UNITED STATES
SECURITIES AND EXCHANGE COMMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2001
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-18450
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COLOR IMAGING, INC.
--------------------------------
(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
- -------------------------------------------- ---------
(Address of principal executive offices) (Zip code)
(770) 840-1090
---------------------
(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes /X/ No / /
As of April 30, 2001, there were 7,596,400 shares of Common Stock outstanding.
EXPLANATORY NOTE
The accompanying financial statements for the three months ended March 31, 2001,
have been restated to reflect the business combination with Image (see Note 2
below) under the purchase method of accounting as opposed to the pooling of
interests method, as previously reported.
COLOR IMAGING, INC.
QUARTERLY REPORT ON FORM 10-QSB/A
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
INDEX
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2001 (Unaudited) and December 31, 2000...........3
Consolidated Statements of Operations (Unaudited)
for the Three Months ended March 31, 2001
and 2000..................................................4
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months ended March 31, 2001
and 2000..................................................5
Notes to Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................9
Signatures...................................................................14
PART I: FINANCIAL INFORMATION
ITEM 1 -FINANCIAL STATEMENTS
COLOR IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
31-Mar-01 31-Dec-00
(Unaudited) (Audited)
As restated As restated
CURRENT ASSETS -------------- ---------------
Cash $ 168,509 $ 339,348
Accounts receivable 3,345,063 3,562,120
Refundable income taxes 19,995 19,995
Inventory 5,612,928 5,181,248
Deferred taxes 136,210 155,526
Related party portion of bonds - current 76,716 76,032
Other current assets 310,834 381,148
-------------- ---------------
TOTAL CURRENT ASSETS 9,670,255 9,715,417
-------------- ---------------
FIXED ASSETS
Furniture & fixtures 129,955 129,955
R&D equipment 418,776 412,325
Machinery & equipment 7,068,882 6,865,206
Leasehold improvements 1,262,410 1,252,021
Accumulated depreciation (555,277) (403,077)
--------------- ---------------
TOTAL FIXED ASSETS, NET 8,324746 8,256,430
--------------- ---------------
OTHER ASSETS 5,000 5,000
Patent/intellectual property 490,211 467,984
Deferred income tax 897,412 898,096
Related party portion of bonds 373,649 269,626
Other assets 1,766,272 1,640,706
-------------- --------------
OTHER ASSETS $ 19,761,273 $ 19,612,553
============== ==============
CURRENT LIABILITIES
Revolving credit lines $ 1,217,000 $ 1,399,000
Accounts payable 6,884,514 6,665,322
Current portion notes payable 349,830 343,408
Current portion bonds payable 320,000 320,000
Other current liabilities 400,735 370,765
Current income taxes payable -- --
-------------- --------------
TOTAL CURRENT LIABILITIES 9,172,079 9,098,495
-------------- --------------
LONG TERM LIABILITIES
Notes payable 1,611,993 1,698,058
Bonds payable 3,780,000 3,780,000
Other long term liabilities -- --
-------------- --------------
LONG TERM LIABILITIES 5,391,993 5,478,058
-------------- --------------
TOTAL LIABILITIES 14,564,072 14,576,553
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, authorized 20,000,000
shares; 7,574,219 and 7,490,948 shares issued on
March 31, 2001 and December 31, 2000, respectively. 75,742 74,909
Additional paid-in capital 7,395,003 7,229,293
Accumulated deficit (2,273,544) (2,268,202)
--------------- ---------------
5,197,201 5,036,000
--------------- ---------------
$ 19,761,273 $ 19,612,553
=============== ===============
See Notes to Consolidated Financial Statements
Page 3
COLOR IMAGING, INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF OPERATIONS
31-Mar-01 31-Mar-00
As restated As restated
------------ ------------
SALES $ 5,528,316 $ 275,029
C0ST OF SALES 4,514,325 172,658
------------ ------------
GROSS PROFIT 1,013,991 102,371
------------ ------------
OPERATING EXPENSES
Administrative 456,181 74,926
Research & development 216,909 48,231
Sales & marketing 225,681 --
------------ ------------
898,771 123,157
------------ ------------
OPERATING PROFIT (LOSS) 115,220 (20,786)
------------ ------------
OTHER INCOME AND (EXPENSE)
Other income and (expense) 7,682 445
Financing expenses (120,574) (4,529)
Non-recurring moving expense (9,570) --
------------- ------------
(122,462) (4,084)
(LOSS) BEFORE TAXES (7,242) (24,870)
(BENEFIT) FOR INCOME TAXES (1,900) (10,000)
------------- -------------
NET (LOSS) $ (5,342) $ (14,870)
============= =============
INCOME (LOSS)
PER COMMON SHARE
Basic/Diluted* $ (.00) $ (.00)
WEIGHTED AVERAGE
SHARES OUTSTANDING
Basic/Diluted * 7,007,534 4,000,000
============= =============
* Antidilutive
See Notes to Consolidated Financial Statements
Page 5
COLOR IMAGING, INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF CASH FLOWS
THREE MONTHS THREE MONTHS
ENDED ENDED
31-Mar-01 31-Mar-00
As restated As restated
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (5,342) $ (14,870)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation and amortization 152,200 1,600
Deferred income taxes (2,911) (10,000)
Decrease (increase) in:
Accounts and other receivables 411,718 147,941
Inventories (431,680) (74,056)
Prepaid and other assets (120,802) (34,754)
Cash surrender value of life insurance -- --
Deposits -- --
Increase (decrease) in:
Accounts payable and accrued liabilities 249,162 (88,878)
Income taxes payable -- --
----------- -----------
Net cash provided by (used in)
operating activities 252,345 (73,017)
----------- -----------
Cash flows from investing activities:
Capital expenditures (220,516) (100,752)
Patents and intellectual properties -- (5,000)
Investments in acquisitions (107,568) --
----------- -----------
Net cash (used in)
investing activities (328,084) (105,752)
----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under line of credit (182,000) --
Proceeds from issuance of bonds or long-term debt -- 7,930
Proceeds from sale of stock 166,543 --
Principal payments of long-term debt (79,643) --
----------- -----------
Net cash provided by (used in)
financing activities (95,100) 7,930
----------- -----------
Net (decrease) increase in cash (170,839) (170,839)
Cash at beginning of year 339,348 1,183,874
----------- -----------
Cash at end of period $ 168,509 $1,013,035
=========== ===========
See Notes to Consolidated Financial Statements
Page 5
COLOR IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles 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 ended March 31, 2001
(see Note 7 - Restatement) are not necessarily indicative of the results that
may be expected for the year ended December 31, 2001.
NOTE 2. 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
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.
Page 6
NOTE 2. DESCRIPTION OF COMPANY (CONTINUED)
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 7 -- 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.
THREE MONTH PERIODS ENDED
-------------------------
MARCH 31, 2001 MAR 31, 2000
-------------- ------------
(Unaudited Proforma Data)
Net sales $ 5,528,316 $ 3,728,372
Net income $ (5,342) $ 48,441
Income per share $ (.00) $ .01
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.
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 3. STOCK OPTIONS
Prior to the Merger, the Company granted options to acquire 500,000 shares of
the common stock of the Company to senior members of the Company's management.
The option price is $2.00 per share. The options will vest over a two to four
year period.
NOTE 4. WARRANTS TO PURCHASE 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
Registrant for $2.00 per share. In addition, current shareholders own 272,000
similar warrants (the "Old Warrant"). The Old Warrant entitles the warrant
holder to purchase, at any time until September 15, 2001, a share of common
stock of the Registrant for $2.70 per share.
NOTE 5. EARNINGS PER SHARE
Basic and diluted earnings per share have been computed in accordance with the
adoption of SFAS No. 128.
Page 7
NOTE 6. INVENTORIES
Inventories consisted of the following components as March 31, 2001and December
31, 2000:
March 31, 2001 December 31, 2000
-------------- -----------------
(As restated)
Raw materials .......... $ 1,254,528 $ 794,128
Work-in-process......... 1,072,095 1,275,545
Finished goods.......... 3,408,960 3,234,230
Obsolescence allowance.. (122,655) (122,655)
--------------- -----------------
Total...................... $ 5,612,928 $ 5,181,248
=============== =================
NOTE 7. RESTATEMENT OF THREE MONTHS YEAR 2000 FINANCIAL STATEMENTS:
The accompanying financial statements for the three months ended March 31, 2001,
have been restated to reflect the business combination with Image (see Note 2
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
-------------- -----------
As of March 31, 2001:
Balance Sheet:
Property, plant and equipment, net 7,203,701 8,324,746
Patent/intellectual property 1,014,404 5,000
Additional paid-in capital 7,151,714 7,395,003
Accumulated deficit (7,459,540) (2,273,544)
See also Note 2 -- Unaudited Proforma Data
Page 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our Consolidated Condensed Financial Statements and related Notes included in
this report.
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 and/or 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, 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, 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."
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.
BACKGROUND
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. ("Logical") and
Color Image, Inc. ("Image") 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 Image (the "Merger"), whereby Logical and Image became our
wholly-owned subsidiaries. Pursuant to the Merger Agreement, shareholders of
Logical and Image exchanged their shares for shares of common stock of Advatex
Associates, Inc.. Logical shareholders converted their shares into shares of
common stock of Advatex Associates, Inc. at the ratio of 1.84843 shares of
common stock of Advatex Associates, Inc. for each one share of Logical. Image
shareholders converted their shares into shares of common stock of Advatex
Associates, Inc. at the ratio of 15 shares of common stock of Advatex
Associates, Inc. for each one share of Image. Following the conversion of shares
by Logical and Image shareholders, shareholders of Logical and Image owned
approximately 85% of the outstanding shares of common stock of Advatex
Associates, Inc. and shareholders of Advatex Associates, Inc. after the Merger
owned approximately 15%.
Page 9
The purpose of the Merger was to combine Image'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 from Advatex Associates, Inc. to Color Imaging, Inc, and on
December 31, 2000, Color Image, Inc. was merged with and into Color Imaging,
Inc. (the "Company" or "Color").
OVERVIEW
The Company, Color Imaging, Inc. (OTCBB: CIMG), develops, manufactures and
markets 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 Imaging, Inc. ("Color") and Logical
Imaging Solutions, Inc. ("Logical"). 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. Image 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 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(TM), Sharp(TM), Xerox(TM), 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.
Page 10
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 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 developing the DigitalColorPress, a Solution series of printing
systems incorporating color printing capabilities. The DigitalColorPress will
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 as an enhancement to existing
Solution series installations and as an upgrade for other printing systems..
OVERVIEW (RESTATEMENT OF FINANCIAL STATEMENTS)
The Company has revised its accounting treatment for the merger completed
in June 2000 from a pooling-of-interests 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 in this amended report is in conformity with the
purchase method of accounting for the merger. Accordingly, the accompanying
financial statements for the six months ended June 30, 2000, have been restated
to reflect the business combination with Image under the purchase method of
accounting as opposed to the pooling of interests method, as previously
reported. As the result, Image's financial statements are only consolidated
beginning with the date of acquisition, June 28, 2000.
Net sales for the three and month period that ended on March 31, 2001, were
primarily generated from the sale of consumable products, including toner.
Revenue is recognized from the sale of products when the goods are shipped to
the customer. In the three month period ended March 31, 2001, net sales
increased by $5,253,000. The large increase in net revenues for the three month
period compared to the same period of 2000 was primarily the result of
consolidation of Image's financial statements.
Cost of goods sold includes direct material and labor 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 life 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 staffs, 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.
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.
Page 11
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
information derived from the Company's consolidated statements of operations and
expressed as a percentage of net sales:
Three Months Ended
March 31,
2001 2000
------------ ------------
(Percentage of Net Sales)
Net sales ............................. 100 100
Cost of goods sold .................... 82 63
Gross Profit .......................... 18 37
Administrative expenses................ 8 27
Research and Development............... 4 18
Sales and Marketing.................... 4 0
Operating income....................... 2 -8
Interest expense....................... 2 2
Depreciation and Amortization.......... 3 1
Income before income taxes............. 0 -9
Provision for income taxes (credit) ... 0 -4
Net income (Loss) ..................... 0 -5
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
NET SALES. Net sales were $5,528,000 for the three months ended March 31, 2001,
or an increase of $5,253,000, or 1910% compared to $275,000 for the three month
period ended March 31, 2000. The large increase in net sales during the three
month period ended March 31, 2001 compared to the same period of 2000 was
primarily the result of consolidation of Image's financial statements for the
first quarter 2001.
COST OF GOODS SOLD. Cost of goods sold increased by $4,341,000 or 2509% to
$4,514,000 in the three months ended March 31, 2001 from $173,000 in the three
months ended March 31,2000. This increase was primarily due to increased net
sales. Cost of goods sold as a percentage of net sales increased to 82% in the
first quarter of 2001 from 63% in the first quarter of 2000. This decrease was
due to the higher level of sales at lower profit margins.
GROSS PROFIT. As a result of the above factors, gross profit increased to
$1,014,000 in the three months ended March 31, 2001 from $102,000 in the three
months ended March 31,2000. Gross profit as a percentage of net sales decreased
to 18% in the first quarter of 2001 from 37% in the first quarter of 2000. This
increase was also due to the higher level of sales at lower margins.
GENERAL AND ADMINISTRATIVE, R&D AND SELLING EXPENSES. General and
administrative, selling and R&D expenses increased $776,000 or 630% to $899,000
in the three months ended March 31, 2001 from $123,000 in the three months ended
March 31, 2000. General and administrative, R&D and selling expenses decreased,
as a percentage of net sales, to 16% in the first quarter of 2001 from 45% in
the first quarter of 2000. General and administrative expenses increased by
$381,000 or 509% to $456,000 in the three months ended March 31, 2001 from
$75,000 in the three months ended March 31, 2000. R&D expenses increased by
$169,000 or 350% to $217,000 in the three months ended March 31, 2001 from
$48,000 in the three months ended March 31, 2000. Selling expenses increased by
$226,000 in the three months ended March 31, 2001 compared to selling expenses
of -0- for the three months ended March 31, 2000. The large increase in
operating expenses for the three month period ended March 31, 2001 compared to
the same period of 2000 was primarily the result of consolidation of Image's
financial statements for the first quarter 2001.
OPERATING INCOME. As a result of the above factors the operating loss decreased
by $136,000 to a profit of $115,000 in the three months ended March 31, 2001
from a loss of $21,000 in the three months ended March 31, 2000.
INTEREST EXPENSE. Interest expense was $121,000 in the three months ended March
31, 2001 compared to $5,000 for the three months ended March 31, 2000.
OTHER INCOME. An increase in miscellaneous income resulted in other income
increasing to $7,600 from income of $400 for the three months ended March 31,
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2001 compared to the same period of 2000.
INCOME TAXES. Income tax benefits decreased to $2,000 in the three months ended
March 31, 2001 from a tax benefit of $10,000 for the comparable period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $252,000 in the three
months ended March 31, 2001, compared to $73,000 used by operating activities in
the three months ended March 31, 2000. The cash flows provided by operating
activities in the three months ended March 31, 2001 were comparatively greater
than in the three months ended March 31, 2000 due primarily to increases in
accounts payable and decreases in accounts receivable. The payable increase
resulted primarily from higher sales and purchasing in 2000.
Cash flows used in investing activities were $328,000 in the three months
ended March 31, 2001 compared to $106,000 in the three months ended March 31,
2000. Included in cash flows used in investing activities in the three months
ended March 31, 2001 was $132,000 invested in test equipment for furthering the
Company's patented toner and digital color printing systems technologies.
The Company has a $1.5 million revolving line of credit with an outstanding
balance as of March 31, 2001 of $717,000, and bears interest at the Bank's prime
interest rate less .25 percent. The revolving line of credit has a June 30, 2001
expiration date. Under the line of credit, the Company is permitted to borrow 85
percent of eligible accounts receivable and 50 percent of eligible inventories
(up to a maximum of $1.1 million).
The Bank has made available an additional line of credit of $500,000. The
outstanding balance as of March 31, 2001 was $500,000. The additional line of
credit has an expiration date of June 30, 2001, and bears an interest rate of
the Bank's prime interest rate plus .5 percent. The Company has granted the Bank
a security interest in all of the Company's assets as security for the payment
of the lines of credit.
The Company believes that cash generated by operating activities, the net
proceeds of $950,000 from the recent Merger and funds available under credit
facilities will be insufficient to finance its operating and investing
activities for the next 12 months after March 31, 2001. To the extent that the
funds generated from these sources were insufficient to finance the operating
activities, the Company raised additional funds through public or private
financing. On August 29, 2000, the Board of Directors authorized the raising of
up to $3 million of additional capital on terms and conditions acceptable to the
Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLOR IMAGING, INC.
June 18, 2002 /S/ MORRIS E. VAN ASPEREN
____________________________________________________
Morris E. Van Asperen
Executive Vice President and Chief Financial Officer
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