UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
/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
---------------
HOSPITALITY WORLDWIDE SERVICES, INC.
(Name of Small Business Issuer in its Charter)
New York 11-3096379
- -------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
450 Park Avenue, Suite 2603, New York, NY 10022
(Address of principal executive offices) (Zip Code)
- ---------------------------------------- ----------
Issuer's telephone number, including area code 212-223-0699
------------
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 8,568,081 shares of Common Stock,
$.0l par value per share (the "Common Stock"), held by non-affiliates of the
Registrant as of November 3, 1997 was approximately $100,674,951.
<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 issued and outstanding as of November 3,
1997 was 11,319,697.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
Form 10-KSB
Calendar Year Ended December 31, 1996
TABLE OF CONTENTS
PAGE NO.
--------
Item 7. Financial Statements F-1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
PAGE NO.
--------
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARY
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheet F-3
Statements of operations F-4
Statement 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 audits.
We conducted our audits 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 audits provide 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.
BDO Seidman, LLP
New York, New York
March 21, 1997
F-2
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
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 STATEMENTS 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 operations,
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:
Net 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)
-------------------------------------------------
Fully Diluted:
Net Income (loss) per share from continuing operations: $ 0.26 $ (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 0.25 (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>
-----------------------------------------------------------------------------------------
Common Stock
------------ Unrealized
Number Additional Loss on Retained
of Par Treasury Paid in Marketable Earnings
Shares Value Stock Capital securities (deficit)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 4,625,655 $ 46,257 $ - $4,590,285 $(52,938) $ (490,405)
Issuance of 2.5 million shares in
connection with acquisition (note 3) 2,500,000 25,000 - 3,275,000 -
Sale of available-for-sale securities - - - - 52,938 -
Net loss (1,115,969)
-----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 7,125,655 71,257 - 7,865,285 - (1,606,374)
Purchase of treasury stock (1,000,000) - (1,152,500) - -
Sale of treasury stock 500,000 - 437,500 62,500 -
Stock issued in settlement of
service agreements 75,000 750 - 149,250 -
Stock options issued for services 44,000
Exercise of stock options and warrants 25,000 250 64,375
Net income - - - - 1,842,678
-----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 6,725,655 $ 72,257 $ (715,000) $8,185,410 $ - $ 236,304
----------------------------------------------------------------------------------------
</TABLE>
Total
Stockholders'
Equity
----------------
BALANCE, JANUARY 1, 1995 $ 4,093,199
Issuance of 2.5 million shares in
connection with acquisition (note 3) 3,300,000
Sale of available-for-sale securities 52,938
Net loss (1,115,969)
---------------
BALANCE, DECEMBER 31, 1995 6,330,168
Purchase of treasury stock (1,152,500)
Sale of treasury stock 500,000
Stock issued in settlement of
service agreements 150,000
Stock options issued for services 44,000
Exercise of stock options and warrants 64,625
Net income 1,842,678
---------------
BALANCE, DECEMBER 31, 1996 $ 7,778,971
----------------
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 in other assets (81,014) (9,632)
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 -
---------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (1,120,028) (786,996)
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities - 3,047,243
(Purchase) sale of short term marketable securities 715,000 (715,000)
Cash acquired in connection with acquisition - 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, BEGINNING OF PERIOD 390,702 878,903
---------------------------------------
CASH, 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 TRANSACTIONS:
Fair value (including goodwill) of net assets acquired - 5,450,000
Stock issued for assets acquired - (3,300,000)
Note payable for assets acquired - (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.
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 carryforwards. 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 Financial 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", which 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 $ 620,929 $ 25,000
State 370,676 -
----------------- -----------
991,605 25,000
Deferred:
Federal (65,280) -
-------------------------------------------------------------------
$ 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:
Year ended December 31,
1996 1995
- --------------------------------------------------------------------------------
Statutory Federal income tax @ 34% $ 963,640 $(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
Nondeductible goodwill amortization
and expenses 56,861 28,000
Increase in valuation allowance - 101,345
Other 5,917 -
================================================================================
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, 1996 and 1995 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 $ -
-------------------------------------
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 Watermark, 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 subject
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 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 costs 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 an 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 Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for the plans. Under APB
Opinion 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 the 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 rate of 6.41%; and expected lives of 2 years.
Under the accounting provisions of FASB Statement 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.
<TABLE>
<CAPTION>
Exercise Weighted
Option price range average
shares per share exercise price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 (2,500) $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 *
</TABLE>
F-17
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Exercise price Exercise price Total
less than market equal to market options
---------------- --------------- -------
Weighted-average fair value of:
<S> <C> <C> <C>
Options granted in 1995 - $0.60 $0.60
Options granted in 1996 - $0.82 $0.82
</TABLE>
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
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 hotels 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, 1996
(Unaudited)
-----------------------------------------------------------------
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 $83,067,000 $ 52,302,000
Net income (loss) from continuing operations
applicable to common shares $ 1,435,000 $ (2,376,000)
Net income (loss) per share from continuing operations $ 0.17 $ (0.28)
- -------------------------------------------------------------- -------------------------
</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
<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> 0.25
</TABLE>
