SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

  [ X ]   ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
          EXCHANGE ACT OF 1934

For the fiscal year ended:  December 31, 1998

                                       OR

  [   ]   TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
          EXCHANGE ACT OF 1934

For the transition period from ____________ to ___________

Commission file number: 0-13499-D

                              WORLD SERVICES, INC.
                              --------------------
                 (Name of small business issuer in its charter)
        
        South Dakota                                             46-0355586
        ------------                                             ----------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

      724 N. Kline, P.O. Box 786
        Aberdeen, South Dakota              57402-0786
        ----------------------              ----------
(Address of principal executive offices)     Zip Code

Issuer's telephone number:   (605) 225-4131

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act: 

                          Common Stock, $.001 par value

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the Exchange  Act 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 at least the past 90 days.
Yes X  No .

<PAGE>



     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained,  to the
best of 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. [XX]

     Issuer's revenues for its most recent fiscal year: $363,000

     Aggregate  market  value  of  voting  stock  held by  non-affiliates  as of
December  31,  1998:  $-0-.  There  is  currently  no  trading  market  for  the
Registrant's securities

     Number of  shares of common  stock,  $.001  par  value,  outstanding  as of
December 31, 1998: 2,639,679.

     Documents  incorporated  by  reference:  No documents are  incorporated  by
reference into this annual report on Form 10-KSB.

                                        2

<PAGE>

                              WORLD SERVICES, INC.

                                   FORM 10-KSB

                                     PART I

Item 1. Description of Business
-------------------------------

(a)  Business Development.

     General. World Services, Inc. (the "Registrant") was incorporated under the
laws of the State of South Dakota on December 17, 1979 under the name of Midwest
Management & Marketing  Corporation.  The name was changed in July 1983 to World
Services,  Inc. World Services,  a diversified  financial  holding company,  was
formed to invest in and manage companies primarily in the real estate, insurance
and banking industries,  along with other service industries.  World Services is
the  owner  of  approximately  16% of the  outstanding  stock  of  Super 8 Motel
Developers,  Inc.  ("Super 8"). In 1997, World Services sold its interest in the
outstanding  stock of First Savings & Loan  Association  of South  Dakota,  Inc.
("First  Savings").  In August 1997, World Services also completed a 510-for-one
reverse  stock  split  followed  by a  one-for-300  forward  stock  split.  This
recapitalization  resulted  in World  Services  repurchasing  a total of 544,000
shares (calculated after giving effect to the  recapitalization)  for a total of
$136,000 cash paid to  shareholders  who submitted  their shares for  redemption
through December 31, 1998, and an additional $44,000 payable to shareholders who
had not submitted their shares for redemption by that date.

     The current  members of the Board of Directors  were appointed in 1989 upon
the  resignation  of the former  members of the  Board.  Since that time,  World
Services has been  maintained as a valid South Dakota  corporation,  it has been
collecting receivables and settling debts incurred by World Services through the
cessation  of its  active  operations,  and has been  maintaining  the books and
records to allow  World  Services  to obtain  audited  financial  statements  as
necessary.  World Services has not engaged in any significant  business activity
for more than the past five years.

     Super 8 -- Summary. In a series of transactions during 1984, World Services
acquired shares of World Venture Capital Corporation which subsequently  changed
its name to Super 8 Venture Capital, Inc. ("S8VC") which shares, at December 31,
1985,  constituted  43.9%  of the  outstanding  common  stock  of S8VC and had a
carrying  value of  $628,327.  In May 1986 S8VC was  liquidated  and its  assets
consisting  of cash,  World  Services'  common stock and common stock of Super 8
Motel Developers, Inc. ("Super 8") were distributed to shareholders. As a result
of the liquidation and subsequent transactions,  World Services received 796,952
shares or  approximately  16% of Super 8's  common  stock,  $16,689  in cash and
125,000 shares of its own common stock. Super 8 Motel Developers Inc. is engaged
in the acquisition and operation of budget motels. See "Narrative Description of
Business" and "Financial Statements."

     As noted, the future conduct of World Services'  business is dependent upon
a number of factors,  and there can be no assurance  that World Services will be
able to conduct  its  operations  as  contemplated  herein.  Certain  statements


                                        3

<PAGE>


contained  in this  report,  such as the  possibility  that World  Services  may
acquire an operating  business or, if any such  business is acquired that it can
be successfully operated, are forward-looking  statements. The accuracy of these
statements  cannot be  guaranteed  as they are  subject  to a  variety  of risks
including,  but not limited to: the possibility  that World Services will not be
able to complete any such  acquisition on economic terms, if at all; and if such
an acquisition  does occur, the possibility that World Services will not be able
to operate the  business  successfully.  Furthermore,  if any  acquisition  does
occur, it will likely be accompanied by a change of control, and there can be no
assurance  that such change of control will be beneficial  to World  Services or
its existing shareholders.

(b)  Business of Issuer.

     In the near future,  World Services  intends to maintain its investments in
Super 8. In addition,  World Services intends to consider business  combinations
and  financing  opportunities,  although  there can be no  assurance  that World
Services will be able to complete either.

Super 8 Motel Developers, Inc.
------------------------------

     Acquisition.  Super 8 Motel  Developers,  Inc., a South Dakota  corporation
("Super 8"), is engaged in the  acquisition  and  development  and management of
budget motels.  Super 8 was formerly 40% owned by Super 8 Venture Capital,  Inc.
("S8VC"),  a South Dakota corporation formed in April 1984 to invest in, develop
and manage motels.  In connection with the formation of S8VC,  125,000 shares of
World  Services'  unregistered  common  stock were issued in  September  1984 in
exchange for  2,500,000  shares of common  stock of S8VC which was  subsequently
reduced to 2,249,993 shares.

     Business  of Super 8. The  primary  objective  of Super 8 is to develop and
operate franchise budget motels primarily in Virginia, West Virginia,  Maryland,
Delaware  and the  District of Columbia.  Super 8 acquired  exclusive  franchise
rights in July 1984 from  Super 8 Motels,  Inc.,  for  $250,000.  The  agreement
grants  Super 8  certain  exclusive  rights  in the  above-referenced  states to
construct, own, and operate motels using the Super 8 name and to represent Super
8 Motels,  Inc. in the sale of  franchises  within that  territory.  Significant
terms of the agreement and amendments thereto are as follows:

     1.   The term of the agreement is through 2004;

     2.   The initial  franchise  fee payable by motels which are owned at least
          51% by Super 8 is $10,000;

     3.   Super  8 is  to  receive  one-third  of  the  initial  franchise  fee,
          presently $20,000, of each franchise sold by the Super 8 system in the
          territory; and

                                        4

<PAGE>



     4.   A  specified  percentage  of the  annual  gross  room  rentals of each
          operating unit is to be tendered to Super 8 Motels,  Inc. as a fee for
          services rendered and royalties.  Super 8 Motels, Inc. will pay 25% of
          the fee it receives from each motel unit in the territory as a fee for
          services  rendered by Super 8. Those payments are to continue from the
          date such motel unit in the territory first commences  monthly royalty
          payments for ten years (for motels  opened on or before July 11, 1990)
          and for 15 years (for motels opened after July 11, 1990). Subfranchise
          fee income to Super 8 under this  agreement  were $345,226  during the
          year ended  December  31,  1998,  and  $434,833  during the year ended
          December 31,1997.

     Super 8 acquired  these  franchise  rights in July 1984.  As of March 1988,
Super 8 had interests in 28 motels operating and four motels under construction;
as of December 31, 1998,  Super 8 had interests in 29 operating motels (28 as of
December 31, 1997). The size of motels vary from 42 to 73 units and are, in most
instances, located adjacent to restaurant facilities.

     At  December  31,  1998,  Super 8 was also a general  partner in 11 limited
partnerships  (nine as of December 31,  1997),  (which are in addition to the 29
motels owned by Super 8 at December 31, 1998),  all of which were formed for the
purpose of owning and operating Super 8 Motels.

     In  1998,  World  Services   received  dividend  income  from  Super  8  of
approximately $319,000 (as compared to $239,000 received in 1997). Management of
World  Services  believes  that the market  value of its  investment  in Super 8
exceeds its current cost basis.

     Competition. Super 8 is in competition with a large number of lower priced,
"budget" motel chains, such as Motel 6, Days Inn, Econolodge,  and Red Roof Inn.
In addition,  there are many  individually-owned  motels which are not part of a
chain, or which are members of a marketing  organization such as "Best Western."
Super 8 generally  competes  with these other motels on pricing,  location,  and
advertising.

First Savings & Loan Association of South Dakota, Inc.
------------------------------------------------------

     Prior to  October  1997,  World  Services  owned  approximately  22% of the
outstanding  capital stock of First Savings & Loan  Association of South Dakota,
Inc. ("First Savings"),  a South Dakota corporation,  operating primarily in the
city of Aberdeen. In September 1996, World Services was contacted by the federal
Office of Thrift  Supervision  concerning certain changes in the alleged control
of First  Savings  stock,  the  ownership  of  First  Savings  stock by  certain
affiliates of World Services,  and a threatened action against World Services as
a result  thereof.  OTS notified  World  Services and some of its directors that
they may be in violation of OTS Reg. No. 574.4(b),  relating to a requirement of
submitting either a change of control notice or rebuttals of concerted action or
control. Although World Services disputed the bases for the OTS' allegations and
pursuant to shareholder  approval,  World  Services sold its entire  interest in
First Savings to an  unaffiliated  buyer in August 1997 for $427,000  ($2.51 per
share).

                                        5

<PAGE>



Plan of Operations
------------------

     To date,  World Services has not been engaged in any operations  other than
attempting to organize its affairs, settle its obligations,  collect receivables
and, more recently,  bring World Services up to date with required  governmental
filings  and  compliance  with  other  regulatory  requirements.  In 1997  World
Services  held a  shareholders  meeting  and  completed  the sale of its  entire
interest in First Savings. The current Board of Directors has not yet sought any
possible business combination.


     In the future, the Board will seek direction from the shareholders as to an
appropriate  course for World Services to follow.  This course could include any
of several alternatives, briefly identified as follows:

1.   Dissolution and Liquidation.  Pursuant to this alternative,  World Services
     would seek  shareholder  approval for the liquidation of World Services and
     the distribution of net assets to shareholders on a pro rata basis.

2.   Continuation  of  World  Services  as a  going  concern.  Pursuant  to this
     alternative,  World  Services,  through its elected  Board of Directors and
     management,   would  seek  business   opportunities  and  consider  various
     possibilities  of  reorganization  with the  intention  of  allowing  World
     Services to engage in active business operations.

3.   Sale or distribution of World Services'  minority  interest.  In connection
     with  either or both of the  foregoing  alternatives,  World  Services  may
     consider  the  sale of its  minority  interest  in  Super  8.  This  may be
     necessary  to avoid the  application  of the  Investment  Company  Act,  as
     discussed below.

4.   Seeking a waiver  from the  application  of the  Investment  Company Act or
     registering as an investment company or business development company.

     The Board of Directors has not made any  determination  as to which, if any
of the foregoing  alternatives,  it may recommend to the  shareholders  of World
Services.  Any  such  recommendation  will be in the  form of a proxy  statement
meeting the requirements of Schedule 14A of the Securities Exchange Act of 1934,
as amended.

Possible Liquidation
--------------------

     To  the  extent  the  Board  of  Directors  recommends  liquidation  to the
shareholders,  it will do so in accordance  with the applicable  requirements of
South Dakota corporation law and the requirements of the Securities Exchange Act
of 1934.  Because  World  Services has attempted to sell its interest in Super 8
previously,  there can be no assurance that World Services will be able to do so
in connection with any liquidation plan. Furthermore,  there can be no assurance
whether  World  Services  would be offered a fair price in  connection  with any
attempt to liquidate its interest in Super 8.

                                        6

<PAGE>



     Consequently,  it is  possible  that  World  Services  may  propose  to the
shareholders  that it not attempt to sell World  Services'  interest in Super 8,
but rather that World Services  distribute the Super 8 shares to World Services'
shareholders  in a pro  rata  distribution.  There  are  significant  regulatory
hurdles and taxation  issues that must be considered  in connection  with either
spin off or a sale  which  World  Services  has not yet  contemplated.  Any such
transaction  will,  however,  only be done in  accordance  with  all  applicable
requirements,  including the requirements of the Securities Exchange Act of 1934
and state corporation laws.

Business Combinations.
----------------------

     It is possible that World Services may attempt to implement a business plan
to seek,  investigate,  and, if warranted,  to acquire an interest in a business
opportunity which management believes may provide a return to World Services and
its shareholders.  World Services may attempt to do so using its working capital
(including  the  funds  made  available  by the  sale of its  interest  in First
Savings) and its unissued  common stock instead of cash or debt; any issuance of
common stock or other equity  interest would dilute the ownership  percentage of
World Services' existing shareholders.

     Although it has reviewed three different possibilities,  World Services has
not yet identified a business  opportunity  for  acquisition.  It is expected to
seek out  developing  companies  to allow  World  Services  to  expand  into new
products  or  markets,  or to  develop a new  product  or  service.  Established
businesses  which may be experiencing  financial or operating  difficulties  and
would  be in need of the  additional  capital  and  management  expertise  World
Services could provide also will be investigated.  In some instances, a business
opportunity  may involve the  acquisition of or merger with a corporation  which
does not need  substantial  additional  cash but which  desires to  establish  a
public trading market for its securities.

     World  Services  anticipates  that the selection of a business  opportunity
will  be a  complex  process  and  will  involve  a  number  of  risks,  because
potentially  available  business  opportunities  may  occur  in  many  different
industries and may be in various stages of development. Due in part to depressed
economic  conditions  in a  number  of  geographic  areas,  rapid  technological
advances  being made in some  industries  and  shortages of  available  capital,
management  believes that there are numerous  firms  seeking  either the limited
additional  capital which World Services will have or the benefits of a publicly
traded  corporation,  or both.  The  perceived  benefits  of a  publicly  traded
corporation  may  include   facilitating  or  improving  the  terms  upon  which
additional  equity  financing  may be  sought,  providing  liquidity  for estate
planning  needs  of  principle  shareholders,  creating  a means  for  providing
incentive  stock  options  or  similar  benefits  to  key  employees,  providing
liquidity for all shareholders and other factors.

                                        7

<PAGE>



     In seeking business opportunities, management's decision will be based upon
the objective of seeking long-term  capital  appreciation in real value of World
Services'  investment.  Current  income  will  be only a  minor  factor  in such
decisions.

     It is anticipated  that World  Services will  essentially be limited to one
business  venture in the  foreseeable  future,  due to World  Services'  limited
financing. This lack of diversification will not permit World Services to offset
potential losses from one business opportunity against profits from another, and
should be considered an adverse factor  affecting any decision to purchase World
Services' securities.

     In some cases,  management  of World  Services  will have the  authority to
effect  acquisitions  without  submitting the proposal to the  shareholders  for
their consideration. In some instances, however, the proposed participation in a
business   opportunity   may  be  submitted  to  the   shareholders   for  their
consideration,  either  voluntarily  by the  Board  of  Directors  to  seek  the
shareholders' advice and consent, or because of a requirement of state law to do
so. There can be no assurance  that World  Services will be able to complete any
such acquisition.

Sale or Distribution of Minority Interests
------------------------------------------

     World  Services  may  attempt to sell all or a portion  of World  Services'
interests in Super 8, in connection  with any business  combination  that may be
pursued  by  World  Services.  Alternatively,   World  Services  might  consider
distributing to World Services' shareholders,  on a pro rata basis, interests in
Super  8. It is  likely  that  any  such  sale  or  distribution  would  require
shareholder approval under South Dakota law, as well as possible approval by the
South Dakota Attorney General and Division of Securities.

Registration Under or Waiver of Investment Company Act
------------------------------------------------------

     In its proxy statement for the meeting of  shareholders  held September 29,
1988,  World Services stated that if the proposal to sell World Services' assets
was approved and the transactions  completed,  World Services  intended to elect
treatment as a business development company ("BDC") under the Investment Company
Act of 1940 (the "1940 Act").  The  transactions  anticipated  by World Services
were the sale of the travel and the real estate operations to certain affiliates
(which  occurred in March  1989),  and the sale of World  Services'  interest in
First Savings  (which  occurred in August 1997).  World  Services  never made an
election to be treated as a BDC because World  Services did not have  sufficient
working capital to complete the steps necessary for such an election.

     World Services  currently  might be considered an  "investment  company" as
that term is defined in the 1940 Act.  An  investment  company  is  generally  a
company that is engaged in the business of investing,  holding,  reinvesting, or
trading of investment securities.  Investment securities are defined by the 1940
Act to include all  securities  except  United  States  government  obligations,
certain  other  securities  and cash where  World  Services  has less than a 50%
interest in the issuer.  Under that  definition,  the Super 8  securities  would
classify as investment securities.

                                        8

<PAGE>



     Because  these  securities  have  such  a  significant  position  in  World
Services' financial statements,  it is possible that the Securities and Exchange
Commission  may take the position that World  Services is an investment  company
and should be registered as such under the 1940 Act.  World  Services  believes,
however,  that if the  1940  Act is  applicable  at all,  World  Services  is an
inadvertent  investment  company.  This status  resulted  from the sale by World
Services of its operating assets in 1988-1989,  the 1997 sale of its interest in
First Savings,  and World  Services'  inability to sell its interest in Super 8.
World  Services  does not  intend  nor does it have  authority  to engage in the
business  of  investing,   holding,   reinvesting,   or  trading  of  investment
securities.

     World Services intends to vigorously resist classification as an investment
company,  and to take advantage of any exemptions or exceptions from application
of the 1940 Act, which allows an entity a one-time  option during any three-year
period to claim an exemption as a "transient"  investment company. The necessity
of asserting any such  resistance,  or making any claim of  exemption,  could be
time consuming and costly,  or even  prohibitive,  given World Services' limited
resources.

Employees and Consultants
-------------------------

     World  Services  currently has no employees.  Management  anticipates  that
employees  and/or  consultants  will be retained as may be  necessary to operate
World Services following any business combination. See also "Management."


Item 2. Description of Property
-------------------------------

     World Services is currently  renting a one room office from an unaffiliated
party  for  the sum of $250  per  month,  including  all  utilities.  Management
believes that this  arrangement will be suitable for its needs for the immediate
future,  until  such time as any  business  combination  has been  substantially
completed.

     World Services owns no real property or material personal property.


Item 3. Legal Proceedings
-------------------------

     World Services is not a party to any legal  proceedings  except as follows,
and no such proceedings are known to be contemplated.

     World  Services was plaintiff in a civil action in the Circuit Court of the
Fifth Judicial Circuit of the State of South Dakota (Civ 97-187, entitled "World
Services,  Inc. vs. Murray Woulfe") against Murray Woulfe, a former president of
World  Services,  on a promissory  note.  The action sought  recovery of $19,000
including  interest and costs.  Mr. Woulfe has denied liability and claimed that
he owes World Services no obligation  under the promissory  note. The matter was


                                        9

<PAGE>


heard by one of the Circuit Judges of the Fifth Judicial  Circuit in and for the
County of Brown,  State of South Dakota in May 1998. The Circuit Court ruled for
the defendant; the Court also allowed the defendant $4,200 for services rendered
for the period of April 1989 through December 1989, and allowed interest on that
amount at 12% from  January 1, 1990 until  paid.  Management  did not agree with
this  ruling,  but decided not to appeal  because of the high cost of the appeal
and the uncertainty of the outcome.


Item 4. Submission of Matters to a Vote of Security Holders.
------------------------------------------------------------

     No  matters  were  submitted  to a vote of  shareholders  during the fourth
quarter of the fiscal year.


                                     PART II


Item 5. Market for Common Equity and Related Stockholder Matters
----------------------------------------------------------------

(a)  Market Information.

     World  Services'  Common  Stock is not  eligible  for listing on the NASDAQ
system, and trading,  if any, has been strictly limited to the  over-the-counter
market.  To the knowledge of World Services,  there has been no trading in World
Services'  Common Stock for a significant  period of time.  The Common Stock has
been quoted from time to time in the "Pink  Sheets"  maintained  by the National
Quotation Bureau,  Inc.  Management  believes that no established trading market
exists for World Services' Common Stock.

(b)  Holders.

     (b)(1) The approximate  number of record holders of World Services'  Common
Stock,  $.001 par value, as of December 31, 1998 was  approximately  1,750. This
figure does not reflect an  indeterminable  number of shareholders  whose shares
are held in "street name."

(c)  Dividends.

     World Services has not paid a dividend with respect to its Common Stock and
cannot be  expected  to pay a dividend  on its Common  Stock in the  foreseeable
future.



                                       10

<PAGE>



Item 6. Management's Discussion and Analysis or Plan of Operation
-----------------------------------------------------------------

Results of Operations

Years Ended December 31, 1998 and 1997
--------------------------------------

     As  stated  above,  until  recently  World  Services  has been  essentially
inactive since early 1988. Until 1995, World Services'  activities  consisted of
nothing more than  maintaining  its  investments  in First  Savings and Super 8.
World  Services'  only  earnings  have been  from  dividends  received  from its
investments  in 1997 and  1998,  and a  nominal  amount  of  interest  earned on
deposits.

     Expenditures  decreased  during  1998 as  compared  to 1997  because of the
significantly  lesser  activities of World  Services  during 1998.  During 1997,
World  Services  negotiated  with  the  federal  Office  of  Thrift  Supervision
regarding its investment in First Savings,  held a shareholder meeting, and sold
its interest in First Savings;  none of these  activities  occurred in 1998 and,
consequently,  legal and accounting  expenditures decreased from $55,000 in 1997
to $25,000 in 1998; other general and administrative  expenditures  during those
two years stayed  approximately  the same. World Services will continue to incur
general and  administrative  expenses  necessary to continue the effectuation of
World  Services'  Plan of  Operations.  World  Services  does  intend  to hold a
shareholders'  meeting during 1999 and this and other activities described in it
Plan of Operations are likely to result in increased expenses during 1999.

     Except for dividends  which may be paid to World Services by Super 8 (which
cannot be  assured),  and  interest  from any funds on deposit,  World  Services
anticipates no other income. World Services anticipates continuing  expenditures
during the 1999 fiscal year as it continues to comply with its  obligations as a
reporting company pursuant to the Securities  Exchange Act of 1934 and the South
Dakota corporations law.

     Recently Issued  Accounting  Pronouncements - SFAS No. 133,  Accounting for
Derivative  Instruments  and Hedging  Activities,  was issued in June 1998. This
statement   establishes   accounting  and  reporting  standards  for  derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position  and  measure  those  instruments  at fair  value.  This  statement  is
effective for the Company's financial statements for the year ended December 31,
2001 and the adoption of this standard is not expected to have a material effect
on the Company's financial statements.

     SFAS  No.   132,   Employers'   Disclosures   about   Pensions   and  Other
Postretirement Benefits, was issued in February 1998. This statement revises the
disclosure  requirement  for pensions and other  postretirement  benefits.  This
statement is effective for the Company's financial statements for the year ended
December  31, 1999 and the  adoption of this  standard is not expected to have a
material effect on the Company's financial statements.

Liquidity and Capital Resources

December 31, 1998 and 1997
--------------------------

     At the time World Services  ceased active  business  operations in 1989, it
was  essentially  out of money  and has been  unable  to raise  any  substantial
amounts of money since that time.  World  Services  disposed of its interests in
its travel agency, real estate operations and insurance  operations in an effort
to minimize its general and  administrative  expenses  and to raise cash.  World
Services received  approximately  $319,000 in dividends from Super 8 in 1998 and
$239,000  in  1997.  In  1997,   World   Services  also  received   proceeds  of
approximately  $427,000  from the sale of its  investment in First Savings to an
unaffiliated third party.

                                       11

<PAGE>



     At December 31, 1998 and 1997,  World  Services had net working  capital of
$1,035,000 and $752,000 respectively,  as a result of cash dividends received by
World Services from Super 8 and the 1997 sale of the First Savings common stock.
Prior to 1994, World Services had significant working capital deficits.

     World Services' most significant asset is its investments in Super 8, which
is carried  at cost.  Management  believes  that the fair  market  value of this
investment is in excess of its book value. However, as a result of the extent of
World  Services'   percentage   ownership  in  Super  8  and  its  inability  to
significantly influence this entity, the ultimate realization of this investment
may be subject to conditions outside the control of World Services.  In 1996 and
previous  years,  World  Services had received  dividends from its investment in
First  Savings  which also added to its working  capital.  World  Services  will
receive no additional dividends from First Savings since World Services sold its
entire interest in First Savings in October 1997.

     During the years ended  December  31, 1998 and  December  31,  1997,  World
Services had limited cash flows from investing and financing activities.


Year 2000 Compliance

     The year 2000 (Y2K) may present problems for computer programs,  as well as
other embedded  technology which use date recognition  methods or time-sensitive
logic based upon two digits.  The date "00" may be  recognized  as the year 1900
rather than the year 2000,  resulting in  widespread  miscalculations  or system
failures which could adversely affect business.

     As a non-operating company, World Services expects little impact of the Y2K
issues on cash flow or financial conditions. Nevertheless, World Services, in an
attempt  to  prevent   financial   risk   including  the  loss  of  revenue  and
unanticipated  costs, is devoting all resources necessary to resolve significant
Y2K issues in a timely fashion.  The internal  assessment  phase is complete and
all software for computers  utilized by World  Services is Y2K  compliant.  With
respect  to  banks  and  Super  8  with  which  World   Services   has  material
relationships,  the Company intends to complete a verification of Y2K compliance
by June 30, 1999. Such  verification  process includes  contacting each vendor's
information  technology  department  to  determine  the  vendor's  state  of Y2K
readiness,  as well as requesting written documentation  outlining each vendor's
Y2K compliance  plan. Y2K  non-compliance  by the Bank where the Company has its
bank account and certificates of deposit, and by Super 8, could adversely affect
the Company's assets and liquidity.

     Estimated  expenditures  for  Y2K  issues  are  expected  to be  less  than
$1,000.00 for fiscal 1999. However,  World Services is not able to determine the
total costs for its Y2K program, nor is it able to determine the material effect
on the company's financial condition, results of operations or cash flow.

Item 7. Financial Statements
----------------------------


                                       12

<PAGE>



     World Services' audited  financial  statements,  described as follows,  are
appended to the signature page of this report.

World Services, Inc.
--------------------

    Independent Auditor's Report

    Balance Sheet - December 31, 1998

    Statements of Operations and Comprehensive Income- For the Years
    Ended December 31, 1998 and 1997

    Statement  of Changes in  Stockholder's  Equity For the Period
    from January 1, 1997 through December 31, 1998

    Statements of Cash Flow - For the Years
    Ended December 31, 1998 and 1997

    Notes to Financial Statements

Super 8 Motel Developers, Inc.
------------------------------


    INDEPENDENT AUDITORS' REPORT

    FINANCIAL STATEMENTS:

    Consolidated Balance Sheets - December 31, 1998 and 1997

    Consolidated Statements of Operations for the
    Years Ended December 31, 1998 and 1997

    Consolidated Statements of Stockholders' Equity
    for the Years Ended December 31, 1998 and 1997

    Consolidated Statements of Cash Flows
    Notes to Consolidated Financial Statements


                                       13

<PAGE>



Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure.

     Since inception, World Services has not filed a Form 8-K reporting a change
of  accountants,   nor  has  there  been  any  material  disagreement  with  its
accountants on any matter regarding accounting or financial disclosure.


                                       14

<PAGE>

                                    PART III


Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act

(a)  Identification of Directors and Executive Officers.

     The  officers  and  directors  of World  Services  are  listed  below.  The
directors  of World  Services  are elected to hold office  until the next annual
meeting of shareholders and until their respective  successors have been elected
and qualified.  Officers of World Services are elected by the Board of Directors
and hold office until their successors are elected and qualified.

     The current officers and directors of World Services are:

Name                           Age              Position
----                           ---              --------

Ronne Tarrell                  57               President, Director
Delores Bower                  55               Vice President, Director
David Jorgenson                63               Director
Delbert Harty                  59               Director
Terry Heinz                    41               Secretary, Treasurer, Director

     A brief summary of the business  experience of each person who is currently
an officer or director of World Services,  and such person's  service with World
Services is as follows:

     Ronne  Tarrell  has  been  president  since  1993 and a  director  of World
Services  since 1990. He is a licensed  realtor in the State of South Dakota and
is currently a broker-associate  with Real Estate Associates in Aberdeen,  South
Dakota;  prior to that he owned and  operated  Tarrell  Realty for more than the
previous  five years.  Mr.  Tarrell is not a director  of any other  corporation
which has a class of securities  registered under the Securities Exchange Act of
1934.

     Delores  Bower has been Vice  President  and a Director  of World  Services
since 1990. She has been  financial  director of Midwest Paint, a privately held
company in Aberdeen, South Dakota, for more than the past five years. Mrs. Bower
is not a  director  of any other  corporation  which  has a class of  securities
registered under the Securities Exchange Act of 1934.

     David  Jorgenson was Secretary  and Treasurer  from 1993 until 1998,  and a
director of World  Services  since  1990.  Mr.  Jorgenson  is manager of a small
business in Aberdeen,  South Dakota. For the five prior years, Mr. Jorgenson was
a  state  video  lottery  inspector  for  the  State  of  South  Dakota  Lottery
Commission.  In  addition,  Mr.  Jorgenson  manages  his  own  investments.  Mr.
Jorgenson  is not a  director  of any  other  corporation  which  has a class of
securities registered under the Securities Exchange Act of 1934.

                                       15

<PAGE>



     Delbert Harty has been a director of World Services since 1993. He has been
retired for more than the last five years,  and  currently  manages his personal
investments.  Prior to retirement  he was employed as a machinist.  Mr. Harty is
not a  director  of any  other  corporation  which  has a  class  of  securities
registered under the Securities Exchange Act of 1934.

     Terry  Heinz  has  been  a  director  of  World  Services  since  1993  and
Secretary-Treasurer  from 1998.  At present Mr. Heinz is the account  manager at
NorCom Advanced Technologies,  Inc., a direct marketing firm in Aberdeen,  South
Dakota.  From April 1984 until  October 1993 he was a sales  representative  for
Dial-Net,  a marketing  firm in Sioux Falls,  South  Dakota.  Mr. Heinz is not a
director of any other  corporation  which has a class of  securities  registered
under the Securities Exchange Act of 1934.

(b)  Significant Employees.

     World Services has no salaried  employees at the present time. As described
below,  World Services does pay  compensation to its president as an independent
contractor.

(c)  Family Relationships.

     There are no family  relationships  among any of World  Services'  officers
and/or directors.

(d)  Involvement in Certain Legal Proceedings.

     During  the past  five  years,  no  current  director,  executive  officer,
promoter or control person of World Services has:

          (1) Filed or has had filed  against  him a petition  under the federal
bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent or
similar  officer been  appointed by a court for the business or property of such
person, or any partnership in which he was a general partner, or any corporation
or business  association  of which he was an executive  officer at or within two
years before such filings;

          (2) Been convicted in a criminal proceeding or is a named subject of a
pending  criminal  proceeding  (excluding  traffic  violations  and other  minor
offenses);

          (3)  Been  the  subject  of  any  order,   judgment,  or  decree,  not
subsequently  reversed,   suspended  or  vacated,  of  any  court  of  competent
jurisdiction,   permanently  or  temporarily  enjoining  such  person  from,  or
otherwise limiting, the following activities:

               (i) Acting as a futures commission merchant,  introducing broker,
commodity  trading  advisor,  commodity  pool operator,  floor broker,  leverage
transaction  merchant,  any other  person  regulated  by the  Commodity  Futures
Trading  Commission,  or an associated person of any of the foregoing,  or as an
investment  adviser,  underwriter,  broker  or dealer  in  securities,  or as an

                                       16

<PAGE>



affiliated  person,  director,  or employee  of any  investment  company,  bank,
savings and loan association or insurance company,  or engaging in or continuing
any conduct or practice in connection with such activity;

               (ii) Engaging in any type of business practice; or

               (iii) Engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any violation of federal
or state securities laws or federal commodities laws;

          (4)  Been  the  subject  of  any  order,   judgment  or  decree,   not
subsequently  reversed,  suspended or vacated, of any federal or state authority
barring,  suspending  or  otherwise  limiting for more than 60 days the right of
such person to engage in any activity described in paragraph (3)(i) above, or to
be associated with persons engaged in any such activity; or

          (5) Been found by a court of competent  jurisdiction in a civil action
or by the Securities and Exchange Commission (the "Commission") to have violated
any federal or state  securities  law,  and the judgment in such civil action or
finding by the  Commission has not been  subsequently  reversed,  suspended,  or
vacated.

          (6) Been found by a court of competent  jurisdiction in a civil action
or by the  Commodity  Futures  Trading  Commission  to have violated any federal
commodities  law,  and the  judgment  in such  civil  action or  finding  by the
Commodity  Futures  Trading  Commission  has  not  been  subsequently  reversed,
suspended or vacated.

Item 10. Executive Compensation
-------------------------------

(a)(1) & (2)  Cash Compensation.

     The following table sets forth information  regarding  compensation paid to
the chief executive officer of World Services for the three years ended December
31,  1998.  No other  person  who is  currently  an  executive  officer of World
Services earned salary and bonus  compensation  exceeding $100,000 during any of
those years.

<TABLE>
<CAPTION>

                    Annual Compensation ($$)     Long Term Compensation
                    ------------------------  ---------------------------
                                                    Awards        Payouts
                                              ------------------  -------
       (a)          (b)    (c)     (d)   (e)     (f)       (g)     (h)         (i)
                                              Restricted
     Name and                                   Stock    Options   LTIP       Other
     Position       Year  Salary  Bonus  Other  Awards   & SARs   Payouts  Compensation
------------------  ----  ------  -----  -----  ------   -------  -------  ------------
                           ($$)    ($$)   ($$)   ($$)     (##)     ($$)       ($$)

<S>                 <C>   <C>      <C>    <C>    <C>       <C>      <C>        <C>
Ronne Tarrell       1998  22,000   -0-    -0-    -0-       -0-      -0-        -0-
President and       1997  22,000   -0-    -0-    -0-       -0-      -0-        -0-
Chief Executive     1996  -0-      -0-    -0-    -0-       -0-      -0-        -0-
Officer


                                       17
</TABLE>

<PAGE>



(b)(1)  Compensation Under Plans.

     World  Services  has  no  stock  option  plan,   stock  bonus  plan,  other
compensatory  plan or  arrangement,  or  employee  benefit  plan for  employees,
consultants, officers, or directors.

(c)  Other Compensation.

     No other compensation was paid or distributed to any officer or director of
World Services for services  rendered to World  Services  during the 1998 fiscal
year.

(d)  Compensation of Directors.

     World Services paid its directors $150 per directors'  meeting attended for
their services for a total of ten meetings that were held during fiscal 1997 and
five  meetings  during  fiscal 1998.  In addition,  officers and  directors  may
receive reimbursement for out-of-pocket  expenses incurred by them in connection
with the business of World Services.

     World Services has no other arrangements  pursuant to which any director of
World  Services  was  compensated  during the 1998 fiscal year for services as a
director.

(e)  Termination of Employment and Change in Control.

     World Services has no compensation  plan or arrangement with respect to any
executive  officer  which plan or  arrangement  results or will  result from the
resignation,   retirement  or  any  other  termi  nation  of  such  individual's
employment with World Services.  World Services has no plan or arrangement  with
respect to any such persons  which will result from a change in control of World
Services or a change in the individual's  responsibilities following a change in
control.

Item 11. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

(a)  Security Ownership of Certain Beneficial Owners.

     The following  table sets forth  information as of December 31, 1998, as to
the beneficial  ownership of shares of World Services' only outstanding class of
securities,  its Common  Stock,  by each person who, to the  knowledge  of World
Services at that date, was a beneficial  owner of 5% or more of the  outstanding
shares of Common Stock. The table does not include information  regarding shares
of Common Stock held in the names of certain  depositories/clearing  agencies as
nominee for various  brokers and  individuals.  No such broker or  individual is
believed to hold greater than 5% of World Services' Common Stock.

                                       18

<PAGE>


      Name and Address                     Amount of
        of Beneficial                     Beneficial                 Percent of
            Owner                            Owner                     Class
            -----                            -----                     -----

        Murray Woulfe                  223,450 shares(1)                8.2%
       HCR 70 Box 2206
    Lake George, MN 56458

----------

     (1)  Ownership  is  direct.  155,883  of these  shares  are held in  escrow
          pursuant to an  agreement  with the  Director of  Securities  of South
          Dakota until, if even, World Services  achieves net earnings per share
          of $0.10 for any three year period, two of which must be consecutive.

(b)  Security Ownership of Management.

     The following  table sets forth  information as of December 31, 1998, as to
the beneficial  ownership of shares of World Services' only outstanding class of
securities,  its Common Stock, by each person who is a director and/or executive
officer of World  Services,  and by all officers and directors of World Services
as a group.

        Name and Address                   Amount of
         of Beneficial                    Beneficial               Percent of
             Owner                       Ownership (2)               Class
             -----                       -------------               -----

     Ronne Tarrell (1)(3)                3,922 shares                    *

     Delores Bower (1)(4)               96,180 shares                 3.5%

     David Jorgenson (1)                 1,706 shares                    *

     Delbert Harty (1)(3)                8,726 shares                    *

     Terry Heinz (1)                       471 shares                    *

     Officers and                      111,005 shares                 4.0%
     directors as a
     group (five
     persons)

----------

*    Less than one percent.

                                       19

<PAGE>



     (1)  Ownership is direct.

     (2)  There are no warrants outstanding by which any officer,  director,  or
          other  person  has the right to  purchase  shares  of World  Services'
          Common Stock.

     (3)  These  shares are held in escrow  pursuant  to an  agreement  with the
          Director of Securities of South Dakota until, if even,  World Services
          achieves  net  earnings  per share of $0.10 for any three year period,
          two of which must be consecutive.

     (4)  8,827 of these shares are held in escrow pursuant to an agreement with
          the Director of  Securities  of South  Dakota  until,  if even,  World
          Services  achieves  net earnings per share of $0.10 for any three year
          period, two of which must be consecutive.

(c)  Changes in Control.

     There was a change  in  control  of World  Services  in 1990,  by which the
current  members of the Board of Directors were appointed and the former members
resigned. There has been no change of control since that time.

Item 12. Certain Relationships and Related Transactions
-------------------------------------------------------

(a)(b)(c) Transactions with Management and Others.

     None

(d)  Transactions with Promoters.

     Not applicable.

Item 13. Exhibits and Reports on Form 8-K.
------------------------------------------

     (a)  Exhibits  required  to be filed are  listed  below and,  except  where
incorporated by reference, immediately follow the Financial Statements.

 Number        Description
 ------        -----------

   3.1         Articles of Incorporation, as amended(1)

   3.2         Bylaws(1)

  10.1         Agreements relating to sale of assets(1)


                                       20

<PAGE>



  10.2         Purchase  Agreement  dated March 31, 1989 between World Services,
               Inc. and Rezatto II, Inc.(1)

  10.3         Addendum   Agreement   dated  December  29,  1989  between  World
               Services, Inc. and Rezatto II, Inc.(1)

  10.4         Agreement  dated  August 18,  1997 for the  Purchase  and Sale of
               169,989 shares of Common Stock of First Savings between  Spectrum
               Bancorporation, Inc., and World Services, Inc.(2)

  22.1         Subsidiaries of World Services:

               (a)  Super 8 Motel Developers, Inc., a South Dakota corporation

(b) During the last quarter of the period  covered by this report World Services
filed no reports on Form 8-K.

------------

(1)  Incorporated  by reference from the same numbered  exhibit filed with World
Services'  Report on Form 10-KSB for the fiscal  years ended  December 31, 1988,
1990, 1991, 1992, 1993 and 1994.

(2)  Incorporated  by reference from the same numbered  exhibit filed with World
Services' Report on Form 10-KSB for the fiscal years ended December 31, 1997.



                                       21

<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.

March __, 1999
                                           WORLD SERVICES, INC.


                                           By:
                                              ----------------------------------
                                              Ronne Tarrell, President


     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.


March __, 1999                                ----------------------------------
                                              Ronne Tarrell, President, 
                                              Principal Executive Officer, 
                                              and Director


March __, 1999                                ----------------------------------
                                              David Jorgenson, Director


March __, 1999                                ----------------------------------
                                              Delores Bower, Director



March __, 1999                                ----------------------------------
                                              Delbert Harty, Director



March __, 1999                                ----------------------------------
                                              Terry Heinz, Secretary, Treasurer,
                                              Principal Accounting Officer, 
                                              Principal Financial Officer, 
                                              and Director


                                       22

<PAGE>
 


                              World Services, Inc.

                              Financial Statements
                           December 31, 1998 and 1997


<PAGE>

                          INDEX TO FINANCIAL STATEMENTS



                                                                          PAGE
                                                                          ----

Independent Auditor's Report..............................................F-2

Balance Sheet - December 31, 1998.........................................F-3

Statements of Operations and Comprehensive Income - 
         For the Years Ended December 31, 1998 and 1997...................F-4

Statement  of Changes in  Stockholders'  Equity - 
         For the Period from January 1, 1997 through
         December 31, 1998................................................F-5

Statements of Cash Flows -
         For the Years Ended December 31, 1998 and 1997...................F-6

Notes to Financial Statements.............................................F-7



                                       F-1

<PAGE>


                          INDEPENDENT AUDITOR'S REPORT




The Stockholders and Board of Directors
World Services, Inc.
Aberdeen, South Dakota



We have audited the  accompanying  balance sheet of World Services,  Inc., as of
December 31, 1998, and the related  statements of operations  and  comprehensive
income,  changes in  stockholders'  equity,  and cash flows for the years  ended
December 31, 1998 and 1997. 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 did not  audit  the  financial
statements of First Savings and Loan  Association,  Inc (FSL), the investment in
which, as discussed in Note 2 to the financial statements,  was sold during 1997
and was accounted for by the equity method of accounting.  The Company's  equity
in its net income was $45,000 for the year ended  December 31, 1997. The Company
received no dividends  from FSL in 1997.  The  financial  statements of FSL were
audited  by other  auditors  whose  report  has been  furnished  to us,  and our
opinion,  insofar as it relates to the amounts  included for FSL is based solely
on the report of the other auditors.

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  and the  report  of  other  auditors  provides  a
reasonable basis for our opinion.

In our  opinion,  based on our  audits  and the  report of other  auditors,  the
financial statements referred to above present fairly, in all material respects,
the financial position of World Services,  Inc. as of December 31, 1998, and the
results of its  operations  and its cash flows for the years ended  December 31,
1998 and 1997, in conformity with generally accepted accounting principles.




HEIN + ASSOCIATES LLP

Denver, Colorado
February 22, 1999

                                       F-2

<PAGE>

                              WORLD SERVICES, INC.

                                  BALANCE SHEET
                                DECEMBER 31, 1998



                                     ASSETS
                                     ------

CURRENT ASSETS:
    Cash and cash equivalents                                       $    48,000
    Certificates of deposit                                           1,023,000
    Other                                                                19,000
                                                                    -----------
             Total current assets                                     1,090,000

INVESTMENTS AND OTHER ASSETS -
    Investment in Super 8 Motel Developers                              568,000
                                                                    -----------

TOTAL ASSETS                                                        $ 1,658,000
                                                                    ===========



                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

CURRENT LIABILITIES:
    Payable to redeemed stockholders                                $    44,000
    Other                                                                11,000
                                                                    -----------
         Total current liabilities                                       55,000

STOCKHOLDERS' EQUITY:
    Common stock, par value $.001 per share;
         50,000,000 shares authorized,
         2,640,000 shares issued                                          3,000
    Additional paid-in capital                                        6,364,000
    Accumulated deficit                                              (4,764,000)
                                                                    -----------
             Total stockholders' equity                               1,603,000
                                                                    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 1,658,000
                                                                    ===========



              See accompanying notes to these financial statements.

                                       F-3

<PAGE>
<TABLE>
<CAPTION>

                      WORLD SERVICES, INC. AND SUBSIDIARIES

                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


                                                                
                                                                 YEARS ENDED
                                                                 DECEMBER 31,
                                                           -----------------------
                                                              1998         1997
                                                              ----         ----

REVENUES:
<S>                                                        <C>          <C>       
    Interest income                                        $   44,000   $   43,000
    Dividend income                                           319,000      239,000
                                                           ----------   ----------
                                                              363,000      282,000
                                                           ----------   ----------
EXPENSES:
    Legal and accounting                                       25,000       55,000
    Other general and administrative expenses                  59,000       57,000
                                                           ----------   ----------
                                                               84,000      112,000
                                                           ----------   ----------

INCOME BEFORE EQUITY IN EARNINGS OF AFFILIATED COMPANIES                   170,000

INCOME ATTRIBUTED TO AFFILIATED COMPANY  (NOTE 2):
    Equity in earnings of affiliated company                     --         45,000
    Gain on sale of investment                                   --         47,000
                                                           ----------   ----------
                                                                 --         92,000
                                                           ----------   ----------

NET INCOME AND COMPREHENSIVE INCOME                        $  279,000   $  262,000
                                                           ==========   ==========

INCOME PER SHARE OF COMMON STOCK (BASIC AND DILUTED)       $      .11   $      .09
                                                           ==========   ==========

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING               2,640,000    2,922,000
                                                           ==========   ==========





              See accompanying notes to these financial statements.

                                       F-4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                          WORLD SERVICES, INC. AND SUBSIDIARIES

                                      STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                     FROM JANUARY 1, 1997 THROUGH DECEMBER 31, 1998



                                                               Additional
                                       COMMON STOCK              Paid-in       Treasury       Accumulated
                                  Shares          Amount         Capital         Stock           Deficit         Total
                                  ------          ------         -------         -----           -------         -----

<S>              <C>             <C>           <C>            <C>             <C>             <C>             <C>        
BALANCE, January 1, 1997         3,152,000     $     3,000    $ 6,547,000     $    (3,000)    $(5,305,000)    $ 1,242,000

 Common stock redeemed            (436,000)           --         (180,000)           --              --          (180,000)
 Treasury stock retired            (76,000)           --           (3,000)          3,000            --              --
 Net income                           --              --             --              --           262,000         262,000
                               -----------     -----------    -----------     -----------     -----------     -----------

BALANCE, December 31, 1997       2,640,000           3,000      6,364,000            --        (5,043,000)      1,324,000

 Net income                           --              --             --              --           279,000         279,000
                               -----------     -----------    -----------     -----------     -----------     -----------

BALANCE, December 31, 1998       2,640,000     $     3,000    $ 6,364,000     $      --       $(4,764,000)    $ 1,603,000
                               ===========     ===========    ===========     ===========     ===========     ===========







                                  See accompanying notes to these financial statements.

                                                          F-5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                           WORLD SERVICES, INC. AND SUBSIDIARIES

                                 STATEMENTS OF CASH FLOWS



                                                                         YEARS ENDED
                                                                         DECEMBER 31,
                                                                   ----------------------
                                                                      1998         1997
                                                                      ----         ----

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                <C>          <C>      
     Net income                                                    $ 279,000    $ 262,000
     Adjustments to reconcile net income to net cash provided by
         operating activities:
             Gain on sale of investment                                 --        (47,000)
             Equity in earnings of affiliate                            --        (45,000)
             Increase in other assets                                  5,000       (3,000)
             (Decrease) in accounts payable and accrued expenses      11,000         --
                                                                   ---------    ---------
         Net cash provided by operating activities                   295,000      167,000

CASH FLOWS FROM INVESTING ACTIVITIES:
     Cash from sale of First Savings & Loan investment                  --        427,000
     Redemption of United States Treasury note                       399,000         --
     Purchase of United States Treasury Note                            --       (399,000)
     Purchase of certificate of deposit                             (683,000)     (50,000)
                                                                   ---------    ---------
         Net cash used in investing activities                      (284,000)     (22,000)
                                                                   ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITY -
     Redemption of common stock                                      (29,000)    (107,000)
                                                                   ---------    ---------

INCREASE IN CASH AND CASH EQUIVALENTS                                (18,000)      38,000

CASH AND CASH EQUIVALENTS, at beginning of period                     66,000       28,000
                                                                   ---------    ---------

CASH AND CASH EQUIVALENTS, at end of period                        $  48,000    $  66,000
                                                                   =========    =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash payments for:
         Income taxes                                              $    --      $    --
                                                                   =========    =========

         Interest                                                  $    --      $    --
                                                                   =========    =========

     Noncash investing and financing activities:
         Unpaid portion of common stock redeemed                   $  44,000    $  73,000
                                                                   =========    =========

         Treasury stock retired                                    $    --      $   3,000
                                                                   =========    =========




                   See accompanying notes to these financial statements.

                                            F-6
</TABLE>
<PAGE>

                      WORLD SERVICES, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-----------------------------------------------------------------------

     Nature  of  Operations  -  World   Services,   Inc.  (the   "Company")  was
     incorporated in December 1979 as Midwest Management & Marketing Corporation
     and was renamed World  Services,  Inc. in July 1983. The Company was formed
     to invest in and manage companies primarily involved in the insurance, real
     estate,  and  financial  institution  industries,  along with other service
     industries.  The Company  divested itself of all operating  subsidiaries by
     1989 and currently holds one investment.

     The Company's  investment in First Savings & Loan  Association,  Inc. (FSL)
     (see Note 2) was stated at the  Company's  equity in net assets,  which was
     increased  or  decreased  for  dividends  paid to the  Company  and for the
     Company's share of equity in  undistributed  earnings of the investee based
     upon its  respective  fiscal  year-end of September  30.  During 1997,  the
     Company sold its  investment  in FSL. The  Company's  investment in Super 8
     Motel Developers, Inc. (S8MD) is carried at cost.

     Earnings Per Share - In 1997,  the  Financial  Accounting  Standards  Board
     issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
     Per Share.  SFAS No.  128  provides  for the  calculation  of  "basic"  and
     "diluted" earnings per share. Basic earnings per share includes no dilution
     and is computed by dividing income available to common  shareholders by the
     weighted  average  number  of common  shares  outstanding  for the  period.
     Diluted  earnings per share  reflects the potential  dilution of securities
     that  could  share  in  the  earnings  of an  entity.  The  Company  had no
     potentially  dilutive securities during 1998 or 1997 and as such, basic and
     dilutive  earnings  per share are the same for each year.  The  adoption of
     SFAS No. 128 had no effect on EPS for 1998 or 1997.

     Comprehensive  Income -  Comprehensive  income is defined as all changes in
     stockholders'  equity,  exclusive  of  transactions  with  owners,  such as
     capital  investments.  Comprehensive  income  includes  net income or loss,
     change in certain  assets and  liabilities  that are  reported  directly in
     equity  such  as   translation   adjustments   on  investments  in  foreign
     subsidiaries,  and  certain  changes in minimum  pension  liabilities.  The
     Company's  comprehensive income was equal to its net income for all periods
     presented in these financial statements.

     Cash Equivalents - For purposes of the statement of cash flows, the Company
     considers all highly  liquid debt  instruments  purchased  with an original
     maturity of three months or less to be cash equivalents.

     Use of Estimates - The preparation of the Company's financial statements in
     conformity  with  generally  accepted  accounting  principles  requires the
     Company's  management  to make  estimates and  assumptions  that affect the
     amounts  reported in these  financial  statements and  accompanying  notes.
     Actual results could differ from those estimates.

     Income Taxes - The Company  accounts  for income taxes under the  liability
     method,  which requires  recognition of deferred tax assets and liabilities
     for the expected future tax  consequences of events that have been included
     in the  financial  statements.  Under this method,  deferred tax assets and
     liabilities  are determined  based on the difference  between the financial
     statements and tax bases of assets and liabilities  using enacted tax rates
     in effect for the year in which the differences are expected to reverse.


                                       F-7

<PAGE>


                      WORLD SERVICES, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



     Impairment of Long-Lived  Assets - Effective  January 1, 1996,  the Company
     adopted  SFAS No. 121. In the event that facts and  circumstances  indicate
     that the cost of  long-lived  assets  may be  impaired,  an  evaluation  of
     recoverability  would be  performed.  If an  evaluation  is  required,  the
     estimated future undiscounted cash flows associated with the asset would be
     compared to the asset's  carrying  amount to determine  if a write-down  to
     market value or  discounted  cash flow value is required.  Adoption of SFAS
     121 had no effect on the financial statements.

     Recently Issued  Accounting  Pronouncements - SFAS No. 133,  Accounting for
     Derivative  Instruments  and Hedging  Activities,  was issued in June 1998.
     This  statement   establishes   accounting  and  reporting   standards  for
     derivative  instruments  and for hedging  activities.  It requires  that an
     entity  recognize all  derivatives  as either assets or  liabilities in the
     statement  of  financial  position and measure  those  instruments  at fair
     value. This statement is effective for the Company's  financial  statements
     for the year ended  December 31, 2001 and the adoption of this  standard is
     not  expected  to  have  a  material  effect  on  the  Company's  financial
     statements.

     SFAS  No.   132,   Employers'   Disclosures   about   Pensions   and  Other
     Postretirement  Benefits,  was  issued in  February  1998.  This  statement
     revises the disclosure  requirement  for pensions and other  postretirement
     benefits.   This  statement  is  effective  for  the  Company's   financial
     statements  for the year ended  December  31, 1999 and the adoption of this
     standard  is not  expected  to  have a  material  effect  on the  Company's
     financial statements.


2. INVESTMENTS IN COMPANIES:
----------------------------

     Prior to the sale of the  Company's  investment  in FSL  during  1997,  the
     Company owned approximately 22% of FSL (formerly Midwest Savings and Loan).
     The investment was accounted for under the equity method of accounting. The
     Company  received  $-0- in  dividends  during  1997.  The Company  sold its
     investment in FSL during 1997 for $427,000 and recognized a gain on sale of
     $47,000.

     The Company also owns  approximately 16% of the outstanding common stock of
     S8MD.  The  investment  is  accounted  for  under  the cost  method,  which
     management believes is less than its market value. S8MD is a privately held
     company, for which the Company does not exercise significant influence. The
     Company  recorded  approximately  $319,000 and $239,000 in dividend  income
     from S8MD during 1998 and 1997, respectively.


                                       F-8

<PAGE>

                      WORLD SERVICES, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



     The financial  statements  of FSL and S8MD were audited by other  auditors.
     Summarized  statements  of  financial  information  for FSL and S8MD are as
     follows:

                    SUMMARIZED FINANCIAL INFORMATION FOR FSL
                    ----------------------------------------
                               (Amounts in 000's)

                                                  FOR THE
                                                YEARS ENDED
                                               SEPTEMBER 30,
                                                   1997
                                                   ----

                       Total assets               $   *
                                                  =======
                       Total liabilities          $   *
                                                  =======
                       Stockholders' equity       $   *
                                                  =======
                       Net income                 $   205
                                                  =======

     ------------------------

     *These amounts are not  considered  relevant since the Company had sold its
     investment in FSL by December 31, 1997.


                    SUMMARIZED FINANCIAL INFORMATION FOR S8MD
                    -----------------------------------------
                               (Amounts in 000's)


                                             FOR THE YEARS ENDED
                                                 DECEMBER 31
                                              ------------------
                                               1998       1997
                                               ----       ----

                 Total assets                 $30,080   $30,269
                                              =======   =======

                 Total liabilities            $26,058   $26,161
                                              =======   =======

                 Total stockholders' equity   $ 4,022   $ 4,108
                                              =======   =======

                 Revenues                     $16,992   $15,625
                                              =======   =======

                 Expenses                     $15,125   $14,419
                                              =======   =======

                 Net income                   $ 1,867   $ 1,206
                                              =======   =======


                                       F-9

<PAGE>


                      WORLD SERVICES, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



3. FAIR VALUE OF FINANCIAL INSTRUMENTS:
---------------------------------------

     The  estimated  fair  values  for  financial  instruments  under  Financial
     Accounting  Standards  No. 107,  Disclosures  about Fair value of Financial
     Instruments,  are  determined at discrete  points in time based on relevant
     market  information.  These estimates  involve  uncertainties and cannot be
     determined  with  precision.  The  estimated  fair  value of the  Company's
     certificates  of deposit  approximate  their  carrying value because of the
     short  maturity  of  these  instruments.  The fair  value of the  Company's
     investment in S8MD is determined on the basis of  comparisons  with similar
     companies  whose shares are publicly  traded.  Based on these  comparisons,
     return  on  investment,  and  percentage  ownership  in the  equity of S8MD
     management believes its cost basis is less than the market value.  However,
     because of a lack of  marketability  of the S8MD  shares and the  Company's
     lack of control over S8MD,  management  believes it is difficult to provide
     an estimate as to the fair value of its S8MD shares.


4. CONCENTRATION OF CREDIT RISK:
--------------------------------

     Credit risk  represents the accounting loss that would be recognized at the
     reporting  date  if   counterparties   failed   completely  to  perform  as
     contracted. Concentrations of credit risk (whether on or off balance sheet)
     that arise from  financial  instruments  exist for groups of  customers  or
     counterparties when they have similar economic  characteristics  that would
     cause  their  ability  to  meet  contractual  obligations  to be  similarly
     effected by changes in economic or other  conditions  described  below.  In
     accordance  with  Financial  Accounting  Standards  No. 105,  Disclosure of
     Information  about Financial  Instruments with  Off-Balance-Sheet  Risk and
     Financial  Instruments with  Concentrations of Credit Risk, the credit risk
     amounts  shown do not take  into  account  the value of any  collateral  or
     security.


5. INCOME TAXES:
----------------

     The  Company's  actual  effective  income  tax rate  differs  from the U.S.
     Federal corporate income tax rate of 34% as follows:


                                                   December 31,
                                                   ------------
                                                   1998    1997
                                                   ----    ----

                Statutory Rate                      34%     34%
                Dividend treatment for tax         (24%)   (21%)
                Reduction in valuation allowance   (10%)   (13%)
                                                   ---     ---

                Effective tax rate                   0%      0%
                                                   ===     ===



                                      F-10

<PAGE>

                      WORLD SERVICES, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



     Long-term deferred tax assets (liabilities) are comprised of the following:


                                                            December 31,
                                                     --------------------------
                                                        1998            1997
                                                        ----            ----

Net operating loss carryforward and investment tax   $ 1,131,000    $ 1,154,000
    credit carryforwards

Less valuation allowance                              (1,131,000)    (1,154,000)
                                                     -----------    -----------

                                                     $      --      $      --
                                                     ===========    ===========


     As of December 31, 1997, the Company has net operating  loss  carryforwards
     for income tax  purposes of  $3,250,000  which  expire in the years 1999 to
     2011. The net operating loss  carryforwards  may be limited with respect to
     their  availability  due to prior  ownership  changes and the  consolidated
     return   regulations.   In  addition,   there  are  investment  tax  credit
     carryforwards  of  $28,000.  The  change  in  the  deferred  tax  valuation
     allowance from 1997 to 1998 was a decrease of $23,000.


6. STOCKHOLDERS' EQUITY:
------------------------

     In May  1980,  the 32  promoters  of the  Company  entered  into an  escrow
     agreement  restricting  the sale of their shares (total of 429,424  shares)
     until  the  Company  generates   earnings  per  share  of  $.10  (based  on
     approximately 1.1 million outstanding shares) for three years, two of which
     must be consecutive.  An additional 147,000 shares issued to an officer and
     director,  are also restricted under the escrow agreement.  The Division of
     Securities in 1986 released 66,962 shares that were issued to a founder and
     were sold on a bankruptcy  auction.  The remaining 421,286 shares are to be
     held in escrow until the above conditions are met.

     During 1997, the Company declared a 1 for 510 reverse stock split and a 300
     for 1 forward stock split.  Accordingly,  all common stock reflected in the
     financial statements and accompanying notes reflect the effect of the split
     and reverse  split.  As a result of the reverse  stock  split,  the Company
     redeemed  and retired  approximately  436,000  shares of post split  common
     stock at approximately $.43 per share.

     During 1997, the Company  retired  approximately  76,000 shares of treasury
     stock.


                                      F-11
<PAGE>



                         SUPER 8 MOTEL DEVELOPERS, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997





<PAGE>


SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES

Table of Contents

--------------------------------------------------------------------------------
                                                                           Page
                                                                           ----

INDEPENDENT AUDITOR'S REPORT                                                 1

FINANCIAL STATEMENTS
     Consolidated Balance Sheets                                             3
     Consolidated Statements of Operations                                   4
     Consolidated Statements of Stockholders' Equity                         5
     Consolidated Statements of Cash Flows                                   6
     Notes to Consolidated Financial Statements                              8


<PAGE>


                          INDEPENDENT AUDITOR'S REPORT
--------------------------------------------------------------------------------


To the Board of Directors
Super 8 Motel Developers, Inc.
Aberdeen, South Dakota

We have audited the accompanying  consolidated historical cost balance sheets of
Super 8 Motel Developers, Inc. and Subsidiaries as of December 31, 1998 and 1997
and the related consolidated statements of operations, stockholders' equity, and
cash  flows  for the  years  then  ended.  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  historical cost financial statements referred
to above present fairly,  in all material  respects,  the financial  position of
Super 8 Motel Developers, Inc. and Subsidiaries as of December 31, 1998 and 1997
and the  results  of their  operations  and their  cash flows for the years then
ended in conformity with generally accepted accounting principles.

We have also  compiled the  supplemental  current value balance sheet of Super 8
Motel  Developers,  Inc.  and  Subsidiaries  as of December 31, 1998 and 1997 in
accordance  with standards  established  by the American  Institute of Certified
Public Accountants.

A compilation is limited to presenting information that is the representation of
management in the form of financial statements.  We have not audited or reviewed
the current value balance sheets and, accordingly,  do not express an opinion or
any other form of assurance on them.


                                       1
<PAGE>


As described in Note 15 to the balance  sheet,  the  supplemental  current value
balance  sheets have been prepared by management to present  relevant  financial
information  that is not provided by the historical  cost balance sheets and are
not  intended  to  be a  presentation  in  accordance  with  generally  accepted
accounting  principles.  In addition,  the  supplemental  current  value balance
sheets do not  purport to present  the net  realizable,  liquidation,  or market
value of the Company as a whole. Furthermore, amounts ultimately realized by the
Company  from the  disposal  of assets may vary  significantly  from the current
values presented.


/s/ Eide Bailey, LLP
--------------------

Aberdeen, South Dakota
February 25, 1999



                                       2
<PAGE>

<TABLE>
<CAPTION>

SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997

--------------------------------------------------------------------------------------------------------------------


ASSETS

                                                              1998                                 1997
                                                  ------------------------------      ------------------------------
                                                  Supplemental                        Supplemental
                                                     Current                             Current
                                                      Value          Historical           Value          Historical
                                                    (Note 15)           Cost            (Note 15)            Cost
                                                   -----------       -----------       -----------       -----------
                                                   (Compiled)                          (Compiled)
<S>                                                <C>               <C>               <C>               <C>        
CASH AND CASH
  EQUIVALENTS                                      $ 2,146,547       $ 2,146,547       $ 1,774,655       $ 1,774,655
                                                   -----------       -----------       -----------       -----------

RECEIVABLES
  Trade                                                263,479           263,479           291,367           291,367
  Note                                                    --                --             130,260           130,260
  Other                                                 22,699            22,699            20,517            20,517
                                                   -----------       -----------       -----------       -----------
                                                       286,178           286,178           442,144           442,144
                                                   -----------       -----------       -----------       -----------

PREPAID EXPENSES                                       184,518           184,518           201,648           201,648
                                                   -----------       -----------       -----------       -----------

INVESTMENT IN LIMITED
  PARTNERSHIPS                                         338,136           338,136           469,523           469,523
                                                   -----------       -----------       -----------       -----------

MOTEL PROPERTIES AND
  EQUIPMENT, NET                                    49,301,000        24,551,681        45,239,000        25,212,737
                                                   -----------       -----------       -----------       -----------

OTHER ASSETS
  Developed outlots                                    377,446           377,446              --                --
  Unamortized sub-franchise rights                   1,605,000              --           1,491,000              --
  Unamortized financing costs                             --           1,269,447              --           1,381,353
  Unamortized franchise fees                              --             149,450              --             168,803
  Restricted cash                                      677,154           677,154           608,995           608,995
  Other                                                 99,633            99,633             9,150             9,150
                                                   -----------       -----------       -----------       -----------
                                                     2,759,233         2,573,130         2,109,145         2,168,301
                                                   -----------       -----------       -----------       -----------

                                                   $55,015,612       $30,080,190       $50,236,115       $30,269,008
                                                   ===========       ===========       ===========       ===========



See Notes to Consolidated Financial Statements.


                                       2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------


LIABILITIES AND STOCKHOLDERS' EQUITY

                                                       1998                                  1997
                                         -------------------------------       ---------------------------------
                                         Supplemental                          Supplemental
                                           Current                                Current
                                            Value            Historical            Value             Historical
                                          (Note 15)             Cost             (Note 15)              Cost
                                         -----------         -----------         ----------          -----------
                                         (Compiled)                              (Compiled)

LIABILITIES
<S>                                      <C>                 <C>                 <C>                 <C>        
  Accounts payable and
   accrued expenses, other
   than income taxes                     $   638,907         $   638,907         $   628,285         $   628,285
  Income taxes                                34,642              34,642
  Notes payable                           25,354,656          25,354,656          25,491,613          25,491,613
  Deferred income taxes                       30,000              30,000              41,000              41,000
  Income taxes and sales
    commissions on realization
    of estimated values                    9,486,200                --             7,713,900                --
                                         -----------         -----------         -----------         -----------
                                          35,544,405          26,058,205          33,874,798          26,160,898
                                         -----------         -----------         -----------         -----------


COMMITMENTS AND
  CONTINGENCIES                                 --                  --                  --                  --
                                         -----------         -----------         -----------         -----------

STOCKHOLDERS' EQUITY
  Common stock: authorized
    500,000,000 shares, $.10 par
    value; issued and outstanding,
    4,882,508 shares                         488,251             488,251             488,251             488,251
  Additional paid-in capital               2,279,628           2,279,628           2,279,628           2,279,628
  Retained earnings                        1,254,106           1,254,106           1,340,231           1,340,231
  Unrealized appreciation                 15,449,222                --            12,253,207                --
                                         -----------         -----------         -----------         -----------
                                          19,471,207           4,021,985          16,361,317           4,108,110
                                         -----------         -----------         -----------         -----------

                                         $55,015,612         $30,080,190         $50,236,115         $30,269,008
                                         ===========         ===========         ===========         ===========




See Notes to Consolidated Financial Statements.


                                       3
</TABLE>
<PAGE>


SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997

--------------------------------------------------------------------------------


                                                          1998           1997
                                                       -----------   -----------
OPERATIONS

REVENUES
  Motel revenues                                       $15,601,862   $14,428,933
  Motel management fees                                    328,328       325,933
  Accounting fees                                           86,400        82,080
  Sub-franchise fees                                       345,226       434,833
  Equity in net income of limited partnerships              71,189        59,260
  Interest income                                          207,504       221,409
  Other income                                              70,380        54,295
  Net gain on disposal of assets                           281,561        18,339
                                                       -----------   -----------
                                                        16,992,450    15,625,082
                                                       -----------   -----------

COSTS AND EXPENSES
  Operating expenses:
    Motel operating and management expenses              9,928,316     9,657,784
    Administration expenses                                414,759       390,807
                                                       -----------   -----------
                                                        10,343,075    10,048,591
  Interest                                               2,244,378     2,235,203
                                                       -----------   -----------
                                                        12,587,453    12,283,794
                                                       -----------   -----------

    Income before depreciation and amortization          4,404,997     3,341,288

  Depreciation and amortization                          1,293,119     1,329,954
                                                       -----------   -----------

INCOME BEFORE INCOME TAXES                               3,111,878     2,011,334

PROVISION FOR INCOME TAXES                               1,245,000       805,000
                                                       -----------   -----------

NET INCOME                                             $ 1,866,878   $ 1,206,334
                                                       ===========   ===========


See Notes to Consolidated Financial Statements.

                                       4
<PAGE>


SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997

--------------------------------------------------------------------------------

                                                      Additional
                                        Common         Paid-in        Retained
                                         Stock         Capital        Earnings
                                      -----------    -----------    -----------

BALANCE, JANUARY 1, 1997              $   488,251    $ 2,279,628    $ 1,598,649

CASH DIVIDENDS                               --             --       (1,464,752)

NET INCOME                                   --             --        1,206,334
                                      -----------    -----------    -----------

BALANCE, DECEMBER 31, 1997                488,251      2,279,628      1,340,231

CASH DIVIDENDS                               --             --       (1,953,003)

NET INCOME                                   --             --        1,866,878
                                      -----------    -----------    -----------

BALANCE, DECEMBER 31, 1998            $   488,251    $ 2,279,628    $ 1,254,106
                                      ===========    ===========    ===========




See Notes to Consolidated Financial Statements.

                                       5

<PAGE>
<TABLE>
<CAPTION>


SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997

----------------------------------------------------------------------------------

                                                           1998           1997
                                                        -----------    -----------

OPERATING ACTIVITIES
<S>                                                     <C>            <C>        
  Net income                                            $ 1,866,878    $ 1,206,334
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation                                          1,174,538      1,213,440
    Amortization                                            118,581        116,514
    Net gain on disposal of property and other assets      (281,561)       (18,339)
    Allocation of net income of limited partnerships        (71,189)       (59,260)
    Deferred income taxes                                   (11,000)        49,000
    Changes in assets and liabilities:
      Accounts and notes receivable                         155,966            391
      Net repayments from limited partnerships              133,678        317,435
      Prepaid expenses                                       17,130         32,012
      Other assets                                         (158,693)       126,878
      Accounts payable and accrued expenses                  45,264        (90,182)
                                                        -----------    -----------

NET CASH FROM OPERATING ACTIVITIES                        2,989,592      2,894,223
                                                        -----------    -----------

INVESTING ACTIVITIES
  Distributions from limited partnerships                    68,898         35,343
  Payments for motel properties and equipment            (1,962,621)    (1,535,709)
  Proceeds from sale of property and equipment            1,365,983        735,743
                                                        -----------    -----------

NET CASH USED BY INVESTING ACTIVITIES                      (527,740)      (764,623)
                                                        -----------    -----------

FINANCING ACTIVITIES
  Proceeds from notes payable                             1,159,682        520,317
  Financing costs                                              --          (64,307)
  Principal payments on notes payable                    (1,296,639)      (551,654)
  Cash dividends paid                                    (1,953,003)    (1,464,752)
                                                        -----------    -----------

NET CASH USED BY FINANCING ACTIVITIES                    (2,089,960)    (1,560,396)
                                                        -----------    -----------




(continued on next page)        

                                        6

</TABLE>

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS - page 2

--------------------------------------------------------------------------------


                                                          1998           1997
                                                       ----------     ----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                   371,892        569,204

CASH AND CASH EQUIVALENTS
   AT BEGINNING OF YEAR                                 1,774,655      1,205,451
                                                       ----------     ----------

CASH AND CASH EQUIVALENTS AT END OF YEAR               $2,146,547     $1,774,655
                                                       ==========     ==========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION
    Cash paid for interest                             $2,247,260     $2,237,529
    Cash paid for income taxes                          1,186,719        726,535
                                                       ==========     ==========



See Notes to Consolidated Financial Statements.

                                       7
<PAGE>


SUPER 8 MOTEL DEVELOPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------


NOTE 1 - PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

Principal Business Activity

Super 8 Motel  Developers,  Inc. and Subsidiaries (the Company) was organized in
April 1984, and is engaged in the business of  developing,  owning and operating
Super 8 Motels,  primarily in the States of Virginia,  West Virginia,  Maryland,
Delaware and the District of Columbia.

The essential nature of the Company's operation is such that current obligations
must be liquidated  out of future  revenues to be derived from the rental of its
motel  properties.  Therefore,  assets are essentially  reflected in the balance
sheet in relative  order of  liquidity  and  liabilities  in  relative  order of
currency.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned  subsidiaries.   All  significant  intercompany  accounts  and
transactions have been eliminated.

Cash and Cash Equivalents

For the purpose of reporting  cash flows,  the Company  considers  time deposits
with a maturity of three months or less, cash held as compensating balances, and
bank repurchase agreements to be cash equivalents.

Receivables

The Company grants credit to customers in the Virginia, West Virginia, Maryland,
Delaware and District of Columbia areas. The direct write-off method is used for
recognizing bad debt expense.

Motel Properties and Equipment

These assets are stated at cost less any impairment  losses relating to FAS 121.
Expenditures  for  renewals  and  improvements  that  significantly  add  to the
productive  capacity  or extend  the  useful  life of an asset are  capitalized.
Expenditures for maintenance and repairs are charged to expense currently.  When
depreciable  properties  are retired or sold,  the cost and related  accumulated
depreciation  are eliminated from the accounts and the resultant gain or loss is
reflected in income.

Depreciation  is provided for over the estimated  useful lives of the individual
assets using the straight-line  method.  The range of the estimated useful lives
used in the computation of depreciation is as follows:

                  Motel buildings and improvements          10-40 years
                  Furniture, fixtures and equipment          3- 7 years

Sub-Franchise Rights

This cost is being  written-off on the  straight-line  basis over ten years. The
territorial  rights are subject to certain terms and  conditions as set forth in
the agreement.

                                       8
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


Financing Costs

Financing  costs  consist of direct  costs,  such as loan fees,  legal costs and
commitment fees,  associated with obtaining financing for motel properties.  The
costs are being  amortized using the  straight-line  method over the term of the
loan.

Franchise Fees

Franchise fees consist of the amounts paid to Super 8 Motels, Inc. for the right
to use the  Franchisor's  trademark.  These fees are being  amortized  using the
straight-line method over the term of the franchise agreements, twenty years.

Investments in Limited Partnerships

The  Company's  investments  in the  limited  partnerships  are  stated at cost,
adjusted  for the  Company's  share of  partnership  earnings  or  losses,  cash
distributions  received,  unrecognized gain on sale of the property and advances
made to supplement operations of the partnerships.

Deferred Income Taxes

Deferred taxes arise primarily from differences in recognizing income from sales
of motel  properties,  depreciation  methods  and  asset  lives for book and tax
reporting purposes.

Advertising Costs

The  Company  expenses  all  advertising  costs  as  they  are  incurred.  Total
advertising  costs for the years ended  December 31, 1998 and 1997 were $362,228
and $462,069, respectively.

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.


NOTE 2 - CASH AND CASH EQUIVALENTS

At December 31, 1998 and 1997, the carrying  amount of the Company's  total cash
and cash equivalents was $2,146,547 and $1,774,655,  respectively.  In addition,
the  Company  considers  as cash  equivalents  its share of  deposits  held in a
combined cash account with related  parties.  Accordingly,  the  Company's  cash
equivalents  may be  affected  by  negative  cash  balances  of related  parties
included in the combined account (see Note 14).

The Company  maintains its  temporary  cash with high credit  quality  financial
institutions  and limits the amount of credit  exposure  through the use of bank
repurchase  agreements  which  are  collateralized  by  United  States  treasury
securities. At times, cash on deposit may exceed the federally insured limit.

                                       9
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 3 - NOTES RECEIVABLE

At December 31, 1997, the Company had a contract  receivable from the purchasers
of its Dumfries,  Virginia motel property.  The note accrued interest at 10% and
was paid in full during 1998.


NOTE 4 - INVESTMENT IN LIMITED PARTNERSHIPS

At  December  31,  1998,  the  Company  was a general  partner  in nine  limited
partnerships,  all of which were formed for the purpose of owning and  operating
Super 8 Motels. The Company's  investment is increased for its share of earnings
and  any  advances  to the  partnerships  which  are  made  for the  purpose  of
supplementing  operations and, in one instance,  to guarantee cash distributions
to its limited partners. Any advances to the partnerships are unsecured,  due on
demand,  and bear  interest  at  variable  rates,  currently  2.0% to 8.5%.  The
Company's  investment is decreased by its share of  partnership  losses and cash
distributions  received.  The investment is also increased by syndication  costs
incurred and decreased by  unrecognized  gains on the sale of the  property.  At
December 31, 1998 and 1997,  syndication  costs  incurred  totaled  $179,521 and
unrecognized gains on the sale of property totaled $744,253.  The following is a
schedule of the Company's  investments in limited  partnerships  at December 31,
1998 and 1997:

                    Location                    1998         1997
                    --------                    ----         ----

            Aberdeen, Maryland              $ (40,873)   $ (40,822)
            Bristol, Virginia                 (60,841)     (62,244)
            Culpeper, Virginia                 (7,532)      12,850
            Farmville, Virginia               (19,441)      28,217
            Fredericksburg/
             Waynesboro, Virginia             (12,065)     (10,832)
            Havre de Grace, Maryland          263,101      282,004
            Richmond Airport/
             Harrisonburg, Virginia           (12,009)     (11,287)
            Richmond Broad St., Virginia/
             Martinsburg, West Virginia       159,664      149,634
            Richmond Midlothian, Virginia      68,132      122,003
                                            ---------    ---------

                                            $ 338,136    $ 469,523
                                            =========    =========


                                       10
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


The condensed  combined  financial  information  on the above  investments is as
follows:

                                            December 31,  December 31,
                                                1998          1997
                                                ----          ----

           Assets                           $14,677,510   $15,050,286
                                            ===========   ===========

           Liabilities                      $11,988,219   $12,242,642
           Partners' equity                   2,689,291     2,807,644
                                            -----------   -----------

                                            $14,677,510   $15,050,286
                                            ===========   ===========
           Net income before depreciation
             and amortization               $ 1,218,663   $ 1,235,910
                                            ===========   ===========

           Net income                       $   481,197   $   524,064
                                            ===========   ===========


NOTE 5 - MOTEL PROPERTIES AND EQUIPMENT

The Company's property and equipment  consisted primarily of 28 operating motels
as of December 31, 1998 and 1997, and one motel under  construction  at December
31, 1997.

                                                 1998          1997
                                                 ----          ----

         Land                                $ 6,183,887   $ 6,804,514
         Motel buildings and improvements     24,184,699    23,352,708
         Furniture, fixtures and equipment     6,713,237     6,424,241
                                             -----------   -----------
                                              37,081,823    36,581,463
         Less accumulated depreciation        12,530,142    11,941,181
                                             -----------   -----------
                                              24,551,681    24,640,282
         Construction in progress                   --         572,455
                                             -----------   -----------

                                             $24,551,681   $25,212,737
                                             ===========   ===========


NOTE 6 - SUB-FRANCHISE RIGHTS

The  sub-franchise  rights,  acquired July 11, 1984 for $250,000,  was an amount
paid to Super 8 Motels, Inc. for the exclusive rights in the states of Virginia,
West  Virginia,  Maryland,  Delaware and the District of Columbia to  construct,
own, and operate motels using the Super 8 name and to represent  Super 8 Motels,
Inc. in the sale of franchises within said territory.

Significant terms of the agreement and amendments thereto are as follows:

a.   The term of the agreement is 20 years from the date of execution.

b.   The initial  franchise  fee payable by motels,  which are owned at least 51
     percent by the Company, is $10,000.


                                       11
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


c.   The Company is to receive one-third of the initial franchise fee, presently
     $20,000, of each franchise sold by the Super 8 system in said territory.

d.   Under the current franchise agreement of Super 8 Motels,  Inc., a specified
     percentage of the annual gross room rentals of each operating unit is to be
     tendered  to  Super 8  Motels,  Inc.  as a fee for  services  rendered  and
     royalties.  The Company will  receive from Super 8 Motels,  Inc. 25% of the
     fee received from each motel located in the territory as  compensation  for
     services rendered.  Those payments are to continue from the date such motel
     unit in said territory  first  commences  monthly  royalty  payments for 10
     years for motels  open on or before  July 11,  1990 and 15 years for motels
     opened after July 11, 1990.

Sub-franchise  fee income  under this  agreement  totaled  $345,226 and $434,833
during the years ended December 31, 1998 and 1997.


NOTE 7 - NOTES PAYABLE

The Company's  long-term debt consists of mortgage notes  collateralized by real
estate,  furniture,  fixtures  and  equipment.  The notes  which  have fixed and
variable  rates  ranging  from 7.75% to 8.68% are  generally  payable in monthly
installments  and due at  varying  dates  through  2016.  The  weighted  average
interest rate of the notes was 8.57% and 8.76% as of December 31, 1998 and 1997,
respectively.

Approximate principal maturities during the next five years are as follows:

                       1999                 $    745,800
                       2000                      812,100
                       2001                    1,300,500
                       2002                      919,600
                       2003                    1,929,000

At December 31, 1997, the Company had one motel under construction.  The Company
had a  construction  and permanent  financing  commitment of $1,680,000 of which
only  $520,317 had been drawn against the  construction  loan as of December 31,
1997. Interest expense capitalized totaled $34,583 and $12,046 in 1998 and 1997,
respectively.


NOTE 8 - LAND LEASE

In July 1987, the Company entered into an agreement to lease a parcel of land on
which it has  developed a motel.  The initial  term of the lease is 60 years and
called for initial rental of $35,200 per year.  The lease  payments  increase by
10% at the end of five  years  and by 10% at the  end of each  five-year  period
thereafter  throughout the term of the lease. The lease also requires contingent
rental  payments  equal to two and  one-half  percent of the amount by which the
motel's gross sales exceed $1,200,000. For the years ended December 31, 1998 and
1997, there were no payments  required under this provision as the motel's sales
did not exceed $1,200,000.


                                       12
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


Future  minimum  payments for the initial term as of December 31, 1998 under the
lease are as follows:

                       1999                    $    42,592
                       2000                         42,592
                       2001                         42,592
                       2002                         43,657
                       2003                         46,851
                    Thereafter                   3,122,461
                                                 ---------
                                               $ 3,340,745
                                               ===========

Lease  expense  for the years ended  December  31, 1998 and 1997 was $42,592 and
$39,688, respectively.


NOTE 9 - RELATED PARTY TRANSACTIONS AND OTHER AGREEMENTS

The Company  conducts  business  with a major  shareholder  and certain  limited
partnerships (see Note 4).

The following is a summary of transactions with related parties:

                                                1998       1997
                                                ----       ----
              Revenues:
                Management fees               $328,328   $325,933
                Accounting fees                 86,400     82,080
                Interest income                 71,740    107,018

              Costs and expenses:
                Travel and meeting expenses     34,508     12,958
                Office rent                     47,345     46,288


NOTE 10 - FRANCHISE AGREEMENTS

The Company's  wholly-owned  subsidiaries operate Super 8 motels under franchise
agreements with Super 8 Motels, Inc. As part of the agreement,  the subsidiaries
are obligated to pay Super 8 Motels,  Inc. room  royalties  equal to 4% of total
room rental revenues and 1% or 2% of room rentals as a national  advertising and
reservation  fee.  Certain  subsidiaries  are  obligated  under their  franchise
agreement  to  contribute  an  additional  1%  of  room  revenues   towards  the
Franchisor's  national media campaigns.  The Company  participated in a national
media  campaign  sponsored by Super 8 Motels,  Inc. under which 26 of its motels
contributed an additional 1% of room revenues through December 31, 1997.

The following is a summary of fees paid under the franchise agreements:

                                                      1998       1997
                                                      ----       ----

        Royalty fees                                $611,762   $566,414
        National advertising and reservation fees    267,967    244,763
        National media fees                           11,544    141,603


                                       13

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


The  franchise  agreements  also  place  restrictions  on  the  transfer  of the
franchise and the sale or lease of the motel  without  prior written  consent of
the franchisor.


NOTE 11 - LIFE INSURANCE

The  Company  is the owner and  beneficiary  of two  $1,000,000  life  insurance
policies insuring the lives of its president and chief executive officer.


NOTE 12 - INCOME TAXES

The provision for income taxes consists of the following components:

                                           1998           1997
                                           ----           ----

               Current taxes           $ 1,256,000    $   756,000
               Deferred income taxes       (11,000)        49,000
                                       -----------    -----------

                                       $ 1,245,000    $   805,000
                                       ===========    ===========

A  deferred  tax  liability  has  been  recognized  for  the  taxable  temporary
differences  related to different  depreciation  methods for  financial  and tax
purposes.  The  deferred  tax  liability  as of  December  31, 1998 and 1997 was
$30,000 and $41,000, respectively.


NOTE 13 - STOCK OPTION AGREEMENTS

The Company had entered into stock  option  agreements  with  various  employees
which allow the employees to purchase  shares of the  Company's  common stock at
fair market  value.  No options  were  exercised in 1998 or 1997 and options for
21,178 and 34,411  shares  expired  during  1998 and 1997,  respectively.  As of
December 31, 1998, no options remain.


NOTE 14 - COMMITMENTS AND CONTINGENCIES

The Company,  as general partner,  is contingently liable for liabilities of the
limited  partnerships  as listed in Note 4. The  balance of the  mortgage  notes
totaled approximately $3,691,000 at December 31, 1998. Management believes these
obligations are adequately secured by the underlying collateral.

The Company maintains a combined bank account for the limited partnership motels
managed by the  Company  (see  Notes 4 and 9). As such,  the  overdrafts  of one
partnership  are offset by cash balances of the Company and other  partnerships.
Upon  dissolution  of the  combined  bank  account or sale or  liquidation  of a
partnership  with a positive  cash  balance,  the  Company may be liable for any
unfunded positive balances.  The December 31, 1998 and 1997 balances relating to
these entities totaled approximately $714,200 and $560,800,  respectively. These
balances are not included in the consolidated balance sheet.



                                       14
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


The Company and subsidiaries are also subject to claims and lawsuits which arise
primarily in the ordinary  course of business.  It is the opinion of  management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material  adverse effect on the  consolidated  financial  position of the
Company.


NOTE 15 - CRITERIA USED IN THE SUPPLEMENTAL CURRENT VALUE PRESENTATION
  (COMPILED)

A  variety  of  criteria  may  be  used  in the  preparation  of  current  value
presentations;  accordingly, the criteria used could vary from one enterprise to
another.  The supplemental current value balance sheets have been prepared using
the criteria which the Company  believes are  appropriate in the  circumstances.
The  supplemental  current  value  balance  sheets  present  relevant  financial
information  that is not provided by the  historical  cost balance sheets and is
not  intended  to  be a  presentation  in  conformity  with  generally  accepted
accounting  principles.  The supplemental  current value amounts are intended to
represent  normal  exchange  prices of the  tangible net assets.  Current  value
amounts are not  intended to  represent  amounts that might result from a forced
sale of the net  assets,  nor do  such  amounts  contemplate  the  value  of the
business  which  might  include  identifiable  and  unidentifiable  intangibles.
Amounts  that may  ultimately  be realized by the Company  from the  disposal of
assets may vary significantly from the current values presented. Because current
values are not presented for certain properties under development, current-value
equity does not  necessarily  represent the market value of the net assets or of
the  Company  as  a  whole.  Therefore,  the  current  value  presentation  is a
supplement  to, and not a  replacement  for, the  historical  cost basis balance
sheet.  The preceding notes to balance sheet should be read in conjunction  with
the supplemental current value presentation.

Management's estimates of unrealized appreciation at December 31, 1998 and 1997,
are summarized as follows:    

                                                  1998          1997
                                                  ----          ----

        Motel properties                      $49,301,000   $45,239,000
        Sub-franchise rights                    1,605,000     1,491,000
                                              -----------   -----------
                                               50,906,000    46,730,000
        Less:
           Historical cost basis               25,970,578    26,762,893

           Sales commissions on realization
              of estimated current values       1,527,200     1,401,900
                                              -----------   -----------
                                               23,408,222    18,565,207
           Income taxes on realization of
              estimated current values          7,959,000     6,312,000
                                              -----------   -----------

           Unrealized appreciation            $15,449,222   $12,253,207
                                              ===========   ===========



                                       15
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


Assumptions for current value estimates:

     Assets and liabilities included in current value estimation:
     ------------------------------------------------------------

     The current value  computation of assets is limited to operating motels (28
     at December 31, 1998 and 1997),  one motel under  construction  at December
     31, 1997 and the Company's  sub-franchise  rights for all Super 8 Motels in
     its territory.

     General business intangibles,  such as financing costs,  franchise fees and
     organization  costs have not been carried  forward from the historical cost
     basis to the  supplemental  current  value  presentation.  Other assets and
     liabilities  have not been  revalued  since  the  historical  cost of those
     assets and the  recorded  basis of those  liabilities  approximate  current
     values.

     The current value of the operating  motel  properties  open longer than one
     year was determined by capitalizing adjusted net income at 11.5% and 12% in
     1998 and 1997,  respectively.  Adjusted  net income  consists of net income
     before debt service,  amortization  and  depreciation.  The Company's motel
     under  construction was valued at historical cost at December 31, 1997. For
     any motel which was open less than one year (one at December  31, 1998) the
     Company used the appraised value as its current value.

     Sub-franchise rights:
     ---------------------

     The Company receives from Super 8 Motels,  Inc. (the franchisor) 25% of the
     annual royalty fees Super 8 Motels,  Inc.  receives from each motel located
     in  the  Company's  territory.  Estimates  of the  current  value  of  this
     agreement  are based upon the present value (using an interest rate of 10%)
     of future  estimated  cash flows from royalty  fees under the  agreement on
     operating motels in the Company's territory.

     Income taxes and sales  commissions  on  realization  of estimated  current
     values:
     ---------------------------------------------------------------------------
     
     Even  though  the  Company  does  not  anticipate  a sale  of its  property
     interests,  a provision of 3% of the estimated  gross current value of such
     interests has been made for estimated sales costs which would be payable on
     realization  of the  current  values.  Likewise,  income  taxes  have  been
     provided at an assumed rate of 34% of the estimated current value in excess
     of historical cost.



                                     # # # #


                                       16