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, 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 No X
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 November
12, 1997.
Transitional Small Business Disclosure Format. Yes __ No X
<PAGE>
COLOROCS INFORMATION TECHNOLOGIES, INC.
Quarterly Report on Form 10-QSB
For the Nine Months Ended September 30, 1997
Table of Contents
Item Number Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet -
September 30, 1997 and
December 31, 1996 3
Condensed Consolidated Statement of
Operations - Three Months and Nine Months
Ended September 30, 1997 and 1996 4
Condensed Consolidated Statement of
Cash Flows - Three Months and Nine Months
Ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements - September 30, 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
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Colorocs Information Technologies, Inc. and Subsidiary
Condensed Consolidated Balance Sheet
As of September 30, 1997 and December 31, 1996
<TABLE>
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents $ 24,230 $ 282,596
Short term investments 79,969 94,685
Receivables, net of allowance for doubtful accounts of $15,000
and $141,033 at September 30, 1997 and December 31, 1996, respectively 831,287 475,060
Inventories, at cost 15,055 128,876
Prepaid expenses 144,206 192,560
---------- ----------
TOTAL CURRENT ASSETS 1,094,747 1,173,777
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $44,136 and $154,596 at September 30, 1997 and
December 31, 1996, respectively 36,752 1,165,525
LONG TERM INVESTMENTS 218,253 251,529
GOODWILL AND INTANGIBLE ASSETS, net 115,809 1,092,177
OTHER ASSETS -- 161,030
DEPOSITS 6,516 6,516
---------- ----------
$1,472,077 $3,850,554
========== ==========
Liability and Stockholders' Equity
CURRENT LIABILITIES:
Short-term borrowings $2,690,380 $ 712,500
Note payable to director/shareholder -- 500,000
Accounts payable and accrued liabilities 869,296 2,589,224
Deferred income -- 257,084
---------- ----------
TOTAL CURRENT LIABILITIES 3,559,676 4,058,808
DEFERRED LICENSING INCOME 875,000 875,000
MINORITY INTEREST -- 117,500
STOCKHOLDERS' DEFICIT
Common stock; no par value; 10,000,000 shares authorized;
2,114,794 and 2,071,544 shares issued and outstanding at
September 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 (6,139,376) (4,326,829)
---------- ----------
Total stockholders' deficit (2,962,599) (1,200,754)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,472,077 $3,850,554
========== ==========
</TABLE>
<PAGE>
Colorocs Information Technologies, Inc. and Subsidiary
Condensed Consolidated Statement of Operations
Three Months and Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Sales of equipment and supplies, net $ -- $ 228,475 $ 209,506 $1,076,196
License fees 284,191 243,159 812,917 707,930
---------- ----------- ----------- ----------
284,191 471,634 1,022,423 1,784,126
Operating expenses:
Cost of revenue 36,978 517,711 756,569 1,470,051
Research and development 18,976 1,339,890 1,334,155 1,778,872
Sales and marketing 72,372 538,721 765,420 1,242,603
General and administrative 229,573 780,651 1,363,307 1,604,940
---------- ------------ ----------- ----------
Total operating expenses 357,899 3,176,973 4,219,451 6,096,466
Operating loss (73,708) (2,705,339) (3,197,028) (4,312,340)
Other income (expense), net (63,172) (214,006) 1,384,481 (100,944)
---------- ----------- ----------- ----------
Loss before minority interest (136,880) (2,919,345) (1,812,547) (4,413,274)
Minority interest -- 716,523 -- 798,457
---------- ----------- ----------- ----------
Net loss $ (136,880) $(2,202,822) $(1,812,547) $(3,614,827)
========== =========== =========== ===========
Net loss per common and equivalent share $(0.06) $(1.10) $(0.86) $(1.80)
Weighted average shares outstanding 2,114,794 2,007,605 2,114,794 2,007,065
</TABLE>
<PAGE>
Colorocs Information Technologies, Inc. and Subsidiary
Condensed Consolidated Statement of Cash Flows
Three Months and Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating Activities:
Net loss $(136,880) $(2,202,822) $(1,812,547) $(3,614,827)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 11,821 50,989 106,375 82,082
Minority interest -- (716,523) -- (798,457)
Changes in assets and liabilities:
Receivables, net 705,358 127,237 (356,227) 2,270,541
Inventories 768 218,788 113,821 59,394
Prepaid expenses -- 1,132 48,354 3,671
Deposits -- (1,000) -- 13,451
Accounts payable, accrued expenses,
and deferred income (95,642) 367,150 (1,977,012) 363,640
--------- ----------- ----------- -----------
Cash provided by (used in) operating activities 485,425 (2,155,049) (3,877,236) (1,620,505)
Investing Activities:
Sale of VCA -- -- 2,075,572 --
Sale (purchase) of marketable securities (50,000) 1,985,103 14,716 964,898
Disposition (purchase) of equipment, net -- (356,254) -- (634,299)
Prepaid license fees -- (78,705) -- (78,705)
--------- ----------- ----------- -----------
Cash (used in) provided by investing activities (50,000) 1,550,144 2,090,288 251,894
Financing Activities:
Proceeds from exercise of stock options -- 47,861 50,702 47,861
(Repayment of) proceeds from short-term notes (500,000) -- 1,477,880 --
--------- ----------- ----------- -----------
Cash (used in) provided by financing activities (500,000) 47,861 1,528,582 47,861
Net decrease in cash (64,575) (557,044) (258,366) (1,320,750)
Cash and cash equivalents, beginning of period 88,805 815,288 282,596 1,578,994
--------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 24,230 $ 258,244 $ 24,230 $ 258,244
========= =========== =========== ============
</TABLE>
<PAGE>
COLOROCS INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 for its color copying technology
licensing business and COPS, Inc. ("COPS") for the sale of its network
printing and file sharing software. It also licenses the name
Colorocs for the outside sales of copying hardware, consumables, and
parts. See Note 2 below. Viewcall America, Inc. ("VCA") developed
and sold on-line service and access to the Internet through the
television. The assets of VCA were sold in May 1997 to NetChannel,
Inc. See Note 3 below.
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, 1997 and the
results of its operations and cash flows for the three months and nine
months ended September 30, 1997 and 1996 have been included.
Operating results for the three months and nine months ended September
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 Color Copying and Printing Assets
On May 1, 1997 SC Distribution, Inc., a privately held company based
in Norcross, Georgia purchased from
Colorocs Information Technologies, Inc. substantially all of the
assets of the color copying and printing business in exchange for the
assumption of certain liabilities as well as a portion of the revenues
from the future sale of certain color printers. SC Distribution, Inc.
is owned by Sharon P. Conte, who was formerly employed in the
Company's color copying and printing business until the date of the
transaction.
3. 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
<PAGE>
(subject to certain conditions) total $2,031,482 of accounts payable.
Prior to the 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.
4. 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 expenses
in the accompanying condensed consolidated statement of operations.
The Company received $750,000 of the technology license fee in July
1997 and will receive the balance in January 1998.
<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 $284,191 and $1,022,423 for the three months and
nine months ended September 30, 1997, respectively, and $471,634 and
$1,784,126 for the three months and nine months ended September 30,
1996, respectively, a decrease of $187,443 and $761,703 or
approximately 40% in each period. The decrease in revenues is
attributable to the sale of the assets of the color copying business
in May 1997 (VCA's on-line service produced no significant revenues).
Cost of Revenue
Cost of revenue was $36,978 and $756,569 or approximately 13% and
74% of revenues and $517,711 and $1,470,051 or approximately 110% and
82% of revenues for the three months and nine months ended September
30, 1997 and 1996, respectively. The decrease in both dollar amount
and as a percentage of revenues for the three months ended September
30, 1997 is due to both the sale of the assets of the color copying
business in May 1997 and the termination of VCA's on-line service
following the sale to NetChannel, Inc. in May 1997. These same
factors also explain the decrease in both dollar amount and as a
percentage of revenues for the nine months ended September 30, 1997.
Research and Development
Research and development expenses were $18,976 and $1,334,155 for
the three months and nine months ended September 30, 1997,
respectively, compared to $1,339,890 and $1,778,872 for the three
months and nine months ended September 30, 1996, respectively.
Research and development expenses decreased for the three months and
nine months ended September 30, 1997 from the comparable periods in
1996 due to the termination of the VCA on-line service; however, COPS
continues to incur expenses of this nature.
Sales and Marketing Expenses
Sales and marketing expenses were $72,372 and $765,420 for the
three months and nine months ended September 30, 1997, respectively,
as compared to $538,721 and $1,242,603 for the three months and nine
months ended September 30, 1996, decreases of 87% and 38%,
respectively. The decreases were due to the termination of the VCA
on-line service.
General and Administrative Expenses
General and administrative expenses were $229,573 and $1,363,307
or approximately 81% and 133% of revenues, and $780,651 and $1,604,940
or approximately 166% and 90% of revenues, for the three months and
nine months ended September 30, 1997 and 1996, respectively. The
decrease in the dollar amount and the percentage of revenues for the
three months ended September 30, 1997 from the three months
<PAGE>
ended September 30, 1996 is due to the termination of the VCA on-line
service. The increase in percentage of revenues for the nine months
ended September 30, 1997 from the nine months ended September 30, 1996
is due to a significant increase in VCA administrative personnel prior
to the sale to NetChannel in May 1997.
Other income (expense), net
Other (expense) income, net was ($63,172) and $1,384,481 for the
three months and nine months ended September 30, 1997, respectively,
as compared to other expense of ($214,006) and ($100,944) for the
three months and nine months ended September 30, 1996, respectively.
Other (expense) income, net for the nine months ended September 30,
1997 includes the technology licenses fee of $1,500,000 offset by
interest expense of $115,519.
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 $24,230
and short-term investments of $79,969 at September 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
and/or debt or equity investments may be necessary to fund the
Company's network printing software business. 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the quarter
ended September 30, 1997.
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 12,
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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 24,230
<SECURITIES> 79,969
<RECEIVABLES> 846,287
<ALLOWANCES> 15,000
<INVENTORY> 15,055
<CURRENT-ASSETS> 1,094,747
<PP&E> 80,888
<DEPRECIATION> 44,136
<TOTAL-ASSETS> 1,422,077
<CURRENT-LIABILITIES> 3,464,148
<BONDS> 0
0
0
<COMMON> 1,802,738
<OTHER-SE> 1,374,039
<TOTAL-LIABILITY-AND-EQUITY> 1,472,077
<SALES> 284,191
<TOTAL-REVENUES> 284,191
<CGS> 36,978
<TOTAL-COSTS> 357,899
<OTHER-EXPENSES> (63,172)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (136,880)
<INCOME-TAX> 0
<INCOME-CONTINUING> (136,880)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136,880)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
