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, 1997
[ ] 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 260, 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 2,114,794 shares of Common Stock outstanding as of August
15, 1997.
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, 1997
Table of Contents
Item Number Page Number
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheet -
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statement of
Operations - Three Months and Six Months
Ended June 30, 1997 and 1996 4
Condensed Consolidated Statement of
Cash Flows - Three Months and Six Months
Ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements - June 30, 1997 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
INDEX OF EXHIBITS 11
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Colorocs Information Technologies, Inc. and Subsidiary
Condensed Consolidated Balance Sheet
As of June 30, 1997 and December 31, 1996
June 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents $ 88,805 $ 282,596
Short term investments 29,969 94,685
Receivables, net of allowance
for doubtful accounts of $15,000
and $141,000 at June 30, 1997 and
December 31, 1996, respectively 1,536,645 475,060
Inventories, at cost 15,823 128,876
Prepaid expenses 144,206 192,560
---------- ----------
TOTAL CURRENT ASSETS 1,815,448 1,173,777
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $41,140 and $154,596 at
June 30, 1997 and December 31, 1996,
respectively 39,784 1,165,525
LONG TERM INVESTMENTS 218,253 251,529
GOODWILL AND INTANGIBLE ASSETS, net 124,598 1,092,177
OTHER ASSETS -- 161,030
DEPOSITS 6,516 6,516
---------- ----------
$2,204,599 $3,850,554
========== ==========
Liability and Stockholders' Deficit
CURRENT LIABILITIES:
Short-term borrowings $2,679,558 $ 712,500
Note payable to director/shareholder 500,000 500,000
Accounts payable and accrued liabilities 975,760 2,589,224
Deferred income -- 257,084
---------- ----------
TOTAL CURRENT LIABILITIES 4,155,318 4,058,808
DEFERRED LICENSING INCOME 875,000 875,000
MINORITY INTEREST -- 117,500
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' DEFICIT
Common stock; no par value; 10,000,000
shares authorized; 2,114,794 and
2,071,544 shares issued and outstanding
at June 30, 1997 and December 31, 1996,
respectively 1,802,738 1,802,738
Additional paid in capital 1,374,039 1,323,337
Retained deficit (6,002,496) (4,326,829)
---------- ----------
Total stockholders' deficit (2,825,719) (1,200,754)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $2,204,599 $3,850,554
========== ==========
</TABLE>
<PAGE>
<TABLE>
Colorocs Information Technologies, Inc. and Subsidiary
Condensed Consolidated Statement of Operations
Three Months and Six Months Ended June 30, 1997 and 1996
(Unaudited)
Three Months Ended Six Months Ended
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Sales of equipment and supplies, net $ 64,301 $ 390,656 $ 209,506 $ 847,721
License fees 268,316 197,885 528,726 464,771
---------- ----------- ---------- ----------
332,617 588,541 738,232 1,312,492
Operating expenses:
Cost of revenue 188,317 552,982 719,591 952,340
Research and development 252,633 391,589 1,315,179 438,982
Sales and marketing 164,132 493,369 693,048 703,882
General and administrative 363,498 442,345 1,133,734 824,289
---------- ----------- ---------- ----------
Total operating expenses 968,580 1,880,285 3,861,552 2,919,493
Operating loss (635,963) (1,291,744) (3,123,320) (1,607,001)
Other income, net 1,487,663 60,033 1,447,653 113,062
---------- ----------- ---------- ----------
Income (loss) before minority interest 851,700 (1,231,711) (1,675,667) (1,493,939)
Minority interest -- 81,934 -- 81,934
---------- ----------- ---------- ----------
Net income (loss) $ 851,700 $(1,149,777) $(1,675,667) $(1,412,005)
========== =========== ========== ==========
Net income (loss) per common and equivalent share $0.40 $(0.58) $(0.79) $(0.71)
Weighted average shares outstanding 2,114,794 1,967,455 2,114,794 1,967,455
</TABLE>
<PAGE>
<TABLE>
Colorocs Information Technologies, Inc. and Subsidiary
Condensed Consolidated Statement of Cash Flows
Three Months and Six Months Ended June 30, 1997 and 1996
(Unaudited)
Three Months Ended Six Months Ended
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ 851,700 $(1,149,777) $(1,675,667) $(1,412,005)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization 43,918 20,802 94,554 31,093
Minority interest (117,500) (81,934) (117,500) (81,934)
Changes in assets and liabilities:
Receivables, net (1,184,305) (140,505) (1,061,585) 2,143,304
Inventories 109,242 (112,610) 113,053 (159,394)
Prepaid expenses 21,883 79,892 48,354 2,539
Deposits -- 17,503 -- 14,451
Accounts payable, accrued expenses,
and deferred income (2,307,707) 189,042 (1,870,548) (3,510)
----------- ----------- ----------- -----------
Cash (used in) provided by operating
activities (2,582,769) (1,177,587) (4,469,339) 534,544
Investing Activities:
Write-off of prepaid license fees 161,030 -- 161,030 --
Write-off of intangible assets 841,773 -- 950,000 --
Investment in affiliate 33,276 -- 33,276 --
Sale (purchase) of marketable securities -- 1,961,711 64,716 (1,020,205)
Disposition (purchase) of equipment, net 1,019,369 (216,629) 1,048,766 (278,045)
----------- ----------- ----------- -----------
Cash provided by (used in) investing
activities 2,055,448 1,745,082 2,257,788 (1,298,250)
Financing Activities:
Proceeds from exercise of stock options 21,000 -- 50,702 --
Proceeds from short-term notes 569,508 -- 1,967,058 --
----------- ----------- ----------- -----------
Cash provided by financing activities 590,508 -- 2,017,760 --
Net decrease in cash 63,187 567,495 (193,791) (763,706)
Cash and cash equivalents, beginning of period 25,618 247,793 282,596 1,578,994
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 88,805 $ 815,288 $ 88,805 $ 815,288
=========== =========== =========== ===========
</TABLE>
<PAGE>
COLOROCS INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. Summary of Significant Accounting Policies
The Company
Colorocs Information Technologies, Inc. (the "Company") is
incorporated in the state of Georgia. On December 13, 1995,
the Company's name was changed from Colorocs Corporation to Colorocs
Information Technologies, Inc. The Company operates using the name
Colorocs Information Technologies ("Colorocs") for its copier
business, COPS, Inc. ("COPS") for the sale of its network printing and
file sharing software, and ViewCall America, Inc. ("VCA") for its
development and sale of on-line services and access to the Internet
through the television (See Note 2 below).
The Company's principal operations through Colorocs are product
support of color copiers and printers previously manufactured and sold
by the Company, and the licensing of its patented color printing and
copier technology. Colorocs generates income through the licensing of
its technology, the sale of spare parts, supplies and other
consumables, maintenance of its installed base of color copiers and
printers, the cost per copy program, and the sales of remaining
inventory of color copiers and printers. COPS generates revenue
through the sale of network printing and file sharing software
products. VCA generates revenue through the licensing of its ViewCall
technology.
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, 1997
and the results of its operations and cash flows for the three months
and six months ended June 30, 1997 and 1996 have been included.
Operating results for the three months and six months ended June 30,
1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. 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, 1996.
2. Sale of VCA Assets
On May 9, 1997, NetChannel, Inc. ("NetChannel"), a privately held
company based in South San Francisco, California, purchased from VCA
substantially all of its assets and assumed most of the liabilities of
VCA in exchange for 555,556 shares of NetChannel preferred stock. In
addition, NetChannel issued 3,114,280 shares of preferred stock to
Colorocs in consideration of advances made by Colorocs to VCA and all
liens over VCA assets possessed by Colorocs. All of the NetChannel
preferred stock is convertible by the holders into shares of
NetChannel common stock on a share-for-share basis. The liabilities
assumed and satisfied (subject to certain conditions) total $2,031,482
of accounts payable. Upon consummation of the transaction, Colorocs'
carrying value of its investment in VCA was approximately $6,800,000.
VCA received bridge
<PAGE>
financing from NetChannel, Inc. in connection with the transaction
which has been accounted for as short-term borrowings in the
accompanying condensed consolidated financial statements.
3. Licensing Agreement
In June 1997, the Company entered into a technology licensing
agreement to use the Company's patented double transfer,
single pass paper color imaging system. The Company recorded other
income for technology licensing of $1,500,000 for the quarter ended
June 30, 1997. Income from licensing agreements is shown net of other
income in the accompanying condensed consolidated statement of
operations. The Company has a $1,500,000 receivable as of June 30,
1997 relating to the license fee payable with regard to this
technology licensing agreement.
<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 $332,617 and $738,232 for the three months and six
months ended June 30, 1997, respectively, and $588,541 and $1,312,492
for the three months and six months ended June 30, 1996, respectively,
a decrease of $255,924 and $574,260, respectively, or approximately
44% in each period. The decrease in revenues is attributable to a
continued decrease in sales generated from copier equipment and
supplies, attributable to declining use of these earlier model copiers
and printers by businesses in favor of newer models available on the
market which are more cost-efficient.
Cost of Revenue
Cost of revenue was $188,317 and $719,591 or approximately 57% and 97%
of revenues, and $552,982 and $952,340 or approximately 94% and 73% of
revenues, for the three months and six months ended June 30, 1997 and
1996, respectively. The decrease in both dollar amount and as a
percentage of revenues for the three months ended June 30, 1997 is due
to the termination of VCA's on-line service following the May 9th sale
of assets to Netchannel, Inc. The decrease in dollar amount for the
six months ended June 30, 1997 is also due to the termination of the
VCA on-line service. However, cost of revenue as a percentage of
revenues for the six months ended June 30, 1997 increased from the
same period of 1996 due to the 44% decrease in revenues for the same
period.
Research and Development
Research and development expenses were $252,633 and $1,315,179 for the
three months and six months ended June 30, 1997, respectively,
compared to $391,589 and $438,982 for the first three months and six
months of 1996, respectively. The research and development expenses
in 1997 are attributable to additional research and development
personnel hired in connection with the development of the VCA on-line
service. However, research and development expenses decreased for
the three months ended June 30, 1997 from 1996 due to the termination
of the VCA on-line service.
Sales and Marketing Expenses
Sales and marketing expenses were $164,132 and $693,048 for the three
months and six months ended June 30, 1997, respectively, as compared
to $493,369 and $703,882 for the three months and six months ended
June 30, 1996, a decrease of 67% and 2%, respectively. The decreases
were due to the termination of the VCA on-line service following the
sale of the majority of the VCA assets to Netchannel, Inc.
General and Administrative Expenses
General and administrative expenses were $363,498 and $1,133,734 or
approximately 109% and 154% of revenues, and $442,345 and $824,289 or
approximately 75% and 63% of revenues, for the three
<PAGE>
months and six months ended June 30, 1997 and 1996, respectively. The
decrease in the dollar amount for the three months ended June 30, 1997
from the three month period ended June 30, 1996 is due to the
termination of the VCA on-line service. However, the increase in
dollar amount and percentage of revenues for the six months ended June
30, 1997 from the six months ended June 30, 1996 is due to a
significant increase in administrative personnel related to VCA's
operations.
Other Income, Net
Other income, net was $1,487,663 and $1,447,653 for the three months
and six months ended June 30, 1997, respectively, as compared to
$60,033 and $113,062 for the three months and six months ended June
30, 1996. This increase is due to the signing of a technology
licensing agreement to use the Company's patented double transfer,
single pass paper color imaging system providing other income of
$1,500,000 in the 1997 periods.
Liquidity and Capital Resources
The Company's primary sources of liquidity are current cash balances
and cash equivalents and cash generated from operations, supplemented
from time to time by borrowings under the Company's bank line of
credit and from directors of the Company. Cash and cash equivalents
of $282,596 and short-term investments of $94,685 as of December 31,
1996 had declined to cash and cash equivalents of $88,805 and
short-term investments of $29,969 at June 30, 1997 due to the
investment in establishing and developing VCA. Management believes
that these sources of funds, together with anticipated cash from
operations, may not be sufficient and that further lines of credit,
debt or equity investments may be necessary to fund the Company's
continuing of business in 1997. There can be no assurance that any
such financing would be available on satisfactory terms.
The report of the Company's independent auditors on the consolidated
financial statements of the Company as of December 31, 1996 and for
the two years in the period ended December 31, 1996 contains an
explanatory paragraph as to the Company's ability to continue as a
going concern. As stated in the report, the Company has experienced
losses, a capital deficit and cash flow deficiencies that raise
substantial doubt about the Company's ability to continue as a
going concern. Certain of the Company's assets might be worth
substantially less than the amounts shown on the Company's balance
sheet if the Company is unable to continue as a going concern, and the
financial statements have not been adjusted to reflect the outcome of
this uncertainty. There can be no assurance that future revenues will
exceed operating expenses to enable the Company to continue as a going
concern.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The 1997 Annual Meeting of Shareholders of the Company was
held on June 23, 1997 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 1998 Annual Meeting of Shareholders:
<TABLE>
Broker
For Votes
Withheld Non-Votes
<S> <C> <C>
<C>
Alan McKeon 1,524,716 13,125
564,953
Rudolph P. Russo 1,520,741 17,100
564,953
Nicholas M. Russo 1,520,716 17,125
564,953
Joseph E. Wallace 1,520,716 17,125
564,953
</TABLE>
2. Proposal to ratify the appointment of Arthur Andersen LLP as
independent public accountants of the Company for the fiscal year
ending December 31, 1997:
<TABLE>
Broker
For Against Abstain
Non-Votes
<S> <C> <C> <C>
1,530,766 4,400 2,675
564,953
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
The following Current Reports on Form 8-K were filed by the
Company during the quarter ended June 30, 1997:
<TABLE>
Date of Form 8-K
Financial
Report Item No. Description
Statements Filed
<S> <C> <C>
<C>
4/14/97 5 NetChannel Inc. signs letter of intent to
acquire Viewcall America, Inc. N/A
5/6/97 5 Definitive agreement between Viewcall
America, Inc. and NetChannel Inc. N/A
5/23/97 5 Closing of asset acquisition agreement with
NetChannel Inc. N/A
</TABLE>
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 19, 1997.
Colorocs Information Technologies, Inc.
(Issuer)
By: /s/ Rudolph P. Russo
Rudolph P. Russo
Chief Executive Officer
By: /s/ Alan Catherall
Alan Catherall
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
27 Financial Data Schedule 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 88,805
<SECURITIES> 29,969
<RECEIVABLES> 1,536,645
<ALLOWANCES> 15,000
<INVENTORY> 15,823
<CURRENT-ASSETS> 1,815,448
<PP&E> 80,924
<DEPRECIATION> 41,140
<TOTAL-ASSETS> 2,204,599
<CURRENT-LIABILITIES> 4,155,318
<BONDS> 0
0
0
<COMMON> 1,802,738
<OTHER-SE> 1,374,039
<TOTAL-LIABILITY-AND-EQUITY> 2,204,599
<SALES> 332,617
<TOTAL-REVENUES> 332,617
<CGS> 188,317
<TOTAL-COSTS> 968,580
<OTHER-EXPENSES> 1,487,663
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 851,700
<INCOME-TAX> 0
<INCOME-CONTINUING> 851,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 851,700
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
