<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 SEPTEMBER 30, 2000
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
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
--------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-3253392
--------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
5 EAST 80TH STREET, NEW YORK, NEW YORK 10021
--------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 717-6544
--------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
--------------------------------------------------------------------------------
(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: 17,382,218.
1
<PAGE> 2
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 September 30, 2000 December 31, 1999
------------------ ------------------ -----------------
(unaudited) (unaudited) (Note 1)
ASSETS (Proforma Note 11)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 1,753,000 $ 3,674,000 $ 2,790,400
Accounts receivable-net 1,051,500 1,051,500 842,300
Inventories 2,276,400 2,276,400 1,171,800
Prepaid expenses and other current assets 241,200 241,200 129,200
------------ ------------ ------------
Total Current Assets 5,322,100 7,243,100 4,933,700
PROPERTY AND EQUIPMENT - NET 1,613,200 1,613,200 612,200
SOFTWARE DEVELOPMENT COSTS - NET 313,700 313,700 470,500
PATENT COSTS - NET 1,202,000 1,202,000 984,000
GOODWILL 6,714,300 6,714,300 -
OTHER AMORTIZABLE ASSETS - NET 454,500 454,500 455,400
OTHER ASSETS 1,546,600 1,546,600 654,400
------------ ------------ ------------
$ 17,166,400 $ 19,087,400 $ 8,110,200
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts payable to related party $ - $ - $ 256,100
Current portion of notes payable 396,600 396,600
Due to Factor 33,300 33,300
Accounts payable and accrued expenses:
Attorneys and accountants 466,300 466,300 394,600
Consultants 45,500 45,500 119,100
Trade 1,348,200 1,348,200 240,000
------------ ------------ ------------
Total Current Liabilities 2,289,900 2,289,900 1,009,800
------------ ------------ ------------
LONG TERM DEBT:
Notes payable, net of current portion 2,665,800 2,665,800 -
Senior convertible debentures 5,000,000 - 4,165,800
Accrued interest on senior convertible debentures 1,020,800 - 495,800
Amounts payable for purchase of Gordon 653,000 - -
------------ ------------ ------------
9,339,600 2,665,800 4,661,600
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE STOCK:
Redeemable Common Stock 2,815,000 - -
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 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 5,139,700 - 2,928,700
------------ ------------ ------------
7,968,500 13,800 2,942,500
------------ ------------ ------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Preferred Stock - 13,081,500 -
Common Stock, par value $.001 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 17,382,218 (2000)
and 15,539,117 (1999) shares 17,400 17,400 15,500
Capital in excess of par value 41,543,300 45,011,300 34,062,000
Accumulated deficit (43,992,300) (43,992,300) (34,581,200)
------------ ------------ ------------
Total Shareholders' Equity (Deficiency) (2,431,600) 14,117,900 (503,700)
------------ ------------ ------------
$ 17,166,400 $ 19,087,400 $ 8,110,200
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE> 3
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales $ 1,724,000 $ 362,100 $ 2,429,900 $ 362,100
Other 600 700 600
----------- ----------- ------------ ------------
1,724,600 362,100 2,430,600 362,700
----------- ----------- ------------ ------------
COSTS AND EXPENSES:
Cost of sales 1,394,800 46,300 1,908,200 46,300
Sales, marketing and trade show costs 496,400 568,400 1,667,100 1,770,300
Medical regulatory expenses 193,400 494,800 617,000 968,100
Research and development 389,200 229,200 1,100,200 658,500
Patent application costs 65,900 35,100 216,400 83,000
Compensation costs relating to options granted
to consultants (non cash) 225,000 248,000 690,000 736,000
General and administrative:
Compensation - Officers and employees 523,500 177,800 1,080,500 563,900
Consultants 162,500 78,400 394,300 229,400
Legal fees 165,600 205,700 603,900 757,800
Accounting fees 17,500 8,200 114,100 55,300
Rent and storage 91,400 74,000 248,400 222,400
Insurance 74,900 90,100 224,400 210,500
Travel and entertainment 46,400 68,600 93,500 85,100
Repairs and maintenance 40,800 30,500 123,100 86,200
Depreciation and amortization 265,900 138,800 610,300 196,700
Payroll taxes 28,500 11,300 70,800 44,300
Stock administrative fees 11,600 37,100 65,800 80,800
Public relations 49,300 49,800 162,000 150,800
Amortization of Goodwill 82,800 - 113,800 -
Other 146,300 65,800 319,500 248,300
----------- ----------- ------------ ------------
4,471,700 2,657,900 10,423,300 7,193,700
----------- ----------- ------------ ------------
OPERATING LOSS (2,747,100) (2,295,800) (7,992,700) (6,831,000)
----------- ----------- ------------ ------------
INTEREST INCOME (EXPENSE):
Interest income 22,000 73,700 111,800 157,400
Interest expense and non-cash financing costs (298,200) (923,700) (1,530,200) (2,443,500)
----------- ----------- ------------ ------------
(276,200) (850,000) (1,418,400) (2,286,100)
----------- ----------- ------------ ------------
NET LOSS $(3,023,300) $(3,145,800) $ (9,411,100) $ (9,117,100)
=========== =========== ============ ============
NET LOSS TO COMMON STOCKHOLDERS:
NET LOSS $(3,023,300) $(3,145,800) $ (9,411,100) $ (9,117,100)
DEEMED DIVIDEND FOR CLASS B, SERIES 2 AND 3
CONVERTIBLE PREFERRED STOCK 278,000 66,300 1,259,000 1,341,300
----------- ----------- ------------ ------------
NET LOSS TO COMMON SHAREHOLDERS $(3,301,300) $(3,212,100) $(10,670,100) $(10,458,400)
=========== =========== ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 17,034,726 15,499,299 16,283,021 15,498,360
=========== =========== ============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.19) $ (0.21) $ (0.66) $ (0.67)
=========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------
Number Capital
of Shares Par in Excess of Accumulated
Outstanding Value Par Value Deficit
----------- ----- --------- -------
<S> <C> <C> <C> <C>
Balances, December 31, 1999 15,539,117 $ 15,500 $ 34,062,000 $(34,581,200)
Nine Months Ended September 30, 2000:
Net Loss - - - (9,411,100)
Exercise of Stock options and
warrants 162,880 200 377,500 -
Conversion of Class B, 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 (1,259,000)
Issuance of common stock - Gordon 721,231 700 4,535,800
Issuance of common stock - Other 720,517 800 479,200
Compensation cost relating to
options granted to consultants - - 690,000 -
---------- ------------ ------------ ------------
Balances, September 30, 2000 17,382,218 $ 17,400 $ 41,543,300 $(43,992,300)
========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(9,411,100) $(9,117,100)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 610,300 196,700
Amortization of Goodwill 113,800 -
Compensation cost relating to options granted to consultants 690,000 736,000
Non-cash interest and financing costs 834,200 1,732,100
Changes in operating assets and liabilities:
Accounts receivable 917,100 (246,200)
Inventories (202,900) (684,400)
Prepaid expenses and other assets (185,000) (29,000)
Accrued interest on senior convertible debentures 525,000 320,800
Accounts payable and accrued expenses (534,500) (190,200)
----------- -----------
Net cash flows from operating activities (6,643,100) (7,281,300)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs - (81,400)
Net cash used in investment in Gordon (803,800) -
Capitalized patent costs (337,300) (355,500)
Purchase of property and equipment (83,300) (157,700)
----------- -----------
Net cash flows from investing activities (1,224,400) (594,600)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net
of related costs 3,672,700 371,300
Proceeds (payments) of amounts payable to related party (256,100) (39,400)
Proceeds from senior convertible debentures - 5,000,000
Payments of notes payable (696,500) -
Proceeds from note payable 500,000 -
Net proceeds from the issuance of preferred stock and
warrants, net of costs 3,610,000 3,727,400
----------- -----------
Net cash flows from financing activities 6,830,100 9,059,300
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS (1,037,400) 1,183,400
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 2,790,400 3,929,800
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,753,000 $ 5,113,200
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid $ 140,000 $ 59,000
=========== ===========
Issuance of common stock and amount payable for
purchase of Gordon stock $ 5,189,500
===========
Conversion of preferred stock into common stock $ 1,163,000
===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
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. As discussed in Note 5, the Company's Financial
Statements now include the financial position and results of operations of
Gordon Laboratories, Inc. 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. As discussed in Note 5, the Company acquired Gordon on
June 2, 2000. The acquisition of this Company encompasses all the risks and
difficulties in operating and managing a new acquisition.
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. In
addition, the Company expects to increase the revenues of the newly-acquired
company-Gordon to further overcome the above-mentioned difficulties.
The Company anticipates incurring continued operating expenses as it attempts to
expand its marketing and sales activity, incur manufacturing expenses for the
ColorMate(R) TLc-BiliTest(R) System and otherwise continues to implement its
business plan, including the medical application involving the monitoring of
newborn hyperbilirubinemia (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.
The Company is currently taking steps to improve operating results. These steps
include (but are not limited to) (i) working with its distributor to revise
sales and marketing strategies as well as product improvements based on the
initial launch of the products with the distributor, (ii) initiating a plan to
significantly reduce operating costs and (iii) seeking additional equity
financing to facilitate short-term liquidity and to further support and expand
operations. If the Company is not able to successfully market its products and
generate revenues, reduce costs and attract additional financing, at such point
in time, it may have to significantly curtail and/or cease operations.
6
<PAGE> 7
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
hyperbilirubinemia 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. To date, the distribution partner has not achieved the annual minimum
market penetration performance standards, nor has it purchased and placed the
minimum quantities of the ColorMate(R) TLc-BiliTest(R) System and the
TLc-Lensette(TM) calibration standards as set forth in the June 7, 1999
distribution agreement, as amended. The Company is currently working with DO on
revising the sales and marketing strategies as well as product improvements
based on the results of the initial launch of the products by DO.
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
$4.68 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 were previously 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. As a result of a capital restructuring program completed on October
31, 2000 (see note 9) the Series 2 Shares are no longer redeemable in cash. 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 $7.02 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 non-cash dividends (which increase the number of shares issuable upon
redemption) would accrue at the rate of 8% from and after the third anniversary
of the date of initial issuance which can only be paid in shares of the
Company's Common Stock.
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 $4.68 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 $9.36.
7
<PAGE> 8
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, $.4 million has been charged in
the nine months ended September 30, 2000 and $.6 million will be charged over
the remaining redemption period. Of the original deemed dividend charge, $.6
million has been eliminated as a result of the conversion of preferred stock
into common stock.
In the nine months ended September 30, 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 $4.68 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 were previously
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. As a result of a capital
restructuring program completed on October 31, 2000 (see note 9), the Series 3
Shares are no longer redeemable in cash. 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 $7.02
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 non-cash dividends (which
increase the number of shares issuable upon redemption) would accrue at the rate
of 8% from and after the third anniversary of the date of initial issuance which
can only be paid in shares of the Company's Common Stock.
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 $4.68 per share, subject to
adjustment in the same circumstances as the Series 3 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 August 11, 2000 if the average closing
bid price of the Company's Common Stock measured over twenty consecutive trading
days equals or exceeds $9.36.
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 $.9
million has been charged in the nine months ended September 30,2000 and $1.6
million will be charged over the remaining redemption period.
Note 5 - Acquisition:
On June 2, 2000, the Company acquired the Common Stock and certain debt of
Gordon Laboratories, Inc. ("Gordon"), a privately held formulator and
manufacturer of cosmetics, hair care and other personal care products. The
8
<PAGE> 9
acquisition was for a purchase price of $609,000 in cash and approximately
721,000 shares of The Company's Common Stock, valued for financial reporting
purposes at $6.29 per share. the acquisition has been accounted for under the
purchase method of accounting for business combinations. Accordingly, the
consolidated financial statements include the results of operations of Gordon
from the acquisition date. The excess of the purchase price over the assets
acquired was approximately $7,700,000 of which $900,000 was classified as other
assets such as favorable lease, formulae and employee retention which are all
amortized on a straight-line basis over 5 years and the balance of approximately
$6,800,000 has been classified as goodwill and is being amortized on a
straight-line basis over 20 years.
In connection with the acquisition of Gordon, the Company includes in the
consolidated financial statements the debt of Gordon which principally includes
capital leases of Gordon and a five year note payable to a financial institution
payable in monthly installments of approximately $55,000, with an annual
interest rate of 12.25%.
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company as if the acquisition of
Gordon had taken place on January 1, 1999. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of operations which actually would have resulted had the acquisition
occurred on January 1, 1999, or which may result in the future.
<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
September 30,2000 December 31, 1999
----------------- -----------------
<S> <C> <C>
Total Revenues $ 4,918,600 $ 7,767,000
Net Loss ($ 9,722,100) ($13,270,000)
Net Loss Per Share ($ .67) ($ .91)
</TABLE>
Note 6 - Segment Information:
With the above-mentioned acquisition of Gordon, the Company now operates under
two business segments for financial reporting purposes. The Company identifies
operating segments based on, among other things, the way that the Company's
management organizes the components of the Company's business for purposes of
allocating resources and assessing performance. Segment revenues are generated
from the sale of CCSI Technologies ("CCSI") and the manufacturing of cosmetics,
hair care and other personal care products ("Gordon"). The Company defines
segment profit as operating income before amortization of goodwill, interest
expense and income taxes. Summarized below are the Company's segment sales and
income (loss) by reportable segments for the three and nine months ended
September 30, 2000:
<TABLE>
<CAPTION>
CCSI Gordon Consolidated
----------- -------- ------------
<S> <C> <C> <C>
For The Three Months Ended
September 30, 2000:
Revenues $ 600 $ 1,724,000 $ 1,724,600
Segment Income (Loss) ($ 2,602,700) $ (61,600) ($ 2,664,300)
Amortization of Goodwill $ 82,800
Net Interest Expense $ 276,200
Loss Before Income Taxes ($ 3,023,300)
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the nine months ended
September 30, 2000:
Revenues $ 80,400 $2,350,200 $ 2,430,600
Segment income (loss) ($ 7,841,700) $ ( 37,200) ($ 7,878,900)
Amortization of goodwill $ 113,800
Net interest expense $ 1,418,400
Loss before income taxes ($ 9,411,100)
Segment Assets $ 8,686,300 $ 9,796,700 $18,483,000
Elimination of
Intercompany balances $ 1,316,600
Assets per balance sheet $17,166,400
</TABLE>
Note 7 - Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Raw Materials $1,327,300 $ 521,500
Work in process 297,900
Finished Goods 651,200 650,300
---------- ----------
$2,276,400 $1,171,800
---------- ----------
</TABLE>
Note 8 - New Equity financing:
On August 16, 2000, the Company sold 641,026 shares of its common stock to a
private investor at a price per share of $4.68 for gross proceeds of $3,000,000,
less fees and expenses ("first closing"). Additional shares of common stock may
be sold to such investor ("second closing") for gross proceeds of $1,000,000
upon the effectiveness of a registration statement filed by the Company on
behalf of such investor with the Securities and Exchange Commission for the
above 641,026 shares and certain other conditions. In connection with the above
transaction, the Company issued to the investor 150,000 warrants to purchase
common stock at an exercise price of $5.26 per share with an additional 50,000
warrants to be issued at the second closing. Pursuant to the purchase agreement
for the above transaction, the Company issued to the private investor an
"Adjustable Warrant" pursuant to which the number of shares issuable upon the
exercise thereof ("the Adjustable Warrant Shares") is based upon a formula
involving closing bid prices of the common stock on certain future dates, as
amended. Prior to the amendment of the purchasing agreement (see note 9), the
private investor had the right to require the Company to repurchase for cash the
shares and adjustable warrant shares issued to the private investor under
certain defined conditions. Accordingly, at September 30, 2000 the Company
recorded the net proceeds of $2,815,000 as redeemable common stock in the
accompanying balance sheet.
Note 9 - Subsequent event - Capital restructuring program:
Transaction Summary
On October 11, 2000, the Company obtained commitments from three of its major
investors, Millennium Partners, L.P. ("Millennium") (see note 8), LBI Group,
Inc. ("Lehman")(see note 4) and the holders (the "Holders") of its 14% Senior
Convertible Debentures, dated April 15, 1999 (the "Debentures"), to restructure
the terms of their respective securities. The purpose of this restructuring was
to assist the
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<PAGE> 11
Company in meeting the net tangible assets requirement for continued listing of
its common stock (the "Common Stock"), on the Nasdaq Smallcap Market ("Nasdaq").
These commitments of the investors were subject to certain conditions, which
were subsequently satisfied on October 31, 2000, including the Company's
securing confirmation from Nasdaq of the Company's eligibility for continued
listing on Nasdaq and the closing of a proposed additional financing with
Crescent International Ltd. ("Crescent"), pursuant to which the Company would
issue and sell to Crescent, and Crescent would purchase, shares of a
newly-authorized series of preferred stock of the Company (the "Crescent
Preferred") and a five-year warrant to purchase up to 270,000 shares of Common
Stock at an exercise price equal to $1.00 per share, subject to adjustment in
certain circumstances (the "Crescent Warrant"), for an aggregate purchase price
of not less than $2,000,000 (see note 10 - "Crescent Financing"). In
consideration of their agreements to restructure their respective securities,
the Company agreed to issue to each of Lehman and the holders 200,000 five-year
warrants to purchase shares of the Common Stock of the Company at an exercise
price of $1.50 per share (the "New Lehman Warrants" and the "Holders' Warrants,"
respectively). The Company also agreed with the holders (i) not to incur or
permit any future liens on any of its properties or assets, (ii) not to grant
any security interests in its future revenues and (iii) not to consummate any
future financings which contemplate the issuance of debentures by the Company.
Transaction Details
Pursuant to a letter agreement (the "Millennium Letter Agreement"), the Company
and Millennium agreed to amend the Millennium Purchase Agreement and the
Adjustable Warrant to delete any provision granting Millennium the right to
require the Company to repurchase the Millennium Shares or redeem the Adjustable
Warrant Shares, as the case may be, for cash except in the event that the
Company (i) engages in a "Rule 13e-3 Transaction" (as defined in Rule 13e-3
under the Securities Exchange Act of 1934, as amended) or (ii) fails to file a
request to accelerate the effectiveness of the registration statement covering
the Millennium Shares and the shares underlying the warrants issued to
Millennium promptly after securing confirmation from Nasdaq of the Company's
eligibility for continued listing of the Common Stock on Nasdaq. The Company has
satisfied this condition by filing such acceleration of effectiveness on
November 3, 2000.
The Company and Millennium further agreed to amend the Adjustable Warrant (i) to
reduce the number of dates (each, a "Vesting Date") upon which the number of
shares to be issued upon the exercise of the Adjustable Warrant would be
determined from three to two, (ii) to postpone the first Vesting Date thereunder
(the "First Vesting Date") until March 31, 2001, at which time the number of
shares to be issued thereunder would be determined based on an Adjustment Period
Price of not less than $1.00 and (iii) to postpone the second Vesting Date
thereunder (the "Second Vesting Date") until November 1, 2001, at which time the
number of shares to be issued thereunder (in addition to the number of shares
determined as of the First Vesting Date) would be determined based on an
Adjustment Period price which would not be subject to a $1.00 minimum (as was
the case on the First Vesting Date). The Company and Millennium also agreed (x)
to amend that certain Registration Rights Agreement, dated as of August 16,
2000, to eliminate the provisions imposing monetary penalties upon the delisting
of the Common Stock from Nasdaq, (y) to waive any events of default occurring
prior to the execution of the Millennium Letter Agreement that would entitle
Millennium to any monetary penalties from the Company and (z) to irrevocably
waive its right to adjust the exercise price of the Adjustable Warrant or the
number of Adjustable Warrant Shares as a result of the issuance of up to
$4,000,000 of financing from the Crescent Preferred.
Lehman is the holder of (i) 25,000 shares of the Class B Series 2 Convertible
Preferred Stock of the Company and 40,000 shares of the Class B Series 3
Convertible Preferred Stock of the Company (collectively, the "Lehman
Preferred") and (ii) warrants (the "Lehman Warrants") to purchase Common Stock
(see note 4). Pursuant to a Letter Agreement, the Company and Lehman agreed to
amend those certain Preferred Stock Purchase Agreements, dated as of June 11,
1999 and February 11, 2000, respectively, to eliminate the provisions imposing
monetary penalties in the event that the Common Stock is delisted from Nasdaq.
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<PAGE> 12
The Company and Lehman further agreed to amend the Certificate of Incorporation
of the Company to delete any provision granting Lehman the right to require the
Company to redeem the shares of Lehman Preferred for cash. Pursuant to such
amendments the Company is now required to convert the shares of Lehman Preferred
into Common Stock on the third anniversary of their respective issuance dates
unless the Company elects, at its option, to extend the mandatory conversion
date to the fifth anniversary of the respective issuance dates of the shares of
Lehman Preferred. Lehman further agreed to waive its right to decrease the
conversion price of the Lehman Preferred and the exercise price of the Lehman
Warrants as a result of (i) the issuance of the Crescent Preferred and the
Crescent Warrant on October 31, 2000 for aggregate proceeds of $2,000,000 or any
future issuances of preferred stock or warrants to Crescent which do not
exceed an additional aggregate purchase price of $2,000,000, (ii) the issuance
of warrants to the company's Financial adviser in connection with the Crescent
Financing, (iii) the issuance of the New Lehman Warrants and the Holders'
Warrants and (iv) the determination on the First Vesting Date of the number of
shares of Common Stock issuable with respect to the Adjustable Warrant. In
addition, Lehman agreed (A) that the deemed exercise price (the "Deemed Exercise
Price") with respect to the number of shares of Common Stock issuable pursuant
to the Adjustable Warrant on the Second Vesting Date would be the greater of (i)
$1.00 and (ii) the exercise price calculated in the manner set forth in that
certain Letter Agreement, dated as of August 16, 2000, by and between the
Company and Lehman, and (B) to waive its right to decrease the Conversion Price
of the Lehman Preferred and the exercise price of the Lehman Warrants to a price
which is less than the Deemed Exercise Price.
Pursuant to a letter agreement, the Company and the Holders agreed to convert
the entire principal amount of the Debentures, and any accrued but unpaid
interest thereon, into a newly-authorized series of convertible preferred stock
of the Company (the "New Preferred"), effective October 31, 2000. Prior to their
conversion, the Debentures had a principal face amount of $5,000,000, accrued
but unpaid interest in the amount of $1,079,167 and were due on April 15, 2002.
The Company and the Holders further agreed that (i) the New Preferred would be
convertible into shares of Common Stock at a conversion price of $4.68 per
share, subject to adjustment for stock splits, combinations and similar
recapitalizations affecting the Common Stock, (ii) with respect to the
distribution of assets on the liquidation, dissolution or winding up of the
Company, the New Preferred shall rank senior and prior to all classes or series
of capital stock of the Company issued prior thereto or thereafter issued, (iii)
cumulative dividends would accrue on the New Preferred beginning on April 15,
2002 at a rate of 8% per annum (subject to increase to 11% per annum during any
period in which such cumulative dividends are not currently paid), and (iv) the
New Preferred would be subject to involuntary conversion into shares of Common
Stock at the option of the Company at a conversion price of $4.68 per share if
the average closing bid price of the Company's Common Stock for ten consecutive
trading days exceeds $10.29. The Company also agreed with the Holders (i) not to
incur or permit any future liens on any of its properties or assets, (ii) not to
grant any security interests in its future revenues and (iii) not to consummate
any future financings which contemplate the issuance of debentures by the
Company.
Note 10 - Subsequent event - Crescent financing:
On October 31, 2000 the Company consummated a private placement of 200 shares of
a new series of preferred stock, designated Class B Series 4 Convertible
Preferred Stock, par value $.01 per share ("Series 4 Preferred Stock"), for an
aggregate purchase price of $2,000,000. Pursuant to the Stock Purchase Agreement
between the Company and Crescent International Ltd. (the "Purchaser"), the
Company also issued to the Purchaser a warrant (the "Incentive Warrant"), the
terms of which provide that the Purchaser has the right to acquire up to 270,000
shares of the Company's common stock at an exercise price equal to $1.00 per
share, subject to adjustment in certain circumstances, for a five-year period.
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<PAGE> 13
The Series 4 Preferred Stock will, with respect to the distribution of assets on
liquidation, dissolution or winding up of the Company, rank (i) senior and prior
to the common stock of the Company and any other class or series of capital
stock of the company hereafter issued, the terms of which specifically provide
that shares of such class or series shall rank junior to shares of the Series 4
Preferred Stock, (ii) on parity with any other class or series of capital stock
of the Company hereafter issued, the terms of which specifically provide that
shares of such class or series shall rank on parity with shares of the Series 4
Preferred Stock, and (iii) junior to the Class A Preferred Stock and any other
class or series of capital stock of the Company hereafter issued, the terms of
which specifically provide that shares of such class or series shall rank senior
to shares of the Series 4 Preferred Stock.
At any time after October 31, 2002, any or all of the outstanding shares of
Series 4 Preferred Stock will, upon written request of the holders of a majority
of the issued and outstanding shares thereof, be subject to redemption by the
Company for either, at the option of the Company, (i) $12,000 in cash per share
or (ii) the number of shares of common stock obtained by dividing $12,000 by the
lower of $.82 and 92% of the average of the lowest three consecutive closing bid
prices of the common stock during the 22 trading day period immediately
preceding the date that redemption is requested. In addition, subject to certain
adjustments, each share of the Series 4 Preferred Stock will be convertible at
any time at the option of the holder thereof into the number of shares of common
stock determined by dividing $10,000 by the lower of $.82 and 92% of the average
of the lowest three consecutive closing bid prices of the common stock during
the 22 trading day period immediately preceding the date that conversion is
requested. The holders of shares of Series 4 Preferred Stock will have no voting
rights and, if the Company fails to deliver certificates for shares of common
stock upon redemption or conversion of the Series 4 Preferred Stock, will
receive dividends at a rate of 8.0% per annum, payable in cash in quarterly
installments.
Pursuant to a Registration Rights Agreement between the Company and the
Purchaser, the Company has agreed to prepare and file a registration statement
covering the resale of the shares of common stock issuable upon the conversion
of the Series 4 Preferred Stock and the exercise of the Incentive Warrant and to
keep the registration statement effective until 180 days after the later of the
date that the exercise period expires for the Incentive Warrant (if it has not
been exercised in full) and the date that all registrable securities issued or
issuable to the Purchaser pursuant to the stock purchase agreement may be sold
by the Purchaser without registration and without any time, volume or manner
limitations pursuant to Rule 144(k) under the Securities Act.
Note 11 - Pro-forma financial information:
The Company has presented a pro-forma balance sheet reflecting the transactions
contained in notes 9 and 10 and the conversion of the amount payable for the
purchase of Gordon to common stock (see note 5) as if the transactions occurred
on September 30, 2000. the pro-forma entries are as follows:
- The conversion of $6,020,800 of Debentures and accrued interest
thereon into a new Class B, series 5 convertible preferred stock which
increases Stockholders' Equity by $6,020,800.
- The elimination of the cash redemption feature of the Class B, series
2 and 3 Convertible Preferred Stock which increases Stockholders'
Equity by $5,139,700.
- The elimination of the requirement to allow the purchaser of a new
equity financing (see note 8) to require the Company to repurchase the
shares and adjustable warrant shares. the elimination of this
provision increases Stockholders' Equity by $2,815,000.
- The issuance of a new Convertible Preferred Stock Class B, Series 4
("Crescent financing" - see note 10) which increases cash and
Stockholders' Equity by $1,921,000 ($2,000,000 Crescent financing less
fees and expenses).
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<PAGE> 14
- The conversion of the amount payable for the purchase of Gordon into
Common Stock as per the terms of the purchase agreement with Gordon.
This pro-forma adjustment reduces long-term debt and increases
Stockholders' Equity by $653,000.
The above transactions are reflected in the pro-forma balance sheet as an
increase in Stockholders' Equity of $16,549,500. Future Income Statements will
reflect the reduction of $700,000 of interest expense (on an annual basis) as a
result of the reclassification of the debentures as discussed in note 9. In
addition, the Company will record a "deemed dividend" with respect to the above
transactions in connection with the issuance of warrants which will have no
effect on the Company's future reported Net Income or Stockholders' Equity. The
deemed dividend will increase the loss per share for an amount the Company
believes will be immaterial.
Based on the above pro-forma entries, the Company calculates "net tangible
assets", for purposes of NASDAQ, at $7,403,600, which is in excess of the
$2,000,000 required by the NASDAQ smallcap rules for continued listing. The
Company has estimated its results from operations for the month of October 2000,
based on the third quarter historical loss and continues to exceed the NASDAQ
smallcap requirement as of October 31, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company incurred net losses of $3,023,300 and $3,145,800 for the three
months ended September 30, 2000 and 1999, respectively. For the nine months
ended September 30, 2000 and 1999, the Company incurred net losses of $9,411,100
and $9,117,100, respectively.
Revenues for the three months ended September 30, 2000 were $1,724,600 as
compared to $362,100 for the three months ended September 30, 1999. the
increased revenues are a result of the acquisition of Gordon Laboratories, Inc.
("Gordon"). The revenues of Gordon are included in the consolidated financial
statements of the Company from the date of acquisition (June 2, 2000) through
September 30, 2000. Revenues for the nine months ended September 30, 2000 were
$2,430,600 as compared to $362,700 for the nine months ended September 30, 1999.
The increased revenues for the nine months ended September 30, 2000 are a result
of the above-mentioned acquisition of Gordon.
Cost of sales was $1,394,800 or 81% of sales for the three months ended
September 30, 2000 and $1,908,200 or 78.5% of sales for the nine months ended
September 30, 2000. These amounts relate to the cost of sales for Gordon.
Research and development costs were $389,200 for the three months ended
September 30, 2000 as compared to $229,200 for the three months ended September
30, 1999. the increase in research and development costs in the current period
is primarily a result of the continuing implementation of the Company's
long-term business plan to seek commercial applications of its intellectual
properties and technologies. Research and development costs were $1,100,200 for
the nine months ended September 30, 2000 as compared to $658,500 for the nine
months ended September 30, 1999. The increased research and development costs
for the nine months ended September 30, 2000 are primarily a result of the
above-mentioned continued implementation of the Company's long-term business
plan.
Compensation - Officers and employees were $523,500 for the three months
ended September 30, 2000 as compared to $177,800 for the three months ended
September 30, 1999. The increase in these costs in the current period is a
result of the Company now including the compensation of officers and employees
due to the acquisition of Gordon and the addition of executive and senior level
personnel to implement the Company's business plan. Compensation - Officers and
employees were $1,080,500 for the nine months ended September 30, 2000 as
compared to $563,900 for the nine months ended September 30, 1999 due to the
above-mentioned acquisition of Gordon and the addition of senior level
executives.
Total General and administrative costs for the three months ended September 30,
2000 were $1,707,000 as compared to $1,036,100 in the prior period and the total
General and administrative costs for the nine months ended September 30, 2000
were $4,224,400 as compared to $2,931,500 in the prior period. The increase in
total General and administrative costs over the prior period results from the
acquisition of Gordon, which were not in the prior period. In addition, the
increase versus the prior period is a result of the above-mentioned increase in
Compensation costs as the Company added executive and senior level employees to
implement its business plan, an increase in depreciation and amortization costs
and amortization of goodwill due to the new acquisition of Gordon.
Interest expense and non-cash financing costs were $298,200 in the three months
ended September 30, 2000 as compared to $923,700 in the prior period. The
decrease is mainly due to the reduction in the amortization of original issue
discount on the senior convertible debentures, partially offset by the increase
in interest expense due to the acquisition of Gordon. Interest expense and
non-cash financing costs were $1,530,200 in the nine months ended September 30,
2000 as compared to $2,443,500 in the prior period. The decrease is a result of
the above-mentioned reduction in original issue discount, partially offset by
the increase in interest expense due to the acquisition of Gordon.
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Deemed dividend for the Class B, series 2 and 3 convertible preferred stock was
$278,000 in the three months ended September 30, 2000 as compared to $66,300 in
the prior period. The increase is mainly due to the amortization of the new
series 3 preferred stock in 2000 which was not issued in 1999. Deemed dividend
for the Class B, series 2 and 3 convertible preferred stock was $1,259,000 in
the nine months ended September 30, 2000 as compared to $1,341,300 in the prior
period.
The Company anticipates that it will continue to incur 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 continue to incur 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 improved commercial products and for new potential applications
and marketing expenses for implementation of the next phase of its efforts to
successfully commercialize the medical application of its technology.
The Company anticipates 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-term business plan.
LIQUIDITY AND CAPITAL RESOURCES
Current assets increased to $5,322,100 at September 30,2000 as compared to
$4,933,700 at December 31,1999. This increase is primarily attributable to an
increase in inventories due to the acquisition of Gordon partially offset by a
decrease in cash and equivalents.
As indicated in the Company's consolidated Statements of Cash Flows, the Company
continued to experience significant negative net cash flows from operating and
investing activities. The 2000 net cash outflows from operating activities is
primarily attributable to the Company's net loss (partially offset by
depreciation and amortization expense, non-cash compensation costs to
consultants, non-cash interest and financing costs and collections of accounts
receivable.)
Cash outflows from investing activities are primarily attributable to the net
cash used in the purchase of Gordon. Cash flows from financing activities during
2000 principally represent $7,282,700 of proceeds from the issuance of common
stock, preferred stock and warrants, partially offset by the repayment of Gordon
debt.
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
issuance of common stock for net proceeds of $3,672,700, and the issuance of a
new series of preferred stock for gross proceeds of $2,000,000 issued subsequent
to September 30, 2000. The Company anticipates incurring continued expenditures
related to manufacturing expenses, parts order, insurance, regulatory compliance
and staffing as production and distribution continues. In addition to the equity
financing and Capital Restructuring discussed in Note 9 to the financial
statements, the Company intends to seek additional debt or equity financing to
facilitate short-term liquidity and to further support and expand its
operations, work with its distributor to revise sales and marketing strategies
and product improvements and initiate a plan to significantly reduce operating
costs.
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
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<PAGE> 17
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
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
See notes 8,9 and 10 and the Company's Form 8 - K's filed November 3, 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
The Company recently submitted a 510(k) pre-market application to the Food and
Drug Administration ("FDA") in connection with additional improvements to its
ColorMate(R) TLc-BiliTest(R) System. The Company has received a request for
additional information from the FDA reviewer, to which it is in the process of
preparing a response.
The American Medical Association has issued a new current procedural terminology
(CPT(TM)) Code for use with the Company's ColorMate(R) TLc-BiliTest(R) System.
The new code will not go into effect until January 1, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)
27.1 Financial Data Schedule.
REPORTS ON FORM 8-K:
On August 18, 2000, the Company filed a Form 8-k/A relative to the acquisition
of Gordon. On September 1, 2000, the Company filed a Form 8-K pertaining to the
private financing with Millennium.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<S> <C>
27.1 Financial Data Schedule.
</TABLE>
17
<PAGE> 18
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: November 14, 2000 By: /s/ Darby S. Macfarlane
---------------------------
Darby S. Macfarlane
Chairman
Date: November 14, 2000 By: /s/ Frank Marchese
---------------------------
Frank Marchese
Chief Financial and Principal
Accounting Officer
18
