As filed with the Securities and Exchange Commission on April 10, 2002
Registration No. 333-76090
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
_______________________________
COLOR IMAGING, INC.
(Name of Small Business Issuer in Its Charter)
____________________
Delaware 3861 13-3453420
(State or Jurisdiction of (Primary Standard Industrial (IRS Employer Identification
Incorporation or Organization) Classification Code Number) Number)
____________________
4350 Peachtree Industrial Boulevard, Suite 100
Norcross, Georgia 30071
(770) 840-1090
(Address and Telephone Number of Principal Executive Offices)
____________________
Michael W. Brennan, Chief Executive Officer
Color Imaging, Inc.
4350 Peachtree Industrial Boulevard, Suite 100
Norcross, Georgia 30071
(770) 840-1090; Fax: (770) 242-3494
(Name, Address and Telephone Number of Agent for Service)
____________________
Copies to:
Gerald M. Chizever, Esq.
Kresimir Peharda, Esq.
Richman, Mann, Chizever, Phillips & Duboff
9601 Wilshire Boulevard, Penthouse
Beverly Hills, California 90210
(310) 274-8300; Fax: (310) 274-2831)
____________________
Approximate Date of Commencement of Proposed Sale to the Public:
As soon as practicable from time to time after the effective date of this
registration statement.
____________________
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of 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, check the following box and list the Securities Act
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(d) under
the Securities Act, check the following box and list the Securities Act
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. [_]
If any of the securities being registered on this form are to be 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. [X]
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Each Class Amount To Be Offering Price Aggregate Offering Amount Of
of Securities to be Registered Registered Per Share Price (1) Registered Fee
------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value
offered by selling stockholders 3,859,487 $ 3.10 $11,964,410 $1,101
Common Stock, $.01 par value
offered by Color Imaging, Inc. 3,500,000 $ 2.00 $ 7,000,000 $ 644
Common Stock, $.01 par value
underlying warrants offered by
Color Imaging, Inc. 3,500,000 $ 2.00 $ 7,000,000 $ 644
Total 10,859,487 $25,964,410 $2,389*
------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. Based on the
average of the bid and ask price per share of Common Stock of the
registrant as reported on the OTC Bulletin Board on December 24, 2001.
* Previously paid
__________________________
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
3,500,000 SHARES AND 3,500,000 SHARES UNDERLYING WARRANTS OFFERED BY
COLOR IMAGING, INC.
3,859,487 SHARES OFFERED BY SELLING STOCKHOLDERS
COLOR IMAGING, INC.
Color Imaging, Inc. is offering to sell up to 3,500,000 Units representing an
aggregate of 3,500,000 shares of common stock and warrants exercisable into
3,500,000 shares of common stock. The price per Unit is $2.00 for an aggregate
offering price of $7,000,000. Each Unit consists of one share of common stock
and a warrant to purchase one share of common stock at an exercise price of
$2.00. The warrant expires on December 31, 2003. We will sell the Units on a
best-efforts basis. We will require investors to purchase at least 100,000
Units. See "Description of Securities."
Our selling stockholders (the "Selling Stockholders") are offering to sell up to
3,859,487 shares of common stock. The Selling Stockholders may sell our
common stock on the open market at market price in ordinary broker transactions
or in negotiated transactions, and they may pay broker commissions in connection
with such transactions. We will not receive any of the proceeds of sale of such
stock nor pay any broker commissions in connection with such sales. Our common
stock is quoted on the OTC Bulletin Board under the symbol CIMG. On April 1,
2002, the closing price of our stock was $2.05 per share.
_________________________
You should carefully consider each of the risk
factors described under RISK FACTORS beginning
on page 3 of this prospectus.
_________________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities
or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
_________________________
The date of this prospectus is April , 2002
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY........................................................................... 1
FORWARD-LOOKING STATEMENTS................................................................... 3
RISK FACTORS................................................................................. 3
USE OF PROCEEDS.............................................................................. 7
CAPITALIZATION............................................................................... 7
THE COMPANY.................................................................................. 8
PROPERTY..................................................................................... 16
LEGAL PROCEEDINGS............................................................................ 16
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS...................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS......................................................... 16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS................................. 20
EXECUTIVE COMPENSATION....................................................................... 22
SECURITY OWNERSHIP OF CERTAIN PERSONS........................................................ 23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................... 25
DESCRIPTION OF SECURITIES OFFERED............................................................ 25
SELLING STOCKHOLDERS......................................................................... 27
PLAN OF DISTRIBUTION......................................................................... 29
LEGAL MATTERS................................................................................ 30
INDEMNIFICATION.............................................................................. 30
FURTHER INFORMATION.......................................................................... 30
FINANCIAL STATEMENTS......................................................................... F-1
PROSPECTUS SUMMARY
You should read this summary together with the other information contained in
other parts of this prospectus. Because it is a summary, it does not contain all
of the information that you should consider before investing in our common
stock.
The Company
We develop, manufacture and market products used in electronic printing,
analog and digital copiers and supply high-speed digital printing systems. These
high speed digital printing systems print in real-time directly on offset
presses. Offset presses are presses that utilize plates and ink to print on
paper and other materials. We conduct our business through two separate
operating units, Color and Logical Imaging Solutions, Inc. Color develops,
purchases from others and markets electronic printing products, including black
text, color magnetic ink character recognition and specialty toners, and
provides other parts and accessories for laser printers and digital copiers.
Logical designs, manufactures and integrates components made by third parties
into a complete printing system and offers technical support and supplies in
connection therewith. Logical's printing system allows commercial printers to
digitally process and print data that may change from page to page, also known
as variable data, and images at very high speeds directly on commercial offset
web presses. This capability saves time and money for the printer and
customer.
Color
Since 1989, Color has developed and manufactured products used in electronic
printing. Color formulates and produces black text and specialty toners,
including color and magnetic ink character recognition toners for numerous laser
printers. Color's toners permit the printing of a wide range of user-selected
colors and also the full process color printing of cyan, yellow, magenta and
black. Magnetic ink character recognition toners enable the printing of magnetic
characters which are required for the high-speed processing of checks and other
financial documents. Color also supplies other consumable products used in
electronic printing, including toner cartridges, cartridge components,
photoreceptors and imaging drums.
Color has continually expanded its product line and manufacturing
capabilities. This expansion has led to the creation of more than 130 different
black text, color, magnetic ink character recognition and specialty toner
formulations, including aftermarket toners and imaging products for printers and
facsimile machines manufactured by Brother(TM), Canon(TM), Delphax(TM), Hewlett
Packard(TM), IBM(TM), Lexmark(TM), Sharp(TM), Xerox(TM), Minolta(TM), Mita(TM),
Panafax(TM), Pentax(TM), Pitney Bowes(TM), Epson(TM), Fuji-Xerox(TM),
Toshiba(TM), Kyocera(TM), Okidata(TM), Panasonic(TM), and printing systems
developed by Logical. Color also manufacturers and or markets toners for use in
Ricoh, Sharp(TM), Xerox(TM) and Cannon(TM) copiers. Color also offers product
enhancements, including imaging supplies that enable standard laser printers to
print magnetic ink character recognition. Color markets its branded products
directly to OEMs and its aftermarket products worldwide to distributers and
remanufacturers of laser printer toner cartridges and to dealers and
distributers of copier products.
Logical
Logical designs, assembles and markets a complete printing system,
SOLUTION2000, to commercial printers. When installed directly on an offset
printing press, the SOLUTION2000 expands printing capabilities to include the
printing of variable data and images text together including bar codes, magnetic
ink character recognition and unlimited alphanumeric sequencing. These functions
allow commercial printers to digitally process and print variable data at
extremely high speeds where previously they were able to only print fixed images
from printing plates or cylinders installed on their offset printing presses.
Since its founding in 1993, Logical's development efforts have focused on
creating a revolutionary high-speed digital variable data printing system for
commercial printing applications that combines software, hardware and consumable
products. Logical also offers a full line of consumable products, including
toners, print cartridges and toner fusing assemblies. Our strategy is to
continually build an installed base of printer systems that will generate a
recurring demand for these consumable products.
Logical expects to beta test the DigitalColorPress, a Solution series of
printing systems incorporating color printing capabilities in the second quarter
of 2002. The DigitalColorPress can print variable data in color at rates
exceeding 250 pages-per-minute. This is in contrast to other products which do
not print directly on the press and print at speeds of approximately 85 pages
per minute. We believe that this represents an attractive alternative for high-
speed offset printing applications because it reduces steps and labor in the
print process. We intend to market Logical's DigitalColorPress color printing
system during 2002 as an enhancement to existing Solution series installations
and as an upgrade for other printing systems.
The Offering
This prospectus concerns an offering by us of up to 3,500,000 Units
representing an aggregate of 3,500,000 shares of common stock and warrants
exercisable into 3,500,000 shares of common stock. The price per Unit is $2.00
for an aggregate offering price of $7,000,000. Each Unit consists of one share
of common stock and a warrant to purchase one share of common stock at an
exercise price of $2.00. The warrant expires on December 31, 2003. We will sell
the Units on a best-efforts basis. We will require investors to purchase at
least 100,000 Units. There will be no escrow account. We will immediately use
all of the proceeds received from the sale of the Units.
This prospectus concerns an offering of up to 3,859,487 shares of our common
stock also by certain of our
1
current stockholders (the "Selling Stockholders"). The Selling Stockholders are
not required to sell our common stock; sales of our stock are entirely at the
discretion of the Selling Stockholders. The Selling Stockholders may sell such
stock either on the open market at market price in ordinary broker transactions
or in negotiated transactions, and they may pay broker commissions in connection
with such transactions. We will not receive any of the proceeds of sale of our
stock by the Selling Stockholders nor will we pay any broker commissions in
connection with such sales. Our common stock is quoted on the OTC Bulletin Board
under the symbol CIMG. On April 1, 2002, the closing price for our stock was
$2.05 per share. We will pay the costs of registering the offer and sale of the
securities offered hereby with the Securities and Exchange Commission and any
required state securities agencies.
Units Offered by Color Imaging, Inc.......................................... 3,500,000
Offering Price............................................................... $2.00
Common Stock Offered by Selling Stockholders(1).............................. 3,859,487
OTC Bulletin Board Symbol.................................................... CIMG
Common Stock Outstanding Before the Offering ................................ 10,099,175
Common Stock to be outstanding after the offering (2)........................ 13,599,175
Use of Proceeds from Units Offered by Color Imaging, Inc..................... $ 6,718,000
We will receive approximately $6,718,000 in net proceeds in this
offering, excluding any proceeds that may be derived from the exercise
of warrants included in the Units offered by us. To the extent proceeds
are not required in the amount(s) outlined for the purposes described
hereafter, such proceeds would be used for other general corporate
purposes, including working capital. Our intended use of the proceeds
are:
For accounts payable and other corporate expenses:........................... $ 1,000,000
For purchasing on improved vendor terms:..................................... $ 2,000,000
To repay affiliate borrowings:............................................... $ 1,000,000
To retire debt:.............................................................. $ 375,000
To temporarily pay down the revolving line of credit:........................ $ 1,500,000
For other general corporate purposes including working capital............... $ 843,000
(1) Includes shares of common stock underlying warrants.
(2) Excludes shares of common stock underlying warrants that comprise the Units
being offered.
Michael W. Brennan, Chief Executive Officer
Color Imaging, Inc.
4350 Peachtree Industrial Boulevard, Suite 100
Norcross, Georgia 30071
(770) 840-1090
2
RISK FACTORS
Investing in our common stock involves a significant degree of risk. You
should carefully consider the following risk factors and all the other
information contained in this prospectus or incorporated by reference before
investing in our common stock. If any of the following risks actually occurs,
our business, financial condition and results of operations could suffer, in
which case the trading price of our common stock may decline.
Factors That May Affect Future Results and Information Concerning Forward -
Looking Statements
Statements contained in this prospectus which are not statements of
historical fact are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These forward-looking statements may be identified by the use of forward-
looking terms such as "believes," "expects," "may", "will," "should" or
"anticipates" or by discussions of strategy that involve risks and
uncertainties. From time to time, we have made or may make forward-looking
statements, orally or in writing. These forward-looking statements include
statements regarding anticipated future revenues, sales, operations, demand,
competition, capital expenditures, credit arrangements, and other statements
regarding matters that are not historical facts, involve predictions which are
based upon a number of future conditions that ultimately may prove to be
inaccurate. Our actual results, performance or achievements could differ
materially from the results expressed in, or implied by, these forward-looking
statements. Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon our business. We cannot predict whether future developments
affecting us will be those anticipated by management, and there are a number of
factors that could adversely affect our future operating results or cause our
actual results to differ materially from the estimates or expectations reflected
in such forward-looking statements, including without limitation, those
discussed in the sections titled "The Company" and "Management's Discussion and
Analysis" and the factors set forth below:
Risks related to our business:
We anticipate that we will need to raise additional capital or obtain
funding to finance certain of our planned operating and investing activities
over the next twelve months.
Our failure to raise additional capital in the approximate amount of
$500,000 may significantly limit our ability to finance certain planned
operating and investing activities over the next twelve months that we believe
will generate additional revenues and reduce manufacturing costs. Specifically,
we will need to barrow or raise additional funds to meet the additional planned
$200,000 of vendor commitments and $300,000 in capital improvement commitments.
We may not be able to obtain additional financing at commercially reasonable
rates, or at all. Our failure to obtain additional funds would significantly
limit or eliminate the our ability to conduct the foregoing activities or it may
have to curtail or eliminate other activities. We anticipate that we will seek
additional funding through the public or private sales of our securities. That
could include financing through equity securities, or through commercial or
private financing arrangements. Adequate funds may not be available when needed
or on terms acceptable to us, or at all. In the event that we are not able to
obtain additional funding on a timely basis, we may be required to limit any
proposed operations, research and development or expansion.
The success of approximately 40% of our business depends on a supplier
approved by its customer for that business.
Some of our products incorporate technologies that are available from a
particular supplier that has been approved by one of our customers.
Approximately 40% of our sales for the twelve months ended December 31, 2001
were derived from products limited to a specific supplier. For the twelve months
ended December 31, 2001, we purchased 51% of our raw materials, components and
supplies from the same supplier. We do not have a written agreement with this or
any other supplier. We relies on purchase orders to provide us with the supplies
needed. Should we be unable to obtain the necessary materials from this
supplier, product shipments could be prevented or delayed, which could result in
a loss of sales. If we are unable to fulfill existing orders or accept new
orders because of a shortage of materials, we may lose revenues and risk losing
customers.
The success of our business depends on a limited number of customers.
In the twelve months ended December 31, 2001, three customers accounted for
approximately 70% of our net sales. We do not have contracts with these
customers and all of the sales to them are made through purchase orders. While
our products typically go through the customer's required qualification process,
which we believe gives us an advantage over other suppliers, this does not
guarantee that the customer will continue to purchase from us. The loss of any
of these customers, including through an acquisition or other business
combination could have a substantial and adverse effect on our business. We have
in the past, and may in the future, lose one or more major customers. If we do
not sell products or services to customers in the quantities anticipated, or if
a major customer terminates its relationship with us market perception of our
products and technology, growth prospects, and financial condition and results
of operation could be harmed.
3
Our success is dependent on our ability to successfully develop, or acquire
from third parties products that we can commercialize and that achieve market
acceptance.
The challenges we face in implementing our business model include
establishing market acceptance of existing products and services and
successfully developing or acquiring new product lines that achieve market
acceptance. We must successfully commercialize the products that are currently
being developed, and continue to acquire from third parties parts, materials and
finished product that can be integrated into finished products or sold as our
products. While we have successfully developed toners in the past and are in the
late stages of developing and testing several new toners and installing our
first DigitalColorPress employing electron beam imaging technologies, we have
not commercialized many of the toners that are under development or fully
commercialized for manufacturing the DigitalColorPress. While we have in the
past acquired from third parties materials and products that we have been
successful in selling, there can be no assurance that parts, materials or
products for new products will be available or will achieve market acceptance.
If we fail to successfully commercialize products we develop or acquire from
third parties, or if these products fail to achieve market acceptance, our
financial condition and results of operation would be seriously harmed.
Our success is dependent on our ability to utilize available manufacturing
capacity.
We recently expanded our manufacturing capacity by acquiring new
manufacturing equipment and moving to a larger location. We intend to continue
expand capacity by placing in service additional manufacturing equipment during
the second quarter of 2002. To fully utilize these new additions to the factory,
new formulations for toner have to be developed specifically for manufacture on
this new equipment or orders for larger quantities of existing toners must be
obtained. While we have been successful in developing formulas for new equipment
in the past and increasing sales of many of our existing toner products, our
continued success will be dependent on our ability to develop additional
formulations or increase our sales from existing formulations and manufacture
the toners with the new equipment to achieve a reduction in production costs. We
cannot assure you that we will be successful in developing all of the
formulations needed in the future or that we will be able to manufacture toner
at a lower production cost on a regular basis or that such products will achieve
market acceptance. If we are not successful, or if our historical business
declines as the result of our efforts in this area, our business will be
materially and adversely affected.
We intend to grow revenues through an acquisition strategy that may prove
unsuccessful.
We intend to pursue acquisitions of businesses or technologies that
management believes complement or expand the existing business. Acquisitions of
this type involved a number of risks, including the possibility that the
operations of any business that are acquired will be unprofitable or that
management attention will be diverted from the day-to-day operation of the
existing business. An unsuccessful acquisition could reduce profit margins or
otherwise harm our financial condition, by, for example, impairing liquidity and
causing non-compliance with lending institution's financial covenants. In
addition, any acquisition could result in a dilutive issuance of equity
securities, the incurrence of debt or the loss of key employees. Certain
benefits of any acqusition may depend on the taking of one-time or recurring
accounting charges that may be material. We cannot predict whether any
acquisition undertaken by us will be successfully completed or, if one or more
acquisitions are completed, whether the acquired assets will generate sufficient
revenue to offset the associated costs or other adverse effects.
Our success depends on our ability to develop or acquire intellectual
property rights.
Our success depends in part on our ability to develop proprietary toner
formulas and manufacturing processes, obtain patents, copyrights and trademarks,
maintain trade secret protection and operate without infringing the proprietary
rights of others. Current or future claims of intellectual property
infringement could prevent us from obtaining technology of others and could
otherwise adversely affect our operating results, cash flows, financial position
or business, as could expenses incurred enforcing intellectual property rights
against others or defending against claims that our products infringe the
intellectual property rights of others.
Our intellectual property protection is limited.
While we have one patent and we have received the Notice of Allowance from
the U.S. Patent and Trademark Office for another patent, on the whole we do not
rely on patents to protect our proprietary rights. We do rely on a combination
of laws such as trade secrets and contractual restrictions such as
confidentiality agreements to protect proprietary rights. Despite any
precautions we have taken:
. laws and contractual restrictions might not be sufficient to prevent
misappropriation of our technology or deter others from developing similar
technologies; and
. policing unauthorized use of our products is difficult, expensive and
time-consuming and we might not be able to determine the extent of this
unauthorized use.
Therefore, there can be no assurance that we can meaningfully protect our
rights in such unpatented proprietary technology or that others will not
independently develop substantially equivalent proprietary products or processes
or otherwise gain access to the proprietary technology. Reverse engineering,
unauthorized copying or other misappropriation of our proprietary technology
could enable third parties to benefit from our technology without paying us
which could significantly harm our business.
Acts of domestic terrorism and war have impacted general economic
conditions and may impact the industry and our ability to operate
profitably.
On September 11, 2001, acts of terrorism occurred in New York City and
Washington, D.C. On October 7, 2001, the United States launched military attacks
on Afghanistan. As a result of those terrorist acts and acts of war, there has
been a disruption in general economic activity. The demand for printing products
and services may decline as layoffs in the transportation and other industries
affect the economy as a whole. There may be other consequences resulting from
those acts of terrorism, including civil disturbance, war, riot, epidemics,
public demonstration, explosion, freight embargos, governmental action,
governmental delay, restraint or inaction, quarantine restrictions,
unavailability of capital, equipment, personnel, which we may not be able to
anticipate. These terrorist acts and acts of war may continue to cause a slowing
of the economy, and in turn, reduce the demand of printing products and
services, which would harm our ability to make a profit. We are unable to
determine the long-term impact, if any, of these incidents or of any acts of war
or terrorism in the United States or worldwide on the U.S. economy, on us or on
the price of our common stock.
4
We depend on the efforts and abilities of certain officers and directors
to continue our operations and generate revenues.
Our success depends to a significant extent on the continued services of
senior management and other key personnel. While we do have employment, non-
compete and confidentiality agreements with executive officers and certain other
key individuals, these agreements may be terminated by either party upon giving
the required notice. The loss of the services of any of our executive officers
or other key employees could harm our business. Our success also depends on our
ability to attract, retain and motivate highly skilled employees. Competition
for qualified employees in the industries in which operate is intense. If we
fail to hire and retain a sufficient number of qualified employees, our business
will be adversely affected.
Compliance with government regulations may cause us to incur unforeseen
expenses.
Our black text, color and magnetic character toner supplies and
manufacturing operations are subject to domestic and international laws and
regulations, particularly relating to environmental matters that impose
limitations on the discharge of pollutants into the air, water and soil and
establish standards for treatment, storage and disposal of solid and hazardous
wastes. In addition, we are subject to regulations for storm water discharge,
and as a requirement of the State of Georgia have developed and implemented a
Storm Water Pollution Prevention Plan. We are also required to have a permit
issued by the State of Georgia in order to conduct various aspects of our
business. Compliance with these laws and regulations has not in the past had a
material adverse affect on our capital expenditures, earnings or competitive
position. There can be no assurance, however, that future changes in
environmental laws or regulations, or in the criteria required to obtain or
maintain necessary permits, will not have a material adverse affect on our
operations.
We sell a significant portion of our products internationally, which
exposes us to currency fluctuations and collection and product recall risks.
We sell a significant amount of product to customers outside of the
United States. International sales accounted for 24.5% of net sales in the
twelve months ended December 31, 2001 and 10.8% in the fiscal year ended
December 31, 2000. We expect that shipments to international customers will
continue to account for a material portion of net sales. Most products are
priced in U.S. dollars, but because we do sell products in Europe denominated
in Euros, fluctuations in the Euro could also cause our products there to become
less affordable or less competitive or we may sell some products at a loss to
otherwise maintain profitable business from a customer. Most of our products
sold internationally are on open account, giving rise to the added costs of
collection in the event of non-payment. Further, should a product shipped
overseas be defective, the Company would experience higher costs in connection
with a product recall or return and replacement. We cannot assure you that these
factors will not have a material adverse effect on our international sales and
would, as the result, adversely impact our results of operation and financial
condition.
Our quarterly operating results fluctuate as a result of many factors.
Our quarterly operating results fluctuate due to various factors. Some
of these factors include the mix of products sold during the quarter, the
availability and costs of raw materials or components, the costs and benefits of
new product introductions, and customer order and shipment timing. Because of
these factors, our quarterly operating results are difficult to predict and are
likely to vary in the future.
Risks relating to our industry:
We operate in a competitive and rapidly changing marketplace.
There is significant competition in the toner, consumable imaging
products and color printing systems industries in which we operate. In addition,
the market for digital color printers and copiers and related consumable
products is subject to rapid change. Many competitors, both OEMs and other after
market firms, have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing and other
resources than we do. These competitors may be able to devote substantially more
resources to developing their business than we can. Our ability to compete
depends upon a number of factors, including the success and timing of product
introductions, marketing and distribution capabilities and the quality of our
customer support. Some of these factors are beyond our control. In addition,
competitive pressure to develop new products and technologies could cause our
operating expenses to increase substantially.
Our products have short life cycles and are subject to frequent price
reductions.
The markets in which we operate are characterized by rapidly evolving
technologies, frequent new product introductions and significant price
competition. Consequently, our products have short life cycles, and we must
frequently reduce prices in response to product competition. Our financial
condition and results of operations could be adversely affected if we are unable
to manufacture new and competitive products in a timely manner. Our success
depends on our ability to develop and manufacture technologically advanced
products, price them competitively, and achieve cost reductions for existing
products. Technological advances require sustained research and development
efforts, which may be costly.
Our financial performance depends on our ability to successfully manage
inventory levels, which is affected by factors that may be beyond our control.
Our financial performance depends in part on our ability to manage
inventory levels to support the needs of new and existing customers. Our ability
to maintain appropriate inventory levels depends on factors that may be beyond
our control, including unforeseen increases or decreases in demand for our
products and production and supply difficulties. Demand for our products can be
affected by product introductions or price changes by competitors or by us, the
life cycle of our products, or delays in the development or manufacturing of our
products. Our operating results and ability to increase the market share of our
products may be adversely affected if we are unable to address inventory issues
on a timely basis. In addition, competitive pressure to develop new products and
technologies could cause our operating expenses to increase substantially.
Risks relating to owning our common stock:
Our officers, directors and principal stockholders own approximately 50%
of the outstanding shares of common stock, allowing these stockholders to
control matters requiring approval of the stockholders.
As a result of such ownership as of March 2002 by our officers,
directors and principal stockholders, investors will have limited control over
matters requiring approval by the stockholders, including the election of
directors. Such concentrated control may also make it difficult for the
stockholders to receive a premium for their shares of our common stock in the
event we enter into transactions that require stockholder approval. In addition,
certain provisions of
5
Delaware law could have the effect of making it more difficult or more expensive
for a third party to acquire, or of discouraging a third party from attempting
to acquire control of us.
Exercise of warrants and options will dilute existing stockholders and
could decrease the market price of our common stock.
As of March 31, 2002, we had issued and outstanding 10,099,880 shares of
common stock and outstanding warrants and options to purchase 2,328,352
additional shares of common stock. The existence of the remaining warrants and
options may adversely affect the market price of our common stock and the terms
under which could obtain additional equity capital.
Our ability to raise additional capital through the sale of our
securities registered hereby, or otherwise, may be harmed by competing resales
of our common stock by our stockholders.
The price of our common stock could fall if Selling Stockholders sell
substantial amounts of our common stock. Such sales could make it more difficult
for us to sell securities covered by this registration statement at the time and
price we deem appropriate. To the extent Selling Stockholders offer to and sell
their shares of common stock to investors for less than the price offered by us
in our offering, or otherwise, would be adversely affected. In addition,
potential investors may not be interested in purchasing shares of our common
stock on any terms if Selling Stockholders sell substantial amounts of our
common stock.
Effectiveness of this registration statement will dilute existing
stockholders and could decrease the market price of our common stock.
Once our registration statement is declared effective, Selling
Stockholders would be able to sell approximately 4 million shares of our common
stock and we would be able to sell the equivalent of 7 million shares of our
common stock. The sale of common stock and warrants covered by the registration
statement by us or Selling Stockholders will dilute existing stockholders and
may adversely affect the market price of our common stock.
Our common stock is listed on the Over-The-Counter Bulletin Board, which
may make it more difficult for stockholders to sell their shares and may cause
the market price of our common stock to decrease.
Because our common stock is listed on the Over-The-Counter (OTC)
Bulletin Board, the liquidity of our common stock is impaired, not only in the
number of shares that are bought and sold, but also through delays in the timing
of transactions, and coverage by security analysts and the news media, if any,
of us. As a result, prices for shares of our common stock may be lower than
might otherwise prevail if our common stock was traded on NASDAQ or a national
securities exchange, like the American Stock Exchange.
6
Our stock price may be volatile and an investment in our common stock could
suffer a decline in value.
The market price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control. These
factors include:
. progress of our products through development and marketing;
. announcements of technological innovations or new products by us or our
competitors;
. government regulatory action affecting our products or competitors'
products in both the United States and foreign countries;
. developments or disputes concerning patent or proprietary rights;
. actual or anticipated fluctuations in our operating results;
. the loss of key management or technical personnel;
. the loss of major customers or suppliers;
. the outcome of any future litigation;
. changes in our financial estimates by securities analysts;
. fluctuations in currency exchange rates;
. general market conditions for emerging growth and technology
companies;
. broad market fluctuations;
. recovery from natural disasters; and
. economic conditions in the United States or abroad.
Our charter documents and Delaware Law may have the effect of making it
more expensive or more difficult for a third party to acquire, or to acquire
control, of us.
Our certificate of incorporation makes it possible for our Board of
Directors to issue preferred stock with voting or other rights that could impede
the success of any attempt to change control of us. Our certificate of
incorporation and bylaws eliminate cumulative voting which may make it more
difficult for a minority shareholder to gain a seat on our Board of Directors
and to influence Board of Directors' decision regarding a takeover. Delaware Law
prohibits a publicly held Delaware corporation from engaging in certain business
combinations with certain persons, who acquired our securities with the intent
of engaging in a business combination, unless the proposed transaction is
approved in a prescribed manner. This provision has the effect of discouraging
transactions not approved by our Board of Directors as required by the statute
which may discourage third parties from attempting to acquire us or to acquire
control of us even if the attempt would result in a premium over market price
for the shares of common stock held by our stockholders.
While we reassesses material trends and uncertainties affecting our
financial condition and results of operations in connection with the preparation
of our quarterly and annual reports, we do not intend to review or revise, in
light of future events, any particular forward-looking statement contained in
this prospectus.
The information referred to above should be considered by investors when
reviewing any forward-looking statements contained in this report, in any of our
public filings or press releases or in any oral statements made by us or any of
our officers or other persons acting on our behalf. The important factors that
could affect forward-looking statements are subject to change, and we do not
intend to update the foregoing list of certain important factors. By means of
this cautionary note, we intend to avail itself of the safe harbor from
liability with respect to forward-looking statements that is provided by Section
27A and Section 21E referred to above.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of 3,500,000 Units offered
by us at an assumed price of $2.00 per Unit, after deducting the approximate
offering expenses of $282,000, will be $6,718,000, excluding any proceeds from
warrants included in the Units offered by us.
The Selling Stockholders will receive all of the proceeds from selling
their shares. We will not receive any sales proceeds. Some of the shares to be
sold are already owned by the Selling Stockholders, and the remainder are
issuable to them upon exercise of warrants. See "Selling Stockholders." We
would only receive proceeds upon the exercise of these warrants. The total
amount we would receive if all of these warrants were exercised is approximately
$1,776,000 (assuming that warrant holders do not utilize a cashless exercise).
We have not made any plans for the use of these proceeds other than to add them
to working capital.
The table below represents our best estimate of the allocation of the net
proceeds of the sale of the Units, including the priorities for the use of the
proceeds, based upon our current business plan and current economic and industry
conditions and is subject to reapportionment among the categories listed above
in response to, among other things, changes in our plans, regulations, industry
conditions and future revenue and expenditures. The amount and timing of
expenditures will vary depending on a number of factors, including changes in
our contemplated operations or business plan and changes in economic or industry
conditions.
USE OF PROCEEDS % of Net
PURPOSE From To PROCEEDS
------- ---- -- --------
Accounts payable and corporate expenses $ 500,000 $1,000,000 14.9
Purchasing on improved vendor terms $1,000,000 $2,000,000 29.8
Repay affiliate borrowings $ 500,000 $1,000,000 14.9
To retire debt $ 375,000 $ 375,000 5.6
Temporarily pay down revolving credit $1,500,000 $1,500,000 22.3
Other general corporate purposes,
including working capital $2,843,000 $ 843,000 12.5
---------- ---------- -----
Total $6,718,000 $6,718,000 100.0
Pending application of the proceeds of our offering, we intend to
temporarily reduce our revolving line of credit with our bank and otherwise
invest the net proceeds in certificates of deposit, money market accounts,
United States Government obligations or other short-term interest bearing
obligations of investment grade.
We believe that the net proceeds of our offering will be sufficient to meet
our needs and certain planned operating and investing activities in the next
twelve months. See "Risk Factors."
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2001,
and as adjusted to give effect to the sale by us of all of the Units offered by
us at the public offering price of $2.00 per Unit and the receipt of the
estimated net proceeds therefrom. The table should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Prospectus.
Actual Adjusted (1)
--------------- ---------------
Total current liabilities: $ 7,566,365 $ 7,566,365
Long-term debt: 4,804,000 4,804,000
Stockholders' equity: common stock par value $.01,
20,000,000 shares authorized; 10,099,175 outstanding;
13,599,175 shares outstanding as adjusted: 100,992 135,992
Additional paid-in capital 9,873,939 16,556,929
Stock subscription receivable (149,000) (149,000)
Accumulated deficit (2,218,426) (2,218,426)
Total Stockholders' Equity 7,607,505 14,325,495
Total Liability and Stockholders' Equity $ 19,977,870 $ 26,695,860
_____________
(1) Assumes the sale of 3,500,000 Units at $2.00 per Unit, without the exercise
of any of the warrants in connection therewith by the respective holders,
less offering expenses of $282,010. Also excludes the proceeds that we may
receive as a result of the exercise of warrants held by the Selling
Stockholders.
7
THE COMPANY
Overview
Color Imaging, Inc., formerly known as Advatex Associates, Inc., was
incorporated in Delaware in 1987. On May 16, 2000, Advatex, Logical Acquisition
Corp., Color Acquisition Corp., Logical Imaging Solutions, Inc. and Color Image,
Inc. entered into a Merger Agreement and Plan of Reorganization, as amended
("Merger Agreement") pursuant to which Logical Acquisition Corp. merged with and
into Logical and Color Acquisition Corp. merged with and into Color Image (the
"Merger"). Pursuant to the Merger Agreement, shareholders of Logical and Color
Image exchanged their shares for shares of common stock of Advatex. Logical
shareholders converted their shares into shares of common stock of Advatex at
the ratio of 1.84843 shares of common stock of Advatex for each one share of
Logical. Color Image shareholders converted their shares into shares of common
stock of Advatex at the ratio of 15 shares of common stock of Advatex for each
one share of Color Image. Following the conversion of shares by Logical and
Color Image shareholders, shareholders of Logical and Color Image owned
approximately 85% of the outstanding shares of common stock of Advatex and
shareholders of Advatex before the Merger owned approximately 15%.
Pursuant to the Merger Agreement, Logical Acquisition Corp. merged with
Logical and Color Acquisition Corp. merged with Color Image whereby Logical and
Color Image became wholly-owned subsidiaries of Advatex. After the Merger,
shareholders of Logical and Color Image each owned approximately 43% of the
outstanding shares of common stock of Advatex. The purpose of the Merger was to
combine Color's toner and consumable expertise and manufacturing plant with
Logical's advanced printing system capabilities to offer a wider product range
and ensure product supply for Logical's print system.
On July 7, 2000, pursuant to a vote of our stockholders, we changed our
name to Color Imaging, Inc. On December 31, 2000, Color Image, Inc. was merged
with and into Color Imaging, Inc.
We develop, manufacture and market products used in electronic printing,
analog and digital copiers and high-speed digital printing. These high-speed
digital printing systems print in real-time directly on offset presses. Offset
presses are presses that utilize plates and ink to print on paper and other
materials. We conduct our business through two separate operating units, Color
and Logical Imaging Solutions, Inc. Color develops, purchases from others and
markets electronic printing products, including black text, color, magnetic ink
character recognition and specialty toners, and provides other parts and
accessories for laser printers and analog and digital copiers. Logical designs,
manufactures and integrates components made by third parties into a complete
printing system and offers technical support and supplies in connection
therewith. Logical's printing system allows commercial printers to digitally
process and print data that may change from page to page, also known as variable
data, and images at very high speeds directly on commercial offset web presses.
This capability saves time and money for both the printer and its customer.
COLOR
Since 1989, Color has developed, manufactured and marketed products used in
electronic printing and photocopying. Color formulates and produces black text
and specialty toners, including color and magnetic character recognition toners
for numerous laser printers and a number of facsimile machines and photocopiers.
Color's toners permit the printing of a wide range of user-selected colors and
also the full process color printing of cyan, yellow, magenta and black.
Magnetic character recognition toners enable the printing of magnetic characters
that are required for the high-speed processing of checks and other financial
documents. Color also supplies other consumable products used in electronic
printing and photocopying, including toner cartridges, cartridge components,
photoreceptors and imaging drums.
Color has continually expanded its product line and manufacturing
capabilities. This expansion has led to the creation of approximately 400, with
over 100 in use today, different black text, color, magnetic character
recognition and specialty toner formulations, including aftermarket toners and
imaging products for printers and facsimile machines manufactured by
Brother(TM), Canon(TM), Delphax(TM), Hewlett Packard(TM), IBM(TM), Lexmark(TM),
Sharp(TM), Xerox(TM), Minolta(TM), Mita(TM), Panafax(TM), Pentax(TM), Pitney
Bowes(TM), Epson(TM), Fuji-Xerox(TM), Toshiba(TM), Kyocera(TM), Okidata(TM),
Panasonic(TM), and printing systems developed by Logical. Color also
manufacturers and or markets toners for use in Ricoh(TM), Sharp(TM), Xerox(TM),
8
Canon(TM), Lanier(TM) and Toshiba(TM) copiers. Color also offers product
enhancements, including imaging supplies, that enable standard laser printers to
print magnetic character recognition data. Color markets branded products
directly to OEMs and aftermarket products worldwide to distributors. In
addition, aftermarket products for laser printers and digital and analog copiers
are also marketed to remanufacturers and to dealers, respectively.
LOGICAL
Logical designs, assembles and markets a complete printing system,
SOLUTION2000, to commercial printers. When installed directly on an offset
printing press, the SOLUTION2000 expands printing capabilities to include the
printing of variable data and images, including bar codes, magnetic ink
character recognition and unlimited alphanumeric sequencing. These functions
allow commercial printers to digitally process and print variable data at
extremely high speeds where previously they were able to only print fixed images
from printing plates or cylinders installed on their offset printing presses.
Since its founding in 1993, Logical's development efforts have focused on
creating a revolutionary high-speed digital variable data printing system for
commercial printing applications that combines software, hardware and consumable
products. Logical also offers a full line of consumable products, including
toners, print cartridges and toner fusing assemblies. Logical's strategy is to
continually build an installed base of printer systems that will generate a
recurring demand for these consumable products.
Logical is currently installing a DigitalColorPress, a Solution series of
printing systems incorporating color printing capabilities, at a customer's
facility for testing. The DigitalColorPress can print variable data in color at
rates exceeding 250 pages-per-minute. This is in contrast to other products that
do not print directly on the press and print at speeds of approximately 85 pages
per minute. Logical believes that this represents an attractive alternative for
high-speed offset printing applications because it reduces steps and labor in
the print process. Logical intends to market the DigitalColorPress color
printing system during 2002 as an enhancement to existing Solution series
installations and as an upgrade for other printing systems.
Market Overview
Color's market for imaging products is the installed base of electronic
printing devices: laser printers and facsimile machines and analog and digital
copiers. Color competes within this market with products supplied by the OEM
manufacturers and with other suppliers of aftermarket imaging products.
Additional products in this category include enhancement products that extend
the capabilities of the OEM's product, such as magnetic ink character
recognition toners that enable the printing of magnetic characters on checks and
other financial documents. We market our products worldwide and regionally
primarily to distributors of imaging products who sell to dealers and large end-
users. To a lesser extent, we sell to remanufacturers and a few dealers
directly. We believe that the worldwide aftermarket for imaging products during
2001 was approximately $1.25 billion with an annual growth rate of 8 percent per
annum.
Commercial offset presses print fixed data from printing plates that are
prepared prior to the printing process. Every printed item or page in typical
offset printing is a replication of the same page many times. Offset printing is
further characterized by printing using inks that are transferred from plates to
paper with print rates at times exceeding 500 pages per minute. Offset printed
products include; newspapers, books, stationary, forms, brochures, advertising
materials, etc. Data processing printers, on the other hand, print variable
data, primarily black text, which can produce an unlimited stream of variable
data or images at typical print rates of 150 pages per minute. We believe that
the value of the printed materials produced by commercial printers was
approximately $160 billion in 2000 and that the 2000 market for press and data
processing printing equipment was approximately $7 billion.
Logical's market for printing systems, upgrades and consumable products is
our installed base of Solution series printing systems. Each of these systems
represents an opportunity to upgrade to a DigitalColorPress, and represents a
continued and expanding revenue source for Logical's evolving line of consumable
products. Logical's long-term objective is to provide an upgrade option for
offset commercial presses that replaces the conventional printing plate and
inking processes with a computer controlled pre-press and on-press production
color printing capability.
9
Strategy
Our objective is to become the leading independent supplier of imaging
products and to alter the landscape in the commercial printing industry by
providing a faster and more economical method of high-speed color production
printing.
The key elements of our imaging products strategy include expanding toner
product offerings, increasing vertical integration by supplying complete toner
and cartridge devices, capitalizing on the expertise of producing specialty
toners, exploiting the efficiencies associated with the investment made in new
manufacturing facilities and expanding into new geographic markets, and
broadening our sales channels.
Color's development of new toner products is focused on providing an
aftermarket product for electronic printing devices that achieves a high level
of market acceptance. Color endeavors to offer equivalent toner products with
equal or better quality at lower prices than the OEM's toner product.
Color is committed to increasing the value added of its toner products to
the end user by providing not only the toners but also the toner cartridge or
canister that is compatible with the OEM's equipment. Color believes that by
developing toner cartridge and canister devices for specific electronic printing
or copying machines, and integrating those devices with compatible toners, the
market for Color's toner products will expand. Color believes that this approach
will also result in increased gross margins.
Color will continue to emphasize its high margin specialty toner
capability, primarily color and magnetic ink character recognition toners, while
providing lower margin black text toners in commodity bulk to a number of large
customers. The bulk quantity of black text toners are required to maximize the
efficiencies of Color's manufacturing plant and justify the capital investment
in the production equipment. The availability of this complete manufacturing
process and equipment allows for the continued expansion of specialty toner
products.
Logical's strategy is to provide a continuing series of software, hardware
and consumable products for the existing base of commercial printers employing
electron beam imaging printing on their offset presses. This product strategy
envisions the installation of the DigitalColorPress on those offset presses to
produce digital color printing at press speeds and the elimination of many
conventional pre-press functions. Logical intends to continue to place
production printing equipment in service thereby creating a market for its
consumable products.
Recent Developments
In February 2002, Color added the parts most often replaced in digital
copiers, at prices that are believed to be highly competitive, to its product
catalog for Canon(TM), Ricoh(TM) and Toshiba(TM) digital copiers. To further
expand Color's copier business, Color introduced its digital copier toners and
parts to the industry at the Imaging Technology Education & Exposition trade
show in Las Vegas in February 2002. Copier toners and related cartridge and
canister devices accounted for over 65% of the Color's net sales during the year
ended December 31, 2001. By offering these copier parts, Color intends to become
a better, more efficient supplier to its customers while further increasing its
revenues and improving its margins.
Color anticipates the completion of the remainder of its factory expansion
during the second quarter of 2002. Color believes that the doubling of capacity
during 2002 will increase manufacturing efficiencies, reduce cost of sales, and
increase competitiveness.
On January 21, 2002 Logical received the first order for its new high-
speed, web-based (directly on the offset press) variable data printing system,
known as the DigitalColorPress. The DigitalColorPress consists of the
integration of proprietary software, printer control units and print engines,
utilizing non-magnetic color toners. The initial system will be installed at Joe
Daley & Sons, Inc. in Los Angeles, California. Logical is in the process of
installing the system at the customer's plant, and acceptance testing by the
customer is expected to begin in April 2002.
10
In February 2002, we received the Notice of Allowance from the U.S. Patent
and Trademark Office that our patent application and claims in connection with
its print cartridge designed for digital printing using electron beam imaging
technologies will be granted.
Products
========================================================================================================================
Product Family Net Revenues for the Primary Product Function Products or Services
Twelve Months Ended
December 31, 2001
------------------------------------------------------------------------------------------------------------------------
Data processing, financial After market black text,
Toner $27,069,751 document printing and color, specialty and magnetic
copying ink character recognition toners
in bulk, bottles and cartridges
------------------------------------------------------------------------------------------------------------------------
Remanufactured cartridges and
Laser printer cartridge printer parts for
Laser printer kits & parts $ 2,900,017 remanufacturing remanufacturing OEM
print cartridges
------------------------------------------------------------------------------------------------------------------------
Commercial printing electron beam imaging Toner, print cartridges,
products and services $ 551,399 consumable products and erase rods and system
technical support services support services
========================================================================================================================
Marketing and Distribution
We market and distribute our products worldwide through our direct sales
force. Color's products are marketed primarily to distributors, OEMs and
rechargers, while Logical's products are marketed directly to commercial
printers.
In the twelve months ended December 31, 2001, our sales were primarily
generated from the sale of black text, color and magnetic ink character
recognition toners and related consumable products, including toner cartridges
and the re-filling of certain toner cartridges. During this period, three
imaging products customers accounted for 41%, 16% and 12% of net sales. Though
our sales are on purchase orders, these customers typically issue purchase
orders three months in advance of the product delivery date and provide us with
an additional two month rolling forecast. While future orders may vary from the
forecasts by as much as 20%, it has been our experience that the orders
generally coincide with the customer's forecast.
Competition
The markets for our products are competitive and subject to rapid changes
in technology. Color in particular competes principally on the basis of quality,
flexibility and service, and as a full-service provider with a pricing strategy
that reflects quality and reliability.
Color's competitors in the toner market include large businesses with
significantly greater resources in the high-volume commodity toner market, as
well as smaller companies in the specialty, color and magnetic ink character
toner markets. In addition, other companies offer remanufactured toner
cartridges and printer parts that are lower priced.
Color's strategy requires that it continue to develop and market new and
innovative products at competitive prices. New product announcements by Color's
principal competitors, however, can have, and in the past have had, a material
adverse effect on our financial results. Such new product announcements can
quickly undermine any technological competitive edge that one manufacturer may
enjoy over another and set new market standards for quality, speed and function.
Furthermore, knowledge in the marketplace about pending new product
announcements by Color's competitors may also have a material adverse effect on
us inasmuch as purchasers of these products may defer purchasing decisions until
the announcement and subsequent testing of such new products.
In recent years, Color and its principal competitors, all of which have
significantly greater financial, marketing and technological resources than
Color, have regularly lowered prices on both printer and copier imaging supplies
and are expected to continue to do so in the future. Color is vulnerable to
these pricing pressures which, if not mitigated by cost and expense reductions,
may result in lower profitability and could jeopardize Color's ability to grow
or maintain market share. We expect that, as we compete more successfully with
our larger competitors, our increased market presence may attract more frequent
challenges, both legal and commercial, from its competitors, including claims of
possible intellectual property infringement.
Canon(TM), Xerox(TM) and Ricoh(TM) are the market leaders in the toner
market whose aggregate sales Color believes represent approximately 75% to 85%
of worldwide toner sales. As with our other products, if pricing pressures are
not mitigated by cost and expense reductions, Color's ability to maintain or
build market share and profitability could be adversely affected.
Like certain of Color's competitors, Color is a supplier of laser printer
kits and parts. Color cannot assure you that Color will be able to compete
effectively for a share of this business. In addition, Color cannot assure you
that Color's competitors will not develop new compatible laser printer products
that may perform better or sell for less than Color's products. Independent
manufacturers compete for the aftermarket business under either their own brand,
private label, or both, using price, aggressive marketing programs, and flexible
terms and conditions to attract customers. Depending on the product, prices for
compatible products produced by other manufacturers are offered below Color's
11
prices, in some cases significantly below Color's prices.
Logical's commercial printing products and services have few direct
competitors due to the specialization of these products. Logical's indirect
competitors offer alternative products that use other printing technologies such
as inkjet or xerography with different speed and print resolution capabilities.
Unlike xerography, electron beam imaging prints on the offset press and at
higher speeds than xerography. Electron beam imaging also requires less system
maintenance than an inkjet system. Delphax Printing Systems, a wholly owned
subsidiary of Check Technology Corporation who acquired Delphax from Xerox
Corporation in December 2001, is a supplier of electron beam imaging print
engines to Logical and others, but to Logical's knowledge does not market a
system to commercial printers for on-press applications. Delphax, considered the
leader in electron beam imaging technology, has been supplying systems to the
data processing market for over twenty years, and does not, to Logical's
knowledge, supply software or systems capable of printing in color. Check
Technology Corporation, who recently changed its name to Delphax Technologies,
Inc., a supplier of check printing equipment, does not, to Logical's knowledge,
offer software or systems capable of printing in color or any other on-press
application. However, in view of this sale, Delphax could become a direct
competitor of Logical or could stop supplying its products to Logical.
We believe that the synergy between Color and Logical with respect to
printing systems and proprietary consumable products will enhance both
operations as our consumable supply side grows with printing system sales.
Manufacturing
We operate a toner manufacturing facility in Norcross, Georgia that we
moved into during 1999 and 2000. We have made significant capital investment in
this facility to increase production capacity and improve manufacturing
efficiencies to lower our processing costs of our toner products. The
installation and successful testing of additional equipment is to be completed
by the beginning of the second quarter 2002 and is an integral part of our plan
to further increase production capacity, improve efficiency and to significantly
lower the costs of our toner products. Our goal for the last three years has
been to reduce average toner product costs by one-half, in response to
management's assessment of the continuing price reductions for these products in
the marketplace.
Logical's electron beam imaging, DigitalColorPress and Solution series
printer system development and support organization is located in Santa Ana,
California. Logical's strategy at this facility is to integrate the best
technical expertise and components available for the products that comprise its
printing system. Logical's software and product design and development
activities are in the Santa Ana facility.
Materials
We procure a wide variety of components for use in our manufacturing
processes, including raw materials, such as chemicals and resins, electro-
mechanical components and assemblies. Although many of these components are
standard off- the-shelf parts that are available from multiple sources, we often
utilize preferred supplier relationships to ensure more consistent quality, cost
and delivery. Often Color's toner formulations are dependent on one or more
materials produced by only one vendor, since the formula was developed based on
that material's unique characteristics. Alternative materials exist, but the
differences in performance characteristics could require Color to modify the
original formula and/or its manufacturing processes to obtain a marketable
product based on the new material. Further, some components are only available
from one supplier, including certain custom chemicals, application specific
integrated circuits and other semiconductors. In addition, we source some print
engines and other finished products from OEMs. Should these components not be
available from any one of these suppliers, there can be no assurance that
production of certain of our products would not be disrupted. In the event that
these components are not available to us, our production could be disrupted.
Such a disruption could materially harm our business.
Research and development
Our research and development activities for the past several years have
focused on black text, specialty, color and magnetic ink character toner
formulations, and the development of electron beam imaging technologies and
12
supplies. Our commitment to increasing revenues through new product
introductions requires research and development expenditures, innovative
designs, significant development and testing activities and functional
solutions.
Our research and development expenditures, increased $119,000, or 16%, to
$883,000 in 2001 from $764,000 in 2000. It is necessary to make strategic
decisions from time to time as to which technologies will produce products with
the greatest future potential. Occasionally, a customer will ask Color to
develop toner products for their exclusive resale, and in that event the
customer will generally financially support Color's development activities. In
turn, Color will also occasionally work with suppliers to develop proprietary
technology for Color's exclusive use. These strategic relationships have
benefited us in the past, and we intend to continue to pursue such relationships
for new products. Our software, electrical and mechanical engineers, chemists
and consultants are focused on development of printing systems and consumables
that will increase efficiency, lower production costs or improve the quality of
Logical's electron beam imaging commercial printing products. With certain
products, we may elect to purchase key components from third party suppliers,
such as electron beam imaging print engines or related parts and consumables for
electron beam imaging technology until Logical has sufficient proprietary
products of its own. We cannot predict whether we can continue to develop the
technologically advanced products required to remain competitive or that such
products will achieve market acceptance.
Intellectual Property
We seek to protect technology, inventions and improvements that we consider
important through the use of trade secrets and in some cases patents. We
currently hold U.S. patent number 5,834,150 issued on November 10, 1998 and
expiring in July 2014. This patent covers toners for Logical's high speed
printing system and certain other toner fusing methods. To date we have not
generated any revenue from this patent. We previously filed a patent application
for other technology related to high speed digital printing. In February 2002,
we received the Notice of Allowance from the U.S. Patent and Trademark Office
that our patent application and claims in connection with a print cartridge
design for digital printing using electron beam imaging technologies will be
granted. There can be no assurance, however, that our patents will provide
competitive advantages for our products, or that such rights will not be
challenged or circumvented by competitors. In addition, there can be no
assurance that any patents covered under any pending patent applications will be
issued. Claims made under patent applications may be denied or significantly
narrowed and the issued patents, if any, may not provide significant commercial
protection to us. We could incur substantial costs in proceedings before the
U.S. Patent and Trademark Office, including interference proceedings. These
proceedings could result in adverse decisions as to the priority of our
inventions.
While we do not believe that any of our products infringe any valid claims
of patents or other proprietary rights held by third parties, there can be no
assurance that these products do not infringe any patents or other proprietary
rights held by third parties. If an infringement claim were made, the costs
incurred to defend the claim could be substantial and adversely affect us, even
if we were ultimately successful in defending the claim. If our products were
found to infringe any proprietary right of a third party, we could be required
to pay significant damages or license fees to the third party or cease
production. Litigation may also be necessary to enforce patent rights held by
us, or to protect trade secrets or techniques owned by us. Any such claims or
litigation could result in substantial costs and diversion of effort by
management.
While we seek to protect our electron beam imaging technology, we have not
pursued patent protection for other technology because the benefit of doing so
is out weighed by the cost. Specifically, we believe patent protection is of
limited usefulness in areas other than electron beam imaging technology because
competitors have the ability (even if we had a patent) to develop substantially
equivalent technology. Therefore, we rely on trade secrets and other unpatented
proprietary technology. There can be no assurance that we can meaningfully
protect our rights in such unpatented proprietary technology or that others will
not independently develop substantially equivalent proprietary products or
processes or otherwise gain access to our proprietary technology. We also seek
to protect our trade secrets and proprietary know-how, in part, with
confidentiality agreements with employees and consultants. There can be no
13
assurance that the agreements will not be breached, that we will have adequate
remedies for any breach or that our trade secrets will not otherwise become
known to or independently developed by competitors.
Employees
As of December 31, 2001, we had ninety-two (92) employees, including one
(1) part-time employee. None of our employees is represented by a labor union or
is covered by a collective bargaining agreement. We have not experienced any
work stoppages and consider our relations with employees to be good.
Environmental and Regulatory Matters
Color's toner supplies manufacturing operations are subject to laws and
regulations, relating to environmental matters that impose limitations on the
discharge of pollutants into the air, water and soil and establish standards for
the treatment, storage and disposal of solid and hazardous wastes. In this
regard, Color is required to have a permit in order to conduct various aspects
of its business. The Air Protection Branch of the State of Georgia's Department
of Natural Resources Environmental Protection Division issued a permit to Color
in 2000 to construct and operate a copier and printer toner manufacturing
facility at our headquarters. The permit is conditioned upon compliance by us
with all the provisions of the Georgia Air Quality Act, and specifically the
Rules, Chapter 391-3-1, in effect. In addition to operating and maintaining the
equipment, in a manner consistent with good air pollution control practice to
minimize emissions, we must maintain records, conduct tests, and comply with
certain allowable emissions and operational limitations. The permit is subject
to revocation, suspension, modification or amendment for cause, including
evidence of our noncompliance. Compliance with these laws and regulations in the
past has not had a material adverse effect on our capital expenditures, earnings
or competitive position. There can be no assurance, however, that future changes
in environmental laws or regulations, or in the criteria required to obtain or
maintain necessary permits, will not have a material adverse effect on us.
14
Facilities
We currently lease an approximately 180,000 square foot facility in
Norcross, Georgia from an affiliated party. This facility serves as our
executive headquarters and houses our manufacturing facilities, as well as our
research and development and sales and marketing departments. The lease for this
facility expires in March of 2009 and includes three options at our election to
extend the term for five years each. We also lease an approximately 4,000 square
foot facility in Santa Ana, California under a lease that expired in October
2001. Currently the Santa Ana facility lease is month-to-month. Management
considers these facilities to be sufficient for our current operations.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the Over the Counter Bulletin Board (the OTC
Bulletin Board) under the symbol CIMG. Prior to July 7, 2000, the Common Stock
was traded on the OTC Bulletin Board under the symbol ADTX. The following table
sets forth the high and low prices of the Common Stock for the quarters
indicated as quoted on the OTC Bulletin Board.
2000 2001 2002
--------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------
First Quarter................................ 2.2792 1.2344 3.0000 2.5000 3.3500 2.1000
Second Quarter............................... 5.6980 1.3298 2.6500 1.9000
Third Quarter................................ 6.2500 2.0000 2.7500 1.9000
Fourth Quarter (through December 28, 2001)... 5.1250 2.0000 4.3000 2.0000
The above quotations represent prices, adjusted for stock splits, between
dealers without adjustments for retail markups, markdowns or commissions and may
not represent actual transactions.
As of April 1, 2002, there were approximately 348 holders of record of our
common stock.
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings to finance our
operations and fund the growth of its business. Any payment of future dividends
will be at the discretion of our Board of Directors and will depend upon, among
other things, our earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of dividends
and other factors that our Board of Directors deems relevant.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Recent Developments
On June 28, 2000, Color Imaging, Inc., formerly known as Advatex
Associates, Inc., entered into a business combination with Logical Imaging
Solutions, Inc., and Color Image, Inc., whereby Logical and Color became wholly-
owned subsidiaries of Advatex. We previously accounted for this transaction as a
pooling-of-interests and have subsequently revised our accounting treatment to
the purchase method in accordance with guidance provided by the Securities and
Exchange Commission Staff Accounting Bulletin Topic 2A and APB 16, regarding
business combinations. The financial information contained herein is in
conformity with the purchase method of accounting, and the historical financial
statements are those of Logical. The assets, liabilities and operating results
16
of Color Image are only included our consolidated financial statements from the
date of acquisition, June 28, 2000, or for only the last six months of the year
ended December 31, 2000 and for the full year ended December 31, 2001.
In March 2002, we rescinded two transactions with stockholders who owned a
total of 1,025,000 shares of common stock and warrants to purchase 525,000
shares of common stock. We cancelled the shares and warrants issued to such
investors. The financial statements for the year ended December 31, 2001 have
been retroactively adjusted to reflect the rescission of these two transactions.
Overview
Net sales, for the year that ended on December 31, 2001, were primarily
generated from the sale of Color's black text, color and magnetic ink character
recognition toners and related consumable products, including toner cartridges
and the re-filling of certain toner cartridges. Revenue is recognized from the
sale of products when the goods are shipped to the customer. In the year ended
December 31, 2001, a distributor of imaging supplies accounted for approximately
41% of net sales. Sales to this customer consist primarily of analog copier
products, and as the result are expected to decline over time unless these
declining sales to this customer are offset by the sale of digital copier
products. We do not have a written or oral contract with this customer. All
sales are made through purchase orders. Consistent with the purchase orders and
forecasts provided to us by our major customer that accounts for 41% of our
business, we provide this supplier with purchase orders three months in advance
and an additional rolling forecast for two months. We communicate regularly and
meet at least twice annually with some of our customers to assess developments
in the industry and changes in the business expected from our customers to
maintain an efficient supply chain. In April 2001, we changed our purchasing
arrangement with this supplier to FOB origination from FOB destination, and we
adjusted our pricing to reflect the change to costs.
Logical's sales for printing systems and related software and consumable
products for the year that ended on December 31, 2001 represented 2 percent of
our net revenues.
Accounting Principles
Cost of goods sold includes direct material and labor, warranty expenses,
license fees and manufacturing and service overhead. Inventories are stated at
the lower of cost (first-in, first-out) or market. Equipment is depreciated
using the straight-line method over the estimated useful lives of the equipment.
Improvements to leased property are amortized over the lesser of the life of the
lease or the life of the improvements.
Selling, general and administrative expenses include marketing and customer
support staff, other marketing expenses, management and administrative personnel
costs, professional services, legal and accounting fees and administrative
operating costs. Selling, general and administrative costs are expensed when the
costs are incurred.
Deferred charges include fees and costs related to the activities
associated with the planned acquisition of business assets that we have
determined have a future economic benefit. These expenditures are then
capitalized into the cost of the assets upon acquisition. Management reviews
these assets whenever the circumstances and situations change such that there is
an indication that the carrying amount is not recoverable. When management's
best estimate of the future economic benefit of these assets is less than the
carrying amount, the carrying amount is reduced to the fair value and a write-
off is recognized.
Research and development expenses include costs associated with the
development of new products and significant enhancements of existing products,
and consist primarily of employee salaries, benefits, consulting expenses and
depreciation of laboratory equipment. With the exception of certain patented
products that are coming to market, all research and development costs are
expensed as they are incurred.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
information derived from our consolidated statements of operations and expressed
as a percentage of net sales. All periods reflect the operating results of
17
Logical, while the operating results of Color Image are only included from after
the date of the business combination, June 28, 2000.
DECEMBER 31,
2001 2000 1999
(PERCENT OF NET SALES)
Net sales 100 100 100
Cost of goods sold 85 85 66
Gross profit 15 15 34
Administrative expense 6 7 73
Deferred charge write-off 1 0 0
Research and development 3 6 73
Sales and marketing 4 4 0
Operating income 1 -2 -112
Interest and bond expense 1 2 3
Depreciation and amortization 2 3 1
Income before taxes 0 -8 -113
Provision for taxes (credit) 0 -3 -45
Net Income (Loss) 0 -5 -68
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
NET SALES. Our net sales were $30.5 million for the year ended December 31,
2001, or an increase of 152% compared to $12.1 million for the year ended
December 31, 2000. Of the $30.5 million in net sales, $30.0 million were
attributable to laser printer and copier products of Color. The remainder, $0.5
million of sales was generated by Logical's sales of high speed printing systems
related consumable products. The revenue increase from copier products from $7.3
million to $20.7 million from 2000 to 2001 was $13.4 million, or 184%. Had the
entire year of Color Image's operations been included in the year 2000, the
copier product sales for 2000 would have been $12.1 million and the increase
only $8.6 million or 71%. We believe that sales of laser printing products will
increase in future periods as a result of our factory expansion to be completed
in the second quarter of 2002. We further believe that completion of these
tasks, with the resulting added capacity and increased production, will increase
manufacturing efficiencies and competitiveness and reduce cost of sales.
COST OF GOODS SOLD. Cost of goods sold increased by $15.7 million or 152% to
$26.0 million in the year ended December 31, 2001 from $10.3 million in the year
ended December 31, 2000. Had Color Image's entire year 2000 been included, cost
of goods sold would have increased by $8.1 million or 45%. This increase was
primarily due to increased net sales. Cost of goods sold as a percentage of net
sales remained at 85% in the year ended December 31, 2001.
GROSS PROFIT. As a result of the above factors, gross profit increased to $4.5
million in the year ended December 31, 2001 from $1.8 million in the year ended
December 31, 2000. Gross profit as a percentage of net sales, however, in the
year ended December 31, 2001 remained the same as December 31, 2000 at 15%.
During 2002, with the completion of the factory expansion, management believes
that both the gross profit dollars and percentage will improve over 2001.
OPERATING EXPENSES. Operating expenses increased $1,869,000 or 88% to $3,994,000
in the year ended December 31, 2001 from $2,125,000 in the year ended December
31, 2000. Had the entire year of Color Image been included in the year 2000,
these expenses would have increased approximately 16%. Notwithstanding the
deferred charge write-off, general and administrative, selling and R&D expenses
decreased, as a percentage of net sales, to 13% in the year 2001 from 17% in the
year ended December 31, 2000. General and administrative expenses increased by
$809,000, or 91%, primarily as the result of only reflecting Color Image's
expenses for the last half of the year 2000. Had Color Image's expenses been
included for the entire year 2000, the increase would have been 15%, and that
increase was largely due to increased professional fees and payroll as the
result of our expanded operations. Selling expenses increased by $725,000, or
154%, in the year ended December 31, 2001 compared to the year ended December
31, 2000. Had Color Image's selling expenses been included for the entire year
2000, the increase would have been $315,000, or 36%, in the year ended December
31, 2001 compared to the year ended December 31, 2000. Selling expenses
increased primarily as the result of the increased marketing costs associated
with the increased revenues from copier products. Research and development
18
expenses increased by $119,000, or 16%, to $883,000 in the year ended December
31, 2001. Research and development expenses as a percentage of net sales
decreased to 3% in the year 2001, from 6% in the year 2000, reflecting the
higher sales level. Research and development expenses, particularly in
connection with toner formulation and manufacturing process development, are
expected to increase further during 2002.
DEFERRED CHARGE WRITE-OFF. An expense of $215,000 was recorded in the year ended
December 31, 2001, for expenditures related to activities in connection with an
acquisition of a manufacturing business that was not consummated. $53,000 of
this expense was incurred during the year ended December 31, 2000 and $162,000
during the year ended December 31, 2001.
OPERATING INCOME. As a result of the above factors, the operating income
increased by $820,000, to a profit of $474,000 in the year ended December 31,
2001 from a loss of $346,000 in the year ended December 31, 2000.
INTEREST AND FINANCE EXPENSE. Interest expense increased by $176,000 in the year
ended December 31, 2001 from the year ended December 31, 2000. Had Color Image's
interest expense for the entire year 2000 been included in interest and finance
expenses, these expenses would have actually decreased $72,000 in the year ended
December 31, 2001 from $489,000 in the year ended December 31, 2000.The decrease
on a full year basis was primarily the result of lower interest rates and
secondarily the result of reduced interest bearing debt levels.
OTHER INCOME. Other income increased by $434,000 from expenses of $404,000 to
income of $30,000 in the year ended December 31, 2001 from the year ended
December 31, 2000. This increase was primarily due to not having the expenses in
2001 for the relocation of our manufacturing facilities and disposal of
equipment that was experienced during 2000.
INCOME TAXES. As the result of our increased profit in the current year, income
tax provisions were $37,000 for the year ended December 31, 2001 compared to a
tax credit of $333,000 for the year ended December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, our working capital was approximately $2,612,000 and
our current ratio was 1.3 to 1. At the year ended December 31, 2000, working
capital was approximately $617,000 and our current ratio was 1.1 to 1. The
increase in our liquidity was primarily due to approximately $2,500,000 of cash
flow from the sale of our common stock during the year ended December 31, 2001.
Cash flows used in operating activities were $1,133,000 in the year ended
December 31, 2001 compared to $815,000 provided by operating activities in the
year ended December 31, 2000. The cash flows used in operating activities in the
year ended December 31, 2001 increased primarily due to the substantial payments
made to reduce trade payables during 2001. The increase in inventories resulted
primarily from a change to purchasing terms, resulting in about one-half of our
purchases now being made freight on board at origination. As the result,
$800,000 of the $875,000 increase in inventory is inventory that is in transit.
Cash flows used in investing activities were $732,000 in the year ended
December 31, 2001. Included in cash flows used in investing activities in the
year ended December 31, 2001, was $464,000 invested in furthering our patented
toner and digital color printing systems technologies and $322,000 in other
capital expenditures.
We have a $2.5 million revolving line of credit with our bank that has an
outstanding balance as of December 31, 2001 of $1,462,000. At the end of each
month, for the following month, we have an interest rate option of either the
one-month Libor interest rate in effect two business days before the first day
of the month plus 2.50% or our bank's prime interest rate minus 0.25%. As of
December 31, 2001, the interest rate was the one-month Libor rate of 2.25% plus
2.50% (4.75%). This revolving line of credit has a June 30, 2002 expiration
date.
Under the line of credit, we are permitted to borrow up to 85% of eligible
accounts receivable and 50 percent of eligible inventories (up to a maximum of
$1.1 million and not to exceed 60 percent of the total outstanding). We have
granted our bank a security interest in all of our assets as security for the
repayment of the lines of credit.
19
On February 7, 2002, our bank modified the covenants that we are required
to maintain, reducing the minimum fixed charge coverage ratio from 1.20 to 1 to
1.05 to 1 and increasing the maximum cash flow leverage ratio from 4.00 to 1 to
not greater than 5.00 to 1. As the result of this modification to the covenants,
we are in compliance with our bank's loan covenants.
Cash flows provided by financing activities for the twelve months ended
December 31, 2001 and December 31, 2000 were $1,921,000 and $720,000
respectively, and resulted primarily from proceeds from the sale of our common
stock during both years.
Through December 31, 2001, we raised $2,500,000 from the sale of our common
stock and exercise of warrants. However, funds generated from operating
activities and availability under credit facilities is expected to be
insufficient to finance our plans to expand operating activities and investing
activities in 2002. We anticipate that we will need to raise approximately $1
million to fund these activities. To meet these requirements we intend to seek
financing from our affiliates and/or engage in sales of it securities. We have
received our bank's consent to borrow up to $1.4 million from affiliates. We
borrowed $500,000 during the first quarter 2002 from an officer to meet vendor
commitments for products. We intend to repay this borrowing from future sales of
our common stock. Notwithstanding our success in obtaining financing in the
amount of $500,000, funds on hand will be insufficient to meet our planned need
for an additional $500,000, consisting of $200,000 for products and $300,000 in
capital improvements. We believe that these activities will further increase
sales and reduce manufacturing costs. We intend to fund these planned activities
by either borrowing the additional funds from affiliates or selling our
securities. There can be no assurance that additional financing will be
available on favorable terms or that the proceeds from the sale of our
securities will be available to meet these planned operating and investing
activities. We believe that these operating and investing activities, if
successfully completed, will increase revenues and operating margins.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our directors and executive officers are as specified on the following table:
Name Age Position
Michael W. Brennan 58 Chief Executive Officer and Chairman of the Board
Sueling Wang, PhD 48 President, Chief Operating Officer and Vice
Morris E. Van Asperen 58 Executive Vice President, Chief Financial Officer
Charles R. Allison 68 Vice President, Sales and Marketing, and Director
20
Edwin C. St. Amour 60 Director
Robert L. Langsam 56 Director
Jui-Chi Jerry Wang 45 Director
Jui-Kung Wang 58 Director
Jui-Hung Wang 54 Director
Victor A. Hollander, CPA 69 Director
Michael W. Brennan became Chairman of the Board and Chief Executive Officer
of Color Imaging, Inc. ("Color") in June 2000, when Logical Imaging Solutions,
Inc. ("Logical") became a wholly owned subsidiary of Color. From 1997 to 2000,
he served as a director and President of Logical. From 1991 to 1995 he served as
President of Interscience Computer Corporation ("Interscience"). Mr. Brennan has
a B.S. degree in electrical engineering from the University of Southern
California, an M.B.A. degree from Pepperdine University, is a Fellow of the
Institute of Directors (London, England) and an adjunct faculty member of the
University of Phoenix. He has over twenty years of experience within the
computer industry and participated in the founding of four companies that became
publicly held corporations; three in the U.S. (Computer Automation, Datum, Inc.
and Interscience) and one on the London International Stock Exchange (Optim
PLC). Mr. Brennan has developed many successful products within the computer
industry and holds patents on processes that are widely used in high-speed
printing.
Sueling Wang, PhD., became President, Chief Operating Officer and Vice-
Chairman of Color in June 2000. From 1989 to 2000, he served as President and
director of Color Image, Inc. Dr. Wang is also a founder of Color Image Inc. Dr.
Wang received a M.S. degree from the University of Windsor, in Ontario, Canada
and a PhD degree from the University of Detroit. Dr. Wang's expertise in resin
synthesis brought him into the toner industry and led to the formation of Color
Image, Inc. in 1989.
Morris E. Van Asperen has served as Executive Vice President, Chief
Financial Officer, Secretary and director of Color since June 2000. Since 1998,
he has served as director of Logical. From 1986 to 2000, he was employed by
National Bank of California in various positions most recently as Executive Vice
President and Credit Administrator. Mr. Van Asperen also has extensive
experience as a financial and management consultant to businesses of up to $50
million in revenues and 1,000 employees in construction, household goods,
industrial glass, and electronics manufacturing and software development. From
1977 to 1984, he served as Vice President & Chief Financial Officer of ATE
Associates, Inc., a supplier of test fixtures and software for numerous military
aircraft programs. Mr. Van Asperen received a B.S. degree in Mathematics from
the University of Oklahoma and an M.B.A. degree from Pepperdine University.
Charles R. Allison has served as Vice President, Marketing and Sales and
director of Color since June 2000. From 1992 to 2000, he served as Vice
President of Marketing and Sales of Color Image, Inc., which was merged with and
into Color. From 1982 to 1991, he served as Vice President of Sales and
Marketing, and general manager, at Synfax Manufacturing, Inc., an early
developer of consumable products for EBI-based printing technologies. Mr.
Allison has held other senior positions in the printing/imaging industry,
including positions with Minolta Corporation, Litton Business Systems and Royal
McBee.
Edwin C. St. Amour has served as a director of the Color since June 2000.
In 1979 he founded American Computer Hardware Corporation and has served as is
its Chairman and President since then. Mr. St. Amour began developing and
marketing Electron Beam Imaging ("EBI") related products in the 1980's. He
founded Logical in 1993 to develop EBI compatible hardware and software products
and adapt this technology to produce plug-and-play products for form
manufacturers. He served as Logical's' President from 1993 until 1997 and
Chairman from 1993 until June 2000. Mr. St. Amour entered the printing industry
in the early sixties and began marketing forms and documents for Moore Business
Forms and Standard Register Corp.
Robert L. Langsam has served as a director of Color since June 2000. In
1980, he founded Diversified Financial Management ("DFM"), a financial planning
services organization, and has served as its President since then. From 1975
to1979, he was Assistant Corporate Controller for MCI Communications and was
responsible for the operational accounting controls and systems, as well as
extensive involvement in products pricing and filings. From 1970 to 1975, Mr.
Langsam was Chief Financial Officer of the copier products division of SCM. Mr.
Langsam holds a B.S. degree in
21
Marketing/Accounting from Pace University and double MBA degrees in Finance and
Taxation from Adelphi and St. John's Universities.
Jui-Chi Wang has served as a director of Color since June 2000. From 1994
until 2000, he served as a director of Color Image, Inc., which was merged with
and into Color. Since 1984, Mr. Wang has served as President of General Plastic
Industrial Co. Ltd ("GPI"), a Taiwan-based plastics manufacturer specializing in
injection moldings and more particularly toner cartridges and accessories for
copiers and laser printers. Mr. Wang received a Master's Degree in Computer
Engineering from the University of Southern California.
Jui-Kung Wang has served as a director of Color since September 2001. He
was a founder of Color Image, Inc. and its Chairman until its merger with Color
He is a co-founder and has served as a director of General Plastic Industrial
Co., Ltd, a leading Taiwan based manufacturer of after market injection molded
cartridges and accessories for copiers and laser printers since 1978. Mr. Wang
was a founding member of Kings Brothers LLC, which leases space to Color we use
for our headquarters and manufacturing facilities in Norcross, Georgia. Mr. Wang
has been a professor of management with Tung-Hai University, Taiwan for over 20
years. He has received a bachelors degree in economics, and MBA and PhD degrees
in management.
Jui-Hung Wang has served as a director of Color since June 2001. He was a
founder and director of Color Image, Inc. until its merger with Color. He is a
founder and serves as Chairman of General Plastic Industrial Co., Ltd, a leading
Taiwan based manufacturer of after market injection molded cartridges and
accessories for copiers and laser printers. Since January 2001, Mr. Wang has
served as a director of Taiwan Yu-Tzu Company, a food company. Mr. Wang is a
founding member of Kings Brothers LLC, which leases space to Color used for our
headquarters and manufacturing facilities in Norcross, Georgia. From 1986 to
1994, Mr. Wang was governor of Wu-Chi Town, Taiwan.
Victor A. Hollander, CPA, has served as a director of Color since March
2001. Mr. Hollander has been licensed to practice public accounting in
California as a certified public accountant since 1958. Since February 2001,
Mr. Hollander has been the manager of the securities group at Good Swartz
Brown & Berns LLP, an accounting firm. From 1978 to 2001, he was a partner in
the accounting firm he founded Hollander, Lumer & Co. LLP. Mr. Hollander has
been involved with over twenty initial and secondary public offerings since
1990. Mr. Hollander has served on various Los Angeles Chapter, California
Society of Certified Public Accounts and American Institute of Certified
Public Accountants securities, ethics, accounting and auditing committees.
He specializes in securities and merger and acquisition matters.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
by our Chief Executive Officer and the three other most highly compensated
executive officers who were serving as such as of December 31, 2001 and December
31, 2000 (collectively, the Named Executive Officers), whose aggregate
compensation for fiscal years 2001 and 2000 exceeded $100,000 for services
rendered in all capacities to the Company and its subsidiaries for that fiscal
year.
Summary Compensation Table
----------------------------------------------------------------------------------------------------------------
Long-Term
Compensation
Awards
------
Annual Compensation Shares of
------------------- Common Stock
Other Underlying
Name Year Salary Bonus Compensation(1) Options(#)
----------------------------------------------------------------------------------------------------------------
Michael W. Brennan 2001 $151,442 n/a $ 6,403 150,000 (5)
Chief Executive Officer 2000 $146,485 n/a $25,591 (2) None
Dr. Sueling Wang 2001 $158,423 n/a $22,313 (3) 100,000 (5)
President & 2000 $149,159 n/a $18,887 (3) 200,000 (6)
Chief Operating Officer
Morris E. Van Asperen 2001 $146,714 n/a $ 5,461 100,000 (5)
Executive Vice President 2000 $ 54,294 n/a $ n/a 200,000 (7)
Chief Financial Officer &
Secretary
Charles R. Allison 2001 $106,379 n/a $28,145 (4) 50,000 (5)
Vice President, Sales 2000 $101,996 n/a $25,902 (4) 50,000 (8)
________________
(1) For named officers the amount reported represents the cost of group
insurance benefits, the Company's matching contribution to the 401(k) plan
for the officer and other life insurance policies maintained for him, as
further described in the notes for each officer, respectively.
(2) The split dollar life insurance policy is no longer in force. Premiums paid
during 2000 were $15,584.
(3) The split dollar life insurance premiums were $13,526 and $16,505 during
2001 and 2000, respectively. Pursuant to the policies the Company will,
upon his death or earlier liquidation of each such policy, be entitled to
the refund of all premium payments made by the Company on the policies, and
the balance of the proceeds will be paid to Mr. Wang's designated
beneficiaries.
(4) The life insurance premiums paid by the Company in 2001 and 2000 were
$21,977 and $22,476, respectively. The Company owns and is the beneficiary
of this policy and maintains it to fund the deferred compensation agreement
with Mr. Allison. Upon Mr. Allison's retirement, he, or his beneficiaries,
are to receive 120 monthly payments of $2,000 per month or, as provided,
the net present value of any unpaid amounts.
(5) Options granted by action of the Board of Directors on March 21, 2001. 25%
vest upon grant and the balance vest 25% per year upon each anniversary of
the date of grant. The options expire five years after their respective
vesting date(s).
(6) The options were granted as part of the officer's employment agreement on
June 28, 2000. 100,000 vested immediately and the remainder vested ratably
over the next two years upon the anniversary date of the grant.
(7) The options were granted as part of the officer's employment agreement on
June 28, 2000. 100,000 vested immediately and the remainder vested ratably
over the next four years upon the anniversary date of the grant.
(8) The options were granted as part of the officer's employment agreement on
June 28, 2000. 25,000 vested immediately and the remainder vested ratably
over the next two years upon the anniversary date of the grant.
22
--------------------------------------------------------------------------------------------------
Option Grants in Last Fiscal Year
--------------------------------------------------------------------------------------------------
Number of Percent of
Securities Total Options Exercise Market
Underlying Granted to or Price on
Options Employees in Base Grant Expiration
Name Granted Fiscal Year Price Date Date
--------------------------------------------------------------------------------------------------
37,500 3/21/06
37,500 3/21/07
37,500 3/21/08
37,500 3/21/09
---------
Michael W. Brennan 150,000 28% $ 2.75 $ 2.50
--------------------------------------------------------------------------------------------------
25,000 3/21/06
25,000 3/21/07
25,000 3/21/08
25,000 3/21/09
---------
Sueling Wang 100,000 19% $ 2.75 $ 2.50
--------------------------------------------------------------------------------------------------
25,000 3/21/06
25,000 3/21/07
25,000 3/21/08
25,000 3/21/09
---------
Morris E. Van Asperen 100,000 19% $ 2.75 $ 2.50
--------------------------------------------------------------------------------------------------
12,500 3/21/06
12,500 3/21/07
12,500 3/21/08
12,500 3/21/09
---------
Charles R. Allison 50,000 9% $ 2.75 $ 2.50
The above options were granted on March 21, 2001, become fully vested after
three years and expire five years, respectively, from the vesting date(s).
Aggregated Option Exercises in Last Fiscal Year and Year End Option Holdings
------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options Options ($)(1)
------------------------------------------------------------------------------------------
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------------------
Michael W. Brennan N/A N/A 37,500 112,500 13,125 39,375
------------------------------------------------------------------------------------------
Sueling Wang N/A N/A 175,000 125,000 173,750 81,250
------------------------------------------------------------------------------------------
Morris E. VanAsperen N/A N/A 150,000 150,000 146,250 108,750
------------------------------------------------------------------------------------------
Charles R. Allison N/A N/A 50,000 50,000 45,625 26,875
-----------------------------------------------------------------------------------------
(1) Based on the closing price of our common stock of $3.10 on December 28,
2001.
Employment Agreements
On June 28, 2000, we entered into employment agreements with Michael W.
Brennan, Dr. Sueling Wang, Morris E. Van Asperen, and Charles R. Allison. Each
of these employment agreements has a 5 year term. We are obligated to pay Mr.
Brennan and Dr. Wang annual salaries of $150,000 each with a guaranteed increase
of 5% per annum over the term of the agreements. We are obligated to pay Mr.
Van Asperen an annual salary of $144,000 with a guaranteed increase of 5% per
annum over the term of his agreement. In addition to commissions earned under
our sales incentive program, we are obligated to pay Mr. Allison an annual
salary of $89,250 with a guaranteed increase of 5% per annum over the term of
his agreement. Each employee may terminate the agreement upon 6 months notice to
us. We may terminate each employee upon 6 months notice, provided, however, that
we are obligated to pay to the employee his annual base salary, commissions or
bonuses earned, and benefits for a period of 12 months after the date of such
notice.
The employment agreements with the above named officers also commit us to
purchasing for their benefit certain life insurance plans. For the year ended
December 31, 2001, we did not have in place for either Mr. Brennan or Mr. Van
Asperen such supplemental life insurance plans. We are the owners of as well as
the beneficiary of a life insurance policy on Mr. Allison and we maintain it to
fund the deferred compensation agreement with Mr. Allison. Upon Mr. Allison's
retirement, he, or his beneficiaries, are to receive 120 monthly payments of
$2,000 per month or, as provided, the net present value of any unpaid amounts.
The life insurance premiums paid by us to fund Mr. Allison's deferred
compensation agreement in 2001 and 2000 were $21,977 and $11,238, respectively.
We pay the premiums and we are the collateral assignee of four split dollar life
insurance policies owned by Dr. Wang. Pursuant to the policies we will, upon his
death or earlier liquidation of each such policy, be entitled to the refund of
all premium payments made by us on the policies, and the balance of the proceeds
will be paid to Mr. Wang's designated beneficiaries. The split dollar life
insurance premiums were $13,526 and $8,253 during 2001 and 2000, respectively.
The monies due from Dr. Wang in connection with these life insurance policies at
the years ended December 31, 2001 and 2000 was $112,103 and $98,578,
respectively.
SECURITY OWNERSHIP OF CERTAIN PERSONS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of March 31, 2002 (not adjusted to
reflect the sales of shares of common stock offered hereby), by the following:
. each stockholder known by us to own beneficially more than 5% of our
common stock;
. each of our executive officers named in the compensation table above;
. each of our directors; and
. all directors and executive officers as a group.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below, on the information furnished by such owners, have
sole voting power and investment power with respect to such shares. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a
person and the percent ownership of that person, shares of common stock subject
to options or warrants held by that person that are currently exercisable or
will become exercisable within 60 days after March 31, 2002 are deemed
outstanding, while such shares are not deemed outstanding for purposes of
computing percent ownership of any other person. Percent of beneficial ownership
is based upon 10,099,880 shares of our common stock outstanding prior to this
offering. Unless otherwise indicated in the footnotes below, the persons and
entities named in the table have sole voting and investment power with respect
to all shares beneficially owned, subject to community property laws where
applicable. The address for those individuals for which an address is not
otherwise indicated is Color Imaging, Inc., 4350 Peachtree Industrial Boulevard,
Suite 100, Norcross, Georgia 30071. To our knowledge, except as indicated in the
footnotes to the table and under applicable community property laws, the
stockholders named in the table have sole voting and investment power over all
shares listed in the table.
23
Percentage of
Name of Beneficial Owner No. of Shares Ownership
------------------------ ------------- -----------------
Michael W. Brennan (1) 999,215 9.8%
Sueling Wang (2) 1,366,551 13.3%
Morris E. Van Asperen (3) 285,906 2.8%
Charles R. Allison (4) 62,500 *
Edwin St. Amour (5) 984,768 9.7%
Robert L. Langsam (6) 143,632 1.4%
Jui-Chi Wang (7) 684,450 6.8%
Jui-Hung Wang 699,178 6.9%
Jui-Kung Wang 316,209 3.1%
Victor A. Hollander (8) 105,000 1.0%
Executive Officers and Directors (9) 5,647,409 52.6%
_____________________________________
* Less than 1%
(1) Includes options to purchase 75,000 shares of common shares.
(2) Includes: (a) 60,000 shares owned by Sueling Wang's four children, (b)
141,204 shares owned by Yik-Li Sih, Sueling Wang's wife, in which Sueling Wang
may be deemed to have pecuniary interest. Mr. Wang disclaims beneficial
ownership of such 201,204 shares. Also includes options to purchase 200,000
shares of common stock.
(3) Includes options to purchase 175,000 shares of common stock.
(4) Includes options to purchase 62,500 shares of common stock.
(5) Edwin St. Amour holds 979,768 shares as co-trustee (Mr. St. Amour's wife
Annette is the other co-trustee) of the St. Amour Revocable Trust. Also
includes options to purchase 5,000 shares of common stock.
(6) Includes warrants and options to purchase 60,453 shares of common stock.
(7) Includes options to purchase 5,000 shares of common stock.
(8) Includes warrants to purchase 50,000 shares of common stock and options
to purchase 5,000 shares of common stock.
(9) Assumes that warrants and options representing approximately 638,000
shares of common have been exercised or converted into common stock by
the holders thereof.
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the merger on June 28, 2000, while operating as Advatex
Associates, Inc., we had an account receivable due from an affiliate of
$161,019, which was collected.
Directors, Sueling Wang and Jui-Chi Wang, own beneficial interests of 37.2%
and 12.6% respectively in Kings Brothers, LLC, the landlord from which we lease
our Norcross, Georgia plant. For the year ended December 31, 2001, lease
payments for the plant were $505,836. For the year ended December 31, 2000,
lease payments for this plant were $186,427. The lease was made on April 1, 1999
and expires in April 2009.
On November 19, 2001, we borrowed $200,000 on an unsecured basis from Kings
Brothers LLC. The revolving loan bears interest at the rate of 9% per annum,
matures on November 18, 2002 and is evidenced in writing. We paid the principal
and interest outstanding on December 10, 2001, paying $790.38 in total interest
to Kings Brothers. We borrowed this amount for general corporate purposes,
including working capital. On March 20, 2002 the revolving loan arrangement was
cancelled.
We also had a short-term unsecured loan, due July 26, 2000, evidenced in
writing from Kings Brothers of $240,000 with interest at 8%, paying $5,576 of
interest for the year. As of December 31, 2000 all amounts outstanding under the
loan have been repaid. We used the proceeds of this loan for working capital.
On June 1, 1999, the Development Authority of Gwinnett County, Georgia
issued $4,100,000 of industrial development revenue bonds on behalf of us and
Kings Brothers LLC. Pursuant to a certain joint debtor agreement we are jointly
and severally liable with Kings Brothers to pay the amounts borrowed under the
bond. The 3.5% revenue bonds are payable in varying annual principal and monthly
interest payments through July 2019. The bonds are collateralized by all of our
assets and the real property leased by us and owned by Kings Brothers. The
majority of the proceeds $3,125,872 from the bond issue were used by us to
relocate our manufacturing plant, make leasehold improvements at the new
facility and to purchase certain manufacturing equipment. The remaining proceeds
$974,128 were used by Kings Brothers to pay down the mortgage on its real
property, some of which is leased to us. The proceeds used by Kings Brothers
have been recorded as a receivable on our financial statements. We entered into
a Joint Debtor Agreement with Kings Brothers LLC concerning their rights, duties
and obligations in connection with the bonds. Kings Brothers and we,
collectively, are obligated to repay any outstanding debt under the bonds.
Amounts receivable from Kings Brothers are secured by a lien on all of Kings
Brothers' real estate, including the part we lease from them, and by personal
guarantees by the members of Kings Brothers. Principal due and paid by Kings
Brothers to us during the years ending December 31, 2001 and 2002 was $76,032
and $0, respectively. Interest due and paid by Kings Brothers to us during the
years ending December 31, 2001 and 2000 was $30,368 and $22,255, respectively.
As of December 31, 2001, the principal outstanding was $3,780,000 and the
portion due from Kings Brothers was $898,096.
Director, Jui-Chi Wang, is an owner and President of General Plastic Industrial
Co., LTD (GPI), a Taiwanese manufacturer of injection molded cartridges and
accessories for copiers and laser printers. GPI also owned and operated GPI-USA,
Inc. (GPI-USA) a wholly-owned United States distributor of GPI's products. In
2000, we purchased from GPI and GPI-USA $268,966 and $166,526, respectively, of
copier and laser printer products. In 2001, we purchased $4,005,508 of copier
and laser printer products from GPI.
Directors, Sueling Wang and Jui-Chi J. Wang, have beneficial ownership interests
of 7.28% and 2.47% respectively in AccuRec, LLC, a distributor of digital
versatile disks. From time to time during the year ending December 31, 2000, we
had short-term unsecured loans evidenced in writing and due on demand issued to
AccuRec aggregating $1,850,000 and a maximum outstanding at any one time of
$500,000. The interest rate on these loans was 8%, and we paid a total of $6,244
in interest during 2000. As of December 31, 2000 all amounts outstanding under
such loans have been repaid. We used the proceeds from these loans for working
capital purposes.
Director, Sueling Wang, as trustee for two of his children, loaned us a
total of $252,000 from 1998 to 1999 at an interest rate of 12% with principal
and interest due at expiry. Each of the loans was paid in full during July 2000,
and we paid interest in the aggregate amount of $47,205 on these loans. We used
the proceeds of this loan for working capital purposes.
On March 14, 2002, we borrowed $500,000 from director, Sueling Wang, on an
unsecured basis. The loan bears interest at the rate of 12% per annum, matures
on March 14, 2003 and is evidenced in writing. We borrowed this amount to meet a
supplier commitment for product.
We believe that the terms of the loans and borrowings from affiliates were
on terms more favorable than were otherwise available from third parties.
DESCRIPTION OF SECURITIES
Our articles of incorporation authorize the issuance of up to 20,000,000
shares of common stock, $0.01 par value per share. As of March 31, 2002
10,099,880 shares of our common stock are issued and outstanding and no
preferred stock is outstanding. Our articles of incorporation also authorize the
issuance of up to 1,000,000 shares of preferred stock, $0.01 par value per
share. As of the date of this prospectus, we have no issued and outstanding
preferred stock, and we currently have no plans to issue any shares of preferred
stock. The board of directors does, however, have the authority, without action
by the stockholders, to issue all or any portion of the authorized but unissued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights, and other rights
of such series. Such preferred stock, if and when issued, may carry rights
superior to those of the common stock.
On all matters submitted to a vote of the stockholders, each holder of
common stock has the right to one vote for each share held of record. Subject to
any dividend preferences granted to any preferred stock that may be outstanding
in the future,
25
holders of our common stock are entitled to receive ratably such dividends as
may be declared by the board of directors. In the event of a liquidation,
dissolution or winding up of our company, holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of preferred stock.
Holders of our common stock have no preemptive rights and no right to convert
their common stock into any other securities. There are no redemption or sinking
fund provisions applicable to our common stock.
Warrants
Color Imaging Warrants
The following is a brief summary of certain provisions of our warrants that
comprise the Units offered by us in this offering. This summary does not
purport to be complete and is qualified in all respects by reference to the
actual text of the warrant agreement between us and .
A copy of the warrant agreement has been filed as an exhibit to this
registration statement of which this prospectus is a part.
Exercise Price and Terms. Each warrant entitles the registered holder
thereof to purchase, at any time after the effective date of this prospectus,
one share of common stock at a price of $2.00 per share, subject to adjustment
in accordance with the anti-dilution and other provisions referred to below. The
warrants expire on December 31, 2003. The holder of any warrant may exercise
such warrant by surrendering the certificate representing the warrant to
who is acting as the warrant agent, with the subscription form thereon properly
completed and executed, together with payment of the exercise price. No
fractional shares will be issued upon expiration of the warrants.
Adjustment. The exercise price and the number of shares of common stock
purchasable upon the exercise of the warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combination or reclassifications of our common stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of our
common stock, consolidation or merger of our company with or into another
corporation (other than a consolidation or merger in which we are the surviving
corporation), or sale of all or substantially all of our assets, in order to
enable warrant holders to acquire the kind and number of shares of stock or
other securities or property receivable in such event by a holder of the number
of shares of common stock that might have been purchased upon the exercise of
the warrant.
Transfer, Exchange and Exercise. The warrants are in registered form and
may be presented to the warrant agent for transfer, exchange or exercise at any
time on or prior to their expiration on December 31, 2003, at which time the
warrants become wholly void and of no value.
Warrant holder Not a Stockholder. The warrants do not confer upon holders
any voting, dividend or other rights as stockholders of our company.
Modification of Warrant. Color Imaging and the warrant agent may make such
modifications to the warrant as they deem necessary or desirable that do not
adversely affect the interests of the warrant holders. No other modification
may be made to the warrants without the consent of two-thirds of the warrant
holders.
Current Prospectus. The warrants are not exercisable unless, at the time
of the exercise, we have a current prospectus covering the shares of common
stock issuable upon exercise of the warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities or "blue sky"
laws of the state of residence of the exercising holder of the warrants.
Although we will use our best efforts to have all the shares of common stock
issuable upon exercise of the warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the warrants, there can be no assurance that we will be able to do
so.
Up to 848,297 shares of our common stock are issuable pursuant to warrants
that we have issued to the Selling Stockholders, and the shares underlying
these warrants are being offered hereby. These warrants are exercisable for two
years from the date of issuance at an exercise price of $2.00 per share. The
warrants provide for adjustments in the event of certain stock dividends, stock
splits, consolidations, reclassifications or recapitalizations, and entitle the
holders to receive, upon exercise of the warrant, certain distributions made to
our stockholders in the event of certain significant transactions such as a
reorganization or merger, the sale or lease of a significant portion of our
assets or any dissolution, liquidation or winding up of our company.
Charter Provisions and Delaware Laws That May Have an Anti-Takeover Effect
Some provisions of Delaware law and our amended and restated certificate of
incorporation and bylaws could make the following more difficult:
. acquisition of us by means of a tender offer;
. acquisition of us by means of a proxy contest or otherwise; or
. removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our Board of Directors. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti- takeover effect with respect to transactions not approved in
advance by the Board of Directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held by
stockholders.
Elimination of Cumulative Voting. Our amended and restated certificate of
incorporation and bylaws do not provide for cumulative voting in the election of
directors. Cumulative voting provides for a minority stockholder to vote a
portion or all of its shares for one or more candidates for seats on the Board
of Directors. Without cumulative voting, a minority stockholder will not be able
to gain as many seats on our Board of Directors based on the number of shares of
our stock that such stockholder holds than if cumulative voting were permitted.
The elimination of cumulative voting makes it more difficult for a minority
stockholder to gain a seat on our Board of Directors and to influence the Board
of Directors' decision regarding a takeover.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the Board of Directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change the control of our company. These and other provisions may
have the effect of deterring hostile takeovers or delaying
26
changes in control or management of our company.
Transfer Agent
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust, New York, New York.
SELLING STOCKHOLDERS
All of the Stock being offered in this prospectus is being offered by the
Selling Stockholders listed below. We have registered this offering because of
registration rights which we granted to the Selling Stockholders when we sold
the Stock to them. Some of the common stock listed in the table is not presently
owned by the Selling Stockholders, but is issuable upon exercise of warrants.
The Selling Stockholders are not required to sell all or any of the Stock. We
believe that the registration of the shares underlying the warrants, even though
we may not be obligated to do so, will encourage the warrant holders to exercise
the warrants, thereby benefitting us through the warrant stock sales.
Percentage of Shares
Shares Owned Shares to be Shares Owned Outstanding
Name Before Offering (1) Sold in Offering After Offering (2) After Offering
---- --------------- ------------------ -------------- --------------
The Blaine Group, Inc.(3) 10,000 10,000 - n/a
Sueling Wang (4) 1,200,347 856,847 343,500 3.4%
Gerald M. Chizever (5) 45,000 45,000 - n/a
Allan Duboff (6) 10,000 10,000 - n/a
Kresimir Peharda (7) 5,455 5,455 - n/a
Fredric N. Richman (8) 25,000 25,000 - n/a
Yik-Li Sih (9) 141,204 95,204 46,000 *
Sal G. Giacinto (10) 15,000 15,000 - n/a
Patrick D. Salas (11) 15,000 15,000 - n/a
Brian N. Hollander (12) 20,000 20,000 - n/a
Howard Kaufman (13) 2,629 2,000 629 *
Jui-Chi Wang (14) 684,450 618,835 65,615 *
Maynard Hollander (15) 50,000 50,000 - n/a
Shobha Patel (16) 9,760 7,260 2,500 *
Mark Edward Palmer (17) 9,000 9,000 - n/a
Victor A. Hollander (18) 105,000 100,000 5,000 n/a
Jui-Hung Wang D 699,178 563,173 136,005 1.3%
Chechang Yeh 445,205 145,205 300,000 3.0%
Jui-Kung Wang D 316,209 120,204 196,005 1.9%
Burns Hoffman (19) 200,000 200,000 - n/a
Doug Casey (20) 100,000 100,000 - n/a
27
Percentage of Shares
Shares Owned Shares to be Shares Owned Outstanding
Name Before Offering (1) Sold in Offering After Offering (2) After Offering
---- --------------- ------------------ -------------- --------------
Morris H. Wolf (21) 25,000 25,000 - n/a
Arash Khalili (22) 2,000 2,000 - n/a
Howard N. Addison (23) 30,000 30,000 - n/a
Neal McNally (24) 25,000 25,000 - n/a
Carl H. Spatz (25) 8,697 5,000 3,697 *
Lancing Holdings Ltd. (26) 40,000 40,000 - n/a
Thomas D. Hesselbrock (27) 8,697 5,000 3,697 *
Lionel Brown (28) 25,000 25,000 - n/a
Flora Chung (29) 7,022 3,529 3,493 *
Chia-An L. Shieh (30) 14,696 7,058 7,638 *
John G. Myers (31) 58,951 58,951 - n/a
Larry Gordon (32) 70,886 70,886 - n/a
Stephen Chromik (33) 450,000 450,000 - n/a
Colin J. Reynolds (34) 10,000 10,000 - n/a
Michael Edson (35) 38,880 38,880 - n/a
IndustriCorp and Co., Inc. FBO 50,000 50,000 - n/a
David N. Kunz IRA Rollover (36)
Total 3,859,487
___________________________
* Less that 1%
D Director of our company.
Percentage of ownership for each holder is calculated based on 10,099,880 shares
of common stock outstanding on March 31, 2002. Beneficial ownership is
determined in accordance with the SEC Rule 13d-3 and generally includes shares
over which the holder has voting or investment power, subject to community
property laws. All shares of common stock obtainable upon conversion of
securities or exercise of stock options or warrants (including those that are
not currently exercisable but will become exercisable within 60 days hereafter)
are considered to be beneficially owned by the person holding the options or
warrants for computing that person's percentage, but are not treated as
outstanding for computing the percentage of any other person.
(1) Includes shares of common stock covered by this prospectus.
(2) Assumes the completion of this offering and that the Selling Stockholders
dispose of all of their shares of common stock covered by this prospectus, that
they do not dispose of common stock owned but not covered by this prospectus and
that they do not acquire any additional shares of common stock.
(3) Devon Blaine is the principal and sole stockholder of the Blaine Group,
Inc.
(4) Includes: (a) 60,000 shares owned by Sueling Wang's four children, and
(b) options to purchase 200,000 shares of common stock. Excludes 141,204 shares
of common stock beneficially owned by his wife, Yik-Li Sih. Dr. Wang is a
director and officer of our company.
(5) Includes 22,500 shares of common stock underlying warrants to purchase
common stock. Mr. Chizever is a partner of Richman Mann Chizever Phillips and
Duboff our legal counsel.
(6) Includes 5,000 shares of common stock underlying warrants to purchase
common stock. Mr. Richman is a partner of Richman Mann Chizever Phillips and
Duboff our legal counsel.
(7) Includes 1,500 shares of common stock underlying warrants to purchase
common stock. Mr. Peharda is an attorney at Richman Mann Chizever Phillips and
Duboff
(8) Includes 12,500 shares of common stock underlying warrants to purchase
common stock. Mr. Duboff is a partner of Richman Mann Chizever Phillips and
Duboff our legal counsel.
(9) The 141,204 shares of common stock beneficially owned by Ms. Sih are not
included in the totals for Dr. Wang as described in note 3 above. Of the
141,204 shares owned by Ms. Sih, 95,204 will be registered for sale in this
offering.
(10) Includes 7,500 shares of common stock underlying warrants to purchase
common stock.
(11) Includes 7,500 shares of common stock underlying warrants to purchase
common stock.
28
(12) Includes 10,000 shares of common stock underlying warrants to purchase
common stock.
(13) Includes 1,000 shares of common stock underlying warrants to purchase
common stock.
(14) Includes options to purchase 5,000 shares of common stock. Mr. Wang is one
of our directors.
(15) Includes 25,000 shares of common stock underlying warrants to purchase
common stock.
(16) Includes 5,000 shares of common stock underlying options to purchase
common stock.
(17) Includes 4,500 shares of common stock underlying warrants to purchase
common stock.
(18) Includes 50,000 shares of common stock underlying warrants to purchase
common stock and options to purchase 5,000 shares of common stock. Mr Hollander
is one of our directors.
(19) Includes 100,000 shares of common stock underlying warrants to purchase
common stock.
(20) Includes 50,000 shares of common stock underlying warrants to purchase
common stock.
(21) Includes 12,500 shares of common stock underlying warrants to purchase
common stock.
(22) Includes 1,000 shares of common stock underlying warrants to purchase
common stock. Mr Khalili is an attorney at Richman Mann Chizever Phillips &
Duboff.
(23) Includes 15,000 shares of common stock underlying warrants to purchase
common stock.
(24) Includes 12,500 shares of common stock underlying warrants to purchase
common stock.
(25) Includes 2,500 shares of common stock underlying warrants to purchase
common stock.
(26) Includes 20,000 shares of common stock underlying warrants to purchase
common stock. John Nichols is the principal and benefical owner of Lancing
Holdings Ltd.
(27) Includes 2,500 shares of common stock underlying warrants to purchase
common stock.
(28) Includes 12,500 shares of common stock underlying warrants to purchase
co8mon stock.
(29) Includes 5,000 shares of common stock underlying options to purchase common
stock.
(30) Includes 5,138 shares of common stock in which Ms. Shieh may be deemed to
have a beneficial ownership interest which are beneficially owned by Ms. Shieh's
husband, Shiuh An Shieh and 5,000 shares of common stock underlying options to
purchase common stock.
(31) Includes 58,951 shares of common stock underlying warrants to purchase
common stock.
(32) Includes 70,886 shares of common stock underlying warrants to purchase
common stock.
(33) Includes 300,000 shares of common stock underlying warrants to purchase
common stock.
(34) Includes 5,000 shares of common stock underlying warrants to purchase
common stock.
(35) Includes 25,920 shares of common stock underlying warrants to purchase
common stock.
(36) Includes 25,000 shares of common stock underlying warrants to purchase
common stock.
PLAN OF DISTRIBUTION
Color Imaging, Inc.
We are offering to sell up to 3,500,000 Units representing an aggregate of
3,500,000 shares of common stock and warrants exercisable into 3,500,000 shares
of common stock. The price per Unit is $2.00 for an aggregate offering price of
$7,000,000. Each Unit consists of one share of common stock and a warrant to
purchase one share of common stock at an exercise price of $2.00. The warrant
expires on December 31, 2003. We will sell the Units on a best-efforts basis. We
will require investors to purchase at least 100,000 Units.
Our officers and directors will offer and sell the Units directly to
investors, and we may utilize broker-dealer(s) or underwriter(s) to offer and
sell the Units. Other than broker-dealer(s), underwriter(s) or finders, we do
not intend to pay compensation to any other person in connection with the offer
and sale of the Units.
In the event sales are made to broker-dealers as principals, we would be
required to file a post-effective amendment to the registration statement of
which the prospectus forms a part. In such post-effective amendment, we would
be required to disclose the names of any participating broker-dealers and the
compensation arrangements relating to such sales. In addition, if any shares of
common stock or warrants offered for sale pursuant to this prospectus are
transferred for value, subsequent holders could not use this prospectus until a
post-effective amendment is filed, naming such holders.
Broker-dealers may engage other broker-dealers to participate in sales.
Broker-dealers may receive commissions or discounts from the selling of our
common stock or warrants (or if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. We do not
expect these commissions and discounts to exceed what is customary in the types
of transactions involved.
Any broker-dealer that assists with the sale of our common stock and
warrants may be deemed to be an underwriter within the meaning of Section 2(11)
of the Securities Act of 1933, and any commissions received by them and any
profit on the resale of our stock as a principal may be deemed to be
underwriting discounts and commissions under the Securities Act. We may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of our stock and warrants against certain liabilities, including
liabilities arising under the Securities Act. Because any agent, dealer or
broker-dealer may be deemed to be an underwriter, such person will be subject to
prospectus delivery requirements under the Securities Act. Furthermore, in the
event of a distribution of the stock and warrants, we, any selling broker-dealer
and any affiliated purchasers may be subject to Regulation M, which prohibits
any stabilizing bid or stabilizing purchase for the purpose of pegging, fixing
or stabilizing the price of our common stock in connection with that
distribution.
Our offering will remain open until December 31, 2003 unless the entire
offering has been sold prior to that time, or we decide, in our sole discretion,
to cease all selling efforts. Our officers, directors and their affiliates may
purchase Units in this offering. At present, we have no arrangements with any
such person to purchase Units in the offering.
There will be no escrow account. We will immediately use all of the
proceeds received from the sale of the Units. The proceeds shall be non-
refundable except as required by law.
Selling Stockholders
We are registering the sale of the common stock and common stock underlying
warrants on behalf of the Selling Stockholders, who are free to offer and sell
our stock at such times, in such manner and at such prices as they may
determine. We will pay the costs of registering the sales of our stock. Our
common stock may be offered by the Selling Stockholders in one or more types of
transactions, which may or may not involve brokers, dealers or cash
transactions. The Selling Stockholders may also use Rule 144 under the
Securities Act to sell our stock, if they meet the criteria and conform to the
requirements of that rule. There is no underwriter or coordinating broker acting
in connection with the proposed sale of our stock by the Selling Stockholders.
The sales of our stock may also be effected from time to time by the following
means:
. transactions on the OTC Bulletin Board at market price through
ordinary broker transactions, including block transactions;
. negotiated transactions; or,
. a combination of the above methods of sale at fixed prices, which may
be changed, at market prices prevailing at the time of sale, or at
negotiated prices
The Selling Stockholders may sell common stock directly to purchasers or
through broker-dealers which may act as agents or principals. Broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders.
The Selling Stockholders and any broker-dealers that act in connection with
the sale of our common stock may be deemed to be underwriters within the meaning
of Section 2(11) of the Securities Act, and any commissions received by them and
any profit on the resale of our stock as principal may be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Stockholders may agree to indemnify any agent, dealer commissions or broker-
dealer that participates in transactions involving sales of our stock against
certain liabilities, including liabilities arising under the Securities Act.
Because the Selling Stockholders may be deemed to be underwriters, they will be
subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a distribution of our stock, the Selling
Stockholders, any selling broker-dealer and any affiliated purchasers may be
subject to Regulation M, which prohibits any stabilizing bid or stabilizing
purchase for the purpose of pegging, fixing or stabilizing the price of our
common stock in connection with that distribution. As used herein, "Selling
Stockholders," includes donees and pledgees selling our shares from a named
Selling Stockholder after the date of this prospectus.
29
LEGAL MATTERS
The law firm of Richman, Mann, Chizever, Phillips & Duboff, of Beverly
Hills, California, will pass upon the validity of the securities offered by this
prospectus. Although the firm does not own any stock or warrants to purchase
stock in Color Imaging, Inc., five attorneys of the firm collectively own
44,955 shares and warrants to purchase an additional 42,500 shares and all
of them are included among the Selling Stockholders. These individuals paid for
such securities in cash on the same terms as other investors.
INDEMNIFICATION
Our certificate of incorporation allows us to indemnify our officers and
directors to the maximum extent allowed under Delaware law. This includes
indemnification for liability which could arise under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant under these provisions, the registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
FURTHER INFORMATION
You should rely only on the information in this prospectus or any
prospectus supplement or incorporated by reference in them. We have not
authorized anyone else to provide you with different information. Offers of the
securities are being made only in states where the offers are permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents. If information in incorporated documents conflicts with information
in this prospectus, you should rely on the most recent information.
This prospectus is part of a Registration Statement on Form SB-2 that has
been filed with the SEC. It does not include all of the information that is in
the registration statement and the additional documents filed as exhibits with
it. For more detailed information, you should read the exhibits themselves.
We are subject to the informational requirements of the Exchange Act and,
in accordance with it, are required to file reports, proxy and information
statements, and other information with the SEC. Such reports, proxy and
information statements and other information can be inspected and copied at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information about the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. We electronically file reports, proxy
and information statements, and other information with the SEC. The SEC
maintains an Internet website that contains our electronically filed reports,
proxy and information statements, and other information at http://www.sec.gov.
We maintain Internet websites at http://www.colorimage-micr.com and at
http://www.logical-imaging.com. Our common stock is traded on the NASDAQ OTC
Bulletin Board under the symbol CIMG.
30
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 (Restated) F-2
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 (Restated) F-3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 (Restated) F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 (Restated) F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 (Restated) F-6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Color Imaging, Inc.
Norcross, Georgia
We have audited the accompanying consolidated balance sheets of Color
Imaging, Inc. (a Delaware corporation) and subsidiary as of December 31, 2001
and 2000 (as restated - see Note 3), and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Color
Imaging, Inc. and subsidiary as of December 31, 2001 and 2000 (as restated - see
Note 3), and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
Unites States of America.
LAZAR LEVINE & FELIX LLP
New York, New York
February 15, 2002,
except for the 3rd and 4th
paragraphs of Note 8(A)
the date of which is
March 20, 2002
F-1
COLOR IMAGING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
2001 2000
(as restated --
see Note 3)
- ASSETS -
CURRENT ASSETS:
Cash $ 395,327 $ 339,348
Accounts receivable -- net of allowance for doubtful accounts 3,030,995 3,562,120
of $100,000 for 2001 and 2000
Inventories 6,056,042 5,181,248
Deferred taxes 277,239 155,526
Related party portion of IDR bond -- current 79,596 76,032
Other current assets 339,141 401,143
TOTAL CURRENT ASSETS 10,178,340 9,715,417
PROPERTY, PLANT AND EQUIPMENT -- NET 8,438,826 8,256,430
OTHER ASSETS:
Patent/intellectual property 5,000 5,000
Deferred income tax 312,000 467,984
Related party portion of IDR bond 818,500 898,096
Other assets 225,204 269,626
1,360,704 1,640,706
$ 19,977,870 $ 19,612,553
- LIABILITIES & STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES:
Revolving credit lines $ 1,462,416 $ 1,399,000
Accounts payable 4,898,665 6,665,322
Current portion of notes payable 369,198 343,408
Current portion of bonds payable 335,000 320,000
Other current liabilities 501,086 370,765
TOTAL CURRENT LIABILITIES 7,566,365 9,098,495
LONG TERM LIABILITIES:
Notes payable 1,359,000 1,698,058
Bonds payable 3,445,000 3,780,000
LONG TERM LIABILITIES 4,804,000 5,478,058
TOTAL LIABILITIES 12,370,365 14,576,553
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 20,000,000 shares; 100,992 74,909
10,099,175 and 7,490,948 shares issued and outstanding on
December 31, 2001 and 2000, respectively
Additional paid-in capital 9,873,939 7,229,293
Stock subscription receivable (149,000) --
Accumulated deficit (2,218,426) (2,268,202)
7,607,505 5,036,000
$ 19,977,870 $ 19,612,553
See notes to consolidated financial statements.
F-2
COLOR IMAGING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
(as restated -
see Note 3)
SALES $ 30,521,167 $ 12,108,132
COST OF SALES 26,053,501 10,329,418
GROSS PROFIT 4,467,666 1,778,714
OPERATING EXPENSES:
Administrative 1,698,836 889,742
Deferred charge write-off 215,371 --
Research and development 883,115 764,286
Sales and marketing 1,196,458 470,625
3,993,780 2,124,653
INCOME (LOSS) FROM OPERATIONS 473,886 (345,939)
OTHER INCOME (EXPENSE):
Interest and other (expense) 39,183 (147,988)
Interest and financing costs (417,107) (241,037)
Non-recurring moving expenses (9,570) (256,212)
(387,494) (645,237)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 86,392 (991,176)
PROVISION (BENEFIT) FOR INCOME TAXES 36,616 (332,792)
NET INCOME (LOSS) $ 49,776 $ (658,384)
INCOME (LOSS) PER COMMON SHARE:
Basic $ .01 $ (.09)
Diluted $ .01 $ (.09)
WEIGHTED AVERAGE SHARES
OUTSTANDING-BASIC 7,985,071 7,055,763
-DILUTED 8,560,369 7,154,136
See notes to consolidated financial statements.
F-3
COLOR IMAGING, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Additional Stock Total
Common Paid-In Subscription Accumulated Stockholders'
Shares Stock Capital Receivable Deficit Equity
Balance at 3,999,987 $ 40,000 $ 3,343,430 $ -- $ (1,609,818) $ 1,773,612
December 31, 1999
(as restated - see
Note 3)
Acquisition of 3,000,000 30,000 3,194,039 -- -- 3,224,039
Image
Exercise of stock 46,211 462 91,960 -- -- 92,422
warrants
Common stock 444,750 4,447 885,053 -- -- 889,500
issued in private
placement
Net loss for the -- -- -- -- (658,384) (658,384)
year
Balance at 7,490,948 74,909 7,229,293 -- (2,268,202) 5,036,000
December 31, 2000
(as restated - see
Note 3)
Exercise of stock 55,452 555 110,349 -- -- 110,904
warrants
Exercise of stock 1,104,815 11,048 (11,048) -- -- --
warrants, cashless
Common stock, 10,000 100 24,900 -- -- 25,000
issued for services
Common stock, 1,437,960 14,380 2,520,445 (149,000) -- 2,385,825
issued in private
placement
Net income for the -- -- -- -- 49,776 49,776
year
Balance at 10,099,175 $ 100,992 $ 9,873,939 ($149,000) $ (2,218,426) $ 7,607,505
December 31,
2001
See notes to consolidated financial statements.
F-4
COLOR IMAGING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
(as restated --
see Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 49,776 $ (658,384)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 603,100 379,117
Deferred income taxes 34,271 (154,294)
Compensatory shares 25,000 --
Decrease (increase) in:
Accounts and other receivables 718,471 207,672
Inventories (874,794) 683,183
Prepaid expenses and other assets (134,727) 63,065
Due from related party under IDR bond 76,032 81,706
Increase (decrease) in:
Accounts payable and accrued liabilities (1,630,229) 212,450
NET CASH (USED IN) (1,133,100) 814,515
PROVIDED BY OPERATING
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (785,496) (2,319,955)
Other assets 53,805 (53,805)
Patents and intellectual properties -- (5,000)
NET CASH (USED IN) (731,691) (2,378,760)
INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 63,416 (644,135)
Proceeds from long-term debt 27,865 500,000
Proceeds from sale of stock 2,496,729 981,922
Principal payments of long-term debt (667,240) (118,068)
NET CASH PROVIDED BY 1,920,770 719,719
FINANCING ACTIVITIES
NET INCREASE (DECREASE) IN CASH 55,979 (844,526)
Cash at beginning of year 339,348 1,183,874
CASH AT END OF YEAR $ 395,327 $ 339,348
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ -- $ --
Interest $ 417,107 $ 241,037
See notes to consolidated financial statements.
F-5
COLOR IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE 1. DESCRIPTION OF COMPANY:
On May 16, 2000, Color Imaging, Inc., formerly known as Advatex Associates, Inc.
(Advatex), Logical Acquisition Corp. (LAC), Color Acquisition Corp. (CAC),
Logical Imaging Solutions, Inc. (Logical) and Color Image, Inc. (Image) entered
into a Merger Agreement and Plan of Reorganization, as amended (Merger
Agreement), pursuant to which LAC merged with and into Logical and CAC merged
with and into Image (the Merger) and Logical and Image became wholly-owned
subsidiaries of Advatex. Pursuant to the Merger Agreement, stockholders of
Logical and Image exchanged their common stock for shares of common stock of
Advatex. A reverse stock split of one share of common stock for 6.0779 shares of
common stock was simultaneously approved for the then existing Advatex common
stock. Subsequently, the equity interests in Logical were converted by virtue of
the Logical Merger into approximately 3,000,000 newly issued shares of Advatex
common stock, on the basis of 1.84843 Advatex Common Shares for each one share
of common stock of Logical. The equity interests in Image were converted by
virtue of the Image Merger into approximately 3,000,000 newly issued shares of
the Advatex common stock on the basis of 15 Advatex common shares for each one
share of common stock of Image. The above transactions were consummated on June
28, 2000.
Prior to the completion of the above referenced transaction, Advatex was a
non-operating, fully reporting, public shell, and both Logical and Image were
privately owned operating enterprises. By the terms of the Merger Agreement and
Plan of Reorganization, the combination was contingent upon the agreement of all
of the enterprises, and it was, therefore considered a single business
combination.
Image and Logical each received the same number of shares and both the board of
directors and executive officers of the Company were equally divided between the
managements of Logical and Image. However, since the majority of the voting
stock was held by directors coming from Logical or including former Logical
directors, Logical was determined to be the accounting acquirer in the reverse
merger with Advatex, based upon guidance provided by Securities and Exchange
Commission (SEC) Staff Accounting Bulletin (SAB) Topic 2A and APB 16, regarding
Business Combinations.
The fair market value of the shares being issued in the reverse acquisition
transaction could not be determined and accordingly, the transaction was valued
at the fair market value of the issuer's net assets, which approximated their
carrying value. As a result, and consistent with treatment of a merger between a
non-operating public shell and privately held entity, no goodwill was
recognized.
Concurrently with the above transaction, Advatex, the legal acquirer, issued
3,000,000 shares of common stock (with a per share value of $1.00 as determined
in the aforementioned reverse acquisition by Logical of Advatex) in exchange for
the outstanding shares of Image. This transaction was accounted for under the
purchase method of accounting (see Note 3 - Restatement). The fair value of the
Image's assets was reviewed to determine the allocation of the cost of the
purchase to tangible and intangible assets, including goodwill. Management
determined that no adjustment to the financial statements of Image was
necessary, and that the fair value of the tangible and intangible assets of
Image was equivalent to their respective book values and no goodwill was
recognized in this transaction. The historical financial statements are those of
Logical, and the assets, liabilities and operating results of Image are only
included in the consolidated financial statements of the Company from the date
of acquisition, June 28, 2000.
The following unaudited pro forma results of operations were developed assuming
the acquisition had occurred at the beginning of the earliest period presented.
Year Ended December 31,2000
(Unaudited Proforma Data)
Net sales $ 21,204,435
Net loss (517,934)
Loss per share $ (0.07)
F-6
NOTE 1. DESCRIPTION OF COMPANY (CONTINUED):
On July 7, 2000, by a vote of the majority of stockholders, Advatex Associates,
Inc. (Advatex), changed its name to Color Imaging, Inc. (the Company or Color)
and approved the reverse stock split. On December 31, 2000, Image merged into
Color with Color being the surviving entity. At December 31, 2001, there were
11,124,175 shares of the common stock of the Company issued and outstanding.
During March 2002 two transactions for the sale of 1,025,000 shares of the
Company's common stock were rescinded.
Color develops, manufactures and markets products used in electronic printing
and photocopying. Color designs, manufactures and delivers black text toners,
specialty toners, including color and MICR (magnetic ink characters used on
checks and other financial documents). Color also supplies other consumable
products used in electronic printing and photocopying, including toner
cartridges, cartridge components, photoreceptors and imaging drums.
Logical's development efforts have focused on creating a digital variable
printing process that provides high-speed, color printing systems for commercial
applications. Logical designs, manufactures and delivers complete printing
systems, including software, control units and print engines to its customers.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Logical Imaging Solutions, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
B. ESTIMATES AND ASSUMPTIONS:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (GAAP) requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
C. FINANCIAL INSTRUMENTS:
The carrying amount of the Company's financial instruments, which include cash
equivalents, marketable securities, accounts receivable, accounts payable and
long-term debt, approximates their fair value at December 31, 2001 and 2000.
D. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to concentrations of
credit risk are cash equivalents, marketable securities and accounts receivable.
The Company attempts to limit its credit risk associated with cash equivalents
and marketable securities and at December 31, 2001 its investments were in cash
held in highly rated financial institutions. With respect to accounts
receivable, the Company limits its credit risk by performing ongoing credit
evaluations and, when deemed necessary, requiring cash in advance, payment by
credit card, letters of credit or guarantees. The Company's customer base is
comprised principally of domestic distributors, remanufacturers of laser
printing consumable products and commercial printers. Management does not
believe significant risk exists in connection with the Company's concentrations
of credit at December 31, 2001.
E. CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
F. INVENTORIES:
Inventories are stated at the lower of cost or market with cost determined by
the first-in, first-out (FIFO) method for raw materials, work-in-process and
finished goods. Costs in inventory include materials, direct labor, and applied
manufacturing overhead.
F-7
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
G. PROPERTY, PLANT AND EQUIPMENT:
Property, plant, and equipment are recorded at cost. Replacements and major
improvements are capitalized; maintenance and repairs are expensed as incurred.
Gains or losses on asset dispositions are included in the determination of net
income.
Depreciation of the Company's property, plant, and equipment is computed
using the straight-line method. The average estimated useful lives are as
follows:
Years
Leasehold improvements 10
Machinery and equipment 5 - 10
Furniture and fixtures 7 - 10
H. INTANGIBLE ASSETS:
Intangible assets are comprised of patents and intellectual property. All
intangible property is amortized by the straight-line method, over their
respective useful lives, commencing upon completion of commercialization.
Intangibles are periodically reviewed to assess recoverability from future
operations using undiscounted cash flows in accordance with SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". To the extent carrying values exceed fair values, an impairment
loss is recognized in operating results.
I. STOCK-BASED COMPENSATION:
The Company grants stock options for a fixed number of shares of common stock to
employees with an exercise price equal to the fair value of the common stock at
the date of grant. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and
related Interpretations because the Company believes the alternative fair value
accounting provided for under FASB Statement No. 123, Accounting for Stock-Based
Compensation, (FAS 123) requires the use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company"s employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
J. INCOME TAXES:
The asset and liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for operating
loss and tax credit carry forwards and for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the results of operations in the period
that includes the enactment date. A valuation allowance is recorded to reduce
the carrying amounts of deferred tax assets unless it is more likely than not
that such assets will be realized.
K. REVENUE RECOGNITION:
Color designs, manufactures and sells toner used in electronic printing. Revenue
from such product sales is recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. At this time the earnings process is complete and
the risks and rewards of ownership have transferred to the customer, which is
generally when the goods are shipped and all significant obligations of the
Company have been satisfied. Both Logical and Color supply consumable products
used in electronic printing and revenue from the sale of such consumables is
also recognized when the goods are shipped. Sales of the printing systems
designed and manufactured by Logical have been negligible through December 31,
2001, and accordingly, the Company has not generated revenues from warranty
contracts and/or services provided for installation and maintenance.
F-8
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
K. REVENUE RECOGNITION (CONTINUED):
The Company recognizes revenues in accordance with Staff Accounting Bulletin
101, Revenue Recognition in Financial statements (SAB 101). As a result, the
publication of SAB 101 did not have an impact on the Company's financial
statements.
L. ADVERTISING COSTS:
In accordance with SOP No. 93-7, Reporting on Advertising Costs, the Company
expenses all advertising expenditures as incurred. The Company incurred $57,473
and $33,226 in advertising costs during 2001 and 2000, respectively.
M. RESEARCH AND DEVELOPMENT EXPENSES:
Research and development costs are charged to expense when incurred and
aggregated $883,115 and $764,286 for 2001 and 2000, respectively.
N. EARNINGS (LOSS) PER COMMON SHARE:
Earnings per common share are calculated under the provisions of SFAS No. 128,
Earnings per Share. SFAS No. 128 requires the Company to report both basic
earnings per share, which is based on the weighted-average number of common
shares outstanding, and diluted earnings per share, which is based on the
weighted-average number of common shares outstanding plus all potential dilutive
common shares outstanding. Since the Company reported a loss from operations in
2000, the exercise of stock options and warrants was not assumed since the
result would be antidilutive.
O. FOREIGN CURRENCY TRANSACTIONS:
During 2001, the Company began selling its products in certain overseas markets
where the prices were denominated in Euros. All balance sheet accounts resulting
from foreign transactions are translated into U.S. dollars at the rate of
exchange in effect at the balance sheet date and statements of operations items
are translated at the weighted average exchange rates for the year. The
resulting translation adjustments are made directly to a separate component of
stockholders' equity. Gains and losses from foreign currency transactions, such
as those resulting from the settlement of foreign receivables (or payables) are
included in the consolidated statements of operations. As of December 31, 2001,
there were no material balance sheet items resulting from foreign currency
transactions. Losses from the settlement of foreign receivables aggregated
$1,876 for the year ended December 31, 2001 and is included in other expense on
the statements of operations.
P. DEFERRED CHARGES:
The Company defers certain expenditures related to the activities associated
with the acquisition of business assets, which the Company has determined have a
future economic benefit. These expenditures are then capitalized into the cost
of the assets upon acquisition. Management reviews these assets whenever the
circumstances and situations change such that there is an indication that the
carrying amount is not recoverable. When management's best estimate of the
future economic benefit of these assets is less than the carrying amount, the
carrying amount is reduced to the fair value and a write-off is recognized.
Deferred charges written off are not restored.
At December 31, 2000, the Company had recorded deferred charges aggregating
$53,805 in connection with fees and costs related to the planned acquisition of
a manufacturing business, and, during 2001, incurred additional costs of
$161,566. The Company was not able to consummate this acquisition and, as of
December 31, 2001, wrote off such deferred costs.
Q. NEW ACCOUNTING STANDARDS:
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44 (FIN 44), Accounting for Certain Transactions involving
Stock Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies
the application of APB No. 25 for certain issues, including the definition of an
employee, the treatment of the acceleration of stock options and the accounting
treatment for options assumed in business combinations. FIN 44 became effective
on July 1, 2000, but is applicable for certain transactions dating back to
December 1998. The adoption of FIN 44 did not have a material impact on the
Company"s financial position or results of operations.
F-9
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Q. NEW ACCOUNTING STANDARDS (CONTINUED):
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
(SAB No. 101). SAB No. 101 expresses the views of the SEC staff in applying
generally accepted accounting principles to certain revenue recognition issues.
Subsequently, SAB Nos. 101A and 101B were issued delaying the implementation of
SAB No. 101 to the fourth quarter of 2000. The SAB requires companies to report
any changes in revenue recognition as a cumulative change in accounting
principle at the time of implementation in accordance with Accounting
Principles Board (APB) Opinion 20, Accounting Changes. The adoption of SAB No.
101 did not have a material impact on the Company's financial position or
results of operations.
New accounting standards issued include SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes a comprehensive standard
for the recognition and measurement of derivatives and hedging activities. The
new standard requires that all derivatives be recognized as assets or
liabilities in the statement of financial position and measured at fair value.
Gains or losses resulting from changes in fair value are required to be
recognized in current earnings unless specific hedge criteria are met. SFAS No.
133 became effective for the Company beginning in the first quarter of fiscal
year 2001 but has had no impact on the Company's financial statements due to the
Company's limited use of derivatives.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations to
be accounted for using the purchase method of accounting and is effective for
all business combinations completed after June 30, 2001. SFAS 142 requires
goodwill to be tested for impairment under certain circumstances, and
written-off when impaired, rather than being amortized as previous standards
required. Furthermore, SFAS 142 requires purchased intangible assets to be
amortized over their estimated useful lives unless these lives are determined to
be indefinite. SFAS 142 is effective for fiscal years beginning after December
15, 2001. The Company is currently assessing the impact of SFAS 142 on its
operating results and financial condition but does not believe it will be
material.
On October 3, 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), that is applicable to financial statements issued for fiscal years
beginning after December 15, 2001. The FASB's new rules on asset impairment
supercede SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and portions of Accounting Principles
Board Opinion 30, "Reporting the Results of Operations". This Standard provides
a single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify an
assets as held-for-sale.
F-10
NOTE 3. RESTATEMENT OF YEAR 2000 FINANCIAL STATEMENTS:
The accompanying financial statements for the year ended December 31, 2000, have
been restated to reflect the business combination with Image (see Note 1) under
the purchase method of accounting as opposed to the pooling of interests method,
as previously reported. Accordingly, Image's financial statements are only
consolidated beginning with the date of acquisition, June 28, 2000. In addition,
the Company reclassified certain tangible assets that were erroneously
classified as Patent/Intellectual Property. The following tables present the
impact of the restatement.
As Previously
Reported As Restated
Year Ended December 31, 2000:
Balance Sheet:
Deferred taxes-- current $ 159,426 $ 155,526
Related party portion-- IDR bond, 100,832 76,032
current
Property, plant and equipment, 7,384,679 8,256,430
net
Patent/intellectual property 876,751 5,000
Deferred income tax, non-current 464,085 467,984
Related party portion-- IDR bond, 873,296 898,096
non-current
Accounts payable 6,640,402 6,665,322
Current portion of notes payable 351,150 343,408
Other current liabilities 400,276 370,765
Notes payable-- non-current 1,685,725 1,698,058
Additional paid-in capital 6,986,003 7,229,293
Accumulated deficit (2,024,912) (2,268,202)
As Previously
Reported As Restated
Year Ended December 31, 2000:
Statement of Operations:
Sales $ 21,204,435 $ 12,108,132
Cost of sales 17,946,605 10,329,418
Administrative expenses 1,478,075 889,742
Research and development 1,003,565 764,286
Sales and marketing 881,176 470,625
Interest and other income 351,062 (147,988)
(expense)
Interest and financing costs (488,948) (241,037)
Non-recurring moving expenses (488,854) (256,212)
Benefit for income taxes (213,792) (332,792)
Net loss (517,934) (658,384)
Basic and diluted loss per $ (.07) $ (.09)
share
See also Note 1 -- Unaudited Proforma Data
NOTE 4. INVENTORIES:
Inventories consisted of the following components as of December 31, 2001 and
2000:
2001 2000
Raw materials $ 723,480 $ 794,128
Work-in-process 967,982 1,275,545
Finished goods 4,534,410 3,234,230
Obsolescence allowance (169,830) (122,655)
Total $ 6,056,042 $ 5,181,248
F-11
NOTE 5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following as of December 31, 2001 and
2000:
2001 2000
Furniture and fixtures $ 132,310 $ 129,955
Test equipment 456,152 412,325
Manufacturing machinery and equipment 7,588,035 6,865,206
Leasehold improvements 1,268,506 1,252,021
9,445,003 8,659,507
Less: accumulated depreciation and amortization (1,006,177) (403,077)
$ 8,438,826 $ 8,256,430
Depreciation and amortization expense amounted to $603,100 and $379,117 in 2001
and 2000, respectively.
NOTE 6. BORROWING ARRANGEMENTS:
As a condition of its Bank's consent to the business combination (see Note 1),
the Company, on August 30, 2000, entered into an amended and restated borrowing
arrangement, granting to the bank a security interest in all of the Company's
assets as security for the payment of the obligations owed the bank.
The Company has a $2.5 million revolving line of credit with an outstanding
balance as of December 31, 2001 of $1,462,416, which bears interest at the rate
of 4.75% (the one-month libor of 2.25% plus 2.5%) as of December 31, 2001. The
revolving line of credit has a June 30, 2002 expiration date. Under the line of
credit, the Company is permitted to borrow 85% of eligible accounts receivable
and 50% of eligible inventories (up to a maximum of $1.1 million).
The Bank agreement contains various covenants that the Company is required to
maintain; fixed charge and cash flow leverage ratios of not less than 1.20:1 and
not greater than 4.00:1, respectively. As of December 31, 2001, the Company was
not in compliance with these covenants and received a waiver from the bank as
regards these requirements for the period ending December 31, 2001. On February
7, 2002, the bank approved a modification to these covenants to a fixed charge
and cash flow coverage leverage ratios of not less than 1.05:1 and not greater
than 5.00:1, respectively. The Company is in compliance with these new
covenants.
Long-term debt was comprised of the following as of December 31:
2001 2000
Term note payable to a financial institution due in monthly installments of principal and $ 12,021 $ 20,810
interest of $848 through March 2003; bears interest at 8.0%, collateralized by automobile
with a net book value of $26,386
Term note payable to a financial institution due in monthly installments of principal and 419,245 500,000
interest of $10,676 through November 2005; bears interest at 10.215%; collateralized by
inventory, accounts receivable and equipment
Term note payable to a financial institution in monthly installments of principal and 1,234,755 1,444,105
interest of $27,205 through June 2006 bears interest at 7.90%; collateralized by
inventory, accounts receivable and equipment (see Note 7)
Various equipment notes maturing in 2006 62,177 76,551
1,728,198 2,041,466
Less current maturities 369,198 343,408
$1,359,000 $1,698,058
F-12
NOTE 6. BORROWING ARRANGEMENTS (CONTINUED):
The aggregate scheduled maturities of long-term debt for each of the next five
years are as follows:
2002 $ 369,198
2003 366,423
2004 396,511
2005 428,542
2006 167,524
Total $ 1,728,198
NOTE 7. INDUSTRIAL DEVELOPMENT REVENUE BOND:
On June 1, 1999, the Development Authority of Gwinnett County (the Authority),
issued $4,100,000 of industrial development revenue bonds on behalf of the
Company and a Related Party. The 3.5% revenue bonds are payable in varying
annual principal and monthly interest payments through July 2019. The bond is
secured by all the assets of the Company and by real property owned by the
Related Party. The bonds along with the line of credit and term loan (see Note
6) are held by two related financial institutions.
A loan agreement between the Authority and the Company and a Related Party
allows funds to effectively pass through the Authority to the Company. The
majority of the proceeds, $3,125,872, were used by the Company to purchase and
install certain manufacturing equipment, while $974,128 was used by the Related
Party to pay down the mortgage on the real property leased to the Company. The
Company and the Related Party are jointly obligated to repay any outstanding
debt. Under the Joint Debtor Agreement of June 28, 2000, between the Company and
the Related Party, each has agreed to be responsible to the other for their
share of the bond obligations and that any party causing an act of default shall
be responsible for 100% of the bond obligations. The amount for which the
Related Party is responsible to the Company is reflected in current and other
assets of the Company. The Related Party amounts owed to the Authority are
secured by a lien on the real property leased by the Company and by personal
guarantees executed by members of the Related Party. At this time, the Company
believes that the Related Party portion of the bond is fully collectible. As of
December 31, 2001, the bond principal outstanding was $3,780,000 and the portion
due from the Related Party was $898,096.
The aggregate maturities of bonds payable for each of the next five years are as
follows:
Company Related Party Total
2002 $ 254,600 $ 80,400 $ 335,000
2003 266,000 84,000 350,000
2004 281,200 88,800 370,000
2005 296,400 93,600 390,000
2006 307,800 97,200 405,000
Thereafter 1,475,904 454,096 1,930,000
Total $ 2,881,904 $ 898,096 $ 3,780,000
NOTE 8. STOCKHOLDERS EQUITY:
A. COMMON STOCK AND STOCK WARRANTS:
As discussed in Note 1, the Company issued an aggregate of 6,000,000 shares of
its common stock to the stockholders of Logical and Image in exchange for their
shares in Logical and Image in a merger transaction. Simultaneously, in 2000,
the Company effected a reverse stock split of one for 6.0779 shares of common
stock.
As part of the Merger, the Company granted warrants (the New Warrant) to
purchase up to 100,000 shares of the common stock of the Company to professional
advisors to the Merger. The New Warrant entitles the warrant holder to purchase,
at any time and for a five-year period, a share of common stock of the Company
for $2.00 per share. In addition, current stockholders at December 31, 2001, own
225,507 similar warrants (the Old Warrant). The Old Warrant entitles the warrant
holder to purchase, at any time until September 15, 2002, a share of common
stock of the Company for $2.70 per share. As of December 31, 2001 and 2000, the
Company had received $110,905 and $92,421, respectively, in proceeds from the
exercise of Old Warrants.
F-13
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED):
A. COMMON STOCK AND STOCK WARRANTS (CONTINUED):
The Company issued Units consisting of common stock and common stock underlying
warrants to investors in a private placement approved by the Board of Directors
on August 29, 2000. Each Unit in the private placement was priced at $2.00 and
consisted of one common share of the Company's common stock and one warrant to
purchase one share of common stock at an exercise price of $2.00. An additional
warrant to purchase common stock of the Company, for each Unit purchased in the
private placement, was issued to subscribers, at no additional cost, whose
investment(s) aggregated at least $300,000. The warrants expire November 30,
2003. During 2001, the Company issued and sold 1,437,960 Units for a total of
$2,925,920 in cash and notes receivable. The Company also issued, at no
additional cost, 1,312,960 additional warrants during this same period. In March
2002, subsequent to the balance sheet date, the Company rescinded one
transaction entered into during 2001 for the sale of 25,000 shares of common
stock and warrants to purchase 25,000 shares of the common stock of the Company.
This transaction has been retroactively reflected in the financial statements as
of December 31, 2001. The Company paid fees of $59,520 in connection with the
private placement. Additionally, the Company issued 129,837 warrants to finders
to purchase the Company's common stock at an exercise price of $2.00. During
2001, holders of the Company's warrants exercised 2,462,500 warrants on a
cashless basis and received 1,104,815 shares of the Company's common stock. No
underwriting discounts or commissions were paid to any person. As of March 12,
2002, all notes receivable have been fully paid by the investors.
On October 30, 2001, the Company issued and sold 1,000,000 shares of its common
stock to one accredited investor in exchange for $2 million. The purchase price
was $2.00 per share, of which $10,000 was payable in cash and $1,990,000 was
payable in the form of a recourse promissory note, payable at the earlier to
occur of (i) six months after the registration statement covering the shares is
declared effective or (ii) twelve months from the date of the purchase
agreement. The Company also agreed to issue up to 500,000 warrants to purchase
its common stock to the investor in the event it resells the shares at a
purchase price of at least $2 per share. These warrants are exercisable for one
year at an exercise price of $2 per share. In March 2002, when the shares could
not be registered with the Securities and Exchange Commission while the
promissory note was unpaid, the Company and the investor mutually rescinded this
transaction and the Company has retroactively reflected this rescission as of
December 31, 2001.
B. STOCK OPTIONS:
After the Merger, on June 28, 2000, the Company granted options to acquire
500,000 shares of the common stock of the Company to senior members of the
Company's management at an exercise price of $2.00 per share. The options vest
over a two to four year period and expire 5 years from their respective date of
vesting.
The Company granted options to acquire 710,000 shares of the common stock of the
Company to employees, officers and directors at an exercise price of $2.75 per
share during the year ended December 31, 2001. 535,000 options were granted to
officers and employees of which 25% vested immediately and the remainder vest
over 3 years. The officer and employee options expire 5 years from their
respective date of vesting. Each outside director of the Company was granted
options to acquire 25,000 shares of the common stock of the Company, for a total
of 175,000 options, effective upon his or her election or appointment to the
board of directors. The outside director options vest over 5 years, beginning
with the first anniversary date of his or her appointment to the board, and
expire 3 years from their respective date of vesting.
Pro forma information regarding net income and earnings per share is required by
Financial Accounting Standards Board Statement 123, and has been determined as
if the Company had accounted for its employee stock options under the fair value
method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 2001 and 2000, respectively, risk-free interest rate of 4.51%
and 6.02%, dividend yield of 0% and 0%, volatility factor of the expected market
price of the Company's common stock of .26 and .49, and a weighted-average
expected life of the option of 3 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management"s
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-14
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED):
B. STOCK OPTIONS (CONTINUED):
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
2001 2000
Pro forma net income (loss) $ 3,021 $ (840,587)
Pro forma loss per common share:
Basic .00 (.12)
Diluted .00 (.12)
A summary of the Company's stock option activity, and related information for
the year ended December 31 follows:
2001 2000
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding, beginning of year 500,000 $ 2.00 -- $ --
Granted 710,000 2.75 500,000 2.00
Exercised -- -- -- --
Outstanding, end of year 1,210,000 2.44 500,000 2.00
Exercisable, end of year 503,750 2.21 250,000 2.00
Weighted average fair value of options granted during $ 1.98 $ 1.85
the year
The weighted-average remaining contractual life of these options is 4.8 years.
C. RETAINED EARNINGS:
The Company is limited in its ability to declare and pay dividends by the terms
of certain debt agreements.
NOTE 9. PENSION PLANS AND POSTRETIREMENT BENEFITS:
The Company has adopted the Color Image, Inc. Profit Sharing Retirement Plan.
Under this defined contribution plan, employees with one year or more of service
who have worked at least 1,000 hours and have reached age 21 are eligible for
participation. Participants may contribute between 1% and 15% of their
compensation as basic contributions. The Company will match 50% of the first 3%
deferred by any participant. Company contributions vest from 20% in the second
year of service to 100% in the sixth year. For the years ended December 31, 2001
and 2000, the Company incurred expenses of $24,355 and $9,940, respectively.
NOTE 10. RELATED-PARTY TRANSACTIONS:
A. LEASE
The Company leases certain facilities under a ten-year real property lease
agreement from Kings Brother LLC. (the Related Party -- see Note 7) which
expires on April 30, 2009. The rental payments for the periods ending December
31, 2001 and 2000 were $505,836 and $186,427, respectively. See also Note 12.
B. PURCHASES
The Company purchases copier and laser printer products from an entity in which
three directors have a beneficial ownership interest. Purchases for the 2001 and
2000 years aggregated approximately $4,005,500 and $435,500 respectively. See
also Note 14.
F-15
NOTE 11. INCOME TAXES:
The provision for income taxes is composed of the following
2001 2000
Current:
Federal $ 30,000 $ (358,157)
State 16,870 (79,730)
Deferred:
Federal (20,130) 78,917
State 9,876 26,178
$ 36,616 $ (332,792)
The components of the net deferred income tax asset as of December 31, 2001 and
2000, are as follows:
2001 2000
Deferred tax assets:
Inventory $ 165 $ 65,602
Accounts receivable 38,340 35,980
Accrued expenses 62,861 58,313
Federal tax credits 172,405 195,915
Net operating loss carryforward 491,074 537,600
764,845 893,410
Valuation allowance for deferred tax assets (53,760) (90,000)
711,085 803,410
Deferred tax liabilities:
Fixed assets (121,846) (179,900)
Net deferred tax asset $ 589,239 $ 623,510
At December 31, 2001, the Company has recorded a net deferred tax asset of
$589,239 which is reflected in Current Assets and Other Assets in the
consolidated balance sheet. Realization of the asset is dependent on generating
sufficient taxable income in future periods. The Company had experienced
operating losses for 2000 and 1999 years. A significant portion of the loss
sustained in 2000 was a result of non-recurring moving expenses and management
does not foresee any like charges for the next few years. The Company has
taxable income for the 2001 and projects taxable income for 2002, as such, the
Company believes that it is more likely than not that a substantial portion of
the deferred tax asset will be realized, and consequently, has established a
valuation allowance of only $53,760 as of December 31, 2001.
At December 31, 2001, the Company had net operating loss carryforwards (NOLs) of
$491,074 for income tax purposes that expire in years beginning 2020.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense attributable to income before cumulative effect of
accounting changes is:
2001 2000
Tax at U.S. statutory rates 34.00% (34.00)%
State income taxes net of federal tax benefit 6.16 (4.26)
Other-net (2.22) 4.69
42.38% (33.57)%
F-16
NOTE 12. COMMITMENTS AND CONTINGENCIES:
A. LEASES:
The Company currently leases approximately 180,000 square feet in Norcross,
Georgia that serves as executive headquarters and houses manufacturing
facilities, research and development and sales and marketing under a lease that
expires April 2009. The lease includes three options to extend the term for five
years each, and contains provisions for annual rent increases through each term.
The Company also leases approximately 4,000 square feet in Santa Ana, California
under a month-to-month lease at the monthly rental rate of $3,072.
Minimum lease commitments are as follows:
2002 $ 518,481
2003 531,444
2004 544,730
2005 558,348
2006 572,307
Thereafter 1,958,285
Total minimum lease payments $ 4,683,595
Rental expense aggregated $545,360 and $229,601 for 2001 and 2000, respectively.
B. EMPLOYMENT AGREEMENTS:
On June 28, 2000, the Company entered into employment agreements with its Chief
Executive Officer, Michael W. Brennan, President, Dr. Sueling Wang, Executive
Vice President and Chief Financial Officer, Morris E. Van Asperen, and Vice
President of Marketing and Sales Charles R. Allison. All four of the employment
agreements have a 5 year term. The Company is obligated to pay Mr. Brennan and
Dr. Wang annual salaries of $150,000 with a guaranteed increase of 5% per annum
over the term of the agreements. The Company is obligated to pay Mr. Van Asperen
an annual salary of $144,000 with a guaranteed increase of 5% over the term of
his agreement. In addition to commissions earned under the Company's sales
incentive program, the Company is obligated to pay Mr. Allison an annual salary
of $89,250 with a guaranteed increase of 5% per annum over the term of his
agreement. Each employee may terminate the agreement upon 6 months notice to the
Company. The Company may terminate each employee upon 6 months notice by the
Company; provided, however, that the Company is obligated to pay to the employee
his annual base salary, commissions or bonuses earned, and benefits for a period
of 12 months after the date of such notice.
The employment agreements with the above named officers also commits the Company
to purchasing for their benefit certain life insurance plans. For the year ended
December 31, 2001, the Company did not have in place for either Mr. Brennan or
Mr. Van Asperen such supplemental life insurance plans. The Company owns and is
the beneficiary of a life insurance policy on Mr. Allison and maintains it to
fund the deferred compensation agreement with Mr. Allison. Upon Mr. Allison's
retirement, he, or his beneficiaries, are to receive 120 monthly payments of
$2,000 per month or, as provided, the net present value of any unpaid amounts.
The life insurance premiums paid by the Company to fund Mr. Allison's deferred
compensation agreement in 2001 and 2000 were $21,977 and $11,238, respectively.
The Company pays the premiums and is the collateral assignee of four split
dollar life insurance policies owned by Dr. Wang. Pursuant to the policies the
Company will, upon his death or earlier liquidation of each such policy, be
entitled to the refund of all premium payments made by the Company on the
policies, and the balance of the proceeds will be paid to Mr. Wang's designated
beneficiaries. The split dollar life insurance premiums were $13,526 and $8,253
during 2001 and 2000, respectively. The monies due from Dr. Wang in connection
with these life insurance policies at the years ended December 31, 2001 and 2000
was $112,103 and $98,578, respectively.
NOTE 13. SIGNIFICANT CUSTOMERS:
For the year ended December 31, 2001, three distributors/customers of imaging
supplies accounted for 41%, 16% and 12% of net sales. For the year ended
December 31, 2000, a reseller of imaging accounted for 57% of net sales. The
Company does not have a written or oral contract with any of these customers.
All sales are made through purchase orders.
F-17
NOTE 14. SIGNIFICANT SUPPLIERS:
For the years ended December 31, 2001 and 2000, the Company purchased 51% and
38%, respectively, of its raw materials, components and supplies from one
supplier in connection with the sale of both printer and copier products. See
also Note 10 B.
NOTE 15. FINANCIAL REPORTING FOR BUSINESS SEGMENTS:
The Company believes that its operations are in a single industry segment
involving the development and manufacture of products used in electronic
printing. All of the Company's assets are domestic. The sales to unaffiliated
customers by geographic region are as follows:
2001 2000
Sales to Unaffiliated Customers:
United States $ 23,030,483 $ 10,887,281
Europe 5,260,825 744,098
Asia 647,146 375,020
All Other 1,582,713 101,733
Total $ 30,521,167 $ 12,108,132
F-18
____________________
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this prospectus in
connection with the offering covered by this prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by Color Imaging, Inc., a Selling Stockholder, or any underwriter. This
prospectus does not constitute an offer to sell, or a solicitation of any offer
to buy, common stock in any jurisdiction to any person to whom, it is unlawful
to make such an offer or solicitation in such jurisdiction. Neither the delivery
of this prospectus nor any sale made under this prospectus shall, under any
circumstances, create any implication that the information contained in this
prospectus is correct as of any time after the date of the prospectus or that
there has been no change in the affairs of Color Imaging, Inc. after the date of
this prospectus.
____________________
3,500,000 UNITS
3,859,487 SHARES
COLOR IMAGING, INC.
COMMON STOCK
AND
WARRANTS
____________
PROSPECTUS
____________________
April , 2002
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a corporation
generally to indemnify any person ("indemnitee") who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation, in a similar position with another corporation or entity, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. With respect to
actions or suits by or in the right of the corporation, however, an indemnitee
who acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interests of the corporation is generally limited to
attorneys' fees and other expenses, and no indemnification shall be made if such
person is adjudged liable to the corporation unless and only to the extent that
a court of competent jurisdiction determines that indemnification is
appropriate. Section 145 further provides that any indemnification shall be
made by the corporation only as authorized in each specific case upon a
determination by the (i) stockholders, (ii) board of directors by a majority
vote of directors who were not parties to such action, suit or proceeding or
(iii) independent counsel, that indemnification of the indemnitee is proper
because such has met the applicable standard of conduct. Section 145 provides
that indemnification under its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise.
Our Certificate of Incorporation provides that we will indemnify, to the
fullest extent permitted by law, any person or such person's heirs, executors
and administrators who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of our company, or is or
was serving at the our request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
domestic or foreign, against expenses, attorneys' fees, court costs, judgments,
fines, amounts paid in settlement and other losses actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
The Certificate of Incorporation also provides that none of our directors will
be personally liable to us or our stockholders for monetary damages for any
breach of fiduciary duty by such a director as a director other than for: (i)
any breach of the director's duty of loyalty to us or our stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) liability under Section 174 of the General
Corporation Law of Delaware, or (iv) any transaction from which such director
derived an improper personal benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized estimate of fees and expenses
payable by the registrant in connection with the offering described in this
registration statement:
SEC registration fee.................................... $ 1,100
Counsel fees and expenses............................... $ 75,000
Accounting fees and expenses............................ $ 10,000
Blue Sky fees and expenses.............................. $ 3,000
Printing expenses....................................... $ 10,000
Placement agent, broker-dealer or similar fees.......... $175,000
Miscellaneous........................................... $ 5,410
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Total................................................... $282,010
--------
All of the above expenses will be paid by the registrant.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On March 12, 2002, we issued a promissory note in the amount of $500,000 to a
director, Sueling Wang. The sale and issuance of the note was exempt from the
registration provisions of the Securities Act of 1933, as amended (the "Act")
pursuant to Section 4(2) thereof.
In February 2002, previously issued warrants to purchase 1750 shares of common
stock were exercised via a cashless exercise resulting in the issuance of 705
shares of common stock. The issuance of the shares upon exercise of the
previously issued warrants was exempt from registration provisions of the Act
pursuant to Section 4(2) thereof.
From October 1, 2001 to December 31, 2001, we issued 962,960 Units at a price
of $2.00 per unit for an aggregate of $1,925,920. Each Unit consisted of one
share of common stock and one warrant to purchase one share of common stock at a
price of $2.00. The offer and sale, inclusive of finder's fees, was made to
approximately 20 investors each of whom was either an affiliate, temporary
insider, or an accredited investor. We also issued additional warrants at no
cost to five investors to purchase a total of 1,312,880 shares of common stock
at a price of $2.00. The additional warrants were issued to each investor
because each had made a total investment in our securities of at least $300,000.
No general forms of advertising were used in connection with the issuance of the
Units. We paid a cash finder's fee to J.G. Myers & Company and Lexington
Ventures, Inc. in the amount of $5,280 and $28,320, respectively. We also paid a
cash finder's fee to Michael Edson, an individual, in the amount of $25,920. We
also paid a finder's fee to two individuals, John G. Myers and Larry Gordon, in
the form of warrants to purchase 58,951 and 70,886 shares, respectively, of our
common stock at a price of $2.00 per share. Exclusive of finder's fees, all but
4 investors paid cash. Of the 4 investors that paid by recourse note promissory
without interest, 2 have paid their notes in full and 2 have outstanding
balances as of the date hereof. In each case of payment by promissory note
except one, the investor paid the par value in cash. The one investor
subsequently paid the promissory note in full. The sale and issuance of the
Units was exempt from the registration provisions of the Act, pursuant to
Section 4(2) thereof. In March 2002, we rescinded a transaction with one
investor and cancelled 25,000 shares of common stock and a warrant to purchase
25,000 shares of common stock.
From October 1, 2001 to December 31, 2001,previously issued warrants to
purchase 2,462,500 shares of common stock were exercised via a cashless
exercise resulting in the issuance of 1,104,815 shares of common stock. The
issuance of the shares upon exercise of such warrants was exempt from the
registration provisions of the Act pursuant to Section 4(2) thereof.
On October 30, 2001, we issued and sold 1,000,000 shares of our common stock
to one accredited investor in exchange for $2 million. The purchase price was
$2.00 per share, of which $10,000 was payable in cash and $1,990,000 was payable
in the form of a promissory note, payable at the earlier to occur of (i) six
months after the registration statement covering the shares offered hereby is
declared effective or (ii) twelve months from the date of the purchase
agreement. We also agreed to issue up to 500,000 warrants to purchase our
common stock to the investor in the event it resells the shares at a purchase
price of at least $2 per share. These warrants are exercisable for one year at
an exercise price of $2 per share. The sale and issuance of such securities was
exempt from the registration provisions of the Act, as amended, pursuant to
Section 4(2) thereof. In March 2002, we rescinded this transaction and cancelled
the shares and warrants issued to this investor.
From July 1, 2001 to September 30, 2001, we issued and sold 150,000 Units at a
price of $2.00 per unit for an aggregate of $300,000. Each Unit consisted of one
share of common stock and one warrant to purchase one share of common stock at a
price of $2.00. No general forms of advertising were used in connection with
this issuance of the Units. No underwriters were used in connection with the
issuance of the Units and no commissions were paid to any person. The offer and
sale was made to 2 accredited investors. The sale and issuance of Units was
exempt from the registration provisions of the Act pursuant to Section 4(2)
thereof.
From April 1, 2001 to June 30, 2001, previously issued warrants were exercised
at a price of $2.00 per share for an aggregate of $44,362. The warrant exercise
resulted in the issuance of 22,181 shares of common stock. The share issuance
upon warrant exercise was exempt from the registration provisions of the Act
pursuant to Section 4(2) thereof. In March 2002, we rescinded this transaction
and cancelled the shares and warrant issuable to the investor.
From April 1, 2001 to June 30, 2001, we issued and sold 350,000 Units at a
price of $2.00 per unit for an aggregate of $700,000. Each Unit consisted of one
share of common stock and one warrant to purchase one share of common stock at a
price of $2.00. No general forms of advertising were used in connection with
this issuance of the Units. No underwriters were used in connection with the
issuance of the Units and no commissions were paid to any person. The offer and
sale was made to 3 accredited investors. The sale and issuance of Units was
exempt from the registration provisions of the Act pursuant to Section 4(2)
thereof.
On June 11, 2001 we issued 10,000 shares of its common stock to one entity in
partial consideration of certain services including consulting, administrative
and corporate structuring. Such investor was prior to the issuances of the
shares, fully informed about our company, including its business, financial
affairs and other matters. The share issuance was exempt from the registration
provisions of the Act pursuant to section 4(2) thereof.
From January 1, 2001 to March 31, 2001, previously issued warrants were
exercised at a price of $2.00 per share for an aggregate of $66,542. The warrant
exercise resulted in the issuance of 33,271 shares of common stock. The share
issuance
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upon warrant exercise was exempt from the registration provisions of the Act
pursuant to Section 4(2) thereof.
From January 1, 2001 to March 31, 2001, we issued 50,000 Units at a price of
$2.00 per Unit for an aggregate of $100,000. Each Unit consisted of one share of
common stock and one warrant to purchase once share of common stock at a price
of $2.00. No general forms of advertising were used in connection with this
issuance of the Units. No underwriters were used in connection with the issuance
of the Units and no commissions were paid to any person. The offset and sale was
made to 1 accredited investor. The sale and issuance of Units was exempt from
the registration provisions of the Act pursuant to Section 4(2) thereof.
From October 22, 2000 to December 31, 2000, we issued and sold 444,750 Units,
priced at $2.00 per Unit, for a total of $889,500. Each Unit consisted of one
share of common stock and one warrant to purchase one share of common stock at
an exercise price of $2.00. No underwriting discounts or commissions were paid
to any person. The offer and sale of Units was made to approximately 13 persons
all of whom were either affiliates, associates or temporary insiders. The sale
and issuance of such Units was exempt from the registration provisions of the
Act pursuant to Section 4(2) thereof.
In June 2000, we issued, in connection with the merger agreement, warrants to
purchase 271,719 shares of our common stock at an exercise price of $2.70 per
share in exchange for warrants to purchase 147,000 shares of Logical Imaging
Solutions, Inc. common stock at an exercise price of $5.00. The issuance of
such warrants was exempt from the registration provisions of the Act pursuant to
Section 4(2) thereof.
In June 2000, Color Imaging, Inc. (formerly known as Advatex Associates, Inc.)
entered into a merger agreement and plan of reorganization whereby it acquired
two wholly owned subsidiaries. In connection with the merger agreement, we
issued 3,000,000 shares of our common stock to the stockholders of Color Image,
Inc. in exchange for 200,000 shares of Color Image common stock and 3,000,000
shares of our common stock to the stockholders of Logical Imaging Solutions,
Inc. in exchange for 1,622,999 shares of common stock of Logical Imaging
Solutions, Inc. to a total of 55 persons. The issuance of our common stock in
connection with these transactions was exempt from the registration provisions
of the Act pursuant to Section 4(2) thereof.
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ITEM 27. EXHIBITS
Exhibit No. Description
----------- -----------
2.1 Merger Agreement and Plan of Reorganization dated May 16, 2000,
by and between Advatex Associates, Inc., Logical Acquisition
Corp., Color Acquisition Corp., Logical Imaging Solutions, Inc.,
and Color Image, Inc., contained in the Company's Form 8-K filed
on July 17, 2000
2.2 Amendment No. 1 to the Merger Agreement and Plan of
Reorganization dated June 15, 2000, contained in the Company's
Form 8-K filed on July 17, 2000
2.3 Amendment No. 2 to the Merger Agreement and Plan of
Reorganization dated June 26, 2000, contained in the Company's
Form 8-K filed on July 17, 2000
3.1 Certificate of Incorporation, as amended contained in the
Company's Form 10-KSB filed on March 30, 2001.
3.2 Bylaws contained in the Company's Form 10-KSB filed on March 30,
2001.
4.1* Stock Purchase Agreement between the Company and Wall Street
Consulting Corp. dated October 30, 2001
4.2* Promissory Note of Wall Street Consulting Corp. dated October 30,
2001
4.3* Form of Warrant issued to Selling Stockholders
4.4* Loan and Security Agreement between the Company and Southtrust
Bank dated May 5, 2000
4.5* Amendment of Loan Documents between the Company and SouthTrust
Bank dated August 30, 2000
4.6* Second Amendment of Loan Documents between the Company and
SouthTrust Bank dated November 30, 2000
4.7* Third Amendment of Loan Documents between the Company and
SouthTrust Bank dated June 30, 2001
4.8* Fourth Amendment of Loan Documents between the Company and
SouthTrust Bank dated November 1, 2001
4.9* Fifth Amendment of Loan Documents between the Company and
SouthTrust Bank dated December 31, 2001
4.10 Sixth Amnedment of Loan Documents between the Company and
Southtrust Bank dated February 7, 2002
4.11* $500,000 Line of Credit Promissory Note issued to Southtrust
Bank dated May 5, 2000
4.12* $500,000 Amended and Restated Line of Credit Promissory Note
issued to Southtrust Bank dated August 30, 2000
4.13* $500,000 Revolving Note Modification Agreement dated November
30, 2000
4.14* $500,000 Second Revolving Note Modification Agreement dated July
5, 2001
4.15* $1,500,000 Revolving Note between the Company and SouthTrust
Bank dated June 24, 1999
4.16* $1,500,000 Revolving Note Modification Agreement between the
Company and SouthTrust Bank dated May 5, 2000
4.17* $1,500,000 Second Revolving Note Modification Agreement between
the Company and SouthTrust Bank dated August 30, 2000
4.18* $1,500,000 Third Revolving Note Modification Agreement between
the Company and SouthTrust Bank dated November 30, 2000
4.19* $1,500,000 Fourth Revolving Note Modification Agreement between
the Company and SouthTrust Bank dated July 5, 2001
4.20* $2,500,000 Fifth Revolving Note Modification Agreement between
the Company and SouthTrust Bank dated December 31, 2001
4.21* $1,752,000 Installment Note between the Company and SouthTrust
Bank dated June 24, 1999
4.22* $1,752,000 Term Loan Documents Modification Agreement between the
Company and SouthTrust Bank dated August 30, 2000
4.23* SouthTrust Bank waiver letter dated March 26, 2001
4.24* SouthTrust Bank waiver letter dated May 8, 2001
4.25* SouthTrust Bank waiver letter dated August 13, 2001
4.26* SouthTrust Bank waiver letter dated October 31, 2001
4.27* Development Authority of Gwinnett County, Georgia Industrial
Development Trust Indenture dated June 1, 1999
4.28* Loan Agreement between the Company, Kings Brothers LLC and the
Development Authority of Gwinnett County, Georgia dated June 1,
1999
4.29* Joint Debtor Agreement dated June 28, 2000 by and among Color
Image, Inc., Kings Brothers, LLC, Dr. Sueling Wang, Jui-Chi Wang,
Jui-Kung Wang, and Jui-Hung Wang
4.30* First Amendment to Joint Debtor Agreement dated January 1, 2001
by and among the Company, Kings Brothers, LLC, Dr. Sueling Wang,
Jui-Chi Wang, Jui-Kung Wang, and Jui-Hung Wang
4.31* Master Security Agreement between the Company and General
Electric Capital Corporation dated November 30, 2000
4.32* Promissory Note issued to General Electric Capital Corporation
dated November 30, 2000
4.33* $200,000 Promissory Note between the Company and Kings Brothers
LLC dated November 19, 2001
4.34 $500,000 Promissory Note between the Company and Sueling Wang
dated March 14, 2002
4.35 $240,000 Promissory Note between the Company and Kings Brothers
LLC dated July 6, 2000.
4.36 $50,000 Promissory Note between the Company and Daniel Wang dated
October 23, 1998.
4.37 $112,000 Promissory Note between the Company and Daniel Wang
dated October 16, 1998.
4.38 $90,000 Promissory Note between the Company and Michael Wang
dated June 4, 1999.
4.39 $150,000 Promissory Note between the Company and AccuRec LLC
dated February 3, 2000.
4.40 $200,000 Promissory Note between the Company and AccuRec LLC
dated March 7, 2000.
4.41 $200,000 Promissory Note between the Company and AccuRec LLC
dated April 10, 2000.
4.42 $200,000 Promissory Note between the Company and AccuRec LLC
dated May 2, 2000.
4.43 $500,000 Promissory Note between the Company and AccuRec LLC
dated July 5, 2000.
4.44 $200,000 Promissory Note between the Company and AccuRec LLC
dated September 14, 2000.
4.45 $200,000 Promissory Note between the Company and AccuRec LLC
dated October 4, 2000.
4.46 $200,000 Promissory Note between the Company and AccuRec LLC
dated November 3, 2000.
4.47 Form of Warrant
5 Opinion of Richman, Mann, Chizever, Phillips & Duboff
10.1* Employment Agreement between the Company and Michael W. Brennan
dated June 28, 2000
10.2* Employment Agreement between the Company and Dr. Sueling Wang
dated June 28, 2000
10.3* Employment Agreement between the Company and Morris E. Van
Asperen dated June 28, 2000
II-4
10.4* Employment Agreement between the Company and Charles R. Allison
dated June 30, 2000
10.5* Lease Agreement between the Company and Kings Brothers LLC dated
April 1, 1999
10.6* Amendment No. 1 to Lease Agreement between the Company and Kings
Brothers LLC dated April 1, 1999
21.1 Logical Imaging Solutions, Inc., a California corporation
23.1 Consent of Richman, Mann, Chizever, Phillips & Duboff. (included
in Exhibit 5)
23.2 Consent of Lazar Levine & Felix LLP
99.1* Report of Grant Thornton LLP for the Company's fiscal year ended
December 31, 1999
99.2 Rescission Agreement between Joe Daley & Sons, Inc. and the
Company dated March 20, 2002
99.3 Rescission Agreement between Wall Street Consulting Corp. and the
Company dated March 19, 2002
* Previously filed
ITEM 28. UNDERTAKINGS
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, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the 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.
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(4) 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 Item 24, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act 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 and will be governed by the final adjudication of such issue.
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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 SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Norcross, State of Georgia, on this 5th day of April,
2002.
Color Imaging, Inc.
By: /s/ Michael W. Brennan
-----------------------------------
Michael W. Brennan, Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ MICHAEL W. BRENNAN Chairman of the Board and Chief April 5, 2002
------------------------------------ Executive Officer (Principal
Michael W. Brennan Executive Officer)
* President, Chief Operating Officer April 5, 2002
------------------------------------ and Vice-Chairman of the Board
Sueling Wang, Ph.D
/s/ MORRIS E. VAN ASPEREN Executive Vice President, Chief April 5, 2002
------------------------------------ Financial Officer (Principal
Morris E. Van Asperen Financial and Accounting Officer),
Secretary and Director
* Vice President and Director April 5, 2002
------------------------------------
Charles R. Allison
* Director April 5, 2002
------------------------------------
Edwin C. St. Amour
* Director April 5, 2002
------------------------------------
Robert L. Langsam
II-7
* Director April 5, 2002
----------------------------------------
Jui-Chi Wang
* Director April 5, 2002
----------------------------------------
Jui-Kung Wang
* Director April 5, 2002
----------------------------------------
Jui-Hung Wang
* Director April 5, 2002
----------------------------------------
Victor A. Hollander
By: /s/ MICHAEL W. BRENNAN
------------------------------------
Attorney-in-fact
/s/ MORRIS VAN ASPEREN
------------------------------------
Attorney-in-fact
II-8