U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Period Ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-14392
COLOROCS INFORMATION TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Georgia
(State of incorporation)
58-1482573
(I.R.S. Employer Identification Number)
5600 Oakbrook Parkway, Suite 240, Norcross, Georgia 30093-1843
(Address of principal executive offices)
(770) 447-3570
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
Check whether the issuer filed all documents and reports required
to be filed by Section 12,13 or 15(d) of the Securities Exchange Act
of 1934 after the distribution of securities under a plan confirmed
by a court. Yes X No __.
There were 2,007,605 shares of Common Stock outstanding as of
November 14, 1996.
Transitional Small Business Disclosure Format. Yes __ No X
Page 1 of 12
Index of Exhibits on Page 12
<PAGE> 2
COLOROCS INFORMATION TECHNOLOGIES, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 1996
Table of Contents
Item Page
Number Number
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
- September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of
Operations - Three Months and Nine Months
Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash
Flows - Three Months and Nine Months Ended
September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements - September 30, 1996 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security
Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
INDEX OF EXHIBITS 12
<PAGE> 3
PART I - FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements
Colorocs Information Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
As of September 30, 1996 and December 31, 1995
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 258,244 $1,578,994
Short term investments 1,005,914 1,970,812
Receivables, net of allowance for doubtful accounts of
$30,000 and $10,000 at September 30, 1996 and December 31,
1995, respectively 427,043 2,697,584
Inventories, at cost 280,698 340,092
Prepaid expenses 183,041 186,712
Total current assets 2,154,940 6,774,194
Property and equipment, net of accumulated depreciation of
$78,004 and $18,837 at September 30, 1996 and December 31,
1995, respectively 605,437 35,882
Goodwill, net of accumulated amortization of $17,338 and $0 at
September 30, 1996 and December 31, 1995, respectively 149,419 141,780
Long term investments 250,000 250,000
Prepaid license fees 78,705 --
Other intangible assets 992,691 --
Deposits 7,516 20,967
$4,238,708 $7,222,823
Liability and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $853,403 $416,279
Deferred income 16,328 12,145
Total current liabilities 869,731 428,424
Deferred licensing income 875,000 875,000
Minority interest 141,544 --
Commitments and contingencies
Shareholders' equity:
Common stock; no par value; 10,000,000 shares authorized;
2,007,605 and 1,967,455 shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively 1,802,738 1,802,738
Additional paid in capital 1,330,861 1,283,000
(Accumulated deficit) retained earnings (781,166) 2,833,661
Total shareholders' equity 2,352,433 5,919,399
Total liabilities and shareholders' equity $4,238,708 $7,222,823
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated balance sheets.
<PAGE> 4
<TABLE>
Colorocs Information Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Sales of equipment and supplies, net $ 228,475 $ 417,287 $1,076,196 $1,169,283
License fees 243,159 -- 707,930 --
471,634 417,287 1,784,126 1,169,283
Operating expenses:
Cost of revenue 517,711 92,597 1,470,051 477,695
Research and development 1,339,890 -- 1,778,872 --
Sales and marketing 538,721 50,489 1,242,603 149,249
General and administrative 780,651 252,890 1,604,940 997,090
Total operating expenses 3,176,973 395,976 6,096,466 1,624,034
Operating (loss) income (2,705,339) 21,311 (4,312,340) (454,751)
Other (expense) income, net (214,006) 3,057,335 (100,944) 3,194,756
(Loss) income before taxes and minority
interest (2,919,345) 3,078,646 (4,413,284) 2,740,005
Provision for income taxes -- 1,137,000 -- 1,137,000
(Loss) income before minority interest (2,919,345) 1,941,646 (4,413,284) 1,603,005
Minority interest 716,523 -- 798,457 --
Net (loss) income $(2,202,822) $1,941,646 $(3,614,827) $1,603,005
Net (loss) income per common share
Primary $(1.10) $.98 $(1.80) $.82
Fully diluted $(1.10) $.95 $(1.80) $.80
Weighted average shares outstanding
Primary 2,007,605 1,973,072 2,007,065 1,948,224
Fully diluted 2,007,605 2,042,943 2,007,065 2,007,291
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
<PAGE> 5
<TABLE>
Colorocs Information Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months and Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Activities:
Net (loss) income $(2,202,822) $1,941,646 $(3,614,827) $1,603,005
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Depreciation and amortization 50,989 2,615 82,082 7,846
Change in deferred taxes -- 1,137,000 -- 1,137,000
Minority interest (716,523) -- (798,457) --
Changes in assets and liabilities:
Receivables 127,237 (27,355) 2,270,541 14,588
Inventories 218,788 (93,429) 59,394 (210,530)
Prepaid expenses 1,132 (43,973) 3,671 (27,447)
Deposits (1,000) -- 13,451 --
Other assets -- (28,364) -- (111,195)
Accounts payable, accrued liabilities,
and deferred income 367,150 (55,314) 363,640 72,610
Cash (used in) provided by operating
activities (2,155,049) 2,832,826 (1,620,505) 2,485,877
Investing Activities:
Sale (purchase) of marketable securities 1,985,103 (1,732,479) 964,898 (1,426,206)
Sale of investment in Savin, net -- -- -- 144,000
Purchase of equipment, net (356,254) -- (634,299) --
Prepaid license fees (78,705) -- (78,705) --
Payments received on note receivable -- -- -- 48,230
Cash provided by (used in) investing
activities 1,550,144 (1,732,479) 251,894 (1,233,976)
Financing Activities:
Repayment of line of credit -- (8,000) -- (8,000)
Proceeds from exercise of stock options 47,861 -- 47,861 --
Cash provided by (used in) financing
activities 47,861 (8,000) 47,861 (8,000)
Net increase (decrease) in cash and
cash equivalents (557,044) 1,092,347 (1,320,750) 1,243,901
Cash and cash equivalents, beginning of period 815,288 383,389 1,578,994 231,835
Cash and cash equivalents, end of period $258,244 $1,475,736 $258,244 $1,475,736
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
<PAGE> 6
COLOROCS INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. Summary of Significant Accounting Policies
The Company
Colorocs Information Technologies, Inc. (the "Company") is
incorporated in the State of Georgia. The Company's principal
operations have shifted from the design, manufacture and sale of plain
paper full color copiers and color printers to the maintenance and
product support of color copiers and printers previously manufactured
and sold by the Company and to the licensing of the Company's patented
color printing and copier technology. The Company currently generates
revenue from the licensing of its technology, the sale of spare parts,
supplies and other consumables, thesale of the Company's remaining
inventory of color copiers and printers and the sale of network
printing and file sharing software products.
Effective December 10, 1993, the Company was reorganized and
recapitalized under Chapter 11 of the United States Bankruptcy Code.
New common stock was issued to new investors and to certain classes of
the predecessor Company's creditors as settlement of their claims
pursuant to the Plan of Reorganization (the "Plan"). Under the Plan,
the predecessor Company's former common shareholders and preferred
shareholders also received new common stock of the reorganized
Company.
Financial Statements
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the
instructions to Form 10-QSB and do not include all the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly
the financial position of the Company as of September 30,
1996 and the results of its operations and cash flows for three
months and the nine months ended September 30, 1996 and
1995 have been included. Operating results for the three months
and the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1996. These statements
should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995.
Reclassifications
Certain prior period amounts have been reclassified to conform
with the current period presentation.
<PAGE> 7
2. Acquisition
In December 1995, the Company acquired substantially all of the
assets of CoOperative Printing Solutions, Inc. ("COPS,
Inc.") for $47,872 in cash and 19,231 shares of the Company's
Common Stock. The acquisition has been accounted for
using the purchase method, and accordingly the acquired assets
and liabilities have been recorded at their estimated
fair value at the date of acquisition and the results of
operations of COPS, Inc. have been included in the accompanying
statements of operations from the date of acquisition.
Allocation of the purchase price of the acquisition resulted in
goodwill of $166,757, as adjusted, which is being amortized over
five years.
3. Licensing Agreements
During the second quarter of 1996, the Company incorporated
ViewCall America, Inc. ("VCA") as a wholly owned subsidiary
to exercise an option to acquire the permanent exclusive license
to acquire a low cost television set top box ("STB")
that provides access to the Internet over an ordinary telephone
for display on the television and develop an online
service for the television. In connection with the organization
of VCA and the exercise of the permanent exclusive
license, the Company contributed $5,000,000 to VCA, inclusive of
its investment to date in the STB and online service.
VCA then issued 1,000,000 shares of its common stock,
representing 16.9% of the outstanding common stock, in connection
with the exercise of the option. The value associated with the
technology acquired has been recorded in Other Intangible Assets
in the accompanying Balance Sheet. The Company and certain
shareholders of the Company entered into an agreement to guarantee
any VCA debt for amounts up to $4,000,000, subject to certain
conditions. VCA granted warrants to purchase 2,000,000 shares of
VCA common stock to the Company and the guaranteeing shareholders
at $0.70 per share in consideration for their agreement to guarantee
debt.
4. Note Payable
On November 11, 1996, the Company entered into a loan agreement with
the Company's Chairman and Chief Executive Officer for $500,000. The
loan is secured by the Company's assets, bears interest at prime rate
plus 2% and is payable on May 11, 1996.
<PAGE> 8
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Revenues
Revenues were $471,634 and $1,784,126 for the three months and
nine months ended September 30, 1996, respectively, and
$417,287 and $1,169,283 for the three months and nine months
ended September 30, 1995, respectively, an increase of
$54,347, or 13%, and $614,843, or 53%, respectively. The
increase in revenues is principally attributable to an
increase in software license fees resulting from increased sales
volume of network printing software products. License
fees were $243,159 for the three months ended September 30, 1996
and $707,930 for the nine months ended September 30,
1996, as compared to $0 in each of the corresponding periods of
1996. Sales generated from equipment and supplies were
$228,475 for the three months ended September 30, 1996, as
compared to $417,287 for the three months ended September 30,
1995, a decrease of $188,812 or approximately 45%. Sales
generated from equipment and supplies were $1,076,196 for the
nine months ended September 30, 1996 as compared to $1,169,283
for the nine months ended September 30, 1995, a decrease
of $93,087 or approximately 8%. These decreases were primarily
due to a decrease in the sales volume of spare parts and
consumables over the prior year periods resulting from a
declining number of color copiers and printers requiring spare
parts and consumables.
Cost of Revenue
Cost of revenue was $517,711 and $1,470,051 or approximately 110%
and 82% of revenues for the three months and nine
months ended September 30, 1996, respectively, and $92,597 and
$477,695 or approximately 22% and 41% of revenues for the
three months and nine months ended September 30, 1995,
respectively. The increases in the dollar amount and the
percentage of revenues are the result of the increased cost of
license fee revenue from the sale of network printing
software products and costs associated with consumer trials of
the online service.
Research and development expenses
Research and development expenses were $1,339,890 and $1,778,872
for the three months and nine months ended September
30, 1996, respectively, compared to $0 in the three months and
nine months ended September 30, 1995. The research and
development expenses in 1996 are attributable to research and
development personnel added in connection with the
acquisition of COPS, Inc. and the research and development costs
associated with the development and enhancement of the STB, the
browser software and online service.
Sales and marketing expenses
Sales and marketing expenses were $538,721 for the three months
ended September 30, 1996 as compared to $50,489 for the
three months ended September 30, 1995, and $1,242,603 for the
nine months ended September 30, 1996 as compared to
$149,249 for the nine months ended September 30, 1995. Sales and
marketing expenses as a percentage of revenues were
<PAGE> 9
114% and 70% for the three months and nine months ended September
30, 1996, respectively, and 12% and 13% for the three
months and nine months ended September 30, 1995, respectively.
The increases in the dollar amount of sales and
marketing expenses and the percentage of revenues are due
principally to the addition of sales and marketing personnel
and increased marketing efforts related to license fees and
increased marketing efforts related to the online service.
General and administrative expenses
General and administrative expenses were $780,651 and
$1,604,940 for the three months and nine months ended
September 30, 1996, respectively, and $252,890 and $997,090 for
the three months and nine months ended September 30,
1995, respectively, an increase of 209% for the three months and
61% for the nine months ended September 30, 1996,
respectively. General and administrative expenses were 166% and
90% of revenues for the three months and nine months
ended September 30, 1996, respectively, and 61% and 85% of
revenues for the three months and nine months ended September
30, 1995, respectively. The increase in general and
administrative expenses in the 1996 periods are due to the
addition of administrative staff personnel to support anticipated
growth principally related to the development of the online service.
Other (expense) income, net
Other (expense) income, net was $(214,006) and ($100,944) for the
three months and nine months ended September 30, 1996, respectively,
as compared to other (expense)income, net of $3,057,335 and 3,194,756
for the three months and nine months ended September 30, 1995,
respectively. The decrease in other (expense) income, net during
the three and nine months ended September 30, 1996 is due to the
recognition of $3,050,000 of licensing revenue net of related
foreign taxes during the third quarter of 1995.
Liquidity and Capital Resources
The Company's sources of liquidity are current cash balances and
cash equivalents, short term investments, and cash
generated from operations. As of September 30, 1996, the Company
had short term investments of $1,005,914 and cash and cash equivalents
of $258,244. Management believes that these sources of funds,
together with anticipated cash from operations, will not be sufficient
and that additional debt and/or equitey financing will be necessary
to fund the Company's operations, including the furter development
of the STB and online service. The Company is currently persuing
additional debt and equity financing. Although the Company
believes that adequate financing will be available on acceptable
terms, no assurance of such can be given. The inability of the
company to obtain adequate debt or equity financing on acceptable
terms likely could prevent the further development of the
STB and the marketing of the online service and could jeopardize
the continued viability of the company.
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 4.
Submission of Matters to a Vote of Security Holders
The 1996 Annual Meeting of Shareholders of the Company was held
on July 12, 1996 at which the following matters were brought before
and voted upon by the shareholders:
1. The election of the following persons to the Board of Directors
to serve until the 1997 Annual Meeting of Shareholders:
Broker
For Votes Withheld Non-Votes
Melton Harrell 1,568,040 1,950 397,465
Alan McKeon 1,568,215 1,775 397,465
Richard S. Owings, Jr. 1,512,265 57,725 397,465
Rudolph P. Russo 1,568,165 1,825 397,465
Michael Schwarz 1,512,140 57,850 397,465
Samuel H. Srochi 1,512,140 57,850 397,465
2. Proposal to approve an amendment to the 1994 Employee Stock
Option Plan to increase the number of shares authorized
thereunder.
Broker
For Against Abstain Non-Votes
1,513,962 51,228 3,550 398,715
3. Proposal to ratify the appointment of Arthur Andersen LLP as
independent public accountants of the Company for the fiscal year
ending December 31, 1996:
Broker
For Against Abstain Non-Votes
1,564,415 1,325 3,050 398,665
<PAGE> 11
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit. The following exhibit is filed as a part of this
report:
Exhibit No. Description Page No.
27 Financial Data Schedule 13
(b) Reports on Form 8-K.
The following Current Reports on Form 8-K were filed by the
Company during the quarter ended September 30, 1996:
Financial
Item Date of Statements
Reported Report Description Filed
5 7/12/96 Exercise of option to N/A
distribute STB and
license to use techno-
logy by VCA
7 9/16/96 Press release regarding N/A
VCA agreement with
Mitsubishi Consumer
Electronics America
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the issuer has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November
14, 1996.
Colorocs Information Technologies, Inc.
(Issuer)
By: /s/Michael J. Casey
Michael J. Casey
Vice President, Finance and
Administration and Chief
Financial Officer
<PAGE> 12
EXHIBIT INDEX
Exhibit No. DESCRIPTION Page No.
27 Financial Data Schedule 13
<PAGE> 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 258,244
<SECURITIES> 1,005,914
<RECEIVABLES> 457,043
<ALLOWANCES> 30,000
<INVENTORY> 280,698
<CURRENT-ASSETS> 2,154,940
<PP&E> 683,441
<DEPRECIATION> 78,004
<TOTAL-ASSETS> 4,238,708
<CURRENT-LIABILITIES> 869,731
<BONDS> 0
0
0
<COMMON> 1,802,738
<OTHER-SE> 1,330,861
<TOTAL-LIABILITY-AND-EQUITY> 4,238,708
<SALES> 471,634
<TOTAL-REVENUES> 471,634
<CGS> 517,711
<TOTAL-COSTS> 3,176,973
<OTHER-EXPENSES> 214,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,919,345
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,919,345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,202,822
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
