlement and Reorganization Agreement dated as of February 26, 1996, by and among the Company, HRB, Watermark Investments Limited (Bahamas), Watermark Investments Limited (Delaware), AGF Interior Services Co., Tova Schwartz, Alan G. Friedberg and Guillermo Montero (Incorporated by reference to Exhibit 10.2 of the Company's Form 10-KSB for the year ended December 31, 1995). 10.3 Memorandum Agreement dated April 12, 1996, by and between the Company and Watermark (Incorporated by reference to Exhibit 10.3 of the Company's Form 10-KSB for the year ended December 31, 1995). 10.4 Bill of Sale and Assumption Agreement dated February 26, 1996, by and between the Company and Tova Schwartz (Incorporated by reference to Exhibit 10.4 of the Company's Form 10-KSB for the year ended December 31, 1995). 10.5 Consulting Agreement dated February 28, 1996, by and between to Company and Resource Holdings Associates (Incorporated by reference to Exhibit 10.6 of the Company's Form 10-KSB for the year ended December 31, 1995). 10.6 Employment Agreement, dated January 1, 1998, by and between the Company and Robert A. Berman (Incorporated by reference to Exhibit 10.6 to the Amendment No. 1 to the Company's Form 10-K, filed on April 29, 1998, for the year ended December 31, 1997). 10.7 Employment Agreement, dated January 1, 1998, by and between the Company and Howard G. Anders (Incorporated by reference to Exhibit 10.7 to the Company's Form 10-K filed on April 29, 1998, for the year ended December 31, 1997). 10.8 1996 Stock Option Plan (Incorporated by reference to Exhibit 4(a) to the Company's Registration Statement on Form S-8 filed on February 12, 1997, File No. 333-21689). 10.9 Form of Option Agreement for the 1996 Plan (Incorporated by reference to Exhibit 4(b) to the Company's Registration Statement on Form S-8 filed on February 12, 1997, File No. 333-21689). 10.10 Form of Stock Agreement for the Outside Directors' Plan (Incorporated by reference to Exhibit 4(c) to the Company's Registration Statement on Form S-8 filed on February 12, 1997, File No. 333-21689). 10.11 Form of Option Granted to Officers (Incorporated by reference to Exhibit 4(d) to the Company's Registration Statement on Form S-8 filed on February 12, 1997, File No. 333-21689). 10.12 Agreement and plan of Merger dated as of January 9, 1997, by and among Leonard Parker Company, LPC Acquisition Corp., and the Company (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed January 24, 1997). 10.13 Employment Agreement, dated as of January 9, 1997, by and among The Leonard Parker Company, the Company and Leonard Parker (Incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form SB-2 filed July 22, 1997, No. 333-31765). 10.14 Employment Agreement, dated January 1, 1998, by and between the Company and Douglas Parker (Incorporated by reference to Exhibit 10.14 to the Amendment No. 1 to the Company's Form 10-K, filed on April 29, 1998, for the year ended December 31, 1997). 7 8 EXHIBIT NUMBER EXHIBITS -------------- -------- 10.15 Registration Rights Agreement, date as of January 9, 1997, by and among the Company, Leonard Parker, Douglas Parker, Bradley Parker, Philip Parker, Gregg Parker and Mitchell Parker (Incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form SB-2 filed July 22, 1997, No. 333-31765). 10.16 Agreement to Joint Venture, dated as of May 12, 1997, by and among Apollo Real Estate Advisors II, L.P., the Registrant and Watermark Investments Limited, LLC. (Incorporated by reference to Exhibit 10.19 to the Company's Registration Statement on Form SB-2 filed July 22, 1997, No. 333-31765). 10.17 Warrant dated May 12, 1997 issued to Apollo Real Estate Advisors II, L.P. (Incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form SB-2 filed July 22, 1997, No. 333-31765). 10.18 Agreement and Plan of Merger, dated as of January 1, 1998, by and among the Company, HWS Acquisition Corp., a Delaware corporation, Bekins Distribution Services Co., Inc. and the Sellers named therein (Incorporated by reference to Exhibit 2.1 the Company's Current Report on Form 8-K dated January 9, 1998). 10.19 Registration Rights Agreement dated as of January 1, 1998, by and among the Company and the Shareholders named therein (Incorporated by reference to Exhibit 10.1 to the Company's Amended Current Report on 8-K, dated September 16, 1998). 10.20 Financial Advisory Agreement dated April 10, 1997, by and between the Company and Resource Holdings Associates (Incorporated by reference to the Company's Registration Statement on Form SB-2, No. 333-31765). 10.21 Master Development Agreement, dated June 5, 1998, by and between the Company and Prime Hospitality Corp. (Incorporated by reference to Exhibit 10 to the Company's Form 10-Q for the quarter ended June 30, 1998). 10.22 Stock Purchase Agreement, dated March 31, 1999, by and among the Company, Watermark Investments Limited, LLC, Leonard Parker, Douglas Parker, Philip Parker, Mitchell Parker, Gregg Parker and Bradley Parker. 10.23 Agreement, by and between the Company and Watermark Investments Limited, LLC, as terminated by Termination Agreement, dated September 30, 1999 (Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended Sept 30, 1999). 10.24 Termination Agreement, dated September 30, 1999, by and between the Company and Robert A. Berman (Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended September 30, 1999). 10.25 Employment Agreement, dated September 1, 1999, by and between the Company and John F. Wilkens (Incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q for the quarter ended September 30, 1999). 10.26 Stipulation of Settlement and Mutual Release between Hospitality Worldwide Services and Prime Hospitality Corporation dated December 14, 1999. 10.27 Hospitality Worldwide Services, Inc. 1999 Stock Option Plan. 10.28 Second Amended and Restated Loan Agreement between Bank of America, N.A. and Bekins Distribution Services Co., Inc. dated September 1, 2000 (Incorporated by reference to Exhibit 10.28 to the Company's Form 10-Q for the quarter ended September 30, 2000). 10.29 Overadvance Term Note by Bekins Distribution Services Co., Inc. in favor of Bank of America, N.A. dated September 1, 2000 (Incorporated by reference to Exhibit 10.29 to the Company's Form 10-Q for the quarter ended September 30, 2000). 10.30 Revolving Note by Bekins Distribution Services Co., Inc. in favor of Bank of America, N.A. dated September 1, 2000 (Incorporated by reference to Exhibit 10.30 to the Company's Form 10-Q for the quarter ended September 30, 2000). 10.31 Amended and Restated Agreement among the Company, HSBC Bank USA and Hospitality Restoration and Builders, Inc. dated December 15, 2000. 11 Computation of earnings per share (Incorporated herein by reference to Note 16 to the Company's Consolidated Financial Statements). 21 Subsidiaries of the Company. (c) Reports on Form 8-K The Company filed a Form 8-K on December 31, 2000, to report that it had negotiated and executed an Amended and Restated Agreement with HSBC Bank USA. 8 9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated:July 13, 2001 By: /s/ DOUGLAS A. PARKER --------------------------------------------- Douglas A. Parker, Chief Executive Officer, (principal executive officer) President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

9 10 ITEM 8. FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS

F-1 11 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Hotelworks.com, Inc. Coral Gables, Florida We have audited the accompanying consolidated balance sheet of Hotelworks.com as of December 31, 2000 and the related consolidated statements of operations, (capital deficit) and cash flows for the year then ended. We have also audited the schedules listed in the accompanying index. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedules based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and the schedules. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hotelworks.com at December 31, 2000, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the schedules present fairly, in all material respects, the information set forth therein as of and for the year ended December 31, 2000. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered significant recurring losses from operations, has a net capital deficiency, a working capital deficiency and is engaged in significant litigation that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO Seidman, LLP Miami, Florida June 6, 2001 F-2 12 HOTELWORKS.COM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

See accompanying report of independent certified public accountants and notes to consolidated financial statements. F-3 13 HOTELWORKS.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying report of independent certified public accountants and notes to consolidated financial statements. F-4 14 HOTELWORKS.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (UNAUDITED WITH RESPECT TO 1999 AND 1998)

See accompanying report of independent certified public accountants and notes to consolidated financial statements. F-5 15 HOTELWORKS.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying report of independent certified public accountants and notes to consolidated financial statements. F-6 16 HOTELWORKS.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying report of independent certified public accountants and notes to consolidated financial statements. F-7 17 HOTELWORKS.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED WITH RESPECT TO 1999 AND 1998 INFORMATION) 1. ORGANIZATION AND BUSINESS Hotelworks.com, Inc., formerly known as Hospitality Worldwide Services, Inc., (the "Company"), was incorporated in the State of New York on October 10, 1991. Through its wholly owned operating subsidiaries, the Company performs purchasing services of furniture, fixtures and equipment, and operating supplies and equipment for leading hotels and hospitality customers; performs reorder services of operating supplies and equipment for leading hotel and hospitality customers; and performs logistics services, including transportation, warehousing and installation, to a wide variety of customers. Through September 1999, the Company's core businesses also included providing renovation services to the hospitality industry as well as being active in the real estate investment and asset management business. 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. As a result, the Company has reflected the operating results associated with the renovation, real estate investment and asset management, and hotel development businesses, as well as the estimated losses on disposal, as discontinued operations on the consolidated statements of operations for all years presented. Discontinued operations are further discussed in Note 4. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain prior year balances have been reclassified in the consolidated financial statements in order to provide a presentation consistent with the current year. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management believes that the estimates utilized in preparing the Company's financial statements are reasonable and prudent, however, actual results could differ from those estimates. The most significant estimates for the Company relates to the recognition of revenues under the percentage of completion method for its purchasing and logistics businesses, and the estimation of reserves for asset realizability and contingent liabilities. To the extent that contracts extend over more than one reporting period, revisions in estimated earnings and the estimated efforts during the course of the work are reflected in the year in which the facts which require the revision become known. Due to the uncertainties inherent in the estimation process, it is reasonably possible that such estimates will be revised over the next year. When a loss is forecasted for a contract, the full amount of the anticipated loss is recognized in the period in which it is determined that a loss will occur. F-8 18 REVENUE RECOGNITION PURCHASING BUSINESS (LPC) The Company recognizes earnings for fixed fee service contracts under the percentage of completion method. Under this method, the Company recognizes as earnings that portion of the total earnings anticipated from a contract measured by which the ratio of efforts expended bears to the estimated efforts over the life of the contract. Earnings for variable fee service contracts, where the fee is usually a percentage of the merchandise purchased, are generally recognized upon completion of the associated service. The Company performs purchasing 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 cost of the contracts also include the associated merchandise purchased for the customer, which are recognized when the merchandise is shipped directly from the vendor to the customer. Customer deposits consist of amounts remitted to the Company by customers as deposits on specific contracts. Deposits with vendors consist of amounts paid by the Company to vendors on specific contracts. REORDER BUSINESS (PARKER REORDER) The Company recognizes earnings for variable fee service contracts, where the fee is usually a percentage of the merchandise purchased, upon completion of the associated service. The Company performs reorder 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 cost of the contracts also include the associated merchandise purchased for the customer, which are recognized when the merchandise is shipped directly from the vendor to the customer. LOGISTICS BUSINESS (BEKINS) The Company recognizes earnings on logistics and installation services under the percentage of completion method. Under this method, the Company recognizes as earnings that portion of the total earnings anticipated from a contract measured by which the ratio of efforts expended bears to the estimated efforts over the life of the contract. The cost of the contracts includes labor and other direct costs associated with the contract, including warehousing and transportation costs, and those indirect costs related to contract performance. DEPRECIATION AND AMORTIZATION The Company calculates depreciation on property and equipment on the straight-line method. Estimated useful lives are as follows: office equipment, 5 years; software, 5 years; furniture and fixtures, 7 years; and building and improvements, 25 years. Leasehold improvements to property used in the Company's operations are amortized on a straight-line basis over the lease terms. Maintenance and repairs are expensed currently, while expenditures for betterments are capitalized. F-9 19 WEB SITE DEVELOPMENT The Emerging Issues Task Force ("EITF") recently issued EITF Issue No. 00-2, Accounting for Web Site Development Costs, in which the Task Force specified the types of costs that should be capitalized and those that should be expensed relating to web site development costs. The EITF is effective for web site development costs incurred for fiscal quarters beginning after June 30, 2000, including costs incurred for projects in process as of the beginning of the quarter in which the new rules are adopted, with earlier application encouraged. In connection with the adoption of this EITF, the Company capitalized $221,872 of web site development costs and expensed $17,829 of web site costs for the year ended December 31, 2000. The capitalized costs are included in property and equipment, net in the accompanying consolidated balance sheet. The Company will amortize the web site development costs over 3 years. LONG-LIVED ASSETS Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such review indicates that the asset is impaired, when the carrying amount of an asset exceeds the sum of its expected future cash flows, on an undiscounted basis, the asset's carrying amount is written down to fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. GOODWILL Goodwill is amortized on a straight-line basis over its estimated useful life of 30 years. Goodwill represents the costs of an acquisition in excess of the fair value of net assets acquired at the date of acquisition. Accumulated amortization was $1,359,391 and $959,792 at December 31, 2000 and 1999, respectively. EARNINGS PER COMMON SHARE Basic earnings per common share are based on net income less preferred stock dividends divided by the weighted average number of common shares outstanding. Diluted earnings per common share are adjusted to reflect the incremental number of shares issuable under stock-based compensation plans, contingently issuable shares, the assumed conversion of convertible preferred stock and the elimination of the preferred stock dividends, if such adjustments are dilutive. INCOME TAXES Deferred income tax assets or liabilities are computed based on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or benefits are based on the changes in the asset or liability from period to period. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with maturities of 90 days or less to be cash equivalents. STOCK-BASED COMPENSATION The Company accounts for its stock-based employee compensation plans using the intrinsic value based method, under which compensation cost is measured as the excess of the stock's market price at the grant date over the amount an employee must pay to acquire the stock. Expenses related to stock options and warrants issued to non-employees are accounted for using the fair value based method, under which the cost is measured as the fair value of the security at the date of grant based on option-pricing models. F-10 20 FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable, accrued and other liabilities and long-term debt approximate the fair values as of December 31, 2000, due to the short-term maturity of these instruments. The carrying amounts as of December 31, 2000 of costs and estimated earnings in excess of billings, deposits with vendors, billings in excess of costs and estimated earnings, and customer deposits approximate fair value as these amounts are due or payable within the Company's operating cycle. SHIPPING AND HANDLING FEES The Company includes shipping and handling fees billed to customers as revenues and the related costs as cost of revenues. Such fees and costs are primarily comprised of outbound freight. Included in revenues in the accompanying consolidated statements of operations for the years ended December 31, 2000, 1999 and 1998 are shipping and handling fees of approximately $8,900,000, $8,248,000 and $6,990,000, respectively. Amounts for prior periods presented have been reclassified. ADVERTISING COSTS The Company expenses advertising costs as incurred. Advertising expenses included in selling, general and administrative expenses for the years ended December 31, 2000, 1999 and 1998 were approximately $125,000, $100,000 and $160,000, respectively. NEW ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which provides that all derivative instruments should be recognized as either assets or liabilities depending on the rights and obligations under the contract and that all derivative instruments be measured at fair value. This pronouncement is required to be adopted by January 1, 2001. The Company did not engage in derivative instruments or hedging activities in any periods presented in the consolidated financial statements. Management has determined that the adoption of this pronouncement will not have a material impact on the Company's consolidated financial statements. Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements", provides guidance on the recognition, presentation and disclosure of revenues in financial statements and requires adoption no later than the fourth fiscal quarter of fiscal years beginning after December 31, 1999. The Company implemented SAB during 2000, and its adoption did not have a material impact on the Company's consolidated financial statements. In September 2000, the Emerging Issues Task Force ("EITF") issued EITF Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs" which requires companies to record shipping and handling fees charged to customers as revenues and the related costs as expenses. The Company implemented EITF 00-10 as of October 1, 2000. Amounts relating to prior periods presented have been reclassified to conform to the new issue. Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities", provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS 140 replaces SFAS 125 and is effective for transfers and servicing of financial assets and extinguishments occurring after March 31, 2001. SFAS 140 is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of SFAS 140 did not have a material impact on the Company's consolidated earnings or financial statements. F-11 21 In March, 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation. Interpretation No. 44 provides criteria for the recognition of compensation expense in certain stock-based compensation arrangements that are accounted for under Accounting Principles Board Opinion No. 25, Accounting for Stock Based Compensation. Interpretation No. 44 became effective July 1, 2000, with certain provisions that are effective retroactively to December 15, 1998 and January 12, 2000. The adoption of Interpretation No. 44 did not have a material impact on the Company's consolidated financial statements. 3. GOING CONCERN The Company's consolidated financial statements have been presented on the basis that the Company will continue as 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 in 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 from $58.4 million at December 31, 1998 to $0.5 million at December 31, 1999 to a capital deficit of $1.8 million at December 31, 2000. In addition, the Company has a working capital deficiency and is engaged in significant litigation (see Note 13). These circumstances raise substantial doubt about the Company's ability to continue as a going concern. The losses from continuing operations in 1999 emanated from a reduction in the gross margins realized within the purchasing business as compared to prior years; an increase in selling, general and administrative expenses due to an expansion of the administrative staff of the on-going businesses and expenses related to employee terminations and other costs associated with the closing of the Company's corporate office in New York; and an asset impairment charge of $9.3 million related to the Parker FIRST software product. Management has taken the following steps in 2000 and 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 and by reducing overhead and labor costs, (c) reduced its selling, general and administrative expenses, (d) successfully renegotiated defaulted credit lines and (e) sold its Orlando warehouse in March 2001, the proceeds of which were used to pay-off substantially all of the mortgage note and term loan with Bank of America. As further discussed In Note 4, the losses from discontinued operations in prior years relate to the Company's decision to divest itself of its renovation, real estate investment and asset management, and hotel development businesses. Management has been diligently attempting to resolve any remaining open matters relating to these businesses to avoid any further financial deterioration to the Company. Management believes that the reserves established in 1999 will be sufficient to cover any future obligations related to these discontinued operations and to bring all open matters to closure. In September 2000, the Company's wholly-owned subsidiary, Bekins, executed an Amended and Restated Loan Agreement with Bank of America, N.A. whereby the proceeds were primarily used to pay-off the Company's defaulted unsecured line of credit. As part of this Agreement, Bekins also restructured its term loan and mortgage note payable with Bank of America, N.A. to eliminate their default status. In conjunction with this Agreement, Bank of America, N.A. dismissed its legal action against the Company. In March 2001, Bekins sold for $2,265,500 its warehouse facility in Orlando, Florida, the net proceeds of which were used to repay the mortgage in full and reduce the remaining balance on the term loan to $107,000. In accordance with the Agreement, the remaining balance of the term loan was transferred to the overadvance term loan and the term loan was retired. In December 2000, the Company executed an Amended and Restated Loan Agreement with HSBC Bank USA ("HSBC"). This Agreement consists of two debt instruments and $1 million of convertible preferred stock, which were used to pay off the Company's defaulted unsecured line of credit with HSBC. F-12 22 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 of approximately $200,000. The net cash flow deficit from operations for 2001 primarily relates to continued losses of the Parker Reorder business and corporate expenses. Management believes that its review of the on-going businesses' gross margins and related expenses, 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. Net cash provided by operating activities of continuing operations was $1,580,351 for the year ended December 31, 2000, compared to net cash used of $8,407,793 for 1999. During the year ended December 31, 2000, cash primarily generated from an increase in accounts payable and customer deposits and by a decrease in income taxes refundable was partially offset by an increase in accounts receivable and deposits with vendors. 4. 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. As a result, the Company has reflected the operating results associated with the renovation, real estate investment and asset management, and hotel development businesses, as well as the estimated losses on disposal, as discontinued operations on the consolidated statements of operations for all years presented. The loss from operations, net of taxes, for the discontinued businesses was $22,589,150 in 1999. The income from discontinued operations, net of taxes, was $2,192,812 for 1998. The loss on disposal, net of taxes, was $17,169,880 and $90,900 for 1999 and 1998, respectively. The loss on disposal principally includes reserves and write-offs of certain investments and receivables to their estimated recoverable amounts, the write-off of goodwill associated with these businesses, and accruals for estimated liabilities and operating losses during the phase-out period for the discontinued businesses. The gain on disposal, net of taxes, was $204,671 for 2000 and was related primarily to the reversal of an accrued liability recorded as a loss on disposal in 1999 on the Apollo Joint Venture. HOTEL DEVELOPMENT BUSINESS In December 1997, the Company formed a wholly owned subsidiary, Hospitality Development Services Corporation ("HDS"). HDS was to provide hotel development services involving managing and overseeing the development process related to new hotel construction, to earn a developers fee. HDS commenced operations in 1998. On January 6, 1998, the Company reached an agreement in principle to enter into a master development agreement with Prime Hospitality Corp. ("Prime") to develop up to 20 hotel properties over a two-year period under the AmeriSuites brand name. In June 1998, the Company and Prime executed the master development agreement. In late 1998, the Company was informed by Prime that Prime was no longer going to pursue new development opportunities and that Prime was abandoning their responsibilities under the master development agreement, even though the Company had incurred significant costs up to such time. As a result, in December 1998, management decided to discontinue its hotel development business. The Company ceased its hotel development operations in April 1999. In December 1999, the Company and Prime reached an agreement to terminate the master development agreement, whereby the Company received a settlement payment of $300,000 and both parties agreed to a full release of obligations and claims. The loss on disposal for the year ended December 31, 1999 includes approximately $1,670,000 of additional write-offs to record certain real estate development projects to the amount realized by the Company. The loss on disposal for the year ended December 31, 1998 included $150,000 of estimated operating losses during the phase-out period. F-13 23 RENOVATION BUSINESS The Company provided renovation services to the hospitality industry, through its wholly owned subsidiary, Hospitality Restoration & Builders, Inc. ("HRB"). HRB provided a complete package of renovation services to the hotel industry, ranging from pre-planning and scope preparation of a project to performing the renovation requirements and delivering furnished rooms. In November 1997, the Company formed a wholly owned subsidiary, Hospitality Construction Corporation ("HCC"), to specialize in new hotel construction projects and major hotel upgrades. HCC's operations commenced in 1998 and related solely to hotel upgrade and renovation projects, and did not include any new hotel construction projects. In an effort to consolidate operations, the Company transferred the HCC operations to HRB in 1998. In September 1999, as part of the Company's strategic initiative discussed above, the Company decided to divest itself of its renovation business. The Company transferred certain in-process renovation contracts to a company owned by the former President of the renovation subsidiary in November 1999. The Company ceased the remaining renovation operations in 2000. However, the resolution date as to certain disputed receivables with customers related to specific renovation projects which have been substantially completed is uncertain. Losses from discontinued operations for 1999 and 1998 include provisions on contract receivables of approximately $17,090,000 and $8,863,000 related to renovation projects (including approximately $15,400,000 and $5,500,000, respectively, relating to the Servico litigation, see Note 13 c), which have been substantially completed but have not yet been closed out with customers. The loss on disposal in 1999 includes additional provisions on contract receivables of $2,075,000, a write-off of goodwill of approximately $5,000,000 and anticipated operating losses during the phase-out period of $2,066,000. In December 2000, as part of an Amended and Restated Loan Agreement with HSBC Bank USA ("HSBC"), HRB assigned a portion of its contract right in a disputed receivable with a former customer to HSBC in the form of a five-year $4,585,000 promissory note, bearing interest at the bank's prime rate. This HRB note is secured solely by its interest in the receivable and any collections are to be divided between HRB and HSBC according to a prescribed formula. At maturity, HRB has the option of extending the term for an additional twelve months, at which time, if the disputed receivable has not been resolved, title in full of the contract right along with the related debt passes to HSBC (see Note 10). REAL ESTATE INVESTMENT AND ASSET MANAGEMENT BUSINESS In May 1997, the Company entered into a joint venture ("Apollo Joint Venture") with Apollo Real Estate Advisors II, L.P. ("Apollo") and Watermark Investments Limited, LLC ("Watermark"), which is affiliated with Robert Berman, the former Chairman and Chief Executive Officer of the Company, to identify, acquire, renovate, refurbish and sell hotel properties. The Company performed the renovation and procurement services for the properties purchased by the Apollo Joint Venture. In addition, the Company acquired a non-controlling equity interest in each of the entities formed to purchase such properties. In September 1997, the Apollo Joint Venture acquired the Warwick Hotel in Philadelphia, Pennsylvania. The Company made cumulative capital contributions of approximately $791,000 to the joint venture operating entity that was formed to purchase the property. In March 1998, the Apollo Joint Venture acquired the Historic Inn in Richmond, Virginia. The Company made cumulative capital contributions of approximately $311,000 to the joint venture operating entity that was formed in connection with the purchase of the property. In September 1999, as part of the Company's strategic initiative discussed above, the Company decided to divest itself of its real estate investment and asset management business. F-14 24 In October 2000, the Company entered into an agreement to restructure its involvement in the Apollo Joint Venture. As a result of the restructuring, the Company exchanged mutual releases with Apollo, which released the Company from future obligations to the joint venture. In conjunction with this agreement, the Company surrendered its equity ownership interest, the Company issued 100,000 unregistered shares of its Common Stock to Apollo, warrants formerly issued to Apollo were returned to the Company and cancelled, and the Company received payment on its remaining receivables with the properties. The Company wrote off its investment in the Apollo Joint Venture in 1999, and as such, this agreement did not have a material impact on the current year financial statements. As a result of the agreement, the Company reversed an accrued liability recorded in 1999 related to the Apollo Joint Venture and recorded a gain on disposal of $204,671 in the 2000 consolidated statement of operations. In March 1998, the Company entered into a joint venture with ING Realty Partners ("ING Joint Venture"), to acquire the Radisson O'Hare (formerly Clarion Quality) Hotel in Chicago, Illinois, whereby the Company acquired a non-controlling equity interest in the ING Joint Venture. The Company also performed the renovation and procurement services for the property. The Company made cumulative capital contributions of approximately $3.2 million to the ING Joint Venture. In September 1999, as part of the Company's strategic initiative discussed above, the Company decided to divest itself of its real estate investment and asset management business. In May 2000, the Company entered into an agreement to restructure its involvement in the ING Joint Venture. As a result of the restructuring, the Company exchanged mutual releases with its joint venture partner, which released the Company from future obligations to the joint venture, in exchange for its equity ownership interest. The Company wrote off its investment in the ING Joint Venture in 1999, and as such, this agreement did not have a material impact on the 2000 financial statements. In February 1998, the Company formed a wholly owned subsidiary, HWS Real Estate Advisory Group, Inc. ("HWS REAG") to purchase the assets of Watermark's real estate advisory business, consisting primarily of contracts to perform future asset management and advisory services as well as certain equity interests in the Apollo Joint Venture. The purchase price for such business was $1,500,000 of cash. The acquisition was accounted for as a purchase with the results of HWS REAG included in the consolidated financial statements of the Company from the acquisition date. On September 30, 1999, the Company and Watermark entered into a Termination Agreement whereby all agreements between the parties were terminated, and among other things, includes a payment by Watermark to the Company of $885,000, that was made in December 1999. The Company's real estate investment and asset management business was comprised of the HWS REAG operations and investments in various real estate ventures, including the Apollo Joint Venture and ING Joint Venture discussed above. In September 1999, as part of the Company's strategic initiative discussed above, the Company decided to divest itself of its real estate investment and asset management business. The Company disposed of its real estate investments, and ceased the real estate asset management and advisory operations in 2000. Losses from discontinued operations for 1999 include the write-off of certain real estate investments and receivables no longer deemed realizable of approximately $500,000. The loss on disposal for 1999 includes the write-off of goodwill of $450,000 and write-downs and reserves in connection with the anticipated disposal of real estate investments of approximately $4,900,000 to record such investments at their estimated recoverable amounts. SUMMARY OF FINANCIAL INFORMATION The Company has reflected the operating results associated with the renovation, real estate investment and asset management, and hotel development businesses, as well as the estimated losses on disposal, as discontinued operations on the consolidated statements of operations for all years presented. Results of these operations, as presented in accompanying consolidated statements of operations, are as follows: F-15 25

The remaining assets and liabilities of the discontinued operations as of December 31, 2000 and 1999, as presented in the accompanying consolidated balance sheets, are as follows:

F-16 26 Net current liabilities of discontinued operations at December 31, 2000 and 1999, 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 unapproved 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. 5. ASSET IMPAIRMENT CHARGE As a result of the Company's strategic initiative to reposition the core businesses into a business-to-business e-commerce company, the Parker Reorder proprietary software product, Parker Fully Integrated Reorder Systems Tracking ("Parker FIRST"), which is a client server-based system used by clients to reorder operating supplies and equipment, was phased out in 2000 as the Company migrated the reorder business to an internet web-based system. Consequently, management determined that the Parker FIRST system will not provide future long-term benefits to the Company. In addition, management determined that the goodwill and other intangibles associated with the acquisition of Parker Reorder in January 1997 is closely related to the Parker FIRST system, which was under development at the time of the acquisition. Accordingly, the Company recorded for the year ended December 31, 1999, an asset impairment charge of $9,252,000, consisting of net capitalized computer software costs associated with the Parker FIRST system of $3,099,000 and net goodwill and other intangibles of $6,153,000. 6. ACQUISITIONS In January 1998, the Company acquired Bekins Distribution Services, Inc. ("Bekins"), a provider of transportation, warehousing and installation services to a variety of customers worldwide. Founded in 1969, Bekins is a logistical services company that serves clients who are opening, renovating or relocating facilities by assuring that materials, fixtures, furniture and merchandise are moved from multiple vendor locations to their ultimate destinations in a controlled orderly sequence so that each item can be installed on schedule. The purchase price of Bekins, including acquisition costs, of approximately $11,400,000 consisted of 514,117 shares of common stock and the assumption of certain Bekins' debt. Additionally, under the terms of the purchase agreement, the Company was required to issue an additional 639,512 shares of common stock in January 1999 as a result of the decrease in the price of the Company's common stock on the one year anniversary date of the acquisition, which was accounted for as an equity transaction resulting in no adjustment to the purchase price or reported net loss. The acquisition resulted in goodwill of approximately $7,400,000 which is being amortized on a straight-line basis over its estimated useful life of 30 years. The acquisition has been accounted for as a purchase with the results of Bekins included in the consolidated financial statements of the Company from the acquisition date. 7. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs and estimated earnings in excess of billings on uncompleted contracts represent unbilled receivables. Billings on uncompleted contracts in excess of costs and estimated earnings represent deferred revenue, and consists of:

F-17 27 8. PROPERTY AND EQUIPMENT Property and equipment consists of the following:

9. LOANS PAYABLE In March 1998, the Company obtained an unsecured line of credit with HSBC Bank USA ("HSBC"). This line expired on September 30, 1999, with outstanding borrowings of $9,885,000 and was refinanced in December 2000, into a new three-year term note with the Company, a new five-year note with the Company's subsidiary, HRB and $1 million of preferred stock. In July 1998, the Company obtained an unsecured line of credit with Bank of America N.A. (formerly Nations Bank). This line expired on September 30, 1999, with outstanding borrowings of $5,950,000 and was refinanced in September, 2000 into two new three-year notes with the Company's subsidiary, Bekins. Both unsecured lines charged interest at the bank's prime rate. The weighted average interest rates for 2000, 1999 and 1998 on the loans outstanding during the year were 9.17%, 8.45% and 8.20%, respectively. 10. LONG-TERM DEBT Long-term debt consists of the following:

F-18 28

In September 2000, the Company's wholly-owned subsidiary, Bekins, executed an Amended and Restated Loan Agreement with Bank of America, N.A. whereby the proceeds were primarily used to pay-off the Company's defaulted unsecured line of credit. As part of this Agreement, Bekins also restructured its term loan and mortgage note payable with Bank of America, N.A. to eliminate their default status. Both new facilities are secured by the assets and stock of Bekins. Under the Agreement, Bekins is prohibited from paying any dividends on its stock to the Parent Company except for reimbursement of certain allocated overhead and administrative expenses. In conjunction with this Agreement, Bank of America, N.A. dismissed its legal action against the Company. In March 2001, Bekins sold for $2,265,500 its warehouse facility in Orlando, Florida, the net proceeds of which were used to repay the mortgage in full and reduce the remaining balance on the term loan to $107,000. In accordance with the Agreement, the remaining balance of the term loan was transferred to the overadvance term loan and the term loan was retired. In December 2000, the Company executed an Amended and Restated Loan Agreement with HSBC Bank USA ("HSBC"). This Agreement consists of two debt instruments ("HWS note, HRB note") and $1 million of 8% convertible preferred stock, which were used to pay off the Company's defaulted unsecured line of credit with HSBC. The Company signed a three-year promissory note (HWS note) with HSBC in the principal amount of $4,300,000 with a $300,000 principal payment paid signing and ongoing monthly principal payments of $50,000. Interest on the note accrues at the bank's prime rate and is due at maturity along with the remaining principal balance. The note is secured by the assets of the Parent Company and the capital stock of the Leonard Parker Company, Parker Reorder Online and Hospitality Restoration and Builders. The Company's discontinued subsidiary, HRB, assigned a portion of its contract right in a disputed receivable with a former customer to HSBC in the form of a five-year $4,585,000 promissory note, bearing interest at the bank's prime rate (see Note 13 c). This HRB note is secured solely by its interest in the receivable and any collections are to be divided between HRB and HSBC according to a prescribed formula. At maturity of the HRB note, the Company has the option of extending the term for an additional twelve months, at which time, if the disputed receivable has not been resolved, title in full of the contract right along with the related debt F-19 29 passes to HSBC. The preferred stock issued to HSBC under this Agreement was valued at $1 million on the date of issuance based on the then outstanding debt balance and is convertible into a total of 1 million shares of the Company's common stock. The note with HSBC Bank contains a covenant to submit audited financial statements to the Bank within 105 days of year-end. Due to the late filing of this Form 10-K, the Company is not in compliance with this covenant. The Company will cure this default upon the filing of this Form 10-K. Additionally, the Bank has advised the Company that they will not call the note as a result of this violation. The Company does have exposure to market risks associated with changes in interest rates given that the Company maintains long term debt facilities which have variable interest rates. The following represents aggregate annual principal payments on long-term debt, for the years ended December 31: 2001 $3,165,880 2002 979,369 2003 9,227,807 2004 18,730 2005 and after 30,000 ------------- $13,421,786 ------------- 11. INCOME TAXES The provision (benefit) for income taxes consists of the following:

F-20 30

The current provision for income taxes in 2000 primarily represents state and local taxes arising in jurisdictions in which a consolidated tax return cannot be filed. The current benefit for income taxes in 1999 primarily represents the benefit associated with the Company's ability to carryback 1999 tax losses to prior years for federal, state and local tax purposes. The deferred provision in 1999 primarily represents the valuation allowance against the Company's previously recorded deferred tax assets. The Company has also provided a valuation allowance against deferred tax assets arising in 2000 and 1999, representing future deductible expenses, given the Company's current tax position. The following is a reconciliation of the Company's income tax provision (benefit) based on the statutory rate and the actual provision for continuing operations:

At December 31, 2000 and 1999, the Company has approximately $31,158,000 and $10,689,000, respectively, of federal net operating loss carryforwards expiring through 2020. Realization of approximately $21,570,000 and $20,119,000 net deferred tax assets at December 31, 2000 and 1999, respectively, resulting primarily from net operating loss carryforwards and allowance for doubtful accounts, is not considered more likely than not and accordingly, a valuation allowance has been recorded for the full amount of such assets. F-21 31 Deferred income taxes result from temporary differences between the financial reporting carrying amounts and the tax bases of assets and liabilities. The source of these differences and the tax effect of each at December 31, 2000 and 1999 are as follows:

12. RELATED PARTY TRANSACTIONS (a) In connection with the Apollo Joint Venture on April 10, 1997, the Company and Resource Holdings, an entity affiliated with a director of the Company, entered into a financial advisory agreement pursuant to which Resource Holdings agreed to assist the Company in connection with negotiations relating to the Apollo Joint Venture and to provide general financial advisory, strategic planning and acquisition advice to the Company. In consideration for those services, the Company agreed to pay Resource Holdings 16 1/2% of certain distributions received by the Company from the Apollo Joint Venture (after certain distributions to the joint venture parties and returns on capital invested in each project in which the Apollo Joint Venture participates) and a monthly retainer of $10,000 per month. No distributions were received by the Company from Apollo in 2000, 1999 or 1998. The financial advisory agreement was terminated in April 1999. (b) Officer and Employee Loans. At various times at the direction of certain former officers, but without Board of Director approval, the Company provided short-term loans to various officers and employees of the Company bearing interest at 12%. Loans provided during 2000, 1999, and 1998 amounted to $0, $39,500 and $3,590,000, respectively. The balance owed to the Company was $9,125 and $289,500 at December 31, 2000 and 1999, respectively. In 1998, the Company provided a loan of $3,200,000 to Watertone Holdings LP, a firm managed by Watermark. This loan was repaid in full in 1998 without interest. Watermark is affiliated with Robert Berman, the former Chief Executive Officer and Chairman of the Board, and certain former employees of the Company. (c) In February 1998, the Company, through HWS REAG, purchased the assets of Watermark's real estate advisory business for consideration of $1,500,000 in cash. In September 1999, the Company and Watermark entered into a Termination Agreement pursuant to which Watermark paid $885,000 to the Company in December 1999. F-22 32 (d) During 1999 and 1998, the Company provided renovation and procurement services to the Apollo Joint Venture and ING Joint Venture in which the Company had an ownership interest. The following revenues and gross profit, have been reflected in discontinued operations in the consolidated financial statements. YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------- --------------------- ------------------ Revenues $16,065,121 $22,806,617 Cost of revenues 14,790,131 21,684,241 ----------- ----------- Gross profit $ 1,274,990 $ 1,122,376 ----------- ----------- Amounts receivable from the joint ventures were $2,100,077 at December 31, 1999. (e) The Company entered into an Agreement with the Chairman of the Board of the Company effective July 1, 2001 to provide general consulting services to the Company for a one-year period for an aggregate compensation amount of $250,000. The Company prepaid the $250,000 in 2000 and has reflected this amount in accounts receivable, net in the consolidated balance sheet at December 31, 2000. 13. COMMITMENTS AND CONTINGENCIES (A) LEASE COMMITMENTS The Company leases office space in New York, Los Angeles, St. Louis and Coral Gables which expire at various dates through 2009. In conjunction with the acquisition of Bekins in January 1998, the Company assumed a ground lease on a warehouse in Orlando, Florida which expires in 2085, with a minimum annual payment of $6,489 and assumed a lease on warehouse space in Las Vegas, Nevada through October 2001. The Orlando, Florida warehouse was sold and the ground lease assigned in March 2001, for $2,265,500, the net proceeds of which were used to repay the related mortgage in full and pay off substantially all of the term loan with Bank of America, N.A. (see Note 10). In anticipation of a sale, Bekins entered into a lease on warehouse space in Orlando in February 2000. The aggregate future minimum lease payments due under operating leases, are as follows: DECEMBER 31 ----------- 2001 $1,808,525 2002 1,880,594 2003 1,675,856 2004 1,582,349 2005 1,416,192 Thereafter 4,179,239 ------------- $ 12,542,755 ------------- Rent expense for 2000, 1999 and 1998 was $1,833,164, $2,401,536 and $2,101,282, respectively. (B) EMPLOYMENT AGREEMENTS The Company currently has employment agreements with four members of management personnel that expire from December 2001 to August 2002 at an aggregate annual compensation of $610,275. (C) LITIGATION The Company is a defendant in various litigation incident to its business and in some instances the amounts sought include substantial claims and counterclaims. F-23 33 In June 1999, Hospitality Restoration & Builders, Inc., a wholly owned subsidiary of the Company ("HRB"), filed a lawsuit in the Supreme Court, New York County against Servico, Inc. ("Servico"), six (6) Servico hotel subsidiary corporations, Servico's successor, Lodgian, Inc., and Impac Hotel Group. In general, the lawsuit alleged that Servico alleged that Servico breached its obligations to HRB under agreements pursuant to which HRB was to renovate certain hotel properties located in New York, Texas and Illinois. It was also claimed that Servico fraudulently induced HRB to perform work. HRB has asserted in the action that it suspended its work at these hotels due to Servico's failure to pay for certain completed work. Following HRB's suspension of work, Servico terminated HRB as the contractor at all the hotels. HRB is seeking damages in excess of $14.5 million. As a result of motions made by Servico, the actions related to the Texas and Illinois properties were dismissed for lack of jurisdiction and the claims based on fraud were also dismissed. HRB has subsequently filed actions against Servico in Texas and Illinois. With respect to the New York properties, Servico has counterclaimed against HRB to recover damages in excess of $19.0 million. The Company believes that it has meritorious defenses against Servico's counterclaims and that the outcome of this matter will not have a material adverse effect on the Company, however, because of the uncertainties inherant in the litigation process it is unable to predict the outcome and an adverse outcome in this action could have a material adverse effect on the Company. On February 3, 2000, Servico Rolling Meadows, Inc. ("Servico RM"), filed a lawsuit in the United States District Court for the Northern District of Illinois against HRB. In general, the lawsuit alleges that HRB furnished defective work and failed to complete work required under an agreement to renovate a hotel located in Rolling Meadows, Illinois. Servico RM is seeking damages in excess of $2.1 million. In response to this action, on March 10, 2000, HRB filed an answer in which it denied Servico RM's claims and asserted counterclaims against Servico RM for breach of contract and fraud, among other claims. HRB is seeking damages in an amount in excess of $2.8 million against Servico RM in connection with this counterclaim. To date, Servico RM has not answered or otherwise responded to HRB's claims and formal discovery has not yet been initiated. The Company believes that it has meritorious defenses against Servico's counterclaims and that the outcome of this matter will not have a material adverse effect on the Company, however, because of the uncertainties inherant in the litigation process it is unable to predict the outcome and an adverse outcome in this action could have a material adverse effect on the Company. On or about February 23, 2000, HRB filed a lawsuit in the District Court of Harris County, Texas against Servico Houston, Inc. ("Servico Houston"). In general, the lawsuit alleges that Servico breached its obligations to HRB under an agreement pursuant to which HRB was to renovate a hotel located in Houston, Texas and also fraudulently induced HRB to perform work at this hotel. HRB claims in this lawsuit that it suspended work at this hotel because it was not paid for completed work. Following its suspension, HRB was terminated as the contractor. HRB is seeking damages in an amount equal to the sum of at least $2,568,480 plus statutory interest. Servico Houston has answered, denied responsibility for any damages and counterclaimed to recover damages in the total amount of $2,822,856. The Company believes that it has meritorious defenses against Servico's counterclaims and that the outcome of this matter will not have a material adverse effect on the Company, however, because of the uncertainties inherant in the litigation process it is unable to predict the outcome and an adverse outcome in this action could have a material adverse effect on the Company. In June, 1998, an action (the "State Action") was brought against the Company by West Atlantic Corp. ("West Atlantic") in the Supreme Court of the State of New York. The State Action alleged that the Company retained West Atlantic pursuant to an agreement to perform certain marketing and selling services for the Company. The State Action further alleged that fees were allegedly earned and not paid under the Agreement and sought damages relating to an alleged breach of contract, damages with respect to alleged "significant benefits to the Company" and damages relating to breach of the duties of good faith and fair dealing. In November 2000, the Company and West Atlantic executed a settlement agreement. In connection therewith, the parties executed mutual releases, the Company agreed to pay to West Atlantic a total of $115,000 over six years and West Atlantic dismissed the State Action with prejudice. In connection with the State Action, the Company brought claims in federal and state court against Tova Schwartz, the former President and Chief Executive Officer of the Company's predecessor, seeking indemnification against the West Atlantic claims in the State Action, as well as compensatory damages and punitive damages for fraud, among other things. The state and federal actions claim that, among other things, Ms. Schwartz failed to disclose to the Company the existence of the Agreement and West Atlantic's claims thereunder, when the Company purchased from Ms. Schwartz certain shares of Common Stock of the Company which she then held, sold its lighting business to her and provided her with other severance benefits. Ms. Schwartz asserted counterclaims against the F-24 34 Company in the State Action, and she also joined Howard Anders and Robert Berman, former employees of the Company, as fourth-party defendants in the State Action. Ms. Schwartz asserted counterclaims against the Company in the federal action, and joined Mr. Anders, Mr. Berman and Alan Friedberg, a former employee of the Company, as additional counterclaim defendants in the federal action. The Company has concluded that, pursuant to the Company's By-Laws, Messrs. Anders and Berman are entitled to indemnification from the Company with respect to the state and federal actions. The Company has concluded that, pursuant to the Company's By-Laws, Messrs. Anders and Berman are entitled to indemnification from the Company with respect to the state and federal actions. In September 2000, the Company and Messrs. Anders and Berman entered into a stipulation with Ms. Schwartz pursuant to which they dismissed without prejudice all claims and counterclaims between them in the federal action. That stipulation was so-ordered by the court on November 2, 2000. As part of this disposition, the parties executed a separate side-agreement (not filed with the court) pursuant to which the Company agreed that Ms. Schwartz will not be precluded from raising a statute of limitations defense in the event the Company re-files against her the claims that were the subject of the federal action. In or about May 2001, the parties executed a stipulation of discontinue with respect to the third-and fourth-party actions under the stipulation, all claims and defenses in the third-and fourth-party actions are dismissed without prejudice pending the outcome of Ms. Schwartz's legal malpractice action against the Company's former counsel, Olshan Grundman Frome & Rosenzweig, and Robert Friedman, Esq. (collectively "Olshan"), arising out of Olshan's advice to the Company in connection with the Company's August 1995 transaction with AGF Interior Services (the "Olshan Action"). As part of the disposition of the third-and fourth-party actions, the parties agreed to toll the statute of limitations as to all claims in those actions until one year from the date that the Olshan Action is finally concluded. In the event that the Olshan Action is resolved in Olshan's favor, the parties to the third-and fourth-party actions will each dismiss with prejudice their claims against the other parties to those actions. The stipulation was submitted to the court for its review and signature on June 7, 2001. The Company admitted no wrongdoing in connection with the dismissals of state and federal actions. After the resignations of a number of former directors and officers of the Company in the fall of 1999, the Company retained counsel to assist in conducting an investigation into various matters. In the course of the investigation, the Company discovered, among other things, that approximately $2.1 million of fraudulent charges had been submitted to and paid by the Company during 1998 and 1999. Those funds have been returned to the Company by a former officer of the Company, but the Company has not yet recovered any interest or related costs. Management believes that it has identified the financial extent of the fraudulent activities. The financial results for the fourth quarter of 1999 reflect the recovery. The Company has not restated any prior period financial statements as management has determined that the impact was not material in any period. The Company believes that other former directors, officers and employees may have been involved in the fraudulent activities, that there may have been breaches of fiduciary duties and other inappropriate actions, and that the Company may be able to recover damages from those individuals. The Company intends to pursue all available and appropriate remedies and to make any appropriate referrals to law enforcement and administrative agencies. In May 2001, the Company reached an Agreement to settle its litigation against one of the former officers of the Company. The Agreement provided for a cash payment by the former officer to the Company of $650,000 within 60 days and the former officer's continued cooperation with the Company's investigation. In exchange, the Company agreed to a limited release to the former officer and to dismiss its outstanding litigation upon receipt of the payment called for under the Agreement. 14. MAJOR CUSTOMERS During 2000, no customers accounted for over 10% of the Company's continuing revenues. During 1999, one customer, a high-ranking government official of the United Arab Emirates, accounted for 13% of the Company's continuing revenues. The largest customer of the Company for 1998, a major lodging company, accounted for 14% of the Company's continuing revenues. F-25 35 15. (CAPITAL DEFICIT) STOCKHOLDERS' EQUITY In January 1997, in connection with the acquisition of the Leonard Parker Company and Parker Reorder, the Company issued 200,000 shares of 6% Convertible Preferred Stock ("LPC Preferred"). The holders of LPC Preferred were entitled to receive cash dividends at the rate of six percent (or $1.50) per annum per share of LPC Preferred (the "Preferred Dividend"), accruing from the date of issuance and payable commencing March 31, 1998. The dividends for 1998 were accrued at December 31, 1998 and paid in 1999, and the dividends for 1999 were accrued at December 31, 1999 and paid in 2000. The LPC Preferred was convertible into the Company's Common Stock based upon a prescribed formula in the purchase agreement. In October 1998, 80,000 shares of LPC Preferred were converted into an aggregate of 584,800 shares of Common Stock. The remaining 120,000 shares of LPC Preferred were converted into an aggregate of 1,269,399 shares of Common Stock in September and October 1999. In January 1998, in connection with the acquisition of Bekins, the Company issued 514,117 shares of Common Stock. Further, pursuant to a make-whole provision in the purchase agreement, 639,512 additional shares of Common Stock were issued by the Company in January 1999. As an inducement to enter into the Joint Venture Agreement with Apollo, the Company issued to Apollo a seven-year warrant to purchase up to 750,000 shares of Common Stock at $8.115 per share. The warrant was initially exercisable as to 250,000 shares and became exercisable as to the remaining 500,000 shares in increments of 100,000 shares for every $7,500,000 of incremental renovation revenue and purchasing fees earned by the Company from the Apollo Joint Venture. In October 2000, as part of the Company's agreement to restructure its involvement in the Apollo Joint Venture, the Company issued 100,000 shares of Common Stock to Apollo and all the warrants previously issued were returned to the Company and cancelled. The cost associated with the warrants for the 250,000 shares initially exercisable were expensed as warrant expense in 1997. The costs associated with the warrants for the 100,000 share increments earned by Apollo were recognized as an additional cost of the related renovation and procurement contract. In 1999 and 1998, the Company recognized expenses related to these warrants of $381,525 and $213,555, respectively, all of which are included in discontinued operations in the accompanying Consolidated Statement of Operations. In December 2000, the Company executed an Amended and Restated Loan Agreement with HSBC Bank. In connection with this Agreement, the Company issued 1 million shares of 8% Convertible Preferred Stock ("HSBC Preferred") valued at $1.00 per share for a total value of $1 million (the then outstanding debt balance). The HSBC Preferred are convertible into the Company's Common Stock at a ratio of 1:1 or into a total of 1 million shares of Common Stock. During the first two years after the date of this Agreement, the dividend is payable in additional shares of Convertible Preferred Stock. After two years, the dividend is payable either in additional shares of Convertible Preferred Stock or cash, at the option of the Company. Dividends are payable on a semi-annual basis, commencing June 30, 2001. 16. STOCK OPTION PLANS At December 31, 2000, the Company has three stock option plans. The Company accounts for its stock option plans under the intrinsic value based method, such that when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation cost is recognized. In December 1999, the Company's Board of Directors adopted, and the stockholders approved, the 1999 Stock Option Plan (the "Plan") for the purpose of providing incentive to the officers and employees of the Company, who are primarily responsible for the management and growth of the Company, as well as to secure for the Company and its stockholders the benefits arising from stock ownership by its outside directors. The Company can issue options for up to 2,500,000 shares under the Plan. With respect thereto, options to purchase a total of 820,500 shares have been granted. Each option granted pursuant to the Plan shall be designated at the time of grant as either an "incentive stock option" or as a "non-qualified stock option". Incentive stock options are F-26 36 granted at the fair market value of the stock while non-qualified stock options must be granted at no less than 75% of the fair market value of the stock. The term and vesting period for each option granted is determined by the Stock Option Committee, which is composed of two or more outside members of the Board of Directors, provided the maximum length of the term of each option granted will be no more than ten years. Each outside director who becomes an outside director after December 15, 1999, shall receive the grant of an option to purchase 15,000 shares of common stock. To the extent that shares of Common Stock remain available for the grant of options under the Plan on April 1 of each year, beginning on April 1, 2000, each outside director shall be granted an option to purchase 10,000 shares of Common Stock. Options granted to outside directors vest over three years and shall be exercisable in three equal annual installments beginning on the first anniversary of the date of grant. The Company is required to provide pro forma information regarding income from continuing operations and earnings per share as if compensation cost for the Company's stock option plans had been determined in accordance with the fair value-based method, under which compensation cost would be measured at the grant date based on the fair value of the awards and recognized over the vesting period. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1998: no dividends paid; expected volatility of 98%; risk-free interest rate of 5.54%; and expected lives of 5.8 years. No options were granted in 1999. For options granted in 2000, the following weighted average assumptions were used: no dividends paid; expected volatility of 70%; risk-free interest rate of 6.55%; and expected lives of 3 years. Under the fair value based method, the Company's income from continuing operations and earnings per share would have been the pro forma amounts indicated below.

F-27 37 The following table contains information on stock options for the three year period ended December 31, 2000: WEIGHTED AVERAGE OPTIONS EXERCISE PRICE ---------- ----------------- Outstanding, December 31, 1997 1,728,000 5.58 Granted 426,000 8.95 Exercised (250,834) 2.74 Canceled (179,750) 8.28 ---------- ---- Outstanding, December 31, 1998 1,723,416 6.42 Granted -- -- Exercised (40,000) 1.28 Canceled (819,416) 6.46 ---------- ---- Outstanding, December 31, 1999 864,000 6.62 Granted 820,500 2.96 Exercised (153,800) 2.27 Canceled (220,700) 5.08 ---------- ---- Outstanding, December 31, 2000 1,310,000 5.10 ---------- ---- Exercisable at December 31, 2000 662,175 5.83 Exercisable at December 31, 1999 535,996 5.19 Exercisable at December 31, 1998 864,650 3.67 ---------- ---- EXERCISE PRICE LESS EXERCISE PRICE EQUAL THAN MARKET TO MARKET ------------------- -------------------- Weighted-average fair value of: Options granted in 1998 -- $7.14 Options granted in 1999 -- -- Options granted in 2000 -- $2.96 The following table summarizes information about stock options outstanding at December 31, 2000:

F-28 38 17. EARNINGS PER SHARE The following table reconciles the components of basic and diluted earnings per common share for loss from continuing operations for the years ended December 31, 2000, 1999 and 1998:

(a) The common stock equivalent shares for the years ended December 31, 2000, 1999 and 1998 were as follows: 0 shares, 211,449 shares and 738,984 shares, respectively, for the stock-based compensation plans; 0 shares, 14,211 shares and 395,600 shares, respectively, for the contingently issuable shares; and 0 shares, 710,324 shares and 1,020,474 shares, respectively, for the convertible preferred stock. The common stock equivalents for these securities were not included in the calculation of diluted loss per common share because the effect would be antidilutive. F-29 39 18. 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 through LPC provides "project-managed" procurement of furniture, fixtures and equipment for new and refurbished properties. The reorder business, operating through Parker Reorder, provides reordering of operating supplies and equipment for daily use in hotels. The logistics business through Bekins provides warehousing, transportation and installation services to the hospitality industry and other related fields, including retail merchandising. Due to the strategic repositioning of the Company's lines of business, the Company has changed the composition of its reportable segments. The Company's renovation business and real estate investment and asset management business have been classified as discontinued operations (Note 4) and are no longer reported as part of segment reporting. In addition, the previously reported purchasing segment has been segregated into the purchasing business and the reorder business. The Company has restated the prior years to conform to the revised segment reporting.

F-30 40

All transactions between reportable segments are accounted for on an arms length basis and are eliminated in consolidation. Sales to customers include sales to related parties. The Company's revenue and assets predominately relate to the United States operations. For the years ended December 31, 2000, 1999 and 1998, the purchasing business recorded revenues of approximately $13,400,000, $38,993,000 and $4,462,000, respectively on shipments to Dubai, United Arab Emirates. F-31 41 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (a)

-------------- (a) All amounts except per share data presented in thousands. (b) The quarterly per share amounts are computed independently of annual amounts. (c) 1999 quarterly amounts have been restated to reflect discontinued operations. (d) Includes asset impairment charge of $9,017,000. (e) Decrease from previous quarters due primarily to the timing of fee income in the purchasing business. F-32 42 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT HOTELWORKS.COM, INC. CONDENSED BALANCE SHEET ASSETS 2000 ------------ Cash and cash equivalents $ 114,922 Income taxes refundable 483,802 Prepaids and other current assets 104,988 ------------ Total current assets 703,712 Property and equipment, net 786,770 Investment in subsidiaries (13,825,954) Receivables from related parties 18,461,604 Other assets 52,152 ------------ $ 6,178,284 ------------ LIABILITIES AND CAPITAL DEFICIT Accounts payable $ 1,185,066 Accrued and other liabilities 450,735 Current portion of long-term debt 683,931 Income taxes payable 1,011,399 Net current liabilities of discontinued operations 1,047,627 ------------ Total current liabilities 4,378,758 Long-term debt 3,588,922 ------------ Total liabilities 7,967,680 Commitments and contingencies Total capital deficit (1,789,396) ------------ $ 6,178,284 ------------ The "Notes to Consolidated Financial Statements of Hotelworks.com, Inc. and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant". F-33 43 HOTELWORKS.COM, INC. CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 SCHEDULE I Revenues $ -- Expenses: Selling, general and administrative 2,760,912 ----------- Loss from operations before equity in net income of subsidiaries (2,760,912) Equity in net income of subsidiaries 233,445 ----------- Loss from operations (2,527,467) Interest expense, net 1,271,212 ----------- Loss from continuing operations before income taxes (3,798,679) Income tax provision 77,000 ----------- Loss from continuing operations (3,875,679) Gain on disposal of discontinued businesses 204,671 ----------- Net loss $(3,671,008) -----------

The "Notes to Consolidated Financial Statements of Hotelworks.com, Inc. and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant". F-34 44 HOTELWORKS.COM, INC. CONDENSED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2000 SCHEDULE I OPERATING ACTIVITIES: Net loss $ (3,671,008) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 204,415 Equity in net income of subsidiaries (236,445) Gain on disposal of discontinued businesses (204,671) (Increase) decrease in current assets: Prepaids and other current assets 543,071 Income tax refundable 3,423,002 Receivables from related parties 5,754,408 Other assets 11,780 Increase (decrease) in current liabilities: Accounts payable (77,664) Accrued and other liabilities (792,966) ------------ Net cash provided by operating activities of continuing operations 4,953,922 ------------ Net cash (used in) operating activities of discontinued operations (200,588) ------------ INVESTING ACTIVITIES: Dividends from subsidiaries 3,740,604 Purchases of property and equipment (344,759) ------------ Net cash provided by investing activities of continuing operations 3,395,845 ------------ FINANCING ACTIVITIES: Repayment of loans payable (14,835,000) Repayment of long-term debt (411,657) Payment of preferred stock dividends (135,000) Borrowings on long-term debt 4,684,510 Proceeds from exercise of stock options and warrants 312,453 ------------ Net cash used in financing activities (10,384,694) ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (2,235,515) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,350,437 ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 114,922 ------------

The "Notes to Consolidated Financial Statements of Hotelworks.com, Inc. and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant". F-35 45 Notes to Condensed Financial Information of Registrant: 1. Basis of Presentation Pursuant to the rules and regulations of the Securities and Exchange Commission, the Condensed Financial Statements of the Registrant do not include all of the information and notes normally included with financial statements prepared in accordance with generally accepted accounting principles. It is, therefore, suggested that these Condensed Financial Statements be read in conjunction with the Consolidated Financial Statements and Notes thereto. In the parent-company-only financial statements, the Company's investment in subsidiaries is stated at cost plus/minus equity in undistributed earnings/losses of subsidiaries since the date of acquisition. The Company's share of net income/loss of its unconsolidated subsidiaries is included in consolidated income/loss using the equity method. Since the Company is committed to providing further financial support to its subsidiaries, the Company has recognized losses of its subsidiaries in excess of its investment in subsidiaries amounting to $30,788,000. 2. Dividends from Subsidiaries Cash dividends paid to Hotelworks.com from the Company's consolidated subsidiaries were $3,740,604 in 2000. F-36 46 HOTELWORKS.COM, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (UNAUDITED WITH RESPECT TO 1999 AND 1998)

------------ (1) Charges to the accounts are for the purposes for which the reserves were created. F-37

HOTELWORKS COM INC 10-K/A