UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 1999
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
Commission File Number: 0-23054
HOSPITALITY WORLDWIDE SERVICES, INC.
(exact name of registrant as specified in its charter)
NEW YORK 11-3096379
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 PARK AVENUE, SUITE 2603, NEW YORK, NY 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 223-0699
(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed all reports to be filed by section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
(X) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUER
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: 13,352,664 as of August 13, 1999.
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998..............................................3
Consolidated Statements of Operations for the three
months ended June 30, 1999 and 1998 and the six months
ended June 30, 1999 and 1998.......................................4
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 1999......................5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 ...............................6
Notes to Consolidated Financial Statements ......................7-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations.....................................................10-13
PART II. OTHER INFORMATION
Item 3. Legal Proceedings.................................................13
Item 6. Exhibits and Reports on Form 8-K..................................13
Signatures..................................................................14
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE SECURITIES LITIGATION
REFORM ACT OF 1995.
Except for historical information contained herein, the Report on Form 10-Q
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 which involve certain risks and uncertainties. The
Company's actual results or outcomes may differ materially from those
anticipated. In assessing forward-looking statements contained herein, readers
are urged to carefully read those statements. When used in the Report on Form
10-Q, the words "estimate," "anticipate," "expect," "believe" and similar
expressions are intended to identify forward-looking statements.
2
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
June 30, 1999 December 31,
Unaudited 1998
<S> <C> <C>
Cash and cash equivalents $ 9,508 $ 2,179
Marketable securities -- 8,500
Accounts receivable, less allowance for
doubtful accounts of $7,249 and $7,069 58,495 56,846
Costs and estimated earnings in excess of
billings 9,864 5,567
Advances to vendors 17,282 12,760
Deferred taxes 3,834 3,834
Prepaid and other current assets 1,704 4,737
-------- ---------
Total current assets 100,687 94,423
-------- ---------
Property and equipment, less accumulated
depreciation of $2,286 and $1,420 8,746 8,716
Goodwill and other intangibles, less
accumulated amortization of $3,055 and
$2,439 24,131 24,747
Deferred taxes 701 701
Other assets 5,560 4,787
-------- ---------
Total other assets 39,138 38,951
--------- ---------
$ 139,825 $133,374
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 619 $ 621
Accounts payable 27,448 32,075
Accrued and other liabilities 6,627 6,735
Billings in excess of costs and estimated
earnings 996 1,758
Customer deposits 27,302 19,864
Loans payable 15,835 10,925
-------- ---------
Total current liabilities 78,827 71,978
Long-term debt, net of current portion 2,646 2,965
-------- ---------
Total liabilities $ 81,473 $ 74,943
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par
value, $25 stated value, 5,000,000 shares
authorized, 120,000 issued and
outstanding, $3,000,000 liquidation
preference 3,000 3,000
Common stock, $.01 par value, 50,000,000
shares authorized, 13,352,664 and
12,710,156 shares issued and outstanding 133 127
Additional paid-in capital 56,468 56,448
Retained earnings (deficit) (1,249) (1,144)
--------- ---------
Total stockholders' equity 58,352 58,431
--------- ---------
$ 139,825 $ 133,374
========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $66,041 $52,359 $134,944 $93,649
Cost of revenues 60,163 44,642 122,337 79,458
--------- ------- --------- ---------
Gross profit 5,878 7,717 12,607 14,191
Selling, general and administrative expenses 6,638 4,967 12,222 9,513
--------- ------- --------- ---------
Income (loss) from operations (760) 2,750 385 4,678
Other income (expense):
Interest income 291 366 542 730
Interest and other expense (518) (115) (942) (260)
--------- ------- --------- ---------
Income (loss) from continuing operations
before provision for income taxes (987) 3,001 (15) 5,148
Provision (benefit) for income taxes (428) 1,294 -- 2,198
--------- ------- --------- ---------
Income (loss) from continuing operations (559) 1,707 (15) 2,950
Discontinued operations:
Loss from discontinued operations -- (124) -- (149)
Loss on disposal of discontinued operations -- -- -- --
--------- ------- --------- ---------
Loss from discontinued operations -- (124) -- (149)
--------- ------- --------- ---------
Net income (loss) ($559) $1,583 ($15) $2,801
========= ======= ========= =========
Basic earnings per common share:
Income (loss) from continuing operations ($0.05) $0.14 ($ 0.01) $ 0.23
Discontinued operation:
Loss from discontinued operations -- (0.01) -- (0.01)
Loss on disposal -- -- -- --
--------- ------- --------- ---------
Net income (loss) ($0.05) $0.13 ($0.01) $0.22
========= ======= ========= =========
Diluted earnings per common share:
Income (loss) from continuing operations (a) $0.12 (a) $0.21
Discontinued operation:
Loss from discontinued operations -- -- -- (0.01)
Loss on disposal -- -- -- --
--------- ------- --------- ---------
Net income (loss) (a) $0.12 (a) $0.20
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,350 11,920 13,322 11,920
========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING (a) 13,728 (a) 13,912
========= ========= ========= =========
</TABLE>
(a) antidilutive
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(in thousands)
Unaudited
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Number Number Addt'l Retained Total
of Stated of Par Paid in Earnings Stockholders'
Shares Value Shares Value Capital (Deficit) Equity
------ ----- ------ ----- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 120 $3,000 12,710 $127 $56,448 ($1,144) $58,431
Exercise of stock options
and warrants
- - 3 - 26 - 26
Stock issued in connection
with acquisition - - 640 6 (6) - -
Net loss - - - - - (15) (15)
Preferred dividends - - - - - (90) (90)
--- ------ ------ ---- ------- ------- --------
Balance, June 30, 1999 120 $3,000 13,353 $133 $56,468 ($1,249) ($58,352)
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements. .
5
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
<TABLE>
<CAPTION>
Six Months ended
June 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITES:
<S> <C> <C>
Net income (loss) $ (15) $ 2,801
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 1,482 839
Stock based compensation charge 30 268
Deferred income tax benefit -- (320)
(Increase) decrease in current assets:
Accounts receivable, net (1,649) (24,420)
Costs in excess of billings (4,297) 1,807
Advances to vendors (4,522) (1,362)
Prepaid and other current assets (382) (1,025)
(Increase) in other assets (158) (1,090)
Increase (decrease) in current liabilities:
Accounts payable (4,627) 8,844
Accrued and other liabilities (202) 1,631
Billings in excess of costs (762) 3
Customer deposits 7,438 619
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (7,664) (11,423)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities 8,500 18,916
Purchase price of acquisition -- (1,500)
Investment in real estate ventures (615) (2,359)
Cash acquired, upon acquisition,
net of acquisition costs -- (62)
Purchase of property and equipment (896) (2,477)
Repayments on mortgages receivable 3,415 0
Investment in mortgages receivable -- (3,203)
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 10,404 9,315
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans payable -- (7,300)
Proceeds from borrowings on loans payable 4,910 11,750
Repayment of long term debt (321) (986)
Proceeds from exercise of stock options
and warrants -- 733
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,589 4,197
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,329 (2,089)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,179 11,964
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,508 $ 14,053
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 120 $ 1,442
Interest $ 694 $ 268
NON-CASH INVESTING & FINANCING ACTIVITIES:
Net assets acquired (including goodwill) $ -- $ 6,232
Stock issued for assets acquired $ -- $ 6,172
Preferred stock dividends accrued $ 90 $ 150
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
HOSPITALITY WORLDWIDE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: CONSOLIDATION
The consolidated financial statements of Hospitality Worldwide Services, Inc.
and Subsidiaries (the "Company") and related notes thereto as of June 30, 1999
and for the three months and six months ended June 30, 1999 and 1998 are
presented as unaudited, but in the opinion of management include all adjustments
necessary to present fairly the information set forth therein. These adjustments
consist solely of normal recurring adjustments. The consolidated balance sheet
information for December 31, 1998 was derived from the audited consolidated
financial statements included in the Company's Form 10-K. These interim
consolidated financial statements should be read in conjunction with that
report. The interim results are not necessarily indicative of the results for
any future period.
NOTE 2: ACQUISITION
In January 1998, the Company acquired Bekins Distribution Services, Inc.
("Bekins"), a provider of transportation, warehousing and installation services
to a variety of customers worldwide. Under the terms of the purchase agreement,
the Company was required to issue an additional 639,512 shares of Common Stock
in January 1999 given the decrease in the price of the Company's common stock on
the one year anniversary date of the acquisition.
NOTE 3: COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components in a separate
financial statement. Comprehensive income includes net income plus other
comprehensive income, which includes cumulative foreign translation adjustments
and unrealized gains and losses on marketable securities that are
available-for-sale. The differences between net income as reported and
comprehensive income is immaterial for the three and six months ended June 30,
1999 and 1998.
7
<PAGE>
NOTE 4: OPERATING SEGMENTS
The Company's operating segments are based on the separate lines of business
acquired over the past several years which provide different services to the
hospitality industry, namely renovation, purchasing and logistics services.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
Sales to Customers:
<S> <C> <C> <C> <C>
Renovation $ 8,524,000 $ 16,367,000 $ 22,368,000 $ 27,085,000
Purchasing 48,202,000 29,670,000 92,216,000 54,141,000
Logistics 9,284,000 4,434,000 20,282,000 9,665,000
General Corporate and Real Estate 31,000 1,888,000 78,000 2,758,000
- ---------------------------------------------------------------------------------------------------------------------------
$ 66,041,000 $ 52,359,000 $134,944,000 $ 93,649,000
Inter-segment Sales:
Renovation $ -- $ -- $ -- $ --
Purchasing 236,000 6,082,000 2,150,000 8,401,000
Logistics 912,000 784,000 2,326,000 1,300,000
General Corporate and Real Estate -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,148,000 $ 6,866,000 $ 4,476,000 $ 9,701,000
Income (loss) from Operations:
Renovation $ 139,000 $ 1,453,000 1,700,000 $ 2,868,000
Purchasing 225,000 445,000 286,000 724,000
Logistics 427,000 277,000 1,490,000 628,000
General Corporate and Real Estate (1,551,000) 575,000 (3,091,000) 458,000
- ---------------------------------------------------------------------------------------------------------------------------
($ 760,000) $ 2,750,000 $ 385,000 $ 4,678,000
</TABLE>
Sales to customers include sales to related parties, namely the Apollo joint
venture and the ING joint venture.
The Company's revenue and assets predominately relate to the United States
operations, with immaterial amounts related to foreign operations.
For the three and six months ended June 30, 1999, no customers accounted for
over 10% of the Company's revenues. For the three and six months ended June 30,
1998, no customers accounted for over 10% of the Company's revenues.
8
<PAGE>
NOTE 5: EARNINGS PER SHARE
The following table reconciles the components of basic and diluted earnings per
common share for income from continuing operations for the three and six months
ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
<S> <C> <C> <C> <C>
Income from continuing operations ($ 559,000) $1,707,000 ($15,000) $ 2,950,000
Preferred stock dividends (45,000) (75,000) (90,000) (150,000)
---------- ------------ ------------- ------------
Income available to common stockholders
from continuing operations - Basic (604,000) 1,632,000 (105,000) 2,800,000
Effect of dilutive securities
Preferred stock dividends (a) 75,000 (a) 150,000
---------- ------------ ------------- ------------
Income available to common stockholders
from continuing operations - Diluted $ (604,000) $1,707,000 ($105,000) $2,950,000
========== ============ ============= ============
Denominator:
Weighted average common shares outstanding -
Basic 13,350,000 11,920,000 13,322,000 11,920,000
Effect of dilutive securities
Stock-based compensation plans (a) 808,000 (a) 992,000
Contingently issuable shares (a) -- (a) --
Convertible preferred stock (a) 1,000,000 (a) 1,000,000
---------- ------------ ------------- ------------
Weighted average common and
common equivalent shares outstanding-Diluted (a) 13,728,000 (a) 13,912,000
========== ============ ============= ============
Basic earnings per common share from continuing
operations ($0.05) $0.14 $0.01) $0.23
Diluted earnings per common share from continuing
operations (a) $0.12 (a) $0.21
</TABLE>
(a) antidilutive.
NOTE 6: DISCONTINUED OPERATIONS
In December 1998, the Company decided to discontinue its hotel development
business. The Company ceased the operations associated with such business in
April 1999, however the resolution date as to the recovery of costs incurred by
the Company and lost profits under the master development agreement with Prime
Hospitality Corporation is uncertain. The Company has restated the 1998 results
of operations to reflect its hotel development business as discontinued
operations.
9
<PAGE>
ITEM 2. HOSPITALITY WORLDWIDE SERVICES INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company believes that historical comparisons of profit levels and profit
percents may not be meaningful on a period to period basis because revenue
recognition methodologies vary across the Company's businesses. The Company
recognizes all revenues associated with a renovation or logistics project on a
percentage of completion basis. As part of this process, the Company develops a
complete scope of work to be performed and invoices its clients on a monthly or
bi-monthly basis as work is performed. The Company recognizes as earnings that
portion of the total earnings anticipated from a contract which the cost of work
completed bears to the estimated total cost of the work covered by the contract.
In contrast to the Company's recognition of renovation and logistics revenues,
the Company recognizes procurement revenues in three ways: (i) under fixed fee
service contracts, the Company recognizes earnings under the percentage of
completion method. Under this method, the Company recognizes as earnings that
portion of the total earnings anticipated from a contract which the efforts
expended bears to the estimated efforts over the life of the contract. Earnings
for variable fee service contracts are generally recognized upon completion of
the associated service. (ii) as an agent, revenues include solely the service
fee income while the cost of the contract includes labor and other direct costs
associated with the contract and those indirect costs related to contract
performance. (iii) when the Company acts as a principal, functioning in a manner
similar to a purchaser and reseller of merchandise, revenues and costs of
contracts also include the cost of the merchandise purchased for the customer
which are recognized when the merchandise is shipped directly from the vendor to
the customer.
THREE MONTHS ENDED JUNE 30, 1999 vs. THREE MONTHS ENDED JUNE 30, 1998
The Company posted a 26% increase in revenues to $66,041,000 for the second
quarter of 1999 as compared to $52,359,000 for the comparable period in 1998.
The increase was primarily due to increased revenues from the procurement and
logistics businesses which experienced continued growth in the number and scope
of projects, as the result of increased efforts in sales and marketing.
Cost of revenues for the three months ended June 30, 1999 were $60,163,000
compared to $44,642,000 for the same period last year. The increase is primarily
due to revenue growth. Gross profit, as a percent of revenue was 8.9% in the
current quarter, as compared to 14.7% for the second quarter last year. The
decrease in gross profit, as a percent of revenue was due primarily to
additional costs associated with the renovation of the three joint venture
projects as well as a change in the sales mix in the procurement and logistics
business where larger dollar volume contracts yielded additional revenues
without corresponding fee or profit increases.
Selling, general and administrative expenses for the quarter ended June 30, 1999
increased to $6,638,000, compared to $4,967,000 for the second quarter last
year. A major contributor to this increase is the expansion of the
administrative staff to support the higher sales level. Further, the Company
incurred charges to close certain offices and terminate employees as part of the
Company's on going facility rationalization program. Additionally, selling,
general and administrative expenses include $287,000 and $264,000 of goodwill
amortization for the quarter ended June 30, 1999 and 1998, respectively. As a
percentage of net revenues, selling, general and administrative expenses for the
quarter ended June 30, 1999 have remained relatively unchanged, to 10.1% in the
current quarter versus 9.5% in the prior year's quarter.
Interest income decreased from $366,000 to $291,000 due to a decline in
investable funds in the current quarter. Interest expense increased from
$115,000 in the second quarter of 1998 to $388,000 in the second quarter of 1999
due to increased borrowings under the Company's lines of credit.
The provision for income taxes in the current quarter was a credit of $428,000
representing a reversal of the provision recorded in the first quarter based on
near breakeven pretax income for the year-to-date. For the second quarter of
1998, the provision for income taxes was $1,294,000 at an effective rate of
43.1%.
As a result of the above, the loss from continuing operations for the three
month period ended June 30, 1999 was $559,000 compared to income from continuing
operations of $1,707,000 for the same period last year.
10
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 vs. SIX MONTHS ENDED JUNE 30, 1998
The Company experienced a significant increase in its revenues to $134,944,000
for the six months ended June 30, 1999 in comparison to $93,649,000 for the six
months ended June 30, 1998, due in large part to increased revenues from the
logistics and procurement businesses which had continued growth in the customer
base and expansion of project scopes, as a result of increased sales and
marketing efforts, and the further establishment of the Company's name in the
hospitality industry.
Cost of revenues for the six months ended June 30, 1999 were $122,337,000,
compared to $79,458,000 for the same period last year. This increase is due
mainly to revenue growth. Gross profit, as a percent of revenue was 9.3% for the
six months ended June 30, 1999 as compared to 15.2% for the same period last
year. The decrease in gross profit, as a percent of revenue was due primarily to
additional costs associated with the renovation of the three joint venture
projects as well as a change in the sales mix in the purchasing businesses where
larger dollar volume contracts yielded additional revenues without corresponding
fee increases.
Selling, general and administrative expenses for the six month period ended June
30, 1999 have increased to $12,222,000, compared to $9,513,000 for the same
period last year. Contributing to this increase is the expansion of the
administrative staff to support the higher sales level. Further, the Company
incurred charges to close certain offices and terminate employees as part of the
Company's on going facility rationalization program. Additionally, selling,
general and administrative expenses include $585,000 and $526,000 of goodwill
amortization for the periods ended June 30, 1999 and 1998, respectively. As a
percentage of net revenues, selling, general and administrative expenses for the
six months ended June 30, 1999 have decreased to 9.1% from 10.2% for the same
period last year. This reduction is the result of operating efficiencies
achieved by sales growth.
Interest income decreased from $730,000 to $542,000 based on a decline in
investable funds in the current six months. Interest expense increased from
$260,000 in the first six months of 1998 to $812,000 in the first six months of
1999 due to increased borrowings under the Company's lines of credit for working
capital purposes.
There was no provision for income taxes in the current six month period as the
Company incurred a small loss from continuing operations before provision for
income taxes. For the six months ended June 30, 1998, the provision for income
taxes was $2,198,000 at an effective tax rate of 42.7%.
As a result of the above, the loss from continuing operations for the six month
period ended June 30, 1999 was $16,000 compared to income from continuing
operations of $2,950,000 for the same period last year.
11
<PAGE>
HOSPITALITY WORLDWIDE SERVICES INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term and long-term liquidity requirements generally consist
of operating capital for its businesses and selling, general and administrative
expenses. The Company continues to satisfy its short-term and long-term
liquidity requirements with cash generated from operations, bank lines of credit
and funds from a public offering of its Common Stock in September 1997.
Net cash used in operating activities was $7,664,000 for the six months ended
June 30, 1999, compared to net cash used of $11,423,000 for the same period last
year. During the six months ended June 30, 1999, the Company's accounts
receivable and vendor deposits increased $6,171,000. This increase was partially
offset by an increase in accounts payable, accruals and customer deposits of
$2,609,000. The additional accounts receivable at June 30, 1999 are expected to
be collected in full in 1999.
Net cash provided by investing activities for the six months ended June 30, 1999
was $10,404,000 compared to 9,315,000 for the six months ended June 30, 1998.
The increase in cash provided is primarily the result of maturing marketable
securities and the collection of a mortgage receivable.
Net cash provided by financing activities for the six months ended June 30, 1999
was $4,589,000 compared to net cash provided by financing activities of
$4,197,000 for the same period last year. The primary financing source in the
six months ended June 30, 1999 was the proceeds from borrowings under the
Company's lines of credit.
The Company currently has available unsecured lines of credit with Marine
Midland Bank and NationsBank which provide maximum borrowings of $10,000,000 and
$6,000,000 respectively. Borrowings under the lines of credit bear interest at
each bank's prime lending rate. Proceeds from the borrowings are utilized to
fund short-term cash requirements. At June 30, 1998, there was a total of
$15,835,000 in outstanding borrowings under the lines of credit.
The Company believes its present cash position, including anticipated increasing
revenues, cash on hand, availability under bank lines of credit and its ability
to obtain additional financing as necessary, will allow the Company to meet its
anticipated capital commitments and its short-term operating needs for at least
the next twelve months.
INFLATION
Inflation and changing prices during the current year did not significantly
affect the major markets in which the Company conducts its business. In view of
the moderate rate of inflation, its impact on the company's business has not
been significant.
YEAR 2000
The year 2000 issue results from computer programs and circuitry that do not
differentiate between the year 1900 and the year 2000 because they were written
using two- rather than four-digit dates to define the applicable year. If not
corrected, many computer applications and date-sensitive devices could fail or
create erroneous results before, on or after January 1, 2000. The Year 2000
issue affects virtually all companies and organizations, including the Company.
The Company has developed, and is implementing a plan, the goal of which is to
assure that the Company will achieve Year 2000 readiness in time to avoid
significant Year 2000 failures. The Company is proceeding with its assessment of
the Year 2000 readiness issues for its computer systems, business processes,
facilities and equipment to assure their continued functionality. The Company is
continuing its assessment of the readiness of external entities, including
subcontractors, suppliers, vendors, and customers that interface with the
Company. To that end, the Company has taken the following actions:
o Computer Systems. The Company periodically upgrades its computer systems
as its needs require. The Company began the process of replacing or
upgrading the software for its internal computer systems in 1998, and
expects to complete this process to achieve Year 2000 readiness by the
fourth quarter of 1999. Vendors of the new internal computer systems
certified them to be Year 2000 compliant. The Company's computer hardware
is limited to stand-alone and networked desk-top systems. The Company has
assessed the Year 2000 readiness of its computer hardware and potential
risks to operations, and intends to
12
<PAGE>
replace those systems that may pose a risk to operations in 1999. Parker
FIRST, the company's new proprietary software product, has been developed
and maintained by Parker Reorder. Parker FIRST software was designed to
account for the Year 2000 and beyond. This software product was in use by
hotel companies beginning in 1998.
o Business Processes. The Company has and continues to assess the potential
impact of Year 2000 on its business processes. Management for each
division is assessing the risks of Year 2000 issues as it specifically
relates to such businesses and the division's readiness. The Company is in
the process of contacting its key vendors, suppliers and subcontractors
regarding their Year 2000 readiness.
The Company believes that its internal computer systems, facilities, and
equipment will be Year 2000 compliant. However there is no assurance that all of
the planned upgrades will be completed in time or function as intended. As the
Company has no contingency plan other than to deal as expeditiously as possible
with situations if and when they arise, the Company may experience significant
disruptions, the costs of which the Company is unable to estimate at this time.
The Company also believes that disruptions in some of its vendors' or
subcontractors' operations will not significantly affect its projects because
the Company has relationships with other vendors and subcontractors with similar
expertise. The Company cannot assume, however, that an adequate supply of
vendors or subcontractors will be available.
PART II. OTHER INFORMATION
Item 3. LEGAL PROCEEDINGS
On June 1, 1998, an action (the "State Action") was brought against the Company
by West Atlantic Corp. ("West Atlantic") in the Supreme Court of the State of
New York. The State Action alleged that the Company retained West Atlantic
pursuant to an agreement dated March 1, 1995 (the "Agreement") to perform
certain marketing and selling services for the Company. The State Action further
alleged that fees were earned and not paid under the Agreement and seeks damages
relating to breach of contract of not less than $10,000,000, damages with
respect to "significant benefits to the Company" in an amount not less than
$5,000,000 and damages relating to breach of the duties of good faith and fair
dealing in an amount of not less than $10,000,000. The Company has denied and
continues to deny all of the allegations and claims of wrongdoing made by West
Atlantic in the State Action. However, in order to avoid further expense, the
Company has reached an agreement in principle with West Atlantic pursuant to
which it has agreed to pay $50,000 and to issue restricted shares having a
market value of $200,000 to West Atlantic (with registration rights). A
settlement agreement is currently being negotiated. In connection with the State
Action, the Company brought claims in federal and state court against Tova
Schwartz, the former President and Chief Executive Officer of the Company's
predecessor, seeking indemnity and punitive damages. The state and federal
actions claim that, among other things, Schwartz failed to disclose to the
Company the existence of the Agreement when the Company purchased from Schwartz
certain shares of Common Stock of the Company which she then held. Schwartz'
motion for dismissal of the Company's State Action indemnification claims was
denied on June 28, 1999. The Company is still pursuing these claims against
Schwartz. The federal action has been stayed, subject to reinstatement upon
notice by either party.
Item 5. OTHER INFORMATION
In March 1999 Watermark Investments Limited LLC ("Watermark"), an entity
affiliated with Robert A. Berman, the Company's Chairman of the Board and Chief
Executive Officer, entered into an agreement (the "Parker Agreement") with
Leonard F. Parker, a Director of the Company, Douglas A. Parker, President and a
Director of the Company, and several other members of the Parker family
(collectively referred to as the "Parker Family") pursuant to which the Parker
Family agreed to sell to Watermark all of the remaining shares of Convertible
Preferred Stock of the Company held by the Parker Family and 1,397,000 shares of
Common Stock of the Company, constituting substantially all of the Common Stock
held by the Parker Family. Also, pursuant to the Parker Agreement and subject to
the closing of the transactions contemplated thereunder, Leonard F. Parker and
Douglas A. Parker agreed to resign as Directors of the Company, and Douglas A.
Parker agreed to relinquish his position as President of the Company. The Parker
Agreement was amended in April 1999 to provide for a closing on the transactions
contemplated by the Parker Agreement to occur not later than June 18, 1999. None
of the transactions contemplated under the Parker Agreement have been
consummated and the Parker Agreement was terminated on June 21, 1999.
Consequently, the Parker Family retains ownership of all of the shares of
Convertible Preferred Stock and the 1,397,000 shares of Common Stock of the
Company. Leonard F. Parker and Douglas A. Parker remain members of the Company's
Board of Directors and Douglas A. Parker remains as the Company's President.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of earnings per share (Incorporated herein by reference
to Note 5 to the Company's Consolidated Financial Statements).
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOSPITALITY WORLDWIDE SERVICES, INC.
By: /S/ Robert A. Berman
----------------------------------
ROBERT A. BERMAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
By: /S/ HOWARD G. ANDERS
----------------------------------
HOWARD G. ANDERS
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER (PRINCIPAL
FINANCIAL OFFICER, PRINCIPAL
ACCOUNTING OFFICER) AND SECRETARY
Dated: August 13, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS, NOTES, THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 9,508
<SECURITIES> 0
<RECEIVABLES> 65,744
<ALLOWANCES> 7,249
<INVENTORY> 0
<CURRENT-ASSETS> 100,687
<PP&E> 11,032
<DEPRECIATION> 2,286
<TOTAL-ASSETS> 139,825
<CURRENT-LIABILITIES> 78,827
<BONDS> 2,646
0
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<COMMON> 133
<OTHER-SE> 55,219
<TOTAL-LIABILITY-AND-EQUITY> 139,825
<SALES> 134,944
<TOTAL-REVENUES> 134,944
<CGS> 122,337
<TOTAL-COSTS> 134,559
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<INTEREST-EXPENSE> 943
<INCOME-PRETAX> (16)
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