UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15 (d) of the Securities Exchange Act of
1934
For the calendar year ended December 31, 1996
[ ] Transition Report Under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the transition period from ___________________ to ______________________
Commission file number 0-23054
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HOSPITALITY WORLDWIDE SERVICES, INC.
(Name of Small Business Issuer in its Charter)
New York 11-3096379
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
450 PARK AVENUE, SUITE 2603, NEW YORK, NY 10022
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 212-223-0699
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Securities registered under Section 12 (b) of the Exchange Act: NONE
Securities registered under Section 12 (g) of the Exchange Act: Common Stock,
par value $.0l
per share.
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.
[ X ] YES [ ] NO
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The Registrant's revenues for the fiscal year ended December 31,
1996 were $24,367,112.
The aggregate market value for the 5,141,531 shares of Common Stock,
$.0l par value per share (the "Common Stock"), held by non-affiliates of the
Registrant as of March 28, 1997 was approximately $33,111,640.
<PAGE>
ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS:
Check whether the Registrant has filed all documents and 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 [ ]NO
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares of Common Stock outstanding as of March 28, 1997 was
8,304,489.
DOCUMENTS INCORPORATED BY REFERENCE
None
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HOSPITALITY WORLDWIDE SERVICES, INC.
Form 10-KSB
Calendar Year Ended December 31, 1996
TABLE OF CONTENTS
Page No.
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PART I
Item 1. Description of Business 2
Item 2. Description of Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 5
Item 6. Management Discussion and Analysis of Financial Condition and
Results of Operations 5
Item 7. Financial Statements 9
Item 8. Changes In and Disagreements with Accountants on 9
Accounting and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 10
Item 10. Executive Compensation 12
Item 11. Security Ownership of Certain Beneficial Owners and Management 15
Item 12. Certain Relationships and Related Transactions 18
Item 13. Exhibits and Reports on Form 8-K 19
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Hospitality Worldwide Services, Inc., (the "Company") formerly known as
Light Savers U.S.A., Inc. was formed under the laws of the State of New York in
October 1991. In January 1994, the Company consummated an initial public
offering of its common stock, par value $.01 per share (the "Common Stock"). The
Company's principal line of business was to design and market decorative, energy
efficient lighting fixtures for the hotel and hospitality industry.
The Company's primary marketing tool was the utilization of Con
Edison's Applepower Rebate Program (the "Con Edison Rebate Program"), under
which Con Edison offered rebates to those who utilized energy saving devices for
a substantial amount, if not all, of the cost of the fixtures, which left the
customer responsible for payment of a small portion, if any, of the cost. In
1994, Con Edison substantially reduced the Con Edison Rebate Program, making it
less advantageous for the Company to use the Con Edison Rebate Program as a
marketing tool. As a result, the Company's revenues were substantially reduced.
In August 1995, the Company's wholly-owned subsidiary, Hospitality
Restoration and Builders, Inc., a New York corporation ("HRB") acquired
substantially all of the assets and business and assumed certain liabilities of
AGF Interior Services Co., a Florida corporation ("AGF") which provides
renovation services to the hospitality industry, in a stock and cash transaction
from Watermark Investments Limited, a Delaware corporation ("Watermark"). In
December 1995, the Company's Board of Directors, in an effort to focus the
Company in a more strategic direction, determined to begin to dispose of the
Company's lighting division and concentrate the Company's efforts in HRB.
On February 26, 1996, the Company, HRB, Watermark Investments Limited,
a Bahamian international business company ("Watermark-Bahamas"), Watermark, a
wholly-owned subsidiary of Watermark-Bahamas, AGF, Tova Schwartz, Alan G.
Friedberg and Guillermo A. Montero entered into a Divestiture, Settlement and
Reorganization Agreement (the "Divestiture Agreement") pursuant to which (i) the
Company sold its lighting business to Tova Schwartz, the Company's former
President and Chief Executive Officer, (ii) Ms. Schwartz resigned from her
positions as a director and officer of the Company and HRB; (ill) the Company
repurchased 500,000 shares of Common Stock from Ms. Schwartz for $250,000, with
a market value of $437,500; (iv) Ms. Schwartz granted to the Company options to
purchase an additional 1,000,000 shares of Common Stock (two options with
respect to 500,000 shares each); (v) the Company retained Ms. Schwartz as a
consultant for a period of three years at a salary of $100,000 per year; (vi)
Ms. Schwartz, the sole remaining director of the Company (since Howard G.
Anders, Moshe Greenfield and Moise Hendeles resigned from their positions as
directors of the Company effective February 25, 1996), appointed Mr. Friedberg
and Robert A. Berman to the Company's Board of Directors and the parties
appointed Mr. Friedberg as the Company's President and Chief Executive Officer;
(vii) the Company entered into three-year employment agreements with each of
Messrs. Friedberg and Montero; and (viii) the Company engaged Resource Holdings
Associates, L.P. ("Resource Holdings") as its financial advisor.
Subsequently, on March 25, 1996, Mr. Berman resigned from the Company's
Board of Directors and the Board elected Scott A. Kaniewski as Watermark's
representative to the Board of Directors.
In October, 1996, the Company changed its name from Light Savers,
U.S.A., Inc., to Hospitality Worldwide Services, Inc.. The change of the
corporate name is more indicative of the nature of the Company's business in
view of the significant change in the character and strategic focus resulting
from the acquisition of AGF and disposal of the Company's lighting business.
These transactions were part of a strategic corporate program to refocus the
Company's business operations into areas with higher growth potential. The name
change was approved at the annual shareholders meeting held in September, 1996.
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Until January, 1997, the Company's only line of business was to provide
a complete package of renovation resources to the hospitality industry ranging
from pre-planning and scope preparation of a project to performing the
renovation requirements and delivering furnished rooms. HRB offers hospitality
maintenance services to hotels and hotel chains throughout the continental
United States. For over seventeen years, HRB, through its predecessor, AGF, has
provided to the hospitality industry renovation and improvements such as vinyl,
paint, wallpaper, carpet, installation of new furniture, light carpentry, and
masonry work. HRB generally provides its renovation services in an on time, on
budget manner, while causing little or no disruption to the ongoing operation of
a hotel. HRB has successfully responded to the hotel industry's efforts to
increase occupancy, room rates and market share through cosmetic upgrades, which
are generally required every four to seven years.
On January 10, 1997, the Company completed the acquisition of Leonard
Parker Company, ("LPC"), a leading purchasing company for the hospitality
industry that acts as an agent for the purchase of goods and services for its
customers which include major hotel and management companies worldwide. LPC
purchases furniture, fixtures and equipment, kitchen supplies, linens and
uniforms, guestroom amenities, and other supplies to meet its customers'
requirements for new hotel openings and major renovations. In its role as
purchasing agent, LPC purchases annually approximately $250 million of goods and
services for its customers. Founded in 1969, the privately-held Leonard Parker
Company had revenue in excess of $56 million for the year ended December 31,
1996. The purchase price of LPC of approximately $12,000,000 consisted of
1,250,000 newly issued shares of Common Stock and $5 million stated value of
newly issued 6% redeemable convertible preferred stock of the Company,
convertible, on a formula basis, into not less than 1,000,000 and no more than
5,000,000 shares of Common Stock (at the present stock price) not earlier than
January 1, 1998. The Acquisition will be accounted for as a purchase method of
accounting with the results of LPC included in the consolidated financial
statements of the Company from the acquisition date.
The Company currently maintains its executive offices at 450 Park
Avenue, Suite 2603, New York, NY 10022, and its telephone number is (212)
223-0699. HRB maintains its principal office at 1800 Century Park East, Suite
370, Los Angeles, California 90067, and its telephone number is (310) 286-6400.
HRB also maintains a satellite office in Coral Springs, Florida. LPC maintains
its executive office at 550 Biltmore Way, Coral Gables, Florida, 33134, and its
telephone number is (305) 774-3000. LPC also has offices in Los Angeles,
California, Singapore, and South Africa.
MARKETING
Marketing efforts are directed by the Company's newly appointed
divisional presidents and in-house sales staff. Sales efforts are directed
primarily to the owners of major hotel chains throughout the United States. The
Company believes that it provides necessary services to major hotel chains and
feels confident it will be able to benefit from its strategic focus in the
hospitality industry.
COMPETITION
The hospitality maintenance industry is highly fragmented and is made
up largely of small, local companies. Competition in the hospitality renovation
industry is significant and is based largely on the price and service. In the
future, the Company's competitors may be larger and have greater financial
resources than HRB. The Company recognizes the need to grow to be able to
compete effectively. For this reason, the Company is focusing its efforts on
expansion through acquisitions (see pages 6 and 7 for 1995 and 1996
acquisitions) to enhance the Company's ability to compete effectively and
increase the Company's national operations and to expand into international
markets.
PERMITS AND LICENSES
The Company is required to obtain state-wide licenses in many of the
states in which it provides services. The Company currently has licenses in 20
states. The Company's management believes that it has sufficient licenses to
conduct its business, and that it would easily be able to obtain additional
licenses if it were required to do so. In connection with such licenses, the
Company is required to, and believes it does, comply with all environmental
laws.
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DEPENDENCE ON CUSTOMERS
Most of the Company's customers are in the hospitality industry with a
few of them accounting for a substantial portion of the Company's annual
revenues. During the year ended December 31, 1996, two customers accounted for
49% and 31% of the Company's net revenues. In 1995, four customers accounted for
23%, 19%, 18% and 14% of net revenues. As the Company continues to grow and
expand its renovation business and diversify its offerings through acquisitions
(see Recent Developments), the company believes its dependence on significant
customers will decrease. There are no assurances that either continued growth or
decreased dependence on significant customers will occur.
EMPLOYEES
As of December 31, 1996, the Company employed 201 employees, including
32 full time employees. A typical renovation project is staffed by a field
supervisor, who hires subcontractors and laborers specifically for the
particular project. Each project is staffed by trade subcontractors that may or
may not be unionized. The Company purchases workman's compensation insurance for
each of its projects. Every contractor and subcontractor is required to sign the
Company's standard contract before working on a project. None of the Company's
employees are represented by labor unions and the Company believes that its
relationship with its employees is good.
RECENT DEVELOPMENTS
On March 18, 1997, the Company's Board of Directors voted to reorganize
the Company's internal management and to nominate a new Chairman of the Board.
The Company's Board of Directors effected these changes in an effort to properly
align each of the Company's Divisions' strengths and resources, and to manage
anticipated future growth. As a result, Leonard Parker, Chairman of LPC, was
appointed Chairman of the Board of the Company; Robert Berman, the sole
principal of the general partner of Watertone Holdings, L.P., the Company;s
major shareholder, was named President and Chief Executive Officer of the
Company; Alan G. Friedberg, former Chairman of the Board, President and Chief
Executive Officer, was named President - Renovation Division; Douglas Parker,
President of Leonard Parker Company, was named President - Purchasing Division;
and Guillermo Montero, Vice-President - Operations, and Chief Operating Officer
of HRB, was named President of HRB.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company maintains its executive office at 450 Park Avenue, Suite
2603, New York, New York 10022, where it occupies approximately 4,803 square
feet in a multi-story office complex. The Company has entered into a ten year
lease, which expires in January 2007, with an unaffiliated lessor pursuant to
which it currently pays an annual fixed rental of $206,000 (exclusive of rent
adjustments).
HRB maintains offices at 1800 Century Park East, 3rd Floor, Los
Angeles, California, 90067, where it occupies approximately 3,336 square feet in
a multi-story office complex. HRB has entered into a five year lease, which
expires in May 1999, with an unaffiliated lessor pursuant to which it currently
pays an annual fixed rental of approximately $66,800 (exclusive of rent
adjustments). HRB also maintains a satellite office in Coral Springs, Florida.
LPC maintains its executive office at 550 Biltmore Way, Coral Gables,
Florida, 33134. LPC also maintains offices in Los Angeles, California, Singapore
and South Africa.
ITEM 3. LEGAL PROCEEDINGS
NONE
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION. The Common Stock is traded on the Nasdaq SmallCap
Market under the symbol "ROOM." The following table sets forth, for the
periods indicated, the range of high and low bid prices of the Common Stock
for the fiscal periods specified.
Common Stock
High Low
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Fiscal 1995
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First Quarter .................................2-1/4 1-1/4
Second Quarter.................................2-1/2 3/4
Third Quarter..................................2-3/8 1-7/16
Fourth Quarter.................................2-5/16 1-1/16
Fiscal 1996
First Quarter..................................1-11/16 5/8
Second Quarter.................................2-1/8 1-9/16
Third Quarter..................................3-3/16 1-5/8
Fourth Quarter.................................6-7/8 2-5/8
On March 28, 1997, the last reported sales price of the Common
Stock on the Nasdaq SmallCap Market was $6.44 per share.
(b) HOLDERS. As of March 28, 1997, there were approximately 73 record
holders and approximately 747 beneficial holders of the Common Stock.
(c) DIVIDENDS. The Company has not paid or declared any dividends upon its
Common Stock since its inception and does not intend to pay any dividends
upon its Common Stock in the foreseeable future. The payment by the Company
of dividends, if any, in the future rests within the discretion of its
Board of Directors and will depend, among other things, upon the Company's
earnings, its capital requirements and its financial condition, as well as,
other relevant factors.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS.
OVERVIEW
In February 1995, the Company's management determined that the change
in the Con Edison Rebate Program had seriously impacted its ability to promote
and build its decorative energy efficient lighting business and began to seek
either a joint venture partner or an acquisition opportunity. In August 1995,
the
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Company's wholly-owned subsidiary, HRB, acquired substantially all of the assets
and business and assumed certain liabilities of AGF, a company which provides
renovation services to the hospitality industry ("the Acquisition"). In December
1995, the Company determined to focus its resources on its hospitality
renovation business and to discontinue its lighting business.
In February 1996, the Company sold its lighting business to the
Company's former President.
ASSET PURCHASE
Pursuant to an Asset Purchase Agreement (the "Agreement") dated as of
August 1, 1995 (the "Acquisition Date"), the Company acquired substantially all
of the assets (the "Acquisition") of AGF, including contract rights, through
HRB. HRB provides interior and exterior cosmetic renovations and maintenance for
leading hotel and hospitality customers nationwide.
The aggregate consideration for the Acquisition pursuant to the
Agreement was subject to final determination subsequent to the Acquisition Date.
As finally determined on April 12, 1996, the purchase price consisted of a
$2,150,000 promissory note (the "Note Payable") payable to AGF over five years,
bearing interest at 8% per annum, and 2,500,000 shares of Common Stock delivered
to AGF and issued in the name of AGF's sole stockholder, Watermark. The
Acquisition resulted in goodwill of approximately $6,600,000, which is being
amortized on a straight-line basis over its estimated life of 17 years. The
Acquisition was accounted for as a purchase method of accounting with the
results of HRB included in the consolidated financial statements from the
Acquisition Date.
On May 23, 1995, the Company loaned AGF $2,500,000, secured by a
promissory note (the "Note Receivable"), payable over five years and bearing
interest at 8%.
On April 12, 1996, the Company and Watermark agreed to offset the
$2,150,000 Note Payable and the $2,500,000 Note Receivable, with a net balance
of $350,000 payable to the Company over five years at a rate of 7% per annum,
with payments commencing January 1997.
As noted above, the Company's Board of Directors determined that it was
in the best interest of the Company and its shareholders to discontinue the
decorative lighting business. Tova Schwartz, the Company's former President,
acquired the lighting business from the Company on the following terms:
1. The Company repurchased from Ms. Schwartz 500,000 shares of
Common Stock with a market value of $437,500, at a price of
$.50 per share or $250,000.
2. The Company and Ms. Schwartz entered into a three year
commission agreement that provides for payments to the Company
of commissions for sales referred to Ms. Schwartz by the
Company. The Company engaged Ms. Schwartz as a consultant for
a three year term at a rate of $100,000 per year.
The closing sale price of the Common Stock on Nasdaq immediately
following the purchase was $.875 a share.
Ms. Schwartz, further granted the Company an option (the "Option") to
purchase an additional 1,000,000 shares of Common Stock at a 33% discount from
the average trading price on Nasdaq for the prior 20 trading days. The Option is
exercisable as to 500,000 shares of Common Stock for a period of 18 months,
commencing on August 26, 1996, at a minimum exercise price of $1.00 per share.
The Option is exercisable as to an additional 500,000 shares of Common Stock for
a period of 12 months, commencing on February 26, 1997, at a
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minimum exercise price of $1.50 per share. During the exercise period for the
Option, Ms. Schwartz will have the ability to request the Company to purchase
the relevant optioned shares at a 50% discount to market. If the Company does
not purchase the relevant optioned shares, the Option will be canceled with
respect to such shares.
On October 10, 1996, the Company exercised its option to repurchase
500,000 shares of Common Stock from Ms. Schwartz for $715,000.
RESULTS OF OPERATIONS: FISCAL 1996 COMPARED TO FISCAL 1995 (PERIOD FROM
AUGUST 1, 1995 TO DECEMBER 31, 1995).
Revenues for the year ended December 31, 1996 were $24,367,112,
compared to $4,980,291 for 1995. Revenues for the Company increased
significantly due to the growth in the Company's renovation business from
increased sales and marketing efforts and the establishment of the Company's
name in the hospitality industry. The 1995 revenues were for the five months
ended December 31, 1995, the period for which the Company owned the HRB
business.
Gross profit for the year ended December 31, 1996 was $6,077,188, or
24.9% of revenues compared to $1,156,512 or 23.2% of revenues for 1995.
Selling, general and administrative expenses for the year ended
December 31, 1996 were $3,218,520, or 13.2% of revenues, compared to $1,619,189
or 32.5% of revenues for 1995. Included in the selling, general and
administrative expenses for the years ended December 31, 1996 and December 31,
1995 was $383,922 and $166,048, respectively, of amortization of goodwill for
the acquisition of HRB. The Company believes that these costs will continue to
increase as its business grows and as it develops a larger infrastructure to
handle future growth. However, due to rapidly increasing revenues, and a
majority of the Company's resources dedicated to operations, these costs should
continue to decline as a percentage of revenues.
Income (loss) from operations for the year ended December 31, 1996 was
$2,858,668, compared to ($462,677) for the same period last year. Operating
profits increased in 1996 due to larger revenues and the ability of the Company
to maintain low selling, general and administrative expenses as a percent of
sales. The loss from operations for 1995 is the result of increased overhead in
an unsuccessful attempt to grow the lighting business that was subsequently
discontinued.
Income tax expense for the year ended December 31, 1996 was $926,325,
compared to $25,000 for the same period last year. The 1996 expense is below the
federal and state statutory tax rates due mainly to a reduction in the valuation
allowance.
Net income for the year ended December 31, 1996 was $1,842,678,
compared to a net loss of ($1,115,969) for the period ending December 31, 1995.
THE HISTORICAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995 ARE NOT
INDICATIVE OF THE COMPANY'S FUTURE OPERATING RESULTS SINCE THE COMPANY ACQUIRED
THE ASSETS AND BUSINESS OF AGF IN AUGUST 1995 AND DISCONTINUED ITS LIGHTING
BUSINESS IN DECEMBER 1995. THEREFORE, THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REFLECTS THE COMPANY'S
OPERATING RESULTS ON A PRO FORMA CONSOLIDATED BASIS GIVING EFFECT TO THE
ACQUISITION AND THE DISCONTINUANCE OF THE LIGHTING BUSINESS AS IF SUCH
TRANSACTIONS TOOK PLACE ON JANUARY 1, 1995. THE PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION IS BASED ON THE HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY AND
AGF AND SHOULD BE READ IN CONJUNCTION WITH SUCH FINANCIAL STATEMENTS AND THE
NOTES THERETO. THE PRO FORMA FINANCIAL INFORMATION IS UNAUDITED AND IS NOT
NECESSARILY INDICATIVE OF WHAT THE ACTUAL RESULTS OF OPERATIONS OF THE COMPANY
WOULD HAVE BEEN ASSUMING THE ACQUISITION AND THE DISCONTINUANCE OF THE LIGHTING
BUSINESS HAD BEEN COMPLETED AS OF JANUARY 1, 1995, AND NEITHER IS IT NECESSARILY
INDICATIVE OF THE RESULTS OF OPERATIONS FOR FUTURE PERIODS.
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Revenues for the year ended December 31, 1996 were $24,367,112,
compared to $7,159,035 for 1995. Revenues for the Company increased
significantly, due to the growth in the Company's renovation business from
increased sales and marketing efforts and the establishment of the Company's
name in the hospitality industry.
Gross profit for the year ended December 31, 1996 was 24.9% of revenues
compared to 20.0% of revenues for 1995. The Company has been able to maintain a
consistently higher gross margin percentage as it develops an internal direct
labor force that is capable of completing renovation projects in a timely and
efficient manner.
Selling, general and administrative expenses for the year ended
December 31, 1996 were $3,218,520, or 13.2% of revenues, compared to $2,680,766
or 37.4% of revenues for 1995. Included in the selling, general and
administrative expenses for the years ended December 31, 1996 and December 31,
1995 was $383,922 and $166,048, respectively, of amortization of goodwill for
the acquisition of HRB. The Company believes that these costs will continue to
increase as its business grows and as it develops a larger infrastructure to
handle future growth. However, due to rapidly increasing revenues and a majority
of the Company's resources dedicated to operations, these costs should continue
to decline as a percentage of sales.
Income (loss) from continuing operations for the year ended December
31, 1996 was $2,858,668, compared to ($1,225,475) for the same period last year.
Operating profits increased in 1996 due to larger revenues and the ability of
the Company to maintain low selling, general and administrative expenses as a
percent of sales. The loss from operations for 1995 is the result of increased
overhead in an unsuccessful attempt to grow the lighting business that was
subsequently discontinued.
Income tax expense for the year ended December 31, 1996 was $926,325,
compared to $25,000 for the same period last year. The 1996 expense is below the
federal and state statutory tax rates due mainly to a reduction in the valuation
allowance.
Net income (loss) for the year ended December 31, 1996 was $1,842,678,
compared to a net loss of ($1,961,017) for the period ending December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
In August 1996, the Company negotiated a new bank line of credit with
Marine Midland Bank of New York, which provides the Company up to $2,000,000
based on the value of all Company assets. The line bears interest at the bank's
prime lending rate plus .5%. Proceeds from the borrowing are utilized to fund
short term cash requirements. At December 31, 1996, there were borrowings of
$1,400,000 on the line.
The Company's short-term and long-term liquidity requirements generally
consist of operating capital for renovation and maintenance related costs and
selling, general and administrative expenses. The Company continues to satisfy
its short-term and long-term liquidity requirements with cash generated from
operations, and utilization of its line of credit.
Net cash used by operating activities was ($1,120,028) for the year
ended December 31, 1996, compared to ($786,996) for the same period last year.
During the twelve months ending December 31, 1996, the Company's accounts
receivable and costs in excess of billing increased by $3,595,178. This increase
was partially offset by an increase of accounts payable and accrued expense of
$996,685. Due to the Company's rapid growth, and the significant amount of
additional work performed on numerous projects, a backlog of billings occurred
at year end resulting in the large accounts receivable increase. The Company
expects to collect these receivables fully in 1997.
Net cash provided by investing activities for the year ended December
31, 1996 was $649,318, compared to $2,417,390 for the same period last year. The
decrease is primarily the result of the sale of the Company's short-term
marketable securities in 1995, an infusion resulting from the company's IPO the
previous year. Due to the nature of the Company's business, including the
outsourcing of most renovation and maintenance related work, the Company has
insignificant capital requirements, and therefore can use its operating cash for
operating needs.
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On April 8, 1996, the Company completed a private placement of 500,000
shares of Common Stock to accredited investors at a price of $1.00 per share,
for aggregate gross proceeds of $500,000. The Company used the proceeds of the
private placement for working capital.
On October 10, 1996, the Company repurchased 500,000 shares of Common
Stock from its former President, Tova Schwartz for $715,000.
On January 15, 1997, Resource Holdings, the holder of an option to
purchase 500,000 shares of Common Stock, exercised a portion of said option with
respect to 200,000 shares of Common Stock resulting in additional capital of
$400,000 for the Company. On January 22, 1997, Resource Holdings disposed of the
200,000 shares of Common Stock. As of March 30, 1997, Resource Holdings has a
remaining option to purchase 300,000 shares of Common Stock, or beneficial
ownership of 3.49% of the outstanding Common Stock of the Company.
During the first quarter of 1997, additional exercises of stock options
and warrants resulted in an increase in the Company's additional capital of
$345,283.
The Company believes its present cash position, including increasing
revenues and cash on hand, and its ability to obtain additional financing as
necessary, will allow the Company to meet its short-term operating needs for at
least twelve months.
ITEM 7. FINANCIAL STATEMENTS
See Index to Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On March 14, 1996, the Company dismissed Arthur Andersen LLP
("Andersen") as its independent accountants. The Company's Board of Directors
approved such dismissal. Andersen's accountant's report on the financial
statements of the Company for the past two years did not contain an adverse
opinion or a disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope, or accounting principles. There were no other
reportable events or disagreements with Andersen to report in response to Item
304(a) of Regulation S-B, ss. 228.304(a).
On March 15, 1996, BDO Seidman, LLP was engaged as new independent
accountants to the Company.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their positions with the
Company are set forth below.
NAME AGE POSITION
Leonard F. Parker 66 Chairman of the Board and
Director
Robert A. Berman 37 President, Chief Executive
Officer and Director
Alan G. Friedberg 38 President-Renovation Division
and Director
Howard G. Anders 53 Chief Financial Officer,
Executive Vice President
and Secretary
Douglas Parker 39 President - Purchasing Division,
LPC and Director
Scott A. Kaniewski 33 Director
Louis K. Adler 60 Director
George Asch 59 Director
Richard A. Bartlett 39 Director
LEONARD F. PARKER has been Chairman of the Board of the Company since March
1997. Leonard Parker founded LPC in 1969, sold it in 1973 and re-acquired it in
1976. Mr. Parker is a graduate of Tulane University, and served in the U.S. Air
Force during the Korean War as an Air Force liaison to the Mitsubishi Aircraft
Company in Japan before moving to Miami in 1954. Prior to founding LPC, Mr.
Parker was employed from 1950 by Maxwell Company, an interior design and
furnishing Company. Mr. Parker is on the Board of Directors of Pompeii Casual
Furniture and the Douglas Gardens Home for the Aged. He is involved with the
Special Olympics and also serves on various committees for the Special Olympics.
ROBERT A. BERMAN has been the President and Chief Executive Officer of the
Company since March 1997. Mr. Berman, a long time entrepreneur, has an extensive
background in a variety of commercial ventures. His experiences range from
financial development of various projects in the area of Commercial Real Estate
and Construction. The commonality of these ventures lies in Mr. Berman's ability
to successfully structure business ventures for rapid growth and market
penetration.
ALAN G. FRIEDBERG has been the President - Renovation Division and a director of
the Company since March 1997. Previously, he was the Chief Executive Officer
and, President of the Company. He became the Chief Executive Officer of HRB in
August 1995. Prior thereto, Mr. Friedberg was the founder and Chief Executive
Officer of AGF. Mr. Friedberg is third generation in the construction industry.
In 1979, he formed AGF, a contract installation
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<PAGE>
company and expanded it to a full service "turn-key" operation in
construction/installation specializing in hotels. He has applied his extensive
experience and hands on management approach to successfully complete the
renovation of over 100,000 guestrooms. Completed projects include work performed
for Marriott, Loews, Nikko, Holiday Inn Worldwide, Ritz Carlton, New York Grand
Hyatt and many more.
HOWARD G. ANDERS has been the Executive Vice President, Chief Financial Officer
and Secretary of the Company since February 1996 and was the Executive Vice
President, Chief Operating Officer and a director of the Company from October
1994 to November 1995. From December 1995 to February 1996, Mr. Anders was an
independent consultant. Prior to joining the Company, Mr. Anders served as Vice
President and Chief Financial Officer of Alpine Lace Brands, Inc. in Maplewood,
New Jersey from April 1992 to October 1994. From April 1983 to April 1992, Mr.
Anders was President and Chief Operating Officer of North Hills Electronic, Inc.
in Glen Cove, New York. Mr. Anders is a 1965 graduate of Rutgers University and
attended the Harvard Business School PMD Program in 1979.
DOUGLAS A. PARKER has been President-Purchasing Division of the Company since
March 1997. Mr. Parker is also President of Leonard Parker Company. Mr. Parker,
a graduate of Tulane University in International Business, has been with Leonard
Parker Company for 17 years. As the company has expanded into the international
market, he has been directly responsible for the development of the overseas
offices in Johannesburg, Singapore and Dubai, coordinating the international
operations, sales, vendor and client relationships. Some of the firms' current
projects include the Grand Hyatt New York, The New York Palace, the Mohegan Sun
Resort and Casino, Ritz-Carlton San Juan, Durban Hilton, Johannesburg Hilton,
and the Chicago Beach Hotels in Dubai.
GUILLERMO A. MONTERO has been the President of HRB since March 1997. Previously,
Mr. Montero was the Vice President-Operations and Chief Operating Officer of
HRB. In August 1995, he became the Senior Vice President of HRB. Prior thereto,
he was the President of AGF. Originally from Maracaibo, Venezuela, Mr. Montero
has strong ties in the design/construction industry. Mr. Montero attended
Oglethorpe University and Georgia Tech, receiving a B.A. degree in 1982. He
became associated with AGF in 1979. Completed projects include work performed
for the Ritz Carlton Chain, The Omni Hotels Chain, Holiday Inn, Embassy Suites,
Hilton and Travelodge.
SCOTT A. KANIEWSKI has been a director of the Company since March 1996 and has
been a director of Watermark since February 1995. Prior to his involvement with
Watermark, Mr. Kaniewski held several positions with VMS Realty Partners ("VMS")
including Vice President of Hotel Investments where he was responsible for the
development of fee for service programs targeting institutions and private
investors. He also directed the asset management of VMS' hotel portfolio. He is
Certified Public Accountant and a member of the Illinois CPA Society.
LOUIS K. ADLER has been a director of the Company since September 1996. Mr.
Adler has been a private investor for over five years in Houston, Texas. He has
been the Chairman of the Board and President of Bancshares, Inc. (Houston, TX)
since 1973, Vice Chairman of the Board since 1992 and a director since 1988 of
Luther's Bar-B-Q, Inc., a group of twenty restaurants in Texas, Louisiana and
Colorado, a Director, Secretary and Treasurer of Warwick Communications, Inc.
(owner of KFXX, the Fox Television Affiliate in Longview, TX) since 1993, and a
director and officer of several other private companies. Mr. Adler is also a
trustee and the President of the Adler Foundation and member of the Dean's
Advisory Counsel of Goizueta Business School of Emory University.
GEORGE ASCH has been a director of the Company since September 1996. Mr. Asch
has been a Vice President of Gray, Seifert and Co., Inc. since September 1994.
Gray, Seifert and Co., Inc. is an investment management company which became a
wholly-owned independent subsidiary of Legg Mason, Inc. in April 1994. For 25
years prior to joining Gray Seifert and Co., Inc. in August 1990, Mr. Asch
served as President of a manufacturing company. He currently serves on the
boards of various philanthropic organizations, including the Montefiore Medical
Center and the Price Foundation. He is a graduate of Columbia College and served
as an officer in the United States Navy.
RICHARD A. BARTLETT has been a director of the Company since September 1996. Mr.
Bartlett is a Managing Director of Resource Holdings Limited, a private merchant
banking firm in New York City ("Resource Limited"). He specializes in legal
aspects of mergers, acquisitions and other corporate restructurings. In that
capacity, he sits
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<PAGE>
and has sat on the board of various companies in which Resource Limited and its
principals have made investments. Prior to joining Resource Limited in 1984, he
served as a law clerk to the Honorable Harry A. Blackmun, Associate Justice for
the United States Supreme Court, during the Supreme Court's 1983-84 term. From
1982 to 1983, he served as law clerk to the Honorable David L. Bazelon, United
States Court of Appeals for the District of Columbia Circuit. Mr. Bartlett
received a law degree from Yale Law School in 1982, where he was the editor of
the Yale Law Journal. He received his B.A. from Princeton University in 1979,
where he studied economics and politics at the Woodrow Wilson school of Public
and International Affairs. From 1987 to 1993, he was a member of the Council of
Foreign Relations and he is a member of the New York State Bar.
MEETINGS AND COMMITTEES
The Company's Board of Directors met four times in 1996. A Compensation
Committee and an Audit Committee were formed at the September 26, 1996 Board of
Directors meeting. The Compensation Committee consists of two outside directors,
Richard A. Bartlett and Scott A. Kaniewski. The Audit Committee consists of two
outside directors, George Asch and Louis K. Adler.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to Tova Schwartz, who served as the
Chief Executive Officer of the Company from its inception until February 1996
and Alan G. Friedberg, Howard G. Anders and Guillermo A. Montero, the Company's
three most highly compensated executives (the "Named Executive Officers"). There
is no other executive officer of the Company whose salary and bonus exceeded
$100,000 with respect to the fiscal years ended December 31, 1996, 1995 and
1994.
12
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------------------------------------------------------- ------
Other Annual Securities
Name and Compensation Underlying
Principal Position Year Salary (S) Bonus($) ($)(1) Options(#)
------------------ ---- ---------- -------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Alan G. Friedberg (2) 1996 $225,000 $75,000 - 400,000
1995 $110,520 - - -
1994 - - - -
Guillermo A. Montero (3) 1996 $190,000 $76,665 - 300,000
1995 $ 83,337 - - -
1994 - - - -
Howard G. Anders (4) 1996 $150,000 $25,000 - 100,000
1995 $128,333 - - 50,000
1994 $ 39,999 - - 50,000
Tova Schwartz (5) 1996 - - - -
1995 $103,992 - - -
1994 $100,000 $83,333(6) - -
</TABLE>
............
(1) Perquisites and other personal benefits, securities or property to each
executive officer did not exceed the lesser of $50,000 or 10% of such
executive's salary and bonus.
(2) Mr. Friedberg joined the Company in August 1995 as the Chief Executive
Officer of HRB. In February 1996, he became the Chief Executive Officer
and a director of the Company. Currently, Mr. Friedberg is the
President-Purchasing Division of the Company.
(3) Mr. Montero joined the Company in August 1995 as Vice
President-Operations and Chief Operating Officer of HRB. Currently, Mr.
Montero is President of HRB.
(4) Mr. Anders joined the Company in October 1994 as Executive Vice
President, Chief Operating Officer and a director. In February 1996, he
resigned as a director of the Company and became the Chief Financial
Officer, Executive Vice President and Secretary of the Company.
(5) Ms. Schwartz served as the Company's Chief Executive Officer and
President from its inception until she resigned in February 1996. Alan
G. Friedberg became the Company's Chief Executive Officer in February
1996.
(6) Reflects dollar amount earned in 1993 and paid in 1994.
The following table sets forth certain information regarding stock
option grants made to the Named Executive Officers during the fiscal year ended
December 31, 1996.
13
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/SH) Date
---- ----------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Alan G. Friedberg 400,000 43% $2.75 9/26/06
Guillermo Montero 300,000 32% $2.75 9/26/06
Howard G. Anders 100,000 11% $2.75 9/26/06
Tova Schwartz 0 0% $ 0 0
</TABLE>
The following table sets forth certain information regarding
unexercised stock options held by the Named Executive Officers as of December
31, 1996.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Underlying Unexercised In-the-Money
Options at Options at
December 31, 1996 December 31, 1996 $ (1)
Name Exercisable/Unexercisable Exercisable/Uunexercisable
---- ------------------------- --------------------------
<S> <C> <C>
Alan G. Friedberg 200,000/200,000 $800,000/$800,000
Guillermo A. Montero 150,000/150,000 $600,000/$600,000
Howard G. Anders 150,000/50,000 $747,500/$200,000
Tova Schwartz 0/0 0/0
</TABLE>
(1) On December 31, 1996, the last reported sales price of the Common Stock
on the Nasdaq SmallCap Market was $6.75 per share.
BOARD OF DIRECTORS COMPENSATION
The Company does not currently compensate directors who are also
executive officers of the Company for service on the Board of Directors.
Directors are reimbursed for their expenses incurred in attending meetings of
the Board of Directors.
On September 26, 1996, the Company's Board of Directors adopted, and
the Company's shareholders approved, the 1996 Outside Directors Stock Option
Plan (the "Outside Directors' Plan") for purposes of securing for the Company
and its shareholders the benefits arising from stock ownership by its outside
directors.
Each outside director who becomes an outside director after March 1,
1996 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 Outside Directors Plan on April 1 of each year, commencing
on April 1, 1997, each outside director shall be granted an option to purchase
10,000 shares of common stock. Options granted under the Outside Directors Plan
shall be exercisable in three equal installments, commencing on the first
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<PAGE>
anniversary of the grant date. The Company has granted options to
purchase 60,000 shares under the Outside Directors Plan at a grant price of
$2.75 per share, of which none are currently exercisable.
LONG-TERM INCENTIVE AND PENSION PLANS
The Company does not have any long-term incentive or defined benefit
pension plans.
On September 26, 1996, the Company's Board of Directors adopted the
1996 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. 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". The Company has granted 889,000 shares
under the Plan at a grant price of $2.75 per share, of which 2,500 shares have
been exercised, and 442,000 are currently exercisable. The term for each option
granted is determined by the Stock Option Committee, which is composed of two or
more members of the Board of Directors, provided the maximum length of the term
of each option granted will be as more than ten years. At December 31, 1996,
776,000 shares were available for grant. OTHER
No director or executive officer is involved in any material legal
proceeding in which he is a party adverse to the Company or has a material
interest adverse to the Company.
EMPLOYMENT AGREEMENTS
Pursuant to the Divestiture Agreement, the Company and Tova Schwartz
agreed that Ms. Schwartz would provide consulting services to the Company on a
part-time basis (no more than four hours per month) for a term of three years,
to be compensated at a rate of $100,000 per year. As additional consideration
for the purchase of the lighting business, the Company agreed to refer lighting
business to Ms. Schwartz or an entity controlled by her and Ms. Schwartz agreed
to pay commissions to the Company for a period of three years at a rate of 10%
(or as negotiated), of the net invoice price of all sales referred to Ms.
Schwartz by the Company.
In addition, pursuant to the Divestiture Agreement, Mr. Friedberg, Mr.
Montero and the Company agreed on the terms of their respective employment with
the Company, for an initial term of three years, subject to automatic renewal
for successive twelve-month periods unless either party provides the other with
a notification of non-renewal. The salary of Mr. Friedberg is $225,000 annually,
and Mr. Montero is $190,000 annually and Mr. Friedberg and Mr. Montero have
agreed not to compete with the Company during the two year period after the
termination of their employment with the Company.
On April 1, 1996, the Company entered into a two year employment
agreement with Mr. Anders, at a salary of $150,000 per annum. Pursuant to such
agreement, Mr. Anders has agreed not to compete with the Company during the term
of the agreement and for a period of two years thereafter.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission"). Officers, directors and greater than ten percent
shareholders are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file. During the year ended December
31, 1996, all of such forms were filed in a timely manner with the exception of
Forms 3 for Leonard Parker, Douglas Parker and Watertone Holdings, LP (and
related parties) and Forms 4 for Watertone Holdings, LP (and related parties).
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The voting securities of the Company outstanding on March 30,1997,
consisted of 8,304,489 shares of Common Stock. The following table sets forth
information concerning ownership of the Common Stock,
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<PAGE>
as at March 28, 1997, by (i) each director, (ii) each executive officer, (iii)
all directors and executive officers as a group, and (iv) each person who, to
the knowledge of management, owned beneficially more than 5% of the Common
Stock. Unless otherwise indicated, the address of each person listed below is
450 Park Avenue, New York, New York 10022.
<TABLE>
<CAPTION>
Shares Percent of
Benficiailly Outstanding
Beneficial Owner(1) Owned Common Stock(2)
------------------- ----- ---------------
<S> <C> <C>
Watertone Holdings, LP 1,800,000 21.68%
730 Fifth Avenue, 9th Floor
New York, New York 10019
Robert A. Berman 1,800,000(3) 21.68%
Watertone, LLC 500,000(4) 6.02%
c/o Relco Inc.
3 Stamford Landing
46 Southfield Ave.
Stamford, Connecticut 06902
Joel A. Asen 500,000(4) 6.02%
445 Old Academy Road
Fairfield, Connecticut 06430
John A. Garraty, Jr. 500,000(4) 6.02%
c/o Kelley Drye & Warren
101 Park Avenue
New York, New York 10178
E.W. Plaut 500,000(4) 6.02%
c/o Relco Inc.
3 Stamford Landing
46 Southfield Avenue
Stamford, Connecticutt 06802
Tova Schwartz 1,243,150 14.97%
11 Wedgewood Lane
Lawrence, New York 11559
Resource Holdings Associates, L.P. 300,000(5) 3.49%
520 Madison Avenue
New York, New York 10022
Resource Holdings Limited 300,000(6) 3.49%
520 Madison Avenue
New York, New York 10022
Richard A. Bartlett 416,666(7) 4.84%
50 Central Park West, #11C
New York, New York 10023
Jerry M. Seslowe 416,668(8) 4.84%
2 Chanticlare Drive
Manhasset, New York 11030
John C. Shaw 416,666(9) 4.84%
16 Ledge Road
Old Greenwich, Connecticutt 06870
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Shares Percent of
Benficiailly Outstanding
Beneficial Owner(1) Owned Common Stock(2)
------------------- ----- ---------------
<S> <C> <C>
Leonard Parker 300,000 3.61%
550 Biltmore Way
Coral Gables, Florida 33134
Douglas Parker 190,000 2.29%
550 Biltmore Way
Coral Gables, Florida 33134
Bradley Parker 190,000 2.29%
550 Biltmore Way
Coral Gables, Florida 33134
Howard G. Anders 154,500 (10) 1.83%
Alan Friedberg 210,000 (11) 2.47%
Guillermo A. Montero 169,792 (12) 2.01%
Scott A. Kaniewski 2,000 *
Louis K. Adler 75,000 *
George Asch 75,000 *
All Officers and Directors as a group (9 persons) 3,223,166 (13) 37.24%
</TABLE>
----------------
* Less than 1%
(1) Except as outlined herein, the persons named in the table, to the
Company's knowledge, have sole voting and dispositive power with respect
to all shares shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in the
footnotes hereunder.
(2) Calculations assume that all options and warrants which are excercisable
within 60 days after December 31, 1996 have been exercised.
(3) Consists of 1,800,000 shares of Common Stock held by Watertone Holdings,
LLP, as to which each of Watertone Limited, LLC, and Robert A. Berman is
attributed beneficial ownership persuant to rule 13d-3 of the Securities
Exchange Act of 1934. Mr. Berman has sole power to vote and dispose of the
1,800,000 shares of Common Stock.
(4) Consists of 500,000 shares of Common Stock held by Watertone, LLC as to
which each of Watertone LLC, Joel A. Asen, John A. Garraty, Jr. And E.W.
Plaut are attributed beneficial ownership pursuant to Rule 13d-3 of the
Securities Exchange Act of 1934, as amended ("Rule 13d-3"). Messrs. Asen,
Garraty and Plaut, as Managers of Watertone L.LC, have shared power to
vote and dispose of the 500,000 shares of Common Stock.
(5) Consists of 300,000 shares of Common Stock underlying an option granted to
Resource Holdings by the Company as partial compensation for services
rendered as a consultant (the "Option") at an exercise price of $2.00 per
share.
(6) Consists of 300,000 shares of Common Stock underlying the Option as to
which Resource Holdings Limited is attributed beneficial ownership
pursuant to Rule 13d-3.
(7) Consists of (i) 116,666 shares of Common Stock owned individually by Mr.
Bartlett: and (ii) 300,000 shares of Common Stock underlying the Option as
to which Mr. Bartlett is attributed beneficial ownership pursuant to Rule
13d-3. Mr. Bartlett has sole power to vote and dispose of the 116,666
shares of Common Stock he owns individually. Mr. Bartlett, as a Managing
Director of Resource Holdings Limited, has shared power to vote and
dispose of the 300,000 shares of Common Stock underlying the Option.
(8) Consists of (i) 116,668 shares of Common Stock owned individually by Mr.
Seslowe; (ii) 300,000 shares of Common Stock underlying the Option as to
which Mr. Seslowe is attributed beneficial ownership pursuant to Rule
13d-3. Mr. Seslowe has sole power to vote and dispose of the 116,666
shares of Common Stock he owns individually. Mr. Seslowe, as a Managing
Director of Resource Holdings Limited, has shared power to vote and
dispose of the 300,000 shares of Common Stock underlying the Option.
17
<PAGE>
(9) Consists of (i) 116,666 shares of Common Stock owned individually by Mr.
Shaw; and (ii) 300,000 shares of Common Stock underlying the Option as to
which Mr. Shaw is attributed beneficial ownership pursuant to Rule 13d-3.
Mr. Shaw has sole power to vote and dispose of the 116,666 shares of
Common Stock he owns individually. Mr. Shaw, as a Managing Director of
Resource Holdings Limited, has shared power to vote and dispose of the
300,000 shares of Common Stock underlying the Option.
(10) Consist of (i) 4,500 shares of Common Stock held individually by Mr.
Anders; and (ii) 150,000 shares of Common Stock issuable upon exercise of
presently exercisable options currently held by Mr. Anders.
(11) Consist of (i) 10,000 shares of Common Stock held individually by Mr.
Freidberg: and (ii) 200,000 shares of Common Stock issuable upon exercise
of presently exercisable options currently held by Mr. Friedberg.
(12) Consists of (i) 19,792 shares of Common Stock held by Mr. Montero's wife
Maria Elizabeth Leon as to which Mr. Montero disclaims beneficial
ownership; and (ii) 150,000 shares of Common Stock issuable upon exercise
of presently exercisable options currently held by Mr. Montero.
(13) Includes options to purchase 710,000 shares of Common Stock at exercise
prices ranging from $1.275 - $2.75 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company hired Interstate Interior Services ("Interstate") as a
subcontractor on certain of its projects. The President of Interstate is the
sister of the Company's officers. During 1996 and from August 1, 1995, the date
of the Acquisition, to December 31, 1995, the Company paid fees of $172,786 and
$712,137, respectively, to Interstate.
On February 26, 1996, the Company, HRB, Watermark-Bahamas, Watermark,
AGF, Tova Schwartz, Alan G. Friedberg and Guillermo A. Montero entered into the
Divestiture Agreement pursuant to which (i) the Company sold its lighting
business to Tova Schwartz, the Company's former President and Chief Executive
Officer; (ii) Ms. Schwartz resigned from her positions as a director and officer
of the Company and HRB; (iii) the Company repurchased 500,000 shares of Common
Stock from Ms. Schwartz for $250,000, with a market value of $437,500;(iv) Ms.
Schwartz granted to the Company the option to purchase an additional 1,000,000
shares of Common Stock; (v) the Company retained Ms. Schwartz as a consultant
for a period of three years at a salary of $100,000 per year; (vi) Ms. Schwartz,
the sole remaining director of the Company (since Howard G. Anders, Moshe
Greenfield and Moise Hendeles resigned from their positions as directors of the
Company effective February 25, 1996), appointed Mr. Friedberg and Robert A.
Berman to the Company's Board of Directors and the parties appointed Mr.
Friedberg as the Company's President; (vii) the Company entered into three-year
employment agreements with each of Messrs. Friedberg and Montero; and (viii) the
Company engaged Resource Holdings Associates as its financial advisor. On March
25, 1996, Mr. Berman resigned from the Company's Board of Directors and the
Board elected Scott A. Kaniewski as Watermark's representative to the Board of
Directors. See "Employment Agreements" for a description of the
consulting/commission arrangement between the Company and Ms. Schwartz.
On April 12, 1996, based upon provisions of the Asset Purchase
Agreement and a memorandum agreement between the parties to the Agreement, the
Company and Watermark agreed to reduce the purchase price by $1,350,000 through
a reduction in the Note Payable. The Company and Watermark agreed to offset the
$2,150,000 Note Payable and the $2,500,000 Note Receivable, with a net balance
of $350,000 payable to the Company over five years at a rate of 7% per annum,
with payments commencing January 1997.
On February 28, 1996, the Company engaged Resource Holdings as a
financial advisor until December 31, 1997. As compensation for such engagement,
the Company granted Resource Holdings a five-year option to purchase 500,000
shares of Common Stock at an exercise price of $2.00 per share and agreed to pay
a retainer of $10,000 per month for at least one year.
During 1996, the Company has performed renovation services for
Watermark. As of December 31, 1996, the company had a receivable of $492,824
from Watermark, which was collected in full during the first quarter of 1997.
18
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
Exhibit
NUMBER EXHIBITS
3.1 Certificate of Incorporation, as amended, of Light
Savers U.S.A., Inc. (Incorporated by reference to
Exhibits 3.1-3.3 to the Company's Current Report on Form
8-K dated January 24, 1997.
3.2 By-laws of the Company (Incorporated by reference to
Exhibit 3.4 to the Company's Registration Statement on
Form SB-2, No. 33-7094-NY).
3.3 Restated Certificate of Incorporation, as amended, of
Light Savers U.S.A., Inc., changing the Company's name
to Hospitality Worldwide Services, Inc. (Incorporated by
reference to exhibit to the Company's
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).
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 Registration Rights Agreement dated as of February 26,
1996, by and among the Company, Watermark and Tova
Schwartz (Incorporated by reference to Exhibit 10.5 of
the Company's Form 10-KSB for the year ended December
31, 1995).
10.6 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).
10.7 Employment Agreement dated April 1, 1996, by and between
the Company and Howard G. Anders (Incorporated by
reference to Exhibit 10.7 of the Company's Form 10-KSB
for the year ended December 31, 1995).
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<PAGE>
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).
10.13 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).
16 Letter from Arthur Andersen LLP dated March 19, 1996
(Incorporated by reference to Exhibit 1 to the Company's
Current Report on Form 8-K/A filed March 25, 1996).
* 21 Subsidiaries of the Company.
* 27 Financial Data Schedule
- --------------------------
*Filed herewith.
(b) Reports on Form 8-K
On October 8, 1996 the Registrant filed with the New York Department of
State Amendment to its Certificate of Incorporation to, among other things,
effect a change in its name from Light Savers U.S.A., Inc. to Hospitality
Worldwide Services, Inc. The Registrant's shareholders approved such an
amendment to the Registrant's Certificate of Incorporation at the Registrant's
annual meeting of shareholders on September 26, 1996.
20
<PAGE>
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.
HOSPITALITY WORLDWIDE SERVICES, INC.
Dated: March 31, 1997 By: /S/ ROBERT A. BERMAN
---------------------------------
Robert A. Berman, President, Chief
Executive Officer, (principal executive
officer) 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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ LEONARD F. PARKER Chairman of the Board and March 31, 1997
--------------------------------- Director
Leonard F. Parker
/S/ ROBERT A. BERMAN President, Chief Executive Officer March 31, 1997
--------------------------------- (principal executive officer) and
Robert A. Berman Director
/S/ HOWARD G. ANDERS Executive Vice President, Chief March 31, 1997
--------------------------------- Financial Officer, (principal
Howard G. Anders financial officer, principal
accounting officer) and secretary
/S/ SCOTT A. KANIEWSKI Director March 31, 1997
---------------------------------
Scott A. Kaniewski
/S/ LOUIS K. ADLER Director March 31, 1997
---------------------------------
Louis K. Adler
/S/ GEORGE ASCH Director March 31, 1997
---------------------------------
George Asch
/S/ RICHARD A. BARTLETT Director March 31, 1997
---------------------------------
Richard A. Bartlett
/S/ DOUGLAS PARKER President-Purchasing Division, March 31, 1997
---------------------------------
Douglas Parker Leonard Parker Company and
Director
/S/ ALAN G. FRIEDBERG President-Renovation Division March 31, 1997
--------------------------------- and Director
Alan G. Friedberg
</TABLE>
21
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
Page No.
--------
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARY
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheet F-3
Statements of operations F-4
Statements of stockholders' equity F-5
Statements of cash flows F-6, F-7
Notes to consolidated financial statements F-8-F-19
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Hospitality Worldwide Services, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of Hospitality
Worldwide Services, Inc. (formerly Light Savers U.S.A., Inc.) and subsidiary as
of December 31, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 financial statement presentation.
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 Hospitality
Worldwide Services, Inc. and subsidiary as of December 31, 1996, and the results
of its operations and its cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP
New York, New York
March 21, 1996
F-2
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
YEAR ENDED DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C>
Cash $ 276,191
Accounts receivable, net of allowance for
doubtful acccounts of $50,000 (Notes 5, 8 and 10) 3,134,841
Current portion of note receivable (Note 3) 70,000
Costs in excess of billings (Note 6) 2,176,907
Prepaid and other current assets 421,303
------------
Total current assets 6,079,242
------------
Property and equipment, less accumulated depreciation of $61,711 (Note 7) 142,877
Goodwill, less accumulated amortization of $549,970 (Note 3) 6,049,669
Note receivable, less current portion (Note 3) 280,000
Deferred taxes (Note 9) 65,280
Other assets 133,022
------------
Total other assets 6,670,848
------------
12,750,090
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan payable - bank (Note 8) $ 1,400,000
Accounts payable (Note 5) 1,175,068
Accrued and other liabilities 1,897,389
Billings in excess of costs (Note 6) 200,802
Income taxes payable 297,860
------------
Total current liabilities 4,971,119
------------
STOCKHOLDERS' EQUITY (Notes 13, 14 and 15)
Preferred stock, $.01 par value
3,000,000 shares
authorized, none issued and outstanding
Common stock, $.01 par value, 20,000,000 shares authorized,
6,725,655 outstanding, 500,000 shares held in treasury 72,257
Additional paid-in capital 8,185,410
Treasury stock (715,000)
Retained Earnings 236,304
------------
Total stockholders' equity 7,778,971
------------
$12,750,090
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
---------------------------------------
<S> <C> <C>
Net revenues (Note 12) $24,367,112 4,980,291
Cost of revenues (Notes 10 and 12) 18,289,924 3,823,779
---------------------------------------
Gross profit 6,077,188 1,156,512
Selling, general and administrative expenses 3,218,520 1,619,189
---------------------------------------
Income (loss) from operations 2,858,668 (462,677)
Other income (expense):
Interest expense (26,101) (13,007)
Interest income 1,141 120,257
---------------------------------------
Total other income (expense) (24,960) 107,250
---------------------------------------
Income (loss) before provision for income taxes 2,833,708 (355,427)
Provision for income taxes (Note 9) 926,325 25,000
---------------------------------------
Income (loss) from continuing operations 1,907,383 (380,427)
---------------------------------------
Discontinued operations: (Note 4)
Loss from discontinued operations (64,705) (336,736)
Loss on disposal of discontinued operation,
including provision of $46,000 for operating
losses during the phase out period (398,806)
---------------------------------------
Loss from discontinued operations (64,705) (735,542)
---------------------------------------
NET INCOME (LOSS) $ 1,842,678 $(1,115,969)
---------------------------------------
Primary and fully diluted
income (loss) per share
from continuing operations $ 0.27 $ (0.07)
---------------------------------------
Discontinued operations:
Loss from operations (0.01) (0.06)
Loss on disposal (0.07)
---------------------------------------
(0.01) (0.13)
---------------------------------------
Net income (loss) per share $ 0.26 $ (0.20)
---------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING 7,192,361 5,653,052
---------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
TREASURY
COMMON STOCK STOCK
------------------------------------------------
NUMBER
OF PAR
SHARES VALUE VALUE
------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1995 4,625,655 $ 46,257 $ -
Issuance of 2.5 million shares in
connection with acquisition (note 3) 2,500,000 25,000 -
Sale of available-for-sale securities - - -
Net loss
-------------------------------------------------
BALANCE, DECEMBER 31, 1995 7,125,655 71,257 -
Purchase of treasury stock (1,000,000) - (1,152,500)
Sale of treasury stock 500,000 - 437,500
Stock issued in settlement of
service agreements 75,000 750 -
Stock options issued for services
Exercise of stock options and warrants 25,000 250
Net income - - -
------------------------------------------------
BALANCE, DECEMBER 31, 1996 6,725,655 $ 72,257 $ (715,000)
------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
-----------------------------------------------------------------------
ADDITIONAL LOSS ON RETAINED TOTAL
PAID IN MARKETABLE EARNINGS STOCKHOLDERS'
CAPITAL SECURITIES (DEFICIT) EQUITY
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 4,590,285 $ (52,938) $ (490,405) $ 4,093,199
Issuance of 2.5 million shares in
connection with acquisition (note 3) 3,275,000 - 3,300,000
Sale of available-for-sale securities - 52,938 - 52,938
Net loss (1,115,969) (1,115,969)
-----------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 7,865,285 - (1,606,374) 6,330,168
Purchase of treasury stock - - (1,152,500)
Sale of treasury stock 62,500 - 500,000
Stock issued in settlement of
service agreements 149,250 - 150,000
Stock options issued for services 44,000 44,000
Exercise of stock options and warrants 64,375 64,625
Net income - 1,842,678 1,842,678
-----------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 8,185,410 $ - $ 236,304 $ 7,778,971
-----------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 1,842,678 $ (1,115,969)
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Depreciation and amortization 404,114 178,801
Provision for losses on accounts receivable - 125,366
Loss on disposal of discontinued operations - 398,806
Realized loss on sale of securities - 52,938
Stock options issued for services 44,000 -
Deferred income taxes (65,280) -
(Increase) decrease in current assets:
Accounts receivable (1,548,005) (539,439)
Current assets of discontinued operations 145,317 (145,317)
Costs in excess of billings (2,047,173) (129,734)
Prepaid and other current assets (290,632) 182,029
Increase (decrease) in current liabilities:
Accounts payable 134,481 495,158
Accrued and other liabilities 862,204 360,172
Billings in excess of costs (419,772) (640,175)
Accrued loss on disposal of discontinued operations (398,806) -
Income taxes payable 297,860 -
Increase in other assets (81,014) (9,632)
-------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES $(1,120,028) (786,996)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities - 3,047,243
(Purchase) sale of short term marketable securities 715,000 (715,000)
Cash acquired in connection with aquisition - 125,966
Purchase of property and equipment (65,682) (40,819)
-------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 649,318 2,417,390
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on loan payable - bank $ 1,400,000 455,926
Repayment of loan payable - bank (455,926) -
Purchase of treasury stock (1,152,500) -
Proceeds from sale of treasury stock 500,000 -
Note receivable - $(2,574,521)
Proceeds from issuance of common stock 64,625 -
-------------------------------------
NET CASH PROVIDED BY (USED) FOR FINANCING ACTIVITIES 356,199 (2,118,595)
-------------------------------------
NET DECREASE IN CASH (114,511) (488,201)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 390,702 878,903
-------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 276,191 $ 390,702
-------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
-----------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
<S> <C> <C>
Interest $ 26,101 $ 12,486
Income taxes 696,324 -
NON-CASH TRANSATIONS:
Fair value (including goodwill) of net assets acquired $ - 5,450,000
Stock issued for assets aquired - $(3,300,000)
Note payable for assets aquired - (2,150,000)
Issuance of Stock for repayment of debt $ 150,000 $ -
Repayment of debt from issuance of stock (150,000) -
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND
BASIS OF PRESENTATION
Hospitality Worldwide Services, Inc., formerly known as Light Savers
U.S.A., Inc. (the "Company") was incorporated in the State of New York on
October 10, 1991. On August 1, 1995 the Company acquired substantially all of
the assets and business, and assumed certain liabilities, of AGF Interior
Services, Inc. (d/b/a Hospitality Restorations and Builders), through its newly
formed subsidiary corporation, Hospitality Restorations and Builders, Inc.
("HRB") (see Note 3 - Acquisition of Business). HRB provides interior and
exterior cosmetic renovations and maintenance for leading hotel and hospitality
customers nationwide. The acquisition was accounted for as a purchase with the
results of HRB included from the acquisition date.
The Company previously manufactured and designed decorative, energy
efficient lighting fixtures and related products. Sales were mainly to hotels in
the New York metropolitan area. In December 1995, the Company determined to
focus its resources on its hospitality and restoration business and discontinue
its lighting business.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, HRB. All significant intercompany
balances and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Actual results could differ from those estimates.
REVENUE RECOGNITION
CONSTRUCTION CONTRACTS
The Company recognizes revenues and earnings on contracts using the
percentage of completion method, based primarily on contract costs incurred to
date compared to total estimated contract costs.
To the extent contracts extend over one year, revisions in cost and
profit estimates during the course of the work are reflected in the accounting
period in which the facts which require the revision become known. Assets and
liabilities related to contracts are included in current assets and current
liabilities in the accompanying consolidated balance sheet, as they will be
liquidated in the normal course of contract completion, although this may
require more than one year.
Revenues on short-term contracts are recognized based on the completed
contract method, results of which are not materially different than the
percentage of completion method for such contracts.
At the time a loss on a contract becomes known, the amount of the
estimated ultimate loss on both short and long-term contracts is accrued.
Claims (cost recoveries from construction projects) are recorded when
realization is probable and the amount can be reliably estimated.
F-8
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and shown net of
depreciation. The Company provides for depreciation using the straight-line
method over estimated useful lives (generally 3-7 years) for financial reporting
purposes, and the accelerated method for income tax reporting purposes.
GOODWILL
Goodwill is amortized on a straight-line basis over its estimated
useful life of 17 years. The Company periodically evaluates goodwill based upon
the expected undiscounted cash flow from the acquired business.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Primary and fully diluted earnings (loss) per share of common stock was
computed by dividing the earnings (loss) by the weighted average number of
common shares and common stock equivalents outstanding during the period.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement 109"). Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities, if any, are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of'", which requires
that certain long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. This standard is effective for fiscal years that begin after
December 15, 1995. The Company's adoption of this pronouncement on January 1,
1996 did not have a material impact on the Company's consolidated financial
statements.
F-9
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments including cash and cash
equivalents, accounts receivable, loan payable - bank and accounts payable
approximate fair value due to the relatively short maturities of these
instruments. Due to the nature of the transaction and the relationship of the
parties involved, it is not practical to determine the fair value of the note
receivable.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS No.123), "Accounting
for Stock-Based Compensation", allows a choice of either the intrinsic value
method or the fair value method of accounting for employee stock options. The
Company has chosen to continue the use of the intrinsic value method. Expenses
related to stock options issued to nonemployees are accounted for using the fair
value at the date of grant as required by SFAS No. 123.
PRESENTATION OF PRIOR YEAR DATA
Certain reclassifications have been made to conform prior year data
with the current presentation.
3. ACQUISITION OF
BUSINESS
On August 1, 1995, the Company acquired substantially all of the assets
and business and assumed certain liabilities of AGF Interior Services Co. (d/b/a
Hospitality Restoration and Builders) ("AGF") through its newly formed
subsidiary corporation, HRB. HRB provides interior and exterior cosmetic
renovations and maintenance for leading hotel and hospitality customers
nationwide.
The aggregate consideration for the acquisition pursuant to the Asset
Purchase Agreement which was dated August 1, 1995, subject to final
determination subsequent to that date, was $5,450,000. As finally determined,
the purchase price consists of a $2,150,000 promissory note payable to AGF over
five years, bearing interest at 8% per annum and 2,500,000 shares of the
Company's common stock, delivered to AGF and issued in the name of AGF's sole
stockholder, Watermark Investments Ltd. ("Watermark"). The acquisition resulted
in goodwill of approximately $6,600,000, which is being amortized on a
straight-line basis over its estimated useful life of 17 years. The acquisition
was accounted for as a purchase with the results of HRB included in the
consolidated financial statements from the acquisition date.
On May 23, 1995, the Company loaned AGF $2,500,000, secured by a
promissory note ("Note Receivable"), payable over five years and bearing
interest at 8% per annum. On April 12, 1996, the Company and Watermark agreed to
offset the $2,150,000 note payable and the $2,500,000 note receivable, with a
net balance of $350,000 receivable in 60 equal monthly installments at 7% per
annum with payments commencing January 1997.
The following pro forma consolidated financial information has been
prepared to reflect the acquisition of the assets and business of AGF. The pro
forma financial information is based on the historical financial statements of
the Company and AGF, and should be read in conjunction with the accompanying
footnotes. The accompanying pro forma operating statements are presented as if
the transaction occurred January, 1, 1995. The pro forma financial information
is unaudited and is not necessarily indicative of what the actual results of
operations of the Company would have been assuming the transaction had been
completed as of January 1, 1995, and neither is it necessarily indicative of the
results of operations for future periods.
F-10
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31 1995
---------------------- ----
(unaudited)
Net sales $7,159,035
Loss from continuing operations (1,225,475)
Net loss (1,961,017)
Loss per share from continuing
operations (.18)
NET LOSS PER SHARE (.28)
The above unaudited pro forma statements have been adjusted to reflect
the amortization of goodwill, as generated by the acquisition, over a 17-year
period, interest income on the $350,000 note receivable, elimination of the
interest income on the $2,500,000 funds used in connection with the acquisition
and the 2,500,000 shares issued as consideration in the transaction. The impact
of outstanding stock options was not included in the calculation of net loss per
share since the effect would be antidilutive.
4. DISCONTINUED OPERATIONS
In December 1995, the Company determined to focus its resources on its
hospitality and restoration business and discontinue its lighting business. On
February 26, 1996, the Company entered into a divestiture agreement with its
former President. In accordance with the agreement, the Company disposed of the
lighting business, together with its accounts receivable, inventory and fixed
assets to the former President, who also assumed certain liabilities.
Additionally, in accordance with the agreement, the following occurred: (i) the
Company repurchased 500,000 shares of common stock from the former President for
$250,000 with a market value of $437,500; (ii) the Company retained the former
President as a consultant for a three year period at an annual salary of
$100,000, (iii) the former President granted to the Company the option to
purchase an additional 1,000,000 shares of common stock over a two year period
at a 33% discount from the average trading price for the prior 20 trading days,
but not below certain minimum set prices. The agreement also provides that the
former President has the ability to request the Company to purchase the relevant
optioned shares at a 50% discount to market. If the Company does not purchase
the relevant optioned shares, the option will be canceled with respect to such
shares. In 1995 the Company incurred a loss on disposal of discounted operations
of $398,806, which primarily includes the present value of the consulting fees
payable to the former President and a provision of $46,000 for operating losses
during the phase out period. Revenues of the lighting business segment for 1995
was $530,000. In 1996, the Company incurred additional losses from discontinued
operations of $64,705.
5. ACCOUNTS RECEIVABLE/ACCOUNTS PAYABLE
Accounts receivable include retainages amounting to $585,149 on
contracts which are collectible upon the acceptance by the owner, and are
anticipated to be collected in their entirety in 1997.
The Company withholds a portion of payments due subcontractors as
retainages ($181,528 at December 31, 1996). The subcontractor balances are paid
when the Company collects its retainages receivable.
F-11
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Billings on uncompleted contracts in excess of costs and estimated
earnings represent deferred revenue and consist of:
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $ 19,962,133
Estimated earnings 7,027,729
Billings to date $ (25,013,757)
- --------------------------------------------------------------------------------
Costs on uncompleted contracts in excess of billings
and estimated earnings $ 1,976,105
- --------------------------------------------------------------------------------
Included in the accompanying consolidated balance sheet under the
following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 2,176,907
Billings in excess of costs and estimated
earnings on uncompleted contracts $ (200,802)
- --------------------------------------------------------------------------------
$ 1,976,105
================================================================================
7. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Furniture and fixtures $ 52,048
Office equipment 134,153
Leasehold improvements 18,387
- --------------------------------------------------------------------------------
204,588
Less: Accumulated depreciation (61,711)
- --------------------------------------------------------------------------------
$ 142,877
- --------------------------------------------------------------------------------
8. LOAN PAYABLE - BANK
In 1996, the Company secured a line of credit ("line") with Marine
Midland Bank of New York. The line provides for borrowings up to $2 million,
with interest at prime +1/2% (8.75% at December 31, 1996) and is collateralized
by all Company assets. At December 31, 1996 the Company had an outstanding
balance of $1.4 million on the line.
F-12
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
================================================================================
9. PROVISION FOR INCOME TAXES
Provision for income taxes consists of the following:
Year ended December 31,
-----------------------
1996 1995
- --------------------------------------------------------------------------------
Current:
Federal $ 490,369 $ 25,000
State 370,676 -
Deferred:
- --------------------------------------------------------------------------------
Federal 65,280 -
State - -
$ 926,325 $ 25,000
================================================================================
The following is a reconciliation of the Company's income taxes based
on the statutory rate and the actual provision for income taxes: 1996 1995
Statutory Federal income tax @ 34% $ 963,460 $(120,845)
Increase (decrease) resulting from:
Reduction of valuation allowance (339,120) -
State and local taxes, net of Federal tax benefit 239,027 16,500
Non deductible goodwill amortization and expenses 56,861 28,000
Increase in valuation allowance - 101,345
Other 6,097 -
================================================================================
Provision for income taxes $ 926,325 $ 25,000
================================================================================
The deferred tax asset represents expenses accrued for financial
reporting purposes not deductible for tax purposes in 1995. Due to the Company's
profitability in 1996, and an assessment that operations will continue to
generate taxable income, the deferred tax asset is recognized in the current
year.
F-13
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The primary tax effects of the temporary differences which give rise to the
Company's net deferred tax asset at December 31, 1995 and 1996 are as follows:
DECEMBER 31, 1996 1995
----------------------------------------------------------------------------
Accrued liabilities $ 87,280 $ 169,000
Goodwill amortization (22,000) (6,000)
Net operating loss carryforwards - 176,120
Valuation allowance - (339,120)
---------------------------------
65,280 0
---------------------------------
10. RELATED PARTY TRANSACTIONS
The Company hired Interstate Interior Services ("Interstate") as a
subcontractor on certain of its projects. The President of Interstate is the
sister of one of the Company's officers. During 1996 and from August 1, 1995,
the date of the Acquisition, to December 31, 1995, the Company paid fees of
$172,786 and $712,137, respectively, to Interstate.
During 1996, the Company performed renovation services for Watermark,
the Company's major shareholder. As of December 31, 1996, the Company had a
receivable of $492,824 from Watertone, which was collected in full during the
first quarter of 1997.
11. COMMITMENTS
(A) LEASE COMMITMENTS
The Company leases office space in New York, California and Florida
which expire at various dates through 2007.
The aggregate future minimum lease payments due under operating leases are as
follows:
DECEMBER 31
- --------------------------------------------------------------------------------
1997 $ 158,404
1998 285,174
1999 242,020
2000 212,318
2001 212,318
Thereafter 1,121,931
- --------------------------------------------------------------------------------
$ 2,232,165
================================================================================
Rent expense for 1996 and 1995 was $120,534 and $88,000, respectively.
F-14
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) EMPLOYMENT AGREEMENTS
The Company has two three-year employment agreements and one two year
employment agreement with management personnel which call for aggregate annual
compensation of $565,000, one expiring on April 1998 and two expiring on
February 1999.
12. MAJOR CUSTOMERS AND SUBCONTRACTOR
Most of the Company's customers are in the hospitality industry with a
few of them accounting for a substantial portion of annual revenues. As a
result, the trade accounts receivable and costs in excess of billings subjects
the Company to concentration of credit risk. As of December 31, 1996, two
customers accounted for approximately 80% and 65% of accounts receivable and
costs in excess of billings, respectively.
The two largest customers of the Company for the year ended December
31, 1996 accounted for were 49% and 31% of net revenues, and the four largest
customers for the year ended December 31, 1995 accounted for 23%, 19%, 18%, and
14% of net revenues.
During 1996, 35% of the Company's cost of revenues were cost charged by
one subcontractor.
13. STOCKHOLDERS' EQUITY
On January 26, 1994, the Company completed its initial public offering
("IPO") of 1,437,500 shares of common stock at a price of $3.00 per share less
and underwriter's discount of 10%. This included an additional 187,500 shares
purchased by the underwriter on an over-allotment option grant, which was
exercised simultaneously with the completion of the offering. Proceeds of the
IPO, net of commissions of $431,250 and other related expenses of $486,958 (of
which $265,016 was recorded in 1993 as deferred costs), were $3,394,292.
The underwriter received warrants to purchase 125,000 shares
exercisable at $3.60 per share for a period of four years commencing one year
from the effective date of the IPO. Additionally, the Company reimbursed the
underwriter on a non-accountable basis for its expense in the amount of 3% of
the gross proceeds of the IPO. Upon the closing of the IPO, the Company entered
into a three-year financial consulting agreement with the underwriter pursuant
to which the underwriter shall receive a consulting fee of $27,333 per year from
the effective date. The total three-year fee of $82,000 was prepaid on the
closing date of the IPO. During 1996, 12,500 warrants were exercised.
In March, 1996 in accordance with the divestiture agreement between the
Company and its former President, the Company repurchased 500,000 shares of
Common Stock for $250,000 with a market value of $437,500.
In April 1996, the Company consummated a private placement of the
500,000 shares of Common Stock for aggregate gross proceeds of $500,000.
In September 1996, the Company issued 75,000 shares to two former
consultants to the discontinued lighting business in settlement of the unexpired
portion of their service agreements.
In October 1996, in accordance with the divestiture agreement between
the Company and its former President, the Company repurchased an additional
500,000 shares of Common Stock for $715,000.
F-15
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 28, 1996, the Company engaged a financial advisor until
December 31, 1997. As compensation for such engagement, the Company granted the
financial advisor a five-year option to purchase 500,000 shares of common stock
at an exercise price of $2.00 per share and agreed to pay a retainer of $10,000
per month for at least one year.
On January 15, 1997, the financial advisor exercised 200,000 options
resulting in $400,000 of additional capital to the Company.
14. STOCK OPTION PLAN
At December 31, 1996, the Company has three stock option plans, which
are described below. As permitted by Statement of Financial Accounting Standards
No. 123, the Company applies APB Option 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for the plans. Under APB
Option 25, 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.
During 1994, the Company's Board of Directors adopted a non-statutory
stock option plan for purposes of issuance of shares of the Company's common
stock to certain key employees or consultants. With respect thereto, options to
purchase 85,000 shares at $1.275 per share have been granted and are currently
exercisable. Of the options, 75,000 expire in four years and 10,000 expire in
two years. The stock option plan was retired, and there are no shares available
for grant. Additionally, during 1995 the Company granted 75,000 options at
$1.275 per share which are currently exercisable and expire in four years.
On September 26, 1996, the Company's Board of Directors adopted the
1996 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. 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". The Company has granted 924,000 shares
under the Plan at a grant price of $2.75 per share, of which 2,500 shares have
been exercised, and 462,000 are currently exercisable. The term for each option
granted is determined by the Stock Option Committee, which is composed of two or
more members of the Board of Directors, provided the maximum length of the term
of each option granted will be as more than ten years. At December 31, 1996,
776,000 shares were available for grant.
On September 26, 1996, the Company's Board of Directors adopted, and
the shareholders approved, the 1996 Outside Directors Stock Option Plan (the
"Outside Directors' Plan") for purpose of securing for the Company and its
shareholder the benefits arising from stock ownership by its outside directors.
Subject to shareholder approval, each outside director who becomes an outside
director after March 1, 1996 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 Outside Directors Plan on April 1
of each year, beginning on April 1, 1997, each outside director shall be granted
an option to purchase 10,000 shares of common stock. Options granted under the
Outside Directors Plan shall be exercisable in three equal installments
beginning on the first anniversary of the grant date. The Company has granted
options to purchase 60,000 shares under the Outside Directors Plan at a grant
price of $2.75 per share, of which none are currently exercisable. Of the
options, 20,000 are exercisable in even increments each of the next three years.
FASB Statement 123, "Accounting for Stock-Based Compensation" requires
the Company to provide pro forma information regarding net income 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 prescribed in
F-16
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FASB Statement 123. 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 1995 and 1996,
respectively: no dividends paid for all years; expected volatility of 40%;
risk-free interest rates of 6.41%; and expected lives of 2 years.
Under the accounting provisions of FASB Statements 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below.
1996 1995
------ ------
Net income (in thousands)
As reported $ 1,843 $ (1,116)
Pro forma $ 1,583 $ (1,182)
Primary earnings per share
As reported $ 0.26 $ (0.20)
Pro forma $ 0.22 $ (0.21)
The following table contains information on stock options for the three
year period ended December 31, 1996.
Exercise Weighted
Option price range average
shares per share exercised price
- --------------------------------------------------------------------------------
Outstanding, January 1, 1994 - - -
Granted 85,000 $1.275 $1.275
Exercised - - -
Canceled - - -
- --------------------------------------------------------------------------------
Outstanding, December 31, 1994 85,000 $1.275 $1.275
Granted 75,000 $1.275 $1.275
Exercised - - -
Canceled - - -
- --------------------------------------------------------------------------------
Outstanding, December 31, 1995 160,000 $1.275 $1.275
Granted 1,484,000 $2.00 to $2.75 $2.50
Exercised (2,50) $2.75 $2.75
Canceled - - -
- --------------------------------------------------------------------------------
Outstanding, December 31, 1996 1,641,500 $1.275 to $2.75 $2.38
Exercisable at year-end
1994 85,000 $1.275 $1.275
1995 120,000 $1.275 $1.275
1996 1,120,000 $2.00 to $2.75 $2.21
1996 Stock 1996 Outside
1994 Plan Option Plan Directors Plan
--------- ----------- --------------
Available for future grants
1994 - - -
1996 - 776,000 *
F-17
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Exercised price Exercised price Total
less than market equal to market options
---------------- --------------- -------
Weighted-average fair value of:
Options granted in 1995 - $0.60 $0.60
Options granted in 1996 - $0.82 $0.82
The following table summarizes information about stock options outstanding at
December 31, 1996.
Range of exercise prices: $1.275-$2.75
Outstanding Options
Number outstanding
at December 31, 1996 1,641,500
Weighted-average remaining
contractual life (years) 4.30
Weighted-average exercise price $2.38
Exercisable options
Number outstanding
at December 31, 1996 1,120,000
Weighted-average exercise price $2.21
*The plan does not state a maximum number of shares available for grant.
15. SUBSEQUENT EVENT
A. ACQUISITION
On January 10, 1997, the Company acquired the Leonard Parker Company
and affiliates, ("LPC"), a leading purchasing company for the hospitality
industry that acts as an agent for the purchase of goods and services for its
customers which include major hotel and management companies worldwide. The
purchase price of approximately $12,000,000 consisted of 1,250,000 newly issued
Common Stock of the Company and $5 million par value of newly issued 6%
convertible preferred stock of the Company, convertible into 1,000,000 shares of
common stock not earlier that January 1, 1998.
This acquisition will be accounted for using the purchase method of
accounting. Based on a preliminary valuation, the acquisition will result in
goodwill of approximately $12,000,000. The pro forma financial information is
based on the historical financial statements of the Company and LPC, and should
be read in conjunction with the accompanying footnotes. The following table
presents, on a pro forma basis, a condensed consolidated balance sheet at
December 31, 1996, giving effect to the acquisition as if it had occurred on
that date.
F-18
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma
December 31,
(Unaudited) 1996
-----------------------------------------------------------------------------
Current assets $13,763,000
Net property, plant and equipment 1,129,000
Goodwill - net 18,050,000
Other assets 573,000
------------
$33,515,000
------------
Current liabilities $13,667,000
Long-term debt 109,000
Stockholder's equity 19,739,000
------------
$33,515,000
-----------------------------------------------------------------------------
The Company's consolidated statement of operations will not include the
results of operations of LPC until the year 1997. The following pro forma
results, are unaudited and are not necessarily indicative of what the actual
results of operations of the Company would have been assuming the transaction
had been completed as of January 1, 1995, and neither is it necessarily
indicative of the results of operations for future periods.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Year Ended
December 31,
(Unaudited) 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $83,013,000 $50,124,000
Net income (loss) from continuing operations
applicable to common shares $ 1,884,000 $ (692,000)
Net income (loss) per share from continuing operations 0.23 (0.14)
------------------------------------------------------------------------------------
</TABLE>
The above unaudited pro forma results have been adjusted to reflect the
amortization of goodwill as generated by the acquisition, over a 30 year period,
LPC's officers compensation based on employment agreements entered into at the
date of acquisition, dividends of 6% on preferred stock and additional income
taxes on LPC's pro forma income.
F-19
Subsidiaries of Hospitality Worldwide Services, Inc.
Hospitality Restoration and Builders, Inc.
1800 Century Park East
Suite 370
Los Angeles, California 90067
State of Incorporation: New York
Leonard Parker Company
550 Biltmore Way
Coral Gables, Florida 33134
State of Incorporation: Florida
Leonard Parker Company Pacific/Asia PTE LTD
10 Collyer Quay
#07-09 Ocean Building
Singapore 0104
Incorporation: Singapore
Leonard Parker Company (Africa) (Proprietary) Limited
3 Sandown Valley Crescent
PO Box 786598
Sandton 2146 South Africa
Incorporation: South Africa
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10KSB for the period ended December 31, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 276,191
<SECURITIES> 0
<RECEIVABLES> 3,184,841
<ALLOWANCES> (50,000)
<INVENTORY> 0
<CURRENT-ASSETS> 6,079,242
<PP&E> 204,588
<DEPRECIATION> (61,711)
<TOTAL-ASSETS> 12,750,090
<CURRENT-LIABILITIES> 4,971,119
<BONDS> 0
0
0
<COMMON> 72,257
<OTHER-SE> 7,706,714
<TOTAL-LIABILITY-AND-EQUITY> 7,778,971
<SALES> 24,367,112
<TOTAL-REVENUES> 24,367,112
<CGS> 18,289,924
<TOTAL-COSTS> 18,289,924
<OTHER-EXPENSES> 3,218,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,101
<INCOME-PRETAX> 2,833,708
<INCOME-TAX> 926,325
<INCOME-CONTINUING> 1,907,383
<DISCONTINUED> (64,705)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,842,678
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
