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 June 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 58-1482573
(State of incorporation) (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 1,967,455 shares of Common Stock outstanding as of August
13, 1996.
Transitional Small Business Disclosure Format. Yes __ No X
<PAGE>
COLOROCS INFORMATION TECHNOLOGIES, INC.
Quarterly Report on Form 10-QSB
For the Six Months Ended June 30, 1996
Table of Contents
Item Page
Number Number
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheet -
June 30, 1996 and December 31, 1995 4
Condensed Consolidated Statement of Operations -
Three Months and Six Months Ended June 30, 1996
and 1995 5
Condensed Consolidated Statement of Cash Flows -
Three Months and Six Months Ended June 30, 1996
and 1995 6
Notes to Condensed Consolidated Financial
Statements - June 30, 1996 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Colorocs Information Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
As of June 30, 1996 and December 31, 1995
<TABLE>
June 30, December 31,
1996 1995
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 815,288 $1,578,994
Short term investments 2,991,017 1,970,812
Receivables, net of allowance for doubtful accounts of $30,000
and $10,000 at June 30, 1996 and December 31, 1995,
respectively 554,280 2,697,584
Inventories, at cost 499,486 340,092
Prepaid expenses 184,173 186,712
Total current assets 5,044,244 6,774,194
Property and equipment, net of accumulated depreciation of
$36,251 and $18,837 at June 30, 1996 and
December 31, 1995, respectively 290,937 35,882
Goodwill, net of accumulated amortization of $8,103 at
June 30, 1996 133,677 141,780
Long term investments 515,000 250,000
Other intangible assets 950,000 --
Deposits 6,516 20,967
$6,940,374 $7,222,823
Liability and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 852,111 $ 416,279
Deferred income 11,803 12,145
Total current liabilities 863,914 428,424
Deferred licensing income 875,000 875,000
Minority interest 594,066 --
Due to affiliates 100,000 --
Commitments and contingencies
Shareholders' equity
Common stock; no par value; 10,000,000 shares authorized;
1,967,455 shares issued and outstanding at June 30, 1996
and December 31, 1995 1,802,738 1,802,738
Additional paid in capital 1,283,000 1,283,000
Retained earnings 1,421,656 2,833,661
Total shareholders' equity 4,507,394 5,919,399
Total liabilities and shareholders' equity $6,940,374 $7,222,823
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated balance sheets.
4
<PAGE>
<TABLE>
Colorocs Information Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1996 and 1995
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Sales of equipment and supplies, net $ 390,656 $325,763 $ 847,721 $ 751,997
License fees 197,885 -- 464,771 --
588,541 325,763 1,312,492 751,997
Operating expenses:
Cost of revenue 552,982 117,362 952,340 385,098
Research and development 391,589 -- 438,982 --
Sales and marketing 493,369 34,116 703,882 98,760
General and administrative 442,345 421,422 824,289 744,154
Total operating expenses 1,880,285 572,900 2,919,493 1,228,012
Operating loss (1,291,744) (247,137) (1,607,001) (476,015)
Other income, net 60,033 10,442 113,062 137,420
Loss before minority interest (1,231,711) (236,695) (1,493,939) (338,595)
Minority interest 81,934 -- 81,934 --
Net loss $(1,149,777) $(236,695) $(1,412,005) $ (338,595)
Net loss per common share $(.58) $(.12) $(.71) $(.17)
Weighted average shares outstanding 1,967,455 1,948,224 1,967,455 1,948,224
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
5
<PAGE>
<TABLE>
Colorocs Information Technologies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months and Six Months Ended June 30, 1996 and 1995
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Activities:
Net loss $(1,149,777) $(236,695) $(1,412,005) $(338,595)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 20,802 2,615 31,093 5,230
Minority interest (81,934) -- (81,934) --
Changes in assets and liabilities:
Receivables (140,505) 363,662 2,143,304 41,943
Inventories (112,610) 60,724 (159,394) (117,102)
Prepaid expenses 79,892 24,055 2,539 16,527
Deposits 17,503 -- 14,451 --
Other assets 37,933 -- (37,933)
Accounts payable, accrued liabilities, and
deferred income 189,042 89,444 (3,510) 127,923
Cash (used in) provided by operating
activities (1,177,587) 265,872 534,544 (302,007)
Investing Activities:
Sale (purchase) of marketable securities 1,961,711 (679,410) (1,020,205) 306,273
Sale of investment in Savin, net -- -- 144,000
Purchase of equipment, net (216,629) -- (278,045) --
Payments received on note receivable -- (4,212) -- 3,288
Cash provided by (used in) investing
activities 1,745,082 (683,622) (1,298,250) 453,561
Net increase (decrease) in cash and
cash equivalents 567,495 (417,750) (763,706) 151,554
Cash and cash equivalents, beginning of period 247,793 801,139 1,578,994 231,835
Cash and cash equivalents, end of period $ 815,288 $ 383,389 $ 815,288 $383,389
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated statements.
6
<PAGE>
COLOROCS INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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, the sale 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 stockholders and preferred
stockholders 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 June 30, 1996 and the
results of its operations and cash flows for three months and the six
months ended June 30, 1996 and 1995 have been included. Operating
results for the three months and the six months ended June 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.
7
<PAGE>
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
$141,780 which is being amortized over five years.
3. Licensing Agreements
During 1995, the Company purchased 250,000 shares of common stock
(approximately 3%) of ViewCall Europe PLC ("VCE"), a publicly traded
company based in the United Kingdom, for a price of $1.00 per share.
VCE develops and markets a low cost television set top box ("STB")
that provides users with direct access to the Internet through a
television and an ordinary telephone line. In connection with its
investment in VCE, the Company obtained a six-month exclusive license
and an option to acquire a permanent exclusive license from VCE and
Walzer Corporation, a British Virgin Islands corporation ("Walzer"),
to distribute the STBs in North America.
During the second quarter of 1996, the Company incorporated ViewCall
America, Inc. ("VCA") as a wholly owned subsidiary to exercise the
option to acquire the permanent exclusive license. In connection
with the organization of VCA and the exercise of the permanent
exclusive license, the Company agreed to contribute $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, to Walzer in
connection with the exercise of the option to acquire the permanent
exclusive license. The value associated with the permanent exclusive
license 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. VCA also
granted options to purchase 1,750,000 shares of common stock at an
exercise price of $0.70 per share to certain key employees of VCA.
VCA and Walzer organized ViewCall South America, Inc., a Georgia
corporation ("VCSA"), of which 51 percent of the common stock is
owned by VCA and the remaining common stock is owned by Walzer. VCA
paid $250,000 to Walzer in exchange for the exclusive rights to
distribute the STB in South America. This amount has been recorded
in Other Intangible Assets in the accompanying Balance Sheet.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion contains forward looking information that
is subject to a number of uncertainties that could cause actual
results to differ materially from those projected.
Results of Operations
Revenues
Revenues were $588,541 and $1,312,492 for the three months and
six months ended June 30, 1996, respectively, and $325,763 and
$751,997 for the three months and six months ended June 30, 1995,
respectively, an increase of $262,778 and $560,495 or approximately
81% and 75%, respectively. The increase in revenues is principally
attributable to an increase in software license fees resulting from
the acquisition of COPS, Inc. in December 1995. Sales generated from
equipment and supplies were $308,400 for the three months ended June
30, 1996, as compared to $325,763 for the three months ended June 30,
1995, a decrease of $17,363 or approximately 5%. Sales generated
from equipment and supplies were $697,465 for the six months ended
June 30, 1996 as compared to $751,997 for the six months ended June
30, 1995, a decrease of $54,532 or approximately 7%. This decrease
was primarily due to a decrease in volume sales over the prior year.
Cost of Revenue
Cost of revenue was $552,982 and $952,340 or approximately 94%
and 73% of revenues and $117,362 and $385,098 or approximately 36%
and 51% of revenues for the three months and six months ended June
30, 1996 and 1995, respectively. The increases in the dollar amount
and the percentage of revenues are the result of the increased cost
of license fees from COPS, Inc. and depreciation expense related to
costs associated with the consumer trials and online service.
Research and Development Expenses
Research and development expenses were $391,589 and $438,982 for
the three months and six months ended June 30, 1996, respectively,
compared to $0 in the first three months and six months of 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 development costs incurred in connection with the
development of the STB and online service.
Sales and Marketing Expenses
Sales and marketing expenses were $493,369 for the three months
ended June 30, 1996 as compared to $34,116 for the three months ended
June 30, 1995, and $703,882 for the six months ended June 30, 1996 as
compared to $98,760 for the six months ended June 30, 1995. Sales
and marketing expenses as a percentage of revenues were 84% and 54%
for the three months and six months ended June 30, 1996,
respectively, and 10% and 13% for the three months and six months
ended June 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
9
<PAGE>
personnel and increased marketing expenses related to license fees and
marketing expenses related to the VCA consumer market trials.
General and Administrative Expenses
General and administrative expenses were $442,345 and $824,289 for
the three months and six months ended June 30, 1996, respectively,
and $421,422 and $744,154 for the three months and six months ended
June 30, 1995, respectively, an increase of 5% and 11%, respectively.
General and administrative expenses were 75% and 65% of revenues for
the three months and six months ended June 30, 1996, respectively,
and 129% and 99% of revenues for the three months and six months
ended June 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 the Company's
anticipated growth. The decrease as a percentage of revenues is due
to the 81% and 75% increase in revenues in the 1996 periods over the
prior year.
Other Income, Net
Other income, net was $61,033 and $114,062 for the three months
and six months ended June 30, 1996, respectively, as compared to
$10,442 and $137,420 for the three months and six months ended June
30, 1995, respectively. The increase in other income, net during the
three months ended June 30, 1996 is due to an increase in the
Company's cash and cash equivalents and short term investments over
the prior year.
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 June 30, 1996, the Company had short term
investments of $2,991,017. Management believes that these sources of
funds, together with anticipated cash from operations, will be
sufficient and that no lines of credit or debt will be necessary to
fund the Company's color copier and printer and network printing
software lines of business for the foreseeable future. The Company
has determined to proceed with the further development of the STB and
the development of the VCA online service. The Company believes that
additional equity or debt financing will be required to finance the
development of the STB and the online service. Although the Company
believes that adequate financing would be available on acceptable
terms, no assurance of such can be given. The inability of the
Company to obtain adequate financing on acceptable terms likely would
prevent the marketing of the online service.
10
<PAGE>
PART II - OTHER INFORMATION
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 11
(b) Reports on Form 8-K.
Current Reports on Form 8-K were filed by the Company during
the quarter ended June 30, 1996.
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 August 13,
1996.
Colorocs Information Technologies, Inc.
(Issuer)
By: _________________________________
Michael J. Casey
Vice President, Finance and
Administration and Chief Financial
Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 815,288
<SECURITIES> 2,991,017
<RECEIVABLES> 584,280
<ALLOWANCES> 30,000
<INVENTORY> 499,486
<CURRENT-ASSETS> 5,044,244
<PP&E> 327,188
<DEPRECIATION> 36,251
<TOTAL-ASSETS> 6,940,374
<CURRENT-LIABILITIES> 863,914
<BONDS> 0
1,802,738
0
<COMMON> 0
<OTHER-SE> 2,704,656
<TOTAL-LIABILITY-AND-EQUITY> 6,940,374
<SALES> 1,312,492
<TOTAL-REVENUES> 1,312,492
<CGS> 952,340
<TOTAL-COSTS> 2,919,493
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,493,939
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,493,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,412,005
<EPS-PRIMARY> (.71)
<EPS-DILUTED> (.71)
</TABLE>
