<PAGE>
QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 for the quarterly period ended September 30, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the transition period from ___ to ___.
Commission File Number 0-21752
IMATEC, LTD.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
Delaware 11-3289398
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
150 East 58th Street 10155
New York, New York (Zip Code)
(Address of principal executive offices)
(212) 826-0440
(Issuer's Telephone Number)
</TABLE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
The number of shares outstanding of the Issuer's Common Stock, $.0001 par
value, as of November 13, 1997 was 3,735,201.
Transitional small business disclosure format: Yes No X
--- ---
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
INDEX
PART I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
BALANCE SHEET - December 31, 1996 and September 30, 1997 3
STATEMENT OF OPERATIONS - November 17, 1988 (Inception) to September 30, 1997
(Cumulative) and Three and nine months ended September 30, 1996 and 1997 4
STATEMENT OF STOCKHOLDERS' EQUITY - Nine months ended September 30, 1997 5
STATEMENT OF CASH FLOWS - November 17, 1988 (Inception) to September 30, 1997
(Cumulative) and Nine months ended September 30, 1996 and 1997 6
NOTES TO FINANCIAL STATEMENTS 7
ITEM 2.
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS 9
- ------
ITEM 2. CHANGES IN SECURITIES 9
- ------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9
- ------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
- ------
SIGNATURES 10
</TABLE>
2
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash $ 948,963 $ 510,713
Marketable Securities 3,209,699 4,702,315
Other Current Assets 92,499 144.613
---------- ----------
TOTAL CURRENT ASSETS 4,251,161 5,357,641
FIXED ASSETS (net of accumulated depreciation
of $12,803 and $30,329 at December 31,
1996 and September 30, 1997, respectively)
104,947 117,596
DEPOSIT 17,920 17,920
---------- ----------
TOTAL ASSETS $4,374,028 $5,493,157
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 44,866 $ 96,326
---------- ----------
TOTAL LIABILITIES 44,866 96,326
---------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock, $.0001 par value; authorized - 2,000,000
shares; issued and outstanding - none
Common Stock, $.0001 par value; authorized -
20,000,000 shares; issued and outstanding - 3,735,201
in December 31, 1996 and September 30, 1997 373 373
Additional paid-in capital 8,749,185 8,749,185
Deficit accumulated during the development stage (4,420,396) (3,352,727)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 4,329,162 5,396,831
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $4,374,028 $5,493,157
========== ==========
</TABLE>
See notes to financial statements
3
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30, November 17,
----------------------------------------------------------- 1988 (Inception)
to
Sept. 30, 1997
1997 1996 1997 1996 (cumulative)
---- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C>
INCOME - consulting fees $ 0 $ 0 $ 0 $ 0 $133,973
--- --- --- --- --------
EXPENSES
Royalties (38,588) (37,334) (112,088) (107,337) (676,172)
Research and Development (5,421) (38,801) (59,634) (81,879) (534,993)
General and Administrative (355,906) (240,951) (1,069,468) (565,629) (2,588,786)
--------- --------- ----------- ----------- -----------
TOTAL EXPENSES (399,915) (317,086) (1,241,190) (754,845) (3,799,951)
--------- --------- ----------- ----------- -----------
LOSS FROM OPERATIONS (399,915) (317,086) (1,241,190) (754,845) (3,665,978)
INTEREST EXPENSE AND
AMORTIZATION AND WRITE-
OFF OF DISCOUNT AND DEBT
ISSUANCE COSTS (466,169) (1,095,843) (2,211,400)
INTEREST INCOME 53,485 25,185 173,521 51,781 292,270
--------- --------- ----------- ----------- -----------
LOSS BEFORE
EXTRAORDINARY INCOME (346,430) (758,070) (1,067,669) (1,798,907) (5,585,108)
EXTRAORDINARY INCOME FROM
FORGIVENESS OF
INDEBTEDNESS 1,164,712
--------- --------- ----------- ----------- -----------
NET LOSS $(346,430) $(758,070) $(1,067,669) $(1,798,907) $(4,420,396)
========= ========= =========== =========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,295,201 4,295,201 5,295,201 4,837,217 4,398,799
========= ========= =========== =========== ===========
LOSS PER COMMON SHARE
Loss before extraordinary income $(.07) $(.18) $(.20) $(.37) $(1.27)
Extraordinary income .26
--------- --------- ----------- ----------- -----------
NET LOSS $(.07) $(.18) $(.20) $(.37) $(1.01)
====== ====== ====== ====== ======
</TABLE>
See notes to financial statements
4
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
COMMON STOCK During
------------------------------ Additional the
Paid-in Development
Shares Amount Capital Stage Total
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 3,735,201 $ 373 $ 8,749,185 ($3,352,727) $ 5,396,831
Net loss for the 9 Months ended
September 30, 1997 (1,067,669) (1,067,669)
----------- ----------- ----------- ----------- -----------
Balance September 30, 1997 3,735,201 $ 373 $ 8,749,185 $(4,420,396) $ 4,329,162
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements
5
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
November 17, 1988
NINE MONTHS ENDED SEPT. 30, (Inception) to
Sept. 30, 1997
1997 1996 (Cumulative)
---- ---- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,067,669) $(1,798,907) $(4,420,396)
Adjustments to reconcile net loss to net cash used in
operating activities
Amortization and write-off of discount and debt
issuance costs 846,298 1,914,490
Depreciation and other amortization 17,526 7,308 31,186
Forgiveness of indebtedness (1,164,712)
Increase (decrease) in cash flows from
Other current assets 52,114 16,218 (92,499)
Deposit (17,920) (17,920)
Accounts payable and accrued expenses (51,460) (116,857) 335,249
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,049,489) (1,063,860) (3,414,602)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 1,492,616 1,398,133 7,266,439
Investments in marketable securities (1,854,361) (10,476,139)
Purchases of fixed assets (4,877) (102,681) (135,888)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,487,739 (558,909) (3,345,588)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offering (net of conversion of bridge
notes payable and accrued interest of $1,960,671 and
expenses of $1,367,163) 4,782,887
Proceeds from bridge financing (net of expenses of
$358,389 and $305,434 and exchange of notes
payable of $125,000 and $50,000 in 1995 and
1996, respectively) 1,788,066 3,211,177
Proceeds from issuance of common stock 615,334
Deferred Expenses relating to Public Offering (137,490)
Proceeds from other notes payable 175,000
Payment of organization expenses (245)
Payments of notes payable (50,000) (1,075,000)
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,600,576 7,709,153
--------- ----------
INCREASE IN CASH 438,250 (22,193) 948,963
CASH - beginning 510,713 31,151
--------- --------- ---------
CASH - end $ 948,963 $ 8,958 $ 948,963
========= ======= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes $4,353 $ 808 $ 12,767
====== ===== ========
Cash paid for interest $ 0 $3,573 $ 6,818
=== ====== =======
</TABLE>
See notes to financial statements
6
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements, which are for interim
periods, do not include all disclosures provided in the annual financial
statements. These unaudited financial statements should be read in conjunction
with the financial statements and the footnotes thereto included in Form
10-KSB for the year ended December 31, 1996 of Imatec, Ltd. (the "Company"),
as filed with the Securities and Exchange Commission. The December 31, 1996
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
2. In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the financial statements. The results of
operations for the three and nine months ended September 30, 1996 and 1997 are
not necessarily indicative of the results to be expected for the full year.
3. Loss per share was computed based upon the weighted average number of
common shares and common share equivalents outstanding during the three and
nine months ended September 30, 1996 and 1997. Fully-dilutive loss per common
share has not been presented because it was anti-dilutive.
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share",
which changes the calculations and disclosures of earnings per share. As of
January 1, 1997 the Company adopted Statement No. 128 without material effect.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company was organized on November 17, 1988 and is in the development
stage. To date, the Company's activities have primarily consisted of research
and development activities with respect to the development of the Company's
technology and an Imatec 20/20 System for the medical diagnostic imaging
field. During this time, the Company has received only minimal revenues from
limited non-recurring consulting activities. The Company believes, based upon
its own internal budgets, that the Company's available cash resources will be
sufficient for the Company :(i) to engage in licensing the Company's
technology and the Imatec 20/20 System developed for the medical diagnostic
imaging field to manufacturers of medical diagnostic imaging products such as
scanners, cameras and image reproduction systems, (ii) to engage in marketing
activities to facilitate the licensing of the Company's technology and its
Imatec 20/20 Systems, (iii) to continue research and development activities
with respect to other applications of the Company's technology in other
imaging fields, such as graphic arts, computer, cinematography and
television/video, and (iv) otherwise conduct its operations at least through
the year ending December 31, 1997.
2
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The Company does not currently anticipate any major research and development
expenditures during the next 12 months, however, this may change depending
upon the marketplace's reaction and requirements to implement the Company's
technology.
The Company has no current plans to purchase any significant fixed assets or
to significantly change the number of employees.
On November 6, 1997, the Company filed a Schedule 13E-3 and a preliminary
Proxy Statement relating to its Annual Meeting where Shareholders will be
asked to consider (1) the election of a new Board of Directors, (2) the
ratification and appointment of Most Horowitz & Company LLP as the
Corporation's independent certified public accountants, and (3) the approval
of the sale (the "Sale") of substantially all of the operations of the Company
through the sale of all of the outstanding shares of the common stock of a
newly-formed, wholly owned subsidiary ("Newco) of the Company to Dr. Hanoch
Shalit, current President, Chief Executive Officer, Chairman of the Board and
Secretary of the Company.
The consideration to be received by the Company for the Sale of all of the
outstanding Newco Common Stock to Dr. Shalit consists of (i) the termination
of Dr. Shalit's Employment Agreement in exchange for a payment by the Company
to Dr. Shalit of $634,619 (pre-tax) in cash, which is the equivalent of
$300,000 After Tax (defined below): and (ii) the termination of the License
Agreement. In addition, Dr. Shalit and the Company have agreed that Dr. Shalit
will sell all of his 835,117 shares of Imatec Common Stock in the public
market or to the Company at a minimum price of $3.41 pre-tax (the equivalent
of $2.34 per share AfterTax) over a period of 30 months with certain
guaranteed minimum payments backed by a letter of credit of the Company. After
Tax means the amount remaining after deducting individual federal (including
capital gains tax), state and local income taxes at the highest tax rate
applicable to Dr. Shalit in effect at the time of each payment. The company
has also agreed to pay, in certain circumstances, the brokerage commission on
such sales.
If the Sale to Dr. Shalit is approved, the new Board of Directors of the
Company will be charged with acquiring a new operating business or businesses
which would meet the NASDAQ Stock Market, Inc. Small Cap initial listing
criteria.
The Company intends to hold the Annual Meeting in December 1997.
General and administrative expenses for the three and nine months ended
September 30 increased $114,955 (48%) and $503,839 (89%) from $240,951 and
$565,629 in 1996 to $355,906 and $1,069,468 in 1997. Most of this increase is
the result of increased personnel, office rent and supplies and professional
fees. Most of the professional fees increased as a result of the Company's
filing requirements by the SEC and NASDAQ.
For the three and six months ended September 30, interest income increased
from $25,185 and $51,781 for 1996 to $53,485 and $173,521 for 1997. Similarly,
interest expense decreased from $466,169 and $1,095,843 to $0 from 1996 to
1997.
3
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES
The Company is in the development stage and, primarily as a consequence of
expenses incurred in connection with research and development activities, at
September 30, 1997 the Company had an accumulated stockholders' deficit of
$4,420,396. The Company has continued to incur losses since September 30,
1997.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Not applicable
(b) No reports on Form 8-K were filed by the Company during the quarter ended
September 31, 1997.
4
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
IMATEC, LTD.
By: Hanoch Shalit
--------------------------------------
Chairman of the Board of Directors,
President, and Chief Executive Officer
Dated: November 14, 1997
By: James Smith
--------------------------------------
Chief Financial Officer
Dated: November 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet and statement of operations found on pages 3 and 4 of the
Company's form 10-QSB for the quarter ended June 30, 1997 and is qualified in
its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 948,963
<SECURITIES> 3,209,699
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,251,161
<PP&E> 135,276
<DEPRECIATION> (30,329)
<TOTAL-ASSETS> 4,374,028
<CURRENT-LIABILITIES> 44,866
<BONDS> 0
0
0
<COMMON> 373
<OTHER-SE> 4,328,789
<TOTAL-LIABILITY-AND-EQUITY> 4,374,028
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (1,067,669)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,067,669)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,067,669)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,067,669)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
