<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission file number 0-21168
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in Its Charter)
New York 13-3253392
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
Identification Number)
5 East 80th Street, New York, New York 10021
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(Address of principal executive offices)
(212) 717-6544
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(Registrant's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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:
Indicate by check whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by
court.
Yes No N/A
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 15,910,470.
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
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(unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 4,994,900 $ 2,790,400
Accounts receivable 65,600 842,300
Inventories 1,232,700 1,171,800
Prepaid expenses and other current assets 113,900 129,200
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Total Current Assets 6,407,100 4,933,700
PROPERTY AND EQUIPMENT - NET 618,900 612,200
SOFTWARE DEVELOPMENT COSTS - NET 418,200 470,500
PATENT COSTS - NET 1,100,700 984,000
OTHER AMORTIZABLE ASSETS - NET 438,300 455,400
OTHER ASSETS 633,600 654,400
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$ 9,616,800 $ 8,110,200
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts payable to related party $ 244,700 $ 256,100
Accounts payable and accrued expenses:
Attorneys and accountants 377,600 394,600
Consultants 34,500 119,100
Trade 253,100 240,000
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Total Current Liabilities 909,900 1,009,800
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LONG TERM DEBT:
Senior convertible debentures 4,880,800 4,165,800
Accrued interest on senior convertible debentures 670,800 495,800
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5,551,600 4,661,600
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COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Class A, Par Value $.01 per share:
Authorized - 1,400,000 shares
Issued and outstanding - 1,380,000 shares at par value and redemption value 13,800 13,800
Class B, series 2 and 3 Convertible Preferred Stock, No Par Value:
Authorized - 10,000,000 shares Issued and outstanding - 65,000
and 40,000 shares in 2000 and 1999,
respectively - $115 redemption value 4,583,700 2,928,700
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4,597,500 2,942,500
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SHAREHOLDERS' EQUITY (DEFICIENCY)
Common Stock, par value $.001 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 15,910,470 (2000) and 15,539,117 (1999) shares 15,900 15,500
Capital in excess of par value 36,551,800 34,062,000
Accumulated deficit (38,009,900) (34,581,200)
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Total Shareholders' Equity (Deficiency) (1,442,200) (503,700)
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$ 9,616,800 $ 8,110,200
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</TABLE>
See accompanying notes to consolidated financial statements
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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2000 1999
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<S> <C> <C>
Revenues:
Sales $ 38,600 $ -
Other 100 100
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38,700 100
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COSTS AND EXPENSES:
Cost of sales 20,800 -
Sales, marketing and trade show costs 637,400 541,900
Medical regulatory expenses 196,400 233,600
Research and development 294,700 167,900
Patent application costs 56,100 42,900
Compensation costs relating to options granted to consultants (non cash) 240,000 240,000
General and administrative:
Compensation - Officers and employees 228,400 175,500
Consultants 116,000 78,200
Legal fees 187,400 247,900
Accounting fees 69,900 22,500
Rent and storage 78,100 73,900
Insurance 77,700 55,500
Travel and entertainment 16,900 6,700
Repairs and maintenance 47,500 26,400
Depreciation and amortization 171,400 26,600
Payroll taxes 20,400 14,000
Stock administrative fees 29,300 10,300
Employee benefit plan - 1,700
Public relations 59,900 44,600
Other 67,300 93,000
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2,615,600 2,103,100
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OPERATING LOSS (2,576,900) (2,103,000)
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INTEREST INCOME (EXPENSE):
Interest income 44,800 31,000
Interest expense and non-cash financing costs including $715,000 in
non-cash OID costs in 2000 (896,600) (6,600)
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(851,800) 24,400
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NET LOSS $ (3,428,700) $ (2,078,600)
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NET LOSS TO COMMON STOCKHOLDERS:
NET LOSS $ (3,428,700) $ (2,078,600)
DEEMED DIVIDEND FOR CLASS B, SERIES 2 AND 3
CONVERTIBLE PREFERRED STOCK 703,000 -
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NET LOSS TO COMMON STOCKHOLDERS $ (4,131,700) $ (2,078,600)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 15,630,412 15,466,779
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.26) $ (0.13)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
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Number of
Shares Capital in Excess Accumulated
Outstanding Par Value of Par Value Deficit
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, December 31, 1999 15,539,117 $ 15,500 $ 34,062,000 $(34,581,200)
Three Months Ended March 31, 2000:
Net Loss - - - (3,428,700)
Exercise of Stock options and warrants 132,880 200 295,000 -
Conversion of Class B Series 2,
convertible preferred stock into
common shares 238,473 200 1,162,800
Original issue discount on Class B,
Convertible preferred stock
(warrants and below market
conversion price) 1,495,000
Deemed dividend on Class B,
convertible preferred stock (703,000)
Compensation cost relating to
options granted to consultants 240,000 -
------------ ------------ ------------ ------------
Balances, March 31, 2000 15,910,470 $ 15,900 $ 36,551,800 $(38,009,900)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $(3,428,700) $(2,078,600)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 171,400 26,600
Compensation cost relating to options granted to consultants 240,000 240,000
Non-cash interest and financing costs 715,000 -
Changes in operating assets and liabilities:
Accounts receivable 776,700 (100)
Inventories (60,900) -
Prepaid expenses and other assets 15,300 15,300
Accrued interest on senior convertible debentures 175,000 -
Accounts payable and accrued expenses (88,500) 403,600
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Net cash flows from operating activities (1,484,700) (1,393,200)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs - (81,300)
Capitalized patent costs (151,300) (164,000)
Purchase of property and equipment (53,300) (24,800)
Purchase of ColorMate(R) Units and deposits theron - (653,700)
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Net cash flows from investing activities (204,600) (923,800)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of related costs 295,200 73,200
Proceeds (payments) of amounts payable to related party (11,400) (25,500)
Net proceeds from the issuance of preferred stock and warrants, 3,610,000 -
net of costs
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Net cash flows from financing activities 3,893,800 47,700
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NET CHANGE IN CASH AND EQUIVALENTS 2,204,500 (2,269,300)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 2,790,400 3,929,800
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CASH AND EQUIVALENTS, END OF PERIOD $ 4,994,900 $ 1,660,500
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid $ 6,600 $ 32,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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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 Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 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 Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
Note 2 - Commitments and Contingencies:
Business Risks - Since its formation in 1984, the Company has been principally
engaged in color science technology research and development and licensing
activities, seeking mass market applications for its proprietary technology and
instrumentation. 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 sufficient revenues
and/or outside financing.
Operating Difficulties - Since 1989, the Company has incurred losses from
operations and net cash outflows from operations. The Company expects to license
its patents and proprietary technology, sell its equipment and market its
related services and products to ultimately overcome these difficulties.
The Company anticipates incurring substantially increased operating expenses as
it attempts to expand its marketing and sales activity, incur manufacturing
expenses for the ColorMate(Registered Trademark) TLc-BiliTest(Registered
Trademark) System and otherwise continues to implement its business plan,
including the medical application involving the monitoring of newborn
bilirubinemia (infant jaundice). There can be no assurance the Company will not
continue to incur such losses or will ever generate revenues at levels
sufficient to support profitable operations.
Legal Proceedings - On April 27, 2000, the United States District Court for the
Southern District of New York dismissed a shareholders class action lawsuit
filed in 1998 against the Company and four of its officers. The class action
suit had alleged that the defendants artificially inflated the price of the
Company's stock through false and misleading public statements. In the dismissal
ruling issued by Judge Sidney H. Stein, the court found that plaintiffs had not
sufficiently specified the reasons that the statements were misleading and/or
failed to specify a reason that would be actionable under Section 10(b) of the
Securities Exchange Act of 1934.
Note 3 - Agreement with Datex-Ohmeda, Inc. and its Ohmeda Medical Division
On June 7, 1999, the Company executed a renewable, five-year agreement with
Datex-Ohmeda, Inc. and its Ohmeda Medical Division ("DO") pursuant to which the
Company appointed DO as the exclusive distributor in the United States of the
Company's ColorMate(R) TLc- BiliTest(R) System for noninvasive monitoring of
bilirubin infant jaundice in the hospital market, the non-consumer home
healthcare market (in which the test is administered solely by a healthcare
professional), the pediatrician office market and clinics within all such
markets. The agreement also applies to the Company's disposable calibration
standard (TLc- Lensette(TM)) that is used to calibrate each measurement taken by
the ColorMate(R) TLc- BiliTest(R) System and provides that the Company will
share in the sales revenues for both products. Terms of the agreement include
annual minimum market penetration performance standards and purchasing and
placement of quantities for both the ColorMate(R) TLc- BiliTest(R) System and
the TLc- Lensette(TM) calibration standard. Sales under the agreement commenced
in July 1999.
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Note 4 - Private Placements:
Class B series 2 convertible preferred stock:
On June 15, 1999, the Company completed a private placement of 40,000 shares of
convertible preferred stock and warrants to purchase 220,690 shares of Common
Stock to a private investor for aggregate proceeds of $4 million. The shares of
Class B, Series 2 convertible preferred stock issued on that date (the "Series 2
Shares") are convertible into shares of the Company's Common Stock at a price of
$6.29 per share, subject to adjustment for stock splits, combinations and
similar recapitalizations affecting the Company's Common Stock and in certain
circumstances including the issuance of shares of the Company's Common Stock.
The Series 2 Shares are redeemable in cash for an amount equal to $115 per
Series 2 Share on the third anniversary of the date of initial issuance if not
sooner converted unless the Company elects in the Company's discretion to extend
the redemption date to the fifth anniversary of the date of initial issuance.
The Series 2 Shares are subject to mandatory conversion into shares of the
Company's Common Stock at the Company's option at any time after December 15,
1999 if the average closing bid price of the Company's Common Stock for ten
consecutive trading days equals or exceeds $9.44 per share. The Series 2 Shares
are not entitled to any voting rights except as otherwise required by applicable
law and are not entitled to any dividend rights unless the Company elects 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 which could be paid in
shares of the Company's Common Stock at the Company's option.
In addition to the Series 2 Shares on June 15, 1999 the Company also issued an
aggregate of 220,690 warrants to purchase shares of the Company's Common Stock
to the same private investor. An additional 50,000 warrants were issued to such
investor as compensation for services rendered in connection with the placement
of the Series 2 Shares. The warrants issued on that date have a five-year term
unless sooner exercised. The warrants are exercisable for shares of the
Company's Common Stock at a price of $6.99 per share, subject to adjustment in
the same circumstances as the Series 2 Shares described above and are subject to
mandatory exercise into shares of the Company's Common Stock at the Company's
option at any time after December 15, 1999 if the average closing bid price of
the Company's Common Stock measured over twenty consecutive trading days equals
or exceeds $13.98.
The private placement has resulted in a deemed dividend charge of approximately
$3.2 million, resulting from a below market conversion price of preferred stock
($1,154,000), a $15 per share redemption premium and other costs ($800,000) and
the fair value (using Black Scholes method) of warrants issued in connection
with the private placement ($1,275,000). Of this amount, approximately $1.6
million had been charged through December 1999, $.6 million was converted into
the Company's Common Stock, $.2 million has been charged in the three months
ended March 31, 2000 and $.8 million will be charged over the remaining
redemption period.
In the quarter ended March 31, 2000, 15,000 Series 2 Shares were converted into
238,473 shares of the Company's Common Stock.
Class B series 3 convertible preferred stock:
On February 11, 2000, the Company completed a private placement of 40,000 shares
of convertible preferred stock to the above private investor for aggregate
proceeds of $4 million. The Shares of Class B Series 3 convertible preferred
stock issued on that date (the "Series 3 Shares") are convertible into shares of
the Company's Common Stock at a price of $6.29 per share, subject to adjustment
for stock splits, combinations and similar recapitalizations affecting the
Company's Common Stock and in certain circumstances including the issuance of
shares of the Company's Common Stock. The Series 3 Shares are redeemable in cash
for an amount equal to $115 per Series 3 Share on the third anniversary of the
date of initial issuance if not sooner converted unless the Company elects in
the Company's discretion to extend the redemption date to the fifth anniversary
of the date of initial issuance. The Series 3 Shares are subject to mandatory
conversion into shares of the Company's Common Stock at the Company's option at
any time after August 11, 2000 if the average closing bid price of the Company's
Common Stock for ten consecutive trading days equals or exceeds $9.44 per share.
The Series 3 Shares are not entitled to any voting rights except as otherwise
required by applicable law and are not entitled to any dividend rights unless
the Company elects 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 which could
be paid in shares of the Company's Common Stock at the Company's option.
In addition to the Series 3 Shares on February 11, 2000 the Company also issued
an aggregate of 254,372 warrants to purchase shares of the Company's Common
Stock to the same private investor. An additional 50,000 warrants were issued to
such investor as compensation for services rendered in connection with the
placement of the Series 3 Shares. The warrants issued on that date have a
five-year term unless sooner exercised. The warrants are exercisable for shares
of the Company's Common Stock at a price of $6.99 per share, subject to
adjustment in the same circumstances as the Series 3 Shares described above and
are subject to
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mandatory exercise into shares of the Company's Common Stock at the Company's
option at any time after August 11, 2000 if the average closing bid price of the
Company's Common Stock measured over twenty consecutive trading days equals or
exceeds $13.98.
The private placement resulted in a deemed dividend charge of approximately $2.5
million, resulting from a below market conversion price of preferred stock
($445,000), a $15 per share redemption premium and other costs ($990,000) and
the fair value (using the Black Scholes method) of warrants issued in connection
with the private placement ($1,050,000). Of this amount, approximately $.5
million has been charged in the three months ended March 31, 2000 and $2.0
million will be charged over the remaining redemption period.
Note 5 - Subsequent Events:
On April 17, 2000, the Company signed a purchase agreement to acquire the common
stock of Gordon Laboratories, Inc. ("Gordon"), a privately held formulator and
manufacturer of cosmetics, hair care and other personal care products, subject
to certain closing conditions including the amendment of Gordon's existing
long-term credit facility on terms acceptable to the Company. The acquisition is
for a purchase price of approximately $ 6,000,000 in common stock and cash. The
Company executed a $500,000 promissory note to Gordon in connection with the
agreement. The transaction will be accounted for by the purchase method of
accounting. The operations of Gordon will be included in the consolidated
financial statements of the Company beginning with the date of acquisition. The
acquisition is expected to close by the end of May 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company incurred net losses of $3,428,700 and $2,078,600, for the three
months ended March 31, 2000 and 1999, respectively. Revenues of $38,700 have
been received principally from sales of ColorMate (Registered Trademark)
TLc-BiliTest (Registered Trademark) Systems. Of the $1,350,100 increase in net
loss from 2000 as compared to 1999, $715,000 represents non-cash financing costs
computed as original issue discount ("OID") on financing transactions and
$175,000 represents non-cash accrued interest on senior convertible debentures.
The resulting $460,100 increase in losses from 2000 as compared to 1999 (without
consideration of the non-cash OID costs and the non-cash accrued interest on
senior convertible debentures), is primarily attributable to increased costs of
$95,500 relating to the Company's medical division sales force, an increase of
$126,800 in research and development, as the Company continues the
implementation of its long-term business plan to seek commercial applications of
its intellectual properties and technologies, $144,800 in amortization of
patent, software and ColorMate (Registered Trademark) TLc-BiliTest (Registered
Trademark) System promotional expenses, and $52,900 in Compensation-Officers and
employees as the Company continues to add qualified executive and senior level
personnel to implement the Company's business plan.
The Company anticipates that it will continue to incur significant costs and
expenses in connection with FDA manufacturing and other regulations, state
regulatory requirements and foreign market clearances and other requirements. In
addition, the Company expects to incur significant expenses relating to
manufacturing expenses, products liability insurance, legal and regulatory
compliance, including QSR/GMP quality system substantial compliance, as well as
research and development for new potential applications, and implementation of
the next phase of its efforts to successfully commercialize the medical
application of its technology. The Company anticipates significantly higher
compensation expenses in connection with increased hiring of executives and
staff. The Company will also incur additional expenses implementing additional
testing and clinical trials of its technologies for the possible monitoring of
other chromogenic diseases.
The Company anticipates that it will continue to incur net losses for the
foreseeable future as increased expenses are incurred in implementing its long
range business plan.
LIQUIDITY AND CAPITAL RESOURCES
Current assets increased to $6,407,100 at March 31, 2000 as compared to
$4,933,700 at December 31, 1999, primarily attributable to increases in cash and
equivalents. Accounts receivable decreased by $776,700 as the Company collected
substantial cash from the accounts receivable balance as of December 31, 1999.
As indicated in the Company's Statement of Cash Flows, the Company continued to
experience significant negative net cash flows from operating and investing
activities in 2000. The 2000 increase in cash outflows from operating activities
is primarily attributable to the increase in the Company's net loss, partially
offset by an increase in depreciation and amortization expenses, non-cash
compensation costs to consultants, non-cash interest and financing costs and
collections of accounts receivable. Cash
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outflows from investing activities, which are attributable to patent costs of
$151,300 and purchases of property and equipment of $53,300, decreased to
$204,600 during 2000 from $923,800 in 1999. The primary reason for this decrease
is that purchases and deposits of ColorMate (Registered Trademark) TLc-BiliTest
(Registered Trademark) System units, which represented $653,700 of cash outflows
from investing activities during 1999, have been reclassified as inventory in
2000. Cash flows from financing activities during 2000 principally represent
$3,905,200 of proceeds from the issuance of Common Stock, Preferred Stock and
Warrants, partially offset by payments of $11,400 to a related party.
The Company's primary source of liquidity in 2000 was the net proceeds from the
private placement of convertible preferred stock totaling $3,610,000. The
Company anticipates incurring significant additional expenditures related to
manufacturing expenses, parts order, insurance, regulatory compliance and
staffing as production and distribution continues. Management expects that
taking into account existing resources, revenues from sales of the ColorMate
(Registered Trademark) TLc-BiliTest (Registered Trademark) System, TLc-Lensette
(Trademark) Calibration Standards, payments received under distribution
agreements and/or the proceeds of $3.6 million from the February 2000 Preferred
Stock and Warrant financing and any additional financing, the Company will have
sufficient liquidity at least until March 31, 2001. The Company may seek
additional debt or equity financing to further support and expand its
operations. If the Company is not able to attract additional future financing,
generate significant revenue from operations and/or successfully market its
products and technologies, at such point in time, it may have to significantly
curtail and/or cease operations.
Some of the information presented in or incorporated by reference in this report
constitutes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions, within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. Factors that could
cause actual results to differ from expectations include: (i) the inability of
the Company to secure additional financing, (ii) the failure of the Company's
manufacturing and distribution partners to perform their obligations, (iii)
government regulation and (iv) the loss of key personnel.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No disclosure is required under this Item 3.
-----------------------------------------------
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 27, 2000, the United States District Court for the Southern District of
New York dismissed a shareholders class action lawsuit filed in 1998 against the
Company and four of its officers. The class action suit had alleged that the
defendants artificially inflated the price of the Company's stock through false
and misleading public statements. In the dismissal ruling issued by Judge Sidney
H. Stein, the court found that plaintiffs had not sufficiently specified the
reasons that the statements were misleading and/or failed to specify a reason
that would be actionable under Section 10(b) of the Securities Exchange Act of
1934.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On February 11,2000, the Company completed a private placement of 40,000 shares
of a newly authorized series of the Company's preferred stock, designated as
Class B Series 3 preferred stock, at a price of $100 per share and for an
aggregate total consideration of $4,000,000. The purchaser of the Class B Series
3 preferred stock was LB I Group, an affiliate of Lehman Brothers, Inc. The
shares of Class B Series 3 preferred stock issued are convertible into shares of
Common Stock at an initial conversion price of $6.29 per share, subject to
adjustment for stock splits, combinations and similar recapitalizations
affecting the Company's Common Stock and in certain circumstances involving the
issuance of shares of the Company's Common Stock. The holders of the Class B
Series 3 preferred stock also received an aggregate of 304,372 five year
warrants to purchase shares of the Company's Common Stock. The warrants have an
initial exercise price of $6.99 per share, which may be subject to adjustment
similar to that of the Class B Series 3 preferred stock.
The issuance of the shares of the Class B Series 3 preferred stock will modify
the rights of the holders of the Common Stock of the Company in so far as the
Class B Series 3 preferred stock will have a liquidation preference equal to the
aggregate purchase price of $4,000,000.
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The shares of Class B Series 3 preferred stock and warrants issued in this
private placement were exempt under Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act"), based on representations and warranties made
to the Company by the purchasers of these securities that such purchasers were
accredited investors (as such term is used in the Securities Act) purchasing the
securities for their own account, for investment purposes only and not with a
view towards a public sale or distribution thereof. These purchasers further
acknowledged that they understood that they were purchasing securities that were
not freely transferable in the public securities market and that the
certificates evidencing the securities they received would contain a restrictive
legend to the effect that such securities may not be transferred in the absence
of registration pursuant to the Securities Act or an opinion of counsel
satisfactory in form and content to the Company that registration is not
required.
In connection with this private placement, the Company agreed to register the
shares of its common stock issuable upon the conversion of the Class B Series 3
preferred stock and warrants for resale under the Securities Act.
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.
Reports on Form 8-K:
Current Report on Form 8-K/A, filed January 21,2000, amending the
Company's 8-K filed June 18, 1999
Current Report on Form 8-K/A, filed January 28,2000, amending the
Company's 8-K filed June 18, 1999
Current Report on Form 8-K/A, filed January 28,2000, amending the
Company's 8-K filed November 3, 1998
- 10 -
<PAGE> 11
EXHIBIT INDEX A
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
3.1 Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter Ended June
30, 1999)
3.2 Certificate of Amendment to Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1.1 to the
Company's 1999 Annual Report on Form 10-K).
3.3 By-Laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's 1999 Annual Report on Form
10-K).
27.1 Financial Data Schedule
</TABLE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
Date: May 15, 2000 By: /s/ Darby S. Macfarlane
---------------------------
Darby S. Macfarlane
Chief Executive Officer
Date: May 15, 2000 By: /s/ Frank Marchese
---------------------------
Frank Marchese
Chief Financial and Principal
Accounting Officer
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,994,900
<SECURITIES> 0
<RECEIVABLES> 65,600
<ALLOWANCES> 0
<INVENTORY> 1,232,700
<CURRENT-ASSETS> 6,407,100
<PP&E> 1,126,000
<DEPRECIATION> (507,100)
<TOTAL-ASSETS> 9,616,800
<CURRENT-LIABILITIES> 909,900
<BONDS> 5,551,600
4,597,500
0
<COMMON> 15,900
<OTHER-SE> (1,458,100)
<TOTAL-LIABILITY-AND-EQUITY> 9,616,800
<SALES> 38,600
<TOTAL-REVENUES> 38,700
<CGS> 20,800
<TOTAL-COSTS> 2,615,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 851,800
<INCOME-PRETAX> (3,428,700)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,428,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,428,700)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
