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 March 31, 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 2,102,794 shares of Common Stock outstanding as of May 10,
1997.
Transitional Small Business Disclosure Format. Yes __ No X
COLOROCS INFORMATION TECHNOLOGIES, INC.
Quarterly Report on Form 10-QSB
For the Three Months Ended March 31, 1997
Table of Contents
Item Number Page Number
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of
Operations - Three Months Ended March 31, 1997
and 1996 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements - March 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
INDEX OF EXHIBITS 11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Colorocs Information Technologies, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
As of March 31, 1997 and December 31, 1996
<TABLE>
March 31, December 31,
1997 1996
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents $ 25,618 $ 282,596
Short term investments 29,969 94,685
Receivables, net of allowance for doubtful accounts of
$141,000 at March 31, 1997 and December 31, 1996 352,340 475,060
Inventories, at cost 125,065 128,876
Prepaid expenses 166,089 192,560
----------- -----------
TOTAL CURRENT ASSETS 699,081 1,173,777
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $245,239 and $154,596 at March 31, 1997 and
December 31, 1996, respectively 1,094,281 1,165,525
LONG TERM INVESTMENTS 251,529 251,529
GOODWILL AND INTANGIBLE ASSETS, net 975,161 1,092,177
OTHER ASSETS 161,030 161,030
DEPOSITS 6,516 6,516
----------- -----------
$3,187,598 $3,850,554
=========== ===========
Liabilities and Stockholders' Deficit
CURRENT LIABILITIES:
Short-term borrowings $ 2,110,050 $ 712,500
Note payable to director/shareholder 500,000 500,000
Accounts payable and accrued liabilities 3,026,109 2,589,224
Deferred income 257,358 257,084
----------- -----------
TOTAL CURRENT LIABILITIES 5,893,517 4,058,808
DEFERRED LICENSING INCOME 875,000 875,000
MINORITY INTEREST 117,500 117,500
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' DEFICIT
Common stock; no par value; 10,000,000 shares
authorized; 2,102,794 and 2,071,544 shares
issued and outstanding at March 31, 1997 and
December 31, 1996, respectively 1,802,738 1,802,738
Additional paid in capital 1,353,039 1,323,337
Retained deficit (6,854,196) (4,326,829)
----------- -----------
Total stockholders' deficit (3,698,419) (1,200,754)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,187,598 $ 3,850,554
=========== ===========
</TABLE>
Colorocs Information Technologies, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996
<TABLE>
Three Months Ended
1997 1996
<S> <C> <C>
Revenues:
Sales of equipment and supplies, net $ 145,205 $ 457,065
License fees 260,410 266,886
----------- ----------
405,615 723,951
Operating expenses:
Cost of revenue 531,274 399,358
Research and development 1,062,546 47,393
Sales and marketing 528,916 210,513
General and administrative 770,236 381,944
----------- -----------
Total operating expenses 2,892,972 1,039,208
Operating loss (2,487,357) (315,257)
Other (expense) income, net (40,010) 53,029
----------- -----------
Net loss $(2,527,367) $ (262,228)
=========== ===========
Net loss per common and equivalent share $(1.20) $(0.13)
Weighted average shares outstanding 2,102,794 1,967,455
</TABLE>
Colorocs Information Technologies, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and March 31, 1996
<TABLE>
Three Months Ended
1997 1996
<S> <C> <C>
Operating Activities:
Net loss $(2,527,367) $ (262,228)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 207,659 10,291
Changes in assets and liabilities:
Accounts receivable, net 122,720 2,283,809
Inventories 3,811 (46,784)
Prepaid expenses 26,471 (77,353)
Deposits -- (3,052)
Accounts payable, accrued liabilities, and deferred
income 437,159 (192,552)
----------- -----------
Cash (used in) provided by operating activities (1,729,547) 1,712,131
Investing Activities:
Sale (purchase) of marketable securities 64,716 (2,981,916)
Purchase of equipment, net (19,399) (61,416)
----------- -----------
Cash provided by (used in) investing activities 45,317 (3,043,332)
Financing Activities:
Proceeds from exercise of stock options 29,702 --
Proceeds from short-term borrowings 1,397,550 --
----------- -----------
Cash provided by financing activities 1,427,252 --
Net decrease in cash (256,978) (1,331,201)
Cash and cash equivalents, beginning of period 282,596 1,578,994
----------- -----------
Cash and cash equivalents, end of period $ 25,618 $ 247,793
=========== ===========
</TABLE>
COLOROCS INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 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 March 31, 1997 and the
results of its operations and cash flows for the three months ended
March 31, 1997 and 1996 have been included. Operating results for the
three months ended March 31, 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. Prior to consummation of the transaction,
Colorocs' carrying value of its investment in VCA was approximately
$6,800,000. VCA received bridge 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.
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 $405,615 for the three months ended March 31, 1997 and
$723,951 for the three months ended March 31, 1996, a decrease of
$318,336 or approximately 44%. The decrease in revenues is
attributable to a decrease in sales generated from copier equipment
and supplies from $457,065 for the three months ended March 31, 1996
to $145,205 for the three months ended March 31, 1997, a decrease of
$311,860 or approximately 68%. This decrease in sales is 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 $531,274 or approximately 131% of revenues and
$399,358 or approximately 55% of revenues for the three months ended
March 31, 1997 and 1996, respectively. The increase both in dollar
amount and as a percentage of revenues is the result of the cost of
operating the VCA on-line service, which has produced no significant
revenues.
Research and Development
Research and development expenses were $1,062,546 for the three months
ended March 31, 1997 compared to $47,393 in the first three months of
1996. 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.
Sales and Marketing Expenses
Sales and marketing expenses were $528,916 for the three months ended
March 31, 1997 as compared to $210,513 for the three months ended
March 31, 1996, an increase of 151%. Sales and marketing expenses as
a percentage of revenues were 130% for the three months ended March
31, 1997 and 29% for the three months ended March 31, 1996. These
increases are due principally to additional sales and marketing
personnel and increased marketing expenses related to the VCA on-line
service.
General and Administrative Expenses
General and administrative expenses were $770,236 for the three
months ended March 31, 1997 and $381,944 for the three months ended
March 31, 1996, an increase of 102%. General and administrative
expenses were 190% of revenues for the three months ended March 31,
1997 and 53% of revenues for the three months ended March 31, 1996.
These increases are due primarily to additional administrative
personnel related to VCA's operations.
Other (Expense) Income, Net
Other (expense) income, net was $(40,010) for the three months ended
March 31, 1997 as compared to $53,029 for the three months ended March
31, 1996. This decrease is due to interest expense incurred on the
Company's short-term borrowings and note payable to
director/shareholder for the three months ended March 31, 1997 as
compared to investment income earned on short-term investments during
the same period of 1996.
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, as well as with bridge
financing for VCA received in connection with the sale of
substantially all of the assets of VCA. 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 $25,618 and short-term
investments of $29,969 at March 31, 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 color copier and
printer and network printing software lines 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.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 - Financial Data Schedule
(b) Reports on Form 8-K. None
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 May 15, 1997.
Colorocs Information Technologies, Inc.
(Issuer)
By: /s/ Rudolph P. Russo .
Rudolph P. Russo
Chief Executive Officer
By: /s/ Tyrone C. Dealy
Tyrone C. Dealy
Interim Chief Financial Officer
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> MAR-31-1997
<CASH> 25,618
<SECURITIES> 29,969
<RECEIVABLES> 493,340
<ALLOWANCES> 141,000
<INVENTORY> 125,065
<CURRENT-ASSETS> 699,081
<PP&E> 1,339,520
<DEPRECIATION> 245,239
<TOTAL-ASSETS> 3,187,598
<CURRENT-LIABILITIES> 5,893,517
<BONDS> 0
0
0
<COMMON> 1,802,738
<OTHER-SE> 1,353,039
<TOTAL-LIABILITY-AND-EQUITY> 3,187,598
<SALES> 405,615
<TOTAL-REVENUES> 405,615
<CGS> 531,274
<TOTAL-COSTS> 2,892,972
<OTHER-EXPENSES> 40,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,527,367)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,527,367)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,527,367)
<EPS-PRIMARY> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
