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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 November 30, 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)
<TABLE>
<S> <C>
Florida 59-2605868
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
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 January 6, 1999 1,933,318
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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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)
- ----------------------------------------------------------------------------------
ASSETS NOVEMBER 30, 1998
-----------------
<S> <C>
CURRENT ASSETS
Cash and equivalents .......................................... $ 13,335
Restricted cash - certificate of deposit ...................... 10,000
Accounts receivable, less allowance for
doubtful accounts of $500 at
November 30, 1998 and May 31, 1998 ........................ 3,029
Inventories ................................................... 8,155
Other, including prepayments .................................. 11,120
-----------
Total current assets ...................................... 45,639
PROPERTY AND EQUIPMENT (Note 3) ................................ --
DEPOSITS ....................................................... 2,595
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TOTAL ASSETS .............................................. $ 48,234
===========
LIABILITIES AND DEFICIENCY IN ASSETS
ATTRIBUTABLE TO COMMON STOCK
CURRENT LIABILITIES
Accounts payable .............................................. $ 22,305
Judgement Payable (Note 4) ................................... 88,400
Due to affiliate .............................................. 27,737
Accrued liabilities (Note 5) .................................. 79,168
-----------
Total current liabilities ...................................... 217,610
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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
Additional paid-in capital ..................................... 6,213,341
Accumulated Deficit ............................................ (6,402,050)
-----------
Total deficiency in assets attributable to common stock ..... (169,376)
-----------
TOTAL LIABILITIES AND DEFICIENCY IN
ASSETS ATTRIBUTABLE TO COMMON STOCK ....................... $ 48,234
===========
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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)
- ---------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES ......................................... $ 81,340 $ 115,246 $ 168,242 $ 225,480
----------- ----------- ----------- -----------
Cost and Expenses
Cost of revenues .............................. 34,680 46,660 73,610 121,296
Payroll, payroll taxes and
related benefits ......................... 20,116 23,694 45,252 54,237
Occupancy costs .................................. 7,029 15,496 16,880 34,187
Other selling and administrative ................. 23,566 26,136 48,124 48,013
----------- ----------- ----------- -----------
Total costs and expenses ......................... 85,391 111,986 183,866 257,733
----------- ----------- ----------- -----------
Income (Loss) before extraordinary items ......... (4,051) 3,260 (15,624) (32,253)
----------- ----------- ----------- -----------
EXTRAORDINARY ITEMS
Gain on extinguishment of debt, net of income
taxes of $3,600 ................................ 6,400 6,400
Tax benefit from utilization of net operating loss
carryforwards .................................. 3,600 3,600
----------- ----------- ----------- -----------
Total extraordinary item ............... 10,000 10,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) ................................ $ 5,949 $ 3,260 $ (5,624) $ (32,253)
=========== =========== =========== ===========
PER SHARE OF COMMON STOCK BASIC AND DILUTED
Income (loss) per common share before
extraordinary item ......................... * (0.01)
----------- ----------- ----------- -----------
Extraordinary item ........................... 0.005
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE .............. (0.005) $ (0.02)
----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES .......................... 1,933,318 1,933,318 1,933,318 1,933,318
=========== =========== =========== ===========
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* Less than .0005 per share
See Accompanying Notes to Consolidated Financial Statements
3
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<TABLE>
<CAPTION>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED NOVEMBER 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................ $ (5,624) $(32,253)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Extinguishment of debt ............................................. (10,000)
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable .......................... 937 (4,860)
Increase in inventory ............................................... (5,300)
(Increase) decrease in other current assets ......................... (5,294) (6,916)
Increase in accounts payable ........................................ 22,305 33,615
Increase in due to affiliate ........................................ 27,737 --
Decrease in accrued liabilities, other than extinguishment .......... (35,360) (2,762)
-------- --------
CASH USED BY OPERATING ACTIVITIES AND
DECREASE IN CASH AND EQUIVALENTS .................................. (10,599) (13,176)
CASH AND EQUIVALENTS, BEGINNING ......................................... 23,934 30,995
-------- --------
CASH AND EQUIVALENTS, ENDING ............................................ $ 13,335 $ 17,819
======== ========
</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 November 30, 1998, and the results of their operations and
cash flows for the three 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 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:
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<CAPTION>
NOVEMBER 30,1998 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-
======== ========
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5
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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.
NOTE 5
On November 4, 1998, the Company, for consideration of $10,000, received a
general release from its largest creditor. The Company, at May 31, 1998, had
accrued a liability for the possible settlement of this debt and accordingly
charged this to the accrued liability.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
REVENUES
Compared to the prior year, revenues declined approximately 29% for the three
months ended November 30, 1998 and approximately 25% for the six months ended
November 30, 1998. 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 26% in the three months ended November 30,
1998 and approximately 39% for the six months ended November 30, 1998, as
compared to the prior year. The decline in these costs are 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 15% for the three months ended November
30, 1998 and approximately 17% for the six months ended November 30, 1998, as
compared to the prior years. 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 51% decline in occupancy costs for the three
and six months ended November 30, 1998, as compared to the prior three months
and six months ending November 30, 1997, respectively. This reduction is
attributable to a discontinuance of an accrual for storage fees and warehouse.
OTHER SELLING AND ADMINISTRATIVE
For the three month and six months ended November 30, 1998, these expenses
decreased for the three months by approximately 10% and increased
insignificantly as compared to the six months ended November 30, 1997.
6
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LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately ($172,000) and a
ratio of current assets to current liabilities of approximately .02 to 1 at
November 30, 1998. This compares with the November 30, 1997, working capital
deficit of approximately ($2,300,000) and a ratio of current assets to current
liabilities of less than .01 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. The
Company does not have the funds to satisfy this judgement nor the accrued
interest. 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. 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.
7
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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: JANUARY 11, 1999 BY:/s/ W. EDD HELMS, JR.
------------------ --------------------------------------------
W. Edd Helms, Jr., President
DATE: JANUARY 11, 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> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 13,335
<SECURITIES> 0
<RECEIVABLES> 3,529
<ALLOWANCES> (500)
<INVENTORY> 8,155
<CURRENT-ASSETS> 45,639
<PP&E> 496,466
<DEPRECIATION> (496,466)
<TOTAL-ASSETS> 48,234
<CURRENT-LIABILITIES> 217,610
<BONDS> 0
0
0
<COMMON> 19,333
<OTHER-SE> (188,709)
<TOTAL-LIABILITY-AND-EQUITY> 48,234
<SALES> 0
<TOTAL-REVENUES> 168,242
<CGS> 0
<TOTAL-COSTS> 183,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,624)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (6,400)
<CHANGES> 0
<NET-INCOME> (5,624)
<EPS-PRIMARY> (0.005)
<EPS-DILUTED> (0.005)
</TABLE>
