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As filed with the Securities and Exchange Commission on February 7, 2000
Registration No. 333-82071
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Chromatics Color Sciences International, Inc.
(Exact Name of Registrant as Specified in its Charter)
New York 13-3253392
(State of Incorporation) (I.R.S. Employer Identification No.)
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5 East 80th Street
New York, NY 10021
(212) 717-6544
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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With a copy to:
Darby S. Macfarlane Jeffrey E. LaGueux, Esq.
Chairperson of the Board and Patterson, Belknap, Webb & and Tyler LLP
Chief Executive Officer 1133 Avenue of the Americas
5 East 80th Street New York, NY 10036-6710
New York, NY 10021 (212) 336-2000
(212) 717-6544
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /_/
If any of the securities being registered on this form are being
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /_/
If this form is filed to register additional securities pursuant to
Rule 462(b) under the Securities Act of 1933, please check the following box and
list the Securities Act of 1933 registration statement number of the earlier
effective registration statement for the same offering. /_/
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. /_/
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================== =================== ========================= =========================== ===================
Amount to be Proposed Maximum Offering Proposed Maximum Amount of
Title of Shares to be Registered Registered(1) Price Per Share(2) Aggregate Offering Price(2) Registration Fee(3)
- ------------------------------------ ------------------- ------------------------- --------------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 24,987 shares $7.28125 $181,936.59 $48.03
==================================== =================== ========================= =========================== ===================
</TABLE>
(1) Represents shares of common stock issuable upon conversion of 24,987
shares of convertible preferred stock issued by Registrant on June 15,
1999.
(2) Estimated solely for the purpose of calculating the registration fee.
These estimates have been calculated in accordance with Rule 457(c)
under the Securities Act of 1933 and are based upon the average of the
high and low prices per share of the Registrant's common stock on the
Nasdaq SmallCap Market on February 4, 2000.
(3) Paid on June 30, 1999.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Prospectus
The information contained in this prospectus is not complete and may be changed.
These securities may not be sold until the Registration Statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any State where the offer or sale is not permitted.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
24,987 Shares of Common Stock
The selling stockholder named in this prospectus is offering and selling shares
of our common stock. These shares were acquired by the selling stockholder upon
the exercise of convertible preferred stock sold by us to the selling
stockholder in a private financing.
The selling stockholder may sell the shares of common stock described in this
prospectus in a number of different ways. The prices at which the selling
stockholder may sell the shares of common stock will be determined by prevailing
market prices for the shares or by negotiated transactions. We will not receive
any of the proceeds from the sale of shares, but we will receive the exercise
price of the warrants.
Our common stock is listed on the Nasdaq SmallCap Market under the symbol
"CCSI." On February 4, 2000 the closing sales price of our common stock on the
Nasdaq SmallCap Market was $7.28125.
You should read the description of risks under the caption "Risk Factors"
beginning on page 4 before purchasing any of the common stock offered by this
prospectus.
The shares offered or sold under this prospectus have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor have these organizations determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is February 7, 2000.
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SUMMARY OF THE OFFERING
We are engaged in the business of researching, developing and
commercializing intellectual property rights, technology and instrumentation we
have developed in the field of color science. Color science involves the
objective, standardized analysis, description and measurement by instrument to a
laboratory standard of accuracy of the colors composing the visual color
spectrum and their related physical properties in relation to each other.
We have incorporated some of these intellectual property rights,
technology and instrumentation into a proprietary color measurement system and
software marketed for various applications known as the ColorMate(R) System. We
have developed our intellectual property and the ColorMate(R) System for:
o the color measurement to a laboratory standard of accuracy and
classification of human tissue, fluid, hair and/or teeth color,
o the color coordination of these human skin, tissue, fluid, hair and/or
teeth color classifications in relation to products.
o the color measurement to a laboratory standard of accuracy,
classification and organization based on color of various
color-sensitive consumer products including chromaticity studies of
cosmetics, hair coloring, hosiery, clothing, tooth enamel, paint and
textiles,
o the color measurement to a laboratory standard of accuracy to monitor
infant jaundice,
o the color measurement in detecting and monitoring those diseases which
we believe can be diagnosed or monitored by the coloration of human
skin, tissue and fluids and
o the color coordination of products in relation to other products.
In July 1997 we received clearance from the U.S. Food and Drug
Administration for commercial marketing of our ColorMate(R) System device for
the non-invasive monitoring of infant jaundice by healthcare professionals in
the hospital, institutional, pediatricians' office or home setting. In June 1999
we entered into an agreement for the exclusive distribution of this product in
the hospital, pediatricians' office and home healthcare markets in the United
States with Datex-Ohmeda, Inc. and its Ohmeda Medical Division. The current
procedure for the initial screening for infant jaundice is the visual
observation of the yellowing of the skin by professional care providers. This is
a subjective determination prone to errors due to different skin colors. If the
initial clinical assessment suggests the possibility of infant jaundice, the
current procedure requires that a blood sample be obtained by lancing the
infant. We believe that a non-invasive instrument that monitors infant jaundice
represents a significant improvement in patient care.
The ColorMate(R) TLc-BiliTest(R) System monitors the incremental change of
the yellow content of the skin color in infants of all races by non-invasively
measuring the color of the skin of the newborn. Color measurements are obtained
by placing the device on different physical sites of the newborn for five to ten
seconds. Accuracy of the color measurements is ensured by use of the
TLc-Lensette(TM) calibration standard used prior to each baby's measurement.
We are currently in the early stages of the commercialization of our
ColorMate(R) TLc-BiliTest(R) System for the monitoring of infant jaundice. We
will need to generate substantial revenues from the sale of our products and the
financial markets in order to develop other medical and non-medical applications
for our intellectual property rights, technology and instrumentation and to fund
our continuing operations. If we are not successful in generating adequate
revenues, we may be forced to curtail our operations and seek protection from
our creditors under applicable bankruptcy laws.
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In order to finance our activities, we recently completed a private
placement of securities. In June 1999 we sold 40,000 shares of convertible
preferred stock and warrants to purchase 220,690 shares of our common stock for
aggregate proceeds of $4 million. These securities are convertible into shares
of our common stock at the option of their holder at specified prices. The
conversion price of the convertible preferred stock is $6.67. The exercise price
of the warrants is $7.59. These securities are subject to mandatory conversion
if the average trading price of our common stock equals or exceeds specified
prices in the future. These prices are $10.88 for the convertible preferred
stock and $16.50 for the warrants. In addition, the conversion price of the
convertible preferred stock is subject to downward adjustment if we issue
additional shares of our common stock at less than $6.67 per share. The
convertible preferred stock is redeemable at $115 per share on June 15, 2002. We
have the option to extend this redemption date to June 15, 2004. The warrants
expire on June 15, 2004. The shares of common stock into which the preferred
stock is convertible is the subject of this prospectus.
We were incorporated in New York in March 1984. Our principal executive
offices are located at 5 East 80th Street, New York, New York 10021 and our
telephone number at that address is (212) 717-6544.
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RISK FACTORS
Investing in our common stock is very risky. You should be able to bear
a complete loss of your investment. You should carefully consider the following
factors, in addition to the other information in this prospectus, before
investing in our common stock.
We Have a Limited Operating History
We have a limited operating history and have generated insignificant
revenues to date. Although we have recently entered into agreements for the
manufacturing and distributing of our ColorMate(R) TLc-BiliTest(R) System, to
date we have not produced or sold substantial quantities of this product. We
cannot assure you that this product can be manufactured in commercial quantities
or at an acceptable cost or marketed successfully. We also cannot assure you
that we will be successful in our efforts to commercialize our ColorMate(R)
System for other applications.
We Expect to Continue to Operate at a Loss and We May Never Achieve
Profitability
We cannot be certain that we will ever achieve and sustain
profitability. To date, we have been engaged in research and development
activities and have not generated any significant revenues from product sales.
As of September 30, 1999, we had an accumulated deficit of $30,890,300. We
expect that we will continue to incur operating losses for the current and
subsequent fiscal years.
In addition, we will record the following charges in connection with
the $5.0 million debt financing in April 1999 and $4.0 million preferred stock
financing in June 1999.
o The April financing will result in an additional interest charge of
approximately $3.5 million, resulting from a below-market conversion
price of the debt. This amount will be expensed over the twelve-month
period ending April 2000.
o The June financing will result in a deemed dividend charge of
approximately $3.0 million, resulting from a below-market conversion
price of the preferred stock, a redemption premium and warrants issued
in connection with the financing. Of this amount, $1.2 million was
charged in June 1999 and $1.8 million will be charged over the
redemption period.
If We Do Not Secure Additional Financing We Will Not Be Able to Develop and
Market Our Products
We will require substantial additional funds for our research and
product development programs, for contractual obligations, for operating
expenses, to pursue regulatory approvals and to develop and commercialize other
applications of our ColorMate(R) System. Adequate funds for these purposes,
whether through the financial markets or other sources, may not be available
when needed. Additionally, under the terms of our manufacturing agreement we
must provide our manufacturing partner with a number of key component parts to
be assembled into our ColorMate(R) System and our ColorMate(R) TLc-BiliTest(R)
System. Without the funds to provide these component parts, our products cannot
be manufactured and we will be unable to fulfill our obligations to our
distribution partner. The terms of the convertible preferred stock that require
a downward adjustment in the conversion price if we issue shares of common stock
at a price of less than $6.67 per share will increase the cost to us of any
subsequent equity financing effected at less than $6.67 per share. If we fail to
make any payment required or if we are otherwise in default under the
manufacturing and distribution agreements relating to our ColorMate(R) System
and our ColorMate(R) TLc-BiliTest(R) System, the other parties will have the
right to terminate the agreements. Termination of any of these agreements would
have a material adverse effect on our business by rendering us unable to
manufacture and distribute our ColorMate(R) System and our ColorMate(R)
TLc-BiliTest(R) System until replacement agreements were entered into.
We Will Require Additional Funds if the Convertible Debentures and Convertible
Preferred Stock Are Not Converted Prior to Maturity
In April 1999 we sold $5 million in principal amount of 14% senior
convertible debentures. These securities are convertible into shares of our
common stock at the option of their holders at a conversion price of $5.00 and
are subject to mandatory conversion if the average trading price of our common
stock equals or exceeds $10.29. We will be obligated to repay the holders of
these convertible debentures $7,100,000 in cash on the April 15, 2002 maturity
date unless they elect to convert or we are able to compel conversion. We will
also be obligated to repay the selling stockholder $4,600,000 on the June 15,
2002 redemption date of the convertible preferred stock unless it elects to
convert or we are able to compel conversion. The redemption date of the
convertible preferred stock may be postponed at our option until June 15, 2004
subject to the accrual of a 8% dividend after June 15, 2002 which will increase
the total redemption amount to $5,240,000. The holders of the debentures
generally will not elect to convert the convertible debentures unless the market
price of our common stock exceeds $5.00 per share at the time of conversion.
Similarly, the selling stockholder generally will not elect to convert the
convertible preferred stock unless the market price of our common stock exceeds
$6.67 per share at the time of conversion. In addition, if an event of default
occurs with respect to the convertible debentures prior to the stated maturity
date the holders of the debentures may elect to accelerate the maturity of the
convertible debentures with the effect that the principal amount and all accrued
but unpaid interest would become immediately due and payable. We cannot
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assure you that we would have sufficient funds available to us to satisfy these
obligations. Failure to satisfy these obligations would have a material adverse
effect on our business and could force us to close our operations and seek
protection from our creditors under applicable bankruptcy laws.
We Do Not Have Manufacturing or Marketing Capabilities of Our Own and Depend on
Other Parties for Manufacturing and Marketing
We currently do not have the resources to manufacture or market
independently on a commercial scale the ColorMate(R) System, the ColorMate(R)
TLc-BiliTest(R) System or any other products that we may develop. We rely on our
corporate partners to manufacture and to market our ColorMate(R) TLc-BiliTest(R)
System and will continue to rely on corporate partners to manufacture and to
market our ColorMate(R) System for other applications. The amount and timing of
resources to be devoted to these activities by these other parties may not be
within our control. We cannot assure you that these parties will perform their
obligations as expected or that we will derive any revenue from these
arrangements. We have no experience in manufacturing or marketing any products.
The failure of our corporate partners to perform their obligations relating to
the manufacturing and distributing of our ColorMate(R) System or ColorMate(R)
TLc-BiliTest(R) System would have a material adverse effect on our business by
rendering us unable to manufacture and distribute our ColorMate(R) System and
our ColorMate(R) TLc-BiliTest(R) System until a replacement arrangement was
entered into.
We May Not Be Successful in Commercializing Our ColorMate(R) TLc-BiliTest(R)
System
Our success in commercializing our ColorMate(R)TLc-BiliTest(R)System
will be dependent upon its acceptance by healthcare professionals. Their
acceptance will largely depend on our ability to show them its ability to reduce
the need for heelsticks in monitoring infant jaundice as well as its utility
compared to other non-invasive methods that currently exist or that may be
developed in the future by others with respect to:
o safety,
o effectiveness,
o ease of use and
o price.
We cannot assure that our ColorMate(R) TLc-BiliTest(R) System will be
competitive with respect to these factors.
We Have Not Yet Successfully Commercialized our ColorMate(R) System for Other
Potential Medical Applications
Although we have received FDA clearance to commercially market our
ColorMate(R) TLc-BiliTest(R) System for monitoring infant jaundice, our clinical
and research development programs for other medical applications of our
ColorMate(R) System are at a very preliminary stage. Substantial additional
research and development and further clinical trials will be necessary before
commercial versions of any additional proposed products are submitted for FDA
marketing clearance or approval and produced for other medical applications. We
cannot assure you that we will be able to successfully address the problems that
may arise during the development, FDA review process and commercialization of
these other medical applications or that any of our proposed products for these
other medical applications will be successfully developed, proven safe and
effective in clinical trials, cleared or approved by the FDA for marketing or
meet applicable regulatory standards and requirements.
We Have Not Yet Successfully Commercialized Our ColorMate(R) System for
Non-Medical Applications
To date, we have not achieved commercial market penetration in any
non-medical industry. In order to commercialize our ColorMate(R) System in
connection with non-medical applications we will need to develop additional
marketing skills, incur significant expenses on sales and marketing activities,
hire additional employees and consultants and enter into arrangements with third
party distributors. We cannot assure you that we will be successful in our
efforts to commercialize any of these non-medical applications of our
ColorMate(R) System.
Extensive Governmental Regulation Could Delay, Restrict or Prevent the Marketing
of Our Products
Governmental regulation may significantly delay the marketing of our
products, prevent marketing of products altogether or impose costly requirements
on our activities. The FDA and comparable foreign regulatory authorities
generally require rigorous pre-clinical testing, clinical trials and government
premarket review and clearance or approval for the type of human medical device
we market or contemplate marketing. Numerous regulations govern, among other
things, the manufacturing, safety, labeling, promotion, storage, record keeping,
reporting and marketing of medical devices. A delay in obtaining or failure to
obtain or maintain regulatory clearances or approvals for any of our products
would have an adverse effect on our business. We cannot predict the adverse
effects that existing or future government regulations may have
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on our business.
Even though our ColorMate(R) TLc-BiliTest(R) System received FDA
marketing clearance for monitoring infant jaundice, we may still face
difficulties in manufacturing and marketing this product. A marketed product and
its manufacturer's practices are subject to regulatory review and the
manufacturer's facilities are subject to periodic establishment inspections. The
discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on the product or manufacturer, including
withdrawal of the product from the market. The failure to comply with applicable
regulatory requirements can, among other things, result in:
o fines,
o suspended or withdrawn regulatory approvals,
o refusal to clear or approve pending applications,
o refusal to permit exports or to allow imports from the United
States,
o product recalls,
o seizure of products,
o injunctions,
o operating restrictions and
o criminal prosecutions.
We May Be Unable to Develop Potential International Markets and Obtain Foreign
Regulatory Approvals
Although we believe that sales of our products to customers outside of
the United States represent a significant potential source of growth we may not
be able to obtain agreements with third party distributors for marketing outside
of the United States. We also cannot be certain that we will be able to maintain
our existing ISO 9001/EN46001 certification or that we will obtain any further
regulatory approvals in other countries. In order to market our products outside
of the United States, we must comply with numerous and varying foreign
regulatory requirements implemented by foreign authorities. The approval
procedure varies among countries and can involve additional testing. The time
required to obtain further foreign clearances or approvals may differ from that
required to obtain FDA clearances or approvals for commercial marketing. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA clearances or approvals set forth above, and clearance or approval
by the FDA does not ensure clearance or approval by the authorities of any other
country.
The Medical Community May Be Reluctant to Accept Our Technology
The commercial acceptance of our ColorMate(R) TLc-BiliTest(R) System is
substantially dependent on its acceptance by the medical community for the
monitoring of infant jaundice. Because the medical community is relatively slow
to adopt new technologies we cannot assure you that the medical community will
perceive a need for, or accept, our ColorMate(R) TLc-BiliTest(R) System or be
willing to commit funds to its purchase and use. Widespread acceptance of the
ColorMate(R) TLc-BiliTest(R) System for monitoring infant jaundice will require
educating the medical community about its advantages, reliability, cost
effectiveness and utility. In addition, acceptance of the ColorMate(R)
TLc-BiliTest(R) System may be adversely affected by competing products which may
have more utility, a lower cost or be received in a better way than our
ColorMate(R) TLc-BiliTest(R) System.
Our Main Competitors Generally Have More Resources Than We Have
The medical device industry is characterized by rapid technological
advances, evolving industry standards and technological obsolescence. Our
inability to meet or surpass our competitors' technological advances in this
industry could have a material adverse effect on our business. We have several
competitors in this industry, none of whom we believe to be dominant. We believe
that, in addition to our ColorMate(R) TLc-BiliTest(R) System the only other
commercially available non-invasive devices for the monitoring of infant
jaundice with FDA marketing clearance in the United States are the Minolta
Jaundice Meter, manufactured by Minolta Co., Ltd. which is distributed by Air
Shields and the SpectRx Bilicheck, manufactured by SpectRx and Respironics. Both
Minolta and Respironics have financial, marketing and other resources greater
than our own. Our competitors in this industry may develop products which may
render our ColorMate(R) TLc-BiliTest(R) System obsolete or which have advantages
over our ColorMate(R) TLc-BiliTest(R) System, including greater accuracy and
precision or greater acceptance by the medical community.
To the extent that we are able to commercialize our ColorMate(R) System
for non-medical applications we will also encounter competition. We cannot
assure you that we will be able to compete successfully in these non-medical
markets.
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Our Board of Directors Is Authorized to Issue Preferred Stock Without
Stockholder Authorization Which Could Be Used as an Anti-takeover Device
Our Board of Directors is authorized to issue from time to time without
stockholder authorization shares of preferred stock. The issuance of preferred
stock could decrease the amount of assets and earnings available for
distribution to our other stockholders. Preferred stockholders could receive
voting rights and rights to payments on liquidation or of dividends or other
rights which are greater than the rights of the holders of our common stock. In
addition, the issuance of preferred stock may make it more difficult for a third
party to acquire, or may discourage a third party from acquiring, voting control
of our stock. This provision could also discourage an unsolicited acquisition
and could make it less likely that stockholders receive a premium for their
shares as a result of any unsolicited acquisition proposal.
Our Directors and Executive Officers Own a Significant Amount of Stock of
Chromatics and Exert Considerable Control over Chromatics
As of December 1, 1999, our directors and executive officers
beneficially owned approximately 18.5% of voting power represented by our
outstanding common and preferred stock. As a result, these stockholders are able
to significantly influence all matters requiring stockholder approval, including
the election of directors and the approval of significant corporate
transactions. This concentration of ownership could also delay or prevent a
change in control that may be favored by other stockholders.
We Will Need to Hire Additional Personnel To Manage Our Transition From a
Development Stage Company to an Operating Company
In order to generate and service sales of our medical products we will
need to attract and retain significant additional senior and midlevel personnel
experienced in financial, administrative, marketing, sales and regulatory
matters in the medical industry. We currently only have 37 full-time employees,
of which 18 are medical marketing or regulatory personnel. Our success will
depend in part on our ability to hire, train and retain new and existing
personnel. Competition for qualified personnel is intense and we cannot assure
you that we will be successful in hiring, training or retaining additional
personnel to support our executive, operations, marketing, sales, research and
product development needs and efforts.
We Depend on the Services of Key Personnel
Our success depends to a significant extent upon the efforts of Darby
Simpson Macfarlane, the Chairperson of our Board of Directors, our Chief
Executive Officer and one of our major stockholders, and David Kenneth
Macfarlane, our Vice President, Research and Development. They are co-inventors
of our ColorMate(R) System and possess unique technical knowledge required in
connection with its production. Although we have purchased key-man life
insurance policies in the amounts of $1,000,000 on the lives of each of Ms. and
Mr. Macfarlane, we cannot assure you that the proceeds from these policies would
enable us to retain suitable replacements for them. The loss of the services of
either Ms. Macfarlane or Mr. Macfarlane could adversely affect our business.
We Are a Defendant in Pending Securities Litigation and Expect to Incur
Substantial Expenses in Connection With Our Defense and Counterclaims
We have been named, together with five of our officers and directors,
as a defendant in three pending legal actions involving allegations that we made
false and misleading statements during the period from July 30, 1997 through
June 8, 1998 regarding:
o the new innovative nature of our ColorMate(R) TLc-BiliTest(R)
System,
o the market size and revenue potential of our ColorMate(R)
TLc-BiliTest(R) System and
o the existence and status of negotiations with potential
distributors of our ColorMate(R) TLc-BiliTest(R) System.
Although we believe that the claims asserted in these suits are without
merit and intend to contest them vigorously, we expect to incur substantial
legal expenses in connection with defending these actions and pursuing our
counterclaims and cannot assure you that the outcome of this litigation will not
have a material adverse effect on our business.
We Face the Risk of Product Liability Claims Which May Exceed the Scope or
Amount of Our Insurance Coverage
The manufacture and sale of human medical devices entails significant
risk of product liability claims. In determining the amount of product liability
coverage to obtain we were advised by an insurance broker with knowledge and
experience regarding prevailing insurance practices in the medical device
industry. Although we believe that the amount and scope of coverage obtained is
consistent with prevailing
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medical device industry practice, we cannot assure you that our product
liability coverage will be adequate to protect us from any liabilities we might
incur in connection with the use or sale of our products. In addition, we may
require increased product liability coverage as additional products are
commercialized. Product liability insurance is expensive and in the future may
not be available on acceptable terms, if at all. A successful product liability
claim or series of claims brought against us in excess of our insurance coverage
could have a material adverse effect on our business and results of operations.
We must indemnify our distribution partner against any product liability claims
brought against it arising out of products developed by us.
Our Success Is Dependent Upon Our Ability to Effectively Maintain Our Patents
and Proprietary Rights Relating to our ColorMate(R) System and our ColorMate(R)
Tlc-BiliTest(R) System, Which We May Not Be Able to Do
Proprietary technology maintained in our trade secrets and other
proprietary information claimed by our patents is incorporated into the
proprietary software and measurement system used in our ColorMate(R) System, our
ColorMate(R) TLc-BiliTest(R) System and our TLc-Lensette(TM) calibration
standards. Because we are dependent on the commercialization of these products
our success will depend to a significant degree on our ability to preserve our
trade secrets, to obtain and maintain our patents and to operate without
infringing the proprietary rights of others. We cannot assure you that our
competitors will not seek to apply for and obtain patents that prevent, limit or
interfere with our ability to make, use and sell our products either in the
United States or in foreign countries. We also cannot assure you that we will
not become subject to patent infringement claims brought by third parties or to
re-examination of previously issued patents or interference proceedings to
determine the priority of inventions.
We also rely on a combination of trade secret and copyright law,
employee and third-party nondisclosure agreements and other protective measures
to protect intellectual property rights pertaining to our products and
technologies. We cannot be certain that these measures will provide protection
of our proprietary information. In addition, the laws of a small number of
foreign jurisdictions may not protect our intellectual property rights to the
same extent as the laws of the United States.
Our Assumptions Regarding the Business Plan and Strategy for Our
ColorMate(R)TLc-BiliTest(R) System May Prove to be Inaccurate
Our business plan and strategy for the commercialization of our
ColorMate(R) TLc-BiliTest(R) System is based upon assumptions made by our
distribution partner in our contract regarding the size of the infant jaundice
monitoring market, our short-term and eventual share of this market, the price
at which we believe we will be able to sell or lease this product and consumer
acceptance of this product. We cannot assure you that these assumptions will
prove to be correct. The medical community has thus far not used a non-invasive
device for monitoring infant jaundice as a standard of care. Assumptions made by
our distribution partner about the size of the existing market were based on the
current standard of care (an invasive blood test) and, accordingly, there can be
no assurance that the market size of the ColorMate(R) TLc-BiliTest(R) System
will be the same.
Our Stock Price Could Be Adversely Affected If We Were Delisted From the Nasdaq
SmallCap Market
Our common stock is presently traded on the Nasdaq SmallCap Market. If
we fail to meet the Nasdaq SmallCap Market listing requirements and our common
stock was delisted the market value of our common stock could fall and holders
of common stock would likely find it more difficult to dispose of and to obtain
accurate quotations as to the market value of our common stock. If our common
stock is delisted from the Nasdaq SmallCap Market it could become subject to
rules adopted by the SEC regulating broker-dealer practices in connection with
transactions in "penny stocks." The penny stock rules require a broker-dealer
prior to a transaction in a penny stock not otherwise exempt from the rules to
deliver a standardized risk disclosure document which provides information about
penny stocks and the nature and level of risks in the penny stock market.
These disclosure requirements may have the effect of reducing the level
of trading activity in the secondary market for a stock that becomes subject to
these penny stock rules. If our common stock becomes subject to the penny stock
rules, you may be unable to readily sell shares of our common stock.
Our Stock Price May Be Volatile
The market price of our common stock has historically been volatile as
a result of:
o analyst recommendations,
o announcements of technological innovations or new
commercial products by us or our competitors,
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<PAGE>
o market conditions relating to the medical device
industry,
o sales of substantial amounts of our common stock by
existing stockholders, including short sales,
o adverse publicity related to accusations by short
sellers and
o obtaining regulatory clearances in both the U.S. and
in foreign countries.
A short sale involves the sale of borrowed shares with the expectation
that the market price of the security will decline in the future. If the
anticipated price decline occurs the short seller replaces the borrowed
securities with shares bought in the market at the lower price and realizes a
profit equal to the difference between the price at which the borrowed shares
were sold and the price at which the replacement shares are purchased. From time
to time in the past concentrated periods of short selling of our common stock
have created an imbalance between the number of shares offered to the market for
sale and the willingness of the market to absorb these shares at prevailing
price levels which has resulted in rapid and substantial declines in the market
price of our common stock.
Conversion of the Convertible Debentures and the Convertible Preferred Stock and
Exercise of the Related Warrants Will Dilute the Interests of Existing
Stockholders
The conversion price of our outstanding convertible debentures is
expected to be less than the current market price of our common stock on the
date of conversion. Similarly, the conversion price of the convertible preferred
stock issued to the selling stockholder and the exercise price of the related
warrants issued to the selling stockholder is expected to be less than the
current market price of our common stock on the date of conversion or exercise.
So long as these securities remain outstanding and unconverted or unexercised,
the terms under which we could obtain additional equity financing may be
adversely affected. To the extent of any conversion or exercise of these
securities, the interests of our existing stockholders will be diluted
proportionately.
Cost Containment Relating to Healthcare Reform Could Adversely Affect Our
Business
Political, economic and regulatory influences are subjecting the
healthcare industry in the United States to fundamental change and are
increasing cost-containment efforts. We anticipate that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on healthcare spending through limitations on the
growth of private health insurance premiums and Medicare and Medicaid spending,
the creation of large insurance purchasing groups, price controls on
pharmaceuticals and medical devices and other fundamental changes to the
healthcare delivery system. Any changes of this nature could negatively impact
our ultimate profitability. Also, the trend toward managed healthcare in the
United States and the concurrent growth of organizations like healthcare
management organizations, which could control or significantly influence the
purchase of healthcare services and products, may result in lower prices for our
medical product candidates than we currently expect. We cannot predict what
impact the adoption of any federal or state healthcare reform measures or future
private sector reforms may have on our business.
Our Products Must Be Accepted for Reimbursement By Third-Party Payors
Our ability to successfully commercialize our ColorMate(R)
TLc-BiliTest(R) System and our other medical product candidates will depend in
part on the extent to which appropriate reimbursement codes and authorized cost
reimbursement levels of our products and related treatment are obtained from
governmental authorities, private health insurers and other organizations, like
health maintenance organizations. Third-party payors are increasingly
challenging the prices charged for medical products and services. American
Medical Association CPT codes are generally used to facilitate the processing of
insurance reimbursement claims and to provide a simplified reporting procedure.
However, assignment of a code does not assure that the insurer will provide
reimbursement or that the AMA endorses the medical procedure at issue. In March
1998, we were assigned AMA CPT Code 82250 for processing claims for use of the
ColorMate(R) TLc-BiliTest(R) System. This same code is assigned for the
reimbursement of laboratory blood tests currently used to monitor infant
jaundice. Subsequently, the AMA informed us that CPT Code 84999, not Code 82250,
was the assigned code. However, the AMA indicated that it was reviewing coding
in this area generally. Although we believe that the original code assignment to
our ColorMate(R) TLc-BiliTest(R) System was correct, we cannot assure you that
our belief will be sustained. Claims for reimbursement under CPT Code 84999 may
not be as readily processed for reimbursement as claims made under CPT Code
82250.
Year 2000 Issue Risks May Result in a Material Adverse Effect on Our Business
Although we do not presently believe that, with upgrades of existing
software and/or conversion to new software, the year 2000 problem will pose
significant operational problems for our internal computer systems or have a
negative affect on our financial position or results of
9
<PAGE>
operations, we are dependent on third parties for the manufacturing and
marketing of our ColorMate(R) TLc-BiliTest(R) System and we cannot assure you
that any year 2000 compliance problems of these third parties will not
negatively affect our financial position or results of operations. If we or any
third parties upon which we rely are unable to address the year 2000 issue in a
timely manner, it could have a materially adverse effect on our financial
position and results of operations. In order to assure that this does not occur,
we are in the process of developing a contingency plan and intend to devote all
resources required to attempt to resolve any significant year 2000 issues in a
timely manner.
We Expect to Issue Additional Shares in the Future Which Would Dilute the
Outstanding Shares
In order to finance the commercialization of our ColorMate(R)
TLc-BiliTest(R) System and other applications of our ColorMate(R) System, we
expect to issue and sell additional shares of our common stock or securities
convertible into our common stock, such as the securities which we issued to the
selling stockholder, in the future. As of December 1, 1999, a total of
27,132,622 shares of our common stock were authorized but unissued and
unreserved. These shares may be issued in the future without stockholder
approval. The prices at which we sell these securities and other terms and
provisions will depend on prevailing market conditions and other factors in
effect at that time, all of which are beyond our control. Shares may be issued
at prices which are less than the then-current market price of our common stock
and/or at prices which are less than the prices at which the shares of common
stock being offered by the selling stockholder hereby are sold.
The Terms of the Convertible Debentures and the Convertible Preferred Stock May
Adversely Affect the Rights of the Common Stock Holders.
Unless converted the convertible debentures and the convertible
preferred stock will be entitled to priority of payment upon maturity or
redemption, as the case may be, or in the event we are liquidated and dissolved
in preference to any distribution to the holders of our common stock. In
addition, for as long as the shares of convertible preferred stock are
outstanding we are prohibited from issuing any class or series of preferred
stock with a priority of payment superior or equal to the priority of payment of
the convertible preferred stock.
RECENT EVENTS
In order to provide the ColorMate(R) TLc-BiliTest(R) System to
hospitals, the medical community including clinics, pediatricians and home
healthcare providers and physicians and to expedite evaluation of the product by
the medical community we have taken a series of significant steps in the past 12
months:
o In November 1998, we opened our medical division, supervised by Sheila
Kempf, Vice President Medical Division. Ms. Kempf is a former Vice
President-Marketing of Corometrics, a Marquette Medical Inc. company,
and a former Director of Marketing for sensors and accessories of
Nelcor Puritan Bennet, Inc. and has over 13 years experience in the
medical marketing field. We also hired neonatal nurse clinical
specialists to provide training to hospital staffs using our
ColorMate(R) TLc-BiliTest(R) System. The newly-formed medical division
provides sales support for the ColorMate(R) TLc-BiliTest(R) System
delivered to consumers in the medical community, including hospitals,
pediatricians, clinics and home healthcare agencies, and performs
delivery, training and in-servicing for customers initially generated
by our presentations to the medical community.
o In November 1998, we entered into a manufacturing agreement with an ISO
9001 certified manufacturer, Nova Biomedical of Waltham, Massachusetts
for the production of our ColorMate(R) TLc-BiliTest(R) System and in
February 1999 we began making limited shipments of this product.
o In January 1999, we formed a five-person sales unit to be led by Dennis
A. McClinton, Vice President of Sales. Mr. McClinton has an 18-year
background in sales of fetal and neonatal ICU monitoring products at
Marquette Medical Systems and will head a staff that averages ten years
experience in that field. This new unit is responsible for the initial
sales activity for our ColorMate(R) TLc- BiliTest(R) System. The
ColorMate(R) TLc-BiliTest(R) System as currently marketed by our
medical division has a list price of $3,000 to $6,000 depending on the
model. It may be leased or used under the limited time offer for use
and evaluation of the system, all with either purchase of minimum
monthly supplies of the TLc-Lensette(TM) calibration standards at $10
per unit, or minimum monthly charges of $10 per use or under a managed
use program.
o In January, 1999 we applied for ISO 9001/EN46001 certification and the
right to affix the CE mark to our ColorMate(R) TLc-BiliTest(R) System
in order to market this product in the European Union. ISO 9001/EN46001
certification recognizes that we have established a quality system for
the design, development, manufacturing, servicing and distribution of
this product. The CE mark is a symbol of quality and compliance with
applicable European Union medical device directives. We have received
both the ISO 9001/EN46001 certification and the right to affix the CE
mark to our ColorMate(R) TLc-BiliTest(R) System.
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<PAGE>
o In June 1999 we entered into an agreement for the exclusive
distribution of the ColorMate(R) TLc-BiliTest(R) System in the
hospital, pediatricians' offices and home healthcare markets including
clinics related to these markets in the United States with
Datex-Ohmeda, Inc. and its Ohmeda Medical Division. This agreement
provided for a four-month transition period before the new distributor
would begin distribution of this product. Revenues will be generated
under this agreement from sales of our ColorMate(R) TLc-BiliTest(R)
System and our TLc-Lensette(TM) calibration standards directly to
Datex-Ohmeda, Inc., as well as through a percentage of the resale price
received by the distributor for each product.
In order to finance our activities, we recently completed two private
placements of securities. In April 1999, we completed the private placement of
$5 million in principal amount of 14% senior convertible debentures to multiple
purchasers for aggregate proceeds of $5 million. The 14% senior convertible
debentures:
o accrue interest at the annual rate of 14%, payable at our option in
cash or in shares of our common stock upon conversion of the senior
convertible debentures or the maturity date,
o mature on April 15, 2002 if not sooner converted,
o are partially convertible into shares of our common stock prior to
April 14, 2000, at a price of $5.00 per share, subject to adjustment
for stock splits, combinations and similar recapitalizations affecting
our common stock, so long as not more than 200,000 shares in total are
issued upon partial conversion,
o are fully convertible into shares of our common stock from and after
April 14, 2000, at a price of $5.00 per share, subject to adjustment
for stock splits, combinations and similar recapitalizations affecting
our common stock,
o may be prepaid by us at any time after October 15, 2000 at 100% of the
principal amount plus all accrued but unpaid interest and
o are subject to mandatory conversion into shares of our common stock at
our option at any time after October 15, 2000 if the average closing
bid price of our common stock for ten consecutive trading days equals
or exceeds $10.29.
In connection with this private placement, we agreed to register the
shares of our common stock issuable upon the conversion of the senior
convertible debentures for resale by the holders under the Securities Act of
1933 and to use our best efforts to maintain the effectiveness of this
registration statement until the earlier of the date that all of the shares of
our common stock issuable upon the conversion of the senior convertible
debentures have been sold and the date that the number of remaining shares of
our common stock issued or issuable upon the conversion may be freely sold
pursuant to SEC Rule 144 in any period of three consecutive months. The
registration statement covering the shares of our common stock issuable upon the
conversion of the senior convertible debentures for resale by the holders was
declared effective on January 28, 2000.
In June 1999, we completed a private placement of 40,000 shares of
convertible preferred stock and warrants to purchase 220,690 shares of our
common stock to an affiliate of Lehman Brothers, Inc. for aggregate proceeds of
$4 million. The shares of convertible preferred stock issued on that date:
o are convertible into shares of our common stock at a price of $6.67 per
share, subject to adjustment for stock splits, combinations and similar
recapitalizations affecting our common stock and to downward adjustment
if we issue or agree to issue additional shares of our common stock
(excluding options under our option plan and a limited number of other
securities excluded under the terms of the agreement with the Lehman
Brothers affiliate) at a price of less than $6.67 per share to the
price at which we issue or agree to issue the lower-priced shares of
our common stock or securities convertible or exchangeable for shares
of our common stock,
o are redeemable in cash for an amount equal to $115 per share of
convertible preferred stock on the third anniversary of the date of
initial issuance if not sooner converted unless we elect in our
discretion to extend the redemption date to the fifth anniversary of
the date of initial issuance,
o are subject to mandatory conversion into shares of our common stock at
our option at any time after December 15, 1999 if the average closing
bid price of our common stock for ten consecutive trading days equals
or exceeds $10.88 per share,
o are not entitled to any voting rights except as otherwise required by
applicable law and
o are not entitled to any dividend rights unless we elect to extend the
redemption date to the fifth anniversary of the date of initial
issuance, in which case dividends would accrue at the rate of 8% from
and after the third anniversary of the date of initial issuance
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<PAGE>
which could be paid in shares of our common stock at our option.
In addition to the shares of convertible preferred stock, on June 15, 1999
we also issued an aggregate of 220,690 warrants to purchase shares of our common
stock to the Lehman Brothers affiliate. An additional 50,000 warrants were
issued to the Lehman Brothers affiliate as compensation for services rendered in
connection with the placement of the convertible preferred stock. The warrants
issued on that date:
o have a five-year term unless sooner exercised,
o are exercisable for shares of our common stock at a price of $7.59 per
share, subject to adjustment in the same circumstances as the shares of
convertible preferred stock described above and
o are subject to mandatory exercise into shares of our common stock at
our option at any time after December 15, 1999 if the average closing
bid price of our common stock measured over twenty consecutive trading
days equals or exceeds $16.50.
We also agreed to issue and sell an additional 40,000 shares of
convertible preferred stock and warrants to purchase 270,690 shares of our
common stock to the Lehman Brothers affiliate at a second closing. The second
closing is subject to the satisfaction of several conditions, including the
effectiveness of the registration statement of which this prospectus forms a
part. The terms of the convertible preferred stock to be sold at the second
closing would be identical to the convertible preferred terms described above
except that the conversion price would be equal to the lower of $6.67 per share
or 90% of the average closing bid price of our common stock over the five
consecutive trading days ending on the date prior to the second closing date.
The terms of the warrants to be sold at the second closing would be identical to
the warrant terms described above except that the exercise price would be equal
to the lower of $7.59 per share or 100% of the average closing bid price of our
common stock over the five consecutive trading days ending on the date prior to
the second closing date. We may elect in our discretion not to proceed with the
second closing if the conversion price of the convertible preferred stock to be
sold would be less than $6.67 per share or if the exercise price of the warrants
to be sold would be less than $7.59 per share.
In connection with this private placement, we agreed to register the
shares of our common stock issuable upon the conversion of the convertible
preferred stock and warrants for resale by the Lehman Brothers affiliate under
the Securities Act of 1933 and to use our best efforts to maintain the
effectiveness of this registration statement until the date that all of the
shares of our common stock issuable upon the conversion of the convertible
preferred stock and warrants have been sold. The registration statement covering
845,403 of the shares of our common stock issuable upon the conversion of the
convertible preferred stock and warrants for resale by the Lehman Brothers
affiliate was declared effective on January 28, 2000.
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<PAGE>
WHERE YOU CAN GET MORE INFORMATION
We are a reporting company and file annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and
copy these reports, proxy statements and other information at the SEC's public
reference rooms in Washington, DC, New York, NY and Chicago, IL. You can request
copies of these documents by writing to the SEC and paying a fee for the copying
cost. Please call the SEC at 1-800-SEC-0330 for more information about the
operation of the public reference rooms. Our SEC filings are also available at
the SEC's web site at "http://www.sec.gov." In addition, you can read and copy
our SEC filings at the office of the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, DC 20006.
The SEC allows us to "incorporate by reference" information that we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
o Annual Report on Form 10-K for the year ended December 31, 1998 filed
April 19, 1999, as amended by Form 10-K/A filed April 29, 1999, as
further amended by Form 10-K/A filed November 12, 1999, Form 10-K/A-2
filed November 15, 1999, Form 10-K/A-3 filed January 21, 2000 and Form
10-K/A-4 filed January 25, 2000,
o Current Report on Form 8-K filed April 30, 1999,
o Quarterly Report on Form 10-Q for the three months ended March 31, 1999
filed May 17, 1999, as amended by Form 10-Q/A filed November 12, 1999
and Form 10-Q/A-2 filed January 21, 2000,
o Current Report on Form 8-K filed June 18, 1999, as amended by Form
8-K/A filed November 19, 1999, Form 8-K/A-2 filed January 21, 2000, and
Form 8-K/2A filed January 28, 2000,
o Registration Statement on Form S-3 filed July 1, 1999, as amended on
July 27, 1999, November 12, 1999, December 29, 1999, January 11, 2000,
January 21, 2000, January 26, 2000 and January 28, 2000,
o Current Report on Form 8-K filed July 1, 1999,
o Quarterly Report on Form 10-Q for the three months ended June 30, 1999
filed August 23, 1999, as amended by Form 10-Q/A filed January 21,
2000,
o Quarterly Report on Form 10-Q for the three months ended September 30,
1999 filed November 15, 1999, as amended by Form 10- Q/A filed January
21, 2000,
o The description of the common stock contained in Chromatics Color
Sciences International, Inc. Registration Statement on Form 8-A filed
February 1, 1993,
o The description of the purchase rights for Class B Series 1 preferred
stock contained in the Chromatics Color Sciences International, Inc.
Registration Statement on Form 8-A filed January 5, 1999,
o Registration Statement on Form 8-A/A amending the description of the
common stock filed November 12, 1999,
o Registration Statement on Form 8-A/A amending the description of the
purchase rights for Class B Series 1 preferred stock filed November 12,
1999,
o Current Report on Form 8-K/2A filed January 28, 2000 and Form 8-K/A
filed November 19, 1999, amending our Form 8-K filed November 3, 1998
and
o Proxy Statement for 1999 Annual Meeting of Stockholders to be held on
December 20, 1999.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Ms. Leslie Foglesong
Secretary
Chromatics Color Sciences International, Inc.
5 East 80th Street
New York, NY 10021
(212) 717-6544
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<PAGE>
USE OF PROCEEDS
We will not receive any proceeds resulting from the sale of the shares
of common stock by the selling stockholder.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and information about our financial condition, results of
operations and business that are based on our current and future expectations.
The words "believe," "anticipate," "expect," "intend," and words of similar
import are intended to identify these statements as forward-looking statements.
These forward-looking statements include the following:
o our belief that our existing capital resources will be adequate to fund
our needs for at least the next 12 months,
o our belief that our ColorMate(R) System and/or our ColorMate(R)
TLc-BiliTest(R) System can be marketed in the medical, dental,
biological, cosmetic, industrial, soil contamination, hair color,
beauty-aid or fashion industries,
o our belief that the size of the infant jaundice monitoring market in
the United States is approximately 15,000,000 tests annually and
approximately the same size in Europe and in Asia, South America and
Australia combined and that non-invasive monitoring could potentially
increase the amount of annual tests performed,
o our belief that our ColorMate(R)System can be successfully
commercialized for other applications,
o our belief that we will be successful in attracting and retaining
additional qualified personnel,
o our belief that the medical community will accept our
ColorMate(R)TLc-BiliTest(R)System,
o our belief that we can successfully mass manufacture our ColorMate(R)
TLc-BiliTest(R) System, our TLc Lensette(TM) calibration standards and
protective liners and our ColorMate(R) System,
o our belief that we can successfully generate revenues from the
commercialization of our intellectual property,
o our belief that we can successfully contract with a third party to
distribute our ColorMate(R) TLc-BiliTest(R) System for the
international markets or the parents market or expand our sales into
these markets through our own medical division, although marketing our
ColorMate(R) TLc-BiliTest(R) System for the parents' use would require
more product testing as well as FDA marketing clearances and
international and other marketing clearances or approvals, and there is
no assurance that such clearances or approvals would be granted, and
o our belief that our distribution partner, Datex-Ohmeda, Inc., will be
successful in penetrating its targeted markets within the projected
time periods.
Forward-looking statements necessarily involve risks and uncertainties,
and our actual results could differ materially from those anticipated in the
forward-looking statements, including those set forth under "Risk Factors" and
elsewhere in this prospectus. We caution you that no forward-looking statement
is a guarantee of future performance. You should not place undue reliance on
these forward-looking statements, which speak only of the date of this
prospectus. We do not undertake any obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date of this prospectus or to reflect the occurrence of unanticipated events
which may cause our actual results to differ from those expressed or implied by
the forward-looking statements contained in this prospectus. The factors set
forth under "Risk Factors" and other cautionary statements made in this
prospectus should be read and understood as being applicable to all related
forward-looking statements wherever they appear in this prospectus.
14
<PAGE>
SELLING STOCKHOLDER
In a private placement concluded in June 1999 we sold to the selling
stockholder convertible preferred stock and warrants to purchase our common
stock, and agreed to register the shares of common stock issuable upon the
conversion of the convertible preferred stock and the exercise of warrants for
resale of these securities by the selling stockholder. We also agreed to use our
commercially reasonable best efforts to maintain the effectiveness of the
registration statement until all of the shares are sold under the registration
statement or until the date that they may be sold by the selling stockholder
without registration. Our registration of the shares of common stock does not
necessarily mean that the selling stockholder will sell all or any of the
shares.
The following table sets forth pertinent information regarding the
beneficial ownership of the common stock, as of September 30, 1999, of the
selling stockholder. The information provided in the table below with respect to
the selling stockholder has been obtained from the selling stockholder. Except
as otherwise disclosed below, the selling stockholder does not have, nor within
the past three years has had, any position, office or other material
relationship with us. Because the selling stockholder may sell all or some
portion of the shares of common stock beneficially owned by it, we cannot
estimate the number of shares of common stock that will be beneficially owned by
the selling stockholder after this offering. In addition, the selling
stockholder may have sold, transferred or otherwise disposed of, or may sell,
transfer or otherwise dispose of, at any time or from time to time since the
date on which they provided the information regarding the shares of common stock
beneficially owned by it, all or a portion of the shares of common stock
beneficially owned by it in transactions exempt from the registration
requirements of the Securities Act of 1933. The following table assumes that all
of the shares of common stock being registered will be sold by the selling
stockholder.
Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the SEC under the Securities Exchange Act of 1934, as amended.
Shares of common stock issuable pursuant to options, warrants and convertible
securities, to the extent these securities are currently exercisable or
convertible within 60 days of September 30, 1999, are treated as outstanding for
computing the percentage of the person holding these securities but are not
treated as outstanding for computing the percentage of any other person. Unless
otherwise noted, the person identified possesses sole voting and investment
power with respect to the shares. Shares not outstanding but deemed beneficially
owned by virtue of the right of a person to acquire them within 60 days are
treated as outstanding only for purposes of determining the number of and
percent owned by that person.
15
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Number of Shares Percentage
Beneficially Owned as Registered for Sale Beneficially Owned Ownership After
Name of Selling Stockholder of September 30, 1999 Hereunder After Offering Offering
--------------------------- --------------------- --------- -------------- --------
<S> <C> <C> <C> <C>
LB I Group Inc............................. 870,390(1) 24,987 0 0%
3 World Financial Center
New York, New York 10285
</TABLE>
- --------------
(1) Represents 599,700 shares of common stock which may be acquired within 60
days of September 30, 1999 upon the conversion of the convertible
preferred stock held by the selling stockholder and 270,690 shares of
common stock which may be acquired within 60 days of September 30, 1999
upon the exercise of the warrants issued to the selling stockholder. Mr.
Frederick Frank, Vice Chairman of Lehman Brothers, Inc., has been an
advisor to us since December 1, 1997, providing financial, strategic and
business advisory services. The consulting agreement with Mr. Frank
expired December 1, 1998 but was renewed by mutual agreement of Mr. Frank
and us. Lehman Brothers Holdings Inc. is the sole stockholder of LB I
Group Inc. and, as such, is deemed to be the beneficial owner of these
shares in accordance with Rule 13d-3(d) promulgated by the SEC under the
Securities Exchange Act of 1934, as amended. Lehman Brothers Holdings Inc.
and LB I Group Inc. are affiliates of Lehman Brothers, Inc., a registered
broker- dealer. LB I Group Inc. purchased the shares of convertible
preferred stock and warrants and will purchase the shares of our common
stock issuable upon conversion or exercise of these securities in the
ordinary course of its business and at the time of this purchase,
conversion, or exercise, did not and will not have any agreements or
understandings, directly or indirectly, with any person to distribute
these securities.
PLAN OF DISTRIBUTION
The selling stockholder or its transferee may, from time to time, sell all
or a portion of the shares of common stock being registered pursuant to this
prospectus in privately negotiated transactions or otherwise, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
related to these market prices or at negotiated prices. The shares may be sold
by the selling stockholder by one or more of the following methods, without
limitation:
o block trades in which the broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction,
o purchases by a broker or dealer as principal and resale by that broker
or dealer for its account pursuant to this prospectus,
o an exchange distribution in accordance with the rules of the applicable
exchange,
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers,
o privately negotiated transactions,
o short sales
o a combination of any of these methods of sale and
o any other method permitted pursuant to applicable law.
The selling stockholder and any broker-dealers or agents that participate
with the selling stockholder in sales of the shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with these sales. If so, any commissions received by these broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act of
1933.
We retained Lehman Brothers, Inc. to serve as placement agent for the
securities that were ultimately placed with LB I Group Inc. in the June, 1999
financing. For its services, Lehman Brothers, Inc. was entitled to cash
compensation in addition to warrants to purchase our common stock at an exercise
price of $7.59 per share. Lehman Brothers, Inc. requested that these warrants be
issued in the name of LB I Group rather than its own name. LB I Group Inc. is
deemed to be an underwriter with respect to any shares sold pursuant to this
registration statement.
From time to time, the selling stockholder may engage in short sales,
short sales against the box (in which the seller owns shares of our common stock
at the time of the sale but borrows other shares of our common stock to sell in
the short sale), puts and calls and other
16
<PAGE>
transactions in our securities or derivatives of these securities, and may sell
and deliver the shares in connection therewith or in settlement of securities
loans. From time to time, the selling stockholder may pledge its shares pursuant
to the margin provisions of its customer agreements with its broker. Upon a
default by the selling stockholder, the broker may offer and sell the pledged
shares from time to time.
In effecting sales, brokers and dealers engaged by the selling stockholder
may arrange for other brokers or dealers to participate in these sales. Brokers
or dealers may receive commissions or discounts from the selling stockholder
(or, if any broker-dealer acts as agent for the purchaser of the shares, from
that purchaser) in amounts to be negotiated which are not expected to exceed
those customary in the types of transactions involved. Broker-dealers may agree
with the selling stockholder to sell a specified number of shares at a
stipulated price per share, and, to the extent the broker-dealer is unable to do
so acting as agent for the selling stockholder, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
the selling stockholder.
Broker-dealers who acquire shares as principal may thereafter resell the
shares from time to time in transactions (which may involve block transactions
and sales to and through other broker-dealers, including transactions of the
nature described above) in the over-the-counter market or otherwise at prices
and on terms then prevailing at the time of sale, at prices then related to the
then-current market price or in negotiated transactions and, in connection with
these resales, may pay to or receive from the purchasers of the shares
commissions as described above. The selling stockholder may also sell the shares
in accordance with Rule 144 under the Securities Act of 1933, rather than
pursuant to this prospectus.
We have agreed to indemnify the selling stockholder against losses,
claims, damages and liabilities arising under the Securities Act of 1933.
We have informed the selling stockholder that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934 may apply
to the sales of its shares offered hereby. We have also advised the selling
stockholder of the requirement for delivery of this prospectus in connection
with any sale of the shares offered hereby.
The selling stockholder may from time to time purchase shares of common
stock in the open market. The selling stockholder has been notified that it
should not commence any distribution of shares unless it has terminated its
purchasing and bidding for common stock in the open market as provided in
applicable securities regulations.
There is no assurance that the selling stockholder or its transferee will
sell any or all of the shares offered by it in this prospectus.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of the
Americas, New York, New York.
EXPERTS
Our financial statements as of December 31, 1998 and for the year ended
December 31, 1998 incorporated by reference in this prospectus and registration
statement have been audited by BDO Seidman LLP, independent auditors, as set
forth in their report dated March 15, 1999, except for note 6, which is dated
April 15, 1999 and are included in reliance upon the authority of BDO Seidman
LLP as experts in accounting and auditing. Our financial statements as of
December 31, 1997 and for the years ending December 31, 1997 and 1996
incorporated by reference in this prospectus and registration statement have
been audited by Wiss & Company, independent auditors, as set forth in their
report dated February 17, 1998 and are included in reliance upon the authority
of Wiss & Company as experts in accounting and auditing.
17
<PAGE>
================================================================================
We have not authorized any dealer, salesman or other person to make any
representation not contained in this prospectus. Do not rely on any information
or representation not contained in herein. This prospectus is not an offer to
sell any of the securities offered hereby in those jurisdictions where such an
offer would be unlawful.
------------------------
CONTENTS
Page
----
Summary of the Offering......................... 2
Risk Factors.................................... 4
Recent Events................................... 11
Where You Can Get More Information.............. 14
Use of Proceeds................................. 15
Forward-Looking Statements...................... 15
Selling Stockholder............................. 16
Plan of Distribution............................ 19
Legal Matters................................... 21
Experts......................................... 21
24,987 Shares of
Common Stock
CHROMATICS COLOR
SCIENCES
INTERNATIONAL, INC.
----------------
PROSPECTUS
----------------
February 7, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various estimated amount of fees and
expenses payable in connection with this offering other than sales commissions.
All of these expenses will be borne by the registrant.
Item Amount of Expenses
SEC Registration Fee................................. $ 48.03
Printing Expenses.................................... 10,000.00*
Accounting Fees and Expenses......................... 1,000.00*
Legal Fees and Expenses.............................. 5,000.00*
Miscellaneous Expenses............................... 1,000.00*
----------
Total........................................... $17,048.03*
- ----------------
* Estimated
Item 15. Indemnification of Directors and Officers.
Section 722 of the Business Corporation Law of the State of New York and
Article X of Chromatics' Certificate of Incorporation contain provisions for the
indemnification of officers and directors of Chromatics. The Certificate of
Incorporation requires Chromatics to indemnify officers and directors to the
full extent permitted by New York Law. Each person will be indemnified in any
proceeding if he or she acted in good faith and in a manner which he or she
reasonably believed to be in, or not opposed to, the best interests of
Chromatics. Indemnification would cover judgments, fines, amounts paid in
settlement and reasonable expenses, including attorney's fees.
Chromatics has directors' and officers' liability insurance. This insurance
may cover liabilities asserted against any present or past director or officer
incurred in the capacity of director or officer arising out of his or her
status, whether or not Chromatics would have the power to indemnify this person.
Item 16. Exhibits.
Number Description of Document
------ -----------------------
3.1 --Restated Articles of Incorporation of Chromatics (incorporated by
reference to Exhibit 3.1 to Chromatics' Quarterly Report on Form
10-Q, filed on August 23, 1999).
3.2 --By-Laws of Chromatics (incorporated by reference to Exhibit 3.2 to
Chromatics' November 5, 1992 Registration Statement).
4.1 --Restated Articles of Incorporation of Chromatics (incorporated by
reference to Exhibit 3.1 to Chromatics' Quarterly Report on Form
10-Q, filed on August 23, 1999).
4.2 --Subscription Agreement, dated April 15, 1999 between Chromatics
and Gary W. Schreiner (incorporated by reference to Exhibit 4.1 to
Chromatics' Current Report on Form 8-K, filed on April 30, 1999).
II-1
<PAGE>
Item 16. Exhibits.
Number Description of Document
------ -----------------------
4.3 -- 14% Senior Convertible Debenture, due April 15, 2002, in the
original principal amount of $5,000,000 (incorporated by
reference to Exhibit 4.2 to Chromatic's Current Report on Form
8-K, filed on April 30, 1999).
4.4 -- Preferred Stock Purchase Agreement, dated as of June 11,
1999, by and between Chromatics and LB I Group Inc.
(incorporated by reference to Exhibit 4.1 to Chromatics'
Current Report on Form 8-K, filed on July 1, 1999).
4.5 -- Warrant Agreement, dated as of June 11, 1999, by and between
Chromatics and LB I Group Inc. (incorporated by reference to
Exhibit 4.2 to Chromatics' Current Report on Form 8-K, filed on
July 1, 1999).
5.1 -- Opinion Regarding Legality.
23.1 -- Consent of BDO Seidman, LLP.
23.2 -- Consent of Wiss & Company, LLP.
23.3 -- Consent of Patterson, Belknap, Webb & Tyler LLP (included in
Exhibit 5.1).
24.1 -- Power of Attorney (see page II-4 of this Registration
Statement).
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10 (a)
(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the
information set forth in the registration statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in
this registration statement or any material change to
such information in this registration statement;
provided, however, that paragraphs (i) and (ii) do not apply to this
registration statement if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15 (d) of the
Securities Exchange Act of 1934 and incorporated by reference in this
registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) the undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13 (a) or Section 15 (d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in the first paragraph of Item
15 above, or otherwise, the registrant has been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in said
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit, or
II-2
<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in New York, State of New York, on February 7, 2000.
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
Date: February 7, 2000 By: /s/ DARBY S. MACFARLANE
-----------------------------------
Darby S. Macfarlane
Chairperson of the Board
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Darby Simpson Macfarlane and Leslie Foglesong, jointly
and severally, his or her true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments to this registration statement, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that each of said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Securities Act of 1933, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ DARBY S. MACFARLANE Chairperson of the Board and Chief Executive February 7, 2000
-------------------------------- Officer (Principal Executive Officer)
Darby S. Macfarlane
/s/ FRANCIS MARCHESE Chief Financial Officer (Principal Financial and February 7, 2000
-------------------------------- Accounting Officer)
Francis Marchese
/s/ LESLIE FOGLESONG Director February 7, 2000
--------------------------------
Leslie Foglesong
/s/ DAVID KENNETH MACFARLANE Director, Vice-President--Research and February 7, 2000
-------------------------------- Development
David Kenneth Macfarlane
/s/ EDMUND VIMOND Director February 7, 2000
--------------------------------
Edmund Vimond
/s/ EDWARD MAHONEY Director February 7, 2000
--------------------------------
Edward Mahoney
By: /s/ DARBY S. MACFARLANE
--------------------------------
Darby S. Macfarlane
Attorney-In-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Number Description of Document
------ -----------------------
3.1 -- Restated Articles of Incorporation of Chromatics (incorporated
by reference to Exhibit 3.1 to Chromatics' Quarterly Report on
Form 10-Q, filed on August 23, 1999).
3.2 -- By-Laws of Chromatics (incorporated by reference to Exhibit 3.2
to Chromatics' November 5, 1992 Registration Statement).
4.1 -- Restated Articles of Incorporation of Chromatics (incorporated
by reference to Exhibit 3.1 to Chromatics' Quarterly Report on
Form 10-Q, filed on August 23, 1999).
4.2 -- Subscription Agreement, dated April 15, 1999 between Chromatics
and Gary W. Schreiner (incorporated by reference to Exhibit 4.1
to Chromatics' Current Report on Form 8-K, filed on April 30,
1999).
4.3 -- 14% Senior Convertible Debenture, due April 15, 2002, in the
original principal amount of $5,000,000 (incorporated by
reference to Exhibit 4.2 to Chromatic's Current Report on Form
8-K, filed on April 30, 1999).
4.4 -- Preferred Stock Purchase Agreement, dated as of June 11, 1999,
by and between Chromatics and LB I Group Inc. (incorporated by
reference to Exhibit 4.1 to Chromatics' Current Report on Form
8-K, filed on July 1, 1999).
4.5 -- Warrant Agreement, dated as of June 11, 1999, by and between
Chromatics and LB I Group Inc. (incorporated by reference to
Exhibit 4.2 to Chromatics' Current Report on Form 8-K, filed on
July 1, 1999).
5.1 -- Opinion Regarding Legality.
23.1 -- Consent of BDO Seidman, LLP.
23.2 -- Consent of Wiss & Company, LLP.
23.3 -- Consent of Patterson, Belknap, Webb & Tyler LLP (included in
Exhibit 5.1).
24.1 -- Power of Attorney (see page II-4 of this Registration
Statement).
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Chromatics Color Sciences International, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement on Form S-3 of our report
dated March 15, 1999, except for Note 6 which is as of April 15, 1999, relating
to the financial statements of Chromatics Color Sciences International Inc.,
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and later amendments.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 7, 2000
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 of our report dated
February 17, 1998 appearing on page 37 of Chromatics Color Sciences
International, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998 and later amendments. We also consent to the reference to us under the
heading "Experts".
/s/ Wiss & Company
WISS & COMPANY, LLP
Livingston, New Jersey 07039
February 7, 2000
<PAGE>
EXHIBIT 5.1
OPINION OF PATTERSON, BELKNAP, WEBB & TYLER LLP
February 7, 2000
Chromatics Color Sciences International, Inc.
5 East 80th Street
New York, New York 10021
Dear Sirs:
We have acted as counsel to Chromatics Color Sciences International,
Inc., a New York corporation (the "Company"), in connection with the proposed
registration by the Company under the Securities Act of 1933, as amended (the
"Act"), of 24,987 shares (the "Shares") of the Company's common stock, par value
$.001 per share (the "Common Stock"), pursuant to the Company's registration
statement on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") on February 7, 2000.
In rendering this opinion we have examined the Company's Certificate of
Incorporation and Bylaws, each as amended to date, and the minutes of the
corporate proceedings taken by the Company in connection with the authorization
of the Shares. We have also examined the originals, or copies certified or
otherwise identified to us, of the corporate records of the Company,
certificates of public officials and representatives of the Company, and such
other documents and records, and have made such investigations of law, as we
have deemed necessary for purposes of this opinion. We have assumed the
genuineness of all signatures, the conformity to the original of all copies and
the factual accuracy of all certificates submitted to us.
On the basis of the foregoing, we are of the opinion that the Shares
have been duly authorized by all necessary corporate action on the part of the
Company and when sold and delivered as contemplated by the Registration
Statement will constitute duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock.
We express no opinion as to any laws other than the Business
Corporation Law of the State of New York and the federal laws of the United
States of America.
We hereby consent to the filing of this opinion with the Commission
as an exhibit to the Registration Statement. In furnishing this opinion and
<PAGE>
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Act, or the rules and
regulations of the Commission thereunder.
PATTERSON, BELKNAP, WEBB & TYLER LLP
By: /s/ Jeffrey E. LaGueux
------------------------------
A Member of the Firm
cc: Ms. Darby S. Macfarlane
