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, 1998
[ ] 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 2,114,794 shares of Common Stock outstanding as of April 22,
1998.
Transitional Small Business Disclosure Format. Yes __ No X
<PAGE>
COLOROCS INFORMATION TECHNOLOGIES, INC.
Quarterly Report on Form 10-QSB
For the Three Months Ended March 31, 1998
Table of Contents
Item Number Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet -
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statement of
Operations - Three Months Ended
March 31, 1998 and 1997 4
Condensed Consolidated Statement of
Cash Flows - Three Months Ended
March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements - March 31, 1998 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
<TABLE>
Colorocs Information Technologies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
As of March 31, 1998 and December 31, 1997
March 31, 1998 December 31, 1997
(unaudited)
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents $ 31,394 $ 29,381
Short term investments 100,000 31,875
Receivables, net of allowance for doubtful accounts of $0 at
March 31, 1998 and December 31, 1997 71,168 829,387
Prepaid expenses 133,199 135,003
----------- -----------
TOTAL CURRENT ASSETS 335,761 1,025,646
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $47,912 and $43,399 at March 31, 1998 and
December 31, 1997, respectively 28,375 32,888
INVESTMENT IN NETCHANNEL, INC. 180,189 180,189
GOODWILL AND INTANGIBLE ASSETS, net 99,931 107,020
DEPOSITS -- 1,950
----------- -----------
$ 644,256 $ 1,347,693
=========== ===========
Liabilities and Stockholders' Deficit
CURRENT LIABILITIES:
Short-term borrowings $ 1,005,717 $ 1,505,717
Payable to director/shareholder -- 37,500
Notes payable 1,190,380 1,190,380
Accounts payable and accrued liabilities 1,201,321 1,256,646
----------- -----------
TOTAL CURRENT LIABILITIES 3,397,418 3,990,243
DEFERRED LICENSING INCOME 875,000 875,000
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' DEFICIT
Common stock; no par value; 10,000,000 shares authorized;
2,114,794 shares issued and outstanding at March 31,
1998 and December 31, 1997 1,802,738 1,802,738
Warrants 100,000 100,000
Additional paid in capital 1,374,039 1,374,039
Retained deficit (6,904,939) (6,794,327)
----------- -----------
Total stockholders' deficit (3,628,162) (3,517,550)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 644,256 $ 1,347,693
=========== ===========
</TABLE>
<PAGE>
<TABLE>
Colorocs Information Technologies, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
Three Months Ended March 31, 1998 and 1997
Three Months Ended
March 31, 1998 March 31, 1997
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Software $ 235,069 $ 260,410
Copier and consumables -- 145,205
License of technology -- --
---------- ----------
Total revenue 235,069 405,615
Operating expenses:
Cost of copier and consumables product -- 531,274
Research and development 37,896 1,062,546
Selling, general and administrative 288,504 1,299,152
---------- ----------
Total operating expenses 326,400 2,892,972
Operating loss (91,331) (2,487,357)
Other (expense) income, net (19,281) (40,010)
---------- ----------
Net loss $ (110,612) $(2,527,367)
========== ===========
Basic and diluted net loss per share $(0.05) $(1.20)
========== ===========
Basic and diluted weighted average shares
outstanding 2,114,794 2,102,794
========== ===========
</TABLE>
<PAGE>
<TABLE>
Colorocs Information Technologies, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
Three Months Ended March 31, 1998 and 1997
Three Months Ended
March 31, 1998 March 31, 1997
(unaudited) (unaudited)
<S> <C> <C>
Operating Activities:
Net loss $(110,612) $(2,527,367)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 11,602 207,659
Changes in assets and liabilities:
Accounts receivable, net 758,219 122,720
Inventories -- 3,811
Prepaid expenses 1,804 26,471
Deposits 1,950 --
Accounts payable, accrued expenses, and deferred income (55,325) 437,159
--------- -----------
Cash provided by (used in) operating activities 607,638 (1,729,547)
Investing Activities:
Sale (purchase) of marketable securities (68,125) 64,716
Purchase of equipment, net -- (19,399)
--------- -----------
Cash (used in) provided by investing activities (68,125) 45,317
Financing Activities:
Repayment of line of credit (500,000) --
Repayment of payable to director/shareholder (37,500) --
Proceeds from exercise of stock options -- 29,702
Proceeds from short-term notes -- 1,397,550
--------- -----------
Cash (used in) provided by financing activities (537,500) 1,427,252
Net change in cash and cash equivalents 2,013 (256,978)
Cash and cash equivalents, beginning of period 29,381 282,596
--------- -----------
Cash and cash equivalents, end of period $ 31,394 $ 25,618
========= ===========
</TABLE>
<PAGE>
COLOROCS INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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.
Substantially all of 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 March 31, 1998 and the results of its operations and cash
flows for the three months ended March 31, 1998 and 1997 have been
included. Operating results for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
2. Sale of Assets of Copier Business
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.
<PAGE>
3. Sale of Assets of VCA
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 the Company in consideration
of advances made by the Company to VCA and all liens over VCA assets
possessed by the Company. 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. VCA received
bridge financing from NetChannel in connection with the transaction which
has been accounted for as notes payable in the accompanying condensed
consolidated financial statements. The investment of approximately
$180,189 in NetChannel is recorded at cost in the accompanying balance
sheets.
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 the balance in January 1998.
5. Legal Proceeding
On December 15, 1997, Crocker Realty Trust ("Crocker") filed a lawsuit
against the Company in the Superior Court of Gwinnett County, Georgia.
Crocker seeks damages of $643,483.69 for breach of a lease agreement in
connection with the lease of certain office space which the Company's
subsidiary, VCA, never occupied. The lease agreement requires lease
payments of approximately $640,000 over 3 years. The Company intends to
vigorously defend the lawsuit filed by Crocker.
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
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 $235,069 for the three months ended March 31, 1998 and
$405,615 for the three months ended March 31, 1997, a decrease of $170,546
or approximately 42%. The decrease in revenues is attributable to the sale
of the assets of the color copying business in May 1997.
Cost of Revenue
Cost of revenue of $0 was incurred for the three months ended March
31, 1998, compared to $531,274 for the three months ended March 31, 1997.
The Company incurred no cost of revenue during the three months ended March
31, 1998 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
of substantially all of the assets of VCA to NetChannel in May 1997.
Research and Development
Research and development expenses were $37,896 for the three months
ended March 31, 1998, compared to $1,062,546 for the three months ended
March 31, 1997. Research and development expenses decreased for the three
months ended March 31, 1998 from the comparable period in 1997 due to the
termination of VCA's on-line service.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $288,504 for the
three months ended March 31, 1998, compared to $1,299,152 for the three
months ended March 31, 1997, a decrease of 78%. The decrease was due to
the termination of VCA's on-line service.
Other expense
Other expense was $19,281 for the three months ended March 31, 1998
compared to other expense of $40,010 for the three months ended March 31,
1997, a decrease of approximately 93% The decrease in other expense was due
to the decrease in short term borrowings.
<PAGE>
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 were $31,394 and
short-term investments were $100,000. As of March 31, 1998, 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, 1997 and for the two
years for the period ended December 31, 1997 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 March 31, 1998.
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 12, 1998.
Colorocs Information Technologies, Inc.
(Issuer)
By: /s/ Rudolph P. Russo
Rudolph P. Russo
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Alan B. Catherall
Alan B. Catherall
Chief Financial Officer
(Principal Financial and Accounting
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-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 31,394
<SECURITIES> 100,000
<RECEIVABLES> 71,168
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 335,761
<PP&E> 76,287
<DEPRECIATION> 47,912
<TOTAL-ASSETS> 644,256
<CURRENT-LIABILITIES> 3,397,418
<BONDS> 0
0
0
<COMMON> 1,802,738
<OTHER-SE> 1,474,039
<TOTAL-LIABILITY-AND-EQUITY> 644,256
<SALES> 235,069
<TOTAL-REVENUES> 235,069
<CGS> 0
<TOTAL-COSTS> 326,400
<OTHER-EXPENSES> 19,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (110,612)
<INCOME-TAX> 0
<INCOME-CONTINUING> (110,612)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (110,612)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
