<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
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the quarterly period ended June 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 Identification No.)
of incorporation)
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 August 13, 1997 was 3,735,201.
Transitional small business disclosure format: Yes No X
--- ---
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
-----------------------------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET - December 31, 1997 and June 30, 1998 3
STATEMENT OF OPERATIONS - November 17, 1988 (Inception) to June 30, 1998
(Cumulative) and Three and six months ended
June 30, 1997 and 1998 4
STATEMENT OF STOCKHOLDERS' EQUITY - Six months
ended June 30, 1998 5
STATEMENT OF CASH FLOWS - November 17, 1988 (Inception) to June 30, 1998
(Cumulative) and Six months ended June 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
</TABLE>
2
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30, 1998 December
31, 1997
--------
(UNAUDITED)
-----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,651 $ 98,015
Marketable Securities 3,404,037 3,726,004
Other Current Assets 53,341 21,126
----------- -----------
TOTAL CURRENT ASSETS 3,460,029 3,845,145
FIXED ASSETS (net of accumulated depreciation
of $43,017 and $ 53,318 at December 31,
1997 and June 30, 1998, respectively)
83,601 93,902
DEPOSIT 17,920 17,920
----------- -----------
TOTAL ASSETS $ 3,561,550 $ 3,956,967
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 8,157 $ 67,736
----------- -----------
TOTAL LIABILITIES 8,157 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 June 30, 1998 373 373
Additional paid-in capital 8,749,185 8,749,185
Deficit accumulated during the development stage (5,196,165) (4,860,327)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,553,393 3,889,231
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,561,550 $ 3,956,967
=========== ===========
</TABLE>
See notes to financial statements
3
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
November 17, 1988
1998 1997 1998 1997 (Inception)
---- ---- ---- ---- to
June 30,1998
(cumulative)
<S> <C> <C> <C> <C> <C>
INCOME - consulting fees $0 $0 $0 $0 $133,973
----------- ----------- ----------- ----------- -----------
EXPENSES
Royalties (38,587) (36,750) (77,175) (73,500) (791,934)
Research and Development 0 (36,380) 0 (54,213) (542,054)
General and Administrative (167,856) (415,123) (349,939) (713,562) (3,383,054)
----------- ----------- ----------- ----------- -----------
TOTAL EXPENSES (206,443) (488,253) (427,114) (841,275) (4,717,042)
----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (206,443) (488,253) (427,114) (841,275) (4,583,069)
INTEREST EXPENSE AND
AMORTIZATION AND WRITE-
OFF OF DISCOUNT AND DEBT
ISSUANCE COSTS
(2,211,400)
INTEREST INCOME 44,668 58,505 91,276 120,036 433,592
----------- ----------- ----------- ----------- -----------
LOSS BEFORE
EXTRAORDINARY INCOME (161,775) (429,748) (335,838) (721,239) (6,360,877)
EXTRAORDINARY INCOME
FROM FORGIVENESS OF
INDEBTEDNESS
1,164,712
----------- ----------- ----------- ----------- -----------
NET LOSS $(161,775) $(429,748) $(335,838) $(721,239) $(5,196,165)
=========== =========== =========== =========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,295,201 5,295,201 5,295,201 5,295,201 4,468,542
=========== =========== =========== =========== ===========
LOSS PER COMMON SHARE
Loss before extraordinary income $(.03) $(.08) $(.06) $(.14) $(1.42)
Extraordinary income .26
----------- ----------- ----------- ----------- -----------
NET LOSS $(.03) $(.08) $(.06) $(.14) $(1.16)
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements
4
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
COMMON STOCK Accumulated
------------ 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 six months
ended June 30, 1998 (335,838) (335,838)
--------- ----------- ----------- ----------- -----------
Balance June 30, 1998 3,735,201 $ 373 $ 8,749,185 $(5,196,165) $ 3,553,393
========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements
5
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997 November 17,1988
---- ---- (Inception) to
June 30, 1998
(Cumulative)
------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (335,838) $ (721,239) $ (5,196,165)
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 10,301 11,418 48,278
Net loss on disposal of fixed assets 5,932
Forgiveness of indebtedness (1,164,712)
Increase (decrease) in cash flows from
Other current assets (32,215) (50,536) (53,341)
Deposit (325) (17,920)
Accounts payable and accrued expenses (59,579) (61,948) 298,540
--------- --------- -----------
NET CASH USED IN OPERATING ACTIVITIES (417,331) (822,630) (4,164,898)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 321,967 1,037,829 7,072,101
Investments in marketable securities (10,476,139)
Other 5,413
Purchases of fixed assets (4,877) (142,979)
--------- --------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES
321,967 1,032,952 (3,541,604)
--------- --------- -----------
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 (95,364) 210,322 2,651
CASH - beginning 98,015 510,713
--------- --------- -----------
CASH - end $ 2,651 $ 721,035 $2,651
========= ========= ===========
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 six months ended June 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
six months ended June 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, computer, cinematography and television/video, and (iv)
otherwise conduct its operations at least through the 12 months ending June
30, 1999.
7
<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.
General and administrative expenses for the three and six months ended June 30
decreased $247,267 (60%) and $363,623 (51%) from $415,123 and $713,562 in
1997 to $167,856 and $349,939 in 1998. Most of this decrease is the result of
decreased personnel and professional fees.
For the three and six months ended June 30, interest income decreased from
$58,505 and $120,036 for 1997 to $44,668 and $91,276 for 1998.
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
June 30, 1998 the Company had an accumulated stockholders' deficit of
$5,196,165. The Company has continued to incur losses since June 30, 1998.
8
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 1998 the Company filed a Patent Infringement Complaint for $1.1
billion against Apple Computer Corp. ("Apple") in the United States District
Court, Southern District, New York. The suit alleges that Apple has infringed
on three United States Letters Patent, issued to Dr. Shalit, by its making,
using, and/or selling its "ColorSync" color management systems and inducing
others to do so. The patents cited in the suit are exclusively licensed by Dr.
Shalit to the Company and include: U.S. Letters Patent No. 4,939,581 entitled
"Method and System in Video Image Hard Copy Reproduction, No. 5,115,229
entitled "Method and System in Video Image Reproduction" and No. 5,345,315
entitled "Method and System for Improved Tone and Color Reproduction of
Electronic Images on Hard Copy Using a Closed Loop Control".
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.
9
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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: /s/ Hanoch Shalit
--------------------------------------
Chairman of the Board of Directors,
President, and Chief Executive Officer
Dated: August 15, 1998
By: /s/ James Smith
---------------------------------------
Chief Financial Officer
Dated: August 15, 1998
10
<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, 1998 and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,651
<SECURITIES> 3,404,037
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,460,029
<PP&E> 136,919
<DEPRECIATION> (53,318)
<TOTAL-ASSETS> 3,561,550
<CURRENT-LIABILITIES> 8,157
<BONDS> 0
0
0
<COMMON> 373
<OTHER-SE> 8,749,185
<TOTAL-LIABILITY-AND-EQUITY> 3,561,550
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (427,114)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (335,838)
<INCOME-TAX> 0
<INCOME-CONTINUING> (335,838)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (335,838)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
