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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 2000
REGISTRATION NO. 333-50420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW YORK 13-3253392
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5 EAST 80TH STREET
NEW YORK, NY 10021
(212) 717-6544
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WITH A COPY TO:
<TABLE>
<S> <C>
DARBY S. MACFARLANE JEFFREY E. LAGUEUX, ESQ.
CHAIRPERSON OF THE BOARD PATTERSON, BELKNAP, WEBB & TYLER LLP
5 EAST 80TH STREET 1133 AVENUE OF THE AMERICAS
NEW YORK, NY 10021 NEW YORK, NY 10036-6710
(212) 717-6544 (212) 336-2000
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are being
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities pursuant to
Rule 462(b) under the Securities Act of 1933, please check the following box and
list the Securities Act of 1933 registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF SHARES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(2)
-------------------------------- ---------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001............... 4,887,826 $0.5156 $2,520,163.09 $2,137.27
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
These estimates have been calculated in accordance with Rule 457(c)
under the Securities Act of 1933 and are based upon the average of the
high and low prices per share of the Registrant's common stock on the
Nasdaq SmallCap Market on December 14, 2000.
(2) Paid on November 20, 2000.
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PROSPECTUS
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
4,887,826 SHARES OF COMMON STOCK
The selling stockholders named in this prospectus, Crescent
International Ltd. and LB Pension Plan & Trust, are offering and selling shares
of our common stock. Certain of these shares have been issued or will be
issuable to Crescent upon the conversion of preferred stock and the exercise of
a warrant sold by us to Crescent in a private financing. The remainder of these
shares reflect common stock issued by us to LB in a private placement and shares
which may be acquired by LB upon the exercise of warrants sold by us to LB as
part of the same private placement. The selling stockholders may sell the shares
of common stock described in this prospectus in a number of different ways. The
prices at which the selling stockholders may sell these shares of common stock
will be determined by prevailing market prices for the shares or by negotiated
transactions. We will not receive any of the proceeds from the sale of shares,
but we will receive the exercise price of the warrants.
Our common stock is listed on the Nasdaq SmallCap Market under the
symbol "CCSI." On December 14, 2000 the closing sales price of our common stock
on the Nasdaq SmallCap Market was $0.50.
You should read the description of risks under the caption "Risk
Factors" beginning on page 4 before purchasing any of the common stock offered
by this prospectus.
The shares offered or sold under this prospectus have not been approved
or disapproved by the Securities and Exchange Commission or any state securities
commission, nor have these organizations determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is December 15, 2000.
<PAGE> 3
ABOUT CHROMATICS
We are engaged in the business of researching, developing and
commercializing intellectual property rights, technology and instrumentation we
have developed in the field of color science. Color science involves the
objective, standardized analysis, description and measurement by instrument to a
laboratory standard of accuracy of the colors composing the visual color
spectrum and their related physical properties in relation to each other.
We have incorporated some of these intellectual property rights,
technology and instrumentation into a proprietary color measurement system and
software marketed for various applications known as the ColorMate(R) System. We
have developed our intellectual property and the ColorMate(R) System for:
- the color measurement to a laboratory standard of accuracy and
classification of human tissue, fluid, hair and/or teeth
color,
- the color coordination of these human skin, tissue, fluid,
hair and/or teeth color classifications in relation to
products,
- the color measurement to a laboratory standard of accuracy,
classification and organization based on color of various
color-sensitive consumer products including chromaticity
studies of cosmetics, hair coloring, hosiery, clothing, tooth
enamel, paint and textiles,
- the color measurement to a laboratory standard of accuracy to
monitor infant jaundice,
- the color measurement in detecting and monitoring those
diseases which we believe can be diagnosed or monitored by the
coloration of human skin, tissue and fluids and
- the color coordination of products in relation to other
products.
In July 1997 we received clearance from the U.S. Food and Drug
Administration for commercial marketing of our ColorMate(R) System device for
the non-invasive monitoring of infant jaundice by healthcare professionals in
the hospital, institutional, pediatricians' office or home setting. In June 1999
we entered into an agreement for the exclusive distribution of this product in
the hospital, pediatricians' office and home healthcare markets in the United
States with Datex-Ohmeda, Inc. and its Ohmeda Medical Division. The current
procedure for the initial screening for infant jaundice is the visual
observation of the yellowing of the skin by professional care providers. This is
a subjective determination prone to errors due to different skin colors. If the
initial clinical assessment suggests the possibility of infant jaundice, the
current procedure requires that a blood sample be obtained by lancing the
infant. We believe that a non-invasive instrument that monitors infant jaundice
represents a significant improvement in patient care.
The ColorMate(R) TLc-BiliTest(R) System monitors the incremental change
of the yellow content of the skin color in infants of all races by
non-invasively measuring the color of the skin of the newborn. Color
measurements are obtained by placing the device on different physical sites of
the newborn for five to ten seconds. Accuracy of the color measurements is
ensured by use of the TLc-Lensette(TM) calibration standard used prior to each
baby's measurement.
On June 2, 2000 we acquired the common stock and certain debt of Gordon
Laboratories, Inc., a Carson City, California based formulator and manufacturer
of cosmetics, hair care and other personal care products. We acquired an
approximately 85% equity interest in Gordon for approximately $5.5 million,
principally in stock, and will acquire the remaining interest within one year of
June 2, 2000. Gordon is recognized within the personal and beauty care industry
as a high quality formulator, packager and contract manufacturer of cosmetics
and other beauty care products for branded consumer product marketers and
private label retailers. The Company's customer base consists of leading brand
marketers, major mass merchandisers and direct-sale marketers such as Sears, The
Gap, Kmart, Tora, Gerber, Herbalife, The Body Shop, Bath + Body works and
Victoria's Secret. In connection with the acquisition of Gordon, Brian
Fitzpatrick, the former
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Chairman, President and Chief Executive Officer of Gordon, was named President
and Chief Operating Officer of Chromatics and has recently been appointed Acting
Chief Executive Officer of Chromatics and a member of our board of directors.
Along with Mr. Fitzpatrick, the acquisition of Gordon provides us with an
experienced management team fully operational in the cosmetics and beauty care
industry, as we move to establish our presence there.
Gordon provides us with the needed infrastructure to commercialize our
color science technology in the cosmetics and hair colorant markets. We expect
to capitalize on Gordon's manufacturing and marketing capabilities to generate
expanded revenues from laboratory chromaticity studies, color-measuring systems
and related products. In addition, Gordon has the capability to produce
TLc-Lensette(TM) calibration standards for the Company's medical device, the
ColorMate(R) TLc-BiliTest(R) non-invasive monitoring system for infant jaundice.
We are currently in the early stages of the commercialization of our
ColorMate(R) TLc-BiliTest(R) System for the monitoring of infant jaundice. We
are also developing a business plan for our recently acquired Gordon division,
establishing a new management structure and commercializing new applications of
our technology. We will need to generate substantial revenues from the sale of
our products and the financial markets in order to develop other medical and
non-medical applications for our intellectual property rights, technology and
instrumentation and to fund our continuing operations. If we are not successful
in generating adequate revenues, we may be forced to curtail our operations and
seek protection from our creditors under applicable bankruptcy laws.
In connection with our October 2000 private placement, we issued to
Crescent 200 shares of a new series of preferred stock and a warrant granting
Crescent the right to acquire up to 270,000 shares of our common stock for an
aggregate purchase price of $2,000,000. In April 2000, we issued to LB 79,491
shares of our common stock and warrants to purchase another 79,491 shares of
our common stock for an aggregate purchase price of $500,000. In November 2000,
Cresent converted 64 shares of preferred stock registered in its name into
1,391,304 shares of our common stock. The shares of our common stock acquired
by Cresent upon conversion of preferred stock in November 2000 and which may be
acquired by Crescent upon the future conversion of our preferred stock and upon
the exercise of the warrant, as well as the shares of common stock issued to LB
in the private placement and which may be acquired by LB upon the exercise of
its warrants are the subject of this prospectus.
We were incorporated in New York in March 1984. Our principal executive
offices are located at 5 East 80th Street, New York, New York 10021 and our
telephone number at that address is (212) 717-6544.
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RISK FACTORS
Investing in our common stock is very risky. You should be able to bear
a complete loss of your investment. You should carefully consider the following
factors, in addition to the other information in this prospectus, before
investing in our common stock.
WE HAVE A LIMITED OPERATING HISTORY
We have a limited operating history and have generated insignificant
revenues prior to the acquisition of Gordon. Although we have recently entered
into agreements for the manufacturing and distributing of our ColorMate(R)
TLc-BiliTest(R) System, to date we have not produced or sold substantial
quantities of this product. We cannot assure you that this product can be
manufactured in commercial quantities or at an acceptable cost or marketed
successfully. We also cannot assure you that we will be successful in our
efforts to commercialize our ColorMate(R) System for other applications.
WE EXPECT TO CONTINUE TO OPERATE AT A LOSS AND WE MAY NEVER ACHIEVE
PROFITABILITY
We cannot be certain that we will ever achieve and sustain
profitability. To date, we have been engaged in research and development
activities and have not generated any significant revenues from sales of our
ColorMate(R) TLc-BiliTest(R) System or TLc-Lensette(TM) calibration standards,
although we recently began generating revenues from Gordon's manufacturing and
marketing activities. As of September 30, 2000, we had an accumulated deficit of
$43,992,300. We expect that we will continue to incur operating losses for the
foreseeable future. We also cannot be certain that Gordon, which has sustained
operating losses during its last three fiscal years, will ever achieve and
sustain profitability.
IF WE DO NOT SECURE ADDITIONAL FINANCING WE WILL NOT BE ABLE TO DEVELOP AND
MARKET OUR PRODUCTS
We will require substantial additional funds for our research and
product development programs, for contractual obligations, for operating
expenses, to pursue regulatory approvals and to develop and commercialize other
applications of our ColorMate(R) System. In addition, Gordon has working capital
and capital equipment financing needs necessary to sustain and expand its
business operations. Adequate funds for these purposes, whether through the
financial markets or other sources, may not be available when needed.
Additionally, under the terms of our manufacturing agreement we must provide our
manufacturing partner with a number of key component parts to be assembled into
our ColorMate(R) System and our ColorMate(R) TLc-BiliTest(R) System. Without the
funds to provide these component parts, our products cannot be manufactured and
we will be unable to fulfill our obligations to our distribution partner. The
terms of the convertible preferred stock issued in the June 1999 and February
2000 Lehman financings that require a downward adjustment in the conversion
price if we issue shares of common stock at a price of less than $4.68 per share
(other than issuances specifically exempt from adjustment, as agreed to by
Lehman, including but limited to, issuances of preferred stock and/or warrants
to Crescent for aggregate proceeds of not more than $4,000,000) will increase
the cost to us of any subsequent equity financing effected at less than $4.68
per share. If we fail to make any payment required or if we are otherwise in
default under the manufacturing and distribution agreements relating to our
ColorMate(R) System and our ColorMate(R) TLc BiliTest(R) System, the other
parties will have the right to terminate the agreements. Termination of any of
these agreements would have a material adverse effect on our business by
rendering us unable to manufacture and distribute our ColorMate(R) System and
our ColorMate(R) TLc-BiliTest(R) System until replacement agreements were
entered into.
WE HAVE LIMITED MANUFACTURING AND MARKETING CAPABILITIES OF OUR OWN AND WILL
CONTINUE TO DEPEND ON OTHER PARTIES FOR MANUFACTURING AND MARKETING FOR THE
FORESEEABLE FUTURE
We currently do not have the resources to manufacture or market
independently on a commercial scale the ColorMate(R) System, the ColorMate(R)
TLc-BiliTest(R) System or any other products that we may develop, although
through our recent acquisition of Gordon we soon expect to have the capability
to produce TLc-Lensette(R) calibration standards for our ColorMate(R)
TLc-BiliTest(R) System. We rely on our corporate partners to manufacture and to
market our ColorMate(R) TLc-BiliTest(R) System and will continue to rely on
corporate partners to manufacture and to market our ColorMate(R)
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System for other applications. The amount and timing of resources to be devoted
to these activities by these other parties may not be within our control. We
cannot assure you that these parties will perform their obligations as expected
or that we will derive any revenue from these arrangements. To date, our
distribution partner, Datex-Ohmeda, Inc. and its Ohmeda Medical Division, has
not achieved the annual minimum market penetration performance standards, nor
has it purchased and placed the minimum quantities of our ColorMate(R)
TLc-BiliTest(R) System and TLc-Lensette(TM) calibration standards, set forth in
our June 7, 1999 distribution agreement, as amended. We cannot assure you that
Datex-Ohmeda will meet these minimum performance standards and purchase and
placement requirements in accordance with the terms of our agreement. We have
little or no experience in manufacturing or marketing any medical products and
have only recently, through our acquisition of Gordon, developed experience in
manufacturing and marketing products for the beauty industry. The failure of our
corporate partners to perform their obligations relating to the manufacturing
and distributing of our ColorMate(R) System or ColorMate(R) TLc-BiliTest(R)
System would have a material adverse effect on our business by rendering us
unable to manufacture and distribute our ColorMate(R) System and our
ColorMate(R) TLc-BiliTest(R) System until a replacement arrangement was entered
into.
WE MAY NOT BE SUCCESSFUL IN COMMERCIALIZING OUR COLORMATE(R) TLC-BILITEST(R)
SYSTEM
Our success in commercializing our ColorMate(R) TLc-BiliTest(R) System
will be dependent upon its acceptance by healthcare professionals and the
ability of our distribution partner to penetrate the healthcare market. The
acceptance of our ColorMate(R) TLc-BiliTest(R) System by healthcare
professionals will largely depend on our ability to show them its ability to
reduce the need for heelsticks in monitoring infant jaundice as well as its
utility compared to other non-invasive methods that currently exist or that may
be developed in the future by others with respect to:
- safety,
- effectiveness,
- ease of use and
- price.
We cannot assure that our ColorMate(R) TLc-BiliTest(R) System will be
competitive with respect to these factors.
WE HAVE NOT YET SUCCESSFULLY COMMERCIALIZED OUR COLORMATE(R) SYSTEM FOR OTHER
POTENTIAL MEDICAL APPLICATIONS
Although we have received FDA clearance to commercially market our
ColorMate(R) TLc-BiliTest(R) System for monitoring infant jaundice, our clinical
and research and development programs for other medical applications of our
ColorMate(R) System are at a very preliminary stage. Substantial additional
research and development and further clinical trials will be necessary before
commercial versions of any additional proposed products are submitted for FDA
marketing clearance or approval and produced for other medical applications. We
cannot assure you that we will be able to successfully address the problems that
may arise during the development, FDA review process and commercialization of
these other medical applications or that any of our proposed products for these
other medical applications will be successfully developed, proven safe and
effective in clinical trials, cleared or approved by the FDA for marketing or
meet applicable regulatory standards and requirements.
WE HAVE NOT YET SUCCESSFULLY COMMERCIALIZED NON-MEDICAL APPLICATIONS OF OUR
PRODUCTS
To date, we have not achieved commercial market penetration for our
ColorMate(R) System in any non-medical industry. In order to commercialize our
ColorMate(R) System in connection with non-medical applications we will need to
develop additional marketing skills, incur significant expenses on sales and
marketing activities, hire additional employees and consultants and enter into
arrangements with third party distributors. Our recent acquisition of Gordon has
enabled us to develop certain of the skills and resources that we will need to
commercialize our products in the cosmetics and beauty industry. We cannot
assure you that we will be successful in our efforts to commercialize any
non-medical application of our ColorMate(R) System.
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EXTENSIVE GOVERNMENTAL REGULATION COULD DELAY, RESTRICT OR PREVENT THE MARKETING
OF OUR PRODUCTS
Governmental regulation may significantly delay the marketing of our
products, prevent marketing of products altogether or impose costly requirements
on our activities. The FDA and comparable foreign regulatory authorities
generally require rigorous pre-clinical testing, clinical trials and government
premarket review and clearance or approval for the type of human medical device
we market or contemplate marketing. Numerous regulations govern, among other
things, the manufacturing, safety, labeling, promotion, storage, record keeping,
reporting and marketing of medical devices. A delay in obtaining or failure to
obtain or maintain regulatory clearances or approvals for any of our products
would have an adverse effect on our business. We cannot predict the adverse
effects that existing or future government regulations may have on our business.
Even though our ColorMate(R) TLc-BiliTest(R) System received FDA
marketing clearance for monitoring infant jaundice, we may still face
difficulties in manufacturing and marketing this product. A marketed product and
its manufacturer's practices are subject to regulatory review and the
manufacturer's facilities are subject to periodic establishment inspections. The
discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on the product or manufacturer, including
withdrawal of the product from the market. The failure to comply with applicable
regulatory requirements can, among other things, result in:
- fines,
- suspended or withdrawn regulatory approvals,
- refusal to clear or approve pending applications,
- refusal to permit exports or to allow imports from the United
States,
- product recalls,
- seizure of products,
- injunctions,
- operating restrictions and
- criminal prosecutions.
WE MAY BE UNABLE TO DEVELOP POTENTIAL INTERNATIONAL MARKETS AND OBTAIN FOREIGN
REGULATORY APPROVALS
Although we believe that sales of our products to customers outside of
the United States represent a significant potential source of growth we may not
be able to obtain agreements with third party distributors for marketing outside
of the United States. We also cannot be certain that we will be able to maintain
our existing ISO 9001/EN46001 certification or that we will obtain any further
regulatory approvals in other countries. In order to market our products outside
of the United States, we must comply with numerous and varying foreign
regulatory requirements implemented by foreign authorities. The approval
procedure varies among countries and can involve additional testing. The time
required to obtain further foreign clearances or approvals may differ from that
required to obtain FDA clearances or approvals for commercial marketing. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA clearances or approvals set forth above, and clearance or approval
by the FDA does not ensure clearance or approval by the authorities of any other
country.
THE MEDICAL COMMUNITY MAY BE RELUCTANT TO ACCEPT OUR TECHNOLOGY
The commercial acceptance of our ColorMate(R) TLc-BiliTest(R) System is
substantially dependent on its acceptance by the medical community for the
monitoring of infant jaundice. Because the medical community is relatively slow
to adopt new technologies we cannot assure you that the medical community will
perceive a need for, or accept, our ColorMate(R) TLc-BiliTest(R) System or be
willing to commit funds to its purchase and use. Widespread acceptance of the
ColorMate(R) TLc-BiliTest(R) System for monitoring infant jaundice will require
educating the medical community about its advantages, reliability, cost
effectiveness and utility. In addition, acceptance of the ColorMate(R)
TLc-BiliTest(R) System may be adversely affected by competing products which may
have more utility, a lower cost or be received in a better way than our
ColorMate(R) TLc-BiliTest(R) System.
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OUR MAIN COMPETITORS GENERALLY HAVE MORE RESOURCES THAN WE HAVE
The medical device industry is characterized by rapid technological
advances, evolving industry standards and technological obsolescence. Our
inability to meet or surpass our competitors' technological advances in this
industry could have a material adverse effect on our business. We have several
competitors in this industry, none of whom we believe to be dominant. We believe
that, in addition to our ColorMate(R) TLc-BiliTest(R) System the only other
commercially available non-invasive devices for the monitoring of infant
jaundice with FDA marketing clearance in the United States are the Minolta
Jaundice Meter, manufactured by Minolta Co., Ltd. which is distributed by Air
Shields and the SpectRx Bilicheck, manufactured by SpectRx and Respironics. Both
Minolta and Respironics have financial, marketing and other resources greater
than our own. Our competitors in this industry may develop products which may
render our ColorMate(R) TLc-BiliTest(R) System obsolete or which have advantages
over our ColorMate(R) TLc-BiliTest(R) System, including greater accuracy and
precision or greater acceptance by the medical community.
To the extent that we are able to commercialize our ColorMate(R) System
for non-medical applications we will also encounter competition. We cannot
assure you that we will be able to compete successfully in these non-medical
markets. In addition, the market for Gordon's products is extremely competitive
with respect to price and quality and Gordon's competitors generally have
greater resources than Gordon. We cannot assure you that Gordon will be able to
successfully compete in its marketplace nor that it will be able to sustain and
expand its current customer base.
OUR BOARD OF DIRECTORS IS AUTHORIZED TO ISSUE PREFERRED STOCK WITHOUT
STOCKHOLDER AUTHORIZATION WHICH COULD BE USED AS AN ANTI-TAKEOVER DEVICE
Our Board of Directors is authorized to issue from time to time without
stockholder authorization shares of preferred stock. The issuance of preferred
stock could decrease the amount of assets and earnings available for
distribution to our other stockholders. Preferred stockholders could receive
voting rights and rights to payments on liquidation or of dividends or other
rights which are greater than the rights of the holders of our common stock. In
addition, the issuance of preferred stock may make it more difficult for a third
party to acquire, or may discourage a third party from acquiring, voting control
of our stock. This provision could also discourage an unsolicited acquisition
and could make it less likely that stockholders receive a premium for their
shares as a result of any unsolicited acquisition proposal.
OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SIGNIFICANT AMOUNT OF STOCK OF
CHROMATICS AND EXERT CONSIDERABLE INFLUENCE OVER CHROMATICS
As of October 31, 2000, our directors and executive officers
beneficially owned approximately 13% of voting power represented by our
outstanding common and preferred stock. As a result, these stockholders are able
to significantly influence all matters requiring stockholder approval, including
the election of directors and the approval of significant corporate
transactions. This concentration of ownership could also delay or prevent a
change in control that may be favored by other stockholders.
WE WILL NEED TO HIRE ADDITIONAL PERSONNEL TO MANAGE OUR TRANSITION FROM A
DEVELOPMENT STAGE COMPANY TO AN OPERATING COMPANY
In order to generate and service sales of our products we will need to
attract and retain significant additional senior and midlevel personnel
experienced in financial, administrative, marketing, sales and regulatory
matters, particularly in the medical and beauty industries. We currently have 84
full-time employees. Our success will depend in part on our ability to hire,
train and retain new and existing personnel. Competition for qualified personnel
is intense and we cannot assure you that we will be successful in hiring,
training or retaining additional personnel to support our executive, operations,
marketing, sales, research and product development needs and efforts.
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WE DEPEND ON THE SERVICES OF KEY PERSONNEL
Our success depends to a significant extent upon the efforts of Darby
Simpson Macfarlane, the Chairperson of our Board of Directors, Chief Technology
Officer and one of our major stockholders, and David Kenneth Macfarlane, our
Vice President, Research and Development. They are co-inventors of our
ColorMate(R) System and possess unique technical knowledge required in
connection with its production. Brian T. Fitzpatrick, our President and Acting
Chief Executive Officer, is also an integral part of our organization. Although
we have purchased key-man life insurance policies in the amounts of $1,000,000
on the lives of each of Ms. and Mr. Macfarlane, we cannot assure you that the
proceeds from these policies would enable us to retain suitable replacements for
them. The loss of the services of Ms. Macfarlane, Mr. Macfarlane or Mr.
Fitzpatrick could adversely affect our business.
WE FACE THE RISK OF PRODUCT LIABILITY CLAIMS WHICH MAY EXCEED THE SCOPE OR
AMOUNT OF OUR INSURANCE COVERAGE
The manufacture and sale of human medical devices entails significant
risk of product liability claims. In determining the amount of product liability
coverage to obtain we were advised by an insurance broker with knowledge and
experience regarding prevailing insurance practices in the medical device
industry. Although we believe that the amount and scope of coverage obtained is
consistent with prevailing medical device industry practice, we cannot assure
you that our product liability coverage will be adequate to protect us from any
liabilities we might incur in connection with the use or sale of our products.
In addition, we may require increased product liability coverage as additional
products are commercialized. Product liability insurance is expensive and in the
future may not be available on acceptable terms, if at all. A successful product
liability claim or series of claims brought against us in excess of our
insurance coverage could have a material adverse effect on our business and
results of operations. We must indemnify our distribution partner against any
product liability claims brought against it arising out of products developed by
us.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO EFFECTIVELY MAINTAIN OUR PATENTS
AND PROPRIETARY RIGHTS RELATING TO OUR COLORMATE(R) SYSTEM AND OUR COLORMATE(R)
TLC-BILITEST(R) SYSTEM, WHICH WE MAY NOT BE ABLE TO DO
Proprietary technology maintained in our trade secrets and other
proprietary information claimed by our patents is incorporated into the
proprietary software and measurement system used in our ColorMate(R) System, our
ColorMate(R) TLc-BiliTest(R) System and our TLc-Lensette(TM) calibration
standards. Because we are dependent on the commercialization of these products
our success will depend to a significant degree on our ability to preserve our
trade secrets, to obtain and maintain our patents and to operate without
infringing the proprietary rights of others. We cannot assure you that our
competitors will not seek to apply for and obtain patents that prevent, limit or
interfere with our ability to make, use and sell our products either in the
United States or in foreign countries. We also cannot assure you that we will
not become subject to patent infringement claims brought by third parties or to
re-examination of previously issued patents or interference proceedings to
determine the priority of inventions.
We also rely on a combination of trade secret and copyright law,
employee and third-party nondisclosure agreements and other protective measures
to protect intellectual property rights pertaining to our products and
technologies. We cannot be certain that these measures will provide protection
of our proprietary information. In addition, the laws of a small number of
foreign jurisdictions may not protect our intellectual property rights to the
same extent as the laws of the United States.
OUR ASSUMPTIONS REGARDING THE BUSINESS PLAN AND STRATEGY FOR OUR COLORMATE(R)
TLC-BILITEST(R) SYSTEM, OUR GORDON DIVISION, AND FOR THE COMMERCIALIZATION OF
OUR TECHNOLOGY MAY PROVE TO BE INACCURATE
Our business plan and strategy for the commercialization of our
ColorMate(R) TLc-BiliTest(R) System is based upon assumptions made by our
distribution partner in our contract regarding the size of the infant jaundice
monitoring market, our short-term and eventual share of this market, the price
at which we believe we will be able to sell or lease this product and consumer
acceptance of this product. We are currently working with our distribution
partner on revising our sales and marketing strategies as well as on product
improvements based on the results of the initial launch of our products by our
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<PAGE> 10
distributor. We cannot assure you that our initial or revised assumptions will
prove to be correct. The medical community has thus far not used a non-invasive
device for monitoring infant jaundice as a standard of care. Assumptions made by
our distribution partner about the size of the existing market were based on the
current standard of care (an invasive blood test) and, accordingly, there can be
no assurance that the market size of the ColorMate(R) TLc-BiliTest(R) System
will be the same.
In addition, we are developing business plans for Gordon and for the
commercialization of new applications of our proprietary technology. In
connection with the business plan for Gordon, we expect to capitalize on
Gordon's management team and its experience in the cosmetics and beauty care
industry as we move to establish our presence there. We also expect to
capitalize on Gordon's infrastructure to commercialize our color science
technology in the cosmetics and hair colorant markets. The assumptions we have
made in our business plan about Gordon's experience in the cosmetics and beauty
care industry and how it will enable us to commercialize our products in that
marketplace may prove to be inaccurate.
OUR STOCK PRICE COULD BE ADVERSELY AFFECTED IF WE WERE DELISTED FROM THE NASDAQ
SMALLCAP MARKET
Our common stock is presently traded on the Nasdaq SmallCap Market. In
September 2000 we received a letter from Nasdaq informing us that we did not
meet at least one of the required maintenance criteria for continued listing of
our common stock on the Nasdaq SmallCap Market. We subsequently agreed with
Nasdaq on a plan that would enable us to regain compliance by meeting the
requirement that we have net tangible assets of at least $2.0 million, which
included obtaining commitments from three of our major investors to restructure
the terms of their respective securities and consummating a $2.0 million equity
financing with a private investor. Although we now meet Nasdaq's net tangible
assets requirement and therefore meet the required criteria for continued
listing, there can be no assurance that we will continue to do so in the future.
In addition, the bid price of our common stock has recently closed below $1.00
per share on several trading days. If the minimum bid price of our common stock
were to close below $1.00 for thirty consecutive trading days and it then does
not trade over $1.00 for ten consecutive trading days during the ninety calendar
day period thereafter and/or we fail to meet other Nasdaq SmallCap continued
listing requirements, Nasdaq could seek to have our common stock delisted from
the Nasdaq SmallCap Market.
If our common stock is delisted the market value of our common stock
could fall and holders of common stock would likely find it more difficult to
dispose of and to obtain accurate quotations as to the market value of our
common stock. If our common stock is delisted from the Nasdaq SmallCap Market it
could become subject to rules adopted by the SEC regulating broker-dealer
practices in connection with transactions in "penny stocks." The penny stock
rules require a broker-dealer prior to a transaction in a penny stock not
otherwise exempt from the rules to deliver a standardized risk disclosure
document which provides information about penny stocks and the nature and level
of risks in the penny stock market. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to these penny stock rules. If our common stock
becomes subject to the penny stock rules, you may be unable to readily sell
shares of our common stock.
OUR STOCK PRICE MAY BE VOLATILE
The market price of our common stock has historically been volatile as
a result of:
- analyst recommendations,
- announcements of technological innovations or new commercial
products by us or our competitors,
- market conditions relating to the medical device industry,
- sales of substantial amounts of our common stock by existing
stockholders, including short sales,
- adverse publicity related to accusations by short sellers and
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<PAGE> 11
- obtaining regulatory clearances in both the U.S. and in
foreign countries.
A short sale involves the sale of borrowed shares with the expectation
that the market price of the security will decline in the future. If the
anticipated price decline occurs the short seller replaces the borrowed
securities with shares bought in the market at the lower price and realizes a
profit equal to the difference between the price at which the borrowed shares
were sold and the price at which the replacement shares are purchased. From time
to time in the past concentrated periods of short selling of our common stock
have created an imbalance between the number of shares offered to the market for
sale and the willingness of the market to absorb these shares at prevailing
price levels which has resulted in rapid and substantial declines in the market
price of our common stock.
GORDON MAY NOT HAVE SUFFICIENT FUNDS AVAILABLE TO SATISFY ITS LONG TERM DEBT
OBLIGATIONS
Gordon has a long-term debt obligation to a financial institution of
approximately $2.8 million which requires monthly payments of approximately
$55,000. We cannot assure you that Gordon will have sufficient funds available
to satisfy this obligation. Failure to satisfy this obligation would have a
material adverse effect on Gordon's business and could force Gordon to close its
operations and seek protection from its creditors under applicable bankruptcy
laws.
CONVERSION OF THE CONVERTIBLE PREFERRED STOCK AND EXERCISE OF OUTSTANDING
WARRANTS WILL DILUTE THE INTERESTS OF EXISTING STOCKHOLDERS
The conversion prices of our outstanding convertible preferred stock
may be less than the current market price of our common stock on the date of
conversion. Similarly, the exercise prices of our outstanding warrants may be
less than the current market price of our common stock on the date of exercise.
So long as these securities remain outstanding and unconverted or unexercised,
the terms under which we could obtain additional equity financing may be
adversely affected. To the extent of any conversion or exercise of these
securities, the interests of our existing stockholders will be diluted
proportionately.
COST CONTAINMENT RELATING TO HEALTHCARE REFORM COULD ADVERSELY AFFECT OUR
BUSINESS
Political, economic and regulatory influences are subjecting the
healthcare industry in the United States to fundamental change and are
increasing cost-containment efforts. We anticipate that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on healthcare spending through limitations on the
growth of private health insurance premiums and Medicare and Medicaid spending,
the creation of large insurance purchasing groups, price controls on
pharmaceuticals and medical devices and other fundamental changes to the
healthcare delivery system. Any changes of this nature could negatively impact
our ultimate profitability. Also, the trend toward managed healthcare in the
United States and the concurrent growth of organizations like healthcare
management organizations, which could control or significantly influence the
purchase of healthcare services and products, may result in lower prices for our
medical product candidates than we currently expect. We cannot predict what
impact the adoption of any federal or state healthcare reform measures or future
private sector reforms may have on our business.
OUR PRODUCTS MUST BE ACCEPTED FOR REIMBURSEMENT BY THIRD-PARTY PAYORS
Our ability to successfully commercialize our ColorMate(R)
TLc-BiliTest(R) System and our other medical product candidates will depend in
part on the extent to which appropriate reimbursement codes and authorized cost
reimbursement levels of our products and related treatment are obtained from
governmental authorities, private health insurers and other organizations, like
health maintenance organizations. Third-party payors are increasingly
challenging the prices charged for medical products and services. American
Medical Association CPT codes are generally used to facilitate the processing of
insurance reimbursement claims and to provide a simplified reporting procedure.
However, assignment of a code does not assure that the insurer will provide
reimbursement or that the AMA endorses the medical procedure at issue. In March
1998, we were assigned AMA CPT Code 82250 for processing claims for use of the
ColorMate(R) TLc-BiliTest(R)
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<PAGE> 12
System. This same code is assigned for the reimbursement of laboratory blood
tests currently used to monitor infant jaundice. The AMA has recently issued a
new CPT Code for use with our ColorMate(R) TLc-BiliTest(R) System. This new CPT
Code will go into effect on January 1, 2001. Claims for reimbursement under this
new code may not be as readily processed for reimbursement as claims made under
CPT Code 82250.
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<PAGE> 13
WE EXPECT TO ISSUE ADDITIONAL SHARES IN THE FUTURE WHICH WOULD DILUTE THE
OUTSTANDING SHARES
In order to finance the commercialization of our ColorMate(R)
TLc-BiliTest(R) System and other applications of our ColorMate(R) System, we
expect to issue and sell additional shares of our common stock or securities
convertible into our common stock, such as the securities which we issued to the
selling stockholder, in the future. As of October 31, 2000, approximately 14
million shares of our common stock were authorized but unissued and unreserved.
These shares may be issued in the future without stockholder approval. The
prices at which we sell these securities and other terms and provisions will
depend on prevailing market conditions and other factors in effect at that time,
all of which are beyond our control. Shares may be issued at prices which are
less than the then-current market price of our common stock and/or at prices
which are less than the prices at which the shares of common stock being offered
by the selling stockholder hereby are sold.
THE TERMS OF THE CONVERTIBLE PREFERRED STOCK MAY ADVERSELY AFFECT THE RIGHTS OF
THE COMMON STOCK HOLDERS.
Our convertible preferred stock will be entitled to priority of payment
in the event we are liquidated and dissolved in preference to any distribution
to the holders of our common stock. In addition, for as long as the shares of
convertible preferred stock are outstanding we are prohibited from issuing any
class or series of preferred stock with a priority of payment superior or equal
to the priority of payment of the convertible preferred stock without the
written consent of the holders thereof.
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<PAGE> 14
RECENT EVENTS
In June 2000 we completed the acquisition of Gordon. We acquired from
the shareholders of Gordon:
- approximately 85% of the outstanding shares of common stock,
par value $.001, of Gordon,
- options to purchase the remaining shares of Gordon, subject to
mandatory exercise by us on the first anniversary of the
closing date if not sooner exercised within one year and
- notes in the aggregate principal amount of $1,854,000 made by
Gordon in favor of its shareholders.
In exchange, we issued to the shareholders of Gordon a total of 721,231
shares of our common stock and paid them $609,000 in cash. In addition, we
agreed to register the shares of our common stock issued to the shareholders of
Gordon for resale under the Securities Act of 1933 and use our reasonable best
efforts to maintain the effectiveness of this registration statement until the
earlier of the date that all of the shares of our common stock held by such
shareholders have been sold or 360 days after the effective date of the
registration statement.
In order to finance our activities, we recently completed the following
private placements of securities. In August 2000, we sold to a private investor
for gross proceeds of $3,000,000:
- 641,026 shares of our common stock,
- a warrant to purchase 150,000 shares of our common at an
exercise price equal to $5.26 and
- an additional warrant to purchase, on two different vesting
dates, at an exercise price equal to $.001, a number of shares
of our common stock to be adjusted according to the closing
bid prices of our common stock during the forty trading days
preceding each respective vesting date.
As compensation for services rendered in connection with this private
placement, an additional warrant to purchase 30,000 shares of our common stock
was issued to our financial advisor on the same terms and conditions as the
warrant issued to the purchaser.
In June 1999 we sold 40,000 shares of convertible preferred stock and
warrants to purchase 270,690 shares of our common stock to an affiliate of
Lehman Brothers, Inc for aggregate proceeds of $4,000,000. In February 2000 we
sold 40,000 shares of convertible preferred stock and warrants to purchase
304,372 shares of our common stock to the same Lehman affiliate for aggregate
proceeds of $4,000,000. The shares of preferred stock issued during these
financings are convertible into shares of our common stock at a conversion price
of $4.68 per share and the warrants have an exercise price of $4.68 per share.
The shares of preferred stock and the warrants are subject to adjustment for
stock splits, combinations and similar recapitalizations affecting our common
stock and in certain circumstances involving the issuance of shares of our
common stock at prices below $4.68 per share. 575,062 of the warrants issued
during these financings are currently outstanding.
In June 2000 we engaged Josephthal & Co. Inc. as our financial advisor.
Under a non-exclusive agreement, Josephthal will provide us with financial
advice and general investment banking services with respect to proposed business
transactions and financings. As compensation for such services, we agreed to pay
Josephthal a non-refundable retainer fee of $100,000 and to issue to its
designees warrants to purchase 298,717 shares of our common stock. These
warrants will expire five years from the date of issuance, have an exercise
price of $4.68 and are subject to adjustment for stock splits, combinations and
similar recapitalizations affecting our common stock and in certain
circumstances involving the issuance of shares of our common stock at prices
below $4.68.
On October 11, 2000, we obtained commitments from three of our major
investors to restructure the terms of their respective securities. Millennium
and the Lehman affiliate agreed to eliminate provisions in their respective
purchase documents involving antidilution and provisions imposing monetary
penalties in the event that our common stock is delisted from Nasdaq. They also
agreed to delete those provisions granting them rights to require us to
repurchase shares of our common stock or preferred stock for cash, except in
certain limited circumstances within our control. The convertible
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<PAGE> 15
debenture holders agreed to convert the entire principal amount of their
debentures, and any accrued but unpaid interest thereon, into a newly authorized
series of convertible preferred stock, effective October 31, 2000. This new
class of convertible preferred:
- has a conversion price of $4.68 per share,
- ranks senior and prior to all existing and future classes or
series of our capital stock in the event of the distribution of
our assets upon liquidation, dissolution or winding up,
- is entitled to cumulative dividends beginning on April 15,
2002 at a rate of 8% per annum, to be increased in the event a
dividend payment is missed to 11% until all accrued dividends
are paid in full,
- is subject to involuntary conversion at our option into shares
of our common stock at a conversion price of $4.68 per share
if the average closing bid price of our common stock for ten
consecutive trading days exceeds $10.29 and
- is subject to adjustment for stock splits, combinations and
similar recapitalizations affecting our common stock.
The purpose of this restructuring was to assist us in meeting the net tangible
assets requirement for continued listing on the Nasdaq SmallCap Market. The
commitments of these investors were subject to certain conditions, including our
securing confirmation from Nasdaq of our eligibility for continued listing on
the Nasdaq SmallCap Market and the closing of the equity financing with Crescent
(described below). Each of these conditions were satisfied on or prior to
November 1, 2000. In consideration of their agreements to restructure their
respective securities, we agreed to issue to each of the Lehman affiliate and
the debenture holders 200,000 five-year warrants to purchase our common stock at
an exercise price of $1.50 per share. We also agreed with the debenture holders
not to incur or permit any future liens on any of our properties or assets, not
to grant any security interests in our future revenues and not to consummate any
future financing which involves the issuance of debentures.
On October 31, 2000, we issued to Crescent 200 shares of a new series
of preferred stock and a five-year warrant to purchase up to 270,000 shares of
our common stock for an aggregate purchase price of $2,000,000. The warrant has
an exercise price equal to $1.00 per share and is subject to adjustment in
certain circumstances. The preferred stock is:
- convertible at any time at the option of Crescent into the
number of shares of common stock determined by dividing
$10,000 by the lower of $0.82 and 92% of the average of the
lowest three consecutive closing bid prices of our common
stock during the 22 trading day period immediately preceding
the date that conversion is requested;
- subject to redemption by us at any time after October 31, 2002
and upon the written request of Cresent, for either, at our
option, (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 $0.82 and 92% of the average of the lowest three
consecutive closing bid prices of our common stock during the
22 trading day period immediately preceding the date that
redemption is requested; and
- subject to restrictions on conversion and redemption which
prohibit Cresent or its affiliates from owning more than 9.9%
of our outstanding common stock, as determined in accordance
with Section 13(d) of the U.S. Securities Exchange Act of
1934, as amended.
In November 2000, Crescent converted 64 of the 200 shares of preferred stock
registered in its name into 1,391,304 shares of our common stock.
We have agreed to prepare and file a registration statement covering
the resale of the shares of common stock issuable upon the conversion of the
Crescent preferred stock and the exercise of the accompanying warrant and to
keep the registration statement effective until 180 days after the later of the
date that the exercise period expires for the warrant (if it has not been
exercised in full) and the date that all registrable securities issued or
issuable to Crescent may be sold without registration and without any time,
volume or manner limitations pursuant to Rule 144(k) under the Securities Act.
WHERE YOU CAN GET MORE INFORMATION
We are a reporting company and file annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and
copy these reports, proxy statements and other information at the SEC's public
reference
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<PAGE> 16
rooms in Washington, DC, New York, NY and Chicago, IL. You can request copies of
these documents by writing to the SEC and paying a fee for the copying cost.
Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the public reference rooms. Our SEC filings are also available at the SEC's
web site at "http://www.sec.gov." In addition, you can read and copy our SEC
filings at the office of the National Association of Securities Dealers, Inc. at
1735 K Street, N.W., Washington, DC 20006.
The SEC allows us to "incorporate by reference" information that we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
- Proxy Statement for 2000 Annual Meeting of Stockholders to be
held on December 18, 2000,
- Quarterly Report on Form 10-Q for the period ended September
30, 2000 filed November 14, 2000,
- Current Report on Form 8-K filed November 3, 2000,
- Current Report on Form 8-K filed November 3, 2000,
- Current Report on Form 8-K filed September 1, 2000,
- Quarterly Report on Form 10-Q for the period ended June 30,
2000 filed August 18, 2000,
- Current Report on Form 8-K filed June 19, 2000, as amended by
Form 8-K/A filed August 18, 2000,
- Quarterly Report on Form 10-Q for the period ended March 30,
2000 filed May 15, 2000,
- Annual Report on Form 10-K for the year ended December 31,
1999 filed March 30, 2000, as amended by Form 10-K/A No. 1
filed March 31, 2000,
- The description of the common stock contained in Chromatics
Color Sciences International, Inc. Registration Statement on
Form 8-A filed February 1, 1993,
- The description of the purchase rights for Class B Series 1
preferred stock contained in the Chromatics Color Sciences
International, Inc. Registration Statement on Form 8-A filed
January 5, 1999,
- Registration Statement on Form 8-A/A amending the description
of the common stock filed November 12, 1999,
- Registration Statement on Form 8-A/A amending the description
of the purchase rights for Class B Series 1 preferred stock
filed November 12, 1999,
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Ms. Leslie Foglesong
Secretary
Chromatics Color Sciences International, Inc.
5 East 80th Street
New York, NY 10021
(212) 717-6544
FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus and the documents
incorporated by reference are forward-looking statements. These forward-looking
statements are subject to certain risks and uncertainties, including, among
others, those listed under "Risk Factors" above and in the documents
incorporated by reference.
SELLING STOCKHOLDERS
We agreed with Crescent to use our reasonable best efforts to have this
registration statement declared effective by the Securities and Exchange
Commission not later than 90 calendar days after the date of issuance of the
preferred stock and the warrant. We further agreed, with certain exceptions, to
ensure that this registration statement and any subsequent
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<PAGE> 17
amendments to it remain in effect for a period ending 180 days following the
later of the date of expiration of the exercise period of the warrant and the
date all securities issued or issuable to Crescent may be sold without
registration and without any time, volume or manner limitations pursuant to Rule
144(k) under the Securities Act of 1933, as amended. We agreed with LB to use
our commercially reasonable best efforts to cause this registration statement to
be declared effective as promptly as possible after its filing and to maintain
the effectiveness of this registration statement until all of the shares covered
by it have been sold or may be sold without registration. Our registration of
these shares does not necessarily mean that Crescent or LB will sell all or any
shares of common stock.
The following table sets forth pertinent information regarding the
beneficial ownership of the common stock, as of October 31, 2000, of the selling
stockholders. The information provided in the table below with respect to the
selling stockholders has been obtained from the selling stockholders. Except as
otherwise disclosed below, the selling stockholders do not have, nor within the
past three years have had, any position, office or other material relationship
with us. Because the selling stockholders may sell all or some portion of the
shares of common stock beneficially owned by them, we cannot estimate the number
of shares of common stock that will be beneficially owned by the selling
stockholders after this offering. In addition, the selling stockholders may have
sold, transferred or otherwise disposed of, or may sell, transfer or otherwise
dispose of, at any time or from time to time since the date on which they
provided the information regarding the shares of common stock beneficially owned
by them, all or a portion of the shares of common stock beneficially owned by
them in transactions exempt from the registration requirements of the Securities
Act of 1933. The following table assumes that all of the shares of common stock
being registered will be sold by the selling stockholders.
Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the SEC under the Securities Exchange Act of 1934, as amended.
Shares of common stock issuable pursuant to options, warrants and convertible
securities, to the extent these securities are currently exercisable or
convertible within 60 days of October 31, 2000, are treated as outstanding for
computing the percentage of the person holding these securities but are not
treated as outstanding for computing the percentage of any other person. Unless
otherwise noted, the person identified possesses sole voting and investment
power with respect to the shares. Shares not outstanding but deemed beneficially
owned by virtue of the right of a person to acquire them within 60 days are
treated as outstanding only for purposes of determining the number of and
percent owned by that person.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY NUMBER OF SHARES NUMBER OF SHARES PERCENTAGE
OWNED AS OF REGISTERED FOR SALE BENEFICIALLY OWNED OWNERSHIP AFTER
NAME OF SELLING STOCKHOLDER OCTOBER 31, 2000 HEREUNDER AFTER OFFERING OFFERING
--------------------------- ---------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Crescent International Ltd(1).............. 1,836,190 (1) 4,617,826 0 0%
c/o GreenLight (Switzerland) SA
84, av Louis-Casai
1216 Geneva, Cointrin
Switzerland
LB Pension Plan and Trust (2).............. 158,982 (3) 158,982 0 0%
2 First Avenue
Sterling, Illinois 61081
</TABLE>
(1) Certain affiliates of the selling stockholder have voting and investment
power with respect to the shares held by the selling stockholder, as
disclosed in the Schedule 13G filed by the selling stockholder on
November 13, 2000.
(2) The shares of common stock beneficially owned by the selling stockholder
include shares of common stock which the selling stockholder has the
current right to purchase upon conversion or redemption of preferred stock
and a warrant issued to the selling stockholder. Pursuant to the terms of
the preferred stock and the warrant purchased by the selling stockholder,
the aggregate number of shares of common stock into which the preferred
stock is convertible and redeemable and into which the warrant is currently
exercisable, and which the selling stockholder has the right to acquire
beneficial ownership of within 60 days of October 31, 2000, is limited to
the number of shares of common stock which, together with all other shares
of common stock beneficially owned by the selling stockholder, does not
exceed 9.9% of the total outstanding shares of common stock of Chromatics.
(3) James Bergman, a member of the Board of Directors of Chromatics, is a
Trustee of the selling stockholder.
(4) Includes 79,491 shares of common stock which may be acquired within 60 days
of October 31, 2000 upon the exercise of warrants issued to the selling
stockholder.
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<PAGE> 18
PLAN OF DISTRIBUTION
The selling stockholders or their transferees may, from time to time,
sell all or a portion of the shares of common stock being registered pursuant to
this prospectus in privately negotiated transactions or otherwise, at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to these market prices or at negotiated prices. The shares may be
sold by the selling stockholders by one or more of the following methods,
without limitation:
- block trades in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the
transaction,
- purchases by a broker or dealer as principal and resale by
that broker or dealer for its account pursuant to this
prospectus,
- an exchange distribution in accordance with the rules of the
applicable exchange,
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers,
- privately negotiated transactions,
- short sales
- a combination of any of these methods of sale and
- any other method permitted pursuant to applicable law.
The selling stockholders and any broker-dealers or agents that
participate with the selling stockholders in sales of the shares may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933 in
connection with these sales. If so, any commissions received by these
broker-dealers or agents and any profit on the resale of the shares purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act of 1933.
From time to time, the selling stockholders may engage in short sales,
short sales against the box (in which the seller owns shares of our common stock
at the time of the sale but borrows other shares of our common stock to sell in
the short sale), puts and calls and other transactions in our securities or
derivatives of these securities, and may sell and deliver the shares in
connection therewith or in settlement of securities loans. From time to time,
the selling stockholders may pledge their shares pursuant to the margin
provisions of their customer agreements with their brokers. Upon a default by a
selling stockholder, the broker may offer and sell the pledged shares from time
to time.
In effecting sales, brokers and dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate in these
sales. Brokers or dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of the
shares, from that purchaser) in amounts to be negotiated which are not expected
to exceed those customary in the types of transactions involved. Broker-dealers
may agree with the selling stockholders to sell a specified number of shares at
a stipulated price per share, and, to the extent the broker-dealer is unable to
do so acting as agent for the selling stockholders, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
the selling stockholders.
Broker-dealers who acquire shares as principal may thereafter resell
the shares from time to time in transactions (which may involve block
transactions and sales to and through other broker-dealers, including
transactions of the nature described above) in the over-the-counter market or
otherwise at prices and on terms then prevailing at the time of sale, at prices
then related to the then-current market price or in negotiated transactions and,
in connection with these resales, may pay to or receive from the purchasers of
the shares commissions as described above. The selling stockholders may also
sell the shares in accordance with Rule 144 under the Securities Act of 1933,
rather than pursuant to this prospectus.
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We have agreed to indemnify the selling stockholders against losses,
claims, damages and liabilities arising under the Securities Act of 1933.
We have informed the selling stockholders that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934 may apply
to the sales of its shares offered hereby. We have also advised the selling
stockholders of the requirement for delivery of this prospectus in connection
with any sale of the shares offered hereby.
The selling stockholders may from time to time purchase shares of
common stock in the open market. The selling stockholders have been notified
that they should not commence any distribution of shares unless they have
terminated their purchasing and bidding for common stock in the open market as
provided in applicable securities regulations.
There is no assurance that the selling stockholders or their
transferees will sell any or all of the shares offered by them in this
prospectus.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for us by Patterson, Belknap, Webb & Tyler LLP, 1133 Avenue of the
Americas, New York, New York.
EXPERTS
Our financial statements as of December 31, 1999 and December 31, 1998
and for the years then ended incorporated by reference in this prospectus and
registration statement have been audited by BDO Seidman, LLP, independent
auditors, as set forth in their report dated March 10, 2000 and are included in
reliance upon the authority of BDO Seidman, LLP as experts in accounting and
auditing. Our financial statements for the year ended December 31, 1997
incorporated by reference in this prospectus and registration statement have
been audited by Wiss & Company, independent auditors, as set forth in their
report dated February 17, 1998 and are included in reliance upon the authority
of Wiss & Company as experts in accounting and auditing. The financial
statements of Gordon Laboratories, Inc. as of May 31, 1999 and May 31, 1998 and
for the years then ended incorporated by reference in this prospectus and
registration statement have been audited by BDO Seidman, LLP, independent
auditors, as set forth in their report (which contains a going concern
explanatory paragraph) dated December 20, 1999, except for certain notes that
are dated February 23, 2000 and April 17, 2000, and are included in reliance
upon the authority of BDO Seidman, LLP as experts in accounting and auditing.
18
<PAGE> 20
WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS. DO NOT RELY ON ANY INFORMATION
OR REPRESENTATION NOT CONTAINED IN HEREIN. THIS PROSPECTUS IS NOT AN OFFER TO
SELL ANY OF THE SECURITIES OFFERED HEREBY IN THOSE JURISDICTIONS WHERE SUCH AN
OFFER WOULD BE UNLAWFUL.
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
About Chromatics...................................................................................... 2
Risk Factors.......................................................................................... 4
Recent Events......................................................................................... 12
Where You Can Get More Information.................................................................... 13
Forward-Looking Statements............................................................................ 14
Selling Stockholders.................................................................................. 14
Plan of Distribution.................................................................................. 18
Legal Matters......................................................................................... 19
Experts............................................................................................... 19
</TABLE>
19
<PAGE> 21
4,887,826 SHARES OF
COMMON STOCK
CHROMATICS
COLOR SCIENCES
INTERNATIONAL, INC.
PROSPECTUS
<PAGE> 22
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various estimated amount of fees and
expenses payable in connection with this offering other than sales commissions.
All of these expenses will be borne by the registrant.
<TABLE>
<CAPTION>
AMOUNT OF
ITEM EXPENSES
<S> <C>
SEC Registration Fee...................................................... $ 2,137.27
----------
Printing Expenses......................................................... 10,000.00*
Accounting Fees and Expenses.............................................. 1,000.00*
Legal Fees and Expenses................................................... 5,000.00*
Miscellaneous Expenses.................................................... 1,000.00*
----------
Total............................................................. $19,137.27
==========
</TABLE>
*Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 722 of the Business Corporation Law of the State of New York
and Article X of Chromatics' Certificate of Incorporation contain provisions for
the indemnification of officers and directors of Chromatics. The Certificate of
Incorporation requires Chromatics to indemnify officers and directors to the
full extent permitted by New York Law. Each person will be indemnified in any
proceeding if he or she acted in good faith and in a manner which he or she
reasonably believed to be in, or not opposed to, the best interests of
Chromatics. Indemnification would cover judgments, fines, amounts paid in
settlement and reasonable expenses, including attorney's fees.
Chromatics has directors' and officers' liability insurance. This
insurance may cover liabilities asserted against any present or past director or
officer incurred in the capacity of director or officer arising out of his or
her status, whether or not Chromatics would have the power to indemnify this
person.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C> <C>
3.1 -- Restated Articles of Incorporation of Chromatics (incorporated by reference to Exhibit 3.1 to
Chromatics' Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1999).
3.2 -- Certificate of Amendment to Articles of Incorporation of Chromatics, (incorporated by reference to
Exhibit 3.1.1 to Chromatics' 1999 Annual Report on Form 10-K).
3.3 -- Certificate of Amendment to Articles of Incorporation of Chromatics, (incorporated by reference to
Exhibit 4.4 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
3.4 -- Certificate of Amendment to Articles of Incorporation of Chromatics, (incorporated by reference to
Exhibit 4.7 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
3.5 -- By-Laws of Chromatics (incorporated by reference to Exhibit 3.2 to Chromatics' 1999 Annual Report
on Form 10-K).
</TABLE>
II-1
<PAGE> 23
<TABLE>
<S> <C> <C>
4.1 -- Restated Articles of Incorporation of Chromatics (incorporated by reference to Exhibit 3.1 to
Chromatics' Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1999).
4.2 -- Certificate of Amendment to Articles of Incorporation of Chromatics, filed on February 10, 2000
(included in Exhibit 3.2)
4.3 -- Certificate of Amendment to Articles of Incorporation of Chromatics, (incorporated by reference to
Exhibit 4.4 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
4.4 -- Certificate of Amendment to Articles of Incorporation of Chromatics, (incorporated by reference to
Exhibit 4.7 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
4.5 -- Stock Purchase Agreement, dated as of October 31, 2000, between Chromatics and Cresent International Ltd.
(incorporated by reference to Exhibit 4.1 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
4.6 -- Warrant, dated as of October 31, 2000, made by Chromatics in favor of Cresent International Ltd.(Incorporated
by reference to Exhibit 4.2 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
5.1 -- Opinion Regarding Legality.
23.1 -- Consent of BDO Seidman, LLP.
23.2 -- Consent of Wiss & Company.
23.3 -- Consent of Patterson, Belknap, Webb & Tyler LLP (included in Exhibit 5.1).
</TABLE>
II-2
<PAGE> 24
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represents a fundamental
change in the information set forth in the registration
statement;
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in this registration statement or any material change to such
information in this registration statement;
provided, however, that paragraphs (i) and (ii) do not apply to this
registration statement if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 and incorporated by
reference in this registration statement;
(2) that, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof;
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) the undersigned registrant hereby undertakes that, for the purpose
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in the first
paragraph of Item 15 above, or otherwise, the registrant has been advised that
in the opinion of the SEC such indemnification is against public policy as
expressed in said Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, State of New York, on December 15, 2000.
CHROMATICS COLOR SCIENCES
INTERNATIONAL, INC.
Date: December 15, 2000
By: /s/ BRIAN T. FITZPATRICK
---------------------------------
Brian T. Fitzpatrick,
President and Acting Chief
Executive Officer
IN ACCORDANCE WITH THE SECURITIES ACT OF 1933, THIS REPORT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ BRIAN T. FITZPATRICK Director, President and Acting December 15, 2000
---------------------------------------- Chief Executive Officer (Principal
Brian T. Fitzpatrick Executive Officer)
/s/ FRANCIS MARCHESE Chief Financial Officer December 15, 2000
---------------------------------------- (Principal Financial and
Francis Marchese Accounting Officer)
/s/ DARBY S. MACFARLANE Chairperson of the Board and December 15, 2000
---------------------------------------- Chief Technology Officer
Darby S. Macfarlane
/s/ LESLIE FOGLESONG Director December 15, 2000
----------------------------------------
Leslie Foglesong
/s/ DAVID KENNETH MACFARLANE Director, Vice-President--Research December 15, 2000
---------------------------------------- and Development
David Kenneth Macfarlane
/s/ EDMUND VIMOND Director December 15, 2000
----------------------------------------
Edmund Vimond
/s/ EDWARD MAHONEY Director December 15, 2000
----------------------------------------
Edward Mahoney
/s/ JAMES BERGMAN Director December 15, 2000
----------------------------------------
James Bergman
</TABLE>
II-4
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C> <C>
3.1 -- Restated Articles of Incorporation of Chromatics (incorporated by reference to Exhibit 3.1 to
Chromatics' Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1999).
3.2 -- Certificate of Amendment to Articles of Incorporation of Chromatics, (incorporated by reference
to Exhibit 3.1.1 to Chromatics' 1999 Annual Report on Form 10-K).
3.3 -- Certificate of Amendment to Articles of Incorporation of Chromatics, (incorporated by reference to
Exhibit 4.4 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
3.4 -- Certificate of Amendment to Articles of Incorporation of Chromatics, (incorporated by reference to
Exhibit 4.7 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
3.5 -- By-Laws of Chromatics (incorporated by reference to Exhibit 3.2 to Chromatics' 1999 Annual Report
on Form 10-K).
4.1 -- Restated Articles of Incorporation of Chromatics (incorporated by reference to Exhibit 3.1 to
Chromatics' Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1999).
4.2 -- Certificate of Amendment to Articles of Incorporation of Chromatics, filed on February 10, 2000
(included in Exhibit 3.2)
4.3 -- Certificate of Amendment to Articles of Incorporation of Chromatics, (incorporated by reference to
Exhibit 4.4 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
4.4 -- Certificate of Amendment to Articles of Incorporation of Chromatics, (incorporated by reference to
Exhibit 4.7 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
4.5 -- Stock Purchase Agreement, dated as of October 31, 2000, between Chromatics and Cresent International Ltd.
(incorporated by reference to Exhibit 4.1 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
4.6 -- Warrant, dated as of October 31, 2000, made by Chromatics in favor of Cresent International Ltd.(Incorporated
by reference to Exhibit 4.2 to Chromatics' Current Report on Form 8-K filed November 3, 2000).
5.1 -- Opinion Regarding Legality.
23.1 -- Consent of BDO Seidman, LLP.
23.2 -- Consent of Wiss & Company.
23.3 -- Consent of Patterson, Belknap, Webb & Tyler LLP (included in Exhibit 5.1).
</TABLE>
