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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 1-8662
ERESOURCE CAPITAL GROUP, INC.
(formerly flightserv.com)
(Exact name of registrant as specified in its charter)
DELAWARE 23-2265039
(State of Incorporation) (IRS Employer Identification No.)
3353 PEACHTREE ROAD NE
SUITE 130
ATLANTA, GA 30326
(404) 760-2570
(Address of registrant's principal executive
offices including zip code and telephone number, including area code)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
twelve 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 [ ]
Check whether the issuer filed all reports required to be filed by Section 12,
13 or 15(d) of the Exchange Act after the distribution of securities under a
plan confirmed by a court. Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock as of May 14,
2001: 69,902,330
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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ERESOURCE CAPITAL GROUP, INC.
TABLE OF CONTENTS
PAGE NO.
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PART I FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 2001 and June 30, 2000 .......................3
Condensed Consolidated Statements of Operations For the Three and Nine
Months Ended March 31, 2001 and 2000 ............................................................4
Condensed Consolidated Statements of Cash Flows For the Nine Months Ended
March 31, 2001 and 2000 .........................................................................5
Notes to Condensed Consolidated Financial Statements .........................................6-14
ITEM 2. Management's Discussion and Analysis Of Financial Condition and Results of Operations .......14-16
PART II.OTHER INFORMATION
ITEM 1. Legal Proceedings ..............................................................................16
ITEM 2. Changes in Securities ..........................................................................16
ITEM 3. Defaults Upon Senior Securities ................................................................16
ITEM 4. Submission of Matters to a Vote of Security Holders ............................................16
ITEM 5. Other Information ..............................................................................16
ITEM 6. Exhibits and Reports on Form 8-K ............................................................17-18
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ERESOURCE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, JUNE 30,
2001 2000
--------- --------
(UNAUDITED)
ASSETS
Cash and cash equivalents ......................................................... $ 442 $ 526
Accounts and notes receivable ..................................................... 155 56
Investments ....................................................................... 1,423 --
Prepaid expenses - compensation ................................................... 834 4,616
Prepaid expenses - other .......................................................... 212 120
-------- --------
Total current assets ........................................................ 3,066 5,318
Net assets (liabilities) of discontinued operations ............................... 68 (6)
Deferred costs and other assets ................................................... 232 925
Predevelopment costs .............................................................. -- 1,164
Property and equipment, net ....................................................... 8,618 9,562
Goodwill .......................................................................... 11,356 --
-------- --------
Total assets ............................................................ $ 23,340 $ 16,963
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable - current portion ................................................... $ 7,616 $ 129
Accrued interest payable .......................................................... 848 --
Accounts payable and accrued expenses ............................................. 1,014 839
Unearned income ................................................................... 348 --
-------- --------
Total current liabilities ................................................... 9,826 968
Notes payable ..................................................................... -- 7,583
Accrued interest payable .......................................................... -- 848
Due to affiliates, net ............................................................ 26 --
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.04 par value, 200,000,000 shares authorized,
61,723,584 and 33,554,584 issued, respectively ................................ 2,469 1,342
Additional paid-in capital ..................................................... 96,776 78,148
Accumulated deficit ............................................................ (85,681) (71,788)
Unrealized loss on marketable securities ....................................... (65) --
Treasury stock - at cost (35,930 and 435,930 shares, respectively) ............. (11) (138)
-------- --------
Total shareholders' equity ................................................. 13,488 7,564
-------- --------
Total liabilities and shareholders' equity ............................... $ 23,340 $ 16,963
======== ========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
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ERESOURCE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS MARCH 31, NINE MONTHS ENDED MARCH 31,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenue and other income:
Sales ..................................................... $ 4,170 $ -- $ 6,547 $ --
Lease income - commercial real estate ..................... 250 306 778 832
------------ ------------ ------------ ------------
Total revenues ......................................... 4,420 306 7,325 832
Cost of sales ................................................ 3,519 -- 6,020 --
------------ ------------ ------------ ------------
Gross profit ........................................... 901 306 1,305 832
Selling, general and administrative expense - compensation
related to issuance of stock options and warrants ......... 219 37,872 6,922 48,899
Selling, general and administrative expenses - other ......... 1,320 2,140 3,855 4,351
Depreciation and amortization ................................ 621 180 1,418 469
Interest expense ............................................. 140 206 629 447
Loss on investments .......................................... 156 -- 156 --
Write off of Web site development costs ...................... -- -- 754 --
Write off of pre-development costs ........................... -- -- 1,164 --
------------ ------------ ------------ ------------
Loss before discontinued operations .................... (1,555) (40,092) (13,593) (53,334)
Loss on disposal of discontinued operations .................. (300) -- (300) --
------------ ------------ ------------ ------------
Net loss ............................................... $ (1,855) $ (40,092) $ (13,893) $ (53,334)
============ ============ ============ ============
Basic and diluted net loss per share:
Loss from continuing operations ........................... $ (.02) $ (1.24) $ (.28) $ (1.71)
Loss from discontinued operations ......................... (.01) -- (.01) --
------------ ------------ ------------ ------------
Net loss ............................................... $ (.03) $ (1.24) $ (.29) $ (1.71)
============ ============ ============ ============
Weighted average shares outstanding .......................... 56,822,576 32,216,782 48,740,469 31,124,357
============ ============ ============ ============
The accompanying notes are an integral part
of these condensed consolidated financial statements.
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ERESOURCE CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED MARCH 31,
---------------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net loss before discontinued operations ..................................... $(13,593) $(53,334)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................ 1,418 469
Deferred debt amortization ............................................... 205 --
Compensation expense related to issuance of stock options and warrants ... 6,922 48,899
Stock purchase warrants received for services ............................ (128) --
Unrealized loss on stock purchase warrants ............................... 156 --
Loss on disposal of fixed assets ......................................... 5 --
Write off of Web site development costs .................................. 754 --
Write off of pre-development costs ....................................... 1,164 --
Changes in operating assets and liabilities:
Accounts and notes receivables ........................................ (79) (168)
Prepaid expenses ...................................................... (92) --
Deferred costs and other assets ....................................... (624) (824)
Accounts payable and accrued expenses ................................. 175 (170)
Due to affiliates ..................................................... 193 --
Customer deposits ..................................................... 289 --
Accrued interest payable .............................................. -- (81)
-------- --------
Cash used in operating activities before discontinued operations ...... (3,235) (5,209)
Discontinued operations, net ............................................. (374) 453
-------- --------
Net cash used in operating activities ................................. (3,609) (4,756)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ......................................... (71) (1,373)
Predevelopment costs ........................................................ -- (78)
Cash acquired in connection with business acquisitions ...................... 378 --
-------- --------
Net cash provided by (used in) investing activities ................... 307 (1,451)
-------- --------
Cash flows from financing activities:
Principal debt payments ..................................................... (96) (88)
Sales of common stock ....................................................... 3,314 5,843
-------- --------
Net cash provided by financing activities ............................. 3,218 5,755
-------- --------
Net decrease in cash and cash equivalents ...................................... (84) (452)
Cash and cash equivalents at beginning of period ............................... 526 3,486
-------- --------
Cash and cash equivalents at end of period ..................................... $ 442 $ 3,034
======== ========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
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ERESOURCE CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements include the operations of eResource Capital Group,
Inc. and its subsidiaries (collectively the "Company"). In October 2000,
flightserv.com changed its name to eResource Capital Group, Inc. ("eRCG") to
reflect its new business direction. At March 31, 2001, the Company was engaged
in the operation of a charter travel service business, a telecommunications call
center business, business consulting, and certain limited commercial real estate
activities.
All significant inter-company balances and transactions have been eliminated.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the rules of the Securities and Exchange
Commission. Certain prior period amounts have been reclassified to conform to
the current fiscal period presentation. In the opinion of management, all
adjustments considered necessary for a fair presentation of the financial
position of the Company as of March 31, 2001 and of the results of operations
for the periods presented have been included. The financial data at June 30,
2000 is derived from audited financial statements which are included in the
Company's Form 10-KSB and should be read in conjunction with the audited
financial statements and notes thereto. Interim results are not necessarily
indicative of results for the full year.
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents any investments which can be readily
converted to cash and have an original maturity of less than three months. At
March 31, 2001, approximately $340,000 of the Company's cash balances were
escrow account deposits related to its aviation subsidiary. These deposits are
related to prepayments for charter aircraft services and are transferred to
unrestricted bank accounts upon completion of flights. At times cash and cash
equivalent balances at a limited number of banks and financial institutions may
exceed insurable amounts. The Company believes it mitigates its risks by
depositing cash or investing in cash equivalents in major financial
institutions.
INVESTMENTS
Investments, consisting of certificates of deposit with maturities of greater
than three months and not readily marketable equity securities, are classified
as available for sale. Investment securities that are not readily marketable
include securities (a) for which there is no market on a securities exchange or
no independent publicly quoted market, (b) that cannot be publicly offered or
sold unless registration has been effected under the Securities Act of 1933, or
(c) that cannot be offered or sold because of other arrangements, restrictions,
or conditions applicable to the securities or the Company. Certificates of
deposit are recorded at cost plus accrued interest. Not readily marketable
equity securities are recorded at estimated values based on quoted market values
for marketable securities of the investments discounted for trading
restrictions. If there is no quoted market value, the recorded values are based
on the most recent transactions in the securities discounted for lack of
marketability. Investment securities transactions are recorded on a trade date
basis. The difference between cost and fair value is recorded as unrealized gain
or loss on available for sale securities as a component of shareholders' equity
on the balance sheet.
STOCK PURCHASE WARRANTS
The Company periodically receives stock purchase warrants which are considered
derivatives from companies with publicly traded common stock as part of its
compensation for services. The Company recognizes revenue based on the fair
value of such stock purchase warrants when earned and received based on the
Black-Scholes valuation model. The Company recognizes unrealized gains or losses
in the statement of operations based on the changes in value in the stock
purchase warrants as determined by the Black-Scholes valuation model subsequent
to the date received. Unrealized losses for the three and nine month periods
ended March 31, 2001 were $155,913.
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PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed on the straight-line basis over the assets' estimated
useful lives. Expenditures for maintenance and repairs are expensed as incurred
and expenditures for improvements which extend the useful life or add value to
the asset are capitalized.
Sales and disposals of assets are recorded by removing the related cost and
accumulated depreciation amounts with any resulting gain or loss reflected in
the statement of operations.
UNEARNED INCOME
The Company's aviation subsidiary receives customer payments in advance for
flight services. These deposits are deferred when received and are recorded as
revenue upon completion of the flight. Deposits on cancelled flights are
returned to the customers.
The Company's consulting subsidiaries receive advance payments on certain
service contracts. The revenue on these contracts is recognized over the
contract period.
COMPREHENSIVE INCOME
Components of comprehensive income are net loss and all other non-owner changes
in equity. The only component of other comprehensive income consists of
unrealized holding losses on securities available for sale. Total comprehensive
loss for the three and nine month periods ended March 31, 2001 was $1,920,000
and $13,958,000, respectively, and for the three and nine month periods ended
March 31, 2000 was $40,092,000 and $53,334,000, respectively.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" which requires dual presentation of basic earnings per
share ("EPS") and diluted EPS. Basic EPS is computed using the weighted average
number of common shares outstanding during the period. Diluted EPS is computed
using the weighted average number of common shares outstanding and potentially
dilutive shares outstanding during the period. Options and warrants to purchase
27,380,120 and 16,888,743 shares of Common Stock were outstanding at March 31,
2001 and 2000, respectively. Such options and warrants could potentially dilute
EPS in the future but have not been included in the computation of diluted net
loss per share in the reported periods as the impact would have been
antidilutive.
INCOME TAXES
The Company accounts for income taxes in accordance with the liability method as
provided under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Accordingly, deferred income taxes are recognized for the tax
consequences of differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities. The measurement of deferred
income tax assets is reduced, if necessary, by the amount of any benefits that,
based on available evidence, are not expected to be realized.
As of March 31, 2001 the Company had approximately $33,800,000 of net operating
loss carry forwards (NOL's) for federal income tax purposes, which expire
between 2019 and 2020. A deferred income tax asset valuation allowance has been
established against all deferred income tax assets as management is not certain
that the deferred income tax assets will be realized. In addition, due to
substantial limitations placed on the utilization of new operating losses
following a change in control, utilization of such NOL's could be limited.
The Company's 1996 and one of its subsidiary's 1994 and 1995 tax returns are
currently under examination by the Internal Revenue Service ("IRS"). In March
2001, the Company received an IRS report regarding these tax returns assessing
the Company approximately $334,000 for income taxes plus accrued interest. The
Company is appealing this assessment but cannot be certain that it will be
reduced. In March 2001, the Company recorded a loss on discontinued operations
to reflect revised estimates in costs and expenses to liquidate its discontinued
operations, including this IRS tax assessment.
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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, 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. Actual results
could differ from those estimates.
NOTE 2. BUSINESS SEGMENTS
RECENT DEVELOPMENTS
On April 20, 2001, the Company signed a non-binding letter of intent (LOI) to
acquire the business operations and assets of Logisoft Computer Products Corp.
and eStorefronts.net Corp. (collectively, "Logisoft Subs"), currently
subsidiaries of Logisoft Corp. The proposed structure of the acquisition by the
Company is a stock-for-stock transaction where the Company will issue 5,500,000
shares of Common Stock for 100% ownership of the Logisoft Subs. Also, the
Company may issue an additional 500,000 shares of Common Stock in connection
with the transaction if the Logisoft Subs achieve certain performance goals
through June 30, 2002.
The Logisoft Subs provide full spectrum Internet business development, focus on
enabling globalization of e-business, provide partner site services to companies
that want to outsource their e-retail businesses, and market educational
software to a wide range of customers nationwide.
On April 3, 2001, the Company acquired 96% of LST, Inc. d/b/a LifeStyle
Technologies ("Lifestyles") in exchange of 8,074,676 shares of Common Stock. The
Company owned approximately 4% of Lifestyles stock prior to the acquisition.
Also, the Company may issue an additional 2,000,000 shares of Common Stock in
connection with the transaction if Lifestyles achieves certain performance goals
through December 31, 2004. The total purchase price for Lifestyles aggregated
$7,617,208 and the transaction was recorded using the purchase method of
accounting.
Lifestyles, based in Charlotte, North Carolina, offers a convergence of
technology through customized wiring and hardware for homeowners and
homebuilders. Through internal resources and national alliance relationships,
LifeStyles can provide a one-stop shopping menu for high-speed Internet,
satellite services, communication services, security, data, video and voice
entertainment systems, as well as long distance and local telephone services for
today's "Smart Home". Michael D. Pruitt, the Company's President, Chief
Executive Officer and a director, was an officer, director and shareholder of
Lifestyles prior to the acquisition.
TECHNOLOGY CONSULTING
On February 13, 2001, the Company acquired 100% of Avenel Ventures, Inc.
("Avenel Ventures") in exchange of 6.7 million shares of Common Stock pursuant
to a share exchange purchase agreement dated as of November 8, 2000. The total
purchase price aggregated $6,834,000 and the transaction was recorded using the
purchase method of accounting. The excess value of the purchase price over the
fair value of Avenel Ventures net assets on the acquisition date aggregating
$5,610,144 has been allocated to goodwill which is being amortized over five
years.
Avenel Ventures provides investment and advisory services to technology
companies, and through its wholly-owned subsidiary, Avenel Alliance, provides
e-commerce and business development services to clients implementing innovative
strategies in e-commerce internet marketing.
Michael D. Pruitt was an officer, director, and shareholder of Avenel Ventures
prior to the acquisition. Melinda Morris Zanoni, an officer, director and
shareholder of Avenel Ventures at the time of acquisition, became an officer of
the Company in November 2000 and was elected as a director of the Company in
January 2001.
AVIATION TRAVEL SERVICES
In fiscal 1999 and 2000, the Company developed its Private Seats(TM) program to
provide, as agent, Internet access to private jet flight and related travel
services. The Company commenced charter flight reservations in March 2000 and
charter flights booked by the Company began operating on April 17, 2000. Due to
limited capital availability, the Company did not actively pursue development of
the Private Seats(TM) program and, as a result, did not realize any revenue from
this business in the six months ended December 31, 2000. Due to the uncertainty
about the development of the Private Seats concept, the Company recorded a
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$754,000 charge in the quarter ended December 31, 2000 to write off the
remaining cost of the Private Seats Web site development costs. In addition, the
Company recorded a $1,143,000 charge in the quarter ended December 31, 2000 to
write off the remaining prepaid and deferred compensation expenses related to a
contract and a warrant agreement with a third party vendor that was to provide
services to the Private Seats program.
On August 25, 2000, the Company completed the acquisition of Internet Aviation
Services, Ltd. ("IASL") in accordance with a definitive purchase agreement dated
August 11, 2000, which provided for the exchange of 1,750,000 shares of the
Company's Common Stock for all of IASL's common stock. On August 11, 2000, the
1,750,000 shares of common stock issued for IASL had a market value of $984,375.
Including direct acquisition costs, the aggregate purchase price for IASL was
$1,176,905. The excess value of the purchase price over the fair value of IASL's
net assets on the acquisition date aggregating $1,126,905 has been allocated to
goodwill which is being amortized over five years.
IASL is a new leisure and business travel services company, which offers charter
services. IASL has an agreement with a tour operator to provide air charter
services between Charlotte, North Carolina and Cancun, Mexico for a 12-month
period ending December 21, 2001. IASL has an agreement with Southeast Airlines
to operate the aircraft. In addition, IASL signed a contract with Casino Express
Airline to charter a 122 seat B-737-200 jet aircraft to provide airlift for
casinos in Tunica, Mississippi and additional Cancun service for a major tour
operator.
In October 2000, IASL entered into a contract with Southeast Airlines to charter
two additional DC-9-30 jet aircraft to provide jet shuttle service between
Norfolk, Virginia and New York City, New York and between Norfolk and Orlando,
Florida. Due to low consumer demand for this service IASL suspended its jet
shuttle operations in January 2001 and terminated its contract with Southeast
for the two DC-9-30 aircraft.
TELECOMMUNICATIONS CALL CENTER
On September 7, 2000, the Company completed the acquisition of DM Marketing,
Inc. ("DMM") in accordance with a definitive purchase agreement dated August 16,
2000, which provided for the exchange of 8,450,000 shares of the Company's
Common Stock for all of the common stock of DMM. On August 16, 2000, the
8,450,000 shares of common stock issued for DMM had a market value of
$5,281,250. Including direct acquisition costs, the aggregate purchase price for
DMM was $6,210,897. The excess value of the purchase price over the fair value
of DMM's net assets on the acquisition date aggregating $5,722,267 has been
allocated to goodwill which is being amortized over five years.
DMM operates a telecommunications call center providing telemarketing, help desk
and other services for Internet related companies. Michael D. Pruitt was an
officer, director and shareholder of DMM at the time it was acquired by the
Company.
COMMERCIAL REAL ESTATE INVESTMENTS
The Company owns two shopping center properties in the Atlanta, Georgia area.
The mortgage financing on the shopping center properties includes additional
interest agreements which provides that the lender receive 50% of the net cash
flows on a quarterly basis and 50% of the excess of appraised value over the
mortgage loan balance at the time of any sale of the property or maturity of the
mortgage. The Company has recorded deferred debt discount and accrued interest
payable to reflect the lenders allocations of excess cash flows and of the
excess appraisal value over the loans. The deferred debt discount was fully
amortized at December 31, 2000. In September 2000, the Company extended the
balloon principal payments of these mortgage loans from October 1, 2000 to
October 1, 2001.
In March 2001, the Company entered into negotiations for the sale of its two
shopping centers and received a $37,500 refundable deposit. In April 2001, the
Company received an additional refundable deposit of $75,000. The Company
expects to enter into a sales contract and complete the sale of the shopping
centers before June 30, 2001.
STRATOS INNS CONCEPT
The Company owns PDK Properties, Inc. ("PDK") which held a long-term ground
lease at Dekalb-Peachtree Airport in Dekalb County, Georgia and owns Stratos
Inns, LLC, a hotel and hospitality business concept. The lease provided for a
54-month development period, a 36-month construction period, and a 30-year lease
term after a hotel is constructed and opened. The
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Company did not commence construction on the leased site; and, as a result was
declared in default of the lease by the landlord. Due to its limited available
capital and inability to secure a hotel management partner, the Company
determined it was unlikely that the Company would be able to complete the
construction of a hotel facility within the time constraints of its property
lease or to obtain a lease extension from the landlord. In December 2000, the
Company recorded a noncash charge of $1,164,000 to write off its PDK and Stratos
Inns investments.
SELECTED FINANCIAL INFORMATION (IN THOUSANDS):
NINE MONTHS ENDED MARCH 31, 2001
----------------------------------------------------------------------------------------
AVIATION TECHNOLOGY CALL STRATOS SHOPPING
TRAVEL SERVICES CONSULTING CENTER INNS CENTERS CORPORATE TOTAL
--------------- ---------- -------- -------- --------- --------- ---------
Revenues ........................ $ 6,182 $ 195 $ 170 $ -- $ 778 $ -- $ 7,325
Net loss ........................ (8,684) (290) (779) (1,164) (280) (2,396) (13,593)
Identifiable assets ............. 1,942 6,887 5,232 -- 8,351 861 23,273
Capital expenditures ............ 49 -- 22 -- -- -- 71
Depreciation and amortization ... 344 191 679 -- 204 -- 1,418
NINE MONTHS ENDED MARCH 31, 2000
----------------------------------------------------------------------------------------
AVIATION TECHNOLOGY CALL STRATOS SHOPPING
TRAVEL SERVICES CONSULTING CENTER INNS CENTERS CORPORATE TOTAL
--------------- ---------- -------- -------- --------- --------- ---------
Revenues ........................ $ -- $ -- $ -- $ -- $ 832 $ -- $ 832
Net loss ........................ (53,030) -- -- -- (304) -- (53,334)
Identifiable assets ............. 5,883 -- -- 1,163 8,847 -- 15,893
Capital expenditures ............ 1,373 -- -- 78 -- -- 1,451
Depreciation and amortization ... 24 -- -- -- 445 -- 469
THREE MONTHS ENDED MARCH 31, 2001
----------------------------------------------------------------------------------------
AVIATION TECHNOLOGY CALL STRATOS SHOPPING
TRAVEL SERVICES CONSULTING CENTER INNS CENTERS CORPORATE TOTAL
--------------- ---------- -------- -------- --------- --------- ---------
Revenues ........................ $ 3,906 $ 195 $ 69 $ -- $ 250 $ -- $ 4,420
Net loss ........................ (43) (290) (319) -- (13) (890) (1,555)
Capital expenditures ............ 8 -- -- -- -- -- 8
Depreciation and amortization ... 72 191 290 -- 68 -- 621
THREE MONTHS ENDED MARCH 31, 2000
----------------------------------------------------------------------------------------
AVIATION TECHNOLOGY CALL STRATOS SHOPPING
TRAVEL SERVICES CONSULTING CENTER INNS CENTERS CORPORATE TOTAL
--------------- ---------- -------- -------- --------- --------- ---------
Revenues ........................ $ -- $ -- $ -- $ -- $ 306 $ -- $ 306
Net loss ........................ (39,969) -- -- -- (123) -- (40,092)
Capital expenditures ............ 794 -- -- 63 -- -- 857
Depreciation and amortization ... 7 -- -- -- 173 -- 180
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Following is pro forma consolidated financial information reflecting the
Company's acquisitions of IASL, DMM and Avenel as if such acquisitions had
occurred as of the beginning of the nine month periods ended March 31, 2001 and
2000 (in thousands, except per share amounts):
2001 2000
------------ ------------
Revenue ............................................... $ 7,881 $ 1,113
Net loss from continuing operations ................... $ (15,102) $ (54,096)
Net loss .............................................. $ (15,402) $ (54,096)
Net loss per share .................................... $ (.27) $ (1.37)
Weighted average shares ............................... 56,386,672 39,574,357
NOTE 3. DISCONTINUED OPERATIONS
In fiscal 1999, the Company discontinued its residential real estate development
operations. Residential real estate operations include developed lots,
undeveloped land, and equity investments in residential real estate development
companies, partnerships, and joint ventures. The Company has made certain
estimates regarding the fair value of assets and costs to dispose of the
remaining assets of the discontinued operations.
Following is a summary of the net assets (liabilities) of discontinued
operations (in thousands):
MARCH 31, 2001 JUNE 30, 2000
-------------- -------------
Real estate inventories ............................... $ 2,640 $ 2,898
Mortgage notes and accrued interest payable ........... (2,265) (2,667)
Estimated expenses and other liabilities .............. (307) (237)
-------- --------
$ 68 $ (6)
-------- --------
In January 2001, the Company sold a portion of its discontinued operations real
estate. The net proceeds of approximately $85,000 were used to reduce the note
payable of the discontinued operations.
In May 2001, the Company entered a contract for the sale of certain real estate
of discontinued operations for $380,000. The sale is scheduled to close by May
31, 2001. In March 2001, the Company recorded a $300,000 loss on disposal of
discontinued operations to reflect revised estimates of the net realizable value
of the real estate inventories and of the income tax liability from prior years
assessed in March 2001 by the IRS.
Also, in May 2001, the Company reached an agreement to repay all mortgage notes
and accrued interest payable of discontinued operations by transferring certain
real estate inventory valued at $2,265,000 at March 31, 2001 to the mortgagor.
NOTE 4. ISSUANCE OF COMMON STOCK
In August 2000, the Company issued 500,000 shares of restricted Common Stock in
connection with the cash exercise of warrants with an exercise price of $0.50,
acquired IASL for 1,750,000 shares of restricted Common Stock, and sold
7,070,000 shares of restricted Common Stock at $0.375 per share in a private
placement transaction. After fees and expenses, the Company realized $2,409,000
from the private placement.
In September 2000, the Company issued 8,450,000 shares of restricted Common
Stock in connection with the DMM acquisition.
In January and February 2001, the Company raised $575,000 in a private placement
sale of 287,500 units. Each unit consists of 1) two shares of Common Stock, 2) a
warrant to purchase two shares of restricted Common Stock at $3 per share, based
on certain criteria, that expires 12 months after the shares underlying the
warrant can be sold pursuant to an effective registration statement under the
Securities Act of 1933 as amended; 3) a warrant to purchase two shares of
restricted Common Stock at $4 per share, based on certain criteria, that expires
in 24 months after the shares underlying the warrants can be sold pursuant to an
effective registration statement under the Securities Act of 1933 as amended.
11
12
Also in January 2001, the Company issued 400,000 shares of restricted Common
Stock in exchange for legal and strategic acquisition consulting services and
issued 924,000 shares of restricted Common Stock in connection with a one year
contract with a public relations and investor relations consultant.
In February and March 2001, the Company issued an aggregate of 2,000,000 shares
of Common Stock in connection with the exercise of options with an exercise
price of $.04.
NOTE 5. STOCK OPTIONS AND WARRANTS
The Company has issued stock options to purchase its Common Stock to directors,
officers, certain employees and consultants. The following table summarizes the
outstanding options and related exercise prices:
MARCH 31, 2001 JUNE 30, 2000
--------------------------- --------------------------
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
3,000,000 $0.25 -- --
400,000 0.44 1,800,000 0.44
3,500,000 0.70 -- --
1,000,000 0.75 -- --
40,000 0.80 -- --
170,000 1.00 -- --
500,000 1.44 -- --
125,000 3.00 -- --
--------- ---------
8,735,000 1,800,000
--------- ---------
In July 2000, the Company's Chairman agreed to cancel his outstanding options to
purchase 700,000 shares of the Company's Common Stock and the Company's former
Chief Executive Officer agreed to cancel his outstanding options to purchase
700,000 shares.
In the nine months ended March 31, 2001, the Company issued options to purchase
4,210,000 shares of Common Stock at or above fair market value to certain
employees, officers and directors under the Company's stock option plan. In
January 2001, the Company the issued non qualified options to purchase 125,000
shares of Common Stock at an exercise price above the market price to a former
employee.
In April and May 2001, options to purchase 40,000 shares at an exercise price of
$0.25 and 100,000 shares at an exercise price of $0.70 were exercised. Also, in
May 2001, options to purchase 400,000 shares at an exercise price of $0.44 were
exercised on a cashless basis.
12
13
In connection with its aviation travel services business, the Company issued in
fiscal 1999 and 2000 warrants to purchase its Common Stock in exchange for
consulting and legal services and for strategic vendor alliances provided by
outside third parties and in connection with the private placement of Common
Stock. The following table summarizes the outstanding warrants:
MARCH 31, 2001 JUNE 30, 2000
---------------------------------- -----------------------------------
EXERCISE EXERCISE
SHARES PRICE TERM SHARES PRICE TERM
---------- -------- ---- ---------- -------- ----
5,556,377 $ 0.04 54 mos. 5,556,377 $ 0.04 54 mos.
200,000 0.42 120 200,000 0.42 120
200,000 0.44 120 200,000 0.44 120
450,000 0.50 120 450,000 0.50 120
4,353,743 0.75 60 -- -- --
400,000 0.75 120 400,000 0.75 120
2,785,000 1.75 120 2,985,000 1.75 120
1,000,000 2.00 120 1,000,000 2.00 120
350,000 2.50 120 400,000 2.50 120
3,350,000 4.00 120 5,100,000 4.00 120
-- -- -- 2,063,386 6.06 18
-- -- -- 742,817 9.77 18
-- -- -- 1,547,540 9.77 60
---------- ----------
18,645,120 20,645,120
---------- ----------
At March 31, 2001, all of the above warrants are exercisable, except for 25,000
with an exercise price of $0.50 that vest in April 2001 and 1,666,913 with an
exercise price of $0.04 of which 1,111,275 vest on December 31, 2001 and 555,638
vest on December 31, 2002. The warrants in the above table with an exercise
price of $9.77 per share contain an anti-dilution clause and a variable pricing
clause that permits the price to be reduced at the time of exercise based on the
market price of the stock.
In January 2001, the Company entered into a settlement agreement (the "Corners
Settlement") with Four Corners Capital, LLC ("Four Corners") and DC Investment
Partners Exchange Funds, L.P. ("DC Fund), regarding, among other issues, the
termination of Four Corners' investment banking agreement with the Company and
the resolution of disputed issues related to the stock purchase agreement and
related documents entered into between the Company and Four Corners in January
2000. An investor of Four Corners was formerly a Director of the Company. The
Corners Settlement provides for, among other things, (1) the cancellation of
warrants to purchase 200,000 and 1,000,000 shares of Common Stock with an
exercise price of $1.75 and $4.00, respectively, outstanding at December 31,
2000; (2) the issuance of an option to purchase 1,000,000 shares of Common Stock
at an exercise price of $0.75 which expire in January 2006; (3) the amendment of
Four Corners' warrants to purchase 2,599,866 shares of Common Stock outstanding
at December 31, 2000 reducing the exercise prices of $6.06 and $9.77 to $0.75
and increasing the term from 18 to 60 months expiring in January 2006; (4) the
amendment of a warrant to purchase 123,802 shares of Common Stock outstanding at
December 31, 2000 held by DC Fund which amendment reduced the exercise price
from $9.77 to $0.75 and extends the expiration to January 2006; and (5) the
issuance of 200,000 shares of restricted Common Stock to Four Corners.
In February 2001, the Company entered into a settlement agreement ("the Acqua
Settlement) with Acqua Wellington Value Fund, Ltd. ("Acqua") resolving disputed
issues arising out of the stock purchase agreement and related documents entered
into between the Company and Acqua in January 2000. The Acqua Settlement
provides for, among other things, the amendment to Acqua's warrants to purchase
1,630,077 shares of Common Stock outstanding at December 31, 2000 and the
amendment of Acqua's registration rights. The warrants exercise prices were
reduced from $6.06 and $9.77 to $0.75 and the expiration terms were reduced from
18 months to 12 months after the shares underlying the warrants can be sold
pursuant to an effective registration statement under the Securities Act of 1933
as amended.
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14
The Company accounts for options issued to employees under APB No. 25 and
options and warrants issued to nonemployees under FASB No. 123. The total
compensation cost recognized during the nine month periods ended March 31, 2001
and 2000 for these awards was $6,930,000 and $48,899,000, respectively.
NOTE 6. RELATED PARTY TRANSACTIONS
In January 2001, the Company entered into a consulting agreement with Mr. Todd
Bottorff ("the Consulting Agreement"). In accordance with the Consulting
Agreement Mr. Bottorff resigned as President of the Company, agreed to cancel
his employment agreement dated May 7, 2000, and agreed to provide consulting
services to the Company through August 8, 2001, during which period the Company
will compensate Mr. Bottorff twice a month based on an annual salary of
$160,000. In December 2000, the Company recorded $114,000 of expense related to
the Consulting Agreement.
At March 31, 2001, the Company had notes payable of $226,000 to a company owned
by Michael D. Pruitt and had a $200,000 note receivable due from Lifestyles.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
In the nine months ended March 31, 2000, the Company's continuing operations
included development of an Internet-based, private aviation travel services
business, limited commercial real estate operations, and other investments. In
addition to these businesses, the Company acquired a leisure and business travel
services, telecommunications call center, and technology consulting businesses
in the nine months ended March 31, 2001. Due to these business acquisitions, the
Company's revenue and expense category amounts in the current fiscal periods
vary significantly from the same periods in fiscal 2000 periods. The following
table summarizes certain revenue and categories (in thousands):
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
---------------------------------------- ------------------------------------------
2001 2000 CHANGE 2001 2000 CHANGE
-------- -------- -------- -------- -------- --------
Revenue:
Aviation:
Leisure charter $ 3,528 $ -- $ 3,528 $ 5,020 $ -- $ 5,020
Jet shuttle 378 -- 378 1,162 -- 1,162
-------- -------- -------- -------- -------- --------
3,906 -- 3,906 6,182 -- 6,182
Consulting 195 -- 195 195 -- 195
Call center 69 -- 69 170 -- 170
Commercial real estate 250 306 (56) 778 832 (54)
-------- -------- -------- -------- -------- --------
$ 4,420 $ 306 $ 4,114 $ 7,325 $ 832 $ 6,493
======== ======== ======== ======== ======== ========
Gross Profit:
Aviation
Leisure charter $ 300 $ -- $ 300 $ 428 $ -- $ 428
Jet shuttle 87 -- 87 (266) -- (266)
-------- -------- -------- -------- -------- --------
387 -- 387 162 -- 162
Consulting 195 -- 195 195 -- 195
Call center 69 -- 69 170 -- 170
Commercial real estate 250 306 (56) 778 832 (54)
-------- -------- -------- -------- -------- --------
$ 901 $ 306 $ 595 $ 1,305 $ 832 $ 473
======== ======== ======== ======== ======== ========
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RESULTS OF CONTINUING OPERATIONS
The Company's revenues in the three and nine months ended March 31, 2001 were
$4,420,000 and $7,325,000 respectively, compared to $306,000 and $832,000,
respectively, in the same periods a year ago. The increases in the current
periods are due primarily to the newly acquired businesses offset by a decrease
in shopping center revenue. The Company operated jet shuttle flights from
November 2000 to January 2001. Due to low customer demand, the Company suspended
its jet shuttle services in January 2001. The Company's leisure charter
operations commenced in October 2000.
Gross profit in the three and nine months ended March 31, 2001 was $901,000 and
$1,305,000, respectively, compared to $306,000 and $832,000, respectively in the
same periods a year ago. The increases in the current periods are due to the
newly acquired businesses. The Company's aviation segment's overall gross profit
improved to 9.9% in the current quarter compared to 2.6% for the current nine
month period due to terminating the jet shuttle operations.
In the three and nine months ended March 31, 2001, the Company recognized
$219,000 and $6,922,000, respectively, of non-cash expense related to the
issuance of stock options and warrants compared to $37,872,000 and $48,899,000,
respectively, in the same periods a year ago. This expense decreased in the
periods ended March 31, 2001 because the Company granted fewer compensatory
options and warrants during such periods.
Selling, general and administrative expenses other in the three and nine months
ended March 31, 2001 were $1,320,000 and $3,855,000, respectively, compared to
$2,140,000 and $4,351,000, respectively, in the comparable 2000 periods. These
increases are due to expenses of the newly acquired aviation, call center, and
consulting businesses offset partially by the non recurring development costs of
the Private Seats(TM) program.
The Company's depreciation and amortization expense in the three and nine month
periods ended March 31, 2001 was $621,000 and $1,418,000, respectively, compared
to $180,000 and $469,000, respectively, in the same periods a year ago. The
increases are due primarily to amortization of the Company's Web site
development costs through December 31, 2000 and amortization of the goodwill
related to the business acquisitions in the current fiscal year.
Interest expense for the three and nine months periods ended March 31, 2001 was
$140,000 and $629,000, respectively. Interest expense for the nine months ended
March 31, 2001 is higher than the same period a year ago due to the amortization
of deferred debt interest costs on its shopping center mortgages. These deferred
costs were fully amortized at September 30, 2000.
Also, in the nine months ended March 31, 2001, the Company recorded noncash
expenses to reflect the write off of the pre-development costs of its Stratos
Inns concept ($1,164,000) and Private Seats Web site ($754,000).
LIQUIDITY AND CAPITAL RESOURCES
The net loss in the nine months ended March 31, 2001 of $13,893,000 was offset
by an increase in stockholder's equity due to the stock purchases of DMM, IASL,
and Avenel. Also, a $2,323,400 increase in paid-in capital related to the
issuance of stock and stock options and $3,314,000 proceeds from the sale of
Common Stock and exercise of options and warrants resulted in a net increase in
stockholders' equity of $5,924,000.
In the nine months ended March 31, 2001, continuing operations used $3,235,000
of cash and discontinued operations used $374,000 of cash. Including the net
cash provided from business acquisitions and stock sales, the net decrease in
cash was $84,000 for the nine months ended March 31, 2001.
In the three months ended March 31, 2001, the Company raised $575,000 out of an
anticipated $3.0 million in a private placement sale of units which consisted of
Common Stock and warrants. This private placement was terminated without raising
the additional $2.4 million.
In the three month periods ended September 30 2000, December 31, 2000, and March
31, 2001, the Company used $1,153,000, $1,731,000 and $892,000 of cash,
respectively, excluding cash proceeds from sales of stock and exercise of
options and warrants. Though the cash usage improved in the three months ended
March 31, 2001, the Company's cash balance at March 31, 2001 of $442,000 is
inadequate to fund operating losses at the level experienced in the three and
nine months ended March 31, 2001. The Company began generating revenue from its
newly acquired leisure aviation travel service operations in October 2000 and
management believes revenues will continue to increase in subsequent periods as
the Company expands this business, expands its telecommunications call center
operations and acquires additional businesses. However, the Company will
continue to incur operating losses as it implements its new business acquisition
strategy.
15
16
The Company has taken the following actions to provide near-term liquidity while
it continues the development of its businesses in an effort to reach positive
cash flow from operations:
(i) Entered negotiations for a $2.5 million bank line of credit
in May 2001.
(ii) Entered a contract to sell certain real estate of discontinued
operations for $380,000
(iii) Entered negotiations to sell its two shopping centers.
(iv) Determined to sell certain marketable securities.
If it completes these transactions, the Company expects to have adequate cash
balances to operate and grow its businesses while it continues to focus on
improving its cash flow from operations. In addition to the above transactions
the Company may need additional debt or equity financing depending upon its
ability to grow its newly acquired, and to be acquired, businesses and improve
cash flow from operations. There can be no assurance that additional financing
will be available when needed or, if available, that it will be on terms
favorable to the Company and its stockholders. If the Company is not successful
in generating sufficient cash flow from operations, or in raising additional
capital when required in sufficient amounts and on terms acceptable to the
Company, these failures would have a material adverse effect on the Company's
business, results of operations and financial condition. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
its then-current stockholders would be diluted.
The Company's business, results of operations, and financial condition are
subject to many risks. In addition, statements in this quarterly report relating
to matters that are not historical facts are forward-looking statements based on
management's belief and assumptions using currently available information.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it cannot give any assurances that
these expectations will prove to be correct. Such statements involve a number of
risks and uncertainties, including, but not limited to those discussed herein or
in other documents filed by the Company with the Securities and Exchange
Commission.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company and its subsidiaries are involved from time to time in various
claims and legal actions in the ordinary course of business. In the opinion of
management, the Company and its subsidiaries are not party to any legal
proceedings, the adverse outcome of which, would have any material adverse
effect on its business, its assets, or results of operations.
ITEM 2. CHANGES IN SECURITIES
The information in Notes 4 and 5 to the financial statements set forth in Part I
Item 1 hereof and in the Company's Current Reports on Form 8-K/A filed on
November 13, 2000, March 28, 2001 and May 2001 is incorporated herein by
reference.
The issuances of unregistered shares of Common Stock, options, and warrants in
the three months ended March 31, 2001 were affected in reliance on the
registration exemption provided for by Section 4(2) of the Securities Act of
1933, as amended, as sales by an issuer not involving a public offering.
On February 13, 2001, the Company filed a registration statement on Form S-3
with the Securities and Exchange Commission with respect to 20,000,000 shares of
Common Stock available for issuance pursuant to the Company's stock option
plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information set forth in Part II Item 4 of the Company's Report on Form
10-QSB filed on February 14, 2001 is incorporated herein by reference.
ITEM 5. OTHER INFORMATION
None
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17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and Index of Exhibits
2.1 Stock Purchase Agreement dated as of August 16, 2000
between the Company, DM Marketing, Inc., Michael
Pruitt and Darek Childress (incorporated herein by
reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K filed September 22, 2000).
2.2 Stock Purchase Agreement dated as of August 11, 2000
between the Company, Internet Aviation Services, Ltd.
and Caliente Consulting (incorporated herein by
reference to Exhibit 2.2 to the Company's Current
Report on Form 8-K filed September 22, 2000)
2.3 Share Exchange Purchase Agreement dated as of
November 8, 2000 between the Company and Avenel
Ventures, Inc. Pursuant to Item 601 (b)(2), the
exhibits to the Stock Purchase Agreement have been
omitted and the Company agrees to furnish copies of
such exhibits supplementary to the Commission upon
request (incorporated by reference to Exhibit xx to
the Company's Current Report on Form 10-QSB filed
February 14, 2001).
3.1 Restated Certificate of Incorporation dated January
19, 2001 (incorporated by reference to Exhibit 3.1 to
the Company's Current Report on Form 10-QSB filed
February 14, 2001).
4.1 Registration Rights Agreement between the Company,
Four Corners Capital, LLC and DC Investment Partners
Exchange Fund, L.P. dated January 23, 2001
(incorporated by reference to Exhibit 10.4 filed
herein).
4.2 Registration Rights Agreement between the Company and
Acqua Wellington Value Fund, Ltd. dated January 23,
2001 (incorporated by reference to Exhibit 10.5 filed
herein).
10.1 Consulting Agreement between the Company and Mr. Todd
Bottorff dated January 17, 2001. Pursuant to Item 601
(b)(2), the exhibits to the Consulting Agreement have
been omitted and the Company agrees to furnish copies
of such exhibits supplementary to the Commission upon
request (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 10-QSB filed
February 14, 2001).
10.2 Employment Agreement between the Company and Mr.
Michael D. Pruitt dated November 8, 2000
(incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 10-QSB filed
February 14, 2001).
10.3 Employment Agreement between the Company and Ms.
Melinda Morris Zanoni dated November 8, 2000
(incorporated by reference to Exhibit 10.3 to the
Company's Current Report on Form 10-QSB filed
February 14, 2001).
10.4 General Release and Settlement Agreement between the
Company and Four Corners Capital, LLC and DC
Investment Partners Exchange Fund, L.P. dated January
23, 2001 (incorporated by reference to Exhibit 10.4
to the Company's Current Report on Form 10-QSB filed
February 14, 2001)
10.5 General Release and Settlement Agreement between the
Company and Acqua Wellington Value Fund, Ltd. dated
January 23, 2001 (incorporated by reference to
Exhibit 10.5 to the Company's Current Report on Form
10-QSB filed February 14, 2001).
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(b) Reports on Form 8-K
(1) During the quarter ended March 31, 2001:
(i) The Company's Current Report on Form 8-K
filed with the Securities and Exchange
Commission on February 28, 2001 regarding
the acquisition of Avenel Ventures, Inc.
(ii) The Company's Current Report on Form 8-K/A
filed with the Securities and Exchange
Commission on March 28, 2001 reporting the
financial information related to the
acquisition of Avenel Ventures, Inc.
(iii) The Company's Current Report on Form 8-K
filed with the Securities and Exchange
Commission on April 18, 2001 regarding the
acquisition of LST, Inc.
(iv) The Company's Current Report on Form 8-K
filed with the Securities and Exchange
Commission on April 26, 2001 regarding the
acquisition of Logisoft Computer Products
Corp. and eStorefront.net Corp.
(v) The Company's Current Report on Form 8-K/A
filed with the Securities and Exchange
Commission on May 15, 2001 reporting the
financial information related to the
acquisition of LST, Inc.
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
eResource Capital Group, Inc.
Date: May 15, 2001 By: /s/ WILLIAM L. WORTMAN
---------------------------------------
William L. Wortman
Vice President, Treasurer and
Chief Financial Officer
18