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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 August 31, 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 SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Florida 59-2605868
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HOTELECOPY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS AUGUST 31, 1997 MAY 31, 1997
- ------ --------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 25,765 $ 30,995
Accounts receivable, less allowance for
doubtful accounts of $7,700 at
August 31, 1997 and May 31, 1997 8,236 5,671
Inventories 15,800 15,800
Other 10,014 4,433
------------ ------------
Total current assets 59,815 56,899
PROPERTY AND EQUIPMENT (Note 3)
DEPOSITS 2,565 2,565
------------ ------------
$ 62,380 $ 59,464
============ ============
LIABILITIES AND DEFICIENCY IN ASSETS
ATTRIBUTABLE TO COMMON STOCK
- ------------------------------------
CURRENT LIABILITIES
Accounts payable 1,066,375 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) 224,597 226,433
------------ ------------
Total current liabilities 2,373,419 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 (8,543,713) (8,508,200)
------------ ------------
Deficiency in assets attributable to common stock (2,311,039) (2,275,526)
------------ ------------
$ 62,380 $ 59,464
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
For the three months ended August 31,
1997 1996
---- ----
<S> <C> <C>
REVENUES $ 110,234 $ 143,145
--------- ---------
COST AND EXPENSES:
Cost of revenues 74,636 80,016
Payroll, payroll taxes and
related benefits 30,543 54,863
Occupancy costs 18,691 18,136
Other selling and administrative 21,877 25,988
--------- ---------
Total costs and expenses 145,747 179,003
--------- ---------
NET LOSS $ (35,513) $ (35,858)
========= =========
Net loss per common share $ (0.02) $ (0.02)
--------- ---------
Weighted average shares outstanding 1,933,318 1,933,318
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
For the three months ended August 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (35,513) $ (35,858)
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable (2,565) 6,607
Decrease in inventory 3,064
Increase in prepaid expenses and others (5,581) (2,456)
Increase in accounts payable 40,265 21,216
Decrease in accrued liabilities (1,836) (8,635)
--------- ---------
Net cash used by operating activities (5,230) (16,062)
--------- ---------
DECREASE IN CASH EQUIVALENTS (5,230) (16,062)
CASH AND EQUIVALENTS, BEGINNING BALANCE 30,995 38,145
--------- ---------
CASH AND EQUIVALENTS, ENDING BALANCE $ 25,765 $ 22,083
========= =========
</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 August 31, 1997 and the results of its operations and cash
flows for the three 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 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:
<TABLE>
<CAPTION>
AUGUST 31, 1997 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
---------- ----------
Total 3,632,072 3,632,072
Less accumulated depreciation 3,632,072 3,632,072
---------- ----------
Property and equipment, net book value -0- -0-
========== ==========
</TABLE>
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 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 OPERATION
REVENUES
During the three months ended August 31, 1997, revenues declined approximately
23% compared to the same period in 1996. The decline in revenues is solely
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.
The Company does not have the funds to support a marketing and sales effort to
further expand its self-service FaxMailers.
COST OF REVENUES
Costs decreased approximately 7% in the three month period ended August 31,
1997, as compared to August 31, 1996. This was primarily attributable to the
decline in revenues from 1997 to 1996 of approximately 23%.
PAYROLL, PAYROLL TAXES AND RELATED BENEFITS
These expenses decreased approximately 44% as compared to the prior year. There
was a reduction of staff as well as, for the quarter ended August 1997, there
were no executive salaries.
OTHER SELLING AND ADMINISTRATIVE
Expenses decreased approximately 16% in the quarter ended August 31, 1997 as
compared to the same quarter of the prior year. This decline is attributed to a
general reduction of all selling and administrative expenses.
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 .03 to 1 at
August 31, 1997. This compares with a May 31, 1996, working capital deficit of
approximately ($2,300,000) and a ratio of current assets to current liabilities
of .02 to 1. 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 does not have the funds to satisfy this judgement. The Company is in
default with its notes payable and has suspended all payments due to cash flow
restraints. The
6
<PAGE>
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.
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.
7
<PAGE>
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> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 25,765
<SECURITIES> 0
<RECEIVABLES> 15,936
<ALLOWANCES> (7,700)
<INVENTORY> 15,800
<CURRENT-ASSETS> 59,815
<PP&E> 3,632,072
<DEPRECIATION> (3,632,072)
<TOTAL-ASSETS> 62,380
<CURRENT-LIABILITIES> 2,373,419
<BONDS> 0
0
0
<COMMON> 19,333
<OTHER-SE> (2,330,372)
<TOTAL-LIABILITY-AND-EQUITY> 62,380
<SALES> 0
<TOTAL-REVENUES> 110,234
<CGS> 0
<TOTAL-COSTS> 145,747
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (35,513)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35,513)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,513)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
