<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 March 31, 1999.
[ ] 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
New York, New York 10155
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(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 April 23, 1999 was 3,735,201.
Transitional small business disclosure format: Yes ____ No __X__
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
INDEX
PART 1. - FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ITEM 1. - FINANCIAL STATEMENTS
BALANCE SHEET - December 31, 1998 and March 31, 1999 3
STATEMENT OF OPERATIONS - November 17, 1988 (Inception) to March 31, 1999
(Cumulative) and Three months ended
March 31, 1998 and 1999 4
STATEMENT OF STOCKHOLDERS' EQUITY - Three months
ended March 31, 1999 5
STATEMENT OF CASH FLOWS - November 17, 1988 (Inception) to March 31, 1999
(Cumulative) and Three months ended March 31, 1998
and 1999 6
NOTES TO FINANCIAL STATEMENTS 7
ITEM 2. - PLAN OF OPERATION 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
ITEM 5. - OTHER INFORMATION 9
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 9
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT (UNAUDITED)
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
March 31,
1999 December
(UNAUDITED) 31, 1998
<S> <C> <C>
CURRENT ASSETS
Cash $ 44,682 $ 13,086
Marketable Securities 2,793,421 3,039,372
Other Current Assets 28,534 50,272
----------- -----------
TOTAL CURRENT ASSETS 2,866,637 3,102,730
FIXED ASSETS (net of accumulated depreciation
of $ 57,050 and $61,629 at March 31, 1999
and December 31, 1998, respectively)
69,363 74,602
DEPOSIT 17,920 17,920
----------- -----------
TOTAL ASSETS $ 2,953,920 $ 3,195,252
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 86,039 $ 82,680
----------- -----------
TOTAL LIABILITIES 86,039 82,680
----------- -----------
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 at March 31,
1999 and December 31, 1998 373 373
Additional paid-in capital 8,749,185 8,749,185
Deficit accumulated during the development stage (5,881,677) (5,636,986)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,867,881 3,112,572
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,953,920 $ 3,195,252
=========== ===========
</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 MARCH 31, March 31, 1999
1998 1999 (cumulative)
---- ---- ---------------
<S> <C> <C> <C>
INCOME - consulting fee $133,973
-----------
EXPENSES
Royalties $ (38,588) $ (40,513) $ (913,481)
Research and development (557,168)
General and administrative (182,083) (236,641) (4,046,415)
----------- ----------- -----------
TOTAL EXPENSES (220,671) (277,154) (5,517,064)
----------- ----------- -----------
LOSS FROM OPERATIONS (220,671) (277,154) (5,383,091)
INTEREST EXPENSE AND
AMORTIZATION AND WRITE-
OFF OF DISCOUNT AND DEBT
ISSUANCE COSTS (2,211,400)
INTEREST INCOME 46,608 32,463 548,102
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY
INCOME (174,063) (244,691) (7,046,389)
EXTRAORDINARY INCOME
FROM FORGIVENESS OF
INDEBTEDNESS 1,164,712
----------- ----------- -----------
NET LOSS $ (174,063) $ (244,691) $ 5,881,677
=========== =========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,295,201 5,295,201 4,269,103
=========== =========== ===========
LOSS PER COMMON SHARE
Loss before extraordinary income ($0.03) ($.05) ($1.65)
Extraordinary income .27
----------- ----------- -----------
NET LOSS ($0.03) $(.05) ($1.38)
=========== =========== ===========
</TABLE>
See notes to financial statements
4
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage Total
--------- ------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1998 3,735,201 $ 373 $ 8,749,185 (5,636,986) 3,112,572
Net loss for the 3 months
ended March 31, 1998
(244,691) (244,691)
--------- ------- ----------- ----------- ----------
Balance March 31, 1998 3,735,201 $ 373 $ 8,749,185 $(5,881,677) $2,867,881
========= ======= =========== =========== ==========
</TABLE>
See notes to financial statements
5
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, November 17,1988
1998 1999 (Inception) to
---- ---- March 31, 1999
(Cumulative)
----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (174,063) $ (244,691) $ (5,881,677)
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 5,551 5,239 64,179
Net loss on disposal of fixed assets 5,932
Forgiveness of indebtedness (1,164,712)
Increase (decrease) in cash flows from
Other current assets 3,328 21,738 (28,534)
Deposit (17,920)
Accounts payable and accrued expenses (20,419) 3,359 376,422
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (185,603) (214,355) (4,731,820)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of marketable securities 130,927 245,951 7,682,717
Investments in marketable securities (10,476,139)
Other 9,193
Purchases of fixed assets (148,422)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 130,927 245,951 (2,932,651)
------------ ------------ ------------
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 7,709,153
------------ ------------ ------------
INCREASE (DECREASE) IN CASH (54,676) 31,596 44,682
CASH - beginning 98,015 13,086
------------ ------------ ------------
CASH - end $ 43,339 $ 44,682 $ 44,682
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for income taxes $ 9,686 $ 14,991 $ 48,468
============ ============ ============
Cash paid for interest NONE NONE $ 16,818
============ ============ ============
</TABLE>
See notes to financial statements
6
<PAGE>
IMATEC, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
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, 1998 of Imatec, Ltd. (the "Company"), as filed with the
Securities and Exchange Commission. The December 31, 1998 balance sheet was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
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 months ended March 31, 1999 are not necessarily indicative of the results
to be expected for the full year.
2. LOSS PER SHARE
Loss per share was computed based upon the weighted average number of common
shares and common share equivalents outstanding during the three months ended
March 31, 1999. Fully-dilutive loss per common share has not been presented
because it was anti-dilutive.
ITEM 2. PLAN OF OPERATION
The Company was organized on November 17, 1998. The Company is currently
involved in significant patent litigation against Apple Computer Corp.
("Apple"), as discussed in Item 1 of Part II herein. The Company believes, based
upon its internal budgets, that its available cash resources will be sufficient
for the Company to: (i) engage in licensing the Company's technology and 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) engage in marketing activities to facilitate the
licensing of the Company's technology and its Imatec 20/20 Systems, and (iii)
conduct its operations at least through the year ending March 31, 2000. Thus,
although there can be no guarantee that the Company will not raise additional
funds in the next twelve months, the Company currently has no plans to do so.
The Company has no plans to pursue its business plan until the resolution of its
patent litigation. The Company does not intend to utilize any cash resources
towards research and development or the purchase and/or sale of any significant
equipment. In addition, the Company does not anticipate any significant change
in its number of employees.
General and administrative expenses for the three months ended March 31, 1999
increased by $54,558 from $182,083 in 1998 to $236,641 in 1999. This increase
results from an increase in litigation expenses net of decreases in other
expenses.
For the three months ended March 31, 1999, interest income decreased from
$46,608 for 1998 to $32,463 for 1999.
7
<PAGE>
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are unable to
distinguish between twentieth century dates and twenty-first century dates. As a
result, many companies' software and computer systems may need to be upgraded or
replaced to comply with such "Year 2000" requirements. Imatec's business is
dependent on the operations of numerous systems that could potentially be
impacted by Year 2000 related problems. Those systems include, among others:
The internal systems of Imatec's customers and suppliers
The hardware and software systems used by Imatec in the management of
its business
Non-information technology systems and services used by Imatec in its
business, such as telephone systems and building systems.
Imatec has internally reviewed the proprietary software systems used in the
management of its business. Although Imatec believes that its systems are
designed to be Year 2000 compliant, Imatec uses third-party equipment and
software that may not be Year 2000 compliant. Failure of such third-party or
currently owned equipment or software to operate properly with regard to the
Year 2000 and thereafter could require Imatec to incur unanticipated expenses to
remedy any problems. Management does not believe that these expenses would have
a material adverse impact on its business, prospects, financial condition and
results of operations. Management does not believe that its expenditures to
upgrade its internal systems and applications have been material to its
business, prospects, financial condition or results of operations.
Imatec does not presently have a contingency plan for handling Year 2000
problems that are not detected and corrected prior to their occurrence. Any
failure of Imatec to address any unforeseen Year 2000 issues could adversely
impact its business, prospects, financial condition or results of operations.
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
March 31, 1999, the Company had an accumulated stockholders' deficit of
$5,881,677. The Company has continued to incur losses since March 31, 1999.
The Company believes that the remaining balance from their initial public
offering will be sufficient for the Company to sustain its business plan through
at least March 31, 2000, although there can be no assurance that such balance
will be sufficient to finance the Company's operations for such period.
FORWARD LOOKING INFORMATION
Statements contained in this report regarding the Company's future operations,
strategy, future performance and results and the anticipated liquidity are
forward looking and therefore are subject to certain risks and uncertainties,
including those discussed herein. In addition, any forward-looking information
regarding the operations of the Company will be affected by the outcome of the
Company's patent infringement suit against "Apple" or the licensing of the
Company's technology. There can be no assurance that the Company will be
successful in its plan of operation.
8
<PAGE>
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. Hanoch Shalit, Chairman of
the Board of Directors, President and Chief Executive Officer, and licensed to
the Company, by 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". The complaint claims Apple's acts of infringement are being committed
willfully and without the Company's consent and with full knowledge by them of
the Company's rights thereunder. The Company is seeking a preliminary and
permanent injunction enjoining Apple from infringing, inducing others or
contributing to the infringement of the Company's patents. A trial by jury has
been demanded on all issues.
In March 1998, Apple filed a counterclaim, alleging that the patents-in-suit are
invalid, not infringed and unenforceable.
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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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: May 17, 1999
9
<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 March 31, 1999 and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 44,682
<SECURITIES> 2,793,421
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,866,637
<PP&E> 126,413
<DEPRECIATION> (57,050)
<TOTAL-ASSETS> 2,953,920
<CURRENT-LIABILITIES> 86,039
<BONDS> 0
0
0
<COMMON> 373
<OTHER-SE> 8,749,185
<TOTAL-LIABILITY-AND-EQUITY> 2,867,881
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 277,154
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (244,691)
<INCOME-TAX> 0
<INCOME-CONTINUING> (244,691)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (244,691)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
