================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Exchange Act for the
quarterly period ended November 30,1997
_ 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 THE SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-2605868
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 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:
TITLE OF CLASS DATE NUMBER OF SHARES OUTSTANDING
-------------- ---- ----------------------------
Common stock, $.01 par value August 20, 1998 1,933,318
================================================================================
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOTELECOPY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS NOVEMBER 30, 1997 MAY 31,1997
- ------ ----------------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 17,819 $ 30,995
Accounts receivable, less allowance for
doubtful accounts of $7,700 at
November 30, 1997 and May 31,1997 10,531 5,671
Inventories 15,800 15,800
Other 11,349 4,433
---------- ----------
Total current assets 55,499 56,899
PROPERTY AND EQUIPMENT (Note 3)
DEPOSITS 2,565 2,565
---------- ----------
$ 58,064 $ 59,464
========= =========
LIABILITIES AND DEFICIENCY IN ASSETS
ATTRIBUTABLE TO COMMON STOCK
CURRENT LIABILITIES
Accounts payable 1,059,725 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) 223,671 226,433
---------- ----------
Total current liabilities 2,365,843 2,334,990
---------- ----------
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 (8,540,453) (8,508,200)
---------- ----------
Deficiency in assets attributable to common stock (2,307,779) (2,275,526)
----------- -----------
$ 58,064 $ 59,464
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ 115,246 $ 148,871 $ 225,480 $ 292,016
--------- --------- --------- ---------
Cost and Expenses:
Cost of revenues 46,660 83,216 121,296 163,232
Payroll, payroll taxes and
related benefits 23,694 57,058 54,237 111,921
Occupancy costs 15,496 18,861 34,187 36,997
Other selling and administrative 26,136 27,028 8,013 53,016
--------- --------- --------- ---------
Total costs and expenses 111,986 186,163 257,733 365,166
--------- --------- --------- ---------
NET LOSS $ 3,260 $ (37,292) $ (32,253) $ (73,150)
========= ========= ========= =========
Net loss per common share $ (0.02) $ (0.02) $ (0.04)
--------- --------- --------- ---------
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
<PAGE>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED NOVEMBER 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(32,253) $(73,150)
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable (4,860) 4,643
Decrease in inventory 286
Increase in prepaid expenses and others (6,916) (2,002)
Increase in accounts payable 33,615 55,199
Decrease in accrued liabilities (2,762) (3,821)
--------- ---------
Net cash used by operating activities (13,176) (18,845)
--------- ---------
DECREASE IN CASH EQUIVALENTS (13,176) (18,845)
CASH AND EQUIVALENTS, BEGINNING BALANCE 30,995 38,145
--------- ---------
CASH AND EQUIVALENTS, ENDING BALANCE $ 17,819 $ 19,300
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
HOTELECOPY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 November 30, 1997 and the results of its operations and
cash flows for the three months and six months then ended. The results of
operations for any interim period are not necessarily indicative of the results
that may be expected for the year ended May 31, 1998.
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 with
its creditors. 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:
NOVEMBER 30, 1997 MAY 31, 1997
----------------- ------------
Facsimile equipment $2,864,641 $2,864,641
Office and other equipment 667,515 667,515
Furniture and fixtures 99,916 99,916
---------- ----------
Total 3,632,072 3,632,072
Less accumulated depreciation 3,632,072 3,632,072
---------- ----------
Property and equipment, net book value -0- -0-
========== ==========
5
<PAGE>
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 USPS recover $88,400 on its
counterclaim against the Company. The Company has charged to expense and accrued
a liability for the counterclaim against it 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 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 OPERATION
REVENUES
Revenues declined approximately 23% for the three months and six months ended
November 30, 1997 compared to the three and six months ended November 30, 1996.
The decline is attributable 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 44% for the three months ended November 30,
1997 and approximately 26% for the six months ended November 30, 1997, as
compared to the prior year. The decline in costs can be attributable to the loss
of a major airline carrier and all the related expenses to maintain telephone
lines.
PAYROLL, PAYROLL TAXES AND RELATED BENEFITS
These expenses decreased approximately 58% for the three months and 52% for the
six months ended November 30, 1997 as compared to the prior periods. The Company
has no marketing or sales employees, staff was reduced, and no executive
salaries were paid.
OCCUPANCY COSTS
There was an approximate 18% and 8% decline in occupancy costs for the three and
six months ended November 30, 1997, as compared to the prior three months and
six months ending November 30, 1996, respectively.
OTHER SELLING AND ADMINISTRATIVE
For the three months and six months ended November 30, 1997 these expenses
decreased approximately 3% and 9% as compared to the same periods in 1996. The
company has reduced all of its operating and selling expenses.
6
<PAGE>
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
November 30, 1997 and November 30, 1996. The Company has a negative net worth
and cash flow sufficient to cover only its greatly reduced overhead. On November
5, 1993 a final judgement was issued and a judgement was entered against the
Company (CIF Claim No. 041183) by the United States Postal Service in the amount
of $88,400.
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
<PAGE>
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.
HOTELECOPY, INC.
(Registrant)
DATE: AUGUST 21, 1998 BY:/s/ W. EDD HELMS, JR.
----------------- --------------------------------------------
W. Edd Helms, Jr., President
DATE: AUGUST 21, 1998 BY:/s/ PHILIP H. KABOT
----------------- --------------------------------------------
Philip H. Kabot, Chief Financial Officer
8
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 17,819
<SECURITIES> 0
<RECEIVABLES> 18,231
<ALLOWANCES> (7,700)
<INVENTORY> 15,800
<CURRENT-ASSETS> 55,499
<PP&E> 3,632,072
<DEPRECIATION> (3,632,072)
<TOTAL-ASSETS> 58,064
<CURRENT-LIABILITIES> 2,365,843
<BONDS> 0
0
0
<COMMON> 19,333
<OTHER-SE> (2,327,112)
<TOTAL-LIABILITY-AND-EQUITY> 58,064
<SALES> 0
<TOTAL-REVENUES> 225,480
<CGS> 0
<TOTAL-COSTS> 257,733
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (32,253)
<INCOME-TAX> 0
<INCOME-CONTINUING> (32,253)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,253)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
