UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-18450
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COLOR IMAGING, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3453420
------------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4350 PEACHTREE INDUSTRIAL BOULEVARD, SUITE 100
NORCROSS, GEORGIA 30071
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(Address of principal executive offices) (Zip code)
(770) 840-1090 FAX (770) 242-3494
---------------------------------
(Registrant's telephone number, including area code)
As of July 30, 2002, there were 10,099,880 shares of Common Stock outstanding.
COLOR IMAGING, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
INDEX
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at June 30, 2002
(Unaudited) and December 31, 2001(Audited)...........................3
Consolidated Condensed Statements of Operations (Unaudited)
for the Three and Six Months ended June 30, 2002 and 2001............4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Six Months ended June 30, 2002 and 2001......................5
Notes to Interim Unaudited Consolidated Condensed Financial
Statements ..........................................................6
Item 2. Management's Discussion and Analysis or Plan of Operation ...........8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ..................................................22
Item 2. Changes in Securities...............................................22
Item 3. Defaults Upon Senior Securities.....................................22
Item 4. Submission of Matters to a Vote of Security Holders.................22
Item 5. Other information ..................................................22
Item 6. Exhibits and Reports on Form 8-K....................................22
Signatures....................................................................25
2
PART I: FINANCIAL INFORMATION
ITEM 1 -FINANCIAL STATEMENTS
COLOR IMAGING, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
30-June-02 31-Dec-01
(Unaudited) (Audited)
------------ ------------
CURRENT ASSETS
Cash $ 211,016 $ 395,327
Accounts receivable, net 4,153,469 3,030,995
Inventory 4,876,828 6,056,042
Deferred income taxes 198,238 277,239
Related party portion of IDR bond 79,596 79,596
Other current assets 273,931 339,141
------------ ------------
TOTAL CURRENT ASSETS 9,793,078 10,178,340
------------ ------------
PROPERTY, PLANT AND EQUIPMENT - NET 8,519,378 8,438,826
------------ ------------
OTHER ASSETS
Patent/intellectual property 10,023 5,000
Deferred income taxes 319,000 312,000
Related party portion of IDR bond 818,500 818,500
Other assets 286,774 225,204
------------ ------------
TOTAL OTHER ASSETS 1,434,297 1,360,704
------------ ------------
$ 19,746,753 $ 19,977,870
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit lines $ 1,272,082 $ 1,462,416
Accounts payable 4,291,165 4,898,665
Current portion of notes payable 387,196 369,198
Current portion of bonds payable 335,000 335,000
Note payable - related party 500,000 --
Other current liabilities 505,954 501,086
------------ ------------
TOTAL CURRENT LIABILITIES 7,291,397 7,566,365
------------ ------------
LONG TERM LIABILITIES
Notes payable 1,173,258 1,359,000
Bonds payable 3,445,000 3,445,000
------------ ------------
LONG TERM LIABILITIES 4,618,258 4,804,000
------------ ------------
TOTAL LIABILITIES 11,909,655 12,370,365
------------ ------------
COMMITMENTS & CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, authorized 20,000,000
shares; 10,099,880 and 10,099,175 shares issued and
outstanding on June 30, 2002 and
December 31, 2001, respectively 100,999 100,992
Additional paid-in capital 9,868,283 9,873,939
Stock subscription receivable -- (149,000)
Accumulated deficit (2,132,184) (2,218,426)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,837,098 7,607,505
------------ ------------
$ 19,746,753 $ 19,977,870
============ ============
See accompanying notes
3
COLOR IMAGING, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED
30-June-02 30-June-01 30-June-02 30-June-01
------------ ------------ ------------ -------------
SALES $ 8,129,042 $ 8,098,154 $15,988,120 $13,626,470
C0ST OF SALES 7,022,722 7,068,627 13,612,015 11,582,952
------------ ------------ ------------ -------------
GROSS PROFIT 1,106,320 1,029,527 2,376,105 2,043,518
------------ ------------ ------------ -------------
OPERATING EXPENSES
Administrative 446,724 387,776 907,690 843,957
Research & development 290,884 184,931 553,248 401,840
Sales & marketing 336,029 281,712 612,444 507,393
------------ ------------ ------------ -------------
1,073,637 854,419 2,073,382 1,753,190
------------ ------------ ------------ -------------
INCOME FROM OPERATIONS 32,683 175,108 302,723 290,328
------------ ------------ ------------ -------------
OTHER INCOME (EXPENSE)
Other income 22,328 3,304 29,196 10,986
Financing expenses (91,008) (113,360) (171,671) (233,934)
Non-recurring moving expense -- -- - (9,570)
------------ ------------ ------------ -------------
(68,680) (110,056) (142,475) (232,518)
------------ ------------ ------------ -------------
INCOME (LOSS) BEFORE TAXES (35,997) 65,052 160,248 57,810
PROVISION (CREDIT) FOR INCOME TAXES (16,000) 20,210 64,006 18,310
------------ ------------ ------------ -------------
NET INCOME (LOSS) $ (19,997) $ 44,842 $ 96,242 $ 39,500
============ ============ ============ =============
INCOME (LOSS)
PER COMMON SHARE
Basic $ .00 $ .01 $ .01 $ .01
Diluted $ .00 $ .01 $ .01 $ .01
WEIGHTED AVERAGE
SHARES OUTSTANDING
Basic 10,099,880 7,705,607 10,099,724 7,624,695
Assumed conversion --* 177,946 -- 169,623
------------ ------------ ------------ -------------
10,099,880 7,883,553 10,099,724 7,794,318
------------ ------------ ------------ -------------
* Antidilutive
See accompanying notes
4
COLOR IMAGING, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30
(UNAUDITED)
2002 2001
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Cash flows from operating activities:
Net income $ 96,242 $ 39,500
Adjustments to reconcile net income to net cash
provided (utilized) by operating activities:
Depreciation and amortization 312,263 300,846
Deferred income taxes 62,001 17,300
Decrease (increase) in:
Accounts receivable and other receivables (1,122,474) (228,235)
Inventories 1,179,214 9,036
Prepaid expenses and other assets 3,640 (170,768)
Increase (decrease) in:
Accounts payable and accrued liabilities (608,739) 174,192
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Net cash (utilized) provided by
operating activities (77,853) 141,871
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Cash flows from investing activities:
Capital expenditures (392,815) (462,904)
Other assets -- (188,158)
Patents and intellectual properties (5,023) -
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Net cash (used in)
investing activities (397,838) (651,062)
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Cash flows from financing activities:
Net (payments) under line of credit (190,334) (393,035)
Net proceeds from sale of common stock 143,351 935,906
Loan from related party 500,000 --
Principal payments of long-term debt (161,637) (135,431)
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Net cash provided by
financing activities 291,380 407,440
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Net (decrease) in cash (184,311) (101,751)
Cash at beginning of year 395,327 339,348
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Cash at end of period $ 211,016 $ 237,597
============= =============
See accompanying notes
5
COLOR IMAGING, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated condensed financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals
and adjustments) considered necessary for a fair presentation have been
included. Operating results for the three months and six months ended June 30,
2002 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2002.
NOTE 2. COMMON STOCK
From January 1, 2002 to June 30, 2002, one holder of the Company's warrants
exercised 1,750 warrants on a cashless basis and was issued 705 shares of the
Company's common stock. During March 2002, 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 was retroactively reflected in the financial statements as of
December 31, 2001. As of March 2002, all notes receivable from sales of Company
securities 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 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. The Company also agreed to issue up to
500,000 warrants exercisable at $2.00 per share to purchase the Company's common
stock. In March 2002, the Company and the investor mutually rescinded this
transaction and the Company has retroactively reflected this rescission as of
December 31, 2001.
NOTE 3. INVENTORIES
Inventories consisted of the following components as of June 30, 2002 and
December 31, 2001:
June 30, 2002 December 31, 2001
------------------ -----------------
Raw materials $ 598,867 $ 723,480
Work-in-process 1,873,410 967,982
Finished goods 2,536,056 4,534,410
Obsolescence allowance (131,505) (169,830)
----------------- -----------------
Total $ 4,876,828 $ 6,056,042
================= =================
NOTE 4. CHANGES TO BORROWING ARRANGEMENTS
The Company has a $2.5 million revolving line of credit with an outstanding
balance as of June 30, 2002 of $1,272,082. At the end of each month for the
following month, the Company has the 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 the Bank's prime interest rate minus 0.25%. As of June
30, 2002, the interest rate was the one-month Libor rate of 1.84% plus 2.50%
(4.34%). This revolving line of credit has a June 30, 2003 expiration date.
6
NOTE 4. CHANGES TO BORROWING ARRANGEMENTS (CONTINUED)
Under the lines of credit, the Company is 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).
The Company has granted the Bank a security interest in all of the Company's
assets as security for the repayment of the lines of credit.
The Bank agreement contains various covenants that the Company is required to
maintain, and as of June 30, 2002 the Company was in compliance with such
covenants.
NOTE 5. SIGNIFICANT CUSTOMERS
In the six month period ended June 30, 2002, two customers accounted for 56% and
14%, respectively, of net sales. The Company does not have a written or oral
contract with these customers. All sales are made through purchase orders.
Accounts receivable from these customers at June 30, 2002, were $2,708,630 and
$326,305, respectively.
NOTE 6. SIGNIFICANT SUPPLIERS
In the six months ended June 30, 2002, the Company purchased 55% of its raw
materials, components and supplies from one supplier in connection with sales to
its largest customers. At June 30, 2002, the accounts payable to this supplier
was $2,237,171.
NOTE 7. 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 for the six-month periods ended June 30 are as
follows:
2002 2001
----------- -----------
Sales to Unaffiliated Customers:
United States $10,299,247 $11,163,436
Europe 3,222,764 1,858,143
Asia 539,438 254,007
All Other 1,926,671 350,884
----------- -----------
Total $15,988,120 $13,626,470
=========== ===========
7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussions should be read in conjunction with our consolidated
condensed financial statements and the related notes thereto.
OVERVIEW
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 Imaging, Inc., and Logical Imaging Solutions, Inc. Color
Imaging, Inc. develops, purchases from others and markets electronic printing
products, including black text, color, magnetic character recognition and
specialty toners, and provides other parts and accessories for laser printers
and digital copiers. Logical Imaging Solutions, Inc. designs, manufactures and
integrates proprietary software and hardware with components made by third
parties into a complete printing system and offers related technical support and
supplies. Logical Imaging Solutions, Inc.'s printing system allows commercial
printers to digitally process and print data and images that may change from
page to page, also known as variable data, at high speeds directly on commercial
offset web presses. This capability saves time and money for the printer and
customer.
Our operating strategy is to (1) expand, including through strategic
acquisition(s), our printer and copier products business, while (2) diversifying
our business by pursuing innovative electron beam imaging technologies and
products for sale to the commercial press market. We intend to expand our
printer and copier business by (1) increasing the capacity of our toner
manufacturing facility and utilize it, increasingly, for higher margin
specialty, magnetic character recognition, copier and color toners and (2) by
expanding our sources for products from strategic suppliers that we can add
value to or resell that complement our product lines. The objective of our
pursuit of innovative technologies and products applicable to the commercial
offset press market is to become a manufacturer of our own proprietary
high-speed digital press, printing in color, and a related line of consumable
products to add to sales and operating profitability while reducing our reliance
on the printer and copier consumable product markets.
COLOR IMAGING, INC.
Since 1989, Color Imaging, Inc. has developed and manufactured products
used in electronic printing. Color Imaging, Inc. formulates and produces black
text and specialty toners, including color and magnetic character recognition
toners for numerous laser printers. Color Imaging, Inc.'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 which 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 Imaging, Inc. 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 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 Imaging Solutions, Inc. Color Imaging,
Inc. also manufacturers and or markets toners for use in Ricoh, Sharp(TM),
Xerox(TM), Canon(TM), Lanier(TM) and Toshiba(TM) copiers. Color Imaging, Inc.
also offers product enhancements, including imaging supplies that enable
standard laser printers to print magnetic character recognition data. Color
Imaging, Inc. markets branded products directly to OEMs and its aftermarket
products worldwide to distributors and remanufacturers of laser printer toner
cartridges and to dealers and distributors of copier products.
8
LOGICAL IMAGING SOLUTIONS, INC.
Logical Imaging Solutions, Inc. 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
character recognition data and unlimited alphanumeric sequencing. These
functions allow commercial printers to digitally process and print variable data
at 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 Imaging Solutions, Inc.'s development efforts have
focused on creating a high-speed digital variable data printing system for
commercial printing applications that combines software, hardware and consumable
products not only for black text for image printing but also in color. Logical
Imaging Solutions, Inc. 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 Imaging Solutions, Inc. is developing the DigitalColorPress, a
Solution series of printing systems incorporating color printing capabilities.
Our first DigitalColorPress has been installed for beta testing at a customer
site; however, test printing has been delayed, since, the customer has
experienced delays in reconfiguring its press to test our DigitalColorPress with
other equipment configurations. 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 Imaging Solutions,
Inc.'s DigitalColorPress color printing system as an enhancement to existing
Solution Series installations and as an upgrade for other printing systems.
CRITICAL ACCOUNTING POLICIES
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, the disclosure of
contingent assets and liabilities, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. We believe the following critical accounting policies affect our more
significant estimates and assumptions used in the preparation of our financial
statements. Our significant estimates and assumptions are reviewed and any
required adjustments are recorded on a quarterly basis.
Carrying Value of Electron Beam Imaging Test Equipment. As of June 30, 2002
the net book value of our investment in electron beam imaging test equipment was
approximately $1.34 million. We have estimated the useful life of this equipment
to be ten years. The equipment is new technology and is used by us to support
our selling, manufacturing and research and development activities in connection
with Logical's DigitalColorPress. To date, however, we have not fully
commercialized such products, and the future benefit that we would derive from
this equipment is dependent upon our successfully commercializing this
technology and our products remaining competitive for at least the length of
time we have estimated its useful life. Should we not be successful in fully
commercializing the related DigitalColorPress products or realizing the
sufficient levels of sales from such products, these assets could become
partially or fully impaired.
Lower of Cost or Market for Inventory. Our inventories are recorded at the
lower of standard cost or market. As with any manufacturer or wholesaler,
economic conditions, cyclical customer demand, product introductions or pricing
changes of our competitors and changes in purchasing or distribution can affect
the carrying value of inventory. As circumstances warrant, we record lower of
cost or market inventory adjustments. In some instances these adjustments can
have a material effect on the financial results of an annual or interim period.
In order to determine such adjustments, we evaluate the age, inventory turns,
estimated fair value and, in the case of toner products, whether or not it can
be reformulated and manufactured into other products, and record any adjustment
if estimated fair value is below cost. Through periodic review of each of our
inventory categories and by offering markdown or closeout pricing, we regularly
take steps to sell off slower moving inventory to eliminate or lessen the effect
of any lower of cost or market adjustment.
9
Carrying Value of Toner Manufacturing Equipment. We are nearing the
completion of the latest expansion of our toner manufacturing facility. We have
some $7.5 million invested in certain of the equipment and leaseholds, with a
carrying value of $6.7 million, in connection with toner manufacturing that have
estimated lives of up to twenty years. Should competing technologies or offshore
competitors cause our manufacturing technology to be non-competitive, the
estimated life of these assets may need to be shortened and their carrying value
could be materially affected.
OVERVIEW
Net sales, for the three and six months that ended on June 30, 2002, were
primarily generated from the sale of Color Imaging's black text, color and
magnetic ink character recognition printer and copier 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 six months ended June 30, 2002, two
distributors of imaging supplies accounted for approximately 56% and 14%,
respectively, of net sales, with the latter being an OEM for which we private
label. Sales to these customers consist primarily of analog copier products, and
as a result are expected to decline over time unless these declining sales to
these customers are offset by the sale of digital copier products. Further, by
the end of the third quarter 2002 we will no longer be selling certain very low
margin copier product purchased for resale to our largest customer. As a result,
our sales will be less concentrated with our largest customer and our gross
profit margins will improve. Our sales of this discontinued very low margin
product are expected to be approximately $4 million of our total sales this
year. We do not have a written or oral contract with these customers. All sales
are made through purchase orders. Consistent with the purchase orders and
forecasts provided to us by our two major customers that account for 70% of our
business, we provide our major suppliers 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 these customers and suppliers to
assess developments in the industry and expected changes in the business to
maintain an efficient supply chain. Net sales made outside of the United States
increased to 36% of total sales for the six months ended June 30, 2002, compared
to 18% for the six months ended June 30, 2001. This increase in international
sales resulted primarily from the increase in sales to our two largest
customers.
Logical Imaging Solution's sales for printing systems and related software
and consumable products for the three and six months that ended on June 30, 2002
represented 2.0 and 2.2 percent of our net revenues.
RECENT DEVELOPMENTS
On June 10, 2002, the board of directors, to better focus executive
management energies on each of our operating units, reaffirmed Director Michael
W. Brennan as Chairman and Chief Executive Officer of our subsidiary Logical
Imaging Solutions, Inc., and elected Jui-Hung Wang Chairman of Color Imaging,
Inc. Dr. Sueling Wang continues to serve as Vice-Chairman and President of Color
Imaging, Inc. Mr. Brennan also resigned from the board of directors of Color
Imaging effective September 10, 2002, to dedicate himself to the furthering of
the business interests of Logical Imaging Solutions, including its possible
reorganization as a standalone company separate and apart from Color Imaging.
The board of directors and management realize that the difficulties surrounding
the raising of significant equity capital from non-affiliates for Color Imaging
in this market environment is such that a restructure of Logical Imaging
Solutions is an option that must be considered. We have not, at this time,
specifically allocated any of the proceeds of our pending offering filed with
the Securities and Exchange Commission on Form SB-2 to the furthering of Logical
Imaging Solutions' technology, since we are considering the restructuring of
Logical Imaging Solutions. We are considering the restructuring of Logical
Imaging Solutions in order to provide it with what we believe will be better
opportunities to raise the substantial funding necessary to realize the
significant potential of its technology, should it prove successful and absent a
satisfactory manufacturing or OEM arrangement with another party for its further
commercial development.
Four of our directors, Messrs. Brennan, St. Amour, Langsam and Hollander
expressed concern over the potential reorganization of Logical Imaging Solutions
and the lack of the planned use of any proceeds from our offering pending the
Securities and Exchange Commission on Form SB-2 for the further development of
its technology, as they are of the opinion that Logical Imaging Solutions'
business prospects demanded a greater investment. Recently, after informal
discussion with Dr. Sueling Wang and Mr. Van Asperen, they submitted an informal
10
proposal to acquire the capital stock of Logical Imaging Solutions in exchange
for 1.6 million shares of Color Imaging. At present, the approximate net book
value of Logical Imaging Solutions is $2.4 million, after the forgiveness of
approximately $2.1 million of inter-company advances from Color Imaging to
Logical Imaging Solutions. In addition to the 1.6 million shares to be exchanged
for Logical Imaging Solutions shares, Color Imaging would receive warrants to
purchase shares of common stock of Logical Imaging Solutions approximating up to
15% of total then outstanding shares of Logical Imaging Solutions. The proposal
is under review, but has not yet been agreed to nor has it been submitted to the
Board of Directors. If the proposal seems to be acceptable, it will be
considered by a committee of disinterested directors, directors other than the
aforementioned four, who may elect to hire an independent consultant to evaluate
the fairness, from a financial point of view, of the proposal. There will also
be several important conditions, such as a personal loan from Dr. Wang to
Logical Imaging Solutions of $500,000 with the an initial advance of $100,000,
secured by shares of Color Imaging stock owned by the purchasers of Logical
Imaging Solutions, lender approval and possibly the receipt by Color Imaging of
proceeds from this offering sufficient for Color Imaging to obtain its lender's
approval of the proposed transaction. The loss that Color Imaging would incur as
the result of discontinuing the Logical Imaging Solutions operations may be in
excess of $500,000.
The following table sets forth, for the periods indicated, selected
information relating to Logical Imaging Solutions which information has been
derived from Color Imaging's audited and unaudited consolidated statements of
operations.
Twelve Months Ended Six Months Ended
December 31, June 30,
--------------------------------------- -------------------
2000 2001 2002
----------------- ------------------ -------------------
Net Revenue $ 723,063 $ 551,399 $ 356,497
Operating (Loss) (306,341) (267,220) (254,466)
Net (Loss) $ (245,829) $ (204,154) $ (163,082)
On May 14, 2002, the U.S. Patent and Trademark Office issued Logical
Imaging Solutions' patent for our print cartridge designed for digital printing
using electron beam imaging technologies. Further, in addition to the previously
announced beta-test installation of Logical Imaging Solutions'
DigitalColorPress, we have additional systems undergoing significant engineering
performance evaluations. Depending on the outcome of these evaluations, we may
then more aggressively pursue the restructuring of Logical Imaging Solutions and
its further capitalization, if necessary. As the result of the foregoing, we
have temporarily suspended further relocation and consolidation of Logical
Imaging Solutions' operations and research and development activities from Santa
Ana, California to our headquarters in Norcross, Georgia.
Color Imaging is currently testing recently installed toner manufacturing
equipment to complete our factory expansion. This installation represents a $1.5
million investment on our part to not only increase our business, but to also
improve quality, product consistency and to lower costs. We believe that upon
the conclusion of this testing our capacity will have doubled, to allow for
increased volumes of manufactured products, manufacturing efficiencies and
competitiveness. Recently we placed orders for $100,000 of additional equipment
to be installed before the end of this year to complete our first dedicated
color toner manufacturing system, a system for which we have already invested
some $300,000. In our offering filed with the Securities and Exchange Commission
on Form SB-2, we made provision for $1.5 million of new capital equipment, most
of which is planned for additional dedicated color toner manufacturing systems
for "business color" printing and copying systems being introduced by OEMs. The
remainder of the planned capital investment is to further improve our toner
research, development and quality control programs.
On July 8, 2002, Charles Allison was appointed Vice President, Technology,
to increase executive management involvement in laser printer and copier product
development, quality assurance and technical support. Mr. James Telsey was hired
as Vice President, Sales & Marketing, to replace Mr. Allison in that position.
During March 2002, we rescinded two transactions for the sale of our common
stock and warrants to purchase additional shares of our common stock totaling
1,025,000 and 525,000, respectively. The purchasers paid the par value in cash
for the shares issued to them, and the balance of the purchase price consisted
of recourse promissory notes. The sale of 1,000,000 shares of our common stock
and warrants to purchase an additional 500,000 shares of common stock was, per
11
agreement, subject to our registering the securities for resale. However, the
SEC staff took the position that these securities could not be registered for
resale in this registration statement and the transaction was rescinded, the
shares, warrant and promissory note were cancelled and we retained the $10,000
and accrued interest earned thereon in consideration of our expenses incurred in
connection with the transaction. The second transaction for 25,000 shares of our
common stock and warrants to purchase an additional 25,000 shares of our common
stock was rescinded when the parties believed the promissory note would not be
paid by the time this registration statement became effective. The shares,
warrant and promissory note were cancelled and the cash consideration was
refunded to the purchaser.
With the rescission of the two above-mentioned sales of our common stock
totaling $2,050,000, we anticipate that we will need to raise additional funds
from other sources to meet operating requirements and to fund other planned
activities. We intend to meet our operating requirements from funds generated by
operations and by borrowing from affiliates. Certain other planned activities
are dependent upon either increased borrowings from our affiliates, borrowings
from others or our raising funds through the sale of our securities. We will
allow our directors, officers and affiliates to purchase up to $7 million of our
shares of common stock in this offering.
RESULTS OF OPERATIONS
The following table sets forth certain information derived from the Company's
unaudited interim consolidated statements of operations:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
(PERCENTAGE OF NET SALES )
Net sales 100 100 100 100
Costs of sales 86 87 85 85
Gross profit 14 13 15 15
Administrative expenses 5 5 6 6
Research and development 4 3 3 3
Sales and marketing 4 3 4 4
Operating income (loss) 1 2 2 2
Interest expense 1 1 1 2
Depreciation and amortization 4 2 2 2
Income before taxes 0 1 1 0
Provision for taxes 0 0 0 0
Net Income (loss) 0 1 1 0
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
NET SALES. Our net sales were $8.1 million for both the three months ended June
30, 2002 and for the comparable period in 2001. Of the $8.1 million in net
sales, $5.8 million were attributable to copier products of Color Imaging. The
revenue increase from copier products to $5.8 million from 2001 to 2002 was $0.1
million, or 2%. Sales of our laser products for the three months ended June 30,
2002 were also comparable to the same period of 2001. We believe that sales of
laser printing products will increase in future periods when we complete the
testing of major manufacturing equipment recently installed. We further believe
that when we place this new equipment in service we will not only increase our
toner manufacturing capacity, but we will also, with increased production,
increase manufacturing efficiencies and competitiveness and reduce cost of
sales. Net sales made outside of the United States increased to 37% of total
sales for the three months ended June 30, 2002, compared to 9% for the
comparable period last year. This increase in international sales resulted
primarily from the increase in sales to our two largest customers.
12
COST OF GOODS SOLD. Cost of goods sold was $7 million for both the three months
ended June 30, 2002 and for the comparable period in 2001, for approximately the
same net sales for the periods. Cost of goods sold as a percentage of net sales
decreased by 1 percentage point from 87% for the three months ended June 30,
2001 to 86% for the three months ended June 30, 2002, primarily as the result of
the effects of previous price increases on a few analog copier products.
GROSS PROFIT. As a result of the above factors, gross profit increased to $1.1
million in the three months ended June 30, 2002 from $1.0 million in the three
months ended June 30, 2001. Gross profit as a percentage of net sales increased
by 1 percentage point from 13% to 14% for the three months ended June 30, 2002,
as compared to the corresponding period of the prior year. During 2002, with the
elimination of certain very low margin copier products purchased for resale and
the completion of the factory expansion, management believes that both the gross
profit dollars and percentage will further improve over 2001.
OPERATING EXPENSES. Operating expenses increased $0.2 million or 22% to $1.1
million in the three months ended June 30, 2002 from $0.9 million in the three
months ended June 30, 2001. General and administrative, selling and R&D expenses
increased, as a percentage of net sales, to 13% in the three months ended June
30, 2002 from 11% in the three months ended June 30, 2001. General and
administrative increased approximately 15%, or $59,000 to $447,000 for the three
months ended June 30, 2002 from the comparable period in 2001, largely resulting
from increased expenses for professional services. Selling expenses increased by
$54,000, or 19%, in the three months ended June 30, 2002 compared to the three
months ended June 30, 2001. Selling expenses increased primarily as a result of
the increased salaries, commissions and promotion expenses. Research and
development expenses increased by $106,000, or 57%, to $291,000 in the three
months ended June 30, 2002. Research and development expenses as a percentage of
net sales increased to 4% in the three months June 30, 2002, from 3% in the
three months ended June 30, 2001, as well, with two-thirds of the increase
having been directed to toner product development and the remainder toward
furthering the development of our commercial printing technologies.
OPERATING INCOME. As a result of the above factors, operating income decreased
by $142,000, to a profit of $33,000 in the three months ended June 30, 2002 from
$175,000 in the three months ended June 30, 2001.
INTEREST AND FINANCE EXPENSE. Interest expense decreased by $22,000 in the three
months ended June 30, 2002 from the three months ended June 30, 2001. The
decrease was primarily the result of lower interest rates and secondarily the
result of reduced interest bearing debt levels.
OTHER INCOME. Other income increased by $19,000 from income of $3,000 to income
of $22,000 in the three months ended June 30, 2002 from the three months ended
June 30, 2001.
INCOME TAXES. As the result of our loss in the three months ended June 30, 2002,
we recorded an income tax credit of $16,000 for the period, while the income tax
provisions were $20,000 for the three months ended June 30, 2001.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
NET SALES. Our net sales were $16.0 million for the six months ended June 30,
2002, an increase of $2.4 million or 18%, for the comparable period in 2001. Of
the $16.0 million in net sales, $10.9 million were attributable to copier
products of Color Imaging. The revenue increase from copier products to $10.9
million from 2001 to 2002 was $1 million, or 10%, primarily resulting from
increased sales of copier products to our two largest customers. Sales of our
laser products for the six months ended June 30, 2002 decreased some 35%
compared to the same period of 2001, primarily as a result of fewer sales of
bottle toner and kits, continuing the trend away from bottled toner to that sold
in bulk. We believe that sales of laser printing products, in bulk, will
increase in future periods when we complete the testing of major manufacturing
equipment recently installed. We further believe that when we place this new
equipment in service we will not only increase our toner manufacturing capacity,
but we will also, with increased production, increase manufacturing efficiencies
and competitiveness and reduce cost of sales. By the end of the third quarter
2002 we will no longer be selling certain very low margin product purchased for
13
resale to our largest customer. As a result, our sales will be less concentrated
with our largest customer and we expect that our gross profit margins will
improve. Our sales of this discontinued very low margin product are expected to
be approximately $4 million of our total sales this year. Net sales made outside
of the United States increased to 36% of total sales for the six months ended
June 30, 2002, compared to 18% for the comparable period last year. This
increase in international sales resulted primarily from the increase in sales to
our two largest customers.
COST OF GOODS SOLD. Cost of goods sold was $13.6 million for the six months
ended June 30, 2002 and $11.6 million for the comparable period in 2001, an
increase of $2 million or 17% for approximately the same increase in net sales
for the period. Cost of goods sold as a percentage of net sales was 85% for the
six month periods ended June 30, 2002 and 2001.
GROSS PROFIT. As a result of the above factors, gross profit increased to $2.4
million in the six months ended June 30, 2002 from $2.0 million in the six
months ended June 30, 2001. Gross profit as a percentage of net sales remained
at 15% for both six month periods. With the elimination of certain very low
margin copier products purchased for resale and the completion of the factory
expansion, management believes that both the gross profit dollars and percentage
margin will further improve over 2001 by year end 2002.
OPERATING EXPENSES. Operating expenses increased $0.3 million or 18% to $2.1
million in the six months ended June 30, 2002 from $1.8 million in the six
months ended June 30, 2001. As a percentage of net sales general and
administrative, selling and R&D expenses, was 13% in the six months ended June
30, 2002 and 2001. General and administrative increased approximately 8%, or
$64,000 to $908,000 for the six months ended June 30, 2002 from the comparable
period in 2001, largely resulting from increased expenses for professional
services. Selling expenses increased by $105,000, or 21%, in the six months
ended June 30, 2002 compared to the six months ended June 30, 2001. Selling
expenses increased primarily as the result of increased salaries, commissions
and promotion expenses. Research and development expenses increased by $151,000,
or 38%, to $553,000 in the six months ended June 30, 2002. As a percentage of
net sales, research and development expenses were 3% in the six months ended
June 30, 2002 and for the comparable period in 2001.
OPERATING INCOME. As a result of the above factors, operating income increased
by $13,000, to a profit of $303,000 in the six months ended June 30, 2002 from
$290,000 in the six months ended June 30, 2001.
INTEREST AND FINANCE EXPENSE. Interest expense decreased by $62,000 in the six
months ended June 30, 2002 from the six months ended June 30, 2001. The decrease
was primarily the result of lower interest rates and secondarily the result of
reduced interest bearing debt levels.
OTHER INCOME. Other income increased by $18,000 from income of $11,000 to income
of $29,000 in the six months ended June 30, 2002 from the six months ended June
30, 2001.
INCOME TAXES. As the result of our increased profit in the six months ended June
30, 2002, our provision for taxes increased from $18,000 in the six months ended
June 30, 2001 to $64,000 for the period ended June 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, as well as December 31, 2001, our working capital was
approximately $2.5 million and our current ratio was 1.34 to 1.
Cash flows used in operating activities were $78,000 in the six months ended
June 30, 2002 compared to $142,000 provided by operations in the six months
ended June 30, 2001. The cash flows used by operating activities in the six
months ended June 30, 2002 increased primarily due to our carrying higher
accounts receivable and our reducing payables and accrued liabilities during
2002. While accounts and other receivables increased by $1,122,000, reflecting
our growth in net sales in the six months ended June 30, 2002, this use of cash
flow was offset by a reduction of inventory for the same period of $1,179,000.
We continue to improve our inventory turnover, and we expect to further reduce
inventory and SKUs by the end of the year 2002.
14
Cash flows used in investing activities were $397,000 in the six months ended
June 30, 2002, compared to $651,000 in the six months ended June 30, 2001. Most
of the cash used in investing activities in the six months ended June 30, 2002,
$328,000, was capital expenditures in connection with the completion of our
factory expansion.
We have a $2.5 million revolving line of credit with our bank that had an
outstanding balance as of June 30, 2002 of $1,272,000. 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 June 30,
2002, the interest rate was the one-month Libor rate of 1.84% plus 2.50%
(4.34%). This revolving line of credit has a June 30, 2003 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.
The Bank agreement contains various covenants which the Company is required to
maintain. As of June 30, 2002, the Company was in compliance with such
covenants.
Cash flows provided by financing activities for the six months ended June 30,
2002 was $291,000, resulting primarily from the $500,000 loan we received from
an officer, compared to $407,000 provided by financing activities for the
comparable period of 2001. The cash flows provided by financing activities for
the six months ended June 30, 2001 were derived from proceeds from the sale of
our common stock.
Funds generated from operating activities and availability under credit
facilities is expected to be insufficient to finance our plans to expand
operating activities for the remainder of 2002. Having rescinded two
transactions during March 2002 for the sale of our securities totaling
$2,050,000, we anticipate that we will need to raise an additional $500,000 from
other sources to fund these activities. To meet these requirements we intend to
seek financing from our affiliates and/or engage in sales of our securities. We
have received our bank's consent to borrow the needed funds from affiliates. We
borrowed $500,000 during the first quarter 2002 from an officer to meet vendor
commitments for products, and we expect to borrow from an affiliate between
$300,000 to $500,000 in the third quarter 2002 for our operating and investing
needs. Should we not obtain these additional funds, certain operational or
investing activities would have to be reduced or curtailed entirely to meet our
existing commitments, including a $250,000 principal payment due on our
industrial development bond. 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 financing activities. We believe
that these operating and investing activities, if successfully completed, will
increase revenues and operating margins.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND INFORMATION CONCERNING
FORWARD-LOOKING STATEMENTS
Statements contained in this report 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 our ability to
borrow funds from financial institutions or affiliates, to engage in sales of
our securities, our intention to repay certain borrowings from future sales of
our securities, the ability to expand capacity by placing in service additional
manufacturing equipment during 2002, the ability to commercialize our electron
beam imaging technologies and products, our expected acquisition of business or
technologies, our expectation that shipments to international customers will
continue to account for a material portion of net sales, anticipated future
revenues, sales, operations, demand, technology, products, business ventures,
major customers, major suppliers, retention of key officers, management or
employees, competition, capital expenditures, credit arrangements, the
reorganization and/or recapitalization of Logical Imaging Solutions, our ability
to increase our toner manufacturing capacity following completion of testing,
and other statements regarding matters that are not historical facts, involve
predictions which are based upon a number of future conditions that ultimately
15
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 "Color Imaging" 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 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
activities over the next twelve months that we believe will generate additional
revenues and reduce manufacturing costs. Specifically, we will need to borrow or
raise additional funds to meet the additional planned operating and investing
activities. 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 our ability to conduct the foregoing activities
or we 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 and/or through commercial or private financing arrangements,
including borrowing from affiliates. 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.
Approximately 52% of our business depends on a supplier approved by one of our
customers.
Some of our products incorporate technologies that are available from a
particular supplier that has been approved by one of our customers.
Approximately 52% of our sales for the six months ended June 30, 2002 were
derived from products limited to a specific supplier. For the six months ended
June 30, 2002, we purchased 55% of our raw materials, components and supplies
from that same supplier. We do not have a written agreement with this or any
other supplier. We rely on purchase orders. 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.
Our business depends on a limited number of customers.
In the six months ended June 30, 2002, two 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.
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, such
as our DigitalColorPress, color and magnetic character recognition toner for new
digital copiers and printers and continue to acquire from third parties parts,
16
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 the manufacturing of 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.
From 1999 through 2000, we expanded our manufacturing capacity by acquiring new
manufacturing equipment and moving to a larger location. We intend to continue
to expand capacity by placing in service additional manufacturing equipment
during 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 in increasing the sales of our
manufactured products, or if our existing sales from manufactured products
declines, our business will be materially and adversely affected.
Our acquisition strategy 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
involve a number of risks, including the possibility that the operations of any
businesses 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
acquisition 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 two patents and we are preparing an application for a third, 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:
o laws and contractual restrictions might not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies; and
17
o 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, and any others which may occur in the future, including
civil disturbance, war, riot, epidemics, public demonstration, explosion,
freight embargoes, 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 predict 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.
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, employment 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 we 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 36% of net sales in the six months
ended June 30, 2002 and 18% in the six months ended June 30, 2001. 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
18
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, Color
Imaging 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 and the OEM technologies are becoming increasingly
difficult barriers to market entry. 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 and
increasingly difficult 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 and could cause our operating expenses
to increase substantially.
Our financial performance depends on our ability to successfully manage
inventory levels, which is affected by factors 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 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.
RISKS RELATING TO OWNING OUR COMMON STOCK:
Our officers, directors and principal stockholders own approximately 58% of the
outstanding shares of common stock and they and our affiliates will be allowed
to purchase up to $7 million of our common stock in our offering pending with
the SEC on Form SB-2, allowing these stockholders to control matters requiring
approval of the stockholders.
19
As a result of such ownership our officers, directors, principal stockholders
and affiliates, other 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 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 July 30, 2002, we had issued and outstanding 10,099,880 shares of common
stock and outstanding warrants and options to purchase 2,416,312 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
we obtain additional equity capital.
Our ability to raise additional capital through the sale of our securities may
be harmed by competing resales of our common stock by our stockholders.
The price of our common stock could fall if stockholders sell substantial
amounts of our common stock. Such sales could make it more difficult for us to
sell securities at the time and price we deem appropriate. To the extent
stockholders, including the selling stockholders set forth in our Form SB-2,
offer and sell their shares of common stock to investors for less than the price
offered by us, our attempt to sell our securities may be adversely affected as a
result of the concurrent offering by selling stockholders. Investors may
negotiate prices lower than the price we are offering our shares of common stock
with selling stockholders. Furthermore, potential investors may not be
interested in purchasing shares of our common stock on any terms if stockholders
sell substantial amounts of our common stock.
Effectiveness of our registration statement on Form SB-2 may result in the
dilution of existing stockholders and could decrease the market price of our
common stock.
Once our registration statement is declared effective, selling stockholders will
be able to sell up to approximately 4 million shares of our common stock and we
will be able to sell the equivalent of up to 7 million shares of our common
stock. The sale of common stock 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 limited 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.
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:
o progress of our products through development and marketing;
o announcements of technological innovations or new products by us or
our competitors;
o government regulatory action affecting our products or competitors'
products in both the United States and foreign countries;
20
o developments or disputes concerning patent or proprietary rights;
o actual or anticipated fluctuations in our operating results;
o the loss of key management or technical personnel;
o the loss of major customers or suppliers;
o the outcome of any future litigation;
o changes in our financial estimates by securities analysts;
o fluctuations in currency exchange rates;
o general market conditions for emerging growth and technology
companies;
o broad market fluctuations;
o recovery from natural disasters; and
o 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 stockholder 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 acquire 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.
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 disclaim
any obligation or duty to update or modify these forward-looking statements.
21
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2 -CHANGES IN SECURITIES
None.
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant held its Annual Meeting of Stockholders on June 10, 2002. The
following proposals were adopted by the votes indicated.
(b) Ten directors were elected at the Annual Meeting to serve until the Annual
Meeting of Stockholders in 2003. The names of these Directors and votes cast in
favor of their election and shares withheld are as follows:
NAME VOTES FOR % FOR VOTES WITHHELD
---- --------- ----- --------------
Michael W. Brennan 5,912,921 73.3 2,149,399
Sueling Wang, Phd 8,052,838 99.9 9,482
Morris E. Van Asperen 8,062,080 99.9 240
Charles R. Allison 8,062,080 99.9 240
Edwin C. St. Amour 8,062,080 99.9 240
Robert L. Langsam 8,062,080 99.9 240
Jui-Chi Wang 8,062,080 99.9 240
Jui-Hung Wang 8,062,080 99.9 240
Jui-Kung Wang 8,062,080 99.9 240
Victor A. Hollander 8,062,080 99.9 240
(c) The selection of Lazar Levine & Felix, LLP as our independent accountants
for the year ending December 31, 2002 was ratified by 8,062,080 votes for with
240 votes withheld.
(d) The stockholders, by a vote of 5,990,981 for and 1,147,124 votes withheld,
approved the increase in the authorized shares of our common stock from
20,000,000 to 30,000,000.
ITEM 5. Other Information
None.
ITEM 6 -EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. Description
2.1 Merger Agreement and Plan of Reorganization dated May 16, 2000, by
and between Advatex Associates, Inc., Logical Imaging Solutions
Acquisition Corp., Color Imaging Acquisition Corp., Logical Imaging
Solutions, Inc., and Color Image,Inc. (incorporated by reference to
the Registrant'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 (incorporated by reference to the Registrant'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 (incorporated by reference to the Registrant's
Form 8-K filed on July 17, 2000).
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
3.1 to the Registrant's Form SB-2 filed July 15, 2002).
3.2 Bylaws (incorporated by reference to the Registrant's Form 10-QSB
for the quarter ended March 31, 2002).
4.1 Stock Purchase Agreement between the Company and Wall Street
Consulting Corp. dated October 30, 2001 (incorporated by reference
to Exhibit 4.1 to the Registrant's Form SB-2 filed July 15, 2002).
4.2 Promissory Note of Wall Street Consulting Corp. dated October 30,
2001 (incorporated by reference to Exhibit 4.2 to the Registrant's
Form SB-2 filed July 15, 2002).
4.3 Form of Warrant issued to Selling Stockholders (incorporated by
reference to Exhibit 4.3 to the Registrant's Form SB-2 filed July
15, 2002).
22
Exhibit No. Description
4.4 Loan and Security Agreement between Color Imaging and Southtrust
Bank dated May 5, 2000 (incorporated by reference to Exhibit 4.4 to
the Registrant's Form SB-2 filed July 15, 2002).
4.5 Amendment of Loan Documents between Color Imaging and SouthTrust
Bank dated August 30, 2000 (incorporated by reference to Exhibit 4.5
to the Registrant's Form SB-2 filed July 15, 2002).
4.6 Second Amendment of Loan Documents between Color Imaging and
SouthTrust Bank dated November 30, 2000 (incorporated by reference
to Exhibit 4.6 to the Registrant's Form SB-2 filed July 15, 2002).
4.7 Third Amendment of Loan Documents between Color Imaging and
SouthTrust Bank dated June 30, 2001 (incorporated by reference to
Exhibit 4.7 to the Registrant's Form SB-2 filed July 15, 2002).
4.8 Fourth Amendment of Loan Documents between Color Imaging and
SouthTrust Bank dated November 1, 2001 (incorporated by reference to
Exhibit 4.8 to the Registrant's Form SB-2 filed July 15, 2002).
4.9 Fifth Amendment of Loan Documents between Color Imaging and
SouthTrust Bank dated December 31, 2001 (incorporated by reference
to Exhibit 4.9 to the Registrant's Form SB-2 filed July 15, 2002).
4.10 Sixth Amendment of Loan Documents between Color Imaging and
Southtrust Bank dated February 7, 2002 (incorporated by reference to
Exhibit 4.10 to the Registrant's Form SB-2 filed July 15, 2002).
4.11 $500,000 Line of Credit Promissory Note issued to Southtrust Bank
dated May 5, 2000 (incorporated by reference to Exhibit 4.11 to the
Registrant's Form SB-2 filed July 15, 2002).
4.12 $500,000 Amended and Restated Line of Credit Promissory Note issued
to Southtrust Bank dated August 30, 2000 (incorporated by reference
to Exhibit 4.12 to the Registrant's Form SB-2 filed July 15, 2002).
4.13 $500,000 Revolving Note Modification Agreement dated November 30,
2000 (incorporated by reference to Exhibit 4.13 to the Registrant's
Form SB-2 filed July 15, 2002).
4.14 $500,000 Second Revolving Note Modification Agreement dated July 5,
2001 (incorporated by reference to Exhibit 4.14 to the Registrant's
Form SB-2 filed July 15, 2002).
4.15 $1,500,000 Revolving Note between Color Imaging and SouthTrust Bank
dated June 24, 1999 (incorporated by reference to Exhibit 4.15 to
the Registrant's Form SB-2 filed July 15, 2002).
4.16 $1,500,000 Revolving Note Modification Agreement between Color
Imaging and SouthTrust Bank dated May 5, 2000 (incorporated by
reference to Exhibit 4.16 to the Registrant's Form SB-2 filed July
15, 2002).
4.17 $1,500,000 Second Revolving Note Modification Agreement between
Color Imaging and SouthTrust Bank dated August 30, 2000
(incorporated by reference to Exhibit 4.17 to the Registrant's Form
SB-2 filed July 15, 2002).
4.18 $1,500,000 Third Revolving Note Modification Agreement between Color
Imaging and SouthTrust Bank dated November 30, 2000 (incorporated by
reference to Exhibit 4.18 to the Registrant's Form SB-2 filed July
15, 2002).
4.19 $1,500,000 Fourth Revolving Note Modification Agreement between
Color Imaging and SouthTrust Bank dated July 5, 2001 (incorporated
by reference to Exhibit 4.19 to the Registrant's Form SB-2 filed
July 15, 2002).
4.20 $2,500,000 Fifth Revolving Note Modification Agreement between Color
Imaging and SouthTrust Bank dated December 31, 2001 (incorporated by
reference to Exhibit 4.20 to the Registrant's Form SB-2 filed July
15, 2002).
4.21 $1,752,000 Installment Note between Color Imaging and SouthTrust
Bank dated June 24, 1999 (incorporated by reference to Exhibit 4.21
to the Registrant's Form SB-2 filed July 15, 2002).
4.22 $1,752,000 Term Loan Documents Modification Agreement between Color
Imaging and SouthTrust Bank dated August 30, 2000 (incorporated by
reference to Exhibit 4.22 to the Registrant's Form SB-2 filed July
15, 2002).
4.23 SouthTrust Bank waiver letter dated March 26, 2001 (incorporated by
reference to Exhibit 4.23 to the Registrant's Form SB-2 filed July
15, 2002).
4.24 SouthTrust Bank waiver letter dated May 8, 2001 (incorporated by
reference to Exhibit 4.24 to the Registrant's Form SB-2 filed July
15, 2002).
4.25 SouthTrust Bank waiver letter dated August 13, 2001 (incorporated by
reference to Exhibit 4.25 to the Registrant's Form SB-2 filed July
15, 2002).
4.26 SouthTrust Bank waiver letter dated October 31, 2001 (incorporated
by reference to Exhibit 4.26 to the Registrant's Form SB-2 filed
July 15, 2002).
4.27 Development Authority of Gwinnett County, Georgia Industrial
Development Trust Indenture dated June 1, 1999 (incorporated by
reference to Exhibit 4.27 to the Registrant's Form SB-2 filed July
15, 2002).
4.28 Loan Agreement between the Company, Kings Brothers LLC and the
Development Authority of Gwinnett County, Georgia dated June 1, 1999
(incorporated by reference to Exhibit 4.28 to the Registrant's Form
SB-2 filed July 15, 2002).
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 (incorporated by reference to Exhibit 4.29
to the Registrant's Form SB-2 filed July 15, 2002).
4.30 First Amendment to Joint Debtor Agreement dated January 1, 2001 by
and among Color Imaging, Kings Brothers, LLC, Dr. Sueling Wang,
Jui-Chi Wang, Jui-Kung Wang, and Jui-Hung Wang (incorporated by
reference to Exhibit 4.30 to the Registrant's Form SB-2 filed July
15, 2002).
4.31 Master Security Agreement between Color Imaging and General Electric
Capital Corporation dated November 30, 2000 (incorporated by
reference to Exhibit 4.31 to the Registrant's Form SB-2 filed July
15, 2002).
4.32 Promissory Note issued to General Electric Capital Corporation dated
November 30, 2000 (incorporated by reference to Exhibit 4.32 to the
Registrant's Form SB-2 filed July 15, 2002).
4.33 $200,000 Promissory Note between Color Imaging and Kings Brothers
LLC dated November 19, 2001 (incorporated by reference to Exhibit
4.33 to the Registrant's Form SB-2 filed July 15, 2002).
4.34 $500,000 Promissory Note between Color Imaging and Sueling Wang
dated March 14, 2002 (incorporated by reference to Exhibit 4.34 to
the Registrant's Form SB-2 filed July 15, 2002).
4.35 $240,000 Promissory Note between Color Imaging and Kings Brothers
LLC dated July 6, 2000 (incorporated by reference to Exhibit 4.35 to
the Registrant's Form SB-2 filed July 15, 2002).
4.36 $50,000 Promissory Note between the Company and Daniel Wang dated
October 23, 1998 (incorporated by reference to Exhibit 4.36 to the
Registrant's Form SB-2 filed July 15, 2002).
4.37 $112,000 Promissory Note between Color Imaging and Daniel Wang dated
October 16, 1998 (incorporated by reference to Exhibit 4.37 to the
Registrant's Form SB-2 filed July 15, 2002).
4.38 $90,000 Promissory Note between Color Imaging and Michael Wang dated
June 4, 1999 (incorporated by reference to Exhibit 4.38 to the
Registrant's Form SB-2 filed July 15, 2002).
23
Exhibit No. Description
4.39 $150,000 Promissory Note between Color Imaging and AccuRec LLC dated
February 3, 2000 (incorporated by reference to Exhibit 4.39 to the
Registrant's Form SB-2 filed July 15, 2002).
4.40 $200,000 Promissory Note between Color Imaging and AccuRec LLC dated
March 7, 2000 (incorporated by reference to Exhibit 4.40 to the
Registrant's Form SB-2 filed July 15, 2002).
4.41 $200,000 Promissory Note between Color Imaging and AccuRec LLC dated
April 10, 2000 (incorporated by reference to Exhibit 4.41 to the
Registrant's Form SB-2 filed July 15, 2002).
4.42 $200,000 Promissory Note between Color Imaging and AccuRec LLC dated
May 2, 2000 (incorporated by reference to Exhibit 4.42 to the
Registrant's Form SB-2 filed July 15, 2002).
4.43 $500,000 Promissory Note between Color Imaging and AccuRec LLC dated
July 5, 2000 (incorporated by reference to Exhibit 4.43 to the
Registrant's Form SB-2 filed July 15, 2002).
4.44 $200,000 Promissory Note between Color Imaging and AccuRec LLC dated
September 14, 2000 (incorporated by reference to Exhibit 4.44 to the
Registrant's Form SB-2 filed July 15, 2002).
4.45 $200,000 Promissory Note between Color Imaging and AccuRec LLC dated
October 4, 2000 (incorporated by reference to Exhibit 4.45 to the
Registrant's Form SB-2 filed July 15, 2002).
4.46 $200,000 Promissory Note between Color Imaging and AccuRec LLC dated
November 3, 2000 (incorporated by reference to Exhibit 4.46 to the
Registrant's Form SB-2 filed July 15, 2002).
4.47 Seventh Amendment of Loan Documents between Color Imaging and
SouthTrust Bank dated June 28, 2002 (incorporated by reference to
Exhibit 4.47 to the Registrant's Form SB-2 filed July 15, 2002).
4.48 $2,500,000 Sixth Revolving Note Modification Agreement between Color
Imaging and SouthTrust Bank (incorporated by reference to Exhibit
4.48 to the Registrant's Form SB-2 filed July 15, 2002).
10.1 Employment Agreement between Color Imaging and Michael W. Brennan
dated June 28, 2000 (incorporated by reference to Exhibit 10.1 to
the Registrant's Form SB-2 filed July 15, 2002).
10.2 Employment Agreement between Color Imaging and Dr. Sueling Wang
dated June 28, 2000 (incorporated by reference to Exhibit 10.2 to
the Registrant's Form SB-2 filed July 15, 2002).
10.3 Employment Agreement between the Company and Morris E. Van Asperen
dated June 28, 2000 (incorporated by reference to Exhibit 10.3 to
the Registrant's Form SB-2 filed July 15, 2002).
10.4 Employment Agreement between Color Imaging and Charles R. Allison
dated June 30, 2000 (incorporated by reference to Exhibit 10.4 to
the Registrant's Form SB-2 filed July 15, 2002).
10.5 Lease Agreement between Color Imaging and Kings Brothers LLC dated
April 1, 1999 (incorporated by reference to Exhibit 10.5 to the
Registrant's Form SB-2 filed July 15, 2002).
10.6 Amendment No. 1 to Lease Agreement between the Company and Kings
Brothers LLC dated April 1, 1999 (incorporated by reference to
Exhibit 10.6 to the Registrant's Form SB-2 filed July 15, 2002).
10.7* Letter of Amendment to Employment Agreement between Color Imaging
and Michael W. Brennan dated June 10, 2002.
99.1 Report of Grant Thornton LLP for the Company's fiscal year ended
December 31, 1999 (incorporated by reference to Exhibit 99.1 to the
Registrant's Form SB-2 filed July 15, 2002).
99.2 Rescission Agreement between Joe Daley & Sons, Inc. and Color
Imaging dated March 20, 2002 (incorporated by reference to Exhibit
99.2 to the Registrant's Form SB-2 filed July 15, 2002).
99.3 Rescission Agreement between Wall Street Consulting Corp. and the
Company dated March 19, 2002 (incorporated by reference to Exhibit
99.3 to the Registrant's Form SB-2 filed July 15, 2002).
______________
* Filed herewith.
(b) REPORTS ON FORM 8-K
None.
24
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
COLOR IMAGING, INC.
/S/ SUELING WANG
------------------------------------
August 6, 2002 Sueling Wang, PhD
President (principal executive officer)
/S/ MORRIS E. VAN ASPEREN
------------------------------------
Morris E. Van Asperen
Executive Vice President and
Chief Financial Officer
1498349