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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, 1999.
[ ] 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
17850 N.E. 5TH AVENUE, MIAMI, FLORIDA, 33162
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
1-800-322-4448
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 [X] No [ ]
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 April 8, 1999 1,933,318
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOTELECOPY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS FEBRUARY 28, 1999
- ------ -----------------
CURRENT ASSETS
Cash and equivalents $ 5,982
Restricted cash - certificate of deposit 10,000
Accounts receivable, less allowance for
doubtful accounts of $500 2,063
Inventories 7,530
Other, including prepayments 2,163
--------
Total current assets 27,738
PROPERTY AND EQUIPMENT (Note 3) -
DEPOSITS 2,595
TOTAL ASSETS $ 30,333
=======
LIABILITIES AND DEFICIENCY IN ASSETS
ATTRIBUTABLE TO COMMON STOCK
CURRENT LIABILITIES
Accounts payable $ 35,513
Judgement Payable (Note 4) 25,000
Due to affiliate 50,305
Accrued liabilities (Note 4) 40,794
---------
Total current liabilities 151,612
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
Additional paid-in capital 6,213,341
Accumulated Deficit (6,353,953)
---------
Total deficiency in assets attributable to
common stock ( 121,279)
---------
TOTAL LIABILITIES AND DEFICIENCY IN
ASSETS ATTRIBUTABLE TO COMMON STOCK $ 30,333
=========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- ------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 70,317 $ 102,407 $ 238,559 $ 327,887
----------- ----------- ----------- -----------
COST AND EXPENSES
Cost of revenues 36,383 44,634 109,993 165,930
Payroll, payroll taxes and
related benefits 22,648 22,084 67,900 76,321
Occupancy costs 7,029 15,495 23,909 49,682
Other selling and administrative 79,560 21,358 127,684 69,371
----------- ----------- ----------- -----------
Total costs and expenses 145,620 103,571 329,486 361,304
----------- ----------- ----------- -----------
Loss before extraordinary items (75,303) (1,164) (90,927) (33,417)
----------- ----------- ----------- -----------
EXTRAORDINARY ITEMS
Gain on extinguishment of debt, net of income
taxes of $44,424 for the three months and
$48,024 for the nine months 78,976 -- 85,376 --
Tax benefit from utilization of net operating loss
carry forwards 44,424 -- 48,024 --
----------- ----------- ----------- -----------
Total extraordinary item (Note 4) 123,400 -- 133,400 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 48,097 $ (1,164) $ 42,473 $ (33,417)
=========== =========== =========== ===========
PER SHARE OF COMMON STOCK BASIC AND DILUTED
Loss per common share before
extraordinary item (0.04) * (0.05) (0.02)
----------- ----------- ----------- -----------
Extraordinary item 0.07 0.07 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE 0.03 * 0.02 $ (0.02)
----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES 1,933,318 1,933,318 1,933,318 1,933,318
=========== =========== =========== ===========
</TABLE>
* Less than .0005 per share
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------
<TABLE>
<CAPTION>
For the nine months ended February 28,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 42,473 $ (33,417)
Adjustments to reconcile net income (loss) to net cash (used) by operating
activities:
Extinguishment of debt (133,400) -
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable 1,903 (5,116)
Decrease (Increase) in inventory (4,675)
Decrease (Increase) in other current assets 3,663 (9,184)
Increase in accounts payable 35,513 32,932
Increase in due to affiliate 50,305 -
Decrease in accrued liabilities, other than extinguishment (13,734) (1,888)
-------- ----------
CASH USED BY OPERATING ACTIVITIES AND
DECREASE IN CASH AND EQUIVALENTS (17,952) (16,673)
CASH AND EQUIVALENTS, BEGINNING 23,934 30,995
--------- ----------
CASH AND EQUIVALENTS, ENDING $ 5,982 $ 14,322
========= =========
</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 February 28, 1999, and the results of their operations and
cash flows for the three 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 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>
FEBRUARY 28, 1999 MAY 31, 1998
----------------- ------------
<S> <C> <C>
Facsimile equipment $ 449,645 $ 449,645
Office and other equipment 46,821 46,821
------- -------
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 - JUDGEMENT
A final judgement in the amount of $88,400 was entered against the Company on
behalf of the United States Postal Service in November of 1993. In the later
part of February, the Company entered into an agreement to settle this claim for
$25,000. The Company had accrued $60,000 for costs associated with the judgement
payable as well as $10,000 for the possible settlement with a credit. Both of
these accruals were liquidated as a result of the settlements and are shown as
extinguishment of debt in these financial statements.
NOTE 5 - SUBSEQUENT EVENTS
On April 1, 1999, the Company issued a press release indicating that Hotelecopy
has filed a preliminary proxy statement to the SEC for the merger of Hotelecopy,
Inc. with Edd Helms, Inc., whereby, upon approval of the shareholders of
Hotelecopy, Inc., EHI will be merged into Hotelecopy, and the name of Hotelecopy
will be changed to Edd Helms Group, Inc.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
REVENUES
Compared to the prior year, revenues declined approximately 31% for the three
months ended February 28, 1999 and approximately 27% for the nine months ended
February 28, 1999. 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 18% in the three months ended February 28,
1999, and approximately 34% for the nine months ended February 28, 1999, as
compared to the prior year. The decline in these costs are attributable to the
loss of revenues of a major airline carrier and the reduction in expenses
attributable to this revenue.
PAYROLL, PAYROLL TAXES AND RELATED BENEFITS
These expenses increased nominally for the three months ended February 28, 1999,
and approximately 11% for the nine months ended February 28, 1999, as compared
to the prior year. The Company has no marketing or sales employees, staff was
reduced and there are no executive salaries paid.
OCCUPANCY COSTS
There was an approximate 55% and 52% decline in occupancy costs for the three
and nine months ended February 28, 1999, as compared to the prior three months
and nine months ending February 28,1998, respectively. This reduction is
attributable to a discontinuance of an accrual for storage fees and warehouse.
6
<PAGE>
OTHER SELLING AND ADMINISTRATIVE
For the three month and nine months ended February 28, 1999, these expenses
increased significantly as compared to the nine months ended February 28, 1998.
This increase is directly attributable to the settlement of outstanding
obligations and the expenses including professional fees related to the proposed
merger with a related company.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately ($124,000) and a
ratio of current assets to current liabilities of approximately .18 to 1 at
February 28, 1999. This compares with the February 28, 1998, 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
which is 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. In the
later part of February 1999, the Company entered into an agreement with the
United Postal Service to settle this claim for $25,000. In May of 1998, the
Company charged 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.
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.
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'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. 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. On April 1, 1999, the Company filed a preliminary proxy with the
Securities and Exchange Commission entering into an agreement and plan of merger
with a related company.
If the Company is unable to obtain financing or equity capital or merge as
stated above, 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.
7
<PAGE>
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.
HOTELECOPY, INC.
(Registrant)
DATE: APRIL 8, 1999 BY:/s/ W. EDD HELMS, JR.
---------------------- ------------------------------
W. Edd Helms, Jr., President
DATE: APRIL 8, 1999 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> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 5,982
<SECURITIES> 0
<RECEIVABLES> 2,563
<ALLOWANCES> (500)
<INVENTORY> 7,530
<CURRENT-ASSETS> 27,738
<PP&E> 496,466
<DEPRECIATION> (496,466)
<TOTAL-ASSETS> 30,333
<CURRENT-LIABILITIES> 151,612
<BONDS> 0
0
0
<COMMON> 19,333
<OTHER-SE> (140,612)
<TOTAL-LIABILITY-AND-EQUITY> 30,333
<SALES> 0
<TOTAL-REVENUES> 238,559
<CGS> 0
<TOTAL-COSTS> 329,486
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (90,927)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 133,400
<CHANGES> 0
<NET-INCOME> 42,473
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
