<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, 1998.
[ ] 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)
Delaware 11-3289398
(State or other jurisdiction (I.R.S. Employer
of incorporation) 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)
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 , 1998 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
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
BALANCE SHEET - December 31, 1997 and September 30, 1998 3
STATEMENT OF OPERATIONS - November 17, 1988 (Inception) to
September 30, 1998 (Cumulative) and Three and nine months ended
September 30, 1997 and 1998 4
STATEMENT OF STOCKHOLDERS' EQUITY - Nine months ended
September 30, 1998 5
STATEMENT OF CASH FLOWS - November 17, 1988 (Inception) to
September 30, 1998 (Cumulative) and Nine months ended
September 30, 1997 and 1998 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
2
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
------------- ------------
(UNAUDITED)
-----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 19,718 $ 98,015
Marketable Securities 3,293,374 3,726,004
Other Current Assets 37,696 21,126
---------- ----------
TOTAL CURRENT ASSETS 3,350,788 3,845,145
FIXED ASSETS (net of accumulated depreciation of $43,017
and $56,488 at December 31, 1997 and September 30, 1998,
respectively) 74,299 93,902
DEPOSIT 17,920 17,920
---------- ----------
TOTAL ASSETS $3,443,007 $3,956,967
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 84,666 $ 67,736
---------- ----------
TOTAL LIABILITIES 84,666 67,736
---------- ----------
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,
1997 and September 30, 1998 373 373
Additional paid-in capital 8,749,185 8,749,185
Deficit accumulated during the development stage (5,391,217) (4,860,327)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,358,341 3,889,231
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,443,007 $3,956,967
========== ==========
</TABLE>
See notes to financial statements
3
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
November 17,
1988 (Inception)
to
Three months ended Nine months ended Sept. 30, 1998
September 30, September 30, (cumulative)
--------------------- ----------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME - consulting fees $ 0 $ 0 $ 0 $ 0 $133,973
--- --- --- --- --------
EXPENSES
Royalties (40,517) (38,588) (117,692) (112,088) (832,451)
Research and Development 0 (5,421) 0 (59,634) (542,054)
General and Administrative (197,671) (355,906) (547,610) (1,069,468) (3,580,725)
-------- -------- -------- ---------- ----------
TOTAL EXPENSES (238,188) (399,915) (665,302) (1,241,190) (4,955,230)
-------- -------- -------- ---------- ----------
LOSS FROM OPERATIONS (238,188) (399,915) (665,302) (1,241,190) (4,821,257)
INTEREST EXPENSE AND AMORTIZATION AND
WRITE-OFF OF DISCOUNT AND DEBT
ISSUANCE COSTS (2,211,400)
INTEREST INCOME 43,136 53,485 134,412 173,521 476,728
-------- -------- -------- ---------- ----------
LOSS BEFORE EXRAORDINARY INCOME (195,052) (346,430) $(530,890) (1,067,669) (6,555,929)
EXTRAORDINARY INCOME FROM FORGIVENESS
OF INDEBTEDNESS 1,164,712
-------- -------- -------- ---------- ----------
NET LOSS $(195,052) $(346,430) $(530,890) $(1,067,669) $(5,391,217)
======== ======== ======== ========== ==========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 5,295,201 5,295,201 5,295,201 5,295,201 4,398,779
========= ========= ========= ========= =========
LOSS PER COMMON SHARE
Loss before extraordinary income $(.04) $(.07) $(.10) $(.20) $(1.49)
Extraordinary income .26
-------- -------- -------- ---------- ----------
NET LOSS $ (.04) $ (.07) $ (.10) $ (.20) $ (1.23)
====== ====== ====== ====== =======
</TABLE>
See notes to financial statements
4
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(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, 1997 3,735,201 $ 373 $8,749,185 ($4,860,327) $3,889,231
Net loss for the nine Months ended
September 30, 1998 (530,890) (530,890)
--------- ----- ---------- ----------- ----------
Balance September 30, 1998 3,735,201 $ 373 $8,749,185 $(5,391,217) $3,358,341
========= ===== ========== ============ ==========
</TABLE>
See notes to financial statements
5
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT., 30
November 17, 1988
(Inception) to
1998 1997 Sept. 30, 1998
(UNAUDITED) (UNAUDITED) (Cumulative)
----------- ----------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(530,890) $(1,067,669) $(5,391,217)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization and write-off of discount and debt
issuance costs 1,914,490
Depreciation and other amortization 13,471 17,526 51,448
Net loss on disposal of fixed assets 5,932
Forgiveness of indebtedness (1,164,712)
Increase (decrease) in cash flows from
Other current assets (16,570) 52,114 (37,696)
Deposit (17,920)
Accounts payable and accrued expenses 16,930 (51,460) 375,049
-------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (517,059) (1,049,489) (4,264,626)
-------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 432,630 1,492,616 7,182,764
Investments in marketable securities (10,476,139)
Other 6,132 11,545
Purchases of fixed assets (4,877) (142,979)
-------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 438,762 1,487,739 (3,424,809)
-------- ---------- ----------
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 $305,434
and exchange of notes payable of $50,000) 3,211,177
Proceeds from issuance of common stock 615,334
Proceeds from other notes payable 175,000
Payment of organization expenses (245)
Payments of notes payable (1,075,000)
-------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 0 0 7,709,153
--- --- ----------
INCREASE (DECREASE) IN CASH (78,297) 438,250 19,718
CASH - beginning 98,015 510,713 0
-------- ---------- ----------
CASH - end $ 19,718 $ 948,963 $ 19,718
======== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes $21,464 $4,353 $ 34,231
======== ========== ==========
Cash paid for interest $ 0 $ 0 $ 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, 1997 of Imatec, Ltd. (the "Company"), as filed
with the Securities and Exchange Commission. The December 31, 1997 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, 1997 and 1998 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, 1997 and 1998. 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 has ceased development of the
Imatec 20/20 System and has refocused its efforts on the licensing of the
Company's proprietary technology for imaging and other applications and the
conduct of litigation in defense of its patents.
The Company believes, based upon its operating plan, that the Company's
available cash resources will be sufficient for the Company :(i) to engage in
licensing the Company's technology for 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, (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,
7
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
computer, cinematography and television/video, and (iv) otherwise conduct its
operations at least through the 12 months ending September 30, 1999.
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.
General and administrative expenses for the three and nine months ended
September 30, 1998 decreased $158,238 (44%) and $521,858 (49%) from $355,906 and
$1,069,468 in 1997 to $197,668 and $ 547,610 in 1998. Most of this decrease is
the result of decreased personnel, and professional fees.
For the three and six months ended September 30, interest income decreased from
$53,485 and $173,521 for 1997 to $43,136 and $134,412 for 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company is in the development stage and, primarily as a consequence of
expenses incurred in connection with management and research and development
activities, at September 30, 1998 the Company had an accumulated stockholders'
deficit of $5,391,217. The Company has continued to incur losses since September
30, 1998.
8
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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
The Company's Annual Meeting of Shareholders was held on August 24, 1998. At the
Annual meeting, each of Hanoch Shalit, Steven Ai, Simon Cross and Josef Weiss
were elected to hold office as directors of the Company until the Annual Meeting
of Shareholders in 1999, and until their respective successors have been elected
and qualified.
Set forth below is information concerning the voting of matters voted upon at
the Annual Meeting.
1. Election of Directors:
Hanoch Shalit
For: 2,305,609
Against: 122,228
Steven Ai
For: 2,301,039
Against: 126,798
Simon Cross
For: 2,304,609
Against: 123,228
Josef Weiss
For: 2,304,109
Against: 123,728
9
<PAGE>
2. Ratification of the appointment of Most Horowitz & Company, LLP., as the
Company's independent auditors for the year ending December 31, 1998.
For: 2,266,253
Against: 157,994
Abstentions: 3,590
Proposal Accepted
-----------------
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, 1998.
10
<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 15, 1998
By: James Smith
-----------
Chief Financial Officer
Dated: November 15, 1998
11
<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 September 30, 1998 and is qualified
in its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 19,718
<SECURITIES> 3,293,374
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,350,788
<PP&E> 130,787
<DEPRECIATION> (56,488)
<TOTAL-ASSETS> 3,443,007
<CURRENT-LIABILITIES> 84,666
<BONDS> 0
0
0
<COMMON> 373
<OTHER-SE> 3,357,968
<TOTAL-LIABILITY-AND-EQUITY> 3,443,007
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 665,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (530,890)
<INCOME-TAX> 0
<INCOME-CONTINUING> (530,890)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (530,890)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> 0
</TABLE>
