SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
HOTELECOPY, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, Edd Helms, Incorporated.
2) Aggregate number of securities to which transaction applies: 4930
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$251.49 per share, calculated on basis of book value of Common
Stock
4) Proposed maximum aggregate value of transaction: $1,239,846
5) Total fee paid: $250.00
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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HOTELECOPY, INC.
17850 N.E. 5th Avenue
Miami, Florida 33162-1008
July 8, 1999
Dear Hotelecopy Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
of Hotelecopy, Inc. on July 30, 1999, at 7:30 p.m., Miami time, at Don Shula's
Hotel & Golf Club, Wightman Cup Room, 2nd Floor, located at 6842 Main Street,
Miami Lakes, Florida.
Those matters expected to be acted upon at the meeting are described in
detail in the attached Notice of Special Meeting of Shareholders and the
attached Proxy Statement.
All shareholders are cordially invited to attend the Special Meeting in
person. Your participation at this meeting is very important, regardless of the
number of shares you hold. Whether or not you plan to attend the meeting, please
complete, date, sign and return the accompanying proxy promptly in the enclosed
envelope. If you attend the meeting, you may revoke your proxy and vote your
shares in person.
We look forward to seeing you at the Special Meeting.
Sincerely,
/s/ W. Edd Helms, Jr.
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W. Edd Helms, Jr.
President
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HOTELECOPY, INC.
17850 N.E. 5th Avenue
Miami, Florida 33162-1008
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 30, 1999
To the Shareholders
of Hotelecopy, Inc.
NOTICE IS HEREBY GIVEN that a Meeting of the Shareholders of
Hotelecopy, Inc., a Florida corporation ("Hotelecopy"), will be held at Don
Shula's Hotel & Golf Club, Wightman Cup Room, 2nd Floor, located at 6842 Main
Street, Miami Lakes, Florida on July 30, 1999, at 7:30 p.m., Miami time, for the
following purposes:
1. To consider and vote upon the Agreement and Plan of Merger, dated
as of March 26, 1999, a copy of which is included in Exhibit A to
the Proxy Statement, between Hotelecopy and Edd Helms,
Incorporated, a Florida corporation ("EHI"), whereby EHI will be
merged with and into Hotelecopy. The shareholders of EHI each
will receive 2178.6363 shares of Hotelecopy's common stock in
exchange for each outstanding share of EHI's common stock owned by
them (the "Merger").
2. To consider and vote upon the change of Hotelecopy, Inc.'s name
to Edd Helms Group, Inc.
3. To consider and vote upon an amendment to Hotelecopy's Articles of
Incorporation to increase the number of authorized shares of its
common stock, par value $.01 per share, to 20,000,000 shares.
4. To transact such other business as may properly come before the
Special Meeting.
A Proxy Statement relating to, and a proxy for use in connection with,
the Special Meeting is enclosed.
Only shareholders of record at the close of business on June 18, 1999
are entitled to notice of and to vote at the Special Meeting.
Whether or not you expect to attend the Special Meeting, please
complete, date, sign and return the enclosed proxy as promptly as possible in
order to ensure your representation at the Special Meeting. A return envelope is
enclosed for that purpose. Even if you give your proxy by returning the enclosed
proxy card, you may still vote in person by attending the meeting, revoking your
proxy and casting your vote in person. Please note, however, that if your shares
are held of record by a broker, bank or other nominee and you wish to vote in
person at the meeting, you must obtain from that record holder a proxy issued in
your name.
If the above proposals are approved, the shareholders of Hotelecopy who
(a) do not vote in favor of the increase in authorized common stock or the
Merger, and (b) otherwise comply with Florida law governing the exercise of
dissenters' rights, will be entitled to sell their shares to Hotelecopy for an
amount appraised by statute. See "Rights of Dissent and Appraisal" in the
accompanying Proxy Statement, for a description of the procedures required to be
followed to exercise appraisal rights.
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The Special Meeting may be adjourned from time to time without notice other
than announcement at the Special Meeting, or at any adjournment thereof, and any
business for which notice is hereby given may be transacted at any such
adjournment.
By Order of the Board of Directors,
/s/ W. Edd Helms, Jr.
----------------------
W. Edd Helms, Jr.
President
Miami, Florida
July 8, 1999
PLEASE DATE, SIGN AND MAIL THE ACCOMPANYING PROXY CARD AS
PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE
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HOTELECOPY, INC.
17850 N.E. 5th Avenue
Miami, Florida 33162-1008
Telephone: 800-322-0530
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 30, 1999
This Proxy Statement is furnished by Hotelecopy, Inc. ("Hotelecopy") to
its shareholders, in connection with the solicitation of proxies by Hotelecopy's
Board of Directors from Shareholders, to be voted at the Special Meeting of
Shareholders of Hotelecopy, Inc. (the "Special Meeting"), to be held on July 30,
1999, at 7:30 p.m., Miami time, at Don Shula's Hotel & Golf Club, Wightman Cup
Room, 2nd Floor, located at 6842 Main Street, Miami Lakes, Florida, and at any
and all adjournments of the Special Meeting. The Board of Directors of
Hotelecopy is soliciting the accompanying proxy. Any shareholder that gives a
proxy may, at anytime before the proxy is voted at the Special Meeting, revoke
the proxy. For more information concerning the procedure for revoking the proxy,
see "Summary - Revocability of Proxies".
This Proxy Statement is first being mailed to the shareholders on or
about July 8, 1999.
At the Special Meeting, Shareholders will consider and vote upon: (1) a
proposal to merge Edd Helms, Incorporated, a privately held Florida corporation
("EHI"), with and into Hotelecopy; see "The Merger"; (2) a proposal to change
the name "Hotelecopy, Inc." to "Edd Helms Group, Inc."; and (3) a proposal to
increase Hotelecopy's authorized common stock to 20,000,000 shares
(collectively, proposals (1), (2) and (3) are referred to in this Proxy
Statement as the "Proposals", and each as a "Proposal"). The reason for the
proposed increase in authorized shares of common stock is to allow Hotelecopy
enough shares to issue EHI's shareholders in the Merger. EHI shareholders will,
if the Merger is completed, receive 10,740,677 shares (or 84.75%, which when
added to shares that they already own will be 92%) of Hotelecopy's then issued
and outstanding common stock. EHI engages in the business of providing
electrical and air conditioning services to residential and business customers
primarily in Miami-Dade, Broward and southern Palm Beach Counties. See
"Information about EHI". Hotelecopy historically has engaged in the business of
operating public facsimile machines. See "Information about Hotelecopy".
The Proposals to be considered at the Meeting have great significance
to the shareholders because, if approved, EHI will merge with and into
Hotelecopy, which will change the primary nature of Hotelecopy's business. Also,
after the Merger, EHI's shareholders will have majority voting control of
Hotelecopy, including the ability to elect its directors.
Shareholders are urged to consider carefully the information in this
Proxy Statement.
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SUMMARY
This summary is not a complete statement of all of the features or
effects of the proposals to be voted upon at the Meeting. This summary is
qualified in its entirety by the more detailed information contained in this
Proxy Statement and the documents attached hereto. Shareholders are urged to
read this Proxy Statement and the documents attached hereto in their entirety.
The Merger and Increase in Authorized Shares
Hotelecopy and EHI have entered into an agreement and plan of merger,
dated as of March 26, 1999 (the "Merger Agreement"). Subject to the approval of
the Proposals by Hotelecopy's shareholders at the Meeting and satisfaction of
other conditions, EHI will be merged with and into Hotelecopy pursuant to the
Merger Agreement (the "Merger"), and Hotelecopy's name will change to "Edd Helms
Group, Inc." At the Effective Time of the Merger, each outstanding share of EHI
common stock will be converted into the right to receive 2178.6363 shares of
Hotelecopy common stock. See "The Merger".
EHI is located at 17850 N.E. 5th Avenue, Miami, Florida, telephone
305-653-2520. EHI's business is providing electrical and air conditioning
services to residential and business customers primarily in Miami-Dade, Broward
and southern Palm Beach Counties. See "Information about EHI".
Hotelecopy's management believes that the Merger will benefit
Hotelecopy, because as a result of the Merger, Hotelecopy will realize immediate
operating revenues from EHI's business. EHI realized approximately $8,660,837 in
revenues in fiscal 1997-1998, with net income of $193,706, and revenues for the
first three quarters of fiscal 1998-1999 of $7,231,772 with a net income of
$275,303. The Merger will also increase Hotelecopy's total assets. See EHI
Financial Statements attached as Exhibit D; Pro Forma Financial Statements
attached as Exhibit E; and "The Merger - Background of the Merger; Reasons for
Merger; Recommendation of Board".
The number of shares of Hotelecopy common stock to be issued in the
Merger was determined by Hotelecopy's and EHI's management, after consideration
of the relative assets and operations of the two companies. See "The Merger -
Background of the Merger; Reasons for the Merger; Board Recommendation".
Currently, Hotelecopy's articles of incorporation authorize 10,000,000
shares of common stock, of which 1,933,318 are issued and outstanding. Because
Hotelecopy needs 10,740,677 additional shares to issue to EHI's shareholders in
the Merger, the Board of Directors is asking shareholders to approve an
amendment to Hotelecopy's articles of incorporation increasing the number of
shares of Hotelecopy's authorized common stock to 20,000,000. See "Amendment to
Hotelecopy Articles of Incorporation Increasing Shares".
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Board Recommendation
Hotelecopy's Board of Directors believes that the Merger is in the best
interests of Hotelecopy and its shareholders and recommends that shareholders
vote in favor of the Merger Proposal and the related Proposals to increase
Hotelecopy's authorized shares and change its name to Edd Helms Group, Inc. The
Board believes that if the Merger is completed, Hotelecopy will have greater
prospects for future success. Hotelecopy's directors, who hold approximately 44%
of the outstanding shares of Hotelecopy common stock, have informed Hotelecopy
that they intend to vote for the Proposals.
Lack of Opinions, Appraisals and Reports
EHI's legal counsel and accountants are providing services to EHI in
connection with the Merger. Hotelecopy's Board of Directors chose not to retain
legal or investment advisory services because Hotelecopy could not afford the
cost of such services. Hotelecopy's accountants (who are the same as EHI's
accountants) are providing services to Hotelecopy in connection with the Merger.
Hotelecopy has not solicited or obtained any appraisal, report or opinion by any
outside party regarding the Merger or its fairness to shareholders.
Dilution; Interests of Certain Persons in Merger
The Merger will significantly dilute Hotelecopy's current shareholders.
Hotelecopy's current shareholders who are not also EHI shareholders now own
approximately 56% of the total number of outstanding shares of Hotelecopy common
stock. Hotelecopy's current shareholders who are also EHI shareholders now own
approximately 44% of the total number of outstanding shares of Hotelecopy common
stock. If the Merger is completed, Hotelecopy's current shareholders who are not
also EHI shareholders will own approximately 8% of the total shares then
outstanding, and the current shareholders of EHI will own approximately 92% of
the total shares then outstanding. See "Equivalent Share Data".
W. Edd Helms, Jr., who owns 44% of Hotelecopy's outstanding common
stock and who is Hotelecopy's Chairman of the Board, President and Chief
Executive Officer, owns approximately 87% of EHI's outstanding common stock. He
will, after the Merger, own approximately 81% of Hotelecopy's then outstanding
common stock. See "Security Ownership of Certain Beneficial Owners and
Management of Hotelecopy"; "Interests of Certain Persons in the Merger, Certain
Relationships and Related Party Transactions". Thus, following the Merger, Mr.
Helms, individually and together with EHI's shareholders as a group, will have
voting control over Hotelecopy, including the ability to elect all of the
directors of Hotelecopy. Hotelecopy's directors have the authority to declare or
not declare dividends, to authorize the issuance of additional shares of
Hotelecopy stock for acquisitions and other corporate purposes and to control
all aspects of Hotelecopy's business operations, subject to the rights of
shareholders under Florida corporate law.
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Vote Required to Pass Proposals; Voting Rights; Outstanding Shares
For the Merger and related amendment to Hotelecopy's articles of
incorporation to be approved by Hotelecopy's shareholders, over 50% of all
shares of Hotelecopy common stock presently outstanding must be voted in favor
of these two proposals. EHI's shareholders have informed Hotelecopy's management
that they intend to vote all of their 852,714 shares (44.1%) of Hotelecopy
common stock in favor of the Merger and amendment to Hotelecopy's articles of
incorporation. Therefore, Hotelecopy shareholders, other than the EHI
shareholders, holding at least 6% of Hotelecopy's outstanding common stock must
also vote in favor of these two proposals in order for the proposals to be
approved.
Only Hotelecopy shareholders of record at the close of business on
June 18, 1999 (the "Record Date") who hold shares of Hotelecopy common stock
are entitled to notice of and to vote at the Meeting. At the Record Date,
Hotelecopy had outstanding 1,933,318 shares of common stock held by
approximately 420 shareholders of record. See "Market for Hotelecopy Common
Stock". Each shareholder of record as of the Record Date is entitled to one vote
per share of common stock, exercisable in person or by proxy.
The presence in person or by proxy of a majority of the outstanding
shares of Hotelecopy common stock will constitute a quorum at the Meeting.
Assuming a quorum is present, the affirmative vote of a majority of the shares
of Hotelecopy common stock issued and outstanding, in person or by proxy, is
required to approve the proposed Merger and amendment to its articles of
incorporation.
Abstentions will be treated as present and entitled to vote at the
Meeting. Therefore, abstentions will be counted in determining whether a quorum
is present and will have the effect of a vote against the proposals. A broker
non-vote on the proposals (i.e., shares held by brokers or nominees as to which
instructions have not been received from the beneficial owners or persons
entitled to vote and as to which the broker or nominee does not have
discretionary power to vote) will not be counted in determining whether a quorum
is present. However, because the approval of a majority of the outstanding
common stock of Hotelecopy is required to pass the proposals, broker non-votes
will have the effect of a vote against the proposals.
Alternate Proxy Designation
A shareholder may designate a person or persons to act as the
shareholder's proxy other than the persons designated on the proxy card. The
shareholder may do so by striking out the name appearing on the enclosed proxy
card, inserting the name or names of that person(s), and delivering the signed
card to such person(s). The person(s) designated by the shareholder must, at the
Meeting, present the signed proxy card to the Secretary of the Meeting and vote
the shares as indicated on the proxy card.
Revocability of Proxies
If a shareholder properly executes and returns the attached proxy card
to Hotelecopy, then the person indicated on the proxy card will vote the
shareholder's shares by proxy at the Meeting, as directed on the returned proxy
card. If the proxy card does not direct how to vote the shareholder's shares,
then the person on the proxy card will vote those shares at the Meeting in favor
of the Merger Proposal, and the related Proposals to amend
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Hotelecopy's articles of incorporation to increase its authorized shares and
change its name to Edd Helms Group, Inc. Any a shareholder may revoke a proxy at
any time before it is voted. To revoke a proxy, a shareholder must either notify
the Secretary of Hotelecopy of such revocation, in writing, prior to the
Meeting; or attend the Meeting and vote the shares in person. Attendance at the
Meeting will not, by itself, revoke a proxy. Hotelecopy's Secretary is Carol
Helms, and her address is Hotelecopy, Inc., 17850 N.E. 5th Avenue, Miami,
Florida 33162-1008.
Effect of Shareholder Vote
If all three Proposals are approved by Hotelecopy's shareholders, then
Hotelecopy's Board of Directors intends to proceed with the Merger. If any of
the Proposals are not approved by Hotelecopy's shareholders, then Hotelecopy
will not proceed with the Merger and expects to continue its current operations.
However, Hotelecopy's management has serious concerns about Hotelecopy's ability
to continue as a going concern. See "The Merger - Background of the Merger;
Reasons for the Merger; Recommendation of the Board of Directors".
Dissenting Shareholder Rights
Any Hotelecopy shareholder may dissent from any of the three Proposals
to be presented at the Meeting and demand to be paid an appraised value for the
shareholder's shares of Hotelecopy common stock, but only if the shareholder
follows the procedures provided by Florida law concerning dissenting
shareholders. Those procedures are described elsewhere in this Proxy Statement.
See "Rights of Dissent and Appraisal" and the copies of sections 607.1301,
607.1302 and 607.1320 of the Florida Business Corporation Act, Chapter 607,
Florida Statutes (the "FBCA"), attached to this proxy statement as Exhibit B.
Solicitation
This solicitation of proxies is being made by Hotelecopy. Hotelecopy
will bear the entire cost of its solicitation of proxies, including preparation,
assembly, printing and mailing of this proxy statement, the proxy card and any
additional information furnished to its shareholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Hotelecopy common stock beneficially
owned by others to forward to such beneficial owners. Hotelecopy may reimburse
persons representing beneficial owners of Hotelecopy common stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of
Hotelecopy. No additional compensation will be paid to directors, officers or
other regular employees for such services.
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THE MERGER
The terms of the Merger are set forth in the Merger Agreement. The
description of the Merger which follows summarizes the principal provisions of
the Merger Agreement, is not complete, and is qualified in all respects by
reference to the Merger Agreement, a copy of which is attached hereto as Exhibit
A(1) and incorporated herein.
The Merger Agreement provides that EHI will be merged with and into
Hotelecopy pursuant to section 607.1101 of the FBCA. Hotelecopy will be the
surviving corporation and its name will change to "Edd Helms Group, Inc." Upon
the effectiveness of the Merger, the outstanding shares of EHI common stock will
be converted into the right to receive a total of 10,740,677 shares of
Hotelecopy common stock.
The Merger Agreement has been approved unanimously by the Board of
Directors of Hotelecopy and the Board of Directors and shareholders of EHI. The
Merger and related amendment to Hotelecopy's articles of incorporation is
subject to Hotelecopy's shareholders' approval, by the affirmative vote of a
majority of the shares of its outstanding common stock in favor of the two
proposals. EHI's shareholders own in the aggregate approximately 44% of the
issued and outstanding shares of Hotelecopy and intend to vote those shares in
favor of the proposals.
Subject to the satisfaction or waiver of the conditions contained in
the Merger Agreement, the Merger Agreement provides that the Merger will occur
as soon as practicable after the later of (a) the date on which the shareholders
of Hotelecopy approve the transactions contemplated by the Merger Agreement, or
(b) such later date as the parties may agree. The Merger will become effective
on the date and at the time on which the Articles of Merger and Plan of Merger
are filed with the Secretary of State of Florida (the "Effective Time").
Background of the Merger; Reasons for Merger; Recommendation of the Board
Hotelecopy's management, as well as its primary shareholders, include
the shareholders and management of EHI. See "-- Interests of Certain Persons in
the Merger; Certain Relationships and Related Party Transactions". Because the
same individuals are the primary shareholders of, and manage, both companies,
there were no detailed merger discussions between the two companies.
In approving the Merger, the directors of Hotelecopy considered that
Hotelecopy had two alternatives to the Merger; that is, continuing its present
operations, or a merger (or acquisition) of Hotelecopy by a company other than
EHI, possibly in a shell transaction. The directors believed that if Hotelecopy
were to continue to operate as an independent company, then sometime in the near
future Hotelecopy would become bankrupt, as a result of a number of factors,
including that Hotelecopy has general unsecured obligations which it cannot meet
or would have great difficulty meeting, Hotelecopy continues to lose business,
and Hotelecopy has negative earnings. Hotelecopy's directors also considered it
highly improbable that anyone would be interested in acquiring Hotelecopy for
any purpose other than to utilize it as a public shell, due to its extreme
financial difficulties, and therefore did not actively solicit offers of
indication or interest from other parties. Further, the directors believed that
Hotelecopy was not marketable as a shell because of its outstanding obligations.
In anticipation of the Merger, Hotelecopy has entered into agreements to settle
some of its outstanding obligations. See "Information about Hotelecopy -
Settlement of Certain Claims against Hotelecopy", "Information about Hotelecopy
- - Management's Discussion and Analysis", Hotelecopy Financial Statements
attached as Exhibit C, "Market for Hotelecopy Common Stock", "Interests of
Certain Persons in the Merger; Certain Relationships and Related Party
Transactions". The
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directors also were influenced by the fact that no person other than EHI had
expressed any interest in acquiring Hotelecopy.
EHI considered the Merger beneficial because the Merger would benefit
its shareholders in ways that a merger with a non-related entity would not. For
example, EHI's shareholders (who are also shareholders of Hotelecopy) would as a
result of the Merger immediately see an increase in the value of their shares of
Hotelecopy common stock, while at the same time expect to benefit from EHI
becoming a public company. The EHI shareholders hoped that the increase in the
value of their Hotelecopy common stock would further benefit them, both as
Hotelecopy shareholders and EHI shareholders, in that a market might develop for
Hotelecopy common stock after the Merger, whereas at present there is no ready
market for their Hotelecopy common stock or their privately-held EHI stock.
Although EHI could derive some of these same benefits by merging into a
corporation other than Hotelecopy, from EHI's perspective the costs, especially
professional fees, associated with locating a merger partner and evaluating and
structuring such a deal would be very high.
Hotelecopy did not retain independent legal counsel or other
representatives to advise it concerning the proposal to merge the two companies.
Hotelecopy presently lacks the funds to engage such professionals. Hotelecopy
has engaged the same accounting firm as EHI to assist with the Merger, and
intends to pay their fees and the other costs associated with the preparation,
filing and distribution of this proxy statement and conducting its shareholders'
meeting from funds that will become available to it as a result of the Merger.
The consideration to be received in the Merger was based on the
relative values of the two companies, and included consideration of factors such
as book value of Hotelecopy's and EHI's shares, the value of EHI's business as a
going concern, the value that Hotelecopy might receive were it to sell itself as
a shell corporation to an independent third party, the benefits of the Merger to
EHI (as discussed above) and its shareholders by providing a market for EHI's
shareholders' shares in the merged companies and a more visible public presence
for EHI's business. The Merger consideration is not the result of arms' length
bargaining between Hotelecopy and EHI, nor was the opinion of any financial
advisor sought.
On March 26, 1999, the Board of Directors of Hotelecopy and of EHI each
approved the Merger by unanimous written consent in lieu of a meeting.
THE BOARD OF DIRECTORS OF HOTELECOPY HAS DETERMINED THAT THE PROPOSALS
ARE FAIR AND IN THE BEST INTERESTS OF HOTELECOPY AND ITS SHAREHOLDERS, AND,
THEREFORE, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND MERGER PROPOSAL,
AND RELATED PROPOSALS TO INCREASE HOTELECOPY'S AUTHORIZED SHARES OF COMMON STOCK
TO 20,000,000 SHARES AND CHANGE HOTELECOPY'S NAME TO "EDD HELMS GROUP, INC.",
AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF HOTELECOPY VOTE TO APPROVE
AND ADOPT THE MERGER AGREEMENT AND THE MERGER AND THE TWO RELATED PROPOSALS TO
INCREASE HOTELECOPY'S SHARES AND CHANGE ITS NAME.
Interests of Certain Persons in the Merger; Certain Relationships and Related
Party Transactions
The shareholders of EHI are also shareholders of Hotelecopy, and EHI's
Shareholders will, after being issued shares in the Merger, hold approximately
92% voting control over Hotelecopy's outstanding common stock. Non-EHI
shareholders of Hotelecopy will have their voting control reduced from
approximately 56% to 8%.
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Certain shareholders, officers and directors of EHI are also officers
and/or directors of Hotelecopy. W. Edd Helms, Jr. is the President and a
director of Hotelecopy and the President and a director of EHI. Carol Helms is
the wife of W. Edd Helms, Jr. She is the Secretary and a director of Hotelecopy,
and the Secretary and a director of EHI. Mr. and Mrs. Helms beneficially own 44%
of the currently outstanding Hotelecopy common stock and 87% of the outstanding
EHI common stock. Mrs. Helms has options to acquire 1,000 shares of Hotelecopy
common stock at $.87 per share. See "Security Ownership of Certain Beneficial
Owners and Management of Hotelecopy".
L. Wade Helms is the brother of W. Edd Helms, Jr., and he is the
Vice-President and a director of Hotelecopy, and the Vice-President and a
director of EHI. Mr. Wade Helms beneficially owns 2,147 shares of Hotelecopy
common stock, and options to acquire 25,077 shares of Hotelecopy common stock,
12,000 of which are exercisable at $1.10 per share, and 13,077 of which are
exercisable at $6.50 per share.
Philip H. Kabot is the Vice-President/Finance and Chief Financial
Officer of Hotelecopy, and the Chief Financial Officer of EHI. Mr. Kabot has
options to acquire 12,000 shares of Hotelecopy common stock for $1.10 per share.
It is expected that options to acquire Hotelecopy common stock that are
held by related parties may increase in value as a result of the Merger;
however, whether they will attain the value to warrant their exercise is not
known.
Hotelecopy and EHI both lease the same Miami, Florida office and
warehouse facility from National Industrial Park, a partnership owned by W. Edd
Helms, Jr. and Carol Helms. Rent expense paid to this partnership by Hotelecopy
was approximately $61,900 and $72,500 for the years ended May 31, 1998 and 1997,
respectively. Hotelecopy believes that this transaction is on terms and
conditions at least as favorable to Hotelecopy as those that would have been
available from non-affiliated third parties.
W. Edd Helms, Jr., Philip H. Kabot and L. Wade Helms receive salary and
other benefits as officers of EHI. Only Mr. Edd Helms' salary exceeds $100,000
(presently it is $160,000 per year). After the Merger, Hotelecopy will provide
Mr. Edd Helms, Mr. Kabot, Mr. Wade Helms and the other existing officers of EHI
with the same salary and benefits that each of them presently receives from EHI.
Business and Management of Hotelecopy Following the Merger; Plans for Business
of Hotelecopy
At the Effective Time of the Merger, it is anticipated that the Board
of Directors and officers of Hotelecopy will consist of those persons who are
serving as its directors and executive officers at the Effective Time of the
Merger. Hotelecopy's management expects, after the Merger, to continue the
operations of EHI's and Hotelecopy's present businesses for the near future,
but, as regards to Hotelecopy, to service only current accounts and not market
Hotelecopy's products.
Accounting Treatment
The Merger will be accounted for as a reverse acquisition purchase.
Tax Treatment
The Merger is intended to qualify as a tax-free reorganization within
the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended. A ruling from the Internal Revenue Service concerning the tax
consequences of the Merger will not be requested, nor has an opinion of counsel
been obtained regarding said tax consequences.
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Merger Expenses
The Merger Agreement provides that EHI and Hotelecopy each will bear
its own expenses incurred in connection with the Merger. Hotelecopy intends to
use funds that will become available to it as a result of the Merger to cover
its expenses.
Conditions to the Merger; Waiver and Amendment; Termination
The respective obligations of Hotelecopy and EHI to consummate the
Merger are subject to the satisfaction of certain conditions, including, among
others, the approval of the Merger and increase in authorized shares by
Hotelecopy's shareholders and other conditions customary in merger transactions.
The Merger is not subject to any regulatory approval. Assuming that all
conditions to the Merger contained in the Merger Agreement are satisfied or
waived and that the Merger Agreement has not been terminated, the Merger
Agreement provides that the Merger shall occur as soon as practicable following
approval by the shareholders of Hotelecopy of the Merger.
At any time before the Merger becomes effective, any party to the
Merger Agreement may waive conditions contained therein to its own obligations,
to the extent that such obligations, agreements and conditions are intended for
its own benefit. In addition, the Merger Agreement may be amended by written
instrument signed on behalf of each of the parties thereto.
The Merger Agreement may be terminated at any time prior to the
Effective Time of the Merger by the mutual consent in writing of Hotelecopy and
EHI.
Effective Time of the Merger
The Merger will become effective on the date and at the time on which
the Articles of Merger and Plan of Merger are filed with the Florida Secretary
of State. Subject to satisfaction of the conditions contained in the Merger
Agreement, the parties currently anticipate that the Merger will become
effective by July 31, 1999, although there can be no assurance as to whether or
when the Merger will become effective.
Hotelecopy Common Stock Received in the Merger to be Restricted Stock
The shares of Hotelecopy common stock to be issued pursuant to the
Merger Agreement will not be registered under the Securities Act, and will be
restricted securities. Accordingly, the shares of Hotelecopy common stock to be
issued in the Merger may be resold only pursuant to an effective registration
statement, pursuant to Rule 144 under the Securities Act (which, among other
things, permits the resale of securities subject to certain holding period and
volume limitations) or in transactions otherwise exempt from registration under
the Securities Act.
Shareholder Rights to Dissent to the Merger
If a shareholder has not voted to approve the Merger and increase in
authorized shares and if the shareholder complies with the requirements of the
Florida Business Corporation Act (the "FBCA") concerning dissenting
shareholders, if the Merger is consummated, the shareholder will be able to have
the fair value of his, her or its shares of Hotelecopy common stock judicially
determined and paid to him, her
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or it. The FBCA will require any dissenting shareholder to, among other things,
make a written demand for determination of the fair value of the shareholder's
shares within sixty days after the Effective Date of the Merger. Neither the
delivery of a proxy directing a vote against the Merger and increase in
authorized shares, nor a failure to vote for the Merger and increase in
authorized shares, constitute a written demand for such determination. See
"Dissenting Shareholder Rights".
NAME CHANGE PROVISION IN PLAN OF MERGER
The Plan of Merger that will be filed with the Florida Secretary of
State, subject to approval by Hotelecopy's shareholders of the Proposals,
provides that Hotelecopy's name will change to "Edd Helms Group, Inc." The
reason for the name change is that after the Merger, Hotelecopy will continue
the business of EHI (which will be the primary business of the Surviving
Corporation), and EHI has built up goodwill and name recognition for the name
"Edd Helms" in EHI's line of business.
AMENDMENT TO HOTELECOPY ARTICLES
OF INCORPORATION INCREASING SHARES
Hotelecopy's Articles of Incorporation presently authorize 10,000,000
shares of Hotelecopy common stock, of which 1,933,318 shares are issued and
outstanding. In order to effect the Merger, Hotelecopy will need to issue an
additional 10,740,677 shares of Hotelecopy common stock to EHI's Shareholders.
Therefore, Hotelecopy presently does not have enough authorized shares to effect
the Merger, and so it is presenting to its shareholders for approval at the
Meeting an amendment to Hotelecopy's Articles of Incorporation, increasing its
authorized shares of Common Stock to 20,000,000. The text of the amendment is
set forth on Exhibit A(4). The purpose of the amendment is to authorize for
Hotelecopy enough shares to issue in the Merger. At present, there is no
intention to issue any additional shares of Hotelecopy common stock other than
to effect the Merger.
INFORMATION ABOUT HOTELECOPY
Description of Business.
Introduction
Hotelecopy, Inc. is a Florida corporation organized in 1985 to build
and operate a public facsimile terminal network. From these public terminal
locations, the public is able to send and receive facsimile documents, at rates
competitive with overnight mail. Hotelecopy calls its public communications
network FaxMail. Hotelecopy installs, operates and maintains self-service credit
card FaxMailers throughout the United States. The equipment is placed in
locations with a high demand for business services. The locations include, but
are not limited to, private airline clubs, airports, hotels, colleges and
universities. The customer can send or receive documents and pay for the service
with a major credit card.
As of June 1, 1999, there were approximately 82 revenue producing
locations, of which 67 were self-service locations.
Products and Services
The Self-Service FaxMailer
Hotelecopy has developed a number of credit card operated self-service
facsimile terminals marketed as the FaxMailer. Hotelecopy assembles and
integrates specially adapted components manufactured by others into a unique
cabinet design. Hotelecopy developed highly sophisticated, flexible and
proprietary computer software for the FaxMailers. The self-service FaxMailer
allows the public to send a fax, receive a fax, or to access any of Hotelecopy's
enhanced FaxMail services. Hotelecopy contracts directly with various locations
to provide self-service FaxMailers under a Membership Agreement.
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As of June 1, 1999, Hotelecopy operated 67 self-service FaxMailers
throughout the United States. Hotelecopy is operating self-service FaxMailers in
all of United Airlines' and Alaska Airlines' private membership airport
clubrooms nationwide. The agreement with United Airlines expires in August 1999.
In addition to private airline clubrooms, FaxMail service is available within
airports, colleges, universities, train stations and hotels.
During fiscal 1998, revenues from self-service FaxMailers contributed
approximately 94% of Hotelecopy's total revenues.
Attended FaxMail Locations
Hotelecopy owns and operates 15 attended fax machines in hotels. Under
a Membership Agreement, Hotelecopy provides the Member location with a complete
public fax program including location referral, marketing literature and
support, point of sale materials, special FaxPak envelopes in which received fax
messages are delivered, staff assistance, fax equipment and maintenance.
In most cases, the attended Member location offering Hotelecopy FaxMail
service pays Hotelecopy either a commission based on the respective terminal's
revenues, or a fixed monthly fee. The public purchases Hotelecopy's FaxMail
services directly from hotel personnel at attended locations.
Hotelecopy's FaxMail Central
From Hotelecopy's Operations Center in Miami, Hotelecopy remotely
monitors and manages all of its public fax terminals across the United States.
Hotelecopy developed this proprietary host software and hardware system for the
specific purpose of managing a diverse public FaxMail terminal network. It has
been continuously refined and upgraded since 1986. At the present time, it is
capable of managing additional public terminal locations anywhere in the world.
Hotelecopy's computer system integrates computer-based fax systems, traditional
fax systems, voice prompting, point of sale transaction processing and credit
card processing with traditional data processing systems. The system also allows
Hotelecopy to provide enhanced FaxMail services at all Hotelecopy public access
fax terminal locations.
Hoteleticket Instant Airline Ticketing
Hotelecopy owns Hoteleticket, Inc., (Hoteleticket) a licensed travel
agency. Hoteleticket provided a service allowing business travelers to pick up
their tickets, boarding passes and seat assignments at the front desk of
Hoteleticket locations. In the past, this service was used on a limited basis
and has been inactive since November of 1993. Hoteleticket has not operated
profitably since inception. Presently because of severe cash limitations,
Hoteleticket discontinued operations. Hoteleticket remains in compliance with
all relevant regulatory authorities and the only expenses being incurred are
those that are required in order to comply with those authorities.
Hoteleticket does not expect any expansion until it can generate
sufficient capital.
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FaxMail Revenues
General
Hotelecopy earns its principal revenues from the sale of its services
to the public, based on the terms of the particular Membership Agreement for the
public fax terminal location. When Hotelecopy first began contracting with
members in 1986, the locations were primarily hotels offering attended FaxMail
services to the public. Members now include hotels, airports, colleges,
universities, and primarily private airline clubrooms. Hotelecopy offers
attended and self-service location membership agreements.
Attended Member Locations
Attended Member locations use their employees to collect FaxMail fees
directly from the Public, and then on a monthly arrears basis pay either a
percentage of those receipts to Hotelecopy or a fixed monthly fee.
While most original attended Member locations elected to pay Hotelecopy
a percentage of receipts, most new and renewed attended Member locations elected
to pay Hotelecopy on a fixed monthly fee.
Hotelecopy's revenues from attended member locations have declined.
Hotelecopy attributes the decline in revenues from attended Member locations
primarily to maturation of the public fax marketplace, and expiration and
non-renewal of attended Member locations. Revenues were higher in previous years
from attended locations primarily because of supply and demand factors (supply
of public fax machines, and non public machines, was less extensive) prior to
market maturation, and because Hotelecopy had more locations, which it has since
lost due to non-renewals. Hotelecopy's revenues from its attended Member
locations continue to decline and this will materially adversely affect
revenues. Because of these factors, and the lack of funds to market this service
Hotelecopy now directs it limited sales efforts towards self-service Member
locations.
Self-Service Member Locations
Self-Service Member locations provide FaxMail services directly to the
Public, with FaxMail usage fees paid directly from the customer to Hotelecopy by
major credit card. Hotelecopy electronically collects self-service FaxMail usage
receipts on a daily basis and pays the self-service Member location a commission
based on those usage revenues.
When the self-service FaxMailer terminal is Company owned, Hotelecopy
earns a higher percentage of the FaxMail usage fees when compared to its
attended location Membership Agreements. Self-service receipts are collected
simultaneous with the sale compared to attended receipts being collected on a
monthly arrears basis.
Suppliers
Hotelecopy's equipment used at its Member locations consists
principally of products sold by AT&T and Ricoh. Hotelecopy's self-service units
integrate certain designed components, which are manufactured by others and are
readily available from any one of many suppliers. Hotelecopy believes its
present suppliers can adequately meet Hotelecopy's needs for the near future.
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Cyclicality of the Industry
Hotelecopy's revenues are derived primarily from business travelers.
Consequently, during periods of lessened business travel, such as holiday
seasons, Hotelecopy's revenues decline.
Economic Dependence
Each Member location contracts with Hotelecopy for FaxMail services.
The majority of Hotelecopy's attended Member location agreements are for single
locations. Hotelecopy does have master contracts for some multiple self-service
Member locations, has a month-to-month agreement with United and an agreement
with Alaska Airlines to offer self service FaxMailers in all of their private
membership airport clubrooms nationwide. Although Hotelecopy is not dependent
upon a single customer, the loss of any individual master contract could have a
material adverse effect on continuing operations.
Government Regulation
At the present time, there is no price regulation of Hotelecopy's
services. There can be no assurance that charges for fax and other electronic
business services provided by Hotelecopy will not be regulated in the future.
Settlement of Certain Claims against Hotelecopy
During 1989, the United States Postal Service (USPS) and Hotelecopy
entered into a joint venture agreement to provide self-service fax terminals in
265 postal lobbies. Hotelecopy filed two lawsuits against the USPS alleging
default in its contracts and wrongful termination. On November 3, 1992, the
Court issued an adverse decision to Hotelecopy by dismissing Hotelecopy's
complaints and ordered that the United States Postal Service recover $88,400 on
its counterclaim from Hotelecopy. Hotelecopy settled this claim for $25,000 in
March 1999.
In November 1998, Hotelecopy settled for $10,000 an outstanding claim
of Chrysler Corporation against it.
Competition
Hotelecopy also competes with alternative methods of document
transmission, principally overnight mail services such as Federal Express,
United Parcel Service and Express Mail by the United States Postal Service,
internet fax services and electronic mail (E-Mail). Additionally, any business
can purchase a facsimile machine and provide fax service to the public without
being a Member location of Hotelecopy.
In general, the market for public fax and information services is
highly competitive. Hotelecopy believes that the principal competitive factors
in this market include product features, ease of operation, product reliability,
initial investment costs, price and customer support services. Hotelecopy
believes that its continued operations will, in large part, be dependent on its
ability to respond to competitive pressures and technological changes by
enhancing existing products and marketing new products developed by it or
others.
Hotelecopy competes with respect to its products and services with both
large established concerns and smaller companies that are developing and
offering or which may develop and offer competing products and
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services as well as E-Mail, increased emphasis on the internet, and internet
faxes. Many of these competitors have financial resources far greater than those
of Hotelecopy. The intense competition in the market has adversely affected
Hotelecopy as Hotelecopy has limited financial ability to invest in new
equipment, or to support a marketing and sales effort.
Employees
As of June 1, 1999, Hotelecopy had one full-time employee.
Description of Property.
Hotelecopy presently leases approximately 2,000 square feet for its
headquarters in Miami, Florida, which is used for office space, pursuant to a
lease expiring in May of 2000, at a total cost annually of approximately
$26,400. The property is owned by a partnership of which Carol Helms, the wife
of Hotelecopy's President and a Director of the corporation, and W. Edd Helms,
Jr., President of Hotelecopy, are the sole owners. Hotelecopy believes that
these facilities are sufficient to accommodate Hotelecopy's needs. Hotelecopy
believes the rent to be reasonable and competitive in price with rent for
similar facilities in the area.
Year 2000 Disclosure
The year 2000 issue results from certain computer systems and software
applications that use only two digits (rather than four), to define the
applicable year. Consequently, such systems and applications may recognize a
date of "00" as the year 1900, instead of the intended year 2000, which could
result in data miscalculations and software failures. Hotelecopy has conducted
an initial assessment of its computer system and software applications and
Hotelecopy believes that its systems will be 2000 compliant. Hotelecopy is
communicating with key suppliers, financial institutions and customers during
fiscal 1999 to identify and coordinate the resolution of any year 2000 issues
which might arise from these constituencies. Based on its initial assessment,
Hotelecopy believes the cost of addressing the year 2000 issue will not have a
material impact on Hotelecopy's financial position or results of operations.
Management's Discussion and Analysis
Results of Operations - May 31, 1998 Compared to May 31, 1997
Revenues
Total revenues decreased approximately 24% compared to the fiscal year
ended May 31, 1997. The decline in revenues is attributed to the decline in
Member locations. This decline is directly attributed to the expiration and
non-renewal of the Member locations and intense competition for this business.
Hotelecopy anticipates continued declines as contracts expire, and this has and
is expected to continue to materially adversely affect revenues.
Hotelecopy does not have funds to support a marketing and sales effort
to further expand its self-service FaxMailers, nor can it aggressively pursue
expansion of the self-service FaxMailers.
Payroll, Payroll Taxes and Related Benefits
There was a decrease of approximately 55% in payroll, payroll taxes and
related benefits compared to the fiscal year ended May 31, 1997. During the
fiscal year ended May 31, 1998, there were no officer salaries paid and there
was a reduction in personnel.
Cost of Revenues
Cost of revenues declined approximately 32% in fiscal May 1998 as
compared to the prior fiscal year. The decline in these costs can be attributed
to the reduction of expenses to maintain telephone lines resulting from the loss
of a major customer.
Occupancy Costs
Occupancy costs decreased approximately 15% compared to the prior
fiscal year, primarily attributable to discontinuance of an accrual for storage
fees.
Other Selling and Administrative
There was a slight increase in other selling and administrative
expenses (approximately 4%) compared to the prior fiscal year. There were some
one-time, unusual, office equipment repairs, an increase in office supplies and
an increase in general insurance.
Extraordinary Item - Extinguishment of Debt
In May of 1998, Hotelecopy reviewed all the liabilities it had provided
for in prior years. Hotelecopy determined, pursuant to the Florida Statute of
Limitations, Section 95.11 of the Florida Statues, that certain liabilities
appear to be time barred, and accordingly these liabilities have been
written-off.
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Liquidity and Capital Resources
Hotelcopy had a working capital deficit of approximately ($166,000)
and a ratio of current liabilities of approximately .22 to 1 at May 31, 1998.
This compares with a May 31, 1997, working capital deficit of ($2,278,000) and a
ratio of current assets to current liabilities of .02 to 1.
Working capital deficit decreased as a direct result of the write off
of old outstanding debts that expired due to the Florida Statute of Limitations.
Early in November 1992, Hotelcopy received an adverse decision in its
litigation against the United State Postal Service (United States Claims Court
Case Nos. 91-963C and 91-964C). The Court dismissed Hotelcopy's complaints and
ordered that the United States Postal Service recover $88,400 on its
counterclaim against Hotelcopy. On March 10, 1993, Hotelcopy filed its Appeal in
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, Hotelcopy 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 issued a
judgement was entered against the Company in the amount of $88,400. Hotelcopy
does not have the funds to satisfy this judgement.
Hotelcopy is in default with its creditors and in July of 1992
suspended all payments to these creditors due to cash flow restraints. Hotelcopy
does not have the funds to repay these creditors. Hotelcopy to date, has been
able to rely on its current creditors and suppliers to extend sufficient credit.
No assurances can be given that these suppliers and creditors will continue to
extend sufficient credit and cooperate with Hotelcopy to maintain its present
level of operations. Hotelcopy'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.
Hotelcopy's inability to meet its liquidity needs raises substantial
doubt about Hotelcopy's ability to continue as a going concern. Hotelcopy has
continued to reduce its total operating expenses, however, revenues continue to
decline. Hotelcopy continues to attempt to renew attended Member agreements as
they expire. However, it has not been able to equally offset these expirations
with new self-service or attended Member agreements. Hotelcopy's limited cash
flow does not allow Hotelcopy to invest in new equipment or to support a
marketing and sales effort for the self-service FaxMailer and therefore has
limited new terminal installations.
Hotelcopy has limited liquidity on a short-term basis and, absent
additional funding, will have limited liquidity on a long-term basis. At the
present, Hotelcopy 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 ending May 31, 1999 are not expected to be
sufficient to finance expected working capital and other projected cash needs
during such period. Continued operation of Hotelcopy in the normal course of
business is dependent on Hotelcopy's ability to obtain adequate funding of
ongoing operations from external or internal sources.
If Hotelcopy is unable to obtain financing or equity capital, the
ability of Hotelcopy to continue as a going concern will be in doubt. Should
Hotelcopy be unable to continue as a going concern the liquidation value of its
assets will not be sufficient to satisfy Hotelcopy's outstanding obligations.
Hotelecopy's plan to resolve its financial difficulties has been to
pursue the acquisition of an operating entity. Unrelated third party merger
candidates have not been sought because EHI presented itself as a suitable
partner, and management believed that a merger could be effected with EHI at
significantly less expense than with an outside candidate, due primarily to the
expectation that legal, accounting and administrative expenses associated with
the Merger would be less than they would be in a transaction with a third party
requiring extensive due diligence, negotiation, structuring, drafting, etc.
However, even if the EHI Merger were not consummated, a merger with an operating
business would still be the primary solution that management has for
Hotelecopy's financial difficulties. There is no assurance that Hotelecopy would
be able to find a suitable acquisition candidate if the Merger with EHI is not
consummated, and in such case, Hotelecopy would continue to operate its
business, relying on reducing expenses, extensions of credit and its own
operating revenues, as it has in the past.
Hotelecopy has been reducing expenses, and together with the credit
extended by Hotelecopy's current vendors, related parties and creditors, as well
as projected revenue, Hotelecopy believes that sufficient funds are available to
support its liquidity requirements through May 31, 1999.
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RESULTS OF OPERATIONS - FEBRUARY 28, 1999 COMPARED TO FEBRUARY 28,1998
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. Hotelecopy 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. Hotelecopy 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.
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
Hotelecopy 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. Hotelecopy has a negative net worth and cash flow which
is not sufficient to cover its greatly reduced overhead. On November 5, 1993, a
final
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judgement was issued and a judgement was entered against Hotelecopy by the
United States Postal Service in the amount of $88,400. In the later part of
February 1999, Hotelecopy entered into an agreement with the United Postal
Service to settle this claim for $25,000. In May of 1998, Hotelecopy charged
off liabilities that were time barred pursuant to the Florida Statute of
Limitations, Section 95.11 of the Florida Statutes. Hotelecopy is current
with all its present vendors.
Hotelecopy'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.
Hotelecopy's inability to meet its liquidity needs raises substantial
doubt about Hotelecopy's ability to continue as a going concern. Hotelecopy has
continued to reduce its total operating expenses, however, revenues continue to
decline. Hotelecopy's limited cash flow does not allow Hotelecopy to invest in
new equipment or to support a marketing and sales effort for the self-service
FaxMailer.
Hotelecopy 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. The Company's
negative cash flow from operations is approximately $2000.00 per month.
Continued operation of Hotelecopy in the normal course of business is dependent
on Hotelecopy's ability to obtain adequate funding of ongoing operations from
external or internal sources. On April 1, 1999, Hotelecopy filed a preliminary
proxy with the Securities and Exchange Commission entering into an agreement and
plan of merger with a related company.
If Hotelecopy is unable to obtain financing or equity capital or merge
as stated above, Hotelecopy will not be able to continue as a going concern.
Should Hotelecopy be unable to continue as a going concern, the liquidation
value of its assets will not be sufficient to satisfy Hotelecopy's outstanding
obligations.
Hotelcopy believes that the carrying value of the assets and
liabilities on the balance sheet at February 28, 1999, approximates their
liquidation values; therefore, no adjustment to carrying values has been made.
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INFORMATION ABOUT EHI
Description of Business.
Edd Helms, Inc., is a Florida corporation ("EHI") organized in 1975
that provides electrical and air conditioning services. EHI has one wholly-owned
subsidiary, Edd Helms Air Conditioning, Inc., a Florida corporation. EHI
provides it s air conditioning services through its subsidiary. In May 1999,
EHI merged a former subsidiary, Edd Helms Electrical Contracting, Inc., into
EHI, and EHI was the surviving corporation. W. Edd Helms, Jr. is EHI's
President; Carol A. Helms is its Secretary, L. Wade Helms is its Vice President,
and Philip H. Kabot is its Chief Financial Officer. Carol Helms does not devote
full time to the affairs of EHI and receives no compensation. Carol Helms is the
wife of W. Edd Helms, Jr.
EHI believes significant opportunities are available to a well
capitalized company employing professionally trained, customer-oriented service
technicians and providing a full complement of high quality services in an
industry that has been characterized by inconsistent quality, reliability and
pricing. In addition, the increasing complexity of equipment has led to a need
for better trained technicians to install, monitor and service the complex
equipment used in the industry. The cost of recruiting, training and retaining a
sufficient number of qualified technicians makes it more difficult for smaller
companies to expand their businesses. EHI also believes the highly fragmented
nature of the service industries will provide it with significant opportunities
to expand in the service business.
EHI provides a broad variety of maintenance, repair and replacement
services for both residential and commercial customers in Miami-Dade, Broward
and southern Palm Beach counties in South Florida. These services include
preventative maintenance, emergency repairs and the replacement (in conjunction
with the retrofitting or remodeling of a residence or commercial building, or as
a result of an emergency repair) of systems and associated parts, electrical
control systems, wiring, data cabling, switches and panels. EHI also provides
services on a temporary nature to the convention and trade show exhibitors in
South Florida. EHI maintains a large mobile inventory of specialty show
equipment and trailers for these installations. EHI operates a fleet of
approximately 40 owned or leased service trucks, vans and support vehicles. It
believes these vehicles are well maintained and are adequate for its current
needs. These vehicles are operated by a highly trained and licensed workforce.
Prior to employing individuals who comprise its workforce, EHI makes an
assessment of the technical competence level of the potential new employee,
confirms background references and conducts criminal and driving record checks.
Once hired, employees of EHI are required to
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complete a progressive training program to advance their technical competencies
and to ensure that they understand and follow EHI's safety practices and other
internal policies. Both technical and customer service personnel are given
intensive training in customer communication, sales and problem skills. The
length of the training programs that must be completed by EHI personnel vary;
but are regular and ongoing. EHI's safety program is presented to its employees
bi-monthly. In addition, employees from time to time attend EHI training classes
that generally last two days. In order for EHI employees to maintain their
licenses, they must also complete 14 hours of continuing education every two
years.
EHI also conducts detailed internal evaluations of its strengths,
weaknesses and compliance with recognized industry or company "best practices"
and then designs a training program to develop and enhance the communication,
sales, management and other relevant skills of its employees and management to
bring about continuous improvements in these areas.
EHI maintains good labor relations. Management is actively involved in
the recruitment and training of labor to ensure an available and capable labor
supply. To this end, such management is involved in local industry associations
and it participates in organized labor and training programs. In addition, the
Company has its own recruiting and training programs and offers expanded career
paths with the assurance of a stable income that comes from being part of a
growing company. Although substantially all of EHI's employees are unionized, it
has not experienced a strike or any significant labor stoppage.
Most of EHI's service vehicles are equipped with a computer tracking
system that indicates location of service vehicles at all times. This tracking
system utilizes a central computer that is online with a commercial service
provider. Each service vehicle is equipped with a module that communicates
between the commercial service provider and EHI's central computer. The tracking
system permits EHI to track the location, time of arrival and time of departure
for each of the service vehicles and technicians. All warehouse and delivery
personnel in their vehicles are equipped with two-way radios that allow
communication with the base radio in EHI's dispatch department. Communication
can be supplemented with hand-held two-way radios that are used primarily by its
administrative and management personnel.
Advertising and Marketing
EHI uses both general advertising and a direct sales force to market
its services in its geographic market. EHI continues to preserve and enhance the
value of the unique and long-standing trade names and customer identification
enjoyed by the individual Edd Helms companies. The Edd Helms logo and
identifying marks are featured on EHI's service trucks, in its marketing
materials and in its advertisements. EHI intends to continue to expand its
advertising and marketing presence in South Florida. Uniform marketing as to the
look and appearance of EHI's vehicles is noticeable in the EHI fleet. Also, all
of its field technicians wear uniform shirts with EHI's marketing logo and
color. EHI requires its technicians to display photo identification to each
customer when they arrive at the customer's facility or home. EHI believes that
this photo identification requirement builds confidence with its customers.
Competition
The market for EHI's services is highly competitive. EHI believes that
the principal competitive factors in the services industries are: (a)
timeliness, reliability and quality of services provided; (b) range of services
offered: (c) market share visibility; and (d) price. EHI believes its strategy
to become a leading provider of comprehensive services directly addresses each
of these factors. The ability of EHI to employ, train and retain highly
motivated service technicians to provide quality services should be enhanced by
its ability to utilize professionally managed recruiting and training programs.
In addition, EHI offers compensation, health and saving benefits to its
employees that are more comprehensive than most offered in the industry,
19
<PAGE>
including a 401K plan offered to all of its employees. Competitive pricing is
possible through purchasing economies and other cost saving opportunities that
exist.
Most of EHI's competitors are small, owner-operated companies that
typically operate in a single market. Certain of these small competitors may
have lower overhead cost structures and may be able to provide their services at
lower rates. Moreover, many homeowners have traditionally relied on individual
persons representing small repair service firms with whom they have long
established relationships for a variety of home repairs. There are currently a
number of public companies focused on providing residential or commercial
services in some of the same service lines provided by EHI. Certain of EHI's
competitors and potential competitors have greater financial resources than EHI
to finance acquisition and development opportunities, to pay higher prices for
the same opportunities or to develop and support their own service operations if
they decide to enter the field.
Description of Property
EHI presently leases approximately 27,000 square feet for its
warehousing, distribution and executive offices. These leases expire in December
of 2002. The total cost annually is approximately $193,000, including sales tax.
The property is owned by a partnership of which Carol Helms, the wife of EHI's
President and a director of EHI, and W. Edd Helms, Jr., President of EHI, are
the sole owners. EHI believes that these facilities are sufficient to
accommodate EHI's needs. EHI believes the rent to be reasonable and competitive
in price with rent for similar facilities in the area.
Employees
As of June 1, 1999, EHI had approximately 95 full time employees, of
whom approximately 60 are technicians. Most of these technicians are members of
unions and work under collective bargaining agreements. The collective
bargaining agreements expire between August of 1999 and July of 2001. EHI
believes that its relationship with its employees is satisfactory.
Government and Municipality Regulations
Aspects of EHI's operations are subject to various federal, state and
local laws and regulations including, among others, (a) permitting and licensing
requirements applicable to service technicians in their respective trades; (b)
building and electrical codes and zoning ordinances; (c) laws and regulations
relating to worker safety and protection. EHI believes it has all required
permits and licenses to conduct its operations and is in compliance with
applicable regulatory requirements relating to its operations.
Legal Proceedings
EHI is, from time to time, involved in routine litigation incidental to
its businesses. In the opinion of EHI's management, based in part from the
advice of counsel, none of these actions will have a material adverse effect on
EHI.
Management Information Systems
EHI operates a state-of-the-art computer system which operates the
WindowsNT client server network connected to a central server. This computer
system has built in redundancy and is backed up by an
20
<PAGE>
uninterruptable power system to avoid loss of information during power loss. The
management software used by EHI is a custom package comprising an integrated
suite of applications specifically designed for the service industry. EHI
utilizes approximately 25 computers online with the server.
Year 2000 Disclosure
Many financial information and operations systems used today may be
unable to interpret dates after December 31, 1999, because these systems allow
only two digits to indicate the year in a date. Consequently, these systems are
unable to distinguish January 1, 2000, from January 1, 1900, which could have
adverse consequences on the operations of an entity and the integrity of
information processing. This potential problem is referred to as the "Year 2000"
or "Y2K" issue. In 1998, EHI established a corporate-wide program to address Y2K
issues. This effort is comprehensive and encompasses software, hardware,
networks, PC's, sales and other facilities, embedded chips, century
certification, supplier and customer readiness, contingency planning, and
operations. EHI is currently on schedule and is more than 80% complete as of
February 28, 1999. EHI has replaced or upgraded most of its critical business
applications and systems and has begun the century testing phase for these
critical technology systems. The target date to repair or replace the remaining
critical business information systems is May 31, 1999. EHI has prioritized its
third-party relationships as critical, severe or sustainable, has completed the
assessment phase for third parties (except for assessment of its key customers
which is scheduled to be complete in May 1999), has requested Y2K compliance in
many new key contracts and is developing contingency plans for critical third
parties, including key customers suppliers and other service providers. If
necessary modifications and conversions by EHI are not made on a timely basis,
or if key third parties are not Y2K ready, Y2K problems could have a material
adverse effect on EHI's operations. EHI's most reasonably likely worst case
scenario is a regional utility failure that would interrupt operations and
distribution centers in the affected region. To mitigate this risk, and to
address the possible uncertainty of whether the EHI will be able to solve all
potential Y2K issues, EHI has begun contingency planning for its critical
operations, including key third-party relationships, and will require written
contingency plans for these areas. EHI expects to complete all of its
contingency planning by June 30, 1999. Y2K costs are expensed as incurred
(unless, as in the case of computer hardware and software purchased new where
these assets are capitalized funded through bank credit and operating cash
flows). Through February 28, 1999, EHI has not had any incremental remediation
costs and remaining incremental remediation costs are expected to be
insignificant. EHI has spent its entire 1999 fiscal year information technology
budget to purchase new computer hardware and software to provide faster
state-of-the-art equipment which is 2000 Year Compliant, and expects no further
costs for remediation issues. EHI has not deferred any critical information
technology dedicated team within EHI's information technology group. Time and
cost estimates are based on currently available information and could be
affected by the ability to correct all relevant computer codes and equipment,
and the Y2K readiness of EHI's business partners, among other factors. Also,
EHI's pending merger of Hotelecopy, Inc. is included in this assessment.
Management's Discussion and Analysis
Results of Operations - May 31, 1998 Compared to May 31, 1997
Revenues Earned
For the fiscal year ended May 31, 1998, revenues decreased
approximately 10% compared to the fiscal year ended May 31, 1997. This decrease
is attributable to the loss of a major utility maintenance contract as well as
completion during fiscal 1997 of a particularly large emergency repair project.
In fiscal 1998, EHI had no significant emergency repair projects; and although
its revenues for service work increased during fiscal 1998 over fiscal 1997,
that increase did not compensate for the decrease in emergency repair work after
completion of the emergency repair project in 1997. EHI has elected not to
depend on the new construction/general contractor market and has made aggressive
marketing efforts to businesses and residential customers.
Cost of Revenues Earned
Cost of revenues decreased approximately 10% compared to the fiscal
year ended May 31, 1997. This decrease in cost is directly related to the
reduced need for labor and material as a result of the decrease in sales. Gross
profit margin increased by approximately 1%, but the gross profit dollars
decreased by approximately $294,000, which is attributable to the reduction in
sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by 8% in 1998 as
compared to 1997, and the increase is attributable to an increase in advertising
expenses, vehicle repairs and the contribution necessary to repurchase or retire
shares of EHI common stock from the Employee Stock Option Plan. EHI in 1998, in
order to increase its visibility, took a more aggressive approach to
advertising, thereby increasing its expense. Vehicle acquisition costs and
repair costs increased over 1997, as EHI has put an emphasis on preventative
maintenance as some of its vehicles are beginning to age and has begun
purchasing new vehicles to update its fleet.
Net Income
Net income decreased by $154,331, or 46% over 1997, and this decrease
also is attributable to the reduction in sales. Cost of revenues earned and
selling, general and administrative expenses decreased in total by approximately
$535,000 in 1998, however, actual revenues earned decreased by approximately
$830,000 as compared to 1997.
Liquidity and Capital Resources
EHI had working capital of approximately $819,000 and a ratio of
current assets to current liabilities of approximately 1.9:1 at May 31, 1998.
This compares with working capital of approximately $944,000 and a ratio of
current assets to current liabilities of approximately 1.7:1 at May 31, 1997.
Accounts receivable decreased approximately $535,000 in 1998 as work in progress
decreased, and there were no retention receivables as compared to 1997. During
fiscal 1998, EHI's cash balances decreased by approximately $96,000. The primary
reason for this decrease is EHI's decision to upgrade its fleet of vehicles.
Cash was provided by the financing of some of this equipment. EHI had previously
repaid debt and re-purchased stock causing a decrease in cash used by financing
activities. EHI has a $250,000 credit line that was not used during the 1998
fiscal year. Funds required to finance EHI's upgrade of its vehicle acquisition
program are expected to be derived from funds generated from operations and
proceeds from equipment financing. Current financial resources (working capital
and short-term borrowing arrangements) and anticipated funds from operations are
expected to be adequate to meet cash requirements in the year ahead.
21
<PAGE>
Results of Operations - February 28, 1999 compared to February 28, 1998
Revenues Earned
Revenues for the three and nine months increased approximately 13%
percent and 9% percent respectively as compared to the same period at February
28, 1998. The increase is a result of a general increase of business, in
particularly an increase in service work. EHI has an ongoing aggressive
advertising campaign and believes these increases are primarily due to its
advertising campaign.
Cost of Revenues Earned
Cost of revenues increased approximately 12% for the three months ended
February 28, 1999 as compared to the same period in 1998. For the nine months
ended February 28, 1999 as compared to the nine months ended February 28, 1998,
cost of revenues increased approximately 6%. Even though there was a slight
increase in costs, attributable to the increase in revenues, the gross profit
for the three months is approximately the same as compared to the prior year and
increased approximately 3% for the nine months as compared to the same period in
1998. EHI has made a concerted effort to monitor its purchasing which has a
direct effect on its gross profit percentage.
Selling, General and Administrative
Selling, general and administrative expenses increased approximately
20% for the three months and 14% for the nine month period as compared to the
same periods in 1998. There was a slight increase in percentage of revenues for
the three month and nine months as compared to the prior year. While many of the
selling, general and administrative expenses remain the same or varied slightly,
the dollar increase in the selling, general and administrative expenses is
primarily attributable to the increase in advertising expenses.
Net Income
There was a slight decrease in net income for the three months ended
February 28, 1999 as compared to the three months ended February 28, 1998. The
increase in the nine months ended February 28, 1999 compared to February 28,
1998 can be attributed to the increase in operating revenues, and the increase
in gross profit on some larger jobs.
Liquidity and Capital Resources
EHI had working capital of approximately $1,025,000 and a ratio of
current assets to current liabilities of approximately 1.9:1 at February 28,
1999. This compares with working capital of approximately $ 1,100,000 and a
ratio of current assets to current liabilities of approximately 2:1 at February
28, 1998. For the nine months ended February 28, 1999, the increase in cash and
equivalents was approximately $106,000. Cash was used in investing activities of
approximately $260,000 for the purchase of property and equipment. Offsetting
this cash utilization was approximately $237,000 of proceeds from the issuance
of notes, offset by the payment of long-term debt and notes of approximately
$129,000.
22
<PAGE>
Cash generated from operations and selected borrowings provide the
major source of funds for the growth of the business including working capital
and additions to property and equipment. Current financial resources (working
capital and short-term borrowing arrangements) and anticipated funds from
operations are expected to be adequate to meet cash requirements in the year
ahead. EHI has a $250,000 credit line which it has not used.
Forward Looking Statements
This Management's Discussion and Analysis contains certain
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995. These forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those in any such
forward-looking statements. Such factors include, but are not limited to,
adverse changes in general economic conditions, including changes in the
specific markets for EHI's services, adverse business conditions, decreased or
lack of growth in the mechanical, electrical and facilities services industries,
increased competition, pricing pressures, risks associated with foreign
operations and other factors.
23
<PAGE>
EQUIVALENT SHARE DATA
---------------------
The following summary presents comparative historical audited and unaudited per
share data for both Hotelecopy and EHI, pro forma per share information for
Hotelecopy, and pro forma equivalent per share information for EHI. The Pro
Forma adjustment for common stock asumes the merger was effective as of May 31,
1998 and was accounted for as a reverse acquisition purchase based upon
guidelines promulgated by the Securities and Exchange Commission. As a result of
the purchase treatment, goodwill and a deferred tax asset have been recognized,
and the accumulated deficit of Hotelecopy, Inc. has been eliminated, based on
percentages of Hotelecopy, Inc. not owned by Edd and Carol Helms before the
merger. Hotelecopy's pro forma amounts represent the combined pro forma results
of Hotelecopy and EHI, and the EHI pro forma equivalent amounts are computed by
multiplying the Hotelecopy pro forma amounts by a factor of 2178.6363 to reflect
the exchange ratio in the merger of 2178.6363 shares of Hotelecopy common stock
for each share of EHI common stock. The data presented should be read in
conjunction with the historical financial statements and the related notes
thereto included elsewhere herein or incorporated by reference herein.
<TABLE>
<CAPTION>
Nine months ended February 28, 1999 Fiscal year ended May 31, 1998
------------------------------------- ---------------------------------
<S> <C> <C>
Net income per common share:
Hotelecopy pro forma
combined:
before extraordinary items 0.01 0.01
extraordinary items 0.01 0.17
proforma adjustment 0.01
----------- -----------
combined 0.03 0.18
----------- -----------
EHI proforma equivalent:
before extraordinary items 0.03 0.02
extraordinary items 0.00
----------- -----------
combined 0.03 0.02
----------- -----------
Historical Net Income(Loss) per common share:
Hotelecopy
- -----------------------
before extraordinary item (0.05) (0.03)
extraordinary item 0.07 1.12
Net Income( loss) per common
----------- -----------
share 0.02 1.09
----------- -----------
EHI
- ------------
before extraordinary item 55.84 36.09
extraordinary item 2.87
Net income per common
----------- -----------
share 55.84 38.96
----------- -----------
Cash dividends per common share:
No dividends have been paid since inception and the Company does not
anticipate paying any dividends in the foreseeable future and
intends to retain earnings, if any,to provide funds for general
purposes and the expansion of the Company's business.
- -----------------------------------------------------------------------
Nine months ended Fiscal year ended
February 28, May 31,
-------------------------- -----------------
1999 1998
Book value (deficiency in assets)
per common share(period end):
Hotelecopy (deficiency in assets) (0.06) (0.08)
EHI 274.95 217.26
proforma combined 0.03 0.03
Hotelecopy pro forma combined 0.13 0.10
EHI pro forma equivalent 0.15 0.12
</TABLE>
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF HOTELECOPY
At the close of business on the record date for Hotelecopy's
shareholders' meeting, Hotelecopy had outstanding 1,933,318 shares of Hotelecopy
common stock, each of which entitles the holder to one vote. Voting is not
cumulative.
The following table provides information as of the record date for
Hotelecopy's shareholders' meeting, with respect to (a) any person known to
Hotelecopy to be the beneficial owner of five percent or more of the outstanding
shares of Hotelecopy common stock, (b) each Director and certain executive
officers of Hotelecopy, and (c) all Directors and executive officers as a group.
For the purpose of computing the percentage of the shares of Hotelecopy common
stock owned by each person or group listed in this table, any shares not
outstanding which are subject to options or warrants exercisable within 60 days
have been deemed to be outstanding and owned by such person or group, but have
not been deemed to be outstanding for the purpose of computing the percentage of
the shares of Hotelecopy common stock owned by any other person. Except as
otherwise indicated below, each of the persons named below is believed by
Hotelecopy to possess sole voting and investment power with respect to the
shares of Hotelecopy common stock beneficially owned by such person.
<TABLE>
<CAPTION>
CURRENT POST MERGER
Amount and Nature of Percent of Amount and Nature of Percent of
Name and Address(4) of Beneficial Ownership of Class Beneficial Ownership of Class
Beneficial Owner Shares of Common Stock Outstanding Shares of Common Stock Outstanding
<S> <C> <C> <C> <C>
W. Edd Helms, Jr. 850,567 (1) 44.0% 10,473,604(1)(6) 83.2%
L. Wade Helms 2,147 (2) ** 2,147(2) **
Carol Helms - - (3) ** 65,358(3) .5%(3)
All Officers and Directors 852,714 (1)(5) 44.1% 10,541,109(5) 83.7%
** Less than 1%
</TABLE>
(1) Includes 10,890 shares owned by his daughters, 2,500 shares owned
beneficially with his wife and 204,800 shares which were previously owned
by EHI, and which were transferred on April 30, 1998 from EHI to W. Edd
Helms, Jr.
(2) L. Wade Helms shares voting and investment power of 887 shares with his
wife, Vicki, and has sole voting and investment power with respect to 1,260
shares. Does not include an Incentive Stock Option to purchase 25,077
shares of Hotelecopy common stock or interests beneficially owned
post-merger through participation in EHI's ESOP.
(3) Carol Helms, a Director of Hotelecopy, is the wife of W. Edd Helms, Jr.,
and the mother of two daughters who own a total of 10,890 shares of
Hotelecopy common stock. She disclaims any interest in the shares
beneficially owned by her husband and her daughters. Does not include an
option to purchase 1,000 shares of Hotelecopy common stock. Includes 65,358
shares beneficially owned post-merger through participation in EHI's ESOP.
(4) The address of W. Edd Helms, Jr., L. Wade Helms and Carol Helms is 17850
N.E. 5th Avenue, Miami, Florida 33162.
(5) See notes (1) through (3) for details with respect to the three current
directors and officers.
(6) Includes 272,330 shares owned by EHI's ESOP attributed to W. Edd Helms,
Jr. beneficially.
25
<PAGE>
MARKET FOR HOTELECOPY COMMON STOCK
Hotelecopy common stock was traded on the over-the-counter market on
the National Association of Securities Dealers, Inc., under the NASDAQ symbol
"FAXMC" through December 1, 1992. On December 2, 1992, Hotelecopy common stock
was delisted from the NASDAQ Small-Cap Market. Effective December 2, 1992,
Hotelecopy common stock was traded on the OTC Bulletin Board under the symbol
FAXM. Consequently, there is currently no established public trading market for
Hotelecopy common stock. In order to obtain bid quotations for Hotelecopy common
stock, it is necessary to contact certain broker/dealers, if any, that make a
market in Hotelecopy common stock. Hotelecopy is not aware of any such
broker/dealers.
The following tables set forth, for the periods indicated, the range of
high and low closing bid and ask prices for the Common Stock from June 1996
through March 26, 1999, which is the date that Hotelecopy's Board of Directors
approved the Merger (the "Board Approval"). These quotations represent prices
between dealers, do not include retail markups, markdowns, or commissions and do
not represent actual transactions. In both years 1997 and fiscal 1998, and as of
the Board Approval, there was little trading in the Hotelecopy common stock and
Hotelecopy was unable to ascertain any bid quotations or any actual prices paid
for the Hotelecopy common stock in any specific transactions. Consequently,
Hotelecopy is not able to state with any certainty the range of bid and ask
quotations for fiscal 1998 or as of the Board Approval.
Year Ended Year Ended
May 31, 1998 May 31, 1997
High Low High Low
First Quarter .0125 .0125 .10 .05
Second Quarter No Trading No Trading
Third Quarter No Trading No Trading
Fourth Quarter No Trading No Trading
As of March 26, 1999
High Low
No Trading
On the record date for Hotelecopy's shareholders' meeting, there were
approximately 420 holders of record of 1,933,318 shares of Hotelecopy common
stock. This number does not include any adjustment for stockholders owning
Hotelecopy common stock in "Street" name. Hotelecopy has not paid dividends
since its inception, does not anticipate paying any dividends in the foreseeable
future and intends to retain earnings, if any, to provide funds for general
corporate purposes and the expansion of Hotelecopy's business. Florida law
restricts the payment of dividends for corporations with a deficiency in assets.
26
<PAGE>
RIGHTS OF DISSENT AND APPRAISAL
Holders of shares of Hotelecopy common stock who follow the procedures
set forth in Section 607.1320 of the FBCA are entitled to dissenters' rights
under Sections 607.1301, 607.1302 and 607.1320 of the FBCA, which FBCA Sections
are reprinted in their entirety in Exhibit B to this Proxy Statement. All
references in Sections 607.1301, 607.1302 and 607.1320 and in this summary to a
"shareholder" are to the record holders of the shares of Hotelecopy common stock
as to which dissenters' rights are asserted. A person having a beneficial
interest in shares of Hotelecopy common stock that are held of record in the
name of another person, such as a broker or nominee, must act promptly to cause
the recordholder to follow the steps summarized below properly and in a timely
manner to perfect whatever dissenters' rights the beneficial owner may have.
Holders of shares of Hotelecopy common stock who follow the procedure
set forth in Section 607.1320 of the FBCA ("Section 607.1320") will be entitled
to receive payment of the "fair value" of their shares of Hotelecopy common
stock. Under the FBCA, "fair value" will be the value of the shares of
Hotelecopy common stock as of the close of business on the date prior to the
date of shareholder approval of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger, unless exclusion would be
inequitable.
Under Section 607.1320, where a merger is to be submitted for approval
at a meeting of shareholders, the corporation, not less than ten nor more than
sixty days prior to the meeting, must notify each of its shareholders of the
proposed shareholders' meeting. The notice shall also state that the purpose, or
one of the purposes, of the meeting is to consider the plan of merger, and
contain or be accompanied by a copy or summary of the merger agreement.
Furthermore, the notice shall contain a clear and concise statement that, if the
plan of merger is effected, the shareholders dissenting therefrom may be
entitled, if they comply with the provisions of the FBCA regarding the rights of
dissenting shareholders, to be paid the fair value of their shares, and shall be
accompanied by a copy of Sections 607.1301, 607.1302 and 607.1320 of the FBCA.
This Proxy Statement shall constitute such notice to the shareholders of
Hotelecopy, and the Merger Agreement and the applicable statutory provisions of
the FBCA are attached to this Proxy Statement as Exhibits A and B.
The following discussion is not a complete statement of the law
pertaining to dissenters' rights under the FBCA and is qualified in its entirety
by the full text of Sections 607.1301, 607.1302 and 607.1320 of the FBCA
attached to this Proxy Statement. Any shareholder who wishes to exercise
dissenters' rights or who wishes to preserve his right to do so, should review
the following discussion and Exhibit B carefully, because failure to timely and
properly comply with the procedures specified will result in the loss of
dissenters' rights under the FBCA.
Each shareholder who wishes to assert dissenters' rights must (a)
deliver to Hotelecopy, before the taking of the vote on the Merger, a written
notice of his intent to demand payment for his shares of Hotelecopy common stock
if the proposed Merger is effectuated, and (b) not vote his shares of Hotelecopy
common stock in favor of the proposed Merger. Because an executed proxy which
does not contain voting instructions will, unless revoked, be voted for the
Merger, a shareholder who votes by proxy and who wishes to exercise his
dissenters' rights must (a) vote against the Merger, or (b) abstain from voting
on the Merger. A vote against the Merger, in person or by proxy, will not in and
of itself constitute a written notice of intent to demand payment for shares of
Hotelecopy common stock satisfying the requirements of Section 607.1320.
27
<PAGE>
Only a holder of record of Hotelecopy common stock is entitled to
assert dissenters' rights for the shares registered in that holder's name. A
notice of intent to demand payment for shares of Hotelecopy common stock must be
exercised by or on behalf of the holder of record, fully and correctly, as his
name appears on his stock certificates. If the shares are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the notice should be made in that capacity, and if the shares are owned of
record by more than one person, as in a joint tenancy or tenancy in common, the
notice should be executed by or on behalf of all joint owners. An authorized
agent, including one or two or more joint owners, may execute a notice on behalf
of a holder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the notice, the agent
is acting as agent for such owner or owners. A record holder, such as a broker,
who holds shares as nominee for several beneficial owners may exercise
dissenters' rights with respect to the shares held for one or more beneficial
owners while not exercising such rights with respect to the shares held for
other beneficial owners. In such case, the notice should set forth the number of
shares of Hotelecopy common stock as to which dissenters' rights are sought.
Where no number of shares is expressly mentioned, the demand will be presumed to
cover all shares held in the name of the record owner. Shareholders who hold
their shares in brokerage accounts or other nominee forms and who wish to
exercise dissenters' rights are urged to consult with their brokers to determine
the appropriate procedures for the making of a notice of intent to demand
payment for such shares.
Within ten days after the date of shareholder approval of the Merger,
Hotelecopy must give written notice of adoption of the Merger Agreement to each
shareholder who filed a notice of intent to demand payment for his shares.
Within twenty days after the giving of such notice to the shareholder by
Hotelecopy, any shareholder who elects to dissent must file with Hotelecopy a
notice of such election, stating the shareholder's name and address, the number
of shares as to which the shareholder dissents, and a demand for payment of the
fair value of the shareholder's shares. Any shareholder filing an election to
dissent shall deposit his stock certificates with Hotelecopy simultaneously with
the filing of the election to dissent.
Within ten days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within ten days
after the Merger is effected, whichever is later (but in no case later than
ninety days from the date of shareholder approval of the Merger), Hotelecopy
must make a written offer to each dissenting shareholder who has made a demand
as provided in Section 607.1320 to pay an amount Hotelecopy estimates to be the
fair value for such shares. The fair value determined will reflect the value of
the Hotelecopy shares prior to the Merger. Such notice and offer shall be
accompanied by (a) a balance sheet of Hotelecopy as of the latest available
date, and (b) a profit and loss statement of Hotelecopy for the 12-month period
ended on the date of such balance sheet. Any shareholder who has duly filed a
notice of election to dissent in compliance with Section 607.1320 will
thereafter be entitled only to payment of the fair value of the shareholder's
shares and will not be entitled to vote or to exercise any other rights of a
shareholder. A notice of election may be withdrawn in writing by the shareholder
at any time before an offer is made by Hotelecopy to pay for the shareholder's
shares. After such offer, no such notice of election may be withdrawn unless
Hotelecopy consents.
If within thirty days after the making of such offer by Hotelecopy, any
shareholder accepts the same, payment for the shareholder's shares of Hotelecopy
common stock will be made within ninety days after the making of such offer or
the consummation of the Merger, whichever is later. Upon payment of the agreed
value, the dissenting shareholder will cease to have any interest in such
shares.
If Hotelecopy fails to make an offer for the fair value of the shares
of Hotelecopy common stock within the period specified above, or if it makes the
offer and any dissenting shareholder or shareholders fail to
28
<PAGE>
accept the same within the period of thirty days thereafter, then Hotelecopy,
within thirty days after receipt of written demand from any dissenting
shareholder given within sixty days after the date on which the Merger was
effected, shall, or at its election at any time within such period of sixty days
may, file an action in any court of competent jurisdiction in Broward County,
Florida requesting the fair value of such shares to be determined. The court
shall also determine whether each dissenting shareholder, as to whom Hotelecopy
requests the court to make such determination, is entitled to receive payment
for the shareholder's shares. If Hotelecopy fails to institute such a
proceeding, any dissenting shareholder may do so in the name of Hotelecopy. All
dissenting shareholders (whether or not residents of the State of Florida),
other than shareholders who have agreed with Hotelecopy as to the value of their
shares, shall be made parties to the proceeding. Hotelecopy must pay to each
dissenting shareholder the amount found to be due the shareholder within ten
days after final determination of the proceedings. Upon payment of the
judgement, the dissenting shareholders will cease to have any interest in such
shares.
Shareholders considering seeking dissenters' rights should be aware
that the fair value of their shares of Hotelecopy common stock as determined
under Section 607.1320 could be the same as, less than, or more than, the
consideration they would receive pursuant to the Merger Agreement if they did
not seek to demand payment of their shares. Any judicial determination of the
"fair value" of Hotelecopy common stock can be based on numerous considerations,
including, but not limited to, the market value of Hotelecopy common stock prior
to the Merger and the net asset value and earnings value of Hotelecopy prior to
the Merger. The costs and expenses of any judicial proceeding will be determined
by the court and will be assessed against Hotelecopy, but all or any part of
such costs and expenses maybe apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom Hotelecopy has made an offer to pay for the shares, if
the court finds that the action of such shareholders in failing to accept such
offer was arbitrary, vexatious or not in good faith
Failure to follow the steps required by Section 607.1320 for perfecting
dissenters' rights may result in the loss of such rights, in which event a
shareholder will be entitled to receive the Merger consideration.
FORWARD LOOKING STATEMENTS
Forward-looking statements in this Proxy Statement, including
statements concerning Year 2000 effects on Hotelecopy and EHI, are made pursuant
to the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Hotelecopy wishes to advise readers that actual results may differ
substantially from such forward-looking statements. Forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements.
ACCOUNTANTS TO BE AVAILABLE AT MEETING
Representatives of Dohan and Company, CPAs, Hotelecopy's independent
public accountants, are expected to be present at the Meeting and will be
accorded an opportunity to make a statement should they desire to do so. Such
representatives are also expected to be available to respond to appropriate
questions.
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OTHER MATTERS
The Board of Directors is not aware of any other matters to be
presented for action at the Meeting. However, it any other matter is properly
presented, it is the intention of the person named in the enclosed form of proxy
to vote in accordance with his judgment on such matter.
ANNUAL REPORTS TO SHAREHOLDERS
Hotelecopy's Annual Report on Form 10-KSB, including financial
statements for the fiscal year ended May 31, 1998, is available upon request
through its corporate office.
SHAREHOLDER PROPOSALS
Hotelecopy did not hold an annual meeting of shareholders in fiscal
1998. It is anticipated that Hotelecopy's fiscal 1999 annual meeting of
shareholders will be held in early November 1999. Shareholders who intend to
present proposals at the fiscal 1999 annual meeting must submit their proposals
to the Secretary of Hotelecopy within a reasonable period of time prior to the
meeting.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO
COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY, NO MATTER HOW
LARGE OR SMALL YOUR SHAREHOLDING MAY BE.
By Order of the Board of Directors
/s/ W. Edd Helms, Jr.
----------------------
W. Edd Helms, Jr.
President
Miami, Florida
July 8, 1999
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Attachments:
Appendix A: (1) Agreement and Plan of Merger
(2) Articles of Merger
(3) Plan of Merger
(4) Amendment to Hotelecopy's Articles of Incorporation
Appendix B: Florida Business Corporation Act provisions regarding rights of
dissenting shareholders
Appendix C: Hotelecopy Financial Statements
Appendix D: EHI Financial Statements
Appendix E: Pro Forma Financial Statements
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APPENDIX A
(1)
MERGER AGREEMENT
BETWEEN HOTELECOPY, INC. AND EDD HELMS, INCORPORATED
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT entered into as of March 26, 1999 by and between Hotelecopy,
Inc., a Florida corporation ("Hotelecopy"), and Edd Helms, Inc., a Florida
corporation ("EHI"). Hotelecopy and EHI are referred to collectively herein as
the "Parties".
Preliminary Statement
This Agreement contemplates a tax-free merger of EHI with and into
Hotelecopy. The EHI Shareholders will receive capital stock in Hotelecopy in
exchange for their capital stock in EHI.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Articles and Plan of Merger" has the meaning set forth in ss.2(c)
below.
"Closing" has the meaning set forth in ss.2(b) below.
"Closing Date" has the meaning set forth in ss.2(b) below.
"Confidential Information" means any information concerning the
businesses and affairs of EHI and its Subsidiaries that is not already generally
available to the public.
"Conversion Ratio" has the meaning set forth in ss.2(d)(v) below.
"Disclosure Schedule" has the meaning set forth in ss.3 below.
"Dissenting Share" means any Hotelecopy Share which is held of record
by any Shareholder who or which has exercised his or its appraisal rights under
the FBCA.
"EHI" has the meaning set forth in the preface above.
"EHI Share" means any share of the Common Stock, $1.00 per share par
value, of EHI.
"EHI Shareholder" means any Person who or which holds any EHI Shares.
"Effective Time" has the meaning set forth in ss.2(d)(i) below.
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"FBCA" means the Florida Business Corporation Act, Chapter 607, Florida
Statutes, as amended.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hotelecopy" has the meaning set forth in the preface above.
"Hotelecopy Share" means any share of the Common Stock, $.01 per share
par value, of Hotelecopy.
"IRS" means the Internal Revenue Service.
"Knowledge of EHI" means the actual knowledge of any current executive
officer of Edd Helms, Incorporated. without independent investigation.
"Knowledge of Hotelecopy" means the actual knowledge of any current
executive officer of Hotelecopy.
"Material" and "Materiality" means exceeding $50,000.
"Material Agreements" means those agreements listed on Schedule 3(d).
"Merger" has the meaning set forth in ss.2(a) below.
"Most Recent Fiscal Quarter End" has the meaning set forth in ss.3(e)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Proxy Statement" means the proxy statement prepared by Hotelecopy in
connection with the Special Hotelecopy Meeting.
"Requisite Hotelecopy Shareholder Approval" means the affirmative vote
of the holders of a majority of the Hotelecopy Shares in favor of this Agreement
and the Merger.
"Requisite EHI Shareholder Approval" means the affirmative vote of the
holders of a majority of the EHI Shares in favor of this Agreement and the
Merger.
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"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Special Hotelecopy Meeting" has the meaning set forth in ss.5(c)(ii)
below.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in ss.2(a) below,
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, EHI will merge with and into Hotelecopy (the "Merger") at the
Effective Time. Hotelecopy shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Berger Davis &
Singerman, in Fort Lauderdale, Florida, commencing at 9:00 a.m. local time on
the first business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or such other date as the Parties may mutually
determine (the "Closing Date").
(c) Actions at the Closing. At the Closing, (i) EHI will deliver to
Hotelecopy the various certificates, instruments, and documents referred to in
ss.6(a) below, (ii) Hotelecopy will deliver to EHI the various certificates,
instruments, and documents referred to in ss.6(b) below, and (iii) Hotelecopy
and EHI will file with the Secretary of State of the State of Florida the
Articles and Plan of Merger in the forms attached hereto as Composite Exhibit B
(the "Articles and Plan of Merger").
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") that Hotelecopy and EHI file the Articles and Plan of Merger
with the Secretary of State of
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the State of Florida. The Merger shall have the effect set forth in the FBCA.
The Surviving Corporation may, at any time after the Effective Time, take any
action (including executing and delivering any document) in the name and on
behalf of either Hotelecopy or EHI in order to carry out and effectuate the
transactions contemplated by this Agreement.
(ii) Articles of Incorporation. The Articles of Incorporation of
Hotelecopy in effect at and as of the Effective Time will remain the Articles of
Incorporation of the Surviving Corporation without any modification or amendment
in the Merger other than as set forth in the Plan of Merger filed with the
Florida Secretary of State.
(iii) Bylaws. The Bylaws of Hotelecopy in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without any
modification or amendment in the Merger.
(iv) Directors and Officers. The directors and officers of
Hotelecopy in office at and as of the Effective Time will remain the directors
and officers of the Surviving Corporation (retaining their respective positions
and terms of office).
(v) Conversion of the EHI Shares. At and as of the Effective
Time, each EHI Share shall be converted into the right to receive 2178.6363
Hotelecopy Shares (the ratio of 2178.6363 Hotelecopy Shares for each one EHI
Share is referred to herein as the "Conversion Ratio"); provided, however, that
the Conversion Ratio shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split, or other change in the
number of Hotelecopy Shares or EHI Shares outstanding. No EHI Share shall be
deemed to be outstanding or to have any rights other than those set forth above
in this ss.2(d)(v) after the Effective Time.
(vi) Hotelecopy Shares. Each Hotelecopy Share issued and
outstanding at and as of the Effective Time will remain issued and outstanding.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, Hotelecopy will issue
stock certificates to the holders of EHI Shares that, in the aggregate,
represent the number of Hotelecopy Shares equal to the product of (A) the
Conversion Ratio times (B) the number of outstanding EHI Shares; and Hotelecopy
will cause to be mailed a letter of transmittal to each record holder of
outstanding EHI Shares for the holder to use in surrendering the certificates
which represented his or its EHI Shares in exchange for a certificate
representing the number of Hotelecopy Shares to which he or it is entitled.
(ii) Hotelecopy will not pay any dividend or make any
distribution on Hotelecopy Shares (with a record date at or after the Effective
Time) to any record holder of outstanding EHI Shares until the holder of such
EHI Shares surrenders for exchange his or its certificates which represented EHI
Shares. No holder of outstanding EHI Shares be entitled to any interest or
earnings on the dividend or distribution pending receipt of any such funds.
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(f) Closing of Transfer Records. After the close of business on the
Closing Date, transfers of EHI Shares outstanding prior to the Effective Time
shall not be made on the stock transfer books of the Surviving Corporation.
3. Representations and Warranties of EHI. EHI represents and warrants
to Hotelecopy that the statements contained in this ss.3 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss.3), except as set
forth in the disclosure schedule accompanying this Agreement (the "Disclosure
Schedule").
(a) Organization, Qualification, and Corporate Power. EHI's
Subsidiaries are Edd Helms Air Conditioning, Inc. and Edd Helms Electrical
Contracting Inc. Each of EHI and its Subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Florida; except that EHI is in the process of merging Edd Helms Electrical
Contracting, Inc. with and into EHI. EHI and each of its Subsidiaries is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required, except where the lack of such
qualification would not have a Material adverse effect on the financial
condition of EHI and its Subsidiaries taken as a whole or on the ability of the
Parties to consummate the transactions contemplated by this Agreement. EHI and
each of its Subsidiaries has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it.
(b) Capitalization. The entire authorized capital stock of EHI
consists of 20,000 EHI Shares, of which 4,930 EHI Shares are issued and
outstanding. All of the issued and outstanding EHI Shares have been duly
authorized and are validly issued, fully paid, and nonassessable. Except for
shares issued under EHI's employee stock option plan, information concerning
which was previously made available to Hotelecopy, there are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
EHI to issue, sell, or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation or similar rights with respect to the EHI Shares.
(c) Authorization of Transaction. EHI has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. EHI has obtained the
Requisite EHI Shareholder Approval. This Agreement constitutes the valid and
legally binding obligation of EHI, enforceable in accordance with its terms and
conditions.
(d) Material Agreements; Noncontravention. Schedule 3(d) lists
agreements to which EHI or either of its Subsidiaries is a party and which
involve more than $50,000 in payments annually to or by EHI or either of its
Subsidiaries ("Material Agreements"). To the Knowledge of EHI, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which any of EHI
and its Subsidiaries is subject or any provision
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of the charter or bylaws of any of EHI and its Subsidiaries or (ii) except as
set forth in Schedule 3(d), conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
Material Agreement (or result in the imposition of any Security Interest upon
any of EHI's or its Subsidiaries' assets), except where the violation, conflict,
breach, default, acceleration, termination, modification, cancellation, failure
to give notice, or Security Interest would not have a Material adverse effect on
the financial condition of EHI and its Subsidiaries taken as a whole or on the
ability of the Parties to consummate the transactions contemplated by this
Agreement. Other than in connection with the provisions of the FBCA, the
Securities Exchange Act, the Securities Act, and the state securities laws, none
of EHI and its Subsidiaries needs to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement, except where the failure to give notice, to
file, or to obtain any authorization, consent, or approval would not have a
Material adverse effect on EHI and its Subsidiaries taken as a whole or on the
ability of the Parties to consummate the transactions contemplated by this
Agreement.
(e) Events Subsequent to Most Recent Fiscal Quarter End. Since
February 28, 1999 (the "Most Recent Fiscal Quarter End"), there has not been any
Material adverse change in the business, financial condition, operations or
results of operations of EHI and its Subsidiaries taken as a whole.
(f) Undisclosed Liabilities. To the Knowledge of EHI, none of EHI and
its Subsidiaries has any Material liability (whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due), including any liability for
taxes, except for (i) liabilities set forth on the face of the balance sheet
dated as of the Most Recent Fiscal Quarter End or in the notes thereto, and (ii)
liabilities which have arisen after the Most Recent Fiscal Quarter End in the
Ordinary Course of Business.
(g) Brokers' Fees. None of EHI and its Subsidiaries has any liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
(h) Financial Statements. EHI has provided Hotelecopy with a true and
complete copy of the Consolidated Balance Sheets of Edd Helms Incorporated and
Subsidiaries as at May 31, 1998 and 1997, and as at February 28, 1999, and the
related Consolidated Statements of income and retained earnings, comprehensive
income and cash flows for the periods then ended (the "Financial Statements").
The Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby and present fairly the
financial condition of EHI and its Subsidiaries as of the indicated dates, and
the results of operations of EHI and its Subsidiaries for the indicated periods,
and are correct and complete in all material respects;
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provided, however, that the February 28, 1999 Financial Statements are subject
to normal year-end adjustments.
(i) Disclosure. None of the information that EHI will supply
Hotelecopy specifically for use in the Proxy Statement will contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in the light of the circumstances under
which they will be made, not misleading.
4. Representations and Warranties of Hotelecopy. Hotelecopy represents
and warrants to EHI that the statements contained in this ss.4 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss.4), except as set
forth in the Disclosure Schedule.
(a) Organization. Hotelecopy has one Subsidiary, Hoteleticket, Inc.
Each of Hotelecopy and its Subsidiary is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Florida.
(b) Capitalization. The entire authorized capital stock of Hotelecopy
consists of 10,000,000 Hotelecopy Shares, of which 1,933,318 Hotelecopy Shares
are issued and outstanding. Upon the approval of its shareholders, Hotelecopy
will file an amendment to its articles of incorporation increasing its
authorized shares to 20,000,000 shares of common stock. Subject to the filing of
such amendment, all of the Hotelecopy Shares to be issued in the Merger will
have been duly authorized and, upon consummation of the Merger, will be validly
issued, fully paid, and nonassessable.
(c) Authorization of Transaction. Hotelecopy has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder; provided, however, that
Hotelecopy cannot consummate the Merger unless and until it receives the
Requisite Hotelecopy Shareholder Approval. Subject to receipt of the Requisite
Hotelecopy Shareholder Approval, this Agreement constitutes the valid and
legally binding obligation of Hotelecopy, enforceable in accordance with its
terms and conditions.
(d) Noncontravention. Neither Hotelecopy nor its Subsidiary is a
party to any agreement which involves more than $50,000 in annual payments to or
by Hotelecopy or its Subsidiary. To the Knowledge of Hotelecopy, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which Hotelecopy
is subject or any provision of the charter or bylaws of Hotelecopy. Other than
in connection with the provisions of the FBCA, the Securities Exchange Act, the
Securities Act, and the state securities laws, Hotelecopy does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement, except where the
failure to give notice, to file, or to
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obtain any authorization, consent, or approval would not have a material adverse
effect on the ability of the Parties to consummate the transactions contemplated
by this Agreement.
(e) Brokers' Fees. Hotelecopy does not have any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which any of EHI
and its Subsidiaries could become liable or obligated.
(f) Disclosure. The Proxy Statement will comply with the Securities
Act, the Securities Exchange Act and Florida state securities laws in all
material respects. The Proxy Statement will not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they will
be made, not misleading; provided, however, that Hotelecopy makes no
representation or warranty with respect to any information that EHI will supply
specifically for use in the Proxy Statement.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary in order to consummate and
make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in ss.6
below).
(b) Notices and Consents. EHI will give any notices (and will cause
each of its Subsidiaries to give any notices) to third parties, and will use its
reasonable best efforts to obtain (and will cause each of its Subsidiaries to
use its reasonable best efforts to obtain) any third party consents, that
Hotelecopy reasonably may request in connection with the matters referred to in
ss.3(d) above.
(c) Regulatory Matters and Approvals. Each of the Parties will (and
EHI and Hotelecopy each will cause its Subsidiaries to) give any notices to,
make any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in ss.3(d) and ss.4(d) above. Without
limiting the generality of the foregoing:
(i) Securities Act, Securities Exchange Act, and State Securities
Laws. Hotelecopy will prepare and file with the SEC preliminary proxy materials
under the Securities Exchange Act relating to the Special Hotelecopy Meeting.
Hotelecopy will use its reasonable best efforts to respond to the comments of
the SEC thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary. EHI will provide
Hotelecopy with whatever information and assistance in connection with the
foregoing filings that Hotelecopy reasonably may request. Hotelecopy will take
all actions that may be necessary under state securities laws in connection with
the offering and issuance of the Hotelecopy Shares.
(ii) FBCA. Hotelecopy will call a special meeting of its
Shareholders (the "Special Hotelecopy Meeting") as soon as reasonably
practicable so that the Shareholders may
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consider and vote upon the adoption of this Agreement and the approval of the
Merger in accordance with the FBCA. Hotelecopy will mail the Proxy Statement to
its Shareholders as soon as reasonably practicable. The Proxy Statement will
contain the affirmative recommendation of Hotelecopy's board of directors in
favor of the adoption of this Agreement and the approval of the Merger;
provided, however, that no director or officer of Hotelecopy shall be required
to violate any fiduciary duty or other requirement imposed by law in connection
therewith.
(d) No Registration or Listing of Hotelecopy Shares. Hotelecopy will
not be required to file a registration statement with the SEC with respect to
the Hotelecopy Shares that will be issued in the Merger nor to cause such
Hotelecopy Shares to be approved for listing on any stock exchange, and
therefore such shares will be "restricted securities" under applicable
securities laws.
(e) Operation of Business. Except as is contemplated by or disclosed
in this Agreement, EHI will not (and will not cause or permit any of its
Subsidiaries to) engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business, without the prior approval
of Hotelecopy. Without limiting the generality of the foregoing:
(i) except for the merger of Edd Helms Electrical Contracting,
Inc. with and into EHI, none of EHI and its Subsidiaries will authorize or
effect any change in its articles or bylaws;
(ii) none of EHI and its Subsidiaries will grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) none of EHI and its Subsidiaries will declare, set aside,
or pay any dividend or distribution with respect to its capital stock (whether
in cash or in kind), or redeem, repurchase, or otherwise acquire any of its
capital stock;
(iv) none of EHI and its Subsidiaries will issue any note, bond,
or other debt security or create, incur, assume, or guarantee any indebtedness
for borrowed money or capitalized lease obligation outside the Ordinary Course
of Business;
(v) none of EHI and its Subsidiaries will affirmatively permit
any imposition of any Security Interest upon any of its assets outside the
Ordinary Course of Business;
(vi) none of EHI and its Subsidiaries will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) none of EHI and its Subsidiaries will make any change in
employment terms for any of its directors, officers, and employees outside the
Ordinary Course of Business; and
(viii) none of EHI and its Subsidiaries will commit to do any of
the foregoing.
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(f) Notice of Developments. Each Party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties in ss.3 and ss.4 above. No disclosure
by any Party pursuant to this ss.5(f), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
(g) Insurance and Indemnification.
(i) Hotelecopy, as the Surviving Corporation in the Merger, will
observe any indemnification provisions now existing in the Articles of
Incorporation, bylaws or agreement of EHI for the benefit of any individual who
served as a director or officer of EHI at any time prior to the Effective Time.
(ii) Hotelecopy will indemnify each individual who served as a
director or officer of EHI at any time prior to the Effective Time from and
against any and all actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders, decrees,
rulings, damages, dues, penalties, fines, costs, amounts paid in settlement,
liabilities, obligations, taxes, liens, losses, expenses, and fees, including
all court costs and reasonable attorneys' fees and expenses, resulting from,
arising out of, relating to, in the nature of, or caused by this Agreement or
any of the transactions contemplated herein.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of Hotelecopy. The obligation of
Hotelecopy to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) EHI and its Subsidiaries shall have procured all third party
consents necessary to consummate the Merger;
(ii) the representations and warranties set forth in ss.3 above
shall be true and correct in all material respects at and as of the Closing
Date;
(iii) EHI shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasijudicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of the Surviving
Corporation to own the former assets, to operate the former businesses, and to
control the former Subsidiaries of EHI, or (D) affect adversely the right of any
of the former Subsidiaries of EHI to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
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(v) this Agreement and the Merger shall have received the
Requisite Hotelecopy Shareholder Approval; and
(vi) all actions to be taken by EHI in connection with
consummation of the transactions contemplated hereby and all instruments and
other documents required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to Hotelecopy.
Hotelecopy may waive any condition specified in this ss.6(a) other than
receipt of the Requisite Hotelecopy Shareholder approval, if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of EHI. The obligation of EHI to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the
Requisite Hotelecopy Shareholder Approval;
(ii) the representations and warranties set forth in ss.4
above shall be true and correct in all material respects at and as of the
Closing Date;
(iii) Hotelecopy shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasijudicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of the Surviving
Corporation to own the former assets, to operate the former businesses, and to
control the former Subsidiaries of Hotelecopy, or (D) affect adversely the right
of any of the former Subsidiaries of Hotelecopy to own its assets and to operate
its businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(v) all actions to be taken by Hotelecopy in connection with
consummation of the transactions contemplated hereby and all instruments and
other documents required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to EHI.
EHI may waive any condition specified in this ss.6(b) other than
receipt of the Requisite Hotelecopy Shareholder approval, if it executes a
writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. Either of the Parties may terminate
this Agreement with the prior authorization of its board of directors as
provided below:
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(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) Hotelecopy may terminate this Agreement by giving written
notice to EHI at any time prior to the Effective Time (A) in the event EHI has
breached any material representation, warranty, or covenant contained in this
Agreement in any material respect, Hotelecopy has notified EHI of this breach,
and the breach has continued without cure for a period of 30 days after the
notice of breach or (B) if the Closing shall not have occurred on or before June
30, 1999, by reason of the failure of any condition precedent under ss.6(a)
hereof (unless the failure results primarily from Hotelecopy breaching any
representation, warranty, or covenant contained in this Agreement);
(iii) EHI may terminate this Agreement by giving written notice
to Hotelecopy at any time prior to the Effective Time (A) in the event
Hotelecopy has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, EHI has notified Hotelecopy
of the breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (B) if the Closing shall not have occurred on or
before June 30, 1999, by reason of the failure of any condition precedent under
ss.6(b) hereof (unless the failure results primarily from EHI breaching any
representation, warranty, or covenant contained in this Agreement);
(iv) any Party may terminate this Agreement by giving written
notice to the other Party at any time after the Special Hotelecopy Meeting in
the event this Agreement and the Merger fail to receive the Requisite Hotelecopy
Shareholder Approval.
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to ss.7(a) above, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party (except
for any liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in this Agreement shall survive any such
termination.
8. Miscellaneous.
(a) Survival. None of the representations, warranties, and covenants
of the Parties (other than the provisions in ss.2 above concerning issuance of
the Hotelecopy Shares and the provisions in ss.5 above concerning
indemnification) will survive the Effective Time.
(b) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law (in which case the disclosing Party will use its
reasonable best efforts to advise the other Party prior to making the
disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions in
ss.2 above concerning issuance of the Hotelecopy Shares and are intended for the
benefit of the EHI Shareholders and (ii) the provisions
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in ss.5 above concerning indemnification are intended for the benefit of the
individuals specified therein and their respective legal representatives.
(d) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they related in any way to
the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any Party may send any notice,
request, demand, claim, or other communication hereunder to the intended
recipient at its primary business office, or such address as the recipient may
specify from time to time, using any means (including personal delivery,
expedited courier, messenger service, telecopy, telex, mail, or electronic
mail), but no such notice, request, demand, claim, or other communication shall
be deemed to have been duly given unless and until it actually is received by
the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Florida without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Florida or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Florida.
(j) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to Shareholder approval will be subject
to the restrictions contained in the FBCA. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by both
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
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(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(n) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
[SIGNATURES FOLLOW ON NEXT PAGE]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
HOTELECOPY, INC.
By: /s/ Edd Helms
-----------------------------------
Name: Edd Helms
----------------------------------
Title: President
---------------------------------
EDD HELMS, INCORPORATED
By: /s/ Edd Helms
-----------------------------------
Name: Edd Helms
----------------------------------
Title: President
---------------------------------
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SCHEDULE 3(d)
Listed below are the jobs that EHI and/or its Subsidiaries have agreed to
complete, and that have a contract amount exceeding $50,000:
Job #763 ** $159,900
Job #767 ** $ 86,684
Job #780 ** $190,339
Job #789 ** $103,600
Job #790 ** $132,640
- ---------------
** Names of Parties provided to Hotelecopy separately.
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APPENDIX A
(2)
ARTICLES OF MERGER
OF
EDD HELMS, INCORPORATED,
A FLORIDA CORPORATION
AND
HOTELECOPY, INC.,
A FLORIDA CORPORATION
Pursuant to the provisions of Sections 607.1101 and 607.1105 of the
Florida Business Corporation Act (the "FBCA"), EDD HELMS, INCORPORATED, a
Florida corporation, and HOTELECOPY, INC., a Florida corporation, adopt the
following Articles of Merger for the purpose of merging Edd Helms Incorporated
with and into Hotelecopy, Inc. (the "Merger").
FIRST: The Plan of Merger is attached hereto as Exhibit A and incorporated
herein.
SECOND: The Merger is to be effective immediately upon filing of these
Articles of Merger with the Florida Secretary of State.
THIRD: The Plan of Merger was adopted by the unanimous written consent of
the shareholders of Edd Helms, Incorporated, dated March 26, 1999,
and by a majority of the shareholders of Hotelecopy, Inc., at a
shareholders' meeting held on July 30, 1999, which vote was
sufficient for its approval.
IN WITNESS WHEREOF, each of the undersigned has caused these Articles
of Merger to be signed in its corporate name on the ___________ day of
_______________, 1999.
EDD HELMS, INCORPORATED
a Florida corporation
By:
-------------------------------
W. Edd Helms, Jr.
President
HOTELECOPY, INC.,
a Florida corporation
By:
-------------------------------
W. Edd Helms, Jr.
President
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APPENDIX A
(3)
PLAN OF MERGER
1. Names of Merging Corporations
Edd Helms, Incorporated, a Florida corporation ("EHI"), shall be merged
with and into Hotelecopy, Inc., a Florida corporation ("Hotelecopy").
2. Terms and Conditions of the Proposed Merger
2.1 The Merger
The Merger shall occur at the Effective Time, as defined below, at which
time the separate existence of EHI shall cease. Hotelecopy shall be the
surviving corporation (the "Surviving Corporation"). The name of the surviving
corporation shall continue to be Hotelecopy, Inc., and Hotelecopy's corporate
existence, with all of its purposes, powers and objects, shall continue
unaffected and unimpaired by the Merger. (EHI and Hotelecopy are hereinafter
sometimes collectively referred to as the "Constituent Corporations").
2.2 The Surviving Corporation
At the Effective Time of the Merger, the effect of the Merger shall be as
provided in the applicable provisions of the Florida Business Corporation Act
(the "FBCA").
The identity, existence, purposes, powers, objects, franchises, privileges,
rights and immunities of Hotelecopy shall continue unaffected and unimpaired by
the Merger; and the corporate franchises, existence and rights of EHI shall be
merged with and into Hotelecopy; and Hotelecopy, as the Surviving Corporation,
shall be fully vested therewith.
At the Effective Time of the Merger, the separate existence of EHI shall
cease and, in accordance with the terms of the merger agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public as well as of a private nature, and all property, real, personal and
mixed; and all debts due on whatever account, including subscriptions to shares,
all taxes, including those due and owing and those accrued, and all other choses
in action, and all and every other interest of or belonging to or due to EHI and
Hotelecopy shall be taken and deemed to be transferred to, and vested in, the
Surviving Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of EHI and Hotelecopy; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in EHI and Hotelecopy, shall not revert or
be in any way impaired by reason of the Merger.
The Surviving Corporation shall thenceforth be responsible and liable for
all the liabilities and obligations of EHI and Hotelecopy; and any claim
existing, or action or proceeding pending, by or against EHI or Hotelecopy may
be prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of EHI or
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Hotelecopy shall be impaired by the Merger; and all debts, liabilities and
duties of EHI and Hotelecopy shall attach to the Surviving Corporation, and may
be enforced against such Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by such Surviving
Corporation.
The Constituent Corporations shall execute, deliver, acknowledge and record
any and all documents necessary or appropriate to confirm and perfect the
transfer of assets and property to the Surviving Corporation.
2.3 Articles of Incorporation
The Articles of Incorporation of Hotelecopy shall be amended by deleting
Article I in its entirety and replacing it with the following:
"Article I: The name of the Corporation is Edd Helms Group, Inc."
The Articles of Incorporation of Hotelecopy as in effect immediately prior
to the Effective Time, as so amended, shall be the Articles of Incorporation of
the Surviving Corporation until the same shall thereafter be altered, amended or
repealed in accordance with the FBCA.
2.4 Bylaws
The Bylaws of Hotelecopy as in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation until the same shall
thereafter be altered, amended or repealed in the manner provided in such Bylaws
and in accordance with the FBCA.
3. Manner and Basis of Converting Shares
3.1 Conversion
Each one (1) share of EHI common stock ("EHI Stock") issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger, and
without any action on the part of the holders thereof, automatically be
converted into TWO THOUSAND ONE HUNDRED SEVENTY EIGHT and 6363/10000ths
(2178.6363) fully paid and non-assessable shares of common stock of Hotelecopy
("Hotelecopy Stock") at the Effective Time of the Merger.
3.2 Treasury Shares
Any and all shares of EHI Stock held as treasury shares by EHI shall be
canceled and retired at the Effective Time, and no consideration shall be
delivered or paid in exchange therefor.
3.3 Fractional Shares
No fractional shares of Hotelecopy Stock will be issued as a result of the
Merger. In lieu of issuing fractional shares, Hotelecopy will pay cash
adjustments to the relevant holder of EHI Stock in respect of any fraction of a
share of Hotelecopy Stock that would otherwise be issuable to such holder.
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4. Effective Date of the Merger
The Merger shall become effective immediately upon the filing of Articles
of Merger incorporating this Plan with the Florida Secretary of State (the
"Effective Time").
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APPENDIX A
(4)
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
HOTELECOPY, INC.
1. The name of the Corporation is Hotelecopy, Inc.
2. Article III, "AUTHORIZED SHARES," of the Articles of Incorporation of
the Corporation is hereby amended to read in its entirety as follows:
"ARTICLE III
AUTHORIZED SHARES
The total authorized capital stock of this Corporation is 20,000,000
shares of Common Stock, par value $.01 per share."
3. The foregoing amendment was approved by the Board of Directors of the
Corporation by a Unanimous Written Consent signed by them on March 26, 1999, and
was approved and adopted by a majority of the shareholders eligible to vote at a
meeting held for such purpose on July 30, 1999.
4. There is only one voting group entitled to vote on the foregoing
amendment. The number of votes cast for said amendment by said voting group was
sufficient for approval by that voting group.
IN WITNESS WHEREOF, the undersigned, as President of the Corporation, has
executed these Articles of Amendment this _____ day of July, 1999.
----------------------------------
W. EDD HELMS, JR.
President
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APPENDIX B
607.1320 Procedure for exercise of dissenters' rights.--
(1)(a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice of the
shareholder's intent to demand payment for his or her shares if the proposed
action is effectuated, and
2. Not vote his or her shares in favor of the proposed action. A proxy or vote
against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under s. 607.1302
is effectuated by written consent without a meeting, the corporation shall
deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for the shareholder's written consent or, if
such a request is not made, within 10 days after the date the corporation
received written consents without a meeting from the requisite number of
shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the corporation
shall give written notice of such authorization or consent or adoption of the
plan of merger, as the case may be, to each shareholder who filed a notice of
intent to demand payment for his or her shares pursuant to paragraph (1)(a) or,
in the case of action authorized by written consent, to each shareholder,
excepting any who voted for, or consented in writing to, the proposed action.
(3) Within 20 days after the giving of notice to him or her, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating the shareholder's name and address, the number, classes, and series of
shares as to which he or she dissents, and a demand for payment of the fair
value of his or her shares. Any shareholder failing to file such election to
dissent within the period set forth shall be bound by the terms of the proposed
corporate action. Any shareholder filing an election to dissent shall deposit
his or her certificates for certificated shares with the corporation
simultaneously with the filing of the election to dissent. The corporation may
restrict the transfer of uncertificated shares from the date the shareholder's
election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
or her shares. After such offer, no such notice of election may be withdrawn
unless the corporation consents thereto. However, the right of such shareholder
to be paid the fair value of his or her shares shall cease, and the shareholder
shall be reinstated to have all his or her rights as a shareholder as of the
filing of his or her notice of election, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the
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time of such expiration or completion, but without prejudice otherwise to any
corporate proceedings that may have been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the shareholders
revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a court has
been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder is not
entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders may
file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the dissenting
shareholder holds, as of the latest available date and not more than 12 months
prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month period
ended on the date of such balance sheet or, if the corporation was not in
existence throughout such 12-month period, for the portion thereof during which
it was in existence.
(6) If within 30 days after the making of such offer any shareholder accepts the
same, payment for his or her shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his or her shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in
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the manner provided by law for the service of a summons and complaint and upon
each nonresident dissenting shareholder either by registered or certified mail
and publication or in such other manner as is permitted by law. The jurisdiction
of the court is plenary and exclusive. All shareholders who are proper parties
to the proceeding are entitled to judgment against the corporation for the
amount of the fair value of their shares. The court may, if it so elects,
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers shall have such power and
authority as is specified in the order of their appointment or an amendment
thereof. The corporation shall pay each dissenting shareholder the amount found
to be due him or her within 10 days after final determination of the
proceedings. Upon payment of the judgment, the dissenting shareholder shall
cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate of
interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of such
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding, to whom the corporation has made an offer to pay for the shares, if
the court finds that the action of such shareholders in failing to accept such
offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed value
thereof or pursuant to payment of the judgment entered therefor, as provided in
this section, may be held and disposed of by such corporation as authorized but
unissued shares of the corporation, except that, in the case of a merger, they
may be held and disposed of as the plan of merger otherwise provides. The shares
of the surviving corporation into which the shares of such dissenting
shareholders would have been converted had they assented to the merger shall
have the status of authorized but unissued shares of the surviving corporation.
History.--s. 120, ch. 89-154; s. 35, ch. 93-281; s. 32, ch. 97-102.
607.1302 Right of shareholders to dissent.--
(1) Any shareholder of a corporation has the right to dissent from, and obtain
payment of the fair value of his or her shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent under s.
607.1104, and the shareholders would have been entitled to vote on action taken,
except for the applicability of s. 607.1104;
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(b) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share acquisition;
(d) Consummation of a plan of share exchange to which the corporation is a party
as the corporation the shares of which will be acquired, if the shareholder is
entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely affect
such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of his or her
shares;
2. Altering or abolishing the voting rights pertaining to any of his or her
shares, except as such rights may be affected by the voting rights of new shares
then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any of his or her
shares, when such exchange, cancellation, or reclassification would alter or
abolish the shareholder's voting rights or alter his or her percentage of equity
in the corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of the shareholder's redeemable
shares, altering or abolishing any provision relating to any sinking fund for
the redemption or purchase of any of his or her shares, or making any of his or
her shares subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of the
shareholder's preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of the shareholder's preferred
shares; or
7. Reducing any stated preferential amount payable on any of the shareholder's
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of incorporation
provide that a voting or nonvoting shareholder is entitled to dissent and obtain
payment for his or her shares.
(2) A shareholder dissenting from any amendment specified in paragraph (1)(e)
has the right to dissent only as to those of his or her shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in his
or her name. In that event, the shareholder's rights shall be determined as if
the shares as to which he or she has dissented and his or her other shares were
registered in the names of different shareholders.
B-4
<PAGE>
(4) Unless the articles of incorporation otherwise provide, this section does
not apply with respect to a plan of merger or share exchange or a proposed sale
or exchange of property, to the holders of shares of any class or series which,
on the record date fixed to determine the shareholders entitled to vote at the
meeting of shareholders at which such action is to be acted upon or to consent
to any such action without a meeting, were either registered on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his or her shares
under this section may not challenge the corporate action creating his or her
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
History.--s. 119, ch. 89-154; s. 5, ch. 94-327; s. 31, ch. 97-102.
607.1301 Dissenters' rights; definitions.--The following definitions apply to
ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of the
shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the shareholders'
vote authorizing the proposed action was taken, the date on which the
corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
History.--s. 118, ch. 89-154.
B-5
<PAGE>
APPENDIX C
HOTELECOPY FINANCIAL STATEMENTS
<PAGE>
HOTELECOPY, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended May 31, 1998 and 1997
C O N T E N T S
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT C-1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets C-2
Consolidated Statement of Operations C-3
Consolidated Statements of Cash Flows C-4
Consolidated Statements of Deficiency in Assets, Attributable to Common Stock C-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS C-6 - C-11
Consolidated Balance Sheets (Unaudited) C-12
Consolidated Statement of Operations (Unaudited) C-13
Consolidated Statements of Cash Flows (Unaudited) C-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS C-15 - C-17
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of Hotelecopy, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of Hotelecopy, Inc.
and subsidiary as of May 31, 1998 and 1997, and the related consolidated
statements of operations, cash flows and deficiency in assets attributable to
common stock for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hotelecopy, Inc. and subsidiary as of May 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, and has a deficiency in assets that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 8. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Dohan and Company, CPA's
Miami, Florida
August 5, 1998
C-1
<PAGE>
HOTELECOPY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MAY 31,
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997
--------------- -------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and equivalents $ 23,934 $ 20,995
Restricted cash - certificate of deposit 10,000 10,000
Accounts receivable, less allowance for
doubtful accounts of $500 and $7,700 3,966 5,671
Inventory 2,855 15,800
Other 5,856 4,433
--------------- --------------
Total current assets 46,611 56,899
PROPERTY AND EQUIPMENT (NOTE 2) - -
DEPOSITS 2,565 2,565
--------------- ---------------
TOTAL ASSETS $ 49,176 $ 59,464
=============== ===============
LIABILITIES AND DEFICIENCY IN ASSETS ATTRIBUTABLE TO COMMON STOCK
- -----------------------------------------------------------------
CURRENT LIABILITIES (NOTE 6)
Accounts payable (Notes 5 and 6) $ 88,400 $ 1,114,510
Notes payable in default (Note 6) - 1,057,197
Note payable affiliate, in default (Note 6) - 25,250
Accrued liabilities (Note 6) 124,528 138,033
--------------- ---------------
Total current liabilities 212,928 2,334,990
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTES 3, 5, 6 AND 8)
DEFICIENCY IN ASSETS ATTRIBUTABLE TO COMMON STOCK
Common stock, $.01 par value, 10,000,000 shares
authorized: 1,933,318 shares issued and outstanding (Note 4) 19,333 19,333
Additional paid-in capital 6,213,341 6,213,341
Accumulated deficit (6,396,426) (8,508,200)
--------------- ---------------
Total deficiency in assets attributable to common stock (163,752) (2,275,526)
--------------- ---------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS
ATTRIBUTABLE TO COMMON STOCK $ 49,176 $ 59,464
=============== ===============
</TABLE>
See accompanying notes.
C-2
<PAGE>
<TABLE>
<CAPTION>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MAY 31,
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997
------------------ ---------------
<S> <C> <C>
REVENUES (NOTE 9) $ 434,306 $ 572,581
------------------ ---------------
COSTS AND EXPENSES
Cost of revenues 216,900 320,062
Payroll, payroll taxes and related benefits 97,796 219,453
Occupancy costs (Note 3) 61,984 72,543
Other selling and administrative 107,616 103,952
Abandonment loss (Note 2) - 60,290
------------------ ---------------
Total costs and expenses 484,296 776,300
------------------ ---------------
Loss before extraordinary items ( 49,990) ( 203,719)
------------------ ---------------
EXTRAORDINARY ITEMS
Gain on extinguishment of debt, net of
income taxes of $778,235 and $51,559 (Note 6) 1,383,529 91,661
Tax benefit from utilization of net
operating loss carryforwards (Note 7) 778,235 51,559
------------------ ---------------
Total extraordinary items 2,161,764 143,220
------------------ ---------------
NET INCOME (LOSS) $2,111,774 $(60,499)
================== ===============
PER SHARE OF COMMON STOCK (BASIC AND DILUTED)
Loss per common share before extraordinary items $ (0.03) $ (0.11)
------------------ ---------------
Extraordinary items $ 1.12 $ 0.07
------------------ ---------------
NET INCOME (LOSS) PER COMMON SHARE $ 1.09 $ (0.03)
================== ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,933,318 1,933,318
================== ===============
</TABLE>
See accompanying notes.
C-3
<PAGE>
<TABLE>
<CAPTION>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31,
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997
----------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $2,111,774 $(60,499)
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Provision for bad debts (7,200) -
Impairment of assets - 61,040
Extinguishment of debt (2,161,764) ( 143,220)
Changes in operating assets and liabilities:
Decrease in accounts receivable 8,905 12,223
Decrease in inventory 12,945 8,922
(Increase) decrease in other current assets (1,423) 1,829
Increase in accounts payable, other than extinguishment 42,613 126,057
Decrease in accrued liabilities, other than extinguishment (2,911) (13,502)
------------- -------------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES AND
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2,939 (7,150)
CASH AND EQUIVALENTS, BEGINNING 20,995 28,145
------------- -------------
CASH AND EQUIVALENTS, ENDING $ 23,934 $ 20,995
============= =============
</TABLE>
See accompanying notes.
C-4
<PAGE>
<TABLE>
<CAPTION>
HOTELECOPY, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF DEFICIENCY IN ASSETS
ATTRIBUTABLE TO COMMON STOCK
FOR THE YEARS ENDED MAY 31, 1998 AND MAY 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1996 1,933,318 $19,333 $6,213,341 $(8,447,701) $(2,215,027)
NET LOSS (60,499) (60,499)
------------- ------------- ------------- -------------- --------------
BALANCE, MAY 31, 1997 1,933,318 19,333 6,213,341 (8,508,200) (2,275,526)
NET INCOME 2,111,774 2,111,774
------------- ------------- ------------- -------------- --------------
BALANCE, MAY 31, 1998 1,933,318 $19,333 $6,213,341 $(6,396,426) $ (163,752)
============= ============= ============= ============== ==============
</TABLE>
See accompanying notes.
C-5
<PAGE>
HOTELECOPY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
-----------------
Hotelecopy, Inc. (the "Company") is a Florida corporation formed in
July 1985, primarily to provide a worldwide facsimile transmission
network with facsimile equipment located in various commercial and
public locations throughout the United States and other countries.
Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of the
Company and its subsidiary, Hoteleticket, Inc. ("Hoteleticket").
Hoteleticket is a Florida corporation formed in 1988 to provide
airline and other travel reservation services through automated
ticket printers. Hoteleticket has discontinued its operating
activities, however, it is still in compliance with relevant
regulatory authorities, and its only expenses are those that are
required in order to comply with those authorities. All significant
intercompany accounts and transactions for the periods presented
have been eliminated in consolidation.
Revenue Recognition
-------------------
The Company recognizes its facsimile transmission usage revenue on
the date of the transmission. Membership revenues are recognized
ratably over the respective terms of the members' contracts.
Inventory
---------
Inventory consists of facsimile equipment and supplies and is valued
at the lower of cost (using the first-in, first-out method) or
market.
Income Taxes
------------
Income taxes are computed under the provisions of the Financial
Accounting Standards Board (FASB) Statement No. 109 (SFAS No. 109),
"Accounting for Income Taxes". Current and deferred taxes are
allocated to members of the consolidated group by applying SFAS No.
109 to each member as if it were a separate taxpayer.
Property and Equipment
----------------------
Property and equipment, consisting of furnishings and facsimile
equipment is stated at cost, less accumulated depreciation, while
equipment not yet placed in service is carried at cost. Depreciation
is begun when the assets are placed in service and computed using
the straight-line method over the estimated useful lives of the
assets, which range from five to ten years.
Advertising
-----------
Advertising costs are expensed as incurred.
Research and Development
------------------------
Research and development costs are expensed as incurred.
C-6
<PAGE>
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk
-----------------------------
The Company places equipment in hotels and extends credit based on
an evaluation of the hotel's financial condition, without requiring
collateral. Exposure to losses on receivables is principally
dependent on the financial condition of each hotel. The Company
monitors its exposure for credit losses and maintains allowances for
anticipated losses.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Impairment of Long-Lived Assets
-------------------------------
During fiscal 1997, the Company adopted FASB Statement No. 121 (SFAS
No. 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires that
impairment losses are to be recorded when long-lived assets to be
held and used are reviewed for impairment whenever events or changes
in circumstances indicate that the related carrying amount may not
be recoverable. When required, impairment losses on assets to be
held and used are recognized based on the fair value of the asset.
Long-lived assets to be disposed of, if any, are reported at the
lower of carrying amount or fair value less cost to sell. The
Company's adoption of SFAS No. 121 resulted in a material impact on
its financial position and results of operations for the year ended
May 31, 1997 (see Note 2).
Net Income (Loss) Per Common Share
----------------------------------
Effective December 31, 1997, the Company adopted the provisions of
FASB Statement No. 128 (SFAS No. 128), "Earnings Per Share". SFAS
No. 128 requires companies to present basic earnings per share (EPS)
and diluted EPS, instead of primary and fully diluted EPS
presentations that were formerly required by Accounting Principles
Board Opinion No. 15, "Earnings Per Share". Basic EPS is computed by
dividing net income or loss by the weighted average number of common
shares outstanding during each year. For the Company, diluted EPS
does not include the effect of potential stock option exercises
which would have an anti-dilutive effect, therefore EPS amounts for
all periods reflect the provisions of SFAS No. 128.
Cash and Equivalents
--------------------
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Restricted Cash
---------------
The Company has a certificate of deposit that collateralizes a
$10,000 irrevocable letter of credit. The letter of credit may be
terminated annually at the Company's option.
C-7
<PAGE>
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
-----------------------------------
Cash, receivables, accounts payable, debt, accrued expenses and
other liabilities are carried at amounts which reasonably
approximate their fair value due to the short-term nature of these
amounts or due to variable rates of interest which are consistent
with current market rates.
Recent Accounting Pronouncements
--------------------------------
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and
display of comprehensive income and its components (revenue,
expenses, gains and losses) in a separate full set of
general-purpose financial statements. The provisions of this
statement are effective for fiscal years beginning after December
15, 1997. Management believes that the Company does not have items
of a material nature that would require presentation in a separate
statement of comprehensive income.
In June 1997, the FASB also issued Statement No. 131, "Disclosures
About Segments of an Enterprise and Related Information", which
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires those enterprises to report selected
information about operating segments in interim financial reports
issued to shareholders. The provisions of this statement are
effective for fiscal years beginning after December 15, 1997.
Management believes that the Company currently does not have items
of a material nature which would require segment disclosure.
NOTE 2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consisted of the following at May 31:
1998 1997
--------------- ---------------
<S> <C> <C>
Facsimile equipment $ 449,645 $ 512,291
Office and other equipment 46,821 46,821
--------------- --------------
496,466 559,112
Less accumulated depreciation 496,466 559,112
--------------- --------------
Property and equipment, net book value $ - $ -
=============== ==============
</TABLE>
During the year ended May 31, 1997, the Company charged-off and
abandoned impaired assets with a net value of $60,290. There was no
depreciation expense in either year.
NOTE 3. RELATED PARTY TRANSACTIONS AND COMMITMENT
In June 1997, the Company and its subsidiary leased their operating
facilities from a Partnership controlled by its President pursuant
to a non-cancelable lease expiring May of 1998. Rent expense was
approximately $61,900 and $72,500 for the years ended May 31, 1998
and 1997. On June 1, 1998, the Company renewed the lease for two
years at the rate of $26,400 per year exclusive of sales tax.
The Company is affiliated with various other entities through common
ownership and control with its President who is also a shareholder.
C-8
<PAGE>
NOTE 4. INCENTIVE STOCK OPTION PLAN
On May 31, 1989, the Company's Board of Directors adopted its 1989
Incentive Stock Option Plan (ISOP) in order to attract, retain and
motivate employees who contribute materially to the success of the
Company. Employees of the Company and its subsidiary are covered by
the ISOP. Under the terms of the ISOP, the Company is authorized to
grant incentive stock options to purchase up to an aggregate of
100,800 shares of its common stock. The option price under the ISOP
will be the fair market value of the common stock at the date of
grant or if granted to individuals who own 10% or more of the
Company's common stock at 110% of fair market value. No option is
excersizable after ten years from the date of grant (five years for
holders of greater than 10% of the stock). The ISOP is administered
by the Compensation Committee of the Company's Board of Directors.
Options to acquire 12,000 shares expired during the year ended May
31, 1997, and there was no activity during the year ended May 31,
1998. At May 31, 1998, there are options to purchase 39,577 shares
of common stock pursuant to ISOP grants (plus 4,000 options issued
to non-employee directors).
NOTE 5. UNITED STATES POSTAL SERVICE (USPS) JUDGEMENT
During 1989, the Company entered into joint venture agreements with
the USPS to provide and maintain facsimile equipment in 265 post
office locations in the USPS's five regions. During the contract
period, a dispute arose relating to these agreements and, in October
1990, the Company filed an administrative claim for $5,251,000
($8,566,000 as amended) against the USPS alleging that the USPS
breached its obligations under these contracts. On January 31, 1991,
the USPS denied the Company's administrative claim. The contracts
for three of the USPS regions were terminated by the USPS in January
1991 and the contracts for the other two regions were terminated in
February and May 1991, respectively. In February 1991, the Company
filed two lawsuits against the USPS relating to these contracts. One
lawsuit alleged breach of contract and the second was to overturn
the administrative termination of the contracts. Subsequently, the
USPS filed a counterclaim against the Company totaling $88,400 for
failure to pay operating fees under four of the contracts. The
related trial was completed on July 16, 1992 and on November 3, 1992
the Company received an adverse decision (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 for the
counterclaim against it for $88,400, which is included in accounts
payable in the accompanying balance sheets. On March 10, 1993, the
Company filed its appeal in 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 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 for $88,400.
The Company does not have the funds to satisfy this judgement.
C-9
<PAGE>
NOTE 6. EXTRAORDINARY ITEM - EXTINGUISHMENT OF DEBT
In May of 1998, the Company reviewed its liabilities, especially
those in default; to determine if the debts it had incurred in prior
years was subject to the Florida Statute of Limitations, Section
95.11 of the Florida Statute. As part of that review, the Company
also contacted its two largest creditors, one of which responded
that the debt had been charged-off. In summary, that statute
provides that where there is no collection activity within a
five-year period, the creditor is barred from further collection.
The statute further provides that any action contemplated or action
on a judgement decree of any court, not of record, of the State of
Florida or any court of the United States, any other state or
territory in the United States shall be commenced within five (5)
years.
In addition, the statute states that a legal or equitable action on
a contract, obligation, or liability founded on a written instrument
shall be commenced within five (5) years from the occurrence of the
last element constituting the cause of action. Whereas, a legal or
equitable action on a contract, obligation, or liability not founded
on a written instrument shall be commenced within four (4) years
from the occurrence of the last element constituting the cause of
action.
Accordingly, the Company has written-off all debts, as extinguished,
that fall within the parameters of the statute and has accrued a
liability for potential litigation or settlement in the event its
write-offs are legally challenged.
NOTE 7. INCOME TAXES
The Company and its subsidiary file consolidated income tax returns.
For the year ended May 31, 1997, the Company generated for U.S.
income tax purposes a net operating loss of approximately $60,000.
At May 31, 1998, the Company had net operating loss carryforwards of
approximately $6,150,000 for income tax purposes, of which $628,000
expires in the year ending 2006, $2,278,000 expires in the year
ending 2007, $1,536,000 expires in the year ending 2008, $777,000
expires in the year ending 2009, $200,000 expires in the year ending
2010, $525,000 expires in the year 2011, and the balance expires in
2012. However, if subsequently there are ownership changes in the
Company, as defined in Section 382 of the Internal Revenue Code, as
a result of those changes, the Company's ability to utilize net
operating losses and capital losses available before the ownership
change may be restricted to a percentage of the market value of the
Company at the time of the ownership change. Therefore, substantial
net operating loss carryforwards could, in all likelihood, be
limited or eliminated in future years due to a change in ownership
as defined in the Code. The utilization of the remaining
carryforwards is dependent on the Company's ability to generate
sufficient taxable income during the carryforward periods and no
further significant changes in ownership.
The Company computes deferred income taxes under the provisions of
FASB Statement No. 109 (SFAS 109), which requires the use of an
asset and liability method of accounting for income taxes. SFAS No.
109 provides for the recognition and measurement of deferred income
tax benefits based on the likelihood of their realization in future
years. A valuation allowance must be established to reduce deferred
income tax benefits if it is more likely than not that a portion of
the deferred income tax benefits will not be realized. It is
Management's opinion that the entire deferred tax benefit may not be
recognized in future years. Therefore, a valuation allowance equal
to the deferred tax benefit has been established, resulting in no
deferred tax benefits as of the consolidated balance sheet dates.
The Company may be required to file income tax returns in some
states in which it has facsimile equipment. As a result of its
liquidity problems, the Company has been unable to fund the cost of
such filings, however, Management believes that due to the recurring
losses experienced no substantial penalties will be incurred if, and
when, the Company is financially able to file these overdue returns.
C-10
<PAGE>
NOTE 8. OPERATING AND ECONOMIC CONDITIONS AND MANAGEMENT'S PLANS
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern basis, which
contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The
Company has suffered recurring losses from operations (before
extinguishment of debt), consequently there is a deficiency in
assets attributable to common stock of $163,752 at May 31, 1998, as
well as a working capital deficiency. Furthermore, liquidity
conditions have limited the ability of the Company to market its
products and services at amounts sufficient to recover its operating
and administrative costs. Consequently, the Company has incurred
losses before extraordinary items of $49,990 and $203,719 for the
years ending May 31, 1998 and 1997, respectively Cash currently on
hand and expected to be generated by operations during fiscal 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 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.
In addition, the Company has used substantial working capital in its
operations. As of May 31, 1998, current liabilities exceed current
assets by $166,317. Cash provided (used) by operations of the
Company for the years ended May 31, 1998 and 1997 amounted to
$2,939, and ($7,150), respectively. The consolidated financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts
or classifications of liabilities that might be necessary in the
event the Company cannot continue in existence.
Management's plan for dealing with the conditions described above is
pursuing the acquisition of an operating entity. This prospective
acquisition and changes in the Company's business may significantly
affect the Company's deficiency in assets. While there is no
assurance that the Company will be able to find a suitable
acquisition, the Company is continuing to reduce experiments, and
together with the credit being entended by the Company's current
vendors, related parties and other creditors, as well as its
projected revenue, the Company believes that sufficient funds wil be
available to support the Company's liquidity requirements through
May 31, 1999.
NOTE 9. SIGNIFICANT CUSTOMERS
Two customers comprised 71% of the total May 31, 1998, sales of the
Company (27% and 44% respectively). Those same two customers
accounted for 21% and 38% of May 31, 1997 sales, while a third
customer accounted for 22% of that year's sales. In total, those
three customers comprised 81% of the sales for the year ended May
31, 1997.
C-11
<PAGE>
<TABLE>
<CAPTION>
HOTELECOPY, INC. AND SUBSIDIARY
- -------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
ASSETS February 28, 1999
- ------ -----------------
<S> <C>
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
C-12
<PAGE>
<TABLE>
<CAPTION>
HOTELECOPY, INC. & SUBSIDIARY
- -----------------------------
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
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
C-13
<PAGE>
<TABLE>
<CAPTION>
HOTELECOPY, INC. & SUBSIDIARY
- -----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------
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
C-14
<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
C-15
<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.
C-16
<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. The Company believes that the carrying value of assets and
liabilities on the balance sheet at February 28, 1999, approximate their
liquidation values; therefore, no adjustment to carrying values has been made.
C-17
<PAGE>
APPENDIX D
EHI FINANCIAL STATEMENTS
<PAGE>
EDD HELMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1998 and 1997
C O N T E N T S
PAGE
----
INDEPENDENT AUDITOR'S REPORT D-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets D-2
Statements of Operations and Retained Earnings D-3
Statements of Comprehensive Income D-4
Statements of Cash Flows D-5 - D-6
Notes to Financial Statements D-7 - D-16
Consolidated Balance Sheets D-17 - D-18
Consolidated Statements of Income D-19
Consolidated Statements of Cash Flows D-20
<PAGE>
Independent Auditor's Report
----------------------------
Board of Directors
Edd Helms, Incorporated and Subsidiaries
Miami, Florida
We have audited the accompanying consolidated balance sheets of Edd Helms,
Incorporated and Subsidiaries as of May 31, 1998 and 1997, and the related
consolidated statements of income and retained earnings, comprehensive income,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Edd Helms, Incorporated and
Subsidiaries at May 31, 1998 and 1997, and the results of their operations and
their cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Dohan and Company, CPA's
July 23, 1998
Miami, Florida
D-1
<PAGE>
<TABLE>
<CAPTION>
EDD HELMS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------------
May 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 447,072 $ 543,558
Accounts receivable, less allowance for doubtful accounts
of $42,295 in 1998 and $38,848 in 1997 (Note 3) 706,523 1,241,908
Due from employees and affiliate 8,022 28,322
Costs and estimated earnings in excess
of billings on uncompleted contracts (Note 4) 57,860 59,940
Inventories 466,779 346,611
Refundable taxes - 2,405
Prepaid expenses 88,350 20,287
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,774,606 2,243,031
- -----------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (NOTE 5) 346,321 174,939
- -----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Deferred income taxes (Note 6) 23,640 5,629
Officer note receivable (Notes 2, 8, 10 and 11) - 156,041
Cash surrender value of officers' life insurance (Note 11) - 86,706
Other (Note 7) 16,957 30,758
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 40,597 279,134
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,161,524 $ 2,697,104
=============================================================================================================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Note 12) $ 135,874 $ 82,787
Accounts payable (Note 16) 229,345 606,622
Customer deposits - 19,566
Income taxes payable (Note 6) 63,247 6,936
Accrued liabilities (Note 14) 261,621 291,644
Deferred revenue (Note 15) 7,294 10,941
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note 4) 108,793 173,440
Deferred income taxes (Note 6) 149,037 107,267
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 955,211 1,299,203
- -----------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT (NOTE 12) 126,096 147,560
LONG-TERM PORTION OF PARTNERSHIP LIABILITIES (NOTE 8) - 393,918
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 126,096 541,478
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,081,307 1,840,681
- -----------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 8, 11, 13, 15 AND 16)
STOCKHOLDERS' EQUITY (NOTE 17) 1,080,217 856,423
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,161,524 $ 2,697,104
=============================================================================================================================
</TABLE>
D-2
<PAGE>
<TABLE>
<CAPTION>
EDD HELMS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
- ---------------------------------------------------------------------------------------------------------------------------
For the Years Ended May 31, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES EARNED $ 8,660,837 $ 9,490,276
COST OF REVENUES EARNED 6,235,491 6,939,460
- ---------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 2,425,346 2,550,816
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,150,547 1,981,837
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 274,799 568,979
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST AND INVESTMENT ACTIVITIES
Gain on disposition of equipment - 1,519
Interest income 48,453 37,492
Miscellaneous income - 959
Interest expense (Note 12) (21,186) (28,493)
Partnership loss (Note 8) (41,747) (144,879)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST AND INVESTMENT ACTIVITIES (14,480) (133,402)
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 260,319 435,577
- ---------------------------------------------------------------------------------------------------------------------------
INCOME TAXES (NOTE 6)
Provision for income taxes 80,889 160,800
Unusual item - income tax benefit from utilization of net operating
loss carryforwards - (58,536)
- ---------------------------------------------------------------------------------------------------------------------------
INOME TAXES 80,889 102,264
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 179,430 333,313
EXTRAORDINARY ITEM - Gain on extinguishment of debt (less
applicable income taxes of $6,118 and $6,310) (Notes 6 and 16) 14,276 14,724
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME 193,706 348,037
RETAINED EARNINGS - BEGINNING 912,734 564,697
REPURCHASE AND RETIREMENT OF COMMON STOCK (NOTE 17) (89,000) -
- ---------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS - ENDING $ 1,017,440 $ 912,734
===========================================================================================================================
</TABLE>
See accompanying notes.
D-3
<PAGE>
<TABLE>
<CAPTION>
EDD HELMS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- ---------------------------------------------------------------------------------------------------------------------------
For the Years Ended May 31, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME 193,706 348,037
OTHER COMPREHENSIVE INCOME
Reclassification adjustment from disposal of
available-for-sale equity securities 128,594 -
- ---------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 322,300 $ 348,037
===========================================================================================================================
</TABLE>
See accompanying notes.
D-4
<PAGE>
<TABLE>
<CAPTION>
EDD HELMS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------
For the Years Ended May 31, 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts
Cash received from customers $ 9,431,619 $ 10,020,980
Interest received 48,455 25,410
Miscellaneous income - 959
- --------------------------------------------------------------------------------------------------------------
RECEIPTS FROM OPERATING ACTIVITIES 9,480,074 10,047,349
- --------------------------------------------------------------------------------------------------------------
Disbursements
Cash paid to suppliers and employees 9,163,333 9,455,253
Interest paid 21,186 28,493
- --------------------------------------------------------------------------------------------------------------
DISBURSEMENTS FROM OPERATING ACTIVITIES 9,184,519 9,483,746
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 295,555 563,603
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts
Proceeds from disposition of property and equipment - 1,700
- --------------------------------------------------------------------------------------------------------------
RECEIPTS FROM INVESTING ACTIVITIES - 1,700
- --------------------------------------------------------------------------------------------------------------
Disbursements
Purchase of property and equipment 338,170 69,864
- --------------------------------------------------------------------------------------------------------------
DISBURSEMENTS FROM INVESTING ACTIVITIES 338,170 69,864
- --------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (338,170) (68,164)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Proceeds from notes payable 145,880 40,661
Repayment from affiliate 2,000 -
- --------------------------------------------------------------------------------------------------------------
RECEIPTS FROM FINANCING ACTIVITIES 147,880 40,661
- --------------------------------------------------------------------------------------------------------------
Disbursements
Principal payments on long-term debt and notes payable 114,232 99,215
Principal payments on capitalized lease obligations - 4,182
Stock repurchase 51,453 -
Payment for additional partnership interest 20,000 -
Advances to affiliates - 24,325
Payments and advances to stockholder 16,066 -
- --------------------------------------------------------------------------------------------------------------
DISBURSEMENTS FROM FINANCING ACTIVITIES 201,751 127,722
- --------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (53,871) (87,061)
- --------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (96,486) 408,378
CASH AND EQUIVALENTS - BEGINNING 543,558 135,180
- --------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS - ENDING $ 447,072 $ 543,558
==============================================================================================================
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Long-term debt in the amount of $126,603 and $40,661 was incurred during 1998
and 1997, respectively to purchase transportation equipment.
During 1998, a major shareholder and officer of the Company assumed the
Company's liability in National Industrial Park in the amount of $415,718. In
exchange the Company transferred a life insurance policy with a cash surrender
value of $106,018 and 204,800 shares of common stock of Hotelecopy, Inc. with a
cost of $128,594 and cancelled a note receivable from the officer of $181,106.
See Note 11.
==============================================================================================================
</TABLE>
See accompanying notes.
D-5
<PAGE>
<TABLE>
<CAPTION>
EDD HELMS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------
For the Years Ended May 31, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 193,706 $ 348,037
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 180,088 149,872
Gain on disposition of property and equipment - (1,519)
Partnership loss 41,747 144,879
Provision for bad debts 3,447 (109,213)
Increase in cash value of officers' life insurance (19,312) (4,800)
Officer bonus applied to reduce officer note receivable - 50,000
Stock repurchase (47,000) -
Gain on extinguishment of debt (20,394) (21,034)
Deferred income taxes 23,759 101,638
Changes in assets (increase) decrease:
Accounts receivable 531,937 104,978
Other receivables 18,225 (11,408)
Costs and estimated earnings in excess
of billings on uncompleted contracts 2,080 (18,598)
Inventories (120,168) (22,970)
Refundable taxes - 48,990
Prepaid expenses (65,657) 1,785
Other assets 500 11,241
Interest receivable (8,999) (12,082)
Changes in liabilities increase (decrease):
Accounts payable (356,833) (347,655)
Customer deposits (19,566) 9,134
Accrued liabilities (30,022) 66,191
Income taxes payable 56,311 6,936
Deferred revenues (3,647) (860)
Billings in excess of costs and estimated
earnings on uncompleted contracts (64,647) 70,061
===========================================================================================================================
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 295,555 $ 563,603
===========================================================================================================================
</TABLE>
See accompanying notes.
D-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of Edd
Helms, Incorporated (Inc) and its wholly-owned subsidiaries, Edd
Helms Electrical Contracting, Inc., d/b/a Edd Helms Electric,
(Electric), and Edd Helms Air Conditioning, Inc., d/b/a Edd Helms
Air Conditioning, (Air Conditioning). All significant intercompany
accounts and transactions of Edd Helms, Inc., and Subsidiaries
(the Company) have been eliminated in consolidation.
Nature of Operations
--------------------
The Company has an aggressive marketing plan and high visibility,
marketing its name and services to business and residential
customers, principally through internet, radio and yellow page
advertising. As a direct result of this advertising and promotion,
the service departments of the Company have produced a majority of
the Company's revenues, while at the same time the Company has
eliminated its dependence on the new construction/general
contractor market. The new construction market represents a
relatively small portion of the Company's business and the Company
does not rely on the new construction market for its revenues.
Inc, founded in 1975, provides management, administrative,
marketing, advertising, and public relations services to its
subsidiaries.
Electric, serving the market since 1980, derives the
majority of its business from electrical service, repair,
and maintenance of commercial and residential facilities in
the South Florida area.
Air conditioning capabilities were added in January 1994,
when the assets of McDonald Air Conditioning, Inc., founded
in 1951, were purchased by Air Conditioning. Air
Conditioning derives the majority of its business activity
from its service, repair and maintenance of commercial and
residential air conditioning systems in the South Florida
area.
Cash and Equivalents
--------------------
Cash and equivalents consist of time deposits and all liquid
instruments (including overnight repurchase agreements with a
bank) with maturities of three months or less.
Revenue and Cost Recognition
----------------------------
Revenues and direct costs produced by the Company's hourly based
electrical and air conditioning service, repair, and maintenance
activities are recognized as earned or incurred. Contract revenues
and direct costs, where the work is materially completed within
sixty days, are classified as service related revenues, and
recognized as earned and incurred.
Revenues from significant construction contracts, not materially
completed within sixty days, are recognized on the
percentage-of-completion method, measured by the percentage of
costs incurred to date to estimated total costs for each contract.
This method is used because management considers expended cost to
be the best available measure of progress on the contracts.
D-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Cost Recognition (continued)
----------------------------------------
These percentage-of-completion contract costs include direct
labor, material, subcontract, equipment rental, and other
miscellaneous direct and indirect costs as allocated. Other
operating costs are charged to expense as incurred. Provisions for
estimated losses, if any, on uncompleted contracts are made in the
period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability,
including those arising from contract penalty provisions and final
contract settlements may result in revisions to costs and income
and are recognized in the period in which the revisions are
determined.
The asset "Cost and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of
amounts billed. The liability "Billings in excess of costs and
estimated earnings on uncompleted contracts" represents amounts
billed in excess of revenues earned.
Available-For-Sale Equity Security
----------------------------------
The Company accounts for investments in available-for-sale equity
securities at the lower cost or market. These securities are
carried at fair value in the financial statements with unrealized
holding gains and losses are reported as a separate component of
stockholders' equity.
Inventories
-----------
Inventories consists principally of electrical and air
conditioning equipment, supplies, components and accessories, and
are valued at the lower of cost or market using the first-in,
first-out (FIFO) method to determine cost and net realizable value
to determine market.
Property and Equipment
----------------------
Property and equipment is recorded at cost. Expenditures for major
betterments and additions are charged to the property accounts,
while replacements, maintenance, and repairs that do not improve
or extend the lives of the respective assets are charged to
expense currently.
Depreciation is computed principally using the straight-line
method, based on the estimated useful lives of the assets
Income Taxes
------------
Income taxes are computed under the provisions of the Financial
Accounting Standards Board ("FASB") Statement No. 109, "Accounting
for Income Taxes". Current and deferred taxes are allocated to
members of the consolidated group by applying FASB Statement No.
109 to each member as if it were a separate taxpayer.
Amortization
------------
Goodwill representing the cost of customer lists purchased,
goodwill and a non-compete covenant are amortized using the
straight-line method over periods of two to five years.
D-8
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of Credit Risk and Economic Dependence
-----------------------------------------------------
The Company operates in the South Florida area. Consequently, the
Company's ability to collect the amounts due from customers may be
affected by economic fluctuations in the service and construction
industries, its geographical location and natural disasters.
Concentrations of Credit Risk Arising from Cash Deposits in Excess
------------------------------------------------------------------
of Insured Limits
-----------------
The Company maintains the majority of its cash balances in one
financial institution located in Miami, Florida. The balances are
insured by the Federal Deposit Insurance Corporation up to
$100,000. At May 31, 1998, the Company's uninsured cash balances
total $459,190.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimates.
Reclassifications
-----------------
Certain amounts in the 1997 financial statements have been
reclassified for comparative purposes to conform with the
presentation in the 1998 financial statements.
Advertising
-----------
Advertising costs are charged to operations in the year incurred.
Advertising expense for the years ended May 31, 1998 and 1997,
amounted to $401,793 and $328,437, respectively.
Impairment of Long-Lived Assets
-------------------------------
During fiscal 1997, the Company adopted FASB Statement No. 121
(SFAS No. 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121
requires that impairment losses are to be recorded when long-lived
assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related
carrying amount may not be recoverable. When required, impairment
losses on assets to be held and used are recognized based on the
fair value of the asset. Long-lived assets to be disposed of, if
any, are reported at the lower of carrying amount or fair value
less cost to sell.
Recent Accounting Pronouncements
--------------------------------
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting
and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a separate full set of
general-purpose financial statements. The provisions of this
statement are effective for fiscal years beginning after December
15, 1997.
D-9
<PAGE>
NOTE 2. AVAILABLE-FOR-SALE EQUITY SECURITY
The available-for-sale equity security at May 31, 1997, consisted
of the Company's 10.59% equity interest in Hotelecopy, Inc., an
entity affiliated to the Company through control by parties
related to the Company's principal stockholder. The equity
security is stated net of an allowance for unrealized losses,
representing costs in excess of market value in May 31, 1997.
On April 30, 1998, the Company entered into an agreement, with a
major shareholder and officer of the Company, (see Note 11) in
which the shareholder acquired the 204,800 shares of common stock
par value $.01 per share, of Hotelecopy, Inc. with an original
cost of $128,594. Accordingly, the previously unrealized loss is
recognized in the current year.
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivables consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Contracts completed and in progress - billed $ 607,082 $ 1,003,031
Contracts completed and in progress - unbilled 141,736 127,823
Retention - 149,902
Allowance for doubtful accounts ( 42,295) ( 38,848)
--------------- ---------------
$ 706,523 $ 1,241,908
=============== ===============
</TABLE>
NOTE 4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Billings on uncompleted contracts $ 2,233,330 $ 1,861,522
--------------- ---------------
Costs incurred on uncompleted contracts ( 1,619,954) ( 1,267,354)
Estimated earnings on uncompleted contracts ( 562,443) ( 480,668)
---------------- ---------------
Total costs and estimated earnings on
uncompleted contracts ( 2,182,397) ( 1,748,022)
--------------- ---------------
$ 50,933 $ 113,500
=============== ===============
</TABLE>
These amounts are included in the accompanying consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Billings in excess of costs
and estimated earnings on
uncompleted contracts ($ 108,793) ($ 173,440)
Costs and estimated earnings
in excess of billings on
uncompleted contracts 57,860 59,940
--------------- ---------------
($ 50,933) ($ 113,500)
=============== ===============
</TABLE>
D-10
<PAGE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Transportation equipment $ 719,643 $ 575,046
Machinery and equipment 336,098 176,760
Furniture and fixtures 29,503 26,950
Computer equipment 152,978 124,317
Leasehold improvements 62,306 59,285
--------------- ---------------
1,300,528 962,358
Accumulated depreciation ( 954,207) ( 787,419)
--------------- - ---------------
Property and equipment,
less accumulated depreciation $ 346,321 $ 174,939
=============== ===============
</TABLE>
Depreciation expense for the years ending May 31, 1998 and 1997,
amounted to $166,788 and $133,528, respectively, and is included
in selling, general and administrative expenses in the
consolidated statements of operations.
NOTE 6. INCOME TAXES
The provision for income taxes at May 31, 1998 and 1997, is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Current tax, net of utilization of net operating loss
carryforwards
Federal $ 63,247 $ 6,936
State - -
--------------- ---------------
Total current tax 63,247 6,936
--------------- ---------------
Deferred tax, net of utilization of net operating loss
carryforwards
Federal 23,760 101,638
State - -
--------------- ---------------
Total deferred tax 23,760 101,638
--------------- ---------------
Total income taxes $ 87,007 $ 108,574
=============== ===============
</TABLE>
Included in current income taxes for 1998 and 1997, is $6,118 and
$6,310, attributable to the extraordinary item, extinguishment of
debt.
The Company files consolidated income tax returns with its two
wholly-owned subsidiaries.
The principal temporary differences that give rise to the deferred
tax asset (liability) and the effect that the changes in those
temporary differences had on the May 31, 1998 and 1997, provision
for deferred tax expense are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Deferred tax asset
Accrued officers' salaries $ 1,991 $ 1,846
Allowance for bad debts 14,169 13,014
Amortization 16,089 10,148
Depreciation 21,988 16,385
Full absorption cost method 23,706 19,132
Partnership loss - 10,728
--------------- ---------------
Total deferred tax asset 77,943 71,253
--------------- ---------------
</TABLE>
D-11
<PAGE>
NOTE 6. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Deferred tax liability
Income on long-term contracts ( 188,419) ( 161,024)
Depreciation ( 14,921) ( 11,867)
-------------- --------------
Total deferred tax liability ( 203,340) ( 172,891)
-------------- --------------
Deferred tax liability, net ($ 125,397) ($ 101,638)
============== ==============
</TABLE>
The amounts have been presented in the Company's financial
statements as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Non-current deferred tax asset $ 23,640 $ 5,629
Current deferred tax liability ( 149,037) ( 107,267)
--------------- --------------
($ 125,397) ($ 101,638)
=============== ==============
</TABLE>
The Company has net operating loss carryforwards of $17,262 for
state income tax purposes available to offset future taxable
income. These losses begin to expire in 2008. In addition, the
Company has charitable contribution carryforwards of $1,964 for
state income tax purposes, which begin to expire in 1998.
NOTE 7. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Excess acquisition value over fair market value
of assets purchased less accumulated
amortization of $58,742 and $45,442 $ 7,758 $ 21,058
Deposits 9,199 9,700
--------------- ---------------
$ 16,957 $ 30,758
=============== ===============
</TABLE>
Amortization expense was $13,300 for 1998 and 1997, and is
included in selling and general administrative expenses in the
consolidated statements of operations and retained earnings.
NOTE 8. INVESTMENT IN PARTNERSHIP
Since 1991, the Company has held a 47.5% interest in National
Industrial Park (a Florida general partnership). In consideration
of the Company paying all cash operating deficits of the
partnership, the Company was allocated 90% of the profits and
losses of the partnership. This allocation was subject to
termination by either party upon thirty days notice prior to the
end of any fiscal year with respect to the subsequent fiscal year,
provided operating deficits are thereafter paid by the partners in
accordance with their respective interests in the partnership. The
Company's liability to the partnership at May 31, 1997, was
$393,918. In November 1997, the Company acquired an additional 5%
interest at a cost of $20,000.
On April 30, 1998, the Company entered into an agreement, with a
major shareholder of the Company, in which the shareholder assumed
the liability of the Company to National Industrial Park, in the
amount of $415,718.
The Company remains contingently liable for all mortgage debt on
partnership property, in the amount of approximately $1,737,000.
D-12
<PAGE>
NOTE 9. EMPLOYEE BENEFIT PLANS
The Company has a qualified employee stock ownership plan (ESOP),
and a deferred compensation profit sharing plan (401K) under
Sections 401 and 401K of the Internal Revenue Code, covering
substantially all full-time employees. Contributions to the plans
are at the discretion of the Board of Directors, and are limited
to a specified percentage of eligible compensation for each
participant. The Company discontinued the ESOP plan during this
fiscal year. No contribution was made to either plan for 1998 or
1997. All employee benefit plan administrative expenses are paid
at the option of the Company.
NOTE 10. OFFICER NOTE RECEIVABLE
The officer note receivable was cancelled on April 30, 1998, in
the amount of $181,106 including accrued interest (See Note 11).
The Company earned $9,000 of interest income on this note in 1998.
NOTE 11. RELATED PARTY TRANSACTIONS
The Company leases its facilities under a two-year operating lease
expiring December 1998, from a partnership affiliated through
common ownership, at rental rates that management believes are
comparable to those obtainable from other unrelated parties. The
lease provides for monthly payments of $15,590. Rent expense under
that lease totaled $187,982 and $198,845 for the years ended May
31, 1998 and 1997, respectively.
Future minimum rental payments required under the above operating
lease as of May 31,1998, total $109,130.
On April 30, 1998, the Company entered into an agreement with a
major shareholder and officer of the Company in which the
shareholder assumed the Company's liability resulting from it's
ownership interest in National Industrial Park (a Florida general
partnership) in the amount of $415,718. In exchange for the
assumption of the liability the Company transferred a life
insurance policy with a cash surrender value of $106,018 and
204,800 shares of common stock of Hotelecopy, Inc. with a cost of
$128,594 and cancelled a note receivable from the officer of
$181,106.
D-13
<PAGE>
NOTE 12. LONG-TERM DEBT
Notes payable consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Bank notes, payable in monthly installments of $6,261 and $9,372,
respectively, bearing interest at rates varying from 1.9% to
9.0%, secured by transportation equipment, maturing
at various dates through June 2001 $ 132,455 $ 49,780
Unsecured note payable for the purchase of Air Conditioning,
payable in monthly installments Of $3,917, bearing interest at
8.0%, maturing in
December 1997 - 14,987
Unsecured note payable to vendor in monthly
installment of $1,000 bearing no interest
maturing May 1999 12,000 -
Unsecured note payable to vendors in monthly installments of
$7,990 and $4,713, respectively, bearing no interest and rates
from 6.0% to 9.0%
maturing at various dates through October 31, 2001 117,515 165,580
--------------- ----------------
261,970 230,347
Current maturities of long-term debt ( 135,874) ( 82,787)
--------------- ----------------
Long-term debt $ 126,096 $ 147,560
=============== ================
</TABLE>
Aggregate maturities of notes payable for the years subsequent to
May 31, 1998, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 $ 135,874
2000 99,825
2001 25,501
2002 770
--------------
$ 261,970
==============
</TABLE>
Total interest expense related to all debt obligations of the
Company amounted to $21,186 and $28,493 for the years ended May
31, 1998 and 1997, respectively.
NOTE 13. CREDIT ARRANGEMENT
The Company has a line of credit with a bank for advances up to
$250,000, secured by the Company's current and future accounts
receivable. Interest is charged at the bank's prime interest rate
plus one percent (1.0%) annually. Interest is paid monthly. The
line of credit is available to fund day-to-day working capital
needs. There were no borrowings on this credit line during the
year.
D-14
<PAGE>
NOTE 14. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Accrued liabilities consisted of the following:
1998 1997
--------------- ---------------
<S> <C> <C>
Compensation and related taxes $ 184,935 $ 204,035
Advertising 20,004 60,000
Accounting 24,074 21,800
Other professional fees 10,300 5,525
Insurance 15,803 -
Miscellaneous 6,505 284
--------------- ---------------
$ 261,621 $ 291,644
=============== ===============
</TABLE>
NOTE 15. COMMITMENTS AND CONTINGENCIES
In its normal course of business, the Company provides a one-year
warranty covering its work. The Company's policy is to expense
costs, if any, in connection with this warranty in the period such
costs are incurred. In the opinion of management, based upon prior
experience, future warranty costs are not anticipated to be
material.
Beginning in April 1995, Air Conditioning began selling prepaid
service agreements which are primarily for a period of three
years. Unearned revenues related to these service agreements are
reflected on the consolidated balance sheets as deferred revenues.
NOTE 16. CREDITOR SETTLEMENT AGREEMENT
In August 1995, Electric entered into a settlement agreement with
the principal majority of its unsecured creditors for the
repayment of outstanding liabilities as of December 31, 1994.Upon
execution of this agreement, Electric granted the creditors a
security interest in all fixtures, furniture, equipment and
receivables of Electric until all claims had been fully paid.
The amounts related to this debt had been included in accounts
payable and presented in the Company's financial statements as
current portion of accounts payable. Air Conditioning also made
payments to creditors in accordance with the proposed agreement.
Gains, from the extinguishment of debt were reported upon
fulfillment of the contractual agreement with each creditor, at
which time the Company was relieved of the remaining balance due.
A gain of $21,034 was reported for Air Conditioning in 1997. Gains
of $4,984 and $15,410 attributable to Air Conditioning and
Electric, respectively, were reported in 1998.These gains are
included in these financial statements as extraordinary items, net
of applicable income taxes (See Note 5).
In September 1997, Electric made its final payment and satisfied
its outstanding liabilities under the Creditor Settlement
Agreement, as discussed above.
NOTE 17. STOCKHOLDERS' EQUITY
Stockholders' equity consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Common stock; $1 par value; 20,000 shares
authorized 4,972 shares issued and
outstanding $ 4,972 $ 5,130
Additional paid-in capital 57,805 67,153
Retained earnings 1,017,440 912,734
Accumulated other comprehensive loss ( -) ( 128,594)
------------- -------------
$ 1,080,217 $ 856,423
============= =============
</TABLE>
D-15
<PAGE>
NOTE 17. STOCKHOLDERS' EQUITY (CONTINUED)
During 1998, the Company repurchased and retired 158 shares of its
common stock from the Employee Stock Option Plan (ESOP) for
approximately $99,000. The excess of the cost of shares acquired
over the par value resulted in reductions of additional paid-in
capital of $9,348 and retained earnings of $89,000.
During 1998 the company recognized other comprehensive income of
$128,594 upon the disposal of available-for-sale equity securities
for which a unrealized loss had been previously recorded. (See
Note 11.)
NOTE 18. BACKLOG
The following schedule summarizes the changes in backlog on
contracts. Backlog represents the amount of revenue the Company is
contracted to realize from work to be performed on uncompleted
contracts in progress at year-end.
<TABLE>
<CAPTION>
<S> <C>
Backlog balance at May 31, 1997 $ 462,636
Expenditures and profit recognition on prior year backlog ( 462,636)
New contracts not completed during the current year 2,402,415
Expenditures and estimated profit recognized on
uncompleted contracts ( 2,182,398)
---------------
Backlog balance at May 31, 1998 $ 220,017
================
</TABLE>
D-16
<PAGE>
EDD HELMS, INCORPORATED
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------
February 28, May 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 552,823 $ 447,072
Accounts receivable, less allowance for doubtful accounts
of $67,571 at February 28, 1999 and $42,295 at May 31, 1998 726,079 706,523
Due from employees and affiliate 59,044 8,022
Costs and estimated earnings in excess
of billings on uncompleted contracts 175,648 57,860
Inventories 497,107 466,779
Prepaid expenses 147,574 88,350
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,158,275 1,774,606
PROPERTY AND EQUIPMENT 504,066 346,321
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Deferred income taxes 23,640 23,640
Other 8,262 16,957
- --------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 31,902 40,597
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,694,243 $ 2,161,524
==========================================================================================================================
</TABLE>
D-17
<PAGE>
EDD HELMS, INCORPORATED
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------
February 28, May 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 164,319 $ 135,874
Accounts payable 222,240 229,345
Provision for federal and state income taxes 141,823 63,247
Accrued liabilities 374,280 261,621
Deferred revenue 7,294 7,294
Billings in excess of costs and estimated
earnings on uncompleted contracts 74,035 108,793
Deferred income taxes 149,037 149,037
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,133,028 955,211
- --------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 205,697 126,096
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,338,725 1,081,307
- --------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value:
20,000 shares authorized
4,930 at February 28, 1999 and 4,972 at May 31, 1998
shares issued and outstanding 4,930 4,972
Additional paid-in capital 57,847 57,805
Retained earnings 1,292,741 1,017,440
- --------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,355,518 1,080,217
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,694,243 $ 2,161,524
==========================================================================================================================
</TABLE>
D-18
<PAGE>
EDD HELMS, INCORPORATED
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
February 28, February 28,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES EARNED $ 2,568,933 2,240,302 $ 7,231,772 6,566,611
COST OF REVENUES EARNED 1,582,535 1,391,329 4,509,314 4,252,904
- -------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 986,398 848,973 2,722,458 2,313,707
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 809,120 647,768 2,303,837 1,988,445
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 177,278 201,205 418,621 325,262
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST AND INVESTMENT ACTIVITIES
Interest income 3,555 6,261 12,364 42,212
Interest expense (5,548) (4,483) (13,859) (16,864)
Partnership loss - (11,347) - (34,147)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST AND INVESTMENT ACTIVITIES (1,993) (9,569) (1,495) (8,799)
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 175,285 191,636 417,126 316,463
- -------------------------------------------------------------------------------------------------------------------------------
INCOME TAXES
Provision for federal and state income taxes 59,597 65,156 141,823 107,597
- -------------------------------------------------------------------------------------------------------------------------------
INCOME TAXES 59,597 65,156 141,823 107,597
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 115,688 126,480 275,303 208,866
EXTRAORDINARY ITEM - Gain on extinguishment of
debt (less applicable income taxes of $6,118) - - - 14,276
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 115,688 $ 126,480 $ 275,303 $223,142
===============================================================================================================================
</TABLE>
D-19
<PAGE>
EDD HELMS, INCORPORATED
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------------
For the nine months ended
February 28, February 28,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 275,303 $ 223,142
Adjustments to reconcile net income to cash provided (used)
by operating activities:
Depreciation and amortization 113,094 86,431
Gain or extinguishment of debt - (20,394)
Deferred income taxes - 16
Stock re-purchases (9,505)
Partnership loss - 14,200
Changes in operating assets and liabilities:
Accounts receivable (19,556) 154,040
Other receivables (51,022)
Costs and estimated earnings in excess of billings
on uncompleted contracts (117,788) (94,813)
Inventory (30,328) (21,533)
Prepaid expenses (59,224) (97,784)
Other assets 937 (34,024)
Accounts payable (7,105) (396,939)
Customer deposits - (19,566)
Accrued liabilities 112,657 (2,009)
Provision for federal and state income taxes 78,576 106,779
Deferred revenues - (10,941)
Billings in excess of costs and estimated earnings
On uncompleted contracts (34,758) (44,880)
---------- ----------
Net cash provided (used) by operating activities 260,786 (167,780)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (263,081) (139,298)
---------- ----------
Net cash used for investing activities (263,081) (139,298)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes 236,895 85,029
Payments on long term debt and notes payable (128,849) (82,811)
---------- ----------
Net cash provided by financing activities 108,046 2,218
---------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 105,751 (304,860)
Cash and equivalents - Beginning 447,072 543,558
---------- ----------
Cash and equivalents - Ending $ 552,823 $ 238,698
========== ==========
</TABLE>
D-20
<PAGE>
APPENDIX E
PRO FORMA FINANCIAL STATEMENTS
<PAGE>
HOTELCOPY AND EDD HELMS, INC.
Notes to the Consolidated Balance Sheets and Statements of Income
PRO FORMA FINANCIAL DATA
PRO FORMA CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME
The following audited and unaudited pro forma consolidated balance sheets and
statements of income give effect to the proposed merger between Edd Helms, Inc.
and Hotelecopy, Inc. and should be read in conjunction with the respective
historical consolidated financial statements and accompanying notes included
elsewhere in this proxy. The merger is subject to approval by the shareholders
of Hotelecopy, Inc. The pro forma statements assume the merger was effective as
of May 31, 1998, and was accounted for as a reverse acquisition purchase based
upon guidelines promulgated by the Securities and Exchange Commission. As a
result of the purchase treatment, goodwill and a deferred tax asset have been
recognized and the accumulated deficit of Hotelecopy, Inc. has been eliminated,
based on percentages of Hotelecopy, Inc. not owned by Edd and Carol Helms before
the merger. The pro forma consolidated balance sheets and statements of income
are presented for informational purposes only and do not purport to be
indicative of the results of operations that actually would have occurred if
these transactions had been consummated at the beginning of the earliest period
presented, nor is it necessarily indicative of future operating results or
financial position.
Results for the third quarter of the current fiscal year are not necessarily
indicative of results which may be expected for an entire fiscal year. The pro
forma consolidated balance sheets and statements of income should be read in
conjunction with this proxy, and the historical financial statements included
herein.
E-1
<PAGE>
HOTELECOPY AND EDD HELMS. INC.
Pro Forma
Consolidated Balance Sheets
<TABLE>
<CAPTION>
NINE MONTHS ENDED
February 28, 1999
(UNAUDITED)
Pro Forma
Edd Helms, Inc. Hotelecopy, Inc. Combined Adjustments Pro Forma
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND EQUIVALENTS 552,823 5,982 558,805 558,805
RESTRICTED CASH - CD 10,000 10,000 10,000
ACCOUNTS RECEIVABLE, NET 726,079 2,063 728,142 728,142
DUE FROM EMPLOYEES & AFFILIATES 59,044 59,044 (50,305)(B) 8,739
COSTS AND ESTIMATED EARNINGS IN EXCESS
OF BILLINGS ON UNCOMPLETED CONTRACTS 175,648 175,648 175,648
INVENTORIES 497,107 7,530 504,637 504,637
PREPAID EXPENSES AND OTHER ASSETS 147,574 2,163 149,737 149,737
------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,158,275 27,738 2,186,013 (50,305) 2,135,708
------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 504,066 504,066 504,066
OTHER ASSETS
DEFERRED INCOME TAXES 23,640 23,640 125,397 (A) 149,037
OTHER, PRINCIPALLY GOODWILL FOR PRO FORMA 8,262 2,595 10,857 247,882 (A) 258,739
ACCUMULATED AMORTIZATION OF GOODWILL
------------------------------------------------------------------------------
TOTAL OTHER ASSETS 31,902 2,595 34,497 373,279 407,776
------------------------------------------------------------------------------
TOTAL ASSETS 2,694,243 30,333 2,724,576 322,974 3,047,550
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES OF LONG-TERM DEBT 164,319 164,319 164,319
NOTES PAYABLE IN DEFAULT
NOTES PAYABLE AFFILIATE, IN DEFAULT
ACCOUNTS PAYABLE 222,240 35,513 257,753 257,753
JUDGEMENT PAYABLE 25,000 25,000 25,000
PROVISION FOR FEDERAL AND STATE INCOME TAXES 141,823 141,823
ACCRUED LIABILITIES 374,280 40,794 415,074 415,074
DUE TO AFFILIATE 50,305 50,305 (50,305)(B)
DEFERRED REVENUES 7,294 7,294 7,294
BILLINGS IN EXCESS OF COSTS AND ESTIMATED
EARNINGS ON UNCOMPLETED CONTRACTS 74,035 74,035 74,035
DEFERRED INCOME TAXES 149,037 149,037 149,037
------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,133,028 151,612 1,284,640 (50,305) 1,092,512
------------------------------------------------------------------------------
LONG TERM DEBT 205,697 205,697
TOTAL LONG TERM DEBT 205,697 205,697 205,697
------------------------------------------------------------------------------
TOTAL LIABILITIES 1,338,725 151,612 1,490,337 (50,305) 1,440,032
------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
COMMON STOCK ; $.01 PAR VALUE;20,000,000 SHARES
AUTHORIZED 12,673,995 ISSUED AND OUTSTANDING 4,930 19,333 24,263 102,477 (A) 126,740
ADDITIONAL PAID-IN CAPITAL 57,847 6,213,341 6,271,188 (6,083,151)(A) 188,037
RETAINED EARNINGS 1,292,741 (6,353,953) (5,061,212) 6,353,953 (A) 1,292,741
------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 1,355,518 (121,279) 1,234,239 373,279 1,607,518
------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,694,243 30,333 2,724,576 322,974 3,047,550
==============================================================================
</TABLE>
Notes
(A) The Pro Forma adjustment for common stock assumes the merger was
effective as of May 31,1998 and was accounted for as a reverse
acquisition purchase based upon guidelines promulgated by the
Securities and Exchange Commission. As a result of the purchase
treatment, goodwill and a deferred tax asset have been recognized,
and the accumulated deficit of Hotelecopy, Inc. has been
eliminated, based on percentages of Hotelecopy, Inc. not owned by
Edd and Carol Helms before the merger.
(B) To eliminate intercompany debt
E-2
<PAGE>
HOTELECOPY AND EDD HELMS. INC.
Pro Forma
Consolidated Statements of Income
<TABLE>
<CAPTION>
NINE MONTHS ENDED
February 28, 1999
(UNAUDITED)
Pro Forma
Edd Helms, Inc. Hotelecopy, Inc. Combined Adjustments Pro Forma
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES EARNED 7,231,772 238,559 7,470,331 7,470,331
COST OF REVENUES EARNED 4,509,314 201,802 4,711,116 4,711,116
----------------------------------------------------------------------------
GROSS PROFIT 2,722,458 36,757 2,759,215 2,759,215
AMORTIZATION OF GOODWILL 18,591 (2) 18,591
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,303,837 127,684 2,431,521 2,431,521
----------------------------------------------------------------------------
INCOME FROM OPERATIONS 418,621 (90,927) 327,694 18,591 309,103
INTEREST AND INVESTMENT ACTIVITIES (1,495) (1,495) (1,495)
----------------------------------------------------------------------------
INCOME BEFORE INCOME TAX AND EXTRAORDINARY ITEM 417,126 (90,927) 326,199 18,591 307,608
----------------------------------------------------------------------------
INCOME TAXES
PROVISION FOR FEDERAL AND STATE TAXES 141,823 141,823 (141,823) (1)
----------------------------------------------------------------------------
INCOME BEFORE EXTRAORIDINARY ITEMS 275,303 (90,927) 184,376 (123,232) 307,608
----------------------------------------------------------------------------
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT
OF DEBT (less applicable income tax) 85,376 85,376 85,376
TAX BENEFIT FROM UTILIZATION OF NET OPERATING LOSS
CARRY FORWARDS 48,024 48,024 48,024
----------------------------------------------------------------------------
TOTAL EXTRAORDINARY ITEMS 133,400 133,400 133,400
----------------------------------------------------------------------------
NET INCOME 275,303 42,473 317,776 (123,232) 441,008
============================================================================
</TABLE>
(1) TO ELIMINATE FEDERAL AND STATE INCOME TAXES
(2) AMORTIZATION OF GOODWILL, OVER 10 YEARS
ON A STRAIGHT LINE BASIS
E-3
<PAGE>
HOTELECOPY AND EDD HELMS. INC.
Pro Forma
Consolidated Statements of Income
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
May 31, 1998
(AUDITED)
Pro Forma
Edd Helms, Inc. Hotelecopy, Inc. Combined Adjustments Pro Forma
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES EARNED 8,660,837 434,306 9,095,143 9,095,143
COST OF REVENUES EARNED 6,235,491 216,900 6,452,391 6,452,391
-------------------------------------------------------------------------------
GROSS PROFIT 2,425,346 217,406 2,642,752 2,642,752
AMORTIZATION OF GOODWILL 24,788 (2) 24,788
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,150,547 267,396 2,417,943 2,417,943
-------------------------------------------------------------------------------
INCOME FROM OPERATIONS 274,799 (49,990) 224,809 24,788 200,021
------------
INTEREST AND INVESTMENT ACTIVITIES (14,480) (14,480) (14,480)
-------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX AND EXTRAORDINARY ITEM 260,319 (49,990) 210,329 24,788 185,541
-------------------------------------------------------------------------------
INCOME TAXES
PROVISION FOR FEDERAL AND STATE 80,889 80,889 (80,889) (1)
-------------------------------------------------------------------------------
INCOME BEFORE EXTRAORIDINARY ITEMS 179,430 (49,990) 129,440 (56,101) 185,541
-------------------------------------------------------------------------------
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT
OF DEBT (less applicable income tax) 14,276 1,383,529 1,397,805 1,397,805
TAX BENEFIT FROM UTILIZATION OF NET OPERATING LOSS
CARRY FORWARDS 778,235 778,235 778,235
-------------------------------------------------------------------------------
TOTAL EXTRAORDINARY ITEMS 14,276 2,161,764 2,176,040 2,176,040
-------------------------------------------------------------------------------
NET INCOME 193,706 2,111,774 2,305,480 (56,101) 2,361,581
===============================================================================
</TABLE>
(1) TO ELIMINATE FEDERAL AND STATE INCOME TAXES
(2) AMORTIZATION OF GOODWILL OVER 10 YEARS ON A
STRAIGHT LINE BASIS
E-4
<PAGE>
HOTELECOPY, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
To Be Held July 30, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints W. Edd Helms, Jr., and Philip H. Kabot,
and each of them individually, with full power of substitution, attorneys and
proxies of the undersigned, at the Special Meeting of Shareholders of Hotelecopy
("Hotelecopy"), to be held at Don Shula's Hotel & Golf Club, Wightman Cup Room,
2nd Floor, located at 6842 Main Street, Miami Lakes, Florida, at 7:30 p.m., and
any adjournment or adjournments thereof, with all power which the undersigned
would have if personally present to vote all shares of common stock ("Common
Stock") of Hotelecopy which the undersigned may be entitled to vote at such
meeting as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS (1), (2) and (3)
(1) Approval of the Agreement and Plan of Merger, dated as of March 26,
1999, between Hotelecopy and Edd Helms, Incorporated, a Florida
corporation ("EHI"), and the related Articles and Plan of Merger,
whereby EHI will be merged with and into Hotelecopy. The shareholders
of EHI will receive 2178.6363 shares of Hotelecopy's common stock for
each share of EHI.
<TABLE>
<CAPTION>
<S> <C> <C>
______ FOR _____ AGAINST _____ ABSTAIN
(2) Approval of the change of Hotelecopy, Inc's name to Edd Helms Group, Inc.
______ FOR _____ AGAINST _____ ABSTAIN
(3) Approval of an amendment to Hotelecopy's Articles of Incorporation to
increase the number of authorized shares of its common stock, par value
$.01 per share, to 20,000,000 shares.
______ FOR _____ AGAINST _____ ABSTAIN
</TABLE>
-1-
<PAGE>
(4) In their discretion upon such other business and other matters and
proposals as may properly come before the Special Meeting or any
adjournment or adjournments thereof.
The undersigned acknowledges the receipt of the Notice of Special
Meeting of Shareholders and Proxy Statement dated, in each case, July 8, 1999.
All other proxies heretofore given by the undersigned to vote Common Stock of
Hotelecopy are expressly revoked.
Date: _________________________, 1999
- --------------------------------
Signature
-2-
