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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Color-Spec Technologies, Inc.
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(exact name of registrant specified in its charter)
Colorado 3826 84-1527159
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(State of incorporation) (Primary Standard (IRS Employer
Industrial Classification) Identification Number)
3225 East Second Avenue - Denver, Colorado 80206
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(Address of principal executive offices)
F. Jeffrey Krupka, President
Color-Spec Technologies, Inc.
3225 East Second Avenue
Denver, Colorado 80206
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(Name and address of agent for service)
(303) 393-7901
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(Telephone number, including area code, of agent for service)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Maximum Amount of
Title of Each Class of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Security(1) Offering Price Fee
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Common Stock, $0.001 par value 1,000,000 $0.50 $500,000 $139
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TOTAL
$139
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as
amended (the "Act").
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective.
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Color-Spec Technologies, Inc.
Cross Reference Sheet Furnished Pursuant to Rule 501(b) of Regulation S-K
Item No. and Caption Caption in Prospectus
1. Forepart of the Registration Facing page of the Registration
Statement and Outside Front Statement and Outside Front
Cover Page of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information and Risk Prospectus Summary; Risk
Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Front Cover Page of Prospectus;
Risk Factors;
Prospectus Summary
6. Dilution Dilution; Risk Factors
7. Selling Security holders Not Applicable
8. Plan of Distribution Front Cover Page of Prospectus;
Plan of Distribution
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Shareholders
Beneficial Owners and
Management
12. Description of the Securities Description of Securities;
to be Registered Plan of Distribution
13. Interest of Named Experts Legal Matters
and Counsel
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14. Statement as to Undertakings
Indemnification
15. Organization Within Five Prospectus Summary;
Years Business; Dilution; Management;
Certain transactions;
Principal Shareholders
16. Description of Business Business
17. Management's Discussion and Management's Discussion and
Analysis or Plan of Operation Analysis
18. Description of Property Business
19. Certain Relationships and Business; Management
Related Transactions Certain Transactions
20. Market for Common Equity Risk Factors
and Related Stockholder Matters
21. Executive Compensation Executive Remuneration
22. Financial Statements Financial Statements
23. Changes In and Disagreements Not Applicable
With Accountants on Accounting
and Financial Disclosure
24. Indemnification of Part II
Directors and Officers
25. Other Expenses of Part II
Issuance and
Distribution
26. Recent Sales of Part II
Unregistered Securities
27. Exhibits Part II
28. Undertakings Part II
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Subject to Completion, Dated February , 2001
PROSPECTUS
Color-Spec Technologies, Inc.
3225 East Second Avenue
Denver, Colorado 80206
(303) 393-1600
THE OFFERING
This Offering involves the sale of up to 1,000,000 shares of common
stock at a price of $0.50 per share. Color-Spec Technologies, Inc. plans to sell
shares of common stock directly to investors on a "best efforts minimum-maximum"
basis, for the period of effectiveness of this Prospectus, in a minimum amount
up to $250,000 and a maximum amount of up to $500,000. Color-Spec Technologies,
Inc. shares of common stock currently do not trade in any market. References in
this document to "us," "we," or "the Company" refer to Color-Spec Technologies,
Inc., its predecessor and its subsidiaries.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE
The Securities and Exchange Commission (SEC) and state securities regulators
have not approved these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted. Please read this prospectus carefully. It describes our Company,
finances and services. Federal and state securities laws require that we include
in this prospectus all the important information that you will need to make an
investment decision.
You should rely only on the information contained in this prospectus to make
your investment decision. We have not authorized anyone to provide you with
information that is different from what is contained in this prospectus. The
following table of contents has been designed to help you find important
information contained in this prospectus. We have included subheadings to aid
you in searching for particular information you might want to return to. We
encourage you to read the entire prospectus.
Price to Proceeds to
Public the Company(1)(2)
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Per Share $ 0.50 $ 0.50
Total Minimum $250,000 $250,000
Total Maximum $500,000 $500,000
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(See Notes on Inside Cover Page)
The date of this Prospectus is , 2001.
(1) We plan to directly sell up to 1,000,000 shares of common stock at a
price of $0.50 per share on a "best efforts, minimum-maximum" basis.
The term "best efforts minimum-maximum" basis means that we will use
our best efforts to sell at least $250,000 of the shares of our common
stock within the allotted time of ninety days from the effective date
of this prospectus. During the ninety day sales period, all funds which
we receive will be escrowed with Community Banks of Colorado-Englewood,
N.A. in an escrow account entitled Color-Spec Technologies, Inc.-Escrow
Account. If we do not sell at least $250,000 of the shares of our
common stock within the allotted time of ninety days from the effective
date of this prospectus, we will return all funds, without interest, to
purchasers. We will sell directly only through our officers and
directors and will pay no commission for the sales of shares of our
common stock..
(2) The proceeds to us shown in this table have been computed before
deduction of other expenses relating to this Offering, including legal
and accounting expenses, estimated to be approximately $40,000.
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TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY 4
About our Company 4
Key facts 4
RISK FACTORS 4
PLAN OF DISTRIBUTION 8
THE COMPANY 8
USE OF PROCEEDS 12
LITIGATION 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
MANAGEMENT 16
EXECUTIVE COMPENSATION 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 21
CERTAIN TRANSACTIONS 23
TRADING MARKET AND RELATED MATTERS 23
DESCRIPTION OF SECURITIES 24
LEGAL MATTERS 25
EXPERTS 25
AVAILABLE INFORMATION 25
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
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PROSPECTUS SUMMARY
ABOUT OUR COMPANY
We are a development stage company which intends to develop and to
become a manufacturer of a product line of color comparing instruments.
We also plan to seek, investigate and acquire controlling interests in
business opportunities which are similar in nature to our business plan to
develop a product line of color comparing instruments.
KEY FACTS
Total shares outstanding prior to the offering: 3,092,625 shares as of
December 31, 2000
Total minimum shares being offered for sale to the public: 500,000
Total shares to be outstanding after the minimum offering: 3,592,625
Total maximum shares being offered for sale to the public: 1,000,000
Total shares to be outstanding after the maximum offering: 4,092,625
Price per share to the public: $0.50
Total proceeds raised by offering: Minimum-$250,000
Maximum-$500,000
RISK FACTORS
The common shares which we are offering are highly speculative in
nature, involve a high degree of risk and should be purchased only by persons
who can afford to lose their entire investment in the common shares. Before
purchasing any of the common shares, you should carefully consider the following
factors relating to our business and prospects.
RECENTLY-FORMED COMPANY We were incorporated on January 1, 2000. We
have and acquired technology which has only been in existence since 1999. We
have not begun operations yet. Therefore, we have not engaged in any substantial
business activity over a sustained period of time, and thus cannot be said to
have a successful operating history. As a result, we no relevant financial
information upon which you may judge our potential. We expect to incur losses in
the near
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future as we develop our business plan. We may not ever become profitable. As a
new enterprise, we expect to experience under-capitalization, shortages,
setbacks and many of the problems, delays and expenses encountered by any early
stage business, many of which are beyond our control. These include:
- substantial delays and expenses related to testing and development
of our new products,
- production and marketing problems encountered in connection with our
new and existing products and technologies,
- competition from larger and more established companies, and
- lack of market acceptance of our new products and technologies.
LACK OF PROFITABILITY-GOING CONCERN We expect to incur operating losses
in the future. We may never develop sales. Further, sales of our products may
never generate sufficient revenues to fund our continuing operations. We may
never generate positive cash flow or attain profitability. To date, we have
incurred significant losses. As of December 31, 2000, our accumulated deficit
was $356,469. Our accountants have raised the issue of whether we can continue
as a going concern. Our principal expenses have arisen from stock-based
compensation which we paid during this period. Aside from our stock-based
compensation, our losses to date have resulted primarily from general and
administrative expenses and the costs associated with the development of our
products. We expect to incur significant costs in the foreseeable future in the
development of our technology, the full amount of which we cannot determine at
this time. We also expect to incur significant costs in the marketing of any
products derived from this technology. With the exception of our expenses in
developing our technology, we do not believe that our business would require a
substantial overhead. If necessary, we would curtail our development activities
so that we could continue our minimal operations indefinitely, barring any
unforeseen circumstance, which we could potentially occur.
START-UP COMPANY-INHERENTLY RISKY-COMPETITION Because we are a start-up
company with limited history, our operations will be extremely competitive and
subject to numerous risks. The manufacture of color comparing instruments is
highly competitive with many products and companies seeking a share of the
market. We expect that all of our competitors will have greater financial
resources and longer operating histories than we have. We believe that our
competitors can be expected to be intensely competitive. There can be no
assurance that we will have the necessary resources to be competitive. We are
subject to the risks which are common to start-up companies. Therefore,
investors should consider an investment in us to be an extremely risky venture.
NEED FOR ADDITIONAL FINANCING For the foreseeable future, we expect to
rely principally upon our past private placement fund raising, our ability to
borrow funds, the exercise of outstanding stock options, the proceeds of this
Offering, and our cash flow. We cannot guarantee the success of this plan. We
believe that from time to time, we will have to obtain additional financing in
order to conduct our business in a manner consistent with our proposed
operations.
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There can be no guaranty that additional funds will be available when, and if,
needed. If we are unable to obtain such financing, or if the terms thereof are
too costly, we may be forced to curtail proposed expansion of operations until
such time as alternative financing may be arranged, which could have a
materially adverse impact on our operations and our shareholders' investment. At
the present time, except for this Offering and the exercise of existing stock
options, we have no definitive plans for additional financing.
POTENTIAL INABILITY TO CONDUCT SUCCESSFUL OPERATIONS The results of our
operations will depend, among other things, upon our ability to develop and to
market our color comparing instruments. Further, it is possible that our
proposed operations will not generate income sufficient to meet operating
expenses or will generate income and capital appreciation, if any, at rates
lower than those anticipated or necessary to sustain ourselves. Our operations
may be affected by many factors, some known by us, some unknown, and some which
are beyond our control. Any of these problems, or a combination thereof, could
have a materially adverse effect on our viability as an entity and might cause
the investment of our shareholders to be impaired or lost. Our technologies and
products are in various stages of development. The development stage products
may not be completed in time to allow production or marketing due to the
inherent risks of new product and technology development, limitations on
financing, competition, obsolescence, loss of key personnel and other factors.
Although we may license or market our development technology at its current
stage of development, there can be no assurance that we will be able to do so.
Unanticipated technical obstacles can arise at any time and result in lengthy
and costly delays or in a determination that further development is not
feasible.
While we have a limited product line, the development of some of our
technologies have taken longer than anticipated and could be additionally
delayed. Therefore, there can be no assurance of timely completion and
introduction of improved products on a cost-effective basis, or that such
products, if introduced, will achieve market acceptance such that, in
combination with existing products, they will sustain us or allow us to achieve
profitable operations.
DEPENDENCE UPON TECHNOLOGY We are operating in a business which
requires extensive and continuing research efforts. There can be no assurance
that new products will not render our products obsolete or non-competitive at
some time in the future.
PROTECTION OF TECHNOLOGY A successful challenge to our ownership of our
technology could materially damage our business prospects. We rely on a
combination of patents, trademarks, copyrights, trade secret laws,
confidentiality procedures and licensing arrangements to protect our
intellectual property rights. We currently have two U.S. patents pending, but
none are currently issued. Any issued patent may be challenged and invalidated.
Patents may not issue from any of our future applications. Any claims allowed
from existing or future pending patents may not be of sufficient scope or
strength to provide significant protection for our products. Patents may not be
issued in all countries where our products can be sold so as to provide
meaningful protection or any commercial advantage to us. Our competitors may
also be able to design around our patents.
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Vigorous protection and pursuit of intellectual property rights or
positions characterize our industry, which has resulted in significant and often
protracted and expensive litigation. Therefore, our competitors may assert that
our technologies or products infringe on their patents or proprietary rights.
Problems with patents or other rights could increase the cost of our products or
delay or preclude new product development and commercialization by us. If
infringement claims against us are deemed valid, we may not be able to obtain
appropriate licenses on acceptable terms or at all. Litigation could be costly
and time-consuming but may be necessary to protect our future patent and/or
technology license positions or to defend against infringement claims.
COMPETITION Technological competition from larger and more established
companies is anticipated to be significant and expected to increase as we
develop our business plan. Most of the companies with which we expect to compete
have far greater capital resources and more significant research and development
staffs, marketing and distribution programs and facilities, and many of them
have substantially greater experience in the production and marketing of
products. Our ability to compete effectively may be adversely affected by the
ability of these competitors to devote greater resources to the sale and
marketing of their products than we can. In addition, one or more of our
competitors may succeed or may already have succeeded in developing technologies
and products that are more effective than any of those we currently offer or are
developing. In addition, there can be no guarantee that we will be able to
protect our technology from being copied or infringed upon. Therefore, there are
no assurances that we will ever be able to obtain and to maintain a profitable
position in the marketplace.
SUCCESS DEPENDENT UPON MANAGEMENT Our success is dependent upon the
decision making of our directors and executive officers. These individuals
intend to commit as much time as necessary to our business. The loss of any or
all of these individuals could have a materially adverse impact on our
operations. We have no employment agreement with any individuals and have not
obtained key man life insurance on the lives of any of these individuals.
NO DIVIDENDS WITH RESPECT TO COMMON STOCK We have not paid any cash
dividends with respect to our Common Stock, and it is unlikely that we will pay
any dividends on our Common Stock in the foreseeable future. Earnings, if any,
that we may realize will be retained in the business for further development and
expansion.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK This prospectus includes
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private
Securities Litigation Reform Act of 1995, and we desire to take advantage of the
"safe harbor" provisions in those laws. Therefore, we are including this
statement for the express purpose of availing ourselves of the protections of
these safe harbor provisions with respect to all of the forward-looking
statements we make. The forward-looking statements in this prospectus reflect
our current views with respect to possible future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including specifically the absence of significant revenues,
financial resources, a lack of history of operations, significant competition,
trading risks of low-priced stocks and those other risks and uncertainties
discussed herein that could cause our actual results to differ
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materially from our historical results or those we anticipate. In this
prospectus, the words "anticipates," "believes,""expects," "intends," "future"
and similar expressions identify certain forward-looking statements. You are
cautioned to consider the specific risk factors described in "Risk Factors" and
elsewhere in this prospectus and not to place undue reliance on the
forward-looking statements contained in this prospectus, which speak only as of
the date of this prospectus. We undertake no obligation to publicly revise these
forward-looking statements to reflect the effect of events or circumstances that
may arise after the date of this prospectus. All written and oral
forward-looking statements made subsequent to the date of this prospectus and
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by this section.
PLAN OF DISTRIBUTION
We plan to directly sell up to 1,000,000 shares of common stock at a
price of $0.50 per share on a "best efforts, minimum-maximum" basis. The term
"best efforts minimum-maximum" basis means that we will use our best efforts to
sell at least $250,000 of the shares of our common stock within the allotted
time of ninety days from the effective date of this prospectus. During the
ninety day sales period, all funds which we receive will be escrowed with
Community Banks of Colorado-Englewood, N.A. in an escrow account entitled
Color-Spec Technologies, Inc.-Escrow Account. If we do not sell at least
$250,000 of the shares of our common stock within the allotted time of ninety
days from the effective date of this prospectus, we will return all funds,
without interest, to purchasers. We will sell directly only through our officers
and directors and will pay no commission for the sales of shares of our common
stock..
THE COMPANY
GENERAL
The Company
We are a development stage company which was organized in January 1,
2000 under the name FJK Millennium Fund III, Ltd. On January 6, 2000, we changed
our name to Litigation Factoring Group, Inc. We were originally organized to
lend funds for litigation. On September 25, 2000, we acquired the technology and
ancillary rights to permit us to develop operations in the color comparing
business. In October, 2000, we changed our name to Color-Spec Technologies, Inc.
In the immediate future, we are seeking additional financing for our
working capital requirements, for additional research and development, and for
development of our operations.
If circumstances are favorable, we may also seek, investigate and
acquire controlling interests in business opportunities that are similar in
nature to our existing business plan in order to further grow us.
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Risks
As we implement our business plan, our working capital requirements can
be expected to increase. Our ability to quickly bring our technology to market
will be a significant factor in meeting our working capital needs. We will incur
operating losses in the coming year. We cannot say when, if ever, we will be
profitable.
BUSINESS
Products
We have three products concurrently under development. Our first
product is the Color-Spec Pocket-Spec, which is the size of a utility knife and
lightweight, and can be carried in the user's pocket. We believe that the
product will have the capability of resolving approximately 75,000 color shades,
displayed in a red, green, blue (RGB) percentage. This product is designed to
provide an affordable means of comparing color in the consumer market place,
such as the home improvement market and model makers.
Our second product, the Color-Spec Pocket-Spec Pro, is derived from the
same technology, and will target the professional market. These markets include
the professional painters, plastic injection molding, printing and
silk-screening providers, interior decorators and commercial paint companies.
This product is designed to have all of the capabilities of the first product
with the addition of the ability to use an AC/DC wall mount adapter, and be able
to program color charts, such as a paint chart, for Original Equipment
Manufacturers (OEM) to be able to use. The display on this model would provide
more characters to display, with a potential RGB percentage accuracy of 0.5%.
This degree of accuracy will provide the resolution required for evaluating
approximately one million color shades.
Our third product is the Color-Spec Pocket-Spec PC. This product allows
for multiple measurements and is capable of storing multiple data points for
transfer to a database, either through a serial port or by a RF link. The
product is a probe device that interfaces to a Pocket PC, such as a Palm,
Handspring, Compaq's Pocket PC or IBM Workpad, a palmtop size PC, laptop PC or
workstation PC. The market arena for the probe device is for anyone that has a
need to measure color and is knowledgeable in using a "pocket" PC, palmtop
computer, Windows based PC or an Apple0 brand computer. This product is geared
towards the quality assurance (QA) market. Multiple software files, written for
each of the different operating systems, will accompany the device.
Technology
All electronic components used within our products are readily
available. All optical, mechanical and packaging components are proprietary to
us, but use standard injection mold practices for manufacturing of these
components.
Sales
Our sales strategy is to pursue targeted accounts through a combination
of direct sales for OEM customers, on-line sales, and a series of resellers and
strategic alliances. Through the resellers and alliances, we believe that we
will be able to leverage additional sales, marketing and deployment activity.
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Marketing
Our marketing programs will be designed to target consumers and
professionals who have a need to compare color. Our plan is to develop strategic
alliances to help extend the reach of our presence in the marketplace. We
developed a market analysis report which identified numerous markets for our
products, including:
Do-It-Yourself Home-Improvement Warehouse Stores
In many instances during a home improvement project, there is a need to
match paint, tile to paint, wallpaper to paint, tile to wallpaper, etc. For
example, paint was purchased and used several years earlier on a home, and that
paint color is no longer available by the original manufacturer. Therefore, a
match from a different manufacturer is needed. Typically, a paint sample is
needed in order to have a match done at a paint retailer. If a color-comparing
instrument is not present at this location, the sample is sent to another outlet
for matching. The present cost of such instruments is high. Therefore, not all
outlets have a color-comparing instrument.
A low cost, portable instrument would allow any outlet to service a
customer, or allow the consumer to use the instrument during the home
improvement project. A consumer could purchase the instrument to verify color,
or compare colors during the project. We plan to market the Color-Spec
Pocket-Spec through the large hardware and home improvement centers, such as
Home Depot, Ace Hardware, Loews, TruServe, and Sears Hardware.
Professional Painters, Interior Decorators and Paint Manufacturers
Assistance in color matching paint, stucco, or textile swatch samples
for professional painters, interior decorators, general contractors and paint
manufacturers, is provided by the use of the Color-Spec Pocket-Spec on site,
thus avoiding the need to bring a print sample into a store to match it. The
device has the capability of being programmed with a color code look-up table of
a paint manufacturing company. This ability to add in a look-up table provides
an OEM market with paint manufacturers as well.
Plastic Injection Mold & Auto Trim Parts & Panels
The Color-Spec instrument, as a color comparator, is useful as a device
for color matching quality control in injection mold and industrial painting
facilities. Many clients need plastic components or metal enclosures molded or
painted to a specific or company color. Instead of relying upon visual color
matching, a color chip is used as an analytical color reference to determine a
RGB%, plus or minus an allowable percentage.
This instrument will have the capability to provide immediate
analytical data to the process technician. In the injection mold industry, a
tool is usually left in the injection mold machine until the client has approved
the color of the product being manufactured. Generally, it would be more cost
effective to remove the tool and replace it with another tool and program in the
process than to leave the first tool in place. However, the present practice is
to leave the took in place until approved by the client. Having a tool to
quickly verify the color processing would eliminate the risk of manufacturing
the product and better utilize the injection mold machine. At the present time,
there are instances where the color of a product has not been approved, and that
the work was completed with an incorrect color. This results in a large amount
of scrap, at a cost to the manufacturing company.
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We believe that the important advantages of the Color-Spec will be the
affordable price and size of the system, which permits each process technician
to have a color-comparing instrument. Most injection mold companies cannot
justify the present cost of one colorimeter product from the competition. The
cost associated with the multiple measurement system would justify its use
within the quality assurance (QA) department. This instrument is used in
situations where it is necessary to document the color measurements. Multiple
measurements can be performed during a single session that is immediately
downloaded into a database.
In the auto body and paint industry, the use of a color-comparing
device would provide assistance in matching existing paint color. Over time,
paint will fade to a different shade. The use of our product would provide a
means to analytically match the faded shade. Time to formulate the paint mixture
would also be reduced. Upon completion of any repair, the shop can use the
device to show the customer the closeness of the match.
Silk Screening and Printing
In the graphics and silkscreen markets, the Color-Spec device could be
used for proofing color, assist in the formulation of ink color, or silkscreen
paint color, prior to starting a process, as well as to verify their work during
the course of the printing or silkscreen run. The instrument may be used for
exact color matching for brochures, logo or equipment appliques, or pad
printing.
Having this instrument provides immediate analytical data to the
process technician. In the silkscreen and printing industry, the customer must
verify and approve the color. Having a tool to verify the color processing would
eliminate the risk of printing the material, and verify the printed or
silkscreen material upon completion.
Other Miscellaneous Markets
We believe that there are many more markets that require some form of
color comparison which have not been explored, such as color copy machines, the
home hobbyist, model makers, rapid prototyping companies, and biologists. We
will continue to examine new uses for our products. Our primary goal for these
products will be to provide a low cost means to measure and compare color.
Research and Development
We believe that strong product development capabilities are essential
to our strategy of enhancing our core technology, developing additional
capabilities incorporating that technology and maintaining a strategic position
with our products. We have invested significant time and resources in creating a
structured process for undertaking our product development. This process
involves several teams and is designed to provide a framework for defining and
addressing activities to bring product concepts and development projects to
market successfully. In addition, we have recruited and plan to continue to
recruit electronic and software engineers with experience in illumination and
detection systems.
FACILITIES
Our business office is located at 3225 East 2nd Ave., Denver, Colorado
80206. We pay $750 per month, plus one per cent of our net income to an
affiliate, Platinum Financial Fund, in rent for this office space, under a five
year lease from October 1, 2000, plus the actual expenses of telephone and fax.
We have
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no research and development equipment or facilities. We use third party
contractors for our research and development and plan to use third party
contractors for our manufacturing activities. We share the Platinum Financial
Fund office equipment in our business office.
EMPLOYEES.
As of December 31, 2000, we have no full-time employees. We have twelve
part-time employees, who are subject to employment agreements. We otherwise plan
to use third party contractors for our research and development and
manufacturing activities.
Our future success depends in significant part upon the continued service of our
key technical and senior management personnel. The competition for highly
qualified personnel is intense, and there can be no assurance that we will be
able to retain our key managerial and technical employees or that we will be
able to attract and retain additional highly qualified technical and managerial
personnel in the future. None of our employees is represented by a labor union,
and we consider our relations with our employees to be good. None of our
employees is covered by key man life insurance policies.
GOVERNMENT REGULATION,
We are not subject, as a company, to any material governmental
regulation or approvals. Therefore, the impact of governmental regulation is not
expected to be material to our operations.
ENVIRONMENTAL LAWS.
We have not incurred costs associated with environmental laws and do
not anticipate such laws will have any significant effect on our future
business.
RAW MATERIALS
The use of raw materials is not material factor in our operations and
is not expected to be material factor in the future.
BACKLOGS.
As of December 31, 2000, we had no backlogs.
USE OF PROCEEDS
The net proceeds which we anticipate receiving from this Offering are
expected to total $460,000, if the maximum number of common shares offered are
sold and $210,000 if the minimum number of common shares offered are sold. We
calculated the net proceeds after deducting expenses of $40,000, which we
anticipate paying out of the proceeds of this Offering for legal, accounting,
printing and filing fees.
We estimate that such net proceeds will be applied following completion
of the Offering substantially as follows:
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Minimum Maximum
Application of Proceeds Proceeds Proceeds
- ----------------------- -------- --------
Salaries and Administration(1) $ 50,000 $100,000
Product Development(2) $ 30,000 $200,000
Repayment of Loans(3) $100,000 $100,000
Working Capital(4) $ 30,000 $ 60,000
Total $210,000 $460,000
(1) To be used for rent, payment of salaries to employees, travel, and
for other general overhead purposes.
(2) To be used for the development of our three products. With the
minimum proceeds, we estimate that we will be able to complete develop of the
Pocket-Spec and the Pocket-Spec Pro. With the additional proceeds up to the
maximum, we will begin developing the Pocket-Spec PC. We believe that we can
complete development of the Pocket-Spec PC if we achieve the maximum proceeds.
(3) To be used to repay loans from affiliates, Advanced Gas & Oil, Inc.
and Simply Aloe, LLC. As of December 31, 2000, these amounts total $10,996. We
may borrow additional funds during the coming fiscal year in a total amount not
to exceed $100,000 and plan to use proceeds of this Offering to repay these
loans up to $100,000 on the proceeds. We have yet not identified the lenders, if
any. Any proceeds not used for loans will be allocated first to product
development and then to working capital.
(4) The amount and timing of working capital expenditures may vary
significantly depending upon numerous factors such as:
- Revenues generated from anticipated operations,
- The development of marketing and sales resources,
- Administrative and legal expenses, and
- Other requirements not now known or estimable.
Future events which are now unforeseen may require a change in the
allocation of the net proceeds. Any changes in proposed expenditures will be
made at the discretion of our Board of Directors. Until we use the net proceeds
for the above purposes, we intend to invest such funds in short-term
interest-bearing investment grade obligations and deposit accounts.
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We believe that our available cash and existing sources of funding,
together with the minimum proceeds of this Offering and interest earned thereon,
will be adequate to maintain our current and planned operations for at least the
next year.
LITIGATION
We are not aware of any legal matter or claim pending or threatened
that would have a material adverse effect on our consolidated financial position
or results of operations. There are no other legal proceedings, to which we are
a party, which could have a material adverse effect on us.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the notes thereto appearing in this Prospectus under
Forward-Looking Statements
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS REGARDING
US, OUR BUSINESS, PROSPECTS AND RESULTS OF OPERATIONS THAT ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES POSED BY MANY FACTORS AND EVENTS THAT COULD
CAUSE OUR ACTUAL BUSINESS, PROSPECTS AND RESULTS OF OPERATIONS TO DIFFER
MATERIALLY FROM THOSE THAT MAY BE ANTICIPATED BY SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT MAY AFFECT SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION: THE IMPACT OF COMPETITION ON OUR REVENUES, CHANGES IN LAW OR
REGULATORY REQUIREMENTS THAT ADVERSELY AFFECT OR PRECLUDE CUSTOMERS FROM USING
OUR PRODUCTS FOR CERTAIN APPLICATIONS; AND FAILURE BY US TO ADEQUATELY DEVELOP
OR TO KEEP PACE WITH EMERGING TECHNOLOGIES.
WHEN USED IN THIS DISCUSSION AS WELL AS IN OTHER ITEMS IN THIS
PROSPECTUS, WORDS SUCH AS "BELIEVES", "ANTICIPATES", "EXPECTS", "INTENDS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, BUT ARE
NOT THE EXCLUSIVE MEANS OF IDENTIFYING FORWARD-LOOKING STATEMENTS. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
SPEAK ONLY AS OF THE DATE OF THIS REPORT. WE UNDERTAKE NO OBLIGATION TO REVISE
ANY FORWARD-LOOKING STATEMENTS IN ORDER TO REFLECT EVENTS OR CIRCUMSTANCES THAT
MAY SUBSEQUENTLY ARISE. READERS ARE URGED TO CAREFULLY REVIEW AND CONSIDER THE
VARIOUS DISCLOSURES MADE BY US IN THIS REPORT AND OTHER REPORTS TO BE FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION THAT ATTEMPT TO ADVISE INTERESTED PARTIES
OF THE RISKS AND FACTORS THAT MAY AFFECT OUR BUSINESS.
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Results of Operations
For the fiscal year ended December 31, 2000, which includes from our
date of inception on January 1, 2000, we generated no revenues. We had a net
loss of $356,469, or a loss of $0.21 per share for this period. For this same
period, we had total operating expenses of $358,969, which includes expense for
stock-based compensation of $314,209.. We expect the expense for stock-based
compensation to be non-recurring. As a result, we believe that we can operate
with minimal overhead for the foreseeable future.
We have never been profitable. Our principal expenses are directed
toward attempting to bring our color comparison technology to market. Aside from
our stock-based compensation, our losses to date have resulted primarily from
general and administrative expenses and the costs associated with the
development of our products. We expect to incur significant costs in the
foreseeable future in the development of our technology, the full amount of
which we cannot determine at this time. We also expect to incur significant
costs in the marketing of any products derived from this technology. With the
exception of our expenses in developing our technology, we do not believe that
our business would require a substantial overhead. If necessary, we would
curtail our development activities so that we could continue our minimal
operations indefinitely. As of December 31, 2000, our accumulated deficit was
$356,469.
Our accountants have raised the issue of whether we can continue as a
going concern. We plan to address this issue by operating with minimal overhead
and using such funds as we get from our fund raising activities from time to
time to pay for the development of our products. For the foreseeable future, we
expect to rely principally upon our past private placement fund raising, our
ability to borrow funds, the exercise of outstanding stock options, the proceeds
of this Offering, and our cash flow. We cannot guarantee the success of this
plan. There can be no guaranty that additional funds will be available when, and
if, needed. If we are unable to obtain such financing, or if the terms thereof
are too costly, we may be forced to curtail proposed expansion of operations
until such time as alternative financing may be arranged.
If we succeed in developing our technology and then generating
sufficient revenues, we may become profitable. We cannot guarantee that this
will ever occur.
Liquidity and Capital Resources
As of the end of our fiscal year, December 31, 2000, which includes
from our date of inception on January 1, 2000, we had cash of $5,393 and no cash
equivalents.
With the minimum proceeds of this Offering we feel that we will have
sufficient working capital to pursue our business for one year, which includes
limited development of our technology. During the next twelve months, we plan to
investigate an offering of our securities, whether through a private placement
and the exercise of our outstanding stock options. At the present time, we have
no firm arrangements with regard to any private placement. However, we will
attempt to have as
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many of our options exercised as possible. We do not intend to pay dividends in
the foreseeable future.
MANAGEMENT
Our Directors and Executive Officers, their ages and present positions
held as of December 31, 2000, are as follows:
NAME AGE POSITION HELD
------------------- --- -------------
F. Jeffrey Krupka 45 President, Chief Executive Officer
And Director
Cynthia Kettl 53 Chief Financial Officer, Secretary and
Director
James L. Sanderson 53 Vice President and Director
Gary Emerson 57 Director
Gregg Wagner 42 Director
Patricia Detko 56 Treasurer
Our Directors will serve in such capacity until our next annual meeting
of shareholders and until their successors have been elected and qualified. The
officers serve at the discretion of our Directors. There are no family
relationships among our officers and directors, nor are there any arrangements
or understandings between any of our directors or officers or any other person
pursuant to which any officer or director was or is to be selected as an officer
or director.
F. Jeffrey Krupka. Mr. Krupka has been our President and a Director
since inception. He has also been the Chief Executive Officer of Real Estate
Opportunities, Inc., a public company, since 1999. He has been the Chief
Executive Officer of Platinum Financial Fund, LLC, a private investment company,
since 1998. From October, 1995 to the present, he has been the owner of Krupka
and Associates, LLC., a private investment company. He is a director of several
private companies: Cape Aloe Corp.; Asset Realization, Inc. and Advanced Gas and
Oil, Inc. He has been involved in real estate as well as securities investment
activities since 1981.
Cynthia Kettl. Ms. Kettl been our Chief Financial Officer, Secretary
and a Director inception. She was also our Treasurer from inception until
November 10, 2000. She has also been the Secretary-Treasurer of Real Estate
Opportunities, Inc., a public company, since 1999. She has been involved with
Platinum Financial Fund, LLC, a private investment company, since 1998. From
October, 1995 to 1998, she was employed by Krupka and Associates, LLC., a
private investment company. She is and officer and director of several private
companies: Cape Aloe
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Corp.; Asset Realization, Inc. and Advanced Gas and Oil, Inc. Ms. Kettl received
a Bachelor's degree in Business Management from Metropolitan State College in
1981, a Bachelor's degree in Accounting from Metropolitan State College in
1998, and an Associates Degree in Business from Community College North Denver
in 1978.
James L. Sanderson. Mr. Sanderson has been our Vice President and one
of our Directors since May 2, 2000. From 1997 to the present, he has been a
senior investment advisor with Harvestons Securities, Denver, Colorado. From
1990 to 1997, he was a stock broker with Chatfield Dean Securities, Denver,
Colorado. From 1975 to 1990, he was President and Chief Executive Officer of New
Systems Molding Corporation, a plastic injection molding company. From 1971 to
1975, he was the founder and President of Bota of Boulder, Colorado, a leather
goods manufacturer. Mr. Sanderson is also currently a Director of American Tire,
of Boulder City, Nevada, a public company. He is and officer and director of
several private companies: Cape Aloe Corp.; Asset Realization, Inc. and Advanced
Gas and Oil, Inc.
Gary Emerson. Mr. Emerson has been one of our Directors since November
13, 2000. From 1995 to the present, he has been a CCD test engineer at Ball
Aerospace Corp. in Boulder, Colorado. From 1987 to the present, he has also
owned Emerson Enterprises, a private consulting firm specializing in the design
and fabrication of optical and electro-optical instruments for use in industry
and science. From 1992 to 1994, he was a part-time lecturer for the Colorado
Space Grant Consortium at the University of Colorado. Mr. Emerson has attended
Arizona Western College, New Mexico State University, and the University of
Colorado. He is a member of the Astronomical Society of the Pacific, the
Planetary Society, the Optical Society of America, and the American Association
of Variable Star Observers.
Gregg Wagner. Mr. Wagner has been one of our Directors since November
13, 2000. From 1998 to the present, he has been the owner and design consultant
for LOMA, Incorporated, a private firm which produces optical products. From
1993 to 1998, he was Senior Mechanical Design Engineer for IVI Corporation, a
private mechanism, illuminator, and optics design firm. He has been involved
with optical design since 1979. He holds one patent and has five patents pending
in the optical design area. Mr. Wagner attended the University of Colorado.
Patricia Detko. Mrs. Detko has been our Treasurer since November 10,
2000. She has been associated with Platinum Financial Fund for over the past
year. She has over twenty years experience in the accounting field, with
particular emphasis on cost accounting and budget analysis. Mrs. Detko obtained
her Bachelor of Science Degree in Accounting from Drake University in 1965 and
has received continuing education certificates pertaining to tax preparation and
auditing.
EXECUTIVE COMPENSATION
Except in the one instance indicated below, none of our executive
officers received any cash compensation during the fiscal year ended December
31, 2000, which includes from our date of inception on January 1, 2000. We did
provide substantial stock-based compensation and stock options to our executive
officers and directors during this period. Compensation does not include
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minor business-related and other expenses paid by us. Such amounts in the
aggregate do not exceed $1,000. Our executive officers serve on a part-time
basis.
The following table sets forth the Summary Compensation Table for our
Chief Executive Officer and the remainder of our executive officers and
directors who were serving at December 31, 2000. No other compensation not
covered in the following table was paid or distributed by the Company to such
persons during the period covered. Employee Directors received stock
compensation for service on the Board of Directors. Directors who are not
employees received stock options.
Annual Compensation Long Term Compensation
------------------- ----------------------
Other
Annual LTIP All
Compen- Restricted Options Other
Salary sation Stock SARs Compen-
Name Position 2000 $ Bonus $ Awards sation $(3)
- ---- -------- ------ ------- ----- ---------- ------- ------------
F. Jeffrey Krupka President -0- (1) (7)
Cynthia Kettl Secretary -0- (2) (8)
James L. Sanderson Vice President -0- (3) (9)
Gary Emerson Director -0- (4) (10)
Gregg Wagner Director $2,000 (5) (11)
Patricia Detko Treasurer -0- (6) (12)
(1) We issued 566,961 personally to Mr. Krupka, including 9,256 shares owned
jointly with his wife, Janet Brophy. We also issued a total of 448,878 shares to
Platinum Financial Fund, LLC, 15,000 shares to Wraith Moon House, LLC., and
100,000 shares to Cape Aloe Corp, all entities which Mr. Krupka controls. Mr.
Krupka was allocated stock-based compensation of $78,126.00 for these issuances.
(2) We issued 51,150 shares to Ms. Kettl in stock-based compensation. We
allocated $7,672.50 in stock-based compensation for these issuances.
(3) We issued 150,000 shares to Mr. Sanderson in stock-based compensation. We
allocated $20,000.00 in stock-based compensation for these issuances.
(4) We issued 286,164 shares to Mr. Emerson in stock-based compensation. We
allocated $12,924.60 in stock-based compensation for these issuances.
(5) We issued 316,164 shares to Mr. Wagner, broken out as follows: 211,164
shares directly to Mr. Wagner and 105,000 shares were issued to eight of Mr.
Wagner's direct relatives. We allocated $17,424.60 in stock-based compensation
for these issuances.
(6) We issued 50,000 shares to Ms. Detko in stock-based compensation. We
allocated $7,500.00 in stock-based compensation for these issuances.
(7) We issued 50,000 shares of stock options priced at $0.15 per share to Mr.
Krupka, which expire on 12/31/01. We allocated $0.00 in stock-based compensation
for these issuances. We also issued 300,000 shares of stock options priced at
$0.15 per share to Platinum Financial Fund, LLC, a company controlled by Mr.
Krupka, which expire on 12/31/01. We allocated $18,600.00 in stock-based
compensation for these issuances. Mr. Krupka has exercised 5,000 shares as of
12/31/00. We issued 50,000 shares of stock options priced at $0.15 per share to
Janet Brophy, Mr. Krupka's wife, and 40,000 shares priced at $0.175 per share,
all of which expire on 12/31/01. We allocated $3,000.00, in stock-based
compensation for the issuance of the 40,000 share options.
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(8) We issued 25,000 shares of stock options priced at $0.15 per share to Ms.
Kettl which expire on 12/31/01. Ms. Kettl has exercised 1,000 shares as of
12/31/00.
(9) We issued 50,000 shares of stock options priced at $0.15 per share to Mr.
Sanderson, which expire on 12/31/01 and 200,000 shares of stock options priced
at $0.15 per shares which expire on 5/2/01. Mr. Sanderson's wife, Bonnie, also
has a stock option for 25,000 shares priced at $0.15 per share, which expires on
12/31/01. Mr. Sanderson's daughter, Mallory, also has a stock option for 25,000
shares priced at $0.175 per share, which expires on 12/31/01.
(10) We issued 137,500 shares of stock options priced at $0.175 per share to Mr.
Emerson, which expire on 12/31/01.
(11) We issued 137,500 shares of stock options priced at $0.175 per share to Mr.
Wagner, which expire on 12/31/01.
(12) We issued 50,000 shares of stock options priced at $0.175 per share to Ms.
Detko, which expire on 12/31/01.
Other Stock Options
We have granted other stock options to employees and consultants. All
stock options expire on 12/31/01 and are exercisable at $0.15 per share.
Name Amount of Shares Under Option
Frank Krupka 25,000
Paige Linn Sapp 25,000
Rebecca A. Schmid 25,000
We have also granted stock options which expire on 12/31/01 and are
exercisable at $0.175 per share.
Name Amount of Shares Under Option
Robert Stewart 5,000
Andy Rogowski 5,000
Jim Fox 5,000
Edwin Crabtree 30,000
Gayle Strong 30,000
Lucia Fox 10,000
Graham Nott 25,000
We also granted stock options which expire on 12/31/01 and are
exercisable at $0.35 per share.
Name Amount of Shares Under Option
Robert Stewart 5,000
Andy Rogowski 5,000
R. K. Bunce 5,000
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Additionally, we granted stock options which expire on 12/31/01 that
are exercisable at $0.50 per share.
Name Amount of Shares Under Option
Robert Stewart 5,000
Andy Rogowski 5,000
Compensation Committee Interlocks and Insider Participation
We have no Committees of our Board of Directors. All Compensation
decisions are made directly by our Board of Directors.
We have no plans or agreements which provide health care, insurance or
compensation on the event of termination of employment or change in our control.
Other than with stock options already issued, we do not pay members of
our Board of Directors any fees for attendance or similar remuneration, but
reimburse them for any out-of-pocket expenses incurred by them in connection
with our business.
OTHER COMPENSATION
The following sets forth the amount of compensation, if any, to be paid
to personnel in accordance with the terms of certain employment agreements. The
compensation will be paid by the Company in addition to stock options already
issued. All compensation is computed as a percentage to net income before taxes
and is subject to withholding tax. Additionally, a deduction for fifty percent
(50%) of capital expenses will be deducted from net income prior to computing
the percentage of compensation to be paid. Capital expense is defined as any
money or cash invested in the business of the company. The Company shall pay the
compensation during the year the income is earned.
Personnel Percent of Net Income
--------- ---------------------
Bonnie Sanderson 1%
Mallory Sanderson 1%
James L. Sanderson 7%
Graham Nott 1%
Gary Emerson 10%
Stanley Hallman 1%
Gregg Wagner 10%
F. Jeffrey Krupka 7%
Joseph Murr 1%
Pat Detko 1%
Platinum Financial Fund, LLC 1%
Cynthia Kettl 2%
Janet Brophy 1%
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Mr. Krupka also receives compensation in the amount of 25% on the net
profits from the sale of any of our assets sold in any fiscal year or $6,000,
whichever is greater. The percentage of net profit is computed after deducting
the percentage of net income paid to all other persons who receive percentages
of net income.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth the number of shares of our $0.001 par value
common stock beneficially owned by (i) each person who, as of December 31, 2000,
was known by us to own beneficially more than five percent (5%) of our common
stock; (ii) our individual Directors and (iii) our Officers and Directors as a
group. A total of 3,092,625 common shares were issued and outstanding as of
December 31, 2000.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) CLASS
- ------------------- --------------------------- ----------
F. Jeffrey Krupka 566,961(3) 18.33%
3225 East 2nd Ave
Denver, Colorado 80206
Cynthia Kettl 52,230(4) 1.69%
3225 East 2nd Ave
Denver, Colorado 80206
James L. Sanderson 150,000(5) 4.85%
3225 East 2nd Ave
Denver, Colorado 80206
Gary Emerson 286,164(6) 9.25%
3225 East 2nd Ave
Denver, Colorado 80206
Gregg Wagner 316,164(7) 10.22%
3225 East 2nd Ave
Denver, Colorado 80206
Pat Detko 50,000(8) 1.62%
3225 East 2nd Ave
Denver, Colorado 80206
Platinum Financial Fund, LLC 448,878(9) 14.51%
3225 East 2nd Ave.
Denver, Colorado 80206
All Officers and Directors as
a Group (Six persons) 1,421,519 45.96%
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(1) All ownership is beneficial and on record, unless indicated otherwise.
(2) Beneficial owners listed above have sole voting and investment power
with respect to the shares shown, unless otherwise indicated.
(3) Includes all shares owned of record by Mr. Krupka, including 9,256
shares owned jointly with his wife, Janet Brophy, but does not
include 154,398 shares owned of record by Ms. Brophy, 77,250 owned of
record by their children, 448,878 shares owned of record by Platinum
Financial Fund, LLC, 90,000 shares owned of record by Asset
Realization, Inc., 15,000 shares owned by Wraith Moon House, LLC, 6,324
shares owned of record by B7 Brand, LLC, and 100,000 shares owned by
Cape Aloe Corp., for all of which Mr. Krupka disclaims direct
beneficial ownership. In addition, Mr. Krupka personally has 50,000
shares of stock options priced at $0.15 per share to Mr. Krupka, which
expire on 12/31/01. Mr. Krupka has exercised 5,000 shares as of
12/31/00. Ms. Brophy also has 50,000 shares of stock options priced at
$0.15 per share and 40,000 shares priced at $0.175 per share, all of
which expire on 12/31/01. Mr. Krupka disclaims beneficial ownership on
her options.
(4) Ms. Kettl holds 25,000 shares of stock options priced at $0.15 per
share, which expire on 12/31/01. Ms. Kettl has exercised 1,000 shares
as of 12/31/00.
(5) Mr. Sanderson holds 50,000 shares of stock options priced at $0.15 per
share, which expire on 12/31/01 and 200,000 shares of stock options
priced at $0.15 per shares which expire on 5/2/01. Mr. Sanderson's
wife, Bonnie, also has a stock option for 25,000 shares priced at $0.15
per share, which expires on 12/31/01. Mr. Sanderson's daughter,
Mallory, also has a stock option for 25,000 shares priced at $0.175 per
share, which expires on 12/31/01. Mr. Sanderson disclaims any
beneficial ownership to his wife's and daughter's options.
(6) Mr. Emerson holds 137,500 shares of stock options priced at $0.175 per
share, which expire on 12/31/01.
(7) Does not include 95,000 shares owned of record by members of Mr.
Wagner's family, for which he disclaims beneficial ownership. Mr.
Wagner holds 137,500 shares of stock options priced at $0.175 per
share, which expire on 12/31/01.
(8) Ms. Detko holds 25,000 shares of stock options priced at $0.175 per
share, which expire on 12/31/01.
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(9) Owned of record by Platinum Financial Fund, LLC.. Mr. Krupka and his
wife own 100% of the entity which owns 51% of Platinum Financial Fund,
LLC. Mr. Krupka is also the Manager of Platinum Financial Fund, LLC.
Platinum Financial Fund, LLC also holds stock options for 300,000
shares at $0.15 per share, which expire on 12/31/01.
CERTAIN TRANSACTIONS
Our business office is located at 3225 East 2nd Ave., Denver, Colorado
80206. We pay $750 per month, plus one per cent of our net income to an
affiliate, Platinum Financial Fund, for non-exclusive use of this office space
and equipment, under a five year agreement from October 1, 2000, plus the actual
expenses of telephone and fax.
On February 3, 2000, we paid an affiliate, Platinum Financial Fund,
$38,498 for a right to receive proceeds from the sale of 13,038 shares of
American Tire Corporation common stock. On May 5, 2000, we paid an affiliate,
Platinum Financial Fund, an additional $3,000 for a right to receive proceeds
from the sale of 248,163 additional shares of American Tire Corporation common
stock. Mr. Sanderson, one of our Directors, also was a Director of American Tire
Corporation and resigned during the later of year 2000, which is a public
company traded on the over-the-counter Bulletin Board. American Tire Corporation
has no affiliation with us.
On January 20, 2000, we arranged to pay all of the legal costs and
expenses of an affiliate, Platinum Financial Fund, in connection with a civil
action brought by Platinum Financial Fund to obtain title to certain real
estate. Under the terms of our arrangement, once Platinum Financial Fund
acquired title to the real estate and sold it, we would receive a minimum of
$20,000 from the sale of the real estate, or a fifty percent share of proceeds,
whichever is greater. We advanced a total of $10,000 in legal costs. On December
22, 2000, Platinum Financial Fund received title to the real estate. As of
December 31, 2000, the real estate has not been sold.
We have received loans from affiliated companies Advanced Gas & Oil,
Inc. and Simply Aloe, LLC. These companies have a common ownership with Platinum
Financial Fund. We gave unsecured promissory notes which mature in the fourth
quarter of 2001 and have an interest rate of 30%. As of December 31, 2000, the
total amount payable under all of the notes was $10,996.
TRADING MARKET AND RELATED MATTERS
PRINCIPAL MARKET
Our securities have never been listed for trading on any market and are
not quoted at the present time. At the present time, we do not know where
secondary trading will eventually be conducted. Because of our size, we believe
that we could potentially begin trading on the NASD's "Electronic Bulletin
Board." To the extent, however, that trading will be conducted in the over-the-
counter market in the so-called "pink sheets" or the NASD's "Electronic Bulletin
Board," a shareholder may find it more difficult to dispose of or obtain
accurate quotations as to price of our securities. In addition, The Securities
Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure
related to the market for penny stock and for trades in any stock defined as a
penny stock.
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APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of December 31, 2000, we had a total of 3,092,625 shares of our
Common Stock outstanding and the number of holders of record of our common stock
at that date was approximately twenty.
DIVIDENDS
Holders of common stock are entitled to receive such dividends as may
be declared by our Board of Directors. No dividends on the common stock were
paid by us during the periods reported herein nor do we anticipate paying
dividends in the foreseeable future.
THE SECURITIES ENFORCEMENT AND PENNY STOCK REFORM ACT OF 1990
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure and documentation related to the market for penny stock
and for trades in any stock defined as a penny stock. Unless we can acquire
substantial assets and trade at over $5.00 per share on the bid, it is more
likely than not that our securities, for some period of time, would be defined
under that Act as a "penny stock." As a result, those who trade in our
securities may be required to provide additional information related to their
fitness to trade our shares. These requirements present a substantial burden on
any person or brokerage firm who plans to trade our securities and would thereby
make it unlikely that any liquid trading market would ever result in our
securities while the provisions of this Act might be applicable to those
securities.
DESCRIPTION OF SECURITIES
We are authorized to issue 50,000,000 shares of Common Stock, par value
$0.001 per share, and 1,000,000 shares of non-voting Preferred Stock, par value
$1.00 per share, to have such classes and preferences as our Board of Directors
may determine from time to time. As of December 31, 2000, we had 3,092,625
shares of Common Stock issued and outstanding. No Preferred Stock has ever been
issued or outstanding.
COMMON STOCK
The holders of Common Stock have one vote per share on all matters
(including election of Directors) without provision for cumulative voting. Thus,
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors, if they choose to do so. The Common Stock is not
redeemable and has no conversion or preemptive rights.
The Common Stock currently outstanding is validly issued, fully paid
and non-assessable. In the event of liquidation of the Company, the holders of
Common Stock will share equally in any balance of the Company's assets available
for distribution to them after satisfaction of creditors and the holders of the
Company's senior securities, whatever they may be. The Company may pay
24
29
dividends, in cash or in securities or other property when and as declared by
the Board of Directors from funds legally available therefore, but has paid no
cash dividends on its Common Stock.
PREFERRED STOCK
Under our Articles of Incorporation, our Board of Directors has the
authority to issue non-voting Preferred Stock and to fix and determine its
series, relative rights and preferences to the fullest extent permitted by the
laws of the State of Colorado and such Articles of Incorporation. As of the date
of this Registration Statement, no shares of Preferred Stock are issued or
outstanding. The Board of Directors has no plan to issue any Preferred Stock in
the foreseeable future.
TRANSFER AGENT
We have appointed Corporate Stock Transfer, Inc., 3200 Cherry Creek
Drive, Suite 430, Denver, Colorado 80209 as our transfer agent. Their phone
number is (303) 282-4800.
LEGAL MATTERS
David Wagner & Associates, P.C., Attorneys at Law, Englewood, Colorado,
has rendered its opinion that the securities offered pursuant to this Prospectus
will, when issued as described in this Prospectus, be duly authorized, validly
issued, fully paid and non-assessable shares. Affiliates of this firm own a
total of 100,000 of our Common shares.
EXPERTS
The financial statements included in this Prospectus have been examined
by Cordovano and Harvey, P.C. independent certified public accountant, as set
forth in their report herein and are included herein in reliance upon the
authority of said firm as an expert in accounting and auditing.
AVAILABLE INFORMATION.
We will file reports, proxy statements and other information with the
SEC, and these reports may be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, NW., Judiciary Plaza,
Washington, D.C. 20549. You may obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. The same information
may be obtained at the following Regional Offices of the SEC: 75 Park Place, New
York, New York 10007, and the Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60621. Copies of such material may be obtained
from the Public Reference Section of the SEC's Washington, D.C. office at
prescribed rates. We have filed a registration statement on Form SB-2, of which
this prospectus is a part, with the SEC. This registration statement or any part
thereof may also be inspected and copied at the public reference facilities of
the SEC.
25
30
COLOR-SPEC TECHNOLOGIES, INC.
Financial Statements
December 31, 2000
(With Independent Auditors' Report Thereon)
31
COLOR-SPEC TECHNOLOGIES, INC
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
Page
----
Independent Auditors' Report ................................................... F-2
Balance Sheet, December 31, 2000 ............................................... F-3
Statement of Operations, for the Year Ended
December 31, 2000 ........................................................ F-4
Statement of Changes in Shareholders' Equity, January 1, 2000
(date of inception) through December 31, 2000 ............................ F-5
Statement of Cash Flows, for the Year Ended
December 31, 2000 ........................................................ F-6
Notes to Financial Statements .................................................. F-7
F-1
32
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and shareholders
Color-Spec Technologies, Inc.
We have audited the accompanying balance sheet of Color-Spec Technologies, Inc.
(formerly Litigation Factoring Group, Inc.) as of December 31, 2000 and the
related statements of operations, shareholders' equity, and cash flows for the
year ended December 31, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Color-Spec Technologies, Inc.
as of December 31, 2000, and the results of its operations and its cash flows
for the year ended December 31, 2000 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company's incurred a net loss during the year ended December 31, 2000, and
as of that date, had a net working capital deficiency. Those conditions, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result form the outcome of this uncertainty.
As discussed in Note 2 to the financial statements, the Company has conducted a
significant number of transactions with related parties. Such transactions
cannot be presumed to have been conducted on an arms-length basis.
Cordovano and Harvey, P.C.
Denver, Colorado
January 19, 2001
F-2
33
COLOR-SPEC TECHNOLOGIES, INC
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 2000
ASSETS
Current assets:
Cash ................................................................ $ 5,393
---------
Total current assets ........................................ 5,393
Intangible assets (Note 3):
Patent and trademark application costs .............................. 67,597
Other assets (Note 2):
Participation interests, acquired from related party ................ 14,260
---------
$ 87,250
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable (Notes 2&4):
Accounts payable, trade ......................................... $ 18,038
Accounts payable, related party ................................. 2,500
Notes payable:
Related parties ............................................. 10,996
Other ....................................................... 5,000
Other current and accrued liabilities:
Accrued interest ................................................ 839
Other accrued liabilities ....................................... 1,396
---------
Total current liabilities ................................... 38,769
---------
Commitments (Note 7)
Shareholders' equity (Notes 2&5):
Preferred stock, $1.00 par value, 1,000,000 shares authorized,
-0- shares issued and outstanding ............................... --
Common stock, $0.001 par value, 50,000,000 shares authorized,
3,092,625 shares issued and outstanding ......................... 3,093
Additional paid-in capital .......................................... 424,665
Common stock options to purchase 560,000 shares of common stock ..... 63,480
Deferred offering costs ............................................. (46,538)
Related party receivable ............................................ (39,750)
Deficit accumulated during the development stage .................... (356,469)
---------
Total shareholders' equity .................................. 48,482
---------
$ 87,250
=========
See accompanying notes to financial statements
F-3
34
COLOR-SPEC TECHNOLOGIES, INC
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 2000 (DATE OF INCEPTION-JANUARY 1, 2000)
Operating expenses:
General and administrative ................................ $ 26,422
General and administrative-related parties (Note 2) ....... 17,250
Stock based compensation (Note 5)
Consulting ........................................... 1,800
Consulting, related parties .......................... 5,660
Personnel costs ...................................... 21,950
Organization costs ................................... 3,000
Stock options ........................................ 63,480
Other general and administrative ..................... 218,319
Research and development .................................. 1,088
-----------
Total operating expenses .................... 358,969
-----------
Operating loss .............................. (358,969)
Other income (Note 2):
Gain on disposition of participation interest ............. 2,500
-----------
Loss before income taxes .................... (356,469)
Provision for income taxes (benefit) (Note 6) ................... --
-----------
Net loss .................................... $ (356,469)
===========
Net loss per share:
Basic and diluted ......................................... $ (0.21)
===========
Number of shares used for computing net loss per share .... 1,728,798
===========
See accompanying notes to financial statements
F-4
35
COLOR-SPEC TECHNOLOGIES, INC
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2000
JANUARY 1, 2000 (DATE OF INCEPTION) THROUGH
DECEMBER 31, 2000
OUTSTANDING
COMMON STOCK ADDITIONAL COMMON DEFERRED
---------------------- PAID IN STOCK OFFERING
SHARES PAR VALUE CAPITAL OPTIONS COSTS
--------- ----------- ---------- ----------- ---------
Balance January 1, 2000 (Date of Inception) ...... -- $ -- $ -- $ -- $ --
Sale of common stock pursuant to
Company's organization (Note 5) ........................ 861,000 861 22,149 -- --
Sale of common stock (Note 5) .............................. 241,604 242 18,508 -- --
Stock-based compensation recognized on the
above sales (Note 5) ................................... -- -- 123,630 -- --
Sale of common stock, net of offering costs
of $11,897 pursuant to private offering (Note 5) ....... 341,693 342 39,015 -- --
Excess paid over historical cost for
participation interests acquired from
related parties (Note 2) ............................... -- -- (24,238) -- --
Shares of common stock issued
in exchange for services (Note 5) ...................... 702,328 702 104,647 -- --
Shares of common stock issued
in exchange for intellectual property
valued at historical cost (Note 5) ..................... 405,000 405 60,345 -- --
Shares of common stock issued
in exchange for offering costs (Note 5) ................ 100,000 100 14,900 -- (15,000)
Shares of common stock issued
in exchange for receivable (Note 5) .................... 265,000 265 39,485 -- --
Shares of common stock issued in exchange for
services (Note 5) ...................................... 145,000 145 21,605 -- --
Grant of options to purchase 1,275,000
shares of common stock (Note 5) ........................ -- -- -- 63,480 --
Exercise of common stock options (Note 5) .................. 31,000 31 4,619 -- --
Offering costs deferred .................................... -- -- -- -- (31,538)
Net loss for the period ............................. -- -- -- -- --
--------- --------- --------- --------- ---------
Balance December 31, 2000 .... 3,092,625 $ 3,093 $ 424,665 $ 63,480 $ (46,538)
========= ========= ========= ========= =========
DEFICIT
ACCUMULATED
DURING THE
SHAREHOLDER DEVELOPMENT
RECEIVABLE STAGE TOTAL
----------- ----------- ---------
Balance January 1, 2000 (Date of Inception) ...... $ -- $ -- $ --
Sale of common stock pursuant to
Company's organization (Note 5) ........................ -- -- 23,010
Sale of common stock (Note 5) .............................. -- -- 18,750
Stock-based compensation recognized on the
above sales (Note 5) ................................... -- -- 123,630
Sale of common stock, net of offering costs
of $11,897 pursuant to private offering (Note 5) ....... -- -- 39,357
Excess paid over historical cost for
participation interests acquired from
related parties (Note 2) ............................... -- -- (24,238)
Shares of common stock issued
in exchange for services (Note 5) ...................... -- -- 105,349
Shares of common stock issued
in exchange for intellectual property
valued at historical cost (Note 5) ..................... -- -- 60,750
Shares of common stock issued
in exchange for offering costs (Note 5) ................ -- -- --
Shares of common stock issued
in exchange for receivable (Note 5) .................... (39,750) -- --
Shares of common stock issued in exchange for
services (Note 5) ...................................... -- -- 21,750
Grant of options to purchase 1,275,000
shares of common stock (Note 5) ........................ -- -- 63,480
Exercise of common stock options (Note 5) .................. -- -- 4,650
Offering costs deferred .................................... -- -- (31,538)
Net loss for the period ............................. -- (356,469) (356,469)
--------- --------- ---------
Balance December 31, 2000 .... $ (39,750) $(356,469) $ 48,481
========= ========= =========
See accompanying notes to financial statements
F-5
36
COLOR-SPEC TECHNOLOGIES, INC
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(DATE OF INCEPTION-JANUARY 1, 2000)
Cash flows from operating activities:
Net loss ....................................................................... $(356,469)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation (Note 5) .......................................... 314,209
(Gain) on disposal of participation interest (Note 2) ...................... (2,500)
Changes in current assets and current liabilities:
Deferred and prepaid items ............................................. (32,388)
Accounts payable and accrued liabilities ............................... 22,774
---------
Net cash used by operating activities .............................. (54,374)
---------
Cash flows from investing activities (Notes 2&3):
Cash paid for participation interest in ATC common stock, acquired from
related party .............................................................. (41,498)
Cash received on disposition of participation interest acquired from
related party .............................................................. 5,500
Legal fees paid for patent and trademark ....................................... (6,847)
---------
Net cash used by investing activities .............................. (42,845)
---------
Cash flows from financing activities (Notes 2&5):
Proceeds from the sale of common stock, net of offering costs .................. 81,967
Proceeds from the exercise of common stock options ............................. 4,650
Proceeds from debt issued to related party ..................................... 10,995
Proceeds from debt issuance .................................................... 5,000
---------
Net cash provided by financing activities .......................... 102,612
---------
Net change in cash .................................................................. 5,393
Cash at beginning of period ......................................................... --
---------
Cash at end of period .............................................. $ 5,393
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................................... --
=========
Income taxes ............................................................... --
=========
Noncash Investing and Financing Activities:
Common stock issued for deferred compensation (Note 5) ..................... $ 105,349
=========
Common stock issued for shareholder receivable(Note 5) ..................... $ 39,750
=========
Excess of purchase price over historical cost basis of
ATC common stock acquired from related party (Note 2) .................. $ 24,238
=========
Common stock issued for intellectual rights (Note 5) ....................... $ 60,750
=========
See accompanying notes to financial statements
F-6
37
COLOR-SPEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BASIS OF PRESENTATION
Color-Spec Technologies, Inc. (the "Company") was incorporated on
January 1, 2000 to assist in funding costs associated with
litigation proceedings. During September 2000, the Company revised
its business plan and on October 1, 2000, the Company changed its
name from Litigation Factoring Group, Inc. The Company has not
commenced operations and accordingly, is a development stage
enterprise in accordance with Statements of Financial Accounting
Standards (SFAS) No. 7 "Accounting for Development Stage
Enterprises". The nature of the Company's development stage
activities is to obtain exclusive use of its intellectual property
and to establish operations to become a manufacturer of a product
line of color comparing instruments.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. The Company has
suffered a significant operating loss since inception and as of
December 31, 2000, the Company has a net working capital
deficiency. Further, inherent in the Company's business are
various risks and uncertainties associated with a new venture.
Those risks include its limited operating history, historical
operating losses, dependence upon strategic alliances, and the
need for additional financing to implement it business plan. Those
conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management plans to offer shares of
its common stock to the public (See Note 5) in order to fund
operations through the development stage. However, the Company's
future success will be dependent upon its ability to manufacture a
competitive product line of color comparing instruments, the
market's acceptance of the product line and the Company's ability
to develop and provide new services that meet customers changing
requirements, including the effective use of leading technologies,
to continue to enhance its products, and to influence and respond
to emerging industry standards and other technological changes on
a timely and cost-effective basis.
(c) USE OF ESTIMATES
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(d) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid securities with original
maturities of three months or less when acquired to be cash
equivalents. No items are treated as cash equivalents in the
accompanying financial statements.
(e) INTANGIBLE ASSETS
Intangible assets are stated at cost. Amortization is calculated
using the straight-line method over the estimated useful lives of
the related intangible assets.
F-7
38
COLOR-SPEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(f) IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the carrying value of its long-lived assets
under the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS No. 121 requires impairment losses to be
recorded on long-lived assets used in operations, including
goodwill, when indicators of impairment are present and the
undiscounted future cash flows estimated to be generated by those
assets are less than the assets' carrying amount. In addition, the
recoverability of goodwill is further evaluated under the
provisions of APB Opinion No. 17, Intangible Assets, based upon
estimated fair value. If such assets are impaired, the impairment
to be recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying value
or fair value, less costs to sell.
(g) OFFERING COSTS
Legal, accounting and printing costs and filing fees incurred in
connection with the offering of its common stock are deferred by
the Company until the offering is closed. Upon closing, the
deferred offering costs are (1) subtracted from the offering
proceeds, if the offering is successful or (2) charged to
operations, if the offering is unsuccessful.
(h) INCOME TAXES
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (SFAS 109). SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
(i) LOSS PER COMMON SHARE
Basic loss per share excludes dilution and is computed by dividing
net loss by the weighted-average number of common shares
outstanding for the period. Diluted loss per share reflects the
potential dilution of securities that could share in earnings.
Common stock equivalents (options to acquire 1,244,000 shares of
common stock) are excluded from the computation of diluted loss
per share as their effect would have been anti-dilutive.
(j) RELATED PARTY TRANSACTIONS
Related Party Transactions cannot be presumed to have been
conducted on an arms-length basis.
F-8
39
COLOR-SPEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Transfer Pricing
Accounting standards under rules and regulations issued by the
Securities and Exchange Commission (SEC) require that transfers of
nonmonetary assets to a company by its promoters or significant
shareholders in exchange for stock prior to or at the time of the
company's initial public offering be recorded at the transferor's
historical cost basis determined under generally accepted
accounting principles. Accordingly, assets purchased from a
shareholder for an amount in excess of the shareholder's cost
basis are valued at the significant shareholder's cost basis in
the accompanying financial statements. The excess purchase price
over the shareholder's historical basis, if any, is accounted for
as a reduction of equity.
Sales of common stock to selected individuals at prices below $.15
per share
Sales of common stock to selected individuals at prices
substantially below the price paid by investors in the Company's
private offering, of $.15, include compensation expense.
(k) FINANCIAL INSTRUMENTS, CONCENTRATION OF CREDIT RISK AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET-RISK
The carrying amount of participation interests in the proceeds
from the future sale of ATC common stock is $14,260. The Company
has determined that it is not practicable to estimate the fair
value of the participation interest without incurring excessive
costs. A quoted market for the participation interest is not
available and the cost of an independent appraisal is excessive,
considering the materiality of the financial instrument. Based on
available market information and appropriate valuation
methodologies, that the fair value of the shares of American Tire
Corporation common stock subject to the participation interests
was $38,299 at December 31, 2000. Such market price fluctuates on
a daily basis and those fluctuations could be material. The
carrying amount of notes payable approximates fair value because
the interest rate on the debt are based on current market for
companies with similar credit ratings.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of participation interests.
As of December 31, 2000, the Company had concentrations of credit
risk in an affiliate the form of participation interests totalling
$14,260. Failure of the affiliate to perform under the terms of
the participation interest potentially subjects the Company to a
loss of up to $14,260.
The Company was a party to a financial instrument with off-balance
sheet-risk in the form of a commitment to pay all the legal costs
and expenses of litigation involving a lawsuit filed by an
affiliate in exchange for a share of the proceeds from the sale of
certain real estate that is the subject of the litigation. (See
Note 2). The amount of such commitment is not included in the
accompanying financial statements as the litigation was settled on
December 22, 2000 with no additional legal costs and expenses due.
F-9
40
COLOR-SPEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(l) STOCK BASED COMPENSATION
The Company accounts for stock-based compensation arrangements in
accordance with Statement of financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply
the provisions of Accounting Principle Board ("APB") Opinion No.
25 and provide pro forma net earnings (loss) disclosures for
employee stock option grants as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected
to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Shares issued for in exchange for services provided to the Company
by consultants and professionals are valued at the fair value of
the Company's common stock as determined by the board of
directors, after considering contemporaneous equity transactions
(cash sales to unrelated third-parties) and other analysis.
Compensation expense is recognized when shares of common stock are
sold to certain investors for nominal consideration. Compensation
expense is measured by the difference between the per share price
of common stock paid by unrelated third parties and the per share
price paid by the founders.
(m) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed, as incurred, in the
accompanying financial statements.
(2) RELATED PARTY TRANSACTIONS
PFF, Advanced Gas & Oil, Inc. (AGO) and Simply Aloe, LLC (SA) are
affiliates of the Company through common ownership.
Investment in PFF Participation Interests
PFF holds certain rights to the proceeds from the sale of American
Tire Corporation (ATC) common stock. The Company paid to PFF $41,498
in consideration of a "participation interest' in the proceeds from
the sales. ATC is an unaffiliated third party and its common stock is
traded in the OTC BB market. The transactions were recorded at PFF's
historical cost basis of $17,260. The acquisition of ATC common stock
by the Company has been accounted for based on the historical cost of
the ATC common stock purchased by the PFF. The excess of the purchase
price over PFF's historical cost, or $24,238, was accounted for as a
reduction in equity. On October 26, 2000, the Company received $5,500
from PFF resulting from a sale of shares of ATC stock that had a
carrying value of $3,000. The Company recognized a gain on the
transaction of $2,500. The remaining $14,260 is included in other
assets as participation interest in the proceeds from the sale of ATC
common stock in the accompanying financial statements.
F-10
41
COLOR-SPEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Funding PFF's Lawsuit
On January 20, 2000, the Company arranged to pay all of PFF's
legal costs and expenses in connection with a civil action brought
by PFF to obtain title to certain real estate. Under the terms of
this participation interest, should PFF succeed in its suit and
acquire title to the real estate, the Company would receive a
minimum of $20,000 from the ultimate disposition of the property,
or a 50 percent share of the proceeds from its eventual sale,
whichever is greater. On January 20, 2000, the Company paid legal
fees on behalf of PFF totalling $10,000. As of December 31, 2000,
legal costs incurred on behalf of PFF totalled $10,000. The legal
costs have been charged to operations in the accompanying
financial statements.
On December 22, 2000, the case was settled and PFF received title
to the property. However, as of December 31, 2000, the real estate
property had not been sold.
Office Rental Payments and Reimbursements to PFF for the Use of
Employees
The Company rents office space and equipment from PFF. For the
year ended December 31, 2000, the Company paid PFF $6,000 in rent.
At December 31, 2000, $2,250 is due to PFF for rent, and
accordingly, is included in due to related party in the
accompanying financial statements. In addition, the Company
reimburses PFF for the use of certain part-time employees through
an employee rental arrangement with PFF. For the year ended
December 31, 2000 the Company reimbursed PFF $2,884. At December
31, 2000, $-0- in reimbursements is due to PFF.
Bridge Loans From AGO and SA
The Company received temporary financing from affiliates AGO and
SA evidenced by unsecured, notes payable carrying a 30 percent
interest rate. The notes mature during the fourth quarter of 2001.
As of December 31, 2000, the total amount of the notes payable to
related parties was $10,996. See also Note 4.
Consulting Fees Paid to Affiliate
During the year ended December 31, 2000, the Company paid $9,000
in consulting fees to PFF.
(3) INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 2000:
Patent application costs .............................. $ 64,750
Trademark and service mark application costs .......... 2,847
----------
$ 67,597
==========
Amortization of patent and trademark costs will commence upon
regulatory approval of the respective application.
F-11
42
COLOR-SPEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(4) NOTES PAYABLE
Notes payable consisted of the following notes payable to related
parties and other at December 31, 2000:
Related Parties:
Note payable to SA, at 30% interest, maturing on
October 20, 2001, unsecured ..................................... $ 7,996
Note payable to AGO, at 30% interest, maturing on
December 27, 2001, unsecured .................................... 3,000
----------
$ 10,996
==========
Other:
Note payable to individual, at 30% interest, maturing on
December 22, 2000, with quarterly interest payments, unsecured .. $ 5,000
==========
(5) SHAREHOLDERS' EQUITY
(a) Sale of Common Stock to Founders and Other Selected Individuals
The Company sold 861,00 shares of its common stock to founders
pursuant to the organization of the Company in exchange for
$23,010. The Company sold an additional 241,604 shares of common
stock to other selected individuals in exchange for $18,750. The
Company recognized stock-based compensation expense totalling
$123,630 on the sales.
(b) Private Offering of Common Stock
On March 15, 2000, the Company circulated a private offering
memorandum relating to the private offering of a minimum of
300,000 shares and a maximum of 1,000,000 shares of its $.001 par
value common stock. The securities were not registered pursuant to
the Securities Act of 1933, as amended (the "Act"), nor were they
registered under the securities act of any state. These securities
were offered pursuant to an exemption from registration
requirements of the Act and exemptions from registration provided
by applicable state securities laws. The securities were offered
through the Company's officers and directors. Officers and
directors of the Company were not paid any commission or
compensation for offering or selling the securities. The Company
closed the offering on May 25, 2000 after selling 341,693 shares
of its common stock and receiving proceeds of $39,357, net of
offering costs totalling $11,897.
(c) Common Stock Issued for Services
The Company issued 602,328 shares of common stock to part-time
employees and 100,000 shares of common stock to its corporate
attorney in exchange for services to be performed through 2005.
The total value of the 702,328 shares was $105,349 as determined
by the Board of Directors based on contemporaneous sales of the
Company's common stock and other analysis. The Company recognized
$105,349 in stock-based compensation related to the shares issued
for the year ended December 31, 2000.
F-12
43
COLOR-SPEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The Company issued 145,000 shares of common stock to part-time
employees; affiliates and consultants in exchange for services
performed during the year ended December 31, 2000. The total value
of the 145,000 shares was $21,750 as determined by the Board of
Directors based on contemporaneous sales of the Company's common
stock and other analysis.
On September 25, 2000, the Company issued 100,000 shares of its
common stock, valued at $15,000, to its securities attorney as
partial consideration for assistance with the preparation of its
Registration Statement on Form SB-2 in connection with its
proposed common stock offering. The Company has deferred the
$15,000 as offering costs in the accompanying financial
statements.
(d) Common Stock Issued for Property
On September 25, 2000, the Company issued 405,000 shares of its
common stock to two inventors in exchange for the rights to (1)
register trademarks and (2) patent certain color comparing
instruments. The Company recorded the rights at $60,750 in the
accompanying financial statements, based on the fair value of the
common stock issued.
(e) Common Stock Issued for Receivables
On October 3, 2000, the Company issued 265,000 shares of its
common stock in exchange for receivables from officers, directors
and affiliates totalling $39,750. The receivables are non-interest
bearing, unsecured and contain no stated maturity date. The
transaction is reflected as a reduction in shareholders' equity.
(f) Proposed Common Stock Offering
The Company is planning to offer up to 1 million shares of its
common stock to the public at $.50 per share through an offering
registered with the SEC on Form SB-2.
(g) Stock Options
In order to attract and retain the best personnel, to provide for
additional performance incentives, and to promote the success of
the Company by providing employees and nonemployees the
opportunity to acquire common stock, the Company granted options
to acquire 1,275,000 shares of common stock. Options were granted
at prices that are either equal to or above the market value of
the stock on the date of grant. The options were vested and
exercisable as of the grant date and expire on December 31, 2001.
As of December 31, 2000, there were outstanding options to
purchase 1,244,000 shares of common stock. As of December 31,
2000, three employees had exercised options to purchase 31,000
shares of common stock for gross proceeds to the Company of
$4,650.
F-13
44
COLOR-SPEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Employee options
From May 25 through November 8, 2000, the Company granted options
to purchase 325,000 and 390,000 shares of common stock to
employees, exercisable at $.15 and $.175 per share, respectively.
Three employees exercised their options to purchase 31,000 shares
of common stock as of December 31, 2000. In the absence of a
market value for the Company's common stock, the Board of
Directors valued the options based on contemporaneous equity
transactions and other analysis. In accordance with APB 25, the
Company recognized no stock-based compensation expense related to
the options.
Nonemployees options
From May 25 through October 20, 2000, the Company granted options
to purchase 560,000 shares of its common stock to nonemployees. As
of December 31, 2000, no nonemployees' options had been exercised.
Outstanding at December 31, 2000 were 425,000, 110,000, 15,000 and
10,000 options to purchase common stock exercisable at $.15,
$.175, $.35 and $.50 per share, respectively. In accordance with
SFAS No. 123, the Company recognized $63,480 in stock-based
compensation expense related to the nonemployees options.
Weighted
average
exercise
Options price
------------ ------------
Options outstanding at beginning of period ... -- $ --
Options granted .............................. 1,275,000 $ 0.165
Options exercised ............................ 31,000 $ 0.150
Options cancelled ............................ -- $ --
------------
Options outstanding at end of period ......... 1,244,000 $ 0.165
============
Options exercisable at end of period ......... 1,244,000
============
Weighted average fair value of options
granted during the period .................. $ 0.0300
============
The following table summarizes information about stock options
outstanding and exercisable at December 31, 2000:
Weighted Weighted
Weighted average average
Number of average exercise price Number of exercise price
Range of options remaining of options options of options
exercise prices outstanding contractual life outstanding exercisable exercisable
--------------- ------------ ---------------- -------------- ----------- --------------
$ 0.150 719,000 12 months $ 0.150 719,000 $ 0.150
$ 0.175 500,000 12 months $ 0.175 500,000 $ 0.175
$ 0.350 15,000 12 months $ 0.350 15,000 $ 0.350
$ 0.500 10,000 12 months $ 0.500 10,000 $ 0.500
F-14
45
COLOR-SPEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The weighted average exercise price for the options was $.165 at
December 31, 2000. As of December 31, 2000, the fair market value
of the Company's common stock, as determined by the Board of
Directors, was $.15.
The Company continues to account for stock-based compensation
using the intrinsic value method prescribed by APB 25, under which
no compensation cost for stock options is recognized for stock
option awards granted at or above the fair market value. Had
compensation expense for the Company's option awards been
determined based upon fair values at the respective grant dates in
accordance with SFAS 123, the Company's net loss and loss per
share would have been increased to the pro forma amounts indicated
below. The pro forma effects of SFAS 123 are not indicative of
future amounts. Additional stock option awards are anticipated in
future years.
Net loss:
As reported ................................................... $ (356,469)
Increased loss due to:
Employee stock option plan ............................... (3,225)
----------
Pro forma ..................................................... $ (359,694)
==========
Loss per common share
As reported ................................................... $ (0.21)
==========
Pro forma ..................................................... $ (0.21)
==========
The weighted average fair value of options granted during the year
ended December 31, 2000 estimated on the date of grant using the
Black-Scholes option-pricing model was $.030. The fair value of
the options granted is estimated on the date of grant using the
following assumptions: dividend yield of zero, expected volatility
of 80 percent, risk-free interest rate of 5.78 percent, and an
expected life of 365 to 585 days. The minimum value method was
used in calculation the volatility of options granted to
employees.
(6) INCOME TAXES
A reconciliation of U.S. statutory federal income tax rate to the
effective rate follows for the period from January 1, (inception) through
December 31, 2000:
U.S. statutory federal rate ...................................... 34.00%
State income tax rate ............................................ 3.14%
Net operating loss for which no tax
benefit is currently available ................................ (37.14)%
----------
0.00%
==========
At December 31, 2000, the Company has a net operating loss carryforward
for federal income tax purposes of approximately $132,375, which was
fully allowed for in the valuation allowance of $132,375. The valuation
allowance offsets the net deferred tax asset for which there is no
assurance of recovery. The change in the valuation allowance for the year
ended December 31, 2000 was $132,375. As a result of various stock
transactions during 2000, management believes the Company has undergone
an "ownership change" as defined by Section 382 of the Internal Revenue
Code. Accordingly, the utilization of a portion of the net operating loss
carryforward may be limited. Due to
F-15
46
COLOR-SPEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
this limitation, and the uncertainty regarding the ultimate utilization
of the net operating loss carryforward, no tax benefit for losses has
been provided by the Company in the accompanying financial statements.
The net operating loss carryforward will expire in 2020.
(7) COMMITMENTS
(a) Profit Sharing Arrangements
The Company has entered into profit sharing arrangements whereby
the Company is committed to pay 42 percent of its earnings before
income taxes and capital costs to certain key employees.
(c) Operating Lease Arrangement with PFF
The Company leases certain office equipment and office space under
a noncancelable-operating lease from PFF expiring on December 2,
2005. Aggregate rentals under the lease are as follows:
For the year ended December 31,
2001 ...................................................... $ 9,000.00
2002 ...................................................... $ 9,000.00
2003 ...................................................... $ 9,000.00
2004 ...................................................... $ 9,000.00
2005 ...................................................... $ 9,000.00
Rent expense for the year ended December 31, 2000 was $8,250.
F-16
47
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation provides for indemnification of personal
liability of our Directors to the fullest extent permitted to the maximum extent
permitted under the applicable statute. Title 7 of the Colorado Revised
Statutes, 1986 Replacement Volume ("CRS"), as amended, permits us to indemnify
our directors, officers, employees, fiduciaries, and agents as follows:
Section 7-109-102 of CRS permits a corporation to indemnify such
persons for reasonable expenses in defending against liability incurred in any
legal proceeding if:
(a) The person conducted himself or herself in good faith;
(b) The person reasonably believed:
(1) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best interests;
and
(2) In all other cases, that his or her conduct was at least
not opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe that his or her conduct was unlawful.
A corporation may not indemnify such person under this Section 7-109-102 of CRS:
(a) In connection with a proceeding by or in the right of the
corporation in which such person was adjudged liable to the corporation; or
(b) In connection with any other proceeding charging that such person
derived an improper benefit, whether or not involving action in an official
capacity, in which proceeding such person was adjudged liable on the basis that
he or she derived an improper personal benefit.
Unless limited by the Articles of Incorporation, and there are not such
limitations with respect to the Company, Section 7-109-103 of CRS requires that
the corporation shall indemnify such a person against reasonable expenses who
was wholly successful, on the merits or otherwise, in the defense of any
proceeding to which the person was a party because of his status with the
corporation.
Under Section 7-109-104 of CRS, the corporation may pay reasonable fees
in advance of final disposition of the proceeding if:
(a) Such person furnishes to the corporation a written affirmation of
the such person's good faith belief that he or she has met the Standard of
Conduct described in Section 7-109-102 of CRS;
II-1
48
(b) Such person furnishes the corporation a written undertaking,
executed personally or on person's behalf, to repay the advance if it is
ultimately determined that he or she did not meet the Standard of Conduct in
Section 7-109-102 of CRS; and
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification.
Under Section 7-109-106 of CRS, a corporation may not indemnify such
person, including advanced payments, unless authorized in the specific case
after a determination has been made that indemnification of such person is
permissible in the circumstances because he met the Standard of Conduct under
Section 7-109-102 of CRS and such person has made the specific affirmation and
undertaking required under the statute. The required determinations are to be
made by a majority vote of a quorum of the Board of Directors, utilizing only
directors who are not parties to the proceeding. If a quorum cannot be obtained,
the determination can be made by a majority vote of a committee of the Board,
which consists of at least two directors who are not parties to the proceeding.
If neither a quorum of the Board nor a committee of the Board can be
established, then the determination can be made either by the Shareholders or by
independent legal counsel selected by majority vote of the Board of Directors.
The corporation is required by Section 7-109-110 of CRS to notify the
shareholders in writing of any indemnification of a director with or before
notice of the next shareholders' meeting.
Under Section 7-109-105 of CRS, such person may apply to any court of
competent jurisdiction for a determination that such person is entitled under
the statute to be indemnified from reasonable expenses.
Under Section 7-107(1)(c) of CRS, a corporation may also indemnify and
advance expenses to an officer, employee, fiduciary, or agent who is not a
director to a greater extent than the foregoing indemnification provisions, if
not inconsistent with public policy, and if provided for in the corporation's
bylaw, general or specific action of the Board of Directors, or shareholders, or
contract.
Section 7-109-108 of CRS permits the corporation to purchase and
maintain insurance to pay for any indemnification of reasonable expenses as
discussed herein.
The indemnification discussed herein shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under the Articles
of Incorporation, any Bylaw, agreement, vote of shareholders, or disinterested
directors, or otherwise, and any procedure provided for by any of the foregoing,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of
heirs, executors, and administrators of such a person.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
II-2
49
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expense
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses in connection with the registration of the securities
hereunder which will be paid by us will be substantially as follows:
Amount Payable Item
by Company
S.E.C. Registration Fees $ 278.00
Accounting Fees and Expenses $10,000.00*
State Securities Laws (Blue Sky)
Fees and Expenses $ 2,000.00*
Printing and Engraving $10,000.00*
Legal Fees $15,000.00*
Miscellaneous $ 2,722.00*
----------
TOTAL $40,000.00
==========
*Represents an estimate for the purpose of this filing.
RECENT SALES OF UNREGISTERED SECURITIES.
Since our inception on January 1, 2000, we have made transactions with
our common stock for cash and services which were not registered under the
Securities Act of 1933. We have issued our common shares as shown below:
On January 28, 2000, we issued 501,000 shares for cash, valued at $0.01 per
share, to F. Jeffrey Krupka (450,900) and to Janet Brophy(50,100). On February
8, 2000, we issued 360,000 shares to Platinum Financial Fund for cash, valued at
$0.01 per share.
In March, 2000, we issued 341,693 shares for cash in a private placement at
$0.15 per share to the following persons and entities:
II-3
50
Name Number of Shares
F Jeffrey Krupka 1,805
Janet Brophy 4,298
John Brophy 6,232
F Jeffrey Krupka and Janet Brophy 9,256
Platinum Financial Fund, LLC 32,274
Cynthia Kettl 80
Frank K. Krupka 80
B7 Brand, LLC 3,274
Elsie Mae Aparicip 4,720
Noris A. & H. Jean Lusche 4,828
A.W. Zarlengo Revocable Trust 15,214
Jack F. or Janice C. Ford 2,501
Jack Frank Ford Profit Sharing Plan 30,669
Marlene M. Roben Trust 47,698
Mary C. Dragoo 16,652
Nancy M. Miller 18,489
Norman Lakin 2,299
Richare or Norma Vesey, Trustee 26,569
Robert M. Singer 27,688
Steven Carlson 6,495
Ted M. Gill 15,475
The Irene Mathews Trust 3,914
The Miller Family Trust 24,976
The William C. Matthews Trust 3,914
Thomas Vesey 1,803
Norma Ward 17,990
Howard W. Moore 12,500
Total 341,693
In May, 2000, we issued 106,604 shares for cash valued at $0.15
per share to James L. Sanderson(50,000) and Platinum Financial Fund,
LLC.(56,604).
In September, 2000, we issued 505,000 shares for property and
past services valued at $0.15 per share to the following persons and entities:
Name Number of Shares
Gary Emerson 200,000
Gregg Wagner 200,000
Robert Stewart 5,000
Langdon Limited Liability Company 80,000
Veronica Brownell 20,000
Total 505,000
In October, 2000, we issued 400,000 shares for cash valued at
$0.15 per share to the following persons and entities:
II-4
51
Name Number of Shares
Asset Realization, Inc. 90,000
James A. Krupka 30,000
Janet Brophy 100,000
P. Benjamin Krupka 30,000
Ryan Thomas 15,000
R. K. Bunce 10,000
Susan Willey 10,000
Wraith Moon House, LLC 15,000
Cape Aloe Corp 100,000
Total 400,000
In November, 2000, we issued 31,000 shares for cash valued at
$0.15 per share upon the exercise of stock options to the following persons and
entities:
Name Number of Shares
Cynthia Kettl 1,000
F. Jeffrey Krupka 5,000
Jacqueline S. Krupka 25,000
Total 31,000
II-5
52
From March, 2000 through December, 2000, we issued 847,328
shares as stock-based compensation, valued at $0.15 per share, to the following
persons and entities:
Name Number of Shares
Shelby L. Summers 750
Ryan Thomas 750
James A. Krupka 750
P. Benjamin Krupka 750
Kathy M. Martin 750
Rebecca E. Murr 1,500
Rachal M. Murr 750
Bethany D. Murr 750
James A. Murr 750
Melissa D. Murr 750
Alexandria C. Murr 750
Thomas A. Reid 750
Joel C. Krupka 750
Diana B. Krupka 750
Paul J. Krupka 750
Rebecca A. Schmidt 1,150
Cynthia Kettl 1,150
Jacqueline S. Krupka 750
Frank K. Krupka 1,150
B7 Brand, LLC 3,050
Cameron D. Summers 750
Cynthia Kettl 50,000
Pat Detko 50,000
Graham Nott 10,000
Andy Rogowski 3,000
James Fox 10,000
R.K. Bunce 2,000
Joseph Murr 100,000
F. Jeffrey Krupka 100,000
Gary Emerson 86,164
Graham Nott 100,000
Gregg Wagner 11,164
Linda Wagner 50,000
Ky Wagner 25,000
Ed J. Wagner 5,000
Kathleen Jensen 2,500
Ib Jensen 2,500
Barbara Wagner 5,000
Robert Wagner 10,000
Lynne LaScola 5,000
James L. Sanderson 100,000
Stanley Hallman 50,000
Nancy P. Hallman 50,000
Total 847,328
In all of the transactions shown above, the issuance, delivery
and sale of our common stock was made pursuant to the private offering exemption
within the meaning of Section 4(2) of the Act; and we have issued stop transfer
orders concerning the transfer of certificates representing all the common stock
issued and outstanding as reported by the foregoing table. In some of the
transactions, Section 4(6) of the Act and Rule 504 of the Act was also available
to us as an exemption.
Exhibits.
The following is a complete list of Exhibits as part of the
Registration Statement. Exhibit numbers correspond to the numbers in the Exhibit
Table of Item 601(a) of Regulation S_K, which are incorporated herein:
Exhibit
No. Description
3.1 Articles of Incorporation of FJK Millennium Fund III, LTD.
3.2 Articles of Amendment to Articles of Incorporation of FJK
Millennium Fund III, LTD.
II-6
53
3.3 Certificate of Correction of Litigation Factoring Group, Inc.
3.4 Articles of Amendment to Litigation Factoring Group, Inc.
3.5 By-Laws of Litigation Factoring Group, Inc.
4.1 Employment Agreement
4.1.a Jeff Krupka
4.1.b Cynthia Kettl
4.1.c James Sanderson
4.1.d Gary Emerson
4.1.e Gregg Wagner
4.1.f Pat Detko
5.0 Opinion of Counsel, David Wagner & Associates, P.C.
24.1 Consent of Cordovano and Harvey, P.C. Independent Certified
Public Accountants.
24.2 Consent of David Wagner & Associates, P.C. (Included in
Exhibit 5).
UNDERTAKINGS.
A. To Deliver Certificates.
The undersigned registrant hereby undertakes to provide certificates in
such denominations and registered in such names to permit prompt delivery to
each purchaser.
B. Indemnification.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-7
54
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and County of Denver, State of Colorado, on this 22nd
day of February, 2001.
Color-Spec Technologies, Inc.
Dated: 02/22/01
---------------------------------------
By: /s/ F. Jeffrey Krupka
-----------------------------------------
F. Jeffrey Krupka
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933 as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Dated: 02/22/01
---------------------------------------
By: /s/ Cynthia Kettl
-----------------------------------------
Cynthia Kettl
Director and Chief Financial Officer
Dated: 02/22/01
---------------------------------------
By: /s/ F. Jeffrey Krupka
-----------------------------------------
F. Jeffrey Krupka
Director
Dated: 02/22/01
---------------------------------------
By: /s/ James L. Sanderson
-----------------------------------------
James L. Sanderson
Director
Dated: 02/22/01
---------------------------------------
By: /s/ Gary Emerson
-----------------------------------------
Gary Emerson
Director
Dated: 02/22/01
---------------------------------------
By: /s/ Gregg Wagner
-----------------------------------------
Gregg Wagner
Director
II-8
55
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation of FJK Millennium Fund III, LTD.
3.2 Articles of Amendment to Articles of Incorporation of FJK
Millennium Fund III, LTD.
3.3 Certificate of Correction of Litigation Factoring Group, Inc.
3.4 Articles of Amendment to Litigation Factoring Group, Inc.
3.5 By-Laws of Litigation Factoring Group, Inc.
4.1 Employment Agreement
4.1.a Jeff Krupka
4.1.b Cynthia Kettl
4.1.c James Sanderson
4.1.d Gary Emerson
4.1.e Gregg Wagner
4.1.f Pat Detko
5.0 Opinion of Counsel, David Wagner & Associates, P.C.
24.1 Consent of Cordovano and Harvey, P.C. Independent Certified
Public Accountants.
24.2 Consent of David Wagner & Associates, P.C. (Included in
Exhibit 5).