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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended February 28, 1998.
___ Transition report pursuant to Section 13 or 15(d) of the Exchange Act.
For the transition period from __________________________ to __________________
Commission file number 0-17978
HOTELECOPY, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
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<S> <C>
Florida 59-2605868
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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17850 N.E. 5th Avenue, Miami, Florida, 33162
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
800-322-0530
(ISSUER'S TELEPHONE NUMBER)
N.A.
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
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<CAPTION>
TITLE OF CLASS DATE NUMBER OF SHARES OUTSTANDING
-------------- ---- ----------------------------
<S> <C> <C>
Common stock, $.01 par value August 20, 1998 1,933,318
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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<CAPTION>
HOTELECOPY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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ASSETS FEBRUARY 28, 1998 MAY 31, 1997
- ------ ----------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 14,322 $ 30,995
Accounts receivable, less allowance for
doubtful accounts of $7,700 at
February 28, 1998 and May 31, 1997 10,787 5,671
Inventories 15,800 15,800
Other 13,617 4,433
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Total current assets 54,526 56,899
PROPERTY AND EQUIPMENT (Note 3)
DEPOSITS 2,565 2,565
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$ 57,091 $ 59,464
=========== ===========
LIABILITIES AND DEFICIENCY IN ASSETS
ATTRIBUTABLE TO COMMON STOCK
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CURRENT LIABILITIES
Accounts payable 1,059,042 1,026,110
Notes payable in default 1,057,197 1,057,197
Note payable affiliate, in default 25,250 25,250
Accrued liabilities (Note 4) 224,545 226,433
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Total current liabilities 2,366,034 2,334,990
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DEFICIENCY IN ASSETS ATTRIBUTABLE
TO COMMON STOCK:
Common stock, $.01 par value, 10,000,000
shares authorized: 1,933,318 issued and outstanding 19,333 19,333
Additional paid-in capital 6,213,341 6,213,341
Accumulated Deficit (8,541,617) (8,508,200)
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Deficiency in assets attributable to common stock 2,308,943 (2,275,526)
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$ 57,091 $ 59,464
=========== ===========
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See Accompanying Notes to Consolidated Financial Statements
2
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<CAPTION>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
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Three Months Ended Nine Months Ended
February 28, February 28,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $102,407 $120,242 $327,887 $412,258
--------- --------- --------- ---------
COST AND EXPENSES:
Cost of revenues 44,634 67,213 165,930 230,445
Payroll, payroll taxes and
related benefits 22,084 46,085 76,321 158,006
Occupancy costs 15,495 15,234 49,682 52,231
Other selling and administrative 21,358 21,830 69,371 74,846
--------- --------- --------- ---------
Total costs and expenses 103,571 150,362 361,304 515,528
--------- --------- --------- ---------
NET LOSS $ (1,164) $(30,120) $(33,417) $(103,270)
========= ========= ========= =========
Net loss per common share $ $ (0.02) $ (0.02) $ (0.05)
========= ========= ========= =========
Weighted average shares outstanding 1,933,318 1,933,318 1,933,318 1,933,318
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
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<CAPTION>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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For the nine months ended February 28,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(33,417) $(103,270)
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable (5,116) 11,152
Decrease in inventory 286
Increase in prepaid expenses and others (9,184) (913)
Increase in accounts payable 32,932 70,899
Decrease in accrued liabilities (1,888) (2,427)
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Net cash used by operating activities (16,673) (24,273)
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DECREASE IN CASH EQUIVALENTS (16,673) (24,273)
CASH AND EQUIVALENTS, BEGINNING BALANCE 30,995 38,145
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CASH AND EQUIVALENTS, ENDING BALANCE $ 14,322 $ 13,872
======== =========
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See Accompanying Notes to Consolidated Financial Statements
4
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HOTELECOPY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
considered necessary to present fairly Hotelecopy, Inc. and its Subsidiaries
financial position at February 28, 1998 and the results of its operations and
cash flows for the three months and nine months then ended. The results of
operations for any interim period are not necessarily indicative of the results
that may be expected for the entire year.
The consolidated financial statements of Hotelecopy, Inc. and Subsidiary
included herein do not include all footnote disclosures normally included in
annual consolidated financial statements.
The accompanying unaudited financial statements have been prepared assuming that
the Company will continue as a going concern. The Company's cash flow from
operations has not been sufficient to allow the Company to remain current and in
compliance with its lending arrangements. Cash currently on hand and expected to
be generated by operations during the fiscal year ending May 31, 1998 is not
expected to be sufficient to finance expected working capital and other
projected cash needs during such period. Continued operation of the Company in
the normal course of business is dependent on the Company's ability to obtain
adequate funding of ongoing operations from external or internal sources. This
condition together with the Company's recurring losses from operations and net
capital deficiency raise substantial doubt about its ability to continue as a
going concern. Should the Company be unable to continue as a going concern, the
liquidation value of its assets will not be sufficient to satisfy the Company's
outstanding obligations. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
NOTE 2 - RECLASSIFICATION
Certain amounts in the prior years consolidated financial statements have been
reclassified to conform to the current year presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, 1998 MAY 31, 1997
----------------- ------------
<S> <C> <C>
Facsimile equipment $2,864,641 $2,864,641
Office and other equipment 667,515 667,515
Furniture and fixtures 99,916 99,916
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Total 3,632,072 3,632,072
Less accumulated depreciation 3,632,072 3,632,072
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Property and equipment, net book value -0- -0-
========= =========
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5
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NOTE 4.
The Company received an adverse decision in its litigation against the USPS
(United States Claims Court Case Nos. 91-963C and 91-964C). The Court dismissed
the Company's complaints and ordered that the United States Postal Service
recover $88,400 on its counterclaim against the Company. The Company has charged
to expense and accrued a liability in the amount of $88,400. The Company
appealed this decision to the United States Court of Appeals for the Federal
Circuit, and on August 17,1993 the Court of Appeals affirmed the decision of the
lower court. On August 31, 1993 the Company petitioned the United States Court
of Appeals for the Federal Circuit for a rehearing and suggestion for a
rehearing in banc. On October 29, 1993, the petition for rehearing was denied
and suggestion for rehearing in banc was declined. On November 5, 1993, a final
judgement was entered against the Company (CIF Claim No.041183) in the amount of
$88,400. The Company does not have the funds to satisfy this judgement.
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
REVENUES
Revenues declined approximately 15% and 20% respectively for the three months
and nine months ended February 28, 1998 compared to the three and nine months
ended February 28, 1997. The decline is attributed to the expiration and
non-renewal of the attended member locations. The Company anticipates that the
attended member locations will continue to decline as contracts expire and this
will materially adversely affect revenues.
COST OF REVENUES
These costs declined approximately 34% for the nine months and 28% for the six
months ended February 28, 1998 as compared to the same period last year. The
decline in costs is attributable to the loss of a major airline carrier and all
the related expenses to maintain telephone lines.
OCCUPANCY COSTS
Occupancy costs were essentially the same for the three months ended February
28, 1998 as compared to the prior year. For the nine months ended February 28,
1998, there was a 5% decrease in occupancy expenses as compared to the prior
year.
PAYROLL, PAYROLL TAXES AND RELATED BENEFITS
These expenses decreased approximately 52% for the three and nine months ended
February 28, 1998 compared to the same period in 1997. The Company has no
marketing or sales employees, reduced its general staff, and had no executive
salaries for the three and nine months ended February 28, 1998.
SELLING AND ADMINISTRATIVE
For the three month period ended February 28, 1998 as compared to the prior
year, there was no change in these expenses. For the nine months ended February
28, 1998 compared to February 28, 1997, there was an approximate 7% decrease.
This decrease can be attributable to a general decrease in expenses.
6
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LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately ($2,300,000) and a
ratio of current assets to current liabilities of approximately .02 to 1 at
February 28, 1998 and February 28, 1997.
The Company is in default with its notes payable and has suspended all payments
due to cash flow restraints. The Company does not have sufficient funds to repay
the debt. The Company is current with all its present vendors and generates
enough cash flow to fund its present operations. However, without the
cooperation of its creditors the Company would not be able to operate. No
assurances can be given that these creditors will continue to cooperate with the
Company to maintain its present level of operation.
The Company's financial statements have been prepared on a going concern basis,
which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. However, as a
result of the inability to pay its creditors, such realization of assets and
liquidation of liabilities are subject to significant uncertainty.
The Company's inability to meet its liquidity needs raises substantial doubt
about the Company's ability to continue as a going concern. The Company has
continued to reduce its total operating expenses, however, revenues continue to
decline. The Company continues to seek expansion of revenues earned from self
service FaxMail locations by trying to increase the number of locations offering
these terminals. The Company's limited cash flow does not allow the Company to
invest in new equipment or to support a marketing and sales effort for the
self-service FaxMailer.
The Company has limited liquidity on a short-term basis and, absent additional
funding, will have limited liquidity on a long-term basis. At the present, the
Company does not have any additional sources of liquidity, such as bank or
credit lines. Cash currently on hand and expected to be generated by operations
during the fiscal year ended May 31, 1998, is not expected to be sufficient to
finance expected working capital and other projected cash needs during such
period. Continued operation of the Company in the normal course of business is
dependent on the Company's ability to obtain adequate funding of ongoing
operations from external or internal sources.
If the Company is unable to obtain financing or equity capital, the ability of
the Company to continue as a going concern will be in doubt. Should the Company
be unable to continue as a going concern, the liquidation value of its assets
will not be sufficient to satisfy the Company's outstanding obligations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company received an adverse decision in its litigation against the USPS
(United States Claims Court Case Nos. 91-963C and 91-964C). The Court dismissed
the Company's complaints and ordered that the USPS recover $88,400 on its
counterclaim against the Company. The Company has charged to expense and accrued
for the liability against it in the amount of $88,400. On March 10, 1993, the
Company filed its appeal in the United States court of Appeals for the Federal
Court Circuit, and on August 17, 1993, the Court of Appeals affirmed the
decision of the lower court.
7
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On August 31, 1993 the Company petitioned the United States Court of Appeals for
the Federal Circuit for a rehearing and suggestion for rehearing in banc. On
October 29, 1993, the petition for rehearing was denied and the suggestion for
rehearing in banc was declined. On November 5, 1993 a final judgement was
entered against the Company (CIF Claim No.041183) in the amount of $88,400.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed: Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K: NONE
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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<CAPTION>
HOTELECOPY, INC.
(Registrant)
<S> <C>
DATE: AUGUST 21, 1998 BY:/s/ W. EDD HELMS, JR.
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W. Edd Helms, Jr., President
DATE: AUGUST 21, 1998 BY:/s/ PHILIP H. KABOT
-------------------------- ---------------------------------
Philip H. Kabot, Chief Financial Officer
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8
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 14,322
<SECURITIES> 0
<RECEIVABLES> 18,487
<ALLOWANCES> (7,700)
<INVENTORY> 15,800
<CURRENT-ASSETS> 54,526
<PP&E> 3,632,072
<DEPRECIATION> (3,632,072)
<TOTAL-ASSETS> 57,091
<CURRENT-LIABILITIES> 2,366,034
<BONDS> 0
0
0
<COMMON> 19,333
<OTHER-SE> (2,328,276)
<TOTAL-LIABILITY-AND-EQUITY> 57,091
<SALES> 0
<TOTAL-REVENUES> 327,887
<CGS> 0
<TOTAL-COSTS> 361,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (33,417)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,417)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,417)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
