<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ________________ to ________________
Commission file number 0-21168
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
NEW YORK 13-3253392
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
5 East 80th Street, New York, New York 10021
(Address of principal executive offices)
(212) 717-6544
(Issuer's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court. Yes No
N/A
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: Common Stock: 7,322,987
Warrants: 1,160,815
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1997
-------------- -----------------
(unaudited) (Note 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 4,674,400 $ 5,352,400
Accounts receivable, less allowance for doubtful accounts of $0
and $10,000 in 1997 and 1996, respectively 92,400 87,400
Inventories 223,600 223,400
Prepaid expenses and other assets 94,400 89,200
------------ ------------
Total Current Assets 5,084,800 5,752,400
COLORMATE(TM) II UNITS, LESS ACCUMULATED
DEPRECIATION OF $28,200 (1997) AND $26,000 (1996) 671,800 674,000
PROPERTY AND EQUIPMENT, AT COST LESS ACCUMULATED
DEPRECIATION OF $177,500 (1997) AND $155,300 (1996) 342,700 293,700
OTHER ASSETS 31,300 27,400
------------ ------------
$ 6,130,600 $ 6,747,500
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - collateralized by equipment $ 8,800 $ 10,000
Notes payable to related party 311,800 326,000
Accounts payable and accrued expenses:
Attorneys and Accountants 324,300 269,700
Consultants 14,600 65,600
Trade 169,000 109,700
Security deposits 9,000 10,500
------------ ------------
Total Current Liabilities 837,500 791,500
------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CLASS A PREFERRED STOCK,
PAR VALUE $.01 PER SHARE:
Authorized - 1,400,000 Shares
Issued and outstanding - 1,380,000 Shares
At par and redemption value 13,800 13,800
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common Stock, par value $.001 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 7,313,504 (1997)
and 7,168,730 (1996) 7,300 7,200
Capital in excess of par value 15,750,700 15,370,300
Accumulated deficit (10,478,700) (9,435,300)
------------- -------------
Total Stockholders' Equity 5,279,300 5,942,200
------------- ------------
$ 6,130,600 $ 6,747,500
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1997 1996
------ -----
<S> <C> <C>
Revenues:
Lease, license and service contracts $ 1,500 $ 36,300
Interest income 56,900 18,200
Other 300 100
----------- -----------
58,700 54,600
----------- -----------
COSTS AND EXPENSES:
Food and Drug Administration ("FDA")
medical application expenses 344,200 217,700
Patent application costs (including $66,200 of
FDA related costs and $56,900 of research
and development costs in 1997) 123,100 21,100
Research and development costs 55,100 45,500
General and administrative:
Compensation of officers and employees 192,800 191,700
Compensation of consultants 45,500 44,700
Legal fees 53,000 104,900
Accounting fees 13,600 18,000
Rent and storage 52,900 54,800
Insurance 52,500 51,700
Travel and entertainment 4,000 13,000
Repairs and maintenance 28,500 27,100
Depreciation and amortization 25,200 17,200
Payroll taxes 31,200 32,600
Stock administration fees 9,100 7,600
Other 64,600 62,600
Interest 6,800 7,000
-------------- -----------
1,102,100 917,200
----------- -----------
NET LOSS $ 1,043,400 $ 862,600
============ ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND EQUIVALENTS OUTSTANDING 7,253,957 4,760,300
============ ==========
NET LOSS PER SHARE $ 0.14 $ 0.18
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
<TABLE>
<CAPTION> Common Stock
--------------------------------------
Number of Capital in Excess Accumulated
Shares Outstanding Par Value of Par Value Deficit
------------------ --------- ------------------ ------------
<S> <C> <C> <C> <C>
Balances, December 31, 1996 7,168,730 $ 7,200 $ 15,370,300 $ (9,435,300)
Three Months Ended March 31, 1997:
Net Loss -- -- -- (1,043,400)
Exercise of warrants at $2.50 per share 144,374 100 360,800 --
Exercise of warrants at $5.00 per share 400 -- 2,000 --
Gain on account of "short swing" profits
under Section 16 of the Securities
Exchange Act of 1934 -- -- 17,600 --
---------------- -------- ------------- --------------
Balances, March 31, 1997 7,313,504 $ 7,300 $ 15,750,700 $ (10,478,700)
============= ======== ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,043,400) $ (862,600)
Adjustments to Reconcile Net Loss to Net
Cash Flows From Operating Activities:
Depreciation and Amortization 25,200 17,200
Changes in Operating Assets and Liabilities:
Accounts Receivable (5,000) (33,000)
Inventories (200) (400)
Prepaid Expenses and Other Assets (5,200) (43,400)
Other Assets (3,900) (4,700)
Accounts Payable and Accrued Expenses 61,400 97,000
------------ -------------
Net Cash Flows From Operating Activities (971,100) (829,900)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property and Equipment (72,000) (17,200)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Options -- 182,500
Proceeds from Exercise of Warrants 362,900 514,600
Short Swing Profits 17,600 83,700
Payments of Notes Payable to Related Parties (14,200) --
Deferred Financing Costs -- (18,400)
Notes Payable - Collateralized by Equipment (1,200) (1,000)
------------ --------------
Net Cash Flows from Financing Activities 365,100 761,400
------------ --------------
NET CHANGE IN CASH AND EQUIVALENTS (678,000) (85,700)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 5,352,400 1,827,400
------------- --------------
CASH AND EQUIVALENTS, END OF PERIOD $ 4,674,400 $ 1,741,700
============= ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid $ 200 $ 4,500
============= ==============
Income Taxes Paid $ -- $ --
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation:
Nature of Report -- The consolidated balance sheet at the end of the
preceding fiscal year has been derived from the audited consolidated
balance sheet contained in the Company's Form 10-KSB for the fiscal
year ended December 31, 1996 and is presented for comparative purposes.
All other financial statements are unaudited. In the opinion of
management, all adjustments, which include only normal recurring
adjustments necessary to present fairly the financial position, results
of operations and changes in cash flows, for all periods presented have
been made. The results of operations for interim periods are not
necessarily indicative of the operating results for the full year.
Footnotes -- Certain footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted in accordance with the
published rules and regulations of the Securities and Exchange
Commission. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's Form 10-KSB for the fiscal year ended December 31, 1996.
Estimates and Uncertainties -- The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results, as determined at a later date, could differ from those
estimates.
At March 31, 1997, most of the inventory of the Company's products is
in excess of current requirements based on the recent level of sales.
In addition, the Company has not sold its new line of cosmetics because
the manufacturer has experienced difficulties in color matching certain
shades to be scientifically claimable for the Company's scientifically
color coordinated cosmetics line. Pending availability of the new line,
the Company has ceased active marketing of its prior existing cosmetics
line and Swatch Packs. The Company believes the new cosmetics will be
ready to ship in the third quarter of 1997, although there can be no
assurance. Management believes a $100,000 loss will be incurred on the
disposition of inventory and provided for such loss in 1996.
Note 2 -- Commitments and Contingencies:
Business Risks -- The Company's business encompasses all of the risks
inherent in the establishment of a new business enterprise, including a
limited operating history with significant competition possessing
substantially greater resources. Current and future operations also
depend upon the continued employment of certain key executives, the
ability to further commercialize its proprietary technology and
products and the Company's ability to obtain adequate revenues and/or
outside financing.
Possible Impairment -- Depreciation on a straight-line basis over five
years commences upon initial rental of the Colormate(TM) II System
units. The Company continually evaluates the life and carrying amount
of such equipment in light of current conditions. Given present
conditions, it is reasonably possible that the Company's estimate that
it will recover the carrying amount from future operations may change
in the near term, but the Company currently believes it is more likely
than not that write-down for impairment will not be necessary. For
assessing whether a write-down is necessary, management compares the
greater of the estimated undiscounted net future revenues and an annual
appraisal with the carrying amount of this specialized equipment.
Operating Difficulties -- Since 1989, the Company has incurred losses
from operations and net cash outflows from operations, and has owned
Colormate(TM) II units since June 1991 whose ultimate recoverability
5
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Note 2 -- Commitments and Contingencies (continued):
depends upon the Company's future marketing success. The Company
expects to license its patents and proprietary technology, rent its
equipment and market its related services and products to ultimately
overcome these difficulties. In the event the Colormate(TM) II units,
Colormate(TM) III units (pending FDA approval in the United States) and
related proprietary technology are not successfully leased/licensed
and/or the products (pending completion of their new cosmetics line)
are not successfully marketed in the future, the principal effect may
be a substantial write-down of the book value of such units.
Management expects that the Company will have sufficient liquidity at
least until April 1, 1998, even if no revenues from operations are
generated. If the Company is able to profitably market its Intellectual
Properties, Colormate(TM) II System, new cosmetics line and products
and, pending FDA approval in the United States, the Colormate(TM) III,
the Company would use any cash flow obtained from operations, and may
seek additional debt or equity financing, to further support and expand
its operations. The Company's Colormate(TM) II System and Colormate(TM)
III System will be marketed interchangeably as the only differences
between the two are design and power supply improvements. There can be
no assurance that the Company will not require additional funding. If
the Company has not been able to attract additional future financing,
at such point in time, it may have to cease operations.
Colormate(TM) II Systems -- In connection with a license with Avon
Products, Inc. ("Avon"), Avon paid approximately $4,600,000 to purchase
color measurement instruments and related equipment for its use during
the term of the license period. Due to missing and damaged units, Avon
and the Company executed mutual releases at the termination of the
lease on June 24, 1991 with the principal effect that the Company
received 1,947 units of which 1,400 were useable and not in need of
significant repair. For accounting purposes, the $700,000 estimated
fair value of the nonproprietary equipment (based upon an independent
appraisal of the complete units with allowances for the lack of a
verifiable used equipment market, varying usage, the need for
refurbishment and similar factors) was recorded as an asset
("Colormate(TM) II Units"). The 1,700 useable units of nonproprietary
equipment were received in the form of (i) 1,400 complete units valued
at $500 per unit and (ii) 300 complete units in need of significant
repair that were assigned zero value. No valuation of the proprietary
portion of the units or of the additional 247 unusable units returned
by Avon was performed.
Item 2. Management's Discussion and Analysis
The following is intended to update the information contained in the
Company's Form 10-KSB for the year ended December 31, 1996 (the "Form 10-KSB")
and presumes that readers have access to, and will have read, Management's
Discussion and Analysis contained in the Form 10-KSB.
Except for the historical information contained herein, certain of the
matters discussed are forward-looking statements that involve material risks to
and uncertainties in the Company's business which may cause actual results to
differ materially from those anticipated by the statements made below. Such
risks and uncertainties include, among other things, the availability of any
needed financing, the Company's ability to implement its long range business
plan for various applications for its technologies, the obtaining of and
compliance with regulatory approvals applicable to proposed application of the
Company's technology, the impact of competition, the management of growth, and
other risks and uncertainties that may be detailed from time to time in the
Company's reports filed with the Securities and Exchange Commission, including
those set forth in the Form 10-KSB.
Overview
Since inception, the Company has been principally engaged in the
research and development of the Intellectual Properties and the Colormate(TM) II
System for the application of scientific color measurement principles to the
classification of human skin and the classification and color-oriented
organization of various color sensitive
6
<PAGE>
consumer products such as cosmetics, hair color, hosiery, fashion, print and
textiles. The Company from time to time has also been engaged in test marketing
the Intellectual Properties, Colormate(TM) II System and Products in the beauty
aid and fashion industries, marketing them in the cosmetics industry, and in
cooperation with Mt. Sinai Hospital, New York, New York, since 1988 has
conducted clinical research studies for the non-invasive detection and
monitoring of Bilirubin infant jaundice.
The Company has furthered implementation of its long-range plans to
exploit certain medical applications for its technology. In this regard, in
1996, the Company filed its application with the FDA for certain medical
applications of its technologies and in 1996 developed the working prototype of
the Colormate(TM) III for such medical applications.
The Company has incurred significant losses from operations since 1990.
The Company has incurred significant research and development and marketing
expenses and, prior to consummation of its IPO in February 1993, negative
shareholders' equity. The Company also has not achieved significant operating
revenues since the conclusion in 1991 of its attempt to market Products in the
cosmetic and beauty aid industries in a national sales program (the "Avon
Project") with Avon Products, Inc. ("Avon"). Pending completion of its new line
of cosmetics, the Company has ceased active marketing of its prior existing
cosmetics line and Swatch Packs. See Note 1 of Notes to Financial Statements.
The foregoing factors raise substantial doubt as to the Company's ability to
continue as a going concern and have made it difficult for the Company to obtain
credit on commercial terms, market its products and attract licensees.
The Company has financed its operations through (i) private placements
of its securities, which generated an aggregate of $1,167,500 (including
$620,400 from Darby Simpson Macfarlane) from 1988 through 1992 (excluding the
Bridge Financing, which was repaid with proceeds of the IPO), (ii) collaborative
research and development arrangements with licensees, (iii) cash receipts from
lease and licensing agreements, which generated in the aggregate $8,386,200 from
inception through December 31, 1992, including $6,944,200 in the period from
January 1, 1988 to December 31, 1992 (primarily attributable to the Avon
Project), (iv) loans from private investors and certain shareholders which
aggregated $549,000 in 1991 and 1992 (excluding $775,000 in a bridge financing
effected in September and October 1992 (the "Bridge Financing")), (v) the IPO,
(vi) private placements of securities from October 1994 to June 1995 (which have
generated gross proceeds of $4,500,000 and net proceeds of $3,729,800), and
(vii) the 1996 Debenture Offering which raised net proceeds of approximately
$4,200,000. In addition, during 1996, the Company received an aggregate of
$2,738,925 from exercise of its Warrants and $207,500 from the exercise of stock
options. From January 1, 1997 to March 31, 1997, the Company received an
aggregate of $362,900 from exercise of its Placement Agent and Public Warrants.
Since 1990, limited revenues have been derived from licenses, leases,
service contracts and Product sales to several beauty-related businesses,
testing and laboratory fees from potential licensees evaluating the Company's
technology, and from an exclusive licensing and lease contract with IMS
Cosmetics Inc. In fiscal year 1996, the Company generated approximately 39% of
its lease, license and service contract revenues from IMS. From December 31,
1990 until the IPO, the Company had been primarily engaged in (a) pursuing the
Company's litigation against Avon, (b) developing and testing further
applications of the Intellectual Properties and Colormate(TM) II Systems, such
as the clinical research studies for medical applications, and (c) obtaining
additional financing to support marketing of the Company's Intellectual
Properties, systems, Products and related services.
The Company's ability to generate revenues in the future will depend on
its success in marketing its Intellectual Properties, the related Chromaticity
Study capabilities, the Colormate(TM) II System and (pending completion of the
new cosmetics line) its products. In addition, pending FDA approval (which
cannot be assured) the Company's future ability to generate revenues in the
United States will depend on successful marketing of the Company's technology in
medical applications. If such marketing is not successful in the future, the
principal effect may be a substantial write-down of the book value of the
Colormate(TM) II System Units and a substantial impairment of the Company's
capital resources and ability to obtain any future financing, which would result
in a substantial diminution in the value of an investment in the Company. There
can be no assurance the Company will be able to timely place such units or
identify alternative markets. See Note 2 of Notes to Financial Statements.
7
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Results of Operations
The Company incurred net losses of $1,043,400 and $862,600 for the
three-month periods ended March 31, 1997 and 1996, respectively, as revenues
received have not been significant relative to the Company's expenses incurred
in implementing its business plan. Although loss per share decreased by $0.04 in
the 1997 quarter compared to the 1996 quarter, the 1997 quarter was favorably
impacted by an increase of 2,493,657 weighted average number of shares
outstanding. The dollar increase in such losses in the 1997 period as compared
to the 1996 period is primarily attributable to the Company commencing
implementation of its long-range business plan to seek commercial applications
of its intellectual properties and technologies in the medical field including
an increase in costs and expenses regarding FDA regulatory applications, patent
applications and other general costs and expenses. The loss was partially offset
by interest income attributable to proceeds of the 1996 Debenture financing. The
Company believes that the level of expenses relating to the FDA application and
the related patent application will not be recurring in the future and that any
future expenses incurred in connection with its FDA application will be
significantly less than the amount incurred in 1996, although no assurance can
be given of such result.
The Company estimates that research and development expenses (excluding
compensation expenses for officers, employees and long-term consultants) for
fiscal 1997 will approximate $700,000 although there can be no assurance that
such expenses will not exceed that amount. Of such amount, approximately
$300,000 will be applied to developing the mass manufacture housing prototype
for the medical application of the Company's technology in the detection and
monitoring of infant jaundice, approximately $100,000 will be applied to
completing the hand held, less expensive version of the Colormate(TM) II System,
approximately $100,000 will be applied to fabricate molds for each of the
foregoing prototypes, and approximately $200,000 will be applied to the
Company's ongoing research and development efforts. There can be no assurance
that such amounts will be sufficient to accomplish completion of such projects.
A decrease in the Company's revenue from lease, license and service
contracts also contributed to the increase in the 1997 three-month period net
loss as compared to the 1996 three-month period net loss. Such revenues
decreased as the Company has focused its resources on implementation of its
long-range business plan for medical applications of its technologies. The
Company believes that sales in the 1997 three-month period were also adversely
affected by ongoing delays in manufacturing certain color shades of the
Company's new line of cosmetic products for its Colormate(TM) II system (which
delays were attributable to finalizing color formulations). The Company
anticipates the new cosmetics will be ready to ship in the third quarter of 1997
although there can be no assurance of this. See Note 1 of Notes to Financial
Statements.
The Company receives payments from licensees, distributors or other
sources at various times during the year. Accordingly, these payments have had,
and payments that may be received in the future will have, a significant impact
on quarter-to-quarter comparisons inasmuch as the Company has not developed
stable sources of repeat revenues.
The Company anticipates that it will continue to incur substantial and
increasing net losses for the foreseeable future as increased expenses are
incurred in implementing its long-range business plan for medical applications
of its technologies and as revenues from the Company's existing activities in
the cosmetics, beauty aid and fashion areas are anticipated to continue to be
insignificant relative to its anticipated expenses in the foreseeable future.
Liquidity and Capital Resources
Assets decreased by $616,900 in the first quarter of 1997 as compared
to fiscal 1996, primarily attributable to a decrease in cash and cash
equivalents. Current liabilities increased by $46,000 in the first quarter of
1997 compared to fiscal 1996, primarily attributable to increased accounts
payable to attorneys and accountants, as well as increased trade payables.
As indicated in the Company's Statements of Cash Flows, the Company
continued to experience significant negative net cash flows from operating and
investing activities in the quarter ended March 31, 1997. The 1997
8
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increase in cash outflows from operating activities is primarily attributable to
the increase in the Company's net loss. Cash flows from financing activities
during the 1997 quarter principally represent $362,900 from the exercise of
Warrants and $17,600 of "short swing" profits paid to the Company in accordance
with the Securities Exchange Act of 1934. Cash flows from financing activities
in the 1996 period principally represent the receipt of proceeds from the
exercise of Warrants and certain of the Company's outstanding options and
$83,700 of "short swing" profits paid to the Company in accordance with the
Securities Exchange Act of 1934.
The Company has applied a substantial portion of the proceeds from the
1995 Private Placement and 1996 Debenture Financing to begin implementation of
its long-range business plan for commercialization of its technologies for
medical applications in diagnosing certain diseases, including the preparation
of the FDA application and the related patent applications. In this regard, the
Company hired FDA and governmental regulatory consultants (in addition to legal
counsel) to assist in obtaining regulatory clearances for commercial use of its
technology for the detection and monitoring of Bilirubin infant jaundice. The
Company is in the process of responding to FDA comments on the application. The
Company anticipates that any initial penetration of the medical marketplace will
be through the use of specialized distributors, rather than a direct sales
force.
In addition, the Company applied proceeds of the 1995 Private Placement
and 1996 Debenture Financing to the development of a mass manufacture prototype
for medical applications and development of a mass manufacture prototype for
hand held Colormate(TM) II System Unit, salaries of new personnel including a
new president, salespersons and support staff marketing expenses, working
capital, additional prototype research and development and to fund ongoing
operations.
Management believes that if its proposed marketing plans for nonmedical
applications of its technology are successful, then it will generate revenues
from fees from the licensing of the Intellectual Properties and leasing of the
Colormate(TM) II System Units, consulting fees, and sales of cosmetics, although
there can be no prediction or assurance as to which or whether any of these
potential revenue sources will be successful. In 1996 and for the first three
months of 1997, such licensing, leasing and sales yielded an immaterial level of
revenue, primarily because the Company devoted its resources to the Bilirubin
Project and because the Company's new cosmetics line is not yet available.
Management expects that the Company will have sufficient liquidity at
least until April 1, 1998, even if no revenues from operations are generated. If
the Company is able to profitably market its Intellectual Properties,
Colormate(TM) II System and Products, and the Colormate(TM) III (pending FDA
approval in the United States), the Company would use any cash flow obtained
from operations, and may seek additional debt or equity financing, to further
support and expand its operations. The Company's Colormate(TM) II System and
Colormate(TM) III System will be marketed interchangeably as the only
differences between the two are design and power supply improvements. There can
be no assurance that the Company will not require additional funding. If the
Company has not been able to attract additional future financing at such point
in time and/or successfully market its products and technologies, it may have to
cease operations.
9
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) 15 - Letter on unaudited interim financial information
(b) Reports on Form 8-K.
None.
10
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EXHIBIT INDEX
Exhibit No. Document Page
- ----------- -------- ----
15 Letter on Unaudited Interim Financial Information 13
27 Financial Data Schedule 14
11
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
Date: May 15, 1997 /s/ Darby S. Macfarlane
-----------------------
Darby S. Macfarlane
Chief Executive Officer
Date: May 15, 1997 /s/ Leslie Foglesong
--------------------
Leslie Foglesong
Treasurer and Chief Financial and
Principal Accounting Officer
12
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Exhibit No. 15
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.:
We have reviewed the consolidated balance sheet of Chromatics Color Sciences
International, Inc. and subsidiary as of March 31, 1997 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the three-month periods ended March 31, 1997 and 1996. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the year then ended, and in our report dated February 19,
1997, we expressed an unqualified opinion on those consolidated financial
statements, indicating that the financial statements were prepared on a going
concern basis that might not be appropriate due to significant operating losses.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1996, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
WISS & COMPANY, LLP
Livingston, New Jersey
April 29, 1997
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
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13,800
0
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