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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, 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)
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 X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
<TABLE>
<CAPTION>
TITLE OF CLASS DATE NUMBER OF SHARES OUTSTANDING
- -------------- ---- ----------------------------
<S> <C> <C>
Common stock, $.01 par value October 5, 1998 1,933,318
</TABLE>
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOTELECOPY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS AUGUST 31,1998 MAY 31, 1998
- ------ -------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 14,540 $ 23,934
Restricted cash - certificate of deposit 10,000 10,000
Accounts receivable, less allowance for
doubtful accounts of $500 at
August 31, 1998 and May 31, 1998 2,577 3,966
Inventories 2,588 2,588
Other 2,163 5,856
-------------- ------------
Total current assets 32,135 46,611
PROPERTY AND EQUIPMENT (Note 3) - -
DEPOSITS 1,595 2,565
-------------- ------------
TOTAL ASSETS $ 33,730 $ 49,176
============== ============
LIABILITIES AND DEFICIENCY IN ASSETS
ATTRIBUTABLE TO COMMON STOCK
CURRENT LIABILITIES
Accounts payable (Note 4) $ 95,611 $ 88,400
Accrued liabilities 113,444 124,528
-------------- ------------
Total current liabilities 209,055 212,928
-------------- ------------
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 (6,407,999) (6,396,426)
-------------- ------------
Total deficiency in assets attributable to common stock (175,325) (163,752)
-------------- ------------
TOTAL LIABILITIES AND DEFICIENCY IN
ASSETS ATTRIBUTABLE TO COMMON STOCK $ 33,730 $ 49,176
============= =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED AUGUST 31,
1998 1997
---- ----
<S> <C> <C>
REVENUES $ 86,902 $ 110,234
---------- -----------
COST AND EXPENSES:
Cost of revenues 38,930 74,636
Payroll, payroll taxes and
related benefits 25,136 30,543
Occupancy costs 9,851 18,691
Other selling and administrative 24,558 21,877
---------- -----------
Total costs and expenses 98,475 145,747
---------- -----------
NET LOSS $ (11,573) $ (35,513)
========== ===========
Net loss per common share $ (0.01) $ (0.02)
========== ===========
Weighted average shares outstanding 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 THREE MONTHS ENDED AUGUST 31,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (11,573) $ (35,513)
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable 1,389 (2,565)
Decrease (Increase) in prepaid expenses and others 4,663 (5,581)
Increase in accounts payable 7,211 40,265
Decrease in accrued liabilities (11,084) (1,836)
------------ -------------
CASH USED BY OPERATING ACTIVITIES AND
DECREASE IN CASH AND EQUIVALENTS (9,394) (5,230)
CASH AND EQUIVALENTS, BEGINNING BALANCE 23,934 30,995
------------ -------------
CASH AND EQUIVALENTS, ENDING BALANCE $ 14,540 $ 25,765
============ =============
</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 Subsidiary's
financial position at August 31, 1998, and the results of their 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 and, therefore, should be read in
conjunction with the Company's consolidated financial statements and notes in
the Company's latest Form 10-KSB. Revenues, expenses, assets and liabilities can
vary during each quarter of the year. Therefore, the results and trends in these
interim consolidated financial statements may not be the same as those for the
full year.
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, 1999, 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 deficiency in assets attributable
to common stock 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 year's 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 31,1998 MAY 31, 1998
-------------- ------------
<S> <C> <C>
Facsimile equipment $ 449,645 $ 449,645
Office and other equipment 6,821 6,821
------------ -------------
Total 496,466 496,466
Less accumulated depreciation 496,466 496,466
------------ -------------
Property and equipment, net book value 0 0
============= =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
NOTE 4
A final judgement in the amount of $88,400 was entered against the Company by
the United States Postal Service in November of 1993. The Company does not have
the funds to satisfy this judgement or any accrued interest thereon.
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
REVENUES
During the three months ended August 31, 1998, revenues declined approximately
21% compared to the same period in 1997. The decline in revenues is attributable
to the loss of an exclusive agreement with a major airline carrier. The Company
does not have the funds to support a marketing and sales effort to further
expand its self-service FaxMailers.
COST OF REVENUES
These costs declined approximately 48% in the three month period ended August
31, 1998, as compared to August 31, 1997. The decline in these costs can be
attributed primarily to the reduction of expenses to maintain telephone lines
and commission expenses resulting from the loss of a major customer.
PAYROLL, PAYROLL TAXES AND RELATED BENEFITS
There was an approximate 18% decline in payroll, payroll taxes, and related
benefits compared to the quarter ended August 31, 1997. This is attributable to
a reduction in personnel.
OCCUPANCY COSTS
Occupancy costs decreased approximately 47% compared to the same prior quarter
primarily attributable to the discontinuance of an accrual for storage fees.
OTHER SELLING AND ADMINISTRATIVE
There was an approximate 12% increase in other selling and administrative
expenses compared to the prior year quarter. There was an increase in insurance,
legal and general corporate expenses which accounted for the 12% increase.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately ($177,000) and a
ratio of current assets to current liabilities of approximately .02 to 1 at
August 31, 1998. This compares with the August 31, 1997, working capital deficit
of approximately ($2,300,000) and a ratio of current assets to current
liabilities of .03 to 1. The Company has a negative net worth and cash flow
which is still not sufficient to cover its greatly reduced overhead. On November
5, 1993, a final judgement was issued and a judgement was entered against the
Company by the United States Postal Service in the amount of $88,400. The
Company does not have the funds to satisfy this judgement nor the accrued
interest. In May of 1998, the Company wrote off liabilities that were time
barred pursuant to the Florida Statute of Limitations, Section 95.11 of the
Florida Statutes. The Company is current with all its present vendors and
generates enough cash flow to fund its present operations.
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.
6
<PAGE>
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 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, 1999, 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 Company will
not be able 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.
PLAN OF OPERATION
Management's plan for dealing with the conditions described above is pursuing
the acquisition of an operating entity. If an acquisition is successful, the
Company plans to continue its current operations, consider additional marketing
to the extent that sales might increase and continue its current personnel
levels with the principal activities being devoted to the merged entity's
business operations until cash flow is sufficient for the Company to consider
additional research and development. No additional expenditures are currently
anticipated for property and equipment if a successful merger is consummated.
There can be no assurance the Company can find a merger candidate or, if found,
that the Company can operate profitably.
The matters discussed in "Plan of Operation" above are forward looking
statements as defined under Rule 175 of the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed: Financial Data Schedule - Exhibit 27
(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.
<TABLE>
<CAPTION>
HOTELECOPY, INC.
(Registrant)
<S> <C>
DATE: OCTOBER 7, 1998 BY:/s/ W. EDD HELMS, JR.
---------------------------- ----------------------------------
W. Edd Helms, Jr., President
DATE: OCTOBER 7, 1998 BY:/s/ PHILIP H. KABOT
---------------------------- ----------------------------------
Philip H. Kabot, Chief Financial Officer
</TABLE>
7
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 24,540
<SECURITIES> 0
<RECEIVABLES> 3,077
<ALLOWANCES> (500)
<INVENTORY> 2,588
<CURRENT-ASSETS> 32,135
<PP&E> 496,466
<DEPRECIATION> (496,466)
<TOTAL-ASSETS> 33,730
<CURRENT-LIABILITIES> 209,055
<BONDS> 0
0
0
<COMMON> 19,333
<OTHER-SE> (194,658)
<TOTAL-LIABILITY-AND-EQUITY> 33,730
<SALES> 0
<TOTAL-REVENUES> 86,902
<CGS> 0
<TOTAL-COSTS> 98,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,573)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,573)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,573)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
