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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended May 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from________to________
Commission file number 0-17978
EDD HELMS GROUP, INC.
(Name of small business issuer in its charter)
Florida 59-2605868
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
17850 N.E. 5th Avenue, Miami, Florida 33162-1008
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (800) 322-0530
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchangeon which
Title of each class registered
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 Par Value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [ ] Yes [X] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $11,985,794.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock as of October 10,
2000 was $174,097.76 (2,176,222 shares at an average bid price of $.08 per
share)
There were 12,654,500 shares outstanding of the issuer's common stock, $.01 par
value, as of October 10, 2000.
<PAGE>
EDD HELMS GROUP, INC. AND SUBSIDIARIES
FORM 10-KSB
TABLE OF CONTENTS
PART I PAGE
-------- ----
Item 1. DESCRIPTION OF BUSINESS 2
Item 2. DESCRIPTION OF PROPERTY 6
Item 3. LEGAL PROCEEDINGS 6
Item 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS 6
PART II
--------
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS 6
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION 6
Item 7. FINANCIAL STATEMENTS 9
Item 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 23
PART III
--------
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT 23
Item 10. EXECUTIVE COMPENSATION 24
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 24
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 25
Item 13. EXHIBITS AND REPORTS ON FORM 8-K 25
1
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
FORWARD-LOOKING INFORMATION
This Form 10-KSB contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. For this purpose, any
statements contained in this Form 10-KSB that are not statements of historical
fact may be deemed forward-looking statements. Without limiting the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "estimate" or
"continue" or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially depending on a variety
of factors, many of which are not within our control. These factors include, but
are not limited to, economic conditions generally and in the industries in which
our customers participate; competition within our industry, including
competition from much larger competitors; price increases or supply limitations
for components purchased by us; and delays, reductions, or cancellations of
orders previously placed with and by us. or cancellations of orders previously
placed with and by us.
INTRODUCTION
We are in the business of providing electrical, data communications, cellular
antenna and public facsimile services. Through the Edd Helms Air Conditioning,
Inc., subsidiary, we install and service air conditioning and mechanical
systems. We are located at 17850 NE 5th Ave, Miami, Florida 33162 and conduct
business throughout Miami-Dade, Broward and southern Palm Beach counties.
RECENT HISTORY
We are a Florida corporation, organized in 1985. We were incorporated under the
name of Hotelecopy, Inc. Effective August 2, 1999, Hotelecopy merged with Edd
Helms, Incorporated, a Florida corporation, with Hotelecopy surviving and
through the articles of merger amending its name to "Edd Helms Group, Inc."
(this merger will be referred to as the "Merger" throughout this annual report).
Our predecessor, Edd Helms, Incorporated, was a privately owned corporation that
was incorporated in the State of Florida in 1975. Each director of Hotelecopy
and Edd Helms, Incorporated recommended to their respective shareholders that
the companies merge. The reasons to merge were so that the shareholders of
Hotelecopy could benefit from the expected increase in revenue to be gained
through the merger, while the shareholders of Edd Helms, Incorporated would
benefit by merging their business operations into those of a company with
publicly traded shares. The shareholders of Edd Helms, Incorporated approved the
Merger on July 30, 1999. The shareholders of Hotelecopy also approved the Merger
on July 30, 1999. Pursuant to the Plan and Agreement of Merger the shareholders
of Edd Helms, Incorporated received 10,740,677 shares of Edd Helms Group, with
each of the 4,930 issued and outstanding shares of the predecessor Edd Helms,
Incorporated being converted into 2,178.6363 shares of Edd Helms Group. Mr. Edd
Helms, Jr., our Chairman of the Board, President and Chief Executive Officer
held 44% of the issued and outstanding shares of Hotelecopy and 89% of the
issued and outstanding shares of Edd Helms, Incorporated prior to the Merger,
and after the Merger he owns approximately 82.15% of the Edd Helms Group.
We presently have two subsidiaries. We are the sole shareholder of Hoteleticket,
Inc., a Florida corporation, which was incorporated on March 7, 1988.
Hoteleticket is a licensed travel agency which has been inactive since 1993, but
which we keep in compliance with relevant regulatory authorities, including its
Airline Reporting Company registration.
Edd Helms, Incorporated had two wholly-owned subsidiaries:
(i) Edd Helms Air Conditioning, Inc., a Florida corporation which was
incorporated on April 7, 1980, and which as a result of the Merger became a
wholly owned subsidiary of the Company, and (ii) Edd Helms Electrical
Contracting, Inc., a Florida corporation which was incorporated on April 7,
1980, and which was merged with and into Edd Helms, Incorporated in May of 1999,
prior to the Merger.
On March 30, 1999, Edd Helms, Incorporated acquired the stock, assets, business
operations and good will of L.C.T. Communications Corp., a Florida corporation,
from L.C.T. and its shareholders, Lorraine and Charles O'Toole for a purchase
price of $100,000, $30,426 of which was paid in shares of Edd Helms,
Incorporated. L.C.T. was a data or communication cabling installation, testing,
and repair service business servicing Dade, Broward, and Palm Beach counties. As
part of the acquisition, Edd Helms, Incorporated entered into a Non-Competition
Agreement with Charles and Lorraine O'Toole whereby they agreed that from March
30, 1999 through March 31, 2001 they would not compete in the field of business
of LCT. Charles and Lorraine also each entered into an Employment Agreement with
Edd Helms Electrical Contacting, Inc. simultaneously with the closing of the
acquisition, in which Charles and Lorraine are each bound by a one-year
restrictive covenant and a confidentiality clause. We no longer employ either
O'Toole.
2
<PAGE>
PRINCIPAL SERVICES AND THEIR MARKETS
I. Electrical and Air Conditioning Services
Our primary line of business is the provision of electrical and air conditioning
services throughout Miami-Dade, Broward, and southern Palm Beach counties. Our
services include preventive maintenance, emergency repairs, and replacements of
electrical control systems, wiring, data cabling, switches, and panels. As well
as servicing the on-going needs of homes and businesses, we replace electrical
and wiring systems and associated parts specifically in connection with
retrofitting or remodeling residences and commercial buildings. We have
approximately 12,000 customers, of which 75 are large-scale projects. We also
provide temporary electrical and wiring services to convention and trade show
exhibitors in South Florida. To facilitate the trade show servicing component of
our business, we maintain a mobile inventory of specialty show equipment and
provide trailers for the erection of this equipment. Typically, we provide
electrical and exhibit set up services to customers at the following shows: D.S.
Clark Antique Show, World's Largest Indoor Flea Market, Miacon Show, Miami
International Boat Show and the Models Show.
The strength of our electrical and air conditioning services business rests in
our workforce. We internally train our workforce to be professional,
customer-service oriented technicians, with intensive training in customer
communication, sales and problem solving skills. Each of our employees undergoes
a background reference check, including driving and criminal records. We also
provide on-going training and education to our employees. Our electricians
typically have a master electrician or journeyman license. Our air conditioning
technicians have masters and journeyman licenses. Other of our employees
possesses certifications from BICSI as certified installers and as RCDD
(Registered Communications Distribution Designers). In order for our employees
to maintain their electrician licenses, each employee must complete a minimum of
14 hours of continuing education every two years that is required by the State
of Florida. We endeavor to provide competitive compensation and benefits, such
as 401(k) plans to our technicians with the goal of obtaining and retaining the
best possible employees.
Our employees provide electrical and air conditioning services using a fleet of
approximately 40 service trucks, vans and support vehicles which we either own
or lease. Most of these service vehicles are equipped with a computer tracking
system that allows us to monitor the location of the service vehicle at all
times and thereby the time of arrival and departure of the vehicle and
technicians at each job. The tracking system is tied to our in-house server.
Each vehicle has a module that communicates between a commercial service
provider and our server. The service provider licenses software to us and
utilizes signal antennas located throughout South Florida to communicate with
antennas and modules in our service vehicles. All warehouse and delivery
personnel also have two-way radios in their vehicles that permit communication
with our dispatch department. Our administrative and management personnel also
have hand held two-way radios.
We use both general advertising and a direct sales force to market our services.
The name "Edd Helms" has garnered good will since its first use in 1975. We
exploit the goodwill by placing an "Edd Helms" logo and identifying marks on our
service trucks, marketing materials, advertisements, and the uniform t-shirts
that all of our field technicians wear. We have trademarked the logo.
We charge a customer a range of fees depending on the service required. We
typically are paid on a COD basis for residential customers who pay by cash,
check, or credit card, once a job is completed. Commercial customers pay for our
services in the same fashion unless and until we approve a credit application.
On the large contracts, we sign a written contract and billings are made every
30 days and are due and payable net within 10 days. These contracts generally
have approximately ten percent retention until complete, and at such time, all
charges become due and payable. We provide a one-year warranty covering our
electrical services and air conditioning work.
During fiscal year ended May 31, 2000, revenues from the electrical services
component of our business constituted approximately 57.4% of our total revenues
and revenues from the air conditioning services component of our business
constituted approximately 41% of our total revenues.
II. FAXMAIL Services
The second component of our business is the operation of a public facsimile
network whereby the public is able to send and receive faxes at rates
competitive with overnight mail from both self service and attended locations
throughout the United States (This component of our business is referred to as
the "FaxMail" business for the remainder of this annual report.) Before the
Merger, Hotelecopy operated the FaxMail business. As of June 1, 2000, we
operated 70 self-service "FaxMailers" and 6 attended fax machines in hotels.
We operate credit card operated self-service facsimile terminals marketed as the
FaxMailer. The self-service FaxMailer allows the public to send a fax, receive a
fax, or to access any of our FaxMail services. We contract directly with third
parties at 68 locations to provide self-service FaxMailers under a Membership
Agreement. We operate self-service FaxMailers in all of Alaska Airline's private
membership airport clubrooms nationwide and within airports, colleges,
universities, train stations, and hotels.
3
<PAGE>
We have developed proprietary computer software for the FaxMailers. This
software has been continuously refined and upgraded since 1986. Our 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. From our FaxMail operation center in Miami,
Florida, we remotely monitor and manage all of our public fax terminals across
the United States. Now, we are capable of managing additional public terminal
locations anywhere in the world.
The customer, using a major credit card, pays FaxMailer usage fees directly to
us. We electronically collect self-service FaxMail usage receipts on a daily
basis and pay the self-service Member location a commission based on those usage
revenues.
We also own and operate attended fax machines in hotels. Under Membership
Agreements with each individual hotel, we provide 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. 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
us or pay us a fixed monthly fee. While most original attended Member locations
elected to pay us a percentage of receipts, most new and renewed attended Member
locations elected to pay us a fixed monthly fee.
During fiscal year ended May 31, 2000, our FaxMail business constituted 1.6% of
our total revenues. Our revenues from attended Member locations have declined.
We attribute this decline primarily to maturation of the public fax marketplace,
and the expiration and non-renewal of certain attended Member location
agreements. We now focus our sales efforts on self-service FaxMail locations.
When we own the self-service FaxMailer terminal, we earn a higher percentage of
the FaxMailer usage fees as compared to when it is an attended location.
COMPETITION
I. Electrical and Air Conditioning Services Industry
In the electrical and air conditioning services industry, we compete mainly with
small owner-operated companies that typically operate in a single market. Some
of these smaller competitors have less overhead costs than we and are thereby
able to offer lower service rates. Moreover, often times the small competitors
have long established relationships with homeowners for a variety of home
electrical repairs, which makes the market difficult for us to penetrate. There
are also a number of public companies, such as EmCor, Blue Dot, and Service
Experts, which focus on providing residential or commercial services in some of
the same service lines provided by us. Some of these competitors, and potential
competitors, have greater financial resources than we do to finance acquisition
and development opportunities, and may be able to pay higher prices for the same
opportunities to develop and support service operations.
The market for our electrical and air conditioning services is competitive. We
believe that the principal factors of this line of business are (a) timeliness,
reliability and quality of services provided; (b) range of services offered; (c)
market share visibility; and (d) price. Our ability to employ, train, and retain
highly motivated service technicians to provide quality services is key to our
success in being competitive. In order to recruit qualified individuals, we
offer attractive compensation and health and saving benefits that are more
comprehensive than those typically offered within the industry, including a
401(k) plan.
II. FaxMail
Our faxmail business 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 main (E-Mail). Additionally, any business can purchase a
facsimile machine and provide fax service to the public independently of us and
barriers to entry into the fax provision business are not high.
In general, the market for public fax and information services is highly
competitive. We believe that the principal competitive factors in this market
include product features, ease of operation, product reliability, initial
investment costs, and price and customer support services. We believe that our
continued operations will, in large part, be dependent on our ability to respond
to competitive pressures and technological changes. We foresee the use of e-mail
and e-fax services being detrimental to our FaxMail business.
We compete with both large established concerns and smaller companies that are
developing and offering, or which may develop and offer, competing products and
services as well as E-Mail. Many of these competitors have financial resources
far greater than ours. The intense competition in the market has adversely
affected us.
4
<PAGE>
SUPPLIERS
I. Electrical and Air Conditioning Services
We obtain supplies for our electrical and air conditioning services from
approximately 100 suppliers. Suppliers of materials are plentiful and we are not
dependent on any one company.
II. FaxMail
Our equipment used at its FaxMailer locations consists principally of products
sold by AT&T and Ricoh. Our self-service units integrate certain designed
components, which are manufactured by others and are readily available from any
one of many suppliers. We believe that our present suppliers can adequately meet
our needs for the near future.
CYCLICALITY OF THE INDUSTRY
I. Electrical and Air Conditioning Services
We generate increased revenues in the summer months when the dependency on air
conditioning is greater than in the winter months. The electrical services
business is not cyclical.
II. FaxMail
Our faxmail revenues are derived primarily from business travelers.
Consequently, during periods of lessened business travel, such as holiday
seasons, these revenues decline.
ECONOMIC DEPENDENCE
I. Electrical and Air Conditioning Services
We believe that there is always a demand for electrical and air conditioning
services in the South Florida market.
II. FaxMail
Each Member location contracts with us for FaxMail services. The majority of our
attended location agreements are for single locations. We have an annually
renewable agreement with Alaska Airlines, to offer self-service FaxMailers in
all of their private membership airport clubrooms nationwide. Although we are
not dependent upon a single customer, the loss of any individual master contract
could have a material adverse effect on continuing operations.
GOVERNMENT REGULATION
I. Electrical and Air Conditioning Services
Aspects of our electrical and air conditioning services operations are subject
to various federal, state and local laws and regulations including: (a)
permitting and licensing requirements applicable to service technicians in their
respective trades; (b) building and electrical codes and zoning ordinances; and
(c) laws and regulations relating to worker safety and protection. We believe we
have all required permits and licenses to conduct our operations and comply with
applicable statutory requirements relating to our operations.
In connection with the air conditioning services component of our business, we
have a registration stating that we dispose of Freon used in air conditioning
equipment in accord with the standards required by the EPA.
II. FaxMail
Now, there is no price regulation for FaxMail services. We cannot foresee
whether charges for fax and other electronic business services provided by us
will be regulated in the future.
EMPLOYEES
As of July 1, 2000, we had 128 employees. Approximately 63 of these employees
are electrical technicians and another 26 are air conditioning technicians. We
have 39 employees who fill administrative, sales and management roles. We signed
a letter of assent to be bound by the Inside Construction Agreement South
Florida Chapter, National Electrical Contractors Association and Local Union 728
International Brotherhood of Electrical Workers Fort Lauderdale, Florida,
effective September 1, 1999 through August 21, 2000. We signed a letter of
assent to be bound by the Inside Construction Agreement South Florida Chapter,
National Electrical Contractors Association and Local Union 349 International
Brotherhood of Electrical Workers Miami, Florida, effective September 1, 1999
through August 21, 2000. We signed the Joint Agreement between the Air
Conditioning, Refrigeration, Heating and Piping Association, Inc. and United
Association Local Union No.725 of Miami, Florida, effective July 16, 1998
through July 15, 2001.
5
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
See the information contained in Part III, Item 9, which is incorporated herein
by reference.
ITEM 2. DESCRIPTION OF PROPERTY.
We lease approximately 27,000 square feet for the warehousing, distribution and
executive offices for our electrical and air conditioning services business at a
total annual cost of approximately $193,000 including sales tax. We also lease
2,000 square feet for the headquarters of our FaxMail business at a total annual
cost of $26,400. All leased property is owned by a partnership of which Carol
Helms and W. Edd Helms, Jr., are the sole owners. Carol and W. Edd Helms are
some of our officers and directors and are related to some of our other officers
and directors. We believe that these facilities are in good condition and are
sufficient to accommodate our needs. We believe the rent to be reasonable and
competitive in price with rent for similar facilities in the area.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders through the solicitation
of proxies or otherwise during the fourth quarter of the fiscal year ending May
31, 2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is currently no established public trading market for our common stock. In
order to obtain bid quotations for our common stock, it is necessary to contact
certain broker/dealers, if any, which make a market in our common stock. We are
not aware of any such broker/dealers. Our original NASDAQ trading symbol was
FAXM. We changed this trading symbol to EDDH effective January 7, 2000.
The following tables set forth, for the periods indicated, the range of high and
low closing bid and ask prices for our common stock from May 1998 through May
31, 2000. These quotations represent prices between dealers, do not include
retail markups, markdowns, or commissions, and do not represent actual
transactions. In both fiscal years 1999 and fiscal 2000, there was no reported
trading in our common stock. Consequently, we are not able to state with any
certainty the range of bid and ask quotations for fiscal 1999 or for fiscal
2000. The following information was obtained from the Company's records.
Year Ended Year Ended
May 31,2000 May 31, 1999
High Low High Low
----------- ------------
First Quarter No Trading No Trading
Second Quarter No Trading No Trading
Third Quarter No Trading No Trading
Fourth Quarter No Trading No Trading
On May 31, 2000, there were approximately 440 holders of record of our common
stock. This number does not include any adjustment for stockholders owning the
stock in "Street" name.
We have not paid dividends since our inception and do not anticipate paying any
dividends in the near future. We intend to retain earnings, if any, to provide
funds for general corporate purposes and the expansion of our business. Florida
law restricts the payment of dividends for corporations with a deficiency in
assets.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
We are in the business of electrical and air conditioning services and faxmail
services. On August 2, 1999, Hotelecopy, the operator of the Faxmail business,
merged with Edd Helms, Incorporated, which is in the business of providing
electrical and air conditioning services. Our financial statements for fiscal
period ended May 31, 2000, include the operations Hotelecopy effective as of
August 1999. In general, the revenues and expenses of Edd Helms, Incorporated
for the fiscal year ended May 31, 1999 provide a meaningful comparison to our
combined financial statements for fiscal year ended May 31, 2000. The revenues
and expenses of Hotelecopy are insignificant as compared to those of the
combined entity.
6
<PAGE>
The following are discussions for may 31, 2000 compared to may 31, 1999:
REVENUES
Our revenues are derived from three components: (1) electrical services, (2) air
conditioning services, and (3) the FaxMail business. Our revenues increased
approximately 27% to $11,985,794 for the year ended May 31, 2000 as compared to
$9,458,419 for the fiscal year ended May 31, 1999. The revenues being compared
here are those of Edd Helms, Incorporated for fiscal year ended May 31, 1999 to
those of Edd Helms Group, Inc. which assumed the business operations of
Hotelecopy, as reflected in the combined financials of Edd Helms Group, Inc.,
effective as of August 1, 1999. Revenues for Hotelecopy alone for fiscal year
ended May 31, 1999 were $307,584. The increase in our revenue is attributed to
increased revenue in the electric and air conditioning lines of business
together with $197,577 of revenues from the FaxMail business. We also expanded
our electrical division by an acquisition to include the area of data
communications. Additionally, we contracted for more new construction projects
that contributed to the increased revenues.
COST OF REVENUES
Our cost of revenues increased approximately 33% for the fiscal year ended May
31, 2000, to $8,750,244 as compared to $6,574,459 for the fiscal year ended May
31, 1999 of Edd Helms, Incorporated. The cost of revenues of Hotelecopy for the
fiscal year ended May 31, 1999 was $151,941; therefore, we believe the only
significant comparison is to Edd Helms Incorporated and not to Hotelecopy. We
believe that the increase in costs (in addition to added Hotelecopy costs) can
be attributed in part to the costs of the merger with Hotelecopy. In addition,
the start up costs and the sales and administrative costs of the new Data
Communications division were significant. We also experienced increased cost
because of the increase in construction projects during the period.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
These expenses increased 21% for the fiscal year ended May 31, 2000, to
$3,161,633 as compared to $2,621,294 for the fiscal year ended May 31, 1999 of
Edd Helms, Incorporated. This was primarily the result of the acquisition of the
data communications sales and administrative staff and costs associated with the
merger with Hotelecopy.
INCOME NOT ARISING FROM CONTINUING OPERATIONS
During the current year, as per vendor's records, the Company paid off two notes
payable owed from prior years. As per our records, approximately $29,000 was
still owed and therefore the remainder of the two notes payable were
written-off.
Insurance companies which provide workman's compensation insurance provide
incentives to Company's by paying monies to them in the form of what the
insurance company calls "dividends" for such things such as paying on time, or
not paying benefits on behalf of the Company. In the current year, the Company
received $67,667 in "dividends" from its workmans compensation insurance.
EFFECTS OF INFLATION
We believe that our revenues and results of operations have not been
significantly affected by inflation during the last two years ended May 31,
2000.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity is cash flow from operations, proceeds from
notes payable, and borrowings under a secured line of credit for up to $500,000
and two other bank loans. As of May 31, 2000, the cash flow from our operations
was $102,773, as compared to $202,634 for the end of the prior fiscal. As of May
31, 2000, we had received $281,866 in proceeds from notes payable and received
$491,814 borrowed under our secured line of credit. We made principal payments
on notes payable and long-term debt of $254,117 and $90,000 in payments under
the line of credit in fiscal year ended May 31, 2000. As of May 31, 1999, Edd
Helms, Incorporated had received $330,103 in proceeds from notes payable and
received $90,000 borrowed under the line of credit. As of May 31, 1999, Edd
Helms, Incorporated made principal payments for $173,235 on notes payable and
long term debt and paid $90,000 towards the line of credit.
We had a working capital surplus of approximately $831,110 and a ratio of
current assets to current liabilities of approximately 1.38:1 as of May 31,
2000. This compares with the May 31, 1999 working capital surplus of Edd Helms,
Incorporated of $966,809, and a ratio of 1.69:1 current assets to current
liabilities.
For the year ended May 31, 2000, our liquidity increased by $64,763 as cash
increased to $371,916 as compared to $307,133 for year ended May 31, 1999. This
increase in cash is attributable principally to the proceeds from loans.
7
<PAGE>
The following are discussions of May 31, 1999, compared to May 31, 1998, for
Edd Helms, Incorporated and Subsidiaries:
REVENUES
The revenues of Edd Helms, Incorporated increased approximately 9.2% to
$9,458,419 for the fiscal year ended May 31, 1999 as compared to $8,660,837 for
the fiscal year ended May 31, 1998. This increase in revenues was attributed to
expanded advertising efforts that increased the companies' service businesses of
electrical and air conditioning.
COST OF REVENUES
The cost of revenues incurred by Edd Helms, Incorporated increased approximately
5.4% to $6,574,459 for the fiscal year ended May 31, 1999 as compared to
$6,235,491 for the fiscal year ended May 31, 1998. This increase in the cost of
revenues was due to direct costs of the increased sales, which were a result of
the effects of the increased advertising.
SELLING GENERAL AND ADMINISTRATIVE EXPENSES
These costs increased 21.9% to $2,621,924 for the fiscal year ended May 31, 1999
of Edd Helms, Incorporated as compared to $2,150,547 for its fiscal year ended
May 31, 1998. The increase of these costs was attributed to increased
advertising expenditures and the addition of sales personnel to meet the
opportunities of the expanded advertising.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of liquidity for Edd Helms, Incorporated was cash flows from
operations, proceeds from notes payable, and borrowings under a secured line of
credit for up to $250,000 and other bank loans. As of May 31, 1999, cash flow
from operations were $202,634 as compared to $260,786 for the end of the prior
fiscal year of Edd Helms, Incorporated. As of May 31, 1999, Edd Helms,
Incorporated had received $330,103 in proceeds from notes payable and received
$90,000 borrowed under the line of credit. As of May 31, 1999, Edd Helms,
Incorporated made principal payments for $173,235 on notes payable and long term
debt and paid $90,000 towards the line of credit. As of May 31, 1998, Edd Helms,
Incorporated had received $236,895 in proceeds from notes payable and had paid
$128,849 in principal payments on notes payable and long term debt.
Edd Helms, Incorporated had a working capital surplus of $966,899 and a ratio of
1.69:1 current assets to current liabilities as of May 31, 1999. This compares
with the May 31, 1998, working capital surplus of $819,395 and a ratio of 1.85:1
current assets to current liabilities. This increase in working capital was a
result of the increased profitability of the increased service business because
of the increased advertising.
The following discussions are for may 31, 1999 compared to may 31, 1998
for hotelecopy and its subsidiaries:
REVENUES
The revenues of Hotelecopy declined approximately 29% for the fiscal year ended
May 31, 1999, compared to the fiscal year ended May 31, 1998. The decline in the
Hotelecopy revenues was attributed to the loss of an exclusive agreement with a
major airline carrier.
COST OF REVENUES
Hotelecopy's cost of revenue declined approximately 30% in the year ended May
31, 1999, as compared to the prior fiscal year end. This decline in costs was
attributed to the loss of a major airline carrier and the reduction in expenses
that were incurred to support the airline. There also was a general reduction in
overall costs attributed to our more efficient use of equipment.
PAYROLL, PAYROLL TAXES AND RELATED BENEFITS
These costs decreased approximately 14% for the fiscal year ended May 31, 1999
of Hotelecopy compared to the fiscal year ended May 31, 1998. Hotelecopy reduced
its personnel to one person at the beginning of the fourth quarter of fiscal
year 1998, and had no part-time marketing or sales employees and there were no
executive salaries paid.
OCCUPANCY COSTS
Hotelecopy's occupancy costs declined approximately 55% for the fiscal year
ended May 31,1999, compared to the prior year. This significant reduction was
attributed to a discontinuance of an accrual for storage fees and warehousing.
OTHER SELLING AND ADMINISTRATIVE
For the fiscal year ended May 31, 1999, as compared to the fiscal year ended May
31, 1998, these expenses of Hotelecopy increased approximately 22%. Other salary
and administrative expenses overall decreased for the fiscal year. The increase
in expenses was attributed to the settlement of outstanding obligations and the
professional fees related to the merger of Hotelecopy with a related company.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Hotelecopy had a working capital deficit of approximately $121,000 and a ratio
of current assets to current liabilities of approximately .15 to 1 at May
31, 1999. This compares with the May 31, 1998, working capital deficit of
approximately 166,000 and a ratio of current assets to current liabilities of
.22 to 1. Hotelecopy had a negative net worth and cash flow that was not
sufficient to cover its greatly reduced overhead.
For the year ended May 31, 1999, Hotelecopy's liquidity decreased by $15,000 as
cash decreased to $8,900 as compared to an increase in cash of $3,000 for the
year ended May 31, 1998. The decrease in cash reserves for the year ended May
31, 1999, was attributed to the payments made to liquidate the old outstanding
debt, particularly the $25,000 settlement payment to the United States Postal
Service.
Hotelecopy's financial statements were prepared on a going concern basis, which
contemplated continuity of operations, realization of assets and liquidation of
liabilities in the ordinary course of business.
Hotelecopy continued to reduce its total operating expenses, and its revenues
continued to decline. Hotelecopy's limited cash flow did not allow Hotelecopy to
invest in new equipment or to support a marketing and sales effort for the
self-service FaxMailer.
Hotelecopy had limited liquidity on a short-term basis and, absent additional
funding, would have had 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, 2000, was not expected to be sufficient to finance expected working
capital and other projected cash needs during such period. Continued operations
of Hotelecopy in the normal course of business were dependent on Hotelecopy's
ability to obtain adequate funding of ongoing operations from external or
internal sources.
ITEM 7. FINANCIAL STATEMENTS.
The consolidated financial statements of the Company, in response to this item
are as follows:
C O N T E N T S
Page
-----
INDEPENDENT AUDITOR'S REPORT 10
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 11
Consolidated Statements of Income 12
Consolidated Statements of Cash Flows 13
Consolidated Statements of Stockholders' Equity 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15 to 22
9
<PAGE>
Dohan and Company 7700 North Kendall Drive, #204
Certified Public Accountants Miami, Florida 33156-7564
A Professional Association Telephone: (305) 274-1366
Facsimile: (305) 274-1368
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Edd Helms Group, Inc. and Subsidiaries
Miami, Florida
We have audited the accompanying consolidated balance sheets of Edd Helms Group,
Inc. and Subsidiaries as of May 31, 2000 and 1999, and the related consolidated
statements of income, cash flows and stockholders' equity 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 financial position of Edd Helms Group,
Inc. and Subsidiaries at May 31, 2000 and 1999, 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
Certified Public Accountants
Miami, Florida
August 4, 2000
Member: Florida Institute of Certified Public Accountants
American Institute of Certified Public Accountants - Private Companies
and SEC Practice Sections
SC International - Offices in Principal Cities World-Wide
10
<PAGE>
EDD HELMS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 2000 1999
--------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 361,916 $ 307,133
Restricted cash - certificate of deposit 10,000 -
Accounts receivable, less allowance for doubtful
accounts of $ 78,044 and and $52,043 1,567,164 932,069
Due from employees 13,555 9,805
Due from affiliate - 76,042
Costs and estimated earnings in excess
of billings on uncompleted contracts 311,553 175,459
Inventories 466,050 528,491
Prepaid expenses 30,684 61,803
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,760,922 2,090,802
--------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 822,218 577,170
--------------------------------------------------------------------------------
OTHER ASSETS
Excess of cost over net assets of businesses acquired,
less accumulated amortization of $35,535 and $67,323 217,197 73,287
Deferred income taxes 64,408 -
Other 14,128 6,682
--------------------------------------------------------------------------------
TOTAL OTHER ASSETS 295,733 79,969
--------------------------------------------------------------------------------
TOTAL ASSETS $ 3,878,873 $ 2,747,941
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 203,515 $ 191,112
Credit arrangement 401,814 -
Current portion of long-term capitalized lease 3,210 -
Accounts payable 796,621 342,122
Accounts payable - related parties 39,831 -
Customer deposits 35,617 56,092
Accrued liabilities 285,984 332,315
Deferred revenue - 4,595
Billings in excess of costs and estimated
earnings on uncompleted contracts 163,220 142,242
Deferred income taxes 64,408 165,529
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,994,220 1,234,007
--------------------------------------------------------------------------------
LONG-TERM DEBT 242,876 227,730
LONG-TERM PORTION OF CAPITALIZED LEASE 2,402 -
DEFERRED INCOME TAXES - 13,647
--------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 245,278 241,377
--------------------------------------------------------------------------------
TOTAL LIABILITIES 2,239,498 1,475,384
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 8, 10, AND 12)
STOCKHOLDERS' EQUITY
Common stock; $.01 and $1.00 par value in 2000
and 1999 respectively; 20,000,000 shares
authorized, 12,673,995 and 4,970 shares
issued, 12,581,608 and 4,970 shares
outstanding in 2000 and 1999 respectively 126,740 4,970
Additional paid-in capital 186,946 88,234
Retained earnings 1,329,579 1,179,353
Treasury stock, 92,387 shares at cost ( 3,890) -
--------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,639,375 1,272,557
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,878,873 $ 2,747,941
================================================================================
See accompanying notes.
11
<PAGE>
EDD HELMS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended May 31, 2000 1999
--------------------------------------------------------------------------------
REVENUES EARNED $ 11,985,794 $ 9,458,419
COST OF REVENUES EARNED 8,750,244 6,574,459
--------------------------------------------------------------------------------
GROSS PROFIT 3,235,550 2,883,960
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,161,633 2,621,294
--------------------------------------------------------------------------------
INCOME FROM OPERATIONS 73,917 262,666
--------------------------------------------------------------------------------
OTHER INCOME AND EXPENSES
Interest income 11,954 15,892
Interest expense (34,001) (19,564)
Miscellaneous income 98,356 -
--------------------------------------------------------------------------------
TOTAL INTEREST AND INVESTMENT ACTIVITIES 76,309 (3,672)
--------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 150,226 258,994
INCOME TAX PROVISION ( 46,570) (90,081)
INCOME TAX BENEFIT FROM UTILIZATION OF NET OPERATING
LOSS CARRYFORWARD 46,570 -
--------------------------------------------------------------------------------
NET INCOME $ 150,226 $ 168,913
================================================================================
BASIC AND DILUTED NET INCOME PER SHARE $0.01 $ 33.98
================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 10,562,491 4,971
================================================================================
See accompanying notes.
12
<PAGE>
EDD HELMS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended May 31, 2000 1999
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 150,226 $ 168,913
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 258,739 172,842
Provision for bad debts 26,001 8,910
Merger gains ( 157,178) -
Deferred income taxes - 53,779
Changes in assets (increase) decrease:
Accounts receivable ( 661,096) ( 235,294)
Due from affiliate 76,042 ( 76,042)
Costs and estimated earnings in excess
of billings on uncompleted contracts ( 136,094) ( 175,459)
Inventories 62,441 ( 528,491)
Prepaid expenses 31,119 ( 61,803)
Other assets 25,632 ( 6,682)
Goodwill 19,863 -
Changes in liabilities increase (decrease):
Accounts payable 494,329 342,122
Customer deposits ( 20,475) 56,092
Accrued liabilities ( 46,331) 336,910
Income taxes payable ( 36,828) -
Deferred revenue ( 4,595) 4,595
Billings in excess of costs and estimated
earnings on uncompleted contracts 20,978 142,242
--------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 102,773 202,634
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business - ( 69,574)
Purchase of property and equipment ( 469,075) ( 45,116)
--------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES ( 469,075) ( 114,690)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 281,666 -
Proceeds from capitalized leases 6,586 -
Payments of capitalized leases ( 974) -
Principal payments on long-term debt and notes payable ( 254,117) ( 173,235)
Common stock repurchase ( 3,890) ( 7,000)
Proceeds from line of credit 491,814 90,000
Payments on line of credit ( 90,000) ( 90,000)
--------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 431,085 ( 180,235)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 64,783 ( 92,291)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 307,133 399,424
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - ENDING OF YEAR $ 371,916 $ 307,133
================================================================================
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Interest paid $ 34,001 $ 19,564
Interest received $ 11,553 $ 15,892
Income taxes paid $ 42,845 $ 33,337
Issuance of note payable in connection with purchase
of property and equipment $ - $ 330,103
Common stock issued in connection with purchase of
business $ - $ 30,426
================================================================================
See accompanying notes.
13
<PAGE>
EDD HELMS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
Additional
Common Stock Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
--------------------------------------------------------------------------------
Balance -
May 31, 1998 4,972 $ 4,972 $ 57,805 $1,017,440 $ - $1,080,217
Acquisition of
business 40 40 30,429 - - 30,469
Retirement of
common stock
purchased from
Employee Stock
Ownership Plan (42) (42) - ( 7,000) - ( 7,042)
Net income - - - 168,913 - 168,913
--------------------------------------------------------------------------------
Balance -
May 31, 1999 4,970 4,970 88,234 1,179,353 - 1,272,557
Merger of
Hotelecopy, Inc.
and Edd Helms,
Inc. and
subsidiary 12,669,025 121,770 98,712 - - 220,482
Common stock
purchased from
Employee Stock
Ownership Plan - - - - (3,890) (3,890)
Net income - - - 150,226 - 150,226
--------------------------------------------------------------------------------
Balance -
May 31, 2000 12,673,995 $126,740 $ 186,946 $ 1,329,579 ($3,890) $1,639,375
================================================================================
See accompanying notes.
14
<PAGE>
EDD HELMS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying consolidated financial statements
include the accounts of Edd Helms Group, Incorporated (EHG) and its wholly-owned
subsidiaries, Edd Helms Air Conditioning, Inc., d/b/a Edd Helms Air Conditioning
(Air Conditioning) and Hoteleticket, Inc. (Hoteleticket). All significant
intercompany accounts and transactions of Edd Helms Group, Inc., and
Subsidiaries (the Company) for the periods presented have been eliminated in
consolidation.
Nature of Operations - Edd Helms Group, Inc. was incorporated in the State of
Florida in July 1985, and has three reportable segments. The electrical segment
has provided electrical service, repair, and maintenance of commercial and
residential facilities in the South Florida area, since 1980. The air
conditioning segment, 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. The faxmail segment provides a worldwide
facsimile transmission network with facsimile equipment located in various
commercial and public locations throughout the United States and other
countries. The majority of the Company's revenues are derived from their
electrical and air conditioning segments. 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 complies with relevant regulatory authorities, and its
only expenses are those that are required in order to comply with those
authorities.
Business Combination - Effective July 30, 1999, the shareholders of Hotelecopy
approved an agreement and plan of merger by and between Hotelecopy, Inc. and Edd
Helms, Incorporated whereby Edd Helms, Incorporated was merged with and into
Hotelecopy, and Hotelecopy's name was changed to Edd Helms Group, Inc.
Only July 8, 1999, Edd Helms Group, Inc. filed a proxy in connection with an
anticipated solicitation of its shareholders' proxies to approve an agreement
and plan of merger with Edd Helms, Incorporated, (EHI) a Florida corporation,
founded in 1975. The merger was accounted for as a reverse acquisition purchase,
as if EHI had acquired Hotelecopy. Accordingly, the results of operations of
Hotelecopy for the period from August 1, 1999 through May 31, 2000 are included
in the consolidated statement of income for the year ended May 31, 2000.
The shareholders of EHI each received 2,178.6363 shares of Hotelecopy's common
stock in exchange for each outstanding share of EHI's common stock they owned.
The proxy statement also provided for the consideration and vote upon the change
of Hotelecopy's name to Edd Helms Group, Inc. as well as consideration 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.
Cash and Cash Equivalents - Cash and cash equivalents consist of time deposits
and all liquid instruments (including overnight repurchase agreements with a
bank) with maturities of three months or less.
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.
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
costs to be the best available measure of progress on the contracts.
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.
15
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
Inventories - Inventories consist 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, which range from five to ten years.
Income Taxes - Income taxes are computed under the provisions of the Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes,"
(SFAS 109). SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of the differences in events that have been recognized in the
Company's financial statements compared to the tax returns. 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.
Income Tax Credits - Income tax credits will be recognized as a reduction of the
provision for income taxes in the year in which utilized.
Amortization - Goodwill is amortized using the straight-line method. Goodwill
recognized as a result of the merger on July 1999, is being amortized over five
years. Goodwill representing the acquisition of a communications business,
acquired during 1999, is amortized over fifteen years.
Concentrations of Credit Risk and Economic Dependence - The Company provides its
electrical and air conditioning services 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. The Company also
places equipment in airport, hotels, and other public places and extends credit
based on an evaluation of the customer's financial condition, without requiring
collateral. Certain usage is also billed immediately to the sender's credit card
account. Concentrations of credit with respect to trade receivables consists
primarily of four customers who comprise 39% of accounts receivables. The
Company monitors its exposure for credit losses and maintains allowances for
anticipated losses.
Concentrations of Credit Risk Arising from Cash Deposits in Excess of Insured
Limits - The Company maintains the majority of its cash balances in financial
institutions located in Miami, Florida. The balance in each institution is
insured by the Federal Deposit Insurance Corporation up to $100,000. At May 31,
2000, the Company's uninsured cash balances total $87,478.
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 prior year financial statements have
been reclassified for comparative purposes to conform to the current year's
presentation.
Advertising - Advertising costs are charged to operations in the year incurred.
Advertising expense for the years ended May 31, 2000 and 1999, amounted to
$453,321 and $511,96, respectively.
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.
Basic Net Income Per Common Share - Basic net income per common share is
computed by dividing the net income by the weighted average number of common
shares outstanding during each period. Available stock options at May 31, 2000,
were anti-dilutive and not considered common stock equivalents for purposes of
computing income per common share.
16
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Segment Reporting and Related Information - In June 1997, the FASB issued
Statement No. 131 (SFAS 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. The provisions of this statement were effective for fiscal
years beginning after December 15, 1997, and have been adopted by the Company.
Impairment of Long-Lived Assets - The Company follows 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.
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivables consisted of the following:
2000 1999
----------- -----------
Contracts completed and in progress - billed $ 1,357,605 $ 804,193
Contracts completed and in progress - unbilled 200,817 171,787
Retention 86,786 8,132
Allowance for doubtful accounts ( 78,044) ( 52,043)
----------- ----------
$ 1,567,164 $ 932,069
=========== ==========
NOTE 3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts are summarized as follows:
2000 1999
----------- -----------
Billings on uncompleted contracts $ 2,297,035 $ 1,984,863
----------- -----------
Costs incurred on uncompleted contracts ( 2,078,915) ( 1,349,363)
Estimated earnings on uncompleted contracts ( 366,453) ( 668,717)
----------- -----------
Total costs and estimated earnings on
uncompleted contracts ( 2,445,368) ( 2,018,080)
----------- -----------
($ 148,333) ($ 33,217)
=========== ===========
These amounts are included in the accompanying consolidated balance sheets as
follows:
2000 1999
----------- -----------
Billings in excess of costs and estimated
earnings on uncompleted contracts ($ 163,220) ($ 142,242)
Costs and estimated earnings in excess
of billings on uncompleted contracts 311,553 175,459
----------- -----------
$ 148,333 $ 33,217
=========== ===========
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
2000 1999
----------- -----------
Transportation equipment $ 1,233,818 $ 956,762
Machinery and equipment 502,963 347,114
Facsimile equipment 348,905 -
Furniture and fixtures 44,289 35,456
Computer equipment and software 350,305 294,000
Leasehold improvements 87,976 62,306
----------- -----------
2,568,256 1,695,638
Accumulated depreciation ( 1,746,038) ( 1,118,468)
----------- ----------
Property and equipment,
less accumulated depreciation $ 822,218 $ 577,170
=========== ==========
Depreciation expense for the years ending May 31, 2000 and 1999, amounted to
$224,013 and $164,261, respectively, and is included in selling, general and
administrative expenses in the consolidated statements of income and retained
earnings.
17
<PAGE>
NOTE 5. INCOME TAXES
The provisions for income taxes are summarized as follows:
2000 1999
----------- -----------
Current tax, net of utilization of net
operating loss carryforwards
Federal $ - $ 30,812
State - 5,490
---------- ----------
Total current tax - 36,302
---------- ----------
Deferred tax, net of utilization of net operating
loss carryforwards
Federal - 48,013
State - 5,766
---------- ----------
Total deferred tax - 53,779
---------- ----------
Total income taxes $ - $ 90,081
========== ==========
The Company files consolidated income tax returns with its two wholly-owned
subsidiaries.
Deferred income taxes and benefits for 2000 and 1999 are provided for certain
income and expenses which are recognized in different periods for tax and
financial reporting purposes. The principal temporary differences that give
rise to the deferred tax asset (liability) and the effect (computed at 31%)
that the changes in those temporary differences had on provision for deferred
tax expense are as follows:
2000 1999
----------- -----------
Deferred tax asset
Accrued officers' salaries $ 405 $ 1,490
Allowance for bad debts 24,194 16,133
Amortization 11,796 13,171
Depreciation 2,055 2,055
Full absorption cost method 22,535 24,150
Net operating loss carryforward 1,192,726 -
----------- -----------
1,253,711 56,999
Valuation allowance (1,105,590) -
----------- -----------
Total deferred tax asset 148,121 56,999
----------- -----------
Deferred tax liability
Income on long-term contracts ( 113,600) ( 207,302)
Depreciation ( 34,521) ( 28,873)
---------- ---------
Total deferred tax liability ( 148,121) ( 236,175)
---------- ---------
Net deferred tax asset (liability) ($ - ) ($ 179,176)
============ ===========
The amounts have been presented in the Company's financial statements as
follows:
2000 1999
----------- -----------
Non-current deferred tax asset $ 64,408 $ -
Current deferred tax liability ( 64,408) ( 165,529)
Non-current deferred tax liability ( - ) ( 13,647)
---------- -----------
($ - ) ($ 179,176)
============ =============
Net operating loss carryforwards at May 31, 2000 were $3,470,107. These loss
carryforwards expire at various dates through the year 2019.
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 it is more likely than
not that the entire deferred tax benefit may not be recognized in furture years
because the utlization 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. Therefore, a valuation
allowance equal to the deferred tax benefit has been established.
18
<PAGE>
NOTE 6. AMORTIZATION OF EXCESS ACQUISITION VALUE OVER FAIR MARKET VALUE
OF ASSETS PURCHASED
During 1999, the Company exchanged 40 shares of its common stock plus $69,574 in
cash in an acquisition of a communications business estimated at approximately
$100,000. The seller was a provider of data, fiber and telecommunications
services, which are utilized by computer network users. In connection with this
acquisition, which was accounted for as a purchase, the Company recognized
goodwill, which is being amortized over fifteen years using the straight-line
method.
In connection with the reverse merger by and between Hotelecopy, Inc., (see
Note 1) the Company recognized goodwill, which is being amortized over five
years using the straight-line method.
Amortization expense was $34,726 for 2000 and $8,581 in 1999, and is included in
selling and general administrative expenses in the consolidated statements of
income and retained earnings.
NOTE 7. EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan and Deferred Compensation Profit Sharing Plan
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. No contribution was made to either plan for 2000 or 1999. All
employee benefit plan administrative expenses are paid at the option of the
Company.
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 subsidiaries 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 100,000 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 exercisable 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 fo the Company's Board of Directors.
There was no activity during the year ended May 31, 2000 and May 31, 1999. At
May 31, 2000 there are options to purchase 26,500 shares of common stock
pursuant to ISOP grants.
NOTE 8. RELATED PARTY TRANSACTIONS
Facilities Leases - The Company leases its facilities under a four -year
operating lease expiring December 2002 and one-year operating lease expiring May
31, 2002, 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 $17,515 plus
applicable taxes. Balance of unpaid rent as of May 31, 2000 is $39,831 and is
includeded in "Accounts payable - related parties." Rent expense under these
leases totaled $192,810 and $189,416 for the years ended May 31, 2000 and 1999,
respectively.
Future minimum rental payments required under the above operating leases
subsequent to the year ended May 31 is as follows:
2000 $ 220,806
2001 192,690
2002 112,402
-----------
$ 525,898
===========
NOTE 9. LONG-TERM DEBT
Notes payable consisted of the following:
2000 1999
----------- ----------
Bank notes, payable in monthly installments of
$18,509 and $12,475, respectively, bearing
interest at rates varying from none to 8.9%,
secured by transportation equipment, maturing
at various dates through October 2003 $ 364,996 $ 270,715
Note payable to bank with interest payable monthly
at prime plus 1%, payment of $1,667 expiring
in December 2003, collateralized by computer
equipment and personally guaranteed by
Edd and Carol Helms 71,667 91,667
Unsecured note payable to vendor with monthly
installment of $282, bearing interest at a
rate of 8.82% maturing September 2003 9,728 -
Unsecured note payable to vendor with monthly
installments of $3,675, bearing interest at a
rate of 6.0% maturing March 2000 - 56,460
----------- ----------
446,391 418,842
Current maturities of long-term debt ( 203,515) ( 191,112)
----------- ----------
Long-term debt $ 242,876 $ 227,730
=========== ==========
Aggregate maturities of notes payable for the years subsequent to the year ended
May 31, are as follows:
2000 $ 203,515
2001 159,450
2002 68,445
2003 14,981
------------
$ 446,391
============
19
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NOTE 10. CREDIT ARRANGEMENT
The Company has a line of credit with a bank for advances up to $500,000,
secured by the Company's 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.
Certain information regarding the credit arrangement as of May 31, 2000 is
summarized as follows:
Maximum amount of borrowing outstanding, at any month end $ 401,814
Minimum amount of borrowing outstanding at any month end $ -
Interest expense related to this credit arrangement amounted to $9,976 and
$3,751 for the years ended May 31, 2000 and 1999, respectively, and are included
in operating expenses.
NOTE 11. CAPITAL LEASE OBLIGATIONS
Capital lease obligations consisted of the following:
2000 1999
----------- -----------
Lease payment, payable in monthly installments
of $315 inclusive of imputed interest at a rate
of 7.9% maturing on December 2002 $ 5,612 $ -
Current obligations under capital lease ( 3,210) ( - )
----------- ----------
Long-term obligations under capital lease $ 2,402 $ -
=========== ==========
Future minimum lease payments under capital lease for the years ended subsequent
to May 31, are as follows:
2000 $ 3,785
2001 2,532
----------
6,317
Amount representing interest ( 705)
----------
Present value of future minimum lease payments $ 5,612
==========
Interest expense recorded on capital lease obligation of the Company amounted to
$288 for the year ended May 31, 2000. This amount is included in selling,
general, and administrative expenses.
NOTE 12. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
2000 1999
----------- -----------
Compensation, related taxes, and benefits $ 191,311 $ 193,613
Advertising - 38,410
Accounting 65,854 42,500
Other professional fees 8,500 45,000
Insurance 14,899 7,412
Miscellaneous 5,420 5,380
----------- ----------
$ 285,984 $ 332,315
=========== ==========
20
<PAGE>
NOTE 13. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company also leases various office equipment under
non-cancelable leases expiring at various dates through September 2002. Rent
expense under these operating leases was $11,648 in the current year and is
included in selling, general, and administrative expenses.
In addition, the Company leases several automobiles. The leases have monthly
payments ranging from $279 to $1,392. Lease payments totaled $69,848 and
$60,099 for the years ended May 31, 2000 and 1999, respectively.
Future minimum lease payments under all operating leases for years subsequent to
May 31, are as follows:
2000 $ 66,302
2001 51,491
2002 5,750
----------
$ 123,543
==========
Warranty - 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.
Prepaid Service Agreements - Air Conditioning sells 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.
Employment Agreement - In April 1999, the Company entered into an employment
agreement with an individual, upon the acquisition of a communications business.
The agreement requires the Company to pay this party over a period of two years.
The individual shall also receive a percentage of the excess gross profits (as
defined) generated by the individual.
Year 2000 - 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. As a result, such systems and applications may recognize a date
of "00" as 1900 instead of the intended year 2000, which could result in data
miscalculations and software failures. The Company has conducted a preliminary
assessment of its key computer systems and software applications and believes
they are Year 2000 compliant. The Company believes the cost of addressing the
Year 2000 issue should not have a material impact on the Company's financial
position or results of operations.
Litigation - On July 26, 2000, a former employee, filed suit for breach of his
employment agreement. The matter is pending in the Circuit Court of the Eleventh
Judicial Circuit, in and for Miami-Dade County, Florida. The former employee is
seeking compensatory damages, interest and attorneys' fees and costs, as well as
a declaratory judgment as to the restrictive covenant contained within the
employment agreement. The Company denies the allegations set forth in the
complaint. An agreed order granting Defendant's Motion to Dismiss, without
prejudice, has been submitted to the Court for entry. Discovery in this action
has not yet commenced.
The same former employee filed a charge of discrimination with the Equal
Employment Opportunity Commission against the Company, alleging that he was
discriminated against, in violation of the Americans With Disabilities Act of
1990, as amended. The Company's Position Statement regarding this Charge of
Discrimination is due to be submitted to the Equal Employment Opportunity
Commission on or before October 15, 2000.
The Company intends to vigorously defend against the former employee's claims.
NOTE 14. STOCKHOLDERS' EQUITY
During 2000, the Company put in treasury stock 92,820 shares of its common stock
from the Employee Stock Ownership Plan (ESOP) for approximately $21,482, which
was accrued in prior years.
During 1999, the Company retired 42 shares of its common stock from the Employee
Stock Ownership Plan (ESOP) for approximately $7,000 in addition to the $14,700
accrued in the prior year. The Company also acquired a business and issued 40
shares as part of the agreement. The excess of the cost of shares issued over
the par value resulted in an increase in additional paid-in capital of $30,429.
21
<PAGE>
NOTE 15. 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.
Backlog balance at May 31, 1999 $ 472,299
Expenditures and profit recognition on prior year backlog ( 472,299)
New contracts not completed during the current year 7,897,078
Expenditures and estimated profit recognized on
uncompleted contracts ( 2,504,139)
------------
Backlog balance at May 31, 2000 $ 5,392,939
============
NOTE 16. SEGMENTS AND RELATED INFORMATION
During the current year, the Company adopted FASB Statement No. 131 (SFAS No.
131), "Disclosures about Segments of an Enterprise and Related Information,"
which changes the way the Company reports information about its operating
segments.
The Company's three business segments have separate management teams and
infrastructures that offer different services. They are managed separately
because each business segment provides different unrelated services. The
Company's three business segments are electrical, air conditioning, and faxmail.
The Company provides electrical service, repair, and maintenance of commercial
and residential facilities through electric. Installation, service, repair and
maintenance of commercial and residential air conditioning systems are done
through air conditioning. Faxmail segment provides a worldwide facsimile
transmission network with facsimile equipment located in various commercial and
public locations throughout the United States and other countries.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. All intersegment sales prices are
market based. The Company evaluates performance based on operating earnings of
the respective business units.
The following segment information includes allocations of certain costs,
including overhead and shared services which are allocated based on revenues,
payroll and other factors. These agreed-upon amounts between the segments may
differ from amounts that would be negotiated in an arms-length transaction.
Air
Year ended May 31, 2000 Electric Conditioning Faxmail Unallocated Total
-------------------------------------------------------------------------------
Revenues earned -
External customers $ 6,761,813 $ 5,026,404 $ 197,577 $ - $ 11,985,794
Intersegment 294,340 14,277 - - 308,617
-------------------------------------------------------------------------------
Total revenues earned $ 7,056,153 $ 5,040,681 $ 197,577 $ - $ 12,294,411
===============================================================================
Gross margins 2,160,284 993,256 82,010 - 3,235,550
===============================================================================
Operating earnings (loss) 516,526 ( 337,171)( 29,127) - 150,228
===============================================================================
Depreciation and
amortization 130,737 128,002 - - 258,739
===============================================================================
Interest expense 19,937 14,064 - - 34,001
===============================================================================
Total assets 2,147,890 1,118,210 53,153 767,621 4,086,874
===============================================================================
Capital expenditures 260,732 172,750 - 58,780 492,262
===============================================================================
Air
Year ended May 31, 1999 Electric Conditioning Faxmail Unallocated Total
-------------------------------------------------------------------------------
Revenues earned -
External customers $ 6,029,781 $ 3,601,914 N/A - $ 9,631,695
Intersegment 139,225 34,051 N/A - 173,276
-------------------------------------------------------------------------------
Total revenues earned $ 6,169,006 $ 3,635,965 N/A - $ 9,804,971
===============================================================================
Gross margins 1,955,256 928,704 N/A - 2,883,960
===============================================================================
Operating earnings (loss) 527,330 ( 268,336) N/A - 258,994
===============================================================================
Depreciation and
amortization 87,438 85,404 N/A - 172,842
===============================================================================
Interest expense 10,484 9,080 N/A - 19,564
===============================================================================
Total assets 1,435,798 724,304 N/A 511,798 2,671,900
===============================================================================
Capital expenditures 160,446 99,852 N/A 134,811 395,109
===============================================================================
22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the fiscal years covered by this report, we did not have a change in or a
disagreement with our accountants. We initially appointed Dohan and Company as
our auditors in 1997.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
Our Directors and executive officers are as follows:
Director
Name Since Age Position
----- ----- --- --------
W. Edd Helms, Jr.* 1985 54 Chairman of the Board of
Directors, President and
Chief Executive Officer
L. Wade Helms 1986 43 Executive Vice President and
Director
Carol Helms 1985 51 Secretary and Director
* Designates Member of the audit and compensation committees of the Board of
Directors.
W. Edd Helms, Jr., since the Merger, has been our Chairman of the Board of
Directors, President, and Chief Executive Officer. Mr. Helms was the Chairman of
the Board of Directors, President, and Chief Executive Officer of Hotelecopy and
served in these capacities since the inception of Hotelecopy in 1985. Mr. Helms
is also the President of Edd Helms Air Conditioning, Inc. Before the Merger, Mr.
Helms was the President and a Director of Edd Helms, Incorporated. Mr. Helms is
the brother of L. Wade Helms and the husband of Carol Helms.
L. Wade Helms is an Executive Vice President and a Director since the Merger.
From February 1986 until the effective date of the Merger, Mr. Helms served in
the capacity of Executive Vice President and a Director of Hotelecopy. From 1983
to 1986, he was the Chief Financial Officer and Vice President of Edd Helms,
Incorporated and he served as a Director of Edd Helms, Incorporated from 1984
until 1990.
Carol Helms is a Director and Secretary. She was a Director and the Secretary of
Hotelecopy since its inception in 1985. She does not devote full time to our
company affairs and receives no compensation. She was also the Secretary and a
Director of Edd Helms, Incorporated through the date of the Merger.
Directors are elected to hold office until the next Annual Meeting of
Shareholders and until respective successors are elected and qualified. Our
officers are elected by the Board of Directors at the Annual Meeting and hold
office for the term of one year and until their successors are elected and
qualified.
Our by-laws contain provisions that permit indemnification, including legal
fees, of our directors, officers, employees, and agents to the fullest extent
permitted by Florida law.
23
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
I. SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation paid
during each of the last three fiscal years to our executive officers and the
executive officers of Edd Helms, Incorporated. The figures reported for year
2000 reflect compensation paid to our officers and the figures reported for
years 1999 and 1998 reflect compensation paid to officers of Edd Helms,
Incorporated. The officers of Hotelecopy were not compensated for their services
in the past three fiscal years. Neither we, Hotelecopy or Edd Helms,
Incorporated has issued any shares to its officers or directors as compensation
in the past three years. We have no employment agreements with any officers or
employees.
--------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
----------------------------------------- --------------------------------------
Awards Payouts
----------------------------------------- ---------------------- ---------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
------------- ---- ------ ----- ------ ---------- ----------- ------- ----------
Name and Year Salary Bonus Other Restricted Option/SARs LTIP All Other
Principal Annual Stock Payouts comp.(inc.
Position Comp Awards (cars)
------------- ---- ------ ----- ------ ---------- ----------- ------- ----------
W. Edd Helms, 2000 $249,964 $19,800
Jr. 1999 $160,004 $19,800
President and 1998 $160,104 $19,800
Chief
Executive
Officer
------------- ---- ------ ----- ------ ---------- ----------- ------- ----------
L. Wade Helms 2000 $89,764 $8,648
Exec. Vice 1999 $77,901 $8,648
President 1998 $75,102 $8,648
------------- ---- ------ ----- ------ ---------- ----------- ------- ----------
Carol Helms, 2000 $0
Secretary 1999 $0
1998 $0
------------- ---- ------ ----- ------ ---------- ----------- ------- ----------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of September 30,2000, information with
respect to (a) any person known to us to be the beneficial owner of five percent
or more of the outstanding shares of our common stock, (b) each of our Directors
and our executive officers, and (c) all of our Directors and executive officers
as a group. For computing the percentage of the shares of our 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
outstanding. Except as otherwise indicated below, we believe each of the persons
named below to possess sole voting and investment power with respect to the
shares of our common stock beneficially owned by such person.
Amt. Of Beneficially
Name Owned Common Stock Percent
------------------- -------------------- -------
W. Edd Helms, Jr. 10,398,331 (1) 82.17%
L. Wade Helms 16,326 (2) .13%
Carol Helms 9,354,183 (3) 73.92%
ESOP 1,266,441 (4 10.00%
All Officers and Directors 10,414,639 (5) 82.30% (6)
The address of all three of our officers is: 17850 N.E. 5th Ave, Miami, Florida
33162.
(1) This includes 10,890 shares held by his daughters, 9,277,934 shares held as
a joint tenant with his wife Carol Helms, and 272,330 shares attributed to Mr.
Edd Helms due to his percentage ownership of our ESOP, which holds 1,266,441
shares of our common stock.
(2) This includes 887 shares held as joint tenants with his wife, 2,179 shares
attributed to Mr. Wade Helms due to his percentage ownership of our ESOP and an
option to acquire 12,000 restricted shares of our stock at a purchase price of
$1.10 which option will expire on September 9, 2001.
(3) This includes 10,890 held by her daughters, 9,277,934 shares held as a joint
tenant with her husband Edd Helms, 65,359 shares attributed to Mrs. Helms due to
her percentage ownership of our ESOP, and an option to acquire 1,000
restricted shares of out stock at a purchase price of $.875 which option will
expire on November 4, 2001. Mrs. Helms disclaims beneficial ownership as to her
daughters' shares.
(4) The ESOP was adopted by Edd Helms, Incorporated on May 15, 1995 and at the
time of merger was funded with roughly 633 shares of the common stock of Edd
Helms, Incorporated. As a result of the merger with Hotelecopy, the ESOP held
1,378,781 of our shares of common stock. Since the merger, the ESOP 112,635
shares have been retired, so that now the ESOP holds 1,266,146 shares.
(5) See notes 1-4 for the details.
(6) For purposes of the percentage calculations, the shares held in common by
Edd and Carol Helms are included in the percentage ownership of each of them.
24
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We lease our office and warehouse facilities from a partnership owned by W. Edd
Helms, Jr., and Carol Helms. See the description of property.
We believe that the above transaction is on terms and conditions at least as
favorable to us as those that would have been available from non-affiliated
third parties. Any future transactions between us and our Officers, Directors or
principal shareholders or any affiliates thereof will be made for bona fide
business purposes on terms no less favorable than could be obtained from
unaffiliated third parties, and will be approved by a majority of the board of
directors.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
2. Exhibits required to be filed by Item 601 of Regulation S-B. None.
No Form 8-K was filed during the last quarter of the period covered by this
report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
/s/ EDD HELMS GROUP, INC.
-------------------------
(Registrant)
By /s/ W. Edd Helms, Jr.
-------------------------
W. EDD HELMS, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE October 11, 2000
In accordance with the Exchange Act, this report has been signed on the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ L. Wade Helms
-------------------------
L. WADE HELMS
VICE PRESIDENT
DATE October 11, 2000
By /s/ Carol Helms
-------------------------
CAROL HELMS
SECRETARY
DATE October 11, 2000
25
<PAGE>
