<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  -------------


                                    FORM 10-Q/A


(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended  March 31, 1999
                                --------------
OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from __________________  to  _________________

                         Commission file number 0-21168
                                                -------

                  CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.
-------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

             NEW YORK                                   13-3253392
-------------------------------------------------------------------------------
(State or Other Jurisdiction of                    (I.R.S. Employer
Incorporation or Organization)                    Identification Number)

                  5 East 80th Street, New York, New York 10021
-------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (212) 717-6544
-------------------------------------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)


-------------------------------------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report)

Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X   No
                                       ---     ---

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by
court. Yes     No        N/A
           ---     ---
                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 15,477,742.

<PAGE>


                               EXPLANATORY NOTE



This Quarterly Report on Form 10-Q/A amends and restates in its entirety the
texts of Items 1 and 2 of Part I - Financial Information of the Company's
Quarterly Report on Form 10-Q for the first quarter ended March 31, 1999 which
was filed with the Securities and Exchange Commission on May 17, 1999.


PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

          CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                           March 31, 1999      December 31, 1998
                                                                           --------------      -----------------
                                                                            (unaudited)            (Note 1)
<S>                                                                       <C>                  <C>
ASSETS
CURRENT ASSETS:
     Cash and equivalents                                                 $    1,660,500         $   3,929,800
     Accounts receivable                                                          92,400                92,300
     Inventories                                                                 147,300               147,300
     Prepaid expenses and other assets                                            64,800                81,800
                                                                          --------------         -------------
        Total Current Assets                                                   1,965,000             4,251,200

COLORMATE(REGISTERED) UNITS                                                    2,873,800             1,820,100

PROPERTY AND EQUIPMENT, NET                                                      299,900               301,700

SOFTWARE DEVELOPMENT COSTS                                                       627,300               546,000

PATENT  COSTS                                                                    704,300               540,300

OTHER ASSETS (primarily deposits on ColorMate(Registered) units in 1998)          20,600               418,900
                                                                          --------------         -------------
                                                                          $    6,490,900         $   7,878,200
                                                                          ==============         =============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Amounts payable to related party                                     $      293,400         $     318,900
     Accounts payable and accrued expenses:
        Attorneys and accountants                                                903,200               673,000
        Consultants                                                               67,100               146,500
        Trade                                                                    409,600               156,800
                                                                          --------------         -------------
        Total Current Liabilities                                              1,673,300             1,295,200
                                                                          --------------         -------------

COMMITMENTS AND CONTINGENCIES

REDEEMABLE CLASS A PREFERRED STOCK,
     PAR VALUE $.01 PER SHARE:
        Authorized - 1,400,000 Shares
        Issued and outstanding - 1,380,000  Shares
           at par value and redemption value                                      13,800                13,800
                                                                          --------------         -------------

SHAREHOLDERS' EQUITY:
     Undesignated Class B Preferred Stock, No Par Value:
        Authorized - 10,000,000 shares
        Issued and outstanding - None                                                 --                    --
        Common Stock, par value $.001 per share:
        Authorized - 50,000,000 shares
           Issued and outstanding - 15,477,742 (1999) and
           15,452,442 (1998) shares                                               15,500                15,400
     Capital in excess of par value                                           28,640,100            28,327,000
     Accumulated deficit                                                     (23,851,800)          (21,773,200)
                                                                          --------------         -------------
        Total Shareholders' Equity                                             4,803,800             6,569,200
                                                                          --------------         -------------
                                                                          $     6,490,90         $   7,878,200
                                                                          ==============         =============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                        2
<PAGE>

          CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED MARCH 31,
                                                                          ----------------------------------
                                                                              1999                  1998
                                                                          -----------           -----------
<S>                                                                       <C>                   <C>
Revenues:
 Interest income                                                          $    31,000           $   120,900
 Other                                                                            100                     -
                                                                          -----------           -----------
                                                                               31,100               120,900
                                                                          -----------           -----------
COSTS AND EXPENSES:
Medical regulatory expenses                                                   233,600               521,200
Patent application costs                                                       42,900               124,300
Research and development costs                                                167,900                98,800
Compensation costs relating to options granted to consultants                 240,000               291,000
Sales, marketing and trade show costs                                         541,900                     -
General and administrative:
          Compensation - officers and employees                               175,500               204,100
          Consultants                                                          78,200                64,000
          Legal fees                                                          247,900               108,200
          Accounting fees                                                      22,500                25,300
          Rent and storage                                                     73,900                48,500
          Insurance                                                            55,500                50,100
          Travel and entertainment                                              6,700                32,000
          Repairs and maintenance                                              26,400                20,700
          Depreciation and amortization                                        26,600                25,900
          Payroll taxes                                                        14,000                20,500
          Stock administrative fees                                            10,300                32,900
          Employee benefit plan                                                 1,700                93,200
          Public relations                                                     44,600                     -
          Promotion, printing and advertising                                   4,500                65,100
          Other                                                                88,500                59,200
Interest                                                                        6,600                 6,700
                                                                          -----------           -----------
                                                                            2,109,700             1,891,700
                                                                          -----------           -----------
NET LOSS                                                                  $(2,078,600)          $(1,770,800)
                                                                          ===========           ===========

BASIC AND DILUTED LOSS PER SHARE                                          $     (0.13)          $     (0.12)
                                                                          ===========           ===========

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                                                         15,466,779            14,273,467
                                                                          ===========           ===========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                        3
<PAGE>

          CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 Common Stock
                                                      --------------------------------
                                                       Number of                               Capital in
                                                         Shares                               Excess of Par     Accumulated
                                                      Outstanding            Par Value           Value           Deficit
                                                      -----------            ---------        -----------     --------------
<S>                                                   <C>                    <C>             <C>             <C>
Balances, December 31, 1998                             15,452,442            $15,400         $28,327,000     $(21,773,200)
Three Months Ended March 31, 1999:
         Net loss                                                -                  -                   -       (2,078,600)
         Exercise of stock options and
           warrants                                         25,300                100              73,100                 -
         Compensation cost relating to
           options granted to consultants                        -                  -             240,000                 -
                                                       -----------           --------         -----------     -------------
Balances, March 31, 1999                                15,477,742            $15,500         $28,640,100     $(23,851,800)
                                                       ===========           ========         ===========     =============
</TABLE>







          See accompanying notes to consolidated financial statements.

                                        4
<PAGE>

          CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                    Three Months Ended March 31,
                                                                                 -----------------------------------
                                                                                      1999                  1998
                                                                                 -------------          ------------
<S>                                                                              <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                        $  (2,078,600)         $(1,770,800)
 Adjustments to reconcile net loss to net
   cash flows from operating activities:
   Depreciation and amortization                                                        26,600               25,900
   Compensation cost relating to options granted to consultants                        240,000              291,000
   Changes in operating assets and liabilities:
         Accounts receivable                                                              (100)                   -
         Inventories                                                                         -               (1,000)
         Prepaid expenses and other assets                                              17,000              (15,800)
         Other assets                                                                   (1,700)              (3,400)
         Accounts payable and accrued expenses                                         403,600              381,400
                                                                                 -------------          -----------
                  Net cash flows from operating activities                          (1,393,200)          (1,092,700)
                                                                                 -------------          -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Software development costs                                                            (81,300)             (53,500)
 Capitalized patent costs                                                             (164,000)            (140,000)
 Purchases of property and equipment                                                   (24,800)             (17,100)
 Purchase of ColorMate(Registered) units and deposits thereon                         (653,700)             (49,200)
                                                                                 -------------          -----------
         Net cash flows from investing activities                                     (923,800)            (259,800)
                                                                                 -------------          -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from issuance of common stock, net of related costs                           73,200            1,880,500
 Proceeds (payments) of amounts payable to related party                               (25,500)               6,600
 Payments of notes payable                                                                   -               (1,400)
                                                                                 -------------          -----------
   Net cash flows from financing activities                                             47,700            1,885,700
                                                                                 -------------          -----------

NET CHANGE IN CASH AND EQUIVALENTS                                                  (2,269,300)             533,200

CASH AND EQUIVALENTS, BEGINNING OF PERIOD                                            3,929,800            9,225,400
                                                                                 -------------          -----------

CASH AND EQUIVALENTS, END OF PERIOD                                              $   1,660,500          $ 9,758,600
                                                                                 =============          ===========

SUPPLEMENTAL CASH FLOW INFORMATION
 Interest Paid                                                                   $     32,000           $       100
                                                                                 =============          ===========

</TABLE>


          See accompanying notes to consolidated financial statements.


                                        5
<PAGE>

          CHROMATICS COLOR SCIENCES INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 -- Basis of Presentation:

Nature of Report -- The consolidated balance sheet at the end of the preceding
fiscal year has been derived from the audited consolidated balance sheet
contained in the Company's Form 10-K for the fiscal year ended December 31, 1998
and is presented for comparative purposes. All other financial statements are
unaudited. In the opinion of management, all adjustments, which include only
normal recurring adjustments necessary to present fairly the financial position,
results of operations and changes in cash flows, for all periods presented have
been made. The results of operations for interim periods are not necessarily
indicative of the operating results for the full year.

Footnotes -- Certain footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted in accordance with the published rules and regulations of the
Securities and Exchange Commission. These consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Form 10-K for the fiscal year ended December 31, 1998.

Estimates and Uncertainties - 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 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, as determined at a later date,
could differ from those estimates. Estimates relate primarily to inventory
valuation and recoverability of the Company's tangible and intangible assets.

Principles of Consolidation -- The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Patent Application Costs -- Patent application costs had been expensed in 1997
and previously because the Company was unable to determine the future
recoverability of such costs. In the first quarter of 1998, the Company was able
to determine future recoverability of such costs, due to marketing plans and
potential business proposals. Accordingly, the Company began capitalizing
certain patent application costs, commencing January 1, 1998, and will amortize
the costs over the remaining patent lives, generally 10 to 15 years. The Company
will assess the continuing carrying value of these assets when events and
circumstances warrant.

Note 2 -- Commitments and Contingencies:

Business Risks -- Since its formation in 1984, the Company has been principally
engaged in color science technology research and development and licensing
activities, seeking mass market applications for its proprietary technology and
instrumentation. The Company's business encompasses all of the risks inherent in
the establishment of a new business enterprise, including a limited operating
history with significant competition possessing substantially greater resources.
Current and future operations also depend upon the continued employment of
certain key executives, the ability to further commercialize its proprietary
technology and products and the Company's ability to obtain sufficient revenues
and/or outside financing.

Operating Difficulties -- Since 1989, the Company has incurred losses from
operations and net cash outflows from operations, and has owned
ColorMate(Registered) System units since June 1991 whose ultimate recoverability
depends upon the Company's future marketing success. The Company expects to
license its patents and proprietary technology, rent or sell its equipment and
market its related services and products to ultimately overcome these
difficulties. In the event the ColorMate(Registered) System units and related
proprietary technology are not successfully leased/licensed and/or the products
are not successfully marketed in the future, the principal effect may be a
substantial write-down of the book value of such units and continued significant
operating losses.

On July 30, 1997, the Company was granted clearance by the FDA for commercial
marketing of the ColorMate(Registered) TLc-BiliTest(Trademark) System for the
non-invasive detection and monitoring of bilirubin infant jaundice in newborns
by health care professionals in hospitals, pediatricians' offices or by home
healthcare agencies. Since that date, the Company has had discussions with
several companies interested in distributing the ColorMate(Registered) TLc-
BiliTest(Trademark) System and is currently negotiating with certain of these
companies to reach a definitive agreement. It is not possible at the present
time to determine the impact of this development on future cash flows.

                                        6

<PAGE>

The Company anticipates incurring significant additional expenditures related to
manufacturing expenses, parts order, insurance, regulatory compliance and
staffing and marketing expenses for the sales division as production and
distribution continues over the next year. Management expects that taking into
account existing resources, including the financing in April 1999 (see Note 4),
revenues, if any, from future sales of the ColorMate(Registered) units,
payments, if any, received under any future distribution agreements and/or the
proceeds of any additional financing, the Company will have sufficient liquidity
at least until April 2000.

If the Company is able to profitably market its ColorMate(Registered)
TLc-BiliTest(Trademark) System, Intellectual Properties, ColorMate(Registered)
units, new cosmetics line and products, the Company would use any cash flow
obtained from operations, and may seek additional debt or equity financing, to
further support and expand its operations. The Company's ColorMate(Registered)
System units for all applications will be marketed interchangeably, as the only
difference between the different models are design, power supply improvements
and software systems. There can be no assurance that the Company will not
require additional funding. If the Company is not able to attract additional
future financing, enter into distribution agreements generating such payments,
generate significant revenue from operations and/or successfully market its
products and technologies, at such point in time, it may have to significantly
curtail operations.

Legal Proceedings -- Three putative class actions were commenced against the
Company and certain of its officers and directors in the Southern District of
New York. The first two actions were commenced in June 1998 and are captioned
L.F. Monk v. Chromatics Color Sciences International, Inc., Darby S. Macfarlane,
Arthur Guiry, David K. Macfarlane and Leslie Foglesong, C.A. No. 98 CV 4111
(S.D.N.Y.) and Daniel R. Marquis v. Chromatics Color Sciences International,
Inc., Darby S. Macfarlane, Arthur Guiry and Leslie Foglesong, C.A. No. 98 CV
4335 (S.D.N.Y.). The third action was commenced in August 1998 and is captioned
Joseph Grunberg v. Chromatics Color Sciences International, Inc., Darby S.
Macfarlane, Arthur Guiry, David K. Macfarlane and Leslie Foglesong, C.A. No. 98
CIV. 5646 (S.D.N.Y.)

The complaints were consolidated pursuant to the Consolidation Order entered by
the Court in December 1998. A consolidated amended complaint in the matter now
captioned In re Chromatics Color Sciences International, Inc. Securities
Litigation, Consolidated Matter File No. 98 Civ. 4111 (SHS), was filed and
served in January 1999 (the "Action").

Plaintiffs purport to bring the class action on behalf of all purchasers of the
common stock of the Company, between July 30, 1997 and June 9, 1998, seeking
damages for the alleged violation by defendants of Section 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. ss.78j(b), and Rule 10b-5 promulgated
thereunder, 17 C.F.R. ss.240.10b-5, and pursuant to Section 20(a) of the
Securities Exchange Act of 1934, 15 U.S.C. ss.78t(a), with respect to the
individual named defendants as "controlling persons." The complaint alleges that
the Company "embarked upon a scheme" to inflate the price of the Company's
Common Stock by making false and misleading statements concerning: (i) the new
and innovative nature of the Company's ColorMate(Registered)
TLc-BiliTest(Trademark) System; (ii) the market size and revenue potential of
the ColorMate(Registered) TLc-BiliTest(Trademark) System; and (iii) the
existence and status of negotiations with potential distributors of the
ColorMate(Registered) TLc-BiliTest(Trademark) System. The allegations of the
complaint arise principally from a "report" prepared by Manuel I. Asensio of
Asensio & Company, Inc. that was disseminated at the close of the putative class
period.


Defendants have moved to dismiss the complaint, which motion is fully briefed
and was filed with Judge Stein on April 30, 1999. Defendants believe that the
claims asserted against them are without merit and intend to vigorously defend
this action. No assurance can be given that the resolution of the Action and/or
future actions will not have a material adverse effect on the Company's results
of operations and liquidity. The Company has directors and officers insurance
which may cover a portion of the liability asserted in the Action. The Company
is exploring its legal remedies in respect to what it believes to be false
allegations against the Company made by short sellers of its stock; the Company
expects to incur significant expenses in this regard.


Note 3 -- ColorMate(Registered) Units

ColorMate(Registered) Units -- In connection with a license with Avon Products,
Inc. ("Avon"), Avon paid approximately $4,600,000 to purchase color measurement
instruments and related equipment for its use during the term of the license
period. Due to missing and damaged units, Avon and the Company executed mutual
releases at the termination of the lease on June 24, 1991, with the principal
effect that the Company received 1,947 units of which 1,400 were useable and not
in need of significant repair. For accounting purposes, the $700,000 estimated
fair value of the nonproprietary equipment (based upon an independent appraisal
of the complete units with allowances for the lack of a verifiable used
equipment market, varying usage, the need for refurbishment and similar factors)
was recorded as an asset. The 1,700 useable units of nonproprietary equipment
were received in the form of (i) 1,400 complete units valued at $500 per unit
and (ii) 300 complete units in need of significant repair that were assigned
zero value. No valuation of the proprietary portion of the units or of the
additional 247 unusable units returned by Avon was performed.

                                       7
<PAGE>

Following the Food and Drug Administration ("FDA") marketing clearance in 1997,
the Company has decided to use certain components from the existing
ColorMate(Registered) units for use in the ColorMate(Registered)
TLc-BiliTest(Trademark) System. The costs will be expensed as incurred,
remaining components will not be valued and the cost currently assigned to the
existing ColorMate(Registered) units ($500 per unit) will be assigned to the
ColorMate(Registered) TLc-BiliTest(Trademark) System, as the current replacement
cost of these components exceeds the book value of the ColorMate(Registered)
units.

In connection with the Company's efforts to distribute the ColorMate(Registered)
TLc-BiliTest(Trademark) System the Company commenced purchasing equipment and
component parts in the second quarter of 1998 (approximately $2,100,000 in the
aggregate through March 31, 1999). At this time, the Company is uncertain as to
whether it will sell or lease such equipment to customers; accordingly, the cost
of such items, as well as units previously obtained from Avon Products, Inc. in
connection with a prior license agreement, has been classified as a non-current
asset in the accompanying consolidated balance sheets.

Note 4 - Subsequent Events:

On April 15, 1999 the Company issued an aggregate of $5,000,000 14% senior
convertible debentures due April 15, 2002 (the "Debentures") in a private
placement. Payments of interest on the outstanding principal amount of the
Debentures are due on the earlier of the maturity date or upon any conversion of
the Debentures into the Company's Common Stock. The accrued interest may be paid
either in cash, shares of the Company's Common Stock or a combination of Common
Stock and cash, at the option of the Company.

The outstanding principal amount of the Debentures (together with accrued
interest thereon) is not convertible until after the first anniversary of the
closing. At that time, the Debentures are convertible into shares of Common
Stock, at the option of the holder or holders thereof, at the conversion price
of $5.00. However, at any time prior to April 14, 2000, such portion of the
Debentures may be converted, at the option of the holder or holders thereof, as
shall result in the issuance, upon such conversion, of not more than an
aggregate of 200,000 shares of Common Stock. Subject to applicable securities
laws, the holder or holders of such shares, in the aggregate, may only sell not
more than an aggregate of 50,000 shares of such Common Stock issued upon such
conversion during any one month period ending prior to April 14, 2000. At any
time after the 18 month anniversary of the closing, the Company may prepay the
entire amount of the Debentures or any portion thereof for a prepayment price
equal to the original principal amount of the Debentures plus all accrued and
unpaid interest. At any time after the 18 month anniversary of the closing and
prior to the Maturity Date, in the event the average closing bid price (as
reported on the Nasdaq SmallCap Market or such other principal market or
exchange on which the Common Stock is then traded) of the Company's Common Stock
for any 10 consecutive trading days equals or exceeds $10.29, the Company can
require conversion of the outstanding principal amount (together with accrued
interest) of the Debentures into Common Stock at a conversion price of $5.00 per
share. The Company filed a Form 8-K on April 30, 1999 relating to the issuance
of the Debentures.

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         The following is intended to update the information contained in the
Company's Form 10-K for the year ended December 31, 1998 (the "Form 10-K") and
presumes that readers have access to, and will have read, Management's
Discussion and Analysis contained in the Form 10-K.

         EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS QUARTERLY
REPORT ON FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. WHEN USED IN THIS REPORT, THE WORDS "BELIEVE,"
"ANTICIPATE," "THINK," "INTEND," "PLAN," "WILL BE," "EXPECT" AND SIMILAR
EXPRESSIONS IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REGARDING
FUTURE EVENTS AND/OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN "RISK FACTORS"
AT PAGES 13 TO 25, WHICH COULD CAUSE ACTUAL EVENTS OR THE ACTUAL FUTURE RESULTS
OF THE COMPANY TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENT. SUCH
RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHER THINGS, THE AVAILABILITY OF ANY
NEEDED FINANCING, THE COMPANY'S ABILITY TO IMPLEMENT ITS BUSINESS PLAN FOR
VARIOUS APPLICATIONS OF ITS TECHNOLOGIES, INCLUDING MEDICAL AND INDUSTRIAL
APPLICATIONS, THE COMPANY'S ABILITY TO ENTER INTO AGREEMENTS WITH MARKETING AND
DISTRIBUTION PARTNERS, THE OBTAINING AND MAINTAINING OF AND COMPLIANCE WITH ANY
NECESSARY REGULATORY APPROVALS OR CLEARANCES

                                        8
<PAGE>

APPLICABLE TO APPLICATIONS OF THE COMPANY'S TECHNOLOGY, THE IMPACT OF
COMPETITION, THE MANAGEMENT OF GROWTH, AND OTHER RISKS AND UNCERTAINTIES THAT
MAY BE DETAILED FROM TIME TO TIME IN THE COMPANY'S REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. IN LIGHT OF THE SIGNIFICANT RISKS AND
UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE
INCLUSION OF SUCH STATEMENTS SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE
COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE
ACHIEVED.

Overview

         The Company was formed in 1984 to research and develop and to
commercialize certain intellectual property rights, proprietary technology and
instrumentation in the field of color science (collectively, the "Intellectual
Properties") for marketing to a variety of industries, including, but not
limited to, the medical, dental, biological, cosmetic, hair color, beauty-aid
and fashion industries. The Intellectual Properties relate to the application of
color science technology to the scientific measurement and analysis of human
skin, tissue, fluid, hair, teeth or biological subject, the classification of
such measurements, the detection and monitoring of conditions affecting the
coloration of such human skin, tissue, fluid, hair, teeth or biological subjects
and the scientific classification and color-oriented organization of various
consumer-sensitive products such as cosmetics, tooth enamel, hair color,
hosiery, fashion, textiles, etc. The Company has incorporated certain of the
Intellectual Properties into a proprietary color measurement system and software
marketed for various commercial applications as the ColorMate(Registered)
System (the "ColorMate(Registered) System"). The Company has developed
Intellectual Properties which it believes are capable of detecting and
monitoring certain chromogenic diseases and disorders, which are defined by the
Company as those which are diagnosed or monitored by the coloration of human
skin, tissue or fluid being affected ("Chromogenic Diseases"). In this regard,
the Company developed the ColorMate(Registered) TLc-BiliTest(Trademark) System
to measure the incremental change of the yellow content of the skin color in
newborns to monitor newborn bilirubinemia (infant jaundice). On July 30, 1997,
the Company received U.S. Food and Drug Administration ("FDA") clearance for
commercial marketing of the ColorMate(Registered) TLc-BiliTest(Trademark) System
for the non-invasive monitoring of newborn bilirubinemia (infant jaundice) by
health care professionals in hospitals, pediatricians' offices or by home
healthcare agencies ("ColorMate(Registered) TLc-BiliTest(Trademark) System").
The Company's efforts are currently focused on successfully commercializing this
medical application of its Intellectual Properties for non-invasive monitoring
of newborn bilirubinemia (infant jaundice). See "Risk Factors."

         The Company also has developed its own line of scientifically color
coordinated proprietary cosmetics ("My Colors by Chromatics(Trademark)") and
scientifically color coordinated proprietary color charts and material
swatchpacks for use in the cosmetics, beauty, dental and fashion industries. The
Company's ColorMate(Registered) System products, cosmetic line and material
swatchpacks for the cosmetic, beauty and fashion industries are referred to
herein collectively as the "Beauty-Aid Products."

         The Company's marketing activities have principally involved licensing
the Intellectual Properties, including conducting laboratory product
chromaticity studies ("Chromaticity Studies"), leasing the ColorMate(Registered)
System and marketing the Beauty-Aid Products, all in the cosmetic, hair color,
beauty aid and fashion industries (i) in a national sales program (the "Avon
Project") with Avon Products, Inc. ("Avon"), and in limited test markets with
Clairol, Inc. ("Clairol") and Hanes Hosiery, Inc. ("Hanes"), all conducted prior
to June 1991, and (ii) under a current agreement with Gordon Laboratories, Inc.
("Gordon Laboratories") and under certain leases and licenses to beauty-related
businesses and beauty salons. Although the Company from time to time has been
engaged in preliminary discussions (including limited consumer testing and
laboratory Chromaticity Study activities) for use of its technology in the
cosmetics, dental and beauty aid fields, there can be no assurance that any
final agreements will be reached. In this regard, the Company has completed
research and development for the working prototype of a hand-held less expensive
light-emitting diode ("LED") model of the ColorMate(Registered) System (the
"ColorMate(Registered) LED Device") which the Company anticipates may enhance
its marketing efforts in these fields.

         In 1996, the Company furthered implementation of its long-range plans
to exploit certain medical applications for its technology. In this regard, the
Company submitted a marketing application for its ColorMate(Registered) unit for
a certain medical application with the FDA on November 14, 1996. The
application, known as a premarket notification or 510(k) submission, was
accepted officially for filing and review by the FDA on November 18, 1996. The
application requested, and on July 30, 1997, the Company received from the FDA's
Center for Devices and Radiological Health ("CDRH"), marketing clearance
pursuant to a "substantial equivalence" determination order, in the form of a
letter dated July 24, 1997, authorizing the Company to commercially distribute
its ColorMate(Registered) TLc-BiliTest(Trademark) System for non-invasive
detection and monitoring of newborn bilirubinemia (infant jaundice) by
healthcare professionals. The "substantial equivalence" order states that the
Company must comply with the medical device "general controls," e.g., device
establishment registration, medical device listing, good manufacturing
practices/ quality system regulation ("QSR"), labeling, and the statutory
prohibitions against adulteration and

                                        9
<PAGE>

misbranding. The order also states that the ColorMate(Registered) transcutaneous
bilirubinometer is a Class II device which may be subject to additional "special
controls." The Company intends to maintain compliance with any applicable
"general controls" and "special controls" for purposes of commercial
distribution but there can be no assurance it will be able to do so. See "Risk
Factors."


         In 1998, the Company took significant steps to implement its business
plan for medical applications, including expansion of the multicenter hospital
studies of the ColorMate(Registered) TLc-BiliTest(Trademark) System to three new
institutions, participation in a number of United States and international
presentations of the ColorMate(Registered) TLc-BiliTest(Trademark) System to the
medical community, and the opening of a medical marketing, sales, distribution
and training support division. The Company also entered into exclusive
manufacturing arrangements for the production of the ColorMate(Registered)
TLc-BiliTest(Trademark) System. In November 1998, the Company entered into a
manufacturing agreement with Nova Biomedical Corporation for the production of
the ColorMate(Registered) TLc-BiliTest(Registered) System. Under this renewable
four year medical device manufacturing agreement, the Company pays Nova
Biomedical Corporation a per unit fee for the manufacture of the
ColorMate(Registered) TLc-BiliTest(Registered) units. Following the positive
response to the device from the medical community, the Company arranged for the
mass manufacture of the ColorMate(Registered) TLc-BiliTest(Trademark) System,
and in February 1999 began shipping the device (together with the
TLc-Lensette(Trademark) disposable calibration standard) to U.S. hospitals and
physicians under a limited introductory offer for an evaluation period and
conducting inservicing and training of clinicians through the Company's new
medical support division.


         Since inception the Company has financed its operations through (i)
private placements of its securities, (ii) collaborative research and
development arrangements with licensees, (iii) cash receipts from lease and
licensing agreements, (iv) loans from private investors and certain
shareholders, (v) the February 1993 initial public offering (the "IPO") and (vi)
the proceeds of exercise of stock options and warrants. Over the past two years,
the Company has used substantial portions of the proceeds of such exercise, and
proceeds from the private placement in 1995 and 1996 of its securities, to
further its long-range business plan with respect to the medical application of
its technologies and for the development and commercialization of the
ColorMate(Registered) units, including a transcutaneous bilirubinometer.

         The Company has incurred significant research and development and
marketing expenses since inception, resulting in losses from operations since
1990 and, prior to its IPO, negative shareholders' equity. In particular, over
the past two years, the Company has incurred significant FDA related expenses,
research and development expenses and marketing start-up expenses relating to
the ColorMate(Registered) TLc-BiliTest(Trademark) System and research and
development expenses related to the ColorMate(Registered) LED Device. The
Company also has not achieved significant operating revenues from marketing its
Intellectual Properties, Beauty-Aid Products and ColorMate(Registered) units in
the cosmetic and beauty aid industries since termination of the Avon Project in
1991, and has generated limited revenue from licensing its Intellectual
Properties or the ColorMate(Registered) System in any industry other than the
cosmetics, hair color, beauty aid and fashion industries. See "Risk Factors."

         Since 1990 limited revenues have been derived from licenses, leases,
service contracts and Beauty-Aid Product sales to several beauty-related
businesses, testing and laboratory fees from potential licensees evaluating the
Company's technology, and from an exclusive licensing and lease contract with
IMS Cosmetics, Inc. ("IMS"). In 1997, 1998 and the first quarter of 1999, the
Company did not generate any lease, license and service contract revenues from
IMS. To the extent the Company receives payments from licensees, distributors or
other sources, such payments may occur at various times during the year.
Accordingly, these payments have had, and payments that may be received in the
future will have, a significant impact on quarter-to-quarter comparisons
inasmuch as the Company has not developed stable sources of repeat revenues.
From December 31, 1990 until the IPO, the Company had been primarily engaged in
(a) pursuing the Company's litigation against Avon, (b) developing and testing
further applications of the Intellectual Properties and ColorMate(Registered)
units, such as the clinical research studies for medical applications, and (c)
obtaining additional financing to support marketing of the Company's
Intellectual Properties, systems, Beauty-Aid Products and related services.

         The Company's ability to generate revenues in the future will depend on
its success in marketing its Intellectual Properties, the related Chromaticity
Studies capabilities, the ColorMate(Registered) TLc-BiliTest(Trademark) System,
the ColorMate(Registered) units and the Beauty-Aid Products. In addition, the
Company's future ability to generate revenues from its technologies and its
ColorMate(Registered) units will depend on, among other things, the Company's
ability to establish and maintain marketing, distribution and manufacturing
arrangements with third parties. If these efforts are not successful in the
future, the principal effect would be a write-down of the book value of the
ColorMate(Registered) units and an impairment of the Company's ability to obtain
future financing, which could result in diminution in the value of an investment
in the Company. There can be no assurance the Company will be able to establish
such arrangements, timely place such units or identify alternative markets. See
"Risk Factors."
                                       10
<PAGE>

Recent Events

         The Company experienced a series of significant developments during the
first three months of 1999, summaries of which are provided below. See also
"Risk Factors" for additional information.

         The Company has agreed on definitive basic terms with two potential
marketing and distribution partners for the exclusive distribution of the
ColorMate(Registered) TLc-BiliTest(Trademark) System in the hospital,
pediatrician and home healthcare markets. Both of these proposals include terms
requiring minimum annual placements of the ColorMate(Registered)
TLc-BiliTest(Trademark) System and TLc-Lensette(Trademark) calibration
standards and/or charges per use. The Board is reviewing both sets of terms as
well as recommendations of its advisors and the Company anticipates selecting
one of these distributors shortly.

         In April 1999, the Company raised gross proceeds of $5 million from the
private placement of 14% Senior Convertible Debentures due April 15, 2002, the
proceeds of which the Company intends to use to support its marketing efforts
and obligations under the arrangements with the marketing and distribution
partner selected. The Company filed a Form 8-K on April 30, 1999 relating to the
issuance of the Debentures.


         On November 3, 1998, the Company executed a renewable four-year medical
device manufacturing agreement under which Nova Biomedical Corporation is the
exclusive manufacturer/assembler and packager of two models of the Company's
instrument for noninvasive monitoring of bilirubin infant jaundice for
distribution in the United States (subject to limited volume exceptions with
respect to one model of the instrument). The manufacturer also has a right of
first refusal to match third-party bids to manufacture/assemble and package a
third model of such instrument and a further right of first refusal to match
third-party bids to manufacture/assemble and package the two models referenced
above for distribution outside the United States. In this regard, subject to any
failure of the manufacturer to exercise its right of first refusal to match
third-party bids (thus permitting the Company to use other manufacturers), the
manufacturer is the Company's sole source of supply for the instrument. Under
the agreement, the Company is responsible for providing to the manufacturer, for
assembly, certain component parts. During the first quarter of 1999 the Company
completed its first manufacturing run under this agreement.


         During the first and second quarters of 1998, a significant "short
position" built up in the Company's publicly traded common stock. In June 1998,
a series of negative, and what the Company believes to be false, press reports
were issued by Asensio and Company, Inc. ("Asensio") (a short-seller which
publicly admitted it held a 300,000 share short position in the Company's stock)
amid increased trading volume and short-selling activity in the Company's stock.
The Company publicly responded to these reports, denying Asensio's allegations
and providing additional support for the Company's prior public statements. The
public trading price of the Company's stock decreased from 12 1/4 to 4 1/2 in
the two days immediately following Asensio's reports (and decreased from a high
of 17 5/8 on May 4, 1998 before such reports and increased trading activity, to
3 3/4 on June 30, 1998 and to a low of 2 15/16 on September 1, 1998). Following
the release of the Asensio reports, the Company and certain of its officers were
sued in federal class actions alleging violations of the securities laws based
on Asensio's allegations. The Company believes the suits are without merit and
intends to defend them vigorously. The Company is also exploring all of its
legal remedies against those persons it believes have unlawfully harmed the
Company. For the most recent legal developments regarding these class actions
suits, see "Legal Proceedings."

         As a result of these actions and in order to assist the Company in
connection with certain related investor relations and public relations matters,
the Company retained Rubenstein Associates, Inc..

         In order to provide the ColorMate(Registered) TLc-BiliTest(Trademark)
System to hospitals and physicians already placing orders, and to expedite
evaluation of the product by the medical community, the Company has taken a
series of significant steps to increase awareness of its products in the medical
community and to initiate its own sales and servicing of the
ColorMate(Registered) TLc-BiliTest(Trademark) System with United States
physicians and clinicians in hospitals.

         In November 1998, the Company opened its medical division, supervised
by Sheila Kempf, Vice President Medical Division. Ms. Kempf is a former Vice
President - Marketing of Corometrics, a Marquette Medical Inc. company, and a
former director of Marketing for Sensors and accessories of Nelcor Puritan
Bennet, Inc. and has over 13 years experience in the medical marketing field.
The Company also hired neonatal nurse clinical specialists to provide training
to hospital staffs using the ColorMate(Registered) TLc-BiliTest(Trademark)
System. The newly formed medical division provides sales and support for the
ColorMate(Registered) TLc-BiliTest(Trademark) System delivered to customers in
the medical community, including hospitals, pediatricians, clinics and home
health care agencies, and performs delivery, training and in-servicing for
customers initially generated by the Company's presentations to the medical
community.

                                       11
<PAGE>

         In January 1999, the Company formed a five-person sales unit within the
Medical Division led by Dennis A. McClinton, Vice President of Sales. Mr.
McClinton has an 18-year background in sales of fetal and neonatal ICU
monitoring products at Marquette Medical Systems and will head a staff that
averages ten years experience in that field.

         In January 1999, the Company appointed Medical International, Inc. as
its exclusive distributor of the ColorMate(Registered) TLc-BiliTest(Trademark)
System in certain states; in February 1999, the marketing efforts of this
distributor commenced.

         In March 1999, the Company received ISO-9001 and EN46001
certifications, signifying that the Company's New York facility meets important
international quality standards for product design and development,
manufacturing, servicing and distribution. In early April, the Company also was
granted permission by the European Union (EU) notified body, TUV Essen, to affix
the CE Mark to its ColorMate(Registered) TLc-BiliTest(Trademark) System.

Results of Operations

         The Company incurred net losses of $2,078,600 and $1,770,800 for the
three-month periods ended March 31, 1999 and 1998, respectively, as revenues,
consisting almost entirely of interest income, have not been significant
relative to the Company's expenses incurred in implementing its business plan.
Loss per share increased by $0.01 in the 1999 period compared to the 1998
period, and the 1999 period was favorably impacted by an increase of 1,193,312
weighted average number of shares outstanding attributable to the exercise of
options and Warrants. The dollar increase in such losses in the 1999 period as
compared to the 1998 period is primarily attributable to the Company continuing
implementation of its long-range business plan to seek commercial applications
of its Intellectual Properties and technologies in the medical field including
an increase in costs and expenses regarding sales, marketing and trade show
costs, consultants' compensation, legal expenses incurred in respect of the
Company's negotiations with its potential distribution partners, research and
development costs legal consulting and other related expenses regarding
regulatory compliance with respect to manufacturing and distribution of its
ColorMate(Registered) TLc-BiliTest(Trademark) System, and public relations.

         Although the Company anticipates that the future expenses regarding FDA
application costs and related patent application costs should be significantly
less than amounts incurred prior to receipt of the initial FDA marketing
clearance, the Company will continue to incur significant additional costs and
expenses in connection with FDA manufacturing and other regulations, state
regulatory requirements and foreign market clearances and other requirements.
Additional expenses are anticipated in connection with certain international
multicenter studies being conducted on the ColorMate(Registered)
TLc-BiliTest(Trademark) System. In addition, the Company expects to incur
significant expenses relating to manufacturing expenses, products liability
insurance, legal and regulatory compliance, including QSR/GMP quality system
substantial compliance, as well as research and development for new potential
applications, and implementation of the next phase of its efforts to
successfully commercialize the medical application of its technology. The
Company also anticipates significantly higher compensation expenses in
connection with increased hiring to staff its medical division. See "Liquidity
and Capital Resources," below. The Company will also incur additional expenses
implementing additional testing and clinical trials of its technologies for the
possible monitoring of other chromogenic diseases. Further, the Company
anticipates significantly higher legal expenses in connection with its defense
of certain class action suits that have been brought against the Company and as
the Company explores all of its potential legal remedies.


         In the first quarter of 1999, the Company focused its resources on
implementation of its long-range business plan for medical applications of its
technologies and received no revenues from operations. Shipments of the
ColorMate(Registered) TLc-BiliTest(Trademark) Systems and
TLc-Lensette(Trademark) calibration standards products commenced in the first
quarter of 1999 to customers under a Limited Introductory Offer pursuant to
which the user was allowed to use and evaluate the ColorMate(Registered)
TLc-BiliTest(Registered) System without having to purchase it and was only
charged for the related disposable calibration standards.


         Other than payments received under any potential distribution
agreement, if any, the Company anticipates that it will continue to incur
substantial and increasing net losses for the foreseeable future as increased
expenses are incurred in implementing its long-range business plan for medical
applications of its technologies and as revenues from the Company's existing
activities in the cosmetics, beauty aid and fashion areas are anticipated to
continue to be insignificant relative to its anticipated expenses in the
foreseeable future.
                                       12

<PAGE>

Liquidity and Capital Resources

         Current assets decreased by $2,286,200 in the first quarter of 1999 as
compared to fiscal 1998, primarily attributable to the net loss incurred in the
quarter and additional purchases of ColorMate(Registered) units.

         As indicated in the Company's Statements of Cash Flows, the Company
continued to experience significant negative net cash flows from operating and
investing activities in the first three months of 1999. The 1999 increase in
cash outflows from operating activities is primarily attributable to the
increase in the Company's net loss, and cash used for investing activities in
1999 of $923,800 was primarily attributed to purchases of ColorMate(Registered)
units. Cash flows from financing activities during the 1999 period principally
represent $73,200 from the issuance of Common Stock (net of related costs). Cash
flows from financing activities in the 1998 quarter principally represent
$1,880,500 issuance of Common Stock (net of related costs).

         Although the Company anticipates that penetration of the medical
marketplace will be through establishing relationships with specialized
distributors, rather than through a direct sales force, the Company has
established a medical division to support its own efforts to initially market
and distribute the ColorMate(Registered) TLc-BiliTest(Trademark) System, and to
support training, technical and marketing efforts once the Company enters into
distribution agreements. See "Recent Events" and "Risk Factors." Management
believes that if its proposed marketing plans for nonmedical applications of its
technology are successful, then it will generate revenues from fees from the
licensing of the Intellectual Properties and leasing of the
ColorMate(Registered) units, consulting fees, and sales of cosmetics, although
there can be no prediction or assurance as to which, or whether any, of these
potential revenue sources will be successful. In fiscal 1998 and 1999, to date,
such licensing, leasing and sales yielded limited revenue, primarily because the
Company devoted its resources to the commercialization of its technologies for
medical application and because the Company's new cosmetics line was not yet
available.

         The Company anticipates incurring significant additional expenditures
related to manufacturing expenses, parts order, insurance, regulatory compliance
and staffing and marketing expenses for the sales division as production and
distribution continues. Further, the Company anticipates significantly higher
legal expenses in connection with its defense of certain class action suits that
have been brought against the Company and as the Company explores all of its
potential legal remedies. Management expects that taking into account existing
resources, revenues, if any, from future sales of the ColorMate(Registered)
units, payments, if any, received under distribution agreements and/or the
proceeds of the Debentures and any additional financing, the Company will have
sufficient liquidity at least until April 1, 2000, although there can be no
assurance of such result.

         If the Company is able to profitably market its Intellectual
Properties, ColorMate(Registered) units and Beauty-Aid Products, the Company
would use any cash flow obtained from operations, and may seek additional debt
or equity financing, to further support and expand its operations. There can be
no assurance that the Company will not require additional funding. If the
Company is not able to attract additional future financing, enter into a
distribution agreement generating such payments, generate significant revenue
from operations and/or successfully market its products and technologies, at
such point in time, it may have to significantly curtail operations.


         The Company's principal source of liquidity over the next 12 months is
anticipated to be derived from cash flows from financing activities. The Company
anticipates that it will continue to experience significant negative net cash
flows from operating activities over the next 12 months and that it will be
required to raise funds during such period through the issuance of debt or
equity securities in order to continue to fund its operations.






         The Company is in the process of assessing the Year 2000 issue as it
relates to its own technology applications and the technology applications of
third party suppliers and anticipates completing such assessment and developing
any necessary contingency plans by December 1999. Thus far, the Company is
unaware of any significant issues relating to its own technology applications or
to third parties with which it has a material relationship. However, the Year
2000 issue is complex and involves layers of relationships among third parties
about which the Company has no knowledge or information. As a result, the
Company has not attempted to develop an estimate of the cases that may result
from Year 2000 failures of third parties. Because the Company is relying on the
truthfulness and completeness of third party information and certification,
there can be no assurance that the systems of third parties will be converted on
time or that any such failure to convert by another company would not have an
adverse effect on the Company.



         In assessing the potential impact of the Year 2000 issue on the
Company's products, management considered the potential impact on the Company's
principal component manufacturer and the Company's own computer systems and
programs.



         Management currently believes that the worst case scenario with any
reasonable probability is that a small number of vendors, who are not central to
the operation of the Company's business, will be unable to supply materials for
a short time after January 1, 2000 and that minor additional system
modifications not identified during evaluation or testing will be identified and
corrected in a matter of days.


Risk Factors

         Limited Operating History. The Company has a limited operating history
upon which its prospects can be evaluated. Such prospects must be considered in
light of the substantial risks, expenses and difficulties encountered by
entrants into the medical device industry, which is characterized by an
increasing number of participants, intense competition and a high failure rate.
Until 1986, the Company was principally engaged in research and development
relating to the Intellectual Properties, ColorMate(Registered) units and the
Company's Beauty-Aid Products. From early 1986 through October 1987, the Company
was engaged in limited test-marketing of certain of the Intellectual Properties
and Beauty-Aid Products through its former licensees. From October 1987 until
June 1991, the Company was principally engaged in the Avon Project. Since 1991,
the Company has been engaged in the research and development of its
ColorMate(Registered) TLc-BiliTest(Trademark) System for the monitoring of
newborn bilirubinemia (infant jaundice), the development of prototypes of
additional versions of the ColorMate(Registered) unit and the refinement of its
technologies for other applications. From October 1990 to date, the Company has
not generated any material revenues and there can be no assurance it will be
able to do so in the future. The Company's business is subject to the risks
inherent in the development of new products using new technologies and
approaches, many of which are beyond the Company's control, such as
unanticipated development, manufacturing and regulatory delays and expenses.
There can be no assurance that unforeseen problems will not develop with these
technologies or applications, that the Company will be able to successfully
address technological challenges it encounters in its research and development
program or that commercially feasible products will ultimately be successfully
developed and marketed by the Company.

                                       13
<PAGE>

         Operating Losses. The Company has incurred significant losses from
operations for the year ended December 31, 1998 and the three months ended March
31, 1999, $7,284,800 and $2,078,600 respectively, as well as in prior periods.
As of March 31, 1999, the Company had an accumulated deficit of $23,851,800. The
Company anticipates incurring substantially increased operating expenses as it
attempts to expand its marketing and sales activity, incurs manufacturing
expenses for the ColorMate(Registered) TLc-BiliTest(Trademark) System and
otherwise continues to implement its business plan, including for the medical
application involving the monitoring of newborn bilirubinemia (infant jaundice).
There can be no assurance the Company will not continue to incur such losses or
will ever generate revenues at levels sufficient to support profitable
operations.

         Although the Company anticipates that the future expenses regarding FDA
application costs and related patent application costs should be significantly
less than amounts incurred prior to receipt of the initial FDA marketing
clearance, the Company will continue to incur significant additional costs and
expenses in connection with FDA manufacturing and other regulations, state
regulatory requirements and foreign market clearances and other requirements.
Additional expenses are anticipated in connection with certain international
multicenter studies being conducted on the ColorMate(Registered)
TLc-BiliTest(Trademark) System. In addition, the Company expects
to incur significant expenses relating to manufacturing expenses, products
liability insurance, legal and regulatory compliance, including QSR/GMP quality
system substantial compliance, as well as research and development for new
potential applications, and implementation of the next phase of its efforts to
successfully commercialize the medical application of its technology. The
Company also anticipates significantly higher compensation expenses in
connection with increased hiring to staff its medical division. See "Liquidity
and Capital Resources." The Company will also incur additional expenses
implementing additional testing and clinical trials of its technologies for the
possible monitoring of other chromogenic diseases. Further, the Company
anticipates significantly higher legal expenses in connection with its defense
of certain class action suits that have been brought against the Company and as
the Company explores all of its potential legal remedies. See "Legal
Proceedings."

         Need for Additional Financing; Cessation of Operations. The Company has
limited resources and has not been able to finance its activities with cash flow
from operations since fiscal 1989. There can be no assurance that proceeds from
the Debentures or remaining proceeds from the previous exercise of its Placement
Agent Warrants and Warrants, together with sales revenues, if any, future
distributor payments, if any, and/or additional financing, if any, will be
sufficient to fund operations until April 2000, that sufficient sales levels, if
any, will be achieved thereafter to fund operations or that the Company will not
incur additional unanticipated expenses. In this regard, if the Company is
unable to successfully market its Intellectual Properties, ColorMate(Registered)
units and Beauty-Aid Products, and in particular, its ColorMate(Registered)
TLc-BiliTest(Trademark) System for monitoring of newborn bilirubinemia (infant
jaundice), it is extremely doubtful it will be able to obtain additional future
financing and, at such point, may have to curtail or cease operations. The
Company's continued operation will depend on the successful marketing of the
ColorMate(Registered) unit, its ability to obtain significant commercial sales
of the Beauty-Aid Products and/or licensing and leasing fees from its
Intellectual Properties and the ColorMate(Registered) units, and the
availability of future financing. The Company expects that, in addition to the
Debentures, further financing will be required to successfully commercialize the
ColorMate(Registered) TLc-BiliTest(Trademark) System and any additional medical
application of its technologies. There can be no assurance that the Company will
be able to obtain additional financing, such commercial sales or fees, in which
case the Company's operations would be materially adversely affected and it may
be forced to significantly curtail and/or cease operations.

         Default under the Debentures. Following the occurrence of any Event of
Default under the Debentures or at any time thereafter (see "Recent Events")
which is not waived by the Debenture holders, the holders may
accelerate the maturity of the Debentures, whereupon all principal and interest
thereunder shall be immediately due and payable. In the event the Company
becomes obligated to effect such payment, and does not have sufficient funds to
make such payment, the Company may be forced to cease operations and seek
protection from its liabilities under applicable bankruptcy laws.

         No Assurance of Successful Commercialization of ColorMate(Registered)
TLc-BiliTest(Trademark) System. The Company's current ability to generate
revenues and to achieve profitability and positive cash flow in the immediate
future substantially will depend on the successful introduction of the medical
application of its technology to monitor newborn bilirubinemia (infant
jaundice). Although the Company is aware that studies have been conducted on
non-invasive transcutaneous bilirubinometer devices other than the
ColorMate(Registered) TLc-BiliTest(Trademark) System and that some of these
devices have received FDA marketing clearance, the Company believes the ability
of the ColorMate(Registered) TLc-BiliTest(Trademark) System to accurately
provide an estimate of serum bilirubin levels in babies over a wide range of
gestation, in babies of all racial categories and in babies receiving
phototherapy, distinguishes it from the other existing non-invasive
bilirubinometers with FDA clearance for commercial marketing. While the Company
believes the non-invasive nature of its ColorMate(Registered)
TLc-BiliTest(Trademark) System for monitoring newborn bilirubinemia (infant
jaundice) provides benefits to patients, no assurance can be given that the
medical community will accept and support the Company's medical device. There is
no assurance that the Company's ColorMate(Registered) Device for newborn
bilirubinemia (infant jaundice), or other future medical applications of the
Company's technology will be capable of being produced in commercial quantities
at

                                       14
<PAGE>

acceptable costs. There can be no assurance that the existing medical
applications for monitoring newborn bilirubinemia (infant jaundice), or for
future applications even if all regulatory and reimbursement approvals are
obtained, will be successfully marketed or achieve any significant degree of
market acceptance among physicians, health care payors and others. The medical
community generally has had limited exposure to the Company and its proposed
medical application. Because the medical community is generally relatively slow
to adopt new technologies, procedures or devices, the Company might be unable to
gain access to potential customers to demonstrate the operation and efficacy of
its Intellectual Properties in the medical field. Even if the Company gains
access to sufficient potential customers, no assurance can be given that members
of the medical community will perceive a need for or accept the Company's
proposed medical application.

         Physicians and other health care professionals will not recommend or
use the ColorMate(Registered) TLc-BiliTest(Trademark) System unless they
determine, based on experience, clinical data, relative cost, and other factors,
that the ColorMate(Registered) TLc-BiliTest(Trademark) System is an attractive
alternative to reducing the current traumatic blood tests that have a long
history of safe and effective use. The Company has begun conducting additional
independent studies in order to achieve acceptance in the medical community.
The Company believes that recommendations by physicians and
clinicians will be essential for the market acceptance of these products, but
there can be no assurance that any such recommendations will be obtained. To the
extent the Company is able to market and distribute its ColorMate(Registered)
TLc-BiliTest(Trademark) System, broad market acceptance of the Company's device
will require the training of numerous physicians and clinicians, and the time
required to complete such training could result in a delay of successful
commercial distribution to the medical market. Moreover, obtaining and
maintaining health care payors' approval of reimbursement for the Company's
products, and the level of reimbursement made available, will be an important
factor in establishing pricing, structure and market acceptance. In addition,
purchase decisions for the device will be greatly influenced by health care
administrators who are subject to increasing pressures to reduce costs. Some
purchasers, such as hospitals, pediatrician's offices and home health care
facilities, also might be reluctant to purchase products from a company that has
not demonstrated the ability to satisfy ongoing delivery requirements. In
addition, hospitals, clinics and pediatricians may be unwilling or unable to
commit funds to the purchase of the Company's ColorMate(Registered)
TLc-BiliTest(Trademark) System due to institutional budgetary constraints.

         User acceptance of these products will depend on many factors,
including physician recommendations, the degree, rate and severity of potential
complications, the cost and benefits compared to competing products or
alternative medical treatments, available reimbursement and other
considerations. In addition, the Company's pricing policies could adversely
impact market acceptance of these products as compared to competing products and
alternative treatments. If any of the Company's marketing or development
programs are not successfully completed, required regulatory approvals or
clearances are not maintained, or products for which approvals or clearances are
obtained (such as the ColorMate(Registered) TLc-BiliTest(Trademark) System) are
not commercially successful, the Company's business, financial condition and
results of operations would be materially adversely affected. There can be no
assurance that the Company will be able to successfully address any problems
that may arise during the commercialization process of its ColorMate(Registered)
TLc-BiliTest(Trademark) System.

         Early Stage of Development of Other Potential Medical Applications.
Although the Company has received FDA clearance to commercially market its
ColorMate(Registered) TLc-BiliTest(Trademark) System as described above, has
conducted early stage research and commenced initial clinical studies with
respect to certain other Chromogenic Diseases identified by the Company, the
Company's clinical and research development programs for other medical
applications of its technology are at a very preliminary stage and substantial
additional research and development and further clinical trials will be
necessary before commercial versions of any additional proposed products are
submitted for FDA marketing clearance and produced for other such medical
applications. The Company could encounter unforeseen problems in the development
of such other products such as delays in conducting clinical trials, delays in
the supply of key components or delays in overcoming technical hurdles. There
can be no assurance that the Company will be able to successfully address the
problems that may arise during the development/commercialization process. In
addition, there can be no assurance that any of the Company's proposed products
for any such other medical application will be successfully developed, proven
safe and efficacious in clinical trials or meet applicable regulatory standards
and requirements.

         Assumptions Regarding Medical Business Plan and Strategy. The Company
has formulated its medical business plan and strategy based upon certain
assumptions regarding the size of the bilirubin monitoring market, the Company's
anticipated short term and eventual share of this market, the price at which the
Company believes it will be able to sell or lease its products, and consumer
acceptance of the Company's products. There can be no assurance that the
Company's assumptions will prove to be correct. The Company's ability to operate
in the future will depend upon many factors, including technological advances
and product obsolescence; levels of competition, including the entry into the
market of additional competitors and increased success by existing competitors;
changes in general economic conditions; increases in operating costs including
costs of production, supplies, personnel or equipment; and changes in
requirements and regulations promulgated by applicable federal, state, local

                                       15
<PAGE>

and foreign regulatory authorities. There can be no assurance that the Company
will successfully obtain or apply the human, operational and financial resources
needed to manage a developing business. Failure by the Company to manage its
growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.

         Need for Additional Personnel. In order to generate and service sales
of the Company's medical products, the Company needs to attract and retain
significant additional senior and midlevel personnel experienced in marketing,
sales and regulatory matters in the medical industry. The Company currently has
only 41 full-time employees, of which 20 are medical marketing or regulatory
personnel. In order to effectively implement its marketing and sales strategy
for the medical market, the Company will need to hire additional sales,
marketing, technical and operations personnel. The success of the Company will
also be dependent upon its ability to hire, train and retain new and existing
personnel. The Company will compete with other companies with greater financial
and other resources for such qualified personnel. There can be no assurance that
the Company will be able to hire and retain additional personnel to support the
Company's marketing, sales, research and product development efforts.

         Lack of Marketing and Sales Experience. The Company has not previously
licensed its Intellectual Properties for use in any industry other than the
beauty aid, hosiery and cosmetics industries and management of the Company has
not had any experience in marketing the Intellectual Properties,
ColorMate(Registered) units or Beauty-Aid Products in any other field. Prior to
licensing the Company's Intellectual Properties in any industry, including the
cosmetic, beauty aids and fashion industries, the Company will be required to
develop additional marketing skills relevant to such industries and conduct
significant further marketing activity, and in certain of these industries,
overcome regulatory hurdles, professional skepticism and develop specific
practical applications therefor. The Company's medical support and sales
division was only recently established and there can be no assurance it will
successfully generate commercial levels of sales. There can be no assurance that
the Company will be able to successfully maintain a marketing and sales force,
or that it will be able to enter into additional marketing and sales agreements
with third parties on acceptable terms.

         Dependence on Marketing and Distribution Arrangements with Third
Parties. The Company has established a medical division to support its own and
third party initial marketing efforts and has entered into a separate third
party manufacturing agreement for the ColorMate(Registered)
TLc-BiliTest(Trademark) System. The Company's business strategy for the
commercialization of its medical products depends upon the Company's ability to
selectively enter into and maintain arrangements with leading marketing and
distribution companies in the medical field. There can be no assurance that the
Company will be able to do so. Any revenues to be received by the Company from
its ColorMate(Registered) TLc-BiliTest(Trademark) System will be dependent on
arrangements with third parties for marketing, distribution and sales of the
products. The obligation of any potential third party to fund or undertake the
marketing, distribution and/or sale of the product covered by any arrangements
with the Company may be dependent upon the satisfaction of certain goals or
"milestones" by certain specified dates, some of which are outside the Company's
control. To the extent that the obligations of any third party to fund or
undertake the foregoing activities are not contingent upon the satisfaction of
certain goals or milestones, a third party may retain a significant degree of
discretion regarding the timing of these activities and the amount and quality
of financial, personnel and other resources that they devote to these
activities. Furthermore, there can be no assurance that disputes will not arise
between the Company and any third party regarding their respective rights and
obligations under the arrangements. Finally, there can be no assurance that a
third party will not be unable, due to financial, regulatory or other reasons,
to satisfy its obligations under its collaborative arrangement with the Company
or will not intentionally or unintentionally breach its obligations under the
arrangement.

         There can be no assurance that any third party will not, for
competitive reasons, support, directly or indirectly, a company or product that
competes with the Company's business. Furthermore, any dispute between the
Company and a third party might require the Company to initiate or defend
expensive litigation or arbitration proceedings.

         Any significant dispute with or breach, inability to perform, or
termination of any arrangement with such third party would require the Company
to seek and reach an agreement with another third party or to assume, to the
extent possible and at its own expense, all the responsibilities being
undertaken by the first such third party. There can be no assurance that the
Company would be able to reach an agreement with a replacement third party. If
the Company were not able to find a replacement third party, there can be no
assurance that the Company would be able to perform or fund the activities for
which the first such third party would be responsible. Even if the Company were
able to perform and fund these activities, the Company's capital requirements
would increase substantially. In addition, the further manufacture, development,
marketing, distribution and sale of the product covered by such arrangement
would be significantly delayed.

         Dependence on Medical Device Manufacturer. The Company does not itself
manufacture the ColorMate(Registered) units, the ColorMate(Registered)
TLc-BiliTest(Trademark) System or the Beauty-Aid Products, and in the past has
been wholly dependent on third-party OEMs of parts, assemblers, cosmetics
suppliers and textile suppliers. The Company may encounter various problems in
establishing

                                       16
<PAGE>

and maintaining manufacturing relationships and/or operations, resulting in
inefficiencies and delays. Specifically, companies often encounter difficulties
in scaling up production, including problems involving production yield, quality
control and assurance, and shortages of qualified personnel. In addition, the
manufacturing facilities retained by the Company to manufacture its
ColorMate(Registered) products for medical applications are subject to FDA QSR
requirements and other regulatory requirements, international quality standards
(such as ISO 9001/EN46001) and other regulatory requirements. Currently, the
Company is dependent on the sole source manufacturer of the
ColorMate(Registered) TLc-BiliTest(Trademark) System under the existing
exclusivity arrangements. The Company will have to maintain relationships with
such manufacturer and third party suppliers of component parts for the
production of its devices. There can be no assurance the Company will be able to
maintain its relationships with its current manufacturer, or will be able to
maintain arrangements with the other parts suppliers or assemblers on terms
satisfactory to the Company. Although the Company believes that a number of
manufacturers are capable of manufacturing and assembling the
ColorMate(Registered) TLc-BiliTest(Trademark) System, any change in
manufacturers, or the retention of additional subcontractors, could result in
additional costs and delays. Difficulties encountered by the Company in
subcontracting to third-party manufacturers, scaling up production or failure by
the Company to utilize manufacturing facilities in substantial compliance with
FDA requirements, international quality standards or other regulatory
requirements, could result in a delay or termination of production or regulatory
enforcement action, which could have a material adverse effect on the Company's
business, financial condition and results of operations.

         In connection with manufacturing of the ColorMate(Registered) units,
the Company could be required to make significant advance payments, obtain
letters of credit, cause potential customers or licensees to advance funds under
their agreements entered into with the Company or otherwise secure its payment
obligations to third-party manufacturers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Although the
Company's existing manufacturing agreement for the ColorMate(Registered)
TLc-BiliTest(Trademark) System does not require such obligations, there can be
no assurance the Company will be able to maintain the existing relationship, or
that the Company will be able to enter into replacement agreements that do not
provide for such obligations and are otherwise on acceptable terms. There can be
no assurance the Company will be able to secure its payment obligations itself
or by having customers and/or licensees advance funds, or otherwise be able to
manufacture the ColorMate(Registered) units or obtain further manufacture of the
ColorMate(Registered) units or its products.

         To the extent the Company obtains any required FDA clearance for and
markets the Bilirubin LED Device or markets the Colormate(Registered) LED
Device, the Company will need to outsource the production and assembly of the
components of the Bilirubin LED Device and the Colormate(Registered) LED Device
to third party manufacturers and assemblers. One of the components of the
Bilirubin LED Device is available from only one supplier. The Company is reliant
on that one source of supply and these products would require a major redesign
in order to incorporate any substitute components.

         Lack of Market Penetration in Other Industries. The Company has not yet
achieved commercial market penetration in any industry, and there can be no
assurance the Company will be able to do so in the future. The Company has not
achieved significant levels of cosmetics sales from its ColorMate(Registered)
unit locations, and expects based on the deminimus cosmetics sales levels
achieved per location to date, that it will have to greatly increase the number
of ColorMate(Registered) unit installations to achieve significant levels of
cosmetics sale revenues. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company also believes, based on its
operating history since February 1993, that obtaining such increased cosmetic
sales revenue will take significantly longer to achieve than was originally
anticipated. At March 31, 1999, most of the inventory of the Company's cosmetics
products was in excess of requirements based on the level of sales. After giving
effect to the $100,000 write off in 1996 and the $75,000 write off in 1997,
management believes no further significant loss will be incurred on the
disposition of inventory. No estimate can be made of a range of amounts of loss
that are reasonably possible should the Company's expectations not be met. There
can be no assurance that no such loss will be incurred upon the disposition of
inventory. In order to implement its marketing plans in the United States and
abroad, including in industries in which the Company does not have prior
experience, the Company will have to develop additional marketing skills and
incur significant expenses on sales and marketing activities, including hiring
finders, new personnel and consultants, and entering into arrangements with
retailers and distribution companies having a regional or national presence.
There can be no assurance the Company's marketing plan will be successful.

         Legal Proceedings. Three putative class actions were commenced against
the Company and certain of its officers and directors in the Southern District
of New York. The first two actions were commenced in June 1998 and are captioned
L.F. Monk v. Chromatics Color Sciences International, Inc., Darby S. Macfarlane,
Arthur Guiry, David K. Macfarlane and Leslie Foglesong, C.A. No. 98 CV 4111
(S.D.N.Y.) and Daniel R. Marquis v. Chromatics Color Sciences International,
Inc., Darby S. Macfarlane, Arthur Guiry and Leslie Foglesong, C.A. No. 98 CV
4335 (S.D.N.Y.). The third action was commenced in August 1998 and is captioned
Joseph Grunberg v. Chromatics Color Sciences International, Inc., Darby S.
Macfarlane, Arthur Guiry, David K. Macfarlane and Leslie Foglesong, C.A. No. 98
CIV. 5646 (S.D.N.Y.)

                                       17
<PAGE>

         The complaints were consolidated pursuant to the Consolidation Order
entered by the Court in December 1998. A consolidated amended complaint in the
matter now captioned In re Chromatics Color Sciences International, Inc.
Securities Litigation, Consolidated Matter File No. 98 Civ. 4111 (SHS), was
filed and served in January 1999 (the "Action").

         Plaintiffs purport to bring the Action on behalf of all purchasers of
the common stock of the Company, between July 30, 1997 and June 9, 1998, seeking
damages for the alleged violation by defendants of Section 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. ss.78j(b), and Rule 10b-5 promulgated
thereunder, 17 C.F.R. ss.240.10b-5, and pursuant to Section 20(a) of the
Securities Exchange Act of 1934, 15 U.S.C. ss.78t(a), with respect to the
individual named defendants as "controlling persons." The complaint alleges that
the Company "embarked upon a scheme" to inflate the price of the Company's
Common Stock by making false and misleading statements concerning: (i) the new
and innovative nature of the Company's ColorMate(Registered)
TLc-BiliTest(Trademark) System; (ii) the market size and revenue potential of
the ColorMate(Registered) TLc-BiliTest(Trademark) System; and (iii) the
existence and status of negotiations with potential distributors of the
ColorMate(Registered) TLc-BiliTest(Trademark) System. The allegations of the
complaint arise principally from a "report" prepared by Manuel I. Asensio of
Asensio & Company, Inc. that was disseminated at the close of the putative class
period.

         Defendants have moved to dismiss the Action which motion is fully
briefed and sub judice before Judge Stein. Defendants believe that the claims
asserted against them are without merit and intend to vigorously defend the
Action. No assurance can be given that the resolution of the Action and/or
future actions will not have a material adverse effect on the Company's results
of operations and liquidity. The Company has directors and officers insurance
which may cover a portion of the liability asserted in the Action. The Company
is exploring its legal remedies in respect of what it believes to be false
allegations against the Company made by short sellers of its stock; the Company
expects to incur significant expenses in this regard.

         Potential International Operations. The Company believes that sales of
products to customers outside of the United States represents a significant
potential source of growth. Following compliance with applicable foreign
regulatory requirements, the Company expects to market its medical products
internationally through affiliates and distributors. The primary targeted
markets for the Company's products outside the United States are Western Europe,
Canada, Asia, South Africa and South America.  The Company also intends to
contract with a number of foreign manufacturers to provide certain of its
sourcing needs for its medical device, although there can be no assurance it
will be able to do so. To market its ColorMate(Registered)
TLc-BiliTest(Trademark) System in the European Union, the Company sought
ISO-9001/EN46001 certification and the right to affix the CE mark.
ISO-9001/EN46001 certification recognizes that the Company has established a
quality system for the design, development, manufacturing, servicing and
distribution of its medical device. The CE mark is a symbol of quality and
compliance with applicable European Union medical device directives. In March
1999, the Company received ISO-9001/EN46001 certification and passed a product
inspection in February 1999 for purposes of receiving the right to affix the CE
mark to the specific inspected product.  In April 1999, the Company received
certification from the appropriate European authority to allow release of the
inspected product for European Union distribution and received the right to
self-certify the product, without the need for third party specific product
inspection and certification, for purposes of affixing the CE mark for European
Union distribution. There can be no assurance the Company will maintain the
right to self-certify future products, which in such case would have a
material adverse effect on the Company's plan for European Union distribution.

         Foreign operations are subject to special risks that can materially
affect potential sales, including currency exchange rate devaluations and
fluctuations, the impact of inflation, exchange controls, labor unrest,
political instability, import and export duties and quotas, domestic and
international customs and tariffs, unexpected changes in regulatory
environments, potentially adverse tax consequences and other risks. Changes in
certain exchange rates could have a material adverse effect on the Company.

         Prior Marketing Attempts. Other than the Company's marketing efforts
with Avon, arrangements with IMS and its beauty salon placements and the
Nordstrom's contract, the Company's own attempts to license and/or lease its
Intellectual Properties and the ColorMate(Registered) units and to market its
Beauty-Aid Products independently and/or through licensees never proceeded
beyond the test marketing stage. There can be no assurance the Company will in
the future achieve commercial leasing of its ColorMate(Registered) units and
commercial licensing of the Intellectual Properties or the sale of the
Beauty-Aid Products. In addition, other than its installation of
ColorMate(Registered) units in beauty salons and beauty-related businesses
(which are generating insignificant revenue), the Company's revenue generating
activities have been primarily conducted in conjunction with its former
licensees (i.e., Clairol, Hanes and Avon), that provided substantial economic,
administrative, marketing and advertising support. There can be no assurance
that without the support of a marketing partner with financial resources, an
advertising budget, market presence and consumer recognition, the Company will
be able to achieve successful operations, including for medical applications of
its products and technologies. Further, there can be no assurance the Company
will ever develop a commercial market for the

                                       18
<PAGE>

licensing or leasing of its ColorMate(Registered) units and Intellectual
Properties, for the sale of the Beauty-Aid Products or for any medical
applications of its technologies.

         Competition. To the extent the Company implements its business plan to
commercialize a medical application for its Intellectual Properties, it will be
entering a field characterized by rapidly changing technology, intense
competition and extensive research and development. The medical products market
in general is highly competitive. The Company's ability to compete in the
monitoring of newborn bilirubinemia (infant jaundice) market depends primarily
on the acceptance by the medical community of the Company's new technology,
which can be influenced by factors such as price, product quality and features,
technical capability, breadth of product line and distribution capabilities. The
Company will be competing with companies, some of which are more established and
which have greater financial, technical, manufacturing, marketing, research and
development and management resources than the Company (including companies such
as Minolta Co., Ltd., Respironics, Inc., which recently acquired Healthdyne
Technology, Inc., and SpectRx, Inc., among others), and some of which have
greater name recognition and lengthier operating histories in the health care
industry. The Company believes the only commercially available non-invasive
bilirubinometers with FDA marketing clearance in the United States are the
Minolta Jaundice Meter and the SpectRx Bilicheck. In addition, there will be
other companies with which the Company will compete regarding other potential
medical applications which the Company may pursue. Furthermore, the monitoring
methods currently in use for monitoring of newborn bilirubinemia (infant
jaundice) as well as dermatological diseases and tuberculosis, the principal
diseases with respect to which the Company may seek regulatory marketing
clearance, have already achieved acceptance by and are in widespread use in the
medical community, unlike the Company's proposed methods. There can be no
assurance that the Company's proposed methods will be accepted by the medical
community.

         There can be no assurance that the Company will be able to effectively
compete against these and other competitors, including those competitors who
intend to promote their versions of non-invasive devices. Additionally, there
can be no assurance that the Company's competitors will not succeed in
developing, either before, during or after the commercialization of the
Company's product, devices and technologies that permit more efficient, less
expensive non-invasive detection and monitoring of infant jaundice. It is also
possible that one or more pharmaceutical or other health care companies will
develop therapeutic drugs, treatments or other products that will substantially
reduce the prevalence of infant jaundice or otherwise render the Company's
products obsolete. There can be no assurance that the Company will be able to
upgrade its medical applications and devices to compete with such competitors or
with persons who may in the future develop products or detection methods
competitive with the Company's proposed medical applications and devices.

         Now that the Company has developed its own marketing and sales
capabilities, it will compete with other companies that have experienced and
well-funded marketing and sales operations. In addition, the Company's
ColorMate(Registered) TLc-BiliTest(Trademark) System, as well as any future
medical applications marketed by the Company, will compete with existing
devices, technologies and methods in achieving acceptance in the medical
community and in attracting support from independent medical device distribution
organizations which sell medical equipment to the anticipated target market
(i.e., hospitals, pediatrician's offices and home health care services).

         Independent medical supply distributors who may be retained by the
Company will distribute other products which may compete with those of the
Company or which would provide greater revenues to such distributors than would
be provided by the Company's products. In addition, many medical supply
companies with which the Company's proposed medical application and device will
compete, and which have significantly greater financial research, technical,
manufacturing, and distribution resources and broader product lines than the
Company, have their own in-house marketing and distribution capabilities and
have established relationships with potential customers for the Company's
proposed medical application, such as pediatricians and hospitals. In addition,
many of the Company's competitors offer broader product lines than the Company,
which may be a competitive advantage in obtaining contracts with health care
purchasing groups. No assurance can be given that the Company will successfully
and effectively market its medical products against these and other competitors
or contract with health care providers.

         The cosmetics industry and fashion industry are particularly sensitive
to changing consumer preferences and demands, which are difficult to predict and
beyond the Company's control. Competition in the cosmetics industry is diverse
and fragmented, but is nevertheless dominated by a number of large, established,
well-known corporations having, among other things, significantly greater
financial, marketing and human resources than the Company. Virtually all of such
companies have in the past marketed, and continue to market, their products
based on their own color analysis system and advertised claims of "color
compatibility" with the personal color and/or wardrobe of the consumer. These
competitors also have established presence in the market and their own cosmetic
manufacturing facilities, unlike the Company. There can be no assurance that
consumers will

                                       19
<PAGE>

prefer products based on the Company's scientifically based color
determinations, rather than the products sold by the Company's competitors based
on subjective techniques.

         Protection of Intellectual Property. The Company depends on its ability
to obtain and maintain patent protection for its products and processes, to
preserve its trade secrets, and to operate without infringing upon the
proprietary rights of third parties. The validity and breadth of claims covered
in medical technology patents involve complex legal and factual questions and
therefore, may be highly uncertain. No assurance can be given that the scope of
any patent protection under the Company's current patents, or under any patent
the Company might obtain in the future, will exclude competitors or provide
competitive advantages to the Company; that any of the Company's patents will
not be held invalid if subsequently challenged; or that others will not claim
rights in or ownership of the patents and other proprietary rights held by the
Company.

         The Company's U.S. Patents Nos. 4,909,632 and 5,311,293 expire in 2007;
the Company's U.S. Patent No. 5,313,267 expires in 2011; the Company's U.S.
Patent No. 5,671,735 expires in 2014; after the respective expiration date of
each, the proprietary technology and instrumentation disclosed in each Patent
will be available for use by others without compensation to the Company, unless
protected by the claims of other U.S. patents that may be issued to the Company.
The Company has developed intellectual property rights in color analysis,
calibration and verification in a number of fields including medical,
biological, dental, cosmetic and materials testing. The intellectual property
rights include trade secrets, know how and 14 pending United States patent
applications. These rights also include various foreign patent applications
corresponding, at least in part, to the U.S. Patents and the U.S. patent
applications. There can be no assurance that patents will issue based on these
patent applications or that any patent claims will provide sufficient protection
to exclude others from the Company's proprietary technology and instrumentation.
There can be no assurance that the Company will not be involved in litigation to
protect its trade secrets and know how or that the Company will prevail in such
litigation. There can be no assurance that challenges will not be instituted
against the validity or enforceability of any patents owned by or issued in the
future to the Company, or that such challenges will not be successful. There can
be no assurance that patent infringement claims will not be asserted against the
Company and found to have merit, that the Company will not be enjoined from
using its proprietary technology and instrumentation and from manufacturing and
selling certain of its Products, or would not be forced to obtain a license and
pay future royalty fees as well as past damages to the party claiming
infringement in amounts not presently determinable. There can be no assurance
that any such license will be available to the Company. Conversely, to the
extent third parties infringe upon the Company's patented Intellectual
Properties, the Company may have to litigate against such third parties in order
to prevent further infringement. There can be no assurance the Company will have
the resources to prosecute any such litigation, or that any such litigation
would be resolved in favor of the Company. In the event it is unable to bring
such litigation or obtain a favorable outcome, the Company's operations could be
materially adversely affected in that the Company's failure to enforce its
Patents could result in increased competition. If the Patents are declared
invalid, the Company would lose patent protection for certain of its
Intellectual Properties, which could have a material adverse effect on its
operations.

         There can be no assurance that the Company's Intellectual Properties
will provide it with a competitive advantage in that it may be possible for a
competitor independently to develop non-infringing technologies, independently
duplicate the Company's unpatented technology through reverse engineering,
design around the patented aspects of the Company's technology, or otherwise
independently develop scientifically accurate processes, instruments or color
charts to measure skin coloration, skin tone color categories and conduct
comparative color analysis without infringing the Company's Patents.

         The Company's U.S. Patents apply only to the United States. The Company
has filed patent applications in a number of foreign jurisdictions which
correspond, at least in part, to the Company's U.S. Patents. The Company has
been granted European Patent No. 0446512, nationalizations of that European
Patent in Austria, Belgium, France, Germany, Great Britain, Italy, Luxembourg,
The Netherlands, Spain, Sweden and Switzerland and Liechtenstein, as well as
Australian, Canadian, Korean and Mexican Patents corresponding, at least in
part, to its U.S. Patent No. 4,909,632, Taiwanese and Colombian Patents
corresponding, at least in part, to its U.S. Patent No. 5,313,267 and two
Taiwanese Patents corresponding, at least in part, to its U.S. Patent No.
5,671,735. The Company has not yet been granted any other foreign patents for
its Intellectual Properties and there can be no assurance that it will be
granted any such patents. Consequently, wherever the Company does not have
foreign patents, third parties currently could exploit, outside the United
States, the technology disclosed in the U.S. Patents, thereby increasing
competition in such foreign markets. In addition, persons gaining access to the
Company's unpatented proprietary information and technology and who are not
bound by confidentiality agreements with the Company would have the ability to
exploit the Company's unpatented proprietary information and technology both
inside and outside the United States, thereby increasing competition.

         There can be no assurance that one or more of the Patents held by the
Company will not be successfully challenged or circumvented or that the Company
will otherwise be able to rely on such Patents. In addition, there can be no
assurance that competitors, many of whom have substantial resources and have
made substantial investments in competing technologies, will

                                       20
<PAGE>

not seek to apply for and obtain patents that prevent, limit or interfere with
the Company's ability to make, use and sell its products either in the United
States or in foreign markets. If the Company's right or ability to manufacture
its products were to be proscribed or limited, the Company's ability to continue
to manufacture and market its Products could be adversely affected, which would
likely have a material adverse effect upon the Company's business, financial
condition and results of operations.

         The Company has not applied for patent protection for many aspects of
the Intellectual Properties (i.e., its proprietary trade secrets and other
confidential information). The Company typically imposes on its consultants, key
employees and advisers confidentiality obligations in connection with their
employment, consulting or advisory relationship with the Company. There can be
no assurance that such confidentiality obligations will be observed or that the
Company will have adequate remedies if those obligations are breached. To the
extent that consultants, key employees or other advisors apply technological
information taken from the Company in violation of confidentiality obligations,
disputes may arise as to the proprietary rights to such information which may
not be resolved in favor of the Company. There can be no assurance that others
will not independently develop technology that is substantially equivalent or
superior to that included in the Company's Intellectual Properties which are not
protected by patents.

         There can be no assurance that the Company's copyright protection for
the software used in the ColorMate(Registered) Systems will provide it with a
competitive advantage in that it may be possible for a competitor independently
to develop similar software, design around the Company's copyrighted software or
otherwise independently develop software with the capacity to accurately measure
skin tone categories and conduct comparative color analysis.

         The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights,
particularly with respect to newly developed technology. In addition,
re-examination or interference proceedings may be instituted in the United
States Patent and Trademark Office ("USPTO"). There can be no assurance that the
Company will not become subject to patent infringement claims brought by third
parties, or re-examination of previously issued patents by the USPTO or
interference proceedings instituted in the USPTO to determine the priority of
inventions. The defense and prosecution of intellectual property suits, USPTO
re-examination and interference proceedings and related legal and administrative
proceedings are both costly and time consuming. Litigation may be necessary to
enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company or to determine the enforceability, scope and validity of
the proprietary rights of the Company and others. Any litigation or interference
proceedings brought against, initiated by or otherwise involving the Company may
require the Company to incur substantial legal and other fees and expenses and
may require some of the Company's employees to devote all or a substantial
portion of their time to the prosecution or defense of such litigation or
proceedings. An adverse determination in litigation or interference proceedings
to which the Company may become a party, including any litigation that may arise
against the Company, could subject the Company to significant liabilities to
third parties, disputed rights to be licensed from such third parties or prevent
the Company from selling its products in certain markets, or at all. If
third-party patents containing claims affecting the Company's technology were
issued, and such claims were determined to be valid, there can be no assurance
that the Company would be able to obtain licenses to such patents at costs
reasonable to the Company, if at all, or be able to develop or obtain alternate
technology. Although patent and intellectual property disputes regarding medical
devices are often settled through licensing or similar arrangements, there can
be no assurance that the Company would be able to reach a satisfactory
settlement of such a dispute that would allow it to license necessary patents or
other intellectual property. Even if such a settlement were reached, the
settlement process may be expensive and time consuming, and the terms of the
settlement may require the Company to pay substantial royalties. An adverse
determination in a judicial or administrative proceeding or the failure to
obtain a necessary license could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations.

         The Company is aware that others have obtained and are pursuing patent
protection for various aspects of infant jaundice diagnostic and monitoring
products and their use, including products that are non-invasive. There can be
no assurance that the Company's technology, current or future products or
activities will not be deemed to infringe upon the patent rights of others.

         Failure to Obtain and Maintain Third-Party Reimbursement. In the United
States and elsewhere, sales of medical products and their use are dependent, in
part, on the ability of consumers of these products to obtain reimbursement for
all or a portion of their cost from third-party payors, such as government and
private insurance plans. Third-party payors are increasingly challenging the
prices charged for medical products and services. If the Company brings its
ColorMate(Registered) TLc-BiliTest(Trademark) System or other future products to
market, there can no assurance that such products will be considered cost
effective and that reimbursement to the consumer will be or continue to be
available, or sufficient to allow the Company to sell its medical device
products on a competitive basis. Moreover, obtaining and maintaining health care
payors' approval of reimbursement for the Company's products or their use, and
the level of reimbursement made available, will be an important

                                       21
<PAGE>

factor in establishing pricing, structure and market acceptance. The Company is
unable to predict what changes will be made in the reimbursement methods
utilized by third-party health care payors. Furthermore, the Company could be
adversely affected by changes in reimbursement policies of governmental or
private health care payors.

         American Medical Association ("AMA") CPT codes are generally used to
facilitate the processing of insurance reimbursement claims and to provide a
simplified reporting procedure. However, assignment of a code does not assure
that the insurer will provide reimbursement or that the AMA endorses the medical
procedure at issue. In March 1998, the Company was assigned AMA CPT Code 82250
for processing claims for use of the ColorMate(Registered)
TLc-BiliTest(Trademark) System. The same code is assigned for the reimbursement
of laboratory blood tests currently used to monitor newborn bilirubinemia
(infant jaundice). Subsequently, the AMA informed the Company that CPT Code
84999 ("Unlisted Chemistry Procedure"), not Code 82250, was the assigned code.
However, the AMA indicated that it was reviewing coding in this area generally.
The Company believes the original Code 82250 is correct and will continue its
efforts to have the AMA reassign this code, or apply for a new code. There can
be no assurance that the Company will be reassigned the original CPT Code 82250.
Claims for reimbursement under CPT Code 84999 may not be as easily processed for
reimbursement as claims made under CPT Code 82250.

         Since receiving FDA marketing clearance in the United States, the
Company has undertaken the procedures to obtain required international
regulatory clearances for its monitoring technology for newborn bilirubinemia
(infant jaundice). Market acceptance of the Company's products in international
markets will be dependent in part, upon the availability of reimbursement within
prevailing health care payment systems. Reimbursement and health care payment
systems in international markets vary significantly by country and include both
government sponsored health care and private insurance. Although the Company
intends to seek international reimbursement approvals, there can be no assurance
that such approvals will be obtained in a timely manner, if at all. Failure to
obtain and maintain third-party reimbursement coverage for use of the
ColorMate(Registered) TLc-BiliTest(Trademark) System will have a material
adverse effect on the Company's ability to commercialize its technology for
medical applications.

         Government Regulations. The Company's advertising, sales practices and
cosmetics and medical products (including the labeling and packaging thereof)
are and will be subject to applicable federal, state and local regulation
(including regulation by the FDA, the Federal Trade Commission, and the Federal
Communications Commission, under various laws such as the Fair Packaging and
Labeling Act and/or any comparable state authority, agency or statute) and will
be subject to regulation by comparable foreign authorities if the Company
markets its products abroad. The Company will also be subject to regulation by
various governmental agencies that regulate direct selling activities.

         Although the Company has received FDA marketing clearance of its
ColorMate(Registered) TLc-BiliTest(Trademark) System pursuant to a "substantial
equivalence" determination order, in the form of a letter dated July 24, 1997
from the FDA's CDRH, authorizing the Company to commercially distribute its
ColorMate(Registered) TLc-BiliTest(Trademark) System for monitoring newborn
bilirubinemia (infant jaundice) by healthcare professionals in the United
States, the Company also must comply with the other applicable statutes and
applicable rules and regulations promulgated by the FDA, in order to legally
market the device. The "substantial equivalence" order states that the Company
must comply with the medical device general controls, e.g., device establishment
registration, medical device listing, good manufacturing practices (QSR
requirements), medical device reporting, labeling, and the statutory
prohibitions against adulteration and misbranding. The order also states that
the ColorMate(Registered) TLc-BiliTest(Trademark) System is a Class II device
which may be subject to additional special controls.

         In the United States, the FDA regulates the introduction of medical
devices as well as, among other things, manufacturing, labeling and
recordkeeping procedures for such products. The process of obtaining marketing
clearance for new medical products from the FDA can be costly and time
consuming, and there can be no assurance that such clearance will be granted for
the Company's future products on a timely basis, if at all, or that FDA review
will not involve delays that would adversely affect the Company's ability to
commercialize additional or significantly modified products or to expand
permitted uses of existing products. Regulatory clearance to market a product
from the FDA may entail limitations on the indicated uses of the product. The
ability to market can be challenged (and possibly withdrawn) by the FDA due to
failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial clearance. The Company may be required to file
further marketing applications with the FDA under certain circumstances, such as
the addition of product claims or product redesign. FDA regulations depend
heavily on administrative interpretation, and there can be no assurance that
future interpretation made by the FDA or other regulatory bodies, will not
adversely affect the Company.

         In order for the Company to market its products in Europe and certain
other foreign jurisdictions, the Company and its distributors and agents must
maintain required regulatory registrations or approvals and otherwise comply
with extensive regulations regarding safety, efficacy and quality in those
jurisdictions. Specifically, certain foreign regulatory bodies have adopted
various regulations, among other things, governing product standards, packaging
requirements, labeling requirements,

                                       22
<PAGE>

import restrictions, tariff regulations, duties and tax requirements. These
regulations vary from country to country. To market its ColorMate(Registered)
TLc-BiliTest(Trademark) System in the European Union, the Company sought
ISO-9001/EN46001 certification and the right to affix the CE mark.
ISO-9001/EN46001 certification recognizes that the Company has established a
quality system for the design, development, manufacturing, servicing and
distribution of its medical device. The CE mark is a symbol of quality and
compliance with applicable European Union medical device directives. In March
1999, the Company received ISO-9001/EN46001 certification and passed a specific
product inspection in February 1999 for purposes of receiving the right to affix
the CE mark to the specific inspected product. In April 1999, the Company
received certification from the appropriate European authority to allow release
of the inspected product for European Union distribution and received the right
to self-certify the product, without the need for third party specific product
inspection and certification, for purposes of affixing the CE mark for European
Union distribution. There can be no assurance the Company will maintain the
right to self-certify future products, which in such case would have a
material adverse effect on the Company's plan for European Union distribution.
Failure to maintain ISO-9001/EN46001 certification, CE mark rights or other
foreign regulatory approvals for the Company's medical products would prevent
the Company from marketing its medical products abroad, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will obtain
any other required regulatory registrations or approval in such countries or
that it will not be required to incur significant costs in obtaining or
maintaining such regulatory registrations or approvals. Delays in obtaining any
registrations or approvals required to market the Company's products, failure to
receive these registrations or approvals, or future loss of previously obtained
registration or approvals could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may rely on
its third-party foreign distributors to comply with certain foreign regulatory
requirements. The inability or failure of the Company or such foreign
distributors to comply with varying foreign regulations or the imposition of new
regulations could restrict the sale of the Company's products internationally
and thereby adversely affect the Company's business, financial condition and
results of operations.

         The Company and any third party with which it has made contract
manufacturing or other regulated arrangements is required to adhere to
applicable FDA regulations, including the QSR requirements and similar
regulations in other countries, which include, among other things, testing,
control, and documentation requirements. Ongoing compliance with QSR
requirements and other applicable regulatory requirements will be strictly
enforced in the United States through periodic inspections by federal and
possibly state agencies, including the FDA, and in foreign jurisdictions by
comparable agencies. Failure to comply with applicable regulatory requirements
could result in, among other things, warning letters, injunctions, civil
monetary penalties, recall or seizure of products, total or partial suspension
of production, refusal of the government to grant premarket clearance or
premarket approval for devices, possible rescission or withdrawal of clearances
or approvals previously obtained and criminal prosecution. The restriction,
suspension or revocation of regulatory clearances or approvals or government
enforcement actions due to any other failure to comply with regulatory
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.

         Product Liability and Malpractice. The medical products industry is
subject to substantial product liability litigation, and the Company faces an
inherent business risk of exposure to product liability claims in the event that
the use of its products is alleged to have resulted in adverse effects to a
patient or product user. Any such claims could have a material adverse effect on
the Company, including on market acceptance of its ColorMate(Registered)
TLc-BiliTest(Trademark) System. As the ColorMate(Registered)
TLc-BiliTest(Trademark) System enters commercial use, the Company will be in a
field where it may become subject to product liability claims by patients and/or
users and might become a defendant in product liability and/or malpractice
litigation. Although the Company has product liability insurance, it does not
have malpractice insurance for such applications. There can be no assurance that
it will be able to maintain such product liability insurance or that such
insurance would be sufficient to protect the Company against any such
liabilities.

         The Company maintains its own product liability insurance with respect
to cosmetic and beauty aid applications. There can be no assurance that such
insurance will be adequate to protect the Company from claims that may be
brought against it by users of the ColorMate(Registered) units or its Beauty-Aid
Products.

         The Company has not established, and the Company does not intend to
establish, any reserves against any of the foregoing liabilities. In the event
of an uninsured or inadequately insured product liability or malpractice claim
in the future based on the performance of the Company's Colormate(Registered)
TLc-BiliTest(Trademark) System, its ColorMate(Registered) units or Beauty-Aid
Products, the Company's business and financial condition could be materially
adversely affected and the Company could be forced to cease operations.

         Year 2000 Compliance. Until recently computer programs were generally
written using two digits rather than four to define the applicable year.
Accordingly, such programs may be unable to distinguish properly between the
Year 1900 and the

                                       23
<PAGE>

Year 2000. This could result in system failures or data corruption for the
Company or its vendors which could cause disruptions of operations, including,
among other things, a temporary inability to process transactions or engage in
business activities or to receive information, services or payment from vendors.

         The Company's internal computing systems are primarily limited to
hardware and software for its financial systems, such as general ledger and
accounts receivable and payable systems, and word processing and database
systems. The Company is not dependent on large legacy systems and does not use
mainframes.

         The Company's management is continuing to conduct an assessment of the
Company's operations from an internal, vendor and customer perspective. The
assessment addresses all of the Company's material computer systems,
applications and any other material systems that the Company believes may be
vulnerable to the Year 2000 issue and significantly affect the Company's
operations. This assessment includes contacting third parties with whom the
Company has a material relationship to determine their Year 2000 readiness. The
Company's assessment is not yet complete and there can be no assurances that any
such problems will not arise.

         The total costs associated with the Company's Year 2000 compliance are
not expected to be material to the Company's financial position. However,
satisfactory remediation of Year 2000 issues is dependent upon many factors,
some of which are not completely within the Company's control. The Company's
current estimates of the impact of Year 2000 compliance on its financial
position do not include costs that may result from the failure of third parties
with whom the Company has a material relationship to be Year 2000 compliant.
Should the Company's internal systems or systems of one or more significant
third parties fail to achieve Year 2000 compliance, the Company's business and
its operations could be materially adversely affected.

         Control; Dependence on Management. Darby Simpson Macfarlane, Chief
Executive Officer of the Company, owns shares of Common Stock and Series A
preferred stock, par value $0.001 per share (the "Preferred Stock") aggregating
2,991,896 (excluding currently exercisable stock options) of the shares eligible
to vote on matters presented to the shareholders, which amount is sufficient to
permit her to significantly influence the election of directors or to approve
any matter submitted to a vote of shareholders, and otherwise be in control of
the Company. The Company is dependent primarily on the services of Darby Simpson
Macfarlane and David Kenneth Macfarlane, Vice President, Research and
Development. The loss of either of their services could have a material adverse
effect on the Company. Although the Company has purchased key-man life insurance
policies in the amounts of $1,000,000 on the lives of each of Mrs. and Mr.
Macfarlane, there can be no assurance that the proceeds from such policies would
enable the Company to retain suitable replacements for them.

         No Assurance of continued Nasdaq SmallCap Market Listing; Risk of
Application of Penny Stock Rules. The trading of the Company's stock in the
Nasdaq SmallCap Market will be conditioned upon the Company's continuing to meet
certain asset, capitalization, earnings and stock price tests. To maintain
eligibility for trading on the Nasdaq SmallCap Market, the Company will be
required to maintain, among other things, net tangible assets of at least
$2,000,000; a minimum bid price for the listed securities of $1.00 per share; a
market value of the public float of at least $1,000,000; and at least two market
makers for its securities. If the Common Stock were to be delisted from the
Nasdaq SmallCap market, the prices and the holders' ability to sell such
securities would be adversely affected. If the Common Stock were delisted and
the Company desired to have it relisted, the Company would be required to
satisfy the more stringent initial listing requirements of the Nasdaq SmallCap
Market.

         If the Company is delisted from the Nasdaq SmallCap Market and the
price per share dropped below $5.00, then unless the Company satisfied certain
net assets tests, the Common stock would become subject to certain penny stock
rules promulgated by the Securities and Exchange Commission (the "Commission").
The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the Commission that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, the penny
stock rules require that prior to a transaction in a penny stock not otherwise
exempt from such rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activities in the secondary market for stock that becomes subject to the penny
stock rules. If the Common Stock becomes subject to the penny stock rules,
investors may find it more difficult to sell their Common Stock.

<PAGE>

         Lack of Public Market; Possible Volatility of Stock Price. There is no
assurance that a regular trading market for the Company's securities will be
sustained. The market price for the Company's Common Stock may be significantly
affected by such factors as the Company's financial performance, the results of
the Company's efforts to license its Intellectual Properties and to market its
products, and various factors affecting the color science industry and the
beauty aid and cosmetics industries generally.

                                       24
<PAGE>

Additionally, in recent years, the stock market has experienced a high level of
price and volume volatility for many companies, particularly small and emerging
growth companies traded in the over-the-counter market, and these wide price
fluctuations are not necessarily related to the operating performance of these
companies. Accordingly, there may be significant volatility in the market for
the Company's securities.

         Exercise of Outstanding Warrants and Conversion of Debentures. The
price which the Company will receive for the Common Stock issued upon exercise
of the remaining Warrants issued to the placement agent in the 1995 Private
Placement and the conversion of Debentures is expected to be substantially less
than the market price of the Common Stock at the time such Private Placement
Warrants are exercised or such Debentures are converted. For the life of such
Private Placement Warrants and Debentures, the holders thereof are given, at
little or no cost, the opportunity to profit from a rise in the market price of
the Common Stock, if any, without assuming the risk of ownership. So long as
such Private Placement Warrants remain unexercised and Debentures remain not
converted, the terms under which the Company could obtain additional equity
financing may be adversely affected. Moreover, the holders of such Private
Placement Warrants and Debentures may be expected to exercise (or convert, as
applicable) them at a time when the Company would, in all likelihood, be able to
obtain any needed capital by a new offering of securities on terms more
favorable than those provided by such securities. To the extent of any exercise
or conversion of such Private Placement Warrants or Debentures, the interests of
the Company's shareholders will be diluted proportionately.

         Outstanding Voting Preferred Stock. The Company has outstanding
1,380,000 shares of Preferred Stock. Each share of Preferred Stock has voting
rights equivalent to each share of Common Stock and is convertible to Common
Stock if (i) the Company's earnings (i.e. pre tax operating income, before
interest expense) for any two consecutive calendar years ending on December 31,
2000 exceed $20,000,000 or (ii) the closing bid price of the Common Stock has
been at least $31.11 on 30 consecutive trading days at any time ending on
December 31, 2000. Further, the Preferred Stock has a $13,800 liquidation
preference and earns an annual non-cumulative dividend of $0.001 per share. The
voting rights, conversion rights, dividend rights and liquidation preference of
the Preferred Stock may adversely affect the trading value or the market price
of the Common Stock.

         Additional Authorized Preferred Stock. The Company's Amended
Certificate of Incorporation (the "Certificate of Incorporation") authorizes the
Board of Directors to issue, without shareholder approval, up to 10,000,000
shares of preferred stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of Common Stock. The issuance of preferred stock or of rights to
purchase preferred stock could be used to discourage an unsolicited acquisition
proposal. In addition, the possible issuance of preferred stock could discourage
a proxy contest, make more difficult the acquisition of a substantial block of
the Company's Common Stock or limit the price that investors might be willing to
pay in the future for shares of the Company's Common Stock.




                                       25

<PAGE>





                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                  CHROMATICS COLOR SCIENCES INTERNATIONAL, INC.




Date: May 17, 1999                           /s/ Darby S. Macfarlane
                                             --------------------------------
                                             Darby S. Macfarlane
                                             Chief Executive Officer

Date: May 17, 1999                           /s/ Leslie Foglesong
                                             --------------------------------
                                             Leslie Foglesong
                                             Treasurer and Chief Financial
                                             and Principal Accounting Officer


                                      26