1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest reported) July 17, 2000
-------------------
Color Imaging, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its chapter)
Delaware 0-18450 13-3453420
- ---------------------------- ----------------------- -------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
4350 Peachtree Blvd., Suite 100, Norcross, Georgia 30071
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 840-1090
----------------------------
Advatex Associates, Inc.
------------------------------------------------------------
(Former name or former address, if changed since last report)
2
PORTIONS AMENDED:
The Registrant hereby amends Item 7 contained in the Registrant's Current
Report on Form 8-K filed July 17, 2000 to provide the requisite financial
information required by Item 7 including pro forma financial information. Except
as set forth in Item 7 below, no other changes are made to the Registrant's
Current Report on Form 8-K filed July 17, 2000.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
a. Financial Statements of Color Image, Inc. and Logical Imaging Solutions,
Inc., and Advatex Associates, Inc.
b. Pro Forma Financial Information for Color Image, Inc., Logical Imaging
Solutions, Inc., and Advatex Associates, Inc.
c. Exhibits:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 25, 2000 Color Imaging, Inc.
------------------ ------------------------------
(Registrant)
/s/ MICHAEL W. BRENNAN
-----------------------------
Michael W. Brennan
Chairman and Chief Executive Officer
3
INDEX TO FINANCIAL STATEMENTS
Page
----
Color Image, Inc.
Independent Accountants' Report................................................ 6
Consolidated Balance Sheets for the years ended December 31, 1999
and December 31, 1998........................................................ 7
Consolidated Statements of Operations and Retained Earnings for the
years ended December 31, 1999 and December 31, 1998.......................... 9
Consolidated Statements of Cash Flows for the years ended December 31,
1999 and December 31, 1998................................................... 10
Notes to Consolidated Financial Statements..................................... 12
Independent Accountants' Report on Supplemental Information.................... 21
Supplemental Information....................................................... 22
Logical Imaging Solutions, Inc.
Independent Auditors' Report................................................... 26
Balance Sheets for the years ended December 31, 1999 and
December 31, 1998............................................................ 27
Statement of Operations for the years ended December 31, 1999
and December 31, 1998........................................................ 28
Statement of Stockholders' Equity for the years ended
December 31, 1999 and December 31, 1998...................................... 29
Statement of Cash Flows for the years ended December 31, 1999
and December 31, 1998........................................................ 30
Notes to Financial Statements.................................................. 31
Advatex Associates, Inc.
Independent Auditors' Report................................................... 37
Consolidated Balance Sheets for the years ended
December 31, 1999 and December 31, 1998...................................... 38
Consolidated Statements of Operations for the years ended December 31,
1999, December 31, 1998 and December 31, 1997................................ 39
Consolidated Statement of Changes in Shareholders' Equity for the years
ended December 31, 1999, December 31, 1998 and December 31, 1997............. 40
Consolidated Statements of Cash Flows for the years ended December 31,
1999, December 31, 1998 and December 31, 1997................................ 41
Notes to Consolidated Financial Statements..................................... 42
Combined Financial Statements for Color Imaging, Inc.
and Subsidiaries
Consolidating Balance Sheets for the year ended
December 31, 1999............................................................. 50
(Unaudited)Consolidating Balance Sheets for the three months ended
March 31, 2000................................................................ 51
(Unaudited)Consolidating Balance Sheets for the six months ended
June 30, 2000................................................................. 52
Consolidating Operating Statements for the year ended
December 31, 1999............................................................. 53
(Unaudited) Consolidating Operating Statements for the three months
ended March 31, 2000.......................................................... 54
(Unaudited) Consolidating Operating Statements for the six months
ended June 30, 2000........................................................... 55
(Unaudited) Consolidating Operating Statements for the three months
ended June 30, 2000........................................................... 56
Consolidating Statement of Cash Flows for the year ended
December 31, 1999............................................................. 57
(Unaudited)Consolidating Statement of Cash Flows for the three
months ended March 31, 2000................................................... 58
(Unaudited)Consolidating Statement of Cash Flows for the six
months ended June 30, 2000.................................................... 59
4
CONSOLIDATED FINANCIAL STATEMENTS,
SUPPLEMENTAL INFORMATION AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
COLOR IMAGE, INC. AND SUBSIDIARY
December 31, 1999 and 1998
5
CONTENTS
Page
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9
6
Report of Independent Certified Public Accountants
Board of Directors
Color Image, Inc.
We have audited the accompanying consolidated balance sheets of Color Image,
Inc. and subsidiary as of December 31, 1999 and 1998, and the related statements
of operations and retained earnings and cash flows for the years then ended.
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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Color Image, Inc.
and subsidiary as of December 31, 1999 and 1998, and the consolidated results of
their operations and their consolidated cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
Atlanta, Georgia
April 6, 2000 (except for Note J,
as to which the date is
July 18, 2000)
3
7
Color Image, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
1999 1998
------------ ------------
CURRENT ASSETS
Cash $ 3,187 $ 2,056
Accounts receivable - trade,
net of allowance for doubtful accounts
of $150,000 for 1999 and 1998 1,085,519 785,135
Refundable income taxes (Notes A-5 and G) 163,135 129,880
Inventories (Notes A-2 and B) 3,561,125 2,899,804
Due from related party (Note E) 21,600 --
Prepaid expenses 109,612 7,476
Deferred income tax asset (Notes A-5 and G) 213,215 185,260
----------- -----------
Total current assets 5,157,393 4,009,611
PROPERTY, PLANT AND EQUIPMENT (Note A-3)
Leasehold improvements 586,178 464,376
Furniture and fixtures 222,044 173,432
Machinery and equipment 7,595,609 5,020,039
Laboratory equipment 688,467 417,758
Automobiles 58,860 52,663
----------- -----------
9,151,158 6,128,268
Less accumulated depreciation 3,744,573 3,305,416
----------- -----------
5,406,585 2,822,852
OTHER ASSETS
Goodwill, net of accumulated amortization
of $231,600 and $129,550, respectively (Note A-4) -- 124,950
Due from related party (Note E) 952,528 --
Other receivables 497,669 69,962
Cash surrender value of life insurance 109,562 83,869
Deposits 219,221 108,880
----------- -----------
1,778,980 387,661
----------- -----------
$12,342,958 $ 7,220,124
=========== ===========
The accompanying notes are an integral part of these statements.
4
8
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
------------- -------------
CURRENT LIABILITIES
Line of credit (Note C) $ 458,000 $ 142,975
Current maturities of bonds payable (Note E) 90,000 --
Current maturities of long-term debt (Note D) 371,607 228,932
Accounts payable 2,450,643 831,847
Accrued liabilities 316,803 191,489
------------ ------------
Total current liabilities 3,687,053 1,395,243
OTHER LIABILITIES
Bonds payable (Note E) 4,010,000 --
Long-term debt (Note D) 1,565,000 2,201,606
Deferred income taxes (Notes A-5 and G) 37,685 15,830
------------ ------------
5,612,685 2,217,436
STOCKHOLDERS' EQUITY
Common stock, $1 par value; 198,900
shares authorized, 198,900 shares issued
and outstanding 198,900 198,900
Additional paid-in capital 2,851,100 2,851,100
Retained earnings (deficit) (6,780) 557,445
------------ ------------
3,043,220 3,607,445
------------ ------------
$ 12,342,958 $ 7,220,124
============ ============
5
9
Color Image, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (DEFICIT)
Years ended December 31,
1999 1998
------------- ------------
Net revenues $ 10,623,921 $ 9,887,302
Cost of goods sold 7,647,710 6,640,352
------------ ------------
Gross profit 2,976,211 3,246,950
Selling expenses 1,017,489 960,592
Administrative expenses 1,136,794 976,977
Research and development expenses 919,562 987,938
------------ ------------
Earnings (loss) from operations 97,634 321,443
Other income (expense)
Interest expense, net (256,598) (239,941)
Loss on disposal of fixed assets (124,108) (25,105)
Moving expense (254,842) --
Other 29,157 48,264
------------ ------------
Earnings (loss) before provision for income taxes (704,025) 104,661
Provision (benefit) for income taxes
Current (133,700) 13,500
Deferred (6,100) 1,000
------------ ------------
(139,800) 14,500
------------ ------------
NET EARNINGS (LOSS) (564,225) 90,161
Retained earnings, beginning of year 557,445 467,284
------------ ------------
Retained earnings (deficit), end of year $ (6,780) $ 557,445
============ ============
The accompanying notes are an integral part of these statements.
6
10
Color Image, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
1999 1998
------------ ------------
Cash flows from operating activities:
Net earnings (loss) $ (564,225) $ 90,161
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation 814,523 712,368
Amortization 124,950 21,000
Loss on disposal of fixed assets 124,108 25,105
Increase in allowance for doubtful accounts -- --
Decrease (increase) in:
Accounts and other receivables (1,735,474) 317,567
Inventory (661,321) 317,950
Prepaid expenses (102,136) 4,402
Deferred income taxes (27,955) 46,289
Cash surrender value of life insurance (25,693) (21,279)
Deposits (110,340) (84,973)
Increase (decrease) in:
Accounts payable 1,618,796 (192,297)
Accrued liabilities 125,314 29,591
Income taxes payable -- (208,636)
Deferred income taxes 21,855 (45,354)
----------- -----------
Total adjustments 59,977 921,733
----------- -----------
Net cash provided by (used in) operating activities (397,598) 1,011,894
Cash flows from investing activities:
Capital expenditures (3,522,364) (879,635)
----------- -----------
Net cash used in investing activities (3,522,364) (879,635)
7
11
Color Image, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
1999 1998
----------- ------------
Cash flows from financing activities:
Net borrowings (payments) under lines-of-credit agreements 315,025 (599,833)
Proceeds from issuance of long-term debt 1,842,000 1,458,192
Proceeds from issuance of bonds 4,100,000 --
Principal payments of long-term debt (2,335,932) (990,618)
----------- -----------
Net cash provided by (used in) financing activities 3,921,093 (132,259)
----------- -----------
Net increase in cash 1,131 --
Cash at beginning of year 2,056 2,056
----------- -----------
Cash at end of year $ 3,187 $ 2,056
=========== ===========
Cash paid during the year for:
Interest $ 323,219 $ 239,941
Income taxes $ -- $ 235,111
The accompanying notes are an integral part of this statement.
8
12
Color Image, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Color Image, Inc. (the "Company") was incorporated in 1989 in the state of
Georgia to engage in the manufacture and distribution of copier toner and
related products. In July, 1993, the Company purchased all of the stock of
Leading Laser Technologies, Inc., a Georgia corporation, whose primary
activity is the refurbishing of laser cartridges. Principal markets of the
Company and its subsidiary include the United States, Europe and Asia.
A summary of significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows:
1. Principles of Consolidation
------------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Leading Laser Technologies,
Inc. All significant intercompany transactions have been eliminated in
consolidation.
2. Inventory
------------
Inventory is stated at the lower of cost or market using the first-in,
first-out method (FIFO) for substantially all inventory.
3. Property, Plant and Equipment
--------------------------------
Property, plant and equipment are stated at cost. Depreciation is computed
using accelerated methods for tax purposes and a combination of the
straight-line and double declining balance methods for financial reporting
purposes over the following estimated useful lives of the assets:
Leasehold improvements 5-10 years
Furniture and fixtures 7-10 years
Machinery, equipment and automobiles 5-10 years
Laboratory equipment 7-10 years
4. Goodwill
-----------
The excess purchase price over the value of net tangible assets acquired in
the purchase of Leading Laser Technologies, Inc. is included in "Intangible
Assets" at cost, less accumulated amortization, which was provided on a
straight-line basis over a period of 15 years. At December 31, 1999, the
Company determined that the asset no longer had value. Accordingly, the
remaining asset has been fully amortized.
9
13
Color Image, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
5. Income Taxes
---------------
Pursuant to the provisions of Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes, a deferred tax liability or
deferred tax asset (benefit) is computed by applying the statutory rates to
the temporary differences between accumulated pretax financial and taxable
income. A temporary difference is defined generally under SFAS No. 109 as a
component of revenue or expense that is taxable or deductible in a
different period for income tax purposes. A valuation allowance is provided
for deferred tax assets when necessary to reduce those assets to the
amounts expected to be realized.
6. Revenue Recognition
----------------------
Revenues are recognized when products are shipped. Sales are net of returns
and exclude sales taxes.
7. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expense
during the reporting period. Actual results could differ from these
estimates.
8. Cash Equivalents
-------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
9. Reclassifications
--------------------
Certain amounts in the 1998 balance sheet have been reclassified to conform
to the 1999 presentation. Such reclassifications were not significant.
10. Advertising
---------------
The Company expenses the cost of advertising as incurred.
10
14
Color Image, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
11. Research and Development
----------------------------
Research and development costs are expensed when incurred. Research and
development expense for the years ended December 31, 1999 and 1998 was
approximately $919,000 and $988,000, respectively.
NOTE B - INVENTORY
Inventory consists of the following components at year end:
1999 1998
----------- -----------
Raw materials and supplies $ 457,059 $ 320,550
Work in process 1,646,974 1,385,808
Finished goods 1,575,116 1,416,618
Obsolescence allowance (118,024) (223,172)
----------- -----------
$ 3,561,125 $ 2,899,804
=========== ===========
NOTE C - LINE OF CREDIT
The Company has a $1,500,000 line of credit with a financial institution
collateralized by inventory, accounts receivable and equipment, maturing on
June 24, 2000 and bearing interest at a variable rate (effective rate of
8.25% at year end). The amount outstanding under the line of credit at
December 31, 1999 was $458,000.
NOTE D - LONG TERM DEBT
Long-term debt was comprised of the following at year end:
1999 1998
-------- ---------
Term note payable to a financial institution due in monthly
installments of principal and interest of $848 through
March, 2003; bears interest at8.0%, collateralized by
automobile $28,927 $36,421
11
15
Color Image, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE D - LONG TERM DEBT - Continued
1999 1998
---------- ----------
Term note payable to a financial institution due in monthly installments of
principal and interest of $10,114 through March, 2004; bears interest at
7.90%; collateralized by
inventory, accounts receivable and equipment -- 500,000
Term note payable to a financial institution in monthly installments of
principal and interest of $21,375 through July 2005; bears interest at
7.90%; collateralized by
inventory, accounts receivable and equipment (see Note E) 1,655,680 1,303,717
Note payable to a related party due in March, 2000;
bears interest at 12% per annum; collateralized by
all properties of the Company -- 428,400
Note payable to a related party due in October, 2000;
bears interest at 12% per annum; collateralized by all
properties of the Company 162,000 162,000
Note payable to a related party due in June, 2001;
bears interest at 12% per annum; collateralized by all
properties of the Company 90,000 --
---------- ----------
1,936,607 2,430,538
Less current maturities (see Note E) 371,607 228,932
---------- ----------
$1,565,000 $2,201,606
========== ==========
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16
Color Image, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE D - LONG TERM DEBT - Continued
The aggregate scheduled maturities of long-term debt for each of the next
five years are as follows:
2000 $ 371,607
2001 318,251
2002 246,961
2003 259,394
2004 277,938
Thereafter 462,456
----------
Total $1,936,607
==========
NOTE E - BONDS PAYABLE
On June 1, 1999, the Development Authority of Gwinnett County (the
"Authority"), issued $4,100,000 of industrial development revenue bonds on
behalf of the Company and a related party, Kings Brothers LLC. The 3.5%
revenue bonds are payable in varying annual principal and monthly interest
payments through July 2019. The bond is collateralized by all the assets of
the Company.
A loan agreement between the Authority and the Company and Kings Brothers
LLC allows funds to effectively pass through the Authority to the Company.
Proceeds from the bond issue were used to purchase property and equipment.
The Company and Kings Brothers LLC, collectively, are obligated to repay
any outstanding debt.
The bonds along with the line of credit and term loan are held by one
financial institution. The company is subject to certain restrictive
covenants under the provisions of these agreements. These covenants
require, among other things, minimum net worth ratios, limitations on the
capital expenditures, minimum fixed charge coverage and cash flow leverage
ratios. At December 31, 1999, the Company was not in compliance with these
covenants and has obtained a waiver from the lender.
13
17
Color Image, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE E - BONDS PAYABLE - Continued
The aggregate maturities of bonds payable for each of the next five years
are as follows:
Color Image, Inc. King Brothers, LLC Total
----------------- ------------------ ---------------
2000 $ 68,400 $ 21,600 $ 90,000
2001 243,200 76,800 320,000
2002 254,600 80,400 335,000
2003 266,000 84,000 350,000
2004 281,200 88,800 370,000
Thereafter 2,012,472 622,528 2,635,000
---------- ---------- ----------
Total $3,125,872 $ 974,128 $4,100,000
========== ========== ==========
NOTE F - COMMITMENTS
The Company leases certain facilities, transportation and other equipment
under operating lease agreements. Aggregate minimum future rentals under
noncancellable operating lease agreements at December 31, 1999 are as
follows:
2000 $ 283,752
2001 392,532
2002 388,813
2003 377,282
2004 372,852
Thereafter 1,615,692
-----------
Total $ 3,430,923
===========
At December 31, 1999, construction of certain new machinery was in process.
The expected cost to complete these machines is approximately $1,000,000
14
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Color Image, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - INCOME TAXES
The Company's temporary differences between financial statement earnings
before income taxes and taxable income result in a short-term deferred
income tax asset of $213,216 and $185,260 and a long-term deferred income
tax liability of $37,685 and $15,830 as of December 31, 1999 and 1998,
respectively. The principal temporary differences accounting for the
deferred tax asset are allowances for doubtful accounts receivable,
warranty claims, inventory allowance and accrued deferred compensation
expense, which are not deductible for income tax purposes until paid. The
cumulative book/tax fixed asset differences account for the principal
temporary differences creating the deferred tax liability. In addition, the
Company has research and development credit and alternative minimum tax
credit carryforwards of approximately $140,500 and $53,000, respectively,
which are reflected within the long-term deferred income tax liability and
short-term deferred income tax asset above, respectively.
The Internal Revenue Service completed their examination of the Company's
1995 U.S income tax return during 1999 and made no changes to the tax as
reported. Color Image did agree, in order to expediate the examination, to
reduce their research and development carryforward by fifty percent.
NOTE H - RELATED PARTIES
The Company purchased $782,461 in raw material and component inventories
from a single source. These transactions represent approximately 9.4% of
all 1999 raw material and component purchases of $8,309,030. Management
believes there are alternative sources of supply, which would provide
similar terms.
The Company leases certain facilities under a ten-year operating lease
agreement from a related party.
NOTE I - PROFIT SHARING RETIREMENT PLAN
The Company has adopted the Color Image, Inc. Profit Sharing Retirement
Plan. Under this defined contribution plan, employees with one year or more
of service who have worked at least 1,000 hours and have reached age 21 are
eligible for participation. Participants may contribute between 1% and 15%
of their compensation as basic contributions. The Company will match 50% of
the first 3% deferred by any participant. Company contributions vest from
20% in the second year of service to 100% in the sixth year. For the years
ended December 31, 1999 and December 31, 1998, the Company incurred expense
of $19,510 and $16,660, respectively.
15
19
Color Image, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - SUBSEQUENT EVENTS
On June 30, 2000 the Company was merged into Color Imaging, Inc. as a
wholly owned subsidiary. As such, the financial institution who holds the
bond, line of credit and term loan amended the lending agreement to reset
the financial covenants. At June 30, 2000 the merged entity was in
compliance with these covenants.
16
20
SUPPLEMENTAL INFORMATION
17
21
Report of Independent Certified Public Accountants
on Supplemental Information
Board of Directors
Color Image, Inc.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole of Color Image, Inc. and Subsidiary
as of and for the years ended December 31, 1999 and 1998, which are presented in
the preceding section of this report, and on which we expressed an unqualified
opinion. The supplemental information presented hereinafter is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the audit
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated, in all material respects, in relation to the basic
financial statements taken as a whole.
Atlanta, Georgia
April 6, 2000
18
22
Color Image, Inc. and Subsidiary
Year ended December 31, 1999
Research and
Selling Administrative Development
Expenses Expenses Expenses
------------ -------------- ------------
Compensation $ 572,546 $ 480,031 $ 533,004
Payroll taxes and fringe benefits 102,928 74,277 88,500
Travel and entertainment 45,930 43,059 3,442
Telephone 1,805 68,637 --
Testing -- -- 81,232
Postage and shipping 43,131 9,088 --
Repairs and maintenance -- 19,334 46,899
Advertising and promotional 127,711 8,265 --
Conference expense 18,177 -- 1,050
Office supplies 2,080 42,830 4,923
Insurance (2,518) 100 --
Depreciation -- 202,346 82,979
Bad debt expense 40,328 -- --
Rent -- 27,854 37,724
Utilities -- 11,093 26,505
Taxes -- 5,438 --
Legal and accounting fees -- 53,973 --
Consulting fees -- 3,486 --
Bank service charges 16,338 8,729 --
Other 49,033 78,254 13,304
----------- ----------- -----------
$ 1,017,489 $ 1,136,794 $ 919,562
=========== =========== ===========
19
23
Color Image, Inc. and Subsidiary
Year ended December 31, 1998
Research and
Selling Administrative Development
Expenses Expenses Expenses
-------- -------------- ------------
Compensation $ 509,040 $ 352,876 $ 413,255
Payroll taxes and fringe benefits 89,065 115,738 77,237
Travel and entertainment 48,303 47,200 5,441
Telephone -- 78,929 --
Testing -- -- 91,982
Postage and shipping 35,290 14,236 --
Repairs and maintenance -- 29,294 32,790
Component mold expense -- -- 231,500
Advertising and promotional 120,501 -- --
Conference expense 20,667 -- 870
Office supplies 2,453 36,850 2,357
Insurance 2,173 2,551 --
Depreciation -- 105,828 55,762
Bad debt expense 64,841 -- --
Rent -- 28,319 30,858
Utilities -- 16,087 34,330
Taxes 6,485 (1,636) --
Legal and accounting fees -- 24,064 --
Consulting fees -- 34,845 --
Bank service charges 29,679 -- --
Other 32,095 91,796 11,556
--------- --------- ---------
$ 960,592 $ 976,977 $ 987,938
========= ========= =========
20
24
FINANCIAL STATEMENTS,
AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
LOGICAL IMAGING SOLUTIONS, INC.
December 31, 1999 and 1998
25
LOGICAL IMAGING SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors F-1
Balance Sheets at December 31, 1999 and 1998 F-2
Statements of Operations for the years ended
December 31, 1999 and 1998 F-3
Statements of Stockholders' Deficiency for the years ended
December 31, 1999 and 1998 F-4
Statements of Cash Flows for the years ended
December 31, 1999 and 1998 F-5
Notes to Financial Statements F-6
26
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Logical Imaging Solutions, Inc.
We have audited the accompanying balance sheets of Logical Imaging Solutions,
Inc., as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' deficiency, and cash flows for the years then ended.
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurances about whether the financial statements are free of
material misstatements. 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 audits provide 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 Logical Imaging Solutions, Inc.
as of December 31, 1999 and 1998, and the results of the operations,
stockholders' deficiency and cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Hollander, Lumer & Co. LLP
Los Angeles, California
March 7, 2000
F-1
27
LOGICAL IMAGING SOLUTIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
------------- ------------
ASSETS
CURRENT ASSETS
Cash $ 233,874 $ 12,862
Accounts receivable 157,622 55,704
Inventories 329,227 176,426
Prepaid expenses 3,048 500
Deferred income taxes 23,200 --
----------- -----------
TOTAL CURRENT ASSETS 746,971 245,492
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and office equipment 49,686 42,735
Accumulated depreciation (23,960) (17,289)
----------- -----------
25,726 25,446
----------- -----------
OTHER ASSETS
Deferred income taxes 232,800 --
Deposits 3,123 1,300
----------- -----------
235,923 1,300
----------- -----------
$ 1,008,620 $ 272,238
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 238,335 $ 143,245
Notes payable 16,592 24,792
Deferred revenue 48,050 --
Notes payable - related parties 41,097 325,077
----------- -----------
TOTAL CURRENT LIABILITIES 344,074 493,114
COMMITMENTS AND CONTINGENCIES -- 22,401
LONG-TERM DEBT 94,534 --
----------- -----------
TOTAL LIABILITIES 438,608 515,515
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Convertible preferred shares - authorized 100,000 shares, no par
value, issued and outstanding - none in 1999 and 1998 -- --
Common shares - authorized 10,000,000 shares, no par value,
issued and outstanding 1,475,000 in 1999 and 1,200,000 in 1998 2,179,830 982,330
Accumulated deficit (1,609,818) (1,225,607)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 570,012 (243,277)
----------- -----------
$ 1,008,620 $ 272,238
=========== ===========
See accompanying Notes to Financial Statements
F-2
28
LOGICAL IMAGING SOLUTIONS, INC.
STATEMENT OF OPERATIONS
DECEMBER 31, 1999 AND 1998
1999 1998
---------- ---------
SALES $ 567,199 $ 312,402
COST OF SALES 372,528 260,212
--------- ---------
GROSS PROFIT 194,671 52,190
--------- ---------
OPERATING EXPENSES
Selling, general and administrative 407,318 226,087
Research and development 414,674 435,457
Depreciation and amortization 6,672 8,532
--------- ---------
828,664 670,076
--------- ---------
OPERATING LOSS (633,993) (617,886)
--------- ---------
OTHER INCOME (EXPENSES)
Interest income 10,494 --
Interest expense (16,712) (25,274)
--------- ---------
TOTAL OTHER INCOME (EXPENSE) (6,218) (25,274)
LOSS BEFORE INCOME TAX (640,211) (643,160)
INCOME TAX BENEFIT 256,000 --
--------- ---------
NET LOSS $(384,211) $(643,160)
========= =========
See accompanying Notes to Financial Statements
F-3
29
LOGICAL IMAGING SOLUTIONS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
DECEMBER 31, 1999 AND 1998
Preferred Shares Common Shares Accumulated
Shares Amount Shares Amount Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 -- -- 1,000,000 $ 682,330 $ (582,447) $ 99,883
Sales of common shares -- -- 200,000 300,000
Net loss (643,160)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 -- -- 1,200,000 982,330 (1,225,607) (243,277)
Sales of preferred shares 45,000 1,070,000
Conversion of preferred to common (45,000) (1,070,000) 225,000 1,070,000
Exercise of stock options -- -- 50,000 45,000
Sales of warrants -- -- -- 82,500
Net loss -- -- -- -- (384,211)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 -- $ -- 1,475,000 $ 2,179,830 $(1,609,818) $ 570,012
=========== =========== =========== =========== =========== ===========
See accompanying Notes to Financial Statements
F-4
30
LOGICAL IMAGING SOLUTIONS, INC.
STATEMENT OF CASH FLOWS
DECEMBER 31, 1999 AND 1998
1999 1998
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (384,211) $ (643,160)
Adjustments to reconcile net
loss to net cash used in operating activities:
Depreciation and amortization 6,671 8,338
Changes in operating assets and liabilities:
Accounts receivable (101,918) 26,132
Inventories (152,801) 95,192
Prepaid expenses (2,548) 5,177
Deferred income taxes (256,000) --
Deposits (1,823) 5,921
Accounts payable and accrued expenses 72,689 47,877
Deferred revenues 48,050 --
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (771,891) (454,523)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (6,951) (25,121)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (6,951) (25,121)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock 1,197,500 300,000
Notes payable 86,334 (13,558)
Advances from related parties (283,980) 201,366
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 999,854 487,808
----------- -----------
NET INCREASE IN CASH 221,012 8,164
CASH, BEGINNING OF YEAR 12,862 4,698
----------- -----------
CASH, END OF YEAR $ 233,874 $ 12,862
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 16,712 $ 25,274
=========== ===========
See accompanying Notes to Financial Statements
F-5
31
LOGICAL IMAGING SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - The Company sells systems, consisting of hardware and
software that modified existing web presses to facilitate the printing of
variable data along with fixed data. Additionally, the Company, during 1998,
introduced a proprietary consumable product, a magnetic toner, used by certain
printers installed on web presses.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Impairment of Long-Lived Assets - Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement provides guidelines for recognition of impairment losses related
to long-term assets. A loss is recognized when expected undiscounted future cash
flows are less than the carrying amount of the asset. The impairment loss is the
difference by which the carrying amount of the asset exceeds its fair value. The
adoption of this standard did not have a material effect on the Company's
financial statements.
Stock-Based Compensation - Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement No. 123"), this statement encourages, but does not
require, a fair value-based method of accounting for employee stock options. The
Company elected to continue to measure compensation costs under APB Opinion No.
25, "Accounting for Stock Issued to Employees" and to comply with the pro forma
disclosure requirements of Statement No. 123. The adoption of this statement had
no impact, on the Company's financial statements.
Inventories - Inventories are stated at the lower of cost or market determined
on a first-in, first-out, (FIFO) basis.
Property and Equipment - Property and equipment are stated at cost, Depreciation
is computed on the straight-line method over estimated useful lives ranging from
5 to 7 years.
Net Loss Per Share - Net loss per share is based upon the weighted average
number of common shares outstanding during each period.
Revenue Recognition - Revenue is recorded on the basis of shipment of products
or performance of services.
Concentration of Credit Risk - The Company makes periodic evaluations of the
creditworthiness of its customers. To date, the Company has not experienced any
material bad debts or collection problems.
2. DISCLOSURE OF SIGNIFICANT RISKS AND UNCERTAINTIES
The Company closed, in July 1999, a private placement of 45,000 shares of its
Series A Preferred Shares, with net proceeds to the Company of $1,070,000 and in
September and December 1999, sales of warrants resulting in proceeds of $82,500
(See Note 6). However, there can be no assurance that the Company will be able
to obtain additional capital resources necessary to permit the Company to
implement or continue its programs. The Company has no other current arrangement
with respect to, or sources of, additional financing and there can be no
assurance that such financing will be available on commercially reasonable terms
or at all.
F-6
32
LOGICAL IMAGING SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability of the recorded assets or
the classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
3. INVENTORIES
Inventories consist of the following at December 31,
1999 1998
--------- ---------
Replacement parts and equipment $293,089 $167,909
Consumables 36,138 8,517
--------- ---------
$329,227 $176,426
========= =========
4. TRANSACTIONS WITH RELATED PARTIES
Due to related parties at December 31, 1995 consisted of cash advances of
$258,444 from Edwin St. Amour, the Company's Chairman of the Board and 50%
stockholder, and $100,425 from American Computer Hardware Corporation ("ACHC"),
of which Mr. St. Amour is the President and principal stockholder. The advances
made by Mr. St. Amour carried an interest rate of 8% per annum. The accrued
interest of $31,593 as of January 1, 1996 was waived by Mr. St. Amour. Effective
December 31, 1996, the principal balance of the advances from Mr. St. Amour of
$337,544 was converted into 237,245 shares of the Company's Common Shares. The
advances made by ACHC carried an interest of 2% plus prime. Effective December
31, 1996, the balance of the advances including accrued interest from ACHC of
$196,176 was converted into 112,755 shares of the Company's Common Shares. As a
result of the foregoing transactions, Mr. St. Amour beneficially owns 50% of the
then issued and outstanding capital stock of the Company at December 31, 1996.
In 1997, all shares of the Company's stock held by ACHC were transferred to Mr.
St. Amour. On July 21, 1999, the principal balance of the advances from Mr. St.
Amour of $350,000 was converted into 14,000 shares of the Company's Preferred
Shares. In November 30, 1999 the 14,000 Preferred Shares were converted into
70,000 shares of the Company's Common Stock. (See Note 6)
Notes payable to related parties consisted of the following at December 31, 1999
and 1998
1999 1998
--------- ---------
Edwin St. Amour, interest bearing advance - $ 179,500
Edwin St. Amour, non-interest bearing advance 41,097 145,577
-------- ---------
$ 41,097 $ 325,077
======== =========
5. NOTES PAYABLE
Notes payable at December 31, 1999, totaling $16,592 consisted of the current
portion of a capital lease. Notes payable at December 31, 1998, totaling
$24,792, consisted of the current portion of a capital lease of $15,592, and a
note payable to Wells Fargo Bank of $8,200. Long-term debt at December 31, 1999,
totaling $94,534 consisted of two (2) capital leases of $47,372 and $48,752.
6. STOCKHOLDERS' EQUITY
Effective December 31, 1996, the stockholders of the Company approved an
amendment to its Articles of Incorporation to increased the authorized number of
stock from 100,000 shares to 10,000,000 shares. The outstanding shares which at
that time were 7,500 was split up into 150,000 shares.
F-7
33
LOGICAL IMAGING SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
All references in the accompanying financial statements to the number of Common
Shares have been restated to reflect the stock split.
Effective December 31, 1996, the Company sold 500,000 shares of Common Shares to
Michael Brennan, the Company's President, for a note in the amount of $250,000
due on or before February 29, 1997 (extended through December 31, 1997), which
was secured by the shares sold and 100,000 restricted Common Shares of
lnterscience Computer Corporation, a publicly-held company ("Interscience").
During 1997, the Company collected $99,500, including $32,861 from the sale of
70,000 shares of Interscience. In February 1998, the Company collected an
additional $12,813 from the sale of the remaining 30,000 shares of Interscience.
The Company's Board of Directors approved the adjustment in the sale price of
common stock issued to Mr. Brennan to $137,637. As a result of this sale, Mr.
Brennan acquired 50% of the then issued and outstanding capital stock of the
Company.
In July 1998, the Company privately sold 200,000 shares of the Company's Common
Stock at $1.50 per share pursuant to a Private Offering Memorandum dated June 8,
1998. As part of that transaction the Company issued to Robert L. Langsam 45,000
Common Shares in connection with a consulting agreement entered into by Mr.
Langsam and the Company. Mr. Langsam also serves as an independent contractor
for the Placement Agent.
The foregoing transaction increased the total shares issued and outstanding to
1,200,000 and the paid in capital to $982,330.
The Company granted, in October 1997, a total of 250,000 options ("Options") to
purchase shares of Common Stock over a two year period at a price of $.90 per
share. The Options were granted to purchase 25,000 shares per year over a two
year period to the Company's three outside Directors; Messrs. Van Asperen,
Spaeth and McCombes and Messrs. Spatz and Milewski, respectively the Company's
Controller and Director of Development. In December 1999, Mr. Spatz exercised
his options to purchase 50,000 shares resulting in the Company receiving
proceeds of $45,000.
The Company, on November 30, 1998, entered into an agreement with PIM Financial
Services, Inc. (the "Placement Agent") to offer ("Offering) up to a total of
100,000 Shares of a Series A Preferred Convertible Stock (the "Preferred
Shares"). The Company terminated the Offering on July 30, 1999 after the
placement of 45,000 Preferred Shares with net proceeds to the Company of
$1,070,000. In September 1999, all 45,000 Preferred Shares outstanding were
converted to common shares at five (5) common shares per preferred share.
In September and December 1999, 10,000 and 45,000 warrants were sold at $1.50
per warrant, which resulted in proceeds of $82,500. In January and February
2000, 34,000 and 8,000 warrants were sold respectively at $1.50 per warrant,
which resulted in proceeds of $63,000.
7. INCOME TAXES
Prior to 1999, the Company operated as an S corporation under the Internal
Revenue Code. Hence, the Company was not able to accumulate income tax benefits
from their operating losses. On March 14, 1999 the Company elected to revoke the
provisions available as an S corporation under the Internal Revenue Code and,
effective January 1, 1999, operates as a C corporation under the Internal
Revenue Code. At December 31, 1999 the Company had net operating loss
carryforward for Federal Income Tax purposes and other timing differences of
approximately $500,000, which will expire in 2012. This would have created a
deferred tax benefit for federal and state income taxes of approximately
$200,000. The Company had provided 100% allowance on all of its deferred income
tax benefits. The valuation allowance at December 31, 1999 is primarily
attributable to net operating loss and deferred expenses incurred in 1999.
F-8
34
LOGICAL IMAGING SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The Company evaluates a variety of factors determining the amount of deferred
income tax assets to be recognized including the Company's earnings history and
its near term earnings expectations. Based upon the expected decrease in the net
loss to be realized in 2000 and the expectation of continuing increases in
income, it is probable that future taxable income will be sufficient to realize
the Company's entire existing deferred tax asset of approximately $200,000.
8. COMMITMENTS AND CONTINGENCIES
The Company leases its office in Santa Ana, California on a month-to-month basis
at a monthly rental of $1,312. The Company renewed its rental agreement for two
years beginning November 1999, which included monthly rental increase to $3,073.
Rent expense for the years ended December 31, 1999 and 1998 was $19,860 and
$14,430, respectively. For year 2000, 2001, and 2002 the Company is obligated
for a capital equipment lease in the amount of $55,232, $55,232, and $27,601.
9. MAJOR CUSTOMERS
Three customers accounted for approximately 66% of revenues for the year ended
December 31, 1999 and two customers accounted for approximately 44% of revenues
for the year ended December 31, 1998.
F-9
35
FINANCIAL STATEMENTS,
AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ADVATEX ASSOCIATES, INC.
December 31, 1999 and 1998
36
INDEX TO FINANCIAL STATEMENTS
Page(s)
-------
Independent Auditors' Report F - 2
Consolidated Financial Statements:
Balance Sheets - December 31, 1999 and 1998 F - 3
Statements of Operations - Years Ended December 31, 1999,
1998 and 1997 F - 4
Statements of Changes in Shareholders' Equity - Years Ended
December 31, 1999, 1998 and 1997 F - 5
Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997 F - 6
Notes to Consolidated Financial Statements F - 7
F-1
37
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Advatex Associates, Inc.
We have audited the consolidated balance sheets of Advatex Associates, Inc. and
subsidiary as of December 31, 1999 and 1998 and the consolidated statements of
operations, shareholders' equity and cash flows for the three years ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Advatex
Associates, Inc. and subsidiary as of December 31, 1999 and 1998 and the results
of their operations and their cash flows for the three years ended December 31,
1999 in conformity with generally accepted accounting principles.
LAZAR LEVINE & FELIX LLP
New York, New York
March 27, 2000
F-2
38
ADVATEX ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- ASSETS -
1999 1998
------------ -----------
CURRENT ASSETS:
Cash $ 859,451 $ 883,581
Accounts receivable - affiliate (Note 4) 161,019 181,019
Prepaid expenses and other current assets 9,983 12,991
----------- -----------
TOTAL CURRENT ASSETS 1,030,453 1,077,591
PROPERTY AND EQUIPMENT, NET (Notes 2f and 3) 7,018 27,177
----------- -----------
$ 1,037,471 $ 1,104,768
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 40,000 $ 39,996
Accrued stock compensation (Note 7) -- 164,634
Income taxes payable (Notes 2d and 5) -- 6,287
----------- -----------
TOTAL CURRENT LIABILITIES 40,000 210,917
----------- -----------
LONG-TERM LIABILITIES:
Note payable - automobile 7,102 13,102
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (Note 7):
Common stock, $.01 par value, authorized
20,000,000 shares; 5,403,250 shares issued 54,032 54,032
Additional paid-in capital 6,885,119 6,885,119
Accumulated deficit (5,866,012) (5,975,632)
Treasury stock, at cost - 6,226 shares (82,770) (82,770)
----------- -----------
990,369 880,749
----------- -----------
$ 1,037,471 $ 1,104,768
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
39
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 998 1997
----------- ----------- -----------
REVENUES:
Real estate management fees (Note 4) $ -- $ -- $ 24,000
----------- ----------- -----------
COSTS AND EXPENSES:
General and administrative expenses 86,952 113,756 274,256
----------- ----------- -----------
LOSS FROM OPERATIONS (86,952) (113,756) (250,256)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest and dividend income (Note 4) 40,152 37,118 114,755
Interest expense -- -- (42,301)
Reversal of accrued compensation
(Note 7) 164,634 -- --
Loss on disposal of fixed assets (8,214) -- --
Gain on sale of investments (Notes 4
and 6c) -- -- 865,997
----------- ----------- -----------
196,572 37,118 938,451
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 109,620 (76,638) 688,195
Provision for income taxes (Notes 2d
and 5) -- -- 12,000
----------- ----------- -----------
NET INCOME (LOSS) $ 109,620 $ (76,638) $ 676,195
=========== =========== ===========
BASIC/DILUTED EARNINGS (LOSS) PER SHARE
(Note 2e) $ .02 $.(01) $ (.13)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON SHARE EQUIVALENTS OUTSTANDING 5,397,024 5,397,024 5,397,024
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
40
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Additional Total
Common Paid-in Accumulated Treasury Shareholders'
Stock Capital Deficit Stock Equity
----------- ----------- ----------- ----------- -----------
Balance at January 1, 1997 $ 54,032 $ 6,885,119 $(6,575,189) $ (82,770) $ 281,192
Net income -- -- 676,195 -- 676,195
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 54,032 6,885,119 (5,898,994) (82,770) 957,387
Net loss -- -- (76,638) -- (76,638)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 54,032 6,885,119 (5,975,632) (82,770) 880,749
Net income -- -- 109,620 -- 109,620
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 $ 54,032 $ 6,885,119 $(5,866,012) $ (82,770) $ 990,369
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-5
41
ADVATEX ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 109,620 $ (76,638) $ 676,195
Adjustments to reconcile net income
(loss) to net cash (used in)
operating activities:
Depreciation and amortization 11,945 8,000 9,000
Accrued compensation (164,634) -- --
Loss on disposal of fixed assets 8,214 -- --
Gain on sale of investments -- -- (865,997)
Increase (decrease) in cash due to changes in:
Accounts receivable - affiliate 20,000 -- (149,001)
Prepaid expenses 3,008 36,239 (19,230)
Accounts payable, accrued expenses
and income taxes (6,283) (41,824) (72,619)
----------- ----------- -----------
Net cash (used in) operating activities (18,130) (74,223) (421,652)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in notes receivable - affiliate -- 146,500 --
Decrease in notes receivable -- -- 12,500
Proceeds from sale of investments -- -- 2,251,056
Notes repaid to affiliate -- -- (500,000)
----------- ----------- -----------
Net cash provided by investing activities -- 146,500 1,763,556
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable - affiliate -- -- (600,000)
Notes payable - auto (6,000) (4,500) (8,672)
----------- ----------- -----------
Net cash (used in) financing activities (6,000) (4,500) (608,672)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (24,130) 67,777 733,232
Cash and cash equivalents at beginning of year 883,581 815,804 82,572
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 859,451 $ 883,581 $ 815,804
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(i) Cash paid during the year for:
Taxes $ 6,680 $ 5,713 $ --
Interest 1,544 3,544 90,301
See accompanying notes to consolidated financial statements.
F-6
42
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION:
Through 1992, Advatex Associates, Inc. ("the Company") provided
asbestos removal and other related abatement services. Such services
were provided primarily to commercial office buildings in the New York
metropolitan area. During 1993, management discontinued field
operations related to asbestos removal and sought new business
opportunities. In September 1994, the Company purchased a 40% interest
in a company that owned and operated a commercial real estate property
(see Notes 4 and 6c) regarding sale of this investment). The Company
has been inactive since July 31, 1997 and is assessing various
business opportunities.
The Company has experienced substantial operating losses over the past
several years and has sought to minimize general and administrative
expenses. During 1997, the Company sold certain of its investments
(see Notes 4 and 6c), repaid all affiliated loans in 1997 and believes
that, as of December 31, 1999, it has enough cash to support its
financing requirements for at least the next 12 months. There can be
no assurance that the Company will be able to attain profitable
operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Principles of Consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary Alorex Corp. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(b) Use of Estimates:
The preparation of financial statements in conformity 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 the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(c) Financial Instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosures of
the fair value of certain financial instruments. The carrying amounts
of receivables, accounts payable and accrued expenses approximate fair
value due to the short-term maturity of such instruments.
F-7
43
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) Income Taxes:
The Company accounts for income taxes using the asset and liability
method under which deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the financial statements carrying amounts of existing assets and
liabilities and their respective tax bases. (See also Note 5).
(e) Earnings (Loss) Per Share:
The Company has adopted SFAS 128 "Earnings Per Share" (ASFAS 128),
which has changed the method of calculating earnings (loss) per share.
SFAS 128 requires the presentation of "basic" and "diluted" earnings
per share on the face of the income statement. Prior period loss per
share data has been restated in accordance with Statement 128. The
income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares and common
equivalent shares outstanding during each period.
(f) Property and Equipment:
Property and equipment are recorded at cost. For financial reporting
purposes, automotive vehicles are being depreciated using the
straight-line method over the estimated useful lives of the assets.
For income tax purposes, accelerated methods are used.
(g) Stock Option Plan:
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted 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 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS No.
123 has been applied. The Company did not grant any stock options in
1997, 1998 or 1999, thus the adoption of SFAS No. 123 had no impact on
the Company's consolidated financial position, results of operations
or liquidity for those years.
(h) Statements of Cash Flows:
For purposes of the statements of cash flows, the Company considers
all highly liquid investments purchased with a remaining maturity of
three months or less to be cash equivalents.
F-8
44
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(i) Comprehensive Income:
SFAS 130 "Reporting Comprehensive Income" is effective for years
beginning after December 15, 1997. This statement prescribes standards
for reporting other comprehensive income and its components. Since the
Company currently does not have any items of other comprehensive
income, a statement of comprehensive income is not yet required.
NOTE 3 - PROPERTY AND EQUIPMENT, NET:
Property and equipment at December 31, 1999 and 1998 consist of the
following:
1999 1998
------- -------
Automotive vehicles $35,090 $55,177
Less: accumulated depreciation 28,072 28,000
------- -------
$ 7,018 $27,177
======= =======
NOTE 4 - INVESTMENTS:
On September 9, 1994, the Company purchased 40% (1,200 shares) of the
outstanding common stock of ATC Real Estate and Development
Corporation ("ATC") through the Company's wholly-owned subsidiary,
Advatex Real Estate Corporation, which was formed in the State of
Delaware on August 18, 1994. The purchase price of $1,290,000 was paid
from cash and cash equivalents held by the Company, of which $107,500
was paid in January 1995. ATC owns a 100% interest in a property known
as Turnpike Plaza located in East Brunswick, New Jersey. ATC was
formed by Advatex Real Estate Corporation and Advanced Contracting
Corp., an entity in which the controlling shareholder is also the
controlling shareholder of the Company. ATC purchased Turnpike Plaza
on September 9, 1994 for consideration of a $2,131,000 payment in
cash, a commitment to repair the parking garage attached to the
property at an estimated cost of $650,000, and assumptions of various
liabilities, commitments and closing costs amounting to $445,000. In
December 1996, ATC entered into a mortgage loan commitment with a
financial institution to borrow up to $3,750,000. The loan was secured
by Turnpike Plaza.
The Company entered into a contract with ATC to manage and operate the
property. The management fee for such services was 3% of the gross
annual receipts of the property. The income earned of $24,000 in 1997
for the management services provided by the Company is reflected as
real estate management fees on the consolidated statements of
operations.
In July 1997, the Company received a cash dividend of $98,000 from
ATC. In August 1997, ATC redeemed the 1,200 shares held by the Company
for aggregate proceeds of $2,054,556. The gain recognized in this
transaction was $706,997, which included the Company's equity in net
income for the period from January 1, 1997 through August 1997.
As of December 31, 1999 and 1998, the Company had a non-interest
bearing balance due on demand from ATC in the aggregate of $161,019
and $181,019, respectively.
F-9
45
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
NOTE 5 - INCOME TAXES:
As the Company is in a loss carry forward position, no tax benefits
were recorded relative to the losses incurred in 1999 and 1998. The
provision for income taxes for 1997 consists of the following:
Current:
Federal - net of benefit of net operating
loss carry forward $12,000
State and local -
-------
$12,000
=======
The tax effects of temporary differences that would give rise to
deferred tax assets at December 31, 1999 and 1998 are presented below:
1999 1998
---------- ----------
Net operating loss carry forwards $1,870,000 $1,850,000
Contribution carryover 43,180 43,180
Depreciation - 1,000
---------- ----------
Total gross deferred tax assets 1,913,180 1,894,180
Less valuation allowance 1,913,180 1,894,180
---------- ----------
Net Deferred Tax Asset $ - $ -
========== ==========
The Company has available operating loss carry forwards for federal
tax purposes of approximately $5,400,000. These losses expire in
various years beginning in 2006 and may result in deferred tax assets.
The Company has recognized this asset but has provided a 100%
valuation allowance since there is no assurance that the Company will
be able to utilize this asset in the near future. This allowance will
be evaluated at the end of each year, considering both positive and
negative evidence concerning the realizability of the asset, and will
be adjusted accordingly.
NOTE 6 - RELATED PARTY TRANSACTIONS:
(a) The Company's controlling shareholder owns 49% of ATC (see Note 4).
Effective April 1995 the Company leased office space provided by its
controlling shareholder at $500 per month through December 31, 1998.
This shareholder has waived such lease payments effective January 1,
1999, since the Company's use of such space is minimal.
(b) Legal services are provided to the Company by a firm in which a
director of the Company is a member. Legal fees billed by the firm
were approximately $500, $11,000 and $11,000 in 1999, 1998 and 1997,
respectively.
Management believes that all of the foregoing arrangements in (a) and
(b) above are upon terms no less favorable to the Company than those
which could be obtained from unrelated third parties.
F-10
46
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
(c) The Company had a $37,500 investment at December 31, 1996, in IDF
International, Inc. and subsidiaries ("IDF") and a $12,500 note
receivable from IDF. The note was due in 1999. A member of the
Company's management is a member of the Board of Directors of IDF.
During 1997, payment of this note was received and the Company sold
this investment recognizing a gain of $159,000.
NOTE 7 - STOCK OPTION AND INCENTIVE PLANS:
In June 1988, shareholders approved the Company's 1987 Stock Option
Plan, which provides for the granting of both qualified and
non-qualified options for the purchase of 200,000 shares of common
stock. No options have been granted under this plan.
In September 1988, the Board of Directors ("the Board") adopted the
1988 Stock Incentive Plan ("1988 Plan"). The 1988 Plan provided for
the issuance through September 1998 of 500,000 shares of common
stock-based awards in the form of restricted common share grants and
performance common share awards, as well as qualified and
non-qualified options. Stock-based awards and qualified options may
only be granted to employees and officers, while non-qualified options
may be granted to consultants and others, as well as to employees and
officers. The controlling shareholder is excluded from receiving any
awards under the 1988 Plan. Vesting periods for all grants and awards,
under the 1988 Plan, are determined at the discretion of the Board,
except that incentive options must vest within a 10-year period from
date of grant.
At December 31, 1997, the Board had granted an aggregate of 126,500
shares of restricted stock under the 1988 stock-based awards program.
The shares awarded are in the name of the employees, who have all the
rights of a shareholder, subject to certain restrictions.
At December 31, 1997, non-qualified Stock Options were granted under
the 1988 Plan for the purchase of an aggregate of 359,032 shares to
officers, employees and consultants of the Company. The exercise
prices for such options range from $.04 to $1.75 per share. No options
were granted or exercised in 1998. At December 31, 1997, 276,448
shares were exercisable and 14,468 shares were available for grant
under the 1988 Plan.
None of the above option grants were exercised and the 1988 Plan
expired on September 25, 1998. During 1999, the Company reversed the
compensation accrued with respect to these unexercised and expired
stock options.
During 1990, the Company adopted the 1990 Stock Option Plan for
Outside Directors which provides for the issuance of non-qualified
options to purchase shares of common stock to outside members of the
Board. As of December 31, 1999 and 1998, 60,000 options are
exercisable at an average price of $2.916 per share. The Company has
reserved 100,000 shares for issuance under the plan.
Proforma net income and earnings (loss) per share as required by SFAS
123 (see Note 2g) has not been provided since the Company's stock is
not currently traded on any market.
F-11
47
ADVATEX ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
(a) Effective June 15, 1999, the Company entered into a consulting
agreement with an investment banking firm. Pursuant to this agreement,
the investment banking firm agreed to assist the Company in
introducing potential business opportunities, including possible
acquisitions of operating businesses by the Company. This agreement
expired on December 31, 1999, and is automatically renewable for
three-month periods thereafter, but may be terminated by either party
on 30 days' notice. As compensation for its services (in addition to
reimbursable expenses), the investment banking firm will receive five
percent (5%) of the fully diluted outstanding common stock of the
Company following a transaction pursuant to which the Company
acquires, directly or indirectly, the assets or business operation of
an operating business, whether or not introduced by the firm.
Simultaneously with the execution of this agreement, the Company, its
President and the investment banking firm entered into a stock
purchase agreement pursuant to which the President sold 540,325 shares
of common stock to designees of the firm at a purchase price of $.185
per share or $100,000 in the aggregate. The purchase price of the
shares was based on the book value of the Company at the time of this
transaction. If the consulting agreement is terminated prior to
consummation of an acquisition, the President is obligated to
repurchase these shares at the price they were sold, unless the
designees shall have transferred the shares prior thereto. As part of
the purchase agreement, the Company agreed not to issue any shares of
common stock or other securities without the investment banking firm's
prior written consent, which consent shall not be unreasonably
withheld or delayed.
(b) The Company leases certain facilities and equipment under arrangements
accounted for as operating leases. Rent expense (net of sublease
income) charged to operations under such arrangements aggregated
$6,000 for each of the two years in the period ended December 31,
1998. The Company is currently utilizing office space provided by an
affiliate (see Note 6a) at no cost.
(c) The Company had an employment agreement with the controlling
shareholder which expired December 31, 1993. The agreement provided
for a base salary of $100,000 and an annual bonus, not in excess of
$500,000. The controlling shareholder elected to receive compensation
in an amount less than his base salary for the years subsequent to the
expiration date. This shareholder has waived the receipt of
compensation since 1997. The agreement also contained post-employment
non-compete provisions and provided that the Company maintain term
life insurance on the controlling shareholder's life in the amount of
$1,000,000 for the benefit of his designated beneficiary.
(d) The Company is currently a party to various other legal matters
arising out of the conduct of the business. In the opinion of
management, based in part on advice from legal counsel, the ultimate
liability resulting from these pending suits and claims (after taking
into account insurance coverage applicable to the events giving rise
to such pending suits and claims) will not have a material adverse
effect upon the consolidated financial position of the Company but may
have a material effect upon future years' consolidated results of
operations.
F-12
48
UNAUDITED COMBINED FINANCIAL STATEMENTS OF
COLOR IMAGING, INC. AND SUBSIDIARIES
For the Fiscal Year Ended December 31, 1999
and the Three and Six Month Periods That Ended on March 31 and June 30, 2000
49
COLOR IMAGING, INC. AND SUBSIDIARIES
CONSOLIDATING FINANCIAL STATEMENTS
FOR THE YEAR ENDED, DECEMBER 31, 1999, AND
THREE AND SIX MONTH PERIODS, ENDED MARCH 31 AND JUNE 30, 2000
OF
COLOR IMAGE, INC. ("COLOR")
ADVATEX ASSOCIATES, INC. ("ADVATEX")
LOGICAL IMAGING SOLUTIONS, INC. ("IMAGING")
- --------------------------------------------------------------------------------
INDEX
PAGE
----
CONSOLIDATING BALANCE SHEETS, FISCAL YEAR ENDED DECEMBER 31, 1999 F-2
CONSOLIDATING BALANCE SHEETS, THREE MONTH PERIOD ENDED MARCH 31, 2000 F-3
CONSOLIDATING BALANCE SHEETS, SIX MONTH PERIOD ENDED JUNE 30, 2000 F-4
CONSOLIDATING OPERATING STATEMENTS, FISCAL YEAR ENDED DECEMBER 31, 1999 F-5
CONSOLIDATING OPERATING STATEMENTS, THREE MONTH PERIOD ENDED MARCH 31, 2000 F-6
CONSOLIDATING OPERATING STATEMENTS, SIX MONTH PERIOD ENDED JUNE 30, 2000 F-7
CONSOLIDATING OPERATING STATEMENTS, THREE MONTH PERIOD ENDED JUNE 30, 2000 F-8
CONSOLIDATING CASH FLOWS, FISCAL YEAR ENDED DECEMBER 31, 1999 F-9
CONSOLIDATING CASH FLOWS, THREE MONTH PERIOD ENDED MARCH 31, 2000 F-10
CONSOLIDATING CASH FLOWS, SIX MONTH PERIOD ENDED JUNE 30, 2000 F-11
50
COLOR IMAGING, INC.
CONSOLIDATING BALANCE SHEETS
FOR THE YEAR ENDED DECEMBER 31, 1999
COLOR ADVATEX IMAGING CONSOLIDATED
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
31-Dec-99 31-Dec-99 31-Dec-99 31-Dec-99
(Audited) (Audited) (Audited) (Unaudited)
------------ ------------ ------------ ------------
CURRENT ASSETS
CASH $ 3,187 $ 859,451 $ 233,874 $ 1,096,512
ACCOUNTS RECEIVABLE 1,085,519 161,019 157,622 1,404,160
REFUNDABLE INCOME TAXES 163,135 -- -- 163,135
OTHER RECEIVABLES 21,600 -- -- 21,600
INVENTORY 3,561,125 -- 329,227 3,890,352
DEFERRED TAX ASSET 160,097 -- 23,200 183,297
OTHER ASSETS 109,612 9,983 3,048 122,643
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 5,104,275 1,030,453 746,971 6,881,699
FIXED ASSETS --
FURNITURE & FIXTURES 222,044 -- 49,686 271,730
R&D EQUIPMENT 688,467 -- -- 688,467
MACHINERY & EQUIPMENT 7,654,469 7,018 -- 7,661,487
LEASEHOLD IMPROVEMENTS 586,178 -- -- 586,178
DEPRECIATION (3,744,573) -- (23,960) (3,768,533)
------------ ------------ ------------ ------------
TOTAL FIXED ASSETS 5,406,585 7,018 25,726 5,439,329
OTHER ASSETS
GOODWILL -- -- -- --
PATENT/INTELLECTUAL PROPERTY -- -- -- --
RENT DEPOSIT -- -- 3,124 3,124
PREPAID BOND ISSUANCE -- -- -- --
LIFE INSURANCE-CASH VALUE 109,562 -- -- 109,562
DEFERRED INCOME TAX -- -- 232,800 232,800
ADVANCE TO AFFILIATE (LOAN) 952,528 -- -- 952,528
OTHER ASSETS 732,323 -- -- 732,323
AMORTIZATION -- -- -- --
------------ ------------ ------------ ------------
TOTAL OTHER ASSETS 1,794,413 -- 235,924 2,030,337
$ 12,305,273 $ 1,037,471 $ 1,008,621 $ 14,351,365
============ ============ ============ ============
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 2,450,643 $ 40,000 $ 238,336 $ 2,728,979
SOUTHTRUST LOANS 829,607 -- -- 829,607
BOND ISSUE - CURRENT 90,000 -- -- 90,000
OTHER CURRENT LIABILITIES 316,803 -- 105,739 422,542
CURRENT TAXES PAYABLE -- -- -- --
------------ ------------ ------------ ------------
TOTAL CURRET LIABILITIES 3,687,053 40,000 344,075 4,071,128
LONG TERM LIABILITIES
NOTES PAYABLE -- 7,102 94,534 101,636
SOUTHTRUST COMBINED LOANS 1,565,000 -- -- 1,565,000
BOND ISSUE-SOUTHTRUST 4,010,000 -- -- 4,010,000
OTHER LONG TERM LIABILITIES -- -- -- --
------------ ------------ ------------ ------------
TOTAL LONG TERM LIABILITIES 5,575,000 7,102 94,534 5,676,636
TOTAL LIABILITIES 9,262,053 47,102 438,609 9,747,764
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY
COMMON STOCK 3,050,000 6,856,381 2,179,830 12,086,211
RETAINED EARNINGS 557,445 (5,975,632) (1,225,607) (6,643,794)
CURRENT EARNINGS (564,225) 109,620 (384,211) (838,816)
------------ ------------ ------------ ------------
3,043,220 990,369 570,012 4,603,601
$ 12,305,273 $ 1,037,471 $ 1,008,621 $ 14,351,365
============ ============ ============ ============
F-2
51
COLOR IMAGING, INC.
UNAUDITED CONSOLIDATING BALANCE SHEETS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000
COLOR ADVATEX IMAGING CONSOLIDATED
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
31-Mar-00 31-Mar-00 31-Mar-00 31-Mar-00
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- --------------- -------------- ------------
CURRENT ASSETS
CASH $ 26,394 $ 850,506 $ 63,035 $ 939,935
ACCOUNTS RECEIVABLE 1,354,369 161,019 222,927 1,738,315
REFUNDABLE INCOME TAXES 163,135 -- -- 163,135
OTHER RECEIVABLES 200,000 -- -- 200,000
INVENTORY 5,698,329 -- 403,283 6,101,612
DEFERRED TAXES 213,216 -- 33,200 246,416
OTHER ASSETS 100,314 4,983 8,351 113,648
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 7,755,757 1,016,508 730,796 9,503,061
FIXED ASSETS
FURNITURE & FIXTURES 222,044 -- 69,359 291,403
R&D EQUIPMENT 698,138 5,018 -- 703,156
MACHINERY & EQUIPMENT 8,097,911 -- -- 8,097,911
LEASEHOLD IMPROVEMENTS 655,827 -- -- 655,827
DEPRECIATION (3,983,914) -- -- (3,983,914)
------------ ------------ ------------ ------------
TOTAL FIXED ASSETS 5,690,006 5,018 69,359 5,764,383
OTHER ASSETS
GOODWILL -- -- -- --
PATENT/INTELLECTUAL PROPERTY -- -- 86,079 86,079
RENT DEPOSIT 120,425 -- 3,123 123,548
PREPAID BOND ISSUANCE 86,148 -- -- 86,148
LIFE INSURANCE-CASH VALUE 88,617 -- -- 88,617
DEFERRED INCOME TAX 109,562 -- 232,800 342,362
ADVANCE TO AFFILIATE (LOAN) 974,128 -- -- 974,128
OTHER ASSETS 244,541 -- 29,452 273,993
AMORTIZATION -- -- (25,560) (25,560)
------------ ------------ ------------ ------------
TOTAL OTHER ASSETS 1,623,421 -- 325,894 1,949,315
$ 15,069,184 $ 1,021,526 $ 1,126,049 $ 17,216,759
============ ============ ============ ============
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 4,304,280 $ 17,380 $ 197,509 $ 4,519,169
SOUTHTRUST LOANS 1,567,763 -- -- 1,567,763
BOND ISSUE - CURRENT 68,400 -- -- 68,400
OTHER CURRENT LIABILITIES 278,494 -- 57,688 336,182
CURRENT TAXES PAYABLE (30,970) -- -- (30,970)
------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 6,187,967 17,380 255,197 6,460,544
LONG TERM LIABILITIES
NOTES PAYABLE 252,000 7,102 102,464 361,566
SOUTHTRUST COMBINED LOANS 1,454,190 -- -- 1,454,190
BOND ISSUE-SOUTHTRUST 4,010,000 -- -- 4,010,000
OTHER LONG TERM LIABILITIES 58,496 -- -- 58,496
------------ ------------ ------------ ------------
TOTAL LONG TERM LIABILITIES 5,774,686 7,102 102,464 5,884,252
TOTAL LIABILITIES 11,962,653 24,482 357,661 12,344,796
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY
COMMON STOCK 3,050,000 6,863,056 2,393,076 12,306,132
RETAINED EARNINGS (6,780) (5,866,012) (1,609,818) (7,482,610)
CURRENT EARNINGS 63,311 -- (14,870) 48,441
------------ ------------ ------------ ------------
3,106,531 997,044 768,388 4,871,963
$ 15,069,184 $ 1,021,526 $ 1,126,049 $ 17,216,759
============ ============ ============ ============
F-3
52
COLOR IMAGING, INC.
UNAUDITED CONSOLIDATING BALANCE SHEETS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000
COLOR ADVATEX IMAGING CONSOLIDATED
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
30-Jun-00 30-Jun-00 30-Jun-00 30-Jun-00
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
CURRENT ASSETS
CASH $ -- $ -- $ 864,284 $ 864,284
ACCOUNTS RECEIVABLE 3,304,038 950,000 115,138 3,419,176
REFUNDABLE INCOME TAXES 163,135 -- -- 163,135
OTHER RECEIVABLES 260,000 -- -- 260,000
INVENTORY 5,535,204 -- 413,107 5,948,311
DEFERRED TAXES 213,216 -- 64,200 277,416
OTHER ASSETS 118,229 -- 8,490 126,719
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 9,593,822 950,000 1,465,219 11,059,041
FIXED ASSETS
FURNITURE & FIXTURES 222,044 -- 45,724 267,768
R&D EQUIPMENT 701,993 -- -- 701,993
MACHINERY & EQUIPMENT 8,264,913 -- 33,803 8,298,716
LEASEHOLD IMPROVEMENTS 713,132 -- -- 713,132
DEPRECIATION (3,854,066) -- (27,350) (3,881,416)
------------ ------------ ------------ ------------
TOTAL FIXED ASSETS 6,048,016 -- 52,177 6,100,193
OTHER ASSETS
GOODWILL -- -- -- --
PATENT/INTELLECTUAL PROPERTY 241,850 -- 172,258 414,108
RENT DEPOSIT 86,148 -- 3,123 89,271
PREPAID BOND ISSUANCE 85,072 -- -- 85,072
LIFE INSURANCE-CASH VALUE 120,704 -- -- 120,704
DEFERRED INCOME TAX -- 232,800 232,800
ADVANCE TO AFFILIATE (LOAN) 952,528 -- -- 952,528
OTHER ASSETS 456,437 -- 129,523 393,092
AMORTIZATION -- -- -- --
------------ ------------ ------------ ------------
TOTAL OTHER ASSETS 1,942,739 -- 537,704 2,287,575
$ 17,584,577 $ 950,000 $ 2,055,100 $ 19,446,809
============ ============ ============ ============
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 5,894,736 $ -- $ 156,340 $ 6,051,076
SOUTHTRUST LOANS 2,043,135 -- -- 2,043,135
BOND ISSUE - CURRENT 90,000 -- -- 90,000
OTHER CURRENT LIABILITIES 584,826 -- 92,931 677,757
CURRENT TAXES PAYABLE 135,156 -- 8,970 144,126
------------ ------------ ------------ ------------
TOTAL CURRET LIABILITIES 8,747,853 -- 258,241 9,006,094
LONG TERM LIABILITIES
NOTES PAYABLE -- -- --
SOUTHTRUST COMBINED LOANS 1,565,000 -- 1,565,000
BOND ISSUE-SOUTHTRUST 4,010,000 -- 4,010,000
OTHER LONG TERM LIABILITIES 37,685 192,868 1,035,369 123,054
------------ ------------ ------------ ------------
TOTAL LONG TERM LIABILITIES 5,612,685 192,868 1,035,369 5,698,054
TOTAL LIABILITIES 14,360,538 192,868 1,293,610 14,704,148
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY
COMMON STOCK 3,050,000 6,663,513 2,433,430 12,146,943
RETAINED EARNINGS (6,780) (5,866,012) (1,609,818) (7,482,610)
CURRENT EARNINGS 180,819 (40,369) (62,122) 78,328
------------ ------------ ------------ ------------
3,224,039 757,132 761,490 4,742,661
$ 17,584,577 $ 950,000 $ 2,055,100 $ 19,446,809
============ ============ ============ ============
F-4
53
COLOR IMAGING, INC.
CONSOLIDATING OPERATING STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
COLOR ADVATEX IMAGING CONSOLIDATED
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
31-Dec-99 31-Dec-99 31-Dec-99 31-Dec-99
(Audited) (Audited) (Audited) (Unaudited)
------------ ------------ ------------ ------------
SALES $ 10,623,921 $ -- $ 567,199 $ 11,191,120
C0ST OF SALES 7,647,710 -- 372,528 8,020,238
------------ ------------ ------------ ------------
GROSS PROFIT 2,976,211 -- 194,671 3,170,882
------------ ------------ ------------ ------------
OPERATING EXPENSES
ADMINISTRATIVE 1,136,794 86,952 413,990 1,637,736
RESEARCH & DEVELOPMENT 919,562 -- 414,674 1,334,236
SALES & MARKETING 1,017,489 -- -- 1,017,489
------------ ------------ ------------ ------------
3,073,845 86,952 828,664 3,989,461
OPERATING PROFIT (97,634) (86,952) (633,993) (818,579)
------------ ------------ ------------ ------------
OTHER INCOME
MISCELLANEOUS 29,157 164,634 -- 193,791
DISPOSAL OF ASSETS -- -- -- --
INTEREST INCOME -- 40,152 10,494 50,646
RENT INCOME -- -- -- --
------------ ------------ ------------ ------------
29,157 204,786 10,494 244,437
OTHER EXPENSES
BOND ISSUE -- -- -- --
INTEREST 256,598 -- 16,712 273,310
DISPOSAL OF ASSETS 124,108 8,214 -- 132,322
MOVING 254,842 -- -- 254,842
------------ ------------ ------------ ------------
635,548 8,214 16,712 660,474
INCOME BEFORE TAXES (704,025) 109,620 (640,211) (1,234,616)
------------ ------------ ------------ ------------
PROVISION (BENEFIT) FOR TAX (139,800) -- (256,000) (395,800)
------------ ------------ ------------ ------------
NET PROFIT/(LOSS) $ (564,225) $ 109,620 $ (384,211) $ (838,816)
============ ============ ============ ============
PRIOR PERIOD RETAINED EARNINGS 557,445 (5,975,632) (1,225,607) (6,643,794)
------------ ------------ ------------ ------------
CURRENT PERIOD RETAINED EARNINGS $ (6,780) $ (5,866,012) $ (1,609,818) $ (7,482,610)
============ ============ ============ ============
Pro Forma, 7,000,000 common shares issued,
$.01 par value, on June 29, 2000 -- -- -- 7,000,000
Loss per common share issued and outstanding -- -- -- $ (0.12)
============
F-5
54
COLOR IMAGING, INC.
UNAUDITED CONSOLIDATING OPERATING STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000
COLOR ADVATEX IMAGING CONSOLIDATED
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
31-Mar-00 31-Mar-00 31-Mar-00 31-Mar-00
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
SALES $ 3,453,343 $ -- $ 275,029 $ 3,728,372
COST OF SALES 2,676,412 -- 172,658 2,849,070
----------- ----------- ----------- -----------
GROSS PROFIT 776,931 -- 102,371 879,302
----------- ----------- ----------- -----------
OPERATING EXPENSES
ADMINISTRATIVE 235,915 7,500 37,463 280,878
RESEARCH & DEVELOPMENT 121,390 -- 48,231 169,621
SALES & MARKETING 218,724 -- 37,463 256,187
----------- ----------- ----------- -----------
576,029 7,500 123,157 706,686
OPERATING PROFIT 200,902 (7,500) (20,786) 172,616
----------- ----------- ----------- -----------
OTHER INCOME
MISCELLANEOUS 212,635 -- -- 212,635
DISPOSAL OF ASSETS -- -- -- --
INTEREST INCOME 1,678 7,500 445 9,623
RENT INCOME 3,379 -- -- 3,379
----------- ----------- ----------- -----------
217,692 7,500 445 225,637
OTHER EXPENSE
BOND ISSUE 16,745 -- -- 16,745
INTEREST 95,126 -- 4,529 99,655
DISPOSAL OF ASSETS -- -- -- --
MOVING 208,412 -- -- 208,412
----------- ----------- ----------- -----------
320,283 -- 4,529 324,812
INCOME BEFORE TAXES 98,311 -- (24,870) 73,441
----------- ----------- ----------- -----------
PROVISION (BENEFIT) FOR TAX 35,000 -- (10,000) 25,000
----------- ----------- ----------- -----------
NET PROFIT/(LOSS) $ 63,311 $ -- $ (14,870) $ 48,441
=========== =========== =========== ===========
PRIOR PERIOD RETAINED EARNINGS (6,780) (5,866,012) (1,609,817) (7,482,609)
----------- ----------- ----------- -----------
CURRENT PERIOD RETAINED EARNINGS $ 56,531 $(5,866,012) $(1,624,687) $(7,434,168)
=========== =========== =========== ===========
Pro Forma, 7,000,000 common shares issued,
$.01 par value, on June 29, 2000 -- -- -- 7,000,000
Earnings per common share -- -- -- $ 0.01
===========
F-6
55
COLOR IMAGING, INC.
UNAUDITED CONSOLIDATING OPERATING STATEMENTS
FOR THE SIX MONTH PERIOD ENDED JUNE 30 2000
COLOR ADVATEX IMAGING CONSOLIDATED
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
30-Jun-00 30-Jun-00 30-Jun-00 30-Jun-00
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
SALES $ 9,096,303 $ -- $ 440,053 $ 9,536,356
C0ST OF SALES 7,617,187 -- 269,564 7,886,751
----------- ----------- ----------- -----------
GROSS PROFIT 1,479,116 -- 170,489 1,649,605
----------- ----------- ----------- -----------
OPERATING EXPENSES
ADMINISTRATIVE 513,333 75,000 150,410 738,743
RESEARCH & DEVELOPMENT 239,279 -- 114,641 353,920
SALES & MARKETING 410,551 -- -- 410,551
----------- ----------- ----------- -----------
1,163,163 75,000 265,051 1,503,214
OPERATING PROFIT 315,953 (75,000) (94,562) 146,391
----------- ----------- ----------- -----------
OTHER INCOME
MISCELLANEOUS 226,814 -- -- 226,814
DISPOSAL OF ASSETS 227,481 -- -- 227,481
INTEREST INCOME 3,366 34,631 806 38,803
RENT INCOME 6,758 -- -- 6,758
----------- ----------- ----------- -----------
464,419 34,631 806 499,856
OTHER EXPENSE
BOND ISSUE 47,890 -- -- 47,890
INTEREST 200,021 -- 9,366 209,387
DISPOSAL OF ASSETS -- -- -- --
MOVING 232,642 -- -- 232,642
----------- ----------- ----------- -----------
480,553 -- 9,366 489,919
INCOME BEFORE TAXES 299,819 (40,369) (103,122) 156,328
----------- ----------- ----------- -----------
PROVISION (BENEFIT) FOR TAX 119,000 -- (41,000) 78,000
----------- ----------- ----------- -----------
NET PROFIT/(LOSS) $ 180,819 $ (40,369) $ (62,122) $ 78,328
=========== =========== =========== ===========
PRIOR PERIOD RETAINED EARNINGS (6,780) (5,866,012) (1,609,817) (7,482,609)
----------- ----------- ----------- -----------
CURRENT PERIOD RETAINED EARNINGS $ 174,039 $(5,906,381) $(1,671,939) $(7,404,281)
=========== =========== =========== ===========
Pro Forma, 7,000,000 common shares issued,
$.01 par value, on June 29, 2000 -- -- -- 7,000,000
Earnings per common share -- -- -- $ 0.01
===========
F-7
56
COLOR IMAGING, INC.
UNAUDITED CONSOLIDATING OPERATING STATEMENTS
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2000
COLOR ADVATEX IMAGING CONSOLIDATED
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
30-Jun-00 30-Jun-00 30-Jun-00 30-Jun-00
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
SALES $ 5,642,960 $ -- $ 165,024 $ 5,807,984
C0ST OF SALES 4,940,775 -- 96,906 5,037,681
----------- ----------- ----------- -----------
GROSS PROFIT 702,185 -- 68,118 770,303
----------- ----------- ----------- -----------
OPERATING EXPENSES
ADMINISTRATIVE 277,418 75,000 75,484 427,902
RESEARCH & DEVELOPMENT 117,889 -- 66,410 184,299
SALES & MARKETING 191,827 -- -- 191,827
----------- ----------- ----------- -----------
587,134 75,000 141,894 804,028
OPERATING PROFIT 115,051 (75,000) (73,776) (33,725)
----------- ----------- ----------- -----------
OTHER INCOME
MISCELLANEOUS 14,179 -- -- 14,179
DISPOSAL OF ASSETS 227,481 -- -- 227,481
INTEREST INCOME 1,688 34,631 361 36,680
RENT INCOME 3,379 -- -- 3,379
----------- ----------- ----------- -----------
246,727 34,631 361 281,719
OTHER EXPENSE
BOND ISSUE 31,145 -- -- 31,145
INTEREST 104,895 -- 4,837 109,732
DISPOSAL OF ASSETS -- -- -- --
MOVING 24,230 -- -- 24,230
----------- ----------- ----------- -----------
160,270 -- 4,837 165,107
INCOME BEFORE TAXES 201,508 (40,369) (78,252) 82,887
----------- ----------- ----------- -----------
PROVISION (BENEFIT) FOR TAX 84,000 -- (31,000) 53,000
----------- ----------- ----------- -----------
NET PROFIT/(LOSS) $ 117,508 $ (40,369) $ (47,252) $ 29,887
=========== =========== =========== ===========
PRIOR PERIOD RETAINED EARNINGS 56,531 (5,866,012) (1,624,687) (7,434,168)
----------- ----------- ----------- -----------
CURRENT PERIOD RETAINED EARNINGS $ 174,039 $(5,906,381) $(1,671,939) $(7,404,281)
=========== =========== =========== ===========
Pro Forma, 7,000,000 common shares issued,
$.01 par value, on June 29, 2000 -- -- -- 7,000,000
Earnings per common share -- -- -- $ 0.00
===========
F-8
57
COLOR IMAGING, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COLOR ADVATEX IMAGING CONSOLIDATED
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
31-Dec-99 31-Dec-99 31-Dec-99 31-Dec-99
(Audited) (Audited) (Audited) (Unaudited)
----------- ----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ (564,225) $ 109,620 $ (384,211) $ (838,816)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 939,473 11,945 6,671 958,089
Loss on disposal of fixed assets 124,108 8,214 -- 132,322
Decrease (increase) in:
Accounts and other receivables (1,735,474) 20,000 (101,918) (1,817,392)
Inventories (661,321) -- (152,801) (814,122)
Prepaid expenses (102,136) 3,008 (2,548) (101,676)
Deferred income taxes (27,955) -- (256,000) (283,955)
Cash surrender value of life insurance (25,693) -- -- (25,693)
Deposits (110,340) -- (1,823) (112,163)
Increase (decrease) in: --
Accounts payable and accrued liabilities 1,744,110 (164,634) 72,689 1,652,165
Cash overdraft -- -- -- --
Deferred revenue -- -- 48,050 48,050
Income taxes payable -- (6,283) -- (6,283)
Deferred income taxes 21,855 -- -- 21,855
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (397,598) (18,130) (771,891) (1,187,619)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (3,522,364) -- (6,951) (3,529,315)
Patent, net -- -- -- --
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (3,522,364) -- (6,951) (3,529,315)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under line of credit 315,025 -- -- 315,025
Proceeds from issuance of long-term debt 1,842,000 -- 86,334 1,928,334
Proceeds from issuance of bonds 4,100,000 -- -- 4,100,000
Proceeds from sale of stock -- -- 1,197,500 1,197,500
Advances from related parties, net -- -- (283,980) (283,980)
Principal payments of long-term debt (2,335,932) (6,000) -- (2,341,932)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 3,921,093 (6,000) 999,854 4,920,947
----------- ----------- ----------- -----------
Net increase (decrease) in cash 1,131 (24,130) 221,012 198,013
Cash at beginning of year 2,056 883,581 12,862 898,499
----------- ----------- ----------- -----------
Cash at end of year $ 3,187 $ 859,451 $ 233,874 $ 1,096,512
=========== =========== =========== ===========
F-9
58
COLOR IMAGING, INC.
UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000
COLOR ADVATEX IMAGING CONSOLIDATED
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
31-Mar-00 31-Mar-00 31-Mar-00 31-Mar-00
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 63,311 $ -- $ (14,870) $ 48,441
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 239,341 -- 1,600 240,941
Loss on disposal of fixed assets -- -- -- --
Decrease (increase) in: --
Accounts and other receivables (447,250) -- (65,305) (512,555)
Inventories (2,137,204) -- (74,056) (2,211,260)
Prepaid expenses 150,047 -- (5,303) 144,744
Deferred income taxes (53,119) -- (10,000) (63,119)
Cash surrender value of life insurance 20,945 -- -- 20,945
Deposits 9,298 (5,000) (29,452) (25,154)
Increase (decrease) in:
Accounts payable and accrued liabilities 1,815,328 (14,223) (88,878) 1,712,227
Cash overdraft 716,556 -- -- 716,556
Deferred revenue -- -- -- --
Income taxes payable (30,970) -- -- (30,970)
Deferred income taxes -- -- -- --
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities 346,283 (19,223) (286,264) 40,796
----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (522,762) 10,278 (19,672) (532,156)
Patent, net -- -- (86,079) (86,079)
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (522,762) 10,278 (105,751) (618,235)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under line of credit 199,686 -- -- 199,686
Proceeds from issuance of long-term debt -- -- 7,930 7,930
Proceeds from issuance of bonds -- -- -- --
Proceeds from sale of stock -- -- 213,246 213,246
Advances from related parties, net -- -- -- --
Principal payments of long-term debt -- -- -- --
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 199,686 -- 221,176 420,862
----------- ----------- ----------- -----------
Net increase (decrease) in cash 23,207 (8,945) (170,839) (156,577)
Cash at beginning of period 3,187 859,451 233,874 1,096,512
----------- ----------- ----------- -----------
Cash at end of period $ 26,394 $ 850,506 $ 63,035 $ 939,935
=========== =========== =========== ===========
F-10
59
COLOR IMAGING, INC.
UNAUDITED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000
COLOR ADVATEX IMAGING CONSOLIDATED
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
30-Jun-00 30-Jun-00 30-Jun-00 30-Jun-00
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 180,819 $ (40,369) $ (62,122) $ 78,328
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 460,684 5,973 3,390 470,047
Loss on disposal of fixed assets -- -- -- --
Decrease (increase) in: --
Accounts and other receivables (2,323,376) 171,002 42,484 (2,109,890)
Inventories (1,974,079) -- (83,880) (2,057,959)
Prepaid expenses 12,983 -- (5,442) 7,541
Deferred income taxes -- -- (41,000) (41,000)
Cash surrender value of life insurance (11,142) -- -- (11,142)
Deposits (65,910) -- -- (65,910)
Increase (decrease) in: --
Accounts payable and accrued liabilities 3,550,115 (53,159) (85,834) 3,411,122
Cash overdraft -- -- -- --
Deferred revenue -- -- -- --
Income taxes payable 135,156 -- -- 135,156
Deferred income taxes -- -- -- --
----------- ----------- ----------- -----------
(215,569) 123,816 (170,282) (262,035)
Net cash provided by (used in)
operating activities (34,750) 83,447 (232,404) (183,707)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (1,102,115) -- (159,363) (1,261,478)
Patent, net (241,850) -- (172,258) (414,108)
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (1,343,965) -- (331,621) (1,675,586)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under line of credit 1,482,000 -- -- 1,482,000
Proceeds from issuance of long-term debt -- -- -- --
Proceeds from issuance of bonds (106,472) -- -- (106,472)
Proceeds from sale of stock -- -- 253,600 253,600
Advances from related parties, net -- (950,000) 950,000 --
Principal payments of long-term debt -- 7,102 (9,165) (2,063)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 1,375,528 (942,898) 1,194,435 1,627,065
----------- ----------- ----------- -----------
Net increase (decrease) in cash (3,187) (859,451) 630,410 (232,228)
Cash at beginning of period 3,187 859,451 233,874 1,096,512
----------- ----------- ----------- -----------
Cash at end of period $ -- $ -- $ 864,284 $ 864,284
=========== =========== =========== ===========
F-11